Q2 2025 USA Compression Partners LP Earnings Call

Good morning, welcome to USA Compression Partners. Second quarter 2025 earnings conference call.

During today's call all parties will be in a listen-only mode.

at the conclusion of Management's, prepared remarks, there will be

a Q&A session.

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 1 again.

This conference is being recorded today. August 6th 2025.

I would 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, June 30 2025,

You can find a copy of our earnings release, as well as recording of This call and the investor relations section of our website at USA compression.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.

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 statements.

Please review the risk factors included in this morning's earnings release and in our other public filings.

Please note that the information provided on this call, speaks only to managers views as of today, August 6th, 2025 and may no longer be accurate at the time of a replay. I will now turn the call over to Clint green president and CEO of USA Compression.

Thank you, Chris and good morning and thank you for joining our call.

We are pleased to deliver a record setting quarter for revenues and average revenue per horsepower. While also maintaining consistent margins. And utilization,

Despite bearish macro commentary related to GDP tariffs inflation and commodities that could have presented headwinds. For our quarter, our business continues to March forward with strong execution, in the first half of the year.

While certain of our EMP customers took a brief pause in Q2 as WTI dip below $60 and Henry Hub marks slower, most have shown a resolve into the back half of this year and into 26 to support their current levels of production.

For example, our contractor horsepower in the Northeast in Q4, is expected to be 5% higher than today.

As we look to 2026, we believe we have significant reason for optimism. Given the number of rfqs in the pipeline bear, in mind, our top 10 customers comprise over, 45% of our revenues and most are expected to grow production next year. Not just maintain it.

In the longer term, we still expect to see significant growth in the natural gas demand from AI cloud services and related power needs. As major Tech firms. Continue to significantly increase budgets to expand their infrastructure.

Through the largest tech firms in the US are anticipated to spend over 265 billion in capital. This year, combined largely to expand their infrastructure for AI and cloud services. In addition, new data, center Investments are continuously being announced in the last several weeks Alone. 2 new data center, complexes tied to natural gas generation were announced 1 total in 4.4 gigawatts and another at 190 megawatts.

Coming alongside Tech and private Equity Investments, utilities are also investing, over 200 billion this year to meet the, this Growing Power demand.

Substantially more than any year since 2000.

We continue to believe that the only way to provide suitable consistent and clean energy to power. These needs is natural gas and our country needs compression to get it there.

Turning the US oil and gas production. The July eia short-term energy Outlook, showed considerable natural gas growth projections, including annualized, gas growth of 6% in the permit.

Natural gas out of the Northeast, and the Haynesville is also expected to grow.

Finally, crude oil production in the Perman continues to stay resilient and above the average for the first half of the last year, despite a lower rig count.

At the corporate level, we are beginning to reap the benefits from our new shared services model with energy transfer. For example, we have seen licensing savings and enhanced functionality from our it group and expect to reap the benefits of larger centralized procurement organization moving forward.

Shared services. But we like what we see this far?

Operationally, we have acquired approximately 48,000, new horsepower in 2025. The majority of which will be delivered before year in

We anticipate 10,000 of this horsepower will be online in January of 2026, and we'll update our 2025 capital forecast in Q3 to the extent that deliveries hit next year. We continue to seek and have success with buy and contract-back opportunities as additional ways to grow horsepower.

Although our average total active horsepower was down slightly on a sequential quarter basis, our large horsepower continues to be nearly fully utilized across the fleet. The majority of the unit releases for the quarter have been recontracted, and we anticipate Q4 active horsepower to exceed 3.6 million, which would represent a new record for the company.

In terms of day-to-day operations, we continue to focus on our 3. Biggest costs Parts labor and L wall.

For several of our most costly parts we are revisiting certain vendor discussions to solve for optimal quality cost and warranty coverage. Although labor costs increased in the quarter due to overtime and contract labor.

we expect these costs to reduce going forward as we fill these needs with internal hires through enhanced, recruiting effort,

We also anticipate seeing significant Savings in our lubaale costs related to our new agreement with a large L wall. Vendor

To date, tariffs have had minimal impacts on our business, as the manufacturing of most components we utilize originated in the U.S.

Lead times also have not materially changed from historical. Averages, with our engines, currently running 34 to 45 weeks and compressors 24 to 28 weeks. As I previously stated, we are still getting quotes for q1 or Q2 2026 delivery at the moment.

As Parts, inventories are generally around 6 months and we would likely not see any material inventory. Impacts from tariffs until next year at the earliest with that. I will turn the call over to Chris Paulsen, our Chief Financial Officer discuss our second quarter highlights and our 2025 guidance in more detail.

