Greg Holloway - Vice President, General Counsel and Secretary Eric Long - President and Chief Executive Officer Matthew Liuzzi - Vice President, Chief Financial Officer and Treasurer.

Praveen Narra - Raymond James & Associates, Inc. TJ Schultz - RBC Capital Markets Andrew Burd - JP Morgan Richard Verdi - Ladenburg Thalmann & Co., Inc..

Good day, everyone and welcome to the USA Compression Partners’ First Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call is being recorded.

It is now pleasure to turn today’s program over to Greg Holloway, Vice President, General Counsel and Secretary. Please go ahead, sir..

Thank you, Priscilla. Good morning everybody and thanks for joining us. This morning as you know we released our financial results for the quarter ended March 31, 2016. You can find our earnings release, as well as a recording of this conference, in the Investor Relations section of our website at usacompression.com.

The recording will be available through May 16. 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. 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, May 5, 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 first quarter 2016 financial and operational results and I am pleased to report that we started off 2016 with the solid quarter of performance against the challenging market backdrop, demonstrating the continued stability of our compression services business model.

For the first quarter, USA Compression reported moderate year-over-year increases in revenue and adjusted EBITDA. While distributable cash flow for DCF grew 8% relative to Q1 2015. For the last several months we’ve been in the stability phase. In our results for the quarter demonstrate that.

For the rest of the year we expect to continue to focus on stability and positioning USA Compression for what we believe will be inevitable upturn in the energy space. While there remains still some uncertainty in the market and participants including ourselves are taking a cautious approach to full-year expectations.

I want to highlight a few things that reinforce the critical nature of our services and illustrate our continued focus on maintaining a sound capital structure. First, the Permian Basin and Delaware Basins continued to be active. This area has clearly become more and more prominent within industry and we remain very active in those areas.

The Northeast infrastructure build that continues with major players embarking on major projects, this has been in continues to be a core area for us. We recently amended our credit facility to give us room to operate and make prudent financial decisions for the long-term.

Coverage and leverage continue to be a focus and few longer first attractive levels on both those metrics. And finally, we kept the distribution flat providing unitholders with attractive yield, while not stressing the partnerships financial position.

These results represent a good start towards our previously stated 2016 outlook which we again affirm. As in the past we will continue to provide updates to our guidance throughout the year both financially and operationally. In keeping the distribution flat our coverage ratio for the quarter was 1.1x and our leverage remain attract at 4.8x.

We continue to heed the message from investors of a growing appreciation for a strong balance sheet and coverage relative to distribution growth in the current environment. Also during the quarter we successfully amended our credit agreement with our Bank Group.

Matt will provide more details on the amendment and the leverage covenant flexibility to provide in a bit. Recently the price of our common units is recovered from the low-7s to the mid-teens level. This behavior suggests that even though roughly 85% of our assets are deployed in demand driven natural gas infrastructure applications.

Our units appear to trade with the close correlation for the price of oil and its outlook. We continue to believe that over time our investor base will see that it is the demand for natural gas, which continues to grow that drives our business and not the spot price of oil.

As I mentioned before our business model is characterized by both stability and growth over the course of multi-year commodity cycles.

Well we spent the last several years in the growth mode taking advantage of market driven demand for natural gas and attractive capital cost, we are now focused on the stability of our infrastructure oriented asset base.

Given the critical nature of our assets in the overall natural gas infrastructure, we have been able to hold utilization and pricing close to historical averages. While, we now see and may see some continued small decline in utilization remember that existing gas production still requires compression to move it through the pipeline system.

Even in areas where overall volumes are flattening or entering the steady state decline mode due to lack of incremental drilling, well pressures can also decline significantly, which means compression requirements could actually increase over time to move that same volume of natural gas.

As most are aware the majority of our assets are infrastructure oriented and are tied to the production of natural gas, which in turn is driven by increasing demand, which in turn has resulted in fairly stable pricing in utilization.

This is especially true when compared to drilling oriented oil field services businesses whose utilization, pricing and revenues maybe on 40%, 50% or even more percent in a downturn like the one the industry is currently in. As I mentioned previously both our pricing and utilization were down just slightly quarter-over-quarter.

But as natural gas production and demand continue to grow, we expect continued demand for our services.

As we've discussed before our infrastructure oriented equipment is critical to the natural gas value chain and as producers and transporters of natural gas work to optimize their own production and transportation volumes that is naturally going to impact our business.

With the lower commodity prices experienced earlier in the year our customers were forced to continue to examine their own operations and as a result we saw a slight degradation in our utilization rates over the last three months with an average of 88.7% in Q1 relative to 89.5% last quarter, all told not too bad considering the market environment.

Customers in all regions continue to reexamine their capital budgets and related future compression requirements as well as optimizing their existing compression needs, especially as overall volumes in certain areas continue to flatten or enter the shallow decline things or shale production.

However, we continue to see pockets of activity in the Northeast as well as West Texas particularly on the Delaware basin side and we continue to put equipment into service with financially stable counterparties at attractive economic returns.

As we discussed last quarter our management team is laser-focused on pulling the various levers we have at our disposal and maintaining utilization remains a top priority, while doing so at service fees that justify the work that we're performing.

When coupled with the high barriers to exit, we have touched on in the past including direct cost borne by our customers associated with freight, cranes and demobilization as well as certain permitting requirements, we should be able to keep our compression assets deployed and active as our larger horsepower business remain in relatively high demand across the industry and from our customers resulting in relatively stable utilization rates and cash flows for our investors.

Additionally we believe as the market sees stability in commodity prices, we will begin to see stabilization in activity levels across all basins and return to producers and midstream operators embarking on new development plans.

On the pricing side, we saw a slight decrease of approximately 1.5% from last quarter for the overall fleet On that the majority of the decrease related to the gas lift, small horsepower side of the business, which is a reminder, represents only about 15% of the total fleet horsepower.

These units are more tied to the production of crude oil and as the price of crude is fluctuated our customers would work to keep their operating expenses low, we would continue to work with our customers to develop win-win situations where we can both benefit from the relationship over the long haul.

Given both the critical nature of our larger horsepower, midstream compression assets which are utilized and transporting large volumes of gas as well as the longer term nature of contracts for larger horsepower, we generally see more stability in rates related to mainstream infrastructure applications.

Service rates for new projects and installations can vary by operating regions. In areas of softness, there is clearly more price based competition for customers, but we remain disciplined in our pricing to ensure that we continue to earn attractive economic returns in these areas.

In general, due to the high barriers to exit, we find that our compression assets particularly on the large horsepower midstream side of the business continue to be very sticky on both pricing and utilization as well as staying in the field beyond the primary contract term.

While pricing and utilization are hard to predict in an environment like the one we are currently in. We believe that the infrastructure-oriented demand for the nature of our asset base is built for stability in times like these.

During our nearly 20-year operating history, we've been through multiple commodity cycles and while [indiscernible] our businesses demonstrated stability in margins and cash flows.

We continue to actively manage the business to focus on operational excellence and maintaining our fleet utilization through this downturn, but also directing our efforts at the other levers that are disposal maintaining capital discipline and maximizing our operating margins.

As it relates to capital discipline, we spend a total of about $15 million of expansion capital in the first quarter of 2016 down drastically from $115 million last year during the same period and the majority of that spend reflects payments for prior year equipment purchases.

We continue to expect to spend somewhere in the range of $40 million to $50 million for expansion capital in 2016 versus $270 million in 2015, a reduction of over 80%. We still expect just over 1500 horsepower to be delivered this year and at this time do not expect to make any additional commitments to purchase new units for the year.

We plan to fund our minimal capital expansion with operating cash flow and borrowings and plan to live within our current capital structure aided by the flexibility arising from our recent credit agreement amendment.

As we have touched on in the past relative to pipeline businesses with multiyear lead time projects with significant capital commitments to meet. Our business has much more flexibility with regards to capital spending and we have been able to quickly rein in our expansion CapEx.

Given our extremely scaled back lead horsepower additions this year equating to less than 1% of our total fleet, we will focus on utilizing our in-stock large horsepower equipment as new projects come about. Finally, we continue to wring out operational and corporate efficiencies as evidenced by our sustained high margins.

Overall, gross margins were relatively flat quarter-over-quarter and just under 69%. In particular, our gross margins on the contract compression operation remains over 70% which represents the highest margins of our public peers even those pricing is ticked down just a bit.

Our operating team, which we believe remains the best in the business continues to demonstrate operational excellence and ability to control cost. We remain laser focused on finding additional areas of savings. We continue to be bullish on the long-term natural gas market domestically.

And we are positioned to ramp up growth again when the market dictates. While current low commodity prices affect new drilling activity, we believe the overall gas supply picture appears to be robust in the future years.

Part of the explanation for this is that producers continue to experience productivity gains and lower drilling and completion cost all of which drive efficiencies. Recently, we saw the natural gas crude prices exceed $3 in early 2017.

We believe this level of prices have sustained and support the development of new or delayed upstream and midstream natural gas projects particularly in the prolific Marcellus and Utica shale. On the oily side as we have mentioned, we see continued activity in West Texas particularly in the Delaware basin.

Given the stacked horizontal potential new areas, E&P operators are still able to earn attractive returns on incremental drilling and new production.

Pioneer, one of the top acreage holders and producers in the Permian and Delaware basin recently stated that they would have five to 10 additional rigs in the area, while oil recovers through approximately $50 per barrel.

We expect that natural gas demand growth will continue to be driven by the same factors we have touched on in the past, including ongoing large scale coal plant retirements, mandated by EPA regulations, continuation of growth in LNG exports, increasing industrial demand driven in part by new petrochemical projects under construction and pipeline exports to Mexico.

In fact, Mexico has begun to see its own domestic gas production fall and those declines are only expected to accelerate. This should further brings to us gas exports to Mexico, which were up 40% year-over-year in March to around 2 Bcf a day.

This expected continued increase in domestic natural gas demand will drive increased infrastructure investment and which compression will be an important part. Recently INGA the Interstate Natural Gas Association updated is report a long-term infrastructure spending. And while the headline was that estimated spending was down slightly.

The aggregate numbers remain somewhat staggering approximately $550 billion of investment through 2035 or about $26 billion per year.

Closer to home for USA Compassion INGA further estimates a need for about $23 billion to $30 billion of compression from gas gathering lines over the same period which corresponds to well over a $1 billion of projected compression investment annually.

To report also indicates that a significant amount of the required midstream development is expected to occur by 2020. Driven by the growth in cost effective shell production and demand factors such as LNG and exports to Mexico.

As the report clearly indicates natural gas is in won't become more and more important over the coming years and compression remains a critical an essential part of the overall natural gas infrastructure investment. I'll wrap up my comments by reiterating our strategy to manage through this current trough in the latest energy cycle.

Rain in gross spending and live within our capital structure. Focus on maintaining a high fleet utilization by providing superior levels of service to our customers and bring our cost savings throughout the organization.

We continue to print out the stability of our business model, which focuses on critical infrastructure and must run compression equipment. For also remaining flexible to efficiently respond to changing market conditions. We remain bullish on the outlook for compression over the long-term.

Given the attractive macro fundamentals for growing natural gas demand and continue infrastructure build-out. Our large Horsepower business model and stable cash flows all set USA Compression up for future success and long-term sustainability. I’ll now turn over the floor to Matt to cover some of the financial highlights of the quarter. Matt..

Thanks, Eric, and good morning, everyone. As Eric mentioned USA Compression reported another very strong quarter of operations against the tough market backdrop. For the first quarter of 2016, USA Compression reported revenue of $66.4 million, adjusted EBITDA of $38.4 million and Bcf of $31.9 million.

In April, we announced a cash distribution to our unitholders of $0.52 per unit which resulted in DCF coverage ratio for the quarter of 1.1 times. Taking into account the impact of the DRIP program, our cash coverage ratio for the quarter was 1.68 times.

With the support of our largest unitholders we continue to strike a balance between the DRIP and cash pay distributions. This quarter Riverstone elected to take 20% of its distributions and cash. Joining Argonaut Private Equity who 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. In Q1 2016 we continued our trend of raining in our capital spending investing only $15 million of expansion capital.

The majority of which was related to equipment taken delivery us, but not yet paid for by year-end 2015. In fact we do not take delivery of any new compression equipment in the quarter. Given that fact we ended Q1 similar to where we ended 2015 with just over 1.7 million total fleet Horsepower.

Our revenue generating Horsepower period end was essentially flat relative to Q4 at 1.4 million Horsepower. We continue to focus on working off the backlog of 2015 deliveries yet to be placed in the service. Well we invested a total of almost $217 million in expansion capital in 2015.

As Eric mentioned before we expect to spend considerably less than that in 2016 somewhere between $40 million and $50 million.

We continue to expect to take delivery of almost 15,000 horsepower in 2016 primarily in Q2 and Q3 the remaining expansion capital will be spent on certain compressor packaged components, equipment reconfiguration, IT infrastructure, trucks and other items necessary to support the business.

Our average horsepower utilization for the first quarter was 88.7% down slightly in sequential quarters from 89.5% and down from 91.9% in the first quarter of 2015. Pricing as measured by average revenue per revenue generating horsepower per month was down slightly to $15.72 from $15.97 in Q4 and down from $15.85 year-over-year.

Turning to the financial performance for the first quarter, total revenue increased 2.1% compared to the first quarter of 2015 primarily driven by an increase in our retail and parts revenues. Our revenue from contract operations was up slightly year-over-year.

Gross operating margin as a percentage of revenue was 68.6% in Q1 2016 down relative to Q1 2015 partially due to higher parts and services revenue, which tend to earn lower margins on our contract compression operations.

Adjusted EBITDA increased approximately 2.4% to $38.4 million in the first quarter as compared to $37.5 million for the first quarter of 2015. DCF in the quarter was $31.9 million as compared to $29.5 million in the same period last year an increase of approximately 8%.

Net income in the quarter was $8.5 million as compared to $11.5 million for the first quarter of 2015 a decrease of roughly 25%. Net cash provided by operating activities of $22 million in the quarter increased 51% relative to $14.5 million in the same period last year.

Operating income decreased 11% to $13.8 million for the first quarter of 2016 as compared to $15.5 million for the first quarter of 2015. Maintenance capital totaled $1.4 million in the quarter, which was consistent with expected levels for the quarter as we accelerated certain maintenance activities into Q4 2015.

We continue to expect approximately $15 million of maintenance capital in 2016. Cash interest expense net was $4.6 million for the quarter. Outstanding borrowings under our revolving credit facility as of March 31, 2016 were $743 million resulting in a leverage ratio of 4.8 times at quarter end.

The same level that we reported at year end 2015 and well within our covenant level of 5.5 times. As Eric, mentioned in March we successfully amended our credit facility, which allows for a leverage ratio covenant release beginning in the second quarter through 2017.

We believe this amendment provides us with increased flexibility in managing our balance sheet leverage and distribution policy and that it reflects the continued strong show of support by our lender group. As a regards full year 2016 guidance at this point in the year, we’re affirming the ranges that we previously provided.

Full year adjusted EBITDA of $138 million to $153 million and DCF of $102 million to $117 million. As everyone on this call can appreciate, we are still relatively early on in the year and as the year progresses and we gain more clarity around trends in utilization, pricing and margins. We expect to be in a better position to provide updated guidance.

Finally, we expect to file our Form 10-Q with the SEC earlier this afternoon. And with that we’ll open up the call to questions..

[Operator Instructions] We’ll take our first question from Praveen Narra with Raymond James. Your line is open..

Hey, good morning guys..

Good morning..

So you guys had mentioned that the majority or decent portion of the utilization decline has come from the gasless side. I guess that if we could separate the natural gas levered compression versus levered compression.

Could you give us a sense of what you're seeing on the utilization and pricing side on just the gas levered portion?.

Sure, Praveen and I think it's important to remember we don't actually separate those out, but we will try and just give you some color for different segment businesses are performing.

Most of the decline is on the gas side of things, obviously for our business it’s trying to – people drilling oil wells and so as you saw the price of oil kind of go up and down over the last quarter and even beyond. That's where we've seen the volatility in first the pricing and just overall utilization.

The utilization on that side of the fleet is going to be significantly less than on the midstream side and that’s just the nature of those units, the nature of the contract.

When you compare to the midstream stuff that three to five year contracts inside houses, infrastructure, large compressor stations contrast that with the gas side of things which if the price of oil goes up and down these operators are making decisions on a daily basis.

So that part has certainly been lower than on the gas midstream side of things and pricing has reflected that. It's obviously more competitive out there for those units and stuff that's on six months, one-year contract is going to come up for renewals more frequently.

But overall I think as we’ve said in the past, we've been I think pleasantly surprised at how resilient that side of the business is and obviously it’s a different business than the midstream natural gas side of things, but has still proven to be I think more resilient than we thought..

Okay, that's helpful.

I thought it’s nice to see the reaffirmed guidance I guess could you give us a sense of what kind of utilization is being – that guidance is predicated on and then what you've seen thus far into 2Q?.

Sure. So I think looking out over the full-year, as we kind of do our internal forecast, we take a fairly conservative route.

I don't think we disclose exactly what the utilization we assume is, but as we have visibility for units coming and going we take that into our forecast and I think we are – our forecasts were sort of prepared for continued more of the same I think and so the utilization would reflect that.

But again we look at our fleet and 85% of it is midstream based and its long contract and it's stuff up in the Northeast and West Texas where there's a lot of activity. And so – that kind of stuff it's not like that stuff just comes home. It's a longer live stuff and with good contract and so.

Because of that we think that part that really holds up well and so we will continue watching the utilization as it goes on, but it's not I don't think we're projecting a huge increase in it, but we're also not projecting a fall off the cliff..

This is Eric. Let me chime in one other overall macro. It was 85% of our assets being deployed in infrastructure, midstream type applications. There's a lot of shale gas that we've been involved with in multiple basins for an extended period of time.

In some of these basin where you got dry gas shale production, new activity ceased or slowdown significantly two to three years ago.

If you look at the hyperbolic nature of declines from shale wells, you have big volumes and production for a year, 18 months, 24 months then we into the shallower almost steady state mode on the back end of the tail, post the fresh production from the shale.

So a lot of our assets are deployed in areas where this slowdown occurred two, three, four years ago and attendantly we are now seeing moderate to very shallow declines in some of these areas. The other thing that we see is we'll have multiple units on an installation. We don't have one compressor.

We might have eight or 10 or even 12 on a big pad site. And to the extent that the production is back off, needs have declined a little bit.

You might see one or two units of ours get sent home and then you go into this relatively shallow decline mode, pressures declined and we end up seeing the balance between volume and pressures which mandate that the compression of once flash production has gone tends to stay there and sticky from extended period of time.

So our business model in the type of assets we have - are very different than the vast majority of our peers public and private alike and allows us to have that stability of cash flow, stability and distributions for the long haul.

So and as you heard me say before we grow when it makes sense to grow and we do stabilize in focus on the stability side of the model in times like this – which are this kind of basic physics have a natural gas flows. We're now in a lot of our installations in that steady state mode with shallow decline..

Perfect, that showing up. Great job guys. Thank you..

Thank you..

Thank you. We will move next to TJ Schultz with RBC Capital Markets. Your line is open..

Great thanks. Good morning. Eric just kind of following up on that last final thought I want to touch on one thing you mentioned in your prepared remarks. When we think about midstream larger Horsepower applications you stress the high barriers to exit.

If you could just expand on that as we think about the costs whether cash costs or opportunity costs that your customers.

Consider that that make those exit barriers real?.

Sure, so when you think about one of our bigger machines or caterpillar driven 36 weight which is about 2500 horsepower. This got weighs somewhere in the range of 250,000 pounds it's going to be the size of roughly four diesel locomotives so they're really big Gizmos. Many of these types of units are located inside of buildings.

So you can imagine the cost required to dismantle a building to bring in very large cranes to dismantle our pieces of equipment into four or five different groups who are separate from the compressors skin separated from the engine skin is an example.

You have to put this on trucks that are then used to haul the equipment back to central freight site, many cases Oklahoma or Houston. So you may be talking as much as $100,000 of the mobilization cost per piece of equipment. So if you think about the applications of this we got large volumes of natural gas moving through our facilities.

You got this $100,000 costs per machine to send it home and you might have eight or 10 machining on a location. I mean you're talking numbers that are half to three quarters to a $1 million to be mobilized. And I think our operators look at that and go do we really want to send this type of equipment home.

The low commodity price environment we've seen installations where our customers have curtailed natural gas production. Instead of producing it the wells wide open they my problem back 50%. Well clearly they're not going to spend CapEx dollars or OpEx dollars that affect their LOE our equipment home.

When they mined in two or three months need to turn to the wells back up again and flow bigger volumes. In the case of customers who are having some financial difficulties i.e. a bankruptcy. The last thing they want to do is incur that additional half three quarters a $1 million to send equipment home.

And then be forced to spend that same amount of capital to bring new equipment in or replacement equipment in that it's going to be market priced effectively the same type arrange that we're seeing today. So once the stuff is installed unlike the small well either gas left or dry gas well equipment.

This stuff for the long haul duration because of those barriers to exit TJ that you pointed out. It's expensive to move the stuff..

Okay. Thanks that's helpful.

Matt maybe on the dead amendment is there any change the pricing - to pricing grid in exchange for the covenant release?.

No there was no change to pricing or anything else just purely to leverage covenants..

Okay great. Just lastly obviously this week we saw another compression MLP cut.

Distributions ultimately checking out to be well received by the market relatively speaking so I guess just the question is does that just at all your thinking on distribution policy as you balance distributions at the same time as managing leverage?.

Yes, sure. I will jump in TJ. Interesting announcement and I guess that’s why we leave it to you guys to pick the stocks. But overall, I mean we talk about it every quarter with the Board, it’s their decision.

Obviously, we looked at this quarter and several weeks ago when we made the announcement we knew the performance we had for the quarter and we thought the right thing to do was to return capital to the unitholders.

This credit facility amendment and kind of our business, the line of sight that we have on it, we like the position we're in right now you know obviously we can’t speak to kind of what others were seeing or had to or didn't have to do. But it's a discussion that we're going to have every quarter and it was an interesting market data point..

TJ from my perspective, our business model is significantly different than that of our peers, the bigger horsepower infrastructure related equipment, long-term contracts versus short cycle time, high data [indiscernible] equipment with zero barriers to exit.

And just even from a simple productivity stance you know if you were to look at DCF per employee USA Compression roughly $250,000 of DCF per employee and a couple of our public peers are $100-ish, $1,000 or even as low as $50,000, $60,000, so were a much more efficient less machine, we’re a much more stable machine and we obviously look at our distribution is something, which our investor base has looked for the stability component of it.

As Matt, mentioned you know the Board makes that decision quarter-over-quarter but our belief currently is, we operate as an MLP, we need to reward our long-term - long-term focused investors. To the extent we can continue to balance leverage and coverage and afford to keep the distributions as they are that lays on our thinking..

Okay, great. Thanks I appreciate the comments..

Thank you. We’ll move now to Andrew Burd from JP Morgan. Your line is open..

Hey, good morning. I had two kind of bigger picture more macro thoughts. The first is over the last I guess 18 months, the industry has seen a pretty decent amount of compression taken out of service. When the cycle turns eventually how much of that do you think is eligible to reenter the market or set differently.

Is that do you see the industry's available capacity potentially shrinking?.

Really good question. And I think we have to look at horsepower ranges over the last 18 months.

The bulk of the degradation in utilization has occurred either by retirements of old equipment that don't meet the missions standards or fuel efficient, it's stuff that has been acquired through consolidation in the industry over the last 20 or 30 years and frankly these equipment that will never come back into play and there is also a fair amount of the small horsepower stuff that has very, very high beta directly tied to either natural gas commodity price, oil commodity price et cetera.

When you look at the niche that we play, the big horsepower range there's not a lot of ideal equipment lying around. If we go back and look at the 2008 and 2009 range, there are our peers develop somewhere between half to three quarters of a million horsepower of the big stuff like this, so we're sitting around idle.

We're in a very different environment today. There's not a plethora of equipment of this big horse power range laying around idle. So my own personal sentiments are is – when the inevitable upturn occurs there's going to be a lag time between the timing to build new equipment for Caterpillar to ramp up, Aerial to ramp up and another to ramp up.

And there will be some lag time when producers start to complete their drilling on uncompleted wells and start mashing, the accelerators increasing rig count that should blown positively for the large horsepower compression sector..

So, understanding that correctly. You know thinking about that scenario. In the upside recovery those larger horse power units may see a price response, utilizations already tight and the smaller units you may not see the price response right away because utilization is going to creep up first.

Is that a fair way to think about the eventual recovery?.

I think it's a fair way to look at it..

Okay. And then the second question is on again a macro one on the competitive landscape.

