What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-03 · 143 added, 65 removed, 250 unchanged (45% of the section changed)

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You can identify many of these statements by looking for words such as “believe,” “expect,” “intend,” “project,” “anticipate,” “estimate,” “continue,” “if,” “outlook,” “will,” “could,” “should,” or similar words or the negatives thereof.

Known material factors that could cause our actual results to differ from those in these forward-looking statements are described in Part I, Item 1A “Risk Factors” of our 2021 Annual Report on Form 10-K, as well as our subsequent filings with the SEC.

Known material factors that could cause our actual results to differ from those in these forward-looking statements are described in Part I, Item 1A “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2021 filed on February 15, 2022 (our “2021 Annual Report”), as well as our subsequent filings with the SEC.

Important factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include, among other things:

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The following table summarizes certain horsepower and horsepower utilization percentages for the periods presented and excludes certain gas treating assets for which horsepower is not a relevant metric.

Three Months Ended March 31, Percent

Three Months Ended June 30, Percent

Change Six Months Ended June 30, Percent

2022 2021 2022 2021

Fleet horsepower (at period end) (1) 3,695,955 3,686,584 0.3 % 3,695,955 3,686,584 0.3 %

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(1) Fleet horsepower is horsepower for compression units that have been delivered to us (and excludes units on order).

As of March 31, 2022, we had 75,000 large horsepower on order for delivery, all of which is expected to be delivered within the next twelve months and 50,000 horsepower of which we expect to be delivered in the remainder of 2022.

As of June 30, 2022, we had 65,000 large horsepower on order for delivery, all of which is expected to be delivered within the next twelve months and 30,000 horsepower of which is expected to be delivered in the remainder of 2022.

(2) Total available horsepower is revenue generating horsepower under contract for which we are billing a customer, horsepower in our fleet that is under contract but is not yet generating revenue, horsepower not yet in our fleet that is under contract but not yet generating revenue and that is subject to a purchase order, and idle horsepower.

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(7) Horsepower utilization is calculated as (i) the sum of (a) revenue generating horsepower, (b) horsepower in our fleet that is under contract but is not yet generating revenue, and (c) horsepower not yet in our fleet that is under contract but not yet generating revenue and that is subject to a purchase order, divided by (ii) total available horsepower less idle horsepower that is under repair.

Horsepower utilization based on revenue generating horsepower and fleet horsepower as of March 31, 2022 and 2021 was 81.0% and 80.3%, respectively.

Horsepower utilization based on revenue generating horsepower and fleet horsepower as of June 30, 2022 and 2021 was 82.5% and 79.0%, respectively.

(8) Calculated as the average utilization for the months in the period based on utilization at the end of each month in the period.

Average horsepower utilization based on revenue generating horsepower and fleet horsepower for the three months ended March 31, 2022 and 2021 was 80.7% and 80.4%, respectively.

The 1.6% increase in average revenue per revenue generating horsepower per month during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to select price increases on our existing fleet.

Horsepower utilization increased to 86.1% as of March 31, 2022 compared to 83.1% as of March 31, 2021.

Average horsepower utilization increased to 84.9% during the three months ended March 31, 2022 compared to 83.1% during the three months ended March 31, 2021.

The 3.6% and 2.2% increases in horsepower utilization and average horsepower utilization, respectively, were primarily due to an increase in horsepower that is on-contract or pending-contract but not yet active, which was driven by a combination of previously idle units as well as new units added to the fleet.

We believe the increase in average horsepower utilization is the result of increased demand for our services commensurate with increased operating activity in the oil and gas industry.

Average horsepower utilization based on revenue generating horsepower and fleet horsepower for the three months ended June 30, 2022 and 2021 was 82.1% and 79.6%, respectively.

Average horsepower utilization based on revenue generating horsepower and fleet horsepower for the six months ended June 30, 2022 and 2021 was 81.4% and 80.0%, respectively.

