Natural Gas Services Group — Q2 2026 Earnings Summary

Financial Performance

• Rental revenue reached a record $49.4 million in Q2 2026, an increase of $9.9 million (approx. 25%) year-over-year and $2.3 million (approx. 5%) sequentially.
• Flatrock contributed approximately $1.9 million of rental revenue in Q2 2026, representing only half a month of the acquisition's financial performance.
• Pro forma rental revenue per average horsepower per month was $28.06, an increase of more than 5% year-over-year compared to $26.70 in Q2 2025.
• Rental adjusted gross margin increased $6.2 million (25.6%) year-over-year to $30.2 million, with a margin percentage of 61.1%, up 36 basis points from the prior year quarter.
• Adjusted EBITDA reached a record $25.1 million, up $5.4 million (27.4%) year-over-year and 3.3% sequentially.
• Reported net income was $3.8 million ($0.30 per diluted share) compared to $5.2 million ($0.41 per diluted share) in Q2 2025; this was impacted by $3.3 million in Flatrock transaction costs.
• Excluding transaction costs, adjusted net income was $6.1 million ($0.47 per diluted share).
• Cash provided by operating activities was $25.4 million in Q2 2026 and $48.5 million for the first half of 2026, an increase of roughly 50% compared to the first half of 2025.
• Accounts receivable ended the quarter at approximately $22 million; reported DSO was 39 days, while pro forma DSO (assuming a full quarter of Flatrock revenue) was approximately 33 days.
• Capital expenditures totaled $18.8 million in Q2 2026, consisting of $15.3 million in growth capital and $3.4 million in maintenance capital.
• First half growth capital expenditures totaled $27.6 million.
• Quarter-end leverage was 2.77 times, with $172 million of unused commitments in the credit facility.

Guidance and Future Outlook

• Full-year 2026 adjusted EBITDA guidance increased to $103 million–$108 million from the previous range of $92.5 million–$97.5 million.
• Full-year 2026 growth capital expenditure guidance increased to $60 million–$80 million from the previous range of $55 million–$70 million.
• Maintenance capital expenditure guidance for 2026 is now $15 million–$19 million.
• Management expects to deploy at least 55,000 horsepower organically in 2026, up from the previous expectation of 50,000 horsepower.
• Management anticipates growth capital spending to increase materially in the second half of 2026 to execute against the contracted deployment schedule.
• The company expects a full-year effective tax rate of approximately 25% to 26%, noting the Q2 rate of 30.9% was elevated due to a discrete state tax item.
• The company expects continued inflationary pressure on labor, parts, and lubricant costs, though scale and the Smart platform are expected to help mitigate these pressures.

Business Segments and Product Lines

• Total available horsepower ended Q2 2026 at approximately 759,000, up from 474,000 in Q2 2023.
• Rented horsepower increased 34.3% year-over-year to approximately 670,000, driven by organic growth and the Flatrock acquisition.
• Rented large horsepower fleet totals 501,000 horsepower (99% utilized), representing 75% of the total rented horsepower, up from 228,000 horsepower (61% of total) in Q2 2023.
• Electric motor drive equipment represents nearly 10% of the rented fleet, up from 7% for legacy NGS prior to the Flatrock acquisition (Flatrock contributed 20% electric horsepower).
• Organic annual growth rate over the last three years is more than 10%, significantly outpacing the low to mid-single-digit organic growth of large competitors.
• Approximately 78% of rental revenue is under term contracts with a weighted average tenor of 2.2 years; 22% is month-to-month.
• The Flatrock acquisition added approximately 87,000 rented horsepower and increased horsepower density in the Midland Basin while establishing critical mass in the Eagle Ford.

