Good day and welcome to the USA Compression Partners Third Quarter Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the call [technical difficulty] Porter, Vice President, General Counsel and Secretary. Please go ahead.

Good morning everyone and thank you for joining us. This morning, we released our financial results for the quarter ended September 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 November 18, 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, November 7th, 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 third quarter 2017 financial and operational results which reflected continued growth in Compression services and overall improved market conditions, continuing the positive themes we’ve experienced throughout the year. In recent quarters, we spent a significant amount of time discussing the positive momentum in the compression services sector. And during the quarter, we saw continued strength, both on a macro level in terms of demand for compression services generally as well as with our individual customers who have continued to develop natural gas infrastructure which requires compression. Our business performed well during the quarter, strong margins and growth in active horsepower due in part to an overall continued tightening in the markets we serve. We have been expecting the back half of 2017 to show increased activity, and it has played out as we expected. In some ways, it was a relatively quiet quarter, a business as usual quarter. Utilization continued to pick up; we took delivery of additional large horsepower units which generate very attractive returns on invested capital and are highly accretive; and we continued to operate with very attractive operating margins. While the straightforward quarter, we believe we are well-positioned to take advantage of the continued sector recovery. I’m going to now discuss a few important drivers and performance metric for USA Compression, give you some color on the market, and then turn it over to Matt for the financial discussion. First, customers. Our customers, the key to our business, continue to be busy. I often talk about steadily increasing domestic gas production and demand, and things today are no different. Our customers throughout our operating regions are continuing to invest…

Thanks, Eric, and good morning, everyone. Today, USA Compression reported a solid third quarter with revenue of $72.8 million, adjusted EBITDA of $40.8 million and DCF of $30.8 million. In October, we announced the cash distribution to our unitholders of $0.525 per LP unit, consistent with the previous quarter. Our total fleet horsepower as of the end of the third quarter was 1.8 million horsepower, up about 21,000 horsepower from Q2 as we took delivery of the new unit spending about $27 million in growth capital. Our revenue generating horsepower at period-end was up about 80,000 horsepower or about 5.4% to over 1.5 million horsepower. Our average horsepower utilization for the third quarter was 94.1%, up meaningfully from the 91.2% in Q2, continuing the upward movement throughout the year. Pricing, as measured by average revenue per revenue generating horsepower per month, also increased in Q3 to $15.13, up from $14.95 in Q2. These increases reflected the continuing shift in our fleet to larger and larger horsepower. Total revenue for the third quarter was $72.8 million, up about 10% as compared to the second quarter. While we did have slightly higher aggregate parts and services revenue, our core contract operations revenues increased more than $5 million or about 8%, reflecting the increase in active horsepower. Gross operating margin as a percentage of revenue was 67.8% in Q3, up from 67.3% in the second quarter. Eric mentioned the slight increase during the third quarter in our level of retail activities. If you were to remove the margin impact of the retail activity, gross margin for the quarter would have been not only consistent with but above prior quarters. This quarter continued the consistently strong margin performance of the contract compression business. To briefly address some of the specific line items, adjusted EBITDA…

Thank you. [Operator Instructions] We’ll take our first question from Praveen Narra with Raymond James.

Good morning, guys and certainly great quarter.

Thanks, Praveen.

When we think about the average revenue per horsepower, it certainly went up quarter-over-quarter. Can you talk about how much of that is either pricing, is it fair to think that is pure pricing on a like-for-like basis, is there some mix going into that as well? And then, if you could, as we see those legacy contracts roll off, is this price -- is it rolling on to higher pricing, are we still rolling over on to lower price contracts, but sequentially pricing is moving higher?

