Greg Holloway - Vice President, General Counsel and Secretary Eric Long - President and CEO Jody Tusa - Chief Financial Officer.

Sharon Lui - Wells Fargo TJ Schultz - RBC Capital Market Matt Niblack - HITE.

Please standby, we are about to begin. Good day. And welcome to the USA Compression Partners’ Second Quarter Earnings Conference Call. Today's conference is being recorded. There will be a question-and-answer session at the conclusion of the prepared remarks, and instructions will be given at that time.

Now, I would like to turn the conference over to Mr. Greg Holloway, Vice President, General Counsel and Secretary. Please go ahead, sir..

Well, thanks, Sheena. Good morning, everyone and thanks for joining us. This morning as you know, we released our financial results for the quarter ended June 30, 2014. You can find our earnings release in the Investor Relations section of our website at usacpartners.com. During this call, our management will discuss certain non-GAAP measures.

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 the management's views as of today, August 12th 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, and good morning, everyone. Also with me is Jody Tusa, our CFO. We are very excited to report earnings this morning as the second quarter was another record quarter for USA Compression.

The favorable market environment led to strong demand for our compression services, resulting record levels of revenue, adjusted EBITDA and adjusted distributable cash flow.

We are executing our business plan ahead of our expectations and it’s noted in our press release this morning, expect to be at the high-end of our guidance range for the full year. The Partnerships high growth has been reflected in our ability to continually grow our distribution.

For the quarter, we announced a distribution of $0.50 from limited partner unit, which reflects an increase of 13.6% over the last 12 months.

We have increased the distribution in each of the five quarters since our IPO and this year-over-year growth rate puts us well above the average for the broader MLP sector and at the top of the Group of our direct peers in the compression sector.

Including the distribution for the second quarter in the mere 18 months we have been public, we did have achieved a total return of about 52% for our initial unitholders.

We believe our strong track record and performance since the IPO, as well as the 15-year since the founding of the company validate the asset class and demonstrate the story of stability and growth, we have been telling the investor community.

While we came into 2014 expecting a better year operationally and financially, it is shaping up to be even stronger than we anticipate it. Now I have been doing this a long time and frankly, the demand for our compression services is the strongest it has ever been.

Our customers continue to spend significant capital building up gathering, processing and transportation infrastructure, in areas including the Utica and Marcellus shales, the Permian Basin in the SCOOP play in Oklahoma.

In order to meet their needs we continue to invest new equipment during the quarter, increasing our fleet by about 73,000 horsepower during the second quarter alone. This continues what we be a record year in terms of capital spending for USA Compression.

While we have evaluated and continue to evaluate M&A opportunities when you have the organic opportunities that we see in the market, it can be challenging to find third-party opportunities or assets to compliment our business model.

In this business you need to make sure what you are buying fits your business model, otherwise it can result in stranded capital and unforeseen complications. Similar to previous quarters we have almost no spare equipment lying around, everything, we take delivery of quickly makes us way out to the field.

Over the years, we have built a strong a track record of delivering compression services to our customers, how and when they needed, and in the tight market like we are currently in our customers consistently call on us to take care of their compression needs in the field.

This level of demand allows us to run the utilization in the mid-90s area as we have done throughout most of our history and that produces capital efficiency, which we believe translates into attractive returns for our unitholders, executing on our business plan resulted in strong financial results for the quarter as we saw both margins and pricing move in the right direction.

You'll recall that our business model is very straightforward, providing compression services under fee-based contracts over it specified terms. As a result, our margins are very predictable and consistent year in and year out.

Our service model like many of the traditional pipeline MLPs does not suffer the wide swings in margins that oilfield service companies do, though the low margins typically associated with the manufacturing or fabrication type of business. Our compression services business is stable with good cash flow visibility.

As we have grown the business and distribute cash to our unitholders, we have also continued to grow into our distribution coverage, which was 0.94x for the quarter and should continue to improve during the balance of the year. Now we have been asked about our coverage level and expectations going forward.

Simply answer, we have executed on growth opportunities far in excess of what we expected at the time of our IPO. We have invested heavily and the timing of the cash flow ramp presents a choice between building coverage now or growing future distributions.

And quite honestly we don't think now is the appropriate time to manage coverage to detriment of distribution growth. The benefits of investment later in the year as cash flow ramps up and we have some large unitholders who prefer to participate in that growth through our DRIP program taking back additional units instead of cash payments.

This provides our public common unitholders additional cushion boosting their cash distribution coverage to almost 2.5x. We are confident of our ability to continue to grow our cash distributions at attractive rates, while maintaining adequate coverage, in fact we see coverage increasing to close to 1x by the end of the year.

