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Item 1. Financial Statements

2020-11-03 compared with 2020-08-04 · 113 added, 84 removed, 540 unchanged (27% of the section changed)

3 unchanged sentences

(in thousands)

September 30,

2020 December 31,

37 unchanged sentences

(in thousands, except per unit amounts)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

20 unchanged sentences

distributions on Preferred Units ( 12,188 ) ( 12,188 ) ( 36,563 ) ( 36,563 )

Net loss attributable to common and Class B unitholders’ interests $ ( 9,504 ) $ ( 2,239 ) $ ( 624,152 ) $ ( 7,839 )

Net income (loss) attributable to common and Class B unitholders’ interests $ ( 5,669 ) $ 1,127 $ ( 629,821 ) $ ( 6,712 )

Net income (loss) attributable to:

11 unchanged sentences

(in thousands, except per unit amounts)

For the Six Months Ended June 30, 2020

For the Nine Months Ended September 30, 2020

Common units Warrants Total

14 unchanged sentences

Partners’ capital ending balance, June 30, 2020 443,659 13,979 457,638

For the Six Months Ended June 30, 2019

Vesting of phantom units 20 — 20

Distributions and DERs, $ 0.525 per unit

( 50,874 ) — ( 50,874 )

Issuance of common units under the DRIP 499 — 499

Unit-based compensation for equity classified awards 55 — 55

Net loss attributable to common unitholders’ interests ( 5,669 ) — ( 5,669 )

Partners' capital ending balance, September 30, 2020 $ 387,690 $ 13,979 $ 401,669

USA COMPRESSION PARTNERS, LP

Unaudited Condensed Consolidated Statements of Changes in Partners’ Capital

(in thousands, except per unit amounts)

For the Nine Months Ended September 30, 2019

Common units Class B Units Warrants Total

14 unchanged sentences

Partners’ capital ending balance, June 30, 2019 1,197,532 68,348 13,979 1,279,859

Vesting of phantom units 30 — — 30

Distributions and DERs, $ 0.525 per unit

( 47,373 ) — — ( 47,373 )

Issuance of common units under the DRIP 236 — — 236

Unit-based compensation for equity classified awards 41 — — 41

Net income (loss) attributable to common and Class B unitholders’ interests 2,084 ( 957 ) — 1,127

Conversion of Class B Units to common units 67,391 ( 67,391 ) — —

Partners' capital ending balance, September 30, 2019 $ 1,219,941 $ — $ 13,979 $ 1,233,920

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

6 unchanged sentences

Deferred income tax expense 350 352

Loss (gain) on disposition of assets ( 1,801 ) 1,586

Gain on disposition of assets ( 115 ) ( 389 )

Impairment of compression equipment 5,629 3,234

32 unchanged sentences

Non-cash distributions to certain common unitholders (DRIP) $ 1,412 $ 715

Transfers from (to) inventories to (from) property and equipment $ 10,379 $ ( 8,316 )

Transfers from inventories to property and equipment $ 13,401 $ 17,686

Changes in capital expenditures included in accounts payable and accrued liabilities $ ( 9,536 ) $ 3,825

Financing costs included in accounts payable and accrued liabilities $ 115 $ —

Conversion of Class B Units to common units $ — $ 67,391

See accompanying notes to unaudited condensed consolidated financial statements.

13 unchanged sentences

In the opinion of our management, such financial information reflects all normal recurring adjustments necessary for a fair presentation of these interim unaudited condensed consolidated financial statements in accordance with GAAP.

Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC.

32 unchanged sentences

Capitalized interest is calculated by multiplying the Partnership’s monthly effective interest rate on outstanding debt by the amount of qualifying costs, which include upfront payments to acquire certain compression units.

Capitalized interest was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2020, respectively, and $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2019 , respectively.

Capitalized interest was $ 6,000 and $ 0.2 million for the three and nine months ended September 30, 2020, respectively, and $ 0.1 million and $ 0.5 million for the three and nine months ended September 30, 2019 , respectively.

