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USA Compression Partners LPÂ (USAC 0.40%)
Q4Â 2018 Earnings Conference Call
Feb. 19, 2019, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good day and welcome to the USA Compression Partners Fourth Quarter Earnings Conference Call. Today's call is being recorded.
At this time, I'd like to turn the call over to Mr. Chris Porter. Please go ahead, sir.
Christopher W. Porter -- Vice President, General Counsel and Secretary
Good morning, everyone and thank you for joining us. This morning, we released our financial results for the quarter ended December 31, 2018. You can find our earnings release as well as recording of this call in the Investor Relations section of our website at usacompression.com. The recording will be available through March 1, 2019.
During this call, our management will discuss certain non-GAAP measures. You will find definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures in the earnings release. As a reminder, our conference call will include forward-looking statements. These statements include projections and expectations of our performance and represent our current beliefs. Actual results may differ materially. Please review the statements of risk included in this morning's release and in our SEC filings. Please note that information provided on this call speaks only to management's view, as of today, February 19th, and may no longer be accurate at the time of a replay.
I'd now turn the call over to Eric Long, President and CEO of USA Compression.
Eric D. Long -- President and Chief Executive Officer
Thank you, Chris. Good morning, everyone and thanks for joining our call. Also with me is Matt Liuzzi, our CFO. This morning, we released our financial and operational results for the fourth quarter of 2018. We wrapped up a transformative year for USA Compression with the acquisition and integration of the CDM business, which has essentially doubled the size of the Company, broadened our geographic presence and brought together two very similar companies with great assets, people and customers. I'll speak more on the integration in a moment.
Before we get into the details, I'm going to make a few observations on the strength of our business, the positive outlook and our focus in 2019. To sum it up, the business performed very well in the fourth quarter and we are positioned for a strong 2019. First, our business is booming, as the macro drivers of the natural gas market are strong. This demand-driven growth for natural gas leads to continued demand for large horsepower compression services for the near future.
Second, our business has responded as fleet utilization, pricing, operating margins and distribution coverage are all up. Third, we are capitalizing on the current market strength, the increased pricing on our existing contract book in term of certain month-to-month contracts. Fourth, we will continue to self-fund our highly selective growth CapEx program in 2019 as we did in 2018. For 2019, we have no plans to issue equity in connection with organic growth projects. And fifth, we remain laser-focused on operational excellence and financial discipline with the continued long-term goal of creating and enhancing value for our unitholders.
I also want to hit head on the topic of our quarterly distribution. When USA Compression went public in January of 2013, we believed that we had a differentiated business model, one that produced stable results and attractive margins. Since that time, we have never cut our distribution. We are proud of that fact and believe our results are validated how we view the business at the time of the IPO. Our large horsepower infrastructure-focused, demand-driven business model provides for long-term stability across commodity price cycles and has allowed us to maintain our distribution since the IPO.
Our fourth quarter results reflect that, that is still the case. Our business is fundamentally different than many of our compression peers and other oilfield service-related businesses. We successfully managed through the 2014-2015 downturn, we'd focused on operational excellence and fleet optimization during 2016 and 2017, and consummated the CDM acquisition in early April of 2018. Now that the CDM integration is substantially complete, we are excited about what lies ahead for our Company. The CDM acquisition has further strengthened and enhanced USA Compression's core business as well as its prospects for the future.
We continue to believe that our unitholders will be rewarded over the long-term, by our consistent business model and our financial discipline. Our model calls for appropriate levels of growth predicated upon the balance between customer demand and capital markets requirements to generate prudent financial returns to USA Compression's unitholders. Continuing the trends we saw throughout 2018, the market for compression services remains robust, underpinned by the same strong natural gas fundamentals, driving the Midstream infrastructure build out throughout this country.
As we've said in the past, we're relatively natural gas price agnostic and what drives our business is the increasing production of and demand for natural gas. This month the EIA published an interesting chart, illustrating that both US oil and natural gas production are at 100-year highs and increasing. Meanwhile, oil and gas storage levels have continued to tighten. The world is simply consuming more energy every year, with strong and increasing worldwide natural gas demand and the corresponding economically attractive domestic supply, our customers continue invest in infrastructure throughout the country to move, process and ultimately deliver that gas.
