usac-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(MARK ONE)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No. 001-35779

USA Compression Partners, LP

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)			75-2771546 (I.R.S. Employer Identification No.)


111 Congress Avenue, Suite 2400 Austin, Texas (Address of principal executive offices)			78701 (Zip Code)

(512) 473-2662

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common units representing limited partner interests

USAC

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒			Accelerated filer ☐

Non-accelerated filer ☐			Smaller reporting company ☐

			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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 26, 2022, there were 97,377,355 common units outstanding.

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TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION			1
ITEM 1. Financial Statements			1
Unaudited Condensed Consolidated Balance Sheets			1
Unaudited Condensed Consolidated Statements of Operations			2
Unaudited Condensed Consolidated Statements of Changes in Partners’ Capital			3
Unaudited Condensed Consolidated Statements of Cash Flows			4
Notes to Unaudited Condensed Consolidated Financial Statements			5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			27
ITEM 4. Controls and Procedures			28

PART II. OTHER INFORMATION			29
ITEM 1. Legal Proceedings			29
ITEM 1A. Risk Factors			29
ITEM 6. Exhibits			29

SIGNATURES			30

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GLOSSARY

The abbreviations, acronyms and industry terminology used in this Quarterly Report are defined as follows:


COVID-19						novel coronavirus 2019
Credit Agreement						Seventh Amended and Restated Credit Agreement, dated as of December 8, 2021, by and among USA Compression Partners, LP, as borrower, the guarantors party thereto from time to time, the lenders party thereto from time to time, as may be amended from time to time, and any predecessor thereto if the context so dictates
DERs						distribution equivalent rights
DRIP						distribution reinvestment plan
EBITDA						earnings before interest, taxes, depreciation and amortization
Energy Transfer						Energy Transfer LP, for periods following its merger with Energy Transfer Operating, L.P., and Energy Transfer Operating, L.P. for periods prior to such merger
Exchange Act						Securities Exchange Act of 1934, as amended
GAAP						generally accepted accounting principles of the United States of America
Preferred Units						Series A Preferred Units representing limited partner interests in USA Compression Partners, LP
SEC						United States Securities and Exchange Commission
Senior Notes 2026						$725.0 million aggregate principal amount of senior notes due on April 1, 2026
Senior Notes 2027						$750.0 million aggregate principal amount of senior notes due on September 1, 2027
SOFR						Secured Overnight Financing Rate
U.S.						United States of America

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

USA COMPRESSION PARTNERS, LP

Unaudited Condensed Consolidated Balance Sheets

(in thousands)


	March 31, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	15	$	—
Accounts receivable:
Trade, net of allowances for credit losses of $1,493 and $2,057, respectively	69,581		68,175
Other	212		39
Related party receivables	45,124		44,941
Inventories	89,799		85,816
Prepaid expenses and other assets	6,935		6,016
Total current assets	211,666		204,987
Property and equipment, net	2,193,007		2,222,336
Lease right-of-use assets	19,929		20,173
Identifiable intangible assets, net	297,067		304,411
Other assets	15,283		16,072
Total assets	$	2,736,952	$	2,767,979
Liabilities, Preferred Units and Partners’ Capital
Current liabilities:
Accounts payable	$	22,688	$	22,538

Accrued liabilities	92,513		113,891
Deferred revenue	51,853		51,216
Total current liabilities	167,054		187,645
Long-term debt, net	2,023,183		1,973,234
Operating lease liabilities	18,066		18,551
Other liabilities	9,722		10,132
Total liabilities	2,218,025		2,189,562
Commitments and contingencies
Preferred Units	477,309		477,309
Partners’ capital:
Common units, 97,377 and 97,345 units issued and outstanding, respectively	27,639		87,129
Warrants	13,979		13,979
Total partners’ capital	41,618		101,108
Total liabilities, Preferred Units and partners’ capital	$	2,736,952	$	2,767,979

See accompanying notes to unaudited condensed consolidated financial statements.

