Good morning. Welcome to USA Compression Partners of Third Quarter 2021 Earnings Conference Call. Today's conference call, all parties will be in listen-only mute and following the conference will be open for questions. This conference is being recorded today, November 1st, 2022. I would now like to turn the call over to Chris Porter - Vice President, General Counsel & Secretary

Good morning, everyone, and thank you for joining us. This morning, we released our financial results for the quarter ended September 30, 2022. You can find earnings release as well as a recording of this call in the Investor Relations section of our website at usacompression.com. They were quarter-on- available through November 11, 2022. 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 measure in earnings. 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 filings. Please note that information provided on this call speaks only managed views as of today, November may no longer be active 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. I would like to begin today's call by introducing our new CFO, Mike Pearl. Mike joined us in early August and brings a wealth of finance experience to USA Compression. Mike spent approximately 17 years as a finance executive at Anadarko Petroleum and Western Midstream Partners, most recently serving as Western's CFO. We are happy to welcome Mike aboard, and we sincerely thank Matt for his valuable contributions to USA Compression during his tenure as our CFO. Last quarter, we highlighted industry dynamics that we believe are driving increased demand for natural gas in a supply-constrained environment. Our views on the energy macro environment have not changed, and we continue to believe that we're in the early innings of a commodity price super cycle. IEA, an Executive Director, [indiscernible] stated last week the tightening markets for LNG worldwide and major producers cutting over have put the world in the middle of the first truly global energy crisis. We believe that the oil and gas industry's disciplined capital investment approach that focuses on free cash flow generation and returns-based investing further underpins the existing tightness in energy markets and will contribute significantly to continued market tightness into the foreseeable future. 0We also expect the commodity price backdrop to remain supportive of production growth, which in turn will drive increased demand for our natural gas compression services. Our customers remain active across our operating regions. The primary basins in our largest operating areas have all registered year-over-year production increases ranging from modest single digit to close to mid-teen growth percentages and leading to continued levels of expanding natural gas production, our increasing activity levels in these regions have kept pace with our customers' production activities. Generally, these regions have benefited…

Thanks, Eric, and good morning. Before walking through our third quarter results, I would like to thank Eric and our Board for this opportunity at USA Compression. What intrigued me most about this opportunity was the unique positioning of USA Compression within the production cycle, which provides stable and predictable cash flows from currently deployed compression assets that are situated in most of the significant U.S. onshore plays. As U.S. onshore production continues to ramp up, USA Compression remains positioned to continue harvesting cash flow from its existing highly utilized compression fleet. -- while maintaining clear visibility in terms of making incremental and strategic capital investments that will support returns-based organic growth into the foreseeable future. With that, I will discuss USA Compression's third quarter financial results. Today, we reported our third quarter results, which again featured sequential quarter increases in revenue and adjusted EBITDA. And driven primarily by improved inflation and pricing with our third quarter utilization exit rate increasing by nearly 3% on a sequential quarter basis, while maintaining our current trajectory of improving average revenue per revenue generating horsepower per month, which increased approximately 2% to $17.53. Pricing improvements were driven by CPI price escalators for currently contracted services and improving supply and demand dynamics that allowed for improved pricing for newly contracted compression services. We did see a modest decline in our adjusted gross margin percentage that ticked down 0.9% attributable largely to price increases in vehicle fuel, compressor fleet lubrication fluids and labor. While our contracts allow for CPI adjusted rates, there is a lag effect associated with these rate resets where input cost inflation predates effective rate resets. Nevertheless, we expect these inflationary pressures to abate over time, and we still have maintained our margins at or near our historic averages. Finally, our distributable…

Thanks, Mike. As we close out 2022 and look forward to 2023, we are very encouraged by what we see in a market that contributes to resilience and strengthening Industry dynamics are proving conducive to improvements in price discovery and contract tenor. These factors, along with our demonstrated ability to build long term relationships with our customers through the provision of high quality service, position USA compression to continue delivering meaningful investment returns to its stakeholders, we would like to re emphasize our track record of 39 consecutive quarterly distributions, and our expectations of continuing to deliver best in class compression services to our customers. Our ability to deliver high quality service to our customers while maintaining capital discipline should continue driving financial performance that we expect will afford us the flexibility to dedicate future cash flows to further capital investment, debt reduction, distribution increases, or a combination of the foregoing items. To conclude, we are extremely pleased with our third quarter results that featured quarter over quarter improvements in utilization and operational performance, financial results and leverage metrics. We look forward to discussing our full year 2022 results in our 2023 Outlook with you in several months time. And with that, we will open the call to questions.