All of these factors bode well for the continued demand for compression services and suggest a long period for managed growth and stability well into the future for USA Compression. Both utilization and pricing in the fourth quarter reflect the market strength we were experiencing. Utilization in the mid 90% area, means that we are effectively sold out and we continue to selectively push through rate increases with our customers. As we have now brought all the CDM assets onto USAC -- USA Compression systems, we have a better view of the combined fleet and can more easily manage the assets as an integrated fleet across the Company.
We are approaching the one-year anniversary of the closing of the CDM acquisition. And at this point, we've substantially completed the integration activities. We have firmed up strong leadership throughout the Company, sourced from both legacy companies. We now have migrated everything onto USA Compression systems, providing with reporting consistency and enhanced analytics to manage the fleet of almost 3.6 million horsepower. We continue to find synergy opportunities both on the cost side as well as the revenue side and the work to capture those benefits is ongoing.
We expect to have the bulk of the cost related synergies implemented in the first half of this year with the capture of revenue or commercial opportunities continuing over the next several years. I'll note that while we did not assume any revenue synergies at the time of the deal, we thought there would be commercial opportunities than we are seeing exactly that. Taking all the above together, we continue to be excited about the current and future prospects for USA Compression.
We have built a leading position in the marketplace, built on the large horsepower strategy that we have pursued for the last 20 years. We believe our focus on large horsepower infrastructure oriented applications and the attractive economic returns and operating margins we have achieved over the long-term will continue to differentiate USA Compression from our peers. We believe our size, scale, geographic footprint, quality and young age of our fleet assets and enviable customer mix is a winning combination for the future.
So let's turn to the fourth quarter results. As I mentioned in my introductory remarks, in the fourth quarter, the strong business environment for our compression services continued. We had average utilization during the quarter of 95.6% compared to Q3 average of 92.8%. We have approximately 132,000 new horsepower being delivered throughout 2019. And at this point in the year, those units are already committed to customers, with many of them fully contracted. Demand continues to be especially strong for the very largest horsepower categories in which USA Compression specializes. It is this class of compression that has been required for the large infrastructure applications our customers are building.
On the operations side, our total fleet horsepower at period-end was approximately 3.6 million horsepower, active horsepower at period-end increased by almost 45,000 horsepower to approximately 3.3 million horsepower. I had mentioned that throughout the year, we redeployed significant horsepower from the combined idle fleets at nominal additional CapEx cost. With utilization at this current level, there isn't much idle equipment left to redeploy and certainly none of the large horsepower variety that is in greatest demand.
Driving utilization and pricing increases is improving our economic returns and with the strong market backdrop we expect this to continue and allow us to create additional value for our unitholders. Most of our truly idle horsepower consists of smaller horsepower. While the price of crude oil was somewhat volatile in the fourth quarter, we do see improving demand for these units. The more recent stability in crude oil pricing has benefited the small and non-strategic part of our business.
The average blended pricing across the fleet continued to take upwards during the fourth quarter as new delivery units continued to hold strong pricing as well as the impact of selective service rate increases on equipment already deployed and working in the field. Average monthly revenue was $16.42 per horsepower for Q4, which was an increase of about 1.5% over the third quarter. Efforts to term up month-to-month contracts and optimized pricing associated with them will continue in 2019.
We expect that general Midstream infrastructure activity levels in tight supply demand dynamics from both new and used large horsepower equipment to continue to be positive for both utilization and pricing in the sector. Capital allocation continues to be a very timely topic in the Midstream sector as well as in compression services. At the time of the CDM acquisition, both USA Compression and CDM had approved budgets that reflected long lead time commercial commitments each have made to its respective equipment vendors and customers.
During 2018, we collectively executed that combined plan -- capital plan, spending over $200 million in expansion capital. For 2019, we have high-graded our opportunity set and currently plan to spend between $140 million and $150 million in expansion capital. This includes 132,000 horsepower of new order deliveries, as well as capital allocated to reconfigure certain existing units for redeployment. Our new unit orders are predominantly large horsepower units, focused on the 2,500 horsepower class and above. With modest new unit capital spending during 2019, we plan to place a fair amount of focus on the existing deployed fleet, driving enhanced and attractive returns on capital already deployed, while requiring limited incremental capital outlays.
In Q4, our growth capital was approximately $39 million, focused on large horsepower units. During the quarter, we took delivery of approximately 26,000 total horsepower. Lead times for the large horsepower equipment are still generally right around the year. As we've discussed, this has kept the supply demand dynamics for compression services largely unchanged and we don't expect this to change meaningfully in the near-term. By ordering ahead, we ensured availability of units for our top customers who are growing our footprints and require the large horsepower compression we provide. We are engaging with our current customers regarding their 2020 compression needs and will be placing orders in the not too distant future.
So let's turn to the fourth quarter financial overview. The financial performance of the fourth quarter reflected strong performance across the board, as we reported increased active horsepower, improved pricing and revenue growth. Adjusted EBITDA of $103.3 million was positively impacted by certain beneficial timing effects related to OpEx as well as the labor-related actions we took in the third quarter, which we discussed last quarter, resulting in an increase of approximately 15% compared to the third quarter, which you'll recall, had some one-time negative items related to the CDM integration.
In Q4, our overall gross operating margin was 68% and adjusted EBITDA margin was 60%. I have talked before about our belief and expectation to drive the legacy CDM business to margins more in line with USA's past performance and the fourth quarter demonstrated that. While the CDM integration has taken time, it is now substantially complete, we kept the focus on running our core legacy business while at the same time starting to optimize the CDM fleet we acquired with pricing and utilization increases.
The quarterly results led to a reduction in our bank covenant leverage to 4.3X, down from 4.9X in the third quarter and an increase in our distributable cash flow coverage ratio to 1.19X, up from 1.01X in the third quarter. Following a weaker reported Q3, these metrics are much more in line with how we think about running the business over the longer-term.
So now a little market color and some demand drivers. While the roller-coaster ride in commodity prices at the end of last year made for a lot of headlines, our demand-driven part of the value chain was relatively unaffected. When you look at our big four demand drivers; LNG exports, petrochemical feedstock demand, clean-burning domestic power generation and exports to Mexico, indications are that each will continue the increase in demand for domestically produced natural gas. More gas moving around the country announced at other parts of the world requires more gas infrastructure and thereby increased demand for compression.
On a regional basis, the Permian and Delaware basins and the SCOOP/STACK merge plays continued to see the highest activity levels. In West Texas and New Mexico, the increased levels of associated gas production have kept our customers very active as they require that gas be handled and quote cleaned up by processing and removing natural gas liquids, in order to get the more valuable crude oil out of the ground, into the market. It is worth reiterating that our compression units in these basins are serving existing production. While the actual growth rate in rig activity will fluctuate, fewer drilling rigs does not mean customers start sending compression home.
With a bottleneck in getting gas out of those basins, we are seeing pipeline pressures increase, which requires more compression. Also we have aligned our business with larger customers who generally speaking, have firm transportation capacity on pipelines out of the basin, assuring that the gas will flow. Additionally, some of the largest acreage holders in the Permian and Delaware basins are the largest of the integrated oils, whose lands have been held by existing conventional production for many, many decades. These major players have methodically positioned themselves over the past several years to become the most active drillers and developers in the US.
With our size, scale, expertise and commitment to safety, USA Compression is one of the few compression providers capable of meeting their stringent requirements. As for our other operating regions in the Northeast, the Marcellus and Utica shales are continuing with steady levels of growth. In South Texas, the Eagle Ford Shale in Louisiana has benefited with increased activity due to the availability of takeaway capacity, proximity to markets and better basis differentials than other more bottleneck regions.
Although the November oil and gas referendums in Colorado did not pass, as we have mentioned before, very few of our assets are located in Colorado, less than 5%. The various market dynamics at play in each region contribute to the overall stability of the business as well as allow us to focus capital and resources in areas with the most financially attractive opportunities.
With the relative stability in crude oil prices and the actual or perceived resolution of certain geopolitical issues, many in the energy business are feeling more optimistic about the weeks and months ahead. As our customers begin executing their 2019 capital plans, we are continuing to see strong demand for those units, which we have on order.
I'll now turn the call over to Matt to walk through some of the financial highlights of the quarter. Matt?
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Thanks, Eric and good morning, everyone. Today USA Compression reported strong fourth quarter results, including revenue of $172 million, adjusted EBITDA of $103.3 million and DCF to limited partners of $56.4 million. For the full year 2018, which I'll remind listeners, includes stand-alone CDM results for the first quarter of 2018 and not USA Compression due to the reverse merger accounting treatment, adjusted EBITDA was approximately $320 million, right at the top end of our previously provided guidance.
In January, we announced a cash distribution to our unitholders of $0.525 per LP common unit consistent with the previous quarter, which resulted in coverage of 1.19 times. Our total fleet horsepower as of the end of Q3 -- of Q4 was just about 3.6 million horsepower. Our revenue-generating horsepower at period-end was approximately 3.3 million horsepower. On a net basis, we added about 45,000 of active horsepower to the fleet during the quarter.
Our average horsepower utilization for the fourth quarter was 95.6% and pricing as measured by average revenue per revenue-generating horsepower per month was $16.42 for quarter -- Q4. As discussed earlier, we continued to benefit from attractive pricing on new unit deliveries, as well as selective price increases on the existing fleet.
Total revenue for the fourth quarter was $172 million, of which, approximately $167 million reflected our core contract operations revenues, an increase of about $4.5 million over Q3. Parts and service revenue was down slightly from Q3. Gross operating margin as a percentage of revenue was 68% in Q4.
Net income for the quarter was $10.2 million, net cash provided by operating activities was $93 million in the quarter, operating income was $36.6 million in the quarter and maintenance capital totaled $8.9 million in the quarter with cash interest expense, net of $25.7 million. Today with the earnings release we are providing our initial 2019 guidance. We currently expect 2019 adjusted EBITDA of between $380 million and $420 million and DCF of between $180 million and $220 million. Last, we expect to file our Form 10-K with the SEC as early as this afternoon.
And with that, we'll open up the call to questions.
Questions and Answers:
Operator
Thank you. (Operator Instructions) We'll go first to Jeremy Tonet with JPMorgan.
Charles Barber -- JPMorgan Securities -- Analyst
Good morning. This is Charlie on for Jeremy. Congrats on the quarter. Quick one on the margins, obviously saw that improvement this quarter. I was just curious if you could talk a little bit on the cost of operations improving quarter-over-quarter. I know that obviously a good portion of that improvement is going to be related to those one-time item showing up in the 3Q, but seemed to have improved versus 2Q as well. Just curious if there's anything else going on that you can point to?
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Yeah. Sure, Charlie. It's Matt. I think it's probably a combination of three things to your point. We had some cost hits in Q3 that we took specific actions to address. So I think you're seeing the impact of that both with some labor -- excess labor costs that we got rid of as well as the third-party aftermarket service costs that were incurred in the third quarter that we didn't really have as much in fourth quarter.
A little bit of timing of some expenses kind of throughout the year as we've kind of gotten everything integrated. And then I think the other benefit you're seeing, which was reflected in the pricing as well was just a continued march to look at all of our contracts, all of our assets out there and increase the pricing, because again, to the extent that we're able to increase the pricing that's going to drop straight to the bottom.
Charles Barber -- JPMorgan Securities -- Analyst
Okay. That's helpful. And one on the synergy side. Has anything changed from the $20 million that you've given on the cost synergy side? Any improvements in the number? And then secondly, the revenue synergies you mentioned, what -- can you kind of give us any idea of the magnitude of that number, what that might be?
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Sure. No change really on the initial synergies we talked about that $20 million, I think, Eric mentioned that we're going to -- we'll be wrapping up, I think the first half of this year, we'll have everything kind of done. Notably the guidance numbers do include sort of the year's impact as we see it of that synergy number. So I think that's generally stayed the same.
On the revenues side, it's a little bit more difficult to quantify. I don't think we want to hazard a guess, we continue to kind of look very closely throughout the fleet and figure out where we have opportunities there. But those are going to happen throughout the year, but I don't think we want to stick a number on it.
Charles Barber -- JPMorgan Securities -- Analyst
Fair enough. Thanks. That's it for me.
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Thanks, Charles.
Operator
Thank you. We'll next go to Marshall Adkins with Raymond James.
Marshall -- Raymond James and Associates -- Analyst
Good morning, guys. This is Marshall (ph) on for Marshall. So, a question on the margins. Great job this quarter, pulling through the cost savings of the CDM stuff. The obvious question here is, how sustainable is that going forward? I mean, was there some one-off stuff here, where we shouldn't assume it sustainable or to help me understand that was a big jump in profitability, obviously a big part of that being lower cost, some of it being higher pricing. So help walk me through that.
