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☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
☐2021
| ☐ | TRANSITION REPORT PURSUANT
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Delaware |
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(State or incorporation or organization) | 75-2771546 (I.R.S. Employer Identification No.) | ||||
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111 Congress Avenue, Suite | |||||
2400 Austin, Texas |
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(Address of principal executive offices) | 78701 (Zip Code) | ||||
| 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 | ||||||||||||
Large accelerated filer ☐ | Accelerated filer ☒ | |||||
Non-accelerated filer ☐
| Smaller reporting company ☐ | |||||
Emerging growth company | ||||||
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Page | ||||||
GLOSSARY
| 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 | |||||||
| ET | Energy Transfer LP, for periods following its merger with Energy Transfer Operating, L.P., and to 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 | |||||||
| U.S. | United States of America | |||||||
September 30, December 31, 2017 2016 Assets Current assets: Cash and cash equivalents $ 923 $ 65 Accounts receivable, net: Trade, net 31,379 32,237 Other 8,698 9,028 Inventory, net 35,718 29,556 Prepaid expenses 2,715 2,083 Total current assets 79,433 72,969 Property and equipment, net 1,267,512 1,267,574 Installment receivable 11,521 14,079 Identifiable intangible assets, net 72,520 75,189 Goodwill 35,866 35,866 Other assets 5,093 6,735 Total assets $ 1,471,945 $ 1,472,412 Liabilities and Partners’ Capital Current liabilities: Accounts payable $ 9,608 $ 13,148 Accrued liabilities 26,373 26,572 Deferred revenue 22,778 16,691 Total current liabilities 58,759 56,411 Long-term debt 752,000 685,371 Other liabilities 1,513 1,113 Partners’ capital: Limited partner interest: Common units, 62,016,723 and 60,689,110 units issued and outstanding, respectively 652,385 721,080 General partner interest 7,288 8,437 Total partners’ capital 659,673 729,517 Total liabilities and partners’ capital $ 1,471,945 $ 1,472,412 Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Revenues: Contract operations $ 68,407 $ 60,282 $ 192,164 $ 187,345 Parts and service 4,384 848 12,673 3,663 Total revenues 72,791 61,130 204,837 191,008 Costs and expenses: Cost of operations, exclusive of depreciation and amortization 23,441 18,885 67,546 58,368 Selling, general and administrative 11,888 12,577 33,643 33,496 Depreciation and amortization 24,808 23,195 73,493 68,701 Loss (gain) on disposition of assets 50 (155) (207) 795 Impairment of compression equipment 1,096 3,441 4,809 4,134 Total costs and expenses 61,283 57,943 179,284 165,494 Operating income 11,508 3,187 25,553 25,514 Other income (expense): Interest expense, net (6,557) (5,275) (18,233) (15,476) Other 3 16 22 30 Total other expense (6,554) (5,259) (18,211) (15,446) Net income (loss) before income tax expense 4,954 (2,072) 7,342 10,068 Income tax expense 165 74 448 402 Net income (loss) $ 4,789 $ (2,146) $ 6,894 $ 9,666 Net income (loss) allocated to: General partner’s interest in net income $ 399 $ 272 $ 1,096 $ 1,019 Limited partners’ interest in net income (loss): Common units $ 4,390 $ (2,418) $ 5,798 $ 11,358 Subordinated units $ (2,711) Weighted average common units outstanding: Basic 61,815 55,087 61,366 51,911 Diluted 62,084 55,302 61,602 52,204 Basic and diluted weighted average subordinated units outstanding 2,359 Basic and diluted net income (loss) per common unit $ 0.07 $ (0.04) $ 0.09 $ 0.22 Basic and diluted net loss per subordinated unit $ (1.15) Distributions declared per limited partner unit for respective periods $ 0.525 $ 0.525 $ 1.575 $ 1.575 Partners’ Capital Total Common Units General Partner Partners’ Units Amount Amount Capital Partners’ capital, December 31, 2016 60,689 $ 721,080 $ 8,437 $ 729,517 Vesting of phantom units 271 4,243 — 4,243 Distributions and distribution equivalent rights — (96,373) (2,245) (98,618) Issuance of common units under the DRIP 1,057 17,412 — 17,412 Unit-based compensation of equity classified awards — 225 — 225 Net income — 5,798 1,096 6,894 Partners’ capital, September 30, 2017 62,017 $ 652,385 $ 7,288 $ 659,673 Nine months ended September 30, 2017 2016 Cash flows from operating activities: Net income $ 6,894 $ 9,666 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 73,493 68,701 Amortization of debt issue costs 1,641 1,561 Unit-based compensation expense 8,160 8,481 Loss (gain) on disposition of assets (207) 795 Impairment of compression equipment 4,809 4,134 Changes in assets and liabilities: Accounts receivable, net 3,747 7,377 Inventory, net (14,794) (5,216) Prepaid expenses (632) 257 Other noncurrent assets 3 20 Accounts payable (4,216) (3,680) Accrued liabilities and deferred revenue 6,164 2,500 Other noncurrent liabilities 239 — Net cash provided by operating activities 85,301 94,596 Cash flows from investing activities: Capital expenditures, net (65,551) (46,253) Proceeds from sale of property and equipment 467 313 Proceeds from insurance recovery — 73 Net cash used in investing activities (65,084) (45,867) Cash flows from financing activities: Proceeds from long-term debt 285,315 216,180 Payments on long-term debt (218,686) (201,429) Cash paid related to net settlement of unit-based awards (2,835) (113) Cash distributions (83,153) (61,356) Financing costs — (2,011) Net cash used in financing activities (19,359) (48,729) Increase in cash and cash equivalents 858 — Cash and cash equivalents, beginning of period 65 7 Cash and cash equivalents, end of period $ 923 $ 7 Supplemental cash flow information: Cash paid for interest $ 17,646 $ 15,132 Cash paid for taxes $ 230 $ 265 Supplemental non-cash transactions: Non-cash distributions to certain limited partners (DRIP) $ 17,412 $ 27,811 Transfers (to) from inventory to property and equipment $ 8,632 $ (2,244) Transfer from long-term installment receivable to short term $ (2,559) $ (2,374) Change in capital expenditures included in accounts payable and accrued liabilities $ 1,649 $ 2,912 Business September 30, 2017 USA Compression Holdings Public Total General partner interest 1.2 % — 1.2 % Limited partner interest 39.7 % 59.1 % 98.8 % Total 40.9 % 59.1 % 100.0 % and Summary of Significant Accounting Policies 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. September 30, 2017 December 31, 2016 Serialized parts $ 19,757 $ 17,943 Non-serialized parts 16,275 11,927 Total Inventory, gross 36,032 29,870 Less: obsolete and slow moving reserve (314) (314) Total Inventory, net $ 35,718 $ 29,556 Customer Relationships Trade Names Non-compete Total Net Balance at December 31, 2016 $ 63,183 $ 11,856 $ 150 $ 75,189 Amortization Expense (2,051) (468) (150) (2,669) Net Balance at September 30, 2017 $ 61,132 $ 11,388 $ — $ 72,520 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 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 September 30, 2017 December 31, 2016 Assets (Liabilities) Level 1 Level 1 Unit-based compensation liability $ (5,985) $ (7,043) As of Identifiable Intangible Assets and Goodwill September 30, 2017 December 31, 2016 Compression equipment $ 1,615,002 $ 1,551,157 Furniture and fixtures 593 625 Automobiles and vehicles 19,407 18,979 Computer equipment 25,223 23,394 Leasehold improvements 1,537 1,392 Total Property and equipment, gross 1,661,762 1,595,547 Less: accumulated depreciation and amortization (394,250) (327,973) Total Property and equipment, net $ 1,267,512 $ 1,267,574 As of September 30, 2017 December 31, 2016 Revolving Credit Facility $ 752,000 $ 685,371 As of borrowing base), with a further potential increase of $400 million, and has a maturity date of April 2, 2023, which we expect to maintain for the term. 2021 and December 31, 2021 (reverting to 5.00 to 1.00 after the Covenant Relief Period). In addition, the Distribution per Amount Paid to Amount Paid to Amount Paid to Limited Partner Common General Phantom Total Payment Date Unit Unitholders Partner Unitholders Distribution August 12, 2016 $ 0.525 $ 28.8 $ 0.7 $ 0.7 $ 30.2 November 14, 2016 $ 0.525 $ 29.1 $ 0.7 $ 0.6 $ 30.4 February 14, 2017 $ 0.525 $ 31.9 $ 0.7 $ 0.8 $ 33.4 May 12, 2017 $ 0.525 $ 32.1 $ 0.7 $ 0.6 $ 33.4 August 11, 2017 $ 0.525 $ 32.3 $ 0.8 $ 0.6 $ 33.7 During the Marginal Percentage Interest Total Quarterly in Distributions Distribution Per Unit Unitholders General Partner Minimum Quarterly Distribution $0.425 98.8 % 1.2 % First Target Distribution up to $0.4888 98.8 % 1.2 % Second Target Distribution above $0.4888 up to $0.5313 85.8 % 14.2 % Third Target Distribution above $0.5313 up to $0.6375 75.8 % 24.2 % Thereafter above $0.6375 50.8 % 49.2 % 2020. Contingencies Operating Highlights Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Fleet horsepower (at period end) (1) 1,757,720 1,716,296 1,757,720 1,716,296 Total available horsepower (at period end) (2) 1,862,720 1,723,406 1,862,720 1,723,406 Revenue generating horsepower (at period end) (3) 1,557,825 1,364,059 1,557,825 1,364,059 Average revenue generating horsepower (4) 1,548,656 1,356,423 1,473,421 1,381,831 Average revenue per revenue generating horsepower per month (5) $ 15.13 $ 15.35 $ 15.02 $ 15.53 Revenue generating compression units (at period end) 2,793 2,502 2,793 2,502 Average horsepower per revenue generating compression unit (6) 558 541 550 532 Horsepower utilization (7): At period end 94.2 % 88.3 % 94.2 % 88.3 % Average for the period (8) 94.1 % 87.3 % 91.1 % 87.4 % (8)Calculated as the average utilization for the months in the period based on utilization at the end of each month in the period. Average horsepower utilization based on revenue generating horsepower and fleet horsepower natural gas activity, as evidenced by a lower average rig count in the U.S. during the six months ended June 30, 2021 compared to the six months ended June 30, 2020. 2020 Three Months Ended September 30, Percent 2017 2016 Change Revenues: Contract operations $ 68,407 $ 60,282 13.5 % Parts and service 4,384 848 417.0 % Total revenues 72,791 61,130 19.1 % Costs and expenses: Cost of operations, exclusive of depreciation and amortization 23,441 18,885 24.1 % Gross operating margin 49,350 42,245 16.8 % Other operating and administrative costs and expenses: Selling, general and administrative 11,888 12,577 (5.5) % Depreciation and amortization 24,808 23,195 7.0 % Loss (gain) on disposition of assets 50 (155) (132.3) % Impairment of compression equipment 1,096 3,441 (68.1) % Total other operating and administrative costs and expenses 37,842 39,058 (3.1) % Operating income 11,508 3,187 261.1 % Other income (expense): Interest expense, net (6,557) (5,275) 24.3 % Other 3 16 (81.3) % Total other expense (6,554) (5,259) 24.6 % Net income (loss) before income tax expense 4,954 (2,072) (339.1) % Income tax expense 165 74 123.0 % Net income (loss) $ 4,789 $ (2,146) (323.2) % Contract operations 2021 compared to the three months ended June 30, 2020 was primarily due to lower vehicle depreciation related to a decrease in our vehicle fleet in the current period. customer during the current period. Interest expense, net. The 2020 was primarily related to deferred taxes associated with the Texas Margin Tax. Nine Months Ended September 30, Percent 2017 2016 Change Revenues: Contract operations $ 192,164 $ 187,345 2.6 % Parts and service 12,673 3,663 246.0 % Total revenues 204,837 191,008 7.2 % Costs and expenses: Cost of operations, exclusive of depreciation and amortization 67,546 58,368 15.7 % Gross operating margin 137,291 132,640 3.5 % Other operating and administrative costs and expenses: Selling, general and administrative 33,643 33,496 0.4 % Depreciation and amortization 73,493 68,701 7.0 % Loss (gain) on disposition of assets (207) 795 (126.0) % Impairment of compression equipment 4,809 4,134 16.3 % Total other operating and administrative costs and expenses 111,738 107,126 4.3 % Operating income 25,553 25,514 0.2 % Other income (expense): Interest expense, net (18,233) (15,476) 17.8 % Other 22 30 (26.7) % Total other expense (18,211) (15,446) 17.9 % Net income before income tax expense 7,342 10,068 (27.1) % Income tax expense 448 402 11.4 % Net income $ 6,894 $ 9,666 (28.7) % Contract operations revenue. The $31.5 million decrease in contract operations revenue Parts and service revenue. The current period. current period. March 31, 2020. Other Financial Data Three Months Ended September 30, Percent Nine Months Ended September 30, Percent Other Financial Data: (1) 2017 2016 Change 2017 2016 Change Gross operating margin $ 49,350 $ 42,245 16.8 % $ 137,291 $ 132,640 3.5 % Gross operating margin percentage (2) 67.8 % 69.1 % (1.9) % 67.0 % 69.4 % (3.5) % Adjusted EBITDA $ 40,849 $ 34,634 17.9 % $ 113,592 $ 110,187 3.1 % Adjusted EBITDA percentage (2) 56.1 % 56.7 % (1.1) % 55.5 % 57.7 % (3.8) % DCF (3) $ 30,811 $ 27,223 13.2 % $ 85,107 $ 89,626 (5.0) % DCF Coverage Ratio (3) 0.92 x 0.91 x 1.1 % 0.85 x 1.01 x (15.8) % Cash Coverage Ratio 1.01 x 1.06 x (4.7) % 1.03 x 1.33 x (22.6) % severance charges. expenditures. Liquidity and Capital Resources Nine Months Ended September 30, 2017 2016 Net cash provided by operating activities $ 85,301 $ 94,596 Net cash used in investing activities $ (65,084) $ (45,867) Net cash used in financing activities $ (19,359) $ (48,729) Capital Expenditures We classify capital expenditures as maintenance or expansion on an individual asset basis. Over the $0.4 million for the six months ended June 30, 2021 compared to net borrowings of $45.1 million for the six months ended June 30, 2020 under the Credit Agreement. Credit Agreement. Report. supplemental measure to investors of our operating profitability. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Revenues: Contract operations $ 68,407 $ 60,282 $ 192,164 $ 187,345 Parts and service 4,384 848 12,673 3,663 Total revenues 72,791 61,130 204,837 191,008 Cost of operations, exclusive of depreciation and amortization 23,441 18,885 67,546 58,368 Gross operating margin 49,350 42,245 137,291 132,640 Other operating and administrative costs and expenses: Selling, general and administrative 11,888 12,577 33,643 33,496 Depreciation and amortization 24,808 23,195 73,493 68,701 Loss (gain) on disposition of assets 50 (155) (207) 795 Impairment of compression equipment 1,096 3,441 4,809 4,134 Total other operating and administrative costs and expenses 37,842 39,058 111,738 107,126 Operating income $ 11,508 $ 3,187 $ 25,553 $ 25,514 results alone. We also believe that external users of our financial statements benefit from having access to the same financial measures that management uses in evaluating the results of our business. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Net income (loss) $ 4,789 $ (2,146) $ 6,894 $ 9,666 Interest expense, net 6,557 5,275 18,233 15,476 Depreciation and amortization 24,808 23,195 73,493 68,701 Income tax expense 165 74 448 402 EBITDA $ 36,319 $ 26,398 $ 99,068 $ 94,245 Impairment of compression equipment 1,096 3,441 4,809 4,134 Interest income on capital lease 399 348 1,238 1,085 Unit-based compensation expense (1) 2,813 3,647 8,160 8,481 Transaction expenses for acquisitions (2) — 950 — 950 Severance charges 172 5 292 497 Other — — 232 — Loss (gain) on disposition of assets 50 (155) (207) 795 Adjusted EBITDA $ 40,849 $ 34,634 $ 113,592 $ 110,187 Interest expense, net (6,557) (5,275) (18,233) (15,476) Income tax expense (165) (74) (448) (402) Interest income on capital lease (399) (348) (1,238) (1,085) Non-cash interest expense 547 546 1,641 1,561 Transaction expenses for acquisitions — (950) — (950) Severance charges (172) (5) (292) (497) Other — — (232) — Changes in operating assets and liabilities (1,074) 7,611 (9,489) 1,258 Net cash provided by operating activities $ 33,029 $ 36,139 $ 85,301 $ 94,596 Distributable Cash Flow Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Net income (loss) $ 4,789 $ (2,146) $ 6,894 $ 9,666 Plus: Non-cash interest expense 547 546 1,641 1,561 Plus: Non-cash income tax expense 59 74 188 208 Plus: Depreciation and amortization 24,808 23,195 73,493 68,701 Plus: Unit-based compensation expense (1) 2,813 3,647 8,160 8,481 Plus: Impairment of compression equipment 1,096 3,441 4,809 4,134 Plus: Transaction expenses for acquisitions (2) — 950 — 950 Plus: Severance charges 172 5 292 497 Plus: Other — — 232 — Less: Loss (gain) on disposition of assets 50 (82) (207) 868 Less: Maintenance capital expenditures (3) (3,523) (2,407) (10,395) (5,440) DCF $ 30,811 $ 27,223 $ 85,107 $ 89,626 Plus: Maintenance capital expenditures 3,523 2,407 10,395 5,440 Plus: Changes in operating assets and liabilities (1,074) 7,611 (9,489) 1,258 Less: Other (231) (1,102) (712) (1,728) Net cash provided by operating activities $ 33,029 $ 36,139 $ 85,301 $ 94,596 Coverage Ratios Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 DCF $ 30,811 $ 27,223 $ 85,107 $ 89,626 Less: Cash distributions to general partner and IDRs 753 717 2,253 2,143 DCF attributable to limited partner interest $ 30,058 $ 26,506 $ 82,854 $ 87,483 Distributions for DCF Coverage Ratio (1) $ 32,559 $ 29,025 $ 97,005 $ 86,263 Distributions reinvested in the DRIP (2) $ 2,920 $ 4,108 $ 16,288 $ 20,398 Distributions for Cash Coverage Ratio (3) $ 29,639 $ 24,917 $ 80,717 $ 65,865 DCF Coverage Ratio 0.92 0.91 0.85 1.01 Cash Coverage Ratio 1.01 1.06 1.03 1.33 Off-Balance Sheet Arrangements Changes in Internal Control over Financial Reporting Exhibit Description *Filed herewith. USA /s/ Matthew C. Liuzzi Matthew C. Liuzzi /s/ G. Tracy Owens G. Tracy Owensthousands, except for unit amounts)thousands)June 30,
