USA Compression Partners, LP Q3 FY2024 earnings call

• Clint Green welcomed to the team, mentioned Chris Paulsen joining as CFO on November 18. - Eric Scheller discussed third quarter results including revenue growth, margins, financials (net income, operating income, cash flows), and operational metrics (fleet horsepower, utilization). - Announced implementation of the Energy Transfer Shared Services Model at USA Compression to streamline back office operations. - Mentioned third quarter expansion capital expenditures were $34.1 million and maintenance capital expenditures were $9.1 million, with plans to deploy up to 10,000 horsepower of existing uncontracted fleet assets at favorable capital costs.

In the third quarter of 2024, USA Compression Partners achieved strong financial results. Revenue increased 2% sequentially and 11% compared to the year-ago period, driven by pricing improvements with an average of $20.60 per horsepower. Third quarter margins were approximately 66%. Net income was $19.3 million, operating income was $75.7 million, net cash provided by operating activities was $48.5 million, and cash interest expense was $47.1 million. The total fleet horsepower at the end of the quarter was approximately 3.9 million horsepower, with revenue generating horsepower increasing 1% sequentially. Average utilization for the third quarter was 94.6%.

• Full year 2024 net income range is $105 million to $125 million. - Adjusted EBITDA range is $565 million to $585 million. - Distributable cash flow range is $345 million to $365 million. - Increased full year 2024 expansion capital expenditures to between $240 million and $250 million due to costs associated with preparing active compression units for redeployment and idle to active fleet conversion.

Q: Hey, this is Eli on for Jeremy. Congrats on the strong quarter, guys. I wanted to start on the CapEx raise and maybe thinking about how we should interpret this for 2025 spend. Is some of this pulled forward or relatively, should we expect a lower spend next year? Just thinking about puts and takes for growth opportunities and where you kind of see the business run rate growth CapEx spend right now?

A: Yes, good morning, Eli. This is Clint. Yes, that's a good question. And we are going to lay out our '25 capital plan at normal times, which is, we stayed our fourth quarter earnings next year. We will become more capital discipline and moving through next year. But we will also look for opportunities to become a creative to the company and its investors.

Q: Fair enough. And then maybe just on the broader compression market, I know we're continuing to see strong pricing, which you mentioned in the opening remarks. And that's translating to those strong dollars per horsepower metrics. So, should we continue to think about upside to these levels as well or might be nearing a ceiling just in terms of how high those metrics can go?

A: Eli, this is Eric. I think the structural compression market for me is really strong, is robust, supporting the gas flows that we're seeing for demand pulls through the system. Frankly, I don't see any meaningful trend to changing the trend of the revenue. We continue to see people continuing to want the horsepower, want to hold it for longer and really aggressively making that market work for us.

Q: Hey, thanks for the question and welcome aboard, Clint. I wanted to maybe touch on the idle active conversion strategy and some of the increased costs that you pointed to this quarter. And I'm curious if some of these costs, if they're more persistent, if that changes the way you kind of think about the strategy of conversions versus new builds moving forward. And then if he could maybe just remind us how much idle capacity you still have across the fleet that could be brought back online?

A: This is Eric. So let me break it down into a couple easier pieces. You saw utilization continues to run at highest rates we've ever had. We have near on the large horsepower, almost at the end of our available stuff. So we are always looking for opportunity to either buy new, buy from customers, to optimize working capital, to get all units out in order to serve our customers. We continue to work through that. On the second question concerning the capital, I think we did see a large amount of churn coming through the system. When system units come back and they go to different regions that have different requirements, we do have to enhance for either environmental or for operational reasons the asset before they're redeployed. Churn has been coming up as we've optimized the fleet. We're happy to put those units out at higher prices, recognizing that we did have to enhance the technology that went with them.

Q: Hey, good morning, everyone and welcome, Clint. I just wanted to ask a little bit. I know it's a little bit previewed here in terms of the Energy Transfer Shared Services Agreement. Is that strictly going to be on the G&A line? I know the last question was a little bit about the commercial relationship there. So I'm just curious if you could expand a bit more on timing, magnitude and sort of see how you see the shared services thing proceeding?

A: Yes, Gabe, thank you for that. Yes, the shared services early on, we're still trying to get our arms around it. But we do see it as a shared service and become a bigger part or have an energy transfer support as we move forward with a separately run company. But we'll dig into it a little deeper and probably in that first quarter of guidance, we'll explain more of what we think will come with that.

Q: Hey, good morning, everyone, and welcome aboard also, Clint. Maybe just circling back to the CapEx. So just trying to understand the obviously you guys over time get units back from time-to-time and go through this. You said transitioning from one base into another. Just curious kind of what happened in this case, how much horsepower was impacted. It's just a relatively large change in CapEx. So I feel like maybe this was a little bit unexpected that you got units back, but just trying to get a little more color around kind of the situation and what happened. And if this is somewhat of a one off situation outside of what you normally see?

A: Yes, I'll start answering this and may pass it off to Eric Scheller here in just a second. But -- so I think one of the drivers was there was equipment that was in the in the yards or in the in the field that were brought out of the field to be reworked. And that cost was ended up being more than was budgeted or expected. And I think that was the main driver for the CapEx or that is the main driver for the CapEx increase. And Eric, I'll let you add to any of that.

A: Yes, I think the other thing that drove some of it was that there was a budget capital that we used to deploy units that we had purchased from third parties. We're always opportunistic in how we think about growing revenue and EBITDA. These were units with pretty big ability to move gas, help a customer. And we are optimistic. And when we did the first quarter capital, that was not included in our estimates. And so that's the other activity that was associated with capital burn for the year.