Good day and welcome to the USA Compression Partners Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, there will be an opportunity to ask questions. Instructions will be given at that time. Today’s call is being recorded, today August 4, 2017. At this time, I would like to turn the call over to Chris Porter, Vice President, General Counsel and Secretary. Please go ahead.

Thank you. Good morning everyone and thank you for joining us. This morning, we released our financial results for the quarter ended June 30, 2017. You can find our earnings release, as well as recording of this conference, in the Investor Relations section of our website at usacompression.com. The recording will be available through August 15, 2017. 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, August 4th, and 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 and thanks for joining our call. Also with me today is Matt Liuzzi, our CFO. This morning, USA Compression released its second quarter 2017 financial and operational results. Looking back on the quarter, we experienced increased activity on the part of our midstream and large E&P customers. This increase in demand has led to tightening in availability of certain types and classes of equipment, leading to increased fleet utilization, both for USA Compression as well as select sector peers. USA’s larger horsepower fleet utilization is now back to levels virtually the same as before the industry decline, in the mid-90% area. We also improved visibility regarding demand for our services and corresponding contracting activities, well into 2018. Given this tightness, we have increased the monthly service fees we charge on many types of equipment we use to provide our services. On our call last quarter, I mentioned that we believe our business had bottomed and turned the corner. Now, at the halfway point of the year, I’m pleased to report, the things have continued to improve, and our outlook for the compression services sector, especially with large horsepower infrastructure-oriented equipment is quite positive. The basic drivers of our business have not changed over that years, increasing demand for natural gas, midstream infrastructure development, and increasing requirements for large horsepower installations, and all of these trends have continued to play out. While different regions are in different stages of development, our compression services are required across the board. As we look ahead, we believe we’re well-positioned to take advantage of the demand, further strengthening our position in the market. First, a huge shout out to our operations team. Our employees have now worked over two years, over 2 million work hours without a lost time…

Thanks, Eric, and good morning, everyone. Today, USA Compression reported a solid second quarter with revenue of $66 million, adjusted EBITDA of $36.7 million, and DCF of $27.1 million. In July, we announced a cash distribution to our unit-holders of $0.525 per LP unit, consistent with the previous quarter. Our total fleet horsepower as of the end of Q2 was 1.7 million horsepower, essentially unchanged from Q1. However, our revenue generating horsepower at the period-end was up about 50,000 horsepower or 3.5% to almost 1.5 million horsepower. The quarter was relatively quiet in terms of capital spending. We invested expansion capital of roughly $15 million. Our average horsepower utilization for the second quarter was 91.2%, up nicely from 88.2% in Q1, continuing the upward movement of recent quarters. Pricing, as measured by average revenue per revenue generating horsepower per month, was essentially flat from Q1 at $14.95. Remember, our larger units on a lower revenue per horsepower per month and the continuing shifts in our fleet to larger and larger horsepower will continue to impact that metric. Turning to the income statement. Total revenue for the second quarter was $66 million, flat as compared to the first quarter. While total revenues were flat, we saw an increase in our core contract operations revenues of almost $3 million or about 5%, reflecting the increase in active horsepower. Gross operating margin as a percentage of revenue was 67.3% in Q2, up from 65.9% in the first quarter. During the second quarter, our level of retail activities was lower than in Q1. Again, if you were to remove the margin impact of the retail activities, gross margin for the quarter would have been consistent with prior quarters. We continue to be pleased with the consistently strong margin performance for the contract compression business.…

Thank you. [Operator Instructions] We’ll go first to Andrew Burd with J.P. Morgan.

Hi. Good morning. Eric, I think you indicated that obviously pricing is getting higher. Have you raised rates for compressors already in service or existing in service or are the higher prices just on new demand?

We have been raising over the course of the year, Andy. Depending on the category of equipment, we’ve seen single digit increases; and in certain categories of equipment, we’ve seen as much as a 15% to a 20% increase in rates.

Great. And I know that small units, clearly in the industry are still weak. But, has utilization for USA started to improve at all…

Yes.

And outside of higher commodity prices, is there anything on the horizon that would drive -- accelerate the recovery in those smaller units.

So, again, I’m going to categorize kind of the haves and the have-nots. USA Compression’s small horsepower tends to be -- or even for gas lift, which require three-stage machines that operate at fairly high discharge pressures, so our utilization of our smaller horsepower is somewhat higher than some of our peers who have legacy equipment that might be single-stage, two-stage or even lower discharge pressure three-stage equipment orientated for either small wellhead casing gas – casing head gas or dry gas wells, used in primary production. So, we saw that the utilization of our smaller horsepower fleet hit the kind of a bottom about six months or so ago, and we’ve seen a slow and steady methodical increase going forward. I think longer term, the shift towards the big pad side drilling with lots of wells drilling lots of benches is changing the way that people utilize compression. There are large volume -- large horsepower units required to move initial flush production. And then, as you have a large concentration of 10, 20, 30, 40 units on a simple pad site for the gas lift side instead of using 10, 20, 30, 40 individual wellhead compressors, people are consolidating to use two or three very large horsepower units to gas lift plumbed into a manifold system. So, I think we’re seeing a fundamental shift in the way that producers view compression how they design their production facilities. And as I mentioned, it looks much more like an integrated offshore platform focused on much bigger horsepower, bigger central production facilities. And clearly, there will always be a need for some individual smaller wellhead, gas lift or even some smaller wellhead oriented casing head gas or dry gas compression over time there will be less and less of that and more and more of the big step.

