Q2 2025 Kodiak Gas Services Inc Earnings Call

Greetings and welcome to the Kodiak. Gas Services, second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad.

As a reminder, this conference is being recorded. It is now my pleasure to introduce Graham Sones, Vice President of Investor Relations. Please go ahead.

Good morning and thank you for joining us for the Kodiak gas Services conference call and webcast to review second quarter 2025 results.

Participating from the company today or Mickey, mcke president and chief executive officer and John Griggs, Executive Vice President and Chief Financial Officer.

Following my remarks Mickey, and John will discuss our financial and operating results review. Our updated 2025 guidance and then we'll open up the call for Q&A.

There will be a replay of today's call available via webcast and also by phone until August 21st 2025,

Information on how to access the replay can be found on the investors tab of our website at Kodiak gas.com.

Please note that information reported on this call speaks only as of today. August 7th 2025.

And therefore, your advised 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 meeting of United States Federal Securities laws.

These forward-looking statements reflect the current views, beliefs, and assumptions of Kodiak's management based on information currently available.

Although we believe the expectations referenced in these 4 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 of such statements, or expectations, will prove to be correct.

The comments today will also include certain non-gaap Financial measures.

Details and reconciliations to the most comparable gaap measures for included in yesterday's earnings release. This can be found on our website.

And now I'd like to turn the call over to kodiak's president CEO, Mr. Mickey, Mickey Mickey.

Thanks Graham.

And thank you all for joining us today.

We Begin all meetings at Kodiak with the safety topic.

Hill Country. Struck close to home and deeply impacted many of our employees friends and colleagues in the industry.

Our thoughts and prayers continue to be with those impacted as they recover and they heal from this tragedy.

While the extent of the devastation was difficult to grasp because heartening to see our nation and our state rally behind the affected communities. And I want to personally, thank the Kodiak employees who volunteered their time and resources to assist with the recovery efforts.

Before we get to our strong financial results, I want to start by discussing 2 recent developments that we think are very positive for our shareholders.

First is the hundred million dollar increase to our share repurchase program that we announced yesterday.

Since our initial stock repurchase in September of 2024, we bought back about 2 million shares at an average price of just over $30.

Given the current stock price and the remaining availability on our previous repurchase authorization, the board. Thought it would be prudent to increase and extend the program.

The meaningful step up in our share repurchase program, reflects our confidence in the company's strategy.

The demand outlook for contract, compression and natural gas.

And underscores kodiak's commitment to returning, Capital to shareholders.

Second, we were very pleased to learn last week that Kodiak was added to the S&P. Small cap 600 in index. As of yesterday,

This is a significant Milestone as it highlights the strength of the company's business strategy and our commitment to highly profitable growth.

The inclusion in the index will increase kodiak's visibility in the investment community. And enhance shareholder value over the long term.

We're on to be included.

Next, I'd like to discuss a few macro themes in the compression space. Large horsepower compression remains in high demand, as reflected on our fourth consecutive quarter since the CSI acquisition of increases in Fleet utilization and Contract Services address. Adjust adjusted gross margin.

For the second quarter, our utilization ticked up to over 97% for the fleet with our large horsepower, being effectively, fully utilized at over 99%.

Furthermore, less than 10% of our operating fleet was on month-to-month contracts at the end of the quarter.

1 of the many driving forces behind the continued demand for large horsepower. Compression is the steadily growing natural gas volumes in the Parian.

Driven by consistent production growth and increasing gas-to-oil ratios.

In fact, 1 of our largest puran, producers recently, stated that plans to increase permanent production by over 40% by 2030.

Multiple other customers have stated in their second quarter. Earnings calls that they see short and long-term gas volume growth coming out of the premium premium basin.

As has been reported in numerous industry, sources permanent, producers are shifting to deeper gassier development zones in both the Midland and Delaware basins.

According to a recent and various report, despite initially having much higher oil Cuts, mature, Midland Basin, Wells are now, starting to compete with Delaware Wells on a go basis,

This Dynamic is helping Drive, strong year-over-year increases in Permian, gas production.

