Good day and welcome to the USA Compression Partners Fourth Quarter Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Chris 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 December 31, 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 February 23, 2018. 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 12, 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, Eric. Good morning, everyone. Today USA Compression reported another strong quarter with fourth quarter revenue of $75.4 million. Adjusted EBITDA $42.1 million and DCF and of $33.2 million. In January, we announced the and thanks for joining our call. Also with me is Matt Liuzzi, our CFO. A year ago, I started out my commentary by saying what a difference a year makes. In 2017, USA Compression continued their upward trajectory with the strong year of commercial, operational and financial performance in our compression services business. And several weeks ago, we topped it off with the exciting announcement of about our transformation deal to acquire Energy Transfer's compression business is part of the total deal worth about $1.8 billion. Both achievements speak to the positive momentum we are experiencing in our sector, and position USA Compression for an exciting 2018 and beyond. This morning USA Compression released its fourth quarter and full year 2017 financial and operational results, which reflected the improving market conditions, we've been experiencing throughout the year. After a full year of stability in commodity prices benefiting our E&P and midstream customers, 2018 is shaping up to look a lot like the back half of 2017. Both types of customers continue to make significant infrastructure investments and with positive forward commodity prices; coupled with reducing levels of both crude oil and natural gas and storage, they are better able to plan for the months and years to come, all of which translates into increasing demand for our compression services. The overall macro environment continues to be constructive and was relatively unchanged from the previous few quarters. Our business achieved strong margins in growth in active horsepower. One important metric for our business utilization, continued to tick upward. Average utilization inched up over a 0.5% during…

Thanks Eric, and good morning, everyone. Today, USA Compression reported another strong quarter with fourth quarter revenue of $75.4 million, adjusted EBITDA of $42.1 million and DCF of $33.2 million. In January, we announced the cash distributions to our unitholders of $0.525per LP unit, consistent with the previous quarter. Our total fleet horsepower as of the end of Q4 was 1.8 million horsepower, up about 42,000 horsepower from Q3 as we took delivery of some new unit, spending about $50 million in growth capital during the quarter r. Our revenue generating horsepower period end was up about 67,000 horsepower or about 4% from Q3 to over 1.6 million horsepower. Our average horsepower utilization for the fourth quarter with 94.7%, up slightly from 94.1% in Q3 .As Eric mentioned, at these levels, we are practically fully utilized. Pricing as measured by avenue revenue, average revenue per revenue generating horsepower per month, also increased in Q4 to $15.21 up from $15.13 in Q3. This was due in part to new unit delivery, as well as selective price increases on the existing fleet. Total revenue for the fourth quarter was $75.4 million, up about 4% as compared to the third quarter. Our core contract operations revenue increased about $4 million, or about 5% reflective of the increase in active horsepower. Gross operating margin as a percentage of revenue was 66.8% in Q4, down slightly from 67.8% in the third quarter. Similar to previous quarters, that number does include a little bit a noise from retail part and service. Our core gross operating margin continued to be largely consistent with prior quarters. Walking through a few of the specific line items. Adjusted EBITDA increased 3% to $42.1 million in the fourth quarter as compared to $40.8 million in the prior quarter, and up from…

[Operator instructions] And we'll take our first question from TJ Schultz with RBC Capital Markets.

Hey guys. Good morning. What's the timing or cadence for putting the 150,000 into the field this year?

TJ, it's Matt. We've put in those orders kind of going back to middle of this past year, and they're going to come in a fairly pro ratably over the course of the year. It will be a little bit -- right now it will be a little bit more weighted towards the first half of the year, but again there is always flexibility and a little bit of fluidity with that stuff. So as we work through month-by-month, we try to match up the customers' needs with the packager's capabilities. So I would say slightly weighted to the first half of the year, but with the ability to move stuff around that's needed.

Okay. And then I know you don't want to talk too much about 2019, but can you just talk about lead times for new orders these days. And is it the same as you talked about the 3608 class versus some of the larger stuff? And then as we think about the larger units, just where are those being delivered to?

TJ, this is Eric. The demand for the type of units is consistent with what we've seen in the past. A lot from the Permian and the Delaware Basins. I would say that the past two or three, or three or four years, Delaware has been red hot and it continues to be red hot. The SCOOP/STACK and merge plays in the last year or so have really come into vogue and that's probably frankly a lot of growth that we'll see in 2018, 2019 and even in the 2020, we will be coming out of that Mid-Continent area. The Northeast has been a little bit of a lag or a laggard in comparison with those two areas just because of bottlenecks on some of the interstate pipelines, and as you know, some of those major takeaway projects have been delayed a little bit for permitting purposes or environmental limitations et cetera. So that's kind of the -- more like the tortoise and less the hare where it's been kind of crawling along. And we've seen continued activity, but I think when some of these major pipelines start de-bottlenecking that area, we expect to see some accelerated growth. So those are the three major areas that we see growth occurring in. It will address the CDM market opportunities post-closing later in the year. As far as lead times on the large horsepower equipment, Caterpillars made a little bit of progress on improving deliver-abilities -- delivery times. These things were in the 52-56 week lead time range. They’ve now improved that back into 42 to 46-week timeframe. So it's still -- we're talking 9, 10 months out. So lead times are pretty long right now. There is some fabrication capacity available. A few engines pop up every now and then for some near-term deliveries, and we're working with our various packagers and suppliers for sourcing these both towards some incremental opportunities in the back half of 2018 and then on into 2019. So lead times are still long. I think we've got a little bit of time since these things have come into the mid-40s weeks. And we're in the midst of those discussions and looking at both pricing associated with the new packages, how much equipment is going to be available and when is going to be available in 2019.

