What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-08-06 · 89 added, 78 removed, 307 unchanged (35% of the section changed)

28 unchanged sentences

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

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

2024 2023 (Decrease) 2024 2023 (Decrease)

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

2024 2023 Increase 2024 2023 Increase

Fleet horsepower (at period end) (1) 3,862,445 3,735,490 3.4 % 3,862,445 3,735,490 3.4 %

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

Horsepower utilization based on revenue-generating horsepower and fleet horsepower as of June 30, 2024 and 2023, was 91.9% and 90.1%, respectively.

Horsepower utilization based on revenue-generating horsepower and fleet horsepower as of September 30, 2024 and 2023, was 92.4% and 90.9%, respectively.

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

Average horsepower utilization based on revenue-generating horsepower and fleet horsepower for the three months ended June 30, 2024 and 2023, was 91.2% and 89.0%, respectively.

Average horsepower utilization based on revenue-generating horsepower and fleet horsepower for the six months ended June 30, 2024 and 2023, was 91.1% and 88.1%, respectively.

The 3.7% increase in fleet horsepower as of June 30, 2024, compared to June 30, 2023, primarily was driven by new compression units added to our fleet to meet incremental demand from customers for our compression services.

The increases in revenue-generating horsepower, average horsepower per revenue-generating compression unit, horsepower utilization, and horsepower utilization based on revenue-generating horsepower and fleet horsepower as of and for the three and six months ended June 30, 2024, compared to June 30, 2023, primarily were driven by the addition and deployment of new, and redeployment of existing, large-horsepower compression units due to increased demand for our services commensurate with an overall increase in crude oil and natural gas produced within the U.S.

The 8.8% and 9.3% increases in average revenue per revenue-generating horsepower per month for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, primarily were due to higher market-based rates on newly deployed and redeployed compression units, and CPI-based and other market-based price increases on existing customer contracts that occur as market conditions permit.

Average horsepower utilization based on revenue-generating horsepower and fleet horsepower for the three months ended September 30, 2024 and 2023, was 92.3% and 90.0%, respectively.

Average horsepower utilization based on revenue-generating horsepower and fleet horsepower for the nine months ended September 30, 2024 and 2023, was 91.5% and 88.7%, respectively.

The 3.4% increase in fleet horsepower as of September 30, 2024, compared to September 30, 2023, primarily was driven by new compression units added to our fleet to meet incremental demand from customers for our compression services.

The increases in revenue-generating horsepower, average horsepower per revenue-generating compression unit, horsepower utilization, and horsepower utilization based on revenue-generating horsepower and fleet horsepower as of and for the three and nine months ended September 30, 2024, compared to September 30, 2023, primarily were driven by the addition and deployment of new, and redeployment of existing, large-horsepower compression units due to increased demand for our services commensurate with an overall increase in crude oil and natural gas produced within the U.S.

The 7.9% and 8.7% increases in average revenue per revenue-generating horsepower per month for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, primarily were due to higher market-based rates on newly deployed and redeployed compression units, and CPI-based and other market-based price increases on existing customer contracts that occur as market conditions permit.

Financial Results of Operations

Three months ended June 30, 2024, compared to the three months ended June 30, 2023

Three months ended September 30, 2024, compared to the three months ended September 30, 2023

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

Three Months Ended June 30, Increase

Three Months Ended September 30, Increase

2024 2023 (Decrease)

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Selling, general, and administrative 15,364 20,085 (23.5) %

Loss (gain) on disposition of assets (18) 309 *

Gain on disposition of assets (123) (3,865) *

Impairment of compression equipment — 882 *

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Interest expense, net (49,361) (43,257) 14.1 %

Gain on derivative instrument 3,131 14,550 *

Gain (loss) on derivative instrument (6,218) 3,437 *

Other 23 23 — %

6 unchanged sentences

Contract operations revenue .

The $26.7 million increase in contract operations revenue for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily was due to (i) an 8.8% increase in average revenue per revenue-generating horsepower per month, as a result of higher market-based rates on newly deployed and redeployed compression units, and CPI-based and other market-based price increases on existing customer contracts that occur as market conditions permit and (ii) a 6.2% increase in average revenue-generating horsepower as a result of increased demand for our services, commensurate with an overall increase in crude oil and natural gas produced within the U.S., partially offset by (iii) a $2.1 million decrease in revenue attributable to natural gas treating services.

