What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-06 compared with 2024-11-05 · 101 added, 164 removed, 232 unchanged (53% of the section changed)

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Many of these statements can be identified by words such as “believe,” “expect,” “intend,” “project,” “anticipate,” “estimate,” “continue,” “if,” “outlook,” “will,” “could,” “should,” or similar words or the negatives thereof.

Known material factors that could cause our actual results to differ from those represented within these forward-looking statements are described in Part I, Item 1A “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2023, filed on February 13, 2024 (our “2023 Annual Report”), as well as our subsequent filings with the SEC.

Known material factors that could cause our actual results to differ from those represented within these forward-looking statements are described in Part I, Item 1A “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2024, filed on February 11, 2025 (our “2024 Annual Report”), as well as our subsequent filings with the SEC, and those described in Part II, Item 1A “Risk Factors” and elsewhere in this report.

Important factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include, among other things:

• changes in economic conditions of the crude oil and natural gas industries, including any impact from the ongoing military conflict involving Russia and Ukraine or the conflict in the Middle East;

• changes in general economic conditions, including inflation or supply chain disruptions;

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

• changes in general economic conditions, including inflation, supply chain disruptions, or tariff impacts;

• changes in the long-term supply of and demand for crude oil and natural gas;

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

• our ability to realize the anticipated benefits of the shared services integration with Energy Transfer;

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

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

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

2024 2023 Increase 2024 2023 Increase

Three Months Ended March 31, Increase

2025 2024 (Decrease)

Fleet horsepower (at period end) (1) 3,859,920 3,833,715 0.7 %

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(1) Fleet horsepower is horsepower for compression units that have been delivered to us.

(1) Fleet horsepower is horsepower for compression units that have been delivered to us and excludes 13,210 and 21,690 of non-marketable horsepower as of March 31, 2025 and 2024, respectively.

As of March 31, 2025, we had 39,800 large horsepower on order for delivery, all of which is expected to be delivered within the next 12 months.

(2) Total available horsepower is revenue-generating horsepower under contract for which we are billing a customer, horsepower in our fleet that is under contract but is not yet generating revenue, horsepower not yet in our fleet that is under contract but not yet generating revenue and that is expected to be delivered, and idle horsepower.

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(7) Horsepower utilization is calculated as (i) the sum of (a) revenue-generating horsepower, (b) horsepower in our fleet that is under contract but is not yet generating revenue, and (c) horsepower not yet in our fleet that is under contract but not yet generating revenue and that is 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 September 30, 2024 and 2023, was 92.4% and 90.9%, respectively.

Horsepower utilization based on revenue-generating horsepower and fleet horsepower as of March 31, 2025 and 2024, was 92.2% and 91.2%, respectively.

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

Average horsepower utilization based on revenue-generating horsepower and fleet horsepower for the three months ended 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.

Average horsepower utilization based on revenue-generating horsepower and fleet horsepower for the three months ended March 31, 2025 and 2024, was 91.9% and 91.0%, respectively.

The increases in revenue-generating horsepower and horsepower utilization based on revenue-generating horsepower and fleet horsepower as of and for the three months ended March 31, 2025, compared to March 31, 2024, 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 production in the onshore U.S.

The 5.5% increase in average revenue per revenue-generating horsepower per month for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily was 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.

The 2.7% increase in average horsepower per revenue-generating compression unit for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily was due to an increase in large-horsepower compression units deployed.

Horsepower utilization decreased to 94.4% as of March 31, 2025, compared to 94.8% as of March 31, 2024.

The decrease was primarily due to a decrease in horsepower that is on-contract but not yet active or pending-contract, partially offset by an increase in revenue-generating horsepower.

The above-stated factors also drove the decrease in average horsepower utilization for the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Financial Results of Operations

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 September 30, Increase

2024 2023 (Decrease)

Contract operations $ 220,518 $ 204,716 7.7 %

Parts and service 5,756 7,153 (19.5) %

Related party 13,694 5,216 162.5 %

Total revenues 239,968 217,085 10.5 %

Costs and expenses:

Cost of operations, exclusive of depreciation and amortization 81,814 74,928 9.2 %

Depreciation and amortization 67,237 64,101 4.9 %

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

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

Impairment of compression equipment — 882 *

Total costs and expenses 164,292 156,131 5.2 %

Operating income 75,676 60,954 24.2 %

Other income (expense):

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

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

Other 23 23 — %

Total other expense (55,556) (39,797) 39.6 %

Net income before income tax expense 20,120 21,157 (4.9) %

Income tax expense 793 255 211.0 %

Net income $ 19,327 $ 20,902 (7.5) %

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* Not meaningful

Contract operations revenue .

