USA Compression Partners, LP — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. USA Compression provides natural-gas compression and treating services under contracts across U.S. production basins. Comparisons below are with Q1 2022 unless noted.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $197.1 million | $163.4 million | +20.6% |
| Operating income | $51.1 million | $35.1 million | +45.5% |
| Net income | $10.9 million | $3.3 million | +236.2% |
| Net loss attributable to common unitholders | $1.2 million | $8.9 million | Loss narrowed |
| Basic and diluted loss per common unit | $0.01 | $0.09 | Loss narrowed |
| Operating cash flow | $42.3 million | $35.1 million | +20.8% |
| Capital expenditures, net cash investing outflow | $40.9 million | $19.7 million | Outflow increased |
| Adjusted EBITDA (non-GAAP) | $118.2 million | $98.4 million | +20.1% |
| Adjusted EBITDA margin (non-GAAP) | 59.9% | 60.2% | Down 0.3 percentage points |
| Adjusted gross margin (non-GAAP) | $130.5 million | $109.7 million | +18.9% |
| Distributable cash flow, or DCF (non-GAAP) | $62.6 million | $50.1 million | +24.9% |
| DCF coverage ratio | 1.21x | 0.98x | Improved |
Contract operations revenue was $188.5 million, up 19.6%. The filing attributes the increase mainly to higher average revenue-generating horsepower and pricing, plus increased station and treating services. Average revenue-generating horsepower rose 8.8%; average revenue per revenue-generating horsepower per month rose 7.8%. Period-end utilization was 92.7%, versus 86.1% a year earlier (87.5% versus 81.0% when measured against fleet horsepower).
Net income is before the $12.2 million preferred-unit distribution allocation. The preferred distribution therefore left common unitholders with a net loss despite positive consolidated net income.
Liquidity, debt and distributions
- At March 31, cash was $6,000; current assets were $185.9 million and current liabilities were $156.0 million.
- Long-term debt, net, was $2.170 billion, up from $2.107 billion at December 31, 2022. This comprised $709.1 million drawn on the revolving facility and $1.475 billion principal of senior notes ($725 million due 2026 and $750 million due 2027). The notes bear 6.875% interest.
- The revolver had a $1.6 billion commitment, $890.9 million stated availability and $374.5 million of available borrowing capacity subject to financial-covenant compliance. The partnership reported compliance with its debt covenants. Revolver borrowings were $715.0 million on April 27, 2023.
- Q1 net interest expense was $39.8 million, up 25.0%; the average revolver rate was 7.15%, versus 2.84% in Q1 2022. A 1 percentage-point rate change on the March 31 variable-rate balance would change annual interest expense by about $7.1 million.
- Operating cash flow exceeded net investing outflow by about $1.5 million, while financing cash outflow was $1.5 million. Cash distributions paid during the quarter included $52.1 million on common units and $12.2 million on preferred units.
- The common distribution remained $0.525 per unit per quarter. On April 13, the partnership declared another $0.525 common-unit distribution and $24.375 per preferred unit, payable May 5, 2023.
Outlook, commentary and notable items
- Management planned approximately $26 million of 2023 maintenance capital expenditures and $260–$270 million of expansion capital expenditures, excluding future acquisitions. Q1 expansion capex was $51.2 million; maintenance capex was $5.0 million.
- As of March 31, binding commitments for compression units and serialized parts totaled $144.7 million, expected to be settled by year-end 2023. The filing said 147,500 large horsepower was on order, expected for delivery by year-end.
- Management stated that operating cash flow and, if needed, revolver borrowings should be sufficient for the next 12 months to service debt, fund working capital and planned capital expenditures, and pay distributions. Expansion spending or acquisitions may require external financing.
- In April 2023, the partnership entered a $700 million interest-rate swap terminating in April 2025: it pays a fixed 3.785% and receives a floating rate indexed to one-month SOFR.
- Compression equipment impairment was $1.2 million, versus $0.4 million in Q1 2022; six units representing about 8,700 horsepower were retired. Reasons included limited marketability, high maintenance costs and uneconomic retrofits.
- Inflation and operating costs pressured adjusted margin percentages; management said contract price increases generally follow cost increases as market conditions permit. Higher rates and increased revolver borrowings raised interest expense.
- An Oklahoma sales-tax assessment remains contested. The filing estimates a reasonably possible loss range of $0 to $23.8 million, including penalties and interest. Management did not expect ordinary-course litigation to materially affect results. Environmental compliance and evolving regulation may entail future costs.
- Risks cited include commodity-industry activity and customer financial health, inflation and supply chains, labor competition, interest rates and debt restrictions, contract renegotiations, cyber incidents, regulation, litigation and acquisition execution. The partnership has indirect commodity exposure through demand for customers’ production, but does not take title to oil or gas.
Important facts for investors to verify
- Whether higher utilization, pricing and revenue can offset inflationary operating costs and sustain margins.
- Funding and execution of the $260–$270 million expansion-capex plan and $144.7 million purchase commitments, alongside distributions and debt service.
- Revolver availability and covenant headroom as debt, interest rates and capital requirements evolve; also assess the swap’s coverage and terms.
- Whether the common distribution remains supported by DCF and cash generation; DCF is a non-GAAP measure and exceeded declared common distributions at 1.21x coverage this quarter.
- Resolution and potential financial impact of the Oklahoma sales-tax assessment, and ongoing cybersecurity, environmental and customer-credit risks.
- Preferred units’ senior distribution rights and conversion features: holders could convert at their option beginning April 2, 2023, under the partnership agreement.