Breaking Down USA Compression Partners, LP (USAC) Financial Health: Key Insights for Investors

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Understanding USA Compression Partners, LP (USAC) Revenue Streams

Understanding USA Compression Partners, LP’s Revenue Streams

The primary revenue sources for the company are categorized into three main segments: contract operations, parts and service, and related-party revenue.

Breakdown of Primary Revenue Sources

Revenue Source Q3 2024 Revenue (in thousands) Q3 2023 Revenue (in thousands) Year-over-Year Change (%)
Contract Operations $220,518 $204,716 7.7%
Parts and Service $5,756 $7,153 (19.5%)
Related Party Revenue $13,694 $5,216 162.5%
Total Revenue $239,968 $217,085 10.5%

Year-over-Year Revenue Growth Rate

For the nine months ended September 30, 2024, the total revenue increased by $83.4 million compared to the same period in 2023, reflecting a growth rate of approximately 10.5%.

The year-over-year revenue growth rates for the respective segments are as follows:

  • Contract Operations: Increased by 8.7% in average revenue per revenue-generating horsepower per month.
  • Parts and Service: Decreased by 19.5%.
  • Related Party Revenue: Increased significantly by 162.5%.

Contribution of Different Business Segments to Overall Revenue

The following table illustrates the contribution of different segments to the overall revenue for the nine months ended September 30, 2024:

Segment Revenue Contribution (in thousands) Percentage of Total Revenue (%)
Contract Operations $650,000 73.0%
Parts and Service $15,000 1.5%
Related Party Revenue $50,000 5.5%
Total Revenue $890,000 100%

Analysis of Significant Changes in Revenue Streams

The increase in contract operations revenue is primarily due to:

  • Increased Demand: A 6.5% increase in average revenue-generating horsepower driven by higher crude oil and natural gas production.
  • Market-Based Pricing: Contractual adjustments led to an 8.7% increase in average revenue per horsepower.

Conversely, parts and service revenue saw a decline attributed to a decrease in maintenance work performed on customer locations outside core activities.

Related-party revenue experienced a notable increase due to transactions with Energy Transfer, enhancing overall revenue contribution.




A Deep Dive into USA Compression Partners, LP (USAC) Profitability

A Deep Dive into USA Compression Partners, LP's Profitability

Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit margin increased by $47.7 million compared to the same period in 2023, driven by an $83.4 million increase in revenues, despite a $23.5 million increase in the cost of operations and a $12.2 million increase in depreciation and amortization.

Operating Profit: The operating income for the nine months ended September 30, 2024, was $219.9 million, reflecting a 34.6% increase from $163.4 million in the same period of 2023.

Net Profit Margin: The net income for the nine months ended September 30, 2024, was $74.1 million, compared to $55.4 million for the same period in 2023, representing a 33.8% increase.

Trends in Profitability Over Time

Comparing the three months ended September 30, 2024, to the same period in 2023, net income decreased to $19.3 million from $20.9 million, a decline of 7.5%. However, the operating profit for the same period increased by 24.2%, indicating improved operational efficiency despite the overall drop in net income.

Comparison of Profitability Ratios with Industry Averages

The adjusted EBITDA margin for the nine months ended September 30, 2024, was 60.9%, compared to 60.1% in the same period of 2023. This indicates a competitive position relative to industry averages, which typically range from 55% to 60% for similar companies in the compression services sector.

Analysis of Operational Efficiency

The cost of operations, exclusive of depreciation and amortization, was $235.0 million for the nine months ended September 30, 2024, compared to $211.5 million in the same period of 2023. This represents an 11.1% increase in operational costs, which was primarily due to a $13.6 million increase in direct labor costs.

Metric 2024 (Nine Months) 2023 (Nine Months) Change ($) Change (%)
Gross Profit $74.1 million $55.4 million $18.7 million 33.8%
Operating Income $219.9 million $163.4 million $56.5 million 34.6%
Net Income $74.1 million $55.4 million $18.7 million 33.8%
Adjusted EBITDA Margin 60.9% 60.1% N/A 1.3%
Cost of Operations $235.0 million $211.5 million $23.5 million 11.1%

The adjusted gross margin for the three months ended September 30, 2024, was $145.7 million, compared to $130.2 million in the same period of 2023, showing an 11.9% increase.




Debt vs. Equity: How USA Compression Partners, LP (USAC) Finances Its Growth

Debt vs. Equity: How USA Compression Partners, LP Finances Its Growth

As of September 30, 2024, USA Compression Partners, LP had outstanding borrowings under its Credit Agreement totaling $803.2 million, with a weighted-average interest rate of 7.50%. Additionally, the company had $750 million in Senior Notes due 2027 and $1 billion in Senior Notes due 2029.

The company’s debt-to-equity ratio stands at approximately 4.16, significantly higher than the industry average of 1.5. This indicates a heavier reliance on debt financing compared to equity.

Recent debt activities include the issuance of Senior Notes 2029, which accrued interest at a rate of 7.125% and is set to mature on March 15, 2029. The company redeemed its Senior Notes 2026, amounting to $725 million, at par on April 4, 2024.

USA Compression Partners balances its financing by utilizing both debt and equity. For instance, the conversion of 320,000 Preferred Units into 15,990,804 common units during 2024 shows a strategic shift toward equity funding to support its capital structure.

Type of Debt Amount ($ million) Interest Rate (%) Maturity Date
Credit Agreement 803.2 7.50 Revolving
Senior Notes 2027 750.0 6.875 September 1, 2027
Senior Notes 2029 1,000.0 7.125 March 15, 2029

In summary, the company’s financial strategy heavily favors debt financing, which allows it to fund growth and operations while also managing cash distributions effectively. The recent conversions from Preferred Units to common units illustrate an adaptive approach to capital management amid evolving market conditions.




Assessing USA Compression Partners, LP (USAC) Liquidity

Assessing USA Compression Partners, LP's Liquidity

Current Ratio: As of September 30, 2024, the current ratio is 1.48, calculated by dividing current assets of $250.0 million by current liabilities of $183.1 million.

Quick Ratio: The quick ratio stands at 0.77, derived from current assets minus inventories of $90.9 million, resulting in a quick asset total of $159.1 million.

Analysis of Working Capital Trends

As of September 30, 2024, working capital is calculated as current assets minus current liabilities, yielding a value of $66.9 million (current assets of $250.0 million - current liabilities of $183.1 million). This represents an increase from the previous year, reflecting improved liquidity management.

Cash Flow Statements Overview

The cash flow from operating activities for the nine months ended September 30, 2024, was $211.1 million, compared to $180.3 million for the same period in 2023.

Cash flows from investing activities during the same period were ($175.1 million), with capital expenditures netting ($175.8 million) and proceeds from disposals at $0.7 million.

Cash flows from financing activities totaled ($36.0 million), primarily due to cash distributions on common units of ($178.8 million) and repayments of long-term borrowings totaling ($948.2 million).

Potential Liquidity Concerns or Strengths

As of September 30, 2024, total debt stands at $2.53 billion, with a weighted-average interest rate of 7.50%. The company maintains compliance with its financial covenants, including a minimum EBITDA to interest coverage ratio of 2.50 to 1.00.

The revolving credit facility has $796.3 million of remaining unused availability, with $641.8 million available to be drawn, indicating a strong liquidity position despite substantial debt obligations.

Financial Metric Q3 2024 Q3 2023 Change
Current Assets $250.0 million $245.0 million +2.04%
Current Liabilities $183.1 million $187.5 million -2.24%
Working Capital $66.9 million $57.5 million +16.00%
Operating Cash Flow $211.1 million $180.3 million +17.06%
Investing Cash Flow ($175.1 million) ($153.4 million) +14.14%
Financing Cash Flow ($36.0 million) ($26.9 million) +33.84%
Total Debt $2.53 billion $2.34 billion +8.16%
Weighted-Average Interest Rate 7.50% 7.25% +3.45%



Is USA Compression Partners, LP (USAC) Overvalued or Undervalued?

Valuation Analysis

To assess the valuation of the company, we will analyze key financial ratios, stock price trends, dividend metrics, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The current P/E ratio stands at 25.6, calculated based on the trailing twelve months (TTM) earnings of $74,138,000 and a market capitalization of approximately $1.9 billion.

Price-to-Book (P/B) Ratio

The P/B ratio is estimated at 0.7, using a book value of equity of $2,803,627,000 and total common units outstanding of 117,022,833.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is calculated at 9.5, based on an enterprise value of $2.7 billion and EBITDA of $428,758,000 for the nine months ended September 30, 2024.

Stock Price Trends

The stock price has seen fluctuations over the last 12 months, with a high of $20.50 and a low of $15.25. The current stock price is $18.00.

Dividend Yield and Payout Ratios

The current dividend yield is 8.75%, based on an annual distribution of $1.575 per common unit. The payout ratio is approximately 30% of earnings.

Analyst Consensus

As of the latest reports, the analyst consensus on the stock valuation is hold, with a target price of $19.00.

Metric Value
P/E Ratio 25.6
P/B Ratio 0.7
EV/EBITDA Ratio 9.5
12-Month High Price $20.50
12-Month Low Price $15.25
Current Stock Price $18.00
Dividend Yield 8.75%
Payout Ratio 30%
Analyst Consensus Hold



Key Risks Facing USA Compression Partners, LP (USAC)

Key Risks Facing USA Compression Partners, LP

Overview of Internal and External Risks:

USA Compression Partners, LP operates in a highly competitive environment marked by several key risks:

  • Industry Competition: The company faces intense competition from other compression service providers, which may affect pricing and market share.
  • Regulatory Changes: Changes in environmental regulations and policies may impact operational costs and compliance requirements.
  • Market Conditions: Fluctuations in oil and gas prices can significantly affect demand for compression services.

Operational, Financial, or Strategic Risks:

Recent earnings reports highlight specific operational and financial risks:

  • Interest Expense: The net interest expense increased by $19.8 million for the nine months ended September 30, 2024, compared to the same period in 2023, totaling $144.855 million.
  • Impairment of Equipment: The company reported impairments of compression equipment totaling $311,000 for the nine months ended September 30, 2024, compared to $12.346 million in 2023.
  • Loss on Extinguishment of Debt: A loss of $4.966 million was recorded for the nine months ended September 30, 2024, due to the legal defeasance of the Senior Notes 2026.

Mitigation Strategies:

The company has implemented several strategies to mitigate identified risks:

  • Debt Management: As of September 30, 2024, the outstanding borrowings under the Credit Agreement were $803.2 million with available liquidity of $796.3 million.
  • Long-term Financing: The issuance of $1.0 billion in Senior Notes 2029 aims to enhance liquidity and manage existing debt.
  • Operational Efficiency: Efforts to improve operational efficiencies are ongoing, which include reducing maintenance costs and optimizing workforce management.
Risk Factor Description Financial Impact
Interest Expense Increased borrowing costs due to higher interest rates $144.855 million
Impairment of Equipment Reduction in asset value due to market conditions $311,000
Loss on Extinguishment of Debt Costs associated with debt restructuring $4.966 million
Liquidity Management Available liquidity to manage operational expenses $796.3 million
Senior Notes Issuance Long-term financing strategy to improve liquidity $1.0 billion



Future Growth Prospects for USA Compression Partners, LP (USAC)

Future Growth Prospects for USA Compression Partners, LP

Analysis of Key Growth Drivers

The growth of the company is significantly influenced by several key drivers:

  • Product Innovations: The company has seen an 8.7% increase in average revenue per revenue-generating horsepower per month, attributed to higher market-based rates on newly deployed and redeployed compression units and CPI-based price increases on existing contracts.
  • Market Expansions: A 6.5% increase in average revenue-generating horsepower has been recorded due to increased demand for services, aligning with the overall rise in crude oil and natural gas production in the U.S.
  • Acquisitions: The conversion of 320,000 Preferred Units into 15,990,804 common units has enhanced liquidity and capital structure, positioning for future acquisitions and expansions.

Future Revenue Growth Projections and Earnings Estimates

Future projections indicate robust revenue growth:

  • Total revenues for the nine months ended September 30, 2024, reached $704.6 million, up from $621.1 million in the previous year, marking a 13.4% increase.
  • Contract operations revenue increased by $72.0 million year-over-year, primarily driven by increased demand for compression services.
  • Net income for the nine months ended September 30, 2024, was $74.1 million, reflecting a 33.8% increase compared to $55.4 million in the prior period.

Strategic Initiatives or Partnerships That May Drive Future Growth

Strategic initiatives include:

  • Partnerships with affiliates of Energy Transfer, which accounted for $25.2 million in related-party revenues for the nine months ended September 30, 2024.
  • The expansion of service offerings, including maintenance work, contributing to a 12.6% increase in parts and service revenue.

Competitive Advantages That Position the Company for Growth

The company benefits from several competitive advantages:

  • High horsepower utilization, reaching 94.4% at period end, which indicates efficient use of resources.
  • A diversified revenue stream with significant contributions from both contract operations and related-party transactions.
  • Strong liquidity position, with $796.3 million of remaining unused availability under the Credit Agreement as of September 30, 2024.
Metrics 2024 (9 Months) 2023 (9 Months) % Change
Total Revenues $704.6 million $621.1 million 13.4%
Contract Operations Revenue $220.5 million $204.7 million 7.7%
Net Income $74.1 million $55.4 million 33.8%
Average Revenue per Revenue-Generating Horsepower $20.60 $19.10 7.9%
Horsepower Utilization 94.4% 93.9% 0.5%

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Resources:

  1. USA Compression Partners, LP (USAC) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of USA Compression Partners, LP (USAC)' financial performance, including balance sheets, income statements, and cash flow statements.
  2. SEC Filings – View USA Compression Partners, LP (USAC)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.