2021December 31,
2020Assets Current assets: Cash and cash equivalents $ 2 $ 2 Accounts receivable: Accounts receivable: Trade, net of allowances for credit losses of $3,538 and $4,982, respectively Trade, net of allowances for credit losses of $3,538 and $4,982, respectively 62,044 63,727 Other 3,197 3,707 Related party receivables Related party receivables 44,963 45,043 Inventories Inventories 84,446 84,632 Prepaid expenses and other assets Prepaid expenses and other assets 4,089 2,444 Total current assets 198,741 199,555 Property and equipment, net 2,290,786 2,380,633 Lease right-of-use assets Lease right-of-use assets 21,389 22,766 Identifiable intangible assets, net 319,101 333,791 Other assets 9,293 11,955 Total assets $ 2,839,310 $ 2,948,700 Liabilities, Preferred Units and Partners’ Capital Liabilities, Preferred Units and Partners’ Capital Current liabilities: Accounts payable $ 15,314 $ 13,531 Accrued liabilities 119,747 109,539 Deferred revenue 48,794 47,202 Total current liabilities 183,855 170,272 Long-term debt, net Long-term debt, net 1,928,413 1,927,005 Operating lease liabilities Operating lease liabilities 19,880 21,220 Other liabilities 13,769 15,239 Total liabilities Total liabilities 2,145,917 2,133,736 Commitments and contingencies Commitments and contingencies 0 0 Preferred Units Preferred Units 477,309 477,309 Partners’ capital: Common units, 97,067 and 96,962 units issued and outstanding, respectively Common units, 97,067 and 96,962 units issued and outstanding, respectively 202,105 323,676 Warrants Warrants 13,979 13,979 Total partners’ capital 216,084 337,655 Total liabilities, Preferred Units and partners’ capital Total liabilities, Preferred Units and partners’ capital $ 2,839,310 $ 2,948,700 Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenues: Contract operations $ 151,800 $ 162,993 $ 304,325 $ 335,787 Parts and service 1,818 2,736 3,856 5,784 Related party Related party 2,944 2,922 5,894 6,079 Total revenues 156,562 168,651 314,075 347,650 Costs and expenses: Cost of operations, exclusive of depreciation and amortization 45,604 49,968 94,232 109,133 Depreciation and amortization Depreciation and amortization 59,227 60,338 120,257 119,100 Selling, general and administrative 15,288 20,315 29,088 32,700 Gain on disposition of assets Gain on disposition of assets (1,105) (787) (2,360) (1,801) Impairment of compression equipment 2,403 3,923 4,953 3,923 Impairment of goodwill Impairment of goodwill 0 0 0 619,411 Total costs and expenses 121,417 133,757 246,170 882,466 Operating income (loss) Operating income (loss) 35,145 34,894 67,905 (534,816) Other income (expense): Interest expense, net (32,350) (31,815) (64,638) (64,293) Other 45 24 70 47 Total other expense (32,305) (31,791) (64,568) (64,246) Net income (loss) before income tax expense 2,840 3,103 3,337 (599,062) Income tax expense 152 419 278 715 Net income (loss) 2,688 2,684 3,059 (599,777) Less: distributions on Preferred Units Less: distributions on Preferred Units (12,188) (12,188) (24,375) (24,375) Net loss attributable to common unitholders’ interests Net loss attributable to common unitholders’ interests $ (9,500) $ (9,504) $ (21,316) $ (624,152) Weighted average common units outstanding – basic and diluted Weighted average common units outstanding – basic and diluted 97,044 96,781 97,017 96,721 Basic and diluted net loss per common unit Basic and diluted net loss per common unit $ (0.10) $ (0.10) $ (0.22) $ (6.45) Distributions declared per common unit for respective periods Distributions declared per common unit for respective periods $ 0.525 $ 0.525 $ 1.05 $ 1.05 StatementStatements of Changes in Partners’ CapitalNine Months Ended September 30, 2017thousands)thousands, except per unit amounts)For the Six Months Ended June 30, 2021 Common units Warrants Total Partners’ capital ending balance, December 31, 2020 $ 323,676 $ 13,979 $ 337,655 Vesting of phantom units 391 0 391 Distributions and DERs, $0.525 per unit (50,931) 0 (50,931) Issuance of common units under the DRIP 463 0 463 Unit-based compensation for equity classified awards 52 0 52 Net loss attributable to common unitholders’ interests (11,816) 0 (11,816) Partners’ capital ending balance, March 31, 2021 261,835 13,979 275,814 Vesting of phantom units 277 0 277 Distributions and DERs, $0.525 per unit (50,963) 0 (50,963) Issuance of common units under the DRIP 402 0 402 Unit-based compensation for equity classified awards 54 0 54 Net loss attributable to common unitholders’ interests (9,500) 0 (9,500) Partners’ capital ending balance, June 30, 2021 $ 202,105 $ 13,979 $ 216,084 For the Six Months Ended June 30, 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 0 1,065 Distributions and DERs, $0.525 per unit (50,755) 0 (50,755) Issuance of common units under the DRIP 301 0 301 Unit-based compensation for equity classified awards 55 0 55 Net loss attributable to common unitholders’ interests (614,648) 0 (614,648) Partners’ capital ending balance, March 31, 2020 502,637 13,979 516,616 Vesting of phantom units 659 0 659 Distributions and DERs, $0.525 per unit (50,801) 0 (50,801) Issuance of common units under the DRIP 612 0 612 Unit-based compensation for equity classified awards 56 0 56 Net loss attributable to common unitholders’ interests (9,504) 0 (9,504) Partners’ capital ending balance, June 30, 2020 $ 443,659 $ 13,979 $ 457,638 Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net income (loss) $ 3,059 $ (599,777) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 120,257 119,100 Provision for expected credit losses (1,250) 3,700 Amortization of debt issuance costs 4,578 3,946 Unit-based compensation expense 8,442 2,739 Deferred income tax expense (benefit) (133) 272 Gain on disposition of assets (2,360) (1,801) Impairment of compression equipment 4,953 3,923 Impairment of goodwill 0 619,411 Changes in assets and liabilities: Accounts receivable and related party receivables, net 1,646 13,083 Inventories (6,490) (11,051) Prepaid expenses and other current assets (1,645) (1,653) Other assets 1,764 1,624 Accounts payable 2,494 (227) Accrued liabilities and deferred revenue 3,756 (5,857) Net cash provided by operating activities 139,071 147,432 Cash flows from investing activities: Capital expenditures, net (15,435) (67,398) Proceeds from disposition of property and equipment 3,607 2,278 Proceeds from insurance recovery 1,559 1,324 Net cash used in investing activities (10,269) (63,796) Cash flows from financing activities: Proceeds from revolving credit facility 330,687 412,307 Payments on revolving credit facility (331,050) (367,226) Cash paid related to net settlement of unit-based awards (461) (1,111) Cash distributions on common units (103,185) (102,430) Cash distributions on Preferred Units (24,375) (24,375) Deferred financing costs (138) (306) Other (280) (503) Net cash used in financing activities (128,802) (83,644) Decrease in cash and cash equivalents 0 (8) Cash and cash equivalents, beginning of period 2 10 Cash and cash equivalents, end of period $ 2 $ 2 Supplemental cash flow information: Cash paid for interest, net of capitalized amounts $ 60,416 $ 60,874 Cash paid for income taxes $ 647 $ 0 Supplemental non-cash transactions: Non-cash distributions to certain common unitholders (DRIP) $ 865 $ 913 Transfers from inventories to property and equipment $ 6,661 $ 10,379 Changes in capital expenditures included in accounts payable and accrued liabilities $ (510) $ 4,344 Financing costs included in accounts payable and accrued liabilities $ 120 $ 115 SummaryDescription of Significant Accounting Policies(a) Organization“our”, “we”, “us”,“our,” “we,” “us,” “the Partnership” and similar language refer to USA Compression Partners, LP, collectively with its consolidated operating subsidiaries.USA Compression GP, LLC, a Delaware limited liability company, serves as our general partner and is referred to herein as the “General Partner”. Our General Partner is owned by USA Compression Holdings, LLC (“USA Compression Holdings”). Through our operating subsidiaries, we provide compression services under termfixed-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 United States,U.S., including the Utica, Marcellus, Permian Basin, Delaware Basin, Eagle Ford, Mississippi Lime, Granite Wash, Woodford, Barnett, Haynesville, Niobrara and Fayetteville shales.Certainour operating subsidiaries are borrowers underEnergy Transfer LP. On April 1, 2021, Energy Transfer LP, ETO and certain of their affiliates consummated an internal reorganization. In connection with the reorganization, ETO merged with and into Energy Transfer LP, with Energy Transfer LP surviving the merger (the “ET Merger”). As a revolving credit facility andresult of the Partnership is a guarantor of that revolving credit facility (see Note 6). ET Merger, the General Partner became wholly owned by Energy Transfer LP.Net income (loss) is allocated to our general and limited partners using the two-class income allocation method. All intercompany balances and transactions have been eliminated in consolidation. Our common units representing limited partner interests in the Partnership trade on the New York Stock Exchange under the ticker symbol “USAC”. Our ownership structure was as follows:(b)onin accordance with GAAP and pursuant to the same basis asrules and regulations of the audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2016 filed on February 13, 2017 (our “2016 Annual Report”). SEC.thethese interim unaudited condensed consolidated financial position as of September 30, 2017 and December 31, 2016, and the results of operations for the three and nine months ended September 30, 2017 and 2016, changes in partners’ capital for the nine months ended September 30, 2017 and the statements of cash flows for the nine months ended September 30, 2017 and 2016 in accordance with U.S. generally accepted accounting principles (“GAAP”).GAAP. Operating results for the three and ninesix months ended SeptemberJune 30, 20172021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2021. 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 U.S. Securities and Exchange Commission (the “SEC”).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, 2016 contained in our 20162020 filed on February 16, 2021 (our “2020 Annual Report.(c) Report”).5(d) InventoryInventory consistsin the repair ofon compression units. All inventory isinventories are stated at the lower of cost or net realizable value. Serialized parts inventory isinventories are determined using the specific identification cost method, while non-serialized parts inventory isinventories are determined using the weighted average cost method. Purchases of these assetsinventories are considered operating activities inon the Unaudited Condensed Consolidated Statementsunaudited condensed consolidated statements of Cash Flows.Components of inventory are as follows (in thousands):(e) Identifiable Intangible AssetsIdentifiable intangible assets, net consisted of the following (in thousands):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 range from 4 to 30 years. Accumulated amortization of intangible assets was $22.7 million and $20.0 million as of September 30, 2017 and December 31, 2016, respectively.We assess identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We did not record any impairment of identifiable intangible assets for the three and nine months ended September 30, 2017 or the three and nine months ended September 30, 2016.(f) required.required. Overhauls and major improvements that increase the value or extend the life of compression equipment are capitalized and depreciated over 3three to 5five years. Ordinary maintenance and repairs are charged to cost of operations, exclusive of depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:Compression equipment, acquired new25 yearsCompression equipment, acquired used9 - 25 yearsFurniture and fixtures7 yearsVehicles and computer equipment3 - 7 yearsLeasehold improvements5 years6ourthe unaudited condensed consolidated statements of operations in the period of sale or disposition.See more informationpropertyoutstanding debt by the amount of qualifying costs, which include upfront payments to acquire certain compression units. Capitalized interest was $98,000 and equipment in Note 3 to our unaudited condensed consolidated financial statements.(g) $101,000 for the three and six months ended June 30, 2021, respectively, and $44,000 and $186,000 for the three and six months ended testedevaluated for impairment is when idle units do not meet the desired performance characteristics of our active revenue generating horsepower.Duringthree and nine months ended September 30, 2017, we evaluated the future deployment of our idle fleet under current market conditions and determined to retire, sell or re-utilize key components of compression units with a total of 2,728 and 10,734 horsepower, respectively, which were previously used to provide compression services in our business. The causesum 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 was dueloss equal to the type of units, which were not marketable, and were subject to excessive maintenance costs. These compression units were written down to their respective estimated salvage value, if any.During the three and nine months ended September 30, 2016, we evaluated the future deployment of our idle fleet under then-current market conditions and determined to retire, sell or re-utilize key components of compression units with a total of 10,407 and 12,099 horsepower, respectively, which were previously used to provide compression services in our business. The causeamount of the impairment was related to certain performance characteristicscarrying value exceeding the fair value of the impaired equipment, such as excessive maintenance costs andasset is recognized. The fair value of the inabilityasset 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 meet then-current emission standards without retrofitting. use.determined that this equipment was unlikely to be accepted by customers under then-current market conditions. These compression units were written down to their respective estimated salvage value, if any.decision to retire, sellitems of income, gain, loss or re-utilize key components of these compression units, we recorded $1.1 million and $4.8 million of impairment of long-lived assetsdeduction. 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 threeunaudited condensed consolidated financial statements a provision for the Texas Margin Tax.nine months ended September 30, 2017, respectively, and $3.4 million and $4.1 million of impairment of long-lived assets in the three and nine months ended September 30, 2016, respectively.(h)passed through to, customers are accounted for on a net basis.nonrecurringnon-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:Phantom unit awards granted to employees under the USA Compression Partners, LP 2013 Long-Term Incentive Plan (the “LTIP”) are accounted for as a liability, and such liability is re-measured on a quarterly basis. The liability is based on the publicly quoted price of our common units, which is considered a Level 1 input, and is recorded within the accrued liabilities caption on the Unaudited Condensed Consolidated Balance Sheets. 7Net liabilities measured at fair value on a recurring basis are summarized below (in thousands):SeptemberJune 30, 2017 and December 31, 2016,2021, 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 long-term debtour revolving credit facility approximates fair value due to the floating interest rates associated with the debt.(i)June 30,
