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Item 1. Financial Statements

2022-05-03 compared with 2021-11-02 · 98 added, 186 removed, 370 unchanged (43% of the section changed)

3 unchanged sentences

(in thousands)

September 30,

2022 December 31,

4 unchanged sentences

69,581 68,175

Other 40 3,707

Related party receivables 45,124 44,941

29 unchanged sentences

(in thousands, except per unit amounts)

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

2021 2020 2021 2020

Three Months Ended March 31,

Contract operations $ 157,668 $ 152,525

6 unchanged sentences

Selling, general and administrative 15,265 13,800

Loss (gain) on disposition of assets 48 1,686 ( 2,312 ) ( 115 )

Gain on disposition of assets ( 179 ) ( 1,255 )

Impairment of compression equipment 432 2,550

Impairment of goodwill — — — 619,411

Total costs and expenses 128,314 124,753

Operating income (loss) 36,631 38,771 104,536 ( 496,045 )

Operating income 35,098 32,760

Other income (expense):

Interest expense, net ( 31,838 ) ( 32,288 )

Other 18 20 88 67

Total other expense ( 31,818 ) ( 32,263 )

Net income (loss) before income tax expense 4,427 6,787 7,764 ( 592,275 )

Net income before income tax expense 3,280 497

Income tax expense 26 126

Net income (loss) 4,115 6,519 7,174 ( 593,258 )

Net income 3,254 371

distributions on Preferred Units ( 12,187 ) ( 12,187 )

7 unchanged sentences

(in thousands, except per unit amounts)

For the Nine Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

Common units Warrants Total

1 unchanged sentence

$ 87,129 $ 13,979 $ 101,108

Vesting of phantom units 391 — 391

Distributions and DERs, $ 0.525 per unit

4 unchanged sentences

Partners’ capital ending balance, March 31, 2022 $ 27,639 $ 13,979 $ 41,618

Vesting of phantom units 277 — 277

Distributions and DERs, $ 0.525 per unit

( 50,963 ) — ( 50,963 )

Issuance of common units under the DRIP 402 — 402

Unit-based compensation for equity classified awards 54 — 54

Net loss attributable to common unitholders’ interests ( 9,500 ) — ( 9,500 )

Partners’ capital ending balance, June 30, 2021 202,105 13,979 216,084

Vesting of phantom units 9 — 9

Distributions and DERs, $ 0.525 per unit

( 50,987 ) — ( 50,987 )

Issuance of common units under the DRIP 438 — 438

Unit-based compensation for equity classified awards 54 — 54

Net loss attributable to common unitholders’ interests ( 8,073 ) — ( 8,073 )

Partners’ capital ending balance, September 30, 2021

$ 143,546 $ 13,979 $ 157,525

For the Nine Months Ended September 30, 2020

For the Three Months Ended March 31, 2021

Common units Warrants Total

8 unchanged sentences

Partners’ capital ending balance, March 31, 2021 $ 261,835 $ 13,979 $ 275,814

Vesting of phantom units 659 — 659

Distributions and DERs, $ 0.525 per unit

( 50,801 ) — ( 50,801 )

Issuance of common units under the DRIP 612 — 612

Unit-based compensation for equity classified awards 56 — 56

Net loss attributable to common unitholders’ interests ( 9,504 ) — ( 9,504 )

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net income (loss) $ 7,174 $ ( 593,258 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income $ 3,254 $ 371

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 59,064 61,030

2 unchanged sentences

Unit-based compensation expense 3,710 4,182

Deferred income tax expense (benefit) ( 101 ) 350

Deferred income tax benefit ( 204 ) ( 99 )

Gain on disposition of assets ( 179 ) ( 1,255 )

Impairment of compression equipment 432 2,550

Impairment of goodwill — 619,411

Changes in assets and liabilities:

5 unchanged sentences

Accrued liabilities and deferred revenue ( 23,794 ) ( 23,701 )

Other liabilities — 1,829

Net cash provided by operating activities 35,054 39,612

13 unchanged sentences

Net cash used in financing activities ( 15,325 ) ( 35,309 )

Increase (decrease) in cash and cash equivalents 248 ( 8 )

Increase in cash and cash equivalents 15 97

Cash and cash equivalents, beginning of period — 2

7 unchanged sentences

Changes in capital expenditures included in accounts payable and accrued liabilities $ 1,874 $ ( 800 )

Financing costs included in accounts payable and accrued liabilities $ 120 $ 115

Changes in financing costs included in accounts payable and accrued liabilities $ ( 146 ) $ 139

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(1) Organization and Description of Business

Unless otherwise indicated, the terms “our,” “we,” “us,” “the Partnership” and similar language refer to USA Compression Partners, LP, collectively with its consolidated operating subsidiaries.