Impairment of Long-Lived Assets

5 unchanged sentences

The fair value of the asset is measured using quoted market prices or, in the absence of quoted market prices, based on an estimate of discounted cash flows, the expected net sale proceeds compared to the other similarly configured fleet units we recently sold or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

Refer to Note 5 for more detailed information about impairment charges during the three and six months ended June 30, 2020 and 2019.

Refer to Note 5 for more detailed information about impairment charges during the three and nine months ended September 30, 2020 and 2019.

Identifiable Intangible Assets

3 unchanged sentences

Goodwill is not amortized, but is reviewed for impairment annually based on the carrying values as of October 1, or more frequently if impairment indicators arise that suggest the carrying value of goodwill may not be recovered.

Refer to Note 5 for more detailed information about goodwill impairment charges during the six months ended June 30, 2020.

Refer to Note 5 for more detailed information about goodwill impairment charges during the nine months ended September 30, 2020.

Revenue Recognition

19 unchanged sentences

Level 3 inputs are unobservable inputs for the asset or liability.

As of June 30, 2020, our financial instruments consisted primarily of cash and cash equivalents, trade accounts receivable, trade accounts payable and long-term debt.

As of September 30, 2020, our financial instruments consisted primarily of cash and cash equivalents, trade accounts receivable, trade accounts payable and long-term debt.

The book values of cash and cash equivalents, trade accounts receivable and trade accounts payable are representative of fair value due to their short-term maturities.

2 unchanged sentences

The following table summarizes the aggregate principal amount and fair value of our Senior Notes 2026 and Senior Notes 2027 (in thousands):

September 30,

2020 December 31,

6 unchanged sentences

(3) Trade Accounts Receivable

The allowance for credit losses, which was $ 5.4 million and $ 2.5 million as of June 30, 2020 and December 31, 2019, respectively, is our best estimate of the amount of probable credit losses included in our existing accounts receivable.

The allowance for credit losses, which was $ 5.2 million and $ 2.5 million as of September 30, 2020 and December 31, 2019, respectively, is our best estimate of the amount of probable credit losses included in our existing accounts receivable.

The following summarizes activity within our trade accounts receivable allowance for credit losses balance (in thousands):

3 unchanged sentences

Writeoffs charged against the allowance ( 975 )

Balance as of June 30, 2020 $ 5,361

Balance as of September 30, 2020 $ 5,204

______________________

(1) The provision for expected credit losses recognized during the three months ended June 30, 2020 was $ 2.2 million.

Low crude oil prices, driven by decreased demand for and global oversupply of crude oil as a result of the COVID-19 pandemic, is the primary factor contributing to the increase to the allowance for credit losses for the three and six months ended June 30, 2020.

(1) There was no provision for expected credit losses recognized during the three months ended September 30, 2020.

We cannot predict the duration of these conditions or the severity of their impact on our customers and the collectability of their accounts receivable.

1 unchanged sentence

Components of inventories are as follows (in thousands):

September 30,

2020 December 31,

5 unchanged sentences

Property and equipment consisted of the following (in thousands):

September 30,

2020 December 31,

2 unchanged sentences

Automobiles and vehicles 34,074 33,544

Buildings 5,334 8,639

Leasehold improvements 8,205 7,395

Buildings 5,333 8,639

Furniture and fixtures 1,109 1,543

9 unchanged sentences

Depreciation expense on property and equipment and loss (gain) on disposition of assets were as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

1 unchanged sentence

Loss (gain) on disposition of assets 1,686 ( 1,975 ) ( 115 ) ( 389 )

As of June 30, 2020 and December 31, 2019, there was $ 15.7 million and $ 11.4 million , respectively, of property and equipment purchases in accounts payable and accrued liabilities.

As of September 30, 2020 and December 31, 2019, there was $ 1.8 million and $ 11.4 million , respectively, of property and equipment purchases in accounts payable and accrued liabilities.

On a quarterly basis, we evaluate the future deployment of our idle fleet under current market conditions.