The industry is well aware of this dynamic, as reflected, by the over 4 and a half. BCF per day of incremental permanent natural gas pipeline takeaway projects which are expected to come online between now and the end of the year in 22026

The outlook for natural gas remains robust as well. With golden pass lng's. First LNG train reported to begin operations in the fourth quarter of this year.

Further we've seen multiple significant LNG gas purchase contracts announced over the last 3 months.

Supporting the potential for expansion at existing LNG terminals.

Lastly, we expect the recent trade deal with the European Union where they have agreed to purchase 750 billion dollars in US, Energy Products to also further. Support the build-out of LNG export facilities along the Gulf Coast.

Given the favorable long-term market dynamics for natural gas. Our customers continue to order new, large horsepower, compression units to help optimize the development of their assets.

In line with our growth expectations for the year.

The combination of strong natural gas growth along with uncertainty, in oil. Prices is offering some unique opportunities to partner with our customers. And in some cases, consolidate working horsepower.

1 example, is that we recently worked with an investment grade rated enp company on the installation of a new compressor station, which will ultimately feature over 25,000 horsepower of electric motor driven compression at the location.

Our customer asked that if that we owned half of the new units with the customer owning the other half allowing them to preserve capital.

Kodiak will also operate the customer-owned units, alongside the Kodiak units, providing a value. Added service to the customer.

We've already agreed to a similar but larger project for the same customer in 2026 and are in the process of developing sever, several other comparable opportunities, both for electric motor driven and natural gas driven compression.

In addition, in addition to jointly partnering on some projects, we have also executed some small transactions to acquire compressors under contract that fit nicely in our existing footprint and will positive positively impact our third quarter growth in Revenue generating horsepower.

now, turning to our second quarter, 2025 results,

Zodiacs business model delivers, consistent growth and an improving margin profile, allowing us to. Once again, sent new records and adjusted Ava and free cash flow with strong growth, and net income and earnings per share.

We also sequentially increase. Last Waters, high water, mark and discretionary cash flow.

Our leverage ratio continues to tick lower hitting, a new all-time low of 3.6 times as of June 30th.

These record-setting results were driven by our stable fixed revenue model, outstanding execution on contract renewals, cost management, operational efficiency, and new unit growth.

Along with outstanding Financial results, we continue to return Capital to shareholders and bought back approximately 10 million dollars in stock in Q2, 25 and declared a well covered quarterly dividend of 45 cents per share.

Next, let's dive into some operational highlights.

With finish the quarter with an average revenue, generating horsepower per unit of 952.

I figure that is increased every quarter since we closed the CSI acquisition.

We added approximately, 32,000 new unit horsepower that averaged more than 18800, horsepower per unit.

Approximately half of the new units were driven by electric motors.

We also executed several transactions as we continue our trust strategy to high-grade. Our Fleet in the quarter we divested approximately 35,000 horsepower of non-core, mostly small horse power, low margin aged units,

Next. Next let's discuss our recontracting efforts as I previously. Discussed the market dynamics, for large horsepower. Compression remain extremely favorable.

That is highly visible. As we once again recontract, a significant amount of horsepower, almost a half a million horsepower in the second quarter at rates that are above our current Fleet average.

Given strong customer demand, very high utilization, and disciplined decision-making by the contract compression industry, pricing conversations with customers. Can sit continue to be constructive.

These dynamics are driving the positive progress on our contract services adjusted gross margin.

Kodiak's Contract Services, address adjusted gross margins, set a new record at 68.3%.

Of 430 basis point increase compared to the second quarter of 2024.

In addition to the previously, discussed Revenue growth and Fleet optimization efforts were starting to see the cost benefits of several technology Investments.

Zodiac Fleet, reliability Center. Actively monitors our compression units on a remote real-time basis.

Paired with the use of industrial, artificial intelligence, and machine learning. Algorithms are technology platform is helping us with the early detection of part failures while extending maintenance intervals.

The result of these activities is lower costs and more proactive rather than reactive Asset Management.

The utilization of real-time equipment. Monitoring along with other improvements, allowed us to realize a sequence. A sequential decrease in repair costs this quarter

Operating in the new system today.

The system can consolidate several Legacy systems and help streamline business operations and enhance operational efficiency.

