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Greetings and welcome to the Kodiak Gas Services, Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Graham Sones, Vice President of Investor Relations. Thank you. You may begin.

Good morning. We appreciate you joining us for the Kodiak Gas Services conference call and webcast to review third quarter 2024 results. Participating from the company today are: Mickey McKee, President and Chief Executive Officer; and John Griggs Chief Financial Officer. Following my remarks, Mickey and John will review recent developments, discuss our third quarter financial results, our updated 2024 outlook and some initial thoughts on 2025, before opening the call for Q&A. There will be a replay of today's call available via webcast and also by phone until November 21, 2024. 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, November 7, 2024. And therefore, you’re advised that such information may no longer be accurate as of the time of any replay listing or transcript reading. The 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 CEO, Mr. Mickey McKee. Mickey?

Thanks, Graham and thank you for joining us today. I'd like to start the call as we do every internal meeting at Kodiak, discussing safety. As a company, we set a high bar for safety with a goal to make certain that every employee goes home safe and sound to their families, every night. We have invested in an industry-leading training program to make certain that all of our employees have the knowledge and the training needed to do their job safely. The focus of each and every Kodiak employee on this topic, truly embodies the philosophy that we've adopted at Kodiak safety first, all the time. Before we talk about our financial results, I'd like to briefly touch on a few noteworthy events that happened during the third quarter. We've been actively evaluating opportunities to high-grade our compression fleet. The first step in that process was the divestiture of the small horsepower Gas Jack business that we acquired in the CSI transaction. The sale, which we completed in September involved about 90,000 horsepower, less than half of which was being utilized. The transaction also allowed us to fully exit Canada and Romania, simplifying our operations while increasing the average horsepower of our fleet, and reducing our exposure to dry gas basins. As you know, Kodiak's strategy is focused on large horsepower compression, in liquids-rich basins and you should expect us to continue to high-grade our fleet over time. Another notable development during the quarter, was the successful completion of the first marketed follow-on offering by EQT our largest shareholder, which allowed us to take a large step towards diversifying our shareholder base. At the start of the year, our top five shareholders collectively represented about 84% of our shareholder base, limiting our trading liquidity and float. As of today, we have reduced that concentration by about 20% and the trading liquidity in Kodiak stock has increased by over 100%, making Kodiak a more attractive investment for large institutions. I want to thank the investors who participated in the offering, which we completed in September. We had very strong demand and it was one of the tightest priced follow-on offerings in the energy sector, in the last few years. We view the success of this transaction as a vote of confidence in our strategy, and future earnings growth potential. We were pleased to complete our first share repurchase in connection with the offering, demonstrating our confidence in the outlook of our business and adding to our multipronged approach, to delivering shareholder value. Measured growth, a strong and growing dividend and now share repurchases, all while driving leverage to 3.5 times or less by the end of next year, have proven to be the right formula and delivered total shareholder returns of approximately 110%, since our IPO. Yesterday, we released third quarter 2024 financial results, including another record quarter with revenues of $325 million and adjusted EBITDA of $168 million. We also generated $53 million of free cash flow in the quarter. Through the combination of putting idle equipment back to work, divesting lower-margin small horsepower and adding new large horsepower units, Kodiak's fleet utilization increased sequentially to over 96%. Our core large horsepower assets remain near full utilization in excess of 99%, reflecting the continued tightness and capital discipline of the large horsepower compression market. Demand for large horsepower compression remains as strong as ever. During the third quarter, we added roughly 50,000 horsepower of new units to our fleet. All were Permian-focused large horsepower, averaging over 2,000 horsepower per unit and they were deployed at rates well above the fleet average. Additionally, we were able to redeploy approximately 38,000 horsepower that was previously idle. Our commercial team has done a great job working with our customers and re-contracting units of all sizes that were up for renewal and realizing prices closer to current market rates that are also above our current fleet average. We continue to differentiate our compression