Great questions. I’m going categorize pricing in a couple of different ways. First, in the world that we live in which is predominantly larger horsepower, the types of assets that we have are all exhibiting upward movement in pricing. So, as new units are built and deployed into the field, the spot rates for that type of equipment are up substantially quarter-over-quarter or year-over-year, which then would suggest as units roll off of their primary term, one-year, three-year, five-year or initial type for primary term, and we have the opportunity to either reterm those contracts or to the extent our customers’ conditions change and they send that equipment home, we redeploy it; in all of those cases, we are also pushing through rate increases. So, we are methodically looking at our book of existing assets. As Matt has mentioned on previous calls, roughly 40% of our units are on month-to-month contracts. It’s fair to assume that we are looking at what the current spot prices are in those units and are looking to reterm those units under contracts that have higher monthly service fees than they’re currently deployed at. So, it’s kind of a perfect storm, both new units and existing fleet get deployed at rates that are higher than what they’ve been in the past.

Right. That’s certainly great news. When we think about the cost side, one of your peers talked about seeing increased lube costs. You guys seem to still have better cost per horsepower sequentially. Can you talk about what you’re seeing there, whether that’s something that you guys are contracted against, that’s kind of hedging you out right now? Can you talk about what you’re saying and how we should think about that moving forward?

We actively manage all of our expenses from lube oil and antifreeze and small parts to large parts et cetera. So, can’t speak for their business. We can only speak to our business. We’ve I think been very successful in managing our commercial relationships and our cost components of all the operational drivers. So, we’re not seeing just massive increases or pressures upward on our cost components. Part of that has to do with our supply chain efficiencies and productivities that we’re able to bring to the table; we have lots of cycle terms on our parts and pieces. And we don’t have a hedging program in place for lube oil but we’ve been able to secure very favorable pricing and frankly have not seen a lot of upward movement on small parts, large parts overhauls and lube oil expenses that maybe some others have suggested.

Okay, perfect. Thank you very much, guys.

We’ll go next to Andrew Burd with JP Morgan.

Hi. Well done on another strong quarter. Just one question for me, more high level for Eric. Recently, we saw a producer sponsored MLP talk about starting a compression business. It’s hard to tell if that’s just repackaging, what we’ve always looked at is owned equipment. But, what are your thoughts on this development and doe it change to your outlook for the leased compression business long-term, especially with more and more producers spinning out their own MLP arms?

We’ve always been believers that we’ll never have 100% of the compression market. They’re truly are owner operators who have base load equipment that will have a 30 or 40-year lifecycle, and those folks need to own their equipment. We see, however, the converse side of that where people are looking at their core competencies. And is their core competency compression or is their core competency drilling horizontal wells and becoming the most efficient explorer and producer that they can on the upstream side, are they the most effective gatherer and processor that they see on the midstream side. So, our opinion is that it will always continue to be a hybrid model. When you look at our top 10 or top 20 customers, most of these folks actually have some company-owned equipment as well. So, our view of the world is with the increases in demand for natural gas, the increasing requirements for compression horsepower over time, there is more than enough business to keep all of us in our industry busy. And to the extent, an upstream decides that they want to be in the compression business and gear up and develop safety training programs and inventory tracking systems and overhaul processes and figure out how to cost effectively redeploy equipment in the field, more power to them. So, it doesn't change our outlook on the business model. It’s been this way for 35 years and 20 years as USA Compression, and our sector hasn’t gone away yet; it’s actually grown.

Yes. It seems easier to use you guys. Thanks a lot, Eric. Nice quarter.

We’ll go next to Sharon Lui with Wells Fargo.

Hi. Good morning. Just wondering if you could touch on, I guess the extended lead times for equipment, especially for the engine part. Do you I guess, anticipate that the deliveries you have through the back half of this year into and 2018 is sufficient to meet, I guess, demands next year?