2021December 31,
2020Senior Notes 2026, aggregate principal $ 725,000 $ 725,000 Fair value of Senior Notes 2026 761,250 761,250 Senior Notes 2027, aggregate principal 750,000 750,000 Fair value of Senior Notes 2027 799,688 800,625 (j)Pass Through TaxesSales taxes incurred on behalf of, and passed through to, customers are accounted for on a net basis.(2)Trade accounts receivable are recorded at the invoiced amount and do not bear interest. doubtful accounts,credit losses, which was $0.5$3.5 million and $0.7$5.0 million at Septemberas of June 30, 20172021 and December 31, 2016,2020, respectively, is our best estimate of the amount of probable credit losses included in our existing accounts receivable.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 (194) Balance as of June 30, 2021 $ 3,538 determinerecognized a $1.3 million reversal of our provision for expected credit losses for the allowance based upon historical write-off experience and specific customer circumstances. The determination ofsix months ended June 30, 2021. 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 doubtful accounts requires us to make estimates and judgments regarding our customers’ ability to pay amounts due. On an ongoing basis, we conduct an evaluation ofcredit losses for the financial strength of our customers based on payment history, the overall business climate in which our customers operate and specific identification of customer bad debt and make adjustments to the allowance as necessary. Our evaluation of our customers’ financial strength is based on the aging of their respective receivables balance, customer correspondence, financial information and third-party credit ratings. Our evaluation of the business climate in which our customers operate is based on a review of various publicly-available materials regarding our customers’ industries, including the solvency of various companies in the industry. Duringsix months ended June 30, 2021.ninesix months ended SeptemberJune 30, 2017,2020, we reduced ourrecognized a $2.2 million and $3.7 million provision for expected credit losses, respectively. 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 doubtful accounts by $0.1 million and $0.2 million, respectively, and duringcredit losses for the three and ninesix months ended SeptemberJune 30, 2016, we reduced our allowance for doubtful accounts by $0.1 million and $1.5 million, respectively. Reductions for such periods were due primarily to collections on accounts that had previously been reserved.(3)2020.June 30,
2021December 31,
2020Serialized parts $ 43,094 $ 42,233 Non-serialized parts 41,352 42,399 Total inventories $ 84,446 $ 84,632 June 30,
2021December 31,
2020Compression and treating equipment Compression and treating equipment $ 3,491,270 $ 3,480,660 Computer equipment Computer equipment 53,559 53,887 Automobiles and vehicles Automobiles and vehicles 33,067 33,412 Leasehold improvements Leasehold improvements 8,255 8,218 Buildings Buildings 5,334 5,334 Furniture and fixtures 1,111 1,110 Land Land 77 77 Total property and equipment, gross Total property and equipment, gross 3,592,673 3,582,698 Less: accumulated depreciation and amortization (1,301,887) (1,202,065) Total property and equipment, net Total property and equipment, net $ 2,290,786 $ 2,380,633 We recognized $23.9 million and $22.3 millionCompression 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 for the three months ended September 30, 2017 and 2016, respectively. We recognized $70.8 million and $66.0 milliongain on disposition of depreciation expense on property and equipment for the nine months ended September 30, 2017 and 2016, respectively.assets were as follows (in thousands):8Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Depreciation expense $ 51,882 $ 52,993 $ 105,567 $ 104,410 Gain on disposition of assets 1,105 787 2,360 1,801 SeptemberJune 30, 20172021 and December 31, 2016,2020, there was $3.0$2.3 million and $1.4$2.8 million, respectively, of property and equipment purchases in accounts payable and accrued liabilities.Customer Relationships Trade Names Total Net balance as of December 31, 2020 $ 302,952 $ 30,839 $ 333,791 Amortization expense (13,052) (1,638) (14,690) Net balance as of June 30, 2021 $ 289,900 $ 29,201 $ 319,101 nine months ended September 30, 2017,first quarter of 2020 certain potential impairment indicators were identified, specifically (i) the decline in the market price of our common units, (ii) the decline in global commodity prices and (iii) the COVID-19 pandemic; which together indicated the fair value of the reporting unit was less than its carrying amount as of March 31, 2020.$0.2goodwill impairment of $619.4 million gainfor the six months ended June 30, 2020.June 30,
2021December 31,
2020Accrued sales tax contingencies (1) $ 44,923 $ 44,923 Accrued interest expense 30,948 31,125 Accrued payroll and benefits 11,733 8,416 Accrued unit-based compensation liability 14,235 9,183 sale of a compression unit. During the nine months ended September 30, 2016, we abandoned certain assets and incurred a $1.0 million loss. Each of these is reported within the Loss (gain) on disposition of assets caption in the Unaudited Condensed Consolidated Statements of Operations.(4)Installment ReceivableOn June 30, 2014, we entered into a FMV Bargain Purchase Option Grant Agreement (the “BPO Capitalaccrued sales tax contingencies.Transaction”) with a customer, pursuant to which weAccountingthea customer with respect to certain compressor packages leased to the customer. The bargain purchase option providesprovided the customer with an option to acquire the equipment at a value significantly less than the fair market value at the end of the lease term, which is 7 years.On November 1, 2016, we entered intoterm.Formula Price Purchase Agreement (the “FPP Capital Lease Transaction”) with a customer with respect to certaingain of $1.1 million recognized within gain on disposition of assets leasedfor the three and six months ended June 30, 2021.that the customer willexercising its bargain purchase at the end of the lease term. The customer has the option, to purchase these assets in April and October of each year with the final option occurring in May 2021.Both capital leases were accounted for as sales type leases resulting in a current installment receivable included in other accounts receivable of $8.7 million and $8.9 million as of September 30, 2017 and December 31, 2016, respectively, and a long-term installment receivable of $11.5 million and $14.1 million as of such period ends, respectively.Revenuerevenue and interest income related to both capital leases isthe lease was recognized over the respective lease terms.term. We recognizerecognized maintenance revenue within Contractcontract operations revenue and interest income within Interestinterest expense, net on the Unaudited Condensed Consolidated Statementsnet. Maintenance revenue and interest income were as follows (in thousands):Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Maintenance revenue $ 0 $ 322 $ 323 $ 645 Interest income 0 105 48 229 first lien long-term debt, of which there is no current portion, consisted of the following (in thousands):In March 2016, we entered into a third amendment to our revolving credit facility, which amended the credit agreement to, among other things, (i) modify the leverage ratio covenant to be (A) 5.25 to 1.0 as of the end of the respective fiscal quarters ending September 30, 2017 and December 31, 2017 and (B) 5.00 to 1.0 thereafter, and (ii) amend certain other provisions of the credit agreement, all as more fully set forth in the third amendment.In connection with entering into the third amendment, we paid certain amendment fees to the lenders party thereto and paid a certain arrangement fee to the arranger of the third amendment in the amount of $2.0 million, collectively,9June 30,
2021December 31,
2020Senior Notes 2026, aggregate principal $ 725,000 $ 725,000 Senior Notes 2027, aggregate principal 750,000 750,000 Less: deferred financing costs, net of amortization (20,034) (21,805) Total senior notes, net 1,454,966 1,453,195 Revolving credit facility 473,447 473,810 Total long-term debt, net $ 1,928,413 $ 1,927,005
Revolving Credit Facilityduring the nine months ended September 30, 2016. These fees were capitalized to loan costs and will be amortized through January 2020. No such fees were paid during the three or nine months ended September 30, 2017. SeptemberJune 30, 20172021, we were in compliance with all of our covenants under the Credit Agreement. The Credit Agreement has an aggregate commitment of $1.6 billion (subject to availability under our revolving credit facility.SeptemberJune 30, 2017,2021, we had outstanding borrowings under our revolving credit facilitythe Credit Agreement of $752.0$473.4 million, $288.6 million$1.1 billion of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $104.9$217.4 million. Our weighted average interest rate in effect for all borrowings under our revolving credit facilitythe Credit Agreement as of SeptemberJune 30, 2017 and December 31, 20162021 was 3.25% and 2.94%2.91%, respectively, with a weighted average interest rate of 3.25% and 2.53% during3.06% for the threesix months ended SeptemberJune 30, 2017 and 2016, respectively, and 3.09% and 2.49% during the nine months ended September 30, 2017 and 2016, respectively.2021. There were no0 letters of credit issued as of June 30, 2021. We pay a commitment fee of 0.375% on the unused portion of the Credit Agreement.2017 or 2016.eventamendment provides that the 0.50 increase in maximum funded debt to EBITDA ratio applicable to certain future acquisitions (for the six consecutive month period in which any such acquisition occurs) is only available beginning with the fiscal quarter ending September 30, 2021, and in any case shall not increase the maximum funded debt to EBITDA ratio above 5.50 to 1.00.operating subsidiaries guarantees any series of the debt securities as described in our registration statements on Form S-3, such guarantees will be full and unconditional and made on a joint and several basis for the benefit of each holder and the Trustee. However, such guarantees will be subject to release, subject to certain limitations, as follows (i) upon the sale, exchange or transfer, whether by way of a merger or otherwise, to any Person that is not our affiliate,secured obligations of all of our direct or indirect limited partnership or other equity interest in such Subsidiary Guarantor; or (ii) upon our or USA Compression Finance Corp.’s (together, the “Issuers”) delivery of a written notice to the Trustee of the release or discharge of all guarantees by such Subsidiary Guarantor of any Debt of the Issuers other than obligations arisingguarantors under the indenture governing such debtCredit Agreement.any debt securities issuedare applied to reduce borrowings under such indenture, except a discharge or release by or as a resultthe facility.Form of Indenture filed as exhibit 4.1 to such registration statement.Our operating subsidiariesPartnership and its wholly owned finance subsidiary, USA Compression Finance Corp. (“Finance Corp”), co-issued the Senior Notes 2026. The Senior Notes 2026 mature on April 1, 2026 and accrue interest at the rate of 6.875% per year. Interest on the Senior Notes 2026 is payable semi-annually in arrears on each of April 1 and October 1.only existing subsidiaries. subsidiaries (other than Finance Corp), and will be fully and unconditionally guaranteed, jointly and severally, by each of our future restricted subsidiaries that either borrows under, or guarantees, the Credit Agreement or guarantees certain of our other indebtedness (collectively, the “Guarantors”). The Senior Notes 2026 and the 2026 Guarantees are general unsecured obligations and rank equally in right of payment with all of the Guarantors’, Finance Corp’s, and our existing and future senior indebtedness and senior to the Guarantors’, Finance Corp’s, and our future subordinated indebtedness, if any. The Senior Notes 2026 and the 2026 Guarantees are effectively subordinated in right of payment to all of the Guarantors’, Finance Corp’s, and our existing and future secured debt, including debt under the Credit Agreement and guarantees thereof, to the extent of the value of the assets securing such debt, and are structurally subordinated to all indebtedness of any of our subsidiaries that do not guarantee the Senior Notes 2026.ActAct.1933,June 30, 2021 and December 31, 2020, respectively, with a face value of $1,000 per Preferred Unit.amended.Our revolving credit facility maturesfollows:Payment Date Distribution per Preferred Unit February 7, 2020 $ 24.375 May 8, 2020 24.375 August 10, 2020 24.375 November 6, 2020 24.375 2020 total distributions $ 97.500 February 5, 2021 $ 24.375 May 7, 2021 24.375 2021 total distributions $ 48.750 Januarythe Preferred Units balance are as follows (in thousands):Preferred Units Balance as of December 31, 2020 $ 477,309 Net income allocated to Preferred Units 24,375 Cash distributions on Preferred Units (24,375) Balance as of June 30, 2021 $ 477,309 we expect to maintain this facilityConversion Featuresterm.