What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-02-16 compared with 2020-02-18 · 60 added, 37 removed, 170 unchanged (36% of the section changed)

14 unchanged sentences

There is no established public trading market for the Preferred Units, all of which are owned by the Preferred Unitholders.

Please read Part II, Item 8 “Financial Statements and Supplementary Data – Note 11 – Preferred Units and Warrants and – Note 12 – Partners’ Capital”.

Please read Part II, Item 8 “Financial Statements and Supplementary Data – Note 11 – Preferred Units and – Note 12 – Partners’ Capital”.

Selected Information from the Partnership Agreement

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In the table below we have presented certain selected financial data for USA Compression Partners, LP and the USA Compression Predecessor for each of the years in the five-year period ended December 31, 2020, which has been derived from our audited consolidated financial statements for the years ended December 31, 2020, 2019, 2018, 2017 and 2016.

USA Compression Predecessor has been determined to be the historical predecessor of the Partnership for financial reporting purposes because ET LP controlled the USA Compression Predecessor prior to the CDM Acquisition and obtained control of the Partnership through its acquisition of the General Partner.

For periods prior to the Transactions Date, the table presents selected financial data for the USA Compression Predecessor and periods after the Transactions Date refer to the Partnership.

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We believe that investors benefit from having access to the same financial measures utilized by management.

The following table includes the non-GAAP financial measures of gross operating margin, Adjusted EBITDA and Distributable Cash Flow (or “DCF”).

For definitions of gross operating margin, Adjusted EBITDA and DCF, and reconciliations of such measures to their most directly comparable financial measures calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measures” below.

The following table includes the non-GAAP financial measures of Adjusted gross margin, Adjusted EBITDA and Distributable Cash Flow (or “DCF”).

For definitions of Adjusted gross margin, Adjusted EBITDA and DCF, and reconciliations of such measures to their most directly comparable financial measures calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measures” below.

Year Ended December 31,

2020 2019 2018 2017 2016

(in thousands, except per unit amounts)

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Total revenues 667,683 698,365 584,352 276,671 263,937

Costs of operations:

Costs and expenses:

Costs of operations, exclusive of depreciation and amortization 205,939 227,303 214,724 125,204 112,898

Gross operating margin (1)

Other operating and administrative costs and expenses:

Selling, general and administrative

Depreciation and amortization 238,968 231,447 213,692 166,558 155,134

Selling, general and administrative 59,981 64,397 68,995 24,944 22,739

Loss (gain) on disposition of assets 146 940 12,964 (367) 120

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Impairment of goodwill 619,411 — — 223,000 —

Total other operating and administrative costs and expenses

Total costs and expenses 1,132,535 529,981 519,041 539,339 290,891

Operating income (loss) (464,852) 168,384 65,311 (262,668) (26,954)

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Interest expense, net (128,633) (127,146) (78,377) — —

Other 86 80 41 (223) (153)

Total other expense (128,547) (127,066) (78,336) (223) (153)

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Cash distributions declared per common unit (1) $ 2.10 $ 2.10 $ 1.575

Non-GAAP financial measures:

Adjusted EBITDA (1)

Other financial data:

Gross margin $ 222,776 $ 239,615 $ 155,936 $ (15,091) $ (4,095)

Adjusted gross margin (2) $ 461,744 $ 471,062 $ 369,628 $ 151,467 $ 151,039

Adjusted EBITDA (2) $ 413,898 $ 419,640 $ 320,475 $ 130,348 $ 131,686

DCF (2) $ 220,766 $ 221,868 $ 177,757 $ 109,326 $ 123,442

Capital expenditures $ 118,856 $ 199,928 $ 241,179 $ 175,508 $ 59,234

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Working capital (3) $ 29,283 $ 41,548 $ 68,141 $ 27,091 $ 62,424

Total assets $ 2,948,700 $ 3,730,407 $ 3,774,649 $ 1,718,953 $ 1,960,416

Long-term debt, net $ 1,927,005 $ 1,852,360 $ 1,759,058 $ — $ —

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________________________

Please refer to “Non-GAAP Financial Measures” below.

Net loss attributable to common and Class B unitholders’ interests and earnings per unit are not applicable to the USA Compression Predecessor as the USA Compression Predecessor had no outstanding common or Class B units prior to the Transactions.

(1) Net loss attributable to common and Class B unitholders’ interests and net loss per unit are not applicable to the USA Compression Predecessor as the USA Compression Predecessor had no outstanding common or Class B units prior to the Transactions.