Okay. And just last one for me I guess on the 2018 EBITDA guidance. What kind of pricing assumptions are in there? I think you just -- you said you just pass through some small price and increases just directionally how are you forecasting pricing into the guidance?

Yes. I think TJ on that, given where we are in the utilization front, what we are seeing out in the field is not many units coming back. And so the kind of the broad assumption is that a lot of that stuff stays out. I think we talked in on previous call that even where we've made pricing bumps expected to get some units back to redeploy, we actually haven't gotten those units back to our surprise, so I think what you see is the budget is a fairly conservative take. As you know, pricing increases in our business you it's not a blanket increase across all customers. So what we are going to be over the course of the year is what we hinted in so many different areas, which is looking at it region by region, customer by customer, and figuring out where it makes sense to bump up those prices. So that stuff comes in throughout the year I would expect. But there's not a wholesale price increase that we assume on the forecast.

And we'll go next to Andrew Burd with JP Morgan.

Hi, good morning. Nice quarter, guys. On the new equipment deliveries for this year that are already earmarked to specific customers, have you agreed on price there? Or will they -- will those units be priced at prevailing market rates upon delivery?

Yes, Andy. We were able to lock-in pricing at the point that we order this equipment roughly a year ago. Caterpillar announced a price increase toward the end of last year for equipment that had not yet been ordered to be delivered in 2018. So we were able to lock-in pricing pre-increases Caterpillar and Ariel more than likely will be pushing through some price increases in 2019. And we expect as part of our ongoing activity for commitments in 2019 that we will be able to lock some pricing in it. It's kind of the current 2018 rights as well and mitigate the impact of future price increases for the next probably year to year and half or so.

Great. And then kind of a follow up on the existing installed base and price increases there, and realize that it's typically an evolutionary process, both on the way up and the way down and it doesn't all happen at once. But I'd appreciate any color you guys can provide on the -- kind of what inning we're in for price increases on the installed base and if there's a sub segment of your portfolio that still -- there's a lot of opportunity there?

Yes, Andy. I would categorize that we are in kind of in the early innings, when you have 78 of our fleet or 85-ish plus or minus percent partly being large horsepower that are installed on term contracts of which 60%-65% of those contractor are in their original primary term, it doesn't allow a lot of upward movement on pricing. So once the units moved to month-to-month contracts or some of the existing contract will allow for their initial primary term, that's when we have the potential for price increase. So I think a fair way to say it is if you look at our average book dollars horsepower per month and then look at the spot pricing, it depends on types of equipment. Some of the smaller horsepower, the spot rates are about the same as what the average book would like. When you move into certain horsepower classes, some of the small large horsepower kind of 800 horsepower range or when you get into the really big equipment kind of 1500 horsepower north, you start to see pricing that were spot rates are anywhere between 10% to 20% higher than the current average book would look like. So that would infer that on certain types of equipment after they come up with contract or with certain customers that we have the opportunity to go back and reprice. There is a meaningful upward pricing potential moving forward.

Great. That's helpful. And then my final question, thinking about capital allocation in 2019 and beyond, specifically, the trade-off between potentially higher growth CapEx that might require some incremental equity capital as opposed to maybe a smaller more return-driven outlook, where USAC theoretically might be able to self und? How do you think about the trade-off there, 2019 and beyond?

Yes. Andy, it's Matt. I think Eric hinted at that 2019 a little early and obviously we don't have any orders or contracts yet for the year. But as we think about and we spent the last couple years I think very honed in on capital allocation. And I think that's why seen us only order the 3608 and above unit because those are the ones that are earning very, very attractive rate of return. So my take is that you can see it continue in 2019. I think we are not interested in growth just for growth sake. But I think what you'll see we'll continue what we've done over the last couple years, which is invest in the higher return stuff. The beauty about that plan I think is as we contracted all these big units, the new unit that have a triple down effect on the rest of the fleet, at least on the -- really on the large horsepower side. So, again, I think prudently buying these new units and pricing it them at where we've been able to price them, has sort of a follow-on effect on the rest of the fleet I think in my view that's the way to go.

And we'll go next to Mike Gyure with Janney.

Yes. Can you maybe talk a little bit about how much more expansion carefully you have to with maybe 150,000 horsepower you have come in 2018?

Sure, Mike. It's Matt. What we think that's going to equate to is probably about $130 million to $140 million bucks of growth CapEx for the year. We do --on this big unit you get some economies of scale when you're purchasing them. So we are kind of underneath the thousand bucks a horsepower, if you will. But I think that's what would expect to spend. Right now and again this is just on the USAC standalone fleet right now.

