ngs-20230630

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 1-31398

NATURAL GAS SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)


Colorado						75-2811855
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

404 Veterans Airpark Ln., Ste 300

Midland, Texas 79705

(Address of principal executive offices)

(432) 262-2700

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, Par Value $0.01	NGS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes x						No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes x						No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes ☐						No x

As of August 9, 2023 there were 12,437,292 shares of the Registrant's common stock, $0.01 par value, outstanding.


Part I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Unaudited Condensed Consolidated Balance Sheets	Page	1

Unaudited Condensed Consolidated Statements of Operations	Page	2

Unaudited Condensed Consolidated Statements of Stockholders' Equity	Page	3

Unaudited Condensed Consolidated Statements of Cash Flows	Page	5

Notes to Unaudited Condensed Consolidated Financial Statements	Page	6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	Page	15

Item 3. Quantitative and Qualitative Disclosures about Market Risk	Page	22

Item 4. Controls and Procedures	Page	22

Part II - OTHER INFORMATION

Item 1. Legal Proceedings	Page	23

Item 1A. Risk Factors	Page	23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	Page	23

Item 3. Defaults Upon Senior Securities	Page	23

Item 4. Mine Safety Disclosures	Page	23

Item 5. Other Information	Page	23

Item 6. Exhibits	Page	25

Signatures	Page	27

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements


NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value) (unaudited)
	June 30,		December 31,
	2023		2022
ASSETS
Current Assets:
Cash and cash equivalents	$	4,286	$	3,372
Trade accounts receivable, net of allowance for doubtful accounts of $466 and $338, respectively	20,872		14,668
Inventory	27,960		23,414
Federal income tax receivable (Note 4)	11,538		11,538
Prepaid income taxes	10		10
Prepaid expenses and other	1,446		1,145
Total current assets	66,112		54,147
Long-term inventory, net of allowance for obsolescence of $40 and $120, respectively	2,157		1,557
Rental equipment, net of accumulated depreciation of $187,580 and $177,729, respectively	326,691		246,450
Property and equipment, net of accumulated depreciation of $17,533 and $16,981, respectively	21,382		22,176
Right of use assets - operating leases, net of accumulated amortization $815 and $721, respectively	310		349

Intangibles, net of accumulated amortization of $2,322 and $2,259, respectively	837		900
Other assets	4,996		2,667
Total assets	$	422,485	$	328,246
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	28,603	$	6,481
Accrued liabilities	18,492		23,726


Current operating leases	133		155
Deferred income	—		37
Total current liabilities	47,228		30,399
Long-term debt	100,011		25,000
Deferred income tax liability	40,194		39,798
Long-term operating leases	177		194

Other long-term liabilities	3,290		2,779
Total liabilities	190,900		98,170
Commitments and contingencies (Note 9)
Stockholders’ Equity:
Preferred stock, 5,000 shares authorized, no shares issued or outstanding	—		—
Common stock, 30,000 shares authorized, par value $0.01; 13,688 and 13,519 shares issued, respectively	136		135
Additional paid-in capital	116,045		115,411
Retained earnings	130,408		129,534


Treasury shares, at cost, 1,310 shares	(15,004)		(15,004)
Total stockholders' equity	231,585		230,076
Total liabilities and stockholders' equity	$	422,485	$	328,246

See accompanying notes to these unaudited condensed consolidated financial statements.


NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except earnings per share) (unaudited)

	Three months ended				Six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenue:
Rental income	$	24,105	$	18,144	$	46,828	$	35,274
Sales	1,595		1,292		4,587		4,184
Service and maintenance income	1,257		490		2,162		804
Total revenue	26,957		19,926		53,577		40,262
Operating costs and expenses:
Cost of rentals, exclusive of depreciation stated separately below	11,343		9,242		22,988		18,472
Cost of sales, exclusive of depreciation stated separately below	1,876		1,440		5,113		3,428
Cost of service and maintenance, exclusive of depreciation stated separately below	969		234		1,578		407
Selling, general and administrative expenses	4,860		2,310		9,422		4,811
Depreciation and amortization	6,418		6,042		12,583		12,103
Impairment expense	779		—		779		—


Total operating costs and expenses	26,245		19,268		52,463		39,221
Operating income	712		658		1,114		1,041
Other income (expense):
Interest expense	(185)		(24)		(185)		(49)
Other income (expense), net	226		(332)		341		(364)
Total other income (expense), net	41		(356)		156		(413)
Income before provision for income taxes	753		302		1,270		628
Income tax (expense)	(249)		(372)		(396)		(361)
Net income (loss)	$	504	$	(70)	$	874	$	267
Earnings (loss) per share:
Basic	$	0.04	$	(0.01)	$	0.07	$	0.02
Diluted	$	0.04	$	(0.01)	$	0.07	$	0.02
Weighted average shares outstanding:
Basic	12,292		12,305		12,253		12,421
Diluted	12,394		12,305		12,374		12,528

See accompanying notes to these unaudited condensed consolidated financial statements.


	NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) (unaudited)
	Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Total Stockholders' Equity
	Shares	Amount		Shares	Amount						Shares	Amount
BALANCES, January 1, 2022	—	$	—	13,394	$	134	114,017		130,103		775	(8,344)		235,910
Compensation expense on common stock options	—	—		—	—		21		—		—	—		21
Issuance of restricted stock	—	—		79	—		—		—		—	—		—
Compensation expense on restricted common stock	—	—		—	1		401		—		—	—		402
Taxes paid related to net shares settlement of equity awards	—	—		—	—		(359)		—		—	—		(359)
Purchase of treasury shares	—	—		—	—		—		—		247	(2,928)		(2,928)
Net income	—	—		—	—		—		337		—	—		337
BALANCES, March 31, 2022	—	—		13,473	135		114,080		130,440		1,022	(11,272)		233,383
Issuance of restricted stock				26
Compensation expense on common stock options	—	—		—	—		147		—		—	—		147
Compensation expense on restricted common stock	—	—		—	—		184		—		—	—		184
Taxes paid related to net shares settlement of equity awards	—	—		—	—		(156)		—		—	—		(156)
Purchase of treasury shares	—	—		—	—		—		—		288	(3,732)		(3,732)
Net income	—	—		—	—		—		(70)		—	—		(70)
BALANCES, June 30, 2022	—	$	—	13,499	$	135	$	114,255	$	130,370	1,310	$	(15,004)	$	229,756

See accompanying notes to these unaudited condensed consolidated financial statements.


NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) (unaudited)
	Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Total Stockholders' Equity
	Shares	Amount		Shares	Amount						Shares	Amount
BALANCES, January 1, 2023	—	$	—	13,519	$	135	$	115,411	$	129,534	1,310	$	(15,004)	$	230,076

Compensation expense on common stock options	—	—		—	—		22		—		—	—		22
Issuance of restricted stock	—	—		29	—		—		—		—	—		—
Compensation expense on restricted common stock	—	—		—	—		465		—		—	—		465
Taxes paid related to net shares settlement of equity awards	—	—		—	—		(184)		—		—	—		(184)

Net income	—	—		—	—		—		370		—	—		370
BALANCES, March 31, 2023	—	—		13,548	135		115,714		129,904		1,310	(15,004)		230,749
Compensation expense on common stock options	—	—		—	—		30		—		—	—		30
Issuance of restricted stock	—	—		140	1		(1)		—		—	—		—
Compensation expense on restricted common stock	—	—		—	—		1,100		—		—	—		1,100
Taxes paid related to net shares settlement of equity awards	—	—		—	—		(798)		—		—	—		(798)

Net Income	—	—		—	—		—		504		—	—		504
BALANCES, June 30, 2023	—	$	—	13,688	$	136	$	116,045	$	130,408	1,310	$	(15,004)	$	231,585

See accompanying notes to these unaudited condensed consolidated financial statements.


NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
	Six months ended
	June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	874	$	267
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	12,583		12,103
Amortization of debt issuance costs	184		24
Deferred income tax expense	396		356
Stock-based compensation	1,617		754
Bad debt allowance	128		—

Impairment expense	779		—
Gain on sale of assets	(206)		(151)

Loss (gain) on company owned life insurance	(80)		557
Changes in operating assets and liabilities:
Trade accounts receivables	(6,332)		(1,472)
Inventory	(4,438)		803

Prepaid expenses and prepaid income taxes	(301)		(748)
Accounts payable and accrued liabilities	16,888		2,298

Deferred income	(37)		(1,312)

Other	588		(231)

NET CASH PROVIDED BY OPERATING ACTIVITIES	22,643		13,248
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of rental equipment, property and other equipment	(93,479)		(19,173)
Purchase of company owned life insurance	(329)		(236)
Proceeds from sale of property and equipment	231		224


NET CASH USED IN INVESTING ACTIVITIES	(93,577)		(19,185)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loan	75,011		—

Payments of other long-term liabilities, net	(50)		(2)
Payments of debt issuance costs	(2,131)		—

Purchase of treasury shares	—		(6,660)
Taxes paid related to net share settlement of equity awards	(982)		(515)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	71,848		(7,177)
NET CHANGE IN CASH AND CASH EQUIVALENTS	914		(13,114)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	3,372		22,942
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	4,286	$	9,828
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	1,966	$	25

NON-CASH TRANSACTIONS



Right of use asset acquired through an operating lease	$	63	$	91
Transfer of rental equipment to inventory	$	708	$	—

See accompanying notes to these unaudited condensed consolidated financial statements.