Unless otherwise indicated, the terms “our,” “we,” “us,” “the Partnership” and similar language refer to USA Compression Partners, LP, collectively with its consolidated subsidiaries.

We are a Delaware limited partnership.

2 unchanged sentences

We primarily provide compression services in a number of shale plays throughout the U.S., including the Utica, Marcellus, Permian Basin, Delaware Basin, Eagle Ford, Mississippi Lime, Granite Wash, Woodford, Barnett, Haynesville, Niobrara and Fayetteville shales.

USA Compression GP, LLC, a Delaware limited liability company, serves as our general partner and is referred to herein as the “General Partner.” Prior to April 1, 2021, the General Partner was wholly owned by Energy Transfer Operating, L.P.

(“ETO”), an affiliate of Energy Transfer LP.

On April 1, 2021, Energy Transfer LP, ETO and certain of their affiliates consummated an internal reorganization.

In connection with the reorganization, ETO merged with and into Energy Transfer LP, with Energy Transfer LP surviving the merger (the “ET Merger”).

As a result of the ET Merger, the General Partner became wholly owned by Energy Transfer LP.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Partnership and its operating subsidiaries, all of which are wholly owned by us.

USA Compression GP, LLC, a Delaware limited liability company, serves as our general partner and is referred to herein as the “General Partner.” The General Partner is wholly owned by Energy Transfer.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Partnership and its subsidiaries, all of which are wholly owned by us.

(2) Basis of Presentation and Summary of Significant Accounting Policies

2 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 nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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.

3 unchanged sentences

Although these estimates were based on management’s available knowledge of current and expected future events, actual results could differ from these estimates.

Significant Accounting Policies

Accounting Policies

Cash and Cash Equivalents

20 unchanged sentences

Capitalized interest is calculated by multiplying our 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 approximately $ 51,000 and $ 152,000 for the three and nine months ended September 30, 2021, respectively, and approximately $ 6,000 and $ 192,000 for the three and nine months ended September 30, 2020, respectively.

Capitalized interest was approximately $ 138,000 and $ 3,000 for the three months ended March 31, 2022 and 2021, 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 nine months ended September 30, 2021 and 2020.

Refer to Note 5 for more detailed information about impairment charges during the three months ended March 31, 2022 and 2021.

Identifiable Intangible Assets

6 unchanged sentences

Incidental items, if any, that are immaterial in the context of the contract are recognized as expenses.

We are organized as a partnership for U.S.

USA Compression Partners, LP is organized as a partnership for U.S.

federal and state income tax purposes.

1 unchanged sentence

federal and state income taxes based upon their distributive share of our items of income, gain, loss or deduction.

USA Compression Finance Corp.

(“Finance Corp”) is a corporation for U.S.

federal and state income tax purposes and such tax impacts are included in the accompanying unaudited condensed consolidated financial statements.

Texas imposes an entity-level income tax on partnerships that is based on Texas sourced taxable margin (the “Texas Margin Tax”).

10 unchanged sentences

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

As of September 30, 2021, our financial instruments consisted primarily of cash and cash equivalents, trade accounts receivable, trade accounts payable and long-term debt.

As of March 31, 2022, 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,

2022 December 31,

6 unchanged sentences

(3) Trade Accounts Receivable

The allowance for credit losses, which was $ 2.4 million and $ 5.0 million as of September 30, 2021 and December 31, 2020, 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 $ 1.5 million and $ 2.1 million as of March 31, 2022 and December 31, 2021, 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 ( 64 )

Balance as of September 30, 2021 $ 2,388

For the three and nine months ended September 30, 2021, we recognized a reversal of $ 1.1 million and $ 2.4 million of our provision for expected credit losses, respectively.

