Unidentified Analyst: Hey, good morning, everyone. This is Eli on for Jeremy. Just wanted to maybe start on your views of the compression market overall. I think some of your competitors framed a 9-month lead time on some equipment, which maybe is coming in a bit from previous lead times of a year or more. I appreciate some of the commentary on increased net gas demand you frame, but maybe if you can just speak to what you’re seeing in the compression market more in the near-term and your expectations. Thanks.
John Griggs: Absolutely. And, yes, caterpillar has brought in some deliveries on their large horsepower engines from kind of over a year to inside to kind of that 9-month range, still takes an extraordinary amount of planning with our customers to get that equipment ordered out there that far in advance. I’ll remind you that we don’t spend $1 of CapEx on speculation that all of our CapEx spend a year plus out has a signed contract to back it up and support it. So, we’re not spending any speculative CapEx out there and planning with our customers very, very early on there. But I think that the delivery times coming in from caterpillar there is, I wouldn’t say is indicative of any softness in the market. Caterpillar’s alleviated some supply chain bottlenecks and they are bringing in some deliveries a little bit.
But I think what you’ll see and what we look at is the amount of capital discipline in the industry that’s keeping and continuing in our peers and us and some of our customers and not overspending in flood in the market with equipment, and we like to say it that way.
Mickey McKee: Yes. And I’ll chime in too and remind everybody, we said it in the prepared remarks that we’ve committed our CapEx all the way through the third quarter of next year on growth CapEx, and that’s indicative again of customer demand, not necessarily tied to that lead time on Caterpillar equipment. And when we reference industry structure and the discipline we’re seeing, it’s obvious to see it in the public guys, you track that. We, of course, monitor the private guys as well. And we really see discipline there as well. Capital is more difficult to access than it was in the past. That’s more expensive. So we see the industry structure with the combination of demand and supply staying stronger for longer as a result of this new artificial intelligence-driven boom and power, which ultimately results in more gas demand, too. So we’re really excited about the multiyear outlook.
Unidentified Analyst: That’s helpful commentary. And seems like it good shape of the market ahead. Maybe just pivoting a little bit to the revised guidance. You talked a bit about hitting the higher end of the compression operations gross margin, which is really great. Maybe can you just talk a bit about what might drive you guys to the higher end of that guide and things that we should be watching in the second half of the year?
Mickey McKee: So, I’ll chime in there. I really want to come back to the comment I made earlier in that when we came out in Q2, you’re going to see slightly different segment breakups. You’re going to see slightly different margin profiles. So, our 64 to 66 that we guided on for Kodiak stand-alone is going to be a different number. It’s going to be a lower number by virtue of just doing simple math of combining CSI plus us. So, you need to remember that we’re not going to be talking about the same numbers. That said, on a stand-alone basis, as I mentioned earlier, being at the top end of the range in the first quarter feels good, and it feels like it’s sustainable. And I think the combination of our stand-alone business plus the synergies will allow us to continue to chip away as we move forward throughout the year at improving that margin, again, too.
So expect us to come out in August in our Q2 earnings call with fulsome guidance and a better margin breakdown for you to model.
Unidentified Analyst: I will look forward to that. Thanks, guys.
Operator: Thank you. The next question is coming from Zack Van Everen of – yes I am sorry, TPH. Please go ahead.
Zack Van Everen: Prefect. Thanks for taking my questions, guys. Just one on maybe future Bolt-On Acquisitions. You mentioned that you’re focusing on liquids-rich plays, but curious if you would ever look outside your key markets of the Permian, especially with the natural gas demand ramp happening in more of the dry gas regions?
John Griggs: I think we’ll be interested in looking at all sorts of M&A going forward. But I think that our philosophy in theory, focusing on liquids-rich associated gas Basins is really proven to take really good care of us going in the past. So, I think we’ll kind of stick with that strategy. I don’t know if we jump into something that was really tied to dry gas basins and gas prices quite as much as any more than what we do now, which is very little. But from an M&A perspective, we’ll be interested in looking at lots of different opportunities, compression and kind of associated ancillary services as well that are complementary to our business today.
Zack Van Everen: Perfect. That makes sense. And then just one on the synergies, the original $20 million or greater than $20 million you guys noted at the time of the acquisition. Is a lot of that on the cost side? And should we see that show up fully in 2024? And then I’m sure there will be some more in ‘25 and beyond once you guys get the business under your name.
John Griggs: Yes. So Zach, good question. So, when we announced the deal, and I think in all the first to fourth quarter calls, we always stuck to our greater than $20 million of cost synergies, and that’s all we referenced. If you do simple math on kind of where we’ve guided and use the midpoint of the range, you took the midpoint of where Kodiak was before or 75, you take three quarters of the midpoint of where CSI guided, that’s $105 million. That equals $580 million. In order to get to the midpoint of our range, that would imply $15 million realized synergies, the way we think about it, and again, in Q2, we’ll come back with more detail is, we’re doing really, really well as a Kodiak stand-alone basis. CSI is kind of at or better kind of where they thought they would be.
So, those synergies are somewhere between 15 and something less than 15%. Remember, that’s in 9 months. It’s not an annualized figure. That’s realized during the back half of the year. So it’s pretty easy to grow set up and say, hey, there’s better than $20 million in cost synergies. The question was asked earlier from Mickey on revenue synergies, again, not guiding on that, not extrapolating, but they’re there, and we’re optimizing against that fleet. So, we’re extremely confident that when we get through, call it, that 12 to 18-month time frame that we will fully realize well beyond that original $20 million of cost synergies that we always knew would be there.
Zack Van Everen: Perfect. That’s all I have. Thanks, guys.
Operator: Thank you. The next question is coming from Bill Austin of Daniel Energy Partners. Please go ahead.
