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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to               .
Commission File No. 001-35779
USA Compression Partners, LP
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
75-2771546
(I.R.S. Employer
Identification No.)
111 Congress Avenue, Suite 2400
Austin, Texas
(Address of principal executive offices)
78701
(Zip Code)
(512) 473-2662
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common units representing limited partner interestsUSACNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No ☒
As of October 27, 2022, there were 97,995,127 common units outstanding.



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GLOSSARY
The abbreviations, acronyms and industry terminology used in this Quarterly Report on Form 10-Q are defined as follows:
COVID-19novel coronavirus 2019
Credit AgreementSeventh 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
DERsdistribution equivalent rights
DRIPdistribution reinvestment plan
EBITDAearnings before interest, taxes, depreciation and amortization
Energy TransferEnergy Transfer LP, for periods following its merger with Energy Transfer Operating, L.P., and Energy Transfer Operating, L.P. for periods prior to such merger
Exchange ActSecurities Exchange Act of 1934, as amended
GAAPgenerally accepted accounting principles of the United States of America
Preferred UnitsSeries A Preferred Units representing limited partner interests in USA Compression Partners, LP
SECUnited 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
SOFRSecured Overnight Financing Rate
U.S.United States of America

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Table of Contents
PART I.  FINANCIAL INFORMATION
ITEM 1.    Financial Statements
USA COMPRESSION PARTNERS, LP
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
September 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$6 $ 
Accounts receivable:
Trade, net of allowances for credit losses of $1,241 and $2,057, respectively
79,410 68,175 
Other104 39 
Related party receivables70 44,941 
Inventories91,780 85,816 
Prepaid expenses and other assets8,762 6,016 
Total current assets180,132 204,987 
Property and equipment, net2,177,851 2,222,336 
Lease right-of-use assets19,117 20,173 
Identifiable intangible assets, net282,377 304,411 
Other assets13,914 16,072 
Total assets$2,673,391 $2,767,979 
Liabilities, Preferred Units and Partners’ Capital (Deficit)
Current liabilities:
Accounts payable$39,274 $22,538 
Accrued liabilities58,993 113,891 
Deferred revenue59,878 51,216 
Total current liabilities158,145 187,645 
Long-term debt, net2,078,066 1,973,234 
Operating lease liabilities17,026 18,551 
Other liabilities7,911 10,132 
Total liabilities2,261,148 2,189,562 
Commitments and contingencies
Preferred Units477,309 477,309 
Partners’ capital (deficit):
Common units, 97,995 and 97,345 units issued and outstanding, respectively
(73,878)87,129 
Warrants8,812 13,979 
Total partners’ capital (deficit)(65,066)101,108 
Total liabilities, Preferred Units and partners’ capital (deficit)$2,673,391 $2,767,979 
See accompanying notes to unaudited condensed consolidated financial statements.
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USA COMPRESSION PARTNERS, LP
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per unit amounts)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues:
Contract operations$171,019 $151,622 $492,656 $455,947 
Parts and service4,901 4,122 10,432 7,978 
Related party3,693 2,883 11,398 8,777 
Total revenues179,613 158,627 514,486 472,702 
Costs and expenses:
Cost of operations, exclusive of depreciation and amortization59,453 49,159 168,343 143,391 
Depreciation and amortization58,772 59,265 176,795 179,522 
Selling, general and administrative14,663 13,524 43,842 42,612 
Loss (gain) on disposition of assets1,118 48 1,970 (2,312)
Impairment of compression equipment504  936 4,953 
Total costs and expenses134,510 121,996 391,886 368,166 
Operating income45,103 36,631 122,600 104,536 
Other income (expense):
Interest expense, net(35,142)(32,222)(100,059)(96,860)
Other27 18 68 88 
Total other expense(35,115)(32,204)(99,991)(96,772)
Net income before income tax expense9,988 4,427 22,609 7,764 
Income tax expense376 312 657 590 
Net income9,612 4,115 21,952 7,174 
Less: distributions on Preferred Units(12,188)(12,188)(36,563)(36,563)
Net loss attributable to common unitholders’ interests$(2,576)$(8,073)$(14,611)$(29,389)
Weighted average common units outstanding – basic and diluted97,968 97,085 97,689 97,039 
Basic and diluted net loss per common unit$(0.03)$(0.08)$(0.15)$(0.30)
Distributions declared per common unit for respective periods$0.525 $0.525 $1.575 $1.575 
See accompanying notes to unaudited condensed consolidated financial statements.
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Table of Contents
USA COMPRESSION PARTNERS, LP
Unaudited Condensed Consolidated Statements of Changes in Partners’ Capital (Deficit)
(in thousands, except per unit amounts)
For the Nine Months Ended September 30, 2022
Common unitsWarrantsTotal
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 DRIP516  516 
Unit-based compensation for equity classified awards64  64 
Net loss attributable to common unitholders’ interests(8,933) (8,933)
Partners’ capital ending balance, March 31, 202227,639 13,979 41,618 
Distributions and DERs, $0.525 per unit
(51,154) (51,154)
Issuance of common units under the DRIP508  508 
Unit-based compensation for equity classified awards65  65 
Exercise and conversion of warrants into common units5,167 (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)
Vesting of phantom units408  408 
Distributions and DERs, $0.525 per unit
(51,450) (51,450)
Issuance of common units under the DRIP553  553 
Unit-based compensation for equity classified awards64  64 
Net loss attributable to common unitholders’ interests(2,576) (2,576)
Partners’ capital (deficit) ending balance, September 30, 2022
$(73,878)$8,812 $(65,066)
For the Nine Months Ended September 30, 2021
Common unitsWarrantsTotal
Partners’ capital ending balance, December 31, 2020
$323,676 $13,979 $337,655 
Vesting of phantom units391  391 
Distributions and DERs, $0.525 per unit
(50,931) (50,931)
Issuance of common units under the DRIP463  463 
Unit-based compensation for equity classified awards52  52 
Net loss attributable to common unitholders’ interests(11,816) (11,816)
Partners’ capital ending balance, March 31, 2021261,835 13,979 275,814 
Vesting of phantom units277  277 
Distributions and DERs, $0.525 per unit
(50,963) (50,963)
Issuance of common units under the DRIP402  402 
Unit-based compensation for equity classified awards54  54 
Net loss attributable to common unitholders’ interests(9,500) (9,500)
Partners’ capital ending balance, June 30, 2021202,105 13,979 216,084 
Vesting of phantom units9  9 
Distributions and DERs, $0.525 per unit
(50,987) (50,987)
Issuance of common units under the DRIP438  438 
Unit-based compensation for equity classified awards54  54 
Net loss attributable to common unitholders’ interests(8,073) (8,073)
Partners’ capital ending balance, September 30, 2021
$143,546 $13,979 $157,525 
See accompanying notes to unaudited condensed consolidated financial statements.
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USA COMPRESSION PARTNERS, LP
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended September 30,
20222021
Cash flows from operating activities:
Net income$21,952 $7,174 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization176,795 179,522 
Provision for expected credit losses(700)(2,400)
Amortization of debt issuance costs5,451 6,866 
Unit-based compensation expense9,716 11,924 
Deferred income tax benefit(216)(101)
Loss (gain) on disposition of assets1,970 (2,312)
Impairment of compression equipment936 4,953 
Changes in assets and liabilities:
Accounts receivable and related party receivables, net34,271 4,878 
Inventories(20,708)(10,147)
Prepaid expenses and other current assets(2,746)(3,596)
Other assets2,515 2,685 
Accounts payable5,383 3,461 
Accrued liabilities and deferred revenue(56,128)(18,539)
Net cash provided by operating activities178,491 184,368 
Cash flows from investing activities:
Capital expenditures, net(88,061)(29,393)
Proceeds from disposition of property and equipment1,049 4,168 
Proceeds from insurance recovery597 1,559 
Net cash used in investing activities(86,415)(23,666)
Cash flows from financing activities:
Proceeds from revolving credit facility623,443 528,515 
Payments on revolving credit facility(521,396)(496,608)
Cash paid related to net settlement of unit-based awards(1,055)(461)
Cash distributions on common units(155,554)(154,768)
Cash distributions on Preferred Units(36,563)(36,563)
Deferred financing costs(549)(164)
Other(396)(405)
Net cash used in financing activities(92,070)(160,454)
Increase in cash and cash equivalents6 248 
Cash and cash equivalents, beginning of period 2 
Cash and cash equivalents, end of period$6 $250 
Supplemental cash flow information:
Cash paid for interest, net of capitalized amounts$118,557 $115,737 
Cash paid for income taxes$887 $819 
Supplemental non-cash transactions:
Non-cash distributions to certain common unitholders (DRIP)$1,577 $1,303 
Transfers from inventories to property and equipment$14,392 $9,807 
Changes in capital expenditures included in accounts payable and accrued liabilities$12,022 $199 
Changes in financing costs included in accounts payable and accrued liabilities$(265)$120 
Exercise and conversion of warrants into common units$5,167 $ 
See accompanying notes to unaudited condensed consolidated financial statements.
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USA COMPRESSION PARTNERS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Description of Business
Unless otherwise indicated, the terms “our,” “we,” “us,” “the Partnership,” and similar language refer to USA Compression Partners, LP, collectively with its consolidated subsidiaries.
We are a Delaware limited partnership. Through our operating subsidiaries, we provide compression services to customers under fixed-term contracts in the natural gas and crude oil industries, using natural gas compression packages that we design, engineer, own, operate, and maintain. We also own and operate a fleet of equipment used to provide natural gas treating services, such as carbon dioxide and hydrogen sulfide removal, cooling, and dehydration. We primarily provide compression services in shale plays throughout the U.S., including the Utica, Marcellus, Permian Basin, Delaware Basin, Eagle Ford, Mississippi Lime, Granite Wash, Woodford, Barnett, Haynesville, Niobrara, and Fayetteville shales.
USA Compression GP, LLC, a Delaware limited liability company, serves as our general partner and is referred to herein as the “General Partner.” The General Partner is wholly owned by Energy Transfer.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Partnership and its subsidiaries, all of which are wholly owned by us.
(2) Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and pursuant to SEC rules and regulations.
In the opinion of our management, financial information presented herein reflects all normal recurring adjustments necessary for the fair presentation of these interim unaudited condensed consolidated financial statements in accordance with GAAP. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with SEC rules and regulations. Therefore, these 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, 2021 filed on February 15, 2022 (our “2021 Annual Report”).
Use of Estimates
Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions by management that affect the reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities that existed as of the date of the unaudited condensed consolidated financial statements. Although these estimates were based on management’s available knowledge of current and expected future events, actual results could differ from these estimates.
Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances. We consider investments in highly liquid financial instruments purchased with an original maturity of 90 days or less to be cash equivalents.
Trade Accounts Receivable
Trade accounts receivable are recorded at their invoiced amounts.
Allowance for Credit Losses
We evaluate our allowance for credit losses related to our trade accounts receivable measured at amortized cost. Due to the short-term nature of our trade accounts receivable, we consider the amortized cost of trade accounts receivable to equal the receivable’s carrying amounts, excluding the allowance for credit losses.
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Our determination of the allowance for credit losses requires us to make estimates and judgments regarding our customers’ ability to pay amounts due. We continuously evaluate the financial strength of our customers and the overall business climate in which our customers operate, and make adjustments to the allowance for credit losses as necessary. We evaluate the financial strength of our customers by reviewing the aging of their receivables, our collection experience with the customer, correspondence, financial information, and third-party credit ratings. We evaluate the business climate in which our customers operate by reviewing various publicly available materials regarding our customers’ industry, including the solvency of various companies in the industry.
Inventories
Inventories consist of serialized and non-serialized parts primarily used on compression units. All inventories are stated at the lower of cost or net realizable value. Serialized parts inventories are determined using the specific identification cost method, while non-serialized parts inventories are determined using the weighted average cost method. Purchases of inventories are considered operating activities on the unaudited condensed consolidated statements of cash flows.
Property and Equipment
Property and equipment are carried at cost except for (i) certain acquired assets which are recorded at fair value on their respective acquisition dates and (ii) impaired assets which are recorded at fair value as of the last impairment evaluation date for which an adjustment was required. Overhauls and major improvements that increase the value or extend the life of compression equipment are capitalized and depreciated over three to five years. Ordinary maintenance and repairs are charged to cost of operations, exclusive of depreciation and amortization.
When property and equipment is retired or sold, its carrying value and the related accumulated depreciation are removed from our accounts and any associated gains or losses are recorded within the unaudited condensed consolidated statements of operations in the period of sale or disposition.
Capitalized interest is calculated by multiplying our monthly effective interest rate on outstanding variable-rate indebtedness by the amount of qualifying costs, which include upfront payments to acquire certain compression units. Capitalized interest was approximately $283,000 and $629,000 for the three and nine months ended September 30, 2022, respectively, and approximately $51,000 and $152,000 for the three and nine months ended September 30, 2021, respectively.
Impairment of Long-Lived Assets
Long-lived assets with recorded values that are not expected to be recovered from future cash flows are written down to estimated fair value. We test long-lived assets for impairment when events or circumstances indicate that a long-lived asset’s carrying value may not be recoverable or will no longer be utilized within the operating fleet. The most common circumstance requiring compression units to be evaluated for impairment occurs when idle units do not meet the desired performance characteristics of our revenue generating horsepower.
The carrying value of a long-lived asset is not recoverable if the asset’s carrying value exceeds the sum of the undiscounted cash flows expected to be generated from the use and eventual disposition of the asset. If the carrying value of the long-lived asset exceeds the sum of the undiscounted cash flows associated with the asset, an impairment loss equal to the amount of the carrying value exceeding the fair value of the asset is recognized. The fair value of the asset is measured using quoted market prices or, in the absence of quoted market prices, based on an estimate of discounted cash flows, the expected net sale proceeds compared to the other similarly configured fleet units that we recently sold or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to continue using.
Refer to Note 5 for more detailed information about impairment charges during the three and nine months ended September 30, 2022 and 2021.
Identifiable Intangible Assets
Identifiable intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives, which is the period over which the assets are expected to contribute directly or indirectly to our future cash flows. The estimated useful lives of our intangible assets range from 15 to 25 years.
Revenue Recognition
Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally, this occurs with the provision of our services or the transfer of goods. Revenue is measured at the amount of consideration we expect to
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receive in exchange for providing services or transferring goods. Incidental items, if any, that are immaterial in the context of the contract are recognized as expenses.
Income Taxes
USA Compression Partners, LP is organized as a partnership for U.S. federal and state income tax purposes. As a result, our partners are responsible for U.S. federal and state income taxes on their distributive share of our items of income, gain, loss, or deduction. Texas also imposes an entity-level income tax on partnerships that is based on Texas-sourced taxable margin (the “Texas Margin Tax”). Texas Margin Tax impacts are included within our unaudited condensed consolidated financial statements. Our wholly owned finance subsidiary, USA Compression Finance Corp. (“Finance Corp”), is a corporation for U.S. federal and state income tax purposes and any resulting tax impacts are included within our unaudited condensed consolidated financial statements.
Pass-Through Taxes
Sales taxes incurred on behalf of, and passed through to, customers are accounted for on a net basis.
Fair-Value Measurements
Accounting standards applicable to fair-value measurements establish a framework for measuring fair value and stipulate disclosures about fair-value measurements. The standards apply to recurring and non-recurring financial and non-financial assets and liabilities that require or permit fair-value measurements. Among the required disclosures is the fair-value hierarchy of inputs we use to value an asset or a liability. The three levels of the fair value hierarchy are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2 inputs are those other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability.
As of September 30, 2022, our financial instruments primarily consisted of cash and cash equivalents, trade accounts receivable, trade accounts payable, and long-term debt. The book values of cash and cash equivalents, trade accounts receivable, and trade accounts payable are representative of fair value due to their short-term maturities. Our revolving credit facility applies floating interest rates to amounts drawn under the facility; therefore, the carrying amount of our revolving credit facility approximates its fair value.
The fair value of our Senior Notes 2026 and Senior Notes 2027 are estimated using quoted prices in inactive markets and are considered Level 2 measurements.
The following table summarizes the aggregate principal amount and fair value of our Senior Notes 2026 and Senior Notes 2027 (in thousands):
September 30,
2022
December 31,
2021
Senior Notes 2026, aggregate principal$725,000 $725,000 
Fair value of Senior Notes 2026667,000 755,813 
Senior Notes 2027, aggregate principal750,000 750,000 
Fair value of Senior Notes 2027679,200 787,500 
Operating Segment
We operate in a single business segment, the compression services business.
(3) Trade Accounts Receivable
The allowance for credit losses, which was $1.2 million and $2.1 million as of September 30, 2022 and December 31, 2021, respectively, represents our best estimate of the amount of probable credit losses included within our existing accounts receivable balance.
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The following summarizes activity within our trade accounts receivable allowance for credit losses balance (in thousands):
Allowance for Credit Losses
Balance as of December 31, 2021$2,057 
Current-period provision for expected credit losses(700)
Write-offs charged against the allowance(116)
Balance as of September 30, 2022$1,241 
For the nine months ended September 30, 2022, we recognized a reversal of $0.7 million of 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 credit losses for the nine months ended September 30, 2022. No change to our provision for expected credit losses was recognized for the three months ended September 30, 2022.
For the three and nine months ended September 30, 2021, we recognized reversals of $1.1 million and $2.4 million, respectively, to our provision for expected credit losses. Improved market conditions for customers resulting from improved commodity prices was the primary factor supporting the recorded decrease to the allowance for credit losses for the three and nine months ended September 30, 2021.
(4)  Inventories
Components of inventories are as follows (in thousands):
September 30,
2022
December 31,
2021
Serialized parts$47,057 $44,642 
Non-serialized parts44,723 41,174 
Total inventories$91,780 $85,816 
(5)  Property and Equipment and Identifiable Intangible Assets
Property and Equipment
Property and equipment consisted of the following (in thousands):
September 30,
2022
December 31,
2021
Compression and treating equipment$3,619,566 $3,522,083 
Computer equipment34,490 54,013 
Automobiles and vehicles34,099 31,919 
Leasehold improvements8,189 8,847 
Buildings3,464 5,334 
Furniture and fixtures791 1,105 
Land77 77 
Total property and equipment, gross3,700,676 3,623,378 
Less: accumulated depreciation and amortization(1,522,825)(1,401,042)
Total property and equipment, net$2,177,851 $2,222,336 
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Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:
Compression equipment, acquired new25 years
Compression equipment, acquired used
5 - 25 years
Furniture and fixtures
3 - 10 years
Vehicles and computer equipment
1 - 10 years
Buildings
5 years
Leasehold improvements5 years
Depreciation expense on property and equipment and loss (gain) on disposition of assets were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Depreciation expense$51,427 $51,920 $154,761 $157,487 
Loss (gain) on disposition of assets1,118 48 1,970 (2,312)
On a quarterly basis, we evaluate the potential future deployment of idle fleet assets under current market conditions. For the three and nine months ended September 30, 2022, we retired two and 12 compressor units, respectively, with approximately 1,100 and 2,500 aggregate horsepower, respectively, that previously were used to provide compression services in our business. As a result, we recorded impairments of compression equipment of $0.5 million and $0.9 million for the three and nine months ended September 30, 2022, respectively.
For the nine months ended September 30, 2021, we retired 22 compressor units with approximately 9,600 aggregate horsepower that previously were used to provide compression services in our business. As a result, we recorded an impairment of compression equipment of $5.0 million for the nine months ended September 30, 2021. No impairment was recorded for the three months ended September 30, 2021.
The primary circumstances supporting these impairments were: (i) unmarketability of units into the foreseeable future, (ii) excessive maintenance costs associated with certain fleet assets, and (iii) excessive retrofitting costs that likely would prevent certain units from securing customer acceptance. These compression units were written down to their respective estimated salvage values, if any.
Identifiable Intangible Assets
Identifiable intangible assets, net consisted of the following (in thousands):
Customer RelationshipsTrade NamesTotal
Net balance as of December 31, 2021$276,848 $27,563 $304,411 
Amortization expense(19,578)(2,456)(22,034)
Net balance as of September 30, 2022$257,270 $25,107 $282,377 
Accumulated amortization of intangible assets was $268.3 million and $246.3 million as of September 30, 2022 and December 31, 2021, respectively.
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(6)  Other Current Liabilities
Components of other current liabilities included the following (in thousands):
September 30,
2022
December 31,
2021
Accrued sales tax contingencies (1)$ $44,923 
Accrued interest expense6,973 30,850 
Accrued payroll and benefits12,653 8,054 
Accrued unit-based compensation liability17,951 13,280 
Accrued capital expenditures15,543 3,521 
________________________________
(1)Refer to Note 13 for further information on the accrued sales tax contingencies.
(7)  Lease Accounting
Lessor Accounting
In 2014, we granted a bargain purchase option to a customer with respect to certain compressor packages leased to the customer. The bargain purchase option provided 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.
During the second quarter of 2021, the customer exercised its bargain purchase option resulting in a gain of $1.1 million recognized within loss (gain) on disposition of assets for the nine months ended September 30, 2021.
Prior to the customer exercising its bargain purchase option, revenue and interest income related to the lease was recognized over the lease term. We recognized maintenance revenue within contract operations revenue and interest income within interest expense, net. Maintenance revenue and interest income for the nine months ended September 30, 2021 were $0.3 million and $0.1 million, respectively.
(8)  Long-term Debt
Our long-term debt, of which there is no current portion, consisted of the following (in thousands):
September 30,
2022
December 31,
2021
Senior Notes 2026, aggregate principal$725,000 $725,000 
Senior Notes 2027, aggregate principal750,000 750,000 
Less: deferred financing costs, net of amortization(15,323)(18,108)
Total senior notes, net1,459,677 1,456,892 
Revolving credit facility618,389 516,342 
Total long-term debt, net$2,078,066 $1,973,234 
Revolving Credit Facility
The Credit Agreement has an aggregate commitment of $1.6 billion (subject to availability under our borrowing base), with a further potential increase of up to $200 million. The Partnership's obligations under the Credit Agreement are guaranteed by the guarantors party to the Credit Agreement, which currently consists of all of the Partnership's subsidiaries. In addition, the Partnership’s obligations under the Credit Agreement are secured by: (i) substantially all of the Partnership’s assets and substantially all of the assets of the guarantors party to the Credit Agreement, excluding real property and other customary exclusions; and (ii) all of the equity interests of the Partnership’s U.S. restricted subsidiaries (subject to customary exceptions). The Credit Agreement matures on December 8, 2026, except that if any portion of the Senior Notes 2026 are outstanding on December 31, 2025, the Credit Agreement will mature on December 31, 2025.
As of September 30, 2022, we had outstanding borrowings under the Credit Agreement of $618.4 million, $981.6 million of availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $286.6 million. Our weighted-average interest rate in effect for all borrowings under the Credit Agreement as of September 30, 2022 was 5.54%, with a weighted-average interest rate of 3.79% for the nine months ended September 30, 2022. There were no
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letters of credit issued under the Credit Agreement as of September 30, 2022. We pay a commitment fee of 0.375% on the unused portion of the aggregate commitment.
The Credit Agreement permits us to make distributions of available cash to unitholders so long as (i) no default under the facility has occurred, is continuing, or would result from the distribution; (ii) immediately prior to and after giving effect to such distribution, we are in compliance with the facility’s financial covenants; and (iii) immediately prior to and after giving effect to such distribution, (a) on or before September 30, 2023, we have availability under the Credit Agreement of at least $250 million and (b) after September 30, 2023, we have availability under the Credit Agreement of at least $100 million.
The Credit Agreement also contains various financial covenants, including covenants requiring us to maintain:
a minimum EBITDA to interest coverage ratio of 2.5 to 1.0, determined as of the last day of each fiscal quarter, with EBITDA and interest expense annualized for the most-recent fiscal quarter;
a ratio of total secured indebtedness to EBITDA not greater than 3.0 to 1.0 or less than 0.0 to 1.0, determined as of the last day of each fiscal quarter, with EBITDA annualized for the most-recent fiscal quarter; and
a maximum funded debt-to-EBITDA ratio, determined as of the last day of each fiscal quarter with EBITDA annualized for the most-recent fiscal quarter of (i) 5.50 to 1.00 from the third quarter of 2022 through the third quarter of 2023, and (ii) 5.25 to 1.00 thereafter. In addition, the Partnership may increase the applicable ratio by 0.25 for any fiscal quarter during which a Specified Acquisition (as defined in the Credit Agreement) occurs and for the following two fiscal quarters, but in no event shall the maximum ratio exceed 5.50 to 1.00 for any fiscal quarter as a result of such increase.
As of September 30, 2022, we were in compliance with all of our covenants under the Credit Agreement.
The Credit Agreement is a “revolving credit facility” that includes a lockbox arrangement, whereby remittances from customers are forwarded to a bank account controlled by the administrative agent and are applied to reduce borrowings under the facility.
Senior Notes 2026
On March 23, 2018, USA Compression Partners, LP and Finance Corp co-issued the Senior Notes 2026. The Senior Notes 2026 mature on April 1, 2026 and accrue interest at the rate of 6.875% per year. Interest on the Senior Notes 2026 is payable semi-annually in arrears on each of April 1 and October 1.
The indenture governing the Senior Notes 2026 (the “2026 Indenture”) contains certain financial ratios that we must comply with in order to make certain restricted payments as described in the 2026 Indenture. As of September 30, 2022, we were in compliance with such financial covenants under the 2026 Indenture.
The Senior Notes 2026 are fully and unconditionally guaranteed (the “2026 Guarantees”), jointly and severally, on a senior unsecured basis by all of our subsidiaries (other than Finance Corp), and will be fully and unconditionally guaranteed, jointly and severally, by each of our future restricted subsidiaries that either borrows under, or guarantees, the Credit Agreement or guarantees certain of our other indebtedness (collectively, the “Guarantors”). The Senior Notes 2026 and the 2026 Guarantees are general unsecured obligations and rank equally in right of payment with all of the Guarantors’, Finance Corp’s, and our existing and future senior indebtedness and senior to the Guarantors’, Finance Corp’s, and our future subordinated indebtedness, if any. The Senior Notes 2026 and the 2026 Guarantees effectively are subordinated in right of payment to all of the Guarantors’, Finance Corp’s, and our existing and future secured debt, including debt under the Credit Agreement and guarantees thereof, to the extent of the value of the assets securing such debt, and are structurally subordinate to all indebtedness of any of our subsidiaries that do not guarantee the Senior Notes 2026.
Senior Notes 2027
On March 7, 2019, USA Compression Partners, LP and Finance Corp co-issued the Senior Notes 2027. The Senior Notes 2027 mature on September 1, 2027 and accrue interest at the rate of 6.875% per year. Interest on the Senior Notes 2027 is payable semi-annually in arrears on each of March 1 and September 1.
The indenture governing the Senior Notes 2027 (the “2027 Indenture”) contains certain financial ratios that we must comply with in order to make certain restricted payments as described in the 2027 Indenture. As of September 30, 2022, we were in compliance with such financial covenants under the 2027 Indenture.
The Senior Notes 2027 are fully and unconditionally guaranteed (the “2027 Guarantees”), jointly and severally, on a senior unsecured basis by the Guarantors. The Senior Notes 2027 and the 2027 Guarantees are general unsecured obligations and rank
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equally in right of payment with all of the Guarantors’, Finance Corp’s, and our existing and future senior indebtedness and senior to the Guarantors’, Finance Corp’s, and our future subordinated indebtedness, if any. The Senior Notes 2027 and the 2027 Guarantees effectively are subordinated in right of payment to all of the Guarantors’, Finance Corp’s, and our existing and future secured debt, including debt under the Credit Agreement and guarantees thereof, to the extent of the value of the assets securing such debt, and are structurally subordinate to all indebtedness of any of our subsidiaries that do not guarantee the Senior Notes 2027.
We have no assets or operations independent of our subsidiaries, and there are no significant restrictions upon our ability to obtain funds from our subsidiaries by dividend or loan. Each of the Guarantors and Finance Corp 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.
(9)  Preferred Units
We had 500,000 Preferred Units outstanding as of September 30, 2022 and December 31, 2021, respectively, with a face value of $1,000 per Preferred Unit.
The Preferred Units rank senior to our common units with respect to distributions and liquidation rights. The holders of the Preferred Units are entitled to receive cumulative quarterly cash distributions equal to $24.375 per Preferred Unit.
We have declared and paid per-unit quarterly cash distributions to the holders of the Preferred Units of record as follows:
Payment DateDistribution per Preferred Unit
February 5, 2021$24.375 
May 7, 202124.375 
August 6, 202124.375 
November 5, 202124.375 
2021 total distributions
$97.50 
February 4, 2022$24.375 
May 6, 202224.375 
August 5, 202224.375 
2022 total distributions
$73.125 
Announced Quarterly Distribution
On October 13, 2022, we declared a cash distribution of $24.375 per unit on our Preferred Units. The distribution will be paid on November 4, 2022 to the holders of the Preferred Units of record as of the close of business on October 24, 2022.
Changes in the Preferred Units balance are as follows (in thousands):
Preferred Units
Balance as of December 31, 2021$477,309 
Net income allocated to Preferred Units36,563 
Cash distributions on Preferred Units(36,563)
Balance as of September 30, 2022$477,309 
Redemption and Conversion Features
The Preferred Units are convertible, at the option of the holder, into common units in accordance with the terms of our Second Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) as follows: one third on or after April 2, 2021, two thirds on or after April 2, 2022, and 100% on or after April 2, 2023. The conversion rate for the Preferred Units is the quotient of (a) the sum of (i) $1,000, plus (ii) any unpaid cash distributions on the applicable Preferred Unit, divided by (b) $20.0115 for each Preferred Unit.
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On or after April 2, 2023, we have the option to redeem all or any portion of the Preferred Units then outstanding, subject to certain minimum redemption threshold amounts, for a redemption price set forth in the Partnership Agreement. On or after April 2, 2028, each holder of the Preferred Units will have the right to require us to redeem all or a portion of their Preferred Units, subject to certain minimum redemption threshold amounts, for a redemption price set forth in the Partnership Agreement, which we may elect to pay up to 50% in common units, subject to certain additional limits.
(10) Partners’ Capital (Deficit)
Common Units
The change in common units outstanding was as follows:
 Common Units Outstanding
Number of common units outstanding as of December 31, 202197,344,707 
Vesting of phantom units22,803 
Issuance of common units under the DRIP93,309 
Exercise and conversion of warrants into common units534,308 
Number of common units outstanding as of September 30, 202297,995,127 
As of September 30, 2022, Energy Transfer held 46,056,228 common units, including 8,000,000 common units held by the General Partner and controlled by Energy Transfer.
Cash Distributions
We have declared and paid per-unit quarterly distributions to our limited partner unitholders of record, including holders of our common and phantom units, as follows (dollars in millions, except distribution per unit):
Payment DateDistribution per Limited Partner UnitAmount Paid to Common UnitholdersAmount Paid to Phantom UnitholdersTotal Distribution
February 5, 2021$0.525 $50.9 $1.1 $52.0 
May 7, 20210.525 50.9 1.1 52.0 
August 6, 20210.525 51.0 1.1 52.1 
November 5, 20210.525 51.0 1.0 52.0 
2021 total distributions
$2.10 $203.8 $4.3 $208.1 
February 4, 2022$0.525 $51.1 $1.2 $52.3 
May 6, 20220.525 51.1 1.2 52.3 
August 5, 20220.525 51.4 1.1 52.5 
2022 total distributions
$1.575 $153.6 $3.5 $157.1 
Announced Quarterly Distribution
On October 13, 2022, we announced a cash distribution of $0.525 per unit on our common units. The distribution will be paid on November 4, 2022, to common unitholders of record as of the close of business on October 24, 2022.
DRIP
During the nine months ended September 30, 2022, distributions of $1.6 million were reinvested under the DRIP resulting in the issuance of 93,309 common units.
Warrants
As of December 31, 2021, we had two tranches of warrants outstanding, which included warrants to purchase (i) 5,000,000 common units with a strike price of $17.03 per common unit and (ii) 10,000,000 common units with a strike price of $19.59 per common unit (collectively, the “Warrants”).
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On April 27, 2022, the tranche of Warrants with the right to purchase 5,000,000 common units with a strike price of $17.03 per common unit was exercised in full by the holders. The exercise of the warrants was net settled by the Partnership for 534,308 common units.
As of September 30, 2022, the tranche of Warrants with the right to purchase 10,000,000 common units with a strike price of $19.59 per common unit was outstanding and may be exercised by the holders at any time prior to April 2, 2028.
Loss Per Unit
The computation of loss per unit is based on the weighted average number of participating securities, which includes our common units and certain equity-based awards outstanding during the applicable period. Basic loss per unit is determined by dividing net income (loss) allocated to participating securities after deducting the amount distributed on Preferred Units, by the weighted average number of participating securities outstanding during the period. Loss attributable to unitholders is allocated to participating securities based on their respective shares of the distributed and undistributed earnings for the period. To the extent cash distributions exceed net income (loss) attributable to unitholders for the period, the excess distributions are allocated to all participating securities outstanding based on their respective ownership percentages.
Diluted loss per unit is computed using the treasury stock method, which considers the potential issuance of limited partner units associated with our long-term incentive plan and Warrants. Unvested phantom units and unexercised Warrants are not included in basic loss per unit, as they are not considered to be participating securities, but are included in the calculation of diluted loss per unit to the extent they are dilutive, and in the case of Warrants to the extent they are considered “in the money.”
For the three and nine months ended September 30, 2022, approximately 959,000 and 938,000 incremental unvested phantom units, respectively, were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive. For the nine months ended September 30, 2022, approximately 57,000 incremental “in the money” outstanding Warrants were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive. For the three months ended September 30, 2022, our outstanding Warrants were not included in the computation as they were not considered “in the money” for the period.
For the three and nine months ended September 30, 2021, approximately 889,000 and 801,000 incremental unvested phantom units, respectively, were excluded from the calculation of diluted loss per unit because the impact was anti-dilutive, and our then-outstanding Warrants were not included in the computation as they were not considered “in the money” for either period.
(11) Revenue Recognition
Disaggregation of Revenue
The following table disaggregates our revenue by type of service (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Contract operations revenue$174,704 $154,554 $504,043 $464,756 
Retail parts and services revenue4,909 4,073 10,443 7,946 
Total revenues$179,613 $158,627 $514,486 $472,702 
The following table disaggregates our revenue by timing of provision of services or transfer of goods (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Services provided over time:
Primary term$129,598 $103,955 $356,143 $315,729 
Month-to-month45,106 50,599 147,900 149,027 
Total services provided over time174,704 154,554 504,043 464,756 
Services provided or goods transferred at a point in time4,909 4,073 10,443 7,946 
Total revenues$179,613 $158,627 $514,486 $472,702 
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Deferred Revenue
We record deferred revenue when cash payments are received or due in advance of our performance. Components of deferred revenue were as follows (in thousands):
Balance sheet locationSeptember 30,
2022
December 31,
2021
Current (1)Deferred revenue$59,878 $51,216 
NoncurrentOther liabilities3,193 4,823 
Total$63,071 $56,039 
________________________________
(1)We recognized $1.8 million and $46.7 million of revenue during the three and nine months ended September 30, 2022, respectively, related to our deferred revenue balance as of December 31, 2021.
Performance Obligations
As of September 30, 2022, the aggregate amount of transaction price allocated to unsatisfied performance obligations related to our contract operations revenue was $568.7 million. We expect to recognize these remaining performance obligations as follows (in thousands):
2022 (remainder)
202320242025ThereafterTotal
Remaining performance obligations$121,744 $276,841 $93,229 $39,920 $37,000 $568,734 
(12) Transactions with Related Parties
We provide compression services to entities affiliated with Energy Transfer, which as of September 30, 2022 owned approximately 47% of our limited partner interests and 100% of the General Partner. Revenue recognized from these entities affiliated with Energy Transfer on our unaudited condensed consolidated statements of operations were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Related-party revenues$3,693 $2,883 $11,398 $8,777 
We had approximately $70,000 and $18,000 within related-party receivables on our unaudited condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively, from these entities affiliated with Energy Transfer.
Additionally, the Partnership had a $44.9 million related-party receivable from Energy Transfer as of December 31, 2021, related to indemnification for sales tax contingencies. See Note 13 for more information related to these sales tax contingencies.
(13) Commitments and Contingencies
(a)Major Customers
We did not have revenue from any single customer representing 10% or more of total revenue for the three and nine months ended September 30, 2022 or 2021.
(b)Litigation
From time to time, we and our subsidiaries may be involved in various claims and litigation arising in the ordinary course of business. In management’s opinion, the resolution of such matters is not expected to have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
(c)Equipment Purchase Commitments
Our future capital commitments are comprised of binding commitments under purchase orders for new compression units ordered but not received. The commitments as of September 30, 2022 were $167.6 million, $66.8 million of which is expected to be settled within the next twelve months and $100.8 million of which is expected to be settled in the remainder of 2023.
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(d)Sales Tax Contingencies
Our compliance with state and local sales tax regulations is subject to audit by various taxing authorities. Certain taxing authorities have either claimed or issued an assessment that specific operational processes, which we and others in our industry regularly conduct, result in transactions that are subject to state sales taxes. We and others in our industry have disputed these claims and assessments based on either existing tax statutes or published guidance by the taxing authorities.
We are currently protesting certain assessments made by the Oklahoma Tax Commission (“OTC”). We believe it is reasonably possible that we could incur losses related to this assessment depending on whether the administrative law judge assigned by the OTC accepts our position that the transactions are not taxable and we ultimately lose any and all subsequent legal challenges to such determination. We estimate that the range of losses we could incur is from $0 to approximately $21.1 million, including penalty and interest.
As of December 31, 2021, we had recorded a $44.9 million accrued liability and $44.9 million related party receivable from Energy Transfer related to open audits with the Office of the Texas Comptroller of Public Accounts (the “Comptroller”), wherein the Comptroller had challenged the applicability of the manufacturing exemption. During August 2022, a Compromise and Settlement Agreement (“Agreement”) was entered into with the Comptroller for the period January 1, 2008 through March 31, 2018, related to such open audits. Pursuant to an indemnification agreement between us and Energy Transfer, Energy Transfer paid all amounts due under the Agreement in full. As a result, the $44.9 million accrued liability and $44.9 million related-party receivable from Energy Transfer was reduced to zero as of September 30, 2022.
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ITEM 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
USA Compression Partners, LP (the “Partnership”) is a growth-oriented Delaware limited partnership. We are managed by our general partner, USA Compression GP, LLC (the “General Partner”), which is wholly owned by Energy Transfer. All references in this section to the Partnership, as well as the terms “our,” “we,” “us” and “its” refer to USA Compression Partners, LP, together with its consolidated subsidiaries, unless the context otherwise requires or where otherwise indicated.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements.” All statements other than statements of historical fact contained in this report are forward-looking statements, including, without limitation, statements regarding our plans, strategies, prospects, and expectations concerning our business, results of operations, and financial condition. Many of these statements can be identified by words such as “believe,” “expect,” “intend,” “project,” “anticipate,” “estimate,” “continue,” “if,” “outlook,” “will,” “could,” “should,” or similar words or the negatives thereof.
Known material factors that could cause our actual results to differ from those represented within these forward-looking statements are described in Part I, Item 1A “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2021, filed on February 15, 2022 (our “2021 Annual Report”), as well as our subsequent filings with the SEC. Important factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include, among other things:
changes in 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 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, including the COVID-19 pandemic, 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, including competition for employees in a tight labor market;
changes in the availability and cost of capital, including changes to interest rates;
renegotiation of material terms of customer contracts;
actions taken by our customers, competitors, and third-party operators;
operating hazards, natural disasters, epidemics, pandemics (such as COVID-19), weather-related impacts, casualty losses, and other matters beyond our control;
operational challenges relating to COVID-19 and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees, remote work arrangements, performance of contracts, and supply chain disruptions;
the deterioration of the financial condition of our customers, which may result in the initiation of bankruptcy proceedings with respect to certain customers;
the restrictions on our business that are imposed under our long-term debt agreements;
information technology risks, including the risk from cyberattacks;
the effects of existing and future laws and governmental regulations;
the effects of future litigation; and
our ability to realize the anticipated benefits of acquisitions.
New factors emerge from time to time, and it is not possible for us to predict or anticipate all factors that could affect the results reflected in the forward-looking statements contained herein. Should one or more of the risks or uncertainties described in this Quarterly Report on Form 10-Q occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements.
All forward-looking statements included in this report are based on information available to us as of the date of this report and speak only as of the date of this report. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. All subsequent written and
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oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements.
Operating Highlights
The following table summarizes certain horsepower and horsepower utilization percentages for the periods presented and excludes certain gas treating assets for which horsepower is not a relevant metric.
Three Months Ended September 30,Percent
Change
Nine Months Ended September 30,Percent
Change
2022202120222021
Fleet horsepower (at period end) (1)3,711,205 3,687,601 0.6 %3,711,205 3,687,601 0.6 %
Total available horsepower (at period end) (2)3,761,205 3,690,361 1.9 %3,761,205 3,690,361 1.9 %
Revenue generating horsepower (at period end) (3)3,128,845 2,919,362 7.2 %3,128,845 2,919,362