Good day, everyone, and welcome to the USA Compression Partners second quarter earnings conference call. [Operator Instructions] Today's conference is being recorded. I'll now be standing by should you need any assistance. At this time, I'd like to turn the conference over to Mr. Greg Holloway, Vice President, General Counsel and Secretary. Please go ahead, sir.

Thank you, Roxanna. Good morning, everybody, and thanks for joining us. As you know, this morning we released our financial results for the quarter ended June 30, 2016. 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 August 15, 2016. 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 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 of today, August 4, and may no longer be accurate at the time of a replay. I'll now turn the call over to Eric Long, President and Chief Executive Officer of USA Compression.

Thank you, Greg. Good morning, everyone, and thanks for joining our call. Also with me is Matt Liuzzi, our CFO. This morning USA Compression released our second quarter 2016 financial and operational results, and I'm pleased to report that our team, led by our operations group, continues to execute and navigate USA Compression through what has been a challenging market. We believe these results demonstrate the continued relative stability of our compression services business model. While the second quarter was impacted by moderate softness in utilization as well as average pricing, given our continued focus on operational excellence, we were still able to generate strong gross margins of over 70%, which resulted in adjusted EBITDA of 37.1 million and distributable cash flow or DCF of 30.5 million for the quarter. Our strong DCF generation resulted in all-in coverage of 1.03 times on a flat distribution per unit of $0.525. Based on our first half results, strengthening demand signals from our customers, and our cautiously optimistic view on the business for the remainder of the year, we have updated our guidance ranges for both full year 2016, adjusted EBITDA, and DCF. Matt will provide more detail on the revised outlook. As in the past, we will plan to continue to provide updates to our guidance throughout the year, both financially and operationally, as we have more clarity in the trends driving our business. I'd like to briefly remind everyone where we have been and what has occurred through this energy downturn, which has been going on now for almost two years. Crude prices have fallen over 70% from the recent cycle high of over $105 a barrel in June of 2014 to a low below $30 in February this year. Since then, prices have rallied back about 50% to settle in…

Thanks, Eric, and good morning, everyone. As Eric mentioned, USA Compression reported another solid quarter of results against a tough market backdrop. For the second quarter of 2016, USA Compression reported revenue of $63.5 million, adjusted EBITDA of $37.1 million, and DCF of $30.5 million. In July we announced a cash distribution to our unitholders of $0.525 per LP unit, which results in a DCF coverage ratio for the quarter of 1.03 times. Taking into account the impact of the DRIP program, our cash coverage ratio for the quarter was 1.33 times. With the support of our largest unitholders, we continue to strike a balance between DRIP and cash paid distributions. This quarter, Riverstone elected to reduce its DRIP participation by taking 50% of its distributions in cash, joining Argonaut Private Equity, who again has elected to go all cash pay. By methodically working our way towards less reliance on the DRIP program, we believe we can maintain critical financial flexibility in this market while advancing towards the ultimate goal of eliminating our need for the DRIP. Our total fleet horsepower as of the end of Q2 was similar to where we ended Q1, adding only a few large horsepower units to the fleet. Our revenue-generating horsepower at period-end was down slightly relative to Q1 at 1.4 million horsepower. We continued to rein in our expansion capital spending, investing only $4 million in the quarter; and total expected expansion capital spend this year remains between $40 million and $50 million. We continue to expect to take delivery of only 15,000 new horsepower in 2016, with the remaining 7,000 horsepower to come in the third quarter. And we currently have no further commitments to add additional new compression equipment beyond 2016. As Eric mentioned, our strategy in this market is to…

[Operator Instructions] And we will take our first question from Andrew Burd with JPMorgan. Please go ahead.

Eric, I think you highlighted a few large product installations that you see in kind the future, and I think you also indicated that some of those you have under contract. Can you go into a little more detail there? Maybe quantify the horsepower amount and the timeline? And would those require incremental investment by USAC, or whether you have units in the lot that can be redeployed?

Andy, maybe a fair way to answer that is a fair number of these projects have been identified by various members of our customer group coming into the downturn, and some of these projects were frankly delayed. So I think we have a fair amount of visibility in the basins we've identified: the Permian, Delaware, and then the Marcellus, with some of our existing core customers. Some of the equipment we have in inventory, some of the equipment we are able to source from inventory that has been repatriated as units have come back, and we have seen that nominal decline in our utilization over the last 18 to 24 months. I think it is also fair to say that for the back half of this year, we really don't contemplate needing to go out and purchase any additional equipment over and above what we have already previously committed to.

Great. And then I think you had also discussed -- obviously Southwestern is a large customer of yours. That's been disclosed a lot in the past. Remind us if you serve them in their Marcellus footprint and what type of involvement you might have as they accelerate production, as you outlined?

Yes, we have dealings directly with Southwestern and various of their subsidiaries. And also, you may recall, Andy, that Southwestern up in the Marcellus monetized some of their gathering assets. And we worked with the successors in ownership to those assets as well. So to the extent Southwestern does pick up activity, with our dominant footprint that we have in Appalachia and some of the long-standing both contractual relationships and just commercial relationships with their service providers, we will be the beneficiary of some of their increased activity.

Great. And then final question on kind of what a recovery looks like, and kind of what we are going to see once we've hit bottom: how quickly do you think, once you've kind of identified a bottom and see some tightness, especially with larger units, how quickly do you think you can get pass price increases along to customers?

