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Item 2. Management’s Discussion and Analysis

2022-11-01 compared with 2022-08-02 · 140 added, 144 removed, 249 unchanged (53% of the section changed)

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This report contains “forward-looking statements.” All statements other than statements of historical fact contained in this report are forward-looking statements, including, without limitation, statements regarding our plans, strategies, prospects, and expectations concerning our business, results of operations, and financial condition.

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 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.

Many of these statements can be identified by 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 represented within 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:

• changes in general economic conditions, including inflation or supply chain disruptions and changes in economic conditions of the crude oil and natural gas industries, including any impact from the ongoing military conflict involving Russia and Ukraine;

• changes in the long-term supply of and demand for crude oil and natural gas, including as a result of the severity and duration of world health events, including the COVID-19 pandemic, related economic repercussions, actions taken by governmental authorities and other third parties in response to such events, and the resulting disruption in the oil and gas industry and impact on demand for oil and gas;

• changes in general economic conditions, including inflation or supply chain disruptions, and changes in economic conditions of the crude oil and natural gas industries, including any impact from the military conflict involving Russia and Ukraine;

• competitive conditions in our industry, including competition for employees in a tight labor market;

• changes in the availability and cost of capital, including changes to interest rates;

• renegotiation of material terms of customer contracts;

• actions taken by our customers, competitors, and third-party operators;

• changes in the availability and cost of capital, including changes to interest rates;

• operating hazards, natural disasters, epidemics, pandemics (such as COVID-19), weather-related impacts, casualty losses, and other matters beyond our control;

• operational challenges relating to COVID-19 and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees, remote work arrangements, performance of contracts, and supply chain disruptions;

• the deterioration of the financial condition of our customers, which may result in the initiation of bankruptcy proceedings with respect to customers;

• the deterioration of the financial condition of our customers, which may result in the initiation of bankruptcy proceedings with respect to certain customers;

• the restrictions on our business that are imposed under our long-term debt agreements;

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• our ability to realize the anticipated benefits of acquisitions.

Many of the foregoing risks and uncertainties are, and will be, exacerbated by the COVID-19 pandemic and any consequent impact on the global business and economic environment.

New factors emerge from time to time, and it is not possible for us to predict all such factors.

Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements included in this report are based on information available to us on the date of this report and speak only as of the date of this report.

New factors emerge from time to time, and it is not possible for us to predict or anticipate all factors that could affect the results reflected in the forward-looking statements contained herein.

Should one or more of the risks or uncertainties described in this Quarterly Report on Form 10-Q occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements included in this report are based on information available to us as of the date of this report and speak only as of the date of this report.

Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

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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 June 30, Percent

Change Six Months Ended June 30, Percent

Three Months Ended September 30, Percent

Change Nine Months Ended September 30, Percent

2022 2021 2022 2021

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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 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.

As of September 30, 2022, we had 175,000 large horsepower on order for delivery, 75,000 of which is expected to be delivered within the next twelve months and 100,000 horsepower thereafter.

(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 June 30, 2022 and 2021 was 82.5% and 79.0%, respectively.

Horsepower utilization based on revenue generating horsepower and fleet horsepower as of September 30, 2022 and 2021 was 84.3% and 79.2%, 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 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.

Average horsepower utilization based on revenue generating horsepower and fleet horsepower for the three months ended September 30, 2022 and 2021 was 83.4% and 79.0%, respectively.

Average horsepower utilization based on revenue generating horsepower and fleet horsepower for the nine months ended September 30, 2022 and 2021 was 82.1% and 79.7%, respectively.

The 1.9% increase in total available horsepower as of September 30, 2022, compared to September 30, 2021, primarily was due to compression units added to our fleet to meet incremental demand from customers for our compression services.

The 7.2% increase in revenue generating horsepower and 2.7% increase in revenue generating compression units as of September 30, 2022, compared to September 30, 2021, primarily were 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 5.5% and 3.7% increases in average revenue per revenue generating horsepower per month during the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021, respectively, primarily were due to select price increases on our existing fleet.

The 3.5% and 1.6% increases in average horsepower per revenue generating compression unit during the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021, respectively, primarily were due to the composition of existing compression units redeployed.

Horsepower utilization increased to 90.9% as of September 30, 2022, compared to 83.0% as of September 30, 2021.

The increase in horsepower utilization primarily was 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, consistent with increased operating activity in the oil and gas industry.

The above-stated factors also drove the increase in average horsepower utilization for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021.

