USA Compression Partners LP

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

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

*Not meaningful

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

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

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

Related-party revenue. Related-party revenue was earned through related-party transactions that occur in the ordinary course of business with various affiliated entities of Energy Transfer. The $8.5 million increase in related-party revenue for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily was due to revenue recognized from existing customers acquired by Energy Transfer since the previous period that are now classified as related-party revenue in the current period.

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

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

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

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

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

Impairment of compression equipment. The $0.9 million impairment of compression equipment for the three months ended September 30, 2023 primarily resulted from our evaluation of the future deployment of our idle fleet under then-current market conditions. The primary circumstances supporting this impairment were: (i) unmarketability of certain compression units into the foreseeable future, (ii) excessive maintenance costs associated with certain fleet assets, and (iii) prohibitive retrofitting costs that likely would prevent certain compression units from securing customer acceptance. These compression units were written down to their estimated salvage values, if any.

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

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

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

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

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

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

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

*Not meaningful

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

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

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

Related-party revenue. Related-party revenue was earned through related-party transactions that occur in the ordinary course of business with various affiliated entities of Energy Transfer. The $9.5 million increase in related-party revenue for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to (i) revenue recognized from existing customers acquired by Energy Transfer since the previous period that are now classified as related-party revenue in the current period and (ii) an increase in revenues attributable to natural gas treating services driven by increased demand for these services from entities affiliated with Energy Transfer.

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

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

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

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

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

Impairment of compression equipment. The $0.3 million and $12.3 million impairments of compression equipment for the nine months ended September 30, 2024 and 2023, respectively, primarily resulted from our evaluation of the future deployment of idle fleet assets under then-current market conditions. The primary circumstances supporting these impairments were: (i) unmarketability of certain compression units into the foreseeable future, (ii) excessive maintenance costs associated with certain fleet assets, and (iii) prohibitive retrofitting costs that likely would prevent certain compression units from securing customer acceptance. These compression units were written down to their estimated salvage values, if any.

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

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

Loss on extinguishment of debt. The$5.0 million loss on extinguishment of debtfor the nine months ended September 30, 2024 resulted from the satisfaction and discharge of the Senior Notes 2026, which constituted a legal defeasance under GAAP (the “Defeasance”). This loss consists of the write-off of deferred financing costs of $4.3 million and the difference between (i) the purchase price of U.S. government securities of $748.8 million, which were used for the Defeasance, and (ii) the aggregate outstanding principal balance and accrued interest of the Senior Notes 2026 of $748.1 million at the time of Defeasance. For additional information regarding the Defeasance of the Senior Notes 2026, see Note 8 to our unaudited condensed consolidated financial statements under Part I, Item 1 “Financial Statements” of this report.

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

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

Other Financial Data

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

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

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

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

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

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

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

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

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

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

The $57.8 million increase in DCF for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily was due to (i) a $59.9 million increase in Adjusted gross margin, (ii) a $23.4 million decrease in distributions on Preferred Units following the conversion of 320,000 Preferred Units into 15,990,804 common units during 2024, and (iii) a $3.1 million increase in cash received on derivative instrument, partially offset by (iv) an $18.7 million increase in cash interest expense, net, (v) a $5.2 million increase in maintenance capital expenditures, and (vi) a $4.7 million increase in selling, general and administrative expenses, excluding unit-based compensation expense, transaction expenses, and severance charges.

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

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