Touching on the macro drivers of our business as you recall, we are natural gas price agonistic. This was true when we started the company 15 years ago and remains true today. Back in 1998, domestic gas production was about 53 Bcf a day. Today domestic gas production is roughly 78 Bcf a day, a huge increase.

A large percentage of that production is now coming from shale plays across the U.S., requiring compression at every stage from the wellhead, through gathering systems, through processing plans, all across the natural gas supply chain.

So our overall level of business activity is driven by natural gas production not necessarily just new well activity and unlike oilfield services such as fracking compression is required over the entire life of the well, the felid and related regional gathering systems and processing plans, often lasting decades with compression involved in every step for the supply.

Demand for compression is lagging indicator. The demand for our compression services really kicks in the gear after the wells are drilled, pipelines are laid and processing plants are installed.

So as other sectors mature and develop, demand for our compression services increases and we believe such demand will continue long beyond those activities and so when you consider that by most accounts, we are in the early innings of the overall infrastructure buildout in this country it is safe to assume that we’re expecting continued strong years ahead.

As a price of gas strengthen to 450 or 475-range earlier this year, a lot of our producer customer took the opportunity to walk in multi-year forward pricing. This price certainly gives them forward cash flow visibility, allowing them to sign-up for future compression services for longer periods of time.

At the end of day, our business is driven by gas production and gas production continues to grow from shale plays, which need even more compression horsepower to move the same volume of gas with compared to conventional plays due to relatively lower producing pressures of shale plays.

We have positioned our fleet and have focused our new business opportunities in regions where gas production is increasing the fastest. Areas like the Northeast where the Marcellus now produces in excess of 15 Bcf a day in the prolific basins in West Texas. In other regions we continued to stay busy and expect the steady amount of recurring business.

Overall, we're very pleased with the level of activity we have seen and all indications are for strong second half for the year. As I said at the opening, demand for our compression services is the strongest that I have ever seen.

We continue to invest in expanding our modern compression fleet, adding approximately 73,000 horsepower in the second quarter alone, bringing our fleet to a total of just over 1.3 million horsepower and our utilization to around 95% during the quarter. Our customers need the equipment as soon as possible.

The majority of our new units are immediately deployed to field, generating immediate cash flow and returns to our investors. So far this year we have spent around $180 million in expansion CapEx.

As I mentioned, we expect to finish the year with record levels of spending and new compression unit purchases, approaching the 350,000 horsepower level for the year.

While we won’t see the full impact of that spending until 2015 in our financial results, the level of contract activity, provides us tremendous visibility with respect to future cash flows. As an example if we take delivery and spend capital for a new unit delivered in Q4 this year, we may only get a month or two of actual results in our financials.

However, we know with certainty the contractual revenues our customers obligated to pay on that multi-year contract into the future. Just like a pipeline or storage thermal type of asset. That happens all across our asset portfolio everyday. We're deploying those units in active areas and earning attractive rates to return on that capital.

We continue to spend maintenance capital for the up key for the fleet. If you are going to achieve the 95% utilization level and the high run times the USA Compression does, you must stay on top of the maintenance for the compression units. This has always been a priority for USA Compression. Our customers demand it.

Our customers rely on it and it is all part of the excellent service that our employees provide. Looking forward, we expect strong continued demand for our compression services and have already placed orders for over 200,000 horsepower for delivery in 2015.

On the gas side, our units are designed to operate in a variety of field conditions and as producers and midstream operators continue to build out the country’s infrastructure whether it’s in the Northeast, West Texas, the Mid-continent or elsewhere, we expect strong demand for our services.

The gas lift activity connected the crude oil production also looks to remain strong with crude oil prices, financial returns remain attractive for continued drilling activity. And we are seeing a lot of activity in Texas and Oklahoma where our gas lift business is primarily focused.

As I have discussed, we benefit from the same fundamental business drivers that our gathering and processing customers do. And right now, the market is as strong as I have seen in my career. We’ve had a busy 18 months since going public. Since our IPO, USA Compression has increased cash distributions above expectations.

We’ve delevered the balance sheet. We’ve spent record amounts of capital and in doing so, we’ve accelerated the growth trajectory of our business. All this has combined to provide meaningful financial returns to our unitholders, total returns of about 52%.

Now with that, I’ll turn it over to Jody to walk you through the details of our operational and financial performance..

Thanks Eric and good morning everyone. USA Compression reported record levels of revenue, adjusted EBITDA and adjusted distributable cash flow for the second quarter of 2014.

