Kodiak Gas Services, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the provided filing text does not provide a clear set of standalone fourth-quarter financial results.
Business context
Kodiak operates contract natural-gas compression infrastructure and related services for U.S. upstream and midstream customers. It manages two segments: Compression Operations and Other Services. At year-end, its fleet totaled approximately 3.26 million horsepower, with 99.9% utilization; 84% of assets were deployed in the Permian Basin and Eagle Ford Shale. Revenue is substantially generated under fixed-fee contracts.
Financial and operating results
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $850.4 million | $707.9 million | +20.1% |
| Operating income | $244.1 million | $222.1 million | +9.9% |
| Net income | $20.1 million | $106.3 million | -81.1% |
| Diluted EPS | $0.29 | $1.80 | Down |
| Cash from operations | $266.3 million | $219.8 million | +$46.5 million |
| Adjusted EBITDA (non-GAAP) | $438.1 million | $399.0 million | +9.8% |
| Adjusted EBITDA margin (non-GAAP) | 51.5% | 56.4% | Down 4.9 percentage points |
| Free cash flow (non-GAAP) | $65.1 million | $(16.3) million | Improved |
| Growth / maintenance capital expenditures | $184.5 million / $37.0 million | $213.0 million / $48.3 million | Both decreased |
Compression Operations revenue rose 12.3% to $735.6 million, reflecting higher average revenue-generating horsepower and revenue per horsepower. Other Services revenue increased 116.7% to $114.8 million, primarily from station construction and parts and service demand. Overall GAAP gross margin was $316.6 million, or 37.2% of revenue, versus $266.1 million, or 37.6%, in 2022. Compression Operations gross margin was 40.2%; Other Services gross margin was 18.3%.
Net income fell despite revenue and operating-income growth, chiefly as net interest expense rose 34.2% to $222.5 million and derivative gains declined to $20.3 million from $83.1 million. FY2023 also included a $6.8 million loss on extinguishment of debt. SG&A increased 63.3% to $73.3 million, including $7.1 million of bad-debt expense tied to a customer in bankruptcy.
Debt, liquidity and capital returns
At December 31, 2023, gross debt outstanding was $1.83 billion, all under the ABL Facility; the balance-sheet carrying amount, net of financing costs, was $1.79 billion. Cash was $5.6 million, and reported ABL availability was $354.9 million, with $14.7 million of letters of credit outstanding. The ABL Facility matures in March 2028. Year-end disclosed borrowing rates were 8.50% for SOFR-based borrowings and 10.00% for prime-based borrowings. Kodiak reported covenant compliance at year-end.
On February 2, 2024, Kodiak issued $750 million of 7.25% senior notes due 2029; proceeds were used to repay part of ABL borrowings and cover related costs. The notes include a mandatory redemption provision if the CSI Compressco merger is not completed by the specified deadline. Kodiak paid a $0.38-per-share quarterly dividend in November 2023 and again in February 2024. Management said it expected comparable dividends in the foreseeable future, subject to board discretion, liquidity and debt restrictions.
Material changes, outlook and risks
- Fleet horsepower and revenue-generating horsepower each grew 4.1%; utilization remained 99.9%. The average horsepower per revenue-generating unit increased 2.6%.
- The IPO raised approximately $267 million net in July 2023. Proceeds, derivative settlement proceeds and ABL borrowings supported repayment of $300 million of term debt; remaining term-loan obligations were assumed by a Kodiak Holdings parent, ending Kodiak’s obligations on that debt.
- Kodiak agreed in December 2023 to acquire CSI Compressco in an all-equity transaction, with closing expected in Q2 2024 subject to conditions. Kodiak planned to repay or redeem CSI’s existing debt at closing. Completion, integration, costs and expected benefits remain uncertain.
- Management sees potential long-term compression demand from U.S. natural-gas production and LNG export growth, particularly in the Permian and Eagle Ford, but provides no quantified financial guidance in the supplied filing text.
- Key exposures include customer concentration (four largest customers generated about 38% of Compression Operations revenue), regional concentration, contract renewals, commodity-driven customer activity, skilled labor and supplier availability, variable-rate debt, and environmental and methane regulation.
- Kodiak accrued $28.8 million for Texas sales-tax audits covering periods from 2015 through 2022; the ultimate liability could differ. It recorded $7.1 million of credit-loss expense related to the customer bankruptcy.
- A previously reported material weakness in internal control over financial reporting was reported remediated as of year-end, and management concluded disclosure controls were effective. The auditor did not provide an internal-control attestation, citing the newly public company transition period.
Important facts for investors to verify
- Review the audited statements and debt notes for the ABL balance, borrowing-base availability, covenant headroom, interest-rate exposure and the effect of the 2024 notes issuance.
- Track CSI merger closing conditions, the notes’ redemption trigger, the intended repayment of CSI debt, integration costs and realized benefits.
- Assess the outcome and adequacy of the $28.8 million sales-tax accrual and the collectability of the bankrupt customer’s receivables.
- Monitor customer concentration, month-to-month contract exposure (10.2% of revenue-generating horsepower), utilization and renewal pricing.
- Evaluate whether operating cash flow can sustain fleet investment and dividends while meeting debt-service and liquidity requirements.
- Compare future reported GAAP results with non-GAAP measures and monitor whether the remediated controls continue to operate effectively.