NGS Achieves Record Revenue in 2014 with a 14% Increase in Rental Revenue - Diluted Earnings Per Share of 32 cents for the Quarter and $1.11 for the Year Ended December 31, 2014

MIDLAND, Texas March 12, 2015 - Natural Gas Services Group, Inc. (NYSE:NGS), a leading provider of gas compression equipment and services to the natural gas and oil  industry, announces its financial results for the three months and year ended December 31, 2014.

Revenue: Total revenue was a record $97.0 million, an increase from $89.2 million, or almost 9%, for the year ended December 31, 2014, compared to the same period ended December 31, 2013. Between the third quarter of 2014 and the current quarter, total revenues increased 6%. Rental revenues increased 14.4%  for the full year 2014 compared to a year ago. Rental revenue increased approximately 2% over sequential quarters. Sales revenue was $17.2 million for the year ended December 31, 2014 compared to $19.5 million for the year ended 2013.

GrossMargins: Total gross margin, exclusive of depreciation and amortization, increased 11.4% to $53.8 million for the year ended December 31, 2014 from $48.3 million for the year ended December 31, 2013.  Overall gross margin percentage grew to 56% from 54% for this same comparative period. This increase was the result of full year-over-year higher rental margins and a mix shift from sales to higher margin rentals.  Sequentially, total gross margin increased to $14.9 million from $13.9 million due to rental margins of 62% compared to 60%. In the fourth quarter year-over-year comparative periods, gross margins grew 25% to $14.9 million from $11.9 million and increased to 55% from 51% as a percentage of revenue. See additional discussion on Gross Margins in the Non-GAAP Financial Measures section in this press release.  

Operating Income: Operating income remained flat across both years at $22.0 million primarily due to higher depreciation expenses related to expansion of our rental fleet and increased selling, general and administrative expenses. Sequentially, operating income increased  almost 15% to $6.7 million for the three months ended December 31, 2014 from $5.8 million.  This increase was primarily a result of higher rental margins.

Net Income:  Net income for the year ended December 31, 2014 decreased 1.8% to $14.1 million, when compared to net income of $14.4 million for the year ended 2013.  The decrease is largely due to an increase in depreciation and selling, general and administrative expenses. Net income is up 3% in the fourth quarter when compared to the third quarter of 2014 and up 26.8% when compared against the fourth quarter of 2013. These increases were mainly driven by higher rental growth and rental margins.

Earnings per share:  Comparing 2014 versus 2013, earnings per diluted share was $1.11 compared to $1.15.  Diluted earnings per share increased to 32 cents, up from 31 cents, between sequential quarters.

EBITDA:  EBITDA increased  over 7% to $43.7 million or 45% of revenue for the year ended December 31, 2014 versus $40.7 million or 46% of revenue for the year ended December 31, 2013. EBITDA improved to $12.4 million or a 25% increase in the fourth quarter of 2014 when compared to the same period in 2013 and an increase of almost 8% in sequential quarters.  Please see discussion of Non-GAAP Financial Measures in this press release.

Cash flow: At December 31, 2014, cash and cash equivalents were approximately $6.2 million; working capital was $41.8 million with a total debt level of $417,000. Positive net cash flow from operating activities was approximately $34.6 million during the year ended December 31, 2014 compared to $39.2 million for 2013.  The changes in operating cash flow relate to the cash contribution from net income and normal changes in our working capital accounts.

Commenting on fourth quarter 2014 results, Stephen C. Taylor, President and CEO, said:
"The fourth quarter of 2014 capped a strong year for NGS. Total revenue and gross margins were the highest in our history and operating income, net income, gross margin and EBITDA increased in each quarter throughout the year. We continued to grow our rental fleet and achieved a 14% increase in rental revenues while increasing gross margins to 60%. Although 2015 will be a challenging year, we are well positioned. With our net cash position we have the strongest balance sheet in our competitive sphere and anticipate generating free cash flow this year. We are confident that our expense control, as well as the pursuit of additional sales and product initiatives will strengthen the immediate and long-term performance of the company."

Selected data: The table below shows revenue categories, percentage of total revenues, gross margin, exclusive of depreciation and amortization, and gross margin percentage  for the year ended December 31, 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:  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 months and year ended December 31, 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.

See accompanying notes to these financial statements.

HUG#1902289