The $15.8 million increase in contract operations revenue for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily was due to (i) a 7.9% increase in average revenue per revenue-generating horsepower per month, as a result of higher market-based rates on newly deployed and redeployed compression units, and CPI-based and other market-based price increases on existing customer contracts that occur as market conditions permit and (ii) a 6.1% increase in average revenue-generating horsepower as a result of increased demand for our services, commensurate with an overall increase in crude oil and natural gas produced within the U.S., partially offset by (iii) a $5.0 million decrease in contract operations revenue from existing customers acquired by Energy Transfer since the previous period that are now classified as related-party revenue in the current period and (iv) a $3.5 million decrease in revenue attributable to natural gas treating services.

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

Parts and service revenue .

The $1.7 million increase in parts and service revenue for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily was due to an increase in maintenance work performed on units at customer locations that are outside the scope of our core maintenance activities and that are offered as a convenience, and in directly reimbursable freight and crane charges that are the financial responsibility of the customers.

The $1.4 million decrease in parts and service revenue for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily was due to a decrease in maintenance work performed on units at customer locations that are outside the scope of our core maintenance activities and that are offered as a convenience, and in directly reimbursable freight and crane charges that are the financial responsibility of the customers.

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

Related-party revenue .

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

The $8.5 million increase in related-party revenue for the

three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily was due to revenue recognized from existing customers acquired by Energy Transfer since the previous period that are now classified as related-party revenue in the current period.

Cost of operations, exclusive of depreciation and amortization .

The $8.2 million increase in cost of operations, exclusive of depreciation and amortization, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily was due to (i) a $4.9 million increase in direct labor costs due to increased headcount associated with increased revenue-generating horsepower and higher employee costs, (ii) a $2.1 million increase in direct expenses, primarily driven by

increased spending on parts resulting from higher costs and increased usage associated with increased revenue-generating horsepower, and (iii) a $1.1 million increase in retail parts and service expenses, for which a corresponding increase in parts and service revenue also occurred, partially offset by (iv) a $1.0 million decrease in outside maintenance costs due to lower use of third-party labor during the current period.

The $6.9 million increase in cost of operations, exclusive of depreciation and amortization, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily was due to (i) a $3.7 million increase in direct labor costs due to increased headcount associated with increased revenue-generating horsepower and higher employee costs, (ii) a $3.7 million increase in direct expenses, primarily driven by increased parts expense, (iii) a $0.6 million increase in indirect expenses, and (iv) a $0.6 million increase in non-income taxes, partially offset by (v) a $1.1 million decrease in retail parts and service expenses, for which a corresponding decrease in parts and service revenue also occurred, and (vi) a $0.6 million decrease in outside maintenance costs due to reduced use of third-party labor during the current period.

The increases in direct expenses, indirect expenses, and non-income taxes are primarily due to increased revenue-generating horsepower.

Depreciation and amortization expense .

The $5.3 million increase in depreciation and amortization expense for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily was due to (i) overhauls and major improvements to compression units, (ii) new trucks in our vehicle fleet, and (iii) new compression units placed in service to meet incremental demand from customers.

The $3.1 million increase in depreciation and amortization expense for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily was due to (i) overhauls and major improvements to compression units and (ii) new trucks added to our vehicle fleet.

Selling, general, and administrative expense .

The $0.8 million decrease in selling, general, and administrative expense for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily was due to (i) a $2.3 million decrease in unit-based compensation expense, attributable to mark-to-market changes to our unit-based compensation liability that occurred as a result of changes to our per-unit trading price as of June 30, 2024, partially offset by (ii) a $0.8 million increase in professional fees primarily related to an initiative to improve business performance.

The $4.7 million decrease in selling, general, and administrative expense for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily was due to a $5.4 million decrease in unit-based compensation expense, attributable to mark-to-market changes to our unit-based compensation liability that occurred as a result of changes to our per-unit trading price as of September 30, 2024.

Gain on disposition of assets.

The $3.9 million gain on disposition of assets for the three months ended September 30, 2023 primarily was due to the sale of certain natural gas treating assets to an existing customer.