For the three and six months ended June 30, 2020, we determined to retire 11 compressor units, for a total of approximately 5,100 horsepower, that were previously used to provide compression services in our business.

As a result, we recorded an impairment of compression equipment of $ 3.9 million for the three and six months ended June 30, 2020.

For the six months ended June 30, 2019, we determined to retire 14 compressor units, for a total of approximately 4,700 horsepower, that were previously used to provide compression services in our business.

As a result, we recorded an impairment of compression equipment of $ 3.2 million for the six months ended June 30, 2019.

For the three and nine months ended September 30, 2020, we determined to retire 16 and 27 compressor units, respectively, for a total of approximately 3,900 and 9,000 horsepower, respectively, that were previously used to provide compression services in our business.

As a result, we recorded impairments of compression equipment of $ 1.7 million and $ 5.6 million for the three and nine months ended September 30, 2020, respectively.

For the nine months ended September 30, 2019, we determined to retire 14 compressor units, for a total of approximately 4,700 horsepower, that were previously used to provide compression services in our business.

As a result, we recorded an impairment of compression equipment of $ 3.2 million for the nine months ended September 30, 2019.

The primary causes for these impairments were:

1 unchanged sentence

These compression units were written down to their respective estimated salvage values, if any.

No impairment was recorded for the three months ended June 30, 2019.

No impairment was recorded for the three months ended September 30, 2019.

Identifiable Intangible Assets

3 unchanged sentences

Amortization expense ( 19,578 ) ( 2,457 ) ( 22,035 )

Net balance as of June 30, 2020 $ 316,005 $ 32,476 $ 348,481

Accumulated amortization of intangible assets was $ 202.2 million and $ 187.5 million as of June 30, 2020 and December 31, 2019, respectively.

Net balance as of September 30, 2020 $ 309,479 $ 31,657 $ 341,136

Accumulated amortization of intangible assets was $ 209.5 million and $ 187.5 million as of September 30, 2020 and December 31, 2019, respectively.

The expected amortization of the intangible assets for each of the five succeeding years is $ 29.4 million.

13 unchanged sentences

Components of other current liabilities included the following (in thousands):

September 30,

2020 December 31,

3 unchanged sentences

Accrued capital expenditures 1,821 11,357

Accrued property taxes 8,217 4,116

______________________

17 unchanged sentences

Supplemental balance sheet information related to leases consisted of the following (in thousands):

Assets (liabilities) June 30,

Assets (liabilities) September 30,

2020 December 31,

10 unchanged sentences

Components of lease expense consisted of the following (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended

September 30,

Income Statement Line Item

16 unchanged sentences

The weighted average remaining lease terms and weighted average discount rates were as follows:

September 30,

2020 December 31,

6 unchanged sentences

Supplemental cash flow information related to leases consisted of the following (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Cash paid for amounts included in the measurement of lease liabilities:

5 unchanged sentences

Finance leases — 259

Maturities of lease liabilities as of June 30, 2020 consisted of the following (in thousands):

Maturities of lease liabilities as of September 30, 2020 consisted of the following (in thousands):

Operating Leases Finance Leases Total

8 unchanged sentences

Present value of lease liabilities $ 25,091 $ 1,686 $ 26,777

As of June 30, 2020, we have not entered into any additional leases that have not yet commenced.

As of September 30, 2020, we have not entered into any additional leases that have not yet commenced.

Lessor Accounting

1 unchanged sentence

The bargain purchase option provides the customer with an option to acquire the equipment at a value significantly less than the fair market value at the end of the lease term in 2021.

We accounted for this option as a sales-type lease resulting in a current installment receivable included in other accounts receivable of $ 3.2 million and $ 4.0 million, and a long-term installment receivable included in other assets of $ 1.7 million and $ 2.9 million as of June 30, 2020 and December 31, 2019, respectively.

As of June 30, 2020, there is no allowance for credit losses on our net investment in the sales-type lease based on our collections experience with the customer.

We accounted for this option as a sales-type lease resulting in a current installment receivable included in other accounts receivable of $ 4.0 million and $ 4.0 million, and a long-term installment receivable included in other assets of $ 0 and $ 2.9 million as of September 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020, there is no allowance for credit losses on our net investment in the sales-type lease based on our collections experience with the customer.

Revenue and interest income related to the lease is recognized over the lease term.

1 unchanged sentence

Maintenance revenue and interest income were as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

1 unchanged sentence

Interest income 87 159 316 530

Lease payments expected to be received subsequent to June 30, 2020 are as follows (in thousands):

Lease payments expected to be received subsequent to September 30, 2020 are as follows (in thousands):

Lease Payments

3 unchanged sentences

Present value of installment receivables $ 3,953

ASC Topic 842 provides lessors with a practical expedient to not separate non-lease components from the associated lease components and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under ASC Topic 606 Revenue from Contracts with Customers (“ASC Topic 606”) and certain conditions are met.

FASB Accounting Standards Codification (“ASC”) Topic 842 provides lessors with a practical expedient to not separate non-lease components from the associated lease components and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under ASC Topic 606 Revenue from Contracts with Customers (“ASC Topic 606”) and certain conditions are met.

Our contract operations services agreements meet these conditions and we consider the predominant component to be the non-lease components, resulting in the ongoing recognition of revenue following ASC Topic 606 guidance.

1 unchanged sentence

Our long-term debt, of which there is no current portion, consisted of the following (in thousands):

September 30,

2020 December 31,

6 unchanged sentences

Revolving Credit Facility

As of June 30, 2020, we were in compliance with all of our covenants under the Credit Agreement.

As of September 30, 2020, we were in compliance with all of our covenants under the Credit Agreement.

The Credit Agreement has an aggregate commitment of $ 1.6 billion (subject to availability under our borrowing base), with a further potential increase of $ 400 million, and has a maturity date of April 2, 2023, which we expect to maintain for the term.

As of June 30, 2020, we had outstanding borrowings under the Credit Agreement of $ 447.8 million, $ 1.2 billion of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $ 151.1 million.

Our weighted average interest rate in effect for all borrowings under the Credit Agreement as of June 30, 2020 was 2.77 %, with a weighted average interest rate of 3.60 % for the six months ended June 30, 2020.

There were no letters of credit issued as of June 30, 2020.

As of September 30, 2020, we had outstanding borrowings under the Credit Agreement of $ 496.9 million, $ 1.1 billion of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $ 411.8 million.

Our weighted average interest rate in effect for all borrowings under the Credit Agreement as of September 30, 2020 was 3.03 %, with a weighted average interest rate of 3.36 % for the nine months ended September 30, 2020.

There were no letters of credit issued as of September 30, 2020.

We pay a commitment fee of 0.375 % on the unused portion of the Credit Agreement.

The Credit Agreement permits us to make distributions of available cash to unitholders so long as (i) no default under the facility has occurred, is continuing or would result from the distribution, (ii) immediately prior to and after giving effect to such distribution, we are in compliance with the facility’s financial covenants and (iii) immediately after giving effect to such distribution, we have availability under the Credit Agreement of at least $ 100 million.

The Credit Agreement was amended on August 3, 2020 (the “Amendment Effective Date”) and amends, among other things, the requirements of certain covenants and the date on which certain covenants in the Credit Agreement must be met from the Amendment Effective Date until the last day of the fiscal quarter ending December 31, 2021 (the “Covenant Relief Period”).

The Credit Agreement also contains various financial covenants, including covenants requiring us to maintain:

• a minimum EBITDA to interest coverage ratio of 2.5 to 1.0, determined as of the last day of each fiscal quarter, for the annualized trailing three months;

• a maximum funded debt to EBITDA ratio of 5.0 to 1.0, determined as of the last day of each fiscal quarter, for the annualized trailing three months, subject to a provision for increases to such threshold by 0.5 in connection with certain future acquisitions for the six consecutive month period following the period in which any such acquisition occurs.

The Credit Agreement is a “revolving credit facility” that includes a lock box arrangement, whereby remittances from customers are forwarded to a bank account controlled by the administrative agent and are applied to reduce borrowings under the facility.

On August 3, 2020 (the “Amendment Effective Date”), we amended the Credit Agreement to, among other items, increase the maximum funded debt to EBITDA ratio to (i) 5.75 to 1.00 for the fiscal quarters ending September 30, 2020 and December 31, 2020, (ii) 5.50 to 1.00 for the fiscal quarters ending March 31, 2021 and June 30, 2021 and (iii) 5.25 to 1.00 for the fiscal quarters ending September 30, 2021 and December 31, 2021 (reverting back to 5.00 to 1.00 for each fiscal quarter thereafter).

• a maximum funded debt to EBITDA ratio, determined as of the last day of each fiscal quarter, for the annualized trailing three months of (i) 5.75 to 1.00 for the fiscal quarters ending September 30, 2020 and December 31, 2020, (ii) 5.50 to 1.00 for the fiscal quarters ending March 31, 2021 and June 30, 2021 and (iii) 5.25 to 1.00 for the fiscal quarters ending September 30, 2021 and December 31, 2021 (reverting back to 5.00 to 1.00 after the Covenant Relief Period).

In addition, the amendment provides that the 0.5 increase in maximum funded debt to EBITDA ratio applicable to certain future acquisitions (for the six consecutive month period in which any such acquisition occurs) is only available beginning with the fiscal quarter ending September 30, 2021, and in any case shall not increase the maximum funded debt to EBITDA ratio above 5.50 to 1.00.

The amendment also provides that, from the Amendment Effective Date until the last day of the fiscal quarter ending December 31, 2021 (the “Covenant Relief Period”), the availability requirement in order to make restricted payments from capital contributions and from available cash are each increased from $ 100 million to $ 250 million and the availability requirement in order to make prepayments of our senior notes, any subordinated indebtedness or any other indebtedness for borrowed money is increased from $ 100 million to $ 250 million.

In addition, during the Covenant Relief Period, the applicable margin for Eurodollar borrowings is increased from a range of 2.00 % – 2.75 % to a range of 2.25 % – 3.00 %.

The amendment further provides that the Partnership becomes guarantor of the obligations of all other guarantors under the Credit Agreement.

In connection with the Credit Agreement amendment, we incurred arrangement fees, consent fees and other fees in the amount of $ 3.4 million, which were capitalized to loan costs and are amortized over the remaining term of the Credit Agreement.

Senior Notes 2026

4 unchanged sentences

The indenture governing the Senior Notes 2026 (the “2026 Indenture”) contains certain financial ratios that we must comply with in order to make certain restricted payments as described in the 2026 Indenture.

As of June 30, 2020, we were in compliance with such financial covenants under the 2026 Indenture.

As of September 30, 2020, we were in compliance with such financial covenants under the 2026 Indenture.

The Senior Notes 2026 are fully and unconditionally guaranteed (the “2026 Guarantees”), jointly and severally, on a senior unsecured basis by all of our existing subsidiaries (other than Finance Corp), and will be fully and unconditionally guaranteed, jointly and severally, by each of our future restricted subsidiaries that either borrows under, or guarantees, the Credit Agreement or guarantees certain of our other indebtedness (collectively, the “Guarantors”).

6 unchanged sentences

The indenture governing the Senior Notes 2027 (the “2027 Indenture”) contains certain financial ratios that we must comply with in order to make certain restricted payments as described in the 2027 Indenture.

As of June 30, 2020, we were in compliance with such financial covenants under the 2027 Indenture.

As of September 30, 2020, we were in compliance with such financial covenants under the 2027 Indenture.

The Senior Notes 2027 are fully and unconditionally guaranteed (the “2027 Guarantees”), jointly and severally, on a senior unsecured basis by the Guarantors.

5 unchanged sentences

(9) Preferred Units

We had 500,000 Preferred Units outstanding as of June 30, 2020 and December 31, 2019, respectively, with a face value of $ 1,000 per Preferred Unit.

We had 500,000 Preferred Units outstanding as of September 30, 2020 and December 31, 2019, respectively, with a face value of $ 1,000 per Preferred Unit.

The Preferred Units rank senior to the common units with respect to distributions and rights upon liquidation.

9 unchanged sentences

May 8, 2020 24.375

August 10, 2020 24.375

2020 total distributions $ 73.125

Announced Quarterly Distribution

On July 21, 2020, we declared a cash distribution of $ 24.375 per unit on the Preferred Units.

The distribution will be paid on August 10, 2020 to the holders of the Preferred Units of record as of close of business on July 31, 2020.

On October 15, 2020, we declared a cash distribution of $ 24.375 per unit on the Preferred Units.

The distribution will be paid on November 6, 2020 to the holders of the Preferred Units of record as of close of business on October 26, 2020.

Changes in the Preferred Units balance are as follows (in thousands):

3 unchanged sentences

Cash distributions on Preferred Units ( 36,563 )

Balance as of June 30, 2020 $ 477,309

Balance as of September 30, 2020 $ 477,309

(10) Partners’ Capital

4 unchanged sentences

Issuance of common units under the DRIP 140,318

Number of units outstanding as of June 30, 2020 96,857,640

As of June 30, 2020, ETO held 46,056,228 common units, including 8,000,000 common units held by the General Partner and controlled by ETO.

Number of units outstanding as of September 30, 2020 96,903,066

As of September 30, 2020, ETO held 46,056,228 common units, including 8,000,000 common units held by the General Partner and controlled by ETO.

Class B Unit Conversion

11 unchanged sentences

May 8, 2020 0.525 50.8 0.9 51.7

August 10, 2020 0.525 50.9 0.8 51.7

2020 total distributions $ 1.575 $ 152.4 $ 2.6 $ 155.0

Announced Quarterly Distribution

On July 21, 2020, we announced a cash distribution of $ 0.525 per unit on our common units.

The distribution will be paid on August 10, 2020 to common unitholders of record as of the close of business on July 31, 2020.

During the six months ended June 30, 2020, distributions of $ 0.9 million were reinvested under the DRIP resulting in the issuance of 96,592 common units.

As of June 30, 2020 and December 31, 2019, we had two tranches of warrants outstanding, which includes warrants to purchase (i) 5,000,000 common units with a strike price of $ 17.03 per common unit and (ii) 10,000,000 common units with a strike price of $ 19.59 per common unit (collectively, the “Warrants”).

On October 15, 2020, we announced a cash distribution of $ 0.525 per unit on our common units.

The distribution will be paid on November 6, 2020 to common unitholders of record as of the close of business on October 26, 2020.

During the nine months ended September 30, 2020, distributions of $ 1.4 million were reinvested under the DRIP resulting in the issuance of 140,318 common units.

As of September 30, 2020 and December 31, 2019, we had two tranches of warrants outstanding, which includes warrants to purchase (i) 5,000,000 common units with a strike price of $ 17.03 per common unit and (ii) 10,000,000 common units with a strike price of $ 19.59 per common unit (collectively, the “Warrants”).

The Warrants may be exercised by the holders at any time before April 2, 2028.

Earnings (Loss) per Unit

The computation of earnings per unit is based on the weighted average number of participating securities outstanding during the applicable period.

Basic earnings per unit is determined by dividing net income (loss) allocated to participating securities after deducting the distributions on Preferred Units, by the weighted average number of participating securities outstanding during the period.

Net loss attributable to unitholders is allocated to participating securities based on their respective shares of the distributed and undistributed earnings for the period.

To the extent cash distributions exceed net loss attributable to unitholders for the period, the excess distributions are allocated to all participating securities outstanding based on their respective ownership percentages.

Diluted earnings per unit are computed using the treasury stock method, which considers the potential issuance of limited partner units associated with our long-term incentive plan and Warrants.

The computation of earnings (loss) per unit is based on the weighted average number of participating securities outstanding during the applicable period.

Basic earnings (loss) per unit is determined by dividing net income (loss) allocated to participating securities after deducting the distributions on Preferred Units, by the weighted average number of participating securities outstanding during the period.

Net income (loss) attributable to unitholders is allocated to participating securities based on their respective shares of the distributed and undistributed earnings for the period.

To the extent cash distributions exceed net income (loss) attributable to unitholders for the period, the excess distributions are allocated to all participating securities outstanding based on their respective ownership percentages.

Diluted earnings (loss) per unit are computed using the treasury stock method, which considers the potential issuance of limited partner units associated with our long-term incentive plan and Warrants.

The classes of participating securities include common units, Class B Units prior to July 30, 2019, and certain equity-based compensation awards.

Unvested phantom units and unexercised Warrants are not included in basic earnings per unit, as they are not considered to be participating securities, but are included in the calculation of diluted earnings per unit to the extent they are dilutive, and in the case of Warrants to the extent they are considered “in the money.”

For the three and six months ended June 30, 2020, approximately 551,000 and 520,000 incremental unvested phantom units, respectively, were excluded from the calculation of diluted earnings per common unit because the impact was anti-dilutive and our outstanding Warrants are no t included in the computation as they are not considered “in the money” for either period.

For the three months ended June 30, 2019, approximately 172,000 incremental unvested phantom units and 40,000 incremental warrants represent the difference between our basic and diluted weighted average common units outstanding.

For the six months ended June 30, 2019, approximately 86,000 incremental unvested phantom units and 20,000 incremental warrants were excluded from the calculation of diluted earnings per common unit because the impact was anti-dilutive.

For the three and nine months ended September 30, 2020, approximately 584,000 and 542,000 incremental unvested phantom units, respectively, were excluded from the calculation of diluted earnings per common unit because the impact was anti-dilutive and our outstanding Warrants are no t included in the computation as they are not considered “in the money” for either period.

For the three and nine months ended September 30, 2019, approximately 221,000 and 169,000 incremental unvested phantom units, respectively, represented the difference between our basic and diluted weighted average common units

outstanding and our outstanding Warrants are no t included in the computation as they are not considered “in the money” for either period.

(11) Revenue Recognition

1 unchanged sentence

The following table disaggregates our revenue by type of service (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

3 unchanged sentences

The following table disaggregates our revenue by timing of provision of services or transfer of goods (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

7 unchanged sentences

We record contract assets when we have completed performance under a contract but our right to consideration is not yet unconditional.

We had no contract assets as of June 30, 2020 and December 31, 2019.

We had no contract assets as of September 30, 2020 and December 31, 2019.

Deferred Revenue

1 unchanged sentence

Components of deferred revenue were as follows (in thousands):

Balance sheet location June 30,

Balance sheet location September 30,

2020 December 31,

3 unchanged sentences

______________________

(1) We recognized $ 1.4 million and $ 43.2 million of revenue during the three and six months ended June 30, 2020, respectively, related to our deferred revenue balance as of December 31, 2019.

(1) We recognized $ 1.4 million and $ 44.5 million of revenue during the three and nine months ended September 30, 2020, respectively, related to our deferred revenue balance as of December 31, 2019.

Performance Obligations

As of June 30, 2020, the aggregate amount of transaction price allocated to unsatisfied performance obligations related to our contract operations revenue is $ 566.4 million.

As of September 30, 2020, the aggregate amount of transaction price allocated to unsatisfied performance obligations related to our contract operations revenue is $ 522.0 million.

We expect to recognize these remaining performance obligations as follows (in thousands):

2 unchanged sentences

(12) Transactions with Related Parties

We provide compression services to entities affiliated with ETO, which as of June 30, 2020 owned approximately 48 % of our limited partner interests and 100 % of the General Partner.

We provide compression services to entities affiliated with ETO, which as of September 30, 2020 owned approximately 48 % of our limited partner interests and 100 % of the General Partner.

Revenue recognized from such affiliated ETO entities on our unaudited condensed consolidated statements of operations were as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Related party revenues $ 3,048 $ 5,099 $ 9,127 $ 15,523

We had $ 0.4 million and $ 0.5 million within related party receivables and $ 0 and $ 1,000 within accounts payable on our unaudited condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019, respectively, from such affiliated ETO entities.

Additionally, the Partnership had a $ 44.9 million related party receivable from ETO as of June 30, 2020 and December 31, 2019 related to indemnification for sales tax contingencies incurred by the USA Compression Predecessor.

We had $ 19,000 and $ 0.5 million within related party receivables and $ 0 and $ 1,000 within accounts payable on our unaudited condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively, from such affiliated ETO entities.

Additionally, the Partnership had a $ 44.9 million related party receivable from ETO as of September 30, 2020 and December 31, 2019 related to indemnification for sales tax contingencies incurred by the USA Compression Predecessor.

See Note 13 for more information related to such sales tax contingencies.

1 unchanged sentence

(a) Major Customers

We did not have revenue from any single customer representing 10% or more of total revenue for the three and six months ended June 30, 2020 or 2019.

We did not have revenue from any single customer representing 10% or more of total revenue for the three and nine months ended September 30, 2020 or 2019.

(b) Litigation

3 unchanged sentences

Our future capital commitments are comprised of binding commitments under purchase orders for new compression units and serialized parts ordered but not received.

Those commitments as of June 30, 2020 were $ 18.3 million, which we expect to settle during the remainder of 2020.

Those commitments as of September 30, 2020 were $ 6.3 million, which we expect to settle in 2020.

(d) Sales Tax Contingencies

3 unchanged sentences

The manufacturing exemptions are based on the fact that our natural gas compression equipment is used in the process of preparing natural gas for ultimate use and sale.

As of June 30, 2020, we have recorded a $ 44.9 million accrued liability and $ 44.9 million related party receivable from ETO related to open audits with the Comptroller.

As of September 30, 2020, we have recorded a $ 44.9 million accrued liability and $ 44.9 million related party receivable from ETO related to open audits with the Comptroller.

During January 2020, we entered into a compromise and settlement agreement with the Comptroller for the audit of the USA Compression Predecessor for the period from August 2006 to December 2007 for $ 4.0 million, which was paid by the USA Compression Predecessor’s former owner in February 2020.

6 unchanged sentences

We are currently evaluating the impact, if any, of the amendments to Topic 848 on our consolidated financial statements.

(15) Subsequent Event

On the Amendment Effective Date, we amended the Credit Agreement to, among other items, increase the maximum funded debt to EBITDA ratio to (i) 5.75 to 1.00 for the fiscal quarters ending September 30, 2020 and December 31, 2020, (ii) 5.50 to 1.00 for the fiscal quarters ending March 31, 2021 and June 30, 2021 and (iii) 5.25 to 1.00 for the fiscal quarters ending September 30, 2021 and December 31, 2021 (reverting back to 5.00 to 1.00 for each fiscal quarter thereafter).

The amendment also provides that during the Covenant Relief Period the availability requirement in order to make restricted payments from capital contributions and from available cash are each increased from $ 100 million to $ 250 million and the availability requirement in order to make prepayments of our senior notes, any subordinated indebtedness or any other indebtedness for borrowed money is increased from $ 100 million to $ 250 million.

In addition, during the Covenant Relief Period, the applicable margin for Eurodollar borrowings is increased from a range of 2.00 % – 2.75 % to a range of 2.25 % – 3.00 %.

The amendment further provides that the Partnership becomes guarantor of the obligations of all other guarantors under the Credit Agreement.

In August 2020, FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

ASU 2020-06 changes how entities account for convertible instruments and contracts in an entity’s own equity, as well as updates guidance on earnings per unit and other related disclosures.

The amendments in this update are effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020.

We are currently evaluating the impact, if any, of the amendments to ASU 2020-06 on our consolidated financial statements.

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-Q

Item 1. Financial Statements