(7)Preferred Units is the quotient of (a) the sum of (i) $1,000, plus (ii) any unpaid distributions on the applicable Preferred Unit, divided by (b) $20.0115 for each Preferred Unit. On or after April 2, 2023, we have the option to redeem all or any portion of the Preferred Units then outstanding, subject to certain minimum redemption threshold amounts, for a redemption price set forth in the Partnership Agreement. On or after April 2, 2028, each Preferred Unitholder will have the right to require us to redeem all or a portion of their Preferred Units, subject to certain minimum redemption threshold amounts, for a redemption price set forth in the Partnership Agreement, which we may elect to pay up to 50% in common units, subject to certain additional limits. andUnits Outstanding Number of units outstanding as of December 31, 2020 96,962,323 Vesting of phantom units 44,162 Issuance of common units under the DRIP 60,735 Number of units outstanding as of June 30, 2021 97,067,220 InterestAs of September 30, 2017, we had 62,016,723 common units outstanding. USA Compression Holdings held 24,933,824 common units as of September 30, 2017 and controlled our General Partner, which held an approximate 1.2% general partner interest (the “General Partner’s Interest”) and the incentive distribution rights (“IDRs”). See the Unaudited Condensed Consolidated Statementby ET.and distributions paid to the General Partner, including the General Partner’s Interest and IDRs, as follows (in(dollars in millions, except distribution per unit):Payment Date Distribution per Limited Partner Unit Amount Paid to Common Unitholders Amount Paid to Phantom Unitholders Total Distribution February 7, 2020 $ 0.525 $ 50.7 $ 0.9 $ 51.6 May 8, 2020 0.525 50.8 0.9 51.7 August 10, 2020 0.525 50.9 0.8 51.7 November 6, 2020 0.525 50.9 0.7 51.6 2020 total distributions $ 2.10 $ 203.3 $ 3.3 $ 206.6 February 5, 2021 $ 0.525 $ 50.9 $ 1.1 $ 52.0 May 7, 2021 0.525 50.9 1.1 52.0 2021 total distributions $ 1.05 $ 101.8 $ 2.2 $ 104.0 October 19, 2017,July 15, 2021, we announced a cash distribution of $0.525 per unit on our common units. The distribution will be paid on November 10, 2017August 6, 2021 to common unitholders of record as of the close of business on October 30, 2017. USAJuly 26, 2021.10Compression Holdings, the owner of approximately 40.2% of our outstanding limited partner interests, has elected to reinvest 20% of this distribution with respect to its units pursuant to our distribution reinvestment plan (the “DRIP”).Distribution Reinvestment Planninesix months ended SeptemberJune 30, 2017 and 2016,2021, distributions of $17.4$0.9 million and $27.8 million, respectively, were reinvested under the DRIP resulting in the issuance of 1.1 million60,735 common units.2.5 millionDecember 31, 2020, we had 2 tranches of warrants outstanding, which includes warrants to purchase (i) 5,000,000 common units respectively. Such distributions are treated as non-cash transactions in the accompanying Unaudited Condensed Consolidated Statementswith a strike price of Cash Flows.Earnings Per Common and Subordinated UnitThe computations of earnings$17.03 per common unit and subordinated(ii) 10,000,000 common units with a strike price of $19.59 per common unit are(collectively, the “Warrants”). The Warrants may be exercised by the holders at any time before April 2, 2028.subordinated units, respectively,certain equity-based awards, outstanding during the applicable period. The subordinated units and our General Partner’s Interest (including its IDRs) meet the definition of participating securities as defined by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic 260 Earnings Per Share; therefore, we apply the two-class method in our computation of earningsBasic loss per unit. Basic earnings per common and subordinated unit areis determined by dividing net income (loss) allocated to the common and subordinated units, respectively,participating securities after deducting the amount allocated to our General Partner (including distributions to our General Partner on our General Partner’s Interest and its IDRs),Preferred Units, by the weighted average number of participating securities outstanding common and subordinated units, respectively, during the period. Net income (loss)Loss attributable to unitholders is allocated to the common units, subordinated units and our General Partner’s Interest (including its IDRs)participating securities based on their respective shares of the distributed and undistributed earnings for the period. To the extent cash distributions exceed net income (loss) attributable to unitholders for the period, the excess distributions are allocated to all participating unitssecurities outstanding based on their respective ownership percentages.earningsloss per unit areis computed using the treasury stock method, which considers the potential issuance of limited partner units associated with our LTIP.long-term incentive plan and Warrants. Unvested phantom units and unexercised Warrants are not included in basic earningsloss per unit, as they are not considered to be participating securities, but are included in the calculation of diluted earningsloss per unit. Incrementalunit to the extent they are dilutive, and in the case of Warrants to the extent they are considered “in the money.”representWarrants are 0t included in the only difference betweencomputation as they are not considered “in the money” for either period.basicoutstanding Warrants are 0t included in the computation as they are not considered “in the money” for either period.Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Contract operations revenue $ 154,733 $ 166,101 $ 310,202 $ 342,003 Retail parts and services revenue 1,829 2,550 3,873 5,647 Total revenues $ 156,562 $ 168,651 $ 314,075 $ 347,650 Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Services provided over time: Primary term $ 105,213 $ 115,020 $ 211,774 $ 235,382 Month-to-month 49,520 51,081 98,428 106,621 Total services provided over time 154,733 166,101 310,202 342,003 Services provided or goods transferred at a point in time 1,829 2,550 3,873 5,647 Total revenues $ 156,562 $ 168,651 $ 314,075 $ 347,650 diluted weighted average common units outstandingDecember 31, 2020.Balance sheet location June 30,
2021December 31,
2020Current (1) Deferred revenue $ 48,794 $ 47,202 Noncurrent Other liabilities 7,068 8,200 Total $ 55,862 $ 55,402 ninesix months ended SeptemberJune 30, 2017 and 2016.Incentive Distribution RightsOur General Partner holds all2021, respectively, related to our deferred revenue balance as of December 31, 2020.IDRs. The IDRs represent the rightcontract operations revenue of $476.4 million. We expect to receive an increasing percentage of our quarterly distributions of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved.The following table illustrates the percentage allocations of Available Cash from Operating Surplus between our unitholders and our General Partner based on the specified target distribution levels. The amounts set forth under “Marginal Percentage Interest in Distributions” are the percentage interests of our General Partner and our unitholders in any Available Cash from Operating Surplus we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution Per Unit.” The percentage interests shown for our unitholders and our General Partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests set forth below for our General Partner include its General Partner’s Interest, and assume our General Partner has contributed any additional capital necessary to maintain its General Partner’s Interest and our General Partner has not transferred our IDRs.2021 (remainder) 2022 2023 2024 Thereafter Total Remaining performance obligations $ 179,688 $ 185,821 $ 75,015 $ 28,267 $ 7,626 $ 476,417 11(8)(12) Transactions with Related PartiesJohn Chandler, who served as a director of our General Partner from October 2013 to October 15, 2017, has served as a director of one of our customers since October 2014. During the three months ended September 30, 2017 and 2016, we recognized $1.9 million in each period, and $5.7 million and $6.3 million during the nine months ended September 30, 2017 and 2016, respectively, in revenue from compression services provided to this customer in the Unaudited Condensed Consolidated Statements of Operations. We recognized $0.7 million and $1.1 million in accounts receivable from this customer on the Unaudited Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, respectively.Riverstone/Carlyle Global Energy and Power Fund IV, L.P. (“Riverstone”),ET, which owns a majorityas of the membership interests in USA Compression Holdings. As of SeptemberJune 30, 2017, USA Compression Holdings2021 owned and controlled our General Partner and owned 40.2%approximately 47% of our limited partner interests. Duringinterests and 100% of the three and nine months ended September 30, 2017, weGeneral Partner. Revenue recognized $0.2 million and $0.6 million, respectively, in revenue from compression services from such affiliated ET entities in the Unaudited Condensed Consolidated Statementson our unaudited condensed consolidated statements of Operations. During the threeoperations were as follows (in thousands):Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Related party revenues $ 2,944 $ 2,922 $ 5,894 $ 6,079 nine months ended September$120,000 within related party receivables on our unaudited condensed consolidated balance sheets as of June 30, 2016, we recognized $0.2 million in revenue from compression services2021 and December 31, 2020, respectively, from such affiliated entities inET entities. Additionally, the Unaudited Condensed Consolidated StatementsPartnership had a $44.9 million related party receivable from ET as of Operations. We may provide compression servicesJune 30, 2021 and December 31, 2020 related to additional entities affiliated with Riverstone in the future, and any significant transactions will be disclosed.(9)indemnification for sales tax contingencies. See Note 13 for more information related to such sales tax contingencies.ninesix months ended SeptemberJune 30, 20172021 or 2016. Equipment Purchase CommitmentsOur future capital commitments are comprised of binding commitments under purchase orders for new compression units and serialized parts ordered but not received. The commitments as of September 30, 2017 were $151.5 million, which are expected to be settled throughout 2017 and 2018. (d) Contingencyother entitiesothers in our industry have disputed these claims and assessments based on either existing tax statutes which provide for manufacturing exemptions onor published guidance by the transactions in question. taxing authorities.continue to work withare currently protesting certain assessments made by the state taxing authority in providing them the documentation available to us to support the position we have taken with regard to the disputed transactions.Oklahoma Tax Commission (“OTC”). We have recognized a liability of $0.1 million related to this issue; however, we believe it is reasonably possible that we could incur additional losses forrelated to this matterassessment depending on whether the taxing authorityadministrative law judge assigned by the OTC accepts our documentation as sufficient to support our position that the disputed transactions are not taxable and the impact ofwe ultimately lose any potential resulting litigation. Management estimatesand all subsequent legal challenges to such determination. We estimate that the range of losses we could incur related to this matter is from $0.1 million$0 to approximately $3.5 million.$23.1 million, including penalty and interest. The upper end of this range assumes that all compression services in Oklahoma are taxable, which we believe is remote.unableassessed and if the modifications meet the criteria for the optional expedients and exceptions, we intend to adopt Topic 848 and apply the manufacturing exemption to any of the transactionsamendments as applicable.question, which management believes is remote.12
Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 changes how entities account for convertible instruments and contracts in(10) Recent Accounting PronouncementsIn July 2015, the FASB agreed to defer by one year the mandatoryan entity’s own equity, as well as updates guidance on earnings per unit and other related disclosures. The amendments in this update are effective date of the new revenue recognition standard tofor interim and annual and interim periods inbeginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2017.2020. We expect to elect the modified retrospective transition method for adoption to annual and interim periods beginning January 1, 2018 on contracts which are not completed on the transition date. We have identified similar performance obligations under the new accounting standard as compared with deliverables and separate units of account previously identified. As a result, we expect the timing of our revenue recognition will not be materially impacted under this new accounting standard. Furthermore, we expect that the revenue amounts we historically reported will not materially change as we apply the modified retrospective provisions of this new standard. We do not expect significant changes to our current accounting policies and are in the process of developing pro-forma quantitative and qualitative disclosures to reflect the nature, timing and uncertainty of cash flows, changes in contract balances, and significant judgments related to our performance obligations.In February 2016, the FASB issued a new leasing standard that increases transparency and comparability among organizations by, among other things, requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring both lessees and lessors to disclose expanded qualitative and quantitative information about leasing arrangements. Income recognition for lessors will remain substantially similar to current GAAP but with some changes to conform and align guidance with the new lessee guidance and other areas within GAAP, such as the new revenue recognition standard. The new leasing standard requires modified retrospective adoption, with elective reliefs, and becomes effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. We expectplan to adopt this new standard on January 1, 2019.2022. We are inexpect the process of evaluating the financial impact of adopting this standard on our disclosures will not be material and there to be no impact to our consolidated financial statements.13“continue”“continue,” “if,” “outlook,” “will,” “could,” “should,” or similar words or the negativenegatives thereof.II,I, Item 1A (“Risk“Risk Factors”) and elsewhere in this report. of our 2020 Annual Report on Form 10-K, as well as our subsequent filings with the SEC. Important factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include, among other things:
•changes in the long-term supply of and demand for crude oil and natural gas, including as a result of uncertainty regarding the length of time it will take for the U.S. and the rest of the world to slow the spread of COVID-19 to the point where applicable authorities are comfortable continuing to ease, or declining to reinstate certain restrictions on various commercial and economic activities; such restrictions are designed to protect public health but also have the effect of reducing demand for crude oil and natural gas;·changes in general economic conditions and changes in economic conditions of the crude oil and natural gas industry specifically;
•the severity and duration of world health events, including the COVID-19 outbreak, related economic repercussions, actions taken by governmental authorities and other third parties in response to the pandemic, which has caused and may in the future cause disruptions in the oil and gas industry and negatively impact demand for oil and gas;·competitive conditions in our industry;
•changes in general economic conditions and changes in economic conditions of the crude oil and natural gas industries specifically, including the ability of members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC and other allied producing countries, “OPEC+”) to agree on and comply with supply limitations;·changes in the long-term supply of and demand for crude oil and natural gas;
•uncertainty regarding the timing, pace and extent of an economic recovery in the U.S. and elsewhere, which in turn will likely affect demand for crude oil and natural gas and therefore the demand for the compression and treating services we provide and the commercial opportunities available to us;·our ability to realize the anticipated benefits of acquisitions and to integrate the acquired assets with our existing fleet;
•the deterioration of the financial condition of our customers, which may result in the initiation of bankruptcy proceedings with respect to customers;·actions taken by our customers, competitors and third-party operators;
•renegotiation of material terms of customer contracts;·the deterioration of the financial condition of our customers;