Improved market conditions for customers due to the recovery in crude oil prices and higher natural gas prices was the primary factor contributing to the decrease to the allowance for credit losses for the three and nine months ended September 30, 2021.

For the nine months ended September 30, 2020, we recognized a $ 3.7 million provision for expected credit losses.

Low crude oil prices, driven by decreased demand for and global oversupply of crude oil as a result of the COVID-19 pandemic, was the primary factor contributing to the higher allowance for credit losses for the nine months ended September 30, 2020.

Balance as of March 31, 2022 $ 1,493

For the three months ended March 31, 2022, we recognized a reversal of $ 0.5 million of our provision for expected credit losses.

Improved market conditions for customers due to higher commodity prices was the primary factor contributing to the decrease to the allowance for credit losses for the three months ended March 31, 2022.

For the three months ended March 31, 2021, we recognized a reversal of $ 1.3 million of our provision for expected credit losses.

Improved market conditions for customers due to the recovery in commodity prices was the primary factor contributing to the decrease to the allowance for credit losses for the three months ended March 31, 2021.

(4) Inventories

Components of inventories are as follows (in thousands):

September 30,

2022 December 31,

2 unchanged sentences

Total inventories $ 89,799 $ 85,816

(5) Property and Equipment, Identifiable Intangible Assets and Goodwill

(5) Property and Equipment and Identifiable Intangible Assets

Property and Equipment

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

September 30,

2022 December 31,

14 unchanged sentences

Leasehold improvements 5 years

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

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

2021 2020 2021 2020

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

Three Months Ended March 31,

Depreciation expense $ 51,720 $ 53,685

Loss (gain) on disposition of assets 48 1,686 ( 2,312 ) ( 115 )

As of September 30, 2021 and December 31, 2020, there was $ 3.0 million and $ 2.8 million , respectively, of property and equipment purchases in accounts payable and accrued liabilities.

Gain on disposition of assets 179 1,255

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

For the nine months ended September 30, 2021, we determined to retire 22 compressor units for a total of approximately 9,600 horsepower that were previously used to provide compression services in our business.

As a result, we recorded an impairment of compression equipment of $ 5.0 million for the nine months ended September 30, 2021.

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 three months ended March 31, 2022 and 2021 , we determined to retire 10 and 12 compressor units, respectively, for a total of approximately 1,400 and 5,600 horsepower, respectively, that were previously used to provide compression services in our business.

As a result, we recorded impairments of compression equipment of $ 0.4 million and $ 2.6 million for the three months ended March 31, 2022 and 2021 , respectively.

The primary causes for these impairments were:

6 unchanged sentences

Amortization expense ( 6,526 ) ( 818 ) ( 7,344 )

Net balance as of September 30, 2021 $ 283,373 $ 28,383 $ 311,756

Accumulated amortization of intangible assets was $ 238.9 million and $ 216.9 million as of September 30, 2021 and December 31, 2020, respectively.

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

During the first quarter of 2020 certain potential impairment indicators were identified, specifically (i) the decline in the market price of our common units, (ii) the decline in global commodity prices and (iii) the COVID-19 pandemic;

which together indicated the fair value of the reporting unit was less than its carrying amount as of March 31, 2020.

We performed a quantitative goodwill impairment test as of March 31, 2020 and determined fair value using a weighted combination of the income approach and the market approach.

Determining fair value of a reporting unit requires judgment and use of significant estimates and assumptions.

Such estimates and assumptions include revenue growth rates, EBITDA margins, weighted average costs of capital and future market conditions, among others.

We believe the estimates and assumptions used

were reasonable and based on available market information, but variations in any of the assumptions could have resulted in materially different calculations of fair value and determinations of whether or not an impairment is indicated.

Under the income approach, we determined fair value based on estimated future cash flows, including estimates for capital expenditures, discounted to present value using the risk-adjusted industry rate, which reflects the overall level of inherent risk of the Partnership.

Cash flow projections were derived from four-year operating forecasts plus an estimate of later period cash flows, all of which were developed by management.

Subsequent period cash flows were developed using growth rates that management believed were reasonably likely to occur.

Under the market approach, we determined fair value by applying valuation multiples of comparable publicly-traded companies to the projected EBITDA of the Partnership and then averaging that estimate with similar historical calculations using a three-year average.

