Kodiak Gas Services Inc. Q1 2024 Earnings Call
Operator: Greetings and welcome to the Kodiak Gas Services First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Graham Sones, Director of Investor Relations. Thank you. Please go ahead.
Greetings and welcome to the Kodiak gas services first quarter earnings Conference call.
Operator: This time, all participants are in a listen only mode.
Operator: First question answer session will follow the formal presentation, if anyone should require operator assistance.
Graham Sones: Thank you on your telephone keypad as a reminder, this call is being recorded.
Graham Sones: My pleasure to introduce your grandson Investor Relations. Thank you. Please go ahead.
Graham Sones: Good morning. We appreciate you joining us for the Kodiak Gas Services conference call and webcast to review first quarter 2024 results. Presenting from the company today are Mickey McKee, President and Chief Executive Officer, and John Griggs, Chief Financial Officer. Following my remarks, Mickey and John will provide high-level commentary on the company, our first quarter financial results, and our updated 2024 outlook before opening the call for Q&A. Before I turn the call over to Mickey, I have a few housekeeping items to cover.
Graham Sones: Good morning, we appreciate you joining us for the Kodiak gas services conference call and webcast to review first quarter 2024 results.
Graham Sones: Starting from the company today are making a key president and Chief Executive Officer, and John Griggs, Chief Financial Officer.
Graham Sones: Following my remarks, Vicki and John will provide high level commentary on the company, our first quarter financial results and our updated 2024 outlook before opening the call for Q&A.
Graham Sones: Before I turn the call over to Mickey have a few housekeeping items to cover.
Graham Sones: There will be a replay of today's call available via webcast and also by phone until May 16, 2024. 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 refers only as of today, May 9, 2024, and therefore, you advise that such information may no longer be accurate as of the time of any replay listing or transcript reading.
Graham Sones: There will be a replay of today's call available via webcast and also by phone until May 16 2024.
Graham Sones: Information on how to access the replay can be found on the investors tab of our website at Kodiak gas Dot com.
Graham Sones: Please note that information reported on this call speaks only as of today may nine 2024, and therefore, you're advised that such information may no longer be accurate as of the time of any replay listening or transcript reading.
Graham Sones: The comments made by management during this call may contain forward-looking statements within the meaning of the 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 managers, and management can give no assurance that such statements or expectations will prove to be.
Graham Sones: The comments made by management. During this call may contain forward looking statements within the meaning of the United States Federal Securities laws.
Graham Sones: Forward looking statements reflect the current views beliefs and assumptions of Kodiak management based on information currently available.
Graham Sones: 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 are expectations will prove to be correct.
Graham Sones: The comments today will also include certain non-GAAP financial... Additional details and reconciliations, the most comparable gap measures, are included in yesterday's earnings release, which can be found on our website. Now I'd like to turn the call over to Kodiak's CEO, Mr. Mickey McKee.
Graham Sones: Our comments today will also include certain non-GAAP financial measures additional details and reconciliations to the most comparable GAAP measures are included in yesterday's earnings release, which can be found on our website.
Robert McKee: Now I'd like to turn the call over to Kodiak CEO, Mr. Vicki Vicki Vicki.
Robert McKee: Thanks, Graham. And thank you for joining us today. Let me get started by welcoming all the talented and dedicated CSI employees to the Kodiak family. By joining our team, each of you is contributing to Kodiak's increased scale and scope of service offerings to our customers and helping further expand our industry-leading footprint in key operating areas like the Permian Basin and Eagleford Shale. I would also like to thank all of our Kodiak employees who have worked tirelessly on integration planning and execution while simultaneously staying focused on our ongoing business, which produced record adjusted EBITDA for yet another consecutive quarter.
Robert McKee: Thanks, Craig and thank you for joining us today, let.
Robert McKee: Let me get started by welcoming all of the talented and dedicated CSI employees to the cardiac family by.
Robert McKee: By joining our team each of you are contributing to Kodiak increased scale and scope of service offerings to our customers and helping to further expand our industry leading footprint in key operating areas like the Permian Basin and Eagle Ford shale.
Robert McKee: I would also like to thank all of our Kodiak employees, who have worked tirelessly on integration planning and execution.
Robert McKee: Simultaneously staying focused on our ongoing business, which produced record adjusted EBITDA for yet another consecutive quarter.
Robert McKee: Extraordinary execution by an extraordinary workforce. We are now more than a month into the integration process with CSI and are extremely pleased with how the process is going. As I have previously stated, we are very confident in our ability to deliver upon the significant synergies provided by this combination, which will drive incremental value for our combined shareholder base. We are updating our guidance for the year and are very excited to announce revised adjusted EBITDA guidance of $580 to $610 million.
Robert McKee: Extraordinary execution by an extraordinary workforce.
Robert McKee: We are now more than a month into the integration process with CSI and are extremely pleased with how the process is going.
Robert McKee: As I have previously stated we are very confident in our ability to deliver upon significant synergies provided by this combination which will drive incremental value for our combined shareholder base.
Robert McKee: We are updating our guidance for the year and are very excited to announce revised adjusted EBITDA guidance of $580 million to $610 million.
Robert McKee: This reflects a full year of Kodiak's contribution, three quarters of CSI's contribution, and anticipated synergies we expect to realize throughout the rest of the year. John will discuss acquisition synergies further in his remarks along with providing first quarter highlights and reviewing our outlook in more detail. So, let's jump into it.
Robert McKee: This reflects a full year of Kodiak contribution three quarters of CSI contribution and anticipated synergies, we expect to realize throughout the rest of the year.
Robert McKee: John will discuss the acquisition synergies further in his remarks, along with providing first quarter highlights and reviewing our outlook in more detail.
Robert McKee: Our first quarter results came in better than expected while maintaining our industry-leading horsepower utilization at 99.8%. In addition to record-setting adjusted EBITDA contributions of $118 million for the quarter, up 11% versus the prior year period, we continue to strategically grow our large horsepower Permian-focused fleet, increasing revenue-generating horsepower by over 26,000 horsepower in Q1. We also paid another quarterly well-covered dividend with a compelling yield, reinforcing our commitment to returning capital to shareholders, consistent with our previously discussed capital allocation strategy, targeting three and a half times leverage by the end of 2025.
John: So let's jump into it our first quarter results came in better than expected, while maintaining our industry, leading horsepower utilization at 99, 8%.
Robert McKee: In addition to record setting adjusted EBITDA contributions of $118 million for the quarter up 11% versus the prior year period, we continued to strategically grow our large horsepower Permian focused fleet, increasing revenue generating horsepower by over 26.