That's one of those difficult questions to answer. Some of it has to do with availability of equipment. You know, there's a fairly substantial lead time to source the large component inventory. Lead times right now on some of the bigger equipment are running roughly 20 weeks for the individual components. And more than likely when demand picks up and we start to enter into commitments to purchase equipment, as do some of our major competitors, those lead times will start to go out. So if you go back and look at past cycles, when you saw a bottom, you would start to see utilization trend upwards a few percentage points over the next few quarters. And then you'll start to see pricing become a little stickier at that point in time. So I don't think it's something you're going to see immediately. But I do think this is something that as utilization of our collective fleets in the industry goes up, lead times for equipment gets longer, you'll start to see some upward pricing on pressure.

Excellent. Thanks for taking my questions.

And we will take our next question from John Woodiel, from Raymond James. Please go ahead.

First off, great cost execution in the quarter. What I was really hoping was that you could provide a little bit more color around pieces on the cost side. I assume that most of those are structural in nature, but if you could go into, kind of looking into how much of those are variable, and might be derived from fuel lubricant costs, and might increase a little bit as we move forward?

Sure, John, it's Matt. And I think, you know, we've talked about it in the past, but I think a little bit. We obviously don't get into the details of what makes up those costs. But I think when we think about it, even going back to the beginning of last year, when we sort of really kicked off kind of the cost savings initiatives companywide, we kind of guided people towards gross margins kind of in that upper 60% range. So I think as we have kind of come through now, you know, a full six quarters of the implementation of this program, all those margins have stayed very consistent. So we think there's a good chunk of it that is very structural in nature. I mean, to your point, some of the fuel costs and whatnot, as commodity prices rise, we will see a little bit of a tick-up in that. But as we've looked at it, we think the margins, kind of in the range where they are now, in the high 60%s, we even ticked above 70% this quarter. We think that's very sustainable going forward.

All right, that's very helpful. And then you all touched on this a little bit earlier, but obviously you're going to try to use up the utilization gap that you have been your current equipment base first. But when you're thinking about building out your fleet going forward in 2017, are you going to be looking for kind of firm customer commitments and projects in place? Or will that be built mostly on spec, just given the time delay of that?

A fair way to answer that is when we look at peak to trough. And as we indicated, our utilization from peak to trough is approximately 9 percentage points or so. As we start to see utilization ticking back up 2, 3, 4, 5 percentage points, we'll start to have indications from our customers of what their future demand is going to look like. And if you think logically what we're seeing in the marketplace, a fair number of some of our longer-term, larger customers have announced that they have added additional rigs, SCOOP/STACK, Delaware, Permian. And we are starting to see some activity like that up in Appalachia as well. These are folks who were able to lock can hedges last quarter or early this quarter at very attractive pricing, in the low to mid 50s on oil. And we have some guys that actually locked in some $3.50 gas. So with the drilling costs like they are, they are obviously very economic projects. So we've got folks who now have 18 to 24 months’ worth of developmental visibility. And when our sales team sits down with their technical teams and commercial teams, we get a pretty good indication of what their plans look like. Most of the time, we will not have firm contracts in place. This is a little bit like you want to go out and buy a new car, and you order a car, and you go to the car lot, and somebody's got one on the lot that meets 85% or 90% of your requirements. You tend to buy that car off the lot. So I think our business works a lot the same way. There are points in time where we do actually get some contracts in advance of ordering equipment. Generally, we'll make a commitment and we'll stagger things on a quarterly basis. So we're not making years’ worth of financial commitments, but a few quarters at a time. And typically what we see by the time that equipment is ready to be built, we tend to have contracts in place, so that when we are paying for the equipment, many, many times it actually leaves the fabricator goes directly out to a job with a primary term contract of 2 to 5 years.

Right. So it seems like, for the most part, your business model hasn't really changed too much when thinking about CapEx. I appreciate the color, guys. Thank you.

Thank you.

And we will take our next question from Rich Verdi with Ladenburg Thalmann.

This is actually Hilary Cauley on for Rich. And most of my questions have been asked, so just a few quick ones. For Q2, I was wondering if you could tell us what the order of the strength for the months were there. Was April the weakest, with May and June getting stronger sequentially? Or variability there?

Excellent question, and I think a fair way to answer that is as the year has progressed, we have started to see tick-up in commodity pricing. The order book started to improve and has continued to improve from the beginning of the quarter toward the end of the quarter, and now even on forward into the third quarter. So we're starting to see strengthening demand rather than variability in demand or a tick down in demand. We're actually seeing improvement month over month for the last three or four months.

Okay, great. So you're expecting July to be even stronger than Q2 ended off?

I think we're off to a good start.

Okay, great. And then just kind of a high level question for you, if you guys see any kind of large left-field items out there that could be impacting you guys over the next 18 months or so?

No, Hilary; it's Matt. I don't think there's anything out there that we see. Again, I think our commentary pointed to the fact of customer, the general tone of customer conversations, and Eric just mentioned some of the order type stuff. So I think where we sit now, we hope to just kind of keep chugging along and get through this. I think a little bit of stability in commodity prices will help all of us out.

Okay, great. Thanks for taking my questions.

Thank you.

And it appears we have no questions at this time. I would like to turn the call back over to Eric for closing remarks.

Thank you, operator. The entire USA Compression team thanks everyone on the call today for your continued support of and interest in our Company. We continue to believe that we have a differentiated and superior business model to those of our various peers, public and private alike. We continue to demonstrate our ability to maintain our margins and our distributions due to the stability that our demand driven focus on the larger horsepower infrastructure oriented compression business offers in comparison to other sectors of the energy business. As we have the past almost 2 decades, we will work to continue delivering exemplary levels of compression services to our customers. And we remain laser focused on our balance sheet, our leverage, optimizing cash flow, and maintaining appropriate levels of coverage. I look forward to our third quarter up the call sometime in early November. Thanks again.

This does conclude today's conference. You may disconnect at any time and have a wonderful day.