In addition, we estimated a reasonable control premium representing the incremental value that would accrue to us if we were to be acquired.

Based on the quantitative goodwill impairment test described above, our carrying amount exceeded fair value and as a result, we recognized a goodwill impairment of $ 619.4 million for the nine months ended September 30, 2020.

Net balance as of March 31, 2022 $ 270,322 $ 26,745 $ 297,067

Accumulated amortization of intangible assets was $ 253.6 million and $ 246.3 million as of March 31, 2022 and December 31, 2021, respectively.

(6) Other Current Liabilities

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

September 30,

2022 December 31,

1 unchanged sentence

Accrued interest expense 6,467 30,850

Accrued payroll and benefits 12,605 8,416

Accrued unit-based compensation liability 15,780 13,280

Accrued property taxes 8,641 4,459

________________________________

4 unchanged sentences

The bargain purchase option provided 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.

During the second quarter of 2021, the customer exercised its bargain purchase option resulting in a gain of $ 1.1 million recognized within loss (gain) on disposition of assets for the nine months ended September 30, 2021.

Prior to the customer exercising its bargain purchase option, revenue and interest income related to the lease was recognized over the lease term.

Prior to the customer exercising its bargain purchase option during the second quarter of 2021, revenue and interest income related to the lease was recognized over the lease term.

We recognized maintenance revenue within contract operations revenue and interest income within interest expense, net.

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

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

2021 2020 2021 2020

Maintenance revenue $ — $ 323 $ 323 $ 968

Interest income — 87 48 316

Maintenance revenue and interest income for the three months ended March 31, 2021 were $ 0.3 million and $ 0.1 million, respectively.

(8) Long-term Debt

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

September 30,

2022 December 31,

6 unchanged sentences

Revolving Credit Facility

As of September 30, 2021, 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.

As of September 30, 2021, we had outstanding borrowings under the Credit Agreement of $ 505.7 million, $ 1.1 billion of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $ 114.3 million.

Our weighted average interest rate in effect for all borrowings under the Credit Agreement as of September 30, 2021 was 2.96 %, with a weighted average interest rate of 3.01 % for the nine months ended September 30, 2021.

There were no letters of credit issued as of September 30, 2021.

The Credit Agreement has an aggregate commitment of $ 1.6 billion (subject to availability under our borrowing base), with a further potential increase of up to $ 200 million.

The Partnership's obligations under the Credit Agreement are guaranteed by the guarantors party to the Credit Agreement, which currently consists of all of the Partnership's subsidiaries.

The Credit Agreement matures on December 8, 2026, except that if any portion of the Senior Notes 2026 are outstanding on December 31, 2025, the Credit Agreement will mature on December 31, 2025.

As of March 31, 2022, we had outstanding borrowings under the Credit Agreement of $ 565.5 million, $ 1.0 billion of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $ 224.4 million.

Our weighted-average interest rate in effect for all borrowings under the Credit Agreement as of March 31, 2022 was 3.17 %, with a weighted-average interest rate of 2.84 % for the three months ended March 31, 2022.

There were no letters of credit issued as of March 31, 2022.

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

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

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 prior to and after giving effect to such distribution, we have availability under the Credit Agreement of at least $ 250 million (reverting to $ 100 million after the Covenant Relief Period).

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 prior to and after giving effect to such distribution, (a) on or before September 30, 2023, we have availability under the Credit Agreement of at least $ 250 million and (b) after September 30, 2023, we have availability under the Credit Agreement of at least $ 100 million.

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, determined as of the last day of each fiscal quarter, for the annualized trailing three months of 5.25 to 1.00 for the fiscal quarters ending September 30, 2021 and December 31, 2021 (reverting to 5.00 to 1.00 after the Covenant Relief Period).

In addition, the amendment provides that the 0.50 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 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.

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 secured obligations of all other guarantors under the Credit Agreement.