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Yeah. Marshall it's Matt. I think your comments are fair, I think when you look at, if you were to kind of look side by side, Q3 and Q4, and try to work through and figure out what a good trend is, I think you'd end up with a -- probably an EBITDA number a little bit below the reported number for Q4 as a blend, if you will. We did have some timing things that hit us in the second and third quarters that we sort of got the benefit of here. So I think you're probably correct in assuming it's a little -- for the fourth quarter it was probably a tad higher.
I think if you had looked at our guidance for the full year and what that implied for Q4, you probably be in the kind of the mid to upper 90s of EBITDA range. So based on that versus kind of where we ended up, you're a few million bucks higher on the reported number, but that also that made up for some hits that we had taken earlier in the year. So I think when we look at the margins, gross margin for the quarter of 67%, 68%, EBITDA margin of 60%, those are generally in line with where USA Compression operated historically.
And so given where the market is, given the size and scale, we think margins at those levels are ultimately achievable. We may have a little bit of fluctuation here over the -- as we kind of work through 2019 and get everything completely put together. But again, I think when you compare it to what the CDM assets were being run at, I think you're seeing the benefit of our operations on it.
Eric D. Long -- President and Chief Executive Officer
Yeah Marshall, this is Eric. And maybe a little more color on that. One of the major differences between the USA historical business model and the CDM model, was that CDM provided what we call, first-call or first call out on all of their assets. So first-call is much more expansive operational approach where the customer really never touches the machine at all, and the CDM folks are responsible to start the machine, stop the machine, speed it up, slow it down, regardless of what caused the shutdown.
So if it's a mechanical issue, historically, USA's mechanics would show up and fix the machine while the CDM guys ended up being involved with much more operator type driven downtime. So if there's a freezing problem, no gas showed up for economic reasons. So it was much more operationally intensive and that service was provided across all horsepower range. USA is typically provided first call with the larger horsepower assets, but not with the smaller gas lift wellhead oriented things.
So, I think one of the bigger philosophical shift that we're implementing and will -- you will continue to see implemented is the move away from first-call for the smaller horsepower assets or in things that don't make economic sense to us. So, that I think if you look at it, Matt pointed out, there is a little bit of noise and kind of hung a little bit for modeling purpose -- purposes, but keep in mind, directly going forward, you'll see more and more of the migration toward the USA model, which is much more selective on first-call, I think it kind of leads to the type of margins that you saw the USA side versus the historical side on CDM.
Marshall -- Raymond James and Associates -- Analyst
Right. Thank guys. Thank you for that color. Along those lines, Matt, when I just did back-of-the-envelope if I kind of carry these margins and utilization going forward, which were phenomenal and even hair cut them a little bit. I have trouble staying within the range of your guide, so i.e. in the kind of above that. Is that just taken some conservative posture known there'll be some downtime, some hiccups along the way or am I just doing my math wrong on the back-of-the-envelope stuff?
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Well, without seeing your math, Marsh, I probably don't want to comment, but --.
Marshall -- Raymond James and Associates -- Analyst
Well, if I keep the margins like they are here for all of '19, then I end up well above your guidance?
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Yes, I think what we did again, we -- that guidance is really predicated on our budget for the year and obviously that was done prior to the end of the year. So the quarter's results again, I think you're right, we probably took a more -- a little more of a conservative bent based on where we had seen things through most of last year. And so certainly if we're able to hit margins like this going forward, I do think there'll be some -- there'll be a little noise as we kind of get everything put together. But I think directionally, I would agree with that comment.
Marshall -- Raymond James and Associates -- Analyst
Yeah that's prudent. That's smart. Last one for me. Your total fleet horsepower, it looks like it went down in the quarter, but I know you added a lot of new stuff. Help us understand, I assume you're getting rid of some of the smaller horsepower and you're adding larger horsepower, but can you kind of give us the cadence on our model in terms of when we should be bringing on the additional horsepower as we move through the year and maybe if you're planning on retiring some of the old stuff, help us understand how all that math works to the extent you can just given some broad generalizations?
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Sure. And you're right. So what that number does reflect a little bit of retirement and really that stuff, it's not anything that we plan out ahead to retire. Most of it is small horsepower that maybe has been on contract for a while, comes home and is of a sort that's just not marketable in the current market. And so for that reason during the quarter, we did have some stuff that we retire.
So going forward, we don't really project out what we're going to retire again, with utilization levels where they are. I mean, every -- just about everything is out there running, the little bit of idle equipment we have, which is mostly the small stuff. We've looked at that and that's still good horsepower.
So the retirement stuff is kind of on a quarter-by-quarter basis. But in terms of the new horsepower, we talk about kind of 132,000 throughout the year, that split relatively evenly through the quarter I would say about half of it. I mean though -- throughout the year, about half of that total is scheduled for the third quarter and then the other three quarters is a little more evenly spread out.
Marshall -- Raymond James and Associates -- Analyst
Okay. So that's helpful and then maybe -- so it sounds like just on a run rate we should model 20,000 to 30,000 of additional horsepower -- per quarter with a little bump in Q3.
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Yeah, that's I think -- I think that's right Marshall.
Marshall -- Raymond James and Associates -- Analyst
Great. Thank you. I'll -- I appreciate that.
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
You bet. Thank you.
Operator
We'll now take a question from TJ Schultz with RBC Capital Markets.
TJ Schultz -- RBC Capital Markets -- Analyst
Hey guys, good morning. Matt, just first, as I look at DCF guidance, is there an assumption to term out any debt in 2019?
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
We will probably look to be opportunistic on that. The numbers are in there are probably a little higher just to take into account any raise in rates or if we are able to do something like that.
TJ Schultz -- RBC Capital Markets -- Analyst
Okay, got it. And then maybe just trying to understand a little more on how or if you move horsepower around basins just given high utilization in the market and long lead times, is there any general trend where you have some compression coming up for renewal in certain basins where there's maybe some push back on pricing increases and then you're able to move that to more active basins or do discussions generally settled to keep some of the large horsepower in place just given that there are not many other options out there for customers to replace it?
Eric D. Long -- President and Chief Executive Officer
TJ, this is Eric, that's a great question. About the only basins where we see assets being pulled out of or shifted out of, would be some of the historical legacy dry gas basins. And I think the one that really comes to mind would be when you look at the Fayetteville Shale, that was an active growth area, kind of went steady state for a period of time. And then when you look at the finding and development costs that probably one of the least attractive areas right now in the domestic plays.
So we have repatriated some certain assets from the Fayetteville. The cylinder and technical configurations for the Fayetteville are virtually identical to what we see in the Permian and Delaware Basin and that equipment we shipped to that direction. But generally what we see, particularly with the larger horsepower assets that are installed with equipment being such short supply right now and people continuing their development plans both on the E&P side and then same with the infrastructure developers on the gathering and processing side, our assets that are installed generally stay installed in place we might relocate from location A to location B, oftentimes with the same existing customer in place and improved pricing terms and with some increased tenor associated with it.
So, but for the Fayetteville, we're really not repatriating a bunch of equipment from one basin to the other generally stays in the basin. Oftentimes, many, many times with the existing operator and to the extent there is any relocation, we've just go to move from location A to location B within their existing development profile.
TJ Schultz -- RBC Capital Markets -- Analyst
Got it. Thanks. That's helpful. Just lastly any general comment on the M&A market out there? What's the appetite or opportunity for you also continue to be a consolidator here?
Eric D. Long -- President and Chief Executive Officer
Well, I think you know and I think we've stated this before, we have spent 20-some odd years since the formation of USA, growing and building organically. The CDM transaction was one that I think it was somewhat unique, highly complementary assets with focus on the largest of the largest horsepower, similar operating philosophy. But frankly, had a different customer base with different geographic coverage. So you think about it an ideal combination. It's a combination where you slam two companies together. You're able to bring significant synergies to the table, both on the cost side as well as the revenue side, the efficiencies, economies of scale with not a heck of a lot of overlap.
So I think when we look at the comments that we've made that we're highly selective on our capital deployment programs. We're living within our means, we're self-funding on our organic growth CapEx programs with our yield like it is, the marketplace was telling us hey guys, it's expensive, it's -- your cost of capital was high. So unless we can find some highly attractive acquisition opportunities, things that frankly are accretive or things that help delever the balance sheet, there's really no economic incentive to do that right now.
