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Item 1. Financial Statements

2024-05-07 compared with 2023-10-31 · 155 added, 178 removed, 382 unchanged (47% of the section changed)

3 unchanged sentences

(in thousands, except unit amounts)

September 30,

2024 December 31,

22 unchanged sentences

Operating lease liabilities 13,903 14,731

Derivative instrument, long term — 4,466

Other liabilities 12,230 10,924

5 unchanged sentences

( 289,572 ) ( 293,285 )

Warrants 8,812 8,812

Total partners’ deficit ( 250,621 ) ( 116,299 )

Total liabilities, Preferred Units, and partners’ deficit $ 2,804,217 $ 2,736,760

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Contract operations $ 218,104 $ 188,539

12 unchanged sentences

Interest expense, net ( 46,666 ) ( 39,790 )

Loss on extinguishment of debt ( 4,966 ) —

Gain on derivative instrument 8,771 —

Other 23 27 104 68

Total other expense ( 42,827 ) ( 39,766 )

6 unchanged sentences

Weighted-average common units outstanding – diluted 103,606 98,247

Basic net income (loss) per common unit $ 0.09 $ ( 0.03 ) $ 0.19 $ ( 0.15 )

Diluted net income (loss) per common unit $ 0.09 $ ( 0.03 ) $ 0.19 $ ( 0.15 )

Basic and diluted net income (loss) per common unit $ 0.19 $ ( 0.01 )

Distributions declared per common unit for respective periods $ 0.525 $ 0.525

3 unchanged sentences

(in thousands, except per unit amounts)

For the Nine Months Ended September 30, 2023

Common units Warrants Total

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

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

Distributions and DERs, $ 0.525 per unit

( 51,602 ) — ( 51,602 )

Issuance of common units under the DRIP 617 — 617

Unit-based compensation for equity-classified awards 69 — 69

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

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

Distributions and DERs, $ 0.525 per unit

Partners’ deficit ending balance, December 31, 2023

$ ( 293,285 )

Issuance of common units under the DRIP 423 — 423

Unit-based compensation for equity-classified awards 69 — 69

Net income attributable to common unitholders’ interests 11,396 — 11,396

Partners’ capital (deficit) ending balance, June 30, 2023 ( 217,002 ) 8,812 ( 208,190 )

Distributions and DERs, $ 0.525 per unit

( 51,628 ) — ( 51,628 )

Issuance of common units under the DRIP 440

Unit-based compensation for equity-classified awards 78

Exercise and conversion of Preferred Units into common units 38,108

Net income attributable to common unitholders’ interests 19,185

Partners’ capital (deficit) ending balance, September 30, 2023

$ ( 259,433 ) $ 8,812 $ ( 250,621 )

For the Nine Months Ended September 30, 2022

Partners’ deficit ending balance, March 31, 2024 $ ( 289,572 )

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 )

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

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:

2 unchanged sentences

Depreciation and amortization 63,251 59,486

Provision for expected credit losses — ( 700 )

Amortization of debt issuance costs 1,995 1,822

Unit-based compensation expense 7,769 6,779

Deferred income tax benefit ( 46 ) ( 216 )

Deferred income tax expense (benefit) 60 ( 15 )

Loss (gain) on disposition of assets 1,254 ( 376 )

Loss on extinguishment of debt 4,966 —

Change in fair value of derivative instrument ( 6,349 ) —

7 unchanged sentences

Accrued liabilities and deferred revenue 3,792 ( 28,863 )

Other liabilities 1,640 —

Net cash provided by operating activities 65,917 42,338

2 unchanged sentences

Proceeds from disposition of property and equipment 40 536

Proceeds from insurance recovery 535 597

Net cash used in investing activities ( 98,573 ) ( 40,861 )

Cash flows from financing activities:

Proceeds from revolving credit facility 798,424 623,443

Payments on revolving credit facility ( 631,305 ) ( 521,396 )

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

Proceeds from long-term borrowings 325,062 266,470

Proceeds from issuance of senior notes 1,000,000 —

Repayments of long-term borrowings ( 460,770 ) ( 203,338 )

