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Item 1. Financial Statements

2023-05-02 compared with 2022-11-01 · 113 added, 196 removed, 340 unchanged (48% of the section changed)

3 unchanged sentences

(in thousands)

September 30,

2023 December 31,

1 unchanged sentence

Cash and cash equivalents $ 6 $ 35

Accounts receivable:

Trade, net of allowances for credit losses of $ 1,241 and $ 2,057 , respectively

Accounts receivable, net of allowances for credit losses of $ 1,246 and $ 1,164 , respectively

80,208 83,822

8 unchanged sentences

Total assets $ 2,657,874 $ 2,665,724

Liabilities, Preferred Units and Partners’ Capital (Deficit)

Liabilities, Preferred Units, and Partners’ Deficit

Current liabilities:

9 unchanged sentences

Preferred Units 477,309 477,309

Partners’ capital (deficit):

Partners’ deficit:

Common units, 98,258 and 98,228 units issued and outstanding, respectively

1 unchanged sentence

Warrants 8,812 8,812

Total partners’ capital (deficit) ( 65,066 ) 101,108

Total liabilities, Preferred Units and partners’ capital (deficit) $ 2,673,391 $ 2,767,979

Total partners’ deficit ( 168,461 ) ( 116,299 )

Total liabilities, Preferred Units, and partners’ deficit $ 2,657,874 $ 2,665,724

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except per unit amounts)

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

2022 2021 2022 2021

Three Months Ended March 31,

Contract operations $ 188,539 $ 157,668

6 unchanged sentences

Selling, general, and administrative 19,101 15,265

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

Gain on disposition of assets ( 376 ) ( 179 )

Impairment of compression equipment 1,191 432

3 unchanged sentences

Interest expense, net ( 39,790 ) ( 31,838 )

Other 27 18 68 88

Total other expense ( 39,766 ) ( 31,818 )

11 unchanged sentences

(in thousands, except per unit amounts)

For the Nine Months Ended September 30, 2022

For the Three Months Ended March 31, 2023

Common units Warrants Total

Partners’ capital ending balance, December 31, 2021

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

Distributions and DERs, $ 0.525 per unit

( 51,137 ) — ( 51,137 )

Issuance of common units under the DRIP 516 — 516

Unit-based compensation for equity classified awards 64 — 64

Net loss attributable to common unitholders’ interests ( 8,933 ) — ( 8,933 )

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

Distributions and DERs, $ 0.525 per unit

Partners’ capital (deficit) ending balance, December 31, 2022

$ ( 125,111 ) $ 8,812 $ ( 116,299 )

Issuance of common units under the DRIP 508 — 508

Unit-based compensation for equity classified awards 65 — 65

Exercise and conversion of warrants into common units 5,167 ( 5,167 ) —

Net loss attributable to common unitholders’ interests ( 3,102 ) — ( 3,102 )

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

Vesting of phantom units 408 — 408

Distributions and DERs, $ 0.525 per unit

3 unchanged sentences

Net loss attributable to common unitholders’ interests ( 1,246 ) — ( 1,246 )

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

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

For the Nine Months Ended September 30, 2021

Partners’ capital (deficit) ending balance, March 31, 2023 $ ( 177,273 ) $ 8,812 $ ( 168,461 )

For the Three Months Ended March 31, 2022

Common units Warrants Total

1 unchanged sentence

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

Vesting of phantom units 391 — 391

Distributions and DERs, $ 0.525 per unit

4 unchanged sentences

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

Vesting of phantom units 277 — 277

Distributions and DERs, $ 0.525 per unit

( 50,963 ) — ( 50,963 )

Issuance of common units under the DRIP 402 — 402

Unit-based compensation for equity classified awards 54 — 54

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

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

Vesting of phantom units 9 — 9

Distributions and DERs, $ 0.525 per unit

( 50,987 ) — ( 50,987 )

Issuance of common units under the DRIP 438 — 438

Unit-based compensation for equity classified awards 54 — 54

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

Partners’ capital ending balance, September 30, 2021

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

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

6 unchanged sentences

Deferred income tax benefit ( 15 ) ( 204 )

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

Gain on disposition of assets ( 376 ) ( 179 )

Impairment of compression equipment 1,191 432

15 unchanged sentences

Payments on revolving credit facility ( 203,338 ) ( 165,785 )

Cash paid related to net settlement of unit-based awards ( 1,055 ) ( 461 )

Cash distributions on common units ( 52,093 ) ( 51,767 )

