USA pression Partners(USAC) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements show significant revenue growth and a shift to net income in H1 2019, driven by the 2018 business combination Unaudited Condensed Consolidated Balance Sheets Total assets slightly decreased to $3.76 billion as of June 30, 2019, while liabilities rose, reducing partners' capital Condensed Consolidated Balance Sheet Data (in thousands) | | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $3,759,671 | $3,774,649 | | Total current assets | $240,586 | $217,740 | | Property and equipment, net | $2,499,694 | $2,521,488 | | Goodwill | $619,411 | $619,411 | | Total Liabilities | $2,002,503 | $1,918,484 | | Total current liabilities | $176,997 | $149,599 | | Long-term debt, net | $1,811,106 | $1,759,058 | | Total Partners' Capital | $1,279,859 | $1,378,856 | Unaudited Condensed Consolidated Statements of Operations H1 2019 revenues reached $344.4 million with net income of $16.5 million, a significant turnaround from a prior-year net loss Statement of Operations Highlights (in thousands) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | :--- | :--- | | | 2019 | 2018 | 2019 | 2018 | | Total revenues | $173,675 | $166,898 | $344,421 | $243,428 | | Contract operations | $162,937 | $155,261 | $326,913 | $225,068 | | Operating income | $42,891 | $28,589 | $78,419 | $4,804 | | Net income (loss) | $9,949 | $3,197 | $16,536 | ($20,173) | | Net loss attributable to common and Class B unitholders | ($2,239) | ($8,857) | ($7,839) | ($32,227) | | Basic and diluted net income (loss) per common unit | $0.01 | ($0.06) | ($0.01) | ($0.42) | Unaudited Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $147.6 million in H1 2019, while investing and financing activities saw significant shifts post-acquisition Cash Flow Summary (in thousands) | | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2019 | 2018 | | Net cash provided by operating activities | $147,586 | $94,370 | | Net cash used in investing activities | ($75,949) | ($664,970) | | Capital expenditures, net | ($87,821) | ($149,363) | | Acquisitions of USA Compression Predecessor | — | ($1,232,546) | | Assumed cash acquired in business combination | — | $710,506 | | Net cash provided by (used in) financing activities | ($71,734) | $569,114 | | Decrease in cash and cash equivalents | ($97) | ($1,486) | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the 2018 CDM Acquisition, key accounting policies including ASC Topic 842 adoption, and financial commitments - On April 2, 2018, the company acquired the USA Compression Predecessor from ETO for approximately $1.7 billion, consisting of cash, common units, and Class B units, accounted for as a reverse merger[23][27] - The company adopted the new lease accounting standard (ASC Topic 842) on January 1, 2019, recognizing net right-of-use (ROU) lease assets of $3.5 million and lease liabilities of $3.7 million on the balance sheet[58][61] - As of June 30, 2019, the company had a $44.9 million accrued liability for a sales tax contingency related to Texas audits, fully indemnified by ETO, resulting in a corresponding $44.9 million related party receivable[134][135] Long-Term Debt Composition (in thousands) | | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Revolving credit facility | $363,352 | $1,049,547 | | Senior Notes 2026 | $725,000 | $725,000 | | Senior Notes 2027 | $750,000 | — | | Less: deferred financing costs | ($27,246) | ($15,489) | | Total long-term debt, net | $1,811,106 | $1,759,058 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes significant revenue and profitability growth to the 2018 acquisition, highlighting strong operational performance and solid liquidity Operating Highlights Operational performance improved in Q2 2019, with average revenue-generating horsepower increasing and utilization rising to 94.6% Key Operating Metrics | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | :--- | :--- | | | 2019 | 2018 | 2019 | 2018 | | Fleet horsepower (at period end) | 3,657,362 | 3,559,987 | 3,657,362 | 3,559,987 | | Average revenue generating horsepower | 3,270,379 | 3,137,019 | 3,275,490 | 2,276,865 | | Average revenue per revenue generating HP per month | $16.60 | $15.77 | $16.53 | $15.88 | | Horsepower utilization (average for the