USA Compression’s Earnings Call: Distribution Priorities, Margin Timelines, and Lead Time Claims Don’t Match

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Date of Call: Aug 4, 2026

Financials Results

• Revenue: $342.1 million, up 37% YOY
• Gross Margin: 63.5% adjusted

Guidance:

• Full-year adjusted EBITDA range maintained at $770 to $800 million.
• Full-year distributable cash flow range maintained at $480 to $510 million.
• Full-year maintenance capital range maintained at $60 to $70 million.
• Full-year expansion capital range maintained at $230 to $250 million.
• Expect incremental lube oil costs of approximately $1 million per month in second half of 2026.
• Target long-term leverage ratio of just below 3.75x.

Business Commentary:

Revenue and Fleet Growth:

• USA Compression Partners reported total revenues of $342.1 million for the second quarter of 2026, compared to $250.1 million in the prior year period, marking an increase of 37%.
• The growth was primarily driven by the addition of JW's horsepower and an increase in average revenue per revenue-generating horsepower.

Horsepower Investment and Customer Commitment:

• The company expects approximately 2.5% average annual new horsepower growth through 2029, with plans to add over 500,000 horsepower by 2030.
• This investment is based on confidence in natural gas demand growth and the ability to maintain market share, with customers showing strong commitment by contracting approximately 50% of new units for 2027.

Operational and Financial Metrics:

• The total fleet horsepower at the end of the quarter was approximately 4.95 million horsepower, with an average utilization of 92%.
• The company maintained a leverage ratio of 3.72 times, remaining below the near-term target, despite increased capital spending.

Distribution and Growth Priorities:

• The current yield is positioned as an attractive entry point, and the priority for excess cash flow is to support the 2.5% annual growth in new horsepower.
• This strategy aims to enhance the underlying value of the units and provide flexibility for future distribution discussions.

Integration and Efficiency Improvements:

• USA Compression Partners is in the process of integrating JW's operations, focusing on capturing labor and cost synergies and enhancing data reporting capabilities.
• The company is investing in telemetry and real-time data capabilities to improve predictive maintenance and operational efficiency, expecting a critical mass of connected assets by 2027.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated: 'I am excited about the progress we continue to make as a leading contract compression provider.' CFO highlighted 'transformative change' in cash flow and reduced debt, with strong growth visibility. Management expressed confidence in customer conviction, with 'contracting capacity two years out...reflects the level of customer conviction and long-term production growth that we share, and it reflects their confidence in USA Compression as their partner of choice.'

Q&A:

• Question from Doug Irwin (Citi): 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.
  Response: Priority is to fund 2.5% annual horsepower growth; current yield is attractive and differentiates from peers; any distribution change requires board approval.

• Question from Doug Irwin (Citi): Just wanted to touch on the oil costs that you also mentioned in the prepared remarks...how you're thinking about your ability to potentially pass those costs on within your contracts...and what your latest pricing expectations are.
  Response: Contracts do not have direct oil cost escalators; trying to renegotiate terms to cover costs. New units contracted at healthy rate of return; RFPs remain high.

• Question from Jim Rolison (Raymond James): ...help me understand a little bit the drivers of the sequential margin Degradation...and how we should think about that kind of progression going forward.
  Response: Margin decline expected with JW acquisition; improvement anticipated later this year into 2027 through investments in telemetry and efficiencies.

• Question from Jim Rolison (Raymond James): ...how are they adapting to planning horizons that have changed dramatically?...lead times...gone from one year to four plus years.
  Response: Customers and USA Compression are adapting; USA Compression committed to multi-year horsepower growth to support customer long-term plans.

• Question from Nate Pendleton (Texas Capital): ...are there any additional deficiencies you're uncovering with the combined business? And perhaps any thoughts on any fleet optimization or high grading potential?
  Response: No major deficiencies; happy with JW acquisition fit. Continuing to evaluate idle horsepower for redeployment or secondary markets.

• Question from Nate Pendleton (Texas Capital): ...with that well underway and the leverage already below target, how is your team thinking about potential M&A going forward?
  Response: Remain disciplined and focused on accretive opportunities; energy high yield market resilient, capital markets available for opportunistic deals.

• Question from Ellie Johnson (JP Morgan): ...can you remind us what JW offers you as you look to add half a million horsepower through the decade...
  Response: JW's manufacturing provides flexibility to order engines first, then build packages later, reducing capital exposure if market changes.

• Question from Ellie Johnson (JP Morgan): ...how would you think about sort of geographic preference for any type of M&A?
  Response: Target growth basins (Permian, associated gas) and underserved basins (like Rockies) with durable long-term gas growth.

• Question from Ryan (Mizzou Hall): So my first question is around, how are you thinking about refinancing or turning out the amounts currently drawn on the revolver...
  Response: ABL rate is sub-6%; considering long-term re-terming if rates improve to 8-10 year tenors; will evaluate public market opportunities.

• Question from Ryan (Mizzou Hall): How are customers thinking about compression demand and capital requirements in 2027 and 2028?
  Response: Customers are planning well ahead due to extended lead times; working hand-in-hand to meet their growth projections; it is a challenge but promising.

Contradiction Point 1

Distribution Policy Flexibility and Priority

Conflicting statements on the board's role in distribution decisions and the prioritization of cash flow.

Doug Irwin (Citi) - Doug Irwin (Citi)

2026Q2: The year-over-year change in cash flow has been material... Any change in distribution policy would be in consultation with and approved by our board of directors. Given the unprecedented visibility... the current priority for excess cash flow is to prioritize that 2.5% annual growth in new horsepower. - [Chris Paulson](CFO)

Given the current financial position and growth outlook, how do you evaluate appropriate yields and timing for distribution decisions? - Doug Irwin (Citi)

2026Q2: The prioritization of excess cash flow is to fund the 2.5% annual new horsepower growth. The current yield is competitive... Any distribution policy change would require board approval. The focus is on maintaining a prudent leverage profile to provide flexibility through cycles and support future distribution discussions. - [Chris Paulsen](CFO)

Contradiction Point 2

Margin Improvement Timeline

Inconsistent timeline for expecting margin improvements following the JW acquisition.

Did Jim Rolison (Raymond James) have any questions during the earnings call? - Jim Rolison (Raymond James)

2026Q2: Margins were expected to drop with the JW acquisition... I expect to see margin improvements later this year into 2027 and beyond. - [Chris Watson](COO)

What were the key drivers of the sequential margin degradation between Q1 and Q2, and how should we think about the impact of ERP system implementation and integration on future margin progression? - Jim Rollyson (Raymond James)

2026Q2: Margins were expected to drop after the J-W acquisition... Future margin improvement is anticipated through investments... with improvements expected later this year into 2027 and beyond. - [Chris Wauson](COO)

Contradiction Point 3

Impact of Long Lead Times on Growth Strategy

Contradiction on the difficulty of planning for 2027 growth due to lead times.

Jim Rolison (Raymond James) - Jim Rolison (Raymond James)

2026Q2: We and our customers are learning to operate in this market. Having a good line of sight on demand and our ability to provide compression seems to be working well. - [Clint Green](CEO)

How are they adapting to the significant changes in planning horizons? - Douglas Irwin (Citigroup Inc.)

2025Q4: 2027 planning is challenging due to long lead times (~120 weeks for large packages)... - [Christopher Paulsen](CFO)

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