USA pression Partners(USAC) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Q2 2025, including balance sheets, statements of operations, cash flows, and detailed notes Note 1 – Organization and Description of Business The Partnership provides natural gas compression and treating services under fixed-term contracts to customers in the U.S. natural gas and crude oil industries, operating in major unconventional resource plays - The company's core business is providing natural gas compression services under fixed-term contracts across key U.S. resource plays[25] Note 5 – Property and Equipment and Identifiable Intangible Assets This note details the composition of property and equipment, totaling $2.2 billion net as of June 30, 2025, and discloses asset impairment charges - The company recorded impairment charges on compression equipment of $3.0 million for Q2 2025 and $6.8 million for the first six months of 2025, due to retiring units that were unmarketable or had excessive maintenance costs[59] Property and Equipment, Net (in thousands) | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Compression and treating equipment | $4,168,616 | $4,134,544 | | Less: accumulated depreciation | ($2,079,810) | ($1,967,865) | | Total property and equipment, net | $2,200,423 | $2,273,376 | Note 8 – Debt Obligations As of June 30, 2025, the Partnership had total long-term debt of approximately $2.5 billion, comprising a revolving credit facility and senior notes Long-Term Debt Composition (in thousands) | Debt Instrument | June 30, 2025 (in thousands) | | :--- | :--- | | Senior Notes 2027, aggregate principal | $750,000 | | Senior Notes 2029, aggregate principal | $1,000,000 | | Revolving credit facility | $770,596 | | Total long-term debt, net | $2,503,566 | - Under the revolving credit facility, the company had $770.6 million in outstanding borrowings and $735.1 million of available borrowing capacity as of June 30, 2025[69] Note 9 – Preferred Units This note describes Series A Preferred Units terms and reports the conversion of 100,000 units into common units in June 2025 - On June 3, 2025, holders of Preferred Units converted 100,000 units into 4,997,126 common units[85] Change in Preferred Units Outstanding (Units) | Description | Units | | :--- | :--- | | Outstanding, December 31, 2024 | 180,000 | | Exercise and conversion | (100,000) | | Outstanding, June 30, 2025 | 80,000 | Note 10 – Partners' Deficit This note details changes in common units and cash distributions, with 122.6 million common units outstanding and quarterly distributions of $0.525 per unit - The number of common units outstanding increased to 122.6 million, partly due to the conversion of Preferred Units[88] Cash Distributions per Unit | Period | Distribution per Common Unit ($) | Distribution per Preferred Unit ($) | | :--- | :--- | :--- | | Q1 2025 (Paid May 9) | $0.525 | $24.375 | | Q4 2024 (Paid Feb 7) | $0.525 | $24.375 | Note 11 – Revenue Recognition Revenue is disaggregated by service type, with contract operations as the majority, and $1.2 billion in remaining performance obligations as of June 30, 2025 Disaggregation of Revenue (in thousands) | Revenue Type | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Contract operations revenue | $481,822 | $452,871 | | Retail parts and services revenue | $13,537 | $11,718 | | Total revenues | $495,359 | $464,589 | - As of June 30, 2025, the company had approximately $1.2 billion in aggregate transaction price allocated to unsatisfied performance obligations, expected to be recognized as revenue in future periods[99] Note 13 – Commitments and Contingencies This note covers major customers, litigation, and tax contingencies, including an IRS examination for 2019-2020 with a potential $29.2 million imputed underpayment - The IRS is examining the Partnership's 2019 and 2020 tax returns and has issued preliminary changes resulting in an imputed underpayment computation of approximately $29.2 million. The company has recognized a $1.0 million charge as a reasonable estimate of the potential loss[107][109] - One customer accounted for approximately 11% of total revenues for the first six months of 2025[105] - As of June 30, 2025, the company had binding commitments to purchase $44.9 million in new compression units[110] Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total current assets | $245,045 | $234,996 | | Total assets | $2,671,317 | $2,745,601 | | Total current liabilities | $192,922 | $190,678 | | Long-term debt, net | $2,503,566 | $2,502,557 | | Total liabilities | $2,719,331 | $2,717,843 | | Partners' deficit | ($121,415) | ($141,051) | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | | :--- | :--- | :--- | | Total revenues | $250,125 | $495,359 | | Operating income | $76,608 | $145,999 | | Net income | $28,559 | $49,071 | | Net income attributable to common unitholders | $26,609 | $42,733 | | Basic and diluted net income per common unit | $0.22 | $0.36 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $178,895 | $162,658 | | Net cash used in investing activities | ($40,395) | ($146,715) | | Net cash used in financing activities | ($138,512) | ($15,945) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses operating highlights, financial results, liquidity, and capital