The 1.6% increase in total available horsepower as of June 30, 2022 compared to June 30, 2021 was primarily due to compression units added to our fleet to meet incremental demand from customers for our compression services.

The 4.7% increase in revenue generating horsepower and 2.0% increase in revenue generating compression units as of June 30, 2022 compared to June 30, 2021 were primarily driven by the redeployment of existing compression units due to increased demand for our services commensurate with increased operating activity in the oil and gas industry.

The 3.9% and 2.7% increases in average revenue per revenue generating horsepower per month during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021, respectively, were primarily due to select price increases on our existing fleet.

The 1.5% and 0.5% increases in average horsepower per revenue generating compression unit during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021, respectively, were primarily due to the composition of existing compression units redeployed.

Horsepower utilization increased to 88.4% as of June 30, 2022 compared to 81.9% as of June 30, 2021.

The increase in horsepower utilization was primarily due to an increase in revenue generating horsepower and an increase in horsepower that is under contract but not yet generating revenue, which was driven by a combination of the redeployment of certain previously idle units as well as new units added to the fleet.

We believe the increase in horsepower utilization is the result of increased demand for our services commensurate with increased operating activity in the oil and gas industry.

These factors also drove the change in average horsepower utilization for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.

Horsepower utilization based on revenue generating horsepower and fleet horsepower increased to 82.5% as of June 30, 2022 compared to 79.0% as of June 30, 2021.

The increase in horsepower utilization based on revenue generating horsepower and fleet horsepower was driven by the redeployment of certain previously idle units due to increased demand for our services commensurate with increased operating activity in the oil and gas industry.

This factor also drove the change in average horsepower utilization based on revenue generating horsepower and fleet horsepower for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.

Financial Results of Operations

Three months ended March 31, 2022 compared to the three months ended March 31, 2021

Three months ended June 30, 2022 compared to the three months ended June 30, 2021

The following table summarizes our results of operations for the periods presented (dollars in thousands):

Three Months Ended March 31, Percent

Three Months Ended June 30, Percent

Contract operations $ 163,969 $ 151,800 8.0 %

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Selling, general and administrative 13,914 15,288 (9.0) %

Gain on disposition of assets (179) (1,255) (85.7) %

Loss (gain) on disposition of assets 1,031 (1,105) *

Impairment of compression equipment — 2,403 *

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Contract operations revenue.

The $5.1 million increase in contract operations revenue for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to (i) select price increases on our existing fleet resulting in a 1.6% increase in average revenue per revenue generating horsepower per month, (ii) compression units moving from standby to full billing rate since the previous period and (iii) an increase in our natural gas treating services.

These increases were partially offset by a 0.5% decrease in average revenue generating horsepower.

The $12.2 million increase in contract operations revenue for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to (i) select price increases on our existing fleet resulting in a 3.9% increase in average revenue per revenue generating horsepower per month, (ii) a 2.8% increase in average revenue generating horsepower as a result of increased demand for our services commensurate with increased operating activity in the oil and gas industry and (iii) an increase in our natural gas treating services.

Our contract operations revenue was not materially impacted by any renegotiations of our contracts during the period with our customers.

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Parts and service revenue .

The $0.1 million decrease in parts and service revenue for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to a decrease in maintenance work performed on units at our customers’ locations that are outside the scope of our core maintenance activities and offered as a courtesy to our customers, and freight and crane charges that are directly reimbursable by customers.

The $1.8 million increase in parts and service revenue for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to an increase in maintenance work performed on units at our customers’ locations that are outside the scope of our core maintenance activities and offered as a convenience to our customers, and freight and crane charges that are directly reimbursable by customers.

Demand for retail parts and services fluctuates from period to period based on the varying needs of our customers.

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Related party revenue was earned through related party transactions in the ordinary course of business with various affiliated entities of Energy Transfer.

The $0.9 million increase in related party revenue for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to revenue recognized from entities acquired by Energy Transfer since the previous period.

The $0.9 million increase in related party revenue for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to revenue recognized from entities acquired by Energy Transfer since the previous period.

Cost of operations, exclusive of depreciation and amortization .

The $5.1 million increase in cost of operations, exclusive of depreciation and amortization, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to (i) a $2.3 million increase in outside maintenance costs due to greater use of third-party labor during the current period, (ii) a $1.5 million increase in direct expenses, primarily driven by fluids and parts, and (iii) a $0.8 million increase in expenses related to our vehicle fleet, primarily due to increased fuel costs.

The increases in fluids and fuel costs were primarily related to higher commodity prices.

The $9.6 million increase in cost of operations, exclusive of depreciation and amortization, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to (i) a $3.0 million increase in direct expenses, primarily driven by fluids and parts, (ii) a $2.7 million increase in non-income taxes, primarily due to sales tax refunds received in the prior period, (iii) a $1.2 million increase in retail parts and services expenses, which had a corresponding increase in parts and service revenue, (iv) a $0.9 million increase in expenses related to our vehicle fleet, primarily due to increased fuel costs, (v) a $0.9 million increase in direct labor costs due to higher employee costs and (vi) a $0.6 million increase in outside maintenance costs due to greater use and higher costs of third-party labor during the current period.

The increases in fluids and fuel costs were primarily related to higher commodity prices and higher usage associated with our increased revenue generating horsepower.

Depreciation and amortization expense .

The $2.0 million decrease in depreciation and amortization expense for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to assets reaching the end of their depreciable lives.

The $0.3 million decrease in depreciation and amortization expense for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to assets reaching the end of their depreciable lives.

Selling, general and administrative expense .

The $1.5 million increase in selling, general and administrative expense for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to (i) a $0.8 million decrease in the reversal of the provision for expected credit losses, (ii) a $0.6 million increase in employee-related expenses, partially offset by (iii) a $0.5 million decrease in unit-based compensation expense.

The $1.4 million decrease in selling, general and administrative expense for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to a $1.3 million decrease in unit-based compensation expense driven by the overall change in our unit price as of June 30, 2022, and the related mark-to-market change to our unit-based compensation liability.

Loss (gain) on disposition of assets.

The $2.1 million decrease in loss (gain) on disposition of assets for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to the exercise of a lease purchase option on certain compression units by a customer during the prior period.

The remaining change is primarily related to various disposals in the ordinary course of business.

Impairment of compression equipment.

The $2.4 million impairment of compression equipment for the three months ended June 30, 2021 was primarily the result of our evaluations of the future deployment of our idle fleet under the current market conditions at the time.

The primary causes for these impairments were:

(i) units were not considered marketable in the foreseeable future, (ii) units were subject to excessive maintenance costs or (iii) units were unlikely to be accepted by customers due to certain performance characteristics of the unit, such as the inability to meet current quoting criteria without excessive retrofitting costs.

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

As a result of our evaluation during the three months ended June 30, 2021, we determined to retire 10 compressor units for a total of approximately 4,000 horsepower that were previously used to provide compression services in our business.

No impairment was recorded for the three months ended June 30, 2022.

Interest expense, net .

The $0.7 million increase in interest expense, net for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to higher weighted-average interest rates and increased borrowings under the Credit Agreement, partially offset by a decrease in amortization of debt issuance costs related to the amendment and restatement of the Credit Agreement since the prior period.

The weighted-average interest rate applicable to borrowings under the Credit Agreement was 3.59% and 3.05% for the three months ended June 30, 2022 and 2021, respectively, and the average outstanding borrowings under the Credit Agreement were $566.8 million and $494.4 million for the three months ended June 30, 2022 and 2021, respectively.