Impairment of compression equipment .

The $0.3 million and $10.3 million impairments of compression equipment for the three months ended June 30, 2024 and 2023, respectively, primarily resulted from our evaluation of the future deployment of our idle fleet under then-current market conditions.

The primary circumstances supporting these impairments were:

The $0.9 million impairment of compression equipment for the three months ended September 30, 2023 primarily resulted from our evaluation of the future deployment of our idle fleet under then-current market conditions.

The primary circumstances supporting this impairment were:

(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.

As a result of our evaluation during the three months ended June 30, 2024 and 2023, respectively, we retired two and 33 compression units, representing approximately 1,300 and 26,900 of aggregate horsepower, respectively, that previously were used to provide compression services in our business.

As a result of our evaluation during the three months ended September 30, 2023, we retired three compression units representing approximately 2,100 of aggregate horsepower that previously were used to provide compression services in our business.

No impairment of compression equipment was recorded for the three months ended September 30, 2024.

Interest expense, net .

The $6.8 million increase in interest expense, net for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily was due to increased aggregate borrowings and higher aggregate weighted-average interest rates under the Credit Agreement and refinanced senior notes.

The weighted-average interest rate applicable to borrowings under the Credit Agreement was 7.97% and 7.63% for the three months ended June 30, 2024 and 2023, respectively, and average outstanding borrowings under the Credit Agreement were $748.9 million and $745.1 million for the three months ended June 30, 2024 and 2023, respectively.

Gain on derivative instrument.

The $3.1 million and $14.6 million gains on derivative instrument for the three months ended June 30, 2024 and 2023, respectively, resulted from the increase in fair value of the interest-rate swap due to an increase in the interest-rate forward curve and cash received.

Six months ended June 30, 2024, compared to the six months ended June 30, 2023

The $6.1 million increase in interest expense, net for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily was due to increased aggregate borrowings and higher aggregate weighted-average interest rates under the Credit Agreement and refinanced senior notes.

Gain (loss) on derivative instrument.

The $6.2 million loss on derivative instrument for the three months ended September 30, 2024, and the $3.4 million gain on derivative instrument for the three months ended September 30, 2023, resulted from the change in fair value of the interest-rate swap due to changes in the interest-rate forward curve and cash received during the respective periods.

Income tax expense.

The $0.5 million increase in income tax expense for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily was related to deferred income taxes associated with the Texas Margin Tax.

Nine months ended September 30, 2024, compared to the nine months ended September 30, 2023

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

Six Months Ended June 30, Increase

Nine Months Ended September 30, Increase

2024 2023 (Decrease)

23 unchanged sentences

Contract operations revenue.

The $56.2 million increase in contract operations revenue for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily was due to (i) a 9.3% increase in average revenue per revenue-generating horsepower per month, as a result of higher market-based rates on newly deployed and redeployed compression units, and CPI-based and other market-based price increases on existing customer contracts that occur as market conditions permit and (ii) a 6.7% increase in average revenue-generating horsepower as a result of increased demand for our services, commensurate with an overall increase in crude oil and natural gas produced within the U.S.

The $72.0 million increase in contract operations revenue for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to (i) an 8.7% increase in average revenue per revenue-generating horsepower per month, as a result of higher market-based rates on newly deployed and redeployed compression units, and CPI-based and other market-based price increases on existing customer contracts that occur as market conditions permit and (ii) a 6.5% increase in average revenue-generating horsepower as a result of increased demand for our services, commensurate with an overall increase in crude oil and natural gas produced within the U.S., partially offset by (iii) a $5.1 million decrease in revenue attributable to natural gas treating services.

Parts and service revenue .

The $3.3 million increase in parts and service revenue for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily was due to an increase in maintenance work performed on units at customer locations that are outside the scope of our core maintenance activities and that are offered as a convenience, and in directly reimbursable freight and crane charges that are the financial responsibility of the customers.

The $1.9 million increase in parts and service revenue for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to an increase in maintenance work performed on units at customer locations that are outside the scope of our core maintenance activities and that are offered as a convenience, and in directly reimbursable freight and crane charges that are the financial responsibility of the customers.

