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Item 1. Financial Statements

2022-11-01 compared with 2022-08-02 · 138 added, 105 removed, 398 unchanged (38% of the section changed)

3 unchanged sentences

(in thousands)

September 30,

2022 December 31,

35 unchanged sentences

(in thousands, except per unit amounts)

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

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

2022 2021 2022 2021

27 unchanged sentences

(in thousands, except per unit amounts)

For the Six Months Ended June 30, 2022

For the Nine Months Ended September 30, 2022

Common units Warrants Total

14 unchanged sentences

Partners’ capital (deficit) ending balance, June 30, 2022 ( 20,877 ) 8,812 ( 12,065 )

For the Six Months Ended June 30, 2021

Vesting of phantom units 408 — 408

Distributions and DERs, $ 0.525 per unit

( 51,450 ) — ( 51,450 )

Issuance of common units under the DRIP 553 — 553

Unit-based compensation for equity classified awards 64 — 64

Net loss attributable to common unitholders’ interests ( 2,576 ) — ( 2,576 )

Partners’ capital (deficit) ending balance, September 30, 2022

$ ( 73,878 ) $ 8,812 $ ( 65,066 )

For the Nine Months Ended September 30, 2021

Common units Warrants Total

15 unchanged sentences

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

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

30 unchanged sentences

Net cash used in financing activities ( 92,070 ) ( 160,454 )

Change in cash and cash equivalents — —

Increase in cash and cash equivalents 6 248

Cash and cash equivalents, beginning of period — 2

15 unchanged sentences

We are a Delaware limited partnership.

Through our operating subsidiaries, we provide compression services under fixed-term contracts with customers in the natural gas and crude oil industries, using natural gas compression packages that we design, engineer, own, operate and maintain.

Through our operating subsidiaries, we provide compression services to customers under fixed-term contracts in the natural gas and crude oil industries, using natural gas compression packages that we design, engineer, own, operate, and maintain.

We also own and operate a fleet of equipment used to provide natural gas treating services, such as carbon dioxide and hydrogen sulfide removal, cooling, and dehydration.

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.

We primarily provide compression services in 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.” The General Partner is wholly owned by Energy Transfer.

2 unchanged sentences

Basis of Presentation

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC.

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

Operating results for the three and six months ended June 30, 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.

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and pursuant to SEC rules and regulations.

In the opinion of our management, financial information presented herein reflects all normal recurring adjustments necessary for the 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, 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 in accordance with SEC rules and regulations.

Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements contained in our annual report on Form 10-K for the year ended December 31, 2021 filed on February 15, 2022 (our “2021 Annual Report”).

Use of Estimates

Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions by management that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities that existed at the date of the unaudited condensed consolidated financial statements.

Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions by management that affect the reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities that existed as of the date of the unaudited condensed consolidated financial statements.

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

4 unchanged sentences

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount.

Trade accounts receivable are recorded at their invoiced amounts.

Allowance for Credit Losses

We evaluate our allowance for credit losses related to our trade accounts receivable measured at amortized cost.

Due to the short-term nature of our trade accounts receivable, we consider the amortized cost to be the same as the carrying amount of the receivable, excluding the allowance for credit losses.

Due to the short-term nature of our trade accounts receivable, we consider the amortized cost of trade accounts receivable to equal the receivable’s carrying amounts, excluding the allowance for credit losses.

Our determination of the allowance for credit losses requires us to make estimates and judgments regarding our customers’ ability to pay amounts due.

2 unchanged sentences

We evaluate the business climate in which our customers operate by reviewing various publicly available materials regarding our customers’ industry, including the solvency of various companies in the industry.

Inventories consist of serialized and non-serialized parts used primarily on compression units.

Inventories consist of serialized and non-serialized parts primarily used on compression units.

All inventories are stated at the lower of cost or net realizable value.

