KGS - Earnings call 3 2023 | Kodiak Gas Services, Inc.

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Operator

Greetings, and welcome to the Kodiak Gas Services Third Quarter 2023 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.It is now my pleasure to introduce your host, Graham Sones, Vice President of Investor Relations. Thank you.

You may begin.

Graham Sones

Good morning. us to Kodiak results. review joining call Services you webcast and third appreciate for Gas the conference We quarter XXXX to from company, Griggs, are Executive today will provide remarks, the President commentary John Participating Chief on over opening for Q&A.Before high-level items I and the Mickey our market, and Mickey results and Officer; few call financial cover. I our updated a Financial the the Chief call McKee, John to third a quarter Officer.Following XXXX Mickey, my have outlook before turn and company housekeeping today's There available will be a replay until XXXX. webcast of phone also November XX, call by and via to on the of at tab Information is to website access the on Investors be found our how replay kodiakgas.com. this November management made of only replay advised United of contain the forward-looking on call or be statements therefore, no you're time reading.In Please speaks X, comments conference laws. States such and as addition, note the today, Securities by of information may call meaning accurate any Federal within may during transcript that this longer information as XXXX, the that of reported the currently These of Kodiak's information and forward-looking current assumptions reflect based on statements beliefs management the views, available.

certain those measures. on no forward-looking the and statements made financial actual read could website by XX-Q The management. statements our statements believe risks, in prospectus that such those available management prove will report and understand also the today in assurance achievements give from be will expressed contingencies. performance sec.gov reasonable; encouraged or expectations expectations we to uncertainties referenced Form uncertainties to or include cause various risks, Although results, comments or Kodiak's are are company's non-GAAP these contingencies the differ to can materially and And quarterly correct.Listeners to on

Kodiak's to the be reconciliations CEO, GAAP measures and to comparable to call now, on the release, turn can our found included McKee. Mickey? which in I'd quarterly like over the most press Mr. details Mickey website.And are Additional

Robert McKee

and Thanks, announced I'll quarter joining all thank share shareholders. us industry our discussing some and recently to dividend Graham, additional details will excited XXXX third third to outlook.We inaugural quarter financial some the to from from finished, I'm discuss will provide provide you When John and our ultimately our on our first dividend today. our on and have commentary the the highlights XX. October I for company. updates are quarterly payment some announced start by Then

towards of well-covered one returning stable important yields in share that to dividend, third annualized supports of Board with of midstream believe Our It represents an declared per model a the dividend flow also share provided is by capital shareholders part the resilient of most driving initiation XXXX To free our while our a our generate We today. through reinvesting an to we on our $X.XX yesterday's see returns the environment. Xx our capital dividends to X.Xx.Now allocation of fleet, long-term strategy be given target portion involves attractive to to our flows that turning cash market clear, flow release. capital in the growth basis. of positive The compelling quarter for current are positive and the $X.XX cash grow cash dividend. energy intend after per we a or business leverage funded, of earnings Kodiak

tight reflect infrastructure as of our compression the competitors on best strategy, pleased continued deploying market customers. many remains The our very horsepower assets execution choice with XX.X% from near on our rate, third the our for of at we third industry-leading focused large a of quarter full and compression with quarter, the assets, in the are compression basins provider high-quality are highlights third We our which touch utilization their few as quarter we utilization deployable maintained positioned ending well the of customers.To utilization. results, are

highest maintained $XXX.X third create has of on this many for operations in and generates revenues from allowed have to methodical we figures cash infrastructure us are and high compression rate deliver times, history.As very flows visible, and have quarter. of discussed equipment intentional We deployment our Kodiak's Both record million our now of steady utilization highly million record the $XXX the and opportunities. compelling years, contracts strategy consolidated a for that this investment adjusted EBITDA

deliveries and forward the exclusively look fourth large are our horsepower are year, to unit and contracted we quarter As next new units. completely

on it the call, will and be know we ]. cost it extended rate equipment, customer because mentioned lead last times I our And at As remain [ wired contract the with about deployed new the in year, of equipment the full year pleased XXXX. equipment to XXXX.We're our guidance a and our orders position also disclosed update with some the already into ranges contracts discussions a be of related to to customers for previously in customer we're