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

1 unchanged sentence

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

The $1.0 million increase in related-party revenue for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily was due to an increase in revenues attributable to natural gas treating services driven by increased demand for these services from these entities.

The $9.5 million increase in related-party revenue for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to (i) revenue recognized from existing customers acquired by Energy Transfer since the previous period that are now classified as

related-party revenue in the current period and (ii) an increase in revenues attributable to natural gas treating services driven by increased demand for these services from entities affiliated with Energy Transfer.

Cost of operations, exclusive of depreciation and amortization .

The $16.6 million increase in cost of operations, exclusive of depreciation and amortization, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily was due to (i) a $9.9 million increase in direct labor costs due to increased headcount associated with increased revenue-generating horsepower and higher employee costs, (ii) a $6.3 million increase in direct expenses, primarily driven by fluids and parts due to increased usage associated with increased revenue-generating horsepower, and higher costs on parts, and (iii) a $1.9 million increase in retail parts and service expenses, for which a corresponding increase in parts and service revenue also occurred, partially offset by (iv) a $3.5 million decrease in outside maintenance costs due to lower use of third-party labor during the current period.

The $23.5 million increase in cost of operations, exclusive of depreciation and amortization, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to (i) a $13.6 million increase in direct labor costs due to increased headcount associated with increased revenue-generating horsepower and higher employee costs, (ii) a $9.9 million increase in direct expenses, primarily driven by increased parts and fluids expenses, (iii) a $1.8 million increase in indirect expenses, (iv) a $1.5 million increase in non-income taxes, and (v) a $0.8 million increase in retail parts and service expenses, for which a corresponding increase in parts and service revenue also occurred, partially offset by (vi) a $4.1 million decrease in outside maintenance costs due to reduced use of third-party labor during the current period.

The increases in direct expenses, indirect expenses, and non-income taxes are primarily due to increased revenue-generating horsepower.

Depreciation and amortization expense .

The $9.0 million increase in depreciation and amortization expense for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily was due to (i) overhauls and major improvements to compression units, (ii) new trucks in our vehicle fleet, and (iii) new compression units placed in service to meet incremental demand from customers.

The $12.2 million increase in depreciation and amortization expense for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to (i) overhauls and major improvements to compression units and (ii) new trucks added to our vehicle fleet.

Selling, general, and administrative expense .

The $2.9 million increase in selling, general, and administrative expense for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily was due to (i) a $2.9 million increase in professional fees primarily related to an initiative to improve business performance and (ii) a $0.7 million increase in employee-related expenses driven by increased headcount, partially offset by (iii) a $1.3 million decrease in unit-based compensation expense, attributable to mark-to-market changes to our unit-based compensation liability that occurred as a result of changes to our per-unit trading price as of June 30, 2024.

The $1.8 million decrease in selling, general, and administrative expense for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to (i) a $6.7 million decrease in unit-based compensation expense, attributable to mark-to-market changes to our unit-based compensation liability that occurred as a result of changes to our per-unit trading price as of September 30, 2024, partially offset by (ii) a $3.2 million increase in professional fees primarily related to an initiative to improve business performance and (iii) a $0.9 million increase in employee-related expenses driven by increased headcount.

Loss (gain) on disposition of assets.

The $3.9 million gain on disposition of assets for the nine months ended September 30, 2023 primarily was due to the sale of certain natural gas treating assets to an existing customer.

Impairment of compression equipment.

The $0.3 million and $11.5 million impairments of compression equipment for the six months ended June 30, 2024 and 2023, respectively, primarily resulted from our evaluation of the future deployment of idle fleet assets under then-current market conditions.

The $0.3 million and $12.3 million impairments of compression equipment for the nine months ended September 30, 2024 and 2023, respectively, primarily resulted from our evaluation of the future deployment of idle fleet assets under then-current market conditions.

The primary circumstances supporting these impairments were:

1 unchanged sentence

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

As a result of our evaluations during the six months ended June 30, 2024 and 2023, we retired two and 39 compression units, respectively, with approximately 1,300 and 35,600 aggregate horsepower, respectively, that previously were used to provide compression services in our business.

