USA Compression (NYSE:USAC) Partners has reported a robust operational and financial performance for the third quarter of 2023, with a distribution coverage of 1.39 times and a leverage ratio of 4.21 times. The company's unit price has reached levels not seen since 2014, a significant milestone. Amid a projected shortage in the natural gas compression industry, the company plans to convert idle units to active status and increase service fees in 2024.
Key takeaways from the earnings call include:
- The company achieved a distribution coverage of 1.39 times and a leverage ratio of 4.21 times, nearing its target of 4.0 times.
- The unit price has risen to levels last seen in 2014.
- An anticipated shortage of large horsepower compression units in the natural gas industry is expected to drive up service fees.
- The company plans to convert idle units to active status in 2024 rather than acquire new ones.
- USA Compression Partners reported record quarterly revenues, adjusted EBITDA, distributable cash flow, and distribution coverage.
- The company is not planning to issue equity at this time, focusing instead on deleveraging its balance sheet.
USA Compression Partners (NYSE:USAC) believes it is well-positioned to improve its financial metrics due to tight crude oil markets, increased global use of natural gas, and a shrinking domestic supply of large horsepower natural gas compression. The company aims to enhance its active fleet size, utilization, contract tenors, and contract pricing to increase financial flexibility for capital investment, leverage reductions, and distribution policy changes.
The company reported record quarterly revenues, adjusted EBITDA, distributable cash flow, and distribution coverage. It plans to file its Form 10-Q with the Securities and Exchange Commission (SEC) shortly.
During the Q&A segment of the call, USA Compression discussed lead times for new equipment, longer contract tenors, price increases, and high grading its customer base. The company reiterated its focus on deleveraging the balance sheet, stating it has no interest in issuing equity at this time.
The company's strategy involves using smaller machines to optimize its book geographically based on customer needs. They expect a 3-7% escalation range in rates over the coming years.
The company's CEO, Eric Long, discussed the company's pricing strategy and asset deployment. He mentioned that the company did not significantly lower rates during the COVID-19 pandemic and anticipates a 3% to 7% escalation range in the coming years. The company's assets have staggered initial terms, allowing for continuous reevaluation and repricing based on market conditions. Long suggested using the Consumer Price Index (CPI) as a conservative estimate for future projections.
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