usac-20210331

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, 2021


☐			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 29, 2021, there were 97,022,290 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			17
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			29
ITEM 4. Controls and Procedures			30

PART II. OTHER INFORMATION			31
ITEM 1. Legal Proceedings			31
ITEM 1A. Risk Factors			31
ITEM 6. Exhibits			31

SIGNATURES			32

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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						Sixth Amended and Restated Credit Agreement by and among USA Compression Partners, LP, as borrower, USAC OpCo 2, LLC, USAC Leasing 2, LLC, USA Compression Partners, LLC, USAC Leasing, LLC, CDM Resource Management LLC, CDM Environmental & Technical Services LLC and USA Compression Finance Corp., the lenders party thereto from time to time, JPMorgan Chase Bank, N.A., as agent and a letter of credit issuer, JPMorgan Chase Bank, N.A., Barclays Bank PLC, Regions Capital Markets, a division of Regions Bank, RBC Capital Markets and Wells Fargo Bank, N.A., as joint lead arrangers and joint book runners, Barclays Bank PLC, Regions Bank, RBC Capital Markets and Wells Fargo Bank, N.A., as syndication agents, and MUFG Union Bank, N.A., SunTrust Bank and The Bank of Nova Scotia, as senior managing agents, as amended, and may be further amended from time to time
DERs						distribution equivalent rights
DRIP						distribution reinvestment plan
EBITDA						earnings before interest, taxes, depreciation and amortization
ETO						Energy Transfer Operating, L.P., for periods prior to its merger with Energy Transfer LP, and to Energy Transfer LP following 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

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, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	99	$	2
Accounts receivable:
Trade, net of allowances for credit losses of $3,541 and $4,982, respectively	69,685		63,727
Other	1,898		3,707
Related party receivables	44,923		45,043
Inventories	84,740		84,632
Prepaid expenses and other assets	2,923		2,444
Total current assets	204,268		199,555
Property and equipment, net	2,332,212		2,380,633
Lease right-of-use assets	22,220		22,766
Identifiable intangible assets, net	326,446		333,791
Other assets	10,805		11,955
Total assets	$	2,895,951	$	2,948,700
Liabilities, Preferred Units and Partners’ Capital
Current liabilities:
Accounts payable	$	13,869	$	13,531

Accrued liabilities	87,368		109,539
Deferred revenue	48,792		47,202
Total current liabilities	150,029		170,272
Long-term debt, net	1,956,751		1,927,005
Operating lease liabilities	20,643		21,220
Other liabilities	15,405		15,239
Total liabilities	2,142,828		2,133,736
Commitments and contingencies
Preferred Units	477,309		477,309
Partners’ capital:
Common units, 97,022 and 96,962 units issued and outstanding, respectively	261,835		323,676
Warrants	13,979		13,979
Total partners’ capital	275,814		337,655
Total liabilities, Preferred Units and partners’ capital	$	2,895,951	$	2,948,700

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,
	2021		2020
Revenues:
Contract operations	$	152,525	$	172,794
Parts and service	2,038		3,048
Related party	2,950		3,157
Total revenues	157,513		178,999
Costs and expenses:
Cost of operations, exclusive of depreciation and amortization	48,628		59,165
Depreciation and amortization	61,030		58,762
Selling, general and administrative	13,800		12,385
Gain on disposition of assets	(1,255)		(1,014)
Impairment of compression equipment	2,550		—
Impairment of goodwill	—		619,411
Total costs and expenses	124,753		748,709
Operating income (loss)	32,760		(569,710)
Other income (expense):
Interest expense, net	(32,288)		(32,478)
Other	25		23
Total other expense	(32,263)		(32,455)
Net income (loss) before income tax expense	497		(602,165)
Income tax expense	126		296
Net income (loss)	371		(602,461)
Less: distributions on Preferred Units	(12,187)		(12,187)
Net loss attributable to common unitholders’ interests	$	(11,816)	$	(614,648)




Weighted average common units outstanding – basic and diluted	96,989		96,707



Basic and diluted net loss per common unit	$	(0.12)	$	(6.36)

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, 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


	For the Three Months Ended March 31, 2020
	Common units		Warrants		Total
Partners’ capital ending balance, December 31, 2019	$	1,166,619	$	13,979	$	1,180,598
Vesting of phantom units	1,065		—		1,065
Distributions and DERs, $0.525 per unit	(50,755)		—		(50,755)
Issuance of common units under the DRIP	301		—		301
Unit-based compensation for equity classified awards	55		—		55
Net loss attributable to common unitholders’ interests	(614,648)		—		(614,648)
Partners’ capital ending balance, March 31, 2020	$	502,637	$	13,979	$	516,616

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,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	371	$	(602,461)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	61,030		58,762
Provision for expected credit losses	(1,250)		1,500
Amortization of debt issuance costs	2,281		1,986
Unit-based compensation expense (benefit)	4,182		(1,829)
Deferred income tax expense (benefit)	(99)		123
Gain on disposition of assets	(1,255)		(1,014)
Impairment of compression equipment	2,550		—
Impairment of goodwill	—		619,411
Changes in assets and liabilities:
Accounts receivable and related party receivables, net	(2,779)		7,120
Inventories	(3,261)		(8,046)
Prepaid expenses and other current assets	(479)		(556)
Other assets	706		754
Accounts payable	1,316		5,036
Accrued liabilities and deferred revenue	(23,701)		(30,709)

Net cash provided by operating activities	39,612		50,077
Cash flows from investing activities:
Capital expenditures, net	(6,185)		(45,275)
Proceeds from disposition of property and equipment	420		1,881
Proceeds from insurance recovery	1,559		1,324
Net cash used in investing activities	(4,206)		(42,070)
Cash flows from financing activities:
Proceeds from revolving credit facility	190,511		250,008

Payments on revolving credit facility	(161,633)		(193,408)
Cash paid related to net settlement of unit-based awards	(289)		(644)
Cash distributions on common units	(51,571)		(51,381)
Cash distributions on Preferred Units	(12,187)		(12,187)
Deferred financing costs	—		(153)
Other	(140)		(250)
Net cash used in financing activities	(35,309)		(8,015)
Increase (decrease) in cash and cash equivalents	97		(8)
Cash and cash equivalents, beginning of period	2		10
Cash and cash equivalents, end of period	$	99	$	2

Supplemental cash flow information:
Cash paid for interest, net of capitalized amounts	$	55,391	$	56,046
Cash paid for income taxes	$	13	$	—
Supplemental non-cash transactions:
Non-cash distributions to certain common unitholders (DRIP)	$	463	$	301
Transfers from inventories to property and equipment	$	3,139	$	7,576
Changes in capital expenditures included in accounts payable and accrued liabilities	$	(800)	$	2,201
Financing costs included in accounts payable and accrued liabilities	$	139	$	268

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 operating 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.” As of March 31, 2021, the General Partner was wholly-owned by ETO. On April 1, 2021, Energy Transfer LP (“ET”), ETO and certain of their affiliates consummated an internal reorganization. In connection with the reorganization, ETO merged with and into ET, with ET surviving the merger (the “ETO Merger”). As a result of the ETO Merger, the General Partner became wholly-owned by ET.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Partnership and its operating 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, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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, 2020 filed on February 16, 2021 (our “2020 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.

Significant 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 two financial assets measured at amortized cost: (i) trade accounts receivable and (ii) net investment in lease related to our sales-type lease discussed further in Note 7. Due to the short-

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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.

Our determination of the allowance for credit losses requires us to make estimates and judgments regarding our customers’ ability to pay amounts due and is the same process for both of our financial assets as they have similar risk characteristics. 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 $3,000 and $142,000 for the three months ended March 31, 2021 and 2020, 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, 2021 and 2020.

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.

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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.

Income Taxes

We are 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. 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, 2021, 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, 2021		December 31, 2020
Senior Notes 2026, aggregate principal	$	725,000	$	725,000
Fair value of Senior Notes 2026	743,125		761,250
Senior Notes 2027, aggregate principal	750,000		750,000
Fair value of Senior Notes 2027	776,250		800,625

Operating Segment

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

(3) Trade Accounts Receivable

The allowance for credit losses, which was $3.5 million and $5.0 million as of March 31, 2021 and December 31, 2020, 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, 2020	$	4,982
Current-period provision for expected credit losses	(1,250)
Writeoffs charged against the allowance	(191)

Balance as of March 31, 2021	$	3,541

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

For the three months ended March 31, 2020, we recognized a $1.5 million provision for expected credit losses. Low crude oil prices, driven by decreased demand for and global oversupply of crude oil as a result of the COVID-19 pandemic, was the primary factor contributing to the higher allowance for credit losses for the three months ended March 31, 2020.

(4) Inventories

Components of inventories are as follows (in thousands):


	March 31, 2021		December 31, 2020
Serialized parts	$	42,448	$	42,233
Non-serialized parts	42,292		42,399
Total inventories	$	84,740	$	84,632

(5) Property and Equipment, Identifiable Intangible Assets and Goodwill

Property and Equipment

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


	March 31, 2021		December 31, 2020
Compression and treating equipment	$	3,482,751	$	3,480,660
Computer equipment	53,981		53,887
Automobiles and vehicles	33,276		33,412
Leasehold improvements	8,238		8,218
Buildings	5,334

SEC Form 10-Q filed by USA Compression Partners, LP