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USA COMPRESSION PARTNERS, LP

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per unit amounts)


	Three Months Ended March 31,
	2022		2021
Revenues:
Contract operations	$	157,668	$	152,525
Parts and service	1,926		2,038
Related party	3,818		2,950
Total revenues	163,412		157,513
Costs and expenses:
Cost of operations, exclusive of depreciation and amortization	53,732		48,628
Depreciation and amortization	59,064		61,030
Selling, general and administrative	15,265		13,800
Gain on disposition of assets	(179)		(1,255)
Impairment of compression equipment	432		2,550

Total costs and expenses	128,314		124,753
Operating income	35,098		32,760
Other income (expense):
Interest expense, net	(31,838)		(32,288)
Other	20		25
Total other expense	(31,818)		(32,263)
Net income before income tax expense	3,280		497
Income tax expense	26		126
Net income	3,254		371
Less: distributions on Preferred Units	(12,187)		(12,187)
Net loss attributable to common unitholders’ interests	$	(8,933)	$	(11,816)




Weighted average common units outstanding – basic and diluted	97,365		96,989



Basic and diluted net loss per common unit	$	(0.09)	$	(0.12)

Distributions declared per common unit for respective periods	$	0.525	$	0.525

See accompanying notes to unaudited condensed consolidated financial statements.

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USA COMPRESSION PARTNERS, LP

Unaudited Condensed Consolidated Statements of Changes in Partners’ Capital

(in thousands, except per unit amounts)


	For the Three Months Ended March 31, 2022
	Common units		Warrants		Total
Partners’ capital ending balance, December 31, 2021	$	87,129	$	13,979	$	101,108

Distributions and DERs, $0.525 per unit	(51,137)		—		(51,137)
Issuance of common units under the DRIP	516		—		516
Unit-based compensation for equity classified awards	64		—		64
Net loss attributable to common unitholders’ interests	(8,933)		—		(8,933)
Partners’ capital ending balance, March 31, 2022	$	27,639	$	13,979	$	41,618


	For the Three Months Ended March 31, 2021
	Common units		Warrants		Total
Partners’ capital ending balance, December 31, 2020	$	323,676	$	13,979	$	337,655
Vesting of phantom units	391		—		391
Distributions and DERs, $0.525 per unit	(50,931)		—		(50,931)
Issuance of common units under the DRIP	463		—		463
Unit-based compensation for equity classified awards	52		—		52
Net loss attributable to common unitholders’ interests	(11,816)		—		(11,816)
Partners’ capital ending balance, March 31, 2021	$	261,835	$	13,979	$	275,814

See accompanying notes to unaudited condensed consolidated financial statements.

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USA COMPRESSION PARTNERS, LP

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	3,254	$	371
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	59,064		61,030
Provision for expected credit losses	(500)		(1,250)
Amortization of debt issuance costs	1,822		2,281
Unit-based compensation expense	3,710		4,182
Deferred income tax benefit	(204)		(99)
Gain on disposition of assets	(179)		(1,255)
Impairment of compression equipment	432		2,550

Changes in assets and liabilities:
Accounts receivable and related party receivables, net	(1,138)		(2,779)
Inventories	(5,161)		(3,261)
Prepaid expenses and other current assets	(919)		(479)
Other assets	869		706
Accounts payable	(2,202)		1,316
Accrued liabilities and deferred revenue	(23,794)		(23,701)

Net cash provided by operating activities	35,054		39,612
Cash flows from investing activities:
Capital expenditures, net	(20,230)		(6,185)
Proceeds from disposition of property and equipment	467		420
Proceeds from insurance recovery	49		1,559
Net cash used in investing activities	(19,714)		(4,206)
Cash flows from financing activities:
Proceeds from revolving credit facility	214,978		190,511