•competitive conditions in our industry;·changes in the availability and cost of capital;
•our ability to realize the anticipated benefits of acquisitions;·operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;
•actions taken by our customers, competitors and third-party operators;·the effects of existing and future laws and governmental regulations; and
•changes in the availability and cost of capital;·the effects of future litigation.OverviewWe 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. The demand for our services is driven by the domestic production of natural gas and crude oil; as such, we have focused our activities in areas of attractive natural gas and crude oil production growth, which are generally found in these shale and unconventional resource plays. According to studies promulgated by the Energy Information Agency (“EIA”), the production and transportation volumes in these shale plays are expected to increase over the long term due to the comparably attractive economic returns versus returns achieved in many conventional basins. Furthermore, the changes in production volumes and pressures of shale plays over time require a wider range of compression services than in conventional basins. We believe we are well-positioned to meet these changing operating conditions due to the flexibility of our compression units. While our business focuses largely on compression services serving infrastructure installations, including centralized natural gas gathering systems and processing facilities, which utilize large horsepower compression units, typically in shale plays, we also provide compression services in more mature conventional basins, including gas lift applications on crude oil wells targeted by horizontal drilling techniques. Gas lift, a process by which natural gas is injected into the production tubing of an existing producing well, thus14reducing the hydrostatic pressure and allowing the oil to flow at a higher rate, and other artificial lift technologies are critical to the enhancement of oil production from horizontal wells operating in tight shale plays.presented.presented and excludes certain gas treating assets for which horsepower is not a relevant metric.Three Months Ended June 30, Percent
ChangeSix Months Ended June 30, Percent
Change2021 2020 2021 2020 Fleet horsepower (at period end) (1) 3,686,584 3,718,092 (0.8) % 3,686,584 3,718,092 (0.8) % Total available horsepower (at period end) (2) 3,690,724 3,736,392 (1.2) % 3,690,724 3,736,392 (1.2) % Revenue generating horsepower (at period end) (3) 2,912,628 3,125,909 (6.8) % 2,912,628 3,125,909 (6.8) % Average revenue generating horsepower (4) 2,944,909 3,191,348 (7.7) % 2,969,664 3,256,036 (8.8) % Average revenue per revenue generating horsepower per month (5) $ 16.55 $ 16.79 (1.4) % $ 16.58 $ 16.84 (1.5) % Revenue generating compression units (at period end) 3,934 4,206 (6.5) % 3,934 4,206 (6.5) % Average horsepower per revenue generating compression unit (6) 748 743 0.7 % 753 737 2.2 % Horsepower utilization (7): At period end 81.9 % 86.2 % (5.0) % 81.9 % 86.2 % (5.0) % Average for the period (8) 82.4 % 88.0 % (6.4) % 82.7 % 90.2 % (8.3) %
(1)Fleet horsepower is horsepower for compression units that have been delivered to us (and excludes units on order).
(2)Total available horsepower is revenue generating horsepower under contract for which we are billing a customer, horsepower in our fleet that is under contract but is not yet generating revenue, horsepower not yet in our fleet that is under contract but not yet generating revenue and that is subject to a purchase order, and idle horsepower. Total available horsepower excludes new horsepower on order for which we do not have an executed compression services contract.(1)Fleet horsepower is horsepower for compression units that have been delivered to us (and excludes units on order). As of September 30, 2017, we had 194,145 horsepower on order, of which 44,870 horsepower is ordered for delivery during the remainder of 2017.
(3)Revenue generating horsepower is horsepower under contract for which we are billing a customer.(2)Total available horsepower is revenue generating horsepower under contract for which we are billing a customer, horsepower in our fleet that is under contract but is not yet generating revenue, horsepower not yet in our fleet that is under contract but not yet generating revenue and that is subject to a purchase order, and idle horsepower. Total available horsepower excludes new horsepower on order for which we do not have a compression services contract.
(4)Calculated as the average of the month-end revenue generating horsepower for each of the months in the period.(3)Revenue generating horsepower is horsepower under contract for which we are billing a customer.
(5)Calculated as the average of the result of dividing the contractual monthly rate, excluding standby or other temporary rates, for all units at the end of each month in the period by the sum of the revenue generating horsepower at the end of each month in the period.(4)Calculated as the average of the month-end revenue generating horsepower for each of the months in the period.
(6)Calculated as the average of the month-end revenue generating horsepower per revenue generating compression unit for each of the months in the period.(5)Calculated as the average of the result of dividing the contractual monthly rate for all units at the end of each month in the period by the sum of the revenue generating horsepower at the end of each month in the period.
(7)Horsepower utilization is calculated as (i) the sum of (a) revenue generating horsepower, (b) horsepower in our fleet that is under contract but is not yet generating revenue, and (c) horsepower not yet in our fleet that is under contract but not yet generating revenue and that is subject to a purchase order, divided by (ii) total available horsepower less idle horsepower that is under repair. Horsepower utilization based on revenue generating horsepower and fleet horsepower as of June 30, 2021 and 2020 was 79.0% and 84.1%, respectively.(6)Calculated as the average of the month-end revenue generating horsepower per revenue generating compression unit for each of the months in the period.(7)Horsepower utilization is calculated as (i) the sum of (a) revenue generating horsepower, (b) horsepower in our fleet that is under contract but is not yet generating revenue, and (c) horsepower not yet in our fleet that is under contract, not yet generating revenue and is subject to a purchase order, divided by (ii) total available horsepower less idle horsepower that is under repair. Horsepower utilization based on revenue generating horsepower and fleet horsepower as of September 30, 2017 and 2016 was 88.6% and 79.5%, respectively.(8)Average horsepower utilization based on revenue generating horsepower and fleet horsepower for the three months ended September 30, 2017 and 2016 was 88.4% and 78.8%, respectively. Average horsepower utilization based on revenue generating horsepower and fleet horsepower for the nine months ended September 30, 2017 and 2016 was 84.5% and 80.6%, respectively. The 2.4% increase in fleet horsepower as of September 30, 2017 over the fleet horsepower as of September 30, 2016 was attributable to the compression units added to our fleet to meet expected incremental demand by new and current customers for our compression services. The 14.2% and 6.6% increases in average revenue generating horsepower during the three and nine months ended September 30, 2017 over September 30, 2016, respectively, were primarily due to organic growth in our large horsepower fleet. The 1.4% and 3.3% decreases in average revenue per revenue generating horsepower per month for the three and nine months ended September 30, 2017 over September 30, 2016, respectively, were primarily due to (1) reduced pricing in the small horsepower portion of our fleet in the current period and (2) an increase in the average horsepower per revenue generating compression unit in the current period, resulting from an increase in the number of our large horsepower compression units which generally generate lower average revenue per revenue generating horsepower than do small horsepower compression units. 15Average horsepower utilization increased to 94.1% during the three months ended September 30, 2017 compared to 87.3% during the three months ended September 30, 2016. The 6.8% increase in average horsepower utilization is primarily attributable to the following changes as a percentage of total available horsepower: (1) a 7.1% increase in horsepower that is under contract but not yet generating revenue and (2) a 3.9% decrease in our average fleet of compression units returned to us not yet under contract, offset by (3) a 5.6% decrease in idle horsepower under repair, which is excluded from the average horsepower utilization calculation until such repair is complete. We believe the increase in average horsepower utilization is the result of increased demand for our services commensurate with increased operating activity in the oil and gas industry. The above noted fluctuation in utilization components describes the change in both period end and average horsepower utilization between the nine months ended September 30, 2017 and 2016.increased to 88.4% duringfor the three months ended SeptemberJune 30, 20172021 and 2020 was 79.6% and 86.0%, respectively. Average horsepower utilization based on revenue generating horsepower and fleet horsepower for the six months ended June 30, 2021 and 2020 was 80.0% and 87.9%, respectively.78.8%June 30, 2020 was primarily due to (i) compression units impaired since the previous period, (ii) the exercise of a lease purchase option on certain compression units by a customer during the current period, partially offset by (iii) compression units added to our fleet primarily for specific customer demand for our compression services. The 1.2% decrease in total available horsepower as of June 30, 2021 compared to June 30, 2020 was primarily due to compression units impaired since the previous period and the exercise of a lease purchase option on certain compression units by a customer during the current period. The 6.8% decrease in revenue generating horsepower as of June 30, 2021 compared to June 30, 2020 was primarily due to returns of compression units from ourSeptemberJune 30, 2016.2021 compared to the three and six months ended June 30, 2020, respectively, were primarily due to reduced pricing in our small horsepower fleet. The 9.6% increase is0.7% and 2.2% increases in average horsepower per revenue generating compression unit during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020, respectively, were driven primarily attributableby the composition of compression unit returns.total active horsepower as a result of the following changes as a percentage of total fleet horsepower: (1) a 5.6% decrease in idle horsepower under repair, (2) a 1.9% decrease in our average idle fleet composed of new compression units and (3) a 2.0% decrease in our average idle fleethorsepower from compression units returned to us. The overall decreaseincreases in average idle horsepower isare primarily due to continued capital discipline and optimization of existing compressions service requirements by our customers during the result of increased demand for our services commensurate with increased operatingthree and six months ended June 30, 2021, as well as decreased U.S. crude oil and natural gas activity, as evidenced by a lower average rig count in the oilU.S. during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.gas industry. These factors also describefleet horsepower decreased to 79.6% and 80.0% during the variancesthree and six months ended June 30, 2021, respectively, compared to 86.0% and 87.9% during the three and six months ended June 30, 2020, respectively. The 7.4% and 9.0% decreases in both period end and average horsepower utilization based on revenue generating horsepower and fleet horsepower betweenwere primarily due to an increase in our average idle horsepower from compression units returned to us. The increases in average idle horsepower are primarily due to continued capital discipline and optimization of existing compressions service requirements by our customers during the ninethree and six months ended SeptemberJune 30, 20172021, as well as decreased U.S. crude oil and 2016.SeptemberJune 30, 20172021 compared to the three months ended SeptemberJune 30, 2016Three Months Ended June 30, Percent
Change2021 2020 Revenues: Contract operations $ 151,800 $ 162,993 (6.9) % Parts and service 1,818 2,736 (33.6) % Related party 2,944 2,922 0.8 % Total revenues 156,562 168,651 (7.2) % Costs and expenses: Cost of operations, exclusive of depreciation and amortization 45,604 49,968 (8.7) % Depreciation and amortization 59,227 60,338 (1.8) % Selling, general and administrative 15,288 20,315 (24.7) % Gain on disposition of assets (1,105) (787) 40.4 % Impairment of compression equipment 2,403 3,923 (38.7) % Total costs and expenses 121,417 133,757 (9.2) % Operating income 35,145 34,894 0.7 % Other income (expense): Interest expense, net (32,350) (31,815) 1.7 % Other 45 24 * Total other expense (32,305) (31,791) 1.6 % Net income before income tax expense 2,840 3,103 (8.5) % Income tax expense 152 419 (63.7) % Net income $ 2,688 $ 2,684 0.1 % revenue. During the three months ended September 30, 2017, we experienced a year-to-year increaserevenue. The $11.2 million decrease in demand for our compression services driven by increased operating activity in natural gas and crude oil16production, resulting in an $8.1 million increase in our contract operations revenue. Average revenue generating horsepower increased 14.2% during the three months ended September 30, 2017 over September 30, 2016 while average revenue per revenue generating horsepower per month decreased from $15.35 for the three months ended SeptemberJune 30, 20162021 compared to $15.13 for the three months ended SeptemberJune 30, 2017,2020 was primarily due to a decrease in demand for compression services driven by continued capital discipline and optimization of 1.4%, attributable,existing compressions service requirements by our customers since the previous period. These factors resulted in part, to reduced pricinga 7.7% decrease in the current period in the smallaverage revenue generating horsepower portion of our fleet. Theand a 1.4% decrease in average revenue per revenue generating horsepower per month was also attributablewhich decreased to $16.55 for the 3.1% increase inthree months ended June 30, 2021 compared to $16.79 for the average horsepower per revenue generating compression unit in the current period, as large horsepowerthree months ended June 30, 2020. These decreases were partially offset by compression units typically generate lowermoving from standby to full billing rate since the previous period. monthly revenue per revenue generating horsepower than do small horsepower compression units. Average revenue per revenue generating horsepower per month associated with our compression services provided on a month-to-month basis did not significantly differ from the average revenue per revenue generating horsepower per month associated with our compression services provided under contracts in thetheir primary term. Our contract operations revenue was not materially impacted by any renegotiations of our contracts with our customersterm during the period.$3.5$0.9 million increasedecrease in parts and service revenue was primarily attributablefor the three months ended June 30, 2021 compared to (1) a $1.7 million increase in revenue associated with installation services, (2) a $1.5 million increase in maintenance work on units at our customers' locations that are outside the scope of our core maintenance activities and (3) a $0.3 million increase in freight and crane charges that are directly reimbursable by our customers. We offer these services as a courtesy to our customers and the demand fluctuates from period to period based on the varying needs of our customers.Cost of operations, exclusive of depreciation and amortization. The $4.6 million increase in cost of operations three months ended June 30, 2020 was primarily attributable to a $2.1 million increasereduction in parts and service expenses, which included (1) a $0.8 million increase in costs associated with our installation services, (2) a $0.8 million increase in costs associated with our maintenance work performed on units at our customers’ locations that are outside the scope of our core maintenance activities and (3)offered as a $0.4 million increase in costs associated withcourtesy to our customers, and freight and crane charges that are directly reimbursable by customers. Demand for retail parts and services fluctuates from period to period based on the varying needs of our customers. Additionally duringwe experienced a $1.9over period.increase in direct expenses, such as parts maintenance and fluids expenses, primarily driven by an increase in fluids prices and an increase in maintenance activity during the current period due to an increase in revenue generating horsepower.Gross operating margin. The $7.1 million increase in gross operating margin was primarily due to an increase in revenues, partially offset by an increasedecrease in cost of operations, exclusive of depreciation and amortization, includingfor the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily due to (i) a $4.5 million decrease in non-income taxes, primarily due to sales tax refunds received in the current period related to prior periods, (ii) a $1.7 million decrease in direct labor expenses, which were primarily driven by the decrease in average revenue generating horsepower and reduced headcount in the current period, (iii) a $0.9 million decrease in retail parts and services expenses, which had a corresponding decrease in parts and service revenue, partially offset by (iv) a $1.4 million increase in partsdirect expenses, primarily related to higher fluids supplier pricing, and service gross operating margin(v) a $0.9 million increase in outside maintenance costs due to greater use of third-party labor during the current period.SeptemberJune 30, 2017.$0.7$5.0 million decrease in selling, general and administrative expense for the three months ended SeptemberJune 30, 2017 was primarily attributable to a $0.8 million decrease in unit-based compensation expense. Unit-based compensation expense decreased primarily due to (1) a fewer number of outstanding phantom units as of September 30, 20172021 compared to September 30, 2016 and (2) a fewer number of outstanding phantom units on which distribution equivalent rights were paid as of each record date during the comparable periods.Depreciation and amortization expense. The $1.6 million increase in depreciation and amortization expense was primarily related to an increase in gross property and equipment balances during the three months ended SeptemberJune 30, 20172020 was primarily due to a $2.2 million decrease in the provision for expected credit losses and a $1.8 million decrease in severance charges primarily related to the departure of one of our executives during the prior period.gross balancesthe prior period, where we made provision for the potential negative impact to our customers of low crude oil prices driven by decreased demand due to the COVID-19 pandemic and the global oversupply of crude oil during that time.SeptemberJune 30, 2016. There was no variance in amortization expense between the same periods, as intangible assets are amortized on a straight-line basis and there has been no change in gross identifiable intangible assets between the periods.Loss (gain) on disposition of assets. During2021 compared to the three months ended SeptemberJune 30, 2016,2020 was primarily due to the net gainexercise of a lease purchase option on sale of assets is primarily attributable to cash insurance recoveries of $0.1 million received on previously impairedcertain compression equipment andunits by a $0.1 million gain on disposal of non-unit assets.$1.1$2.4 million and $3.4$3.9 million impairment charge duringimpairments of compression equipment for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, resulted fromwere primarily the result of our evaluationevaluations of the future deployment of our current idle fleet under current market conditions. 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.sell or re-utilize key components of compression10 and 11 compressor units, withrespectively, for a total of 2,728approximately 4,000 and 10,4075,100 horsepower, respectively, whichthat were previously used to provide compression services in our business.The cause of the impairment during the three months ended September 30, 2017 was due to the type of units, which were not marketable, and were subject to excessive maintenance costs. The cause of the impairment during the three months ended September 30, 2016 was due to certain performance characteristics of the impaired equipment, such as excessive maintenance costs and the inability of the equipment to meet17current emission standards without retrofitting. We determined that this equipment was unlikely to be accepted by customers under then-current market conditions. $1.3$0.5 million increase in interest expense, net was primarily attributable to an increase in our weighted average interest rate under our revolving credit facility. Our revolving credit facility bore an interest rate of 3.25% and 2.57% at September 30, 2017 and 2016, respectively, and a weighted average interest rate of 3.25% and 2.53% for the three months ended SeptemberJune 30, 2017 and 2016, respectively. The increase in our weighted average interest rate2021 compared to the three months ended June 30, 2020 was partially offset by a $1.2 million decrease in average outstandingprimarily attributable to increased borrowings under our revolving credit facility. the Credit Agreement.our revolving credit facility the Credit Agreement were $742.5$494.4 million for thethree months ended September 30, 2017 compared to $743.7and $455.6 million for the three months ended SeptemberJune 30, 2016. Nine2021 and 2020, respectively, and the weighted average interest rate applicable to borrowings under the Credit Agreement was 3.05% and 3.09% for the three months ended SeptemberJune 30, 20172021 and 2020, respectively.ninethree months ended SeptemberJune 30, 2016Six Months Ended June 30, Percent
Change 2021 2020 Revenues: Contract operations $ 304,325 $ 335,787 (9.4) % Parts and service 3,856 5,784 (33.3) % Related party 5,894 6,079 (3.0) % Total revenues 314,075 347,650 (9.7) % Costs and expenses: Cost of operations, exclusive of depreciation and amortization 94,232 109,133 (13.7) % Depreciation and amortization 120,257 119,100 1.0 % Selling, general and administrative 29,088 32,700 (11.0) % Gain on disposition of assets (2,360) (1,801) 31.0 % Impairment of compression equipment 4,953 3,923 26.3 % Impairment of goodwill — 619,411 * Total costs and expenses 246,170 882,466 * Operating income (loss) 67,905 (534,816) * Other income (expense): Interest expense, net (64,638) (64,293) 0.5 % Other 70 47 * Total other expense (64,568) (64,246) 0.5 % Net income (loss) before income tax expense 3,337 (599,062) * Income tax expense 278 715 (61.1) % Net income (loss) $ 3,059 $ (599,777) * . During for the ninesix months ended SeptemberJune 30, 2017, we experienced2021 compared to the six months ended June 30, 2020 was primarily due to a year-to-year increasedecrease in demand for our compression services resultingdriven by continued capital discipline and optimization of existing compressions service requirements by our customers since the previous period, as well as decreased U.S. crude oil and natural gas activity, as evidenced by the lower average rig count in a $4.8 million increasethe U.S. during the six months ended June 30, 2021 compared to the six months ended June 30, 2020. These factors resulted in our contract operations revenue. Averagean 8.8% decrease in average revenue generating horsepower increased 6.6% during the nine months ended September 30, 2017 over September 30, 2016 whileand average revenue per revenue generating horsepower per month decreased from $15.53 for the nine months ended September 30, 2016 to $15.02 for the nine months ended September 30, 2017, a decrease of 3.3%, attributable, in part, to reduced pricing in the current period in the small horsepower portion of our fleet. The 1.5% decrease in average revenue per revenue generating horsepower per month which decreased to $16.58 for the six months ended June 30, 2021 compared to $16.84 for the six months ended June 30, 2020.also attributable tonot materially impacted by any renegotiations of our contracts during the 3.4% increase in theperiod with our customers. Additionally, average horsepower per revenue generating compression unit in the current period, as large horsepower compression units typically generate lower average monthly revenue per revenue generating horsepower than do small horsepower compression units. Average revenue per revenue generating horsepower per month associated with our compression services provided on a month-to-month basis did not significantly differ from the average revenue per revenue generating horsepower per month associated with our compression services provided under contracts in thetheir primary term. Our contract operations revenue was not materially impacted by any renegotiations of our contractsterm during the period with our customers.period.18$9.0$1.9 million increasedecrease in parts and service revenue was primarily attributablefor the six months ended June 30, 2021 compared to (1) a $5.9 million increase in revenue associated with installation services, (2) a $1.8 million increase in maintenance work on units at our customers' locations that are outside the scope of our core maintenance activities and (3) a $1.3 million increase in freight and crane charges that are directly reimbursable by our customers. We offer these services as a courtesy to our customers and the demand fluctuates from period to period based on the varying needs of our customers.Cost of operations, exclusive of depreciation and amortization. The $9.2 million increase in cost of operations six months ended June 30, 2020 was primarily attributable to a $5.3 million increasereduction in parts and service expenses, which included (1) a $2.7 million increase in costs associated with our installation services, (2) a $1.4 million increase in costs associated with our maintenance work performed on units at our customers’ locations that are outside the scope of our core maintenance activities and (3)offered as a $1.2 million increase in costs associated withcourtesy to our customers, and freight and crane charges that are directly reimbursable by customers. Demand for retail parts and services fluctuates from period to period based on the varying needs of our customers. Additionally duringwe experienced a $3.7over period.increase in direct expenses, such as parts maintenance and fluids expenses, primarily driven by an increase in fluids prices and an increase in maintenance activity during the current period due to an increase in revenue generating horsepower.Gross operating margin. The $4.7 million increase in gross operating margin was primarily due to an increase in revenues, partially offset by an increasedecrease in cost of operations, exclusive of depreciation and amortization, includingfor the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily due to (i) a $3.7$5.9 million increasedecrease in direct labor expenses, (ii) a $5.3 million decrease in non-income taxes, primarily due to sales tax refunds received in the current period related to prior periods, (iii) a $2.3 million decrease in direct expenses, such as fluids and parts, (iv) a $1.6 million decrease in retail parts and services expenses, which have a corresponding decrease in parts and service gross operating marginrevenue, and (v) a $0.9 million decrease in training and other indirect expenses. The decreases in direct labor, fluids and parts, training and other indirect expenses are primarily driven by the decrease in average revenue generating horsepower and reduced headcount during the nine months ended September 30, 2017.Selling, general and administrative expense. current period. The $0.1decreases were partially offset by a $1.1 million increase in selling, general and administrative expense was primarily attributableoutside maintenance expenses due to (1) a $1.0 million increase in bad debt expense, due primarily to a $1.2 million recoverygreater use of bad debt expensethird-party labor during the nine months ended September 30, 2016, offset by (2) a $0.7 million decrease in payroll and benefits expenses. $4.8$1.2 million increase in depreciation and amortization expense for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily related to ancompression unit overhauls and new compression units placed in service throughout 2020 to meet then existing demand by customers, partially offset by lower vehicle depreciation related to a decrease in our vehicle fleet in the current period.gross propertyunit-based compensation expense.equipment balancesthe global oversupply of crude oil during that time. The decrease in employee-related expenses is primarily due to reduced headcount during the nine months ended Septembercurrent period and cost saving measures. The increase in unit-based compensation expense is primarily due to the overall increase in our unit price as of June 30, 20172021 as compared to gross balances duringJune 30, 2020, and the nine months ended September 30, 2016. There was no variance in amortization expense between the same periods, as intangible assets are amortized on a straight-line basis and there has been norelated mark-to-market change in gross identifiable intangible assets between the periods.Loss (gain)to our unit-based compensation liability.. During for the ninesix months ended SeptemberJune 30, 2017, we recognized a $0.2 million gain on2021 compared to the salesix months ended June 30, 2020 was primarily due to the exercise of a lease purchase option on certain compression unit. Duringunits by a customer during the nine months ended September 30, 2016, we abandoned certain assets and incurred a $1.0 million loss.$4.8$5.0 million and $4.1$3.9 million impairment charge duringimpairments of compression equipment for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, resulted fromwere primarily the result of our evaluationevaluations of the future deployment of our current idle fleet under the current market conditions. 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.evaluation, evaluations during the six months ended June 30, 2021 and 2020, we determined to retire sell or re-utilize key components of compression22 and 11 compressor units, withrespectively, for a total of 10,734approximately 9,600 and 12,0995,100 horsepower, respectively, whichthat were previously used to provide compression services in our business.The causeduringtest as of March 31, 2020 and determined fair value using a weighted combination of the nineincome approach and the market approach and, as a result, recognized a goodwill impairment of $619.4 million for the three months ended September 30, 2017 was dueMarch 31, 2020. We had no remaining goodwill on our unaudited condensed consolidated balance sheets subsequent to the type of units, which were not marketable, and were subject to excessive maintenance costs. The cause ofgoodwill impairment for the impairment during the ninethree months ended September 30, 2016 was due to certain performance characteristics of the impaired equipment, such as excessive maintenance costs and the inability of the equipment to meet current emission standards without retrofitting. We determined that this equipment was unlikely to be accepted by customers under then-current market conditions. $2.8$0.3 million increase in interest expense, net for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily attributabledue to an increase in ourincreased borrowings under the Credit Agreement, partially offset by lower weighted average interest rates under the Credit Agreement.our revolving credit facility. Our revolving credit facility bore an interest rate of 3.25%the Credit Agreement was 3.06% and 2.57% at September 30, 2017 and 2016, respectively, and a weighted average interest rate of 3.09% and 2.49%3.60% for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.increase in our weighted average interest rate was partially offset by an $18.4$0.4 million decrease in average outstanding borrowings under our revolving credit facility. Average outstanding borrowings under our revolving credit facility were $724.5 millionincome tax expense for thenine six months ended SeptemberJune 30, 20172021 compared to $742.9 million for the ninesix months ended SeptemberJune 30, 2016. During December 2016, we completed a public equity offering and utilized2020 was primarily related to deferred taxes associated with the net proceeds of $80.9 million to reduce indebtedness outstanding under our revolving credit facility.Texas Margin Tax.19Other Financial Data: (1) Three Months Ended June 30, Percent
ChangeSix Months Ended June 30, Percent
Change2021 2020 2021 2020 Gross margin $ 51,731 $ 58,345 (11.3) % $ 99,586 $ 119,417 (16.6) % Adjusted gross margin $ 110,958 $ 118,683 (6.5) % $ 219,843 $ 238,517 (7.8) % Adjusted gross margin percentage (2) 70.9 % 70.4 % 0.7 % 70.0 % 68.6 % 2.0 % Adjusted EBITDA $ 99,988 $ 105,481 (5.2) % $ 199,541 $ 211,665 (5.7) % Adjusted EBITDA percentage (2) 63.9 % 62.5 % 2.2 % 63.5 % 60.9 % 4.3 % DCF $ 52,536 $ 58,686 (10.5) % $ 105,116 $ 113,388 (7.3) % DCF Coverage Ratio 1.03 x 1.15 x (10.4) % 1.03 x 1.12 x (8.0) % Cash Coverage Ratio 1.04 x 1.17 x (11.1) % 1.04 x 1.13 x (8.0) % (1)Gross operating(1)Adjusted gross margin, Adjusted EBITDA, Distributable Cash Flow (“DCF”), DCF Coverage Ratio and Cash Coverage Ratio are all non-GAAP financial measures. Definitions of each measure, as well as reconciliations of each measure to its most directly comparable financial measure(s) calculated and presented in accordance with GAAP, can be found below under the caption “—Non-GAAP Financial Measures.”(2)Gross operating margin percentage and Adjusted EBITDA percentage are calculated as a percentage of revenue.(3)Definitions of DCF and DCF Coverage Ratio can be found below under the caption “—Non-GAAP Financial Measures”.Adjusted EBITDA. Adjusted EBITDA, duringDistributable Cash Flow (“DCF”), DCF Coverage Ratio and Cash Coverage Ratio are all non-GAAP financial measures. Definitions of each measure, as well as reconciliations of each measure to its most directly comparable financial measure(s) calculated and presented in accordance with GAAP, can be found below under the caption “Non-GAAP Financial Measures.”SeptemberJune 30, 2017 increased $6.2 million, or 17.9%, over2021 compared to the three months ended SeptemberJune 30, 2016,2020 was due to (i) a $12.1 million decrease in revenues, offset by (ii) a $4.4 million decrease in cost of operations, exclusive of depreciation and amortization, and (iii) a $1.1 million decrease in depreciation and amortization.$7.1$7.7 million increasedecrease in Adjusted gross operating margin, andpartially offset by a $0.9$2.9 million increasedecrease in selling, general and administrative expenses, excluding unit-based compensation expense and other non-recurring charges, duringseverance charges.threesix months ended SeptemberJune 30, 2017.Adjusted EBITDA during2021 compared to the ninesix months ended SeptemberJune 30, 2017 increased $3.4 million, or 3.1%, over the nine months ended September 30, 2016,2020 was primarily due to a $4.7$18.7 million increasedecrease in Adjusted gross operating margin, andpartially offset by a $1.4$7.3 million increasedecrease in selling, general and administrative expenses, excluding unit-based compensation expense and other non-recurring charges, during the nine months ended September 30, 2017.$3.6$6.2 million or 13.2%, increasedecrease in DCF duringfor the three months ended SeptemberJune 30, 20172021 compared to the three months ended June 30, 2020 was primarily attributabledue to (1)(i) a $7.1$7.7 million increasedecrease in Adjusted gross operating margin and offset by (2)(ii) a $1.1$0.6 million increase in maintenance capital expenditures, (3)partially offset by (iii) a $0.9$2.9 million increasedecrease in selling, general and administrative expenses, excluding unit-based compensation expense and other non-recurring charges and (4) a $1.3severance charges. increase in cash interest expense, net, during the comparable period. Maintenance capital expenditures were higher during the three months ended September 30, 2017 than the three months ended September 30, 2016 due to increased maintenance activity during the current period.The $4.5 million, or 5.0%, decrease in DCF duringfor the ninesix months ended SeptemberJune 30, 20172021 compared to the six months ended June 30, 2020 was primarily attributabledue to (1)(i) a $5.0$18.7 million increasedecrease in maintenance capital expenditures, (2)Adjusted gross margin, partially offset by (ii) a $1.4$7.3 million increasedecrease in selling, general and administrative expenses, excluding unit-based compensation expense and other non-recurringseverance charges, (3)and (iii) a $2.7$3.7 million increasedecrease in cash interest expense, net, and offset by (4) a $4.7 million increase in gross operating margin, during the comparable period. Maintenancemaintenance capital expenditures were higher during the nine months ended September 30, 2017 than the nine months ended September 30, 2016 due to increased maintenance activity during the current period.disproportionate decreasedecreases in DCF Coverage Ratio and Cash Coverage Ratio (asfor the three and six months ended June 30, 2021 compared to DCF Coverage Ratio) for the ninethree and six months ended SeptemberJune 30, 2017 compared to September 30, 2016 is2020 was primarily due to period-to-period decreasesthe decrease in DRIP participation by USA Compression Holdings.DCF.20our revolving credit facilitythe Credit Agreement and issuances of debt and equity securities, including common units under the DRIP.believetypically utilize cash generated by operating activities and, where necessary, borrowings under our revolving credit facility will be sufficientthe Credit Agreement to service our debt, fund working capital, fund our estimated 2017 expansion capital expenditures, fund our maintenance capital expenditures and pay distributions throughto our unitholders. In response to current market conditions, we have reduced our planned capital spending significantly for 2021 compared to previous years. However, if market conditions worsen, this could further reduce our cash generated by operating activities and increase our leverage. Covenants in the remainderCredit Agreement and other debt instruments require that we maintain certain leverage ratios, and if we predict that we may violate those covenants in the future we could: (i) delay discretionary capital spending and reduce operating expenses; (ii) request an amendment to the Credit Agreement; (iii) reduce or suspend distributions to our unitholders; or (iv) issue equity securities, including under the DRIP.2017. certain covenants and the date on which certain covenants in the Credit Agreement must be met beginning on the Amendment Effective Date until the last day of the fiscal quarter ending December 31, 2021 (the “Covenant Relief Period”). Please see “Revolving Credit Facility” below for additional information regarding the amendment.our revolving credit facilitythe Credit Agreement and issuances of debt and equity securities, including under the DRIP.Cash FlowsThe following table summarizes our sources and uses of cash for the nine months ended September 30, 2017 and 2016 (in thousands):Net cash provided by operating activities. The $9.3 million decrease in net cash provided by operating activities for the nine months ended September 30, 2017 was due primarily to purchases of inventory and changes in other working capital. Net cash used in investing activities. Net cash used in investing activities for the nine months ended September 30, 2017 and 2016 related primarily to purchases of new compression units, reconfiguration costs and related equipment.Net cash used in financing activities. During the nine months ended September 30, 2017, we borrowed $66.6 million, on a net basis, primarily to support our purchases of new compression units, reconfiguration costs and related equipment, as described above. Additionally, we paid cash related to net settlement of unit-based awards in the amount of $2.8 million and made cash distributions to our unitholders of $83.2 million.During the nine months ended September 30, 2016, we borrowed $14.8 million, on a net basis, primarily to support our purchases of new compression units, reconfiguration costs and related equipment, as described above. Additionally, we paid various loan fees and incurred costs in respect of our revolving credit facility in the amount of $2.0 million and made cash distributions to our unitholders of $61.4 million.·maintenance capital expenditures, which are capital expenditures made to maintain the operating capacity of our assets and extend their useful lives, to replace partially or fully depreciated assets, or other capital expenditures that are incurred in maintaining our existing business and related operating income; and21
•expansion capital expenditures, which are capital expenditures made to expand the operating capacity or operating income capacity of assets, including by acquisition of compression units or through modification of existing compression units to increase their capacity, or to replace certain partially or fully depreciated assets that were not currently generating operating income.·expansion capital expenditures, which are capital expenditures made to expand the operating capacity or operating income capacity of assets, including by acquisition of compression units or through modification of existing compression units to increase their capacity, or to replace certain partially or fully depreciated assets that were not currently generating operating income.long-term,long term, we expect that our maintenance capital expenditure requirements will continue to increase as the overall size and age of our fleet increases. Our aggregate maintenance capital expenditures for the ninesix months ended SeptemberJune 30, 20172021 and 20162020 were $10.4$9.5 million and $5.4$13.2 million, respectively. We currently plan to spend approximately $13.5$22.0 million in maintenance capital expenditures during 2017,for the year 2021, including parts consumed from inventory.$105$30.0 million and $110$40.0 million in expansion capital expenditures during 2017. for the year 2021. Our expansion capital expenditures for the ninesix months ended SeptemberJune 30, 20172021 and 20162020 were $66.3$12.4 million and $31.6$69.3 million, respectively. As2017, we had binding commitments2021 and 2020 (in thousands):Six Months Ended June 30, 2021 2020 Net cash provided by operating activities $ 139,071 $ 147,432 Net cash used in investing activities (10,269) (63,796) Net cash used in financing activities (128,802) (83,644) purchase $151.5the six months ended June 30, 2020 was attributable to a $14.0 million decrease in net income, as adjusted for non-cash items, and changes in working capital.additionalnew compression units, related equipment and serialized parts,reconfiguration costs and a $1.3 million increase in proceeds received from disposition of which we expect $36.4property and equipment.be delivered in the remaindersix months ended June 30, 2020 was primarily attributable to net payments of 2017.SeptemberJune 30, 20172021, we were in compliance with all of our covenants under our revolving credit facility.the Credit Agreement. As of SeptemberJune 30, 2017,2021, we had outstanding borrowings under our revolving credit facilitythe Credit Agreement of $752.0$473.4 million, $288.6 million$1.1 billion of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $104.9$217.4 million. Onefinancial covenants under our revolving credit facility permits aCredit Agreement of $453.1 million.leveragefunded debt to EBITDA ratio of (A)to (i) 5.50 to 1.00 for the fiscal quarter ending June 30, 2021 and (ii) 5.25 to 1.0 as of1.00 for the end of the respective fiscal quarters ending September 30, 20172021 and December 31, 2017 and (B)2021 (reverting to 5.00 to 1.0 thereafter,1.00 for each fiscal quarter thereafter). In addition, the amendment provides that the 0.5 increase in each case subjectmaximum funded debt to a provision for increases in such thresholds by 0.5 in connection withEBITDA ratio applicable to certain future acquisitions for(for the six consecutive month period following the period in which any such acquisition occurs. We expectoccurs) is only available beginning with the fiscal quarter ending September 30, 2021, and in any case shall not increase the maximum funded debt to remainEBITDA ratio above 5.50 to 1.00.compliance withorder to make restricted payments from capital contributions and from available cash are each increased from $100 million to $250 million and the availability requirement in order to make prepayments of our covenants throughoutsenior notes, any subordinated indebtedness or any other indebtedness for borrowed money is increased from $100 million to $250 million. In addition, during the next twelve months. If our current cash flow projections proveCovenant Relief Period, the applicable margin for Eurodollar borrowings is increased from a range of 2.00% – 2.75% to be inaccurate, we expect to be able to remain in compliance with such financial covenants by one or morea range of 2.25% – 3.00%. The amendment further provides that the Partnership becomes guarantor of the following actions: issue equity in conjunction withsecured obligations of all other guarantors under the acquisition of another business; issue equity in a public or private offering; request a modification of our covenants from our bank group; reduce distributions from our current distribution rate or obtain an equity infusion pursuant to the terms of our revolving credit facility.As of November 3, 2017, we had outstanding borrowings under our revolving credit facility of $747.2 million.our revolving credit facility, pleasethe Credit Agreement, see Note 68 to theour unaudited condensed consolidated financial statements underin Part I, Item 1 “Financial Statements” of this report and Note 710 to the consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data” included in our 2020 Annual ReportReport.Form 10-K forour Senior Notes 2026 and Senior Notes 2027, respectively.year ended December 31, 2016 filedrate of 6.875% per year. Interest on February 13, 2017 (our “2016the Senior Notes 2026 is payable semi-annually in arrears on each of April 1 and October 1.Report”).Distribution Reinvestment Planninesix months ended SeptemberJune 30, 2017,2021, distributions of $17.4$0.9 million were reinvested under the DRIP resulting in the issuance of 1.1 million60,735 common units. Such distributions are treated as non-cash transactions in the accompanying Unaudited Condensed Consolidated Statementsunaudited condensed consolidated statements of Cash Flowscash flows included under Part I, Item 1 “Financial Statements” of this report.For a more detailed description of the DRIP, please see Note 7 to our unaudited condensed consolidated financial statements under Part I, Item 1 of this report and Note 8 to the consolidated financial statements included in our 2016 Annual Report.Operating MarginGross operating operating margin as revenue less cost of operations, exclusive of depreciation and amortization expense. We believe that Adjusted gross operating margin is useful as a22Gross operatingAdjusted gross 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 operatingAdjusted gross margin should not be considered an alternative to, or more meaningful than, operating incomegross margin or any other measure of financial performance presented in accordance with GAAP. Moreover, Adjusted gross operating margin as presented may not be comparable to similarly titled measures of other companies. Because we capitalize assets, depreciation and amortization of equipment is a necessary element of our costs. To compensate for the limitations of Adjusted gross operating margin as a measure of our performance, we believe that it is important to consider operating incomegross margin determined under GAAP, as well as Adjusted gross operating margin, to evaluate our operating profitability. operating margin to operating income,gross margin, its most directly comparable GAAP financial measure, for each of the periods presented (in thousands):Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Total revenues $ 156,562 $ 168,651 $ 314,075 $ 347,650 Cost of operations, exclusive of depreciation and amortization (45,604) (49,968) (94,232) (109,133) Depreciation and amortization (59,227) (60,338) (120,257) (119,100) Gross margin $ 51,731 $ 58,345 $ 99,586 $ 119,417 Depreciation and amortization 59,227 60,338 120,257 119,100 Adjusted gross margin $ 110,958 $ 118,683 $ 219,843 $ 238,517 fees,expenses, loss (gain) on disposition of assets and other. We view Adjusted EBITDA as one of management’s primary tools for evaluating our primary management tools,results of operations, and we track 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. Adjusted EBITDA is used as a supplemental financial measure by our management and external users of our financial statements, such as investors and commercial banks, to assess:
•the financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets;·the financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets;
•the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;·the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;
•the ability of our assets to generate cash sufficient to make debt payments and to pay distributions; and·the ability of our assets to generate cash sufficient to make debt payments and to make distributions; and
•our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods and capital structure.·our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods and capital structure.providesmay provide a more complete understanding of our performance than GAAP23Expense associated with unit-basedUnit-based compensation expense related to equity awards to employees is also a necessary component of our business. Therefore, measures that exclude these elements have material limitations. To compensate for these limitations, we believe that it is important to consider both net income (loss) and net cash provided by operating activities determined under GAAP, as well as Adjusted EBITDA, to evaluate our financial performance and our liquidity. Our Adjusted EBITDA excludes some, but not all, items that affect net income (loss) and net cash provided by operating activities, and these measures may vary among companies. Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this knowledge into management’stheir decision making processes.(1)For the three and nine months ended September 30, 2017, unit-based compensation expense included $0.6 million and $1.9 million, respectively, of cash payments related to quarterly payments of distribution equivalent rights on outstanding phantom unit awards and, for the nine months ended September 30, 2017, $0.4 million related to the cash portion of any settlement of phantom unit awards upon vesting. For the three and nine months ended September 30, 2016, unit-based compensation expense included $0.7 million and $2.2 million, respectively, of cash payments related to quarterly payments of distribution equivalent rights on phantom unit awards and, for the nine months ended September 30, 2016, $0.1 million related to the cash portion of any settlement of phantom unit awards upon vesting. The remainder of the unit-based compensation expense for both periods was related to non-cash adjustments to the unit-based compensation liability.Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net income (loss) $ 2,688 $ 2,684 $ 3,059 $ (599,777) Interest expense, net 32,350 31,815 64,638 64,293 Depreciation and amortization 59,227 60,338 120,257 119,100 Income tax expense 152 419 278 715 EBITDA $ 94,417 $ 95,256 $ 188,232 $ (415,669) Interest income on capital lease — 105 48 229 Unit-based compensation expense (1) 4,260 4,568 8,442 2,739 Severance charges 13 2,416 226 2,833 Gain on disposition of assets (1,105) (787) (2,360) (1,801) Impairment of compression equipment (2) 2,403 3,923 4,953 3,923 Impairment of goodwill (3) — — — 619,411 Adjusted EBITDA $ 99,988 $ 105,481 $ 199,541 $ 211,665 Interest expense, net (32,350) (31,815) (64,638) (64,293) Non-cash interest expense 2,297 1,960 4,578 3,946 Income tax expense (152) (419) (278) (715) Interest income on capital lease — (105) (48) (229) Severance charges (13) (2,416) (226) (2,833) Other (34) 2,349 (1,383) 3,972 Changes in operating assets and liabilities 29,723 22,320 1,525 (4,081) Net cash provided by operating activities $ 99,459 $ 97,355 $ 139,071 $ 147,432 24
(3)For further discussion of our goodwill impairment recorded for the six months ended June 30, 2020, see “Financial Results of Operations” above and Note 5 to our unaudited condensed consolidated financial statements in Part I, Item 1 “Financial Statements” of this report.(2)Represents certain transaction expenses related to potential acquisitions and other items. The Partnership believes it is useful to investors to exclude these fees.fees,expenses, severance charges, loss (gain) on disposition of assets, proceeds from insurance recovery and other, less distributions on Preferred Units and maintenance capital expenditures.(prior(after distributions on the Preferred Units but prior to any retained cash reserves established by our general partnerthe General Partner and the effect of the DRIP) to the cash distributions we expect to pay our common unitholders. Using DCF, management can quickly compute the coverage ratio of estimated cash flows to planned cash distributions. 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 measuresExpense related to unit-basedUnit-based compensation expense related to equity awards to employees is also a necessary component of our business. Therefore, measures that exclude these elements have material limitations. To compensate for these limitations, we believe that it is important to consider both net income (loss) and net cash provided by operating activities determined under GAAP, as well as DCF, to evaluate our financial performance and our liquidity. Our DCF excludes some, but not all, items that affect net income (loss) and net cash provided by operating activities, and these measures may vary among companies. Management compensates for the limitations of DCF as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this knowledge into management’stheir decision making processes.Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net income (loss) $ 2,688 $ 2,684 $ 3,059 $ (599,777) Non-cash interest expense 2,297 1,960 4,578 3,946 Depreciation and amortization 59,227 60,338 120,257 119,100 Non-cash income tax expense (benefit) (34) 149 (133) 272 Unit-based compensation expense (1) 4,260 4,568 8,442 2,739 Severance charges 13 2,416 226 2,833 Gain on disposition of assets (1,105) (787) (2,360) (1,801) Impairment of compression equipment (2) 2,403 3,923 4,953 3,923 Impairment of goodwill (3) — — — 619,411 Distributions on Preferred Units (12,188) (12,188) (24,375) (24,375) Proceeds from insurance recovery — — — 336 Maintenance capital expenditures (4) (5,025) (4,377) (9,531) (13,219) DCF $ 52,536 $ 58,686 $ 105,116 $ 113,388 Maintenance capital expenditures 5,025 4,377 9,531 13,219 Severance charges (13) (2,416) (226) (2,833) Distributions on Preferred Units 12,188 12,188 24,375 24,375 Other — 2,200 (1,250) 3,364 Changes in operating assets and liabilities 29,723 22,320 1,525 (4,081) Net cash provided by operating activities $ 99,459 $ 97,355 $ 139,071 $ 147,432 (1)For the three and nine months ended September 30, 2017, unit-based compensation expense included $0.6 million and $1.9 million, respectively, of cash payments related to quarterly payments of distribution equivalent rights on outstanding phantom unit awards and, for the nine months ended September 30, 2017, $0.4 million related to the cash portion of any settlement of phantom unit awards upon vesting. For the three and nine months ended September 30, 2016, unit-based compensation expense25
(2)Represents non-cash charges incurred to write down long-lived assets with recorded values that are not expected to be recovered through future cash flows.included $0.7 million and $2.2 million, respectively, of cash payments related to quarterly payments of distribution equivalent rights on phantom unit awards and, for the nine months ended September 30, 2016, $0.1 million related to the cash portion of any settlement of phantom unit awards upon vesting. The remainder of the unit-based compensation expense for both periods was related to non-cash adjustments to the unit-based compensation liability.(2)Represents certain transaction expenses related to potential acquisitions and other items. The Partnership believes it is useful to investors to exclude these fees.(3)Reflects actual maintenance capital expenditures for the period presented. Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets, to maintain the operating capacity of our assets and extend their useful lives, or other capital expenditures that are incurred in maintaining our existing business and related cash flow.less cash distributions to be paid to our general partner and IDRs in respect of such period, divided by distributions declared to limited partnercommon unitholders in respect of such period. Cash Coverage Ratio is defined as DCF less cash distributions to be paid to our general partner and IDRs in respect of such period, divided by cash distributions expected to be paid to limited partnercommon unitholders in respect of such period, after taking into account the non-cash impact of the DRIP. We believe DCF Coverage Ratio and Cash Coverage Ratio are important measures of operating performance because they allow management, investors and others to gauge our ability to pay cash distributions to limited partnercommon unitholders using the cash flows that we generate. Our DCF Coverage Ratio and Cash Coverage Ratio as presented may not be comparable to similarly titled measures of other companies.(dollars(dollars in thousands):Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 DCF $ 52,536 $ 58,686 $ 105,116 $ 113,388 Distributions for DCF Coverage Ratio (1) $ 50,960 $ 50,850 $ 101,897 $ 101,629 Distributions reinvested in the DRIP (2) $ 439 $ 499 $ 840 $ 1,111 Distributions for Cash Coverage Ratio (3) $ 50,521 $ 50,351 $ 101,057 $ 100,518 DCF Coverage Ratio 1.03 x 1.15 x 1.03 x 1.12 x Cash Coverage Ratio 1.04 x 1.17 x 1.04 x 1.13 x
(2)Represents distributions to holders enrolled in the DRIP as of the record date.
(3)Represents cash distributions declared for common units not participating in the DRIP.(1)Represents distributions to the holders of our common units as of the record date for each period.(2)Represents distributions to holders enrolled in the DRIP as of the record date for each period. The amount for the three and nine months ended September 30, 2017 is based on an estimate as of the record date.(3)Represents cash distributions declared for common units not participating in the DRIP for each period.please see Note 1014 to our unaudited condensed consolidated financial statements under Part I, Item 1 “Financial Statements” of this report.26NaturalSustained low natural gas or crude oil prices remaining low over the long-termlong term could result in a continued decline in the production of natural gas or crude oil, which could result in further reduced demand for our compression services. We do not intend to hedge our indirect exposure to fluctuating commodity prices. A 1%one percent decrease in average revenue generating horsepower of our active fleet duringfor the ninesix months ended SeptemberJune 30, 20172021 would have resultedresult in aan annual decrease of approximately $2.7 million and $1.8$5.9 million in our revenue and $4.2 million in Adjusted gross operating margin, respectively. Gross operatingmargin. Adjusted gross margin is a non-GAAP financial measure. For a reconciliation of Adjusted gross operating margin to net income (loss),gross margin, its most directly comparable financial measure, calculated and presented in accordance with GAAP, please read “PartPart I, Item 2 Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operations – Non-GAAP Financial Measures” of this report.SeptemberJune 30, 20172021, we had $752.0$473.4 million of variable-rate indebtedness outstanding indebtedness at a weighted-averageweighted average interest rate of 3.25%2.91%. A 1%one percent increase or decrease in the effective interest rate on our variable-rate outstanding debt at Septemberas of June 30, 20172021 would have resultedresult in an annual increase or decrease in our interest expense of approximately $7.5$4.7 million.68 to our unaudited condensed consolidated financial statements under Part I, Item 1 “Financial Statements” of this report. Although we do not currently hedge our variable rate debt, we may, in the future, hedge all or a portion of such debt.repaypay the amount it owes us, it could have a material adverse effect on our business, financial condition, results of operations orand cash flows.Securities Exchange Act, of 1934, as amended (the “Exchange Act”), we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 20172021 at the reasonable assurance level.2728“ItemItem 1A. Risk“Risk Factors” of our 20162020 Annual Report.Report and in subsequent filings we make with the SEC. We have identified these risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by us or on our behalf.On November 3, 2017, we entered into an amendment to that certain Services Agreement, dated effective as of January 1, 2013 (the “Services Agreement”), with USA Compression Management Services, LLC, a Delaware limited liability company, in order to extend the term of the Services Agreement until December 31, 2022 subject to certain termination conditions. No.
Number3.1 3.2 10.131.122.1*31.1* 31.231.2**32.132.1##32.232.2##101.1101.1**The following materials from USA Compression Partners, LP’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2021 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) our Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, (ii) our Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020, (iii) our Consolidated Statements of Changes in Partners’ Capital for the three and six months ended June 30, 2021 and 2020, (iv) our Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020, and (v) the related notes to our consolidated financial statements. 104* Interactive data files pursuant to Rule 405 of Regulation S-TThe cover page from this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, formatted in Inline XBRL (included with Exhibit 101) 29November 7, 2017Compression Partners,COMPRESSION PARTNERS, LPBy: By:By: By:By: By:30