Greetings, and welcome to Kodiak Gas Services Conference Call and Webcast to review fourth quarter and full year 2025 results. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Graham Sones, Vice President, Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining us for the Kodiak Gas Services webcast to review fourth quarter and full year 2025 results. Participating from the company today are Mickey McKee, President and Chief Executive Officer; and John Griggs, Executive Vice President and Chief Financial Officer. Following my remarks, Mickey and John will review recent developments, discuss our financial results and 2026 outlook, and then we'll open the call for Q&A. There will be a replay of today's call available via webcast and also by phone until March 12, 2026. Information on how to access the replay can be found on the Investors tab of our website at kodiakgas.com. Please note that information reported on this call speaks only as of today, February 26, 2026, and therefore, you're advised that such information may no longer be accurate as of the time of any replay listening or transcript reading. Comments made by management during this call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views, beliefs and assumptions of Kodiak's management based on information currently available. Although we believe the expectations referenced in these forward-looking statements are reasonable, various risks, uncertainties and contingencies could cause the company's actual results, performance or achievements to differ materially from those expressed in the statements made by management, and management can give no assurance that such statements or expectations will prove to be correct. The comments today will also include certain non-GAAP financial measures. Details and reconciliations to the most comparable GAAP measures are included in yesterday's earnings release, which can be found on our website. And now I'd like to turn the call over to Kodiak's President and CEO, Mr. Mickey McKee. Mickey?

Thanks, Graham, and thank you all for joining us today. I'd like to begin today's call, as we do with all meetings at Kodiak by discussing safety. I've said this before, but our goal is for each of our employees to return home safely to their families at the end of every day. We made great strides in our safety performance in 2025, but our goal remains 0 work-related injuries. I want to thank our safety and training teams who work hard to equip our employees with the knowledge and tools to do their job safely, our customers for embracing our safety culture; and lastly, our technicians who embody our safety-first mindset. 2025 was another record-setting year for Kodiak. We entered the year with a plan to continue to high-grade our compression fleet by divesting underutilized nonstrategic small horsepower units and to exit operations in noncore areas, allowing us to focus on our core large horsepower operations. I'm proud to say that we ended 2025 with 100% of our operations located in the U.S. and with the largest average horsepower fleet in the industry. The work we did high-grading our fleet also allowed us to deliver strong increases in fleet utilization, adjusted gross margins and free cash flow. Given the high margins and stable operations, our core compression business generates predictable, growing contracted cash flows that we reinvest both in our compression fleet and in tools and technologies that set us up for future success. Some of our highlights from the last year include: successfully implementing a new ERP system to provide us enterprise-wide, real-time information in order to make more informed business decisions. Our team did an amazing job with the rollout of the new software. We've been operating in the new system without issue since August 1. And…

Thank you. At the risk of sounding like a broken record, 2025 was an outstanding year. There's just no other way to say it. From a financial perspective, we exited the year with the lowest leverage, most liquidity and highest EBITDA free cash flow and contract services adjusted gross margin in our company's history. Our new enterprise-wide business system meaningfully reduces SOX-related risk and is increasingly providing us with enhanced visibility into our operating and financial performance, giving our company's leaders far better data and insights to ultimately make faster and better business decisions. Our financial strength has never been better equipped to capture all of the growth opportunities that are in front of us today. Before I tackle the financial highlights, I'd like to give a shout out to my team. I am so proud of everything they've accomplished over the past couple of years, an IPO and all of that entails, the CSI acquisition and integration, several capital markets transactions, more than $2 billion in bond issuances and ERP implementation and more recently, moving to full SOX compliance. It's been a big, big, big lift, but they've risen the occasion time to time again. I'm privileged to lead them, and I look forward to seeing them continue to do great things as we move forward. Let's turn to the financial highlights. For the year, we reported total revenue of approximately $1.3 billion, a 13% increase over 2024. The growth was primarily driven by the addition of new horsepower, price increases from recontracting activity and solid operational execution. We reported adjusted net income of $139 million and adjusted EBITDA of approximately $715 million, up 51% and 17%, respectively, from the prior year. For the fourth quarter, total revenues were nearly $333 million, up 3% sequentially as we benefited from…

Thanks, John. It's an exciting time to be at Kodiak. Our business model, which generates highly visible, stable and recurring cash flows is performing well. The demand outlook for contract compression remains robust, demonstrated by our ability to maintain strong pricing and continued growth in our industry-leading horsepower utilization. Our new unit horsepower order book is fully contracted for 2026 and into 2027, and we're actively working on finishing 2027 and 2028 as we capitalize on the robust outlook for growth in natural gas. Besides the top line growth, we took steps to increase margins by divesting noncore units and investing in technology to reduce costs and increase uptime. The pending DPS acquisition will further increase our earnings potential and growth outlook, enhancing our ability to return capital and drive ongoing value for Kodiak shareholders. Needless to say, we're excited about our future. Thanks for your participation today, and now we're happy to open up the line for questions. Operator?

[Operator Instructions] Our first question comes from Jim Rollyson with Raymond James.

Mickey, maybe just starting with the lead time comments, obviously, all you guys are seeing the same thing. And I'm curious, it's great to see the CapEx commitment on the compression side that just underscores, I think, your view there. But as you think about '27, '28 and where lead times have escalated to here pretty rapidly, how are customers thinking about that? How are you guys planning for that? Because I'm imagining that not only impacts your ability to grow on the compression side, but it's also on the power side once you get that closed. So maybe just some kind of color how you navigate that.

Jim, thanks for joining us today. Yes, it's been a challenge and it's a very fluid environment right now. We've been working really hard over the last couple of weeks to make sure that we secure our supply chain. And we -- like I said in my prepared comments, we've got -- we've got shop space and engines actually secured right now throughout 2027 and into 2028 and doing our best to stay ahead of that and make sure that we have adequate supply for what was the amount that we want to grow in the compression segment here. So I think, as you know, most of our customers also own their own compression equipment partially in their fleets. And so all of our customers already understand the tightness in the supply in the market and are willing to engage in those conversations well ahead of time for us to make sure that we have their needs covered. So our commercial team is doing a great job of staying ahead of it, and we're making sure that we're monitoring that situation on a real-time basis because I can tell you, it is changing by the hour.

Understood. And the other thing, you guys have had a slide in your deck since you IPO-ed kind of about the cost of equipment up 50%, let's say, pre-COVID to relative today. And obviously, that's driven a lot of pricing growth over time as you price new units and mark your fleet up over time. Curious with recent conversation with Caterpillar, given their lead times today, are they talking about more material pricing increases? And if so, wouldn't that allow you over time to kind of reap the same benefits going forward at some point?

Yes. I mean 2 parts to that question, right? I mean, I would expect that going forward that we'll have some pricing power and to be able to have constructive conversations with our customers there because the cost of replacement equipment, naturally, I would think with 100-plus lead times with Caterpillar, would increase. So like I said, the -- our customer base is all very cognizant of what's going on there in that pricing dynamic there. So we haven't heard of significant price increases coming out of Caterpillar yet, but it's something that I would probably expect.

Our next question comes from John Mackay with Goldman Sachs.

Maybe I'll pick up on that first question from earlier. Could you talk a little bit more about what is driving the tightness in the market right now kind of specifically. I think we understand some of the broader trends, but would love to hear a little bit more from you on kind of why we've gotten so tight so quickly here.

John, thanks for joining us this morning. Yes, it's really a pretty interesting discussion that we've had with Caterpillar over the last several months on what's driving the tightness in the market here. And I think a lot of people would assume that it is power that is driving kind of the increased lead times here. And it really is a power discussion. But a lot of the Permian power processing plants for rich natural gas that are going in, in the Permian Basin right now, which there's a lot of them being built, they don't have the access to grid power. So traditionally, in those power plants, you'd see 75,000 horsepower worth of electric motor-driven units for inlet compression for propane compression for residue compression in those plants within the 4 walls because of the limited access to power that these guys have out there, specifically in the Permian. They're having to turn those electric motors within the 4 walls of those plants into large horsepower natural gas-driven engines to drive those -- to drive that compression within those plants. So I think that, that's a dynamic that really nobody saw coming towards us and is really a driver from the limited access to grid power that people have today and the extended lead times to get hooked up to the grid, which we've heard it can be 7 to 8 years at some point in time. So like I said, these midstream guys and the people that are building these plants out here are having to turn to gas-driven engines versus electric motor-driven -- electric motors in those plants. So it's creating a kind of a new level of demand that we haven't seen previously.

That's interesting. It sounds like a good time to get into the power business, but we can talk about that more in April. Second one for me is just on gross margins. Fourth quarter is really strong. You guys have been generally doing very well on that front. I think the '26 guide points to it being a little flatter. Would love just to hear your general comments on the trajectory there, maybe some conservatism baked in maybe some of the cost savings you've talked about in the past on the AI side. Can you walk us through that?

Yes, sure. So John, I'll take it. This is John Griggs. So we thought a lot about that as we put the guide out, we anticipated we'd get some questions. And one thing that we know is the fourth quarter was a really clean quarter. Our business is highly predictable, but you're always going to have some gremlins that happen within your cost of goods sold, and we really just didn't see many of those, whether that's a lot of hard work, a lot of technology, a lot of planning, great operations and a little bit of luck, we're not exactly sure, but it happened. And when I look at everybody kind of focuses on our dollar per ending horsepower, we also study our $1 per our Contract Services cost of operations for ending horsepower. And it's been really flat until the fourth quarter would have dropped meaningfully. So I think we probably have a little bit of conservatism in case it gets back on trend to where it was for the prior 3 quarters. Now with that said, I think you hit the nail on the head in that. Pricing continues to be strong and all the investments we've made in, let's say, 2 big buckets, technology, the operational technology, we're starting to see a return on those investments during '25, and we expect to continue to see it in '26. And all the investment we've made in our people around training, those absolutely have an impact on that cost of goods sold, and we expected to see it. So hopefully, as the year goes on, we'll be able to walk that number up. But that does explain kind of where we guided.

Our next question is from Doug Irwin with Citi.

Maybe to add one more on lead times to start. Great to hear that customers are already having conversations out into 2028. But curious just in the context of potential 2-year lead times, if that changes just your general risk appetite to potentially look to maybe orders and capacity on spec, just to be able to make sure you're able to secure it in advance.

Doug, this is Mickey. Yes. I mean, look, it's a different conversation that we're having with our Board today than it was 6 months ago to where we were looking at capacity and lead times that were inside of a year and having contracts to back those up. So we're having to do a little bit more of spec ordering today and making sure that we've got some shop space locked up and engines locked up, so we are having to take a little bit more risk there. However, I would say that, that is mitigated a little bit by the fact that we don't have to commit to 100% of that CapEx cost 2 years out. We might have some engines, some extra engines and that kind of thing that are there. If the demand doesn't come through like we fully expect it to, but -- so there is a little bit more risk appetite to order some equipment on spec out a little bit farther out right now. But again, like I said, that's not for 100% of that cost. It's for a portion of that cost.

And I do want to add on there, too. I think it's really important. As we think about this, a, we have like a macro view of the future where we think production levels are going to be. And we've stated over and over and over again, really since IPO that we think we can grow our fleet volumetrically by that 3% to 5% per year. So everything -- and I should say we have really, really like sophisticated customers today with long-term development plans, and we're in close communication with them. We view them as partners. So virtually everything that we're buying that is ahead of that commitment. We think it's completely in line with kind of our base case on where that market is headed and where our customers will be. So it feels like a really low-risk proposition to us.

Got it. That's helpful. And then maybe a quick one on Power. Realize you haven't given guidance there, but just curious in the context of the guidance you just gave for the base business, just how you're thinking about your capacity to invest in power here over the near term?

Yes, Doug. I mean, look, we bought the DPS platform because we've been looking at the power business for over a year now looking for the right entry point. We want to make sure that we could pair up our operational expertise with high-quality commercial and engineering expertise on the power side, and we settled on the DPS acquisition because they really checked all those boxes. It's a really high-quality platform that we think we can put a strong operational platform behind as well as a strong balance sheet behind. And our full intention is to grow that business. And we'll come back after we close and give a little bit better guidance on kind of what we think the growth opportunity looks like. But we fully intend to grow that business, and we think that there's some opportunities to acquire some megawatts of power even this year to be able to deploy this year. And we're leveraging our relationships that we have with existing vendors and our Caterpillar network to make sure that we can secure some of that equipment and put it to work this year and then come back to you after close with kind of a more fulsome view of what we think the long-term growth outlook looks like for that business. But we fully plan on growing it starting this year and putting some significant growth capital behind that side of the business as well.

Our next question is from [ Gaby Cerny ] with William Blair.

This is Neal Dingmann. Guys, can you just talk about -- Mickey, you've always talked about just external growth. And I know, again, you have the backlog right now with compression. So I'm just wondering, would you approach some of your customers more aggressively to try to add that way?

Yes, Neal, you kind of broke up a little bit on us there. Can you -- do you mind repeating the question? Well, you might have lost. Yes, are you there, Neal? Well, I think that the gist of the question -- sorry about that. I think the gist of the question was kind of approaching our customers with kind of a two-pronged approach on compression and as well as power needs. And we certainly think that, that is an opportunity for us going forward. We've got a lot of customers, specifically in the Permian that are looking at microgrid development and establishing their own power out there in the Permian, and we definitely are having those conversations with them already. And definitely think we can leverage those relationships and the operational expertise to grow that business with our existing customer base as well.

