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): May 9, 2018

 

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))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

 

 

 

ITEM 2.02.     RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

On May 9, 2018, USA Compression Partners, LP (the “Partnership”) issued a press release with respect to its financial and operating results for the first quarter of 2018. 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 May 9, 2018

 

Exhibit 99.1

 

USA Compression Partners, LP Reports First Quarter 2018 Results; Updates 2018 Outlook

 

AUSTIN, Texas, May 9, 2018 —USA Compression Partners, LP (NYSE: USAC) (“USA Compression” or the “Partnership”) announced today its financial and operating results for the first quarter 2018.    A net loss of $15.4 million was recognized for the first quarter of 2018, compared to net income of $4.5 million for the fourth quarter of 2017 and $1.6 million for the first quarter of 2017. In the first quarter of 2018, the net loss was primarily due to non-recurring transaction expenses related to the CDM Acquisition.   Net cash provided by operating activities was  $36.4 million for the first quarter of 2018,  compared to $39.3 million for the fourth quarter of 2017 and $18.3 million for the first quarter of 2017.  

 

Adjusted EBITDA was  $44.1 million for the first quarter of 2018, compared to $42.1 million for the fourth quarter of 2017 and $36.0 million for the first quarter of 2017.  Distributable Cash Flow was  $33.7 million for the first quarter of 2018, compared to $33.2 million for the fourth quarter of 2017 and $27.2 million for the first quarter of 2017. 

 

“The first quarter got off to a great start for USA Compression, with continued encouraging fundamentals in the compression services industry leading to an increase in service revenues of approximately 6%, and an increase in active horsepower of 61,000, or about 4% over the fourth quarter,” commented Eric D. Long, USA Compression’s President and Chief Executive Officer. “Our Distributable Cash Flow Coverage Ratio continues to improve and was 1.03x for the quarter. We continue to see high utilization of our deployed fleet of approximately 95%; furthermore, the lead times for large horsepower equipment, currently about 12 months, are expected to remain long for the foreseeable future. This tightness in the compression marketplace has put upward pressure on service rates across all of our categories of equipment, and we have also taken the opportunity to term-up some of the month-to-month contracts in selected regions.”

 

“Our customers are ramping up activity levels meaningfully, which is driving increasing demand for our largest horsepower assets. For the balance of 2018, we have commitments to take delivery of approximately 150,000 horsepower, including orders from CDM Resource Management.  We recently committed to an additional 50,000 horsepower for delivery in the first half of 2019. Consistent with our business model strategy these commitments consist of very large horsepower units. A significant portion of the 2018 deliveries are already under contract with our customers, and we expect our first tranche of 2019 units to go quickly,” he added.

 

“In the midst of this strong market for our compression services, in January, we announced a transformative transaction with the Energy Transfer family that resulted in USA Compression acquiring CDM Resource Management, Energy Transfer’s compression business, for consideration of approximately $1.7 billion, and Energy Transfer acquiring our general partner. At closing in early April, this transaction brought together two like-minded service providers with high quality assets, and provides USA Compression expansion into regions in which we were historically underrepresented. We expect the combined business, which will continue to focus on large horsepower serving infrastructure applications, to benefit from the positive trends in our industry. Integration of the two businesses is underway and is progressing better than expected.”

 

Average revenue generating horsepower was 1,662,896 for the first quarter of 2018, compared to 1,602,365 for the fourth quarter of 2017 and 1,406,206 for the first quarter of 2017.  Average revenue per revenue generating horsepower per month was  $15.60 for the first quarter of 2018, compared to $15.21 for the fourth quarter of 2017 and  $14.98 for the first quarter of 2017.  

 

Revenues were $77.7 million for the first quarter of 2018, compared to $75.4 million for the fourth quarter of 2017 and  $66.0 million for the first quarter of 2017.   Gross operating margin was  $52.2 million for the first quarter of 2018, compared to  $50.3 million for the fourth quarter of 2017 and $43.5 million for the first quarter of 2017. Gross operating margin as a percentage of total revenues was 67.1% for the first quarter of 2018, compared to 66.8% for the fourth quarter of 2017 and 65.9% for the first quarter of 2017.    We recognized an operating loss of $6.1 million for the first quarter of 2018,  compared to operating income of $11.5 million for the fourth quarter of 2017 and $7.4 million for the first quarter of 2017. In the first quarter of 2018, the operating loss was primarily due to non-recurring transaction expenses related to the CDM Acquisition.

 

Expansion capital expenditures were $50.4 million, maintenance capital expenditures were $2.0 million and cash interest expense, net was $8.5 million for the first quarter of 2018.  

 

On April  19, 2018, the Partnership announced a cash distribution of $0.525 per unit on its common units.  This first quarter distribution corresponds to an annualized distribution rate of $2.10 per unit.  The distribution will be paid on May 11, 2018 to unitholders of record as of the close of business on May 1, 2018.   For the first quarter of 2018, the Partnership’s Distributable Cash Flow Coverage Ratio was 1.03x and Cash Coverage Ratio was 1.03x.

 

Operational and Financial Data

 

Horsepower utilization based on revenue generating horsepower and fleet horsepower at each applicable period end was 91.3%, 90.3% and 82.1% for the quarters ended March 31, 2018,  December 31, 2017 and March 31, 2017, respectively.  

 

Average horsepower utilization based on revenue generating horsepower and fleet horsepower was 91.4%, 90.0% and 80.9% for the quarters ended March 31, 2018,  December 31, 2017 and March 31, 2017, respectively. 

 

 

 

Liquidity and Long-Term Debt

 

As of March 31, 2018,  the Partnership was in compliance with all covenants under its $1.1 billion revolving credit facility. As of March 31, 2018, the outstanding balance under the revolving credit facility was $819.1 million. On April 2, 2018, in connection with the closing of the CDM Resource Management transaction, the Partnership increased the size of its revolving credit facility from $1.1 billion to $1.6 billion, as well as reset the tenor for another 5 years and reset the leverage covenant levels.

 

As of March 31, 2018, the outstanding aggregate principal amount of 6.875% senior notes was $725.0 million.

 

Full-Year 2018 Outlook

USA Compression is updating its full-year 2018 guidance to incorporate the expected results of CDM Resource Management after closing on April 2, 2018:

 

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 first quarter 2018 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.  On April 2, 2018, the Partnership closed its previously announced transactions with the Energy Transfer family, including, among other things, the Partnership’s purchase of Energy Transfer’s compression business and Energy Transfer’s purchase of 100% of the limited liability company interests in the Partnership’s general partner. 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.

 

Management views Adjusted EBITDA as one of its primary management tools, 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 tax expense.  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, loss (gain) on disposition of assets and other. Adjusted EBITDA is used as a supplemental financial measure by management and external users of its financial statements, such as investors and commercial banks, to assess:

 

 

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. 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 (loss), 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. Management believes that gross operating margin is useful as a supplemental measure of the Partnership’s operating profitability. 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 (loss), 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, management believes that it is important to consider operating income (loss) 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 (loss) 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, impairment of compression equipment, impairment of goodwill, certain transaction fees, severance charges, loss (gain) on disposition of assets, proceeds from insurance recovery and other, less maintenance capital expenditures.

 

Distributable Cash Flow should not be considered as an alternative to, or more meaningful than, net income (loss), operating income (loss), cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance and liquidity. Moreover, our Distributable Cash Flow as presented may not be comparable to similarly titled measures of other companies.

 

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 any retained cash reserves established 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. 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 2018 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 2018 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, 2017,  which was filed with the Securities and Exchange Commission on February 13, 2018,  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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

 

 

 

 

 

 

USA COMPRESSION PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands — Unaudited)

 

 

USA COMPRESSION PARTNERS, LP

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

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

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

(Dollars in thousands — 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

FULL-YEAR 2018 ADJUSTED EBITDA AND DISTRIBUTABLE CASH FLOW GUIDANCE RANGE

RECONCILIATION TO NET LOSS

(Unaudited)