Horsepower utilization based on revenue generating horsepower and fleet horsepower increased to 84.3% as of September 30, 2022, compared to 79.2% as of September 30, 2021.

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

The above-stated factor also drove the increase in average horsepower utilization based on revenue generating horsepower and fleet horsepower for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021.

Financial Results of Operations

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

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

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

Three Months Ended June 30, Percent

Three Months Ended September 30, Percent

Contract operations $ 171,019 $ 151,622 12.8 %

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Selling, general and administrative 14,663 13,524 8.4 %

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

Loss on disposition of assets 1,118 48 *

Impairment of compression equipment 504 — *

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Contract operations revenue.

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.

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.

The $19.4 million increase in contract operations revenue for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily was due to (i) a 6.1% increase in average revenue generating horsepower as a result of increased demand for our services, consistent with increased operating activity in the oil and gas industry, (ii) select price increases on our existing fleet under contract, resulting in a 5.5% increase in average revenue per revenue generating horsepower per month, and (iii) an increase in revenues attributable to natural gas treating services.

Contract operations revenue was not materially impacted by contract renegotiations 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 differ significantly 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 $1.8 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.

The $0.8 million increase in parts and service revenue for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily was due to an increase in maintenance work performed on units at customer locations that are outside the scope of our core maintenance activities and that are offered as a convenience and in directly reimbursable freight and crane charges that are the financial responsibility of the customers.

Demand for retail parts and services fluctuates from period to period based on varying customer needs.

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 $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.

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

The $0.8 million increase in related party revenue for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily was due to revenue recognized from entities acquired by Energy Transfer since the previously comparable period.

Cost of operations, exclusive of depreciation and amortization .

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.

The $10.3 million increase in cost of operations, exclusive of depreciation and amortization, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily was due to (i) a $7.6 million increase in direct expenses, primarily driven by fluids and parts, (ii) a $1.3 million increase in direct labor costs due to increased activity, and (iii) a $1.1 million increase in outside maintenance costs due to greater use and higher costs of third-party labor during the current period.

The increase in fluids primarily was related to higher commodity prices and increased usage associated with higher revenue generating horsepower.

Depreciation and amortization expense .

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.

The $0.5 million decrease in depreciation and amortization expense for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily was due to asset disposals and assets reaching the end of their depreciable lives.

Selling, general, and administrative 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.

The $1.1 million increase in selling, general, and administrative expense for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily was due to (i) a $1.1 million decrease to the allowance for credit losses recorded in the prior comparable period and (ii) a $0.4 million increase in severance charges, primarily attributable to the departure of one of our executives during the third quarter of 2022, partially offset by (iii) a $0.5 million decrease in unit-based compensation expense, attributable to mark-to-market changes to our unit-based compensation liability that occurred as a result of changes to our per-unit trading price as of September 30, 2022.

Loss on disposition of assets.

The $1.1 million increase in loss on disposition of assets for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily was due to various disposals of non-compression assets.

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.

The $0.5 million impairment of compression equipment for the three months ended September 30, 2022, primarily resulted from our evaluation of the potential future deployment of idle fleet assets under then-existing market conditions.

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.

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.

As a result of our evaluation during the three months ended September 30, 2022, we retired two compressor units with approximately 1,100 aggregate horsepower that previously were used to provide compression services in our business.

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

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 $2.9 million increase in interest expense, net, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily was 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 attributable to the amendment and restatement of the Credit Agreement since the prior comparable period.

The weighted-average interest rate applicable to borrowings under the Credit Agreement was 4.94% and 2.92% for the three months ended September 30, 2022, and 2021, respectively, and average outstanding borrowings under the Credit Agreement were $576.0 million and $479.2 million for the three months ended September 30, 2022, and 2021, respectively.

Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

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

Six Months Ended June 30, Percent

Nine Months Ended September 30, Percent

Contract operations $ 492,656 $ 455,947 8.1 %

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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.

The $36.7 million increase in contract operations revenue for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily was due to (i) select price increases on our existing fleet under contract, resulting in a 3.7% 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, consistent with increased operating activity in the oil and gas industry, and (iii) an increase in revenue attributable to natural gas treating services.

Contract operations revenue was not materially impacted by contract renegotiations during the period with our customers.

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.

The $2.5 million increase in parts and service revenue for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily was due to an increase in maintenance work performed on units at customer locations that are outside the scope of our core maintenance activities and that are offered as a convenience and in directly reimbursable freight and crane charges that are the financial responsibility of the customers.