Natural Gas Services Group, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Description of Business

Natural Gas Services Group, Inc. (the "Company", “NGS”, "Natural Gas Services Group", "we" or "our") (a Colorado corporation), is a provider of natural gas compression equipment and services to the energy industry. The Company manufactures, fabricates, rents, sells and maintains natural gas compressors systems for oil and natural gas production and plant facilities. NGS is headquartered in Midland, Texas, with fabrication facilities located in Tulsa, Oklahoma and Midland, Texas, and service facilities located in major oil and natural gas producing basins in the U.S.

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its subsidiary, NGSG Properties, LLC and the rabbi trust associated with the Company's deferred compensation plan. All significant intercompany accounts and transactions for the periods presented have been eliminated in consolidation.

These financial statements include all adjustments, consisting of only normal recurring adjustments, which are necessary to make our financial position at June 30, 2023 and the results of our operations for the three and six months ended June 30, 2023 and 2022 not misleading. As permitted by the rules and regulations of the Securities and Exchange Commission (the "SEC"), the accompanying condensed consolidated financial statements do not include all disclosures normally required by generally accepted accounting principles in the United States of America (GAAP). These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 on file with the SEC. In our opinion, the condensed consolidated financial statements are a fair presentation of the financial position, results of operations, changes in stockholders' equity and cash flows for the periods presented.

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2023.

Revenue Recognition Policy

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606"), except for rental revenue as discussed below. Under ASC 606, revenue is measured based on a consideration specified in a customer’s contract, excluding any sale incentives and taxes collected on behalf of third parties (i.e. sales and property taxes). Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that we expect to receive for those goods or services. To recognize revenue, we (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy the performance obligation(s). Shipping and handling costs incurred are accounted for as fulfillment costs and are included in cost of revenues in our condensed consolidated statements of operations.

Nature of Goods and Services

The following is a description of principal activities from which the Company generates its revenue:

Rental Revenue. The Company generates revenue from renting compressors systems to our customers. These contracts, which all qualify as operating leases under ASC Topic 842, Leases (ASC 842), may also include a fee for servicing the compressor during the rental contract period. Our rental contracts typically range from six to 24 months, with our larger horsepower compressors having contract terms of up to 60 months. Our revenue is recognized over time, generally monthly, in accordance with payment terms under the contract. After the terms of the contract have expired, a customer may renew their contract or continue renting on a monthly basis thereafter. In accordance with ASC 842, we have applied the practical expedient ASC 842-10-15-42A, which allows the Company to combine lease and non-lease components.

Sales Revenue. The Company generates revenue by the sale of custom/fabricated compressors, and parts, as well as, exchange/rebuilding customer owned compressors and sale of used rental equipment.

Custom/fabricated compressors - The Company designs and fabricates compressors based on the customer’s specifications outlined in their contract. Though the equipment being built is customized by the customer, control under these contracts does not pass to the customer until the compressor package is complete and shipped, or in accordance with a bill and hold arrangement, the customer accepts title and assumes the risk and rewards of ownership. We request some of our customers to make progressive payments as the product is being built; these payments are recorded as a contract liability on the Deferred Income line on the condensed consolidated balance sheet until control has been transferred. These contracts also may include an assurance warranty clause to guarantee the product is free from defects in material and workmanship for a set duration of time; this is a standard industry practice and is not considered a performance obligation.

From time to time we recognize revenue when manufacturing is complete and the equipment is ready for shipment. At the customer’s request, we will bill the customer upon completing all performance obligations, but before shipment. The customer will formally request that we ship the equipment per their direction from our manufacturing facility at a later specified date and that we segregate this equipment from our finished goods, such that this equipment is not available to fill other orders. Per the customer’s agreement change of control is passed to the customer once the equipment is complete and ready for shipment. We have operated using bill and hold agreements with certain customers for many years, with consistent and satisfactory results for both the customer and us. The credit terms on these agreements are consistent with the credit terms on all other sales. All control is maintained by the customer and there are no exceptions to the customer’s commitment to accept and pay for the manufactured equipment. There was no revenue recognized for bill and hold arrangements for the six months ended June 30, 2023 or 2022.

Parts - Revenue is recognized after the customer obtains control of the parts. Control is passed either by the customer taking physical possession or the parts being shipped. The amount of revenue recognized is not adjusted for expected returns, as our historical part returns have been de minimis.

Exchange or rebuilding customer owned compressors - Based on the contract, the Company will either exchange a new/rebuilt compressor for the customer’s malfunctioning compressor or rebuild the customer’s compressor. Revenue is recognized after control of the replacement compressor has transferred to the customer based on the terms of the contract, i.e., by physical delivery, delivery and installment, or shipment of the compressor.

Used compressors - From time to time, a customer may request to purchase a used compressor out of our rental fleet. Revenue from the sale of rental equipment is recognized when the control has passed to the customer based on the terms of the contract, i.e., when the customer has taken physical possession or the equipment has been shipped.

Service and Maintenance Revenue. The Company provides routine or call-out services on customer owned equipment. Revenue is recognized after services are rendered.

Payment terms for sales revenue and service and maintenance revenue discussed above are generally 30 to 60 days, although terms for specific customers can vary. Also, transaction prices are not subject to variable consideration constraints.

Disaggregation of Revenue

The following table shows the Company's revenue disaggregated by product or service type for the three and six months ended June 30, 2023 and 2022:


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Compressors - sales	$	38	$	286	$	1,007	$	2,253
Flares - sales	86		83		86		83
Other (parts/rebuilds) - sales	1,471		923		3,494		1,848
Service and maintenance	1,257		490		2,162		804
Total revenue from contracts with customers	2,852		1,782		6,749		4,988
Add: ASC 842 rental revenue	24,105		18,144		46,828		35,274
Total revenue	$	26,957	$	19,926	$	53,577	$	40,262

Contract Balances

As of June 30, 2023 and December 31, 2022, we had the following receivables and deferred income from contracts with customers:


	June 30, 2023		December 31, 2022
	(in thousands)
Accounts Receivable
Accounts receivable - contracts with customers	$	5,835	$	4,353
Accounts receivable - ASC 842	15,503		10,653
Total Accounts Receivable	21,338		15,006
Less: Allowance for doubtful accounts	(466)		(338)
Total Accounts Receivable, net	$	20,872	$	14,668

Deferred income	$	—	$	37

The Company recognized sales revenues of $37 thousand for the six months ended June 30, 2023 that was included in deferred income at the beginning of 2023.

The increase in accounts receivable and decrease in deferred income were primarily due to normal timing differences between our performance and the customers’ payments.

Remaining Performance Obligations

As of June 30, 2023, the Company had no deferred revenue related to unsatisfied performance obligations.

Contract Costs

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general and administrative expenses on our condensed consolidated statements of operations.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. To the extent we establish a valuation allowance or increase this allowance in a period, we include an expense in the tax provision in our condensed consolidated statements of operations.

We account for uncertain tax positions in accordance with guidance in ASC 740, which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the condensed consolidated financial statements. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. A liability for unrecognized tax benefits is recorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. We have no liabilities for uncertain tax positions as of June 30, 2023.

Our policy regarding income tax interest and penalties is to expense those items as interest expense and other expense, respectively.

Capitalized Interest

Beginning January 1, 2023, the Company began capitalizing interest from external borrowings on significant expenditures for the fabrication of its natural gas compressor equipment until such projects are ready for their intended use. Capitalized interest is added to the cost of the underlying asset and is amortized over the useful lives of the assets in the same manner as the underlying assets. For the six months ended June 30, 2023, the Company capitalized interest aggregating approximately $2.7 million.

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. The amendments to ASC Topic 326 require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including trade receivables. For companies that qualify as smaller reporting companies, the amendments in this update are effective for interim and annual periods beginning after January 1, 2023. We adopted ASU 2016-13 on January 1, 2023. The adoption did not result in any material change to our financial statements. There were no other recent accounting pronouncements during the six months ended June 30, 2023 that are expected to have a material impact on our financial statements.

3. Inventory

Our inventory, net of allowance for obsolescence of $40,000 at June 30, 2023 and $120,000 at December 31, 2022, consisted of the following amounts:


	June 30, 2023		December 31, 2022
	(in thousands)
Raw materials - current	$	26,184	$	21,354
Work-in-process	1,776		2,060
Inventory - current	27,960		23,414
Raw materials - long term (net of allowance of $40 and $120, respectively)	2,157		1,557
Inventory - total	$	30,117	$	24,971

Our long-term inventory consists of raw materials that remain viable but that the Company does not expect to sell or use within the year.

Inventory Allowance

We routinely review our inventory allowance balance to account for slow moving or obsolete inventory costs that may not be recoverable in the future.

A summary of our inventory allowance is as follows:


	June 30, 2023		December 31, 2022
	(in thousands)
Beginning balance	$	120	$	64
Accruals	—		83
Write-offs	(80)		(27)
Ending balance	$	40	$	120

4. Federal Income Tax Receivable

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the economic impact caused by the COVID-19 pandemic. The CARES Act allowed NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid federal income taxes. The Company generated significant NOLs during 2018 and 2019, and has filed amended returns to carryback these losses for five

years. Accordingly, during 2020, the Company recorded a federal income tax receivable of $15.0 million and an increase to its deferred income tax liability of $10.1 million on its condensed consolidated balance sheet. During the third quarter of 2020, the Company received refunds totaling $3.9 million related to its 2018 NOLs, which reduced its federal income tax receivable to $11.5 million on its condensed consolidated balance sheet as of June 30, 2023 and December 31, 2022.

5. Rental Equipment

Our rental equipment and associated accumulated depreciation as of June 30, 2023 and December 31, 2022, respectively, consisted of the following:


	June 30, 2023		December 31, 2022
	(in thousands)
Compressor units	$	457,300	$	387,145
Work-in-process	56,971		37,034
Rental equipment	514,271		424,179
Accumulated depreciation	(187,580)		(177,729)
Rental equipment, net of accumulated depreciation	$	326,691	$	246,450

We evaluated our rental equipment for potential material impairment as of June 30, 2023, and determined that no such impairment existed as of that date.

6. Long-term Debt

Our long-term debt consists of the following:


	June 30, 2023		December 31, 2022
	(in thousands)


Total long-term debt	$	100,011	$	25,000

Amended and Restated Credit Agreement

On May 11, 2021, we entered into a five-year senior secured revolving credit agreement ("Credit Agreement") with Texas Capital Bank, National Association (the "Lender") with an initial commitment of $20 million and an accordion feature that would increase the maximum commitment to $30 million, subject to collateral availability. At December 31, 2022, we had $25 million outstanding under the Credit Agreement with a weighted average interest rate of 7.32%.

On February 28, 2023, we replaced our Credit Agreement by entering 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. Subject to collateral availability, we also have a right to request from the Lender, on an uncommitted basis, an increase of up to $125 million on the aggregate commitment; provided, however, the aggregate commitment amount is not permitted to exceed $300 million. The maturity date of the Amended and Restated Credit Agreement is February 28, 2028. The obligations under the Amended and Restated Credit Agreement are secured by a first priority lien on most of our assets, including inventory and accounts receivable as well as a variable number of our leased compressor equipment.

Borrowing Base. At any time before the maturity of the Amended and Restated Credit Agreement, we may draw, repay and re-borrow amounts available under the borrowing base up to the maximum aggregate availability discussed above. Generally, the borrowing base equals the sum of (a) 85% of eligible accounts receivable owed to the Company, plus (b) 50% of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of the component not to exceed $2.5 million, plus (c) the lesser of (i) 95% of the net book value of the compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time and (ii) 80% of the net liquidation value percentage of the net book value of the eligible compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time, plus (d) 80% of the net book value, valued at the lower cost (excluding any costs for capitalized interest or other non-cash capitalized costs) or market of the eligible new compressor fleet, minus (e) any required availability reserves determined by the Lender in its sole discretion. The Lender may adjust the borrowing base components if the material

deviations in the collateral are discovered in the future audits of the collateral. At June 30, 2023, our borrowing base was approximately $175 million.

Interest and Fees. Under the terms of the Amended and Restated Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) the Base Rate (as defined below) plus the Applicable Margin, or (b) in the case of a Term SOFR ("Secured Overnight Financing Rate") Loan, the Adjusted Term SOFR rate plus the Applicable Margin. "Base Rate" means, for any day, a rate of interest per annum equal to the highest of (a) the prime rate for such a day; (b) the sum of the federal funds rate for such day plus 0.50%; and (c) the Adjusted Term SOFR for such day plus 1.00%. The Applicable Margin is determined based upon the leverage ratio as set forth in the most recent compliance certificate received by the Lender for each fiscal quarter from time to time pursuant to the Amended and Restated Credit Agreement. Depending on the leverage ratio, the Applicable Margin can be 2.00% to 2.75% for Base Rate Loans (as defined in Amended and Restated Credit Agreement) and 3.00% to 3.75% for Term SOFR Loans and for requested letters of credit. In addition, we are required to pay a monthly commitment fee on the daily average unused amount of the commitment while the Amended and Restated Credit Agreement is in effect at an annual rate equal to 0.50% of the unused commitment amount. Accrued interest is payable monthly on outstanding principal amounts and unused commitment fee, provided that accrued interest on Term SOFR Loans is payable at the end of each interest period, but in no event less frequently than quarterly.

Covenants. The Amended and Restated Credit Agreement contains customary representations and warranties, as well as covenants which, among other things, condition or limit our ability to incur additional indebtedness and liens; enter into transactions with affiliates; make acquisitions in excess of certain amounts; pay dividends; redeem or repurchase capital stock or senior notes; make investments or loans; make negative pledges; consolidate, merge or effect asset sales; or change the nature of our business. In addition, we are subject to certain financial covenants during certain trigger periods in the Amended and Restated Credit Agreement that require us to maintain (i) a leverage ratio, as defined, lesser than or equal to 3.50 to 1.00 as of the last day of each fiscal quarter thereafter and (ii) a fixed charge coverage ratio greater than or equal to 1.25 to 1.00 as of the last day of each fiscal quarter.

Events of Default and Acceleration. The Amended and Restated Credit Agreement contains customary events of default for credit facilities of this size and type, and includes, without limitation, payment defaults; defaults in performance of covenants or other agreements contained in the Amended and Restated Credit Agreement and the other transaction documents; inaccuracies in representations and warranties; certain defaults, termination events or similar events; certain defaults with respect to any other Company indebtedness in excess of $1.0 million; certain bankruptcy or insolvency events; the rendering of certain judgments in excess of $1.0 million; certain ERISA events; certain change in control events and the defectiveness of any liens under the secured revolving credit agreement. Obligations outstanding under the Amended and Restated Credit Agreement may be accelerated upon the occurrence of an event of default.

As of June 30, 2023, we were in compliance with all financial covenants in our Amended and Restated Credit Agreement. As of June 30, 2023, we had approximately $100 million outstanding under our Amended and Restated Credit Agreement with a weighted average interest rate of 8.48%. At June 30, 2023, we had approximately $75 million available for borrowing under the Amended and Restated Credit Agreement, subject to borrowing base determination.

7. Stock-Based and Other Long-Term Incentive Compensation

Stock Options

A summary of all option activity as of December 31, 2022, and changes during the six months ended June 30, 2023 is presented below:


	Number of Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2022	201,584	$	19.32	3.90	$	41


Cancelled / Forfeited	(8,167)	16.37		—	4
Expired	(38,000)	16.28		—	—
Outstanding, June 30, 2023	155,417	20.22		4.11	—
Exercisable, June 30, 2023	123,250	$	22.67	2.94	$	—

The following table summarizes information about our stock options outstanding at June 30, 2023:


Range of Exercise Prices	Options Outstanding				Options Exercisable
	Shares	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
$0.01-18.00	75,333	6.53	$	12.94	43,166	$	14.49

$22.01-26.00	29,667	1.79	22.90		29,667	22.90
$26.01-30.00	19,750	3.64	28.15		19,750	28.15
$30.01-34.00	30,667	0.72	30.41		30,667	30.41
	155,417	4.11	$	20.22	123,250	$	22.67

The summary of the status of our unvested stock options as of December 31, 2022 and changes during the six months ended June 30, 2023 is presented below:



Unvested Stock Options:	Shares	Weighted Average Grant Date Fair Value Per Share
Unvested at December 31, 2022	39,000	$	5.44

Vested, outstanding shares	(2,499)	6.57

Cancelled/Forfeited	(4,334)	5.15
Unvested at June 30, 2023	32,167	$	5.39

As of June 30, 2023, there was $123,000 of unrecognized compensation cost related to unvested options. For the six months ended June 30, 2023, there was $52,000 of compensation expense for stock options. For the six months ended June 30, 2022, there was $168,000 of compensation expense for stock options.

SEC Form 10-Q filed by Natural Gas Services Group Inc.