Robert McKee: Horsepower in Q1.
Robert McKee: We also paid another quarterly well covered dividend with a compelling yield reinforcing our commitment to returning capital to shareholders consistent with our previously discussed capital allocation strategy targeting a three five times leverage by the end of 2025.
Robert McKee: But, as you might imagine, I'm even more excited for the future due to the step change we've made at Kodiak by becoming the largest contract compression provider in the industry with over 4.4 million horsepower. We're still in the early days following the close of the CSI acquisition and are in the evaluation phase of just determining if there are small non-core assets that we could or should sell.
Speaker Change: But as you might imagine I am even more excited for the future due to the step change we've made at Kodiak by becoming the largest contract compression provider in the industry with over $4 4 million horsepower.
Robert McKee: We're still in the early days following the close of the CSI acquisition and are in the evaluation phase of just of determining if there are small noncore assets that we could or should sell.
Robert McKee: Our strategy of focusing on large horsepower in liquids-rich associated gas basins has not changed, and the majority of the horsepower acquired in the transaction continues to fit that strategic growth profile. This increase in that strategic horsepower is extremely attractive given the long-term bullish outlet for natural gas compression and the tight supply, as reflected by our industry-leading utilization level of 99.8%. As we have previously discussed, Kodiak is fully contracted on our 2024 new unit deliveries, including CSI new unit deliveries, and we are now fully contracted through the first three quarters of 2025.
Robert McKee: Our strategy of focusing on large horsepower in liquids rich associated gas basins has not changed and the majority of the horsepower acquired in the transaction continues to fit that strategic growth profile.
Robert McKee: This increase in that strategic horsepower is extremely attractive given the long term bullish outlook for natural gas compression and the tight supply.
Robert McKee: As reflected by our industry, leading utilization level of 99, 8%.
Robert McKee: As we have previously discussed zodiac is fully contracted on our 2024, new unit deliveries, including CSI, New unit deliveries and we are now fully contracted through the first three quarters of 2025.
Robert McKee: When we couple that contracted growth with our leading position in the Permian Basin and the addition of CSI's more than 600,000 horsepower of large horsepower compressors, the result is a dominant position in the most prolific oil and gas producing regions in the United States. As many of our peers have recently discussed, the US is poised to see a step change in natural gas demand, as numerous factors are shaping up to lay the foundation for a multi-year period of above average growth. The next wave of U.S. Gulf Coast LNG export capacity is expected to become operational soon, with the first project slated to start up in the fourth quarter of this year.
Robert McKee: When we couple that contracted growth with our leading position in the Permian Basin. The addition of CSI has more than 600000 horsepower of large horsepower compressors. The result is a dominant position in the most prolific oil and gas producing regions in the United States.
Robert McKee: As many of our peers have recently discussed the U S is poised to see a step change in natural gas demand as numerous factors are shaping up to lay the foundation for a multiyear period of above average growth.
Robert McKee: The next wave of U S. Gulf Coast LNG export capacity is expected to become operational soon with the first projects slated to start up in the fourth quarter of this year.
Robert McKee: Natural gas exports to Mexico are set to increase at a faster rate over the next several years. Lastly, we are expecting to see exponential growth in power demand due to the proliferation of AI and data center technology, which will largely have to be sourced from natural gas-fired power generation. In total, we are seeing estimates that are calling for as much as a 20% increase in natural gas demand by 2030. The Permian is strategically positioned to meet this incremental demand and supply the U.S. and the world with clean, reliable, and cheap fuel to power energy security while reducing worldwide emissions and energy poverty.
Robert McKee: Natural gas exports to Mexico are set to increase at a faster rate over the next several years.
Robert McKee: Lastly, we are expecting to see exponential growth in power demand due to the proliferation of AI and data center technology, which will largely have to be sourced from natural gas fired power generation.
Robert McKee: In total we are seeing estimates that are calling for as much as a 20% increase in natural gas demand by 2030.
Robert McKee: The Permian is strategically positioned to meet this incremental demand and supply the U S and the world was clean reliable and cheap fuel to power energy security, while reducing worldwide emissions and energy poverty.
Robert McKee: However, in order to achieve this, there will need to be a large increase in horsepower compression capacity. Given the historical relationship between compression horsepower and domestic natural gas production, that much incremental demand would require more horsepower than the current combined fleets of Kodiak, R-Truck, and USA Compression, which took decades to build. Combined with the well-documented supply and demand macro trends for our industry, we believe Kodiak is well positioned to be the critical compression infrastructure partner of choice.
Robert McKee: However in order to achieve this there will need to be a large increase in horsepower compression capacity.
Robert McKee: Given the historical relationship between compression horsepower in domestic natural gas production that much incremental demand would require more horsepower than the current combined fleets of Kodiak, archrock and USA compression, which took decades to build.
Robert McKee: Okay.
Robert McKee: Okay.
Robert McKee: Combined with the well documented supply and demand macro trends for our industry. We believe zodiac is well positioned to be the critical compression infrastructure partner of choice.
Robert McKee: Our focus on customers and employees, industry-leading mechanical availability and utilization, and our market position will be instrumental to meet this expected demand. And now I'll pass the call on to John Griggs to review first quarter financial highlights and discuss our updated outlook. John? Thanks, Nick.
Robert McKee: Our focus on customers and employees industry, leading mechanical availability and utilization in our market position will be instrumental to meet this expected demand.
Robert McKee: And now I'll pass the call onto John Griggs to review first quarter financial highlights and discuss our updated outlook John.
John B. Griggs: Thanks Nicky.
John B. Griggs: Here's the key takeaway. First quarter Kodiak results came in better than expected, and we're optimistic about steady profitable growth in 24 and beyond. That said, let me now highlight a few aspects of our first quarter standalone results. Total revenues were just under $216 million, up 13% compared to the first quarter of 2013. The increase in revenues was driven by year-over-year growth in both of our operating segments. Adjusted EBITDA was $118 million, up over 3% from Q4, and nearly 11% compared to the same quarter of last year. Looking at our segments,
John: Here's the key takeaway first quarter Kodiak results came in better than expected and were optimistic about steady profitable growth in 'twenty four and beyond.
John B. Griggs: That said, let me now highlight a few aspects of our first quarter Standalone results.
John B. Griggs: Total revenues were just under $216 million.
John B. Griggs: Up 13% compared to the first quarter of 'twenty three.
