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☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
☐2023
| ☐ | TRANSITION REPORT PURSUANT
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Delaware |
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(State or incorporation or organization) | 75-2771546 (I.R.S. Employer Identification No.) | ||||
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111 Congress Avenue, Suite | |||||
2400 Austin, Texas |
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(Address of principal executive offices) | 78701 (Zip Code) | ||||
| 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 | ||||||||||||
Large accelerated filer | Accelerated filer | |||||
Non-accelerated filer ☐
| Smaller reporting company ☐ | |||||
Emerging growth company | ||||||
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GLOSSARY
| 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 | |||||||
| SOFR | Secured Overnight Financing Rate | |||||||
| U.S. | United States of America | |||||||
September 30, December 31, 2017 2016 Assets Current assets: Cash and cash equivalents $ 923 $ 65 Accounts receivable, net: Trade, net 31,379 32,237 Other 8,698 9,028 Inventory, net 35,718 29,556 Prepaid expenses 2,715 2,083 Total current assets 79,433 72,969 Property and equipment, net 1,267,512 1,267,574 Installment receivable 11,521 14,079 Identifiable intangible assets, net 72,520 75,189 Goodwill 35,866 35,866 Other assets 5,093 6,735 Total assets $ 1,471,945 $ 1,472,412 Liabilities and Partners’ Capital Current liabilities: Accounts payable $ 9,608 $ 13,148 Accrued liabilities 26,373 26,572 Deferred revenue 22,778 16,691 Total current liabilities 58,759 56,411 Long-term debt 752,000 685,371 Other liabilities 1,513 1,113 Partners’ capital: Limited partner interest: Common units, 62,016,723 and 60,689,110 units issued and outstanding, respectively 652,385 721,080 General partner interest 7,288 8,437 Total partners’ capital 659,673 729,517 Total liabilities and partners’ capital $ 1,471,945 $ 1,472,412 Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Revenues: Contract operations $ 68,407 $ 60,282 $ 192,164 $ 187,345 Parts and service 4,384 848 12,673 3,663 Total revenues 72,791 61,130 204,837 191,008 Costs and expenses: Cost of operations, exclusive of depreciation and amortization 23,441 18,885 67,546 58,368 Selling, general and administrative 11,888 12,577 33,643 33,496 Depreciation and amortization 24,808 23,195 73,493 68,701 Loss (gain) on disposition of assets 50 (155) (207) 795 Impairment of compression equipment 1,096 3,441 4,809 4,134 Total costs and expenses 61,283 57,943 179,284 165,494 Operating income 11,508 3,187 25,553 25,514 Other income (expense): Interest expense, net (6,557) (5,275) (18,233) (15,476) Other 3 16 22 30 Total other expense (6,554) (5,259) (18,211) (15,446) Net income (loss) before income tax expense 4,954 (2,072) 7,342 10,068 Income tax expense 165 74 448 402 Net income (loss) $ 4,789 $ (2,146) $ 6,894 $ 9,666 Net income (loss) allocated to: General partner’s interest in net income $ 399 $ 272 $ 1,096 $ 1,019 Limited partners’ interest in net income (loss): Common units $ 4,390 $ (2,418) $ 5,798 $ 11,358 Subordinated units $ (2,711) Weighted average common units outstanding: Basic 61,815 55,087 61,366 51,911 Diluted 62,084 55,302 61,602 52,204 Basic and diluted weighted average subordinated units outstanding 2,359 Basic and diluted net income (loss) per common unit $ 0.07 $ (0.04) $ 0.09 $ 0.22 Basic and diluted net loss per subordinated unit $ (1.15) Distributions declared per limited partner unit for respective periods $ 0.525 $ 0.525 $ 1.575 $ 1.575 (Deficit) Partners’ Capital Total Common Units General Partner Partners’ Units Amount Amount Capital Partners’ capital, December 31, 2016 60,689 $ 721,080 $ 8,437 $ 729,517 Vesting of phantom units 271 4,243 — 4,243 Distributions and distribution equivalent rights — (96,373) (2,245) (98,618) Issuance of common units under the DRIP 1,057 17,412 — 17,412 Unit-based compensation of equity classified awards — 225 — 225 Net income — 5,798 1,096 6,894 Partners’ capital, September 30, 2017 62,017 $ 652,385 $ 7,288 $ 659,673 Nine months ended September 30, 2017 2016 Cash flows from operating activities: Net income $ 6,894 $ 9,666 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 73,493 68,701 Amortization of debt issue costs 1,641 1,561 Unit-based compensation expense 8,160 8,481 Loss (gain) on disposition of assets (207) 795 Impairment of compression equipment 4,809 4,134 Changes in assets and liabilities: Accounts receivable, net 3,747 7,377 Inventory, net (14,794) (5,216) Prepaid expenses (632) 257 Other noncurrent assets 3 20 Accounts payable (4,216) (3,680) Accrued liabilities and deferred revenue 6,164 2,500 Other noncurrent liabilities 239 — Net cash provided by operating activities 85,301 94,596 Cash flows from investing activities: Capital expenditures, net (65,551) (46,253) Proceeds from sale of property and equipment 467 313 Proceeds from insurance recovery — 73 Net cash used in investing activities (65,084) (45,867) Cash flows from financing activities: Proceeds from long-term debt 285,315 216,180 Payments on long-term debt (218,686) (201,429) Cash paid related to net settlement of unit-based awards (2,835) (113) Cash distributions (83,153) (61,356) Financing costs — (2,011) Net cash used in financing activities (19,359) (48,729) Increase in cash and cash equivalents 858 — Cash and cash equivalents, beginning of period 65 7 Cash and cash equivalents, end of period $ 923 $ 7 Supplemental cash flow information: Cash paid for interest $ 17,646 $ 15,132 Cash paid for taxes $ 230 $ 265 Supplemental non-cash transactions: Non-cash distributions to certain limited partners (DRIP) $ 17,412 $ 27,811 Transfers (to) from inventory to property and equipment $ 8,632 $ (2,244) Transfer from long-term installment receivable to short term $ (2,559) $ (2,374) Change in capital expenditures included in accounts payable and accrued liabilities $ 1,649 $ 2,912 Business September 30, 2017 USA Compression Holdings Public Total General partner interest 1.2 % — 1.2 % Limited partner interest 39.7 % 59.1 % 98.8 % Total 40.9 % 59.1 % 100.0 % and Significant Accounting Policies 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. September 30, 2017 December 31, 2016 Serialized parts $ 19,757 $ 17,943 Non-serialized parts 16,275 11,927 Total Inventory, gross 36,032 29,870 Less: obsolete and slow moving reserve (314) (314) Total Inventory, net $ 35,718 $ 29,556 Customer Relationships Trade Names Non-compete Total Net Balance at December 31, 2016 $ 63,183 $ 11,856 $ 150 $ 75,189 Amortization Expense (2,051) (468) (150) (2,669) Net Balance at September 30, 2017 $ 61,132 $ 11,388 $ — $ 72,520 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 September 30, 2017 December 31, 2016 Assets (Liabilities) Level 1 Level 1 Unit-based compensation liability $ (5,985) $ (7,043) As of and Identifiable Intangible Assets September 30, 2017 December 31, 2016 Compression equipment $ 1,615,002 $ 1,551,157 Furniture and fixtures 593 625 Automobiles and vehicles 19,407 18,979 Computer equipment 25,223 23,394 Leasehold improvements 1,537 1,392 Total Property and equipment, gross 1,661,762 1,595,547 Less: accumulated depreciation and amortization (394,250) (327,973) Total Property and equipment, net $ 1,267,512 $ 1,267,574 September 30, 2017 December 31, 2016 Revolving Credit Facility $ 752,000 $ 685,371 As of Preferred Units are entitled to receive cumulative quarterly cash distributions equal to $24.375 per Preferred Unit. Distribution per Amount Paid to Amount Paid to Amount Paid to Limited Partner Common General Phantom Total Payment Date Unit Unitholders Partner Unitholders Distribution August 12, 2016 $ 0.525 $ 28.8 $ 0.7 $ 0.7 $ 30.2 November 14, 2016 $ 0.525 $ 29.1 $ 0.7 $ 0.6 $ 30.4 February 14, 2017 $ 0.525 $ 31.9 $ 0.7 $ 0.8 $ 33.4 May 12, 2017 $ 0.525 $ 32.1 $ 0.7 $ 0.6 $ 33.4 August 11, 2017 $ 0.525 $ 32.3 $ 0.8 $ 0.6 $ 33.7 During the Marginal Percentage Interest Total Quarterly in Distributions Distribution Per Unit Unitholders General Partner Minimum Quarterly Distribution $0.425 98.8 % 1.2 % First Target Distribution up to $0.4888 98.8 % 1.2 % Second Target Distribution above $0.4888 up to $0.5313 85.8 % 14.2 % Third Target Distribution above $0.5313 up to $0.6375 75.8 % 24.2 % Thereafter above $0.6375 50.8 % 49.2 % 2022. $95.7 million of which is expected to be settled by year-end 2023. Contingencies Operating Highlights Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Fleet horsepower (at period end) (1) 1,757,720 1,716,296 1,757,720 1,716,296 Total available horsepower (at period end) (2) 1,862,720 1,723,406 1,862,720 1,723,406 Revenue generating horsepower (at period end) (3) 1,557,825 1,364,059 1,557,825 1,364,059 Average revenue generating horsepower (4) 1,548,656 1,356,423 1,473,421 1,381,831 Average revenue per revenue generating horsepower per month (5) $ 15.13 $ 15.35 $ 15.02 $ 15.53 Revenue generating compression units (at period end) 2,793 2,502 2,793 2,502 Average horsepower per revenue generating compression unit (6) 558 541 550 532 Horsepower utilization (7): At period end 94.2 % 88.3 % 94.2 % 88.3 % Average for the period (8) 94.1 % 87.3 % 91.1 % 87.4 % six months ended June 30, 2022. 2022 Three Months Ended September 30, Percent 2017 2016 Change Revenues: Contract operations $ 68,407 $ 60,282 13.5 % Parts and service 4,384 848 417.0 % Total revenues 72,791 61,130 19.1 % Costs and expenses: Cost of operations, exclusive of depreciation and amortization 23,441 18,885 24.1 % Gross operating margin 49,350 42,245 16.8 % Other operating and administrative costs and expenses: Selling, general and administrative 11,888 12,577 (5.5) % Depreciation and amortization 24,808 23,195 7.0 % Loss (gain) on disposition of assets 50 (155) (132.3) % Impairment of compression equipment 1,096 3,441 (68.1) % Total other operating and administrative costs and expenses 37,842 39,058 (3.1) % Operating income 11,508 3,187 261.1 % Other income (expense): Interest expense, net (6,557) (5,275) 24.3 % Other 3 16 (81.3) % Total other expense (6,554) (5,259) 24.6 % Net income (loss) before income tax expense 4,954 (2,072) (339.1) % Income tax expense 165 74 123.0 % Net income (loss) $ 4,789 $ (2,146) (323.2) % Contract operations revenue. contract operations revenue. 2023, compared to the three months ended June 30, 2022, primarily was due to compression unit overhauls and new compression units placed in service to meet incremental demand from customers. Interest expense, net. The 2022 Nine Months Ended September 30, Percent 2017 2016 Change Revenues: Contract operations $ 192,164 $ 187,345 2.6 % Parts and service 12,673 3,663 246.0 % Total revenues 204,837 191,008 7.2 % Costs and expenses: Cost of operations, exclusive of depreciation and amortization 67,546 58,368 15.7 % Gross operating margin 137,291 132,640 3.5 % Other operating and administrative costs and expenses: Selling, general and administrative 33,643 33,496 0.4 % Depreciation and amortization 73,493 68,701 7.0 % Loss (gain) on disposition of assets (207) 795 (126.0) % Impairment of compression equipment 4,809 4,134 16.3 % Total other operating and administrative costs and expenses 111,738 107,126 4.3 % Operating income 25,553 25,514 0.2 % Other income (expense): Interest expense, net (18,233) (15,476) 17.8 % Other 22 30 (26.7) % Total other expense (18,211) (15,446) 17.9 % Net income before income tax expense 7,342 10,068 (27.1) % Income tax expense 448 402 11.4 % Net income $ 6,894 $ 9,666 (28.7) % Contract operations revenue. The $63.9 million increase in contract operations revenue Parts and service revenue. The contract operations revenue. 2023, compared to the six months ended June 30, 2022, primarily was due to compression unit overhauls and new compression units placed in service to meet incremental demand from customers. prior comparable period. Other Financial Data Three Months Ended September 30, Percent Nine Months Ended September 30, Percent Other Financial Data: (1) 2017 2016 Change 2017 2016 Change Gross operating margin $ 49,350 $ 42,245 16.8 % $ 137,291 $ 132,640 3.5 % Gross operating margin percentage (2) 67.8 % 69.1 % (1.9) % 67.0 % 69.4 % (3.5) % Adjusted EBITDA $ 40,849 $ 34,634 17.9 % $ 113,592 $ 110,187 3.1 % Adjusted EBITDA percentage (2) 56.1 % 56.7 % (1.1) % 55.5 % 57.7 % (3.8) % DCF (3) $ 30,811 $ 27,223 13.2 % $ 85,107 $ 89,626 (5.0) % DCF Coverage Ratio (3) 0.92 x 0.91 x 1.1 % 0.85 x 1.01 x (15.8) % Cash Coverage Ratio 1.01 x 1.06 x (4.7) % 1.03 x 1.33 x (22.6) % Liquidity and Capital Resources Nine Months Ended September 30, 2017 2016 Net cash provided by operating activities $ 85,301 $ 94,596 Net cash used in investing activities $ (65,084) $ (45,867) Net cash used in financing activities $ (19,359) $ (48,729) Capital Expenditures We classify capital expenditures as maintenance or expansion on an capitalized amounts. Credit Agreement. interest-rate swap. supplemental measure of our operating profitability. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Revenues: Contract operations $ 68,407 $ 60,282 $ 192,164 $ 187,345 Parts and service 4,384 848 12,673 3,663 Total revenues 72,791 61,130 204,837 191,008 Cost of operations, exclusive of depreciation and amortization 23,441 18,885 67,546 58,368 Gross operating margin 49,350 42,245 137,291 132,640 Other operating and administrative costs and expenses: Selling, general and administrative 11,888 12,577 33,643 33,496 Depreciation and amortization 24,808 23,195 73,493 68,701 Loss (gain) on disposition of assets 50 (155) (207) 795 Impairment of compression equipment 1,096 3,441 4,809 4,134 Total other operating and administrative costs and expenses 37,842 39,058 111,738 107,126 Operating income $ 11,508 $ 3,187 $ 25,553 $ 25,514 making. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Net income (loss) $ 4,789 $ (2,146) $ 6,894 $ 9,666 Interest expense, net 6,557 5,275 18,233 15,476 Depreciation and amortization 24,808 23,195 73,493 68,701 Income tax expense 165 74 448 402 EBITDA $ 36,319 $ 26,398 $ 99,068 $ 94,245 Impairment of compression equipment 1,096 3,441 4,809 4,134 Interest income on capital lease 399 348 1,238 1,085 Unit-based compensation expense (1) 2,813 3,647 8,160 8,481 Transaction expenses for acquisitions (2) — 950 — 950 Severance charges 172 5 292 497 Other — — 232 — Loss (gain) on disposition of assets 50 (155) (207) 795 Adjusted EBITDA $ 40,849 $ 34,634 $ 113,592 $ 110,187 Interest expense, net (6,557) (5,275) (18,233) (15,476) Income tax expense (165) (74) (448) (402) Interest income on capital lease (399) (348) (1,238) (1,085) Non-cash interest expense 547 546 1,641 1,561 Transaction expenses for acquisitions — (950) — (950) Severance charges (172) (5) (292) (497) Other — — (232) — Changes in operating assets and liabilities (1,074) 7,611 (9,489) 1,258 Net cash provided by operating activities $ 33,029 $ 36,139 $ 85,301 $ 94,596 Distributable Cash Flow making. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Net income (loss) $ 4,789 $ (2,146) $ 6,894 $ 9,666 Plus: Non-cash interest expense 547 546 1,641 1,561 Plus: Non-cash income tax expense 59 74 188 208 Plus: Depreciation and amortization 24,808 23,195 73,493 68,701 Plus: Unit-based compensation expense (1) 2,813 3,647 8,160 8,481 Plus: Impairment of compression equipment 1,096 3,441 4,809 4,134 Plus: Transaction expenses for acquisitions (2) — 950 — 950 Plus: Severance charges 172 5 292 497 Plus: Other — — 232 — Less: Loss (gain) on disposition of assets 50 (82) (207) 868 Less: Maintenance capital expenditures (3) (3,523) (2,407) (10,395) (5,440) DCF $ 30,811 $ 27,223 $ 85,107 $ 89,626 Plus: Maintenance capital expenditures 3,523 2,407 10,395 5,440 Plus: Changes in operating assets and liabilities (1,074) 7,611 (9,489) 1,258 Less: Other (231) (1,102) (712) (1,728) Net cash provided by operating activities $ 33,029 $ 36,139 $ 85,301 $ 94,596 DCF Coverage Ratio Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 DCF $ 30,811 $ 27,223 $ 85,107 $ 89,626 Less: Cash distributions to general partner and IDRs 753 717 2,253 2,143 DCF attributable to limited partner interest $ 30,058 $ 26,506 $ 82,854 $ 87,483 Distributions for DCF Coverage Ratio (1) $ 32,559 $ 29,025 $ 97,005 $ 86,263 Distributions reinvested in the DRIP (2) $ 2,920 $ 4,108 $ 16,288 $ 20,398 Distributions for Cash Coverage Ratio (3) $ 29,639 $ 24,917 $ 80,717 $ 65,865 DCF Coverage Ratio 0.92 0.91 0.85 1.01 Cash Coverage Ratio 1.01 1.06 1.03 1.33 the Credit Agreement. Changes in Internal Control over Financial Reporting Exhibit Description *Filed herewith. USA /s/ G. Tracy Owens G. Tracy Owensthousands, except for unit amounts)thousands)June 30,
