USA Compression Partners, LP Q2 FY2025 earnings call

• Record-setting revenues and average revenue per horsepower in Q2 2025 despite macro headwinds.
• E&P customers showed resolve, with contracted horsepower in the Northeast expected to be 5% higher in Q4.
• Long-term optimism from natural gas demand growth for AI, cloud services, data centers, and utilities investing in power demand.
• Acquired ~48,000 new horsepower in 2025, majority to be delivered by year-end.
• Focus on controlling costs: revisiting vendor discussions for parts, recruiting to reduce labor costs, new lube oil agreement.
• Shared services model with Energy Transfer yielding licensing savings and enhanced IT functionality, but full impact not yet seen.

In the second quarter of 2025, USA Compression achieved record-setting revenues. Average revenue per horsepower was $21.31 for the quarter, a 1% sequential increase and 5% year-over-year increase. Adjusted gross margins were 65.4%. Net income was $28.6 million, operating income was $76.6 million, net cash provided by operating activities was $124.2 million, and cash interest expense net was $45.4 million. Leverage ratio was 4.08x. Total fleet horsepower at the end of the quarter was approximately 3.9 million horsepower. Average active horsepower was $3.55 million, and average utilization for the second quarter was 94.4%. Revenue contribution from top 10 customers was over 45%.

• Maintain adjusted EBITDA range $590M - $610M, distributable cash flow $350M - $370M, expansion capital $120M - $140M, maintenance capital $38M - $42M.
• Expansion capital expected to move into Q1 2026 due to delayed compression deliveries.
• Target leverage ratio at or below 4x debt to EBITDA, considering refinancing of September 2027 notes in Q4 and aiming to extend ABL prior to next quarterly call.

• Tariffs having minimal impact so far, but potential inventory impacts from tariffs next year.
• Labor costs increased due to overtime and contract labor, though expected to reduce with internal hires.

Q: Good morning. Welcome to USA Compression Partners Second Quarter 2025 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, August 6, 2025. I now would like to turn the call over to Chris Porter, Vice President, General Counsel and Secretary.

A: 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 a recording of this call in the Investor Relations section of our website at usacompression.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 U.S. 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 management's views as of today, August 6, 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.

Q: I wanted to start with gross margin. We saw some pretty solid price increases this quarter, but it 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.

A: Yes, Doug, this is Clint Green. Thank you for that question. I'm going to introduce Chris Wauson. He's our Chief Operating Officer. I'm going to let him answer that question.

Q: I was just wondering if there was an update on the sold or retired equipment during the quarter and how we should expect this to trend over the back half of the year?

A: Yes, Connor, this is Chris Paulsen. Really no update in terms of sold equipment. There was -- there were no material sales in terms of equipment for the quarter. As mentioned, 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, into Q4, we anticipate a pretty meaningful movement in terms of overall active horsepower.

Q: In your press release and some of the comments that you made on the call today, you noted strong demand for your compression services across oil and gas producing basins. Where do you see the greatest increase in demand? And I know you talked about the Northeast, but are you seeing some significant incremental demand in the gas-producing basins?

A: Yes. So this is Clint again. We're seeing in the dry gas basins, RFQs have definitely picked up, which leads us to believe that more contracting will happen in those basins, while the Permian and elsewhere have stayed about the same or a little better. But the dry gas basins are definitely picking up. We saw that our market digested this OPEC+ hike over the weekend of $65 WTI. And that enables the producers to feel better going into 2026. We typically see that our producers start awarding contracts in September and through the end of November once their budgets are finalized. We've also seen an increase in large station bid rate as well as small horsepower units in gassier areas. So it's kind of across the board everywhere with demand growing the way it has.

Q: Maybe just to start on the 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 shift in the compression market from -- within the electric to gas side and any power constraints that you're seeing that might be impacting that?

A: Yes, sir. It's Chris Wauson. I'll take that one. So we are seeing just a shift kind of -- we had some electric drive opportunities late Q4, Q1. And those talks honestly, have subsided and natural gas engine-driven compressors are still top of the list.

Q: Maybe just quickly on the capital structure side. You guys are obviously near the leverage target, and I know you're 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 kind of see the capital allocation waterfall beyond that refinancing?

A: Yes, Eli, it's Chris Paulsen. Great question. So again, as 50 straight quarters have really played out, the distribution is sacrosanct, and we've been pretty clear about that. Our distribution coverage has been in kind of the 1.4x to 1.5x range here very recently. And obviously, the preferred interest as it relates to that is 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. 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 ordering and priority, again, maintain the distribution to move towards 4x leverage or below. And the way in which we plan to do that again is looking at refinancing the ABL. I think we'll increase the relative floating percentage in terms of our total story. So we may modestly increase the size of our ABL facility while it may modestly decrease the size of our long-term notes outstanding. And in turn, I think we initially cut 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 then move forward from there.

Q: Just to talk about CapEx and the investments. Are you seeing any substantial change in the cost to acquire new horsepower today versus just the last 2 years?

A: Yes, it keeps going up. It's like everything else. Caterpillar, engine and [ eggs, ] both are more expensive than they were 2 years ago. It seems to have stabilized here in the recent term, but we have seen significant increase over the last couple of years.

Q: 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?

A: Fully on the SG&A side.

Q: Just want to revisit the prepared remarks. I think you referenced buy 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 different from what you might have seen last year? And how are you approaching that opportunity? And could you give us an idea of how large you would expect a package like that to be?

A: I'll start and let Chris add on to this. But I don't know that it's up any from last year. We've just been able to pick up some horsepower at different times, mostly from producers that want to get the capital out of their asset and then turn around and pay a contract it back for a term. I don't know that I would say it's up any. Chris, I'll let you know.