2 unchanged sentences

Property and Equipment

Property and equipment are carried at cost except for (i) certain acquired assets which are recorded at fair value on their respective acquisition dates and (ii) impaired assets which are recorded at fair value on the last impairment evaluation date for which an adjustment was required.

Property and equipment are carried at cost except for (i) certain acquired assets which are recorded at fair value on their respective acquisition dates and (ii) impaired assets which are recorded at fair value as of the last impairment evaluation date for which an adjustment was required.

Overhauls and major improvements that increase the value or extend the life of compression equipment are capitalized and depreciated over three to five years .

Ordinary maintenance and repairs are charged to cost of operations, exclusive of depreciation and amortization.

When property and equipment is retired or sold, its carrying value and the related accumulated depreciation are removed from our accounts and any associated gains or losses are recorded on the unaudited condensed consolidated statements of operations in the period of sale or disposition.

When property and equipment is retired or sold, its carrying value and the related accumulated depreciation are removed from our accounts and any associated gains or losses are recorded within the unaudited condensed consolidated statements of operations in the period of sale or disposition.

Capitalized interest is calculated by multiplying our monthly effective interest rate on outstanding variable-rate indebtedness by the amount of qualifying costs, which include upfront payments to acquire certain compression units.

Capitalized interest was approximately $ 208,000 and $ 346,000 for the three and six months ended June 30, 2022, respectively, and approximately $ 98,000 and $ 101,000 for the three and six months ended June 30, 2021, respectively.

Capitalized interest was approximately $ 283,000 and $ 629,000 for the three and nine months ended September 30, 2022, respectively, and approximately $ 51,000 and $ 152,000 for the three and nine months ended September 30, 2021, respectively.

Impairment of Long-Lived Assets

Long-lived assets with recorded values that are not expected to be recovered through future cash flows are written down to estimated fair value.

We test long-lived assets for impairment when events or circumstances indicate that the assets’ carrying value may not be recoverable or will no longer be utilized in the operating fleet.

The most common circumstance requiring compression units to be evaluated for impairment is when idle units do not meet the desired performance characteristics of our revenue generating horsepower.

The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

Long-lived assets with recorded values that are not expected to be recovered from future cash flows are written down to estimated fair value.

We test long-lived assets for impairment when events or circumstances indicate that a long-lived asset’s carrying value may not be recoverable or will no longer be utilized within the operating fleet.

The most common circumstance requiring compression units to be evaluated for impairment occurs when idle units do not meet the desired performance characteristics of our revenue generating horsepower.

The carrying value of a long-lived asset is not recoverable if the asset’s carrying value exceeds the sum of the undiscounted cash flows expected to be generated from the use and eventual disposition of the asset.

If the carrying value of the long-lived asset exceeds the sum of the undiscounted cash flows associated with the asset, an impairment loss equal to the amount of the carrying value exceeding the fair value of the asset is recognized.

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

Refer to Note 5 for more detailed information about impairment charges during the three and six months ended June 30, 2022 and 2021.

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 that 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 continue using.

Refer to Note 5 for more detailed information about impairment charges during the three and nine months ended September 30, 2022 and 2021.

Identifiable Intangible Assets

3 unchanged sentences

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied;

generally this occurs with the transfer of our services or goods.

Revenue is measured at the amount of consideration we expect to receive in exchange

for providing services or transferring goods.

generally, this occurs with the provision of our services or the transfer of goods.

Revenue is measured at the amount of consideration we expect to

receive in exchange for providing services or transferring goods.

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

2 unchanged sentences

As a result, our partners are responsible for U.S.

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

Texas also imposes on partnerships an entity-level income tax that is based on Texas sourced taxable margin (the “Texas Margin Tax”) and such tax impacts are included in the unaudited condensed consolidated financial statements.

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

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

Texas Margin Tax impacts are included within our unaudited condensed consolidated financial statements.

Our wholly owned finance subsidiary, USA Compression Finance Corp.

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

federal and state income tax purposes and such tax impacts, if any, are also included in the unaudited condensed consolidated financial statements.

federal and state income tax purposes and any resulting tax impacts are included within our unaudited condensed consolidated financial statements.

