Kodiak Gas Services(KGS) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Kodiak Gas Services presents a comprehensive overview of its Q2 2025 performance and revised full-year outlook, emphasizing strong financial results and strategic initiatives Second Quarter 2025 Performance Highlights Kodiak Gas Services reported strong financial and operational results for Q2 2025, achieving record earnings per share, adjusted EBITDA, and free cash flow, alongside significant improvements in contract services adjusted gross margin and fleet utilization | Metric | Q2 2025 Value | Change vs. Q2 2024 | | :----------------------------------- | :------------ | :------------------- | | Net income attributable to common shareholders | $39.5 million | +537% (from $6.2M) | | Earnings per share (diluted) | $0.43 | - | | Adjusted EBITDA | $178.2 million | +15.5% | | Contract Services adjusted gross margin percentage | 68.3% | +430 basis points | | Free cash flow | $70.3 million | - | | Capital Returned to Stockholders (Dividends & Repurchases) | Over $50 million | - | | New Large Horsepower Compression Units Deployed | 31,800 horsepower | - | | Fleet utilization | 97.2% | +290 basis points | - Kodiak was added to the S&P SmallCap 600 index effective August 6, 2025, signifying financial strength and commitment to profitable growth[6][11] Revised Full-Year 2025 Outlook Highlights The company increased its full-year 2025 guidance for adjusted EBITDA and discretionary cash flow, reflecting continued confidence in its operational performance and market position | Metric | Revised Full-Year 2025 Guidance Range | | :----------------------------------- | :------------------------------------ | | Adjusted EBITDA | $700 million to $725 million | | Discretionary cash flow | $445 million to $465 million | CEO Commentary CEO Mickey McKee highlighted the company's commitment to operational excellence, strategic focus on large horsepower compression, fleet optimization, and investments in technology and personnel as drivers for record adjusted EBITDA and improved margins. He expressed confidence in long-term growth prospects due to Permian Basin natural gas production growth and strong demand from data centers and LNG projects, reinforcing the decision to increase the share repurchase program - The company's strategic focus on large horsepower compression, fleet optimization, and significant investments in technology and personnel contributed to a fourth consecutive quarterly increase in Contract Services adjusted gross margin percentage and record quarterly Adjusted EBITDA[4] - Confidence in long-term growth is driven by highly visible Permian Basin natural gas production growth and strong demand outlook from power demand for data centers and domestic LNG projects[7] - The increase in the share repurchase program reflects confidence in the business and commitment to returning capital to shareholders, while maintaining focus on superior service and a reliable compression fleet[8] Operational and Financial Updates This section details Kodiak's segment performance, debt management, S&P index inclusion, and share repurchase activities Segment Performance Kodiak's Contract Services segment demonstrated robust growth in revenue and gross margin, while Other Services experienced a revenue decrease but a significant increase in gross margin Contract Services The Contract Services segment demonstrates robust revenue and gross margin growth, reflecting strong operational performance | Metric | Q2 2025 Value | Q2 2024 Value | YoY Change | | :-------------------------- | :------------ | :------------ | :--------- | | Revenue | $293.5 million | $276.3 million | +6.3% | | Gross Margin | $134.3 million | $107.5 million | +24.9% | | Adjusted Gross Margin | $200.4 million | $176.9 million | +13.3% | Other Services The Other Services segment experienced a revenue decrease but a significant increase in gross margin, indicating improved profitability | Metric | Q2 2025 Value | Q2 2024 Value | YoY Change | | :-------------------------- | :------------ | :------------ | :--------- | | Revenue | $29.3 million | $33.4 million | -12.3% | | Gross Margin & Adjusted Gross Margin | $7.2 million | $5.5 million | +31.6% | Long-Term Debt and Liquidity The company reduced its debt outstanding by approximately $48 million during Q2 2025, maintaining a healthy liquidity position with significant availability on its ABL Facility | Metric | As of June 30, 2025 | | :-------------------------------- | :------------------ | | Debt Reduction (Q2 2025) | ~$48 million | | Total Debt Outstanding | $2.6 billion | | ABL Facility Availability | $366.4 million | | Credit Agreement Leverage Ratio | 3.6x | S&P SmallCap 600 Index Inclusion Kodiak Gas Services was announced to join the S&P SmallCap 600 index, effective August 6, 2025, marking a significant milestone that affirms its financial strength and commitment to profitable growth - Kodiak will join the S&P SmallCap 600 index effective August 6, 2025, which is a significant milestone affirming the company's financial strength and commitment to profitable growth[6][11] Share Repurchase Program The Board of Directors approved a $100 million increase to the share repurchase program, extending its expiration to December 31, 2026, bringing the total available for repurchases to $115.0 million. To date, the company has repurchased approximately 2.0 million shares for $60.0 million | Metric | Details | | :-------------------------------- | :------------------------------------------------ | | Program Increase | $100 million | | New Expiration Date | December 31, 2026 | | Total Available for Repurchases | $115.0 million | | Shares Repurchased to Date | ~2.0 million shares | | Aggregate Amount Repurchased to Date | $60.0 million (at a weighted average price of $30.24) | Summary Financial and Operating Data This section provides a detailed overview of Kodiak's financial and operating performance for Q2 2025 and comparative periods Summary Financial Data The summary financial data for Q2 2025 shows significant improvements across key profitability and cash flow metrics compared to both the previous quarter and the prior year, driven by strong performance in Contract Services | Metric (in thousands) | June 30, 2025 | March 31, 2025 | June 30, 2024 | QoQ Change (vs. Mar 2025) | YoY Change (vs. Jun 2024) | | :----------------------------------- | :------------ | :------------- | :------------ | :------------------------ | :------------------------ | | Total revenues | $322,843 | $329,642 | $309,653 | -2.1% | +4.2% | | Net income attributable to common shareholders | $39,496 | $30,411 | $6,228 | +29.9% | +534.2% | | Adjusted EBITDA | $178,216 | $177,664 | $154,342 | +0.3% | +15.5% | | Adjusted EBITDA percentage | 55.2% | 53.9% | 49.8% | +1.3 pp | +5.4 pp | | Contract Services revenue | $293,534 | $288,956 | $276,250 | +1.6% | +6.3% | | Contract Services adjusted gross margin | $200,397 | $195,721 | $176,917 | +2.4% | +13.3% | | Contract Services adjusted gross margin percentage | 68.3% | 67.7% | 64.0% | +0.6 pp | +4.3 pp | | Other Services revenue | $29,309 | $40,686 | $33,403 | -27.9% | -12.3% | | Other Services adjusted gross margin | $7,195 | $5,460 | $5,467 | +31.8% | +31.6% | | Other Services adjusted gross margin percentage | 24.5% | 13.4% | 16.4% | +11.1 pp | +8.1 pp | | Maintenance capital expenditures | $17,565 | $16,407 | $19,147 | +7.1% | -8.2% | | Growth capital expenditures | $37,966 | $55,983 | $77,257 | -32.2% | -50.9% | | Other capital expenditures | $16,398 | $22,258 | $13,133 | -26.3% | +24.9% | | Discretionary cash flow | $116,424 | $116,084 | $90,617 | +0.3% | +28.5% | | Free cash flow | $70,290 | $47,219 | $638 | +48.8% | +10917.2% | Summary Operating Data Operating data as of June 30, 2025, indicates a slight decrease in total fleet horsepower but an increase in revenue-generating horsepower, leading to improved fleet utilization and higher horsepower per revenue-generating unit | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | QoQ Change (vs. Mar 2025) | YoY Change (vs. Jun 2024) | | :------------------------------------------ | :------------ | :------------- | :------------ | :------------------------ | :------------------------ | | Fleet horsepower | 4,419,884 | 4,422,914 | 4,481,900 | -0.1% | -1.4% | | Revenue-generating horsepower | 4,296,978 | 4,284,103 | 4,224,839 | +0.3% | +1.7% | | Fleet compression units | 4,881 | 4,941 | 7,317 | -1.2% | -33.3% | | Revenue-generating compression units | 4,514 | 4,545 | 5,753 | -0.7% | -21.5% | | Revenue-generating horsepower per revenue-generating compression unit | 952 | 943 | 734 | +1.0% | +29.7% | | Fleet utilization | 97.2% | 96.9% | 94.3% | +0.3 pp | +2.9 pp | Full-Year 2025 Guidance Kodiak Gas Services provides its updated full-year 2025 financial and operational guidance, reflecting confidence in future performance Full-Year 2025 Guidance Kodiak Gas Services has provided revised full-year 2025 guidance, increasing the low end of the Adjusted EBITDA range and raising the Discretionary Cash Flow guidance, while also providing specific revenue and margin targets for its Contract and Other Services segments, and capital expenditure forecasts | Metric (in thousands, excluding percentages) | Low | High | | :----------------------------------- | :---------- | :---------- | | Adjusted EBITDA | $700,000 | $725,000 | | Discretionary cash flow | $445,000 | $465,000 | | Contract Services revenues | $1,160,000 | $1,200,000 | | Contract Services adjusted gross margin percentage | 67.0% | 69.0% | | Other Services revenues | $120,000 | $140,000 | | Other Services adjusted gross margin percentage | 14.0% | 17.0% | | Maintenance capital expenditures | $75,000 | $85,000 | | Growth capital expenditures | $180,000 | $205,000 | | Other capital expenditures | $60,000 | $65,000 | | Total Growth and Other capital expenditures | $240,000 | $270,000 | Company Information & Disclosures This section provides essential company information, including conference call details, company overview, non-GAAP definitions, and forward-looking statements Conference Call Details Kodiak will host a conference call on Thursday, August 7, 2025, to discuss its Q2 2025 financial and operating results, with details provided for phone and webcast access - A conference call to discuss Q2 2025 results will be held on Thursday, August 7, 2025, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time)[22] About Kodiak Gas Services Kodiak Gas Services is a leading contract compression services provider in the United States, offering critical energy infrastructure and services to oil and gas producers and midstream customers, headquartered in The Woodlands, Texas - Kodiak is a leading contract compression services provider in the U.S., providing critical energy infrastructure for natural gas and oil production and transportation[23] - The company serves oil and gas producers and midstream customers in high-volume gas gathering systems, processing facilities, multi-well gas lift applications, and natural gas transmission systems[23] Non-GAAP Financial Measures Definitions This section provides definitions and rationale for the non-GAAP financial measures used by Kodiak, including Adjusted EBITDA, Adjusted Gross Margin, Discretionary Cash Flow, and Free Cash Flow, explaining their utility for management and investors in assessing performance and liquidity - Adjusted EBITDA is defined as net income (loss) before interest, taxes, depreciation and amortization, plus specific non-recurring items, used to assess financial performance without financing methods or capital structure impact[24] - Adjusted gross margin is revenue less cost of operations (excluding depreciation and amortization), serving as a supplemental measure of operating profitability[25] - Discretionary cash flow is net cash provided by operating activities less maintenance capital expenditures and certain changes in operating assets and liabilities, plus specific non-recurring items, used to assess ability to pay dividends and make growth capital expenditures[26] - Free cash flow is net cash provided by operating activities less maintenance, growth, and other capital expenditures, plus specific non-recurring items and proceeds from asset sales, used to assess ability to pursue business opportunities and service debt[27] Cautionary Note Regarding Forward-Looking Statements The report includes a cautionary note regarding forward-looking statements, emphasizing that these are based on current beliefs and assumptions, subject to inherent uncertainties and risks that could cause actual results to differ materially. The company disclaims any obligation to publicly update these statements - Forward-looking statements are based on current beliefs, expectations, and assumptions, and are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and outside of the company's control[28][31] - Actual results and financial condition may differ materially from those indicated in forward-looking statements due to various factors, including demand for natural gas/oil, customer financial condition, competitive pressures, integration of acquisitions, and economic conditions[31] - The company undertakes no obligation to publicly update any forward-looking statement, except as required by applicable law[32] Condensed Consolidated Financial Statements (Unaudited) This section presents Kodiak's unaudited condensed consolidated financial statements, including statements of operations, balance sheets, and cash flows Condensed Consolidated Statements of Operations The unaudited condensed consolidated statements of operations provide a detailed breakdown of revenues, operating expenses, and net income for the three months ended June 30, 2025, March 31, 2025, and June 30, 2024 - The table presents detailed revenues, operating expenses, income from operations, other income/expenses, income before income taxes, income tax expense, net income, and earnings per share for the specified periods[34] Condensed Consolidated Balance Sheets The unaudited condensed consolidated balance sheets present the company's assets, liabilities, and stockholders' equity as of June 30, 2025, and December 31, 2024, showing changes in financial position over the period - The table provides a snapshot of current assets, non-current assets (including property, plant and equipment, goodwill, and intangibles), current liabilities, long-term debt, and stockholders' equity at the end of the reporting periods[36] Condensed Consolidated Statements of Cash Flows The unaudited condensed consolidated statements of cash flows detail the cash generated from or used in operating, investing, and financing activities for the six months ended June 30, 2025, and June 30, 2024 - The table outlines net cash provided by operating activities, net cash used for investing activities (including purchase of property, plant and equipment), and net cash used for financing activities (including debt payments, dividends, and share repurchases)[38] Non-GAAP Reconciliations (Unaudited) This section provides detailed reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures Reconciliation of Net Income (Loss) to Adjusted EBITDA This section provides a reconciliation of net income (loss) to Adjusted EBITDA, a non-GAAP measure, for the three months ended June 30, 2025, March 31, 2025, and June 30, 2024, detailing adjustments for interest, taxes, depreciation, amortization, and other non-recurring items - The reconciliation shows the adjustments made to GAAP net income to arrive at Adjusted EBITDA, including adding back interest expense, income tax expense, depreciation and amortization, and other specific non-cash or non-recurring items[39] Reconciliation of Adjusted Gross Margin to Gross Margin This section reconciles Adjusted Gross Margin to Gross Margin for both Contract Services and Other Services segments for the three months ended June 30, 2025, March 31, 2025, and June 30, 2024, primarily by adding back depreciation and amortization - The reconciliation for Contract Services shows Adjusted Gross Margin is derived by adding back depreciation and amortization to Gross Margin[41] - For Other Services, Gross Margin and Adjusted Gross Margin are identical as there is no depreciation and amortization allocated to this segment in the calculation[42] Reconciliation of Net Cash Provided by Operating Activities to Discretionary Cash Flow and Free Cash Flow This section provides a reconciliation of net cash provided by operating activities to Discretionary Cash Flow and Free Cash Flow for the three months ended June 30, 2025, March 31, 2025, and June 30, 2024, detailing adjustments for capital expenditures, changes in operating assets and liabilities, and other items - Discretionary cash flow is calculated by adjusting net cash provided by operating activities for maintenance capital expenditures, severance, transaction expenses, changes in operating assets and liabilities, and other items[43] - Free cash flow is further derived from discretionary cash flow by subtracting growth and other capital expenditures and adding proceeds from asset sales[43]