Thanks. Claire in the quarter, our sales teams continue to build upon pricing improvements up to an all-time high averaging, 21 dollars and 31 cents per horsepower. For the second quarter, a 1% increase in sequential quarters and 5% increase compared to a year ago, period.

Average active horsepower, remained flattish at 3.55 million. Our second core adjusted gross. Margins were 65.4%.

Regarding the Consolidated Financial results. Our second quarter, 2025 net income was 28.6 Million. Operating income was 76.6 Million. Net cash provided by operating activities was 124.2 million and cash, enter 6. Cents net was 45.4 Million. Our leverage ratio is currently at 4.08 times,

Turning to operational results, our total fleet horsepower at the end of the quarter was approximately 3.9 million horsepower, essentially unchanged from the prior quarter.

Our average revenue, generating horsepower also is flat on sequential quarter, bases, and up 1% from a year ago.

Our average utilization, for the second quarter was 94.4% consistent with the prior quarter.

In the second quarter of 2025, expansion capital expenditures were $18.1 million, and our maintenance capital expenditures were $11.7 million.

Expansion capital spending primarily consisted of reconfiguration, make ready, and capital for existing units.

Well, maintenance Capital expenditures were higher in the first half of the year as we prioritize. Preventive, maintenance efforts tied to annual intervals,

For the remainder of the year, most Capital will be focused on reconfigurations in new horsepower. Largely in Q4

In the quarter 100,000. Preferred units were converted into approximately 5 million common units.

only 80,000 preferred units now remain

Turning to 2025 guidance, we maintain our adjusted. Eva range of 590 million to 610 million. Distributable cash flow range of 350 to 370 million expansion, Capital range of 120 to 140 million and maintenance Capital between 38 and 42 million.

At Clint mentioned to the extent expansion. Capital is expected to move in the q1 2026, due to new compression delivery dates. We will provide an update to expansion capital in the Q3 call.

Ratio and expect it to marginally increase later in the year as we fund New Growth projects that are back in loaded.

Our Target remains at or below 4 times debt to ibida.

Since last quarter, spreads have remained tight, and yields have come in. This creates a more compelling backdrop to revisit a refinancing of our September 2027 notes sometime in Q4.

Of immediate focus is our abl which we hope to extend prior to the next quarterly call.

We have chosen the admin agent and have received strong unsolicited inbounds from many banks that would like to upsize or maintain their commitment levels.

This provides a degree of confidence that our current borrowing costs will be improved.

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

Thanks, Chris, our discipline, growth strategy, continues to serve our investors and customers will on a final note. I would like to congratulate our employees in the Rockies who have recently received a safety and operational excellence award from 1 of our top 10, customers our employees, make us who we are. And this is just another indication that we have the best in the business. And with that, I will open the call up to questions.

At this time, I would like to remind everyone in order to ask a question. Press star, then the number 1 on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Your first question comes from Doug Irwin with City.

Hey, thanks for the question. Um, I wanted to start with gross margin. You saw some pretty solid price increases this quarter but seems like it was more or less offset by increased Opex, which you already touched on it a bit in the prepared remarks. So I was just wondering if you could maybe expand on where you see, overall gross margins trending from here. Particularly as you bring on some new horsepower, that's presumably higher margin.

Green, thank you for.

Chris Watson.

He's our chief operating officer. I'm going to let him answer that question.

Thank you Glenn. Uh yes sir. Chris Wilson here, just as a reminder, over the past 4 years, gross margins generally, jumped around between 65 to 67% in this quarter is no different, you know, um, on the parts front, we're reviewing certain consumption patterns, and Associated warranties, determine a better path forward. But, um, on the labor side of things, we are actively recruiting to fill roles and uh, currently incurring higher overtime expense. But we have a full-time recruiter, that is addressing that and, and our goal.

Was to get to 100% staffing. Um, so to really answer your question, as we get through the year, we anticipate GP to get more in line and fall into the historicals that you've previously seen.

Got it, that's helpful. Um, and then as a follow-up client, you mentioned, um, an expected increase in, in contracted horsepower, in the Northeast throughout the rest of the year, just curious, how much of the existing Fleet is on long-term contracts today versus maybe being more months to months. And do you see more potential to sign? More kind of

Longer term contracts on this on the existing horsepower and and maybe you could just talk about kind of what you're seeing with regard to term and pricing for some of those contracts that have been signed.

