Eric Long - President, Chief Executive Officer Matt Liuzzi - Chief Financial Officer Chris Porter - Vice President, General Counsel, Secretary.

Good morning. Welcome to the USA Compression Partners LP’s, Fourth Quarter 2019 Earnings Conference Call. Today's conference call, all parties will be in a listen-only mode and following the call the conference will be open for questions. [Operator Instructions] This conference is being recorded today, February 18, 2020.

I would now like to turn the conference over to Chris Porter, Vice President, General Counsel and Secretary. .

Good morning, everyone, and thank you for joining us. This morning we released our financial results for the quarter ended December 31, 2019. You can find our earnings release, as well as a recording of this call in the Investor Relations section of our website at www.usacompression.com. A recording will be available through February 28, 2020.

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 SEC filings.

Please note that information provided on this call speaks only to management's views as of today, February 18, and may no longer be accurate at the time of a replay. I'll now turn the call over to Eric Long, President and CEO of USA Compression..

Thank you, Chris. Good morning, everyone, and thanks for joining our call. Also with me is Matt Liuzzi, our CFO. This morning we released our financial and operational results for the fourth quarter of 2019 and with it wrapped up a solid year of performance for USA Compression.

We are proud of the results our team has achieved, results which highlight the continued stability of the large horsepower, infrastructure focused compression services business, even in an environment of commodity price volatility, economic uncertainty and a continually evolving energy industry landscape.

Unlike our small horsepower focused peers, who's higher beta, more volatile business model is more directly tied to commodity prices, we believe USA Compressions continued strong performance, operational, financial and utilization statistics, all point to the stability and strength of our large horsepower demand driven business model.

Our results demonstrate the critical nature of our assets in moving clean burning, natural gas around the country to ultimate end users. Operational excellence in the field, combined with prudent financial management helped drive revenues, adjusted EBITDA and fleet utilization across our operating regions.

And most importantly, we achieved these results while prioritizing safety in operations across the company. In fact, in 2019 we reduced both our vehicle incident rate and our injury incident rate by 10% compared to 2018. Historically, our safety metrics have been among the best in our industry.

Safety is of the utmost importance to our customers, our industry and our broader workforce and in 2019 we've demonstrated our ability to achieve great results for our unit holders, while staying focused on safety as our number one priority. Now, to touch on some of the key achievements during the quarter.

Revenues of $178 million were up almost 4% over the fourth quarter of 2018 and adjusted EBITDA of $109 million was up almost 6% over the year ago period. We saw modest improvement in overall gross operating margin to 68.2% and continued attractive adjusted EBITDA margin of 61.3%.

Consistent with our reduced capital plan for 2019, which will continue into 2020, in the fourth quarter we took delivery of 8,750 horsepower, all large horsepower units and deployed them to strong counterparties under long term, fee based contracts at attractive service rates.

Our revenue generating horsepower at period end was just above 3.3 million horsepower, and our average horsepower utilization for the fourth quarter was 93.9%, consistent with both the third quarter 2019, as well as the year ago period.

In January we continued our long history of stable distributions and announcing a distribution to our unit holders of $0.525 per common unit. This distribution is USA Compressions 28th distribution since our IPO and we have now returned over $880 million in distribution value to our unit holders since going public.

Finally, with the strong financial results during the quarter, we reduced our bank covenant leverage to below 4.4x for the quarter.

As I mentioned, we achieved a strong year of results in 2019, in the face of commodity price volatility, economic uncertainty and continued questions over the evolving energy sector in general, and the midstream sector in particular. Just a few broader industry stats for the year.

Natural gas, spot prices were generally range bound throughout the year in that $2 to $3 per MMBtu range and recently dropped below $1.75 per MMBtu. Crude oil saw similar fluctuations, gaining over 30% during the year, although we’ve obviously seen some pull back more recently.

Rig counts saw a steady decline throughout the year, with the total rig count down 25%, with certain basins showing even greater reductions in activity. The volatility noted above has impacted companies across the industry, although some more than others.

The mantra throughout the broader industry is to spend less capital, better balance supply with demand, and focus on increasing the economic returns for stakeholders.

