Q4 2024 USA Compression Partners LP Earnings Call

Chris Porter: I now would like to turn the call over to Chris Porter, Vice President, General Counsel, and Secretary.

To ask a question you May Press Star then one on your Touchtone phone.

Are we talking a question. Please press star one again.

This conference is being recorded today February 11th 20 to 25.

Speaker Change: I now would like to turn the call over to Chris Boerner, Vice President General Counsel and Secretary.

Chris Porter: Good morning, everyone, and thank you for joining us. This morning, we released our operational and financial results for the quarter and year ending December 31, 2024. You can find a copy of our earnings release as well as recording of this call in the investor relations section of our website at usacompression.com. During this call, our management will reference certain non-GAAP measures. You will find definitions and reconciliations of these non-GAAP measures to the most comparable US GAAP measures in our earnings release.

Speaker Change: Good morning, everyone and thank you for joining US. This morning, we released our operational and financial results for the quarter and year ending December 31, 2024, you can find a copy of our earnings release as well as recording of this call in the Investor Relations section of our website at USA compression Dot com.

Speaker Change: During this call a magical referenced 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.

Chris Porter: As a reminder, our conference call will include forward-looking statements. These statements are based on management's current beliefs and include projections and expectations regarding our future performance and other forward-looking matters. Actual results may differ materially from these. Please review the risk factors included in this morning's earnings release and in our other public filings.

Speaker Change: As a reminder, our conference call will include forward looking statements. These statements are based on management's current beliefs and include projections and expectations regarding our future performance and other forward looking matters.

Speaker Change: Actual results may differ materially from these statements.

Speaker Change: Please review the risk factors included in this morning's earnings release and in our other public filings. Please note that information provided on this call speaks only to management's views as of today February 11, 2025, and may no longer be accurate at the time of a replay.

Chris Porter: Please note that information provided on this call speaks only to management's views as of today, February 11, 2025, and may no longer be accurate at the time of a replay.

Clint Green: I'll now turn the call over to Clint Green, President and CEO of USA Compression.

Speaker Change: I'll now turn the call over to Clint Green, President and CEO of USA compression.

Clint Green: Thank you, Chris. Good morning, everyone, and thank you for joining our call. Chris Porter and I are joined on the call by Chris Paulson, our CFO who is joining for the first USA Compression earnings call, but has already been quite active with investor conferences in December and January.

Clint Green: Thank you Chris Good morning, everyone and thank you for joining our call Chris Boerner and I are joined on the call by Chris Paulson, Our CFO who's joining for the first USA compression earnings call, but it's already been quite active with investor conferences in December and January.

Clint Green: First, I want to commend our team for their unwavering commitment to safety in all that they do, ensuring the safety of our employees, contractors, and customers, employees remain our top priority. Second, we released our fourth quarter and year-end 2024 results this morning. We are extremely pleased that we were able to deliver record revenues, adjusted gross margin, adjusted EBITDA, distributable cash flow, distributable cash flow coverage, average revenue generating horsepower, and average revenue per revenue generating horsepower results for the quarter and full year. These results enable us to improve distribution coverage and decrease leverage, which is approaching four times.

Speaker Change: First I want to commend our team for their unwavering commitment to safety and all that they do ensuring the safety of our employees contractors and customers employees remain our top priority.

Speaker Change: Second we released our fourth quarter and year end 2024 results. This morning, we are extremely pleased that we were able to deliver record revenues adjusted gross margin adjusted EBITDA and distributable cash flow distributable cash flow coverage average revenue generating horsepower and average revenue.

Speaker Change: Per revenue generating horsepower results for the quarter and full year.

Speaker Change: These results enabled us to improve distribution coverage and decrease leverage which is approaching four times.

Clint Green: On the operational front, we benefit from a focus on converting idle units to active status. This results in a 94.6 average horsepower utilization for a full year, a record for the company and something we are dedicated to maintaining and hopefully improving from here. In 2025, we expect the majority of our growth capital will be spent on new unit deliveries and the remainder on fleet enhancement.

Speaker Change: On the operational front, we benefit from a focus on converting idle units to active status.

This results in a $94 six average horsepower utilization for full year, a record for the company and something we are dedicated to maintaining and hopefully improving from here in 2025, we expect the majority of our growth capital will be spent on new unit deliveries and the remainder on fleet enhancement.

Clint Green: On the personnel front, we embarked upon several organizational changes and are quickly adopting a shared service model with energy transfer involving various support This will enable us to review the way in which we have worked in the past, optimize processes, and improve overall digitalization of the business as we begin the first phase of an ERP implementation this year. While the field staff will remain unchanged by this integration, we anticipate their digital resources and real-time management of the business will be improved, and will benefit from economies of scale and processes that are found in larger enterprises.

Speaker Change: On the personnel front, we embarked upon several organizational changes and are quickly adopting a shared service model with energy transfer involving various support functions. This will enable us to review the way in which we have worked in the past optimize processes and improve overall digitalization.

Speaker Change: The business as we begin the first phase of an ERP implementation this year.

Speaker Change: While the field staff will remain unchanged by this integration, we anticipate their digital resources and real time management of the business will be improved and we will benefit from economies of scale and processes that are found in larger enterprises.

Clint Green: As part of these organizational changes, we have also moved our headquarters from Austin to Dallas. We anticipate the company will see significant savings over time as a result of these shared services. And we expect a minimum of five million dollars in annualized savings with full implementation anticipated in January of 2026. While 2025 will yield an enhancement in our day-to-day business processes, it is also expected to re-establish a platform for growth in new compression units. While early 2024 benefited from the delivery of new compression ordered in prior years, the increase in utilization of existing units through idle-to-active conversions largely enabled an average year-over-year revenue generating increase in horsepower by approximately 200,000.

Speaker Change: As part of these organizational changes we have also moved our headquarters from Austin to Dallas, We anticipate the company will see significant savings over time as a result of these shared services.

Speaker Change: And we expect a minimum of $5 million in annualized savings with full implementation anticipated in January of 2026.

Speaker Change: While 2025 will yield an enhancement in our day to day business processes. It is also expected to reestablish a platform for growth in new compression units. While early 2024 benefited from the delivery of new compression ordered in prior years, the increase in utilization of existing units through idled active conversions.

Speaker Change: Largely enabled an average year over year revenue generating increase in horsepower by approximately 200000.

Clint Green: The emphasis on internal utilization forced a lean inventory of new horsepower going into 2025. As a result, our new horsepower and capital spend is largely back in loaded in 2025. But we anticipate it will provide a nice cash flow increase for 2026.

Speaker Change: The emphasis on internal utilization forced a lean inventory of new horsepower going into 2025 as a result, our new horsepower in capital spend is largely backend loaded in 2025, but we anticipate it will provide a nice cash flow increase for 2026 and as it relates to 2026.

Clint Green: And as it relates to 2026, we are already starting to discuss our new order. While we are always looking to grow and diversify our customer base, our disciplined rate of growth means that our new horsepower is primarily focused on existing large upstream and midstream customers. We remain bullish on the crude oil and natural gas macro backdrop and believe that the new administration will continue to support our country's development of crude oil and natural gas for the foreseeable future. In particular, continued crude oil and associated gas growth in the Permian will continue to support our near-term growth and business plans, as most of our new horsepower additions have come in this region over the years.

Speaker Change: We are already starting to discuss our new order book.

Speaker Change: Well, we're always looking to grow and diversify our customer base, our disciplined rate of growth means that our new horsepower is primarily focused on existing large upstream and midstream customers.

Speaker Change: We remain bullish on the crude oil and natural gas macro backdrop and believe that the new administration will continue to support our country's development of crude oil and natural gas for the foreseeable future inputs.

Speaker Change: In particular continued crude oil and associated gas growth in the Permian will continue to support our near term growth and business plans as most of our new horsepower additions have come in this region over the years.

Clint Green: Looking forward, we are excited to see the anticipated change in trajectory for natural gas demand, which is expected to grow by 15 BCF per day, or approximately 15 percent in overall U.S. natural gas demand over the next five years. As you may have seen, the new administration has lifted the freeze on LNG export permit applications implemented this time last year, and we believe LNG growth, as well as increased power demand, will comprise the majority of the natural gas growth in the country. While associated Permian gas will contribute to this growth, we think areas in the Mid-Continent and the Gulf Coast are also poised to increase gas production growth at prices higher than average in 2024, and USA Compression is well positioned in these markets to benefit given our large market share in these areas.

Speaker Change: Looking forward, we are excited to see the anticipated change in trajectory for natural gas demand, which is expected to grow about 15 Bcf per day, or approximately 15% and overall U S natural gas demand over the next five years.

Speaker Change: As you may have seen the new administration has lifted the freeze on LNG export permit applications implemented this time last year, and we believe LNG growth as well as increased power demand will comprise the majority of the natural gas growth in the country.

Speaker Change: While associated Permian gas will contribute to this growth we think areas in the mid continent and the Gulf Coast are also poised to increase gas production growth at prices higher than average in 2024, and USA compression is well positioned in these markets to benefit given our large market share in these areas.

Clint Green: Additionally, growing natural gas demand is driving further infrastructure build-out and the construction of incremental 4.5 BCF a day of transportation capacity out of the Permian Basin. Like the recently announced Hugh Brinson Pipeline, these projects and the associated compression necessary will help feed current and future natural gas demand.

Speaker Change: Additionally, growing natural gas demand is driving further infrastructure build out and the construction of incremental four five Bcf a day of transportation capacity out of the Permian Basin.

Speaker Change: We like the recently announced <unk> pipeline these projects and the associated compression necessary will help feed current and future natural gas demand.

Clint Green: And finally, just a word about electrification of oil field compression as it is a widely debated topic amongst our peer group. We remain very constructive and supportive of electric compression. Nonetheless, we also are mindful of our current customer needs, which remain largely focused on natural gas. Some of our largest customers have begun to set forth ambitious targets for electrification, but currently lack adequate infrastructure in many areas of the Permian and certainly elsewhere. Large and variable power needs present challenges for uptime, but it is not something that the industry cannot overcome. In short, we will focus our capital deployment on the equipment that our customers need, whether that compression is driven by natural gas engines, an electric motor, or dual drive product that has been developed by Energy Transfer over the last 15 years.

Speaker Change: And finally, just a word about electrification of oilfield compression as it is a widely debated topic amongst our peer group, we remain very constructive and supportive of electric compression.

Speaker Change: Nonetheless, we also are mindful of our current customer needs, which remain largely focused on natural gas.

Speaker Change: Some of our largest customers have begun to set forth the ambitious targets for electrification, but currently lack adequate infrastructure in many areas of the Permian and certainly elsewhere.

Speaker Change: Origin variable power needs present challenges for uptime, but it is not something that the industry cannot overcome ensure we will focus our capital deployment on the equipment that our customers need whether that compression is driven by natural gas engines and electric motor or dual drive product that has been developed by energy transfer over the last few.

Speaker Change: 18 years with that I will turn the call over to Chris Pulse and our Chief financial officer to discuss our fourth quarter highlights and 2025 guidance in more detail.

Chris Paulson: With that, I will turn the call over to Chris Paulson, our Chief Financial Officer, to discuss our fourth quarter highlights and 2025 guidance in more detail.

Chris Paulson: Thanks, Clint. I'm pleased to join our unit holders in my first call since joining the company in late November. It is an outstanding privilege to discuss record levels of operating and financial performance in many areas. In the quarter, our sales teams continue to build upon pricing improvements. Up to an all-time high averaging $20.85 per horsepower for the fourth quarter, which drove a revenue increase of 2% in sequential quarters and 9% compared to a year ago. These revenue increases were also driven by an all-time high in average active horsepower of 3.56 million. Our fourth quarter adjusted gross margins were over 68%.

Chris Pulse: Thanks, Glenn I am pleased to join our unit holders and my first call since joining the company in late November.

Chris Pulse: It is an outstanding privilege to discuss record levels of operating and financial performance in many areas.

Chris Pulse: In the quarter, our sales teams continue to build upon pricing improvements.

Chris Pulse: Up to an all time high averaging $20 85 per horsepower for the fourth quarter, which drove a revenue increase of 2% in sequential quarters, and 9% compared to a year ago.

Chris Pulse: These revenue increases were also driven by an all time high and average active horsepower of $3 $5 6 million.

Chris Pulse: Our fourth quarter adjusted gross margins were over 68%.

Chris Paulson: Regarding the financial results, our fourth quarter 2024 net income was $25.4 million. Operating income was $74.5 million. Net cash provided by operating activities was $130.2 million. And cash interest expense net was $46.4 million. Cash interest expenses decreased by approximately $700,000 on sequential quarter basis, primarily due to lower average interest rates under our floating rate credit. Our leverage ratio declined to a record low of 4.02 times. Turning to operational results, our total fleet horsepower at the end of the quarter was approximately 3.9 million horsepower, essentially flat to the prior quarter. Our revenue generating course power also was flat on sequential quarter basis.

Regarding the financial results, our fourth quarter 2024, net income was $25 4 million operating income was $74 5 million net cash provided by operating activities was $130 2 million in cash interest expense net was $46 4 million.

Chris Pulse: Cash interest expenses decreased by approximately 700000 on sequential quarter basis, primarily due to lower average interest rates under our floating rate credit facility, our leverage ratio declined to a record low of four two times.

Chris Pulse: Turning to operational results, our total fleet horsepower at the end of the quarter was approximately $3 9 million horsepower essentially flat to the prior quarter.

Chris Pulse: Our revenue generating horsepower also was flat on a sequential quarter basis, but up 4% from a year ago.

Chris Paulson: but up 4% from a year ago. Our average utilization for the fourth quarter was 94.5% in line with the prior quarter. Fourth quarter 2024 expansion capital expenditures were $37.6 million, and our maintenance capital expenditures were $8.2 million. Expansion capital spending primarily consisted of reconfiguration and make ready of vital units. We expect additional and ongoing conversion of current idle fleet units to active staff. Regarding full year 2024 financial results, net income was $99.6 million. Adjusted EBITDA was $584.3 million and distributable cash flow was $355.3 million. Finally, expansion and maintenance capital were $243.5 million and $31.9 million respectively.

Chris Pulse: Our average utilization for the fourth quarter was 94, 5% in line with the prior quarter.

Fourth quarter 2024 expansion capital expenditures were $37 6 million and our maintenance capital expenditures were $8 2 million.

Chris Pulse: Expansion capital spending primarily consisted of reconfiguration and make ready of idle units.

Chris Pulse: We expect additional an ongoing conversion of current idle fleet units to active status.

Chris Pulse: Regarding full year 2024 financial results net income was $99 6 million adjust.

Chris Pulse: Adjusted EBITDA was $584 3 million and distributable cash flow was $355 3 million.

Chris Pulse: Finally expansion and maintenance capital were $243 5 million and $31 9 million respectively.

Chris Paulson: Looking ahead to 2025 guidance, our adjusted EBITDA range is $590 million to $610 million, with a distributable cash flow range of $350 million to $370 million.

Chris Pulse: Looking ahead to 2025 guidance, our adjusted EBITDA range is $590 million to $610 million with a distributable cash flow range of 350 to 370 million.

Chris Paulson: Regarding the 2025 budget, we anticipate an expansion capital range of $120 million to $140 million, with new horsepower additions largely back in loaded for the year, but some additional idle-to-active, regulatory, and major overhaul activity throughout the year. New horsepower growth should increase active horsepower by approximately 1.5%. We anticipate the majority of this new incremental horsepower will be placed in the permea. Finally, maintenance capital is anticipated to be between $38 to $42 million.

Chris Pulse: Regarding the 2025 budget, we anticipate expansion capital range of $120 million to $140 million with new horsepower additions largely backend loaded for the year, but some additional idled active regulatory and major overhaul activity throughout the year.

Chris Pulse: New horsepower growth should increase active horsepower by approximately one 5%.

Chris Pulse: We anticipate the majority of this new incremental horsepower will be placed in the Permian.

Chris Pulse: Finally maintenance capital is anticipated to be between $38 million to $42 million.

Chris Paulson: The company will continue to be strategic as it relates to new growth opportunities outside of current expectations and adjacent to business activities in the Opportunities to acquire existing horsepower tied to immediate revenue generation will be considered on an individual basis and would provide incremental uplift to the guidance outlined on this call. The company made great progress in steadily reducing its leverage ratios over the last several years. Our new compression returns continue to substantially exceed our cost of capital and are anticipated to pay back within the contract term. This will enable us to remain well positioned with our ABL as we evaluate next steps in the latter half of the year.

Chris Pulse: The company will continue to be strategic as it relates to new growth opportunities outside of current expectations and adjacent to business activities in the field of.

Opportunities to acquire existing horsepower tied to immediate revenue generation will be considered on an individual basis and would provide incremental uplift to the guidance outlined on this call.

Chris Pulse: The company made great progress in steadily reducing its leverage ratios over the last several years.

Chris Pulse: Our new compression returns continued to substantially exceed our cost of capital and are anticipated to payback within the contract term.

Chris Pulse: This will enable us to remain well positioned with our ABL as we evaluate next steps in the latter half of the year.

Chris Paulson: Finally, I want to reiterate my excitement for this new role. As Clint intimated, the company is amid several changes that will set a positive trajectory for the future. I look forward to being a part of it.

Chris Pulse: Finally, I want to reiterate my excitement for this new role.

Chris Pulse: As Clinton intimated. The company is amid several changes that will set a positive trajectory for the future.

Speaker Change: I look forward to being a part of it and.

Clint Green: And with that, I will turn the call back to Clint for concluding remarks.

Clint Green: And with that I will turn the call back to client for concluding remarks.

Clint Green: Thanks, Chris. With a full quarter under my belt and having reconnected with long standing relationships, both internally and externally, I'm confident this company is well positioned to lead the way in supporting US natural gas growth into the next decade.

Chris: Thanks, Chris with a full quarter under my belt, and having reconnected with longstanding relationships, both internally and externally I'm confident this company is well positioned to lead the way in supporting U S natural gas growth into the next decade.

Clint Green: And with that, I will open the call to questions.

Speaker Change: And with that I will open the call to questions.

Operator: We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star 1 again.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. Let me tell you a question. Please press star one again.

Jim Rollyson: And your first question comes from the line of Jim Rollyson with Raymond James. Jim, please go ahead.

Speaker Change: And your first question comes from the line of Jim Rollyson with Raymond James Jim. Please go ahead.

Clint Green: Hey, good morning, guys. Clint, maybe first question would be around the CapEx. Obviously, you just came aboard not that long ago. And as I look at growth CapEx for 25 in the budget, it's obviously down a bit from where you guys spent in 24.

Jim Rollyson: Hey, good morning, guys.

Speaker Change: Maybe first question would be around the Capex. Obviously, you just came aboard not that long ago.

Speaker Change: And as I look at growth Capex for 'twenty, five and the budget, it's obviously down a bit from where you guys spent in 'twenty four.

Clint Green: But with the back half weighting of deliveries, I'm assuming part of that was maybe you kind of took some time to evaluate how things look before you proceeded with spending a bunch of money. So I'm just kind of curious with your generally bullish outlook, which we agree with, you know, how you're thinking about kind of growth in 25, what's driving the lower CapEx and maybe beyond 25.

Speaker Change: The back half weighting of deliveries I'm, assuming part of that was maybe you kind of took some time to evaluate how things look before you proceeded with spending a bunch of money.

Curious with your generally bullish outlook, which we agree with how youre thinking about kind of growth in 'twenty five what's driving the lower capex and maybe beyond 'twenty five.

Clint Green: Yeah, well, thank you very much for that question. You know, we're, you're exactly right with what you said, but we're, we're also, you know, we're wanting to maintain our, our leverage ratio down. We don't, we don't want to watch that walk up too much.

Speaker Change: Yes. Thank you very much for that question.

Speaker Change: No.

Speaker Change: Youre exactly right with what you said, but we're also.

Speaker Change: We want to maintain our our leverage ratio down we don't we don't want to watch that walk up too much and we will see it tick up a little bit, but we expect it to start coming down as soon as EBITDA comes online.

Clint Green: And we will see it take up a little bit, but we expect it to start coming down as soon as EBITDA comes online. So that's really our driver. We want to maintain our discipline and, and then sustain some growth as well.

Speaker Change: So.

Speaker Change: Thats really our driver we want to maintain our discipline and then sustain some growth as well.

Clint Green: Perfect. Appreciate that answer.

Speaker Change: Perfect I appreciate that answer and maybe as a follow up question as you guys look forward.

Chris Paulson: And maybe as a follow-up, Quinn, as you guys look forward at kind of where things take you, you know, from a pricing standpoint and a capacity addition standpoint and your leverage, if you kind of continue to tick away at bringing that down into the range where you guys are hoping to get, you know, notice that your distribution coverage also has gone up.

Speaker Change: Sort of where things take you from a pricing standpoint.

Speaker Change: Capacity addition standpoint, and your leverage if you kind of continue to tick away at bringing that down into the range, where you guys are hoping to get.

Speaker Change: I noticed that your distribution coverage is also has gone up and maybe curious how you're thinking of longer term about potential distribution growth after you've been.

Chris Paulson: And maybe curious how you think in the longer term about, you know, potential distribution growth after you've been pretty much steady for the last several years, as long as I can remember.

Speaker Change: Much steady for the last several years as long as I can remember.

Chris Paulson: Yeah, thanks for that, Jim.

Speaker Change: Yes, thanks for that John This is Chris Paulson.

Chris Paulson: This is Chris Paulson. You know, Every CFO would, of course, like to grow that distribution coverage and, in turn, grow the underlying distribution price. I mean, we remain mindful of that. As we undertake this additional growth capital, I do think our coverage will continue to improve. Ultimately, we need to decide, you know, what is the right, you know, coverage level to withstand cycles, and given our capital structure and our debt structure at the time. So, at this point, you know, I'm not prepared to give you what that number is, but that's something that we'll continue to be mindful of as we continue to grow both our underlying DCF and, hopefully, the underlying unit price.

Speaker Change: Sure.

Speaker Change: Every CFO.

Speaker Change: Of course like to grow that distribution coverage in turn grow the underlying distribution price.

Speaker Change: We remain mindful of that as we undertake this additional growth capital I do think our coverage will continue to improve ultimately we need to decide what is the right.

Speaker Change: Coverage level to withstand cycles, and given our capital structure and our debt structure at the time.

Speaker Change: At this point I'm.

Speaker Change: Im not prepared to give you what that number is.

Speaker Change: That's something that we'll continue to be mindful of as we continue to grow.

Speaker Change: Both our underlying DCF and hopefully the underlying unit price at the same time.

Jim Rollyson: Gotcha. Appreciate that.

Speaker Change: Got you I appreciate that thank you guys.

Jim Rollyson: Thank you, guys. Thank you.

Speaker Change: Thank you.

Gabe Moreen: And your next question comes from the line of Gabe Moreen with Missoula Securities. Gabe, please go ahead.

Speaker Change: And your next question comes from the line of <unk> Moreen with Mizuho Securities Gabe. Please go ahead.

Chris Paulson: Hey, good morning, everyone. A couple questions, if I might. Just in terms of the 2025 guidance, I think if you take your fourth quarter results and kind of annualize them, looks like, you know, maybe just expecting a flattish for 2025. So I'm just wondering if you can contextualize that a little bit. Are you expecting a little bit of diminishment in gross margins, maybe what you're looking at in cost? So I'm just wondering if you can contextualize 25 guidance in the context of 4Q results.

Speaker Change: Hey, good morning, everyone couple.

Gabe: Couple of questions. If I might just in terms of the 2025 guidance I think if you take your fourth quarter results and kind of annualize them.

Speaker Change: It looks like.

Speaker Change: Maybe just expecting flattish for 2025 and I'm just wondering if.

Speaker Change: If you can contextualize that a little bit are you expecting a little bit of a diminishment in gross margins maybe.

Speaker Change: What youre looking at in cost. So I'm just wondering if you could just contextualize 25 got it from the context of <unk> results.

Chris Paulson: Yeah, Gabe, Chris Paulson, again, great question. So just I will note that Q4 benefit from a net sales tax credit of approximately $3 million. That being said, we are optimistic that the margin and utilization trends that we've seen in Q4 will carry into 2025.

Speaker Change: Yes, Gabe Chris Poulton again, great question. So just I will note that Q4 benefited from a net sales tax credit of approximately $3 million.

Speaker Change: That being said, we are optimistic that the margin and utilization trends that we've seen in Q4 will carry into 2025 or.

Chris Paulson: Our full year guidance reflects the price increases we've seen in Q1, modest increases tied to CPIU for the remainder of the year, and new horsepower that will be delivered in Q4. To the extent we see that horsepower delivery early, or we see larger price increases through the remainder of the year, or frankly, less turnaround time than budgeted, it likely presents some upside to this range. If that occurs, we will update the range accordingly later in the year, but that's what's factored into our guidance.

Speaker Change: Our full year guidance reflects the price increases we've seen in Q1 modest increases tied to CPI view for the remainder of the year and new horsepower that will be delivered in Q4.

Speaker Change: We see that horsepower delivery early or we see larger price increases through the remainder of the year or frankly, less turnaround time than budgeted and likely present, some upside to this range. If that occurs we will update the range. Accordingly later in the year, but that's what factored into our guidance today.

Speaker Change: <unk>.

Gabe Moreen: Great, thank you.

Speaker Change: Great. Thank you and then maybe if I could also ask kind of a capex cadence.

Chris Paulson: And then maybe if I could also ask on kind of the CapEx cadence, I think 24 saw you raise growth CapEx a couple times, and I realized that maybe it was in UU specifically in terms of the management team at the time. But can you just talk about not getting to I think the growth CapEx number in 24 that you put out there? Did you not end up redeploying some of that idle horsepower? Just curious how that factored, how that played out.

Speaker Change: 24 saw you raise gross Capex, a couple of times and I realize it maybe.

Speaker Change: Maybe it was a new used specifically in terms of the management team at the time.

Speaker Change: But can you just talk about not getting to I think the gross capex number in 'twenty four that you had put out there.

Speaker Change: Did you not end up different redeploying some of that idle horsepower just curious how that factored all of that played out.

Speaker Change: Yeah.

Chris Paulson: So as it relates to 2025, in particular. You know, we we know how much new horsepower we're bringing to bear. And we certainly have additional growth capital tied to make ready and idle units. That proportion in 2025 is a higher proportion on contracted new contract units that I think we have a much better handle on the relative cost and potential inflationary measures of that. And we have that as soon as we ink that contract. And so, you know, going into this year and that growth capital, I think we have a very good handle on what that would be.

Speaker Change: So as it relates to 2025 in particular.

Speaker Change: We know how much new horsepower, we are bringing to bear and we certainly have additional growth capital tied to make ready and idle units that proportion in 2025 is a higher proportion on contracted new contract.

Speaker Change: <unk> I think we have a much better handle on the relative cost and potential inflationary measures of that we have that as soon as we inked that contract.

Speaker Change: So.

Speaker Change: Going into this year and that growth capital I think we have a very good handle on what that would be and we are certainly.

Chris Paulson: And we certainly understand the implications of having to raise capital ranges and have to do that several times through a given year. And it's our intent not to do that this year.

Speaker Change: And we certainly understand the implications of having to raise capital ranges and <unk>.

Have to do that several times through a given year and it's our intent not to do that this year.

Gabe Moreen: Thanks, Chris.

Speaker Change: Thanks, Chris and if I could just squeeze one more and I think there was a mention of adjacent business opportunities I Wonder if you could maybe elaborate on what you maybe you guys. Maybe you mean by that.

Chris Paulson: If I could just squeeze one more in. I think there was a mention of adjacent business opportunities. I wonder if you could maybe elaborate on what you guys maybe mean by that. Yeah, so we're talking about our third party service division, where we work on customer owned equipment. We expect to see that that that business grow this year and take on more of a larger role. mainly just servicing third party customers equipment.

Speaker Change: Yes. So we're talking about are our third party service division work on customer owned equipment.

We expect to see that.

Speaker Change: That business grow this year and take on more larger role.

Speaker Change: So.

Speaker Change: Mainly just service and third party customers equipment.

Gabe Moreen: Got it.

Speaker Change: Got it thanks, Glenn I appreciate that.

Gabe Moreen: Thanks Clint, appreciate that.

Speaker Change: Sure.

Jeremy Tonette: And your next question comes from the line of Jeremy Tonette with JP Morgan. Jeremy, please go ahead.

Speaker Change: And your next question comes from the line of Jeremy Tonet with Jpmorgan Jeremy. Please go ahead.

Chris Paulson: Hi, good morning. Good morning, Jeremy. Just wanted to dive into gross margin a little bit more, if we could. You know, had a nice expansion there. And just wondering what you could share with us with regards to, I guess, pricing in general for your services and, you know, any other inputs to gross margin. Do steel tariffs, would that impact you in any sense? Just looking to see what you're seeing.

Jeremy Tonet: Hi, good morning.

Speaker Change: Good morning, Jeremy.

Speaker Change: Just wanted to dive into gross margin a little bit more if he could.

Speaker Change: It had a nice expansion there and just wondering what you could share with us with regards to I guess.

Speaker Change: Pricing in general for your services and <unk>.

Speaker Change: Any other inputs to gross margin due steel tariffs would that be would that impact you in any sense, just looking to see what youre seeing there.

Chris Paulson: Yeah, great question.

Speaker Change: Yeah, Great question. So historically, we've really not comment on price increases we try to keep that.

Chris Paulson: So historically, we've really not comment on price increases. We try to keep that close to the vest as it relates to our customer discussions. I can note that customers are still favoring contracts as opposed to remaining on month-to-month, where we tend to push for near-term escalators that are much greater necessarily than contract terms. We've seen greater interest in longer renewals than we've seen in the past, which is also interesting. So customers recognize that there could be additional pricing pressures down the line if they were to wait on renewals.

Speaker Change:

Speaker Change: Close to divest as it relates to our customer discussions I can note that customers are still favoring contracts as opposed to remain on month to month.

Where we tend to push for near term escalators that are much greater necessarily been then contract terms, we've seen greater interest in longer renewals than we've seen in the past which is also interesting.

Speaker Change: So customers recognize that there could be additional pricing pressures down line, if they were to weight on renewables.

Chris Paulson: As it relates to steel tariffs, that's a tough one. It's a brand new factor that we're thinking through. Obviously, we have been hearing about the potential of oil tariffs in the market, and that got pushed, or at least punted, a few months. But steel tariffs and the implications for both compression and compression manufacturing, even though a lot of our specific components are U.S. born, they still, you know, do have steel associated with it. And then the implications for the broader industry upstream and midstream, I just think it's too early to make a determination on that.

Speaker Change: As it relates to steel tariff, that's a tough one it's a brand new factor.

Speaker Change: Factor that we're thinking through obviously have been hearing about the potential of oil tariffs in the market and that got pushed or at least punted a few.

Speaker Change: But.

Speaker Change: Steel tariff and the implications for both compression and compression manufacturing, even though a lot of our our specific components are U S. Born they still do have steel associated with it and then the implications for the broader industry upstream and midstream I just think it's too early to make a determination on that.

Chris Paulson: Does that help with that question, or was there something more?

Speaker Change: Does that help with that question or was there something that.

Jeremy Tonette: Yeah, no. It makes sense.

Speaker Change: It makes sense certainly a lot of uncertainty out there at this juncture.

Chris Paulson: There's certainly a lot of uncertainty out there at this juncture, so maybe, I don't know if there's any other comments you could provide with regards to leading-edge, new-build pricing trends right now, even if I don't have clarity to what tariff impacts. You know, on our on our new bill compression, you know, we are laser focused on payback periods and payback periods that don't have negative implications on our current leverage. So, you know, we we want that product to pay back within term. And and so that's that's one of our our. significant items that we look at.

Speaker Change: I don't know if theres any other.

Speaker Change: Comments, you can provide with regards to leading edge newbuild pricing trends right now, even if I don't have clarity too.

Speaker Change: What tariff impacts might be.

Speaker Change: On our Newbuild compression, we are laser focused on payback periods and payback periods that don't have.

Speaker Change: Negative implications on our current leverage.

Speaker Change: So we want that product to payback within term.

Speaker Change: And so that's one of our <unk>.

Speaker Change: Significant items that we look at obviously internal rate of return on a on a standalone unit basis, but also the rate of return as it relates to supporting.

Chris Paulson: Obviously, internal rate of return on a standalone unit basis, but also the rate of return as it relates to supporting our yield and as it relates to supporting our capital structure from a corporate standpoint as a whole is also very important. But those are the things that all go into the calculus as it relates to new unit. you know, orders. And obviously, that was supportive of increasing the amount of new unit orders going into this year, and I think it will continue into 2026.

Speaker Change: Our yield and as it relates to supporting our capital structure from a corporate standpoint as a whole is also very important but those are the things that all go into the calculus as it relates to.

Speaker Change: New unit.

Speaker Change: Orders and obviously that was supportive of increasing the amount of new unit orders going into this year and I think it will continue into 2026.

Chris Paulson: Just as a matter of course, you know, we're already having those discussions for 2026, given lead times, and starting to factor that into, you know, our models and forecasts and thinking about what that growth capital should look like into 2026. Got it. Makes sense.

As a matter of course.

Speaker Change: Already having those discussions for 2026 given lead times.

Speaker Change: And starting to factor that into.

Speaker Change: Our models and forecasts and thinking about what that growth capital should look like into 2026.

Speaker Change: Got it makes sense is there any way to help us kind of quantify what that might look like for payback periods or any other way to quantify the question in general.

Chris Paulson: Is there any way to help us kind of quantify what that might look like for payback periods or any other way to quantify the question in general? In general, I don't want to tip my hand, but as mentioned, we anticipate that payback will occur within the contract. Got it. That's helpful.

Speaker Change: And in general I don't want to tip my hand, but as mentioned, we anticipate that payback will occur within the contract term.

Speaker Change: Got it.

Chris Paulson: And then, just the last one, if I could, we've been fielding a lot of inbounds recently from investors with regards to potential other applications for your units. And I know that your units are all being applied to your current customers, and that's your first and foremost focus. But I just wanted to see, is it even possible at all for compressed units to be used in other services such as electric power, behind the meter, what have you? Is it even physically possible, or any thoughts on the topic in general? Well, for compression, no, not really. I mean, those compressors are, you know, they're one purpose to take low pressure gas or a lower pressure gas and compress it and make it a higher pressure to move down the pipeline or to the front end of a cryo or what have you.

Speaker Change: That's helpful. And then just last one if I could we've been fielding.

Speaker Change: A lot of inbounds recently from investors with regards to potential other applications for your units and I know that your units are all.

Speaker Change: Being applied to your current customers and Thats your first and foremost focus.

Speaker Change: But just wanted to see is it even possible at all four compressor units to be used in other service such as.

Speaker Change: Electric power behind the meter what have you is that even physically possible or any thoughts on the topic in general.

Speaker Change: Yeah, well for compression no not really I mean, those compressors are.

Speaker Change: They're one purpose to take to take low pressure gas or a lower pressure gas and compress it and make it a higher pressure to move down the pipeline or to the front end of a trial or what have you.

Chris Paulson: Now, we have our dual drive technology. In theory, you could take that equipment and run the gas engine and use the motor to distribute electricity. We don't see that market really opening up. We like our dual drive for the ability to unload the power grid and take the electric motor off, put it on an electric drive. That's the same as generating back to the grid if you're not taking the load. So that's where we see the opportunity for another market with a different compressor or with our compressor.

Speaker Change: We have our dual drive technology in theory, you could take you could take that equipment and run the run the gas engine and use the motor to distributed electricity.

Speaker Change: We don't see that that market really opening up we like our dual drive for the ability to unload.

Speaker Change: The power grid and take the electric motor off put it on electric electric drive that's the same as generating back to the grid if youre if youre not taken the load. So that's where we see the opportunity to for another market with a different compressor or with our compressors.

Chris Paulson: Got it. So certain arbitrage possible with existing units, but not bespoke power solutions. Is that a fair way to think about it? I agree. Yes, sir.

Speaker Change: Got it so certain arbitrage possible with existing units, but not bespoke.

Speaker Change: Power solutions is that a fair way to think.

Speaker Change: Think about it.

Speaker Change: Yes, Sir.

Jeremy Tonette: Wonderful. Thank you so much.

Speaker Change: Wonderful. Thank you so much.

Brian DiRubbio: And your last question comes from the line of Brian DiRubbio with Baird. Brian, please go ahead.

Speaker Change: And your last question comes from the line of Brian <unk> with Baird. Brian. Please go ahead.

Brian DiRubbio: Good morning, gentlemen. Just a couple of questions for me. Chris, I think you mentioned that you're going to address the AVL in the second half this year. I mean, sort of in an ideal world, what are you guys thinking about having your debt in terms of fixed terms and rates versus having the AVL? Yeah, you know what? I like where we stand presently. Obviously, I inherited the current structure in terms of our fixed versus variable component on the ABL. We need to think about sizing of the ABL and make sure that we size it according to what we think our long-term growth budget is and long-term targets in terms of leverage.

Brian: Good morning, gentlemen, just a couple of questions for me.

Speaker Change: Chris I think you mentioned that youre going to address the ABL in the second half this year.

Brian: Sort of an ideal world what.

Speaker Change: Are you guys thinking about having your.

Speaker Change: That in terms of fixed terms and rates versus having the ABL.

Speaker Change: Yeah.

Speaker Change: I like where we stand presently obviously I inherited.

Speaker Change: The current structure in terms of our fixed versus variable component on the ABL.

Speaker Change: We need to think about sizing of the ABL.

Speaker Change: And make sure that we sized it according to what we think.

Speaker Change: Long term growth budget is in our long term targets in terms of leverage.

Chris Paulson: You know, we sit around four times a day. I think that is an area that that is a reasonable place to be. We obviously would like to be lower and it would be my plan to be lower in time. But that will go into the calculus in terms of fixed versus variable as it relates to the fixed component on that. I mean, the first lever that we can push would be as it relates to our seven hundred and fifty million dollar twenty twenty seven. Those, at least the premium, call premium on those go away in September of this year.

Speaker Change: We sit around four times a day I think that is an area that that is.

Speaker Change: A reasonable place to be we obviously, we'd like to be lower than it would be my plan to be lower in time, but that will go into the calculus in terms of fixed versus variable as it relates to the fixed component on that I mean, the first lever that we can push would be as it relates to our $750 million 2002.

Speaker Change: Seven notes those.

Speaker Change: At least the.

Speaker Change: Premium call premium on those go away and.

Speaker Change: September of this year and so we plan to progress our evaluation of that in Q2, we haven't been in a hurry to accelerate.

Chris Paulson: And so we plan to progress our evaluation of that in Q2. We haven't been in a hurry to accelerate evaluation efforts given where rates stand today, but I think we'll be opportunistic as it relates to rate and tenure by following Fed commentary alongside of our bankers with the hope that maybe we'll get more than a rate cut, you know, later this year.

Speaker Change: Evaluation efforts, given where rates stand today, but I think we'll be opportunistic as it relates to rate and tenure.

Speaker Change: By following fed commentary alongside of our bankers with the hope that maybe it will get more than a rate cut.

Speaker Change: Later this year.

Chris Paulson: Douglas Goldstein, financial planner & investment advisor, interviewed DiRubbio on Arutz Sheva Radio. You know, that need to borrow to fund the distributions going forward, and you want to start paying down some gross debt. I think we just need to look at relative debt measures and relative capacity of the business as it relates to our debt measures, and look at that as it relates to the cycle that we're in. I'm not prepared just yet to address whether or not that means more aggressive paydown of debt or kind of continued relative financing capacity of the business. Right now, the focus, at least as it relates to our growth capital in 2025, is to make sure that the relative standing and relative measures and debt measures of the business are not impacted in a significant way, especially as it relates to the ability to go out and refinance some of our fixed notes.

Speaker Change: Understood. That's helpful. There and just as you're thinking about capital allocation. The company has been borrowing to fund the distributions for a number of years is it your am I hearing you right, you're looking at sort of stop that sort of.

Speaker Change: That need to borrow to fund the distributions going forward do you want to start paying down some gross debt.

Speaker Change: I think we just need to look at relative debt measures and.

Speaker Change: Relative capacity of the business as it relates to our debt measures and look at that as it relates to the cycle that we're in.

Speaker Change: Not prepared just yet to.

Speaker Change: To address whether or not that means yes.

Speaker Change: More aggressive pay down of debt or.

Kind of continued relative.

Speaker Change: Nancy capacity of the business right now.

Speaker Change: The focus at least as it relates to our growth capital in 2025 is make sure that the relative standing in relative measures in that measures of the business are not impacted in a significant way, especially as it relates to the ability to go out and refinance some of our.

Speaker Change: Fixed notes.

Chris Paulson: So that's the near-term view for me in managing the business.

Speaker Change: So that's the near term.

Few for me.

Speaker Change: During the business and then longer term I think it will be better apt to be able to answer that question.

Chris Paulson: And then longer term, I think I'll be better, have to be able to answer that question.

Speaker Change: Sure.

Brian DiRubbio: Fair enough.

Brian DiRubbio: And just a final question for me is to just think about the CapEx program and the spend for new build equipment. Just, you know, has the prices for new builds, you know, increased materially over the last couple of years when you made your last big order? Just trying to get a scope of, you know, with the growth CapEx, how much horsepower that you're potentially adding. Really, you know, year over year, we haven't seen a significant increase. And in fact, at least the last several quarters, as we've looked towards the new build, I should point to.

Speaker Change: Fair enough and just final question for me if you just think about the Capex program.

Speaker Change: Since the spin for Newbuild equipment.

Speaker Change: Has the prices for new builds.

Speaker Change: Increased materially over the last couple of years. When you made your last big order. It just trying to get a scope of with the growth capex, how much horsepower that you're potentially adding.

Speaker Change: They really year over year, we haven't seen a significant increase in fact.

Speaker Change: At least for the last several quarters as we look towards the Newbuild I should should point too.

Chris Paulson: So, you know, pricing that we saw on Q4 versus the pricing we've seen in Q1 in terms of the new build, compression has not moved.

Speaker Change: So the pricing that we saw in Q4 versus the pricing we've seen in Q1 in terms of the Newbuild compression has not moved as it relates to.

Chris Paulson: As it relates to, you know, looking, you know, year over year, Q4 to Q3, I would have to do some research to see relatively how significantly that is. Yeah, to add, I mean, over the last few years, we have seen significant price increasing on engines, compressors, you know, and manufacturing itself, or the fabrication. You know, it seems like every year, Caterpillar or Walkshaw, or you know, they give us a price increase that just passed along. But we have seen thankfully, we've seen the market carry that pricing as far as contract rates to be able to buy new equipment.

Speaker Change: Looking.

Speaker Change: You know year over year Q4 to Q3.

Speaker Change: I would have to do some research to see relatively how significantly that has moved.

Speaker Change: Yes.

Speaker Change: Over the last few years, we have seen significant price increases.

Speaker Change: On engines compressors.

Speaker Change: And manufacturing itself or the fabrication.

Speaker Change: It seems like every year caterpillar work sure they give us some price increase that just passed along but we have seen thankfully we've seen the market carry that pricing as far as contract rates to be able to buy new equipment.

Chris Paulson: You know, 3600 engine is still the preferred engine by customers. Yeah, everybody likes them a lot. You know, they run well, and yeah, I mean, Waukesha seems to be taking a foothold, but Caterpillar is still about four of the lines share. Understood.

Speaker Change: 3600 engines still the preferred engine by customers.

Speaker Change: Yes, everybody likes him a lot.

Speaker Change: <unk>.

Speaker Change: Yes.

Speaker Change: Waukesha seems to be taken a foothold, but what caterpillar is still by far the.

Speaker Change: The lion's share.

Brian DiRubbio: Appreciate the time. Thank you, gentlemen. Thank you.

Speaker Change: Understood appreciate the time, thank you gentlemen.

Speaker Change: Thank you.

Operator: That concludes our question and answer session, also concludes our today's call. Thank you all for joining.

Speaker Change: That concludes our question and answer session also concludes our today's call. Thank you all for joining you may now disconnect.

Operator: You may now disconnect.

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