Kodiak Gas Services, Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Kodiak Gas Service's first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Graham Soans, Vice President Investor Relations for Kodiak Gas Services. Thank you. You may begin.

Good morning. Thank you for joining us for the Kodiak Gas Services conference call and webcast to review first quarter 2025 results. Participating from the company today are Mickey McKee, President and Chief Executive Officer, and John Griggs, Executive Vice President and Chief Financial Officer. Following my remarks, Mickey and John will discuss our financial and operating results review our updated 2025 guidance and we'll open the call for q a there will be a replay of today's call available via webcast and also by phone until may 22nd 2025. information on how to access the replay can be found on the investors tab of our website at kodiakgas.com please note that information reported on this call speaks only as of today may 8 2025 And therefore, you are advised that such information may no longer be accurate as of the time of any replay listening or transcript reading. The comments made by management during this call may contain forward-looking statements within the meaning of United States federal securities laws. These forward-looking statements reflect the current views, beliefs, and assumptions of Kodiak's management based on information currently available. Although we believe the expectations referenced in these forward-looking statements are reasonable, Various risks, uncertainties, and contingencies could cause the company's actual results, performance, or achievements to differ materially from those expressed in the statements made by management, and management can give no assurance that such statements or expectations will prove to be correct. The comments today will also include certain non-GAAP financial measures. Details and reconciliations to the most comparable GAAP measures are included in yesterday's earnings release, which can be found on our website. And now I'd like to turn the call over to Kodiak's President and CEO, Mr. Mickey McKee. Mickey?

Thanks, Graham. And thank you all for joining us today. We begin all meetings at Kodiak with a safety moment. And I want to thank the women and men of Kodiak for their continued focus on serving our customers with a safety-first mindset. Kodiak's dedication to returning all of our people home safely every night is truly a differentiator in the industry and something we take very seriously. Before discussing our outstanding first quarter financial results, our increased guidance for 2025, the increase to our quarterly dividend, and our all-time low leverage level, I'd like to discuss a few macro topics that have been in the news lately. Given the recent volatility in oil prices, tariff uncertainty, and concerns about a potential slowdown in economic growth, I thought I'd start by highlighting the strength and resiliency of our US-focused large horsepower business model and why we remain bullish on the outlook for US natural gas growth and the associated demand for Kodiak's compression services. First, large horsepower compression is a critical component of the production, processing, and transportation infrastructure of oil and natural gas. Our business isn't tied to commodity prices or rate counts. Compression is required to maintain ongoing production volumes, and we're seeing producers and midstream companies add compression for increased volumes and enhanced throughput on systems where capital investments have already been made. As you know, Kodiak is the industry leader in contract compression in the Permian Basin, where gas to oil ratios have been steadily increasing. In 2024, Permian oil production grew by about 2%, while marketed natural gas production grew by 12%. In 2025, the EIA continues to project a meaningful increase in Permian natural gas production. And even if Permian Basin oil production just stays flat, natural gas volumes would continue to grow and require additional compression infrastructure build-out. With additional takeaway capacity already in the works, the Permian Basin will continue to play an outsized role in U.S. gas supply growth in the coming years. You may have seen our recent announcement of the groundbreaking on two new state-of-the-art facilities to support our Permian operations. Second, our fixed revenue multi-year term contract structures, and premier customer base provides stable and predictable revenues and cash flows. In fact, almost 90% of our fleet currently has remaining term on its contracts, which is back to the high watermark we set prior to the CSI acquisition. Consolidation and capital discipline by our customers has resulted in healthier balance sheets, and greater flexibility to endure short-term commodity price fluctuations without significantly altering their long-term plans. And we may see a greater preference to outsource compression should our customers seek to reduce capital spending while maintaining production. Contract compression fleets remain highly utilized, with Kodiak leading the way at 97% fleet utilization, including 99% utilization of our large horsepower equipment. And on top of that, we don't order any new equipment on speculation without contractual commitments from our customers. Finally, despite some near-term fluctuations, we're strong believers in the long-term growth outlook for US natural gas to meet LNG export and power demand. LNG exports are projected to double by the end of the decade from projects already under construction or post-FID. And these plants are effectively fully contracted for worldwide distribution. Within its first 100 days, the Trump administration has approved two new LNG facilities. And it's been reported that LNG is playing an increased role in tariff negotiations as a way for our trading partners around the world to narrow trade imbalances while securing reliable supplies of U.S. natural gas to fuel their growing economies. On the power side, Industry experts are forecasting six BCF per day of demand increase by the end of the decade from new gas turbine generator capacity that has been ordered or will be ordered by the end of this year. The new power generation is needed to handle the massive energy needs of the build out of domestic data centers, many of which are already fully committed. Secretary of Energy Chris Wright, recently likened the race for AI dominance to the Manhattan Project. And we're encouraged by the public and private resources being committed to ensure the US remains a leader. All of these factors give us confidence in our strategy and the increased full year 2025 guidance we gave in last night's earnings press release. John will cover our guidance in more detail. Now turning to our first quarter 2025 results. Kodiak set new records in total revenue, adjusted EBITDA, discretionary cash flow, and a new all-time low leverage of 3.7 times in Q1 2025. This was driven by outstanding execution to recontract our fleet, cost management, operational efficiency, new unit growth, and a seasonal increase in revenue in our other services segments. We bought back approximately $10 million in stock in Q1 2025 and recently announced a quarterly dividend of 45 cents per share, a 10% increase over the prior quarter. During the quarter, we added approximately 49,000 horsepower in new unit horsepower, while successfully redeploying some previously idle assets to working status and divested some non-core small horsepower, much of which was idle. This drove a sequential increase in fleet utilization and overall average horsepower per unit. Our core large horsepower assets remain effectively fully utilized, reflecting the continued strong demand for large horsepower compression. Now let's discuss our recontracting efforts. The first quarter is historically our busiest quarter for recontracting, and in Q1 2025, we recontracted a significant amount of horsepower at market rates that are above our current fleet average. This helped drive a sequential increase in revenue and adjusted gross margin percentage in our contract services segment. Lifting to tariffs, like every other company in the U.S., we continue to analyze our supply chain to ensure that we can react swiftly to whatever path the administration takes. That said, the U.S. oil and gas industry is largely domestic. and the contract compression business is no different. We source all the main components of our compression units from US companies with facilities that are located in North America. We're monitoring the potential for price increases should tariffs remain in place on inputs like steel, which comprise about 30% of the value of a new package. Bear in mind that our contracts include inflationary adjustments that help offset these cost increases, and we expect to see lower lube oil prices later in the year, given the drop in crude oil, reducing operating expense. Overall, we do not expect our OPEX or our CAPEX to be impacted by tariffs by more than a low single-digit percentage in any given year. That's consistent with historical inflation rates and reflected in our revised guidance. As a reminder, our 2025 new unit capital program is fully contracted, securing our margins and cash flow. We continue to have discussions with our customers about our 2026 program and have secured signed contracts into the second quarter, further demonstrating the ongoing strength of the compression industry. So to summarize, we're off to a great start in 2025. We've achieved tremendous success in our re-contracting efforts and remain on pace with our new unit growth targets for the year. Our progress in these areas drove new company records in revenue, adjusted EBITDA, and discretionary cashflow. We grew our large horsepower fleet and continued to increase our fleet utilization. And we returned over $46 million to shareholders in the first quarter through dividends and share repurchases while generating free cashflow and reducing our leverage to its lowest level in history. Despite the recent uncertainty in the economic outlook, the fundamentals for natural gas compression remain extremely strong. The ramp up of natural gas demand remains highly visible, and the industry continues to make long-term commitments to support the growth. The increase in gas production is going to require significant compression infrastructure development And contract compression provides investors a great way to participate in the growth of U.S. energy while staying insulated from the volatility of commodity price fluctuations. And now I'll pass the call to John Griggs to further discuss our financial results and our updated guidance for the year. John?