I'd like to thank all of the men and women at Kodiak who invested so much of their time and energy into this important implementation project.

We view this as the final step in in what has been a wonderfully executed CSI, integration that delivered Financial synergies that far, exceeded expectations.

Now, I'd like to turn to the outlook for the remainder of 2025.

Our contract Services, segment continues to deliver predictable and strong results, and we expect more of the same for the remainder of the year.

New unit growth in the third quarter is going to be higher than originally expected and considerably above 2 Q2 due to the timing of deliveries additionally since the end of the second quarter, we've acquired approximately 30,000 working horsepower.

a portion of which we were previously servicing as part of our contract operations business, and the rest were units with a customer that tuck in nicely in an area where we have existing operations.

As a result of this, we have incrementally raised the midpoint of our adjusted EV uh guidance through an increase in the midpoint of Contract Services revenue and adjusted gross margin.

Resulting in an incrementally, higher discretionary, cash flow Outlook.

The other services segment is inherently less predictable as the timing of a few projects can significantly move the needle. During the second quarter, we wrapped up a couple projects where we significantly outperformed our margins.

For scheduled to Begin work. On some quality new projects, late in Q3 and into 2026. We anticipate revenues for Q3 in this segment to be fairly comparable to Q2 and margins to be more in line with our guidance.

It's taking this into account, we revised our outlook for revenue for the rest of the year for other services.

Furthermore we continue to make great progress on our committed Capital plan. For next year we've, we've contracted much more new unit Capital at top tier rates and expect to fill out the remaining budget by year end.

And lastly we significantly increase and extended our stock repurchase program. Now I'll pass the call to John Griggs to further discuss our financial results and our updated guidance for the Year John

Thanks Nikki while the energy landscape is constantly changing. We remain focused on what we can control. We delivered another quarter of solid financial performance and great execution all around

As evidence of that adjusted ebitda for the second quarter was 178.2 Million.

A 15% increase versus last year's second quarter results.

From a segment perspective for the second quarter we achieved strong year-over-year, Revenue growth of over 6% in Contract Services in Contract Services Revenue per ending. Horsepower was $22.77 this quarter a nice uplift sequentially. Ian versus the same quarter last year.

Relative to Q2 of 24. We increased our contract Services, adjusted gross margin percentage by 430. Basis points to 68.3%, this significant increase in margin, reflects this success. We've realized in achieving higher average pricing alongside the progress. We made in both high-grading our Fleet and deploying new technology.

And our Other Services segment generated higher than expected gross margins on revenues of approximately $29 million.

Sgna net of non-cash items for the quarter was 28.8 Million up from q1 and in line with the More normalized Level going forward.

We reported net income attributable to common shareholders of $39.5 million, or 43 cents per fully diluted share, for Q2, a significant increase from the $6.2 million, or 6 cents per share, we earned in Q2 of '24.

Growth capex for the quarter was just under 38 million consisting, primarily of new unit capex, with a 32,000, new unit horsepower.

While growth capex was down from q1. We attribute this to timing as some deliveries moved to Q3.

We're still on track to add roughly 150,000 in new unit horsepower, over the course of 2025.

And that's before the 30,000 horsepower of working units. We've acquired in Q3 that Mickey highlighted earlier and that sit within our existing growth capex guidance.

Other capex was 16 million for the quarter as we previously. Noted other capex is front half weighted in 2025 and we expect it to come down significantly in Q3 and Beyond.

Of non-core horsepower.

Maintenance capex for the quarter was approximately 18 million consistent with our expectations.

Discretionary Cash Flow came in at 116 million up substantially from the 91 million generated in the same quarter of last year in free cash, flow was 70 million. Another company record,

With regard to the balance sheet, the record free cash flow combined with improved working Capital Management, including a 29 million quarter of a quarter reduction in accounts receivable.

Allowed us to pay down approximately 4948 million in debt. In Q2, we ended the quarter with just under 2.6%, exited the quarter at 3.6 times. Credit agreement, Leverage.

Last we declared a dividend of 45 cents per share as a reminder, even after growing our dividend by approximately 10%, earlier this year, our dividend is extremely well covered at 2.9 times.

Let's turn to guidance.

