USA pression Partners(US:USAC)2022-08-02 19:56Financial Data and Key Metrics Changes - Total revenues for Q2 2022 were approximately $171 million, representing a 5% increase compared to the previous quarter [60] - Adjusted EBITDA increased by 7% to approximately $105 million, with an adjusted EBITDA margin of 61.5% [60][62] - Distributable cash flow (DCF) to limited partners was $56 million, resulting in a coverage ratio of 1.08 times, an improvement of over 10% from the last quarter [8][66] - The bank covenant leverage ratio improved to 4.9 times, a reduction of over 5% from the previous quarter [9][66] Business Line Data and Key Metrics Changes - Average horsepower utilization increased by 3 percentage points from Q1 2022 to just below 88% [15][63] - Revenue per horsepower per month rose to $17.20, reflecting both market strength and contractual price escalators [61] Market Data and Key Metrics Changes - Commodity prices remained high, with natural gas averaging just shy of $7.50 per MMBtu and West Texas Intermediate crude oil averaging over $108 per barrel [17] - The market for compression services tightened due to limited new units being fabricated industry-wide, leading to increased revenues and cash flow [15][10] Company Strategy and Development Direction - The company is focused on redeploying existing idle units rather than ordering new ones, which requires less capital expenditure [35] - There is a strategic emphasis on safety, with zero recordable incidents reported as of mid-2022 [13][14] - The company is exploring innovative technologies as part of its long-term ESG initiatives, including dual drive units for reducing greenhouse gas emissions [46][49] Management's Comments on Operating Environment and Future Outlook - Management believes the supply-demand balance for oil and natural gas is extremely tight, which is expected to drive continued demand for compression services [23][31] - The company anticipates that the ongoing global energy crisis will increase the role of natural gas and compression services in the future [100][102] - Management expressed confidence in the stability of the business model, which has been resilient through market volatility [55][56] Other Important Information - The company has maintained a consistent distribution of $0.525 per unit for 38 consecutive quarters, returning over $1.4 billion to unitholders since its IPO [8][57] - The company is involved in providing compression services for ESG-driven projects, including hydrogen compression and carbon capture initiatives [52][93] Q&A Session Summary Question: How much more can gross margins increase with higher utilization? - Management indicated that historically, gross margins have been around 68% to 70%, and while further increases are possible, there may be a ceiling on pricing [72][74] Question: Are longer-term contracts being locked in due to the current market? - Management confirmed that they are seeing a willingness from producers to lock in longer-term contracts at higher rates due to the lack of available equipment [76][77] Question: How much idle equipment is left to redeploy? - Management noted that with utilization in the upper 80s, there is still a significant amount of horsepower available for redeployment [78] Question: What is the lead time for large horsepower equipment? - Management reported that lead times for large horsepower equipment are increasing, with some equipment taking over a year to deliver [79] Question: Why is there concern about the dividend despite strong performance? - Management explained that some investors may not fully understand the business model, which has proven stable even in tougher times, and emphasized the importance of compression services in the energy value chain [81][83] Question: Is there any change in order backlog for large compression units? - Management clarified that they do not measure backlog like fabricators but focus on utilization rates and ongoing contract activity [87][88]