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 6, 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 November 6, 2018, USA Compression Partners, LP issued a press release with respect to its financial and operating results for the third 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 November 6, 2018

 

Exhibit 99.1

 

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

 

AUSTIN, Texas, November 6, 2018 —USA Compression Partners, LP (NYSE: USAC) (“USA Compression” or the “Partnership”) announced today its financial and operating results for the third quarter 2018.    

 

Third Quarter 2018 Highlights

 

 

“The third quarter saw continued progress on integrating the CDM assets and people into USA Compression. I am pleased with what we have accomplished in the first six months following the acquisition and, while there is still work to be done, we are ahead of where we expected to be at this point in the year. Our progress this quarter was made against a market backdrop of continued strong demand for our compression services, as evidenced by the top-line revenue growth during the quarter. We experienced both active horsepower growth during the quarter as well as increased pricing across the fleet, illustrating the continued attractive market dynamics we are experiencing.  Utilization for the quarter averaged 92.8%, an increase of approximately 10% over the utilization averaged by our accounting predecessor for the same period last year,” commented Eric D. Long, USA Compression’s President and Chief Executive Officer.

 

“During the quarter, we took delivery of 60,000 horsepower, almost all of which consisted of 2,500 horsepower CAT 3608 units.  With lead times still elevated, all of these units were contracted with customers prior to delivery. We expect to take delivery of approximately 38,000 additional horsepower in the fourth quarter of 2018 and have over 120,000 horsepower scheduled for delivery in 2019, almost all of which has already been committed to customers,” he added.

 

“With the continued strength in the marketplace for our large horsepower services, we expect to continue to drive not only revenue growth but also margin expansion over time, while maintaining a healthy balance sheet and building coverage.”

 

Expansion capital expenditures were $73.1 million, maintenance capital expenditures were $6.4 million and cash interest expense, net was $23.9 million for the third quarter of 2018.  

 

On October 18, 2018, the Partnership announced a third quarter cash distribution of $0.525 per common unit, which corresponds to an annualized distribution rate of $2.10 per common unit.  The distribution will be paid on November 9, 2018 to common unitholders of record as of the close of business on October 29, 2018.   For the third quarter of 2018, the Partnership’s Distributable Cash Flow Coverage Ratio was 1.01x and Cash Coverage Ratio was 1.01x.

 

On April 2, 2018, the Partnership completed the acquisition of the CDM compression business (the “USA Compression Predecessor”) from Energy Transfer Partners, L.P., now Energy Transfer Operating, L.P., for approximately $1.7 billion in consideration (the “CDM Acquisition”) and Energy Transfer Equity, L.P., now Energy Transfer LP, completed the acquisition of the Partnership’s general partner, USA Compression GP, LLC (collectively, the “Transactions”). In connection with the Transactions, the general partner interest was converted into a noneconomic general partner interest and the Partnership’s incentive distribution rights were cancelled.

 

For accounting purposes, the USA Compression Predecessor is the acquirer in the business combination because its ultimate parent company, Energy Transfer Equity, L.P., obtained control of the Partnership through the acquisition of the Partnership’s general

partner, USA Compression GP, LLC. Accordingly, any financial and operational results provided by the Partnership in filings subsequent to the closing of the Transactions will reflect (i) the financial and operational results of the USA Compression Predecessor for all periods prior to the closing of the Transactions and (ii) the financial and operational results of the combined businesses, including the impact of the Transactions, for all periods subsequent to the closing of the Transactions. Therefore, the third quarter 2018 results are not comparable to certain prior periods.

 

Operational and Financial Data

 

Horsepower utilization based on revenue generating horsepower and fleet horsepower at September 30, 2018 was 89.0%.  

 

Average horsepower utilization based on revenue generating horsepower and fleet horsepower was 89.7% and 86.4%  for the three and nine months ended September 30, 2018, respectively. 

 

 

 

Liquidity and Long-Term Debt

 

As of September 30, 2018,  the Partnership was in compliance with all covenants under its $1.6 billion revolving credit facility. As of September 30, 2018,  the Partnership had outstanding borrowings under the revolving credit facility of $1.0 billion, $578.2 million of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $309.7 million.  As of September 30, 2018, the outstanding aggregate principal amount of the Partnership’s 6.875% senior notes due 2026 was $725.0 million.

 

Full-Year 2018 Outlook

 

USA Compression is updating its full-year 2018 guidance that includes the expected results following the closing of the Transactions on April 2, 2018 and the use of the USA Compression Predecessor’s results of operations for all periods prior to the closing of the Transactions:

 

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 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.  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 tools for evaluating the Partnership’s results of operations, 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 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 distributions to Preferred Units and 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 (after distributions on the Partnership’s preferred units but prior to any retained cash reserves established by the Partnership’s general partner and the effect of the Distribution Reinvestment Plan (“DRIP”)) to the cash distributions the Partnership expects to pay its common unitholders.

 

Distributable Cash Flow Coverage Ratio is defined as Distributable Cash Flow divided by distributions declared to common unitholders in respect of such period.   Cash Coverage Ratio is defined as Distributable Cash Flow divided by cash distributions expected to be paid to common 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 common 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,” “if,” “project,” “outlook,” “will,” “could,” “should,” or other similar words or the negatives thereof, 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

SELECTED BALANCE SHEET DATA

(In thousands, except 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 LOSS AND NET CASH PROVIDED BY OPERATING ACTIVITIES

(In thousands — Unaudited)

 

The following table reconciles Adjusted EBITDA to net 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 LOSS AND NET CASH PROVIDED BY OPERATING ACTIVITIES 

(Dollars in thousands — Unaudited)

 

The following table reconciles Distributable Cash Flow to net 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)