So our view of the world is, let's keep doing what we're doing, we've been very successful at it for a long period of time. We've maintained our distribution and now, we're building coverage. We're helping to continue to delever the balance sheet and if the right set of tinkertoys comes along at the right value, yes, it's something we'll take a look at, but that hasn't been the history of USA in the past. So we kept -- doubled the size of the business and now integrated and divested that business. Now it's time to block and tackle and business is normal.
TJ Schultz -- RBC Capital Markets -- Analyst
Got it. Thank you.
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Thanks, TJ.
Operator
We'll now take a question from Barrett Blaschke with MUFG Securities.
Barrett Blaschke -- MUFG Securities America -- Analyst
Hey, guys. We've been hearing a lot about producers sort of living within free cash flow and we've seen some reductions in drilling plans. How does that impact the compression world, because it seems like it isn't all negative, if you've got a lower IPs and pressures coming down and is that a business opportunity for you guys in some cases?
Eric D. Long -- President and Chief Executive Officer
Great question, obviously, just because the rig count goes down, doesn't mean IPs go down or gas oil ratios go down and pressure, as you point out, there is a lot of phenomenons go in here. So what we have seen is, even if there is a slowdown in developmental activity, it doesn't mean that compression is going away, the pressures come down, gas oil ratios increase, you have to suck harder to put gas into ever-increasing pipelines that have higher and higher pressures with them.
So frankly, we have more than enough activity to keep us busy. If we wanted to double or even probably treble our CapEx program, those opportunities exist. So we have chosen the opposite direction, which is, let's high-grade the opportunity sets, let's kind of live within our means. And frankly, the people that we're working with, both upstream companies and midstream companies, they're going to continue to be active and develop the core -- the core that they're involved with and to the extent that the rig count slows down and CapEx program slowdown, there are still more than enough to fill our 2019 and frankly 2020 and beyond CapEx programs.
Barrett Blaschke -- MUFG Securities America -- Analyst
Okay. And then this is probably more of a question for Matt. Energy Transfer runs a lot of shares in USAC, have they registered any of those yet?
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
They are not registered.
Barrett Blaschke -- MUFG Securities America -- Analyst
They're still not registered. Okay, thank you.
Eric D. Long -- President and Chief Executive Officer
Correct.
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Yes, you bet. Thanks, Barrett.
Operator
We'll now go to Sharon Lui with Wells Fargo.
Sharon Lui -- Wells Fargo Securities -- Analyst
Hi. Good morning. Just a question on pricing. So the revenue per horsepower had increased about 1% to 2% sequentially, each quarter last year. Just wondering, based on your conversations with customers and I guess the balance of your fleet, do you anticipate this trend to continue into '19?
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Yeah. Sharon, it's Matt. When you look at that, you got to I mean, remember right, we're talking about a fleet of 3.6 million horsepower, the -- where we're getting the pricing increases is really a combination of two things, it's the impact of the new horsepower going out and so for instance the really, really large stuff that we're working on now that actually has the impact of pulling up that dollar per revenue number that you see on the page there just given the attractive pricing.
And then the other part is really about half of our fleet 40% to 50% at any given time is done month-to-month. And so it's the impact of going back to those units in increasing pricing. I mean, we continue to see -- I think, generally speaking, we continue to see price increases in line with increases that we're taken -- that we were putting up last year. And so again, if you increase the chunk of it 10%, on the whole fleet, you're going to see something in that 1% to 2% range. So I would say the price increases that we're going through now are similar in magnitude that we did last year. Now we just have a whole new other couple million horsepower of units to go chase after and do it right.
Sharon Lui -- Wells Fargo Securities -- Analyst
Okay. That makes sense. And then just in terms of maintenance CapEx. So it looks like your guidance implies that spending is flat year-over-year. But I believe that you initially have provided guidance around $30 million for the combined entity, just wondering if that $25 million is a good number, a good run rate for the combined assets?
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Yeah. Certainly for 2019, that's kind of our best estimate right now. As we got into -- putting the two fleets together, obviously we had some -- I think put some higher numbers out there, because we thought there would be a little bit of extra dollars to spend. Going forward, we're obviously spending less on the growth side, but also as we've looked through it on a unit by unit, region-by-region basis, that's kind of our best estimate of the cost. We do get with the additional scale and size with the acquisition, we're finding that we're getting some discounts on parts and other things that kind of would factor into that a little bit, so you're going to see some benefit from that as well.
Sharon Lui -- Wells Fargo Securities -- Analyst
Okay, great. Thank you.
Operator
We'll now take a question from Ryan Pfingst with B. Riley FBR.
Ryan Pfingst -- B. Riley FBR -- Analyst
Hey. Good morning, guys. Just two quick ones on the 132,000 horsepower coming on this year. If you could, how does that horsepower breakdown by basin? And then on pricing, is, do the customers agree to pricing when they commit to the equipment or is that more when it gets delivered more of a spot rate at once the customer starts using it?
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Yeah, Ryan it's Matt. So in terms of where that capital is going, our busy areas for new capital, Permian and Delaware Basin out in West Texas is probably getting the vast -- probably the majority of it, as well as some in SCCOP/STACK and some up in the Northeast is where we've kind of at least targeted that kind of stuff.
In terms of pricing, about half of that or so is already all -- signed up and contracted. So some of the equipment, you're talking about long lead times, so you're a year out, the equipment, we're taking delivery of this quarter, we put in those orders last -- first quarter of '18. So generally what happens is, you work off a sort of indicated demand from your customers and they are aware of exactly what is going to cost them and they say, hey, go ahead and go forward and put in that order.
They know that again, they can't wait and hold off and then try and retrade it, because that equipment is in high demand and it'll go elsewhere. And so I would say, I think in terms of pricing, the customers are very much aware of where the price level is, whether or not the actual contract is signed at the time of order, is probably less important than the fact that they've indicated that they need x amount of compression in such and such area.
Eric D. Long -- President and Chief Executive Officer
And maybe a fair way to give you some additional color is, if you were to look at spot rates last year for the largest of equipment and then look today at spot rates on the largest of equipment, the spot rates continue to increase. So to the extent that we've locked in contracts a year ago for deliveries that start now this year, then to the extent we haven't actually executed the contracts and it's time to sign the contracts, you tend to see an improvement in the pricing profile from what you saw a year ago.
So we balance those two together and we want to make sure that we don't -- we're not at risk for a 100% of your portfolio at any given point in time for new CapEx growth and yet we see enough of the market indicators to know that to the extent that there are some things that haven't yet been executed and we're in the spot opportunity, it actually is beneficial to USA because of where the spot rates are.
Ryan Pfingst -- B. Riley FBR -- Analyst
Awesome. Thanks for the color guys.
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
You bet. Thanks, Ryan.
Operator
And it appears there are no further questions at this time. I'd like to turn the conference back to Eric Long for any additional or closing remarks.
Eric D. Long -- President and Chief Executive Officer
Well thank you, operator and thank you all for joining us on the call today. The fourth quarter was a great way to wrap up a tremendous year for USA Compression. And I believe it gives you a glimpse of the potential of the combined USA Compression and the CDM business. The market for compression demand continues to be strong and we expect to continue our focus on driving utilization and pricing, as well as finishing up the final work to integrate CDM.
But we still have some work to do, the heavy lifting has been done and our financial results highlight the rationale behind the acquisition and the underlying potential for continued improvement driving attractive economic returns for our unitholders over the long-term. USA Compression has always been a long-term story of stability and growth and with the addition of CDM nothing has changed about our strategy. The combination has led to a leading, large horsepower, infrastructure oriented compression services provider with stability in cash flows and multiple areas for continued, sustainable and profitable growth. We look forward to updating you on the next quarterly call. Thank you for your continued interest in and support of USA Compression.
Operator
And this concludes today's call. Thank you for your participation. You may now disconnect.
Duration: 47 minutes
Call participants:
Christopher W. Porter -- Vice President, General Counsel and Secretary
Eric D. Long -- President and Chief Executive Officer
Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer
Charles Barber -- JPMorgan Securities -- Analyst
Marshall -- Raymond James and Associates -- Analyst
TJ Schultz -- RBC Capital Markets -- Analyst
Barrett Blaschke -- MUFG Securities America -- Analyst
Sharon Lui -- Wells Fargo Securities -- Analyst
Ryan Pfingst -- B. Riley FBR -- Analyst
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