• a minimum EBITDA to interest coverage ratio of 2.5 to 1.0, determined as of the last day of each fiscal quarter, with EBITDA and interest expense annualized for the fiscal quarter most recently ended;

• a ratio of total secured indebtedness to EBITDA not greater than 3.0 to 1.0 or less than 0.0 to 1.0, determined as of the last day of each fiscal quarter, with EBITDA annualized for the fiscal quarter most recently ended;

• a maximum funded debt to EBITDA ratio, determined as of the last day of each fiscal quarter with EBITDA annualized for the fiscal quarter most recently ended, (i) 5.75 to 1.00 through the second fiscal quarter of 2022, (ii) 5.50 to 1.00 from the third quarter of 2022 through the third quarter of 2023 and (iii) 5.25 to 1.00 thereafter.

In addition, the Partnership may increase the applicable ratio by 0.25 for any fiscal quarter during which a Specified Acquisition (as defined in the Credit Agreement) occurs and the following two fiscal quarters, but in no event shall the maximum ratio exceed 5.50 to 1.00 for any fiscal quarter as a result of such increase.

As of March 31, 2022, we were in compliance with all of our covenants under the Credit Agreement.

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.

Senior Notes 2026

On March 23, 2018, the Partnership and its wholly owned finance subsidiary, USA Compression Finance Corp.

(“Finance Corp”), co-issued the Senior Notes 2026.

On March 23, 2018, USA Compression Partners, LP and Finance Corp, co-issued the Senior Notes 2026.

The Senior Notes 2026 mature on April 1, 2026 and accrue interest at the rate of 6.875 % per year.

1 unchanged sentence

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 September 30, 2021, 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”).

As of March 31, 2022, 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 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”).

The Senior Notes 2026 and the 2026 Guarantees are general unsecured obligations and rank equally in right of payment with all of the Guarantors’, Finance Corp’s, and our existing and future senior indebtedness and senior to the Guarantors’, Finance Corp’s, and our future subordinated indebtedness, if any.

1 unchanged sentence

Senior Notes 2027

On March 7, 2019, the Partnership and Finance Corp co-issued the Senior Notes 2027.

On March 7, 2019, USA Compression Partners, LP and Finance Corp co-issued the Senior Notes 2027.

The Senior Notes 2027 mature on September 1, 2027 and accrue interest at the rate of 6.875 % per year.

1 unchanged sentence

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 September 30, 2021, we were in compliance with such financial covenants under the 2027 Indenture.

As of March 31, 2022, 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 September 30, 2021 and December 31, 2020, respectively, with a face value of $ 1,000 per Preferred Unit.

We had 500,000 Preferred Units outstanding as of March 31, 2022 and December 31, 2021, 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.

The holders of the Preferred Units are entitled to receive cumulative quarterly cash distributions equal to $ 24.375 per Preferred Unit.

We have declared and paid quarterly cash distributions to the holders of the Preferred Units of record as follows:

We have declared and paid quarterly cash distributions per unit to the holders of the Preferred Units of record as follows:

Payment Date Distribution per Preferred Unit

5 unchanged sentences

February 4, 2022 $ 24.375

May 7, 2021 24.375

August 6, 2021 24.375

2021 total distributions

Announced Quarterly Distribution

On October 14, 2021, we declared a cash distribution of $ 24.375 per unit on the Preferred Units.

The distribution will be paid on November 5, 2021 to the holders of the Preferred Units of record as of close of business on October 25, 2021.

On April 14, 2022, we declared a cash distribution of $ 24.375 per unit on our Preferred Units.

The distribution will be paid on May 6, 2022 to the holders of the Preferred Units of record as of the close of business on April 25, 2022.

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

3 unchanged sentences

Cash distributions on Preferred Units ( 12,187 )

Balance as of September 30, 2021 $ 477,309

Balance as of March 31, 2022 $ 477,309

Redemption and Conversion Features

The Preferred Units are convertible, at the option of the holder, into common units in accordance with the terms of our Second Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) as follows:

one third are convertible on or after April 2, 2021, two thirds are convertible on or after April 2, 2022, and 100 % are convertible on or after April 2, 2023.

The conversion rate for the Preferred Units is the quotient of (a) the sum of (i) $ 1,000 , plus (ii) any unpaid distributions on the applicable Preferred Unit, divided by (b) $ 20.0115 for each Preferred Unit.

one third on or after April 2, 2021, two thirds on or after April 2, 2022, and 100 % on or after April 2, 2023.

The conversion rate for the Preferred Units is the quotient of (a) the sum of (i) $ 1,000 , plus (ii) any unpaid cash distributions on the applicable Preferred Unit, divided by (b) $ 20.0115 for each Preferred Unit.

On or after April 2, 2023, we have the option to redeem all or any portion of the Preferred Units then outstanding, subject to certain minimum redemption threshold amounts, for a redemption price set forth in the Partnership Agreement.

On or after April 2, 2028, each Preferred Unitholder will have the right to require us to redeem all or a portion of their Preferred Units, subject to certain minimum redemption threshold amounts, for a redemption price set forth in the Partnership Agreement, which we may elect to pay up to 50 % in common units, subject to certain additional limits.

On or after April 2, 2028, each holder of the Preferred Units will have the right to require us to redeem all or a portion of their Preferred Units, subject to certain minimum redemption threshold amounts, for a redemption price set forth in the Partnership Agreement, which we may elect to pay up to 50 % in common units, subject to certain additional limits.

(10) Partners’ Capital

2 unchanged sentences

Number of units outstanding as of December 31, 2021 97,344,707

Vesting of phantom units 44,679

Issuance of common units under the DRIP 32,648

Number of units outstanding as of September 30, 2021 97,096,137

As of September 30, 2021, ET held 46,056,228 common units, including 8,000,000 common units held by the General Partner and controlled by ET.

Number of units outstanding as of March 31, 2022 97,377,355

As of March 31, 2022, Energy Transfer held 46,056,228 common units, including 8,000,000 common units held by the General Partner and controlled by Energy Transfer.

Cash Distributions

We have declared and paid quarterly distributions per unit to our limited partner unitholders of record, including holders of our common units and phantom units, as follows (dollars in millions, except distribution per unit):

We have declared and paid quarterly distributions per unit to our limited partner unitholders of record, including holders of our common and phantom units, as follows (dollars in millions, except distribution per unit):

Payment Date Distribution per Limited Partner Unit Amount Paid to Common Unitholders Amount Paid to Phantom Unitholders Total Distribution

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February 4, 2022 $ 0.525 $ 51.1 $ 1.2 $ 52.3

May 7, 2021 0.525 50.9 1.1 52.0

August 6, 2021 0.525 51.0 1.1 52.1

2021 total distributions

$ 1.575 $ 152.8 $ 3.3 $ 156.1

Announced Quarterly Distribution

On October 14, 2021, we announced a cash distribution of $ 0.525 per unit on our common units.

The distribution will be paid on November 5, 2021 to common unitholders of record as of the close of business on October 25, 2021.

During the nine months ended September 30, 2021, distributions of $ 1.3 million were reinvested under the DRIP resulting in the issuance of 89,135 common units.

As of September 30, 2021 and December 31, 2020, 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 April 14, 2022, we announced a cash distribution of $ 0.525 per unit on our common units.

The distribution will be paid on May 6, 2022 to common unitholders of record as of the close of business on April 25, 2022.

During the three months ended March 31, 2022, distributions of $ 0.5 million were reinvested under the DRIP resulting in the issuance of 32,648 common units.

As of March 31, 2022 and December 31, 2021, 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.

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The computation of loss per unit is based on the weighted average number of participating securities, which includes our common units and certain equity-based awards, outstanding during the applicable period.

Basic 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.

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

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

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

Unvested phantom units and unexercised Warrants are not included in basic loss per unit, as they are not considered to be participating securities, but are included in the calculation of diluted loss 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 nine months ended September 30, 2021, approximately 889,000 and 801,000 incremental unvested phantom units, respectively, were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive and our outstanding Warrants were 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, 2020, approximately 584,000 and 542,000 incremental unvested phantom units, respectively, were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive and our outstanding Warrants were no t included in the computation as they are not considered “in the money” for either period.

For the three months ended March 31, 2022, approximately 803,000 and 13,000 incremental unvested phantom units and “in the money” outstanding Warrants, respectively, were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive.

Our outstanding Warrants not “in the money” were excluded from the calculation for the three months ended March 31, 2022.

For the three months ended March 31, 2021, approximately 710,000 incremental unvested phantom units were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive, and our outstanding Warrants were no t included in the computation as they are not considered “in the money” for the period.

(11) Revenue Recognition

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Contract operations revenue $ 161,486 $ 155,469

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Services provided over time:

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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 September 30, 2021 and December 31, 2020.

We had no contract assets as of March 31, 2022 and December 31, 2021.

Deferred Revenue

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

Balance sheet location September 30,

Balance sheet location March 31,

2022 December 31,

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________________________________

(1) We recognized $ 1.3 million and $ 42.1 million of revenue during the three and nine months ended September 30, 2021, respectively, related to our deferred revenue balance as of December 31, 2020.

(1) We recognized $ 42.1 million of revenue during the three months ended March 31, 2022 related to our deferred revenue balance as of December 31, 2021.

Performance Obligations

As of September 30, 2021, we had unsatisfied performance obligations related to our contract operations revenue of $ 440.6 million.

As of March 31, 2022, the aggregate amount of transaction price allocated to unsatisfied performance obligations related to our contract operations revenue was $ 437.3 million.

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

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(12) Transactions with Related Parties

We provide compression services to entities affiliated with ET, which as of September 30, 2021 owned approximately 47 % of our limited partner interests and 100 % of the General Partner.

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

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

2021 2020 2021 2020

We provide compression services to entities affiliated with Energy Transfer, which as of March 31, 2022 owned approximately 47 % of our limited partner interests and 100 % of the General Partner.

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

Three Months Ended March 31,

Related party revenues $ 3,818 $ 2,950

We had approximately $ 81,000 and $ 120,000 within related party receivables on our unaudited condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively, from such affiliated ET entities.

Additionally, the Partnership had a $ 44.9 million related party receivable from ET as of September 30, 2021 and December 31, 2020 related to indemnification for sales tax contingencies.

We had approximately $ 201,000 and $ 18,000 within related party receivables on our unaudited condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively, from such affiliated Energy Transfer entities.

Additionally, the Partnership had a $ 44.9 million related party receivable from Energy Transfer as of March 31, 2022 and December 31, 2021 related to indemnification for sales tax contingencies.

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

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(a) Major Customers

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, 2021 or 2020.

We did not have revenue from any single customer representing 10% or more of total revenue for the three months ended March 31, 2022 or 2021.

(b) Litigation

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In management’s opinion, the resolution of such matters is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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

The commitments as of March 31, 2022 were $ 60.8 million, all of which is expected to be settled within the next twelve months and $ 40.1 million of which we expect to settle in the remainder of 2022.

(d) Sales Tax Contingencies

Our compliance with state and local sales tax regulations is subject to audit by various taxing authorities.

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We estimate that the range of losses we could incur is from $ 0 to approximately $ 21.0 million, including penalty and interest.

The upper end of this range assumes that all compression services in Oklahoma are taxable, which we believe is remote.

As of September 30, 2021 and December 31, 2020, we have recorded a $ 44.9 million accrued liability and $ 44.9 million related party receivable from ET related to open audits with the Office of the Texas Comptroller of Public Accounts.

As of March 31, 2022 and December 31, 2021, we have recorded a $ 44.9 million accrued liability and $ 44.9 million related party receivable from Energy Transfer related to open audits with the Office of the Texas Comptroller of Public Accounts (the “Comptroller”), wherein the Comptroller has challenged the applicability of the manufacturing exemption.

For more information, see Note 16 to the consolidated financial statements included in our 2021 Annual Report.

(14) Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (“Topic 848”):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The amendment to Topic 848 provides relief from certain contract modification accounting requirements for the transition away from the London Interbank Offered Rate and certain other reference rates.

Adoption of the amendments in this update are optional, effective upon issuance and may be adopted during any interim or annual period through December 31, 2022.

Modifications to our Credit Agreement during the effective period of this amendment will be assessed and if the modifications meet the criteria for the optional expedients and exceptions, we intend to adopt Topic 848 and apply the amendments as applicable.

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 plan to adopt this new standard on January 1, 2022.

We expect the impact on our disclosures will not be material and there to be no impact to our consolidated financial statements.

(14) Subsequent Event

On April 27, 2022, the tranche of warrants with the right to purchase 5,000,000 common units with a strike price of $ 17.03 per common unit was exercised in full by the holders.

The exercise of the warrants was net settled by the Partnership for 534,308 common units.

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