Demand for retail parts and services fluctuates from period to period based on varying customer needs.

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.

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

The $2.6 million increase in related-party revenue for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily was due to revenue recognized from entities acquired by Energy Transfer since the previously comparable 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.

The $25.0 million increase in cost of operations, exclusive of depreciation and amortization, for the nine months ended September 30, 2022, compared to the nine months ended

September 30, 2021, primarily was due to (i) a $12.2 million increase in direct expenses, primarily driven by fluids and parts, (ii) a $4.0 million increase in outside maintenance costs due to greater use and higher costs of third-party labor during the current period, (iii) a $2.3 million increase in expenses related to our vehicle fleet, primarily due to increased fuel costs, (iv) a $2.2 million increase in non-income taxes, primarily due to sales tax refunds received in the prior comparable period, (v) a $2.1 million increase in direct labor costs due to higher employee costs, and (vi) a $1.5 million increase in retail parts and service expenses, for which a corresponding increase in parts and service revenue also occurred.

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

The $2.7 million decrease in depreciation and amortization expense for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily was due to asset disposals and 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 June 30, 2022, and the related mark-to-market change to our unit-based compensation liability.

The $1.2 million increase in selling, general, and administrative expense for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily was due to (i) a $1.7 million decrease to the allowance for credit losses, resulting from a $2.4 million reversal of previously recognized credit losses in the prior comparable period versus a $0.7 million reversal to expense in the current period, (ii) a $0.6 million increase in professional fees, and (iii) a $0.5 million increase in severance charges, primarily attributable to the departure of one of our executives during the third quarter of 2022, partially offset by (iv) a $2.2 million decrease in unit-based compensation expense, attributable to mark-to-market changes to our unit-based compensation liability that occurred as a result of changes to our per-unit trading price as of September 30, 2022.

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.

The $4.3 million decrease in loss (gain) on disposition of assets for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily was due to the exercise of a lease purchase option on certain compression units by a customer during the prior comparable period.

The remaining change primarily relates to various disposals of non-compression assets.

Impairment of compression equipment.

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:

The $0.9 million and $5.0 million impairments of compression equipment for the nine months ended September 30, 2022, and 2021, respectively, primarily resulted from our evaluation of the potential future deployment of idle fleet assets under then-existing market conditions.

The primary circumstances supporting these impairments were:

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

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.

As a result of our evaluations during the nine months ended September 30, 2022, and 2021, we retired 12 and 22 compressor units, respectively, with approximately 2,500 and 9,600 aggregate horsepower, respectively, that previously were used to provide compression services in our business.

Interest expense, net .

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.

The $3.2 million increase in interest expense, net, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily was 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 attributable to the amendment and restatement of the Credit Agreement since the prior comparable period.

The weighted-average interest rate applicable to borrowings under the Credit Agreement was 3.79% and 3.01% for the nine months ended September 30, 2022, and 2021, respectively, and average outstanding borrowings under the Credit Agreement were $561.1 million and $485.3 million for the nine months ended September 30, 2022, and 2021, respectively.

Other Financial Data

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(1) Three Months Ended

June 30, Percent

Change Six Months Ended

June 30, Percent

September 30, Percent

Change Nine Months Ended

September 30, Percent

2022 2021 2022 2021

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Gross margin.

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.

The $11.2 million increase in gross margin for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, was due to (i) a $21.0 million increase in revenues and (ii) a $0.5 million decrease in depreciation and amortization, partially offset by (iii) a $10.3 million increase in cost of operations, exclusive of depreciation and amortization.

The $19.6 million increase in gross margin for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was due to (i) a $41.8 million increase in revenues and (ii) a $2.7 million decrease in depreciation and amortization, partially offset by (iii) a $25.0 million increase in cost of operations, exclusive of depreciation and amortization.

Adjusted gross margin.

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.

The $10.7 million increase in Adjusted gross margin for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, was due to a $21.0 million increase in revenues, partially offset by a $10.3 million increase in cost of operations, exclusive of depreciation and amortization.

The $16.8 million increase in Adjusted gross margin for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was due to a $41.8 million increase in revenues, partially offset by a $25.0 million increase in cost of operations, exclusive of depreciation and amortization.

Adjusted EBITDA.

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.

The $9.5 million increase in Adjusted EBITDA for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily was due to a $10.7 million increase in Adjusted gross margin, partially offset by a $1.2 million increase in selling, general, and administrative expenses, excluding unit-based compensation expense and severance charges.

