Business Context and Reporting Period
USA Compression Partners, LP provides natural gas and crude oil compression services under term contracts. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2015; comparisons are with the corresponding 2014 periods unless noted. Amounts below are in U.S. dollars.
Financial Performance and Liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $70.5 million | $57.0 million | $201.9 million | $160.5 million |
| Operating income | $15.5 million | $7.7 million | $19.7 million | $25.8 million |
| Net income | $9.8 million | $5.0 million | $5.4 million | $16.4 million |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $82.7 million | $70.6 million |
| Adjusted EBITDA (non-GAAP) | $39.5 million | $29.3 million | $115.6 million | $81.4 million |
| Adjusted distributable cash flow (non-GAAP) | $32.3 million | $23.0 million | $92.8 million | $59.7 million |
- Q3 gross operating margin, a non-GAAP measure, was $48.6 million, or 68.9% of revenue, versus $37.6 million, or 65.9%. Nine-month margin was $141.7 million, or 70.2%, versus $105.4 million, or 65.6%.
- Nine-month investing cash outflow was $239.6 million, primarily for compression equipment; financing cash inflow was $156.8 million. Cash at September 30 was $7,000.
- Long-term revolving debt was $712.3 million, up from $594.9 million at December 31, 2014. The reported rate was 2.26%; the partnership said it was covenant-compliant and had $151.3 million of available borrowing capacity and $387.7 million of borrowing-base availability.
- At September 30, current assets were $56.6 million and current liabilities were $68.4 million. The filing reports no current portion of long-term debt.
- The partnership declared distributions of $0.525 per limited partner unit for the quarter. Adjusted DCF coverage was 1.25x for Q3 and 1.23x for the nine months; these are non-GAAP measures and the filing also provides coverage based on record-date units.
Material Changes Versus Prior Period
- Q3 revenue increased 23.7%, primarily as average revenue-generating horsepower rose 16.2%; average revenue per horsepower per month increased 1.7%. Average utilization declined to 90.2% from 94.0%.
- Q3 net income increased 95.6%, while nine-month net income fell 67.4%. The nine-month comparison reflects a $27.3 million equipment impairment in 2015, versus $1.2 million in 2014, as well as higher depreciation and interest expense.
- Nine-month operating cash flow increased $12.1 million, while capital expenditures remained substantial at $240.6 million. Debt increased alongside fleet investment, partially offset by a September equity offering that generated $74.4 million net proceeds used to repay revolving debt.
- Common units outstanding increased from 31.3 million at year-end 2014 to 37.6 million at September 30, 2015, reflecting equity issuance and DRIP units.
Outlook, Risks, and Unusual Items
- Management expected demand to continue through the remainder of 2015 and 2016, while cautioning that it could not predict demand changes with certainty. It planned approximately $245 million of 2015 expansion capital expenditures and $17 million of maintenance capital expenditures; $38.8 million of equipment purchase commitments were outstanding at September 30.
- Management cited depressed commodity prices and slower activity, particularly in oil-focused plays, as risks to incremental demand and gas-lift pricing. The partnership has no direct commodity-price exposure but is indirectly exposed through customer production and investment decisions.
- Management attributed lower utilization mainly to slower contracting of new units following customer project delays. It reported 90.4% period-end horsepower utilization, down from 93.5%.
- The $27.3 million impairment followed a decision to retire and sell or reuse components from 166 idle compressor units, approximately 58,000 horsepower. A separate $0.4 million Q3 impairment related to equipment damage; the partnership expected insurance proceeds within six months.
- One customer contributed 10.2% of Q3 revenue and 10.4% of nine-month revenue. Management said ordinary-course litigation was not expected to materially affect the partnership. No formal earnings guidance was provided.
Most Important Facts for Investors to Verify
- Whether customer project delays, commodity-price weakness, or service-rate pressure further reduce utilization or demand.
- Whether the planned expansion spending and equipment commitments generate contracted revenue and adequate returns, given rising debt and minimal reported cash.
- Whether the $27.3 million fleet impairment and planned equipment retirements indicate further underutilized or impaired assets.
- How distribution coverage develops, including the effect of DRIP participation, unit issuance, and the partnership’s financing needs.
- The distinction between GAAP cash flow and management’s non-GAAP Adjusted EBITDA, Adjusted DCF, and coverage measures when assessing distribution sustainability.