resources, focusing on revenue growth, rising costs, and non-GAAP measures for Q2 and H1 2025 Operating Highlights This section highlights key operational metrics, showing modest growth in fleet and revenue-generating horsepower, driven by a 5.0% increase in average revenue per horsepower Key Operating Metrics Comparison | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | | :--- | :--- | :--- | :--- | | Average revenue-generating horsepower (HP) | 3,551,446 | 3,515,483 | 1.0% | | Average revenue per revenue-generating HP/month ($/HP/month) | $21.31 | $20.29 | 5.0% | | Horsepower utilization (at period end) (%) | 94.2% | 95.0% | (0.8)% | - The increase in average revenue per revenue-generating horsepower was primarily due to higher market-based rates on new and redeployed units, as well as contractual price increases[127] Financial Results of Operations This section compares Q2 and H1 2025 financial results to 2024, showing increased total revenues but decreased net income due to higher operating costs and depreciation Q2 2025 vs Q2 2024 Results of Operations (in thousands) | Line Item | Q2 2025 (in thousands) | Q2 2024 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $250,125 | $235,313 | 6.3% | | Cost of operations | $86,499 | $78,162 | 10.7% | | Depreciation and amortization | $70,841 | $65,313 | 8.5% | | Operating income | $76,608 | $77,372 | (1.0)% | | Net income | $28,559 | $31,238 | (8.6)% | H1 2025 vs H1 2024 Results of Operations (in thousands) | Line Item | H1 2025 (in thousands) | H1 2024 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $495,359 | $464,589 | 6.6% | | Cost of operations | $168,117 | $153,234 | 9.7% | | Depreciation and amortization | $141,234 | $128,564 | 9.9% | | Operating income | $145,999 | $144,244 | 1.2% | | Net income | $49,071 | $54,811 | (10.5)% | - The increase in cost of operations for Q2 2025 was driven by higher direct expenses for parts, increased direct labor costs due to higher headcount and wages, and a rise in retail parts and service expenses[135] Liquidity and Capital Resources The Partnership's liquidity relies on cash from operations and its credit facility, with planned 2025 capital expenditures of $120-$140 million for expansion - The company believes cash from operations and its credit facility will be sufficient to service debt, fund working capital, and pay distributions for the next 12 months[169] 2025 Capital Expenditure Guidance (in millions) | Capex Type | Planned Spending (2025) (in millions) | | :--- | :--- | | Expansion Capital | $120.0 million - $140.0 million | | Maintenance Capital | $38.0 million - $42.0 million | - Net cash from operating activities increased by $16.2 million in H1 2025 compared to H1 2024, primarily due to a decrease in inventory purchases[176] - Net cash used in investing activities decreased by $106.3 million in H1 2025 compared to H1 2024, mainly due to a $105.6 million reduction in capital expenditures for new compression units and equipment[177] Non-GAAP Financial Measures This section defines and reconciles non-GAAP measures, reporting Q2 2025 Adjusted EBITDA increased 4.0% to $149.5 million and DCF increased 4.7% to $89.9 million Key Non-GAAP Financial Measures (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Adjusted gross margin | $163,626 | $157,151 | 4.1% | | Adjusted EBITDA | $149,482 | $143,673 | 4.0% | | Distributable Cash Flow (DCF) | $89,926 | $85,863 | 4.7% | | DCF Coverage Ratio | 1.40x | 1.40x | 0.0% | - The increase in Adjusted EBITDA for Q2 2025 was primarily driven by a $6.5 million increase in Adjusted gross margin[162] Quantitative and Qualitative Disclosures About Market Risk The Partnership faces indirect commodity price risk, interest rate risk from variable-rate debt, and customer credit risk - A 1% increase or decrease in the effective interest rate on the company's variable-rate debt would result in an annual change to interest expense of approximately $7.7 million[210] - A 1% decrease in average revenue-generating horsepower would result in an annual decrease of approximately $9.0 million in revenue and $6.0 million in Adjusted gross margin[209] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, 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, 2025[213] - There were no material changes in internal control over financial reporting during the last fiscal quarter[214] PART II. OTHER INFORMATION Legal Proceedings The company is involved in ordinary course litigation, which is not expected to have a material adverse effect on its financial position - The company states that the resolution of ordinary course legal matters is not expected to have a material adverse effect on its financial position or results[216] Risk Factors This section refers to previously disclosed risk factors in the 2024 Annual Report and Q1 2025 Quarterly Report, with no new material changes - There have been no material changes to the risk factors previously disclosed in the 2024 Annual Report and the Q1 2025 Quarterly Report[217] Exhibits This section lists documents filed as exhibits, including officer certifications and Inline XBRL data files - The exhibits filed with this report include officer certifications pursuant to the Sarbanes-Oxley Act and financial statements formatted in Inline XBRL[218]