Pass-Through Taxes

1 unchanged sentence

Fair-Value Measurements

Accounting standards on fair value measurements establish a framework for measuring fair value and stipulate disclosures about fair value measurements.

Accounting standards applicable to fair-value measurements establish a framework for measuring fair value and stipulate disclosures about fair-value measurements.

The standards apply to recurring and non-recurring financial and non-financial assets and liabilities that require or permit fair-value measurements.

4 unchanged sentences

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

As of June 30, 2022, our financial instruments consisted primarily of cash and cash equivalents, trade accounts receivable, trade accounts payable and long-term debt.

As of September 30, 2022, our financial instruments primarily consisted 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.

The carrying amount of our revolving credit facility approximates fair value due to the floating interest rates associated with the debt.

The fair value of our Senior Notes 2026 and Senior Notes 2027 were estimated using quoted prices in inactive markets and are considered Level 2 measurements.

Our revolving credit facility applies floating interest rates to amounts drawn under the facility;

therefore, the carrying amount of our revolving credit facility approximates its fair value.

The fair value of our Senior Notes 2026 and Senior Notes 2027 are estimated using quoted prices in inactive markets and are considered Level 2 measurements.

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 $ 1.3 million and $ 2.1 million as of June 30, 2022 and December 31, 2021, 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 $ 1.2 million and $ 2.1 million as of September 30, 2022 and December 31, 2021, respectively, represents our best estimate of the amount of probable credit losses included within our existing accounts receivable balance.

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

2 unchanged sentences

Current-period provision for expected credit losses ( 700 )

Writeoffs charged against the allowance ( 103 )

Balance as of June 30, 2022 $ 1,254

For the three and six months ended June 30, 2022, we recognized reversals of $ 0.2 million and $ 0.7 million, respectively, of our provision for expected credit losses.

Favorable 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 and six months ended June 30, 2022.

For the six months ended June 30, 2021, we recognized a reversal of $ 1.3 million of our provision for expected credit losses.

Improved market conditions for customers due to a recovery in commodity prices was the primary factor contributing to the decrease to the allowance for credit losses for the six months ended June 30, 2021.

Write-offs charged against the allowance ( 116 )

Balance as of September 30, 2022 $ 1,241

For the nine months ended September 30, 2022, we recognized a reversal of $ 0.7 million of our provision for expected credit losses.

Favorable market conditions for customers, attributable to sustained increases in commodity prices, was the primary factor supporting the recorded decrease to the allowance for credit losses for the nine months ended September 30, 2022.

No change to our provision for expected credit losses was recognized for the three months ended September 30, 2022.

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

Improved market conditions for customers resulting from improved commodity prices was the primary factor supporting the recorded decrease to the allowance for credit losses for the three and nine months ended September 30, 2021.

(4) Inventories

Components of inventories are as follows (in thousands):

September 30,

2022 December 31,

5 unchanged sentences

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

September 30,

2022 December 31,

15 unchanged sentences

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

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

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

2022 2021 2022 2021

1 unchanged sentence

Loss (gain) on disposition of assets 1,118 48 1,970 ( 2,312 )

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

For the six months ended June 30, 2022, we determined to retire 10 compressor units for a total of approximately 1,400 horsepower that were previously used to provide compression services in our business.

As a result, we recorded an impairment of compression equipment of $ 0.4 million for the six months ended June 30, 2022.

For the three and six months ended June 30, 2021, we determined to retire 10 and 22 compressor units, respectively, for a total of approximately 4,000 and 9,600 horsepower, respectively, that were previously used to provide compression services in our business.

As a result, we recorded impairments of compression equipment of $ 2.4 million and $ 5.0 million for the three and six months ended June 30, 2021, respectively.

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.

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

For the three and nine months ended September 30, 2022, we retired two and 12 compressor units, respectively, with approximately 1,100 and 2,500 aggregate horsepower, respectively, that previously were used to provide compression services in our business.

