USA pression Partners(USAC) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Q1 2020 revenues were $179.0 million, but a $619.4 million goodwill impairment led to a $602.5 million net loss, reducing total assets to $3.10 billion Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Total Revenues | $178,999 | $170,746 | | Operating Income (Loss) | $(569,710) | $35,528 | | Impairment of Goodwill | $619,411 | $0 | | Net Income (Loss) | $(602,461) | $6,587 | | Net Loss per Common Unit | $(6.36) | $(0.02) | Condensed Consolidated Balance Sheets Highlights (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $223,700 | $230,923 | | Goodwill | $0 | $619,411 | | Total Assets | $3,103,087 | $3,730,407 | | Total Current Liabilities | $162,322 | $189,375 | | Long-term Debt, net | $1,909,578 | $1,852,360 | | Total Liabilities | $2,109,162 | $2,072,500 | | Total Partners' Capital | $516,616 | $1,180,598 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $50,077 | $47,769 | | Net Cash Used in Investing Activities | $(42,070) | $(34,653) | | Net Cash Used in Financing Activities | $(8,015) | $(12,988) | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, including Topic 326 adoption, a $619.4 million goodwill impairment in Q1 2020, and details on long-term debt and new unit commitments - The company adopted Topic 326 for credit losses on January 1, 2020, which requires immediate recognition of estimated credit losses over the life of financial assets[30] - A goodwill impairment of $619.4 million was recognized for the three months ended March 31, 2020, triggered by declines in common unit market price, global commodity prices, and the COVID-19 pandemic[60][62] - As of March 31, 2020, the company had total long-term debt of $1.91 billion, consisting of a revolving credit facility and two series of senior notes, and was in compliance with all debt covenants[73][74] - The company had binding commitments of $33.5 million for new compression units and parts as of March 31, 2020, expected to be settled during the remainder of 2020[102] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19 and oil price impacts, resulting in a $602.5 million net loss despite revenue growth, leading to 25% capital spending cuts and 10% operating expense reductions - The company's business is negatively impacted by the COVID-19 pandemic and the significant surplus in oil supply, leading to reduced demand for compression services and cuts in customer capital spending[113][118] - In response to market uncertainty, the company has cut its 2020 growth capital spending budget by 25% and reduced operating expenses by 10%[124] Key Operating Metrics | Metric | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Fleet Horsepower (at period end) | 3,705,550 | 3,619,898 | 2.4% | | Average Horsepower Utilization | 92.5% | 94.2% | (1.8)% | | Avg. Revenue per Revenue Generating HP/Month | $16.89 | $16.45 | 2.7% | Non-GAAP Financial Measures (in thousands) | Metric | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Gross Operating Margin | $119,834 | $113,721 | 5.4% | | Adjusted EBITDA | $106,184 | $101,377 | 4.7% | | Distributable Cash Flow (DCF) | $54,702 | $54,852 | (0.3)% | | DCF Coverage Ratio | 1.08x | 1.16x | (6.9)% | Quantitative and Qualitative Disclosures About Market Risk The company faces indirect commodity price, interest rate, and credit risks, with $459.3 million in variable-rate debt and heightened credit risk from COVID-19 and oil market volatility - The company has no direct exposure to commodity prices, but a sustained decline in oil and gas prices could reduce demand for its services, with a 1% decrease in average revenue generating horsepower resulting in an annual revenue decrease of approximately $6.7 million[194] - As of March 31, 2020, the company had $459.3 million of variable-rate debt, where a 1% change in the effective interest rate would result in an annual interest expense change of approximately $4.6 million[195] - Credit risk is elevated due to the COVID-19 pandemic and oil market volatility, which could affect customers' ability to pay for services[197] Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2020, with no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[199] - 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[200] PART II. OTHER INFORMATION Legal Proceedings The company does not expect ordinary course legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flows - In management's opinion, the resolution of 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[203] Risk Factors The company faces significant risks from COVID-19 and oil market turmoil, potentially impacting demand, customer financial health, revenues, and distributions, alongside heightened counterparty credit risk - The COVID-19 pandemic and recent oil market developments are identified as major risk factors that could adversely affect the company's business and results of operations[205] - Potential consequences include deterioration of customer financial conditions, renegotiation of service contracts at lower rates, and a negative impact on the company's ability to pay distributions and service debt[207] - A long-term reduction in demand for natural gas or crude oil could adversely affect demand for the company's compression services and the prices it can charge[210] - The company is exposed to heightened counterparty credit risk, as weak economic conditions could make it difficult for customers, suppliers, or vendors to meet their obligations[213] Exhibits This section lists exhibits filed with the Form 10-Q, including partnership agreements, CEO/CFO certifications, and financial statements in Inline XBRL format - The report includes standard exhibits such as the Certificate of Limited Partnership, the Second Amended and Restated Agreement of Limited Partnership, and CEO/CFO certifications pursuant to Sarbanes-Oxley[215]