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What changed in NATURAL GAS SERVICES GROUP INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of NATURAL GAS SERVICES GROUP INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+380 added−364 removedSource: 10-K (2025-03-17) vs 10-K (2024-04-01)

Top changes in NATURAL GAS SERVICES GROUP INC's 2024 10-K

380 paragraphs added · 364 removed · 231 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

86 edited+33 added−24 removed54 unchanged
Biggest changeAlthough it is not possible at this time to predict what additional domestic legislation may be adopted in light of the Paris Agreement or the Glasgow Climate Pact, or how legislation or new regulations that may be adopted based on the Paris Agreement or the Glasgow Climate Pact to address 6 GHG emissions would impact our business, any such future laws and regulations imposing reporting obligations on, or limiting emissions of GHGs from, our compressors could require us to incur costs to reduce emissions of GHGs associated with our operations and could decrease demand for oil and natural gas.
Biggest changeThe extent to which the U.S. will maintain climate change-related pledges is currently unknown, but any future laws and regulations imposing reporting obligations on, or limiting emissions of GHGs from, our compressors could require us to incur costs to reduce emissions associated with our operations.
We believe there are opportunities to modestly improve the profitability of our existing utilized rental fleet through targeted price increases, particularly in geographic areas that have experienced high rates of cost inflation, along with operational efficiencies by using improved data collection and analysis to optimize our costs in labor, parts, and maintenance costs. • Improve asset utilization.
We believe there are opportunities to modestly improve the profitability of our existing utilized rental fleet through targeted price increases, particularly in geographic areas that have experienced high rates of cost inflation, along with operational efficiencies by using improved data collection and analysis to optimize our labor, parts, and maintenance costs. • Improve asset utilization.
We believe the superior operating and environmental performance of our natural gas engine and electric-drive units, particularly our large horsepower units, is a significant competitive differentiator. • Long-standing customer relationships. We have developed long-standing relationships providing compression equipment to many major and independent oil and natural gas companies.
We believe the superior operating and environmental performance of our natural gas engine and electric-drive units, particularly our large horsepower units, is a significant competitive differentiator. • Long-standing customer relationships. We have developed long-standing relationships providing compression equipment to many major and independent oil and gas companies.
The size, type and geographic diversity of our rental fleet enable 3 us to provide customers with a range of compression units that can serve a wide variety of applications. We are able to select the correct equipment for the job, rather than the customer trying to fit its application to our equipment. • Availability of new units.
The size, type and geographic diversity of our rental fleet enable us to provide customers with a range of compression units that can serve a wide variety of applications. We are able to select the correct equipment for the job, rather than the customer trying to fit its application to our equipment. 3 • Availability of new units.
The loss of this key customer would have a material adverse effect on our business, financial condition, results of operations and cash flows, depending upon the demand for our compressors at the time of such loss and our ability to attract new customers.
The loss of this key customer would have a material adverse effect on our business, results of operations, financial condition and cash flows, depending upon the demand for our compressors at the time of such loss and our ability to attract new customers.
Compliance with these laws may constitute a significant cost and effort for us. No specific accounting for environmental compliance has been maintained or projected by us at this time.
Compliance with these laws may constitute a significant cost and effort for us. No specific accounting for environmental compliance has been maintained or projected by us at this time.
In 2012, the EPA finalized rules that establish new air emission controls for oil and natural gas production and natural gas processing operations.
In 2012, the EPA finalized rules that establish new air emission controls for oil and gas production and natural gas processing operations.
At the federal level, the government could seek to pursue legislative, regulatory or executive initiatives that may impose significant restrictions on fossil-fuel exploration and production and use such as limitations or bans on hydraulic fracturing of 5 oil and gas wells, bans or restrictions on new leases for production of minerals on federal properties, and imposing restrictive requirements on new pipeline infrastructure or fossil-fuel export facilities.
At the federal level, the government could seek to pursue legislative, regulatory or executive initiatives that may impose significant restrictions on fossil-fuel exploration and production and use such as limitations or bans on hydraulic fracturing of oil and gas wells, bans or restrictions on new leases for production of minerals on federal properties, and imposing restrictive requirements on new pipeline infrastructure or fossil-fuel export facilities.
These factors, along with supply chain challenges, led to a dearth of available rental compression units at a time of solid customer demand. Our strong balance sheet allowed us to strategically gain market share with desirable customers renting large horsepower units on pre-contracted units.
These factors, along with supply chain challenges, led to a dearth of available rental compression units at a time of solid customer demand. Our strong balance sheet allowed us to strategically gain market share with desirable customers renting large horsepower units on pre-contracted basis.
The adoption of laws and regulations affecting the oil and natural gas industry for economic, environmental and other policy reasons could increase our costs and could have an adverse effect on the demand for our services and our operations. The state and federal environmental laws and regulations that currently apply to our operations could become more stringent in the future.
The adoption of laws and regulations affecting the oil and gas industry for economic, environmental and other policy reasons could increase our costs and could have an adverse effect on the demand for our services and our operations. The state and federal environmental laws and regulations that currently apply to our operations could become more stringent in the future.
State implementation of the revised NAAQS could result in stricter permitting requirements, delay or prohibit our customers’ ability to obtain such permits, and result in increased expenditures for 8 pollution control equipment, which could negatively impact our customers’ operations by increasing the cost of additions to equipment, and negatively impact our business.
State implementation of the revised NAAQS could result in stricter permitting requirements, delay or prohibit our customers’ ability to obtain such permits, and result in increased expenditures for pollution control equipment, which could negatively impact our customers’ operations by increasing the cost of additions to equipment, and negatively impact our business.
We believe that, by outsourcing their compression needs, our customers are able to increase their revenues by producing higher volumes of oil and natural gas due to higher equipment run time, decrease their operating and maintenance cost of operating compression, lower their capital investment needs and more efficiently meet their changing compression needs.
We believe that, by outsourcing their compression needs, our customers are able to increase their revenues by producing higher volumes of oil and gas due to higher equipment run time, decrease their operating and maintenance cost of operating compression, lower their capital investment needs and more efficiently meet their changing compression needs.
All of the above strategies are subject to revisions and adjustments as a result of several factors discussed in Item 1A, Risk Factors. Competitive Strengths We believe our competitive strengths include: • Strong operational performance. We deliver very high levels of mechanical availability to our customers.
All of the above strategies are subject to revisions and adjustments as a result of several factors discussed in Item 1A . “ Risk Factors. ” Competitive Strengths We believe our competitive strengths include: • Strong operational performance. We deliver very high levels of mechanical availability to our customers.
Federal and state regulatory agencies can seek 7 to impose administrative, civil, and criminal penalties for alleged non-compliance with RCRA and analogous state requirements. In general, hazardous waste is waste with properties that can potentially endanger human health or the environment.
Federal and state regulatory agencies can seek to impose administrative, civil, and criminal penalties for alleged non-compliance with RCRA and analogous state requirements. In general, hazardous waste is waste with properties that can potentially endanger human health or the environment.
We base our gas compressor rental rates on several factors, including the cost and size of the equipment, the type and complexity of service desired by the customer, the length of contract and the inclusion of any other services desired, such as installation, transportation and daily operation.
We base our compressor rental rates on several factors, including the cost and size of the equipment, the type and complexity of service desired by the customer, the length of contract and the inclusion of any other services desired, such as installation, transportation and daily operation.
While we may be able to pass on the additional cost of complying with such laws to our customers, there can be no assurance that attempts to do so will be successful.
While we may be able to pass on the additional cost of complying with such laws to our customers; however, there can be no assurance that attempts to do so will be successful.
This creates significant value for our customers we believe our high levels of mechanical availability, particularly for our large horsepower rental compression units, is a competitive differentiator for customers selecting our units. • Innovative rental compression units.
This creates significant value for our customers and we believe our high levels of mechanical availability, particularly for our large horsepower rental compression units, is a competitive differentiator for customers selecting our units. • Innovative rental compression units.
Liability and Other Insurance Coverage Our equipment and services are provided to customers who are subject to hazards inherent in the oil and natural gas industry, such as explosions, fires, and oil spills.
Liability and Other Insurance Coverage Our equipment and services are provided to customers who are subject to hazards inherent in the oil and gas industry, such as explosions, fires, and oil spills.
We make available free of charge on the Investor Relations section of our website ( www.ngsgi.com ) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.
We make available free of charge on the Investor Relations section of our website ( www.ngsgi.com ) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.
Expansion by the TCEQ of this type of program and the adoption of similar regulations in other states may increase our compliance costs. Water Discharge Clean Water Act.
Expansion by the TCEQ of this type of program and the adoption of similar regulations in other states may increase our compliance costs. 9 Water Discharge Clean Water Act .
There are also increasing financial risks for fossil fuel producers and oil and gas field service providers (such as the Company) as shareholders currently invested in fossil-fuel energy and related service companies concerned about the potential effects of climate change may elect in the future to shift some or all of their investments into non-energy related sectors.
There are also increasing financial risks for fossil fuel producers and oil and gas field service providers (such as us) as shareholders currently invested in fossil-fuel energy and related service companies concerned about the potential effects of climate change may elect in the future to shift some or all of their investments into non-energy related sectors.
We have made a series of technical innovations to our rental compression units that have improved operational performance while also reducing the environmental impact, largely related to the volume of fugitive emissions, from our compressor units. Environmental considerations have increased in importance for our customers, particularly with recent environmental regulations and taxation, most notably the Methane Emissions Reduction Program.
We have made a series of technical innovations to our rental compression units that have improved operational performance while also reducing the environmental impact, largely related to the volume of fugitive emissions. Environmental considerations have increased in importance for our customers, particularly with recent environmental regulations and taxation, most notably the Methane Emissions Reduction Program.
Our business is generally affected by political developments and by federal, state, foreign and local laws and regulations, which relate to the oil and natural gas industry.
Our business is generally affected by political developments and by federal, state, foreign and local laws and regulations, which relate to the oil and gas industry.
In addition, the major components of our compressors are acquired from suppliers through periodic purchase orders that currently require three to six months or more of lead time prior to delivery of the order. We do not believe that backlog is a good indicator of the future growth potential of our business.
In addition, the major components of our compressors are acquired from suppliers through periodic purchase orders that currently require three to six months or more of lead time prior to delivery of the order. We do not believe that backlog is a critical indicator of the future growth potential of our business.
Paper copies of our filings are also available, without charge upon written request. Please mail requests to Natural Gas Services Group, Inc., 404 Veterans Airpark Lane, Suite 300, Midland, TX 79705. The information contained on our website is not part of this Report. 10
Paper copies of our filings are also available, without charge upon written request. Please mail requests to Natural Gas Services Group, Inc., 404 Veterans Airpark Lane, Suite 300, Midland, TX 79705. The information contained on our website is not part of this Report. 11
The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from the oil and natural gas sector or otherwise restrict the areas in which this sector may produce oil and natural gas or generate GHG emissions could result in increased costs of compliance or additional operating restrictions or reduced demand for our compressor products and services, and could have a material adverse effect on our business, financial condition and results of operations.
The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from the oil and gas sector or otherwise restrict the areas in which this sector may produce oil and gas or generate GHG emissions could result in increased costs of compliance or additional operating restrictions or reduced demand for our compressor products and services, and could have a material adverse effect on our business, financial condition,results of operations and cash flows.
We maintain liability insurance that we believe is customary in the industry and which includes environmental cleanup but excludes product warranty insurance because the majority of components on our compressor unit are covered by the manufacturers and our outsourced fabrication providers. We also maintain insurance with respect to our facilities.
We maintain liability insurance that we believe is customary in the industry and which includes environmental cleanup but excludes product warranty insurance because the majority of components on our compressor unit are covered by the OEM manufacturers and our outsourced fabrication service providers. We also maintain insurance with respect to our facilities.
The size, type and geographic diversity of our rental fleet enables us to provide our customers with a range of compression units that can serve a wide variety of applications, and to select the correct equipment for the job, rather than the customer trying to fit the job to its own equipment.
The size, type and geographic dispersion of our rental fleet enables us to provide our customers with a range of compression units that can serve a wide variety of applications, and to select the correct equipment for the job, rather than the customer trying to fit the job to its own equipment.
Specifically, the EPA’s rule package included New Source Performance Standards to address emissions of sulfur dioxide and volatile organic compounds (“VOCs”) and a separate set of emission standards to address hazardous air pollutants frequently associated with oil and natural gas production and processing activities.
Specifically, the EPA’s rule package included New Source Performance Standards (“NSPS”) to address emissions of sulfur dioxide and volatile organic compounds (“VOCs”) and a separate set of emission standards to address hazardous air pollutants frequently associated with oil and gas production and processing activities.
The rental compression industry has undergone significant change over the last five years. Capital constraints, in the form of reduced debt availability, higher interest rates, and shareholder demands for return of capital, have forced capital discipline upon the industry.
The rental compression industry has undergone significant change over the last several years. Capital constraints, in the form of reduced debt availability, higher interest rates, and shareholder demands for return of capital, have forced capital discipline upon the industry.
The level of production for oil activity and capital expenditures has generally been dependent upon the prevailing view of future gas and oil prices, which are influenced by numerous supply and demand factors, including availability and cost of capital, well productivity and development costs, global and domestic economic conditions, environmental regulations, policies of OPEC countries and Russia, and other factors.
The level of production for crude oil and capital expenditures activity has generally been dependent upon the prevailing view of future crude oil prices, which are influenced by numerous supply and demand factors, including availability and cost of capital, well productivity and development costs, global and domestic economic conditions, environmental regulations, policies of OPEC and Russia, and other factors.
We maintain and service all of the compression equipment we rent to our customers.
We maintain and service all of the compression equipment that we rent to our customers.
These potentially responsible parties include (1) the current owners and operators of a facility, (2) the past owners and operators of a facility at the time the disposal or release of a hazardous substance occurred, (3) parties that arranged for the offsite disposal or treatment of a hazardous substance, and (4) transporters of hazardous substances to off-site disposal or treatment facilities.
These PRPs include (1) the current owners and operators of a facility, (2) the past owners and operators of a facility at the time the disposal or release of a hazardous substance occurred, (3) parties that arranged for the offsite disposal or treatment of a hazardous substance, and (4) transporters of hazardous substances to off-site disposal or treatment facilities.
Limitation of investments in and financings for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities of our customers, which in turn could have a material adverse effect on our compressor rental and sale business.
Limitation of investments in and financings for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities of our customers, which in turn could have a material adverse effect on our business.
Site Remediation and Waste Management and Disposal The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), also known as the Superfund law, and analogous state laws impose liability on certain classes of persons, known as “potentially responsible parties,” for the disposal or release of a regulated hazardous substance into the environment.
Site Remediation and Waste Management and Disposal The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), also known as the Superfund law, and analogous state laws impose liability on certain classes of persons, known as potentially responsible parties (“PRPs”) for the disposal or release of a regulated hazardous substance into the environment.
We believe we can improve the overall cash flow of the business by increasing utilization of the existing fleet as well as creating investable cash from non-cash assets. We have a significant number of unutilized units—we will review these assets to determine where relatively low-cost capital expenditures can improve the marketability and cash flow potential of the units.
We believe we can improve the overall cash flow of the business by increasing utilization of the existing fleet as well as monetizing non-cash assets. We have a significant number of unutilized units—we will review these assets to determine where relatively low-cost capital expenditures can improve the marketability and cash flow potential of the units.
Litigation risks are also increasing, as a number of cities and other local governments have sought to bring suits against the largest oil and natural gas exploration and production companies in state or federal court, alleging, among other things, that such companies created public nuisances by producing fuels that contributed to global warming effects, such as rising sea levels, and therefore are responsible for roadway and infrastructure damages, or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts.
Litigation risks are also increasing, as a number of cities and other local governments have sought to bring suits against the largest E&P companies in state or federal court, alleging, among other things, that such companies created public nuisances by producing fuels that contributed to global warming effects, such as rising sea levels, and therefore are responsible for roadway and infrastructure damages, or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts.
Our primary business and source of gross profit is the rental of natural gas compressor units for applications associated with oil and natural gas production with a focus on large and medium horsepower applications.
Our primary business and source of revenue and gross profit is derived from the rental of natural gas compressor units for applications associated with oil and gas production with a focus on large and medium horsepower applications.
As the number of rental compressors in our rental fleet increases, the number of sales, support, and maintenance personnel required and the minimum level of inventory may not increase proportionately. Backlog As of December 31, 2023, we had $0.8 million sales backlog compared to none as of December 31, 2022.
As the number of rental compressors in our rental fleet increases, the number of sales, support, and maintenance personnel required and the minimum level of inventory may not increase proportionately. Backlog As of December 31, 2024, we had no sales backlog compared to $0.8 million as of December 31, 2023.
We also make available through our website other reports filed with or furnished to the SEC under the Securities Exchange Act of 1934 ("Exchange Act"), as amended, including our proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act, as well as our Code of Business Ethics and the charters to our various Committees of our Board of Directors.
We also make available through our website other reports filed with or furnished to the Securities and Exchange Commission (“SEC”) under the Exchange Act including our proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act, as well as our Code of Business Ethics and the charters to our various Committees of our Board of Directors.
Air Emissions Our operations are also subject to federal, state, and local regulations. The Clean Air Act and implementing regulations and comparable state laws and regulations regulate emissions of air pollutants from various industrial sources and also impose various monitoring and reporting requirements, including requirements related to emissions from certain stationary engines, such as those on our compressor units.
Air Emissions The federal Clean Air Act (“CAA”) and implementing regulations and comparable state laws and regulations regulate emissions of air pollutants from various industrial sources and also impose various monitoring and reporting requirements, including requirements related to emissions from certain stationary engines, such as those on our compressor units.
In addition, our customer base includes oil and natural gas exploration and production companies that focus primarily on natural gas production (with typically smaller horsepower applications).
In addition, our customer base includes oil and gas E&P companies that focus primarily on natural gas production (with typically smaller horsepower applications).
Potentially responsible parties under CERCLA may be subject to strict, joint and several liability for the costs of investigating and cleaning up environmental contamination, for damages to natural resources and for the costs of certain health studies.
PRPs under CERCLA may be subject to strict, joint and several liability for the costs of investigating and cleaning up environmental contamination, for damages to natural resources and for the costs of certain health studies.
Our customers, specifically for large and medium horsepower applications, are exploration and production companies that utilize our compressor units for artificial lift applications, i.e., production enhancement enabled with high-pressure gas compression equipment, on unconventional oil wells on single and multi-well pads.
Our customers, specifically for large and medium horsepower units, are exploration and production (“E&P”) companies that utilize our compressor units for artificial lift, or “gas lift,” applications (i.e., production enhancement enabled with high-pressure gas compression equipment) in unconventional oil wells on single and multi-well pads.
We continue to design and engineer our compressors and under this arrangement, we procure and pay for the components of our compressor packages which are delivered to one of our third-party fabricators, who then assemble the components and test the compressor units prior to our receiving them. During the fabrication process, we hold title to the compressors and related components.
We continue to design and engineer our compressors and under this arrangement, we procure and pay for the components of our compressor packages which are delivered to one of our third-party fabricators, who then assemble the components and test the compressor units prior to our receiving them.
The Clean Water Act ("CWA") and the Oil Pollution Act of 1990 and implementing regulations govern: • the prevention of discharges, including oil and produced water spills, and • liability for drainage into waters.
The Clean Water Act ( “C WA ” ) and the Oil Pollution Act of 1990 and implementing regulations govern: • the prevention of discharges, including oil and produced water spills, and • liability for drainage into waters.
Although we do not have formal continuing supply contracts with any major supplier, we believe we have adequate alternative sources available. In the past, we have not experienced any sudden and dramatic increases in the prices of the major components for our compressors.
Although we do not have formal continuing supply and service contracts with any major supplier or third-party assembly service provider, we believe we have adequate alternative sources available. In the past, we have not experienced any sudden and dramatic increases in the prices of the major components for our compressors.
For example, in June 2016, the EPA published New Source Performance Standards that require certain new, modified or reconstructed facilities in the oil and natural gas sector to reduce methane gas and VOC emissions.
For example, in June 2016, the EPA published NSPS that require certain new, modified or reconstructed facilities in the oil and gas sector to reduce methane gas and VOC emissions.
Although it is not currently possible to predict how any proposed or future GHG legislation, regulation, agreements or initiatives will impact our business, any such legislation or regulation of GHG emissions could result in increased compliance or operating costs, additional operating restrictions or reduced demand for our compressor services, and could have a material adverse effect on our business, financial condition and results of operations.
Although it is not currently possible to predict how any proposed or future GHG legislation, regulation, agreements or initiatives will impact our business, any such legislation or regulation of GHG emissions could result in increased compliance or operating costs, additional operating restrictions or reduced demand for our compressor services, and could have a material adverse effect on our business, financial condition and results of operations. 6 Other energy legislation and initiatives could include a carbon tax, methane fee or cap and trade program.
We also have a significant amount of capital tied up in non-cash assets (including working capital and fixed assets) that we believe can be monetized and invested back in the fleet at or above target levels of return on invested capital. • Expand rental fleet .
We also have a significant amount of capital tied up in non-cash assets (including accounts receivable, inventory and other fixed assets, primarily real property) that we believe can be monetized and invested back in the fleet at or above target levels of return on invested capital. • Expand rental fleet .
These major components of our compressors are acquired through periodic purchase orders placed with third-party suppliers on an "as needed" basis, which typically requires a three to twelve month lead time with delivery dates scheduled to coincide with our estimated production schedules.
These major components of our compressor units are acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which typically requires a three to twelve month lead time with delivery dates scheduled to coincide with our estimated assembly schedules.
The methane emissions charge imposed under the Methane Emissions and Waste Reduction Incentive Program for calendar year 2024 would be $900 per ton emitted over annual methane emissions thresholds, and would increase to $1,200 in 2025, and $1,500 in 2026.
The methane emissions charge imposed under the Methane Emissions and Waste Reduction Incentive Program for calendar year 2024 would be $900 per ton emitted over annual methane emissions thresholds, and would increase to $1,200 in 2025, and $1,500 in 2026. The final rule for the waste emissions charge was implemented in November, 2024. In February 2025, however, the U.S.
The Company's largest rental area is the Permian Basin (approximately 63.6% of rental revenues in 2023), with the majority of our remaining rental revenue generated in other oil and natural gas producing regions and basins in Texas, New Mexico and Oklahoma, including the San Juan Basin, the Texas Panhandle/western Oklahoma, the Barnett Shale, and central Oklahoma.
Our largest rental area is the Permian Basin (75 percent of rental revenues in 2024), with the majority of our remaining rental revenue generated in other oil and gas producing regions and basins in Texas, New Mexico and Oklahoma, including the San Juan Basin, the Texas Panhandle/western Oklahoma, the Barnett Shale, the Eagle Ford Shale and central Oklahoma.
Additional levels of regulation or interpretation are adopted at the federal or state level could lead to increased operating costs and prohibitions or curtailment of current hydraulic practices could reduce demand for our compression services, which could materially adversely affect our results of operations and financial position. 9 Occupational Safety and Health We are subject to the requirements of Occupational Safety and Health Administration ("OSHA") and comparable state statutes.
Additional levels of regulation or interpretation are adopted at the federal or state level could lead to increased operating costs and prohibitions or curtailment of current hydraulic practices could reduce demand for our compression services, which could materially adversely affect our financial position, results of operations and cash flows.
("Oxy") for the years ended December 31, 2023 and 2022 amounted to 50% and 42% of our revenue, respectively. No other single customer accounted for more than 10% of our revenues in 2023 or 2022. Oxy amounted to 64% of our accounts receivable as of December 31, 2023, and 55% of our accounts receivable as of December 31, 2022.
(“Oxy”) for the years ended December 31, 2024, 2023 and 2022 amounted to 54 percent, 50 percent and 42 percent of our revenue, respectively. No other single customer accounted for more than 10 percent of our revenues in 2024, 2023 or 2022.
Our overall sales and marketing efforts concentrate on demonstrating our commitment to enhancing the customer’s cash flow through enhanced product design, fabrication, manufacturing, installation, operations, customer service and support. 4 Competition We have several competitors in the natural gas compression segment, some of which have greater financial resources.
Our overall sales and marketing efforts concentrate on demonstrating our commitment to enhancing our customers’ cash flows through enhanced product design, assembly, installation, operations, customer service and support. 4 Competition The compression services business is highly competitive. We have several competitors in the natural gas compression industry, some of which have greater financial resources.
We service and maintain compressors owned by our customers on an “as needed” and contract basis, as well as providing services related to the installation and start-up of new compressor units. Natural gas compressors require routine maintenance and periodic refurbishing to prolong their useful life.
We service and maintain compressors owned by our customers on an “as needed” and contract basis, as well as providing services related to the installation and start-up of new compressor units.
In January 2024, the EPA proposed a rule implementing the Inflation Reduction Act’s methane emissions charge. The proposed rule includes potential methodologies for calculating the amount by which a facility’s reported methane emissions are below or exceed the waste emissions thresholds and contemplates approaches for implementing certain exemptions created by the Inflation Reduction Act.
The proposed rule includes potential methodologies for calculating the amount by which a facility’s reported methane emissions are below or exceed the waste emissions thresholds and contemplates approaches for implementing certain exemptions created by the IRA 2022.
These laws and the implementing regulations strictly govern the protection of the health and safety of employees. The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of CERCLA, and similar state statutes require that we maintain and/or disclose information about hazardous materials used or produced in our operations.
The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of CERCLA, and similar state statutes require that we maintain and/or disclose information about hazardous materials used or produced in our operations. We believe that we are in compliance with these applicable requirements and with other comparable laws.
No other customers amounted to more than 10% of our accounts receivable as of December 31, 2023 or 2022.
Oxy amounted to 52 percent of our accounts receivable as of December 31, 2024, and 64 percent of our accounts receivable as of December 31, 2023. No other customers amounted to more than 10 percent of our accounts receivable as of December 31, 2024 or 2023.
Other energy legislation and initiatives could include a carbon tax, methane fee or cap and trade program. At the state level, many states, including the states in which we or our customers conduct operations, have adopted legal requirements that have imposed new or more stringent permitting, disclosure or well construction requirements on oil and gas activities.
At the state level, many states, including the states in which we or our customers conduct operations, have adopted legal requirements that have imposed new or more stringent permitting, disclosure or well construction requirements on oil and gas activities.
The Company We are a provider of natural gas compression equipment and services to the energy industry. We rent, operate and maintain natural gas compressors for oil and natural gas production and plant facilities. We also design, fabricate and manufacture compressor units both for sale and rental to our customers.
Today, we are a premier provider of natural gas compression equipment and services to the energy industry. We rent, operate and maintain natural gas compressors for oil and gas production and processing facilities. In addition, we design and assemble compressor units for rental to our customers.
We continue to maintain new unit fabrication capability at our Tulsa, Oklahoma facility. 1 The Company is making this transition for a number of reasons, including (i) the Company feels that the cost advantage of fabricating new units at the Midland facility has been decreasing in recent years; (ii) the Company’s fabrication facilities are not capable of producing large horsepower units as efficiently as certain third-party providers; (iii) third party providers have improved in quality and cost competitiveness; and (iv) use of third-party fabricators relives the Company of issues related to efficiency, inventory and labor scarcity.
We are committed to this transition for a number of reasons, including (i) we feel that the cost advantage of fabricating and assembling new units at the Midland facility has declined substantially in recent years; (ii) our assembly facilities are not capable of producing large horsepower units as efficiently as certain third-party service providers; (iii) third-party service providers have improved in quality and cost competitiveness; and (iv) use of third-party fabricators relieves us of issues related to efficiency, inventory and labor scarcity.
Sales backlog consists of firm customer orders for which a purchase or work order has been received, satisfactory credit or a financing arrangement exists, and delivery is scheduled.
The absence of a sales backlog is indicative of our efforts to de-emphasize selling compression equipment in favor of rentals. Sales backlog consists of firm customer orders for which a purchase or work order has been received, satisfactory credit or a financing arrangement exists, and delivery is scheduled.
We believe our relatively modest leverage remains a strategic advantage for the company to continue to gain market share on attractive terms for shareholder return. Overview and Outlook The market for compression equipment and services is highly dependent on the production levels and pricing of oil and natural gas.
We believe our relatively modest leverage remains a strategic advantage for us to continue to gain market share on attractive terms for shareholder return. Industry Overview and Outlook The oil and gas industry has historically been cyclical and production levels of oil and gas are dependent upon numerous factors.
We believe that our existing environmental control procedures are adequate and that we are in substantial compliance with environmental laws and regulations, and the phasing in of emission controls and other known regulatory requirements should not have a material adverse effect on our financial condition or operational results.
We believe that our existing environmental control procedures are adequate and that we are in substantial compliance with environmental laws and regulations, and the phasing in of emission controls and other known regulatory requirements should not have a material adverse effect on our financial condition, results of operations and cash flows; however, it is possible that future developments, such as new or increasingly strict requirements and environmental laws and enforcement policies thereunder, could lead to material costs of environmental compliance by us.
We also provide an exchange and rebuild program for small horsepower screw compressors and maintain an inventory of new and used compressors to facilitate this part of our business. Parts sales and compressor rebuilds comprised 78.8% and 55.2% of our sales revenue during 2023 and 2022, respectively.
We also provide an exchange and rebuild program for small horsepower screw compressors and maintain an inventory of new and used compressors to facilitate this part of our business. Aftermarket Services.
Furthermore, the modification of existing laws or regulations or the adoption of new laws or regulations that result in the curtailment of exploratory or developmental drilling for oil and gas could materially and adversely affect our operations by discouraging our customers from drilling for hydrocarbons, disrupting revenue through permitting or similar delays.
We are not presently aware of any material environmental demands, claims, or adverse actions, litigation or administrative proceedings in which either we or our acquired properties are involved in or subject to or arising out of any predecessor. 8 Furthermore, the modification of existing laws or regulations or the adoption of new laws or regulations that result in the curtailment of exploratory or developmental drilling for oil and gas could materially and adversely affect our operations by discouraging our customers from drilling for hydrocarbons, disrupting revenue through permitting or similar delays.
We will continue to evaluate our business and operating strategy and we will continue to remain prudent in both our allocation of capital and our capital structure. Nevertheless, if any of these circumstances change, our business could be adversely affected. Please read Item 1A, Risk Factors, in this report. Major Customer Sales and rental income to Occidental Permian, LTD.
Nevertheless, if any of these circumstances change significantly, our business could be adversely affected. Please read Item 1A . , “ Risk Factors, ” in this report. Major Customers Rental and sales activity with Occidental Permian, LTD.
In July 2023, the EPA proposed to expand the scope of the Greenhouse Gas Reporting Program for petroleum and natural gas facilities, as required by the Inflation Reduction Act.
In July 2023, the U.S. Environmental Protection Agency (“EPA”) proposed to expand the scope of the GHG Reporting Program for petroleum and natural gas facilities, as required by the IRA 2022.
Business Strategy Our long-term intentions to grow our revenue and profitability are based on the following business strategies; • Optimize existing utilized fleet.
We perform engine and compressor overhauls on a condition-based interval or a time-based schedule or at our customers’ request. 2 Business Strategy Our long-term intentions to grow our revenue and profitability are based on the following business strategies: • Optimize existing utilized fleet.
Please see "Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information. Our Operating Units We identify our operating units based upon major revenue sources as Rental, Sales and Aftermarket Services. Rental. Our rental compression units provide large, medium and small horsepower applications for conventional and unconventional oil and natural gas production.
Please see Part II, Item 7. “ Management ’ s Discussion and Analysis of Financial Condition and Results of Operations” for further information regarding our operations. Our Operating Units We identify our operating units based upon major revenue sources as (i) Rental, (ii) Sales and (iii) Aftermarket Services. Rental.
The rule is currently scheduled to be finalized in 2024 and would take effect on January 1, 2025, for reporting year 2025 (due March 2026) in certain circumstances, with the potential to also impact GHG reporting for reporting year 2024 (due March 2025) in certain circumstances.
The rule took effect on January 1, 2025, for reporting year 2025 (due March 2026) in certain circumstances, with the potential to also impact GHG reporting for reporting year 2024 (due March 2025) in certain circumstances. In January 2024, the EPA proposed a rule implementing the IRA 2022’s methane emissions charge.
While oil prices have historically been volatile, we expect demand for our existing compressor fleet to remain positive assuming oil prices remain in reasonable bands around current pricing levels.
We feel that the current crude oil market production outlook is favorable, with current prices creating strong incentives for our customers to maximize their production levels. While crude oil prices have historically been volatile, we expect demand for our existing compressor fleet to remain positive assuming crude oil prices remain within reasonable bands with respect to current pricing levels.
ITEM 1. BUSINESS Unless the context otherwise requires, references in this Annual Report on Form 10-K to “Natural Gas Services Group,” the “Company”, "NGS", “we,” “us,” “our” or “ours” refer to Natural Gas Services Group, Inc. Certain specialized terms used in describing our natural gas compressor business are defined in "Glossary of Industry Terms" on page i.
ITEM 1. BUSINESS Unless the context otherwise requires, references in this Annual Report on Form 10-K to “Natural Gas Services Group,” the “Company,” “NGS,” “we,” “us,” or “our” refer to Natural Gas Services Group, Inc. and its consolidated subsidiary, NGSG Properties, LLC.
Government Regulation All of our operations and facilities are subject to numerous federal, state, foreign and local laws, rules and regulations related to various aspects of our business, including containment and disposal of hazardous materials, water quality and wastewater discharges, oilfield waste and other waste materials and protection of human health.
However, the occurrence of such an event could have a material adverse effect on our results of operations, financial condition and cash flows, particularly if we are unable to increase our rental rates and sale prices proportionate to any such component price increases. 5 Government Regulation All of our operations and facilities are subject to numerous federal, state, foreign and local laws, rules and regulations related to various aspects of our business, including containment and disposal of hazardous materials, water quality and wastewater discharges, oilfield waste and other waste materials and protection of human health.
Some risk of environmental liability and other costs are inherent in the nature of our business, however, and there can be no assurance that environmental costs will not rise.
Some risk of environmental liability and other costs are inherent in the nature of our business; however, and there can be no assurance that environmental costs will not rise. 7 To the extent that new laws or other governmental actions restrict the energy industry or impose additional environmental protection requirements that result in increased costs to the oil and gas industry, we could be adversely affected.
Our rental contracts generally provide for initial terms of six to 60 months and generally extend on a month-to-month basis afterward.
Our rental compression units provide large, medium and small horsepower applications for conventional and unconventional oil and gas production. Our rental contracts generally provide for initial terms ranging from six to 60 months and generally extend on a month-to-month basis thereafter.
Other regions and plays in which we provide services include the Utica and Marcellus Shales in Ohio, and the Antrim Shale in Michigan. Our revenue increased 42.8% to $121.2 million for the year ended December 31, 2023, from $84.8 million for the year ended December 31, 2022.
Other regions and plays in which we provide services include the Utica and Marcellus Shales in Ohio, and the Antrim Shale in Michigan.
In conjunction with these pacts, the United States committed to an economy-wide target of reducing net greenhouse gas emissions by 50-52 percent below 2005 levels by 2030. Also in November 2021, President Biden signed a $1 trillion dollar infrastructure bill into law.
In conjunction with these pacts, the United States committed to an economy-wide target of reducing net greenhouse gas emissions by 50-52 percent below 2005 levels by 2030. In January 2025, however, President Trump issued an executive order withdrawing the U.S. from the Paris Agreement, and froze federal funds relating to the Agreement.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe have in the past received warranty claims and we expect to continue to receive them in the future. To the extent that we incur substantial warranty claims in any period, our reputation, our ability to obtain future business and our results of operations could be materially and adversely affected.
Biggest changeTo the extent that we incur substantial warranty claims in any period, our reputation, our ability to obtain future business and our results of operations, financial condition and cash flows could be materially and adversely affected. 19 Our rental and sales contracts provide for varying forms of indemnification from our customers and in most cases may require us to indemnify our customers.
A ban of hydraulic fracturing would likely halt some projects, including unconventional projects, at least temporarily. Expanded regulations are likely to introduce a period of uncertainty as companies determine ways to proceed. Any curtailment could result in a reduction in demand for our compressors, potentially affecting both sales and rentals of our units.
A ban of hydraulic fracturing would likely halt some projects, including unconventional projects, at least temporarily. Expanded regulations are likely to introduce a period of uncertainty as companies determine ways to proceed. Any curtailment could result in a reduction in demand for our compressors, potentially affecting both rentals and sales of our units.
We cannot assure that we will be able to: • meet our capital needs; • upgrade and expand our office and field management infrastructure so that it is appropriate for our level of activity; • continue to improve our systems effectively or efficiently and in a timely manner, including financial and management controls, reporting systems and procedures; and • attract, hire, train and retain additional highly skilled and motivated officers, sales staff, district managers and employees and allocate our human resources optimally.
We cannot assure that we will be able to: • meet our capital needs; • upgrade and expand our office and field management infrastructure so that it is appropriate for our level of activity; • continue to improve our IT systems effectively or efficiently and in a timely manner, including financial and management controls, reporting systems and procedures; and • attract, hire, train and retain additional highly skilled and motivated officers, sales staff, district managers and employees and allocate our human resources optimally.
The trading price of our common stock and the price at which we may sell securities in the future are subject to substantial fluctuations in response to various factors, including our ability to successfully accomplish our business strategy, the trading volume of our stock, changes in governmental regulations, actual or anticipated variations in our quarterly or annual financial results, our involvement in litigation, general market conditions, the prices of oil and natural gas, announcements by us and our competitors, our liquidity, our ability to raise additional funds, and other events such as those discussed in the factors above.
The trading price of our common stock and the price at which we may sell securities in the future are subject to substantial fluctuations in response to various factors, including our ability to successfully accomplish our business strategy, the trading volume of our stock, changes in governmental regulations, actual or anticipated variations in our quarterly or annual financial results, our involvement in litigation, general market conditions, the prices of oil and gas, announcements by us and our competitors, our liquidity, our ability to raise additional funds, and other events such as those discussed in the factors above.
While we maintain insurance coverage, we face the following risks under our insurance coverage: • we may not be able to continue to obtain insurance on commercially reasonable terms; • we may be faced with types of liabilities that will not be covered by our insurance, such as damages from significant product liabilities and from environmental contamination; • the dollar amount of any liabilities may exceed our policy limits; and • we do not maintain coverage against the risk of interruption of our business.
While we maintain insurance coverage, we face the following risks: • we may not be able to continue to obtain insurance on commercially reasonable terms; • we may be faced with types of liabilities that will not be covered by our insurance, such as damages from significant product liabilities and from environmental contamination; • the dollar amount of any liabilities may exceed our policy limits; and • we do not maintain coverage against the risk of interruption of our business.
In addition, although a significant portion of the value of a new compressor increases our borrowing base under our credit facility once it has been fully constructed and put into service, we generally have an approximate lag of 9 to 12 months between borrowing money under the credit facility to fund progress payments to build a compressor and the time it becomes eligible for inclusion in our borrowing base.
In addition, although a significant portion of the value of a new compressor increases our borrowing base under our Credit Facility once it has been fully constructed and put into service, we generally have an approximate lag of 9 to 12 months between borrowing money under the Credit Facility to fund progress payments to build a compressor unit and the time it becomes eligible for inclusion in our borrowing base.
A prolonged period of depressed prices for oil and natural gas would likely result in delays or cancellation of projects by our customers, reducing the demand for our products and services. Continued elevated levels of inflation could have an adverse impact on our operating results. The U.S. economy has experienced elevated levels of inflation since early 2022.
A prolonged period of depressed prices for oil and gas would likely result in delays or cancellation of projects by our customers, reducing the demand for our products and services. Continued elevated levels of inflation could have an adverse impact on our operating results. The U.S. economy has experienced elevated levels of inflation since early 2022.
We have taken steps to protect against cyber-attacks to minimize the risk of our systems being penetrated and compromised by implementing a comprehensive cybersecurity program, such as regular risk assessments and penetration testing, deployment of firewalls and intrusion detection systems, deployment of encryption technologies, implementation of access controls and the development of incident response and recovery plans.
We have taken steps to protect against cyber-attacks to minimize the risk of our systems being penetrated and compromised by implementing a comprehensive cybersecurity program, such as risk assessments and penetration testing, deployment of firewalls and intrusion detection systems, deployment of encryption technologies, implementation of access controls and the development of incident response and recovery plans.
Our revenue is derived primarily from expenditures in the oil and natural gas industry, which, in turn, are based on budgets to explore for, develop and produce oil and natural gas. When these expenditures decline, as they have at various times during the past several years, our revenue will suffer.
Our revenue is derived primarily from expenditures in the oil and gas industry, which, in turn, are based on budgets to explore for, develop and produce oil and gas. When these expenditures decline, as they have at various times during the past several years, our revenue will suffer.
Continued rapid growth will likely challenge and place a strain on our management systems and 17 resources if we are unable to timely adapt and expand such systems and resources. Many of our ongoing reporting functions rely on data capture and recording using manual entry of transaction data.
Continued rapid growth will likely challenge and place a strain on our management systems and resources if we are unable to timely adapt and expand such systems and resources. Many of our ongoing reporting functions rely on data capture and recording using manual entry of transaction data.
Under the terms of our current credit agreement, we must: • comply with various leverage, commitment coverage and other customary financial ratios; • not exceed specified levels of debt; • comply with limits on asset sales; • comply with limits on cash dividends; and • other customary financial and operational limitations.
Under the terms of our current Credit Facility agreement, we must: • comply with various leverage, commitment coverage and other customary financial ratios; • not exceed specified levels of debt; • comply with limits on asset sales; • comply with limits on cash dividends; and • other customary financial and operational limitations.
The amount and timing of any capital expenditures may vary depending on a variety of factors, including the level of activity in the oil and natural gas exploration and production industry and the presence of alternative uses for our capital, including any acquisitions that we may pursue.
The amount and timing of any capital expenditures may vary depending on a variety of factors, including the level of activity in the oil and gas exploration and production industry and the presence of alternative uses for our capital, including any acquisitions that we may pursue.
We compete with the oil and natural gas industry’s largest equipment and service providers who have greater name recognition than we do. These companies also have substantially greater financial resources, larger operations and greater budgets for marketing, research and development than we do.
We compete with the oil and gas industry’s largest equipment and service providers who have greater name recognition than we do. These companies also have substantially greater financial resources, larger operations and greater budgets for marketing, research and development than we do.
If one or more of these analysts cease coverage, we could lose visibility in the market, which in turn could cause our stock price to decline. Provisions contained in our governing documents could hinder a change in control.
If one or more of these analysts cease coverage, we could lose visibility in the market, which in turn could cause our stock price to decline. 21 Provisions contained in our governing documents could hinder a change in control.
The industry’s willingness to explore for, develop and produce oil and natural gas depends largely upon the prevailing view of future oil and natural gas prices. Prices for oil and natural gas historically have been, and are likely to continue to be, highly volatile.
The industry’s willingness to explore for, develop and produce oil and gas depends largely upon the prevailing view of future oil and gas prices. Prices for oil and gas historically have been, and are likely to continue to be, highly volatile.
Our ability to meet the financial ratios and tests under our credit agreement can be affected by events beyond our control, and we may not be able to satisfy those ratios and tests. A breach of any one of these covenants or requirements could permit the lending organization to accelerate outstanding amounts so that it is immediately due and payable.
Our ability to meet the financial ratios and tests under the Credit Facility can be affected by events beyond our control, and we may not be able to satisfy those ratios and tests. A breach of any one of these covenants or requirements could permit the lending organization to accelerate outstanding amounts so that it is immediately due and payable.
Our ability to raise additional capital will depend on the results of our operations and the status of various capital and industry markets at the time we seek such capital.
Our ability to raise additional capital 17 will depend on the results of our operations and the status of various capital and industry markets at the time we seek such capital.
During times when the oil or natural gas markets are weak, our customers are more likely to experience a deterioration in their financial condition. Many of our customers’ equity values and liquidity substantially decline during declines in oil and natural gas prices, and in some cases access to capital markets may be an unreliable source of financing for some customers.
During times when the oil and gas markets are weak, our customers are more likely to experience a deterioration in their financial condition. Many of our customers’ equity values and liquidity substantially decline during declines in oil and gas prices, and in some cases access to capital markets may be an unreliable source of financing for some customers.
Our current credit agreement contains covenants that limit our operating and financial flexibility and, if breached, could expose us to severe remedial provisions.
Our current Credit Facility agreement contains covenants that limit our operating and financial flexibility and, if breached, could expose us to severe remedial provisions.
This would make it difficult for other minority shareholders to effect a change in control or otherwise extend any significant control over our management. This may adversely affect the market price and interfere with the voting and other rights of our common stock. ITEM 1B. UNRESOLVED STAFF COMMENTS 20
This would make it difficult for other minority shareholders to effect a change in control or otherwise extend any significant control over our management. This may adversely affect the market price and interfere with the voting and other rights of our common stock. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
These activities include increasing attention and demands for action related to climate change and energy transition matters, such as promoting the use of substitutes to fossil fuel products 13 and encouraging the divestment of fossil fuel equities, as well as pressuring lenders and other financial services companies to limit or curtail activities with fossil fuel companies.
These activities include increasing attention and demands for action related to climate change and energy transition matters, such as promoting the use of substitutes to fossil fuel products 14 and encouraging the divestment of fossil fuel equities, as well as pressuring lenders and other financial services companies to limit or curtail activities with fossil fuel companies.
Given the volatility of the oil and gas market, we cannot be sure that a substantial number of our customers will continue their rental agreements or that, if such agreements were terminated we will be able to re-rent the equipment to new customers or that any re-rentals would be at comparable rental rates.
Given the volatility of the oil and gas market, we cannot be certain that a substantial number of our customers will continue their rental agreements or that, if such agreements were terminated we will be able to re-rent the equipment to new customers or that any re-rentals would be at comparable rental rates.
In 2023, we had significant growth in our revenue and operations. Our strategy envisions the continued expansion and growth of our business, subject to the demand for oil and gas and the impact of the other risks set forth in this risk factor section and elsewhere in this Report.
In 2024, we had significant growth in our revenue and operations. Our strategy envisions the continued expansion and growth of our business, subject to the demand for oil and gas and the impact of the other risks set forth in this risk factor section and elsewhere in this Report.
In addition, our common stock price is subject to fluctuations in response to variations in quarterly operating results, changes in management, future announcements concerning us, general trends in the industry and other events or factors such as those described above. 19 If we issue debt or equity securities, you may lose certain rights and be diluted.
In addition, our common stock price is subject to fluctuations in response to variations in quarterly operating results, changes in management, future announcements concerning us, general trends in the industry and other events or factors such as those described above. If we issue debt or equity securities, you may lose certain rights and your ownership may be diluted.
Uncertainty and turmoil in the credit markets may negatively impact the ability of our customers to finance utilization of our products and services and could result in a decrease in, or cancellation of, orders or adversely affect the collectability of our receivables.
Uncertainty and turmoil in the credit markets may negatively impact the ability of our customers to finance utilization of our products and services and could result in a decrease in, or cancellation of, contracts or adversely affect the collectability of our receivables.
These companies may also be better positioned than us to successfully endure downturns in the oil and natural gas industry. 11 Our operations may be adversely affected if our current competitors or new market entrants introduce new products or services with better prices, features, performance or other competitive characteristics than our products and services.
These companies may also be better positioned than us to successfully endure downturns in the oil and gas industry. 12 Our operations may be adversely affected if our current competitors or new market entrants introduce new products or services with better prices, features, performance or other competitive characteristics than our products and services.
Additional risks and uncertainties, including those that we have not yet identified or that we currently believe are immaterial, may also adversely affect our business, financial condition or results of operations. Risks Associated With Our Industry Decreased oil and natural gas prices and oil and gas industry expenditure levels adversely affect our revenue.
Additional risks and uncertainties, including those that we have not yet identified or that we currently believe are immaterial, may also adversely affect our business, results of operations, financial condition and cash flows. Risks Associated With Our Industry Decreased oil and gas prices and oil and gas industry expenditure levels adversely affect our revenue.
If we are unable to manage our growth, our financial conditions and results of operations may be adversely affected. Liability to customers under warranties and indemnification provisions may materially and adversely affect our results of operations. We provide warranties as to the proper operation and conformance to specifications of the equipment we manufacture.
If we are unable to manage our growth, our financial conditions and results of operations may be adversely affected. Liability to customers under warranties and indemnification provisions may materially and adversely affect our results of operations. We provide warranties as to the proper operation and conformance to specifications of the equipment we rent and sell.
The length of our compressor rental agreements with our customers varies based on customer needs, equipment configurations and geographic area. In most cases, under currently prevailing rental rates, the initial rental periods are not long enough to enable us to fully recoup the average cost of acquiring or fabricating the equipment.
The length of our compressor rental agreements with our customers varies based on customer needs, equipment configurations and geographic area. In certain cases, under currently prevailing rental rates, the initial rental periods are not long enough to enable us to fully recoup the average cost of acquiring or assembling the equipment.
International, national and state governments and agencies continue to evaluate and promulgate legislation and regulations that are focused on restricting greenhouse gas (GHG) emissions.
International, national and state governments and agencies continue to evaluate and promulgate legislation and regulations that are focused on restricting GHG emissions.
Failure to generate sufficient cash flow, together with the absence of alternative sources of capital, could stagnate our growth and have a material adverse effect on our business, financial condition, results of operations or cash flow. Our debt levels may negatively impact our current and future financial stability.
Failure to generate sufficient cash flows from operating activities, together with the absence of alternative sources of capital, could stagnate our growth and have a material adverse effect on our business, financial condition, results of operations or cash flows. Our debt levels may negatively impact our current and future financial stability.
This lag can reduce the amount of future borrowings available for working capital purposes and new compressor unit acquisition until the unit is placed into service. During the past year, we funded our capital expenditures through cash flows from operations and borrowings from our revolving credit facility.
This lag can reduce the amount of future borrowings available for working capital purposes and new compressor unit acquisition until the unit is placed into service. During the past year, we funded our capital expenditures through cash flows from operating activities and borrowings under the Credit Facility.
If we were to materially borrow further under our line of credit or other borrowing arrangements, it is possible that our business will not generate sufficient cash flow from operations to meet any debt service requirements and the payment of principal when due depending on the amount of borrowings at any given time.
If we were to materially borrow further under the Credit Facility or other borrowing arrangements, it is possible that our business will not generate sufficient cash from operating activities to meet any debt service requirements and the payment of principal when due depending on the amount of borrowings at any given time.
Many factors affect the supply and demand for oil and natural gas and, therefore, influence oil and natural gas prices, including: • the level of oil and natural gas production; • the level of oil and natural gas inventories; • domestic and worldwide demand for oil and natural gas; • the expected cost of developing new reserves; • the cost of producing oil and natural gas; • the level of drilling and completions activity; • inclement weather; • domestic and worldwide economic activity; • regulatory and other federal and state requirements in the United States; • the ability of the Organization of Petroleum Exporting Countries, national oil companies and other large producers to set and maintain production levels and prices for oil; • political conditions in or affecting oil and natural gas producing countries; • terrorist activities affecting traditional supply routes and other possible terrorist activities in the United States and elsewhere; • the cost of developing alternative energy sources; • environmental regulation; and • tax policies.
Many factors affect the supply and demand for oil and gas and, therefore, influence oil and gas prices, including: • the level of oil and gas production; • the level of oil and gas inventories; • domestic and worldwide demand for oil and gas; • the expected cost of developing new reserves; • the cost of producing oil and gas; • the level of drilling and completions activity; • inclement weather; • domestic and worldwide economic activity; • regulatory and other federal and state requirements in the U.S.; • the ability of OPEC, national oil companies and other large producers to set and maintain production levels and prices for crude oil; • political conditions in or affecting oil and gas producing countries; • terrorist activities affecting traditional supply routes and other possible terrorist activities in the U.S. and elsewhere; • the cost of developing alternative energy sources; • environmental regulation; and • tax policies.
We currently have on file with the SEC an effective "universal" shelf registration statement on Form S-3, which enables us to sell, from time to time, our common stock and other securities, including debt securities, covered by the registration statement in one or more public offerings.
We currently have on file with the SEC an effective “universal” shelf registration statement on Form S-3, which enables us to sell, from time to time, up to $200 million of our common stock and other securities, including debt securities, covered by the registration statement in one or more public offerings.
We do not carry any key-man insurance on any of our officers or directors. The erosion of the financial condition of our customers could adversely affect our business. Many of our customers finance their exploration and development activities through cash flow from operations, the incurrence of debt or the issuance of equity.
We do not carry any key-person insurance on any of our officers or directors. The erosion of the financial condition of our customers could adversely affect our business. Many of our customers finance their exploration and development activities through cash flows from operating activities, the incurrence of debt or the issuance of equity.
Although we believe that cash on hand, cash flows from our operations and bank borrowing from our revolving credit facility will provide us with sufficient cash to fund our planned capital expenditures for 2024, we cannot provide assurance that these sources will be sufficient considering the factors and limitations noted above.
Although we believe that cash on hand, cash flows from operating activities and borrowing under our Credit Facility will provide us with sufficient cash to fund our planned capital expenditures for 2025, we cannot provide assurance that these sources will be sufficient considering the factors and limitations noted above.
From time to time, for example, legislation has been proposed in Congress to amend the federal Safe Drinking Water Act (“SDWA”) to require federal permitting of hydraulic fracturing and the disclosure of chemicals used in the hydraulic fracturing process.
From time to time, for example, legislation has been proposed in Congress to amend the federal SDWA to require federal permitting of hydraulic fracturing and the disclosure of chemicals used in the hydraulic fracturing process.
In addition, potential sales of our common stock by our directors and officers, who beneficially own approximately 7.3% of the outstanding shares of our common stock as of March 28, 2024, and because of the negative perception of sales by insiders, could also have a negative impact on our stock price.
In addition, potential sales of our common stock by our directors and officers, who beneficially own approximately 6 percent of the outstanding shares of our common stock as of March 14, 2025, and because of the negative perception of sales by insiders, could also have a negative impact on our stock price.
While such levels of inflation have moderated in recent months, uncertainty remains on expectations of inflation during 2024. Should inflationary pressures return or increase, the result will be an increase in our cost structure, including labor costs, parts costs, lubricants and other items used in our operations.
While such levels of inflation have moderated somewhat, inflation pressure continues and uncertainty remains regarding expectations of inflation during 2025. Should inflationary pressures continue or increase, the result will be an increase in our cost structure, including labor costs, parts costs, lubricants and other items used in our operations.
The integration of acquired businesses is likely to be complex and time-consuming, place a significant strain on management and may disrupt our business. We also may be adversely impacted by any unknown liabilities of acquired businesses, including environmental liabilities.
In addition, we may not be able to successfully integrate any businesses or assets that we acquire in the future. The integration of acquired businesses is likely to be complex and time-consuming, place a significant strain on management and may disrupt our business. We also may be adversely impacted by any unknown liabilities of acquired businesses, including environmental liabilities.
The level of our indebtedness could have several important effects on our future operations, including: • our ability to obtain additional financing for working capital, acquisitions, capital expenditures and other purposes may be limited; • a significant portion of our cash flow from operations may be dedicated to the payment of principal and interest (which is variable on our revolving credit facility) on our debt, thereby reducing funds available for other purposes; and • our leverage if increased to an unacceptable level, could make us more vulnerable to economic downturns. 16 If we borrow under our credit line and are unable to service our debt, we will likely be forced to take remedial steps that are contrary to our business plan.
The level of our indebtedness could have several important effects on our future operations, including: • our ability to obtain additional financing for working capital, acquisitions, capital expenditures and other purposes may be limited; • a significant portion of our cash flows from operating activities may be dedicated to the payment of principal and interest (which is variable under the Credit Facility) on our debt, thereby reducing funds available for other purposes; and • our leverage, if increased to an unacceptable level, could make us more vulnerable to economic downturns.
As a result of the COVID-19 outbreak and other economic conditions in the United States and abroad, our revenue and profitability were adversely affected in the ensuing years.
Adverse macroeconomic and business conditions may significantly and negatively affect our results of operations. As a result of the COVID-19 outbreak and other economic conditions in the United States and abroad, our revenue and profitability were adversely affected in the ensuing years.
Risks Associated With Our Company A significant majority of our compressor unit rental agreements are either month-to-month or short-term in duration. which, if terminated or not renewed, would adversely impact our revenue and our ability to recover our initial equipment costs.
Risks Associated With Our Company Approximately one half of our compressor unit rental agreements, representing approximately one quarter of our rented horsepower, are month-to-month in duration, which, if terminated or not renewed, would adversely impact our revenue and our ability to recover our initial equipment costs.
If, as a result of deficiencies in our internal controls, we cannot provide reliable financial reports or prevent fraud, our business decision process may be adversely affected, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the price of our stock could decrease as a result. 18 We rely on computer and telecommunications systems, and failures in our systems or cyber security attacks or breaches could result in information theft, data corruption, disruption in operations and/or financial loss.
If, as a result of deficiencies in our internal controls, we cannot provide reliable financial reports or prevent fraud, our business decision process may be adversely affected, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the price of our stock could decrease as a result.
According to filings made with the Securities and Exchange Commission as of March 28, 2024, an aggregate of approximately 37.1% of the outstanding shares of our common stock are owned by five institutional investors, each of which owns more than 5% of our outstanding shares as of the date of their respective filings.
According to filings made with the SEC through March 14, 2025, an aggregate of approximately 35 percent of the outstanding shares of our common stock are owned by five institutional investors, each of which owns more than 5 percent of our outstanding shares as of the date of their respective filings.
The successful acquisition of businesses or assets will depend on various factors, including, but not limited to, our ability to obtain financing and the competitive environment for acquisitions. In addition, we may not be able to successfully integrate any businesses or assets that we acquire in the future.
However, there can be no assurance that we will be successful in consummating any such acquisitions. The successful acquisition of businesses or assets will depend on various factors, including, but not limited to, our ability to obtain financing and the competitive environment for acquisitions.
We had one customer that accounted for an aggregate of approximately 50% of our revenue for the year ended December 31, 2023, and the same customer accounted for an aggregate of approximately 42% of our revenue for the year ended December 31, 2022. At December 31, 2023, this same customer accounted for an aggregate of 64% of our accounts receivable.
We had one customer that accounted for an aggregate of approximately 54 percent of our revenue for the year ended December 31, 2024, and the same customer accounted for an aggregate of approximately 50 percent of our revenue for the year ended December 31, 2023.
For example, our customers could seek to preserve capital by canceling month-to-month contracts, canceling or delaying scheduled maintenance of their existing natural gas compression equipment or determining not to enter into any new natural gas compression service contracts or purchase new compression equipment. 15 We might be unable to employ qualified technical personnel, which could hamper our present operations or increase our costs.
For example, our customers could seek to preserve capital by canceling month-to-month contracts, canceling or delaying scheduled maintenance of their existing natural gas compression equipment or determining not to enter into any new natural gas compression service contracts or purchase new compression equipment.
Compliance with climate action regulations applicable to our customers' operations may have significant implications that could adversely affect our business and operating results in the fossil fuel sectors, and boosting demand for technologies contributing to the climate action agenda. In the United States, the U.S.
Compliance with climate action regulations applicable to our customers ’ operations may have significant implications that could adversely affect our business and operating results in the fossil fuel sectors, and boosting demand for technologies contributing to the climate action agenda. In the United States, the EPA has taken steps to regulate GHG emissions as air pollutants under the CAA.
Should we utilize our full debt capacity growth beyond that point could be impacted. As a result of our indebtedness at any given point in time, we might not have the ability to incur any substantial additional indebtedness.
As a result of our indebtedness at any given point in time, we might not have the ability to incur any substantial additional indebtedness.
In order to efficiently and effectively manage our planned growth, we will need to continue to analyze and upgrade our use of technology, including our ERP and other operating systems and this will likely require future capital investment. We must continue to refine and expand our business capabilities, our workforce, our systems and processes, and our access to financing sources.
In order to efficiently and effectively manage our planned growth, we will need to continue to analyze and upgrade our use of information technology (“IT”), including our enterprise resource planning and other operating systems and this will likely require future capital investment.
Since our products are used in production applications in the energy industry, expenses and liabilities in connection with accidents involving our products and services could be extensive and may exceed our insurance coverage. Our income taxes may change.
Since our products are used in production applications in the energy industry, expenses and liabilities in connection with accidents involving our products and services could be extensive and may exceed our insurance coverage. Our ability to to use net operating loss carryforwards to offset future taxable income may be subject to certain limitations.
Potential consequences include loss of sensitive or proprietary information, disruption of business operations, financial losses from remedial actions, litigation and potential legal liabilities and damage to customer and investor confidence.
A cybersecurity attack could have a significant adverse impact on our business operations, results of operations, financial condition, cash flows and reputation. Potential consequences include loss of sensitive or proprietary information, disruption of business operations, financial losses from remedial actions, litigation and potential legal liabilities and damage to customer and investor confidence.
The inability to timely renegotiate or re-rent a substantial portion of our compressor rental fleet could have a material adverse effect upon our business, financial condition, results of operations and cash flows. 14 We could be subject to substantial liability claims that could harm our financial condition.
The inability to timely renegotiate or re-rent a substantial portion of our compressor rental fleet could have a material adverse effect upon our business, financial condition, results of operations and cash flows. 15 We depend on particular suppliers and are vulnerable to product shortages and price increases.
As a result of the cyclicality of our industry, we anticipate our results of operations will be volatile in the future. 12 Increased regulation or ban of current fracturing techniques could reduce demand for our compressors.
Due to the short-term nature of most of our rental contracts, changes in market conditions can quickly affect our business. As a result of the cyclicality of our industry, we anticipate our results of operations will be volatile in the future. 13 Increased regulation or ban of current fracturing techniques could reduce demand for our compressors.
On a unit basis, of the 1,247 compressors rented at December 31, 2023, 773 were rented on a month-to-month basis. On a horsepower basis, of the 420,432 total rented horsepower, we had 141,194 of that total rented on a month-to-month basis, with the remainder on contracts expiring between 2024 and 2028.
On a unit basis, of the 1,208 compressors rented at December 31, 2024, 573 were rented on a month-to-month basis. On a horsepower basis, of the 491,756 total rented horsepower, we had 115,071 of that total rented on a month-to-month basis, with the remainder on contracts expiring between 2025 and 2029.
In addition, the U.S. government has proposed rules in the past setting GHG emissions standards for, or otherwise aimed at reducing GHG emissions from, the oil and natural gas industry.
The EPA’s Greenhouse Gas Reporting Rule requires monitoring and reporting of GHG emissions from, among others, certain mobile and stationary GHG emission sources in the oil and gas industry. In addition, the U.S. government has proposed rules in the past setting GHG emissions standards for, or otherwise aimed at reducing GHG emissions from, the oil and gas industry.
Our products are used in production applications where an accident or a failure of a product can cause personal injury, loss of life, damage to property, equipment or the environment, or suspension of operations.
Our insurance coverage may not insure against all potential losses and we could be materially harmed by unexpected losses and liabilities. Our compressors are used in production applications where an accident or a failure of a product can cause personal injury, loss of life, damage to property, equipment or the environment, or suspension of operations.
Many of the compressors that we sell or rent are mechanically complex and often must perform in harsh conditions. We believe that our success depends upon our ability to employ and retain a sufficient number of technical personnel who have the ability to design, utilize, enhance and maintain these compressors.
We believe that our success depends upon our ability to employ and retain a sufficient number of technical personnel who have the ability to design, utilize, enhance and maintain these compressors. Our ability to maintain and expand our operations depends in part on our ability to utilize and increase our skilled labor force.
A significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force or cause an increase in the wage rates that we must pay or both. If either of these events were to occur, our cost structure could increase and our operations and growth potential could be impaired.
The demand for skilled workers is high, and supply is limited. A significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force or cause an increase in the wage rates that we must pay or both.
Our business partners, including vendors, service providers and financial institutions, are also dependent upon digital technology. We are continually exposed to various cybersecurity risks, including but not limited to, unauthorized access to our systems or data, malware and ransomware attacks, denial-of-service attacks, phishing, theft or loss of intellectual property, and data breaches.
We are continually exposed to various cybersecurity risks, including but not limited to, unauthorized access to our systems or data, malware and ransomware attacks, denial-of-service attacks, phishing, theft or loss of intellectual property, and data breaches. These risks could result from malicious actors, employee error, malfeasance, or other operational vulnerabilities.
In the conduct of our business, we rely heavily on information technology systems(“digital technology”), including internet-based systems, to process, transmit and store electronic information. In particular, we depend upon our digital technology for supply chain management, inventory management, payment processing and data storage. Like many companies, we have become increasingly dependent upon digital technology to conduct daily operations.
In particular, we depend upon our digital technology for supply chain management, inventory management, payment processing and data storage. Like many companies, we have become increasingly dependent upon digital technology to conduct daily operations. Our business partners, including customers, vendors, service providers and financial institutions, are also dependent upon digital technology.
Competitive pressures or other factors also may result in significant price competition that could harm our revenue and our business. Additionally, we may face competition in our efforts to acquire other businesses. Adverse macroeconomic and business conditions may significantly and negatively affect our results of operations.
Competitive pressures or other factors also may result in significant price competition that could harm our revenue and our business. In addition, our customers may purchase and operate their own compression fleets in lieu of renting compressors and using our compression services. Additionally, we may face competition in our efforts to acquire other businesses.
The rental contracts of many of our operating compressor units have a short-term duration, and oil and natural gas companies tend to respond quickly to upward or downward changes in prices.
The rental contracts of many of our operating compressor units have a short-term duration, and oil and gas companies tend to respond quickly to upward or downward changes in prices. Any prolonged reduction in drilling and production activities has historically eroded both rental pricing and utilization rates for our compression equipment and services and adversely affected our financial results.
If we fail to acquire or successfully integrate additional businesses, our growth may be limited and our results of operations may suffer. As part of our business strategy, we evaluate potential acquisitions of other businesses or assets. However, there can be no assurance that we will be successful in consummating any such acquisitions.
This could have an adverse impact on our operations, our free cash flow and our ability to invest in future growth. If we fail to acquire or successfully integrate additional businesses, our growth may be limited and our results of operations may suffer. As part of our business strategy, we evaluate potential acquisitions of other businesses or assets.
Additionally, we have employed data backup and storage measures that could allow for recovery of our data. However, we cannot assure that our efforts to prevent such an attack or, that if an attack were to occur, that we would be able to access our data in a timely fashion.
However, we cannot assure that our efforts to prevent such an attack or, that if an attack were to occur, that we would be able to access our data in a timely fashion. 20 Risks Associated With Our Common Stock The price of our common stock may fluctuate.
Additionally, our customers’ production from oil-weighted reserves constitutes the majority percentage of our business. These are considered unconventional sources and are generally less economically feasible to be developed in low oil price environments. A decline in demand for oil and natural gas generally has an adverse effect on our business, financial condition and results of operations.
A reduction in demand has, and could in the future continue to, force us to reduce our pricing substantially. Additionally, our customers’ production from oil-weighted reserves constitutes a substantial portion of our business. These are considered unconventional sources and are generally less economically feasible to be developed in low crude oil price environments.
Oil and natural gas prices and the level of drilling and exploration activity can be volatile. As a result, the demand for our natural gas compression services can be adversely affected. A reduction in demand has, and could in the future continue to, force us to reduce our pricing substantially.
Our results of operations depend upon the level of activity in the energy market, including oil development, production, and transportation. Oil and gas prices and the level of drilling and exploration activity can be volatile. As a result, the demand for our natural gas compression services can be adversely affected.
During 2024, the amount we will spend on capital expenditures related to compression equipment will be determined primarily by the activity of our customers, our financial resources and access to capital.
As of December 31, 2024, our borrowing base under the Credit Facility was approximately $300.0 million, with $170 million outstanding, leaving approximately $130.0 million available for future borrowing. During 2025, the amount we will spend on capital expenditures related to compression equipment will be determined primarily by the activity of our customers, our financial resources and access to capital.
As we continue to grow, we must continue to hire, train, supervise and manage new employees.
We must continue to refine and expand our business capabilities, our workforce, our systems and processes, and our access to financing sources. As we continue to grow, we must continue to hire, train, supervise and manage new employees.
We may require a substantial amount of capital to expand our compressor rental fleet and grow our business.
If either of these events were to occur, our cost structure could increase and our operations and growth potential could be impaired. We may require a substantial amount of capital to expand our compressor rental fleet and grow our business.
Our current credit agreement contains a variable interest rate and increases to such rate may increase our borrowing cost. The interest expense charged on our outstanding borrowings under our current credit agreement is based upon a variable rate which fluctuates as interest rates change.
The interest expense charged on our outstanding borrowings under the Credit Facility agreement is based upon a variable rate which fluctuates as interest rates change. Changes in macroeconomic conditions outside of our control could result in a higher interest rate being charged on our outstanding borrowings and an increase in the overall interest costs charged.
If a breach occurs, no further borrowings would be available under our credit arrangement. If we are unable to repay any outstanding amounts, the lending organization could proceed against and foreclose on the assets we pledged as collateral to secure payment of our indebtedness.
If we are unable to repay any outstanding amounts, the lender could proceed against and foreclose on the assets we pledged as collateral to secure payment of our indebtedness. 18 Our current Credit Facility agreement contains a variable interest rate and increases to such rate may increase our borrowing cost.
Unless we are able to retain our existing customers, or secure new customers if we lose one or more of our significant customers, our revenue and results of operations would be adversely affected. In addition, the default on payments by our significant customer or other important customers would negatively impact our cash flow and current assets.
As of December 31, 2024, this same customer accounted for an aggregate of 52 percent of our accounts receivable. Unless we are able to retain our existing customers, or secure new customers if we lose one or more of our significant customers, our revenue and results of operations would be adversely affected.
Our industry is highly cyclical, and our results of operations may be volatile. Our industry is highly cyclical, with periods of high demand and high pricing followed by periods of low demand and low pricing. Periods of low demand intensify the competition in the industry and often result in rental equipment being idle for long periods of time.
A decline in demand for oil and gas generally has an adverse effect on our business, results of operations, financial condition and cash flows. Our industry is highly cyclical, and our results of operations may be volatile. Our industry is highly cyclical, with periods of high demand and high pricing followed by periods of low demand and low pricing.
We have been required to enter into lower rate rental contracts in response to market conditions and our rentals and sales revenue have decreased as a result of such conditions. Due to the short-term nature of most of our rental contracts, changes in market conditions can quickly affect our business.
Periods of low demand intensify the competition in the industry and often result in rental equipment being idle for long periods of time. At times, we have been required to enter into lower rate rental contracts in response to market conditions and our revenues have decreased as a result of such conditions.
Should any of these items occur, they could negatively impact the results of our operations. A reduction in demand for oil could adversely affect our business. Our results of operations depend upon the level of activity in the energy market, including oil development, production, and transportation.
In addition, inflation may adversely affect customers’ financing costs, cash flows, and profitability, which could adversely impact their operations and our ability to collect receivables. Should any of these items occur, they could negatively impact our results of operations, financial condition and cash flows. A reduction in demand for oil could adversely affect our business.
In November 2023, we increased the borrowing commitment of our revolving credit facility from $175 million to $225 million (subject to borrowing base limitation and customary covenants) and at December 31, 2023, we had $164 million outstanding on the revolving credit facility and anticipate additional borrowing on the facility through 2024.
During 2024, we increased the borrowing commitment of the Credit Facility from $225 million to $300 million and we have the right to request an increase in the potential commitment by $50 million (subject to borrowing base limitation and customary covenants).
Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting.
Failure to maintain effective internal controls could have a material adverse effect on our operations. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting. Effective internal controls are necessary for us to produce reliable financial reports and to help prevent financial fraud.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeITEM 1C. - CYBERSECURITY Information Technology and Cybersecurity Risks. Our information technology, software and application systems (“digital technology’) has been an important part of our operations and our ability to compete successfully.
Biggest changeITEM 1C. CYBERSECURITY Information Technology and Cybersecurity Risks. Our IT systems and digital technology has been an important part of our operations and our ability to compete successfully. We continue to invest in technology solutions to improve inefficient systems, to streamline and automate workflows and to provide digital and mobile applications for our field service personnel.
Governance Our Board of Directors has an active role in oversight of our risks and is assisted by management in the exercise of these responsibilities. Our Manager of Information Technology prepares and gives a presentation to the Board at each of its quarterly meetings, which includes updates on cybersecurity.
Governance Our Board of Directors has an active role in oversight of our risks and is assisted by our management in the exercise of these responsibilities. Our Manager of Information Technology (“IT Manager”) prepares and provides a presentation to the Board of Directors at each of its quarterly meetings, which includes updates on cybersecurity.
Cybersecurity Incidents We have not experienced any material cybersecurity incidents nor have we identified risks from known threats that could likely materially impacted our operations or financial results. Management of Cybersecurity Risk During 2023, we adopted a Cybersecurity Event Plan (“Cybersecurity Plan”) which outlines how we identify and manage our cybersecurity risk.
Cybersecurity Incidents We have not experienced any material cybersecurity incidents nor have we identified risks from known threats that could likely materially impact our operations or financial results. 22 Management of Cybersecurity Risk We maintain a Cybersecurity Event Plan (“Cybersecurity Plan”) which outlines how we identify and manage our cybersecurity risk.
We face ongoing risk from cybersecurity threats. There can be no assurance that our efforts will prevent or mitigate all cybersecurity events, which, if realized, could have a material impact on our operations and financial results. See Part I, Item 1A “Risk Factors” of this Report.
There can be no assurance that our efforts will prevent or mitigate all cybersecurity events, which, if realized, could have a material impact on our operations and financial results. See Part I, Item 1A “Risk Factors” of this Report for additional information.
Our IT Manager is responsible for assessing and managing risks from cybersecurity threats and carrying out our formal cybersecurity event plan. Our IT Manager is responsible for reporting material incidents to our Chief Executive Officer, who in turn will report to the Lead Independent Director.
Our IT Manager is responsible for assessing and managing risks from cybersecurity threats and carrying out our formal cybersecurity event plan. Our IT Manager is also responsible for reporting material incidents to our Chief Executive Officer, who in turn will report to the Lead Independent Director. Our IT Manager has over 20 years of IT experience in the energy industry.
We continue to invest in technology solutions to improve more inefficient systems, to streamline and automate workflows and to provide digital and mobile applications for our field service personnel. We are committed to maintaining robust cybersecurity measures, continuously evaluating and updating our cybersecurity practices, and being prepared to respond to and recover from cybersecurity incidents.
We are committed to maintaining robust cybersecurity measures, continuously evaluating and updating our cybersecurity practices, and being prepared to respond to and recover from cybersecurity incidents. We face ongoing risk from cybersecurity threats.
Removed
Our IT Manager has over 20 years of information technology experience in the energy industry. 21

Item 2. Properties

Properties — owned and leased real estate

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Biggest changePROPERTIES The table below describes the material facilities owned or leased by Natural Gas Services Group as of December 31, 2023: Location Status Square Feet Uses Tulsa, Oklahoma Owned and Leased 91,780 Compressor fabrication, rental and services Midland, Texas Owned 70,000 Compressor repair and overhaul, services Lewiston, Michigan Owned 15,360 Compressor fabrication, rental and services Midland, Texas Owned 45,000 Corporate office Bloomfield, New Mexico Owned 7,000 Office and parts and services Godley, Texas Leased 5,000 Parts and services Bridgeport, Texas Leased 4,500 Office and parts and services Midland, Texas Owned 4,100 Parts and services Carrollton, Ohio Leased 2,600 Parts and services Wheeler, Texas Leased 2,160 Parts and services We believe that our properties are generally well maintained and in good condition and adequate for our purposes.
Biggest changePROPERTIES The table below describes the material facilities that we owned or leased as of December 31, 2024: Location Status Square Feet Uses Tulsa, Oklahoma Owned and Leased 91,780 Compressor fabrication, rental and services Midland, Texas Owned 70,000 Compressor repair and overhaul, services Lewiston, Michigan Owned 15,360 Compressor fabrication, rental and services Midland, Texas Owned 45,000 Corporate office Pecos, Texas Leased 7,500 Office and parts and services Bloomfield, New Mexico Owned 7,000 Office and parts and services Godley, Texas Leased 5,000 Parts and services Bridgeport, Texas Leased 4,500 Office and parts and services Midland, Texas Owned 4,100 Parts and services Carlsbad, New Mexico Leased 4,000 Office and parts and services Carrollton, Ohio Leased 2,600 Parts and services Wheeler, Texas Leased 2,160 Parts and services We believe that our properties are generally well maintained and in good condition and adequate for our purposes.
Added
As discussed in Part I, Item 1. “ Business , ” we announced our intent to close our repair and overhaul services facility in Midland, Texas and cease operations by April 1, 2025. In addition, we have initiated efforts to market the facility and the underlying real property. 23

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are not currently a party to any bankruptcy, receivership, reorganization, adjustment or similar proceeding, and we are not aware of any material threatened litigation. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Biggest changeWe are not currently a party to any bankruptcy, receivership, reorganization, adjustment or similar proceeding, and we are not aware of any material threatened litigation.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePayment of dividends in the future 22 will depend upon our earnings, capital requirements, and other factors which our Board of Directors may deem relevant. Our credit agreement also contains restrictions on our paying dividends under certain circumstances.
Biggest changePayment of dividends in the future will depend upon our earnings, capital requirements, and other factors which our Board of Directors may deem relevant. Our Credit Facility agreement also contains restrictions on our paying dividends under certain circumstances. Equity Compensation Plans For disclosures regarding securities authorized for issuance under equity compensation plans, see Part III, Item 12.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock currently trades on the New York Stock Exchange under the symbol “NGS”. As of December 31, 2023, as reflected by our transfer agent records, we had 7 record holders of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock currently trades on the New York Stock Exchange under the symbol “NGS.” As of December 31, 2024, as reflected by our transfer agent records, we had 7 record holders of our common stock.
This number does not include any beneficial owners for whom shares of common stock may be held in “nominee” or “street” name. On March 28, 2024, the last reported sale price of our common stock as reported by the New York Stock Exchange was $19.43 per share.
This number does not include any beneficial owners for whom shares of common stock may be held in “nominee” or “street” name. On March 14, 2025, the last reported sale price of our common stock as reported by the New York Stock Exchange was $22.64 per share.
Removed
Equity Compensation Plans The following table summarizes certain information regarding our equity compensation plans as of December 31, 2023: Plan Category (a) Number of securities to vest or be issued upon exercise of outstanding options (b) Weighted-average issuance or exercise price of outstanding options (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders: Stock Option Plan 129,751 (1) $ 20.59 415,085 2019 Equity Incentive Plan 133,898 $ 10.66 405,833 Total 263,649 820,918 (1) Total number of shares issuable upon exercise of options granted to employees, officers, and directors under our 1998 Stock Option Plan.
Added
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Form 10–K. Sale of Unregistered Securities and Issuer Repurchases None. Purchases of Equity Securities by Issuer and Affiliated Purchasers None. ITEM 6. RESERVED 25
Removed
Sale of Unregistered Securities and Issuer Repurchases We made no sales of unregistered securities during the year ended December 31, 2023, nor any repurchases during 2023. 23 ITEM 6. RESERVED

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeReconciliation The following table calculates gross margin, the most directly comparable GAAP financial measure, and reconciles it to adjusted gross margin: Year Ended December 31, 2023 2022 (in thousands) Total revenue $ 121,167 $ 84,825 Costs of revenue, exclusive of depreciation and amortization (62,454) (46,357) Depreciation allocable to costs of revenue (25,856) (23,551) Gross margin 32,857 14,917 Depreciation allocable to costs of revenue 25,856 23,551 Adjusted gross margin $ 58,713 $ 38,468 Liquidity and Capital Resources Our working capital positions as of December 31, 2023 and 2022 were as follows: As of December 31, 2023 2022 (in thousands) Current Assets: Cash and cash equivalents $ 2,746 $ 3,372 Trade accounts receivable, net 39,186 14,668 Inventory, net 21,639 23,414 Federal income tax receivable 11,538 11,538 Prepaid expenses and other 1,162 1,155 Total current assets 76,271 54,147 Current Liabilities: Accounts payable 17,628 6,481 Accrued liabilities 15,085 23,918 Total current liabilities 32,713 30,399 Net working capital $ 43,558 $ 23,748 For the year ended December 31, 2023, we invested approximately $153.9 million in rental equipment, property and other equipment.
Biggest changeThe following table calculates our gross margin, the most directly comparable GAAP financial measure, and reconciles it to Adjusted gross margin with further detail by revenue classification for the periods presented: Year Ended December 31, 2024 2023 2022 Total revenue $ 156,742 $ 121,167 $ 84,825 Cost of revenue, exclusive of depreciation and amortization (68,756) (62,454) (46,357) Depreciation allocable to cost of revenues (30,813) (25,856) (23,551) Gross margin 57,173 32,857 14,917 Depreciation allocable to cost of revenues 30,813 25,856 23,551 Adjusted gross margin $ 87,986 $ 58,713 $ 38,468 Adjusted gross margin by revenue classification: Rental $ 87,333 $ 57,282 $ 36,715 Sales (290) 2 918 Aftermarket services 943 1,429 835 Total adjusted gross margin $ 87,986 $ 58,713 $ 38,468 28 Adjusted EBITDA “Adjusted EBITDA” is a non-GAAP financial measure that we define as net income (loss) before interest, taxes, depreciation and amortization, as well as an increase in inventory allowance, impairments, retirement of rental equipment, non-recurring restructuring charges including severance and non-cash equity-classified stock-based compensation expenses.
In general, we expect our overall business activity and revenues to track the level of activity in the oil and natural gas industry, specifically production levels, with changes in crude oil and condensate production and consumption levels and prices affecting our business more than changes in domestic natural gas production and consumption levels and prices.
In general, we expect our overall business activity and revenues to track the level of activity in the oil and gas industry, specifically production levels, with changes in crude oil and condensate production and consumption levels and prices affecting our business more than changes in domestic natural gas production and consumption levels and prices.
We typically experience a decline in demand during periods of low crude oil and natural gas prices. In recent years, our level of activity has become more largely driven by the price of crude oil as opposed to natural gas.
We typically experience a decline in demand during periods of low oil and gas prices. In recent years, our level of activity has become more largely driven by the price of crude oil as opposed to natural gas.
However, management believes Adjusted EBITDA is useful to an investor in evaluating our operating performance because: 29 • it is widely used by investors in the energy industry to measure a company’s operating performance without regard to items excluded from the calculation of Adjusted EBITDA, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; • it helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating structure; and • it is used by our management for various purposes, including as a measure of operating performance, in presentations to our Board of Directors, as a basis for strategic planning and forecasting, and as a component for setting incentive compensation.
However, management believes Adjusted EBITDA is useful to an investor in evaluating our operating performance because: • it is widely used by investors in the energy industry to measure a company’s operating performance without regard to items excluded from the calculation of Adjusted EBITDA, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; • it helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating structure; and • it is used by our management for various purposes, including as a measure of operating performance, in presentations to our Board of Directors, as a basis for strategic planning and forecasting, and as a component for setting incentive compensation.
As demand and prices increase, oil and natural gas producers typically increase their capital expenditures for drilling, development and production activities, although recent equity capital constraints and demands from institutional investors to keep spending within operating cash flow have meaningfully restrained capital expenditure budgets of domestic exploration and production companies.
As demand and prices increase, oil and gas producers typically increase their capital expenditures for drilling, development and production activities, although recent equity capital constraints and demands from institutional investors to keep spending within operating cash flow have meaningfully restrained capital expenditure budgets of domestic exploration and production companies.
Adjusted gross margin has certain material limitations associated with its use as compared to gross margin. These limitations are primarily due to the exclusion of depreciation expense, which is material to our results of operations. Because we use capital assets, depreciation expense is a necessary element of our costs and our ability to generate revenue.
Adjusted gross margin has certain material limitations associated with its use as compared to gross margin. These limitations are primarily due to the exclusion of depreciation and amortization expense, which is material to our results of operations. Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and our ability to generate revenue.
If we require additional capital to fund any significant unanticipated expenditures, including any material acquisitions of other businesses, joint ventures or other opportunities, this additional capital could exceed our current resources, might not be available to us when we need it, or might not be on acceptable terms.
If we require additional capital to fund any significant unanticipated expenditures, including any material acquisitions of other businesses, joint ventures or other opportunities, this additional capital could exceed our current resources and might not be available to us when we need it, or might not be on acceptable terms.
Generally, increased capital expenditures result in greater revenues and profits for service and equipment companies. Generally, higher commodity prices lead to higher capital expenditures by oil and natural gas producers and higher levels of production.
Generally, increased capital expenditures result in greater revenues and profits for service and equipment companies. Generally, higher commodity prices lead to higher capital expenditures by oil and gas producers and higher levels of production.
To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense in the tax provision in the statement of income. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.
To the extent we establish a valuation allowance or increase this allowance during a period, we must include an expense in the tax provision in the Statement of Operations. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.
We recognized this need in recent years and have shifted our cash and fabrication resources towards designing, fabricating and renting gas compressor packages that range from 400 horsepower up to 2,500 horsepower. While this is a response to market conditions and trends, it also provides us with the opportunity to compete as a full-line compression provider.
We recognized this need in recent years and have shifted our cash and fabrication resources towards renting gas compressor packages that range from 400 horsepower up to 2,500 horsepower. While this is a response to market conditions and trends, it also provides us with the opportunity to compete as a full-line compression service provider.
With this shift towards oil production the demand for overall compression services and products is driven by two general factors; an increased focus by producers on artificial lift applications, e.g., production enhancement with compression assisted gas lift; and declining reservoir pressure in maturing natural gas producing fields, especially non-conventional production.
With this shift towards oil production the demand for overall compression services and products is driven by two general factors; (i) an increased focus by producers on artificial lift applications, e.g., production enhancement with compression assisted gas lift; 26 and (ii) declining reservoir pressure in maturing natural gas producing fields, especially non-conventional production.
The level of production for oil activity and capital expenditures has generally been dependent upon the prevailing view of future gas and oil prices, which are influenced by numerous supply and demand factors, including availability and cost of capital, well productivity and development costs, global and domestic economic conditions, environmental regulations, policies of OPEC countries and Russia, and other factors.
The level of production for crude oil activity and capital expenditures has generally been dependent upon the prevailing view of future crude oil prices, which are influenced by numerous supply and demand factors, including availability and cost of capital, well productivity and development costs, global and domestic economic conditions, environmental regulations, policies of OPEC and Russia, and other factors.
Depreciation expense does not accurately reflect the costs required to maintain and replenish the operational usage of our assets and therefore may not portray the costs from current operating activity. Rather, depreciation expense reflects the systematic allocation of historical property and equipment values over the estimated useful lives.
Depreciation and amortization expense does not accurately reflect the costs required to maintain and replenish the operational usage of our assets and therefore may not portray the costs from current operating activity. Rather, depreciation and amortization expense reflects the systematic allocation of historical property and equipment costs over their estimated useful lives.
The following factors could trigger an impairment review: significant underperformance relative to historical or projected future cash flows; significant adverse changes in the extent or manner in which asset (or asset group) is being used or its condition, including a meaningful drop in fleet utilization over the prior four quarters; significant negative industry or company-specific trends or actions, including meaningful capital expenditure budget reductions by our major customers or other sizable exploration and production or midstream companies, as well as significant declines in oil and natural gas prices; legislative changes prohibiting us from leasing our units; or poor general economic conditions.
The following factors could trigger an impairment review: significant underperformance relative to historical or projected future cash flows; significant adverse changes in the extent or manner in which an asset (or asset group) is being used or its condition, including a meaningful decline in fleet utilization over prior periods; significant negative industry or company-specific trends or actions, including meaningful capital expenditure budget reductions by our major customers or other sizable exploration and production or midstream organizations, as well as significant declines in oil and natural gas prices; legislative changes prohibiting us from leasing our units; or poor general economic conditions.
Please read the table below under “Reconciliation” to see how Adjusted EBITDA reconciles to our net income, the most directly comparable GAAP financial measure.
Please read the table below to see how Adjusted EBITDA reconciles to our net income (loss), the most directly comparable GAAP financial measure.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under generally accepted accounting principles.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP.
This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting 26 purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet.
This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for income tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are reflected on our Consolidated Balance Sheets.
We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on current and anticipated customer demand and production requirements.
We regularly review inventory quantities on hand and record an allowance for excess and obsolete inventory based primarily on current and anticipated customer demand and production requirements.
We believe adjusted gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those 30 operations.
Adjusted gross margin differs from gross margin, in that gross margin includes depreciation and amortization expense. We believe Adjusted gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations.
Accounting for Income Taxes As part of the process of preparing our financial statements, we are required to estimate our federal income taxes as well as income taxes in each of the states in which we operate.
Income Taxes In connection with the process of preparing our financial statements, we are required to estimate our federal income taxes as well as income taxes in each of the states in which we operate.
The most critical factor in assessing the outlook for the industry is the worldwide supply and demand for oil and natural gas and the corresponding changes in commodity prices.
The oil and gas equipment rental and services industry is cyclical in nature. The most critical factor in assessing the outlook for the industry is the worldwide supply and demand for oil and gas and the corresponding changes in commodity prices.
Adjusted gross margin is included as a supplemental disclosure because it is a primary measure used by our management as it represents the results of revenue and costs (excluding depreciation and amortization expense), which are key components of our operations. Adjusted gross margin differs from gross margin, in that gross margin includes depreciation expense.
Adjusted Gross Margin We define “Adjusted Gross Margin” as total revenue less costs of revenues (excluding depreciation and amortization expense). Adjusted gross margin is included as a supplemental disclosure because it is a primary measure used by our management as it represents the results of revenue and costs (excluding depreciation and amortization expense), which are key components of our operations.
We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
We believe that the following discussion addresses our most critical accounting estimates, which are those that are most important to the portrayal of our results of operations, financial condition and cash flows and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. 38 Inventories We value our total inventory (current and long-term) at the lower of the actual cost and net realizable value.
Our Performance Trends and Outlook The market for compression equipment and services is highly dependent on the production levels of oil and natural gas.
The market for compression equipment and services is highly dependent on the production levels and pricing of oil and gas. Crude Oil .
Sales are subject to fluctuations in the timing of industry activity related to capital projects and, as such, can vary substantially between periods. Company management routinely reviews its inventory for obsolescence.
Sales are subject to fluctuations in the timing of industry activity related to our customers’ capital projects and, as such, can vary substantially between periods.
The obligations under the Credit Agreement are secured by a first priority lien on a variety of our assets, including inventory and accounts receivable as well as a variable number of our leased compressor equipment.
The obligations under the Credit Facility are secured by a first priority lien on most of our assets, including inventory and certain accounts receivable as well as a variable number of our leased compressor units. The maturity date of the Credit Facility is February 28, 2028.
We also have a right to request from the Lender, on an uncommitted basis, an increase of up to $30 million on the aggregate commitment; provided, however, the aggregate commitment amount is not permitted to exceed $50 million. The maturity date of the Credit Agreement is May 11, 2026.
We also have a right to request from the Lender, an increase to the potential aggregate commitment of up to $50.0 million; provided, however, the aggregate commitment amount is not permitted to exceed $350.0 million.
These contracts may also include a fee for servicing the compressor or flare during the rental contract. Our rental contracts typically range from six to 60 months, with our larger horsepower compressors having longer minimum contract terms. Our rental revenue is recognized over time, with equal monthly payments over the term of the contract.
These contracts, which all qualify as operating leases under GAAP, may also include a fee for servicing the compressor unit during the rental contract. Our rental contracts typically range from six to 60 months. Our revenue is recognized over time, with monthly payments over the term of the contract.
Generally, we feel that the level of demand for our compressor services is more closely tied to production activities, which are likely to fare better than drilling activity in periods of declining commodity prices. For fiscal year 2024, our forecasted capital expenditures will be directly dependent upon our customers’ compression requirements and our capital availability, assuming prudent use of leverage.
Generally, we feel that the level of demand for our compressor services is more closely tied to production activities, which are likely to fare better than drilling activity in periods of declining commodity prices.
We assess the impairment of rental equipment and property and equipment whenever events or changes in circumstances indicate that the net recorded amount may not be recoverable.
Impairments We assess our long-lived assets, including rental equipment, other property and equipment and intangible assets for impairment whenever events or changes in circumstances indicate that the net carrying values may not be recoverable.
An impairment loss is recognized if the future undiscounted cash flows associated with the asset (or asset group) and the estimated fair value of the asset are less than the asset's carrying value. Inventories We value our total inventory (current and long-term) at the lower of the actual cost and net realizable value of the inventory.
After the assessments of such circumstances, an impairment loss is recognized if the future undiscounted net cash flows associated with the asset (or asset group) and the estimated fair value of the asset are less than the asset’s (or asset group’s) carrying value.
Reconciliation The following table reconciles our net income (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA: Year Ended December 31, 2023 2022 (in thousands) Net income (loss) $ 4,747 $ (569) Interest expense 4,082 364 Income tax expense 1,873 528 Depreciation and amortization 26,550 24,116 Impairment expense 779 — Inventory allowance 3,965 83 Retirement of rental equipment 505 196 Severance expenses 1,224 2,537 Stock compensation expense 2,054 1,910 Adjusted EBITDA $ 45,779 $ 29,165 Our definition and use of Adjusted Gross Margin We define “Adjusted Gross Margin” as total revenue less costs of revenues (excluding depreciation and amortization expense).
The following table reconciles our net income (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA for the periods presented: Year Ended December 31, 2024 2023 2022 Net income (loss) $ 17,227 $ 4,747 $ (569) Interest expense 11,927 4,082 364 Income tax expense 4,439 1,873 528 Depreciation and amortization 31,347 26,550 24,116 Impairments 841 779 — Inventory allowance 1,863 3,965 83 Retirement of rental equipment 28 505 196 Severance and restructuring charges 33 1,224 2,537 Stock-based compensation 1,821 2,054 1,910 Adjusted EBITDA $ 69,526 $ 45,779 $ 29,165 29 Results of Operations Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023 Rentals We generate revenue from renting compressors to our customers.
Margins, exclusive of depreciation and amortization, for our rental business have historically run in the mid-40% to low-60% range, while margins for the compressor sales business tend to be in the mid-20% range. The oil and natural gas equipment rental and services industry is cyclical in nature.
State of the Industry and Outlook Our strategy for growth is focused on our compressor rental business. Gross margins, exclusive of depreciation and amortization, for our rental business have historically been in the mid-40 percent to low-60 percent range, while margins for the compressor sales business tend to be substantially lower.
On February 28, 2023, we replaced our Credit Agreement by entered into a five-year senior secured revolving credit agreement (“Amended and Restated Credit Agreement”) with Texas Capital Bank, as administrative agent (the “Lender”), TCBI Securities, Inc., as joint lead arranger and sole book runner and Bank of America, N.A., as joint lead arranger, with an initial commitment of $175 million as of the closing date.
We have a five-year senior secured revolving credit agreement, as amended, or the Credit Facility, with Texas Capital Bank, National Association (the “Lender”) as administrative agent, TCBI Securities, Inc., as joint lead arranger and sole book runner and Bank of America, N.A., as joint lead arranger, with a total commitment of $300.0 million.
The Company accesses anticipated customer demand based on current and upcoming capital expenditure budgets of its major customers as well as other significant companies in the industry, along with oil and natural gas price forecasts and other factors affecting the industry. For the year ended December 31, 2023, our provision for excess and obsolete inventory totaled $4.0 million.
We assess anticipated customer demand based on current and upcoming capital expenditure budgets of our major customers as well as other significant participants in the industry, along with oil and gas price forecasts and other factors affecting the industry as a whole.
While oil prices have historically been volatile, we expect demand for our existing compressor fleet to remain positive assuming oil prices remain in reasonable bands around current pricing levels.
We feel that the current crude oil market production outlook is favorable, with current prices creating strong incentives for our customers to maximize their production levels. While crude oil prices have historically been volatile, we expect demand for our existing compressor fleet to remain positive assuming crude oil prices remain within reasonable bands with respect to current pricing levels.
We ended 2023 with an inventory allowance balance of $4.0 million. Company management also routinely reviews its rental fleet to determine which units are no longer of the type, configuration, make or model that our customers are demanding or that are not cost efficient to refurbish, maintain and/or operate.
Please see Note 4 ( “ Inventory ” ) to our Consolidated Financial Statements for additional information regarding the inventory allowance. 33 Retirement of Rental Equipment We routinely review the rental fleet to determine which units are no longer of the type, configuration, make or model that our customers are demanding or that are not cost efficient to refurbish, maintain and/or operate.
Components of Our Principal Capital Expenditures Capital expenditures for the years ended December 31: Expenditure Category 2023 2022 (in thousands) Rental equipment and property and equipment $ 153,943 $ 65,122 The level of our capital expenditures will vary in future periods depending on energy market conditions and other related economic factors.
The level of our capital expenditures will vary in future periods depending on energy market conditions and other related economic factors.
During the year, we added $152.5 million in new equipment to our rental fleet and $1.4 million in other property and equipment. Our investment in rental equipment includes any changes to work-in-progress related to our rental fleet jobs at the beginning of the year compared to the end of the year.
Our investment in rental equipment includes any changes to work-in-progress related to our rental fleet projects at the beginning of the year compared to the end of the year. Our rental work-in-progress increased by $0.8 million and $13.8 million during 2024 and 2023, respectively. We paid $0.2 million and $0.4 million for COLI policy purchases during 2024 and 2023.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is intended to assist you in understanding our financial position and results of operations for each of the years ended December 31, 2023 and 2022. You should read the following discussion and analysis in conjunction with our audited financial statements and the related notes.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis of our financial condition and results of operations for each of the years ended December 31, 2024 and 2023 are based on, and should be read in conjunction with, our audited Consolidated Financial Statements and the related notes included elsewhere in this 2024 Annual Report on Form 10-K.
Our rental equipment has estimated useful lives between 15 to 25 years, while our property and equipment has estimated useful lives which range from 3 to 39 years. The majority of our property and equipment, including rental equipment, is a direct cost to generating revenue.
Long-Lived Assets Depreciation Depreciation expense is computed using the straight-line method over the estimated useful lives of the underlying long-lived assets. Our rental equipment has estimated useful lives ranging from 15 to 25 years, while our property and equipment has estimated useful lives which range from 3 to 39 years.
In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting 25 principles generally accepted in the United States. Actual results could differ significantly from those estimates under different assumptions and conditions.
In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our Consolidated Financial Statements. We evaluate our estimates and assumptions on an ongoing basis.
We continue to maintain new unit compressor fabrication capability at our Tulsa, Oklahoma facility as well as having relationships with multiple outsourced compressor fabrication providers. We also manufacture a line of compressor frames, cylinders and parts, known as our CiP (Cylinder-in-Plane) product line.
In December 2023, we decided to cease fabrication of new compressor units for sale or rental to customers at our Midland, Texas facility. We continue to maintain new unit compressor fabrication capability at our Tulsa, Oklahoma facility as well as having relationships with multiple outsourced compressor fabrication providers.
Some fabrication work is done in-house with an increasing amount done by third-party contractors. Our primary focus is on the rental of natural gas compressors. Our rental contracts generally provide for initial terms of six to 60 months, with our larger horsepower units having longer initial terms than our small and medium horsepower units.
Our rental contracts generally provide for initial terms of six to 60 months, with our larger horsepower units having longer initial terms than our small and medium horsepower units. After the initial term of our rental contracts, most of our customers have continued to rent our compressors on a month-to-month basis.
As a result of this review, we determined 95 units should be retired from our rental fleet. Accordingly, we recorded a $0.5 million loss on retirement of rental equipment during the year ended December 31, 2023. Operating income increased to $10.5 million for the year ended December 31, 2023, compared to $0.4 million for the year ended December 31, 2022.
The following table indicates the charges incurred for the retirement of rental equipment for the periods presented: Year Ended December 31, 2024 2023 Change % Change Retirement of rental equipment $ 28 $ 505 $ (477) NM Retirements of compressor units during 2024 were minimal as compared to 2023 during which time we determined 95 units should be retired from our rental fleet for which we recorded loss on retirement of rental equipment during the year.
We describe our significant accounting policies more fully in Note 2 ("Summary of Significant Accounting Policies") to our consolidated financial statements. Our critical accounting policies are as follows: • revenue recognition; • provision for credit losses; • accounting for income taxes; • accounting for long-lived assets; and • accounting for inventory.
Critical Accounting Estimates We describe our significant accounting policies in Note 2 ( “ Summary of Significant Accounting Policies ” ) to our Consolidated Financial Statements.
We believe that cash on hand, cash flows from operations and borrowings under our revolving credit facility will be sufficient to satisfy our capital and liquidity requirements through 2024.
Based upon existing economic and market conditions, we believe that cash on hand, cash flows from operating activities and borrowings under the Credit Facility will be sufficient to satisfy our capital and liquidity requirements for at least the twelve months subsequent to the date that this Annual Report on Form 10-K was filed.
The increase is the result of new units added to our rental fleet in 2023. We added 92 units (approximately 98,349 horsepower) to our fleet during the twelve-month period ended December 31, 2023. Seventy-three of those units were 400 horsepower or larger, representing approximately 96% of the horsepower added.
The increase is primarily the result of new units added to our rental fleet in 2024 and 2023. We placed into service 22 high horsepower units (approximately 28,740 horsepower) to our fleet in 2024 and 92 units (approximately 98,349 horsepower) in 2023.
Off-Balance Sheet Arrangements From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations. As of December 31, 2023, we did not have any material off-balance sheet arrangements. Recently Issued Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments.
Please see Note 1 1 ( “ Income Taxes ”) for a more thorough discussion of our income taxes. 39 Off-Balance Sheet Arrangements From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations. As of December 31, 2024, we did not have any material off-balance sheet arrangements.
Based upon existing economic and market conditions, we believe that our cash on hand, operating cash flow and available line of credit are adequate to fully fund our net capital expenditures requirements for 2024. We also believe we have flexibility with respect to our financing alternatives and adjustments to our capital expenditure plans if circumstances warrant.
We also believe we have flexibility with respect to our financing alternatives and adjustments to our capital expenditure plans if circumstances warrant. We do not have any material continuing commitments related to our current operations that cannot be met with our cash on hand, cash from operating activities and borrowings under our Credit Facility.
Due to the slow-moving nature, obsolescence of a portion of the Company's long-term inventory, inventory related to the retirement of certain rental equipment and management's decision to cease further fabrication at our Midland fabrication facility, we recorded an increase of $4.0 million in the inventory allowance reserve to reduce the carrying amount of inventory items where we feel there is reduced future demand for certain items.
The following table indicates the charges incurred for inventory allowance for the periods presented: Year Ended December 31, 2024 2023 Change % Change Inventory allowance $ 1,863 $ 3,965 $ (2,102) (53.0) % Due primarily to the slow-moving nature, obsolescence of a portion of our long-term inventory and inventory related to the retirement of certain rental equipment, we recorded an increase of $1.9 million to the inventory allowance reserve for the year ended December 31, 2024.
As of December 31, 2023, we had $164 million outstanding under our Amended and Restated Credit Agreement with a weighted average interest rate of 9.40%, and we were in compliance with all financial covenants in our Amended and Restated Credit Agreement.
As of December 31, 2024, we had approximately $130.0 million available for borrowing under the Credit Facility, subject to borrowing base determination. As of December 31, 2024, we were in compliance with all financial covenants in our Credit Facility.
Our income tax expense in 2023 was largely due to certain executive severance compensation expenses incurred during 2023 that are non-deductible for income tax purposes. As such, we recognized income tax expense of $1.9 million while incurring net income before income taxes of $6.6 million for the year ended December 31, 2023.
Our effective tax rate for both years differs from the U.S. federal statutory rate of 21%. The effective tax rate declined during 2024 from that during 2023 largely due to certain executive severance compensation expenses incurred during 2023 that were non-deductible for income tax purposes.
After the terms of the contract have expired, a customer may renew their contract or continue renting on a monthly basis thereafter. Our rental business follows ASC 842 for revenue recognition. In accordance with ASC 842 – Leases, we have applied the practical expedient ASC 842-10-15-42A, which allows the Company to combine lease and non-lease components. Sales Revenue.
After the terms of the contract have expired, a customer may renew its contract or continue renting on a monthly basis thereafter.
Removed
The following discussion contains forward-looking statements. For a description of limitations inherent in forward-looking statements, see “Special Note Regarding Forward-Looking Statements” on page ii. Overview We rent, operate and maintain, as well as sell natural gas compressors and related equipment. We also design, fabricate and manufacture compressor units both for sale and rental to our customers.
Added
For a discussion and analysis of changes from 2022 to 2023 and other financial information related to prior periods, refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2023 Annual Report on Form 10-K. The following discussion contains forward-looking statements that include risks and uncertainties.
Removed
After the initial term of our rental contracts, most of our customers have continued to rent our compressors on a month-to-month basis. Rental amounts are billed monthly in advance and include maintenance of the rented compressors.
Added
For a description of limitations inherent in forward-looking statements, see “Special Note Regarding Forward-Looking Statements” on page i and Part I, Item 1A. “ Risk Factors ” in this Report. All dollar amounts included in the tables that follow are presented in thousands unless otherwise indicated.
Removed
As of December 31, 2023, we had 1,247 natural gas compressors totaling 420,432 horsepower rented to 84 customers, compared to 1,221 natural gas compressors totaling 318,350 horsepower rented to 81 customers at December 31, 2022.
Added
Certain variances presented as changes in year over year amounts that represent results that are not meaningful are indicated as “NM.” Overview We rent, design, sell, service, operate and maintain natural gas compressors and related equipment for oil and gas production and processing facilities, generally using equipment from third-party fabricators and OEM suppliers along with limited in-house assembly.
Removed
Of the 420,432 horsepower rented as of December 31, 2023, we had 279,238 of the total horsepower operating under contracts expiring between 2024 and 2028 and we had 141,194 of that horsepower rented on a month-to-month basis. Of the 1,247 compressors rented at December 31, 2023, 773 were rented on a month-to-month basis.
Added
A limited level of assembly work is done in-house and an increasing amount is done by third-party contractors. We also provide an exchange and rebuild program for compressors and maintain an inventory of new and used compressors to facilitate this business. Our primary focus is on the rental of natural gas compressors.
Removed
We also fabricate natural gas compressors for sale to our customers, designing compressors to meet unique specifications dictated by well pressures, production characteristics and particular applications for which compression is sought. Fabrication of compressors involves our purchase of engines, compressors, coolers and other components, and our assembling of these components on skids for delivery to customer locations.
Added
Rental amounts are billed monthly in advance and include maintenance of the rented compressor units. We conduct our operations in several oil and gas producing basins throughout the United States including the Permian, Barnett Shale, Anadarko, San Juan, Utica/Marcellus Shale, Eagle Ford Shale and Antrim Shale.
Removed
These major components of our compressors are acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which presently requires a minimum three to twelve month lead time with delivery dates scheduled to coincide with our estimated production schedules.
Added
We have operating facilities in five states including Texas, Oklahoma, New Mexico, Michigan and Ohio. A total of 75 percent of our rental revenue is generated from the Permian Basin and approximately 75 percent of our rental revenue supports oil production primarily in the form of gas lift operations. We operate in one reporting segment.
Removed
Although we do not have formal continuing supply contracts with any major supplier, we believe we have adequate alternative sources available.
Added
Operating Highlights The following table summarizes our key operating statistics as of the dates or for the periods presented, as applicable: December 31, 2024 2023 2022 Rented horsepower (at period end) 491,756 420,432 318,350 Average rented horsepower 457,302 369,484 308,065 Fleet horsepower available (at period end): 598,840 520,365 425,340 Fleet horsepower available - average 558,752 472,360 423,054 Horsepower utilization (at period end) 82.1 % 80.8 % 74.8 % Average horsepower utilization 81.8 % 78.2 % 72.8 % Units utilized (at period end) 1,208 1,247 1,221 Fleet units (at period end): 1,912 1,876 1,869 Unit utilization (at period end) 63.2 % 66.5 % 65.3 % Rental revenues $ 144,236 $ 106,159 $ 74,465 Total revenues $ 156,742 $ 121,167 $ 84,825 Rental revenues as a percent of total revenues 92.0 % 87.6 % 87.8 % Of the total horsepower utilized as of December 31, 2024, 376,685 of horsepower was being rented under contracts expiring between 2025 and 2029 and 115,071 of that horsepower was being rented on a month-to-month basis.
Removed
Finally due to supply chain disruptions as a result of the COVID-19 pandemic, the Russian invasion of the Ukraine and the increased rate of inflation, we continue to experience cost increases and sporadic unavailability of many of our parts needed to fabricate and maintain our rental fleet.
Added
Of the 1,208 compressors utilized as of December 31, 2024, 573 were being rented on a month-to-month basis. Our Performance Trends and Outlook The oil and gas industry has historically been cyclical and production levels of oil and gas are dependent upon numerous factors.
Removed
While we have a robust supplier network, pricing pressure from our customers and competitors presents challenges in increasing our rental rates to offset these increased costs which could have a material adverse effect on the results of our operations and financial condition, particularly if we were unable to increase our rental rates and sales prices proportionate to any such component price increases.
Added
Natural Gas . We believe the market outlook for natural gas production in the U.S. remains steady while short term price volatility remains a factor due to geopolitical influences and shifts in LNG exports.
Removed
We also use third-party contractors for fabrication and these companies may experience the same risks. In December 2023, we decided to cease fabrication of new compressor units for sale or rental to customers at our Midland, Texas facility.
Added
We believe opportunities for increased utilization of our small and medium horsepower units are supported by continued investment in shale gas development, particularly in the Permian basin and Marcellus Shale. 27 Non-GAAP Financial Measures We utilize certain financial and operating metrics to analyze our performance and assess our operating results and overall profitably and liquidity.
Removed
We use finished CiP component products in the fabrication of compressor units for sale or rental by us or sell the finished component products to other compressor fabricators.
Added
The most significant of these measure are “Adjusted Gross Margin” and “Adjusted EBITDA” both of which are measurements that are not explicitly defined in accordance with generally accepted accounting principles in the United States of America (“GAAP”), or non-GAAP financial measures, and may vary among different industries and the participants therein.
Removed
Although we have significantly de-emphasized our flare product line, we continue to hold a limited inventory of flare stacks and related ignition and control devices for onshore and offshore incineration of gas compounds such as hydrogen sulfide, carbon dioxide, natural gas and liquefied petroleum gases.
Added
The primary costs associated with providing our compressor fleet to our customers includes routine maintenance and repairs, fluids, primarily motor oils, and labor and related support costs for our field service facilities and employees that are geographically dispersed throughout our operating regions.
Removed
To provide customer support for our compressor and flare sales businesses, we stock varying levels of replacement parts at our Midland, Texas facility and at field service locations. We also provide an exchange and rebuild program for screw compressors and maintain an inventory of new and used compressors to facilitate this business.
Added
The following table summarizes the revenues, costs, adjusted gross margin and related operating statistics with respect to our rentals of compressors for the periods presented: Year Ended December 31, 2024 2023 Change % Change Rental revenue $ 144,236 $ 106,159 $ 38,077 35.9 % Cost of rentals (excluding depreciation and amortization) 56,903 48,877 8,026 16.4 % Rental adjusted gross margin $ 87,333 $ 57,282 $ 30,051 52.5 % Rental adjusted gross margin percentage 60.5 % 54.0 % 6.5 % Percent of total company revenues 92.0 % 87.6 % 4.4 % Rented horsepower 491,756 420,432 71,324 17.0 % Percent of fleet horsepower utilized 82.1 % 80.8 % 1.3 % Units utilized 1,208 1,247 (39) (3.1) % Percent of fleet units utilized 63.2 % 66.5 % (3.3) % Customers under contract 68 84 (16) (19.0) % Rental revenue increased for the year ended December 31, 2024, compared to 2023 due primarily to an increase in rented horsepower despite a nominal decrease in the number of units rented and a decrease in total customers.

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