offering through our mechanical availability guarantee and the service we provide. After realizing cost synergies, returning idle equipment back to work and another strong quarter of re-contracting, I am pleased to announce that we delivered a third quarter adjusted gross margin of 66% in our Contract Services segment. Not only does that match the high end of our annual guidance, but it also matches our historical record margin even before the CSI acquisition. This is no small accomplishment and reflects the great results our team has been able to achieve through the integration process. Switching to our Other Services segment. As a reminder, this segment primarily consists of our station construction and aftermarket services businesses, which are somewhat less predictable than contract compression, but generate significant free cash flow with very little capital investment. We realized strong revenue growth from our station construction business in the third quarter and delivered an adjusted gross margin in line with our expectations. One great example of our segments working together to provide customized integrated solutions for our customers is a project that we were currently working on in Midland Texas. A midstream customer needed to add a compressor station inside the city limits where the compression equipment must meet strict emissions and noise requirements. The location is close to reliable grid power so we were able to authorize a customized electric motor-driven large horsepower solution. We were hired to design and install the compression infrastructure as well as contracted to deliver four large horsepower electric-driven compressors. We recently completed the engineering the site construction expected to begin before year-end and we are currently on schedule to set the four new units in the second quarter of 2025. As we have previously discussed electric motor-driven large horsepower compression units are going to represent an increased portion of our capital spend as we strive to help customers lower their emissions to produce oil and natural gas. Approximately half of the new units we plan to install next year will use electric motors. However, large horsepower electric compression presents unique challenges as the motors require a significantly higher voltage than smaller motors requiring a step-up transformer and increasing the overall power demand for the project. As many of you know West Texas power demand has been increasing at a materially faster pace than the rest of Texas, growing by approximately 11% per year over the last decade. This demand increase has been driven by oil and natural gas production, cryptocurrency mining and data centers, and has resulted in regional power shortages. Thankfully this summer, we saw several meaningful steps by the State of Texas to address the sizable demand growth including the Public Utility Commission moving forward with more than $5 billion in loans for 17 new natural gas-fired power plants which are expected to add approximately 10 gigawatts of electricity. Then in September the Permian Basin Reliability Plan was approved calling for $13 billion to $15 billion of investments in electric transmission line upgrades in West Texas. These investments in the security of the supply of power are crucial for the oil and gas industry to continue powering our economy. In last night's earnings press release, we increased the low end of our full year revenue guidance for both segments as well as our full year 2024 adjusted EBITDA guidance. Given the third quarter GasJack sale plus a handful of small additional divestitures, we thought it would be helpful to provide an early outlook on our financial expectations for 2025. After factoring in these asset sales along with our new unit expectations for the fourth quarter, we expect to exit the year with roughly $4.25 million of operating compression horsepower. With that in mind, we expect adjusted EBITDA for the full year 2025 to be in a range of $675 million to $725 million. In summary, we're very pleased with our third quarter results. The realized transaction synergies as well as strong industry fundamentals resulted in improved margins and increased cash flows. We made progress high-grading our fleet and our commercial team has been actively redeploying idle assets improving fleet utilization. Our dividend remains well covered and we are on track to achieve our increased guidance for the year. The ramp-up of natural gas demand remains highly visible. The US needs to continue to add electric generation capacity and natural gas remains the most reliable and affordable fuel of choice. And that's on top of the wage of LNG export terminals expected to enter service in the coming years. The increase in gas production required to meet this demand is going to require significant compression infrastructure development and we continue to believe that Kodiak is well-positioned to be the compression provider of choice. Our focus on customers and employees, industry-leading mechanical availability and our market position separates us from our peers. And now I'll pass the call to John Griggs to review third quarter financial highlights and our guidance. John?

Thanks, Mickey. We had another great quarter with revenue growth and realized cost synergies driving margins and results above expectations. The strong financial performance wouldn't have been possible without the focused efforts of our employees to successfully integrate two companies while continuing to deliver differentiated service to our customers. I couldn't be more proud of this company and all the things we have accomplished this year. Now let's drill down into the numbers. Total revenues for the quarter were $325 million a 5% sequential increase. This growth was driven by a strong quarter in the Other Services segment and steady gains in Contract Services. The bullish fundamentals of the compression market in particular within the large horsepower subsector remained strong and we continue to realize nice rate increases as part of our recontracting efforts. For the quarter, we reported a net loss of $6.2 million. Included in the loss were several non-cash items totaling nearly $41 million. This sum was comprised of three main items: a $10 million loss on asset sales related mostly to the successful exit from the GasJack business, a $9.9 million asset impairment charge on some of our older units and a $20 million mark-to-market loss on interest rate hedges. As it relates to the hedges, our interest rate swaps are designed to mitigate cash flow volatility and not trying to predict rate moves. As of today, we swapped floating rates were fixed on about 70% of our ABL exposure. And if you include the bonds, we're at about 80% fixed on all our debt. Our hedging strategy has served us well over the Fed's hiking cycle that began in 2022. But now that the Fed has begun to ease rates the quarterly mark-to-market value of our swaps is declining and we report this unrealized and non-cash change on our income statement. As the Fed raised rates we saw non-cash mark-to-market increases boost net income. But now that rates appear to be going the other way we'll see the opposite. But importantly the underlying cash flows will remain highly predictable which is the priority. Moving on. Adjusted EBITDA for the quarter was $168 million an increase of 9% compared to the second quarter. Not only did we realize sequential growth but our adjusted EBITDA margin expanded as well with a third quarter margin of 52% versus 50% in the prior quarter. Looking at our segments. In Contract Services revenues for the quarter were $284 million with an adjusted gross margin percentage of 66% matching the high end of our annual guidance range. We were pleased with this result and we expect to continue to deliver margins like this going forward as we set new horsepower at market rates, reprice the existing fleet, divest lower-margin smaller horsepower and maintain our relentless focus on operational efficiency. In our Other Services segment revenues were $40 million in Q3 with an adjusted gross margin of 19%. As Mickey discussed, we have been very active on the station construction side of our business. This quarter we realized an $11 million sequential increase in station construction revenues. This is a business line in which we believe we provide a differentiated customer value proposition and we think it's highly complementary to our contract compression activities despite its inherent lumpiness and lower margin profile. In terms of CapEx for the quarter maintenance capital expenditures came in just shy of $22 million up from the second quarter. The third quarter spend represents what we expect to be a peak for the year due to the timing of some large engine overhauls. We expect maintenance CapEx to decline sequentially in the fourth quarter. Growth CapEx for the third quarter was approximately $65 million and we added nearly 50,000 horsepower to the fleet. Capital expenditures related to the addition of new fleet units represented about three-fourth of our total growth CapEx for the period. Moving to the balance sheet. As of September 30, we had total debt of $2.6 billion consisting of the 2029 senior unsecured notes and borrowings under our ABL facility. Our credit agreement leverage ratio at the end of the quarter was 3.9 times. We had approximately $306 million of availability on the revolver. We remain confident that we will exit 2025 with leverage at below 3.5 times. Let's turn to the updated 2024 outlook where we've adjusted a few items. Specifically, we now expect revenue to range between $1.15 billion and $1.18 billion. We also raised our adjusted EBITDA guidance by bringing up the low end of the range and think we'll land between $600 million and $610 million with the improvement driven primarily by adjusted gross margin strength in the Contract Services segment. We've left discretionary cash flow growth and maintenance CapEx guidance unchanged. And as Mickey highlighted, we gave some initial guideposts for 2025. We'll deliver our traditional guidance metrics in our fourth quarter earnings release, but we thought it would be helpful to provide a preliminary adjusted EBITDA range of $675 million to $725 million. This early outlook factors in the transactions that Mickey referenced earlier, all of which are designed to high-grade our fleet, simplify our operations and further our U.S. focused large horsepower strategy. To wrap things up, our Board approved our quarterly dividend of $0.41 per share, which will be paid this Friday, November 8. This equates to an annualized dividend of $1.64 per share. That's it for my prepared comments. Thank you for your participation and support. I'll hand it back to Mickey.

Thanks, John. To wrap up, we had a strong third quarter with revenue growth and margin expansion in both of our segments. Our revised 2024 guidance and the early outlook we've provided for 2025 indicates that we expect this strength to continue. We progressed against a number of strategic objectives and continue to deliver shareholder value. I want to thank the women and men of Kodiak for their focus on serving our customers safely, which allowed us to deliver such great results. With that, we're happy to open up the line for questions. Operator?