Six months ended June 30, 2022 compared to the six months ended June 30, 2021

The following table summarizes our results of operations for the periods presented (dollars in thousands):

Six Months Ended June 30, Percent

Contract operations $ 321,637 $ 304,325 5.7 %

Parts and service 5,531 3,856 43.4 %

Related party 7,705 5,894 30.7 %

Total revenues 334,873 314,075 6.6 %

Costs and expenses:

Cost of operations, exclusive of depreciation and amortization 108,890 94,232 15.6 %

Depreciation and amortization 118,023 120,257 (1.9) %

Selling, general and administrative 29,179 29,088 0.3 %

Loss (gain) on disposition of assets 852 (2,360) *

Impairment of compression equipment 432 4,953 *

Total costs and expenses 257,376 246,170 4.6 %

Operating income 77,497 67,905 14.1 %

Other income (expense):

Interest expense, net (64,917) (64,638) 0.4 %

Other 41 70 (41.4) %

Total other expense (64,876) (64,568) 0.5 %

Net income before income tax expense 12,621 3,337 278.2 %

Income tax expense 281 278 1.1 %

Net income $ 12,340 $ 3,059 303.4 %

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* Not meaningful

Contract operations revenue.

The $17.3 million increase in contract operations revenue for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to (i) select price increases on our existing fleet resulting in a 2.7% increase in average revenue per revenue generating horsepower per month, (ii) a 1.1% increase in average revenue generating horsepower as a result of increased demand for our services commensurate with increased operating activity in the oil and gas industry, (iii) an increase in our natural gas treating services and (iv) compression units moving from standby to full billing rate since the previous period.

Our contract operations revenue was not materially impacted by any renegotiations of our contracts during the period with our customers.

Additionally, average revenue per revenue generating horsepower per month associated with our compression services provided on a month-to-month basis did not significantly differ from the average revenue per revenue generating horsepower per month associated with our compression services provided under contracts in their primary term during the period.

Parts and service revenue .

The $1.7 million increase in parts and service revenue for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to an increase in maintenance work performed on units at our customers’ locations that are outside the scope of our core maintenance activities and offered as a convenience to our customers, and freight and crane charges that are directly reimbursable by customers.

Demand for retail parts and services fluctuates from period to period based on the varying needs of our customers.

Related party revenue .

Related party revenue was earned through related party transactions in the ordinary course of business with various affiliated entities of Energy Transfer.

The $1.8 million increase in related party revenue for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to revenue recognized from entities acquired by Energy Transfer since the previous period.

Cost of operations, exclusive of depreciation and amortization .

The $14.7 million increase in cost of operations, exclusive of depreciation and amortization, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to (i) a $4.5 million increase in direct expenses, primarily driven by fluids and parts, (ii) a $2.9 million increase in outside maintenance costs due to greater use and higher costs of third-party labor during the current period, (iii) a $2.8 million increase in non-income taxes, primarily due to sales tax refunds received in the prior period, (iv) a $1.7 million increase in expenses related to our vehicle fleet, primarily due to increased fuel costs, (v) a $1.3 million increase in retail parts and services expenses, which had a corresponding increase in parts and service revenue, and (vi) a $0.8 million increase in direct labor costs due to higher employee costs.

The increases in fluids and fuel costs were primarily related to higher commodity prices and higher usage associated with our increased revenue generating horsepower.

Depreciation and amortization expense .

The $2.2 million decrease in depreciation and amortization expense for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to assets reaching the end of their depreciable lives.

Selling, general and administrative expense .

The $0.1 million increase in selling, general and administrative expense for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to (i) a $0.6 million increase in employee-related expenses, (ii) a $0.6 million decrease in the reversal of the provision for expected credit losses, (iii) a $0.4 million increase in professional fees, (iv) a $0.1 million increase in business and property insurance expenses and (v) a $0.1 million increase in other taxes, partially offset by (vi) a $1.7 million decrease in unit-based compensation expense.

The change to the provision for expected credit losses is related to a greater improvement in market conditions for customers due to the recovery in commodity prices in the prior period.

