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NG

NATURAL GAS SERVICES GROUP INC (NGS)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered record rented horsepower (526k) and record utilization (84.1%), with revenue up 6.7% year-over-year to $43.4M and diluted EPS of $0.46; adjusted EBITDA rose 14.6% to $20.8M, driven by large-horsepower fleet additions, disciplined pricing, and lower maintenance parts consumption .
  • The company raised FY2025 adjusted EBITDA guidance to $78–$81M and tightened growth capex to $95–$110M, citing strong second-half deployments; management also introduced initial FY2026 growth capex of $50–$70M, highlighting confidence in organic growth .
  • Dividend increased 10% to $0.11 per share for Q4 2025, signaling a commitment to growing capital returns alongside fleet expansion and maintaining the lowest leverage among public compression peers (2.50x) .
  • Catalysts: Guidance raise, dividend increase, and evidence of market-share gains (27k HP added in Q3; Devon Energy >10% of YTD revenue), supported by technology-enabled uptime and data-driven optimization .

What Went Well and What Went Wrong

What Went Well

  • Record performance in rented horsepower and utilization, with rental revenue up 11.1% YoY to $41.5M; adjusted gross margin improved to $25.8M and rental adjusted gross margin percentage reached 61.5% due to pricing discipline, large-horsepower mix, and lower maintenance consumption .
  • Management raised FY2025 adjusted EBITDA guidance to $78–$81M and introduced FY2026 growth capex guidance of $50–$70M, underscoring strong contracted visibility and continued organic growth plans .
  • Quote: “We delivered a record quarter across several key metrics… This performance was driven by strong field service execution and excellent technology enabled uptime.” — CEO Justin Jacobs .

What Went Wrong

  • Leverage ticked up to 2.50x from 2.31x QoQ as revolver usage increased to fund accelerated growth capex; total Q3 capex spiked to $41.9M (growth $39.1M, maintenance $2.8M) .
  • Net income growth was modest (up $0.6M QoQ) as higher depreciation and SG&A partially offset revenue gains; total gross margin improvement paced slower than adjusted gross margin given depreciation dynamics .
  • Supply chain lead times for certain new units approach ~60 weeks, constraining first-half 2026 delivery timing; management indicated second-half 2026 is more feasible for new sets .

Financial Results

Core P&L: Year-over-Year and Sequential Comparison

MetricQ3 2024Q2 2025Q3 2025
Total Revenue ($USD Millions)$40.686 $41.382 $43.401
Diluted EPS ($)$0.40 $0.41 $0.46
Adjusted EBITDA ($USD Millions)$18.186 $19.665 $20.838
Operating Income ($USD Millions)$9.457 $9.924 $10.755
Net Income ($USD Millions)$5.014 $5.188 $5.784

Margins and Profitability

MetricQ3 2024Q2 2025Q3 2025
Gross Margin ($USD Millions)$14.936 $15.350 $16.677
Adjusted Gross Margin ($USD Millions)$22.892 $24.223 $25.828
Adjusted Gross Margin % (Total)56.3% 58.5% 59.5%
Rental Adjusted Gross Margin %61.3% 60.8% 61.5%

Segment Revenue Breakdown

SegmentQ3 2024 ($000s)Q2 2025 ($000s)Q3 2025 ($000s)
Rental$37,350 $39,580 $41,502
Sales$1,843 $750 $471
Aftermarket Services$1,493 $1,052 $1,428
Total$40,686 $41,382 $43,401

KPIs and Operating Metrics

KPIQ3 2024Q2 2025Q3 2025
Horsepower Utilized (HP)475,534 498,651 526,015
Total Horsepower (HP)579,699 596,322 625,686
Horsepower Utilization (%)82.0% 83.6% 84.1%
Units Utilized1,229 1,198 1,235
Unit Utilization (%)64.4% 65.4% 65.3%
Rental Revenue per HP per Month ($)——$27.08
Operating Cash Flow ($USD Millions)$25.918 $10.996 $16.799
Total Capex ($USD Millions)$28.800 investing cash outflow $25.706 investing cash outflow $41.859 investing cash outflow
Growth vs Maintenance Capex ($USD Millions)——$39.1 growth; $2.8 maintenance
Revolver Debt Outstanding ($USD Millions)—$182.0 $208.0
Leverage Ratio (x)—2.31x 2.50x

Actual vs Wall Street Consensus (S&P Global)

MetricConsensus (Q3 2025)Actual (Q3 2025)
Diluted EPS ($)0.36*$0.46
Total Revenue ($USD)$43.245M*$43.401M
EBITDA ($USD)$19.698M*$20.838M (Adjusted EBITDA)

Values with asterisk (*) retrieved from S&P Global.

