USA Compression Partners, LP (USAC) | The Buildout — AI Infrastructure
The Verdict
USA Compression Partners rents natural gas compression horsepower under contract. Its units sit on gathering systems, processing plants and pipelines, pushing gas from wells toward end users; they also provide gas lift on crude oil wells and gas treating services that strip carbon dioxide and hydrogen sulfide. More gas-fired power generation and more data centers mean more gas has to move, which means more compression. That link is real but indirect: USAC reports no data-center revenue and names no data-center customer. The company also builds its own compression packages at two Texas plants acquired with J-W Power, which matters in a market where new engines take years to arrive.
| Market Cap | — |
| Revenue (TTM) | $1.2B |
| Revenue Growth | +19.9% |
| EBITDA Margin (TTM) | 57.3% |
| Net Debt | $2.9B |
| Earnings Beats | 2 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Contracted coverage: about 110,000 new horsepower planned for 2026 with more than 90% contracted, and roughly 50% of 2027 new units already booked.
- A standing growth plan: approximately 2.5% average annual new horsepower growth through 2029 and more than 500,000 horsepower added by 2030.
- Contracted contract-operations backlog of $1.2 billion as of March 31, 2026, with 80.3% scheduled for recognition by the end of 2027.
- Leverage of 3.72x, below the 3.75x near-term target, in a quarter when expansion capital rose to $46.8 million from $26.4 million.
- J-W synergy target of $10–20 million annual run-rate by year-end 2027, alongside owned manufacturing capacity of 100,000–125,000 horsepower plus a 20,000–60,000 horsepower annual supplement from other shops.
What We’re Watching
- Adjusted gross margin has fallen three straight quarters: 66.8% in Q4 2025, 64.4% in Q1 2026, 63.5% in Q2 2026. Management guides to a slight sequential improvement later in 2026 into 2027.
- About $1 million per month of incremental lube oil cost lands in the second half of 2026 with no direct pass-through; recovery depends on contract renewals and CPI-U escalators.
- Engine lead times ran as high as 200 weeks, with the 3,600-series Caterpillar engine the constrained item. Management says Caterpillar has no near-term plans to expand that line.
- Idle horsepower acquired from J-W is still being evaluated through the rest of 2026, and the blend pulled reported utilization from 94.5% to 92%.
The thesis is strengthening on demand and holding on the balance sheet, but the margin line is where it is least proven. FY2026 guidance ranges were maintained for a second consecutive quarter even as revenue rose 37% year over year, which suggests the J-W mix and lube oil cost are being absorbed inside the existing envelope rather than forcing a reset. Capital is committed years ahead, but it is structured loosely — engines only, with components ordered 30 to 40 weeks out. The open question is whether adjusted gross margin turns higher in the back half of 2026, given that the mechanism management credits, telemetry, is not expected to reach critical mass until 2027. A repeat of the unexplained "elevated stops" disclosed once in Q2 would be the clearest sign that operations are not on plan.
Earnings
The second quarter of 2026 was USAC's first full quarter including J-W Power. Revenue was $342.1 million, up 37% from $250.1 million a year earlier, with contract operations at $304.9 million and parts and service at $22.1 million. Net income was $45.7 million, up from $28.6 million. Adjusted gross margin — the company's measure, which adds back depreciation and amortization — was 63.5%, down from 64.4% in the first quarter. Leverage was 3.72x, below the 3.75x near-term target.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $342M | $331M | $250M | +36.8% |
| Gross margin | 37.8% | 38.1% | 65.4% | -2760bps |
| EBITDA | $190M | $178M | $147M | +28.6% |
| EPS | $0.31 | $0.27 | $0.24 | +31.1% |
| Revenue per revenue-generating horsepower per month | $22.84 | $22.73 | n/a | +7% y/y, +0.5% sequentially |
| Leverage ratio (debt-to-EBITDA) | 3.72x | 3.74x | n/a | Below the 3.75x near-term target |
To put that in broader context, contracting capacity 2 years out is not typical and has rarely been seen in my career.— Christopher Wauson, Chief Operating Officer, 2026-08-04
Management tone: Management moved from warning to quantifying between the two calls. In the first quarter it described engine lead times tripling to about 150 weeks and flagged that lube oil costs would rise; in the second it put numbers on both — lead times as high as 200 weeks, and roughly $1 million per month of lube oil cost — and formalized a multi-year horsepower plan for the first time. Asked about distribution growth, management stayed non-committal, pointing to growth capital and the Board process rather than naming a date. It was direct about the absence of a lube oil pass-through and about softer pricing on idle units versus new ones.
Management Guidance
Management maintained all four FY2026 ranges: adjusted EBITDA of $770 million to $800 million, distributable cash flow of $480 million to $510 million, maintenance capital of $60 million to $70 million, and expansion capital of $230 million to $250 million. Expansion capital includes $38 million of capital that is non-compression related. The company says it cannot reconcile projected adjusted EBITDA and distributable cash flow to projected net income or projected operating cash flow. Management also said it expects margins to improve slightly quarter over quarter later in 2026 into 2027, credited to telemetry and efficiency work, and flagged roughly $1 million per month of incremental lube oil cost in the second half of 2026, to be recovered through contract renewals and CPI-U escalators rather than a direct pass-through.
Trajectory
The reported top line stepped up when J-W closed, from $252.5 million in Q4 FY2025 to $331.3 million in Q1 FY2026 and $342.1 million in Q2 — a 31% sequential jump followed by roughly 3%. That is an acquisition step more than an accelerating organic run-rate, even though the year-over-year figure read 37%. Adjusted gross margin has compressed for three straight quarters, from 66.8% to 64.4% to 63.5%, as lower-margin manufacturing and aftermarket revenue entered the mix; margin dollars rose while the rate fell. Average revenue per revenue-generating horsepower per month was $22.84, up 7% year over year but only 0.5% sequentially, after a 5% sequential gain in Q1. Leverage eased to 3.72x from 3.74x while expansion capital rose to $46.8 million from $26.4 million.
The Model
The model projects FY+1 revenue of $1,375.0 million with EBITDA of $776 million, a 56.4% margin, and FY+2 revenue of $1,453 million with EBITDA of $834 million, a 57.4% margin. The near-term anchor is the J-W platform running a full year, about 110,000 horsepower of 2026 additions with more than 90% contracted, and the maintained FY2026 adjusted EBITDA guidance of $770 million to $800 million. FY+2 depends on the 2027 delivery set, about half of which is already contracted, moving the company toward its roughly 2.5% annual horsepower growth plan — and on whether the adjusted gross margin rate stops falling and turns.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $998M | $1.4B | $1.5B |
| YoY Growth | — | +37.8% | +5.7% |
| EBITDA | $593M | $776M | $834M |
| EBITDA Margin | 59.4% | 56.4% | 57.4% |
Projections are the median of 5 independent model runs. The model’s revenue sits 1.8% above analyst consensus.
Management maintained all four FY2026 ranges: adjusted EBITDA of $770 million to $800 million, distributable cash flow of $480 million to $510 million, maintenance capital of $60 million to $70 million, and expansion capital of $230 million to $250 million. Expansion capital includes $38 million of capital that is non-compression related. The company says it cannot reconcile projected adjusted EBITDA and distributable cash flow to projected net income or projected operating cash flow. Management also said it expects margins to improve slightly quarter over quarter later in 2026 into 2027, credited to telemetry and efficiency work, and flagged roughly $1 million per month of incremental lube oil cost in the second half of 2026, to be recovered through contract renewals and CPI-U escalators rather than a direct pass-through.
What Could Go Right — and Wrong
- 2027 contracting moves from roughly 50% toward full coverage and 2028 rises well above the mid-teens, turning the 500,000-horsepower plan into visible revenue.
- Adjusted gross margin turns higher as telemetry reaches critical mass in 2027 and the lower-margin J-W mix is absorbed into the base.
- The roughly $1 million per month lube oil cost is offset through contract renewals and CPI-U escalators, keeping the FY2026 EBITDA range intact.
- Idle J-W horsepower is redeployed or sold, lifting utilization above 92% and returning capital to the growth plan.
- J-W synergies land at or above the $10–20 million annual run-rate target by year-end 2027.
- Engine lead times shorten as Caterpillar and Cummins add capacity in 2027 and 2028, removing the scarcity that makes USAC's secured orders and owned manufacturing valuable.
- Adjusted gross margin falls for a fourth straight quarter and the telemetry-driven improvement slips past 2027.
- Lube oil costs prove durable past 2026 and cannot be recovered through renewals, with 23.7% of first-quarter 2026 revenue repricing month to month.
- Idle J-W horsepower stays idle, holding utilization at 92% and tying up capital that was meant for growth.
- Compression demand softens after the multi-year commitments are signed, leaving $159.9 million of purchase commitments — $106.9 million of it settling within 12 months — out of step with demand.
Looking Ahead
Over the next 12 months the delivery schedule and the cost line meet each other. Roughly 110,000 new horsepower is planned for 2026 with more than 90% contracted, and engines and package components are already ordered for 2027, with engines for 2028 and a portion of 2029 secured. Against that, about $1 million per month of lube oil cost lands in the second half of 2026, and management has guided to only a slight sequential margin improvement attributed to telemetry that is not expected to reach critical mass until 2027. Two dated events are already in motion: the $600 million note offering is expected to close September 18, 2026, and units are expected to begin trading on the Texas Stock Exchange on October 5, 2026.
- September 18, 2026$600M notes close — 6.750% senior unsecured notes due 2035, priced September 9.
- October 5, 2026TXSE listing begins — Units expected to trade on the Texas Stock Exchange under 'USAC'.
- Second half of 2026Lube oil cost lands — About $1 million per month with no direct contract pass-through.
- Later 2026 into 2027Adjusted margin turn — Management guides to slight quarter-over-quarter improvement.
- 2027Telemetry critical mass — Connected-asset milestone tied to maintenance and routing gains.
- Year-end 2027J-W synergy target — $10–20 million annual run-rate, reaffirmed on both calls.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $950M | $998M | $1.2B | +5.0% |
| Gross Margin | 67.5% | 59.9% | 44.7% | 760bps |
| EBITDA | $559M | $593M | $674M | +6.1% |
| EBITDA Margin | 58.8% | 59.4% | 57.3% | +60bps |
| Net Income | $100M | $111M | $146M | +12.0% |
| Free Cash Flow | $136M | $277M | $310M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)44.7%
- EBITDA Margin (TTM)57.3%
- Net Margin (TTM)12.4%
- ROIC8.6%
- FCF Conversion46.0%
- SBC / Revenue0.6%
The Company
USA Compression Partners describes itself in its 10-K as one of the largest independent providers of natural gas compression services in the U.S. by total compression fleet horsepower. Its units move gas through gathering systems, processing plants and transmission pipelines, provide gas lift on crude oil wells, and support natural gas treating services that remove carbon dioxide and hydrogen sulfide, cool and dehydrate gas. Compression is what keeps gas moving as wellhead pressure falls and what lets more gas travel through existing pipe. Management frames the demand drivers as LNG exports, associated gas in the Permian and data centers, which it sizes at 4 to 6 billion cubic feet a day within the gas-demand growth it expects over the next several years.
The business runs as a single reportable segment, operated entirely within the U.S. Fleet horsepower was about 4.95 million at the end of June 2026, with average utilization of 92% and average revenue of $22.84 per revenue-generating horsepower per month. The January 2026 J-W Power acquisition brought roughly 850,000 active horsepower and two fabrication plants in Longview and Kilgore, Texas, so the company now builds compression packages as well as operating them. It orders engines early and components later, waiting 30 to 40 weeks before ordering compressors. Energy Transfer affiliates own about 32% of the limited partner interests and 100% of the general partner.
Business Segments
Competitive Landscape
The source material's competitive layer names three peers — Kodiak Gas Services, Enerflex and Archrock — plus a large private field, and it labels that layer inferred rather than disclosed by USAC, which does not name competitors in its own filings here. USAC's filings emphasize scale, describing it as one of the largest independent providers by fleet horsepower. The source frames differentiation around large-horsepower units in a shortage, where customers want a provider that is committed and capitalized to deliver, and around the company's owned manufacturing. It frames commoditization around smaller, month-to-month work, where 23.7% of first-quarter 2026 revenue repriced on short notice.
- Kodiak Gas Services (KGS)Neighbor-layer read-through, not a USAC disclosure. Reported 4.4 million revenue-generating horsepower, 98.2% utilization, $23.80/hp pricing and 70% compression adjusted gross margin, and has started 2028 contracting. Also pursuing power generation, with a 405 MW fleet and a Baker Hughes agreement for 1 GW by 2030 with an option up to 1.8 GW.
- Enerflex Ltd. (EFXT)Named in the source's inferred competitor layer; not discussed.
- Archrock (AROC)Named in the source's inferred competitor layer; not discussed.
Supply Chain
USAC buys engines, compressor frames, coolers and valves and assembles them into compression packages at its two Texas plants. Its suppliers are engine and component makers; its customers are producers and midstream operators.
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