John B. Griggs: The increase in revenues was driven by year over year growth in both of our operating segments adjusted.
John B. Griggs: Adjusted EBITDA was 118 million up over 3% from Q4, and nearly 11% compared to the same quarter last year.
John B. Griggs: Looking at our segments compression operations revenues for the quarter were $193 million up 2% and 9% when compared to the fourth quarter in the same quarter a year ago, respectively.
John B. Griggs: Compression operations revenues for the quarter were $193 million, up 2% and 9% when compared to the fourth quarter and the same quarter a year ago, respectively. The top line growth was driven by a combination of higher pricing on the incumbent fleet as the tight market has allowed us to recontract at higher rates, as well as an increase in our overall revenue-generating horsepower from fleet additions. Revenue-generating horsepower increased by over 26,000 sequentially and 116,000 year-over-year.
John B. Griggs: Topline growth was driven by a combination of higher pricing on the incumbent fleet as the tight market has allowed us to re contract at higher rates as well as an increase in our overall revenue revenue generating horsepower from fleet additions.
John B. Griggs: Revenue generating horsepower increased by over 26000 sequentially and 116000 year over year.
John B. Griggs: Impression Operations' adjusted gross margin percentage is just shy of 66%, which is the high end of our guidance. In our other services segment, revenues were $22 million in the first quarter of 2024 compared to $12 million in the first quarter of last year. Other services' adjusted gross margin was $4.4 million, compared to $3.4 million in the first quarter of 2023.
John B. Griggs: Russian operations adjusted gross margin percentage is just shy of 66%, which is the high end of our guidance range.
John B. Griggs: In our other services segment revenues were $22 million in the first quarter of <unk> 24, compared to $12 million in the first quarter of last year.
John B. Griggs: Other services adjusted gross margin was $4 4 million compared to $3 4 million in the first quarter of 'twenty three.
John B. Griggs: As we've discussed in prior calls, our other services segment is lumpy, but strategic, station construction projects are synergistic with our compression business and require no capital. Every dollar of incremental cash flow adds to both our overall return on capital employed and discretionary cash flow, which in turn allows us to pay more dividends and invest in high-return growth capital projects. In terms of CapEx for the first quarter, our maintenance capital expenditure figure was just under $11 million.
John B. Griggs: As we've discussed in prior calls our other services segment is lumpy, but strategic station construction projects are synergistic with our compression business and require no capital.
John B. Griggs: Every dollar of incremental cash flow adds to both our overall return on capital employed and discretionary cash flow, which in turn allows us to pay more dividends and invest in high return growth capital projects.
John B. Griggs: In terms of Capex for the first quarter, our maintenance capital expenditure figure, which just under $11 million. As a reminder, our maintenance spend is a function of the hours and age of arc Whitman and will vary by year, depending upon when units were added to the fleet.
John B. Griggs: As a reminder, our maintenance spend is a function of the hours and age of our equipment and will vary by year depending upon when units are added to the fleet. Growth CapEx was $59 million for the quarter, of which $6 million was non-new unit growth CapEx. As we mentioned last quarter, our Growth CapEx this year is front-end loaded, basically a function of when we ordered new units last year, and you're seeing that in Q1. Moving on to the balance.
John B. Griggs: Gross Capex was 59 million for the quarter of which $6 million was non new unit Capex as we mentioned last quarter our growth Capex. This year is front end loaded basically a function of when we ordered new units last year and Youre in Youre seeing that in Q1.
John B. Griggs: Moving to the balance sheet.
John B. Griggs: As of March 31st, we had debt of $1.9 billion, consisting of the $750 million in senior unsecured notes we issued in February and the rest, borrowings under our ABL facility. Our credit agreement leverage ratio is just under 14. We ended the first quarter with approximately $1.1 billion of availability on the AVL facility. On April 1st, in connection with the closing on CSI, we drew down on our AVL facility to retire all of CSI's debt, pro forma for the transaction, and including fees and expenses paid on the closing date, we had total debt of approximately $2.6 billion.
John B. Griggs: As of March 31, we had debt of $1 9 billion consisting of the $750 million in senior unsecured notes, we issued in February and the rest borrowings under under our ABL facility.
John B. Griggs: Our credit agreement leverage ratio was just under four times. We ended the first quarter with approximately $1 1 billion of availability on the ABL facility.
John B. Griggs: On April one in connection with the closing on CSI, we drew down on our ABL to retire retire all of CSI as debt.
John B. Griggs: Pro forma for the transaction and including fees and expenses paid on the closing date, we had total debt of approximately $2 6 billion.
John B. Griggs: Let's turn to the updated 2024 outlook. We provided updated guidance ranges in yesterday's earnings report. Given that we've only owned CSI for a few weeks, we felt it was appropriate to provide relatively high-level guidance. You should expect us to come out with more fulsome, updated guidance in our second quarter earnings call in August. With that said, I'll reiterate what Nicky mentioned at the outset.
Speaker Change: Let's turn to the updated 2020 for outlook.
John B. Griggs: We provided updated guidance ranges in Yesterdays earnings release, given that we've only owned CSI for a few weeks, we felt it was appropriate to provide relatively high level guidance this quarter.
John B. Griggs: I would expect us to come out with more fulsome updated guidance and our second quarter earnings call in August.
John B. Griggs: With that said I'll reiterate what making mentioned at the outset, we are more than pleased with the CSI acquisition. Our original investment thesis has proven true and at this point, our previously estimated cost synergies seem conservative.
John B. Griggs: We are more than pleased with the CSI acquisition. Our original investment thesis is proving true. And at this point, our previously estimated cost synergies seem conservative. For the full year, which includes 12 months of Kodiak but only 9 months of CSI and synergies, we expect revenues to range between $1.125 billion and $1.175 billion. We estimated just EBITDA to range between $580 million and $610 million. We expect maintenance gap acts to come in between $55 million and $65, in terms of growth capex.
John B. Griggs: For the full year, which includes 12 months of Kodiak. They only nine months of CSI and synergies. We expect revenues will range between 112 5 billion and $1 175 billion.
John B. Griggs: We estimate adjusted EBITDA to range between $580 million and $610 million.
John B. Griggs: We expect maintenance capex to come in between $55 million and $65 million.
John B. Griggs: In terms of growth Capex, we're forecasting between $215 million to $235 million for the year.
