USA Compression ((USAC)) has held its Q2 earnings call. Read on for the main highlights of the call.
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USA Compression Partners’ recent earnings call conveyed a generally positive sentiment, underscored by record revenues and strong demand projections. Despite challenges such as flat horsepower growth and rising costs, the company remains optimistic, buoyed by operational efficiency gains and industry accolades.
Record-Setting Quarter for Revenues
USA Compression Partners reported a record-setting quarter for revenues and average revenue per horsepower. The company successfully maintained consistent margins and utilization, highlighting its robust financial performance and operational stability.
Strong Demand Projections
The company anticipates a 5% increase in contracted horsepower in the Northeast by Q4 compared to Q2. This projection indicates strong demand and a positive outlook for the remainder of the year, reflecting confidence in the market’s growth potential.
Natural Gas Growth Projections
The EIA’s short-term energy outlook forecasts considerable growth in natural gas, with an annualized increase of 6% in the Permian. This growth is expected to bolster USA Compression’s operations and market position.
Operational Efficiency Gains
USA Compression is set to achieve significant savings in lube oil costs due to a new agreement. Additionally, the new shared services model with Energy Transfer continues to provide ongoing benefits, enhancing operational efficiency.
Safety and Operational Excellence Award
Employees in the Rockies received a Safety and Operational Excellence award from one of the top 10 customers. This accolade underscores the company’s strong operational performance and commitment to safety standards.
Flat Average Revenue-Generating Horsepower
The average revenue-generating horsepower remained flat on a sequential quarter basis and increased by only 1% from a year ago. This stagnation presents a challenge that the company is actively addressing.
Increased Labor Costs
Labor costs rose during the quarter due to overtime and contract labor. However, USA Compression is working to mitigate these costs through strategic internal hires.
Higher Expansion Capital Expenditures
The second quarter saw expansion capital expenditures of $18.1 million, primarily allocated for reconfiguration make-ready capital of existing units, indicating ongoing investment in infrastructure.
Rising Equipment Costs
The company faces significant increases in equipment costs from suppliers like Caterpillar, with no immediate signs of price reductions. This challenge necessitates strategic planning to manage expenses effectively.
Forward-Looking Guidance
In its forward-looking guidance, USA Compression Partners reaffirmed its 2025 expectations, projecting adjusted EBITDA between $590 million and $610 million and distributable cash flow between $350 million and $370 million. The company anticipates significant growth in natural gas demand, driven by AI, cloud services, and new data center investments. They have acquired approximately 48,000 new horsepower in 2025 and expect active horsepower to exceed 3.6 million by Q4, setting a new company record.
In summary, USA Compression Partners’ earnings call reflected a positive outlook with record revenues and strong demand forecasts. Despite challenges like flat horsepower growth and rising costs, the company remains optimistic, supported by operational efficiencies and industry recognition. Looking ahead, USA Compression is poised for growth, driven by strategic investments and a favorable market environment.