Kodiak Gas Services, Inc. Q4 FY2024 earnings call

• Sustainability: Published third annual sustainability report, highlighting commitment to communities and safety. - Acquisition: Completed and integrated CSI acquisition, realizing over 50% more cost savings than expected. - Divestment: Divested non-core units, increasing average horsepower size, reducing average age of fleet, and geographically focusing operations. - Fleet and Technology: Invested in fleet growth, established BEARS Academy for training, and deployed AI machine learning for predictive maintenance. - Financial Records: Set new records in total revenue, adjusted EBITDA, discretionary cash flow, and free cash flow in 2024.

For 2024, total revenue grew by 36% to $1.2 billion. Adjusted EBITDA grew by 39% to $610 million. In the fourth quarter, total revenues were approximately $310 million, down 5% sequentially due to divestitures and seasonal slowdowns. The contract services adjusted gross margin percentage increased to approximately 67% in Q4, up sequentially. The other services segment had revenues just over $29 million in Q4 with an adjusted gross margin percentage of 15%. The average horsepower per unit increased from 734 in the first quarter post CSI to 926 at year end.

• Revenue: Expected to range between $1.31 billion and $1.38 billion in 2025. - Adjusted EBITDA: Guidance range of $685 million to $725 million. - Maintenance CapEx: In a range of $75 million to $85 million. - Growth CapEx: Landing between $240 million and $280 million, with about two-thirds spent on new horsepower. - Capital Allocation: Intend to return about 35% or more of discretionary cash flow to shareholders and drive towards 3.5 times leverage by end of 2025.

• Macroeconomic factors: Tariff and OPEC announcements could impact customer decisions on rent vs buy. - Labor tightness: Challenge in Permian basin affecting growth and service delivery. - Supply chain: Tight supply chain with long delivery times for equipment. - Competitive landscape: Potential competition from other players in contract compression sector.

Q: Jim Rollyson asked about average revenue per horsepower per month coming down slightly and leading edge pricing.

A: John Griggs explained it was due to divestiture of non-core horsepower, and Mickey McKee stated leading edge pricing remains in 15%-20% premium over average.

Q: Derrick Whitfield inquired about macro volatility impact on rent vs buy decisions.

A: Mickey McKee said tariff impact is to be determined, OPEC could lead customers to outsource compression, and John Griggs noted the business model is production-focused with stable customers.

Q: John Mackay asked about GORs in Permian and CapEx run rate.

A: Mickey McKee said GORs are increasing, and John Griggs explained about two-thirds of 2025 CapEx for new units, with remaining for other items.

Q: Doug Irwin asked about CapEx run rate and buybacks.

A: Mickey McKee said 2025 CapEx is planned, and they are considering buybacks based on visibility.

Q: Sebastian Erskine asked about labor tightness and EBITDA outlook.

A: Mickey McKee discussed training and technology to address labor, and EBITDA outlook depends on renewals and equipment deployment.

Q: Neal Dingmann asked about supply chain and customer retention.

A: Mickey McKee said supply chain is managed, and customers will continue working with Kodiak due to compression needs.

Q: Theresa Chen asked about durability of pricing and competitive landscape.

A: Mickey McKee said leading edge pricing is durable due to equipment cost, and it's different from drilling rig day rates.

Q: Robert Mosca asked about other services and legacy fleet margin.

A: John Griggs discussed other services mix and Mickey McKee noted legacy fleet margin improvement post CSI integration.

Q: Brian DiRubbio asked about contract terms and electric drives.

A: Mickey McKee discussed contract terms and electric drives have operating expense benefits but grid reliability challenges.