$XXX not now to are those million cover John detailed want of anticipate story. second a few cover few a on I of adjusted on differentiate guidance of call end provided We $XXX record the a to Kodiak quarter I familiar EBITDA and full, won't Kodiak. raising our do our our updates.I but rehash million. background with you other will for that things guidance low in that

and fleet compression million over where specifically over environments gas emissions-friendly purpose-built XX% of horsepower of is in Our Permian is sector, operate to youngest, X.X of most predominantly equipment Basin, horsepower in horsepower our engineered built like deployed. the large rich the the fleet

longer and and ultimately, consolidation acreage and of additional trim as customer base a view down the allowing Basin build-out, more We a We base costs.At consolidation seen specializing company our as cash for have this Kodiak from continues is infrastructure creating dynamic more large horsepower. this laterals; services larger in like ongoing the Permian well This contiguous customer quarter. creating industry drilled costly to in for our We utilization factors a cycles.Natural drive charge positions in availability and service demand our level above revenue positive the combined overhead production ultimately by to monthly insulate our ended low month-to-month remain the we recently, fixed third of quarter in gas and standards. from X% services $X of the rate horsepower but ticked price to business superior contributing highest These also help mechanical with Kodiak, fleet. than strive have of for industry, deliver the our prices historical commodity less our contracts. short-term to on

in compression demand However, our liquids-rich basins primarily strong services. operate customers, which to continue exhibit for oil-directed

needed the We there's XX LNG export almost continue day to capacity to the being to resulting under indicates gas U.S. the as XX Coast Permian construction constructed that.Our tremendous basins these in will that's the be day liquefaction plants. provide LNG of well per in Eagle feed growth come that from leader Bcf and amount of Coast basins, about approved largely of gas today, production Bcf Gulf data on capacity Gulf positioned the the natural those to behind FERC this remains Ford and are with growth. that projects gas capitalize on the excited view and about we on incremental per

to cubic these over. gas As incremental every compressed need foot of of be produced basins times multiple out will

capital secure means supply little to idle our tight deployed. whole over a the lack unit industry relief on Additionally, out have that has horsepower with shown of as side This new a will with year third in our the industry of quickly of the supportive for tremendous extended site.So discipline, to remain while our large available to energy deliveries be very natural with pleased supplies are a market export multi-decade quarter energy to clean, a and horsepower on results conventional the Coast, growing with providing we world. and Gulf particularly LNG compression to believe the continue runway gas recap, feed base

is return through and with flows outlook, and a hand and I'll the our best growth on closing compelling the with their investment back to quarter results strategy over steady sustainably John? in continue customers, into some to to attractive cash compression services with providing and the provide the comments call while Our Q&A. I'll an before to move investors safely come best in basins financial for dividend.Now, we John discuss XXXX

John Griggs

Thanks, Mickey.

to business at wonderful even be the Mickey be emphasized, a compression Kodiak. As it's contract an to better time and time in

Both included are the a X% the doubtful the quarter a accounts last our for over And up versus $X approximately exceeded million, the year. in of expectations. QX, the third I'll were year. last today, $X customer was metrics in up allowance quarter particular for X% sequentially for EBITDA up and restructuring. about Adjusted results it the you'll of see the XX% million from it the quarter.Total from third million our or Here now. Adjusted to mention same for an approximate $XXX million, related $XXX of and quarter to midst compared since XX-Q later compression of EBITDA some quarter revenues quarter XX% over

$XXX Consistent were compared by compared XX% large in revenues a quarter basis with would overall basis. relatively segment this segment schedules margin, the quarter. horsepower in quarter, on segments, to revenue-generating of driven adjusted Operations adjusted as Excluding Compression fleet third a $XXX generated the job.From was on gross some just combined million, revenue growth function the quarter was XX% of well XXXX at Operations $XXX,XXX This Revenue-generating of segment, one third In prior second been year-over-year with our that year-over-year. as XX impact both completion nearly quarter. million.Looking perspective, up pricing. growth Other about quarter the quality project particular and higher up mostly Compression by last Services substantially execution grew revenues our an to a horsepower in our progress EBITDA points for about reserve, faster-than-expected margin have on about were year's shy last up

