USA Compression Partners LP

Good morning. Welcome to USA Compression Partners' first quarter 2023 earnings conference call. During today's call, all parties will be in a listen-only mode, and following the call, the conference will be open for Q&A. To ask a question, you'll need to press star followed by one on your telephone keypad. If you require operator assistance at any time, please press star zero. This conference is being recorded today, May 2, 2023. I would now like to turn the call over to Chris Porter, Vice President, General Counsel, and Secretary.

Good morning everyone and thank you for joining us. This morning we released our operational and financial results for the quarter ending March 31, 2023. You can find a copy of our earnings release as well as a recording of this call in the investor relations section of our website at usacompression.com. 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 US GAAP measures in our earnings release. As a reminder, our conference call will include forward-looking statements. These statements include projections and expectations of our future performance and represent our current beliefs. Actual results may differ materially. Please review the statements of risk included in this morning's earnings release and in our other public filings. Please note that information provided on this call speaks only to man's views as of today, May 2, 2023, and may no longer be accurate at the time of a replay. I will 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. I am joined on the call by Eric Scheller, our COO, and Mike Pearl, our CFO. This morning, we released outstanding first quarter 2023 results that were indicative of our continued commitment to make investment, operational, and financial decisions that are consistent with and effective in achieving our stated objective to create stakeholder value by growing our best in class compression service offerings. During 2023 and on into 2024, We are choosing to exercise capital discipline to enhance returns, improve balance sheet strength, and ultimately achieve a state of financial optionality that provides us with meaningful flexibility and future optionality to deploy free cash flow to further reduce debt, make changes to our distribution policy, or pursue other strategic long-term investments that capture incremental value that can be passed to our stakeholders. Our first quarter 2023 results are the direct result of our returns-based capital investment strategy and feature consecutive quarterly record revenues, adjusted EBITDA, and distributable cash flow. Our financial performance continues to improve with increasing demand-driven pricing for our compression services that we continually place under contract for extended tenors, compared to historic tenors achievable in prior market cycles. Our ability to achieve improved price discovery with longer-dated contracts for our compression services is complemented further by our ability to increase the size of our active fleet through new unit additions and the continued conversion of legacy units from idle to active status. Our first quarter utilization continued to improve quarter over quarter, averaging just under 93%. Our utilization improvements were achieved alongside a record-setting quarterly per horsepower average revenue, which came in at $18.19 per horsepower, and represents our fifth consecutive quarterly average rate improvement. Our first quarter utilization and pricing improvements enabled distributable cash flow coverage of 1.21 times, the highest distribution coverage ratio achieved by USA Compression since its 2018 acquisition of CDM. We are extremely pleased with our first quarter results, which we believe confirms the durability of our cash flow stream and highlights the ongoing benefits of our deliberate focus on exercising capital discipline to grow our fleet organically, while maintaining our focus on returns-based capital investing and increased fleet utilization to drive improved financial performance and balance sheet strength. Our first quarter performance and evolving market dynamics continue to support our belief that the broader energy industry is in the initial stages of a commodity price super cycle that will drive sustained increases in the demand for natural gas compression services for years to come. Our customers' activity levels throughout our operating areas provide USA Compression with operational tailwinds into the future as the demand for our services remains inextricably linked to the oil and gas production cycle, the longevity of which positions us to continue capturing favorable pricing under long-term service agreements that generate a meaningful and reliable stream of cash flow into the foreseeable future, irrespective of spot and medium-term commodity prices. Oil prices are forecasted to remain comfortably above estimated break even WTI prices for existing and newly drilled wells for the next several years, which should continue driving incremental demand for natural gas compression services as the market for available compression assets continues to tighten and producers increasingly practice capital discipline, which includes the avoidance of incremental capital expenditures that are ancillary to drilling and well completion spend that is required to grow hydrocarbon production. Current and anticipated tightness in the market for compression assets, coupled with constrained capital availability throughout the upstream energy sector, is fueling what we view as sustained demand growth for our compression as a service delivery model at USA Compression. This term-based take-or-pay revenue model continues to provide USA Compression with consistent opportunities to secure long-term recurring fees in exchange for providing high-quality, full-service, midstream infrastructure services that are vital to hydrocarbon production maintenance, growth, and delivery to market centers. The opportunity for our customers to secure near-term access to highly sought-after and readily deployable compression assets while avoiding meaningful upfront compression asset capital investment continues to elicit a favorable market response as evidenced by our new units attracting full payout 60-month original contract tenors and our month-to-month service revenues as a percentage of total revenues continuing to decline. Our confidence in future demand growth for our services under the compression as a service delivery model is not deterred by the prolonged decline in natural gas prices that continues to persist as abnormally mild weather, LNG export delays, and rising inventories provide meaningful headwinds to a near-term recovery in natural gas prices. Natural gas prices remain below $3 per decatherm for much of the first quarter, and are expected to average less than $3 for the remainder of 2023 before recovering during 2024. Even so, producers in our natural gas-heavy operating areas continue to produce from existing gas wells, which decreases field pressures and increases the demand for additional compression to cost-effectively arrest production declines when depressed natural gas prices challenge the economics of drilling new wells to maintain production levels. compression asset scarcity, and producers' ability to deploy additional compression as a cost-effective alternative to incremental drilling position us to maintain existing asset deployments and add incremental horsepower in these gassy basins under long-term contracts that are consistent with our compression as a service recurring revenue model. To summarize, we are extremely pleased with the current market backdrop that features significant and growing demand for the production-driven compression services that we provide. Compression assets supply and demand dynamics position USA Compression to strategically grow its revenue under a term-based take-or-pay recurring revenue model that is largely agnostic as to spot and medium-term commodity prices, and that provides clear visibility to a durable cash flow stream from a highly utilized fleet. Our ability to establish a predictable and stable source of cash flow should improve our overall financial performance as we enhance our ability to plan future investments under a returns-based capital investment model and ultimately achieve financial optionality. Before turning the call over to Eric Scheller to discuss first quarter operating results, I would like to make a few comments regarding safety. The most important thing we do is to ensure that our employees, contractors, and customers return home safely each day. We are extremely proud of our tireless focus on safety that has resulted in a 2023 to date recordable incident rate of zero, which is well below the industry average of 0.9. I am very proud of this accomplishment and thank every USA Compression employee for their commitment and strict adherence to our safety policies and procedures. With that, I will turn the call over to Eric Scheller, our COO, to discuss our first quarter operating highlights.