10-Q

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, 2022

OR

☐ 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 8, 2022, there were 12,331,147 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	7
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	Page	16
Item 3.  Quantitative and Qualitative Disclosures about Market Risk	Page	22
Item 4.  Controls and Procedures	Page	23
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	24
Item 4. Mine Safety Disclosures	Page	24
Item 5. Other Information	Page	24
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,
	2022		2021
ASSETS
Current Assets:
Cash and cash equivalents	$	9,828	$	22,942
Trade accounts receivable, net of allowance for doubtful accounts of $380 and $1,129, respectively	11,861		10,389
Inventory	18,478		19,329
Federal income tax receivable (Note 4)	11,538		11,538
Prepaid income taxes	41		51
Prepaid expenses and other	1,612		854
Total current assets	53,358		65,103
Long-term inventory, net of allowance for obsolescence of $37 and $64, respectively	1,630		1,582
Rental equipment, net of accumulated depreciation of $183,414 and $172,563, respectively	214,702		206,985
Property and equipment, net of accumulated depreciation of $16,667 and $15,784, respectively	20,170		20,828
Right of use assets - operating leases, net of accumulated amortization of $641 and $555, respectively	290		285
Intangibles, net of accumulated amortization of $2,196 and $2,134, respectively	963		1,025
Other assets	2,365		2,698
Total assets	$	293,478	$	298,506
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	5,238	$	4,795
Accrued liabilities	15,958		14,103
Current operating leases	88		68
Deferred income	—		1,312
Total current liabilities	21,284		20,278
Line of credit	—		—
Deferred income tax liability	39,644		39,288
Long-term operating leases	202		217
Other long-term liabilities	2,592		2,813
Total liabilities	63,722		62,596
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; 13,499 and 13,394 shares issued, respectively	135		134
Additional paid-in capital	114,255		114,017
Retained earnings	130,370		130,103
Treasury Shares, at cost, 1,310 and 775 shares, respectively	(15,004)		(8,344)
Total stockholders' equity	229,756		235,910
Total liabilities and stockholders' equity	$	293,478	$	298,506

See accompanying notes to these unaudited condensed consolidated financial statements.

1

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,
	2022		2021		2022		2021
Revenue:
Rental income	$	18,144	$	15,613	$	35,274	$	30,954
Sales	1,292		1,573		4,184		4,284
Service and maintenance income	490		563		804		908
Total revenue	19,926		17,749		40,262		36,146
Operating costs and expenses:
Cost of rentals, exclusive of depreciation stated separately below	9,242		9,082		18,472		16,239
Cost of sales, exclusive of depreciation stated separately below	1,440		1,777		3,428		4,392
Cost of service and maintenance, exclusive of depreciation stated separately below	234		250		407		298
Selling, general and administrative expenses	2,310		2,607		4,811		5,255
Depreciation and amortization	6,042		6,326		12,103		12,623
Total operating costs and expenses	19,268		20,042		39,221		38,807
Operating income (loss)	658		(2,293)		1,041		(2,661)
Other income (expense):
Interest expense	(24)		(14)		(49)		(16)
Other income (expense), net	(332)		50		(364)		151
Total other income (expense), net	(356)		36		(413)		135
Income (loss) before provision for income taxes	302		(2,257)		628		(2,526)
Income tax benefit (expense)	(372)		339		(361)		213
Net income (loss)	$	(70)	$	(1,918)	$	267	$	(2,313)
Earnings (loss) per share:
Basic	$	(0.01)	$	(0.14)	$	0.02	$	(0.17)
Diluted	$	(0.01)	$	(0.14)	$	0.02	$	(0.17)
Weighted average shares outstanding:
Basic	12,305		13,305		12,421		13,284
Diluted	12,305		13,305		12,528		13,284

See accompanying notes to these unaudited condensed consolidated financial statements.

2

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, 2021	—	$	—	13,296	$	133	$	112,615	$	139,286	38	$	(490)	$	251,544
Issuance of restricted stock	—	—		62	—		—		—		—	—		—
Compensation expense on restricted common stock	—	—		—	1		473		—		—	—		474
Taxes paid related to net shares settlement of equity awards	—	—		—	—		(224)		—		—	—		(224)
Net income	—	—		—	—		—		(394)		—	—		(394)
BALANCES, March 31, 2021	—	—		13,358	134		112,864		138,892		38	(490)		251,400
Issuance of restricted stock	—	—		36	—		—		—		—	—		—
Compensation expense on restricted common stock	—	—		—	—		421		—		—	—		421
Taxes paid related to net shares settlement of equity awards	—	—		—	—		(110)		—		—	—		(110)
Purchase of treasury shares	—	—		—	—		—		—		175	(1,892)		(1,892)
Net income	—	—		—	—		—		(1,918)		—	—		(1,918)
BALANCES, June 30, 2021	—	$	—	13,394	$	134	$	113,175	$	136,974	213	$	(2,382)	$	247,901

3

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 loss	—	—		—	—		—		337		—	—		337
BALANCES, March 31, 2022	—	—		13,473	135		114,080		130,440		1,022	(11,272)		233,383
Compensation expense on common stock options	—	—		—	—		147		—		—	—		147
Issuance of restricted stock	—	—		26	—		—		—		—	—		—
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 loss	—	—		—	—		—		(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.

4

NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
	Six months ended
	June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	267	$	(2,313)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	12,103		12,623
Amortization of debt issuance costs	24		7
Deferred income tax (benefit) expense	356		(224)
Stock-based compensation	754		895
Bad debt allowance	—		65
Gain on sale of assets	(151)		—
Loss (gain) on company owned life insurance	557		(188)
Changes in operating assets and liabilities:
Trade accounts receivables	(1,472)		(410)
Inventory	803		(1,543)
Prepaid expenses and prepaid income taxes	(748)		(369)
Accounts payable and accrued liabilities	2,298		4,281
Deferred income	(1,312)		(410)
Other	(231)		338
NET CASH PROVIDED BY OPERATING ACTIVITIES	13,248		12,752
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of rental equipment, property and other equipment	(19,173)		(12,567)
Purchase of company owned life insurance	(236)		(55)
Proceeds from sale of property and equipment	224		—
NET CASH USED IN INVESTING ACTIVITIES	(19,185)		(12,622)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of other long-term liabilities, net	(2)		(1)
Payments of debt issuance costs	—		(237)
Repayments of line of credit, net	—		(417)
Purchase of treasury shares	(6,660)		(1,892)
Taxes paid related to net share settlement of equity awards	(515)		(335)
NET CASH USED IN FINANCING ACTIVITIES	(7,177)		(2,882)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(13,114)		(2,752)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	22,942		28,925
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	9,828	$	26,173
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	25	$	9
NON-CASH TRANSACTIONS
Right of use asset acquired through an operating lease	$	91	$	—

5

See accompanying notes to these unaudited condensed consolidated financial statements.

6

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 and flare 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, 2022 and the results of our operations for the three and six months ended June 30, 2022 and 2021 not misleading. As permitted by the rules and regulations of the Securities and Exchange Commission (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, 2021 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, 2022 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2022.

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 and flare 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 or flare 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, with equal monthly payments over the term of 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 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, flare systems and parts, as well as, exchange/rebuilding customer owned compressors and sale of used rental equipment.

7

Custom/fabricated compressors and flare systems - The Company designs and fabricates compressors and flares 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 or flare 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 the equipment from our finished goods, such that they are 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, 2022 and 2021.

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 or flares - From time to time, a customer may request to purchase a used compressor or flare 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 in the contract 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, 2022 and 2021:

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(in thousands)				(in thousands)
Compressors - sales	$	286	$	—	$	2,253	$	1,891
Flares - sales	83		29		83		75
Other (parts/rebuilds) - sales	923		1,544		1,848		2,318
Service and maintenance	490		563		804		908
Total revenue from contracts with customers	1,782		2,136		4,988		5,192
Add: ASC 842 rental revenue	18,144		15,613		35,274		30,954
Total revenue	$	19,926	$	17,749	$	40,262	$	36,146

8

Contract Balances

As of June 30, 2022 and December 31, 2021, we had the following receivables and deferred income from contracts with customers:

	June 30, 2022		December 31, 2021
	(in thousands)
Accounts Receivable
Accounts receivable - contracts with customers	$	3,817	$	3,354
Accounts receivable - ASC 842	8,424		8,164
Total Accounts Receivable	12,241		11,518
Less: Allowance for doubtful accounts	(380)		(1,129)
Total Accounts Receivable, net	$	11,861	$	10,389
Deferred income	$	—	$	1,312

The Company recognized sales revenues of $1.3 million for the six months ended June 30, 2022 that was included in deferred income at the beginning of 2022. For the year ended December 31, 2021, the Company recognized sales revenues of $1.1 million that was included in deferred income at the beginning of 2021.

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

Remaining Performance Obligations

As of June 30, 2022, the Company did not have 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, 2022.

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

9

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 are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements and note disclosures.

3. Inventory

Our inventory, net of allowance for obsolescence of $37,000 at June 30, 2022 and $64,000 at December 31, 2021, consisted of the following amounts:

	June 30, 2022		December 31, 2021
	(in thousands)
Raw materials - current	$	16,880	$	17,528
Work-in-process	1,598		1,801
Inventory - current	18,478		19,329
Raw materials - long term (net of allowances of $37 and $64, respectively)	1,630		1,582
Inventory - total	$	20,108	$	20,911

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, 2022		December 31, 2021
	(in thousands)
Beginning balance	$	64	$	221
Accruals	—		208
Write-offs	(27)		(365)
Ending balance	$	37	$	64

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, 2022.

5. Rental Equipment

Our rental equipment and associated accumulated depreciation as of June 30, 2022 and December 31, 2021, respectively, consisted of the following:

10

	June 30, 2022		December 31, 2021
	(in thousands)
Compressor units	$	386,284	$	374,336
Work-in-process	11,832		5,212
Rental equipment	398,116		379,548
Accumulated depreciation	(183,414)		(172,563)
Rental equipment, net of accumulated depreciation	$	214,702	$	206,985

We evaluated our rental equipment for potential impairment as of June 30, 2022, and determined that no such impairment existed as of that date.

6. Credit Facility

Previous Credit Agreement

We had a senior secured revolving credit agreement the ("Previous Credit Agreement") with JP Morgan Chase Bank, N.A (the "Lender") that matured on March 31, 2021. Prior to maturation, the outstanding balance of $417,000 was repaid. The Previous Credit Agreement had an aggregate commitment of $30 million, subject to collateral availability.

New Credit Agreement

On May 11, 2021, we entered into a five year senior secured revolving credit agreement ("New 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. 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 New Credit Agreement is May 11, 2026. The obligations under the New 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.