At USA Compression, our business model fits well with these goals and then 2019 demonstrated that we are not directly exposed to commodity prices, and in fact, our services which are a critical part of the natural gas value chain continued to show strength throughout some of the broader, temporary dislocations.

Since the IPO, we have shown that the demand driven nature of contract compression services provides for greater cash flow stability than other energy related businesses that have exposure to commodity prices.

Our assets are critical to the operation of natural gas pipelines, and as natural gas continues to expand its role as a clean burning fuel of choice, we expect continued development of natural gas infrastructure and with it, the need for our compression services.

We have long recognized that the large horsepower compression on which we are focused is often installed and stays in place in the producing region for long periods of time throughout multiple commodity price and contract cycles. We are seeing this play out in real time in the marketplace.

In fact as a general rule, the older a given producing area becomes and the more reservoir pressures decline, more compression horsepower is required to move the same volume of gas into the crude pipelines. 2019 was a strong year for domestic natural gas production, with an increase of approximately 10% above 2018 levels.

Various regional takeaway capacity issues have generally been resolved and with projected 2020 production increases much more modest, the supply demand situation is to see more imbalance for the near future.

The general feeling as we have begun 2020 is one of moderation in activity, combined with caution in spending, while the budgeting and capital allocation process is still going on throughout the energy industry, the overarching theme continues to be capital discipline.

It is no different for us, our current commitment for delivery of new horsepower in 2020 remains at just over 56,000 horsepower, a significant decrease from the last several years. With our reduction in new unit orders, we plan to focus our attention inward; making sure the rest of our fleet is being utilized at attractive rates.

With the reduced capital spending by some of our customers and the industry as a whole, we expect the critical nature of our assets to take on a more important role.

That said, certain of our largest and longest term customers continue to be actively growing their oil and gas production, utilizing large volume facilities, the type that is our specialty in core competency.

Our customers are laser focused on optimizing every single molecule flowing through their plants and pipelines, our high runtime history and commitment to providing exemplary levels of mission critical service, means that our assets will play a big part in helping them achieve their goals.

I would now like to briefly mention some achievements for the fourth quarter. Our fleet utilization remains consistent with the prior quarter and the full year, demonstrating the stability and strength of a large horsepower installed market.

Pricing increased slightly from third quarter levels, reflecting our focus on achieving attractive returns for our services.

Strong operating margins, consistent with historical levels, growth capital during the quarter was reduced by about 37% to approximately 33 million and strong cash flow generation led to acceptable leverage and distribution coverage levels, both of which we expect to continue to improve.

Last month we declared our quarterly distribution of $0.525 per unit, which equates to a current yield of above 13%. At these levels issuing equity to help fund organic growth is expensive and so we continue to plan for a future where we can fund our modest, organic growth CapEx program without the need for additional equity.

Our current orders for 2020 reflect modest organic growth and are focused on accretive, high return investment opportunities, which we believe is an appropriate balance between generating attractive, incremental financial returns for USA Compression’s unit holders and adequately managing our balance sheet.

We believe that our focus on financial discipline is a far more prudent course of action, than growing simply for the sake of growth, and that our unit holders will be rewarded over the long run.

It is no secret that the energy industry as a whole is currently facing some strong headwinds, including uncertain global demand due in part to the coronavirus, continued trade friction and overall weakness in commodity prices.

While this may ultimately impact the rate of growth, none of the above factors will bring the energy industry to a complete halt, and in times of slowdown, having reliable and safe operations are critical for our customer.

We are in constant communication with our customers to ensure that we are meeting their needs for large horsepower equipment and while we think 2020 will reflect a more moderated level of industry activity, we still have great homes with attractive and accretive financial returns for the units we have on order.

Consistent with past energy industry slowdowns, we expect that our stable, long term book of infrastructure focused large horsepower will allow USA Compression to maintain stable cash flows and sustainable distributions. Let's turn to the fourth quarter.

The fourth quarter continued the run of strong quarters for compression services we witnessed throughout 2019, with average utilization during the quarter of 93.9%, which was identical to the third quarter. During the quarter we had 8,750 new horsepower delivered.

Those units were contracted with two investment grade customers and deployed in the Delaware Basin under long term fee based contracts. From an operating perspective, our total fleet horsepower at period end was up modestly at approximately $3.7 million horsepower. Active horsepower increased slightly to just over 3.3 million horsepower.

