USA Compression Partners LP

good morning welcome to the USA compression partners second quarter 2023 earnings conference call during today's call all parties will be in a listen-only mode at the conclusion of management's prepared remarks the call will be open for Q&A additional Q&A instructions will appear in the call this conference is being recorded today August 1st 2023 and 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 June 30, 2023. You can find a copy of our earnings release as well as recording of this call in the investor relations section of our website at usacompression.com. During this call, our management will reference certain non-GAAP measures. You will find definitions and reconciliations of these non-GAAP measures to the most comparable U.S. GAAP measures in our earnings release. As a reminder, our conference call will include forward-looking statements. These statements are based on management's current beliefs and include projections and expectations regarding our future performance and other forward-looking matters. Actual results may differ materially from these statements. Please review the risk factors included in this morning's earnings release and in our other public files. Please note that information provided on this call speaks only to management's views as of today, August 1, 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 today by Eric Scheller, our COO, and Mike Pearl, our CFO. This morning, we released exceptional second quarter 2023 results that were attributable to our ability to opportunistically procure and deploy new compression units convert idle units to active status, and secure attractive pricing for new and legacy units in an extremely tight compression market. Our directed efforts in each of these areas have allowed us to create meaningful stakeholder value through the delivery of our best in class compression service offering under our disciplined capital management and organic growth compression as a service business model. We continue to exercise capital discipline through returns-based capital allocations that direct capital expenditures to optimize returns, resulting in continued improvements to our balance sheet and progressing us closer to a state of financial optionality that affords us greater flexibility to deploy free cash flow to further reduce debt, make changes to our distribution policy, or pursue other strategic long-term investments and initiatives. Our second quarter 2023 results again featured consecutive quarterly record revenues, adjusted EBITDA, and distributable cash flow. Demand-driven pricing for our services in an extremely tight compression market continues to underpin our up and to the right operational and financial performance. During the second quarter, we continued to place units under contract for extended tenors and at attractive pricing, Compared to prior market cycles, while increasing the size of our active fleet through new unit additions and continued conversions of legacy units from idle to active status, a revenue-generating horsepower exit rate for the second quarter came in at approximately 3.35 million horsepower, a record for USA compression. Our second quarter growth in active horsepower was achieved alongside further quarter over quarter improvements in utilization, which averaged over 93% during the second quarter. Our improved utilization was accompanied by record-setting quarterly average per horsepower revenue, which came in at $18.65, and which represents our sixth consecutive quarterly average rate improvement. Our increased active fleet size and improved utilization and pricing enabled record-setting distributable cash flow coverage of 1.3 times. We are extremely pleased with our second quarter results and believe that our continued operational and financial improvements speak to the value of the services that we provide, the reliability and predictability of our cash flow stream, and the benefits of our returns-based and disciplined organic growth models. each of which represents a significant catalyst for continued improvements to our balance sheet and provides ongoing financial flexibility that inures to the benefit of all of our stakeholders. Over the past several quarters, we have discussed our bullishness on long-term commodity prices and on the broader energy industry, and our views have not changed. We view meaningful transitions to alternative energy sources and electrification as multi-decade undertakings that will require extraordinary levels of capital investment and will experience many starts and stops as economic, social, and political factors continue to affect the pace of transition and change. As these unpredictable dynamics play out over the coming years, the oil and gas production cycle will continue, which we believe provides USA Compression with sustained demand for its natural gas compression services. Hydrocarbons will remain critical to the current and future health, wealth, and well-being of society, and USA Compression's vital compression services will be required to move hydrocarbons to the marketplace. The production-centric nature of the services that we provide and the mission-critical role that natural gas compression services play within the broader energy value chain provides USA Compression with durable baseline demand for our services. We have emphasized many times that demand for our services is linked directly to domestic hydrocarbon production, which the EIA currently forecasts at record levels for 2023 and 2024, with incremental production growth continuing for years to come. We also anticipate significant incremental demand for natural gas compression as production ratios of associated gas to oil continue to increase in domestic shale oil plays, Lingering U.S. LNG export delays abate and additional takeaway capacity is added to increase the flow of Permian gas volumes into Mexico in advance of re-exporting these volumes from highly anticipated and planned investments in Mexican LNG facilities. Although our term-based take-or-pay revenue model provides us with secure long-term recurring fees that are unaffected by lower natural gas prices, Improved demand and pricing for U.S. natural gas provides an advantageous backdrop for USA compression to capitalize on future organic growth opportunities. We are seeing producers increasingly opt to outsource compression services in favor of directing their capital spending closer to the wellhead. We believe that trend will continue as they seek to improve their overall capital investment metrics and continue to focus on their core competencies of improving drilling and well completion efficiency. We expect domestic oil drilling activity to continue into the foreseeable future as forecasted crude oil prices remain above industry cited breakeven WTI prices for new drilling and remain elevated as worldwide inventories continue to decline significantly and crude oil demand continues to grow as worldwide economies continue their post-pandemic recoveries and expansions. To summarize, we are extremely pleased with our current market position and our compression as a service delivery model that features a growing active fleet that remains highly utilized under attractively priced long-term take-or-pay contracts. Our in-place business model provides us with a durable and predictable cash flow stream that runs consistent with a sustained domestic hydrocarbon production cycle that relies on natural gas compression to deliver hydrocarbons to market centers and ultimately to end users. Furthermore, we expect commodity prices to remain supportive of incremental drilling with demand for oil and natural gas continuing to increase over time as the transition toward alternative energy sources progresses at what we believe will be a slower than expected pace and additional use cases for domestic natural gas of all. These market dynamics apply incremental pressure to what already is a constrained market for the compression services that we provide. and position USA Compression to grow its active fleet strategically and through returns-based capital investments that augment USA Compression's take-or-pay recurring revenue stream and improve its overall financial position. Before turning the call over to Eric Scheller to discuss second quarter operating results, I would like to stress that the most important thing we do as a company is to ensure that our employees, contractors, and customers return home safely each day. Through the first two quarters of 2023, we maintained a total recordable incident rate of zero, which is well below the industry average of 0.9, and is attributable to our employees' continual focus on safety. We are extremely proud of this accomplishment and thank every USA Compression employee for the continued commitment to our safety policies and procedures. With that, I will turn the call over to Eric Scheller, our COO, to discuss our second quarter operating results.