"USA Compression Partners" Q2 2026 Earnings Call - Securing 500,000 Horsepower by 2030 Amid Extended Supply Chains and LNG Demand Surge

Conference Call Operator: Good morning. Welcome to USA Compression Partners second quarter 2026 earnings conference call. During today’s call, all parties will be in a listen-only mode. At the conclusion of management’s prepared remarks, the call will be open for Q&A. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question, press star 1 again. Thank you. This conference is being recorded today, August 4th, 2026. I now would like to turn the call over to Clint Green, President and Chief Executive Officer.

Clint Green, President and Chief Executive Officer, USA Compression Partners: Good morning, everyone. Thank you for joining us. With me today is Chris M. Paulsen, Senior Vice President and CFO, Chris Wauson, Senior Vice President and COO, and other members of our leadership team. This morning, we released our operational and financial results for quarter ending June 30th, 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. I am excited about the progress we continue to make as a leading contract compression provider across the U.S. In the second quarter, we strengthened our foundation as a larger combined company and hit several key milestones that position us to take advantage of the expected demand growth over the next several years.

This outlook supports the deliberate investments we accelerated in Q2 in horsepower, in the combined organization, and the technology that will redefine how we operate. Most notable are the horsepower investments. Building on what we announced during the Q1 call, we have continued to engage in long-term business planning. In addition to the approximately 850,000 active horsepower we acquired from J-W, we currently expect approximately 2.5% average annual new horsepower growth through 2029. This plan to add over 500,000 horsepower by 2030 highlights our internal confidence in natural gas demand growth and in our ability to maintain market share. It’s also a key pillar of our capital allocation framework and long-term DCF growth formula. Importantly, this investment changes the nature of the conversations we are having with customers. When you show up with specific multi-year deployment plan, customers can grow with you.

In an environment where certain new engine lead times continue to be as high as 200 weeks or nearly four years, customers want to know that their compression provider is both committed and capitalized to deliver. Chris Wauson will share more on these commercial results. Second, we’re investing in the combined USA Compression growth platform. We went live with SAP in February and are in the middle innings of the J-W integration. It’s obvious to me that we’re building a fundamentally stronger company. The sophistication of our new ERP system and the enhanced data reporting we have access to is allowing us to better manage our activity both in the field and at home office. With J-W, the activity is happening across multiple levels. Operationally, we are capturing labor and cost synergies as we standardize how we run the combined fleet.

Commercially, we are integrating best practices across both organizations. How we price, how we contract, and how we serve a customer base that is now significantly broader than it was a year ago. Through the manufacturing business, J-W’s specialized facilities gives us the ability to package our own compression and optionality that is particularly valuable in an extended lead time environment, and one that differentiates us from peers. As a reminder, to the extent the compression market changes, we can be nimble and reduce our capital exposure in the out years. Finally, we are investing in enhanced telemetry and real-time data capabilities across our fleet, including AI. Our goal is to get the right information to the right people faster so we can make better decisions on maintenance, deployment, and efficiency.

We expect to reach a critical mass of connected assets with telemetry in 2027, at which point we can begin to meaningfully change how we operate. Better predictive maintenance, more efficient field service routing, and fewer unplanned downtime events. The investments are happening now, and it’s positioning us for a more efficient future. I will now turn the call over to Chris Wauson to walk through our operational and commercial results in more detail.

Chris Wauson, Senior Vice President and Chief Operating Officer, USA Compression Partners: Good morning, everyone. To start, I am proud of the resilience of our safety culture during a period of rapid organizational growth. Our total incident rate has remained low despite a large influx of new personnel, demonstrating both the strength of our safety management processes and the buy-in from our operations team. In addition to our safety programs, we have recently launched new leadership training programs for multiple levels over our operations field leadership. Our goal is to accelerate development, help enhance business processes, and empower our team to better serve our customers. These continued investments in safety, training, and development will ensure we continue to attract and retain the talent needed to execute our future growth plans. As Clint mentioned, our growth plans now include low single-digit new horsepower growth through 2029.

This has unlocked a different kind of customer conversation, one that is not only about what we can deliver this year, but also about how we can support in the future years. We have made excellent progress in new customer discussions and already contracted approximately 50% of new units scheduled for delivery in 2027. Mid-teens % of new units planned for 2028. To put that in broader context, contracting capacity two years out is not typical and has rarely been seen in my career. It reflects the level of customer conviction in long-term production growth that we share, and it reflects their confidence in USA Compression as their partner of choice. New large horsepower lead times remain extended, and that reality is driving customers to make compression decisions further out than they historically have.

While we did see elevated stops in Q2, RFP activity remains healthy, and our pipeline of customer contracts heading into the back half of the year gives us confidence in continued forward progress. While we remain focused on the long-term earnings potential of our business, we also want to highlight short-term cost movements and recontracting efforts. In that way, we expect incremental lube oil cost of approximately $1 million per month in the second half of the year as our contracts are updated to reflect higher oil prices. Additionally, JW contract migration is underway and progressing with a focus on standardized terms, tenure, and pricing, all while assessing unit optimization. I will now turn it over to Chris Paulsen to discuss our financial results in detail.

Chris M. Paulsen, Senior Vice President and Chief Financial Officer, USA Compression Partners: Thanks, Chris. For the second quarter, total revenues were $342.1 million compared to $250.1 million in the prior year period, an increase of 37%. Contract operations revenue was $304.9 million, up 34% year-over-year, driven primarily by the addition of JW’s horsepower and average revenue per revenue-generating horsepower. Parts and service revenue was $22.1 million, reflecting the manufacturing and aftermarket services activity that JW brought to the platform. Our second quarter 2026 net income was $45.7 million. Operating income was $100.4 million. Net cash provided by operating activities was $145.7 million, and cash interest expense net was $47.4 million. Our second quarter adjusted gross margin percentage came in at 63.5%. Our leverage ratio at the end of the second quarter was 3.72 times. Turning to operational results, our total fleet horsepower at the end of the quarter was approximately 4.95 million horsepower.

Average revenue per revenue-generating horsepower per month was $22.84 for the quarter, a half a percent increase in sequential quarters, and a 7% increase compared to a year ago period. Average active horsepower for the second quarter was approximately 4.45 million. Our average utilization for the second quarter was 92% and continues to reflect the blended impact of incorporating JW’s fleet. Second quarter 2026 expansion capital expenditures were $46.8 million, and our maintenance capital expenditures were $16.9 million. Expansion capital spending in Q2 primarily consisted of new units, while maintenance capital activity accelerated versus Q1 as we ramped up activity. For the remainder of the year, we expect most growth capital will be focused on new horsepower and reconfigurations, while maintenance capital is expected to trend towards our full-year projections.

We continue to maintain our full-year adjusted EBITDA range of $770 million-$800 million, distributable cash flow range of $480 million-$510 million, maintenance capital range of $60 million-$70 million, and expansion capital range of $230 million-$250 million. Leverage maintained consistency in Q2, even as we ramped up on capital spending, remaining just below our near-term target of 3.75 times debt to EBITDA. While debt markets have pulled back, we will continue to opportunistically explore accessing later this year in order to add consistency to our tranche sizing and duration. We have ample liquidity under our ABL at a low interest rate and therefore remain patient.

As we enter what we believe will be a period of sustained natural gas demand growth, we have deliberately positioned the business to deliver against our three core capital allocation priorities simultaneously, growing the fleet, sustaining and ultimately growing the distribution, and maintaining a prudent leverage profile. We believe 2%-3% annual new horsepower growth, a distribution yield approaching 8%, and an improving sub 4 times leverage ratio represent a compelling and differentiated value proposition, one that we believe positions USA Compression competitively in the MLP valuation landscape and we anticipate will continue to improve as we move through the back half of 2026 and into 2027. With that, I’ll turn it back over to Clint Green.

Clint Green, President and Chief Executive Officer, USA Compression Partners: Thank you, Chris. We are making deliberate investments in the business because we are bullish on the future demand, and we want to be positioned to capture it when it arrives. The work happening inside the organization right now, in the field, in our commercial organization, and across our integration teams, is what makes this possible. I am proud of what our people are building, and I’m excited about the progress we continue to make. With that, I will open up the call for questions.

Conference Call Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question, simply press star one again. For today’s event, we kindly request everyone to please limit yourself to one question and one follow-up only. Thank you. Your first question comes from the line of Doug Irwin with Citi, your line is now open.

Doug Irwin, Analyst, Citi: Hey, team. Thanks for the question. Chris, you mentioned potential distribution growth in your remarks there at the close. You obviously have the balance sheet in a much better position today than it has been in the past, and you just outlined some pretty strong line of sight to growth here. Just trying to get your thoughts on kind of how you’re thinking about that distribution, what the right yields you’re thinking about might be, and what kind of potential timing could look like for a decision.