Average pricing across the fleet increased during the fourth quarter, which given the relatively minimal new unit deliveries, primarily reflected the impact of selective, service rate increases on equipment already deployed and working in the field.

Also for the fourth quarter, we saw our average monthly revenue increased to $16.82 per horsepower, up from $16.73 in the third quarter. As I have mentioned before, given the overall moderation in the industry, we expect pricing on new delivery units to moderate as we move through 2020.

Total growth capital spending for 2020 is expected to be in the $110 million to $120 million range, about half of which is year marked for new unit deliveries.

The remainder is expected to be used for make-ready and reconfiguration activities on existing assets, as they are redeployed into the field and certain other capital investments such as vehicles. The new unit deliveries are predominantly large horsepower units, focused on the 2,500 horsepower class and about.

As we move through 2019, we saw new equipment lead times for the larger horsepower equipment decrease and ultimately stabilize at levels around 30 weeks for the largest engine classes. This has benefited our operations and our customers, as we are able to be more responsive to the ever changing landscape.

We continue to see prudent capital discipline within the industry. The absence of over building on equipment is a positive for all participants. The fourth quarter financial performance wrapped up a really solid year for USA Compression, with a first full year of combined operations from the acquired CDM assets under our belt.

While we tempered the growth in the fleet to better match with the demand that we experienced for our compression services, we nevertheless modestly grew the fleet size primarily through the addition of select large horsepower unit, while maintaining attractive pricing and utilization.

This resulted in strong financial performance with recurring contract operations, related party revenues up approximately 2.5% over the third quarter. Continue to focus on expenses, help increase gross margin percentage over 68% and ultimately drove adjusted EBITDA to $109 million and a margin of 61.3%.

Our bank covenant leverage was below 4.4x for the quarter, continuing our efforts to maintain manageable leverage and our distributable cash flow coverage ratio improved to 1.14x for the quarter, up from 1.08x in the third quarter. For the entire year we achieved a distributable cash flow coverage ratio of 1.13x. So a little color on the marketplace.

Putting aside some of the headlines around the broader energy sector and the market for compression services in the fourth quarter behaved much as I described in the third quarter, marked by continued general economic uncertainty, the presidential election picking in the full year and the continued focus by the energy sector as a whole on prudent capital allocation.

During the quarter, the annual budgeting process for the sector began in earnest, and while that process is continuing even as we sit here today in February 2020, the overarching things that we hear from our customers for the year remains capital allocation, tier 1 focus and boosting economic returns and a free cash flow generation.

We believe these things are beneficial for the continued outsourcing of compression services to USA Compression. Domestic natural gas production has recently hit some record levels, with the increase in volumes, primarily coming out of the Delaware Basin in West Texas.

Combined with some warmer weather and the uncertain impact of the coronavirus on Chinese LNG imports, that has caused the commodity price to drop to levels not seen in a long while.

While the commodity price is getting all the attention, the counter intuitive sides to the story is that low natural gas prices drive demand for as a fuel, especially for power generation, which is still expected to make up a significant portion of the end use for natural gas in the U.S.

The natural gas reserves in this country holds significant potential for the end user demand and we believe that natural gas will continue to be a very important fuel for the world for the foreseeable future. Investment is still taking place after chemical companies, LNG exporters, power generators and others continue to invest in growth.

These facilities are expected to continue to drive demand. That means more gas moving through the system and ultimately requiring more compression from companies like USA Compression. Our business is a demand driven business and we do not see this dynamic changing meaningfully in the marketplace.

The physical restraint that we are seeing on the part of our midstream and E&P customers continues. As we mentioned on our previous call, the moderation in general activity levels is highlighting the increased focus on prudent capital spending and economic returns. We continue to believe this moderation should better balance the broader energy market.

Here at USA Compression we have pared back our capital spending plans for 2020, really pursuing a very select number of highly attractive projects, with a few major customers.

We continue to believe that the underlying thesis of our business, our expectation that demand for domestically produced natural gas will continue to increase over time, driving infrastructure investment and requiring increasing amounts of compression is intact and positioned well for our future, where natural gas is a critical piece of the equation in helping increase living standards across the world, whether it is residential power, electric transportation or clean burning ocean vessel.

