UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported): November 8, 2016

 

USA Compression Partners, LP

(Exact Name of Registrant as Specified in Charter)

 

 

 

Registrant’s telephone number, including area code: (512) 473-2662

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 

ITEM 2.02.     RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

On November 8, 2016, USA Compression Partners, LP issued a press release with respect to its financial and operating results for the third quarter of 2016. The press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.

 

In accordance with General Instruction B.2 of Form 8-K, the information in this report, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall such information, including Exhibit 99.1, be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

ITEM 9.01.     FINANCIAL STATEMENTS AND EXHIBITS.

 

(d)  Exhibits

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

Dated November 8, 2016

EXHIBIT INDEX

 

 

Exhibit 99.1

 

USA Compression Partners, LP Reports Third Quarter 2016 Results and Updates 2016 Outlook

 

AUSTIN, Texas, November 8, 2016 —USA Compression Partners, LP (NYSE: USAC) (“USA Compression” or the “Partnership”) announced today its financial and operating results for the third quarter 2016.

 

Third Quarter 2016 Summary Results

 

Full-Year 2016 Outlook

USA Compression is updating its full-year 2016 guidance as follows:

 

 

 

 

 

 

 

Third Quarter 2016 Financial and Operating Performance

 

Revenues in the third quarter of 2016 decreased 13.3% to $61.1 million from  $70.5 million for the third quarter of 2015.  Net income decreased 121.9% to a net loss of  $2.1 million for the third quarter of 2016 as compared to net income of $9.8 million for the third quarter of 2015.  Operating income decreased 79.5% to $3.2 million for the third quarter of 2016 as compared to  $15.5 million for the third quarter of 2015. Net cash provided by operating activities increased 5.7% to $36.1 million in the third quarter of 2016 as compared to $34.2 million in the third quarter of 2015.  Adjusted EBITDA decreased 12.3% to $34.6 million in the third quarter of 2016 from $39.5 million for the third quarter of 2015.  Distributable Cash Flow decreased 15.6% to $27.2 million in the third quarter of 2016 from  $32.3 million for the third quarter of 2015. 

 

“As we have progressed through the first three quarters of 2016, we anticipated the third quarter results would reflect, in part, the softer activity levels we experienced earlier in the year,” said Eric D. Long, USA Compression’s President and Chief Executive Officer.  “Our business generally serves as a lagging indicator of our customers’ activity, and we expect the general recovery we have seen in the energy sector since the springtime lows to positively impact our business as we move forward. Specifically, recent trends in our business, including customer demand indications, actual contracting activity and fleet utilization provide additional optimism as we approach the end of 2016 and look to the start of 2017. Our customers are continuing to pursue projects that will require meaningful compression, and we expect to grow alongside them, while continuing to be judicious in our capital allocation and keeping a close watch on our cost structure.  ”

 

Average revenue generating horsepower decreased 4.7% to 1,356,423 for the third quarter of 2016 from 1,423,749 for the third quarter of 2015.  Average revenue per revenue generating horsepower per month decreased 3.7% to $15.35 for the third quarter of 2016 from  $15.94 for the third quarter of 2015.   

 

Gross operating margin decreased 13.1% to $42.2 million for the third quarter of 2016 from  $48.6 million for the third quarter of 2015.   Gross operating margin as a percentage of total revenues was 69.1% for the third quarter of 2016 compared to 68.9% in the third quarter of 2015.

 

Expansion capital expenditures were $10.9 million, maintenance capital expenditures were $2.4 million and cash interest expense, net was $4.7 million for the third quarter of 2016.  

 

On October 20, 2016, the Partnership announced a cash distribution of $0.525 per unit on its common units.  This third quarter distribution corresponds to an annualized distribution rate of $2.10 per unit.  The distribution will be paid on November 14, 2016 to unitholders of record as of the close of business on November 4, 2016.   USA Compression Holdings, LLC, the owner of approximately 42.9% of the Partnership’s outstanding limited partner interests, elected to reinvest 30% of this distribution with respect to its units pursuant to the Partnership’s Distribution Reinvestment Plan (the “DRIP”).   For the third quarter of 2016, the Distributable Cash Flow Coverage Ratio was 0.91x and the Cash Coverage Ratio was 1.06x.

 

Liquidity and Credit Facility

 

As of September 30, 2016,  the Partnership was in compliance with all covenants under its $1.1 billion revolving credit facility.  As of September 30, 2016, the outstanding balance under the revolving credit facility, which matures in 2020, was $743.9 million. 

 

Conference Call

 

The Partnership will host a conference call today beginning at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss third quarter 2016 performance.  The call will be broadcast live over the Internet. Investors may participate either by phone or audio webcast.

 

 

About USA Compression Partners, LP

 

USA Compression Partners, LP is a growth-oriented Delaware limited partnership that is one of the nation’s largest independent providers of compression services in terms of total compression fleet horsepower.  The Partnership partners with a broad customer base composed of producers, processors, gatherers and transporters of natural gas and crude oil.  The Partnership focuses on providing compression services to infrastructure applications primarily in high-volume gathering systems, processing facilities and transportation applications.  More information is available at usacompression.com.

 

Non-GAAP Financial Measures

 

This news release includes the non-GAAP financial measures of Adjusted EBITDA, Gross operating margin, Distributable Cash Flow,  Distributable Cash Flow Coverage Ratio and Cash Coverage Ratio.

 

The Partnership’s management views Adjusted EBITDA as one of its primary financial measures in evaluating the results of the Partnership’s business, and the Partnership tracks this item on a monthly basis both as an absolute amount and as a percentage of revenue compared to the prior month, year-to-date, prior year and budget.  The Partnership defines EBITDA as net income (loss) before net interest expense, depreciation and amortization expense, and income taxes.  The Partnership defines Adjusted EBITDA as EBITDA plus impairment of compression equipment, impairment of goodwill, interest income on capital lease, unit-based compensation expense, severance charges, certain transaction fees and loss (gain) on sale of assets and other.   Adjusted EBITDA is used as a supplemental financial measure by the Partnership’s management and external users of its financial statements, such as investors and commercial banks, to assess:

 

 

The Partnership’s management believes that Adjusted EBITDA provides useful information to investors because, when viewed with U.S generally accepted accounting principles (“GAAP”) results and the accompanying reconciliations, it provides a more complete understanding of the Partnership’s performance than GAAP results alone.  The Partnership’s management also believes that external users of its financial statements benefit from having access to the same financial measures that management uses in evaluating the results of the Partnership’s business.

 

Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income (loss), operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP, as

measures of operating performance and liquidity.  Moreover, Adjusted EBITDA as presented may not be comparable to similarly titled measures of other companies.

 

Gross operating margin is defined as revenue less cost of operations, exclusive of depreciation and amortization expense.  The Partnership’s management believes that gross operating margin is useful as a supplemental measure of the Partnership’s performance.   Gross operating margin is impacted primarily by the pricing trends for service operations and cost of operations, including labor rates for service technicians, volume and per unit costs for lubricant oils, quantity and pricing of routine preventative maintenance on compression units and property tax rates on compression units.  Gross operating margin should not be considered an alternative to, or more meaningful than, operating income, its most directly comparable GAAP financial measure, or any other measure of financial performance presented in accordance with GAAP.  Moreover, gross operating margin as presented may not be comparable to similarly titled measures of other companies. Because the Partnership capitalizes assets, depreciation and amortization of equipment is a necessary element of its costs.  To compensate for the limitations of gross operating margin as a measure of the Partnership’s performance, the Partnership’s management believes that it is important to consider operating income determined under GAAP, as well as gross operating margin, to evaluate the Partnership’s operating profitability.  A reconciliation of gross operating margin to operating income is provided in this news release.

 

Distributable Cash Flow is defined as net income (loss) plus non-cash interest expense, non-cash income tax expense, depreciation and amortization expense, unit-based compensation expense, severance charges, impairment of compression equipment, impairment of goodwill, certain transaction fees and loss (gain) on sale of assets and other, less maintenance capital expenditures.  The definition of Distributable Cash Flow is identical to the definition of Adjusted Distributable Cash Flow previously presented.

 

The Partnership’s management believes Distributable Cash Flow is an important measure of operating performance because such measure allows management, investors and others to compare basic cash flows the Partnership generates (prior to the establishment of any retained cash reserves by the Partnership’s general partner and the effect of the DRIP) to the cash distributions the Partnership expects to pay its unitholders.

 

Distributable Cash Flow Coverage Ratio, a non-GAAP measure, is defined as Distributable Cash Flow less cash distributions to be paid to the Partnership’s general partner and incentive distribution rights (“IDRs”) in respect of such period, divided by distributions declared to limited partner unitholders in respect of such period.   Cash Coverage Ratio is defined as Distributable Cash Flow less cash distributions to be paid to the Partnership’s general partner and IDRs in respect of such period, divided by cash distributions expected to be paid to limited partner unitholders in respect of such period, after taking into account the non-cash impact of the DRIP.  The Partnership’s management believes Distributable Cash Flow Coverage Ratio and Cash Coverage Ratio are important measures of operating performance because they allow management, investors and others to gauge the Partnership’s ability to pay cash distributions to limited partner unitholders using the cash flows the Partnership generates.  The Partnership’s Distributable Cash Flow Coverage Ratio and Cash Coverage Ratio as presented may not be comparable to similarly titled measures of other companies.

 

This news release also contains a forward-looking estimate of Adjusted EBITDA and Distributable Cash Flow projected to be generated by the Partnership in its 2016 fiscal year.  A forward-looking estimate of net cash provided by operating activities and reconciliations of the forward-looking estimates of Adjusted EBITDA and Distributable Cash Flow to net cash provided by operating activities are not provided because the items necessary to estimate net cash provided by operating activities, in particular the change in operating assets and liabilities, are not accessible or estimable at this time.  The Partnership does not anticipate the changes in operating assets and liabilities to be material, but changes in accounts receivable, accounts payable, accrued liabilities and deferred revenue could be significant, such that the amount of net cash provided by operating activities would vary substantially from the amount of projected Adjusted EBITDA and Distributable Cash Flow.

 

See “Reconciliation of Non-GAAP Financial Measures” for Adjusted EBITDA reconciled to net income (loss) and net cash provided by operating activities, and net income (loss) and net cash provided by operating activities reconciled to Distributable Cash Flow,  Distributable Cash Flow Coverage Ratio and Cash Coverage Ratio.

 

Forward-Looking Statements

 

Some of the information in this news release may contain forward‑looking statements.  These statements can be identified by the use of forward‑looking terminology including “may,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “continue,” or other similar words, and include the Partnership’s expectation of future performance contained herein, including as described under “Full-Year 2016 Outlook.”  These statements discuss future expectations, contain projections of results of operations or of financial condition, or state other “forward‑looking” information.  You are cautioned not to place undue reliance on any forward-looking statements, which can be affected by assumptions used or by known risks or uncertainties.  Consequently, no forward‑looking statements can be guaranteed.  When considering these forward‑looking statements, you should keep in mind the risk factors noted below and other cautionary statements in this news release.  The risk factors and other factors noted throughout this news release could cause actual

results to differ materially from those contained in any forward‑looking statement.  Known material factors that could cause the Partnership’s actual results to differ materially from the results contemplated by such forward‑looking statements are described in Part I, Item 1A (“Risk Factors”) of the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015,  which was filed with the Securities and Exchange Commission on February 11, 2016, and Part II, Item 1A (“Risk Factors”) of the Partnership’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, which was filed with the Securities and Exchange Commission on August 4, 2016,  and include:

 

All forward‑looking statements speak only as of the date of this news release and are expressly qualified in their entirety by the foregoing cautionary statements.  Unless legally required, the Partnership undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.  Unpredictable or unknown factors not discussed herein also could have material adverse effects on forward-looking statements.

 

Investor Contacts:

 

USA Compression Partners, LP

 

 

 

USA COMPRESSION PARTNERS, LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for unit amounts — Unaudited)

 

 

 

 

 

 

 

USA COMPRESSION PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands— Unaudited)

 

 

 

USA COMPRESSION PARTNERS, LP AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

ADJUSTED EBITDA TO NET INCOME (LOSS) AND NET CASH PROVIDED BY OPERATING ACTIVITIES

(In thousands — Unaudited)

 

The following table reconciles Adjusted EBITDA to net income (loss) and net cash provided by operating activities, its most directly comparable GAAP financial measures, for each of the periods presented:

 

 

 

USA COMPRESSION PARTNERS, LP AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

DISTRIBUTABLE CASH FLOW TO NET INCOME (LOSS) AND NET CASH PROVIDED BY OPERATING ACTIVITIES 

(In thousands, except for per unit amounts — Unaudited)

 

The following table reconciles Distributable Cash Flow to net income (loss) and net cash provided by operating activities, its most directly comparable GAAP financial measures, for each of the periods presented:

 

 

 

 

 

 

 

 

 

USA COMPRESSION PARTNERS, LP AND SUBSIDIARIES

FULL-YEAR 2016 ADJUSTED EBITDA AND DISTRIBUTABLE CASH FLOW GUIDANCE RANGE

RECONCILIATION TO NET INCOME

(Unaudited)