Chris M. Paulsen, Senior Vice President and Chief Financial Officer, USA Compression Partners: Good morning, Doug. I appreciate the question. The question highlights the transformative change we’ve seen in cash flow through a very accretive transaction. The year-over-year change has really been material, and we’ve seen a change in coverage and in turn, have reduced debt. As I’ve noted before, any change in distribution policy would be in consultation with and approved by our board of directors. That being said, given the unprecedented visibility for multi-year growth, strong returns, and commitments required to meet our customer needs, the current priority for excess cash flow is to prioritize that 2.5% of growth per annum in new horsepower. Balanced long-term growth should continue to elevate underlying value of the units and positions the company to have more flexibility as it relates to distribution discussions in the future.

Additionally, we intend to maintain a competitive and prudent leverage profile that sustains us through distribution cycles and provides flexibility for future growth opportunities. Finally, as you noted, our current yield is competitively positioned with the broader Alerian index and should be considered an attractive entry point for any prospective unitholder, given the aforementioned growth. It also clearly differentiates us from our peers. That’s how we’re thinking about it right now, Doug. We ultimately want to see a distribution that is supportive of the underlying value of the business and clearly enumerates the underlying value of the business. Today, we see that being the case, and we’ll continue to evaluate that in the future.

Doug Irwin, Analyst, Citi: Got it. That’s helpful color. And maybe as a follow-up, just wanted to touch on the lube oil costs that you also mentioned in the prepared remarks. Helpful detail on the expected kind of monthly impact. Just curious how you’re thinking about your ability to potentially pass those costs on within your contracts if they prove to be more durable. Then just in general, kind of what your latest pricing expectations are here over the medium term, just given what lead times are and how tight the market is today.

Chris M. Paulsen, Senior Vice President and Chief Financial Officer, USA Compression Partners: Hey, Doug. Great question. Thank you. In regards to lube oil, as contracts expire and renew, we’re doing our best to cover the increased cost inputs, but we don’t have a direct pass-through in our contract related to increases or decreases in lube oil prices. As those contracts renew, we’re doing our best to renegotiate terms and try to cover those costs as we renew. In regards to pricing trends, our new units, we’re still contracting units at a healthy rate of return. In regards to more of an idle unit set, we’re not seeing the price increases on that we once have experienced. RFPs are high. There’s a lot of demand. We’re super excited about the future. We’ve got a healthy backlog of contracted units, we’re really excited about the back half of 2026.

Clint Green, President and Chief Executive Officer, USA Compression Partners: Hey, Doug. This is Clint. Want to add in there that we still have CPI-U escalators to offset the inflation piece of it going forward as well.

Doug Irwin, Analyst, Citi: Understood. Thanks for the time.

Clint Green, President and Chief Executive Officer, USA Compression Partners: Yeah.

Conference Call Operator: Your next question comes from the line of Jim Rollyson with Raymond James. Your line is now open.

Jim Rollyson, Analyst, Raymond James: Hey, good morning, everyone. Clint or Chris, whoever. You kind of look at margins and the relative decline, obviously you stepped down in 1Q, just kind of mix related to J-W, and you came down a bit in 2Q. Maybe help me understand a little bit the drivers of the sequential margin degradation between lube oils that you talked about, between the ERP system implementation, and just kind of integration of J-W, and how we should think about that kind of progression going forward.

Chris Wauson, Senior Vice President and Chief Operating Officer, USA Compression Partners: Hey, good morning. Thanks for the question. It’s Chris Wasson. We expected margins to drop with the J-W acquisition. We had a full operating quarter combined now, manufacturing and AMS do lower contract services historical average. The next part of that is: where do margins go from here? With our investment in telemetry, remote monitoring, and driving efficiencies, I expect to see the results later this year into 2027 and beyond. This will enable us to get super efficient in regards to route management, predictive failures. In all, we’ll see margins improve slightly quarter-over-quarter.

Jim Rollyson, Analyst, Raymond James: Got it. Appreciate that color. Clint, when you talk to customers with where lead times have stretched out to now

How are they adapting to planning horizons that have changed dramatically? Just a couple of years ago, that was starting to normalize at about 1 year, and then it’s literally gone from 1 year to 4-plus years, and I imagine those guys aren’t accustomed to normally planning that far out. I’d just love to hear how that all goes for you and your ability to serve those customers.