And last question is on growth CapEx. Is it fair to say that for 2017, at this point, that growth CapEx is probably locked in, because even if you wanted to order more units, you probably couldn’t because of Caterpillar lead times? Is that fair to...

Yes. The lead times are such, Andy, that what we’ve committed to buy is what it is. What we’re seeing, and I think when you look at the CapEx that we expended in Q2, relatively light CapEx spend, a fair amount of that was made for Make Ready work to take our existing idle fleet, spend some dollars to get it deployed back into active service. So, I think because we have such forward visibility into 2017 and on into 2018, we have -- with the increased that we’re seeing, the increased utilization that we’re seeing, I think it mitigates the need for any additional equity requirements during 2017. And I think we’ve got a pretty good visibility into what the next multiple quarters look like, very good visibility into 2017 and frankly very good visibility into 2018. Matt, any commentary?

No. And I think you kind of hit on the head. But, it is all locked in. And again, I think we’ve kind of made some comments that a lot of the reconfigure, the Make Ready work that we did in the second quarter, when we look forward, there is not a whole lot of idle equipment that is of the configuration sorts that people are demanding. And so, I think, as we look out, the new unit stuff is all locked in, and then the Make Ready, reconfiguration type stuff is going I think kind of peter off through the remainder of the year.

And then, one follow-up on the growth CapEx into 2018. Of the 150,000 horsepower roughly that you have on order, what’s the visibility on placing those units. I know that, Eric, I think your words were that maturity were spoken for. But, what does spoken-for mean exactly? Is it based on just customer production forecast, or there something more contractually binding to this order backlog? Thank you.

This is not just a speculative buy and build and they will come. We have a significant component covered already under firm executed contracts.

We will go next to Praveen Narra with Raymond James.

Just on the -- following up on the Caterpillar engine question, what are the lead times looking lie right now, in terms of -- if you were to order some of these large horsepower Cat engines? When would you get it, if you order them today?

So, if I were a new guy calling my fabricator, you are roughly 60 weeks out to order the large 3600 series. So, you are talking five quarters from now at the earliest.

Okay. That’s very helpful. And then, I guess in terms of the EBITDA guidance, it seems like we are at the point in which we are at the turn where EBITDA is turning higher. So, one, is that correct? And then, two, how do we think about leverage under that context? Is this something that we could be comfortable with and that you are growing utilization, EBITDA is [indiscernible] EBITDA growth lap and we can just grow into the leverage ratio or do we need to actually take a step to bring it down? How do we think about that?

On the leverage, I mean you -- the first part of what you said was correct, which is as we see, again, the CapEx for the rest of the year is locked in, it’s all this large horsepower stuff. And as we see those units being delivered, being deployed and the cash flow that increases that that’s driving, as we look at the leverage forecast, we are absolutely comfortable kind of into the future. So, obviously, we spent some money kind of in the early part of the year and made some deposits and what not to take delivery of that big stuff, knowing that it was going to be coming on second half of the year into 2018, but also knowing that it was absolutely contracted at some pretty attractive prices. So, as we sit here and look at it, I think Eric made the comment, no, we are not looking at any need for equity and we think that the business kind of naturally delevers over the course of the next two, four plus quarters.

[Operator Instructions] We’ll take a question from Jeff Rednor [ph] with UBS.

I have a question about the dividend going forward. Paying $0.525 a quarter which annualizes at the $2.10 a share, represents a very attractive return, based on the current stock price. Seeing that you have increased visibility going through 2017 and into 2018, could you care to comment on the dividend going forward, not necessarily to be raised but certainly should maintained at this level throughout the next four to six quarters?

In terms of the distribution, obviously that’s a quarterly decision that’s made by the Board. And so, we can’t say one way or the other what the Board will decide with respect to the distribution. I’ll tell you, as we kind of powered through the last couple of years, we thought the business model was appropriate to keep the distribution where it was. And certainly, as we look forward into the back half of the year, and we commented the last couple of quarters, but lower coverage than we would like, but being able to see increasing cash flows and increasing activity over the next -- the rest of this year and well into 2018. We think we kind of grow back into a coverage level that’s a little more attractive than where we are now. So, other than that, I can’t really comment on what the Board may or may not decide, but it is a quarterly decision on their behalf.

And with no further questions in the queue, I would like to turn the call back over to Eric Long for any additional or closing remarks.

Thank you, Leanne, and thank you all for joining us on the call today. I’ve always talked about the stability and growth of the compression service business. Our metrics and the overall tone would indicate we are excited about where we stand halfway through the year. For the back half of 2017 and on into 2018 and beyond, you will see similar and consistent themes from USA Compression, large horsepower focus, operational density in our areas of activity and growth, and our long-established commitment to providing safe and exemplary levels of customer service as the industry is showing signs of stabilizing and growth has picked up, pricing and margins remain attractive and we expect to see the favorable supply-demand picture to translate into increasing cash flows. We look forward to updating you on the next quarterly call. Thank you for your continued interest in and support of USA Compression. Be safe.

And this does conclude today’s conference. We thank you for your participation. You may now disconnect.