USAC

USA Compression Partners, LP – Q3 2024 Filing Summary

Business Context and Reporting Period

This is a Quarterly Report on Form 10-Q for USA Compression Partners, LP, covering the period ended September 30, 2024. The company is a leading independent provider of natural gas compression services in the U.S., operating a fleet of compression units across major shale plays. The General Partner is wholly owned by Energy Transfer, which held approximately 39% of the limited partner interests as of the reporting date.

Key Financial Metrics

Liquidity: As of September 30, 2024, cash and cash equivalents were $79,000. The company had $803.2 million outstanding on its revolving credit facility with $796.3 million of remaining unused availability (of which $641.8 million was drawable due to covenant restrictions).

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 10.5% in Q3 and 13.4% for the nine months ended September 30, 2024, compared to the prior year. This was driven by a 6.1% increase in average revenue-generating horsepower and a 7.9% increase in average revenue per horsepower due to higher market rates and CPI adjustments.
• Related Party Revenue: Related-party revenue surged 162.5% in Q3 and 60.2% for the nine months, primarily due to the reclassification of revenue from customers acquired by Energy Transfer.
• Debt Restructuring: The company issued $1.0 billion in Senior Notes 2029 (7.125% interest) in March 2024. Proceeds were used to defease the $725 million Senior Notes 2026 and reduce revolver borrowings. This resulted in a $5.0 million loss on extinguishment of debt for the nine-month period.
• Preferred Unit Conversion: 320,000 Preferred Units were converted into approximately 16 million common units during the first half of 2024, significantly reducing preferred distributions and increasing net income attributable to common unitholders.
• Impairments: Impairment charges were minimal in 2024 ($0.3 million for nine months) compared to $12.3 million in the same period in 2023, reflecting a more stable deployment of the idle fleet.

Outlook, Risks, and Unusual Items

• Capital Expenditures: The company plans to spend $27.0–$30.0 million on maintenance capex and $240.0–$250.0 million on expansion capex for the full year 2024.
• Derivative Termination: In August 2024, the company terminated a $700 million interest-rate swap, resulting in a $6.2 million loss in Q3 2024 due to fair value changes. The company is now fully exposed to variable interest rates on its revolver.
• Tax Contingencies: The company is contesting sales tax assessments by the Oklahoma Tax Commission (potential loss up to $30.3 million) and is under IRS examination for 2019–2020 (potential loss up to $28.0 million). Management believes these will not have a material adverse effect.
• Market Risks: Demand is tied to crude oil and natural gas production. A 1% decrease in average revenue-generating horsepower would reduce annual revenue by approximately $8.6 million. Interest rate risk remains significant with $803.2 million in variable-rate debt.

Key Facts for Investor Verification

• Debt Covenant Compliance: Verify continued compliance with the Credit Agreement's leverage ratios (max 5.25x) and interest coverage (min 2.50x), especially given the high variable-rate debt exposure.
• Preferred Unit Status: Confirm the remaining balance of Preferred Units ($168.8 million) and the impact of future conversions on common unit distributions.
• Customer Concentration: One customer accounted for approximately 12% of total revenue in the first nine months of 2024.
• Inventory Build: Inventory levels increased significantly to $146.8 million (from $114.7 million at year-end 2023), driven by parts purchases; monitor for potential obsolescence or working capital strain.
• Legal Defeasance: Confirm the final accounting treatment and cash flow impact of the Senior Notes 2026 defeasance and the associated $5.0 million loss.