Great. Thank you. At this time, we will be a conducting a question-and-answer session. [Operator Instructions] First question is from Doug Irwin from Citi. Please go ahead.

Hey, thanks for the questions. I just want to start with gross margin here. You talked about being at the high end of your range for the quarter which is great. Just wondering if you could provide any more color around maybe what you're assuming for 2025. And then just kind of where you see margins trending here over the near term, as you continue to see more synergies from CSI and maybe continue to divest more lower-margin horsepower?

Yes, you bet. Doug, it's great to talk to you. This is John, and I'll turn it over to Mickey, too if he wants to have some incremental comments. So we're not going to talk about the 2025 margins on this call. We'll do that when we give formal guidance at the end of Q4. But I will say the 66% adjusted gross margin in that Contract Services segment was something that we're really proud of. If you think about kind of how we get there, we finished last quarter at 64%. But recall, we had a unique $3 million sales tax accrual that happened in that particular segment. So if you remove that, it was roughly 65%. So that 1% increase, how did we get there? Again, it's a factor of continued repricing of the fleet, setting new horsepower-type pricing, continued realization of the transaction synergies, and frankly, just good old-fashioned cost management. So we're not done at the 66%. It's our ambition to continue to increase that margin, and that will really move the needle in the business. That's kind of where we are now.

Great. Thanks. And then my second question, just on capital allocation. Just wondering if you could talk about how you're thinking about balancing buybacks versus maybe the benefits of some increased liquidity in the shares moving forward. Just wondering if we can maybe see you be a bigger buyer in the future if we see more secondaries?

Yes. Doug, this is Mickey. I think we're certainly open to entertaining that. We've definitely modeled some into our next year's kind of models. That will depend on when EQT comes back to market with some additional follow-ons. But keeping in mind that whatever we do is going to drive towards our goal of making sure we get to our 3.5 times leverage target by the end of next year. So I don't think that what you'll see will be drastically different than what you've seen in the past.

Understood. That's all for me. I'll leave it there. Thank you.

Okay. Thanks, Doug.

Our next question is from Gabe Moreen from Mizuho. Please go ahead.

Hey, good morning team. I wanted to ask about Mickey's comments on high grading assets, just kind of where things stand in terms of the divestiture program. And also, now that you have a couple more months of Compressco under your belt, to what extent you're kind of looking at some of the regions where you might have a little bit of a smaller horsepower presence, whether you're committed to being there, those might be candidates for divestiture and high grading the portfolio.

Yes, Gabe, I appreciate it. This is Mickey. We're always looking at the fleet and evaluating it to figure out if it's a basin we want to be in and if it's units that we want to potentially divest over time. Right now, we don't have any plans to exit any basins. We're pretty -- we're a Permian-centric company because that's where the opportunity has been for the last decade or so. But there's other basins out there that certainly meet kind of our strategic goals of being in oil-directed basins with liquids-rich type of opportunities with associated gas. So, just because it's not the Permian, doesn't mean we don't want to be there. So, there's lots of other opportunities, lots of good people that we can find outside of the Permian as well. However, most of our growth is happening within the Permian Basin. So, we've got a couple of other small divestitures planned for this year of some packages of small horsepower units, as we continue to just kind of prune the fleet and get rid of some nondesirable stuff. But really and truly it's not needle-moving horsepower or funds that are going to be moving. It's just really just prudent and shaping the fleet and making sure that we're focused with our people in the best possible place to create shareholder value.

Thanks, Mickey and then maybe if I could follow up with the Permian-related question. It seems like things are going from bullishness to bullishness here on the Permian gas outlook. Can you just talk about directionally what that may mean for your CapEx next year? I mean we certainly heard some midstreamers continuing to slot in additional processing and gathering system upsizing. So I'm just wondering if that's kind of going to be pulling on your CapEx maybe a little bit into '25.

I don't think anything is going to change here, Gabe. We've got a capital allocation strategy that is what we believe creates the most value for our shareholders which is to pay a nice and growing dividend to make sure that we live within our cash flows and reinvest the balance of our discretionary cash flow into growing the fleet with organic growth at very, very attractive margins. But like I said, to end up, having more cash at the end of the year, than we did when we started the year. So it's a combination of all those things working in some share buybacks along the way and living within our means and within our cash flow. So, I know people will be asking probably about any change to capital allocation priorities because of the results of the election and that kind of thing. But really from our standpoint, it doesn't. It's just kind of -- we believe, we have the best plan, no matter what administration is in the White House and as far as capital allocation priority and it's going to be the same either way. And we believe that's the best way to create shareholder value.

And Gabe I was just going to follow up quickly. I was just going to say -- this is John too. So we've shown in our presentations that we expect to add around 160-ish thousand horsepower to our fleet in 2024. And what we said at the time of the CSI acquisition given the long lead times on new horsepower, for the most part the '24 horsepower was pretty fully baked by the time we bought the company. As you look forward to '25, we always said you should look to us to be kind of there or a shade lower since we can control the CapEx spend in 2025. So we'll put a finer pin on that as we get to 2025 guidance in our Q4 earnings release. But I would say that kind of should set some bounds as to what to expect in terms of new horsepower for next year.

Appreciate the comments. Thanks guys.

Our next question is from John Mackay from Goldman Sachs. Please go ahead.

Hey guys. Thanks for the time. I just wanted to start on some of these new unit additions kind of a little bit on forward year CapEx. Are you guys still seeing higher costs for new units -- higher per unit CapEx? And maybe just give us an update on how that's been flowing through into ability to push through higher prices?

Yes I mean, good morning, John. The cost of compression isn't going down. It is -- in fact it goes up consistently year-over-year. We're not seeing the same level of inflation on CapEx costs that we've seen in the past, but you are going to see kind of mid-single digits inflationary costs on the cost of that equipment as it results from major component suppliers and that kind of thing. So, we have been able to pass that kind of cost on to our -- in our contracts because us just targeting that same amount of return on capital with more expensive units we need a higher return and higher rates and higher contribution margin to justify spending that capital and spending that money. So yes, I mean, it's going up marginally I think for next year and we continue to see that trend, but we've had really good luck at contracting that out and making sure that we're getting the same returns that our expectations are.

That's clear. That’s for that. Second just on electrification. I appreciate all the comments on how long it's going to take to build the grid and the Permian et cetera. I guess just maybe when you're having your conversation with customers, let's say for adds in 2026. Is it that top-down kind of grid discussion that's driving their demand for electric motor units? Or is it something else? I guess like what's driving the pace of those deployments overall?

Yes. I mean, it's 100% exclusively access to reliable power, whether that's through a tie-in to the grid or them building their own microgrids or them just supplying their own generating capacity. It's -- that's what is driving the adoption rate on the electric motor units access to reliable power.

Can I ask a quick follow-up on that? Just is there an opportunity for you guys to get involved on kind of that slight extension, I guess we could say of the value chain getting into the power side a little bit more?

Potentially. It's something that we'll probably evaluate, but we'll look at how that would might bake into our capital allocation priorities and see if there's a spot for it there. Not sure, something that we'll have to evaluate pretty considerably more over the next coming year.

Great. Still early days. Appreciate it. Thanks guys.

Thanks, John.

Our next question is from Neal Dingmann from Truist Securities. Please go ahead.

Morning, guys. Another nice quarter. Maybe I'll just start to ask my first a little bit different on margins specifically. Could you all speak to -- you were notably able to bring your segment margins back to that 66% level after acquiring CSI. I'm just wondering what were the drivers how you're able to do that so quickly? And then now that those assets seem to be pretty fully integrated does that just keep going?