Market and Competitive Landscape

• The Permian Basin currently represents approximately 80% of NGS rental revenue.
• Industry demand is driven by record Permian production levels, increasing gas-to-oil ratios, growing LNG exports, and rising electricity demand including data centers and behind-the-meter power.
• Equipment supply remains constrained with extended engine and fabrication lead times, supporting high utilization and disciplined pricing.
• NGS represented approximately 12% of the organic growth capital deployed by the four publicly traded pure-play compression companies between 2022 and 2026, despite holding only 3% of the market share at the end of 2022.
• Oil prices in the mid-$70s are supporting improving rig counts and activity.

Risks and Challenges

• Inflationary pressures on labor, parts, and lubricant costs are expected to continue, driven by refinery constraints and higher crude prices.
• Engine and fabrication lead times remain extended, potentially impacting fleet deployment speed.
• Commodity price and geopolitical volatility persist, though compression demand is primarily driven by production volumes and reliability.
• Forward-looking statements regarding future performance, market conditions, and acquisition synergies are subject to risks and uncertainties.

Management Commentary and Tone

• CEO Justin Jacobs described the quarter as a "record second quarter" and a "milestone first half," emphasizing the successful integration of Flatrock and strong organic execution.
• Management highlighted four consistent growth drivers: fleet optimization, asset utilization, organic growth, and accretive M&A.
• CFO Ian Eckert noted that adjusted EBITDA growth exceeded revenue growth, demonstrating operating leverage inherent in the larger platform.
• Management expressed confidence in the durability of cash flows, maintaining a quarterly dividend of $0.15 per share, which is 50% higher than the $0.10 per share initiated one year ago.
• The tone regarding the market outlook is highly positive, citing strong industry fundamentals, constrained equipment supply, and a constructive pricing environment.

Analyst Questions and Answers

• Jim Rollison (Raymond James): Asked about sustainable growth CapEx and fleet optimization. Management confirmed growth will come from a broader set of customers and existing customer expansion, with significant opportunities remaining in data-driven operational optimization.
• Nate Pendleton (Texas Capital): Inquired about Flatrock integration synergies and the M&A landscape. Management stated no formal synergy target is provided as the deal was not reliant on them, but opportunities exist in route density, procurement scale, and fixed cost leverage. M&A framework remains consistent regardless of lead time extensions.
• Rob Brown (Lake Street Capital): Asked about supply constraints and gross margin outlook. Management identified engines as the primary bottleneck with extended lead times. For H2 2026, margins are expected to be reasonably stable despite lubricant inflation, offset by pricing on new sets, renewals, and a favorable fleet mix.
• Josh Jain (Daniel Energy Partners): Questioned fleet repricing opportunities and contracting terms. Management noted 22% of the fleet is month-to-month with 78% under term (2.2-year average), creating repricing opportunities as contracts expire. Customers are willing to extend terms, though this often trades off against price increases. Sale-leaseback opportunities are being discussed but are difficult to predict in size.

Other Key Points

• Flatrock Acquisition: Completed in June 2026 for approximately $120 million ($108.9 million cash and $10 million stock). Approximately 85% of the purchase price ($100.6 million) was allocated to the rental fleet, with less than $1 million recorded as goodwill.
• Credit Facility: Increased from $400 million to $500 million with a $100 million accordion; $328 million was outstanding at quarter-end.
• Corporate Re-domestication: Effective July 20, 2026, NGS re-domesticated from Colorado to Texas to eliminate the staggered board, ensuring all directors stand for election annually.
• Dividends: Paid a $0.15 per share dividend in Q2 2026 and announced a subsequent $0.15 per share dividend for Q3 2026.
• Asset Optimization: Management is marketing the former Midland headquarters and fabrication facility (combined book value approx. $11 million) and four other real estate assets (combined book value approx. $3 million) for sale or lease.
• Working Capital Improvements: Days Sales Outstanding (DSO) reduced from 108 days in Q4 2023 to approximately 33 days pro forma in Q2 2026, effectively creating over $40 million in cash. An $11.5 million tax receivable from 2023 was fully collected by July 2026.