2023December 31,
2022Assets Current assets: Cash and cash equivalents $ 31 $ 35 Accounts receivable, net of allowances for credit losses of $1,237 and $1,164, respectively 86,810 83,822 Related-party receivables 2,875 52 Inventories 101,419 93,754 Derivative instrument 10,294 — Prepaid expenses and other assets 10,147 8,784 Total current assets 211,576 186,447 Property and equipment, net 2,187,255 2,172,924 Lease right-of-use assets 17,485 18,195 Derivative instrument, long term 3,040 — Identifiable intangible assets, net 260,342 275,032 Other assets 11,340 13,126 Total assets $ 2,691,038 $ 2,665,724 Liabilities, Preferred Units, and Partners’ Deficit Current liabilities: Accounts payable $ 36,627 $ 35,303 Accrued liabilities 87,891 76,016 Deferred revenue 62,981 62,345 Total current liabilities 187,499 173,664 Long-term debt, net 2,212,792 2,106,649 Operating lease liabilities 15,132 16,146 Other liabilities 6,496 8,255 Total liabilities 2,421,919 2,304,714 Commitments and contingencies Preferred Units 477,309 477,309 Partners’ deficit: Common units, 98,278 and 98,228 units issued and outstanding, respectively (217,002) (125,111) Warrants 8,812 8,812 Total partners’ deficit (208,190) (116,299) Total liabilities, Preferred Units, and partners’ deficit $ 2,691,038 $ 2,665,724 Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues: Contract operations $ 196,982 $ 163,969 $ 385,521 $ 321,637 Parts and service 4,102 3,605 7,980 5,531 Related party Related party 5,836 3,887 10,543 7,705 Total revenues 206,920 171,461 404,044 334,873 Costs and expenses: Cost of operations, exclusive of depreciation and amortization 69,922 55,158 136,587 108,890 Depreciation and amortization 60,039 58,959 119,525 118,023 Selling, general, and administrative Selling, general, and administrative 14,950 13,914 34,051 29,179 Loss (gain) on disposition of assets 309 1,031 (67) 852 Impairment of compression equipment 10,273 — 11,464 432 Total costs and expenses 155,493 129,062 301,560 257,376 Operating income 51,427 42,399 102,484 77,497 Other income (expense): Interest expense, net (42,045) (33,079) (81,835) (64,917) Gain on derivative instrument Gain on derivative instrument 14,550 — 14,550 — Other 57 21 81 41 Total other expense (27,438) (33,058) (67,204) (64,876) Net income before income tax expense Net income before income tax expense 23,989 9,341 35,280 12,621 Income tax expense 405 255 755 281 Net income Net income 23,584 9,086 34,525 12,340 Less: distributions on Preferred Units Less: distributions on Preferred Units (12,188) (12,188) (24,375) (24,375) Net income (loss) attributable to common unitholders’ interests Net income (loss) attributable to common unitholders’ interests $ 11,396 $ (3,102) $ 10,150 $ (12,035) Weighted-average common units outstanding – basic Weighted-average common units outstanding – basic 98,271 97,728 98,259 97,547 Weighted-average common units outstanding – diluted Weighted-average common units outstanding – diluted 99,694 97,728 99,738 97,547 Basic net income (loss) per common unit Basic net income (loss) per common unit $ 0.12 $ (0.03) $ 0.10 $ (0.12) Diluted net income (loss) per common unit Diluted net income (loss) per common unit $ 0.11 $ (0.03) $ 0.10 $ (0.12) Distributions declared per common unit for respective periods Distributions declared per common unit for respective periods $ 0.525 $ 0.525 $ 1.05 $ 1.05 StatementStatements of Changes in Partners’ CapitalNine Months Ended September 30, 2017thousands)thousands, except per unit amounts)For the Six Months Ended June 30, 2023 Common units Warrants Total Partners’ capital (deficit) ending balance, December 31, 2022 $ (125,111) $ 8,812 $ (116,299) Distributions and DERs, $0.525 per unit (51,602) — (51,602) Issuance of common units under the DRIP 617 — 617 Unit-based compensation for equity-classified awards 69 — 69 Net loss attributable to common unitholders’ interests (1,246) — (1,246) Partners’ capital (deficit) ending balance, March 31, 2023 (177,273) 8,812 (168,461) Distributions and DERs, $0.525 per unit (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) For the Six Months Ended June 30, 2022 Common units Warrants Total Partners’ capital ending balance, December 31, 2021 $ 87,129 $ 13,979 $ 101,108 Distributions and DERs, $0.525 per unit (51,137) — (51,137) Issuance of common units under the DRIP 516 — 516 Unit-based compensation for equity-classified awards 64 — 64 Net loss attributable to common unitholders’ interests (8,933) — (8,933) Partners’ capital ending balance, March 31, 2022 27,639 13,979 41,618 Distributions and DERs, $0.525 per unit (51,154) — (51,154) Issuance of common units under the DRIP 508 — 508 Unit-based compensation for equity-classified awards 65 — 65 Exercise and conversion of warrants into common units 5,167 (5,167) — Net loss attributable to common unitholders’ interests (3,102) — (3,102) Partners’ capital (deficit) ending balance, June 30, 2022 $ (20,877) $ 8,812 $ (12,065) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net income $ 34,525 $ 12,340 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 119,525 118,023 Provision for expected credit losses Provision for expected credit losses — (700) Amortization of debt issuance costs Amortization of debt issuance costs 3,641 3,637 Unit-based compensation expense 9,628 6,708 Deferred income tax expense (benefit) Deferred income tax expense (benefit) 19 (183) Loss (gain) on disposition of assets (67) 852 Change in fair value of derivative instrument Change in fair value of derivative instrument (13,334) — Impairment of compression equipment 11,464 432 Changes in assets and liabilities: Accounts receivable and related-party receivables, net Accounts receivable and related-party receivables, net (5,811) (4,598) Inventories Inventories (31,818) (11,159) Prepaid expenses and other current assets Prepaid expenses and other current assets (1,364) (3,009) Other assets Other assets 2,148 1,562 Accounts payable 583 (1,452) Accrued liabilities and deferred revenue 1,070 6,829 Net cash provided by operating activities 130,209 129,282 Cash flows from investing activities: Capital expenditures, net (106,402) (43,818) Proceeds from disposition of property and equipment Proceeds from disposition of property and equipment 1,093 764 Proceeds from insurance recovery — 184 Net cash used in investing activities (105,309) (42,870) Cash flows from financing activities: Proceeds from revolving credit facility Proceeds from revolving credit facility 511,766 382,884 Payments on revolving credit facility Payments on revolving credit facility (407,283) (340,562) Cash distributions on common units Cash distributions on common units (104,407) (103,536) Cash distributions on Preferred Units Cash distributions on Preferred Units (24,375) (24,375) Deferred financing costs Deferred financing costs (379) (549) Other Other (226) (274) Net cash used in financing activities (24,904) (86,412) Decrease in cash and cash equivalents Decrease in cash and cash equivalents (4) — Cash and cash equivalents, beginning of period 35 — Cash and cash equivalents, end of period $ 31 $ — Supplemental cash flow information: Cash paid for interest, net of capitalized amounts Cash paid for interest, net of capitalized amounts $ 78,181 $ 60,239 Cash paid for income taxes Cash paid for income taxes $ 887 $ 798 Supplemental non-cash transactions: Non-cash distributions to certain common unitholders (DRIP) Non-cash distributions to certain common unitholders (DRIP) $ 1,040 $ 1,024 Transfers from inventories to property and equipment, net Transfers from inventories to property and equipment, net $ 24,053 $ 6,692 Changes in capital expenditures included in accounts payable and accrued liabilities Changes in capital expenditures included in accounts payable and accrued liabilities $ 1,125 $ 11,023 Changes in financing costs included in accounts payable and accrued liabilities Changes in financing costs included in accounts payable and accrued liabilities $ 6 $ (265) Exercise and conversion of warrants into common units Exercise and conversion of warrants into common units $ — $ 5,167 SummaryDescription of Significant Accounting Policies(a) Organization“our”, “we”, “us”,“our,” “we,” “us,” “the Partnership”Partnership,” and similar language refer to USA Compression Partners, LP, collectively with its operatingconsolidated subsidiaries.Partner”. OurPartner.” The General Partner is wholly owned by USA Compression Holdings, LLC (“USA Compression Holdings”). Through our operating subsidiaries, we provide compression services under term contracts with customers in the natural gas and crude oil industries, using natural gas compression packages that we design, engineer, own, operate and maintain. We provide compression services in a number of shale plays throughout the United States, including the Utica, Marcellus, Permian Basin, Delaware Basin, Eagle Ford, Mississippi Lime, Granite Wash, Woodford, Barnett, Haynesville, Niobrara and Fayetteville shales. Certain of our operating subsidiaries are borrowers under a revolving credit facility and the Partnership is a guarantor of that revolving credit facility (see Note 6). Energy Transfer.operating subsidiaries, all of which are wholly owned by us.Net income (loss) is allocated to our general and limited partners using the two-class income allocation method. All intercompany balances and transactions have been eliminated in consolidation. Our common units representing limited partner interests in the Partnership trade on the New York Stock Exchange under the ticker symbol “USAC”. Our ownership structure was as follows:(b)on the same basis as the audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2016 filed on February 13, 2017 (our “2016 Annual Report”). accordance with GAAP and pursuant to SEC rules and regulations.such financial information presented herein reflects all normal recurring adjustments necessary for athe fair presentation of thethese interim unaudited condensed consolidated financial position as of September 30, 2017 and December 31, 2016, and the results of operations for the three and nine months ended September 30, 2017 and 2016, changes in partners’ capital for the nine months ended September 30, 2017 and the statements of cash flows for the nine months ended September 30, 2017 and 2016 in accordance with U.S. generally accepted accounting principles (“GAAP”).GAAP. Operating results for the three and ninesix months ended SeptemberJune 30, 20172023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2023. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to thein accordance with SEC rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).regulations. Therefore, these 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, 2016 contained in our 20162022, filed on February 14, 2023 (our “2022 Annual Report.(c) Report”).atas of the date of the unaudited condensed5(d) InventoryInventory consistsprimarily in the repair ofon compression units. All inventory isinventories are stated at the lower of cost or net realizable value. Serialized parts inventory isinventories are determined using the specific identificationspecific-identification cost method, while non-serialized parts inventory isinventories are determined using the weighted averageweighted-average cost method. Purchases of these assetsinventories are considered operating activities within the unaudited condensed consolidated statements of cash flows.Unaudited Condensed Consolidated Statementsabsence of Cash Flows.Componentsquoted market prices, based on an estimate of inventory are as follows (in thousands):(e) Identifiable intangible assets, net consisted of the following (in thousands):415 to 3025 years. Accumulated amortizationintangible assets was $22.7 million and $20.0 million asa contract with our customer are satisfied; generally, this occurs with the provision of September 30, 2017 and December 31, 2016, respectively.We assess identifiable intangible assets for impairment whenever eventsservices or changes in circumstances indicate that the carryingtransfer of goods. Revenue is measured at the amount of an asset may not be recoverable. We did not record any impairment of identifiable intangible assets for the three and nine months ended September 30, 2017 or the three and nine months ended September 30, 2016.(f) Property and EquipmentProperty 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 on 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 3consideration we expect to 5 years. Ordinary maintenance and repairs are charged to cost of operations, exclusive of depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:Compression equipment, acquired new25 yearsCompression equipment, acquired used9 - 25 yearsFurniture and fixtures7 yearsVehicles and computer equipment3 - 7 yearsLeasehold improvements5 years6
