USA Compression Partners, LP (NYSE: USAC) (“USA Compression”, “USAC”, or “the Partnership”) today announced that it had entered into a definitive agreement to acquire approximately $187 million of compression assets owned by S&R Compression, LLC (“S&R”), a Tulsa-based company majority owned and controlled by Argonaut Private Equity, an affiliate of George B. Kaiser. In exchange for the contribution of assets, the Kaiser affiliate will receive USAC common units representing 20% of the pro forma limited partner interest in USAC. USAC expects this transaction to be immediately accretive to distributable cash flow. Located primarily in Texas and Oklahoma, the assets being acquired are primarily utilized in connection with crude oil production, by means of gas lift operations. There are 983 compression units being acquired with total horsepower of approximately 138,000. The compression units were all fabricated by S&R Compression, have an average age of 2.2 years and since deployment, have achieved a historical utilization rate of 95%. Eric Long, President & CEO of USAC, commented, “This is an important first acquisition for USAC as a public partnership, as it represents an opportunity for us to grow our overall business in a meaningful way while continuing our core focus on long-lived infrastructure applications requiring our compression services. With this transaction, we will expand our services to active crude oil producers, many of whom are already customers in our natural gas compression business. The vast majority of these compression units are used in gas lift operations, which with the continued strength in crude oil prices, we identified as a new market opportunity for our services. We are excited to be able to broaden our product offerings while still retaining our focus on the infrastructure needs of our customers. In addition to taking on the compression assets, we intend to hire the very talented and skilled employees who have been involved with the S&R Compression rental fleet, allowing USAC to continue to provide the exemplary service levels on which our customers rely. We expect the combination of the S&R compression assets and USAC’s existing compression fleet to create additional opportunities for USAC and its customers in the future.”
“We are also excited about our partnership with the Kaiser affiliate,” continued Mr. Long. “George Kaiser’s confidence in the business prospects of USA Compression is demonstrated by the all-equity consideration; we expect to benefit from the Kaiser organization’s significant experience in the energy industry as a long-term partner.”H.G. “Buddy” Kleemeier, President and CEO of Kaiser-Francis Oil Company, commented on the equity investment, “We are looking forward to being a meaningful unitholder in USA Compression. USAC has a history of growth and we look forward to participating in that growth through our equity ownership.” Both the Kaiser affiliate and USA Compression Holdings, LLC, the owner of the general partner interest and IDRs in USAC, have committed to receiving distributions in the form of additional common units through the Partnership’s Distribution Reinvestment Plan through the second quarter of 2014. USAC will also begin a commercial relationship with the S&R Compression fabrication business, which will continue to be owned and operated by the Kaiser affiliate. John Roberson, President of S&R Compression, LLC, commented on the ongoing business relationship, “We are excited to be partnering with USA Compression and to serve as a key supplier of small horsepower units for their compression fleet. Both companies have similar operating philosophies and we think USAC’s geographical presence and product offerings will open doors for additional S&R Compression opportunities, and vice versa. We are pleased that USAC intends to hire the employees who have worked with the S&R Compression rental fleet. They are an exceptional group of employees and we are confident they will be valued at USAC. We want to thank each and every one of them for their hard work and dedication to the business.” Transaction Consideration and Timing The acquisition of assets will be financed through the issuance of USAC common units, currently estimated to be 7.4 million units. In addition, USAC will purchase, for cash at closing, certain additional compression units added to the fleet since the June 30, 2013 transaction effective date. The Partnership expects the transaction to close in the third quarter of 2013.
Revised Full Year 2013 OutlookWith the announced acquisition, USA Compression is revising its previously issued guidance for full year 2013 to take into account an estimated four months of operations of the acquired assets:
- Adjusted EBITDA range of $82.0 million to $86.0 million
- Adjusted distributable cash flow range of $56.6 million to $60.6 million
- Year-end leverage of approximately 4.1x, which is based on the full year 2013 pro forma effect of this acquisition
|By Phone:||Dial 866-202-0886 inside the U.S. and Canada at least 10 minutes before the call and ask for the USA Compression Partners Earnings Call. Investors outside the U.S. and Canada should dial 617-213-8841. The passcode for both is 83185784.|
|A replay of the call will be available through August 20, 2013. Callers inside the U.S. and Canada may access the replay by dialing 888-286-8010. Investors outside the U.S. and Canada should dial 617-801-6888. The passcode for both is 32572487.|
|By Webcast:||Connect to the webcast via the “Events” page of USA Compression’s Investor Relations website at http://investors.usacpartners.com. Please log in at least 10 minutes in advance to register and download any necessary software. A replay will be available shortly after the call.|
|USA COMPRESSION PARTNERS, LP AND SUBSIDIARIES Full Year 2013 Adjusted EBITDA Guidance Range Reconciliation to Distributable Cash Flow (In millions – Unaudited)|
|Adjusted EBITDA||$||82.0 to 86.0|
|Less: Cash interest expense||10.7|
|Less: Income tax provision||0.2|
|Less: Maintenance capital expenditures||14.5|
|Adjusted distributable cash flow||$||56.6 to 60.6|
|Less: Transaction expenses||1.0|
|Distributable cash flow||$||55.6 to 59.6|
Distributable cash flow (“DCF”), which is a financial measure included in this presentation, is another measure not defined under GAAP. USAC defines DCF as net income (loss) plus non-cash interest expense, depreciation and amortization expense, impairment of compression equipment charges, and non-cash SG&A costs, less maintenance capital expenditures. Adjusted DCF, which is also a non-GAAP measure, is defined by USAC as DCF before transaction expenses related to the acquisition of the S&R Compression rental fleet. USAC believes Adjusted DCF is an important measure of operating performance because it allows management, investors and others to compare basic cash flows they generate (prior to the establishment of any retained cash reserves by their general partner) to the cash distributions they expect to pay their unitholders. Using Adjusted DCF, management can quickly compute the coverage ratio of estimated cash flows to planned cash distributions.USAC’s Adjusted EBITDA, DCF and Adjusted DCF may not be comparable to similarly titled measures of another company because other entities may not calculate these measures in the same manner. This press release references forward-looking estimates of Adjusted EBITDA, Adjusted DCF and DCF, including Adjusted EBITDA, Adjusted DCF and DCF projected to be generated by the acquisition of the S&R Compression rental fleet. A reconciliation of estimated Adjusted EBITDA, Adjusted DCF and DCF to GAAP net income is not provided because GAAP net income generated by the S&R Compression rental fleet for the applicable periods is not accessible. USAC has not yet completed the necessary valuation of the various assets to be acquired, a determination of the useful lives of those assets for accounting purposes, the determination of the final GAAP purchase price of the assets (which will be based on the closing date value of the common units issued as consideration) or of an allocation of the purchase price among the various assets. Accordingly, the amount of depreciation and amortization that will be included in the additional net income generated as a result of the acquisition of the S&R Compression rental fleet is not accessible or estimable at this time. The amount of such additional resulting depreciation and amortization could be significant, such that the amount of additional net income would vary substantially from the amount of projected Adjusted EBITDA, Adjusted DCF and DCF. A reconciliation of estimated Adjusted EBITDA, Adjusted DCF and DCF to GAAP net cash provided by operating activities is not provided because GAAP net cash provided by operating activities is not accessible on a forward-looking basis. The items necessary to estimate GAAP net cash provided by operating activities that are not included in net income, in particular the change in operating assets and liabilities amounts, are not accessible or estimable at this time. USAC does not anticipate the changes in operating assets and liabilities amounts 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, Adjusted DCF and DCF.
USAC believes that investors benefit from having access to the same financial measured used by USAC management. Further, USAC believes that these measures are useful to investors because they are one of the bases for comparing USAC’s operating performance with that of other companies with similar operations, although USAC’s measures may not be directly comparable to similar measures used by other companies.