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Financial report summary
?Risks
- 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.
- 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 and may have a material adverse effect on Kodiak’s financial condition.
- 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 have a material adverse effect on its financial condition.
- Kodiak’s customers may choose to vertically integrate their operations by purchasing and operating their own compression fleet, increasing the number of compression units they currently own, 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 after the end of the initial contractual term. 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 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 that Kodiak may require, 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.
- Impairment in the carrying value of long-lived assets could reduce Kodiak’s earnings.
- A prolonged downturn in the economic environment could cause an impairment of goodwill or other intangible assets and reduce Kodiak’s earnings.
- Kodiak has in the past been, and may in the future be, subject to sales tax audits in jurisdictions where Kodiak operates. As a result, Kodiak may incur material unanticipated sales tax liabilities.
- Kodiak qualifies as a Heavy Equipment Dealer for ad valorem tax purposes under revised Texas statutes. If in the future Kodiak does not qualify as a Heavy Equipment Dealer or Kodiak’s compression units do not qualify as Heavy Equipment because of new or revised Texas statutes or different interpretations by Texas governmental authorities, Kodiak may incur additional taxes, which would adversely impact its results of operations and financial condition.
- Kodiak’s ability to manage and grow its business effectively may be adversely affected if Kodiak loses key members of its management.
- Kodiak might be unable to employ or retain qualified technical personnel, which could hamper its present operations, limit its ability to grow or increase its costs.
- 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 depends on a limited number of suppliers, and, particularly as a result of supply chain and logistics disruptions resulting from geopolitical disruptions and the resulting inflationary environment, Kodiak is vulnerable to product shortages, long lead times and price increases, which could have a negative impact on Kodiak’s results of operations.
- Nonperformance by Kodiak’s suppliers or vendors could impact its revenues, increase its expenses and otherwise have a negative impact on Kodiak’s ability to conduct its business, operating results and cash flows.
- Kodiak’s operations entail inherent risks that may result in interruption of Kodiak’s operations and/or substantial liability. Kodiak does not insure against all potential losses and could be seriously harmed by unexpected liabilities.
- If Kodiak does not satisfy its mechanical availability guarantee, a customer has the ability to terminate its contracts.
- Terrorist attacks, the threat of terrorist attacks or other sustained military campaigns may adversely impact Kodiak’s results of operations.
- Kodiak’s operations are subject to stringent environmental, health and safety regulations, and changes in these regulations could increase Kodiak’s costs or liabilities.
- 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.
- A climate-related decrease in demand for natural gas and oil could negatively affect Kodiak’s business.
- Kodiak’s business is subject to climate-related transitional risks, including evolving climate change legislation, regulatory initiatives and stakeholder pressures, which could result in increased operating expenses and capital costs, financial risks and potential reduction in demand for Kodiak’s services.
- Regulatory initiatives relating to the protection of endangered or threatened species in the United States could have an adverse impact on Kodiak’s and its customers’ ability to expand operations.
- Increased regulation of hydraulic fracturing could result in reductions of, or delays in, natural gas and oil production by Kodiak’s customers, which could adversely impact Kodiak’s revenue.
- Increasing scrutiny and changing stakeholder expectations in respect of ESG and sustainability practices may impose additional costs or risks.
- Kodiak may be involved in legal proceedings that could result in substantial liabilities.
- Kodiak may be sued by third parties for infringement, misappropriation, dilution or other violation of their intellectual property or proprietary rights, any of which could adversely affect Kodiak's business and results of operations.
- Kodiak’s reliance on third-party components for use in its IT systems could result in delays in service or disrupt its business.
- Kodiak is subject to significant legal and reputational risks and expenses relating to the privacy, use and security of employee and customer information, which could negatively affect Kodiak's business, financial condition and results of operations.
- 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.
- Kodiak’s ability to manage its business and monitor its results is highly dependent upon information and communication systems, and a failure of these systems or its enterprise resource planning (“ERP”) system could disrupt its business.
- Kodiak may not realize the intended benefits of its process and technology transformation projects, which could have an adverse effect on its business.
- 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.
- EQT may have interests that conflict with the interests of Kodiak’s other stockholders. Certain of Kodiak’s directors may also have conflicts of interest because they are also employees of EQT, investment advisors to EQT managed funds, or directors or officers of EQT. The resolution of these conflicts of interest may not be in Kodiak’s or your best interests.
- EQT is not limited in its ability to compete with Kodiak, and the corporate opportunity provisions in the Kodiak Charter could enable EQT to benefit from corporate opportunities that may otherwise be available to Kodiak.
- A significant reduction by Kodiak Holdings of its ownership interests in Kodiak could adversely affect Kodiak.
- Kodiak’s substantial indebtedness could adversely affect its financial condition and impair Kodiak’s ability to operate its business.
- The terms of the ABL Credit Agreement and the Indenture restrict Kodiak’s current and future operations, particularly Kodiak's ability to respond to changes or to take certain actions.
- Kodiak’s variable rate indebtedness subjects it to interest rate risk, which could cause its debt service obligations to increase significantly.
- Kodiak may not be able to generate sufficient cash to service all of its indebtedness and may be forced to take other actions to satisfy its obligations under its indebtedness, which may not be successful. Kodiak’s ability to generate cash depends on many factors beyond Kodiak’s control.
- 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 is a “controlled company” within the meaning of the rules of the NYSE and, as a result, qualifies for, but does not currently rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
- 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.
- Kodiak cannot assure you that it will be able to pay dividends on the Kodiak Common Stock.
- Terms of subsequent financings may adversely impact stockholder equity.
- Taking advantage of the reduced disclosure requirements applicable to “emerging growth companies” may make Kodiak Common Stock less attractive to investors.
- The Merger is subject to various closing conditions, and any delay in completing the Merger may reduce or eliminate the benefits expected.
- Kodiak may fail to realize all of the anticipated benefits of the Merger or those benefits may take longer to realize than expected. Kodiak may also encounter significant difficulties in integrating the acquired business.
- The future results of the combined company will suffer if the combined company does not effectively manage its expanded operations following the Merger.
- Kodiak will incur substantial transaction-related costs in connection with the Merger, including fees paid to legal, financial and accounting advisors, filing fees and printing costs.
- 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.
- Events outside of Kodiak’s control, including an epidemic or outbreak of an infectious disease or the threat thereof, could have a material adverse effect on Kodiak’s business, liquidity, financial condition, results of operations, cash flows and ability to pay dividends on Kodiak Common Stock.
- Inflation may adversely affect Kodiak by increasing costs beyond what it can recover through price increases and limit its ability to enter into future traditional debt financing.
- A deterioration in general economic, business, geopolitical or industry conditions could materially adversely affect Kodiak’s results of operations, financial condition and cash flows.
- Kodiak’s ability to use net operating losses (“NOLs”) to offset future income may be limited.
- Tax legislation and administrative initiatives or challenges to Kodiak’s tax positions could adversely affect its results of operations and financial condition.
- Kodiak previously identified a material weakness in its internal controls, which was remediated, however Kodiak cannot provide assurances that additional material weaknesses will not occur in the future.
Management Discussion
- (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. 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.
- (3)Calculated as (i) revenue-generating horsepower divided by (ii) revenue-generating compression units at period end.