USA Compression Partners, LP — Q2 2023 Form 10-Q
Business context and reporting period. The Partnership provides natural-gas compression and treating services under fixed-term contracts across U.S. basins. This unaudited report covers the three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Energy Transfer owns the general partner and approximately 47% of limited partner interests.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $206.9 million | $171.5 million | $404.0 million | $334.9 million |
| Operating income | $51.4 million | $42.4 million | $102.5 million | $77.5 million |
| Net income | $23.6 million | $9.1 million | $34.5 million | $12.3 million |
| Net income attributable to common unitholders | $11.4 million | $(3.1) million | $10.2 million | $(12.0) million |
| Basic earnings (loss) per common unit | $0.12 | $(0.03) | $0.10 | $(0.12) |
| Adjusted EBITDA (non-GAAP) | $125.0 million | $105.4 million | $243.2 million | $203.8 million |
| Adjusted EBITDA margin (non-GAAP) | 60.4% | 61.5% | 60.2% | 60.9% |
| Distributable cash flow (non-GAAP) | $67.0 million | $55.6 million | $129.7 million | $105.7 million |
| DCF coverage ratio (non-GAAP) | 1.30x | 1.08x | 1.26x | 1.03x |
Revenue increased 20.7% in both Q2 and the first half. In Q2, average revenue-generating horsepower rose 9.3%, average revenue per revenue-generating horsepower per month increased 8.4%, and average utilization was 93.4% versus 87.9%. Adjusted gross margin increased, but its percentage declined to 66.2% from 67.8% in Q2; management attributed margin pressure mainly to inflation-related operating costs preceding customer price increases.
For the first half, operating cash flow was $130.2 million (versus $129.3 million); investing cash outflow was $105.3 million, including $106.4 million of net capital expenditures; and financing cash outflow was $24.9 million. Cash was $31,000 at June 30. Current assets were $211.6 million and current liabilities were $187.5 million.
Long-term debt, net, was $2.213 billion, up from $2.107 billion at December 31, 2022. This comprised $750.4 million outstanding on the revolving credit facility and $1.475 billion principal of senior notes, less deferred financing costs. Revolver availability was $849.6 million, with $327.6 million of borrowing capacity subject to covenant compliance. The revolver’s weighted-average rate was 7.74% at quarter-end; the Partnership reported compliance with debt covenants. Preferred units totaled $477.3 million and carry cumulative quarterly distributions.
Material changes and unusual items
- Operating performance improved with higher contracted horsepower, utilization, and pricing. Q2 revenue growth also included a $7.2 million increase from compression-station and treating services.
- Interest expense rose 27.1% in Q2 and 26.1% for the first half, reflecting higher revolver borrowings and rates. First-half average revolver rates were 7.40% versus 3.21% in 2022.
- The Partnership recorded a $14.6 million gain on an interest-rate swap in Q2, contributing to reported net income. The mark-to-market gain is distinct from operating performance; the swap had a $700 million notional amount, fixes the paid rate at 3.785%, and terminates in April 2025.
- Compression-equipment impairment was $10.3 million in Q2 and $11.5 million for the first half, versus no Q2 2022 charge and $0.4 million in the first half of 2022. The Partnership retired 33 units in Q2 and 39 in the first half, citing limited marketability, high maintenance costs, and uneconomic retrofits.
- Common-unit distributions remained $0.525 per unit quarterly; preferred distributions were $24.375 per unit quarterly. The Partnership declared both distributions after quarter-end for payment August 4, 2023.
Outlook, risks, and contingencies
Management planned 2023 maintenance capital expenditures of approximately $25 million and expansion capital expenditures of $260–$270 million, excluding acquisitions. First-half expansion spending was $122.8 million. Binding equipment purchase commitments were $121.4 million, expected to be settled within 12 months, including $95.7 million by year-end. The Partnership stated that operating cash flow and, if needed, revolver borrowings should fund debt service, working capital, planned capital expenditures, and distributions over the next 12 months; future expansion spending or acquisitions may require external financing. No specific earnings guidance was provided in the filing.
Key risks include higher interest rates and leverage, inflation and labor/maintenance costs, customer demand and credit conditions tied to oil and gas activity, contract changes, and environmental, regulatory, cybersecurity, and operational risks. The filing estimates possible losses of $0–$26 million, including penalties and interest, related to disputed Oklahoma sales-tax assessments, and $0–approximately $25 million, including interest, from IRS examinations of 2019 and 2020 returns. The outcomes remain uncertain. One customer represented approximately 10% of revenue in both Q2 and the first half of 2023.
Important facts for investors to verify
- Whether utilization, pricing, and revenue growth persist while inflationary operating costs moderate and margins recover.
- How planned expansion spending and equipment commitments affect revolver borrowings, interest expense, covenant headroom, and distributions.
- The cash-flow and earnings effects of variable-rate debt and the $700 million interest-rate swap, including fair-value volatility.
- Progress and eventual outcomes of the Oklahoma sales-tax dispute and IRS examinations.
- Whether DCF and distribution coverage remain adequate; these are non-GAAP measures and should be assessed alongside GAAP cash flows and capital needs.