3 unchanged sentences

Net cash used in financing activities ( 1,506 ) ( 15,325 )

Increase in cash and cash equivalents 6 248

Increase (decrease) in cash and cash equivalents ( 29 ) 15

Cash and cash equivalents, beginning of period 35 —

2 unchanged sentences

Cash paid for interest, net of capitalized amounts $ 63,167 $ 54,712

Cash paid for income taxes $ 887 $ 819

Supplemental non-cash transactions:

Non-cash distributions to certain common unitholders (DRIP) $ 617 $ 516

Transfers from inventories to property and equipment $ 14,392 $ 9,807

Transfers from inventories to property and equipment, net $ 10,636 $ 1,118

Changes in capital expenditures included in accounts payable and accrued liabilities $ 2,922 $ 1,874

Changes in financing costs included in accounts payable and accrued liabilities $ 134 $ ( 146 )

Exercise and conversion of warrants into common units $ 5,167 $ —

See accompanying notes to unaudited condensed consolidated financial statements.

4 unchanged sentences

We are a Delaware limited partnership.

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.

Through our operating subsidiaries, we provide natural gas compression services to customers under fixed-term contracts in the natural gas and crude oil industries, using 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 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 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.

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

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

(2) Basis of Presentation and Significant Accounting Policies

Basis of Presentation

1 unchanged sentence

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.

Operating results for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

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.

3 unchanged sentences

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

Accounting Policies

Significant Accounting Policies

Cash and Cash Equivalents

4 unchanged sentences

Allowance for Credit Losses

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

We evaluate allowance for credit losses with reference to our trade accounts receivable balances, which are measured at amortized cost.

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.

1 unchanged sentence

We continuously evaluate the financial strength of our customers and the overall business climate in which our customers operate, and make adjustments to the allowance for credit losses as necessary.

We evaluate the financial strength of our customers by reviewing the aging of their receivables, our collection experience with the customer, correspondence, financial information, and third-party credit ratings.

We evaluate the financial strength of our customers by reviewing the aging of their receivables owed to us, our collection experiences with the customer, correspondence, financial information, and third-party credit ratings.

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.

2 unchanged sentences

Serialized parts inventories are determined using the specific-identification cost method, while non-serialized parts inventories are determined using the weighted-average cost method.

Purchases of inventories are considered operating activities on the unaudited condensed consolidated statements of cash flows.

Purchases of inventories are considered operating activities within the unaudited condensed consolidated statements of cash flows.

Property and Equipment

2 unchanged sentences

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 within the unaudited condensed consolidated statements of operations in the period of sale or disposition.

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

Capitalized interest was $ 0.3 million and $ 0.1 million for the three months ended March 31, 2023, and 2022, respectively.

Impairment of Long-Lived Assets

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

The carrying value of long-lived assets 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 most common circumstance requiring compression units to be evaluated for impairment involves idle units that 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.

1 unchanged sentence

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.

Refer to Note 5 for more detailed information about impairment charges during the three months ended March 31, 2023, and 2022.

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 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.

generally, this occurs with the provision of 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.

7 unchanged sentences

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

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

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

Pass-Through Taxes

8 unchanged sentences

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

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.

As of March 31, 2023, and December 31, 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.

1 unchanged sentence

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 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.

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

September 30,

2023 December 31,

6 unchanged sentences

(3) Trade 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):

Allowance for Credit Losses

Balance as of December 31, 2021 $ 2,057

Current-period provision for expected credit losses ( 700 )

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.

The allowance for credit losses, which was $ 1.2 million at both March 31, 2023, and December 31, 2022, represents our best estimate of the amount of probable credit losses included within our existing accounts receivable balance.

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

(4) Inventories

Components of inventories are as follows (in thousands):

September 30,

2023 December 31,

5 unchanged sentences

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

September 30,

2023 December 31,

9 unchanged sentences

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:

Compression equipment, acquired new 25 years

Compression equipment, acquired used 5 - 25 years

Compression and treating equipment, acquired new 25 years

Compression and treating equipment, acquired used 5 - 25 years

Furniture and fixtures 3 - 10 years

1 unchanged sentence

Leasehold improvements 5 years

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

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

2022 2021 2022 2021

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

Three Months Ended March 31,

Depreciation expense $ 52,141 $ 51,720

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

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.

Gain on disposition of assets 376 179

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

For the three months ended March 31, 2023, and 2022, we retired six and ten compression units, respectively, representing approximately 8,700 and 1,400 of aggregate horsepower, respectively, that previously were used to provide compression services in our business.

