USA Compression Partners, LP — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. This is an annual report, not a standalone fourth-quarter filing; selected unaudited quarterly results are also summarized below. The Partnership completed its IPO in January 2013 and acquired S&R Compression assets in August 2013, affecting comparability.
Business context
USA Compression provides natural-gas compression services to energy customers, primarily under fixed-fee contracts. It reported a fleet of 1.20 million horsepower at year-end, with approximately 180,000 horsepower on order. Management says it does not take title to compressed gas and has no direct commodity-price exposure; demand for its services remains indirectly tied to customer production activity.
Financial and operating performance
| Metric | FY 2013 | FY 2012 | Change / context |
|---|---|---|---|
| Total revenue | $152.9 million | $118.8 million | Up 28.7% |
| Operating income | $23.8 million | $20.6 million | Up 15.8% |
| Net income | $11.1 million | $4.5 million | Up 145.9% |
| Adjusted EBITDA (non-GAAP) | $81.1 million | $63.5 million | Up 27.8%; margin 53.1% versus 53.4% |
| Gross operating margin (non-GAAP) | $104.8 million | $81.0 million | Margin 68.5% versus 68.2% |
| Cash from operating activities | $68.2 million | $42.0 million | Up $26.2 million |
| Cash used in investing activities | $153.9 million | $178.6 million | Primarily capital investment |
| Long-term debt at year-end | $420.9 million | $502.3 million | Down $81.3 million |
| Working capital at year-end | $(24.2) million | $(12.1) million | Negative working capital increased |
Capital expenditures were $159.5 million in 2013, including $14.3 million of maintenance spending. Management separately reported $323.7 million of expansion capital expenditures, including the S&R acquisition, which was primarily funded with units rather than cash. Year-end cash was $7,000.
Revenue-generating horsepower increased 34.8% to 1.07 million at year-end, and average revenue per revenue-generating horsepower per month rose 5.7% to $14.15. Average utilization was 93.8%, compared with 94.5% in 2012. The Partnership reported $53.4 million of distributable cash flow and $56.2 million of adjusted distributable cash flow, both non-GAAP measures.
Fourth-quarter 2013 results
Unaudited fourth-quarter revenue was $48.6 million, gross profit was $33.0 million, net income was $4.4 million, and income per common and subordinated unit was $0.12. The Partnership declared a $0.48 per-unit distribution for the quarter, paid February 14, 2014; this equated to an annualized rate of $1.92 per unit.
Material changes and unusual items
- The August 2013 S&R acquisition added gas-lift compression assets in exchange for 7.43 million common units valued at $181.9 million. The recorded purchase consideration after working-capital adjustments was $178.5 million, including $51.0 million of goodwill. From closing through year-end, the acquired assets contributed $14.5 million of revenue and $6.4 million of net income, before certain corporate and interest expenses.
- The January 2013 IPO generated approximately $180.5 million of net proceeds, which were used to repay revolving-credit borrowings. The Partnership also issued units to fund the S&R acquisition.
- SG&A rose 51.0% to $27.6 million, reflecting higher staffing and public-company costs, unit-based compensation, and $2.1 million of S&R transaction expenses. Depreciation and amortization rose 26.4% to $52.9 million as the asset base expanded.
- A $0.2 million impairment charge was recorded for compression equipment. No goodwill or intangible-asset impairment was recorded.
- Interest expense declined 21.5% to $12.5 million, partly reflecting lower average borrowings and interest rates. The year-over-year comparison also reflects a $2.2 million swap fair-value gain recorded in 2012.
Liquidity, outlook and principal risks
In December 2013, the Partnership amended its revolving facility, increasing commitments to $850 million, subject to the borrowing base, and extending maturity to December 2018. At year-end it had $420.9 million outstanding and $264.6 million of borrowing availability, and management reported compliance with covenants. Distributions are subject to facility conditions, including at least $20 million of availability after payment. Debt is variable-rate; the filing estimates that a 1 percentage-point rate increase would add approximately $4.2 million to annual interest expense.
Management expected continued demand from shale development, aging conventional fields and crude-oil gas-lift applications, and anticipated additional fleet growth. It gave no quantified revenue or earnings forecast. Risks include customer production and financial health, competition and customer-owned fleets, supplier concentration, acquisition integration, financing access, environmental and emissions regulation, and the short duration of a material portion of contracts. Approximately 38% of services by horsepower and 43% by revenue were month-to-month at year-end; the largest customer represented 14.3% of 2013 revenue. The Partnership reported no legal proceedings expected to have a material adverse effect. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- How much of reported growth and cash generation is attributable to organic operations versus the S&R acquisition, and whether acquired performance is comparable on a fully integrated basis.
- Whether cash flow after maintenance capital expenditures, interest and distributions supports the distribution rate, given negative working capital and substantial expansion spending.
- Borrowing-base availability, covenant headroom and sensitivity to floating rates as the Partnership funds planned fleet additions.
- Renewal rates and pricing for month-to-month contracts, customer concentration, and the continuing impact of customer-owned compression equipment.
- The assumptions supporting goodwill and other acquired intangible values, and future compliance costs from emissions and other environmental requirements.