SEC Form 10-Q filed by USA Compression Partners LP

11/5/24 4:31:17 PM ET

$USAC

Natural Gas Distribution

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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 September 30, 2024


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

For the transition period from to .

Commission File No. 001-35779

USA Compression Partners, LP

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)			75-2771546 (I.R.S. Employer Identification No.)


111 Congress Avenue, Suite 2400 Austin, Texas (Address of principal executive offices)			78701 (Zip Code)

(512) 473-2662

(Registrant’s telephone number, including area code)

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 partner interests

USAC

New York Stock Exchange

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 October 31, 2024, there were 117,022,833 common units outstanding.

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TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION			1
ITEM 1. Financial Statements			1
Unaudited Condensed Consolidated Balance Sheets			1
Unaudited Condensed Consolidated Statements of Operations			2
Unaudited Condensed Consolidated Statements of Changes in Partners’ Capital (Deficit)			3
Unaudited Condensed Consolidated Statements of Cash Flows			4
Notes to Unaudited Condensed Consolidated Financial Statements			6
Note 1 – Organization and Description of Business			6
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies			6
Note 3 – Trade Accounts Receivable			9
Note 4 – Inventories			9
Note 5 – Property and Equipment and Identifiable Intangible Assets			9
Note 6 – Other Current Liabilities			10
Note 7 – Derivative Instrument			10
Note 8 – Debt Obligations			11
Note 9 – Preferred Units			13
Note 10 – Partners’ Deficit			15
Note 11 – Revenue Recognition			16
Note 12 – Transactions with Related Parties			17
Note 13 – Commitments and Contingencies			17
Note 14 – Recent Accounting Pronouncements			18

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Operating Highlights			20
Financial Results of Operations			21
Liquidity and Capital Resources			26
Non-GAAP Financial Measures			28
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			34
ITEM 4. Controls and Procedures			35

PART II. OTHER INFORMATION			36
ITEM 1. Legal Proceedings			36
ITEM 1A. Risk Factors			36
ITEM 5. Other Information			36
ITEM 6. Exhibits			37

SIGNATURES			38

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GLOSSARY

The abbreviations, acronyms and industry terminology used in this Quarterly Report on Form 10-Q are defined as follows:



Credit Agreement						Seventh Amended and Restated Credit Agreement, dated as of December 8, 2021, by and among USA Compression Partners, LP, as borrower, the guarantors party thereto from time to time, the lenders party thereto from time to time, as may be amended from time to time, and any predecessor thereto if the context so dictates
CPI						Consumer Price Index for all Urban Consumers
DERs						distribution equivalent rights
DRIP						distribution reinvestment plan

Energy Transfer						Energy Transfer LP
Exchange Act						Securities Exchange Act of 1934, as amended
GAAP						generally accepted accounting principles of the United States of America
Preferred Units						Series A Preferred Units representing limited partner interests in USA Compression Partners, LP
SEC						United States Securities and Exchange Commission
Senior Notes 2026						$725.0 million aggregate principal amount of senior notes due on April 1, 2026
Senior Notes 2027						$750.0 million aggregate principal amount of senior notes due on September 1, 2027
Senior Notes 2029						$1.0 billion aggregate principal amount of senior notes due on March 15, 2029
SOFR						Secured Overnight Financing Rate
U.S.						United States of America

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

USA COMPRESSION PARTNERS, LP

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except unit amounts)


	September 30, 2024		December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	79	$	11

Accounts receivable, net of allowances for credit losses of $2,260 and $2,260, respectively	99,095		95,421

Related-party receivables	7,163		—
Inventories	146,755		114,728
Derivative instrument	—		5,670
Prepaid expenses and other assets	9,261		10,617
Total current assets	262,353		226,447
Property and equipment, net	2,291,976		2,237,625
Lease right-of-use assets	15,374		17,290

Identifiable intangible assets, net	223,618		245,652
Other assets	10,306		9,746
Total assets	$	2,803,627	$	2,736,760
Liabilities, Preferred Units, and Partners’ Deficit
Current liabilities:
Accounts payable	$	31,632	$	39,781

Accrued liabilities	83,603		85,132
Deferred revenue	67,896		62,589
Total current liabilities	183,131		187,502
Long-term debt, net	2,532,398		2,336,088
Operating lease liabilities	12,601		14,731
Derivative instrument, long term	—		4,466
Other liabilities	13,942		10,924
Total liabilities	2,742,072		2,553,711
Commitments and contingencies
Preferred Units	168,809		476,334
Partners’ deficit:
Common units, 117,022,833 and 100,986,011 units issued and outstanding, respectively	(107,254)		(293,285)


Total liabilities, Preferred Units, and partners’ deficit	$	2,803,627	$	2,736,760

See accompanying notes to unaudited condensed consolidated financial statements.

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USA COMPRESSION PARTNERS, LP

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per unit amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenues:
Contract operations	$	220,518	$	204,716	$	662,265	$	590,237
Parts and service	5,756		7,153		17,043		15,133
Related party	13,694		5,216		25,249		15,759
Total revenues	239,968		217,085		704,557		621,129
Costs and expenses:
Cost of operations, exclusive of depreciation and amortization	81,814		74,928		235,048		211,515
Depreciation and amortization	67,237		64,101		195,801		183,626
Selling, general, and administrative	15,364		20,085		52,364		54,136
Loss (gain) on disposition of assets	(123)		(3,865)		1,113		(3,932)
Impairment of compression equipment	—		882		311		12,346

Total costs and expenses	164,292		156,131		484,637		457,691
Operating income	75,676		60,954		219,920		163,438
Other income (expense):
Interest expense, net	(49,361)		(43,257)		(144,855)		(125,092)
Loss on extinguishment of debt	—		—		(4,966)		—
Gain (loss) on derivative instrument	(6,218)		3,437		5,684		17,987
Other	23		23		83		104
Total other expense	(55,556)		(39,797)		(144,054)		(107,001)
Net income before income tax expense	20,120		21,157		75,866		56,437
Income tax expense	793		255		1,728		1,010
Net income	19,327		20,902		74,138		55,427
Less: distributions on Preferred Units	(4,388)		(12,188)		(13,163)		(36,563)
Net income attributable to common unitholders’ interests	$	14,939	$	8,714	$	60,975	$	18,864




Weighted-average common units outstanding – basic	117,017		98,292		112,151		98,270

Weighted-average common units outstanding – diluted	118,256		100,263		113,296		99,915

Basic and diluted net income per common unit	$	0.13	$	0.09	$	0.54	$	0.19



Distributions declared per common unit for respective periods	$	0.525	$	0.525	$	1.575	$	1.575

See accompanying notes to unaudited condensed consolidated financial statements.

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USA COMPRESSION PARTNERS, LP

Unaudited Condensed Consolidated Statements of Changes in Partners’ Capital (Deficit)

(in thousands, except per unit amounts)



	Common units
Partners’ deficit ending balance, December 31, 2023	$	(293,285)

Distributions and DERs, $0.525 per unit	(54,098)
Issuance of common units under the DRIP	440
Unit-based compensation for equity-classified awards	78
Exercise and conversion of Preferred Units into common units	38,108
Net income attributable to common unitholders’ interests	19,185
Partners’ deficit ending balance, March 31, 2024	(289,572)

Distributions and DERs, $0.525 per unit	(61,453)
Issuance of common units under the DRIP	331
Unit-based compensation for equity-classified awards	83
Exercise and conversion of Preferred Units into common units	262,592
Net income attributable to common unitholders’ interests	26,851
Partners’ deficit ending balance, June 30, 2024	(61,168)

Distributions and DERs, $0.525 per unit	(61,462)
Issuance of common units under the DRIP	354
Unit-based compensation for equity classified awards	83
Net income attributable to common unitholders’ interests	14,939
Partners’ deficit ending balance, September 30, 2024	$	(107,254)



	Common units		Warrants		Total
Partners’ capital (deficit) ending balance, December 31, 2022	$	(125,111)	$	8,812	$	(116,299)

Distributions and DERs, $0.525 per unit	(51,602)		—		(51,602)
Issuance of common units under the DRIP	617		—		617
Unit-based compensation for equity-classified awards	69		—		69
Net loss attributable to common unitholders’ interests	(1,246)		—		(1,246)
Partners’ capital (deficit) ending balance, March 31, 2023	(177,273)		8,812		(168,461)

Distributions and DERs, $0.525 per unit	(51,617)		—		(51,617)
Issuance of common units under the DRIP	423		—		423
Unit-based compensation for equity-classified awards	69		—		69
Net income attributable to common unitholders’ interests	11,396		—		11,396
Partners’ capital (deficit) ending balance, June 30, 2023	(217,002)		8,812		(208,190)

Distributions and DERs, $0.525 per unit	(51,628)		—		(51,628)
Issuance of common units under the DRIP	414		—		414
Unit-based compensation for equity classified awards	69		—		69
Net income attributable to common unitholders’ interests	8,714		—		8,714
Partners’ capital (deficit) ending balance, September 30, 2023	$	(259,433)	$	8,812	$	(250,621)

See accompanying notes to unaudited condensed consolidated financial statements.

