Kodiak Gas Services, Inc. 2026 Q2 Earnings Call

Good morning. Thanks for joining us for the Kodiak Gas Services conference call and webcast to review our second quarter 2026 results. Joining me from the company today are Mickey McKee, President and Chief Executive Officer, and John Griggs, Executive Vice President and Chief Financial Officer. After my remarks, Mickey and John will discuss the steps we've taken towards our 2030 goals, share an update on the commercial progress in our Power Infrastructure segment, and walk through our quarterly results and updated 2026 outlook. We'll open it up for Q&A. Replay of today's call will be available by webcast and phone through August 21st, 2026. Replay details are on the investors tab of our website at kodiakgas.com.

As a reminder, the information discussed today speaks only as of August 7th, 2026, and may no longer be accurate by the time you listen to a replay or read a transcript. The comments made by management during this call may contain forward-looking statements within the meaning of U.S. federal securities laws. These statements reflect management's current views, beliefs, and assumptions 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. Management can give no assurance that such statements or expectations will prove to be correct. Comments will also include certain non-GAAP financial measures.

Details and reconciliations to the most comparable GAAP measures are included in our earnings release, which can be found on our website. Now I'd like to turn the call over to Kodiak's President and CEO, Mr. Mickey McKee.

Mickey? Thanks, Graham. Thanks to everybody joining us today.

I want to start, as we do in all meetings at Kodiak, with safety. August is historically the hottest month of the year. A large portion of Kodiak's workforce is called upon to work outside nearly every day, either in the Permian Basin or West Texas, or any other area where we operate. I'd like to remind everyone to be thoughtful when working outside in the summer heat. Studies have shown that you can become dehydrated in as little as 30 to 60 minutes when working outdoors in hot, humid conditions, which we often face in our operating areas. Dealing with the unrelenting summer heat, it is important to drink plenty of water and take breaks in the shade to give yourself time to recover and cool off.

Be sure to let someone know if you start to feel dizzy or dehydrated. These are important steps to maintain a safety-first mindset. It is during the hot summer months that people tend to become intensively focused on power reliability and electricity consumption. Recent examples of grid instability due to swings in data center-related demand have once again demonstrated how critically the U.S. needs behind-the-meter power solutions. A few weeks ago, a transmission line in northern Virginia went out of service, resulting in approximately 3 gigawatts of data center demand disconnecting from the grid, stressing the grid and causing a voltage disruption that was felt in surrounding states. This summer, we have seen the electric grid strain to maintain reliability as the combination of summer heat and the increase in data center power needs stresses the system.

More than half of the U.S.'s 50 states have had to declare emergency alerts this summer, asking consumers to conserve power. PJM even had to take it a step further, receiving permission from the U.S. Department of Energy to require data centers and other large customers to turn on backup generation to help support the grid. This dynamic will further intensify in the coming years as data center power demand is expected to more than double over the next 5 years. This spike in demand is happening at the same time grid operators are increasingly running low on power reserves, as reflected by PJM's consecutive power capacity auctions where they failed to acquire enough power to cover their reliability requirement. Behind-the-meter power solutions are going to have to be a part of the solution to solve our nation's growing power crisis.

Judging by the depth and strength of Kodiak's rapidly growing commercial power project pipeline, which I will discuss later, the industry fully understands this dynamic and is eager to engage to contract workable solutions. Now I'd like to update you on the progress we're making on our 5-year plan. Given the highly divisible demand for natural gas, plus the long lead times for new large horsepower compression equipment, we laid out a target to organically grow our compression fleet to approximately 5.2 million horsepower by year-end 2030. I'm happy to report that we are well on our way to achieving that goal. For the first 6 months of this year, we added approximately 80,000 horsepower of fleet additions. Factoring in the new units we expect to receive through year-end, we're on pace to hit about 170,000 horsepower for the year.

Further, through our strong vendor relationships, we've secured new large horsepower compressor packages for 2027, 2028, and 2029 deliveries to meet our growth goals and expected customer demand. Bottom line, we remain confident in our ability to achieve our targeted annual horsepower growth of 150,000 horsepower per year, resulting in a compression fleet of at least 5.2 million horsepower by the end of the decade. Shifting to power, we recently announced a multi-year gas turbine supply agreement with Baker Hughes that will deliver Kodiak 1 gigawatt of turbine power by 2030, with an option to increase that order of up to 1.8 gigawatts. There are a lot of reasons why we're excited about this transaction. First, it gives us price certainty for new turbine equipment for the next five years. Additionally, Baker Hughes has a long track record of producing durable equipment that is well-known across the world.

Baker Hughes' efficient power generation turbine assets are designed to work on long-term projects, enabling us to deliver dependable power for growing data center and energy infrastructure development. Beyond the equipment, the strategic agreement also covers technician training and parts supply, positioning Kodiak to provide the high-quality service our customers have come to expect. Combining our previously announced power generation purchases with Baker Hughes, plus some additional opportunistic purchases, we have secured approximately 1.8 gigawatts of power generation for our fleet, of which approximately 66% will be turbines, and all of it, which will be available by the end of 2030. Further, we're in discussions to incrementally add to our reset fleet, which would align with our goal of achieving 2 gigawatts of power-producing assets by the end of the decade.

Now I would like to discuss the subject that comes up the most in our meetings with investors, the commercial landscape as it relates to power. Since closing the DPS acquisition just four short months ago, we have quickly integrated and retooled our commercial power team to focus on larger scale projects with long-term contracts and attractive returns. With that focused mandate, the team has been meeting with potential customers while high-grading a large, rapidly growing pipeline of projects that significantly exceeds our future power capacity. To give you a sense of how dynamic this industry is, we've added about 2 gigawatts of potential projects in the last month, while at the same time, moving on from opportunities that either don't fit our timeline or aren't the right kind of counterparties for us to commit resources.

We feel as confident as ever that the commercial opportunities are real and progressing quickly. As evidence of this, we recently executed a limited notice to proceed with detailed engineering and design work for a data center in West Texas, whose capacity is leased out to a hyperscaler. We've then invoiced them for an initial deposit to reserve power equipment for the project while we negotiate a long-term contract to start supplying power in early 2027, with the ability to scale over time. We'll have more to share on that before the end of the year. Our existing power assets remain in high demand, with our current fleet about 90% utilized as we make ready much of our idle fleet. Power assets that we have on contract continue to be extended as customers are wary of releasing equipment.

We recently extended one of our data center commissioning contracts and received an increase in the rate. As we look forward to the second half of 2026, we expect to receive approximately 50 megawatts of new gen sets before deliveries ramp up in 2027. In preparation for a sizable increase in our Power Infrastructure operations, we've been diligently increasing our technician training program and adding a new power curriculum, further boosting our operational advantage over our peers. Starting this fall, Kodiak's Bears Academy training facility will become one of the only two facilities in the U.S. that are certified to offer a Waukesha electrical mechanical certification on both compressors and gen sets. This certification provides our technicians with the knowledge needed to fully operate and maintain electrical equipment, as well as perform troubleshooting and maintenance on the mechanical equipment.