Item 4.02 Non-reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
On August 8, 2023, the audit committee of the Board of Directors (the “Audit Committee”) of Kodiak Gas Services, Inc. (the “Company”, “Kodiak”, or “KGS”), in consultation with the Company’s management and BDO USA, P.A. (“BDO”), the Company’s independent registered public accounting firm, determined that the Company’s previously issued unaudited condensed consolidated financial statements as of and for the three month period ended March 31, 2022 (the “Non-Reliance Period”), included in the Company’s Form S-1 Registration Statement, should no longer be relied upon due to a non-cash error in the mark-to-market adjustment for the Company’s interest rate swap derivatives in the three month period ended March 31, 2022. This non-cash error resulted in an understatement of unrealized gain on derivatives of $28.4 million. Management and the Audit Committee have determined that the impact of this error is limited to the interim unaudited condensed consolidated financial statements as of and for the three-month period ended March 31, 2022.
The correction of this error for the three months ended March 31, 2022, will include the following restated amounts:
| | • | | Unrealized gain on derivatives increased from $7.8 million to $36.2 million. |
| | • | | Income tax expense increased from $8.6 million to $15.4 million. |
| | • | | Net income increased from $27.9 million to $49.6 million. |
| | • | | Basic and diluted earnings per share increased from $279,390 to $495,550. |
| | • | | Offsetting restated amounts related to net income, deferred tax provision and changes in working capital that resulted in no change to net cash provided by operating activities. |
The Company will restate its unaudited condensed consolidated financial statements for the Non-Reliance Period in its Form 10-Q for the period ended June 30, 2023, to reflect the corrected unrealized gain on derivatives, income tax expense, income before income taxes, net income, and basic and diluted earnings per share. This error does not impact the six month period ended June 30, 2022 financial statements and does not impact the Company’s Consolidated Financial Statements as of and for the year ended December 31, 2022.
The foregoing error had no effect on the Company’s revenue, financial covenants, Adjusted Gross Margin, Adjusted EBITDA, Discretionary Cash Flow and Free Cash Flow. The error does not impact the Company’s cash or liquidity. Similarly, the error did not have an impact on the Company’s operations or business fundamentals.
The Audit Committee and management have concluded that as a result of the restatement noted above that a material weakness exists in the Company’s internal controls over financial reporting. The Company will report its remediation efforts undertaken to address such material weakness, in its Form 10-Q for the period ended June 30, 2023.