Turning to our second quarter operational highlights, as Eric mentioned we added approximately 73,000 horsepower of new midstream and gas lift compression units to our fleet in the second quarter of 2014 and ended the quarter with approximately 1.3 million of total fleet horsepower.

Based on the current plans, reflecting customer demand, we have already placed orders for 352,000 horsepower for delivery of new compression units this year as compared to our initial expectations of 220,000 horsepower.

Our order for new compression units will result in compression unit capital growth expenditures of approximately $354 million over the course of 2014. The new horsepower is expected to consist of 278,000 horsepower of midstream compression units and 74,000 horsepower of gas lift units.

For the 180,000 horsepower that we initially ordered for 2014, we have customer contracts for 83% of these units and strong customer indications for another 8% of those orders.

For the remaining 172,000 horsepower on order for 2014 and expected to be delivered in the last half of this year, we have customer contracts for 38% of the new horsepower and strong customer indications for another 24% of those deliveries.

As we get closer to taking delivery at various times throughout 2014, we expect to have substantially all of the units contracted for service. We have at this time received -- excuse me, 150,000 horsepower of the 352,000 horsepower of new compression units ordered for delivery in 2014.

Additionally, as Eric mentioned we have ordered about 200,000 horsepower for delivery in 2015, which will be delivered over the first three quarters of next year.

Our revenue generating horsepower increased from 1.1 million at the end of the first quarter 2014 to 1.2 million at the end of the second quarter 2014, due to the additional units we placed in service in the Marcellus, Fayetteville, Woodford, Utica, Permian Basin and Eagle Ford shale plays as well as the Mississippi Lime and Granite Wash areas.

We are seeing initial contract terms of two to five years for our Midstream compression units. Turning to the financial performance for the second quarter, revenue increased 60% compared to the second quarter of 2013, primarily driven by an increase in our contract operations revenues as a result of adding revenue generating horsepower.

Contract operations revenue in the second quarter of 2014 increased 59% to $52.7 million as compared to $33.1 million in the second quarter of 2013.

The second quarter 2014 over second quarter 2013 increase in our contract operations revenue was driven almost exclusively by growth in our revenue generating horsepower including fleet growth due to S&R Acquisition and further organic growth.

Average revenue generating horsepower increased 40% to 1,158,804 in the second quarter of 2014 compared to 829,684 for the same period in the prior year, primarily due to growth in our Midstream compression business along with the acquisition of the gas lift compression assets.

Average revenue per revenue generating horsepower increased 14% to $15.48 for the second quarter of 2014 as compared to $13.55 for the second quarter of 2013 feature higher revenue per horsepower per month from the gas lift compression units.

Adjusted EBITDA increased 48% to $26.9 million for the second quarter of 2014 as compared to $18.1 million for the second quarter of last year. Adjusted distributable cash flow in the second quarter of 2014 was $19.9 million as compared to $11.9 million for the same period last year, an increase of 67%.

Gross operating margin for the second quarter of 2014 increased 52% to $35.3 million as compared to $23.2 million for the same period last year. The gross operating margin percentage decreased from 69.6% in the second quarter of 2013 to 66.2% in the second quarter of 2014.

The decrease in gross operating margin percentage is due to the addition of the lower horsepower gas with units, which have lower gross operating margin percentages as compared to our Midstream assets.

As expected, our gross operating margin percentage increased as compared to the previous quarter due to the timing of certain expenses that we incurred in the first quarter of this year. Maintenance CapEx was $3.8 million in the second quarter of 2014.

Our second quarter maintenance was at expected levels for this quarter and we continue to expect to spend approximately $19 million in maintenance CapEx for the full year 2014. Expansion CapEx which was primarily used to purchase new compression units was $97.9 million for the second quarter of 2014.

Cash interest expense was $2.8 million for the second quarter compared to $2.4 million for the second quarter of last year. On July 24, 2014, we announced a cash distribution of $0.50 per unit on our common and subordinated units, which represents 2% increase over the fourth quarter of 2013 and 13.6% year-over-year.

This is the fifth consecutive increase to our distribution since IPO in January 2013. The second quarter distribution corresponds to an annualized distribution rate of $2 per unit. This distribution will be paid on August 14th to unitholders of record as of the close of business on August 4th.

As announced last year, USA Compression Holdings LLC, the owner of 41.3% of the partnerships outstanding limited partner units and Argonaut Private Equity, an affiliate of George B.

Kaiser together with other related investors, the owners of approximately 16% of our outstanding limited partner units have agreed to reinvest all of the cash distributions they received on our units pursuant to our distribution reinvestment plan for the first quarter of 2015.

Our adjusted distributable cash flow coverage for the second quarter 2014 is 0.94 times and adjusted cash coverage for the actual distributions to be paid as a result of USA Compression Holdings LLC, Argonaut Private Equity and other investors participating in our distribution reinvestment plan is 2.42 times.

I know like to briefly comment on our credit facility and liquidity, outstanding borrowings and our revolving credit facility as of the end of the second quarter with $452 million resulting in a leverage ratio of 4.2 times on a trailing 3-month annualized basis.

On May 19, 2014, the partnership closed a public offering of 6.6 million common units of which 5.6 million were sold by the partnership and 1 million common units were sold by certain selling unitholders at a price of the public of $25.59.

The partnership used the net proceeds of $137.3 million, net of underwriting discounts, commissions and offering expenses to reduce the indebtedness outstanding under its revolving credit facility. The partnership did not receive any proceeds from the common units sold by the selling unitholders.

We are confirming our full-year 2014 guidance and we expect to be at the high end of our guidance range. We continue to expect full year adjusted EBITDA to be in the range of $109 million to $115 million and distributable cash flow to be in the range of $75 million to 81 million.

Finally, we expect to file our Form 10-Q with the Securities and Exchange Commission later this afternoon. And with that, operator, we’ll turn the call over to questions..

Thank you. (Operator instruction) We take our first question from Sharon Lui with Wells Fargo..

Hi there. Good morning..

Good morning Sharon..

Good morning, Sharon..

For the horsepower that ordered for 2015, does this acceleration of timing -- and when do you anticipate you’ll start contracting the horsepower?.

Sharon, that in fact is an acceleration of timing with all demand for compression equipment. We are seeing lead times with our packagers extending as we want to make sure that we’re very well positioned to have the new orders for next year.

And of course, as you probably have already gathered that, 200,000 horsepower for next year is only a partial order for what we expect for 2015.

Customer contracts, we would expect as we saw this year to be signing those debt at about the time that we’re taking delivery of the equipments and as per drill bit, that equipment is scheduled to be delivered fairly evenly through the first three quarters of 2015..

Okay.

And I guess you indicated that this is just partially potentially a larger order? How much I guess can demand for horsepower be?.

Obviously, Sharon, we’re in the early stages of building out, we continue in the shale infrastructure. We look at it from a context of being opportunity lots. So toward these scenarios, we’re balancing our growth rate, with our capital structure, with people demands.

Interestingly we have actually been turning some opportunities down right now just due to the long lead times associated with the equipment. So the answer to your question basically is much as we want is out there for us to go grab..

Yeah. Sharon, I may just add the -- I mean, we’ll be providing guidance for 2015. As we get --- customarily get into reporting the fourth quarter of this year.

So we are clearly not stepping out to provide guidance at this time, but the demand is shaping up quite strongly because we see something that would resemble higher horsepower levels of what we added this year, we think the demand could be there.

But we’re going to evaluate that as we get closer to end of this year in looking to supplement the orders that we’ve already placed for next year..

Okay.

And then I guess, in terms of the split between midstream and gas lift, will it be similar to your 2014 spending?.

We do expect that. So as we communicated on earlier calls, we see the gas lift to still remaining a relatively small portion of the fleet and all of the orders that we placed for next year, the 200,000 horsepower are being from the larger compression units..

Okay.

And in terms of likely deployment, do you anticipate that will be two similar regions of growth for this year?.

We do Sharon. Based on the demand signals coming from our core customers, we continue to see activity in the Northeast with the Marcellus and the Utica. We continue to see strong demand coming from the various basins of West Texas, the Permian and the Delaware, et cetera. The scoop play is continuing to have a lot of demand for the gas lift equipment.

And then our other operating areas like the Fayetteville continues to have this basic normal growth that we see.

So it’s not the Herculean growth we see in some of the other areas but when you look at the Barnett, when you look at East Texas, when you look at the Fayetteville continued growth, we are starting to make some inroads into the Eagle Ford and South Texas.

So I think that’s an area that in 2015 will probably be an incremental growth opportunity for us..

Great. Thank you so much..

Thank you..

Thank you, Sharon..

We’ll go to our next question from TJ Schultz with RBC Capital Market..

Hey guys. Good morning..

Good morning, TJ..

So, Compressco obviously recently acquired CSI.

The CSI business, is that something you looked at and if you could just comment in general how that combination alters kind of the competitive landscape if at all and just generally how active you guys want to be in M&A?.

It’s a good question, TJ. I think as we’ve indicated with marketplace, our primary focus is of course, organic growth opportunities. Through the extent there is something that fits geographically from the type of assets, vintage of assets, size of assets, it would be accretive, it would be something we would consider. CSI is a good company.

We know those folks for a long time but their business model is very different than ours. They’re predominantly a fabricator of equipment. They provide retail services and they do have a fleet, obviously. It tends to be kind of intermediate to smaller horsepower. It’s a little bit over fleet.

And it’s one of those things that’s a little outside of our fairway. I think its something that is transformative for the Compressco folks, very different business model, Compressco with very small wellhead oriented equipment. CSI is a fabricator with intermediate sized equipment.

Rather than being complementary business lines, I think frankly they’re very different business lines. So they’ve got a lot of work to do to reform contracts, build from a rental model into the services model. They’ve got integration issues to deal with. And frankly we don't see either one of those players that much in our marketplace.

That’s just a very different dynamic in a different market sector than we have elected to plan..

(Operator Instructions) We’ll go next to Matt Niblack with HITE..

Thank you and congratulations on the great quarter..

Thank you, Matt..

Thank you, Matt..

I guess, the question I have is a bit of a strategic one here related to your decision to continue to push the distribution growth in light of the fact that it seems like your units are not really good in credit for that growth? I just wonder, given your passing on opportunities, your cost of capital is higher than honestly what it should be by any rational metric? How do you think about that trade-off of generating less, in fact negative internal cash to pursue those growth opportunities that can go more into equity markets at this high cost of capital versus restraining that growth a bit, so you can start to generate some internal cash? Its obviously would be much less expensive than the equity, the after issue with these depressed prices..

Obviously, Matt, that’s something we think about every single day. When we ride on the road talking about the IPO, we contemplated growth in the 100,000 to 150,000 horsepower per year range and here we are growing at equipment 300,000, 350,000 horsepower.

So one of the things that the financial community signal to us really on was guys you need to get your leverage down, work on your balance sheet, you need to kind of grow in the things and we’d would like to where it was and where it is.

So we actually have made a conscious decision to try to balance the high level of growth, balance coverage, balance leverage. You hit the nail right on the head with our cost of capital like it currently is. Frankly, it does constrain our ability a little bit. So, I think, Jody will chime in here.

We’re doing everything communally possible to continue to grow our business, but yet balance the financial side of the shop.

So as we talked about from the get go, were story of stability, were story of growth and I think, we’ve exhibited a high degree of growth already, sure we can even escalate more, but there comes a point when we look at it and go with our current capital structure like it is, we are not being rewarded for that..

Yeah. I think just echo Eric’s comment, Matt, we smiled when we heard your commentary about cost of capital.

So we believe that the distribution growth with visibility that we have on our cash flow is sustainable and so we are again targeting growth rates that would not only reward the unitholders in terms of distribution growth, but also in being strategically place with our customers.

So the only other element that we have there is, as Eric mentioned, was moderating our leverage and making sure that that’s within the kind of targets that we’ve been communicating to the market..

And then on the similar note, we’ve seen some other MLPs, particularly in the E&P space but also in the gathering and processing space at a high cost of equity capital compared to the professional preferred pocket? Is that something you considered?.

Matt, can you clarify that a bit in terms of professional preferred market?.

Issuing perpetual preferred equity..

Oh! Perpetual preferred. .

Yeah. You are not actually chatted with Scott Smith about their drivers what they did that and frankly, it was to attract folks who have UBTI issues and not really interesting in dealing with K1s.

So, I think, they were looking at that is kind of an alternative way to attract some incremental investor types rather than looking at as an alternative capital type of play..

Yeah. And in terms of our debt capital structure, you that our cost of funds under our revolver is less than 2% all in. Now we have several hundred million dollars of capacity there. So, we like the piece of that revolver for growth CapEx in the business..

All right. That makes sense.

The thought of the perpetual preferred is given the experience of Atlas, it might be the case you can issue the perpetual preferred equity at a distribution rates that’s even in lower than what your common equity distributes and wouldn’t have the same growth and therefore, would be a real benefit to common equity holders, well, providing it different way for those with UBTI issues or other concerns to participate, I just thought but….

Yeah. And that maybe, I’ll tell you probably like a lot of MLPs are doing these days, our first look to be to an aftermarket type of program. So that’s something that we’re monitoring pretty closely as well..

Right. Thank you..

Welcome..

It appears there are no further questions at this time. Mr. Holloway, I like to turn the conference back to you for any additional or closing remarks..

Well, thanks, Sheena. As always we appreciate everyone being a part of these calls and we’ll look forward to the next one, but for now have a great day..

That does conclude today’s conference. Thank you for your participation..