NGS Reports 16% Year-over-Year Rental Revenue Growth Second Quarter 2014 Earnings of 27 cents per Diluted Share

 MIDLAND, Texas August 7, 2014 - Natural Gas Services Group, Inc. (NYSE: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, 2014.

Revenue: Total revenue was $22.0 million, an increase from $20.3 million, or 8%, for the three months ended June 30, 2014, compared to the same period ended June 30, 2013. This change was attributable to an increase of 16% in rental revenue to $19.5 million from $16.7 million. This revenue increase, more than offset a $1.0 million decrease in sales revenue to $2.3 million for the period ended June 30, 2014 compared to the same three month period in 2013. Rental and flare/rebuilds revenues increased in consecutive quarters, while a decrease in compressor sales caused revenues to remain consistent between the first quarter of 2014 and this current period at $22.0 million.
           
Gross Margins: Total gross margin for the three months ended June 30, 2014  increased 6% to $13.0 million from $12.3 million for the same period ended June 30, 2013. Sequentially, gross margin increased 8%  to $13.0 million from $12.0 million. Overall gross margin percentage was 59% for the three months ended June 30, 2014, compared to 61% for the same period ended June 30, 2013 and 54% for the three months ended March 31, 2014.

Operating Income: Operating income for the three months ended June 30, 2014 was $5.1 million, down 13% from the comparative prior year's level of $5.8 million. The decrease was primarily caused by lower sales revenues in the current quarter, and higher SG&A and depreciation expense associated with new additions to our rental fleet. Sequentially, operating income increased 17% to $5.1 million for the three months ended June 30, 2014 from $4.4 million, primarily due to improved margins between the periods. 

Net Income:  Net income for the three months ended June 30, 2014 decreased to $3.4 million, when compared to net income of $3.8 million for the same period in 2013.  This decrease was primarily because of the noted lower compressor sales in this period and a higher depreciation expense. Sequentially, net income increased 19% from $2.9 million to $3.4 million, due to an increase in overall revenue gross margins.

Earnings Per Share:  Comparing the second quarter of 2014 versus 2013, earnings per diluted share was 27 cents, down from 31 cents.  Diluted earnings per share increased 17%, to 27 cents from 23 cents, between sequential quarters.

EBITDA:  EBITDA was $10.4 million or 47% of revenue for the three months ended June 30, 2014 versus $10.2 million or 50% of revenue for the same three months ended June 30, 2013. Please see discussion of Non-GAAP Financial Measures, below.

Cash Flow: At June 30, 2014, cash and cash equivalents were $14.4 million; working capital was $38.6 million with a total debt level of $437 thousand, all of which was classified as current. Positive net cash flow from operating activities was $18.2 million during the first six months of 2014.

Commenting on second quarter 2014 results, Stephen C. Taylor, President and CEO, said:

"Our 16% year-over-year rental revenue growth continued at a strong pace with gross margins in this product line, and the company as a whole, strengthening again this quarter. Shipments of gas compressors into liquids and oil-shale oriented basins continued at a good rate and our planned fabrication expansion is on-track to open up in the fourth quarter of this year. Compressor sales volumes were off a bit this quarter due to some delayed orders, but our backlog is intact and we anticipate that this equipment will ship through the balance of the year. We are pleased with our performance this quarter and anticipate continued progress."

Selected data: The table below shows revenues, percentage of total revenues, gross margin, exclusive of depreciation, amortization, and gross margin percentage of each business lines for the three months ended June 30, 2014 and 2013.  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" below.

Non GAAP Financial Measures: "EBITDA" reflects net income or loss before interest, taxes, depreciation and amortization.  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, EBITDA gives the investor information as to the cash generated from the operations of a business.  However, EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America ("GAAP"), and should not be considered a substitute for other financial measures of performance.  EBITDA as calculated by NGS may not be comparable to EBITDA as calculated and reported by other companies. The most comparable GAAP measure to EBITDA is net income. The reconciliation of net income      to 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 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.

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 7, 2014 at 10:00 a.m. Central (11:00 a.m. Eastern).  Live via phone by dialing 800-624-7038, 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, 2014.

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.