USA pression Partners(USAC) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for the quarter ended March 31, 2023, show total revenues of $197.1 million, a 20.6% increase year-over-year, leading to a net income of $10.9 million compared to $3.3 million in the prior-year period. Total assets slightly decreased to $2.66 billion. Cash flow from operations increased to $42.3 million, while investing activities, primarily capital expenditures, increased significantly. The company maintains substantial long-term debt of $2.17 billion Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Data (in thousands) | | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $185,940 | $186,447 | | Property and equipment, net | $2,174,487 | $2,172,924 | | Total assets | $2,657,874 | $2,665,724 | | Total current liabilities | $155,968 | $173,664 | | Long-term debt, net | $2,170,421 | $2,106,649 | | Total liabilities | $2,349,026 | $2,304,714 | | Total partners' deficit | $(168,461) | $(116,299) | Unaudited Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per unit amounts) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenues | $197,124 | $163,412 | | Operating income | $51,057 | $35,098 | | Interest expense, net | $(39,790) | $(31,838) | | Net income | $10,941 | $3,254 | | Net loss attributable to common unitholders' interests | $(1,246) | $(8,933) | | Basic and diluted net loss per common unit | $(0.01) | $(0.09) | | Distributions declared per common unit | $0.525 | $0.525 | Unaudited Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $42,338 | $35,054 | | Net cash used in investing activities | $(40,861) | $(19,714) | | Net cash used in financing activities | $(1,506) | $(15,325) | | Increase (decrease) in cash and cash equivalents | $(29) | $15 | Notes to Unaudited Condensed Consolidated Financial Statements - The Partnership provides natural gas compression and treating services under fixed-term contracts in major U.S. shale plays. Its general partner is wholly owned by Energy Transfer LP[22][23] Long-Term Debt Composition (in thousands) | Debt Instrument | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Senior Notes 2026, aggregate principal | $725,000 | $725,000 | | Senior Notes 2027, aggregate principal | $750,000 | $750,000 | | Revolving credit facility | $709,088 | $645,956 | | Total long-term debt, net | $2,170,421 | $2,106,649 | - As of March 31, 2023, the company had $709.1 million outstanding under its revolving credit facility, with available borrowing capacity of $374.5 million. The weighted-average interest rate was 7.15% for Q1 2023[58] - As of March 31, 2023, the company has future capital commitments of $144.7 million for new compression units, all expected to be settled by year-end 2023[90] - The company is protesting sales tax assessments from the Oklahoma Tax Commission (OTC) and estimates a possible range of loss from $0 to approximately $23.8 million[92] - In April 2023, the company entered into a $700 million notional interest-rate swap to manage floating-rate debt risk, fixing the rate at 3.785% and receiving a floating rate indexed to one-month SOFR until April 2025[94] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the strong Q1 2023 performance to increased demand for compression services, leading to higher fleet utilization and better pricing. Revenue grew 20.6% to $197.1 million, and operating income rose 45.5% to $51.1 million year-over-year. This growth was driven by an 8.8% increase in average revenue-generating horsepower and a 7.8% rise in average revenue per horsepower. The company's liquidity remains solid, supported by operating cash flow and its credit facility, which is sufficient to fund planned capital expenditures of $260-$270 million for 2023. Non-GAAP measures like Adjusted EBITDA and Distributable Cash Flow (DCF) also showed significant growth, with the DCF Coverage Ratio improving to 1.21x from 0.98x Operating Highlights Key Operating Metrics Comparison | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue-generating horsepower (at period end) | 3,260,535 | 2,987,624 | 9.1% | | Average revenue-generating horsepower | 3,241,296 | 2,978,422 | 8.8% | | Average revenue per revenue-generating HP per month | $18.19 | $16.87 | 7.8% | | Horsepower utilization (at period end) | 92.7% | 86.1% | 7.7% | - The increase in revenue-generating horsepower was driven by the redeployment of previously idle units and the addition of new units to meet higher demand in key operating basins[106] - The rise in average revenue per horsepower was primarily due to CPI-based and other price increases on customer contracts as market conditions improved[107] Financial Results of Operations Results of Operations Summary (in thousands) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $197,124 | $163,412 | 20.6% | | Cost of operations | $66,665 | $53,732 | 24.1% | | Operating income | $51,057 | $35,098 | 45.5% | | Interest expense, net | $(39,790) | $(31,838) | 25.0% | | Net income | $10,941 | $3,254 | 236.2% | - Contract operations revenue increased by $30.9 million (19.6%) due to higher average revenue-generating horsepower and increased pricing[112] - Cost of operations rose by $12.9 million (24.1%), primarily due to a $7.4 million increase in direct expenses (fluids, parts) and a $2.2 million increase in direct labor costs from higher headcount and costs[116] - Interest expense increased by $8.0 million (25.0%) due to higher weighted-average interest rates (7.15% vs 2.84%) and increased average borrowings under the Credit Agreement ($670.0M vs $540.1M)[121][122] Other Financial Data Non-GAAP Financial Measures (in thousands) | Measure | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Adjusted gross margin | $130,459 | $109,680 | 18.9% | | Adjusted EBITDA | $118,161 | $98,423 | 20.1% | | DCF | $62,613 | $50,146 | 24.9% | | DCF Coverage Ratio | 1.21x | 0.98x | 23.5% | - The increase in Distributable Cash Flow (DCF) was primarily driven by a $20.8 million increase in Adjusted gross margin, partially offset by an $8.0 million increase in cash interest expense[130] - The DCF Coverage Ratio improved to 1.21x, indicating that the cash flow generated was sufficient to cover distributions to common unitholders for the period[131][166] Liquidity and Capital Resources - Primary sources of liquidity are cash from operations and borrowings under the Credit Agreement. The company expects these sources to be sufficient to service debt, fund capital expenditures, and pay distributions for the next 12 months[133] Capital Expenditure Plans for 2023 | Capex Type | Planned 2023 Spend | | :--- | :--- | | Maintenance Capex | ~$26.0 million | | Expansion Capex | $260.0 - $270.0 million | - As of March 31, 2023, the company had binding commitments to purchase $144.7 million of additional compression units and parts, expected to be settled by year-end 2023[137] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks primarily from commodity prices, interest rates, and customer credit. While not directly exposed to commodity price fluctuations, a sustained decline in oil and gas prices could reduce demand for its compression services. The primary financial risk comes from variable-rate debt, which the company began mitigating with an interest-rate swap in April 2023. Credit risk is managed by monitoring the financial health of its customers - The company does not have direct commodity price risk, but a sustained decline in natural gas or crude oil prices could reduce demand for its services. A 1% decrease in average revenue-generating horsepower would decrease annual revenue by approximately $7.1 million[169] - As of March 31, 2023, the company had $709.1 million of variable-rate debt. A 1% change in the effective interest rate would result in an annual interest expense change of approximately $7.1 million[170] - To manage interest rate risk, the company entered into a $700 million interest-rate swap in April 2023, fixing the interest rate at 3.785% on the notional amount until April 2025[171] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2023. There were no material changes to the 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, 2023[175] - 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[176] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various claims and litigation arising in the ordinary course of business, but management does not expect the resolution of these matters to have a material adverse effect on its financial position, results, or cash flows - In management's opinion, the resolution of ordinary course claims and litigation is not expected to have a material adverse effect on the company's consolidated financial position, results of operations, or cash flows[179] Risk Factors The company highlights an updated risk factor concerning cybersecurity. It acknowledges the increasing threat of cyberattacks which could compromise sensitive information, disrupt operations, and lead to financial losses, reputational damage, and legal liability - An updated risk factor emphasizes the increasing threat from cybersecurity breaches and information system disruptions[180] - A significant breach could result in the loss of confidential information, operational disruption, customer dissatisfaction, reputational damage, and potential litigation or regulatory fines[181] Exhibits This section lists the documents filed as part of the quarterly report, including certifications by the CEO and CFO and financial statements formatted in Inline XBRL - The report includes filed exhibits such as CEO and CFO certifications pursuant to the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002[183] - Financial data from the report is also provided in Inline XBRL format as part of the exhibits[183]