USA pression Partners(US:USAC)2024-08-06 21:13Financial Data and Key Metrics Changes - The company reported record revenues, adjusted gross margin, adjusted EBITDA, average revenue generating horsepower, and average revenue per revenue generating horsepower for Q2 2024 [4][20] - Period end utilization reached an all-time high of 95%, with large horsepower units over 1,000 horsepower utilized at 99% [4][5] - The leverage ratio decreased to 4.23x, aligning with the long-term goal of 3.75x to 4.25x [5] Business Line Data and Key Metrics Changes - Revenue increased by 3% sequentially and 14% year-over-year, driven by higher utilization and pricing improvements, averaging $20.29 for the second quarter [16] - The total fleet horsepower at the end of the quarter was approximately 3.9 million horsepower, with a 1% increase in revenue generating horsepower due to the conversion of idle units to active status [18] Market Data and Key Metrics Changes - The company anticipates steady and growing opportunities as customers maintain capital discipline to support increasing oil and natural gas demand [7] - The electrification of the Permian Basin is projected to create additional power generation requirements, with power demand expected to grow significantly by 2030 [11][12] Company Strategy and Development Direction - The company focuses on capital structure management, including refinancing senior notes and exiting Series A preferred units before considering changes to the distribution policy [9] - The long-term outlook for the natural gas compression market remains positive, driven by strong demand for power generation and LNG exports [10][20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the natural gas compression market, citing strong demand drivers and the company's ability to convert idle equipment to active status [7][20] - The company is cautious about growth due to potential regulatory changes stemming from upcoming elections, which could impact the energy sector [26] Other Important Information - The company plans to beta test dual drive compression units that can generate power, allowing for opportunistic sales back to the grid [13] - The company has maintained a strong commitment to safety and continues to improve safety programs and culture [14] Q&A Session Summary Question: Compression equipment lead times and sourcing delays - Management indicated that lead times for equipment remain around 30 to 40 weeks for engines, with no significant changes in delivery times [22][23] Question: Elevated CapEx spend levels and long-term growth - Management acknowledged the uncertainty in the energy sector due to upcoming elections but remains optimistic about growth opportunities [24][25] Question: Order book build and growth CapEx into next year - Management expressed optimism about demand and indicated that they are accelerating capital expenditures to optimize existing assets [28][29] Question: Operating cost inflation and its impact - Management noted that inflation, particularly in labor, is affecting operating costs, but they expect some costs to roll off as units are deployed [30][31] Question: Percentage of units associated with gas lift - Approximately 40% to 50% of units are associated with gas lift, primarily in the Permian Basin [40] Question: Interest rate hedge and potential gains - Management indicated that monetizing the hedge is an opportunity that will be discussed with the board [41] Question: Changes in distribution policy post-preferred extinguishing - Management clarified that any changes to the distribution policy will be at the board's discretion and not automatically assumed [44] Question: Customer movement towards owning compression equipment - Management noted that various factors influence customer decisions, and there is no significant trend towards purchasing equipment instead of outsourcing [46][49]