USA Compression Partners, LP — 2015 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2015; quarterly figures are unaudited. The Partnership provides natural-gas and crude-oil compression services in the United States, primarily under fixed-fee contracts, many of which are take-or-pay. It reported one operating segment and a fleet of 1.71 million horsepower at year-end.
Key financial metrics
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $270.5 million | $221.5 million |
| Gross operating margin (non-GAAP) | $189.0 million; 69.9% of revenue | $147.5 million; 66.6% |
| Operating income (loss) | $(135.6) million | $37.6 million |
| Net income (loss) | $(154.3) million | $24.9 million |
| Adjusted EBITDA (non-GAAP) | $153.6 million | $114.4 million |
| Distributable cash flow (DCF, non-GAAP) | $120.9 million | $85.9 million |
| Cash from operating activities | $117.4 million | $101.9 million |
| Capital expenditures | $285.1 million | $387.9 million |
| Long-term debt at year-end | $729.2 million | $594.9 million |
Liquidity and distributions. Year-end cash was $7,000 and working capital was negative $8.5 million. The $1.1 billion revolving credit facility matures in January 2020. At December 31, 2015, borrowings were $729.2 million, leverage was 4.8x, borrowing-base availability was $370.8 million, and additional borrowing capacity subject to covenant compliance was $101.0 million. The Partnership was in compliance with its covenants. The maximum leverage covenant was 5.5x through the quarter ending June 30, 2016 and 5.0x thereafter. DCF coverage was 1.17x; cash coverage was 2.58x, reflecting distributions reinvested through the DRIP. The declared distribution rose to $0.525 per unit per quarter in 2015; the fourth-quarter distribution was payable in February 2016.
Changes versus the prior comparable period
- Revenue grew 22.1%, mainly as average revenue-generating horsepower increased 17.3%; average revenue per horsepower per month rose 2.1%.
- Average utilization declined to 90.5% from 94.0%, while year-end utilization fell to 89.2% from 93.6%.
- Gross operating margin increased 28.2%; management cited cost initiatives, maintenance timing and lower fuel costs as contributors to the higher margin percentage.
- Adjusted EBITDA rose 34.2% and DCF rose 40.6%. Operating cash flow increased 15.2%, while cash interest paid rose to $17.1 million from $12.6 million.
- Net loss replaced prior-year net income, principally due to a $172.2 million goodwill impairment and $27.3 million impairment of compression equipment. Goodwill impairment was non-cash; year-end goodwill was $35.9 million.
- Debt increased $134.3 million year over year. The Partnership issued 4.0 million common units in September 2015 and used net proceeds of approximately $74.4 million to reduce revolving-credit-facility borrowings.
Outlook, management commentary and risks
- Management expected to substantially reduce 2016 expansion spending amid depressed oil and gas prices and customer budget cuts. Budgeted 2016 expansion capital expenditures were $40–$50 million, plus approximately $15 million for maintenance. It planned to prioritize utilization of existing equipment and higher-return projects.
- Management expected continued pressure on service rates and utilization, delayed or canceled customer projects, and weaker demand for incremental compression, while noting that existing production still requires compression. Long-term natural-gas infrastructure demand was presented as a potential support, not a near-term certainty.
- Commodity prices do not directly determine Partnership revenue because it does not take title to oil or gas, but lower prices can reduce customer activity, service rates, utilization and customer credit quality. Approximately 39% of horsepower and 43% of 2015 revenue were associated with month-to-month services, generally terminable on 30 days’ notice.
- Variable-rate debt exposes cash flow to higher interest rates: the filing estimates a 1 percentage-point rate increase would add approximately $7.3 million of annual interest expense. Management expected covenant compliance in 2016 but identified options including reducing distributions or raising equity if projections weakened.
- Environmental rules, permitting requirements, hydraulic-fracturing regulation, competition, customer concentration, supplier dependence, equipment hazards and access to external capital are among the disclosed risks. The Partnership reported no customer above 10% of 2015 revenue; its ten largest customers represented 45%.
- Management reported effective disclosure controls and internal control over financial reporting. KPMG issued an unqualified opinion on the audited financial statements; it did not provide an internal-control attestation because of the emerging-growth-company transition period. Management said ordinary-course litigation was not expected to materially affect results.
Important facts for investors to verify
- Whether utilization, service rates, contract renewals and customer project activity weakened further after year-end, particularly for month-to-month contracts and gas-lift services.
- Whether the 2016 capital-spending plan, operating cash flow and DCF support distributions while maintaining covenant headroom and liquidity.
- How the Partnership’s $729.2 million floating-rate debt, leverage and $101.0 million covenant-limited borrowing capacity evolve, including subsequent borrowings of $740.2 million reported as of February 9, 2016.
- Whether remaining goodwill and compression equipment require further impairment, and whether the retired 58,000 horsepower can be sold or redeployed at expected values.
- How to interpret non-GAAP Adjusted EBITDA, DCF and coverage ratios alongside GAAP earnings and operating cash flow; these measures are not substitutes for GAAP results.