Clint Green, President and Chief Executive Officer, USA Compression Partners: That’s a great question, and one of the reasons we’ve committed to a portion of the cost of 500,000 horsepower. When I say a portion of that cost, I want to explain it. By having the J-W facility, that gives us flexibility that we wouldn’t have elsewhere, because we only have to commit to the engine cost in the out years. When you get back to the conversation about we’ve all had to adapt. We ran 40- to 60-week delivery lead time on equipment for years and years and years. In the last few years with the generator market growing like it has, it has driven out to 200 weeks. It caught a lot of us by surprise. It caught us by surprise earlier this year for orders for 2027.

That’s the main reason we jumped on it, and we’re able to order equipment for 2028 and 2029, and we’ll be looking at 2030 here pretty quick. Everyone’s learning how to operate in that market. Customers, hopefully, they have a good line of sight on demand, and they have a good line of sight on the compression that we can provide them. We seem to all be getting along pretty well right now, Jim.

Jim Rollyson, Analyst, Raymond James: Nice to be wanted for a change. I appreciate your time.

Clint Green, President and Chief Executive Officer, USA Compression Partners: Thank you.

Conference Call Operator: Your next question comes from the line of Nate Pendleton with Texas Capital. Your line is now open.

Nate Pendleton, Analyst, Texas Capital: Good morning. Thanks for taking my question. Clint, in your prepared remarks, you talked about advancing through integration this year. As you’re going through that process, are there any additional deficiencies you’re uncovering with the combined business? Perhaps any thoughts on any fleet optimization or high-grading potential?

Clint Green, President and Chief Executive Officer, USA Compression Partners: As far as deficiencies, no. I think we’re really happy with what we were able to acquire. It fits really well with us. The footprint puts us where we want to be in all the basins with all the different horsepower ranges like we’ve talked about before. We’re extremely happy with where we are. We are continuing to evaluate the idle horsepower that came over. We knew some of it may not be redeployable immediately. We’ll continue to evaluate that through the rest of this year. We’ve also talked about looking at secondary markets, maybe outside the country, to deploy some of this equipment. We’re extremely happy with the JW acquisition. Like I said on the announcement call back in December, we liked the whole enchilada when it came to that acquisition.

Nate Pendleton, Analyst, Texas Capital: Got it. I appreciate that. Perhaps just staying on the integration of JW. With that well underway and the leverage already below target, how is your team thinking about potential M&A going forward? Is that really something you guys could do in the near term? If so, what are the key considerations right now given the environment we’re in?

Clint Green, President and Chief Executive Officer, USA Compression Partners: We’re absolutely always looking at M&A. We evaluate those. We’re going to remain disciplined, focused. It has to be accretive. It has to make sense for us to be able to do it. We are definitely in the M&A market and looking for opportunities to make that work.

Chris M. Paulsen, Senior Vice President and Chief Financial Officer, USA Compression Partners: The one other thing I would note, Nate, is the energy high-yield market has really remained resilient. The midstream portion of that in particular has remained resilient. I noted to the extent we can be opportunistic, we will be. Yields have moved away from us here recently at 10 years, around 4.7, but we continue to watch. We continue to look for opportunities to add consistency to our debt tranche sizing, to the duration or tenor, if you will, for that. To the extent we find an M&A opportunity that makes sense, I think the capital markets are available for that.

Nate Pendleton, Analyst, Texas Capital: Got it. I appreciate the detail there, Clint and Chris.

Clint Green, President and Chief Executive Officer, USA Compression Partners: Thank you, Nate.

Conference Call Operator: I’m sorry. Your next question comes from the line of Eli Jossen from J.P. Morgan. Your line is now open.

Eli Jossen, Analyst, J.P. Morgan: I just want to think about JW’s manufacturing or fabrication capabilities in the context of the guidance you provided today. Can you remind us what JW offers you as you look to add half a million horsepower through the decade, and how critical that is to meeting that order book?

Clint Green, President and Chief Executive Officer, USA Compression Partners: Absolutely. The manufacturing facility today, the way it sits, can build about 100,000 to 125,000 horsepower in that facility. We’ll supplement the additional 20,000 to 60,000 horsepower a year through other facilities or other shops. The flexibility that it provides is that we can order the engine, we can wait until 30 to 40 weeks to order the compressor or all the other parts and components

We can build it right in-house. We always have to think about what could happen if things changed. If things changed, we wouldn’t be on the hook for the entire package cost from now until 2029. We really like that flexibility that it provides.

Eli Jossen, Analyst, J.P. Morgan: Got it. Maybe building on the prior question regarding M&A. You guys obviously have a pretty diversified footprint across different basins, recognize that compression is tight. I would imagine that ask price on asset packages are pretty high. How would you think about geographic preference for any type of M&A? Do you feel that other basins might have more realistic price tags on them, and how should we think about that?

Chris M. Paulsen, Senior Vice President and Chief Financial Officer, USA Compression Partners: It’s a great question. There’s certainly some standout basins overall in terms of the growth profile for the U.S. or at least as it stands today. The Permian and associated gas basins, but certainly the Permian leads that way. Through 2031, those associated gas basins are probably 11 BCF a day of growth. The Permian’s about eight of that. The drier gas basins like the Northeast and the Haynesville will make up about 12 BCF of growth. Both of those about six BCF respectively. You go where the growth is. There’s no doubt that’s probably the first place that you look. Additionally, there’s opportunities in basins that are underserved.

I’d say the Rockies overall has been an underserved basin from a lot of the larger competitors out there, and we saw that with the J-W deal, and we saw the underlying value, we saw the amount of long-term gas growth that could come out of the Rockies, and certainly come out of the Rockies at a four and a quarter profile. Without giving away all our cards, you go towards growth, you go towards underserved basins, and you make sure that they’re durable in the long term. When we see 140+ BCF a day of growth by early 2030 in the U.S. to serve the LNG demand that’s out there, to serve the burgeoning growth in terms of data centers and the 4 to 6 BCF a day plus associated with data centers coming on in the next several years.

There’s excellent opportunities out there in the compression space.

Eli Jossen, Analyst, J.P. Morgan: Got it. All right. Really appreciate the color. Thanks.

Clint Green, President and Chief Executive Officer, USA Compression Partners: Thank you.

Conference Call Operator: Again, if you would like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Gabriel Moreen with Mizuho. Your line is now open.

Ryan, Analyst, Mizuho: Hi, this is Ryan on the line for Gabe. My first question is around how are you thinking about refinancing or terming out the amounts currently drawn on the revolver, particularly given the current interest rate environment?

Chris M. Paulsen, Senior Vice President and Chief Financial Officer, USA Compression Partners: Ryan, as it relates to reterming, presently our rate for ABL is sub 6%. The SOFR rate really has remained relatively unchanged over the past six months at around 3.65%, our number comes in a little north of 200 basis points when you factor in the underutilized capacity on top of that. We’re still well below 6%. When you look at the ability to go out longer term at eight and a half years, the numbers are probably 50 basis points north of that today. Those are the things that you ultimately weigh in terms of that decision. We also want to have the flexibility longer term for our business.

To the degree we can get that 50 basis points to tighten and we see the opportunity longer out in tenor to an eight to 10-year opportunity set, then we’ll strongly look at the public market opportunities in the near future.

Ryan, Analyst, Mizuho: Got it. Thank you for that. For my follow-up, how are customers thinking about compression demand and capital requirements in 2027 and 2028? Then also, is growth more likely to be constrained by available compression equipment or by the level of customer demand?

Chris Wauson, Senior Vice President and Chief Operating Officer, USA Compression Partners: Hey, great question. It’s Chris Wauson. In regards to how customers are thinking to their growth, as I mentioned earlier, it’s a different way of business, right? When you have to think out not only next year, but two years and three years and even beyond that, because four years is right around the corner with lead times doing what they’re doing. Our tier 1 customers are definitely planning well in advance. Their demand and their growth trajectories are definitely out there, and we’re working with them hand in hand. We’re having conversations with them every week. We’re working hand in hand to meet their needs. It is a challenge, right? The challenging part for us is what the world’s going to do in three and four years. It’s actually quite promising how everybody’s working together.

Looking forward to that and just see where the future goes.

Ryan, Analyst, Mizuho: Great. Thank you so much, guys.

Clint Green, President and Chief Executive Officer, USA Compression Partners: Thanks, Ryan.

Conference Call Operator: That concludes our question and answer session. I will now turn the conference back over to Mr. Clint Green for closing remarks.

Clint Green, President and Chief Executive Officer, USA Compression Partners: Thank you all for joining the call this afternoon. I want to touch on a few more points and reiterate. The amount of RFQs we’re seeing is very strong. The stage seems to be set for large amounts of demand growth over the next four to five years. The demand is expected to be about 140 BCF by the end of 2031. That’s up over 30 BCF from 2025 averages. The majority of that is LNG demand growth, between 18 to 20 BCF a day of growth there. We sit just below our target leverage ratio of 3.75 times. We have equipment secured through 2029. Our in-house manufacturing capabilities tied with demand growth gives us huge flexibility. We really appreciate you all joining our call. Thank you very much and have a good day.

Conference Call Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.