Good day, everyone, and welcome to the USA Compression Partners First Quarter Earnings Call. Today’s call is being recorded. We will be conducting a question-and-answer session after the prepared remarks, and instructions will be given at that time. Now, I would like to turn the conference over to Kelly Jameson, Associate General Counsel and Assistant Secretary. Please go ahead.

Good morning, everyone, and thanks for joining us. Greg Holloway is under the weather today. This morning, we released our financial results for the quarter ended March 31, 2015. You can find our earnings release, as well as a recording of this conference in the Investor Relations section of our website at usacpartners.com. The recording will be available through May 18, 2015. During this call, our management will discuss certain non-GAAP measures, and you will find definitions and a reconciliation of these measures to GAAP measures in the earnings release. As a reminder, our conference call will include certain 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 latest filings with the SEC. Please note that information provided on this call speaks only to management’s views as of today, May 7, and may no longer be accurate at the time of a replay. I will now turn the call over to Eric Long, President and Chief Executive Officer of USA Compression.

Thank you, Kelly, and good morning, everyone. Also with me is Matt Liuzzi, our CFO. I’m pleased to report that we started off 2015 with a very strong quarter of performance in what we all recognize is an uncertain marketplace. Starting back at the time of our IPO more than two years ago, I described our business as one of both stability and growth. As we manage USA Compression through a business environment marked by commodity, volatility, and some general uncertainty in the oil patch, we are seeing the stability side of our fee-based income-driven business take on a more pronounced role. This relates back to a core principle on which we founded this company. Natural gas compression is tied to natural gas production, which is driven in turn by the demand for natural gas. And like in years past, through up and down cycles, natural gas demand continues to grow. That is good for compression, because, as you all know, you must have compression to move natural gas into and through the pipeline system. Investment in natural gas pipeline systems and processing facilities continues, albeit at a more measured pace, and that means more compression will be needed in the months and years to come. And in an environment where management teams are focused on executing core business strategies, our customers continue to make the strategic decision to outsource their compression needs to USA Compression and let our people handle all aspects of operating and maintaining equipment that is critical to their operations. Moving onto the summary financial results, for the first quarter, USA Compression reported record Adjusted EBITDA of $37.5 million and Adjusted DCF of $29.5 million. We previously announced the Board approved distribution for the LP units of $0.515 per unit, which results in a adjusted distributable…

Thanks, Eric, and good morning everyone. As Eric mentioned, today we reported record levels of revenue, adjusted EBITDA, and adjusted distributable cash flow for the first quarter of 2015. In addition to a strong quarter in our base business, we continued to invest in the business and grow our compression fleet. We spent about $115 million in growth CapEx for the quarter. You’ll note this is a good portion of the expected total $250 million to $270 million in growth capital for the entire year. As discussed, we have front-end loaded a lot of our spending. This investment allowed us to add approximately 91,000 horsepower of new compression units to our fleet during the quarter, ending the quarter with over 1.6 million total fleet horsepower. Our revenue generating horsepower increased by about 50,000 horsepower from the end of the year to just under 1.4 million horsepower at the end of the first quarter. Turning to the financial performance for the first quarter, revenue increased 29.5% compared to the first quarter of 2014, primarily driven by an increase in our contract operations revenues as a result of adding revenue generating horsepower. This increase in our revenue was driven almost exclusively by the organic growth in our revenue generating horsepower. Average revenue per revenue generating horsepower per month increased over 3% to $15.85 for the first quarter, as compared to $15.30 for the first quarter of 2014. Adjusted EBITDA increased 49% to $37.5 million in the first quarter, as compared to $25.2 million for the first quarter of 2014. Adjusted distributable cash flow in the quarter was $29.5 million, as compared to $16.8 million for the same period last year, an increase of75.5%. On an absolute basis, gross operating margin for the quarter increased 41% to $45.8 million as compared to $32.5…

[Operator Instructions] We’ll go first to John Woodio [ph] with Raymond James.

Hi, good morning, guys, a great quarter overall. I remember back in the…

Thank you very much.

All right. I remember back in the third quarter when you were lowering your distribution growth rate to $0.005 a quarter, it was mostly to be able to increase coverage. Now that your coverage has been above one times for a couple quarters now, have you given any thoughts either taking away the dividend reinvestment program or altering your distribution growth strategy? And how should we think about how leverage - your leverage target of 3.5 to 4 times should play in here?

Sure, John, it’s Matt. Why don’t I take the DRIP question first? So you noticed we have had - this is the second quarter of good coverage. This has obviously been a big goal of ours. Hence, we kind of balanced the coverage the distribution growth. I would note that the DRIP program is not something that we choose, but it’s something that is open and available to any of our public unitholders. And all of the unitholders have the option to elect, to participate in that DRIP on a quarterly basis. Certainly, the strong coverage I think gives us a lot of comfort going forward that no matter what people elect to do we’re going to have good coverage for the quarter. So I can’t speak to what individuals may or may not do on a quarterly basis, but from our standpoint I think we’re comfortable with strong coverage and balancing that with what we think is a prudent level of distribution growth for the quarter. I will add that obviously the distribution amount in growth really every quarter is - it is up to our board and so that decision gets made on a quarterly basis by the board.

Okay.

Switching to the leverage side, we ended up 4.8 times. We still have - we did the amendment to the revolver earlier this year. The covenant level was just under six times and so I think as we stand here today, we have a lot of - we feel like we have a lot of cushion. And so we continue to watch that, we continue to watch the market, but we’re certainly comfortable with the capacity that we have and the ability to fund the CapEx plan for the rest of the year. Longer term, leverage continues to be a focus of ours and we will continue to look to bring that leverage down to levels that are I think more appropriate for MLP.

Okay. All right. Thanks. That’s very helpful. And then kind of just more big picture here, looking at customer behavior during this downturn and just in general their focus on reducing capital spending, have you seen that hesitation to using CapEx for in-house compression services has been a net positive to you all for contract compression?

This is Eric, John. And I think that’s a pretty astute observation. As we’ve seen in this cycle and in past cycles, folks who are a couple of quarters or a year, or two or three years ago, when they have access to unlimited capital viewed compression as something that - maybe they would opt to in - keep it in-house and do themselves. When you get into an environment where capital is tight, people then kind of rethink their business models. And clearly compression is not viewed as something that adds second [ph] value to an E&P company’s balance sheet. Midstream companies look at speed and efficacy to get into the marketplace. And we start to see that compression becomes more of a - becomes views less of a core competency in something that maybe we should elect to outsource. So we’re starting to see, I’m not going to call it groundswell support, but the waves are starting to increase a little bit on the beach as people look at the their CapEx programs and decide, yes, maybe the compression should be an avoided capital gain, and if we’re going to work with somebody, let’s work with somebody who has a history of providing exemplary levels of service, have the inventory, have the people, have the footprint to be able to back their play.

All right, that’s helpful. All right, thank you and great quarter, guys. I’ll turn it back.

Thank you. Sure.

Thanks, John.

And next, we’ll go to Jeremy Tonet with JPMorgan.

Hey, good morning. It’s actually Andy for Jeremy. Just one quick question.

Hey, Andy.

Hey, good morning. First, you have some - you have the kind of a leading position or a good position in the Marcellus. Kind of two part question. First is what trends are you seeing from your customer base there? And second, what do you view as the bigger opportunity within the Marcellus specifically, market share gain, or kind of just growing alongside with producers and potentially getting a bigger share of their wallet?

Yes, so maybe let’s get number one, which is, I think you see folks in the Marcellus and the Utica as well who are positioned probably somewhat differently depending on the company. Some people have access to firm transportation capacity. Others don’t. People are relying on third-party gatherers and processors to hook up wells. Some people control that themselves. So it varies customer by customer, but having the dominant footprint like we do - in Appalachia, we have north of 0.5 million horsepower in that part of the world right now. We’re able to work with the folks who continue to promulgate and have a lot of ongoing activity. So I would put into buckets of some folks have slowed down because they got basis differential issues. They don’t have access to adequate take away capacity. While others who have those, and they’re drilling some monster wells, have the ability to continue to promulgate and process. We’re actually seeing our equipment move up in size. Historically, we focused on what we call the 3560 and 3606 which were in the - call it, 1,350 to 1,800 horsepower range; now we’re moving up into the 3608, 3612 and 3616 arena, which is pushing 5,000 horsepower per machine with multiple units installed on applications. So we got a - I think a fair way to say it is we’re seeing a fair amount of activity but it is customer-specific. Back to the second question, which is are we looking to gain market share at the expense of others or are we seeing kind of the rising tide lifts all boats, it’s probably a combination of both of those things. When you have a reputation of providing operational excellence, when you have a large footprint like we do of mission-critical equipment, pick-up trucks, inventory, people, support infrastructure all over the Appalachian Basin, frankly, I think we become the provider of choice. So it’s an area of core focus for us. We’ve been able to work with some of the preeminent customers in Appalachia, both on the E&P and on the midstream side. So as they continue to grow, we continue to grow. If some of the folks look at, is compression considered a core competency, maybe we thought it was; now, maybe we’re thinking and outsourcing. We actually think we might see some acceleration of opportunity sets for us in the Marcellus, in the Utica, and elsewhere throughout Appalachia.

Great. That’s very helpful color. And just a quick follow-up, more housekeeping, what percentage of the fleet roughly is focused on the Marcellus now?

So, on our existing horsepower we’re about 1.6 million, 1.65 million horsepower. We’re north of 0.5 million horsepower in Appalachia right now. I think it is fair to say that when you look at our growth opportunities, so far in 2015 what we’re seeing for the balance of this year and on into 2016, the Marcellus and the Utica will continue to be one of our larger areas of growth.

Great. That’s all for us and congratulations on a great quarter.

Thanks. Sure.

Thanks, Andy.

And next, we’ll go to Sharon Lui with Wells Fargo.

Hi, good morning.

Good morning.

Hi, Sharon.

I guess, one of your competitors indicated that it experienced some pricing pressure in the current environment. Just wondering if you could maybe provide some commentary on whether your customers have been starting to request for some pricing discounts as well.

Sure, and Sharon, clearly we’re different than some of our peer groups. We don’t specialize in the wellhead applications. We don’t specialize in smaller horsepower, dry gas driven applications. We’re much more oriented to demand-driven big horsepower, big volume commodity price, and elastic opportunity set. I think you’ll notice that when you look at our gross margin and when you look at some of our dollars per horsepower metrics, we’d actually seen some enhancements and some improvements associated with it. Certain folks recognize our value proposition. You get what you pay for. And historically, USA Compression has never been the cheapest guy in town, but we back our play with exemplary levels of service, must-run mission-critical 24/7 365 on big installations. So when you look at the cost of compression as a percentage of the hydrocarbon throughput, either as for an E&P company or for a midstream, the difference between a little tweak here and a little tweak there on pricing really is fairly immaterial. Where you see that type of driver tends to be on smaller horsepower wellhead applications, which historically has been very volatile; high-beta utilization comes and goes, low barriers to entry, it’s viewed more as a commodity. So I think you might see one or two of our peers kind of have that as a core component to their business model, which we don’t. That said, we have had a couple of our customers on our gas lift side approach us about looking for some pricing concessions. And we have granted on a selective basis one or two of those. And as I have noted in my commentary, it’s not been one sided; do a trick, get a treat kind of thing. So we work with some folks on some pricing. They made substantial commitments to us for this year, for next year, and into the future, some sole-source relationships, some substantial commitments on additional business, as well as terming up some assets that were month-to-month. So from our perspective when we look at taking even more beta out of those type of installations assuring a longer term deploy cycle, our economics are frankly - we’re pleased with where we ended up with that. So on balance, I would say that we tend to see less pricing pressure, because of the market niche that we’re playing; longer lead time, bigger projects, much more mission-critical less commodity-oriented type of equipment and services.

Okay. Great. That’s really, really, helpful. And just, I guess, a housekeeping item. I guess, given the proposed regs on qualifying income, maybe if you can just remind us like what percentage of contracts have been converted to like service agreements and where you stand on those efforts?

Yes, Sharon, so if you back, USA Compression has been around since 1998. We actually went down the services agreement approach way prior to being a public company. We have made one acquisition during our tenure as a public company, that was the S&R acquisition. If we look at a percentage of our total today, we’re 93%, 94%.

On the acquired company, over 93%.

So Sharon, I just asked Greg. On the acquired company, we’re 93%, 94% converted. On the historical legacy USA side with our infrastructure equipment, we’re 99%-ish. So on a combined basis, we’ve got to be 96%, 97% - 97%, 98% QI, already converted contracts.

Thank you very much.

Thank you, Sharon.

And next, we’ll go to Richard Verdi from Ladenburg Thalmann.

Good morning, Eric and Matt. Great quarter, and thanks for taking my call here. And so just kind of a follow-up to the last caller’s inquiry about the pricing, I guess I’m having a little bit of a hard time grasping it and want to make sure I walk away with a solid understanding. So when I’m thinking about it, traditionally USA Compression would capture about $13 or $14 per horsepower on the gas side, $25 on the oil side, and you said today that you’re putting larger-size equipment in the field, and I believe that larger size - the 3616s and 3608s, they capture around $17 or $18. So if we’re moving away from the smaller side and into the larger-size equipment, but there’s a potential for crude weakening, how should we think about pricing moving forward? Is this quarter’s $15.58 a fair number? Should we think about a little bit of pressure on that? Just any kind of color would be really helpful.

Hey, Rich, it’s Matt. I mean, I mean, I think you hit on kind of all the relevant points. Obviously, the gas lift stuff does get a higher dollar per revenue service rate, as we do, as we back off on that, that’s going to, obviously, bring the blended part down, but you have to understand, I mean, we’re talking about 25,000 horsepower of small gas lift stuff this year versus over 200,000 of the larger stuff, so it’s going to be a balance between getting higher rates on the higher-horsepower units that we’re putting into place on the Midstream side coupled with sort of a slight pullback on the crude oil side. So I think going forward, the way we look at it is we take a pretty conservative look when we look out at revenue, and we don’t project huge price increases on either of them. And we factor in the pullback on the crude side, but the Midstream side, I think as Eric hit on in some of his comments, has been very resilient, obviously, because of the nature of the equipment and where it’s going and so we like the prospects there. And I think on the crude side, slight headwinds that we talked about, but we took that in exchange for some qualitative factors, whether it’s terming out, whether it’s becoming an exclusive provider, and so we think that has passed us as well, so.

And Richard, maybe one other tidbit for you - having a bigger horsepower fleet with longer contract terms - we’ve got some assets that have five-year contracts that are coming off the primary term, assets that were installed seven years ago, had a five-year contract term that have been month-to-month for a couple of year period. So envision coming out of the 2008, late, 2009, 2010 environment - to the extent we have things that come off of contract, we look at the rates today and they’re actually improved significantly from that point in time. So when you have a big fleet like we do, you’ve got pockets of weakness that - and kind of some legacy stuff that we’re able to term up and improve, so we’re a little different than maybe guys that have their entire contract book as month-to-month or six months or even four month type average terms, where there’s a lot more volatility up and down, whereas we tend to have a little bit lower beta on our overall pricing. So it’s probably not as simple as taking today’s spot price, applying that to the entire fleet. We’re probably not going to accelerate pricing up in a ramp up environment as quickly as some others might because of the nature of our longer-term contracts, nor in a softening environment would we tend to overshoot on the downside as well.

Okay, great. That’s helpful. Thank you, guys. And another question - I apologize if I missed this, but in the prepared remarks, you had indicated that CapEx this year would be $250 million to $270 million, and so I’m assuming that that translates into potential horsepower adds, and so I’m wondering if you could give us maybe what the percentage breakdown would be of gas versus the oil side for those horsepower adds.

Yes, just kind of very high level, envision - call it 200,000 225,000 horsepower of Midstream the big stuff, and envision something that’s 20,000 25,000-ish horsepower on the oily and gas lift side. So, I mean, we’re talking 8X, 9X the amount of Midstream horsepower versus the gas lift. So the oily-oriented stuff - much smaller percentage.

Okay, excellent. And so that dovetails into my next inquiry, where if horsepower for the gas side is 200,000, 225,000-ish - and that’s about the range you guys have been in this year, so this - or, I’m sorry, over the past few years. So let’s just hypothetically say the crude side completely disappeared. More likely than not, horsepower add next year would probably be 200,000 in 2016? Is that fair?

Yes, I mean, Richard, we’re still - we’re early in the year, and so, obviously, I think where our focus is here in mid-May is kind of on the balance of 2015. Over the next few months and into kind of the second half of the year, I think we’ll have a better view of what 2016 looks like, but I don’t think that’s unreasonable. We’ll have a fleet of - right now, we’re standing at 1.6 million horsepower, and so you think about kind of that level of growth on the base of horsepower that we’ll have kind of by the end of this year and that’s probably not unreasonable, but we obviously haven’t put in any firm orders or anything at this point in the year for delivers in 2016.

