Natural Gas Services Group (NGS) Sidoti September Small-Cap Virtual Conference summary

Business overview and industry context

• Operates a rental business for natural gas compression equipment, primarily serving oil and gas producers with long-term contracts up to 60 months.

• Focuses on wellhead compression, especially for shale oil wells, which require more compression due to steeper decline curves.

• Customers prefer renting over owning due to the need for specialized personnel and capital allocation efficiency.

• 75% of operations are concentrated in the Permian Basin, the dominant U.S. oil production region.

• The business is more tied to crude oil (WTI) prices than natural gas prices, with 75%-80% of the fleet operating on oil wells.

Fleet composition and utilization

• Large horsepower units (400+ HP, often 1,000+ HP) are nearly 100% utilized and drive business economics.

• Medium and small horsepower units represent legacy business and are less than 50% utilized, offering future optimization opportunities.

• The fleet totals over 300,000 HP in large units, with about 1,200 units deployed and 600 unutilized, mainly in smaller sizes.

• New growth CapEx is entirely focused on large horsepower units, with contracts of four to five years.

Financial performance and investment highlights

• EBITDA grew from $29M in 2022 to $45M in 2023, with 2024 guidance midpoint at $66M.

• Growth CapEx guidance for 2024 is $70M, targeting at least 20% return on invested capital.

• Maintains conservative leverage at 2.4x, lower than larger competitors, and trades at a lower EBITDA multiple (6.5x).

• Trades at book value despite strong growth and capital deployment.