As a result, we recorded impairments of compression equipment of $ 0.5 million and $ 0.9 million for the three and nine months ended September 30, 2022, respectively.

For the nine months ended September 30, 2021, we retired 22 compressor units with approximately 9,600 aggregate horsepower that previously were 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.

No impairment was recorded for the three months ended September 30, 2021.

The primary circumstances supporting these impairments were:

(i) unmarketability of units into the foreseeable future, (ii) excessive maintenance costs associated with certain fleet assets, and (iii) excessive retrofitting costs that likely would prevent certain units from securing customer acceptance.

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

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

Identifiable Intangible Assets

3 unchanged sentences

Amortization expense ( 19,578 ) ( 2,456 ) ( 22,034 )

Net balance as of June 30, 2022 $ 263,796 $ 25,926 $ 289,722

Accumulated amortization of intangible assets was $ 260.9 million and $ 246.3 million as of June 30, 2022 and December 31, 2021, respectively.

Net balance as of September 30, 2022 $ 257,270 $ 25,107 $ 282,377

Accumulated amortization of intangible assets was $ 268.3 million and $ 246.3 million as of September 30, 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,

10 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 gain on disposition of assets for the three and six months ended June 30, 2021.

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.

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

Maintenance revenue and interest income for the six months ended June 30, 2021 were $ 0.3 million and $ 0.1 million, respectively.

Maintenance revenue and interest income for the nine months ended September 30, 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,

13 unchanged sentences

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 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.

Our weighted-average interest rate in effect for all borrowings under the Credit Agreement as of June 30, 2022 was 4.13 %, with a weighted-average interest rate of 3.21 % for the six months ended June 30, 2022.

There were no letters of credit issued as of June 30, 2022.

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

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

As of September 30, 2022, we had outstanding borrowings under the Credit Agreement of $ 618.4 million, $ 981.6 million of availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $ 286.6 million.

Our weighted-average interest rate in effect for all borrowings under the Credit Agreement as of September 30, 2022 was 5.54 %, with a weighted-average interest rate of 3.79 % for the nine months ended September 30, 2022.

There were no

letters of credit issued under the Credit Agreement as of September 30, 2022.

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

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, 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 June 30, 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.

• 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 most-recent fiscal quarter;

• a maximum funded debt-to-EBITDA ratio, determined as of the last day of each fiscal quarter with EBITDA annualized for the most-recent fiscal quarter of (i) 5.50 to 1.00 from the third quarter of 2022 through the third quarter of 2023, and (ii) 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 for 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 September 30, 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 lockbox 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

3 unchanged sentences

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

As of June 30, 2022, we were in compliance with such financial covenants under the 2026 Indenture.

As of September 30, 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.

The Senior Notes 2026 and the 2026 Guarantees are effectively subordinated in right of payment to all of the Guarantors’, Finance Corp’s, and our existing and future secured debt, including debt under the Credit Agreement and guarantees thereof, to the extent of the value of the assets securing such debt, and are structurally subordinated to all indebtedness of any of our subsidiaries that do not guarantee the Senior Notes 2026.

The Senior Notes 2026 and the 2026 Guarantees effectively are subordinated in right of payment to all of the Guarantors’, Finance Corp’s, and our existing and future secured debt, including debt under the Credit Agreement and guarantees thereof, to the extent of the value of the assets securing such debt, and are structurally subordinate to all indebtedness of any of our subsidiaries that do not guarantee the Senior Notes 2026.

Senior Notes 2027

3 unchanged sentences

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

As of June 30, 2022, we were in compliance with such financial covenants under the 2027 Indenture.

As of September 30, 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.

The Senior Notes 2027 and the 2027 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.

The Senior Notes 2027 and the 2027 Guarantees are effectively subordinated in right of payment to all of the Guarantors’, Finance Corp’s, and our existing and future secured debt, including debt under the Credit Agreement and guarantees thereof, to the extent of the value of the assets securing such debt, and are structurally subordinated to all indebtedness of any of our subsidiaries that do not guarantee the Senior Notes 2027.

The Senior Notes 2027 and the 2027 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.

The Senior Notes 2027 and the 2027 Guarantees effectively are subordinated in right of payment to all of the Guarantors’, Finance Corp’s, and our existing and future secured debt, including debt under the Credit Agreement and guarantees thereof, to the extent of the value of the assets securing such debt, and are structurally subordinate to all indebtedness of any of our subsidiaries that do not guarantee the Senior Notes 2027.

We have no assets or operations independent of our subsidiaries, and there are no significant restrictions upon our ability to obtain funds from our subsidiaries by dividend or loan.

2 unchanged sentences

(9) Preferred Units

We had 500,000 Preferred Units outstanding as of June 30, 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.

We had 500,000 Preferred Units outstanding as of September 30, 2022 and December 31, 2021, respectively, with a face value of $ 1,000 per Preferred Unit.

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

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 per unit to the holders of the Preferred Units of record as follows:

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

Payment Date Distribution per Preferred Unit

6 unchanged sentences

May 6, 2022 24.375

August 5, 2022 24.375

2022 total distributions

Announced Quarterly Distribution

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

The distribution will be paid on August 5, 2022 to the holders of the Preferred Units of record as of the close of business on July 25, 2022.

On October 13, 2022, we declared a cash distribution of $ 24.375 per unit on our Preferred Units.

The distribution will be paid on November 4, 2022 to the holders of the Preferred Units of record as of the close of business on October 24, 2022.

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

3 unchanged sentences

Cash distributions on Preferred Units ( 36,563 )

Balance as of June 30, 2022 $ 477,309

Balance as of September 30, 2022 $ 477,309

Redemption and Conversion Features

6 unchanged sentences

The change in common units outstanding was as follows:

Units Outstanding

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

Common Units Outstanding

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

Vesting of phantom units 22,803

Issuance of common units under the DRIP 93,309

Exercise and conversion of warrants into common units 534,308

Number of units outstanding as of June 30, 2022 97,940,715

As of June 30, 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.

Number of common units outstanding as of September 30, 2022 97,995,127

As of September 30, 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 and phantom units, as follows (dollars in millions, except distribution per unit):

We have declared and paid per-unit quarterly distributions 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

7 unchanged sentences

May 6, 2022 0.525 51.1 1.2 52.3

August 5, 2022 0.525 51.4 1.1 52.5

2022 total distributions

1 unchanged sentence

Announced Quarterly Distribution

On July 14, 2022, we announced a cash distribution of $ 0.525 per unit on our common units.

The distribution will be paid on August 5, 2022 to common unitholders of record as of the close of business on July 25, 2022.

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.

On October 13, 2022, we announced a cash distribution of $ 0.525 per unit on our common units.

The distribution will be paid on November 4, 2022, to common unitholders of record as of the close of business on October 24, 2022.

During the nine months ended September 30, 2022, distributions of $ 1.6 million were reinvested under the DRIP resulting in the issuance of 93,309 common units.

As of December 31, 2021, we had two tranches of warrants outstanding, which included 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”).

1 unchanged sentence

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

As of June 30, 2022, the tranche of Warrants with the right to purchase 10,000,000 common units with a strike price of $ 19.59 per common unit was outstanding and may be exercised by the holders at any time before April 2, 2028.

As of September 30, 2022, the tranche of Warrants with the right to purchase 10,000,000 common units with a strike price of $ 19.59 per common unit was outstanding and may be exercised by the holders at any time prior to April 2, 2028.

Loss Per Unit

5 unchanged sentences

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 six months ended June 30, 2022, approximately 1,051,000 and 928,000 incremental unvested phantom units, respectively, were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive.

For the three and six months ended June 30, 2022, approximately 157,000 and 85,000 incremental “in the money” outstanding Warrants, respectively, were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive.

