USA Compression Partners, LP 10-Q

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Commodity Price Risk Market risk is the risk of loss arising from adverse changes in market rates and prices. We do not take title to any natural gas or crude oil in connection with our services and, accordingly, have no direct exposure to fluctuating commodity prices. However, the demand for our compression services depends upon the continued demand for, and production of, natural gas and crude oil. Sustained low natural gas or crude oil prices over the long term could result in a decline in the production of natural gas or crude oil, which could result in reduced demand for our compression services. We do not intend to hedge our indirect exposure to fluctuating commodity prices. A one percent decrease in average revenue generating horsepower for the six months ended June 30, 2022 would result in an annual decrease of approximately $6.1 million and $4.2 million in our revenue and Adjusted gross margin, respectively. Adjusted gross margin is a non-GAAP financial measure. For a reconciliation of Adjusted gross margin to gross margin, its most directly comparable financial measure, calculated and presented in accordance with GAAP, please read Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” of this report. Interest Rate Risk We are exposed to market risk due to variable interest rates under the Credit Agreement. As of June 30, 2022, we had $558.7 million of variable-rate indebtedness outstanding at a weighted-average interest rate of 4.13%. A one percent increase or decrease in the effective interest rate on our variable-rate outstanding debt as of June 30, 2022 would result in an annual increase or decrease in our interest expense of approximately $5.6 million. For further information regarding our exposure to interest rate fluctuations on our debt obligations, see Note 8 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. Credit Risk Our credit exposure generally relates to receivables for services provided. If any significant customer of ours should have credit or financial problems resulting in a delay or failure to pay the amount it owes us, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. 30 Table of Contents