As a result, we recorded an impairment of compression equipment of $ 1.2 million and $ 0.4 million for the three months ended March 31, 2023, and 2022, respectively.

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.

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

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

Identifiable Intangible Assets

3 unchanged sentences

Amortization expense ( 6,526 ) ( 819 ) ( 7,345 )

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.

Net balance as of March 31, 2023 $ 244,218 $ 23,469 $ 267,687

Accumulated amortization of intangible assets was $ 283.0 million and $ 275.6 million as of March 31, 2023, and December 31, 2022, respectively.

(6) Other Current Liabilities

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

September 30,

2023 December 31,

Accrued sales tax contingencies (1) $ — $ 44,923

Accrued interest expense $ 7,601 $ 32,763

Accrued payroll and benefits 12,653 8,054

Accrued unit-based compensation liability 23,345 17,743

Accrued capital expenditures 12,950 10,028

________________________________

(1) Refer to Note 13 for further information on the accrued sales tax contingencies .

(7) Lease Accounting

Lessor Accounting

In 2014, we granted a bargain purchase option to a customer with respect to certain compressor packages leased to the customer.

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

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

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

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

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

(7) Long-term Debt

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

September 30,

2023 December 31,

6 unchanged sentences

Revolving Credit Facility

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

The 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.

The Credit Agreement has an aggregate commitment of $ 1.6 billion (subject to availability under our borrowing base).

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

In addition, the Partnership’s obligations under the Credit Agreement are secured by:

In addition, under the Credit Agreement the Partnership’s Secured Obligations (as defined therein) are secured by:

(i) substantially all of the Partnership’s assets and substantially all of the assets of the guarantors party to the Credit Agreement, excluding real property and other customary exclusions;

1 unchanged sentence

restricted subsidiaries (subject to customary exceptions).

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 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.

As of March 31, 2023, we had outstanding borrowings under the Credit Agreement of $ 709.1 million, $ 890.9 million of availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $ 374.5 million.

Our weighted-average interest rate in effect for all borrowings under the Credit Agreement for the three months ended March 31, 2023, was 7.15 %, and our weighted-average interest rate under the Credit Agreement as of March 31, 2023, was 7.38 %.

There were no letters of credit issued under the Credit Agreement as of March 31, 2023.

We pay an annualized 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.

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 most-recent fiscal quarter;

• a minimum EBITDA (as defined in the Credit Agreement) 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 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 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.

• 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 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.

As of March 31, 2023, 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

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

On March 23, 2018, the Partnership and Finance Corp co-issued the Senior Notes 2026.

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

Interest on the Senior Notes 2026 is payable semi-annually in arrears on each of April 1 and October 1.

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

As of September 30, 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 indenture governing the Senior Notes 2026 (the “2026 Indenture”) contains certain financial covenants that we must comply with in order to make certain restricted payments as described in the 2026 Indenture.

As of March 31, 2023, we were in compliance with such financial covenants under the 2026 Indenture.

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

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

1 unchanged sentence

Senior Notes 2027

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

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

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

Interest on the Senior Notes 2027 is payable semi-annually in arrears on each of March 1 and September 1.

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

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

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

As of March 31, 2023, 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 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.

Each of the Guarantors and Finance Corp is 100 % owned by us.

None of the assets of our subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act.

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

Each of the Guarantors is 100 % owned by us.

None of the assets of our subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act of 1933, as amended.

(8) Preferred Units

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.

We had 500,000 Preferred Units outstanding as of March 31, 2023, and December 31, 2022, 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.

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February 3, 2023 $ 24.375

May 6, 2022 24.375

August 5, 2022 24.375

2022 total distributions

Announced Quarterly Distribution

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.

On April 13, 2023, we declared a cash distribution of $ 24.375 per unit on our Preferred Units.

The distribution will be paid on May 5, 2023, to the holders of the Preferred Units of record as of the close of business on April 24, 2023.

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

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Cash distributions on Preferred Units ( 12,187 )

Balance as of September 30, 2022 $ 477,309

Balance as of March 31, 2023 $ 477,309

Redemption and Conversion Features

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

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

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

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

As of April 2, 2023, 100 % of the Preferred Units are convertible, at the option of the holder, into common units in accordance with the terms of our Second Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”).

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

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

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

(10) Partners’ Capital (Deficit)

(9) Partners’ Deficit

The change in common units outstanding was as follows:

Common Units Outstanding

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

Vesting of phantom units 22,803

Number of common units outstanding, December 31, 2022 98,227,656

Issuance of common units under the DRIP 29,983

Exercise and conversion of warrants into common units 534,308

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.

Number of common units outstanding, March 31, 2023 98,257,639

As of March 31, 2023, 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

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February 3, 2023 $ 0.525 $ 51.6 $ 1.1 $ 52.7

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

$ 1.575 $ 153.6 $ 3.5 $ 157.1

Announced Quarterly Distribution

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”).

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

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

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.

On April 13, 2023, we announced a cash distribution of $ 0.525 per unit on our common units.

The distribution will be paid on May 5, 2023, to common unitholders of record as of the close of business on April 24, 2023.

During the three months ended March 31, 2023, distributions of $ 0.6 million were reinvested under the DRIP resulting in the issuance of 29,983 common units.

As of March 31, 2023, and December 31, 2022, we had warrants outstanding to purchase 10,000,000 common units with a strike price of $ 19.59 per common unit that may be exercised by the holders at any time prior to April 2, 2028.

Loss Per Unit

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

For the three and nine months ended September 30, 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.

For the three months ended March 31, 2023, approximately 1.1 million and 477,000 incremental unvested phantom units and “in the money” outstanding warrants, respectively, were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive.

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

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

(10) Revenue Recognition

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Contract operations revenue $ 193,142 $ 161,486

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Services provided over time:

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

Balance sheet location September 30,

Balance sheet location March 31,

2023 December 31,

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________________________________

(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.

(1) We recognized $ 53.0 million of revenue during the three months ended March 31, 2023, related to our deferred revenue balance as of December 31, 2022.

Performance Obligations

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.

As of March 31, 2023, the aggregate amount of transaction price allocated to unsatisfied performance obligations related to our contract operations revenue was $ 725.9 million.

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

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(11) Transactions with Related Parties

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

We provide compression services to entities affiliated with Energy Transfer, which as of March 31, 2023, owned approximately 47 % of our limited partner interests and 100 % of the General Partner.

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

Three Months Ended March 31,

Related-party revenues $ 4,707 $ 3,818

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.

We had approximately $ 246,000 and $ 52,000 of related-party receivables on our unaudited condensed consolidated balance sheets as of March 31, 2023, and December 31, 2022, respectively, from those entities affiliated with Energy Transfer.

(12) 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 nine months ended September 30, 2022 or 2021.

We did not have revenue from any single customer representing 10% or more of total revenues for the three months ended March 31, 2023, or 2022.

(b) Litigation

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

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

The commitments as of March 31, 2023, were $ 144.7 million, all of which is expected to be settled by year-end 2023.

(d) Sales Tax Contingency

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

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We and others in our industry have disputed these claims and assessments based on either existing tax statutes or published guidance by the taxing authorities.

We are currently protesting certain assessments made by the Oklahoma Tax Commission (“OTC”).

We currently are protesting certain assessments made by the Oklahoma Tax Commission (“OTC”).

We believe it is reasonably possible that we could incur losses related to this assessment depending on whether the administrative law judge assigned by the OTC accepts our position that the transactions are not taxable and we ultimately lose any and all subsequent legal challenges to such determination.

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

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.

We estimate that the range of losses we could incur is from $ 0 to approximately $ 23.8 million, including penalties and interest.

(e) Environmental

Our operations are subject to federal, state, and local laws, rules, and regulations regarding water quality, hazardous and solid waste management, air quality control, and other environmental matters.

These laws, rules, and regulations require that we conduct our operations in a specified manner and to obtain and comply with a wide variety of environmental registrations, licenses, permits, inspections, and other approvals.

Failure to comply with applicable environmental laws, rules, and regulations may expose us to significant fines, penalties, and/or interruptions in operations.

Our environmental policies and procedures are designed to achieve compliance with such applicable laws, rules, and regulations.

These evolving laws, rules, and regulations, and claims for damages to property, employees, other persons, and the environment resulting from current or past operations may result in significant expenditures and liabilities in the future.

(13) Subsequent Event

In April 2023, we entered into an interest-rate swap to manage interest-rate risk associated with the floating-rate Credit Agreement.

The interest-rate swap’s notional principal amount is $ 700 million and has a mandatory termination date of April 2025.

Under the interest-rate swap, we pay a fixed interest rate of 3.785 % and receive floating interest rate payments that are indexed to the one-month SOFR.

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