Kodiak Gas Services Q2 Earnings Call Highlights

Key Points

• Record Q2 results: Revenue rose 21% year over year to $391 million, while adjusted EBITDA increased 22% to $217 million. Compression margins reached 70% as pricing, utilization and operational efficiency improved.
• Power expansion accelerates: Kodiak secured approximately 1.8 GW of generation capacity and is targeting 2 GW by 2030, supported by a Baker Hughes turbine agreement and a growing data-center project pipeline.
• Outlook strengthened: The company raised 2026 adjusted EBITDA guidance to $830 million-$860 million and discretionary cash flow guidance to $570 million-$600 million, while lowering power infrastructure capital expenditure guidance to $400 million-$450 million.

Kodiak Gas Services NYSE: KGS reported record second-quarter adjusted EBITDA and raised portions of its 2026 outlook, as its contract compression business delivered higher pricing and margins and the company advanced plans to build a larger behind-the-meter power generation platform.

The company reported second-quarter revenue of $391 million, up 21% from a year earlier, and adjusted EBITDA of $217 million, up 22% year over year. Adjusted net income was $54 million, or $0.55 per diluted share, according to Executive Vice President and Chief Financial Officer John Griggs.

Management attributed revenue growth primarily to the addition of DPS, alongside continued expansion in its Compression Infrastructure business. Kodiak acquired DPS four months ago and has since focused its Power Infrastructure commercial efforts on larger projects with longer-term contracts, the company said.

Compression Business Posts Higher Pricing and Margins

In Compression Infrastructure, Kodiak ended the quarter with 4.4 million revenue-generating horsepower. Revenue-generating horsepower increased by about 24,000 sequentially, while fleet utilization reached 98.2%.

Revenue in the segment increased 7% year over year and 3% from the prior quarter. Ending revenue per horsepower was $23.80, representing a 4.5% increase from a year earlier. Compression Infrastructure adjusted gross margin was 70%, up 170 basis points year over year and marking the second straight quarter at or above that level.

Griggs said the margin performance occurred despite increased lubricant oil expenses. He said the company mitigated those costs through vendor relationships, supply-chain management, and operational improvements tied to training, artificial intelligence and machine-learning tools.

“What we see is we truthfully break things less,” Griggs said, describing the effects of expanded fleet monitoring and maintenance practices. “We fix things when they need to be fixed, not just based on hours and time, and we have higher labor productivity.”

Chief Executive Officer Mickey McKee said Kodiak added approximately 80,000 horsepower during the first half of 2026 and expects to add about 170,000 horsepower for the full year. The company has secured large-horsepower compressor packages for delivery in 2027, 2028 and 2029, and is already about 50% contracted for its 2027 deliveries, he said.

Kodiak continues to target annual fleet growth of roughly 150,000 horsepower and a compression fleet of at least 5.2 million horsepower by the end of 2030.

Power Platform Targets 2 GW by 2030

The company’s new Power Infrastructure segment generated $33 million of revenue and a 65% adjusted gross margin in the second quarter. Kodiak exited the quarter with a 405-megawatt power fleet, about 90% of which was utilized, McKee said.

Kodiak recently entered a multiyear gas-turbine supply agreement with Baker Hughes that provides 1 gigawatt of turbine capacity through 2030, with an option to increase the order by up to 1.8 gigawatts. Including previously announced generation purchases and other acquisitions, Kodiak said it has secured approximately 1.8 GW of generation capacity available by the end of the decade. About 66% of that capacity is expected to be turbines.

The company is seeking to reach 2 GW of power-producing assets by 2030. Griggs said the target fleet composition remains roughly three-quarters turbines and one-quarter reciprocating engines.

Management said it expects to receive approximately 50 MW of new generator sets in the second half of 2026. Deliveries are expected to increase in 2027, though McKee said the first significant Baker Hughes turbine deliveries are expected near the fourth quarter of that year. Kodiak expects power deliveries to average roughly 400 MW annually over the subsequent years, he said.

Kodiak estimates average raw generation equipment costs of about $1.2 million per megawatt, before balance-of-plant components. Griggs said total costs including balance-of-plant equipment are expected to be approximately $1.5 million per megawatt, plus or minus depending on project requirements.

Data Center Pipeline Expands

McKee said the company’s commercial pipeline has expanded rapidly, with about 2 GW of potential projects added during the past month. Kodiak has also moved away from opportunities that did not meet its timing requirements or counterparty standards.

The company executed a limited notice to proceed for detailed engineering and design work on a West Texas data center project whose capacity is leased to a hyperscaler. Kodiak has invoiced an initial deposit to reserve equipment while negotiating a long-term contract that could begin supplying power in early 2027 and scale over time.

McKee said the initial project is expected to be below 100 MW, reflecting Kodiak’s limited available capacity early next year, but it could expand. The company expects to provide a more substantive update before the end of 2026.

When evaluating power projects, Kodiak is prioritizing the creditworthiness of the counterparty and the maturity of a data center’s tenant commitments, McKee said. Management said it is generally pursuing 10- to 15-year contract terms, although some projects could involve seven- or eight-year agreements depending on their economics.

Griggs said the company continues to support its prior target of five-year paybacks and unlevered internal rates of return above 15% for power projects.

Guidance Raised, Power CapEx Outlook Reduced

Kodiak raised its 2026 Compression Infrastructure adjusted gross margin guidance to 69% to 70.5%. It also increased adjusted EBITDA guidance to $830 million to $860 million and discretionary cash flow guidance to $570 million to $600 million.

• Compression Infrastructure capital expenditure guidance increased to $280 million to $300 million.
• Power Infrastructure capital expenditure guidance was reduced to $400 million to $450 million.
• Other capital expenditure guidance was unchanged and excludes a $43 million non-cash capital lease related to a Midland facility.

The higher compression capital spending outlook includes $33 million used to terminate operating leases on 43,000 horsepower of contracted large-horsepower equipment. Griggs said the transaction converted leased equipment into owned assets and was financed using Kodiak’s lower-cost asset-based lending facility.

Power capital spending guidance declined because the company has gained greater certainty on equipment pricing, delivery timing and payment terms through its supply agreements, management said.

Kodiak ended the quarter with approximately $2.6 billion in net debt and a leverage ratio of 3.1 times, which Griggs said was the company’s lowest on record. The company raised about $836 million, after expenses, through a primary equity offering in May. Its board also declared a quarterly dividend of $0.49 per share, which management said was covered more than three times by second-quarter discretionary cash flow.

About Kodiak Gas Services (NYSE:KGS)

Kodiak Gas Services, Inc operates contract compression infrastructure for customers in the oil and gas industry in the United States. It operates in two segments, Compression Operations and Other Services. The Compression Operations segment operates company-owned and customer-owned compression infrastructure to enable the production, gathering, and transportation of natural gas and oil. The Other Services segment provides a range of contract services, including station construction, maintenance and overhaul, and other ancillary time and material-based offerings.

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