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 $1.4 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 $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 $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 $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 $0.9 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 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 $6.1 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

Three months ended March 31, 2025, compared to the three months ended March 31, 2024

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

Nine Months Ended September 30, Increase

Three Months Ended March 31, Increase

2025 2024 (Decrease)

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Selling, general, and administrative 18,862 22,827 (17.4) %

Loss (gain) on disposition of assets 1,113 (3,932) *

Impairment of compression equipment 311 12,346 *

Loss on disposition of assets 1,325 1,254 *

Impairment of assets 3,645 — *

Total costs and expenses 175,843 162,404 8.3 %

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Interest expense, net (47,369) (46,666) 1.5 %

Loss on debt extinguishment (4,966) — *

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

Gain on derivative instrument — 8,771 *

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Contract operations revenue .

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.

The $6.9 million increase in contract operations revenue for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily was due to (i) a 5.5% 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 2.4% 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 production in the onshore U.S., partially offset by (iii) an $8.0 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 $2.7 million decrease in revenue attributable to natural gas treating services.

Parts and service revenue .

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.

The $0.4 million decrease in parts and service revenue for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, 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.

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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 $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.

The $9.5 million increase in related-party revenue for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, 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 $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.

The $6.5 million increase in cost of operations, exclusive of depreciation and amortization, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily was due to (i) a $3.2 million increase in direct labor costs due to increased headcount associated with increased revenue-generating horsepower and higher employee costs, (ii) a $2.5 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 $0.6 million increase in retail parts and service expenses.

Depreciation and amortization expense .

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.

The $7.1 million increase in depreciation and amortization expense for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily was due to overhauls and major improvements to compression units.

Selling, general, and administrative expense .

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 $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:

The $4.0 million decrease in selling, general, and administrative expense for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily was due to (i) a $4.2 million decrease in unit-based compensation expense, primarily 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 March 31, 2025 and (ii) a $1.2 million decrease in professional fees primarily driven by a decrease in expenses related to our initiative to improve business performance, partially offset by (iii) a $1.4 million increase in severance charges and other employee costs primarily related to the departure of certain executives as well as retention and relocation payments related to the shared services integration during the current period and (iv) a $0.7 million increase in insurance and other administrative expenses.

Impairment of assets .

The $3.6 million impairment of assets for the three months ended March 31, 2025 primarily resulted from our evaluation of the future deployment of our idle fleet under current market conditions.

The primary circumstances supporting this impairment were:

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

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.

As a result of our evaluation during the three months ended March 31, 2025, we retired 17 compression units representing approximately 10,200 of aggregate horsepower that previously were used to provide compression services in our business.

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

Interest expense, net .

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.

The $0.7 million increase in interest expense, net for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily was due to increased aggregate borrowings, partially offset by lower weighted-average interest rates under the Credit Agreement.

Loss on extinguishment of debt.

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”).

The $5.0 million loss on extinguishment of debt for the three months ended March 31, 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.

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

For additional information regarding the Defeasance of the Senior Notes 2026, see Note 8 to our unaudited condensed consolidated financial statements under Part I, Item 1 “Financial Statements” of this report.

Gain on derivative instrument.

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.

The $8.8 million gain on derivative instrument for the three months ended March 31, 2024, 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 period.

This interest-rate swap was terminated in August 2024;

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.

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.

The $1.1 million increase in income tax expense for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily was related to a charge of $1.0 million which we believe is a reasonable estimate of the potential loss from the aggregate final imputed underpayment for the years 2019 and 2020 with the

Internal Revenue Service.

For additional information regarding this charge, see Note 13 to our unaudited condensed consolidated financial statements under Part I, Item 1 “Financial Statements” of this report.

Other Financial Data

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Other Financial Data:

(1) Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 Increase 2024 2023 Increase

(1) Three Months Ended March 31, Increase

2025 2024 (Decrease)

Gross margin $ 93,223 $ 90,953 2.5 %

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DCF $ 88,695 $ 86,589 2.4 %

DCF Coverage Ratio 1.41 x 1.39 x 1.4 % 1.41 x 1.30 x 8.5 %

DCF Coverage Ratio 1.44 x 1.41 x 2.1 %

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Gross margin.

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.

The $2.3 million increase in gross margin for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, was due to (i) a $16.0 million increase in revenues, offset by (ii) a $6.5 million increase in cost of operations, exclusive of depreciation and amortization, and (iii) a $7.1 million increase in depreciation and amortization.

Adjusted gross margin.

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.

The $9.4 million increase in Adjusted gross margin for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, was due to a $16.0 million increase in revenues, offset by a $6.5 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.

The $10.1 million increase in Adjusted EBITDA for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily was due to (i) a $9.4 million increase in Adjusted gross margin and a $0.8 million decrease in selling, general, and administrative expenses, excluding unit-based compensation expense, transaction expenses, and severance charges and other employee costs.

The $2.1 million increase in DCF for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily was due to (i) a $9.4 million increase in Adjusted gross margin and (ii) a $0.8 million decrease in selling, general, and administrative expenses, excluding unit-based compensation expense, transaction expenses, and severance charges and other employee costs, partially offset by (iii) a $5.1 million increase in maintenance capital expenditures, (iv) a $2.4 million decrease in cash received on derivative instrument, and (v) a $0.5 million increase in cash interest expense, net.

DCF Coverage Ratio .

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.

The increase in DCF Coverage Ratio for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, was due to the increase in DCF for the period, partially offset by increased distributions due to an increase in the number of common units.

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 nine months ended September 30, 2024 and 2023, were $23.8 million and $18.6 million, respectively.

Our aggregate maintenance capital expenditures for the three months ended March 31, 2025 and 2024, were $10.9 million and $5.8 million, respectively.

We currently plan to spend between $38.0 million and $42.0 million in maintenance capital expenditures for the year 2025, 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 $120.0 million and $140.0 million in expansion capital expenditures for the year 2025.

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,

Our expansion capital expenditures for the three months ended March 31, 2025 and 2024, were $22.2 million and $104.8 million, respectively.

As of March 31, 2025, we had binding commitments to purchase $44.7 million worth of additional compression units and serialized parts, all of which is expected to be settled within the next 12 months.

The following table summarizes our sources and uses of cash for the three months ended March 31, 2025 and 2024 (in thousands):

Three Months Ended March 31,

Net cash provided by operating activities $ 54,651 $ 65,917

Net cash used in investing activities (18,041) (98,573)

Net cash used in financing activities (35,977) (26,919)

Net cash provided by (used in) financing activities (36,622) 32,653

Net cash provided by operating activities .

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.

The $11.3 million decrease in net cash provided by operating activities for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily was due to (i) a $32.0 million decrease in accrued liabilities, driven by the timing of interest payments on our senior notes and the Defeasance of the Senior Notes 2026 in the prior period, partially offset by (ii) an $18.7 million decrease in inventory purchases and (iii) an increase in cash flows from a $9.4 million increase in Adjusted gross margin.

Net cash used in investing activities .

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.

The $80.5 million decrease in net cash used in investing activities for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, was primarily due to an $80.2 million decrease in capital expenditures, for purchases of new compression units, overhauls and major improvements, and purchases of other equipment.

Net cash used in financing activities .

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.

The $69.3 million increase in net cash used in financing activities for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily was due to (i) a $1.0 billion decrease in proceeds from the issuance of the Senior Notes 2029 and (ii) a $7.7 million increase in common unit distributions, partially offset by (iii) a $748.8 million decrease in investments in government securities purchased in connection with the Defeasance of the Senior Notes 2026, (iv) a $168.2 million increase in net borrowings under the Credit Agreement, (v) a $16.9 million decrease in deferred financing costs driven by the issuance of the Senior Notes 2029 in the prior period, and (vi) a $6.8 million decrease in Preferred Unit distributions.

Revolving Credit Facility

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.

As of March 31, 2025, we had outstanding borrowings under the Credit Agreement of $804.6 million and, after accounting for outstanding letters of credit in the amount of $0.8 million, $794.6 million of remaining unused availability, of which, due to restrictions related to compliance with the applicable financial covenants, $739.8 million was available to be drawn.

As of March 31, 2025, we were in compliance with all of our covenants under the Credit Agreement.

As of May 1, 2025, we had outstanding borrowings under the Credit Agreement of $774.9 million and outstanding letters of credit of $0.8 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 2024 Annual Report.

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.

On March 18, 2024, utilizing a portion of the proceeds from the Senior Notes 2029, we deposited government securities with the trustee to satisfy and discharge the Senior Notes 2026 under the Indenture governing the notes.

This satisfaction and discharge constituted a legal defeasance, or the Defeasance, under GAAP as of March 18, 2024 of the full outstanding principal balance of $725.0 million.

The Senior Notes 2026 were redeemed in full at par on April 4, 2024.

As of March 31, 2025, we had $750.0 million and $1.0 billion aggregate principal amount outstanding on our Senior Notes 2027 and Senior Notes 2029, respectively.

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

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The Senior Notes 2029 are due on March 15, 2029, and accrue interest 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.

Net proceeds from the Senior Notes 2029 were used for the Defeasance, with the remainder used to reduce outstanding borrowings under our Credit Agreement.

For more detailed descriptions of the Defeasance, Senior Notes 2027, and Senior Notes 2029, see Note 8 to our unaudited condensed consolidated financial statements in Part I, Item 1 “Financial Statements” of this report and, for the Senior Notes 2027, Note 10 to the consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data” included in our 2023 Annual Report.

