UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~March 31,~~June 30, 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)


Delaware			94-3450907
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

24955 Interstate 45 North
The Woodlands,
TX			77380
(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 class	Trading Symbol(s)	Name of each exchange on which registered
COMMON UNITS REPRESENTING LIMITED PARTNERSHIP INTERESTS	CCLP	NASDAQ

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 ~~April 30,~~July 28, 2021, there were 47,971,240 Common Units outstanding.


CSI Compressco LP
Table of Contents
			Page
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
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			5
Notes to Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1716
Item 3. Quantitative and Qualitative Disclosures about Market Risk			2527
Item 4. Controls and Procedures			2527

PART II—OTHER INFORMATION
Item 1. Legal Proceedings			2628
Item 1A. Risk Factors			2628
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			2628
Item 3. Defaults Upon Senior Securities			2628
Item 4. Mine Safety Disclosures			2628
Item 5. Other Information			2628
Item 6. Exhibits			2729
SIGNATURES			2830

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.~~LLC. 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 ~~Content~~sContents

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 March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020				2021		2020		2021		2020
Revenues:	Revenues:						Revenues:
Compression and related services	Compression and related services	$	54,239	$	65,765		Compression and related services	$	55,329	$	56,284	$	109,568	$	122,049
Aftermarket services	Aftermarket services	11,001		17,970			Aftermarket services	14,289		15,737		25,290		33,707
Equipment sales	Equipment sales	470		1,700			Equipment sales	140		749		610		2,449
Total revenues	Total revenues	65,710		85,435			Total revenues	69,758		72,770		135,468		158,205
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 services	Cost of compression and related services	26,426		31,608			Cost of compression and related services	26,597		25,395		53,023		57,003
Cost of aftermarket services	Cost of aftermarket services	9,517		16,245			Cost of aftermarket services	11,959		13,433		21,476		29,678
Cost of equipment sales	Cost of equipment sales	317		1,883			Cost of equipment sales	29		704		346		2,587
Total cost of revenues	Total cost of revenues	36,260		49,736			Total cost of revenues	38,585		39,532		74,845		89,268
Depreciation and amortization	Depreciation and amortization	18,530		19,670			Depreciation and amortization	18,997		19,880		37,527		39,550

Impairments and other charges							Impairments and other charges	0		8,874		0		8,874
Insurance recoveries							Insurance recoveries	0		(517)		0		(517)
Selling, general, and administrative expense	Selling, general, and administrative expense	9,594		9,090			Selling, general, and administrative expense	9,116		9,241		18,710		18,331

Interest expense, net	Interest expense, net	13,898		13,169			Interest expense, net	13,932		13,580		27,830		26,749

Other (income) expense, net	Other (income) expense, net	324		440			Other (income) expense, net	(97)		4,403		227		4,843
Loss before taxes and discontinued operations	Loss before taxes and discontinued operations	(12,896)		(6,670)			Loss before taxes and discontinued operations	(10,775)		(22,223)		(23,671)		(28,893)
Provision for income taxes	Provision for income taxes	1,507		196			Provision for income taxes	1,019		961		2,526		1,157
Loss from continuing operations	Loss from continuing operations	(14,403)		(6,866)			Loss from continuing operations	(11,794)		(23,184)		$	(26,197)	$	(30,050)
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	(62)		(6,764)			Loss from discontinued operations, net of tax	(291)		(1,394)		$	(353)	$	(8,158)
Net loss	Net loss	$	(14,465)	$	(13,630)		Net loss	$	(12,085)	$	(24,578)	$	(26,550)	$	(38,208)

General partner interest in net loss	General partner interest in net loss	$	(202)	$	(192)		General partner interest in net loss	$	(168)	$	(345)	$	(370)	$	(537)
Common units interest in net loss	Common units interest in net loss	$	(14,263)	$	(13,438)		Common units interest in net loss	$	(11,917)	$	(24,233)	$	(26,180)	$	(37,671)


Basic and diluted net loss per common unit:	Basic and diluted net loss per common unit:						Basic and diluted net loss per common unit:
Loss from continuing operations per common unit	Loss from continuing operations per common unit	$	(0.30)	$	(0.14)		Loss from continuing operations per common unit	$	(0.24)	$	(0.48)	$	(0.54)	$	(0.62)
Loss from discontinued operations per common unit	Loss from discontinued operations per common unit	0		(0.14)			Loss from discontinued operations per common unit	(0.01)		(0.03)		$	(0.01)	$	(0.17)
Net loss per common unit	Net loss per common unit	$	(0.30)	$	(0.28)		Net loss per common unit	$	(0.25)	$	(0.51)	$	(0.55)	$	(0.79)
Weighted average common units outstanding:	Weighted average common units outstanding:						Weighted average common units outstanding:
Basic	Basic	47,723,874		47,176,640			Basic	47,971,240		47,333,256		47,848,240		47,254,516
Diluted	Diluted	47,723,874		47,176,640			Diluted	47,971,240		47,333,256		47,848,240		47,254,516

See Notes to Consolidated Financial Statements

Table of ~~Content~~sContents

CSI Compressco LP

Consolidated Statements of Comprehensive Income (Loss)

(In Thousands)

(Unaudited)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020				2021		2020		2021		2020
Net loss	Net loss	$	(14,465)	$	(13,630)		Net loss	$	(12,085)	$	(24,578)	$	(26,550)	$	(38,208)
Foreign currency translation adjustment, net of tax of $0 in 2021 and 2020	Foreign currency translation adjustment, net of tax of $0 in 2021 and 2020	57		(353)			Foreign currency translation adjustment, net of tax of $0 in 2021 and 2020	81		177		138		(176)
Comprehensive loss	Comprehensive loss	$	(14,408)	$	(13,983)		Comprehensive loss	$	(12,004)	$	(24,401)	$	(26,412)	$	(38,384)

See Notes to Consolidated Financial Statements

Table of ~~Content~~sContents

CSI Compressco LP

Consolidated Balance Sheets

(In Thousands, Except Unit Amounts)


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	20,928	$	16,577	Cash and cash equivalents	$	8,305	$	16,577

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
Trade accounts receivable, net of allowances for doubtful accounts of $1,040 as of June 30, 2021 and $1,333 as of December 31, 2020						Trade accounts receivable, net of allowances for doubtful accounts of $1,040 as of June 30, 2021 and $1,333 as of December 31, 2020	52,173		43,837
Inventories	Inventories	32,683		31,188		Inventories	32,418		31,188

