Good morning, and welcome to the USA Compression Partners LP Second Quarter 2018 Earnings Conference Call. During today's call all parties will be in a listen-only mode. And following the call the conference will open for questions. This conference is being recorded today August 7, 2018. I would now like to turn the call over to Chris Porter, Vice President, General Counsel and Secretary. Please go ahead, sir.

Good morning, everyone, and thank you for joining us. This morning, we released our financial results for the quarter ended June 30, 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 August 17, 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, August 7, 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 today. Also with me is Matt Liuzzi, our CFO. This morning we released our financial and operational results for the second quarter of 2018. Notably these are the first quarterly results reflecting the combined USA Compression, CDM Resource Management business. We closed the acquisition on April 2, 2018. Throughout the organization, we have been working to integrate the two businesses and combined with the attractive market dynamics for large horsepower compression, we are extremely pleased with the progress we've made and are excited for the prospects for the future combined USA Compression. Before I discuss the market and our results, I'd like to provide some more color on the acquisition and the ongoing integration. As you are aware this acquisition brought together two very similar compression fleets. CDM was comprised primarily of large horsepower compression targeted for infrastructure type applications just like USA Compression. Over the last 20 years, we both followed similar business strategies, each centered on new horsepower equipment, high quality customers, and excellence in customer service. This transaction has broadened USA Compression's geographic presence as well as customer relationships all while staying consistent to the large horsepower business strategy. Very early on we integrated our field operations. We have updated our geographical organization into seven operating groups covering five operating regions. Leadership at the field level is now comprised of a mix of legacy USA Compression and legacy CDM individuals. We are truly taking the best talent of both worlds. We are currently working through the back office integration effort, which primarily consists of migrating over the CDM fleet and customer data as well as fully integrating the finance and accounting functions of the USA Compression's skill, operational and financial platforms. Once this is complete…

Thanks Eric and good morning everyone. Today USA Compression reported second quarter results, which reflect our first quarter of combined result including CDM. As Eric mentioned, from an operational, commercial and financial standpoint the combination has performed well as we had expected. I'll walk through the financial results in a bit, but first I want to explain how the transaction structure affects the financial reporting for the entity going forward. To refresh everyone on the transaction structure, we had three simultaneous transactions all of which closed earlier this year on April 2. First, Energy Transfer Equity acquired the GP interest IDRs and approximately 12.5 million LP units from USA Compression Holdings, which served as Riverstone's investment vehicle in USA Compression. Second, USA Compression acquired CDM Resource Management for a mix of cash and equity and third, we extinguished the economic GP interest in IDRs in exchange for LP units to ETE. Since closing we have continued to operate as a publicly traded third party compression services provider just with a new owner of the non-economic GP interest and a significantly larger asset base. I would like to call your attention however to a change in our financial reporting entity that you may have noticed in our earnings release this morning and which may impact comparability of financial results between periods. The transaction between USA Compression and CDM is being treated for accounting purposes as a reverse merger. Because CDM's ultimate parent, Energy Transfer Equity acquired control of USA Compression through the GP purchase, CDM is deemed to be the accounting acquirer. As such effective as of April 2, 2018, the predecessor for financial reporting purposes is CDM. So what this means practically is that any historical data or information that is filed in the future, but relates to periods prior…

[Operator Instructions] Our first question comes from Jeremy Tonet with JP Morgan.

This is Charlie on for Jeremy. Congratulations on the progress made on the integration front today. I was just curious given seems like you had a schedule on maybe it seems synergy is a bit above expectations. Could you give little more color maybe on quantifying where you are now versus what you had he said in the past and then also when are we really going to start to see the savings both are during the back half of the year?

Sure, Charlie its Matt. I guess going back when we announced the deal and when we closed it we were talking about $20 million kind of on a run rate synergy amount. I would say that number one our guidance incorporates kind of where we are on the synergies and where we expect to kind of get through kind of the end of the year but a lot of that was again this is all cost related synergies and I would say we were well on our way kind of very early on as we continue to get through that integration the back office be counting the IT those two are the issues. I think mostly the rest of that amount kind of get here through the back half of this here is that we'd expect by the time the integration is complete which we think is later on this year on a run rate basis will be kind of at that certainly at least at that amount that we announced earlier.

Okay, great. And then also on utilization 91.5% you said it can ramp up to where you have historically then what we how should we think about that ramp during kind of the back half of this year?

Sure, Charlie yeah I think we made the comment that CDM historically had been running slightly lower utilization kind of fleet wide been than USA had been we spent most of 2017 redeploying a lot of I don't equipment on the USA fleet and that basically led to kind of that utilization we've seen in recent quarters for USA in that kind of mid 90's area. CDM as we've mentioned CDM was sort of behind by six to nine to 12 months on that front of redeploying so that's kind of what's driving that 91.5%, really just the combination of a fleets, but again when we get up in the mid-90's utilization that effectively sold out given the demand we see, it's not going to take long the market dynamics that Eric talked about are all very positive and so what we're doing now to work on that utilization is again all that. If the USA take out of things we're basically all sold out all the new stuff being delivered this year is already all contracted, we could in some orders for next year. But then what we're looking at as we kind of work through it it's really the CDM idle fleet that we took on April 2 and really getting that spending from capital getting that make ready reconfigured as needed to get out into the field. So I think what you'll see is continue to do that throughout the course of the year and that will drive that utilization and really that CDM's side of utilization it will drive that number and the combined number north.

Okay, that sounds good. Then I guess the last one for me, is just –can you give us the latest on the Northeast outlook and maybe what you're hearing from customers, anything changing as asset wide [ph]?

Yeah, Charlie, this is Eric. And we've seen some pipeline delays for some of the long line takeaways. There continues to be scrutiny at the environmental level, at the regulatory level and several of the larger pipeline construction projects have been delayed. So I think if we've indicated on some earlier calls, we've seen continued activity up in the Marcellus and Utica albeit it is at a pace that has been slower than what we saw a couple of years ago. So I think consistent with the last few quarters we continue to see the Permian and Delaware basins to be red hot the SCOOP/STACK merge to be red hot. The Marcellus and the Utica was some of our longer term, larger customers who actually have from transportation commitments on some existing lines are able to move gas supplies out of those basins, continue probably but it's a little bit slower has been in the past. So I think our view the world is that's an area that as the dominant one of the dominant gas producers close to the to the market areas in the Northeast and you all although new activity may have slowed down a little bit existing activity remain strong and we look at it that is an area that one some of these new long line projects actually are affected and brought on stream. That actually will start to take up again and get clearly will be right in the middle of the growth in those areas so it takes a little bit of a reader in the area probably a good thing it allows us all the catch up and get ready for the next inning of the of the ball game when activity starts to take up again.

That's great color. Thank you, that's it for me now. Congrats on the quarter again.

Thanks, Charlie.

The next question comes from Marshall Adkins, Raymond James.

Good morning, guys. This is Marshall in for Marshall. I'm going to ask you some modeling question, obviously we're told trying to recalibrate our models on the new format. Let's start with the parts and service and related party stuff. Give us some more color on exactly what all that is and can you give us some sense of a run rate on that gone for because that's just kind of a black box as far as we're concerned?

Yeah Marshall, this is Matt. On the - I'll divide it up into the two that you noted. So parts in service you'll recall USA historically we had done some of that it was a relatively minor amount of the business. CDM had a little bit bigger part of that business again in the whole scheme think it's pretty small but at kind of what's driving that business. We don't we typically don't do a whole lot of budgeting around that amount because it is it's very, it's delivering one-off it's work for customer own unit they're sitting next unit there that would that we own and so we go in and change the level on one unit need to anyone a change on my unit two and we build them for it. So it's very it can be kind of lumpy so we don't typically try to forecast a whole lot of the parts and service amounts just that it's not a long term monthly contracted type service like the core stuff. But so that's going to be a little bit lumpy year and difficult for us anyone you want to really forecast well.

Was this second quarter kind of representative kind of where you think we'll just kind of keep it obviously understanding it's going to be bounce around but just a good starting point?

I mean it probably is good at any starting point just understanding that it as far as the project out what might be. We don't even know what about - what August might look like for that kind of a service, it's kind of a very ad hoc thing. But I think we were kind of running at a million or two million bucks of revenue a quarter on the USA standalone so with little bit more, it will be it's never going to be a huge part of the business but it that second quarter is probably a new place to start.

Perfect. Yeah just a lot bigger than we're used to seeing and that's why I ask and then all related party?

Yes. So I think the second quarter numbers kind of a good run rate deal that obviously given the energy transfer relationship there is a little bit of business that CDM had historically done with energy transfer enteritis and that's what is reflected in that number. So we would expect that continue on as it is.

Right, normally at all as like the ask lot of modeling stuff on these but is kind of a different quarter. The run rate on SG&A depreciation interest I assume we just kind of keep them roughly where they are and carry that forward from where it is now?

