Natural Gas Services Group (NYSE:NGS) reported a record first quarter, with management citing higher utilization, large-horsepower fleet additions and continued pricing discipline as key drivers of the compression equipment provider’s performance.
Chief Executive Officer Justin Jacobs said the company delivered record quarterly rental revenue, adjusted gross margin, adjusted EBITDA and horsepower utilization during the quarter. He said rented horsepower ended the quarter at approximately 575,000 horsepower, up 17% from the prior-year quarter, while horsepower utilization reached 86.9%, which he described as another company record.
Rental revenue totaled $47.1 million, up 21% year over year, and adjusted EBITDA was $24.3 million, compared with $19.3 million in the first quarter of 2025. Jacobs said the performance reflected “large horsepower fleet additions, high utilization levels, pricing discipline, and the ongoing mix shift towards larger horsepower compression assets.”
Dividend Increase and Higher EBITDA Guidance
Following the quarter, NGS announced that its second-quarter dividend would rise to $0.15 per share from $0.11 per share, a 36% increase. Jacobs said the higher dividend, along with an increase to full-year adjusted EBITDA guidance, reflected the company’s strong start to the year and its outlook for the remainder of 2026.
The company raised its full-year 2026 adjusted EBITDA guidance to a range of $92.5 million to $97.5 million, compared with its prior range of $90.5 million to $95.5 million. Jacobs said the increase was supported by strong first-quarter performance, high utilization, contracted fleet additions and current visibility into the rest of the year.
NGS maintained its capital spending outlook. Growth capital expenditures are expected to remain between $55 million and $70 million, while maintenance capital expenditures are expected to remain between $15 million and $18 million. Jacobs said the company remains committed to deploying at least 50,000 horsepower during 2026.
Margins Improve, but Management Warns Against Extrapolating
Chief Financial Officer Ian Eckert said rental adjusted gross margin was $30 million, up $6 million, or 24.7%, from the prior-year quarter. Rental adjusted gross margin percentage was 63.7%, up about 180 basis points from the first quarter of 2025.
However, Eckert cautioned that the first-quarter margin percentage should not necessarily be viewed as a new run rate for the balance of the year. He said the quarter was “exceptionally strong operationally,” with very few setbacks, and noted that the first quarter has been seasonally stronger than subsequent quarters over the past two years.
Management also pointed to inflationary pressure as a factor to watch. Jacobs said the company is seeing more meaningful pressure across parts of the supply chain, including from geopolitical developments and broader supply chain dynamics. He also said labor markets across oilfield services remain tight. In response to an analyst question, Eckert said the company is focused on cost pressures in parts, lubes and oils, and labor, with lube oil inflation expected to affect the business beginning in the second quarter.
Jacobs said NGS is increasingly adding inflation adjusters into contracts, though their inclusion depends on the specific contract. He added that the company still sees an “upward bias” to pricing, and that the degree of future pricing movement may depend on inflation levels in coming quarters.
Fleet Mix Continues to Shift Toward Large Horsepower
NGS added approximately 17,000 horsepower to its fleet during the first quarter, all of which consisted of large horsepower units under long-term contract. Jacobs said most of those additions were electric motor drive equipment and aligned with the company’s focus on higher-return, longer-duration compression applications.
The company also retired 17,700 horsepower during the quarter, representing 134 idle small and medium horsepower units. Eckert said the action reduced idle assets, improved fleet mix and reinforced the company’s focus on higher-return large horsepower opportunities.
Rental revenue per horsepower per month increased to $27.51 during the quarter, up 2.5% sequentially and 2% from the prior-year period. Eckert said that as the company’s mix continues to shift toward larger horsepower over time, margins should “gradually creep up,” though he declined to provide forward margin guidance.
Balance Sheet, Liquidity and Asset Sales
NGS ended the quarter with $226 million outstanding on its credit facility and $174 million of available borrowing capacity. Eckert said leverage at quarter-end was 2.33 times, which he described as the lowest among public comparables, and said the company continues to have flexibility to invest in growth and return capital to shareholders.
The company received $12.3 million during the first quarter related to long-standing tax refund claims and related interest. Jacobs said the amount represented approximately $1 per share of cash and that NGS expects to receive a small remaining amount in the near future.
NGS is also pursuing monetization of non-core real estate assets. At quarter-end, the company classified two real estate assets as held for sale: the Midland office building and the Midland fabrication facility. Jacobs said monetizing those assets is consistent with the company’s capital allocation efforts.
Market Outlook and Shareholder Meeting Items
Management described industry fundamentals as constructive. Jacobs said customer commentary and activity levels indicate improving sentiment around oil production growth, while midstream infrastructure build-out to support natural gas production is expected to continue driving compression demand. He also said lead times for new compression equipment continue to constrain available industry supply, supporting high utilization, pricing discipline and longer customer commitments.
During the question-and-answer session, Jacobs said extended lead times for some industry equipment components may create opportunities for NGS, particularly because certain long-lead components are a smaller percentage of the company’s growth and existing fleet than they may be for some competitors. He said the company may have opportunities “to pull in the growth earlier.”
Jacobs also said NGS continues to see strong activity in the Permian Basin, where it is heavily weighted, as well as interest in South Texas and the Eagle Ford area, and growth in the Marcellus and Utica regions. He said the company expects to continue growing at rates that are outsized relative to competitors while preserving flexibility for strategic and accretive merger-and-acquisition opportunities.
Jacobs also highlighted two items ahead of the company’s June 10 shareholder meeting. NGS is asking shareholders to approve reincorporation from Colorado to Texas, which he said would help implement more shareholder-friendly governance provisions, including facilitating de-staggering of the board. He also noted that Steve Taylor will retire from the board and that the company has nominated John Jackson, whom Jacobs described as an experienced rental compression operator.
About Natural Gas Services Group (NYSE:NGS)
Natural Gas Services Group, Inc (NYSE: NGS) is an energy infrastructure company specializing in natural gas distribution and compression services across the United States. The company operates two primary lines of business: the Distribution segment provides natural gas delivery to residential, commercial and industrial customers, while the Compression Services segment rents, sells and services a diversified fleet of compression equipment for midstream and industrial applications.
In its Distribution segment, Natural Gas Services Group engineers, constructs and maintains local pipeline networks, meters and related apparatus to ensure safe and reliable natural gas supply to municipal utilities and private customers.
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