The $13.8 million increase in Adjusted EBITDA for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily was due to a $16.8 million increase in Adjusted gross margin, partially offset by a $3.0 million increase in selling, general, and administrative expenses, excluding unit-based compensation expense, severance charges, and transaction expenses.

The $3.2 million increase in DCF for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily was due to (i) a $10.7 million increase in Adjusted gross margin, partially offset by (ii) a $3.4 million increase in cash interest expense, net, (iii) a $2.8 million increase in maintenance capital expenditures, and (iv) a $1.2 million increase in selling, general, and administrative expenses, excluding unit-based compensation expense and severance charges.

The $3.8 million increase in DCF for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily was due to (i) a $16.8 million increase in Adjusted gross margin, partially offset by (ii) a $5.3 million increase in maintenance capital expenditures, (iii) a $4.6 million increase in cash interest expense, net, and (iv) a

$3.0 million increase in selling, general, and administrative expenses, excluding unit-based compensation expense, severance charges, and transaction expenses.

Coverage Ratios .

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.

The increases in DCF Coverage Ratio and Cash Coverage Ratio for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021, primarily was due to the increase in DCF, partially offset by increased distributions due to an increase in the number of outstanding common units.

Liquidity and Capital Resources

We operate in a capital-intensive industry, and our primary liquidity needs are to finance the purchase of additional compression units and make other capital expenditures, service our debt, fund working capital, and pay distributions.

We operate in a capital-intensive industry, and our primary liquidity needs are to finance the purchase of additional compression units, make other capital expenditures, service our debt, fund working capital, and pay distributions.

Our principal sources of liquidity include cash generated by operating activities, borrowings under the Credit Agreement, and issuances of debt and equity securities, including common units under the DRIP.

We typically utilize cash generated by operating activities and, where necessary, borrowings under the Credit Agreement to service our debt, fund working capital, fund our estimated expansion capital expenditures, fund our maintenance capital expenditures, and pay distributions to our unitholders.

Covenants in the Credit Agreement and other debt instruments require that we maintain certain leverage ratios, and if we predict that we may violate those covenants in the future we could:

Covenants in the Credit Agreement and other debt instruments require that we maintain certain leverage ratios, and if we anticipate that we may violate those covenants in the future we could:

(i) delay discretionary capital spending and reduce operating expenses;

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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 six months ended June 30, 2022 and 2021 were $12.0 million and $9.5 million, respectively.

Our aggregate maintenance capital expenditures for the nine months ended September 30, 2022, and 2021, were $20.0 million and $14.8 million, respectively.

We currently plan to spend approximately $26.0 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 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,

Without giving effect to any equipment that we may acquire pursuant to any future acquisitions, we currently plan to spend between $120.0 million and $130.0 million in expansion capital expenditures for the year 2022.

Our expansion capital expenditures for the nine months ended September 30, 2022, and 2021, were $99.0 million and $25.9 million, respectively.

As of September 30, 2022, we had binding commitments to purchase $167.6 million worth of additional compression units, $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.

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

Nine Months Ended September 30,

Net cash provided by operating activities $ 178,491 $ 184,368

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Net cash provided by operating activities .

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.

The $5.9 million decrease in net cash provided by operating activities for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was due to changes in working capital, partially offset by a $10.3 million increase in net income, as adjusted for non-cash items.

Net cash used in investing activities .

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.

The $62.7 million increase in net cash used in investing activities for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was due to (i) a $58.7 million increase in capital expenditures, for purchases of new compression units, reconfiguration costs, and other equipment, (ii) a $3.1 million decrease in proceeds from disposition of property and equipment, and (iii) a $1.0 million decrease in proceeds received from insurance recovery.

Net cash used in financing activities .

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.

The $68.4 million decrease in net cash used in financing activities for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily was due to a $70.1 million increase in net borrowings under the Credit Agreement.

Revolving Credit Facility

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.

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.

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

As of October 27, 2022, we had outstanding borrowings under the Credit Agreement of $613.1 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 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.

As of September 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 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.

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.

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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We define Adjusted gross margin as revenue less cost of operations, exclusive of depreciation and amortization expense.

We believe that Adjusted gross margin is useful as a supplemental measure to investors of our operating profitability.

We believe Adjusted gross margin is useful to investors as a supplemental measure of our operating profitability.

Adjusted gross margin is impacted primarily by the pricing trends for service operations and cost of operations, including labor rates for service technicians, volume, and per-unit costs for lubricant oils, quantity and pricing of routine preventative maintenance on compression units, and property tax rates on compression units.

Adjusted gross margin should not be considered an alternative to, or more meaningful than, gross margin or any other measure of financial performance presented in accordance with GAAP.

Moreover, Adjusted gross margin as presented may not be comparable to similarly titled measures of other companies.

Because we capitalize assets, depreciation and amortization of equipment is a necessary element of our costs.

To compensate for the limitations of Adjusted gross margin as a measure of our performance, we believe that it is important to consider gross margin determined under GAAP, as well as Adjusted gross margin, to evaluate our operating profitability.

Adjusted gross margin should not be considered an alternative to, or more meaningful than, gross margin or any other measure presented in accordance with GAAP.

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

Because we capitalize assets, depreciation and amortization of equipment is a necessary element of our cost structure.

To compensate for the limitations of Adjusted gross margin as a measure of our performance, we believe it is important to consider gross margin determined under GAAP, as well as Adjusted gross margin, to evaluate our operating profitability.

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 June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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We define EBITDA as net income (loss) before net interest expense, depreciation and amortization expense, and income tax expense (benefit).

We define Adjusted EBITDA as EBITDA plus impairment of compression equipment, impairment of goodwill, interest income on capital lease, unit-based compensation expense (benefit), severance charges, certain transaction expenses, loss (gain) on disposition of assets and other.

We view Adjusted EBITDA as one of management’s primary tools for evaluating our results of operations, and we track this item on a monthly basis both as an absolute amount and as a percentage of revenue compared to the prior month, year-to-date, prior year and budget.

We define Adjusted EBITDA as EBITDA plus impairment of compression equipment, impairment of goodwill, interest income on capital leases, unit-based compensation expense (benefit), severance charges, certain transaction expenses, loss (gain) on disposition of assets, and other.

We view Adjusted EBITDA as one of management’s primary tools for evaluating our results of operations, and we track this item on a monthly basis as an absolute amount and as a percentage of revenue compared to the prior month, year-to-date, prior year, and budget.

Adjusted EBITDA is used as a supplemental financial measure by our management and external users of our financial statements, such as investors and commercial banks, to assess:

• the financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets;

• the financial performance of our assets without regard to the impact of financing methods, capital structure, or the historical cost basis of our assets;

• the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;

• the ability of our assets to generate cash sufficient to make debt payments and to pay distributions;

• the ability of our assets to generate cash sufficient to make debt payments and pay distributions;

• our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods and capital structure.

We believe that Adjusted EBITDA provides useful information to investors because, when viewed with our GAAP results and the accompanying reconciliations, it may provide a more complete understanding of our performance than GAAP results alone.

We also believe that external users of our financial statements benefit from having access to the same financial measures that management uses in evaluating the results of our business.

Adjusted EBITDA 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 or liquidity presented in accordance with GAAP as measures of operating performance and liquidity.

We believe Adjusted EBITDA provides useful information to investors because, when viewed in conjunction with our GAAP results and the accompanying reconciliations, it may provide a more complete assessment of our performance as compared to solely considering GAAP results.

We also believe that external users of our financial statements benefit from having access to the same financial measures that management uses to evaluate the results of our business.

Adjusted EBITDA 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 presented in accordance with GAAP.

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

Because we use capital assets, depreciation, impairment of compression equipment, loss (gain) on disposition of assets and the interest cost of acquiring compression equipment are also necessary elements of our costs.

Unit-based compensation expense related to equity awards to employees is also a necessary component of our business.

Therefore, measures that exclude these elements have material limitations.

To compensate for these limitations, we believe that it is important to consider both net income (loss) and net cash provided by operating activities determined under GAAP, as well as Adjusted EBITDA, to evaluate our financial performance and our liquidity.

Our Adjusted EBITDA excludes some, but not all, items that affect net income (loss) and net cash provided by operating activities, and these measures may vary among companies.

Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this knowledge into their decision making processes.

Because we use capital assets, depreciation, impairment of compression equipment, loss (gain) on disposition of assets, and the interest cost of acquiring compression equipment also are necessary elements of our aggregate costs.

compensation expense related to equity awards granted to employees also is a meaningful business expense.

Therefore, measures that exclude these cost elements have material limitations.

To compensate for these limitations, we believe that it is important to consider net income (loss) and net cash provided by operating activities as determined under GAAP, as well as Adjusted EBITDA, to evaluate our financial performance and liquidity.

Our Adjusted EBITDA excludes some, but not all, items that affect net income (loss) and net cash provided by operating activities, and these excluded items may vary among companies.

Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing comparable GAAP measures, understanding the differences between the measures, and incorporating this knowledge into their decision making.

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 June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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(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.

(1) For the three and nine months ended September 30, 2022, unit-based compensation expense included $1.1 million and $3.4 million, respectively, of cash payments related to quarterly payments of DERs on outstanding phantom unit awards and $1.1 million for the three and nine months ended September 30, 2022, related to the cash portion of any settlement of phantom unit awards upon vesting.

For the three and nine months ended September 30, 2021, unit-based compensation expense included $1.0 million and $3.2 million, respectively, of cash payments related to quarterly payments of DERs on outstanding phantom unit awards and $0.2 million for the nine months ended September 30, 2021, related to the cash portion of any settlement of phantom unit awards upon vesting.

The remainder of 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.

We believe it is useful to investors to exclude these expenses.

(3) Represents non-cash charges incurred to write down long-lived assets with recorded values that are not expected to be recovered through future cash flows.

(3) Represents non-cash charges incurred to decrease the carrying value of long-lived assets with recorded values that are not expected to be recovered through future cash flows.

Distributable Cash Flow

We define DCF as net income (loss) plus non-cash interest expense, non-cash income tax expense (benefit), depreciation and amortization expense, unit-based compensation expense (benefit), impairment of compression equipment, impairment of goodwill, certain transaction expenses, severance charges, loss (gain) on disposition of assets, proceeds from insurance recovery, and other, less distributions on Preferred Units and maintenance capital expenditures.

We believe DCF is an important measure of operating performance because it allows management, investors and others to compare basic cash flows we generate (after distributions on the Preferred Units but prior to any retained cash reserves established by the General Partner and the effect of the DRIP) to the cash distributions we expect to pay our common unitholders.

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.

We believe DCF is an important measure of operating performance because it allows management, investors, and others to compare the cash flows that we generate (after distributions on the Preferred Units but prior to any retained cash reserves established by the General Partner and the effect of the DRIP) to the cash distributions that we expect to pay our common unitholders.

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 presented in accordance with GAAP.

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

Because we use capital assets, depreciation, impairment of compression equipment, loss (gain) on disposition of assets, the interest cost of acquiring compression equipment and maintenance capital expenditures are necessary elements of our costs.

Unit-based compensation expense related to equity awards to employees is also a necessary component of our business.

Therefore, measures that exclude these elements have material limitations.

To compensate for these limitations, we believe that it is important to consider both net income (loss) and net cash provided by operating activities determined under GAAP, as well as DCF, to evaluate our financial performance and our liquidity.

Our DCF excludes some, but not all, items that affect net income (loss) and net cash provided by operating activities, and these measures may vary among companies.

Management compensates for the limitations of DCF as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this knowledge into their decision making processes.

Because we use capital assets, depreciation, impairment of compression equipment, loss (gain) on disposition of assets, the interest cost of acquiring compression equipment, and maintenance capital expenditures are necessary components of our aggregate costs.

Unit-based compensation expense related to equity awards granted to employees also is a meaningful business expense.

Therefore, measures that exclude these cost elements have material limitations.

To compensate for these limitations, we believe that it is important to consider net income (loss) and net cash provided by operating activities as determined under GAAP, as well as DCF, to evaluate our financial performance and liquidity.

Our DCF excludes some, but not all, items that affect net income (loss) and net cash provided by operating activities, and these excluded items may vary among companies.

Management compensates for the limitations of DCF as an analytical tool by reviewing comparable GAAP measures, understanding the differences between the measures, and incorporating this knowledge into their decision making.

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 June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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

The remainder of 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.

We believe it is useful to investors to exclude these expenses.

(3) Represents non-cash charges incurred to write down long-lived assets with recorded values that are not expected to be recovered through future cash flows.

(3) Represents non-cash charges incurred to decrease the carrying value of long-lived assets with recorded values that are not expected to be recovered through future cash flows.

(4) Reflects actual maintenance capital expenditures for the period presented.

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Coverage Ratios

DCF Coverage Ratio is defined as DCF divided by distributions declared to common unitholders in respect of such period.

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.

DCF Coverage Ratio is defined as the period’s DCF divided by distributions declared to common unitholders in respect of such period.

Cash Coverage Ratio is defined as the period’s 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 permit management, investors, and others to assess our ability to pay cash distributions to common unitholders out of 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 June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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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