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USA COMPRESSION PARTNERS, LP

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities:
Net income	$	74,138	$	55,427
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	195,801		183,626

Amortization of debt issuance costs	6,503		5,460
Unit-based compensation expense	11,000		17,652
Deferred income tax expense (benefit)	427		(46)
Loss (gain) on disposition of assets	1,113		(3,932)
Loss on extinguishment of debt	4,966		—
Change in fair value of derivative instrument	1,204		(14,243)
Impairment of compression equipment	311		12,346

Changes in assets and liabilities:
Accounts receivable and related-party receivables, net	(10,837)		(13,462)
Inventories	(90,912)		(51,875)
Prepaid expenses and other current assets	1,356		(374)
Other assets	487		3,165
Accounts payable	(1,947)		(368)
Accrued liabilities and deferred revenue	16,709		(13,095)
Other liabilities	820		—
Net cash provided by operating activities	211,139		180,281
Cash flows from investing activities:
Capital expenditures, net	(175,836)		(159,048)
Proceeds from disposition of property and equipment	742		5,122
Proceeds from insurance recovery	—		535
Net cash used in investing activities	(175,094)		(153,391)
Cash flows from financing activities:
Proceeds from long-term borrowings	879,613		798,424
Proceeds from issuance of senior notes	1,000,000		—
Repayments of long-term borrowings	(948,215)		(631,305)
Investments in government securities in connection with legal defeasance of the Senior Notes 2026	(748,764)		—

Cash distributions on common units	(178,837)		(156,740)
Cash distributions on Preferred Units	(19,988)		(36,563)
Deferred financing costs	(18,603)		(379)
Other	(1,183)		(356)
Net cash used in financing activities	(35,977)		(26,919)
Increase (decrease) in cash and cash equivalents	68		(29)
Cash and cash equivalents, beginning of period	11		35
Cash and cash equivalents, end of period	$	79	$	6

See accompanying notes to unaudited condensed consolidated financial statements.

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USA COMPRESSION PARTNERS, LP
Unaudited Condensed Consolidated Statements of Cash Flows (continued)
(in thousands)

	Nine Months Ended September 30,
	2024		2023
Supplemental cash flow information:
Cash paid for interest, net of capitalized amounts	$	138,107	$	145,697
Cash paid for income taxes	1,461		1,146
Supplemental non-cash transactions:
Non-cash distributions to certain common unitholders (DRIP)	$	1,125	$	1,454
Transfers from inventories to property and equipment, net	58,499		39,027
Changes in capital expenditures included in accounts payable and accrued liabilities	(5,193)		2,681
Changes in financing costs included in accounts payable and accrued liabilities	(96)		6
Exercise and conversion of Preferred Units into common units	300,700		—
Government securities transferred in connection with the legal defeasance of the Senior Notes 2026	748,764		—
Legal defeasance of Senior Notes 2026	725,000		—

See accompanying notes to unaudited condensed consolidated financial statements.

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USA COMPRESSION PARTNERS, LP

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Organization and Description of Business

Unless otherwise indicated, the terms “our,” “we,” “us,” “the Partnership,” and similar language refer to USA Compression Partners, LP, collectively with its consolidated subsidiaries.

We are a Delaware limited partnership. Through our operating subsidiaries, we provide natural gas compression services to customers under fixed-term contracts in the natural gas and crude oil industries, using compression packages that we design, engineer, own, operate, and maintain. We also own and operate a fleet of equipment used to provide natural gas treating services, such as carbon dioxide and hydrogen sulfide removal, cooling, and dehydration. We provide compression services in shale plays throughout the U.S., including the Utica, Marcellus, Permian Basin, Delaware Basin, Eagle Ford, Mississippi Lime, Granite Wash, Woodford, Barnett, Haynesville, Niobrara, and Fayetteville shales.

USA Compression GP, LLC, a Delaware limited liability company, serves as our general partner and is referred to herein as the “General Partner.” The General Partner is wholly owned by Energy Transfer.

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

(2) Basis of Presentation and Significant Accounting Policies

Basis of Presentation

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and pursuant to SEC rules and regulations.

In the opinion of our management, financial information presented herein reflects all normal recurring adjustments necessary for the fair presentation of these interim unaudited condensed consolidated financial statements in accordance with GAAP. Operating results for the three and nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with SEC rules and regulations. Therefore, these interim unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements contained in our annual report on Form 10-K for the year ended December 31, 2023, filed on February 13, 2024 (our “2023 Annual Report”).

Use of Estimates

Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions by management that affect the reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities that existed as of the date of the unaudited condensed consolidated financial statements. Although these estimates were based on management’s available knowledge of current and expected future events, actual results could differ from these estimates.

Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents consist of all cash balances. We consider investments in highly liquid financial instruments purchased with an original maturity of 90 days or less to be cash equivalents.

Trade Accounts Receivable

Trade accounts receivable are recorded at their invoiced amounts.

Allowance for Credit Losses

We evaluate allowance for credit losses with reference to our trade accounts receivable balances, which are measured at amortized cost. Due to the short-term nature of our trade accounts receivable, we consider the amortized cost of trade accounts receivable to equal the receivable’s carrying amounts, excluding the allowance for credit losses.

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Our determination of the allowance for credit losses requires us to make estimates and judgments regarding our customers’ ability to pay amounts due. We continuously evaluate the financial strength of our customers and the overall business climate in which our customers operate, and make adjustments to the allowance for credit losses as necessary. We evaluate the financial strength of our customers by reviewing the aging of their receivables owed to us, our collection experiences with the customer, correspondence, financial information, and third-party credit ratings. We evaluate the business climate in which our customers operate by reviewing various publicly available materials regarding our customers’ industry, including the solvency of various companies in the industry.

Inventories

Inventories consist of serialized and non-serialized parts primarily used on compression units. All inventories are stated at the lower of cost or net realizable value. Serialized parts inventories are determined using the specific-identification cost method, while non-serialized parts inventories are determined using the weighted-average cost method. Purchases of inventories are considered operating activities within the unaudited condensed consolidated statements of cash flows.

Property and Equipment

Property and equipment are carried at cost except for (i) certain acquired assets which are recorded at fair value on their respective acquisition dates and (ii) impaired assets which are recorded at fair value as of the last impairment evaluation date for which an adjustment was required. Overhauls and major improvements that increase the value or extend the life of compression equipment are capitalized and depreciated over three to five years. Ordinary maintenance and repairs are charged to cost of operations, exclusive of depreciation and amortization.

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

Capitalized interest is calculated by multiplying our monthly effective interest rate on outstanding variable-rate indebtedness by the amount of qualifying costs, which include upfront payments to acquire certain compression units. Capitalized interest was $0.1 million and $0.1 million for the three and nine months ended September 30, 2024, respectively, and $0.2 million and $0.8 million for the three and nine months ended September 30, 2023, respectively.

Impairment of Long-Lived Assets

The carrying value of long-lived assets that are not expected to be recovered from future cash flows are written down to estimated fair value. We test long-lived assets for impairment when events or circumstances indicate that a long-lived asset’s carrying value may not be recoverable or will no longer be utilized within the operating fleet. The most common circumstance requiring compression units to be evaluated for impairment involves idle units that do not meet the desired performance characteristics of our revenue-generating horsepower.

The carrying value of a long-lived asset is not recoverable if the asset’s carrying value exceeds the sum of the undiscounted cash flows expected to be generated from the use and eventual disposition of the asset. If the carrying value of the long-lived asset exceeds the sum of the undiscounted cash flows associated with the asset, an impairment loss equal to the amount of the carrying value exceeding the fair value of the asset is recognized. The fair value of the asset is measured using quoted market prices or, in the absence of quoted market prices, based on an estimate of discounted cash flows, the expected net sale proceeds compared to the other similarly configured fleet units that we recently sold or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to continue using.

Refer to Note 5 for more detailed information about impairment charges during the three and nine months ended September 30, 2024 and 2023.

Identifiable Intangible Assets

Identifiable intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives, which is the period over which the assets are expected to contribute directly or indirectly to our future cash flows. The estimated useful lives of our intangible assets range from 15 to 25 years.

Revenue Recognition

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally, this occurs with the provision of services or the transfer of goods. Revenue is measured at the amount of consideration we expect to receive

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in exchange for providing services or transferring goods. Incidental items, if any, that are immaterial in the context of the contract are recognized as expenses.

Income Taxes

USA Compression Partners, LP is organized as a partnership for U.S. federal and state income tax purposes. As a result, our partners are responsible for U.S. federal and state income taxes on their distributive share of our items of income, gain, loss, or deduction. Net earnings for financial statement purposes may differ significantly from taxable income reportable to unitholders as a result of differences between the tax basis and financial reporting basis of assets and liabilities.

Texas also imposes an entity-level income tax on partnerships that is based on Texas-sourced taxable margin (the “Texas Margin Tax”). Texas Margin Tax impacts are included within our unaudited condensed consolidated financial statements. Our wholly owned finance subsidiary, USA Compression Finance Corp. (“Finance Corp”), is a corporation for U.S. federal and state income tax purposes and any resulting tax impacts attributable to Finance Corp are included within our unaudited condensed consolidated financial statements.

Pass-Through Taxes

Sales taxes incurred on behalf of, and passed through to, customers are accounted for on a net basis.

Fair-Value Measurements

Accounting standards applicable to fair-value measurements establish a framework for measuring fair value and stipulate disclosures about fair-value measurements. The standards apply to recurring and non-recurring financial and non-financial assets and liabilities that require or permit fair-value measurements. Among the required disclosures is the fair-value hierarchy of inputs we use to value an asset or a liability. The three levels of the fair-value hierarchy are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 inputs are those other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

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

As of September 30, 2024 and December 31, 2023, our financial instruments primarily consisted of cash and cash equivalents, trade accounts receivable, trade accounts payable, and long-term debt. As of December 31, 2023, our financial instruments also consisted of a derivative instrument. The book values of cash and cash equivalents, trade accounts receivable, and trade accounts payable are representative of fair value due to their short-term maturities. Our revolving credit facility applies floating interest rates to amounts drawn under the facility; therefore, the carrying amount of our revolving credit facility approximates its fair value.

The fair value of our Senior Notes 2026, Senior Notes 2027, and Senior Notes 2029 were estimated using quoted prices in inactive markets and are considered Level 2 measurements. The following table summarizes the aggregate principal amount and fair value of our Senior Notes 2026, Senior Notes 2027, and Senior Notes 2029 (in thousands):


	September 30, 2024		December 31, 2023
Senior Notes 2026, aggregate principal	$	—	$	725,000
Fair value of Senior Notes 2026	—		720,621
Senior Notes 2027, aggregate principal	750,000		750,000
Fair value of Senior Notes 2027	756,563		737,963
Senior Notes 2029, aggregate principal	1,000,000		—
Fair value of Senior Notes 2029	1,027,500		—

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The fair value of our derivative instrument, which was an interest-rate swap and is no longer outstanding as of September 30, 2024, was estimated based on inputs from actively quoted public markets, including interest-rate forward curves, and is considered a Level 2 measurement. We consider counterparty credit risk and our own credit risk in the determination of the estimated fair value. The following table summarizes the gross fair value of our interest-rate swap (in thousands):


	September 30, 2024		December 31, 2023
Interest-rate swap	$	—	$	1,204

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

Operating Segment

We operate in a single business segment, the compression services business.

(3) Trade Accounts Receivable

The allowance for credit losses, which was $2.3 million at both September 30, 2024 and December 31, 2023, represents our best estimate of the amount of probable credit losses included within our existing accounts receivable balance.

(4) Inventories

Components of inventories are as follows (in thousands):


	September 30, 2024		December 31, 2023
Serialized parts	$	81,479	$	59,901
Non-serialized parts	65,276		54,827
Total inventories	$	146,755	$	114,728

(5) Property and Equipment and Identifiable Intangible Assets

Property and Equipment

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


	September 30, 2024		December 31, 2023
Compression and treating equipment	$	4,098,294	$	3,902,115
Automobiles and vehicles	54,258		46,395
Computer equipment	35,430		33,456
Leasehold improvements	9,748		9,414
Buildings	3,935		3,464
Furniture and fixtures	950		868
Land	77		77
Total property and equipment, gross	4,202,692		3,995,789
Less: accumulated depreciation and amortization	(1,910,716)		(1,758,164)
Total property and equipment, net	$	2,291,976	$	2,237,625

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


Compression and treating equipment, acquired new			25 years
Compression and treating equipment, acquired used			5 - 25 years
Furniture and fixtures			3 - 10 years
Vehicles and computer equipment			1 - 10 years
Buildings			5 years
Leasehold improvements			5 years

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Depreciation expense	$	59,893	$	56,756	$	173,767	$	161,591
Loss (gain) on disposition of assets	(123)		(3,865)		1,113		(3,932)

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

For the nine months ended September 30, 2024, we retired two compression units representing approximately 1,300 of aggregate horsepower that previously were used to provide compression services in our business. As a result, we recorded an impairment of compression equipment of $0.3 million for the nine months ended September 30, 2024.

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

For the three and nine months ended September 30, 2023, we retired three and 42 compression units, respectively, representing approximately 2,100 and 37,700 of aggregate horsepower, respectively, that previously were used to provide compression services in our business. As a result, we recorded impairments of compression equipment of $0.9 million and $12.3 million for the three and nine months ended September 30, 2023, respectively.

The primary circumstances supporting these impairments 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.

Identifiable Intangible Assets

Identifiable intangible assets, net consisted of the following (in thousands):


	Customer Relationships		Trade Names		Total
Net balance as of December 31, 2023	$	224,639	$	21,013	$	245,652
Amortization expense	(19,578)		(2,456)		(22,034)
Net balance as of September 30, 2024	$	205,061	$	18,557	$	223,618

Accumulated amortization of intangible assets was $327.0 million and $305.0 million as of September 30, 2024 and December 31, 2023, respectively.

(6) Other Current Liabilities

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


	September 30, 2024		December 31, 2023
Accrued interest expense	$	9,104	$	31,960
Accrued unit-based compensation liability	29,703		21,896
Accrued capital expenditures	8,479		13,672
Accrued payroll and benefits	15,142		7,055
Accrued property taxes	9,441		3,729

(7) Derivative Instrument

As of December 31, 2023, we had an interest-rate swap outstanding to manage interest-rate risk associated with the floating-rate Credit Agreement. In August 2024, we elected to terminate the outstanding interest-rate swap. The interest-rate swap’s notional principal amount was $700 million and had an original termination date of December 31, 2025. Under the interest-rate swap, we paid a fixed interest rate of 3.9725% and received floating interest-rate payments that were indexed to the one-month SOFR.

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We did not apply hedge accounting to our previously outstanding derivative. Our derivative was carried on the unaudited condensed consolidated balance sheets at fair value and was classified as current or long-term depending on the expected timing of settlement, and gains and losses associated with the derivative instrument were recognized currently in gain (loss) on derivative instrument within the unaudited condensed consolidated statements of operations. Cash flows related to cash settlements for the periods presented were classified as operating activities within the unaudited condensed consolidated statements of cash flows.

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


	Assets				Liabilities
Balance Sheet Classification	September 30, 2024		December 31, 2023		September 30, 2024		December 31, 2023
Derivative instrument	$	—	$	5,670	$	—	$	—
Derivative instrument, long term	—		—		—		4,466

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


	Three Months Ended September 30,				Nine Months Ended September 30,
Income Statement Classification	2024		2023		2024		2023
Gain (loss) on derivative instrument	$	(6,218)	$	3,437	$	5,684	$	17,987

(8) Debt Obligations

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


	September 30, 2024		December 31, 2023
Senior Notes 2026, aggregate principal	$	—	$	725,000
Senior Notes 2027, aggregate principal	750,000		750,000
Senior Notes 2029, aggregate principal	1,000,000		—
Less: deferred financing costs, net of amortization	(20,813)		(10,725)
Total senior notes, net	1,729,187		1,464,275
Revolving credit facility	803,211		871,813
Total long-term debt, net	$	2,532,398	$	2,336,088

Revolving Credit Facility

The Credit Agreement matures on December 8, 2026. The Credit Agreement has an aggregate commitment of $1.6 billion (subject to availability under our borrowing base). The Partnership’s obligations under the Credit Agreement are guaranteed by the guarantors party to the Credit Agreement, which currently consists of all of the Partnership’s subsidiaries. In addition, under the Credit Agreement the Partnership’s Secured Obligations (as defined therein) are secured by: (i) substantially all of the Partnership’s assets and substantially all of the assets of the guarantors party to the Credit Agreement, excluding real property and other customary exclusions; and (ii) all of the equity interests of the Partnership’s U.S. restricted subsidiaries (subject to customary exceptions).

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. Our weighted-average interest rate in effect for all borrowings under the Credit Agreement for the nine months ended September 30, 2024, was 7.98%, and our weighted-average interest rate under the Credit Agreement as of September 30, 2024, was 7.50%. We pay an annualized commitment fee of 0.375% on the unused portion of the aggregate commitment.

The Credit Agreement permits us to make distributions of available cash to unitholders so long as (i) no default under the facility has occurred, is continuing, or would result from the distribution; (ii) immediately prior to and after giving effect to such distribution, we are in compliance with the facility’s financial covenants; and (iii) immediately prior to and after giving effect to such distribution, we have availability under the Credit Agreement of at least $100 million.

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The Credit Agreement also contains various financial covenants, including covenants requiring us to maintain:

•a minimum EBITDA to interest coverage ratio of 2.50 to 1.00, determined as of the last day of each fiscal quarter, with EBITDA and interest expense annualized for the most-recent fiscal quarter;

•a ratio of total secured indebtedness to EBITDA not greater than 3.00 to 1.00 or less than 0.00 to 1.00, determined as of the last day of each fiscal quarter, with EBITDA annualized for the most-recent fiscal quarter; and

•a maximum funded debt-to-EBITDA ratio, defined in the Credit Agreement as the Total Leverage Ratio, determined as of the last day of each fiscal quarter with EBITDA annualized for the most-recent fiscal quarter, of 5.25 to 1.00. In addition, the Partnership may increase the applicable ratio by 0.25 for any fiscal quarter during which a Specified Acquisition (as defined in the Credit Agreement) occurs and for the following two fiscal quarters, but in no event shall the maximum ratio exceed 5.50 to 1.00 for any fiscal quarter as a result of such increase.

As of September 30, 2024, we were in compliance with all of our covenants under the Credit Agreement. For purposes of the above covenants, EBITDA is calculated as set forth in the Credit Agreement.

The Credit Agreement is a “revolving credit facility” that includes a lockbox arrangement, whereby remittances from customers are made to a bank account controlled by the administrative agent. While we are not required by the terms of the Credit Agreement to use these customer remittances to reduce borrowings under the facility unless certain events of default occur under the Credit Agreement or unused availability under the facility is reduced below $70 million, we have in the past routinely applied such remittances to reduce borrowings under the facility.

Issuance of Senior Notes 2029

On March 18, 2024, the Partnership and Finance Corp co-issued the Senior Notes 2029, a $1.0 billion aggregate principal amount of senior notes that will mature on March 15, 2029. The Senior Notes 2029 accrue interest from March 18, 2024 at the rate of 7.125% per year. Interest on the Senior Notes 2029 is payable semi-annually in arrears on each of March 15 and September 15, commencing on September 15, 2024.

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

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

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


Year	Percentages
2026	103.563	%
2027	101.781	%
2028 and thereafter	100.000	%

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

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

The indenture governing the Senior Notes 2029 (the “2029 Indenture”) contains certain financial covenants that we must comply with in order to make certain restricted payments as described in the 2029 Indenture. As of September 30, 2024, we were in compliance with such financial covenants under the 2029 Indenture.

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The Senior Notes 2029 are fully and unconditionally guaranteed (the “2029 Guarantees”), jointly and severally, on a senior unsecured basis by all of our existing subsidiaries (other than Finance Corp), and will be fully and unconditionally guaranteed, jointly and severally, by each of our future restricted subsidiaries that either borrows under, or guarantees, the Credit Agreement or guarantees certain of our other indebtedness (collectively, the “Guarantors”). The Senior Notes 2029 and the 2029 Guarantees are general unsecured obligations and rank equally in right of payment with all of the Guarantors’, Finance Corp’s, and our existing and future senior indebtedness and senior to the Guarantors’, Finance Corp’s, and our future subordinated indebtedness, if any. The Senior Notes 2029 and the 2029 Guarantees effectively are subordinated in right of payment to all of the Guarantors’, Finance Corp’s, and our existing and future secured debt, including debt under the Credit Agreement and guarantees thereof, to the extent of the value of the assets securing such debt, and are structurally subordinate to all indebtedness of any of our subsidiaries that do not guarantee the Senior Notes 2029.

Redemption of Senior Notes 2026

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

The Defeasance required a cash outlay in the net amount of $748.8 million, which was used to purchase U.S. government securities. These securities generated sufficient cash upon maturity to fund interest payments on the Senior Notes 2026 occurring between the effective date of the Defeasance through April 4, 2024, when the Senior Notes 2026 were redeemed at par, as well as fund the redemption of the Senior Notes 2026 in full. As a result of the Defeasance, we recognized a loss on early extinguishment of debt of $5.0 million for the nine months ended September 30, 2024, which represents the write-off of deferred financing costs of $4.3 million and the difference between (i) the purchase price of U.S. government securities of $748.8 million and (ii) the aggregate outstanding principal balance and accrued interest of the Senior Notes 2026 of $748.1 million at the time of Defeasance.

Senior Notes 2027

On March 7, 2019, the Partnership and Finance Corp co-issued the Senior Notes 2027. The Senior Notes 2027 mature on September 1, 2027, and accrue interest at the rate of 6.875% per year. Interest on the Senior Notes 2027 is payable semi-annually in arrears on each of March 1 and September 1.

The indenture governing the Senior Notes 2027 (the “2027 Indenture”) contains certain financial covenants that we must comply with in order to make certain restricted payments as described in the 2027 Indenture. As of September 30, 2024, we were in compliance with such financial covenants under the 2027 Indenture.

The Senior Notes 2027 are fully and unconditionally guaranteed (the “2027 Guarantees”), jointly and severally, on a senior unsecured basis by the Guarantors. The Senior Notes 2027 and the 2027 Guarantees are general unsecured obligations and rank equally in right of payment with all of the Guarantors’, Finance Corp’s, and our existing and future senior indebtedness and senior to the Guarantors’, Finance Corp’s, and our future subordinated indebtedness, if any. The Senior Notes 2027 and the 2027 Guarantees effectively are subordinated in right of payment to all of the Guarantors’, Finance Corp’s, and our existing and future secured debt, including debt under the Credit Agreement and guarantees thereof, to the extent of the value of the assets securing such debt, and are structurally subordinate to all indebtedness of any of our subsidiaries that do not guarantee the Senior Notes 2027.

We have no assets or operations independent of our subsidiaries, and there are no significant restrictions on our ability to obtain funds from our subsidiaries by dividend or loan. Each of the Guarantors is 100% owned by us. None of the assets of our subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act of 1933, as amended.

(9) Preferred Units

The Preferred Units have a face value of $1,000 and rank senior to our common units with respect to distributions and liquidation rights. The holders of the Preferred Units are entitled to receive cumulative quarterly cash distributions equal to $24.375 per Preferred Unit.

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The change in Preferred Units outstanding was as follows:


			Preferred Units Outstanding
Number of Preferred Units outstanding, December 31, 2023			500,000
Exercise and conversion of Preferred Units into common units			(320,000)
Number of Preferred Units outstanding, September 30, 2024			180,000

Redemption and Conversion Features

The Preferred Units are convertible, at the option of the holder, into common units in accordance with the terms of our Second Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”). The conversion rate for the Preferred Units is the quotient of (i) the sum of (a) $1,000, plus (b) any unpaid cash distributions on the applicable Preferred Unit, divided by (ii) $20.0115 for each Preferred Unit.

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

January 2024 Conversion

On January 12, 2024, the holders of the Preferred Units elected to convert 40,000 Preferred Units into 1,998,850 common units. These Preferred Units were converted into common units and, for our fourth-quarter 2023 distribution, the holders received the common unit distribution of $0.525 on the 1,998,850 common units in lieu of the Preferred Unit distribution of $24.375 on the converted 40,000 Preferred Units.

April 2024 Conversion

On April 1, 2024, the holders of the Preferred Units elected to convert 280,000 Preferred Units into 13,991,954 common units. These Preferred Units were converted into common units and, for our first-quarter 2024 distribution, the holders received the common unit distribution of $0.525 on the 13,991,954 common units in lieu of the Preferred Unit distribution of $24.375 on the converted 280,000 Preferred Units.

Cash Distributions

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


Payment Date	Distribution per Preferred Unit
February 3, 2023	$	24.375
May 5, 2023	24.375
August 4, 2023	24.375
November 3, 2023	24.375
Total 2023 distributions	$	97.50

February 2, 2024	$	24.375
May 3, 2024	24.375
August 2, 2024	24.375
Total 2024 distributions	$	73.125

Announced Quarterly Distribution

On October 10, 2024, we declared a cash distribution of $24.375 per unit on our Preferred Units. The distribution was paid on November 1, 2024, to the holders of the Preferred Units of record as of the close of business on October 21, 2024.

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


	Preferred Units
Balance as of December 31, 2023	$	476,334
Cash distributions on Preferred Units	(19,988)
Exercise and conversion of Preferred Units into common units	(300,700)
Net income allocated to Preferred Units	13,163
Balance as of September 30, 2024	$	168,809

(10) Partners’ Deficit

Common Units

The changes in common units outstanding were as follows:


			Common Units Outstanding
Number of common units outstanding, December 31, 2023			100,986,011

Issuance of common units under the DRIP			46,018
Exercise and conversion of Preferred Units into common units			15,990,804
Number of common units outstanding, September 30, 2024			117,022,833

As of September 30, 2024, Energy Transfer held 46,056,228 common units, including 8,000,000 common units held by the General Partner and controlled by Energy Transfer.

Cash Distributions

We have declared and paid per-unit quarterly distributions to our limited partner unitholders of record, including holders of our common and phantom units, as follows (dollars in millions, except distribution per unit):


Payment Date	Distribution per Limited Partner Unit		Amount Paid to Common Unitholders		Amount Paid to Phantom Unitholders		Total Distribution
February 3, 2023	$	0.525	$	51.6	$	1.1	$	52.7
May 5, 2023	0.525		51.6		1.1		52.7
August 4, 2023	0.525		51.6		1.2		52.8
November 3, 2023	0.525		51.6		1.1		52.7
Total 2023 distributions	$	2.10	$	206.4	$	4.5	$	210.9

February 2, 2024	$	0.525	$	54.1	$	1.0	$	55.1
May 3, 2024	0.525		61.4		1.0		62.4
August 2, 2024	0.525		61.4		1.0		62.4
Total 2024 distributions	$	1.575	$	176.9	$	3.0	$	179.9

Announced Quarterly Distribution

On October 10, 2024, we announced a cash distribution of $0.525 per unit on our common units. The distribution was paid on November 1, 2024, to common unitholders of record as of the close of business on October 21, 2024.

DRIP

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.

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Income Per Unit

The computation of income per unit is based on the weighted-average number of participating securities, which includes our common units and certain equity-based awards outstanding during the applicable period. Basic income per unit is determined by dividing net income allocated to participating securities after deducting the amount distributed on Preferred Units, by the weighted-average number of participating securities outstanding during the period. Income attributable to unitholders is allocated to participating securities based on their respective shares of the distributed and undistributed earnings for the period. To the extent cash distributions exceed net income attributable to unitholders for the period, the excess distributions are allocated to all participating securities outstanding based on their respective ownership percentages.

Diluted income per unit is computed using the treasury stock method, which considers the potential issuance of limited partner units associated with our long-term incentive plan and warrants. Unvested phantom units and unexercised warrants are not included in basic income per unit, as they are not considered to be participating securities, but are included in the calculation of diluted income per unit to the extent they are dilutive, and in the case of warrants to the extent they are considered “in the money.”

For the three and nine months ended September 30, 2024, approximately 1,239,000 and 1,145,000 incremental unvested phantom units, respectively, represent the difference between our basic and diluted weighted-average common units outstanding.

For the three months ended September 30, 2023, approximately 1,316,000 and 655,000 incremental unvested phantom units and “in the money” then-outstanding warrants, respectively, represent the difference between our basic and diluted weighted-average common units outstanding. For the nine months ended September 30, 2023, approximately 1,185,000 and 460,000 incremental unvested phantom units and “in the money” then-outstanding warrants, respectively, represent the difference between our basic and diluted weighted-average common units outstanding.

(11) Revenue Recognition

Disaggregation of Revenue

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Contract operations revenue	$	233,919	$	209,841	$	686,790	$	605,386
Retail parts and services revenue	6,049		7,244		17,767		15,743
Total revenues	$	239,968	$	217,085	$	704,557	$	621,129

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Services provided over time:
Primary term	$	203,887	$	161,293	$	593,075	$	466,763
Month-to-month	30,032		48,548		93,715		138,623
Total services provided over time	233,919		209,841		686,790		605,386
Services provided or goods transferred at a point in time	6,049		7,244		17,767		15,743
Total revenues	$	239,968	$	217,085	$	704,557	$	621,129

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Deferred Revenue

We record deferred revenue when cash payments are received or due in advance of our performance. Components of deferred revenue were as follows (in thousands):


	Balance sheet location	September 30, 2024		December 31, 2023
Current (1)	Deferred revenue	$	67,896	$	62,589
Noncurrent	Other liabilities	7,268		6,000
Total		$	75,164	$	68,589

________________________________

(1)We recognized $1.3 million and $60.4 million of revenue during the three and nine months ended September 30, 2024, respectively, related to our deferred revenue balance as of December 31, 2023.

Performance Obligations

As of September 30, 2024, the aggregate amount of transaction price allocated to unsatisfied performance obligations related to our contract operations revenue was $1.2 billion. We expect to recognize these remaining performance obligations as follows (in thousands):


	2024 (remainder)		2025		2026		2027		Thereafter		Total
Remaining performance obligations	$	194,903	$	510,378	$	285,849	$	157,956	$	74,582	$	1,223,668

(12) Transactions with Related Parties

We provide natural gas compression and treating services to entities affiliated with Energy Transfer, which as of September 30, 2024, owned approximately 39% of our limited partner interests and 100% of the General Partner.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Related-party revenues	$	13,694	$	5,216	$	25,249	$	15,759

We had approximately $7.2 million and $0 of related-party receivables on our unaudited condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively, from those entities affiliated with Energy Transfer.

(13) Commitments and Contingencies

(a)Major Customers

One customer accounted for approximately 12% of total revenues for the three and nine months ended September 30, 2024, respectively, and 11% of total revenues for the three and nine months ended September 30, 2023, respectively.

(b)Litigation

From time to time, we and our subsidiaries may be involved in various claims and litigation arising in the ordinary course of business. In management’s opinion, the resolution of such matters is not expected to have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

(c)Tax Contingencies

Our compliance with state and local sales tax regulations is subject to audit by various taxing authorities. Certain taxing authorities have either claimed or issued an assessment that specific operational processes, which we and others in our industry regularly conduct, result in transactions that are subject to state sales taxes. We and others in our industry have disputed these claims and assessments based on either existing tax statutes or published guidance by the taxing authorities.

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We currently are protesting certain assessments made by the Oklahoma Tax Commission (“OTC”). In August 2024, the administrative law judge (“ALJ”) assigned by the OTC accepted our position that the transactions are not taxable. The OTC subsequently requested a motion for reconsideration, which was denied by the ALJ. The OTC has requested an “en banc” hearing from the OTC Commissioners, which request is pending. The OTC also has other legal options to challenge this decision, accordingly a final resolution remains pending. If we ultimately lose the current and all subsequent legal challenges, we estimate that the range of losses we could incur is from $0 to approximately $30.3 million, including penalties and interest.

Our U.S. federal income tax returns for the years 2019 and 2020 currently are under examination by the Internal Revenue Service (“IRS”). The IRS has issued preliminary partnership examination changes, along with imputed underpayment computations, for the 2019 and 2020 tax years. Under the Bipartisan Budget Act of 2015, there are several procedural steps, including an appeals process, to complete before a final imputed underpayment, if any, is determined. Based on discussions with the IRS, we estimate a potential range of loss from a final imputed underpayment of $0 to approximately $28.0 million, including interest, for potential adjustments resulting from the IRS examinations. Once a final partnership imputed underpayment, if any, is determined, our General Partner may elect to either pay the imputed underpayment (including any applicable penalties and interest) directly to the IRS or, if eligible, issue a revised information statement to each unitholder, and former unitholder, with respect to an audited and adjusted return.

(d)Environmental

Our operations are subject to federal, state, and local laws, rules, and regulations regarding water quality, hazardous and solid waste management, air quality control, and other environmental matters. These laws, rules, and regulations require that we conduct our operations in a specified manner and to obtain and comply with a wide variety of environmental registrations, licenses, permits, inspections, and other approvals. Failure to comply with applicable environmental laws, rules, and regulations may expose us to significant fines, penalties, and/or interruptions in operations. Our environmental policies and procedures are designed to achieve compliance with such applicable laws, rules, and regulations. These evolving laws, rules, and regulations, and claims for damages to property, employees, other persons, and the environment resulting from current or past operations may result in significant expenditures and liabilities in the future.

(14) Recent Accounting Pronouncements

In December 2023, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 improves and enhances income tax disclosure requirements, including new disclosures related to tax rate reconciliation and income taxes paid. The amendments in this update are effective for annual periods beginning after December 15, 2024, and interim periods within annual periods beginning after December 15, 2025, with early adoption permitted. ASU 2023-09 is to be applied on a prospective basis, with retrospective application permitted. We are currently evaluating the impact, if any, of the amendments to ASU 2023-09 on our consolidated financial statements and related disclosures.

In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 improves and enhances reportable segment disclosure requirements, including new disclosures related to significant segment expenses. The amendments in this update are effective for annual periods beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 is to be applied on a retrospective basis. ASU 2023-07 will require additional disclosures in the notes to our consolidated financial statements.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

USA Compression Partners, LP (the “Partnership”) is a Delaware limited partnership that operates as one of the nation’s largest independent providers of natural gas compression services in terms of total compression fleet horsepower. We are managed by our general partner, USA Compression GP, LLC (the “General Partner”), which is wholly owned by Energy Transfer. All references in this section to the Partnership, as well as the terms “our,” “we,” “us,” and “its” refer to USA Compression Partners, LP, together with its consolidated subsidiaries, unless the context otherwise requires or where otherwise indicated.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements.” All statements other than statements of historical fact contained in this report are forward-looking statements, including, without limitation, statements regarding our plans, strategies, prospects, and expectations concerning our business, results of operations, and financial condition. 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. 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;

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

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

•renegotiation of material terms of customer contracts;

•actions taken by our customers, competitors, and third-party operators;

•operating hazards, natural disasters, epidemics, pandemics, weather-related impacts, casualty losses, and other matters beyond our control;

•the deterioration of the financial condition of our customers, which may result in the initiation of bankruptcy proceedings with respect to certain customers;

•the restrictions on our business that are imposed under our long-term debt agreements;

•information technology risks including the risk from cyberattacks, cybersecurity breaches, and other disruptions to our information systems;

•the effects of existing and future laws and governmental regulations; and

•the effects of future litigation.

New factors emerge from time to time, and it is not possible for us to predict or anticipate all factors that could affect results reflected in the forward-looking statements contained herein. Should one or more of the risks or uncertainties described in this Quarterly Report on Form 10-Q occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements included in this report are based on information available to us as of the date of this report and speak only as of the date of this report. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements.

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Operating Highlights

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
Fleet horsepower (at period end) (1)	3,862,445			3,735,490			3.4	%	3,862,445			3,735,490			3.4	%
Total available horsepower (at period end) (2)	3,867,621			3,836,120			0.8	%	3,867,621			3,836,120			0.8	%
Revenue-generating horsepower (at period end) (3)	3,570,508			3,395,630			5.2	%	3,570,508			3,395,630			5.2	%
Average revenue-generating horsepower (4)	3,560,891			3,356,008			6.1	%	3,516,460			3,302,354			6.5	%
Average revenue per revenue-generating horsepower per month (5)	$	20.60		$	19.10		7.9	%	$	20.28		$	18.65		8.7	%
Revenue-generating compression units (at period end)	4,270			4,251			0.4	%	4,270			4,251			0.4	%
Average horsepower per revenue-generating compression unit (6)	834			795			4.9	%	827			787			5.1	%
Horsepower utilization (7):
At period end	94.4		%	93.9		%	0.5	%	94.4		%	93.9		%	0.5	%
Average for the period (8)	94.6		%	93.6		%	1.0	%	94.7		%	93.2		%	1.5	%

________________________________

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

(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. Total available horsepower excludes new horsepower expected to be delivered for which we do not have an executed compression services contract.

(3)Revenue-generating horsepower is horsepower under contract for which we are billing a customer.

(4)Calculated as the average of the month-end revenue-generating horsepower for each of the months in the period.

(5)Calculated as the average of the result of dividing the contractual monthly rate, excluding standby or other temporary rates, for all units at the end of each month in the period by the sum of the revenue-generating horsepower at the end of each month in the period.

(6)Calculated as the average of the month-end revenue-generating horsepower per revenue-generating compression unit for each of the months in the period.

(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.

(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.

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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)
Revenues:
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)	%

________________________________

*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.

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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.

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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):


	Nine Months Ended September 30,				Increase
	2024		2023		(Decrease)
Revenues:
Contract operations	$	662,265	$	590,237	12.2	%
Parts and service	17,043		15,133		12.6	%
Related party	25,249		15,759		60.2	%
Total revenues	704,557		621,129		13.4	%
Costs and expenses:
Cost of operations, exclusive of depreciation and amortization	235,048		211,515		11.1	%
Depreciation and amortization	195,801		183,626		6.6	%
Selling, general, and administrative	52,364		54,136		(3.3)	%
Loss (gain) on disposition of assets	1,113		(3,932)		*
Impairment of compression equipment	311		12,346		*
Total costs and expenses	484,637		457,691		5.9	%
Operating income	219,920		163,438		34.6	%
Other income (expense):
Interest expense, net	(144,855)		(125,092)		15.8	%
Loss on debt extinguishment	(4,966)		—		*
Gain on derivative instrument	5,684		17,987		(68.4)	%
Other	83		104		(20.2)	%
Total other expense	(144,054)		(107,001)		34.6	%
Net income before income tax expense	75,866		56,437		34.4	%
Income tax expense	1,728		1,010		71.1	%
Net income	$	74,138	$	55,427	33.8	%

________________________________

*Not meaningful

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.

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. 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 $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

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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 $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 $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 $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: (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 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 $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 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. 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.

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.

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Other Financial Data

The following table summarizes other financial data for the periods presented (dollars in thousands):


Other Financial Data: (1)	Three Months Ended 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	%
Adjusted gross margin	$	158,154		$	142,157		11.3	%	$	469,509		$	409,614		14.6	%
Adjusted gross margin percentage (2)	65.9		%	65.5		%	0.4	%	66.6		%	65.9		%	0.7	%
Adjusted EBITDA	$	145,690		$	130,164		11.9	%	$	428,758		$	373,323		14.8	%
Adjusted EBITDA percentage (2)	60.7		%	60.0		%	0.7	%	60.9		%	60.1		%	0.8	%
DCF	$	86,606		$	71,574		21.0	%	$	259,058		$	201,225		28.7	%
DCF Coverage Ratio	1.41		x	1.39		x	1.4	%	1.41		x	1.30		x	8.5	%

________________________________

(1)Adjusted gross margin, Adjusted EBITDA, Distributable Cash Flow (“DCF”), and DCF Coverage Ratio are all non-GAAP financial measures. Definitions of each measure, as well as reconciliations of each measure to its most directly comparable financial measure(s) calculated and presented in accordance with GAAP, can be found below under the caption “Non-GAAP Financial Measures”.

(2)Adjusted gross margin percentage and Adjusted EBITDA percentage are calculated as a percentage of revenue.

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.

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.

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.

DCF. 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

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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 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

Overview

We operate in a capital-intensive industry, and our primary liquidity needs include financing the purchase of additional compression units, making other capital expenditures, servicing our debt, funding working capital, and paying cash distributions on our outstanding preferred and common equity. Our principal sources of liquidity include cash generated by operating activities, borrowings under the Credit Agreement, and issuances of debt and equity securities, including common units under the DRIP.

We believe cash generated by operating activities and, where necessary, borrowings under the Credit Agreement will be sufficient to service our debt, fund working capital, fund our estimated expansion capital expenditures, fund our maintenance capital expenditures, and pay distributions to our unitholders for the next 12 months.

Because we distribute all of our available cash, which excludes prudent operating reserves, we expect to fund any future expansion capital expenditures or acquisitions primarily with capital from external financing sources, such as borrowings under the Credit Agreement and issuances of debt and equity securities, including under the DRIP.

Capital Expenditures

The compression services business is capital intensive, requiring significant investment to maintain, expand, and upgrade existing operations. Our capital requirements primarily have consisted of, and we anticipate that our capital requirements will continue primarily to consist of, the following:

•maintenance capital expenditures, which are capital expenditures made to maintain the operating capacity of our assets and extend their useful lives, to replace partially or fully depreciated assets, or other capital expenditures that are incurred in maintaining our existing business and related operating income; and

•expansion capital expenditures, which are capital expenditures made to expand the operating capacity or operating-income capacity of assets, including by acquisition of compression units or through modification of existing compression units to increase their capacity, or to replace certain partially or fully depreciated assets that at the time of replacement were not generating operating income.

We classify capital expenditures as maintenance or expansion on an individual-asset basis. 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. 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 nine months ended September 30, 2024 and 2023, were $205.9 million and $185.3 million, respectively.

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Cash Flows

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,
	2024		2023
Net cash provided by operating activities	$	211,139	$	180,281
Net cash used in investing activities	(175,094)		(153,391)
Net cash used in financing activities	(35,977)		(26,919)

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.

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.

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.

Revolving Credit Facility

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.

Senior Notes

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.

The Senior Notes 2027 are due on September 1, 2027, and accrue interest at the rate of 6.875% per year. Interest on the Senior Notes 2027 is payable semi-annually in arrears on each of March 1 and September 1.

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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.

DRIP

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.

Non-GAAP Financial Measures

Adjusted Gross Margin

Adjusted gross margin is a non-GAAP financial measure. We define Adjusted gross margin as revenue less cost of operations, exclusive of depreciation and amortization expense. We believe Adjusted gross margin is useful to investors as a supplemental measure of our operating profitability. 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. Adjusted gross margin should not be considered an alternative to, or more meaningful than, gross margin or any other measure presented in accordance with GAAP. Moreover, our Adjusted gross margin, as presented, may not be comparable to similarly titled measures of other companies. Because we capitalize assets, depreciation and amortization of equipment is a necessary element of our cost structure. To compensate for the limitations of Adjusted gross margin as a measure of our performance, we believe it is important to consider gross margin determined under GAAP, as well as Adjusted gross margin, to evaluate our operating profitability.

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
Total revenues	$	239,968	$	217,085	$	704,557	$	621,129
Cost of operations, exclusive of depreciation and amortization	(81,814)		(74,928)		(235,048)		(211,515)
Depreciation and amortization	(67,237)		(64,101)		(195,801)		(183,626)
Gross margin	$	90,917	$	78,056	$	273,708	$	225,988
Depreciation and amortization	67,237		64,101		195,801		183,626
Adjusted gross margin	$	158,154	$	142,157	$	469,509	$	409,614

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Adjusted EBITDA

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 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. Adjusted EBITDA is used as a supplemental financial measure by our management and external users of our financial statements, such as investors and commercial banks, to assess:

•the financial performance of our assets without regard to the impact of financing methods, capital structure, or the historical cost basis of our assets;

•the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;

•the ability of our assets to generate cash sufficient to make debt payments and pay distributions; and

•our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods and capital structure.

We believe Adjusted EBITDA provides useful information to investors because, when viewed in conjunction with our GAAP results and the accompanying reconciliations, it may provide a more complete assessment of our performance as compared to considering solely GAAP results. We also believe that external users of our financial statements benefit from having access to the same financial measures that management uses to evaluate the results of our business.

Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income (loss), operating income (loss), cash flows from operating activities, or any other measure presented in accordance with GAAP. 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. Unit-based compensation expense related to equity awards granted to employees also is a meaningful business expense. Therefore, measures that exclude these cost elements have material limitations. To compensate for these limitations, we believe that it is important to consider net income (loss) and net cash provided by operating activities as determined under GAAP, as well as Adjusted EBITDA, to evaluate our financial performance and liquidity. Our Adjusted EBITDA excludes some, but not all, items that affect net income (loss) and net cash provided by operating activities, and these excluded items may vary among companies. Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing comparable GAAP measures, understanding the differences between the measures, and incorporating this knowledge into their decision making.

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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
Net income	$	19,327	$	20,902	$	74,138	$	55,427
Interest expense, net	49,361		43,257		144,855		125,092
Depreciation and amortization	67,237		64,101		195,801		183,626
Income tax expense	793		255		1,728		1,010
EBITDA	$	136,718	$	128,515	$	416,522	$	365,155
Unit-based compensation expense (1)	2,669		8,024		11,000		17,652
Transaction expenses (2)	(15)		—		156		—
Severance charges	223		45		374		89
Loss (gain) on disposition of assets	(123)		(3,865)		1,113		(3,932)
Loss on extinguishment of debt (3)	—		—		4,966		—
Loss (gain) on derivative instrument	6,218		(3,437)		(5,684)		(17,987)
Impairment of compression equipment (4)	—		882		311		12,346
Adjusted EBITDA	$	145,690	$	130,164	$	428,758	$	373,323
Interest expense, net	(49,361)		(43,257)		(144,855)		(125,092)
Non-cash interest expense	2,251		1,819		6,503		5,460
Income tax expense	(793)		(255)		(1,728)		(1,010)
Transaction expenses	15		—		(156)		—
Severance charges	(223)		(45)		(374)		(89)
Cash received on derivative instrument	2,000		2,528		6,888		3,744
Other	330		(65)		427		(46)
Changes in operating assets and liabilities	(51,428)		(40,817)		(84,324)		(76,009)
Net cash provided by operating activities	$	48,481	$	50,072	$	211,139	$	180,281

________________________________

(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.

(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)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.

(4)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.

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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 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.

DCF should not be considered an alternative to, or more meaningful than, net income (loss), operating income (loss), cash flows from operating activities, or any other measure presented in accordance with GAAP. 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. Unit-based compensation expense related to equity awards granted to employees also is a meaningful business expense. Therefore, measures that exclude these cost elements have material limitations. To compensate for these limitations, we believe that it is important to consider net income (loss) and net cash provided by operating activities as determined under GAAP, as well as DCF, to evaluate our financial performance and liquidity. Our DCF excludes some, but not all, items that affect net income (loss) and net cash provided by operating activities, and these excluded items may vary among companies. Management compensates for the limitations of DCF as an analytical tool by reviewing comparable GAAP measures, understanding the differences between the measures, and incorporating this knowledge into their decision making.

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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
Net income	$	19,327	$	20,902	$	74,138	$	55,427
Non-cash interest expense	2,251		1,819		6,503		5,460
Depreciation and amortization	67,237		64,101		195,801		183,626
Non-cash income tax expense	330		(65)		427		(46)
Unit-based compensation expense (1)	2,669		8,024		11,000		17,652
Transaction expenses (2)	(15)		—		156		—
Severance charges	223		45		374		89
Loss (gain) on disposition of assets	(123)		(3,865)		1,113		(3,932)
Loss on extinguishment of debt (3)	—		—		4,966		—
Change in fair value of derivative instrument	8,218		(909)		1,204		(14,243)
Impairment of compression equipment (4)	—		882		311		12,346
Distributions on Preferred Units (5)	(4,388)		(12,188)		(13,163)		(36,563)

Maintenance capital expenditures (6)	(9,123)		(7,172)		(23,772)		(18,591)
DCF	$	86,606	$	71,574	$	259,058	$	201,225
Maintenance capital expenditures	9,123		7,172		23,772		18,591
Transaction expenses	15		—		(156)		—
Severance charges	(223)		(45)		(374)		(89)
Distributions on Preferred Units	4,388		12,188		13,163		36,563

Changes in operating assets and liabilities	(51,428)		(40,817)		(84,324)		(76,009)
Net cash provided by operating activities	$	48,481	$	50,072	$	211,139	$	180,281

________________________________

(2)Represents certain expenses related to potential and completed transactions and other items. We believe it is useful to investors to exclude these expenses.