We know about your public peers, they don't have to necessarily comment on the big four, but I'm curious if you're seeing new entrants into the compression business especially you and your peers are reigning in the horns or conversely are you seeing smaller competitors exiting because they're feeling too much pain.

Any kind of color on the competitive landscape would be great?.

Yes, there are a few private companies that are floating around out there. One or two – but one in particular was some size, a couple that are relatively new entrants, which are relatively small players. I think all of the folks are experiencing some balance sheet constraints, so very few of the peers are aggressively deploying new equipment.

There is one new entrant that was recently backed by some private equity folks. So far they are establishing some toehold in some areas actually developing more operating type services agreements rather than deploying a large amount of capital back into the industry. So it's one thing that have access to capital, it's another thing to have in place.

MSA’s were acquired to do business with major oil companies and large independents. They have the safety programs, the training programs to support infrastructure. For a new entrant to get into the business, it takes a fairly significant lead time and I'm talking in five, six, seven years to be able to gain any traction.

So we're not seeing lots of new entrants into the industry and in fact it's fairly limited because of the magnitude of some of the things I've just suggested with some of the other private players experiencing the same balance sheet limitations that all of us are in the industry.

I think the positive side of that is our customers both midstream and E&P is a like are also experiencing balance sheet limitation.

If you go back five years ago when there was quote unlimited capital available to our customers, some people made the decision that maybe compression is a core competency and something we should in-source rather than looking to outsource to someone else.

With the balance sheets particularly the E&P guys are now looking at it and saying I need to put what limited precious capital I have into the ground to develop or I need to build a pipeline or I need to build a processing plant.

I really don't necessarily need to own a big fleet of compression assets and the staff that goes with it in the training, in the inventory all the things we go along. So we're actually in an environment like this start to see opportunities to pick up some incremental market share all of us in the industry do.

My private and public peers are like, because there are some incremental opportunities with folks who just come here five years ago, do things themselves who are now looking to expand the outsourcing relationship..

That's some fantastic colors. Thanks very much..

Thank you..

[Operator Instructions] We will go next to Richard Verdi with Ladenburg. Your line is open..

Hi, good morning Eric and Matt and thank you for taking my call and also congrats on successfully navigating the company through this rough environment and being able to reaffirm guidance here, it’s great. I guess my first question pertains to the amendment to the revolver. I'm curious if you could tell me the decision behind that.

For instance was it because maybe USA doesn’t want to deal with the banks or is it because maybe that the company sees challenging times ahead?.

You know Rich; we've been doing this a long time. We work with our bank group now for over a decade. Others in the industry have the ABL structure that's modeled around what USA has done for the past decade or so. So we have some concerns about coming into this year, what the E&P environment was going to look like.

Where we going to be $40 to $50 oil are we going to be $15 or $20 oil? We proactively approach the bank and said guys you worked with us for a long time, we really don't think you want to us longer term to be forced into an environment where we have to go raise equity in an absolute bottom on a cycle.

That creates leakage for the banks who creates leakage an overhang for all of our unitholders and because of the long relationship we have the type of our contracts, the type of assets we have and how they are deployed.

The bank was able to get very, very comfortable very quickly that, hey we're probably never going to bump up on any of these covenants, but frankly it was an insurance policy coming into the first quarter of 2016 not knowing what the world was going to look like.

So I think now it is we powered through three or four months we're starting to get better commodity clarity and so the back half of the year, when you look at the lights of [Raymond James] and Tudor, Pickering who are projecting anywhere between $60 to $75 oil the back half of this year. There appears to be some optimism coming into the marketplace.

The appearances that we've kind of hit the bottom. We're now balancing along the bottom a little bit. So again we just wanted to be proactive you know ahead of the curve get ahead of the bankruptcies get ahead of the borrowing base pre-determinations that we're hitting ready to occur in the energy patch.

And just position ourselves no matter what the commodity price environment did we work on a bus to cover it. So it was simply an insurance policy..

That's great. Thank you for that Eric. And my next question pertains to the contracts. With what the company seeing right now how much of this business would you say under primary contract versus month-to-month.

And for the month-to-month side you so it's because customers are afraid they might shutdown or is it because they realize they're capturing favorable pricing..

It's a combination I would say that roughly 65% of our assets are deployed under remaining initial primary terms we've got plenty of term under this. As you part to be state before our bigger horsepower typically goes out under contracts have an initial primary term of two to five years.

That's very different than the smaller horsepower equipment that might have six months or maybe at most a year or so. What we do intend to see on bigger horsepower when it comes half of month to month contracts.

We look at things like is it running loaded lightly loaded what are the market conditions like are the rates at market early above market are they below market. The last thing we want to do is look at returning up on an extended basis, our bigger horsepower assets at pretty low rates.

So I think what we have seen over the various cycle over - almost 20 years or so is that due to the environment like we're in today. Some of our producers and some of our customers would like us to term of things. And frankly we kind of drag our feet. And we prefer not to.

So it's a balancing act we look at portfolio management across our entire fleet across our horsepower ranges and we want to maintain some flexibility for the future.

That when the inevitable upturn and what we anticipate to be some limited availability of equipment that we can capture some of that outside ourselves rather than walking in at the bottom of the cycle today. Just for the cycle walking in some term. So we try to balance all those things..

Okay. Thank you for that Eric. And you mentioned a few times today the company continues to seek strength and Northeast and West Texas. And looking out over the next let's say one to three years to the USA could expect that trend to continue or could there be another location that could become more prominent to the company..

Well, I think it boils down to access to capital in the economics associated with the opportunities. There are clearly basins and geography were USA does not have footprint, our customer list is significantly smaller than that of some of our peers.

Our top ten customers are - under half our revenue in our top 20 customers or 65% of our revenues are so. So there's plenty of opportunity for us to expand our relationships with additional customers, expand our relationship with current customers into different geographic areas.

Ability to expand into different basins where we don't have a presence for foothold our foothold in the bottom line I think it's a function of economics and what the market conditions look like.

So we have a history of growing organically and to the extent those opportunities exist in the economics make sense and capital windows are open will take advantage of those things..

Okay great. Great and then actually kind of dovetails perfectly into my next question you know when you think about it you've talked a little bit about the competitive landscape already.

When you think about the compression space I guess everyone from most parkways and sandbox and really I guess the only way to expand a footprint is to acquire horsepower of another outfit in our respective region. So what the turbulence the space is saying you know there's a chance some operators could be put up for sale so.

That would happen I guess how quick with to be willing to explore an area transaction and is there a specific region do you think would be more favorable than versus another maybe?.

Rich, it's Matt, I think overall we look at constantly and even in the current commodity environmental I mean stuff is, people are talking and looking for alternatives. When we look at it again Eric mentioned that over the history you're faced predominately been a organic growth story well.

I mean you have to consider a kind of our asset base and if we buy somebody who's in a area that we're not in it's not it's not the same as buying a pipeline in that area.

Right I mean because that stuff can all move around and so you know when we think about M&A, I think about operators or other fleets you know you want to make sure that the stuff you're buying is you know compatible with your current fleet, new vintage high horsepower stuff, good customer base to me.

So it's going to be more of those sorts of considerations I think than necessarily a new area you know in the to make coincide to make find somebody who's got a unbelievable market position in a new area and that may be something that's attractive. But you know again back to you know I think capital access, cost to capital.

It's certainly been a little bit more difficult to get stuff done the last you know six months, 12 months, 18 months but I think that will we're in a cycle and that will change and I think just like in the past people will you know there will be transactions to done I have to be done I just think we are going to be very disciplined about who and what we go after..

That’s excellent color. Thank you Matt and thank you Eric for the time guys. I appreciate and congrats again..

Thanks Rich..

And we have no further questions at this time. I would like to turn the call back to Eric Long for any closing remarks today..

Thank you, operator. The entire USA Compression team thanks everybody on the call today. We are continued support of our Company and for participating on our call. 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 distributions due to the stability that our demand driven focus on the larger horsepower infrastructure oriented compression business, offers and comparison to other sectors of the energy business. While the next few quarters we will no doubt be challenging for all of us in the space.

We will work to continue delivering exemplary levels of compression services to our customers and focus on our balance sheet, our leverage, optimizing cash flow and maintaining appropriate coverage. We look forward to our second quarter update call. Sometime in early August. Have a great day..

This does conclude today’s conference. Thank you for your participation. You may disconnect at any time..