USA Compression Partners, LP — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The partnership provides natural-gas and crude-oil compression and treating services, primarily under fixed-term contracts. All amounts below are in U.S. dollars; financial-statement figures are unaudited.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $179.6 million | $158.6 million | $514.5 million | $472.7 million |
| Operating income | $45.1 million | $36.6 million | $122.6 million | $104.5 million |
| Net income | $9.6 million | $4.1 million | $22.0 million | $7.2 million |
| Net loss attributable to common unitholders | $2.6 million | $8.1 million | $14.6 million | $29.4 million |
| Adjusted EBITDA (non-GAAP) | $109.2 million | $99.6 million | $313.0 million | $299.2 million |
| Distributable cash flow (non-GAAP) | $55.2 million | $52.0 million | $160.9 million | $157.1 million |
| Operating cash flow | Not stated for Q3 alone | $178.5 million | $184.4 million |
- Q3 revenue increased 13.2%; operating income increased 23.1%. For the first nine months, revenue rose 8.8% and operating income rose 17.3%.
- Contract operations drove growth: Q3 contract revenue was $171.0 million, up 12.8%. Management attributed the increase to higher horsepower under contract, selected price increases, and greater natural-gas treating revenue.
- Q3 adjusted gross margin was $120.2 million, but its revenue margin declined to 66.9% from 69.0%. Adjusted EBITDA margin declined to 60.8% from 62.8%. Higher operating costs—including fluids, parts, labor, and outside maintenance—outpaced revenue growth.
- Q3 DCF coverage was 1.07x and cash coverage was 1.08x; nine-month coverage was 1.04x and 1.06x, respectively. These are non-GAAP measures defined by the partnership.
- Common-unit distributions remained $0.525 per unit per quarter. Preferred distributions were $12.2 million in Q3; the preferred units rank senior to common units and receive cumulative quarterly distributions.
Balance sheet, debt, liquidity, and investment
- At September 30, total debt, net, was $2.078 billion, compared with $1.973 billion at December 31, 2021. This included $1.475 billion principal of senior notes and $618.4 million drawn on the revolving credit facility. The notes carry 6.875% interest and mature in 2026 and 2027.
- Revolver availability was $981.6 million; covenant-conditioned available borrowing capacity was $286.6 million. The revolver balance carried a 5.54% weighted-average rate at quarter-end. The partnership reported compliance with debt covenants.
- Cash was just $6,000 at quarter-end. The company’s revolver uses a lockbox arrangement that applies customer receipts to reduce borrowings.
- Nine-month capital expenditures, net, were $88.1 million, compared with $29.4 million a year earlier. Management’s 2022 plan was approximately $26 million of maintenance capex and $120–$130 million of expansion capex. These are stated plans, not earnings guidance.
- Binding commitments for new compression units totaled $167.6 million, with $66.8 million expected to be settled within 12 months and $100.8 million in the remainder of 2023.
Material changes, commentary, and risks
- Revenue-generating horsepower at quarter-end rose 7.2% year over year to 3.13 million horsepower; quarter-end utilization increased to 90.9% from 83.0%. Average revenue per revenue-generating horsepower per month rose 5.5% in Q3, primarily reflecting selected price increases.
- Interest expense rose 9.1% in Q3 to $35.1 million, reflecting higher rates and increased revolver borrowings. Management disclosed that a 1 percentage-point change in the variable rate on quarter-end borrowings would change annual interest expense by approximately $6.2 million.
- Operating cash flow declined by $5.9 million for the first nine months, primarily due to working-capital changes. Investing cash use increased as capital expenditures rose; financing cash use was lower mainly because net revolver borrowings increased.
- Compression-equipment impairment was $0.5 million in Q3 and $0.9 million year to date, versus $5.0 million year to date in 2021. The charges related to idle or uneconomic units; 12 units totaling approximately 2,500 horsepower were retired in the first nine months.
- The partnership settled Texas sales-tax audits in August 2022: Energy Transfer paid the amounts due under the indemnification agreement, and the associated $44.9 million liability and receivable were removed. Separately, an Oklahoma assessment remains under protest; the company estimates a reasonably possible loss range of $0 to approximately $21.1 million, including penalties and interest.
- Management cited exposure to inflation, supply-chain disruption, labor competition, customer credit deterioration, interest rates, contract renegotiation, operational hazards, regulation, litigation, and oil-and-gas activity. The partnership does not take title to commodities, but lower sustained commodity prices could reduce customer activity and demand for compression.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No material adverse effect from ordinary-course litigation was expected.
- After quarter-end, the partnership declared the regular common and preferred distributions payable November 4, 2022. It also amended its Services Agreement, extending the term to December 31, 2027, subject to termination conditions.
Important facts for investors to verify
- Whether utilization, pricing, and new equipment deployment sustain revenue growth while operating costs and maintenance requirements rise.
- How variable-rate debt, future borrowing needs, and the $167.6 million equipment commitment affect leverage, liquidity, and covenant headroom.
- Whether DCF and coverage ratios—both non-GAAP measures—adequately support common distributions after preferred distributions and maintenance capital expenditures.
- The outcome and potential cost of the Oklahoma sales-tax assessment, and the status of any other tax or legal contingencies.
- Whether management’s 2022 maintenance and expansion capital-spending plans were achieved; the filing provides plans, not formal earnings guidance.