Thank you. Good morning .In terms of fleet utilization now being or exiting at a 90% run rate, should we expect pricing to improve and I mean, sort of accelerate from here in terms of what you're able to push through.

Selman, and this is Eric, you know, when you think about 10% of our fleet being idle, and that's still several 100,000 horsepower. When we look at the mix of the equipment, we continue to deploy our largest of horsepower. And say in greater percentages, then the smaller horsepower but everything is in demand right now. Clearly with inflationary pressures, both on op x as well as CapEx costs and new unit acquisitions. We continue to reprice, our existing book, you know, compression compressor, this 10 years old or 20 years old provides the same service that a brand new one does so, the beauty of our business that we says we don't have technological obsolescence is older assets can perform the same service is a new asset which allows us in a market like this to continue to reprice. So we do have some month to month assets that we have been turning up. And when we do turn them up we reprice with unlike a company that's got three large LNG tankers are five large LNG, LNG tankers, here we have over 4000 individual units, each of which has a separate contract. So it's kind of a methodical repricing over time. And we look at it by horsepower class. So it's a long winded way to say, we anticipate continued upward movement in our pricing capacity in the upcoming year, which will vary by horsepower type, and it will various things roll off a contract over time.

Understood, thank you. And then in terms of your dual drives any anticipate getting more calls, and in putting more deployed out there, is there any supply chain limitations for getting more of those in the field?

So, you know, there are various components that go into these things, you know, electric motors that you have to source which have, you know, in excess of a year's lead time, we've got some Gearman mechanisms that have in excess of a years lead time. But we haven't just waited around a year ago to start making commitments for the supply chain. So we do have continued dual drive components that will be coming over the course of 2023. We do have some units that we recently completed that we are quoting for deployment in the field. So over the course of 2023, you know, we'll probably have completed somewhere in the range between 20 to 50 of the dual drive machines that will be able to be deployed out in the field.

Great. And then last one for me. In it, you noted the improvement in your leverage ratio for the business. And I'm just sort of curious kind of giving a ride rate environment now what is the appropriate leverage for the business in your eyes as you go forward? And you kind of go through the cycle? Where would you like to end up?

Thanks for the question. This is Mike, I think in terms of thinking about the leverage, I mean, first, first and foremost, I'm a strong balance sheet enthusiast, I think a strong balance sheet and very manageable leverage contributes to the overall story equity included. Having said that, I think as we as we look forward, it'll be a combination, you know, if we look at it, consider a debt to EBITDA, metric, you know, it's, it's, we want to grow the denominator, obviously, to do what we can to reduce the numerator, I think, stage one is let's get close to 4.5 in terms of a leverage metric, and then let's assess the opportunity set that that's ahead of us in terms of what - what do we have in terms of opportunity to secure new units, etc, and make a decision from there. I think the capital discipline that you see in the EMP industry is very much bleeding over to the services sector. And so we're not going to spend money, you know, grow grow for growth's sake, I mean, that we're committed to capital discipline. And so I think once we, once we visit the 4.5 type neighborhood, we'll think about additional opportunities to get closer to for someone one other.

When you think about our capital structure, you know, we've got a pretty large tranche of fixed rate debt, two tranches of notes that are out there, our preferred is fixed. So we've got floating rate debt under our ABL. And you know, we're just north of $600 million taken down under that facility today. So you can take a look at what every - every one percentage point an increase in interest would do to under that floating rate debt. So it's, it's pretty manageable in the world that we're living in today.

Thank you very much.

We'll take our next question from Gabe Moreen from Mizuho, your line is open. Please go ahead.

Hey, good morning, guys. Maybe I could start off by asking you about the new units that you ordered here. For deployment. Can you just talk about actually kind of where you see CapEx going in 23 versus this year? Is there a trade off? I guess between redeploying idle CapEx, RSI idle units versus this these new units you're ordering. So should we take that into account when we consider kind of overall cutbacks and then also, I think, Mike, you mentioned pre paying some of this and ‘22 with deposits Is that is that going to be significant? So sorry, a multi part question there.

Hey, this is Eric, I guess the first part of the question is, these are the largest units that we typically deployed in our fleet. It's the what we call the cat 3608 product, we have one of the largest, if not the largest, 3608 fleet in the world today. So that's kind of our leading product that we offer with. If you look at our idle fleet, today, we have zero of the so when we look at our capital program, clearly, the cost to redeploy existing assets and spend a little make ready capital generally is significantly less than buying a brand new asset. That said, these large assets are highly, highly accretive. These are things that are we're being opportunistic on, we've got extremely strong demand signals from long term existing customers. And there's not a lot of capacity to build these assets on a new basis. So we're able to lock in multi year contracts, significantly long, multi year contracts with extremely strong credit worthy customers. So what we look at is, where can we get the biggest bang for our buck. And the reason we've committed to add 50 new ones for next year, and then we got some carryover from this year is that these are unbelievably creative. And when you look at after we deploy the capital, the cash flow was created, and what this does from continuing to help us deliver our balance sheet and improve our coverage. And these are the kinds of things you want to deploy. That said, we do continue to deploy stuff out of our idle fleet this year, and on into next year, we'll continue that activity. But I think the trajectory of that, you know, once 2023 years past may be a little long into 2024, we're basically going to be close to running out of idle assets can be redeployed.