As a result of our evaluations during the nine months ended September 30, 2024 and 2023, we retired two and 42 compression units, respectively, with approximately 1,300 and 37,700 aggregate horsepower, respectively, that previously were used to provide compression services in our business.

Interest expense, net .

The $13.7 million increase in interest expense, net for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily was due to increased aggregate borrowings and higher aggregate weighted-average interest rates under the Credit Agreement and refinanced senior notes.

The weighted-average interest rate applicable to borrowings under the Credit Agreement was 7.98% and 7.40% for the six months ended June 30, 2024 and 2023, respectively, and average outstanding borrowings under the Credit Agreement were $817.9 million and $707.7 million for the six months ended June 30, 2024 and 2023, respectively.

The $19.8 million increase in interest expense, net for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to increased aggregate borrowings and higher aggregate weighted-average interest rates under the Credit Agreement and refinanced senior notes.

Loss on extinguishment of debt.

The $5.0 million loss on extinguishment of debt for the six months ended June 30, 2024 resulted from the satisfaction and discharge of the Senior Notes 2026, which constituted a legal defeasance under GAAP (the “Defeasance”).

The $5.0 million loss on extinguishment of debt for the nine months ended September 30, 2024 resulted from the satisfaction and discharge of the Senior Notes 2026, which constituted a legal defeasance under GAAP (the “Defeasance”).

This loss consists of the write-off of deferred financing costs of $4.3 million and the difference between (i) the purchase price of U.S.

2 unchanged sentences

Gain on derivative instrument.

The $11.9 million and $14.6 million gains on derivative instrument for the six months ended June 30, 2024 and 2023, respectively, resulted from the increase in fair value of the interest-rate swap due to an increase in the interest-rate forward curve and cash received.

The $5.7 million and $18.0 million gains on derivative instrument for the nine months ended September 30, 2024 and 2023, respectively, resulted from the change in fair value of the interest-rate swap due to changes in the interest-rate forward curve and cash received during the respective periods.

Income tax expense.

The $0.7 million increase in income tax expense for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was related to deferred income taxes associated with the Texas Margin Tax.

Other Financial Data

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(1) Three Months Ended

June 30, Increase Six Months Ended

June 30, Increase

2024 2023 (Decrease) 2024 2023 (Decrease)

September 30, Nine Months Ended

September 30,

2024 2023 Increase 2024 2023 Increase

Gross margin $ 90,917 $ 78,056 16.5 % $ 273,708 $ 225,988 21.1 %

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Gross margin.

The $14.9 million increase in gross margin for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was due to (i) a $28.4 million increase in revenues, offset by (ii) an $8.2 million increase in cost of operations, exclusive of depreciation and amortization, and (iii) a $5.3 million increase in depreciation and amortization.

The $34.9 million increase in gross margin for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was due to (i) a $60.5 million increase in revenues, offset by (ii) a $16.6 million increase in cost of operations, exclusive of depreciation and amortization, and (iii) a $9.0 million increase in depreciation and amortization.

The $12.9 million increase in gross margin for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, was due to (i) a $22.9 million increase in revenues, offset by (ii) a $6.9 million increase in cost of operations, exclusive of depreciation and amortization, and (iii) a $3.1 million increase in depreciation and amortization.

The $47.7 million increase in gross margin for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was due to (i) an $83.4 million increase in revenues, offset by (ii) a $23.5 million increase in cost of operations, exclusive of depreciation and amortization, and (iii) a $12.2 million increase in depreciation and amortization.

Adjusted gross margin.

The $20.2 million increase in Adjusted gross margin for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was due to a $28.4 million increase in revenues, offset by an $8.2 million increase in cost of operations, exclusive of depreciation and amortization.

The $43.9 million increase in Adjusted gross margin for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was due to a $60.5 million increase in revenues, offset by a $16.6 million increase in cost of operations, exclusive of depreciation and amortization.

The 0.6% and 0.8% increases in Adjusted gross margin percentage for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, respectively, primarily were due to inflation-driven pressures easing within cost of operations, exclusive of depreciation and amortization, and CPI-based and other market-based price increases on customer contracts that occur as market conditions permit.

Adjusted EBITDA and Adjusted EBITDA percentage .

The $18.7 million increase in Adjusted EBITDA for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily was due to a $20.2 million increase in Adjusted gross margin, partially offset by a $1.4 million increase in selling, general, and administrative expenses, excluding unit-based compensation expense, transaction expenses, and severance charges.

The $39.9 million increase in Adjusted EBITDA for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily was due to a $43.9 million increase in Adjusted gross margin, partially offset by a $4.1 million increase in selling, general and administrative expenses, excluding unit-based compensation expense, transaction expenses, and severance charges.

The 0.7% increases in Adjusted EBITDA percentage for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, respectively, primarily were due to inflation-driven pressures easing within cost of operations, exclusive of depreciation and amortization, and CPI-based and other market-based price increases on customer contracts that occur as market conditions permit.

The $18.8 million increase in DCF for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily was due to (i) a $20.2 million increase in Adjusted gross margin, (ii) a $7.8 million decrease in distributions on Preferred Units following the conversion of 320,000 Preferred Units into 15,990,804 common units during

2024, and (iii) a $1.3 million increase in cash received on derivative instrument, partially offset by (iv) a $6.3 million increase in cash interest expense, net, (v) a $2.5 million increase in maintenance capital expenditures, and (vi) a $1.4 million increase in selling, general, and administrative expenses, excluding unit-based compensation expense, transaction expenses, and severance charges.

The $42.8 million increase in DCF for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily was due to (i) a $43.9 million increase in Adjusted gross margin, (ii) a $15.6 million decrease in distributions on Preferred Units following the conversion of 320,000 Preferred Units into 15,990,804 common units during 2024, and (iii) a $3.7 million increase in cash received on derivative instrument, partially offset by (iv) a $13.0 million increase in cash interest expense, net, (v) a $3.2 million increase in maintenance capital expenditures, and (vi) a $4.1 million increase in selling, general and administrative expenses, excluding unit-based compensation expense, severance charges, and transaction expenses.

The $16.0 million increase in Adjusted gross margin for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, was due to a $22.9 million increase in revenues, offset by a $6.9 million increase in cost of operations, exclusive of depreciation and amortization.

The $59.9 million increase in Adjusted gross margin for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was due to an $83.4 million increase in revenues, offset by a $23.5 million increase in cost of operations, exclusive of depreciation and amortization.

Adjusted EBITDA .

The $15.5 million increase in Adjusted EBITDA for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily was due to a $16.0 million increase in Adjusted gross margin, partially offset by a $0.7 million increase in selling, general, and administrative expenses, excluding unit-based compensation expense, transaction expenses, and severance charges.

The $55.4 million increase in Adjusted EBITDA for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to a $59.9 million increase in Adjusted gross margin, partially offset by a $4.7 million increase in selling, general and administrative expenses, excluding unit-based compensation expense, transaction expenses, and severance charges.

The $15.0 million increase in DCF for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily was due to (i) a $16.0 million increase in Adjusted gross margin and (ii) a $7.8 million decrease in distributions on Preferred Units following the conversion of 320,000 Preferred Units into 15,990,804 common units during 2024, partially offset by (iii) a $5.7 million increase in cash interest expense, net, (iv) a $2.0 million increase in maintenance capital expenditures, (v) a $0.7 million increase in selling, general, and administrative expenses, excluding unit-based compensation expense, transaction expenses, and severance charges, and (vi) a $0.5 million decrease in cash received on derivative instrument.

The $57.8 million increase in DCF for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to (i) a $59.9 million increase in Adjusted gross margin, (ii) a $23.4 million decrease in distributions on Preferred Units following the conversion of 320,000 Preferred Units into 15,990,804 common units during 2024, and (iii) a $3.1 million increase in cash received on derivative instrument, partially offset by (iv) an $18.7 million

increase in cash interest expense, net, (v) a $5.2 million increase in maintenance capital expenditures, and (vi) a $4.7 million increase in selling, general and administrative expenses, excluding unit-based compensation expense, transaction expenses, and severance charges.

For additional information regarding the conversion of the Preferred Units, see Note 9 to our unaudited condensed consolidated financial statements under Part I, Item 1 “Financial Statements” of this report.

DCF Coverage Ratio .

The increases in DCF Coverage Ratio for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, was due to the increase in DCF for each period, partially offset by increased distributions due to an increase in the number of common units, largely attributable to the conversion of 320,000 Preferred Units into 15,990,804 common units during 2024 and the conversion of warrants into 2,360,488 common units in November 2023.

The increases in DCF Coverage Ratio for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, was due to the increase in DCF for each period, partially offset by increased distributions due to an increase in the number of common units, largely attributable to the conversion of 320,000 Preferred Units into 15,990,804 common units during 2024 and the conversion of warrants into 2,360,488 common units in November 2023.

Liquidity and Capital Resources

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

Our aggregate maintenance capital expenditures for the six months ended June 30, 2024 and 2023, were $14.6 million and $11.4 million, respectively.

We currently plan to spend approximately $32.0 million in maintenance capital expenditures for the year 2024, including parts consumed from inventory.

Our aggregate maintenance capital expenditures for the nine months ended September 30, 2024 and 2023, were $23.8 million and $18.6 million, respectively.

We currently plan to spend between $27.0 million and $30.0 million in maintenance capital expenditures for the year 2024, including parts consumed from inventory.

Without giving effect to any equipment that we may acquire pursuant to any future acquisitions, we currently plan to spend between $240.0 million and $250.0 million in expansion capital expenditures for the year 2024.

Our expansion capital expenditures for the six months ended June 30, 2024 and 2023, were $171.8 million and $122.8 million, respectively.

The following table summarizes our sources and uses of cash for the six months ended June 30, 2024 and 2023, (in thousands):

Six Months Ended June 30,

Our expansion capital expenditures for the nine months ended September 30, 2024 and 2023, were $205.9 million and $185.3 million, respectively.

The following table summarizes our sources and uses of cash for the nine months ended September 30, 2024 and 2023 (in thousands):

Nine Months Ended September 30,

Net cash provided by operating activities $ 211,139 $ 180,281

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Net cash provided by operating activities .

The $32.4 million increase in net cash provided by operating activities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily was due to (i) an increase in cash flows from a $43.9 million increase in Adjusted gross margin and (ii) a $17.3 million decrease in cash paid for interest, net of capitalized amounts, driven by the Defeasance of the Senior Notes 2026, partially offset by (iii) a $28.1 million increase in inventory purchases.

The $30.9 million increase in net cash provided by operating activities for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to (i) an increase in cash flows from a $59.9 million increase in Adjusted gross margin and (ii) a $7.6 million decrease in cash paid for interest, net of capitalized amounts, driven by the Defeasance of the Senior Notes 2026, partially offset by (iii) a $39.0 million increase in inventory purchases.

Net cash used in investing activities .

The $41.4 million increase in net cash used in investing activities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was due to (i) a $40.7 million increase in capital expenditures, for purchases of new compression units, overhauls and major improvements, and purchases of other equipment, and (ii) a $0.7 million decrease in proceeds from disposition of property and equipment.

The $21.7 million increase in net cash used in investing activities for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was due to (i) a $16.8 million increase in capital expenditures, for purchases of new compression units, overhauls and major improvements, and purchases of other equipment, (ii) a $4.4 million decrease in proceeds from disposition of property and equipment, and (iii) a $0.5 million decrease in proceeds from insurance recovery.

Net cash used in financing activities .

The $9.0 million decrease in net cash used in financing activities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily was due to (i) a $1.0 billion increase in proceeds from issuance of the Senior Notes 2029 and (ii) an $8.8 million decrease in Preferred Unit distributions, partially offset by (iii) a $748.8 million increase in investments in government securities purchased in connection with the Defeasance of the Senior Notes 2026, (iv) a $220.1 million decrease in net borrowings under the Credit Agreement, (v) a $18.2 million increase in deferred financing costs driven by the issuance of the Senior Notes 2029, and (vi) a $12.3 million increase in common unit distributions.

The $9.1 million increase in net cash used in financing activities for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to (i) a $748.8 million increase in investments in government securities purchased in connection with the Defeasance of the Senior Notes 2026, (ii) a $235.7 million decrease in net borrowings under the Credit Agreement, (iii) an $18.2 million increase in deferred financing costs driven by the issuance of the Senior Notes 2029, and (iv) a $22.1 million increase in common unit distributions, partially offset by (v) a $1.0 billion increase in proceeds from issuance of the Senior Notes 2029 and (vi) a $16.6 million decrease in Preferred Unit distributions.

Revolving Credit Facility

As of June 30, 2024, we had outstanding borrowings under the Credit Agreement of $756.2 million and, after accounting for outstanding letters of credit in the amount of $0.5 million, $843.3 million of remaining unused availability, of which, due to restrictions related to compliance with the applicable financial covenants, $424.4 million was available to be drawn.

As of June 30, 2024, we were in compliance with all of our covenants under the Credit Agreement.

As of August 1, 2024, we had outstanding borrowings under the Credit Agreement of $781.8 million and outstanding letters of credit of $0.5 million.

As of September 30, 2024, we had outstanding borrowings under the Credit Agreement of $803.2 million and, after accounting for outstanding letters of credit in the amount of $0.5 million, $796.3 million of remaining unused availability, of which, due to restrictions related to compliance with the applicable financial covenants, $641.8 million was available to be drawn.

As of September 30, 2024, we were in compliance with all of our covenants under the Credit Agreement.

As of October 31, 2024, we had outstanding borrowings under the Credit Agreement of $831.8 million and outstanding letters of credit of $0.5 million.

For a more detailed description of the Credit Agreement, see Note 8 to our unaudited condensed consolidated financial statements in Part I, Item 1 “Financial Statements” of this report and Note 10 to the consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data” included in our 2023 Annual Report.

As of June 30, 2024, we had $750.0 million and $1.0 billion aggregate principal amount outstanding on our Senior Notes 2027 and Senior Notes 2029, respectively.

As of September 30, 2024, we had $750.0 million and $1.0 billion aggregate principal amount outstanding on our Senior Notes 2027 and Senior Notes 2029, respectively.

On March 5, 2024, we provided notice to the holders of our Senior Notes 2026 that, contingent on receipt of the proceeds from the Senior Notes 2029, the Senior Notes 2026 would be redeemed at par on April 4, 2024.

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Derivative Instrument

We have an interest-rate swap outstanding to manage interest-rate risk associated with the floating-rate Credit Agreement, see Note 7 to our unaudited condensed consolidated financial statements in Part I, Item 1 “Financial Statements” of this report for additional information on this interest-rate swap.

During the six months ended June 30, 2024, distributions of $0.8 million were reinvested under the DRIP resulting in the issuance of 30,596 common units.

During the three months ended September 30, 2024, we elected to terminate an interest-rate swap we previously used to manage interest-rate risk associated with the floating-rate Credit Agreement, see Note 7 to our unaudited condensed consolidated financial statements in Part I, Item 1 “Financial Statements” of this report for additional information on this interest-rate swap and termination.

During the nine months ended September 30, 2024, distributions of $1.1 million were reinvested under the DRIP resulting in the issuance of 46,018 common units.

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

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

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

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

2024 2023 2024 2023

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

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

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

2024 2023 2024 2023

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Loss on extinguishment of debt (3) — — 4,966 —

Gain on derivative instrument (3,131) (14,550) (11,902) (14,550)

Loss (gain) on derivative instrument 6,218 (3,437) (5,684) (17,987)

Impairment of compression equipment (4) — 882 311 12,346

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________________________________

(1) For the three and six months ended June 30, 2024, unit-based compensation expense included $1.0 million and $2.0 million, respectively, of cash payments related to quarterly payments of DERs on outstanding phantom unit awards.

For the three and six months ended June 30, 2023, unit-based compensation expense included $1.1 million and $2.2 million, respectively, of cash payments related to quarterly payments of DERs on outstanding phantom unit awards.

(1) For the three and nine months ended September 30, 2024, unit-based compensation expense included $1.0 million and $3.0 million, respectively, of cash payments related to quarterly payments of DERs on outstanding phantom unit awards.

For the three and nine months ended September 30, 2023, unit-based compensation expense included $1.1 million and $3.3 million, respectively, of cash payments related to quarterly payments of DERs on outstanding phantom unit awards.

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

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

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

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

2024 2023 2024 2023

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________________________________

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

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The following table summarizes our DCF Coverage Ratio for the periods presented (dollars in thousands):

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

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

2024 2023 2024 2023

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis