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Kodiak Gas Services, Inc. (KGS)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 revenue was $322.7M, adjusted EBITDA $174.7M, and adjusted diluted EPS $0.36; GAAP diluted EPS was a loss of $(0.17) driven by a $33.3M Mexico disposal loss and a $28.0M Texas sales/use tax reserve .
  • Versus consensus, revenue and EBITDA were slightly below, and EPS missed materially: Primary EPS $0.517* vs adjusted $0.36 and GAAP $(0.17); revenue $327.2M* vs $322.7M; EBITDA $177.1M* vs $174.7M (values with asterisk from S&P Global) .
  • Guidance: full-year 2025 discretionary cash flow raised to $450–$470M; EBITDA reiterated at $700–$725M; Contract Services revenue nudged up; Other Services revenue tempered; capex ranges maintained .
  • Operational positives: record Contract Services revenue ($297.0M), utilization 97.6%, and matched record Contract Services adjusted gross margin % at 68.3%; 59,550 new HP deployed and continued large-HP focus .
  • Stock catalysts: selling stockholder offering priced at $33.60 and company’s intent to repurchase 1,000,000 shares via the program; over $90M returned to shareholders in Q3 through dividends and buybacks .

What Went Well and What Went Wrong

What Went Well

  • Record Contract Services revenue of $297.0M and matched high-water mark contract services adjusted gross margin % at 68.3% .
  • Utilization rose to 97.6% YoY (+120 bps) with large horsepower units >99% utilized, reflecting robust demand; fleet optimization and technology (AI/ML, reliability center) supported margin gains .
  • Raised FY25 discretionary cash flow guidance to $450–$470M and maintained other guidance, signaling confidence in cash generation amid reduced cash taxes .

Management quotes:

  • “We achieved another quarter of increased fleet utilization, matched our record adjusted gross margin percentage in Contract Services, and delivered strong discretionary cash flow…” — CEO Mickey McKee .
  • “Adjusted EBITDA… was negatively impacted by over $5 million of non recurring SG&A expenses associated with the divested Mexico business.” — CEO Mickey McKee .
  • “Our capital plan for 2026 is effectively fully under contract.” — CEO Mickey McKee .

What Went Wrong

  • GAAP net loss of $14.0M and $(0.17) diluted EPS due to $33.3M Mexico disposal loss and $28.0M sales/use tax reserve; EBITDA and revenue were modestly below consensus .
  • Other Services segment revenue fell to $25.8M (Q/Q down; Y/Y down 36%) with adjusted gross margin % of 14.7% vs 24.5% in Q2, reflecting project timing and mix .
  • SG&A was elevated ($37.8M reported; ~$31.5M normalized including ~$5M extraordinary professional fees tied to Mexico exit), constraining EBITDA leverage in the quarter .

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Total revenues ($USD Millions)$324.647 $322.843 $322.744
GAAP Diluted EPS ($)$(0.07) $0.43 $(0.17)
Adjusted diluted EPS ($)$0.22 $0.43 $0.36
Adjusted EBITDA ($USD Millions)$168.374 $178.216 $174.702
Adjusted EBITDA Margin (%)51.9% 55.2% 54.1%
Contract Services Adjusted Gross Margin (%)66.0% 68.3% 68.3%

Segment breakdown:

Segment MetricQ3 2024Q2 2025Q3 2025
Contract Services revenue ($USD Millions)$284.313 $293.534 $296.970
Contract Services adjusted gross margin ($USD Millions)$187.696 $200.397 $202.748
Contract Services adjusted gross margin (%)66.0% 68.3% 68.3%
Other Services revenue ($USD Millions)$40.334 $29.309 $25.774
Other Services adjusted gross margin ($USD Millions)$7.660 $7.195 $3.782
Other Services adjusted gross margin (%)19.0% 24.5% 14.7%

KPIs:

KPISep 30, 2024Jun 30, 2025Sep 30, 2025
Fleet horsepower4,417,687 4,419,884 4,456,492
Revenue-generating horsepower4,259,843 4,296,978 4,350,576
Fleet compression units5,297 4,881 4,767
Revenue-generating compression units4,757 4,514 4,510
Rev-gen HP per rev-gen unit895 926 965
Fleet utilization (%)96.4% 97.2% 97.6%

Estimates vs. reported (Q3 2025):

MetricSPGI Consensus EstimateReported
Revenue ($USD Millions)$327.155*$322.744
Primary EPS ($)$0.517*GAAP $(0.17) ; Adjusted $0.36
EBITDA ($USD Millions)$177.122*$174.702 (Adjusted)

Values with asterisk were retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($USD Millions)FY 2025$695–$725 $700–$725 Raised low end
Discretionary cash flow ($USD Millions)FY 2025$430–$455 $450–$470 Raised
Contract Services revenues ($USD Millions)FY 2025$1,150–$1,200 $1,160–$1,200 Slightly raised low end
Contract Services adjusted GM (%)FY 202566.5%–68.5% 67.0%–69.0% Raised
Other Services revenues ($USD Millions)FY 2025$160–$180 $120–$140 Lowered
Other Services adjusted GM (%)FY 202514%–17% 14%–17% Maintained
Maintenance capex ($USD Millions)FY 2025$75–$85 $75–$85 Maintained
Growth capex ($USD Millions)FY 2025$180–$205 $180–$205 Maintained
Other capex ($USD Millions)FY 2025$60–$65 $60–$65 Maintained
Total Growth & Other capex ($USD Millions)FY 2025$240–$270 $240–$270 Maintained
Dividend per share ($)Q3 2025$0.45 (Q1 declared) $0.49 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AI/technology initiativesERP go-live planned; AI/ML and reliability center driving lower repair costs and margin uplift ERP live; agentic AI (Tech Parts Agent), predictive maintenance; cited specific lube oil consumption reductions Expanding adoption
Permian gas/LNG/data center demandStrong natural gas outlook; large HP demand; customers planning electrification; lead times ~40–45 weeks for engines Very robust demand; new pipelines +4.5 Bcf/d by end-2026; equipment lead times ~60+ weeks; pricing constructive Strengthening demand/pricing
Electrification vs gas engines40–50% of new units electric; power access constraints noted by basin ~40% of Q3 adds electric; some pullback given grid connection delays, esp. Permian Mixed; near-term tilt to gas due to power constraints
Recontracting and pricingRecontracted ~5M HP in Q2 above fleet average; goal to keep $/HP/month rising ~200k HP recontracted above fleet average; pricing “constructive” amid high utilization Upward pricing trajectory
Balance sheet & liquidityLeverage ~3.6x; index inclusion; buybacks and dividend increases Two bond offerings ($1.4B), ABL availability ~$1.5B; continued buybacks and dividend to $0.49 De-risking and enhanced flexibility
Other Services/station constructionLess predictable; new projects slated late Q3/Q4 Backlog building; award of 30,000 HP station for Texas power plant Improving pipeline

Management Commentary

  • Strategic positioning: “We… divestment of our Mexico operations and two bond offerings to significantly enhance our liquidity, position us well to execute on these opportunities.” — CEO Mickey McKee .
  • Capital returns: “We returned an industry leading amount of over $90 million to our shareholders… and increased our quarterly dividend by another 9% to $0.49.” — CEO Mickey McKee .
  • Demand backdrop: “New or expanded pipelines representing over 4½ Bcf/d of incremental Permian gas takeaway capacity coming online by the end of 2026… lead times… stretched out to upwards of 60 weeks.” — CEO Mickey McKee .
  • Cost actions and one-offs: “We booked a noncash charge of $28 million… Texas… taxability of our compression assets… expect to pay… early 2026.” — CFO John Griggs .

Q&A Highlights

  • 2026 visibility and bookings: Management said 2026 capital plan is “effectively fully under contract,” with pricing power intact; explicit guidance to come next quarter .
  • M&A and strategic transactions: Balance sheet capacity and ERP/AI readiness set the stage for potential larger transactions and purchase-leasebacks; focus remains on large-HP US assets .
  • Equipment lead times and pricing: 60+ week lead times reinforce constructive pricing; management remains “laser focused” on maintaining margins amid inflation .
  • Electrification mix: ~40% of Q3 additions were electric, but near-term customer pullback due to grid access delays, especially in the Permian .
  • Station construction opportunity: Awarded 30,000 HP station feeding a Texas power plant; backlog suggests more power-related projects in 2026 .

Estimates Context

  • Consensus and actuals: Primary EPS $0.517* vs GAAP $(0.17) and adjusted $0.36; revenue $327.155M* vs $322.744M; EBITDA $177.122M* vs $174.702M adjusted .
  • Drivers of miss: One-time Mexico disposal loss ($33.3M) and Texas sales/use tax reserve ($28.0M) depressed GAAP EPS; ~$5M extraordinary professional fees also weighed on adjusted EBITDA .
  • Implications: Street models should reflect lower cash taxes and normalized SG&A post-Mexico exit; Contract Services margins and utilization support forward margin trajectory .

Values with asterisk were retrieved from S&P Global.

Key Takeaways for Investors

  • Core business resilience: High utilization (97.6%) and stable 68.3% Contract Services adjusted gross margin % underpin cash generation despite one-time charges .
  • Cash flow upgrade: FY25 discretionary cash flow raised to $450–$470M; capex plan largely executed with 2026 capital plan “effectively fully under contract” .
  • Pricing tailwinds: 60+ week equipment lead times and strong Permian gas/LNG/data center demand sustain constructive pricing and margin trajectory into 2026 .
  • Balance sheet flexibility: $1.4B bonds termed out, ~$1.5B ABL availability; capacity for opportunistic M&A and customer transactions while targeting ~3.5x leverage .
  • Capital returns: Dividend increased to $0.49 and continued buybacks ($50M in Q3); selling stockholder offering at $33.60 with company to repurchase 1,000,000 shares may be near-term stock overhang/opportunity .
  • Model updates: Normalize SG&A post-Mexico, reflect reduced cash taxes, and maintain elevated Contract Services margin assumptions given technology-enabled cost control and pricing .
  • Watch items: Execution in Other Services backlog, power access constraints for electrification in Permian, and settlement timing for Texas tax matter (early 2026) .