Q1 2025 USA Compression Partners LP Earnings Call
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Thank you for your time, and I'll see you in the next video.
Speaker Change: Good morning. Welcome to USA Compression Partners' first quarter, 2025, earnings conference call.
Speaker Change: During today's call, all parties will be in the lesson only mode. At the conclusion of management's prepared remarks, the call will be open for Q&A.
Speaker Change: If you would like to ask a question during this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again.
This conference is being recorded today, May 6, 2025 [inaudible]
Chris Porter: I now would like to turn the call over to Chris Porter, 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-ending March 31, 2025. 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.com.
Chris Porter: During this call, our manager will reference certain non-get measures. You will find definitions and reconciliations of these non-get measures to the most comparable US GAAP measures in our
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
Chris Porter: Please review the risk factors included in this morning's earnings release and in other public filings. Please note that information provided on this call speaks only to manage the views as of today, May 6, 2025, and may no longer be accurate at the time of the replay.
Chris Porter: I will 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. This morning we released our first quarter of 2025 results. We're extremely pleased that we were once again able to deliver strong revenues, adjusted gross margin, and average horsepower utilization.
Clint Green: Leading to a record average revenue per horsepower per month for the quarter. On the operational front, we continue to improve top line revenue per generating horsepower with new and re-contracted rates moving higher.
Clint Green: Benefitting from continued tightness in the market. In Q1, we ordered approximately 40,000 new horsepower, the majority of which will be delivered before you're in. We are also evaluating opportunities for the remaining new horsepower to be delivered before you're in.
Clint Green: Additionally, we are actively responding to 2026 proposals and anticipate more rateable quarterly increases to new horsepower next year.
Clint Green: Finally, we have completed the Idle to Active Initiative that commenced early last year. Although our total active horsepower was essentially flat on a sequential quarter basis, our large horsepower continues to be close to fully utilized.
Clint Green: Going forward, we expect our most significant gains in horse power will occur as we continue our discipline growth strategy of acquiring large horse power, borrowing significant changes in small horse power utilization.
Clint Green: Since our last call in February , commodity prices have often considerably tied to tear-driven market uncertainty.
Clint Green: However, thus far in Q1, we have seen key upstream companies in the Permian and the Northeast reaffirmed their four-year capital and production targets, but also provide the market capital allocation options in the case that low commodity prices persist.
Clint Green: On the gas demand side, Amazon, Microsoft, and the video reaffirmed that the data center market remains strong and both range and EQT highlighted incremental power demand growth in the Northeast.
Clint Green: where USA holds the largest contract compression fleet, totaling around 900,000 horsepower.
Speaker Change: At USAC, we are actively monitoring the daily movement on tariffs and see a potential for minimal impacts to our parts and materials business, once we begin to work through current inventories.
Speaker Change: On the Capitol Front, we did not anticipate a tear of impact to our 2025 New Horse Fire cost. As costs were locked in at the time of order placement.
Speaker Change: Looking forward, it is too early to tell. Many of the capital components of our business are tied directly to U.S. manufacturing entities who sourced steel evenly from both international and domestic markets.
Speaker Change: We would expect those entities to work through inventories and then decide if a contract rate in excess of historical increases is reasonable and justified if a tempered market outlook exists.
Speaker Change: As our investors know, the Compression business is sustained by long-term agreements and is less susceptible to short-term commodity prices.
Speaker Change: Nonetheless, we keep a watchful eye on our industry and the potential impacts to slow production from current market uncertainty given the natural gas and crude oil or a feed stock for so many things that we use every day.
Speaker Change: At this time, we believe we can maintain our adjusted operating margins for the foreseeable future, which have consistently been around 67%.
Speaker Change: Remaining an even-handed partner for our customers to enhance their value and ours.
Speaker Change: On the personnel front, I want to highlight Chris Walson's promotion to Chief Operating Officer, a recognition that has well-deserved giving his long-standing leadership and our Permian operations and 26-years experience in the compression industry. Chris is joining us on the call today.
