Kodiak Gas Services, Inc. (NYSE:KGS) is a leading operator of contract compression infrastructure in the United States. The company's compression operations and related services are critical to its customers' ability to reliably produce, gather and transport natural gas and oil. Kodiak is a market leader in the Permian Basin, the largest producing natural gas and oil basin in the U.S.
Business Overview
Kodiak operates its large horsepower compression units under stable, fixed-revenue contracts with many upstream and midstream customers. The company's compression assets have long useful lives consistent with the expected production lives of the key regions where it operates. Kodiak's customer-centric business model positions it as the preferred contract compression operator for its customers, creating long-standing relationships.
Kodiak strategically invests in the training, development and retention of its highly skilled and dedicated employees, and believes their expertise and commitment to excellence enhances and differentiates its business model. Furthermore, Kodiak maintains an intense focus on being one of the most sustainable and responsible operators of contract compression infrastructure.
Kodiak manages its business through two operating segments: Compression Operations and Other Services. Compression Operations consists of operating company-owned and customer-owned compression infrastructure to enable the production, gathering and transportation of natural gas and oil. Other Services consists of station construction, maintenance and overhaul, plus other ancillary time and material-based offerings.
Financials
For the full year 2023, Kodiak reported annual revenue of $850,381,000 and annual net income of $20,066,000. The company's annual operating cash flow was $266,326,000, and its annual free cash flow was $46,531,000.
In the first quarter of 2024, Kodiak's total revenues were $215,492,000, up 13.4% compared to the first quarter of 2023. The increase in revenues was driven by year-over-year growth in both the Compression Operations and Other Services segments.
Compression Operations revenues for the first quarter of 2024 were $193,399,000, up 8.8% compared to the first quarter of 2023. The top-line growth was driven by a combination of higher pricing on the incumbent fleet and an increase in overall revenue-generating horsepower from fleet additions.
Compression Operations adjusted gross margin percentage was just shy of 66% in the first quarter of 2024, which is at the high end of the company's guidance range. Kodiak's management attributed the strong margin performance to a combination of revenue rate increases and cost control.
In the Other Services segment, revenues were $22,093,000 in the first quarter of 2024, up 78.0% compared to the first quarter of 2023. The increase was primarily due to a $9.5 million rise in revenues from station construction services, reflecting an increase in demand and scope of station projects.
Kodiak's adjusted EBITDA for the first quarter of 2024 was $117,762,000, up 10.8% compared to the first quarter of 2023. The company's adjusted EBITDA margin for the quarter was 54.6%.
Capital Expenditures
On the capital expenditure front, Kodiak's maintenance capital expenditures were $10,642,000 in the first quarter of 2024, while growth capital expenditures were $59,401,000, including $9.9 million in increased accrued capital expenditures. The company's growth capital expenditures are front-end loaded this year, reflecting the timing of new unit orders in 2023.
Liquidity
As of March 31, 2024, Kodiak had total debt of $1.9 billion, consisting of $750 million in senior unsecured notes and borrowings under its asset-based lending (ABL) facility. The company had approximately $1.1 billion of availability on its ABL facility as of the end of the first quarter.
Recent Developments
On April 1, 2024, Kodiak completed the acquisition of CSI Compressco, creating the industry's largest contract compression fleet with revenue-generating horsepower of approximately 4.3 million. The company issued 6,785,673 shares of common stock and 5,562,273 shares of preferred stock with an equal number of limited liability company units representing economic interests in Kodiak Services to CSI Compressco unitholders.
2024 Guidance
Kodiak provided updated guidance for the full year 2024, which includes 12 months of Kodiak's contribution and 9 months of CSI Compressco's contribution, as well as anticipated synergies. The company expects revenues to range between $1.125 billion and $1.175 billion, and adjusted EBITDA to be between $580 million and $610 million. Kodiak also forecasts maintenance capital expenditures of $55 million to $65 million and growth capital expenditures of $215 million to $235 million for the year.
Dividend
The company's Board of Directors recently declared a quarterly cash dividend of $0.38 per share, payable on May 20, 2024, to shareholders of record as of May 13, 2024. This equates to an annualized dividend of $1.52 per share and a yield of approximately 5.4% based on Kodiak's current stock price.
Outlook
Kodiak's management is confident in the company's ability to deliver significant synergies from the CSI Compressco acquisition, which will drive incremental value for its combined shareholder base. The company is also excited about the long-term growth prospects for natural gas compression, driven by increasing demand from LNG exports, power generation, and other factors.
Conclusion
Overall, Kodiak's strong first-quarter performance, strategic acquisition, and positive outlook for the compression infrastructure market position the company as a dominant force in the industry. The company's focus on operational excellence, customer service, and sustainable practices continue to differentiate it in the market.