Payments on revolving credit facility	(165,785)		(161,633)
Cash paid related to net settlement of unit-based awards	—		(289)
Cash distributions on common units	(51,767)		(51,571)
Cash distributions on Preferred Units	(12,187)		(12,187)
Deferred financing costs	(423)		—
Other	(141)		(140)
Net cash used in financing activities	(15,325)		(35,309)
Increase in cash and cash equivalents	15		97
Cash and cash equivalents, beginning of period	—		2
Cash and cash equivalents, end of period	$	15	$	99

Supplemental cash flow information:
Cash paid for interest, net of capitalized amounts	$	54,712	$	55,391
Cash paid for income taxes	$	—	$	13
Supplemental non-cash transactions:
Non-cash distributions to certain common unitholders (DRIP)	$	516	$	463
Transfers from inventories to property and equipment	$	1,118	$	3,139
Changes in capital expenditures included in accounts payable and accrued liabilities	$	1,874	$	(800)
Changes in financing costs included in accounts payable and accrued liabilities	$	(146)	$	139

See accompanying notes to unaudited condensed consolidated financial statements.

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USA COMPRESSION PARTNERS, LP

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Organization and Description of Business

Unless otherwise indicated, the terms “our,” “we,” “us,” “the Partnership” and similar language refer to USA Compression Partners, LP, collectively with its consolidated subsidiaries.

We are a Delaware limited partnership. Through our operating subsidiaries, we provide compression services under fixed-term contracts with customers in the natural gas and crude oil industries, using natural gas compression packages that we design, engineer, own, operate and maintain. We also own and operate a fleet of equipment used to provide natural gas treating services, such as carbon dioxide and hydrogen sulfide removal, cooling and dehydration. We primarily provide compression services in a number of shale plays throughout the U.S., including the Utica, Marcellus, Permian Basin, Delaware Basin, Eagle Ford, Mississippi Lime, Granite Wash, Woodford, Barnett, Haynesville, Niobrara and Fayetteville shales.

USA Compression GP, LLC, a Delaware limited liability company, serves as our general partner and is referred to herein as the “General Partner.” The General Partner is wholly owned by Energy Transfer.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Partnership and its subsidiaries, all of which are wholly owned by us.

(2) Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC.

In the opinion of our management, such financial information reflects all normal recurring adjustments necessary for a fair presentation of these interim unaudited condensed consolidated financial statements in accordance with GAAP. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements contained in our annual report on Form 10-K for the year ended December 31, 2021 filed on February 15, 2022 (our “2021 Annual Report”).

Use of Estimates

Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions by management that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities that existed at the date of the unaudited condensed consolidated financial statements. Although these estimates were based on management’s available knowledge of current and expected future events, actual results could differ from these estimates.

Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents consist of all cash balances. We consider investments in highly liquid financial instruments purchased with an original maturity of 90 days or less to be cash equivalents.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount.

Allowance for Credit Losses

We evaluate our allowance for credit losses related to our trade accounts receivable measured at amortized cost. Due to the short-term nature of our trade accounts receivable, we consider the amortized cost to be the same as the carrying amount of the receivable, excluding the allowance for credit losses.

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Our determination of the allowance for credit losses requires us to make estimates and judgments regarding our customers’ ability to pay amounts due. We continuously evaluate the financial strength of our customers and the overall business climate in which our customers operate, and make adjustments to the allowance for credit losses as necessary. We evaluate the financial strength of our customers by reviewing the aging of their receivables, our collection experience with the customer, correspondence, financial information and third-party credit ratings. We evaluate the business climate in which our customers operate by reviewing various publicly available materials regarding our customers’ industry, including the solvency of various companies in the industry.

Inventories

Inventories consist of serialized and non-serialized parts used primarily on compression units. All inventories are stated at the lower of cost or net realizable value. Serialized parts inventories are determined using the specific identification cost method, while non-serialized parts inventories are determined using the weighted average cost method. Purchases of inventories are considered operating activities on the unaudited condensed consolidated statements of cash flows.

Property and Equipment

Property and equipment are carried at cost except for (i) certain acquired assets which are recorded at fair value on their respective acquisition dates and (ii) impaired assets which are recorded at fair value on the last impairment evaluation date for which an adjustment was required. Overhauls and major improvements that increase the value or extend the life of compression equipment are capitalized and depreciated over three to five years. Ordinary maintenance and repairs are charged to cost of operations, exclusive of depreciation and amortization.

When property and equipment is retired or sold, its carrying value and the related accumulated depreciation are removed from our accounts and any associated gains or losses are recorded on the unaudited condensed consolidated statements of operations in the period of sale or disposition.

Capitalized interest is calculated by multiplying our monthly effective interest rate on outstanding debt by the amount of qualifying costs, which include upfront payments to acquire certain compression units. Capitalized interest was approximately $138,000 and $3,000 for the three months ended March 31, 2022 and 2021, respectively.

Impairment of Long-Lived Assets

Long-lived assets with recorded values that are not expected to be recovered through future cash flows are written down to estimated fair value. We test long-lived assets for impairment when events or circumstances indicate that the assets’ carrying value may not be recoverable or will no longer be utilized in the operating fleet. The most common circumstance requiring compression units to be evaluated for impairment is when idle units do not meet the desired performance characteristics of our active revenue generating horsepower.

The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value of the long-lived asset exceeds the sum of the undiscounted cash flows associated with the asset, an impairment loss equal to the amount of the carrying value exceeding the fair value of the asset is recognized. The fair value of the asset is measured using quoted market prices or, in the absence of quoted market prices, based on an estimate of discounted cash flows, the expected net sale proceeds compared to the other similarly configured fleet units we recently sold or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

Refer to Note 5 for more detailed information about impairment charges during the three months ended March 31, 2022 and 2021.

Identifiable Intangible Assets

Identifiable intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives, which is the period over which the assets are expected to contribute directly or indirectly to our future cash flows. The estimated useful lives of our intangible assets range from 15 to 25 years.

Revenue Recognition

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of our services or goods. Revenue is measured at the amount of consideration we expect to receive in exchange for providing services or transferring goods. Incidental items, if any, that are immaterial in the context of the contract are recognized as expenses.

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Income Taxes

USA Compression Partners, LP is organized as a partnership for U.S. federal and state income tax purposes. As a result, our partners are responsible for U.S. federal and state income taxes based upon their distributive share of our items of income, gain, loss or deduction. USA Compression Finance Corp. (“Finance Corp”) is a corporation for U.S. federal and state income tax purposes and such tax impacts are included in the accompanying unaudited condensed consolidated financial statements. Texas imposes an entity-level income tax on partnerships that is based on Texas sourced taxable margin (the “Texas Margin Tax”). We have included in the unaudited condensed consolidated financial statements a provision for the Texas Margin Tax.

Pass Through Taxes

Sales taxes incurred on behalf of, and passed through to, customers are accounted for on a net basis.

Fair Value Measurements

Accounting standards on fair value measurements establish a framework for measuring fair value and stipulate disclosures about fair value measurements. The standards apply to recurring and non-recurring financial and non-financial assets and liabilities that require or permit fair value measurements. Among the required disclosures is the fair value hierarchy of inputs we use to value an asset or a liability. The three levels of the fair value hierarchy are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 inputs are those other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for the asset or liability.

As of March 31, 2022, our financial instruments consisted primarily of cash and cash equivalents, trade accounts receivable, trade accounts payable and long-term debt. The book values of cash and cash equivalents, trade accounts receivable and trade accounts payable are representative of fair value due to their short-term maturities. The carrying amount of our revolving credit facility approximates fair value due to the floating interest rates associated with the debt.

The fair value of our Senior Notes 2026 and Senior Notes 2027 were estimated using quoted prices in inactive markets and are considered Level 2 measurements.

The following table summarizes the aggregate principal amount and fair value of our Senior Notes 2026 and Senior Notes 2027 (in thousands):


	March 31, 2022		December 31, 2021
Senior Notes 2026, aggregate principal	$	725,000	$	725,000
Fair value of Senior Notes 2026	732,250		755,813
Senior Notes 2027, aggregate principal	750,000		750,000
Fair value of Senior Notes 2027	755,625		787,500

Operating Segment

We operate in a single business segment, the compression services business.

(3) Trade Accounts Receivable

The allowance for credit losses, which was $1.5 million and $2.1 million as of March 31, 2022 and December 31, 2021, respectively, is our best estimate of the amount of probable credit losses included in our existing accounts receivable.

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The following summarizes activity within our trade accounts receivable allowance for credit losses balance (in thousands):


	Allowance for Credit Losses
Balance as of December 31, 2021	$	2,057
Current-period provision for expected credit losses	(500)
Writeoffs charged against the allowance	(64)

Balance as of March 31, 2022	$	1,493

For the three months ended March 31, 2022, we recognized a reversal of $0.5 million of our provision for expected credit losses. Improved market conditions for customers due to higher commodity prices was the primary factor contributing to the decrease to the allowance for credit losses for the three months ended March 31, 2022.

For the three months ended March 31, 2021, we recognized a reversal of $1.3 million of our provision for expected credit losses. Improved market conditions for customers due to the recovery in commodity prices was the primary factor contributing to the decrease to the allowance for credit losses for the three months ended March 31, 2021.

(4) Inventories

Components of inventories are as follows (in thousands):


	March 31, 2022		December 31, 2021
Serialized parts	$	47,629	$	44,642
Non-serialized parts	42,170		41,174
Total inventories	$	89,799	$	85,816

(5) Property and Equipment and Identifiable Intangible Assets

Property and Equipment

Property and equipment consisted of the following (in thousands):


	March 31, 2022		December 31, 2021
Compression and treating equipment	$	3,539,222	$	3,522,083
Computer equipment	55,396		54,013
Automobiles and vehicles	32,506		31,919
Leasehold improvements	8,849		8,847
Buildings	5,334		5,334
Furniture and fixtures	1,106		1,105
Land	77		77
Total property and equipment, gross	3,642,490		3,623,378
Less: accumulated depreciation and amortization	(1,449,483)		(1,401,042)
Total property and equipment, net	$	2,193,007	$	2,222,336

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:


Compression equipment, acquired new			25 years
Compression equipment, acquired used			5 - 25 years
Furniture and fixtures			3 - 10 years
Vehicles and computer equipment			1 - 10 years
Buildings			5 years
Leasehold improvements			5 years

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Depreciation expense on property and equipment and gain on disposition of assets were as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Depreciation expense	$	51,720	$	53,685
Gain on disposition of assets	179		1,255

On a quarterly basis, we evaluate the future deployment of our idle fleet under current market conditions. For the three months ended March 31, 2022 and 2021, we determined to retire 10 and 12 compressor units, respectively, for a total of approximately 1,400 and 5,600 horsepower, respectively, that were previously used to provide compression services in our business. As a result, we recorded impairments of compression equipment of $0.4 million and $2.6 million for the three months ended March 31, 2022 and 2021, respectively.

The primary causes for these impairments were: (i) units were not considered marketable in the foreseeable future, (ii) units were subject to excessive maintenance costs or (iii) units were unlikely to be accepted by customers due to certain performance characteristics of the unit, such as the inability to meet current quoting criteria without excessive retrofitting costs. These compression units were written down to their respective estimated salvage values, if any.

Identifiable Intangible Assets

Identifiable intangible assets, net consisted of the following (in thousands):


	Customer Relationships		Trade Names		Total
Net balance as of December 31, 2021	$	276,848	$	27,563	$	304,411
Amortization expense	(6,526)		(818)		(7,344)
Net balance as of March 31, 2022	$	270,322

SEC Form 10-Q filed by USA Compression Partners LP