USA Compression Partners, LP — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are with Q1 2012 unless otherwise noted. The partnership provides natural-gas compression services to oil and gas customers under term contracts. It completed its IPO on January 18, 2013, so the quarter includes pre- and post-IPO periods.
Financial and operating performance
| Metric | Q1 2013 | Comparison / change |
|---|---|---|
| Total revenue | $32.6 million | $27.1 million; up 20.2% |
| Operating income | $5.6 million | $4.8 million; up 16.9% |
| Net income | $2.5 million | $1.2 million; up 102.8% |
| Net income per common and subordinated unit | $0.07 each | IPO-era units had no comparable Q1 2012 per-unit figure |
| Operating cash flow | $9.4 million | $4.5 million |
| Capital expenditures | $23.4 million | $43.4 million |
| Adjusted EBITDA | $17.4 million | $14.3 million; up 22.4% |
| Gross operating margin | 68.0% | 66.7% |
| Adjusted EBITDA margin | 53.5% | 52.5% |
Revenue growth reflected a 17.9% increase in average revenue-generating horsepower and a 1.0% increase in monthly revenue per revenue-generating horsepower. Average utilization was 92.4%, down from 95.8% in Q1 2012; on the filing’s alternative measure based only on revenue-generating horsepower and fleet horsepower, average utilization was 86.1%, versus 90.0%.
At March 31, cash was $6,500, current assets were $17.6 million, and current liabilities were $25.2 million. Long-term debt was $335.6 million, down from $502.3 million at December 31, 2012. The $600 million revolving facility had $264.4 million of borrowing availability, subject to covenants, and matures October 5, 2015. The partnership reported covenant compliance. Operating cash flow less capital expenditures was approximately negative $14.0 million.
Material changes and unusual items
- The IPO generated $180.6 million in net proceeds, which the partnership used to repay revolving-credit borrowings. The IPO also converted the pre-IPO ownership interests into common units, subordinated units, a 2% general partner interest, and incentive distribution rights.
- SG&A increased 32.5% to $4.9 million, including higher public-company professional fees, staffing and support costs. Depreciation and amortization rose 23.9% as the asset base expanded.
- Maintenance and expansion capital expenditures were $3.1 million and $20.3 million, respectively. The partnership had $51.8 million of equipment and capital-purchase commitments, primarily for compression units being fabricated.
- In March, the partnership granted 237,490 phantom units, with a grant-date fair value of $4.7 million; $78,808 of compensation expense was recognized in the quarter.
Outlook, distributions and risks
Management expected pricing pressure to continue through 2013, while anticipating that higher U.S. natural-gas activity, particularly in shale plays, could support demand. It noted that future pricing improvement depends partly on older, lower-rate contracts expiring and new contracts being secured. No formal financial guidance was provided.
On April 23, 2013, the partnership declared a prorated first-quarter distribution of $0.348 per common and subordinated unit, payable May 15, 2013. This represents an annualized rate of $1.74 per unit; distributions remain subject to credit-facility conditions. The partnership had no direct commodity-price exposure because it does not take title to natural gas, but lower oil or gas prices could indirectly reduce customer activity. Variable-rate debt was approximately $335.6 million; a 1 percentage-point rate increase was estimated to raise annual interest expense by about $3.4 million.
Two customers represented 14.4% and 9.4% of Q1 2013 revenue. Management said ordinary-course claims and litigation were not expected to have a material adverse effect. Other risks include competition, customer and industry activity, access to capital, operating hazards, regulation and interest-rate changes.
Important facts for investors to verify
- Whether fleet growth converts into revenue while utilization and pricing remain under pressure.
- Capital spending, equipment delivery commitments, and the funding needed to support expansion and distributions.
- Debt covenant headroom, borrowing-base availability, and refinancing needs before the facility matures in 2015.
- Distribution sustainability relative to operating cash flow, maintenance capital needs, and the partnership’s non-GAAP distributable cash flow measure.
- Customer concentration and the partnership’s indirect exposure to oil and natural-gas production activity.