Borrowing Base. At any time before the maturity of the New 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) 90% of eligible accounts receivable owed to the Company by investment grade debtors, plus (b) 85% of the eligible accounts receivable owing by non-investment grade debtors, plus (c) 50% of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of this component not to exceed $2.0 million, plus (d) 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 (e) 80% of the value at cost (excluding any costs for capitalized interest or other non-cash capitalized costs) of the eligible new compressor fleet, minus (f) any required availability reserves determined by the Lender in its sole discretion. The Lender may adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral. As of June 30, 2022, our allowable borrowing base was $20.0 million.

Interest and Fees. Under the terms of the New 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 Eurodollar Rate Loan, the Adjusted Eurodollar 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 day; (b) the sum of the federal funds rate for such day plus 0.50%; and (c) the Adjusted Eurodollar Rate 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 New Credit Agreement. Depending on the leverage ratio, the Applicable Margin can be 0.25% to 0.75% for Base Rate Loans (as defined in the New Credit Agreement) and 1.25% to 1.75% for Eurodollar Rate 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 New Credit Agreement is in effect at an annual rate equal to 0.25% of the unused commitment amount. Accrued interest is payable monthly on outstanding principal amounts and unused commitment fee, provided that accrued interest on Eurodollar Rate Loans is payable at the end of each interest period, but in no event less frequently than quarterly.

Covenants. The New 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 also have certain financial covenants that are applicable during certain trigger periods specified in the

11

Credit Agreement and require us during such trigger periods to maintain a leverage ratio less than or equal to 3.00 to 1.00 as of the last day of each fiscal quarter and a fixed charge coverage ratio greater than or equal to 1.00 to 1.00 as of the last day of each fiscal quarter.

Events of Default and Acceleration. The New 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 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 Credit Agreement may be accelerated upon the occurrence of an event of default.

As of June 30, 2022, we were in compliance with all financial covenants in our New Credit Agreement. At June 30, 2022, we had no amounts outstanding under the New Credit Agreement.

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

Stock Options

A summary of all option activity as of December 31, 2021, and changes during the six months ended June 30, 2022 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, 2021	200,834	$	21.17	4.83	$	—
Granted	187,500	16.02		—	—
Cancelled / Forfeited	(8,250)	18.05		—	11
Expired	(8,500)	14.89		—	—
Outstanding, June 30, 2022	371,584	$	18.79	3.45	$	21
Exercisable, June 30, 2022	163,584	$	23.65	2.21	$	2

The following table summarizes information about our stock options outstanding at June 30, 2022:

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	238,000	3.97	$	14.87	30,000	$	14.26
$18.01-22.00	20,500	0.72	18.75		20,500	18.75
$22.01-26.00	42,167	2.79	22.90		42,167	22.90
$26.01-30.00	28,750	4.63	28.15		28,750	28.15
$30.01-34.00	42,167	1.72	30.41		42,167	30.41
	371,584	3.45	$	18.79	163,584	$	23.65

12

The summary of the status of our unvested stock options as of December 31, 2021 and changes during the six months ended June 30, 2022 is presented below:

Unvested Stock Options:	Shares	Weighted Average Grant Date Fair Value Per Share
Unvested at December 31, 2021	55,500	$	5.15
Granted	187,500	4.37
Vested	(30,000)	2.85
Exercised	—	—
Cancelled/Forfeited	(5,000)	5.15
Unvested at June 30, 2022	208,000	$	4.78

As of June 30, 2022, there was $875,890 of unrecognized compensation cost related to unvested options. For the six months ended June 30, 2022 there was $168,059 of compensation expense for stock options. For the six months ended June 30, 2021, there was no compensation expense for stock options.

Restricted Shares/Units

On March 18, 2021, the Compensation Committee awarded 129,212 shares of restricted common stock to two executive officers that vest ratably over three years, beginning on March 18, 2022. On June 17, 2021, the Compensation Committee awarded 5,000 shares of restricted stock to an executive officer that vests ratably over three years beginning on June 17, 2022. In addition, on March 18, 2021, 5,612 shares of restricted common stock were awarded to each of our three independent Board members. Lastly, on April 1, 2021, 5,291 shares of restricted common stock were awarded to a newly appointed Board member. On April 26, 2022, 4,212 shares of restricted common stock were awarded to each of our four independent Board members. The restricted stock issued to these directors vest in one year from the date of grant.

Total compensation expense related to these and previously granted restricted stock awards was $586,000 and $896,000 for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, there was a total of $1.0 million of unrecognized compensation expense related to these shares/units which is expected to be recognized over the next 2.5 years.

A summary of all restricted stock/units outstanding as of December 31, 2021 and activity during the six months ended June 30, 2022 is presented below:

	Number  of Shares	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2021	276,319	$	9.67	1.77	$	2,893
Granted	16,848	11.87			200
Vested	(152,134)	10.99			1,778
Canceled/Forfeited	—	—			—
Outstanding, June 30, 2022	141,033	$	8.51	2.50	$	1,366

13

Other Long-Term Incentive Compensation

On March 18, 2021, the Compensation Committee issued a long-term incentive award of $1.0 million to an executive officer that vests in equal, annual tranches over 3 years beginning on the anniversary of the grant date. In addition, on March 18, 2021, we issued a $50,000 award to three of our independent members of our Board of Directors as partial payment for their services in 2021. On April 1, 2021, we issued a $50,000 award to a newly appointed independent member of our Board of Directors as partial payment for his services in 2021. On April 26, 2022, we issued a $50,000 award to our three independent Board members. These awards vest one year from the date of grant and are payable in cash upon vesting. There were no long-term incentive awards issued to executives during the six months ended June 30, 2022. The Company accounts for these other long-term incentive awards as liabilities under accrued liabilities on our condensed consolidated balance sheet. The vesting of these awards is subject to acceleration upon certain events, such as (i) death or disability of the recipient, (ii) certain circumstances in connection with a change of control of the Company, (iii) for executive officers, termination without cause (as defined in the agreement), and (iv) for executive officers, resignation for good reason (as defined). Total compensation expense related to these other long-term incentive awards was approximately $431,000 and $381,000 for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, there was a total of $935,550 of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next 1.3 years.

8. (Loss) Earnings per Share

The following table reconciles the numerators and denominators of the basic and diluted earnings (loss) per share computation:

	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
	(in thousands, except per share data)
Numerator:
Net income (loss)	$	(70)	$	(1,918)	$	267	$	(2,313)
Denominator for earnings (loss) per basic common share:
Weighted average common shares outstanding	12,305		13,305		12,421		13,284
Denominator for earnings (loss) per diluted common share:
Weighted average common shares outstanding	12,305		13,305		12,421		13,284
Dilutive effect of stock options and restricted stock/units	—		—		107		—
Diluted weighted average shares	12,305		13,305		12,528		13,284
Earnings (loss) per common share:
Basic	$	(0.01)	$	(0.14)	$	0.02	$	(0.17)
Diluted	$	(0.01)	$	(0.14)	$	0.02	$	(0.17)

For the three and six months ended June 30, 2022, 141,033 and 33,550 restricted stock/units, respectively, were not included in the computation of diluted earnings per share due to their antidilutive effect. For the three and six months ended June 30, 2022 371,584 stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

For the three and six months ended June 30, 2021, 276,319 restricted stock/units and 145,334 stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

9.  Commitments and Contingencies

From time to time, we are a party to various legal proceedings in the ordinary course of our business. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our financial position, results of operations or cash flow. We are not currently a party to any material legal proceedings, and we are not aware of any threatened material litigation.

14

10.  Subsequent Events

In accordance with ASC 855 - Subsequent Events - the Company has evaluated all events subsequent to the balance sheet date as of June 30, 2022 through the date of this report and believes nothing is required hereunder.

15

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion and analysis of our financial condition and results of operations are based on, and should be read in conjunction with, our condensed consolidated financial statements and the related notes included elsewhere in this report and  in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC.

This report and our Annual Report on Form 10-K contain certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, and information pertaining to us, our industry and the oil and natural gas industry that is based on the beliefs of our management, as well as assumptions made by and information currently available to our management. All statements, other than statements of historical facts contained in this report as well as our Annual Report on Form 10-K, including statements regarding our future financial position, growth strategy, budgets, projected costs, plans and objectives of management for future operations, are forward-looking statements. We use the words “may,” “will,” “expect,” “anticipate,” “estimate,” “believe,” “continue,” “intend,” “plan,” “budget” and other similar words to identify forward-looking statements. You should read statements that contain these words carefully and should not place undue reliance on these statements because they discuss future expectations, contain projections of results of operations or of our financial condition and/or state other “forward-looking” information. We do not undertake any obligation to update or revise publicly any forward-looking statements. Although we believe our expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations or assumptions will prove to have been correct.

Please read Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2021, as it contains important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements.

Overview

We fabricate, manufacture, rent, and sell natural gas compressors and related equipment. Our primary focus is on the rental of natural gas compressors. Our rental contracts typically provide for initial terms of six to 24 months, with our larger horsepower units having contract terms of up to 60 months. After the initial term of our rental contracts, many 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 our rented compressors. As of June 30, 2022, we had 1,281 natural gas compressors totaling 311,379 horsepower rented to 79 customers compared to 1,245 natural gas compressors totaling 287,365 horsepower rented to 79 customers at June 30, 2021.

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. The major components of our compressor packages are acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which presently require lead times between three to six months with delivery dates scheduled to coincide with our estimated production schedules. Although we do not have formal continuing supply contracts with any major supplier, we believe we have adequate alternative sources available. Recent inflationary pressures have created price increases in both major and minor components for our compressors as well as longer than normal lead times for such components. To date, we have been able to increase our rental rates and sales prices proportionally; however, if cost increases continue and we are no longer able to increase our rental rates and sales prices such an event could have a material adverse effect on the results of our operations and financial condition.

We also manufacture a proprietary line of compressor frames, cylinders and parts, known as our CiP (Cylinder-in-Plane) product line. 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. We also design, fabricate, sell, install, and service 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. 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.

We provide service and maintenance to our customers under written maintenance contracts or on an as-required basis in the absence of a service contract. Maintenance agreements typically have terms of six months to one year and require payment of a monthly fee.

16

The oil and natural 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 natural gas and the corresponding changes in commodity prices. 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. Generally, increased capital expenditures ultimately result in greater revenues and profits for service and equipment companies.

In general, we expect our overall business activity and revenues to track the level of activity in the oil and natural gas industry, 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 recent years we have increased our rentals and sales in unconventional oil shale plays, which are more dependent on crude oil prices. 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 unconventional production. These types of applications have historically been serviced by wellhead size compressors, and continue to be, but there has also been an economic move by our customers towards centralized drilling and production facilities, which have increased the market need for larger horsepower compressor packages. We recognized this need in recent years and have been shifting our cash and fabrication resources towards designing, fabricating and renting gas compressor packages that range from 400 horsepower up to 1,500 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. In addition, recent heightened focus on the emissions profile of our customers has created a shift in demand from natural gas powered compression to electric motor compression in areas where the electric infrastructure can accommodate the energy demands of these units. In response to this shift, we have announced plans to convert up to 100 compressor packages from internal combustion engines to electric motors. The initial conversions will focus on packages in the 200-250 horsepower range.

Industry Update

We typically experience a decline in demand during periods of low crude oil and natural gas prices. During the first quarter of 2020, we saw a substantial decline in the prices for oil and natural gas. Commodity prices stabilized during 2021 with a sharp increase through the first six months of 2022. Historically, activity levels of exploration and production companies have been dependent on commodity prices. However, recent capital market focus on cash returns from exploration and production companies has restricted capital spending below levels that have historically been observed during higher commodity price environments. Generally, though, we feel that production activities (in which we are involved) will fare better than drilling activity. This is reflected in both the stability of our rental revenues, which is driven by production activities, and the volatility of our compressor sales, which tends to fluctuate with capital allocations. As such, we still expect compressor sales to be low for the remainder of 2022, as exploration and production companies have elected to rent compression units rather than allocating capital dollars to purchase new compression.

Results of Operations

Three months ended June 30, 2022, compared to the three months ended June 30, 2021.

The table below shows our revenues and percentage of total revenues of each of our product lines for the three months ended June 30, 2022 and 2021.

	Three months ended June 30,
	2022				2021
	(in thousands)
Rental	$	18,144	91.0	%	$	15,613	88.0	%
Sales	1,292		6.5	%	1,573		8.9	%
Service and Maintenance	490		2.5	%	563		3.1	%
Total	$	19,926			$	17,749

17

Total revenue increased 12.3% to $19.9 million for the three months ended June 30, 2022 compared to $17.7 million for the three months ended June 30, 2021. This increase was primarily a result of higher rental revenue (16.2% increase) during 2022 partially offset by lower sales revenue (18% decrease).

Rental revenue increased to $18.1 million for the three months ended June 30, 2022 compared to $15.6 million for the same period in 2021. This increase during the second quarter of 2022 was attributable to (i) an increase in high horsepower compression rentals as these units carry a higher revenue rate than our lower horsepower units and (ii) rental rate increases across a portion of our fleet intended to offset inflationary pressures related to the costs of our rental fleet.

As of June 30, 2022, we had 2,043 compressor packages in our fleet, down from 2,257 units at June 30, 2021 due to the retirement of units during the fourth quarter of 2021. The Company's total unit horsepower decreased to 426,811 horsepower at June 30, 2022 compared to 446,803 horsepower at June 30, 2021, due to the aforementioned unit retirements in the fourth quarter of 2021 partially offset by the addition to the Company's fleet of 27 high horsepower compressors with 13,160 horsepower over the past 12 months. As of June 30, 2022, we had 1,281 natural gas compressors with a total of 311,379 horsepower rented to 79 customers, compared to 1,245 natural gas compressors with a total of 287,365 horsepower rented to 79 customers as of June 30, 2021. As a result, our total rented horsepower as of June 30, 2022 increased by 8.4% over the last twelve months. Our rental fleet had unit utilization as of June 30, 2022, and 2021, respectively, of 62.7% and 55.2%, and our horsepower utilization for the same dates increased to 73.0% from 64.3%. Our total rented horsepower increased by 8.4% contrasted against a 2.9% increase in total rented units. This illustrates the growing demand for our high horsepower units while the demand for our smaller and medium horsepower units has not recovered in line with recent commodity price increases.

Sales revenue decreased to $1.3 million for the three months ended June 30, 2022 compared to $1.6 million for the three months ended June 30, 2021. This decrease is mostly attributable to decreased parts and rebuild sales partially offset by increased compressor sales during the second quarter of 2022 compared to the same period in 2021. Sales are subject to fluctuations in timing of industry activity related to our customers' capital projects and, as such, can vary substantially between periods.

Cost of rentals increased to $9.2 million during the three months ended June 30, 2022 compared to $9.1 million during the three months ended June 30, 2021. While rental revenues increased 16.2%, this 1.8% increase in costs of rentals is primarily due to inflationary pressures on labor and parts. While repair and maintenance expenses are customary in our business, the timing of such expenses can fluctuate between periods resulting in periods with larger than normal expenses.

Cost of sales decreased 19.0% to $1.4 million during the three months ended June 30, 2022 compared to $1.8 million during the three months ended June 30, 2021. This decrease was primarily due to a reduction in unabsorbed costs related to our fabrication operations during the period.

Selling, general, and administrative ("SG&A") expenses decreased 11.4% to $2.3 million for the three months ended June 30, 2022 compared $2.6 million during the same period in 2021. This decrease in SG&A expenses was primarily attributable to (i) a $392,000 decrease in our deferred compensation liability and (ii) a $188,000 decrease in restricted stock compensation expense. These decreases were partially offset by (i) a $160,000 increase in accrued bonus expense and (ii) a $147,000 increase in stock option expense.

Depreciation and amortization expense decreased to $6.0 million for the three months ended June 30, 2022 compared to $6.3 million for the three months ended June 30, 2021.  This was the result of a reduction in our rental fleet due to unit retirements in the fourth quarter of 2021.

We recorded an income tax expense of approximately $372,000 for the three months ended June 30, 2022 compared to an income tax benefit of $339,000 for the three months ended June 30, 2021. For interim periods, our income tax benefit (expense) is computed based upon our estimated annual effective tax rate and any discrete items that impact the interim periods. Our estimated annual effective tax rate differs from the U.S. federal statutory rate of 21% primarily as a result of expenses not deductible for income tax purposes.

Six months ended June 30, 2022, compared to the six months ended June 30, 2021.

The table below shows our revenues and percentage of total revenues of each of our product lines for the six months ended June 30, 2022 and 2021.

18

	Six months ended June 30,
	2022				2021
	(in thousands)
Rental	$	35,274	87.6	%	$	30,954	85.6	%
Sales	4,184		10.4	%	4,284		11.9	%
Service and Maintenance	804		2.0	%	908		2.5	%
Total	$	40,262			$	36,146

Total revenue increased 11.4% to $40.3 million for the six months ended June 30, 2022 compared to $36.1 million during the nine months ended June 30, 2021. This increase was primarily a result of higher rental revenue (14.0% increase) during the first six months of 2022 partially offset by decreased sales revenue (2.3% decrease).

Rental revenue increased to $35.3 million for the six months ended June 30, 2022 compared to $31.0 million during the six months ended June 30, 2021.  This increase during the first six months of 2022 was attributable to an increase in high horsepower compression rentals as these units carry a higher revenue rate than our lower horsepower units and, to a lesser extent, rental rate increases across a portion of our fleet intended to offset inflationary pressures related to the costs of our rental fleet.

Sales revenue decreased to $4.2 million for the six months ended June 30, 2022 compared to $4.3 million for the same period in 2021. This decrease is mostly attributable to a decrease in parts sales partially offset by an increase in compressor sales. Sales are subject to fluctuations in timing of industry activity related to capital projects and, as such, can vary substantially between periods.

Cost of rentals increased 13.8% to $18.5 million during the six months ended June 30, 2022 compared to $16.2 million during the six months ended June 30, 2021. This increase was primarily due to inflationary pressures on labor and parts as well as increased high horsepower units being placed into service. While repair and maintenance expenses are customary in our business, the timing of such expenses can fluctuate between periods resulting in periods with larger than normal expenses.

Cost of sales decreased 21.9% to $3.4 million during the six months ended June 30, 2022 compared to $4.4 million during the six months ended June 30, 2021. This decrease during the first six months of 2022 was primarily due to a decrease in parts sales.

Selling, general, and administrative expenses decreased (8.4)% to $4.8 million for the six months ended June 30, 2022 compared to $5.3 million for the same period in 2021. SG&A expenses during the first six months of 2022 were impacted by a $597,000 reduction in deferred compensation and a $201,000 reduction in restricted stock compensation expenses, partially offset by a $340,000 increase in expected executive bonus compensation expense and officer salaries related to the recent appointment of our interim President and Chief Executive Officer.

Depreciation and amortization expense decreased 4.1% to $12.1 million for the six months ended June 30, 2022 compared to $12.6 million for the six months ended June 30, 2021.  This decrease was the result of unit retirements in the fourth quarter of 2021.

We recorded an income tax expense of $361,000 for the six months ended June 30, 2022 compared to an income tax benefit of $213,000 for the six months ended June 30, 2021. For interim periods, our income tax benefit (expense) is computed based upon our estimated annual effective tax rate and any discrete items that impact the interim periods.

Non-GAAP Financial Measures

Our definition and use of Adjusted EBITDA

“Adjusted EBITDA” is a non-GAAP financial measure that we define as earnings (net (loss) income) before interest, taxes, depreciation and amortization, as well as non-cash stock compensation, impairment of goodwill, an increase in inventory allowance and inventory write-offs, and retirement of rental equipment. This term, as used and defined by us, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in

19

accordance with GAAP. Adjusted EBITDA should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP. 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, and as a basis for strategic planning and forecasting.

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.  Some of these limitations are:

•Adjusted EBITDA does not reflect our cash expenditures, future requirements for capital expenditures, or contractual commitments;

•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•Adjusted EBITDA does not reflect the cash requirements necessary to service interest or principal payments on our debts; and

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any capital expenditures for such replacements.

There are other material limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the impact of certain recurring items that materially affect our net income or loss, and the lack of comparability of results of operations of different companies.  Please read the table below under “Reconciliation” to see how Adjusted EBITDA reconciles to our net (loss) income, the most directly comparable GAAP financial measure.

Reconciliation

The following table reconciles our net (loss) income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(in thousands)
Net income (loss)	$	(70)	$	(1,918)	$	267	$	(2,313)
Interest expense	24		14		49		16
Income tax expense (benefit)	372		(339)		361		(213)
Depreciation and amortization	6,042		6,326		12,103		12,623
Non-cash stock compensation expense	331		421		754		895
Adjusted EBITDA	$	6,699	$	4,504	$	13,534	$	11,008

For the three months ended June 30, 2022, Adjusted EBITDA increased $2.2 million (48.7%) due primarily to a $2.2 million increase in total revenues and a $0.3 million reduction in costs of sales partially offset by a $0.2 million increase in costs of rentals. For the six months ended June 30, 2022, Adjusted EBITDA increased $2.5 million (22.9%) due primarily to a $4.1 million increase in total revenues and a $1.0 million reduction in costs of sales partially offset by a $2.2 million increase in costs of rentals.

20

Liquidity and Capital Resources

Our working capital positions as of June 30, 2022 and December 31, 2021 are set forth below:

	June 30,		December 31,
	2022		2021
	(in thousands)
Current Assets:
Cash and cash equivalents	$	9,828	$	22,942
Trade accounts receivable, net	11,861		10,389
Inventory	18,478		19,329
Federal income tax receivable	11,538		11,538
Prepaid income taxes	41		51
Prepaid expenses and other	1,612		854
Total current assets	53,358		65,103
Current Liabilities:
Accounts payable	5,238		4,795
Accrued liabilities	15,958		14,103
Line of credit	—		—
Current operating leases	88		68
Deferred income	—		1,312
Total current liabilities	21,284		20,278
Total working capital	$	32,074	$	44,825

For the six months ended June 30, 2022, we invested $19.2 million in rental and property and other equipment by adding $18.8 million in new equipment to our rental fleet and $410,000 mostly in vehicles as well as various other machinery and equipment. Our investment in rental equipment, property and other equipment also includes any changes to work-in-process related to our rental fleet jobs at the beginning of the period compared to the end of the period. Our rental work-in-process increased by $6.6 million during the six months ended June 30, 2022. We financed our investment in rental equipment, property and other equipment with cash flow from operations and cash on hand. We anticipate that our cash flows from operations as well as our borrowing capacity under our New Credit Agreement will provide ample liquidity for our planned capital expenditures during the remainder of 2022 and beyond.

Cash flows

At June 30, 2022, we had cash and cash equivalents of $9.8 million compared to $22.9 million at December 31, 2021. Our cash flows from operating activities of $13.2 million were offset by capital expenditures of $19.2 million during the six months ended June 30, 2022. We had working capital of $32.1 million at June 30, 2022 compared to $44.8 million at December 31, 2021. We generated cash flows from operating activities of $13.2 million during the first six months of 2022 compared to cash flows provided by operating activities of $12.8 million for the first six months of 2021. The increase in cash flows from operating activities was primarily driven by higher sales margins partially offset by higher costs of rentals during the first six months of 2022.

Strategy

For the remainder of 2022, our overall plan is to continue monitoring and holding expenses in line with the anticipated level of activity, fabricate rental fleet equipment only in direct response to market requirements, emphasize marketing of our idle gas compressor units and limit bank borrowing in line with market conditions. For the remainder of 2022, our forecasted capital expenditures are not anticipated to exceed our internally generated cash flows, cash on hand and borrowing availability under our New Credit Agreement. The majority of required capital will be for contracted, premium-priced additions to our compressor rental fleet and/or required service vehicles. We believe that cash flows from operations, our current cash position and borrowing capacity under our New Credit Agreement will be sufficient to satisfy our capital and liquidity requirements for the foreseeable future.  

21

Bank Borrowings

The New Credit Agreement with Texas Capital Bank, National Association (the "Lender") has an initial commitment of $20 million, and an accordion feature that would increase the maximum commitment to $30 million, subject to collateral availability. 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 New Credit Agreement is May 11, 2026. As of June 30, 2022, we did not have any borrowings outstanding under the New Credit Agreement.

Critical Accounting Policies and Practices

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. 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 principles generally accepted in the United States. Actual results could differ significantly from those estimates under different assumptions and conditions. Management has determined that our critical accounting policies are those that relate to revenue recognition, estimating the allowance for doubtful accounts, accounting for income taxes, accounting for long-lived assets and accounting for inventory.

There have been no changes in the critical accounting policies disclosed in the Company's Form 10-K for the year ended December 31, 2021.

Recently Issued Accounting Pronouncements

Please read Note 2, Summary of Significant Accounting Policies, Recently Issued Accounting Pronouncements in our condensed consolidated financial statements in this report.

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 June 30, 2022, the off-balance sheet arrangements and transactions that we have entered into include purchase agreements. We do not believe that these arrangements are reasonably likely to materially affect our liquidity or availability of capital resources.

Special Note Regarding Forward-Looking Statements

Except for historical information contained herein, the statements in this report are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results.  Those risks include, among other things, the loss of market share through competition or otherwise; the introduction of competing technologies by other companies; a prolonged, substantial reduction in oil and natural gas prices, which could cause a decline in the demand for our products and services; and new governmental safety, health and environmental regulations, which could require us to make significant capital expenditures. The forward-looking statements included in this Form 10-Q are only made as of the date of this report, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. A discussion of these and other risk factors is included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

There have been no changes in the market risks disclosed in the Company's Form 10-K for the year ended December 31, 2021.

22

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

An evaluation was carried out under the supervision and with the participation of our management, including our Interim President and Chief Executive Officer and our Vice President and Chief Financial Officer, of the effectiveness of the design of our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or, the “Exchange Act”) as of December 31, 2021, pursuant to Exchange Act Rule 13a-15. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily applies its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, the Interim President and Chief Executive Officer and our Vice President and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

From time to time, we are a party to various legal proceedings in the ordinary course of our business. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our financial position, results of operations or cash flows.  We are not currently a party to any material legal proceedings and we are not aware of any threatened litigation.

Item 1A.  Risk Factors

Please refer to and read Item 1A, Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for a discussion of the risks associated with our Company and industry.

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

During the three months ended June 30, 2022, we did not sell any securities which were not registered under the Securities Act of 1933. The following table summarizes our purchases of shares of common stock during this period.

ISSUER PURCHASES OF EQUITY SECURITIES1,2
	(a)	(b)	(c)	(d)
For the Three Months Ended June 30, 2022	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that may yet be Purchased Under Plans or Programs3
				(in thousands)
April 1, 2022 to April 30, 2022	119,532	$12.55	119,532	$2,094
May 1, 2022 to May 31, 2022	110,257	$12.57	110,257	$655
June 1, 2022 to June 30, 2022	58,228	$14.52	58,228	$0

1 The table summarizes repurchases of (and remaining authority to repurchase) shares of our Common Stock.

2 The figures in the table reflect transactions according to the settlement dates. For purposes of our unaudited consolidated financial statements included in this Form 10-Q, the impact of these repurchases is recorded according to the settlement dates.

23

3 On September 30, 2021, our Board of Directors authorized the repurchase of up to $10.0 million of our outstanding Common Stock in the open market (pursuant to Rule 10b5-1 plans or otherwise), block trades or privately negotiated transactions. As noted in this column, the repurchase authorization has been expended and thus the program has expired.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

None.

Item 5. Other Information

None.

24

Item 6.   Exhibits

The following exhibits are filed herewith or incorporated herein by reference, as indicated:

Exhibit No.	Description
3.1	Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 of the 10-QSB filed and dated November 10, 2004.)
3.2	Bylaws as amended (Incorporated by reference to Exhibit 3.1 of the Registrant's current report on form 8-K filed with the Securities and Exchange Commission on February 10, 2021.
4.1	Description of Securities (Incorporated by reference to the Registrant's Registration Statement on From 8-A, filed with the SEC on October 27, 2008.)
4.2	Form of Senior Indenture (Incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement on From S-3 (No. 333-261091) and filed on November 16, 2021.)
4.3	Form of Subordinated Indenture (Incorporated by reference to Exhibit 4.4 of the Registrant's Registration Statement on Form S-3 (No. 333-261091) and filed on November 16, 2021.)

10.1	2019 Equity Incentive Plan (Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K dated June 20, 2019 and filed with the Securities and Exchange Commission on June 21, 2019.)
10.2	Stock Option Plan, as amended and restated (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 21, 2016.)
10.3	Retirement Agreement dated May 17, 2022 between Natural Gas Services Group, Inc. and Stephen C. Taylor (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 19, 2022.)
10.4	The Executive Nonqualified Excess Plan Adoption Agreement, referred to as the Nonqualified Deferred Compensation Plan (Incorporated by reference to Exhibit 10.11 of the Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 6, 2016.)

10.5	Credit Agreement dated as of May 11, 2021, among the Natural Gas Services Group, Inc. and NGSG Properties, LLC, a Colorado limited liability company, the banks and other financial institutions identified therein as Lenders from time to time party thereto and Texas Capital Bank, National Association, as Administrative Agent, Swing Line Lender and L/C Issuer. (Incorporated by reference to Exhibit 10.6 of the Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2021.)
10.6	Pledge and Security Agreement dated as of May 11, 2021, among Natural Gas Services Group, Inc., the Loan Parties (as defined therein) and Texas Capital Bank, National Association, as Administrative Agent. (Incorporated by reference to Exhibit 10.7 of the Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2021.)
10.7	Note dated as of May 11, 2021, by Natural Gas Services Group, Inc. in favor of Texas Capital Bank, National Association, as Lender. (Incorporated by reference to Exhibit 10.8 of the Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2021.)
10.8	Letter Agreement dated June 9, 2022 between Natural Gas Services Group, Inc. and John W. Chisholm (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 13, 2022.)
31.1*	Certification of Interim Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Interim Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

25

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
	* Filed herewith.

26

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NATURAL GAS SERVICES GROUP, INC.

/s/ John W. Chisholm	/s/ Micah C. Foster
John W. Chisholm	Micah C. Foster
Interim President and Chief Executive Officer	Vice President and Chief Financial Officer
(Principal Executive Officer)	(Principal Accounting Officer)
August 15, 2022	August 15, 2022

27

EX-31.1

Exhibit 31.1

Certifications

I, John W. Chisholm, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Natural Gas Services Group, Inc;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

1.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated:	August 15, 2022		Natural Gas Services Group, Inc.
		By:	/s/ John W. Chisholm
			John W. Chisholm
			Interim President and Chief Executive Officer
			(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certifications

I, Micah C. Foster, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Natural Gas Services Group, Inc;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated:	August 15, 2022		Natural Gas Services Group, Inc.
		By:	/s/ Micah C. Foster
			Micah C. Foster
			Vice President and Chief Financial Officer
			(Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Natural Gas Services Group, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen C. Taylor, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	August 15, 2022		Natural Gas Services Group, Inc.
		By:	/s/ John W. Chisholm
			John W. Chisholm
			Interim President and Chief Executive Officer
			(Principal Executive Officer)

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Natural Gas Services Group, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Micah C. Foster, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	August 15, 2022		Natural Gas Services Group, Inc.
		By:	/s/ Micah C. Foster
			Micah C. Foster
			Vice President and Chief Financial Officer
			(Principal Accounting Officer)

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

XML

Cover - shares	6 Months Ended
	Jun. 30, 2022	Aug. 08, 2022
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2022
Document Transition Report	false
Entity File Number	1-31398
Entity Registrant Name	NATURAL GAS SERVICES GROUP, INC.
Entity Incorporation, State or Country Code	CO
Entity Tax Identification Number	75-2811855
Entity Address, Address Line One	404 Veterans Airpark Ln., Ste 300
Entity Address, City or Town	Midland
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	79705
City Area Code	432
Local Phone Number	262-2700
Title of 12(b) Security	Common Stock, Par Value $0.01
Trading Symbol	NGS
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		12,331,147
Entity Central Index Key	0001084991
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Current Assets:
Cash and cash equivalents	$ 9,828	$ 22,942
Trade accounts receivable, net of allowance for doubtful accounts of $380 and $1,129, respectively	11,861	10,389
Inventory	18,478	19,329
Federal income tax receivable	11,538	11,538
Prepaid income taxes	41	51
Prepaid expenses and other	1,612	854
Total current assets	53,358	65,103
Long-term inventory, net of allowance for obsolescence of $37 and $64, respectively	1,630	1,582
Rental equipment, net of accumulated depreciation of $183,414 and $172,563, respectively	214,702	206,985
Property and equipment, net of accumulated depreciation of $16,667 and $15,784, respectively	20,170	20,828
Right of use assets - operating leases, net of accumulated amortization of $641 and $555, respectively	290	285
Intangibles, net of accumulated amortization of $2,196 and $2,134, respectively	963	1,025
Other assets	2,365	2,698
Total assets	293,478	298,506
Current Liabilities:
Accounts payable	5,238	4,795
Accrued liabilities	15,958	14,103
Current operating leases	88	68
Deferred income	0	1,312
Total current liabilities	21,284	20,278
Line of credit	0	0
Deferred income tax liability	39,644	39,288
Long-term operating leases	202	217
Other long-term liabilities	2,592	2,813
Total liabilities	63,722	62,596
Commitments and contingencies (Note 9)
Stockholders’ Equity:
Preferred stock, 5,000 shares authorized, no shares issued or outstanding	0	0
Common stock, 30,000 shares authorized, par value $0.01; 13,499 and 13,394 shares issued, respectively	135	134
Additional paid-in capital	114,255	114,017
Retained earnings	130,370	130,103
Treasury Shares, at cost, 1,310 and 775 shares, respectively	(15,004)	(8,344)
Total stockholders' equity	229,756	235,910
Total liabilities and stockholders' equity	$ 293,478	$ 298,506

XML

Condensed Consolidated Balance Sheets (Parentheticals) - USD ($) shares in Thousands, $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Current Assets:
Allowance for doubtful accounts	$ 380	$ 1,129
Noncurrent Assets:
Allowance for obsolescence	37	64
Accumulated depreciation, rental equipment	183,414	172,563
Accumulated depreciation, property and equipment	16,667	15,784
Accumulated amortization, operating lease right of use assets	641	555
Accumulated amortization, intangibles	$ 2,196	$ 2,134
Stockholders’ Equity:
Preferred stock, shares authorized (in shares)	5,000	5,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, shares authorized (in shares)	30,000	30,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares issued (in shares)	13,499	13,394
Treasury shares (in shares)	1,310	775

XML

Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Revenue:
Rental income	$ 18,144	$ 15,613	$ 35,274	$ 30,954
Revenue from contracts with customers	1,782	2,136	4,988	5,192
Total revenue	19,926	17,749	40,262	36,146
Operating costs and expenses:
Cost of rentals, exclusive of depreciation stated separately below	9,242	9,082	18,472	16,239
Cost of sales, exclusive of depreciation stated separately below	1,440	1,777	3,428	4,392
Cost of service and maintenance, exclusive of depreciation stated separately below	234	250	407	298
Selling, general and administrative expenses	2,310	2,607	4,811	5,255
Depreciation and amortization	6,042	6,326	12,103	12,623
Total operating costs and expenses	19,268	20,042	39,221	38,807
Operating income (loss)	658	(2,293)	1,041	(2,661)
Other income (expense):
Interest expense	(24)	(14)	(49)	(16)
Other income (expense), net	(332)	50	(364)	151
Total other income (expense), net	(356)	36	(413)	135
Income (loss) before provision for income taxes	302	(2,257)	628	(2,526)
Income tax benefit (expense)	(372)	339	(361)	213
Net income (loss)	$ (70)	$ (1,918)	$ 267	$ (2,313)
Earnings (loss) per share:
Basic (in dollars per share)	$ (0.01)	$ (0.14)	$ 0.02	$ (0.17)
Diluted (in dollars per share)	$ (0.01)	$ (0.14)	$ 0.02	$ (0.17)
Weighted average shares outstanding:
Basic (in shares)	12,305	13,305	12,421	13,284
Diluted (in shares)	12,305	13,305	12,528	13,284
Sales
Revenue:
Revenue from contracts with customers	$ 1,292	$ 1,573	$ 4,184	$ 4,284
Service and maintenance income
Revenue:
Revenue from contracts with customers	$ 490	$ 563	$ 804	$ 908

XML

Condensed Consolidated Statements of Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands	Total	Preferred Stock	Common Stock	Additional Paid-In Capital	Retained Earnings	Treasury Stock
Beginning balance (in shares) at Dec. 31, 2020		0
Beginning balance at Dec. 31, 2020	$ 251,544	$ 0	$ 133	$ 112,615	$ 139,286	$ (490)
Beginning balance (in shares) at Dec. 31, 2020			13,296
Beginning balance (in shares) at Dec. 31, 2020						38
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of restricted stock (in shares)			62
Compensation expense on restricted common stock	474		$ 1	473
Taxes paid related to net shares settlement of equity awards	(224)			(224)
Net income (loss)	(394)				(394)
Ending balance (in shares) at Mar. 31, 2021		0
Ending balance at Mar. 31, 2021	251,400	$ 0	$ 134	112,864	138,892	$ (490)
Ending balance (in shares) at Mar. 31, 2021			13,358
Ending balance (in shares) at Mar. 31, 2021						38
Beginning balance (in shares) at Dec. 31, 2020		0
Beginning balance at Dec. 31, 2020	251,544	$ 0	$ 133	112,615	139,286	$ (490)
Beginning balance (in shares) at Dec. 31, 2020			13,296
Beginning balance (in shares) at Dec. 31, 2020						38
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(2,313)
Ending balance (in shares) at Jun. 30, 2021		0
Ending balance at Jun. 30, 2021	247,901	$ 0	$ 134	113,175	136,974	$ (2,382)
Ending balance (in shares) at Jun. 30, 2021			13,394
Ending balance (in shares) at Jun. 30, 2021						213
Beginning balance (in shares) at Mar. 31, 2021		0
Beginning balance at Mar. 31, 2021	251,400	$ 0	$ 134	112,864	138,892	$ (490)
Beginning balance (in shares) at Mar. 31, 2021			13,358
Beginning balance (in shares) at Mar. 31, 2021						38
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of restricted stock (in shares)			36
Compensation expense on restricted common stock	421			421
Taxes paid related to net shares settlement of equity awards	(110)			(110)
Purchase of treasury shares (in shares)						175
Purchase of treasury shares	(1,892)					$ (1,892)
Net income (loss)	(1,918)				(1,918)
Ending balance (in shares) at Jun. 30, 2021		0
Ending balance at Jun. 30, 2021	$ 247,901	$ 0	$ 134	113,175	136,974	$ (2,382)
Ending balance (in shares) at Jun. 30, 2021			13,394
Ending balance (in shares) at Jun. 30, 2021						213
Beginning balance (in shares) at Dec. 31, 2021	0	0
Beginning balance at Dec. 31, 2021	$ 235,910	$ 0	$ 134	114,017	130,103	$ (8,344)
Beginning balance (in shares) at Dec. 31, 2021			13,394
Beginning balance (in shares) at Dec. 31, 2021						775
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Compensation expense on common stock options	21			21
Issuance of restricted stock (in shares)			79
Compensation expense on restricted common stock	402		$ 1	401
Taxes paid related to net shares settlement of equity awards	(359)			(359)
Purchase of treasury shares (in shares)						247
Purchase of treasury shares	(2,928)					$ (2,928)
Net income (loss)	337				337
Ending balance (in shares) at Mar. 31, 2022		0
Ending balance at Mar. 31, 2022	$ 233,383	$ 0	$ 135	114,080	130,440	$ (11,272)
Ending balance (in shares) at Mar. 31, 2022			13,473
Ending balance (in shares) at Mar. 31, 2022						1,022
Beginning balance (in shares) at Dec. 31, 2021	0	0
Beginning balance at Dec. 31, 2021	$ 235,910	$ 0	$ 134	114,017	130,103	$ (8,344)
Beginning balance (in shares) at Dec. 31, 2021			13,394
Beginning balance (in shares) at Dec. 31, 2021						775
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	$ 267
Ending balance (in shares) at Jun. 30, 2022	0	0
Ending balance at Jun. 30, 2022	$ 229,756	$ 0	$ 135	114,255	130,370	$ (15,004)
Ending balance (in shares) at Jun. 30, 2022			13,499
Ending balance (in shares) at Jun. 30, 2022						1,310
Beginning balance (in shares) at Mar. 31, 2022		0
Beginning balance at Mar. 31, 2022	233,383	$ 0	$ 135	114,080	130,440	$ (11,272)
Beginning balance (in shares) at Mar. 31, 2022			13,473
Beginning balance (in shares) at Mar. 31, 2022						1,022
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Compensation expense on common stock options	147			147
Issuance of restricted stock (in shares)			26
Compensation expense on restricted common stock	184			184
Taxes paid related to net shares settlement of equity awards	(156)			(156)
Purchase of treasury shares (in shares)						288
Purchase of treasury shares	(3,732)					$ (3,732)
Net income (loss)	$ (70)				(70)
Ending balance (in shares) at Jun. 30, 2022	0	0
Ending balance at Jun. 30, 2022	$ 229,756	$ 0	$ 135	$ 114,255	$ 130,370	$ (15,004)
Ending balance (in shares) at Jun. 30, 2022			13,499
Ending balance (in shares) at Jun. 30, 2022						1,310

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ 267	$ (2,313)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	12,103	12,623
Amortization of debt issuance costs	24	7
Deferred income tax (benefit) expense	356	(224)
Stock-based compensation	754	895
Bad debt allowance	0	65
Gain on sale of assets	(151)	0
Loss (gain) on company owned life insurance	557	(188)
Changes in operating assets and liabilities:
Trade accounts receivables	(1,472)	(410)
Inventory	803	(1,543)
Prepaid expenses and prepaid income taxes	(748)	(369)
Accounts payable and accrued liabilities	2,298	4,281
Deferred income	(1,312)	(410)
Other	(231)	338
NET CASH PROVIDED BY OPERATING ACTIVITIES	13,248	12,752
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of rental equipment, property and other equipment	(19,173)	(12,567)
Purchase of company owned life insurance	(236)	(55)
Proceeds from sale of property and equipment	224	0
NET CASH USED IN INVESTING ACTIVITIES	(19,185)	(12,622)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of other long-term liabilities, net	(2)	(1)
Payments of debt issuance costs	0	(237)
Repayments of line of credit, net	0	(417)
Purchase of treasury shares	(6,660)	(1,892)
Taxes paid related to net share settlement of equity awards	(515)	(335)
NET CASH USED IN FINANCING ACTIVITIES	(7,177)	(2,882)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(13,114)	(2,752)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	22,942	28,925
CASH AND CASH EQUIVALENTS AT END OF PERIOD	9,828	26,173
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	25	9
NON-CASH TRANSACTIONS
Right of use asset acquired through an operating lease	$ 91	$ 0

XML

Description of Business	6 Months Ended
	Jun. 30, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Description of Business	Description of BusinessNatural 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 and flare 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.

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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, 2022 and the results of our operations for the three and six months ended June 30, 2022 and 2021 not misleading. As permitted by the rules and regulations of the Securities and Exchange Commission (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, 2021 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, 2022 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2022.

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 and flare 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 or flare 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, with equal monthly payments over the term of 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 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, flare systems and parts, as well as, exchange/rebuilding customer owned compressors and sale of used rental equipment.

