USA Compression Partners, LP — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; quarterly figures below refer to Q4 2020. USA Compression provides fixed-fee natural gas compression and treating services across U.S. energy-producing regions. Its fleet totaled 3.73 million horsepower at year-end.
Financial and operating results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $667.7 million | $698.4 million |
| GAAP operating income (loss) | ($464.9 million) | $168.4 million |
| GAAP net income (loss) | ($594.7 million) | $39.1 million |
| Net loss per common unit | ($6.65) | ($0.02) |
| Net cash from operating activities | $293.2 million | $300.6 million |
| Adjusted EBITDA (non-GAAP) | $413.9 million | $419.6 million |
| Distributable cash flow (non-GAAP) | $220.8 million | $221.9 million |
| Capital expenditures | $118.9 million | $199.9 million |
The $619.4 million goodwill impairment, recorded in Q1, drove the annual GAAP loss; it was non-cash. Excluding depreciation and amortization, adjusted gross margin was $461.7 million (69.2% of revenue), and Adjusted EBITDA margin was 62.0%. These are non-GAAP measures. GAAP gross margin was $222.8 million.
| Q4 metric | Q4 2020 | Q4 2019 |
|---|---|---|
| Revenue | $158.4 million | $178.2 million |
| Operating income | $31.2 million | $43.8 million |
| Net income (loss) | ($1.5 million) | $9.3 million |
| Net income (loss) attributable to common unitholders | ($13.7 million) | ($2.9 million) |
| Net income (loss) per common unit | ($0.14) | ($0.03) |
Liquidity, debt, and distributions
- Year-end total debt, net of deferred financing costs, was $1.927 billion: $473.8 million under the revolving credit facility and $1.475 billion of senior notes. The notes carry 6.875% interest and mature in 2026 and 2027; the revolver matures in April 2023.
- Year-end cash was $2,000 and working capital was $29.3 million. Revolver availability was $284.2 million subject to covenant compliance; borrowing-base availability was approximately $1.1 billion.
- Credit-agreement leverage was 5.03x at year-end, below the temporary 5.75x maximum for Q4 2020. Covenant relief steps down through 2021 and reverts to a 5.00x limit after the relief period ending December 31, 2021. Eurodollar borrowing margins also increased under the amendment.
- Common-unit distributions remained $0.525 quarterly ($2.10 annually). DCF coverage was 1.09x and cash coverage was 1.10x. Preferred distributions are cumulative and senior to common distributions; 2020 preferred distributions totaled $48.8 million.
Material changes and management outlook
- Revenue decreased 4.4% year over year, mainly as lower demand reduced average revenue-generating horsepower by 4.3%. Year-end revenue-generating horsepower fell 9.4%, and average utilization declined from 94.1% to 86.8%.
- Adjusted EBITDA declined 1.4% and DCF declined 0.5%; operating costs fell 9.4%, partly offsetting lower revenue. Average revenue per revenue-generating horsepower rose 0.4% to $16.71 per month.
- The $619.4 million goodwill write-off followed lower unit prices, commodity prices, and the effects of COVID-19. The Partnership also recorded $8.1 million of compression-equipment impairment and raised its credit-loss allowance to $5.0 million.
- Management significantly reduced planned 2021 capital spending. It expected approximately $22 million of maintenance capex and budgeted $30–$40 million of expansion capex, while noting that actual demand and utilization remained uncertain. Management expects long-term demand for compression to continue but anticipated near-term pressure on new activity and on smaller-horsepower gas-lift services.
- COVID-19 had not materially interrupted field operations or caused significant additional costs by the filing date, but its duration and effects remained uncertain. Commodity prices do not directly affect revenue under the service model, but influence customer activity and demand.
Risks, contingencies, and other notable items
- Customer concentration and contract duration are relevant: the ten largest customers generated about 35% of revenue, and roughly 30% of compression-service revenue came from month-to-month arrangements. Two customers represented 13% and 11% of net trade receivables, respectively.
- The Oklahoma Tax Commission assessment could result in estimated losses from $0 to approximately $20 million; management said the upper end assumes a scenario it considers remote. A separate $44.9 million sales-tax liability for predecessor-period matters is matched by a related-party receivable from ETO under an indemnity.
- Other key exposures include covenant compliance and refinancing, variable-rate debt, customer credit and bankruptcies, potential service-rate renegotiations, environmental and emissions regulation, and commodity-driven reductions in customer activity. Preferred-unit distributions and potential conversion into common units may also affect liquidity and dilution.
- Management and the auditor reported effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls. Ordinary-course litigation was not expected by management to have a material adverse effect.
Important facts for investors to verify
- Whether utilization and customer demand recover, particularly in crude-oil-linked regions and small-horsepower applications.
- Whether cash generation supports the common distribution after preferred distributions, debt service, and maintenance capital needs.
- Headroom under the step-down leverage covenants, borrowing availability, and the plan for the 2023 revolver maturity.
- Assumptions underlying the goodwill impairment and the potential for further asset impairments or credit losses.
- Customer receivable collectability, the Oklahoma sales-tax assessment, and the recoverability of the ETO indemnification receivable.
- Potential dilution and cash obligations from preferred-unit conversion, warrants, and the distribution reinvestment plan.