Prepaid expenses and other current assets	Prepaid expenses and other current assets	7,961		5,184		Prepaid expenses and other current assets	7,556		5,184
Current assets associated with discontinued operations	Current assets associated with discontinued operations	32		39		Current assets associated with discontinued operations	1		39
Total current assets	Total current assets	109,296		96,825		Total current assets	100,453		96,825
Property, plant, and equipment:	Property, plant, and equipment:					Property, plant, and equipment:
Land and building	Land and building	13,259		13,259		Land and building	13,246		13,259
Compressors and equipment	Compressors and equipment	980,406		975,375		Compressors and equipment	989,475		975,375
Vehicles	Vehicles	7,675		7,692		Vehicles	7,611		7,692
Construction in progress	Construction in progress	11,851		12,763		Construction in progress	8,407		12,763
Total property, plant, and equipment	Total property, plant, and equipment	1,013,191		1,009,089		Total property, plant, and equipment	1,018,739		1,009,089
Less accumulated depreciation	Less accumulated depreciation	(473,065)		(457,688)		Less accumulated depreciation	(490,212)		(457,688)
Net property, plant, and equipment	Net property, plant, and equipment	540,126		551,401		Net property, plant, and equipment	528,527		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		24,316		25,057
Intangible assets, net of accumulated amortization of $32,192 as of June 30, 2021 and $30,711 as of December 31, 2020						Intangible assets, net of accumulated amortization of $32,192 as of June 30, 2021 and $30,711 as of December 31, 2020	23,576		25,057
Operating lease right-of-use assets	Operating lease right-of-use assets	30,575		32,637		Operating lease right-of-use assets	28,730		32,637
Deferred tax asset	Deferred tax asset	10		10		Deferred tax asset	10		10
Other assets	Other assets	3,861		4,036		Other assets	3,710		4,036
Total other assets	Total other assets	58,762		61,740		Total other assets	56,026		61,740
Total assets	Total assets	$	708,184	$	709,966	Total assets	$	685,006	$	709,966
LIABILITIES AND PARTNERS’ CAPITAL	LIABILITIES AND PARTNERS’ CAPITAL					LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	23,109	$	19,766	Accounts payable	$	20,382	$	19,766

Accrued liabilities and other	Accrued liabilities and other	45,807		36,070		Accrued liabilities and other	36,705		36,070
Amounts payable to affiliates	Amounts payable to affiliates	3,291		3,234		Amounts payable to affiliates	3,274		3,234

Current liabilities associated with discontinued operations	Current liabilities associated with discontinued operations	279		345		Current liabilities associated with discontinued operations	164		345
Total current liabilities	Total current liabilities	72,486		59,415		Total current liabilities	60,525		59,415
Other liabilities:	Other liabilities:					Other liabilities:
Long-term debt, net	Long-term debt, net	638,662		638,631		Long-term debt, net	641,471		638,631
Deferred tax liabilities	Deferred tax liabilities	1,869		1,478		Deferred tax liabilities	2,535		1,478
Long-term affiliate payable	Long-term affiliate payable	11,477		0		Long-term affiliate payable	11,296		0
Operating lease liabilities	Operating lease liabilities	22,472		24,059		Operating lease liabilities	20,529		24,059
Other long-term liabilities	Other long-term liabilities	1,110		11,716		Other long-term liabilities	558		11,716
Total other liabilities	Total other liabilities	675,590		675,884		Total other liabilities	676,389		675,884
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0
Partners’ capital:	Partners’ capital:					Partners’ capital:
General partner interest	General partner interest	(1,094)		(885)		General partner interest	(1,269)		(885)
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)
Common units (47,971,240 units issued and outstanding at June 30, 2021 and 47,352,291 units issued and outstanding at December 31, 2020)						Common units (47,971,240 units issued and outstanding at June 30, 2021 and 47,352,291 units issued and outstanding at December 31, 2020)	(36,384)		(10,055)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(14,336)		(14,393)		Accumulated other comprehensive loss	(14,255)		(14,393)
Total partners’ capital	Total partners’ capital	(39,892)		(25,333)		Total partners’ capital	(51,908)		(25,333)
Total liabilities and partners’ capital	Total liabilities and partners’ capital	$	708,184	$	709,966	Total liabilities and partners’ capital	$	685,006	$	709,966

See Notes to Consolidated Financial Statements

Table of ~~Content~~sContents

CSI Compressco LP

Consolidated Statements of Partners’ Capital

(In Thousands)

(Unaudited)


		Partners’ Capital					Accumulated Other Comprehensive Income (Loss)					Total Partners’ Capital			Partners’ Capital												Accumulated Other Comprehensive Income (Loss)			Total Partners’ Capital


		General Partner		Common Unitholders							General Partner					Common Unitholders
		Amount		Units	Amount						Amount					Units						Amount

Balance at December 31, 2020	Balance at December 31, 2020	$	(885)	47,352	$	(10,055)			$	(14,393)						$	(25,333)		Balance at December 31, 2020		$	(885)		47,352			$	(10,055)		$	(14,393)		$	(25,333)
Net loss	Net loss	(202)		—	(14,263)				0							(14,465)			Net loss		(202)			—			(14,263)			0			(14,465)
Distributions ($0.01 per unit)	Distributions ($0.01 per unit)	(7)		—	(477)				0						(484)			Distributions ($0.01 per unit)		(7)			—			(477)			0			(484)
Equity compensation		0		—	474				0						474
Equity compensation, net														Equity compensation, net	0						—			474			0			474
Vesting of Phantom Units	Vesting of Phantom Units	—		619	—		—					—		Vesting of Phantom Units	—						619			—			—			—
Translation adjustment, net of taxes of $0	Translation adjustment, net of taxes of $0	0		—	0		57					57		Translation adjustment, net of taxes of $0	0						—			0			57			57
Acquisition of affiliate from TETRA	Acquisition of affiliate from TETRA	—		—	(141)		—					(141)		Acquisition of affiliate from TETRA	—						—			(141)			—			(141)

Balance at March 31, 2021	Balance at March 31, 2021	$	(1,094)	47,971	$	(24,462)	$	(14,336)				$	(39,892)	Balance at March 31, 2021	$	(1,094)					47,971			$	(24,462)		$	(14,336)		$	(39,892)
Net loss														Net loss	(168)						—			(11,917)			0			(12,085)
Distributions ($0.01 per unit)														Distributions ($0.01 per unit)	(7)						—			(480)			0			(487)

