Kodiak Gas Services Q3 Earnings Call Highlights

Key Points

• Record Q3 results: Revenue rose 25% year over year to $402 million and adjusted EBITDA increased 29% to $224.5 million. Kodiak raised the midpoint of its full-year adjusted EBITDA guidance to $850 million.
• Compression remains highly utilized: Fleet utilization reached 98.3%, with compression gross margin at 70% for a third consecutive quarter. Kodiak is contracting equipment for 2027 and 2028 amid strong Permian demand and long lead times for new engines.
• Power growth is building toward 2028: Power revenue increased 28% sequentially to $42 million, and Kodiak is developing a 76-megawatt West Texas data center project. The company expects a larger power-business ramp in early 2028, while lowering its 2026 power growth capital spending forecast to $350 million–$400 million.

Kodiak Gas Services NYSE: KGS raised the midpoint of its 2026 adjusted EBITDA guidance after reporting record third-quarter earnings, as strong demand for natural gas compression and extended power contracts helped lift revenue and margins.

The company reported revenue of $402 million, up 25% from a year earlier, and adjusted EBITDA of $224.5 million, up 29%. Net income was $71.5 million, or $0.70 per diluted share. Discretionary cash flow rose 36% to $158 million.

Chief Financial Officer John Griggs said most of the revenue growth came from Kodiak’s power infrastructure segment, while compression also expanded as the company added equipment at higher rates and raised prices on existing units.

Compression demand supports margins

Compression infrastructure revenue increased 7% year over year, and adjusted gross margin was 70%, the third consecutive quarter at or above that level. Kodiak ended the quarter with approximately 4.5 million revenue-generating horsepower and fleet utilization of 98.3%.

President and CEO Mickey McKee said demand remains strong as natural gas production grows in the Permian Basin. The company is making progress contracting its remaining available equipment for 2027 and has begun signing contracts for 2028, he said. Lead times for new Caterpillar 3600 engine classes remain close to 190 weeks.

Griggs said revenue per ending horsepower was $23.51, up 3% year over year but lower sequentially. He attributed the quarterly decline to operating lease buyouts, which increased the horsepower denominator, and the termination of a high-revenue, low-margin contract. Without those events, the figure would have been slightly above $24, he said.

Kodiak has also agreed to lock in the vast majority of its lube oil purchases at a fixed price for 2027, after a roughly 30% increase in costs since the first quarter. Griggs said the arrangement substantially reduces the company’s exposure to month-to-month price volatility.

Asked about Kodiak’s longer-term compression outlook, Griggs said purchase-leasebacks and operating lease buybacks had raised the mathematical outcome of its previously discussed growth plan to approximately 5.3 million horsepower. “If pressed, I’d say the over on the 5.3 million,” he said, citing expected Permian gas growth.

Power build-out targets 2028 ramp

Power infrastructure revenue rose 28% sequentially to $42 million, with an adjusted gross margin of 75%. Griggs attributed the gains to expanded commissioning work at a data center project and extensions of high-rate, short-term contracts. The power fleet stood at 413 megawatts at quarter end, with 382 megawatts generating revenue.

Kodiak has begun site work for its previously announced 76-megawatt West Texas data center project. McKee said deployment is expected to begin at the end of December and continue into January and February, with the goal of energizing the project before the end of the first quarter of 2027. The company plans to use 40 reciprocating natural gas generators, drawing equipment from seven existing sites alongside some new units.

Pulling equipment from existing assignments will temporarily reduce fourth-quarter power margins, executives said. Once the West Texas project is running, McKee said power revenue should be roughly in the range of the third-quarter run rate.

McKee said Kodiak is in advanced discussions on power projects across multiple states, with most opportunities under consideration in Texas. Following the recent elections, he said there was some uncertainty in Texas but that the overall tone of customer discussions indicated little change in development plans. He added that Kodiak could deploy power elsewhere if needed.

Prospective power contracts generally have minimum terms of 10 years, with most at 15 years, McKee said. Griggs said projects under discussion were expected to produce returns in the high teens or better, with cash-on-cash payback periods of approximately five to six years.

The bulk of Kodiak’s ordered Baker Hughes turbines are scheduled to begin arriving in the fourth quarter of 2027. Griggs said the significant ramp in the power business is expected in early 2028, although additional reciprocating equipment is due during 2027. Kodiak has committed to purchase approximately 1.1 gigawatts from Baker Hughes through 2031, representing more than $1.4 billion in capital, he said.

Guidance and capital spending

Kodiak raised the midpoint of its full-year adjusted EBITDA guidance to $850 million and narrowed its compression infrastructure adjusted gross margin range to 69.5%–70.5%. It also raised the low end of its power margin range, saying third-quarter performance should more than offset the effects of repositioning equipment.

The company reduced its power growth capital spending forecast to $350 million–$400 million as some equipment deliveries shifted into 2027. It expects approximately 16 megawatts of new reciprocating power equipment in the fourth quarter, bringing the year’s total to 29 megawatts.

Kodiak ended the quarter with approximately $2.8 billion in debt, a 3.1-times leverage ratio and about $1.6 billion in unused revolving credit capacity. Its board declared a $0.51-per-share dividend, up 4% from a year earlier, to be paid later in November.

About Kodiak Gas Services (NYSE:KGS)

Kodiak Gas Services provides contract natural gas compression services to energy companies in the United States. Its equipment helps move natural gas from production sites through gathering and processing systems and into pipelines.

The company supplies, installs, operates and maintains compression equipment, including large-horsepower compressor units. Its services support natural gas production and transportation across major U.S. oil and gas regions.

Based in The Woodlands, Texas, Kodiak became a publicly traded company in 2023.

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