USA Compression Partners, LP — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. The Partnership provides natural gas compression and treating services across U.S. oil and gas basins.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $229.3 million | $197.1 million |
| Operating income | $66.9 million | $51.1 million |
| Net income | $23.6 million | $10.9 million |
| Net income (loss) attributable to common unitholders | $19.2 million | $(1.2) million |
| Basic and diluted earnings (loss) per common unit | $0.19 | $(0.01) |
| Cash from operating activities | $65.9 million | $42.3 million |
| Capital expenditures, net | $98.6 million | $41.4 million |
| Adjusted EBITDA (non-GAAP) | $139.4 million; 60.8% of revenue | $118.2 million; 59.9% of revenue |
| Distributable cash flow (non-GAAP) | $86.6 million | $62.6 million |
| DCF coverage ratio (non-GAAP) | 1.41x | 1.21x |
At March 31, cash was $8,000. Long-term debt, net, was $2.46 billion; outstanding principal comprised $750 million of 2027 notes, $1.0 billion of 2029 notes, and $736.1 million drawn on the revolver. Revolver availability was $863.4 million before covenant-related restrictions, with $429.3 million available to draw. The Partnership reported compliance with its debt covenants. The quarterly common-unit distribution remained $0.525 per unit.
Material changes versus prior year
- Revenue increased 16.3%; contract operations revenue rose 15.7%. Average revenue-generating horsepower grew 7.1%, and average revenue per revenue-generating horsepower per month increased 9.7%. Period-end utilization was 94.8%, versus 92.7%.
- Operating income increased 31.0% and net income increased 115.5%. Common unitholder results also benefited from lower preferred-unit distributions, partly reflecting conversion of 40,000 preferred units into common units in January.
- Interest expense increased 17.3% to $46.7 million, reflecting higher average revolver borrowings and rates. A $5.0 million debt-extinguishment loss and an $8.8 million noncash derivative gain affected Q1 2024 results; neither was present in the prior-year quarter.
- Operating cash flow increased, while capital expenditures rose substantially. The company attributed part of the cash-flow improvement to lower cash interest paid following the Senior Notes 2026 defeasance, as well as improved operating performance.
Outlook, financing, and risks
- Management expects operating cash flow and, if needed, revolver borrowings to be sufficient for debt service, working capital, planned capital expenditures, and distributions over the next 12 months. It plans approximately $32 million of 2024 maintenance capex and $115–$125 million of expansion capex, excluding acquisitions.
- In March, the Partnership issued $1.0 billion of 7.125% senior notes due 2029. Proceeds funded defeasance of the $725 million 2026 notes, which were redeemed at par on April 4, 2024, and reduced revolver borrowings. The company recognized a $5.0 million Q1 loss on extinguishment. The new notes carry a higher stated coupon than the retired notes; the filing text does not provide a like-for-like all-in refinancing cost.
- A $700 million interest-rate swap, terminating December 31, 2025, pays a fixed 3.9725% rate and receives floating one-month SOFR payments. The revolver’s weighted-average rate was 8.00% at quarter end. A 1% rate change on quarter-end variable-rate debt would change annual interest expense by approximately $7.4 million, before considering the swap.
- Potential tax losses include a reasonably possible Oklahoma sales-tax assessment range of $0–$27.6 million and an IRS examination range of $0–$26.9 million, including interest and, where applicable, penalties. Management says ordinary-course litigation is not expected to have a material adverse effect.
- One customer represented approximately 13% of Q1 revenue. Demand is tied indirectly to oil and gas production; the Partnership does not take title to commodities. Other cited risks include customer credit, contract renegotiations, labor and supply costs, interest rates, regulation, cyber risks, and operating hazards.
- On April 1, after quarter end, holders converted 280,000 preferred units into approximately 14.0 million common units. The filing also reports 103.0 million common units outstanding at March 31 and 117.0 million as of May 2.
Investor verification priorities
- Review the refinancing’s impact on total debt, interest costs, revolver usage, and covenant-limited liquidity after the April 2026-note redemption.
- Assess whether higher horsepower utilization and pricing can sustain growth while expansion capex remains elevated.
- Compare cash generation with capex and distributions; review the definitions and reconciliations of non-GAAP Adjusted EBITDA, DCF, and coverage ratio.
- Track the Oklahoma and IRS tax matters, the 13% customer concentration, and the effect of preferred-unit conversions on common-unit count and per-unit distributions.