USA Compression Partners, LP (NYSE: USAC) (“USA Compression” or the “Partnership”) announced today its financial and operating results for third-quarter 2023.

Financial Highlights

• Record total revenues of $217.1 million for third-quarter 2023, compared to $179.6 million for third-quarter 2022.
• Net income was $20.9 million for third-quarter 2023, compared to $9.6 million for third-quarter 2022. Net income for third-quarter 2023 includes a $3.4 million gain on derivative instrument.
• Net cash provided by operating activities was $50.1 million for third-quarter 2023, compared to $49.2 million for third-quarter 2022.
• Adjusted EBITDA was $130.2 million for third-quarter 2023, compared to $109.2 million for third-quarter 2022.
• Distributable Cash Flow was $71.6 million for third-quarter 2023, compared to $55.2 million for third-quarter 2022.
• Distributable Cash Flow Coverage was 1.39x for third-quarter 2023, compared to 1.07x for third-quarter 2022.
• Announced cash distribution of $0.525 per common unit for third-quarter 2023, consistent with third-quarter 2022.

Operational Highlights

• Average horsepower utilization was 93.6% for third-quarter 2023, compared to 90.3% for third-quarter 2022.
• Record average revenue-generating horsepower of 3.36 million for third-quarter 2023, compared to 3.09 million for third-quarter 2022.
• Record average revenue per revenue-generating horsepower per month of $19.10 for third-quarter 2023, compared to $17.53 for third-quarter 2022.

“I am pleased to report our third-quarter results continued the trend of improving financial and operational results and highlight our employees’ commitment to create value for all USA Compression stakeholders. Our third-quarter achievements again featured consecutive-quarter record-setting revenues, Adjusted EBITDA, Distributable Cash Flow, and Distributable Cash Flow Coverage,” commented Eric D. Long, USA Compression’s President and Chief Executive Officer.

“These record quarterly financial results were driven by strong operational performance including continued sequential-quarter improvements to fleet utilization and per-horsepower average revenue, as well as record average revenue-generating horsepower of approximately 3.36 million. We believe our third-quarter performance is directly attributable to our employees’ ability to deliver meaningful and recognized value to our customers and a continued tightening in the large-horsepower compression market. The tight compression market, coupled with continuing growth in the oil and natural gas markets, provides a solid base for the demand of our services which we believe will support the continued improvement of our balance sheet and financial condition.”

Expansion capital expenditures were $62.5 million, maintenance capital expenditures were $7.2 million, and cash interest expense, net was $41.4 million for third-quarter 2023.

On October 12, 2023, the Partnership announced a third-quarter cash distribution of $0.525 per common unit, which corresponds to an annualized distribution rate of $2.10 per common unit. The distribution will be paid on November 3, 2023, to common unitholders of record as of the close of business on October 23, 2023.

On October 27, 2023, the tranche of warrants with the right to purchase 10,000,000 common units with a strike price of $19.59 per common unit was exercised in full by the holders. The exercise of the warrants will be net settled by the Partnership for approximately 2,360,000 common units. These warrants were part of the preferred equity financing undertaken in 2018 in connection with the acquisition of CDM Resource Management.

Liquidity and Long-Term Debt

As of September 30, 2023, the Partnership was in compliance with all covenants under its $1.6 billion revolving credit facility. As of September 30, 2023, the Partnership had outstanding borrowings under the revolving credit facility of $813.1 million, $786.9 million of availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $434.3 million. As of September 30, 2023, the outstanding aggregate principal amount of the Partnership’s 6.875% senior notes due 2026 and 6.875% senior notes due 2027 was $725.0 million and $750.0 million, respectively.

Total Leverage Ratio Calculation

The Partnership’s Seventh Amended and Restated Credit Agreement, dated as of December 8, 2021 (the “Credit Agreement”) includes a financial covenant for Total Leverage Ratio (as defined in the Credit Agreement). The Partnership’s Total Leverage Ratio as of September 30, 2023 was 4.21x, compared to 4.51x as of June 30, 2023. The reduction in the Partnership’s Total Leverage Ratio from the second-quarter 2023 to the third-quarter 2023 was due in part to the Partnership’s adding back $5.9 million in recurring tax expenses, consistent with the calculation of EBITDA under the Credit Agreement but which the Partnership had not added back in previous quarters. This tax add back increased EBITDA, which is the denominator of the Total Leverage Ratio calculation. Financial covenants in the Credit Agreement permit a maximum leverage ratio of not greater than 5.50 to 1.00 through September 30, 2023, and 5.25 to 1.00 thereafter (with certain exceptions for an increase in the event of a Specified Acquisition (as defined in the Credit Agreement)). If the Partnership had not implemented this tax add back, the Partnership’s Total Leverage Ratio as of September 30, 2023, would have been 4.40x.

Interest-rate Swap Modification

In October 2023, the Partnership modified its existing interest-rate swap to continue to manage interest-rate risk associated with the floating-rate Credit Agreement. The notional principal amount under the modified interest-rate swap remains $700 million and the termination date was extended from April 1, 2025 to December 31, 2025. Under the original interest-rate swap, the Partnership paid a fixed interest rate of 3.785% and received floating interest rate payments that were indexed to the one-month SOFR. Under the modified interest-rate swap, the Partnership pays a fixed interest rate of 3.9725% and continues to receive floating interest rate payments that are indexed to the one-month SOFR.

Full-Year 2023 Outlook

USA Compression is updating its full-year 2023 guidance as follows:

• Net income range of $73.0 million to $83.0 million;
• A forward-looking estimate of net cash provided by operating activities is not provided because the items necessary to estimate net cash provided by operating activities, in particular the change in operating assets and liabilities, are not accessible or estimable at this time. The Partnership does not anticipate changes in operating assets and liabilities to be material, but changes in accounts receivable, accounts payable, accrued liabilities, and deferred revenue could be significant, such that the amount of net cash provided by operating activities would vary substantially from the amount of projected Adjusted EBITDA and Distributable Cash Flow;
• Adjusted EBITDA range of $500.0 million to $510.0 million; and
• Distributable Cash Flow range of $270.0 million to $280.0 million.

Conference Call

The Partnership will host a conference call today beginning at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss third-quarter 2023 performance. The call will be broadcast live over the internet. Investors may participate by audio webcast, or if located in the U.S. or Canada, by phone. A replay will be available shortly after the call via the “Events” page of USA Compression’s Investor Relations website.

About USA Compression Partners, LP

USA Compression Partners, LP is one of the nation’s largest independent providers of natural gas compression services in terms of total compression fleet horsepower. USA Compression partners with a broad customer base composed of producers, processors, gatherers, and transporters of natural gas and crude oil. USA Compression focuses on providing midstream natural gas compression services to infrastructure applications primarily in high-volume gathering systems, processing facilities, and transportation applications. More information is available at usacompression.com.

Non-GAAP Financial Measures

This news release includes the Non-GAAP financial measures of Adjusted gross margin, Adjusted EBITDA, Distributable Cash Flow, and Distributable Cash Flow Coverage Ratio.

Adjusted gross margin is defined as revenue less cost of operations, exclusive of depreciation and amortization expense. Management believes Adjusted gross margin is useful to investors as a supplemental measure of the Partnership’s operating profitability. Adjusted gross margin primarily is impacted 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. Adjusted gross margin should not be considered an alternative to, or more meaningful than, gross margin or any other measure presented in accordance with GAAP. Moreover, the Partnership’s Adjusted gross margin, as presented, may not be comparable to similarly titled measures of other companies. Because the Partnership capitalizes assets, depreciation and amortization of equipment is a necessary element of its cost structure. To compensate for the limitations of Adjusted gross margin as a measure of the Partnership’s performance, management believes it important to consider gross margin determined under GAAP, as well as Adjusted gross margin, to evaluate the Partnership’s operating profitability.

Management views Adjusted EBITDA as one of its primary tools for evaluating the Partnership’s results of operations, and the Partnership tracks this item on a monthly basis as an absolute amount and as a percentage of revenue compared to the prior month, year-to-date, prior year, and budget. The Partnership defines EBITDA as net income (loss) before net interest expense, depreciation and amortization expense, and income tax expense (benefit). The Partnership defines Adjusted EBITDA as EBITDA plus impairment of compression equipment, impairment of goodwill, interest income on capital leases, unit-based compensation expense (benefit), severance charges, certain transaction expenses, loss (gain) on disposition of assets, loss (gain) on derivative instrument, and other. Adjusted EBITDA is used as a supplemental financial measure by management and external users of the Partnership’s financial statements, such as investors and commercial banks, to assess:

• the financial performance of the Partnership’s assets without regard to the impact of financing methods, capital structure, or the historical cost basis of the Partnership’s assets;
• the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;
• the ability of the Partnership’s assets to generate cash sufficient to make debt payments and pay distributions; and
• the Partnership’s operating performance as compared to those of other companies in its industry without regard to the impact of financing methods and capital structure.

Management believes Adjusted EBITDA provides useful information to investors because, when viewed in conjunction with the Partnership’s GAAP results and the accompanying reconciliations, it may provide a more complete assessment of the Partnership’s performance as compared to considering solely GAAP results. Management also believes that external users of the Partnership’s financial statements benefit from having access to the same financial measures that management uses to evaluate the results of the Partnership’s business.

Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income (loss), operating income (loss), cash flows from operating activities, or any other measure presented in accordance with GAAP. Moreover, the Partnership’s Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

Distributable Cash Flow is defined as net income (loss) plus non-cash interest expense, non-cash income tax expense (benefit), depreciation and amortization expense, unit-based compensation expense (benefit), impairment of compression equipment, impairment of goodwill, certain transaction expenses, severance charges, loss (gain) on disposition of assets, change in fair value of derivative instrument, proceeds from insurance recovery, and other, less distributions on the Partnership’s Series A Preferred Units (“Preferred Units”) and maintenance capital expenditures.

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

Management believes Distributable Cash Flow is an important measure of operating performance because it allows management, investors, and others to compare the cash flows that the Partnership generates (after distributions on the Partnership’s Preferred Units but prior to any retained cash reserves established by the Partnership’s general partner and the effect of the Distribution Reinvestment Plan) to the cash distributions that the Partnership expects to pay its common unitholders.

Distributable Cash Flow Coverage Ratio is defined as the period’s Distributable Cash Flow divided by distributions declared to common unitholders in respect of such period. Management believes Distributable Cash Flow Coverage Ratio is an important measure of operating performance because it permits management, investors, and others to assess the Partnership’s ability to pay distributions to common unitholders out of the cash flows the Partnership generates. The Partnership’s Distributable Cash Flow Coverage Ratio, as presented, may not be comparable to similarly titled measures of other companies.

This news release also contains a forward-looking estimate of Adjusted EBITDA and Distributable Cash Flow projected to be generated by the Partnership for its 2023 fiscal year. A forward-looking estimate of net cash provided by operating activities and reconciliations of the forward-looking estimates of Adjusted EBITDA and Distributable Cash Flow to net cash provided by operating activities are not provided because the items necessary to estimate net cash provided by operating activities, in particular the change in operating assets and liabilities, are not accessible or estimable at this time. The Partnership does not anticipate changes in operating assets and liabilities to be material, but changes in accounts receivable, accounts payable, accrued liabilities, and deferred revenue could be significant, such that the amount of net cash provided by operating activities would vary substantially from the amount of projected Adjusted EBITDA and Distributable Cash Flow.

See “Reconciliation of Non-GAAP Financial Measures” for Adjusted gross margin reconciled to gross margin, Adjusted EBITDA reconciled to net income and net cash provided by operating activities, and net income and net cash provided by operating activities reconciled to Distributable Cash Flow and Distributable Cash Flow Coverage Ratio.

Forward-Looking Statements

Some of the information in this news release may contain forward-looking statements. These statements can be identified by the use of forward-looking terminology including “may,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “continue,” “if,” “project,” “outlook,” “will,” “could,” “should,” or other similar words or the negatives thereof, and include the Partnership’s expectation of future performance contained herein, including as described under “Full-Year 2023 Outlook.” These statements discuss future expectations, contain projections of results of operations or of financial condition, or state other “forward-looking” information. You are cautioned not to place undue reliance on any forward-looking statements, which can be affected by assumptions used or by known risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors noted below and other cautionary statements in this news release. The risk factors and other factors noted throughout this news release could cause actual results to differ materially from those contained in any forward-looking statement. Known material factors that could cause the Partnership’s actual results to differ materially from the results contemplated by such forward-looking statements include:

• changes in general economic conditions, including inflation or supply chain disruptions and changes in economic conditions of the crude oil and natural gas industries, including any impact from the ongoing military conflict involving Russia and Ukraine;
• changes in the long-term supply of and demand for crude oil and natural gas, including as a result of actions taken by governmental authorities and other third parties in response to world health events, and the resulting disruption in the oil and gas industry and impact on demand for oil and gas;
• competitive conditions in the Partnership’s industry, including competition for employees in a tight labor market;
• changes in the availability and cost of capital, including changes to interest rates;
• renegotiation of material terms of customer contracts;
• actions taken by the Partnership’s customers, competitors, and third-party operators;
• operating hazards, natural disasters, epidemics, pandemics, weather-related impacts, casualty losses, and other matters beyond the Partnership’s control;
• the deterioration of the financial condition of the Partnership’s customers, which may result in the initiation of bankruptcy proceedings with respect to certain customers;
• the restrictions on the Partnership’s business that are imposed under the Partnership’s long-term debt agreements;
• information technology risks including the risk from cyberattacks, cybersecurity breaches, and other disruptions to the Partnership’s information systems;
• the effects of existing and future laws and governmental regulations;
• the effects of future litigation;
• factors described in Part I, Item 1A (“Risk Factors”) of the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the Securities and Exchange Commission (the “SEC”) on February 14, 2023, Part II, Item 1A (“Risk Factors”) of the Partnership’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, which was filed with the SEC on May 2, 2023, and subsequently filed reports; and
• other factors discussed in the Partnership’s filings with the SEC.

All forward-looking statements speak only as of the date of this news release and are expressly qualified in their entirety by the foregoing cautionary statements. Unless legally required, the Partnership undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Unpredictable or unknown factors not discussed herein also could have material adverse effects on forward-looking statements.

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