00:07 Good morning. Welcome to USA Compression Partners, LP’s Fourth Quarter 2021 Earnings Conference Call. During today's call, all parties will be in a listen-only mode and following the call, the conference will be opened for questions. [Operator Instructions] This conference is being recorded today, February 15, 2022. 00:28 I would now like to turn the call over to Chris Porter, Vice President, General Counsel and Secretary.

00:36 Good morning, everyone and thank you for joining us. This morning, we released our financial results for the quarter ended December 31, 2021. You can find our earnings release as well as recording of this call in the Investor Relations section of our website at usacompression.com. The recording will be available through February 25, 2022. 00:54 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. 01:18 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 15, and may no longer be accurate at the time of a replay. 01:31 I’ll now turn the call over to Eric Long, President and CEO of USA Compression.

01:37 Thank you, Chris. Good morning, everyone and thanks for joining our call. Also with me is Matt Liuzzi, our CFO. Today, well, I plan to cover our positive financial and operational results for the fourth quarter of 2021. I also want to give you our unitholders, a sense of where we see the pod (ph) going, so to speak, for the balance of 2022 and into the future. 02:02 We are living in an unusual times in which both real and false information are quickly disseminated by news and social media outlets that often appear to have biased agendas. We are first-hand in Europe that some feel good beliefs have led to governmental and regulatory policies that appear to be in conflict with the pragmatic and economic realities of the real world in which we live. 02:27 First, I want to say thank you to the dedicated men and women of USA Compression, who during the past two years of the COVID-pandemic have continued to do what it is, they do best, meeting the needs of our upstream and midstream customers, 24 hours a day, seven days a week, 365 days a year, which have helped to keep oil and gas producing in our country, and whose efforts have helped to keep the lights-on in America and to keep Grandma's house warm when much of our country was lockdown. 02:57 To give you a sense of the magnitude of what it takes to keep USA Compression up and running, our service teams drove almost 1.3 million miles and worked over 122,000 hours in January 2022 alone and our folks embrace a culture of safety, with our service technicians now having worked almost 4 million hours without a lost time injury. Safety is a way of life USA Compression and…

15:49 Thanks, Eric and good morning, everyone. Today, USA Compression reported fourth quarter results, including quarterly revenue of $160 million, adjusted EBIT of $99 million and DCF to limited partners of $52 million, all of which were consistent with last quarter. Of total revenues of $160 million, approximately $157 million of it reflected our core contract operations revenues, while parts and service revenue contributed roughly $3 million. 16:22 Pricing for the fleet as a whole remained flat in the fourth quarter at $16.62 per horsepower per month. Remember, this is an average across the entire fleet so while we continue to manage contractual price escalators, the churn of assets from active to idle will also have an effect on this metric. 16:41 Our adjusted gross margin as a percentage of revenue was 68% in the fourth quarter, consistent with historical levels. We achieved adjusted EBITDA for the fourth quarter of approximately $99 million flat to the third quarter. Adjusted EBITDA down margin of 62% was again consistent with our historical averages in previous quarters. DCF to limited partners of $52 million was also consistent with the prior quarter. 17:11 Our total fleet horsepower at the end of the quarter of approximately 3.7 million horsepower was flat for the third quarter. Average utilization for the fourth quarter was up about a 0.5 percentage point from the third quarter at 82.9%, indicating gradual redeployment of equipment. 17:31 During the quarter, we kept in line with our capital spending guidance with total expansion capital of $14 million, consisting primarily of reconfiguration of idle units in maintenance capital of $5 million. During the fourth quarter, we put in orders for 10 new large horsepower units for delivery in 2022. These are earmarked for a couple of large compressor stations for existing customers. 17:57 Subsequent…

19:28 Thank you, sir. [Operator Instructions] We'll take our first question from Vinay Chitteti with JP Morgan.

19:47 Hi. Good morning. And this -- thanks for all the commentary earlier on the call. Maybe I just wanted my first question on how current activity levels are trending versus your expectations early 2021? I just wanted to check, is that activity lagging your expectations or is it outperforming versus and -- in your back -- maybe, digging it in the sense of pricing, utilization I think definitely cost a bit higher? Yeah, I mean, any thoughts Eric or Matt could share directly?

20:22 This is Eric. I think as I said, a timely and good question. I would say that activity level both incoming quotations, or inbound needs of customers, where we quote units, and then leading to contract activity is consistent what we had anticipated coming into 2022 that level is significantly ahead of what we were seeing in 2021. So I think the combination is, in our prepared remarks, we commented that the public, the large public companies had been somewhat conservative with their CapEx programs in 2020, and on into 2021, pressures from shareholders, pressures from the government, pressures from financing institutions to reduce CapEx to focus on improving balance sheet, focus on returning capital to their shareholders or unit holders. They've done that. 21:25 So now that we're in an environment with pushing $100 oil, pushing $5 natural gas, some of the major players, looking at their budgets for 2022 have significantly expanded their magnitude of CapEx spending 20%, 25% 30% kind of numbers. So that's leading to some additional activity for USA kind of along the lines of what we expected during our budget process. The good news is what we expected is holding up and holding true so far for the first quarter of 2022.

22:05 Got it. Thanks. Maybe just following up on capital allocation here. So I think you guys have mentioned distribution will be considered each quarter independently. And now that we consider maybe the worst is behind us. But the stock is currently shielding about 12% to 13%, which means the market is not giving full credit for stable distribution, which USAC has been able to maintain for several years and also this EBITDA stability. Given, we do expect the higher activity and growth CapEx creeping up. It is DCR over the next couple of years, reducing debt looks a bit far-fetched and saying the market is not giving full credit. I want to understand your thoughts on your -- like your thoughts on maintaining distribution versus reducing debt like accelerating debt payment.

23:08 Vinay, the market has never given us full credit since the time of the IPO. I would note that the type of projects where we're deploying growth CapEx into our highly accretive. Honestly, so more of those projects that we do, the better our coverage ratio becomes in the lower over time, our leverage becomes. These are highly attractive projects with very attractive economics. The capital we're spending on make ready work to deploy idle equipment. Obviously, spending a little bit of money to deploy a piece of equipment you've already spent several millions of dollars on is extremely economically attractive. So, we don't need to issue equity. We don't plan to issue equity. We're in an environment where we can utilize the attractive financing terms under our ABL. And we're now at the size that we can kind of manage our growth CapEx, manage our revenue streams, manage leverage and coverage, and the stock market, so to speak, finally acknowledges and recognizes the stability of our business that we shouldn't have a double digit yield then so be it, if they don't, so be it as well. 24:40 I would point to the fact that our public debt holders, we've got two tranches of public debt that traded a premium. We get inbound calls asking us, hey, guys. When are you going to come up with some additional debt needs? We love you guys. So, I've always considered the debt investors to be extremely financially sophisticated. And they look at it and say, we're willing to have your debt traded a premium to where it was originally issued. I think that's a high vote of confidence and suggested that they get it and maybe it's the public equity owners who quote, don't get it.

25:28 Got it. Thanks, Eric. That's all from me.

25:31 Thanks, Vinay.

25:33 All right. Next question will come from the line of TJ Schultz with Royal Bank of Canada.

25:42 Great. Thanks. Eric may be, like what's your biggest growth area right now or basin? And I think as we think about things like increasing LNG exports, you mentioned the poll on places like the Marcellus and the Permian. But I guess my question is really just as we think about things like responsibly sourced gas that may impact where exporters want to pull in LNG cargoes. Are you expecting any major shift from a basin perspective for where you operate? Is there any major shift that may lead to some costs to maybe move some horsepower around?

26:18 Great question, TJ. And right now, we're seeing clearly the Permian Delaware basin is kind of leading activity, that's where the largest increases in the rig count and the most dramatic reduction in the drilled and uncompleted well, activity's been in the last six months or so. That said, we're seeing a fair amount of activity come from the Haynesville Shale. Interestingly, also, the midcontinent area, has recently seen a fairly material tick up and demand. And that's a lot of that tends to be a little bit smaller horsepower. 26:49 Appalachia, a lot of the gathering systems operated, what I call intermediate pressures, the pressures that are higher than what we see in Texas in the mid-continent, a lot of two stage compression rather than three stages. And we've seen some operators up there installing an extra stage of compression as a booster unit rather than drilling additional wells or completing additional wells, they use compression as a way to pull down the section pressures closer to the wellhead, which gives a corresponding increase in throughput. So rather than drill wells are complete some uncompleted wells, they install compression to maintain enhanced production and maintain a stable throughput. 27:38 We're not up in North Dakota areas. So we really can't address that offshore. We don't have much of a presence. We're not in California, et cetera. So, we're seeing some tick up in the Wyoming Colorado area. We're seeing some tick up in the Eagle for Shales. So I would say on balance, TJ, the mix looks a lot like it has historically. And we are seeing some glimmers or some folks looking at renewably sourced gas both up in the Haynesville and more particularly up in Appalachia as a potentially growing source of new supplies as well.

28:16 Okay. Perfect. Thanks. Just second for me, just a follow up maybe on the balance sheet. If we look back over the last several years, your cash flows really been fairly steady through different cycles now. So just coming out of this latest cycle. And I guess the question is, do you have a different perspective on what debt leverage you are comfortable running the business longer term?

28:46 Hey, TJ. It's Matt. No, I don't think our perspective has changed. I think what happened was, we lost two year -- two perfectly good years of ‘20 and ‘21, where we had expected some, cash flow growth and debt repayment. And so now I feel like, Eric mentioned, budgets are increased this year a bit, activity levels are off. And so, I think our perspective would be keep doing what we've been doing, back just like back in ’14, ’15, ‘16, we've powered through kind of the weak part of the cycle. 29:22 And here we go again, and as that cash flow increases, I think you're going to see us continue to kind of chip away at the debt balance. So I don't think the perspective has changed. I think the truth is, it should be lower than where we are right now for the, at least from a public optic standpoint. I think we've proven that the business can absolutely handle it, but I think the markets, probably would appreciate, a little bit lower leverage and obviously as the EBITDA and cash flows grow, that's what we'll be kind of targeting.

29:57 Perfect. Thank you.

30:00 Thanks, TJ.

30:12 All right. It looks like we have no further questions at this time. So I'd like to turn it back over to Mr. Eric Long for any additional -- I'm sorry, we did have one more question queue up, if you'd like to take that from Selman Akyol with Stifel.

30:26 Absolutely. Thank you, Akyol.

30:20 Thank you. Good morning, guys. Appreciate squeezing me in. Can you maybe just talk a little bit about sort of what price assumptions you have embedded in your guidance in terms of pricing you're going to be able to pull through? And then also talk a little bit maybe about the inflationary pressures you're seeing out there?

30:40 Sure, Selman. Yeah. In terms of pricing that we use in our kind of forecasting, but we typically are very conservative, and we'll look at kind of where pricing state -- where pricing is sitting right now. And so, I think that would be consistent with how we approach the guidance amount. So certainly nothing too crazy. No big assumptions on kind of hockey you stick price increases. I would tell you we are on the large horsepower stuff, in particular, we are seeing strong pricing, but really large stuff to utilization is way up. And so, I think as that happens. As we get through the year, I mean, again, we're early, but as we get through the year, we'll be able to -- I think as utilization moves, we'll be able to kind of, at that point evaluate this pricing need to move, but certainly in the guidance, we've taken a pretty conservative event. 31:50 On the inflationary stuff, it's interesting. We looked just as a titbit last year over the course of 2021 at our labor costs in particular, because there's been a lot of headline noise there about costs and whatnot. And our average labor on a dollar per hour basis went up over the course of the year, went up anywhere from 2% to 4%. And so, that's kind of in line with what we had seen historically in line with what we expect this continuing year. And again, we're not -- the vast majority of our employees are guys on the field, they're skilled, skilled folks who we're not talking minimum wage stuff. And so we expect that to -- we'll see some increase I think again, in field wages et cetera in line with kind of what we've seen in the past, but not expecting huge, huge moves. 32:39 And then the other things, parts lube oil, those kinds of things, parts and both of them, we've actually done a pretty good job. We've locked in some pricing before the end of the year. And so we have awarded some kind of early 2022 price increases that went out. And so we've tried to manage that as best we can. And then of course, the other way we work through that is through the CPI price escalators. And making sure that we're passing on the increased cost to customers. So it's a combination of sort of managing it actively in terms of locking in some prices, but also having the flexibility in our contracts to go through and push through those price increases.

33:36 Understood. Let me ask you just one more then, as we think about sort of the supply chain out there and you guys referenced that you've ordered some large horsepower. Can you maybe just talk about any tightness you're seeing out there and if people -- customers came in and said, we want additional compression, it's not ordered by April or May, then you're done for the year because you just can't get it or are you seeing any constraints from that standpoint?

34:06 Yes. So, this is Eric, and that's absolutely a true observation. On the larger horsepower right now, here to pick up the phone, call a fabricator, you call Caterpillar. They're somewhere between 46 to 52 weeks of lean time to source the large component inventory. So that's almost a year. You're talking 10 to 12 months out. So part of why we're excited about 2022 is, we have a fairly sizable tranche title, but high quality horsepower that could be quickly and economically redeployed. So, yes, we made commitments as we mentioned in the 10 units of last year and another 20 units this year. So we've got roughly 30 big horsepower machines coming in our way. 35:03 We've got a large tranche of stuff that's in the 1,500, 1,800 horsepower range, 600 to 1,000 horsepower range, even some of the smaller gas lift well equipment, readily available, quickly available as idle and we think will give us a very large competitive advantage versus somebody who says, I got nothing and it's going to take me a year to buy some new equipment. You've got the same kind of bottlenecks with electric motor driven equipment. So, we've got a lot of people run around going and electrify everything, electrify everything, well, when electric motors come from Korea and they're sitting on boats offshore of LA and unable to get into the stage to be appropriated and repatriated in the supply chain. You got bottlenecks and problems. So, those of us who have some available equipment I think are situated pretty well from 2022 being able to meet and deliver upon our customers’ needs.

36:04 Great. Appreciate the additional insight. Thank you.

36:07 Thank you.

36:11 Now it looks like we have no further questions. So I’d like to turn it back over to you, Mr. Long for any additional remarks.

36:16 Thank you very much. The fourth quarter of 2021 reflected another quarter of stable cash flow generation by our core compression services business. For 2022, we see quote and contract activity continuing to accelerate. As we remain optimistic, we have begun to cycle idle equipment for our make ready facilities to be redeployed to act of status at nominal CapEx cost. Natural gas prices remain at near term record highs and the outlook for production is positive, both of which we expect to drive the demand for compression and for our business. 36:51 One thing has not changed. The fundamental driver of our business is the demand for and the production of natural gas. We see natural gas usage increasing the U.S. and throughout the world. We believe that the underlying stability of our large horsepower infrastructure focus contract compression services business model and served our unitholders well over the past few years and for the nearly 25 years, we have been in business. We have a great asset base from which to be involved in the longer term transition to cleaner energy in which natural gas will clearly play an important part. Thanks for joining us, and please be safe. We look forward to speaking with everyone on our next call.

37:33 That does conclude today's conference. We thank you everyone again for their participation.