NGS Posts Record Q3: Adjusted EBITDA Up 42.2% to $29.6 Million

Natural Gas Services Group (NYSE:NGS) grew third-quarter adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) 42.2% year over year to $29.6 million — a record — while raising the lower end of its 2026 guidance and lifting its dividend 6.7%.

The quarter marked the first full period with the Flatrock acquisition in the fold, layered on top of organic fleet growth and pricing gains. Net income came in at $5.6 million, or $0.43 per diluted share; adjusted net income was roughly $6.2 million, or $0.48 per diluted share.

"The acquisition is already delivering against our expectations, and integrating it has not slowed our organic growth," Chief Executive Officer Justin Jacobs said on the earnings call.

How big were the revenue and margin gains?

Rental revenue rose $9.5 million, or 19.1%, sequentially to $58.9 million — another record. Total revenue climbed to $61.3 million from $51.4 million in the second quarter.

CFO Ian Eckert said Flatrock's first full quarter was the largest contributor, with more than 20,000 horsepower (a standard measure of compressor output) of organic additions and pricing improvements making up the balance.

Rental adjusted gross margin improved to 62.2% from 61.1% in the prior quarter, despite higher operating costs. Eckert flagged lubricant inflation as a continuing headwind, offset 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.

The takeaway: margins expanded even with cost inflation, because pricing and fleet mix are doing the heavy lifting.

What changed in guidance and capital plans?

The company raised the lower end of its full-year 2026 adjusted EBITDA guidance by $2 million, setting a range of $105 million to $108 million. It narrowed growth capital expenditure guidance to $60 million to $75 million from $60 million to $80 million, and held maintenance capex at $15 million to $19 million.

On the fleet side, Jacobs said NGS added roughly 43,000 horsepower organically through the third quarter and remains on track for 55,000 horsepower for the year. Fleet utilization ran at about 88%, with large-horsepower units sitting near what he called a frictional idle level — effectively as tight as operations allow.

The company is converting small- and medium-horsepower equipment to other uses, including electric drive, to put more of it to work. Electric units now represent 10% of rented horsepower.

Integration costs are winding down: Eckert expects the fourth quarter to be the last period of meaningful integration-related expenses. Flatrock's fleet maintenance processes are being adopted across the combined fleet, and the deal expanded the company's customer relationships in the Midland Basin and Eagle Ford shale plays.

In short: the growth target holds, the cost of getting there is peaking.

What did management say about demand into 2027?

Plenty. Jacobs pointed to significant quoting activity for the rest of 2026 and 2027, with large requests for proposals stretching into the second half of 2027 and 2028. NGS is quoting more midstream applications — gas moving through processing and pipeline infrastructure — than at any point in its history, while new large-horsepower equipment supply remains constrained.

During the Q&A, Jacobs said the company has meaningful equipment commitments through 2027 and expects strong growth, but declined to give formal 2027 guidance until the fourth-quarter call. Midstream opportunities involve a mix of new and existing large-horsepower equipment, he added.

What's happening with the Tulsa plant and the balance sheet?

NGS agreed to sell its Tulsa fabrication facility for $4.75 million, with closing expected by the end of November, subject to conditions. The shift moves all new unit fabrication to outside suppliers. If the deal closes as planned, Eckert expects a roughly $3 million gain in the fourth quarter — excluded from adjusted EBITDA.

Balance sheet and shareholder returns, at a glance:

• $340 million outstanding under the $500 million credit facility
• Leverage ratio of 2.8 times, below the 3.5-times bank covenant (a contractual debt limit set by lenders)
• Q4 dividend of $0.16 per share, up 6.7% from Q3
• Potential opportunistic buybacks under the $6 million share repurchase authorization if share-price weakness persists
• A 10b5-1 plan (a pre-scheduled trading plan allowing repurchases during blackout windows) under consideration for added flexibility

NGS supplies natural gas compression equipment and services to producers, processors and pipeline companies, spanning compressor packages, contract compression, fabrication, engineering support, and maintenance and field services.

The message from this quarter: record numbers, raised guidance and a seller's market in large-horsepower compression.