The Permian and Delaware basins continue to be the center of industry activity and that is where we currently expect to allocate the majority of our capital in 2020.

It is no surprise that the majors and large independent who have spent the last several years working to consolidate the region are now taking advantage of attractive economics and producing oil and gas with more of an assembly plant mindset. As I mentioned, this is where we expect to deploy most of our new capital in 2020.

The mid-content has been the story of have’s and have not’s. Some operators are continuing to have success and are moving the volumes from helping producers to areas of demand. Others are adjusting to the changing market conditions and we have selectively moved equipment out of the region for redeployment elsewhere.

We have actively managed these underutilized assets on the mid-continent, working to redeploy those assets elsewhere and to continue to generate strong and stable cash flows.

Appalachia has recently received some attention, with questions regarding the sustainability of some operators and the prospects of meaningful volume curtailment based on the commodity price.

We continue to believe that Appalachia, which is the largest gas producing region in the country by far from both the Marcellus and Utica shales will continue to serve an important role in meeting domestic and global demand long into the future.

For some of the regional operators, as the price of gas has suffered recently, we have seen them actually booster their compression horsepower in order to get more volumes out and thereby increase our cash flow generation. Overall 2020 has started pretty much as we ended 2019.

We lived through cycles before and we know how to manage through the ups and downs, moderating activity levels have led to a much reduced capital budget for 2020. We are focused on strong operational performance, keeping utilization high and continuing expense controls.

I will now turn the call over to Matt to walk through some of the financial highlights of the quarter. Matt..

Thanks, Eric, and good morning everyone. Today USA Compression reported a strong fourth quarter to wrap up 2019, including quarterly revenue of $178 million, adjusted EBITDA of $109 million and DCF to limited partners of $58 million.

Those cash flow numbers did benefit from certain non-recurring items about $1.2 million of property tax refunds, along with other items that collectively added about $2.5 million to adjusted EBITDA and DCF.

In January we announced a cash distribution to our unit holders of $0.525 per LP common unit consistent with the previous quarter, which resulted in coverage of 1.14x.

Our total fleet horsepower as of the end of Q4 was largely consistent with Q3 at just under 3.7 million horsepower and our revenue generating horsepower at period end increased slightly to just over 3.3 million horsepower. Our average horsepower utilization for the fourth quarter was 93.9%.

Pricing as measured by average revenue per revenue generating horsepower per month was $16.82 for Q4, which again was a slight increase from the previous quarter’s level. Total revenue for the fourth quarter was $178 million, of which approximately $174 million reflected our core contract operations revenue.

Parts and service revenue was approximately $4 million; both those amounts include a portion of related party amounts. Gross operating margin as a percentage of revenue was 68% in Q4.

Net income for the quarter was $9.3 million; operating income was $43.8 million; net cash provided by operating activities was $91.7 million in the quarter; maintenance capital totaled $7.8 million in the quarter and cash interest expense net was $31 million.

As we have traditionally done, concurrent with the fourth quarter earnings release, we are providing initial full year guidance for 2020. We currently expect 2020 adjusted EBITDA of between $415 million and $435 million and DCF of between $210 million and $230 million.

Last, we expect to file our form 10-K with the SEC as early as this afternoon, and with that we’ll open the call to questions. .

[Operator Instructions] Our first question comes from Praveen Nerra, Raymond James..

Hey, good morning guys. I guess when I look into your guidance it kind of implies that we should see utilization being relatively stable with today's levels or near today's levels for 2020 and you talked a lot about what's going on in the basins.

Can you talk about kind of how you see the kind of redeployment of assets in the Permian on a fleet percentage basis? Is it material and then also, can you talk about kind of how much of your equipment is actually seeing returns of some sort that require redeployment?.

Yes Praveen, this is Eric. First I would say as an overall percentage of our fleet, the redeployment is not material. You know we're talking a few pieces of equipment here, a few pieces of equipment there. We're talking you know 8 or 10 type machines.

So you know we’ve got 4,500 units or so in our fleet, 3.3 million active horsepower, so talking extremely small percentages begin redeployed. So yeah, I think your commentary about looking at our EBITDA and looking at our DCF implies stable utilization and that's what we've always consistently done when we see periods of slowdown in growth CapEx.

We focus on making sure that we're able to maintain a high utilization of our existing fleet. So since we’re not seeing wholesale returns, there’s a nominal decline, you know nominal returns here and nominal returns there. We’re pretty comfortable that we’ll be able to maintain that utilization throughout the year. .

Right, and so as we think about it from a pricing standpoint, you talked about pricing moderating, we’ve talked about that for a few quarters now at least, so that shouldn't come as a surprise.

But can you talk about whether that’s stabilizing, whether that’s heading down slightly and then also kind of what percentage of your fleet rests on either a month-to-month or contracts that are do up within the year. .

Yeah, Praveen its Matt. Yeah, I think on the pricing side you're right. The last couple of quarters we’ve talked about sort of moderating pricing. As we you know have signed contracts for some of the few units that we’re bringing on this year, you know on the large horsepower stuff that pricing has remained, you know I would stay very stable.

You know again, I think we found the top, but it's certainly not going the other way. And again, you know I think part of that is a factor of us and others with sort of the capital discipline.

You know there's just not an over-abundance of especially the large horsepower equipment out there in the market, so I think that's primarily the reason that pricing has stayed stable. And then….

You know I think the other area that you touched on was looking at our mix of month-to-month contracts versus assets that we’ve termed up and we are running about 60%-ish of contracts under extended term.

You know that's up significantly from a couple of quarters ago and one of the things that we've been able to do as we’ve placed either new contracts or re-negotiated contracts with extended term in place, we do put in place some annual upward pricing adjustments in those contracts.

So you know when you start to look at a fleet that's our size, you know growth CapEx is one thing, but being able to continue to adjust upward the fees we charge on a monthly basis for our compression services starts to become a fairly meaningful number going forward. .

Right, that’s great. Thank you very much guys..

Thank you..

Thanks Praveen..

Your next question comes from Jeremy Tonet, J.P. Morgan. .

Good morning. Just starting off operationally. Gross margin was a bit better than expected this quarter, peers driven by kind of more on the operating cost side.

Can you provide any color there and then as we think about this quarter's margin, is that a good run rate to apply for 2020?.

Yeah Jeremy, it’s Matt. I would say you know I think you have to take into account those – the add backs, the one-time stuff that I mentioned that was about $2.5 million for the quarter. So I think if you take that out you get to levels that are probably much more indicative or kind of go forward margin levels.

Obviously not huge amounts, but it'll take it down just a little bit. I think to -- basically you'll end up at levels that are very I think consistent with past levels, so.

But yeah, in terms of generally speaking the margin, a lot of it was just continued operating cost efficiencies, you know watching, you know labor hiring and OpEx like that, and just really adjusting, making sure that we were adjusting to you know any changes in the market.

So again, you know we've been in with the CDM stuff now for almost two full years and so all of that stuff has been completely integrated and I think the business as a whole, you know we’re able to kind of make those changes throughout as we need to through the year. .

Great! And secondly, just going back to price increases here, you mentioned selective rate increases for customers.

Can you provide a little more context to that?.

In terms of – you're talking about going forward or just throughout the year?.

Through the quarter, for the quarter and into 2020..

Yeah, again, I think it was more just continued – what Eric had mentioned you know as we termed up contracts, bringing current deployed equipment up to what we consider market rates. .

Okay, and do you….

You know when you look at it, really you know we deployed a total of you know 8,000, 9,000 horsepower during the quarter. So there wasn't a whole lot of new horsepower going out at those real high kind of premium type rates. So basically what drove that was existing assets out in the field. .

Okay, perfect. Thank you. .

Thanks Jeremy..

Your next question comes from TJ Schultz, RBC Capital Markets. .

Great, thanks. Hey guys. As EMPs here go through budgeting for 2020 and as you said increasingly focused on free cash flow, any change in view on whether EMPs that have historically owned their own compression may look to sell assets or is it just more simply turning more outsourcing of compression going forward. .

TJ, a really good question. Now clearly you've got the go forward capital avoidance question, and we see probably an acceleration in that trend. As it pertains to folks that have existing fleets, surprisingly a large component of those assets really are not outright owned by the companies.

