Natural Gas Services Group, Inc Reports Second Quarter 2016

 MIDLAND, Texas August 4, 2016 - Natural Gas Services Group, Inc. NGS, a leading provider of gas compression equipment and services to the natural gas industry, announces its financial results for the three and six months ended June 30, 2016.

Revenue: Total revenue was $17.2 million, a decrease from $24.2 million for the three months ended June 30, 2016 compared to the same period ended June 30, 2015. This change was mainly attributable to a decrease in rental revenue and compressor unit sales related to reduced activity in the upstream oil and gas industry due to low commodity prices. Total revenue decreased between consecutive quarters by $4.4 million to $17.2 million from $21.6 million, due to the same aforementioned reasons.  On a six month year-to-date basis, revenues were down from 2015 by $10.2 million.

Gross Margins: Total gross margin for the three months ended June 30, 2016 decreased $4.5 million to $9.5 million from $14.0 million for the same period ended June 30, 2015. Total gross margin as a percentage of revenue dropped to 55% for the three months ended June 30, 2016 compared to 58% for the same period ended June 30, 2015. This decrease was the result of generally lower margins on compressor sales. Sequentially, gross margin was $11.8 million for the three months ending March 31, 2016 compared to $9.5 million in the three months ended in June 30, 2016. Gross margin percentages continued to hold strong at 55%, driven primarily by higher gross margins in our rental business. For the comparative six months ended June 30, total gross margin decreased to $21.3 million from $28.2 million.

Operating Income: Operating income for the three months ended June 30, 2016 was $1.9 million, compared to the prior year's second quarter of $919,000. This increase was the result of special items taken during the second quarter of 2015, mainly consisting of a $4.3 million write-down of retired equipment. When comparing the three months of June 2016 to June 2015, without this retirement, operating income decreased due to a reduction in rental revenue and sales gross margins. Sequentially, operating income decreased to $1.9 million, for the three months ended June 30, 2016 from $3.8 million in the three month period ended March 31, 2016 primarily due to a decrease in total revenues and lower compressor sales gross margins between the periods. Operating income for the six months ended 2016 was $5.6 million compared to $6.7 million for the same period in 2015. Excluding the adjustment for the comparative six months ended June 30, operating income was $5.6 million in 2016 compared to an adjusted operating income of $11.2 million in 2015.

Net Income:  Net income for the three months ended June 30, 2016 increased to $1.3 million compared to net income of $614,000 for the same period in 2015. Sequentially, net income decreased to $1.3 million from $2.5 million. For the comparative six months ended, net income decreased to $3.8 million from $4.3 million. The aforementioned net income numbers include the adjustments as reported.

Earnings Per Share:  Comparing the second quarter of 2016 versus 2015, earnings per diluted share was 10 cents up from the 5 cents. Diluted earnings per share decreased to 10 cents from 20 cents between sequential quarters. On a six month year-to-date basis, earnings per diluted share decreased to 29 cents from a 34 cents.

Adjusted EBITDA:  Adjusted EBITDA decreased $3.9 million to $7.3 million or 42% of revenue for the three months ended June 30, 2016 versus $11.2 million or 46% of revenue for the same three months ended June 30, 2015. Adjusted EBITDA decreased approximately $2 million in the sequential quarters and decreased relative to revenue to 42% from 43%. For the six month ended June 30, 2016, Adjusted EBITDA decreased $6.2 million to $16.6 million or 43% of revenue compared to $22.8 or 47% for the same period ended June 30, 2015. Please see discussion of Non-GAAP Financial Measures - Adjusted EBITDA, below.

Cash Flow: At June 30, 2016, cash and cash equivalents were $52.2 million with a bank debt level of $417,000, all of which was classified as long term. Positive net cash flow from operating activities was $19.8 million during the six months ended of 2016.

Commenting on second quarter 2016 results, Stephen C. Taylor, President and CEO said:

"Rental activity in the second quarter continued to decline as a natural consequence of last quarter's utilization drop and the bottoming of the oil price experienced in the first quarter. However, we have seen this decline begin to mitigate itself in the second quarter and the month of July. Sales activity, which is always volatile on a quarter-to-quarter basis, also declined, but our backlog continues to hold steady. Our rental gross margins were again very high due to excellent cost control, and 53 percent of every revenue dollar was converted into free cash flow. The first part of the year has been difficult but, contingent upon the commodity price, we believe the worst is behind us."

