Kodiak Gas Services, Inc. Q3 FY2024 earnings call

• Safety is a top priority, with a focus on an industry-leading training program. - Divested the small horsepower Gas Jack business, exiting Canada and Romania, simplifying operations and increasing fleet average horsepower. - Successful follow-on offering by EQT reduced shareholder concentration. - Contract Services segment achieved a 66% adjusted gross margin, matching historical records. - Other Services segment saw strong revenue growth in station construction. - Discussed a project in Midland, Texas, involving a customized electric motor-driven compression solution. - Highlighted challenges and opportunities with electric motor-driven compressors due to West Texas power demand issues.

In the Contract Services segment, revenues for the quarter were $284 million with an adjusted gross margin of 66%, which matches the high end of the annual guidance and historical record margin. The Other Services segment, primarily consisting of station construction and aftermarket services, had revenues of $40 million in Q3 with an adjusted gross margin in line with expectations, and saw an $11 million sequential increase in station construction revenues.

• 2024 revenue expected to range between $1.15 billion and $1.18 billion, adjusted EBITDA between $600 million and $610 million. - 2025 adjusted EBITDA guidance is a range of $675 million to $725 million, based on fleet high-grading and operational progress.

• Forward-looking statements carry risks of actual results differing from expectations. - Supply chain lead times for new compression units remain elongated. - Working capital issues due to migration of systems and invoicing processes. - Potential impacts of changes in market conditions or regulatory environments on operations.

Q: Doug Irwin asked about gross margin color for 2025 and near-term margin trends.

A: John Griggs said they won't discuss 2025 margins on this call, but the 66% margin in Contract Services was due to repricing, transaction synergies, and cost management.

Q: Doug Irwin also asked about capital allocation balancing buybacks and liquidity.

A: Mickey McKee said they're open to buybacks, modeled into next year's plans, depending on EQT's secondary offerings and leverage target.

Q: Gabe Moreen asked about asset divestiture program and Permian CapEx.

A: Mickey McKee said they're always evaluating the fleet, no plans to exit basins, and John Griggs mentioned 2025 CapEx bounds will be clarified in Q4 earnings.

Q: John Mackay asked about new unit CapEx costs and electrification.

A: Mickey McKee said CapEx costs are increasing marginally but passed on in contracts, and electrification is driven by access to reliable power.

Q: Neal Dingmann asked about margin drivers after CSI acquisition and debt/shareholder return.

A: John Griggs said margins were back to pre-CSI levels due to repricing, synergies, and cost management; capital allocation focuses on growing EBITDA, paying dividends, and reaching 3.5x leverage.

Q: Jim Rollyson asked about fleet utilization and margin recovery.

A: Mickey McKee said they aim to get utilization back to 99-plus percent by focusing on right customers and contracts.

Q: Unidentified Analyst asked about 2025 outlook drivers and lead times.

A: Mickey McKee said 30% of contracts renew in 12-15 months, lead times for new units are about 9 months, unlikely to shorten soon.

Q: Sebastian Erskine asked about Permian pipeline infrastructure and working capital.

A: Mickey McKee said customers plan around takeaway capacity, and John Griggs said working capital issues are due to system migration and invoicing, expected to improve in 2025.

Q: Theresa Chen asked about recontracting trade-off between rate and term.

A: Mickey McKee said they don't trade rate for term, focusing on long-life production stability.

Q: Zack Van Everen asked about 2026 contract progress.

A: Mickey McKee said no hard bookings for 2026 yet, with deliveries from Caterpillar at 9 months.