Derivative Instrument

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.

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

For more detailed descriptions of the Senior Notes 2027 and Senior Notes 2029, 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 2024 Annual Report.

During the three months ended March 31, 2025, distributions of $0.1 million were reinvested under the DRIP resulting in the issuance of 2,244 common units.

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

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

Management uses adjusted gross margin to assess operating performance as compared to historical results, budget and forecast amounts, expected return on capital investment, and our competitors.

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

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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 September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Total revenues $ 245,234 $ 229,276

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

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

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

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

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

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

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

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

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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 September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Net income $ 20,512 $ 23,573

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Transaction expenses (2) — 108

Severance charges 223 45 374 89

Loss (gain) on disposition of assets (123) (3,865) 1,113 (3,932)

Severance charges and other employee costs (3) 1,351 107

Loss on disposition of assets 1,325 1,254

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

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

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

Gain on derivative instrument — (8,771)

Impairment of assets (5) 3,645 —

Adjusted EBITDA $ 149,514 $ 139,395

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Transaction expenses — (108)

Severance charges (223) (45) (374) (89)

Severance charges and other employee costs (1,351) (107)

Cash received on derivative instrument — 2,422

Other 330 (65) 427 (46)

Changes in operating assets and liabilities (46,934) (30,602)

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________________________________

(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.

(1) For the three months ended March 31, 2025 and 2024, unit-based compensation expense included $0.7 million and $1.0 million, respectively, of cash payments related to quarterly payments of DERs on outstanding phantom unit awards.

For the three months ended March 31, 2025, unit-based compensation included $2.2 million related to the cash portion of the settlement of phantom unit awards upon vesting.

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

(2) Represents certain expenses related to potential and completed transactions and other items.

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

(3) Severance charges and other employee costs includes (i) severance payments to former employees of the Partnership, (ii) retention payments to employees of the Partnership that have executed agreements to maintain operations during the shared services integration but do not intend to remain employed with the Partnership after their retention period, and (iii) relocation payments to employees of the Partnership for relocation resulting from the shared services integration and the change in location of the Partnership’s headquarters to Dallas, Texas.

These retention payments are incremental to the affected employees’ base pay.

For the three months ended March 31, 2025, severance charges and other employee costs included $0.4 million and $0.1 million related to retention payments and relocation payments, respectively.

(4) This loss on extinguishment of debt is a result of the Defeasance of the Senior Notes 2026.

This amount 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.

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 the Defeasance.

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

Distributable Cash Flow

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

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

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

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

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

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

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

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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 September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Net income $ 20,512 $ 23,573

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Transaction expenses (2) — 108

Severance charges 223 45 374 89

Loss (gain) on disposition of assets (123) (3,865) 1,113 (3,932)

Severance charges and other employee costs (3) 1,351 107

Other (4) 1,000 —

Loss on disposition of assets 1,325 1,254

Loss on extinguishment of debt (5) — 4,966

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

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

Impairment of assets (6) 3,645 —

Distributions on Preferred Units (4,388) (4,388)

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Transaction expenses — (108)

Severance charges (223) (45) (374) (89)

Severance charges and other employee costs (1,351) (107)

Distributions on Preferred Units 4,388 4,388

Other (1,000) —

Changes in operating assets and liabilities (46,934) (30,602)

1 unchanged sentence

________________________________

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

For the three months ended March 31, 2025, unit-based compensation included $2.2 million related to the cash portion of the settlement of phantom unit awards upon vesting.

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

(2) Represents certain expenses related to potential and completed transactions and other items.

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

These retention payments are incremental to the affected employees’ base pay.

For the three months ended March 31, 2025, severance charges and other employee costs included $0.4 million and $0.1 million related to retention payments and relocation payments, respectively.

(4) Represents cash income tax expense accrued for the three months ended March 31, 2025, which we believe is a reasonable estimate of the potential loss from the aggregate final imputed underpayment for the federal tax years 2019 and 2020.

(5) This loss on extinguishment of debt is a result of the Defeasance of the Senior Notes 2026.

This amount 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.

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 the Defeasance.

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

(5) During 2024, 320,000 Preferred Units were converted into 15,990,804 common units, all of which occurred on or prior to the distribution record date for the first-quarter 2024.

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

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

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

2024 2023 2024 2023

Three Months Ended March 31,

DCF $ 88,695 $ 86,589

Distributions for DCF Coverage Ratio (1) $ 61,731 $ 61,422

DCF Coverage Ratio 1.41 x 1.39 x 1.41 x 1.30 x

DCF Coverage Ratio 1.44 x 1.41 x

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis