USA Compression Partners, LP — FY 2019 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2019; it is an annual report, not a standalone Q4 filing. USA Compression provides natural-gas compression and related services, primarily under fixed-fee contracts. The 2019 results include the acquired USA Compression Predecessor for the full year, while 2018 includes it only after the April 2, 2018 transaction date, limiting year-over-year comparability.
Financial and operating performance
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $698.4 million | $584.4 million | +19.5% |
| Gross operating margin | $471.1 million; 67.5% of revenue | $369.6 million; 63.3% | +27.4% |
| Operating income | $168.4 million | $65.3 million | +157.8% |
| Net income (loss) | $39.1 million | $(10.6) million | Turned profitable |
| Adjusted EBITDA | $419.6 million; 60.1% of revenue | $320.5 million; 54.8% | +30.9% |
| Distributable cash flow (DCF) | $221.9 million | $177.8 million | +24.8% |
| Cash from operating activities | $300.6 million | $226.3 million | +32.8% |
| Capital expenditures | $199.9 million | $241.2 million | Lower |
Interest expense rose to $127.1 million from $78.4 million, reflecting the post-acquisition debt structure and 2019 notes issuance. Net income attributable to common and Class B unitholders remained a loss of $9.6 million, after $48.8 million of preferred distributions; basic and diluted loss per common unit was $0.02.
At year-end, net long-term debt was $1.852 billion, including $725 million of 6.875% notes due 2026, $750 million of 6.875% notes due 2027, and $402.7 million drawn on the revolving facility. The facility had $484.4 million of available borrowing capacity subject to covenant compliance. The credit-agreement leverage ratio was 4.39x; the partnership reported covenant compliance. Cash was $10,000 and working capital was $41.5 million.
Common-unit distributions were $2.10 per unit for 2019, or $0.525 quarterly. DCF coverage was 1.13x and cash coverage 1.14x. The comparison with 2018 is affected by the fact that 2018 distributions covered only three quarters after the transaction, and the 2019 conversion of Class B units increased common-unit distributions.
Fourth-quarter snapshot
Q4 2019 revenue was $178.2 million versus $172.0 million in Q4 2018; gross profit was $121.6 million versus $116.4 million. Net income was $9.3 million versus $10.2 million. Net loss attributable to common and Class B unitholders was $2.9 million versus $2.0 million; reported common-unit earnings per unit were $(0.03) versus $0.01.
Material changes and management outlook
- Average revenue-generating horsepower increased 18.8% to 3.279 million, while average utilization rose to 94.1% from 91.4%. Average revenue per revenue-generating horsepower per month increased 3.5% to $16.65.
- The fleet reached 3.683 million horsepower, up 2.4%; 56,500 horsepower was on order for delivery in 2020. Management said most planned first-half 2020 large-unit purchases were committed to customers or under contract.
- In March 2019, the partnership issued $750 million of 6.875% senior notes due 2027 and used the net proceeds to reduce revolver borrowings. The revolver’s $1.6 billion commitment matures in April 2023.
- Management expected demand for compression services to remain strong through 2020, citing expected U.S. production and infrastructure needs. It budgeted $32 million for 2020 maintenance capital expenditures and $110–$120 million for expansion capital expenditures. These are management expectations, not guarantees.
Risks, contingencies and unusual items
- Demand and pricing depend indirectly on oil and gas production, commodity economics, customer spending and industry activity; the partnership does not take title to commodities. Competition, customer concentration, customer credit risk, and month-to-month contracts (about 36% of 2019 compression-service revenue) may pressure revenue or utilization.
- Debt service, variable-rate revolver exposure, restrictive covenants and preferred distributions constrain financial flexibility and distributions. Preferred units carry cumulative distributions of 9.75% annually, senior to common-unit distributions.
- Management reported $5.9 million of 2019 compression-equipment impairment, after retiring or repurposing components from 33 units (about 11,000 horsepower). Goodwill of $619.4 million was not impaired in 2019; future impairment remains possible.
- A Texas sales-tax audit contingency was recorded at $44.9 million, offset by a related-party receivable from ETO under an indemnity. A separate $4.0 million settlement for a predecessor audit period was recorded as a receivable from the former owner and paid in February 2020. Management stated ordinary-course litigation was not expected to have a material adverse effect.
- Environmental, emissions, climate-policy, hydraulic-fracturing and permitting changes could increase costs or reduce customer activity. Other risks include equipment and operating hazards, limited suppliers, cybersecurity, acquisition integration, and potential conflicts with the Energy Transfer-controlled general partner.
Important facts for investors to verify
- Assess earnings and cash-flow growth against the acquisition-driven difference in reporting scope between 2019 and 2018; review comparable pro forma results where relevant.
- Track DCF coverage, common-unit distributions, preferred-unit obligations, and the impact of the 2019 Class B unit conversion.
- Verify debt, revolver availability, covenant headroom and floating-rate exposure; a 1 percentage-point rate change on year-end variable-rate debt would change annual interest expense by about $4.0 million.
- Monitor whether 2020 capital-spending plans and contracted new horsepower translate into revenue and utilization without weakening liquidity.
- Review the resolution and collectability of the $44.9 million sales-tax indemnification receivable and the remaining exposure to tax audits and other contingencies.
Adjusted EBITDA, gross operating margin and DCF are non-GAAP measures; consider them alongside GAAP results and cash flows. The filing reports an unqualified audit opinion on the financial statements and effective internal control over financial reporting.