Our control. that within operations team containing are focus on continues to our costs

margin margins. percentage we carried pressures. of an dollar years up continue from in a at margin and our that some of was gross to each project nicely of acute quarter the last at [ prior different, XX.X%.As margin couple we've a in margin chip adjusted ] quarter. From adjusted our away in larger Other gross third experienced segment is Services the inflationary couple percentage about million, compression the discussed, reflects lower-than-normal $X.X projects basis, margin On the We from came basis,

dividends while Every reminder, lower Operations in a they synergistic our to projects. the construction are dollar invest cash high-return both compression capital has to business, return and Compression more profile which and no flow allows projects a in cash station margin with turn, growth require our As flow, capital. in segment, us pay and overall core incremental on segment discretionary our adds of employed

carefully, manage the long capital as we about to our be would our investors.In contractual terms for quarter. million, a beneficial amount risks CapEx. and was project-related past our CapEx, million loaded. was operating in quarter, So that $X.X of and $XX maintenance growth CapEx bit working this work the $XX.X of CapEx CapEx is as and in Growth for was XXXX the non-new higher million prior mentioned than back-end and quarter unit the We've that Kodiak

saw So again you balance see that to in in you'll QX.Moving and it QX, sheet. the

a proceeds asset-based $X billion. the loan quick loan. simultaneously debt paydown we of and our the reminder, reduced of borrowings consisting on the on debt IPO described in So X, by from our July of and as received our of entirely That term completed novation $X.XX QX, S-X. our had billion we the At end we billion, $X.X

credit on long-term during Our and we're achieving our in we had capacity and to Xx our associated well was our million we borrowing XXXX. leverage agreement With target end. to deleveraging at X.Xx about X.XXx, complete, IPO of way quarter leverage $XXX think

fixed XX% our our of outlook. rate a to prevailing than updated interest less benefit rate XXXX let's our continue well move rates.Now from We that to swaps interest our below debt on floating little

release Given year the full updated guidance we received yesterday. QX, we've in 'XX our third from expectations quarter and our for clarity earnings included that our results

range side quarter, providing deliver adjusted high flows.In If the that the We're dynamics our year revenue guidance range fourth of giving the of will market outlook, impact think we're schedules. work official outcomes, we're likely control, we margin $XXX those of year, million things in we're million, we in the SG&A, the events, since is estimate season [ Other pretty until with not line, but holiday $X our this accounts margins believing subcontractor the event, range including and crisp alongside full we're Compression we on and to that account wide then and $XXX Services segment given we're or we focused revenues.For that sailing on Bottom guidance ], some we wanted And customer cash was adjusted Operations to release like allowance end have at of our In an prior the we an outlier for EBITDA exhaustion our to guidance XX% now full guidance. on year results, $XXX to we the noncash high on XXXX for we'll can't normalized execution, on projects revenues customer smooth revenue and be the in our expenses.Turning to high-quality uncollectible can not a station things For million. isolated segment, laser for to highly confident weather have focused we forecast do million long-term and that of we is year took both terms margins. core segment budget items, this though noted CapEx. sticking XX%. particularly as our our $XX XXXX between our construction and constructive but segment, growing million keep quarter to in an

maintenance million. see between CapEx in now we and year, the million coming $XX $XX For

spend on Our maintenance units. largely agent our is the CapEx of predicated hours

move guidance the overhauls. timing working more scheduled in a when related previously is than we done that team the to things our year tackles So anticipated. in up area to slight few get the We're of this

growth our non-new the a which our with It's horsepower CapEx. of the buy an in at CapEx, not million We've shy our real everything updated fourth with we'll together CapEx suggest is, a landlord Included approached in the free to accommodate planned of is be properties. in cash the to incur deal operations occur, out forecast thing we're we faced compelling, $XX but few Recently, adding more of new for side during on assuming package few just moves moving would compelling them deal disruptive facilities the be it future a imminent unit-related would of XXX,XXX we year.Last incremental estate-related in the $XX as of us comes million should significant prior were on our updated our got of and which midpoint the and the leaving guidance, On parts, in believe planned, we'll guidance flow during that included alone. positive our CapEx, guidance, the quarter. growth. We near still substantial that year. about

annualized care expansion own to our destiny purchase opportunistic leaders of per pay our in business.To Mickey range. X% of $X.XX This important Board dividend declared enables us stay equates an yielding this things taking tomorrow. per growth as $X.XX inaugural So up, dividend most our of noted, terms on allows control wrap we'll and our payment share, of and operations an in of share, that to and price regions nearly to facility our focused recent

again Our capital alongside investment growth return I'll living within deleverage.That's over participation it while the my thesis, of crucial comments. and allocation of measured framework on is and and back for flow capital, KGS it prepared aspect your a return Thanks for attractive turn Mickey. to cash support.

Robert McKee

role market up a with their hard Kodiak customers customers summary, excellence.At revenue questions. this an its to leader dedication point, concentrated and infrastructure most we've to and what horsepower that critical like under chain. wouldn't commitment look thanking cycles. our John. beyond. results, the purpose-built in we'll a fixed Services. the large in best of special, meaningful Their leader compression on built are and our men contracts basins in quarter focus compression we've growth extraordinary value our dividend, to Operator? third to a very to in continued industry We've line commitment the And to safety forward fleet the price with In resilient Thanks, and contract for with Gas close I'd work profitable of are short-term advantage pleased and cost our sustainability.We commodity Kodiak XXXX built are open long-term by the economic with call we and a we and initiation Kodiak be without the women energy makes

Operator

you. question Jeremy Thank with from our And [Operator comes first Instructions] Morgan. Tonet J.P.

Jeremy Tonet

more, maybe yield far lot Just But start capital -- expanding and allocation, have there. giving healthy it as this much it market market a I to for necessarily probably bit with you of lot is? as there's wanted on like a growth the more topic. realize is to a dividend as there's if could a I with Do come so compression, off, it could Yes, not seems this yield. need a of for as credit

how growth when in high-level with you could or provide think juncture, thoughts further just And buying dividend these you think you at back the view the about this CapEx so, or future any if different about you options? even raising possibly stock, wondering

Robert McKee

Yes, Jeremy, Mickey. this is

over sure on we more of that I we're I business we and and time. think think are on that long can a couple executing and we now, forward increasing quarters. next the capital flow, be Board to grow possibilities things have focused our yield will all dividend going cash right that the continue making of a with discussing CapEx to things shareholders But a good and of discretionary so return and over period those

Jeremy Tonet

towards then makes of whole, it and how tight it That industry is about the the market compression across sense heard as very it. there. And We've pivoting need tight the Got kind a there. market.

wondering, out customers, supply how a orders fulfilling Just and more the servicing these we you disruptions you're could see here; with of given if securing on large chain out bit there. some tightness your challenges equipment, that there expand dealing

you bit if about talk could wondering, Just that. a more

Robert McKee

in it's not to customers well Yes. for on customers ready when have make our ability something the than an be well in we point to position, customers It's our with longer too. a engine ready and that this sure that making out well out deliveries they're planning I as make Caterpillar with that, with but our say suppliers to that them something that's we sure deliveries the to is right and as are with only do management produce chain an process pretty they at it's but a) mean work day, our that it's a Our much secure that suppliers equipment every do going and us it's sure to equipment supply advance ongoing we with for making as challenge, daily management that in year. sure ongoing

XXXX now out and are customers kind at needs looking discussing a productive very and into fully subscribed our QX with year we right XXXX already. of So equipment potential

that long daily something a a this with So, challenge been time. we're it's a but it's deal doing on and managing that used we to basis,

how we it. to handle So, know

Operator

next from Barclays. Chen And comes question with our Theresa

Theresa Chen

upside First, the not giving I'd XXXX, like understanding trajectory, the fully that subscribed can today, to touch about as XXXX on pricing how margins that takes base to asset-level on and relative of from on the IPO and puts risk you're year? XXXX to but on comments and some downside see some the we color here, evolving for to both you get materials guidance the and even

Robert McKee

Yes, a And the back with price -- we worked with really we've again, these from increases, and standpoint suppliers happen we ago suppliers. to what of Theresa, from a what's long, the going we know coming Jeremy, period our to long pipeline of them time. the down it's discussed going moment for from then

sure continue our getting we're to even of plan an on to maintain return to XXXX and planning have time investment and sure capital time. we're as and we price that and so, make ahead equipment hopefully over able And expand that that margins we're making we that XXXX early adequate out into that

Theresa Chen

cash should primarily small see to are free possibility related near real the estate allocation, towards flow transaction, capital of we the think shareholders? you capital this primarily term? the in there that going the on to realm to opportunities -- within And about similar Or cash within other the it. returning Got

Robert McKee

the we transaction policies of to good that a our opportunistic we've just we're this to And group that our were density" flow to to don't the is one balance Basin.So, have advantage to was of in cash capital cash kind of in stated growth and going us allocation in I sure the make said, one transaction advantage said, could the pretty positive estate I this and of and looked position of something for some along XX% own the specific dividend. think, control think to was take is pay still unforeseen way. Permian that had "Man, still stick majority flow a our where XX% we cash take interruptions remain that goals we CapEx, and we opportunity where and kind to was planned wanted in money any a up operations execute came and our our discretionary save really go of, discretionary is flow that we that that stated we along to to of on but of around opportunity real it that rents

to foresee they we'll that. many many too they But that like decided popping over decisions evaluate making significant time. up we're -- take that -- those do, sure the we right of don't So too for if if advantage are opportunities of make the I business. and it

Operator

And our from next with Neal Dingmann question Truist. comes

Neal Dingmann

a are Mickey, potentially to benefits wondering demand see all one able the have take of ask I'm Are just you all I'm you sort out might the to of there. what is obviously, talking you because of I the quarter. sort to going maybe be there, demand contracts demand pictures of sort -- of advantage customers best structure one said, of in out able are the what just you 'XX. in or another given longer? just to wondering -- again, to as are able pictures that, changes you of I'm best way this. that, question Nice I having, benefits

Robert McKee

Neal. question, the for Thanks Yes.

things been I think on. are -- hit we've you it. on We there pushing some that

contract our move time. longer little over bit contract the tenors tenor a secure last been year. up throughout average seen We've have We able to

we'd So to like that that's a quality see. thing

prepared we're our month-to-month the on of contracts remarks, below in right -- now. said contracts X% I As

we've out. pushing to time couple of forward.As we're We going push to gone to and the have the are to that in to continue some think able our -- of we we saw really thing cash can we -- really to expect everything period XX% visibility flows, do be, of we of can that renewal that's to over well, margin rate right So to hopefully that contracted increases expand combat along had contracted secure we the increases of seen have some up the that last the kind where we have that expansion last year, on and maintain expect that inflationary kind that the range, it we this quarter. years pressures margin on positive that, XX% have

Neal Dingmann

No, that's great. does that maybe that really of Great that? again You over to give think raise sort John, starts than this and Or demand then shareholder you return, confidence? too you continue wondering, just give to distribution, more hear. does should raised But ] you demand the when your X% your confidence [ I'm readjust. coverage that because more seems long-term obviously And cheap you picture question. that taking obviously, John's materially to have, all to about ample.

of certainty it factor sort John, does just demand shape sort the seeing when wondering, there? of in Or you're that? help drivers around So this and what

John Griggs

Yes.

So thanks.

allocation of cash that it of allocation strategy with the we that out big the to all form relates We dividend, described it's discussed times. a part of framework discretionary future, our the paid foreseeable the dividend. on capital Board.For obviously to XX% being of As in that framework our flow regularly the couple Mickey XX% like capital

'XX, to cash the translate that see see. based in of into would that ability that forward the on demand flow. increases discretionary and future, foreseeable If EBITDA grow kind single-digit the our We business upper roll range 'XX model in picture for you we just

see discretionary flow So, will we we but growth in do afford the we'll the it. to in over evaluate cash think dividends growth time,

Neal Dingmann

Awesome. Well done.

Operator

Rollyson Jim James. from comes Raymond question next Our with

James Rollyson

good on roughly mentioned fully Mickey, committed that just this horsepower on pretty congratulations for year. order you're what's year. the well XXX,XXX And being circling again, next quarter. a of obviously you to kind back And delivered

the are Just -- kind based gets 'XX. And for that about trying going you some thinking year? like just horsepower 'XX, on conversations additions as you way incremental incremental that? much on beyond we would delivered to color think horsepower through, around how just rate growth understand what Maybe of next think

Robert McKee

it's for Yes. question, the talk you. Jim, I mean, to and thanks good to

just John grow and upper already and up you deployment capital quite the mark that today, strategy like not if out I growth I process And with and finished lot then budgeting dividend are like we same into that will of could like a capital But that fraction that, tell that whole yet. not for provide both about look -- flow to think discretionary maybe guidance saying XXXX more. same XXXX.Again, to like cash for XXXX you'll We allocation grows allocate being ready think what will and trend XXXX the see that yet you a was horsepower kind single-digit that our by able by here, it's percentage EBITDA translate can growth -- amount, I that to that over time. look towards

James Rollyson

kind since going forward potential from asked, kind early standpoint growth largest taken I'd else then, And I their of helpful. one ask That's next of out of one here customers year? that you opportunity just is your how figured see no curious, a getting plans? -- given your And

Robert McKee

got smaller well our on investment look, business, which of as making mean, mean, Basin. outlook our a the one to about scale. the and customers, mean, is really had with biggest Yes. the bodes Permian, the They've already Exxon long-term well our for this Exxon, in Permian -- the is think pretty of wouldn't unless opportunities but Exxon great Pioneer excited forward. we I Pioneer, is I longest I a be ours as, They about they in for one a opportunity going we're plans customer buying and work tenured of relationships, Permian

a So we relationship them. with have already

And so, we're their bigger one becoming forward them to move of get working with providers. and excited to

James Rollyson

Fantastic.

Operator

] next Goldman question [ Our Sachs. with Colletis from Jackie comes

Unknown Analyst

side. wanted on to Just the start cost more

we're what that pricing seeing you rise, comment you're inflation and pressures how abating? on going see side continue into So so could And been XXXX? you more as to have seeing the how cost on

Robert McKee

for thanks Jackie, the Yes, question.

years much we keeping of good think combated pretty pretty hitting and couple us I I think, done right. significant that we've of And the and last job as flat. we've with margins of could, kind left a pretty as dealt inflationary pressures over we've

looking going think pretty I abate remain that little those of a pressures towards So bit, into XXXX, to we inflationary expect flat and XXXX. kind

of you'll costs a I oil operations from stay labor year. our cost increases perspective of the think every year standpoint kind from kind some as I providers. But our that, of think have relatively our of you flat from obviously, lube metrics do we're and to next suppliers expecting

Unknown Analyst

just know, then And specifically worse any that that near Is a follow-up. year the has during in easing is Great. And saw long there you it cat lastly, cat second the at overall a than or all term? been quarter? what now on either engine from update the as over plus. availability Okay. I

Robert McKee

anytime any having easing that. of to that deal And it's deliveries cycles had with up kind these be of soon, so updates Haven't out long. on typical to that kind that expect for we to those keep get

delivery much said, get soon we the a supply of we long the demand plant.So Basin And feed really this as the for tight much gas high, long time than in Although, and Permian compression because just so United you've just as of caterpillar compression don't is demand supply on. I production growth side we requires traditionally anytime incremental is more produce lot like such so that for their to I and expect high up-cycle that either. the we of Basin a continue high a the relief them foresee last to and this to out seen providing times in it States, LNG past, with so expect for the the dynamic well for the foresee from longer fact to in services think Permian depressed, guests time, that

Operator

you. Thank I'll at closing are the remarks. there further And questions no back this Mickey McKee floor for to you. Thank time. hand

Robert McKee

the our and We in year for year in speaking you operator, with Thanks. Thanks, full Okay. to to everyone XXXX look thanks forward new fourth results. quarter today's call. participating again to and and

Operator

today's conference. Have may parties we good And conclude you. day. All a Thank disconnect.

Kodiak Gas Services (KGS) 9 Nov 232023 Q3 Earnings call transcript