QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
(Address of principal executive offices) |
(Zip Code) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
Emerging growth company |
Table of Contents
Page | ||||||
PART I. |
1 | |||||
Item 1. |
1 | |||||
1 | ||||||
2 | ||||||
3 | ||||||
4 | ||||||
Notes to Unaudited Condensed Consolidated Financial Statements |
5 | |||||
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 | ||||
Item 3. |
39 | |||||
Item 4. |
39 | |||||
PART II. |
40 | |||||
Item 1. |
40 | |||||
Item 1A. |
40 | |||||
Item 2. |
41 | |||||
Item 3. |
41 | |||||
Item 4. |
41 | |||||
Item 5. |
41 | |||||
Item 6. |
42 | |||||
43 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains, and our officers and representatives may from time to time make, “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding:
• | Expected operating results, such as revenue growth and earnings; |
• | Anticipated levels of capital expenditures and uses of capital; |
• | Current or future volatility in the credit markets and future market conditions; |
• | Expectations of the effect on our financial condition of claims, litigation, environmental costs, contingent liabilities and governmental and regulatory investigations and proceedings; |
• | Production and capacity forecasts for the natural gas and oil industry; |
• | Strategy for customer retention, growth, fleet maintenance, market position, financial results; and |
• | The amount and timing of future dividend payments; |
• | Our interest rate hedges; and |
• | Strategy for risk management. |
Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
• | A reduction in the demand for natural gas and oil; |
• | The loss of, or the deterioration of the financial condition of, any of our key customers; |
• | Nonpayment and nonperformance by our customers, suppliers or vendors; |
• | Competitive pressures that may cause us to lose market share; |
• | The structure of our Compression Operations contracts and the failure of our customers to continue to contract for services after expiration of the primary term; |
• | Our ability to make acquisitions on economically acceptable terms; |
• | Our ability to fund purchases of additional compression equipment; |
• | A downturn in the economic environment, as well as inflationary pressures; |
• | Tax legislation and administrative initiatives or challenges to our tax positions; |
• | The loss of key management, operational personnel or qualified technical personnel; |
• | Our dependence on a limited number of suppliers; |
• | The cost of compliance with existing governmental regulations and proposed governmental regulations, including climate change legislation and regulatory initiatives and stakeholder pressures, including ESG scrutiny; |
• | The inherent risks associated with our operations, such as equipment defects and malfunctions; |
• | Our reliance on third-party components for use in our IT systems; |
• | Legal and reputational risks and expenses relating to the privacy, use and security of employee and client information; |
• | Threats of cyber-attacks or terrorism; |
• | Our credit agreement contains features that may limit our ability to operate our business and fund future growth and also increases our exposure to risk during adverse economic conditions; |
• | Volatility in interest rates; |
• | Our ability to access the capital and credit markets or borrow on affordable terms to obtain additional capital that we may require; |
• | The effectiveness of our disclosure controls and procedures; and |
• | Such other factors as discussed throughout the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our final prospectus filed with the U.S Securities and Exchange Commission (the “SEC”) on June 30, 2023 pursuant to Rule 424(b)(4) and the “throughout Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of such prospectus and and Part II, Item 1A. Risk Factors of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023. |
Any forward-looking statement made by us in this Report is based only on information currently available to us and speaks only as of the date on which it is made. Except as may be required by applicable law, we undertake no obligation to publicly update any forward-looking statement whether as a result of new information, future developments or otherwise.
