Q1 2020 Earnings Call
Good day, everyone and thank you for standing by.
Welcome to the USA compression partners LP first quarter 2020 earnings conference call. During today's call all parties will be in listen only mode and following the called the conference will be open for questions at that time. If you have a question. Please press the star followed by the one.
And if you are using a speaker phone. Please make sure. Your mute function is turned off kind of all your signal to reach our equipment.
This conference is being recorded today makes it 2020 I would now like to turn the call already Chris Boerner, Vice President General Counsel and Secretary.
Good morning, everyone. Thank you for Jordan.
This morning.
Results for the quarter ended March 31, 20 Twond.
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So accordingly.
Since the June 20 Twond.
During the school individuals got certain non-GAAP measures.
Uninsured Americans utilization.
Convertible governments.
That was a reminder, or conference call will bring forward looking statements.
These statements include projections and expectations of our performance.
Correct.
Actual results.
Please review the statements are broken but it is wonderful.
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No no major bugs, it's cool things always imagine Siemens.
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Walter I sort of the taught them are we.
I'll now turn the call over Eric long, President and CEO of USA compression.
Sure Chris Good morning, everyone and thanks for joining our call today.
Sure.
Our C.
This morning, you really start financial and operational results for the first quarter of 2020.
Eating a solid quarter of operational and financial results.
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And then spend more time discussing our business model.
We were showing.
How are your Maneesh <unk> and ultimately how would you expect the rest of your play out.
The first quarter went very much.
[laughter] within each 179.
Approximately 5% over the first quarter of 29 chain.
Likewise, adjusted EBITDA of 106 million.
5% over the year ago period.
We achieved gross operating margin of 66.9%.
Adjusted EBITDA margin of 59.3%.
Both metrics consistent with your book areas.
Average utilization throughout the quarter was 92.5% down slightly from a year ago period.
Well I mean, a modest amount of returns in particular as we move towards the anymore.
The corner with approximately 3.3 million active horsepower.
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Average pricing across the fleet increased modestly during the first quarter.
Reflecting some medium in Cambridge is what was the impact of select service rate increases pretty new change [laughter]. We saw average lucky rather be we increased to $16 an 89 cents for horsepower.
$16.92 in the fourth quarter.
<unk> previously discussed expectation the pricing gains would moderate as we moved into one free 2020.
Our capital spending on during the quarter consisted of 46 million expansion Capex, which included the delivery of 27500 horsepower, primarily consisting of large horsepower units.
The general earnings release, I mentioned, reducing our expected growth capex spend per 2020 by about 25%.
I will take place over the back now some of your Q on some of them out.
How about teaching growth capex spending can already some walking by the time, we now think events early March and everything else is Paula.
We anticipate cutting any discretionary spending that we have not already committed to.
However, we continue our normal maintenance activities in order to keep our house, it's running at a safe and efficient manner.
At this point in time, we expect expansion capital spending so trading between 80 or 90 million compared to previous guidance of 110 to 120 million.
While our new units total Oh are totally new units delivery estimate for the year 62500 horsepower <unk> pushing the timing if something that reached back towards the second half a year.
The capital savings, we anticipate our decent cutting out planned reconfigurations and make ready work.
As I mentioned anything else.
First quarter, what warranties according to plan.
Based on the results before deciding to keep the distribution consistent 52 cents per unit.
This resulted in a distributable cash flow coverage ratio of 1.8 times, our bank Covenant leverage ratio was 4.5 success for the quarter.
Just as a reminder, the quarterly distribution so decision that our board of directors makes on a quarterly basis as has always been the case since our IPO the working off to maintain reduce or suspended distribution as it seems most appropriate on a quarterly basis.
We are proud of the efforts of the dedicated men and women of USA compression.
Delivered a solid first quarter and even as the pandemic began to play out in March continue to work safely every day for the benefit of our customers and the success of the partnership.
As everyone listening to this call is aware, our Cleveland allows natural gas to move into and through natural gas pipelines, while the Corona virus in the oil markets is raised occupying a lot of headlines our equipment is still critical to moving existing and future gas production in our employees are still required to keep that a good running shape.
So again.
Thank you until all of our hard working employees.
So the macro market I'm on natural gas in crude oil.
And I have taken many calls over the last few months and one recurring theme that's been the very different market dynamics currently get stuck in crude oil and natural gas markets.
Sometimes it gets lost in the fall once the entire energy sector, together and folks forget the USA compression remains a business, primarily driven by domestic natural gas demand.
That has not changed even though the pace of 10 dollar crude oil we continue to take a long term view for the overall meet field and production on natural gas certainly some aspects of the gas market are impacted by the crew and market.
However that has happened for years and the gas market has also Justin and we will discuss that shortly.
While we are actively managing through the current weakness on the energy market. Our long term view has not changed we continue to believe that natural gas will play a more and more important role as a clean fuel of choice, perhaps even more so as the fragility and geopolitical implications oil markets our agenda.
The parent.
So talking about energy markets to put it simply oil has been absolutely decimated and first there was concern over global demand impacts due to the growing to run a pandemic.
Lets audit or what's the main softening didn't meet uncertainty in the global economy, the Saudis and Russian sales becomes a little production agreement in early March.
Combined with the realization around the economic impact to the pandemic oil demand is down significantly and expected to remain so until recovery actions get fully underway globally.
Some estimates.
Estimate global oil demand destruction to be as much as Tim.
15, even 30 million barrels a day.
Just on a global market of approximately 100 million barrels per day, so fairly significant impact.
Exactly rationing, there's obviously a known at the present point in time, but many observers.
That's a pretty tough doing things for awhile.
Response, you've seen decisive actions by those most affected by collapse in oil prices.
Significant capex reductions by S&P companies, resulting in vastly reduced rig counts the beginnings of oil wells shut ins and various basins crude oil storage, reaching maximum levels were finally rounds were also down significantly.
Capex reductions around any drilling will slow.
So overall production growth or even resulting decline given basin or for a specific customer.
Well she'll type curves, whilst keeping first after a few years tend to flatten out significantly when it well recently more of a steady state existence.
Sure if the Capex cuts cold.
Researchers will simply not be drilling enough new wells to offset the decline of their existing flush production wells and then over time.
Got a larger modeled wells.
Flat steady state part of the curve or decline has also meaningfully slow.
Recall that this played out in the Fayetteville, and Eagle Ford shale about five years ago after record production growth.
We've seen this occurred Appalachian over the past several years as well.
Component of USA is larger horsepower. Please just deploying it infrastructure applications exhibiting the flat steady state shallow decline profile.
Without me drilling activity compression is continually needed to continue to move the stable volumes of natural gas.
This is an important concept that often gets overlooked.
Another extremely important concept that I have discussed in literally every investor presentation since our IPO willingness to compression horsepower and declining reservoir pressure.
Going into the physical gas compression for just a minute or to.
Pressures decline moving the same volume of gas requires an exponential increase in compression horsepower.
Hugely important and a technical concept rarely appreciated and understood by those outside the industry.
I'll say it another level.
Assuming constant pressure to increase gas volumes requires more horsepower.
Conversely to maintain flat gas volumes declining pressure environment also requires more horsepower.
What happens when gas volumes declined and pressures also decline.
The pass.
Pressure horsepower may decline, a little may remain stable or might actually increase.
The characteristics of individual wells specifics of the reservoir rock and fluid compensation all factor into this multibillion barrel quadratic equation.
Simply stated for both associated gas and dry gas applications, even though gas volumes, maybe on the decline required compression might actually increase as pressures also declined.
Outlook keep things further for completion, Brent oil production overtime is reservoir pressures decline gas oil ratios typically increase leading to more associated gas production per barrel of oil produced.
These important concepts are fundamental to the reason that during periods of reduced drilling activity and even decline some produced volumes.
I wish sparkling and do not expect to experienced dramatic declines in the need for our large horsepower compression services are required horsepower.
The dynamics I've mentioned, the Bob along with a relatively resilient demand has historically many large horsepower compression a less volatile business of course, there is still a great deal of uncertainty on how everything settles out of the commodity markets, but we do feel good about gas market and its long term prospects.
The natural gas markets have actually been more positive for good reason.
And for gas, while having some seasonality remains resilient.
There will be some near term impact to domestic gas demand in schools and businesses have temporarily closer doors current environments.
Just curious what country. This has occurred during seasonally mild weather and the impact on demand has not been is great.
You also need to remember where most of that gas demand and.
Power generation, both commercial and residential as well as industrial purposes like chemical plants on other industrial manufacturing.
Estimates vary, but generally speaking we've seen observers talking best demand destruction on the gas side in the single digits Bcf per day range.
On a market of 95 to 100 Bcf per day and is more akin to a minor speed bump, which speaks to the relative stability in the natural gas market underlay and by that resilient space slowed demand.
There's also an interesting dynamic we believe will play out in the gas market for the next 12 to 24 months right.
Right now we're seeing some moderate demand destruction in the face and continued supply even with announced GDP growth Capex cuts on the oil side and the expected increases associated gas supply from recently drilled oil wells in the steep decline flush production mode. It will take a few months for that to show up in the data.
Over the next few months, we expect to see a supply overhang on gas, which will add to storage levels team keeping a cap on the near term price.
At some point in the early fall underground gas storage could reach fairly full levels, but that is expected to happen just declines or production really start to kick in.
Gasoline storage will be available to serve that relatively stable base slow demand during winter heating months.
While the ultimate impact associated gas production currently is uncertain, we believe the natural gas futures market give us an early indication.
Recently January 2020, Onest features were over $3 per Mcf and know what during the entire year was below $2.50 per Mcf.
As always when indications of supply and demand get out of balance prices react and serve to balance the market.
Ultimately, assuming we do see significant reductions in associated gas production that required supply will need to come from somewhere you're hearing more these days about new activity in the Marcellus Utica in Haynesville shale plays we see continued activity in the all important northeast the price of gas will ultimately make sure there is enough gas.
Supply that Williams of the marketplace.
Hello, good drivers behind the crude oil and natural gas markets are not the same nor do we think well the recovery timeline in near term outlook be the same across both commodities, while it is hard to predict exactly when and to what extent things get back to something like normal.
Relatively positive outlook for both natural gas pricing some resumption of stable demand should bode well for our business.
So, let's turn to our specific USA business model.
You will see compresses business model has remained very consistent over the past 22 years, whether as a private entity or the last seven years as a couple of partnership.
We have always focused on large horsepower compression used in large regional infrastructure oriented facilities. These facilities me very large amounts of natural gas. These are now facilities that are easily shut down and the cost to be mobilization, which are borne by our customers to send home the USA compression assets maybe extreme.
Seamless expensive these barriers to exit as we call them provide further supporting times like these to mitigate the return of higher than our customers most likely will need after a few quarters of excess oil overhang works itself off.
Always pointed to the stability of this business model and continued to be optimistic about the future of the large horsepower business.
Over the past couple of years since closing the CDM acquisition, we made an effort to term up securing additional contract center. After the primary term was passed in the contract commitment to a month to month duration from Warner contracts historically, we get anywhere between 40 and 50% of our assets on a month to month basis.
Coming into this downturn, we're positioned better than we have never been re contracting activities, reducing our month to month exposure to approximately 35%. We also review the loading profile of the month to month assets. Those that are loaded are needed, which further reduces the likelihood that a unique consent.
Even with about 25% of our horsepower deployed in the Permian and Delaware Basin, primarily serving associated gas production. We have the vast majority majority of our assets serving either dry gas activities and natural gas handling activities such as those connected to gas processing plants are large volume center.
Realized gas slipped applications beyond the plus production stage and then the stable shallow decline to steady state mode.
So what our customers up too.
We last saw commodity downturn back in 2014 2016 timeframe.
Crude oil down as low as $27 per barrel.
We have fleet utilization declined to the mid 80% area, which is the larger midstream horsepower in city exhibiting greater stability as expected.
The smaller horsepower whilst oriented gas looks like was where softness surface. We took aggressive cost control measures and maintained relatively flat EBITDA and cash flow margins.
All while cutting growth capex, but almost 90% over two years.
While this latest series of market events is somewhat different to the 2014 cycle. We've seen a similar response from customers.
Initial shock to the crude oil price decline prompted the return of underutilized assets at the customers expense.
This was applicable only for that portion of the fleet other month to month contracts.
These are predominantly smaller gas look units that have low demobilization costs, which are sitting on oil wells, which are now turn to an economical.
We've seen some of the dominant larger horsepower units get returns well in some cases the customer customer may have recently bought some units and so decided to replace our equipment with their own equipment.
Overall, our customers are working to figure out what the future ultra their particular operations as well as the overall industry and that creates different motivations for different customers in different basins.
In a few cases customers have requested a temporary in short term rate concessions or the ability to move units to standby rate.
While the dust settles a bit.
Depending on the customer contract can proposed economics, we're considering it.
We have seen the first leg of returns secure occur excuse me and we will wait and see how much additional horsepower comes help.
Junction the 2020 collapse has made much like the 2014 2016 decline.
Well the quick wave of initial returns followed by a much slower and somewhat nominal decline.
We will continue to monitor returns closely over the next few quarters, where the risk of utilization clients from associated gas activity remains greatest.
We have lots of levers, we can pull and we will pull them depending on the depth and duration of this downturn.
Theres still seems to be a sense by some observers of the USA compression is an oilfield service business was significant exposure so while that activity in commodity price risk. This has been a common misperception over the years.
Our focus is purposely been away from activities. So they produce commodity price risk in oriented toward larger installations, serving demand driven natural gas infrastructure applications.
We have deployed significant amounts of horsepower in large multi unit and centralized compressor stations or the recent years.
Speaking installations have in many cases moved beyond the initial flush production phase in of settled into the steady state stage with shell decline rates and thereby relatively more stable volumes and pressures.
As these wells age and the reservoir pressures naturally continued decline more horsepower may be required to accomplish the customers operational needs.
I'll now turn the call over the math to walk through some of the financial highlights the quarter Matt.
Thanks, Eric and good morning, everyone today, USA compression reported a solid first quarter to start off the year, including quarterly revenue of $179 million adjusted EBITDA $106 million in DCF limited partners of $55 million.
In April we announced the cash distribution to our unitholders of 52, and a half cents per LP common unit consistent with the previous quarter, which resulted in coverage of 1.08 times.
Our total fleet horsepower as at the end of Q1 was largely consistent with where we ended 2019 right about 3.7 billion horsepower.
Our revenue generating horsepower at period end increased slightly to a little bit over 3.3 million horsepower.
Our average horsepower utilization for the first quarter was 92.5%.
Pricing as measured by average revenue per revenue generating horsepower per month.
$16, an 89 cents for Q1, which again was a slight increase from the previous quarters level.
The total revenue for the first quarter of $179 million, approximately 176 million reflected our core contract operations revenues parts and service revenue was $3 million.
Gross operating margin as a percentage of revenue was 67% in Q1.
Net loss for the quarter was $602 million inclusive of a $619 million non cash goodwill impairment charge, which I'll cover in a minute.
Operating loss was $570 million in the quarter also inclusive.
$619 million noncash goodwill impairment charge.
Cash provided by operating activities was $50 million in the quarter.
Maintenance capital totaled $8.8 million in the quarter and cash interest expense net was 31 million.
To add a little more color on the goodwill impairment charge based on our unit price at the end of the period, we performed in evaluation of the fair value of the business and the carrying value.
Impairment charge reduces the amount of goodwill on our balance sheet to zero.
I'd note that the goodwill was created more than two years ago about $250 million was already on CDN books at the time of the transaction.
The balance about 366 million was created as a result of the reverse merger accounting method used to account for the CDM transaction.
Whereby we were required to revalue the USA see balance sheet CDM was considered the acquirer for accounting purposes.
Given the recent events affecting the energy markets in general and the ongoing uncertainty, we're providing revised full year guidance for 2012.
We currently expect 2020, adjusted EBITDA between 395 million and $415 million in DCF between 195 million and $215 million at the Midpoints of these ranges.
Summits reflect decreasing from approximately 5% and 7% respectively from our previously communicated guidance ranges. There are obviously a lot of unknowns in the marketplace right now and as things progress, we will continue to assess guidance throughout the year.
Lastly, we expect to file our form 10-Q with the FCC as early as this afternoon.
With that we'll open the call the questions.
Okay.
Thank you and once again, if you like to ask a question. Please take note by pressing star followed by the one on your telephone keypad. Once again that is star one.
Okay.
Yes.
And we'll go first to TJ Schultz with RBC capital markets.
Hey, guys good morning.
Thank you.
I think first.
So the comparison to the downturn in 2014 through.
2016, I think.
Just characterize into that mid eighties on utilization.
So it has this initial rice.
From some customers to return assets.
Taking you to that level right now and just trying to think about let's see the differences.
Between now and then in your fleet, meaning.
On one hand, do you have maybe a higher mix of larger horsepower units now and if you're 25% Permian now what was your mix to associated gas in 2014.
Yes, Eric.
So I think a couple of things when you look to 2014.
Characterize it because it is putting a lot should apply often you bring to eat up slowly and then go the lobster wakes up a year later anyway.
Bright red and been boiled to that.
Suffer happened very very quickly and 45 days, we have the initial around.
The first wave of stuff, we saw was predominantly the gas lift equipment. So a lot in the mid continent into a far lesser degree some things coming out of the Permian.
In our in our commentary we made a comment about.
You have some owner operators, which should return some equipment to us.
One customer in particular had purchase a bunch of equipment anticipating using that as base load equipment, and then using USA compression to be the variablize compression fellows as kind of meet their their ongoing growth demands.
Also big comment based they've seen their their end users drop out their customers drop out so since they've taken delivery of north of 10 or 15 machines.
Our four on short term contracts.
When they went off contract term they approached us and sent nodes 10, or 15 routine home. So I think the way. We're categorizing on this first wave is it feels a lot like what we saw in the early phases of 2014 in 2015, what remains to be saying, here's what happens kind of after.
Call it the third quarter of this year.
We're now in the.
In July August range, where the major production cuts are occurring.
We've seen a lotta research reports that are suggesting that you're going to see continuing shut ins, but in curtailments between now and we ended the year, but I think what we're hearing from our customers are you know your equipment on these big facilities is got to be needed we're not turn.
Two things off completely we may be curtailing. Some we may be throttling back. So if you keep in mind you know we've got six 810 machines on a big central facility. So that starts not all getting turned off.
Hey, Mike Ratchet things back to 80% of load or 70%, a load or 60% alone and you might take a machine or two more threeg and put them on standby for a period of time.
But we're not being approached by our large central facilities customers, saying come take your self home, we're going to incur a million or $2 million and demobilization costs on the customers and ascendant home because I think what we're hearing from them is all everybody's assessing what's going on I think theres a comment.
Sense that after a couple of quarters things are going to kind of re equilibrate work through the system and our assets are going to be needed beyond that period in point in time, So behaving pretty similar to what we saw on the last downturn and.
I think our commentary of we're going to watching associated gas or the next couple of quarters and see what happens.
The extent that it is continues to be great.
That equipment camping and relocated the other geographic basins like we thought in the past and we're starting to see the the apparent ticked off and planning for dry gas activities up in the Marcellus ethylene dry gas part of the Utica on over into the Haynesville. So.
Too early to tell but it's playing out to US right now kind of what it looked like back in 14, 15, 16 and TJ, It's Matt the only other thing I'd add is it's interesting when you look at the gas prices, Eric talked about kind of the future is a little bit you go back to 14 in the middle of 14 gas was over $4.
And over that 14 to 16 period it decreased under $2 by the time.
To that downturn was over so I think the interesting dynamic we have going here that we touched on in the comments is kind of a sort of the office that outlook right now at least on the gas price. So.
Back then people were dealing with with sort of gas tumbling down in half now you're looking forward seen it sina increased over the next.
12 to 18 months, which is I think a positive.
Okay, all makes sense.
And then on pricing it sounds like.
You're.
Kind of waiting on some decisions for.
Whether or not to make rate concessions that certain customers and.
Maybe balancing that about taking back some assets and then into different basins, but.
Maybe you can expand on kind of.
What you're looking for and making the decision on some of those rate concessions and then.
You would get standby rates, what are those typically relative to working or or contracted rates.
TJ, maybe a fair way to say it is to the extent, we do anything it will be temporary in nature very very short term.
We have not had a wholesale.
Your request across the board from all of our customers or even to a large number of customers.
I would say it tends to be a little more basin specific.
And asset specific.
And again when you look at large.
Yes power large gas handling central facilities that we have we've not had how people approaching those saying.
Shut it in curtail up back.
We touched before on.
Just how small of of components the compression ski is as a percentage.
Gas sales price or movement of hydrocarbons.
Hello, we expenses et cetera, it's a relatively small percentage so the people that hurt in a downturn like this tend to be the MP focused.
The commodity price guys. The drillers the frackers some pressure pumping guys will small wellhead compression guys.
We tend to be a little more.
Pricing elastic.
With the types and duration of the contracts that we see.
When we do talk about pricing concession.
If you think about we've got fixed component of amortization component, we've got some variable cost components.
Typically what we try to do is to offset.
If we if the units do go on a standby for a short period of time, a month or two months for three months.
We try to just basically offset the loss of the variable costs that we would cease to incur.
Chains in the lube oil and change in spark plugs and haven't people have to go out and fix or repair and operate the equipment. So it's it's not not hugely material.
I mean again, what tend to be relatively short cycle.
Okay. Thank you guys.
Hi, Steve.
Well go next to Praveen Narra with Raymond James.
Thanks, Good morning, guys.
And I apologize if I missed this but I guess first thank you very much for providing guidance, but can you guys give us sense for embedded in that guidance, what kind of utilization, you're looking for and how that compares to today.
Yes, I mean, we don't I mean, I would say, we don't give out utilization guidance per se.
How are we went about that that guidance in sort of that revision was looking at basically what we learned over the last two months in terms so.
Stock notices and some of the stand by actions et cetera. So.
That was kind of are more so from a at assumed utilization that was kind of an actual.
Almost unit by unit.
Valuation if you will also.
I would think overall I think add on T. Jays question last time, we kind of were kind of top to bottom probably seven to eight ish percent of utilization degradation. So.
We haven't gotten there yet but.
That's why we we took the approach we did kind of on an actual base.
Actual unit basis with the thought of as things progress through the year as we get a little bit of as more uncertainty behind us we'll be able to obviously revised that if needed.
Right, Okay, and then if I could understand we stand by process a little bit more it doesn't sound like your contracts since that to me like your contracts have defined standby terms in them and that is more of a negotiation is that correct way to interpret it or are these largely happening on the month.
Contracts.
Units that are out there.
Yeah, permitting and its Matt I would say I would say typically our contracts have a hey standard our standard standby is around 75% of the base rates.
And.
With that at that level to Eric's point earlier at that level of your sort of earning without all the expense that goes along with that you're sort of earning your gross margin or even better in a lot of cases at that level. So thats kind of how we structure that I.
I would say typically.
No Thats Super helpful. If I could just squeeze one more in.
The number that you mentioned the number of units or contract or a month to month basis can you give us a sense of how much of your units come up within the next year, how we should think about that.
Over the next year terms are rolling off.
I think.
I don't know that we give out that exact number per veins. The way that we have historically thought about it though is if you go back to last seven years, plus 10 years or more we've always been kind of in that 40% to 50% month to month range, we termed out really since the CDM acquisition made a big.
Effort to term up as much as we could that kind of got us up to or or or down two way. We were below 30% month to month now for kind of 35, I think you're going to kind of stay I I wouldn't be surprised if that drifted up a little bit just given the current market. Once again people are art.
Knocking down or Dorothy term contracts, but again in six months, we maybe in a in a different marketplace, where all said and things swing again so.
It's hard to see it going to 50% month to month over the next.
Couple of quarters.
Being this is Eric.
The reason I went off of my forensics discussion.
The middle of the good discussion was too.
Really further illustrate the stability of those big horsepower of his business because you know these machines are designed to be.
Six to 10 machines on our location, we may be moving 100 to 200 million cubic feet a day.
When you start to look at where these facilities are installed these are kind of regional hubs, where there's lots of.
A production that is feeding into these areas, it's not just a well or eight have side its major gas handling facilities.
Even in the Permian in the Delaware Basin. These facilities have been installed 456 years ago swore beyond the flush production stage feature guys now that are kind of on cycle projects.
They are relatively stable volumes. So you are to the extent that there's.
No new drilling activity or declining drilling activity or reduced drilling activity, you know, what you're going to see or the volumes continue to kind of slowly and methodically decline, but you're also going to see reservoir pressure is slowly methodically to decline that's going to require more and more horsepower.
So I think we tend to get caught up with Oh, My Gosh, you got short term contracts commodity prices down volumes are declining no new drilling activity, yeah, that's great, but that really drives our gross margin not or stability model in the world we're living in today, where new activity of slow.
Back down volumes might start to decline pressures decline Holy mackerel to keep the same volumes moving or even declining volumes as pressures decline in the horsepower stays the same or me, maybe even ticks up a little bit so that's why.
How much more optimistic about our model versus the small wellhead guys or even guys.
A couple of our peers have migrated into big horsepower recently, but they got eight unit here or two units here. They don't have these mega facility with the extra Super Big horsepower like Weve got which really are major gas handling projects major cycling projects major infrastructure projects that are installed for the long.
Turn duration.
People would have commodity hedges in place people that have firm transportation agreements in place major oil companies that yeah. They are backing off on new growth capex, but they're still spending some growth capex and they're continuing to promulgated continued to move based hydrocarbons.
Right. That's extremely helpful. Thank you very much guys.
Thanks for being.
And there are no further questions in queue I'd like to turn the conference back over to Mr., Eric long for any additional for closing remarks.
Well, thanks, operator, with a solid first quarter behind us we're gamut navigating through some uncharted waters right. Now there are many things we do not yet no regarding how exactly things will shape up but the industry and our customers have always been able to adapt to changing environments.
Our business is built on natural gas demand and we believe that position positions us well for an eventual recovery.
We believe the thought the underlying stability of our large horsepower infrastructure focus contract compression services business model and the science behind the need for compression and the interplay between pressures in volumes will be key point of positive differentiation as we work through this downturn.
We will continue to keep our focus on the things within our control, including prudent capital spending in cost controls throughout the organization.
And while we are hoping for a recovery sooner rather than later, we have taken the necessary actions to weather the storm in come out on the other side.
Past downturns, we have learned that we have lots of levers that we can throw if and when we need to depending on how this downturn plays out.
Thanks for joining us and please me say, we look forward to speaking with everyone on our next call.
And that concludes today's conference. Thank you for your participation.