Kodiak Gas Services, Inc. Q2 FY2025 earnings call

• Safety was emphasized at the start, with thoughts and prayers for those impacted by Texas Hill Country tragedies. - A $100 million increase to the share repurchase program was announced, and Kodiak was added to the S&P Small Cap 600 Index. - Macro themes in compression space include high demand for large horsepower compression driven by Permian natural gas growth and LNG developments. - Second quarter results set records in adjusted EBITDA, free cash flow, net income, and earnings per share. Leverage ratio hit a new low of 3.6x. - Operational highlights: average revenue-generating horsepower per unit increased to 952 since CSI acquisition, added ~32,000 new unit horsepower, divested ~35,000 horsepower of noncore units, recontracted nearly 0.5 million horsepower at above average rates, and implemented technology like the Fleet Reliability Center and new ERP system.

For the second quarter of 2025, Kodiak Gas Services achieved strong financial results. In the Contract Services segment, adjusted EBITDA was $178.2 million, a 15% increase compared to the second quarter of the previous year. Contract Services saw year-over-year revenue growth of over 6%, with revenue per ending horsepower at $22.77. The Contract Services adjusted gross margin percentage increased by 430 basis points to 68.3% compared to Q2 of 2024. The Other Services segment generated revenues of approximately $29 million with higher-than-expected margins.

• Increased the low end of Contract Services revenue outlook by $10 million and adjusted gross margin range to 67%-69%. - Reduced Other Services revenue forecast to $120 million to $140 million. - Capital spending guidance remains unchanged. - Increased discretionary cash flow guidance to $445 million to $465 million. - Significantly increased and extended the stock repurchase program.

• Labor availability remains a challenge in the Permian Basin. - Variability in the Other Services segment due to project timing. - Potential impact of commodity price fluctuations on customer capital allocation decisions.

Q: Jim Rollyson asked about the disconnect between ground reality in the Permian and investor sentiment.

A: Robert M. McKee stated it's due to difference between gas and oil growth in Permian, with compression demand driven by gas growth.

Q: John Mackay inquired about units acquired and cadence.

A: Robert M. McKee said it's part of growth, with opportunistic small deals.

Q: Doug Irwin asked about CapEx and backlog.

A: Robert M. McKee said still finalizing budgeting, but confident in current backlog.

Q: Theresa Chen asked about customer partnerships and technology margin uplift.

A: Robert M. McKee said more creative solutions expected, and technology has upside but learning curve with ERP.

Q: Sebastian Erskine asked about CSI acquisition learnings and fleet quality.

A: Robert M. McKee and John B. Griggs discussed successful CSI acquisition and remaining fleet being smaller noncore horsepower.

Q: Brian DiRubbio asked about labor and acquisition economics.

A: Robert M. McKee talked about labor challenges and John B. Griggs discussed acquisition economics.

Q: Jeremy Tonet asked about electric compression and margin trend.

A: Robert M. McKee discussed electric compression demand based on acreage and John B. Griggs addressed margin trend and avoiding misinterpretation of horsepower addition impact.