Investments in government securities in connection with legal defeasance of the Senior Notes 2026 ( 748,764 ) —

Cash distributions on common units ( 54,644 ) ( 52,093 )

2 unchanged sentences

Other ( 156 ) ( 107 )

Net cash used in financing activities ( 26,919 ) ( 92,070 )

Increase (decrease) in cash and cash equivalents ( 29 ) 6

Net cash provided by (used in) financing activities 32,653 ( 1,506 )

Decrease in cash and cash equivalents ( 3 ) ( 29 )

Cash and cash equivalents, beginning of period 11 35

Cash and cash equivalents, end of period $ 8 $ 6

See accompanying notes to unaudited condensed consolidated financial statements.

USA COMPRESSION PARTNERS, LP

Unaudited Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

Supplemental cash flow information:

Cash paid for interest, net of capitalized amounts $ 44,739 $ 63,167

Cash paid for income taxes $ 1,146 $ 887

Supplemental non-cash transactions:

3 unchanged sentences

Changes in financing costs included in accounts payable and accrued liabilities $ 1,486 $ 134

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

Exercise and conversion of Preferred Units into common units $ 38,108 $ —

Government securities transferred in connection with the legal defeasance of the Senior Notes 2026 $ 748,764 $ —

Legal defeasance of Senior Notes 2026 $ 725,000 $ —

See accompanying notes to unaudited condensed consolidated financial statements.

13 unchanged sentences

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, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Operating results for the three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

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.

26 unchanged sentences

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 $ 0.2 million and $ 0.8 million for the three and nine months ended September 30, 2023, respectively, and $ 0.3 million and $ 0.6 million for the three and nine months ended September 30, 2022, respectively.

Capitalized interest was $ 35 thousand and $ 0.3 million for the three months ended March 31, 2024 and 2023 , respectively.

Impairment of Long-Lived Assets

5 unchanged sentences

The fair value of the asset is measured using quoted market prices or, in the absence of quoted market prices, based on an estimate of discounted cash flows, the expected net sale proceeds compared to the other similarly configured fleet units 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, 2023, and 2022.

Refer to Note 5 for more detailed information about impairment charges during the three months ended March 31, 2024 and 2023.

Identifiable Intangible Assets

4 unchanged sentences

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.

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.

3 unchanged sentences

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

Net earnings for financial statement purposes may differ significantly from taxable income reportable to unitholders as a result of differences between the tax basis and financial reporting basis of assets and liabilities.

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

13 unchanged sentences

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

As of September 30, 2023, and December 31, 2022, our financial instruments primarily consisted of cash and cash equivalents, trade accounts receivable, trade accounts payable, long-term debt, and, as of September 30, 2023, a derivative instrument.

As of March 31, 2024, and December 31, 2023, our financial instruments primarily consisted of cash and cash equivalents, trade accounts receivable, trade accounts payable, a derivative instrument, 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 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,

The fair value of our Senior Notes 2026, Senior Notes 2027, and Senior Notes 2029 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, Senior Notes 2027, and Senior Notes 2029 (in thousands):

2024 December 31,

3 unchanged sentences

Fair value of Senior Notes 2027 750,000 737,963

Senior Notes 2029, aggregate principal 1,000,000 —

Fair value of Senior Notes 2029 1,010,000 —

The fair value of our derivative instrument, which is an interest-rate swap, was estimated based on inputs from actively quoted public markets, including interest-rate forward curves, and is considered a Level 2 measurement.

We consider counterparty credit risk and our own credit risk in the determination of the estimated fair value.

The following table summarizes the gross fair value of our interest-rate swap (in thousands):

September 30,

2024 December 31,

Interest-rate swap $ 7,553 $ 1,204

See Note 7 below for additional information on the interest-rate swap.

Refer to Note 7 below for additional information on the interest-rate swap.

Operating Segment

1 unchanged sentence

(3) Trade Accounts Receivable

The allowance for credit losses, which was $ 0.8 million and $ 1.2 million at September 30, 2023 and December 31, 2022, 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, 2022 $ 1,164

Write-offs charged against the allowance ( 462 )

Recoveries collected 82

Balance as of September 30, 2023 $ 784

For the nine months ended September 30, 2022, we recognized a reversal of $ 0.7 million to 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.

The allowance for credit losses, which was $ 2.3 million at both March 31, 2024 and December 31, 2023, represents our best estimate of the amount of probable credit losses included within our existing accounts receivable balance.

(4) Inventories

Components of inventories are as follows (in thousands):

September 30,

2024 December 31,

5 unchanged sentences

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

September 30,

2024 December 31,

15 unchanged sentences

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Depreciation expense $ 55,906 $ 52,141

1 unchanged sentence

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

For the three and nine months ended September 30, 2023, we retired three and 42 compression units, respectively, representing approximately 2,100 and 37,700 of aggregate horsepower, respectively, that previously were used to provide compression services in our business.

As a result, we recorded impairments of compression equipment of $ 0.9 million and $ 12.3 million for the three and nine months ended September 30, 2023, respectively.

For the three and nine months ended September 30, 2022, we retired two and 12 compression units, respectively, representing approximately 1,100 and 2,500 of 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 three months ended March 31, 2023, we retired six compression units representing approximately 8,700 of aggregate horsepower 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 for the three months ended March 31, 2023.

The primary circumstances supporting these impairments were:

1 unchanged sentence

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

No impairment of compression equipment was recorded for the three months ended March 31, 2024.

Identifiable Intangible Assets

3 unchanged sentences

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

Net balance as of September 30, 2023 $ 231,165 $ 21,832 $ 252,997

Accumulated amortization of intangible assets was $ 297.7 million and $ 275.6 million as of September 30, 2023, and December 31, 2022, respectively.

Net balance as of March 31, 2024 $ 218,113 $ 20,194 $ 238,307

Accumulated amortization of intangible assets was $ 312.4 million and $ 305.0 million as of March 31, 2024 and December 31, 2023, respectively.

(6) Other Current Liabilities

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

September 30,

2024 December 31,

Accrued interest expense $ 8,784 $ 31,960

Accrued payroll and benefits 13,385 6,474

Accrued unit-based compensation liability 28,600 21,896

1 unchanged sentence

(7) Derivative Instrument

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 termination date in April 2025.

As of March 31, 2024 and December 31, 2023, we had an interest-rate swap outstanding 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 termination date of December 31, 2025.

Under the interest-rate swap, we pay a fixed interest rate of 3.9725 % and receive floating interest-rate payments that are indexed to the one-month SOFR.

3 unchanged sentences

The following table summarizes the location and fair value of our derivative instrument on our unaudited condensed consolidated balance sheets (in thousands):

Balance Sheet Classification September 30,

Assets Liabilities

Balance Sheet Classification March 31,

2024 December 31,

2023 March 31,

2024 December 31,

Derivative instrument $ 7,172 $ 5,670 $ — $ —

1 unchanged sentence

The following table summarizes the location and amounts recognized related to our derivative instrument within our unaudited condensed consolidated statements of operations (in thousands):

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

Three Months Ended March 31,

Income Statement Classification 2024 2023

Gain on derivative instrument $ 8,771 $ —

(8) Long-term Debt

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

September 30,

(8) Debt Obligations

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

2024 December 31,

1 unchanged sentence

Senior Notes 2027, aggregate principal 750,000 750,000

Senior Notes 2029, aggregate principal 1,000,000 —

deferred financing costs, net of amortization ( 23,575 ) ( 10,725 )

3 unchanged sentences

Revolving Credit Facility

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 matures on December 8, 2026.

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

4 unchanged sentences

restricted subsidiaries (subject to customary exceptions).

As of September 30, 2023, we had outstanding borrowings under the Credit Agreement of $ 813.1 million, $ 786.9 million of availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $ 434.3 million.

Our weighted-average interest rate in effect for all borrowings under the Credit Agreement for the nine months ended September 30, 2023, was 7.57 %, and our weighted-average interest rate under the Credit Agreement as of September 30,

2023, was 7.99 %.

