Natural Gas Services Group (NYSE:NGS) reported record third-quarter rental revenue and adjusted EBITDA as its first full quarter with the Flatrock acquisition added to organic fleet growth and pricing gains.
The company raised the lower end of its 2026 adjusted EBITDA forecast and increased its quarterly dividend, while maintaining its target for organic horsepower additions. It also agreed to sell its Tulsa fabrication facility as it shifts all new unit fabrication to outside suppliers.
“The acquisition is already delivering against our expectations, and integrating it has not slowed our organic growth,” Chief Executive Officer Justin Jacobs said.
Rental Revenue and Margins Rise
Third-quarter rental revenue rose to $58.9 million, up $9.5 million, or 19.1%, from the second quarter. Total revenue increased to $61.3 million from $51.4 million. Chief Financial Officer Ian Eckert said Flatrock’s first full quarter was the largest contributor, with more than 20,000 horsepower of organic additions and pricing improvements accounting for the balance.
Adjusted EBITDA reached $29.6 million, up 18.2% sequentially and 42.2% from the year-earlier quarter. Net income was $5.6 million, or $0.43 per diluted share, while adjusted net income was approximately $6.2 million, or $0.48 per diluted share.
Rental adjusted gross margin improved to 62.2% from 61.1% in the second quarter, despite higher operating costs. Eckert said lubricant inflation remains a headwind, though the company is managing costs through purchasing discipline, a growing mix of electric units, contractual surcharges and pricing where available.
Rental revenue per horsepower per month was $29.13. Excluding a small amount of rental revenue unrelated to compressor horsepower, the figure was $28.75, up 6.2% year over year.
Guidance Raised as Fleet Expands
Natural Gas Services increased the lower end of its full-year 2026 adjusted EBITDA guidance by $2 million, setting a range of $105 million to $108 million. The company narrowed its growth capital expenditure forecast to $60 million to $75 million from $60 million to $80 million and left maintenance capital guidance at $15 million to $19 million.
Jacobs said the company added approximately 43,000 horsepower organically through the third quarter and remains on track for 55,000 horsepower for the year. Fleet utilization was approximately 88%, with large-horsepower units remaining close to what he described as a frictional idle level.
The company is working to put more small- and medium-horsepower equipment to use through conversions, including to electric drive, upgrades and changes to equipment deployed for customers. Electric units represent 10% of rented horsepower, Jacobs said.
Jacobs said Flatrock expanded the company’s customer relationships and presence in the Midland Basin and Eagle Ford. Its fleet maintenance processes are also being adopted across the combined fleet. Eckert expects the fourth quarter to be the last period of meaningful integration-related expenses.
Demand Outlook and Capital Allocation
Jacobs said the company has significant quoting activity for the rest of 2026 and 2027, with large requests for proposals extending into the second half of 2027 and 2028. He said Natural Gas Services is quoting more midstream applications than at any point in its history, while supply of new large-horsepower equipment remains constrained.
During the question-and-answer session, Jacobs said the company had meaningful equipment commitments through 2027 and expected strong growth, but would not provide formal 2027 guidance until its fourth-quarter call. He said midstream opportunities involve a mix of new and existing large-horsepower equipment.
The Tulsa facility sale is valued at $4.75 million and remains subject to closing conditions, with completion expected by the end of November. Eckert said the company expects to recognize a roughly $3 million gain in the fourth quarter if the deal closes as planned; the gain would be excluded from adjusted EBITDA.
The company ended the quarter with $340 million outstanding under its $500 million credit facility and a leverage ratio of 2.8 times, below its 3.5-times bank covenant. Its fourth-quarter dividend of $0.16 per share is up 6.7% from the third quarter.
Eckert said the company could make opportunistic purchases under its $6 million share repurchase authorization if recent share-price weakness persists. He added that Natural Gas Services is exploring a 10b5-1 plan to provide greater flexibility to repurchase shares during earnings blackout periods.
About Natural Gas Services Group (NYSE:NGS)
Natural Gas Services Group, Inc. provides natural gas compression equipment and services to oil and natural gas producers, processors and pipeline companies. The company designs, fabricates, sells and rents natural gas compressors used to maintain pressure and improve the flow of natural gas from production wells and through gathering and processing systems. The company’s offerings include compressor packages, contract compression services, equipment fabrication and engineering support. It also provides maintenance, repair and related field services for compression equipment.
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