I'll remind everyone that our new compression units in 2025 are fully contracted, which combined, with the contracted nature of our of our existing compression, plea leads to stable and predictable cash flow.

Based on the trends we're seeing in fleet pricing and our outlook for growth and revenue generating horsepower, we increase the low end of our revenue outlook for contract services by $10 million.

And increase that segments, adjusted gross margin percentage to 67 and 67 to 69% a bump, to both the low and high-end of our prior range.

Given the timing of project starts. We reduced our revenue forecast for other services to between 120 and 140 million.

However, we left the outlook for adjusted gross margin percentage unchanged.

For Capital spending our prior guidance remains unchanged.

and as I mentioned earlier, that even after purchasing nearly 30,000 of working horsepower during Q3,

The recent passage of the 1, big beautiful, Bill increases certain tax deductions on capex and interest which were applicable to Kodiak.

Our analysis suggests, this new legislation will reduce our cash tax burden by roughly $60 million over the next 5 years.

Given our results today and the expectation of lower cash taxes. We increase our discretionary cash flow guidance to a range of 445 to 465 million.

To summarize.

You made a lot of progress on several key initiatives this quarter.

Our primary value driver, The Contract Services, segment continues to deliver smooth and steady growth in profits.

This provides further evidence of the success of kodiak's business strategy. Namely best-in-class us, focused large horsepower contract, compression and related Services. Finally we continue to deliver on our winning formula a reinvesting in the business, to grow, organically returning, cash to shareholders through an attractive and growing dividend and opportunistically reducing our share count through an active stock repurchase program with that. I'll hand it back to Mickey

Thanks John.

Our stable recurring cash flow, business model is performing well in the current environment.

Demand for contract compression remains strong.

As reflected in our pricing power and revenue growth.

We're adding new large, horsepower units, and capitalizing on opportunities, to add existing, working horsepower to our Fleet, as well as devest non-core underutilized, small horsepower units.

These strategic decisions have helped us set new Financial records in several key metrics. Allowing us to once again, increase margins and deliver growth in earnings per share.

Positioning us to continue to reward our shareholders for their investment in Kodiak.

Thanks for your participation today and now we're happy to open up the line for questions. Operator.

Thank you. We'll now be conducting a question and answer session.

If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

You may press star 2 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 key, please hold for a moment while we pull for questions.

Thank you. Our first question is from Jim Rollins with Raymond James.

Hey, good morning guys. Uh nice nice quarter and and thanks for all the Outlook commentary, Mickey um, would like to to dig in on that a little bit, your comments around.

List of data center investments that continue to actually ramp higher.

and LG permitted capacity. Uh, new permits have been added to where that Outlook over the next 5 years. Seems like it's gone up.

And obviously, the little macro has been weak, and the stocks have not acted great from where we were in the early part of the year. I'm curious what your view is of the disconnect between what's going on on the ground versus what investor sentiment seems to be.

Hey, good morning, Jim. I appreciate you. Um,

Joining us this morning and asking the question. I mean, um,

it's it's an interesting topic, right? Like, I think that the, um, the the interesting part about it is there seems to be just that disconnect between what investor sentiment uh, thinks is going on, uh, really in the premium Basin and and and what the reality is. And and I think a lot of it is is is the difference between, you know, the the producer. Um,

The producers and what they have to do with their gas versus oil growth, right? And so, I think there's a, a lot of people that attribute oil growth to compression demand and, and there's really a, a difference there between, you know, the, the, the gas growth and the oil growth, and the permanent Basin. So, I think that's kind of where it, it, it stems from. And, and, uh, so even in a, in a, in a choppy oil price, commodity Market, we're kind of bifurcated from that, because

The demand for large horsepower compression is is is continuing to grow because of the of the gas growth out of the Permian Basin.

Appreciate that, and maybe Switching gears on margins a little bit. You're, you know, had best margins you've had in in in, in a long time, maybe ever, uh, raise your margin guidance, a bit. As we think about this going forward, you know, your pricing kind of continues to Trend up, you highlighted, a few things on the technology side and new Erp system. All all that probably helped the cost side or at least keep it relatively stable. Is there any reason to think margins don't continue to kind of creep up at least into the upper end of your guidance over the next, you know, several quarters.