period) | 94.6% | 91.5% | 94.4% | 89.5% | - The 43.9% increase in average revenue-generating horsepower for the six-month period was primarily due to the addition of the Partnership's historical assets from the Transactions, combined with organic growth[162] Financial Results of Operations Q2 2019 revenues increased 4.1% and operating income grew 50.0%, with H1 2019 revenues surging 41.5% due to acquisition impact Q2 2019 vs Q2 2018 Financial Results (in thousands) | | Three Months Ended June 30, | Percent Change | | :--- | :--- | :--- | :--- | | | 2019 | 2018 | | | Total revenues | $173,675 | $166,898 | 4.1% | | Gross operating margin | $117,430 | $109,365 | 7.4% | | Selling, general and administrative | $16,210 | $27,177 | (40.4)% | | Operating income | $42,891 | $28,589 | 50.0% | | Net income | $9,949 | $3,197 | 211.2% | H1 2019 vs H1 2018 Financial Results (in thousands) | | Six Months Ended June 30, | Percent Change | | :--- | :--- | :--- | :--- | | | 2019 | 2018 | | | Total revenues | $344,421 | $243,428 | 41.5% | | Gross operating margin | $231,151 | $148,560 | 55.6% | | Operating income | $78,419 | $4,804 | 1,532.4% | | Net income (loss) | $16,536 | ($20,173) | 182.0% | Liquidity and Capital Resources The company maintains solid liquidity through cash from operations and its credit facility, with $438.9 million available capacity and recent debt issuance - As of June 30, 2019, the company had $438.9 million of available borrowing capacity under its $1.6 billion credit facility[203] - The company issued $750.0 million of 6.875% Senior Notes due 2027 in March 2019, using the net proceeds to reduce borrowings under the Credit Agreement[199][209] - For 2019, the company budgeted $140-$150 million for expansion capital expenditures and ~$25 million for maintenance capital expenditures[201][202] - On July 30, 2019, all 6,397,965 Class B Units automatically converted into common units on a one-for-one basis[211] Non-GAAP Financial Measures The company uses non-GAAP measures like Adjusted EBITDA and DCF, showing strong growth in Q2 and H1 2019, with a healthy DCF Coverage Ratio Non-GAAP Financial Measures (in thousands) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | :--- | :--- | | | 2019 | 2018 | 2019 | 2018 | | Gross operating margin | $117,430 | $109,365 | $231,151 | $148,560 | | Adjusted EBITDA | $104,708 | $95,438 | $206,085 | $127,087 | | DCF | $54,062 | $51,422 | $108,914 | $73,858 | | DCF Coverage Ratio | 1.14x | 1.09x | 1.15x | 1.56x | - The decrease in the DCF Coverage Ratio for the six-month period is because the 2018 period only reflects one quarter of distributions, as the USA Compression Predecessor did not pay distributions prior to the Transactions Date[193][235] Quantitative and Qualitative Disclosures About Market Risk The company faces indirect commodity price risk, interest rate risk on variable-rate debt, and credit risk - The company has no direct exposure to commodity price risk as it does not take title to natural gas or crude oil[238] - The company is exposed to interest rate risk on its variable-rate debt, with $363.4 million outstanding as of June 30, 2019, where a 1% change would impact annual interest expense by about $3.6 million[239] Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2019, with no material changes to internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[243] - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[244] PART II. OTHER INFORMATION Legal Proceedings Management does not expect ongoing legal proceedings to have a material adverse effect on the company's financial position or results - Management does not expect any ongoing legal proceedings to have a material adverse effect on the company's consolidated financial position, results of operations, or cash flows[247] Risk Factors This section refers investors to the detailed risk factors outlined in the company's 2018 Annual Report on Form 10-K - The report refers to the risk factors set forth in the 2018 Annual Report (Form 10-K) for a detailed discussion of potential risks[248] Exhibits This section lists documents filed as exhibits with the quarterly report, including CEO and CFO certifications and interactive data files - Exhibits filed with the report include CEO/CFO certifications and interactive data files[249]