Kodiak Gas Services, Inc.

Greetings and welcome to the Kodiak Gas Service's first quarter 2026 earnings call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Graham Soans, Vice President of Investor Relations. Thank you. You may begin.

Good morning, and thanks for joining us for the Kodiak Gas Services conference call and webcast to review our first quarter 2026 results. Joining me from the company today are Mickey McKee, President and Chief Executive Officer, and John Griggs, Executive Vice President and Chief Financial Officer. After my remarks, Mickey and John will cover recent market developments, share an update on our power strategy, and walk through our results and updated 2026 outlook, including our new power segment. Then we'll open it up for Q&A. Replay of today's call will be available by webcast and phone through May 25th, 2026. Replay details are on the Investors tab of our website at kodiakgas.com. And as a reminder, the information discussed today speaks only as of May 11, 2026, and may no longer be accurate by the time you listen to a replay or read a transcript. The comments made by management during this call may contain forward-looking statements within the meaning of U.S. federal securities laws. These statements reflect management's current views, beliefs, and assumptions 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 will also include certain non-GAAP financial measures. Details and reconciliations to the most comparable GAAP measures are included in our earnings release, which can be found on our website. Now I'd like to turn the call over to Kodiak's president and CEO, Mr. Mickey McKee. Mickey?

Thanks, Graham, and thanks to everyone for joining us today. I want to start like we do in all meetings at Kodiak with safety. As we head into the summer driving season, it's a good reminder that driving is one of the riskiest things many of us do every day. That's why we have all Kodiak employees complete a safe driving program, and we rolled out telematics last year to help reduce distractions when behind the wheel. Thank you to our safety and training teams for equipping our people with these valuable tools, and to everyone at Kodiak for living our safety-first mindset every day. Recent geopolitical events have served as a stark reminder that energy security and reliable energy infrastructure are critical to our daily lives. The energy landscape keeps evolving, with rising demand for natural gas tied to LNG exports and power generation, including data centers as the AI race accelerates. This step change in demand is straining supply chains, pushing equipment lead times to records, and increasing the need for highly trained technicians to keep large horsepower equipment running. Kodiak is well positioned to meet this challenge. Our supply chain team has been proactive in sourcing new equipment for both compression and power, and our highly skilled workforce is ready to keep delivering the service our customers expect. The natural gas compression market is in uncharted territory. Lead times for new large horsepower equipment keep extending and now sit at over 180 weeks for 3,600 inline gas compression engines over three years. Through our strong vendor relationships, we've secured new large horsepower compression packages for 2027 and 2028, and we're working to secure additional units for 2029 delivery. We remain confident in our ability to achieve our targeted annual horsepower growth of 150,000 horsepower per year, resulting in a compression fleet of at least 5.2 million horsepower by the end of the decade. While supply is limited, compression demand is building across both our E&P and midstream customers as they now have increased visibility into the next wave of natural gas volumes. Permian operators are starting to pick up activity with higher oil prices and record U.S. oil export volumes. And with more than five BCF a day of Permian gas takeaway capacity expected online by year end, several customers have asked whether they can accelerate their 2027 equipment orders. This has manifested itself in our pricing, as we've demonstrated continued pricing power, which we expect to continue into 2027 and beyond, given the tightness in the market. One thing to keep in mind is that Kodiak has consistently high graded our fleet over the last couple of years, strategically divesting some of our non-core small horsepower compression that commands a higher dollar per horsepower revenue rate, but at a lower margin. We've increased our average horsepower per unit in our fleet from 943 horsepower per unit at the end of Q1 last year to 977 horsepower per unit currently. while also driving up the average dollar per horsepower revenue rate, effectively overcoming industry dynamics for revenues per horsepower, while our peers horsepower per unit has collectively gone down over that time period. Another dynamic we're seeing is customers signing longer-term compression contracts to lock in equipment availability. During the quarter, we entered into a 10-year compression services contract extension with one of our top customers. and we're in the process of finalizing another 10-year extension with another top customer, further demonstrating the infrastructure nature of the large horsepower compression business. Also in the first quarter, we purchased a package of large horsepower compression units from a Permian producer and signed a seven-year contract to provide compression services. This was important for a few reasons. It's an accretive way to grow market share and generate immediate cash flow in this long lead time environment for large horsepower engines. It also reinforces what we hear from customers. Kodiak can operate units efficiently and cost effectively. Next, I want to talk about our distributed power business, now going to market as Kodiak Power Solutions. We closed the DPS acquisition on April 1st, and we've been moving quickly on integration. We're already operating on the same ERP platform, and we've realigned our commercial and operations teams to support the business. DPS brought a strong commercial team with deep distributed power experience, including one of the first islanded primary power data center contracts, which is now in its third year of operation and has capably delivered on its 99.9% reliability guarantee to its customers. I'll touch on a few reasons we're excited about the long-term growth outlook in distributed power. The power market is evolving quickly. Texas leads the nation in data centers under development with over 150 currently in development, as hyperscalers prioritize low-cost energy, available land, and a constructive regulatory environment in the site selection process. One recent estimate says there are over 30 gigawatts of planned data centers in Texas over the next two years. Feed-to-power also matters. The AI world is moving fast, and delays can put projects at a disadvantage. Behind-the-meter solutions aren't just short-term solutions. They're increasingly cost-competitive with grid power, often with similar or better reliability. We're currently in discussions with a number of data center customers about long-term contracts at high-quality returns to provide primary power. opportunity set is significant and we expect it will keep growing as hyperscalers expand their capex plans recent estimates indicate the hyperscalers ai related capex spending between now and 2030 may exceed five trillion dollars given the significant level of digital infrastructure and microgrid demand that we are currently experiencing and our focus on moving quickly to capture the opportunity We've been very active in sourcing additional power generation capacity. As noted in this morning's press release, we've sourced additional power generation capacity to add to what we acquired with EPS. Currently placed orders for more than 260 megawatts with about 61 megawatts to be received in 2026 and the remainder between 2027 and 2029. And we are in advanced discussions with multiple counterparties for an additional 1.3 gigawatts to be delivered on a relatively routable delivery schedule through the end of the decade. Equipment we're buying is a mix of resip engines and industrial gas turbines that are purpose-built for data center and microgrid applications. This is consistent with our power growth strategy, targeting growth of 300 to 500 megawatts per year through the end of the decade. equating to a distributed power fleet of around 2 gigawatts by year-end 2030. Based on the discussions we're having today, we expect our investment in power equipment to generate unlevered returns greater than 15% and EBITDA build multiples around 5x, competitive with our compression business after factoring the added benefit of increasing the average duration of our contracted cash flow with high-quality customers. As we invest to grow both our contract compression and distributed power assets, we're committed to maintaining financial flexibility and having a strong balance sheet. Our contract compression business is generating highly resilient free cash flow, which will help fund our power growth. Plus, we have ample liquidity on our ABL and a variety of financing options available to us as we undergo this period of strong infrastructure growth. The investments we make today will help build a stronger, more profitable company in the future. This morning we released our first quarter 2026 financial results. I'll hit a few highlights and I'll let John go into more detail. We ended the first quarter at 4.4 million revenue generating horsepower. Average horsepower per revenue generating unit was 977, the highest among our contract compression peers. and a figure we expect to keep moving higher given our large horsepower focus. Our investments to grow the fleet, along with divestitures of non-core units, drove fleet utilization to 98%, another industry-leading metric. In Q1, we delivered strong year-over-year growth in contract services revenue and adjusted gross margin. Contract services adjusted gross margin was 70.6%, a seventh consecutive quarterly increase and a new high for Kodiak. Margin gains continue to be driven by strong operational execution and returns on our technology investments. Real-time equipment monitoring is helping us catch issues earlier, reduce failures, increase operational efficiency, and lower parts spend. In our other services segment, first quarter results reflected a sequential pickup and station construction activity, along with better margins on AMS services. Strong results from each segment drove adjusted EBITDA to 190 million for the quarter, up 7% year over year, and a new company record. Looking ahead to the rest of 2026, we see continued strong momentum in compression. We're fully contracted for our 2026 new unit compression deliveries, and are making strong progress on our 2027 deliveries with over 40% already contracted. Our updated guidance reflects both the incremental contribution we expect from power and the investment we're making to scale that business and drive growth for years to come. Now I'll pass the call to John Griggs to further discuss our financial results and our revised outlook for 2026. John?