Okay. And then maybe on the idle equipment I think you did give some metrics regarding sort of what's inactive and what's truly idle. I guess how do you envision where you are in that stage? It sounds like almost what's remain left is just kind of small horsepower stuff that you are really kind of fully utilize at this point. Is that fair to say?

It's fair to say. I think we indicated the majority -- and it's more than just a little of the majority is large - or is small horsepower, there is lot of majority of the big small horsepower. In that sense, they have a lot of hired beta, a lot more churn. So stuff comes in and out and when it does come back -- kind of back in big tranches 10, 20, 30, 40 units at a time. So that will continue to be relatively lumpy but our big horsepower, the idle stuff, we virtually work through, it's all been made ready and now we will be working off of is kind of normal fleet churn over the course of the next 12 to 18 months, as conditions may change a little bit. You see some basin rotations activity for example Fayetteville Shales continues to slow down, and equipment will continue to come home from that area. We will take that equipment and redeploy it into either the Delaware or Permian Basins or the SCOOP/STACK merge or even up into the Northeast. So again we, -- the tinker toys we get to play with will be new build units coming out of 2018 of 3608 series or larger which are virtually I spoken for. And then a little bit of idle fleet predominately small horsepower, and then over the course of the year as normal fleet churn comes back and we will turnaround and redeployed elsewhere.

And we'll go next to Marshall Adkins with Raymond James.

Good morning, guys. So we've a lot of questions on pricing and utilization stuff. And you gave some very helpful guidance for 2018. Help us to kind of bridge that next $30 million of EBITDA in terms of how we get there pricing versus utilization versus new horsepower? Seems like there is not a whole lot of room to move on utilization side. And so just help us understand, kind of where -- where that next $30 million comes from?

Sure, Marshall. It's Matt. You are spot on the utilization. When we look forward on our standalone 2018 budget that utilization number for the fleet really stays pretty constant. What you see happening is basically you got a whole bunch of deliveries, recall 2017. We were a lot busier in terms of the deliveries in the back half of the year, and so you are getting basically that full year's worth of a lot of those new unit deliveries, you are getting a full year's cash flow there. So it's that. It's really I think order of magnitude, utilization may pick up a couple tenths of the point that sort of type amount, but it's really the full year impact of all these 3608 that we took delivery of and installed during the year 2017.

All right. And then going to the distributable cash flows, EBITDA was gone up $30 million. And you kind of got into $10 million $20million move and distributable cash flows. I was sort of -- that we were seeing little bit more flow through the distributable cash flows, but help us also bridge that gap in terms of the step down between the EBITDA growth and the distributable cash flow growth?

Yes. I think really you are seeing there you got two major things that the interest and maintenance CapEx at $15 million for maintenance CapEx is very much I think in line with what we spent in 2017 and then in previous years. And so you have the effect of some higher interest expense over the course of the year that I think it's probably making up that difference.

Okay. That's kind of figures, just wanted to check. Last one for me, when we think about returns, when you guys are saying, we are going to at 150,000 horsepower, what kind of returns are you envisioning since you are locking into the pricing and what not for those, the additional horsepower?

You are talking about economic return, Marshall?

Yes.

I think you on the big stuff, we look at -- we were kind of over 20% returns on those units that kind of current market pricing and what we are paying for them. So again that's far better than what we get on some of the other stuff, which is why we focused entirely on that 3608 larger package. So it's mid -- it's probably low cushion mid -20s situations, but again it's all I think it's all reflective of what Eric was talking about, the demand -- the supply of the units generally and the demand formed by the customer, that's driven that.

And that does conclude today's question-and-answer session. Mr. Eric Long, at this time, I'll turn the conference back to you for any additional or closing remarks.

Thank you, operator. And thank you all for joining us on the call today. 2017 was year that showcases the two core business tenets of USA Compression. The first half of 2017 highlighted the stability of our business model as we operate within our means, focused on redeployment and partnered with our customers, as we all collectively rebounded from the softness of previous years. And in the second half of 2017, we resumed our pattern of manageable profitable growth, and our business picked up meaningfully with increased net unit deliveries, and the associated uplift of our cash flow. We executed on our plan for 2017, and are excited about the commercial prospects for the year ahead in 2018. Since our announcement in January regarding the acquisition of the CDM business that excitement has only been amplified. As we discussed at that time, the combination of the two entities make sense from an industrial logic perspective. We believe we've structured a transaction that set USA Compression on the path to be stronger company financially and operationally in the years to come. Sets up for continued methodical and profitable growth. And to ultimately exist as a standalone provider compression services, all of which should benefit our unitholders well into the future. I'd like to talk about our focus of USA Compression on large horsepower, operational density and long-established commitment to providing safe and exemplary levels of customer service. As we bring CDM to the USAC platform, we're staying true to new strategy that got us here and are excited about what the combined business can achieve for all of unitholders. 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 that does conclude today's conference. Thank you for your participation. You may now disconnect.