There were no letters of credit issued under the Credit Agreement as of September 30, 2023.

As of March 31, 2024, we had outstanding borrowings under the Credit Agreement of $ 736.1 million and, after accounting for outstanding letters of credit in the amount of $ 0.5 million, $ 863.4 million of remaining unused availability, of which, due to restrictions related to compliance with the applicable financial covenants, $ 429.3 million was available to be drawn.

Our weighted-average interest rate in effect for all borrowings under the Credit Agreement for the three months ended March 31, 2024, was 7.99 %, and our weighted-average interest rate under the Credit Agreement as of March 31, 2024, was 8.00 %.

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

1 unchanged sentence

(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, 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 (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 minimum EBITDA to interest coverage ratio of 2.50 to 1.00, 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 3.00 to 1.00 or less than 0.00 to 1.00, 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, defined in the Credit Agreement as the Total Leverage 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, 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, 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.

As of March 31, 2024, we were in compliance with all of our covenants under the Credit Agreement.

For purposes of the above covenants, EBITDA is calculated as set forth in the Credit Agreement.

The Credit Agreement is a “revolving credit facility” that includes a lockbox arrangement, whereby remittances from customers are made to a bank account controlled by the administrative agent.

While we are not required by the terms of the Credit Agreement to use these customer remittances to reduce borrowings under the facility unless certain events of default occur under the Credit Agreement or unused availability under the facility is reduced below $ 70 million, we have in the past routinely applied such remittances to reduce borrowings under the facility.

Issuance of Senior Notes 2029

On March 18, 2024, the Partnership and Finance Corp co-issued the Senior Notes 2029, a $ 1.0 billion aggregate principal amount of senior notes that will mature on March 15, 2029.

The Senior Notes 2029 accrue interest from March 18, 2024 at the rate of 7.125 % per year.

Interest on the Senior Notes 2029 is payable semi-annually in arrears on each of March 15 and September 15, commencing on September 15, 2024.

At any time prior to March 15, 2026, we may redeem up to 40 % of the aggregate principal amount of the Senior Notes 2029 at a redemption price equal to 107.125 % of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, in an amount not greater than the net cash proceeds from one or more equity offerings, provided that at least 60 % of the aggregate principal amount of the Senior Notes 2029 remains outstanding immediately after the occurrence of such redemption (excluding Senior Notes 2029 held by us and our subsidiaries) and redemption occurs within 180 days of the date of the closing of such equity offering.

Prior to March 15, 2026, we may redeem all or a part of the Senior Notes 2029 at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make-whole premium at the redemption date and accrued and unpaid interest, if any, to the redemption date.

On or after March 15, 2026, we may redeem all or a part of the Senior Notes 2029 at redemption prices (expressed as percentages of the principal amount) set forth below, plus accrued and unpaid interest, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on March 15 of the years indicated below:

Year Percentages

2026 103.563 %

2027 101.781 %

2028 and thereafter 100.000 %

If we experience a change of control followed by a ratings decline, which ratings decline is caused by the applicable change of control event, unless we have previously exercised, or concurrently exercise, our right to redeem the Senior Notes 2029 (as described above), we may be required to offer to repurchase the Senior Notes 2029 at a purchase price equal to 101 % of the principal amount repurchased, plus accrued and unpaid interest, if any, to the repurchase date.

In connection with issuing the Senior Notes 2029, we incurred certain issuance costs in the amount of $ 18.2 million, which are amortized over the expected term of the Senior Notes 2029.

The indenture governing the Senior Notes 2029 (the “2029 Indenture”) contains certain financial covenants that we must comply with in order to make certain restricted payments as described in the 2029 Indenture.

As of September 30, 2023, we were in compliance with such financial covenants under the 2026 Indenture.

As of March 31, 2024, we were in compliance with such financial covenants under the 2029 Indenture.

The Senior Notes 2029 are fully and unconditionally guaranteed (the “2029 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.

The Senior Notes 2029 and the 2029 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 2029 and the 2029 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 2029.

Redemption of Senior Notes 2026

On March 18, 2024, in connection with the issuance of the Senior Notes 2029, the Senior Notes 2026, which had a maturity date of April 1, 2026, and an aggregate outstanding principal balance of $ 725.0 million at such time, were satisfied and discharged under the Indenture governing the Senior Notes 2026, which constituted a legal defeasance under GAAP (the “Defeasance”).

The Defeasance required a cash outlay in the net amount of $ 748.8 million, which was used to purchase U.S.

government securities.

These securities generated sufficient cash upon maturity to fund interest payments on the Senior Notes 2026 occurring between the effective date of the Defeasance through April 4, 2024, when the Senior Notes 2026 were redeemed at par, as well as fund the redemption of the Senior Notes 2026 in full.

As a result of the Defeasance, we recognized a loss on early extinguishment of debt of $ 5.0 million for the three months ended March 31, 2024, which represents the write-off of deferred financing costs of $ 4.3 million and the difference between (i) the purchase price of U.S.

government securities of $ 748.8 million and (ii) the aggregate outstanding principal balance and accrued interest of the Senior Notes 2026 of $ 748.1 million at the time of Defeasance.

Senior Notes 2027

3 unchanged sentences

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 September 30, 2023, we were in compliance with such financial covenants under the 2027 Indenture.

As of March 31, 2024, 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.

3 unchanged sentences

(9) Preferred Units

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

The Preferred Units have a face value of $ 1,000 and rank senior to our common units with respect to distributions and liquidation rights.

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

The change in Preferred Units outstanding was as follows:

Preferred Units Outstanding

Number of Preferred Units outstanding, December 31, 2023 500,000

Exercise and conversion of Preferred Units into common units ( 40,000 )

Number of Preferred Units outstanding, March 31, 2024 460,000

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”).

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.

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.

January 2024 Conversion

On January 12, 2024, the holders of the Preferred Units elected to convert 40,000 Preferred Units into 1,998,850 common units.

These Preferred Units were converted into common units and, for our fourth-quarter 2023 distribution, the holders received the common unit distribution of $ 0.525 on the 1,998,850 common units in lieu of the Preferred Unit distribution of $ 24.375 on the converted 40,000 Preferred Units.

April 2024 Conversion

On April 1, 2024, the holders of the Preferred Units elected to convert 280,000 Preferred Units into 13,991,954 common units.

These Preferred Units were converted into common units and, for our first-quarter 2024 distribution, the holders received the common unit distribution of $ 0.525 on the 13,991,954 common units in lieu of the Preferred Unit distribution of $ 24.375 on the converted 280,000 Preferred Units.

Cash Distributions

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

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February 2, 2024 $ 24.375

May 5, 2023 24.375

August 4, 2023 24.375

Total 2023 distributions

Announced Quarterly Distribution

On October 12, 2023, we declared a cash distribution of $ 24.375 per unit on our Preferred Units.

The distribution will be paid on November 3, 2023, to the holders of the Preferred Units of record as of the close of business on October 23, 2023.

On April 11, 2024, we declared a cash distribution of $ 24.375 per unit on our Preferred Units.

The distribution was paid on May 3, 2024, to the holders of the Preferred Units of record as of the close of business on April 22, 2024.

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

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Cash distributions on Preferred Units ( 11,212 )

Balance as of September 30, 2023 $ 477,309

Redemption and Conversion Features

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”).

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.

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.

Exercise and conversion of Preferred Units into common units ( 38,108 )

Balance as of March 31, 2024 $ 431,402

(10) Partners’ Deficit

The change in common units outstanding was as follows:

The changes in common units outstanding were as follows:

Common Units Outstanding

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Issuance of common units under the DRIP 17,050

Number of common units outstanding, September 30, 2023 98,299,245

As of September 30, 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.

Exercise and conversion of Preferred Units into common units 1,998,850

Number of common units outstanding, March 31, 2024 103,001,911

As of March 31, 2024, 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 2, 2024 $ 0.525 $ 54.1 $ 1.0 $ 55.1

May 5, 2023 0.525 51.6 1.1 52.7

August 4, 2023 0.525 51.6 1.2 52.8

Total 2023 distributions

$ 1.575 $ 154.8 $ 3.4 $ 158.2

Announced Quarterly Distribution

On October 12, 2023, we announced a cash distribution of $ 0.525 per unit on our common units.

The distribution will be paid on November 3, 2023, to common unitholders of record as of the close of business on October 23, 2023.

During the nine months ended September 30, 2023, distributions of $ 1.5 million were reinvested under the DRIP resulting in the issuance of 71,589 common units.

As of September 30, 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.

On April 27, 2022, a 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.

On April 11, 2024, we announced a cash distribution of $ 0.525 per unit on our common units.

The distribution was paid on May 3, 2024, to common unitholders of record as of the close of business on April 22, 2024.

During the three months ended March 31, 2024, distributions of $ 0.4 million were reinvested under the DRIP resulting in the issuance of 17,050 common units.

Income (Loss) Per Unit

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Unvested phantom units and unexercised warrants are not included in basic income (loss) per unit, as they are not considered to be participating securities, but are included in the calculation of diluted income (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 months ended September 30, 2023, approximately 1,316,000 and 655,000 incremental unvested phantom units and “in the money” outstanding warrants, respectively, represent the difference between our basic and diluted weighted-average common units outstanding.

For the nine months ended September 30, 2023, approximately 1,185,000 and 460,000 incremental unvested phantom units and “in the money” outstanding warrants, respectively, represent the difference between our basic and diluted weighted-average common units outstanding.

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 income (loss) per unit because the impact was anti-dilutive.

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

Our outstanding warrants not “in the money” were excluded from the calculation for the three and nine months ended September 30, 2022.

For the three months ended March 31, 2024, approximately 1,071,000 incremental unvested phantom units represent the difference between our basic and diluted weighted-average common units outstanding.

For the three months ended March 31, 2023, approximately 1,058,000 and 477,000 incremental unvested phantom units and “in the money” then-outstanding warrants, respectively, were excluded from the calculation of diluted income (loss) per unit because the impact was anti-dilutive.

(11) Revenue Recognition

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Contract operations revenue $ 223,780 $ 193,142

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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,

2023 2022 2023 2022

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,

2024 December 31,

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________________________________

(1) We recognized $ 1.2 million and $ 58.1 million of revenue during the three and nine months ended September 30, 2023, respectively, related to our deferred revenue balance as of December 31, 2022.

(1) We recognized $ 57.3 million of revenue during the three months ended March 31, 2024 related to our deferred revenue balance as of December 31, 2023.

Performance Obligations

As of September 30, 2023, the aggregate amount of transaction price allocated to unsatisfied performance obligations related to our contract operations revenue was $ 964.7 million.

As of March 31, 2024, the aggregate amount of transaction price allocated to unsatisfied performance obligations related to our contract operations revenue was $ 1.1 billion.

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

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(12) Transactions with Related Parties

We provide natural gas compression and treating services to entities affiliated with Energy Transfer, which as of September 30, 2023, owned approximately 47 % of our limited partner interests and 100 % of the General Partner.

We provide natural gas compression and treating services to entities affiliated with Energy Transfer, which as of March 31, 2024, owned approximately 45 % 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 September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Related-party revenues $ 5,712 $ 4,707

We had approximately $ 0.4 million and $ 52 thousand of related-party receivables on our unaudited condensed consolidated balance sheets as of September 30, 2023, and December 31, 2022, respectively, from those entities affiliated with Energy Transfer.

We had approximately $ 1.0 million and $ 0 of related-party receivables on our unaudited condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023, respectively, from those entities affiliated with Energy Transfer.

(13) Commitments and Contingencies

(a) Major Customers

One customer accounted for approximately 11 % of total revenues for the three and nine months ended September 30, 2023.

No customer accounted for 10% or more of total revenues for the three and nine months ended September 30, 2022.

One customer accounted for approximately 13 % of total revenues for the three months ended March 31, 2024.

No customer accounted for 10% or more of total revenues for the three months ended March 31, 2023.

(b) Litigation

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

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

The commitments as of September 30, 2023, were $ 101.3 million, all of which is expected to be settled within the next twelve months and $ 63.0 million of which is expected to be settled by year-end 2023.

(d) Tax Contingencies

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

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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 believe it is reasonably possible that we could incur losses related to this assessment.

Whether, and to what extent, we incur losses depends on whether the administrative law judge assigned by the OTC accepts or rejects our position that the transactions are not taxable and, if rejected, whether 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 $ 27.6 million, including penalties and interest.

federal income tax returns for the 2019 and 2020 tax years currently are under examination by the Internal Revenue Service (“IRS”).

federal income tax returns for the years 2019 and 2020 currently are under examination by the Internal Revenue Service (“IRS”).

The IRS has issued preliminary partnership examination changes, along with imputed underpayment computations, for the 2019 and 2020 tax years.

Under the Bipartisan Budget Act, there are several procedural steps, including an appeals process, to complete before a final imputed underpayment, if any, is determined.

Based on to-date discussions with the IRS, we estimate a potential range of loss from a final imputed underpayment of $ 0 to approximately $ 25 million, including interest, for potential adjustments resulting from the IRS examination.

Once a final partnership imputed underpayment, if any, is determined, our General Partner may either elect to pay the imputed underpayment (including any applicable penalties and interest) directly to the IRS or, if eligible, issue a revised information statement to each unitholder, and former unitholder, with respect to an audited and adjusted return.

Under the Bipartisan Budget Act of 2015, there are several procedural steps, including an appeals process, to complete before a final imputed underpayment, if any, is determined.

Based on discussions with the IRS, we estimate a potential range of loss from a final imputed underpayment of $ 0 to approximately $ 26.9 million, including interest, for potential adjustments resulting from the IRS examinations.

Once a final partnership imputed underpayment, if any, is determined, our General Partner may elect to either pay the imputed underpayment (including any applicable penalties and interest) directly to the IRS or, if eligible, issue a revised information statement to each unitholder, and former unitholder, with respect to an audited and adjusted return.

(d) Equipment Purchase Commitments

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

The commitments as of March 31, 2024, were $ 5.9 million, all of which is expected to be settled within the second quarter of 2024.

(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.

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.

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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.

(14) Subsequent Events

Interest-rate Swap Modification

In October 2023, we modified our existing interest-rate swap to continue to manage interest-rate risk associated with the floating-rate Credit Agreement.

The notional principal amount under the modified interest-rate swap remains $ 700 million and the termination date was extended from April 1, 2025 to December 31, 2025.

Under the original interest-rate swap, we paid a fixed interest rate of 3.785 % and received floating interest rate payments that were indexed to the one-month SOFR.

Under the modified interest-rate swap, we pay a fixed interest rate of 3.9725 % and continue to receive floating interest rate payments that are indexed to the one-month SOFR.

Warrants Exercise

On October 27, 2023, 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 exercised in full by the holders.

The exercise of the warrants will be net settled by the Partnership for approximately 2,360,000 common units.

(14) Recent Accounting Pronouncements

In December 2023, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

ASU 2023-09 improves and enhances income tax disclosure requirements, including new disclosures related to tax rate reconciliation and income taxes paid.

The amendments in this update are effective for annual periods beginning after December 15, 2024, and interim periods within annual periods beginning after December 15, 2025, with early adoption permitted.

ASU 2023-09 is to be applied on a prospective basis, with retrospective application permitted.

We are currently evaluating the impact, if any, of the amendments to ASU 2023-09 on our consolidated financial statements.

In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

ASU 2023-07 improves and enhances reportable segment disclosure requirements, including new disclosures related to significant segment expenses.

The amendments in this update are effective for annual periods beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024, with early adoption permitted.

ASU 2023-07 is to be applied on a retrospective basis.

We are currently evaluating the impact, if any, of the amendments to ASU 2023-07 on our consolidated financial statements.

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