Q1 2023 USA Compression Partners LP Earnings Call
Good morning, welcome to USA compression partners first quarter 2023 earnings conference call during.
During today's call all parties will be in a listen only mode and following the call. The conference will be opened for Q&A.
To ask a question you will need to press star followed by one on your telephone keypad.
If you require operator assistance at any time, Please press star zero.
This conference is being recorded today may 2nd 2023.
I'd now like to turn the call over to Chris Porter, Vice President General Counsel and Secretary.
Good morning, everyone and thank you for joining US. This morning, we released our operational and financial results for the quarter ending March 31, 2023, you can find a copy of our earnings release as well as a recording of this call in the Investor Relations section of our website at USA compression dotcom.
During this call our management will discuss certain non-GAAP measures you will find definitions and reconciliations of these non-GAAP measures to the most comparable U S. GAAP measures in our earnings release.
As a reminder, our conference call will include forward looking statements. These statements include projections and expectations of our future performance and represent our current beliefs actual results may differ materially.
Please review the statements of risk included in this morning's earnings release and in our other public filings. Please note that information provided on this call speaks only the man's views as of today May <unk> 2023, and may no longer be accurate at the time of a replay.
I will now turn the call over to Eric long, President and CEO of USA compression.
Thank you Chris Good morning, everyone and thanks for joining our call I am joined on the call by Eric Schiller, Our COO and Mike Pearl Our CFO .
Good morning, we released outstanding first quarter 2023 results that were indicative of our continued commitment to make investment operational and financial decisions that are consistent with an effective in achieving our stated objective to create stakeholder value by growing our best in class.
Compression service offerings.
During 2023 and on into 2024, we are choosing to exercise capital discipline to enhance returns improved balance sheet strength and ultimately achieve a state of financial Optionality that provides us with meaningful flexibility and future optionality to deploy free cash flow.
To further reduce debt and make changes to our distribution policy.
<unk> other strategic long term investments to capture incremental value that can be passed to our stakeholders.
Our first quarter 2023 results are the direct result of our returns based capital investment strategy and feature consecutive quarterly record revenues adjusted EBITDA and distributable cash flow.
Our financial performance continues to improve with increasing demand driven pricing for our compression services that we continually place under contract for extended tenors.
Fair to historic Tenors achievable in prior market cycles.
Our ability to achieve improved price discovery with longer dated contracts for our compression services is complemented further by our ability to increase the size of our active fleet.
<unk> New unit additions and the continued conversion of legacy units from idle to active status.
Our first quarter utilization continued to improve quarter over quarter, averaging just under 93%.
Our utilization improvements were achieved alongside a record setting quarterly per horsepower average revenue.
Each came in at $18 19 per horsepower.
Represents our fifth consecutive quarterly average rate improvement.
Our first quarter utilization and pricing improvements enabled distributable cash flow coverage of 121 times the highest distribution coverage ratio achieved by USA compression since its 2018 acquisition of CDM.
We are extremely pleased with our first quarter results, which we believe confirms the durability of our cash flow stream and highlights the ongoing benefits of our deliberate focus on exercising capital discipline to grow our fleet organically, while maintaining our focus on returns based capital investing.
And increased fleet utilization to drive improved financial performance and balance sheet strength.
Our first quarter performance and evolving market dynamics continue to support our belief that the broader energy industry is in the initial stages of a commodity price super cycle that will drive sustained increases in the demand for natural gas compression services for years to come.
Our customers' activity levels throughout our operating areas provide USA compression with operational tailwind into the future as the demand for our services remains inextricably linked to the oil and gas production cycle, the longevity of which positions us to continue capturing favorable pricing under law.
Long term service agreements that generate a meaningful and reliable stream of cash flow into the foreseeable future irrespective of spot and medium term commodity prices.
Oil prices are forecasted to remain comfortably above estimated breakeven wty prices for existing and newly drilled wells for the next several years, which should continue driving incremental demand for natural gas compression services.
The market for available compression assets continues to tighten and producers increasingly practice capital discipline, which includes the avoidance of the incremental capital expenditures that are ancillary to drilling and well completions spend that is required to grow hydrocarbon production.
Current and anticipated tightness in the market for compression assets, coupled with constrained capital availability throughout the upstream energy sector is fueling what we view as sustained demand growth for our compression as a service delivery model at USA compression.
This term base take or pay revenue model continues to provide USA compression with consistent opportunities to secure long term recurring fees in exchange for providing high quality full service midstream infrastructure services that are vital to hydrocarbon production maintenance growth.
<unk> and delivery to market centers the.
The opportunity for our customers to secure near term access to highly sought after and readily deployable compression assets, while avoiding meaningful upfront compression asset capital investment continues to elicit a favorable market response as evidenced by our new units.
<unk> full payout 60 months original contract Tenors and our month to month service revenues as a percentage of total revenues continuing to decline our.
Our confidence in future demand growth for our services under the compression as a service delivery model is not deterred by the prolonged decline in natural gas prices that continues to persist as abnormally mild weather LNG export delays and rising inventories provide meaningful headwinds to a near term recovery.
And natural gas prices.
Natural gas prices remain below $3 per <unk> for much of the first quarter and are expected to average less than $3 for the remainder of 2023 before recovering during 2024.
Even so producers on our natural gas heavy operating areas continued to produce from existing gas wells, which decreases field pressures and increases the demand for additional compression to cost effectively arrest production declines when depressed natural gas prices challenge the economics of drilling new wells.
<unk> to maintain production levels.
Compression asset scarcity, and producers' ability to deploy additional compression as a cost effective alternative to incremental drilling position us to maintain existing asset deployment and add incremental horsepower in these gassy basins under long term contracts that are consistent with our compression.
As a service recurring revenue model.
To summarize we are extremely pleased with the current market backdrop that features significant and growing demand for the production driven compression services that we provide.
Compression assets supply and demand dynamics position USA compression to strategically grow its revenue under a term base take or pay recurring revenue model that is largely agnostic as to spot and medium term commodity prices and that provides clear visibility to a durable cash flow stream.
From a highly utilized fleet.
Our ability to establish a predictable and stable source of cash flow should improve our overall financial performance as we enhance our ability to play in future investments under a returns based capital investment model and ultimately achieve financial Optionality.
Before turning the call over to Eric <unk> to discuss first quarter operating results I would like to make a few comments regarding safety.
The most important thing we do is to ensure that our employees contractors and customers return home safely each day.
We are extremely proud of our tireless focus on safety that has resulted in a 2023 to date recordable incident rate of zero, which is well below the industry average of 0.9.
I am very proud of this accomplishment and thank every USA compression employee for their commitment and strict adherence to our safety policies and procedures.
With that I will turn the call over to Eric Schiller.
To discuss our first quarter operating highlights.
Thanks, Eric and good morning, all.
Earlier this year I discussed our positive outlook for 2023 and emphasized our continuing focus on expanding our active fleet, while continuing to improve fleet utilization contract pricing and contract tenor I'm.
I'm happy to report that the market strengthens remain resilient through the first quarter and the outlook for the remainder of the year and beyond continues to be attractive as we further improve our fleet utilization pricing and contract tenor.
First quarter 2023 results revealed year over year improvements in revenues and showed a sequential quarter increase in adjusted gross margin percentage that was achieved through our disciplined contract portfolio return approach.
Towards us pricing flexibility to continue securing market based rates for services rendered through our nearly 93% utilized fleet.
So what specifically drove our first quarter outperformance and why we remain optimistic for the foreseeable future first our fleet utilization and pricing continue to improve starting with our directed efforts to opportunistically redeploy idle equipment, which requires nominal capital spend to place into service.
Second we prudently spend growth capital during the quarter by deploying brand new 36008 units.
Under full capital recruitment initial term contracts continuing to exercise capital discipline across the balance of the fleet and pursuing other cost efficiencies at all levels within the organization.
Redeployed idle in new equipment assets will continue being contracted at attractive market rates and under sought after long term contract tenors.
