USA Compression Partners, LP Q2 FY2026 earnings call

Strategic Growth and Capital Allocation

• Management is bullish on long-term U.S. natural gas demand growth, projecting 30 BCF per day of total demand growth by 2031 (reaching 140 BCF per day), driven primarily by 18-20 BCF per day of LNG demand growth and additional demand from data centers.
• The firm plans to add over 500,000 total horsepower by 2030, representing ~2.5% average annual new horsepower growth through 2029, as a core pillar of its capital allocation and long-term DCF growth strategy.
• Capital allocation priorities are balanced: growing the fleet, sustaining and growing distributions over time, and maintaining a prudent leverage profile, with a target leverage ratio of 3.75x debt to EBITDA.

Operational Integration and Infrastructure

• Integration of the JW acquisition is well underway, with SAP ERP going live in February 2026. The new ERP system provides enhanced data reporting to improve field and back-office operations.
• Labor and cost synergies are being captured through standardization of combined fleet operations; commercial best practices for pricing, contracting, and customer service are being integrated across both legacy organizations.
• JW's in-house manufacturing facility provides unique optionality: the firm can build 100,000 to 125,000 horsepower annually in-house, supplemented by 20,000 to 60,000 horsepower from external shops, and can stagger component ordering to reduce upfront capital commitment in extended lead time environments.

Commercial and Operational Progress

• Extended new engine lead times (up to 200 weeks / nearly 4 years) have shifted customer planning to multi-year horizons; USA Compression has already contracted 50% of new units scheduled for 2027 delivery and a mid-teens percentage of units planned for 2028 delivery, an unprecedented level of pre-contracting.
• RFP activity remains healthy, and the contract pipeline for the second half of 2026 supports continued forward progress, despite elevated temporary fleet stops in Q2.
• Safety performance remains strong, with a low total incident rate even after a large influx of new personnel; new leadership training programs have been launched to develop field operations leadership and support growth execution.
• The firm is investing in fleet-wide enhanced telemetry, real-time data capabilities, and AI, targeting critical mass of connected assets in 2027 to enable predictive maintenance, more efficient routing, and reduced unplanned downtime.

For the second quarter of 2026: Total revenues reached $342.1 million, a 37% year-over-year increase from $250.1 million in Q2 2025. Contract operations revenue was $304.9 million, accounting for 89.1% of total revenue, with a 34% year-over-year increase driven by the addition of JW's horsepower and higher average revenue per revenue-generating horsepower. Parts and service revenue (from JW's acquired manufacturing and aftermarket services) was $22.1 million, making up 6.5% of total revenue. Total fleet size reached 4.95 million horsepower at quarter-end, with average active horsepower of 4.45 million and an average utilization rate of 92% (blended with the newly integrated JW fleet). Average revenue per revenue-generating horsepower per month hit $22.84, a 7% year-over-year increase and 0.5% sequential quarterly increase. Adjusted gross margin for the quarter was 63.5%, and the leverage ratio at quarter-end was 3.72x. Q2 expansion capital expenditures totaled $46.8 million, and maintenance capital expenditures were $16.9 million. Net income was $45.7 million, operating income was $100.4 million, and net cash provided by operating activities was $145.7 million, with net cash interest expense of $47.4 million.

• Full year 2026 guidance is maintained from prior ranges: adjusted EBITDA is projected to be $770 to $800 million, distributable cash flow is projected at $480 to $510 million, maintenance capital expenditures are projected at $60 to $70 million, and expansion capital expenditures are projected at $230 to $250 million.
• Management expects margin improvements to begin in the second half of 2026 and continue through 2027 and beyond, driven by efficiency gains from new data and telemetry investments, after expected near-term margin compression from the JW acquisition.
• The firm remains patient regarding opportunistic debt market access to extend debt tranche duration and sizing, and will only act if favorable pricing becomes available, as it currently holds ample low-interest liquidity under its ABL facility.

• Extended new engine lead times (up to 200 weeks) create planning uncertainty for both the firm and its customers, requiring multi-year commitment that was not standard industry practice historically.
• There is expected incremental lube oil cost impact of approximately $1 million per month in the second half of 2026, as contracts are updated to reflect higher oil prices; the firm does not have automatic pass-through clauses for lube oil costs in most contracts, so cost increases must be negotiated during contract renewal.
• Idle horsepower acquired from JW may not be immediately redeployable, requiring ongoing evaluation of the fleet and exploration of secondary markets (including international markets) for underutilized units.
• Current long-term debt pricing is roughly 50 basis points higher than existing ABL pricing, creating a tradeoff between the benefit of extended duration and higher interest costs.

Q: With the stronger balance sheet and clear growth visibility, when might distribution growth occur, and what is the framework for distribution policy? / A: Management notes that any distribution change requires board approval. The current top priority for excess cash flow is funding the 2.5% annual new horsepower growth plan. Maintaining a prudent leverage profile to weather cycles and support future growth is also a key priority. The current distribution yield near 8% is already competitive versus peer MLP indices, and the company will continue evaluating policy moving forward as growth delivers increased underlying value. (219 characters) Q: What has driven sequential margin decline after the JW acquisition, and how will margins trend going forward? / A: Margin compression was expected, as JW's manufacturing and aftermarket services segments have lower margins than the legacy core contract compression business. Management expects margins will begin improving slightly quarter-over-quarter starting in late 2026 through 2027, driven by efficiency gains from new telemetry and remote monitoring investments that will improve routing and reduce unplanned maintenance downtime. (224 characters) Q: How has the 4+ year equipment lead time changed customer planning, and how does USA Compression adapt? / A: Extended lead times surprised the industry, so both customers and providers have had to adapt to much longer planning horizons. USA Compression's JW manufacturing facility gives it unique flexibility, as the firm only needs to commit to engine costs upfront for out-year orders. Customers have adapted well to the new planning dynamic, and pre-contracting for 2027 and 2028 is already progressing well, with strong customer conviction in long-term demand growth. (268 characters) Q: What is the strategic value of JW's in-house manufacturing for the 500,000 horsepower growth plan? / A: JW's facility can build 100,000 to 125,000 horsepower per year in-house, with additional horsepower sourced externally. The key benefit is flexibility: the firm can order engines first, then delay ordering compressors and other components for 30-40 weeks, reducing total upfront capital commitment for out-year projects. If market conditions change, the firm is not on the hook for full package costs through 2029, limiting capital exposure. (257 characters)