A 13% Yield, Industry Turnaround, And Upside Potential For This Pure-Play LP

Have you ever had to grit your teeth and “hang in there” while one of your holdings works through an industry trough? That’s where we’ve been at with USA Compression Partners LP (USAC) for the past few quarters. As US drilling declined and picked back up, USAC, the leading US pure play compression company, has seen its DCF and distribution coverage falter due to a lagging effect – new compression demand tends to lag increased drilling by a few quarters. Its price/unit also suffered.

Fortunately, USAC has a very supportive general partner, USAC Compression Holdings LLC, which has continued to reinvest 50% of its quarterly distributions in USAC. This has allowed to maintain a “cash distribution coverage ratio” above 1x. (Left column is Q2 ’17; right column is Q1 ’17):

(Source: USAC site)

Here’s how this has played out over the past four quarters – the DCF/Distribution coverage has below 1x, but due to the $ 6M-plus that has been reinvested each quarter, they’ve been able to maintain their $ .525 quarterly payout with a cash coverage ratio averaging 1.055x:

Management reaffirmed it’s 2017 guidance on the Q2 earnings release. We’ve updated this table with the actual distribution figures from Q1-Q2, to compare them to the guidance figures.

If USAC maintains the current level of total distributions, their traditional DCF/Distribution coverage will be in a range of .84x to .95x, according to the DCF guidance range.

However, if their GP continues to reinvest its distributions in Q3 and Q4 ’17, USAC’s cash distribution coverage ratio will be in a 1.06x to 1.20x range.

In this table, we compare the actual Q1-2 ’17 EBITDA and DCF figures vs. the pro-rated 2017 guidance figures. So far in 2017, management has achieved the low end of its guidance in both DCF and EBITDA.

However, there are reasons to believe that this will improve in the second half of 2017 and in 2018, which we’ll detail in the Earnings and Back To The Future sections further on in the article.

Distributions:

USAC’s next distribution should have an ex-dividend date sometime in late July. It pays in the usual Feb/May/Aug/Nov LP cycle. Management has maintained a $ .525 quarterly payout since August 2015, which is 23.53% above its targeted minimum quarterly distribution.

You can track USAC’s price and current yield in the Basic Materials section of our High Dividend Stocks By Sector Tables.

Unit holders get a K-1 at tax time.

Note: Investing in LPs and MLPs may present tax complications when done in an IRA. Additionally, since LPs usually make tax-deferred distributions, you’d reap more tax benefits by holding them in a non-IRA account. At any rate, please consult your accountant about this issue.

Options:

We feature option-selling trades for USAC in our premium subscription service, which we can’t reveal here, but you can see details for over 25 trades in our free Covered Calls and Cash Secured Puts Tables.

Earnings:

In Q2 ’17, EBITDA was down slightly vs. Q2 ’16, while DCF fell -11% due to “some acceleration in maintenance activities during the quarter, as demand for certain idle units in our fleet increased more than expected.”

OK, so DCF was down due to increased demand – not a totally negative scenario – they needed to spend to prepare more machinery for future service.

Sequentially, this was USAC’s best EBITDA figure since Q2 ’16. Fleet utilization was also up, as they noted on the Q2 earnings call: “Our average horsepower utilization for the second quarter was 91.2%, up nicely from 88.2% in Q1, continuing the upward movement of recent quarters.”

“We increased our core compression service revenues by about 5% over the first quarter and achieved a gross margin of over 67%, which was also up from the first quarter.”

Here’s what investors have had to deal with over the past 4 quarters, in return for receiving the steady $ .525/unit quarterly payout – flat revenue, EBITDA down -6%; DCF down -10%; DCF Distribution Coverage down -20%; and unit growth of 12.43%.

Like many of the companies we cover in our articles, USAC has long-term fee-based contracts. Management has also done a good job of keeping bad debt at a minimum, (less than 0.07% over the past 12 years), through partnering with larger, solid counter-parties, and maintaining long-term relationships:

We wouldn’t be braving these headwinds over the past year if it wasn’t for management’s long-term track record of growth – EBITDA CAGR of 15%, Revenue CAGR of 16%, with margins above 50%, (and, of course, the steady distribution).

In addition, USAC has a long history of weathering natural gas cycles. Due to the critical need for its compression services – producers need compression to move natural gas through the pipeline system. This company isn’t going away anytime soon:

Another factor which makes compression services “sticky” over the long term is the profile of natural gas wells in shale plays, which not only need more compression but also tend to have a long 20-year-plus life, after stabilizing.