Third our adjusted gross margin percentages are continuing to improve and are trending towards the level, where we historically have operated our core compression services business and finally, our continued delivery of operational excellence to our customers is enabling our ability to enhance our balance sheet strength and.
<unk> coverage, both of which we expect to continue improving from currently acceptable levels required to operate our stable business model.
Our sales team continues to execute on its opportunistic contract approach and remained focused on layering in the new business for 2023 and beyond as well as continuing to optimize our existing contract book.
We believe that one of USA compression strategic advantages is our.
Our superior service delivery, which allows us to lock in longer contract durations and generate strong cash flows throughout all phases of the energy cycle.
USA compression is well positioned to capitalize on a disciplined and measured growth opportunities while remaining positioned to service our long term core customers as they continue increasing their activity levels in the Permian and Delaware basins as well as in the Haynesville and Scoop stack basis.
Our other operating regions Marcellus and Utica shale.
Texas Eagle Ford Shale, Louisiana, and DJ Basin are each performing strongly, albeit with comparatively moderate growth profiles, we continue to benefit from portfolio Opex disparate market dynamics in each geographic region contribute to the overall stability of our business.
With our diversified asset fleet, we have been able to focus our marketing efforts on and direct our capital investments toward those operating areas, where we achieve the highest returns.
Continued hydrocarbon production growth has created meaningful incremental demand from our existing customers and has allowed us to pick up additional strategic accounts to expand our market share throughout our areas of operation, while maintaining a balanced and credit worthy book of business.
Increased demand for compression has fueled our consistent climb and fleet utilization rates that improved throughout 2022 and into first quarter 2023, culminating in our first quarter utilization exit rate of nearly 93%.
We expect overall fleet utilization to increase and sustain itself into the foreseeable future as commodity prices remain supportive.
<unk> drilling competitors, new unit organic growth capital commitments for the most in demand large horsepower equipment continue to lag and existing equipment availability continues to remain stressed, thereby prompting producers to seek alternative sourcing of capital relief for their <unk>.
Pressure needs under price and tenor advantageous contracts, particularly for large horsepower units in our fleet features.
Existing market tightness for Newbuild and existing compression assets is providing us tremendous flexibility to lock in attractive service rates and to Opportunistically high grade returns.
<unk> for the quarter ended March 31, 2023, approximately 23% of our compression services revenues were provided on a month to month basis down from 33% for the quarter ended March 31 2022.
Pronounced decline in month to month contract revenue is indicative of the demand for our services and our ability to monetize the value of our fleet at attractive rate contracts that feature longer tenors and enhanced returns that provide durable cash flow stream consistent with our pursuit of a compression at the surface.
Model.
While our business still generates many reasons for optimism inflation remains stubbornly persistent.
We continue to see higher prices for parts and labor and all regions. Notwithstanding USA compression generally has been able to offset meaningful inflationary costs through prudent contracting that includes inflation based rate adjustments and through active management of our supply chain, we expect inflationary pressures to abate.
Eventually in our adjusted gross margin percentages to remain at or near their historic levels normalizing around 68%.
Our relationships throughout the supply chain remain key to USA compressions ability to successfully navigate challenges that are affecting new unit deliveries throughout the compression space are established key relationships with packagers and component providers allow us enhanced visibility into deliveries.
<unk> ability to effect and anticipate final package deliveries to customers with the first quarter behind US we remain on track to deploy all our new large horsepower unit orders in 2023, which will add approximately 165000 of much sought after horsepower under multi year contracts all new.
Units are committed to customers under contracts or pending contracts that provide for full capital recruitment during the contracts initial term.
We are focused on earning market returns on invested capital and ensuring that the projects that we pursue on worthwhile for customers that value the level of service that we provide and appreciate the long term relationships that USA compression has maintained and continue to pursue as part of its business strategy.
Inception, 25 years ago.
One quarter into 2023.
Supply and demand dynamics have unfolded as we expected and we believe that our focus on large horsepower infrastructure oriented solutions and services significantly differentiate USA compression from its competitors.
