USA Compression Partners, LP — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015; financial statements are unaudited. The Partnership provides natural-gas compression services, principally under term contracts in U.S. shale and other producing regions.
Financial performance and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $66.4 million | $53.3 million | $131.4 million | $103.5 million |
| Operating income (loss) | $(11.4) million | $10.6 million | $4.2 million | $18.1 million |
| Net income (loss) | $(15.9) million | $7.5 million | $(4.4) million | $11.4 million |
| Net income (loss) per common unit | $(0.34) | $0.20 | $(0.10) | $0.30 |
| Gross operating margin (non-GAAP) | $47.3 million; 71.3% | $35.3 million; 66.2% | $93.1 million; 70.9% | $67.8 million; 65.5% |
| Adjusted EBITDA (non-GAAP) | $38.6 million | $26.9 million | $76.1 million | $52.1 million |
| Adjusted distributable cash flow (non-GAAP) | $31.0 million | $19.9 million | $60.4 million | $36.7 million |
For the six months, cash from operating activities was $48.6 million, versus $31.7 million a year earlier. Investing activities used $182.4 million, mainly for compression equipment; financing activities provided $133.9 million. Cash at June 30 was only $7,000.
At June 30, long-term debt was $753.0 million, all under a revolving credit facility, with a 2.19% interest rate. Available borrowing capacity was $156.2 million and borrowing-base availability was $347.0 million. The Partnership reported compliance with all debt covenants. Total assets were $1.629 billion and partners’ capital was $816.6 million.
Changes versus prior comparable periods
- Q2 revenue increased 24.6%; six-month revenue increased 27.0%, supported by more revenue-generating horsepower and higher revenue per horsepower.
- Average revenue-generating horsepower rose 21.2% in Q2 and 23.9% in the first half. Average utilization declined year over year: to 90.5% in Q2 from 94.8%, and to 91.2% for six months from 94.4%.
- Despite higher revenue and gross margin, Q2 GAAP results included a $26.8 million compression-equipment impairment, contributing to the quarterly net loss. Six-month net income also turned to a loss, while interest expense rose 27.6% to $8.4 million.
- Debt increased from $594.9 million at year-end 2014 to $753.0 million at June 30, primarily to fund equipment growth. Six-month capital expenditures were $182.7 million, compared with $188.5 million in 2014.
- Adjusted DCF coverage improved to 1.23x for Q2 and 1.22x for six months, from 0.94x and 0.91x, respectively. These are non-GAAP measures; the filing reports cash coverage ratios of 3.08x and 3.03x, respectively.
Outlook, risks and notable items
- Management expected utilization to remain strong through 2015, while noting commodity-price pressure on a limited portion of the fleet and delayed customer projects. It moved about 30,000 horsepower of planned large-unit deliveries from the second half of 2015 to the first half of 2016, and added about 10,000 small horsepower for second-half 2015 delivery.
- Management expected approximately 215,000 horsepower of new equipment deliveries in 2015. Planned 2015 expansion capital expenditures were $225–$245 million; planned maintenance capital expenditures were approximately $17 million. These are management expectations, not guarantees.
- As of June 30, binding purchase commitments for undelivered compression equipment totaled $76.2 million, expected to be settled within 12 months. Management stated that debt, operating cash flow and potential debt securities might not cover all near-term liquidity needs and that equity issuance could be needed within 12 months; possible responses included deferring discretionary capital spending or raising equity.
- The Partnership retired, planned to sell, or intended to reuse key components from 166 idle compressor units, about 58,000 horsepower, and recorded the $26.8 million impairment. Lower oil and gas prices could reduce production and demand for compression services; the Partnership has no direct commodity-price exposure and does not plan to hedge this indirect exposure.
- Variable-rate debt creates interest-rate risk: a 1 percentage-point rate change on June 30 debt would change annual interest expense by approximately $7.5 million. One customer generated 10.3% of Q2 revenue. Management said ordinary-course litigation was not expected to have a material adverse effect.
- The Partnership declared a $0.525 per-unit distribution for Q2 and announced the same amount for payment in August 2015. A proposed federal tax-law change could affect publicly traded partnerships’ tax treatment; the filing says its impact was uncertain.
Most important facts for investors to verify
- Whether utilization and customer project timing recover, and whether the shifted large-unit deliveries are placed under contract and generating revenue.
- Whether projected capital spending, purchase commitments and distributions can be funded without a dilutive equity issuance or tighter covenant headroom.
- Whether the impairment reflects further idle-fleet or resale-value risk, and whether the remaining fleet supports management’s utilization expectations.
- How debt growth, floating rates and commodity-driven customer activity affect interest costs, liquidity and distribution coverage.
- The sustainability of reported non-GAAP margin, EBITDA, DCF and coverage improvements; compare them with GAAP earnings and operating cash flow.