Kodiak Gas Services, Inc. (KGS) Earnings

Management highlights

### Market Context for Power Infrastructure - The U.S. electric grid is facing severe strain from summer heat and rapidly growing data center power demand, with over half of U.S. states issuing power conservation emergencies this summer. Data center power demand is expected to double over the next five years, while grid operators continue to face reserve shortfalls. Behind-the-meter power solutions are a critical solution to this national power crisis, and demand for these solutions is growing rapidly. ### Long-Term Strategic Target Progress - **Compression Fleet Target**: On track to reach the 5.2 million horsepower fleet target by end-2030. Added ~80,000 horsepower in H1 2026, and is on pace for ~170,000 total horsepower additions in 2026, maintaining the target of 150,000 horsepower annual growth. Large horsepower compression packages are secured for delivery through 2029, and 50% of 2027 deliveries are already contracted. - **Power Fleet Target**: Signed a multi-year supply agreement with Baker Hughes for 1 gigawatt of turbines (with an option to increase to 1.8 gigawatts) by 2030, including price certainty, technician training, and parts supply. In total, 1.8 gigawatts of power generation capacity is secured for delivery by 2030 (66% turbines), and the company is targeting a total 2 gigawatt power fleet by end-2030. ### Commercial and Operational Updates - The power project pipeline has grown rapidly and already exceeds the company's secured future capacity, with ~2 gigawatts of new projects added in the past month as management high-grades opportunities to focus on large-scale, long-term, high-return projects. A limited notice to proceed has been executed for a sub-100 megawatt (scalable over time) hyperscaler data center project in West Texas, with a target long-term contract finalization before end-2026 and power supply starting in early 2027. - The company has expanded technician training programs, and the in-house Bears Academy Training Facility will soon be one of only two U.S. facilities certified to offer Waukesha electrical mechanical certification for both compressors and gensets, building operational competitive advantage. - AI-enabled technical monitoring solutions have been rolled out to improve fleet reliability, creating new skilled roles for existing technicians and driving operational efficiency gains.

Guidance

- Full-year 2026 adjusted EBITDA guidance was raised to $830 million to $860 million (previous guidance not specified, upward revision from prior range). - Compression infrastructure adjusted gross margin guidance was raised to 69% to 70.5% (upward revision), with operational efficiency gains expected to offset ongoing lube oil cost headwinds. - Full-year discretionary cash flow guidance was increased to $570 million to $600 million (upward revision). - Compression infrastructure capital expenditure guidance was raised to $280 million to $300 million, driven by the opportunistic buyout of 43,000 horsepower of contracted large horsepower operating leases at a discount to replacement cost. - Power infrastructure capital expenditure guidance was lowered to $400 million to $450 million (downward revision), reflecting improved cost and timing certainty from the Baker Hughes agreement and better cash flow planning for turbine purchases, with 50 megawatts of new gensets expected in H2 2026.

Segment performance

1. **Compression Infrastructure**: Total Q2 2026 revenue increased 7% year-over-year and 3% sequentially, ending the quarter with 4.4 million revenue-generating horsepower. Average pricing per ending revenue-generating horsepower was $23.80, a 4.5% year-over-year increase. Adjusted gross margin hit 70% (up 170 basis points year-over-year), marking the second consecutive quarter at or above 70%. The segment contributed 77% of total Q2 revenue, and utilization reached an industry-leading 98.2%. 2. **Power Infrastructure**: Ended the quarter with a 405 megawatt fleet, generating $33 million in revenue (8.4% of total Q2 revenue) with an adjusted gross margin of 64.5% to 65%, in line with management expectations. Current fleet utilization is approximately 90%. 3. **Other Services**: Q2 2026 revenue increased 47% year-over-year, driven by higher station revenue and new ancillary power-related services. Overall company results: Total Q2 revenue was $391 million, up 21% year-over-year. Adjusted EBITDA hit a new company record of $217 million, up 22% year-over-year. Adjusted net income was $54 million ($0.55 per diluted share).

Risks & headwinds

- Lube oil prices have spiked due to geopolitical conflict (the war in Iran) that drove higher crude prices and crack spreads, creating a material margin headwind for the compression segment that management estimates adds ~$1.5 million in monthly costs. - Long lead times for new large horsepower compression and power generation equipment limit near-term ability to accelerate growth beyond existing plans, requiring multi-year advance planning and supply chain partnerships. - Power project development depends on counterparty creditworthiness, with downside risk if project counterparties fail to meet their financial obligations. - Grid instability and rapid changes in data center demand create uncertainty around project timing and customer requirements.

Analyst Q&A

• Q: What differentiates Kodiak from peers in the behind-the-meter power space, and what milestones are expected for the West Texas data center project before year-end? /

  A: Kodiak differentiates through its existing expertise operating large rotating compression equipment, combined with the DPS acquisition's strong engineering and commercial capabilities, backed by a solid balance sheet that supports long-term projects. The company targets finalizing the full contract and making a formal announcement before the end of 2026, with equipment installation planned for Q1 2027.

• Q: How has Kodiak mitigated lube oil cost headwinds that are impacting peer compression businesses, allowing you to raise guidance? /

  A: Two core factors drive Kodiak's ability to offset these costs. First, ongoing investments in operational training, AI, and machine learning have reduced unplanned breakdowns, optimized maintenance scheduling, and improved labor productivity, creating incremental margin gains. Second, Kodiak uses long-term strategic preferred vendor partnerships and its scale to lock in favorable lube oil pricing that blunts the impact of market spikes.

• Q: What is the delivery timeline for secured power capacity between 2027 and 2030, and what is the total capital cost including balance of plant? /

  A: 50 megawatts will be delivered in H2 2026, followed by ~400 megawatts per year through 2030, with 2027 deliveries back-loaded because the first Baker Hughes turbines arrive in Q4 2027. Average cost is ~$1.2 million per megawatt for generation equipment before balance of plant, with total all-in cost typically ~$1.5 million per megawatt including standard balance of plant, plus additional cost if battery backup is required.

• Q: How does the recent Texas moratorium on new data center grid interconnections impact Kodiak's power business? /

  A: The moratorium was put in place to address 450 gigawatts of requested interconnections on a system with only 95 gigawatts of current capacity, to sort out real versus speculative projects. This change directly benefits behind-the-meter power solution providers like Kodiak, and the company has already received customer feedback that behind-the-meter solutions are now seen as even more critical to data center development plans.