tti-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to______

Commission File Number 001-35195

CSI Compressco LP

(Exact name of registrant as specified in its charter)


Delaware			94-3450907
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

24955 Interstate 45 North
The Woodlands,
TX			77380
(Address of Principal Executive Offices)			(Zip Code)

(281) 364-2244

(Registrant’s Telephone Number, Including Area Code)

_______________________________________________________________________

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
COMMON UNITS REPRESENTING LIMITED PARTNERSHIP INTERESTS	CCLP	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2021, there were 47,971,240 Common Units outstanding.


CSI Compressco LP
Table of Contents
			Page
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations			1
Consolidated Statements of Comprehensive Income (Loss)			2
Consolidated Balance Sheets			3
Consolidated Statements of Partners’ Capital			4
Consolidated Statements of Cash Flows			5
Notes to Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures about Market Risk			25
Item 4. Controls and Procedures			25

PART II—OTHER INFORMATION
Item 1. Legal Proceedings			26
Item 1A. Risk Factors			26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			26
Item 3. Defaults Upon Senior Securities			26
Item 4. Mine Safety Disclosures			26
Item 5. Other Information			26
Item 6. Exhibits			27
SIGNATURES			28

CERTAIN REFERENCES IN THIS QUARTERLY REPORT

References in this Quarterly Report to “CSI Compressco,” “we,” “our,” “us,” “the Partnership” or like terms refer to CSI Compressco LP and its wholly owned subsidiaries. References to “CSI Compressco GP” or “our General Partner” refer to our general partner, CSI Compressco GP Inc. References to “Spartan” refer to Spartan Energy Partners LP and its controlled subsidiaries. References to “TETRA” refer to TETRA Technologies, Inc. and TETRA’s controlled subsidiaries, other than us.

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

CSI Compressco LP

Consolidated Statements of Operations

(In Thousands, Except Unit and Per Unit Amounts)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Revenues:
Compression and related services	$	54,239	$	65,765
Aftermarket services	11,001		17,970
Equipment sales	470		1,700
Total revenues	65,710		85,435
Cost of revenues (excluding depreciation and amortization expense):
Cost of compression and related services	26,426		31,608
Cost of aftermarket services	9,517		16,245
Cost of equipment sales	317		1,883
Total cost of revenues	36,260		49,736
Depreciation and amortization	18,530		19,670


Selling, general, and administrative expense	9,594		9,090

Interest expense, net	13,898		13,169

Other (income) expense, net	324		440
Loss before taxes and discontinued operations	(12,896)		(6,670)
Provision for income taxes	1,507		196
Loss from continuing operations	(14,403)		(6,866)
Loss from discontinued operations, net of tax	(62)		(6,764)
Net loss	$	(14,465)	$	(13,630)

General partner interest in net loss	$	(202)	$	(192)
Common units interest in net loss	$	(14,263)	$	(13,438)


Basic and diluted net loss per common unit:
Loss from continuing operations per common unit	$	(0.30)	$	(0.14)
Loss from discontinued operations per common unit	—		(0.14)
Net loss per common unit	$	(0.30)	$	(0.28)
Weighted average common units outstanding:
Basic	47,723,874		47,176,640
Diluted	47,723,874		47,176,640

See Notes to Consolidated Financial Statements

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CSI Compressco LP

Consolidated Statements of Comprehensive Income (Loss)

(In Thousands)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Net loss	$	(14,465)	$	(13,630)
Foreign currency translation adjustment, net of tax of $0 in 2021 and 2020	57		(353)
Comprehensive loss	$	(14,408)	$	(13,983)

See Notes to Consolidated Financial Statements

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CSI Compressco LP

Consolidated Balance Sheets

(In Thousands, Except Unit Amounts)


	March 31, 2021		December 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	20,928	$	16,577

Trade accounts receivable, net of allowances for doubtful accounts of $1,283 as of March 31, 2021 and $1,333 as of December 31, 2020	47,692		43,837
Inventories	32,683		31,188


Prepaid expenses and other current assets	7,961		5,184
Current assets associated with discontinued operations	32		39
Total current assets	109,296		96,825
Property, plant, and equipment:
Land and building	13,259		13,259
Compressors and equipment	980,406		975,375
Vehicles	7,675		7,692
Construction in progress	11,851		12,763
Total property, plant, and equipment	1,013,191		1,009,089
Less accumulated depreciation	(473,065)		(457,688)
Net property, plant, and equipment	540,126		551,401
Other assets:

Intangible assets, net of accumulated amortization of $31,452 as of March 31, 2021 and $30,711 as of December 31, 2020	24,316		25,057
Operating lease right-of-use assets	30,575		32,637
Deferred tax asset	10		10
Other assets	3,861		4,036
Total other assets	58,762		61,740
Total assets	$	708,184	$	709,966
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable	$	23,109	$	19,766

Accrued liabilities and other	45,807		36,070
Amounts payable to affiliates	3,291		3,234

Current liabilities associated with discontinued operations	279		345
Total current liabilities	72,486		59,415
Other liabilities:
Long-term debt, net	638,662		638,631
Deferred tax liabilities	1,869		1,478
Long-term affiliate payable	11,477		—
Operating lease liabilities	22,472		24,059
Other long-term liabilities	1,110		11,716
Total other liabilities	675,590		675,884
Commitments and contingencies
Partners’ capital:
General partner interest	(1,094)		(885)
Common units (47,971,240 units issued and outstanding at March 31, 2021 and 47,352,291 units issued and outstanding at December 31, 2020)	(24,462)		(10,055)
Accumulated other comprehensive loss	(14,336)		(14,393)
Total partners’ capital	(39,892)		(25,333)
Total liabilities and partners’ capital	$	708,184	$	709,966

See Notes to Consolidated Financial Statements

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CSI Compressco LP

Consolidated Statements of Partners’ Capital

(In Thousands)

(Unaudited)


	Partners’ Capital					Accumulated Other Comprehensive Income (Loss)		Total Partners’ Capital


	General Partner		Common Unitholders
	Amount		Units	Amount

Balance at December 31, 2020	$	(885)	47,352	$	(10,055)	$	(14,393)	$	(25,333)
Net loss	(202)		—	(14,263)		—		(14,465)
Distributions ($0.01 per unit)	(7)		—	(477)		—		(484)
Equity compensation	—		—	474		—		474
Vesting of Phantom Units	—		619	—		—		—
Translation adjustment, net of taxes of $0	—		—	—		57		57
Acquisition of affiliate from TETRA	—		—	(141)		—		(141)

Balance at March 31, 2021	$	(1,094)	47,971	$	(24,462)	$	(14,336)	$	(39,892)


	Partners’ Capital					Accumulated Other Comprehensive Income (Loss)		Total Partners’ Capital

			Limited Partners
	General Partner		Common Unitholders
	Amount		Units	Amount

Balance at December 31, 2019	$	180	47,079	$	63,384	$	(14,573)	$	48,991
Net loss	(192)		—	(13,438)		—		(13,630)
Distributions ($0.01 per unit)	(7)		—	(471)		—		(478)
Equity compensation, net	—		—	229		—		229
Vesting of Phantom Units	—		213	—		—		—
Translation adjustment, net of taxes of $0	—		—	—		(353)		(353)

Balance at March 31, 2020	$	(19)	47,292	$	49,704	$	(14,926)	$	34,759

See Notes to Consolidated Financial Statements

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CSI Compressco LP

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Operating activities:
Net loss	$	(14,465)	$	(13,630)
Reconciliation of net loss to cash provided by operating activities:
Depreciation and amortization	18,530		19,908
Impairments and other charges	—		5,371

Provision for deferred income taxes	405		8



Equity compensation expense	833		324
Provision for doubtful accounts	32		222
Amortization of deferred financing costs	144		670

Other non-cash charges and credits	42		(85)
Gain on sale of property, plant, and equipment	(37)		7

Changes in operating assets and liabilities:
Accounts receivable	(3,952)		(7,364)
Inventories	(3,488)		(12,102)
Prepaid expenses and other current assets	(3,058)		(1,160)
Accounts payable and accrued expenses	14,486		21,625
Other	142		(437)
Net cash provided by operating activities	9,614		13,357
Investing activities:
Purchases of property, plant, and equipment, net	(4,595)		(6,483)
Proceeds from sale of property, plant, and equipment	116		—

Acquisition of affiliate from TETRA, net of cash acquired	5		—


Net cash used in investing activities	(4,474)		(6,483)
Financing activities:
Proceeds from long-term debt	—		15,501
Payments of long-term debt	—		(16,000)


Distributions	(484)		(478)
Other financing activities	(119)		(886)
Payments to affiliate	(174)		—

Net cash used in financing activities	(777)		(1,863)
Effect of exchange rate changes on cash	(12)		35
Increase in cash and cash equivalents and restricted cash	4,351		5,046
Cash and cash equivalents at beginning of period	16,577		2,370
Cash and cash equivalents and restricted cash at end of period	$	20,928	$	7,416
Supplemental cash flow information:
Interest paid	$	2,926	$	10,823
Income taxes paid	$	175	$	36
Decrease in accrued capital expenditures	$	218	$	822

See Notes to Consolidated Financial Statements

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CSI Compressco LP

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 — ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES

Organization

CSI Compressco LP, a Delaware limited partnership, is a provider of compression services and equipment for natural gas and oil production, gathering, artificial lift, transmission, processing, and storage. We also provide aftermarket services and compressor package parts and components manufactured by third-party suppliers. We provide compression services and equipment to a broad base of natural gas and oil exploration and production, midstream, and transmission companies operating throughout many of the onshore producing regions of the United States as well as in a number of international locations, including the countries of Mexico, Canada, and Argentina. Previously, our equipment sales business included our new unit sales business that consisted of the fabrication and sale of new standard and custom-designed, engineered compressor packages fabricated primarily at our facility in Midland, Texas that were used to provide compression services or sold to our customers. In the fourth quarter of 2020, we fully exited the new unit sales business and we have reflected these operations as discontinued operations for all periods presented. See Note 2 – “Discontinued Operations.” Used equipment sales revenue continues to be included in equipment sales revenue. Unless the context requires otherwise, when we refer to “the Partnership,” “we,” “us,” and “our,” we are describing CSI Compressco LP and its wholly owned subsidiaries.

Presentation

Our unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. In the opinion of our management, our unaudited consolidated financial statements as of March 31, 2021, and for the three-month periods ended March 31, 2021 and 2020, include all normal recurring adjustments that are necessary to provide a fair statement of our results for these interim periods. Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2021.

The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission (“SEC”) and do not include all information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2020 and notes thereto included in our Annual Report on Form 10-K, which we filed with the SEC on March 4, 2021.

Segments

Our General Partner has concluded that we operate in one business segment.

Significant Accounting Policies

Our significant accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K. There have been no significant changes in our accounting policies or the application thereof during the three months ended March 31, 2021.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and impairments during the reporting period. Actual results could differ from those estimates, and such differences could be material.

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Reclassifications

Certain previously reported financial information has been reclassified to present our new unit sales business as discontinued operations. See Note 2 – “Discontinued Operations” for further information. In addition, certain previously reported financial information has been reclassified to conform to the current year’s presentation. Other than the discontinued operations presentation, the impact of reclassifications was not significant to the prior year's overall presentation. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations.

Cash Equivalents

We consider all highly liquid cash investments with maturities of three months or less when purchased to be cash equivalents.

Foreign Currencies

Accumulated other comprehensive income (loss) is included in partners’ capital in the accompanying consolidated balance sheets and consists of the cumulative currency translation adjustments associated with our international operations. Foreign currency exchange (gains) and losses are included in other (income) expense, net and totaled $0.4 million and $1.7 million during the three-month periods ended March 31, 2021 and March 31, 2020, respectively.

Inventories

Inventories consist primarily of compressor package parts and supplies and work in process and are stated at the lower of cost or net realizable value. For parts and supplies, cost is determined using the weighted average cost method. The cost of work in progress is determined using the specific identification method.

Impairments and Other Charges

Impairments of long-lived assets, including identified intangible assets, are determined periodically, when indicators of impairment are present. If such indicators are present, the determination of the amount of impairment is based on our judgments as to the future undiscounted operating cash flows to be generated from the relevant assets throughout their remaining estimated useful lives. If these undiscounted cash flows are less than the carrying amount of the related asset, an impairment is recognized for the excess of the carrying value over its fair value. Fair value of intangible assets is generally determined using the discounted present value of future cash flows using discount rates commensurate with the risks inherent with the specific assets. Assets held for disposal are recorded at the lower of carrying value or estimated fair value less estimated selling costs. There were no impairments attributed to continuing operations recorded during the three-month periods ended March 31, 2021 or March 31, 2020.

Income Taxes

Our operations are not subject to U.S. federal income tax other than the operations that are conducted through taxable subsidiaries. We incur state and local income taxes in certain areas of the U.S. in which we conduct business. We incur income taxes and are subject to withholding requirements related to certain of our operations in Latin America, Canada, and other foreign countries in which we operate. Furthermore, we also incur Texas Margin Tax, which, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, is classified as an income tax for reporting purposes. A portion of the carrying value of certain deferred tax assets is subject to a valuation allowance.

Earnings Per Common Unit

Our computations of earnings per common unit are based on the weighted average number of common units outstanding during the applicable period. Basic earnings per common unit are determined by dividing net income (loss) allocated to the common units after deducting the amount allocated to our General Partner (including any distributions to our General Partner on its incentive distribution rights) by the weighted average number of outstanding common units during the period.

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When computing earnings per common unit under the two class method in periods when distributions are greater than earnings, the amount of the distribution is deducted from net income (loss) and the excess of distributions over earnings is allocated between the General Partner and common units based on how our Partnership Agreement allocates net losses.

Diluted earnings per common unit are computed using the treasury stock method, which considers the potential future issuance of limited partner common units. Unvested phantom units are not included in basic earnings per common unit, as they are not considered to be participating securities, but are included in the calculation of diluted earnings per common unit. For the three-month periods ended March 31, 2021 and March 31, 2020, all unvested phantom units were excluded from the calculation of diluted common units because the impact was anti-dilutive.

Fair Value Measurements

We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements were utilized in the determination of the carrying value of our Series A Preferred Units (a Level 3 fair value measurement). We also utilize fair value measurements on a recurring basis in the accounting for our foreign currency forward purchase and sale derivative contracts. For these fair value measurements, we utilize the quoted value (a Level 2 fair value measurement). Refer to Note 8 –

“Fair Value Measurements” for further discussion.

Fair value measurements are also utilized on a nonrecurring basis, such as in the allocation of purchase consideration for acquisition transactions to the assets and liabilities acquired, including intangible assets (a Level 3 fair value measurement) and for the impairment of long-lived assets (a Level 3 fair value measurement).

Distributions

On January 19, 2021, our General Partner declared a cash distribution attributable to the quarter ended December 31, 2020 of $0.01 per outstanding common unit. This distribution equates to a distribution of $0.04 per outstanding common unit on an annualized basis. This distribution was paid on February 12, 2021, to each of the holders of common units of record as of the close of business on January 29, 2021.

New Accounting Pronouncements

Standards adopted in 2021

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions related to intraperiod tax allocation, interim period income tax calculation methodology, and the recognition of deferred tax liabilities for outside basis differences. It also simplifies certain aspects of accounting for franchise taxes and clarifies the accounting for transactions that results in a step-up in the tax basis of goodwill. On January 1, 2021, we adopted ASU 2019-12. The adoption of this standard did not have a material impact on our consolidated financial statements.

Standards not yet adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses on financial instruments not accounted for at fair value through net income. The provisions require credit impairments to be measured over the contractual life of an asset and developed with consideration for past events, current conditions, and forecasts of future economic information. Credit impairments will be accounted for as an allowance for credit losses deducted from the amortized cost basis at each reporting date. Updates at each reporting date after initial adoption will be recorded through selling, general, and administrative expense. ASU 2016-13 will be effective for us in the first quarter of 2023. We continue to assess the potential effects of these changes to our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other

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transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments were effective for all entities as of March 12, 2020 through December 31, 2022. Entities may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020. As of March 31, 2021, we have not modified our credit agreements to remove references to LIBOR. We are currently evaluating the impact of the provisions of ASU 2020-04 on our consolidated financial statements.

NOTE 2 — DISCONTINUED OPERATIONS

On July 2, 2020, we completed the sale of our Midland manufacturing facility. The Midland facility was used to design, fabricate and assemble new standard and customized compressor packages for our new unit sales business. In connection with the Midland manufacturing facility sale, we entered into an agreement with the buyer to continue to operate a portion of the facility, which allowed us to close out the remaining backlog for the new unit sales business and to continue to operate our aftermarket services business at that location for an interim period. Following completion of the last unit in October 2020, we ceased fabricating new compressor packages for sales to third parties or for our own service fleet. The operations associated with the new unit sales business were previously reported in equipment sales revenues and are now reflected as discontinued operations in our financial statements for all periods presented. Used equipment sales revenue continues to be included in equipment sales revenue. A summary of financial information related to our discontinued operations for the new unit sales business is as follows:

Reconciliation of the Line Items Constituting Pretax Loss from Discontinued Operations to the After-Tax Income (Loss) from Discontinued Operations

(in thousands)


	Three Months Ended March 31,
	2021		2020
Revenue	$	—	$	4,844
Cost of revenues	22		4,817
Depreciation, amortization, and accretion	—		238
Impairments of long-lived assets	—

SEC Form 10-Q filed by CSI Compressco LP