Interpretation: EPS beat by ~$0.10; revenue slightly above consensus; adjusted EBITDA exceeded consensus by ~6%, with management attributing outperformance to large-horsepower mix, pricing capture, and lower maintenance parts consumption .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDAFY 2025$76–$80M $78–$81M Raised
Growth CapexFY 2025$95–$115M $95–$110M Tightened (lower high end)
Maintenance CapexFY 2025$11–$14M $11–$14M Maintained
Rented HP Additions2H25–Early 2026~90k HP ~90k HP (on track) Maintained
Growth CapexFY 2026—$50–$70M (initial) Introduced
Dividend per ShareQ4 2025$0.10 (Q3 dividend) $0.11 Raised 10%

Drivers: Strong second-half deployments and sustained demand underpin guidance raise; timing visibility tightened growth capex range without impacting horsepower adds .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
AI/data centers & LNG compression demandMonitoring macro/tariffs; deploying electric motor units; confident demand for compression AI/data centers and LNG cited as durable, compression-intensive growth opportunities Increasing strategic emphasis
Supply chain & lead timesAccelerating deployments weighted to 2H25/early 2026 New unit lead times approaching ~60 weeks; first half 2026 challenging; second half more feasible Tight supply; timing constraints
Tariffs/macro volatilityTariffs and commodity volatility monitored; no direct impact noted Persistent macro volatility acknowledged; confidence due to production-tied demand Resilient demand vs macro
Market share & customer winsRecord utilized HP; opportunities to displace competitors 27k HP added; Devon >10% YTD revenue; organic market-share gains Strengthening
Capital allocationCredit facility expansion; initiated $0.10 dividend; $6M buyback Dividend raised to $0.11; leverage 2.5x; balanced growth and returns Growing returns with discipline
Technology/dataElectric motor units and technology-enabled uptime referenced Data analytics integration drives uptime, lower maintenance cost per unit hour Deeper integration and monetization

Management Commentary

  • “We delivered a record quarter across several key metrics… driven by strong field service execution and excellent technology enabled uptime.” — CEO Justin Jacobs .
  • “Rental adjusted gross margin percentage was 61.5%,… reflecting sustained pricing discipline, large-horsepower fleet additions, and lower maintenance parts consumption.” — CFO Ian Eckert .
  • “We are raising full year 2025 adjusted EBITDA guidance to $78–$81 million… We expect 2026 growth capex of $50–$70 million.” — CEO Justin Jacobs .
  • “Devon Energy now represents more than 10 percent of year-to-date revenue… a significant expansion of a relationship with an existing customer.” — CEO Justin Jacobs .

Q&A Highlights

  • 2026 Outlook & Lead Times: Management sees no customer hesitancy; lead times vary by unit type, with first-half 2026 challenging for new units, second half more feasible .
  • Margins: Near-term rental adjusted GM in low-60s expected; longer term mix shift to large horsepower should lift margins; optimization upside to be quantified later .
  • End Market Mix: Gas lift in the Permian remains the significant majority of new demand; AI/data centers/LNG are incremental opportunities using similar equipment, tightening large-HP markets .
  • Market Share & Customers: Growth expected with existing customers and new potential large accounts; Devon highlighted as >10% revenue customer due to technology and service performance .
  • Capital Returns: Dividend increased to signal commitment to growing returns without constraining growth; balanced capital allocation framework in development .

Estimates Context

  • EPS beat: $0.46 actual vs $0.36 consensus*; driven by rental revenue growth and higher adjusted gross margin .
  • Revenue: $43.401M actual vs $43.245M consensus*; modest beat aligned with 27k sequential HP adds and pricing capture .
  • EBITDA: $20.838M adjusted EBITDA actual vs $19.698M consensus*; management emphasized large-HP mix and maintenance efficiency .

Values with asterisk (*) retrieved from S&P Global.

Implications: Consensus likely underappreciated the magnitude of large-horsepower deployment timing and pricing/mix benefits; estimate models should reflect sustained low-60s rental adjusted GM and continued HP additions into early 2026 .

Key Takeaways for Investors

  • Mix and pricing plus lower maintenance parts consumption are structurally lifting profitability; expect near-term rental adjusted GM in low-60s with upside from further large-HP mix shift .
  • Deployment cadence remains the key earnings driver; second-half weighted sets support FY2025 guidance raise and early 2026 horsepower additions .
  • Supply chain tightness (lead times ~60 weeks for some units) favors incumbents with contracted pipeline; timing constraints likely concentrate 2026 additions in 2H .
  • Balance sheet capacity remains competitive (2.50x leverage) despite growth capex ramp; revolver utilization increased to $208M, with $163M liquidity .
  • Dividend growth alongside fleet expansion is a differentiator; Q4 dividend up 10% to $0.11 while maintaining organic growth targets .
  • Customer concentration upside: Devon >10% YTD revenue validates technology/service edge and could catalyze additional large-HP wins .
  • Near-term trading: Positive setup from guidance raise and dividend increase; medium-term thesis rests on continued market-share gains, data-driven uptime, and execution on 90k HP plan into early 2026 .