Equity compensation, net														Equity compensation, net	0						—			475			0			475
Vesting of Phantom Units														Vesting of Phantom Units	—						0			—			—			—

Translation adjustment, net of taxes of $0														Translation adjustment, net of taxes of $0	0						—			0			81			81

Balance at June 30, 2021														Balance at June 30, 2021	$	(1,269)					47,971			$	(36,384)		$	(14,255)		$	(51,908)


		Partners’ Capital					Accumulated Other Comprehensive Income (Loss)					Total Partners’ Capital			Partners’ Capital												Accumulated Other Comprehensive Income (Loss)			Total Partners’ Capital

				Limited Partners											Limited Partners
		General Partner		Common Unitholders							General Partner					Common Unitholders
		Amount		Units	Amount						Amount					Units						Amount

Balance at December 31, 2019	Balance at December 31, 2019	$	180	47,079	$	63,384			$	(14,573)						$	48,991		Balance at December 31, 2019		$	180		47,079			$	63,384		$	(14,573)		$	48,991
Net loss	Net loss	(192)		—	(13,438)				—							(13,630)			Net loss		(192)			—			(13,438)			—			(13,630)
Distributions ($0.01 per unit)	Distributions ($0.01 per unit)	(7)		—	(471)				—						(478)			Distributions ($0.01 per unit)		(7)			—			(471)			—			(478)
Equity compensation, net	Equity compensation, net	—		—	229				—						229			Equity compensation, net		—			—			229			—			229
Vesting of Phantom Units	Vesting of Phantom Units	—		213	—		—					—		Vesting of Phantom Units	—						213			—			—			—
Translation adjustment, net of taxes of $0	Translation adjustment, net of taxes of $0	—		—	—		(353)					(353)		Translation adjustment, net of taxes of $0	—						—			—			(353)			(353)

Balance at March 31, 2020	Balance at March 31, 2020	$	(19)	47,292	$	49,704	$	(14,926)				$	34,759	Balance at March 31, 2020	$	(19)					47,292			$	49,704		$	(14,926)		$	34,759
Net loss														Net loss	(345)						—			(24,233)			—			(24,578)
Distributions ($0.01 per unit)														Distributions ($0.01 per unit)	(7)						—			(473)			—			(480)
Equity compensation, net														Equity compensation, net	—						—			452			—			452
Vesting of Phantom Units														Vesting of Phantom Units	—						52			—			—			—
Translation adjustment, net of taxes of $0														Translation adjustment, net of taxes of $0	—						—			—			177			177

Balance at June 30, 2020														Balance at June 30, 2020	$	(371)					47,344			$	25,450		$	(14,749)		$	10,330

See Notes to Consolidated Financial Statements

Table of ~~Content~~sContents

CSI Compressco LP

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

Three Months Ended
March 31,
2021 2020
Operating activities:
Net loss $ (14,465) $ (13,630)
Reconciliation of net loss to cash provided by operating activities:
Depreciation and amortization 18,530 19,908
Impairments and other charges 0 5,371
Provision for deferred income taxes 405 8
Equity compensation expense 833 324
Provision for doubtful accounts 32 222
Amortization of deferred financing costs 144 670
Other non-cash charges and credits 42 (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 expenses 14,486 21,625
Other 142 (437)
Net cash provided by operating activities 9,614 13,357
Investing activities:
Purchases of property, plant, and equipment, net (4,595) (6,483)
Proceeds from sale of property, plant, and equipment 116 0
Acquisition of affiliate from TETRA, net of cash acquired 5 0
Net cash used in investing activities (4,474) (6,483)
Financing activities:
Proceeds from long-term debt 0 15,501
Payments of long-term debt 0 (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 cash 4,351 5,046
Cash and cash equivalents at beginning of period 16,577 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


	Six Months Ended June 30,
	2021		2020
Operating activities:
Net loss	$	(26,550)	$	(38,208)
Reconciliation of net loss to cash provided by operating activities:
Depreciation and amortization	37,527		40,025
Impairments and other charges	0		14,348

Provision for deferred income taxes	1,007		409
Insurance recoveries associated with damaged equipment	0		(517)


Equity compensation expense	1,310		812
Provision for doubtful accounts	46		593
Amortization of deferred financing costs	275		1,356
Equipment received in lieu of cash	0		725
Debt exchange expenses	0		4,755
Other non-cash charges and credits	(40)		(157)
Gain on sale of property, plant, and equipment	(207)		(443)

Changes in operating assets and liabilities:
Accounts receivable	(8,252)		13,903
Inventories	(4,223)		7,817
Prepaid expenses and other current assets	(2,642)		(2,267)
Accounts payable and accrued expenses	2,198		(24,566)
Other	(521)		(405)
Net cash provided by (used in) operating activities	(72)		18,180
Investing activities:
Purchases of property, plant, and equipment, net	(10,232)		(11,249)
Proceeds from sale of property, plant, and equipment	383		3,641
Insurance recoveries associated with damaged equipment	0		517
Acquisition of affiliate from TETRA, net of cash acquired	420		0

Advances and other investing activities	(112)		0
Net cash used in investing activities	(9,541)		(7,091)
Financing activities:
Proceeds from long-term debt	4,916		271,831
Payments of long-term debt	(2,154)		(273,853)


Distributions	(971)		(958)
Other financing activities	(61)		(2,207)
Payments to affiliate	(356)		(1,507)

Net cash used in financing activities	1,374		(6,694)
Effect of exchange rate changes on cash	(33)		(8)
Increase (decrease) in cash and cash equivalents and restricted cash	(8,272)		4,387
Cash and cash equivalents at beginning of period	16,577		2,370
Cash and cash equivalents and restricted cash at end of period	$	8,305	$	6,757
Supplemental cash flow information:
Interest paid	$	23,624	$	29,083
Income taxes paid	$	2,023	$	644
Decrease in accrued capital expenditures	$	208	$	1,421
Paid-in-kind interest	$	2,750	$	0

See Notes to Consolidated Financial Statements

Table of ~~Content~~sContents

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 also provide aftermarket services and compressor package parts and components manufactured by third-party suppliers. We provide 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 international locations, including the countries of Mexico, Canada, and Argentina. Previously, 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 were 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 we have reflected these operations as discontinued operations for all periods presented. See Note 2 – “Discontinued Operations.” Used equipment sales revenue continues to be included in equipment sales revenue. Unless the context requires otherwise, when we refer to “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 ~~March 31,~~June 30, 2021, and for the ~~three-month~~three and six-month periods ended ~~March 31,~~June 30, 2021 and 2020, 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-month~~three and six-month period ended ~~March 31,~~June 30, 2021 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 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, 2020 and notes thereto included in our Annual Report on Form 10-K, which we filed with the SEC on March 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, 2020 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 three months ended ~~March 31,~~June 30, 2021.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally 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.

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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. Other than the discontinued operations presentation, the impact of 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.

Cash Equivalents

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

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 ~~$0.4~~$(0.5) million and ~~$1.7~~$(0.1) million during the ~~three-month~~three and six-month periods ended ~~March 31,~~June 30, 2021, respectively, and ~~March 31,~~$(0.3) million and $1.4 million during the three and six- month periods ended June 30, 2020, respectively.

Inventories

Inventories consist primarily of compressor package parts and supplies and work in process 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 judgments 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 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. There were no impairments attributed to continuing operations recorded during the ~~three-month~~three and six-month periods ended ~~March 31,~~June 30, 2021 ~~or March 31,~~. See Note 4 - "Impairments and Other Charges" for additional discussion of recorded impairments during the three and six-month periods ended June 30, 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 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 reporting purposes. A portion of 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

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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 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-month~~three and six-month periods ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020, all unvested phantom units were excluded from the calculation of diluted common units because the impact was anti-dilutive.

0Fair 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). Refer to Note 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 19, 2021, the board of directors of our General Partner declared a cash distribution attributable to the quarter ended December 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 February 12, 2021, to each of the holders of common units of record as of the close of business on January 29, 2021.

On April 19, 2021, the board of directors of 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 distribution was 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.

New Accounting Pronouncements

Standards adopted in 2021

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. On January 1, 2021, we adopted ASU 2019-12. The adoption of this standard did not have a material impact on our consolidated financial statements.

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

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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 will be effective for us in the first quarter of 2023. 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 U.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 were 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,~~June 30, 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,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020			2021		2020		2021		2020
Revenue	Revenue	$	0	$	4,844	Revenue	$	0	$	23,643	$	0	$	28,487
Cost of revenues	Cost of revenues	22		4,817		Cost of revenues	(13)		23,711		9		28,528
Depreciation, amortization, and accretion	Depreciation, amortization, and accretion	0		238		Depreciation, amortization, and accretion	0		237		0		475
Impairments of long-lived assets	Impairments of long-lived assets	0		5,371		Impairments of long-lived assets	0		103		0		5,474
General and administrative expense	General and administrative expense	40		1,166		General and administrative expense	304		931		344		2,097

Total pretax income (loss) from discontinued operations		(62)		(6,748)
Total pretax loss from discontinued operations						Total pretax loss from discontinued operations	(291)		(1,339)		(353)		(8,087)
Income tax provision	Income tax provision	0		16		Income tax provision	0		55		0		71
Total income (loss) from discontinued operations		$	(62)	$	(6,764)
Total loss from discontinued operations						Total loss from discontinued operations	$	(291)	$	(1,394)	$	(353)	$	(8,158)

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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, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Carrying amounts of major classes of assets included as part of discontinued operations	Carrying amounts of major classes of assets included as part of discontinued operations					Carrying amounts of major classes of assets included as part of discontinued operations
Inventories	Inventories	$	32	$	32	Inventories	$	1	$	32
Other Current Assets	Other Current Assets	0		7		Other Current Assets	0		7
Current assets of discontinued operations	Current assets of discontinued operations	$	32	$	39	Current assets of discontinued operations	$	1	$	39

Carrying amounts of major classes of liabilities included as part of discontinued operations	Carrying amounts of major classes of liabilities included as part of discontinued operations					Carrying amounts of major classes of liabilities included as part of discontinued operations
Accrued liabilities	Accrued liabilities	$	279	$	345	Accrued liabilities	$	164	$	345
Current liabilities of discontinued operations	Current liabilities of discontinued operations	$	279	$	345	Current liabilities of discontinued operations	$	164	$	345

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NOTE 3 — REVENUE FROM CONTRACTS WITH CUSTOMERS

As of ~~March 31,~~June 30, 2021, we had ~~$38.3~~$43.7 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 ~~March 31,~~June 30, 2021 for completion of performance obligations of compression service contracts are as follows:

2021 2022 2023 2024 Thereafter Total
(In Thousands)
Compression service contracts remaining performance obligations $ 27,316 $ 9,471 $ 1,488 $ 42 $ 14 $ 38,331


	2021		2022		2023		2024		Thereafter		Total
	(In Thousands)
Compression service contracts remaining performance obligations	$	20,926	$	18,012	$	4,571	$	130	$	14	$	43,653

Our contract asset balances included in trade accounts receivable in our consolidated balance sheets, primarily associated with revenue accruals prior to invoicing, were ~~$10.2~~$11.0 million and $6.8 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

The following table reflects the changes in unearned income in our consolidated balance sheets for the periods indicated:


		Three Months Ended March 31,					Six Months Ended June 30,
		2021		2020			2021		2020
		(In Thousands)					(In Thousands)
Unearned income, beginning of period	Unearned income, beginning of period	$	269	$	283	Unearned income, beginning of period	$	269	$	283
Additional unearned income	Additional unearned income	162		1,007		Additional unearned income	398		4,345
Revenue recognized	Revenue recognized	(239)		(780)		Revenue recognized	(248)		(1,472)
Unearned income, end of period	Unearned income, end of period	$	192	$	510	Unearned income, end of period	$	419	$	3,156

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

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Disaggregated revenue from contracts with customers by geography is as follows:

Three Months Ended
March 31,
2021 2020
(In Thousands)
Compression and related services
United States $ 45,986 $ 57,275
International 8,253 8,490
54,239 65,765
Aftermarket services
United States 10,813 17,285
International 188 685
11,001 17,970
Equipment sales
United States 470 1,194
International 0 506
470 1,700
Total Revenue
United States 57,269 75,754
International 8,441 9,681
$ 65,710 $ 85,435


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In Thousands)
Compression and related services
United States	$	46,634	$	49,032	$	92,620	$	106,307
International	8,695		7,252		16,948		15,742
	55,329		56,284		109,568		122,049
Aftermarket services
United States	13,451		15,427		24,264		32,712
International	838		310		1,026		995
	14,289		15,737		25,290		33,707
Equipment sales
United States	115		482		586		1,676
International	25		267		24		773
	140		749		610		2,449
Total Revenue
United States	60,200		64,941		117,470		140,695
International	9,558		7,829		17,998		17,510
	$	69,758	$	72,770	$	135,468	$	158,205

NOTE 4 — IMPAIRMENTS AND OTHER CHARGES

~~Table~~During the second quarter of ~~Content~~s2020, 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 had 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. There were no such impairments in 2021.

NOTE 45 — INVENTORIES

Components of inventories as of ~~March 31,~~June 30, 2021 and December 31, 2020, are as follows:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(In Thousands)					(In Thousands)
Parts and supplies	Parts and supplies	$	29,115	$	28,483	Parts and supplies	$	29,314	$	28,483
Work in progress	Work in progress	3,568		2,705		Work in progress	3,104		2,705
Total inventories	Total inventories	$	32,683	$	31,188	Total inventories	$	32,418	$	31,188

Inventories consist primarily of compressor package parts and supplies. Work in progress inventories consist of work in progress 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 up to ten 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. 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 on the facility has a ten-year term with initial base rent of $0.5 million per year, and is expected to commence during the second quarter of 2021. We have no other leases 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.

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 $4.2 million and~~$4.0 million for the three months ended March 31, 2021 and March 31, 2020, respectively, of which, $1.6 millionand $1.8 million respectively, related to short-term leases. Variable rent expense was not material.~~

~~Operating lease supplemental cash flow information:~~

Three Months Ended March 31,
2021 2020
(In Thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows - operating leases $ 2,717 $ 2,216
Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ 0 $ 7,626

~~Supplemental balance sheet information:~~

March 31, 2021 December 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 liabilities 22,472 24,059
     Total operating lease liabilities $ 30,167 $ 32,158

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~~Additional operating lease information:~~

March 31, 2021 December 31, 2020
Weighted average remaining lease term:
Operating leases 4.58 years 4.73 years
Weighted average discount rate:
Operating leases 9.16 % 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 March 31, 2021:~~

Operating Leases
(In Thousands)
Remainder of 2021 $ 7,725
2022 8,684
2023 7,068
2024 4,812
2025 4,237
Thereafter 4,583
Total lease payments 37,109
Less imputed interest (6,942)
Total lease liabilities $ 30,167

NOTE 6 — LONG-TERM DEBT AND OTHER BORROWINGS

Long-term debt consists of the following:


		Scheduled Maturity	March 31, 2021		December 31, 2020			Scheduled Maturity	June 30, 2021		December 31, 2020
			(In Thousands)						(In Thousands)
Credit Agreement (1)	Credit Agreement (1)	June 29, 2023	$	0	$	0	Credit Agreement (1)	June 29, 2023	$	0	$	0
7.25% Senior Notes (2)	7.25% Senior Notes (2)	August 15, 2022	80,109		80,001		7.25% Senior Notes (2)	August 15, 2022	80,220		80,001
7.50% First Lien Notes (3)	7.50% First Lien Notes (3)	April 2025	399,638		399,655		7.50% First Lien Notes (3)	April 2025	399,658		399,655
10.00%/10.75% Second Lien Notes (4)	10.00%/10.75% Second Lien Notes (4)	April 2026	158,915		158,975		10.00%/10.75% Second Lien Notes (4)	April 2026	161,593		158,975
Total long-term debt	Total long-term debt		$	638,662	$	638,631	Total long-term debt		$	641,471	$	638,631

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(1) Because there was no outstanding balance on the Credit Agreement, associated deferred financing costs of $0.5 million as of ~~March 31,~~June 30, 2021 and $0.6 million as of December 31, 2020 were classified as other long-term assets on the accompanying consolidated balance sheet.

(2) Net of the unamortized discount of $0.2 million as of ~~March 31,~~June 30, 2021 and $0.3 million as of December 31, 2020 and unamortized deferred financing costs of ~~$0.4~~$0.3 million as of ~~March 31,~~June 30, 2021 and $0.4 million as of December 31, 2020.

(3) Net of the unamortized deferred financing costs of ~~$4.9~~$4.6 million as of ~~March 31,~~June 30, 2021 and $5.2 million as of December 31, 2020, net of the unamortized discount of $0.2 million as of ~~March 31,~~June 30, 2021 and $0.2 million as of December 31, 2020, and net of deferred restructuring gain of ~~$4.7~~$4.5 million as of ~~March 31,~~June 30, 2021 and $5.0 million as of December 31, 2020.

(4) Net of the unamortized discount of $0.7 million as of ~~March 31,~~June 30, 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,~~June 30, 2021 and $1.2 million as of December 31, 2020, and net of deferred restructuring gain of ~~$3.6~~$3.4 million as of ~~March 31,~~June 30, 2021 and $3.7 million as of December 31, 2020.

Our Credit Agreement and Senior 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 ~~March 31,~~June 30, 2021.

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

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Credit Agreement

In June 2020, the 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”). The Credit Agreement provides for maximum revolving credit commitments of $35.0 million and includes a $5.0 million reserve, which results in reduced borrowing availability. The Credit Agreement includes a $25.0 million sublimit for letters of credit. Additionally, on January 29, 2021, the Partnership further amended the Credit Agreement to temporarily increase the size of the reserve to $10.0 million and also required that Spartan backstop all of the Partnership’s outstanding letters of credit. These temporary restrictions expired on April 30, 2021. 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 credits was released. As of ~~March 31,~~June 30, 2021, we had 0 balance outstanding under the Credit Agreement and ~~$1.8~~$2.1 million of letters of credit against our Credit Agreement. Subject to compliance with the covenants, borrowing base, and other provisions of the agreements that may limit borrowings under the Credit Agreement, we had availability of ~~$13.8~~$17.1 million as of ~~March 31,~~June 30, 2021. ~~See Note 11 – “Subsequent Events” for further information regarding our Credit Agreement.~~

Borrowings under the credit facility are subject to the applicable margin related to (i) LIBOR Rate Loans (as defined in the Credit Agreement) between 3.00% and 3.50% and (ii) Base Rate Loans (as defined in the Credit Agreement) between 2.00% and 2.50%. The commitment fee in respect of the unutilized commitments under the Credit Agreement is 0.50%.

Notes

We may from time to time seek to retire or purchase certain amounts of our outstanding senior notes through cash purchases, in open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

7.25% Senior Notes due 2022

As of ~~March 31,~~June 30, 2021, our 7.25% Senior Notes due 2022 (the “Senior Notes”) had ~~$80.1~~$80.2 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 aan unsecured basis by the Partnership’s subsidiaries that guarantee the Credit Agreement.

Our Senior Notes are jointly and severally, and fully and unconditionally, guaranteed by each of the Partnership’s domestic restricted subsidiaries (other than CSI Compressco Finance Inc. “Finance Corp”) that guarantee the Partnership’s other indebtedness (collectively, the "Guarantor Subsidiaries”). The Senior Notes 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.

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7.50% First Lien Notes due 2025

As of ~~March 31,~~June 30, 2021, our First Lien Notes had ~~$399.6~~$399.7 million outstanding net of unamortized discounts, unamortized deferred financing costs and deferred restructuring gains. 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 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%/10.750% Second Lien Notes due 2026

As of ~~March 31,~~June 30, 2021, our Second Lien Notes had ~~$158.9~~$161.6 million outstanding, net of unamortized discounts, unamortized deferred financing costs and deferred restructuring gains. 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 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 and certain other excluded U.S. subsidiaries). In connection with the payment of PIK Interest (as defined below), if any, in respect of the Second Lien Notes, the issuers 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 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”).

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The indentures governing our First Lien Notes and Second Lien Notes contain customary covenants restricting our ability and the ability of our restricted subsidiaries to: (i) pay distributions on, purchase, or redeem our common units, make certain investments and other restricted payments, or purchase or redeem any 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 securing our First Lien Notes and Second Lien Notes; (v) consolidate, merge, or transfer all or substantially all of our assets; (vi) enter into transactions with affiliates; and (vii) enter into agreements that restrict distributions or other payments from our restricted subsidiaries to 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 us, subject to the satisfaction of certain conditions, to transfer assets to certain of our unrestricted subsidiaries. The indentures also contain customary events of default and acceleration provisions relating to events of default, which provide that upon an event of default under the indentures, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding First Lien Notes and Second Lien Notes may declare all of the First Lien Notes and Second Lien Notes to be due and payable immediately.

During the fourth quarter of 2020 and the second quarter of 2021, the Partnership elected to increase the principal amount outstanding ~~by $1.6 million~~ through the issuance of PIK notes. ~~This~~As of June 30, 2021, our principal amount isoutstanding included ~~in the balance outstanding as~~$4.4 million of ~~March 31, 2021. See Note 11 – “Subsequent Events” for further information regarding our Second Lien Notes.~~PIK notes.

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 General Partner 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 provided personnel and services necessary for the conduct of certain of our Latin American-based businesses. In addition, under the Omnibus Agreement, TETRA provided 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

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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 reimbursed 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~~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 ~~March 31,~~June 30, 2021, Spartan’s ownership interest in us was approximately 23%, with the common units held by the public representing an approximate 65% interest 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 November 30, 2020,

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pursuant to this arrangement, $14.8 million had been funded by TETRA for the construction of new compressor services equipment and all compression units were completed and deployed under this agreement. In December 2020, TETRA sold these compressors and assigned the corresponding leases to Spartan. As of ~~March 31,~~June 30, 2021, the financing obligation owed to Spartan was ~~$11.3~~ $10.6 million and is included in ~~accounts~~amounts payable to affiliates and long-term affiliate payable in our consolidated balance sheet as of June 30, 2021. The balances were included in accrued liabilities and other and other long-term liabilities in our consolidated balance sheet as of ~~March~~December 31, ~~2021. The balances were included in accrued liabilities and other long-term liabilities in our consolidated balance sheet as of December 31,2020.~~2020. Imputed interest expense recognized for the ~~three-month~~three and six-month period ended ~~March 31,~~June 30, 2021 was $0.6 ~~million.~~million and $1.2 million, respectively .

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 TETRA’s historic carrying value of the affiliates’ net assets was recorded as a capital distribution. The associated liability ~~is included in accounts payable on the consolidated balance sheet as of March 31, 2021 and~~ was paid in April 2021.

NOTE 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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Financial Instruments

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 ~~March 31,~~June 30, 2021, we had the following foreign currency derivative contract outstanding relating to a portion of our foreign operations:

Derivative contracts

US Dollar Notional Amount

Traded Exchange Rate

Settlement Date

Derivative contracts

US Dollar Notional Amount

Traded Exchange Rate

Settlement Date

(In Thousands)

Forward sale Mexican peso

5,763

20.74

April 5, 2021

Forward sale Mexican peso

5,984

19.97

July 2, 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). 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-month~~three and six-month periods ended ~~March 31,~~June 30, 2021, ~~and March 31, 2020,~~ we recognized ~~$(0.1)~~$0.2 million and ~~$(1.4)~~$0.1 million, respectively, of net (gains) losses associated with our foreign currency derivatives program. During the three and six-month periods ended June 30, 2020, we recognized $0.3 million and $(1.1) million, respectively, of net (gains) losses associated with our foreign currency derivatives programs. These amounts are included in other (income) expense, net, in the accompanying consolidated statement of operations.

Fair Value of Debt

The fair value of our debt has been estimated in accordance with the accounting standard regarding fair value. The fair value of our fixed rate long-term debt is estimated based on recent trades for these notes. The carrying and fair value of our debt, excluding unamortized debt issuance costs, are as follows (in thousands):


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Carrying Value		Fair Value		Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value
		(In Thousands)									(In Thousands)
7.25% Senior Notes	7.25% Senior Notes	$	80,722	$	76,686	$	80,722	$	67,274	7.25% Senior Notes	$	80,722	$	80,117	$	80,722	$	67,274
7.50% First Lien Notes	7.50% First Lien Notes	400,000		408,000		400,000		369,680		7.50% First Lien Notes	400,000		407,200		400,000		369,680
10.000%/10.750% Second Lien Notes	10.000%/10.750% Second Lien Notes	157,162		138,303		157,162		114,728		10.000%/10.750% Second Lien Notes	159,919		147,125		157,162		114,728
		$	637,884	$	622,989	$	637,884	$	551,682		$	640,641	$	634,442	$	637,884	$	551,682

Other

The fair values of cash, accounts receivable, accounts payable, accrued liabilities and variable-rate long-term debt pursuant to our revolving credit facility approximate their carrying amounts due to the short-term nature of these items.

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NOTE 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 ~~three-month~~six-month period ended ~~March 31,~~June 30, 2021, was negative ~~(11.7)%~~10.7% 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.

NOTE 10 — 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 any 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.

NOTE 11 — SUBSEQUENT EVENTS

On ~~April~~July 19, 2021, the board of directors of our General Partner declared a cash distribution attributable to the quarter ended ~~March 31,~~June 30, 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 ~~May 14,~~August 13, 2021 to each of the holders of common units of record as of the close of business on ~~April~~July 30, 2021.

~~On April 1, 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 Conditionand 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 “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, 2020 filed with the SECon March 4, 2021 (~~“~~2020 Annual Report~~”~~). Thisdiscussion includes forward-looking statements that involve certain risks and uncertainties.~~

Business Overview

We provide compression services 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 approximately 4,900 compressor packages providing approximately 1.2 million in aggregate horsepower, utilizing a full spectrum of low-, medium-, and high-horsepower engines. 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 Mexico, Canada and Argentina.

Demand for our services is directly driven by the production of crude oil and associated natural gas from unconventional shale 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 wellhead through large horsepower at centralized gathering and gas lift facilities.

During 2020, macroeconomic uncertainty in the oil and natural gas industry drove steep declines in spending by oil and gas operators which led to a number of our units being released with some of our customers temporarily shutting in wells and requesting that compression units be placed on standby. Oil prices began to stabilize during the third ~~quarter~~ and ~~continued to improve during~~fourth quarters of 2020 and gained strength throughout the first ~~quarter,~~half of 2021, reaching an average of ~~$58~~$66 per ~~barrel. The pace of horsepower being released slowed~~barrel in ~~comparison to~~ the second quarter ~~and customers continued bringing production back online throughout the third and fourth quarters of 2020.~~

~~Unit releases continued to slow in the first weeks~~ of 2021. ~~In March, net unit sets turned positive for the first time since December of 2019. Oil~~This improvement in commodity prices ~~crossed $50 per barrel~~has resulted in ~~early January~~an increase in activity levels from our compression services and ~~continued~~aftermarket services customers. Although customers remain focused on capital discipline, we continue 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~~see gains in quote activity and ~~awards across our compression~~awards. As the market environment evolves, competition for field employees may increase and ~~related services~~inflationary pressures may drive costs higher. In addition, supply chain disruptions may impact the the availability of parts and ~~aftermarket services businesses.~~supplies. We will continue to monitor these risks as the year progresses.

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A significant portion of our fleet was exposed to the winter weather that had a severe 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 with minimal impact to the mechanical condition of our fleet, revenues and costs.

We have and will continue to evaluate the sale of 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 assets.

~~We continue to take~~In 2020, we took an aggressive approach towards cost management to improve our financial performance and liquidity. ~~In 2020, we~~We implemented temporary and permanent cost reductions, including reductions in capital expenditures, workforce 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 selling, general and administrative expenses, rationalization of our real estate facilities, and negotiated reductions in expenditures with many of our suppliers. ~~Throughout 2021,~~In the current year, we ~~will~~ continue to 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 saw activity ~~leveling out at~~levels increase in the ~~end of the fourth quarter of 2020 and the first~~second quarter of 2021. We are encouraged by

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improvements in oil and gas prices throughout the quarter and projections for demand recovery, driven by COVID-19 vaccinations as they are administered on a wider scale. However, the risk of additional strains 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.

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Results of Operations

Three months ended ~~March 31,~~June 30, 2021 compared to three months ended ~~March 31,~~June 30, 2020


		Three Months Ended March 31,													Three Months Ended June 30,
						Period-to-Period Change		Percentage of Total Revenues				Period-to-Period Change							Period-to-Period Change		Percentage of Total Revenues				Period-to-Period Change
Consolidated Results of Operations	Consolidated Results of Operations	2021		2020		2021 vs. 2020		2021		2020		2021 vs. 2020		Consolidated Results of Operations	2021		2020		2021 vs. 2020		2021		2020		2021 vs. 2020
		(In Thousands)													(In Thousands)
Revenues:	Revenues:													Revenues:
Compression and related services	Compression and related services	$	54,239	$	65,765	$	(11,526)	82.5	%	77.0	%	(17.5)	%	Compression and related services	$	55,329	$	56,284	$	(955)	79.3	%	77.3	%	(1.7)	%
Aftermarket services	Aftermarket services	11,001		17,970		(6,969)		16.7	%	21.0	%	(38.8)	%	Aftermarket services	14,289		15,737		(1,448)		20.5	%	21.6	%	(9.2)	%
Equipment sales	Equipment sales	470		1,700		(1,230)		0.7	%	2.0	%	(72.4)	%	Equipment sales	140		749		(609)		0.2	%	1.0	%	(81.3)	%
Total revenues	Total revenues	65,710		85,435		(19,725)		100.0	%	100.0	%	(23.1)	%	Total revenues	69,758		72,770		(3,012)		100.0	%	100.0	%	(4.1)	%
Cost of revenues:	Cost of revenues:													Cost of revenues:
Cost of compression and related services	Cost of compression and related services	26,426		31,608		(5,182)		40.2	%	37.0	%	(16.4)	%	Cost of compression and related services	26,597		25,395		1,202		38.1	%	34.9	%	4.7	%
Cost of aftermarket services	Cost of aftermarket services	9,517		16,245		(6,728)		14.5	%	19.0	%	(41.4)	%	Cost of aftermarket services	11,959		13,433		(1,474)		17.1	%	18.5	%	(11.0)	%
Cost of equipment sales	Cost of equipment sales	317		1,883		(1,566)		0.5	%	2.2	%	(83.2)	%	Cost of equipment sales	29		704		(675)		—	%	1.0	%	(95.9)	%
Total cost of revenues	Total cost of revenues	36,260		49,736		(13,476)		55.2	%	58.2	%	(27.1)	%	Total cost of revenues	38,585		39,532		(947)		55.3	%	54.3	%	(2.4)	%
Depreciation and amortization	Depreciation and amortization	18,530		19,670		(1,140)		28.2	%	23.0	%	(5.8)	%	Depreciation and amortization	18,997		19,880		(883)		27.2	%	27.3	%	(4.4)	%