The decrease in unit-based compensation expense is primarily due to the overall change in our unit price as of March 31, 2022, and the related mark-to-market change to our unit-based compensation liability.

The decrease in unit-based compensation expense is primarily due to the overall change in our unit price as of June 30, 2022, and the related mark-to-market change to our unit-based compensation liability.

Loss (gain) on disposition of assets.

The $3.2 million decrease in loss (gain) on disposition of assets for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to the exercise of a lease purchase option on certain compression units by a customer during the prior period.

The remaining change is primarily related to various disposals in the ordinary course of business.

Impairment of compression equipment.

The $0.4 million and $2.6 million impairments of compression equipment for the three months ended March 31, 2022 and 2021, respectively, were primarily the result of our evaluations of the future deployment of our idle fleet under the current market conditions at the time.

The $0.4 million and $5.0 million impairments of compression equipment for the six months ended June 30, 2022 and 2021, respectively, were primarily the result of our evaluations of the future deployment of our idle fleet under the current market conditions at the time.

The primary causes for these impairments were:

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

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

As a result of our evaluations during the six months ended June 30, 2022 and 2021, we determined to retire 10 and 22 compressor units, respectively, for a total of approximately 1,400 and 9,600 horsepower, respectively, that were previously used to provide compression services in our business.

Interest expense, net .

The $0.5 million decrease in interest expense, net for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to (i) a decrease in amortization of debt issuance costs related to the amendment and restatement of the Credit Agreement since the prior period, (ii) lower weighted average interest rates under the Credit Agreement, partially offset by (iii) increased borrowings under the Credit Agreement.

The weighted-average interest rate applicable to borrowings under the Credit Agreement was 2.84% and 3.06% for the three months ended March 31, 2022 and 2021, respectively, and the average outstanding borrowings under the Credit Agreement were $540.1 million and $482.4 million for the three months ended March 31, 2022 and 2021, respectively.

The $0.3 million increase in interest expense, net for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to higher weighted-average interest rates and increased borrowings under the Credit Agreement, partially offset by a decrease in amortization of debt issuance costs related to the amendment and restatement of the Credit Agreement since the prior period.

The weighted-average interest rate applicable to borrowings under the Credit Agreement was 3.21% and 3.06% for the six months ended June 30, 2022 and 2021, respectively, and the average outstanding borrowings under the Credit Agreement were $553.5 million and $488.5 million for the six months ended June 30, 2022 and 2021, respectively.

Other Financial Data

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(1) Three Months Ended

March 31, Percent

June 30, Percent

Change Six Months Ended

June 30, Percent

2022 2021 2022 2021

Gross margin $ 57,344 $ 51,731 10.9 % $ 107,960 $ 99,586 8.4 %

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DCF $ 55,576 $ 52,536 5.8 % $ 105,722 $ 105,116 0.6 %

DCF Coverage Ratio 0.98 x 1.03 x (4.9) %

Cash Coverage Ratio 0.99 x 1.04 x (4.8) %

DCF Coverage Ratio 1.08 x 1.03 x 4.9 % 1.03 x 1.03 x — %

Cash Coverage Ratio 1.09 x 1.04 x 4.8 % 1.04 x 1.04 x — %

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Gross margin.

The $2.8 million increase in gross margin for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was due to (i) a $5.9 million increase in revenues and (ii) a $2.0 million decrease in depreciation and amortization, partially offset by (iii) a $5.1 million increase in cost of operations, exclusive of depreciation and amortization.

The $5.6 million increase in gross margin for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was due to (i) a $14.9 million increase in revenues and (ii) a $0.3 million decrease in depreciation and amortization, partially offset by (iii) a $9.6 million increase in cost of operations, exclusive of depreciation and amortization.

The $8.4 million increase in gross margin for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was due to (i) a $20.8 million increase in revenues and (ii) a $2.2 million decrease in depreciation and amortization, partially offset by (iii) a $14.7 million increase in cost of operations, exclusive of depreciation and amortization.

