USA pression Partners(USAC) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Unaudited consolidated financial statements reflect the business combination, showing improved net income and cash flow from operations Unaudited Condensed Consolidated Balance Sheets Total assets slightly decreased to $3.75 billion, while total liabilities increased to $2.04 billion due to higher long-term debt Condensed Consolidated Balance Sheet Data (in thousands) | | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total current assets | $ 232,698 | $ 217,740 | | Property and equipment, net | $ 2,497,456 | $ 2,521,488 | | Total assets | $ 3,751,230 | $ 3,774,649 | | Total current liabilities | $ 172,742 | $ 149,599 | | Long-term debt, net | $ 1,843,309 | $ 1,759,058 | | Total liabilities | $ 2,040,001 | $ 1,918,484 | | Total partners' capital | $ 1,233,920 | $ 1,378,856 | Unaudited Condensed Consolidated Statements of Operations Q3 2019 saw $175.8 million in revenues and $13.3 million net income, a significant improvement from a net loss in Q3 2018 Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $175,756 | $168,947 | $520,177 | $412,375 | | Operating income | $46,164 | $23,940 | $124,583 | $28,744 | | Interest expense, net | ($32,626) | ($25,443) | ($94,162) | ($51,125) | | Net income (loss) | $13,315 | ($563) | $29,851 | ($20,736) | | Net income (loss) attributable to common unitholders | $2,084 | ($8,768) | $1,043 | ($33,185) | | Basic and diluted net income (loss) per common unit | $0.02 | ($0.10) | $0.01 | ($0.48) | Unaudited Condensed Consolidated Statements of Changes in Partners' Capital Total partners' capital decreased to $1.234 billion, influenced by distributions and the conversion of Class B Units to common units - On July 30, 2019, 6,397,965 Class B Units automatically converted into common units on a one-for-one basis, eliminating all outstanding Class B Units[118] - Total partners' capital decreased from $1,378,856 thousand at the end of 2018 to $1,233,920 thousand at the end of Q3 2019, influenced by distributions and net income[18] Unaudited Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $208.9 million, while cash was used in investing and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $ 208,880 | $ 133,200 | | Net cash used in investing activities | ($ 108,227) | ($ 715,849) | | Net cash provided by (used in) financing activities | ($ 100,750) | $ 581,466 | | Decrease in cash and cash equivalents | ($ 97) | ($ 1,183) | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the basis of presentation, key accounting policies, ASC 842 adoption, and contingencies including a $44.9 million sales tax issue - The financial statements are presented following a reverse merger accounting treatment where the USA Compression Predecessor (acquired from ETO) is deemed the accounting acquirer of the Partnership[31] - The company adopted the new lease accounting standard ASC Topic 842 on January 1, 2019, recognizing additional net right-of-use (ROU) lease assets and lease liabilities of approximately $3.5 million and $3.7 million, respectively[63] - The company has a $44.9 million accrued liability for a sales tax contingency related to periods prior to the Transactions Date, fully covered by an indemnity from ETO, resulting in a corresponding related party receivable[143][144] Management's Discussion and Analysis of Financial Condition and Results of Operations Improved financial performance is driven by strong demand for compression services, with Q3 2019 revenues at $175.8 million and Adjusted EBITDA at $104.3 million Operating Highlights Operational metrics show positive trends, including 1.8% fleet horsepower growth to 3.7 million HP and improved horsepower utilization to 93.9% Key Operating Metrics | | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Fleet horsepower (at period end) | 3,678,804 | 3,613,647 | | Average revenue generating horsepower | 3,258,125 | 3,212,183 | | Average revenue per revenue generating HP per month | $16.73 | $16.17 | | Horsepower utilization (Average for the period) | 93.9% | 92.8% | Financial Results of Operations Financial results improved significantly, with Q3 2019 revenue growing 4.0% to $175.8 million and operating income nearly doubling to $46.2 million - Q3 2019 contract operations revenue increased by $7.5 million (4.7%) year-over-year, driven by increased average revenue-generating horsepower and average revenue per horsepower per month[174] - Q3 2019 cost of operations decreased by $6.9 million (10.7%) year-over-year, primarily due to lower outside maintenance services, ad valorem tax expense, and direct labor expenses[177][178] - For the nine months ended Sep 30, 2019, contract operations revenue increased by $109.4 million (28.5%) compared to the same period in 2018, primarily due to the full-period inclusion of the Partnership's historical assets post-acquisition[185] Non-GAAP Financial Measures Non-GAAP measures show strong performance, with Q3 2019 Adjusted EBITDA increasing 15.7% to $104.3 million and DCF at $54.9 million Non-GAAP Financial Data (in thousands) | | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Gross operating margin | $118,333 | $104,638 | $349,484 | $253,198 | | Adjusted EBITDA | $104,327 | $90,132 | $310,412 | $217,219 | | DCF | $54,933 | $47,478 | $163,847 | $121,336 | | DCF Coverage Ratio | 1.08x | 1.01x | 1.13x | 1.28x | - Adjusted EBITDA for Q3 2019 increased by $14.2 million (15.7%) year-over-year, driven by a $13.7 million increase in gross operating margin[197] Liquidity and Capital Resources Liquidity is strong, supported by cash from operations and a $1.6 billion revolving credit facility, with $410.4 million available capacity - Net cash from operating activities increased by $75.7 million for the first nine months of 2019 compared to 2018, reaching $208.9 million[205] - Budgeted expansion capital expenditures for 2019 are between $145 million and $155 million, with maintenance capital expenditures planned at approximately $28 million[210][211] - As of September 30, 2019, the company had $394.5 million in borrowings under its revolving credit facility and available borrowing capacity of $410.4 million[212] Quantitative and Qualitative Disclosures About Market Risk Primary market risks include commodity prices, interest rates, and credit, with a 1% interest rate change impacting annual interest expense by approximately $3.9 million - The company has no direct exposure to commodity prices but acknowledges that sustained low prices could reduce demand for its services, with a 1% decrease in average revenue-generating horsepower decreasing annual revenue by approximately $6.5 million[243] - The company is exposed to interest rate risk on its variable-rate debt; a 1% increase in the effective interest rate would result in an annual increase in interest expense of approximately $3.9 million[245] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes in 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 September 30, 2019[248] - 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[249] PART II. OTHER INFORMATION Legal Proceedings Management does not expect ordinary course legal proceedings to have a material adverse effect on the company's financial position or operations - In management's opinion, the resolution of any ordinary course legal proceedings is not expected to have a material adverse effect on the company's consolidated financial position, results of operations or cash flows[252] Risk Factors This section refers investors to detailed risk factors outlined in the company's 2018 Annual Report on Form 10-K - The report directs security holders and potential investors to the risk factors set forth in Part I, "Item 1A. Risk Factors" of the company's 2018 Annual Report[253] Exhibits This section lists documents filed as part of the quarterly report, including CEO/CFO certifications and financial statements in Inline XBRL format - Key exhibits filed with the report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and financial data in Inline XBRL format (Exhibit 101.1)[254]