You know many of those are covered by structured operating leases, so the ability to monetize some of those assets is probably less than what folks might anticipate.

That said, you know there have been some M&A transactions recently, that you know as we've gotten closer to some of those companies, we've been surprised at the magnitude of some of their internally owned compression assets that they truly do have.

So I think there's some select opportunities out there with some very attractive type of players to have the potential, but potentially you know [Indiscernible] some of that internal equipment. So it's not the wholesale throughout the industry. I think there's some unique special situations to do that.

I’ll tell you, it’s honestly kind of a greater opportunity to probably focus on the avoided capital going forward rather than extract a big packets of some assets you know industry wide..

Okay, it makes sense. Just next, on your gas flaring in the premian’s then an issue.

Clearly I think the railroad commission is coming out with a report this week, so is there any view from your seat just on how more regulations around flaring could impact your business?.

You know its interesting TJ. When gas is being flared, obviously it's not being compressed or being put into and through a pipeline or a processing plant.

I think some of this has to do with the timing of some of a larger diameter, large scale take away capacity, which is coming onscreen, so yes, I think the railroad commission is going to start come down a little harder on operators who have flared in the past.

You know you've seen a couple of mid-stream companies who have kind of raised their hand and said, railroad commission you know, we've got pipes in the area. These guys need to be hooked up and they need to be moving gas into and through our pipe system.

So that will benefit a company like USA, so instead of flaring one or two BCF, put it into and through the pipelines, which clearly has a positive location for the amount of compression of horsepower that’s needed. .

Great! Just the last one from me. You guys have a slide in your most recent presentation just on balancing, distribution, stability and leverage.

Is there anything in the cycle going forward just on gas pricing and demand utilization or pricing that you would be looking at that may make you decide that a lower payout and faster de-levering is a better path forward. Thanks. .

Hey TJ, it's Matt. That sounds like a hidden question about a distribution cut, but no.

I mean, I think when you look historically there's another page in our presentation where we go back you know 10 to 15 years and look at you know the cycles, including you know the Henry hub price, etcetera and you know we've overlaid that with the utilization of the fleet overall and so I think if you look at that page you’d say, “hey, you know this business – and we obviously believe it, that this business has the stability and the staying power to come up to manage and run through throughout commodity cycles.” So we've had multiple commodity cycles, multiple contract cycles over you know the 20 plus year history of the company and have been – you know, felt the need to change it in that regard.

.

Yeah, no, that makes good sense. I think – so your view is, even if you see some – like you’ve seen and I've seen those slides as well.

If you see some decline in utilization, your mix of assets and customers still gives you comfort that you can kind of maintain consistent cash flow going forward, is that fair?.

You know, we look at our contract book and they are – the vast majority, a big majority are you know investment grade credits.

We've got customers that have diversified footprints; we've got customers that are major oil producers with associated gas; you know we've got some major producers that you know are in need of dry gas player or mid-stream players and for dry gas areas.

So we've got a very diversified portfolio across all the geologic basins, geographic basins; we've got customer diversity and very, very strong counterparty.

So you know, when we look at that, we’ve seen an environment where some areas grow, some areas are slow and areas that are slow, you know frankly people just kind of maintain their existing level of production and when you have a flat producing profile, as we all know with compression, as reservoir pressures decline you got to suck harder to keep the volume the same.

So we're not just a volume game; we’re a pressure and volume game. So you've heard me say the mantra for years.

You know we – when the capital markets tell us it's time to or the physical market tells us it’s time to grow we grow and when the capital markets or the physical market say, ‘hey guys, slow the growth down; maintain stability,’ then you know we stop the growth CapEx and we keep a very high utilization of our assets, because the volumes are flat, the pressure has come down, more horsepower is needed, times are good either way.

So I think we're in the environment right now where you’ve got some people who are active, and you’ve got some people that are less inactive and even those folks that are struggling financially, you know we get paid, we are a mission critical supplier.

We've had a couple of customers go into bankruptcy who are able to recoup our prepositioned billings and confirmed coming out of bankruptcy and gosh, then we are dealing with a customer who has no debt and converted all to equity and a pretty stable player. So you know TJ, it’s kind of the best of all time. You know it’s a perfect storm.

Things are really good when times are good and things for us are really good when times are not so good for everybody else. .

Perfect! Thanks Eric; thanks Matt. .

Thanks TJ. .

Our next question comes from Thomas Curran, B. Riley FBR..

Good morning. .

Hey Tom. .

A question on a macro topic here.

So when it comes to the US queue of approved and expected future incremental LNG liquefaction capacity, you know both Greenville terminals and expansion trains, which signs if any have you detected of potential FID deferrals, construction timeline changes or any other forms of project delays in response to you know how China’s apparent demand is evolving.

.

Tom, it's Matt. I mean we obviously watch and keep an eye on that stuff. Maybe not as granular as some of the stuff you've imagined.

I mean I think the truth of it is, you know everything that we read, which is probably the same stuff you see is, you know we're still kind of trying to figure out exactly what everything means for China and how that affects things.

There are definitely people out there that say, you know it peaked or it's about to peak, there are others that take a different view. So I think it may be a little early to really know exactly what that impact is like.

But you got to remember, in terms of LNG that the existing LNG export from this country is still a very, very small portion of the total gas that gets produced. We were over a 100 Bcf a day, back in the beginning of this year, end of last year. And so the exports of LNG are not even you know below 10% of that.

So again, I think it’s still maybe a little early to tell, but you also I think I have to keep it all in perspective and look at how much of that gas is going there. There is obviously lot of other positive demand factors going on domestically. .

Right, I was just looking out more over the next two to three years as you have that expected you know surge in U.S. LNG exports as a component of total U.S. natural gas demand.

Not concerned about the truly longer term structural driver, but if nothing else, maybe just, you know emerging signs that your trajectory over the next two to three years might get reshaped and become a bit slower you know..

Yeah, I mean that's a fair point. So I think the timing, of that build out may shift you know outward a little bit. But you know I think everything we say it’s – it seems like it’s still little early.

But I think the beauty about our business and others in our little sector is that we've been able to really kind of ramp back CapEx and if we saw things in 2021, 2022 you know meaningfully changing from kind of what we expected in this country, we can go to zero CapEx. We can easily kind of put the reins on the spending as can other people.

So I think the benefit of not having these big capital commitment project that run two, three, four, five, years plays into our favorite in that sense. .

Right, good.

Okay, and then Eric or Matt or both of you, would you please update us on your technology strategy? As you look beyond telematics, which fleet technologies have you already decided to adopt and what is the timeline for the implementation and then could you update us on how much of the other CapEx was allocated to such initiatives last year, and then our plan for 2020.

.

This is Eric. We are working on some pretty creative technology and it's not just on the remote monitoring side. We are coming into some major overhaul cycles.

We've been in business 20 years, we ratable added to our fleet and as we come into assets that are in the 10 to 12 year old range, there is some opportunities when we go through some major overhaul to up-rate and up-side some of the type of equipment that we have.

So I'm not going to get into too many details other than to say, you know think about if you are doing an overhaul on a race car, you can bore it, you can stroke it, you can blueprint it, you can increase your horsepower rating.

So we are looking at some creative things to how do we take our existing fleet and super-size it so to speak, with some nominal CapEx to allow us to have somewhat of a competitive advantage versus our peer groups. So let me just leave it at that. .

Sounds potentially exciting. I guess we'll stay tuned. Thanks for filling my questions. .

Thank you. .

Yeah, thanks Tom..

At this time I’d like to turn the call back over to Eric Long, President and CEO for some closing comments. .

Well, thank you operator, and thank you all for joining us on the call today. Our fourth quarter performance was a great wrap-up to 2019 and positions USA Compression well heading into 2020. For all, we expect will be a more restrained year for the broader industry, as well as USA Compression.

Achieving these results for the fourth quarter, as well as the full year 2019 highlights the strength and stability of our large horsepower, infrastructure focused contract compression services business model.

For 2020 we are focused on driving utilization, optimizing pricing and controlling expenses, all while operating in a safe manner and providing our customers with a high level of service to which they are accustomed.

You can expect to see continued prudent capital spending in the coming year to help drive attractive economic returns, as we seek to provide a long term attractive investment opportunity for our unit holders. We look forward to updating you on the next quarterly call. Thank you for your continued interest in and support of USA Compression. .

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect..