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 endedSeptember 30, 2020March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____ to______
 
Commission File Number 001-35195 
CSI Compressco LP
(Exact name of registrant as specified in its charter)
Delaware94-3450907
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
 
24955 Interstate 45 North 
The Woodlands,
TX77380
(Address of Principal Executive Offices)(Zip Code)
 (281) 364-2244
(Registrant’s Telephone Number, Including Area Code)

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
COMMON UNITS REPRESENTING LIMITED
PARTNERSHIP INTERESTS		CCLPNASDAQ
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 OctoberApril 30, 2020,2021, there were 47,352,29147,971,240 Common Units outstanding.


CSI Compressco LP
Table of Contents
Page
PART I—FINANCIAL INFORMATION
Consolidated Statements of Operations
1
Consolidated Statements of Comprehensive Income (Loss)
2
Consolidated Balance Sheets
3
Consolidated Statements of Partners’ Capital
4
Consolidated Statements of Cash Flows
65
Notes to Consolidated Financial Statements
76
2117
3425
3425
PART II—OTHER INFORMATION
3526
3526
3626
3626
3626
3626
3727
3828















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


Table of ContentContentss
PART I
FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
CSI Compressco LP
Consolidated Statements of Operations
(In Thousands, Except Unit and Per Unit Amounts)
(Unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended
March 31,
2020201920202019 20212020
Revenues:Revenues:  Revenues:
Compression and related servicesCompression and related services$53,419 $65,037 $175,520 $192,973 Compression and related services$54,239 $65,765 
Aftermarket servicesAftermarket services13,862 20,426 47,569 52,196 Aftermarket services11,001 17,970 
Equipment salesEquipment sales11,877 28,284 42,761 107,870 Equipment sales470 1,700 
Total revenuesTotal revenues79,158 113,747 265,850 353,039 Total revenues65,710 85,435 
Cost of revenues (excluding depreciation and amortization expense):Cost of revenues (excluding depreciation and amortization expense): Cost of revenues (excluding depreciation and amortization expense):
Cost of compression and related servicesCost of compression and related services25,133 30,395 82,136 93,536 Cost of compression and related services26,426 31,608 
Cost of aftermarket servicesCost of aftermarket services11,815 17,163 41,493 43,841 Cost of aftermarket services9,517 16,245 
Cost of equipment salesCost of equipment sales12,465 26,518 43,580 98,149 Cost of equipment sales317 1,883 
Total cost of revenuesTotal cost of revenues49,413 74,076 167,209 235,526 Total cost of revenues36,260 49,736 
Depreciation and amortizationDepreciation and amortization19,947 18,459 59,972 56,045 Depreciation and amortization18,530 19,670 
Impairments and other charges0 849 14,348 3,160 
Insurance recoveries0 (325)(517)(325)
Selling, general, and administrative expenseSelling, general, and administrative expense9,150 11,336 29,578 32,975 Selling, general, and administrative expense9,594 9,090 
Interest expense, netInterest expense, net13,886 13,533 40,635 39,877 Interest expense, net13,898 13,169 
Series A Preferred fair value adjustment expense0 0 0 1,470 
Other (income) expense, netOther (income) expense, net(1,326)(205)3,517 21 Other (income) expense, net324 440 
Loss before income tax provision(11,912)(3,976)(48,892)(15,710)
Provision (benefit from) for income taxes695 (363)1,923 3,306 
Loss before taxes and discontinued operationsLoss before taxes and discontinued operations(12,896)(6,670)
Provision for income taxesProvision for income taxes1,507 196 
Loss from continuing operationsLoss from continuing operations(14,403)(6,866)
Loss from discontinued operations, net of taxLoss from discontinued operations, net of tax(62)(6,764)
Net lossNet loss$(12,607)$(3,613)$(50,815)$(19,016)Net loss$(14,465)$(13,630)
General partner interest in net lossGeneral partner interest in net loss$(177)$(51)$(714)$(270)General partner interest in net loss$(202)$(192)
Common units interest in net lossCommon units interest in net loss$(12,430)$(3,562)$(50,101)$(18,746)Common units interest in net loss$(14,263)$(13,438)
 
Net loss per common unit:
Basic$(0.25)$(0.08)$(1.05)$(0.40)
Diluted$(0.25)$(0.08)$(1.05)$(0.40)
Basic and diluted net loss per common unit:Basic and diluted net loss per common unit:
Loss from continuing operations per common unitLoss from continuing operations per common unit$(0.30)$(0.14)
Loss from discontinued operations per common unitLoss from discontinued operations per common unit0 (0.14)
Net loss per common unitNet loss per common unit$(0.30)$(0.28)
Weighted average common units outstanding:Weighted average common units outstanding:Weighted average common units outstanding:
BasicBasic47,344,351 47,072,943 47,284,790 46,982,309 Basic47,723,874 47,176,640 
DilutedDiluted47,344,351 47,072,943 47,284,790 46,982,309 Diluted47,723,874 47,176,640 


See Notes to Consolidated Financial Statements
1
Table of ContentContentss
CSI Compressco LP
Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
(Unaudited)
 
Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended
March 31,
2020201920202019 20212020
Net lossNet loss$(12,607)$(3,613)$(50,815)$(19,016)Net loss$(14,465)$(13,630)
Foreign currency translation adjustment, net of tax of $0 in 2020 and 2019104 31 (72)431 
Foreign currency translation adjustment, net of tax of $0 in 2021 and 2020Foreign currency translation adjustment, net of tax of $0 in 2021 and 202057 (353)
Comprehensive lossComprehensive loss$(12,503)$(3,582)$(50,887)$(18,585)Comprehensive loss$(14,408)$(13,983)
 

See Notes to Consolidated Financial Statements
2
Table of ContentContentss
CSI Compressco LP
Consolidated Balance Sheets
(In Thousands, Except Unit Amounts)
September 30,
2020		December 31,
2019		March 31,
2021		December 31,
2020
(Unaudited)  (Unaudited) 
ASSETSASSETS  ASSETS  
Current assets:Current assets:  Current assets:  
Cash and cash equivalentsCash and cash equivalents$16,699 $2,370 Cash and cash equivalents$20,928 $16,577 
Trade accounts receivable, net of allowances for doubtful accounts of $1,228 as of September 30, 2020 and $3,350 as of December 31, 201956,521 64,724 
Trade accounts receivable, net of allowances for doubtful accounts of $1,283
as of March 31, 2021 and $1,333 as of December 31, 2020
Trade accounts receivable, net of allowances for doubtful accounts of $1,283
as of March 31, 2021 and $1,333 as of December 31, 2020
47,692 43,837 
InventoriesInventories33,981 56,037 Inventories32,683 31,188 
Prepaid expenses and other current assetsPrepaid expenses and other current assets6,303 4,162 Prepaid expenses and other current assets7,961 5,184 
Current assets associated with discontinued operationsCurrent assets associated with discontinued operations32 39 
Total current assetsTotal current assets113,504 127,293 Total current assets109,296 96,825 
Property, plant, and equipment:Property, plant, and equipment:  Property, plant, and equipment:  
Land and buildingLand and building13,259 35,125 Land and building13,259 13,259 
Compressors and equipmentCompressors and equipment978,422 976,469 Compressors and equipment980,406 975,375 
VehiclesVehicles7,904 9,205 Vehicles7,675 7,692 
Construction in progressConstruction in progress8,817 26,985 Construction in progress11,851 12,763 
Total property, plant, and equipmentTotal property, plant, and equipment1,008,402 1,047,784 Total property, plant, and equipment1,013,191 1,009,089 
Less accumulated depreciationLess accumulated depreciation(435,902)(405,417)Less accumulated depreciation(473,065)(457,688)
Net property, plant, and equipmentNet property, plant, and equipment572,500 642,367 Net property, plant, and equipment540,126 551,401 
Other assets:Other assets:  Other assets:  
Intangible assets, net of accumulated amortization of $31,452 as of
March 31, 2021 and $30,711 as of December 31, 2020
Intangible assets, net of accumulated amortization of $31,452 as of
March 31, 2021 and $30,711 as of December 31, 2020
24,316 25,057 
Operating lease right-of-use assetsOperating lease right-of-use assets30,575 32,637 
Deferred tax assetDeferred tax asset24 24 Deferred tax asset10 10 
Intangible assets, net of accumulated amortization of $29,971 as of September 30, 2020 and $27,751 as of December 31, 201925,797 28,017 
Operating lease right-of-use assets34,680 21,006 
Other assetsOther assets4,300 3,539 Other assets3,861 4,036 
Total other assetsTotal other assets64,801 52,586 Total other assets58,762 61,740 
Total assetsTotal assets$750,805 $822,246 Total assets$708,184 $709,966 
LIABILITIES AND PARTNERS’ CAPITAL
LIABILITIES AND PARTNERS’ CAPITAL
 
LIABILITIES AND PARTNERS’ CAPITAL
 
Current liabilities:Current liabilities: Current liabilities: 
Accounts payableAccounts payable$19,404 $47,837 Accounts payable$23,109 $19,766 
Unearned income6,463 9,505 
Accrued liabilities and otherAccrued liabilities and other41,600 42,581 Accrued liabilities and other45,807 36,070 
Amounts payable to affiliatesAmounts payable to affiliates9,428 7,704 Amounts payable to affiliates3,291 3,234 
Current liabilities associated with discontinued operationsCurrent liabilities associated with discontinued operations279 345 
Total current liabilitiesTotal current liabilities76,895 107,627 Total current liabilities72,486 59,415 
Other liabilities:Other liabilities:  Other liabilities:  
Long-term debt, netLong-term debt, net636,943 638,238 Long-term debt, net638,662 638,631 
Deferred tax liabilitiesDeferred tax liabilities1,620 1,211 Deferred tax liabilities1,869 1,478 
Long-term affiliate payableLong-term affiliate payable11,858 12,324 Long-term affiliate payable11,477 0 
Operating lease liabilitiesOperating lease liabilities25,896 13,822 Operating lease liabilities22,472 24,059 
Other long-term liabilitiesOther long-term liabilities17 33 Other long-term liabilities1,110 11,716 
Total other liabilitiesTotal other liabilities676,334 665,628 Total other liabilities675,590 675,884 
Commitments and contingenciesCommitments and contingencies  Commitments and contingencies  
Partners’ capital:Partners’ capital:  Partners’ capital:  
General partner interestGeneral partner interest(555)180 General partner interest(1,094)(885)
Common units (47,344,351 units issued and outstanding at September 30, 2020 and 47,078,529 units issued and outstanding at December 31, 2019)12,776 63,384 
Common units (47,971,240 units issued and outstanding at March 31, 2021 and 47,352,291 units issued and outstanding at December 31, 2020)Common units (47,971,240 units issued and outstanding at March 31, 2021 and 47,352,291 units issued and outstanding at December 31, 2020)(24,462)(10,055)
Accumulated other comprehensive lossAccumulated other comprehensive loss(14,645)(14,573)Accumulated other comprehensive loss(14,336)(14,393)
Total partners’ capitalTotal partners’ capital(2,424)48,991 Total partners’ capital(39,892)(25,333)
Total liabilities and partners’ capitalTotal liabilities and partners’ capital$750,805 $822,246 Total liabilities and partners’ capital$708,184 $709,966 
 
See Notes to Consolidated Financial Statements
3
Table of ContentContentss
CSI Compressco LP
Consolidated Statements of Partners’ Capital
(In Thousands)
(Unaudited)
Partners’ CapitalAccumulated Other Comprehensive Income (Loss)Total Partners’ CapitalPartners’ CapitalAccumulated Other Comprehensive Income (Loss)Total Partners’ Capital
General
Partner		Common
Unitholders		General
Partner		Common
Unitholders
AmountUnitsAmountAmountUnitsAmount
Balance at December 31, 2019$180 47,079$63,384 $(14,573)$48,991 
Balance at December 31, 2020Balance at December 31, 2020$(885)47,352$(10,055)$(14,393)$(25,333)
Net lossNet loss(192)— (13,438)0 (13,630)Net loss(202)— (14,263)0 (14,465)
Distributions ($0.01 per unit)Distributions ($0.01 per unit)(7)— (471)0 (478)Distributions ($0.01 per unit)(7)— (477)0 (484)
Equity compensationEquity compensation0 — 229 0 229 Equity compensation0 — 474 0 474 
Vesting of Phantom UnitsVesting of Phantom Units— 213 — — — Vesting of Phantom Units— 619 — — — 
Translation adjustment, net of taxes of $0Translation adjustment, net of taxes of $00 — 0 57 57 
Acquisition of affiliate from TETRAAcquisition of affiliate from TETRA— — (141)— (141)
Translation adjustment, net of taxes of $00 — 0 (353)(353)
Balance at March 31, 2020$(19)47,292 $49,704 $(14,926)$34,759 
Net loss(345)— (24,233)0 (24,578)
Distributions ($0.01 per unit)(7)— (473)0 (480)
Balance at March 31, 2021Balance at March 31, 2021$(1,094)47,971 $(24,462)$(14,336)$(39,892)
Equity compensation0 — 452 0 452 
Vesting of Phantom Units— 52 — — — 
Translation adjustment, net of taxes of $00 — 0 177 177 
Balance at June 30, 2020$(371)47,344 $25,450 $(14,749)$10,330 
Net loss(177)— (12,430)0 (12,607)
Distributions ($0.01 per unit)(7)— (473)0 (480)
Equity compensation0 — 229 0 229 
Translation adjustment, net of taxes of $00 — 0 104 104 
Balance at September 30, 2020$(555)47,344 $12,776 $(14,645)$(2,424)
Partners’ CapitalAccumulated Other Comprehensive Income (Loss)Total Partners’ Capital
 
Limited Partners
General
Partner		Common
Unitholders
AmountUnitsAmount
Balance at December 31, 2019$180 47,079 $63,384 $(14,573)$48,991 
Net loss(192)— (13,438)— (13,630)
Distributions ($0.01 per unit)(7)— (471)— (478)
Equity compensation, net— — 229 — 229 
Vesting of Phantom Units— 213 — — — 
Translation adjustment, net of taxes of $0— — — (353)(353)
Balance at March 31, 2020$(19)47,292 $49,704 $(14,926)$34,759 

See Notes to Consolidated Financial Statements

4
Table of ContentContentss
CSI Compressco LP
Consolidated Statements of Partners’ CapitalCash Flows
(In Thousands)
(Unaudited)
Partners’ CapitalAccumulated Other Comprehensive Income (Loss)Total Partners’ Capital
 
Limited Partners
General
Partner		Common
Unitholders
AmountUnitsAmount
Balance at December 31, 2018$505 45,769 $81,984 $(15,086)$67,403 
Net loss(177)— (12,279)— (12,456)
Distributions ($0.01 per unit)(6)— (470)— (476)
Equity compensation, net— — 312 — 312 
Vesting of Phantom Units— 117 — — — 
Conversions of Series A Preferred— 1,113 3,048 — 3,048 
Translation adjustment, net of taxes of $0— — — 272 272 
Other— — (69)0 (69)
Balance at March 31, 2019$322 46,999 $72,526 $(14,814)$58,034 
Net loss(42)— (2,905)— (2,947)
Distributions ($0.01 per unit)(7)— (469)— (476)
Equity compensation, net— — 568 — 568 
Vesting of Phantom Units— 66 — — — 
Translation adjustment, net of taxes of $0— — — 128 128 
Other— — (12)0 (12)
Balance at June 30, 2019$273 47,065 $69,708 $(14,686)$55,295 
Net loss(51)— (3,562)— (3,613)
Distributions ($0.01 per unit)(7)— (471)— (478)
Equity compensation, net— — (211)— (211)
Vesting of Phantom Units— 7 — — — 
Translation adjustment, net of taxes of $0— — — 31 31 
Balance at September 30, 2019$215 47,072 $65,464 $(14,655)$51,024 
 Three Months Ended
March 31,
 20212020
Operating activities:  
Net loss$(14,465)$(13,630)
Reconciliation of net loss to cash provided by operating activities:  
Depreciation and amortization18,530 19,908 
Impairments and other charges0 5,371 
Provision for deferred income taxes405 8 
Equity compensation expense833 324 
Provision for doubtful accounts32 222 
Amortization of deferred financing costs144 670 
Other non-cash charges and credits42 (85)
Gain on sale of property, plant, and equipment
(37)7 
Changes in operating assets and liabilities: 
Accounts receivable(3,952)(7,364)
Inventories(3,488)(12,102)
Prepaid expenses and other current assets(3,058)(1,160)
Accounts payable and accrued expenses14,486 21,625 
Other142 (437)
Net cash provided by operating activities9,614 13,357 
Investing activities: 
Purchases of property, plant, and equipment, net(4,595)(6,483)
Proceeds from sale of property, plant, and equipment116 0 
Acquisition of affiliate from TETRA, net of cash acquired5 0 
Net cash used in investing activities(4,474)(6,483)
Financing activities: 
Proceeds from long-term debt0 15,501 
Payments of long-term debt0 (16,000)
Distributions(484)(478)
Other financing activities(119)(886)
Payments to affiliate(174)0 
Net cash used in financing activities(777)(1,863)
Effect of exchange rate changes on cash
(12)35 
Increase in cash and cash equivalents and restricted cash4,351 5,046 
Cash and cash equivalents at beginning of period16,577 2,370 
Cash and cash equivalents and restricted cash at end of period$20,928 $7,416 
Supplemental cash flow information: 
Interest paid$2,926 $10,823 
Income taxes paid$175 $36 
Decrease in accrued capital expenditures$218 $822 


See Notes to Consolidated Financial Statements
5
Table of ContentContents
CSI Compressco LP
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
 Nine Months Ended
September 30,
 20202019
Operating activities:  
Net loss$(50,815)$(19,016)
Reconciliation of net loss to cash provided by operating activities:  
Depreciation and amortization59,972 56,045 
Impairments and other charges14,348 3,160 
Provision for deferred income taxes587 550 
Insurance recoveries associated with damaged equipment(517)(325)
Series A Preferred Unit distributions and adjustments0 4,061 
Equity compensation expense1,044 744 
Provision for doubtful accounts1,053 2,201 
Amortization of deferred financing costs2,039 1,788 
Equipment received in lieu of cash725 0 
Debt exchange expenses4,777 0 
Other non-cash charges and credits(491)378 
Gain on sale of property, plant, and equipment
(1,676)(476)
Changes in operating assets and liabilities: 
Accounts receivable6,541 (5,800)
Inventories11,806 (5,808)
Prepaid expenses and other current assets(2,253)860 
Accounts payable and accrued expenses(32,959)30,641 
Other(452)(1,542)
Net cash provided by operating activities13,729 67,461 
Investing activities: 
Purchases of property, plant, and equipment, net(10,789)(60,453)
Proceeds from sale of property, plant, and equipment21,731 0 
Insurance recoveries associated with damaged equipment517 325 
Net cash provided by (used in) investing activities
11,459 (60,128)
Financing activities: 
Proceeds from long-term debt337,549 33,500 
Payments of long-term debt(341,154)(22,068)
Cash redemptions of Preferred Units0 (31,913)
Distributions(1,438)(1,430)
Other financing activities(3,563)12 
Payments to affiliate(2,261)0 
Advances from affiliate0 13,972 
Net cash used in financing activities(10,867)(7,927)
Effect of exchange rate changes on cash
8 12 
Increase (decrease) in cash and cash equivalents14,329 (582)
Cash and cash equivalents at beginning of period2,370 15,858 
Cash and cash equivalents at end of period$16,699 $15,276 
Supplemental cash flow information: 
Interest paid$32,070 $34,580 
Income taxes paid$2,428 $2,763 


See Notes to Consolidated Financial Statements
6
Table of Contentss
CSI Compressco LP
Notes to Consolidated Financial Statements
(Unaudited)
 
NOTE 1 –— ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES
 
Organization

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

Presentation
 
Our unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. In the opinion of our management, our unaudited consolidated financial statements as of September 30, 2020,March 31, 2021, and for the three and nine monththree-month periods ended September 30,March 31, 2021 and 2020, and 2019, include all normal recurring adjustments that are necessary to provide a fair statement of our results for these interim periods. Operating results for the three and nine month periodsthree-month period ended September 30, 2020March 31, 2021 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2020.2021.

The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission (“SEC”) and do not include all information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 20192020 and notes thereto included in our Annual Report on Form 10-K, which we filed with the SEC on March 16, 2020.4, 2021.

Segments

Our General Partner has concluded that we operate in 1 business segment.

Significant Accounting Policies

    Our significant accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, 20192020 included in our Annual Report on Form 10-K. There have been no significant changes in our accounting policies or the application thereof during the ninethree months ended September 30, 2020.March 31, 2021.

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

6
Table of Contents
Reclassifications

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

7
Table of Contents
Cash Equivalents

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

Financial Instruments

Financial instruments that subject us to concentrations of credit risk consist principally of trade accounts receivable, which are primarily due from customers of varying size engaged in oil and gas activities in the United States, Canada, Mexico, and Argentina. Our policy is to review the financial condition of potential customers before extending credit and periodically update their credit information. Payment terms are on a short-term basis. The risk of loss from the inability to collect trade receivables is heightened during prolonged periods of low oil and natural gas commodity prices.

We have currency exchange rate risk exposure related to transactions denominated in a foreign currency as well as to investments in certain of our international operations. Our risk management activities include the use of foreign currency forward purchase and sale derivative contracts as part of a program designed to mitigate the currency exchange rate risk exposure on selected international operations.

We have 0 outstanding balance under our variable rate revolving credit facility as of September 30, 2020 and face market risk exposure related to changes in applicable interest rates.

Foreign Currencies
 
Accumulated other comprehensive income (loss) is included in partners’ capital in the accompanying consolidated balance sheets and consists of the cumulative currency translation adjustments associated with our international operations. Foreign currency exchange (gains) and losses are included in other (income) expense, net and totaled $(0.4)$0.4 million and $1.0 millionduring the three and ninemonth periods endedSeptember 30, 2020, respectively, and $(0.5) million and $(1.5)$1.7 million during the three and nine monththree-month periods ended September 30, 2019March 31, 2021 and March 31, 2020, respectively.

Inventories

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

Impairments and Other Charges

    Impairments of long-lived assets, including identified intangible assets, are determined periodically, when indicators of impairment are present. If such indicators are present, the determination of the amount of impairment is based on our judgmentjudgments as to the future undiscounted operating cash flows to be generated from the relevant assets throughout their remaining estimated useful lives. If these undiscounted cash flows are less than the carrying amount of the related assets,asset, an impairment is recognized for the excess of the carrying value over its fair value. Fair value of intangible assets is generally determined using the discounted present value of future cash flows using discount rates commensurate with the risks inherent with the specific assets. Assets held for disposal are recorded at the lower of carrying value or estimated fair value less estimated selling costs. See Note 3 - “ImpairmentsThere were no impairments attributed to continuing operations recorded during the three-month periods ended March 31, 2021 or March 31, 2020.

Income Taxes

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

Earnings Per Common Unit
 
Our computations of earnings per common unit are based on the weighted average number of common units outstanding during the applicable period. Basic earnings per common unit are determined by dividing net income (loss) allocated to the common units after deducting the amount allocated to our General Partner (including any distributions to our General Partner on its incentive distribution rights) by the weighted average number of outstanding common units during the period.
 
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When computing earnings per common unit under the two class method in periods when distributions are greater than earnings, the amount of the distribution is deducted from net income (loss) and the excess of
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distributions over earnings is allocated between the General Partner and common units based on how our Partnership Agreement allocates net losses.
 
Diluted earnings per common unit are computed using the treasury stock method, which considers the potential future issuance of limited partner common units. Unvested phantom units are not included in basic earnings per common unit, as they are not considered to be participating securities, but are included in the calculation of diluted earnings per common unit. For the three and nine monththree-month periods ended September 30,March 31, 2021 and March 31, 2020, and September 30, 2019, all unvested phantom units were excluded from the calculation of diluted common units because the impact was anti-dilutive. Diluted earnings per common unit are computed using the “if converted” method, whereby the amount of net income (loss) and the number of common units issuable are each adjusted as if the Preferred Units, had been converted as of the beginning of the period presented. The calculation of diluted earnings per common unit for the three and nine month period ended September 30, 2019 excludes the impact of the Preferred Units, as the inclusion of the impact from the conversion of the Preferred Units into common units would have been anti-dilutive. All remaining outstanding Preferred Units were redeemed for cash on August 8, 2019.

Revenue Recognition

Performance Obligations. Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied. Revenue is generally recognized when we transfer control of our products or services to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or providing services to our customers. We receive cash equal to the invoice price for most product sales and services and payment terms typically range from 30 to 60 days from the date we invoice our customer. With the exception of the initial terms of our compression services contracts of our medium- and high-horsepower compressor packages, our customer contracts are generally for terms of one year or less. Since the period between when we deliver products or services and when the customer pays for products or services is not to exceed one year, we have elected not to calculate or disclose a financing component for our customer contracts.

Depending on the terms of the arrangement, we may also defer the recognition of revenue for a portion of the consideration received because we have to satisfy a future performance obligation. For example, consideration received from customers during the fabrication of new compressor packages is typically deferred until control of the compressor package is transferred to our customer.

For revenue associated with mobilization of service equipment as part of a service contract arrangement, such revenue, if significant, is deferred and amortized over the estimated service period.

Compression and related services. For compression services revenues recognized over time, our customer contracts typically provide agreed upon monthly service rates and we recognize service revenue based upon the number of days that services have been performed. The majority of our compression services are provided pursuant to contract terms ranging from one month to twenty-four months. Monthly agreements are generally cancellable with 30 days written notice by the customer.

Sales taxes, value added taxes, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We recognize the cost for freight and shipping costs when control over our products (i.e. delivery) has transferred to the customer as part of cost of product sales.

Use of Estimates. Our revenues do not include material amounts of variable consideration, as our revenues typically do not require significant estimates or judgments. The transaction price on a majority of our arrangements are fixed and product returns are immaterial. Additionally, our arrangements typically do not include multiple performance obligations that require estimates of the stand-alone purchase price for each performance obligation. Revenue on certain aftermarket service arrangements that include time as a component of the transaction price is not recognized until the performance obligation is complete.

Contract Assets and Liabilities. We consider contract assets to be trade accounts receivable when we have an unconditional right to consideration and only the passage of time is required before payment is due. In certain instances, particularly those requiring customer specific documentation prior to invoicing, our invoicing of the customer is delayed until certain documentation requirements are met. In those cases, we recognize a contract asset rather than a billed trade accounts receivable until we are able to invoice the customer. Contract assets, along with billed trade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets.
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We classify contract liabilities as unearned income in our consolidated balance sheets. Such unearned income typically results from advance payments received on orders for new compressor equipment prior to the time such equipment is completed and transferred to the customer in accordance with the customer contract. New equipment sales orders generally take less than twelve months to build and deliver.

Bill-and-Hold Arrangements. We design compressor packages based on our customer’s specifications.In some cases, the customer will request us to hold the equipment, upon completion of the unit, until the job site is ready to receive the equipment. When this occurs, we along with the customer sign a bill-and-hold agreement, which outlines that the customer has title to the equipment, the equipment is ready for delivery, we cannot use the equipment or direct it to another customer, and we have a present right to payment. When those criteria have been met and the agreement is executed, we recognize the revenue on the equipment because control of the equipment has passed to our customer and our performance obligations are complete. Entering into these arrangements is something we have done as a courtesy for certain customers for many years. The equipment subject to the bill-and-hold agreements have generally been invoiced and paid for through progressive billings such that at the time the bill-and-hold agreement is executed, the majority of the contractual cash obligation of the customer has been received by us.

Fair0Fair Value Measurements

    We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements were utilized in the determination of the carrying value of our Series A Preferred Units (a Level 3 fair value measurement). We also utilize fair value measurements on a recurring basis in the accounting for our foreign currency forward purchase and sale derivative contracts. For these fair value measurements, we utilize the quoted value (a Level 2 fair value measurement). SeeRefer to Note 9 -8 –
“Fair Value Measurements” for further discussion.
Fair value measurements are also utilized on a nonrecurring basis, such as in the allocation of purchase consideration for acquisition transactions to the assets and liabilities acquired, including intangible assets (a Level 3 fair value measurement) and for the impairment of long-lived assets (a Level 3 fair value measurement).

Distributions

    On January 20, 2020,19, 2021, our General Partner declared a cash distribution attributable to the quarter ended December 31, 2019 of $0.01 per outstanding common unit. This distribution equates to a distribution of $0.04 per outstanding common unit on an annualized basis. This distribution was paid on February 14, 2020, to each of the holders of common units of record as of the close of business on February 1, 2020.

    On April 20, 2020, our General Partner declared a cash distribution attributable to the quarter ended March 31, 2020 of $0.01 per outstanding common unit. This distribution equates to a distribution of $0.04 per outstanding common unit on an annualized basis. This distribution was paid on May 15, 2020,February 12, 2021, to each of the holders of common units of record as of the close of business on May 1, 2020.

January 29, 2021.
On July 20, 2020, our General Partner declared a cash distribution attributable to the quarter ended June 30, 2020 of $0.01 per outstanding common unit. This distribution equates to a distribution of $0.04 per outstanding common unit on an annualized basis. This distribution was paid on August 14, 2020, to each of the holders of common units of record as of the close of business on August 1, 2020.

New Accounting Pronouncements

Standards adopted in 20202021

In August 2018,December 2019, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)ASU 2019-12, “Income Taxes (Topic 740): Customer’sSimplifying the Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.Income Taxes.” ASU 2018-152019-12 simplifies the accounting for income taxes by eliminating certain exceptions related to intraperiod tax allocation, interim period income tax calculation methodology, and the recognition of deferred tax liabilities for outside basis differences. It also simplifies certain aspects of accounting for franchise taxes and clarifies the accounting for implementation coststransactions that results in cloud computing arrangements.a step-up in the tax basis of goodwill. On January 1, 2021, we adopted ASU 2018-15 is effective for us the first quarter of fiscal 2020.2019-12. The adoption of this standard did not have a material impact on our consolidated financial statements.
     
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Standards not yet adopted

    In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses on financial instruments not accounted for at fair value through net income. The provisions require credit impairments to be measured over the contractual life of an asset and developed with consideration for past events, current conditions, and forecasts of future economic information. Credit impairments will be accounted for as an allowance for credit losses deducted from the amortized cost basis at each reporting date. Updates at each reporting date after initial adoption will be recorded through selling, general, and administrative expense. ASU 2016-13 iswill be effective for us in the first quarter of fiscal 2023. We continue to assess the potential effects of these changes to our consolidated financial statements.
    
    In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions related to intraperiod tax allocation, interim period income tax calculation methodology, and the recognition of deferred tax liabilities for outside basis differences. It also simplifies certain aspects of accounting for franchise taxes and clarifies the accounting for transactions that results in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for us the first quarter of fiscal 2021. We continue to assess the potential effects of these changes to our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, which provides optional expedients and exceptions for applying USU.S. GAAP to contracts, hedging relationships, and other
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transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments arewere effective for all entities as of March 12, 2020 through December 31, 2022. Entities may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020. As of March 31, 2021, we have not modified our credit agreements to remove references to LIBOR. We are currently evaluating the impact of the provisions of ASU 2020-04 on our consolidated financial statements.

NOTE 2 –— DISCONTINUED OPERATIONS

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

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

Three Months Ended
March 31,
20212020
Revenue$0 $4,844 
Cost of revenues22 4,817 
Depreciation, amortization, and accretion0 238 
Impairments of long-lived assets0 5,371 
General and administrative expense40 1,166 
Total pretax income (loss) from discontinued operations(62)(6,748)
Income tax provision0 16 
Total income (loss) from discontinued operations$(62)$(6,764)

Reconciliation of Major Classes of Assets and Liabilities of the Discontinued Operations to Amounts Presented Separately in the Statement of Financial Position
(in thousands)

March 31, 2021December 31, 2020
Carrying amounts of major classes of assets included as part of discontinued operations
Inventories$32 $32 
Other Current Assets0 7 
Current assets of discontinued operations$32 $39 
Carrying amounts of major classes of liabilities included as part of discontinued operations
Accrued liabilities$279 $345 
Current liabilities of discontinued operations$279 $345 
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NOTE 3 — REVENUE FROM CONTRACTS WITH CUSTOMERS

    As of September 30, 2020March 31, 2021, we had $47.1$38.3 million of remaining contractual performance obligations for compression services. As a practical expedient, this amount does not include revenue for compression service contracts whose original expected duration is less than twelve months and does not consider the effects of the time value of money. Expected revenue to be recognized in the future as of September 30, 2020March 31, 2021 for completion of performance obligations of compression service contracts are as follows:
 2020202120222023ThereafterTotal
 (In Thousands)
Compression service contracts remaining performance obligations$13,939 $26,608 $5,785 $703 $56 $47,091 
 2021202220232024ThereafterTotal
 (In Thousands)
Compression service contracts remaining performance obligations$27,316 $9,471 $1,488 $42 $14 $38,331 
    
    Our contract asset balances included in trade accounts receivable in our consolidated balance sheets, primarily associated with customer documentation requirementsrevenue accruals prior to invoicing, were $8.8$10.2 million and $9.6$6.8 million as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.

Collections associated with progressive billings to customers for the construction of compression equipment is included in unearned income in the consolidated balance sheets.    The following table reflects the changes in unearned income in our consolidated balance sheets for the periods indicated:
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Nine Months Ended
September 30,
 20202019
 (In Thousands)
Unearned income, beginning of period$9,505 $24,898 
Additional unearned income38,581 105,104 
Revenue recognized(41,623)(104,871)
Unearned income, end of period$6,463 $25,131 

    During the nine months ended September 30, 2020, we recognized in equipment sales revenue $9.2 million from unearned income that was deferred as of December 31, 2019. During the nine months ended September 30, 2019, we recognized in equipment sales revenue of $21.8 million from unearned income that was deferred as of December 31, 2018.
Three Months Ended
March 31,
 20212020
 (In Thousands)
Unearned income, beginning of period$269 $283 
Additional unearned income162 1,007 
Revenue recognized(239)(780)
Unearned income, end of period$192 $510 

    Unearned income is included in accrued liabilities and other on the consolidated balance sheets. As of September 30,March 31, 2021 and December 31, 2020, and September 30, 2019, contract costs were immaterial.

    Disaggregated revenue from contracts with customers by geography is as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
(In Thousands)
Compression and related services
U.S.$46,064 $56,676 $152,424 $166,313 
International7,355 8,361 23,096 26,660 
53,419 65,037 175,520 192,973 
Aftermarket services
U.S.13,564 19,605 46,276 50,682 
International298 821 1,293 1,514 
13,862 20,426 47,569 52,196 
Equipment sales
U.S.11,849 28,872 41,960 107,797 
International28 (588)801 73 
11,877 28,284 42,761 107,870 
Total Revenue
U.S.71,477 105,153 240,660 324,792 
International7,681 8,594 25,190 28,247 
$79,158 $113,747 $265,850 $353,039 
NOTE 3 –IMPAIRMENTS AND OTHER CHARGES

Impairments of Long-Lived Assets

    During the first nine months of 2020, the COVID-19 pandemic and decline in oil and gas prices had a significant impact on our customers and industry, resulting in a decrease in demand in certain of our service lines.

    During the first quarter of 2020, we started to see our customers revise their capital budgets downwards and adjust their operations accordingly, which led to a decline in orders for new compression equipment to be fabricated and sold to third parties. We concluded that these events were indicators of impairment for all our asset groups. We performed a recoverability analysis on all our long-lived asset groups and we determined that the carrying values of our Midland manufacturing facility and related new unit sales inventory exceeded their respective fair values. Therefore, we recorded impairments of approximately $5.4 million related to these assets. Fair value was estimated based on a market approach.

    During the second quarter of 2020, primarily as a result of continued negative impacts on our compression fleet associated with the COVID-19 pandemic and declines in oil and gas prices, we recorded impairments and other charges of approximately $9.0 million associated with non-core used compressor equipment that we have
Three Months Ended
March 31,
 20212020
(In Thousands)
Compression and related services
United States$45,986 $57,275 
International8,253 8,490 
54,239 65,765 
Aftermarket services
United States10,813 17,285 
International188 685 
11,001 17,970 
Equipment sales
United States470 1,194 
International0 506 
470 1,700 
Total Revenue
United States57,269 75,754 
International8,441 9,681 
$65,710 $85,435 
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held for sale, the low-horsepower class of our compression fleet, and field inventory for compression and related services. Fair value used to determine impairments was estimated based on a market approach. Given the dynamic nature of the events, we are not able to reasonably estimate how long our operations will be impacted and the full impact these events will have on our operations. As a result, we could have indicators of impairment again in future periods resulting in additional asset impairments. During the third quarter of 2020, no further impairments were recorded.
NOTE 4 –— INVENTORIES

Components of inventories as of September 30, 2020March 31, 2021 and December 31, 2019,2020, are as follows: 
September 30, 2020December 31, 2019 March 31, 2021December 31, 2020
(In Thousands) (In Thousands)
Parts and suppliesParts and supplies$29,125 $42,814 Parts and supplies$29,115 $28,483 
Work in progressWork in progress4,856 13,223 Work in progress3,568 2,705 
Total inventoriesTotal inventories$33,981 $56,037 Total inventories$32,683 $31,188 

Inventories consist primarily of compressor package parts and supplies. Work in progress inventories consist of new compressor packages located at our manufacturing facility in Midland, Texas as well as work in progress on certain compression services jobs.for our aftermarket business that has not been invoiced.
NOTE 5 –— LEASES

    We have operating leases for some of our office space, warehouse space, operating locations, and machinery and equipment. Our leases have remaining lease terms ranging from 1up to 10ten years. Some of our leases have options to extend for various periods, while some have termination options with prior notice of generally 30 days or six months. Our leases generally require us to pay all maintenance and insurance costs. During the fourth quarter of 2019,On February 12, 2021, we entered into a build-to-suit agreement for a facility to serve as support for our aftermarket services. The lease agreement commitment for 14 compressor packages. The leases are for anon the facility has a ten-year term with initial termbase rent of seven years$0.5 million per year, and commenced upon the completion of the fabrication of the compressor packages. During the first quarter, we took delivery of eight compressor packages. Duringis expected to commence during the second quarter we took delivery of the remaining six compressor packages.2021. We have no other lease agreement commitmentsleases that have not yet commenced that create significant rights and obligations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

    In November 2019, we entered into a sale and leaseback transaction with a third-party lessor whereby we received $9.8 million of proceeds from the sale of certain of our compression equipment in service and entered into an associated lease of the same equipment having an initial lease term of seven years.

    Lease costs are included in either cost of revenues or selling, general, and administrative expense depending on the use of the underlying asset. Total lease expense (inclusive of lease expense for leases not included on our consolidated balance sheet based on our accounting policy election to exclude leases with a term of 12 months or less), was $3.5$4.2 million and $10.24.0 million for the three months ended March 31, 2021 and nine month period ended September 30,March 31, 2020, respectively, of which, $0.8$1.6 million and $2.4$1.8 million respectively, related to short-term leases. Variable rent expense was not material.

Operating lease supplemental cash flow information:
Nine Months Ended September 30,
20202019 Three Months Ended March 31,
20212020
(In Thousands) (In Thousands)
Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows - operating leases Operating cash flows - operating leases$7,437 $3,645  Operating cash flows - operating leases$2,717 $2,216 
Right-of-use assets obtained in exchange for lease obligations:Right-of-use assets obtained in exchange for lease obligations:Right-of-use assets obtained in exchange for lease obligations:
Operating leases Operating leases$19,127 $3,035  Operating leases$0 $7,626 

Supplemental balance sheet information:
 March 31, 2021December 31, 2020
 (In Thousands)
Operating leases:
     Operating right-of-use asset$30,575 $32,637 
     Accrued liabilities and other$7,695 $8,099 
     Operating lease liabilities22,472 24,059 
     Total operating lease liabilities$30,167 $32,158 

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Supplemental balance sheet information:
 September 30, 2020December 31, 2019
 (In Thousands)
Operating leases:
     Operating right-of-use asset$34,680 $21,006 
     Accrued liabilities and other$8,186 $6,706 
     Operating lease liabilities25,896 13,822 
     Total operating lease liabilities$34,082 $20,528 

Additional operating lease information:
September 30, 2020December 31, 2019 March 31, 2021December 31, 2020
Weighted average remaining lease term:Weighted average remaining lease term:Weighted average remaining lease term:
Operating leases Operating leases4.89 years4.51 years Operating leases4.58 years4.73 years
Weighted average discount rate:Weighted average discount rate:Weighted average discount rate:
Operating leases Operating leases8.89 %8.73 % Operating leases9.16 %9.02 %

    Future minimum lease payments by year and in the aggregate, under non-cancelable operating leases with terms in excess of one year, consist of the following at September 30, 2020:March 31, 2021:
Operating Leases Operating Leases
(In Thousands) (In Thousands)
Remainder of 2020$2,663 
202110,450 
Remainder of 2021Remainder of 2021$7,725 
202220228,676 20228,684 
202320237,062 20237,068 
202420244,812 20244,812 
202520254,237 
ThereafterThereafter8,819 Thereafter4,583 
Total lease paymentsTotal lease payments42,482 Total lease payments37,109 
Less imputed interestLess imputed interest(8,400)Less imputed interest(6,942)
Total lease liabilitiesTotal lease liabilities$34,082 Total lease liabilities$30,167 
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NOTE 6 –— LONG-TERM DEBT AND OTHER BORROWINGS

Long-term debt consists of the following:
September 30, 2020December 31, 2019
Scheduled Maturity(In Thousands)
Credit Agreement (presented net of the unamortized deferred financing costs of $0 million as of September 30, 2020 and $0.9 million as of December 31, 2019)June 29, 2023$0 $2,622 
7.25% Senior Notes (presented net of the unamortized discount of $0.3 million as of September 30, 2020 and $1.7 million as of December 31, 2019 and unamortized deferred financing costs of $0.5 million as of September 30, 2020 and $2.8 million as of December 31, 2019)August 15, 202279,893 291,444 
7.50% First Lien Notes (presented net of the unamortized deferred financing costs of $5.4 million as of September 30, 2020 and $5.8 million as of December 31, 2019, net of the unamortized discount of $0.2 million as of September 30, 2020, and net of deferred restructuring gain of $5.3 million as of September 30, 2020)April 1, 2025399,640 344,172 
10.00%/10.75% Second Lien Notes (presented net of the unamortized discount of $0.8 million as of September 30, 2020, and net of unamortized deferred financing costs of $1.2 million as of September 30, 2020, and net of deferred restructuring gain of $3.9 million as of September 30, 2020)April 1, 2026157,410 0 
Total long-term debt$636,943 $638,238 
Scheduled MaturityMarch 31, 2021December 31, 2020
(In Thousands)
Credit Agreement (1)
June 29, 2023$0 $0 
7.25% Senior Notes (2)
August 15, 202280,109 80,001 
7.50% First Lien Notes (3)
April 2025399,638 399,655 
10.00%/10.75% Second Lien Notes (4)
April 2026158,915 158,975 
Total long-term debt$638,662 $638,631 

    As of September 30, 2020, CCLP had 0 balance outstanding and(1)$2.5 million in letters of creditissued under the Credit Agreement.     Because there was no outstanding balance on the CCLP Credit Agreement, associated deferred financing costs of $0.7$0.5 million as of March 31, 2021 and $0.6 million as of December 31, 2020 were classified as other long-term assets on the accompanying consolidated balance sheet. As
(2)     Net of September 30,the unamortized discount of $0.2 million as of March 31, 2021 and $0.3 million as of December 31, 2020 and subject to compliance with the covenants, borrowing base,unamortized deferred financing costs of $0.4 million as of March 31, 2021 and other provisions$0.4 million as of December 31, 2020.
(3)     Net of the agreements that may limit borrowings underunamortized deferred financing costs of $4.9 million as of March 31, 2021 and $5.2 million as of December 31, 2020, net of the unamortized discount of $0.2 million as of March 31, 2021 and $0.2 million as of December 31, 2020, and net of deferred restructuring gain of $4.7 million as of March 31, 2021 and $5.0 million as of December 31, 2020.
(4)     Net of the unamortized discount of $0.7 million as of March 31, 2021 and $0.7 million as of December 31, 2020, and net of unamortized deferred financing costs of $1.1 million as of March 31, 2021 and $1.2 million as of December 31, 2020, and net of deferred restructuring gain of $3.6 million as of March 31, 2021 and $3.7 million as of December 31, 2020.

    Our Credit Agreement we had availability of $14.5 million.
    Our credit and senior noteSenior Note agreements contain certain affirmative and negative covenants, including covenants that restrict the ability to pay dividends or other restricted payments. We are in compliance with all covenants of our credit and senior note agreements as of September 30, 2020.March 31, 2021.

    See Note 7 -– “Related Party Transactions,” for a discussion of our amounts payable to affiliates and long-term affiliate payable to TETRA.Spartan Energy Partners LP (“Spartan”).

Second Amendment to
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Credit Agreement

    On    In June 11, 2020, CSI Compressco, LP and CSI Compressco Sub Inc (the “Borrowers”) entered into theSecond Amendment to Loan and Security Agreement (the “Amendment”) amending Partnership amended the Loan and Security Agreement dated June 29, 2018 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) with Bank. The Credit Agreement provides for maximum revolving credit commitments of America, N.A.,$35.0 million and includes a $5.0 million reserve, which results in its capacity as administrative agent, issuing bank and swing line issuer (“Administrative Agent”), andreduced borrowing availability. The Credit Agreement includes a $25.0 million sublimit for letters of credit. Additionally, on January 29, 2021, the other lenders and loan parties party thereto. The Amendment provided for changes and modifications toPartnership further amended the Credit Agreement which include, among other things, changes to certain termstemporarily increase the size of the Credit Agreement as follows: (i) resizingreserve to $10.0 million and also required that Spartan backstop all of the maximum credit commitmentPartnership’s outstanding letters of credit. These temporary restrictions expired on April 30, 2021. As of March 31, 2021, we had 0 balance outstanding under the Credit Agreement from $50,000,000and $1.8 million of letters of credit against our Credit Agreement. Subject to $35,000,000; (ii)compliance with the inclusioncovenants, borrowing base, and other provisions of a $5,000,000 reserve with respect to the Borrowing Base (as defined inagreements that may limit borrowings under the Credit Agreement) thereunder, which would result in reduced borrowing availability; (iii)Agreement, we had availability of $13.8 million as of March 31, 2021. See Note 11 – “Subsequent Events” for further information regarding our Credit Agreement.

Borrowings under the removal of the financial covenant compliance test with respectcredit facility are subject to the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement); (iv) an increase in the applicable margin related to (x)(i) LIBOR Rate Loans (as defined in the Credit Agreement) to a range between 3.00% and 3.50% and (y)(ii) Base Rate Loans (as defined in the Credit Agreement) to a range between 2.00% and 2.50%, in each case, which shall be determined according to average daily excess availability under the Credit Agreement; and (v) an
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increase in the rate used to calculate the. The commitment fee in respect of the unutilized commitments under the Credit Agreement tois 0.50%. In connection to this amendment, $0.2 million of financing costs were incurred, and deferred against the carrying value of the amount outstanding, if any. Additionally, $0.2 million of financing fees were charged to other (income) expense, net during the nine month period ended September 30, 2020.

First Supplemental Indenture for the Old7.25% Senior Notes due 2022

    On June 11, 2020, CSI Compressco, LP and CSI Compressco Finance Inc. (the “Issuers”) announced that they had accepted for exchange $215,208,000, or approximately 72.7%,As of their outstandingMarch 31, 2021, our 7.25% Senior Notes due 2022 (the “Old“Senior Notes”) had $80.1 million outstanding net of unamortized discounts and unamortized deferred financing costs. Interest on these notes is payable on February 15 and August 15 of each year. The Senior Notes are unsecured obligations, and are guaranteed on a unsecured basis by the Partnership’s subsidiaries that were validly tendered (and not validly withdrawn)guarantee the Credit Agreement.

Our Senior Notes are jointly and severally, and fully and unconditionally, guaranteed by 11:59 p.m., New York City time, on June 10, 2020, for (i) $50,000,000each of the Issuers’ 7.50%Partnership’s domestic restricted subsidiaries (other than CSI Compressco Finance Inc.) that guarantee the Partnership’s other indebtedness (collectively, the "Guarantor Subsidiaries”). The Senior SecuredNotes indenture includes customary provisions for the release of the guarantees by the Guarantor Subsidiaries upon the occurrence of certain allowed events including the release of a guarantor under our revolving credit facility.

7.50% First Lien Notes due 2025 (the “7.50%

As of March 31, 2021, our First Lien Notes”)Notes had $399.6 million outstanding net of unamortized discounts, unamortized deferred financing costs and (ii) $155,529,000 aggregate principal amountdeferred restructuring gains. Interest on these notes is payable on April 1 and October 1 of new 10.00%each year. The First Lien Notes are secured by a first-priority security interest in substantially all of the Partnership’s and its subsidiaries assets, subject to certain permitted encumbrances and exceptions, and are guaranteed on a senior secured basis by each of the Partnership’s U.S. restricted subsidiaries (other than Finance Corp, certain immaterial subsidiaries and certain other excluded U.S. subsidiaries).

10.000%/10.75% Senior Secured10.750% Second Lien Notes due 2026 (the “10.00%/10.75% Second Lien Notes” and, together with the 7.50% First Lien Notes, the “New Notes”), pursuant to its previously announced exchange offer and consent solicitation (the “Exchange Offer”), which commenced on April 17, 2020. In connection with the exchange offer, we incurred financing fees of $4.6 million which were charged to other (income) expense, net during the nine month period ended September 30, 2020.

    On June 12, 2020, following receiptAs of March 31, 2021, our Second Lien Notes had $158.9 million outstanding, net of unamortized discounts, unamortized deferred financing costs and deferred restructuring gains. Interest on the requisite consentsSecond Lien Notes is payable on April 1 and October 1 of the holders of the Oldeach year. The Second Lien Notes the Issuers entered into the First Supplemental Indenture (the “First Supplemental Indenture”),are secured by and among the Issuers, the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, to the Indenture, dated as of August 4, 2014 (the “Unsecured Indenture”), by and among the Issuers, the subsidiary guarantors named therein and U.S. Bank National Association, as trustee.

    The First Supplemental Indenture eliminateda second-priority security interest in substantially all of the restrictive covenantsPartnership’s and its subsidiaries assets, subject to certain permitted encumbrances and exceptions, and are guaranteed on a senior secured basis by each of the Partnership’s U.S. restricted subsidiaries (other than Finance Corp and certain of the default provisions in the Unsecured Indenture and became operative upon the consummation by the Issuers of the Exchange Offer.

    On June 12, 2020, the Issuers issued $50,000,000 in aggregate principal amount of New First Lien Notes to certain holders of the Old Notes pursuant to the terms of the Exchange Offer. In March 2018, the Issuers had issued $350,000,000 in aggregate principal amount of 7.50% Senior Secured Notes due 2025 (the “Existing First Lien Notes” and, together with the New First Lien Notes, the “7.50% First Lien Notes”) pursuant to the First Lien Base Indenture. The New First Lien Notes were issued as “additional notes” under the First Lien Base
Indenture and will be treated as a single class with such notes but will not trade fungibly with the Existing First
Lien Notes.

Second Lien Notes Indenture

    On June 12, 2020, the Issuers issued $155,529,000 in aggregate principal amount of the 10.00%/10.75% Second Lien Notes to certain holders of the Old Notes pursuant to the terms of the Exchange Offer. The Issuers issued the 10.00%/10.75% Second Lien Notes pursuant to an indenture, dated June 12, 2020 (the “Second Lien Notes Indenture”), by and among the Issuers, the subsidiary guarantors named therein andother excluded U.S. Bank National Association, as trustee (the “Second Lien Trustee”)subsidiaries). In connection with the payment of PIK Interest (as defined below), if any, in respect of the 10.00%/10.75% Second Lien Notes, the Issuersissuers will be entitled, without the consent of the Holders, to increase the outstanding aggregate principal amount of the 10.00%/10.75% Second Lien Notes or issue additional notes (“PIK notes”) under the Second Lien Notes Indentureindenture on the same terms and conditions as the 10.00%/10.75%already outstanding Second Lien Notes offered hereby (each such increase or issuance, a “PIK Payment”). The Issuers may issue additional 10.00%/10.75% Second Lien Notes under the Second Lien Notes Indenture from time to time. Any issuance of additional 10.00%/10.75% Second Lien Notes (including PIK notes) is subject to all of the covenants in the Second Lien Notes Indenture. The 10.00%/10.75% Second Lien Notes and any additional 10.00%/10.75% Second Lien Notes subsequently issued under the indenture, will be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. Subject to the making of PIK Payments, the Issuers will issue 10.00%/10.75% Second Lien Notes in denominations of $2,000 and integral multiples of $1,000 in excess of $2,000; provided that PIK Payments may result in 10.00%/10.75% Second Lien Notes being issued in denominations of $1.00 and integral multiples of $1.00. The 10.00%/10.75% Second Lien Notes will mature on April 1, 2026. Interest on the 10.00%/10.75% Second Lien Notes will be payable semi-annually in arrears on April 1 and October 1, commencing on October 1, 2020. The Issuers will make each interest payment to the holders of record on March 15 and September 15 immediately
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preceding each interest payment date.Notes. Interest will accrue at (1) the annual rate of 7.250% payable in cash, plus (2) at the election of the Issuers (made by delivering a notice to the Second Lien Trustee not less than five business days prior to the record date), the annual rate of (i) 2.750% payable in cash (together with the annual rate set forth in clause (1), the “Cash Interest Rate”) or (ii) 3.500% payable by increasing the principal amount of the outstanding 10.00%/10.75% Second Lien Notes or by issuing additional PIK notes, in each case rounding up to the nearest $1.00 (such increased principal amount or additional PIK notes, the “PIK Interest”). In the absence
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Table of an interest payment election made by the Issuers as set forth above, interest on the notes will be payable as if the Issuers had elected to pay PIK Interest with respect to the portion of interest payable pursuant to clause (2) above.Contents

The 10.00%/10.75%indentures governing our First Lien Notes and Second Lien Notes are jointly and severally, and fully and unconditionally, guaranteed (the “Guarantees”) on a senior secured basis initially by each of the Partnership’s domestic restricted subsidiaries (other than Finance Corp, certain immaterial subsidiaries and certain other excluded domestic subsidiaries, the “Guarantors”) and will be secured by a second-priority security interest in substantially all of the Issuers’ and the Guarantors’ assets (other than certain excluded assets) (the “Collateral”) as collateral security for their obligations under the 10.00%/10.75% Second Lien Notes, subject to certain permitted encumbrances and exceptions. At any time prior to April 1, 2023, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 10.00%/10.75% Second Lien Notes issued under the Second Lien Notes Indenture at a redemption price of 110.000% of the principal amount of the 10.00%/10.75% Second Lien Notes, plus accrued and unpaid interest to the redemption date, with an amount of cash equal to the net cash proceeds of certain equity offerings. On or after April 1, 2023, the Issuers may redeem all or part of the 10.00%/10.75% Second Lien Notes at redemption prices (expressed as percentages of the principal amount) equal to (i) 107.500% for the twelve month period beginning on April 1, 2023; (ii) 105.000% for the twelve-month period beginning on April 1, 2024 and (iii) 100.000% at any time thereafter, plus accrued and unpaid interest up to, but not including, the redemption date. In addition, at any time prior to April 1, 2023, the Company may redeem all or a part of the 10.00%/10.75% Second Lien Notes at a redemption price equal to 100% of the principal amount of the 10.00%/10.75% Second Lien Notes to be redeemed plus a make-whole premium, plus accrued and unpaid interest up to, but not including, the redemption date.

    The Second Lien Notes Indenture containscontain customary covenants restricting the Partnership’sour ability and the ability of itsour restricted subsidiaries to: (i) pay distributions on, purchase, or redeem itsour common units, make certain investments and other restricted payments, or purchase or redeem itsany subordinated debt; (ii) incur or guarantee additional indebtedness or issue certain kinds of preferred equity securities; (iii) create or incur certain liens securing indebtedness; (iv) sell assets, including dispositions of the Collateral;collateral securing our First Lien Notes and Second Lien Notes; (v) consolidate, merge, or transfer all or substantially all of itsour assets; (vi) enter into transactions with affiliates; and (vii) enter into agreements that restrict distributions or other payments from itsour restricted subsidiaries to the Partnership.us. Our Second Lien Notes indenture further restricts our ability to make distributions in respect of our common units in any amount exceeding $0.04 per common unit per year, unless such increased distribution is funded by proceeds from an equity offering. These covenants are subject to a number of important limitations and exceptions, including certain provisions permitting the Partnership,us, subject to the satisfaction of certain conditions, to transfer assets to certain of itsour unrestricted subsidiaries. Moreover, if the 10.00%/10.75% Second Lien Notes receive an investment grade rating from at least two rating agencies and no default has occurred and is continuing under the 10.00%/10.75% Second Lien Notes Indenture, many of the restrictive covenants in the Second Lien Notes Indenture will be terminated. The Second Lien Notes Indentureindentures also containscontain customary events of default and acceleration provisions relating to such events of default, which provide that upon an event of default under the Second Lien Notes Indenture,indentures, the Second Lien Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding 10.00%/10.75%First Lien Notes and Second Lien Notes may declare all of the 10.00%/10.75%First Lien Notes and Second Lien Notes to be due and payable immediately.

During the fourth quarter of 2020, the Partnership elected to increase the principal amount outstanding by $1.6 million through the issuance of PIK notes. This amount is included in the balance outstanding as of March 31, 2021. See Note 11 – “Subsequent Events” for further information regarding our Second Lien Notes.

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NOTE 7 –— RELATED PARTY TRANSACTIONS
 
On January 29, 2021, Spartan acquired from TETRA the Partnership’s General Partner, IDRs and 10.95 million common units in the Partnership (the “GP Sale”). The Partnership did not issue any common units or incur any debt as a result of the transaction. TETRA retained 5.2 million common units of the Partnership.

Omnibus Agreement
 
    Under the terms of the Omnibus Agreement, our GeneralPartnerprovides provided all personnel and services reasonably necessary to manage our operations and conduct our business (other than in Mexico, Canada, and Argentina), and certain of TETRA’s Latin American-based subsidiaries provideprovided personnel and services necessary for the conduct of certain of our Latin American-based businesses. In addition, under the Omnibus Agreement, TETRA providesprovided certain corporate and general and administrative services as requested by our General Partner, including, without limitation, legal, accounting and financial reporting, treasury, insurance administration, claims processing and risk management, health, safety and environmental, information technology, human resources, credit, payroll, internal audit, and tax services. Pursuant to the Omnibus Agreement, we reimbursereimbursed our General Partner and TETRA for services they provide to us. Upon the closing of the GP Sale, the Omnibus Agreement terminated in accordance with its terms. Beginning in February 2021, we will reimburse our General Partner under the terms of our partnership agreement for any expenses and expenditures incurred or payments made on our behalf, including, operating expenses related to our operations and for the provision of various general and administrative services for our benefit.

Transition Services Agreement

TETRA will continue to provide back office support to the Partnership under a Transition Services Agreement for a period of time until the Partnership has completed a full separation from TETRA’s back-office support functions.

Spartan and General Partner Ownership

As of September 30, 2020, TETRA’sMarch 31, 2021, Spartan’s ownership interest in us was approximately 34% of23%, with the outstanding common units andheld by the public representing an approximate 1.4% general partner65% interest through which it holds incentive distribution rights.in us.

Other Sources of Financing

In February 2019, we entered into a transaction with TETRA whereby TETRA agreed to fund the construction of and purchase from us of up to $15.0 million of new compression services equipment and to subsequently lease the equipment back to us in exchange for a monthly rental fee. As of SeptemberNovember 30, 2020,
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pursuant to this arrangement, $14.8 million hashad been funded by TETRA for the construction of new compressioncompressor services equipment and all such equipment wascompression units were completed and deployed under this agreement. For accounting purposes,In December 2020, TETRA sold these compressors and assigned the inclusioncorresponding leases to Spartan. As of an option that allows usMarch 31, 2021, the financing obligation owed to repurchase the equipment at a fixed price during certain periods of the agreement caused the transaction to be accounted for as a financing transaction, as opposed to a sale-leaseback, resulting in the funded amount being recorded as a financing obligation. Accordingly, the compression services equipmentSpartan was $11.3 million and is included in property, plant, and equipment and the corresponding financing obligations are included in amountsaccounts payable to affiliatesaffiliate and other and other long-term affiliate payableliabilities in our consolidated balance sheet. Assheet as of September 30, 2020, the financing obligation was $14.9 million.March 31, 2021. The balances were included in accrued liabilities and other long-term liabilities in our consolidated balance sheet as of December 31,2020. Imputed interest expense recognized for the three and nine monththree-month period ended September 30, 2020March 31, 2021 was $0.6 millionmillion.

Mexico Payroll Affiliate

In January 2021, the Partnership entered into an agreement to purchase a TETRA-owned entity, which administers payroll in Mexico, for consideration of approximately $0.4 million. The difference between the fair value of the affiliate and $1.8 million, respectively.
NOTE 8 – COMMITMENTSAND CONTINGENCIES
From time to time, we are involvedTETRA’s historic carrying value of the affiliates’ net assets was recorded as a capital distribution. The associated liability is included in litigation relating to claims arising outaccounts payable on the consolidated balance sheet as of our operationsMarch 31, 2021 and was paid in the normal course of business. While the outcome of any lawsuitsor other proceedingsagainst us cannot be predicted with certainty, management does notconsider it reasonably possible that a loss resulting from such lawsuits or proceedings in excess of any amounts accrued has been incurred that isexpectedtohave a material adverse effect on our financialcondition, results of operations,or cash flows. April 2021.
NOTE 9 –8 — FAIR VALUE MEASUREMENTS

Fair value is defined by ASC Topic 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that may differ from the transaction price or market price of the asset or liability.

Under U.S. GAAP, the fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value. Fair value measurements should maximize the use of observable inputs and minimize the use of unobservable inputs, where possible. Observable inputs are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs may be needed to measure fair value in situations where there is little or no market activity for the asset or liability at the measurement date and are developed based on the best information available in the circumstances, which could include the reporting entity’s own judgments about the assumptions market participants would utilize in pricing the asset or liability.

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Derivative Contracts

    We have currency exchange rate risk exposure related to transactions denominated in a foreign currency as well as to investments in certain of our international operations. We enter into 30-day foreign currency forward derivative contracts as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. As of September 30, 2020,March 31, 2021, we had the following foreign currency derivative contract outstanding relating to a portion of our foreign operations:
Derivative contractsDerivative contractsUS Dollar Notional AmountTraded Exchange RateSettlement DateDerivative contractsUS Dollar Notional AmountTraded Exchange RateSettlement Date
(In Thousands)(In Thousands)
Forward sale Mexican pesoForward sale Mexican peso$5,464 21.87October 1, 2020Forward sale Mexican peso$5,763 20.74April 5, 2021

Under a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries, we may enter into similar derivative contracts from time to time. Although contracts pursuant to this program will serve as economic hedges of the cash flow of our currency exchange risk exposure, they will not be formally designated as hedge contracts or qualify for hedge accounting treatment. Accordingly, any change in the fair value of these derivative instruments during a period will be included in the determination of earnings for that period.