receiveWhen property and equipment is retiredin exchange for providing services or sold, its carrying value and the related accumulated depreciationtransferring goods. Incidental items, if any, that are removed from our accounts and any associated gains or losses are recorded on our statements of operationsimmaterial in the periodcontext of salethe contract are recognized as expenses.disposition.See more informationdeduction. Texas also imposes an entity-level income tax on property and equipment in Note 3 topartnerships 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.(g) Impairment 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.Long-Lived AssetsLong-lived assets with recorded values thatand passed through to, customers are not expected to be recovered through future cash flows are written-down to estimated fair value. We test long-lived assetsaccounted for impairment when events or circumstances indicate that the assets’ carrying value may not be recoverable or will no longer be utilized in the operating fleet. The most common circumstance requiring compression units to be tested for impairment is when idle units do not meet the performance characteristics of our active revenue generating horsepower.During the three and nine months ended September 30, 2017, we evaluated the future deployment of our idle fleet under current market conditions and determined to retire, sell or re-utilize key components of compression units withon a total of 2,728 and 10,734 horsepower, respectively, which were previously used to provide compression services in our business. The cause of the impairment was due to the type of units, which were not marketable, and were subject to excessive maintenance costs. These compression units were written down to their respective estimated salvage value, if any.During the three and nine months ended September 30, 2016, we evaluated the future deployment of our idle fleet under then-current market conditions and determined to retire, sell or re-utilize key components of compression units with a total of 10,407 and 12,099 horsepower, respectively, which were previously used to provide compression services in our business. The cause of the impairment was related to certain performance characteristics of the impaired equipment, such as excessive maintenance costs and the inability of the equipment to meet then-current emission standards without retrofitting. We determined that this equipment was unlikely to be accepted by customers under then-current market conditions. These compression units were written down to their respective estimated salvage value, if any.As a result of our decision to retire, sell or re-utilize key components of these compression units, we recorded $1.1 million and $4.8 million of impairment of long-lived assets in the three and nine months ended September 30, 2017, respectively, and $3.4 million and $4.1 million of impairment of long-lived assets in the three and nine months ended September 30, 2016, respectively.(h) Fair Valuenet basis.on fair valueapplicable to fair-value measurements establish a framework for measuring fair value and stipulate disclosures about fair valuefair-value measurements. The standards apply to recurring and nonrecurringnon-recurring financial and non-financial assets and liabilities that require or permit fair valuefair-value measurements. Among the required disclosures is the fair valuefair-value hierarchy of inputs we use to value an asset or a liability. The three levels of the fair valuefair-value hierarchy are described as follows:Phantom unit awards granted to employees under the USA Compression Partners, LP 2013 Long-Term Incentive Plan (the “LTIP”) are accounted for as a liability, and such liability is re-measured on a quarterly basis. The liability is based on the publicly quoted price of our common units, which is considered a Level 1 input, and is recorded within the accrued liabilities caption on the Unaudited Condensed Consolidated Balance Sheets. 7Net liabilities measured at fair value on a recurring basis are summarized below (in thousands):SeptemberJune 30, 20172023, and December 31, 2016,2022, our financial instruments primarily consisted primarily of cash and cash equivalents, trade accounts receivable, trade accounts payable, long-term debt, and, long-term debt.as of June 30, 2023, 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. TheOur revolving credit facility applies floating interest rates to amounts drawn under the facility; therefore, the carrying amount of long-term debtour revolving credit facility approximates its fair value.due toof our Senior Notes 2026 and Senior Notes 2027 were estimated using quoted prices in inactive markets and are considered Level 2 measurements. The following table summarizes the floating interest rates associated withaggregate principal amount and fair value of our Senior Notes 2026 and Senior Notes 2027 (in thousands):June 30,
2023December 31,
2022Senior Notes 2026, aggregate principal $ 725,000 $ 725,000 Fair value of Senior Notes 2026 703,250 706,875 Senior Notes 2027, aggregate principal 750,000 750,000 Fair value of Senior Notes 2027 710,625 725,625 debt. (i)gross fair value of our interest-rate swap (in thousands):June 30,
2023December 31,
2022Interest-rate swap $ 13,334 $ — (j)Pass Through TaxesSales taxes incurred on behalf of, and passed through to, customers are accounted for on a net basis.(2)Trade accounts receivable are recorded at the invoiced amount and do not bear interest. doubtful accounts,credit losses, which was $0.5 million and $0.7$1.2 million at Septemberboth June 30, 20172023, and December 31, 2016, respectively, is2022, represents our best estimate of the amount of probable credit losses included inwithin our existing accounts receivable. We determinereceivable balance.allowance based upon historical write-off experiencethree and specific customer circumstances. The determinationsix months ended June 30, 2022, we recognized reversals of $0.2 million and $0.7 million, respectively, to our provision for expected credit losses. Favorable market conditions for customers, attributable to sustained increases in commodity prices, was the primary factor supporting the recorded decrease to the allowance for doubtful accounts requires us to make estimates and judgments regarding our customers’ ability to pay amounts due. On an ongoing basis, we conduct an evaluation of the financial strength of our customers based on payment history, the overall business climate in which our customers operate and specific identification of customer bad debt and make adjustments to the allowance as necessary. Our evaluation of our customers’ financial strength is based on the aging of their respective receivables balance, customer correspondence, financial information and third-party credit ratings. Our evaluation of the business climate in which our customers operate is based on a review of various publicly-available materials regarding our customers’ industries, including the solvency of various companies in the industry. Duringlosses for the three and ninesix months ended SeptemberJune 30, 2017, we reduced our allowance for doubtful accounts by $0.1 million and $0.2 million, respectively, and during the three and nine months ended September 30, 2016, we reduced our allowance for doubtful accounts by $0.1 million and $1.5 million, respectively. Reductions for such periods were due primarily to collections on accounts that had previously been reserved.(3)2022.June 30,
2023December 31,
2022Serialized parts $ 49,914 $ 46,923 Non-serialized parts 51,505 46,831 Total inventories $ 101,419 $ 93,754 June 30,
2023December 31,
2022Compression and treating equipment Compression and treating equipment $ 3,753,445 $ 3,658,000 Computer equipment Computer equipment 31,952 34,941 Automobiles and vehicles Automobiles and vehicles 41,244 34,947 Leasehold improvements Leasehold improvements 9,043 8,997 Buildings Buildings 3,464 3,464 Furniture and fixtures 817 795 Land Land 77 77 Total property and equipment, gross Total property and equipment, gross 3,840,042 3,741,221 Less: accumulated depreciation and amortization (1,652,787) (1,568,297) Total property and equipment, net Total property and equipment, net $ 2,187,255 $ 2,172,924 We recognized $23.9 million and $22.3 milliondepreciationthe 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 Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Depreciation expense $ 52,694 $ 51,614 $ 104,835 $ 103,334 Loss (gain) on disposition of assets 309 1,031 (67) 852 SeptemberJune 30, 20172022.2016, respectively. We recognized $70.8(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.Customer Relationships Trade Names Total Net balance as of December 31, 2022 $ 250,744 $ 24,288 $ 275,032 Amortization expense (13,052) (1,638) (14,690) Net balance as of June 30, 2023 $ 237,692 $ 22,650 $ 260,342 $66.0$275.6 million as of depreciation expenseJune 30, 2023, and December 31, 2022, respectively.June 30,
2023December 31,
2022Accrued interest expense $ 32,839 $ 32,763 Accrued unit-based compensation liability 25,005 17,743 Accrued capital expenditures 11,153 10,028 propertythe unaudited condensed consolidated balance sheets at fair value and equipmentare classified as current or long-term depending on the expected timing of settlement, and gains and losses associated with the derivative instrument is recognized currently in gain on derivative instrument within the unaudited condensed consolidated statements of operations. Cash flows related to cash settlements for the nine months ended September 30, 2017 and 2016, respectively.8
periods presented are classified as operating activities within the unaudited condensed consolidated statements of cash flows.AsThe following table summarizes the location and fair value of September 30, 2017our derivative instrument on our unaudited condensed consolidated balance sheets (in thousands):Balance Sheet Classification June 30,
2023December 31,
2022Derivative instrument $ 10,294 $ — Derivative instrument, long term 3,040 — December 31, 2016, there was $3.0 million and $1.4 million, respectively, of property and equipment purchases in accounts payable and accrued liabilities.During the nine months ended September 30, 2017, weamounts recognized a $0.2 million gain on the sale of a compression unit. During the nine months ended September 30, 2016, we abandoned certain assets and incurred a $1.0 million loss. Each of these is reported within the Loss (gain) on disposition of assets caption in the Unaudited Condensed Consolidated Statements of Operations.(4)Installment ReceivableOn June 30, 2014, we entered into a FMV Bargain Purchase Option Grant Agreement (the “BPO Capital Lease Transaction”) with a customer, pursuant to which we granted a bargain purchase option to the customer with respect to certain compressor packages leased to the customer. The bargain purchase option provides the customer with an option to acquire the equipment at a value significantly less than the fair market value at the end of the lease term, which is 7 years.On November 1, 2016, we entered into a Formula Price Purchase Agreement (the “FPP Capital Lease Transaction”) with a customer with respect to certain assets leased to the customer that the customer will purchase at the end of the lease term. The customer has the option to purchase these assets in April and October of each year with the final option occurring in May 2021.Both capital leases were accounted for as sales type leases resulting in a current installment receivable included in other accounts receivable of $8.7 million and $8.9 million as of September 30, 2017 and December 31, 2016, respectively, and a long-term installment receivable of $11.5 million and $14.1 million as of such period ends, respectively.Revenue and interest income related to both capital leases is recognized over the respective lease terms. We recognize maintenance revenueour derivative instrument within Contractour unaudited condensed consolidated statements of operations revenue and interest income within Interest expense, net on the Unaudited Condensed Consolidated Statements of Operations. For each of the three and nine months ended September 30, 2017 and 2016, maintenance revenue related to the BPO Capital Lease Transaction was $0.3 million and $1.0 million, respectively. There is no maintenance revenue component to the FPP Capital Lease Transaction. Interest income related to both capital leases was $0.4 million and $0.3 million for the three months ended September 30, 2017 and 2016, respectively, and $1.2 million and $1.1 million for the nine months ended September 30, 2017 and 2016, respectively.(5)Accrued LiabilitiesAccrued liabilities include accrued payroll and benefits and accrued property taxes. We recognized $7.1 million and $6.9 million of accrued payroll and benefits as of September 30, 2017 and December 31, 2016, respectively. We recognized $6.1 million and $6.6 million of accrued property taxes as of September 30, 2017 and December 31, 2016, respectively.(6) Long-Term(in thousands):Three Months Ended June 30, Six Months Ended June 30, Income Statement Classification 2023 2022 2023 2022 Gain on derivative instrument $ 14,550 $ — $ 14,550 $ — first lien long-term debt, of which there is no current portion, consisted of the following (in thousands):June 30,
2023December 31,
2022Senior Notes 2026, aggregate principal $ 725,000 $ 725,000 Senior Notes 2027, aggregate principal 750,000 750,000 Less: deferred financing costs, net of amortization (12,647) (14,307) Total senior notes, net 1,462,353 1,460,693 Revolving credit facility 750,439 645,956 Total long-term debt, net $ 2,212,792 $ 2,106,649 In March 2016, we entered into a third amendment to our revolving credit facility, which amended the credit agreement to, among other things, (i) modify the leverage ratio covenant to be (A) 5.25 to 1.0 asendSenior Notes 2026 are outstanding on December 31, 2025, the Credit Agreement will mature on December 31, 2025.respective fiscal quarters ending September 30, 2017Partnership’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 December 31, 2017substantially all of the assets of the guarantors party to the Credit Agreement, excluding real property and (B) 5.00 to 1.0 thereafter,other customary exclusions; and (ii) amend certain other provisionsall of the credit agreement, all as more fully set forth in the third amendment.In connection with entering into the third amendment, we paid certain amendment fees to the lenders party thereto and paid a certain arrangement fee to the arrangerequity interests of the third amendment in the amount of $2.0 million, collectively,9during the nine months ended September 30, 2016. These fees were capitalized to loan costs and will be amortized through January 2020. No such fees were paid during the three or nine months ended September 30, 2017. SeptemberJune 30, 2017 we were in compliance with all of our covenants under our revolving credit facility.As of September 30, 2017,2023, we had outstanding borrowings under our revolving credit facilitythe Credit Agreement of $752.0$750.4 million, $288.6$849.6 million of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $104.9$327.6 million. Our weighted-average interest rate in effect for all borrowings under the Credit Agreement for the six months ended June 30, 2023, was 7.40%, and our revolving credit facilityweighted-average interest rate under the Credit Agreement as of SeptemberJune 30, 2017 and December 31, 20162023, was 3.25% and 2.94%, respectively, with a weighted average interest rate of 3.25% and 2.53% during the three months ended September 30, 2017 and 2016, respectively, and 3.09% and 2.49% during the nine months ended September 30, 2017 and 2016, respectively7.74%. There were no letters of credit issued under the Credit Agreement as of June 30, 2023. We pay an annualized commitment fee of 0.375% on the unused portion of the aggregate commitment.2017 or 2016.In2023, we have availability under the event that anyCredit Agreement of at least $250 million and (b) after September 30, 2023, we have availability under the Credit Agreement of at least $100 million.operating subsidiaries guarantees any serieslast day of each fiscal quarter, with EBITDA and interest expense annualized for the most-recent fiscal quarter;debt securities as described in our registration statements on Form S-3, such guarantees will be full and unconditional and made on a joint and several basislast day of each fiscal quarter, with EBITDA annualized for the benefitmost-recent fiscal quarter; andholderfiscal quarter with EBITDA annualized for the most-recent fiscal quarter, of (i) 5.50 to 1.00 through the third quarter of 2023 and (ii) 5.25 to 1.00 thereafter. In addition, the Trustee. However, such guarantees will be subjectPartnership 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 release, subject to certain limitations, as follows (i) upon the sale, exchange or transfer, whether by way of a merger or otherwise, to1.00 for any Person that is not our affiliate, of all of our direct or indirect limited partnership or other equity interest in such Subsidiary Guarantor; or (ii) upon our or USA Compression Finance Corp.’s (together, the “Issuers”) delivery of a written notice to the Trustee of the release or discharge of all guarantees by such Subsidiary Guarantor of any Debt of the Issuers other than obligations arising under the indenture governing such debt and any debt securities issued under such indenture, except a discharge or release by orfiscal quarter as a result of paymentsuch increase.such guarantees. Capitalized terms used but not definedthe Credit Agreement.this paragraph are definedarrears on each of April 1 and October 1.Form2026 Indenture. As of Indenture filedJune 30, 2023, we were in compliance with such financial covenants under the 2026 Indenture.exhibit 4.1described in the 2027 Indenture. As of June 30, 2023, we were in compliance with such financial covenants under the 2027 Indenture.registration statement.Our operatingdebt, and are structurally subordinate to all indebtedness of any of our subsidiaries and USA Compression Finance Corp. are our only existing subsidiaries. that do not guarantee the Senior Notes 2027.uponon 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.Our revolving credit facility matures in January 2020we expectDecember 31, 2022, respectively, with a face value of $1,000 per Preferred Unit.maintain this facility for the term.(7)Partners’ CapitalCommon Units and General Partner InterestAs of September 30, 2017, we had 62,016,723our common units outstanding. USA Compression Holdings held 24,933,824 common units aswith respect to distributions and liquidation rights. The holders of September 30, 2017 and controlled our General Partner, which held an approximate 1.2% general partner interest (the “General Partner’s Interest”) and the incentive distribution rights (“IDRs”). See the Unaudited Condensed Consolidated Statement of Changes in Partners’ Capital.Cash DistributionsPayment Date Distribution per Preferred Unit February 4, 2022 $ 24.375 May 6, 2022 24.375 August 5, 2022 24.375 November 4, 2022 24.375 Total 2022 distributions $ 97.50 February 3, 2023 $ 24.375 May 5, 2023 24.375 Total 2023 distributions $ 48.75 Preferred Units Balance as of December 31, 2022 $ 477,309 Net income allocated to Preferred Units 24,375 Cash distributions on Preferred Units (24,375) Balance as of June 30, 2023 $ 477,309 Common Units Outstanding Number of common units outstanding, December 31, 2022 98,227,656 Issuance of common units under the DRIP 50,800 Number of common units outstanding, June 30, 2023 98,278,456 per unit to our limited partner unitholders of record, including holders of our common and phantom units, and distributions paid to the General Partner, including the General Partner’s Interest and IDRs, as follows (in(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 4, 2022 $ 0.525 $ 51.1 $ 1.2 $ 52.3 May 6, 2022 0.525 51.1 1.2 52.3 August 5, 2022 0.525 51.4 1.1 52.5 November 4, 2022 0.525 51.5 1.0 52.5 Total 2022 distributions $ 2.10 $ 205.1 $ 4.5 $ 209.6 February 3, 2023 $ 0.525 $ 51.6 $ 1.1 $ 52.7 May 5, 2023 0.525 51.6 1.1 52.7 Total 2023 distributions $ 1.05 $ 103.2 $ 2.2 $ 105.4 October 19, 2017,July 13, 2023, we announced a cash distribution of $0.525 per unit on our common units. The distribution will be paid on November 10, 2017August 4, 2023, to common unitholders of record as of the close of business on October 30, 2017. USAJuly 24, 2023.10Compression Holdings, the owner of approximately 40.2% of our outstanding limited partner interests, has elected to reinvest 20% of this distribution with respect to its units pursuant to our distribution reinvestment plan (the “DRIP”).Distribution Reinvestment Planninesix months ended SeptemberJune 30, 2017 and 2016,2023, distributions of $17.4$1.0 million and $27.8 million, respectively, were reinvested under the DRIP resulting in the issuance of 1.1 million50,800 common units.2.5 millionDecember 31, 2022, we had warrants outstanding to purchase 10,000,000 common units respectively. Such distributions are treated as non-cash transactions in the accompanying Unaudited Condensed Consolidated Statementswith a strike price of Cash Flows.Earnings Per Common and Subordinated UnitThe computations of earnings$19.59 per common unit and subordinatedthat may be exercised by the holders at any time prior to April 2, 2028.arewas exercised in full by the holders. The exercise of the warrants was net settled by the Partnership for 534,308 common units.weighted averageweighted-average number of participating securities, which includes our common units and subordinated units, respectively,certain equity-based awards outstanding during the applicable period. The subordinated units and our General Partner’s Interest (including its IDRs) meet the definition of participating securities as defined by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic 260 Earnings Per Share; therefore, we apply the two-class method in our computation of earningsBasic income (loss) per unit. Basic earnings per common and subordinated unit areis determined by dividing net income (loss) allocated to the common and subordinated units, respectively,participating securities after deducting the amount allocated to our General Partner (including distributions to our General Partnerdistributed on our General Partner’s Interest and its IDRs),Preferred Units, by the weighted averageweighted-average number of participating securities outstanding common and subordinated units, respectively, during the period. Net incomeIncome (loss) attributable to unitholders is allocated to the common units, subordinated units and our General Partner’s Interest (including its IDRs)participating securities based on their respective shares of the distributed andunitssecurities outstanding based on their respective ownership percentages.earningsincome (loss) per unit areis computed using the treasury stock method, which considers the potential issuance of limited partner units associated with our LTIP.long-term incentive plan and warrants. Unvested phantom units and unexercised warrants are not included in basic earningsincome (loss) per unit, as they are not considered to be participating securities, but are included in the calculation of diluted earningsincome (loss) per unit. Incrementalunit to the extent they are dilutive, and in the case of warrants to the extent they are considered “in the money.” only difference between our basic and diluted weighted averageweighted-average common units outstanding. For the six months ended June 30, 2023, approximately 1,118,000 and 361,000 incremental unvested phantom units and “in the money” outstanding warrants, respectively, represent the difference between our basic and diluted weighted-average common units outstanding.Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Contract operations revenue $ 202,403 $ 167,853 $ 395,545 $ 329,339 Retail parts and services revenue 4,517 3,608 8,499 5,534 Total revenues $ 206,920 $ 171,461 $ 404,044 $ 334,873 Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Services provided over time: Primary term $ 156,744 $ 118,248 $ 305,470 $ 226,545 Month-to-month 45,659 49,605 90,075 102,794 Total services provided over time 202,403 167,853 395,545 329,339 Services provided or goods transferred at a point in time 4,517 3,608 8,499 5,534 Total revenues $ 206,920 $ 171,461 $ 404,044 $ 334,873 Balance sheet location June 30,
2023December 31,
2022Current (1) Deferred revenue $ 62,981 $ 62,345 Noncurrent Other liabilities 1,303 2,789 Total $ 64,284 $ 65,134 ninesix months ended SeptemberJune 30, 2017 and 2016.Incentive Distribution RightsOur General Partner holds all2023, respectively, related to our deferred revenue balance as of December 31, 2022.IDRs. The IDRs represent the rightcontract operations revenue was $814.4 million. We expect to receive an increasing percentage of our quarterly distributions of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved.The following table illustrates the percentage allocations of Available Cash from Operating Surplus between our unitholders and our General Partner based on the specified target distribution levels. The amounts set forth under “Marginal Percentage Interest in Distributions” are the percentage interests of our General Partner and our unitholders in any Available Cash from Operating Surplus we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution Per Unit.” The percentage interests shown for our unitholders and our General Partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests set forth below for our General Partner include its General Partner’s Interest, and assume our General Partner has contributed any additional capital necessary to maintain its General Partner’s Interest and our General Partner has not transferred our IDRs.112023 (remainder) 2024 2025 2026 Thereafter Total Remaining performance obligations $ 267,744 $ 314,250 $ 115,079 $ 70,762 $ 46,587 $ 814,422 (8)(12) Transactions with Related PartiesJohn Chandler, who served as a director of our General Partner from October 2013 to October 15, 2017, has served as a director of one of our customers since October 2014. During the three months ended September 30, 2017 and 2016, we recognized $1.9 million in each period, and $5.7 million and $6.3 million during the nine months ended September 30, 2017 and 2016, respectively, in revenue from compression services provided to this customer in the Unaudited Condensed Consolidated Statements of Operations. We recognized $0.7 million and $1.1 million in accounts receivable from this customer on the Unaudited Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, respectively.Riverstone/Carlyle Global Energy and Power Fund IV, L.P. (“Riverstone”),Transfer, which owns a majorityas of the membership interests in USA Compression Holdings. As of SeptemberJune 30, 2017, USA Compression Holdings2023, owned and controlled our General Partner and owned 40.2%approximately 47% of our limited partner interests. Duringinterests and 100% of the General Partner.Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Related-party revenues $ 5,836 $ 3,887 $ 10,543 $ 7,705 ninesix months ended SeptemberJune 30, 2017, we recognized $0.2 million and $0.6 million, respectively, in revenue from compression services from such affiliated entities in the Unaudited Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2016, we recognized $0.2 million in revenue from compression services from such affiliated entities in the Unaudited Condensed Consolidated Statements of Operations. We may provide compression services to additional entities affiliated with Riverstone in the future, and any significant transactions will be disclosed.(9) Commitments and Contingencies(a) Major CustomersWe did not have revenue from any single2023. No customer representingaccounted for 10% or more of total revenuerevenues for the three and ninesix months ended SeptemberJune 30, 2017 or 2016. and serialized parts ordered but not received. The commitments as of SeptemberJune 30, 20172023, were $151.5$121.4 million, all of which areis expected to be settled throughout 2017within the next twelve months and 2018. Sales Tax Contingencyother entitiesothers in our industry have disputed these claims and assessments based on either existing tax statutes which provide for manufacturing exemptions onor published guidance by the transactions in question. taxing authorities.continue to work withcurrently are protesting certain assessments made by the state taxing authority in providing them the documentation available to us to support the position we have taken with regard to the disputed transactions.Oklahoma Tax Commission (“OTC”). We have recognized a liability of $0.1 million related to this issue; however, we believe it is reasonably possible that we could incur additional losses forrelated to this matterassessment depending on whether the taxing authorityadministrative law judge assigned by the OTC accepts our documentation as sufficient to support our position that the disputed transactions are not taxable and the impact ofwe ultimately lose any potential resulting litigation. Management estimatesand all subsequent legal challenges to such determination. We estimate that the range of losses we could incur related to this matter is from $0.1 million$0 to approximately $3.5 million.$26.0 million, including penalties and interest.upper endIRS has issued preliminary partnership examination changes, along with imputed underpayment computations, for the 2019 and 2020 tax years. Under the Bipartisan Budget Act, there are several procedural steps, including an appeals process, to complete before a final imputed underpayment, if any, is determined. Based on to-date discussions with the IRS, we estimate a potential range of this range assumesloss from a final imputed underpayment of $0 to approximately $25 million, including interest, for potential adjustments resulting from the IRS examination. Once a final partnership imputed underpayment, if any, is determined, our General Partner may either elect to pay the imputed underpayment (including any applicable penalties and interest) directly to the IRS or, if eligible, issue a revised information statement to each unitholder, and former unitholder, with respect to an audited and adjusted return.will be unableconduct our operations in a specified manner and to applyobtain 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 manufacturing exemption to any ofenvironment resulting from current or past operations may result in significant expenditures and liabilities in the transactions in question, which management believes is remote.future.12(10) Recent Accounting PronouncementsIn July 2015, the FASB agreed to defer by one year the mandatory effective date of the new revenue recognition standard to annual and interim periods in fiscal years beginning after December 15, 2017. We expect to elect the modified retrospective transition method for adoption to annual and interim periods beginning January 1, 2018 on contracts which are not completed on the transition date. We have identified similar performance obligations under the new accounting standard as compared with deliverables and separate units of account previously identified. As a result, we expect the timing of our revenue recognition will not be materially impacted under this new accounting standard. Furthermore, we expect that the revenue amounts we historically reported will not materially change as we apply the modified retrospective provisions of this new standard. We do not expect significant changes to our current accounting policies and are in the process of developing pro-forma quantitative and qualitative disclosures to reflect the nature, timing and uncertainty of cash flows, changes in contract balances, and significant judgments related to our performance obligations.In February 2016, the FASB issued a new leasing standard that increases transparency and comparability among organizations by, among other things, requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring both lessees and lessors to disclose expanded qualitative and quantitative information about leasing arrangements. Income recognition for lessors will remain substantially similar to current GAAP but with some changes to conform and align guidance with the new lessee guidance and other areas within GAAP, such as the new revenue recognition standard. The new leasing standard requires modified retrospective adoption, with elective reliefs, and becomes effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. We expect to adopt this new standard on January 1, 2019. We are in the process of evaluating the financial impact of adopting this standard on our consolidated financial statements.13You can identify manyMany of these statements can be identified by looking for words such as “believe,” “expect,” “intend,” “project,” “anticipate,” “estimate,” “continue”“continue,” “if,” “outlook,” “will,” “could,” “should,” or similar words or the negativenegatives thereof.inrepresented 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, 2022, filed on February 14, 2023 (our “2022 Annual Report”), in Part II, Item 1A (“Risk“Risk Factors”) and elsewhere in this report.our Quarterly Report for the quarter ended March 31, 2023, 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 general economic conditions, including inflation or supply chain disruptions and changes in economic conditions of the crude oil and natural gas industries, including any impact from the ongoing military conflict involving Russia and Ukraine;·changes in general economic conditions and changes in economic conditions of the crude oil and natural gas industry specifically;
•changes in the long-term supply of and demand for crude oil and natural gas, including as a result of the severity and duration of world health events, related economic repercussions, actions taken by governmental authorities and other third parties in response to such events, and the resulting disruption in the oil and gas industry and impact on demand for oil and gas;·competitive conditions in our industry;
•competitive conditions in our industry, including competition for employees in a tight labor market;·changes in the long-term supply of and demand for crude oil and natural gas;
•changes in the availability and cost of capital, including changes to interest rates;·our ability to realize the anticipated benefits of acquisitions and to integrate the acquired assets with our existing fleet;
•renegotiation of material terms of customer contracts;·actions taken by our customers, competitors and third-party operators;
•actions taken by our customers, competitors, and third-party operators;·the deterioration of the financial condition of our customers;
•operating hazards, natural disasters, epidemics, pandemics, weather-related impacts, casualty losses, and other matters beyond our control;·changes in the availability and cost of capital;
•the deterioration of the financial condition of our customers, which may result in the initiation of bankruptcy proceedings with respect to certain customers;·operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;
•the restrictions on our business that are imposed under our long-term debt agreements;·the effects of existing and future laws and governmental regulations; and
•information technology risks including the risk from cyberattacks, cybersecurity breaches, and other disruptions to our information systems;·the effects of future litigation.onas 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 andOverviewWe provide compression services in a number of 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. The demand for our services is driven by the domestic production of natural gas and crude oil; as such, we have focused our activities in areas of attractive natural gas and crude oil production growth, which are generally found in these shale and unconventional resource plays. According to studies promulgated by the Energy Information Agency (“EIA”), the production and transportation volumes in these shale plays are expected to increase over the long term due to the comparably attractive economic returns versus returns achieved in many conventional basins. Furthermore, the changes in production volumes and pressures of shale plays over time require a wider range of compression services than in conventional basins. We believe we are well-positioned to meet these changing operating conditions due to the flexibility of our compression units. While our business focuses largely on compression services serving infrastructure installations, including centralized natural gas gathering systems and processing facilities, which utilize large horsepower compression units, typically in shale plays, we also provide compression services in more mature conventional basins, including gas lift applications on crude oil wells targeted by horizontal drilling techniques. Gas lift, a process by which natural gas is injected into the production tubing of an existing producing well, thus14reducing the hydrostatic pressure and allowing the oil to flow at a higher rate, and other artificial lift technologies are critical to the enhancement of oil production from horizontal wells operating in tight shale plays.horsepower utilizationhorsepower-utilization percentages for the periods presented.presented and excludes certain gas-treating assets for which horsepower is not a relevant metric.Three Months Ended June 30, Six Months Ended June 30, 2023 2022 Increase 2023 2022 Increase Fleet horsepower (at period end) (1) 3,716,177 3,695,955 0.5 % 3,716,177 3,695,955 0.5 % Total available horsepower (at period end) (2) 3,836,177 3,749,145 2.3 % 3,836,177 3,749,145 2.3 % Revenue-generating horsepower (at period end) (3) 3,346,657 3,048,498 9.8 % 3,346,657 3,048,498 9.8 % Average revenue-generating horsepower (4) 3,309,758 3,027,886 9.3 % 3,275,527 3,003,154 9.1 % Average revenue per revenue-generating horsepower per month (5) $ 18.65 $ 17.20 8.4 % $ 18.42 $ 17.03 8.2 % Revenue-generating compression units (at period end) 4,220 4,014 5.1 % 4,220 4,014 5.1 % Average horsepower per revenue-generating compression unit (6) 787 759 3.7 % 784 757 3.6 % Horsepower utilization (7): At period end 93.7 % 88.4 % 5.3 % 93.7 % 88.4 % 5.3 % Average for the period (8) 93.4 % 87.9 % 5.5 % 93.0 % 86.4 % 6.6 %
(1)Fleet horsepower is horsepower for compression units that have been delivered to us (and excludes units on order). As of June 30, 2023, we had 120,000 large horsepower on order for delivery, all of which is expected to be delivered within the next twelve months and 95,000 large horsepower of which is expected to be delivered by year-end 2023.(1)Fleet horsepower is horsepower for compression units that have been delivered to us (and excludes units on order). As of September 30, 2017, we had 194,145 horsepower on order, of which 44,870 horsepower is ordered for delivery during the remainder of 2017.(2)Total available horsepower is revenue generating(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 subject to a purchase order, and idle horsepower. Total available horsepower excludes new horsepower on order for which we do not have a 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 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, not yet generating revenue and is subject to a purchase order, 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, 2017 and 2016 was 88.6% and 79.5%, 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, 2017 and 2016 was 88.4% and 78.8%, respectively. Average horsepower utilization based on revenue generating horsepower and fleet horsepower for the nine months ended September 30, 2017 and 2016 was 84.5% and 80.6%, respectively. The 2.4% increase in fleet horsepower as of September 30, 2017 over the fleet horsepower as of September 30, 2016 was attributable to the compression units added to our fleet to meet expected incremental demand by new and current customers for our compression services. The 14.2% and 6.6% increases in average revenue generating horsepower during the three and nine months ended September 30, 2017 over September 30, 2016, respectively, were primarily due to organic growth in our large horsepower fleet. The 1.4% and 3.3% decreases in average revenue per revenue generating horsepower per month for the three and nine months ended September 30, 2017 over September 30, 2016, respectively, were primarily due to (1) reduced pricing in the small horsepower portion of our fleet in the current period and (2) an increase in the average horsepower per revenue generating compression unit in the current period, resulting from an increase in the number of our large horsepower compression units which generally generate lower average revenue per revenue generating horsepower than do small horsepower compression units. 15Average horsepower utilization increased to 94.1% during the three months ended September 30, 2017 compared to 87.3% during the three months ended September 30, 2016. The 6.8% increase in average horsepower utilization is primarily attributable to the following changes as a percentage of total available horsepower: (1) a 7.1% increase in horsepower that is under contract but not yet generating revenue and (2)that is subject to a 3.9% decreasepurchase order, and idle horsepower. Total available horsepower excludes new horsepower on order for which we do not have an executed compression services contract.returnedadded to us not yet under contract,our fleet to meet incremental demand from customers for our compression services, partially offset by (3) a 5.6% decrease in idle horsepower under repair, which is excluded fromcompression units impaired since the average horsepower utilization calculation until such repair is complete. We believe theprevious period.averagerevenue-generating horsepower utilization isand 5.1% increase in revenue-generating compression units as of June 30, 2023, compared to June 30, 2022, primarily were driven by both the resultredeployment of, and addition of new, larger-horsepower compression units due to increased demand for our services commensurate with increased operating activityproduction levels in the oilbasins in which we operate.gas industry. 8.2% increases in average revenue per revenue-generating horsepower per month for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, respectively, 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.above noted fluctuation3.7% and 3.6% increases in average horsepower per revenue-generating compression unit during the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, respectively, were due to both the redeployment of, and addition of new, larger-horsepower compression units.components describesincreased to 93.7% as of June 30, 2023, compared to 88.4% as of June 30, 2022. The increase primarily was due to an increase in revenue-generating horsepower, which was driven by a combination of the changeredeployment of certain previously idle compression units as well as the deployment of new compression units added to the fleet. The increase in both period end andhorsepower utilization resulted from increased demand for our services, consistent with increased production levels in the basins in which we operate. The above-stated factors also drove the increase in average horsepower utilization betweenfor the ninethree and six months ended SeptemberJune 30, 20172023, as compared to the three and 2016.Average horsepowersix months ended June 30, 2022.revenue generatingrevenue-generating horsepower and fleet horsepower increased to 88.4% during the three months ended September90.1% as of June 30, 20172023, compared to 78.8% during the three months ended September82.5% as of June 30, 2016.2022. The 9.6% increase is primarily attributable to an increase in total active horsepower utilization based on revenue-generating horsepower and fleet horsepower primarily was driven by the redeployment of certain previously idle compression units as a result ofwell as the following changes as a percentage of total fleet horsepower: (1) a 5.6% decrease in idle horsepower under repair, (2) a 1.9% decrease in our average idle fleet composeddeployment of new compression units added to the fleet. The increase in horsepower utilization based on revenue-generating horsepower and (3) a 2.0% decrease in our average idle fleet from compression units returned to us. The overall decrease in idle horsepower is the result ofresulted from increased demand for our services, commensurateconsistent with increased operating activityproduction levels in the oil and gas industry. Thesebasins in which we operate. The above-stated factors also describedrove the variancesincrease in both period end and average horsepower utilization based on revenue generatingrevenue-generating horsepower and fleet horsepower betweenfor the ninethree and six months ended SeptemberJune 30, 20172023, as compared to the three and 2016.SeptemberJune 30, 20172023, compared to the three months ended SeptemberJune 30, 2016Three Months Ended June 30, Increase 2023 2022 (Decrease) Revenues: Contract operations $ 196,982 $ 163,969 20.1 % Parts and service 4,102 3,605 13.8 % Related party 5,836 3,887 50.1 % Total revenues 206,920 171,461 20.7 % Costs and expenses: Cost of operations, exclusive of depreciation and amortization 69,922 55,158 26.8 % Depreciation and amortization 60,039 58,959 1.8 % Selling, general, and administrative 14,950 13,914 7.4 % Gain on disposition of assets 309 1,031 * Impairment of compression equipment 10,273 — * Total costs and expenses 155,493 129,062 20.5 % Operating income 51,427 42,399 21.3 % Other income (expense): Interest expense, net (42,045) (33,079) 27.1 % Gain on derivative instrument 14,550 — * Other 57 21 171.4 % Total other expense (27,438) (33,058) (17.0) % Net income before income tax expense 23,989 9,341 156.8 % Income tax expense 405 255 58.8 % Net income $ 23,584 $ 9,086 159.6 % During the three months ended September 30, 2017, we experienced a year-to-year increase in demand for our compression services driven by increased operating activity in natural gas and crude oil16production, resulting in an $8.1The $33.0 million increase in our contract operations revenue. Average revenue generating horsepower increased 14.2% during the three months ended September 30, 2017 over September 30, 2016 while average revenue per revenue generating horsepower per month decreased from $15.35 for the three months ended SeptemberJune 30, 20162023, compared to $15.13 for the three months ended SeptemberJune 30, 2017,2022, primarily was due to (i) a decrease9.3% increase in average revenue-generating horsepower as a result of 1.4%, attributable, in part, to reduced pricingincreased demand for our services, consistent with increased production levels in the current periodbasins in the small horsepower portion of our fleet. The decreasewhich we operate, (ii) an 8.4% increase in average revenue per revenue generatingrevenue-generating horsepower per month, was alsoas 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 (iii) a $7.2 million increase in revenues attributable to the 3.1% increase in thenatural gas compression station services and natural gas treating services. horsepower per revenue generating compression unit in the current period, as large horsepower compression units typically generate lower average monthly revenue per revenue generating horsepower than do small horsepower compression units. Average revenue per revenue generatingrevenue-generating horsepower per month associated with our compression services provided on a month-to-month basis did not differ significantly differ from the average revenue per revenue generatingrevenue-generating horsepower per month associated with our compression services provided under contracts in thetheir primary term. Our contract operations revenue was not materially impacted by any renegotiations of our contracts with our customersterm during the period.$3.5$0.5 million increase in parts and service revenue for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily was primarily attributabledue to (1) a $1.7 million increase in revenue associated with installation services, (2) a $1.5 millionan increase in maintenance work performed on units at our customers'customer locations that are outside the scope of our core maintenance activities and (3)that are offered as a $0.3 million increaseconvenience, and in directly reimbursable freight and crane charges that are directly reimbursable by ourthe financial responsibility of the customers. We offer theseDemand for retail parts and services as a courtesy to our customers and the demand fluctuates from period to period based on varying customer needs.varying needsordinary course of business with various affiliated entities of Energy Transfer. The $1.9 million increase in related-party revenue for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily was due to (i) an increase in revenues attributable to natural gas treating services driven by increased demand for these services from these entities, (ii)customers.$4.6$14.8 million increase in cost of operations was primarily attributable to a $2.1 million increase in parts and service expenses, which included (1) a $0.8 million increase in costs associated with our installation services, (2) a $0.8 million increase in costs associated with our maintenance work on units at our customers’ locations that are outside the scope of our core maintenance activities and (3) a $0.4 million increase in costs associated with freight and crane charges that are directly reimbursable by our customers. Additionally during the period, we experienced a $1.9 million increase in direct expenses, such as parts maintenance and fluids expenses, primarily driven by an increase in fluids prices and an increase in maintenance activity during the current period due to an increase in revenue generating horsepower.Gross operating margin. The $7.1 million increase in gross operating margin was primarily due to an increase in revenues, partially offset by an increase in cost of operations, exclusive of depreciation and amortization, includingfor the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily was due to (i) an $8.2 million increase in direct expenses, primarily driven by fluids and parts due to higher costs and increased usage associated with increased revenue-generating horsepower, (ii) a $1.4$3.0 million increase in direct labor costs due to increased headcount associated with increased revenue-generating horsepower and higher employee costs, (iii) a $1.5 million increase in outside maintenance costs due to greater use and higher costs of third-party labor during the current period, and (iv) a $1.0 million increase in retail parts and service expenses, for which a corresponding increase in parts and service gross operating margin duringrevenue also occurred.SeptemberJune 30, 2017.$0.7$1.0 million decreaseincrease in selling, general, and administrative expense for the three months ended SeptemberJune 30, 2017 was primarily attributable to a $0.8 million decrease in unit-based compensation expense. Unit-based compensation expense decreased primarily due to (1) a fewer number of outstanding phantom units as of September 30, 20172023, compared to Septemberthe three months ended June 30, 2016 and (2) a fewer number of outstanding phantom units on which distribution equivalent rights were paid as of each record date during the comparable periods.Depreciation and amortization expense. The $1.6 million increase in depreciation and amortization expense2022, primarily was primarily relateddue to an increase in gross propertyemployee-related expenses driven by increased headcount and higher employee costs.balances duringfor the three months ended SeptemberJune 30, 2017 compared to gross balances during2023, primarily was the three months ended September 30, 2016. There was no variance in amortization expense between the same periods, as intangible assets are amortized on a straight-line basis and there has been no change in gross identifiable intangible assets between the periods.Loss (gain) on dispositionresult of assets. During the three months ended September 30, 2016, the net gain on sale of assets is primarily attributable to cash insurance recoveries of $0.1 million received on previously impaired compression equipment and a $0.1 million gain on disposal of non-unit assets.Impairment of compression equipment. The $1.1 million and $3.4 million impairment charge during the three months ended September 30, 2017 and 2016, respectively, resulted from our evaluation of the future deployment of our current idle fleet under currentthen-existing market conditions. determined to retire, sell or re-utilize key components ofretired 33 compression units, with a totalrepresenting approximately 26,900 of 2,728 and 10,407aggregate horsepower, respectively, whichthat previously were previously used to provide compression services in our business.The cause of theduringwas recorded for the three months ended SeptemberJune 30, 2017 was due to the type of units, which were not marketable, and were subject to excessive maintenance costs. The cause of the impairment during the three months ended September 30, 2016 was due to certain performance characteristics of the impaired equipment, such as excessive maintenance costs and the inability of the equipment to meet2022.17current emission standards without retrofitting. We determined that this equipment was unlikely to be accepted by customers under then-current market conditions. $1.3$9.0 million increase in interest expense, net was primarily attributable to an increase in our weighted average interest rate under our revolving credit facility. Our revolving credit facility bore an interest rate of 3.25% and 2.57% at September 30, 2017 and 2016, respectively, and a weighted average interest rate of 3.25% and 2.53% for the three months ended SeptemberJune 30, 20172023, compared to the three months ended June 30, 2022, primarily was due to increased borrowings and 2016, respectively. The increase in our weighted averagehigher weighted-average interest rate was partially offset by a $1.2 million decrease in average outstanding borrowingsrates under our revolving credit facility. the Credit Agreement.our revolving credit facility the Credit Agreement were $742.5 million for thethree months ended September 30, 2017 compared to $743.7$745.1 million for the three months ended SeptemberJune 30, 2016. Nine2023, compared to $566.8 million for the three months ended SeptemberJune 30, 20172022, and the weighted-average interest rate applicable to borrowings under the Credit Agreement was 7.63% and 3.59% for the three months ended June 30, 2023, and 2022, respectively.ninesix months ended SeptemberJune 30, 2016Six Months Ended June 30, 2023 2022 Increase Revenues: Contract operations $ 385,521 $ 321,637 19.9 % Parts and service 7,980 5,531 44.3 % Related party 10,543 7,705 36.8 % Total revenues 404,044 334,873 20.7 % Costs and expenses: Cost of operations, exclusive of depreciation and amortization 136,587 108,890 25.4 % Depreciation and amortization 119,525 118,023 1.3 % Selling, general, and administrative 34,051 29,179 16.7 % Loss (gain) on disposition of assets (67) 852 * Impairment of compression equipment 11,464 432 * Total costs and expenses 301,560 257,376 17.2 % Operating income 102,484 77,497 32.2 % Other income (expense): Interest expense, net (81,835) (64,917) 26.1 % Gain on derivative instrument 14,550 — * Other 81 41 97.6 % Total other expense (67,204) (64,876) 3.6 % Net income before income tax expense 35,280 12,621 179.5 % Income tax expense 755 281 168.7 % Net income $ 34,525 $ 12,340 179.8 % . During for the ninesix months ended SeptemberJune 30, 2017, we experienced2023, compared to the six months ended June 30, 2022, primarily was due to (i) a year-to-year9.1% increase in average revenue-generating horsepower as a result of increased demand for our compression services, resulting in a $4.8 million increase in our contract operations revenue. Average revenue generating horsepowerconsistent with increased 6.6% during the nine months ended September 30, 2017 over September 30, 2016 while average revenue per revenue generating horsepower per month decreased from $15.53 for the nine months ended September 30, 2016 to $15.02 for the nine months ended September 30, 2017, a decrease of 3.3%, attributable, in part, to reduced pricingproduction levels in the current periodbasins in the small horsepower portion of our fleet. The decreasewhich we operate, (ii) an 8.2% increase in average revenue per revenue generatingrevenue-generating horsepower per month, was alsoas 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 (iii) a $13.4 million increase in revenues attributable to the 3.4% increase in thenatural gas compression station services and natural gas treating services. horsepower per revenue generating compression unit in the current period, as large horsepower compression units typically generate lower average monthly revenue per revenue generating horsepower than do small horsepower compression units. Average revenue per revenue generatingrevenue-generating horsepower per month associated with our compression services provided on a month-to-month basis did not differ significantly differ from the average revenue per revenue generatingrevenue-generating horsepower per month associated with our compression services provided under contracts in thetheir primary term. Our contract operations revenue was not materially impacted by any renegotiations of our contractsterm during the period with our customers.period.18$9.0$2.4 million increase in parts and service revenue for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily was primarily attributabledue to (1) a $5.9 million increase in revenue associated with installation services, (2) a $1.8 millionan increase in maintenance work performed on units at our customers'customer locations that are outside the scope of our core maintenance activities and (3)that are offered as a $1.3 million increaseconvenience, and in directly reimbursable freight and crane charges that are directly reimbursable by ourthe financial responsibility of the customers. We offer theseDemand for retail parts and services as a courtesy to our customers and the demand fluctuates from period to period based on varying customer needs.varying needsordinary course of business with various affiliated entities of Energy Transfer. The $2.8 million increase in related-party revenue for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily was due to (i) an increase in revenues attributable to natural gas treating services driven by increased demand for these services from these entities, (ii) increased average revenue-generating horsepower under contract with these entities, and (iii) increased average revenue per revenue-generating horsepower per month, consistent with the overall increase to our customers.$9.2$27.7 million increase in cost of operations was primarily attributable to a $5.3 million increase in parts and service expenses, which included (1) a $2.7 million increase in costs associated with our installation services, (2) a $1.4 million increase in costs associated with our maintenance work on units at our customers’ locations that are outside the scope of our core maintenance activities and (3) a $1.2 million increase in costs associated with freight and crane charges that are directly reimbursable by our customers. Additionally during the period, we experienced a $3.7 million increase in direct expenses, such as parts maintenance and fluids expenses, primarily driven by an increase in fluids prices and an increase in maintenance activity during the current period due to an increase in revenue generating horsepower.Gross operating margin. The $4.7 million increase in gross operating margin was primarily due to an increase in revenues, partially offset by an increase in cost of operations, exclusive of depreciation and amortization, includingfor the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily was due to (i) a $3.7$15.6 million increase in direct expenses, primarily driven by fluids and parts due to higher costs and increased usage associated with increased revenue-generating horsepower, (ii) a $5.2 million increase in direct labor costs due to increased headcount associated with increased revenue-generating horsepower and higher employee costs, (iii) a $3.2 million increase in outside maintenance costs due to greater use and higher costs of third-party labor during the current period, and (iv) a $2.0 million increase in retail parts and service expenses, for which a corresponding increase in parts and service gross operating margin duringrevenue also occurred.ninesix months ended SeptemberJune 30, 2017.$0.1$4.9 million increase in selling, general, and administrative expense for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily was primarily attributabledue to (1)(i) a $1.0$2.9 million increase in bad debtunit-based compensation expense, due primarilyattributable to mark-to-market changes to our unit-based compensation liability that occurred as a $1.2result of changes to our per-unit trading price as of June 30, 2023, (ii) a $1.1 million recovery of bad debt expense during the nine months ended September 30, 2016, offsetincrease in employee-related expenses driven by (2)increased headcount and higher employee costs, and (iii) a $0.7 million decreasereversal of previously recognized credit losses in payroll and benefits expenses. Depreciation and amortization expense. The $4.8 million increase in depreciation and amortization expense was primarily related to an increase in gross property and equipment balances during the nine months ended September 30, 2017 compared to gross balances during the nine months ended September 30, 2016. There was no variance in amortization expense between the same periods, as intangible assets are amortized on a straight-line basis and there has been no change in gross identifiable intangible assets between the periods.Loss (gain) on disposition of assets. During the nine months ended September 30, 2017, we recognized a $0.2 million gain on the sale of a compression unit. During the nine months ended September 30, 2016, we abandoned certain assets and incurred a $1.0 million loss.$4.8$11.5 million and $4.1$0.4 million impairment charge duringimpairments of compression equipment for the ninesix months ended SeptemberJune 30, 20172023, and 2016,2022, respectively, primarily resulted from our evaluation of the future deployment of our current idle fleet assets under the currentthen-existing 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.evaluation, evaluations during the six months ended June 30, 2023, and 2022, we determined to retire, sell or re-utilize key components ofretired 39 and 10 compression units, respectively, with a total of 10,734approximately 35,600 and 12,0991,400 aggregate horsepower, respectively, whichthat previously were previously used to provide compression services in our business.The cause of the impairment during the nine months ended September 30, 2017 was due to the type of units, which were not marketable, and were subject to excessive maintenance costs. The cause of the impairment during the nine months ended September 30, 2016 was due to certain performance characteristics of the impaired equipment, such as excessive maintenance costs and the inability of the equipment to meet current emission standards without retrofitting. We determined that this equipment was unlikely to be accepted by customers under then-current market conditions. $2.8$16.9 million increase in interest expense, net for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily was primarily attributabledue to an increase in our weighted averagehigher weighted-average interest rates and increased borrowings under the Credit Agreement.our revolving credit facility. Our revolving credit facility bore an interest rate of 3.25%the Credit Agreement was 7.40% and 2.57% at September3.21% for the six months ended June 30, 20172023, and 2016,2022, respectively, and a weighted average interest rate of 3.09% and 2.49% for the nine months ended September 30, 2017 and 2016, respectively. The increase in our weighted average interest rate was partially offset by an $18.4 million decrease in average outstanding borrowings under our revolving credit facility. Average outstanding borrowings under our revolving credit facility the Credit Agreement were $724.5$707.7 million and $553.5 million for thenine six months ended SeptemberJune 30, 20172023, and 2022, respectively.$742.9 million for the ninesix months ended SeptemberJune 30, 2016. During December 2016, we completed a public equity offering and utilized2022, primarily was related to taxes associated with the net proceeds of $80.9 million to reduce indebtedness outstanding under our revolving credit facility.Texas Margin Tax.19Other Financial Data: (1) Three Months Ended
June 30,Increase Six Months Ended
June 30,Increase 2023 2022 (Decrease) 2023 2022 (Decrease) Gross margin $ 76,959 $ 57,344 34.2 % $ 147,932 $ 107,960 37.0 % Adjusted gross margin $ 136,998 $ 116,303 17.8 % $ 267,457 $ 225,983 18.4 % Adjusted gross margin percentage (2) 66.2 % 67.8 % (1.6) % 66.2 % 67.5 % (1.3) % Adjusted EBITDA $ 124,998 $ 105,408 18.6 % $ 243,159 $ 203,831 19.3 % Adjusted EBITDA percentage (2) 60.4 % 61.5 % (1.1) % 60.2 % 60.9 % (0.7) % DCF $ 67,038 $ 55,576 20.6 % $ 129,651 $ 105,722 22.6 % DCF Coverage Ratio 1.30 x 1.08 x 20.4 % 1.26 x 1.03 x 22.3 % (1)Gross operating(1)Adjusted gross margin, Adjusted EBITDA, Distributable Cash Flow (“DCF”), DCF Coverage Ratio and Cash 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)Gross operating margin percentage and Adjusted EBITDA percentage are calculated as a percentage of revenue.(3)Definitions of DCF and DCF Coverage Ratio can be found below under the caption “—Non-GAAP Financial Measures”.Adjusted EBITDA. Adjusted EBITDA, duringDistributable 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”.SeptemberJune 30, 2017 increased $6.2 million, or 17.9%, over2023, compared to the three months ended SeptemberJune 30, 2016, primarily2022, was due to (i) a $7.1$35.5 million increase in revenues, partially offset by (ii) a $14.8 million increase in cost of operations, exclusive of depreciation and amortization, and (iii) a $1.1 million increase in depreciation and amortization.operatingmargin for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, was due to (i) a $69.2 million increase in revenues, partially offset by (ii) a $27.7 million increase in cost of operations, exclusive of depreciation and amortization, and (iii) a $1.5 million increase in depreciation and amortization.$0.9$14.8 million increase in cost of operations, exclusive of depreciation and amortization.non-recurring charges, duringmarket-based price increases on customer contracts that occur as market conditions permit.SeptemberJune 30, 2017.Adjusted EBITDA during2023, compared to the ninethree months ended SeptemberJune 30, 2017 increased $3.4 million, or 3.1%, over the nine months ended September 30, 2016,2022, primarily was due to (i) a $4.7$20.7 million increase in Adjusted gross operating margin and (ii) a $1.2 million increase in cash$1.4$9.0 million increase in cash interest expense, net and (iv) a $1.2 million increase in selling, general, and administrative expenses, excluding unit-based compensation expense and other non-recurring charges, during the nine months ended September 30, 2017.DCF.severance charges.$3.6 million, or 13.2%, increase in DCF during the three months ended September 30, 2017 was primarily attributable to (1) a $7.1$23.9 million increase in gross operating margin and offset by (2)DCF for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily was due to (i) a $1.1$41.5 million increase in maintenance capital expenditures, (3)Adjusted gross margin and (ii) a $0.9$1.2 million increase in cash received on derivative instrument, partially offset by (iii) a $16.9 million increase in cash interest expense, net and (iv) a $2.2 million increase in selling, general and administrative expenses, excluding unit-based compensation expense, severance charges, and other non-recurring charges and (4) a $1.3 milliontransaction expenses.cash interest expense, net, during the comparable period. Maintenance capital expenditures were higher duringDCF Coverage Ratio for the three and six months ended SeptemberJune 30, 2017 than2023, compared to the three and six months ended SeptemberJune 30, 20162022, was due to increased maintenance activity during the current period.The $4.5 million, or 5.0%, decreaseincrease in DCF, during the nine months ended September 30, 2017 was primarily attributablepartially offset by increased distributions due to (1) a $5.0 millionan increase in maintenance capital expenditures, (2) a $1.4 million increase in selling, general and administrative expenses, excluding unit-based compensation expense and other non-recurring charges, (3) a $2.7 million increase in cash interest expense, net, and offset by (4) a $4.7 million increase in gross operating margin, during the comparable period. Maintenance capital expenditures were higher during the nine months ended September 30, 2017 than the nine months ended September 30, 2016 due to increased maintenance activity during the current period.Coverage Ratios. The disproportionate decrease in Cash Coverage Ratio (as compared to DCF Coverage Ratio) for the nine months ended September 30, 2017 compared to September 30, 2016 is due to period-to-period decreases in DRIP participation by USA Compression Holdings.20are to financeinclude financing the purchase of additional compression units, and makemaking other capital expenditures, serviceservicing our debt, fundfunding working capital, and pay distributions.paying cash distributions on our outstanding preferred and common equity. Our principal sources of liquidity include cash generated by operating activities, borrowings under our revolving credit facilitythe Credit Agreement, and issuances of debt and equity securities, including common units under the DRIP.our revolving credit facilitythe Credit Agreement will be sufficient to service our debt, fund working capital, fund our estimated 2017 expansion capital expenditures, fund our maintenance capital expenditures, and pay distributions throughto our unitholders for the remainder of 2017. next 12 months.our revolving credit facilitythe Credit Agreement and issuances of debt and equity securities, including under the DRIP.Cash FlowsThe following table summarizes our sources and uses of cash for the nine months ended September 30, 2017 and 2016 (in thousands):Net cash provided by operating activities. The $9.3 million decrease in net cash provided by operating activities for the nine months ended September 30, 2017 was due primarily to purchases of inventory and changes in other working capital. Net cash used in investing activities. Net cash used in investing activities for the nine months ended September 30, 2017 and 2016 related primarily to purchases of new compression units, reconfiguration costs and related equipment.Net cash used in financing activities. During the nine months ended September 30, 2017, we borrowed $66.6 million, on a net basis, primarily to support our purchases of new compression units, reconfiguration costs and related equipment, as described above. Additionally, we paid cash related to net settlement of unit-based awards in the amount of $2.8 million and made cash distributions to our unitholders of $83.2 million.During the nine months ended September 30, 2016, we borrowed $14.8 million, on a net basis, primarily to support our purchases of new compression units, reconfiguration costs and related equipment, as described above. Additionally, we paid various loan fees and incurred costs in respect of our revolving credit facility in the amount of $2.0 million and made cash distributions to our unitholders of $61.4 million. primarily of, and we anticipate that our capital requirements will continue primarily to consist primarily 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; and21
•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.·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 were not currently generating operating income.individual assetindividual-asset basis. Over the long-term,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 ninesix months ended SeptemberJune 30, 20172023, and 20162022, were $10.4$11.4 million and $5.4$12.0 million, respectively. We currently plan to spend approximately $13.5$25.0 million in maintenance capital expenditures during 2017,for the year 2023, including parts consumed from inventory.have budgetedplan to spend between $105$260.0 million and $110$270.0 million in expansion capital expenditures during 2017. for the year 2023. Our expansion capital expenditures for the ninesix months ended SeptemberJune 30, 20172023, and 20162022, were $66.3$122.8 million and $31.6$52.3 million, respectively.SeptemberJune 30, 2017,2023, we had binding commitments to purchase $151.5$121.4 million worth of additional compression units and serialized parts, all of which we expect $36.4 millionis expected to be deliveredsettled within the next twelve months and $95.7 million of which is expected to be settled by year-end 2023.Six Months Ended June 30, 2023 2022 Net cash provided by operating activities $ 130,209 $ 129,282 Net cash used in investing activities (105,309) (42,870) Net cash used in financing activities (24,904) (86,412) remaindersix months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily was due to (i) a $41.5 million increase in Adjusted gross margin, partially offset by (ii) a $20.7 million increase in inventory purchases and (iii) a $17.9 million increase in cash paid for interest expense, net of 2017.SeptemberJune 30, 2017 we were in compliance with all of our covenants under our revolving credit facility. As of September 30, 2017,2023, we had outstanding borrowings under our revolving credit facilitythe Credit Agreement of $752.0$750.4 million, $288.6$849.6 million of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $104.9$327.6 million. OneAs of the financial covenants under our revolving credit facility permits a maximum leverage ratio of (A) 5.25 to 1.0 as of the end of the respective fiscal quarters ending SeptemberJune 30, 2017 and December 31, 2017 and (B) 5.00 to 1.0 thereafter, in each case subject to a provision for increases in such thresholds by 0.5 in connection with certain future acquisitions for the six consecutive month period following the period in which any such acquisition occurs. We expect to remain2023, we were in compliance with our covenants throughout the next twelve months. If our current cash flow projections prove to be inaccurate, we expect to be able to remain in compliance with such financial covenants by one or more of the following actions: issue equity in conjunction with the acquisition of another business; issue equity in a public or private offering; request a modificationall of our covenants from our bank group; reduce distributions from our current distribution rate or obtain an equity infusion pursuant tounder the terms of our revolving credit facility.November 3, 2017,July 27, 2023, we had outstanding borrowings under our revolving credit facilitythe Credit Agreement of $747.2$765.0 million.our revolving credit facility, pleasethe Credit Agreement, see Note 68 to theour unaudited condensed consolidated financial statements underin Part I, Item 1 “Financial Statements” of this report and Note 79 to the consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data” included in our 2022 Annual ReportReport.Form 10-Kour Senior Notes 2026 and Senior Notes 2027, respectively.year ended December 31, 2016 filed on February 13, 2017 (our “2016 Annual Report”).Distribution Reinvestment Planninesix months ended SeptemberJune 30, 2017,2023, distributions of $17.4$1.0 million were reinvested under the DRIP resulting in the issuance of 1.1 million50,800 common units. Such distributions are treated as non-cash transactions in the accompanying Unaudited Condensed Consolidated Statementsunaudited condensed consolidated statements of Cash Flowscash flows included under Part I, Item 1 “Financial Statements” of this report.For a more detailed description of the DRIP, please see Note 7 to our unaudited condensed consolidated financial statements under Part I, Item 1 of this report and Note 8 to the consolidated financial statements included in our 2016 Annual Report.Operating MarginGross operating operating margin as revenue less cost of operations, exclusive of depreciation and amortization expense. We believe thatAdjusted gross operating margin is useful to investors as a22Gross operatingAdjusted gross margin primarily is impacted primarily by the pricing trends for service operations and cost of operations, including labor rates for service technicians, volume, and per unitper-unit costs for lubricant oils, quantity and pricing of routine preventative maintenance on compression units, and property tax rates on compression units. Gross operatingAdjusted gross margin should not be considered an alternative to, or more meaningful than, operating incomegross margin or any other measure of financial performance presented in accordance with GAAP. Moreover, our Adjusted gross operating 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 costs.cost structure. To compensate for the limitations of Adjusted gross operating margin as a measure of our performance, we believe that it is important to consider operating incomegross margin determined under GAAP, as well as Adjusted gross operating margin, to evaluate our operating profitability. operating margin to operating income,gross margin, its most directly comparable GAAP financial measure, for each of the periods presented (in thousands):Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Total revenues $ 206,920 $ 171,461 $ 404,044 $ 334,873 Cost of operations, exclusive of depreciation and amortization (69,922) (55,158) (136,587) (108,890) Depreciation and amortization (60,039) (58,959) (119,525) (118,023) Gross margin $ 76,959 $ 57,344 $ 147,932 $ 107,960 Depreciation and amortization 60,039 58,959 119,525 118,023 Adjusted gross margin $ 136,998 $ 116,303 $ 267,457 $ 225,983 expense.expense (benefit). We define Adjusted EBITDA as EBITDA plus impairment of compression equipment, impairment of goodwill, interest income on capital lease,leases, unit-based compensation expense (benefit), severance charges, certain transaction fees,expenses, loss (gain) on disposition of assets, loss (gain) on derivative instrument, and other. We view Adjusted EBITDA as one of management’s primary tools for evaluating our primary management tools,results of operations, and we track this item on a monthly basis both 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 financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets;
•the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;·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·the ability of our assets to generate cash sufficient to make debt payments and to make 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.·our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods and capital structure. that Adjusted EBITDA provides useful information to investors because, when viewed in conjunction with our GAAP results and the accompanying reconciliations, it providesmay provide a more complete understandingassessment of our performance thanas compared to considering solely GAAP23results alone. results. We also believe that external users of our financial statements benefit from having access to the same financial measures that management uses in evaluatingto evaluate the results of our business.of financial performance or liquidity presented in accordance with GAAP as measures of operating performance and liquidity.GAAP. Moreover, our Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. also necessary elements of our aggregate costs. Expense associated with unit-basedUnit-based compensation expense related to equity awards granted to employees also is also a necessary component of our business.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 both 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 our liquidity. Our Adjusted EBITDA excludes some, but not all, items that affect net income (loss) and net cash provided by operating activities, and these measuresexcluded items may vary among companies. Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management’stheir decision making processes. (loss) and net cash provided by operating activities, its most directly comparable GAAP financial measures, for each of the periods presented (in thousands):(1)For the three and nine months ended September 30, 2017, unit-based compensation expense included $0.6 million and $1.9 million, respectively, of cash payments related to quarterly payments of distribution equivalent rights on outstanding phantom unit awards and, for the nine months ended September 30, 2017, $0.4 million related to the cash portion of any settlement of phantom unit awards upon vesting. For the three and nine months ended September 30, 2016, unit-based compensation expense included $0.7 million and $2.2 million, respectively, of cash payments related to quarterly payments of distribution equivalent rights on phantom unit awards and, for the nine months ended September 30, 2016, $0.1 million related to the cash portion of any settlement of phantom unit awards upon vesting. The remainder of the unit-based compensation expense for both periods was related to non-cash adjustments to the unit-based compensation liability.Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net income $ 23,584 $ 9,086 $ 34,525 $ 12,340 Interest expense, net 42,045 33,079 81,835 64,917 Depreciation and amortization 60,039 58,959 119,525 118,023 Income tax expense 405 255 755 281 EBITDA $ 126,073 $ 101,379 $ 236,640 $ 195,561 Unit-based compensation expense (1) 2,849 2,998 9,628 6,708 Transaction expenses (2) — — — 27 Severance charges 44 — 44 251 Loss (gain) on disposition of assets 309 1,031 (67) 852 Gain on derivative instrument (14,550) — (14,550) — Impairment of compression equipment (3) 10,273 — 11,464 432 Adjusted EBITDA $ 124,998 $ 105,408 $ 243,159 $ 203,831 Interest expense, net (42,045) (33,079) (81,835) (64,917) Non-cash interest expense 1,819 1,815 3,641 3,637 Income tax expense (405) (255) (755) (281) Transaction expenses — — — (27) Severance charges (44) — (44) (251) Cash received on derivative instrument 1,216 — 1,216 — Other 34 (179) 19 (883) Changes in operating assets and liabilities 2,298 20,518 (35,192) (11,827) Net cash provided by operating activities $ 87,871 $ 94,228 $ 130,209 $ 129,282 24
(3)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.(2)Represents certain transaction expenses related to potential acquisitions and other items. The Partnership believes it is useful to investors to exclude these fees.fees,expenses, severance charges, loss (gain) on disposition of assets, change in fair value of derivative instrument, proceeds from insurance recovery, and other, less distributions on Preferred Units and maintenance capital expenditures.basicthe cash flows that we generate (prior(after distributions on the Preferred Units but prior to any retained cash reserves established by our general partnerthe General Partner and the effect of the DRIP) to the cash distributions that we expect to pay our common unitholders. Using DCF, management can quickly compute the coverage ratio of estimated cash flows to planned cash distributions. as an alternative to, or more meaningful than, net income (loss), operating income (loss), cash flows from operating activities, or any other measure of financial performance presented in accordance with GAAP as measures of operating performance and liquidity.GAAP. Moreover, our DCF, as presented, may not be comparable to similarly titled measures of other companies.elementscomponents of our aggregate costs. Expense related to unit-basedUnit-based compensation expense related to equity awards granted to employees also is also a necessary component of our business.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 both net income (loss) and net cash provided by operating activities as determined under GAAP, as well as DCF, to evaluate our financial performance and our liquidity. Our DCF excludes some, but not all, items that affect net income (loss) and net cash provided by operating activities, and these measuresexcluded items may vary among companies. Management compensates for the limitations of DCF as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management’stheir decision making processes. (loss) and net cash provided by operating activities, its most directly comparable GAAP financial measures, for each of the periods presented (in thousands):Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net income $ 23,584 $ 9,086 $ 34,525 $ 12,340 Non-cash interest expense 1,819 1,815 3,641 3,637 Depreciation and amortization 60,039 58,959 119,525 118,023 Non-cash income tax expense (benefit) 34 21 19 (183) Unit-based compensation expense (1) 2,849 2,998 9,628 6,708 Transaction expenses (2) — — — 27 Severance charges 44 — 44 251 Loss (gain) on disposition of assets 309 1,031 (67) 852 Change in fair value of derivative instrument (13,334) — (13,334) — Impairment of compression equipment (3) 10,273 — 11,464 432 Distributions on Preferred Units (12,188) (12,188) (24,375) (24,375) Maintenance capital expenditures (4) (6,391) (6,146) (11,419) (11,990) DCF $ 67,038 $ 55,576 $ 129,651 $ 105,722 Maintenance capital expenditures 6,391 6,146 11,419 11,990 Transaction expenses — — — (27) Severance charges (44) — (44) (251) Distributions on Preferred Units 12,188 12,188 24,375 24,375 Other — (200) — (700) Changes in operating assets and liabilities 2,298 20,518 (35,192) (11,827) Net cash provided by operating activities $ 87,871 $ 94,228 $ 130,209 $ 129,282 (1)For the three and nine months ended September 30, 2017, unit-based compensation expense included $0.6 million and $1.9 million, respectively, of cash payments related to quarterly payments of distribution equivalent rights on outstanding phantom unit awards and, for the nine months ended September 30, 2017, $0.4 million related to the cash portion of any settlement of phantom unit awards upon vesting. For the three and nine months ended September 30, 2016, unit-based compensation expense25
(2)Represents certain expenses related to potential and completed transactions and other items. We believe it is useful to investors to exclude these expenses.included $0.7 million and $2.2 million, respectively, of cash payments related to quarterly payments of distribution equivalent rights on phantom unit awards and, for the nine months ended September 30, 2016, $0.1 million related to the cash portion of any settlement of phantom unit awards upon vesting. The remainder of the unit-based compensation expense for both periods was related to non-cash adjustments to the unit-based compensation liability.(2)Represents certain transaction expenses related to potential acquisitions and other items. The Partnership believes it is useful to investors to exclude these fees.(3)Reflects actual maintenance capital expenditures for the period presented. Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets, to maintain the operating capacity of our assets and extend their useful lives, or other capital expenditures that are incurred in maintaining our existing business and related cash flow.Ratios less cash distributions to be paid to our general partner and IDRs in respect of such period, divided by distributions declared to limited partnercommon unitholders in respect of such period. Cash Coverage Ratio is defined as DCF less cash distributions to be paid to our general partner and IDRs in respect of such period, divided by cash distributions expected to be paid to limited partner unitholders in respect of such period, after taking into account the non-cash impact of the DRIP. We believe DCF Coverage Ratio and Cash Coverage Ratio areis an important measuresmeasure of operating performance because they allowit permits management, investors, and others to gaugeassess our ability to pay cash distributions to limited partnercommon unitholders usingout of the cash flows that we generate. Our DCF Coverage Ratio and Cash Coverage Ratio, as presented, may not be comparable to similarly titled measures of other companies.certain coverage ratiosour DCF Coverage Ratio for the periods presented (dollars(dollars in thousands):Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 DCF $ 67,038 $ 55,576 $ 129,651 $ 105,722 Distributions for DCF Coverage Ratio (1) $ 51,596 $ 51,419 $ 103,181 $ 102,542 DCF Coverage Ratio 1.30 x 1.08 x 1.26 x 1.03 x
Critical Accounting Estimates(1)Represents distributions to the holders of our common units as of the record date for each period.(2)Represents distributions to holders enrolled in the DRIP as of the record date for each period. The amount for the three and nine months ended September 30, 2017 is based on an estimate as of the record date.(3)Represents cash distributions declared for common units not participating in the DRIP for each period.Off-Balance Sheet ArrangementsWeThe Partnership’s critical accounting estimates are described in Part II, Item 7 “Critical Accounting Estimates” of our 2022 Annual Report. There have been no off-balance sheet financing activities.Recent Accounting PronouncementsFor discussion on specific recent accounting pronouncements affecting us, please see Note 10material changes to our unaudited condensed consolidated financial statements under Part I, Item 1critical accounting estimates since the date of this report.26have nowe do not bear direct exposure to fluctuating commodity prices. However, the demand for our compression services depends uponon the continued demand for, and production of, natural gas and crude oil. NaturalSustained low natural gas or crude oil prices remaining low over the long-termlong term could result in a continued decline in the production of natural gas or crude oil, which could result in further reduced demand for our compression services. We do not intend to hedge our indirect exposure to fluctuating commodity prices. A 1%one percent decrease in average revenue generatingrevenue-generating horsepower of our active fleet during the ninesix months ended SeptemberJune 30, 20172023, would have resultedresult in aan annual decrease of approximately $2.7$7.4 million and $1.8$4.9 million in our revenue and Adjusted gross operating margin, respectively. Gross operatingAdjusted gross margin is a non-GAAP financial measure. For a reconciliation of Adjusted gross operating margin to net income (loss),gross margin, its most directly comparable financial measure, calculated and presented in accordance with GAAP, please read “PartPart I, Item 2 Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operations – Non-GAAP Financial Measures” of this report.our financing arrangements.SeptemberJune 30, 20172023, we had $752.0$750.4 million of variable-rate indebtedness outstanding indebtedness at a weighted-average interest rate of 3.25%7.74%. A 1%Based on our June 30, 2023 variable-rate indebtedness outstanding, a one percent increase or decrease in the effective interest rate on our variable-rate outstanding debt at September 30, 2017 would have resultedresult in an annual increase or decrease, respectively, in our interest expense of approximately $7.5 million.68 to our unaudited condensed consolidated financial statements under Part I, Item 1 “Financial Statements” of this report. Although we do not currently hedge our variable rate debt, we may, in the future, hedge all or a portion of such debt.repaypay the amount it owes us, it could have a material adverse effect on our business, financial condition, results of operations, orand cash flows.Securities Exchange Act, of 1934, as amended (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 uponon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 20172023, at the reasonable assurance level.2728legal or governmentalclaims, 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. RiskItem 1A “Risk Factors” of our 20162022 Annual Report.Report, in Part II, Item 1A “Risk Factors” in our Quarterly Report for the quarter ended March 31, 2023, 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.On November 3, 2017, we entered into an amendment to that certain Services Agreement, dated effective as of January 1, 2013 (the “Services Agreement”), with USA Compression Management Services, LLC, a Delaware limited liability company, in order to extend the term of the Services Agreement until December 31, 2022 subject to certain termination conditions. No.
Number3.1 3.2 10.131.1*22.1 31.1* 31.231.2**32.132.1##32.232.2##101.1101.1**The following materials from USA Compression Partners, LP’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) our unaudited condensed consolidated balance sheets as of June 30, 2023, and December 31, 2022, (ii) our unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2023, and 2022, (iii) our unaudited condensed consolidated statements of changes in partners’ capital (deficit) for the six months ended June 30, 2023, and 2022, (iv) our unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2023, and 2022, and (v) the related notes to our unaudited condensed consolidated financial statements. 104* Interactive data files pursuant to Rule 405 of Regulation S-TThe cover page from this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023, formatted in Inline XBRL (included with Exhibit 101.1) 29November 7, 2017Compression Partners,COMPRESSION PARTNERS, LPBy: By:By: /s/ Michael C. Pearl Michael C. Pearl By:/s/ Matthew C. LiuzziMatthew C. LiuzziBy: By:30