Speaker Change: On to the shared services front, we have fully transitioned IT and HR functions in Q1 and remain on track for a Q1 2026 ERP implementation that should yield meaningful improvements in tiling management of the business.
Speaker Change: With that, I will turn the call over to Chris Paulsen, our chief financial officer to discuss our first quarter highlights and 2025 guidance in more detail.
Chris Paulsen: Thanks, Clint. In the quarter, our sales team continued to build upon pricing improvements up to an all-time high of $21.06 per average horsepower for the first quarter, a 1% increase in sequential quarters and in 6% compared to a year ago.
Chris Paulsen: Average active horsepower remained flatish at 3.56 million. Our first quarter adjusted gross margins were nearly 67%.
Chris Paulsen: Regarding the Consolidate Financial Results, our first quarter of 2025 net income was 20.5 million.
Chris Paulsen: Operating income was $69.4 million. Net cash provided by operating activities was $54.7 million and cash entered to expense net was $45.1 million.
Our leverage ratio is currently at 4.08 times.
Chris Paulsen: Turning to operational results, our total fleet horsepower at the end of the quarter was approximately 3.9 million horsepower, essentially unchanged to the prior quarter.
Chris Paulsen: Our revenue generating course power also was flat on sequential quarter basis and up 2% from a year ago.
Chris Paulsen: Our average utilization for the first quarter was 94.4% and aligned with the prior quarter of 94.5%.
Chris Paulsen: First quarter, 2025 expansion capital expenditures were 22.2 million, and our maintenance capital expenditures were 10.9 million.
Chris Paulsen: Expansion capital spending primarily consisted of reconfiguration and make ready of idle units, while maintenance capital increased to level consistent with regular minor overhaul cycles that had previously been deferred during 2024's make ready efforts.
Chris Paulsen: For the remainder of the year, most capital will be focused on reconfigurations and new horsepower.
Chris Paulsen: We maintain our just-a-deep-a-daw range of 590-610 million.
Chris Paulsen: Expansion capital range of 120 to 140 million and maintenance capital between 38 and 42 million. As a reminder, the expansion capital budget will be back and loaded with much of the new horsepower delivery in Q4.
Chris Paulsen: To the extent deliveries move into key one, capital may be deferred, and our expansion capital budget will be updated accordingly.
Chris Paulsen: As stated in Q4 2024, the company made great progress in steadily reducing its leverage ratio over the last several years and we remain committed to that in 2025.
Chris Paulsen: Have previously discussed, our leverage ratio will largely be maintained, and then marginally increase later in the year as we fund new growth projects that are back and loaded.
Chris Paulsen: These project returns substantially exceed our cost to capital and are anticipated to pay back within the contract term.
Chris Paulsen: In the near term, this means our target at or below four times debt to EBITDA is a reasonable metric by which to aspire. We will continue to revisit this metric as market dynamics change, but don't anticipate a meaningful change.
Chris Paulsen: Finally, I want to address debt refinancing in light of the recent market fundamentals in the high-yield market.
Chris Paulsen: Since Liberation Day, the high-yield market has settled, though pricing is considerably higher than prior April 2nd. We are in no hurry to rush into a notes market where both spreads and yields have pushed higher, and will remain patient until borrowing cost improves.
Clint Green: That being said, the market for asset-backed credit facilities has remained very strong and has been unimpacted by the near-term volatility tied to tariffs. As a result, we expect to move forward with refinancing our ABL in the near term. And with that, I'll turn the call back to Clint for concluding remarks.
Clint Green: Thanks, Chris. I've been outspoken about discipline growth and at times of uncertainty this approach should resonate with the investment community.
along with our industry leading return of Capitol Framework.
Clint Green: Equity Volatility is also mitigated by a large shareholder in energy transfer, who has partnered through shared services to ensure our business is cost-efficient and capable through cycles.
Clint Green: USAC is characterized by world class customers and employees who value safety as our top priority. It is important that we reiterate the safety commitment to our employees, our contractors and our customers employees daily, and we make it a part of all we do.
Clint Green: And I want to thank each and every employee that makes that happen. And with that I will open the call up to questions.
Clint Green: At this time, I would like to remind everyone, in order to ask a question, please press start, followed by the number one on your telephone keypad.
Speaker Change: Your first question comes from the line of Doug Irwin with City.
Please go ahead.
Doug Irwin: Hey, thanks for the question. I just want to start with the 25 guidance range here. Just looking at the first quarter run rate, it seems like it's putting you pretty well on pace for the point of the range. Just give them some of the fleet additions you talked about coming in the second half of the year. It's fair to say you're probably turning toward the upper half of that range today.
Doug Irwin: Yeah, Doug, thanks for the question. This is Chris Paulsen. You know, we set forth the range of 590 to 610. We're maintaining that range today. As you pointed to, the Q1 annualized number would put us right in the middle of that. But, you know, our force power overall is...
has noted largely back and loaded. [inaudible]
Doug Irwin: And most of that horse power will come in into Q4. And we expect for it to come in to Q4. We don't expect for that to materially slip.
Doug Irwin: But its impact on Q4 will likely be minimal, so therefore maintaining the guidance in the 590 to 610 range.
Speaker Change: Great to see you highlight some of these orders coming on in the fourth quarter. Just curious how your conversations are progressing into 26, particularly given the...
Speaker Change: The current macro-environment hasn't you still seen strong interest or have discussions maybe kind of slowed in your terms and uncertainty.
Speaker Change: Yeah, we noted, you know, that we've ordered 40,000 horsepower in Q1.
Speaker Change: We expect to order additionally in the Q2, and we're starting to undertake RFPs for 2026.
So the interest is there. You know, we're...
We are digesting the market real time as is everyone else.
Speaker Change: You know, it's interesting. I think the markets in far better shape than we were in, you know, during the last downturn. We've seen a lot of consolidation in the market. I think that consolidation is brought with it far stronger balance sheets.
and production growth in fewer hands, production growth in larger companies, production growth,
Speaker Change: You know, housed within the major oils who really look towards this time to really differentiate themselves and have been built for uncertain markets.
Speaker Change: What we've seen generally is that while those companies have reaffirmed their growth targets.
Speaker Change: We've also seen the independence largely reaffirmed those targets as well. I know Diamondback had some softer guide yesterday. Don't see it being a real impact on production overall. We've seen by contrast some of the companies in the Northeast.
Speaker Change: You know, really reaffirm those targets and really lean into potential for growth in next several years. I think that's the difference maker for our company in particular. We've noted 900,000 worst power there in the Northeast.
Speaker Change: And we've even seen as early as this morning, companies like Cotera, look to move some of the rig count over to the Northeast.
Speaker Change: So overall, we're digesting things real-time as you are, but we're continuing to take RFPs and there is continual interest for 2026, how that ultimately plays out for 2026, it's too early to tell.
Great, it's all for me. Thanks
Robert Moska: The next question comes from the line of Robert Moska with Mizzouho Securities.
Please go ahead.
Robert Moska: So the 440,000 horsepower of new addition seems a little bit lower than what's implied by that metric so is that a function just having some remaining units that you plan to activate or maybe a little bit?
Robert Moska: of pullback in terms of cost of demand and how you're staging those, those new units that you're going to order in 2Q.
Yeah, thanks for the question, Robert.
Robert Moska: The 40,000 is below our full year forecast for new compression. As noted that 1.5% would imply something more can to 52 to probably 55,000 horsepower.
Robert Moska: I think we're very pleased that we've been able to move forward with as much as 40,000 horsepower in the quarter and anticipate that the remainder will be satisfied through year in, hopefully as early as Q2, we're well on our way towards that end.