Yeah. Neal, great question. It's John. Great to talk to you. I guess what I'd point out one of the things that really strikes us is that before we acquired CSI Kodiak's compression operations business operated at a 66% gross margin. Of course, we were trying to move that up. CSI was somewhere in the mid-50s. So now we put the two together, we've captured some synergies. We've raised some prices and we're right back to kind of where we started. So we think that's really notable. To be more specific about how we get there. So again, I said it earlier, but it's setting new units at market rates, repricing the existing fleet as it rolls over. Those are probably the biggest levers that get us there. And then the synergies we called out probably $30 million in synergies. For the most part, the vast majority of those synergies have already been achieved by this quarter. We'll still continue to capture incremental synergies. Maybe those are related to when a contract had to kind of naturally roll off or maybe it's the result of the negotiation with a major vendor now that we have increased scale, but they're really not moving the needle. And the further we get from the CSI transaction, the more I guess I'd say the murkier it gets as to well heck was that a synergy? Or was that just hard work on us trying to manage our costs. So we're not really looking at those synergies as much as we are. Let's manage our costs. Let's think about automation. Let's think about rethinking the process. I think it's a combination of those two things that have really led to those margins where we are now. And as I said before, we have better ambitions. We'll give better -- or higher ambitions. We'll give guidance again in Q4, but we are not going to stop at 66%.

Great details. And John maybe just a follow-up for you as well. Just on debt and shareholder return. I'm just wondering can we assume shareholder return will sort of remain around the same sort of pace? And has that targeted leverage level changed going forward?

Yeah. I'll repeat what Mickey said. So our capital allocation framework it's really simple and it remains unchanged. We seek to grow adjusted EBITDA in the upper single-digit range annually. You see that on a pro forma basis with the guidepost we've given for 2025. We've been very vocal about how we want to pay out roughly call it 35% of our discretionary cash flow to shareholders in the form of a recurring dividend. And so as we grow EBITDA DCF should grow as well. So the expectation should be that the dividend should grow as that percentage holds. That's of course subject to the Board, but that's the model that we use and the mental math that we use. And then the most important maybe our true north is we want to get to that 3.5x leverage by the end of 2025. So those two variables plus the new variable of a share repurchase that repurchase is important. We think that studying prior sell-downs by other private equity-backed energy businesses that have gone successfully, the ones that have gone the best tend to be done the same way we just accomplished ours. It's a formula that's worked for them and we think it's a formula that's going to work for us with the incremental repurchases. But just know that as we do it, we're not going to take our eyes off our leverage target of 3.5x by the end of next year.

Thanks, John.

You bet.

Our next question is from Jim Rollyson from Raymond James. Please go ahead.

Hey, good morning, guys. Mickey you made a couple of comments around setting new units at higher prices obviously around the fact that inflation is still muted from what it was but ongoing. Maybe just a level set of kind of where leading-edge pricing is today relative to your fleet average because that number I think both have been moving higher but just kind of curious where that spread sits today ballpark.

Yes. Hey, good morning, Jim I think that probably – let me just do it. I think that new unit spot prices are probably 20% higher than what the fleet average is – looks like right now maybe 25% higher. So like I said in the question earlier a lot of that's driven by the higher capital cost of the equipment that is around today. So – and what we're paying for this equipment as well as labor costs too. Everybody knows that labor is a challenge in the Permian. And when labor prices go up they certainly don't retreat typically everybody – nobody likes getting a pay reduction. So like I said that's some inflationary cost drivers right there plus capital costs is driving us to kind of think about spot prices being 20% or 25% higher than what the fleet average is right now.

That's great. Obviously, you get to keep capturing that as you reprice things. And then on the kind of the fleet composition as you've sold off the Gas Jack business, you mentioned a few other kind of targeted smaller divestitures. How do we think about utilization? Because prior to the CSI transaction, right you guys were in high 90% utilization across the Kodiak fleet. And then that dipped when you kind of merged in those low utilization, low horsepower units. And as you kind of migrate away from those and maybe reposition some of the CSI units on the larger horsepower side just this quarter you were a little over 96%. Does that get back up to the 99-plus percent range at some point?

We hope so and that's what we're going to be shooting for Jim. So that's the goal here is to make sure that we get that utilization back in hand and not just utilization for the sake of utilization right? We want it to be the right utilization with the right customers in the right basins with the right contracts and that kind of thing. So that's what we work on every day and make sure that we have the longevity and the stability of those cash flows and not just sacrificing some of the things that are kind of strategically important to us for the sake of utilization.

Yes. Pretty tough about that. Appreciate the answers.

Thanks, Jim.

Thank you, Eli.

Our next question is from Sebastian Erskine from Redburn Atlantic. Please go ahead.

Hi. Good morning, Mickey, John and team and thanks for taking my questions. Just to start I mean, I guess, one of the issues that has been facing E&Ps in the Permian, has been the lack of kind of sufficient pipeline infrastructure. And that's meant that they kind of held a bit back on production. And obviously, in the third quarter, we've seen that the Matterhorn pipeline has come online and there are several more to come online in the coming years. So I'm just curious, in your conversations with your customers, are you expecting this new infrastructure to allow new wells to come online production to be boosted in the Permian? And obviously, kind of the read across from that to compression demand as well would be great.

Yes. Good morning, Sebastian. Thanks for the question. All of our customers that we're dealing with and planning out nine months and 12 months ahead of time are all very cognizant of what the takeaway capacity is in the Permian. Most of them have firm takeaway already committed to long before they decide to commit to compression horsepower. And so they know when the Matterhorn pipeline is coming on and when the pipelines are coming on next year. So they're basing their drilling programs around that -- them having that takeaway capacity in place. So I think that some of this capacity that's coming online is just as planned and it shouldn't affect the demand for our services at all. It's going to be kind of baked into that planning process that's nine months or 12 months out.

Really appreciate that. And the second one if I may. I just noticed in the third quarter, there was quite a large sort of working capital cash outflow. I think it was about sort of $85 million. And just if you could give us some color on kind of what drove that, and maybe what we can expect on working capital movements going forward that would be really appreciated.

You bet. Sebastian, this is John. Yes, that's something that we've got our eye really closely on. After we brought the two businesses together, we continue to work in two systems across our inventory, which makes it difficult to -- for people that are using one aspect of the system to know what's in the other side, natural thing in acquisitions like this. So that's caused us to have an elevated level of inventory. As we migrate those two systems into one, we would expect for that to go down during 2025, and that's something that we're keenly focused on. The other is accounts receivable. That's a temporal thing as well. We have migrated into one billing system. And a lot of the challenges as you do that are making sure that you can get set up with your customers so you can effectively bill them. I'd remind everybody that probably 85% to 88% of our revenues are contractually driven and our counterparties are some of the largest household names in the upstream and midstream energy industry. So, we're absolutely unconcerned with the credit quality of those customers. We just need to work through the invoicing process, make sure that we're set up and get caught back up. We'd expect to get there by the end of the year and then into next year as well. The great question and something that the management team is keenly focused on.

Brilliant. Thanks very much and congratulations on the quarter. Thanks.

Thanks, Sebastian

Our next question is from Theresa Chen from Barclays. Please go ahead.

Good morning. Thank you for fitting me in. Just a quick one on your recontracting outlook. You've given a lot of commentary on the tightness of the supply chain and how that's translating to economic tailwinds for your assets. I'm just curious as you think about recontracting going forward, do you consider trading some rate for term and elongating your weighted contract duration? How do you generally think about that trade-off?

Typically we don't -- we like to have our equipment under contract for sure. But personally I'm not willing -- I wouldn't be willing to trade contract rate for term. The way we look at it at Kodiak, Theresa, as you know is we look at the life and the longevity of the production that's sitting underneath our compressors as kind of the contract term that we have. I've said before if I put a large horsepower compressor on 20-year life production and I sign a one-year contract, I'm going to renew that contract 20 years if we're – 20 times if we take care of our business operationally and we're providing the best level of service operationally. So like I said when we look at contract term, we're looking at the life of the production, which is what drives our strategy of wanting to be in liquids rich oily basins with associated gas. So those basins tend to have longer life to them. The Permian is certainly is a great example of that. And we want our equipment on long-life production that we know will provide a stability of cash flows for many, many years.

Thank you.

Thank you, Theresa.

Next question is from

Hey guys, thanks for taking the question. Just one quick one from me. With 2025 fully contracted, could you give an update on how 2026 is coming along?

Some quick discussions in 2026,

Got it. That make sense. Appreciate it everyone.

Thank you,

This concludes today's question-and-answer session. I'd like to turn the floor back to management for any closing comments.

Yeah. Thank you operator and thanks to everyone participating in today's call. We look forward to speaking with you again after we report our results for the fourth quarter. Thanks.