Management has grown USAC’s asset base considerably, but also made a savvy move in 2016 and 2017 – they cut capex substantially, in response to the downturn:

(Source: USAC site)

Back To The Future:

So, can USAC return to growth, or, at least get to better distribution coverage in the second half of 2017 and in 2018? Management thinks so. On the Q2 earnings call, they said the following:

Looking back on the quarter, we experienced increased activity on the part of our midstream and large E&P customers. This increase in demand has led to tightening in availability of certain types and classes of equipment, leading to increased fleet utilization, both for USA Compression as well as select sector peers. USA’s larger horsepower fleet utilization is now back to levels virtually the same as before the industry decline, in the mid-90% area.”

We also improved visibility regarding demand for our services and corresponding contracting activities, well into 2018. Given this tightness, we have increased the monthly service fees we charge on many types of equipment we use to provide our services.” (Emphasis ours)

During the second quarter, we also saw strong contracting activity, signing new contracts for upwards of a 160,000 horsepower.”

As of the end of the second quarter, we expect to take delivery of approximately 70,000 new-build horsepower in the second half of 2017, part of approximately a 125,000 total horsepower that is already contracted and expected to start in the back half of the year, further increasing utilization as well as revenues and cash flow.”

For 2018, we’ve already contracted to build and take delivery of approximately a 150,000 horsepower throughout the year with the majority already spoken for by our core customers.”

able to see increasing cash flows and increasing activity over the next — the rest of this year and well into 2018. We think we kind of grow back into a coverage level that’s a little more attractive than where we are now.”

Another positive note was that management doesn’t see any more unit dilution in the near future: “We are not looking at any need for equity and we think that the business kind of naturally delevers over the course of the next two, four-plus quarters.” (Source-Q2 earnings call)

Industry Tailwinds:

Management also addressed the changes which have been evolving in the industry on the Q2 earnings call:

“There is a fundamental shift occurring in the oil and gas industry as certain shale plays move from the exploration/exploitation mode into the development mode, driven in many cases by our larger upstream customers. This moment toward massive mining type, manufacturing oriented project results and initial production volumes in many cases approaching those of large offshore production platforms.”

“Our business is driven by natural gas demand and production. As the industry has evolved into these larger projects, our large horsepower fleet sits right in the middle of it all. We continue to see significant activity by our customers, especially in the Permian and Delaware basins, and it is all focused on the very largest compression units in our fleet.”

(Source: USAC site)

What’s causing the increased demand for compression? US producers are adding rigs in key areas – excepting the Marcellus, which was up 73% from the trough, all of the areas listed below had rig counts up by triple digits as of 8/11/17.

(Source: USAC site)

As management noted in the earnings call, “The factors driving natural gas demand and the associated need for increased domestic natural gas infrastructure remain firmly in place – exports to Mexico, LNG exports, industrial demand, and gas-fired electric generation.”

(Source: USAC site)

Risks:

As we noted earlier, USAC isn’t currently covering its distributions in a traditional DCF/distribution model – its general partner, USAC Compression Holdings LLC, has been supporting the distribution by electing to reinvest 50% of its distributions into the company’s DRIP plan, which affords USAC more cash to continue paying out that $ .525 distribution every quarter. If the general partner decides to stop reinvesting in the near term and USAC’s anticipated earnings growth doesn’t emerge, management may be forced to cut the distribution.

Hurricane damage – Hurricane Harvey caused some wells to be shut in within the Eagle Ford area – the net downside is unknown as of yet. “The shut-in wells also have disrupted natural gas pipeline flows into Mexico, one of the biggest purchasers of Eagle Ford gas, and caused prices to spike there.” (Source: mysanantonio.com)

However, a 9/11/17 update from Forbes said that “A variety of midstream companies have provided updates on operations and the punchline is there has been very minimal damage and operations have either restarted or in process of restarting at various facilities. This is consistent for producers, with crude oil and natural gas production coming back on-line as well.” (Source:forbes.com)

Analysts’ Targets:

USAC is now 12.6% below analysts’ current $ 17.60 price target, and 28% below the $ 20.00 high price target.

Valuation:

USAC’s 13.44% yield dwarfs the Oil & Gas Equipment & Services industry’s average 1.67% yield, while its Price/Book is considerably lower.

Financials:

The industry isn’t known for high ROA and ROE figures – the amount of heavy equipment needed implies a large depreciation and amortization charge vs. net income, which makes USAC’s tiny ROA and ROE figures look good by comparison. Its Operating Margin is also much higher than broad industry averages, while its Debt/Equity level is much lower.

Debt and Liquidity:

Management commented on current leverage on the Q2 earnings call – “Outstanding borrowings under our revolving credit facility as of quarter-end were $ 725 million, resulting in a leverage ratio of 4.94 times, consistent with the first quarter and well within our covenant level of 5.5 times.”

The $ 1.1B credit facility matures in 2020. They had ~ $ 375M available as of 6/30/17.

(Note: we used trailing EBITDA to derive a 5.04x ratio, whereas management uses Q2’s EBITDA annualized vs. debt, to come up with their 4.94x figure.)

Summary:

We continue to rate USAC a long-term buy. This is a company which has weathered numerous Energy cycles, and we feel that they will do so once again. Meanwhile, income investors receive a very attractive quarterly payout.

All tables furnished by DoubleDividendStocks.com, unless otherwise noted.

Disclaimer: This article was written for informational purposes only, and isn’t intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

Disclosure: I am/we are long USAC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Tech

The tech industry, according to Trump

Despite having never held public office (nor, perhaps, a computer mouse?), Republican front-runner Donald Trump has been happy to share his views on technology. Although Trump appears to be completely out of touch at times, his position on immigration reform, Net Neutrality, mass surveillance, major tech corporations, and cyber warfare hold weight with a significant portion of the U.S. population, and thus seem worth gathering together for further study.

That’s what we’ve done below. If you’d like to submit a quote, please let us know.

Trump on Google

Why doesn’t President Obama just get the people from Google to fix the failed website. In fact, why didn’t he use them in the first place! (2013, Twitter)

Trump on Apple

trump on iphone

I think what you ought to do is boycott Apple until such time as they give that security number. How do you like that? I just thought of that … Boycott Apple! (2016)

I use both iPhone & Samsung. If Apple doesn’t give info to authorities on the terrorists I’ll only be using Samsung until they give info.
(2016, Twitter)

I predicted Apple’s stock fall based on their dumb refusal to give the option of a larger iPhone screen like Samsung. I sold my Apple stock (2014, Twitter)

We’re gonna get Apple to start building their damn computers and things in this country, instead of in other countries. (2016, The Verge)

Trump on Amazon

If @amazon ever had to pay fair taxes, its stock would crash and it would crumble like a paper bag. The @washingtonpost scam is saving it! (2015, Politico)

Trump on AOL

What a STUPID deal for Verizon to buy AOL for $ 4.4 billion. AOL has been bad luck for everyone who touched it. Worth less than $ 1 billion! (2015, Twitter)

Trump on T-Mobile

T-Mobile service is terrible! Why can’t you do something to improve it for your customers. I don’t want it in my buildings. (2015, Twitter)

Trump on Twitter

Twitter will soon be irrelevant if lowlifes are so easily able to hack into accounts. (2013, Twitter)

Trump on Mass Surveillance

The NYPD Surveillance Program kept NYC safe since 9/11. There will be tragic consequences for ending it. (2014, Twitter)

I didn’t suggest a database-a reporter did. We must defeat Islamic terrorism & have surveillance, including a watch list, to protect America (2015, Twitter)

Trump on email

I don’t do the email thing. (2007, New York Times)

Very rarely, but I use it (2013, NYT)

Trump on cyber warfare

We’re losing a lot of people because of the Internet,” Trump said. “We have to go see Bill Gates and a lot of different people that really understand what’s happening. We have to talk to them about, maybe in certain areas, closing that Internet up in some way. Somebody will say, ‘Oh freedom of speech, freedom of speech.’ These are foolish people. We have a lot of foolish people. (2015, CNN)

What China is doing on the cyber warfare front is equally alarming. Cyber spying can isolate network weaknesses and allow the Chinese to steal valuable intelligence. (2011, Network World)

Trump on immigration — H-1B visas

trump on engineers

We graduate two times more Americans with STEM degrees each year than find STEM jobs, yet as much as two-thirds of entry-level hiring for IT jobs is accomplished through the H-1B program. More than half of H-1B visas are issued for the program’s lowest allowable wage level, and more than eighty percent for its bottom two. Raising the prevailing wage paid to H-1Bs will force companies to give these coveted entry-level jobs to the existing domestic pool of unemployed native and immigrant workers in the U.S., instead of flying in cheaper workers from overseas. This will improve the number of black, Hispanic and female workers in Silicon Valley who have been passed over in favor of the H-1B program. Mark Zuckerberg’s personal Senator, Marco Rubio, has a bill to triple H-1Bs that would decimate women and minorities. (2015, Network World)

I’m changing. I’m changing. We need highly skilled people in this country. And if we can’t do it, we’ll get them in. (2016, Business Insider)

Trump on Intellectual Property

As President, my goal would be to ensure that the intellectual property produced in America remains the property of those who produce it. Letting other countries steal our property will not happen on my watch. (2015, Breitbart)

“Cyber-piracy”

It has come to our attention that you have registered the Domain Name STOPTRUMP.US and have made a deliberate attempt to sell T-shirts online using TRUMP and DONALD TRUMP brands without any authorization from Mr. Trump … Your registration (and use) of the Domain Name also constitutes cyber-piracy in violation of the U.S. Anti-Cybersquatting Act … Mr Trump considers this to be a very serious matter. (2015, ArsTechnica)

Trump on Snowden

trump on snowden

A coincidence that the NSA leaker is living openly in Hong Kong?! At the same time the Chinese Pres. met with Obama in CA. (2013, Twitter)

Snowden is a spy who has caused great damage to the U.S. A spy in the old days, when our country was respected and strong, would be executed (2014, Twitter)

Trump on NASA

It is very sad to see what @BarackObama has done with NASA. He has gutted the program and made us dependent on the Russians. (2012, Twitter)

You know, in the old days, [NASA] was great… right now, we have bigger problems — you understand that? We’ve got to fix our potholes. You know, we don’t exactly have a lot of money. (2015, Washington Post via Engadget)

Trump on online gambling

This [online gambling] has to happen because many other countries are doing it and like usual the U.S. is just missing out. (2011, Forbes via Engadget)

Net Neutrality

Obama’s attack on the internet is another top down power grab. Net neutrality is the Fairness Doctrine. Will target conservative media. (2014, Gizmodo)

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Mobile Software Computing: Mobile Industry on Cloud – What is Cloud Computing?

Lately, Cloud Computing was in the gossip news as two technology leaders, HP and Dell, were warring it out to buy a cloud computing company. So, what exactly is Cloud Computing?

The hottest wave in the world of technology is the growth of Cloud Computing. While many technologically advanced people are aware of Cloud Computing; it is still a new term for the mass. In this blog, we will be in brief going over what Cloud Computing is and how Mobile Cloud Computing is shortly going to be the future of communicating and conducting business all over the world.

Cloud Computing is a new form of accessing data (applications, documents, music files, video files, pictures, and so forth) from anyplace in the world without the need of actually carrying the data with you thru the use of memory cards, hard drives or flash cards, The main advantage of such a technology is that it frees individuals from their desktop and allows them to access their data anywhere and anytime. By hosting everything on a ‘cloud’, users no longer have to worry about leaving home without having all their information accessible to them.

Without going into an thoroughly analysis on Cloud Computing, one can already start to realize the major benefits and advantages a Cloud Computing user can experience by having all of their information available to them wirelessly. And then when you take into consideration that there are more than 4.5 billion Mobile-Phone users all over the world, it starts to make lot more sense the impact and influence Mobile Cloud Computing is going to have on the way we communicate and conduct business.

Currently throughout the world, there are more “feature” mobile phone users than “smart” phone users and since “feature” mobile phones do not have enough processing power or memory to support huge amounts of data, Cloud Computing seems to be the ideal solution for those “feature” mobile phone users. Cloud computing will allocate these “feature” mobile phone users to have the same amount of data access available to them as “smart” phone users except for the simple fact that “feature” phone users will not physically have their data stored onto the phone (due to the low processing/memory capabilities), it will be on their cloud and accessible to them when required. This extra advantage of Cloud Computing allows developers and mobile industry companies to start targeting a larger market than only “smart” phone users, which in turn will give Cloud Computing more thrust going into the future.

Another reason why Cloud Computing will have a major impact on the mobile world is due to the popularity of mobile applications on different devices. Mobile Applications have a countless number of benefits to its users but one major hitch which many mobile users face is the fact that some mobile applications will work only on a specific device but not on another device based on mobile platforms. For example, one mobile application may run only on the BlackBerry while it will not work on an Apple iPhone. This solution of mobile applications only running on specific devices can easily be solved if a user decides to switch and use Cloud Computing as a form of accessing data and applications for their devices; if an application can be accessible from the web, it certainly can be accessible through cloud computing.

What the future truly holds for Cloud Computing and the Mobile world is still undecided but experts foresee that within 2-3 yrs, all technologically superior countries will be using mobile cloud computing as their primary method of accessing data through their mobile phones. The future is bright for cloud computing but its users will have to patiently wait until cloud computing reaches it best possible potential in the mobile industry.

Where do you see Cloud Computing on Mobile going?

 

“Cloud Music” is the latest buzz these days. Revolutionary technology “” which allows customers to have access to their music collections from anywhere in the world using their mobile device is a biggest example of where Mobile Cloud Computing is heading. Cloud Music and Steaming is the foreseen future of Cloud Computing and Mobile.

 

V-Soft is a Silicon Valley based provider of Product and Mobile Application Development Services across a wide range of technology platforms. V-Soft teams have noteworthy experience in best-in-class methodologies for software and hardware product definition, design, development, quality assurance, implementation, and post deployment support. V-Soft has immense expertise in the mobile software application and mobile platform development for different mobile platforms such as Android, iPhone, BlackBerry, Windows Mobile, Windows Embedded CE, Embedded Linux, Mac X, and Symbian.

 

V-Soft, a Silicon Valley based company, has been building leading-edge mobile and smart phone applications integrated with Catch Media’s patented B to B Registry, Tracking, Routing, and Clearinghouse Play Anywhere® platform. Catch Media partnered with Carphone Warehouse to recently launch “Music Anywhere” a groundbreaking cloud music service that provides users access to their entire music library, wherever they are in the world. Music Anywhere is the first service of its kind, backed by the music industry. Catch Media’s CEO Yaacov Ben-Yaacov recently quoted during strategic alliance announcement press release “V-Soft offers a compelling model for companies that are working on cutting edge technologies. Their skilled and experienced engineers met the aggressive deadlines we had to get the product in the hands of our customers. They are the trusted engineering partner mobile apps developers are looking for”.

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For more information about Cloud Computing and Mobile Development Services call +1 408-342-1700 or email at [email protected] Visit our website http://www.v-softinc.com

V-Soft is a leading software development company that specializes in cutting-edge Product Development and Mobile Application Development services by leveraging our off-shore value advantage.  V-Soft has expertise in all popular mobile platforms; Android, iPhone, BlackBerry, Windows Embedded CE, Embedded Linux, Mac X, and Symbian.

www.v-softinc.com

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Cloud Hosting Services – An Innovation and Paradigm to the Industry Verticals

Cloud Hosting has been creating a lot of waves around and all the major hosting industry player are getting geared up to get their hands into this huge market. It is rapidly being adopted by large businesses, mid-sized businesses, as well as SOHOs. Moving to the cloud proves to help as it dramatically cuts down hardware and software expenditure.

According to consulting firm Zinnov, “The market for cloud computing in India Is expected to grow nearly ten times to ,084 million by 2015 from the current 0 million.”

A cloud is basically an infrastructure or a set of pooled resources that operates on a distributed data center environment via network of servers, instead of being linked to a single server as was the case with traditional hosting. Being highly scalable it can easily handle instantly the growing traffic influx of a website with increase in cloud servers with the customer having access to the entire network of servers.

Imagine when you have to migrate from a shared server to a dedicated server or the problems that you encounter when your server crashes– all these problem can be avoided easily by switching to cloud hosting.

– Cloud hosting is a boon for small and medium businesses. You do not need to invest on any additional hardware or software for cloud computing implementation. Cloud hosting companies charge their users based on the quantity of computing power consumed i.e. its pay-per-use. You enjoy complete flexibility with precise and dynamic allocation of all computing resources as per your requirements

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– It is the convenience of scalability that makes cloud hosting popular. Increased scalability ensures users to access additional computer resources to meet improved application loads. Cloud hosting services make load balancing, hardware upgrades, and maintenance sessions across servers easy.

Cloud computing providers adopt precautionary measures like tough information security, comprehensive compliance reporting and API analysis in order to ward away security threats.

– Cloud Hosting is highly friendly to the environment as it helps reduce the number of hardware components and replacing them with remote cloud computing systems that reduces energy costs for running hardware and cooling as well as reduces your carbon foot print. Microsoft recently claimed that cloud computing can reduce a business’s carbon emissions by as much as 30%,

Cloud servers are highly reliable as they come with built in failover. But as these servers are shared by many users they may slow down in comparison to a dedicated server which is accessible only by users of your organization.

– There is no need to buy and install expensive software because it’s already installed online remotely and you run it from there. In case the user needs to upgrade or calibrate the hardware or software, it is more convenient to choose dedicated web hosting services. It is easy touse since you do not have to maintain any hardware and can effortlessly add more servers through control panel as and when required. Also it is simple to manage all OS patching.

Thus Cloud Hosting services provide the perfection you demand from your hosted infrastructure, delivering a hosting environment that doesn’t limit an application to a specific set of resources and India is fast emerging as the front runner in providing cloud hosting services.

Cloud hosting is widely predicted to be one of the next major trends in the business world, but the technology is still maturing. This video focuses on the pros and cons of cloud hosting and how it is poised to change internet commerce in the very near future. For more about the author visit: www.ukfast.co.uk . For more webmaster videos, visit: www.youtube.com
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