That was exactly it, Mickey. And then just secondly, on the LNG. Mickey, you've always talked about kind of a formula -- I think early in the IPO process, you even talked about a formula for potential LNG demand. Does that formula still exist? And can you kind of remind me about where potential is around maybe the LNG upside demand?

Yes, absolutely. Look, we think that there's a significant amount of LNG feed gas that's going to be required throughout the United States. And as you know, we talk about the Permian a lot, but we're also in every major oil and gas producing region in the United States with commercial and operational presence there. So we're positioned well to provide compression for no matter where that gas is going to come from. We know there's going to be a significant amount of gas production for both behind-the-meter power and for LNG destock. So we think we're in a great position to be able to be there. I think you're referencing -- we're significantly in the Permian Basin. You're probably referencing the compression intensity metrics that we talk about. One of the reasons why the last 5 years of our business have been so robust is because of the amount of compression it takes to produce one molecule of natural gas out of the Permian Basin because there's compression needed for gas lift. There's compression needed within the 4 walls of processing plants, gathering all those things. So we still firmly believe that the Permian Basin with oil prices being relatively resilient over $60, that there's great economics for our customer base to not only continue to, at a minimum, keep oil production flat, but given gas to oil ratio increases and that kind of thing -- there's going to be significant gas growth out of the Permian, which is going to require a ton of compression to produce that, especially with these new takeaway capacity lines coming into play in the Permian Basin. So we're really excited about the opportunity. We think it's going to be a massive amount of natural gas growth over the next -- throughout the end of the decade and into the 2030s, and we're positioned well to take advantage of that, both on the compression and the power side.

Our next question comes from Elias Jossen with JPMorgan Chase.

Maybe just wanted to start on the visibility you're seeing in the contract compression business. You talked a little bit about seeing 750,000 horsepower through 2030. Maybe just the conversations you're having with customers that kind of support that? And then it seems that would support sort of this mid-single-digit EBITDA growth in just the contract compression business alone based on your historical execution. Is that a fair way to think about it, just continuing the strong growth that we've seen?

Elias, good to hear from you this morning. Yes, that is absolutely our intent is to continue that up into the right trajectory in the compression business and then layer the power business on top of that. We've got very high visibility into our growth. Like I said, we're engaging in conversations with customers right now for 2028 capacity. And there's a very large appetite for multiple of our customers that we're in discussions with right now for multiyear contracting and renewals of the existing equipment that we're seeing elongated types of renewal time frames right there. We're in discussions with multiple customers about 7- and 10-year renewals on that stuff, which is a really great development for our business and the visibility of our existing asset base and the growth of that over time. So we've never really given multiple year kind of guidance or indications of what we expect for horsepower growth, but we feel pretty good about it right now, and that's why we brought it into this call in our prepared remarks today that we really do see a multiyear growth case that is going to underpin kind of our cash flows and stable earnings for a long, long time.

That's awesome. And maybe just sticking with the Contract Services business. I know you guys talked a bit about sort of operational execution driving gross margins higher, and you did give us a guide there. But maybe just on the overall pricing outlook. I think previously, you've talked about exiting this year at around $24 per horsepower per month. Any reason to think that would be different or higher or just high level, what you're seeing right now on the overall sort of fleet pricing?

Yes. As we said, conversations with customers have been very constructive and continue to be. We're not seeing any significant change in pricing on equipment going forward. I think John did mention it in his prepared remarks, we do have less of a percentage of our fleet that's up for recontracting this year. I think last year, we recontracted 40% of the fleet. This year, it's kind of in the low 20%. So I would say that our ability to raise prices on the existing fleet is just as strong as it ever has, albeit it might be a little bit more muted of a contribution this year because of the limited amount of equipment that we have kind of coming up for recontracting. That being said, our goal is still to reach that $24 of horsepower by the end of the year, and we feel pretty good that we're going to get there by the end of the year and feel good about that target.

Our next question comes from [ Nate Pendleton ] with Texas Capital Bank.

Congrats on the quarter. I wanted to dive a bit deeper into your prepared remarks regarding applying AI and machine learning to improve the business. Can you provide your view on how these developments can further improve financials from here? And perhaps how well those technologies can apply to the newly acquired power assets?

Nate, thanks for joining us. Yes, we're really excited about what we've done in the technology space. We think we've got some first mover type of advantages there. We've really done a great job through our technology group and our operations group in adopting that kind of stuff. And we've already rolled out kind of conditions-based maintenances to where we're not just saying, hey, you need to change this oil in this equipment every 90 days, but we're letting the equipment tell us today when that oil needs to be changed based on kind of operating conditions and oil sampling and that kind of stuff. And we're able to recognize when that equipment is operating outside of the bounds of kind of where it should be. And that's provided a pretty significant uplift in our gross margins because we're able to kind of extend maintenance intervals based on the health of the machine, not necessarily based on time. I've said it many, many times before, we used to change the oil in our cars every 3,000 miles. Now, we're going 10,000 miles in our cars and trucks, and they tell us when they need the oil change in them. So that's a result of technology and looking at the status of the equipment rather than how it is actually -- rather than a time-based type of an interval. We're also applying that on our major maintenance cycles as well and extending those major maintenance cycles, which is why you've seen a growth in the fleet, but our maintenance capital line item staying flat throughout the year, the last couple of years, and we're happy to see that. The upside that we have there is we haven't applied those -- that stuff across the whole fleet yet. We've tested it in '24 and '25. We've rolled it out to a much larger portion of the fleet now. And now we have the ability to roll it out to an even larger portion of the fleet going forward. So we should see continued impact on technology through deploying that technology and then looking at how that applies to the power world, we think that we have a long, long history of operating cat equipment. We've got -- we're acquiring a business that has a significant amount of power that's driven by 3516 Caterpillar engines. And we think we can apply the same metrics to -- on the power side and apply our technology there. So we're really excited to be kind of first movers in that space, too, as kind of one of the first companies that had significant operating history in Caterpillar equipment to be able to apply that expertise and operating kind of regimen to really the same engines that are just driving power generators versus gas compressors. So we're excited about that, and we think we'll be able to have the same kind of impact there on that operation.

Thanks for the detail there. And then as my follow-up, I guess, going to the DPS acquisition. I know there is limited you can say at this point, but can you provide any high-level details about the inbound interest since announcing the deal that you alluded to in the prepared remarks?

Yes. I can't talk a ton about it obviously yet, but we have to stay a little bit at arm's length with DPS right now on the commercial side, just for antitrust issues and that kind of thing. I think everybody understands that. However, independent of our discussions with DPS, we have had inbound calls from multiple data centers and multiple customers that have recognized the fact that we're bringing an operational expertise into a world that is -- there's a lot of competition out there. And however, that competition doesn't have nearly the experience that we do in operating large horsepower equipment. And the customer base out there is really starting to take notice of the -- of the ability that we'll have to apply that operational expertise in the power world as well. I said it a little bit earlier, we really were hunting for a company that really had a significant commercial expertise in the power division as well as engineering expertise DPS is one of the only companies that has a multiyear contract and has been operating for multiple years already on a data center project, right? So they have experience. They understand AI load management that is required for some of the challenges that go along with powering a data center, and we feel like we've got a really, really great opportunity to make a big impact in that business by combining the commercial and engineering expertise of DPS with Kodiak's operational expertise.

Our next question is from Selman Akyol with Stifel.

Two quick ones for me and just more little follow-ups. In your previous question, I think you referenced sort of 40% of contracts recontracted and then 10% in your opening comments for '26. The question is this, how much of recontracting for 2027?

That's a good question. I actually haven't run those numbers, Selman. Thanks for joining us. Sorry, -- to be honest with you, I don't have that number at my fingertips. It's something that we'll be looking at. But I can tell you that kind of on average, we expect 25% to 30% of our fleet recontracts every year, and we would expect that to be in the in the 2027 outlook. To be honest with you though, we actually are having some really constructive conversations with customers right now about pulling forward some of those recontracting efforts. I mentioned earlier, we've -- we're in conversations with some customers about some 7- and 10-year renewals right now. And quite frankly, some of that stuff is -- stuff that's not even up for recontracting in 2026, and it would be pulling that forward from '27 and '28 in some cases, too. So we're really excited about that. And so it's kind of a moving target a little bit right now. But for argument's sake, really 25% to 30% of our contracts in any given year would come due, and that's our full expectation for '27.

Okay. Great. I mean repricing into a stronger environment. Then the other one, just real quick. So you talked about potentially ordering some engines on spec and then you said you wouldn't have to commit 100% of the capital. But could those engines be swapped over to DPS if you didn't have a need for them?

Yes, we think they can. So we definitely can -- we'll be looking at how we do that and how we manage that supply chain, but we can definitely would be able to kind of by some of those slots and maybe hopefully be able to kind of manage whether they support compression or power.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Kodiak's CEO, Mickey McKee.

Thank you, operator, and thank you for everyone participating in today's call. We look forward to speaking with you again after we report our results for the first quarter.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.