Speaker Change: Got it. That's helpful. And maybe asking about the growth outlook beyond 25 in a different way. How are you approaching those commercial discussions with the macro backdrop and perhaps the need to wait out the high yield market a little bit longer for attractive refinancing terms? Is that affecting your growth outlook on 26 at all?
Speaker Change: Yeah, the high-yield market today is still open. In fact, I think they're within the last several weeks, there's been...
Speaker Change: Quite a bit of interest in the market. The markets moved up overall are cost.
Speaker Change: To issue notes, for instance, has probably moved up 50 basis points since prior to Liberation Day. That number at one point was probably 150 basis points higher. So it's come back in by quite a bit. You've seen new issuances here recently.
Speaker Change: You've seen our bonds in particular trading much tighter here in the last several weeks.
Speaker Change: So, you know, we could go out today, probably 50 basis points higher than then...
Speaker Change: Where we were a few months ago. That's less interesting, frankly. I think we can be patient here. There's no need to rush.
Speaker Change: We really, you know, have quite a bit of time as it relates to our no-dissuances as I mentioned though on the ABL side.
Speaker Change: I think we'll continue with with the plans that we had prior to tariff discussion.
Speaker Change: You know, we'll really embark upon refinancing our ABL in the second half of this year.
Speaker Change: From what I've seen, from initial offerings and proposals there, we have really, really strong commitments from our banks.
Speaker Change: We have more banks that are interested, and I'm hopeful that that will mean at the end of the day lower financing costs.
Speaker Change: But we'll let the process play out and then come back to you guys in the second half once that process is played out.
Great. I appreciate the time today.
Uh-huh.
Speaker Change: Your next question comes from the line of Jeremy Tonet with JP Morgan.
Please go ahead.
Hey, this is Eli Jossen on for Jeremy.
Some of the more macroeconomic volatility that we've been seeing.
Speaker Change: I'm not sure we've seen anything really different in terms of duration or term in those contracts.
Speaker Change: You know, from a USA perspective, I think, you know, we ultimately would like to return as much as we possibly can.
Speaker Change: I think we'll continue to move towards that end, make sure that we have as much on term, especially in the event of softening of the cycle. I think it makes sense for all parties to do that. I think if you have...
to continue investment.
Speaker Change: and I think generally what we're seeing and that's been pretty consistent over the course of the last many years, but really I haven't seen any change in discussion at this point in time.
Speaker Change: I don't know if tariffs or other sort of manufacturing changes have impacted the OEM market as you see it. But where do you see lead times right now? And what's your view on that part of the market?
Clint Green: Yeah, hey, this is this Clint. So lead times still stay up or around the same as they have been. We're seeing
And then...
Clint Green: from Packagers is running between 30 and 40 weeks. So it really hasn't changed yet. Now, depending on what happens to the tariffs, you know, it could but our stuff's locked in for most of it for the end of the year delivery. And as these RFPs come through for 26,
Clint Green: We'll continue to try and get those orders in place in time to make the livers.
Great, I'll leave it there, thanks.
Speaker Change: As a reminder, if you'd like to ask a question, please press star followed by the number one on your telephone keypad.
Speaker Change: The next question comes from the line of Corner Jensen with Raymond James. Please go ahead.
Speaker Change: Hey guys, thanks for taking my call today. I just had one quick one. It looked like you had some modest asset sales or retirements in the corridor. How should we think about this trending for the rest of the year as opposed to the assets that are bringing online? Thanks.
Yeah, so we continue.
Speaker Change: to look at ways to optimize our portfolio. As you mentioned, those were relatively modest sales and-or asset swaps as well. So to the degree that we can optimize our portfolio in various ways.
Speaker Change: We'll do it and undertake those to the degree that we have.
Speaker Change: Certain assets have been seeing on the fence for a long portion of time. We'll also look at a disposition there. So we're going to continue to find ways to really improve the overall efficiency of our horsepower.
Perfect. Thanks.
Speaker Change: There are no further questions at this time, ladies and gentlemen, this concludes today's call. Thank you all for joining and you may now disconnect.