(4)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.

(6)Reflects actual maintenance capital expenditures for the period presented. Maintenance capital expenditures are capital expenditures made to maintain the operating capacity of our assets and extend their useful lives, replace partially or fully depreciated assets, or other capital expenditures that are incurred in maintaining our existing business and related cash flow.

DCF Coverage Ratio

DCF Coverage Ratio is defined as the period’s DCF divided by distributions declared to common unitholders in respect of such period. We believe DCF Coverage Ratio is an important measure of operating performance because it permits management, investors, and others to assess our ability to pay distributions to common unitholders out of the cash flows that we generate. Our DCF Coverage Ratio, as presented, may not be comparable to similarly titled measures of other companies.

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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
DCF	$	86,606		$	71,574		$	259,058		$	201,225

Distributions for DCF Coverage Ratio (1)	$	61,437		$	51,608		$	184,288		$	154,789





DCF Coverage Ratio	1.41		x	1.39		x	1.41		x	1.30		x

________________________________

(1)Represents distributions to the holders of our common units as of the record date.

Critical Accounting Estimates

The Partnership’s critical accounting estimates are described in Part II, Item 7 “Critical Accounting Estimates” of our 2023 Annual Report. There have been no material changes to our critical accounting estimates since the date of our 2023 Annual Report.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices. We do not take title to any natural gas or crude oil in connection with our rendered services, and accordingly, we do not bear direct exposure to fluctuating commodity prices. However, the demand for our compression services depends on the continued demand for, and production of, natural gas and crude oil. Sustained low natural gas or crude oil prices over the long term could result in a decline in the production of natural gas or crude oil, which could result in reduced demand for our compression services. We do not intend to hedge our indirect exposure to fluctuating commodity prices. A one percent decrease in average revenue-generating horsepower during the nine months ended September 30, 2024 would result in an annual decrease of approximately $8.6 million and $5.7 million in our revenue and Adjusted gross margin, respectively. Adjusted gross margin is a non-GAAP financial measure. For a reconciliation of Adjusted gross margin to gross margin, its most directly comparable financial measure, calculated and presented in accordance with GAAP, please read Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” of this report.

Interest Rate Risk

We are exposed to market risk due to variable interest rates under the Credit Agreement.

As of September 30, 2024, we had $803.2 million of variable-rate indebtedness outstanding at a weighted-average interest rate of 7.50%. Based on our September 30, 2024 variable-rate indebtedness outstanding, a one percent increase or decrease, respectively, in the effective interest rate would result in an annual increase or decrease, respectively, in our interest expense of approximately $8.0 million.

For further information regarding our exposure to interest rate fluctuations on our debt obligations, see Note 8 to our unaudited condensed consolidated financial statements under Part I, Item 1 “Financial Statements” of this report.

In August 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.

Credit Risk

Our credit exposure generally relates to receivables for services provided. If any significant customer of ours should have credit or financial problems resulting in a delay or failure to pay the amount it owes us, it could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

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ITEM 4. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Based on the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2024, at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time, we and our subsidiaries may be involved in various claims, proceedings, and litigation arising in the ordinary course of business. In management’s opinion, the resolution of such matters is not expected to have a material adverse effect on our consolidated financial position, results of operations, or cash flows. See “Tax Contingencies” in Note 13 to our unaudited condensed consolidated financial statements in Part I, Item 1 “Financial Statements” of this report for more information on certain of these proceedings.

ITEM 1A. Risk Factors

Security holders and potential investors in our securities should carefully consider the risk factors set forth in Part I, Item 1A “Risk Factors” of our 2023 Annual Report, and in subsequent filings we make with the SEC. We have identified these risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by us or on our behalf.

ITEM 5. Other Information

In connection with our recent announcement of the implementation of an Energy Transfer LP shared services model, including with respect to Human Resources, and the impact of such announcement on his current role, Sean T. Kimble, our Vice President, Human Resources, and the Partnership mutually determined that it would be in the best interest of the Partnership and Mr. Kimble to terminate his employment with the Partnership. As such, on October 31, 2024, the Partnership issued a letter, pursuant to Section 6(b) of his employment agreement with a subsidiary of our General Partner, dated July 1, 2016 (the “Kimble Employment Agreement”) informing Mr. Kimble that his employment was being terminated effective as of December 6, 2024. In that letter, the Partnership expressed its appreciation to Mr. Kimble for his years of dedicated service and significant contributions to the Partnership and wished him well in his future endeavors.

In connection with Mr. Kimble’s departure, Mr. Kimble and the Partnership intend to enter into a Restrictive Covenant and Separation Agreement and Full Release of Claims (the “Kimble Separation Agreement”). The Kimble Separation Agreement will become effective after execution and the expiration of a seven (7) day revocation period. The Kimble Separation Agreement will provide for the following: (i) a separation payment of $972,088 (the “Separation Payment”), less all required governmental payroll deductions and withholdings, which amount primarily consists of amounts owed to Mr. Kimble pursuant to the Kimble Employment Agreement; (ii) earned but unused paid time off as of December 6, 2024; and (iii) a lump-sum payment equal to the full cost of the premium for twenty-four (24) months of health insurance coverage under the Partnership’s health insurance plan.

The Kimble Separation Agreement will include, among other things, (i) a standard release of claims in favor of our General Partner, its parent entities, specifically including Energy Transfer, and their respective past and present subsidiaries, affiliates, partners, directors, officers, owners, shareholders, employees, benefit plans, benefit plan fiduciaries, predecessors, joint employers, successor employers and agents; (ii) a restrictive covenant provision whereby Mr. Kimble acknowledges obligations with respect to competition and solicitation of customers and employees; (iii) a mutual non-disparagement clause (applicable to officers and directors of the General Partner); (iv) a confirmation and acknowledgement by Mr. Kimble of his obligations with respect to proprietary and confidential information; and (v) a (24) twenty-four-month cooperation clause.

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ITEM 6. Exhibits

The following documents are filed, furnished, or incorporated by reference as part of this report:


Exhibit Number						Description
3.1						Certificate of Limited Partnership of USA Compression Partners, LP (incorporated by reference to Exhibit 3.1 to Amendment No. 3 of the Partnership’s registration statement on Form S-1 (Registration No. 333-174803) filed on December 21, 2011)
3.2						Second Amended and Restated Agreement of Limited Partnership of USA Compression Partners, LP (incorporated by reference to Exhibit 3.1 to the Partnership’s Current Report on Form 8-K (File No. 001-35779) filed on April 6, 2018)
22.1						List of Subsidiary Guarantors and Co-Issuer (incorporated by reference to Exhibit 22.1 to the Partnership's Quarterly Report on Form 10-Q (File No. 001-35779) filed on May 7, 2024)
31.1*						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*						Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1#						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2#						Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.1*						The following materials from USA Compression Partners, LP’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2024, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) our unaudited condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, (ii) our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023, (iii) our unaudited condensed consolidated statements of changes in partners’ capital (deficit) for the nine months ended September 30, 2024 and 2023, (iv) our unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023, and (v) the related notes to our unaudited condensed consolidated financial statements.
104*						The cover page from this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024, formatted in Inline XBRL (included with Exhibit 101.1)

________________________________

* Filed herewith.

# Furnished herewith. Not considered to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		USA COMPRESSION PARTNERS, LP

		By:	USA Compression GP, LLC its General Partner

Date:	November 5, 2024	By:	/s/ G. Tracy Owens
			G. Tracy Owens
			Vice President of Finance and Chief Accounting Officer (Principal Financial and Accounting Officer)

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Date	Price Target	Rating	Analyst
9/27/2024	$23.00	Neutral	Citigroup
5/30/2024	$23.00 → $26.00	Underperform → Neutral	Mizuho
9/29/2023	$22.00	Neutral → Underperform	Mizuho
7/27/2022	$18.00	Neutral	Mizuho
3/14/2022	$17.00	Neutral → Underweight	JP Morgan
12/16/2021	$13.00 → $15.00	Underweight	Wells Fargo

SEC Form 10-Q filed by USA Compression Partners LP

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