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What changed in Kodiak Gas Services, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Kodiak Gas Services, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+447 added−539 removedSource: 10-K (2025-03-07) vs 10-K (2024-03-07)

Top changes in Kodiak Gas Services, Inc.'s 2024 10-K

447 paragraphs added · 539 removed · 323 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

83 edited+34 added−37 removed68 unchanged
Biggest change“Compression Operations” consists of operating Company-owned and customer-owned compression infrastructure for our customers, pursuant to fixed-revenue contracts to enable the production and gathering of natural gas and oil. “Other Services” consists of a full range of contract services to support the needs of our customers, including station construction, maintenance and overhaul and other ancillary time and material-based offerings.
Biggest changeOur other services (“Other Services”) consist of a broad range of services to support the needs of our customers, including station construction, customer-owned compression maintenance and overhaul, freight and crane charges, parts sales and other ancillary time and material-based offerings. Our Other Services offerings are often cross-sold with Contract Services, bolstering cash flow generation with no associated capital expenditures.
We believe our focus on customer service in top-tier regions, and the critical nature of our assets results in long-term customer relationships and financial stability for our business. Our preventative and predictive maintenance and overhaul programs are designed to maximize mechanical availability and extend the useful lives of our assets over multiple decades.
We believe our focus on customer service in top-tier regions, and the critical nature of our assets results in long-term customer relationships and enhanced financial stability for our business. Our preventative and predictive maintenance and overhaul programs are designed to maximize mechanical availability and extend the useful lives of our assets over multiple decades.
Climate Change Climate change and GHG emissions reduction initiatives continue to attract considerable public and scientific attention. Methane, a primary component of natural gas, and carbon dioxide, a byproduct of the burning of natural gas, are examples of GHGs. In recent years, the U.S. Congress has considered legislation to restrict or regulate GHG emissions.
Climate Change Climate change and greenhouse gas ("GHG") emissions reduction initiatives continue to attract considerable public and scientific attention. Methane, a primary component of natural gas, and carbon dioxide, a byproduct of the burning of natural gas, are examples of GHGs. In recent years, the U.S. Congress has considered legislation to restrict or regulate GHG emissions.
On a regional basis, we experience competition from numerous smaller companies that may be able to adapt to changes more quickly within our industry and changes in economic conditions, more readily take advantage of available opportunities and adopt more aggressive pricing policies.
On a regional basis, we experience competition from numerous companies that may be able to adapt to changes more quickly within our industry and changes in economic conditions, more readily take advantage of available opportunities and adopt more aggressive pricing policies.
We believe alignment with our customers’ goals is a key differentiator to our business, and we have built a reputation backed by our leading mechanical availability to earn and strengthen customer loyalty. We believe mechanical availability is a critical consideration for a customer in making its contract compression decisions.
We believe alignment with our customers’ goals is a key differentiator to our business, and we have built a reputation backed by our mechanical availability to earn and strengthen customer loyalty. We believe mechanical availability is a critical consideration for a customer in making its contract compression decisions.
Our contracts do not specify the compression equipment we will use; instead, the contracts specify required operating conditions and, in consultation with the customer, we determine what equipment is necessary to meet our contractual commitments.
Our contracts typically do not specify the compression equipment we will use; instead, the contracts typically specify required operating conditions and, in consultation with the customer, we determine what equipment is necessary to meet our contractual commitments.
Among other things, the proposed rule expands the emissions events that are subject to reporting requirements to include “other large release events” and applies reporting requirements to certain new sources and sectors.
Among other things, the rule expands the emissions events that are subject to reporting requirements to include “other large release events” and applies reporting requirements to certain new sources and sectors.
Our standard natural gas Compression Operations contract provides that the customer is responsible for obtaining air emissions permits and assuming the environmental risks related to site operations. In some instances, our customers may be required to aggregate emissions from a number of different sources on the theory that the different sources should be considered a single source.
Our standard natural gas Contract Services contract provides that the customer is responsible for obtaining air emissions permits and assuming the environmental risks related to site operations. In some instances, our customers may be required to aggregate emissions from a number of different sources on the theory that the different sources should be considered a single source.
Any such determinations could have the effect of making projects more costly than our customers expected and could require the installation of more costly emissions controls, which could cause some of our customers not to pursue certain projects. 14 Table of Conten ts There can be no assurance that future requirements compelling the installation of more costly emission control equipment would not have a material adverse impact on our business, financial condition, results of operations and cash available for distribution.
Any such determinations could have the effect of making projects more costly than our customers expected and could require the installation of more costly emissions controls, which could cause some of our customers not to pursue certain projects. 14 Table of Contents There can be no assurance that future requirements compelling the installation of more costly emission control equipment would not have a material adverse impact on our business, financial condition, results of operations and cash available for distribution.
Safe Drinking Water Act A significant portion of our customers’ hydrocarbon production is developed from unconventional sources that require hydraulic fracturing as part of the completion process. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into the rock formation to stimulate hydrocarbon production. The U.S.
Safe Drinking Water Act A significant portion of our customers’ hydrocarbon production is developed from unconventional sources that require hydraulic fracturing as part of the completion process. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into the rock formation to stimulate hydrocarbon production.
Under the terms of our standard Compression Operations contract, we are responsible for maintaining insurance coverage on our compression equipment. No accidents or incidents have occurred that have caused us to experience a material adverse effect.
Under the terms of our standard Contract Services contract, we are responsible for maintaining insurance coverage on our compression equipment. No accidents or incidents have occurred that have caused us to experience a material adverse effect.
General Compression Operations Contract Structures The following discussion describes the material terms generally common to our Compression Operations contracts allocated to our Compression Operations reporting unit. We maintain a general gas compression agreement with each of our customers and separate addenda for each compression unit.
General Contract Services Contract Structures The following discussion describes the material terms generally common to our Contract Services contracts allocated to our Contract Services reporting unit. We maintain a general gas compression agreement with each of our customers and separate addenda for each compression unit.
Sales, fleet and operations personnel analyze and scope new compression applications. Additionally, our salespeople regularly visit our customers to ensure customer satisfaction, to determine a customer’s needs related to existing Compression Operations being provided and to determine the customer’s future compression requirements.
Sales, fleet and operations personnel analyze and scope new compression applications. Additionally, our salespeople regularly visit our customers to ensure customer satisfaction, to determine a customer’s needs related to existing Contract Services being provided and to determine the customer’s future compression requirements.
Additionally, there are significant liquefied natural gas (“LNG”) export projects in development, and overall U.S. LNG export capacity is expected to double by 2027, according to the EIA. We expect this to translate into Permian Basin and Eagle Ford Shale natural gas production growth, requiring substantial additional compression horsepower.
Additionally, there are significant liquefied natural gas (“LNG”) export projects in development, and overall U.S. LNG export capacity is expected to double by 2030, according to the EIA. We expect this to translate into continued Permian Basin and Eagle Ford Shale natural gas production growth, requiring substantial additional compression horsepower.
Seasonality Our results of operations have not historically been materially affected by seasonality, and we do not currently have reason to believe that seasonal fluctuations will have a material impact in the foreseeable future. Operating Risks and Insurance 13 Table of Conten ts We believe that our insurance coverage is customary for the industry and adequate for our business.
Seasonality Our results of operations have not historically been materially affected by seasonality, and we do not currently have reason to believe that seasonal fluctuations will have a material impact in the foreseeable future. 13 Table of Contents Operating Risks and Insurance We believe that our insurance coverage is customary for the industry and adequate for our business.
Various state and local governments have also publicly committed to furthering the goals of the Paris Agreement. Additionally, in March 2022, the U.S. Securities and Exchange Commission (“SEC”) issued a proposed rule regarding the enhancement and standardization of mandatory climate-related disclosures for investors.
Various state and local governments have also publicly committed to furthering the goals of the Paris Agreement. 15 Table of Contents Additionally, in March 2022, the U.S. Securities and Exchange Commission (“SEC”) issued a proposed rule regarding the enhancement and standardization of mandatory climate-related disclosures for investors.
Supreme Court held that, in certain cases, discharges from a point source to a WOTUS through groundwater require a permit if the discharge is the “functional equivalent” of a direct discharge. The Court rejected the EPA and the Corps’ assertion that groundwater should be totally excluded from the CWA.
Supreme Court held that, in certain cases, discharges from a point source to a WOTUS through groundwater require a permit if the 16 Table of Contents discharge is the “functional equivalent” of a direct discharge. The Court rejected the EPA and the Corps’ assertion that groundwater should be totally excluded from the CWA.
Our field service technicians are supported by a dedicated training team. Additionally, we offer a number of non-technical, targeted skills-based and career-enhancing training programs, including technical orientation for non-technical employees, supervisor coaching, performance management and conflict resolution.
Our field service technicians are supported by a dedicated training team. Additionally, we offer a number of non-technical, targeted skills-based and career-enhancing training programs, including technical orientation for non-technical employees, supervisor coaching, 18 Table of Contents performance management and conflict resolution.
Our election to use the 19 Table of Conten ts phase-in periods permitted by this election may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods under Section 107 of the JOBS Act and who will comply with new or revised financial accounting standards.
Our election to use the phase-in periods permitted by this election may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods under Section 107 of the JOBS Act and who will comply with new or revised financial accounting standards.
We actively promote the highest standards of safety, behavior and environmental awareness and strive to meet or exceed all applicable local and national regulations. Talent Development We invest significant resources to develop the talent needed to provide our industry-leading Compression Operations. We work closely with suppliers to develop training programs for our field service technicians.
We actively promote the highest standards of safety, behavior and environmental awareness and strive to meet or exceed all applicable local and national regulations. Talent Development We invest significant resources to develop the talent needed to provide our industry-leading Contract Services. We work closely with suppliers to develop training programs for our field service technicians.
Although we generate materials in the course of our operations that may be regulated as hazardous substances, we have not received notification that we may be potentially responsible for cleanup costs under CERCLA at any site.
Although we generate materials in the course of our 17 Table of Contents operations that may be regulated as hazardous substances, we have not received notification that we may be potentially responsible for cleanup costs under CERCLA at any site.
The CWA and analogous state laws also require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. The Oil Pollution Act of 1990, as amended (the “OPA”), amends the CWA and establishes strict liability and natural resource damages liability for unauthorized discharges of oil into waters of the United States.
The CWA and analogous state laws also require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. The Oil Pollution Act of 1990, as amended (the “OPA”), amends the CWA and establishes strict liability and natural resource damages liability for unauthorized discharges of oil into waters of the U.S.
We generally own the compression equipment in our fleet that we use to provide Compression Operations, and we typically bear the risk of loss or damage to our equipment and tools and injury or death to our personnel outside the exceptions set forth in the contracts.
We generally own the compression equipment in our fleet that we use to provide Contract Services, and we typically bear the risk of loss or damage to our equipment and tools and injury or death to our personnel outside the exceptions set forth in the contracts.
The OPA requires owners or operators of certain onshore facilities to prepare facility response plans for a discharge of oil into waters of the United States. Our Compression Operations do not currently generate process waste waters that are discharged into waters of the United States and we do not foresee this occurring in the future.
The OPA requires owners or operators of certain onshore facilities to prepare facility response plans for a discharge of oil into waters of the United States. Our Contract Services do not currently generate process waste waters that are discharged into waters of the United States and we do not foresee this occurring in the future.
We believe U.S. compression infrastructure industry growth will be supported by the following factors: • Continued, growing demand for U.S. natural gas driven by domestic natural gas and global LNG consumption. • Replacement of production from maturing and aging conventional basins with production from unconventional sources, which tend to require more compression infrastructure, to accommodate the increase in natural gas demand while offsetting declining production. • A continued emphasis by federal, state and local regulatory agencies as well as oil and gas producers on reducing the volume of natural gas that is flared during the production of crude oil, which will result in the need for additional field infrastructure to transport natural gas, which in turn will result in increased demand for compression infrastructure. • The prevalence of U.S. oil and gas producers in key unconventional basins like the Permian Basin and the Eagle Ford Shale to rely on centralized gas lift as the most effective and efficient artificial lift technology for the production of crude oil.
We believe U.S. compression infrastructure industry growth will be supported by the following factors: • Continued, growing demand for U.S. natural gas driven principally by domestic natural gas consumption in the power sector, and exports of U.S.-produced natural gas and LNG. • Replacement of production from maturing and aging conventional basins with production from unconventional sources, which tend to require more compression infrastructure, to accommodate the increase in natural gas demand while offsetting declining production. • A continued emphasis by federal, state and local regulatory agencies as well as oil and gas producers on reducing the volume of natural gas that is flared during the production of crude oil, which will result in the need for additional field infrastructure to transport natural gas, which in turn will result in increased demand for compression infrastructure. • The prevalence of U.S. oil and gas producers in key unconventional basins like the Permian Basin and the Eagle Ford Shale to rely on centralized gas lift as one of the more effective and efficient artificial lift technologies for the production of crude oil.
This ongoing communication allows us to quickly identify and respond to our customers’ compression requirements and gives us significant insight into their activities. Suppliers and Service Providers We rely primarily on key vendors to manufacture, package and assemble our compression equipment.
This ongoing communication allows us to quickly identify and respond to our customers’ compression requirements and gives us significant insight into their activities. Suppliers and Service Providers We rely primarily on a small number of key vendors to manufacture, package and assemble our compression equipment.
Additionally, our active compression operations equipment typically is installed on properties owned or leased by third-party customers and operated by us pursuant to terms set forth in the contracts executed by those customers.
Additionally, our active contract services equipment typically is installed on properties owned or leased by third-party customers and operated by us pursuant to terms set forth in the contracts executed by those customers.
While we do not currently own or lease any facilities or properties for storage or maintenance of our inactive compression operations equipment, we may use third-party properties for such storage and possible maintenance and repair activities.
While we do not currently own or lease any facilities or properties for storage or maintenance of our inactive contract services equipment, we may use third-party properties for such storage and possible maintenance and repair activities.
In addition to the Permian Basin and Eagle Ford Shale, we have assets in the Powder River Basin, Mid-Continent Region, DJ Basin, Appalachian Basin, Barnett Shale / East Texas Region and Black Warrior Basin. 10 Table of Conten ts Kodiak Customers and Contracts We have developed long-term commercial relationships with premier upstream and midstream customers in our key areas of operations.
In addition to the Permian Basin and Eagle Ford Shale, we have assets located in the Powder River Basin, Mid-Continent Region, DJ Basin, Appalachian Basin, Barnett Shale / East Texas Region and Black Warrior Basin. Customers We have developed long-term commercial relationships with premier upstream and midstream customers in our key areas of operations.
Our Compression Operations equipment is typically not mechanically available during all other instances of downtime including, without limitation, our scheduled maintenance. 12 Table of Conten ts We provide Kodiak-owned Compression Operations under contracts that typically provide that we will supply all compression equipment, tools, parts and field service support to meet our customers’ requirements.
Our Contract Services equipment is typically not mechanically available during all other instances of downtime including, without limitation, our scheduled and unscheduled maintenance. 12 Table of Contents We provide Kodiak-owned Contract Services under contracts that typically provide that we will supply all compression equipment, tools, parts and field service support to meet our customers’ requirements.
After the expiration of the primary term, our contracts continue on a month-to-month basis until renewed or until the contract is terminated by us or our customer, upon written notice. As of December 31, 2023, approximately 10.2% of our revenue-generating horsepower was on a month-to-month contract term.
After the expiration of the primary term, our contracts continue on a month-to-month basis until renewed or until the contract is terminated by us or our customer, upon written notice. As of December 31, 2024, approximately 11.3% of our revenue-generating horsepower was on a month-to-month contract term.
As of December 31, 2023, approximately 84% of our existing compression assets were strategically deployed in the Permian Basin and Eagle Ford Shale, which the United States Energy Information Administration (“EIA”) expects will maintain significant production volumes through at least 2050. We believe these two regions have the largest and lowest-cost unconventional resources in the U.S.
As of December 31, 2024, approximately 82% of our compression assets were deployed in the Permian Basin and Eagle Ford Shale, which the United States Energy Information Administration (“EIA”) expects to maintain significant production volumes through at least 2050. We believe these two regions have some of the largest and lowest-cost unconventional resources in the U.S.
In order to implement the program, the Inflation Reduction Act required revisions to GHG reporting regulations for petroleum and natural gas systems (Subpart W) by 2024. In July 2023, the Environmental Protection Agency (“EPA”) proposed to expand the scope of the Greenhouse Gas Reporting Program for petroleum and natural gas facilities, as required by the Inflation Reduction Act.
In order to implement the program, the Inflation Reduction Act required revisions to GHG reporting regulations for petroleum and natural gas systems (Subpart W) by 2024. In May 2024, the Environmental Protection Agency (“EPA”) finalized a rule to expand the scope of the Greenhouse Gas Reporting Program for petroleum and natural gas facilities, as required by the Inflation Reduction Act.
Additionally, our assets are designed to serve a wide variety of large horsepower applications, such as gathering, processing and transportation of natural gas and centralized gas lift of oil. Our Key Areas of Operation We strategically focus on deploying our compression assets in leading onshore U.S. regions with the longest production horizons.
Additionally, our assets are designed to serve a wide variety of large horsepower applications, such as gathering, processing and transportation of natural gas and centralized gas lift of oil. 10 Table of Contents Our Key Areas of Operation We strategically focus on deploying our compression assets in leading onshore U.S. regions with superior hydrocarbon well and long production horizons.
We began broad scale integration of ecoView across our large horsepower compression fleet during 2023. Electric motor driven compression is also part of our long-term strategy to reduce emissions intensity across our fleet. We have begun deploying electric motor driven compression with select customers and have additional assets that we will deploy in the near future under long-term fixed-revenue contracts.
Electric motor driven compression is also part of our long-term strategy to reduce emissions intensity across our fleet. We have begun deploying electric motor driven compression with select customers and have additional assets that we will deploy in the near future under long-term fixed-revenue contracts.
We seek to continuously improve our operations, relationships with our stakeholders and ultimately maintain our position as a sustainable and responsible operator of contract compression infrastructure. Approximately 96% of our current fleet is lower-emissions capable, meaning it is capable of operating in regions with the most stringent U.S. regulatory requirements (emissions of 0.5g NOx or less).
We seek to continuously improve our operations, relationships with our stakeholders and ultimately maintain our position as a sustainable and responsible operator of contract compression infrastructure. Part of our strategy includes owning a lower-emissions fleet capable of operating in regions with the most stringent U.S. regulatory requirements (emissions of 0.5g NOx or less).
If additional levels of regulation, restrictions and permits were required through the adoption of new laws and regulations at the federal or state level or the development of new interpretations of those requirements by the agencies that issue the required permits could lead to operational delays, increased operating costs and process prohibitions that could reduce demand for our Compression Operations, which would materially adversely affect our revenue and results of operations.
Adoption of such new laws and regulations at the federal or state level or the development of new interpretations of those requirements by the agencies that issue the required permits could lead to operational delays, increased operating costs and process prohibitions that could reduce demand for our Contract Services, which would materially adversely affect our revenue and results of operations.
Safety and Health 18 Table of Conten ts The Occupational Safety and Health Act (“OSHA”) and comparable state laws and regulations govern the protection of the health and safety of employees.
Safety and Health The Occupational Safety and Health Act (“OSHA”) and comparable state laws and regulations govern the protection of the health and safety of employees.
Supreme Court decision issued in May 2023. In 2015, the EPA and the U.S. Army Corps of Engineers (“Corps”) issued a rule defining the scope of the EPA’s and the Corps’ jurisdiction over WOTUS under the CWA, which never took effect before being replaced by the Navigable Waters Protection Rule (“NWPR”) in 2020.
Army Corps of Engineers (“Corps”) issued a rule defining the scope of the EPA’s and the Corps’ jurisdiction over WOTUS under the CWA, which never took effect before being replaced by the Navigable Waters Protection Rule (“NWPR”) in 2020.
Item 1. Business Overview We are a leading operator of contract compression infrastructure in the United States. Our wholly-owned subsidiary Kodiak Gas Services, LLC was formed in 2011, and we have been operating compression infrastructure since that time.
Item 1. Business Overview We are a leading provider and operator of large horsepower contract compression infrastructure in the U.S. Our wholly-owned subsidiary Kodiak Services was formed in 2011, and we have been operating compression infrastructure since that time.
The EPA has adopted rules requiring many facilities, including petroleum and natural gas systems, to inventory and report their GHG emissions (as discussed above). In addition, the EPA rules provide air permitting requirements for certain large sources of GHG emissions.
Independent of Congress, the EPA has promulgated regulations controlling GHG emissions under its existing CAA authority. The EPA has adopted rules requiring many facilities, including petroleum and natural gas systems, to inventory and report their GHG emissions (as discussed above). In addition, the EPA rules provide air permitting requirements for certain large sources of GHG emissions.
Increased regulation and attention given to induced seismicity could lead to greater opposition to, and litigation concerning, natural gas and oil activities utilizing hydraulic fracturing or injection wells for waste disposal, which could indirectly impact our business, financial condition and results of operations.
Increased regulation under the Safe Drinking Water Act could lead to greater opposition to, and litigation concerning, natural gas and oil activities utilizing hydraulic fracturing or injection wells for waste disposal, which could indirectly impact our business, financial condition and results of operations.
Additionally, increased demand for large horsepower infrastructure is driven by multi-well pad drilling, overall well density, and large-scale gathering systems. We believe the quality of our relationships with our customers, the reliability of our Compression Operations and the structure of our contracts produce stable, recurring cash flow. We derive substantially all of our revenues from fixed-revenue contracts.
Additionally, increased demand for large horsepower infrastructure is driven by multi-well pad drilling, overall well density, and large-scale gathering systems. We believe the quality of our relationships with our customers, the historical reliability of our Contract Services and the structure of our contracts produce stable, recurring cash flow.
We support pay equity for all legally protected individuals (i.e., gender, ethnicity, race) and believe we offer competitive and comprehensive compensation and benefits packages that include annual bonuses, stock awards, a 401(k) plan with employer contribution, healthcare and insurance benefits, health savings account with employer contribution, dependent care flexible spending account, paid time off, family leave, an employee assistance program and tuition assistance, among many other benefits.
We offer competitive and comprehensive compensation and benefits packages that include annual bonuses, stock awards, a 401(k) plan with employer contribution, healthcare and insurance benefits, health savings account with employer contribution, dependent care flexible spending account, paid time off, family leave, an employee assistance program and tuition assistance, among many other benefits.
Additionally, our customers benefit from the technical skills of our specialized personnel, and our focus on reliability and emissions reduction helps them advance their sustainability goals. We manage our business through two operating segments: Compression Operations and Other Services.
Additionally, our customers benefit from the technical skills of our specialized personnel, and our focus on reliability and emissions reduction helps them advance their sustainability goals. Business Segments Our business is organized into two reportable segments: Contract Services and Other Services.
Fees, Taxes and Expenses Our customers pay a fixed monthly fee for our Compression Operations similar to midstream “take-or-pay contracts.” The majority of our contracts include an annual inflation adjustment to the monthly fee based on a series of the producer price index.
Fees, Taxes and Expenses Our customers typically pay a fixed monthly fee for our Contract Services similar to midstream “take-or-pay contracts.” The majority of our contracts include an annual inflation adjustment.
Generally, we bill for our Compression Operations on the 15th day of a month for the following month’s Compression Operations (i.e., pre-billed). Payments are generally due within 30 days of the invoice date.
Generally, we bill for our Contract Services on the 15th day of a month for the following month’s Contract Services (i.e., pre-billed) or at the beginning of the month for which our Contract Services are to be provided. Payments are generally due within 30 days of the invoice date.
In January 2024, the EPA proposed a rule implementing the Inflation Reduction Act’s methane emissions charge. The proposed rule includes potential methodologies for calculating the amount by which a facility’s reported methane emissions are below or exceed the waste emissions thresholds and contemplates approaches for implementing certain exemptions created by the Inflation Reduction Act.
The rule includes methodologies for calculating the amount by which a facility’s reported methane emissions are below or exceed the waste emissions thresholds and addresses certain exemptions created by the Inflation Reduction Act.
Our Compression Operations equipment is typically mechanically available during instances of downtime attributable to events of force majeure or acts or failures to act by the customer (i.e., production-related downtime).
Mechanical Availability Guarantee and Operations Standards and Specifications All of our contracts provide a guarantee of specified mechanical availability. Our Contract Services equipment is typically mechanically available during instances of downtime attributable to events of force majeure or acts or failures to act by the customer (i.e., production-related downtime).
Recent Developments Dividend On February 23, 2024, Kodiak paid a quarterly cash dividend of $0.38 per share to all holders of Kodiak Common Stock as of the close of business on February 16, 2024, resulting in an aggregate payment of approximately $30 million.
Dividends On February 21, 2025, Kodiak paid a cash dividend of $0.41 per share to all holders of Kodiak Common Stock as of the close of business on February 14, 2025, resulting in an aggregate payment of approximately $36.0 million.
In addition, the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) also provides significant funding for research and development of low-carbon energy production methods, carbon capture and other programs directed at addressing climate change. A number of states have begun to address GHG emissions, primarily through the planned development of emissions inventories or regional GHG cap and trade programs.
In addition, the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) also provides significant funding for research and development of low-carbon energy production methods, carbon capture and other programs directed at addressing climate change.
Although the proposed rule’s ultimate date of effectiveness and the final form and substance of these requirements is not yet known and the ultimate scope and impact on our business is uncertain, compliance with the proposed rule, if finalized, may result in increased legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place strain on our personnel, systems and resources.
Thus, the ultimate scope and impact on our business is uncertain, but compliance with the rule, if it takes effect, may result in increased legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place strain on our personnel, systems and resources.
As noted in the risk factors below (see “Risk Factors—Risks Related to Our Business and Our Industry—New regulations, proposed regulations and proposed modifications to existing regulations under the CAA, if implemented, could result in increased compliance costs and changes in customers’ demand and desired suppliers”), the EPA has undertaken efforts to regulate emissions of methane (considered a GHG) in the natural gas and oil sector, with the adoption of additional, more stringent rules.
As noted in the risk factors below (see “Risk Factors—Risks Related to Our Business and Our Industry—New regulations, proposed regulations and proposed modifications to existing regulations under the CAA, if implemented, could result in increased compliance costs and changes in customers’ demand and desired suppliers”).
Our comprehensive training program emphasizes safety, improving technical skills and professional development for employees across functional areas. This program is further bolstered through a virtual training program to better prepare our employees to safely address situations in the field. Diversity, equity and inclusion (“DEI”) are critically important to our organization.
Our comprehensive training program emphasizes safety, improving technical skills and professional development for employees across functional areas. This program is further bolstered through a virtual training program to better prepare our employees to safely address situations in the field. We created the Kodiak Cares Foundation to support employees and charitable causes in the communities in which we live and operate.
Given the essential nature of their operations, compression infrastructure providers benefit from stable cash flows and fixed-revenue contracts. Furthermore, large horsepower compression infrastructure is costly to install and move, and, therefore, operators have increasingly focused on deploying capital into their core business, favoring outsourcing contract compression.
Given the essential nature of their operations, compression infrastructure providers benefit from stable cash flows and fixed-revenue contracts. Furthermore, large horsepower compression infrastructure is costly to install and move, and, therefore, many operators choose to outsource all or a portion of their compression infrastructure requirements so that they may deploy capital into their core business.
Our Operations Our business model is focused on large horsepower contract Compression Operations, which we believe is central to our customers’ efforts to meet the expected growing natural gas and oil demand from the Permian Basin and other regions in the U.S. large horsepower Compression Operations tend to garner longer-term contracts than small horsepower Compression Operations and, as a result, we believe large horsepower Contract Operations provide us with better 9 Table of Conten ts predictability of revenues and operations.
Our Operations Our business model is focused on large horsepower Contract Services, which we believe is central to our customers’ efforts to meet the expected growing natural gas and oil demand from the Permian Basin and other regions in the U.S.
We believe large horsepower compression units serve more stable applications, receive longer initial contracts, are more likely to be renewed, and produce higher margins, ultimately generating recurring cash flow and return on invested capital. When properly maintained, our compression assets have long useful lives, consistent with the expected production lives of the key regions where we operate.
We operate our large horsepower compression units under fixed-revenue term contracts with many upstream and midstream customers. We believe large horsepower compression units serve more stable applications, receive longer initial contracts, are more likely to be renewed, and produce higher margins, ultimately generating recurring cash flow and return on invested capital.
Below is a tabular overview of our fleet by horsepower as of December 31, 2023: Fleet Horsepower Number of Units Percent of Total Horsepower Percent of Units Large horsepower >1,000 horsepower 2,653,737 1,596 81% 52% Medium & small horsepower 607,924 1,482 19% 48% Total 3,261,661 3,078 100% 100% We have standardized our fleet and operational processes, creating an effective and seamless fleet maintenance program and spare parts inventory, and efficient and resilient supply chain.
Below is a tabular overview of our fleet by horsepower as of December 31, 2024: Fleet Horsepower Percent of Total Horsepower Number of Units Percent of Units Large horsepower >1,000 horsepower 3,428,062 78% 2,100 41% Medium & small horsepower 974,685 22% 2,969 59% Total 4,402,747 100% 5,069 100% We have standardized our fleet and operational processes, creating an effective fleet maintenance program and spare parts inventory, and efficient and resilient supply chain.
Additionally, our customers are typically responsible for any damage to our compression equipment caused by contaminants or liquid carryover in the compressed gas stream or inferior fuel gas.
Further, ad valorem or business personal property taxes assessed on our compression equipment are generally reimbursed by our customers, as well as any sales tax related to our Contract Services. Additionally, our customers are typically responsible for any damage to our compression equipment caused by contaminants or liquid carryover in the compressed gas stream or inferior fuel gas.
Depending on the particular program, we could be required to control GHG emissions or to purchase and surrender allowances for GHG emissions resulting from our operations.
A number of states have also begun to address GHG emissions, primarily through the planned development of emissions inventories or regional GHG cap and trade programs. Depending on the particular program, we could be required to control GHG emissions or to purchase and surrender allowances for GHG emissions resulting from our operations.
Compression Industry Compression is a mechanical process whereby natural gas is compressed to a smaller volume resulting in higher pressures. This process is critical for the production, gathering, and transportation of natural gas as well as for centralized gas lift for oil production. Without the increased pressure, gas cannot flow from the wellhead to end-markets.
This process is critical for the production, gathering, and transportation of natural gas is a core component of one of the leading artificial lift technologies utilized in oil production. Without the increased pressure, gas cannot flow from the wellhead to end-markets.
Although we rely primarily on these suppliers, we believe alternative sources for natural gas compression equipment are generally available if needed. However, relying on alternative sources may increase our costs and change the standardized nature of our fleet. We have not experienced any material supply problems to date. Competition The compression and related services business is competitive.
Although we rely primarily on these suppliers, we believe alternative sources for natural gas compression equipment are generally available if needed. Competition The contract compression and related services business is competitive.
We believe these regions will play an increasingly important role in global energy security, as the world continues to require reliable and growing natural gas and oil production to support increasing global energy demand. We are a leader in large horsepower compression, with approximately 81% of our approximately 3.3 million horsepower fleet comprised of compression units larger than 1,000 horsepower.
We believe the U.S. will play an increasingly important role in global energy security, as the world continues to require reliable and growing natural gas and oil production to support increasing global energy demand.
While the Paris Agreement does not impose direct requirements on emitters, national plans to meet its pledge could result in new regulatory requirements or initiatives. In April 2021, the current administration announced a new “nationally determined contribution” for U.S.
While the Paris Agreement does not impose direct requirements on emitters, national plans to meet its pledge could result in new regulatory requirements or initiatives. However, in January 2025, President Trump withdrew the United States from the Paris Agreement.
Other OSHA standards regulate specific worker safety aspects of our operations. Human Capital Employees As of December 31, 2023, we had 781 full-time employees. None of our employees are subject to collective bargaining agreements. We consider our employees to be our greatest asset and believe that our success depends on our ability to attract, develop and retain our employees.
Other OSHA standards regulate specific worker safety aspects of our operations. Human Capital Employees As of December 31, 2024, we had approximately 1,300 full-time employees. Some employees in Mexico are subject to collective bargaining agreements.
Federal and state regulatory agencies can impose administrative, civil and criminal penalties, as well as other enforcement mechanisms for non-compliance with discharge permits or other requirements of the CWA and analogous state laws and regulations. 16 Table of Conten ts The definition of WOTUS and, relatedly, the scope of federal CWA jurisdiction, have been the subject of notable rule making efforts and judicial challenges over several decades, culminating in a recent U.S.
Federal and state regulatory agencies can impose administrative, civil and criminal penalties, as well as other enforcement mechanisms for non-compliance with discharge permits or other requirements of the CWA and analogous state laws and regulations.
The methane emissions charge imposed under the Methane Emissions and Waste Reduction Incentive Program for calendar year 2024 would be $900 per ton emitted over annual methane emissions thresholds, and would increase to $1,200 in 2025, and $1,500 in 2026. Independent of Congress, the EPA has promulgated regulations controlling GHG emissions under its existing CAA authority.
The methane emissions charge imposed under the Methane Emissions and Waste Reduction Incentive Program for calendar year 2024 is $900 per ton emitted over annual methane emissions thresholds, and increases to $1,200 in 2025, and $1,500 in 2026. However, a proposed resolution has recently been filed in Congress under the Congressional Review Act to disapprove the methane emissions charge rule.
If Compression Operations are provided for a partial month, the monthly fee is pro-rated that month and is invoiced “due on receipt.” We are generally responsible for the costs and expenses associated with operation and maintenance of our equipment, although certain fees and expenses are the responsibility of our customers under the terms of our contracts.
We are generally responsible for the costs and expenses associated with operation and maintenance of our equipment, although certain fees and expenses are the responsibility of our customers under the terms of our contracts. For example, fuel gas necessary to operate our compression equipment is provided by our customers without cost to us.
With the exception of the final EPA methane rules and related updates, which were announced by President Biden at COP28, we cannot predict whether these pledges made during these international climate change meetings will result in any particular new regulatory requirements or initiatives or whether such requirements or initiatives will cause us to incur material costs.
Consequently, we cannot predict whether these pledges made during these international climate change meetings will result in any particular new regulatory requirements or initiatives or whether such requirements or initiatives will cause us to incur material costs should the U.S.'s participation in the Paris Agreement again change in the future.
Additionally, the historical availability of attractive financing terms from financial institutions and equipment manufacturers has made the purchase of individual compression units affordable for our customers. We believe that we compete effectively based on our customer-centric business model, flexibility in meeting customer needs, price, equipment availability, quality and reliability of our Compression Operations.
We believe that we compete effectively based on our customer-centric business model, flexibility in meeting customer needs, price, equipment availability, quality and reliability of our Contract Services.
The rule also sets limits for stationary natural gas combustion turbines based on the use of natural gas combined cycle technology. In May 2023, the EPA issued a notice of proposed rule making that would revise the limits for new gas-fired combustion turbines, existing coal, oil- and gas-fired steam generating units and certain existing gas-fire combustion turbines.
In April 2024, the EPA issued a final rule that revises the limits for new gas-fired combustion turbines, existing coal, oil- and gas-fired steam generating units and certain existing gas-fire combustion turbines.
We believe our customer-centric business model positions us as the preferred contract compression operator for our customers and creates long-standing relationships. We strategically invest in the training, development, and retention of our highly skilled and dedicated employees and believe their expertise and commitment to excellence enhances and differentiates our business model.
We strategically invest in the training, development, and retention of our highly skilled and dedicated employees and believe their expertise and commitment to excellence enhances and differentiates our business model. Furthermore, we maintain an intense focus on being one of the most sustainable and responsible operators of contract compression infrastructure.
The combination of the reliability and critical nature of our assets, the strong capabilities of our work force, the strength of our customer relationships and contract structures, and our market leadership in the prolific Permian Basin have resulted in a four-year average fleet utilization of over 99% (which measures the revenue-generating horsepower divided by our total fleet horsepower).We are focused on being a resilient and sustainable enterprise, and we have ambitious sustainability goals.
The combination of the reliability and critical nature of our assets, the strong capabilities of our work force, the strength of our customer relationships and contract structures, and our market leadership in the prolific Permian Basin have resulted in a historically high fleet utilization for our company.
Large compression units enable multi-well pad development, reduce downtime, improve overall unit economics and provide lower emissions per horsepower relative to small horsepower compression units. Fleet standardization and continued geographic concentration allow us to lower our cost of operations and improve margins through economies of scale.
Fleet standardization and continued geographic concentration allow us to lower our cost of operations and improve margins through economies of scale.
The information contained on our website does not constitute part of this Annual Report. We will provide electronic or paper copies of our filings free of charge upon request. The SEC maintains a website that contains these reports at http://www.sec.gov.
We also use our website as a means of disclosing additional information, including for complying with our disclosure obligations under the SEC’s Regulation FD (Fair Disclosure). The information contained on our website does not constitute part of this Annual Report. We will provide electronic or paper copies of our filings free of charge upon request.
We created the Kodiak Cares Foundation to support employees and charitable causes in the community. We are also committed to supporting veterans and do so through our recruiting and hiring efforts, as well as supporting several causes that assist veterans and active-duty military.
We are also committed to supporting veterans and do so through our recruiting and hiring efforts, as well as supporting several causes that assist veterans and active-duty military. 11 Table of Contents Compression Industry Compression is a mechanical process whereby natural gas is compressed to a smaller volume resulting in higher pressures.
The rule is currently scheduled to be finalized in 2024 and would take effect on January 1, 2025 for reporting year 2025 (due March 2026) in certain circumstances, with the potential to also impact GHG reporting for reporting year 2024 (due March 2025) in certain circumstances.
The rule took effect on January 1, 2025 for reporting year 2025 (due March 2026) in certain circumstances, with GHG reporting required for reporting year 2024 (due March 2025) in certain circumstances. In November 2024, the EPA finalized a rule implementing the Inflation Reduction Act’s methane emissions charge.
We have developed a systematic and selective customer evaluation methodology, based on key criteria that include customers' credit rating, size, and geological asset quality. Approximately 38% and 39% of our compression operations revenue came from our four largest customers for the years ended December 31, 2023 and 2022, respectively.
We prioritize maintaining a high level of mechanical availability, which maximizes total customer operational uptime and revenue stability. We believe these factors make us a leading choice for our customers. We have developed a systematic and selective customer evaluation methodology, based on key criteria that include customers' credit rating, size, and geological asset quality.
We are a market leader in the Permian Basin, which is the largest producing natural gas and oil basin in the U.S. We operate our large horsepower compression units under stable, fixed-revenue term contracts with upstream and midstream customers.
Our Contract Services and related services are critical to our customers’ ability to reliably produce, gather and transport natural gas and oil. We are a market leader in the Permian Basin, which is the largest producing natural gas and oil basin in the U.S.
Additionally, we believe that due largely to our history of high mechanical availability and the multi-decade resource life in our key areas of operations, our customer contracts often are renewed multiple times. Our Sustainability Leadership The energy industry is in a pivotal time as the world moves toward ambitious emissions reduction targets while maintaining affordable and reliable sources of energy.
There was one customer accounting for more than 10% of total revenues in each of 2024, 2023 and 2022. Our Sustainability Leadership The energy industry is in a pivotal time as the world moves toward ambitious emissions reduction targets while maintaining affordable and reliable sources of energy.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFuture environmental health and safety laws and regulations (or changes to existing laws and regulations) may also negatively impact natural gas and oil exploration, as well as production, gathering and pipeline companies, including Kodiak’s customers, which in turn could have a material adverse effect on Kodiak’s business, financial condition and results of Kodiak’s operations.
Biggest changeFuture environmental health and safety laws and regulations (or changes to existing laws and regulations), and potentially future stakeholders' focus on sustainability (or changes to such focus), may additionally negatively impact natural gas and oil exploration, as well as production, gathering and pipeline companies, including Kodiak’s customers, which in turn could have a material adverse effect on Kodiak’s business, financial condition and results of Kodiak’s operations. 25 Table of Contents New regulations, proposed regulations and proposed modifications to existing regulations under the CAA, if implemented, could result in increased compliance costs and changes in customers’ demand and desired suppliers.
Any such breach, or Kodiak’s delay or failure to make adequate or timely disclosures to the public, regulatory or law enforcement agencies or affected individuals following such an event, could have a material adverse effect on Kodiak’s business, reputation, financial position, results of operations and cash flows and cause reputational damage.
Any breach, or Kodiak’s delay or failure to make adequate or timely disclosures to the public, regulatory or law enforcement agencies or affected individuals following such an event, could have a material adverse effect on Kodiak’s business, reputation, financial position, results of operations and cash flows and cause reputational damage.
Additionally, for example, Kodiak’s the Kodiak Bylaws (as defined below) (i) establish limitations on the removal of directors and on the ability of Kodiak’s stockholders to call special meetings, (ii) include advance notice requirements for nominations for election to the Kodiak board of directors and for proposing matters that can be acted upon at stockholder meetings, (iii) provide that the Kodiak board of directors is expressly authorized to adopt, or to alter or repeal, the Kodiak Bylaws, and (iv) provide for a classified board of directors, consisting of three classes of approximately equal size, each class serving staggered three-year terms, so that only approximately one-third of Kodiak’s directors are elected each year.
Additionally, for example, the Kodiak Bylaws (as defined below) (i) establish limitations on the removal of directors and on the ability of Kodiak’s stockholders to call special meetings, (ii) include advance notice requirements for nominations for election to the Kodiak Board and for proposing matters that can be acted upon at stockholder meetings, (iii) provide that the Kodiak Board is expressly authorized to adopt, or to alter or repeal, the Kodiak Bylaws, and (iv) provide for a classified Board, consisting of three classes of approximately equal size, each class serving staggered three-year terms, so that only approximately one-third of Kodiak’s directors are elected each year.
In connection with its IPO, Kodiak entered into the Kodiak Stockholders’ Agreement with Kodiak Holdings, which granted Kodiak Holdings rights to approve certain of Kodiak’s corporate actions, including, among other things, amendments to Kodiak’s organizational documents, equity issuances, occurrence of certain indebtedness, changing the size of the Kodiak board of directors, dispositions of assets, modifying Kodiak’s dividend policy, consummating a change of control transaction or entering into voluntary liquidation or the commencement of bankruptcy proceedings.
In connection with its IPO, Kodiak entered into the Kodiak Stockholders’ Agreement with Kodiak Holdings, which granted Kodiak Holdings rights to approve certain of Kodiak’s corporate actions, including, among other things, amendments to Kodiak’s organizational documents, equity issuances, occurrence of certain indebtedness, changing the size of the Kodiak Board, dispositions of assets, modifying Kodiak’s dividend policy, consummating a change of control transaction or entering into voluntary liquidation or the commencement of bankruptcy proceedings.
There may be IPR owned by third parties, including issued or pending patents and trademarks, that cover significant aspects of Kodiak’s technologies, content, branding or business methods, and Kodiak cannot assure that it is not infringing, misappropriating or otherwise violating, and have not infringed, misappropriated or otherwise violated, any third-party IPR or that Kodiak will not be held to have done so or be accused of doing so in the future.
There may be IPR owned by third parties, including issued or pending patents and trademarks, that cover significant aspects of Kodiak’s technologies, content, branding or business methods, and Kodiak cannot assure that it is not infringing, misappropriating or otherwise violating, and has not infringed, misappropriated or otherwise violated, any third-party IPR or that Kodiak will not be held to have done so or be accused of doing so in the future.
Any unionization efforts or labor regulation changes in certain jurisdictions in which Kodiak operates could divert management’s attention and could have a materially adverse effect on Kodiak’s operating results or limit Kodiak’s operational flexibility. Kodiak considers its relationship with its employees to be satisfactory, and none of Kodiak’s employees are represented by a union in collective bargaining with Kodiak.
Any unionization efforts or labor regulation changes in certain jurisdictions in which Kodiak operates could divert management’s attention and could have a materially adverse effect on Kodiak’s operating results or limit Kodiak’s operational flexibility. Kodiak considers its relationship with its employees to be satisfactory, and certain of Kodiak’s employees are represented by a union in collective bargaining with Kodiak.
The Kodiak board of directors may elect to declare cash dividends on the Kodiak Common Stock, subject to its compliance with applicable law, and depending on, among other things, economic conditions, Kodiak’s financial condition, results of operations, projections, liquidity, earnings, legal requirements, and restrictions in the agreements governing Kodiak’s indebtedness (as further discussed below).
The Kodiak Board may elect to declare cash dividends on the Kodiak Common Stock, subject to its compliance with applicable law, and depending on, among other things, economic conditions, Kodiak’s financial condition, results of operations, projections, liquidity, earnings, legal requirements, and restrictions in the agreements governing Kodiak’s indebtedness (as further discussed below).
During times when the natural gas or oil markets weaken, Kodiak’s customers are more likely to experience financial difficulties, including being unable to access debt or equity financing, which could result in a reduction in Kodiak’s customers’ spending for Kodiak’s services.
Further, during times when the natural gas or oil markets weaken, Kodiak’s customers are more likely to experience financial difficulties, including being unable to access debt or equity financing, which could result in a reduction in Kodiak’s customers’ spending for Kodiak’s services.
Kodiak’s competitors may be able to adapt more quickly to technological changes within its industry and changes in economic and market conditions and more readily take advantage of acquisitions and other opportunities. In addition, Kodiak could face significant competition from new entrants into its industry.
Kodiak’s competitors may be able to adapt more quickly to technological changes within the industry and changes in economic and market conditions and more readily take advantage of acquisitions and other opportunities. In addition, Kodiak could face significant competition from new entrants into its industry.
Thus, the Kodiak board of directors can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of Kodiak’s capital stock. These rights may have the effect of delaying or deterring a change of control of Kodiak.
Thus, the Kodiak Board can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of Kodiak’s capital stock. These rights may have the effect of delaying or deterring a change of control of Kodiak.
If interest rates were to increase, Kodiak’s debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and Kodiak’s net income and cash flows, including cash available for servicing Kodiak’s indebtedness, will correspondingly decrease.
If interest rates were to increase, Kodiak’s debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and Kodiak’s net income and cash flows, including cash available for servicing Kodiak’s indebtedness, would correspondingly decrease.
Federal Reserve interest rate increases in response, the availability and cost of credit, and slowing of economic growth in the United States and fears of a recession have contributed and may continue to contribute to economic uncertainty and diminished expectations for the global economy.
Federal Reserve interest rate increases, the availability and cost of credit, and slowing of economic growth in the United States and fears of a recession have contributed and may continue to contribute to economic uncertainty and diminished expectations for the global economy.
The ABL Credit Agreement and the Indenture contain restrictive covenants (which contain a number of exceptions and qualifications that may be material) that impose significant operating and financial restrictions on Kodiak and may limit Kodiak’s ability to engage in acts that may be in Kodiak’s long-term best interest, including restrictions on Kodiak’s ability to: • incur additional indebtedness and guarantee indebtedness; • pay dividends or make other distributions or repurchase or redeem equity interests; • prepay, redeem or repurchase certain debt; • issue certain preferred units or similar equity securities; • make loans and investments; • sell, transfer or otherwise dispose of assets; • incur liens; • enter into transactions with affiliates; • enter into agreements restricting Kodiak’s restricted subsidiaries’ ability to pay dividends; • enter into certain swap agreements; • amend certain organizational documents; • create subsidiaries; • enter into sale and leaseback transactions; • consolidate, merge or sell all or substantially all of Kodiak’s assets; and • engage in certain other transactions without the prior consent of the lenders.
The ABL Credit Agreement and the Indenture contain restrictive covenants (which contain a number of exceptions and qualifications that may be material) that impose significant operating and financial restrictions on Kodiak and may limit Kodiak’s ability to engage in acts that may be in Kodiak’s long-term best interest, including restrictions on Kodiak’s ability to: • incur additional indebtedness and guarantee indebtedness; • pay dividends or make other distributions or repurchase or redeem equity interests; • prepay, redeem or repurchase certain debt; • issue certain preferred units or similar equity securities; • make loans and investments; 35 Table of Contents • sell, transfer or otherwise dispose of assets; • incur liens; • enter into transactions with affiliates; • enter into agreements restricting Kodiak’s restricted subsidiaries’ ability to pay dividends; • enter into certain swap agreements; • amend certain organizational documents; • create certain subsidiaries; • enter into sale and leaseback transactions; • consolidate, merge or sell all or substantially all of Kodiak’s assets; and • engage in certain other transactions without the prior consent of the lenders.
Preferred stock may have such designations, preferences, limitations and relative rights, including preferences over Kodiak Common Stock respecting dividends and distributions, as the Kodiak board of directors may determine, and the issuance of preferred stock would dilute the ownership of Kodiak’s existing stockholders.
Preferred stock may have such designations, preferences, limitations and relative rights, including preferences over Kodiak Common Stock respecting dividends and distributions, as the Kodiak Board may determine, and the issuance of preferred stock would dilute the ownership of Kodiak’s existing stockholders.
Although it is not currently possible to predict how these executive orders, national commitments or any proposed or future GHG or climate change legislation or regulation promulgated by Congress, the states or multi-state regions and their respective regulatory agencies will impact Kodiak’s business, any legislation or regulation of GHG emissions that may be imposed in areas in which Kodiak conducts business or on the assets Kodiak operates could result in increased compliance or operating costs, additional operating restrictions or reduced demand for Kodiak’s services, and could have a material adverse effect on Kodiak’s business, financial condition and results of operations.
Although it is not currently possible to predict how any proposed or future executive orders, GHG or climate change legislation or regulation promulgated by Congress, the states or multi-state regions and their respective regulatory agencies will impact Kodiak’s business, any legislation or regulation of GHG emissions that may be imposed in areas in which Kodiak conducts business or on the assets Kodiak operates could result in increased compliance or operating costs, additional operating restrictions or reduced demand for Kodiak’s services, and could have a material adverse effect on Kodiak’s business, financial condition and results of operations.
When general industry conditions are favorable, the competition for experienced operational and field technicians increases as other energy and manufacturing companies’ needs for the same personnel increases.
When general industry conditions are favorable, the competition for experienced operational and field technicians increases as other energy and manufacturing companies’ needs for the same personnel increase.
At the international level, the U.S. joined the international community at COP21, which resulted in the Paris Agreement. While the Paris Agreement does not impose direct requirements on emitters, national plans to meet its pledge could result in new regulatory requirements. In April 2021, the current administration announced a new “nationally determined contribution” for U.S.
At the international level, the U.S. joined the international community at COP21, which resulted in the Paris Agreement. While the Paris Agreement does not impose direct requirements on emitters, national plans to meet its pledge could result in new regulatory requirements. In April 2021, the previous administration announced a new “nationally determined contribution” for U.S.
The declaration and amount of any future dividends is subject to the discretion of the Kodiak board of directors and Kodiak has no obligation to pay any dividends at any time.
The declaration and amount of any future dividends is subject to the discretion of the Kodiak Board and Kodiak has no obligation to pay any dividends at any time.
Despite Kodiak’s efforts to continually refine its procedures, educate its employees, and implement tools and security measures to protect against such cybersecurity risks, there can be no assurance that these measures will prevent unauthorized access or detect every type of attempt or attack.
Despite Kodiak’s efforts to continually refine its procedures, educate its employees, and implement tools and security measures to protect against such cybersecurity risks, there can be no assurance that these current or future measures will prevent unauthorized access or detect every type of attempt or attack.
Such vertical integration or use of alternative technologies could result in decreased demand for Kodiak’s Compression Operations, which may have a material adverse effect on Kodiak’s business, results of operations and financial condition, and reduce its cash available for distribution.
Such vertical integration or use of alternative technologies could result in decreased demand for Kodiak’s business and services, which may have a material adverse effect on Kodiak’s business, results of operations and financial condition, and reduce its cash available for distribution.
Kodiak’s customers are required to hold certain U.S. federal, state or local environmental permits or other authorizations and may require new or amended facility permits or licenses from time to time with respect to storm water discharges, waste handling or air emissions relating to equipment operations, including compression units, which subject Kodiak’s customers to new or revised permitting conditions that may be onerous or with respect to which compliance may be costly.
Kodiak’s customers are required to hold certain U.S. federal, state or local or other jurisdictional environmental permits or other authorizations and may require new or amended facility permits or licenses from time to time with respect to storm water discharges, hydraulic fracturing, waste handling or air emissions relating to equipment operations, including compression units, which subject Kodiak’s customers to new or revised permitting conditions that may be onerous or with respect to which compliance may be costly.
However, any activism directed at shifting funding and/or demand away from companies with energy-related assets could result in a reduction of funding for the energy sector overall, which could have an adverse effect on Kodiak’s ability to obtain external financing, as well as negatively affect the cost of, and terms for, financing to fund capital expenditures or other aspects of Kodiak’s business.
However, any activism directed at shifting funding and/or demand away from 26 Table of Contents companies with energy-related assets could result in a reduction of funding for the energy sector overall, which could have an adverse effect on Kodiak’s ability to obtain external financing, as well as negatively affect the cost of, and terms for, financing to fund capital expenditures or other aspects of Kodiak’s business.
In the event that Kodiak Holdings is subject to a continuing event of default under the Kodiak Holdings Term Loan, after the expiration of any applicable grace period and subject to the exercise of applicable cure rights, the lenders may foreclose on such shares and acquire a controlling interest in Kodiak.
In the event that Kodiak Holdings is subject to a continuing event of default under the Kodiak Holdings Term Loan, after the expiration of any applicable grace period and subject to the exercise of applicable cure rights, the lenders may foreclose on such shares and acquire Kodiak Holdings’ interest in Kodiak.
The Kodiak Charter provides that, at any time EQT beneficially owns less than 35% of the shares outstanding of Kodiak Common Stock, any amendment to or adoption of any provision inconsistent with the Kodiak Charter’s provisions governing the renouncement of business opportunities must be approved by the holders of at least 66.66% of the voting power of the outstanding stock of the corporation entitled to vote 35 Table of Conten ts thereon.
The Kodiak Charter provides that, at any time EQT beneficially owns less than 35% of the shares outstanding of Kodiak Common Stock, any amendment to or adoption of any provision inconsistent with the Kodiak Charter’s provisions governing the renouncement of business opportunities must be approved by the holders of at least 66.66% of the voting power of the outstanding stock of the corporation entitled to vote thereon.
Inflation has adversely affected Kodiak by increasing costs of critical components, equipment, labor and other services it may rely on, and continued inflationary pressures could prevent Kodiak from operating at capacity, decreasing its revenues or having an adverse effect on its profitability. In addition, inflation is often accompanied by higher interest rates.
Persistent inflationary pressures have adversely affected Kodiak by increasing costs of critical components, equipment, labor and other services it may rely on, and continued inflationary pressures could prevent Kodiak from operating at capacity, decreasing its revenues or having an adverse effect on its profitability. In addition, inflation is often accompanied by higher interest rates.
Further, if there is a financial crisis or the economic climate in the United States or abroad deteriorates, worldwide demand for natural gas or oil could materially decrease, which would likely depress the level of production activity and result in a decline in the demand for Kodiak’s Compression Operations and ultimately materially adversely impact its results of operations and financial condition.
Further, if there is a financial crisis or the economic climate in the United States or abroad deteriorates, worldwide demand for natural gas or oil could materially decrease, which would likely depress the level of production activity and result in a decline in the demand for Kodiak’s business and services and ultimately materially adversely impact its results of operations and financial condition.
If Kodiak Holdings sells all or a substantial portion of its ownership interest in Kodiak, it may have less incentive to assist in Kodiak’s success and its affiliates serving as members of Kodiak’s Board may resign. Furthermore, the shares that Kodiak Holdings owns are subject to a pledge as collateral under the Kodiak Holdings Term Loan.
If Kodiak Holdings sells all or a substantial portion of its ownership interest in 33 Table of Contents Kodiak, it may have less incentive to assist in Kodiak’s success and its affiliates serving as members of Kodiak’s Board may resign. Furthermore, the shares that Kodiak Holdings owns are subject to a pledge as collateral under the Kodiak Holdings Term Loan.
In addition, despite Kodiak’s best efforts, a cyberattack or security breach could go undetected for an extended period of time, and the ensuing investigation of the incident would take time to complete.
Despite Kodiak’s best efforts, a cyberattack or security breach could go undetected for an extended period of time, and the ensuing investigation of the incident would take time to complete.
Limitation of investments in and financings for energy companies could result in the restriction, delay or cancellation of infrastructure projects and energy production activities. This potential for reduced access to the capital and financial markets, whether impacting Kodiak’s customers and/or Kodiak’s business, may further adversely affect the demand for and price of Kodiak’s securities.
Limitation of investments in and financings for energy companies could result in the restriction, delay or cancellation of infrastructure projects and energy production activities. This potential for reduced access to the capital and 27 Table of Contents financial markets, whether impacting Kodiak’s customers and/or Kodiak’s business, may further adversely affect the demand for and price of Kodiak’s securities.
If Kodiak does not satisfy its mechanical availability guarantee, a customer has the ability to terminate its contracts. Kodiak’s gas compression contracts provide a guarantee of specified “mechanical availability” of 98.0% to 98.5%.
If Kodiak does not satisfy its mechanical availability guarantee, a customer has the ability to terminate its contracts. Kodiak’s gas compression contracts provide a guarantee of specified mechanical availability of 98.0% to 98.5%.
Such risks include, but are not limited to: Risks Related to Our Business and Our Industry A long-term reduction in the demand for, or production of, natural gas or oil could adversely affect the demand for Kodiak’s Compression Operations or the prices Kodiak charges for Kodiak’s Compression Operations, which could result in a decrease in Kodiak’s revenues.
Such risks include, but are not limited to: Risks Related to Our Business and Our Industry A long-term reduction in the demand for, or production of, natural gas or oil could adversely affect the demand for Kodiak’s business and services or the prices Kodiak charges for Kodiak’s business and services, which could result in a decrease in Kodiak’s revenues.
Kodiak’s ability to pay dividends depends on Kodiak’s receipt of cash dividends from Kodiak’s operating subsidiaries, which may further restrict Kodiak’s ability to pay dividends as a result of the laws of their jurisdiction of organization, agreements of Kodiak’s subsidiaries or covenants under any existing and future outstanding indebtedness Kodiak or its subsidiaries incur.
Kodiak’s ability to pay dividends depends on Kodiak’s receipt of cash dividends from Kodiak’s operating subsidiaries, which may further restrict Kodiak’s ability to pay dividends as a result of the laws of their jurisdiction of organization, agreements of Kodiak’s subsidiaries or covenants under any existing and future outstanding indebtedness Kodiak or its subsidiaries incur. See Note 11.
Kodiak intends to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act, until Kodiak is no longer an emerging growth company.
Kodiak intends to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act, until 38 Table of Contents Kodiak is no longer an emerging growth company.
Apart from governmental regulation, there are also increasing financial risks for companies in the energy sector as stockholders and bondholders currently invested in energy companies may elect in the future to shift some or all of their investments toward non-fossil fuel energy sources.
Apart from governmental regulation, there are also financial risks for companies in the energy sector as certain stockholders and bondholders currently invested in energy companies may elect to shift some or all of their investments toward non-fossil fuel energy sources.
Although Kodiak does not hold the permits, such noncompliance with required permits or the failure to obtain additional permits by Kodiak’s customers could subject its 26 Table of Conten ts customers to future penalties, operating restrictions, or delays in obtaining new or amended permits which could in turn have a material adverse effect on Kodiak’s business, financial condition and results of operations.
Although Kodiak does not hold the permits, such noncompliance with required permits or the failure to obtain additional permits by Kodiak’s customers could subject its customers to future penalties, operating restrictions, or delays in obtaining new or amended permits which could in turn have a material adverse effect on Kodiak’s business, financial condition and results of operations.
The lenders under the Kodiak Holdings Term Loan have different interests than Kodiak’s stockholders and may exercise these consent rights in ways that are adverse to the interests of Kodiak’s stockholders. EQT may have interests that conflict with the interests of Kodiak’s other stockholders.
The lenders under the Kodiak Holdings Term Loan have different interests than Kodiak’s stockholders and may exercise these consent rights in ways that are adverse to the interests of Kodiak’s stockholders. 32 Table of Contents EQT may have interests that conflict with the interests of Kodiak’s other stockholders.
Events and conditions that could result in impairment in the value of Kodiak’s long-lived assets include changes in the industry in which it operates, long-term extended reduction in demand for natural gas and oil, competition, advances in technology, adverse changes in the regulatory environment or other factors leading to a reduction in Kodiak’s expected long-term profitability.
Events and conditions that could result in impairment in the value of Kodiak’s long-lived assets include, long-term extended reduction in demand for natural gas and oil, competition, advances in technology, adverse changes in the regulatory environment or other factors leading to a reduction in Kodiak’s expected long-term profitability.
Although the ABL Credit Agreement and the Indenture contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial.
Although the ABL Credit Agreement and the Indenture contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions 36 Table of Contents could be substantial.
If securities or industry analysts do not publish research reports or publish unfavorable research about Kodiak’s business, the trading volume of Kodiak Common Stock could be negatively impacted and the price could decline resulting in decreased demand for Kodiak Common Stock by investors .
Risks Related to Owning Kodiak Common Stock If securities or industry analysts do not publish research reports or publish unfavorable research about Kodiak’s business, the trading volume of Kodiak Common Stock could be negatively impacted and the price could decline resulting in decreased demand for Kodiak Common Stock by investors .
The terms of any series of preferred stock may also reduce or eliminate the amount of cash available for payment of dividends to Kodiak’s holders of common stock or 40 Table of Conten ts subordinate the claims of Kodiak’s holders of common stock to Kodiak’s assets liquidation. Kodiak Common Stock will not be subject to redemption or sinking fund provisions.
The terms of any series of preferred stock may also reduce or eliminate the amount of cash available for payment of dividends to Kodiak’s holders of common stock or subordinate the claims of Kodiak’s holders of common stock to Kodiak’s assets liquidation. Kodiak Common Stock will not be subject to redemption or sinking fund provisions.
The ABL Credit Agreement and the Indenture (as defined below) restricts Kodiak’s ability to dispose of assets and use the proceeds from those dispositions and may also restrict Kodiak’s ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due.
The ABL Credit Agreement and the Indenture restrict Kodiak’s ability to dispose of assets and use the proceeds from those dispositions and may also restrict Kodiak’s ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due.
The substantial majority of the components for Kodiak’s natural gas compression equipment are supplied by a limited number of key vendors. Kodiak’s reliance on these suppliers involves several risks, including price increases and a potential inability to obtain an adequate supply of required components in a timely manner.
The substantial majority of the components for Kodiak’s natural gas compression equipment are supplied by a limited number of key vendors. Kodiak’s reliance on these suppliers involves several risks, including price increases and a potential inability to obtain an adequate supply of required components in a timely manner on account of supplier nonperformance or otherwise.
General Risks A financial crisis or deterioration in general economic, business or industry conditions could materially adversely affect Kodiak’s results of operations, financial condition and ability to pay dividends on Kodiak Common Stock. Concerns over global economic conditions, stock market volatility, energy costs, geopolitical issues, inflation and U.S.
General Risks A financial crisis or deterioration in general economic, business or industry conditions could materially adversely affect Kodiak’s results of operations, financial condition and ability to pay dividends on Kodiak Common Stock. Concerns over global economic conditions, stock market volatility, energy costs, geopolitical issues, persistent inflationary pressures and uncertain U.S.
In addition to Kodiak’s own systems and networks, Kodiak uses third-party service providers to process certain data or 33 Table of Conten ts information on Kodiak’s behalf. Due to applicable laws and regulations, Kodiak may be held responsible for cybersecurity incidents attributed to Kodiak’s service providers to the extent it relates to information Kodiak shares with them.
In addition to Kodiak’s own systems and networks, Kodiak uses third-party service providers to process certain data or information on Kodiak’s behalf. Due to applicable laws and regulations, Kodiak may be held responsible for cybersecurity incidents attributed to Kodiak’s service providers to the extent it relates to information Kodiak shares with them.
In addition, it is possible that a resolution of one or more such proceedings could result in liability, penalties or sanctions, as well as judgments, consent decrees or orders requiring a change in Kodiak’s business practices, which could materially and adversely affect Kodiak’s business, operating results and financial condition. Accruals for such liability, penalties or sanctions may be insufficient.
In addition, it is possible that a resolution of one or more such proceedings could result in liability, penalties or sanctions, as well as judgments, consent decrees or orders requiring a change in Kodiak’s business practices, which could materially and adversely affect Kodiak’s business, operating results and financial condition.
Employee turnover may also lead to lost productivity and decrease employee engagement, which could adversely impact Kodiak’s business. 24 Table of Conten ts Additionally, Kodiak’s ability to hire, train and retain qualified personnel could become more challenging as Kodiak grows and to the extent energy industry market conditions are competitive.
Employee turnover may also lead to lost productivity and decrease employee engagement, which could adversely impact Kodiak’s business. Additionally, Kodiak’s ability to hire, train and retain qualified personnel could become more challenging as Kodiak grows and to the extent energy industry market conditions are competitive.
Any such non-renewals, or renewals at reduced rates or the loss of contracts with any significant customer, could adversely impact Kodiak’s financial results. The length of Kodiak’s Compression Operations contracts with customers varies based on operating conditions and customer needs.
Any such non-renewals, or renewals at reduced rates or the loss of contracts with any significant customer, could adversely impact Kodiak’s financial results. The length of Kodiak’s Contract Services contracts with customers varies based on operating conditions and customer needs.
Kodiak conducts operations in a wide variety of customer locations across the continental U.S.
Kodiak conducts operations in a wide variety of customer locations across the continental U.S. and internationally.
Risks Related to Kodiak’s Relationship with EQT EQT controls a significant percentage of Kodiak’s voting power, and it is subject to contractual restrictions that may affect Kodiak Holdings’ exercise of its rights to approve corporate actions under the Kodiak Stockholders’ Agreement. As of December 31, 2023, Kodiak Holdings owns approximately 76.2% of the outstanding Kodiak Common Stock.
Risks Related to Kodiak’s Relationship with EQT EQT controls a significant percentage of Kodiak’s voting power, and it is subject to contractual restrictions that may affect Kodiak Holdings’ exercise of its rights to approve corporate actions under the Kodiak Stockholders’ Agreement. As of December 31, 2024, Kodiak Holdings owns approximately 43.8% of the outstanding Kodiak Common Stock.
The inability to negotiate extensions or renew a substantial portion of Kodiak’s Compression Operations contracts, the renewal of such contracts at reduced rates, the inability to contract for additional services with Kodiak’s customers, or the loss of all or a significant 22 Table of Conten ts portion of Kodiak’s services contracts with any significant customer, could lead to a reduction in revenue and net income and could require Kodiak to record additional asset impairments.
The inability to negotiate extensions or renew a substantial portion of Kodiak’s Contract Services contracts, the renewal of such contracts at reduced rates, the inability to contract for additional services with Kodiak’s customers, or the loss of all or a significant portion of Kodiak’s services contracts with any significant customer, could lead to a reduction in revenue and net income and could require Kodiak to record additional asset impairments.
Furthermore, Kodiak might be forced to limit the features available in its IT system due to changes by its third-party software and service providers, or due to price increases by such vendors.
Furthermore, Kodiak might be forced to limit the features available in its IT system due to changes by its third-party software and service 30 Table of Contents providers, or due to price increases by such vendors.
The demand for Kodiak’s Compression Operations depends upon the continued demand for, and production of, natural gas and oil. The natural gas and oil industry is historically cyclical with levels of activity that are significantly affected by the levels and volatility of natural gas and oil prices.
The demand for Kodiak’s business and services depends upon the continued demand for, and production of, natural gas and oil. The natural gas and oil industry is historically cyclical with levels of activity that are significantly affected by the levels and volatility of natural gas and oil prices.
Periods of instability in the capital and credit markets (both generally and in the natural gas and oil industry in particular) could limit Kodiak’s ability to access these markets to raise debt or equity capital on affordable terms or to obtain additional financing.
Periods of instability in the capital and credit markets (both generally and in the natural gas and oil industry in particular) could limit Kodiak’s ability to access these markets to raise debt or equity capital on affordable terms, to refinance borrowings under the ABL Credit Agreement or to obtain additional financing.
Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to Kodiak, or at all, and may require significant royalty payments and other expenditures. Kodiak may also be required to develop alternative non-infringing 32 Table of Conten ts technology, which could require significant time and expense.
Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to Kodiak, or at all, and may require significant royalty payments and other expenditures. Kodiak may also be required to develop alternative non-infringing technology, which could require significant time and expense.
Based on the information currently available, Kodiak has accrued as of December 31, 2023, a contingent liability of $28.8 million for the periods set forth in the notices of audit. This accrual may not be sufficient to cover the expenses and liabilities related to a future audit for such period.
Based on the information currently available, Kodiak has accrued as of December 31, 2024, a contingent liability of $70.1 million for the periods set forth in the notices of audit. This accrual may not be sufficient to cover the expenses and liabilities related to a future audit for such period.
This may have the effect of reducing the amount of proceeds paid to you. These restrictions also will not prevent Kodiak from incurring obligations that do not constitute indebtedness. In addition, as of December 31, 2023, the ABL Facility provided for unused commitments of $354.9 million.
This may have the effect of reducing the amount of proceeds paid to you. These restrictions also will not prevent Kodiak from incurring obligations that do not constitute indebtedness. In addition, as of December 31, 2024, the ABL Facility provided for unused commitments of $322.5 million.
Beginning in October 2019 through April 2023, Kodiak received notices of audits from the State of Texas Comptroller’s office for the periods covering December 2015 through December 2022 (the “Sales Tax Audit”).
From October 2019 through April 2023, Kodiak received notices of audits from the State of Texas Comptroller’s office for the periods covering December 2015 through November 2023 (the “Sales Tax Audit”).
The methane emissions charge imposed under the Methane Emissions and Waste Reduction Incentive Program for calendar year 2024 would be $900 per ton emitted over annual methane emissions thresholds, and would increase to $1,200 in 2025, and $1,500 in 2026.
The methane emissions charge imposed under the Methane Emissions and Waste Reduction Incentive Program for calendar year 2024 is $900 per ton emitted over annual methane emissions thresholds, and increased to $1,200 in 2025, and will increase to $1,500 in 2026.
In addition, there are many technologies available for the artificial enhancement of oil production, and Kodiak’s customers may elect to use these alternative technologies instead of the gas lift compression Kodiak provides.
There are many technologies available for the artificial enhancement of oil production, and Kodiak’s customers may elect to use these alternative technologies instead of the gas 21 Table of Contents lift compression Kodiak provides.
The EPA has adopted rules requiring many facilities, including petroleum and natural gas systems, to inventory and report their GHG emissions. In May 2023, the EPA also proposed CAA emission limits for new gas-fired combustion turbines, existing coal, oil- and gas-fired steam generating units and certain existing gas fire combustion turbines, and a final rule is anticipated by April 2024.
The EPA has adopted rules requiring many facilities, including petroleum and natural gas systems, to inventory and report their GHG emissions. In April 2024, the EPA also issued a final rule with CAA emission limits for new gas-fired combustion turbines, existing coal, oil- and gas-fired steam generating units and certain existing gas fire combustion turbines.
The designation of previously unidentified endangered or threatened species or new critical or suitable habitat designations could indirectly cause Kodiak to incur additional costs, cause Kodiak’s or its customers’ operations to become subject to operating restrictions or bans, and limit future development activity by Kodiak or its customers in affected areas. In June and July 2022, the U.S.
The designation of previously unidentified endangered or threatened species or new critical or suitable habitat designations could indirectly cause Kodiak to incur additional costs, cause Kodiak’s or its customers’ operations to become subject to 28 Table of Contents operating restrictions or bans, and limit future development activity by Kodiak or its customers in affected areas.
In addition, certain of Kodiak’s directors are currently employed by EQT. Consequently, EQT is able to influence matters that require approval by Kodiak’s stockholders, including the election and removal of directors, changes to Kodiak’s organizational documents, and approval of acquisition offers and other significant corporate transactions.
Consequently, EQT is able to influence matters that require approval by Kodiak’s stockholders, including the election and removal of directors, changes to Kodiak’s organizational documents, and approval of acquisition offers and other significant corporate transactions.
Further, insurance covering the risks Kodiak faces or in the amounts it desires may not be available in the future or, if 25 Table of Conten ts available, the premiums may not be commercially justifiable.
Further, insurance covering the risks Kodiak faces or in the amounts it desires may not be available in the future or, if available, the premiums may not be commercially justifiable.
Kodiak cannot predict how the EPA and states will implement the final rule; however, Subpart OOOO regulation of air emissions from the natural gas and oil sector could result in increased expenditures for pollution control equipment, which could impact Kodiak’s customers’ operations and negatively impact Kodiak’s business. Additionally, in August 2022, President Biden signed into law the Inflation Reduction Act.
Kodiak cannot predict how the EPA and states will implement the final rule; however, Subpart OOOO regulation of air emissions from the natural gas and oil sector could result in increased expenditures for pollution control equipment, which could impact Kodiak’s customers’ operations and negatively impact Kodiak’s business.
Institutional lenders who provide financing to energy companies such as Kodiak have become more attentive to sustainable lending practices, and some may elect not to provide traditional energy producers or companies that support such producers with funding.
Institutional lenders who provide financing to energy companies such as Kodiak have been more attentive to sustainable lending practices, and although this trend has waned recently, some may elect not to provide traditional energy producers or companies that support such producers with funding.
A significant increase in the price of such equipment, materials and services and the resulting supply chain and logistics disruptions, or otherwise, could have a negative impact on Kodiak’s business, results of operations, financial condition and cash flows.
A significant increase in the price of such equipment, materials and services and the resulting supply chain and logistics disruptions, or otherwise, could have a negative impact on Kodiak’s business, results of operations, financial condition and cash flows. Kodiak’s operations entail inherent risks that may result in interruption of Kodiak’s operations and/or substantial liability.
If Kodiak raises more equity capital from the sale of Kodiak Common Stock, such equity could be offered at a price more favorable than the then current market price of Kodiak Common Stock.
Terms of subsequent financings may adversely impact stockholder equity. If Kodiak raises more equity capital from the sale of Kodiak Common Stock, such equity could be offered at a price more favorable than the then current market price of Kodiak Common Stock.
The Kodiak Charter and Kodiak Bylaws contain provisions that could delay, discourage or prevent a takeover attempt even if a takeover might be beneficial to Kodiak’s stockholders, and such provisions may adversely affect the market price of Kodiak Common Stock.
The Kodiak Charter and Kodiak Bylaws contain provisions that could delay, discourage or prevent a takeover attempt even if a takeover might be beneficial to Kodiak’s stockholders, and such provisions may adversely affect the market price of Kodiak Common Stock. Provisions contained in the Kodiak Charter and Kodiak Bylaws could make it more difficult for a third-party to acquire Kodiak.
Despite Kodiak’s current level of indebtedness, Kodiak and its subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks to Kodiak’s financial condition described above. Kodiak and its subsidiaries may be able to incur significant additional indebtedness in the future.
This could further exacerbate the risks to Kodiak’s financial condition described above. Kodiak and its subsidiaries may be able to incur significant additional indebtedness in the future.
Any prolonged, substantial, material reduction in the demand for natural gas or oil would likely depress the level of production activity and result in a decline in the demand for Kodiak’s Compression Operations, which could result in a reduction in Kodiak’s revenues. Kodiak has several key customers.
Any prolonged, substantial, material reduction in the demand for natural gas or oil would likely depress the level of production activity and result in a decline in the demand for Kodiak’s business and services, which could result in a reduction in Kodiak’s revenues.
Kodiak has a significant number of long-lived assets on its consolidated balance sheet. Under generally accepted accounting principles (“GAAP”), Kodiak is required to review its long-lived assets for impairment when events or circumstances indicate that the carrying value of such assets may not be recoverable or such assets will no longer be utilized in the operating fleet.
Under generally accepted accounting principles (“GAAP”), Kodiak is required to review its long-lived assets, including goodwill and other intangible assets, for impairment when events or circumstances indicate that the carrying value of such assets may not be recoverable or such assets will no longer be utilized in the operating fleet.
The requirement for certain facilities and large sources of GHG emissions to obtain and comply 28 Table of Conten ts with permits will affect some of Kodiak’s customers’ largest new or modified facilities going forward but is not expected to cause Kodiak to incur material costs.
In addition, the EPA rules provide air permitting requirements for certain large sources of GHG emissions. The requirement for certain facilities and large sources of GHG emissions to obtain and comply with permits will affect some of Kodiak’s customers’ largest new or modified facilities going forward but is not expected to cause Kodiak to incur material costs.
Judgments and estimates to determine accruals or a range of losses related to legal and other proceedings could change from one period to the next, and such changes could be material.
Accruals for such 29 Table of Contents liability, penalties or sanctions may be insufficient. Judgments and estimates to determine accruals or a range of losses related to legal and other proceedings could change from one period to the next, and such changes could be material.
As of December 31, 2023, approximately 10.2% of Kodiak’s revenue-generating horsepower is on a month-to-month basis to customers who continue to utilize Kodiak’s services following expiration of the primary term of their contracts. These customers can generally terminate their month-to-month Compression Operations contracts on 30 to 90 days’ notice.
As of December 31, 2024, approximately 11.3% of Kodiak’s revenue-generating horsepower was on a month-to-month basis with customers who continue to utilize Kodiak’s services following expiration of the primary term of their contracts. These customers can generally terminate their month-to-month Contract Services contracts on 30 to 90 days’ notice.
The loss of one or more of these customers would result in a decrease in Kodiak’s revenues and could adversely affect its financial results and may have a material adverse effect on Kodiak’s financial condition. Kodiak provides Compression Operations under contracts with several key customers.
The loss of one or more of Kodiak's key customers and/or the deterioration of the financial condition of any of its customers would result in a decrease in Kodiak’s revenues and could adversely affect its financial results and may have a material adverse effect on Kodiak’s financial condition.
Kodiak’s ability to grow or even to continue its current level of service to its current customers could be adversely impacted if Kodiak is unable to successfully hire, train and retain these important personnel. In addition, effective succession planning for Kodiak’s employees and expansion planning is important to Kodiak’s long-term success.
Kodiak’s ability to grow or even to continue its current level of service to its current customers could be adversely impacted if Kodiak is unable to successfully hire, train and retain these important personnel.
Supply and demand for natural gas and oil is dependent upon a variety of factors, many of which are beyond Kodiak’s control.
A climate-related decrease in demand for natural gas and oil could negatively affect Kodiak’s business. Supply and demand for natural gas and oil is dependent upon a variety of factors, many of which are beyond Kodiak’s control.
There can be no assurance that Kodiak’s tax positions will not be challenged by relevant tax authorities or that it would be successful in any such challenge. After the consummation of the Merger, Kodiak will be subject to non-US tax laws that may be significantly different from Kodiak’s current U.S. tax treatment.
There can be no assurance that Kodiak’s tax positions will not be challenged by relevant tax authorities or that it would be successful in any such challenge. Kodiak is also subject to non-US tax laws that are significantly different from Kodiak’s current U.S. tax treatment. Item 1B. Unresolved Staff Comments None
Frontier Intermediate GP, Inc. is the general partner of Kodiak Holdings. Investment vehicles affiliated with EQT own 100% of the membership interests in Frontier Intermediate GP, Inc., and EQT indirectly has exclusive responsibility for the management and control of such investment vehicles. As such, EQT indirectly has the power to control the business and affairs of Kodiak Holdings.
Frontier Intermediate GP, Inc. is the general partner of Kodiak Holdings. Investment vehicles affiliated with EQT own 100% of the membership interests in Frontier Intermediate GP, Inc., and EQT indirectly has exclusive responsibility for the management and control of such investment vehicles. In addition, certain of Kodiak’s directors are currently employed by EQT.
Among other things, the Inflation Reduction Act includes a methane emissions reduction program that amends the CAA to include a Methane Emissions and Waste Reduction Incentive Program for petroleum and natural gas systems.
Additionally, in August 2022, the President of the United States signed into law the Inflation Reduction Act. Among other things, the Inflation Reduction Act includes a methane emissions reduction program that amends the CAA to include a Methane Emissions and Waste Reduction Incentive Program for petroleum and natural gas systems.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe cybersecurity team provides periodic updates to the Audit & Risk Committee on the effectiveness of Kodiak’s cyber risk management program. In addition, cybersecurity risks are reviewed by the Audit & Risk Committee, at least annually, as part of the Company’s enterprise risk management program.
Biggest changeIn addition, cybersecurity risks are reviewed by the Kodiak Board and the Audit & Risk Committee, at least annually, as part of the Company’s enterprise risk management program.
The underlying controls of the cyber risk management program are based on recognized best practices and standards for cybersecurity and information technology, including the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework (“CSF”) and the International Organization Standardization (“ISO”) 27001 Information Security 44 Table of Conten ts Management System Requirements.
The underlying controls of the cyber risk management program are based on recognized best practices and standards for cybersecurity and information technology, including the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework (“CSF”) and the International Organization Standardization (“ISO”) 27001 Information Security Management System Requirements.
See “Risk Factors – Risks Related to Intellectual Property, Information Technology and Cybersecurity—Kodiak has experienced cybersecurity incidents or IT system disruptions in the past, and cybersecurity breaches or IT system disruptions may adversely affect Kodiak’s business in the future.” Board Oversight Given the importance to our business and the heightened risk, the Audit & Risk Committee of the Board of Directors provides regular oversight to Kodiak’s cybersecurity risks, including cybersecurity exposures and the steps taken by management to monitor and mitigate cybersecurity risks.
See “Risk Factors – Risks Related to Intellectual Property, Information Technology and Cybersecurity—Kodiak has experienced cybersecurity incidents or IT system disruptions in the past, and cybersecurity breaches or IT system disruptions may adversely affect Kodiak’s business in the future.” Board Oversight Given the importance to our business and the heightened risk, the Audit & Risk Committee oversees the process of reviewing Kodiak’s cybersecurity risks, including cybersecurity exposures and the steps taken by management to monitor and control such exposures.
Kodiak faces risks from cybersecurity threats that could have a material adverse effect on its business, financial condition, results of operations, cash flows or reputation. Kodiak has experienced, and will continue to experience, cyber incidents in the normal course of its business.
Kodiak faces risks from cybersecurity threats that could have a material adverse effect on its business, financial condition, results of operations, cash flows or reputation. Kodiak has experienced, and despite our security measures will continue to experience, cyber incidents in the normal course of its business, some of which may be material.
This program is integrated within the Company’s enterprise risk management process and the results of the risk assessment, which occurs at least annually, along with mitigation strategies, are discussed with the Audit & Risk Committee.
This program is integrated within the Company’s enterprise risk management process to ensure that cybersecurity considerations are an integral part of the Company’s decision-making process and the results of the risk assessment, which occurs at least annually, along with mitigation strategies, are discussed with the Kodiak Board and the Audit & Risk Committee.
The CISO is an information systems security professional with 23 years of cybersecurity leadership. The CIO, CISO and cybersecurity team are responsible for assessing and managing Kodiak’s cyber risk management program, informs senior management regarding the prevention, detection, mitigation, and remediation of cybersecurity incidents and supervises such efforts.
The CIO, CISO and cybersecurity team are responsible for assessing and managing Kodiak’s cyber risk management program, informs senior 40 Table of Contents management regarding the prevention, detection, mitigation, and remediation of cybersecurity incidents and supervises such efforts.
In addition, Kodiak has a program for staging incident response drills, which is in place to prepare support teams in the event of a significant incident. Kodiak further augments its cybersecurity team with an outsourced Chief Information Security Officer (the “CISO”) who reports to Kodiak’s Chief Information Officer (the “CIO”).
In addition, Kodiak has a program for staging incident response drills, which is in place to prepare support teams in the event of a significant incident. Kodiak maintains a cybersecurity team lead by our Chief Information Officer (the “CIO”).
However, prior cybersecurity incidents have not had a material adverse effect on Kodiak’s business, financial condition, results of operations, or cash flows.
However, as of the date hereof, we do not believe that any prior cybersecurity incidents have had, or that any risks from cybersecurity threats are reasonably likely to have, a material adverse effect on Kodiak’s business, financial condition, results of operations, or cash flows.
Added
The CIO has managed cyber security programs at multiple private and public companies over the last 20 years, including roles as chief information officer and vice president of systems and technology. The CIO holds a Bachelor of Science degree in computer and information science.
Added
The CIO is supported by two internal full-time employees with backgrounds in cybersecurity, risk management and incident response. These individuals are both military veterans versed in forensic analysis and regulatory compliance and combined have 23 years of cybersecurity experience in the private and public sectors. They each have a Master’s degree in cybersecurity, extensive military training and several industry certifications.
Added
Kodiak further augments its cybersecurity team with an outsourced Chief Information Security Officer (the “CISO”) who reports to the CIO. The CISO is an information systems security professional with 24 years of cybersecurity leadership.
Added
The Kodiak Board reviews any actions and mitigating strategies regarding any identified cybersecurity risks. The cybersecurity team provides periodic updates to the Audit & Risk Committee on the effectiveness of Kodiak’s cyber risk management program.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties We do not currently own or lease any material facilities or properties for storage or maintenance of our compression units.
Biggest changeWe do not currently own or lease any material facilities or properties for storage or maintenance of our compression units.
Removed
As of December 31, 2023, our headquarters consisted of 13,320 square feet of leased space located at 15320 Highway 105 W, Suite 210, Montgomery, Texas 77356, and 13,279 square feet of leased space located at 15258 Highway 105 W, Suite 200, Montgomery, Texas 77356.
Added
Item 2. Properties As of December 31, 2024, we own five service facilities in North Dakota and Texas. We lease additional service facilities in Alabama, Colorado, Louisiana, Mississippi, North Dakota, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas, Utah, West Virginia, and Wyoming. We lease our corporate headquarters located at 9950 Woodloch Forest Drive, The Woodlands, Texas 77380.
Removed
In February 2024, Kodiak relocated its corporate headquarters to a leased space consisting of 53,060 square feet located at 9950 Woodloch Forest Drive, The Woodlands, Texas 77380.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. From time to time, we and our subsidiaries may be involved in various claims and litigation arising in the ordinary course of business. In management’s opinion, the resolution of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.
Biggest changeItem 3. Legal Proceedings. From time to time, we and our subsidiaries may be involved in various claims and litigation arising in the ordinary course of business. In management’s opinion, the resolution of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows. See Note 15.
Removed
Beginning in October 2019 through April 2023, we received notices of sales and use tax audits from the State of Texas Comptroller’s office for the periods covering December 2015 through December 2022. We are actively in settlement discussions with the Comptroller, and if necessary, we will exhaust our administrative remedies to the maximum extent possible.
Added
Commitments and Contingencies to the consolidated financial statements included in Part IV, Item 15 of this Annual Report for a description of such proceedings. Item 4. Mine Safety Disclosures. Not applicable. 41 Table of Contents Part II
Removed
Based on the timing and nature of a previous settlement, we may receive similar treatment on settlement of our sales and use tax liability. See “Risk Factors—Risks Related to Our Business and Our Industry—Kodiak has in the past been, and may in the future be, subject to sales tax audits in jurisdictions where Kodiak operates.
Removed
As a result, Kodiak may incur material unanticipated sales and use tax liabilities.” Item 4. Mine Safety Disclosures. Not applicable. 45 Table of Conten ts Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeWe expect that, based on current circumstances, we expect to continue to pay comparable cash dividends in the foreseeable future.
Biggest changeThe declaration and payment of future dividends will be at the discretion of the Board and will depend on future business conditions, financial conditions, results of operations and other factors. Based on current circumstances, we expect to continue to pay comparable cash dividends in the foreseeable future.
The performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report into any filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under those Acts. Unregistered Sales of Equity Securities None.
The performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report into any filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under those Acts. 42 Table of Contents Unregistered Sales of Equity Securities None.
The following graph and table compare total shareholder return on our common stock from the initial public offering date of June 29, 2023 to December 31, 2023, with the Standard & Poor’s 500 ® Index (“S&P 500”) and Alerian US Midstream Energy Index (“AMUSX”) over the same period.
The performance graph below compares total shareholder return on our common stock from the initial public offering date of June 29, 2023 to December 31, 2024, with the Standard & Poor’s 500 ® Index (“S&P 500”) and Alerian US Midstream Energy Index (“AMUSX”) over the same period.
Holders At the close of business on March 4 2023, based on information received from the transfer agent of our common stock, we had 32 holders of record of our common stock.
Holders At the close of business on March 3, 2025, based on information received from the transfer agent of our common stock, we had 32 holders of record of our common stock.
The number of record holders does not include holders of common units held in “street name” or persons, partnerships, associations, corporations, or other entities identified in security position listings maintained by depositories. Dividends On each of November 10, 2023 and February 23, 2024, Kodiak paid a quarterly cash dividend of $0.38 per share of common stock.
The number of record holders does not include holders of common units held in “street name” or persons, partnerships, associations, corporations, or other entities identified in security position listings maintained by depositories.
Removed
Use of Proceeds 46 Table of Conten ts On June 28, 2023, Kodiak’s Registration Statement on Form S-1 relating to the IPO was declared effective by the SEC. The Company received net proceeds of approximately $267 million from the IPO (including from the full exercise of the underwriters’ over allotment option), after deducting underwriting discounts on July 3, 2023.
Added
Dividends On February 3, 2025, our Board declared a quarterly dividend of $0.41 per share of common stock, or approximately $36.0 million, which was paid on February 21, 2025 to stockholders of record at the close of business on February 14, 2025.
Removed
The net proceeds were used for repayment of existing indebtedness, as described further in Note 9 (“Debt and Credit Facilities”) to the Consolidated Financial Statements included elsewhere in this Annual Report, and general corporate purposes. Repurchases of Equity Securities by Issuer and Affiliated Purchasers None Item 6. [ Reserved ]
Added
Repurchases of Equity Securities by Issuer and Affiliated Purchasers The following table contains information about our purchases of our common stock during the three months ended December 31, 2024.
Added
Period Total Number of Shares Purchased Average Price Paid Per Share (1) Total Number of Shares Purchased as Part of a Publicly Announced Program (2)(3) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (2) (in thousands) October 1-31, 2024 — — — — November 1-30, 2024 434,783 $ 34.50 434,783 $ 35,000 December 1-31, 2024 — — — — Total 434,783 $ 34.50 434,783 $ 35,000 (1) Excluding fees, commissions, and expenses associated with the share repurchases.
Added
(2) On November 14, 2024, the Company announced that our Board approved a share repurchase program to buy up to an aggregate of $50.0 million of our outstanding common stock (the “Share Repurchase Program”). The Share Repurchase Program expires on December 31, 2025.
Added
(3) On November 13, 2024, our Board authorized the repurchase of $15 million of shares of common stock from Kodiak Holdings. On November 18, 2024, we purchased from Kodiak Holdings in a private transaction pursuant to the Share Repurchase Program 434,783 shares of our common stock at a price per share of $34.50. Item 6. [ Reserved ]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

90 edited+45 added−35 removed49 unchanged
Biggest changeSee “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Cash Requirements—Capital Expenditures” for information regarding amounts designated as growth capital expenditures. 60 Table of Conten ts The following table reconciles net income to Discretionary Cash Flow and Free Cash Flow, for each of the periods presented (in thousands): Year Ended December 31, 2023 2022 Net income $ 20,066 $ 106,265 Depreciation and amortization 182,869 174,463 Change in fair value of derivatives 42,890 (87,363) Loss on extinguishment of debt 6,757 — Deferred tax provision 7,863 27,301 Amortization of debt issuance costs 13,556 13,727 Equity compensation expense(1) 5,914 971 Transaction expenses(2) 6,001 2,370 Gain on sale of property, plant and equipment (777) (874) Maintenance capital expenditures(3) (36,990) (48,313) Discretionary Cash Flow $ 248,149 $ 188,547 Growth capital expenditures (4)(5) (184,487) (212,953) Proceeds from sale of capital assets 1,449 8,082 Free Cash Flow $ 65,111 $ (16,324) (1) For the years ended December 31, 2023 and 2022, there were $5.9 million and $1.0 million, respectively, of non-cash adjustments for equity compensation expense.
Biggest changeThe following table reconciles net cash provided by operating activities to discretionary cash flow, and free cash flow for each of the periods presented (in thousands): Year Ended December 31, 2024 2023 Net cash provided by operating activities $ 327,987 $ 266,326 Maintenance capital expenditures (1) (66,200) (36,990) Loss on extinguishment of debt — 2,398 Severance expense (2) 10,500 — Transaction expenses (3) 32,552 6,001 Change in operating assets and liabilities 78,395 22,480 Other (4) (9,953) (12,066) Discretionary cash flow $ 373,281 $ 248,149 Growth capital expenditures (5)(6) (285,992) (184,487) Proceeds from sale of assets 35,030 1,449 Free cash flow $ 122,319 $ 65,111 For detailed footnote descriptions, refer to the annotations beneath the following table. 57 Table of Contents The following table reconciles net income to discretionary cash flow and free cash flow for each of the periods presented (in thousands): Year Ended December 31, 2024 2023 Net income $ 50,334 $ 20,066 Depreciation and amortization 260,272 182,869 Long-lived asset impairment 9,921 — Change in fair value of derivatives 1,234 42,890 Loss on extinguishment of debt — 6,757 Deferred tax provision 15,429 7,863 Amortization of debt issuance costs 11,969 13,556 Equity compensation expense 17,658 5,914 Severance expense (2) 10,500 — Transaction expenses (3) 32,552 6,001 (Gain) loss on sale of assets 29,612 (777) Maintenance capital expenditures (1) (66,200) (36,990) Discretionary cash flow $ 373,281 $ 248,149 Growth capital expenditures (5)(6) (285,992) (184,487) Proceeds from sale of assets 35,030 1,449 Free cash flow $ 122,319 $ 65,111 (1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources —Cash Requirements —Capital Expenditures” for information regarding amounts designated as maintenance capital expenditures.
Dividends Our board of directors may elect to declare cash dividends on our common stock, subject to our compliance with applicable law, and depending on, among other things, economic conditions, our financial condition, results of operations, projections, liquidity, earnings, legal requirements, and restrictions in the agreements governing our indebtedness (as further discussed herein).
Dividends Our Board may elect to declare cash dividends on our common stock, subject to our compliance with applicable law, and depending on, among other things, economic conditions, our financial condition, results of operations, projections, liquidity, earnings, legal requirements, and restrictions in the agreements governing our indebtedness (as further discussed herein).
We record derivative instruments at fair value using Level 2 inputs of the fair value hierarchy. The interest rate swaps and interest rate collars are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs from actively quoted public markets, including interest rate curves and credit spreads.
We record derivative instruments at fair value using Level 2 inputs of the fair value hierarchy. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs from actively quoted public markets, including interest rate curves and credit spreads.
No events or circumstances occurred that indicated that the fair value of the entity may be below its carrying amount; therefore, no goodwill impairment was recorded for the years ended December 31, 2023 and 2022.
No events or circumstances occurred that indicated that the fair value of the entity may be below its carrying amount; therefore, no goodwill impairment was recorded for the years ended December 31, 2024, 2023 and 2022.
As a result, the Company is no longer a borrower or guarantor under, nor otherwise obligated with respect to the debt outstanding under the Term Loan. 2029 Notes Indenture On February 2, 2024, Kodiak Services issued $750,000,000 aggregate principal amount of 7.250% senior notes due 2029 (the “Notes”), pursuant to an indenture, dated February 2, 2024 (the “Indenture”), by and among Kodiak Services, Kodiak Gas Services, Inc., certain other subsidiary guarantors party thereto and U.S.
As a result, the Company is no longer a borrower or guarantor under, nor otherwise obligated with respect to the debt outstanding under the Term Loan. 2029 Senior Notes On February 2, 2024, Kodiak Services issued $750 million aggregate principal amount of 7.250% senior notes due 2029 (the “Notes”), pursuant to an indenture, dated February 2, 2024 (the “Indenture”), by and among Kodiak Services, Kodiak Gas Services, Inc., certain other subsidiary guarantors party thereto and U.S.
Our capital requirements have consisted primarily of, and we anticipate that our capital requirements will continue to consist primarily of, the following: • Growth Capital Expenditures: (1) capital expenditures made to expand the operating capacity or operating income capacity of assets by acquisition of additional compression units, (2) capital expenditures made to maintain the operating capacity or operating income capacity of assets by acquisition of replacement compression units and (3) capital expenditures on assets required to operate the business but not including compression units—such as trucks, wash trailers, crane trucks, leasehold improvements, technology hardware and software and related implementation expenditures, furniture and fixtures, and other general items that are typically capitalized and that have a useful life beyond one year.
Our capital requirements have consisted primarily of, and we anticipate that our capital requirements will continue to consist primarily of, the following: • Growth Capital Expenditures: (1) capital expenditures made to expand the operating capacity or operating income capacity of assets by acquisition of additional compression units, (2) capital expenditures made to maintain the operating capacity or operating income capacity of assets by acquisition of replacement compression units, (3) capital expenditures made to expand the operating capacity or operating income capacity of assets for existing compression units and (4) capital expenditures on assets required to operate the business but not including compression units—such as trucks, wash trailers, crane trucks, leasehold improvements, technology hardware and software and related implementation expenditures, furniture and fixtures, and other general items that are typically capitalized and that have a useful life beyond one year.
We believe cash generated by operating activities will be sufficient to service our debt, fund working capital, fund our estimated capital expenditures and, as our board of directors may determine from time to time in its discretion, pay dividends. Cash Requirements Capital Expenditures The compression infrastructure business is capital intensive, requiring significant investment to expand, maintain, and upgrade existing operations.
We believe cash generated by operating activities will be sufficient to service our debt, fund working capital, fund our estimated capital expenditures and, as our Board may determine from time to time in its discretion, pay dividends. Cash Requirements Capital Expenditures The compression infrastructure business is capital intensive, requiring significant investment to expand, maintain, and upgrade existing operations.
We make capital expenditures not related to our compression units (as described in clause (3) above) if and when necessary to support the operations of our revenue-generating horsepower. • Maintenance Capital Expenditures: periodic capital expenditures incurred at predetermined operating intervals to maintain consistent and reliable operating capacity of our assets over the near term.
We make capital expenditures not related to our compression units (as described in clause (4) above) if and when necessary to support the operations of our revenue-generating horsepower. • Maintenance Capital Expenditures: periodic capital expenditures incurred at predetermined operating intervals to maintain consistent and reliable operating capacity of our assets over the near term.
We utilize a disciplined and systematic asset management program whereby we perform major unit overhauls and engine replacements on a defined schedule based on hours of operation. As a result, our maintenance capital expenditures may vary considerably from year to year based on when such assets were added to the fleet.
We utilize a disciplined and systematic asset management program whereby we perform major unit overhauls and engine replacements on a defined schedule based on hours of operation. As a result, our maintenance capital expenditures may vary considerably from year to year based on when such assets were 49 Table of Contents added to the fleet.
If Kodiak or Kodiak Services experiences certain kinds of changes of 55 Table of Conten ts control and Moody’s, S&P or Fitch decreases their rating of the Notes as a result thereof within 60 days, holders of the Notes will be entitled to require Kodiak Services to repurchase all or any part of that holder’s notes at a price of 101% of the aggregate principal amount of the notes repurchased, plus accrued and unpaid interest, if any, on the notes repurchased to the date of settlement.
If Kodiak or Kodiak Services experiences certain kinds of changes of control and Moody’s, S&P or Fitch decreases their rating of the Notes as a result thereof within 60 days, holders of the Notes will be entitled to require Kodiak Services to repurchase all or any part of that holder’s notes at a price of 101% of the aggregate principal amount of the notes repurchased, plus accrued and unpaid interest, if any, on the notes repurchased to the date of settlement.
Impairment of Long-Lived Assets Long-lived assets, including property, plant, and equipment, and other finite-lived identifiable intangible assets, are reviewed for impairment whenever events or changes in circumstances, including the removal of compression units from our active fleet, indicate that the carrying amount of an asset may not be recoverable.
Impairment of Long-Lived Assets Long-lived assets, including property, plant, and equipment, and other finite-lived identifiable intangible assets, are reviewed for impairment whenever events or changes in circumstances, including the removal of compressors units from the active fleet, indicate that the carrying amount of an asset may not be recoverable.
As of December 31, 2023, there are no other legal matters for which resolution could have a material adverse effect on the consolidated financial statements.
As of December 31, 2024 and 2023, there are no other legal matters for which resolution could have a material adverse effect on the consolidated financial statements.
Trends and Outlook Within our Compression Operations segment, we provide contract compression infrastructure for customers in the oil and gas industry. Our assets are specifically utilized in natural gas compression applications in the Permian Basin, Eagle Ford Shale and other active U.S. hydrocarbon production regions.
Trends and Outlook Within our Contract Services segment, we provide contract compression infrastructure for customers in the oil and gas industry. Our assets are specifically primarily utilized in natural gas compression applications in the Permian Basin, Eagle Ford Shale and other active U.S. hydrocarbon production regions.
All obligations under the ABL Facility are collateralized by essentially all the assets of the Company. We were in compliance with all covenants as of December 31, 2023 and December 31, 2022.
All obligations under the ABL Facility are collateralized by essentially all the assets of the Company. We were in compliance with all covenants as of December 31, 2024 and December 31, 2023.
The Third Amendment, among other things, amended certain provisions of the ABL Credit Agreement (i) to accommodate the consummation of the transactions contemplated by the Merger Agreement and (ii) to account for the Company’s organizational structure after giving effect to the transactions contemplated by the Merger Agreement.
The Third Amendment, among other things, amended certain provisions of the Existing ABL Credit Agreement (i) to accommodate the consummation of the transactions contemplated by the Merger Agreement and (ii) to account for Kodiak’s organizational structure after giving effect to the transactions contemplated by the Merger Agreement.
If and to the extent our board of directors were to declare a cash dividend to our stockholders, we expect the dividend to be paid from our Discretionary Cash Flow.
If and to the extent our Board were to declare a cash dividend to our stockholders, we expect the dividend to be paid from our Discretionary Cash Flow.
We believe these regions will play an increasingly important role in global energy security as the world continues to require reliable, affordable and sustainable natural gas and oil production to support increasing global energy demand. See “Business—Compression Industry” for more information regarding natural gas compression industry trends.
We believe the U.S. will play an increasingly important role in global energy security as the world continues to require reliable, affordable and sustainable natural gas and oil production to support increasing global energy demand. See “Business—Compression Industry” for more information regarding natural gas compression industry trends.
Adjusted EBITDA and Adjusted EBITDA Percentage We define Adjusted EBITDA as net income (loss) before interest expense, net; income tax expense (benefit); and depreciation and amortization; plus (i) loss on extinguishment of debt; (ii) loss (gain) on derivatives; (iii) equity compensation expense; (iv) transaction expenses; (v) loss (gain) on sale of assets; and (vi) impairment of compression equipment.
We define adjusted EBITDA as net income (loss) before interest expense; income tax expense; and depreciation and amortization; plus (i) loss on extinguishment of debt; (ii) loss (gain) on derivatives; (iii) equity compensation expense; (iv) severance expenses; (v) transaction expenses; (vi) loss (gain) on sale of assets; and (vii) impairment of compression equipment.
Such events and changes may include significant changes in performance relative to expected operating results, significant changes in asset use, significant negative industry or economic trends, and changes in our business strategy, among others.
Such events may include significant changes in performance relative to expected operating results, significant changes in asset use, significant negative industry or economic trends, and changes in the Company's business strategy, among others.
We have not designated any derivative instruments as hedges for accounting purposes and do not enter into such instruments for speculative or trading purposes. See Note 10 (“Derivative Instruments”) to the Consolidated Financial Statements included elsewhere in this Annual Report.
We have not designated any derivative instruments as hedges for accounting purposes and do not enter into such instruments for speculative or trading purposes. See Note 12. Derivative Instruments to the consolidated financial statements included elsewhere in this Annual Report.
We and others in our 62 Table of Conten ts industry have disputed these claims and assessments based on either existing tax statutes or published guidance by the taxing authorities. We utilize both internal and external counsel in evaluating our potential exposure to adverse outcomes from orders, judgments or settlements.
We and others in our industry have disputed these claims and assessments based on either existing tax statutes or published guidance by the taxing authorities. We utilize both internal and external counsel in evaluating our potential exposure to adverse outcomes from orders, judgments or settlements.
We believe Discretionary Cash Flow is a useful liquidity and performance measure and supplemental financial measure for us in assessing our ability to pay cash dividends to our stockholders, make growth capital expenditures and assess our operating performance.
We believe discretionary cash flow is a useful liquidity and performance measure and supplemental financial measure for 56 Table of Contents us in assessing our ability to pay cash dividends to our stockholders, make growth capital expenditures and assess our operating performance.
Free Cash Flow We define Free Cash Flow as net cash provided by operating activities less (i) maintenance capital expenditures; (ii) gain (loss) on sale of property, plant and equipment; (iii) certain changes in operating assets and liabilities; (iv) certain other expenses; and (v) net growth capital expenditures; plus (x) cash loss on extinguishment of debt; (y) transaction expenses; and (z) proceeds from sale of property, plant and equipment.
We define free cash flow as net cash provided by operating activities less (i) maintenance capital expenditures; (ii) certain changes in operating assets and liabilities; (iii) certain other expenses; and (iv) growth capital expenditures; plus (w) cash loss on extinguishment of debt; (x) severance expenses; (y) transaction expenses; and (z) proceeds from sale of assets.
This is primarily related to a $25.8 million settlement on the termination of derivatives attributable to the Term Loan and $37.4 million cash received on derivative settlements on our interest rate swaps and collars, offset by a decrease in the change in fair value of the derivatives of $42.9 million for the year ended December 31, 2023 due to a decrease in the long-term Secured Overnight Financing Rate (“SOFR”) and LIBOR yield curves as compared to a $4.2 million cash paid on derivatives on our interest rate swaps and collars, offset by an increase in the change in fair value of derivatives of $87.4 million, for the year ended December 31, 2022, due to an increase in the long-term SOFR and LIBOR yield curves.
This is primarily related to $25.3 million in cash received on derivatives offset by a decrease in the fair value of derivatives of $1.2 million for the year ended December 31, 2024 due to a decrease in the long-term Secured Overnight Financing Rate (“SOFR”) yield curve, as compared to a $25.8 million settlement on the termination of derivatives attributable to the Term Loan and $37.4 million in cash received on derivative settlements on our interest rate collars, offset by a decrease in the change in fair value of the derivatives of $42.9 million for the year ended December 31, 2023 due to a decrease in the long-term SOFR and LIBOR yield curves.
This section primarily discusses 2023 and 2022 items and comparisons between these years.
This section primarily discusses 2024 and 2023 items and comparisons between these years.
The applicable interest rate under the ABL Facility is (i) in the case of SOFR-based borrowings, the Term SOFR or Daily Simple SOFR rate then in effect (subject to a floor of 0%) plus 0.10% plus a spread that depends on our Leverage Ratio as of the most recent determination date ranging from 2.00% if our Leverage Ratio is less than or equal to 3.00:1.00 to 3.00% if our Leverage Ratio is greater than 5.50:1.00 and (ii) in the case of prime rate-based borrowings, the prime rate (subject to a floor of 2.5%) plus a spread that depends on our Leverage Ratio as of the most recent determination date ranging from 1.00% if our Leverage Ratio is less than or equal to 3.00:1.00 to 2.00% if our Leverage Ratio is greater than 5.50:1.00. 54 Table of Conten ts The applicable interest rates as of December 31, 2023 were 10.00% (prime rate plus 2.00%) and 8.50% (Term SOFR rate plus 0.10% plus 2.75%).
The applicable interest rate under the ABL Facility is (i) in the case of SOFR-based borrowings, the Term SOFR or Daily Simple SOFR rate then in effect (subject to a floor of 0%) plus 0.10% plus a spread that depends on our Leverage Ratio as of the most recent determination date ranging from 2.00% if our Leverage Ratio is less than or equal to 3.00:1.00 to 3.00% if our Leverage Ratio is greater than 5.50:1.00 and (ii) in the case of prime rate-based borrowings, the prime rate (subject to a floor of 2.5%) plus a spread that depends on our Leverage Ratio as of the most recent determination date ranging from 1.00% if our Leverage Ratio is less than or equal to 3.00:1.00 to 2.00% if our Leverage Ratio is greater than 5.50:1.00.
We manage our business through two operating segments: Compression Operations and Other Services. Compression Operations consists of operating Company-owned and customer-owned compression infrastructure for our customers, pursuant to fixed-revenue contracts to enable the production and gathering of natural gas and oil.
We manage our business through two operating segments: Contract Services and Other Services. Contract Services consists of operating Company-owned and customer-owned compression, and gas treating and cooling infrastructure, pursuant to fixed-revenue contracts to enable the production and gathering of natural gas and oil.
Estimated Useful Lives of Property, Plant and Equipment Property, plant and equipment is carried at cost. Depreciation is computed on a straight-line basis using useful lives that are estimated based on assumptions and judgments that reflect both historical experience and expectations regarding future use of our assets.
Depreciation is computed on a straight-line basis using useful lives that are estimated based on assumptions and judgments that reflect both historical experience and expectations regarding future use of our assets.
As of December 31, 2023, based on the information currently available, we have accrued a contingent liability of approximately $28.8 million relating to the Sales Tax Audit for the periods currently under audit classified in accrued liabilities on the consolidated balance sheet.
As of December 31, 2024 and 2023, based on the information currently available, we accrued a contingent liability of approximately $70.1 million and $28.8 million, respectively, relating to the Sales Tax Audit for the periods currently under audit classified in accrued liabilities on the consolidated balance sheets.
Approximately 12% of the Company’s revenue in 2023, 7% in 2022, and 3% in 2021, was recognized under this method.
Approximately 5% of the Company’s revenue in 2024, 12% in 2023, and 7% in 2022, was recognized under this method.
We pay an annualized commitment fee of 0.25% on the unused portion of our ABL Facility if borrowings are greater than 50% of total commitments and 0.50% on the unused portion on the ABL Facility if borrowings are less than 50% of total commitments.
The Company pays an annualized commitment fee of 0.25% on the unused portion of its ABL Facility if borrowings are greater than 50% of total commitments and 0.50% on the unused portion of the ABL Facility if borrowings are less than 50% of total commitments .
Free Cash Flow is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP, such as revenues, net income (loss), operating income (loss) or cash flows from operating activities.
Free cash flow is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP, such as revenues, net income, operating income (loss) or cash flows from operating activities. Free Cash Flow as presented may not be comparable to similarly titled measures of other companies.
We believe that the U.S natural gas and oil industry is facing uncertainties and continued pressures from regulators and shifting sentiments from investors and other stakeholders, primarily related to broader adoption of emission reduction targets and other sustainability initiatives. Many energy companies, including some of our customers, have announced significant GHG emission reduction initiatives.
In recent years, the U.S natural gas and oil industry has faced uncertainties and pressures from regulators and shifting sentiments from investors and other stakeholders, primarily related to broader adoption of emission reduction targets and other sustainability initiatives. Many energy companies, including some of our customers, have announced significant GHG emission reduction initiatives.
We operate our large horsepower compression units under stable, fixed-revenue contracts with many upstream and midstream customers. Our compression assets have long useful lives consistent with the expected production lives of the key regions where we operate. We believe our customer-centric business model positions us as the preferred contract compression operator for our customers and creates long-standing relationships.
Our compression assets have long useful lives consistent with the expected production lives of the key regions where we operate. We believe our customer-centric business model positions us as the preferred contract compression operator for our customers and creates long-standing relationships.
In connection with the IPO, the Company became a borrower under the ABL Facility. As of December 31, 2023, there was $14.7 million of letters of credit outstanding under the ABL Facility. The maturity date of the ABL Facility is March 22, 2028.
In connection with the IPO, the Company became a borrower under the ABL Facility. As of December 31, 2024, there was $2.4 million of letters of credit outstanding under the ABL Facility. The maturity date of the ABL Facility is March 22, 2028. See Note 11.
See Note 9 (“Debt and Credit Facilities”) to the Consolidated Financial Statements included elsewhere in this Annual Report. The ABL Credit Agreement requires that we meet certain financial ratios.
Debt and Credit Facilities to the consolidated financial statements included elsewhere in this Annual Report. The ABL Credit Agreement requires that we meet certain financial ratios.
Impairment losses are recognized in the period in which the impairment occurs and represent the excess of the asset carrying value over its fair value estimated using future discounted net cash flows. No impairment was recorded for the years ended December 31, 2023 and 2022.
Impairment losses are recognized in the period in which the impairment occurs and represent the excess of the asset carrying value over its fair value estimated using future discounted net cash flows.
Contractual Obligations Our material contractual obligations as of December 31, 2023 consisted of the following: • Long-term debt of $1.8 billion, which is due in March 2028; and • Purchase commitments of $149.0 million, all of which are expected to be settled within the next twelve months; primarily consisting of future commitments to purchase new compression units ordered but not received.
Contractual Obligations Our material contractual obligations as of December 31, 2024 consisted of the following: • Long-term debt of $2.6 billion; and • Purchase commitments of $168.8 million, all of which are expected to be settled within the next twelve months; primarily consisting of future commitments to purchase new compression units ordered but not received. See Note 15.
Adjusted EBITDA and Adjusted EBITDA Percentage are used as supplemental financial measures by our management and external users of our financial statements, such as investors, commercial banks and other financial institutions, to assess: • the financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets; • the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities; • the ability of our assets to generate cash sufficient to make debt payments and pay dividends; and • our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods and capital structure. 57 Table of Conten ts We believe that Adjusted EBITDA and Adjusted EBITDA Percentage provide useful information because, when viewed with our GAAP results and the accompanying reconciliation, they provide a more complete understanding of our performance than GAAP results alone.
Adjusted EBITDA and adjusted EBITDA percentage are used as supplemental financial measures by our management and external users of our financial statements, such as investors, commercial banks and other financial institutions, to assess: • the financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets; • the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities; • the ability of our assets to generate cash sufficient to make debt payments and pay dividends; and • our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods and capital structure.
Other Services consists of a full range of contract services to support the needs of our customers, including station construction, maintenance and overhaul and other ancillary time and material-based offerings. Our Other Services offerings are often cross-sold with Compression Operations.
Other Services consists of a broad range of contract services to support ancillary needs of our customers, including station construction, customer-owned compressor maintenance and overhaul, freight and crane charges and other time and material-based offerings. Our Other Services offerings are often cross-sold with Contract Services.
Non-GAAP Financial Measures Management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include the non-GAAP financial measures of Adjusted Gross Margin, Adjusted Gross Margin Percentage, Adjusted EBITDA, Adjusted EBITDA Percentage, Discretionary Cash Flow, and Free Cash Flow.
These metrics are significant factors in assessing our operating results and profitability and include the non-GAAP financial measures of adjusted gross margin, adjusted gross margin percentage, adjusted EBITDA, adjusted EBITDA percentage, discretionary cash flow, and free cash flow. 53 Table of Contents Adjusted Gross Margin and Adjusted Gross Margin Percentage Adjusted gross margin and adjusted gross margin percentage are considered non-GAAP financial measures.
Discretionary Cash Flow We define Discretionary Cash Flow as net cash provided by operating activities less (i) maintenance capital expenditures; (ii) gain (loss) on sale of property, plant and equipment; (iii) certain changes in operating assets and liabilities; and (iv) certain other expenses; plus (x) cash loss on extinguishment of debt; and (y) transaction expenses.
Discretionary Cash Flow Discretionary cash flow is considered a non-GAAP measure. We define discretionary cash flow as net cash provided by operating activities less (i) maintenance capital expenditures; (ii) certain changes in operating assets and liabilities; and (iii) certain other expenses; plus (w) cash loss on extinguishment of debt; (x) severance expenses; and (y) transaction expenses.
Overview We are a leading operator of contract compression infrastructure in the U.S. Our Compression Operations and related services are critical to our customers’ ability to reliably produce, gather and transport natural gas and oil. We are a market leader in the Permian Basin, which is the largest producing natural gas and oil basin in the U.S.
Overview We are a leading provider and operator of large horsepower contract compression infrastructure in the U.S. Our Contract Services and related services are critical to our customers’ ability to reliably produce, gather and transport natural gas and oil.
Adjusted Gross Margin and Adjusted Gross Margin Percentage Adjusted Gross Margin is a non-GAAP financial measure. We define Adjusted Gross Margin as revenue less cost of operations, exclusive of depreciation and amortization expense. We define Adjusted Gross Margin Percentage as Adjusted Gross Margin divided by total revenues.
We define adjusted gross margin as revenue less cost of operations, exclusive of depreciation and amortization expense. We define adjusted gross margin percentage as adjusted gross margin divided by total revenues. We believe that adjusted gross margin is useful as a supplemental measure of our operating profitability.
Discussion and analysis of our operating highlights and financial results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 are included under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations 2022 Operational Highlights, Financial Results of Operations, Liquidity and Capital Resources, and Critical Accounting Policies and Estimates” in our final prospectus relating to the IPO filed with the SEC on June 30, 2023.
Discussion and analysis of our operating highlights and financial results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 are included under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations 2023 Operational Highlights, Financial Results of Operations, Liquidity and Capital Resources, and Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Upstream and midstream companies have increasingly prioritized capital discipline and return of capital to stockholders. We believe that our customers will increasingly continue to outsource their compression infrastructure needs in an effort to reduce capital expenditures outside of their core business and benefit from our technical skill and expertise.
We believe that many customers prefer to outsource their compression infrastructure needs in an effort to reduce capital expenditures outside of their core business and benefit from our technical skill and expertise.
In addition, the Third Amendment amended the ABL Credit Agreement to (i) increase the maximum secured leverage ratio (calculated based on the ratio of Senior Secured Debt to EBITDA, each as defined in the ABL Credit Agreement), which will begin to be tested after we issue any unsecured indebtedness, to (x) 3.75 to 1.00 for the first four fiscal quarters after we issue any unsecured indebtedness and (y) 3.25 to 1.00 for each fiscal quarter thereafter, (ii) modify the triggers for commencing a “cash dominion” period (i.e., a period when the Administrative Agent applies proceeds in our deposit accounts to reduce borrowings under the ABL Facility) such that a “cash dominion” period will commence when 48 Table of Conten ts availability under the ABL Facility is less than $125 million for five consecutive business days or if certain types of events of default occur (although this change will effectively be unwound if the Merger does not occur on or prior to the Reversion Date (as defined in the ABL Credit Agreement)), (iii) include customary provisions relating to the designation of “unrestricted subsidiaries” (i.e., subsidiaries that are not required to become loan parties or be bound by the covenants contained in the ABL Credit Agreement), (iv) provide that only material domestic restricted subsidiaries are required to become guarantors and collateral grantors under the ABL Facility and (v) permit the Company and its restricted subsidiaries to incur additional indebtedness and liens and to make additional investments, dividends, distributions, redemptions and dispositions. 2029 Notes Indenture On February 2, 2024, Kodiak Gas Services, LLC, a wholly owned subsidiary of Kodiak Gas Services, Inc., (“Kodiak Services”), issued $750,000,000 aggregate principal amount of Kodiak Services’ 7.250% senior notes due 2029 (the “Notes”), pursuant to an indenture, dated February 2, 2024 (the “Indenture”), by and among Kodiak Services, Kodiak, certain other subsidiary guarantors party thereto and U.S.
In addition, the Third Amendment amended the ABL Facility to (i) update the maximum secured leverage ratio to (x) 3.75 to 1.00 for the first four fiscal quarters after the Company issues any unsecured indebtedness and (y) 3.25 to 1.00 for each fiscal quarter thereafter, (ii) modify the triggers for commencing a “cash dominion” period (i.e., a period when the administrative agent applies proceeds in the deposit accounts to reduce borrowings under the ABL Credit Agreement)}, such that a “cash dominion” period will commence if availability under the ABL Credit Agreement is less than $125 million for more than five consecutive business days or if certain types of events of default occur, (iii) include customary provisions relating to the designation of “unrestricted subsidiaries” (i.e., subsidiaries that are not required to become loan parties or be bound by the covenants contained in the ABL Credit Agreement), (iv) provide that only material domestic restricted subsidiaries are required to become guarantors and collateral grantors under the ABL Facility, and (v) permit the Company and its restricted subsidiaries to incur additional indebtedness and liens and to make additional investments, dividends, distributions, redemptions and dispositions.
Our primary sources of liquidity are cash flows generated from our operations and our borrowing availability under the ABL Facility. Our cash flow is affected by numerous factors including prices and demand for our compression infrastructure assets and services, conditions in the financial markets and various other factors.
Our cash flow is affected by numerous factors including prices and demand for our compression infrastructure assets and services, conditions in the financial markets and various other factors.
The measure of progress used to recognize construction services revenue is a cost-to-cost measure of progress because it most faithfully depicts the Company’s performance on the contract.
Because the Company’s performance creates and enhances assets that are controlled by customers, the Company recognizes construction services revenue over time. The measure of progress used to recognize construction services revenue is a cost-to-cost measure of progress because it most faithfully depicts the Company’s performance on the contract.
As of December 31, 2023, $22.5 million was recorded for the fair value of the asset of the derivative instruments compared to $65.3 million asset of the derivative instruments recorded as of December 31, 2022. Recently Adopted Accounting Pronouncements See Note 2 (“Summary of Significant Accounting Policies”) to our Consolidated Financial Statements included elsewhere in this Annual Report.
As of December 31, 2024 and 2023, the fair value of derivative instruments were $21.2 million and $22.5 million, respectively. Recently Adopted Accounting Pronouncement See Note 2. Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report.
We expect this growth in Gulf Coast LNG export capacity to translate into increasing Permian Basin and Eagle Ford Shale natural gas production growth, requiring substantial additional compression horsepower.
LNG export projects in development, and overall LNG export capacity is expected to meaningfully grow over the next decade, in particular along the U.S. Gulf Coast. We expect this growth in Gulf Coast LNG export capacity to translate into continued Permian Basin and Eagle Ford Shale natural gas production growth, requiring substantial additional compression horsepower.
However, we continue to believe in the long-term demand for our Compression Operations given the necessity of compression in gathering, processing and production of natural gas and centralized gas lift of oil.
However, we continue to believe in the long-term demand for our Contract Services given the necessity of compression in gathering, processing and production of natural gas and centralized gas lift of oil. Recent Developments CSI Acquisition On April 1, 2024, we completed the CSI Acquisition, pursuant to the terms of the Merger Agreement.
This was offset by an increase in net proceeds from the IPO of $277.8 million and a decrease in equity distribution of $795.7 million. Description of Indebtedness ABL Facility As of January 1, 2022, a wholly owned subsidiary of Kodiak had an ABL Facility with unaffiliated secured lenders and JPMorgan Chase Bank, N.A., as administrative agent.
These uses of cash were offset by a $390.7 million increase in net borrowings over payments on debt instruments and $277.8 million decrease in proceeds from the initial public offering. Description of Indebtedness ABL Facility As of January 1, 2022, Kodiak Services had an ABL Facility with unaffiliated secured lenders and JPMorgan Chase Bank, N.A., as administrative agent.
In the event our Discretionary Cash Flow is insufficient for the purpose of funding any such dividends and our budgeted growth capital expenditures for such period, we may fund such shortfall (i) with additional borrowings under our ABL Facility, which as of December 31, 2023 had $354.9 million available (subject to the requirement that our availability, in the case of dividends under the ABL Facility exceeds the greater of (x) 10% of the total commitments under the facility of $2.2 billion or (y) $200 million) or (ii) reduce our growth capital expenditures for such period.
In the event our Discretionary Cash Flow is insufficient for the purpose of funding any such dividends and our budgeted growth capital expenditures for such period, we may fund such shortfall (i) with additional borrowings under our ABL Facility, which as of December 31, 2024 had $322.5 million available (subject to the requirement that our availability, in the case of dividends, under the ABL Facility (calculated on a pro forma basis after giving effect to such Specified Transaction) is not less than $125,000,000) or (ii) reduce our growth capital expenditures for such period.
For the year ended December 31, 2023, growth capital expenditures were $184.5 million and maintenance capital expenditures were $37.0 million. For the year ended December 31, 2022, growth capital expenditures were $213.0 million and maintenance capital expenditures were $48.3 million.
For the year ended December 31, 2024, growth capital expenditures were $286.0 million and maintenance capital expenditures were $66.2 million. This compares to growth capital expenditures of $184.5 million and maintenance capital expenditures of $37.0 million for the year ended December 31, 2023.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 2023 and 2022 included elsewhere in this Annual Report.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations is based on, and should be read in conjunction with, our consolidated financial statements and related notes hereto included under Part II, Item 8.—Financial Statements and Supplementary Data in this Annual Report.
This input method requires management to estimate total future costs to complete a construction project, such as labor, raw materials, and subcontract costs. Estimates are based on conditions and information available at the time the estimate is made, as well as the knowledge and experience of the Company’s engineers, project managers, and financial professionals.
Estimates are based on conditions and information available at the time the estimate is made, as well as the knowledge and experience of the Company’s engineers, project managers, and financial professionals.
No such loss was recognized in the year ended December 31, 2022. Gain on Derivatives Gain on Derivatives decreased $62.9 million (75.6%) for the year ended December 31, 2023 compared to the year ended December 31, 2022.
No such loss was recognized in the year ended December 31, 2024. Gain on Derivatives Gain on derivatives increased $3.8 million, or 18.5%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
On July 3, 2023, we used the net proceeds of our IPO, together with the proceeds resulting from the Term Loan Derivative Settlement and borrowings under our ABL Facility, to repay $300 million of borrowings outstanding under the Term Loan.
On July 3, 2023, we used the net proceeds of our IPO, together with the proceeds resulting from the Term Loan Derivative Settlement and borrowings under our ABL Facility, to repay $300 million of borrowings outstanding under the Term Loan. 52 Table of Contents In connection with the IPO, all of the Company’s and its subsidiaries’ remaining obligations under the Term Loan were assumed by a parent entity of Kodiak Holdings, and the Company’s obligations thereunder were terminated.
(2) Represents certain costs associated with non-recurring professional services, our equity owners’ expenses and other costs. (3) Includes non-cash lease expense, provision for credit losses and inventory reserve. (4) For the years ended December 31, 2023 and 2022, growth capital expenditures includes a $1.7 million increase and a $1.9 million increase in accrued capital expenditures, respectively.
(4) Includes non-cash lease expense, provision for credit losses and inventory reserve. (5) Growth capital expenditures includes an $8.1 million increase and a $1.7 million increase in accrued capital expenditures for the years ended December 31, 2024 and 2023, respectively.
As of December 31, Percentage Change 2023 2022 Operating Data (at year end): Fleet horsepower (1) 3,261,661 3,134,306 4.1 % Revenue-generating horsepower (2) 3,258,951 3,131,631 4.1 % Fleet compression units 3,078 3,024 1.8 % Revenue-generating compression units 3,062 3,021 1.4 % Revenue-generating horsepower per revenue-generating compression unit (3) 1,064 1,037 2.6 % Horsepower utilization (4) 99.9 % 99.9 % — % (1) Fleet horsepower includes revenue-generating horsepower and idle horsepower, which are comprised of compression units that do not have a signed contract or are not subject to a firm commitment from our customer and therefore are no longer generating revenue.
As of December 31, % Change 2024 2023 Operating Data: Fleet horsepower (1) 4,402,747 3,261,661 35.0 % Revenue-generating horsepower (2) 4,250,499 3,258,951 30.4 % Fleet compression units 5,069 3,078 64.7 % Revenue-generating compression units 4,592 3,062 50.0 % Revenue-generating horsepower per revenue-generating compression unit (3) 926 1,064 (13.0) % Fleet utilization (4) 96.5 % 99.9 % (3.4) % (1) Fleet horsepower includes (x) revenue-generating horsepower and (y) idle horsepower, which is comprised of compression units that do not have a signed contract or are not subject to a firm commitment from our customer and therefore are not currently generating revenue.
Under the cost-to-cost measure of progress, the percentage of completion of each contract is measured based on the transaction price and the ratio of actual costs incurred 61 Table of Conten ts to total estimated costs expected for the construction services.
Under the cost-to-cost measure of progress, the percentage of completion of each contract is measured based on the transaction price and the ratio of actual costs incurred to total estimated costs expected for the construction services. This input method requires management to estimate total future costs to complete a construction project, such as labor, raw materials, and subcontract costs.
Construction service contracts consist of a highly integrated set of tasks and components and accordingly are accounted for as a single performance obligation. Because the Company’s performance creates and enhances assets that are controlled by customers, the Company recognizes construction services revenue over time.
Revenue Recognition over Time The Company enters into contracts to provide compressor station construction services to customers under its Other Services segment. Construction service contracts consist of a highly integrated set of tasks and components and accordingly are accounted for as a single performance obligation.
Fleet horsepower excludes 33,020 and 58,645 of non-marketable or obsolete horsepower as of December 31, 2023 and 2022, respectively. (2) Revenue-generating horsepower includes compression units that are operating under contract and generating revenue and compression units which are available to be deployed and for which we have a signed contract or are subject to a firm commitment from our customer.
(2) Revenue-generating horsepower includes compression units that are operating under contract and generating revenue and compression units which are available to be deployed and for which we have a signed contract or are subject to a firm commitment from our customer. (3) Calculated as (i) revenue-generating horsepower divided by (ii) revenue-generating compression units at period end.
Other Services Other Services revenue increased $61.8 million (116.7%) for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Other Services Other Services revenue increased $10.4 million, or 9.0%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
This was partially offset by the extinguishment of the Term Loan in July 2023. Loss on Extinguishment of Debt Loss on Extinguishment of Debt increased $6.8 million related to the write off of debt issuance costs and other fees as a result of the extinguishment of the Term Loan for the year ended December 31, 2023.
This decrease was primarily due to lower average borrowings on the ABL Facility and 2029 Senior Notes during the year as compared to the ABL Facility and Term Loan during the year ended December 31, 2023. 48 Table of Contents Loss on Extinguishment of Debt During the year ended December 31, 2023, we recognized a $6.8 million loss on extinguishment of debt related to the write off of debt issuance costs and other fees as a result of the extinguishment of the Term Loan.
(2) Represents certain costs associated with non-recurring professional services, our equity owners’ expenses and other costs. 58 Table of Conten ts The following table reconciles net cash provided by operating activities to Adjusted EBITDA for each of the periods presented (in thousands) : Year Ended December 31, 2023 2022 Net cash provided by operating activities $ 266,326 $ 219,846 Interest expense, net 222,514 165,867 Income tax expense 15,070 33,092 Deferred tax provision (7,863) (27,301) Cash (received) paid on derivatives (63,156) 4,247 Loss on extinguishment of debt 2,398 — Transaction expenses(1) 6,001 2,370 Other(2) (25,622) (17,130) Change in operating assets and liabilities 22,480 18,047 Adjusted EBITDA $ 438,148 $ 399,038 (1) Represents certain costs associated with non-recurring professional services, our equity owners’ expenses and other costs.
The following table reconciles adjusted EBITDA to net cash provided by operating activities for each of the periods presented (in thousands) : Year Ended December 31, 2024 2023 Net cash provided by operating activities $ 327,987 $ 266,326 Interest expense 197,144 222,514 Income tax expense 25,574 15,070 Deferred tax provision (15,429) (7,863) Cash received on derivatives (25,251) (63,156) Loss on extinguishment of debt — 2,398 Severance expense (1) 10,500 — Transaction expenses (2) 32,552 6,001 Other (3) (21,922) (25,622) Change in operating assets and liabilities 78,395 22,480 Adjusted EBITDA $ 609,550 $ 438,148 (1) Represents severance expense related to the CSI acquisition for the year ended December 31, 2024.
Financing Activities The $85.9 million increase in cash used in financing activities for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to a decrease in borrowings on debt instruments of $593.8 million, an increase in payments on debt instruments of $519.1 million, an increase in dividends paid to stockholders of $29.8 million, an increase in offering costs of $10.0 million, an increase in payments of debt issuance cost of $5.0 million, and an increase in payment related to loss on extinguishment of debt of $1.8 million.
Financing Activities The $26.4 million decrease in cash used in financing activities for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily due to a $42.3 million decrease in distributions to parent, a $16.5 million decrease in payments of debt issuance costs, and a $8.9 million decrease in cash payments related to offering costs, offset by a $104.1 million increase in dividends paid to stockholders, a $40.0 million increase in share repurchases, a $5.6 million increase in principal payments on other borrowings, a $5.5 million increase in distributions to noncontrolling interests, and a $2.8 million increase in cash paid for shares withheld to cover taxes.
Approximately 84% of our existing compression assets are strategically deployed in the Permian Basin and Eagle Ford Shale, which are two of the most significant crude oil and associated gas basins in the U.S., which the EIA expects to maintain significant production volumes through at least 2050.
Approximately 82% of our existing compression assets are strategically deployed in the Permian Basin and Eagle Ford Shale, which are two of the most significant crude oil and associated gas basins in the U.S. We believe these two regions possess some of the largest and lowest-cost unconventional resources bases in the U.S. Additionally, there are significant U.S.
The 2.6% increase in revenue-generating horsepower per revenue-generating compression unit was due to the purchase and deployment of new, large horsepower units. 49 Table of Conten ts Financial Results of Operations Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 The following table presents selected financial and operating information for the periods presented (in thousands) : Year Ended December 31, % Change 2023 2022 Revenues: Compression Operations $ 735,605 $ 654,957 12.3 % Other Services 114,776 52,956 116.7 % Total revenues 850,381 707,913 20.1 % Operating expenses: Cost of operations (exclusive of depreciation and amortization shown below): Compression Operations 257,092 225,715 13.9 % Other Services 93,779 41,636 125.2 % Depreciation and amortization 182,869 174,463 4.8 % Selling, general and administrative 73,308 44,882 63.3 % Gain on sale of capital assets (777) (874) (11.1) % Total operating expenses 606,271 485,822 24.8 % Income from operations 244,110 222,091 9.9 % Other income (expenses): Interest expense, net (222,514) (165,867) 34.2 % Loss on extinguishment of debt (6,757) — n/m Gain on derivatives 20,266 83,116 (75.6) % Other income 31 17 82.4 % Total other expenses (208,974) (82,734) 152.6 % Income before income taxes 35,136 139,357 (74.8) % Income tax expense 15,070 33,092 (54.5) % Net income $ 20,066 $ 106,265 (81.1) % Revenues and Sources of Income Compression Operations Compression Operations revenue increased $80.6 million (12.3%) for the year ended December 31, 2023 compared to the year ended December 31, 2022.
The 13.0% decrease in revenue-generating horsepower per revenue-generating compression unit was due to units acquired as part of the CSI Acquisition having, on average, less horsepower. 46 Table of Contents Financial Results of Operations The following table presents selected financial and operating information for the periods presented (in thousands) : Year Ended December 31, % Change 2024 2023 Revenues: Contract Services $ 1,034,173 $ 735,605 40.6 % Other Services 125,138 114,776 9.0 % Total revenues 1,159,311 850,381 36.3 % Operating expenses: Cost of operations (exclusive of depreciation and amortization shown below): Contract Services 355,016 257,092 38.1 % Other Services 103,360 93,779 10.2 % Depreciation and amortization 260,272 182,869 42.3 % Long-lived asset impairment 9,921 — 100.0 % Selling, general and administrative 151,680 73,308 106.9 % Loss (gain) on sale of assets 29,612 (777) n/m Total operating expenses 909,861 606,271 50.1 % Income from operations 249,450 244,110 2.2 % Other income (expenses): Interest expense (197,144) (222,514) (11.4) % Loss on extinguishment of debt — (6,757) (100.0) % Gain on derivatives 24,017 20,266 18.5 % Other (expense) income, net (415) 31 n/m Total other expenses (173,542) (208,974) (17.0) % Income before income taxes 75,908 35,136 116.0 % Income tax expense 25,574 15,070 69.7 % Net income 50,334 20,066 150.8 % Less: Net income attributable to noncontrolling interests 439 — 100.0 % Net income attributable to common shareholders $ 49,895 $ 20,066 148.7 % Revenues and Sources of Income Contract Services Contract Services revenue increased $298.6 million, or 40.6%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
This was primarily due to a $7.5 million increase in professional fees mainly related to transactions costs, a $7.1 million increase in bad debt expense related to expected credit losses from a customer in bankruptcy experiencing financial distress, a $6.6 million increase in labor and benefits, mainly related to increased headcount and salaries, a $4.9 million increase in stock compensation expense related to equity compensation plans, and a $2.3 million increase in other overhead expenses, primarily as a result of higher insurance, office expenses, and other related administrative costs.
This was primarily due to a $29.0 million increase in professional fees mainly related to transactions costs associated with the CSI Acquisition, a $24.8 million increase in labor and benefits, mainly related to increased headcount and salaries, an $11.7 million increase in stock compensation expense related to equity compensation plans, an $8.9 million increase in software expense, and a $6.4 million increase in other overhead expenses, mostly consisting of insurance and facility expenses.
Furthermore, the long-life nature of our assets and our fixed-revenue contracts help to protect our business from the impact of industry and broader macroeconomic cycles. Unconventional resources, large-scale centralized gathering systems and multi-well pad operations require more horsepower than conventional resources, driving demand for our large horsepower compression units.
Unconventional resources, large-scale centralized gathering systems and multi-well pad operations require more compression horsepower than conventional resources, driving demand for our large horsepower compression units. Upstream and midstream companies have increasingly prioritized capital discipline and return of capital to stockholders.
Our customers are dependent on these applications to 47 Table of Conten ts produce, process and transport natural gas and oil throughout the value chain and ultimately to end markets. Our assets are central to meeting the growing global natural gas and oil demand.
Our customers are dependent on these applications to produce, process and transport natural gas and oil. Our assets are central to meeting growing global natural gas and oil demand. Furthermore, the long-life nature of our assets and our fixed-revenue contracts help to protect our business from the impact of industry and broader macroeconomic cycles.
Investing Activities The $33.0 million decrease in cash used in investing activities for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to a $28.3 million decrease in growth capital expenditures and an $11.3 million decrease in maintenance capital expenditures, offset by a $6.6 million decrease in proceeds from sale of property, plant and equipment.
Investing Activities The $74.0 million increase in cash used in investing activities for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily due to a $117.2 million increase in in capital expenditures, net of accrued capital expenditures.
Selling, General and Administrative Selling, General and Administrative expenses increased $28.4 million (63.3%) for the year ended December 31, 2023 compared to the year ended December 31, 2022.
As a result, we recorded an impairment of compression equipment of $9.9 million for the year ended December 31, 2024. No impairment was recorded for the year ended December 31, 2023. Selling, General and Administrative Selling, general and administrative expenses increased $78.4 million, or 106.9%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Subsequently, on January 29, 2024 our board of directors declared a quarterly cash dividend that was paid on February 23, 2024 for stockholders of record as of the close of business on February 16, 2023. Over the long-term, we expect to fund any dividends and our budgeted growth capital expenditures using our Discretionary Cash Flow.
Over the long-term, we expect to fund any dividends and our budgeted growth capital expenditures using our Discretionary Cash Flow.
The following table reconciles net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA, its most directly comparable Non-GAAP financial measure, for each of the periods presented (in thousands) : Year Ended December 31, 2023 2022 Net income $ 20,066 $ 106,265 Interest expense, net 222,514 165,867 Income tax expense 15,070 33,092 Depreciation and amortization 182,869 174,463 Loss on extinguishment of debt 6,757 — Gain on derivatives (20,266) (83,116) Equity compensation expense (1) 5,914 971 Transaction expenses (2) 6,001 2,370 Gain on sale of assets (777) (874) Adjusted EBITDA $ 438,148 $ 399,038 Adjusted EBITDA Percentage 51.5 % 56.4 % (1) For the years ended December 31, 2023 and 2022, there were $5.9 million and $1.0 million, respectively, of non-cash adjustments for equity compensation expense.
Management compensates for the limitations of adjusted EBITDA and adjusted EBITDA percentage as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this knowledge into management’s decision-making processes. 55 Table of Contents The following table reconciles adjusted EBITDA to net income, the most directly comparable GAAP financial measure, for each of the periods presented (in thousands) : Year Ended December 31, 2024 2023 Net income $ 50,334 $ 20,066 Interest expense 197,144 222,514 Income tax expense 25,574 15,070 Depreciation and amortization 260,272 182,869 Long-lived asset impairment 9,921 — Loss on extinguishment of debt — 6,757 Gain on derivatives (24,017) (20,266) Equity compensation expense 17,658 5,914 Severance expense (1) 10,500 — Transaction expenses (2) 32,552 6,001 Loss (gain) on sale of assets 29,612 (777) Adjusted EBITDA $ 609,550 $ 438,148 Net income percentage 4.3 % 2.4 % Adjusted EBITDA percentage 52.6 % 51.5 % For detailed footnote descriptions, refer to the annotations beneath the following table.
This was primarily due to a decrease in pre-tax income of $104.2 million for the year ended December 31, 2023 compared to pre-tax income for the year ended December 31, 2022. 51 Table of Conten ts Liquidity and Capital Resources Overview Our ability to fund operations, finance capital expenditures, service our debt, and pay dividends depends on the levels of our operating cash flows and access to the capital and credit markets.
Liquidity and Capital Resources Overview Our ability to fund operations, finance capital expenditures, service our debt, and pay dividends depends on the levels of our operating cash flows and access to the capital and credit markets. Our primary sources of liquidity are cash flows generated from our operations and our borrowing availability under the ABL Facility.
A growing number of our customers are evaluating potential opportunities in electric compression infrastructure and we are well positioned to support them in these strategic initiatives.
A number of our customers are implementing electric compression infrastructure and we are well positioned to support them in these strategic initiatives. As stakeholder sentiments and the regulatory environment evolve under the new U.S. presidential administration, the U.S. natural gas and oil industry will continue to face unpredictability.
Depreciation and Amortization Depreciation and Amortization increased $8.4 million (4.8%) for the year ended December 31, 2023 compared to the year ended December 31, 2022. This was primarily due to an increase in compression equipment purchased, which resulted in increased depreciation associated with that equipment.
Income Tax Expense Income tax expense increased by $10.5 million, or 69.7%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. This was primarily due to an increase in pre-tax income of $40.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe do not take title to any natural gas or oil in connection with our services and, accordingly, have no direct exposure to fluctuating commodity prices. However, the demand for our Compression Operations depends upon the continued demand for, and production of, natural gas and oil.
Biggest changeCommodity Price Risk Market risk is the risk of loss arising from adverse changes in market rates and prices. We do not take title to any natural gas or oil in connection with our services and, accordingly, have no direct exposure to fluctuating commodity prices.
Excluding the effect of interest rate swaps, the average annualized interest rate incurred on the ABL Facility for borrowings during the year ended December 31, 2023 was approximately 8.30% and we estimate that a 1.0% increase in the applicable average interest rates for the year ended December 31, 2023 would have resulted in an estimated $17.9 million increase in ABL-related interest expense.
Excluding the effect of interest rate swaps, the average annualized interest rate incurred on the ABL Facility for borrowings during the year ended December 31, 2024 was approximately 6.77% and we estimate that a 1.0% increase in the applicable average interest rates for the year ended December 31, 2024 would have resulted in an estimated $16.7 million increase in ABL-related interest expense.
As of December 31, 2023 and 2022, we had $1.8 billion and $1.8 billion, respectively, outstanding under the ABL Facility and $1.225 billion and $1.325 billion outstanding and effective notional amounts of floating to fixed interest rate swaps, respectively, which we attribute to our borrowings under our ABL Facility.
As of December 31, 2024 and 2023, we had $1.9 billion and $1.8 billion, respectively, outstanding under the ABL Facility and $1.4 billion and $1.2 billion, respectively, outstanding and effective notional amounts of floating to fixed interest rate 60 Table of Contents swaps which we attribute to our borrowings under our ABL Facility.
For the year ended December 31, 2023 2023, 2022 and 2021, the Company recorded credit loss of $7.1 million, $0.1 million and a recovery of $0.5 million, respectively related to the collectability of outstanding receivables. 63 Table of Conten ts The Company uses credit and other financial criteria to evaluate the credit standing of, and to select, counterparties to its derivative instruments.
For the years ended December 31, 2024, 2023 and 2022, the Company recorded credit loss of $4.7 million, $7.1 million and $0.1 million, respectively related to the collectability of outstanding receivables. The Company uses credit and other financial criteria to evaluate the credit standing of, and to select, counterparties to its derivative instruments.
Sustained low natural gas or oil prices over the long term could result in a decline in the production of natural gas or oil, which could result in reduced demand for our Compression Operations. 64 Table of Conten ts
However, the demand for our Contract Services depends upon the continued demand for, and production of, natural gas and oil. Sustained low natural gas or oil prices over the long term could result in a decline in the production of natural gas or oil, which could result in reduced demand for our Contract Services. 61 Table of Contents
Additionally, if any significant vendor of ours should have financial problems or operational delays, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. For example, an affiliate of one of our customers in the Powder River Basin has been undergoing a bankruptcy proceeding since 2019.
Additionally, if any significant vendor of ours should have financial problems or operational delays, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Although the Company does not obtain collateral or otherwise secure the fair value of its derivative instruments, associated credit risk is mitigated by the Company's risk management policies and procedures.
Although the Company does not obtain collateral or otherwise secure the fair value of its derivative instruments, associated credit risk is mitigated by the Company's risk management policies and procedures. Concentration Risk For the years ended December 31, 2024, 2023 and 2022, our four largest customers accounted for approximately 32%, 33%, and 36%, respectively, of our total revenues.
If any significant customer of ours should discontinue their relationship with us, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. Commodity Price Risk Market risk is the risk of loss arising from adverse changes in market rates and prices.
One customer accounted for 13.4%, 11.7% and 12.4% of total revenues in 2024, 2023 and 2022, respectively. If any significant customer of ours should discontinue their relationship with us, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Removed
Such customer has from time to time been late in remitting payment for our Compression Operations, which we have continued to deliver, and we are pursuing prompt payment of the amount owed. We do not expect the amount owed presents any material concentration risk. If payment is not timely remitted, we expect to suspend services to such customer.
Removed
Concentration Risk For the year ended December 31, 2023 and December 31, 2022, our four largest customers accounted for approximately 38% and 39%, respectively, of our recurring revenues, with no single customer accounting for more than 14% for both periods.

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