For the three and six months ended June 30, 2021, approximately 803,000 and 757,000 incremental unvested phantom units, respectively, were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive, and our then-outstanding Warrants were not included in the computation as they were not considered “in the money” for either period.

For the three and nine months ended September 30, 2022, approximately 959,000 and 938,000 incremental unvested phantom units, respectively, were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive.

For the nine months ended September 30, 2022, approximately 57,000 incremental “in the money” outstanding Warrants were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive.

For the three months ended September 30, 2022, our outstanding Warrants were not included in the computation as they were not considered “in the money” for the period.

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 then-outstanding Warrants were not included in the computation as they were not considered “in the money” for either period.

(11) Revenue Recognition

1 unchanged sentence

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

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

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

2022 2021 2022 2021

3 unchanged sentences

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

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

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

2022 2021 2022 2021

5 unchanged sentences

Total revenues $ 179,613 $ 158,627 $ 514,486 $ 472,702

Contract Assets

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

We had no contract assets as of June 30, 2022 and December 31, 2021.

Deferred Revenue

1 unchanged sentence

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

Balance sheet location June 30,

Balance sheet location September 30,

2022 December 31,

3 unchanged sentences

________________________________

(1) We recognized $ 2.9 million and $ 45.0 million of revenue during the three and six months ended June 30, 2022, respectively, related to our deferred revenue balance as of December 31, 2021.

(1) We recognized $ 1.8 million and $ 46.7 million of revenue during the three and nine months ended September 30, 2022, respectively, related to our deferred revenue balance as of December 31, 2021.

Performance Obligations

As of June 30, 2022, the aggregate amount of transaction price allocated to unsatisfied performance obligations related to our contract operations revenue was $ 505.6 million.

As of September 30, 2022, the aggregate amount of transaction price allocated to unsatisfied performance obligations related to our contract operations revenue was $ 568.7 million.

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

3 unchanged sentences

(12) Transactions with Related Parties

We provide compression services to entities affiliated with Energy Transfer, which as of June 30, 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 June 30, Six Months Ended June 30,

We provide compression services to entities affiliated with Energy Transfer, which as of September 30, 2022 owned approximately 47 % of our limited partner interests and 100 % of the General Partner.

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

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

2022 2021 2022 2021

Related-party revenues $ 3,693 $ 2,883 $ 11,398 $ 8,777

We had approximately $ 997,000 and $ 18,000 within related party receivables on our unaudited condensed consolidated balance sheets as of June 30, 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 June 30, 2022 and December 31, 2021 related to indemnification for sales tax contingencies.

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

We had approximately $ 70,000 and $ 18,000 within related-party receivables on our unaudited condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively, from these entities affiliated with Energy Transfer.

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

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

(13) Commitments and Contingencies

(a) Major Customers

We did not have revenue from any single customer representing 10% or more of total revenue for the three and six months ended June 30, 2022 or 2021.

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, 2022 or 2021.

(b) Litigation

3 unchanged sentences

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

The commitments as of June 30, 2022 were $ 53.2 million, 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 commitments as of September 30, 2022 were $ 167.6 million, $ 66.8 million of which is expected to be settled within the next twelve months and $ 100.8 million of which is expected to be settled in the remainder of 2023.

(d) Sales Tax Contingencies

5 unchanged sentences

We estimate that the range of losses we could incur is from $ 0 to approximately $ 21.1 million, including penalty and interest.

As of June 30, 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.

As of December 31, 2021, we had 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 had challenged the applicability of the manufacturing exemption.

During August 2022, a Compromise and Settlement Agreement (“Agreement”) was entered into with the Comptroller for the period January 1, 2008 through March 31, 2018, related to such open audits.

Pursuant to an indemnification agreement between us and Energy Transfer, Energy Transfer paid all amounts due under the Agreement in full.

As a result, the $ 44.9 million accrued liability and $ 44.9 million related-party receivable from Energy Transfer was reduced to zero as of September 30, 2022.

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