Custom/fabricated compressors and flare systems - The Company designs and fabricates compressors and flares 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 or flare 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 the equipment from our finished goods, such that they are 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, 2022 and 2021.

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 or flares - From time to time, a customer may request to purchase a used compressor or flare 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 in the contract 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, 2022 and 2021:

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(in thousands)				(in thousands)
Compressors - sales	$	286	$	—	$	2,253	$	1,891
Flares - sales	83		29		83		75
Other (parts/rebuilds) - sales	923		1,544		1,848		2,318
Service and maintenance	490		563		804		908
Total revenue from contracts with customers	1,782		2,136		4,988		5,192
Add: ASC 842 rental revenue	18,144		15,613		35,274		30,954
Total revenue	$	19,926	$	17,749	$	40,262	$	36,146

Contract Balances

As of June 30, 2022 and December 31, 2021, we had the following receivables and deferred income from contracts with customers:

	June 30, 2022		December 31, 2021
	(in thousands)
Accounts Receivable
Accounts receivable - contracts with customers	$	3,817	$	3,354
Accounts receivable - ASC 842	8,424		8,164
Total Accounts Receivable	12,241		11,518
Less: Allowance for doubtful accounts	(380)		(1,129)
Total Accounts Receivable, net	$	11,861	$	10,389
Deferred income	$	—	$	1,312

The Company recognized sales revenues of $1.3 million for the six months ended June 30, 2022 that was included in deferred income at the beginning of 2022. For the year ended December 31, 2021, the Company recognized sales revenues of $1.1 million that was included in deferred income at the beginning of 2021.

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

Remaining Performance Obligations

As of June 30, 2022, the Company did not have 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, 2022.

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

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 are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements and note disclosures.

XML

Inventory

6 Months Ended

Jun. 30, 2022

Inventory Disclosure [Abstract]

Inventory

Inventory

Our inventory, net of allowance for obsolescence of $37,000 at June 30, 2022 and $64,000 at December 31, 2021, consisted of the following amounts:

	June 30, 2022		December 31, 2021
	(in thousands)
Raw materials - current	$	16,880	$	17,528
Work-in-process	1,598		1,801
Inventory - current	18,478		19,329
Raw materials - long term (net of allowances of $37 and $64, respectively)	1,630		1,582
Inventory - total	$	20,108	$	20,911

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, 2022		December 31, 2021
	(in thousands)
Beginning balance	$	64	$	221
Accruals	—		208
Write-offs	(27)		(365)
Ending balance	$	37	$	64

XML

Federal Income Tax Receivable	6 Months Ended
	Jun. 30, 2022
Income Tax Disclosure [Abstract]
Federal Income Tax Receivable	Federal Income Tax ReceivableOn 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, 2022.

XML

Rental Equipment

6 Months Ended

Jun. 30, 2022

Property, Plant and Equipment [Abstract]

Rental Equipment

Rental EquipmentOur rental equipment and associated accumulated depreciation as of June 30, 2022 and December 31, 2021, respectively, consisted of the following:

	June 30, 2022		December 31, 2021
	(in thousands)
Compressor units	$	386,284	$	374,336
Work-in-process	11,832		5,212
Rental equipment	398,116		379,548
Accumulated depreciation	(183,414)		(172,563)
Rental equipment, net of accumulated depreciation	$	214,702	$	206,985

We evaluated our rental equipment for potential impairment as of June 30, 2022, and determined that no such impairment existed as of that date.

XML

Credit Facility

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Credit Facility

Credit Facility

Previous Credit Agreement

We had a senior secured revolving credit agreement the ("Previous Credit Agreement") with JP Morgan Chase Bank, N.A (the "Lender") that matured on March 31, 2021. Prior to maturation, the outstanding balance of $417,000 was repaid. The Previous Credit Agreement had an aggregate commitment of $30 million, subject to collateral availability.

New Credit Agreement

On May 11, 2021, we entered into a five year senior secured revolving credit agreement ("New 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. 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 New Credit Agreement is May 11, 2026. The obligations under the New 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.

Borrowing Base. At any time before the maturity of the New 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) 90% of eligible accounts receivable owed to the Company by investment grade debtors, plus (b) 85% of the eligible accounts receivable owing by non-investment grade debtors, plus (c) 50% of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of this component not to exceed $2.0 million, plus (d) 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 (e) 80% of the value at cost (excluding any costs for capitalized interest or other non-cash capitalized costs) of the eligible new compressor fleet, minus (f) any required availability reserves determined by the Lender in its sole discretion. The Lender may adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral. As of June 30, 2022, our allowable borrowing base was $20.0 million.

Interest and Fees. Under the terms of the New 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 Eurodollar Rate Loan, the Adjusted Eurodollar 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 day; (b) the sum of the federal funds rate for such day plus 0.50%; and (c) the Adjusted Eurodollar Rate 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 New Credit Agreement. Depending on the leverage ratio, the Applicable Margin can be 0.25% to 0.75% for Base Rate Loans (as defined in the New Credit Agreement) and 1.25% to 1.75% for Eurodollar Rate 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 New Credit Agreement is in effect at an annual rate equal to 0.25% of the unused commitment amount. Accrued interest is payable monthly on outstanding principal amounts and unused commitment fee, provided that accrued interest on Eurodollar Rate Loans is payable at the end of each interest period, but in no event less frequently than quarterly.

Covenants. The New 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 also have certain financial covenants that are applicable during certain trigger periods specified in the

Credit Agreement and require us during such trigger periods to maintain a leverage ratio less than or equal to 3.00 to 1.00 as of the last day of each fiscal quarter and a fixed charge coverage ratio greater than or equal to 1.00 to 1.00 as of the last day of each fiscal quarter.

Events of Default and Acceleration. The New 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 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 Credit Agreement may be accelerated upon the occurrence of an event of default.

As of June 30, 2022, we were in compliance with all financial covenants in our New Credit Agreement. At June 30, 2022, we had no amounts outstanding under the New Credit Agreement.

XML

Stock-Based and Other Long-Term Incentive Compensation

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

Stock-Based and Other Long-Term Incentive Compensation

Stock-Based and Other Long-Term Incentive Compensation

Stock Options

A summary of all option activity as of December 31, 2021, and changes during the six months ended June 30, 2022 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, 2021	200,834	$	21.17	4.83	$	—
Granted	187,500	16.02		—	—
Cancelled / Forfeited	(8,250)	18.05		—	11
Expired	(8,500)	14.89		—	—
Outstanding, June 30, 2022	371,584	$	18.79	3.45	$	21
Exercisable, June 30, 2022	163,584	$	23.65	2.21	$	2

The following table summarizes information about our stock options outstanding at June 30, 2022:

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	238,000	3.97	$	14.87	30,000	$	14.26
$18.01-22.00	20,500	0.72	18.75		20,500	18.75
$22.01-26.00	42,167	2.79	22.90		42,167	22.90
$26.01-30.00	28,750	4.63	28.15		28,750	28.15
$30.01-34.00	42,167	1.72	30.41		42,167	30.41
	371,584	3.45	$	18.79	163,584	$	23.65

The summary of the status of our unvested stock options as of December 31, 2021 and changes during the six months ended June 30, 2022 is presented below:

Unvested Stock Options:	Shares	Weighted Average Grant Date Fair Value Per Share
Unvested at December 31, 2021	55,500	$	5.15
Granted	187,500	4.37
Vested	(30,000)	2.85
Exercised	—	—
Cancelled/Forfeited	(5,000)	5.15
Unvested at June 30, 2022	208,000	$	4.78

As of June 30, 2022, there was $875,890 of unrecognized compensation cost related to unvested options. For the six months ended June 30, 2022 there was $168,059 of compensation expense for stock options. For the six months ended June 30, 2021, there was no compensation expense for stock options.

Restricted Shares/Units

On March 18, 2021, the Compensation Committee awarded 129,212 shares of restricted common stock to two executive officers that vest ratably over three years, beginning on March 18, 2022. On June 17, 2021, the Compensation Committee awarded 5,000 shares of restricted stock to an executive officer that vests ratably over three years beginning on June 17, 2022. In addition, on March 18, 2021, 5,612 shares of restricted common stock were awarded to each of our three independent Board members. Lastly, on April 1, 2021, 5,291 shares of restricted common stock were awarded to a newly appointed Board member. On April 26, 2022, 4,212 shares of restricted common stock were awarded to each of our four independent Board members. The restricted stock issued to these directors vest in one year from the date of grant.

Total compensation expense related to these and previously granted restricted stock awards was $586,000 and $896,000 for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, there was a total of $1.0 million of unrecognized compensation expense related to these shares/units which is expected to be recognized over the next 2.5 years.

A summary of all restricted stock/units outstanding as of December 31, 2021 and activity during the six months ended June 30, 2022 is presented below:

	Number  of Shares	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2021	276,319	$	9.67	1.77	$	2,893
Granted	16,848	11.87			200
Vested	(152,134)	10.99			1,778
Canceled/Forfeited	—	—			—
Outstanding, June 30, 2022	141,033	$	8.51	2.50	$	1,366

Other Long-Term Incentive Compensation

On March 18, 2021, the Compensation Committee issued a long-term incentive award of $1.0 million to an executive officer that vests in equal, annual tranches over 3 years beginning on the anniversary of the grant date. In addition, on March 18, 2021, we issued a $50,000 award to three of our independent members of our Board of Directors as partial payment for their services in 2021. On April 1, 2021, we issued a $50,000 award to a newly appointed independent member of our Board of Directors as partial payment for his services in 2021. On April 26, 2022, we issued a $50,000 award to our three independent Board members. These awards vest one year from the date of grant and are payable in cash upon vesting. There were no long-term incentive awards issued to executives during the six months ended June 30, 2022. The Company accounts for these other long-term incentive awards as liabilities under accrued liabilities on our condensed consolidated balance sheet. The vesting of these awards is subject to acceleration upon certain events, such as (i) death or disability of the recipient, (ii) certain circumstances in connection with a change of control of the Company, (iii) for executive officers, termination without cause (as defined in the agreement), and (iv) for executive officers, resignation for good reason (as defined). Total compensation expense related to these other long-term incentive awards was approximately $431,000 and $381,000 for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, there was a total of $935,550 of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next 1.3 years.

XML

(Loss) Earnings per Share

6 Months Ended

Jun. 30, 2022

Earnings Per Share [Abstract]

(Loss) Earnings per Share

(Loss) Earnings per Share

The following table reconciles the numerators and denominators of the basic and diluted earnings (loss) per share computation:

	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
	(in thousands, except per share data)
Numerator:
Net income (loss)	$	(70)	$	(1,918)	$	267	$	(2,313)
Denominator for earnings (loss) per basic common share:
Weighted average common shares outstanding	12,305		13,305		12,421		13,284
Denominator for earnings (loss) per diluted common share:
Weighted average common shares outstanding	12,305		13,305		12,421		13,284
Dilutive effect of stock options and restricted stock/units	—		—		107		—
Diluted weighted average shares	12,305		13,305		12,528		13,284
Earnings (loss) per common share:
Basic	$	(0.01)	$	(0.14)	$	0.02	$	(0.17)
Diluted	$	(0.01)	$	(0.14)	$	0.02	$	(0.17)

For the three and six months ended June 30, 2022, 141,033 and 33,550 restricted stock/units, respectively, were not included in the computation of diluted earnings per share due to their antidilutive effect. For the three and six months ended June 30, 2022 371,584 stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

For the three and six months ended June 30, 2021, 276,319 restricted stock/units and 145,334 stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

XML

Commitments and Contingencies	6 Months Ended
	Jun. 30, 2022
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	Commitments and ContingenciesFrom time to time, we are a party to various legal proceedings in the ordinary course of our business. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our financial position, results of operations or cash flow. We are not currently a party to any material legal proceedings, and we are not aware of any threatened material litigation.

XML

Subsequent Events	6 Months Ended
	Jun. 30, 2022
Subsequent Events [Abstract]
Subsequent Events	Subsequent EventsIn accordance with ASC 855 - Subsequent Events - the Company has evaluated all events subsequent to the balance sheet date as of June 30, 2022 through the date of this report and believes nothing is required hereunder.

XML

Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Principles of Consolidation and Basis of Presentation

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, 2022 and the results of our operations for the three and six months ended June 30, 2022 and 2021 not misleading. As permitted by the rules and regulations of the Securities and Exchange Commission (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, 2021 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, 2022 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2022.

Revenue Recognition Policy and Contract Costs

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 and flare 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 or flare 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, with equal monthly payments over the term of 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 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, flare systems and parts, as well as, exchange/rebuilding customer owned compressors and sale of used rental equipment.

Custom/fabricated compressors and flare systems - The Company designs and fabricates compressors and flares 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 or flare 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 the equipment from our finished goods, such that they are 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, 2022 and 2021.

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 or flares - From time to time, a customer may request to purchase a used compressor or flare 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 in the contract 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.

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

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, 2022.

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

Recently Issued Accounting Pronouncements

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 are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements and note disclosures.

XML

Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Schedule of 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, 2022 and 2021:

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(in thousands)				(in thousands)
Compressors - sales	$	286	$	—	$	2,253	$	1,891
Flares - sales	83		29		83		75
Other (parts/rebuilds) - sales	923		1,544		1,848		2,318
Service and maintenance	490		563		804		908
Total revenue from contracts with customers	1,782		2,136		4,988		5,192
Add: ASC 842 rental revenue	18,144		15,613		35,274		30,954
Total revenue	$	19,926	$	17,749	$	40,262	$	36,146

Schedule of Contract with Customer, Asset and Liability

As of June 30, 2022 and December 31, 2021, we had the following receivables and deferred income from contracts with customers:

	June 30, 2022		December 31, 2021
	(in thousands)
Accounts Receivable
Accounts receivable - contracts with customers	$	3,817	$	3,354
Accounts receivable - ASC 842	8,424		8,164
Total Accounts Receivable	12,241		11,518
Less: Allowance for doubtful accounts	(380)		(1,129)
Total Accounts Receivable, net	$	11,861	$	10,389
Deferred income	$	—	$	1,312

XML

Inventory (Tables)

6 Months Ended

Jun. 30, 2022

Inventory Disclosure [Abstract]

Schedule of Inventory

Our inventory, net of allowance for obsolescence of $37,000 at June 30, 2022 and $64,000 at December 31, 2021, consisted of the following amounts:

	June 30, 2022		December 31, 2021
	(in thousands)
Raw materials - current	$	16,880	$	17,528
Work-in-process	1,598		1,801
Inventory - current	18,478		19,329
Raw materials - long term (net of allowances of $37 and $64, respectively)	1,630		1,582
Inventory - total	$	20,108	$	20,911

A summary of our inventory allowance is as follows:

	June 30, 2022		December 31, 2021
	(in thousands)
Beginning balance	$	64	$	221
Accruals	—		208
Write-offs	(27)		(365)
Ending balance	$	37	$	64

XML

Rental Equipment (Tables)

6 Months Ended

Jun. 30, 2022

Property, Plant and Equipment [Abstract]

Schedule of Rental Equipment

Our rental equipment and associated accumulated depreciation as of June 30, 2022 and December 31, 2021, respectively, consisted of the following:

	June 30, 2022		December 31, 2021
	(in thousands)
Compressor units	$	386,284	$	374,336
Work-in-process	11,832		5,212
Rental equipment	398,116		379,548
Accumulated depreciation	(183,414)		(172,563)
Rental equipment, net of accumulated depreciation	$	214,702	$	206,985

XML

Stock-Based and Other Long-Term Incentive Compensation (Tables)

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

Schedule of Option Activity

A summary of all option activity as of December 31, 2021, and changes during the six months ended June 30, 2022 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, 2021	200,834	$	21.17	4.83	$	—
Granted	187,500	16.02		—	—
Cancelled / Forfeited	(8,250)	18.05		—	11
Expired	(8,500)	14.89		—	—
Outstanding, June 30, 2022	371,584	$	18.79	3.45	$	21
Exercisable, June 30, 2022	163,584	$	23.65	2.21	$	2

Schedule of Stock Options Outstanding

The following table summarizes information about our stock options outstanding at June 30, 2022:

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	238,000	3.97	$	14.87	30,000	$	14.26
$18.01-22.00	20,500	0.72	18.75		20,500	18.75
$22.01-26.00	42,167	2.79	22.90		42,167	22.90
$26.01-30.00	28,750	4.63	28.15		28,750	28.15
$30.01-34.00	42,167	1.72	30.41		42,167	30.41
	371,584	3.45	$	18.79	163,584	$	23.65

Schedule of Status of Unvested Stock Options

The summary of the status of our unvested stock options as of December 31, 2021 and changes during the six months ended June 30, 2022 is presented below:

Unvested Stock Options:	Shares	Weighted Average Grant Date Fair Value Per Share
Unvested at December 31, 2021	55,500	$	5.15
Granted	187,500	4.37
Vested	(30,000)	2.85
Exercised	—	—
Cancelled/Forfeited	(5,000)	5.15
Unvested at June 30, 2022	208,000	$	4.78

Schedule of Restricted Stock Activity

A summary of all restricted stock/units outstanding as of December 31, 2021 and activity during the six months ended June 30, 2022 is presented below:

	Number  of Shares	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2021	276,319	$	9.67	1.77	$	2,893
Granted	16,848	11.87			200
Vested	(152,134)	10.99			1,778
Canceled/Forfeited	—	—			—
Outstanding, June 30, 2022	141,033	$	8.51	2.50	$	1,366

XML

(Loss) Earnings per Share (Tables)

6 Months Ended

Jun. 30, 2022

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The following table reconciles the numerators and denominators of the basic and diluted earnings (loss) per share computation:

	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
	(in thousands, except per share data)
Numerator:
Net income (loss)	$	(70)	$	(1,918)	$	267	$	(2,313)
Denominator for earnings (loss) per basic common share:
Weighted average common shares outstanding	12,305		13,305		12,421		13,284
Denominator for earnings (loss) per diluted common share:
Weighted average common shares outstanding	12,305		13,305		12,421		13,284
Dilutive effect of stock options and restricted stock/units	—		—		107		—
Diluted weighted average shares	12,305		13,305		12,528		13,284
Earnings (loss) per common share:
Basic	$	(0.01)	$	(0.14)	$	0.02	$	(0.17)
Diluted	$	(0.01)	$	(0.14)	$	0.02	$	(0.17)

XML

Summary of Significant Accounting Policies - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Revenue from External Customer [Line Items]
Revenue	$ 19,926	$ 17,749	$ 40,262	$ 36,146
Revenue related to unsatisfied performance obligations	0		0
Uncertain tax position	$ 0		0
Sales
Revenue from External Customer [Line Items]
Revenue recognized			1,300		$ 1,100
Bill and Hold Arrangement
Revenue from External Customer [Line Items]
Revenue			$ 0	$ 0
Minimum
Revenue from External Customer [Line Items]
Amortization period of capitalized contract costs	1 year		1 year
Rental Contracts, Excluding Large Horsepower Compressors | Minimum
Revenue from External Customer [Line Items]
Rental contract term	6 months		6 months
Rental Contracts, Excluding Large Horsepower Compressors | Maximum
Revenue from External Customer [Line Items]
Rental contract term	24 months		24 months
Rental Contracts, Large Horsepower Compressors | Maximum
Revenue from External Customer [Line Items]
Rental contract term	60 months		60 months

XML

Summary of Significant Accounting Policies - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	$ 1,782	$ 2,136	$ 4,988	$ 5,192
Rental income	18,144	15,613	35,274	30,954
Total revenue	19,926	17,749	40,262	36,146
Compressors - sales
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	286	0	2,253	1,891
Flares - sales
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	83	29	83	75
Other (parts/rebuilds) - sales
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	923	1,544	1,848	2,318
Service and maintenance
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	$ 490	$ 563	$ 804	$ 908

XML

Summary of Significant Accounting Policies - Contract Balances (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Accounts Receivable
Accounts receivable - contracts with customers	$ 3,817	$ 3,354
Accounts receivable - ASC 842	8,424	8,164
Total Accounts Receivable	12,241	11,518
Less: Allowance for doubtful accounts	(380)	(1,129)
Total Accounts Receivable, net	11,861	10,389
Deferred income	$ 0	$ 1,312

XML

Inventory - Schedule of Inventory (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021	Dec. 31, 2020
Inventory Disclosure [Abstract]
Allowance for obsolescence	$ 37	$ 64	$ 221
Raw materials - current	16,880	17,528
Work-in-process	1,598	1,801
Inventory - current	18,478	19,329
Raw materials - long term (net of allowances of $37 and $64, respectively)	1,630	1,582
Inventory - total	$ 20,108	$ 20,911

XML

Inventory - Schedule of Inventory Allowance (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Inventory Valuation Reserves [Roll Forward]
Beginning balance	$ 64	$ 221
Accruals	0	208
Write-offs	(27)	(365)
Ending balance	$ 37	$ 64

XML

Federal Income Tax Receivable (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2020	Jun. 30, 2022	Dec. 31, 2021
Income Tax Disclosure [Abstract]
Federal income tax receivable		$ 15,000	$ 11,538	$ 11,538
Deferred tax liability increase due to tax law change		$ 10,100
Income tax received refunds	$ 3,900

XML

Rental Equipment (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Property, Plant and Equipment [Line Items]
Rental equipment, gross	$ 398,116	$ 379,548
Accumulated depreciation	(183,414)	(172,563)
Rental equipment, net of accumulated depreciation	214,702	206,985
Impairment of rental equipment	0
Compressor units
Property, Plant and Equipment [Line Items]
Rental equipment, gross	386,284	374,336
Work-in-process
Property, Plant and Equipment [Line Items]
Rental equipment, gross	$ 11,832	$ 5,212

XML

Credit Facility (Details) - Revolving Credit Facility - USD ($) $ in Thousands	May 11, 2021	Jun. 30, 2022	Mar. 30, 2021
Line of Credit Facility [Line Items]
Line of credit			$ 417
Aggregate credit agreement commitment	$ 30,000		$ 30,000
Debt instrument, term	5 years
Borrowing base amount available	$ 20,000	$ 20,000
Potential increase in borrowing capacity	30,000
Potential maximum borrowing capacity	$ 50,000
Borrowing base, component, percentage of eligible accounts receivable	90.00%
Percentage of eligible non investment grade decors	85.00%
Percentage of eligible inventory	50.00%
Line of credit facility, non exceeding cap of components	$ 2,000
Percentage of eligible compressors for extension of credit	95.00%
Term for depreciation	25 years
Percentage of net liquidation value of eligible compressors for extension of credit	80.00%
Percentage of eligible value at cost	80.00%
Unused commitment fee, rate	0.25%
Maximum leverage ratio allowed	3.00
Fixed charge coverage ratio	1.00
Outstanding balance		$ 0
Maximum
Line of Credit Facility [Line Items]
Default trigger, certain defaults of other company indebtedness, amount	$ 1,000
Default trigger, rendering of certain judgments, amount	$ 1,000
Federal Fund Rate
Line of Credit Facility [Line Items]
Variable rate, applicable margin	0.50%
Euro Dollar Rate
Line of Credit Facility [Line Items]
Variable rate, applicable margin	1.00%
Euro Dollar Rate | Minimum
Line of Credit Facility [Line Items]
Variable rate, applicable margin	1.25%
Euro Dollar Rate | Maximum
Line of Credit Facility [Line Items]
Variable rate, applicable margin	1.75%
Base Rate | Minimum
Line of Credit Facility [Line Items]
Variable rate, applicable margin	0.25%
Base Rate | Maximum
Line of Credit Facility [Line Items]
Variable rate, applicable margin	0.75%

XML

Stock-Based and Other Long-Term Incentive Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Number  of Stock Options
Outstanding, beginning of period (in shares)	200,834
Granted (in shares)	187,500
Canceled/Forfeited (in shares)	(8,250)
Expired (in shares)	(8,500)
Outstanding, end of period (in shares)	371,584	200,834
Exercisable (in shares)	163,584
Weighted AverageExercise Price
Outstanding, beginning of period (in dollars per share)	$ 21.17
Granted (in dollars per share)	16.02
Canceled/Forfeited (in dollars per share)	18.05
Expired (in dollars per share)	14.89
Outstanding, end of period (in dollars per share)	18.79	$ 21.17
Exercisable (in dollars per share)	$ 23.65
WeightedAverageRemainingContractual Life (years)
Outstanding, weighted average remaining contractual life	3 years 5 months 12 days	4 years 9 months 29 days
Exercisable, weighted average remaining contractual life	2 years 2 months 15 days
AggregateIntrinsicValue(in thousands)
Outstanding, aggregate intrinsic value	$ 21	$ 0
Cancelled / Forfeited, intrinsic value	11
Exercisable, aggregate intrinsic value	$ 2

XML

Stock-Based and Other Long-Term Incentive Compensation - Stock Options Outstanding (Details)	6 Months Ended
	Jun. 30, 2022 $ / shares shares
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, shares (in shares) | shares	371,584
Options outstanding, weighted average remaining contractual life (years)	3 years 5 months 12 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 18.79
Options exercisable, shares (in shares) | shares	163,584
Options exercisable, weighted average exercise price (in dollars per share)	$ 23.65
$0.01-18.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of exercise prices, lower limit (in dollars per share)	0.01
Range of exercise prices, upper limit (in dollars per share)	$ 18.00
Options outstanding, shares (in shares) | shares	238,000
Options outstanding, weighted average remaining contractual life (years)	3 years 11 months 19 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 14.87
Options exercisable, shares (in shares) | shares	30,000
Options exercisable, weighted average exercise price (in dollars per share)	$ 14.26
$18.01-22.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of exercise prices, lower limit (in dollars per share)	18.01
Range of exercise prices, upper limit (in dollars per share)	$ 22.00
Options outstanding, shares (in shares) | shares	20,500
Options outstanding, weighted average remaining contractual life (years)	8 months 19 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 18.75
Options exercisable, shares (in shares) | shares	20,500
Options exercisable, weighted average exercise price (in dollars per share)	$ 18.75
$22.01-26.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of exercise prices, lower limit (in dollars per share)	22.01
Range of exercise prices, upper limit (in dollars per share)	$ 26.00
Options outstanding, shares (in shares) | shares	42,167
Options outstanding, weighted average remaining contractual life (years)	2 years 9 months 14 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 22.90
Options exercisable, shares (in shares) | shares	42,167
Options exercisable, weighted average exercise price (in dollars per share)	$ 22.90
$26.01-30.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of exercise prices, lower limit (in dollars per share)	26.01
Range of exercise prices, upper limit (in dollars per share)	$ 30.00
Options outstanding, shares (in shares) | shares	28,750
Options outstanding, weighted average remaining contractual life (years)	4 years 7 months 17 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 28.15
Options exercisable, shares (in shares) | shares	28,750
Options exercisable, weighted average exercise price (in dollars per share)	$ 28.15
$30.01-34.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of exercise prices, lower limit (in dollars per share)	30.01
Range of exercise prices, upper limit (in dollars per share)	$ 34.00
Options outstanding, shares (in shares) | shares	42,167
Options outstanding, weighted average remaining contractual life (years)	1 year 8 months 19 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 30.41
Options exercisable, shares (in shares) | shares	42,167
Options exercisable, weighted average exercise price (in dollars per share)	$ 30.41

XML

Stock-Based and Other Long-Term Incentive Compensation - Summary of Unvested Stock Options (Details)	6 Months Ended
	Jun. 30, 2022 $ / shares shares
Shares
Unvested, beginning of period (in shares) | shares	55,500
Granted (in shares) | shares	187,500
Vested (in shares) | shares	(30,000)
Exercised (in shares) | shares	0
Canceled/Forfeited (in shares) | shares	(5,000)
Unvested, end of period (in shares) | shares	208,000
Weighted Average Grant Date Fair Value Per Share
Unvested, weighted average grant date fair value, beginning of period (in USD per share) | $ / shares	$ 5.15
Granted (in dollar per share) | $ / shares	4.37
Vested, weighted average grant date fair value (in USD per share) | $ / shares	2.85
Exercised (in dollar per shares) | $ / shares	0
Canceled/Forfeited (in dollars per share) | $ / shares	5.15
Unvested, weighted average grant date fair value, end of period (in USD per share) | $ / shares	$ 4.78

XML

Stock-Based and Other Long-Term Incentive Compensation - Stock Option, Narrative (Details) - USD ($)	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation expense	$ 875,890
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 168,059	$ 0

XML

Stock-Based and Other Long-Term Incentive Compensation - Restricted Stock, Narrative (Details)						6 Months Ended
	Jun. 17, 2022	Apr. 26, 2022 independent_director shares	Jun. 17, 2021 shares	Apr. 01, 2021 shares	Mar. 18, 2021 independent_director executive_officer shares	Jun. 30, 2022 USD ($) shares	Jun. 30, 2021 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation expense | $						$ 875,890
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in shares)						16,848
Share-based compensation expense | $						$ 586,000	$ 896,000
Total unrecognized compensation expense | $						$ 1,000,000
Recognition period						2 years 6 months
Restricted Stock | Chief Executive Officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in shares)					129,212
Award vesting period					3 years
Restricted Stock | Executive Officers
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of executive officers | executive_officer					2
Award vesting period	3 years
Restricted Stock | Chief Financial Officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in shares)			5,000
Restricted Stock | Vice President of Technical Services
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in shares)			5,000
Restricted Stock | Directors
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in shares)		4,212		5,291	5,612
Award vesting period					1 year
Number of independent directors | independent_director		4			3

XML

Stock-Based and Other Long-Term Incentive Compensation - Restricted Stock (Details) - Restricted Stock - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Number  of Shares
Outstanding, beginning of period (in shares)	276,319
Granted (in shares)	16,848
Vested (in shares)	(152,134)
Canceled/Forfeited (in shares)	0
Outstanding, beginning of period (in shares)	141,033	276,319
Weighted Average Grant Date Fair Value
Outstanding beginning of period (in dollars per share)	$ 9.67
Granted (in dollars per share)	11.87
Vested (in dollars per share)	10.99
Canceled/Forfeited (in dollars per share)	0
Outstanding ending of the period (in dollars per share)	$ 8.51	$ 9.67
Weighted Average Remaining Contractual Life (years)
Weighted average remaining contractual life (years)	2 years 6 months	1 year 9 months 7 days
Aggregate Intrinsic Value
Outstanding, begging balance	$ 2,893
Granted	200
Vested	1,778
Canceled/Forfeited	0
Outstanding, ending balance	$ 1,366	$ 2,893

XML

Stock-Based and Other Long-Term Incentive Compensation - Other Long-Term Incentive Compensation, Narrative (Details)					3 Months Ended		6 Months Ended
	Apr. 26, 2022 USD ($) independent_director	Apr. 01, 2021 USD ($)	Mar. 18, 2021 USD ($) independent_director	Apr. 28, 2020 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2021 USD ($)	Jun. 30, 2022 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation expense					$ 875,890		$ 875,890
Other Long-Term Incentive Compensation
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted			$ 1,000,000	$ 0
Award vesting period			3 years				1 year
Share-based compensation expense					431,000	$ 381,000
Total unrecognized compensation expense					$ 935,550		$ 935,550
Recognition period							1 year 3 months 18 days
Other Long-Term Incentive Compensation | Directors
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted	$ 50,000	$ 50,000	$ 50,000
Number of independent directors | independent_director	3		3

XML

(Loss) Earnings per Share - Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2022	Mar. 31, 2022	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2022	Jun. 30, 2021
Numerator:
Net income (loss)	$ (70)	$ 337	$ (1,918)	$ (394)	$ 267	$ (2,313)
Denominator for earnings (loss) per basic common share:
Weighted average common shares outstanding (in shares)	12,305,000		13,305,000		12,421,000	13,284,000
Denominator for earnings (loss) per diluted common share:
Weighted average common shares outstanding (in shares)	12,305,000		13,305,000		12,421,000	13,284,000
Dilutive effect of stock options and restricted stock/units (in shares)	0		0		107,000	0
Diluted weighted average shares (in shares)	12,305,000		13,305,000		12,528,000	13,284,000
Earnings (loss) per common share:
Basic (in dollars per share)	$ (0.01)		$ (0.14)		$ 0.02	$ (0.17)
Diluted (in dollars per share)	$ (0.01)		$ (0.14)		$ 0.02	$ (0.17)
Restricted Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Number of shares not included in the computation of dilutive income (loss) per share (in shares)	141,033		276,319		33,550	276,319
Stock Options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Number of shares not included in the computation of dilutive income (loss) per share (in shares)	371,584		145,334		371,584	145,334