Kodiak Gas Services Q4 Earnings Call Highlights

28 Feb 2026, 16:40 by Danessa Lincoln · The Markets Daily

Kodiak Gas Services (NYSE:KGS) management said the company delivered record financial results in 2025, driven by fleet high-grading, strong utilization, constructive pricing, and operational initiatives that the company said are lowering costs and improving uptime. On a conference call to discuss fourth-quarter and full-year 2025 results, President and CEO Mickey McKee and CFO John Griggs also outlined a 2026 outlook that excludes the company’s pending acquisition of Distributed Power Solutions (DPS), which management expects to close around the beginning of the second quarter.

2025 “record-setting” year and strategic repositioning

McKee said 2025 was “another record-setting year” for Kodiak, highlighting actions taken to focus the business on large-horsepower U.S. operations. He said the company divested underutilized, non-strategic small horsepower units and exited non-core operating areas, ending 2025 with “100% of our operations located in the U.S.” and what he called the largest average-horsepower fleet in the industry.

Operationally, management pointed to the implementation of a new ERP system, which McKee said has been operating without issue since August 1 and enabled the company to close its accounting books “in record time.” The company also discussed ongoing investments in AI and machine learning, including deploying a custom large language model to support field technicians and using “agentic AI” to source repair parts across the system.

McKee also noted Kodiak broke ground on a new training and operations facility in Midland that is expected to be “the largest of its kind,” with plans to move in during May.

Full-year and fourth-quarter financial performance

For 2025, management reported total revenue of about $1.3 billion, up 13% from 2024, and adjusted EBITDA of about $715 million, up 17%. Griggs added that adjusted net income was $139 million, up 51% year over year. McKee said the company generated $230 million of free cash flow in 2025 after investing in fleet growth and high-grading initiatives, while Griggs said discretionary cash flow totaled roughly $462 million for the year.

For the fourth quarter, revenue was nearly $333 million, up 3% sequentially, which Griggs attributed in part to recontracting activity around the beginning of the quarter. Revenue per earning horsepower was $23.10 at year-end, up 2% sequentially and roughly 5% year over year, reflecting a mix of recontracting at higher rates and the cadence of new unit deployments.

Profitability in Contract Services improved, with management emphasizing a fourth-quarter adjusted gross margin percentage above 69% (69.2% cited by McKee), up 247 basis points year over year and above the high end of company guidance. Griggs said margin gains reflected higher average pricing per horsepower and lower operating expense per horsepower, which he tied to technology, process, and training initiatives that reduced costs, deferred spending, improved labor productivity, or a combination of the three.

In the Other Services segment, Griggs said fourth-quarter revenue was just over $31 million, with a 13% adjusted gross margin, driven sequentially by increased shop services and station construction revenue. McKee described the segment as generating free cash flow with minimal capital investment.

Griggs reported fourth-quarter net income attributable to common shareholders of nearly $25 million, or $0.28 per diluted share. Excluding items including asset impairment, severance, and transaction expenses, adjusted net income was $35 million, or $0.40 per diluted share.

Capital allocation, leverage, and balance sheet actions

Management highlighted significant balance sheet and capital return activity in 2025. McKee said Kodiak managed the exit of its former private equity sponsor, noting EQT held about 76% of shares after the 2023 IPO and fully exited through a series of secondary offerings.

On leverage, both executives said Kodiak achieved its 3.5x leverage target at year-end 2025. Griggs said the company exited the year with about $1.5 billion in undrawn liquidity and more than three years before its first debt maturity. He recapped that the company “turned out” $1.4 billion of bank debt in the bond market during 2025, including what he described as the first issuance of a 10-year bond in the compression sector, and amended its ABL to reduce interest rate spreads and enhance flexibility.

For shareholder returns, McKee said Kodiak increased its dividend, with the fourth-quarter declared dividend up 20% year over year, and repurchased more than $100 million of common stock at an average price of $33.79 per share. He said the company returned more than $260 million to shareholders in 2025. Griggs said the board declared and paid a dividend of $0.49 per share, and noted the dividend was covered 2.6x for the quarter.

Market backdrop: Permian gas growth, LNG, and equipment lead times

Management spent considerable time discussing natural gas market drivers and supply chain constraints for large-horsepower engines. McKee said Kodiak ended 2025 with 4.35 million revenue-generating horsepower, with average horsepower per revenue-generating unit of 970, and added about 150,000 new large horsepower during the year. Fleet utilization reached 98%, which management described as industry-leading.

Looking ahead, McKee pointed to expected additions of roughly 4.5 Bcf/d of incremental Permian gas pipeline takeaway capacity over the next three quarters, with another 7 Bcf/d expected by the end of the decade. He also cited estimates of more than 2 Bcf/d of in-basin gas consumption for power generation by the end of the decade, alongside increasing LNG feed gas needs. Management said LNG export capacity increased roughly 3 Bcf/d in 2025 and is set to rise another 2 Bcf/d in 2026, with an additional 13 Bcf/d expected by the end of 2035.

Against that backdrop, McKee said lead times for new large-horsepower compression equipment have risen to more than 100 weeks, prompting earlier customer commitments. He said Kodiak has begun receiving commitments for new equipment in 2027 and 2028 and has already secured engine deliveries and shop space into 2028. In total, he said the company expects to deploy more than 750,000 new large horsepower of compression between now and the end of 2030.

During Q&A, management attributed some of the tightening in engine supply to power-related demand inside midstream processing plants in the Permian Basin, where limited access to grid power is causing developers to switch from electric motor-driven compression to large natural gas-driven engines. McKee also said the company is taking a higher degree of “spec ordering” risk than it would have six months ago in order to secure supply, though he noted the company does not have to commit 100% of the capital cost two years in advance.

2026 guidance (excluding DPS) and distributed power plans

For 2026, management said the company plans to deploy roughly 150,000 new unit horsepower, with an average horsepower per unit of about 1,700 HP. McKee added that Kodiak’s new unit horsepower order book is “fully contracted for 2026 and into 2027,” and said the company is working on 2027 and 2028 planning.

Griggs provided 2026 guidance that excludes DPS, with the company expecting:

Revenue: $1.37 billion to $1.43 billion
Contract Services adjusted gross margin: 67.5% to 69.5%
Adjusted EBITDA: $750 million to $780 million
Maintenance CapEx: $75 million to $85 million
Growth CapEx: $235 million to $265 million
Other CapEx: $40 million to $50 million

Griggs said the EBITDA midpoint implies about 8% growth, which he said aligns with an upper single-digit annual growth rate management believes is possible in the core compression business “for the foreseeable future.” He also said the company guided Contract Services margins somewhat conservatively after what he described as a “really clean” fourth quarter with fewer cost “gremlins” than typical.

On pricing, McKee said customer pricing conversations remain constructive and the company’s goal remains to reach $24 per horsepower by year-end. He noted that a smaller portion of the fleet is up for recontracting in 2026 than in 2025, when the company recontracted about 40% of the fleet. McKee also said Kodiak exited 2025 with only about 10% of contracts on a month-to-month basis, with the remainder under multi-year contracts.

Regarding DPS, McKee said Kodiak has received inbound interest in its distributed power offering since announcing the acquisition and is already working to procure additional power generation capacity through its vendor network for deployment after closing. Management said they plan to revise guidance after the transaction closes. McKee also said the company is in discussions with some customers about purchase leaseback opportunities in compression and expects to announce one soon.

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.