Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kodiak Gas Services Inc (KGS, Financial) achieved a record quarter with revenues of $310 million and adjusted EBITDA of $154 million.
- The company successfully integrated the CSI acquisition, exceeding initial cost synergy estimates, now expecting over $30 million in synergies.
- KGS increased its contract compression fleet by over 150,000 horsepower while maintaining financial discipline and living within cash flow.
- The company announced an 8% increase in its quarterly dividend to $0.41 per share, reflecting strong shareholder returns.
- KGS has effectively contracted its entire CapEx spend for 2025, with a significant portion dedicated to electric motor-driven units, indicating strong future demand and growth potential.
Negative Points
- The integration of CSI assets is still ongoing, with challenges remaining despite initial success.
- KGS faces potential sales and use tax charges related to parts consumption for owned compressors, impacting financial results.
- The company is experiencing tightness in the market for large horsepower compression, which could limit growth opportunities.
- KGS is losing market share to in-sourced compression solutions due to capital discipline constraints in the industry.
- There is uncertainty regarding the electrification trend, with grid constraints in certain areas potentially limiting the feasibility of electric compression solutions.
Q & A Highlights
Q: Can you provide a medium-term outlook for EBITDA growth and discuss potential revenue synergies from the CSI deal?
A: Mickey Mckee, President and CEO, stated that the forward outlook is positive. The company expects a run rate of $162 million in quarterly EBITDA, which is representative of future expectations. However, it's too early to quantify revenue synergies from the CSI acquisition, as they have only owned the business for a quarter.
Q: How does the trend towards electrification impact your capital discipline and customer demand?
A: Mickey Mckee explained that electrification will have pockets where it makes sense, but it won't change the industry's capital discipline. About half of their 2025 CapEx will be spent on electric-driven motor machines for specialized projects. The demand for electrification varies among customers, and large horsepower electric motor-driven equipment is different from smaller units.
Q: What is the plan for selling non-core assets, and what proceeds do you expect?
A: Mickey Mckee mentioned that they plan to divest 150,000 to 200,000 horsepower of non-core assets. The first batch of sales is expected to generate $15 million to $20 million in annual revenue, with proceeds being less than the company's trading multiple. The focus remains on large horsepower, domestic US operations.
Q: How do you view the supply and demand outlook for compression over the medium and long term?
A: Mickey Mckee believes the tightness in the compression market will persist for many years due to increasing demand from LNG plants and power generation. The supply of natural gas will require significant compression, especially from oily basins like the Permian. The industry is showing capital discipline, which restricts supply and supports long-term demand.
Q: What is your view on the M&A landscape following the CSI acquisition?
A: Mickey Mckee stated that Kodiak is not actively pursuing M&A in the short term, as they are focused on integrating the CSI assets and delivering shareholder value. The company aims to build a strong foundation for future growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