On July 30, 2019, 6,397,965 Class B Units automatically converted into common units on a one-for-one basis, resulting in the issuance of 6,397,965 common units to ETO.

Following the conversion, there are no longer Class B Units outstanding.

(2) Please refer to “Non-GAAP Financial Measures” below.

(3) Working capital is defined as current assets minus current liabilities.

Non-GAAP Financial Measures

Gross Operating Margin

The table above includes gross operating margin, which is a non-GAAP financial measure, and a reconciliation to operating income (loss), its most directly comparable GAAP financial measure.

We define gross operating margin as revenue less cost of operations, exclusive of depreciation and amortization expense.

We believe that gross operating margin is useful as a supplemental measure of our operating profitability.

Gross operating 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 operating margin should not be considered an alternative to, or more meaningful than, operating income (loss) or any other measure of financial performance presented in accordance with GAAP.

Moreover, gross operating margin as presented may not be comparable to similarly titled measures of other companies.

Adjusted Gross Margin

Adjusted gross margin is a non-GAAP financial measure.

We define Adjusted gross margin as revenue less cost of operations, exclusive of depreciation and amortization expense.

We believe that Adjusted gross margin is useful as a supplemental measure to investors of our operating profitability.

Adjusted 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.

Adjusted gross margin should not be considered an alternative to, or more meaningful than, gross margin or any other measure of financial performance presented in accordance with GAAP.

Moreover, Adjusted gross 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 gross operating margin as a measure of our performance, we believe that it is important to consider operating income (loss) determined under GAAP, as well as gross operating margin, to evaluate our operating profitability.

To compensate for the limitations of Adjusted gross margin as a measure of our performance, we believe that it is important to consider gross margin determined under GAAP, as well as Adjusted gross margin, to evaluate our operating profitability.

The following table reconciles Adjusted gross margin to gross margin, its most directly comparable GAAP financial measure, for each of the periods presented (in thousands):

Year Ended December 31,

2020 2019 2018 2017 2016

Total revenues $ 667,683 $ 698,365 $ 584,352 $ 276,671 $ 263,937

Cost of operations, exclusive of depreciation and amortization (205,939) (227,303) (214,724) (125,204) (112,898)

Depreciation and amortization (238,968) (231,447) (213,692) (166,558) (155,134)

Gross margin $ 222,776 $ 239,615 $ 155,936 $ (15,091) $ (4,095)

Depreciation and amortization 238,968 231,447 213,692 166,558 155,134

Adjusted gross margin $ 461,744 $ 471,062 $ 369,628 $ 151,467 $ 151,039

Adjusted EBITDA

We define EBITDA as net income (loss) before net interest expense, depreciation and amortization expense, and income tax expense (benefit).

We define Adjusted EBITDA as EBITDA plus impairment of compression equipment, impairment of goodwill, interest income on capital lease, unit-based compensation expense, severance charges, certain transaction fees, loss (gain) on disposition of assets and other.

We define Adjusted EBITDA as EBITDA plus impairment of compression equipment, impairment of goodwill, interest income on capital lease, unit-based compensation expense, severance charges, certain transaction expenses, loss (gain) on disposition of assets and other.

We view Adjusted EBITDA as one of management’s primary tools for evaluating our 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.

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Because we use capital assets, depreciation, impairment of compression equipment, loss (gain) on disposition of assets and the interest cost of acquiring compression equipment are also necessary elements of our costs.

Unit-based compensation expense related to equity awards to employees is also a necessary component of our business.

Unit-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.

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Year Ended December 31,

2020 2019 2018 2017 2016

Net income (loss) $ (594,732) $ 39,132 $ (10,551) $ (264,734) $ (26,944)

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Income tax expense (benefit) 1,333 2,186 (2,474) 1,843 (163)

EBITDA $ (225,798) $ 399,911 $ 279,044 $ (96,333) $ 128,027

Interest income on capital lease 383 672 709 — —

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Severance charges (3,130) (831) (3,171) — —

Other 4,230 2,426 (2,030) 24 (748)

Changes in operating assets and liabilities 283 2,320 (13,221) 7,427 (1,038)

1 unchanged sentence

________________________

For the years ended December 31, 2019 and 2018 , unit-based compensation expense included $2.5 million and $1.3 million of cash payments related to quarterly payments of distribution equivalent rights on outstanding phantom unit awards, respectively, and $0.6 million and $3.7 million related to the cash portion of any settlement of phantom unit awards upon vesting, respectively.

The remainder of the unit-based compensation expense is related to non-cash adjustments to the unit-based compensation liability.

(1) For the years ended December 31, 2020, 2019 and 2018, unit-based compensation expense included $3.2 million, $2.5 million and $1.3 million of cash payments related to quarterly payments of DERs on outstanding phantom unit awards, respectively, and $0.5 million, $0.6 million and $3.7 million related to the cash portion of any settlement of phantom unit awards upon vesting, respectively.

The remainder of the unit-based compensation expense for all periods was related to non-cash adjustments to the unit-based compensation liability.

(2) Represents certain expenses related to potential and completed transactions and other items.

We believe it is useful to investors to exclude these fees.

We believe it is useful to investors to exclude these expenses.

(3) 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.

For further discussion of the goodwill impairment the USA Compression Predecessor recognized for the year ended December 31, 2017 , please refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Goodwill – Impairment Assessments”.

(4) For further discussion of our goodwill impairment recorded for the year ended December 31, 2020, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Goodwill – Impairment Assessments”.

Distributable Cash Flow

We define DCF as net income (loss) plus non-cash interest expense, non-cash income tax expense (benefit), depreciation and amortization expense, unit-based compensation expense, impairment of compression equipment, impairment of goodwill, certain transaction fees, severance charges, loss (gain) on disposition of assets, proceeds from insurance recovery and other, less distributions on Preferred Units and maintenance capital expenditures.

We believe DCF is an important measure of operating performance because it allows management, investors and others to compare basic cash flows we generate (after distributions on our Preferred Units but prior to any retained cash reserves established by the General Partner and the effect of the DRIP) to the cash distributions we expect to pay our common unitholders.

certain transaction expenses, severance charges, loss (gain) on disposition of assets, proceeds from insurance recovery and other, less distributions on Preferred Units and maintenance capital expenditures.

We believe DCF is an important measure of operating performance because it allows management, investors and others to compare basic cash flows we generate (after distributions on the Preferred Units but prior to any retained cash reserves established by the 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.

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Year Ended December 31,

2020 2019 2018 2017 2016

Net income (loss) $ (594,732) $ 39,132 $ (10,551) $ (264,734) $ (26,944)

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Maintenance capital expenditures (5) (23,301) (29,592) (32,502) (20,980) (8,252)

DCF $ 220,766 $ 221,868 $ 177,757 $ 109,326 $ 123,442

Maintenance capital expenditures 23,301 29,592 32,502 20,980 8,252

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Distributions on Preferred Units 48,750 48,750 36,430 — —

Other 3,364 (541) 224 (1,777) (593)

Changes in operating assets and liabilities 283 2,320 (13,221) 7,427 (1,038)

1 unchanged sentence

________________________

The remainder of the unit-based compensation expense is related to non-cash adjustments to the unit-based compensation liability.

The remainder of the unit-based compensation expense for all periods was related to non-cash adjustments to the unit-based compensation liability.

(2) Represents certain expenses related to potential and completed transactions and other items.

We believe it is useful to investors to exclude these fees.

We believe it is useful to investors to exclude these expenses.

(3) 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.

Reflects actual maintenance capital expenditures for the periods presented.

(5) Reflects actual maintenance capital expenditures for the period presented.

Maintenance capital expenditures are capital expenditures made to maintain the operating capacity of our assets and extend their useful lives, replace partially or fully depreciated assets, or other capital expenditures that are incurred in maintaining our existing business and related cash flow.

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Our DCF Coverage Ratio and Cash Coverage Ratio as presented may not be comparable to similarly titled measures of other companies.

The following table summarizes our coverage ratios for the periods presented (dollars in thousands):

The following table summarizes certain coverage ratios for the periods presented (dollars in thousands):

Year Ended December 31,

2020 2019 2018 (4) 2017 (5) 2016 (5)

DCF $ 220,766 $ 221,868 $ 177,757 $ 109,326 $ 123,442

Distributions for DCF Coverage Ratio (1) $ 203,409 $ 196,144 $ 141,699

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Distributions for Cash Coverage Ratio (3) $ 201,345 $ 195,099 $ 141,011

DCF Coverage Ratio

Cash Coverage Ratio

DCF Coverage Ratio 1.09 x 1.13 x 1.25 x

Cash Coverage Ratio 1.10 x 1.14 x 1.26 x

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(2) Represents distributions to holders enrolled in the DRIP as of the record date.

Represents cash distributions declared on our common units not participating in the DRIP.

(3) Represents cash distributions declared for common units not participating in the DRIP.

(4) Distributions for the year ended December 31, 2018 reflect only three quarters of distributions as the USA Compression Predecessor did not pay distributions prior to the Transactions Date.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity