USA Compression Partners (NYSE:USAC) held its first-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.
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View the webcast at https://events.q4inc.com/attendee/820543991
Summary
USA Compression Partners reported strong financial performance for Q1 2026, with net income of $38.3 million and operating income of $91.4 million.
The company completed the integration of JW Power, adding over a million horsepower to its fleet and expects to achieve annual synergies of $10-20 million by 2027.
Despite extended lead times for new engines, the company has contracted over 90% of its 2026 horsepower and is placing orders for engines through 2029.
USA Compression Partners maintained its full-year guidance, including an EBITDA range of $778 to $800 million and a distributable cash flow range of $480 to $510 million.
Management expressed optimism about the growing demand for natural gas and the company’s strategic position in the market, while also highlighting efforts to manage cost increases due to rising oil prices.
Full Transcript
OPERATOR
Good Morning. Welcome to USA Compression Partners First Quarter 2026 Earnings Conference Call. During today’s call, all parties will be in the listen only mode. At the conclusion of Management’s prepared remarks, the call will be open for question and answer session and if you would like to ask a question during this time, Please press the Star 1 on your telephone keypad. To withdraw your question, please press the Star 1 again. Thank you and this conference is being recorded today, May 5, 2026. I would now like to turn the call over to Clint Green, President and CEO. His
Clint Green (President and CEO)
Good morning everyone and thank you for joining us. With me today is Chris Paulson, Senior Vice President and CFO, Chris Watson, Senior Vice President and COO and other members of our leadership team. This morning we released our operational and financial results for quarter ending March 31, 2026. Today’s call will contain forward looking statements based on our current beliefs and certain non GAAP measures. Please refer to our earnings release and SEC filings for reconciliations and definitions of non GAAP measures and related risk factors as we discuss performance Please note that JW acquisition closed on January 12th and therefore Q1 earnings excludes the impact of revenues and expenses for JW power for the first 11 days of the quarter. Before we get into the quarter, I want to take a moment to recognize our team on safety. Our people go to work in the field every day, working around complex equipment, driving millions of miles a month and the way they return to their family matters more than any financial metric we report. In 2025, our combined TRIR finished at a 0.39, a 50% reduction from 2024 and well below the Bureau of Labor Statistics (BLS) industry average of 0.70, a benchmark we have now beaten for 12 consecutive years. We are proud of these results and we remain committed to continuous improvement moving to the quarter which included two integrations that established upward momentum for the company. First, we kicked off the integration of JW Power at the time when horsepower lead times continued to extend. Customer discussions commenced immediately upon closing, starting the process of onboarding new customers to the USA Compression Partners platform. As of early March, we have integrated the Combined Operations Organization and established a new reporting structure. Second, on February 1, our integration of Legacy USA Compression data into a new Enterprise Resource Planning (ERP) system was completed. Our respective integration teams worked long hours to enable a smooth transition of both and I can’t be more appreciative of their efforts. Throughout it all, we have maintained our operational momentum while delivering Distributable Cash Flow (DCF) and leverage metrics and that show meaningful year over year improvement to our unitholders. The company is now broadly diversified across every major basin, horsepower class and customer type. In the last few months we have contracted over 90% of our 2026 horsepower which will more than double the new horsepower deployed in 2025. Additionally, we have continued the momentum in our small horsepower class with utilization up nearly 10% year over year. The introduction of JW Power’s manufacturing capabilities is enabling us to manage a dynamic compression market differently than the past. Certain new engine lead times have recently tripled from 50 weeks to approximately 150 weeks and while historically we might hesitate to commit to the full horsepower cost that far in advance, we are now able to directly acquire highly marketable engines with optionality to package for our own internal contract compression needs or Future resale to third parties. Engine costs represent approximately 25 to 40% of the total skid cost with just a fraction of that cost provided as a deposit in the event of an unexpected contract compression market shift over the next several years. We believe we could also divest those engines for other use cases, further reducing any unlikely downside exposure. Additionally, the diversity of our manufactured compression products including midsize large horsepower, electric and high pressure gas lifts supports more competitive pricing for our customers while enabling us to adapt to the ever changing marketplace. So far the oil directed rig count remains flat this year but producers are showing more optimism looking out over 12 month horizon than we have seen for some time. Reflecting a much improved commodity backdrop, the 12 month oil strip has significantly lagged physical spot prices and arguably is underpriced for an immediate and permanent ceasefire much less a long term conflict. We believe spot natural gas prices do not reflect the LNG risk associated with the Strait of Hormuz. Finally, Waha pricing is anticipated to materially improve with export capacities increasing in Q4 of 2026. I will now turn the call over to Chris Walson, our Chief Operating Officer who will provide additional insights to our current operations and our out year growth plan.
