Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- USA Compression Partners LP (USAC, Financial) reported record revenues, adjusted gross margin, adjusted EBITDA, and average revenue per revenue-generating horsepower for Q2 2024.
- The company achieved an all-time high period-end utilization rate of 95%, with large horsepower units over 1,000 horsepower effectively fully utilized at 99%.
- USAC's leverage ratio continued its downward trend, reducing to 4.23 times, aligning with their long-term goal of 3.75 to 4.25 times.
- The company increased its financial guidance for the full year 2024, with higher ranges for net income, adjusted EBITDA, and distributable cash flow.
- USAC is exploring innovative opportunities, such as beta testing dual drive compression units to generate power, potentially selling power back to the grid when electricity prices are attractive.
Negative Points
- Higher cash interest expense was reported, primarily due to increased average outstanding borrowings.
- The company faces ongoing inflationary pressures, particularly in labor costs, which have not yet cooled.
- There are long lead times for acquiring new compression equipment, with deliveries for units still in the 30- to 40-week range for engines.
- The upcoming election cycle introduces uncertainty, with potential regulatory changes that could significantly impact the energy sector.
- USAC's growth CapEx is up, driven by the need to optimize existing assets and meet customer demand, which may strain financial resources.
Q & A Highlights
Q: Can you provide an update on compression equipment lead times and any related delays?
A: Lead times for units have remained consistent, with engines taking 30-40 weeks and an additional 8 weeks for packaging. Demand remains steady without significant growth. (Eric Scheller, COO)
Q: How do elevated CapEx spend levels drive longer-term growth?
A: We are cautious due to the upcoming election cycle, which could significantly impact the energy sector. We focus on profitability rather than growth for its own sake, and we will adjust our strategy based on the election outcome. (Eric Long, CEO)
Q: How are you seeing the order book build and growth CapEx into next year?
A: We are optimistic about demand and have accelerated capital to take advantage of ordering opportunities. We aim to deploy high-quality equipment to support our customers' needs. (Eric Scheller, COO)
Q: How should we think about cost inflation on the OpEx side?
A: We continue to face inflationary pressures, particularly in labor costs. However, we expect some of these costs to roll off as we deploy units. (Eric Scheller, COO)
Q: Can you discuss the impact of data centers on compression demand?
A: Increased demand for natural gas backup for data centers will drive compression demand, particularly in gathering systems and takeaway capacity from regions like the Permian Basin. (Eric Long, CEO)
Q: Can idle fleet units be reconfigured to large horsepower?
A: We have a mix of small and large units. Large units are in higher demand, and we have adequate supply to continue deployments for the next few quarters. (Eric Scheller, COO)
Q: What percentage of your units are associated with gas lift?
A: Approximately 40%-50%, mostly in the Permian Basin. (Eric Long, CEO)
Q: Are you considering selling your interest rate hedge given the expectation for the Fed to lower rates?
A: We will address this with our Board and bank group to determine the best course of action. (Eric Long, CEO)
Q: How much of your fleet is subject to pricing adjustments?
A: Our contracts are laddered, and adjustments are made at the end of contract anniversaries, allowing us to manage the price book effectively. (Eric Scheller, COO)
Q: Can you discuss opportunistic acquisitions?
A: We focus on accretive opportunities that are leverage neutral or delevering. We have sourced equipment at attractive pricing and are open to various acquisition opportunities. (Eric Long, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
