Kodiak Gas Services, Inc. (KGS) | The Buildout — AI Infrastructure
The Verdict
Kodiak Gas Services owns and operates large-horsepower natural gas compression equipment, the machinery that moves gas from the wellhead through gathering, processing, and transportation. It is also building a behind-the-meter power business that places generation directly at data centers, bypassing a grid that management says is increasingly constrained. The compression fleet is the earnings base and the funding source. The power business is the piece that connects the company to data-center demand, and it is early.
| Market Cap | — |
| Revenue (TTM) | $1.4B |
| Revenue Growth | +8.2% |
| EBITDA Margin (TTM) | 52.8% |
| Net Cash | $52M |
| Earnings Beats | 3 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Compression adjusted gross margin was 70% in Q2 2026, up 170 basis points year over year and the second consecutive quarter at or above 70%.
- Pricing was $23.80 per ending revenue-generating horsepower, up 4.5% year over year, on a fleet running at 98.2% utilization.
- Kodiak has secured roughly 1.8 GW of power generation (~66% turbines), all available by the end of 2030, toward a 2 GW fleet target.
- The Baker Hughes agreement covers 1 GW of turbine power by 2030 with an option to 1.8 GW, plus five-year price certainty, technician training, and parts supply.
- Contract Services carried $1.6 billion of remaining performance obligations at March 31, 2026, and 50% of 2027 new-unit deliveries were already contracted.
What We’re Watching
- The West Texas power project is an unsigned limited notice to proceed; a long-term contract is targeted before year-end 2026, with power supply targeted for early 2027.
- Power capital is running ahead of power revenue: $400-450 million of 2026 power growth capex against $95-125 million of guided power revenue.
- The dividend was held flat at $0.49 per share, and management said it can no longer tie discretionary cash flow to the dividend.
- Large-horsepower compression engine deliveries are running about 200 weeks out, with packager shop space booked more than three years ahead.
The thesis is strengthening on the compression side and shifting in kind on the capital side. Compression printed record margins and pricing, and leverage fell to 3.1x, which management says is the lowest in company history. At the same time, the company raised about $836 million of equity, reset its leverage target to 4x, and held the dividend flat to fund a power build whose flagship contract is not yet signed. The open question is whether the West Texas limited notice to proceed converts into a signed long-term contract before the end of 2026.
Earnings
Kodiak reported Q2 2026 revenue of $391 million, up 21% year over year, and adjusted EBITDA of $217 million, up 22% and a company record. Compression Infrastructure revenue rose 7% year over year at a 70% adjusted gross margin, the second straight quarter at or above 70%. Power Infrastructure contributed $33 million, about 8% of quarterly revenue (an estimate), at a 64.5%-65% adjusted gross margin described as the midpoint of guidance.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $391M | $346M | $323M | +21.2% |
| Gross margin | 31.8% | 44.6% | 43.8% | -1200bps |
| EBITDA | $203M | $185M | $172M | +17.6% |
| EPS | $0.54 | $0.20 | $0.44 | +22.4% |
| Pricing per ending revenue-generating HP | $23.80 | $23.31 | n/a | +4.5% YoY |
| Revenue-generating horsepower | 4.4 million HP | 4.39 million HP | n/a | — |
The 5-year paybacks, 15% plus internal rates of return … Those all still hold.— John Griggs, Chief Financial Officer, 2026-08-07
Management tone: Management's tone shifted from caution to declaration between the two calls. In May, the company described ordering power equipment on an "educated … guess" and warned it might drift above its leverage target periodically. By August it had raised its EBITDA and discretionary-cash-flow guidance, reported 3.1x leverage, and signed a multiyear turbine agreement with Baker Hughes. Language around the power business moved from "very early days" to contracting, with a limited notice to proceed and an invoiced deposit on the West Texas project.
Management Guidance
For full-year 2026, management raised adjusted EBITDA guidance to $830-860 million from $820-860 million and discretionary cash flow to $570-600 million from $520-570 million. Compression adjusted gross margin guidance rose to 69%-70.5%, and compression growth capex rose to $280-300 million. Power growth capex was reduced to $400-450 million from $400-500 million, which management framed as improved cost and timing certainty rather than a demand slowdown. The dividend was held at $0.49 per share.
Trajectory
Total revenue rose to $391 million in Q2 2026 from $346 million in Q1 2026, up 21% year over year, which management attributes to the DPS addition plus compression growth. Compression revenue rose 7% year over year and 3% sequentially at a 70% adjusted gross margin, up 170 basis points year over year. The quarter absorbed a lube-oil headwind that management quantified at about $1.5 million a month, or roughly $18 million annualized. Pricing per ending revenue-generating horsepower moved from $23.31 in Q1 2026 to $23.80 in Q2 2026.
The Model
The model's locked projections put FY+1 revenue at $1,535 million with EBITDA of $843 million, a 54.9% margin, and FY+2 revenue at $1,700 million with EBITDA of $935 million, a 55.0% margin. The near term is anchored by compression growth, the first full year of the power segment, and pricing on legacy equipment. FY+2 depends on the power fleet ramping toward its 2 GW target and on margins expanding as legacy power contracts reprice.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $1.3B | $1.5B | $1.7B |
| YoY Growth | — | +17.4% | +10.7% |
| EBITDA | $691M | $843M | $935M |
| EBITDA Margin | 52.8% | 54.9% | 55.0% |
Projections are the median of 5 independent model runs. The model’s revenue sits 3.7% below analyst consensus.
For full-year 2026, management raised adjusted EBITDA guidance to $830-860 million from $820-860 million and discretionary cash flow to $570-600 million from $520-570 million. Compression adjusted gross margin guidance rose to 69%-70.5%, and compression growth capex rose to $280-300 million. Power growth capex was reduced to $400-450 million from $400-500 million, which management framed as improved cost and timing certainty rather than a demand slowdown. The dividend was held at $0.49 per share.
What Could Go Right — and Wrong
- The West Texas limited notice to proceed becomes a signed long-term power contract before year-end 2026.
- Power deliveries ramp on the stated cadence: about 50 MW of gensets in 2H 2026, then roughly 400 MW a year from 2027.
- Power adjusted gross margin rises from 64.5% toward compression-like levels as legacy contracts reprice.
- Compression pricing and margins keep climbing, and the 50% of 2027 deliveries already contracted moves toward fully booked.
- Leverage stays at or below the mid-3s as power capital is deployed, and the dividend resumes growth.
- The West Texas contract slips past year-end 2026, pushing first material power revenue beyond early 2027.
- Power margins stay near the low 60s and the 60%-70% guide range stays wide because legacy contracts are slow to reprice.
- Power capital spending runs above the $400-450 million guide, requiring more equity than the May 2026 raise.
- Equipment lead times extend beyond roughly 200 weeks, gating conversion of the compression order book.
- Lube-oil and fuel costs stay elevated, keeping about $18 million of annualized margin out of reach.
Looking Ahead
Over the next twelve months the story turns on conversion: whether the West Texas project becomes a signed long-term power contract, whether about 50 MW of new gensets arrive in the second half of 2026, and whether 2027 compression deliveries move from 50% contracted toward fully booked. Further out, the power build targets roughly 400 MW a year from 2027 through 2030, with the first large Baker Hughes turbines arriving in early Q4 2027.
- 2H 2026Genset deliveries — ~50 MW of new power gensets expected in the second half of 2026
- Fall 2026Waukesha certification — BEARS Academy certification on compressors and gensets goes live
- Year-end 2026West Texas contract — Long-term power contract targeted for signing before year-end 2026
- Early 2027West Texas power supply — Power supply targeted to begin in early 2027
- Q1 2027West Texas install — Equipment installation possible in the first quarter of 2027
- Early Q4 2027Baker Hughes turbines — First large Baker Hughes turbines expected to arrive
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $1.2B | $1.3B | $1.4B | +12.8% |
| Gross Margin | 38.1% | 42.2% | 40.1% | +410bps |
| EBITDA | $510M | $691M | $735M | +35.5% |
| EBITDA Margin | 44.0% | 52.8% | 52.8% | +885bps |
| Net Income | $50M | $80M | $80M | +61.3% |
| Free Cash Flow | −$9M | $284M | $5M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)40.1%
- EBITDA Margin (TTM)52.8%
- Net Margin (TTM)5.8%
- ROIC16.8%
- FCF Conversion0.7%
- SBC / Revenue1.8%
The Company
Kodiak Gas Services describes itself in its FY2025 10-K as "a leading provider and operator of large horsepower contract compression infrastructure in the U.S.," supporting the movement and processing of natural gas across key production regions. It owns and operates compression and gas treating and cooling infrastructure. In April 2026 it closed the DPS acquisition and rebranded it Kodiak Power Solutions, adding behind-the-meter distributed power generation for data centers, hyperscalers, microgrids, and oil-and-gas loads.
The company reports three segments: Compression Infrastructure, Power Infrastructure, and Other Services. Its compression fleet exited Q2 2026 at 4.4 million revenue-generating horsepower, with utilization of 98.2% and an average of 991 horsepower per revenue-generating unit. The FY2025 10-K lists three owned service facilities in North Dakota and Texas, leased service facilities in 12 states, and a leased headquarters in The Woodlands, Texas.
Business Segments
Competitive Landscape
The source describes the large-horsepower compression market as being in "uncharted territory," with record demand, high utilization, and equipment lead times around 200 weeks. Management says it expects "continued pricing power" into 2027 and beyond. In power, management expects a consolidation phase, saying "there's going to be a handful of people that are successful" and that it expects Kodiak to be a consolidator. The source names peer compression companies only in its wiring map, tagged as inferred.
- USA Compression Partners (USAC)Named as an inferred peer in the source's wiring map; not discussed in company disclosures.
- Enerflex (EFXT)Named as an inferred peer in the source's wiring map; not discussed in company disclosures.
- AROCNamed as an inferred peer in the source's wiring map; not discussed in company disclosures.
Supply Chain
Kodiak buys gas turbines, reciprocating engines, and compression packages from a small set of vendors, then operates them on long-term contracts for gas producers and data-center customers. No company in the source names Kodiak as a counterparty.
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