Chris Watson (Senior Vice President and COO)
Thanks Clint. As of today the operations and commercial organizations have been integrated with both JW employees and Legacy U employees under new reporting structures consistent with a best in class approach. The longer term result will be streamlined route optimization, customer contracts, vendors inventory safety protocols and systems data. As discussed in the prior quarter, we expect approximately 10 to 20 million dollars of annual run rate synergies by year end 2027 and we are still tracking towards those estimates. The current new compression lead times have presented a new challenge for near term business continuity and long term planning for both contract compression and manufacturing. As a result we have already placed orders for engines engineering in package components for 2027 and engines for 2028 and a portion of 2029. Package component lead times remain well inside of engine lead times, but will continue to monitor and place these orders when needed. These advanced planning efforts should enable new contract compression growth to stay largely consistent with 2026 in excess of 100,000 horsepower each year. As far as our manufacturing book is concerned, we have some specialty horsepower slated for resale, but the vast majority is expected to go into our fleet. Our 2028 orders are nearly entirely weighted to large 3600 series engines which are the most desired by our compression customers, while also having substantial optionality for sale should the market shift. We continue to have robust conversations across our diverse customer portfolio and and as Clint mentioned, we have contracted more than 90% of nearly 110,000 new horsepower expected to be added to the fleet in 2026 and are presently in the middle of multi year strategic planning discussions with some of our strongest customers to shore up our 2027 book. Notably, we experienced lower churn rates than expected in Q1, which is a reflection of the tightness in the current market. This backdrop, coupled with the idle units acquired from jw, positions us for outsized horsepower growth in the back half of the year and into early 2027. Finally, while oil prices have moved up significantly in the last month, we are focused on minimizing cost increases tied to lubricants. If oil prices were to remain at current levels, we would expect much of that increase to show up in the second half of the year as our lubricant contracts renew. I will now turn the call over to Chris Paulson to discuss our financial results in detail.
Chris Paulson (Senior Vice President and CFO)
Thanks Chris. For basis of comparison, our quarter and year ago financials exclude the benefit of JW that closed on January 12th for Q1 2026. Our income statement reflects the results of JW’s contributions for 79 days in the quarter and therefore our non GAAP financial numbers including EBITDA and DCF reflect the same. By contrast, our non GAAP operating metrics tied to horsepower including utilization, average revenue per horsepower per month and average active horsepower calculated based on month end and therefore fully reflect JW’s horsepower contribution for the quarter. As we highlighted in our December 1 deal announcement, while JW provides meaningful near term accretion and immediate deleveraging, the company in aggregate also has lower gross margin than our legacy asset base, in part due to the manufacturing and AMS operations that contributed approximately 10% of legacy EBITDA turning the page to Q1 results, we increased pricing to an all time high averaging $22.73 per horsepower, a 5% increase in sequential quarters and an 8% increase compared to a year ago. Average active Horsepower ended at 4.438 million. Our first quarter adjusted gross margins came in at 64.4%. Regarding the consolidated financial results, our first quarter 2026 net income was 38.3 million, operating income was 91.4 million, net cash provided by operating activities was 86.1 million and cash interest expense net was 47.1 million. Our leverage ratio at the end of the fourth quarter was 3.74 times. Turning to operational results, our total fleet horsepower at the end of the quarter was approximately 4.931 million horsepower, adding approximately 1.037 million horsepower as compared to the prior quarter largely tied to the JW acquisition. Our average utilization for the first quarter was 91.9%, a decrease compared to the prior quarter. After incorporating JW first quarter 2026, expansion capital expenditures were 26.4 million and our maintenance capital expenditures were 9.2 …
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