USA Compression Partners, LP — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021. The Partnership provides natural-gas compression and treating services under customer contracts, primarily across U.S. shale regions. Figures below are in U.S. dollars; financial amounts are in millions unless noted.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $163.4 | $157.5 | +3.7% |
| Operating income | $35.1 | $32.8 | +7.1% |
| Net income | $3.3 | $0.4 | Increased |
| Net loss attributable to common unitholders | $(8.9) | $(11.8) | Loss narrowed |
| Basic and diluted loss per common unit | $(0.09) | $(0.12) | Improved |
| Operating cash flow | $35.1 | $39.6 | Down $4.6 |
| Capital expenditures, net | $20.2 | $6.2 | Increased |
| Adjusted EBITDA (non-GAAP) | $98.4 | $99.6 | Down 1.1% |
| Distributable cash flow (DCF, non-GAAP) | $50.1 | $52.6 | Down 4.6% |
Revenue growth reflected selective price increases, units moving from standby to full billing, and higher treating-service revenue. Average revenue per revenue-generating horsepower per month rose 1.6% to $16.87. Average utilization rose to 84.9% from 83.1%; period-end utilization was 86.1% versus 83.1%.
GAAP gross margin was $50.6 million, or approximately 31.0% of revenue, versus $47.9 million, or 30.4%. Adjusted gross margin was $109.7 million (67.1% of revenue) versus $108.9 million (69.1%); Adjusted EBITDA margin was 60.2% versus 63.2%. These adjusted measures are non-GAAP. Cost of operations increased 10.5%, chiefly from outside maintenance, parts and fluids, and higher vehicle fuel costs. SG&A increased 10.6%. Lower depreciation and impairment expense partly offset these costs.
Financial position, debt and distributions
- At March 31, 2022, total debt, net of financing costs, was $2.023 billion, compared with $1.973 billion at year-end 2021. This included $565.5 million drawn on the revolving facility and $1.475 billion principal of senior notes: $725 million due 2026 and $750 million due 2027, both bearing 6.875% interest.
- Revolver availability was $224.4 million, subject to covenant compliance; the borrowing base showed $1.0 billion of availability. The Partnership reported compliance with its debt covenants. Revolver borrowings carried a 3.17% weighted-average rate at quarter-end. Cash was only $15,000.
- Net cash used in financing was $15.3 million. The Partnership paid $51.8 million in common-unit distributions and $12.2 million to preferred unitholders during the quarter. The common distribution remained $0.525 per unit, and the preferred distribution was $24.375 per unit.
- DCF coverage of declared common distributions was 0.98x; cash coverage after DRIP participation was 0.99x, both below 1.0x. The reported DCF was below common distributions for the period.
- Preferred Units had $477.3 million carrying value and rank ahead of common units for distributions and liquidation. Holders may convert portions beginning April 2, 2021, April 2, 2022, and April 2, 2023; the Partnership may elect to redeem after April 2, 2023.
Cash flow, investment plans and outlook
Operating cash flow declined as working-capital movements and adjusted net income effects weighed on cash generation. Investing cash outflow rose to $19.7 million, primarily reflecting new compression-unit purchases and related spending. Maintenance capital expenditures were $5.8 million for the quarter.
Management planned approximately $23 million of 2022 maintenance capital expenditures and $95 million to $105 million of expansion capital expenditures, excluding acquisitions. The Partnership had $60.8 million of binding equipment and parts purchase commitments, expected to be settled within 12 months. It also had 75,000 horsepower on order for delivery within 12 months. No formal earnings or revenue guidance is provided in the filing.
Management cited increased industry activity and demand as contributors to higher utilization. It noted inflation and supply-chain disruption, labor competition, interest-rate and capital-availability changes, customer financial health, commodity-market conditions, and the Russia-Ukraine conflict among factors that could affect results. The Partnership does not take title to oil or gas and has no direct commodity-price exposure, but service demand depends on customer production activity. A 1% decrease in average revenue-generating horsepower was estimated to reduce annual revenue by about $6 million and Adjusted gross margin by about $4 million; a 1% rate change on quarter-end variable-rate debt would change annual interest expense by about $5.7 million.
Contingencies and unusual items
- Sales-tax matters include an Oklahoma assessment protest with a possible loss range of $0 to approximately $21 million, including interest and penalties. Separately, the Partnership recorded a $44.9 million liability for Texas sales-tax audits and an equal related-party receivable from Energy Transfer for indemnification.
- Quarterly idle-fleet reviews resulted in impairment charges of $0.4 million in Q1 2022 versus $2.6 million in Q1 2021; 10 compressor units totaling about 1,400 horsepower were retired in Q1 2022.
- On April 27, 2022, after quarter-end, holders exercised warrants to purchase 5 million units at $17.03 per unit; net settlement issued 534,308 common units. A second warrant tranche covers 10 million units at $19.59, exercisable through April 2, 2028.
- Energy Transfer owned approximately 47% of limited partner interests and all of the General Partner. Related-party revenue was $3.8 million, up from $3.0 million.
Most important facts for investors to verify
- Whether sub-1.0x distribution coverage persists and how the Partnership funds distributions alongside capital spending.
- Revolver availability, covenant headroom and sensitivity to higher interest rates; confirm the effect of the Credit Agreement’s maturity provisions tied to the 2026 notes.
- Execution and financing of the $95–$105 million expansion-capex plan and outstanding equipment commitments.
- Outcomes of the Oklahoma and Texas sales-tax matters, including the basis and collectability of the Energy Transfer indemnification receivable.
- Potential dilution from preferred-unit conversion, warrants and other equity awards.