Yeah I think and we'll file the Q this afternoon and so I think that will give you a little more detail on some of the non-recurring numbers that are in those numbers. So I would suggest take a look at the Q, give me a call after you do that but that don't there is some kind of onetime non-recurring stuff don't be in that number that Q will illustrate for you.

Alright, last one from me. Obviously you have a lot of expansion capital plans that are there visible back after this year and early 2019. With rising prices you've been able to take that EBITDA down. Is the idea that continue growing EBITDA into the higher levels of that you're going to have to put on to define that. And it is there a point in time where you have your back half of the growth CapEx and say hey we are where we want to be let's get the balance sheet down even more?

This is Eric, all of the thing is interesting when we look at it to leverage. The type of horses that we're adding to the largest of the large horsepower have extremely attractive economics I think you hit the nail on head now that we're push in a 4 million horsepower company. We're not growing at a clip of 400,000 or 500,000 horsepower a year-over-year, we would looked at the kind of 125,000, 150,000, 175,000 horsepower range. When we look at continuing new kind of moderate but extremely attractive growth continued rate increases on our existing fleet what we envision that we will continue to delever the balance sheet. People asked the question, gosh if you've got massive increases in tariffs and your customers are unwilling to eat the increased cost and come across what you do. We're not going to grow for the sake of growth where we're in the business to maintain stable distribution as we've always said that USA Compression is a long term story of stability and even growth. With them the financial markets and in our operational markets tell us to grow ID. The returns on capital deployed are attractive will deploy capital. And at the markets say it's not attractive to grow then you slow the growth or stop the growth in further delever your balance sheet. So I think our view of the world is we want to capitalize on moderate levels of highly profitable growth and coupled without will we'll be able delever the balance sheet and continue to both coverage. Matt any other color from your perspective?

No I think that that's exactly it we're going to spend money where it makes sense to and then as we and again the other thing Marshall that we're doing is this new unit come on a good rate and that has the kind of a knock on effect on the rest of the week where we can go out and like we mentioned kind of take on the like price increases. I think if you get that that going to be growing EBITDA as well as new unit delivery and I think the combination of that builds coverage and decreases the average naturally.

Right, good answer guys. Thank you all.

You bet Marshall, thanks.

Your next question comes from Mike Gyure with Janney.

Yeah I just wonder if you guys could maybe talk about the integration of CDM from like a working capital perspective maybe the receivables, payables that kind of think if you guys see any opportunity that's different than I guess what you expected when you were sort of a quarter along here to the acquisition?

Yeah Mike, it's Matt. As we've the business itself, the two businesses were operating somewhat very similarly in terms of billing on monthly events it's still a monthly service rate kind of business and we were billing a month in advance as we've taken on the CDM start we were starting to migrate customers' kind of that month in advance billing cycle. So I think if we work through it obviously there's a lot of customers on our contract to work through it but the whole idea that we're taking everything that they were doing and bringing it on our platform all our procedures et cetera. And so we've obviously always been in a pretty good working capital situation at USAC. So we think once we get everything integrated that we're going to continue doing things like we were USAC. So but overall from a customer from a payment this stuff that the assets that CDM had were big horsepower, mission critical stuff just like the USAC fleet. So you don't - there wasn't a whole lot of difference in customer payments, bad debts that kind of stuff, so very similar from that standpoint. I think it's sort of just tweaking things around the edges more than anything.

Great and I think all my other questions have been answered. Thanks guys.

Thanks Mike.

Seems there are no further questions in the queue.

Okay. Well, thank you operator and thank you all for joining us on the call today. The second quarter has been a busy one for USA Compression, both from a market demand standpoint with continued high utilization and approved pricing received for our compression services as well as strategically with the completion of the CDM acquisition and the work to integrate the CDM business as we position USA Compression for the future. We're pleased with the early benefits we're seeing from the combination and we think our broadened geographic reach and customer exposure will contribute to an even more stable compression services provider with multiple areas for continued growth. With the second opportunity in full swing, we're seeing customer activity levels remain very high. Our field operations bolstered with the assets and people from CDM are running at full speed to safely meet the ever growing needs of our financially strong upstream and mid-stream infrastructure driven customers. In addition to serving great customers with the critical part of their overall operations, our business model not only generates stable cash flows throughout the cycle, but can also take advantage of the cyclical upswing in the energy sector just we are seeing now. USA Compression continues to be a long-term story of stability and growth. We look forward to updating you on our next quarterly call. Thank you for your continued interest in and support of USA Compression.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.