The fair values of our foreign currency derivative contracts are based on quoted market values (a Level 2 fair value measurement). The fair values of our foreign currency derivative instruments as of September 30, 2020 and December 31, 2019, are as follows:
Foreign currency derivative contractsBalance Sheet LocationFair Value at
September 30, 2020December 31, 2019
(In Thousands)
Forward sale contractsCurrent assets$59 $0 
Forward sale contractsCurrent liabilities0 (53)
Net asset (liability)$59 $(53)

None of our foreign currency derivative instruments contains credit risk related contingent
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features that would require us to post assets or collateral for contracts that are classified as liabilities. During the three and nine monththree-month periods ended September 30,March 31, 2021 and March 31, 2020, we recognized $0.3$(0.1) million and $(0.8)$(1.4) million, respectively, of net (gains) losses associated with our foreign currency derivatives program. During the three and nine month periods ended September 30, 2019, we recognized $(0.1) million and $0.2 million, respectively, of net (gains) losses associated with our foreign currency derivative program. These amounts are included in other (income) expense, net, in the accompanying consolidated statement of operations.

During the nine months ended September 30, 2020, we recorded impairmentsFair Value of approximately $9.0 million, reflecting the decreasedDebt

    The fair value for certain assets. The fair values used in these impairment calculations wereof our debt has been estimated based on a market approach, which is based on significant unobservable inputs (Level 3) in accordance with the accounting standard regarding fair value. The fair value hierarchy.    See Note 3 - “Impairmentsof our fixed rate long-term debt is estimated based on recent trades for these notes. The carrying and Other Charges” for further discussion.fair value of our debt, excluding unamortized debt issuance costs, are as follows (in thousands):

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March 31, 2021December 31, 2020
Carrying ValueFair ValueCarrying ValueFair Value
(In Thousands)
7.25% Senior Notes$80,722 $76,686 $80,722 $67,274 
7.50% First Lien Notes400,000 408,000 400,000 369,680 
10.000%/10.750% Second Lien Notes157,162 138,303 157,162 114,728 
$637,884 $622,989 $637,884 $551,682 
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Other
    Recurring and nonrecurring fair value measurements by valuation hierarchy as of September 30, 2020 and December 31, 2019 are as follows:
Fair Value Measurements Using
DescriptionTotal as of
September 30, 2020		Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
(In Thousands)
Asset for foreign currency derivative contracts$59 $0 $59 $0 
$59 
  Fair Value Measurements Using
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
DescriptionTotal as of
December 31, 2019
(In Thousands)
Liability for foreign currency derivative contracts$(53)$0 $(53)$0 
$(53)

The fair values of cash, accounts receivable, accounts payable, accrued liabilities short-term borrowings, and variable-rate long-term debt pursuant to our Credit Agreementrevolving credit facility approximate their carrying amounts. The fair valuesamounts due to the short-term nature of our publicly traded long-term 7.25% Senior Notes at September 30, 2020 and December 31, 2019 were approximately $59.7 million and $266.0 million, respectively. Those fair values compare to aggregate principal amounts of such notes at September 30, 2020 and December 31, 2019 of $80.7 million and $295.9 million, respectively. The fair values of our long-term 7.50% Senior Secured Notes at September 30, 2020 and December 31, 2019 were approximately $360.0 million and $344.8 million, respectively. These fair values compare to an aggregate principal amount of such notes at September 30, 2020 and December 31, 2019 of $400.0 million and $350.0 million, respectively. The fair value of the CCLP 10.00%/10.75% Second Lien Notes at September 30, 2020 was approximately $115.5 million. This fair value compares to aggregate principal amount of such notes at September 30, 2020 of $155.5 million. We based the fair values of our 7.25% Senior Notes, our 7.50% Senior Secured Notes, and our 10.00%/10.75% Second Lien Notes as of September 30, 2020 on recent trades for these notes. See Note 6 - “Long-Term Debt and Other Borrowings” for further discussion.items.
NOTE 10 –9 — INCOME TAXES
 
As a partnership, we are generally not subject to income taxes at the entity level because our income is included in the tax returns of our partners. Our operations are treated as a partnership for federal tax purposes with each partner being separately taxed on its share of taxable income. However, a portion of our business is conducted through taxable U.S. corporate subsidiaries. Accordingly, a U.S. federal and state income tax provision has been reflected in the accompanying statements of operations. Certain of our operations are located outside of the U.S., and the Partnership, through its foreign subsidiaries, is responsible for income taxes in these countries.

    Our effective tax rate for the nine monththree-month period ended September 30, 2020,March 31, 2021, was negative 3.9%(11.7)% primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes combined with losses generated in entities for which no related tax benefit has been recorded. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.
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NOTE 10 — COMMITMENTSAND CONTINGENCIES
TableFrom time to time, we are involved in litigation relating to claims arising out of Contentsour operations in the normal course of business. While the outcome of any lawsuitsor other proceedingsagainst us cannot be predicted with certainty, management does notconsider it reasonably possible that a loss resulting from such lawsuits or proceedings in excess of any amounts accrued has been incurred that isexpectedtohave a material adverse effect on our financialcondition, results of operations,or cash flows. 
NOTE 11 – SALE OF ASSETS

In April 2020, we entered into a purchase and sale agreement for the sale of our Midland manufacturing facility. During the nine months ended September 30, 2020, we recorded an impairment of $3.1 million to reduce this asset to its approximate fair market value based on a market approach and expected net proceeds. The impairment charges are reflected in impairment and other charges in our statement of operations.

On July 2, 2020, we completed the previously announced sale of our Midland manufacturing facility for a total sale price of $17.0 million. The Midland facility was used to design, fabricate and assemble new standard and customized compressor packages. The sale of the Midland facility resulted in a gain of $0.3 million during the three and nine months ended September 30, 2020, which is reflected in other (income) expense, net in our statement of operations.

Additionally, in the third quarter of 2020, we sold the remaining inventory and equipment related to the fabrication of new compressors for a gain of $0.5 million, which is reflected in other (income) expense, net in our statement of operations for the three and nine months ended September 30, 2020. During the nine months ended September 30, 2020, we recorded an impairment of $2.3 million to reduce the carrying value of the new unit sales inventory to its approximate fair market value based on a market approach. The impairment charges are reflected in impairment and other charges in our statement of operations.

During the third quarter ended September 30, 2020, we completed the sale of 58 low-horsepower units to one of our customers for $2.6 million. During the nine months ended September 30, 2020, we recorded an impairment of $3.7 million to reduce these assets to their approximate fair market value based on a market approach and expected net proceeds. The impairment charges are reflected in impairment and other charges in our statement of operations.
NOTE 12 –— SUBSEQUENT EVENTS
    
In connection with the Midland manufacturing facility sale discussed in Note 11, we entered into an agreement with the buyer to continue to operate a portion of the facility, which allowed us to close out remaining backlog for the New Unit Sale business and to continue to operate our AMS business at that location for an interim period. Following the shipment of the last unit in October, we are no longer fabricating new compressor packages for sales to third parties or for our own service fleet. The operations associated with fabricating new compressor packages will be reported as a discontinued operation in the fourth quarter of 2020.    

In July 2020, we received a purchase order to sell $6.7 million of idle large horsepower compressor units to one of our significant customers. During the third quarter of 2020, we received proceeds and recognized $1.7 million relating to this order. In October 2020, we received the remaining $5.0 million of proceeds and started to deliver the additional compressor units to the customer. We have and will continue to evaluate the sale of other non-core assets, including our low-horsepower compression fleet. We can provide no assurance that we will consummate a future sale of our low-horsepower compression fleet or any other non-core asset.

On OctoberApril 19, 2020,2021, the board of directors of our General Partner declared a cash distribution attributable to the quarter ended September 30, 2020March 31, 2021 of $0.01 per outstanding common unit. This distribution equates to a distribution of $0.04 per outstanding common unit, on an annualized basis. This distribution will be paid on November 13, 2020May 14, 2021 to each of the holders of common units of record as of the close of business on NovemberApril 30, 2021.

On April 1, 2020.2021, the Partnership elected to increase the principal amount outstanding on its Second Lien Notes through the issuance of $2.8 million of PIK notes.
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On April 30, 2021, the required reserve on our Credit Agreement was reduced to $5.0 million and Spartan’s backstop for the Partnership’s outstanding letters of credit was released.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion and analysis of the Partnership’s financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in this Quarterly Report.“Item 1. Financial Statements” contained herein. In addition, the following discussion and analysis also should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC on March 16, 20204, 2021 (“20192020 Annual Report”). This discussion includes forward-looking statements that involve certain risks and uncertainties.

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Business Overview
    
    We provide compression services and equipment for natural gas and oil production, gathering, artificial lift, production enhancement, transmission, processing, and storage. Our compression and related services business includes a fleet of more thanapproximately 4,900 compressor packages providing approximately 1.2 million in aggregate horsepower, utilizing a full spectrum of low-, medium-, and high-horsepower engines. Our equipment sales business includes the design, and sale of both standard and custom-designed, engineered compressor packages. Our aftermarket business provides compressor package overhaul, repair, engineering and design, reconfiguration and maintenance services, as well as the sale of compressor package parts and components manufactured by third-party suppliers. Our customers operate throughout many of the onshore producing regions of the United States, as well as in a number of foreign locations, including the countries of Mexico, Canada and Argentina. We design and fabricate a majority of the compressor packages that we use to provide compression services and sell to customers. Going forward, we plan to have such compressor packages fabricated through one or more third party packagers.
    
    Our operations are significantly dependent uponDemand for our services is directly driven by the demand for, and production of crude oil and the associated natural gas from unconventional oil andshale plays, natural gas production in conventional plays along with transmission of natural gas to and within sales pipelines. Our fleet of compressors, ranging from 20 to 2,500 horsepower per unit, allows us to provide our customers compression solutions ranging from low horsepower production enhancement needs at the domesticwellhead through large horsepower at centralized gathering and international markets in which we operate. gas lift facilities.

During the third quarter of 2020, macroeconomic uncertainty in the oil and natural gas industry continued to drivedrove steep declines in spending by the oil and gas operators but as oil prices stabilized around $40, the pacewhich led to a number of horsepowerour units being released slowed in comparison to the second quarter. In addition, the unprecedented drop in U.S. onshore oil and natural gas activity in the second quarter led towith some of our customers temporarily shutting in wells and requesting that compression units be placed on standby. CustomersOil prices began to stabilize during the third quarter and continued to improve during the first quarter, reaching an average of $58 per barrel. The pace of horsepower being released slowed in comparison to the second quarter and customers continued bringing production back online throughout the third quarter and we ended the third quarter with approximately 8%fourth quarters of our US domestic fleet on standby as compared to 15% in the second quarter.2020.

    ThroughoutUnit releases continued to slow in the year,first weeks of 2021. In March, net unit sets turned positive for the first time since December of 2019. Oil prices crossed $50 per barrel in early January and continued to edge upwards, exceeding $60 per barrel in mid-February and stayed in that range throughout the quarter. Along with these commodity price improvements, we have seen an increase in quote activity and awards across our customers revise their capital budgets substantially downwardcompression and adjust their operations accordingly which we believe will continue for the foreseeable future. Given the decline in orders for new compression equipment to be fabricatedrelated services and sold to third parties, in early April 2020, we announced our plan to shut down our Midland manufacturing facility. On July 2, 2020, we completed the previously announced sale of our Midland manufacturing facility for a total sale price of $17.0 million. We continued to operate the facility until the completion and sale of our remaining backlog, which was completed in October 2020. Following the completion of the backlog, we are no longer fabricating new compressor packages for sales to third parties or for our own service fleet.aftermarket services businesses.

    The COVID-19 pandemic and decline in oil pricesA significant portion of our fleet was exposed to the winter weather that had a significantsevere impact on Texas and neighboring states in February, creating challenges to safely access, operate and maintain our units. Keeping safety a priority and working closely with our customers, we were able to navigate the challenging conditions safely and industry. Duringwith minimal impact to the first quarter of 2020, we concluded that these events were indicators of impairment for all our asset groups. As a result, we performed a recoverability analysis on all our long-lived asset groups and we determined that the carrying valuesmechanical condition of our Midland manufacturing facilityfleet, revenues and related new unit sales inventory exceeded their respective fair values. Therefore, we recorded impairments of approximately $5.4 million during the first quarter of 2020 related to these assets. During the second quarter of 2020, primarily as a result of continued negative impacts on our compression fleet associated with the COVID-19 pandemic and declines in oil and gas prices, we recorded impairments and other charges of approximately $9.0 million associated with non-core used compressor equipment that we have held for sale, the low-horsepower class of our compression fleet, and field inventory for compression and related services. During the third quarter of 2020, no further impairments were recorded. Given the dynamic nature of the events, we are not able to reasonably estimate how long our operations will be impacted and the full impact these events will have on our operations. As a result, we could have indicators of impairment again in future periods resulting in additional asset impairments.costs.

    We have and will continue to evaluate the sale of non-core assets, including our low-horsepower compression fleet. We can provide no assurance that we will consummate a future sale of our low-horsepower compression fleet or any other non-core asset.assets.

We have takencontinue to take an aggressive approach towards cost reduction initiativesmanagement to improve our financial performance and liquidity. In addition, during the second quarter of 2020, we completed a debt exchange that resulted in a permanent reduction in outstanding long-term debt of $9.6 million and the extension of maturity dates of certain of our remaining long-term debt balances.

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We actively managed our flexible cost structure as a proactive response to the changing market conditions throughout the second and third quarters of 2020, taking necessary actions to manage through these conditions, some of which could result in impairments or restructuring charges in future periods. Temporaryimplemented temporary and permanent cost reductions, we have implemented includeincluding reductions in 2020 capital expenditures, workforce reductions, salary reductions,and salaries. We also implemented furloughs, a reduction in the cash retainers for the directors of our general partner, the suspension of 401(k) matching contributions for our employees, targeted reduction in SG&Aselling, general and administrative expenses, rationalization of our real estate facilities, including potential exit of leases and facility closures, and negotiated reductions in expenditures with many of our suppliers. We planThroughout 2021, we will continue to continue executing these strategies for the remainder of the year. monitor our operations and proactively manage our expenses and our financial performance.

While we are not able to predict how long market disruptions resulting from the COVID-19 pandemic and diminished demand for oil will continue, or what impact they will ultimately have on our business, we have seensaw activity leveling out at the end of the third quarter. During the thirdfourth quarter of 2020 completions activityand the first quarter of 2021. We are encouraged by
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improvements in oil and gas prices throughout the US onshore regions has improved modestly.quarter and projections for demand recovery, driven by COVID-19 vaccinations as they are administered on a wider scale. However, the risk of additional wavesstrains of COVID-19, increases in the number of cases, that developed vaccines may not be successful in preventing COVID-19 or its spread or the potential outbreak of a new or mutated virus, and the possibility of future lockdowns makes any forecast for improvement uncertain. In addition, continued capital discipline throughout the energy sector may limit production growth when the economy recovers from the pandemic. Despite challenging market conditions, we will continue to maintain our commitment to safety and service quality for our customers.

Results of Operations

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

Three months ended March 31, 2021 compared to three months ended March 31, 2020
Three Months Ended March 31,
 Period-to-Period ChangePercentage of Total RevenuesPeriod-to-Period Change
Consolidated Results of Operations202120202021 vs. 2020202120202021 vs. 2020
 (In Thousands)
Revenues:  
Compression and related services$54,239 $65,765 $(11,526)82.5 %77.0 %(17.5)%
Aftermarket services11,001 17,970 (6,969)16.7 %21.0 %(38.8)%
Equipment sales470 1,700 (1,230)0.7 %2.0 %(72.4)%
Total revenues65,710 85,435 (19,725)100.0 %100.0 %(23.1)%
Cost of revenues:   
Cost of compression and related services26,426 31,608 (5,182)40.2 %37.0 %(16.4)%
Cost of aftermarket services9,517 16,245 (6,728)14.5 %19.0 %(41.4)%
Cost of equipment sales317 1,883 (1,566)0.5 %2.2 %(83.2)%
Total cost of revenues36,260 49,736 (13,476)55.2 %58.2 %(27.1)%
Depreciation and amortization18,530 19,670 (1,140)28.2 %23.0 %(5.8)%
Selling, general, and administrative expense9,594 9,090 504 14.6 %10.6 %5.5 %
Interest expense, net13,898 13,169 729 21.2 %15.4 %5.5 %
Other income (expense), net324 440 (116)0.5 %0.5 %(26.4)%
Loss before taxes and discontinued operations(12,896)(6,670)(6,226)(19.6)%(7.8)%93.3 %
Provision for income taxes1,507 196 1,311 2.3 %0.2 %668.9 %
Loss from continuing operations(14,403)(6,866)(7,537)(21.9)%(8.0)%109.8 %
Loss from discontinued operations, net of taxes(62)(6,764)6,702 (0.1)%(7.9)%(99.1)%
Net loss$(14,465)$(13,630)$(835)(22.0)%(16.0)%6.1 %
Revenues
    Compression and related services revenues decreased $11.5 million or 17.5%, in the current year quarter compared to the prior year quarter. The COVID-19 pandemic’s impact on demand for oil and natural gas continued to affect demand for compression services. During the current quarter, with the stabilization of oil prices, some of the compressors previously placed on standby have now been returned to service.

    Aftermarket services revenues decreased $7.0 million during the current year quarter compared to the prior year quarter due to decreased demand for parts and services as a result of lower customer activity levels.
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    Equipment sales revenues decreased $1.2 million during the current year quarter compared to the prior year quarter. Used equipment sales fluctuate from period to period based on unit availability and customer preferences.

Cost of revenues
The cost of compression and related services revenue decreased 16.4% compared to the prior year quarter, consistent with decreased revenues. Cost of aftermarket services and cost of equipment sales also decreased during the current year quarter consistent with decreased revenues.

Depreciation and amortization
Depreciation and amortization expense consists primarily of the depreciation of compressor packages in our service fleet. In addition,itincludes the depreciation of other operating equipment and facilities and the amortization of intangibles. Depreciation and amortization expense decreased compared to the prior year quarter primarily due to impairments recorded during 2020, reducing the cost basis for our compression fleet.

Selling, general, and administrative expense
Selling,general, and administrativeexpenses increased during the current year quarter compared to the prior year quarter primarily due to additional expense related to the effect of significant unit-price appreciation on long-term variable compensation awards, which were granted in prior years in lieu of granting equity awards at depressed prices, as well as non-recurring transactions costs incurred during the current year related to the GP Sale.

Interest expense, net
Interest expense, net, increased $0.7 million compared to the prior year quarter due to higher interest rates associated with our Second Lien Notes following the June 2020 debt exchange.

Other income (expense), net
Other income (expense), net, remained relatively flat at $0.3 million of expense, net, during the current year quarter compared to $0.4 million of expense, net, during the prior yearquarter.

Provision for income taxes
As a partnership, we are generally not subject to income taxes at the entity level because our income is included in the tax returns of our partners. Our operations are treated as a partnership for federal tax purposes with each partner being separately taxed on its share of taxable income. However, a portion of our business is conducted through taxable U.S. corporate subsidiaries. Accordingly, a U.S. federal and state income tax provision has been reflected in the accompanying statements of operations. Certain of our operations are located outside of the U.S. and the Partnership, through its foreign subsidiaries, is responsible for income taxes in these countries.

Our effective tax rate for the current year quarter was negative 11.7% primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes, combined with losses generated in entities for which no related tax benefit has been recorded. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.

Loss from discontinued operations, net of tax

Loss from discontinued operations, net of tax changed from a $6.8 million loss for the prior year quarter to a $0.1 million loss for current year quarter. The Partnership exited the new unit sales business during 2020, with final completions in October. The prior year loss includes $4.8 million of new unit sales revenues, offset by $4.8 million of costs of sales, $5.4 million of impairments and $1.2 million of selling, general, and administrative expenses.
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How We Evaluate Our Operations
 
Operating Expenses. We use operating expenses as a performance measure for our business. We track our operating expenses using month-to-month, quarter-to-quarter, year-to-date, and year-to-year comparisons and as compared to budget. This analysis is useful in identifying adverse cost trends and allows us to investigate the cause of these trends and implement remedial measures if possible. The most significant portions of our operating expenses are for our field labor, repair and maintenance of our equipment, and for the fuel and other supplies consumed while providing our services. The costs of other materials consumed while performing our services, ad valorem taxes, other labor costs, truck maintenance, rent on storage facilities, and insurance expenses comprise the significant remainder of our operating expenses. Our operating expenses generally fluctuate with our level of activity.

Our labor costs consist primarily of wages and benefits for our field and fabrication personnel, as well as expenses related to their training and safety. Additional information regarding our operating expenses for the three and nine monththree-month periods ended September 30, 2020,March 31, 2021, is provided within the Results of Operations sections below.above.

Adjusted EBITDA. We view Adjusted EBITDA as one of our primary management tools, and we track it on a monthly basis, both in dollars and as a percentage of revenues (typically compared to the prior month, prior year period, and to budget). We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, and before certain charges, including impairments, bad debt expense attributable to bankruptcy of customers, equity compensation, non-cash costs of compressors sold, fair value adjustments of our Preferred Units that were issued in late 2016 and redeemed for cash on August 8, 2019, gain on extinguishment of debt, write-off of unamortized financing costs, and excluding, Preferred Units redemption premium, severance and other non-recurring or unusual expenses or charges. Adjusted EBITDA is used as a supplemental financial measure by our management to:
•assess our ability to generate available cash sufficient to make distributions to our common unitholders and general partner;
•evaluate the financial performance of our assets without regard to financing methods, capital structure, or historical cost basis;
•measure operating performance and return on capital as compared to those of our competitors; and
•determine our ability to incur and service debt and fund capital expenditures.

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The following table reconciles net income (loss) to Adjusted EBITDA for the periods indicated:
 
Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
 (In Thousands)
Net loss$(12,607)$(3,613)$(50,815)$(19,016)
Provision (benefit from) for income taxes695 (363)1,923 3,306 
Depreciation and amortization19,947 18,459 59,972 56,045 
Impairments and other charges— 849 14,348 3,313 
Bad debt expense attributable to bankruptcy of customer— 1,768 — 1,768 
Interest expense, net13,886 13,533 40,635 39,877 
Equity compensation232 (211)1,044 744 
Series A Preferred redemption premium— 399 — 1,468 
Series A Preferred fair value adjustments— — — 1,470 
Debt exchange expenses22 — 4,777 — 
Severance484 118 1,840 118 
Non-cash cost of compressors sold4,804 2,803 7,244 3,841 
Other306 254 1,610 630 
Adjusted EBITDA$27,769 $33,996 $82,578 $93,564 
The following table reconciles cash flow from operating activities to Adjusted EBITDA:
Nine Months Ended
September 30,
 20202019
 (In Thousands)
Net cash provided by operating activities$13,729 $67,461 
Changes in current assets and current liabilities17,317 (18,351)
Deferred income taxes(587)(550)
Other non-cash charges(1,650)(3,738)
Bad debt expense attributable to bankruptcy of customer— 1,768 
Interest expense, net40,635 39,877 
Series A Preferred accrued paid in kind distributions— (1,123)
Insurance recoveries517 325 
Provision for income taxes1,923 3,306 
Severance1,840 118 
Non-cash cost of compressors sold7,244 3,841 
Other1,610 630 
Adjusted EBITDA$82,578 $93,564 

Three Months Ended
March 31,
 20212020
 (In Thousands)
Net loss$(14,465)$(13,630)
Provision for income taxes1,507 196 
Depreciation and amortization18,530 19,670 
Interest expense, net13,898 13,169 
Equity compensation833 324 
Severance114 272 
Non-cash cost of compressors sold360 1,809 
Provision for income taxes, depreciation, amortization and
impairments attributed to discontinued operations		— 5,625 
Other308 327 
Adjusted EBITDA$21,085 $27,762 
 
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Free Cash Flow. We define Free Cash Flow as cash from operations less capital expenditures, net of sales proceeds. Management primarily uses this metric to assess our ability to retire debt, evaluate our capacity to further invest and grow, and measure our performance as compared to our peers. The following table reconciles cash provided by operations, net, to Free Cash Flow for the periods indicated:
Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended
March 31,
202020192020201920212020
(In Thousands)(In Thousands)(In Thousands)
Net cash (used in) provided by operating activities$(4,451)$27,119 $13,729 $67,461 
Net cash provided by operating activitiesNet cash provided by operating activities$9,614 $13,357 
Capital expenditures, net of sales proceedsCapital expenditures, net of sales proceeds1,550 (20,867)(6,058)(60,453)Capital expenditures, net of sales proceeds(4,479)(6,483)
Midland proceeds17,000 — 17,000 — 
Free cash flowFree cash flow$14,099 $6,252 $24,671 $7,008 Free cash flow$5,135 $6,874 
    
Net cash (used in) provided by operating activities in the thirdfirst quarter of 2020 consists of $8.02021 includes $5.5 million of revenues in excess of cash provided by operating activities offset by $12.4expenses and $4.0 million in working capital changes.

Adjusted EBITDA and Free Cash Flow are financial measures that are not in accordance with U.S. GAAP and should not be considered an alternative to net income, operating income, cash from operating activities, or any other measure of financial performance presented in accordance with U.S. GAAP. These measures may not be comparable to similarly titled financial metrics of other entities, as other entities may not calculate Adjusted EBITDA or Free Cash Flow in the same manner as we do. Management compensates for the limitations of Adjusted EBITDA and Free Cash Flow as analytical tools by reviewing the comparable U.S. GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management’s decision-making processes. Adjusted EBITDA and Free Cash Flow should not be viewed as indicative of the actual amount of cash we have available for distributions or that we plan to distribute for a given period, nor should it be equated with “available cash” as defined in our partnership agreement.

    Horsepower Utilization Rate of our Compressor Packages. We measure the horsepower utilization rate across our fleet of compressor packages as the amount of horsepower of compressor packages used to provide services as of a particular date, divided by the amount of horsepower of compressor packages in our services fleet as of such date. Management primarily uses this metric to determine our future need for additional compressor packages for our service fleet and to measure marketing effectiveness.
 
The following table sets forth the total horsepower in our compression fleet, our total horsepower in service, and our horsepower utilization rate as of the dates shown.
September 30,
 20202019
Horsepower
Total horsepower in fleet1,172,307 1,157,938 
Total horsepower in service941,747 1,043,384 
Total horsepower utilization rate80.3 %90.1 %

The following table sets forth our horsepower utilization rates by each horsepower class of our compression fleet as of the dates shown.
September 30,March 31,
20202019 20212020
Horsepower utilization rate by class
HorsepowerHorsepower
Total horsepower in fleetTotal horsepower in fleet1,182,090 1,195,186 
Total horsepower in serviceTotal horsepower in service900,328 1,033,256 
Horsepower utilizationHorsepower utilization
Low-horsepower (0-100)Low-horsepower (0-100)61.7 %72.1 %Low-horsepower (0-100)58.6 %66.4 %
Medium-horsepower (101-1,000)Medium-horsepower (101-1,000)76.5 %87.0 %Medium-horsepower (101-1,000)75.3 %83.6 %
High-horsepower (1,001 and over)High-horsepower (1,001 and over)87.3 %97.4 %High-horsepower (1,001 and over)80.7 %93.5 %
Total horsepower utilization rateTotal horsepower utilization rate76.2 %86.5 %

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The total horsepower utilization rate and the utilization rate by each horsepower class have each decreased this quarter compared to the prior year period due to significantly lower customer activity levels. The third quarter of 2020 continued to be impactedThis was driven by a low commodity price environment for oil and gas driven by the COVID-19 pandemic and we believe our utilization rates for the fourth quarter will also continue to be negatively impacted by the COVID-19 pandemic and related market conditionsreduced investment in the oil and gas industry. In October, natural gas prices increased to $3.40. With improvements in the outlook for natural gas prices, we anticipate demand for our small and medium-horsepower compression to increase.energy sector.
Net Increases/Decreases in Compression Fleet Horsepower. We measure the net increase (or decrease) in our compression fleet horsepower during a given period by taking the difference between the aggregate horsepower of compressor packages added to the fleet during the period, less the aggregate horsepower of compressor
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packages removed from the fleet during the period. We measure the net increase (or decrease) in our compression fleet horsepower in service during a given period by taking the difference between the aggregate horsepower of compressor packages placed into service during the period, less the aggregate horsepower of compressor packages removed from service during the period.
Liquidity and Capital Resources
New Equipment Sales BacklogOur primary cash requirements are for distributions, working capital requirements, debt service, normal operating expenses, and capital expenditures. Our potential sourcesof funds areour existing cash balances, cash generated from our operations, potential asset sales, and long-term and short-term borrowings, which we believe will be sufficient to meet our working capital and reduced growth capital requirements during 2021. Although oil and natural gas prices have recovered in the last half of 2020 and the first quarter of 2021 from their lows earlier in 2020, the outlook for the remainder of 2021 is uncertain. If oil and natural gas prices decrease from current levels, our businesses could be further negatively impacted. Despite these challenges, we remain committed to a long-term growth strategy. Our near-term focus is to maintain our compression fleet, while continuing to preserve and enhance liquidity through strategic operating and financial measures. We periodically evaluate engaging in strategic transactions and may consider divesting assets where our evaluation suggests such transactions are in the best interests of our business. We are subject to business and operational risks that could materially adversely affect our cash flows and together with risks associated with current debt and equity market conditions, our ability or desire to issue such securities.Pleaseread Part I, Item 1A “Risk Factors” included in our 2020 Annual Report.
Capital expenditures in 2021 are expected to range from $30.0 million to $40.0 million. These capital expenditures include approximately $20.0 million to $24.0 million of maintenance capital expenditures and approximately $8.0 million to $12.0 million of capital expenditures primarily associated with the expansion of our compression services fleet and $2.0 million to $4.0 million of capital expenditures related to investments in technology, primarily software and systems. The foregoing estimates are based on assumptions regarding our assessment of the oil and gas market.

    On April 19, 2021, our General Partner declared a cash distribution attributable to the quarter ended March 31, 2021 of $0.01 per outstanding common unit. This distribution equates to a distribution of $0.04 per outstanding common unit on an annualized basis. This quarterly distribution will be paid on May 14, 2021 to each of the holders of common units of record as of the close of business on April 30, 2021.
Cash Flows

A summary of our sources (uses) of cash during the three months ended March 31, 2021 and 2020 is as follows:
Three Months Ended March 31,
(In Thousands)
20212020
Operating activities$9,614 $13,357 
Investing activities(4,474)(6,483)
Financing activities(777)(1,863)

Operating Activities
Net cash provided by operating activities decreased by $3.7 million compared to the prior year period. Our new equipment sales business includescash provided from operating activities is primarily generated from the engineering, design, fabrication, assembly, project management,provision of compression and related services and, for the prior year, the sale of both standardnew compressor packages. The decrease in cash provided by operating activities was primarily due to a decrease in revenue partially offset by the effect of working capital movements.

Cash provided from our foreign operations is subject to various uncertainties, including the volatility associated with interruptions caused by customerbudgetary decisions, uncertainties regarding the renewal of our existing customer contracts and custom-designed compressor packages fabricated at authorized packaging facilitiesother changes in Texas. contract arrangements,the timing of collection of our receivables, and the repatriation of cash generated by our international operations.

