USA Compression Partners, LP — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015, compared with the three months ended March 31, 2014, unless otherwise noted. The partnership provides natural-gas and crude-oil compression services, primarily under term contracts. Dollar amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $65.0 | $50.2 |
| Operating income | $15.5 | $7.6 |
| Net income | $11.5 | $3.9 |
| Net income per common and subordinated unit | $0.24 | $0.10 |
| Cash from operating activities | $14.5 | $10.1 |
| Capital expenditures | $117.8 | $86.8 |
| Adjusted EBITDA (non-GAAP) | $37.5 | $25.2 |
| Adjusted distributable cash flow (non-GAAP) | $29.5 | $16.8 |
| Adjusted DCF coverage ratio (non-GAAP) | 1.22x | 0.88x |
Revenue increased 29.5% year over year; operating income rose 105.2% and net income rose 192.6%. Management attributed growth mainly to a 26.6% increase in average revenue-generating horsepower and a 3.6% increase in average monthly revenue per revenue-generating horsepower. Gross operating margin, a non-GAAP measure, increased to $45.8 million from $32.5 million, or 70.4% of revenue versus 64.7%. Adjusted EBITDA margin was 57.7%, compared with 50.2%.
Operating cash flow did not cover the quarter’s capital expenditures; net cash used in investing activities was $117.6 million. Financing activities provided $103.0 million, including net borrowing of approximately $116.8 million. Cash remained $6,000 at quarter-end. Current assets were $45.3 million against current liabilities of $58.4 million.
At March 31, 2015, long-term debt was $711.7 million, all under a variable-rate revolving facility; the stated interest rate was 2.19%. The partnership reported $176.3 million of availability considering financial covenants and $388.3 million of borrowing-base availability, and compliance with all covenants. A 1 percentage-point rate change would affect annual interest expense by approximately $7.1 million. The January 2015 credit amendment increased the facility commitment to $1.1 billion, subject to borrowing-base availability, and extended maturity to January 2020.
Material changes and operating developments
- Fleet horsepower grew 28.9% year over year to 1.64 million; revenue-generating horsepower grew 26.2% to 1.40 million. Period-end horsepower utilization was 91.1%, down from 94.4% a year earlier.
- Operating cash flow improved by $4.4 million year over year, while capital expenditures rose by $31.0 million. Expansion capital expenditures were $114.6 million versus $81.5 million; maintenance capital expenditures were $4.1 million versus $5.3 million.
- Debt increased from $594.9 million at December 31, 2014 to $711.7 million at March 31, 2015, primarily supporting equipment purchases.
- Distributions declared per limited partner unit were $0.515 for the period, compared with $0.49 in Q1 2014. The February 2015 payment was $0.51 per unit; a subsequent $0.515 distribution was announced for payment in May.
Outlook, risks and contingencies
- Management expected to purchase approximately 240,000 horsepower of equipment in 2015, all ordered by the filing date, and planned $250–$270 million of expansion capital expenditures and approximately $20 million of maintenance capital expenditures. Equipment purchase commitments were $124.3 million, expected to be settled within 12 months.
- Management reported utilization above 90% and expected strong utilization through 2015, while noting that lower commodity prices could slow gas-lift demand and pressure service rates. Some customers had sought rate relief. Management described infrastructure-related rates as generally stable over the medium to long term.
- The partnership has no direct commodity-price exposure through title to oil or gas, but demand for its services depends on production. It does not hedge this indirect exposure. Variable-rate debt creates interest-rate risk.
- One customer represented 10.6% of Q1 2015 revenue. Management did not expect ordinary-course litigation to materially affect the partnership. No long-lived-asset impairment was recorded; a $0.2 million insurance recovery contributed to a gain on asset sales.
- Management cautioned that quarterly results are not necessarily indicative of full-year results. It identified industry conditions, competition, capital availability, acquisition integration, operating hazards, regulation and litigation among factors that could cause actual results to differ from expectations.
Important facts for investors to verify
- Whether utilization, contract rates and customer demand hold up amid lower oil and gas prices and requests for rate relief.
- Whether planned equipment deliveries, $124.3 million of purchase commitments and 2015 expansion spending translate into contracted, revenue-generating horsepower and adequate returns.
- How covenant-based capacity and borrowing-base availability evolve as debt rises, and whether the partnership remains in covenant compliance.
- Whether operating cash generation can support capital spending and distributions; coverage figures are non-GAAP and the reported cash coverage ratio reflects the DRIP.
- The concentration and credit quality of customers, including the customer contributing 10.6% of quarterly revenue, and the sensitivity of interest expense to floating rates.