Oh, yes sir, it's Chris Wilson again. Uh, we currently see, in around, you know, typically 25% to 30% of our business in the Northeast is month-to-month. Our average contract return rates are really good. We have a lot of opportunity up there, so we will see a better dollar-for-horsepower of revenue than we've previously seen. So, that's positive for us, and we're going to...

See that throughout the rest of the year. A lot of those starts are Q3 and into Q4. So, a positive outlook for the remaining half in the Northeast.

Great. That's all for me. Thanks.

You're welcome. Thank you. Thank you. Your next question comes from Connor. Jensen with Raymond James.

Hey guys, thanks for taking my call. Um was just wondering if there was a update on sold or retired equipment during the quarter uh with the average horsepower down just a bit.

So can you repeat that? I couldn't understand exactly what you said. Sorry about that.

Yeah, it was just wondering if there was a update on the sold or retired equipment during the quarter um and how we should expect us to Trend over the back half of the year.

Yeah, Conor this is Chris Paulsen. Um, really no update in terms of sold equipment. There was there were no material sales and in terms of equipment, for the quarter,

Our utilization is down slightly for the quarter and, frankly, for the month of June. If you look at the average utilization, it was essentially flat.

Again as we look forward to the second half of this year and in particular, in the Q4 we anticipate, um a pretty meaningful movement in terms of overall active horsepower.

Got it. And then GNA was notably lower this quarter um is that a function of the shared services work that you've done with energy transfer and is it possible for it to stay at this level or what you expect from that?

Yeah, great question. So, um, you know it's Clinton intimated, you know we're still early in the shared services process. Um, we don't want to get in front of our skis.

Um, as it relates to forecast, just yet.

So you know the the GNA for the quarter I think is um in line with expectations and you know we could see it move up and or down a little bit over the next several quarters again, as we mentioned for 2026 and a full annualized Outlook. We're anticipating around 5 million of annualized savings, but it's been a little bit, lumpy, as we Embark upon the shared services process. Um, as we are going through the sap integration process as well. So I wouldn't read too much into Q2, but, you know, further and and projecting out, we certainly anticipate

Ate some savings and we really appreciated some of the the maturation that's come with with the affiliation with energy transfer again um areas like um it um we've really seen some some material improvements in terms of our licensing costs.

Security, um Etc. Um as well in the centralized procurement side. I expect that to to pay very reasonable dividends, um, going into next year with some of the Contracting and bid strategies that they've put forward,

Got, it makes sense. Thanks guys.

Thank you.

Your next question comes from El virus. Go with RBC Capital markets,

Hey uh good morning everyone. Um, in your press release and some of the comments that you made on the call today, you noted, strong demand for your uh comprar uh compression Services across oil and gas producing basins. Where do you see the greatest increase in demand? And I know you talked about, uh, the Northeast, um, but are you seeing, uh, you know, some significant incremental demand in the gas producing basins?

Yeah, so this is Clint again. Um, you know, we're we're seeing in the dry, gas basins. The rfqs have definitely picked up, which leads us to believe that that more Contracting will happen in those basins, um, while the Permian and, and elsewhere have stayed, you know, about the same or a little better, but, but the dry gas basins are definitely picking up. Um, you know, we, we saw that.

in in you know our Market digested, this OPEC plus hike over the weekend at 65 um dollar WTI and you know that enables The Producers to feel better um going into 2026 um

You know, we we typically see that our producers start um awarding contracts in September and through the end of November, once their budgets are finalized. Um, we've also seen an increase in large station bid rate, as well as small, horsepower units and gas your areas. So we its kind of across the board everywhere with demand growing the way it has

Your next question comes from Eli Johnson with JP Morgan.

Hey guys, thanks for taking my questions. Um, maybe just to start on the uh, electric motor Drive side. I think it's been a little bit less topical in recent quarters. Can you just kind of give us an update if there's any, um, shift in the compression Market from within the electric to gas side? And um, yeah, any power constraints that you're seeing. That might be impacting that

Uh, yes sir. It's Chris wolcen. I'll take that 1. So we are seeing just a shift kind of, you know, we had some electric Drive opportunities, you know, late Q4 q1 and and those talks honestly have have subsided and and natural gas engine driven compressors are still top of the list. So uh

Obviously near the leverage target and I know you are probably looking at a refinancing of some notes coming up but just beyond that.

Is there any consideration for distribution upside or.

How do you how do you kind of see the capital allocation.

Therefore.

Beyond that refinancing.

Your line is Chris pulse and Great question, So again as as 15 straight quarters.

Really played out you know the distribution is sacrosanct and we've been pretty clear about that our distribution coverage has been in kind of one four to one five times range here very recently.

And obviously the preferred interest as it relates to that are starting to play out and be a much smaller portion of the overall story.

We still would like to see coverage increase a little bit while pushing down relative leverage you know.

To the degree that we can push down relative leverage it really increases the amount of cash that we have for the business and growing the business, but also as it relates to distributions longer term. So today in terms of you know.

Ordering in priority again.

Maintaining the distribution to move towards four times leverage or below.

And the way in which we plan to do that again is is looking at refinancing the ABL I think will increase the relative floating percentage in terms of our total story.

We may modestly increase the size of our ABL facility, while may modestly decrease the size of our long term notes outstanding.

And in turn I think we you know.

Initially.

Caught our interest cost by doing so at the margin.

And then continue to grow our way into a lower relative coverage ratio in time, and and then move forward from there.

Awesome. Thanks.

Your next question comes from Brian <unk> with Baird.

Good morning, gentlemen, just talk about Capex and the investments you see any substantial change in the cost to acquire new horsepower today versus just the last two years.

Yes, it keeps going up it's like everything else.

Pillar engine and eggs both are more expensive than they were two years ago.

It seems to have stabilized here in the recent term, but we have seen significant increase over the over the last couple of years.

Are you able to get pricing for that I know that was a big topic about about two years ago, just as some of the first wave of price increases went through when you weight. The industry was able to get some pricing pricing appears to be slowing down a little bit so.

Love to get your thoughts there.

Yeah, I mean, it's a I'll, let Chris finish this but I'll start and say that they are right now we're able to we're able to get the the margin needed to to build new equipment, it's not as easy as it might've been a couple of years ago, but it's still there. So Chris do you have anything to add I'll add a little bit.

Thanks, Colette you know one thing just to keep in mind is Q2.

The market softened a bit you know we saw customers move to more of an optimization.

Efforts, rather than just growth growth growth. So as Clint mentioned were still getting the.

Returns, we need for the capital but it.

It's not as easy as it once was but things are still positive that's for sure.

Fair enough and then just one follow up housekeeping question stock comp was a benefit this quarter did that fully hit the SG&A line.

Or is that in cost of goods sold too.

Fully on the SG&A side.

Okay. So net net actually SG&A costs on a cash basis were up then is that correct. My math is correct.

Good morning.

I guess I got to look at the math.

Maybe marginally so I'd really call it flattish.

Okay. That's helpful. Thank you I appreciate it.

Hi.

Your final question comes from Robert Moskow with Mizuho Securities.

Hey, good morning, everyone. Just wanted to revisit at the prepared remarks, I think you referenced by and contract opportunities I think that's something that's been brought up in the past, but wondering what you're seeing now is that is that different from what you might've seen last year and how are you approaching that opportunity and can you give us an idea of how large.

You would expect a package like that today.

Well I'll start and I'll, let Chris add onto this but.

I don't know that its up any from last year, but we've just been able to pick up some horsepower at different times.

Mostly from producers that want to get the capital out of out of their asset and then turnaround and payer.

Our contracted back for a term I don't I don't know that I would say its up any.

Chris I'll, let you know.

I wouldn't say, it's up it's kind of flattish, but there are opportunities out there in the deals that make the most sense for us we're going to absolutely chase and take advantage of it and apply that service to our customers but.

It's flat from from <unk> Misra.

Got it okay. I appreciate that and then maybe in referencing the capex outlook kind of maybe spilling into 'twenty fixes that you showed is that being driven by maybe customers looking to bring on production a bit later or is there anything else to call out on timing.

It really was driven by when we ordered the units when they hit the right towards the end of the fourth quarter or the beginning of the first quarter.

It's really where we're at with that is just when the unit deliveries and when we can get them online and get them started up.

Got it I appreciate the time today.

Thank you.

That concludes our Q&A session I will now turn the conference back over to President and Chief Executive Officer, Mr. Clint Green for closing remarks.

Thank you I would like to thank all of you for joining our call today USA compression has been undergoing significant changes throughout 2025, but our re contracting rate is up and we expect the back half of the year to be even better. We see this as proved the demand growth is real and here to stay just this morning Kelsey.

<unk> said that U S. Natural gas market is flipped from supply based market to a demand based market. He is right and this cements our message that natural gas is here to stay for the foreseeable future.

I hope everyone has a great day and thank you for joining our call.

This concludes today's conference call you may now disconnect.

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