Uh, we would, we would hope so. Um, I think that's where uh, that's what we where we'd like to see it go. Um, we think that that there's definitely this Erp system that we've implemented. That we've been operating on this week is definitely going to make us some a leaner more efficient company. Um, now there's going to be some some learning curve associated with that. Um, but you know, we we we chose that system because we think it's going to make us uh, a more efficient better company. So, and and also have the ability to layer on some of the AI and, and machine learning type stuff that we can. We, we can develop and, and additionally, kind of, uh, layer on more technological advances, as, as we move forward. So, um, we, we would think that, uh, it'll continue to to tick up but, uh,

Obviously, like I said, there's going to be a little bit of a learning curve with this, uh, Erp implementation, uh, in the short term.

Gotcha, appreciate the color and thanks for the time.

Yep, thanks Jim.

Our next question is from John McKay with Goldman Sachs.

Hey, good morning guys. Thank you for the time. Uh, you talked through a couple kind of interesting things on the commercial side, um, but maybe you were just looking at the units, your acquiring from operators and, or partnering with. I mean, how should we think about those deals in relation to your 3 to 4%, annual growth in Horsepower? You've been talking about? Is that part of it is an incremental what could kind of the Cadence look like from here.

I think it's part of of part of what we're talking about. We don't have any any big deals uh, in the hopper that that would be, you know, Earth shattering. But uh, you know these couple little opportunistic type of developments that that we have, where we can pluck off some stuff that tuck in really nicely. It's something that um so that that we're really honed in on and and uh looking for more opportunities like that. So, um, I don't think they're going to be any, any, big needle mover type of Acquisitions but but nice type stuff that will help us, um, that a creep margins and that kind of thing is is going to be something that we're we're always in the market to look for

I appreciate that. Thanks and then you you guys touched on this a little bit, but just in terms of of buyback Cadence you know, how should we think about your kind of ability to lean into the new authorization? Is that dictated by

You know incremental free cash flow. Is that the balance sheet? Is it your view of the share price? Maybe just walk us through that.

Yeah. John um,

Softness in the, uh, in the share price. Like we've seen, uh, recently. Uh, it it, it gives us um,

It gives us.

Reason to kind of lean into that buyback and look at that pretty significantly. So we want to stay kind of within a stone's throw of that leverage target of where we're going to be and where we want to be. But also take advantage opportunistically of weakness in the share price.

All right, appreciate that. Thank you.

Yeah, thanks John.

Our next question is from Doug Irwin with City.

Thanks for the questions. Um I appreciate the the context you provided around the the Contracting efforts into 26. Just wondering if you're able to give any more detail around just where you see capex or Fleet editions, maybe trending into next year at least maybe directionally relative to the last few years.

Um or maybe a different way to ask. Just if you could help frame your level of confidence in next year's backlog relative to to maybe where you were at this point last year.

Yeah. Hey good morning Doug. Um, I don't think we're ready to to to Really throw a number out there um based on on kind of where we're at. Um, just because you know we we

We still have some finalization to do around budgeting for next year and that kind of thing. And and quite frankly, we're working on some, some pretty big deals that could uh, move the needle for us. So, you know, it's it's, it's not something that we're ready to guide on or or or kind of indicate right now. But I will tell you that, you know, we feel really good about where we're at right now as, as far as where we're at in the year and and what we've contracted so far. And, uh, and it's uh, pretty consistent with where we've been in past years. And, uh, and we think that um,

We shouldn't have a problem filling that out for the, for the remainder of the year. And and the the the third and fourth quarter that we're looking at,

Got it and then maybe just to follow up on asset sales. You you executed another 1 this quarter just curious. How much more would you have to chop? There is to to Fleet generally where you want it to be? Or is there maybe still some smaller horsepower that that could be viewed as non-core and then how are you thinking about proceeds in general? Could that be another leather to to potentially be able to recycle some cash and to buy backs?

Yeah. Doug, this is John. So, good question. We get asked about this a lot, so I think the overarching answer is we're constantly looking to high-grade the fleet. High-grading the fleet, in our minds, means large horsepower density, quality customers, and quality environmental aspects of our units. So, we will always look at every single asset to determine if it is providing the appropriate returns and margins, and if it's going to be core to the fleet.

Into our customers over the medium and long term. So that's the overarching kind of framework that we use. That said, we've sold a whole bunch of stuff since we bought CSI. I think in total, it's something like 160,000 horsepower that we've sold and we would deem 99% of that kind of non-core stuff. So we do have more that will continue to sell whether it's the asset or it's the geography. But we like to say it's just going to be, you know, pruning around the edges in small pieces. The cash proceeds that we've we received from those are small but of course we will redeploy that into the large horsepower or some of the other Capital, allocation framework, things that kind of seem to be best for the shareholder.

Understood, thanks for the time.

Thanks Doug.

Thank you. Our next question is from. Teresa Chen. With Barclays,

Morning, um, on the topic um of uh your customers experiencing elevated compression cough. And there's this natural potential between wanting to save money and investing in growth. Um what you touched upon earlier Mickey and these joint Partnerships with your customers to free up, free up their capex capabilities. Is this how you see the market evolving? Is this? A preferred means of capital deployment for you and are there other Creative Solutions like this to come.

Hey, good morning Teresa. Um,

Partner in compression. Uh, and that we're very important to what they do overall in their production, and their, their operations. So, um, yeah, that that kind of allocation priority for them of, of buying versus owning, uh, or versus Outsourcing compression is a is a strategic decision for them. Uh, in times like these in choppy commodity price environments. There's a lot of people that are are working to preserve Capital right now and I think that, uh, there is going to be more opportunities for like this, uh, going forward and, and we'll be look to capitalize on those and, and opportunistically jump on those as they happen.

Thank you. And on the topic of the significant Investments you've made, um, into your technology platform.

Can you talk about how much savings or ultimate margin uplift your targeting can even be quantified from these investments?

Um, good question. Um, uh, I know what, uh, we would like where we'd like to see our margins go. Um, you know, we have a pretty different operating model than a lot of other people in this industry. So, uh, with with um, with our margins, we think where we're at right now is really a high water mark, that 68.3% in in compression and operations, is is really a, um, is a high water. Mark for us, we think we can continuously drive that up through through.

Through, uh, additional, uh, you know, efficiencies and that kind of thing. Gained from not only our Erp system, but also our, our artificial intelligence machine learning, and that kind of thing. And we've really just, just beginning to scratch the surface of what that can do for us right now. So, um, can I quantify how how, how high it will go or what we, what our expectations are now, it's probably a little bit early to tell that, but we think that there's definitely, uh, upside here.

Thank you.

Thanks Teresa.

Our next question is from Sebastian Erskine with Rothschild and Company.

Yeah. Hi. Good morning. Uh, Mickey John and team good to with you this morning. Uh, most of my questions have been answered. I just kind of want to follow up on the last question in terms of the dynamic with your customers I guess 1 of the challenges that we saw in 2024 was produces you. Otherwise would have wanted to Outsource compression, kind of a forced to go directly to oems due to the tightness in the in the market. Can you talk about a bit more the evolution in lead times uh with caterpillar and Ariel? And also just the the potential appetite for me NPS to enter into kind of sale and and at least back Arrangements uh against the backdrop of kind of lower operating cash, flows, could that drive more Outsourcing? Uh, next year as a as a percentage of the mix

Hey, good morning Sebastian. Um so a couple of of um points to hit on there with those with that question. Number 1 lead times we haven't seen lead times from caterer aerial, you know drastically come in um um and and change significantly from where they're at and where they've been for the last couple years you know you're kind of 40 to 45 weeks out on the on the engine type lead times and and depending on shop availability and shop space you know there's an additional amount of time to get it built and get it out the door. So haven't seen it. Those, you know, appreciably change. Um,

Um um, significantly over the over the last, you know, 3 to 6 months um, as far as the entps and and and the the people that own their own uh, compression. I think that that's a, uh, you know, that's pretty customer by customer specific on on what their Capital allocation priorities are. And uh, there's going to be some that are are very apt to want to Outsource more and more all the time. Like I said earlier than from a capital preservation mode right now from a with, with cash flows, being a little bit lower with a lower commodity price. Potentially, um, so I think that, you know, we'll just look to to have those discussions with customers on an opportunistic basis and and and people that are interested in in working on something like that will certainly be uh interested in having those discussions with them.

Appreciate that uh that Mickey. And then just a broader point on the consolidation in the in the sector. I mean I I'd appreciate your view on some of the kind of biggest kind of learnings and challenges from the CSI compressco acquisition. Now that we've had some time for that to to kind of bed in. Um and then I guess in terms of the the nature of the fleet in the remaining kind of 25% or so of that outsourced Market that's not controlled by you and the and the Big 3, um can you give a sense of what that looks like in terms of quality and and and the nature of the of that horse part?

The, you know, the nature of the fleet that's not controlled by by call it the Big 3 in this industry. Um, there there's a couple private operators out there that have some attractive of assets, that, that we've been be interested in. But honestly, the, the, uh, um, the list is getting shorter and shorter all the time. And and the majority of what else is out there is is is probably, um, dominated by smaller type horsepower. That's not really core to to what we're looking for. So, uh, that all being said, I think that there's there still could be some some interesting m&a opportunity out there but uh, but it is getting thinner all the time after considering the consolidation in the industry.

I'll touch the side. You know 7 this is John I'll touch on the CSI acquisition. I think we would sum it up, is a wonderful acquisition. Uh strategically financially, culturally, like we're really blessed that we were able to put that deal together. Uh we started out. I think we guided a day of announcement, maybe 20 million of synergies. We stopped counting at probably 45.

Uh million dollars and that's really good. Um we we're in the last step of the integration which is this Erp system and so far. So good hats off to Our IT team. And all the folks that have been involved it's going really really well. So look if we could find more like that all day long uh but our focus is on increasing shareholder value and being highly strategic and how we act. And so it's going to have a pretty high bar on what we want to go do.

I appreciate it, John, and I appreciate Mickey. Thanks very much, and congrats on the print. Thank you.

Yeah, thanks Sebastian.

Our next question is from Brian dubio with Bayer.

Good morning, gentlemen. Just a couple of questions for me. Uh, just out of curiosity, Mickey, John, you know, what are your competitors complaining about labor availability? That's something I haven't heard, uh, anybody in this industry say for about two years now. You know, is that an issue that you guys are seeing at all?

Um, hey, good morning, Brian, thanks for, uh, joining us this morning. Um,

You know, the labor continues to be tight in the permanent Basin. There is, there's no doubt about that. And we don't think we've seen that alleviate for for 2 or 3 years. Now since, you know, since, uh, kind of the postcovid era. So, you know, that's a challenge that everybody deals with, uh, in the Permian Basin and, and something that we spend a lot of time and effort working on, which is why we've kind of deployed and developed this, uh, our Bears Academy and, and our our Elite training program that we have for for operators and, and to get younger, um, less experienced, uh, technicians, uh, up to speed and, and, uh, uh, trained up to to do their jobs, effectively and safely, uh, as soon as possible as we, as we hire, uh, younger people that that have less experience in the industry. So something that we're very focused on and something that we we are are are work.

Working to develop additional Technologies to help Advance uh, the careers of of our of our less experienced people at all the time.

No, appreciate that. And then just as we

Think about the acquisitions of the assets that you acquired from operators during the quarter. Is there any way you can help us understand sort of the economics of that versus maybe some of the recent M&A transactions in the industry? Do you think you're getting a better return on these investments compared to those? Just trying to understand the economics there.

And it's a great question. So it's this is John again. So so

No 2 acres are the same and and you're going to usually buy stuff and it's it's in creates extra density within your operation or if it's the right horsepower or both and you're trying to get all all of those things to line up or where the customer.

So that you really want to work for, and I'd say, in this case, these are opportunistic opportunities, where we had great people. We had, we didn't have enough density in certain areas and we had a uh, the, the counterparty that was willing to sell them because they had the opposite. It was like something they were ready to move forward on. So the economics are, you know, call it somewhere between 200 and 400 a horsepower uh, typically because you're going to be buying something used, or you can pay something more in the return on investment. You don't just base it specifically on that you're kind of thinking strategically around the area that you're going to drop those into. They can be really compelling.

Left to understand. I know it's very tiny, but I love to understand any dynamics around that.

Yeah, um, Brian. Yeah, that that's true. It is a very, very, very small part of our business right now. But you know, it's it's 1 of those things that we haven't put a ton of capital in and and we've just kind of uh continue to operate it as as a cash flow business. Um, that is profitable. Um,

Uh, coming out of that out of the acquisition. So our our, like I said that, the capital allocation priorities has been number 1 on on growing the large horsepower Fleet. But uh, we still have some of those hanging plants and gas coolers and that kind of thing. That was, that was, uh, a a small part of the CSI business that we've continued to cash flow over the time.

Is that so? Could you think you're thinking about maybe ultimately exiting, or are you just going to keep it running for cash at this point?

I think the plan right now is just keep it running for cash right now and um and and continue to keep it utilized and and continue to harvest that cash out of that business.

Got it. Appreciate all the responses. Thank you.

Yep. Thanks Brian.

Our next question is from Jeremy tonne with JP Morgan.

Hey, this is Eli. Um maybe just wanted to touch a little bit on the electric side versus gas. I know in previous quarters. Um there was a lot of focus on electric motor Drive compression. And I just wanted to get a sense of where that stands today and what your customers are kind of asking for, as they, you know, start to fill up orders into 2026 and Beyond, uh, what that market looks like. Thanks.

Yeah, thanks, uh, Eli. I appreciate you joining us this morning. Um,

You know, we're still seeing we're still seeing pretty significant Demand on the electric motor driven side of of the business, you know, um, our the, the large players in the industry that that are some in our top 10. Customer lists are still pretty significantly. Looking at electric motor driven compression, uh, they still have goals to Electrify, uh, additional compression over the course of the next several years. Um, there's there's no doubt that access to power is a challenge for everybody surrounding the Permian Basin and it really is is again, is is kind of a customer Buy customer thing that that as people are are closer to metropolitan areas and closer to uh power sources. They're they're much more apt to, to want to, to want to Electrify or, or go with electric compression than people that are in more remote areas. So, it really has a lot to do with where the acreage is that they're producing from, uh, and, and kind of

Their corporate goals. So some people are very interested in electric some people are are are not very interested at all. So um that all being said we're still seeing demand for electric compression. We're still going to lean into it and and still be uh uh very good at it and and be a quality supplier to our customers.

And then, you know,

I think margins and pricing have been touched on this, you know, quite a bit this call, but just maybe to put another point on it. Um, we continue to see dollars per horsepower per month, move up into the right. Um, you know, should we expect this trend to continue and um, you know, how kind of consistently does that continue to move up? Is it just a function of uh new unit recontracting and and other sort of items like that, but just trying to get a sense of how much more we could expect to see that metric move up into the right.

I mean um Eli our our goal is to continue to move that up every quarter from uh from here on out. You know that's that's what a that that that's the what we've tasked our commercial team with and and uh as we are, as we're adding contracts for nuke equipment, that is uh at higher rates than the fleet average, you should see positive pressure there on on that number. Um, you know, you have to keep you have to keep in mind that as you know how much horsepower is deployed in any quarter. Uh when you have a heavy amount of horsepower deployed which we which is what we're expecting for Q3 uh and you have partial quarters.

In our q1 earnings call, uh, or uh, the call where our dollar per horsepower fell and people immediately like latched onto that and assumed that, you know, the bloom was off the roads and the compression market and pricing falling when it was absolutely not the case, that was a function of asset sale, nothing had changed. It was a function of asset sales was function of kind of when the horsepower came in. So we're making just said, we will have a large uh I guess amount of horsepower coming in in Q3 that's going to be something. We're going to be ahead of this time. To make sure that the market doesn't misinterpret adding a lot of horsepower later in the quarter with any softness in the marketplace, if they're softness will tell you but uh don't get confused by that number.

Thank you. There are no further questions at this time. I would like to hand the floor back over to Mickey McKee for closing comments.

Thank you, operator. And thanks to everyone participating. In today's call, we look forward to speaking with you again, after we report our results, for the third quarter. Thanks.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.