USA pression Partners(US:USAC)2020-02-18 19:36Financial Data and Key Metrics Changes - Revenues for Q4 2019 were $178 million, an increase of nearly 4% compared to Q4 2018, while adjusted EBITDA rose almost 6% to $109 million [12][55] - Gross operating margin improved to 68.2%, with an adjusted EBITDA margin of 61.3% [13][40] - The bank covenant leverage was reduced to below 4.4x for the quarter, and the distributable cash flow coverage ratio improved to 1.14x [16][41] Business Line Data and Key Metrics Changes - The total fleet horsepower at the end of Q4 was approximately 3.7 million horsepower, with revenue-generating horsepower slightly above 3.3 million horsepower [56] - Average horsepower utilization for Q4 was 93.9%, consistent with both the previous quarter and the same period last year [14][33] - Average monthly revenue per horsepower increased to $16.82, up from $16.73 in Q3 [36][57] Market Data and Key Metrics Changes - Natural gas spot prices remained range-bound throughout 2019, generally between $2 and $3 per MMBtu, recently dropping below $1.75 [17] - The total rig count declined by 25% throughout the year, with certain basins experiencing even greater reductions in activity [17] - Domestic natural gas production increased by approximately 10% compared to 2018 levels [22] Company Strategy and Development Direction - The company focuses on maintaining high utilization rates and optimizing pricing while controlling expenses [118] - There is a commitment to prudent capital spending, with a reduction in new unit orders for 2020 to just over 56,000 horsepower [24][30] - The company aims to leverage its demand-driven business model to provide cash flow stability and sustainable distributions [20][30] Management's Comments on Operating Environment and Future Outlook - The management expressed caution regarding the operating environment in 2020, citing global demand uncertainty and commodity price weakness [31] - Despite potential slowdowns, the company believes that its stable, long-term contracts will allow it to maintain cash flows and distributions [33][96] - The focus remains on optimizing operations and ensuring that the fleet is utilized effectively [53][118] Other Important Information - The company announced a distribution of $0.525 per common unit, marking the 28th distribution since its IPO, totaling over $880 million returned to unit holders [15] - The company is actively managing underutilized assets and redeploying them to maintain strong cash flows [51] Q&A Session Summary Question: Utilization and redeployment of assets in the Permian - Management indicated that redeployment of assets is not material, with only a few pieces of equipment being redeployed [62] Question: Pricing stability and contracts - Pricing has remained stable, with about 60% of contracts under extended terms, allowing for annual upward pricing adjustments [67][68] Question: Gross margin performance - The gross margin was better than expected due to operating cost efficiencies, but some one-time items should be considered for future margin expectations [73][74] Question: Outsourcing of compression services - There is an expectation of increased outsourcing of compression services as companies focus on capital avoidance [84] Question: Impact of gas flaring regulations - Stricter regulations on gas flaring could benefit the company by increasing the demand for compression services [90] Question: Distribution strategy and cash flow stability - Management expressed confidence in maintaining distributions, citing a diversified customer base and strong counterparty relationships [92][94]