Great, and Thanks, Eric. And then maybe if we can talk about I guess, sounds like customer demand is real high. Just the balance between sign that customer demand, how much you feel you're pushing it versus I guess manufacturing and fabrication slots to get these units built, kind of where things stand within those trade offs, basically, are you actually meeting I guess, as much customer demand, as you think is out there at this point?

I would say that between all of us in the industry, there remains more demand than there is existing assets in fleets that can be deployed or redeployed as well as capacity from various manufacturers. So there's more demand than there is available product supply chain continues to have some some bottlenecks and implications and it's weird things. It's you know, everything from bolts that attach flywheels to an engine to various sub components to wiring harnesses, you've got some labor bottlenecks. So it's kind of we're still seeing supply chain bottlenecks and limitations out there. So I think we're in a little bit of a perfect storm, you know, we can actually commit to spend additional capital, but we're balancing leverage, we're balancing coverage. And clearly, you know, we don't want to get skis, we want to continue to deliver the balance sheet, as Mike indicated, to continue to improve our coverage metrics. So you know, we actually are using this as an opportunity to hydrate our customer list, rather than chasing growth for the sake of growth, you know, we're going to grow where it makes the most sense from a profitable perspective. Focus only on highly creative opportunities and again, kind of read apply some that I don't believe. Thanks, Eric committee, just for the last one. For me, shifting gears a little bit sign of the cost, side of things clear, there's some stuff which is out of your control, like vehicle fuel costs, but as far as things like labor, for example, any deceleration you're seeing at this point, in terms of stuff or just no change as far as what you kind of seen the last couple of quarters. Yeah, I would say the trajectory is starting to flatten a little bit. You know, we're not seeing service technicians, you know, commit to make moves in the field to chase a buck an hour higher here or 50 cents an hour higher there. We're seeing moderation obviously, in transportation fuel costs. We're doing some creative things on our large volume lube oil purchasing programs, to take advantage of some some basis differential from supply perspective. So we're actively managing our supply chain. And frankly, that's one of the reasons we made the commitment that we did with the 50 unit order was so that we could get ahead of the food chain. Take advantage of some of our relationships. And some, what we see as impending bottlenecks in 2023 was supply. So now that we've done a very good job of locking in as many topics and CAPEX costs variables as we can coming into 2023, we feel pretty good about the inflationary pressures, kind of managing and controlling that on our end, while we continue to capitalize on the lack of capacity, and lack of supply of compression assets that exist out there.

Great. Thanks, Eric. Appreciate it.

We'll take our next question from Jeremy Tonin [ph] from JPMorgan, your line is open. Q –Unidentified Analyst: Jeremy, just want to kind of start off on a higher macro level question. And thank you for all the commentary that you've provided. So just wondering if you might be able to frame for us I guess, where USA sees. market share has been in large cap large compression historically, how that's trended? And where do you see that going forward?

It's interesting question, because people talk about market shares company, a gaming is company be losing? You know, as I think, in my head to gauge question on, you know, there's more demand than there is supply. So I think when you look at us as customer mix, and one of our publicly traded competitors, customer mix, and some private guys customer mix, we all have different customers that are kind of our core. So we continue to meet the needs and demands of our core customers, and our competitors continue to meet and supply the needs and demands of their customers. So I wouldn't say that one company is gaining market share at the expense of the other. If you go back, you know, years, we've been talking about the compression pie and natural gas pie. You know, as pressures decline, it takes an exponential increase in compression horsepower to move the same amount of volume. And the volumes can been getting bigger, you know, we got in the business and 1995 we produced, you know, somewhere in the low 50 BCF a day range and today, we're over 100 BCF a day. So the pies getting better, more compressions needed. And then there's pressures and fields continue to come down. You know, you need even more compression on top of it. So the pie is getting bigger. And there's just a few folks who continue to feed the pie. So there's enough market share for all of us to go around here. Q –Unidentified Analyst: Got it. I'll leave it there. Thank you very much.\ End of Q&A:

[Operator Instructions] There are no further questions on the line. Thank you everyone for joining today's call. You may now disconnect. +