USA Compression Partners, LP — Q2 2022 Form 10-Q
Business and period. The Partnership provides natural-gas compression and treating services under fixed-term customer contracts. This filing reports the three and six months ended June 30, 2022, compared with the same periods in 2021. Financial statements are unaudited.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $171.5 million | $156.6 million | $334.9 million | $314.1 million |
| Operating income | $42.4 million | $35.1 million | $77.5 million | $67.9 million |
| Net income | $9.1 million | $2.7 million | $12.3 million | $3.1 million |
| Net loss attributable to common unitholders | $3.1 million | $9.5 million | $12.0 million | $21.3 million |
| Adjusted EBITDA (non-GAAP) | $105.4 million | $100.0 million | $203.8 million | $199.5 million |
| Distributable cash flow (non-GAAP) | $55.6 million | $52.5 million | $105.7 million | $105.1 million |
Q2 adjusted gross margin was $116.3 million, or 67.8% of revenue, versus $111.0 million, or 70.9%, a year earlier. Adjusted EBITDA margin was 61.5%, versus 63.9%. For the first half, adjusted gross margin was $226.0 million (67.5% of revenue) and Adjusted EBITDA was $203.8 million (60.9% of revenue); the comparable 2021 margins were 70.0% and 63.5%.
First-half operating cash flow was $129.3 million, down from $139.1 million. Investing used $42.9 million, including $43.8 million of net capital expenditures; financing used $86.4 million. Cash was zero at June 30.
Balance sheet, debt and liquidity
- Long-term debt, net of financing costs, was $2.017 billion at June 30, 2022, versus $1.973 billion at year-end 2021. This included $558.7 million drawn on the revolving facility and $1.475 billion principal of senior notes, bearing 6.875% interest and due in 2026 and 2027.
- The revolver had $1.0 billion of borrowing-base availability and $360.9 million of available borrowing capacity, subject to covenants. The Partnership reported covenant compliance at quarter-end. Borrowings were $537.9 million on July 28.
- Variable-rate revolver borrowings bore a 4.13% weighted-average rate at quarter-end. Management estimated a 1 percentage-point rate change would alter annual interest expense by about $5.6 million.
- Current assets were $217.7 million and current liabilities were $210.2 million. Preferred Units were $477.3 million on the balance sheet and rank senior to common units for distributions and liquidation.
Changes and management commentary
- Revenue increased 9.5% in Q2 and 6.6% in the first half. Management attributed contract-operations growth to selected price increases, higher revenue-generating horsepower, stronger activity and increased treating services. Q2 average revenue per revenue-generating horsepower per month rose 3.9%.
- Quarter-end revenue-generating horsepower increased 4.7% year over year and horsepower utilization rose to 88.4% from 81.9%. Management linked the improvement to customer demand and redeployment of idle equipment.
- Operating costs excluding depreciation rose 20.9% in Q2 and 15.6% in the first half, reflecting higher fluids, parts, maintenance, fuel, taxes and labor costs. These increases pressured adjusted margins despite revenue growth.
- Net income improved, but common unitholders still reported a loss after $12.2 million of Q2 preferred distributions. Common distributions remained $0.525 per unit per quarter; a Q2 distribution was declared for payment August 5, 2022. DCF coverage was 1.08x in Q2 and 1.03x for the first half.
- One tranche of warrants was net-settled in April, adding 534,308 common units; a separate tranche covering 10 million units remained outstanding at June 30. Common units outstanding were 97.9 million.
Outlook, risks and unusual items
- Management planned 2022 maintenance capital expenditures of about $23 million and expansion capital expenditures of $100–$110 million, excluding potential acquisitions. At June 30, binding equipment-purchase commitments totaled $53.2 million, expected to be settled within 12 months.
- Key risks identified include energy-market demand, inflation and supply-chain disruption, competition for employees, customer financial health, interest rates, debt restrictions, operational hazards and cybersecurity. The Partnership does not take title to oil or gas and has no direct commodity-price exposure, but demand for its services is indirectly sensitive to production activity.
- Sales-tax matters include a $44.9 million accrued liability for Texas audits, offset by a $44.9 million related-party receivable from Energy Transfer under an indemnification. A separate Oklahoma assessment could result in a loss ranging from zero to approximately $19.5 million, including interest and penalties; the Partnership was contesting it.
- Compression-equipment impairment was $0.4 million for the first half of 2022, compared with $5.0 million in 2021; no impairment was recorded in Q2 2022. Ordinary-course litigation was not expected by management to materially affect results.
- Management gave no earnings guidance. Forward-looking statements are subject to the risks described in the filing and prior SEC reports.
Investor verification priorities
- Track whether utilization, pricing and revenue growth can offset rising operating costs and preserve margins.
- Assess cash generation, distribution coverage and the planned expansion-capital program against debt levels and revolver capacity.
- Review variable-rate exposure and compliance with borrowing covenants as rates and debt balances change.
- Monitor the Texas and Oklahoma sales-tax matters, including the related-party indemnification and potential Oklahoma exposure.
- Evaluate preferred-unit distribution priority, potential conversions or redemptions, and dilution from outstanding warrants.