Yes. Sharon, the manufacturing slots that we secured for the back half of 2017 and on into 2018, have firm delivery dates. So, we’ve made these commitments recognizing and understanding that the supply chain was becoming tighter in lead times were lengthening. So, when we talked about the deliveries for the back half of this year, 150,000 horsepower on into next year, those are firm commitments that we've already secured. What you'll find, if you visit with our peers or playing customers or end users is that to source engines -- and it depends on the horsepower size, some of the smaller equipment is more readily available than the larger equipment. We're talking lead times that are somewhere in the 40-week to 60-week range right now. So, someone has not made commitments to secure equipment over the course of let’s say the next year or so, they really have no opportunities to get their hands on that equipment. To say it another way, we made some judicious based on our balance sheet, our levels of revenues, our leverage, our coverage, and we're very comfortable with that 150,000 horsepower commitments that we've made for next year that we can secure those equipments, not need to issue additional equity in the marketplace and meet the level of requirements that our customers have. Frankly, if there was another 150,000 or 200,000 horsepower of available equipment, those opportunities exist out there in the marketplace, but frankly, the equipment doesn’t exists and the lead times are so long that it will be difficult to secure some of those capacity. So, it’s a balancing act. We're comfortable with what we’ve committed to. It’ll be sufficient enough to back the plays of our longer term customers, very attractive acquisition multiples are highly accretive and it won't stress our balance sheet and it will allow us to continue to maintain improving levels of coverage and ultimately delever the balance sheet.

Okay. That’s great. So, I guess, based on those lead times, at what point do you have to even start thinking about 2019?

We’re thinking about that as we speak.

Okay. And so, the plan is to, I guess, use the credit facilities to fund the capital program and that’s adequate?

Yes. Sharon, it’s Matt. I think when we look out, obviously, we’re getting increasing cash flows and EBITDA level because we’re -- the equipment that went out during the third quarter is sort of we’re getting full quarters of cash flow come out as well as stuff going out -- fourth quarter stuff going out first part of next year. So, as all that stuff goes out and gets deployed, generated cash flow, as we look out, we don’t need to access any of the third party capital and we kind of remain within our covenants and within the facility side to take care of the capital spend.

Okay, great. And then, just I guess the question on the make ready costs. Which components are I guess reflected in higher maintenance CapEx versus like higher cost of sales impacting the gross margin?

Yes. Sharon, that’s going to be -- that pick up in maintenance CapEx that you saw kind of in Q2 and Q3 is in most part reflecting kind of increased make ready costs. So, all that stuff, reconfiguration, that sort of stuff would show up in the maintenance CapEx versus the OpEx side.

Okay, great. Thank you.

We’ll go next to Mike Gyure with Janney.

Yes. Good morning, guys. Can you talk a little bit on the 150,000 horsepower for next year, kind of the ramp of when you expect to sort of that horsepower to come on to the fleet, kind of beginning of the year, middle of the year, sort of average during the year kind of thing? And then, maybe if you could touch on I guess any geographies in particular that maybe you’re outsized taking some of that capacity for the horsepower?

Sure, Mike. It’s Matt. In terms of the funding, it’s more weighted in the front half of the year. I think probably, I would estimate maybe a two-third spending in the first half of the year, and the back half of the year is the remaining one-third. We obviously have the ability to kind of shift timing around. And we’re obviously always in conversations with customers to make sure we got the timing right for them, so that we’re not sitting on equipment that they don’t need et cetera. In terms of geographical presence for that new capital, you know it’s going to be a little more spread out, maybe than it was this year. I think primarily, I would say the majority of it will go out in those West Texas and Delaware basins, Permian basin areas but we also have a lot of new equipment going up to the Northeast and the Midcontinent that SCOOP and STACK. So, a little more disburse than it was this year. This year was much more focused just on Permian and Delaware basin but a little bit more SCOOP/STACK in Marcellus, Utica next year.

Great, thanks very much.

You bet.

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, operator, and thank you all for joining us on the call today. While our third quarter was strong, we’re even more excited about upcoming future quarters. Our metrics improved this quarter just as we told you they would, and with the continued strong business environment, we expect those will continue to move in the right direction. Our focus at USA Compression has not changed, large horsepower, operational density in areas of activity and growth and our long established commitment to providing safe and exemplary levels of customer service. We look forward to updating you on the next quarterly call. Thank you for your continued interest in and support of USA Compression.

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