Adjusted gross margin.

The $0.8 million increase in Adjusted gross margin for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was due to a $5.9 million increase in revenues, partially offset by a $5.1 million increase in cost of operations, exclusive of depreciation and amortization.

The $5.3 million increase in Adjusted gross margin for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was due to a $14.9 million increase in revenues, partially offset by a $9.6 million increase in cost of operations, exclusive of depreciation and amortization.

The $6.1 million increase in Adjusted gross margin for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was due to a $20.8 million increase in revenues, partially offset by a $14.7 million increase in cost of operations, exclusive of depreciation and amortization.

Adjusted EBITDA.

The $1.1 million decrease in Adjusted EBITDA for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to a $1.9 million increase in selling, general and administrative expenses, excluding unit-based compensation expense, severance charges and transaction expenses, partially offset by a $0.8 million increase in Adjusted gross margin.

The $2.4 million decrease in DCF for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to (i) a $1.9 million increase in selling, general and administrative expenses, excluding unit-based compensation expense, severance charges and transaction expenses, (ii) a $1.3 million increase in maintenance capital expenditures, partially offset by (iii) a $0.8 million increase in Adjusted gross margin.

The $5.4 million increase in Adjusted EBITDA for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to a $5.3 million increase in Adjusted gross margin.

The $4.3 million increase in Adjusted EBITDA for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to a $6.1 million increase in Adjusted gross margin, partially offset by a $1.8 million increase in selling, general and administrative expenses, excluding unit-based compensation expense, severance charges and transaction expenses.

The $3.0 million increase in DCF for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to (i) a $5.3 million increase in Adjusted gross margin, partially offset by a (ii) $1.2 million increase in cash interest expense, net and (iii) a $1.1 million increase in maintenance capital expenditures.

The $0.6 million increase in DCF for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to (i) a $6.1 million increase in Adjusted gross margin, partially offset by (ii) a $2.5 million increase in maintenance capital expenditures, (iii) a $1.8 million increase in selling, general and administrative expenses, excluding unit-based compensation expense, severance charges and transaction expenses and (iv) a $1.2 million increase in cash interest expense, net.

Coverage Ratios .

The decrease in DCF Coverage Ratio and Cash Coverage Ratio for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to the decrease in DCF.

The increase in DCF Coverage Ratio and Cash Coverage Ratio for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to the increase in DCF.

Liquidity and Capital Resources

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Over the long term, we expect that our maintenance capital expenditure requirements will continue to increase as the overall size and age of our fleet increases.

Our aggregate maintenance capital expenditures for the three months ended March 31, 2022 and 2021 were $5.8 million and $4.5 million, respectively.

Our aggregate maintenance capital expenditures for the six months ended June 30, 2022 and 2021 were $12.0 million and $9.5 million, respectively.

We currently plan to spend approximately $23.0 million in maintenance capital expenditures for the year 2022, including parts consumed from inventory.

Without giving effect to any equipment we may acquire pursuant to any future acquisitions, we currently have budgeted between $95.0 million and $105.0 million in expansion capital expenditures for the year 2022.

Our expansion capital expenditures for the three months ended March 31, 2022 and 2021 were $20.1 million and $4.2 million, respectively.

As of March 31, 2022, we had binding commitments to purchase $60.8 million of additional compression units and serialized parts, 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.

The following table summarizes our sources and uses of cash for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Without giving effect to any equipment we may acquire pursuant to any future acquisitions, we currently plan to spend between $100.0 million and $110.0 million in expansion capital expenditures for the year 2022.

Our expansion capital expenditures for the six months ended June 30, 2022 and 2021 were $52.3 million and $12.4 million, respectively.

As of June 30, 2022, we had binding commitments to purchase $53.2 million of additional compression units, all of which is expected to be settled within the next twelve months and $24.2 million of which is expected to be settled in the remainder of 2022.