Item 1. |
Financial Statements. |
As of June 30, 2023 |
As of December 31, 2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ | $ | ||||||
Accounts receivable, net |
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Inventories, net |
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Fair value of derivative instruments |
— | |||||||
Contract assets |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right-of-use |
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Goodwill |
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Identifiable intangible assets, net |
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Fair value of derivative instruments |
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Other assets |
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Total assets |
$ | $ | ||||||
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ | $ | ||||||
Accrued liabilities |
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Contract liabilities |
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Total current liabilities |
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Long-term debt, net of unamortized debt issuance cost |
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Operating lease liabilities |
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Deferred tax liabilities |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies (Note 13) |
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Stockholders’ Equity: |
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Common stock, par value $ shares |
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Additional paid-in capital |
— | |||||||
Retained earnings |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ | |
$ | |||||
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|
|
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
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Revenues: |
||||||||||||||||
Compression O perations |
$ | $ | $ | $ | ||||||||||||
Other S ervices |
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Total revenues |
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Operating expenses: |
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Cost of operations (exclusive of depreciation and amortization shown below): |
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Compression O perations |
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Other S ervices |
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Depreciation and amortization |
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Selling, general and administrative expenses |
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Gain on sale of fixed assets |
( |
) | — | ( |
) | ( |
) | |||||||||
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Total operating expenses |
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Income from operations |
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Other income (expenses): |
||||||||||||||||
Interest expense, net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Realized gain on derivatives |
— | — | ||||||||||||||
Unrealized (loss) gain on derivatives |
( |
) | ( |
) | ( |
) | ||||||||||
Other income (expense) |
( |
) | ||||||||||||||
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|||||||||
Total other expenses |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
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Income before income taxes |
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Income tax expense |
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Net income |
$ | $ | $ | $ | ||||||||||||
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Earnings per share: |
||||||||||||||||
Basic and diluted earnings per share |
$ | $ | $ | $ | ||||||||||||
Weighted-average shares outstanding - basic and diluted |
Common Stock |
||||||||||||||||||||
Shares |
Amount |
Additional Paid-In Capital |
Retained Earnings |
Total Stockholders’ Equity |
||||||||||||||||
Balance, January 1, 2022 |
$ | $ | $ | $ | ||||||||||||||||
Equity compensation |
— | — | ( |
) | ||||||||||||||||
Net income, as restated |
— | — | — | |||||||||||||||||
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Balance, March 31, 202 2, as restated |
$ | $ | $ | $ | ||||||||||||||||
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|
|||||||||||
Distribution to parent |
— | — | ( |
) | — | ( |
) | |||||||||||||
Net income |
— | — | — | |||||||||||||||||
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|||||||||||
Balance, June 30, 2022 |
$ | $ | $ | $ | ||||||||||||||||
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|
|||||||||||
Balance, January 1, 2023 |
$ | $ | $ | $ | ||||||||||||||||
Equity compensation |
— | — | ( |
) | ||||||||||||||||
Net loss |
— | — | — | ( |
) | ( |
) | |||||||||||||
|
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|
|||||||||||
Balance, March 31, 2023 |
$ | $ | $ | $ | ||||||||||||||||
|
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|
|
|
|
|
|
|||||||||||
Distribution to parent |
( |
) | ( |
) | ( |
) | ||||||||||||||
Equity compensation |
— | — | ||||||||||||||||||
Net income |
— | — | — | |||||||||||||||||
|
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|
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Balance, June 30, 2023 |
$ | $ | — | $ | $ | |||||||||||||||
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For the Six Months Ended June 30, |
||||||||
2023 |
2022 |
|||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization expense |
||||||||
Stock-based compensation expense |
||||||||
Amortization of debt issuance costs |
||||||||
Non-cash lease expense |
||||||||
Provision for credit losses |
||||||||
Inventory reserve |
||||||||
Gain on sale of fixed assets |
( |
) | ( |
) | ||||
Unrealized loss (gain) on derivatives |
( |
) | ||||||
Deferred tax provision |
||||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable, net |
( |
) | ( |
) | ||||
Inventories |
( |
) | ( |
) | ||||
Contract assets |
( |
) | ( |
) | ||||
Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
Accounts payable |
||||||||
Accrued and other liabilities |
( |
) | ||||||
Contract liabilities |
||||||||
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|
|||||
Net cash provided by operating activities |
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|||||
Cash flows from investing activities: |
||||||||
Purchase of capital assets |
( |
) | ( |
) | ||||
Proceeds from sale of capital assets |
||||||||
Investment in fund |
( |
) | ( |
) | ||||
Other |
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|
|||||
Net cash used in investing activities |
( |
) | ( |
) | ||||
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|
|||||
Cash flows from financing activities: |
||||||||
Borrowings on debt instruments |
||||||||
Payments on debt instruments |
( |
) | ( |
) | ||||
Payment of debt issuance cost |
( |
) | ( |
) | ||||
Distributions to parent |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Net cash (used in) provided by financing activities |
( |
) | ||||||
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|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
Cash and cash equivalents - beginning of period |
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|
|||||
Cash and cash equivalents - end of period |
$ |
$ |
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|
|||||
Supplemental cash disclosures: |
||||||||
Cash paid for interest |
$ |
$ |
||||||
Cash paid for taxes |
$ |
$ |
||||||
Supplemental disclosure of non-cash investing activities: |
||||||||
Change in accrued capital expenditures |
$ |
$ |
For the three months ended March 31, 2022 |
As Previously Reported |
Restatement Adjustments |
As Restated |
|||||||||
Unrealized gain on derivatives |
$ |
$ |
$ |
|||||||||
Income Tax Expense |
||||||||||||
Net Income |
||||||||||||
Basic and diluted earnings per share |
$ |
$ |
$ |
|||||||||
As of March 31, 2022 |
As Previously Reported |
Restatement Adjustments |
As Restated |
|||||||||
Retained Earnings |
$ |
$ |
$ |
|||||||||
Total stockholder’s equity |
$ |
$ |
$ |
|||||||||
For the three months ended March 31, 2022 |
As Previously Reported |
Restatement Adjustments |
As Restated |
|||||||||
Net income |
$ |
$ |
$ |
|||||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||||||
Unrealized loss (gain) on derivatives |
( |
) |
( |
) |
( |
) | ||||||
Deferred tax provision |
||||||||||||
Changes in Operating assets and liabilities |
||||||||||||
Prepaid Expenses and other current assets |
( |
) |
( |
) | ||||||||
Accrued and other liabilities |
( |
) |
||||||||||
Net cash provided by operating activities |
$ |
$ |
$ |
Three Months Ended June 30, |
||||||||
2023 |
2022 |
|||||||
Services provided over time: |
||||||||
Compression O perations |
$ | $ | ||||||
Other S ervices |
||||||||
Total services provided over time |
||||||||
Services provided or goods transferred at a point in time: |
||||||||
Compression O perations |
||||||||
Other S ervices |
||||||||
Total services provided or goods transferred at a point in time |
||||||||
Total revenue |
$ | $ | ||||||
Six Months Ended June 30, |
||||||||
2023 |
2022 |
|||||||
Services provided over time: |
||||||||
Compression O perations |
$ | $ | ||||||
Other S ervices |
||||||||
Total services provided over time |
||||||||
Services provided or goods transferred at a point in time: |
||||||||
Compression O perations |
||||||||
Other S ervices |
||||||||
Total services provided or goods transferred at a point in time |
||||||||
Total revenue |
$ | $ | ||||||
Remainder of 2023 |
2024 |
2025 |
2026 |
2027 and thereafter |
Total |
|||||||||||||||||||
Remaining performance obligations |
$ | $ | $ | $ | $ | $ |
As of June 30, |
As of December 31, |
|||||||
2023 |
2022 |
|||||||
Accounts receivable |
$ | $ | ||||||
Allowance for credit losses |
||||||||
Accounts receivable, net |
$ | |
$ | |||||
As of June 30, |
As of December 31, |
|||||||
2023 |
2022 |
|||||||
Non-serialized parts |
$ | $ | ||||||
Serialized parts |
||||||||
Total inventories |
$ | |
$ | |||||
As of June 30, |
As of December 31, |
|||||||||||
2023 |
2022 |
|||||||||||
Compression equipment |
$ | $ | ||||||||||
Trailers and vehicles |
||||||||||||
Field equipment |
||||||||||||
Technology hardware and software |
||||||||||||
Leasehold improvements |
||||||||||||
Shipping containers |
||||||||||||
Furniture and fixtures |
||||||||||||
Capital lease |
||||||||||||
Total property and equipment, gross |
||||||||||||
Less: accumulated depreciation |
( |
) | ( |
) | ||||||||
Property, plant and equipment, net |
$ | |
$ | |||||||||
As of June 30, 2023 |
||||||||||||||||
Original Cost |
Accumulated Amortization |
Net Amount |
Remaining Weighted Average Amortization Period (years) |
|||||||||||||
Trade name |
$ |
$ |
( |
) | $ |
|||||||||||
Customer relationships |
( |
) | ||||||||||||||
Total identifiable intangible assets |
$ |
$ |
( |
) | $ |
|||||||||||
As of December 31, 2022 |
||||||||||||||||
Original Cost |
Accumulated Amortization |
Net Amount |
Remaining Weighted Average Amortization Period (years) |
|||||||||||||
Trade name |
$ | $ | ( |
) | $ | |||||||||||
Customer relationships |
( |
) | ||||||||||||||
Total identifiable intangible assets |
$ | $ | ( |
) | $ | |||||||||||
Amount |
||||
Years ending December 31, |
||||
Remainder of 2023 |
$ | |||
2024 |
||||
2025 |
||||
2026 |
||||
2027 |
||||
Thereafter |
||||
Total |
$ | |||
As of June 30, |
As of December 31, |
|||||||
2023 |
2022 |
|||||||
ABL Facility |
$ | $ | ||||||
Term loan |
||||||||
Total debt outstanding |
||||||||
Less: unamortized debt issuance cost |
( |
) | ( |
) | ||||
Long-term debt, net of unamortized debt issuance cost |
$ | |
$ | |||||
Amount |
||||
Years ended December 31, |
||||
Remainder of 2023 |
$ | |||
2024 |
||||
2025 |
||||
2026 |
||||
2027 |
||||
Thereafter |
||||
|
|
|||
Total |
$ | |||
|
|
Notional Amount |
Maturities |
|||
$ |
||||
$ |
||||
$ |
||||
$ |
||||
$ |
||||
$ |
||||
$ |
||||
$ |
||||
$ |
||||
$ |
||||
$ |
As on June 30, 2023 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Current assets: |
||||||||||||||||
Interest rate swaps |
$ | — | $ | — | $ | — | $ | — | ||||||||
Total current assets |
$ | — | $ | — | $ | — | $ | — | ||||||||
Non-current assets: |
||||||||||||||||
Interest rate swaps |
$ | — | $ | $ | — | $ | ||||||||||
Total non-current assets |
$ | — | $ | $ | — | $ | ||||||||||
Total |
$ | — | $ | $ | — | $ | ||||||||||
As of December 31, 2022 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Current assets: |
||||||||||||||||
Interest rate swaps |
$ | — | $ | $ | — | $ | ||||||||||
Total current assets |
$ | — | $ | $ | — | $ | ||||||||||
Non-current assets: |
||||||||||||||||
Interest rate swaps |
$ | — | $ | $ | — | $ | ||||||||||
Interest rate collars |
— | — | ||||||||||||||
Total non-current assets |
$ | — | $ | $ | — | $ | ||||||||||
Total |
$ | — | $ | $ | — | $ | ||||||||||
Derivative Instruments Not Designated as Hedging Instrument |
Location of Gain (Loss) Recognized |
Three Months Ended June 30, |
||||||||
2023 |
2022 |
|||||||||
Interest rate swaps |
Unrealized (loss) gain on derivatives | $ | $ | ( |
) | |||||
Interest rate collars |
Unrealized (loss) gain on derivatives | ( |
) | |||||||
Total unrealized loss on derivative |
( |
) | ( |
) | ||||||
Interest rate swaps |
Realized gain on derivatives | — | ||||||||
Interest rate collars |
Realized gain on derivatives | — | ||||||||
Total realized gain on derivatives |
— | |||||||||
Total |
$ | $ | ( |
) | ||||||
Derivative Instruments Not Designated as Hedging Instrument |
Location of Gain (Loss) Recognized |
Six Months Ended June 30, |
||||||||
2023 |
2022 |
|||||||||
Interest rate swaps |
Unrealized (loss) gain on derivatives | $ | ( |
) | $ | |||||
Interest rate collars |
Unrealized (loss) gain on derivatives | ( |
) | |||||||
Total unrealized (loss) gain on derivative |
( |
) | ||||||||
Interest rate swaps |
Realized gain on derivatives | — | ||||||||
Interest rate collars |
Realized gain on derivatives | — | ||||||||
Total realized gain on derivatives |
— | |||||||||
Total |
$ | $ | ||||||||
Derivative Instruments Not Designated as Hedging Instrument |
Location of Gain Recognized |
Three Months Ended March 31, |
||||||||||||||
As Previously Reported |
Restatement Adjustments |
As Restated |
||||||||||||||
Interest rate swaps |
Unrealized gain on derivatives |
$ |
$ |
$ |
||||||||||||
Interest rate collars |
Unrealized gain on derivatives |
|||||||||||||||
Total |
$ |
$ |
$ |
|||||||||||||
As on June 30, 2023 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Debt |
$ | — | $ | — | $ | $ | ||||||||||
Contingent Consideration |
— | — | ||||||||||||||
Total |
$ | — | $ | — | $ | $ | ||||||||||
As of December 31, 2022 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Debt |
$ | — | $ | — | $ | $ | ||||||||||
Contingent Consideration |
— | — | ||||||||||||||
Total |
$ | — | $ | — | $ | $ | ||||||||||
RSUs |
PSUs |
|||||||||||||||
Number of RSUs |
Weighted- Average Price |
Number of PSUs |
Weighted- Average Price |
|||||||||||||
Outstanding at December 31, 2022 |
||||||||||||||||
Granted |
$ | $ | ||||||||||||||
Vested or exercised |
||||||||||||||||
Forfeited |
||||||||||||||||
|
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Outstanding at June 30, 2023 |
$ | $ | ||||||||||||||
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Restricted stock awards expected to vest |
$ | $ | ||||||||||||||
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As of June 30, 2023 |
As of December 31, 2022 |
|||||||
Prepaid insurance |
$ | $ | ||||||
Prepaid rent |
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Deferred IPO issuance costs |
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Other |
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Total prepaid expenses and other current assets |
$ | $ | ||||||
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|
As of June 30, 2023 |
As of December 31, 2022 |
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Sales tax liability |
$ | $ | ||||||
Accrued interest |
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Accrued bonus |
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Accrued taxes |
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Accrued payroll |
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Accrued legal fee |
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Lease liabilities - current portion |
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Contingent consideration |
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Accrued accounts payable |
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Accrued insurance |
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Other |
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Total accrued liabilities |
$ | $ | ||||||
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