Q2 2024 Kodiak Gas Services Inc Earnings Call

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Operator: Greetings and welcome to the Kodiak Gas Services Second Quarter, 2020 and 24 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.

Operator: [inaudible] Greetings and welcome to the Kodiak Gas Service. Second quarter, 2024. At this time, all participants are in a listen-only question and answer session. We'll follow the formal presentation. If anyone should require operator assistance, press star zero on your telephone.

Speaker Change: Greetings and welcome to the Kodiak Gas Services second quarter 2024 earnings conference call.

Speaker Change: 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.

Operator: If anyone should require operator systems during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Graham Sones: As a reminder, this, It is now my pleasure to introduce your host, Graham Sones, vice president and investor. Good morning. We appreciate you joining us for the Kodiak Gas Services conference call and webcast to review second quarter 2024 results. Participating 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 second quarter financial results, and our updated 2024 outlook before opening the call for Q&A.

Graham Sones: It is my pleasure to introduce your host, Graham Sones, Vice President and Vessel Relations. Thank you. You may begin.

Speaker Change: It is now my pleasure to introduce your host, Graham Sones, Vice President, Investor Relations. Thank you. You may begin.

Graham Sones: Good morning. We appreciate you joining us for the Kodiak Gas Services conference call on webcast for review second quarter, 2024 results. Participating from the company today are Mickey McKee, President and Chief Executive Officer, and John Griggs, Chief Financial Officer.

Graham Sones: There will be a replay of today's call available via webcast and also by phone until August 27, 2024. Information on how to access the replay can be found on the Investors tab of our website at kodiakgas.com.

Speaker Change: Good morning. We appreciate you joining us for the Kodiak Gas Services conference call and webcast to review second quarter 2024 results.

Speaker Change: Participating from the company today are Mickey McKee, President and Chief Executive Officer, and John Griggs, Chief Financial Officer.

Graham Sones: Following my remarks, Mickey and John will provide high-level commentary on the company, our second-quarter financial results, and our updated 2024 outlook before opening the call for Q&A. There will be a replay of today's call available via webcast and also by phone until August 27, 2024. Information on how to access the replay can be found on the investors tab of our website at kodiakgas.com.

Speaker Change: Following my remarks, Mickey and John will provide high-level commentary on the company, our second quarter financial results, and our updated 2024 outlook before opening the call for Q&A.

Speaker Change: There will be a replay of today's call available via webcast and also by phone until August 27, 2024.

Speaker Change: Information on how to access the replay can be found on the investors tab of our website at KodiakGas.com

Graham Sones: Please note that information reported on this call speaks only as of today, August 13, 2024, and therefore you advise that such information may no longer be accurate as of the time of any replay listening or transcript reading.

Graham Sones: Please note that information reported on this call speaks only as of today, August 13, 2024, and therefore, you are advised that such information may no longer be accurate as of the time of any replay listing or transcript reading. The comments made by management during this call may contain forward-looking statements within the meaning of United States federal securities law. These forward-looking statements reflect the current views, beliefs, and assumptions of Kodiak's management based on information currently available.

Speaker Change: Please note that information reported on this call speaks only as of today, August 13, 2024, and therefore you are advised that such information may no longer be accurate as of the time of any replay listing or transcript reading.

Graham Sones: 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 reference in these forward-looking statements were 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.

Graham Sones: Although we believe the expectations referenced in these four 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.

Speaker Change: 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.

Speaker Change: Although we believe the expectations referenced in these four 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.

Speaker Change: and management can give no assurance that such statements or expectations will prove to be correct.

Graham Sones: The comments today will also include certain non-GAAP financial measures. Details and reconciliation to the most comparable gap measures are included in yesterday's earnings release, which can be found on our website.

Graham Sones: The comments today will also include certain non-GAAP financial matters. Details and reconciliations to the most comparable gap measures are included in yesterday's earnings release. This can be found on our website. Additionally, during the call, we may reference our earnings presentation, which was posted this morning on our website. Now, I'd like to turn the call over to Kodiak's CEO, Mr. Mickey McKee.

Speaker Change: The comments today will also include certain non-GAAP financial measures.

Speaker Change: Details and reconciliations, the most comparable gap measures, are included in yesterday's earnings release, which can be found on our website. Additionally, during the call, we may reference our earnings presentation. It was posted this morning on our website.

Graham Sones: Additionally, during the call, we may reference our earnings presentation that was posted this morning on our website.

Graham Sones: And now I'd like to turn the call over to Kodiak CEO, Mr. Mickey McKee.

Mickey McKee: Mickey? Thanks, Graham. And thank you all for joining us today.

Speaker Change: And now I'd like to turn the call over to Kodiak's CEO, Mr. Mickey McKee. Mickey?

Mickey McKee: Thanks, Graham, and thank you all for joining us today. I want to begin by talking about safety. As we always discuss at Kodiak, our first and most significant priority is the health and safety of our employees and making sure that every employee goes home safe and sound to their families every night. The focus of each and every Kodiak employee on this topic truly embodies the philosophy that we have adopted at Kodiak, safety first, all the time.

Mickey McKee: I want to begin first by talking about safety. As we always discuss at Kodiak, our first and most significant priority is the health and safety of our employees and making sure that every employee goes home safe and sound to their families every night. The focus of each and every Kodiak employee on this topic truly embodies the philosophy that we have adopted at Kodiak. Safety first all the time. We recently passed our one-year anniversary as a public company. And I want to take a minute to thank our over 1,400 employees whose relentless focus on safety, customer service, and drive to improve margins has helped make Kodiak the industry leader in the contact compression space.

Mickey McKee: Thanks, Graham, and thank you all for joining us today.

Mickey McKee: I want to begin first by talking about safety.

Mickey McKee: As we always discuss at Kodiak, our first and most significant priority is the health and safety of our employees and making sure that every employee goes home safe and sound to their families every night.

Mickey McKee: The focus of each and every Kodiak employee on this topic truly embodies the philosophy that we have adopted at Kodiak. Safety first, all the time.

Mickey McKee: We recently passed our one year anniversary as a public company, and I want to take a minute to thank our over 1,400 employees whose relentless focus on safety, customer service, and drive to improve margins has helped make Kodiak the industry leader in the contract compression space. I want to take a minute to talk about what this company has accomplished over that time period since going public. We have organically increased our contract compression fleet by over 150,000 horsepower while living within cash flow.

Mickey McKee: We recently passed our one-year anniversary as a public company.

Speaker Change: And I want to take a minute to thank our over 1,400 employees whose relentless focus on safety, customer service, and drive to improve margins has helped make Kodiak the industry leader in the contract compression space.

Mickey McKee: I want to take a minute to talk about what this company has accomplished over that time period since doing public. We organically increased our contract compression fleet by over 150,000 horsepower while living within cash flow. We've completed the highly accrued acquisition of CSI, making Teddy Act the largest contract compression provider in the US. We strengthened our balance sheet, driving leverage down to 3.9 times, well on our way to our goal of three and a half times by the end of 2025. And we have returned capital to our shareholders through a wealth-covered and compelling dividend. We think this balance between disciplined growth and shareholder return is being rewarded in the market.

Speaker Change: I want to take a minute to talk about what this company has accomplished over that time period since going public.

Speaker Change: We organically increased our contract compression fleet by over 150,000 horsepower while living within cash flow.

Mickey McKee: We've completed the highly accretive acquisition of CSI, making Kodiak the largest contract compression provider in the U.S. We strengthened our balance sheet, driving leverage down to 3.9x, well on our way to our goal of 3.5x by the end of 2025, and we have returned capital to our shareholders through a well-covered and compelling dividend. We think this balance between disciplined growth and shareholder return is being rewarded in the market. An investment in Kodiak at our IPO generated a 91% total return through last Thursday. So you have to get me out before I make a broader mark.

Speaker Change: We've completed the highly accretive acquisition of CSI, making Kodiak the largest contract compression provider in the U.S.

Speaker Change: We've strengthened our balance sheet, driving leverage down to 3.9 times, well on our way to our goal of 3.5 times by the end of 2025.

Speaker Change: And, we have returned capital to our shareholders through a well-covered and compelling dividend.

Speaker Change: We think this balance between disciplined growth and shareholder return is being rewarded in the market.

Mickey McKee: An investment in Kodi Act at our IPO has generated a 91% total return through last Thursday, significantly outperforming the broader market. And we're not done.

Speaker Change: An investment in Kodiak and our IPO has generated a 91% total return through last Thursday.

Mickey McKee: And we're not done. Given the strong operating environment and highly accretive acquisition, we were pleased to announce that our board recently approved an 8% increase in our quarterly dividends to $0.41 per share. And we'll continue to invest to grow our compression fleet, given the strong demand and attractive returns we see in the market. The closing of the acquisition gave us a chance to evaluate the combined fleet for opportunities to make safety and emissions upgrades, identify non-core assets, and further improve our customer base. We currently have multiple initiatives in place to begin redeploying or disposing of vital assets that we acquired with CSI. However, that takes some time to execute.

Speaker Change: significantly outperforming the broader market.

Mickey McKee: Given the strong operating environment and highly accrued acquisition, we are pleased to announce that our board recently approved an 8% increase to our quarterly dividends to 41 cents per share. And we'll continue to invest to grow our compression fleet, given the strong demand and attractive returns we see in the market. The closing of the acquisition gave us a chance to evaluate the combined fleet for opportunities to make safety and emissions upgrades, identify non-core assets, and further high-grade our customer base. We currently have multiple initiatives in place to begin redeploying or disposing of idle assets that we acquired with CSI.

Speaker Change: And we're not done. Given the strong operating environment and highly accretive acquisition, we were pleased to announce that our board recently approved an 8% increase to our quarterly dividends to $0.41 per share.

Speaker Change: and will continue to invest to grow our compression fleet given the strong demand and attractive returns we see in the market.

Speaker Change: The closing of the acquisition gave us a chance to evaluate the combined fleet for opportunities to make safety and emissions upgrades, identify non-core assets, and further high-grade our customer base.

Speaker Change: We currently have multiple initiatives in place to begin redeploying or disposing of vital assets that we acquired with CSI. However, that takes some time to execute.

Mickey McKee: However, that takes some time to execute. Our utilization currently sits at 94%. However, the core large horsepower group of assets that was the focus of the legacy Kodi Act fleet and the target of the CSI acquisition remains effectively full utilization. In excess of 98%. In fact, the entire industry utilization in this large horsepower group remains at historically elevated levels, continuing to contribute to the tightness in the market. Going forward, we plan to opportunistically refurbish and upgrade idle assets and look to redeploy them. We also plan to constantly evaluate the fleet for opportunities to high grade our operations, consistent with our core operating philosophy and strategic direction.

Mickey McKee: Our utilization currently sits at 94%, however, the core, large horsepower group of assets that was the focus of the legacy Kodiak fleet and the target of the CSI acquisition remains at effectively full utilization in excess of 98%. In fact, the entire industry utilization in this large horsepower group remains at historically elevated levels, continuing to contribute to the tightness in the market. Going forward, we plan to opportunistically refurbish and upgrade idle assets and look to redeploy them.

Speaker Change: Our utilization currently sits at 94%.

Speaker Change: However, the core, large horsepower group of assets that was the focus of the legacy Kodiak fleet

Speaker Change: and the target of the CSI acquisition remains at effectively full utilization in excess of 98%.

Speaker Change: In fact, the entire industry utilization in this large horsepower group remains at historically elevated levels, continuing to contribute to the tightness in the market.

Speaker Change: Going forward, we plan to opportunistically refurbish and upgrade idle assets and look to redeploy them.

Mickey McKee: We also plan to constantly evaluate the fleet for opportunities to improve our operations, consistent with our core operating philosophy and strategic direction. As noted in our press release, we recently entered into an agreement to sell a significant portion of our small horsepower units in the U.S. and Canada. These units represent only about 1% of our revenue-generating horsepower but significantly reduce our units and simplifies our operations both domestically and internationally. Investing in these assets is also consistent with our focus on U.S. large horsepower compression. Next, I would like to discuss the integration process.

Speaker Change: We also plan to constantly evaluate the fleet for opportunities to high-grade our operations, consistent with our core operating philosophy and strategic direction.

Mickey McKee: As noted in our press release, we recently entered into an agreement to sell a significant portion of our small horsepower units in the U.S. and Canada. These units represent only about 1% of our revenue-generating horsepower that significantly reduces our unit count and simplifies our operations both domestically and internationally. Investing in these assets is also consistent with our focus on US large horsepower compression.

Speaker Change: As noted in our press release, we recently entered into an agreement to sell a significant portion of our small horsepower units in the U.S. and Canada.

Speaker Change: These units represent only about 1% of our revenue generating horsepower, but significantly reduces our unit count and simplifies our operations both domestically and internationally.

Speaker Change: Investing these assets is also consistent with our focus on U.S. large horsepower compression.

Mickey McKee: Next, I would like to discuss the integration process. We've been operating with one company for four months now. And what's clear is that we will greatly exceed our initial cost synergy. We now expect our combined cost synergies to be north of $30 million versus our initial $20 million forecast. Based on these synergies and the underlying strength in the contract compression market, we are raising the low end of our full year adjusted EBITDAG guidance and now guiding to a range of $590 to $610 million for the full year 2024. John will discuss the acquisition synergies and our revised outlook in more detail.

Mickey McKee: We've been operating as one company for four months now, and what's clear is that we will greatly exceed our initial cost synergy estimate. We now expect our combined cost synergies to be north of $30 million versus our initial $20 million forecast. Based on these synergies and the underlying strength in the contract compression market, we are raising the low end of our full year adjusted EBITDA guidance and now guiding to a range of $590 to $610 million for the full year 2024.

Speaker Change: Next, I would like to discuss the integration process. We've been operating as one company for four months now, and what's clear is that we will greatly exceed our initial cost synergy estimate.

Speaker Change: We now expect our combined cost energies to be north of $30 million versus our initial $20 million forecast.

Speaker Change: Based on these synergies and the underlying strength in the contract compression market, we are raising the low end of our full year adjusted EBITDA guidance and now guiding to a range of 590 to 610 million dollars for the full year 2024.

Mickey McKee: John will discuss the acquisition synergies and our revised outlook in more detail. Now, let's discuss our second quarter results. Yesterday, we released second quarter 2024 financial results, including another record quarter with revenues of $310 million and adjusted EBITDA of $154 million, as we have only just begun to realize the combined earnings power of our fleet and the synergies that I mentioned. Turning to our reporting segments, as detailed in our second quarter earnings presentation, we now classify our revenue streams into two buckets, contract services and other services.

Speaker Change: John will discuss the acquisition synergies and our revised outlook in more detail.

Mickey McKee: Now let's discuss our second quarter results. Yesterday we released second quarter 2024 financial results, including another record quarter with revenues of $310 million and adjusted EBITDAG of $154 million, as we have only just begun to realize the combined earnings power of our fleet and the synergies that I mentioned. Turning to our reporting segments, as detailed in our second quarter earnings presentation, we now classify our revenue streams into two buckets: contract services and other services. As the main implies, contract services encompasses our contracted, recurring revenue services like contract compression, contract operations, and contract trading. These highly visible, stable, contracted cash flows make up the core of the company.

Speaker Change: Now, let's discuss our second quarter results.

John Griggs: Yesterday, we released second quarter 2020 for financial results.

John Griggs: including another record quarter with revenues of $310 million and adjusted EBITDA of $154 million as we have only just begun to realize the combined earnings power of our fleet and the synergies that I mentioned.

John Griggs: Turning to our reporting segments, as detailed in our second quarter earnings presentation, we now classify our revenue streams into two buckets, contract services and other services.

Mickey McKee: As the name implies, contract services encompasses our contracted recurring revenue services like contract impression, contract operations, and contract treating. These highly visible, stable, contracted cash flows make up the core of the company. Demand for contract services remains strong. During the second quarter, we added over 41,000 horsepower of new units to our fleet. All were large engines, averaging over 2,000 horsepower per unit, and were deployed at rates above the fleet average.

John Griggs: As the name implies, contract services encompasses our contracted recurring revenue services like contract impression, contract operations, and contract treating.

John Griggs: These highly visible, stable, contracted cash flows make up the core of the company.

Mickey McKee: The managed for contract services remains strong. During the second quarter, we added over 41,000 horsepower of new units to our fleet. All were large horsepower, averaging over 2,000 horsepower per unit, and were deployed at rates above the fleet average. And we also had tremendous success in re-contracting units that came up for renewal during the quarter. A closer to current spot rates also significantly above our current fleet average. One thing I want to point out is that through the CSI acquisition, we acquired a compression business with a historical margin in the low to mid-50s. In just 90 days, after integrating the assets, cutting costs, and returning idle equipment back to the market.

John Griggs: Demands for contract services remain strong.

John Griggs: During the second quarter, we added over 41,000 horsepower of new units to our fleet.

John Griggs: All were large horsepower, averaging over 2,000 horsepower per unit, and were deployed at rates above the fleet average.

Mickey McKee: And we also had tremendous success in recontracting units that came up for renewal during the quarter at closer to current spot rates, also significantly above our current fleet average. One thing I want to point out is that through the CSI acquisition, we acquired a compression business with a historical margin in the low to mid 50s. In just 90 days, after integrating the assets, cutting costs, and returning idle equipment back to the market, for the quarter, Kodiak was able to deliver a combined adjusted gross margin of 64% for contract services, matching what we did as a company in the comparable quarter in 2023. This is an impressive feat.

John Griggs: And we also had tremendous success in recontracting units that came up for renewal during the quarter at closer to current spot rates, also significantly above our current fleet average.

Speaker Change: One thing I want to point out is through the CSI acquisition, we acquired a compression business with a historical margin in the low to mid 50s.

Speaker Change: In just 90 days, after integrating the assets, cutting costs, and returning idle equipment back to the market, for the quarter, Kodiak was able to deliver a combined adjusted gross margin of 64% for contract services.

Mickey McKee: For the quarter, Cody was able to deliver a combined adjusted gross margin of 64% for contract services, matching what we did as a company in the comparable quarter in 2023. This is an impressive feat. And, as I stated earlier, we believed there are additional synergies to be captured and opportunities for further margin expansion.

Speaker Change: matching what we did as a company in the comparable quarter in 2023. This is an impressive feat.

Mickey McKee: As I stated earlier, we believe there are additional synergies to be captured and opportunities for further margin expansion. Switching to our other services segment, this segment primarily consists of our station construction and aftermarket sales business, which are less predictable but help support our customers, require minimal capital investment, and generate significant free cash flow that we can invest back into our core compression business. We're excited about our newly expanded service offerings, allowing us to provide additional services to our high-quality customer base.

Speaker Change: As I stated earlier, we believe there are additional synergies to be captured and opportunities for further margin expansion.

Mickey McKee: Switching to our other services segment, this segment primarily consists of our station construction and aftermarket sales business that are less predictable, but helps support our customers, require minimal capital investment, and generates significant three cash flow that we can invest back into our core compression business. We're excited about our newly expanded service offerings, allowing us to provide additional services to our high quality customer base. Looking into 2025, we have effectively already contracted our entire capex spend for next year, as customers have aggressively signed contracts for new horse power growth and are now looking towards 2026. Project.

Speaker Change: Switching to our other services segment, this segment primarily consists of our station construction and aftermarket sales business that are less predictable but help support our customers.

Speaker Change: require minimal capital investment and generate significant free cash flow that we can invest back into our core compression business.

Speaker Change: We're excited about our newly expanded service offerings, allowing us to provide additional service to our high-quality customer base.

Mickey McKee: Looking into 2025, we have effectively already contracted our entire CAPEX spend for next year as customers have aggressively signed contracts for new horsepower growth and are now looking towards 2026. Approximately half of our 2025 horsepower additions will be electric motor driven large horsepower units, and we are also selectively converting units to electric to meet customer demand. While we are increasing our electric motor-driven fleet, I should remind you that given grid constraints in the Permian Basin, electric compression for large horsepower applications is not always a feasible solution.

Speaker Change: Looking into 2025, we have effectively already contracted our entire CapEx spend for next year as customers have aggressively signed contracts for new horsepower growth and are now looking towards 2026.

Mickey McKee: Approximately half of our 2025 horsepower additions will be electric motor driven, large horsepower units, and we are also selectively converting units to electric to meet customer demand. While we are increasing our electric motor driven fleet, I should remind you that, given great constraints in the Permian Basin, electric compression for large horsepower applications is not always a feasible solution. But we're investing now to ensure that we're well positioned to meet our customers' needs for gas engine or electric motor driven compression in the future without losing focus on our core strategy.

Speaker Change: Approximately half of our 2025 horsepower additions will be electric motor driven, large horsepower units, and we are also selectively converting units to electric to meet customer demand.

Speaker Change: While we are increasing our electric motor driven fleet, I should remind you that given grid constraints in the Permian Basin, electric compression for large horsepower applications is not always a feasible solution.

Mickey McKee: We're investing now to ensure that we're well-positioned to meet our customers' needs for gas engine or electric motor-driven compression in the future without losing focus on our core strategy. In summary, we are pleased with our second quarter results in a busy quarter that included closing the CSI acquisition. The integration is going extremely well, and we're on track to significantly exceed our original synergy goal.

Speaker Change: We're investing now to ensure that we're well positioned to meet our customers needs for gas engine or electric motor driven compression in the future without losing focus on our core strategy.

Mickey McKee: In summary, we are pleased with our second quarter results in a busy quarter that included closing the CSI acquisition. The wrong track to significantly exceed our original synergy goal. Our commercial team has been actively repositioning our fleet while evaluating opportunities to hydrate our fleet and service offerings. We increased our dividends, and our revised guidance indicates that we see continued momentum into the second half of 2024 and beyond. Whether it's capacity prices increasing ninefold in VJM or ERCOT, forecasting electricity used to more than double by the end of the decade. It's clear the US needs to add electric generation capacity, and that natural gas will be the most reliable and affordable fuel of choice.

Speaker Change: In summary, we are pleased with our second quarter results in a busy quarter that included closing the CSI acquisition.

Speaker Change: The integration is going extremely well, and we're on track to significantly exceed our original synergy goal.

Mickey McKee: Our commercial team has been actively repositioning our fleet while evaluating opportunities to hydrate our fleet and service offers. We increased our dividends, and our revised guidance indicates that we see continued momentum into the second half of 2024 and beyond, whether it's capacity prices increasing ninefold in PJM or ERCOT forecasting electricity use to more than double by the end of the decade. It's clear the U.S. needs to add electric generation capacity and that natural gas will be the most reliable and affordable fuel of choice.

Speaker Change: Our commercial team has been actively repositioning our fleet while evaluating opportunities to hydrate our fleet and service offerings.

Speaker Change: We increased our dividends and our revised guidance indicates that we see continued momentum into the second half of 2024 and beyond.

Speaker Change: whether it's capacity prices increasing ninefold in PJM or ERCOT forecasting electricity use to more than double by the end of the decade.

Speaker Change: It's clear the U.S. needs to add electric generation capacity and that natural gas will be the most reliable and affordable fuel of choice.

Mickey McKee: And that's on top of the wave of LNG export terminals expected to enter service in the coming years. The increasing gas production required to meet this demand is going to require significant incremental compression horsepower. And we continue to believe that Codiac is well positioned to be the compression infrastructure partner of choice. Our focus on customers and employees, industry-leading mechanical availability, and our market position will continue to separate us from our peers.

John Griggs: And that's on top of the wave of LNG export terminals expected to enter service in the coming year. The increase in gas production required to meet this demand is going to require significant incremental compression horsepower, and we continue to believe that Kodiak is well positioned to be the compression infrastructure partner of choice. Our focus on customers and employees, industry-leading mechanical availability, and our market position will continue to separate us from our peers. Now, I will pass the call to John Griggs to review second quarter financial highlights and our updated guidance. John?

Speaker Change: And that's on top of the wave of LNG export terminals expected to enter service in the coming years.

Speaker Change: The increase in gas production required to meet this demand is going to require significant incremental compression horsepower, and we continue to believe that Kodiak is well positioned to be the compression infrastructure partner of choice.

Speaker Change: Our focus on customers and employees, industry leading mechanical availability, and our market position will continue to separate us from our peers.

John Griggs: And now I will pass the call to John Graves to review segment quarter financial highlights and our updated guidance.

Speaker Change: And now I will pass the call to John Griggs to review second quarter financial highlights and our updated guidance. John?

John Griggs: John, thank you. Paul Echo and Nikki said, after factoring in the unique things that impacted the quarter, the underlying results were strong and the outlook to the remainder of the year is solid. I couldn't be more proud of my team in this company. Needless to say, we've had a lot going on around here for the past year and, in particular, in the last few months. It's no small feat combining two public companies and getting everyone singing from the same general. I'd be lying if I said it was easier over because it's not, but we think the hardest part's through behind us, the ride on track and the future is bright.

John Griggs: Thank you. I'll echo what Nikki said. After factoring in the unique things that impacted the quarter, the underlying results were strong, and the outlook for the remainder of the year is solid. I couldn't be more proud of my team and this company. Needless to say, we've had a lot going on around here for the past year, and in particular in the last few months. It's no small feat combining two public companies and getting everyone singing from the same hymnal. I'd be lying if I said it was easy or over, because it's not.

John Griggs: Thank you. I'll echo what Nicky said. After factoring in the unique things that impacted the quarter, the underlying results were strong, and the outlook for the remainder of the year is solid.

Speaker Change: I couldn't be more proud of my team and this company. Needless to say, we've had a lot going on around here for the past year, and in particular, in the last few months.

Speaker Change: It's no small feat combining two public companies and getting everyone singing from the same hymnal. I'd be lying if I said it was easier over, because it's not, but we think the hardest parts are behind us. We're right on track and the future is bright.

John Griggs: But we think the hardest parts are behind us, so keep going, and the future's bright. Before I dive into our quarterly results, I'd like to touch a bit more on our integration success. We initially identified and communicated more than $20 million of annual costs. Now that we're a few months in, as Nikki mentioned, we're upping that figure to $30 million. Probably the simplest way to explain the math is this.

John Griggs: Before I dive into our quarterly results, I'd like to touch a bit more on our integration success. We initially identified and communicated more than 20 million of annual cost synergies. Now that we're few months in, which Nikki mentioned, we're offering that figure to 30 million. Probably the simplest way to explain the math is this. During calendar 24, we expect to realize about 20 million in net cost synergies. But remember, that only includes three quarters of combined results. So the implication is that the majority of the ultimate cost synergies we expect to garner from the deal have already been realized, and we think we capture the rest in 2025.

Speaker Change: Before I dive into our quarterly results, I'd like to touch a bit more on our integration success.

Speaker Change: We initially identified and communicated more than $20 million of annual cost synergies.

Speaker Change: Now that we're a few months in, as Mickey mentioned, we're upping that figure to $30 million.

John Griggs: During calendar 24, we expect to realize about $20 million in net cost centers. But remember, that only includes three-quarters of combined results. So the implication is that the majority of the ultimate cost synergies we expect to garner from the deal have already been realized, and we think we can capture the rest in 2025. Now I'll highlight a few aspects of our second quarter results. Given that the acquisition closed on April 1st, year-over-year comparisons are not all that insightful, so I'm going to avoid doing them.

Speaker Change: Probably the simplest way to explain the math is this.

Speaker Change: During calendar 24, we expect to realize about $20 million in net cost synergies.

Mickey McKee: But remember, that only includes three quarters of combined results. So the implication is that the majority of the ultimate cost synergies we expect to garner from the deal have already been realized, and we think we capture the rest in 2025.

John Griggs: Now I'll highlight a few aspects of our second quarter results. Given that the acquisition closed on April 1st, year-over-year comparisons in many cases are not all that insightful, so I'm going to avoid doing that. Total revenues for the quarter were 310 million, with the step change increase from last year largely driven by the CSI acquisition, but also for more organic growth in the fleet and continued rate increases of recontracting activities. Adjusted EBITDA was 154 million, and it came in at a 50 percent margin. Included in that figure are 3.3 million in contract services cost of operations charges, spanning several years on potential sales and use taxes related to parts consumption for home compressors.

Mickey McKee: Now I'll highlight a few aspects of our second quarter results.

Speaker Change: Given that the acquisition closed on April 1st, year-over-year comparisons in many cases are not all that encycled, so I'm going to avoid doing that.

John Griggs: Total revenues for the quarter were $310 million, with the step-change increase from last year largely driven by the CSI acquisition, but also from organic growth in the fleet and continued rate increases from recontracting activities. Adjusted EBITDA was $154 million, and it came in at a 50% margin.

Speaker Change: Total revenues for the quarter were $310 million, with the step change increase from last year largely driven by the CSI acquisition, but also from organic growth in the fleet and continued rate increases from recontracting activities.

Speaker Change: Adjusted EBITDA was $154 million and it came in at a 50% margin.

John Griggs: Included in that figure are $3.3 million in contract services cost of operations charges spanning several years on potential sales and use taxes related to parts consumption for home compressors, and about $4.5 million in AR reserve charges in SG&A stemming from a comprehensive review post-acquisition of troubled accounts. Excluding those two particular items, adjusted EBITDA for the quarter would have been almost $162 million, a figure in margin that is more in line with where we see things as we move forward. Looking at our segments, as Mickey discussed, we have changed our two reporting segments. In contract services, revenues for the quarter were $276 million, with an adjusted gross margin percentage of 64%.

Speaker Change: Included in that figure are 3.3 million in contract services cost of operations charges spanning several years on potential sales and use taxes related to parts consumption for home compressors.

John Griggs: And about 4.5 million in AR reserve charges in SGNA, standing from a comprehensive review post-acquisition to travel accounts. Excluding those two particular items, adjusted EBITDA for the quarter would have been almost 162 million, a figure in margin that are more in line before we see things as we move forward.

Speaker Change: and about $4.5 million in AR reserve charges in SG&A stemming from a comprehensive review post-acquisition of troubled accounts.