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Investing Activities
Capital expenditures duringthe three months ended March 31, 2021, decreased by $1.9 million compared to the same period in 2020, as we adjusted to current market conditions. Maintenance capital expenditures decreased during the three months ended March 31, 2021 compared to the prior year period. The cost of fleet compression units sold were $0.4 million. Total capital expenditures for the current period include $2.8 million of maintenance capital expenditures.

The level of growth capital expenditures depends on our ability to redeploy existing fleet equipment and demand for compression services. If the demand for compression services increases or decreases, the amount of planned expenditures on growth and expansion will be adjusted. We continue to review all capital expenditure plans carefully in an effort to conserve cash and fund our liquidity needs.

Financing Activities

Distributions

During thethreemonths ended March 31, 2021, we distributed $0.5 million of cash distributions to our common unitholders and General Partner.
Long-Term Debt

Our new equipment sales backlog consistsrevolving credit facility agreement provides for a maximum credit commitment of firm customer orders$35.0 million and includes a $10.0 million reserve with respect to the borrowing base which would result in reduced borrowing availability. As of March 31, 2021, we had no outstanding balance, $1.8 million in letters of credit against our Credit Agreement, which were backstopped by Spartan and did not then count against our borrowing capacity, and $13.8 million available to borrow. On April 30, 2021, the required reserve was reduced to $5.0 million and the letter of credit backstops expired. As of April 30, 2021, we have $2.2 million outstanding under our Credit Agreement and $1.8 million in letters of credit, resulting in $11.6 million of availability.

See Note 6 – “Long-Term Debt” and Note 11 – “Subsequent Events” in the Notes to Consolidated Financial Statements in this Quarterly Report for further information regarding our 7.25% Senior Notes due 2022, 7.50% First Lien Notes due 2025 and 10.000%/10.750% Second Lien Notes due 2026.

Leases

We have operating leases for some of our office space, warehouse space, operating locations, and machinery and equipment. Our leases have remaining lease terms ranging from 1 to 10 years. Some of our leases have options to extend for various periods, while some have termination options with prior notice of generally 30 days or six months. See Note 5 – “Leases” in the Notes to Consolidated Financial Statements in this Quarterly Report for further information.

Other Financing

In February 2019, we entered into an arrangement with TETRA under which a purchase or work order has been received, satisfactory credit or financing arrangements exist, and target delivery dates have been established based on customer requirements. Earlier this year, we disclosed our plan to shut down our Midland manufacturing facility as a resultsubsidiary of a decline in orders for new equipment from third parties. On July 2, 2020, we completed the previously announced sale of the manufacturing facility for a total sale price of $17.0 million. In connection with the sale, weTETRA entered into an agreement with the buyer that permits us to continue to operate the facility until the completion and saleone of our remaining backlog, which was completed during October 2020. Newsubsidiaries for the purchase of up to $15.0 million of compression services equipment sales backlog was $1.4and to subsequently lease the equipment back to us in exchange for monthly rental fees. Pursuant to this arrangement, $14.8 million as of Septemberhad been funded by TETRA through November 30, 2020 compared to $8.3 million and$35.5 millionas of June 30, 2020 and December 31, 2019, respectively. Changes in our new equipment sales backlog are a function of additional customer orders less completed orders that result in equipment sales revenues for the period. All our September 30, 2020 new equipment sales backlog will be recognized during the fourth quarterconstruction of 2020 since our remaining backlog was completed in October. After the fourth quarter of 2020, we will no longer be fabricating new compressor packagesservices equipment and all compression units were completed and deployed under this agreement. There is no additional future funding expected related to this arrangement. In December 2020, TETRA sold these compressors and assigned the corresponding leases to Spartan. See Note 7 – “Related Party Transactions” in the Notes to Consolidated Financial Statements in this Quarterly Report for sales to third partiesfurther information.

Off Balance Sheet Arrangements
As of March 31, 2021, we had no “off balance sheet arrangements” that may have a current or forfuture material effect on our own service fleet.consolidated financial condition or results of operations.
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Critical Accounting Policies and Estimates
 
There have been no material changes or developments in the evaluation of the accounting estimates and the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed in our 20192020 Annual Report. In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. These judgments and estimates may change as new events occur, as new information is acquired, and as changes in our operating environments are encountered. Actual results are likely to differ from our current estimates, and those differences may be material.

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Results of Operations

Three months ended September 30, 2020 compared to three months ended September 30, 2019
Three Months Ended September 30,
 Period-to-Period ChangePercentage of Total RevenuesPeriod-to-Period Change
Consolidated Results of Operations202020192020 vs. 2019202020192020 vs. 2019
 (In Thousands)
Revenues:  
Compression and related services$53,419 $65,037 $(11,618)67.5 %57.2 %(17.9)%
Aftermarket services13,862 20,426 (6,564)17.5 %18.0 %(32.1)%
Equipment sales11,877 28,284 (16,407)15.0 %24.9 %(58.0)%
Total revenues79,158 113,747 (34,589)100.0 %100.0 %(30.4)%
Cost of revenues:   
Cost of compression and related services25,133 30,395 (5,262)31.8 %26.7 %(17.3)%
Cost of aftermarket services11,815 17,163 (5,348)14.9 %15.1 %(31.2)%
Cost of equipment sales12,465 26,518 (14,053)15.7 %23.3 %(53.0)%
Total cost of revenues49,413 74,076 (24,663)62.4 %65.1 %(33.3)%
Depreciation and amortization19,947 18,459 1,488 25.2 %16.2 %8.1 %
Impairments and other charges— 849 (849)— %0.7 %(100.0)%
Insurance recoveries— (325)325 — %(0.3)%(100.0)%
Selling, general, and administrative expense9,150 11,336 (2,186)11.6 %10.0 %(19.3)%
Interest expense, net13,886 13,533 353 17.5 %11.9 %2.6 %
Other income, net(1,326)(205)(1,121)(1.7)%(0.2)%546.8 %
Loss before income taxes(11,912)(3,976)(7,936)(15.0)%(3.5)%199.6 %
Provision (benefit from) for income taxes695 (363)1,058 0.9 %(0.3)%(291.5)%
Net loss$(12,607)$(3,613)$(8,994)(15.9)%(3.2)%248.9 %
Revenues
    Compression and related services revenues decreased $11.6 million,For a 17.9% decrease, in the current year quarter compared to the prior year quarter. The COVID-19 pandemic’s impact on demand for oil and natural gas and the resulting decline in oil prices continued to affect demand for compression services. We experienced returned compressors, compressors placed on standby rates, and have made some pricing concessions, all contributing to a decrease in revenues. During the current quarter, with the stabilization of oil prices, some of the compressors previously placed on standby have now been returned to service.

    Aftermarket services revenues decreased $6.6 million during the current year quarter compared to the prior year quarter due to decreased demand for parts and services as a result of lower customer activity levels.

    Equipment sales revenues decreased $16.4 million during the current year quarter compared to the prior year quarter, as we continued to close out remaining backlog and prepared to shut down our Midland manufacturing facility and exit the new equipment sales business.


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Cost of revenues
The cost of compression and related services revenue decreased compared to the prior year quarter consistent with decreased revenues. Cost of compression and related services as a percent of associated revenues remained relatively flat from the prior year quarter.

    Cost of aftermarket services decreased during the current year quarter consistent with decreased revenues.

    Cost of equipment sales revenues decreased consistent with the decrease in associated revenues. Margins were lower than the prior year due to the under-absorption of fixed and indirect costs associated with our Midland manufacturing facility as we prepare to exit the new unit equipment sales business.

Depreciation and amortization
Depreciation and amortization expense consists primarily of the depreciation of compressor packages in our service fleet. In addition,itincludes the depreciation of other operating equipment and facilities and the amortization of intangibles. Depreciation and amortization expense increased compared to the prior year quarter primarily due to high-horsepower compressor units added to our compression fleet this year.

Selling, general, and administrative expense
Selling,general, and administrativeexpenses decreased during the current year quarter compared to the prior year quarter primarily due to a decrease in bad debt expense of $1.5 million mainly associated with the bankruptcy of a single customer in the prior year quarter and decreased employee expenses of $0.7 million in the current year quarter.

Other (income) expense, net
Other (income) expense, net, was $1.3 million of income, net, during the current year quarter compared to $0.2 million of income, net, during the prior yearquarter.The increase in other income is primarily due to $1.0 million in gains for the current year quarter primarily from the sale of the Midland facility and the remaining inventory and equipment related to the fabricationdiscussion of new compressors.

Provision (benefit from) for income taxes
As a partnership, we are generally not subject to income taxes at the entity level because our income is included in the tax returns of our partners. Our operations are treated as a partnership for federal tax purposes with each partner being separately taxed on its share of taxable income. However, a portion of our business is conducted through taxable U.S. corporate subsidiaries. Accordingly, a U.S. federal and state income tax provision has been reflected in the accompanying statements of operations. Certain of our operations are located outside of the U.S. and the Partnership, through its foreign subsidiaries, is responsible for income taxes in these countries.
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Results of Operations

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019.
Nine Months Ended September 30,
 Period-to-Period ChangePercentage of Total RevenuesPeriod-to-Period Change
Consolidated Results of Operations202020192020 vs. 2019202020192020 vs. 2019
 (In Thousands)
Revenues: 
Compression and related services$175,520 $192,973 $(17,453)66.0 %54.7 %(9.0)%
Aftermarket services47,569 52,196 (4,627)17.9 %14.8 %(8.9)%
Equipment sales42,761 107,870 (65,109)16.1 %30.6 %(60.4)%
Total revenues265,850 353,039 (87,189)100.0 %100.0 %(24.7)%
Cost of revenues:    
Cost of compression and related services82,136 93,536 (11,400)30.9 %26.5 %(12.2)%
Cost of aftermarket services41,493 43,841 (2,348)15.6 %12.4 %(5.4)%
Cost of equipment sales43,580 98,149 (54,569)16.4 %27.8 %(55.6)%
Total cost of revenues167,209 235,526 (68,317)62.9 %66.7 %(29.0)%
Depreciation and amortization59,972 56,045 3,927 22.6 %15.9 %7.0 %
Impairments and other charges14,348 3,160 11,188 5.4 %0.9 %354.1 %
Insurance recoveries(517)(325)(192)(0.2)%(0.1)%59.1 %
Selling, general, and administrative expense29,578 32,975 (3,397)11.1 %9.3 %(10.3)%
Interest expense, net40,635 39,877 758 15.3 %11.3 %1.9 %
Series A Preferred fair value adjustment (income) expense— 1,470 (1,470)— %0.4 %(100.0)%
Other expense, net3,517 21 3,496 1.3 %— %16,647.6 %
Loss before income taxes(48,892)(15,710)(33,182)(18.4)%(4.4)%211.2 %
Provision for income taxes1,923 3,306 (1,383)0.7 %0.9 %(41.8)%
Net loss$(50,815)$(19,016)$(31,799)(19.1)%(5.4)%167.2 %

Revenues
    Compression and related services revenues decreased by $17.5 million, or 9.0%, in the current year period compared to the prior year period. The COVID-19 pandemic’s impact on demand for oil and natural gas and the resulting decline in oil prices led to a significant reduction in customer activity resulting in a decrease in demand for compression services. We experienced returned compressors, compressors placed on standby rates, and have made some pricing concessions, all contributing to a decrease in revenues. With the recent stabilization of oil prices, some of the compressors previously placed on standby have now been returned to service.

    Aftermarket services revenues decreased $4.6 million, or 8.9%, during the current year period compared to the prior year period resulting from decreased demand for parts and services as a result of lower customer activity levels.

    Equipment sales revenues decreased $65.1 million, or 60.4%, during the current year period compared to the prior year period primarily because of a decrease in deliveries of new compressors compared to the prior year period due to the planned shut down of our Midland manufacturing facility and exit from the new equipment sales business.

Cost of revenues
Cost of compression and related services decreased compared to the prior year period consistent with decreased revenues. Cost of compression and related services as a percentage of compression and related
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services revenues decreased from 48.5% during the prior year period to 46.8% during the current year period due to cost-saving actions including labor efficiencies, reduced maintenance costs, and lower indirect and overhead costs.

    Cost of aftermarket services decreased compared to the prior year period consistent with the decreased revenues.

    Cost of equipment sales decreased in accordance with the decrease in associated revenues. Cost of
equipment sales as a percentage of equipment sales revenues increased primarily due to pricing on equipment sales orders placed in 2019, as well as under-absorption of fixed and indirect costs associated with our Midland manufacturing facility as we prepare to exit the new unit equipment sales business.

Depreciation and amortization
Depreciation and amortization expense consists primarily of the depreciation of compressor packages in our service fleet. In addition,itincludes the depreciation of other operating equipment and facilities and the amortization of intangibles. Depreciation and amortization expense increased compared to the prior year period due to additions to the high-horsepower class of our compression fleet.

Impairments and other charges

    During the nine month period ended September 30, 2020, we recorded impairments and other charges of $14.3 million on our Midland manufacturing facility and related assets, non-core used compressor equipment that we have held for sale, the low-horsepower class of our compression fleet, and field inventory for compression and related services.

Selling, general, and administrative expense
Selling,general, and administrativeexpenses decreased during the current year period compared to the prior year period largely due to decreased employee expenses of $2.2 million and a decrease in bad debt expense of $1.1 million mainly associated with the bankruptcy of a single customer in the prior year period. Despite decreased expenses, as a percentage of revenues, selling, general, and administrative expense increased in the current year period compared to the prior year period due to lower revenues in the current year period.
Series A Preferred fair value adjustment

The Series A Preferred Units fair value adjustment was $1.5 million charged to earnings during the prior year period. All the remaining outstanding Preferred Units were redeemed for cash on August 8, 2019.
Other (income) expense, net
Other (income) expense, net, was $3.5 million of expense during the current year period, compared to $0.02 million of expense during the prior year period. The increase in other expense is primarily due to $4.8 million of fees associated primarily with the unsecured debt exchange transaction and increased foreign currency losses of $1.5 million offset by decreased expense of $1.5 million associated with the redemption premium incurred during the prior year period in connection with the redemption of Preferred Units for cash and $1.2 million increase in gains in the current year period primarily from the sale of the Midland facility and the remaining inventory and equipment related to the fabrication of new compressors.

Provision for income taxes
As a partnership, we are generally not subject to income taxes at the entity level because our income is included in the tax returns of our partners. Our operations are treated as a partnership for federal tax purposes with each partner being separately taxed on its share of taxable income. However, a portion of our business is conducted through taxable U.S. corporate subsidiaries. Accordingly, a U.S. federal and state income tax provision has been reflected in the accompanying statements of operations. Certain of our operations are located outside of the U.S. and the Partnership, through its foreign subsidiaries, is responsible for income taxes in these countries.

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    Our effective tax rate for the nine month period ended September 30, 2020, was negative 3.9% primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes combined with losses generated in entities for which no related tax benefit has been recorded. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.
Liquidity and Capital Resources
Our primary cash requirements are for distributions, working capital requirements, debt service payments, normal operating expenses, and capital expenditures. Our potential sourcesof funds areour existing cash balances, cash generated from our operations, proceeds from the sale of non-core assets, and long-term and short-term borrowings, which we believe will be sufficient to meet our working capital and reduced growth capital requirements during 2020. We are monitoring the spending plans of our customers due to the macroeconomic uncertainties resulting from the recent substantial declines in prices of oil and natural gas and the ongoing COVID-19 pandemic. These uncertainties have negatively impacted our customers’ demands for our products and services, which has negatively impacted our businesses. Although oil and natural gas prices have recovered in the third quarter 2020 from their lows earlier in the year, the outlook for the remainder of 2020 is uncertain. If oil and natural gas prices decrease from current levels, our businesses could be further negatively impacted. In addition, current conditions in the market for debt and equity securities in the energy sector have increased the difficulty of obtaining equity and debt financing and we expect this to continue in the near future. Despite these challenges, we remain committed to a long-term growth strategy. Our near-term focus is to maintain our compression fleet, while continuing to preserve and enhance liquidity through strategic operating and financial measures. We periodically evaluate engaging in strategic transactions and may consider divesting non-core assets where our evaluation suggests such transactions are in the best interests of our business, such as the sale of the Midland facility and the agreement we entered into during the second quarter to sell 58 low-horsepower units to one of our customers. We are subject to business and operational risks that could materially adversely affect our cash flows and together with risks associated with current debt and equity market conditions, our ability or desire to issue such securities.Pleaseread Part I, Item 1A “Risk Factors” included in our 2019 Annual Report.
Capital expenditures in 2020 are expected to range from $31.0 million to $34.0 million. These capital expenditures include approximately $20.0 million to $21.0 million of maintenance capital expenditures and approximately $6.0 million to $7.0 million of capital expenditures primarily associated with the expansion of our compression services fleet and $5.0 million to $6.0 million of capital expenditures related to investments in technology, primarily software and systems. The foregoing estimates are based on assumptions regarding the ongoing impact of the decline of oil and gas prices and the COVID-19 pandemic.

    On October 19, 2020, our General Partner declared a cash distribution attributable to the quarter ended September 30, 2020 of $0.01 per outstanding common unit. This distribution equates to a distribution of $0.04 per outstanding common unit on an annualized basis. This quarterly distribution will be paid on November 13, 2020 to each of the holders of common units of record as of the close of business on November 1, 2020.
Cash Flows

A summary of our sources (uses) of cash during the nine months ended September 30, 2020 and 2019 is as follows:
Nine Months Ended September 30,
(In Thousands)
20202019
Operating activities$13,729 $67,461 
Investing activities11,459 (60,128)
Financing activities(10,867)(7,927)
Operating Activities
Net cash provided by operating activities decreased by $53.7 million compared to the prior year period. Our cash provided from operating activities is primarily generated from the provision of compression and related services and the sale of new compressor packages. The decrease in cash provided by operating activities was
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primarily due to a decrease in revenue and the effect of working capital movements, particularly related to timing of payments of accounts payable.

Cash provided from our foreign operations is subject to various uncertainties, including the volatility associated with interruptions caused by customerbudgetary decisions, uncertainties regarding the renewal of our existing customer contracts and other changes in contract arrangements,the timing of collection of our receivables, and the repatriation of cash generated by our international operations.

Investing Activities
Capital expenditures duringthe nine months ended September 30, 2020, decreased by $49.7 million compared to the same period in 2019, as we adjusted to current market conditions. Maintenance capital expenditures decreased during the nine months ended September 30, 2020 compared to the prior year period. Total capital expenditures during the current year period was $18.0 million. Non-cash cost of fleet compression units sold were $7.2 million and the sale of property, plant and equipment was $21.7 million during the current period. Total capital expenditures for the current period include $14.8 million of maintenance capital expenditures.

The level of growth capital expenditures depends on forecasted demand for compression services. If the forecasted demand for compression services increases or decreases, the amount of planned expenditures on growth and expansion will be adjusted, subject to the availability of funds. We continue to review all capital expenditure plans carefully in an effort to conserve cash and fund our liquidity needs.

Financing Activities

Distributions

Beginning with the distribution to common unitholders during February 2019, we reduced our common unit distributions from $0.75 per unit per year (or $0.1875 per quarter) to $0.04 per unit per year (or $0.01 per quarter). During theninemonths ended September 30, 2020, we distributed $1.4 million of cash distributions to our common unitholders and General Partner.
Series A Convertible Preferred Units

In January 2019, we began redeeming Preferred Units for cash, resulting in 2,660,569 Preferred Units being redeemed during the nine months ended September 30, 2019 for $31.9 million, which includes approximately $1.5 million of redemption premium that was paid. The last redemption of the remaining Preferred Units, along with a final cash payment made in lieu of paid in kind units occurred on August 8, 2019.

Bank Credit Facilities

On June 11, 2020, CSI Compressco, LP and CSI Compressco Sub Inc (the “Borrowers”) entered into theSecond Amendment to Loan and Security Agreement (the “Amendment”) amending the Loan and Security Agreement dated June 29, 2018 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) with Bank of America, N.A., in its capacity as administrative agent, issuing bank and swing line issuer (“Administrative Agent”), and the other lenders and loan parties party thereto. The revolving credit facility agreement provides for a maximum credit commitment of $35,000,000 and includes a $5,000,000 reserve with respect to the borrowing base which would result in reduced borrowing availability. During the nine month period ended September 30, 2020 we charged $0.2 million of financing fees to other (income) expense, net in our consolidated statement of operations. As of September 30, 2020, subject to compliance with the covenants, borrowing base and other provisions of the agreementsaccounting pronouncements that may limit borrowings under the Credit Agreement, we had no outstanding balance, $2.5 million in letters of credit against our Credit Agreement and $14.5 million available to borrow. As of October 30, 2020, we have $0.0 million outstanding under our Credit Agreement and $3.4 million in letters of credit, resulting in $16.4 million of availability.

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7.25% Senior Notes due 2022.

As of September 30, 2020, our 7.25% Senior Notes due 2022 had $79.9 million outstanding net of unamortized discounts and unamortized deferred financing costs. Interest on these notes is payable on February 15 and August 15 of each year. The 2022 Senior Notes are unsecured obligations, and are guaranteed on a unsecured basis by the Credit Agreement.

7.5% Senior Secured Notes due 2025.

As of September 30, 2020, our 7.5% Senior Secured Notes due 2025 (the “First Lien Notes”) had $399.6 million outstanding net of unamortized discounts and unamortized deferred financing costs. Interest on these notes is payable on April 1 and October 1 of each year. The First Lien Notes are secured by a first-priority security interest in substantially all of our and our subsidiaries assets, subject to certain permitted encumbrances and exceptions, and are guaranteed on a senior secured basis by each of our domestic restricted subsidiaries, with limited exceptions.

10.00%/10.75% Senior Secured Second Lien Notes due 2026.

As of September 30, 2020, our 10.00%/10.75% Second Lien Notes due 2026 (the “Second Lien Notes”) had $157.4 million outstanding, net of unamortized discounts and unamortized deferred financing costs. Interest on the Second Lien Notes is payable on April 1 and October 1 of each year. The Second Lien Notes are secured by a second-priority security interest in substantially all of our and our subsidiaries assets, subject to certain permitted encumbrances and exceptions, and are guaranteed on a senior secured basis by each of our domestic restricted subsidiaries, with limited exceptions.In connection with the payment of PIK Interest (as defined below), if any, in respect of the Second Lien Notes, we will be entitled, to increase the outstanding aggregate principal amount of the Second Lien Notes or issue additional notes (“PIK notes”) under the Second Lien Notes indenture on the same terms and conditions as the already outstanding Second Lien Notes. Interest will accrue at (1) the annual rate of 7.250% payable in cash, plus (2) at the election of the Issuers (made by delivering a notice to the Second Lien Trustee not less than five business days prior to the record date), the annual rate of (i) 2.750% payable in cash (together with the annual rate set forth in clause (1), the “Cash Interest Rate”) or (ii) 3.500% payable by increasing the principal amount of the outstanding 10.00%/10.75% Second Lien Notes or by issuing additional PIK notes, in each case rounding up to the nearest $1.00 (such increased principal amount or additional PIK notes, the “PIK Interest”).

Other Financing

In February 2019, we entered into an arrangement with TETRA under which a subsidiary of TETRA entered into an agreement with one of our subsidiaries for the purchase of up to $15.0 million of compression services equipment and to subsequently lease the equipment back to us in exchange for monthly rental fees. As of September 30, 2020, pursuant to this arrangement, $14.8 million has been funded by TETRA for the construction of new compressor services equipment and all compression units were completed and deployed under this agreement. There is no additional future funding expected related to this arrangement.

Off Balance Sheet Arrangements
As of September 30, 2020, we had no “off balance sheet arrangements” that may have a current or future material effect onaffect our consolidated financial condition or resultsstatements, see Note 1 – “Organization, Basis of operations.Presentation, and Summary of Significant Accounting Policies, New Accounting Pronouncements,” in the Notes to Consolidated Financial Statements in this Quarterly Report.
Commitments and Contingencies
 
From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. While the outcome of these lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse effect on our financial condition, results of operations, or cash flows.


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Contractual Obligations

Our contractual obligations and commitments principally include obligations associated with our outstanding indebtedness and obligations under operating leases.
    The table below summarizes our contractual cash obligations as of September 30, 2020:
Payments Due
 Total20202021202220232024Thereafter
 (In Thousands)
Long-term debt$636,249 $— $— $80,720 $— $— $555,529 
Interest on debt241,409 22,503 51,405 49,454 45,553 45,553 26,941 
Operating leases42,482 2,663 10,450 8,676 7,062 4,812 8,819 
Affiliate financing obligation12,111 754 3,015 3,015 3,015 2,312 — 
Total contractual cash obligations$932,251 $25,920 $64,870 $141,865 $55,630 $52,677 $591,289 
Cautionary Statement for Purposes of Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” and information based on our beliefs and those of our general partner. Forward-looking statements in this Quarterly Report are identifiable by the use of the following words, the negative of such words, and other similar words: “anticipates”, “assumes”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “goal”, “intends”, “may”, “might”, “plans”, “predicts”, “projects”, “schedules”, “seeks”, “should, “targets”, “will” and “would”.

    Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, “Item 1A. Risk Factors” and elsewhere in this report and in our 2019 2020Annual Report, and those described from time to time in our future reports filed with the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.
Item 4. Controls and Procedures.
 
    Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer of our general partner, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the quarter ended September 30, 2020.March 31, 2021. Based on this evaluation, the Principal Executive Officer and Principal Financial Officer of our general partner concluded that our disclosure controls and procedures were effective as of September 30, 2020,March 31, 2021, the end of the period covered by this Quarterly Report.
There were no changes in the internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
 
From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. While the outcome of these lawsuits or other proceedings against us cannot be predicted with certainty, management does not consider it reasonably possible that a loss resulting from such lawsuits or proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse effect on our financial condition, results of operations, or cash flows.
Item 1A. Risk Factors.

 The statementsThere have been no material changes in this section describe the known material risksinformation pertaining to our business and should be considered carefully. We have described in the 2019 Annual Report significant risk factors and periodically update those risks for material developments. The risk factors below updates our risk factors previously discussedRisk Factors as disclosed in our 20192020 Annual Report.

The COVID-19 pandemic has had, or may in the future have, certain negative impacts on our business, and such impacts have had, or may in the future have, an adverse effect on our business, our financial condition, results of operations, or liquidity.

    The COVID-19 pandemic and the resulting economic impact have had a significant negative impact on the oil and gas industry. The deterioration in demand for oil caused by the pandemic, coupled with oil oversupply, has had, and is reasonably likely to continue to have, an adverse impact on the demand for our products and services. The public health crisis caused by the COVID-19 pandemic, and the measures that have been taken or that may be taken in the future by governments, various regulatory agencies, our customers and our suppliers, have had, or may in the future have, certain negative impacts on our financial condition, results of operations, and  liquidity, including, without limitation, the following:

•demand for our products and services is declining as our customers continue to adjust their operations in response to lower oil and gas prices;
•actions undertaken by national, state and local governments and health officials to contain COVID-19 or treat its effects. In response to various governmental directives, at points we have required most office-based employees, including most employees based at our headquarters in The Woodlands, Texas, to work remotely. We may experience reductions in productivity and disruptions to our business routines while work-from-home arrangements remain in place;
•We could encounter logistical complications and increased costs adapting our disclosure controls and procedures and our internal control over financial reporting in a changing environment that includes work-from-home arrangements and furloughs. In the future we may encounter operational challenges or disruptions stemming from the pandemic that require us to implement new or enhanced internal controls to mitigate the risks of operating in a remote environment or increased risks of material misstatements resulting from changes to the business and other uncertainties;
•restrictions on importing and exporting products;
•impacts related to late customer payments and contractual defaults associated with customer and supplier bankruptcies;
•a credit rating downgrade of our corporate debt and potentially higher borrowing costs in the future;
•cybersecurity issues, as our network may become more vulnerable to cyberattacks due to increased remote access associated with work-from-home arrangements;
•increased costs associated with possible facility closures to meet expected customer activity levels; and
•we may be required to record significant impairment charges with respect to assets, whose fair values may be negatively affected by the effects of the COVID-19 pandemic on our operations. Also, we may be required to write off obsolete inventory, and such charges may be significant.

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The resumption of our normal business operations after the disruptions caused by the COVID-19 pandemic may be delayed or constrained by its lingering effects on the oil and gas industry. Any of the negative impacts of the COVID-19 pandemic, including those described above, alone or in combination with others, may have a significant adverse effect on our financial condition, results of operations, or liquidity. Any of these negative impacts, alone or in combination with others, could exacerbate many of the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. The full extent to which the COVID-19 pandemic will negatively affect our financial condition, results of operations, or liquidity will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and the resulting impact on the oil and gas industry. Given the dynamic nature of these events, we cannot reasonably estimate the period of time that the COVID-19 pandemic and related market conditions will persist, the full extent of the impact they will have on our financial condition, results of operations, or liquidity or the pace or extent of any subsequent recovery. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”    
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
(a) None.
 
(b)  None.
 
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
PeriodTotal Number
of Units Purchased		Average
Price
Paid per Unit		Total Number of Units Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or Approximate Dollar Value) of Units that May Yet be Purchased Under the Publicly Announced
Plans or Programs
JulyJanuary 1 – JulyJanuary 31, 20202021— $— N/AN/A
AugustFebruary 1 – August 31, 2020February 28, 2021— — N/AN/A
SeptemberMarch 1 – September 30, 2020March 3, 2021— — N/AN/A
Total—  N/AN/A
Item 3. Defaults Upon Senior Securities.
 
None.
Item 4. Mine Safety Disclosures.
 
None.
Item 5. Other Information.
 
    None.
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Item 6. Exhibits.
 
Exhibits: 
10.1*
31.1*
31.2*
32.1**
32.2**
101.SCH+
XBRL Taxonomy Extension Schema Document
101.CAL+XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF+XBRL Taxonomy Extension Definition Linkbase Document
101.LAB+XBRL Taxonomy Extension Label Linkbase Document
101.PRE+XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
*    Filed with this report.
**    Furnished with this report.
+    Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine monththree-month periods ended September 30, 2020March 31, 2021 and 2019;2020; (ii) Consolidated Statements of Comprehensive Income for the three and nine monththree-month periods ended September 30, 2020March 31, 2021 and 2019;2020; (iii) Consolidated Balance Sheets as of September 30, 2020March 31, 2021 and December 31, 2019;2020; (iv) Consolidated Statement of Partners’ Capital for the nine monththree-month periods ended September 30, 2020March 31, 2021 and 2019;2020; (v) Consolidated Statements of Cash Flows for the nine monththree-month periods ended September 30, 2020March 31, 2021 and 2019;2020; and (iv) Notes to Consolidated Financial Statements for the ninethree months ended September 30, 2020.March 31, 2021.

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

 
 
CSI COMPRESSCO LP
 
 By:CSI Compressco GP Inc.,
  
its General Partner
   
 
Date:November 2, 2020May 3, 2021By:/s/Brady M. MurphyJohn E. Jackson
  Brady M. MurphyJohn E. Jackson
PresidentChief Executive Officer
  Principal Executive Officer
   
Date:November 2, 2020May 3, 2021By:/s/Elijio V. SerranoJonathan W. Byers
  Elijio V. SerranoJonathan W. Byers
  Chief Financial Officer
  Principal Financial Officer
Date:November 2, 2020May 3, 2021By:/s/Michael E. Moscoso
 Michael E. Moscoso
 Vice President - Finance
 Principal Accounting Officer
  
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