The following table summarizes our sources and uses of cash for the six months ended June 30, 2022 and 2021 (in thousands):

Six Months Ended June 30,

Net cash provided by operating activities $ 129,282 $ 139,071

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Net cash provided by operating activities .

The $4.6 million decrease in net cash provided by operating activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was due to a $0.4 million decrease in net income, as adjusted for non-cash items, and changes in working capital.

The $9.8 million decrease in net cash provided by operating activities for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to changes in working capital, partially offset by a $3.6 million increase in net income, as adjusted for non-cash items.

Net cash used in investing activities .

The $15.5 million increase in net cash used in investing activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to a $14.0 million increase in capital expenditures, for purchases of new compression units, related equipment and reconfiguration costs, and a $1.5 million decrease in proceeds received from insurance recovery.

The $32.6 million increase in net cash used in investing activities for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to (i) a $28.4 million increase in capital expenditures, for purchases of new compression units, related equipment and reconfiguration costs, (ii) a $2.8 million decrease in proceeds from disposition of property and equipment and (iii) a $1.4 million decrease in proceeds received from insurance recovery.

Net cash used in financing activities .

The $20.0 million decrease in net cash used in financing activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to an increase in net borrowings of $20.3 million under the Credit Agreement.

The $42.4 million decrease in net cash used in financing activities for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to an increase in net borrowings of $42.7 million under the Credit Agreement.

Revolving Credit Facility

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.

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

As of April 26, 2022, we had outstanding borrowings under the Credit Agreement of $548.9 million.

As of June 30, 2022, we had outstanding borrowings under the Credit Agreement of $558.7 million, $1.0 billion of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $360.9 million.

As of June 30, 2022, we were in compliance with all of our covenants under the Credit Agreement.

As of July 28, 2022, we had outstanding borrowings under the Credit Agreement of $537.9 million.

For a more detailed description of the Credit Agreement, see Note 8 to our unaudited condensed consolidated financial statements in Part I, Item 1 “Financial Statements” of this report and Note 9 to the consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data” included in our 2021 Annual Report.

As of March 31, 2022, we had $725.0 million and $750.0 million aggregate principal amount outstanding on our Senior Notes 2026 and Senior Notes 2027, respectively.

As of June 30, 2022, we had $725.0 million and $750.0 million aggregate principal amount outstanding on our Senior Notes 2026 and Senior Notes 2027, respectively.

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

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For more detailed descriptions of the Senior Notes 2026 and Senior Notes 2027, see Note 8 to our unaudited condensed consolidated financial statements in Part I, Item 1 “Financial Statements” of this report and Note 9 to the consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data” included in our 2021 Annual Report.

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.

During the six months ended June 30, 2022, distributions of $1.0 million were reinvested under the DRIP resulting in the issuance of 61,700 common units.

Such distributions are treated as non-cash transactions in the accompanying unaudited condensed consolidated statements of cash flows included under Part I, Item 1 “Financial Statements” of this report.

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The following table reconciles Adjusted gross margin to gross margin, its most directly comparable GAAP financial measure, for each of the periods presented (in thousands):

Three Months Ended March 31,

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

2022 2021 2022 2021

Total revenues $ 171,461 $ 156,562 $ 334,873 $ 314,075

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The following table reconciles Adjusted EBITDA to net income and net cash provided by operating activities, its most directly comparable GAAP financial measures, for each of the periods presented (in thousands):

Three Months Ended March 31,

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

2022 2021 2022 2021

Net income $ 9,086 $ 2,688 $ 12,340 $ 3,059

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Severance charges — 13 251 226

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

Loss (gain) on disposition of assets 1,031 (1,105) 852 (2,360)

Impairment of compression equipment (3) — 2,403 432 4,953

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(1) For the three months ended March 31, 2022 and 2021, unit-based compensation expense included $1.1 million, for each period, of cash payments related to quarterly payments of DERs on outstanding phantom unit awards.

The remainder of the unit-based compensation expense for all periods was primarily related to non-cash adjustments to the unit-based compensation liability.

(1) For the three and six months ended June 30, 2022, unit-based compensation expense included $1.2 million and $2.3 million, respectively, of cash payments related to quarterly payments of DERs on outstanding phantom unit awards.

For the three and six months ended June 30, 2021, unit-based compensation expense included $1.1 million and $2.2 million, respectively, of cash payments related to quarterly payments of DERs on outstanding phantom unit awards and $0.2 million for each period related to the cash portion of any settlement of phantom unit awards upon vesting.

The remainder of the unit-based compensation expense for all periods was related to non-cash adjustments to the unit-based compensation liability.

(2) Represents certain expenses related to potential and completed transactions and other items.

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Using DCF, management can quickly compute the coverage ratio of estimated cash flows to planned cash distributions.

DCF should not be considered an alternative to, or more meaningful than, net income (loss), operating income (loss), cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance and liquidity.

of operating performance and liquidity.

Moreover, our DCF as presented may not be comparable to similarly titled measures of other companies.

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The following table reconciles DCF to net income and net cash provided by operating activities, its most directly comparable GAAP financial measures, for each of the periods presented (in thousands):

Three Months Ended March 31,

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

2022 2021 2022 2021

Net income $ 9,086 $ 2,688 $ 12,340 $ 3,059

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Depreciation and amortization 58,959 59,227 118,023 120,257

Non-cash income tax benefit (204) (99)

Non-cash income tax expense (benefit) 21 (34) (183) (133)

Unit-based compensation expense (1) 2,998 4,260 6,708 8,442

1 unchanged sentence

Severance charges — 13 251 226

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

Loss (gain) on disposition of assets 1,031 (1,105) 852 (2,360)

Impairment of compression equipment (3) — 2,403 432 4,953

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The remainder of the unit-based compensation expense for all periods was primarily related to non-cash adjustments to the unit-based compensation liability.

The remainder of the unit-based compensation expense for all periods was related to non-cash adjustments to the unit-based compensation liability.

(2) Represents certain expenses related to potential and completed transactions and other items.

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Cash Coverage Ratio is defined as DCF divided by cash distributions expected to be paid to common unitholders in respect of such period, after taking into account the non-cash impact of the DRIP.

We believe DCF Coverage Ratio and Cash Coverage Ratio are important measures of operating performance because they allow management, investors and others to gauge our

ability to pay cash distributions to common unitholders using the cash flows that we generate.

We believe DCF Coverage Ratio and Cash Coverage Ratio are important measures of operating performance because they allow management, investors and others to gauge our ability to pay cash distributions to common unitholders using the cash flows that we generate.

Our DCF Coverage Ratio and Cash Coverage Ratio as presented may not be comparable to similarly titled measures of other companies.

The following table summarizes certain coverage ratios for the periods presented (dollars in thousands):

Three Months Ended March 31,

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

2022 2021 2022 2021

DCF $ 55,576 $ 52,536 $ 105,722 $ 105,116

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Distributions for Cash Coverage Ratio (3) $ 50,866 $ 50,521 $ 101,481 $ 101,057

DCF Coverage Ratio 0.98 x 1.03 x

Cash Coverage Ratio 0.99 x 1.04 x

DCF Coverage Ratio 1.08 x 1.03 x 1.03 x 1.03 x

Cash Coverage Ratio 1.09 x 1.04 x 1.04 x 1.04 x

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Critical Accounting Estimates

The Partnership’s critical accounting estimates are described in Part I, Item 7 “Critical Accounting Estimates” of our 2021 Annual Report.

The Partnership’s critical accounting estimates are described in Part II, Item 7 “Critical Accounting Estimates” of our 2021 Annual Report.

There have been no material changes to our critical accounting estimates since the date of our 2021 Annual Report.

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 2. Management’s Discussion and Analysis