USA Compression Partners, LP — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. USA Compression provides contracted natural-gas compression and treating services. Amounts below are in U.S. dollars.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Revenue | $157.5 million | $179.0 million | Down 12.0% |
| Operating income (loss) | $32.8 million | $(569.7) million | Prior period included $619.4 million goodwill impairment |
| Net income (loss) | $0.4 million | $(602.5) million | After $12.2 million preferred-unit distributions, loss attributable to common unitholders was $11.8 million, or $0.12 per unit |
| Gross margin | $47.9 million | $61.1 million | Down 21.6% |
| Adjusted gross margin (non-GAAP) | $108.9 million; 69.1% of revenue | $119.8 million; 66.9% | Amount down 9.1%; percentage increased |
| Adjusted EBITDA (non-GAAP) | $99.6 million; 63.2% of revenue | $106.2 million; 59.3% | Down 6.2%; percentage increased |
| Operating cash flow | $39.6 million | $50.1 million | Down $10.5 million |
| Distributable cash flow (non-GAAP) | $52.6 million | $54.7 million | Down 3.9% |
| DCF coverage of common distributions | 1.03x | 1.08x | Cash coverage was 1.04x versus 1.09x |
Revenue decline reflected reduced demand and lower utilization: average revenue-generating horsepower fell 9.8%, average utilization fell to 83.1% from 92.5%, and average revenue per revenue-generating horsepower per month declined 1.7% to $16.60. Cost of operations excluding depreciation and amortization decreased 17.8%, partly offsetting the revenue decline. Depreciation and amortization rose 3.9%; SG&A rose 11.4%, mainly due to unit-based compensation expense.
Cash, debt and liquidity
- At March 31, 2021, cash was $0.1 million. Current assets were $204.3 million and current liabilities were $150.0 million.
- Long-term debt, net of financing costs, was $1.957 billion, up from $1.927 billion at December 31, 2020. Principal consisted of $725 million of 2026 notes, $750 million of 2027 notes, and $502.7 million drawn on the revolving facility. Both note issues bear 6.875% interest.
- Revolver borrowing availability was $203.9 million, subject to covenant compliance; the borrowing base had $1.1 billion of availability. The revolver matures April 2023. The partnership reported compliance with debt covenants at quarter-end.
- Cash interest paid was $55.4 million. Net investing cash use was $4.2 million, including $6.2 million of net capital expenditures. Net financing cash use was $35.3 million, including common and preferred distributions.
Material changes, outlook and other disclosures
- The 2020 comparison includes a $619.4 million goodwill impairment recorded amid falling unit prices, commodity prices and COVID-19 disruption. No goodwill remained on the balance sheet after that charge. Q1 2021 included a $2.6 million impairment for 12 retired compressor units totaling about 5,600 horsepower.
- Management planned approximately $22 million of 2021 maintenance capital expenditures and budgeted $30–$40 million of expansion capital expenditures. It said capital spending had been reduced significantly versus previous years. No revenue or earnings guidance was provided.
- The common distribution remained $0.525 per unit for the quarter; the partnership announced the same amount for payment in May 2021. Preferred units receive cumulative quarterly distributions of $24.375 per unit. Beginning April 2, 2021, holders could convert one-third of the preferred units under the stated terms.
- The credit agreement’s covenant-relief period runs through December 31, 2021, with temporarily higher permitted leverage limits and a higher required availability threshold for distributions and certain other payments. Management noted that worsening market conditions could reduce operating cash flow and increase leverage; possible responses include reducing spending or distributions or seeking financing.
- Risks include COVID-19 and oil-and-gas market uncertainty, lower customer activity or credit quality, contract renegotiations, and variable-rate debt. A 1% change in the rate on quarter-end variable-rate debt would change annual interest expense by about $5 million; a 1% reduction in average revenue-generating horsepower would reduce annual revenue by about $6 million and adjusted gross margin by about $4.1 million.
- For an Oklahoma sales-tax assessment, the disclosed possible loss range was $0–$21.6 million, including penalty and interest; management said the upper end assumes all Oklahoma compression services are taxable and considered that outcome remote. Separately, a $44.9 million accrued liability for Texas sales-tax audits was matched by a $44.9 million related-party receivable from ETO.
- After quarter-end, ETO merged into Energy Transfer LP, and the partnership’s general partner became wholly owned by Energy Transfer LP.
Important facts for investors to verify
- Whether horsepower utilization and customer demand recover, and how that affects revenue, pricing and idle equipment.
- Revolver availability, covenant headroom and the path of leverage as the covenant-relief period ends.
- Common-distribution sustainability given 1.03x DCF coverage, debt service and planned capital spending.
- Progress and potential outcomes of the Oklahoma and Texas sales-tax matters, including the related-party indemnification receivable.
- Preferred-unit conversion activity and the potential effect on common-unit dilution and distributions.