Selected data: The table below shows revenues, percentage of total revenues, gross margin, exclusive of depreciation, amortization, and gross margin percentage of each of our business lines for the three and six months ended June 30, 2016 and 2015.  Gross margin is the difference between revenue and cost of sales, exclusive of depreciation and amortization.

(1) For a reconciliation of gross margin to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read "Non-GAAP Financial Measures - Adjusted EBITDA" below.

Non GAAP Financial Measures - Adjusted EBITDA: "Adjusted EBITDA" reflects net income or loss before interest, taxes, loss on retirement of rental equipment, depreciation and amortization. Adjusted EBITDA is a measure used by analysts and investors as an indicator of operating cash flow since it excludes the impact of movements in working capital items, non-cash charges and financing costs. Therefore, Adjusted EBITDA gives the investor information as to the cash generated from the operations of a business. However, Adjusted EBITDA is not a measure of financial performance under accounting principles GAAP, and should not be considered a substitute for other financial measures of performance. Adjusted EBITDA as calculated by NGS may not be comparable to Adjusted EBITDA as calculated and reported by other companies. The most comparable GAAP measure to Adjusted EBITDA is net income.

The reconciliation of net income to Adjusted EBITDA and gross margin is as follows:

"Gross margin" is defined as total revenue less cost of sales (excluding depreciation and amortization expense).  Gross margin is included as a supplemental disclosure because it is a primary measure used by management as it represents the results of revenue and cost of sales (excluding depreciation and amortization expense), which are key operating components.  Depreciation expense is a necessary element of costs and the ability to generate revenue and selling, general and administrative expense is a necessary cost to support operations and required corporate activities.  Management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding of the company's performance.  As an indicator of operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income as determined in accordance with GAAP.  Gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.

Non GAAP Financial Measures - Special Items: From time to time, management may publicly disclose certain "non-GAAP financial measures", such as adjusted operating income below, in our earnings releases, financial presentations or earnings conference calls. These non-GAAP measures are not in accordance with, or a substitute for, measures prepared in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations that would be reflected in measures determined in accordance with GAAP. Adjusted operating income and net income reflects operating before the loss on retirement of rental equipment and increases in bad debt and inventory allowances, taken in the second quarter 2015.

The reconciliation of operating income to adjusted operating income is as follows:

Cautionary Note Regarding Forward-Looking Statements:

Except for historical information contained herein, the statements in this release 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 NGS's 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 gas prices which could cause a decline in the demand for NGS's products and services; and new governmental safety, health and environmental regulations which could require NGS to make significant capital expenditures. The forward-looking statements included in this press release are only made as of the date of this press release, and NGS undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. A discussion of these factors is included in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Conference Call Details:

Teleconference: Thursday, August 4, 2016 at 10:00 a.m. Central (11:00 a.m. Eastern).  Live via phone by dialing 877-358-7306, pass code "Natural Gas Services".   All attendees and participants to the conference call should arrange to call in at least 5 minutes prior to the start time.

Live Webcast: The webcast will be available in listen only mode via our website www.ngsgi.com, investor relations section.

Webcast Reply: For those unable to attend or participate, a replay of the conference call will be available within 24 hours on the NGS website at www.ngsgi.com.

Stephen C. Taylor, President and CEO of Natural Gas Services Group, Inc. will be leading the call and discussing the financial results for the three and six months ended June 30, 2016.

About Natural Gas Services Group, Inc. (NGS):
NGS is a leading provider of small to medium horsepower, wellhead compression equipment to the natural gas industry with a primary focus on the non-conventional gas and oil industry, i.e., coalbed methane, gas and oil shales and tight gas. The Company manufactures, fabricates, rents, sells and maintains natural gas compressors and flare systems for gas and oil 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 gas and oil producing basins in the U.S. Additional information can be found at www.ngsgi.com.