John B. Griggs: We're forecasting between $215 million and $235 million for the year. Bear in mind that the lion's share of that growth capex was committed by each of Kodiak and CSI during 2023, given the lead times on new equipment. Not included in that figure is approximately $35 million of extraordinary capital expenditures related to the acquisition. Prior to close, we knew there would be a variety of cleanup options. But now that we've owned them for a few weeks, we have a good handle on what they are and what we need to spend.
John B. Griggs: There in mind that the lion's share of that growth Capex was committed.
John B. Griggs: Egypt, Kodiak and CSI during 2023, given the lead times on new equipment.
John B. Griggs: Not included in that figure is approximately $35 million of extra ordinary capital expenditures related to the acquisition.
John B. Griggs: Prior to close we knew there would be a variety of cleanup items, but now that we've owned them for a few weeks we have a good handle of what those are and what we need to spend.
John B. Griggs: These are items like fleet upgrades to meet Kodiak's safety and emissions standards, plus facilities and rolling stock to meet the needs of the combined campus. We think it's important to knock as much of this out in 24 hours as we can to get it behind us and solidify the foundation. Also, a meaningful portion of that $35 million figure relates to non-cash accounting accruals triggered by the transaction, including the conformance between our two companies of lease accounting methodologies and sales and use taxes on equipment purchases.
John B. Griggs: These are items like fleet upgrades to meet Kodiak safety and emission standards plus facilities and rolling stock to meet the needs of the combined company.
John B. Griggs: I think it's important to knock as much of this out in 'twenty four as we can to get it behind us and solidify the foundation.
John B. Griggs: Also a meaningful portion of that $35 million figure relates to noncash accounting accrual was triggered by the transaction, including the conformance between our two companies have lease accounting methodologies and sales and use taxes on equipment purchases.
Robert McKee: We're obviously not guiding on 2025, but we don't see this type of CapEx spin being repeated in the future. To wrap things up, last week our board declared a quarterly dividend payment of $0.38 a share, which will be paid on May 20th. This equates to an annualized dividend of $1.52 per share yielding about 5.4% at a 2.4 times discretionary cash flow coverage ratio. Dividends are a key component of our capital allocation framework, which I will remind you encompasses measured growth plus an attractive return on and return on capital, all while living within cash flow and driving towards our three-and-a-half times leverage target by the end of 2025. That's it for my prepared comments. Thank you for your participation and support. I'll hand it back to Mickey.
John B. Griggs: We're obviously not guiding on 2025, but we don't see this type of capex spend being repeated in the future.
Robert McKee: Wrap things up last week, our board declared a quarterly dividend payment of 38 cents, a share which will be paid on may 20th <unk>.
Robert McKee: This equates to an annualized dividend of $1 52 per share yielding about five 4% at a two four times discretionary cash flow coverage ratio.
Robert McKee: Dividends are a key component of our capital allocation framework, which I'll remind you encompasses measured growth plus an attractive return of and return on capital all while living within cash flow and driving towards our three five times leverage target by the end of 'twenty five.
Robert McKee: That's it from my prepared comments. Thank you for your participation and support I'll hand, it back to Mickey.
Robert McKee: Thanks, John. In summary, I would like to close the call by thanking the extraordinary women and men of Kodiak Gas Services and again welcoming the CSI employees to the Kodiak family, a company that is stronger than the sum of its parts. Each team member's hard work and dedication to safety and our customers is what makes Kodiak special, and we would not be an industry leader without this commitment to excellence. We are very happy with the start of the year, and we look forward to continuing profitable growth in 2024 and beyond, which we expect will further enhance value for all of our shareholders. At this point, we will open the line up for questions. Operator?
Mickey: Thanks, John in summary, I would like to close the call by thanking the extraordinary women and men of Kodiak gas services and again welcoming the CSI employees to the Kodiak family.
Robert McKee: A company that is stronger than the sum of the parts.
Robert McKee: Each team members' hard work and dedication to safety and our customers are what makes Kodiak special.
Robert McKee: And we would not be an industry leader without this commitment to excellence.
Robert McKee: We are very happy with the start of the year and we look forward to continuing profitable growth in 2024, and beyond which we expect will further enhance value for all of our shareholders.
Robert McKee: At this point, we will open the lineup for questions operator.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question is from John Mackay of Goldman Sachs. Please go ahead.
Speaker Change: Thank you we will now be conducting a question and answer session.
John Ross Mackay: We would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment it may be necessary.
John Ross Mackay: Sorry to pick up your handset before pressing the star Kids.
John Ross Mackay: Thank you. Our first question is coming from John Mccain of Goldman Sachs. Please go ahead.
John Ross Mackay: Hey, good morning. I definitely appreciate all the comments, and you guys just closed a month ago, and we're probably going to look towards the second quarter call for a more kind of quantitative update. But I would just love to hear any initial reads of, you know, potential revenue synergies or other pieces now that you've had your hands on these assets for a little bit now, and kind of what we can think about for maybe a time frame on rolling those out. I understand it's still going to be high-level.
John Ross Mackay: Hey, good morning, I appreciate the time.
John Ross Mackay:
John Ross Mackay: Definitely appreciate all the comments and you guys just closed a month ago.
John Ross Mackay: We're kind of probably going to look towards the second quarter call for a more kind of quantitative update but would just love to hear any initial reads of potential.
John Ross Mackay: Potential revenue synergies there are other pieces now that you've had your hands on these assets just for a little bit now.
John Ross Mackay: And kind of what we can think about for maybe timeframe on rolling those out.
John Ross Mackay: Understand it's still going to be high level.
Robert McKee: Yeah, John, hey, this is Mickey. Thanks for joining us today.
John Ross Mackay: Yes, John Hi, This is Maggie thanks for joining us today.
Robert McKee: Look, I think we're still trying to get our arms around kind of what the potential revenue synergies are here. Our commercial team's been working diligently to align contracts with customers that are on contracts that are both Kodiak and CSI paper coming into the deal. So I think that there are revenue synergies to be had there. I think that we can bring a lot of business also in the ancillary revenue side of the business as well as CSI's legacy AMS business. And I think that's going to be pretty impactful for us as well. But I think there are definitely some revenue synergies there. And like you said, we're not quite ready to unpack those boxes yet today.
Mickey: Look I think where we're.
Mickey: We're still trying to get our arms around kind of what the potential revenue synergies are here.
Robert McKee: Our commercial team has been working.
Robert McKee: <unk> trying to align contracts with customers that are.
Robert McKee: That are on contracts that are both Kodiak CSI paper coming into the deal. So I think that there are revenue synergies to be had there I think that we can bring a lot of business also in the ancillary revenue side.
Robert McKee: Out of the business as well too.
Robert McKee: CSI is legacy Ams business, and I think that's going to be pretty.
Robert McKee: Pretty impactful for us as well, but I think theres definitely some revenue synergies there and.
Robert McKee: Like you said, we're not quite ready to unpack those yesterday.
Robert McKee: Appreciate that. Thank you. Maybe just looking at the quarter, I'm kind of, I guess talking legacy business now, margins are trending really well, kind of the top end of your range. Understand that'll change a little bit for the TQ Numbers Plus, and bring in the CSI business. But maybe just give us a read on kind of what's happening there and how you feel about that kind of underlying margin trajectory looking forward
Speaker Change: Appreciate that thank you maybe I'm just looking at the quarter on kind of I guess talking legacy business now margins are trending really well kind of top end of your range.
Robert McKee: Understand that'll change a little bit for the TQ numbers, plus bringing the CSI business, but maybe just give us a read on kind of what's happening there how you're feeling about that kind of underlying margin trajectory looking forward.
Robert McKee: Yeah, so I think that I'll let John jump in here too and talk a little bit about that. But I think that what you're seeing here is a combination of both revenue rate increases and cost control. And I think what you'll see, you know, once we get the two businesses put together, you'll see a little bit of a drop in that gross margin, just because CSI's contribution is a little bit lower than ours.
Robert McKee: Yeah.
Speaker Change: So I think that I'll, let John jump in here too and talk a little bit about that but I think what youre seeing here is a combination of both.
Robert McKee: Revenue rate increases, but also cost control and.
Robert McKee: Think what Youll see.
Robert McKee: Once we get the two businesses put together youll see a little bit of a drop in that gross margin just because.
John: <unk> contribution is a little bit lower than than ours. So blended it'll it'll come back a little bit, but I think thats, where youll see those synergies start to take place in.
Robert McKee: So blended, it'll come back a little bit. But I think that's where you'll see those synergies start to take place in lube oil purchasing power, parts, and pieces, and that kind of thing that comes with a transaction like this. So we'll start to realize those synergies throughout the second half of the year.
Robert McKee: <unk> oil purchasing power parts and pieces and that kind of thing that that comes with a transaction like this so we will start to realize those synergies throughout the second half of the year and I was just going to add Jim.
John B. Griggs: Yeah, and I was just going to add, too, a little bit of what Mickey said; we're going to come back in the second quarter and kind of realign how the segments work because they have some different businesses than we do. So, in addition to them, you know, in their contract services, having just a lower margin, they also have different product lines.
John B. Griggs: A little bit on what make you said, we're going to come back in the second quarter and kind of realigned the segments work because they had some different businesses and we have so in addition to them in their contract services, having just a lower margin and they also have different product lines. So this is the last you'll see is kind of the kodiak compression operations, but I will leave you with <unk>.
John B. Griggs: So, this is the last you'll see of the Kodiak compression operations, but I will leave you with, you know, being at the top end of the guidance range, the 64 to 66 that we gave to start the year feels good, feels right, and it feels sustainable. So, you know, we hope to carry that momentum into the back half of the year. That's awesome.
John B. Griggs: So being at the top end of the guidance range of 64 to 66, what we gave you start the year feels good feels right and it feels sustainable.
John B. Griggs: So we hope to carry that momentum into the back half of the year.
John Ross Mackay: That's awesome. I appreciate that, Keller. See you guys in two weeks. Thanks.
Speaker Change: It's awesome I appreciate that color. So you guys in two weeks.
Speaker Change: Sounds good job. Thanks.
Operator: Thank you. The next question is coming from Neal Dingmann of Truist Securities. Please go ahead.
John Ross Mackay: Thank you. The next question is coming from Neal Dingmann of Chinas Securities. Please go ahead.
Operator: Okay.
Neal David Dingmann: Good morning, guys. Thanks for your time. Guys, my first question is about the prepared remarks around the prospects for U.S. natural gas demand to support AI, and, you know, of course, a lot of others have talked about that. My question around that is, do you all, you know, I know it's further down the line, but do you all envision potential partnerships, or do you all think there's something different strategically you all might be able to do on this build out versus, you know, what you've done historically?
Neal David Dingmann: Good morning, guys. Thanks for the time.
Neal David Dingmann: You guys. My first question is around I'd love to comment on there on the prepared remarks around the prospects for U S. Natural gas demand to support AI and of course, a lot of others have talked about that my question around that is you. All you know I know.
Neal David Dingmann: Further down the line, but do you all envision a potential forming partnerships or do you. All think there's something different strategically you all might be able to do on this build out.
Neal David Dingmann: Versus you know what you've done historically.
Robert McKee: Potentially, Neal. I mean, we're going to look at opportunities like that constantly going forward and looking at kind of that strategic rationale there. There could be things we want to do there. But I think that at this point in time, though, we kind of look at that incremental demand as a really strong fundamental base for our growth as a business and supporting our capital allocation strategy that we have in place already.
Neal David Dingmann: Hum.
Speaker Change: Potentially Neil I mean, we're going to look at opportunities like that non stop going forward and looking at like kind of that strategic rationale there.
Robert McKee: There could be things, we want to do there.
Robert McKee: I think that at this point in time, though we kind of look at that incremental demand is a really strong fundamental base for our growth.
Robert McKee: Of the business.
Robert McKee: Supporting our capital allocation strategy that we have in place already so.
Robert McKee: Opportunities for different kind of lines of work in that kind of thing I think is something will be constantly evaluating but at the end of the day that fundamental base business, which is the contract compression business is really going to be benefited from this incremental demand.
Robert McKee: So, you know, opportunities for different kinds of lines of work and that kind of thing, I think, is something we'll be constantly evaluating. But at the end of the day, that fundamental base business, which is the contract compression business, is really going to benefit from this incremental demand.
Robert McKee: Yeah, I love that tailwind that you're making between that and ALNG. My question is maybe for you or John, just wondering, your contract volumes continue to be just extremely high, one of the obviously best in the group. I'm just wondering, because of this, would you or have you considered potentially running with a bit more debt and boosting the shareholder return? I only ask because, you know, the contract
Speaker Change: Yes, love that tailwind maybe between that analogy.
Robert McKee: My follow up is maybe for you or John just wondering your contract volumes continue to be just extremely high one of the obviously the best.
Robert McKee: Group.
Robert McKee: I, just wonder because of this which I'll hit or heavy all considered potentially running with a bit more debt and boosting the shareholder return and I only ask because the contract margins like sell phenomenon I'm, just wondering if youre able to.
Robert McKee: A little bit more because of that.
Robert McKee: I mean, look, as a private company, I think you've heard some of my peers talk about it too. As a private company, we ran with higher leverage than what we are today, but I think that our capital allocation strategy is something that we believe is focused on the right sort of mix between return of capital to shareholders and growth and living within our free cash flow to do so.
Speaker Change: I mean, I think that look we're as a private company. So you've heard some of my peers talk about it as a private company, we ran with higher leverage than we are today, but I think that.
Robert McKee: Our capital allocation strategy is something that we believe is focused on the right sort of mix between.
Robert McKee: Returning capital to shareholders and growth.
Robert McKee: And living within our free cash flow to do so so I think that the car.
Robert McKee: Combination with CSI gives us a good amount of scale that we can kind of ratchet up some growth capex in the next couple of years. After we get this thing kind of integrated in and.
Robert McKee: So I think that the combination with CSI gives us a good amount of scale that we can kind of ratchet up some growth capex in the next couple of years after we get this thing kind of integrated and smoothed out here. But I think that something that's pretty key is our focus on that three and a half times leverage by the end of 2025. That's a commitment we've made to shareholders, and it's something we're going to stand by. And yeah, we do understand that.
Robert McKee: Smoothed out here.
Robert McKee: But I think so.
Robert McKee: That's pretty key is our is our focus on that three five times leverage by the end of 2025, that's a commitment we've made to shareholders and it's something that we're going to stand pretty firm on.
Robert McKee: And yes, we do think that Oh go ahead, John Yes, we do understand that there is a.
Robert McKee: Opportunity abounds for great return projects out there, but we're focused on that leverage.
Neal David Dingmann: Thanks, y'all. A nice quarter. Yeah, thank you, Neal.
Speaker Change: Thank you all so nice quarter.
Speaker Change: Yes, thanks Neil.
Operator: Thank you. The next question is coming from Jeremy Tonet of JPMorgan Chase. Please go ahead.
Neal David Dingmann: Thank you. The next question is coming from Jeremy Tonet of Jpmorgan Chase. Please go ahead.
Jeremy Bryan Tonet: Hey, good morning everyone. This is Eli on for Jeremy.
Operator: Hey, good morning, everyone. This is Ely on for Jeremy just wanted to maybe start on your views of it.
Eli: Market overall.
Robert McKee: Just wanted to maybe start on your views of the compression market overall. I think some of your competitors have quoted a nine-month lead time on some equipment, which maybe is coming in a bit from previous lead times of a year or more. You know, I appreciate some of the commentary on increased NatGas demand you provided, but maybe if you could just speak to what you're seeing in the compression market more in the near term and your expectations. Thanks.
Eli: Some of your competitor competitors framed a nine month lead time on some equipment.
Robert McKee: Which maybe it's coming in a bit from previous lead times in a year or more.
Robert McKee: I appreciate some of the commentary on increased Nat gas demand you frame, but maybe if you can just speak to what youre seeing in the compression market more in the near term and your expectations. Thanks.
Robert McKee: Yeah, absolutely. And yeah, Caterpillar has brought in some deliveries on their large horsepower engines from kind of over a year to inside to kind of that nine-month range. It still takes an extraordinary amount of planning with our customers to get that equipment ordered out there that far in advance. I'll remind you that we don't spend a dollar of CapEx on speculation. All of our CapEx spend a year plus out has a signed contract to back it up and support it.
Robert McKee: Yeah, absolutely and yes, Caterpillar has brought in some deliveries on their large horsepower engines from kind of over a year or two.
Robert McKee: Inside to kind of that nine month range.
Robert McKee: Bill takes an extraordinary extraordinary amount of planning with our customers to get that equipment ordered out there that far in advance I'll remind you that we don't spend a dollar of capex on speculation that all all of our Capex spend a year plus out has a signed contract.
Robert McKee: So we're not spending any speculative CapEx out there and planning with our customers very, very early on there. But I think that the delivery times coming in from Caterpillar there are, I wouldn't say, indicative of any softness in the market. Caterpillar has alleviated some supply chain bottlenecks, and they are bringing in some deliveries a little bit. But I think what you'll see and what we look at is the amount of capital discipline in the industry that's being maintained and continued by our peers and us and some of our customers and not overspending and flooding the market with equipment. And we like to see it that way.
Robert McKee: Tabak, it up and support it.
Robert McKee: So we're not spending any speculative capex out there and planning with our customers very very very very early on there.
Robert McKee: But I think that you know that the delivery times coming in from Caterpillar. There is is I wouldn't say as indicative of any softness in the market cap.
Robert McKee: Caterpillar has alleviated some supply chain bottlenecks.
Robert McKee: They are.
Robert McKee: Bringing in some deliveries a little bit, but I think what youll see and what we look at is the amount of.
Robert McKee: Capital discipline in the industry, that's the key thing.
Robert McKee: And continuing in our peers and us and some of our customers.
Robert McKee: And not over spending and flooding the market with equipment and we like to see it that way.
John B. Griggs: Yeah, and I'll chime in too and remind everybody, we said it in the prepared remarks, but we've, you know, committed our CapEx all the way through the third quarter of next year on growth CapEx. And that's indicative, again, of customer demand, not necessarily tied to that lead time on Caterpillar equipment. And when we reference industry structure and the discipline we're seeing, it's obvious to see it in the public guise; you track that. But we, of course, monitor the private guise as well. And, you know, we really see discipline there as well.
Speaker Change: Yeah, and I'll chime in June and remind everybody. We said it in the prepared remarks that we've committed our capex all the way through the third quarter of next year on growth Capex and Thats indicative again of customer demand.
John B. Griggs: Not necessarily tied to that lead time on caterpillar equipment, when we referenced industry structure and the discipline, we're seeing it's obvious to see it in the public guys. You track that we of course monitor the private guys as well.
John B. Griggs: We really see discipline, there as well capital is more difficult to access and it was in the past that's more expensive. So we see the industry structure with the combination of demand and supply staying stronger for longer.
John B. Griggs: Capital is more difficult to access than it was in the past. That's more expensive. So we see the industry structure with the combination of demand and supply staying stronger for longer as a result of this new artificial intelligence-driven boom in power, which ultimately results in more gas demand, too. So we're really excited about the multi-year outlook.
John B. Griggs: As a result of.
John B. Griggs: This new artificial intelligence, driven and power, which ultimately results in more gas demand too. So we're really excited about the multiyear outlook.
Jeremy Bryan Tonet: Awesome, yeah, that's helpful commentary and seems like a good shape for the market ahead. Maybe just pivoting a little bit to the revised guidance, you talked a bit about hitting the higher end of the compression operations gross margin, which is really great. Maybe can you just talk a bit about what might drive you guys to the higher end of that guide and things that we should be watching in the second half of the year?
Speaker Change: Awesome Yeah.
Speaker Change: That's helpful commentary and it.
Jeremy Bryan Tonet: It seems like a good.
Jeremy Bryan Tonet: Shape for the market ahead.
Jeremy Bryan Tonet: Maybe just.
Jeremy Bryan Tonet: Pivoting a little bit to the revised guidance.
Jeremy Bryan Tonet: You talked a bit about hitting the higher end of the compression operations gross margin, which is really great.
Jeremy Bryan Tonet: Maybe you can just talk a bit about what might drive you guys had a higher end of that guide and things that we should be watching in the second half of the year.
John B. Griggs: So, I'll chime in there, and I really want to come back to the comment I made earlier that when we come out in Q2, you're going to see slightly different segment breakups. You're going to see slightly different margin profiles. So, our 64 to 66 that we guided on for Kodiak standalone is going to be a different number. It's going to be a lower number by virtue of just doing simple math of combining CSI plus S. So, you need to remember that we're not going to be talking about the same numbers.
Speaker Change: So I'll chime in there and I really want to come back to the comment I made earlier and that when we come out in Q2, youre going to see slightly different segment break ups youre going to see slightly different margin profiles. So our 64 to 66 that we guided on for Kodiak stand alone is going to be a different number it's going to be a.
John B. Griggs:
John B. Griggs: By virtue of this doing simple math of combining CSI plus us. So you need to remember that we're not going to be talking about the same numbers that said on a standalone basis as I mentioned earlier being at the top end of the range in the first quarter feels good and it feels like it's sustainable and I think the combination of our Standalone business plus the synergies.
John B. Griggs: That said, on a standalone basis, as I mentioned earlier, being at the top end of the range in the first quarter feels good, and it feels like it's sustainable. And I think the combination of our standalone business plus the synergies will allow us to continue to chip away at improving that margin again, too. So, expect us to come out in August on our Q2 earnings call with fulsome guidance and a better margin breakdown for you to model.
John B. Griggs: It will allow us continue to chip away as we move forward throughout the year at improving that margin again, too so but expect us to come out in August and our Q2 earnings call with fulsome guidance.
John B. Griggs: And a better margin breakdown for you Jim model.
Jeremy Bryan Tonet: Alright, we'll look forward to that. Thanks, guys.
Speaker Change: Alright, we will look forward to that thanks, guys.
Operator: Thank you. The next question is coming from Zach Van Everden of TPH. Please go ahead. Perfect. Thanks.
Speaker Change: Thank you. The next question is coming from Zach than evident of Pete I'm, sorry P. P. H. Please go ahead.
Zackery Lee Van Everen: Perfect. Thanks for taking my question, guys. Just one on, you know, maybe future bolt-on acquisitions. You mentioned that you're focusing on liquids-rich plays, but I was curious if you would ever look outside your key markets of the Permian, especially with the natural gas demand ramp happening in more of the dry gas region.
Speaker Change: Perfect. Thanks for taking my question guys just one on <unk>.
Zackery Lee Van Everen: You know maybe future bolt on acquisitions, you know you mentioned that you're focusing on liquids rich plays but curious if you would ever look outside your key markets of the Permian, especially with the natural gas demand ramp happening in more dry gas regions.
Zackery Lee Van Everen: Hum.
Robert McKee: You know, I think we'll be interested in looking at all sorts of M&A going forward. But I think that this, our philosophy and theory of focusing on liquids-rich associated gas basins has really proven to take really, really good care of us in the past. So, I think we'll kind of stick with that strategy. I don't know if we jump into something that is really tied to dry gas basins and gas prices quite as much as any more than what we do now, which is very little. But, you know, from an M&A perspective, we'll be interested in looking at lots of different opportunities, compression, and kind of associated ancillary services as well that are complementary to our business today.
Zackery Lee Van Everen: You know I think it will be we'll be interested in looking at all sorts of M&A going forward.
Robert McKee: But.
Robert McKee: Our philosophy in theory, focusing on liquids rich associated gas basins is really proof.
Robert McKee: <unk> proven to take really really good care of us going in.
Robert McKee: In the in the past so I think we will kind of stick with that strategy I don't know if we jump into something that was really tied to dry gas basins.
Robert McKee: And gas prices quite as much as anything more than what we do now which is very little.
Robert McKee: But from an M&A perspective will be interested in looking at lots of different opportunities.
Robert McKee: Compression.
Robert McKee: Kind of associated ancillary services as well.
Robert McKee: That are.
Robert McKee: Complementary to our business today.
Zackery Lee Van Everen: Perfect, that makes sense, and then just one on the synergies, the original 20 million or greater than 20 million you guys noted at the time of the acquisition, there's a lot of that on the cost side, and should we see that show up fully in 2024, and then I'm sure there'll be some more in 25 and beyond once you guys get the business under your name.
Speaker Change: Perfect that makes sense and then just one on the synergies you know the original $20 million or greater than $20 million. You guys noted at the time of the acquisition.
Zackery Lee Van Everen: A lot of that on the cost side and you know should we see that show up fully in 2024, and then I'm sure there'll be some more in 'twenty five and beyond once you guys get the business under under your name.
John B. Griggs: Yeah, Zack, good question. So when we announced the deal, and I think in all the first quarter, the fourth quarter clause, we always stuck to our greater than $20 million of cost synergies, and that's all we referenced. If you do simple math on kind of where we've guided and used the midpoint of the range, you take the midpoint of where Kodiak was before, $475 million; you take three quarters of the midpoint of where CSI guided, that's $105 million; that equals $580 million.
Speaker Change: Yeah. So so is that good question.
John B. Griggs: So when we announced the deal and I think in all the first quarter or the fourth quarter calls, we always stuck to our greater than $20 million of cost synergies and that's all we referenced.
John B. Griggs: If you do simple math on kind of where we've guided and use the midpoint of the range. If you took the midpoint of our Kodiak was before.
John B. Griggs: Or 75, you take three quarters of the midpoint of where CSI guided that's one out of five that equals $580 million in order to get to the midpoint of our range that would imply $15 million realized synergies.
John B. Griggs: In order to get to the midpoint of our range, that would imply $15 million of realized synergies. The way we think about it, and again in Q2, we'll come back with more detail, is that we're doing really, really well as a Kodiak stand-alone basis. CSI is kind of at, or better, kind of where they thought they would be.
John B. Griggs: The way, we think about it and again in Q2 will come back with more detail is we're doing really really well is the kodiak standalone basis.
John B. Griggs: So those synergies are somewhere between $15 and something less than $15. But remember, that's in nine months. It's not an annualized figure that's realized during the back half of the year. So it's pretty easy to go set up and say, hey, there are better than $20 million in cost synergies. The question was asked earlier for Mickey on revenue synergies, and again, not guiding on that, not extrapolating, but they're there, and we're optimizing against that fleet.
John B. Griggs: CSI is kind of at or better kind of where they thought they would be so those synergies are somewhere between 15 and something less than 15 remember that's in nine months, it's not an annualized figure that's realized during the back half of the year. So it's pretty easy to gross that up and say hey, there is better than $20 million in cost synergies.
John B. Griggs: I was asked earlier, we are making on revenue synergies again, not guiding on that not extrapolating, but they are there and we're optimizing against that fleet. So we're extremely confident that when we get through call. It that 12 to 18 months timeframe that we will fully realized well.
John B. Griggs: So we're extremely confident that when we get through, call it that 12 to 18 month timeframe, we will fully realize well beyond that original $20 million of cost synergies that we always knew would be there.
John B. Griggs: Well beyond the original $20 million of cost synergies that we always knew would be there.
Zackery Lee Van Everen: Perfect. That's all I had. Thanks, guys.
Speaker Change: Perfect. That's all I had thanks guys.
Operator: Thank you. The next question is coming from Bill Austin of Daniel Energy Partners. Please go ahead.
Zackery Lee Van Everen: Thank you. The next question is coming from Bill Austin of Daniel Energy Partners. Please go ahead.
Bill Austin: Hey, guys, thanks for taking my question. So I talked to you guys about the CapEx and and the new units that you're seeing out there. You know, how are you seeing deliveries for the remainder of this year? On that new unit side? I know you committed all that CapEx last year. And now you're kind of getting to all those coming in? Are they coming in next, you know, this quarter, next quarter? How are you guys?
Bill Austin: Hey, guys. Thanks for taking my question so.
Bill Austin: You guys talked a little bit about the capex.
Bill Austin: And the new units that you guys are seeing out there.
Robert McKee: Yeah, it's going to come in pretty smooth throughout the rest of the year. I think there's a big chunk in Q2 that CSI had ordered previously from last year, but that'll, that'll be pretty, pretty evenly spread throughout the rest of the year for, for, for the Kodiak, for the combined entities. So, you know, we're not seeing anything slide or any supply chain issues or bottlenecks that would affect that right now. And that's, knock on wood. So, you'll see those come in pretty rapidly throughout the rest of the year.
Bill Austin: How are you seeing deliveries for the remainder of this year.
Robert McKee: And that new unit side, I know you've committed all of that Capex last year and now you are kind of getting into all of those coming in are they coming in next.
Robert McKee: This quarter next quarter, how are you guys seeing that.
Robert McKee: Yes, it's going to come in pretty smooth throughout the rest of the year I think there's a big chunk in Q2 that CSI had ordered.
Robert McKee: Previously from last year, but that's all.
Robert McKee: That'll be pretty pretty evenly spread throughout the rest of the year for four for the for the combined entities. So.
Robert McKee:
Robert McKee: We're not seeing anything slide or any supply chain issues or bottlenecks that would affect that right now and that's knock on wood.
Robert McKee: So.
Robert McKee: You'll see those coming in pretty ratably throughout the rest of the year.
Robert McKee: Yeah, it's nice seeing that the supply chain stuff is getting a little bit more predictable. And I know you guys have addressed it a little bit on the M&A side, from an organic perspective, any other basins that you guys are looking at that sound exciting to start focusing on or just kind of sticking to the knitting these days?
Speaker Change: Alright, yes, I see it.
Robert McKee: The supply chain stuff is getting a little bit more predictable.
Robert McKee: Yes.
Robert McKee: Yes.
Robert McKee: I know you guys have addressed it a little bit on the M&A side.
Robert McKee: From an organic perspective any other basins that you guys are looking at that sounds exciting.
Robert McKee: To start more focusing out or just kind of sticking to sticking to the knitting. These days.
Robert McKee: Yeah, I mean, we obviously have plenty of work to do in the Permian Basin, but labor is a challenge there, so we're going to be open definitely to working on some additional types of basins that are important to us. The Eagleford, the Rocky Mountain region, some stuff up in the Northeast, those are all areas that we think are opportunistic, that have some liquids-rich type of opportunities with associated gas that kind of fit into our overall thesis for the business.
Speaker Change: Yeah, I mean, we obviously have.
Robert McKee: No.
Robert McKee: Plenty of work to do in the Permian Basin, but labor is a challenge there. So we're going to be opened and definitely still working on some additional basins that are that are important to us the Eagle Ford Rocky Mountain region. Some of the some stuff up in the northeast.
Robert McKee: Those are all areas that we think are opportunistic that have some liquids rich type of Bob.
Robert McKee: Opportunities with associated gas that kind of fit into our overall thesis for the business.
Bill Austin: Great. Well, hey, thanks for taking my question, guys. Congratulations on the quarter. I'll leave it to everyone else. Thanks, Bill.
Speaker Change: Great well hey, Thanks for taking my question guys. Congrats on the quarter I'll leave it to everyone else. Thanks.
Speaker Change: Thanks Bill.
Operator: Thank you. This brings us to the end of the question and answer session. I would like to turn the floor back over to Mr. McKee for closing comments.
Bill Austin: Thank you this brings us to the end of the question and answer session I would like to turn the floor back over to Mr. Mckee for closing comments.
McKee: Thank you operator, and thanks to everyone who participated in today's call. We look forward to speaking with you again after we report our second quarter results.
Robert McKee: And thanks to everyone who participated in today's call. We look forward to speaking with you again after we report our second quarter results.
Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time and enjoy the rest of your day.
Speaker Change: Ladies and gentlemen. This concludes today's event you may disconnect. Your lines at this time and enjoy the rest of your day.
Operator: Yeah.
Operator: Yeah.
Operator: Yes.
Operator: Yes.
Operator: Okay.