USA COMPRESSION PARTNERS LP 2026 Q2 Earnings Call

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.

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.

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.

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.