USAC - NYSE

Good morning. Welcome to USA Compression Partners First Quarter 2023 Earnings Conference Call. During today’s call, all parties will be in a listen-only mode, and following the call, the conference will be open for Q&A. [Operator Instructions] This conference is being recorded today, May 2, 2023. I would now like to turn the call over to Chris Porter, Vice President, General Counsel and Secretary.

Good morning, everyone, and thank you for joining us. This morning, we released our operational and financial results for the quarter ending March 31, 2022. You can find a copy of our earnings release as well as a recording of this call in the Investor Relations section of our website at usacompression.com. 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 U.S. GAAP measures in our earnings release. As a reminder, our conference call will include forward-looking statements. These statements include projections and expectations of our future 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 other public filings. Please note that information provided on this call speaks only to management views as of today, May 2, 2023, and may no longer be active at the time of a replay. I’ll now turn the call over to Eric Long, President and CEO of USA Compression.

Thank you, Chris. Good morning, everyone, and thanks for joining our call. I am joined on the call by Eric Scheller, our COO; and Mike Pearl, our CFO. This morning we released outstanding first quarter 2023 results that were indicative of our continued commitment to make investment, operational and financial decisions that are consistent with and effective in achieving our stated objective to create stakeholder value by growing our best-in-class compression service offerings. During 2023 and on into 2024, we are choosing to exercise capital discipline to enhance returns, improve balance sheet strength and ultimately achieve the state of financial optionality that provides us with meaningful flexibility and future optionality to deploy free cash flow to further reduce debt, make changes to our distribution policy or pursue other strategic long-term investments that capture incremental value that can be passed to our stakeholders. Our first quarter 2023 results are the direct result of our returns-based capital investment strategy and feature consecutive quarterly record revenues, adjusted EBITDA and distributable cash flow. Our financial performance continues to improve with increasing demand driven pricing for our compression services that we continually place under contract for extended tenors compared to historic tenors achievable in prior market cycles. Our ability to achieve improved price discovery with longer dated contracts for our compression services is complemented further by our ability to increase the size of our active fleet through new unit additions and the continued conversion of legacy units from idle to active status. Our first quarter utilization continued to improve quarter-over-quarter, averaging just under 93%. Our utilization improvements were achieved alongside of record setting quarterly per-horsepower average revenue, which came in at $18.19 per-horsepower, and represents our 5th consecutive quarterly average rate improvement. Our first quarter utilization and pricing improvements enable distributable cash flow coverage of 1.21 times, the highest distribution coverage ratio achieved by USA Compression since its 2018 acquisition of CDM. We are extremely pleased with our first quarter results, which we believe confirms the durability of our cash flow stream and highlights the ongoing benefits of our deliberate focus on exercising capital discipline to grow our fleet organically, while maintaining our focus on returns-based capital investing and increased fleet utilization to drive improved financial performance and balance sheet strength. Our first quarter performance and evolving market dynamics continue to support our belief that the broader energy industry is in the initial stages of a commodity price super cycle that will drive sustained increases in the demand for natural gas compression services for years to come. Our customers’ activity levels throughout our operating areas provide USA Compression with operational tailwinds into the future as the demand for our services remains inextricably linked to the oil and gas production cycle. The longevity of which positions us to continue capturing favorable pricing under long-term service agreements that generate a meaningful and reliable stream of cash flow into the foreseeable future irrespective of spot and medium term commodity prices. Oil prices are forecasted to remain comfortably above estimated breakeven WTI prices for existing and newly drilled wells for the next several years, which should continue driving incremental demand for natural gas compression services as the market for available compression assets continues to tighten and producers increasingly practice capital discipline, which includes the avoidance of incremental capital expenditures that are ancillary to drilling and well completion spend that is required to grow hydrocarbon production. Current and anticipated tightness in the market for compression assets coupled with constrained capital availability throughout the upstream energy sector is fueling what we view as sustained demand growth for our compression-as-a-service delivery model at USA Compression. This term-based take-or-pay revenue model continues to provide USA Compression with consistent opportunities to secure long-term recurring fees in exchange for providing high quality full service midstream infrastructure services that are vital to hydrocarbon production, maintenance, growth and delivery to market centers. The opportunity for our customers to secure near-term access to highly sought after and readily deployable compression assets, while avoiding meaningful upfront compression asset capital investment continues to elicit a favorable market response, as evidenced by our new units attracting full payout 60-month original contract tenors, and our month-to-month service revenues as a percentage of total revenues continuing to decline. Our confidence in future demand growth for our services under the compression-as-a-service delivery model is not deterred by the prolonged decline in natural gas prices that continues to persist as abnormally mild weather, LNG export delays and rising inventories provide meaningful headwinds to a near-term recovery in natural gas prices. Natural gas prices remain below $3 per dekatherm for much of the first quarter, and are expected to average less than $3 for the remainder of 2023 before recovering during 2024. Even so, producers in our natural gas heavy operating areas continue to produce from existing gas wells, which decreases field pressures and increases the demand for additional compression to cost effectively arrest production declines, when depressed natural gas prices challenge the economics of drilling new wells to maintain production levels. Compression assets scarcity and producers ability to deploy additional compression as a cost effective alternative to incremental drilling position us to maintain existing asset deployments and add incremental horsepower in these gassy basins under long-term contracts that are consistent with our compression-as-a service recurring revenue model. To summarize, we are extremely pleased with the current market backdrop that features significant and growing demand for the production driven compression services that we provide. Compression assets supply and demand dynamics positioned USA Compression to strategically grow its revenue under a term-based take-or-pay recurring revenue model that is largely agnostic as to spot and medium term commodity prices and that provides clear visibility to a durable cash flow stream from a highly utilized fleet. Our ability to establish a predictable and stable source of cash flow should improve our overall financial performance, as we enhance our ability to plan future investments under a returns-based capital investment model and ultimately achieve financial optionality. Before turning the call over to Eric Scheller to discuss first quarter operating results, I would like to make a few comments regarding safety. The most important thing we do is to ensure that our employees, contractors and customers return home safely each day. We are extremely proud of our tireless focus on safety that has resulted in a 2023 to date recordable incident rate of zero, which is well below the industry average of 0.9. I am very proud of this accomplishment and thank every USA Compression employee for their commitment and strict adherence to our safety policies and procedures. With that, I will turn the call over to Eric Scheller, our COO, to discuss our first quarter operating highlights.

Thanks, Eric, and good morning, all. Earlier this year, I discussed our positive outlook for 2023 and emphasized our continuing focus on expanding our active fleet, while continuing to improve fleet utilization, contract pricing and contract tenor. I’m happy to report that the market strength has remained resilient through the first quarter and the outlook for the remainder of the year and beyond continues to be attractive as we further improve our fleet utilization, pricing and contract tenor. First quarter 2023 results revealed year-over-year improvements in revenues and showed a sequential quarter increase in adjusted gross margin percentage. That was achieved through our disciplined contract portfolio return approach that affords us pricing flexibility to continue securing market based rates for services rendered through our nearly 93% utilized fleet. So what specifically drove our first quarter outperformance and why do we remain optimistic for the foreseeable future? First, our fleet utilization and pricing continue to improve, starting with our directed efforts to opportunistically redeploy idle equipment, which requires nominal capital spend to place into service. Second, we prudently spend growth capital during the quarter by deploying brand new 3608 units under full capital recoupment initial term contracts, continuing to exercise capital discipline across the balance of the fleet, and pursuing other cost efficiencies at all levels within the organization. Redeployed idle and new equipment assets will continue being contracted at attractive market rates and under sought after long-term contract tenors. Third, our adjusted gross margin percentages are continuing to improve and are trending toward the levels, where we historically have operated our core compression services business. And finally, our continued delivery of operational excellence to our customers is enabling our ability to enhance our balance sheet strength and distribution coverage, both of which we expect to continue improving from currently acceptable levels required to operate our stable business model. Our sales team continues to execute on its opportunistic contract approach and remains focused on layering in the new business for 2023 and beyond, as well as continuing to optimize our existing contract book. We believe that one of USA Compression’s strategic advantages is our superior service delivery, which allows us to lock in longer contract durations and generate strong cash flows throughout all phases of the energy cycle. USA Compression is well positioned to capitalize on disciplined and measured growth opportunities, while remaining positioned to service our long-term term core customers as they continue increasing their activity levels in the Permian and Delaware basins, as well as in the Haynesville and SCOOP/STACK basins. Our other operating regions, Marcellus Utica Shale, South Texas Eagle Ford Shale, Louisiana and DJ Basin are each performing strongly, albeit with comparatively moderate growth profiles. We continue to benefit from portfolio effects as disparate market dynamics in each geographic region contribute to the overall stability of our business. With our diversified asset fleet, we have been able to focus our marketing efforts on and direct our capital investments toward those operating areas, where we achieve the highest returns. Continued hydrocarbon production growth has created meaningful incremental demand from our existing customers and has allowed us to pick up additional strategic accounts to expand our market share throughout our areas of operation, while maintaining a balanced and creditworthy book of business. Increased demand for compression has fueled our consistent climb in fleet utilization rates that improved throughout 2022 and into first quarter 2023, culminating in a first quarter utilization exit rate of nearly 93%. We expect overall fleet utilization to increase and sustain itself into the foreseeable future as commodity prices remain supportive of continued drilling, competitors new unit organic, growth capital commitments for the most in-demand large horsepower equipment continue to lag. And existing equipment availability continues to remain stressed, thereby prompting producers to seek alternative sourcing of and capital relief for their compression needs under price and tenor advantageous contracts, particularly for large horsepower units that our fleet features. Existing market tightness for new build and existing compression assets is providing us tremendous flexibility to lock in attractive service rates and opportunistically high grade returns. Specifically, for the quarter ended March 31, 2023, approximately 23% of our compression services revenues were provided on a month-to-month basis, down from 33% for the quarter ended March 31, 2022. This pronounced decline in month-to-month contract revenue is indicative of the demand for our services and our ability to monetize the value of our fleet with attractive rate contracts that feature longer tenors and enhanced returns that provide a durable cash flow stream consistent with our pursuit of a compression at the service revenue model. While our business still generates many reasons for optimism, inflation remains stubbornly persistent. We continue to see higher prices for parts and labor in all regions. Notwithstanding, USA Compression generally has been able to offset meaningful inflationary costs through prudent contracting that includes inflation-based rate adjustments and through active management of our supply chain. We expect inflationary pressures to abate eventually, and our adjusted gross margin percentages to remain at or near their historic levels normalizing around 68%. Our relationships throughout the supply chain remain key to USA Compression’s ability to successfully navigate challenges that are affecting new unit deliveries throughout the compression space. Our established and key relationships with packagers and component providers allow us enhanced visibility into deliveries with the ability to affect and anticipate final package deliveries to customers. With the first quarter behind us, we remain on track to deploy all of our new large horsepower unit orders in 2023, which will add approximately 165,000 of much sought after horsepower under multiyear contracts. All new units are committed to customers under contracts or pending contracts that provide for full capital recoupment during the contract’s initial term. We are focused on earning market returns on invested capital and ensuring that the projects that we pursue are worthwhile for customers that value the level of service that we provide and appreciate the long-term relationships that USA Compression has maintained and continued to pursue as part of its business strategy since its inception 25 years ago. One quarter into 2023, market supply and demand dynamics have unfolded as we expected, and we believe that our focus on large horsepower infrastructure oriented solutions and services significantly differentiate USA Compression from its competitors. As things stand right now, taking into account current market supply and demand, our service offerings relative to the competition, and our currently contracted book of business, we believe that we are successfully positioned for the remainder of 2023 and beyond. To close, we expect our full year 2023 results to reflect the benefits of our 2022 directed efforts to increase fleet utilization, expand our fleet through strategic capital investments that are consistent with the growing demand for compression services, and improve contract prices and tenors to satisfy increased market demand for compression services, while establishing a reliable and predictable source of cash flow under our compression-as-a-service revenue model. Finally, I want to thank all our employees for their dedication and hard work which drove these exceptional results safely and efficiently. I’m extremely proud of this team and USA Compression. With that, I’ll turn the call over to Mike Pearl, our CFO, to discuss our first quarter financial results.

Thanks, Eric Scheller, and good morning. Today, we reported our first quarter results, which featured consecutive quarter record revenue, adjusted EBITDA and DCF. As Eric Long mentioned, we were able to generate distribution coverage of 1.21 times, representing USA Compression’s highest distribution coverage ratio for the post-CDM acquisition period. Our quarterly utilization exit rate continued to trend up into the right as we simultaneously achieved another all-time high in our quarterly average revenue per revenue generating horsepower, which came in at $18.19. Pricing improvements that accompanied our utilization gains were driven by a mix of demand driven rate increases for our supply-constrained compression services and contract-based CPI price escalators. Adjusted gross margin percentage improved by nearly 1% during the first quarter due to improved pricing and moderating inflation for vehicle fuel and compressor fleet lubrication fluids. Wage inflation continues to persist. However, we expect inflationary pressures to abate further over time and that our margins will continue to improve normalizing at or near our historic averages. Our total fleet horsepower at the end of the quarter remained essentially flat to the previous quarter at approximately 3.7 million horsepower. However, our revenue generating horsepower increased by 1.9% on a sequential quarter ended basis. First quarter 2023 expansion capital expenditures were $51.2 million and our maintenance capital expenditures were $5 million. Expansion capital spending primarily consisted of reconfiguration and make ready of idle units, the delivery of 7 new large horsepower units, and the procurement of compression station components. First quarter 2023 net income was $10.9 million, operating income was $51.1 million, net cash provided by operating activities was $42.3 million, and cash interest expense net was $38 million. Interest expense increased by approximately $1.8 million on a sequential quarter basis, primarily due to higher interest rates applicable to outstanding borrowings on our floating rate credit facility. To mitigate further exposure to rising interest rates, we entered into a 2-year fixed rate interest rate swap in early April. Under the terms of the swap agreement, we locked in 30-day SOFR rates for a 2-year period at 3.875% on a notional principal amount of $700 million, which approximated our then outstanding balance on our floating rate credit facility. At the time we entered into the interest rate swap, prevailing 30-day SOFR rates were more than 100 basis points above the fixed swap rate and remain elevated as the Fed continues to consider additional rate actions. During the first quarter, we also achieved another sequential quarter decline in our bank covenant leverage ratio, which decreased to 4.63 times. We remain committed to improving our leverage metrics further and believe that improving market conditions, operational and contract pricing improvements, and continued capital discipline will allow us to reduce our leverage further, while delivering predictable, reliable and durable returns for all stakeholders. Finally, we expect to file our Form 10-Q with the SEC as early as this afternoon. And with that, I will turn the call back to Eric Long for concluding remarks.

We closed out the first quarter of 2023 with renewed optimism, given what we view as sustainable tailwinds to our business, demand for our services continues to grow, and we continue to run our business to satisfy market demand, while opportunistically contracting our services for extended periods and at attractive demand driven rates. We look forward to continued delivery and deployment of our new large horsepower units and the redeployment of idle units throughout 2023. These actions will drive continued fleet utilization improvements under favorable contract terms consistent with our compression-as-a-service revenue model. Finally, on May 5, we will make our 41st consecutive quarterly distribution payment. The $0.525 per unit distribution is flat to the previous quarter’s distribution. We will continue to work toward reducing our leverage, while providing meaningful returns to all stakeholders. Improvements to fleet utilization, contract tenors and contract pricing will position USA Compression for future optionality in terms of further capital investment, debt reduction and changes to distribution policy. USA Compression will continue delivering its best-in-class compression services to its customers, maintaining capital discipline, and focusing on driving improved financial performance and balance sheet positioning. To conclude, we are extremely pleased with our first quarter results highlighted again by record quarterly revenues, adjusted EBITDA and distributable cash flow, and which also featured continued improvements to utilization, distribution coverage and leverage. We look forward to discussing our second quarter 2023 results with you in a few months time. And with that, we will open the call to questions.

[Operator Instructions] Our first question comes from TJ Schultz from RBC Capital Markets. Please go ahead. Your line is open.

Great. Thank you. So just as we think about that path to greater free cash flow and more capital allocation flexibility, clearly you’re benefiting this year from higher utilization and pricing. Kind of two parts of my question focused on growth CapEx, first, are you still tracking to, call it, $260 million to $270 million of growth CapEx this year and what is committed or contracted on that? And then secondly, thinking about 2024, how do you balance getting more free cash flow flexibility versus continuing to deploy capital into what I suspect are pretty good returns for the new horsepower that you’re delivering into the market? Thanks.

Yeah, TJ, this is Eric. The first part of the question, the growth CapEx for this year is basically spoken for already contracted under long-term contracts. So as it pertains your modeling work, it’s pretty straightforward, things are being delivered, things are being deployed, and we’re tracking exactly as what we expected based on our capital commitment, so long-term contracts fully committed for the balance of this year. Maybe let Pearl address kind of what we’re thinking for next year and how that’s going to look as far as balance sheet flexibility.

Yeah. And back to your original question, I know you might be taking the 50 and trying to annualize that figure out and how we get to the guidance and I would think just for the balance of the year. As you sort of forecast your growth CapEx, I think, ratable is probably the best assumption just in terms of trying to figure out the balance of the year. And into 2024, I would look just in terms of growth CapEx, I wouldn’t expect similar levels that you’re seeing this year, I think we’re going back towards capital discipline. What can we do in terms of turning more idle to active? I think, the return proposition based on what we’re seeing for pricing and in terms of lead times for new equipment is probably where we get the most bang for our buck. We’ll probably spend a little bit of time talking about this on our next call. But I think as we sort of, I don’t want to say stop, but slow down the new unit adds and focus on idle to active, you’ll start seeing a lot more in terms of optionality with our cash flows.

Okay, makes sense. My second question is on the mix of contracts maybe what mix of month-to-month contracts should we expect by the end of this year? And did I hear it right, it sounds like you’re turning up more of contracts? Thanks.

Hey, TJ, it’s Scheller. Yeah, you saw the improvement from fourth quarter into the first quarter. We continue to aggressively move that down. I think, you should expect us to continue to push that into the low-single-digits, mid-single-digits percentage for the bulk of business.

Okay. Thank you.

[Operator Instructions] Our next question comes from Brian DiRubbio from Baird. Please go ahead. Your line is open.

Good morning. A couple of questions for you. Just look at the difference between the actual operating utilization rate and then the projected 93.1% [ph]. What do you think is the time horizon for those two numbers to converge?

Reframe the question and maybe we saw somebody made a press comment that our utilization was in the upper 80%s versus our 93%. We’re kind of scratching our head wondering where that’s coming from. Was that the question? Or…

Yeah. The utilization based on revenue-generating horsepower, it’s actually in your press release, was 87.5%. And you’re quoting a 92.7% with 93.1% exit rate. So trying to bridge that gap and when those two numbers will converge?

This is Pearl. I think that’s difficult to forecast, because particularly as we move forward and start moving towards placing more idle into active status, we’ve got a suite of units that are under contract that aren’t yet generating revenue as we get them ready to place into service. And so that’s difficult to forecast what that stable of under contract, but not yet generating horsepower units is going forward. But what that differential does move to the actual active generating revenue. But the cadence and how to get and forecasting convergence of those numbers is very difficult for us to estimate.

Yeah. So, again, you’re dealing with the timing question. So you look at the 87.5% as of the end of March, as we mentioned, we’ve got our entire growth CapEx program for this year committed under contract. So those are revenue generating yet and we’ve got a trade association called the GCA. We track stuff that’s active plus under contract, because if you’re not tracking the stuff that’s under contract, the industry thinks there’s more stuff out there available to deploy than there actually is. So as we continue to move stuff out of the idle fleet that will go up as we then move off of under contract, it’s going to be delivered in August, September, October, November, that will then move into revenue generating. So the good news is the reason there’s that delta between it is that gives you forward visibility by an extra 6 percentage points ballpark number on stuff that we’ve got committed that will turn to revenue generating between now and the end of the year. So, I think, back on Pearl’s comment, we’re looking at ratably deploying the growth CapEx over the balance of the year probably a good way to look at that would be ratable increase converging from that 87% up to the 93% toward the end of the year.

Okay. I think, I get what you’re saying there. So maybe let me ask then, just the deployment question in a different way. As we look at your year-end total horsepower in the fleet, how much do you see that growing in 2023, given the CapEx program?

Hey, it’s Scheller. I think that we’re going to continue to push out 150,000 horsepower continue to push that through the rest of the year. Demand continues to be strong.

Okay. So we could see year-end 2023 150,000 higher than year end 2022? Just to be clear.

No, that’s the incremental. So that doesn’t include, I think, the 3608.

Well, you added 160,000 horsepower from year-end last year to year-end this year, the new growth CapEx.

Yeah. New growth capital.

So if you look at the total horsepower year-end 2022 versus year-end 2023, we should be up about 160,000 horsepower.

Okay. And on that number is where you expect to be at the 93% rate on a cash – on a revenue generating basis by the end of the year?

Yes.

Okay. That’s very helpful. And then just as we think about the actions you just did with the revolver, fixing some of the interest rate exposure there, how should we be thinking about then your cash needs to fund the dividend relative to the CapEx program? Do you just consider – are you going to just continue to utilize revolver? Are you thinking about terming anything of this out, sort of lock yourself in a little bit? Love to get the thought process there.

Yeah, maybe a couple of things. So the first thing, as Scheller mentioned, we’ve got a lot of inflationary pressure right now. New unit CapEx for 2024 and on into 2025 are significantly higher. So to generate acceptable returns, we and our peers are going to have to push through significant rate increases that we’re not confident that the market is able to bear that magnitude of rate increases at this time. So if you think conceptually horsepower is $1,000 a horsepower to $100 a horsepower, to the extent we spend some nominal CapEx dollars to make ready our idle fleet, we may be spending things that are $300, $400, $500 a horsepower to deploy. So we get a lot more incremental bang for our buck to spend CapEx dollars to take some of the existing assets we have, spend a little bit of money on them and get them deployed out in the field. So, I think, that’s kind of a veiled way to say, we’re planning for 2024 to slow organic new growth down, which when you think about your question of increased utilization, increased revenues, deploying idle horsepower, we’re going to be creating substantial additional cash flow that we’re going to basically retain inside of the company. Our plan is to continue to reduce our leverage, to continue to build our distribution coverage, which will give us flexibility as it pertains to future optionality, be it organic growth in the future, be it distribution policy, be it dealing with a preferred that comes, matures at some point in the future. So I think right now, with us putting the swap in place for a couple of years, that effectively locked in rates on the floating rate debt that we had at rates lower than what we had come into our budget cycle with. We’ve got adequate tenor remaining on our two tranches of senior notes that are out there floating around. So I think at this stage, we don’t intend to term up anything else. We intend to focus on leverage and coverage. The market has always been pretty clear. We’ve been doing this for 25 years. There’s a time to mash the accelerator and grow. There’s a time to slow the growth down and focus on stability rather than growth. But I think our focus over the next – we’ll finish the CapEx deploy cycle for 2023, and then we’ll slow and moderate the growth down into 2024 giving us better financial optionality in the future.

Great. Just one final question for me, if you don’t mind. One dynamic that I’m just seeing across a number of industries is just the lack of skilled tradesmen, electricians, plumbers, mechanics, and that you highlighted just sort of higher labor costs that you’re seeing, is that something that you see abating or those higher labor costs still – do you see that still as a pressure throughout 2023?

I think, we’ll see the labor cost continuing not as hard. We’ve been able to really increase our labor force very successfully and retain folks as we’ve been going through the first quarter. It’s been a net positive to us, but the pressure for the labor rate will continue. Not at the same levels, but it’s still there.

Fair enough. I appreciate all the color. Thank you.

Our next question comes from Selman Akyol from Stifel. Please go ahead. Your line is open.

Thank you. Just a couple of quick ones for me. First of all, can you just talk about electric adoption, what you’re seeing and how that’s going?

Yes, Selman, this is Eric. The panacea of the decade is electrification of everything. We sit down with our customers who have thought about electrification, the first question we posit to them is where are you located on the electric grid? Are you proximal to a distribution line? Have you talked to your local electric distribution company, rural electric coop, whomever it may be? And what people are finding out, particularly as you move into the bigger horsepower equipment, if the grid in many places is inadequate to meet the demands of electric compression. We remain convinced that smaller horsepower stuff kind of the sub-200 horsepower well head, marginal gas field like the Barnett Shale and some of those places. You can continue to deploy some of these low amperage, low horsepower requirements. It gets very site specific as you move into larger horsepower. And we’ve actually seen people backing off from the electrification both at the fabricators. We’re aware of some major oil companies that had large commitments for electrified horsepower that have canceled those contracts and are electing not to build some of those. So, I think, in general, you’re going to see people continuing to look at the electrification, but there’s going to be a recognition and an acknowledgment that in many places, the grid is insufficient to support it, which is why we’re pretty bullish on our dual drive offering, where we can have the ability to go between electricity and natural gas. So that if you’ve got a peak day electric demand, we can turn off the electric side of the machine and run back on natural gas again. So it’s evolving over time, but you’re not going to see the electrification of everything. In fact, it’s probably going the other direction, where it’s not gaining as much traction as what some people had originally thought.

Great color, I appreciate that. You also talked about month-to-month revenues coming down to 23%, I think you said 33% previously, but can you just remind us where that was at its peak?

So, I think, at our peak was more than a year ago, we were at just under 40%.

Got it. And then…

[And then, just the last time, I was saying that] [ph], we’re going to probably target that low-double-digits, mid-double-digit, 15%, 20% below lower than that, right, so it’s 10% to 15%.

And then just the last one in terms of just thinking through inflation, and I heard you, parts of it are starting to roll over, labor continues high, and you can’t just push through all the price increases that would fully recoup the labor or the inflationary pressures. But as we see inflationary pressures wane, do you think you’ll still be able to get pricing? And, therefore, sort of over the course of the cycle, you get all of it back?

Yeah. That’s a really good question. I think that’s part of why we’re pushing the tenor of our contracts. If you think back pre-COVID, bigger horsepower, you would tend to see kind of 2 to 5 year contracts, little horsepower, you’d see 3 months to maybe a year. We’re routinely getting 2 and 3 years on small horsepower. And we’re more than routinely, I think, the bulk of our bigger horsepower are 5-year-plus contracts. So these all have CPI escalators built into those contracts. So part of the rationale as to why at this part of the cycle rather than a couple of years ago, like some of our competitors did was, they were locking in contracts at significantly lower rates. We opted to let that float, as evidenced by that high percentage of month-to-month contracts, which we’re now actively terming up for those 3 to 5 years, significantly longer than normal market tenor at rates that are at peak of cycle. So, I think, we’re trying to capitalize on the dearth of equipment that’s available, the high demand for equipment at the most opportune time. So we’re pretty optimistic of what the future holds in-store for revenue and cash flow generation out of the fleet.

Got it. Thank you so much.