Kodiak Gas Services (KGS 1.20%), a leading provider of contract compression services to the U.S. natural gas industry, released its second quarter results for fiscal 2025 on August 6, 2025. The company reported GAAP diluted earnings per share of $0.43, missing analyst expectations of $0.45 (GAAP). Revenue (GAAP) came in at $322.8 million, which was less than the $333.5 million GAAP forecast. Despite the shortfall in both GAAP earnings and revenue versus expectations, the business achieved record highs in adjusted EBITDA and free cash flow, and raised its full-year 2025 outlook targets, pointing to robust operating fundamentals for the quarter.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (GAAP, Diluted) | $0.43 | $0.45 | $0.06 | 616.7% |
| Revenue (GAAP) | $322.8 million | $333.5 million | $309.7 million | 4.2% |
| Adjusted EBITDA (Non-GAAP) | $178.2 million | $154.3 million | 15.5% | |
| Free Cash Flow (Non-GAAP) | $70.3 million | $0.6 million | 11,594.6% | |
| Contract Services Revenue | $293.5 million | $276.3 million | 6.2% |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Business Overview and Core Success Factors
Kodiak Gas Services specializes in providing large horsepower contract compression units that help oil and gas producers and pipeline companies move natural gas efficiently from production fields to processing facilities and pipeline networks. Its business is anchored in the Permian Basin, one of the largest oil and gas producing regions in the U.S.
Key to its success is a model built on long-term contracts, high fleet utilization, and a focus on deploying larger and more technologically advanced compression units. Recent business priorities have included optimizing its fleet toward high-horsepower units, investing in machine learning for predictive maintenance, and executing on recontracting strategies at higher rates. Its partnerships, focus on sustainability, and contract structures that offer inflation adjustments help ensure steady revenue and operational discipline.
Quarterly Highlights and Drivers
Kodiak Gas Services set new records in operational and cash flow metrics, including record quarterly adjusted EBITDA (non-GAAP) of $178.2 million and record quarterly free cash flow (non-GAAP) of $70.3 million. Adjusted EBITDA, a non-GAAP measure of operating profit before interest, taxes, depreciation, and amortization, rose 15.5% compared to Q2 2024. Free cash flow (non-GAAP) soared, surpassing $70.3 million compared to near flat levels a year ago. The company's profitability improvements were driven by strategic investments in fleet optimization, with ongoing emphasis on large horsepower compression units. It deployed 31,800 horsepower of new large units, pushing average horsepower per revenue-generating unit to 952 (from 734 the year prior). Utilization rates hit 97.2%, signaling high ongoing equipment demand.
This margin expansion in Contract Services adjusted gross margin percentage resulted from successful recontracting at higher rates, achieving higher average prices on the core fleet, reorganizing operations to capture efficiencies, and the financial impact of exiting lower margin assets and geographies in Q1 2025.
Management flagged this as the fourth straight quarter of improvement in Contract Services adjusted gross margin percentage, reaching 68.3%.
In contrast, the Other Services segment recorded a 12.3% drop in revenue compared to Q2 2024, declining to $29.3 million. Despite the fall in revenue, this segment’s adjusted gross margin improved by 31.6% year-over-year, reaching $7.2 million, with margin percentage climbing to 24.5% (non-GAAP).
Kodiak reduced debt outstanding by approximately $48 million, ending the period with $2.6 billion in total debt and a credit agreement leverage ratio of 3.6x. The Board boosted the company’s share repurchase program by $100 million, which left $115.0 million available following $60.0 million of repurchases to date. Shareholder distributions exceeded $50 million, delivered through both share buybacks and dividends. Technology investments continued, with an ongoing push to use machine learning tools for predictive maintenance and operational efficiencies. These investments contributed to margin improvements and are expected to yield further savings over time.
Looking Ahead
Management raised its full-year 2025 adjusted EBITDA (non-GAAP) guidance to a newly estimated range of $700 million to $725 million, up from the prior lower bound. Discretionary cash flow (non-GAAP) is now projected between $445 million and $465 million. Guidance for Contract Services revenue was set at $1.16 to $1.20 billion, with anticipated Contract Services adjusted gross margin percentage between 67.0% and 69.0%.
Capital expenditure guidance was revised, reducing the high end of previous growth capital guidance by $10 million and separating growth and other capital expenditures.
These updates reflect greater confidence in the company's operating model and long-term market drivers, including further development in U.S. natural gas infrastructure and rising demand for liquefied natural gas (LNG) and data center power needs.
In the coming quarters, investors should monitor management's execution of contract recontracting strategies, utilization of high-horsepower fleets, and evolution of Other Services performance. Shareholder returns -- both through dividends and repurchases -- as well as progress in reducing net leverage, remain key metrics to watch.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
