USA Compression Partners, LP — Q3 2021 Form 10-Q
Business and period: The Partnership provides natural-gas compression and treating services, primarily under fixed-term contracts. This unaudited report covers the three and nine months ended September 30, 2021, compared with the same 2020 periods.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $158.6 million | $161.7 million | $472.7 million | $509.3 million |
| Operating income (loss) | $36.6 million | $38.8 million | $104.5 million | $(496.0) million |
| Net income (loss) | $4.1 million | $6.5 million | $7.2 million | $(593.3) million |
| Net loss attributable to common unitholders | $(8.1) million | $(5.7) million | $(29.4) million | $(629.8) million |
| Adjusted EBITDA (non-GAAP) | $99.6 million | $103.9 million | $299.2 million | $315.6 million |
| Distributable cash flow (non-GAAP) | $52.0 million | $56.9 million | $157.1 million | $170.3 million |
| Operating cash flow | Not separately stated for quarter | Not separately stated for quarter | $184.4 million | $195.7 million |
- Margins: Q3 adjusted gross margin was $109.5 million, or 69.0% of revenue, versus $115.0 million, or 71.1%. Nine-month adjusted gross margin was $329.3 million, or 69.7%, versus $353.5 million, or 69.4%. Adjusted EBITDA margin was 62.8% for Q3 and 63.3% for the nine-month period.
- Cash and debt: September 30 cash was $0.25 million. Total long-term debt, net, was $1.962 billion, including $505.7 million drawn on the revolving facility and $1.475 billion principal on senior notes. Revolver availability was $114.3 million, subject to financial covenants; borrowing-base availability was approximately $1.1 billion. The Partnership reported covenant compliance.
- Cash distributions: Common-unit distributions remained $0.525 per unit quarterly; preferred distributions were $24.375 per unit quarterly. Q3 DCF coverage was 1.02x and cash coverage was 1.03x, down from 1.12x and 1.13x, respectively, a year earlier.
Changes versus prior comparable periods
- Q3 revenue declined 1.9%; nine-month revenue declined 7.2%, primarily reflecting lower demand and fewer average revenue-generating horsepower as customers exercised capital discipline and optimized compression needs.
- Average revenue-generating horsepower fell 4.2% in Q3 and 7.3% for the nine months. Average utilization was 82.3% in Q3 versus 83.9%, and 82.6% year to date versus 88.1%.
- Q3 net income declined 36.9%, while common unitholders’ loss widened to $8.1 million after preferred distributions. Nine-month net income turned positive from a substantial prior-year loss, largely because 2020 included a $619.4 million goodwill impairment.
- Nine-month operating cash flow fell $11.3 million to $184.4 million. Investing cash outflow narrowed substantially as capital expenditures declined to $29.4 million from $97.9 million.
Outlook, commentary, and risks
- Management reported reduced planned capital spending in response to market conditions. For 2021, it budgeted approximately $20 million of maintenance capital expenditures and $30–$40 million of expansion capital expenditures; nine-month amounts were $14.8 million and $25.9 million, respectively.
- The filing does not provide formal earnings or revenue guidance. Management said worsening market conditions could reduce operating cash flow and increase leverage; possible responses include delaying discretionary spending, reducing costs or distributions, seeking covenant amendments, or issuing equity.
- Demand is indirectly exposed to oil and gas prices and production levels, customer financial health, and customer capital discipline. The Partnership does not take commodity title and does not intend to hedge this indirect exposure. A 1% decline in average revenue-generating horsepower was estimated to reduce annual revenue by about $5.9 million and adjusted gross margin by about $4.1 million.
- Variable-rate debt was $505.7 million at a 2.96% weighted-average rate. A one-percentage-point rate change would change annual interest expense by approximately $5.1 million. The credit facility matures April 2, 2023; temporary covenant relief runs through December 31, 2021.
- Contingencies: The Partnership estimated possible losses of $0–$21.8 million, including interest and penalties, related to an Oklahoma sales-tax assessment; it considers the high-end assumption remote. Separately, it recorded a $44.9 million liability for Texas sales-tax audits and an equal receivable from Energy Transfer under an indemnification arrangement. Management did not expect ordinary-course litigation to materially affect results.
- Other notable items include retirement and impairment of 22 compressor units totaling about 9,600 horsepower during the first nine months of 2021, producing a $5.0 million impairment charge, and a $1.1 million gain from a customer’s exercise of a lease purchase option.
Investor verification priorities
- Track utilization, returned or idle horsepower, contract renewals, and pricing as indicators of demand recovery.
- Verify that cash generation continues to cover common distributions, given coverage only slightly above 1.0x and the priority of preferred distributions.
- Review revolver availability, covenant headroom, the end of covenant relief, and the facility’s 2023 maturity alongside total debt and interest-rate exposure.
- Follow the Oklahoma assessment and Texas sales-tax audit/indemnification balance, including whether recorded liabilities or the ET receivable change.
- Assess whether planned capital expenditures, fleet retirements, and any renewed customer demand support the Partnership’s operating cash flow and distribution capacity.