Speaker Change: excluding those two particular items, adjusted EBITDA for the quarter would have been almost 162 million, a figure in margin that are more in line with where we see things as we move forward.

John Griggs: Looking at our segments, as Mickey discussed, we have changed our two reporting segments. In contract services, revenues for the quarter were 276 million, with an adjusted growth margin percentage of 64 percent. As Mickey mentioned, the market remains tight for large horsepower compression, and we expect to see margin expansion in that part of our business as we roll forward through a combination of price improvement and cost management. In our other services segment, revenues were 33 million in Q2, with an adjusted growth margin of 16 percent. Most of the revenues in this segment come from Codiac's legacy station construction business, and CSI's aftermarket field and shop services can purchase sales.

Speaker Change: Looking at our segments, as Mickey discussed, we have changed our two reporting segments.

Mickey McKee: In contract services, revenues for the quarter were $276 million, with an adjusted gross margin percentage of 64%.

John Griggs: As Nicky mentioned, the market remains tight for large horsepower compression, and we expect to see margin expansion in that part of our business as we roll forward through a combination of price improvement and cost management. In our other services segment, revenues were $33 million in Q2 with an adjusted gross margin of 16%. Most of the revenues in this segment come from Kodiak's legacy station construction business and CSI's aftermarket field and shop services and porch sales.

Speaker Change: As Mickey mentioned, the market remains tight for large horsepower compression, and we expect to see margin expansion in that part of our business as we roll forward through a combination of price improvement and cost management.

Speaker Change: In our other services segment, revenues were $33 million in Q2, with an adjusted gross margin of 16%.

Operator: Greetings and welcome to the Kodiak Gas Services second quarter, 2020 and 24 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.

Speaker Change: Most of the revenues in this segment come from Kodiak's legacy station construction business and CSI's aftermarket field and shop services and porch sales.

John Griggs: Revenues from the other services segment will continue to have some variability from quarter to quarter, but this business allows us to better serve our customers, requires minimal capital, and generates incremental cash flow. In terms of CapEx for the second quarter, maintenance capital expenditures came in at $19 million.

John Griggs: Revenues from the other services segment will continue to have some variability in quarter to quarter, but this business allows us to better serve our customers, requires minimal capital, and generates incremental cash flow.

Speaker Change: Revenues from the other services segment will continue to have some variability from quarter to quarter, but this business allows us to better serve our customers, requires minimal capital, and generates incremental cash flow.

Operator: If anyone should require operator systems during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

John Griggs: In terms of cap-backs for the second quarter, maintenance capital expenditures came in at 19 million. Our maintenance spend is a function of the hours and age of our equipment, and will vary by year depending upon when units were added to the fleet. But we view the quarter as being generally representative of the run rate for the next several quarters. Net growth cap-backs was 90 million for the quarter, but that includes a couple of unique items and is not representative of the run rate going forward. First, it's roughly 20 million in non-cash recruiters with potential sales and use taxes and compressor equipment that was placed into service in Texas over the past several years.

Graham Sones: It is on my pleasure to introduce your host, Graham Sones, Vice President and Vessel Relations. Thank you. You may begin.

Speaker Change: In terms of CapEx for the second quarter, maintenance capital expenditures came in at $19 million.

John Griggs: Our maintenance spend is a function of the hours and age of our equipment and will vary by year depending upon when units were added to the fleet, but we view the quarter as being generally representative of the run rate for the next several quarters. Net growth capex was $90 million for the quarter, but that includes a couple of unique items and is not representative of the run rate going forward. The first is roughly $20 million in non-cash accruals for potential sales and use taxes on compressor equipment that has been placed into service in Texas over the past several years.

Speaker Change: Our maintenance spend is a function of the hours and age of our equipment, and will vary by year depending upon when units were added to the fleet.

Graham Sones: Good morning. We appreciate you joining us for the Kodiak Gas Services Conference call on Webcast for review second quarter, 2024 results.

Speaker Change: But we view the quarter as being generally representative of the run rate for the next several quarters.

Graham Sones: Participating 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 second quarter financial results, and our updated 2024 outlook before opening the call for Q&A.

Speaker Change: Net Growth FX was $90 million for the quarter.

Speaker Change: But that includes a couple of unique items and is not representative of the run rate going forward. First is roughly $20 million in non-cash accruals for potential sales and use taxes on compressor equipment that was placed into service in Texas over the past several years.

Graham Sones: There will be a replay of today's call available via Webcast and also by phone until August 27, 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 speaks only as of today, August 13, 2024, and therefore you advise that such information may no longer be accurate as of the time of any replay listening or transcript reading.

John Griggs: Second, is a portion of the transaction-related cap-backs that we called out last quarter that represents a variety of CSI equipment, emission system upgrades, and safety-related items that we need to make to get the fleet up to Codiac's standards. For the second half of the year, regarding to between 110 and 130 million in growth debt-backs, which includes new units, the aforementioned upgrades and safety-related spend, non-unit-related spend, and some real estate optimization activity. as part of this growth gap X, we expect to take ownership of an incremental approximately 70,000 horsepower before you're in.

John Griggs: Second, is a portion of the transaction-related CapEx that we called out last quarter that represents a variety of CSI equipment and mission system upgrades and safety-related items that we need to make to get the fleet up to Kodiak standards. For the second half of the year, we're guiding to between $110 and $130 million in growth debt, which includes new units, the aforementioned upgrades and safety-related spend, non-unit-related spend, and some real estate optimization activity.

Speaker Change: Second is a portion of the transaction-related CapEx that we called out last quarter that represents a variety of CSI equipment and mission system upgrades and safety related items that we need to make to get the fleet up to Kodiak standards.

Speaker Change: For the second half of the year, we're guiding to between $110 million and $130 million in growth FX, which includes new units, the aforementioned upgrades and safety-related spend, non-unit-related spend and some real estate optimization activity.

Graham Sones: 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 reference in these forward-looking statements were reasonable, various risks and certainties 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.

John Griggs: As part of this growth capex, we expect to take ownership of an incremental 70,000 horsepower before year-end. Moving to the balance sheet, as of June 30th, we had debt of $2.5 billion, consisting of the $750 million in 2029 senior unsecured notes we issued in February and borrowings under our ABL facility.

Speaker Change: As part of this growth capex, we expect to take ownership of an incremental approximately 70,000 horsepower before year-end.

John Griggs: Moving to the balance sheet, as of June 30th, we had debt two and a half billion, consisting of the 750 million in 2029 senior unstructured notes we issued in February, and barring under our ABL facility. Our credit agreement leverage ratio was 3.9 times from the end of the quarter, with approximately 411 million of availability on the revolver.

Speaker Change: Moving to the balance sheet.

Speaker Change: As of June 30th, we had debt $2.5 billion, consisting of the $750 million in 2029 senior unsecured notes we issued in February and borrowings under our ABL facility.

John Griggs: Our credit agreement leverage ratio was 3.9 times, and we ended the quarter with approximately $411 million of availability on the revolver. Now, let's turn to the updated 2024 outlook. For the full year, which includes 12 months of Kodiak but only nine months of CSI and Synergies, we expect revenue to range between $1.12 and $1.18 billion, and we estimate that adjusted EBITDA will range between $590 and $610 million. Let me break that down by second.

Speaker Change: Our credit agreement leverage ratio was 3.9 times, and we ended the quarter with approximately $411 million of availability on the revolver.

Graham Sones: The comments today will also include certain non-gap financial measures. Details and reconciliation to the most comparable gap measures are included in yesterday's earnings release, which can be found on our website. Additionally, during the call, we may reference our earnings presentation that was posted this morning on our website.

John Griggs: Let's turn to the updated 2024 outlook for the four-year, which includes 12 months of Kodiak, only nine months of CSI, and synergies. We expect revenue will range between 1.12 and 1.18 billion, and we estimate that adjusted EBITDA will range between 590 and 610 million. Let me break that down by segment. In our contract services segment, we are forecasting full-year revenue of 1 to 1.04 billion, with segment-adjusted growth margins between 64 and 66 percent. Given the constructed market dynamics, our focus on increasing utilization, expense management, and our progress on synergies were confident in our segment outlook, and our ability to increase long-term high-quality cash levels.

Speaker Change: Let's turn to the updated 2024 outlook.

Speaker Change: For the full year, which includes 12 months of Kodiak, but only 9 months of CSI and Synergies, we expect revenue will range between $1.12 and $1.18 billion.

Mickey McKee: And now I'd like to turn the call over to Kodiak CEO, Mr. Mickey McKee. Mickey? Thanks, Graham. And thank you all for joining us today. I want to begin first by talking about safety. As we always discuss at Kodiak, our first and most significant priority is the health and safety of our employees and making sure that every employee goes home safe and sound to their families every night. The focus of each and every Kodiak employee on this topic truly embodies the philosophy that we have adopted at Kodiak.

Speaker Change: And we estimate that adjusted EBITDA will range between $590 and $610 million.

John Griggs: In our contract services segment, we are forecasting full-year revenue of $1 to $1.04 billion with segment-adjusted gross margins between 64 and 66 percent. Given the constructive market dynamics, our focus on increasing utilization, expense management, and our progress on synergies, we're confident in our segment outlook and our ability to increase long-term, high-quality cash flow. In our Other Services segment, we are forecasting four-year revenue of $120 to $140 million, and in Segment Adjusted Gross Margins between 14 and 17 percent.

Speaker Change: Let me break that down by segment.

Speaker Change: In our contract services segment, we are forecasting full-year revenue of $1 to $1.04 billion with segment-adjusted gross margins between 64 and 66 percent.

Speaker Change: Given the constructive market dynamics, our focus on increasing utilization, expense management, and our progress on synergies, we're confident in our segment outlook and our ability to increase long-term, high-quality cash flows.

Mickey McKee: Safety first all the time. We recently passed our one-year anniversary as a public company. And I want to take a minute to thank our over 1,400 employees whose relentless focus on safety, customer service, and drive to improve margins has helped make Kodiak the industry leader in the contact compression space.

John Griggs: In our other services segment, we are forecasting full-year revenue of 120 to 140 million in segment-adjusted growth margins between 14 and 17 percent. Turning to CAPEX, we expect full-year maintenance CAPEX to come in between 60 million and 70 million. A bit higher than our prior guidance, now that we've owned the CSI assets for a few months. In terms of growth CAPEX, we're forecasting between 210 and 230 million for the full year, excluding the roughly 50 million related to the sales tax accrual in transaction-related CAPEX I discussed previously. We're presenting it this way to give a sense for a more normalized level of growth capital spending for the combined company without items that we don't expect to repeat in the future.

Speaker Change: In our other services segment, we are forecasting full-year revenue of $120 to $140 million. In segment, adjusted gross margins between 14 and 17 percent.

John Griggs: Early Decapit, We expect full-year maintenance capex to come in between $60 million and $70 million, a bit higher than our prior guidance now that we've owned the CSI assets for a few months. In terms of growth capex, we're forecasting between $210 and $230 million for the full year, excluding the roughly $50 million related to the sales tax accrual and transaction-related capex I discussed previously. We're presenting it this way to give a sense of a more normalized level of growth capital spending for the combined company without items that we don't expect to repeat in the future. To wrap things up, as you know, our board approved an 8% increase in our quarterly dividend. 41 cents per share, which will be paid this Friday, August 16th.

Speaker Change: Turning to CapEx. We expect full-year maintenance CapEx to come in between $60 million and $70 million.

Mickey McKee: I want to take a minute to talk about what this company has accomplished over that time period since doing public. We organically increased our contract compression fleet by over 150,000 horsepower while living within cash flow. We've completed the highly accrued acquisition of CSI, making Teddy Act the largest contract compression provider in the US. We strengthened our balance sheet, driving leverage down to 3.9 times, well on our way to our goal of three and a half times by the end of 2025.

Speaker Change: A bit higher than our prior guidance, now that we've owned the CSI assets for a few months.

Speaker Change: In terms of growth capex, we're forecasting between $210 and $230 million for the full year, excluding the roughly $50 million related to the sales tax accrual and transaction-related capex I discussed previously.

Speaker Change: We're presenting it this way to give a sense for a more normalized level of growth capital spending for the combined company without items that we don't expect to repeat in the future.

John Griggs: To wrap things up, as you know, our board approved an eight percent increase in our quarterly dividend, 41 cents per share, which will be paid this Friday, August 16th. This equates to an annualized dividend of $1.64 per share per yield of 5.7 percent based on Friday's closing stock price.

Speaker Change: To wrap things up, as you know, our board approved an 8% increase in our quarterly dividend.

Mickey McKee: And we have returned capital to our shareholders through a wealth-covered and compelling dividend. We think this balance between disciplined growth and shareholder return is being rewarded in the market. An investment in Kodi Act at our IPO has generated a 91% total return through last Thursday, significantly outperforming the broader market. And we're not done.

Speaker Change: Forty-one cents per share, which will be paid this Friday, August the 16th. This equates to an annualized dividend of $1.64 per share, or a yield of 5.7% based on Friday's closing stock price.

John Griggs: This equates to an annualized dividend of $1.64 per share or a yield of 5.7% based on Friday's closing stock price. That's it for my prepared comments. Thank you for your participation and support. I'll hand it back to Mickey.

John Griggs: That's it from my prepared comments. Thank you for your participation and support.

Mickey McKee: I'll hand it back to Mickey. Thanks, John.

Speaker Change: That's it for my prepared comments. Thank you for your participation and support. I'll hand it back to Mickey.

Mickey McKee: To wrap up, I'm very proud of what this company has accomplished in the years since going public. I want to thank the extraordinary women and men of Kodiak Gas Services for their hard work on integration while staying focused and delivering great results. Each team member's dedication to safety and our customers is what makes Kodiak special.

Mickey McKee: To wrap up, I'm very proud of what this company has accomplished in the years since going public. I want to thank the extraordinary women and men of Todeat Gas Services for their hard work on integration while staying focused and delivering great results. Each team member's dedication to safety and our customers are what makes Todeat special, and we would not be an industry leader without this commitment to excellence. I'm happy we're in a position to further reward our shareholders for their investment in Todeat by increasing our dividend. We have great momentum as we head into the second half of the year.

John Griggs: Thanks, John.

Mickey McKee: Given the strong operating environment and highly accrued acquisition, we have pleased to announce that our board recently approved an 8% increase to our quarterly dividends to 41 cents per share. And we'll continue to invest to grow our compression fleet given the strong demand and attractive returns we see in the market. The closing of the acquisition gave us a chance to evaluate the combined fleet for opportunities to make safety and emissions upgrades, identify non-core assets, and further high grade our customer base.

Mickey McKee: To wrap up, I'm very proud of what this company has accomplished in the years since going public.

Speaker Change: I want to thank the extraordinary women and men of Kodiak Gas Services for their hard work on integration while staying focused and delivering great results.

Speaker Change: Each team member's dedication to safety and our customers are what makes Kodiak special, and we would not be an industry leader without this commitment to excellence.

Operator: And we would not be an industry leader without this commitment to excellence. I'm happy we're in a position to further reward our shareholders for their investment in Kodiak by increasing our dividend. We have great momentum as we head into the second half of the year. At this point, we will open up the line for questions. Operator? And at this time, we'll conduct our question. If you would like to ask a question, please press star 1; a confirmation tone will indicate that you're live.

Speaker Change: I'm happy we're in a position to further reward our shareholders for their investment in Kodiak by increasing our dividend.

Operator: At this point, we will open up the lines of questions.

Speaker Change: We have great momentum as we head into the second half of the year.

Mickey McKee: We currently have multiple initiatives in place to begin redeploying or disposing of idle assets that we acquired with CSI. However, that takes some time to execute. Our utilization currently sits at 94%. However, the core large horsepower group of assets that was the focus of the legacy Kodi Act fleet and the target of the CSI acquisition remains effectively full utilization. In excess of 98%. In fact, the entire industry utilization in this large horsepower group remains at historically elevated levels continuing to contribute to the tightness in the market.

Operator: You may press star 2 if you would like to remove your question from the queue, but it is necessary to pick up your handset. Please stand by for a moment, please, while we draw down. And our first question... John Mackay with Goldman Sachs. Hey, guys. Good morning.

Operator: Operators? Thank you.

Speaker Change: At this point, we will open up the line for questions. Operator?

Operator: And at this time, we'll conduct our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that 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 to pick up your handset before pressing the star keys.

Speaker Change: Thank you. And at this time we'll conduct our 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 that your line is in the question queue.

Speaker Change: 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. One moment, please, while we pull for questions.

Operator: One moment, please, while we pull for questions.

Speaker Change: [inaudible]

John Mackay: And our first question comes from John McKay with Goldman Sachs. Please state your question. Hey guys, good morning. Thanks for the time. I wanted to start a little bit on the forward outlook for the business. Understand you're not giving 25 guidance here. I would love to hear your thoughts on maybe a medium-term outlook for EBITDA growth going forward. And then, very specifically, it's part of that. We haven't talked about potential revenue synergies from the CSI deal, so maybe we could frame that as part of that growth outlook.

Speaker Change: And our first question comes from John McKay with Goldman Sachs. Please state your question.

Mickey McKee: Going forward, we plan to opportunistically refurbish and upgrade idle assets and look to redeploy them. We also plan to constantly evaluate the fleet for opportunities to high grade our operations, consistent with our core operating philosophy and strategic direction.

John Mackay: Thanks for your time. I wanted to start a little bit on the forward outlook for the business. I understand you're not giving 25 guidance here. Yeah, we'd love to hear your thoughts on maybe a medium-term outlook for EBITDA growth going forward. And then, very specifically as part of that, we haven't talked about potential revenue synergies from the CSI deal. So maybe we could frame that as part of that growth outlook. Yeah, hey John, this is Mickey.

John McKay: Hey guys, good morning. Thanks for the time

John McKay: I wanted to start a little bit on the forward outlook for the business. I understand you're not giving 25 guidance here.

Speaker Change: Yeah, we'd love to hear your thoughts on maybe like a medium-term outlook for EBITDA growth.

Mickey McKee: As noted in our press release, we recently entered into an agreement to sell a significant portion of our small horsepower units in the US and Canada. These units represent only about 1% of our revenue generating horsepower that significantly reduces our unit count and simplifies our operations both domestically and internationally. Investing in these assets is also consistent with our focus on US large horsepower compression.

Speaker Change: Going forward and then very specifically as part of that, you know, we haven't talked about potential revenue synergies from the CSI deal So maybe we could frame that as part of that growth outlook

Mickey McKee: Yeah, I hate John McKay. Thanks for listening this morning. I think the forward outlook is really positive. I think the way we framed it up for EBITDA growth in the year is minus the one-time transactional type of EBITDA adjustments for the year. If you look at that kind of where we think we'll be on a run rate perspective of $162 million in a quarter of EBITDA, it is pretty representative of where I think we'll be going forward. And then you can kind of layer on that what our standard growth has been over and above throughout the years on a pretty standard amount of growth gap.

Mickey McKee: Thanks for listening this morning. Look, I mean, I think that the forward outlook is really positive. I think that, you know, the way we kind of framed it up for EBITDA growth for the year is, you know, minus the one-time kind of transactional type of EBITDA adjustments for the year. If you look at that kind of where we think we'll be on a run rate perspective of $162 million in a quarter, EBITDA is pretty representative of where I think we'll be going forward.

Mickey McKee: Yeah, hey John, this is Mickey. Thanks for listening this morning.

Speaker Change: I think the forward outlook is really positive.

Speaker Change: The way we kind of framed it up for EBITDA growth in the...

Speaker Change: for the years, you know, minus the one-time

Mickey McKee: Next, I would like to discuss the integration process. We've been operating with one company for four months now. And what's clear is that we will greatly exceed our initial cost synergy.

Speaker Change: kind of transactional type of

Mickey McKee: We now expect our combined cost synergies to be north of $30 million versus our initial $20 million forecast. Based on these synergies and the underlying strength in the contract compression market, we are raising the low end of our full year adjusted EBITDAG guidance and now guiding to a range of $590 to $610 million for the full year 2024.

Speaker Change: EBITDA adjustments for the year if you look at that kind of where we think we'll be on a on a run rate perspective of 162 million in a quarter of EBITDA is pretty representative of where I think we'll be going forward.

Mickey McKee: And then you can kind of layer on top of that what our kind of standard growth has been over and above, you know, throughout the years on a pretty standard amount of growth capex. So I think you can kind of – our business is pretty easy to predict, you know, and it's that quarterly EBITDA and annualize that out and layer on some growth from the growth capex that we're investing in the business.

Speaker Change: And then you can kind of layer on that what our kind of standard growth has been over, over and above, you know, throughout the years on a pretty standard amount of growth capex. So I think you can kind of, our business is pretty easy to predict, you know, and it's that

Mickey McKee: I think our business is pretty easy to predict. It's that core lead down and annualize that out and layer on some growth from the growth gap. We're investing in the business, and I think you've got a pretty good idea of where we think we'll be. I think that to get to the question about revenue synergies, John, I mean, that we really only have 90 days of data to evaluate right now, with only on this business for a quarter now. So we're not really ready to quantify revenue synergies and kind of give any guidance there. I will tell you that we've had some good wins early on here, but it is really kind of too early to tell and too early to give any forward looking kind of out there.

Speaker Change: quarterly data and annualize that out and layer on some growth from the growth CapEx that we're investing in the business. And I think you've got a

John Griggs: John will discuss the acquisition synergies and our revised outlook in more detail.

Mickey McKee: And I think you've got a pretty good idea of where we think we'll be. But to get to the question about the revenue synergies, John, I mean, you know, we really only have 90 days of data to evaluate right now. We've only owned this business for a quarter now, so we're not really ready to quantify revenue synergies and kind of give any guidance there. I will tell you that, you know, we've had some good wins early on here, but it is really kind of too early to tell and too early to give any forward-looking kind of outlook. Alright. I appreciate that. Maybe, um...

Mickey McKee: Now let's discuss our second quarter results. Yesterday we released second quarter 2024 financial results, including another record quarter with revenues of $310 million and adjusted EBITDAG of $154 million, as we have only just begun to realize the combined earnings power of our fleet and the synergies that I mentioned. Turning to our reporting segments, as detailed in our second quarter earnings presentation, we now classify our revenue streams into two buckets, contract services and other services.

Speaker Change: a pretty good idea of where we think we'll be.

Speaker Change: I think that to get to the to the question about the revenue synergies, John, I mean, you know, we really only have 90 days of data to evaluate right now. We've only owned this business for a quarter now.

Speaker Change: So, we're not really ready to quantify revenue synergies and kind of give any guidance there. I will tell you that, you know, we've had some good wins early on here, but it is really kind of too early to tell and too early to give any forward-looking kind of outlook there.

John Mackay: I want to appreciate that. Maybe switching gears a little bit just to the electrification side. You know, you guys, you know, make it your comments and prepare remarks, but we saw two of your competitors kind of talking up this a little bit. Arturoc with their deal, USAC kind of in a different direction. I just be curious on, you know, what this trend looks like from maybe a run rate cap X needs. What are you hearing from your customers in terms of how important this is to them? And high level, I mean, does this shift at all on how we're thinking about the industries overall current capital disciplines?

Mickey McKee: Switching gears a little bit just to the electrification side, you know, you guys, Mackay, your comments and the prepared remarks, what we saw, two of your competitors kind of talking up this a little bit, Archerock with their deal, USAC kind of in a different direction. I'd just be curious about, you know, what this trend looks like from maybe a run rate, CapEx needs, what you're hearing from your customers in terms of how important this is to them, and at a high level, does this shift at all in how we're thinking about the industry's overall current capital discipline? I don't think it changes capital discipline in the industry at all, John.

Speaker Change: I appreciate that.

Mickey McKee: As the main implies, contract services encompasses our contracted, recurring revenue services like contract compression, contract operations, and contract trading. These highly visible, stable, contracted cash flows make up the core of the company. The managed for contract services remains strong. During the second quarter, we added over 41,000 horsepower of new units to our fleet. All were large horsepower, averaging over 2,000 horsepower per unit, and were deployed at rates above the fleet average. And we also had tremendous success in re-contracting units that came up for renewal during the quarter. A closer to current spot rates also significantly above our current fleet average.

Speaker Change: Switching gears a little bit just to the electrification side, you know, you guys, you know, make your comments and the prepared remarks what we saw to your competitors.

Speaker Change: I'm talking up this a little bit our truck with their deal USAC kind of in a different direction

Speaker Change: I'd just be curious on, you know, what this trend looks like from maybe a run rate CapEx needs, what you're hearing from your customers in terms of how important this is to them, and

Speaker Change: high level, I mean, does this shift at all in how we're thinking about the industry's overall current capital discipline? Thanks.

Mickey McKee: Thank you. I don't think it changes the capital discipline in the industry at all, John. I think that the electrification process going forward is going to have some pockets where it makes sense and some other pockets where it doesn't make sense. You know, we're looking at, as I said in the prepared remarks, about half of our capex in 2025 is going to be spent on electric driven motor machines. Those are for projects that are highly specialized and for our existing customer base that has access to power on those locations. We can tell you that there is kind of a mixed view of electrification coming from our customer base. Some are, some are pushing forward with electrification; others are really pulling back from electrification.

Mickey McKee: I think that the electrification process going forward is going to have some pockets where it makes sense and some other pockets where it doesn't make sense. You know, we're looking at, as I said in the prepared remarks, about half of our CapEx in 2025 is going to be spent on electric-driven motor machines. Those are for projects that are highly specialized and for our existing customer base that has access to power at those locations.

Speaker Change: I don't think it changes the capital discipline in the industry at all, John. I think that the electrification process going forward is going to have some pockets where it makes sense and some other pockets where it doesn't make sense.

Mickey McKee: One thing I want to point out is through the CSI acquisition, we acquired a compression business with a historical margin in the low to mid-50s. In just 90 days, after integrating the assets, cutting costs, and returning idle equipment back to the market. For the quarter, Cody was able to deliver a combined adjusted gross margin of 64% for contract services, matching what we did as a company in the comparable quarter in 2023. This is an impressive feat. And as I stated earlier, we believed there are additional synergies to be captured and opportunities for further margin expansion.

Speaker Change: You know, we're looking at, as I said in the prepared remarks, about half of our CapEx in 2025 is going to be spent on electric-driven motor machines. Those are for projects that are...

Speaker Change: that are highly specialized and for our existing customer base that has access to power on those locations.

Mickey McKee: We can tell you that there is kind of a mixed view of electrification coming from our customer base. Some are pushing forward with electrification, while others are really pulling back from it. I think that when you look at some of the other things in the industry that are going on... We're going to continue to focus on large horsepower equipment, and large horsepower electric motor-driven equipment is a very different animal than small horsepower electric motor-driven equipment because there's a very different power demand that comes from those.

Speaker Change: We can tell you that there is kind of a mixed view of electrification coming from our customer base. Some are pushing forward with electrification, others are really pulling back from electrification.

Mickey McKee: I think that when you look at some of the other things in the industry that are going on, we're going to continue to focus on large horsepower equipment and large horsepower electric motor driven equipment. There's a very different animal than small horsepower type of electric motor-driven type of type of equipment because there's a very different power demand that comes from us. So, like I said, we're focused on what we're doing and what we're looking at going forward, and we're going to be participating in the electric motor driven type of ground. We want to be really good at it.

Speaker Change: I think that when you look at some of the other things in the industry that are going on,

Mickey McKee: Switching to our other services segment, this segment primarily consists of our station construction and aftermarket sales business that are less predictable, but helps support our customers, require minimal capital investment, and generates significant three cash flow that we can invest back into our core compression business. We're excited about our newly expanded service offerings, allowing us to provide additional services to our high quality customer base. Looking into 2025, we have effectively already contracted our entire capex spend for next year, as customers have aggressively signed contracts for new horse power growth and are now looking towards 2026.

Speaker Change: We're going to continue to focus on large horsepower equipment and large horsepower electric motor driven equipment is a very different animal than small horsepower type of electric motor driven type of equipment because there's a very different power demand that comes from those.

Mickey McKee: Like I said, we're focused on what we're doing and what we're looking at going forward, and we're going to be, participating in the electric motor-driven type of realm. We want to be really good at it. We're going to be focused on it, and we think that's part of the future, but we don't think it's going to dominate and be the whole. All right, that's clear. Thanks for your time today.

Speaker Change: Like I said, we're focused on what we're doing and what we're looking at going forward, and we're going to be

Mickey McKee: We're going to be focused on it, and we think it's part of the future, but are we going to think it's going to dominate the whole future?

Speaker Change: participating in the electric motor driven type of realm. We want to be really good at it. We're going to be focused on it and we think that's part of the future but we don't think it's going to dominate and be the whole future.

John Mackay: Alright, that's clear. Thanks for time today. Thanks, John.

John Mackay: Thanks, John. Our next question comes from Jim Rollison. Hey, good morning, Mickey and John. Hey, Jim.

Speaker Change: [inaudible]

Speaker Change: All right, that's clear. Thanks for your time today.

Mickey McKee: Project. Approximately half of our 2025 horsepower additions will be electric motor driven, large horsepower units, and we are also selectively converting units to electric to meet customer demand. While we are increasing our electric motor driven fleet, I should remind you that given great constraints in the Permian Basin, electric compression for large horsepower application is not always a feasible solution. But we're investing now to ensure that we're well positioned to meet our customers needs for gas engine or electric motor driven compression in the future without losing focus on our core strategy.

James Rollyson: Our next question comes from Jim Rollison with Raymond James. Please see your question. Hey, more to Mickey and John. Again, Mickey, maybe you could just, you got the first batch of some of the smaller horsepower stuff that you were looking to sell, kind of in process. And then obviously that's going to be ongoing for a period of time, but maybe just a reminder at the end of the day as you kind of look at the fleet you acquired and the horsepower that kind of is maybe non-core.

John: Thanks, John.

Speaker Change: Our next question comes from

Speaker Change: Jim Rolison with Raymond James, please state your question.

Jim Rolison: Hey, morning, Mickey and John.

James Rollyson: Mickey, maybe you could just, you got the first batch of some of the smaller horsepower stuff that you were looking to sell kind of in the process. And then obviously, that's going to be ongoing for a period of time, but maybe just a reminder at the end of the day, as you kind of look at the fleet you acquired and the horsepower that is maybe non-core, a reminder of how much capacity you think, ultimately, over the next handful of quarters you're likely to sell. What do you think the range of kind of proceeds of that would be? And even maybe what you do with the proceeds?

Speaker Change: Thank you.

Speaker Change: McKee maybe you could just you got the first batch of some of the smaller horsepower stuff that you you were looking to sell kind of in process

Speaker Change: and then obviously that's going to be ongoing for a period of time but maybe just a reminder

Speaker Change: At the end of the day, as you kind of look at the fleet you acquired and the horsepower that kind of is maybe non-core.

Mickey McKee: A reminder of how much capacity you think ultimately over the next handful of quarters you are likely to sell and what you think the range of kind of proceeds with that would be and even maybe what you do with the proceeds. Yeah, I think like it's going to be, it's going to be pretty hit miss there. I think like this first batch that we've got that that we're selling is going to be kind of give you a little bit of frame framework to think about is, you know, it's going to be probably 15 to between 15 and 20 million dollars of annual revenue at, you know, sub.

Speaker Change: reminder of how much capacity you think ultimately over the next handful of quarters you you're likely to sell and and what you think the range of kind of proceeds of that would be and and even maybe what you do with the proceeds

Mickey McKee: In summary, we are pleased with our second quarter results in a busy quarter that included closing the CSI acquisition. The wrong track to significantly exceed our original synergy goal. Our commercial team has been actively repositioning our fleet while evaluating opportunities to hydrate our fleet and service offerings. We increased our dividends and our revised guidance indicates that we see continued momentum into the second half of 2024 and beyond. Whether it's capacity prices increasing ninefold in VJM or ERCOT, forecasting electricity used to more than double by the end of the decade.

Mickey McKee: Yeah, I think it's going to be pretty hit and miss there. I think like this first batch that we've got that we're selling is going to kind of give you a little bit of a framework to think about is, you know, it's going to be probably 15 to between 15 and $20 million of annual revenue at, you know, sub. It's something, some kind of a margin that's less than what our fleet, the large horsepower fleet type of a margin is contributing.

Speaker Change: Yeah I think like it's going to be it's going to be pretty hit-and-miss there I think like this first fax that we've got that we're selling is going to be kind of give you a little bit of frame framework to think about is

Speaker Change: You know it's going to be probably 15 to between 15 and 20 million dollars of annual revenue at you know sub

Mickey McKee: You know, it's something some kind of a margin that's less than what our fleet, the large horsepower fleet type of margin, is contributing. And so, you know, I think that you look in at a multiple less than what we trade at that we get for that equipment and, you know, so you're not talking about, you know, big dollars; you're talking about, you know, 15 million dollars of revenue on a company that we're guiding to be north of a billion dollars of revenue already. And that's the numbers are already baked into those that those guys' numbers.

Speaker Change: It's some kind of a margin that's less than what our fleet, the large horsepower fleet, type of a margin is contributing.

Mickey McKee: And so, you know, I think that you're looking at a multiple less than what we trade at that we'd get for that equipment and, you know, so you're not talking about, you know, big money. You're talking about, you know, $15 million of revenue on a company that we're guiding to be north of a billion dollars in revenue already, and the numbers are already baked into those guidance numbers, so that's So again, I think that overall, in the fleet from a horsepower perspective, we're probably looking at, you know, 150 to 200,000 horsepower worth of total horsepower that we look to kind of divest ourselves of that are non-core to what we're trying to do, which is domestic, US large horsepower, oily basin type of liquids, rich basin type of equipment that we can create densification and drive higher margins and have really sticky long life Yep, it makes sense. It fits with what you said before. I was just trying to get a magnitude, so that helps.

Speaker Change: And so, you know, I think that you're looking at a multiple less than what we trade at that we'd get for that equipment.

Mickey McKee: It's clear the US needs to add electric generation capacity and that natural gas will be the most reliable and affordable fuel of choice. And that's on top of the wave of LNG export terminals expected to enter service in the coming years. The increasing gas production required to meet this demand is going to require significant incremental compression horsepower. And we continue to believe that Codiac is well positioned to be the compression infrastructure partner of choice. Our focus on customers and employees, industry leading mechanical availability and our market position will continue to separate us from our peers.

Speaker Change: You know, so you're not talking about...

Speaker Change: You know, big dollars. You're talking about, you know, $15 million of revenue on a company that we're guiding.

Speaker Change: to be north of a billion dollars of revenue already and the numbers are already baked into those guidance numbers.

Mickey McKee: So that's we already expect that. So again, I think that that overall and the fleet from a horsepower perspective will probably look in that, you know, 150 to 200,000 horsepower worth of total horsepower that we look to kind of divest ourselves up that are noncord of what we're trying to do, which is domestic US large horsepower. So that's our oily base and type of liquid drift base and type of equipment that we can create instigation and drive higher margins and have really sticky long life type of cash flows for our investors. Yeah, it makes sense.

Speaker Change: that's we already expect that so again I think that overall in the fleet from a horsepower perspective we're probably looking at you know 150 and 200,000 horsepower worth of total horsepower that we look to

Speaker Change: to kind of divest ourselves of that are non-core to what we're trying to do, which is domestic, U.S.

Speaker Change: large horsepower, oily basin type of liquids rich basin type of equipment that we can create densification and drive higher margins and have really sticky long life type of cash flows for our investors.

John Griggs: And now I will pass the call to John Graves to review segment quarter financial highlights and our updated guidance. John, thank you. Paul Echo and Nikki said, after factoring in the unique things that impacted the quarter, the underlying results were strong and the outlook to the remainder of the year is solid.

James Rollyson: It's what you said before. I was just trying to get a magnitude to that helps. And Mickey, you guys have done some interesting math in your presentation, you know, kind of on the incremental compression horsepower needs relative to the growth outlook for gas volumes. And we can now that between you, USA, and Archerock, and even consolidating Archerock, we can obviously track what a large share of the outsourced side of that equation is doing. In terms of orders and how we're keeping up with that demand. Do you have any view or any color from your, you know, customer owned orders and how those have been tracking just curious, you know, relative to this kind of mid 50 million horsepower fleet that we've got today.

James Rollyson: And Mickey, you guys have done some interesting math in your presentation, you know, kind of on the incremental compression horsepower needs relative to the growth outlook for gas volume. And we can now see that between new USA and Arch Rock and even consolidating Arch Rock, we can obviously track what a large share of the outsource side of that equation is doing in terms of orders, and how we're keeping up with that demand. Do you have any view or any color from your customer-owned orders and how those have been tracking?

Speaker Change: Yep, makes sense. Fits with what you said before. I was just trying to get a magnitude, so that helps.

John Griggs: I couldn't be more proud of my team in this company. Needless to say we've had a lot going on around here for the past year and in particular in the last few months. It's no small feat combining two public companies and getting everyone singing from the same general. I'd be lying if I said it was easier over because it's not, but we think the hardest part through behind us, the ride on track and the future is bright.

Speaker Change: And Mickey, you guys have done some interesting math in your presentation, you know, kind of on the incremental compression horsepower needs relative to the growth outlook for gas volumes.

Speaker Change: And we can, now that, between new USA and ArchRock, and even consolidating ArchRock, we can obviously track what...

Speaker Change: a large share of the outsourced side of that equation is doing in terms of orders and...

John Griggs: Before I dive into our quarterly results, I'd like to touch a bit more in our integration success. We initially identified and communicated more than 20 million of annual cost synergies. Now that we're few months in, which Nikki mentioned, we're offering that figure to 30 million. Probably the simplest way to explain the math is this. During calendar 24, we expect to realize about 20 million in net cost synergies. But remember, that only includes three quarters of combined results. So the implication is that the majority of the ultimate cost synergies we expect to garner from the deal have already been realized and we think we capture the rest in 2025.

Speaker Change: how we're keeping up with that demand. Do you have any view or any color from your customer-owned orders and how those have been tracking? Just curious.

James Rollyson: Just curious, relative to this kind of mid-50 million horsepower fleet that we've got today, we can kind of track what the outsource side is, but I'm just curious if you have any view or color on whether your customer orders are keeping up from a pace perspective to match where that demand seems to be headed? Yeah, I think that I think it is, Jim. But we don't have any real data.

Mickey McKee: We can kind of track what the outsourced side is, but I'm just curious if you have any view or color on it. Are your customer orders keeping up from a pace perspective to match where that demand seems to be headed. Yeah, I think that I think it is Jim. I mean, we don't have any real data, but if you ask me what my aunt is, I think that we're, as an industry, losing market share to the in-sourced market today. And that's driven by the capital discipline in our industry. And we're sitting here today saying, hey, we're only going to spend the next amount of dollars a year on our growth gap.

Speaker Change: You know, relative to this kind of mid-50 million horsepower fleet that we've got today, we can kind of track what the outsource side is, but I'm just curious if you have any view or color on, are your customer orders keeping up from a pace perspective to match where that demand seems to be headed?

Mickey McKee: But if you ask me what my answer is, I think that we're as an industry losing market share to the internet search market today. And that's driven by the debt capital discipline in our industry. And we're sitting here today saying, hey, we're only going to spend X amount of dollars a year on our growth capex. We have well in excess of that in opportunities to grow, but we're not going to deploy that capital and outspend our cash flows in that kind of meaningful way.

Speaker Change: Yeah, I think it is, Jim. I mean, we don't have any real data, but if you ask me what my hunch is, I think that we're, as an industry, losing market share to the in-source market today.

John Griggs: Now I'll highlight a few aspects of our second quarter results. Given that the acquisition closed on April 1st, year-over-year comparisons in many cases are not all that insightful, so I'm going to avoid doing that. Total revenues for the quarter were 310 million, with the step change increase from last year largely driven by the CSI acquisition, but also for more organic growth in the fleet and continued rate increases of recontracting activities. Adjusted EBITDA was 154 million, and it came in at a 50 percent margin.

Speaker Change: and that's driven by the DAC Capital Discipline in our industry. And we're sitting here today saying, hey, we're only going to spend X amount of dollars a year on our growth cap bets.

James Rollyson: We have well in excess of that. In opportunities to grow, but where we we're not going to deploy that capital, and that's been our cash flows in that kind of meaningful way. And I think that you're seeing that with the big public guys in this industry pretty considerably. So if you had asked me today, I'd say that us as an outsourced industry could collectively that we're losing market share to the in-sourced industry there. Got it. Appreciate the color. Yes, sir. Thanks, Jim.

Speaker Change: We have well in excess of that in opportunities to grow.

Speaker Change: But we're not going to deploy that capital and outspend our cash flows in that kind of meaningful way, and I think that you're seeing that with the

Mickey McKee: And I think that you're seeing that with the big public guys in this industry pretty considerably. So if you had to ask me today, I'd say that us as an outsourced industry, collectively, we're losing market share to the insourced industry today. Got it. Appreciate the call.

John Griggs: Included in that figure are 3.3 million in contract services cost of operations charges, spanning several years on potential sales and use taxes related to parts consumption for home compressors. And about 4.5 million in AR reserve charges in SGNA, standing from a comprehensive review post-acquisition to travel accounts. Excluding those two particular items, adjusted EBITDA for the quarter would have been almost 162 million, a figure in margin that are more in line before we see things as we move forward.

Speaker Change: Thank you.

Speaker Change: public guys in this industry pretty considerably. So if you had asked me today, I'd say that us as an outsourced industry collectively that we're losing market share to the insourced industry today.

James Rollyson: Yes, sir. Thanks, Jim. Morning, thank you for taking my questions. I'd love to dig in a little bit more on the supply and demand outlook for compression over the medium and long term. And Mickey, just how long do you think this tightness will last? Hey, good morning, Theresa. Thanks for joining us. You know, I don't I don't know.

Speaker Change: Got it. Appreciate the call.

Theresa Chen: Our next question comes from Teresa Chang with Mark Lay. Please do your question. Morning. Thank you for taking my questions. I'd like to dig in a little bit more on the supply and demand outlook for compression over the medium and long term. And Nikki, just how long do you think this tightness will persist? Hey, good morning, Teresa. Thanks for joining us. You know, I don't know. I think we've got many, many years of this type of history. So we've got, you know, you look at the demand side of the business. And LG plants coming on that supply gas has come from somewhere.

Speaker Change: Yes, sir. Thanks, Jim.

Speaker Change: Our next question comes from Theresa Chang with Barclays. Please state your question.

Theresa Chang: Good morning. Thank you for taking my questions. I'd love to dig in a little bit more on the supply and demand outlook for compression over the medium and long term. And, Nicky, just how long do you think this tightness will persist?

John Griggs: Looking at our segments, as Mickey discussed, we have changed our two reporting segments. In contract services, revenues for the quarter were 276 million, with an adjusted growth margin percentage of 64 percent. As Mickey mentioned, the market remains tight for large horsepower compression, and we expect to see margin expansion in that part of our business as we roll forward through a combination of price improvement and cost management. In our other services segment, revenues were 33 million in Q2, with an adjusted growth margin of 16 percent.

Theresa Chen: I think we've got many, many years of this type of history. So we've got, you know, you look at the demand side of the business, and LNG plants coming on, that supply of gas has to come from somewhere. You talk about AI and data center-driven demand for power. I think that people are probably underestimating the power demand profile that's coming towards us too. With all of that demand, there are some really interesting stats out there that are really eye-opening. And you get estimates for what that power demand is going to be from anywhere from 10 to, you know, 18 BCF a day.

Nicky: Hey, good morning, Teresa. Thanks for joining us.

Speaker Change: You know, I don't know. I think we've got many, many years of this technistry, so we've got, you know, you look at the demand side of the business.

Mickey McKee: You talk about AI and data center driven demand for power. I think that I think that people are probably underestimating the power demand profile that's coming towards us too with. With all of that demand, there's some really interesting stats out there that really are eye opening, and you get estimates for what that power demand is going to be from anywhere from tend to. You know, 18 BC at the day, and if even if you're on the low side of that kind of demand profile, the supply of natural gas to feed that is going to be just extraordinary.

Speaker Change: And LNG plants coming on, that supply of gas has to come from somewhere. You talk about AI and data center-driven demand for power. I think that people are probably underestimating the power demand profile that's coming towards us too.

Speaker Change: with all of that demand. There's some really interesting stats out there that really.

John Griggs: Most of the revenues in this segment come from Codiac's legacy station construction business, and CSI's aftermarket field and shop services can purchase sales. Revenues from the other services segment will continue to have some variability in quarter to quarter, but this business allows us to better serve our customers, requires minimal capital, and generates incremental cash flow. In terms of cap-backs for the second quarter, maintenance capital expenditures came in at 19 million. Our maintenance spend is a function of the hours and age of our equipment, and will vary by year depending upon when units were added to the fleet.

Speaker Change: are eye-opening, and you get estimates for what that power demand is going to be from anywhere from 10 to...

Mickey McKee: And even if you're on the low side of that kind of demand profile, the supply of natural gas to feed that is going to be just extraordinary. And so we've been saying it for a year, even before the AI and data center type of conversation has kind of become a buzzword in the industry. And I'm not an expert enough to be able to predict power demand, but at the same time, what I do know is it's going to require a lot of natural gas and more natural gas than what the U.S. is producing today. And that requires compression.

Speaker Change: you know, 18 BCF a day, and...

Speaker Change: Even if you're on the low side of that kind of demand profile, the supply of natural gas to feed that is going to be just extraordinary.

Mickey McKee: And so we've been saying it for a year, even before the AI and data center type of conversation has kind of become a buzzword in the industry. And I'm not an expert to be able to predict power demand, but at the same time, what I do know is it's going to require a lot of natural gas and more natural gas than what the US is producing today. And that requires compression. I think at lower natural gas prices, it's a $2 range where they're at today. Does it feel like it's economical? The drill hangs well. So the majority of that natural gas in the short term is going to have to come from oily basins like the Eagle Third and the Permian Basin where we're in a great position, and it's going to create long term kind of stickiness of our revenues.

Speaker Change: and so

Speaker Change: It's we've been saying it for a year even before the the AI and data center type of conversation has kind of become a buzzword in the industry and

John Griggs: But we view the quarter as being generally representative of the run rate for the next several quarters. Net growth cap-backs was 90 million for the quarter, but that includes a couple of unique items and is not representative of the run rate going forward. First, it's roughly 20 million in non-cash recruiters with potential sales and use taxes and compressor equipment that was placed into service in Texas over the past several years. Second, is a portion of the transaction-related cap-backs that we called out last quarter that represents a variety of CSI equipment, emission system upgrades, and safety-related items that we need to make to get the fleet up to Codiac's standards.

Speaker Change: and I'm not an expert to be able to predict power demand but at the same time what I do know is it's going to require a lot of natural gas and more natural gas than what the US is producing today.

Mickey McKee: I think at lower natural gas prices, which are in the $2 range where they're at today, it doesn't feel like it's economical to drill Hainesville wells. So the majority of that natural gas, in the short term, is going to have to come from oily basins like the Eagleford and the Permian Basin, where we're in a great position, and it's going to create a long-term kind of When you talk about the supply side, you look at what's happened in our industry in the past, and this industry has made mistakes before of overbuilding equipment and having an oversupply in a time when you didn't need it. But this industry is not acting like that today.

Speaker Change: and that requires compression. I think at lower natural gas prices, in the $2 range where they're at today, doesn't feel like it's economical to drill Haynesville wells. So the majority of that natural gas in the short term is going to have to come from

Speaker Change: oily basins like the Eagleford and the Permian Basin, where we're in a great position and it's gonna.

Mickey McKee: We talked about the supply side. We looked at what's happening in our industry over years past, and industries made mistakes before of over building equipment and having an over supply in the time where you didn't need it. as the industry is not acting like that today. It's a very well-behaved industry where I mean some people have had to increase their their their tap ex guidance for the year. That's fine; that's a prerogative, but it's still not putting us into a situation as an industry where we're overbuilding. I mean that's a it's again to go back to the comments I made with Jim's question that we are we have many, many more opportunities to grow than what we're committing capex to, and I have a feeling that's consistent with our competitors as well.

Speaker Change: create long-term kind of stickiness of our revenues.

Speaker Change: When you talk about the supply side, we looked at what's happened in our industry over years past, and this industry's made mistakes before of overbuilding equipment and having an oversupply in a time where you didn't need it.

John Griggs: For the second half of the year, regarding to between 110 and 130 million in growth debt-backs, which includes new units, the aforementioned upgrades and safety-related spend, non-unit-related spend and some real estate optimization activity, as part of this growth gap X, we expect to take ownership of an incremental approximately 70,000 horsepower before you're in.

Mickey McKee: It's a very well-behaved industry where, I mean, some people have increased their CapEx guidance for the year. That's fine, that's a prerogative, but it's still not putting us in a situation as an industry where we're overbuilding. I mean, that's a, it's, again, go back to the comments I made with Jim's question, that we have many, many more opportunities to grow than what we're committing CapEx to. And I have a feeling that that's consistent with our competitors as well. And so we're in a position where we're really restricting the supply from the discipline that we're all showing collectively.

Speaker Change: This industry is not acting like that today. It's a very well-behaved industry.

Speaker Change #100: where, I mean, some people have increased their CAPEX guidance for the year. That's fine. That's a prerogative. But it's still not putting us in a situation as an industry where we're overbuilding. I mean, that's a...

John Griggs: Moving to the balance sheet, as of June 30th, we had debt two and a half billion, consisting of the 750 million in 2029 senior unstructured notes we issued in February, and barring under our ABL facility. Our credit agreement leverage ratio was 3.9 times from the end of the quarter with approximately 411 million of availability on the revolver.

Speaker Change #101: Again, I go back to the comments I made with Jim's question, that we have many, many more opportunities to grow than what we're committing CapEx to, and I have a feeling that that's

Theresa Chen: And so we're in a position to where we're really restricting the supply from the discipline that that we're all shown collectively, and I think that we're in an environment where demand is continually ramping up. I think that we're probably underestimating what future demand looks like, and I think that this dynamic is set to have a runway that could last for a decade or two. Which seems seems seem not for me to say that, but it's an amazing sort of dynamic today. Got it. Thank you for that nuanced answer. And maybe going back to your comments about the many different, you know, avenues and projection of growth.

Speaker Change #102: consistent with our competitors as well and so

John Griggs: Let's turn to the updated 2024 outlook for the four-year, which includes 12 months of Kodiak, only nine months of CSI and synergies. We expect revenue will range between 1.12 and 1.18 billion, and we estimate that adjusted EBITDA will range between 590 and 610 million. Let me break that down by segment. In our contract services segment, we are forecasting full-year revenue of 1 to 1.04 billion with segment-adjusted growth margins between 64 and 66 percent.

Speaker Change #103: We're in a position where we're really restricting the supply from the discipline that we're all showing collectively, and I think that we're in an environment where demand is continually ramping up, and I think that we're probably underestimating what future demand looks like, and I think that this...

Mickey McKee: And I think that we're in an environment where demand is continually ramping up, and I think that we're probably underestimating what future demand looks like. And I think that this dynamic is set to have a runway that could last for a decade or two, which seems odd for me to say that, but it's an amazing sort of dynamic.

Speaker Change #103: This dynamic is set to have a runway that could last for a decade or two.

Speaker Change #103: which seems odd for me to say that, but it's an amazing sort of dynamic today.

Theresa Chen: And maybe going back to your comments about the many different avenues and projections of growth. So with the CSI assets under your belt for four plus months at this point, what is your view on the M&A landscape from here? Given your position and fragmentation or lack thereof in the industry, what do you view as your role and position within the market in terms of M&A?

John Griggs: Given the constructed market dynamics, our focus on increasing utilization, expense management, and our progress on synergies were confident in our segment outlook, and our ability to increase long-term high-quality cash levels. In our other services segment, we are forecasting full-year revenue of 120 to 140 million in segment-adjusted growth margins between 14 and 17 percent. Turning to CAPEX, we expect full-year maintenance CAPEX to come in between 60 million and 70 million. A bit higher than our prior guidance now that we've owned the CSI assets for a few months.

Speaker Change #104: Got it. Thank you for that nuanced answer and maybe going back to your comments about the many different you know avenues and trajection of growth.

Mickey McKee: So, with the CSI assets under your belt for, you know, four plus months at this point. What is your view on the M&A landscape from here? Give me your position and fragmentation or lack of industry. What do you view as your role in position within the market in terms of M&A? I think that we've got 20 to say grace over right now and probably not in the short term going to be active in the M&A market. Probably a lot of hardworking employees at Kodiak that we're breathing a sigh of belief to hear that right now, but you know we've we've got a lot of work left to do.

Speaker Change #105: So with the CSI assets under your belt for four plus months at this point, what is your view on the M&A landscape from here? Given your position and fragmentation or lack thereof in the industry, what do you view as your role and position within the market in terms of M&A?

Mickey McKee: I think that we've got plenty to say grace over right now, and we're probably not in the short term going to be active in the M&A market. I know that there are a lot of hard-working employees at Kodiak that are breathing a sigh of relief to hear that right now, but we've got a lot of work left to do.

Speaker Change #106: I think that we've got plenty to say grace over right now and probably not in the short term going to be active in the M&A market. Probably a lot of hard working employees at Kodiak that are breathing a sigh of relief to hear that right now.

John Griggs: In terms of growth CAPEX, we're forecasting between 210 and 230 million for the full-year, excluding the roughly 50 million related to the sales tax accrual in transaction-related CAPEX I discussed previously. We're presenting it this way to give a sense for a more normalized level of growth capital spending for the combined company without items that we don't expect to repeat in the future.

Mickey McKee: I know that we've owned the CSI business for a quarter now. We've made tremendous progress.

Speaker Change #107: You know, we've got a lot of work left to do. I know that we've owned the CSI business for a quarter now. We've made tremendous progress. We're really excited about the synergy potential there.

Mickey McKee: We've made tremendous progress. We're really excited about the synergy potential there, but we have lots to do, quite frankly. We're a newly public company, and our focus right now is inward-looking, making sure that we deliver for shareholders, making sure that we're focused on our business, and that we're building a strong foundation to continue to build on to take advantage of that multi-decade runway that we talked about a minute ago. Thank you very much. Thank you, Theresa. And a reminder to the audience: to ask a question at this time, press star 1 on your telephone keypad. To remove yourself from the queue, press star 2.

Operator: We're really excited about the synergy potential there, but we have lots to do, quite frankly, and we're a newly public company. Our focus right now is inward looking, making sure that we deliver for shareholders, making sure that we're focused on our business, and that we're building a strong foundation that can continue to build on for the multi-decade runway that we talked about in the media. Thank you very much. Thank you, Jason. And a reminder to the audience to ask a question at this time. Press star one on your telephone keypad to remove yourself from the queue. Press star two.

Speaker Change #108: But we have lots to do, quite frankly, and we're a newly public company and our focus right now is

John Griggs: To wrap things up, as you know, our board approved an eight percent increase in our quarterly dividend, 41 cents per share, which will be paid this Friday, August 16th. This equates to an annualized dividend of $1.64 per share per yield of 5.7 percent based on Friday's closing stock price.

Speaker Change #109: inward looking, making sure that we deliver for shareholders, making sure that we're focused on our business and that we're building a strong foundation to continue to build on to take advantage of that multi-decade runway that we talked about a minute ago.

John Griggs: That's it from my prepared comments. Thank you for your participation and support.

Speaker Change #109: Thank you very much.

Mickey McKee: I'll hand it back to Mickey. Thanks, John. To wrap up, I'm very proud of what this company has accomplished in the years since going public. I want to thank the extraordinary women and men of Todeat Gas Services for their hard work on integration while staying focused and delivering great results. Each team members' dedication to safety and our customers are what makes Todeat special and we would not be an industry leader without this commitment to excellence. I'm happy we're in a position to further reward our shareholders for their investment in Todeat by increasing our dividend. We have great momentum as we head into the second half of the year.

Speaker Change #110: Thank you, Teresa.

Operator: At this point, we will open up the lines of questions. Operators? Thank you.

Speaker Change #111: And a reminder to the audience to ask a question at this time press star 1 on your telephone keypad

Operator: Once again, to ask a question, press star one on your telephone keypad.

Operator: Again, to ask a question, press star 1 on your remote control. Our next question... comes from Zach Van Everen, P.H. and Company. Hey guys, thanks for taking my question. Just going back to the comment on idle compression that you guys can refurbish and bring back to the market. Do you have a rough estimate of what kind of timeline and the amount of horsepower that might be? Yeah, good morning, Zack.

Speaker Change #112: To remove yourself from the queue, press star 2.

Speaker Change #113: Once again, to ask a question, press star 1 on your telephone keypad.

Zackery Everen: Our next question comes from Zach Van Evern with TPHN Company. Please state your question. Hey guys, thanks for taking my question. Just going back to the comment on idle compression that you guys can refurbish and bring back to the market. Do you have a rough estimate of kind of timeline in the amount of horsepower that might be?

Speaker Change #113: [inaudible]

Speaker Change #114: Our next question.

Speaker Change #115: Comes from Zach Van Everen with TPH and Company. Please state your question.

Speaker Change #116: Hey guys, thanks for taking my question. Just going back to the comment on idled compression that you guys can refurbish and bring back to the market. Do you have a rough estimate of kind of timeline and the amount of horsepower that might be?

Mickey McKee: Yeah, good morning, Zach. Probably roughly, I think you're talking about, like I said before, we're very highly utilized in the large horsepower type of segment, not segment, but portion of the fleet. So I think the opportunity is probably maybe 30,000 or 40,000 horsepower over the next 69 months, you know. And so pretty low impact, though, dollars, but there are some opportunities to get some wins there and puts some equipment back to work. And we're focused on doing that.

Zackery Everen: Probably roughly, I think you're talking about, like I said before, we're very highly utilized in the large horsepower type of segment of, not segment, but, but a kind of portion of the fleet. So, I think the opportunity is probably maybe 30 or 40,000 horsepower over the next 6 to 9 months, you know, and so pretty, pretty low impact dollars, but there are some opportunities to get some wins there and put some equipment back to work. And we're focused on doing just that. Probably a little less, less sure about the kind of medium horsepower, that kind of 400 to 1,000 horsepower range.

Speaker Change #117: Yeah, good morning, Zach.

Operator: And at this time, we'll conduct our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that 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 to pick up your handset before pressing the star keys. One moment please while we pull for questions.

Speaker Change #117: Yeah.

Speaker Change #118: probably roughly I think you're talking about like I said before we're very highly utilized in the large horsepower type of segment of not segment but but kind of

Speaker Change #119: portion of the fleet. So I think the opportunity is probably maybe 30 or 40,000 horsepower over the next six to nine months.

Speaker Change #119: You know, and so...

Speaker Change #119: Pretty low impact dollars, but there is some opportunities to get some wins there and put some equipment back to work, and we're focused on doing that.

Mickey McKee: There might be another 40 or 50,000 horsepower available there that we might be able to redeploy. Those opportunities are going to be a little bit fewer and farther in between, but I think that opportunity over the next year could present itself, and we'll have to, and we'll be able to take advantage of it. And right now, in the small horsepower range, which was where the bulk of the units are that are idle in the legacy CSI fleet, it's probably, there's not a ton of demand in that range today. So, I think you've got some opportunities to continue to deploy large and medium horsepower side. Gotcha. That's super helpful.

Mickey McKee: Probably a little less, um, less sure about kind of the medium horsepower, that kind of 400 to 1,000 horsepower range. There might be another 40,000 or 50,000 horsepower available there that we might be able to redeploy. Those, those opportunities are going to be a little bit fewer and farther in between, but I think that that opportunity over the next year could present itself and we'll have to, and that we'll be able to take advantage of.

Speaker Change #119: probably a little less

John McKay: And our first question comes from John McKay with Goldman Sachs, please state your question. Hey guys, good morning. Thanks for the time. I wanted to start a little bit on the forward outlook for the business. Understand you're not giving 25 guidance here. I would love to hear your thoughts on maybe a medium-term outlook for EBITDA growth going forward. And then very specifically, it's part of that. We haven't talked about potential revenue synergies from the CSI deal, so maybe we could frame that as part of that growth outlook.

Speaker Change #119: Less sure about kind of the medium horsepower that kind of 400 to a thousand horsepower range There might be another 40 or 50 thousand horsepower available there

Speaker Change #119: that we might be able to redeploy those.

Speaker Change #119: those

Speaker Change #119: opportunities are going to be a little bit fewer and farther in between but I think that that opportunity over the next year could present itself and we'll have to and that we'll be able to take advantage of.

Mickey McKee: And right now in the small horsepower range, which was where the bulk of the units are that are idle in the, in the like CCS-I fleet, it's probably, there's not a ton of demand in that range today. So I think you've got some opportunities to continue to deploy in large and the medium horsepower side. Gotcha. That's super helpful. And then maybe one on the compression side, you know, we saw rates go up to close to $22 and a monthly base, you know, from just below 20 in Q1. Now I guess was this all just the kind of noise around CSI, or were there also a least amount of contract renewals that happened in Q2 that kind of brought this number out?

Speaker Change #120: And right now in the small horsepower range, which is where the bulk of the units are that are idle in the legacy CSI fleet, it's

John McKay: Yeah, I hate John McKay. Thanks for listening this morning. I think the forward outlook is really positive. I think the way we framed it up for EBITDA growth in the year is minus the one-time transactional type of EBITDA adjustments for the year. If you look at that kind of where we think we'll be on a run rate perspective of $162 million in a quarter of EBITDA is pretty representative of where I think we'll be going forward.

Speaker Change #121: It's probably but there's not a ton of demand in that range today So I think you've got some opportunities to to continue to deploy and large in the medium horsepower side

Speaker Change #121: Gotcha. That's super helpful.

Speaker Change #121: Maybe one on the compression side, you know, we saw rates go up

Zackery Everen: And then maybe one on the compression side, you know, we saw rates go up to close to $22 on a monthly basis from just below 20 in Q1. Now, I guess, was this all just the kind of noise around CSI? Or were there also a decent amount of contract renewals that happened in Q2 that kind of brought this number? Yeah, I mean, I think there was, there was, it was both, to be honest with you, Zack.

Speaker Change #121: to close to $22 on a monthly.

Speaker Change #122: based, you know, from just below 20 in Q1. Now I guess, was this all just the kind of noise around CSI or were there also a decent amount of contract renewals that happened in Q2 that kind of brought this number up?

Mickey McKee: Yeah, I mean, I think there was, there was, it was both, to be honest with you, Jack. There were some good renewals that we had some success on renewing contracts and that kind of thing. I don't have the numbers in front of me, but we did kind of execute as expected there. And on the same, on the same side, CSI as a, as a blended average, as everybody kind of knows, the smaller horsepower equipment has a higher dollar for horsepower average revenue rate. And so blended in with our fleet, because it's a smaller kind of horsepower average per unit, it drives our revenue per horsepower up a little bit.

John McKay: And then you can kind of layer on that what our standard growth has been over and above throughout the years on a pretty standard amount of growth gap. I think our business is pretty easy to predict. It's that core lead down and annualize that out and layer on some growth from the growth gap. We're investing in the business and I think you've got a pretty good idea of where we think we'll be.

Mickey McKee: There were, there were some good renewals, and we had some success with renewing contracts and, and, and that kind of thing. I don't have the numbers in front of me, but we did kind of execute it as expected there. And on the same, on the same side, CSI as a, as a blended average, as everybody kind of knows, this smaller horsepower equipment has a higher dollar per horsepower average revenue rate.

Speaker Change #123: Yeah, I mean, I think there was there was it was both to be honest with you Zach There was there were some good renewals and we had some success on renewing contracts and and and that kind of thing

Speaker Change #124: I don't have the numbers in front of me, but we did kind of executed as expected there.

Speaker Change #124: And on the same side, CSI as a blended average, as everybody kind of knows, this smaller horsepower equipment has a higher dollar per horsepower average revenue rate.

Mickey McKee: And so, blended in with our fleet, because there's a smaller kind of horsepower average per unit, it drives our revenue per horsepower up a little bit. And just to finish that thought, this is John, too.

John McKay: I think that to get to the question about revenue synergies, John, I mean, that we really only have 90 days of data to evaluate right now with only on this business for a quarter now. So we're not really ready to quantify revenue synergies and kind of give any guidance there. I will tell you that we've had some good wins early on here, but it is really kind of too early to tell and too early to give any forward looking kind of out there.

Speaker Change #125: And so blending in with our fleet, because it's a smaller kind of horsepower average per unit, it drives our revenue per horsepower up a little bit.

Mickey McKee: You just, I think that thought this is gone too on that smaller horsepower. It has a higher revenue per horsepower because it carries a lower margin, because labor in parts and pieces will be more expensive than in the smaller horsepower. The best returns will always come from that large horsepower business. Perfect, very helpful, thanks, guys. Yeah, that's good. Thank you.

John Griggs: On that smaller horsepower, it has a higher revenue per horsepower because it carries a lower margin because labor and parts and pieces will be more expensive than in the small horsepower. The best returns will always come from that large horsepower. Perfect, very helpful, thanks guys.

Speaker Change #125: And just to finish that thought, this is John too, on that smaller horsepower, it has a higher revenue for horsepower because it carries a lower margin because labor and parts and pieces will be more expensive than in the small horsepower. The best returns will always come from that large horsepower business.

Zackery Everen: Yeah, exactly. Thank you. Selman Akyol.

Speaker Change #126: Perfect, very helpful, thanks guys.

John McKay: I want to appreciate that.

Salman Akyol: Our next question comes from Salman Akyl with Steeple. Please state your question. Thank you. Good morning. So with deployments for 2025, pretty well set, and you look out into 2026. And you talked about sort of half being electric today. Would you expect that number to continue to move higher as you go into 26? I would expect it to minimally stay the same. Yeah, I think it might drive up a little bit, but I would expect that it, 2026 deployments probably at least that much on the electric side. Understood.

John McKay: Maybe switching gears a little bit just to the electrification side. You know, you guys, you know, make it your comments and prepare remarks, but we saw two of your competitors kind of talking up this a little bit. Arturoc with their deal, USAC kind of in a different direction.

Speaker Change #127: Yeah, exactly.

Speaker Change #128: Thank you. Our next question comes from Salman Akyol with Stifel. Please state your question.

Selman Akyol: So with deployments for 2025 pretty well set, and you look out into 2026, and you talked about that sort of half being electric today, would you expect that number to continue to move higher as you go into 2060? Um, I would expect it to stay the same.

Speaker Change #129: Thank you. Good morning. So with deployments for 2025 pretty well set and you look out into 2026 and you talked about sort of half being electric today, would you expect that number to continue to move higher as you go into 2026?

John McKay: I just be curious on, you know, what this trend looks like from maybe a run rate cap X needs. What are you hearing from your customers in terms of how important this is to them? And high level, I mean, does this shift at all on how we're thinking about the industries overall current capital disciplines?

Mickey McKee: Yeah, I think it might drive up a little bit, but I would expect... that 2026 deployments probably will probably be at least that much on the electric side, understood. And then just kind of going back to the opportunity to refurbish some of the CSI Fleet. Again, electric doesn't work everywhere and works better on smaller horsepower. Is there an opportunity to take those units and convert them over to electric and redeploy them? There could potentially be a potentially capital allocation decision that we want to that we're gonna have to make whether we want to spend the capital on converting small work part of electric or spend that capital on deploying large horsepower stuff.

Speaker Change #130: I would expect it to minimally stay the same. Yeah, I think it might drive up a little bit, but I would expect that 2026 deployments probably at least that much on the electric side.

Mickey McKee: Thank you. I don't think it changes the capital discipline in the industry at all, John. I think that the electrification process going forward is going to have some some pockets where it makes sense and some other pockets where it doesn't make sense. You know, we're looking at, as I said in the prepared remarks about half of our capex in 2025 is going to be spent on on electric driven motor machines. Those are for projects that are that are highly specialized and for our existing customer base that has access to power on those locations.

Mickey McKee: And then just kind of going back to the opportunity to refurbish some of the CSI fleet. Again, electric doesn't work everywhere and works better on the smaller our horsepower. Is there an opportunity to take those units and convert those over to electric and redeploy them? There could be potentially that's going to be a capital allocation decision that we want to, that we're going to have to make if we want to spend the capital on converting small horsepower to electric or spend the capital on deploying large horsepower stuff. So there is an opportunity I think that will probably explore the, you know, whether or not we want to be in that small horsepower electric type of business.

Speaker Change #130: Understood. And then just kind of going

Speaker Change #131: CSI fleet, again, electric doesn't work everywhere and works better on the smaller horsepower. Is there an opportunity to take those units and convert those over to electric and redeploy them?

Speaker Change #132: There could be, potentially, that's going to be a capital allocation decision that we want to, that we're going to have to make if we want to spend the capital on converting small horsepower to electric, or...

Mickey McKee: We can tell you that there is kind of a mixed view of electrification coming from our customer base some are some some are pushing forward with electrification, others are really pulling back from electrification. I think that when you look at some of the other things in the industry that are going on, we're going to continue to focus on large horsepower equipment and large horsepower electric motor driven equipment. There's a very different animal than small horsepower type of electric motor driven type of type of equipment because there's a very different power demand that comes from us.

Mickey McKee: So there is an opportunity, I think, that we'll probably explore the... you know, whether or not we want to be in that small horsepower electric type of business. I think there is a market out there, but I think that, you know, that's not traditionally been our focus and just traditionally been our strategy. So we need to discuss that going forward. Got it. I mean, I guess just one last one.

Speaker Change #133: you know, whether or not we want to be in that small horsepower electric type of business. I think there is a market out there, but I think that, you know, that's not traditionally been our focus and traditionally been our strategy. So, so we need to discuss that going forward.

Mickey McKee: I think there is a market out there, but I think that, you know, that's not traditionally been our focus and traditionally been our strategy.

Salman Akyol: So we need to discuss that going forward. Got it.

Mickey McKee: I guess just one last one in them. Thinking about this losing market share to the companies themselves. And I guess in part of that, just they're also seeing this longer runway that you're referring to in terms of the need for compression. And therefore they're willing to commit the capital and think that they're going to own those units for 20 plus years. So I think that if they had access to outsource a lot of that equipment, they would, but they're just sitting the companies out there spending the capital by it to that they can outsource it to.

Selman Akyol: Thinking about this losing market share to the companies themselves. And I guess, in part, just they're also seeing this longer runway that you're referring to in terms of the need for compression, and therefore, they're willing to commit the capital and think that they're going to own those units for 20 plus years. Well, I think that if they had access to outsource a lot of that equipment, they would, but they're just sitting at the companies out there spending the capital to buy it so that they can outsource it too.

Speaker Change #134: Got it. I think it's just one last one of them.

Speaker Change #134: Thinking about this losing market share to the companies themselves and I guess in part of that just they're also seeing this longer runway that you're referring to in terms of the need for compression.

Mickey McKee: So, like I said, we're focused on what we're doing and what we're looking at going forward and we're going to be participating in the electric motor driven type of ground. We want to be really good at it. We're going to be focused on it and we think it's part of the future, but are we going to think it's going to dominate the whole future?

Speaker Change #135: and therefore they're willing to commit the capital and think that they're going to own those units for 20 plus years.

Speaker Change #136: Well, I think that if they had access to outsource a lot of that equipment, they would. But there just isn't. The companies out there spending the capital to buy it, that they can outsource it too.

John McKay: Alright, that's clear.

John McKay: Thanks for time today. Thanks, John.

Mickey McKee: This is a, you know, I'm talking about it before pretty extensively that I think everybody, everybody in this industry is drastically underestimated the amount of compression that takes to produce premium oil and gas. And it takes, you know, traditionally three to four times more horsepower than it takes to produce conventional reservoir type of basin resources. And that, that's what a lot of what is causing this tremendous tightness in our market. We've got the highest kind of combined utilization that we've ever had, especially in the large horsepower segment here. Industry wide. And so you think a lot of it is, and it just takes more horsepower. Horsepower is more expensive today, so everybody's dollar of cat that doesn't go as far as it used to and buys less horsepower.

Selman Akyol: I've talked about it before pretty extensively, and I think everybody in this industry has drastically underestimated the amount of compression it takes to produce Permian oil and gas. And it takes, you know, traditionally three to four times more horsepower than it takes to produce conventional reservoir type of basin resources. And that's a lot of what is causing this tremendous tightness in our market. We've got the highest kind of combined utilization that we've ever had, especially in the large horsepower segment here industry-wide.

Jim Rollyson: Our next question comes from Jim Rollison with Raymond James. Please see your question. Hey, more to Mickey and John. Again, Mickey, maybe you could just, you got the first batch of some of the smaller horsepower stuff that you were looking to sell kind of in process. And then obviously that's going to be ongoing for a period of time, but maybe just a reminder at the end of the day as you kind of look at the fleet you acquired and the horsepower that kind of is maybe non-core.

Speaker Change #136: This is a, you know, I've talked about it before pretty extensively, but...

Speaker Change #136: I think everybody in this industry has drastically underestimated the amount of compression it takes to produce Permian oil and gas.

Speaker Change #136: And it takes, you know, traditionally three to four times more horsepower than it takes to produce.

Speaker Change #136: conventional reservoir type of basin resources and that that's what a lot of what is causing this this tremendous tightness in our market we've got the highest

Jim Rollyson: A reminder of how much capacity you think ultimately over the next handful of quarters you are likely to sell and what you think the range of kind of proceeds with that would be and even maybe what you do with the proceeds. Yeah, I think like it's going to be it's going to be pretty hit miss there. I think like this first batch that we've got that that we're selling is going to be kind of give you a little bit of frame framework to think about is, you know, it's going to be probably 15 to between 15 and 20 million dollars of annual revenue at, you know, sub.

Speaker Change #136: kind of combined utilization that we've ever had, especially in the large horsepower segment here industry-wide. And so you think a lot of it is

Selman Akyol: And so you think a lot of it is, and it just takes more horsepower. But horsepower is more expensive today, so everybody's dollar of capex doesn't go as far as it used to and buys less horsepower. So all these things kind of translate into producers and midstreamers being kind of forced to insource more than they probably traditionally would like to. And it's taken a tremendous amount of horsepower to produce what this country is producing in the oil and gas market because of the permeant effect.

Speaker Change #137: And it just takes more horsepower. Horsepower is more expensive today, so everybody's dollar of capex doesn't go as far as it used to and buys less horsepower. So all these things kind of translate into

Mickey McKee: So all these things kind of translate into. Producer is a mystery; is they're kind of forced to in source more than they probably traditionally would like to. And it's taking a tremendous amount of power to produce what this country is producing in the oil and gas market because of the premium because of the premium effect.

Speaker Change #138: producers and midstreamers are kind of forced to insource more than they probably traditionally would like to and it's it's it's taking a tremendous amount of horsepower to produce what this country is is producing in the oil and gas market because the Permian because of the Permian effect.

Jim Rollyson: You know, it's something some kind of a margin that's less than what are fleet the large horsepower fleet type of margin is contributing. And so, you know, I think that you look in at a multiple less than what we trade at that we get for that equipment and, you know, so you're not talking about, you know, big dollars, you're talking about, you know, 15 million dollars of revenue on a company that we're guiding to be north of a billion dollars of revenue already.

Mickey McKee: You know, I'll also finish that thought to you. It's very easy to track the public companies in terms of what we're adding to the market. And we all are talking about Capital discipline. We set a lot in our presentations and in our meetings, you know, on the private side. You've seen in our slide, we were kind of lists a lot of the competitors. It's a capital intensive business. That's more expensive and harder to come by than ever. The industry, the customer base is consolidating. It's very difficult for startups to get business with the large majors and large independents that now, you know, control the majority of the acreage in the Permian.

Mickey McKee: You know, and I'll also finish that thought too, it's very easy to track public companies in terms of what we're adding to the market, and we all talk about capital discipline. We say that a lot in our presentations and in our meetings. On the private side, you know, on the private side, you've seen on our slide where we kind of list a lot of the competitors. It's a capital-intensive business, and capital is more expensive and harder to come by than ever. The industry, the customer base, is consolidating. It's very difficult for startups to get business with the large majors and large independents that now, you know, control the majority of the acreage in the Permian.

Speaker Change #139: You know, and I'll also finish that thought too, it's very easy to track the public companies in terms of what we're adding to the market, and we all are talking about capital discipline. We said a lot in our presentations and in our meetings, you know, on the private side, you've seen in our slide where we kind of list a lot of the competitors.

Jim Rollyson: And that's the numbers are already baked into those that those guys numbers. So that's we already expect that. So again, I think that that overall and the fleet from a horsepower perspective will probably look in that, you know, 150 to 200,000 horsepower worth of total horsepower that we look to to kind of divest ourselves up that are noncord of what we're trying to do, which is domestic US large horsepower. So that's our oily base and type of liquid drift base and type of equipment that we can create instigation and drive higher margins and have really sticky long life type of cash flows for our investors.

Speaker Change #139: It's a capital-intensive business. Debt's more expensive and harder to come by than ever. The industry, the customer base is consolidating.

Speaker Change #140: It's very difficult for start-ups to get business with the large majors and large independents that now control the majority of the acreage in the Permian.

John Griggs: It's just a different calculus, and so we do believe that that 75-80% that the public companies control is really where most of the growth is coming from in the industry too, which again leads us back to the operators, who, out of necessity, are investing in their own operations. I got it. Thank you very much. Thanks, gentlemen. Thank you. And There are no further questions at this time. I'll hand the floor back to you. Thank you, Operator, and thanks to everyone who is participating in our call today. We look forward to speaking with you again after we report our results for the third quarter. Bye, at today's conference. All parties

Mickey McKee: It's just a different calculus. And so we do believe that that 75-80% of the public companies' control is really where most of the growth is coming from in the industry too, which again leads us back to the operators, out of necessity, the customers, out of necessity, are investing in their own.

Speaker Change #140: it's just a different calculus and so we do believe that that 75-80% that the public companies control is really where most of the growth is coming from in the industry too, which again leads us back to the operators out of necessity, the customers out of necessity are investing in their own horsepower.

Salman Akyol: Thank you very much. Thanks, Selman.

Speaker Change #140: Got it. Thank you very much.

Operator: Thank you, and there are no further questions at this time.

Operator: We'll hand the floor back to management for closing remarks. Thank you, operator. Thanks to everyone today, participating in our call. We look forward to speaking with you again after we report our results for the third quarter.

Jonah: Thanks, Jonah.

Speaker Change #142: Thank you, and there are no further questions at this time. I'll hand the floor back to management for closing remarks.

Jim Rollyson: Yeah, it makes sense. It's what you said before. I was just trying to get a magnitude to that helps. And Mickey, you guys have done some interesting math in your presentation, you know, kind of on the incremental compression horsepower needs relative to the growth outlook for gas volumes. And we can now that between you USA and and Archerock and even consolidating Archerock, we can obviously track what a large share of the outsourced side of that equation is doing.

Speaker Change #143: Thank you operator and thanks to everyone today participating in our call. We look forward to speaking with you again after we report our results for the third quarter. Bye.

Operator: Bye.

Operator: This concludes today's conference. I'll pause.

Speaker Change #144: This concludes today's conference. All parties would disconnect. Have a good day

Jim Rollyson: In terms of orders and how we're keeping up with that demand. Do you have any view or any color from your, you know, customer owned orders and how those have been tracking just curious, you know, relative to this kind of mid 50 million horsepower fleet that we've got today. We can kind of track what the outsourced side is, but I'm just curious if you have any view or color on it. Are your customer orders keeping up from a pace perspective to match where that demand seems to be headed.

Jim Rollyson: Yeah, I think that I think it is Jim. I mean, we don't have any real data, but if you ask me what my aunt is, I think that we're we're as an industry, losing market share to the in sourced market today. And that's driven by by the capital discipline in our industry. And we're sitting here today saying, hey, we're only going to spend the next amount of dollars a year on our growth gap.

Jim Rollyson: We have well in excess of that. In opportunities to grow, but where we we're not going to deploy that capital and that's been our cash flows in that kind of meaningful way. And I think that you're seeing that with with the big public guys in this industry pretty considerably. So if you had asked me today, I'd say that us as an outsourced industry could collectively that we're losing market share to the in sourced industry there. Got it. Appreciate the color. Yes, sir.

Jim Rollyson: Thanks, Jim. Our next question comes from Teresa Chang with Mark Lay. Please do your question.

Teresa Chang: Morning. Thank you for taking my questions. I'd like to dig in a little bit more on the supply and demand outlook for compression over the medium and long term. And Nikki, just how long do you think this tightness will persist? Hey, good morning, Teresa. Thanks for joining us. You know, I don't know. I think we've got many, many years of this type of history. So we've got, you know, you look at the demand side of the business.

Teresa Chang: And LG plants coming on that supply gas has come from somewhere. You talk about AI and data center driven demand for power. I think that I think that people are probably underestimating the power demand profile that's coming towards us too with. With all of that demand, there's some really interesting stats out there that really are eye opening and you get estimates for what that power demand is going to be from anywhere from tend to.

Teresa Chang: You know, 18 BC at the day and if even if you're on the low side of that kind of demand profile, the supply of natural gas to feed that is going to be just extraordinary. And so we've been saying it for a year, even before the AI and data center type of conversation has kind of become a buzzword in the industry. And I'm not an expert to be able to predict power demand, but at the same time, what I do know is it's going to require a lot of natural gas and more natural gas than what the US is producing today.

Teresa Chang: And that requires compression. I think at lower natural gas prices, it's a $2 range where they're at today. Does it feel like it's economical, the drill hangs well. So the majority of that natural gas in the short term is going to have to come from oily basins like the Eagle third and the Permian basin where we're in a great position and it's going to create long term kind of stickiness of our revenues.

Teresa Chang: We talked about the supply side. We looked at what's happening in our industry over years past and industries made mistakes before of over building equipment and having an over supply in the time where you didn't need it, as the industry is not acting like that today. It's a very well-behaved industry where I mean some people have had the increase their their their tap ex guidance for the year. That's fine, that's a prerogative, but it's still not putting us into a situation as an industry where we're overbuilding.

Teresa Chang: I mean that's a it's again to go back to the comments I made with Jim's question that we are we have many many more opportunities to grow than what we're committing capex to and I have a feeling that's consistent with our competitors as well. And so we're in a position to where we're really restricting the supply from from the discipline that that we're all shown collectively and and I think that we're in an environment where demand is continually ramping up and I think that we're probably underestimating what future demand looks like and I think that this this dynamic is set to have a runway that could last for a decade or two. Which seems seems seem not for me to say that but it's a it's an amazing sort of dynamic today.

Mickey McKee: Got it. Thank you for that nuanced answer. And maybe going back to your comments about the many different you know avenues and projection of growth. So with the CSI assets under your belt for you know four plus months at this point. What is your view on the M&A landscape from here? Give me your position and fragmentation or lack of industry. What do you view as your role in position within the market in terms of M&A?

Mickey McKee: I think that we've got 20 to say grace over right now and probably not in the short term going to be active in the M&A market. Probably a lot of hardworking employees at Kodiak that we're breathing a sigh of belief to hear that right now but you know we've we've we've got a lot of work left to do. I know that we've own the CSI business for for a quarter now. We've made tremendous progress.

Mickey McKee: We're really excited about the synergy potential there but but we have lots to do quite frankly and we're a newly public company and our focus right now is inward looking, making sure that we deliver for shareholders, making sure that we're focused on our business and that we're building a strong foundation that can continue to build on for the for to take advantage of that multi-decade runway that we talked about in the media.

Operator: Thank you very much. Thank you Jason. And a reminder to the audience to ask a question at this time press star one on your telephone keypad to remove yourself from the queue press star two. Once again, to ask a question press star one on your telephone keypad.

Zach Van Everen: Our next question comes from Zach Van Evern with TPHN Company. Please state your question. Hey guys thanks for taking my question. Just going back to the comment on idle compression that you guys can refurbish and bring back to the market. Do you have a rough estimate of kind of timeline in the amount of horsepower that might be? Yeah, good morning, Zach. Probably roughly, I think you're talking about, like I said before, we're very highly utilized in the large horsepower type of segment, not segment, but portion of the fleet.

Zach Van Everen: So I think the opportunity is probably maybe 30 or 40,000 horsepower over the next 69 months, you know. And so pretty low impact, though, dollars, but there is some opportunities to get some wins there and puts some equipment back to work. And we're focused on doing that.

Zach Van Everen: Probably a little less, um, less sure about kind of the medium horsepower, that kind of 400 to 1,000 horsepower range. There might be another 40 or 50,000 horsepower available there that we might be able to redeploy. Those, those opportunities are going to be a little bit fewer and farther in between, but I think that that opportunity over the next year could pretend itself and we'll have to, and that we'll be able to take advantage of.

Zach Van Everen: And right now in the small horsepower range, which was where the bulk of the units are that are idle in the, in the like CCS-I fleet, it's probably, there's not a ton of demand in that range today. So I think you've got some opportunities to, to continue to deploy in large and the medium horsepower side. Gotcha. That's super helpful. And then maybe one on the compression side, you know, we saw rates go up to close to $22 and a monthly base, you know, from just below 20 and Q1.

Zach Van Everen: Now I guess was this all just the kind of noise around CSI, or were there also a least amount of contract renewals that happened in Q2 that kind of brought this number out? Yeah, I mean, I think there was, there was, it was both, to be honest with you, Jack, there was, there were some good renewals that we had some success on renewing contracts and and that kind of thing, I don't have the numbers in front of me, but we did kind of executed as expected there.

Zach Van Everen: And on the same, on the same side, CSI as a, as a blended average, as everybody kind of knows, the smaller horsepower equipment has a higher dollar for horsepower average revenue rate. And so blended in with our fleet, because it's a smaller kind of horsepower average per unit, it drives our revenue per horsepower up a little bit. You just, I think that thought this is gone too on that smaller horsepower. It has a higher revenue per horsepower because it carries a lower margin, because labor in parts and pieces will be more expensive than in the smaller horsepower. The best returns will always come from that large horsepower business. Perfect, very helpful, thanks, guys. Yeah, that's good. Thank you.

Selman Akyol: Our next question comes from Salman Akyl with Steeple, please state your question. Thank you. Good morning. So with deployments for 2025, pretty well set, and you look out into 2026. And you talked about sort of half being electric today. Would you expect that number to continue to move higher as you go into 26? I would expect it to minimally stay the same. Yeah, I think it might drive up a little bit, but I would expect that it, 2026 deployments probably at least that much on the electric side. Understood.

Selman Akyol: And then just kind of going back to the opportunity to refurbish some of the CSI fleet. Again, electric doesn't work everywhere and works better on the smaller our horsepower. Is there an opportunity to take those units and convert those over to electric and redeploy them? There could be potentially that's going to be a capital allocation decision that we want to, that we're going to have to make if we want to spend the capital on converting small horsepower to electric or spend the capital on deploying large horsepower stuff.

Selman Akyol: So there is an opportunity I think that will probably explore the, you know, whether or not we want to be in that small horsepower electric type of business. I think there is a market out there, but I think that, you know, that's not traditionally been our focus and traditionally been our strategy.

Selman Akyol: So we need to discuss that going forward. Got it.

Selman Akyol: I guess just one last one in them. Thinking about this losing market share to the companies themselves. And I guess in part of that, just they're also seeing this longer runway that you're referring to in terms of the need for compression. And therefore they're willing to commit the capital and think that they're going to own those units for 20 plus years. So I think that if they had access to outsource a lot of that equipment, they would, but, but they're just sitting the companies out there spending the capital by it to that they can outsource it to.

Selman Akyol: This is a, you know, I'm talking about it before pretty extensively that I think everybody, everybody in this industry is drastically underestimated the amount of compression that takes to produce premium oil and gas. And it takes, you know, traditionally three to four times more horsepower than it takes to produce conventional reservoir type of basin resources. And that that's what a lot of what is causing this tremendous tightness in our market. We've got the highest kind of combined utilization that we've ever had, especially in the large horsepower segment here.

Selman Akyol: Industry wide. And so you think a lot of it is, and it just takes more horsepower, horsepower is more expensive today, so everybody's dollar of cat that doesn't go as far as it used to and buys less horsepower. So all these things kind of translate into. Producer is a mystery is they're kind of forced to in source more than they probably traditionally would like to. And it's taking a tremendous amount of power to produce what this country is producing in the oil and gas market because of the premium because of the premium effect.

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Selman Akyol: You know, I'll also finish that thought to you. It's very easy to track the public companies in terms of what we're adding to the market. And we all are talking about capital discipline. We set a lot in our presentations and in our meetings, you know, on the private side, you've seen in our slide, we were kind of lists a lot of the competitors. It's a capital intensive business. That's more expensive and harder to come by than ever.

Selman Akyol: The industry, the customer base is consolidating. It's very difficult for startups to get business with the large majors and large independence that now, you know, control the majority of the acreage in the Permian. It's just a different calculus. And so we do believe that that 75 80% of the public companies control is really where most of the growth is coming from in the industry too, which again leads us back to the operators out of necessity, the customers out of necessity are investing in their own.

Selman Akyol: Thank you very much. Thanks, Selman.

Operator: Thank you, and there are no further questions at this time. We'll hand the floor back to management for closing remarks. Thank you, operator. Thanks to everyone today, participating in our call. We look forward to speaking with you again after we report our results for the third quarter. Bye. This concludes today's conference.

Operator: I'll pause.