So your commentary on a sounds like things are pretty good, things are really good, and I think there’s just a few of us in the industry who have this type of equipment that’s necessary. There’s more demand for our goods and services than there are available goods and services. So in the environment we’re living in with new capital costs, going through the roof shortages of equipment, better discipline in the industry, I think it bodes well for all of us for durable – durability and sustainability over the coming quarters and coming years.
Selman Akyol: Got it. And then just one last one for me, as I think about the model and SG&A uptick and I’m pretty confident that’s driven by the unit based comp expense, but can you just give any thought on that? Is that – was that just like something that occurred this quarter or is it due to the higher unit price or how maybe we – should we be thinking about that going forward?
Eric Long: Yes. That was – you hit the nail on the head that basically was stock based comp and that was a quarterly operation. And I think you’ll see that on a once a year basis as things vest over time and do some things along that line, so.
Selman Akyol: Got it. All right. Thank you very much.
Operator: [Operator Instructions] Our next question comes from Robert Mosca from Mizuho. Please go ahead. Your line is open.
Robert Mosca: Hi, good morning, everyone. I’m wondering if you could maybe expand on how you plan to go about high grading your customer base, just what those conversations look like and is that more of an area of focus than it had been the past just given the tightness and compression that you’re seeing?
Eric Long: Yes. Robert, this is Eric. And we’ve been in business 25 years and we’ve been through ups and down cycles and we’ve seen customers that we add and grow with, and we’ve seen customers who over time have retrenched with. What the book of business that we have in our broad geographic footprint, we have concentrations of assets with key customers in certain geographic areas, and then we have fringe geographic areas or smaller customers. And as things come off of those primary term for the type of equipment that some of our larger customers see in demand, a discussion would go like this, hey, you’ve had a machine for three years, your rate is X, it’s time for you to sign up a new five-year contract at a rate of substantially higher than X.
Well, we don’t want to do that. We’d like to sign a one year contract. And we’re like, well, here’s kind of what the rate is, take it or leave it. And we’re not being cavalier about it. We’re working with our customers, but I think observation number one, some of the smaller customers and fringe areas, we are repatriating those assets to redeploy. There’s certain geographic areas where you’ve had a little bit slower activity. So the – when you think of the Permian and Delaware basins, which are really, really hot, the Eagle Ford can remains fairly active. Then you think about North Louisiana, the Haynesville, it’s slowed down a little bit. You think about Appalachia, it’s also slowed down a little bit. The Mid-Continent area and the Rockies are kind of Steady Eddy, but again, within any particular basin, you’ll see some areas where assets are underutilized and will rationalize and take a bigger machine.
That five smaller machines could do the job of one big machine, but if conditions of change maybe only need two or three intermediate sized machines. So we’re always looking to optimize our book geographically on a customer by customer and then kind of subsets within the region. And it’s just kind of part of the customer high grading and asset geographical high grading, so to speak.
Robert Mosca: Got it. That’s all really helpful. And maybe following up on some of the earlier questions, just – I’m wondering if you have a sense of then – and I understand that some of these compression contracts, they have the inflation escalators, but as far as the proportion of your fleet that you deemed to still be below market in terms of rates. Is that – is still a decent chunk to work through? I know you referred to having perhaps more torque – upside torque just from the repricing than the organic CapEx, and I was hoping you could expand on that.
Eric Long: Yes. And I think obviously you’re trying to fine tune your model a little bit. I would – from a modeling perspective, just kind of focus on CPI type escalation. It’s not as if we have half of our units that are a third below market rate or 25% below market rate. Scheller and his team have done an excellent job over the last few years, as we’ve worked off primary term, terming things back up. So I would wager an estimate that not that much of our current book would be at rates that were back in the kind of middle of COVID arena three, four years ago type. I think we didn’t chase the market down. We maintained our pricing during that time, which is why our utilization dribbled down. So I think commensurately with where we are in the world today, looking at kind of that 3% to 5% to 7% escalation range over the coming years, our book is not lumpy.
It’s not like we bought five LNG tankers and deployed them all at one given point in time, and we’ve got 4,500 some odd assets that all of those assets have staggered initial terms, staggered primary terms. So in any given month, any given quarter, any given year, we’re continually having things come off a primary term. And then we look at the market at that point in time, we look at who the customer is, what the rates are, if they’re – here’s what the current rate is and what the spot rate at that point in time is. So to the extent, spot rates continue to increase at excess of inflationary environments, then we’ll take that into consideration over the course of the coming months and quarters and year as we reprice things. So I think to be conservative, look at CPI and then assume that we’ll probably do a little better than CPI.
Robert Mosca: Understood. Thanks for that, Eric. And maybe just a quick last one from me. I know in your prepared remarks, you referenced just your increased valuation. And would there be any interest in perhaps seeing if there’s been an equity market, if you guys were to do an issuance, or is that just – can you get to those leverage targets just with the strength of your operational tailwinds?
Eric Long: From USA’s perspective, we’re happy with where we are, we’re continuing to delever the balance sheet. We look at our debt cost, now we’ve done a great job of locking in our floating rate debt with some swaps. We’ve locked in substantially below market rates over the 2024, 2025 range to make sure that we’ve got certainty of pricing to match our budget estimates. I don’t know, I look at it and going forward, I don’t think anything materially changing, company doesn’t need to issue equity, energy transfer seems to be pretty happy with where they sit on things. So from the company’s perspective, I don’t see any need to accelerate issuing equity that historically has had a little bit higher cost than our cost of debt or equity. And if we can continue to methodically delever to our target of 4x or drop below 4x, don’t think we need to really worry about issuing any equity and going down that trail.
Robert Mosca: Got it. Appreciate it and thanks for the time everyone.
Eric Long: Thanks everybody.
Operator: We have no further questions in queue. This will conclude today’s conference call. Thank you for your participation. You may now disconnect.
