Commonly Used Defined Terms
As used in this Annual Report on Form 10-K (this “Annual Report”), unless the context indicates or otherwise requires, the terms listed below have the following meanings:
•“ABL Credit Agreement” means that certain Fourth Amended and Restated Credit Agreement, dated as of March 22, 2023, among Frontier Intermediate Holding, LLC, Kodiak Gas Services, LLC, the other obligors party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, as amended by the First Amendment thereto, the Second Amendment thereto and the Third Amendment thereto;
•“ABL Facility” means our senior secured asset-based revolving credit facility provided under and governed by the ABL Credit Agreement;
•“Annual Financial Statements” means the audited consolidated financial statements for the years ended December 31, 2023, 2022 and 2021;
•“Company,” “Kodiak,” “we,” “our,” or “us” means Kodiak Gas Services, Inc. and its consolidated subsidiaries;
•“CSI Compressco” means CSI Compressco LP, a Delaware limited partnership with which the Company entered into an agreement and plan of Merger on December 19, 2023;
•“EQT” or “EQT AB Group” means, as the context may require, EQT AB or EQT AB and its direct and indirect subsidiaries including, for the avoidance of doubt, investment vehicles managed and/or operated by affiliates of EQT AB and their respective portfolio companies;
•“EQT AB” means EQT AB (publ), a Swedish public limited liability company registered with the Swedish Companies Registration Office (Reg. No. 556849-4180) and whose ordinary shares are listed on Nasdaq Stockholm stock exchange;
•“Holdco Term Loan” means the Term Loan after the consummation of the Term Loan Transaction as described below;
•"Indenture" means Kodiak Gas Services, Inc. senior notes due 2029, pursuant to an indenture, dated February 2, 2024, by and among Kodiak Services, Kodiak, certain other subsidiary guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee;
•“IPO” means the initial public offering of Kodiak Gas Services, Inc., completed on July 3, 2023;
•“Frontier Holdings” means the limited partnership that holds the profit sharing units of common shares of Kodiak Gas Services, Inc;
•“Kodiak Common Stock” means the common stock of Kodiak Gas Services, Inc.;
•“Kodiak Holdings” means Frontier TopCo Partnership, L.P., an affiliate of EQT AB and holder of record of Kodiak Gas Services, Inc. common stock;
•“Kodiak Holdings Term Loan” means the Term Loan after the Term Loan Transaction;
•“Merger Agreement” means the agreement and plan of merger, dated as of December 19, 2023, by and among Kodiak Gas Services, Inc., Kodiak Gas Services, LLC, certain of our other indirect subsidiaries, CSI Compressco LP and CSI Compressco GP LLC;
•“Merger” means each of the merger, collectively, contemplated by the Merger Agreement;
•“Term Loan” means the term loan facility governed by the Term Loan Credit Agreement;
•“Term Loan Credit Agreement” means that certain Amended and Restated Credit Agreement, dated as of May 19, 2022, as amended by that certain First Amendment, dated March 31, 2023, among Kodiak Gas Services, LLC, Frontier Intermediate Holding, LLC, Wells Fargo Bank, N.A. as Administrative Agent, and the lenders party thereto;
•“Term Loan Derivative Settlement” means the termination of the Company’s interest rate swaps and collars attributable to the Term Loan in connection with the Term Loan Transaction;
•“Term Loan Transaction” means the assumption of all of the Company’s and its subsidiaries’ remaining obligations under the Term Loan (after the application of the proceeds of the IPO) by a parent entity of Kodiak Holdings, and pursuant to which the Company’s obligations thereunder were terminated. Following the consummation of the Term Loan Transaction, the Company is no longer a borrower or guarantor under, nor otherwise obligated with respect to the debt outstanding under the Term Loan; and
•“Third Amendment” that certain Third Amendment to the ABL Credit Agreement, dated January 22, 2024, by and among Kodiak Gas Services, Inc. (as successor borrower to Frontier Intermediate Holding, LLC), Kodiak Gas Services, LLC, the other obligors party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding:
•Expected operating results, such as revenue growth and earnings, including upon consummation of the CSI Acquisition (as defined herein), and our ability to service our indebtedness;
•Anticipated levels of capital expenditures and uses of capital;
•Current or future volatility in the credit markets and future market conditions;
•Potential or pending acquisition transactions, including the CSI Acquisition, or other strategic transactions, the timing thereof, the receipt of necessary approvals to close such acquisitions, our ability to finance such acquisitions, and our ability to achieve the intended operational, financial, and strategic benefits from any such transactions;
•Expected synergies and efficiencies to be achieved as a result of the CSI Acquisition;
•Expectations regarding the leverage and dividend profile upon consummation of the CSI Acquisition, including the amount and timing of future dividend payments;
•Expectations of the effect on our financial condition of claims, litigation, environmental costs, contingent liabilities and governmental and regulatory investigations and proceedings;
•Production and capacity forecasts for the natural gas and oil industry;
•Strategy for customer retention, growth, fleet maintenance, market position and financial results;
•Our interest rate hedges; and
•Strategy for risk management.
Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
•A reduction in the demand for natural gas and oil;
•The loss of, or the deterioration of the financial condition of, any of our key customers;
•Nonpayment and nonperformance by our customers, suppliers or vendors;
•Competitive pressures that may cause us to lose market share;
•The structure of our Compression Operations contracts and the failure of our customers to continue to contract for services after expiration of the primary term;
•Our ability to consummate the CSI Acquisition on a timely basis or at all;
•Our ability to successfully integrate any acquired businesses, including CSI Compressco, and realize the expected benefits thereof;
•Difficulties and delays in meeting the conditions required for the closing of the CSI Acquisition;
•Our ability to fund purchases of additional compression equipment;
•A deterioration in general economic, business, geopolitical or industry conditions, including as a result of the conflict between Russia and Ukraine and the Israel-Hamas war, inflation, and slow economic growth in the United States;
•A downturn in the economic environment, as well as inflationary pressures;
•Tax legislation and administrative initiatives or challenges to our tax positions;
•The loss of key management, operational personnel or qualified technical personnel;
•Our dependence on a limited number of suppliers;
•The cost of compliance with existing and new governmental regulations, including climate change legislation;
•The cost of compliance with regulatory initiatives and stakeholder pressures, including environmental, social, & governance (“ESG”) scrutiny;
•The inherent risks associated with our operations, such as equipment defects and malfunctions;
•Our reliance on third-party components for use in our information technology (“IT”) systems;
•Legal and reputational risks and expenses relating to the privacy, use and security of employee and client information;
•Threats of cyber-attacks or terrorism;
•Agreements that govern our debt contain features that may limit our ability to operate our business and fund future growth and also increase our exposure to risk during adverse economic conditions;
•Volatility in interest rates;
•Our ability to access the capital and credit markets or borrow on affordable terms to obtain additional capital that we may require;
•The effectiveness of our disclosure controls and procedures; and
•Such other factors as discussed throughout the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this Annual Report.
Any forward-looking statement made by us in this Annual Report is based only on information currently available to us and speaks only as of the date on which it is made. Except as may be required by applicable law, we undertake no obligation to publicly update any forward-looking statement whether as a result of new information, future developments or otherwise.
SUMMARY RISK FACTORS
Risks Related to Our Business and Our Industry
•A long-term reduction in the demand for, or production of, natural gas or oil could result in a decrease in Kodiak’s revenues.
•Kodiak has several key customers. 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.
•The deterioration of the financial condition of Kodiak’s customers could adversely affect Kodiak’s business.
•Kodiak faces significant competition that may cause it to lose market share and adversely affect Kodiak's financial condition.
•Kodiak’s customers may choose to vertically integrate their operations by purchasing and operating their own compression fleet or using alternative technologies for enhancing oil production, which may have a material adverse effect on Kodiak's business.
•After the primary term of Kodiak’s contracts, such contracts are cancellable on 30 to 90 days’ notice, and Kodiak cannot be sure that such contracts will be extended or renewed and could adversely impact Kodiak's financial results.
•The majority of Kodiak’s operations are located in the Permian Basin and Eagle Ford Shale, making Kodiak vulnerable to risks associated with operating in limited geographic areas, which could have an impact on its revenues.
•Kodiak may be unable to effectively integrate the businesses it may acquire, such as the pending Merger, which may impact its operations and limit its growth.
•Kodiak may be unable to access the capital and credit markets or borrow on affordable terms to obtain additional capital, which could have a material adverse effect on its business, results of operations and financial conditions.
•Kodiak’s fleet may require additional operating or capital expenses to maintain over time, which could adversely impact its financial results.