USA pression Partners(USAC) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the reporting period Financial Statements This section presents the unaudited condensed consolidated financial statements for USA Compression Partners, LP as of March 31, 2024, and for the three months then ended. It includes the balance sheets, statements of operations, changes in partners' capital, and statements of cash flows, along with detailed notes explaining the basis of presentation and significant accounting policies Unaudited Condensed Consolidated Balance Sheets The balance sheet as of March 31, 2024, shows total assets of $2.80 billion, an increase from $2.74 billion at year-end 2023, primarily driven by increases in property and equipment and inventories, while total liabilities also increased to $2.66 billion from $2.55 billion, mainly due to a rise in long-term debt Condensed Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $248,790 | $226,447 | | Property and equipment, net | $2,291,153 | $2,237,625 | | Total assets | $2,804,217 | $2,736,760 | | Total current liabilities | $173,724 | $187,502 | | Long-term debt, net | $2,462,530 | $2,336,088 | | Total liabilities | $2,662,387 | $2,553,711 | | Preferred Units | $431,402 | $476,334 | | Partners' deficit | ($289,572) | ($293,285) | Unaudited Condensed Consolidated Statements of Operations For the three months ended March 31, 2024, total revenues increased to $229.3 million from $197.1 million in the prior-year period, with net income rising significantly to $23.6 million compared to $10.9 million in Q1 2023, and net income attributable to common unitholders improving to $19.2 million, or $0.19 per unit, from a net loss of $1.2 million, or ($0.01) per unit, in the same period last year Three Months Ended March 31, (in thousands, except per unit amounts) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total revenues | $229,276 | $197,124 | | Operating income | $66,872 | $51,057 | | Interest expense, net | ($46,666) | ($39,790) | | Net income | $23,573 | $10,941 | | Net income (loss) attributable to common unitholders' interests | $19,185 | ($1,246) | | Basic and diluted net income (loss) per common unit | $0.19 | ($0.01) | | Distributions declared per common unit | $0.525 | $0.525 | Unaudited Condensed Consolidated Statements of Cash Flows For the first quarter of 2024, net cash provided by operating activities increased to $65.9 million from $42.3 million in Q1 2023, while net cash used in investing activities rose to $98.6 million due to higher capital expenditures, and net cash provided by financing activities was $32.7 million, driven by the issuance of new senior notes, partially offset by debt repayments and investments for a legal defeasance Cash Flow Summary for Three Months Ended March 31, (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $65,917 | $42,338 | | Net cash used in investing activities | ($98,573) | ($40,861) | | Net cash provided by (used in) financing activities | $32,653 | ($1,506) | | Decrease in cash and cash equivalents | ($3) | ($29) | - Capital expenditures, net, increased significantly to $98.6 million in Q1 2024 from $41.4 million in Q1 2023[20] - Financing activities in Q1 2024 included proceeds of $1.0 billion from the issuance of new senior notes and a $748.8 million investment in government securities for the legal defeasance of the Senior Notes 2026[20] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations of the Partnership's accounting policies and specific financial statement items, covering business organization, revenue recognition, debt obligations including the issuance of new Senior Notes and defeasance of old ones, preferred unit conversions, commitments, and contingencies such as tax audits - The Partnership provides natural gas compression services under fixed-term contracts in major U.S. shale plays. Its general partner is wholly owned by Energy Transfer LP[25][26] - On March 18, 2024, the Partnership issued $1.0 billion of 7.125% Senior Notes due 2029. Proceeds were used to legally defease the $725.0 million Senior Notes due 2026, resulting in a $5.0 million loss on extinguishment of debt[71][78][79] - In January and April 2024, holders converted a total of 320,000 Preferred Units into common units, reducing future preferred distribution obligations[87][88] - The Partnership is under a U.S. federal income tax audit for the 2019 and 2020 tax years, with a potential loss range estimated from $0 to approximately $26.9 million[106] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial condition and results of operations for the first quarter of 2024, highlighting strong operational performance with increased revenue-generating horsepower and higher pricing driving a 16.3% year-over-year revenue increase, and covering liquidity, capital resources, debt management activities, and a detailed breakdown of non-GAAP financial measures like Adjusted EBITDA and Distributable Cash Flow (DCF), which both showed significant growth Operating Highlights Operational metrics for Q1 2024 showed strong growth compared to Q1 2023, with revenue-generating horsepower increasing by 7.3% to 3.5 million HP, average revenue per revenue-generating horsepower per month rising by 9.7% to $19.96, and horsepower utilization at period end improving to 94.8% from 92.7% Key Operating Metrics Comparison (Three Months Ended March 31) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Fleet horsepower (at period end) | 3,833,715 | 3,725,111 | 2.9% | | Revenue-generating horsepower (at period end) | 3,497,457 | 3,260,535 | 7.3% | | Average revenue per revenue-generating HP per month | $19.96 | $18.19 | 9.7% | | Horsepower utilization (at period end) | 94.8% | 92.7% | 2.1% | - The growth in operating metrics was primarily driven by the addition and deployment of new, large-horsepower compression units to meet increased demand from higher U.S. oil and gas production levels[122] Financial Results of Operations For Q1 2024, total revenues increased 16.3% to $229.3 million, and operating income grew 31.0% to $66.9 million compared to Q1 2023, with net income surging 115.5% to $23.6 million, driven by higher contract operations revenue from increased horsepower and better pricing, and costs of operations also rising but at a slower rate than revenue, leading to improved margins Results of Operations (in thousands) | Line Item | Q1 2024 | Q1 2023 | % Increase | | :--- | :--- | :--- | :--- | | Total revenues | $229,276 | $197,124 | 16.3% | | Cost of operations | $75,072 | $66,665 | 12.6% | | Operating income | $66,872 | $51,057 | 31.0% | | Interest expense, net | ($46,666) | ($39,790) | 17.3% | | Net income | $23,573 | $10,941 | 115.5% | - The $29.6 million increase in contract operations revenue was due to a 9.7% increase in average revenue per revenue-generating horsepower per month and a 7.1% increase in average revenue-generating horsepower[125] - Selling, general, and administrative expenses increased by $3.7 million, primarily due to higher professional fees, increased unit-based compensation expense, and higher employee-related costs[131] - A loss on extinguishment of debt of $5.0 million was recognized in Q1 2024 due to the legal defeasance of the Senior Notes 2026[136] Liquidity and Capital Resources The Partnership's primary liquidity sources are cash from operations and borrowings under its Credit Agreement, with net cash from operations at $65.9 million in Q1 2024, and the company spending $104.8 million on expansion capital expenditures, while as of March 31, 2024, it had $429.3 million of available borrowing capacity under its revolving credit facility, having issued $1.0 billion in new Senior Notes due 2029 and used the proceeds to defease its 2026 notes and pay down the revolver - The company plans to spend between $115.0 million and $125.0 million in expansion capital expenditures and approximately $32.0 million in maintenance capital expenditures for the full year 2024[149][150] - As of March 31, 2024, the Partnership had $736.1 million outstanding under its Credit Agreement, with $429.3 million available to be drawn[156] - In March 2024, the company issued $1.0 billion of Senior Notes 2029 and used proceeds for the legal defeasance of the $725.0 million Senior Notes 2026, with the remainder reducing borrowings under the Credit Agreement[159][161] Non-GAAP Financial Measures This section provides definitions and reconciliations for key non-GAAP financial measures, including Adjusted Gross Margin, Adjusted EBITDA, and Distributable Cash Flow (DCF), with Adjusted EBITDA increasing 18.0% to $139.4 million and DCF growing 38.3% to $86.6 million for Q1 2024 compared to the prior-year period, and the DCF Coverage Ratio improving to 1.41x from 1.21x Non-GAAP Financial Measures (in thousands) | Measure | Q1 2024 | Q1 2023 | % Increase | | :--- | :--- | :--- | :--- | | Adjusted gross margin | $154,204 | $130,459 | 18.2% | | Adjusted EBITDA | $139,395 | $118,161 | 18.0% | | DCF | $86,589 | $62,613 | 38.3% | DCF Coverage Ratio | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | DCF | $86,589 | $62,613 | | Distributions for DCF Coverage Ratio | $61,422 | $51,585 | | DCF Coverage Ratio | 1.41x | 1.21x | - The increase in DCF was primarily driven by higher Adjusted Gross Margin, a $7.8 million decrease in distributions on Preferred Units following conversions, and cash received on a derivative instrument[144] Quantitative and Qualitative Disclosures About Market Risk The Partnership is exposed to several market risks, primarily commodity price risk, interest rate risk, and credit risk, managing interest rate risk on its variable-rate debt through an interest-rate swap on a notional amount of $700 million, while demand for its services is linked to oil and gas production, and credit risk is related to customer receivables - The company does not bear direct exposure to commodity prices but notes that sustained low prices could reduce demand for its compression services[190] - As of March 31, 2024, the company had $736.1 million of variable-rate debt. A 1% change in the effective interest rate would impact annual interest expense by approximately $7.4 million[191] - To manage interest rate risk, the company has an interest-rate swap with a notional principal of $700 million, paying a fixed rate of 3.9725% and receiving a floating rate indexed to one-month SOFR[193] Controls and Procedures Management, including the principal executive and financial officers, evaluated the effectiveness of the company's disclosure controls and procedures, concluding that as of March 31, 2024, these controls were effective at a reasonable assurance level, with no material changes to internal control over financial reporting identified 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, 2024[197] - There were no changes in internal control over financial reporting during the first quarter of 2024 that materially affected, or are reasonably likely to materially affect, internal controls[198] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, and a list of exhibits filed with the report Legal Proceedings The company is involved in various claims and litigation in the ordinary course of business, and management does not expect the resolution of these matters to have a material adverse effect, with the report referring to Note 13 for more information on tax contingencies - The company states that the resolution of ordinary course legal proceedings is not expected to have a material adverse effect on its financial position or results[201] Risk Factors This section directs investors to the risk factors detailed in the company's 2023 Annual Report on Form 10-K and subsequent SEC filings, with no new risk factors disclosed in this quarterly report - There have been no material changes to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K[202] Exhibits This section lists the documents filed as exhibits with the Form 10-Q, including certifications by the CEO and CFO, and documents related to the new Senior Notes due 2029 - Exhibits filed with this report include the Indenture for the 7.125% Senior Notes due 2029, CEO and CFO certifications, and Inline XBRL data[203][204]