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NATURAL GAS SERVICES GROUP INC (NGS)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $40.7 million, up 12% year-over-year but essentially flat sequentially; diluted EPS was $0.23, down from $0.40 in Q3 due to inventory allowance, closure of Midland fabrication (impacting sales gross profit), intangible impairment, higher stock-based comp, and increased depreciation .
  • Adjusted EBITDA was $18.0 million, +11% year-over-year and -1% sequential; total adjusted gross margin reached 56.5%, with rental adjusted gross margin at ~60% amid continued mix shift to large horsepower units .
  • 2025 guidance: Adjusted EBITDA $74–$78 million, growth CapEx $95–$120 million, maintenance CapEx $10–$13 million, and targeted ROIC at least 20%; deployments are heavily weighted to 2H 2025 and early 2026, adding ~90,000 rented horsepower (~18% vs YE 2024) .
  • Fleet metrics remain strong: rented horsepower ended 2024 at 491,756 (+17% y/y), horsepower utilization at 82.1%, supporting rental revenue growth (+21% y/y) and capital efficiency initiatives (AR reduction to $15.6 million; leverage 2.36x) .
  • Stock reaction catalyst: management expects run-rate Adjusted EBITDA to rise “well in excess” of the ~18% horsepower growth once 2025 deployments are fully set, signaling earnings power acceleration into early 2026 .

What Went Well and What Went Wrong

What Went Well

  • Record year and strategic execution: “2024 was a transformational year… our utilized rental fleet approached 500,000 horsepower and our Adjusted EBITDA increased by over 50% compared to 2023” — Justin Jacobs, CEO .
  • Capital efficiency improvements: leverage declined to 2.36x; AR reduced to $15.6 million (DSO from ~100 to 35 days), releasing nearly $2 per share in cash to fund growth .
  • Large horsepower growth and pricing: rental revenue +21% y/y in Q4 and adjusted rental margins ~60%; >70% of rented horsepower now large horsepower, with continued customer diversification and pre-contracted deployments .

What Went Wrong

  • Sequential earnings pressure: diluted EPS fell to $0.23 from $0.40 in Q3, with drivers including inventory allowance, lower sales gross profit from Midland fabrication closure, intangible impairment, higher stock-based comp, and higher depreciation .
  • Sales segment headwinds: sales revenue dropped to $1.0 million and posted negative gross margin, reflecting the strategic wind-down of Midland fabrication .
  • Persistent long lead times and labor inflation: engines (~9 months), compressor frames (6–9 months), and fabrication (≥9 months) remain constrained; labor costs are not easing, tempering margin expansion pace .

Financial Results

Summary Metrics vs Prior Periods and Estimates

MetricQ4 2023Q3 2024Q4 2024Vs. Estimates
Revenue ($USD Millions)$36.221 $40.686 $40.658 N/A (S&P Global consensus unavailable)
Diluted EPS ($USD)$0.14 $0.40 $0.23 N/A (S&P Global consensus unavailable)
Operating Income ($USD Millions)$4.439 $9.457 $6.043 N/A (S&P Global consensus unavailable)
Net Income ($USD Millions)$1.702 $5.014 $2.865 N/A (S&P Global consensus unavailable)
Adjusted EBITDA ($USD Millions)$16.288 $18.186 $18.006 N/A (S&P Global consensus unavailable)
Adjusted Gross Margin % (Total)55.9% 56.3% 56.5% N/A (S&P Global consensus unavailable)

Note: Wall Street consensus comparisons omitted due to S&P Global limitations (consensus data unavailable).

Segment Revenue and Margin Detail

SegmentQ4 2023 Revenue ($MM)Q3 2024 Revenue ($MM)Q4 2024 Revenue ($MM)
Rental$31.626 $37.350 $38.226
Sales$2.921 $1.843 $0.997
Aftermarket services$1.674 $1.493 $1.435
Total$36.221 $40.686 $40.658
SegmentQ4 2023 Gross Margin ($MM)Q3 2024 Gross Margin ($MM)Q4 2024 Gross Margin ($MM)
Rental$12.366 $15.043 $14.865
Sales$0.553 -$0.258 -$0.531
Aftermarket services$0.421 $0.151 $0.296
Total$13.340 $14.936 $14.630
SegmentQ4 2023 Adjusted GM %Q3 2024 Adjusted GM %Q4 2024 Adjusted GM %
Rental60.7% 61.3% 60.4%
Sales21.2% -10.0% -45.0%
Aftermarket services26.3% 11.3% 22.4%
Total55.9% 56.3% 56.5%

KPIs

KPIQ4 2023Q1 2024Q2 2024Q3 2024Q4 2024
Rented horsepower420,432 444,220 454,568 475,534 491,756
Fleet horsepower available520,365 542,256 552,599 579,699 598,840
Horsepower utilization80.8% 81.9% 82.3% 82.0% 82.1%
Units utilized1,247 1,245 1,242 1,229 1,208
Fleet units1,876 1,894 1,899 1,909 1,912
Unit utilization66.5% 65.7% 65.4% 64.4% 63.2%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDAFY 2025N/A$74–$78 million New
Growth CapExFY 2025$90–$110 million $95–$120 million Raised
Maintenance CapExFY 2025N/A$10–$13 million New
Target ROICOngoingAt least 20% At least 20% Maintained
Adjusted EBITDAFY 2024$67–$69 million Actual $69.5 million Achieved above midpoint
Growth CapExFY 2024$65–$75 million Actual $60.5 million Lower (timing/slippage)
Maintenance CapExFY 2024$8–$11 million Actual $11.4 million Modestly above midpoint
Rented horsepowerFY 2024 YEN/A491,756 (+17% y/y) Reported

Management emphasized deployments are “very heavily weighted” to 2H 2025 and early 2026, with ~90,000 incremental rented horsepower expected by early 2026; “run rate” Adjusted EBITDA should increase well beyond the 18% horsepower growth once units are deployed .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Pricing and revenue per horsepowerMonthly rental revenue per average HP up 12% y/y in Q3; positive pricing bias but step-ups flattening; new large HP contracts above fleet average rates Pricing still has an upward bias but “flattening”; revenue per HP increases driven by mix and rates; labor inflation remains a headwind Upward bias moderating; mix driving pricing power
Electric drive units~40% of new horsepower electric in pipeline; electric margins comparable; service lower vs gas engines; power availability is key constraint Majority of future units large HP; substantial share electric; demand contingent on grid reliability; letting customers choose Growing but uneven; dependent on power availability
Lead times / supply chainEngines/frames/fabrication long-lead; timing drives CapEx phasing and deployment Engines ~9 months; frames 6–9 months; fabrication ≥9 months; CapEx weighted to back half Persistently constrained
Asset utilization / ARAR fell $9.3mm in Q2; more reductions targeted; monetize non-cash assets over 12–24 months AR at $15.6mm; DSO improved to 35 days; tax receivable (~$11mm) in final stage; real estate monetization targeted Continued improvement expected
Macro (oil & gas)Oil in high 60s/low 70s supports demand; gas muted; compression demand robust, esp. Permian Oil volatility acknowledged; outlook constructive; gas improved around ~$4; cautious optimism; midstream large-HP opportunities Constructive oil; cautiously improving gas
M&A postureOpportunistic, disciplined; not required for strategy Evaluating deals; discipline across geographies; not compelled to transact Ongoing, selective

Management Commentary

  • “Looking forward, we see continued strength in the market. We believe our organic growth rate leads the industry and we are taking market share… We expect 2025 will be another year of significant growth in new large horsepower units and we have already signed material new unit contracts for 2026.” — Justin Jacobs, CEO .
  • “Based on the timing of contractual orders… the Company expects 2025 Adjusted EBITDA to be in the range of $74–$78 million… rented horsepower to increase by ~90,000 horsepower… timing… heavily weighted to the second half of 2025 and early 2026.” .
  • “Once all of these units are deployed… our adjusted EBITDA will increase at a rate well in excess of an 18% horsepower increase… significantly above 18%, but less than double the growth rate.” — Justin Jacobs (Q&A) .
  • “Our business became significantly more capital efficient… total debt increased by only $6 million… leverage declined from 2.53x to 2.36x… more opportunity to monetize non-cash assets in the near term.” .
  • “Our monthly rental revenue per average horsepower… was $26.28 for the full year 2024… increase is due to a combination of the fleet mix as well as increased prices.” — Justin Jacobs .

Q&A Highlights

  • Run-rate EBITDA and 2026 setup: Analysts triangulated Q4 “run-rate” EBITDA and 2025 CapEx returns; management agreed the framework is reasonable, with full benefit likely in early 2026 as units set .
  • Pricing dynamics: Price increases flattening after significant step-ups in recent years; still an upward bias, supported by large HP mix and service differentiation .
  • Lead times and CapEx phasing: Engines (~9 months), frames (6–9 months), fabrication (≥9 months); CapEx and deployments weighted to 2H 2025; CapEx more ratable but back-half biased .
  • Demand and electric drives: Demand remains robust into 2026; electric drive adoption driven by site power reliability; margins comparable; service needs lower than gas engines .
  • M&A posture: Broad opportunity set, not geography-specific; disciplined stance; acquisitions not required to deliver shareholder returns .

Estimates Context

  • Wall Street consensus estimates (S&P Global) were not available at time of analysis due to data limitations. As a result, comparisons to consensus for revenue, EPS, or EBITDA are omitted. Values would typically be anchored to S&P Global consensus when available.

Key Takeaways for Investors

  • Large horsepower-led growth is intact: rented horsepower +17% y/y at YE 2024; >70% of rented HP now large units; deployments skew to 2H 2025/early 2026, setting up an earnings power step-up .
  • Expect EBITDA acceleration into 2026: management indicates “run-rate” Adjusted EBITDA should increase well beyond the ~18% horsepower growth once units are fully deployed; watch for back-half 2025 ramp and Q1 2026 follow-through .
  • Capital efficiency remains a differentiator: AR and DSO improvements, targeted monetization of tax receivable and real estate, and leverage covenant headroom support growth CapEx without outsized balance sheet risk .
  • Margin profile resilient but not expanding at prior pace: rental adjusted GM ~60% remains strong; labor inflation and fabrication constraints temper further expansion; sales segment volatility persists during Midland fabrication wind-down .
  • Electric drive is a strategic wedge: comparable margins and lower service burden, but grid reliability is the gating factor; NGS’s flexibility (gas engine vs electric) aligns with customer needs and should sustain bookings .
  • Near-term trading: Sequential EPS/EBITDA softness tied to non-recurring items (inventory allowance, impairment, fabrication closure effects); the narrative is about 2H 2025/2026 ramp—positioning into deployment windows may be rewarded .
  • Medium-term thesis: Industry demand, technology/service differentiation, customer diversification, and disciplined capital deployment (≥20% ROIC target) underpin sustainable growth; M&A optionality adds upside without dependence .

Citations: Q4 2024 press release –; Q4 2024 8-K (Item 2.02 and Exhibits) –; Q4 2024 earnings call transcript –; Q3 2024 press release/8-K/transcript – – –; Q2 2024 press release/8-K/transcript – – –.