Good day, 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.
Good morning, everyone, 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 a 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 views as of today, February 19th, may no longer be accurate 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, 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, 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, our focus in 2019. To sum it up, the business performed very well in the fourth quarter, we're 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 to increase pricing on our existing contract book and term out 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. Fifth, we remain laser-focused on operational excellence and financial discipline with a 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 have 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 oil field service-related businesses. We successfully managed through the 2014-2015 downturn. We focused on operational excellence and fleet optimization during 2016 and 2017, and consummated the CDM acquisition in early April 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 U.S. 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 to 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 are 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 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 1-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 a 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 and 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. 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 utilization 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 is being 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 have mentioned that throughout the year, we redeployed significant horsepower from the combined idle fleets at nominal additional CapEx cost. With utilization at its 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 unit holders. 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 tick 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 optimize pricing associated with them will continue in 2019. We expect the general midstream infrastructure activity levels and tight supply-demand dynamics for 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 had made to its respective equipment vendors and customers. During 2018, we collectively executed that combined 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 a 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 their 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. Let's turn to the fourth quarter financial overview. The financial performance in 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. Now a little market color and some demand drivers. While the rollercoaster 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 4 demand drivers, LNG exports, petrochemical feedstock demand, clean-burning domestic power generation, and exports to Mexico, indications are that each will continue the increasing demand for domestically produced natural gas.
More gas moving around the country and now to 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 continue 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 "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. We have aligned our business with larger customers who, generally speaking, have firm transportation capacity on pipelines out of the basin, assuring that their gas will flow. 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 U.S. 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.
South Texas, the Eagle Ford Shale in Louisiana have benefited with increased activity due to the availability of takeaway capacity, proximity to markets, and better basis differentials than other more bottlenecked regions. The November oil and gas referendums in Colorado did not pass, as we had 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 will now turn the call over to Matt to walk through some of the financial highlights of the quarter. Matt?
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 standalone 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 unit holders of $0.5250 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 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 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. With that, we'll open up the call to questions.
Thank you. If you'd like to ask a question, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press *1 to ask a question. We'll go first to Jeremy Tonet with J.P. Morgan.
Good morning. This is Charlie on for Jeremy. Congrats on the quarter. A 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 items showing up in 3Q, but it seemed to it improved versus 2Q as well. Just curious if there's anything else going on that you can point to.
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. I think you're seeing the impact of that, both with some excess labor costs that we got rid of, as well as the third-party aftermarket service costs that we 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. I think the other benefit you're seeing, which was reflected in the pricing as well, is just a continued march to look at all of our contracts, all of our assets out there and increase the pricing.
Again, to the extent that we're able to increase the pricing, that's going to drop straight to the bottom.
Okay. That's helpful. One on the synergy side, has anything changed from the $20 million that you've given on the cost synergy side? Any improvement to that number? Secondly, the revenue synergies you mentioned, can you kind of give us any idea of the magnitude of that number, what that might be?
Sure. No change real on the initial synergies. We talked about that $20 million. I think Eric mentioned that 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. I think that's generally stayed the same. On the revenue side, it's a little bit more difficult to quantify. I don't think we'd want to hazard a guess. We continue to kind of look very closely throughout the fleet and figure out where we have opportunities there. Those are going to happen throughout the year, but I don't think we'd want to stick a number on it.
Fair enough. Thanks. That's it for me.
Thanks, Charlie.
Thank you. We'll next go to Marshall Adkins with Raymond James.
Good morning, guys. This is Marshall on for Marshall. 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's sustainable? 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. Help walk me through that.
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 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. 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'd looked at our guidance for the full year and what that implied for Q4, you'd probably be in the mid to upper 90s of EBITDA range.
Based on that versus where we ended up, you're a few million bucks higher on the reported number. That also made up for some hits that we had taken earlier in the year. 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. 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 as we kind of work through 2019 and get everything completely put together. 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.
Marshall, this is Eric, 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. First call is much more expansive operational approach where the customer really never touches the machine at all. The CDM folks are responsible to start the machine, stop the machine, speed it up, slow it down, regardless of what caused the shutdown. If it's a mechanical issue, historically, USA's mechanics would show up and fix a machine. Well, the CDM guys ended up being involved with much more operator type driven downtime. If there's a freezing problem, no gas showed up for economic reasons. It was much more operationally intensive, and that service was provided across all horsepower range.
USA has typically provided first call with the larger horsepower assets, but not with the smaller gas lift wellhead-oriented things. I think one of the bigger philosophical shifts that we're implementing and 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. That, I think if you look at it, Matt pointed out there's a little bit of noise and kind of hung you a little bit for modeling purposes. Keep in mind, directionally 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 kind of leads to the type of margins that you saw the USA side versus the historical side on CDM.
Right. Thank you for that color. Along those lines, Matt, when I just do back of the envelope, if I kind of carry these margins and utilization going forward, which were phenomenal, and even haircut them a little bit, I have trouble staying within the range of your guidance, i.e., you end up kind of above that. Is that just taking some conservative posture knowing there'll be some downtime and some hiccups along the way? Or am I just doing my math wrong on the back of the envelope stuff?
Well, without seeing your math, Marshall, I probably don't want to comment.
Well, what I'm saying is if I keep the margins like they are here for all of 2019.
Right
I end up well above your guidance.
Yeah, I think what we did, again, that guidance is really predicated on our budget for the year, and obviously that was done prior to the end of the year. The quarter's results, again, I think you're right. We probably took a little more of a conservative bent based on where we had seen things through most of last year. Certainly if we're able to hit margins like this going forward, I do think there'll be a little noise as we kind of get everything put together. I think directionally, I would agree with that comment.
Yeah. That's prudent. That's smart. Last one for me. Your total fleet horsepower 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 the larger horsepower, but can you kind of give us a cadence on our model in terms of when we should be bringing on the additional horsepower as we move through the year? 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 give us some broad generalizations.
Sure. You're right. What that number does reflect a little bit of retirement and really, that stuff is 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. For that reason, during the quarter, we did have some stuff that we retired. Going forward, we don't really project out what we're going to retire. Again, with utilization levels where they are, I mean, 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. The retirement stuff is kind of on a quarter-by-quarter basis.
In terms of the new horsepower, we talk about kind of 132,000 throughout the year. That's split relatively evenly through the quarter. I would say, I mean, throughout the year. About half of that total is scheduled for the third quarter, the other three quarters is a little more evenly spread out.
Okay. That's helpful. Sounds like just on a run rate, we should model 20,000-30,000 of additional horsepower per quarter with a little bump in Q3.
Yeah, I think that's fair. Yeah, I think that's right, Marshall.
Great. Thank you all. I appreciate that.
You bet. Thank you.
We'll now take a question from T.J. Schultz with RBC Capital Markets.
Hey, guys. Good morning. Matt, just first, as I look at DCF guidance, is there an assumption to term out any debt in 2019?
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.
Okay, got it. 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 pushback on pricing increases, and then you're able to move that to more active basins? Do discussions generally settle 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?
T.J., 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. 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. When you look at the finding and development costs, that's probably one of the least attractive areas right now in the domestic plays. 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 ship to that direction.
Generally what we see, particularly with the larger horsepower assets that are installed with equipment being in such short supply right now, and people continuing their development plans both on the E&P side and 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 at improved pricing terms and with some increased tenor associated with it. 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 times, with the existing operator. To the extent there's any relocation, it would just kind of move from location A to location B within their existing development profile.
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 all to continue to be a consolidator here?
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 was somewhat unique. Highly complementary assets that focus on the largest of the largest horsepower. Similar operating philosophy, frankly, had a different customer base with different geographic coverage. You think about 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, efficiencies, economies of scale, with not a heck of a lot of overlap. 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 is telling us, "Hey guys, it's expensive. Your cost of capital is high." Unless we can find some highly attractive acquisition opportunities, things that frankly are accretive or things that help de-lever the balance sheet, there's really no economic incentive to do that right now. 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, now we're building coverage. We're helping to continue to de-lever the balance sheet. If the right set of tinker toys comes along at the right value, yeah, it's something we'll take a look at. That hasn't been the history of USA in the past. Doubled the size of the business and now integrated and digested that business.
Now it's time to block and tackle, business as normal.
Got it. Thank you.
Thanks, T.J.
We'll now take a question from Barrett Blaschke with MUFG Securities.
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 lower IPs and pressures coming down. Is that a business opportunity for you guys in some cases?
Great question. Obviously, just because the rig count goes down doesn't mean IPs go down or gas oil ratios go down. As you pointed out, there's a lot of phenomena going here. What we have seen is even if there's a slowdown in developmental activity, it doesn't mean the compression's 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. 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. We have chosen the opposite direction, which is let's high-grade the opportunity sets, let's kind of live within our means.
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 of the core that they're involved with. To the extent that the rig count slows down and CapEx programs slow down, there's still more than enough to fill our 2019 and frankly, 2020 and beyond CapEx programs.
Okay. Then this is probably more of a question for Matt. Energy Transfer owns a lot of shares in USAC. Have they registered any of those yet?
They are not registered.
They're still not registered. Okay. Thank you.
Correct.
Yep. You bet. Thanks, Barrett.
We'll now go to Sharon Lu with Wells Fargo.
Hi. Good morning. Just a question on pricing. The revenue per horsepower had increased about 1%-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 2019?
Yeah, Sharon, it's Matt. When you look at that, you got to remember, right, we're talking about a fleet of 3.6 million horsepower. Where we're getting the pricing increases is really a combination of two things. It's the impact of the new horsepower going out. For instance, the 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. The other part is really about half of our fleet, 40%-50% at any given time is on month-to-month. It's the impact of going back to those units and increasing pricing. I think generally speaking, we continue to see price increases in line with increases that we were putting up last year.
Again, if you increase a chunk of it 10%, on the whole fleet, you're going to see something in that 1%-2% range. 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 another couple million horsepower of units to go chase after and do it with.
Okay. No, that makes sense. Just in terms of maintenance CapEx, it looks like your guidance implies that spending is flat year-over-year, but I believe that you initially had 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.
Yeah, certainly for 2019, that's kind of our best estimate right now. As we got into putting the two fleets together, obviously we put some higher numbers out there because we thought there'd 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. 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. You're going to see some benefit from that as well.
Okay, great. Thank you.
We'll now take a question from Ryan Pfingst with B. Riley FBR.
Hey, good morning, guys. Just two quick ones on the 132,000 horsepower coming on this year. If you could, how does that horsepower break down by basin? On pricing, 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 once the customers start using it?
Yeah. Ryan, it's Matt. 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 majority of it, as well as some in the SCOOP/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 signed up and contracted. Some of the equipment you're talking about long lead times. If you're a year out, the equipment we're taking delivery of this quarter, we put in those orders last first quarter of 2018.
Generally, what happens is you work off a sort of indicated demand from your customers, and they are aware of exactly what it's going to cost them. 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 re-trade it because that equipment is in high demand, and it'll go elsewhere. 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.
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. 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. We balance those two together, and we want to make sure that we're not at risk for 100% of your portfolio at any given point in time for new CapEx growth.
Yet, we see enough 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.
Awesome. Thanks for the color, guys.
You bet. Thanks, Ryan.
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.
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. While 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 unit holders 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.
This concludes today's call. Thank you for your participation. You may now disconnect.