Sure. Okay, great. Hey, great quarter, guys, and excellent color. I appreciate it. Thank you very much.

Thanks, Rich.

And next, we’ll go to T.J. Schultz from RBC Capital Markets.

Hey, guys, good morning. I think just first keeping the EBITDA guidance, but obviously running ahead of that, so I understand some of the puts and takes here and margins normalizing, but just any color on targeting at least the high end of that range?

T.J., you’ve been around us for a long time, and we’re guys that like to under-hype and over-deliver, we want to be careful coming into the back half of 2015. I don’t know what OPEC is going to do. I don’t know what’s going to happen in the Mid-East. I don’t know what some of the plans of the E&Ps look like. I will say that I am pleasantly surprised with what we’re seeing so far on the macros, demand signals, quote logs, stick rates, all the things that we typically do. So we came into 2015 being somewhat cautious. We’ve delivered in the first quarter. The second quarter hasn’t occurred yet, we’re in the middle of it. I think we can say we’ve been pleasantly pleased with how the sales and operating team are performing. We’re starting to see customers, pioneer announced that they’re going to be adding two rigs a month coming out for the back half of the year. We’re seeing some pretty good continued activity up in Appalachia. So I don’t want to connect too many dots right now. We’d prefer to, again, under-hype and over-deliver, but we’re pleased with what we’re seeing so far.

Okay, fair enough. And then just lastly from me, just thinking about debt leverage and your focus to get that down a bit, how do you think about best affecting that? Would it likely be a function of just as you guys improve coverage and hope to see that play out through valuation on your equity and find the right time in the market, or how may dealer activity and maybe over-equitizing something that is really additive to growth just play out here similar to how you’ve tackled it in the past?

Yes, T.J., it’s Matt. I think both of those are absolutely fair comments. We’re obviously happy to see the units kind of claw back from that December timeframe, but we do look at the revolver and we have a lot of capacity sitting on that, and we’ll hear into the near future. So we don’t feel like we kind of are in a rush or have been painted into a corner to have to do something. So we continue to keep an eye on that sort of as a regular course financing mechanism. And then I think your point on acquisitions are spot on, finding the right deal to do and taking that opportunity to over-equitize it, I think would be very much in our playbook.

How active are you guys on the acquisition front? I mean, is that something where you, I know you guys look at a lot of stuff, but are valuations at a point in the market where you think something is possible this year?

You know, T.J. we don’t speculate on M&A opportunities. Just suffice it to say, we’re always looking, we’re always kicking tires, and we’re - you know as, we’re always optimistic.

Fair enough. Thanks, guys.

Thanks, T.J.

[Operator Instructions] We’ll go next to Lin Shen with HITE.

Thanks for taking my question. Congratulations for a good quarter. A quick one for the leverage, I was just wondering, what do you think is a good target average rate for your - that EBIT leverage at the end of this year?

Lin, it’s Matt. We have historically, I think, talked about kind of a 3.5 times to 4X times metric is where we’d like to be. Obviously, we balance that with distribution growth, with coverage et cetera. So certainly, we are focused on working to get that down. At the end of the day, we want to make sure, our balance sheet is, we have enough capacity to not only do execute on the capital plan that we have in front of us, but also to give us some dry powder in the case some opportunistic things kind of rear their head. So that is very much on our mind and we continue to kind of look to get that leverage level down throughout the year. But it is a balance between the coverage leverage and, obviously, distribution growth for the holders.

Great. And just to clarify that, the current covenant of 6 times is just a temporary. When is it going to end?

Yes. So right now it’s a hair under 6 times. It’s 5.95 times for the first quarter and the second quarter, so that takes us through June, and then it steps down for the third quarter basically for the following fourth quarter, so from the third quarter of this year through the second quarter of next down the 5.5 time. So certainly are - the way we’re looking at it, we have a lot of capacity under that even when the covenant steps down.

Okay. Thank you very much. I appreciate it.

Yep. Thank you.

Yes.

And we have no further questions in the queue. I’d like to turn it back to you for closing remarks.

We appreciate everybody’s continued interest in USA Compression. Be safe. Go give your wife, your kids, and your girlfriend a hug, and we’ll see you on the next quarterly call. Thank you.

That concludes our call for today. Thank you for your participation.