Things stand right now taking into account current market supply and demand our service offerings relative to the competition and are currently contracted book of business. We believe that we are successfully positioned for the remainder of 2023 and beyond.
To close we expect our full year 2023 results to reflect the benefits of our 2022 directed efforts to increased fleet utilization and expand our fleet through strategic capital investments that are consistent with the growing demand for compression services and improved contract prices and tenders to satisfy any.
<unk> market demand for compression services, while establishing a reliable and predictable source of cash flow under our compression as a service revenue model.
Finally, I want to thank all our employees for their dedication and hard work, which drove these exceptional results safely and efficiently I am extremely proud of this team and USA compression.
With that I'll turn the call over to Mike Pearl our CFO to discuss our first quarter financial results.
Thanks, Eric and good morning.
Today, we reported our first quarter results, which featured consecutive quarter record revenue adjusted EBITDA and DCF.
As Eric mentioned, we were able to generate distribution coverage of 121 times, representing USA compressions highest distribution coverage ratio for the post CDM acquisition period.
Our quarterly utilization exit rate continued to trend up into the right as we simultaneously achieved another all time high and our quarterly average revenue per revenue generating horsepower, which came in at $18 and 19.
Pricing improvements that accompanied our utilization gains were driven by a mix of demand driven rate increases for our supply constraints compression services and contract based CPI price escalators.
Adjusted gross margin percentage improved by nearly 1% during the first quarter due to improved pricing and moderating inflation for vehicle fuel and compressor fleet lubrication fluids wage inflation continues to persist. However, we expect inflationary pressures to abate further over time and that our margins will continue to <unk>.
Prove normalizing at or near our historic averages.
Our total fleet horsepower at the end of the quarter remained essentially flat to the previous quarter at approximately three 7 million horsepower. However, our revenue generating horsepower increased by one 9% on a sequential quarter end basis.
First quarter 2023 expansion capital expenditures were $51 2 million and our maintenance capital expenditures were $5 million expansion capital spending primarily consisted of reconfiguration and make ready of idle units the delivery of seven new large horsepower units and the procurement of compression station compare.
Thanks.
First quarter 2023, net income was $10 9 million operating income was $51 1 million net cash provided by operating activities was $42 3 million in cash interest expense net was $38 million.
Interest expense increased by approximately $1 8 million on a sequential quarter basis, primarily due to higher interest rates applicable to outstanding borrowings on our floating rate credit facility.
To mitigate further exposure to rising interest rates, we entered into a two year fixed rate interest rate swap in early April under the terms of the swap agreement we locked in 30 days so for rates for a two year period at three 875% on a notional principal amount of $700 million.
Which approximated our then outstanding balance on our floating rate credit facility at the time, we entered into the interest rate swap prevailing 30 days. So for rates were more than 100 basis points above the fixed swap rate and remain elevated as the fed continues to consider additional rate actions.
During the first quarter. We also achieved another sequential quarter decline in our bank covenant leverage ratio, which decreased to $4. Six three times, we remain committed to improving our leverage metrics further and believe that improving market conditions operational and contract pricing improvements and continued capital discipline will allow us to reduce.
Our leverage further while delivering predictable reliable and durable returns for all stakeholders. Finally, we expect to file our Form 10-Q with the SEC as early as this afternoon and with that I will turn the call back to Eric long for concluding remarks.
We closed out the first quarter of 2023 with renewed optimism given what we view as sustainable tailwind to our business demand for our services continues to grow and we continue to run our business to satisfy market demand, while opportunistically contracting our services for extended periods and that.
<unk> demand driven rates.
We look forward to continued delivery and deployment of our new large horsepower units and the redeployment of idle units throughout 2023.
These actions will drive continued fleet utilization improvements under favorable contract terms consistent with our compression as a service revenue model.
Finally on May five we will make our 40 <unk> consecutive quarterly distribution payment.
The $52.05 per unit distribution is flat to the previous quarters distribution.
We will continue to work toward reducing our leverage while providing meaningful returns to all stakeholders.
<unk> to fleet utilization contract Tenors and contract pricing will position USA compression for future Optionality in terms of further capital investment debt reduction and changes to distribution policy.
USA compression will continue delivering its best in class compression services to its customers.
Maintaining capital discipline, and focusing on driving improved financial performance and balance sheet positioning took.
To conclude we are extremely pleased with our first quarter results highlighted again by record quarterly revenues, adjusted EBITDA and distributable cash flow and which also.
<unk> featured continued improvements to utilization distribution coverage and leverage.
We look forward to discussing our second quarter 2023 results with you in a few months time and with that we will open the call to questions.
As a reminder to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press star one again.
Our first question comes from T. J T J Schultz from RBC capital markets. Please go ahead. Your line is open.
Great.
Thank you so just as we think about that path too.
Free cash flow and more capital allocation flexibility clearly you're benefiting this year from.
High utilization and pricing.
And kind of two parts to my question focus on growth Capex first.
Are you still tracking to call it $260 million to $270 million of growth Capex. This year and what is committed or contracted on that and then secondly.
Thinking about 2024, how do you balance.
Getting more free.
Free cash flow flexibility flexibility versus.
Continuing to deploy capital into what I suspect you are pretty good returns for.
The new horsepower that youre delivering into the market yes.
Yeah T. J this is Eric.
The first part of the question.
The growth Capex for this year is basically spoken forward contracted already contracted under long term contracts. So as it pertains to your modeling work.
Pretty straightforward things are being delivered things are being deployed and we're tracking exactly as what we expected based on our capital commitment so long term contracts.
Fully committed.
For the balance of this year.
My blood Pearl address kind of what were thinking for next year and how that's going to look as far as balance sheet flexibility yes.
Back to your original question.
You might be taken the <unk>.
Try and annualize that and figure out how we get to the guidance and I would think just for the balance of the year.
As you sort of forecast or growth Capex I think ratable is probably the best the best assumption.
Just in terms of trying to figure out the balance of the year and at the end of 'twenty 'twenty four.
I would look just in terms of growth Capex I wouldn't expect similar levels that youre seeing this year I think we are.
Going back towards capital discipline, what what can we do in terms of turning more idle to active I think the return proposition based on what we're seeing for pricing and in terms of lead times for new equipment is probably where we get the most bang for our Buck, we'll probably spend a little bit of time talking about this on our <unk>.
Next call, but I think as we as we sort of I don't want to say stop but slowdown the new unit adds and focus on idle to active youll start seeing.
A lot more in terms of optionality with our with our cash flows.
Okay.
Makes sense.
Maybe what mix of month to month contracts should we expect by the end of this year.
Did I hear it right it sounds like Youre, turning up more contracts. Thanks.
Hey, T J, it's stellar.
You saw the improvement from fourth quarter into the first quarter. We continued to aggressively move that down I think you should expect us to continue to push that into the low single digits mid single digits percentage further the bulk of business.
Okay. Thank you.
As a reminder to ask a question. Please press star followed by the number one our next question comes from Brian <unk> from Baird. Please go ahead. Your line is open.
Good morning, a couple of questions for you just.
Look at the difference between the actual operating utilization rate and then the projected 93, one what do you think is the time horizon for those two numbers to converge.
Okay.
Okay.
My question and maybe Youre look we saw us somebody had made up.
Press comments that our utilization was in the upper <unk> versus our 93 or kind of scratch, our head wondering where that's coming from so was that the question or the utilization based on Brent are you generating horsepower. It's actually in your press release was <unk> 87, and a half and Youre quoting a 90.
92 seven.
With the 93, one exit rate so trying to bridge that gap and when those two numbers will converge.
And Thats I think thats businesses, Pearl I think that's difficult to forecast because it.
And particularly as we move forward and start moving moving towards placing more idle into active status we've got.
A suite of of units that are under contract that arent yet.
<unk> revenue as we get them ready to place into service and so that's that's difficult to forecast what that stable of.
Under contract, but not yet generating horsepower units.
Going forward.
But we.
Differentials does move does move to the actual active generating revenue, but the cadence and habits and forecasting convergence of those numbers is very difficult for us to estimate yes. So again youre dealing with a timing question. So as you look at the <unk> 87, 5%.
As of the end of March as we mentioned, we've got our entire Capex program growth.
Growth Capex program for this year committed under contract. So those are revenue generating yet.
We've got a trade association called the GTA.
Track stuff Thats active plus under contract because if you're not tracking the stuff that's under contract the industry thinks theres more stuff out there available to deployed into actually is.
So as we continue to move stuff out of the idle fleet that will go up as we move off of under contract is going to be delivered in August September October November that will then move into revenue generating so the good news is the reason there is that delta between it is that gives you forward visibility.
By an extra six percentage points ballpark number on stuff that we've got committed that we will turn to revenue generating between now and the end of the year. So I think back on <unk> comments, we're looking at Ratably deploy in the growth capex over the balance of the year, probably a good way to look at that would be ratable increase.
Converging from that 87 up to the 93 towards the end of the year.
Okay, I think I get what you're saying there. So maybe let me ask then just the deployment question different ways. We look at your yearend total horsepower and fleet how much do you see that growing in 2023.
Given the Capex program.
Pay a seller I think that we're going to continue the push out.
No.
150000 horsepower continue to push that through the rest of the year demand continues to be strong.
Okay. So we could see year end 2000, 350000 higher than year end 'twenty, two just to be clear.
No. That's that's the incremental so that doesn't include I think the 36 <unk> well thats.
100, <unk> you added 160000 horsepower from year end last year to year end this year.
Yes, the new growth Capex capital. So if you look at the total horsepower yearend 2020.
And on that numbers, where you expect to be at the 93% rate.
On a cash on a revenue generating basis by the end of the year.
Yes.
Okay.
Very helpful.
And then just as we think about.
The actions that you just did with the revolver fixing some of the interest rate exposure there how should we be thinking about then.
Your cash needs to fund the dividend relative to the Capex program.
Do you just consider or are you going to just continue to utilize the revolver or are you thinking about terming any of these units out sort of locked yourself in a little bit love to get the thought process there.
And maybe a couple of things so the first thing.
As <unk> mentioned, we've got a lot of inflationary pressure right now.
New unit Capex for 'twenty, four and on into 'twenty five are significantly higher so to generate acceptable returns, we and our peers are going to have to push through significant rate increases that we're not confident that the market is able to bear that magnitude.
The rate increases at this time.
So if you think conceptually horsepower as a thousand bucks of horsepower to 100 Bucks of horsepower to the extent, we spend some nominal capex dollars to.
Make ready our idle fleet, we may be spending things that are 345 hundred bucks of horsepower to deploy so we get a lot more incremental bang for our Buck.
So to spend capex dollars to take some of the existing assets, we have spend a little bit of money and ultimately get them deployed out in the field.
So I think thats, a kind of availed way to say.
We are going we're planning for 2024 to slow organic new growth down.
Rich.
Do you think about your question of increased utilization increased revenues deploying idle horsepower.
Going to be creating substantial additional cash flow that we're going to basically retain inside of the company. Our plan is to continue to reduce our leverage to continue to build our distribution coverage, which will give us flexibility as it pertains to.
Future Optionality.
Organic growth in the future.
Distribution policy be dealing with a preferred becomes matures at some point in the future. So I think right now with us putting the swap in place for a couple of years that effectively locked in rates on the floating rate debt that we had.
At rates lower than what we had come into our budget cycle with we've got adequate tenor remaining on our two tranches of.
The senior notes that are out there floating around so I think at this stage, we don't intend to term up but anything else, we intend to focus on leverage and coverage.
The market has always been pretty clear we've been doing this for 25 years of time to mash accelerator and grow there is a time to slow the growth down and focus on stability rather than growth, but I think our focus over the next for the.
We'll finish the Capex deploy cycle for 2023, and then we'll slow and moderate the growth out into 2024, giving us better financial Optionality in the future.
Great. Just one final question for me if you don't mind, one dynamic that I'm just seeing across a number of industry is just the lack of skilled tradesmen.
Attrition is plumbers mechanics.
And that you highlighted just sort of higher labor costs that you are seeing is that something that you see are beating or is that are those higher labor costs.
Do you see that still is a pressure throughout 2023.
I think we will see.
The labor cost continuing.
Not as hard we have been able to really increase the labor force very successfully and retain folks as we've been going through the first quarter.
<unk> been a net positive to us, but the pressure for the labor rate, we will continue not at the same levels, but it's still there.
Fair enough I appreciate all the color. Thank you.
Our next question comes from Selman <unk> from Stifel. Please go ahead. Your line is open.
Thank you just a couple quick ones for me.
First of all.
Can you just talk about electric adaption, what youre seeing and how that's going.
Yes, Selman this is Eric.
The panacea of the decade as electrification of everything.
So we sit down with our customers who are <unk>.
Thought about electrification. The first question we positive to them is where are you located on the electric grid are you proximal to a distribution line have you talked to your local electric distribution company Rural Electric co op whomever it may be and what people are finding out, particularly as you move into the bigger horsepower.
Shipment.
Grid in many places is an adequate to meet the demands of electric compression.
We remain convinced that.
Lower smaller horsepower stuff kind of sub 200 horsepower wellhead marginal gas fields like the Barnett shale and some of those places.
You can continue to deploy some of these low amperage low horsepower requirements.
Its very site specific as you move into larger horsepower.
We've actually seen people backing off from the electrification.
The fabricators, we're aware of some major oil companies that had large commitments for electric electrified horsepower that or cancel those contracts.
And are electing not to build some of those so I think in general Youre going to see people continuing to look at the electrification, but theres going to be a recognition and an acknowledgment that in many places the grid is insufficient to support it which is why we're pretty bullish on our dual drive offering where we can.
Yes.
Have the ability to go between electricity and natural gas sort of if you've got a peak day.
Electric demand.
We can turn off the electric side of the machine and run back on natural gas again so.
It's evolving over time, but it's not you're not going to see the electrification of everything in fact, it's probably going the other direction, where it's not.
<unk> not gaining as much traction as what some people had originally thought.
Great color I appreciate that.
You also talked about month to month revenues coming down to 23% and I think you said, 33% previously, but can you just remind us where that was at its peak.
So I think at our peak was more than a year ago, we were at.
Just under 40%.
Got it and then.
Now, let us take a landmark thing.
We're going to target that.
Low double digits.
Mid double digit 15%, 20% below.
Lower than that right now.
In 2014.
Yes.
And then just the last one in terms of just thinking through inflation and I heard you two.
Parts of it are starting to roll over labor continues high.
And you can't just push through all the price increases that would fully re coupe, the labor or the inflationary pressures but is.
<unk>.
See inflationary pressures Wayne do you think you'll still be able to get pricing and therefore sort of over the course of the cycle you get all of it back.
Yes, that's a really good question and I think thats part of why we're pushing the tenure of our contracts.
If you think back pre COVID-19 bigger.
Bigger horsepower you would tend to see kind of two to five year contracts little horsepower you'd see three months to may be a year, where routinely getting two and three years on small horsepower.
Sure.
More than routinely I think.
The bulk of our bigger horsepower are five year plus contracts. So these all have CPI escalators.
Built into those contracts so part of the rationale as to why at this part of the cycle rather than a couple of years ago like some of our competitors did was they were locking in contracts had significantly lower rates, we opted to let that float as evidenced by that high percentage of month to month utilized.
Month to month contracts, which we are now actively terming up for those three to five year significantly longer than normal market center at rates that are at peak of cycle. So I think we're trying to capitalize on the dearth of equipment that's available the high demand for equipment at the most opportune time.
So we're pretty optimistic of what the future holds in store for revenue and cash flow generation out of the fleet.
Got it thank you so much.
We have no further questions in queue. This will conclude today's conference call. Thank you for your participation you may now disconnect.
Okay.
Yes.
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Yes.
Okay.
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