Impairments and other charges														Impairments and other charges	—		8,874		(8,874)		—	%	12.2	%	(100.0)	%
Insurance recoveries														Insurance recoveries	—		(517)		517		—	%	(0.7)	%	(100.0)	%
Selling, general, and administrative expense	Selling, general, and administrative expense	9,594		9,090		504		14.6	%	10.6	%	5.5	%	Selling, general, and administrative expense	9,116		9,241		(125)		13.1	%	12.7	%	(1.4)	%

Interest expense, net	Interest expense, net	13,898		13,169		729		21.2	%	15.4	%	5.5	%	Interest expense, net	13,932		13,580		352		20.0	%	18.7	%	2.6	%

Other income (expense), net	Other income (expense), net	324		440		(116)		0.5	%	0.5	%	(26.4)	%	Other income (expense), net	(97)		4,403		(4,500)		(0.1)	%	6.1	%	(102.2)	%
Loss before taxes and discontinued operations	Loss before taxes and discontinued operations	(12,896)		(6,670)		(6,226)		(19.6)	%	(7.8)	%	93.3	%	Loss before taxes and discontinued operations	(10,775)		(22,223)		11,448		(15.4)	%	(30.5)	%	(51.5)	%
Provision for income taxes	Provision for income taxes	1,507		196		1,311		2.3	%	0.2	%	668.9	%	Provision for income taxes	1,019		961		58		1.5	%	1.3	%	6.0	%
Loss from continuing operations	Loss from continuing operations	(14,403)		(6,866)		(7,537)		(21.9)	%	(8.0)	%	109.8	%	Loss from continuing operations	(11,794)		(23,184)		11,390		(16.9)	%	(31.9)	%	(49.1)	%
Loss from discontinued operations, net of taxes	Loss from discontinued operations, net of taxes	(62)		(6,764)		6,702		(0.1)	%	(7.9)	%	(99.1)	%	Loss from discontinued operations, net of taxes	(291)		(1,394)		1,103		(0.4)	%	(1.9)	%	(79.1)	%
Net loss	Net loss	$	(14,465)	$	(13,630)	$	(835)	(22.0)	%	(16.0)	%	6.1	%	Net loss	$	(12,085)	$	(24,578)	$	12,493	(17.3)	%	(33.8)	%	(50.8)	%

Revenues

Compression and related services revenues decreased ~~$11.5~~$1.0 million or ~~17.5%~~1.7%, in the current year quarter compared to the prior year ~~quarter. The~~quarter due to the COVID-19 pandemic’s impact on demand for oil and natural gas ~~continued to affect~~which had a significant effect on the demand for compression services. During the current quarter, with the stabilization of oil prices, ~~some~~most of the compressors ~~previously~~which were placed on standby in the second quarter 2020 have ~~now~~ been returned to service. The increase in revenue from compression fleet placed in service at full rates coming off standby rates was more than offset by the decrease in fleet utilization compared to the prior year period.

Aftermarket services revenues decreased ~~$7.0~~$1.4 million during the current year quarter compared to the prior year quarter due to decreased demand for ~~parts and~~aftermarket services as a result of ~~lower customer activity levels.~~

~~Table~~the impact of ~~Content~~s

the COVID-19 pandemic on the global economy including the energy sector.

Equipment sales revenues decreased ~~$1.2~~$0.6 million during the current year quarter compared to the prior year ~~quarter. Used equipment sales fluctuate from period~~quarter due to ~~period based on~~a decrease in used unit ~~availability and customer preferences.~~sales.

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Cost of revenues

C~~The cost~~ost of compression and related services revenue ~~decreased 16.4%~~increased 4.7% compared to the prior year quarter, ~~consistent~~partially due to compressors that came off of standby rates since since the prior year period. Compressors on standby rates have revenues but very low associated costs. In 2021, most of the compressors that were on standby rates have returned to service and associated costs of service have returned to normal levels. As activity levels increase, make-ready expenses associated with ~~decreased revenues.~~ the redeployment of compressors have also increased. We expect these expenses to contribute to increased revenues in the second half of 2021. In addition, inflation also impacted certain cost categories in the second quarter of 2021.

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, it includes 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.

Impairments and other charges

During the prior year quarter, we recorded impairments and other charges of $9.0 million primarily on non-core used compressor equipment, the low-horsepower class of our compression fleet, and field inventory for compression and related services.

Selling, general, and administrative expense

Selling, general, and administrative expenses ~~increased~~were consistent 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.quarter.

Interest expense, net

Interest expense, net, increased ~~$0.7~~$0.4 million compared to the prior year quarter primarily due to higher interest rates associated with our Second Lien Notes following the June 2020 debt ~~exchange.~~exchange transaction.

Other ~~income (expense),~~(income) expense, net

Other ~~income (expense),~~(income) expense, net, ~~remained relatively flat at $0.3~~was $0.1 million of ~~expense,~~income, net, during the current year quarter compared to ~~$0.4~~$4.4 million of expense, net, during the prior year quarter.The decrease in other expense is primarily due to $4.8 million of fees associated primarily with the debt exchange transaction in the prior year period.

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%~~9.5% 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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Loss from discontinued operations, net of tax

Loss from discontinued operations, net of tax changed from a ~~$6.8~~$1.4 million loss for the prior year quarter to a ~~$0.1~~$0.3 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~~$23.6 million of new unit sales revenues, offset by ~~$4.8~~$23.7 million of costs of sales, ~~$5.4~~$0.1 million of impairments and ~~$1.2~~$0.9 million of selling, general, and administrative expenses.

Results of Operations

Six months ended June 30, 2021 compared to six months ended June 30, 2020.


	Six Months Ended June 30,
					Period-to-Period Change		Percentage of Total Revenues				Period-to-Period Change
Consolidated Results of Operations	2021		2020		2021 vs. 2020		2021		2020		2021 vs. 2020
	(In Thousands)
Revenues:
Compression and related services	$	109,568	$	122,049	$	(12,481)	80.9	%	77.1	%	(10.2)	%
Aftermarket services	25,290		33,707		(8,417)		18.7	%	21.3	%	(25.0)	%
Equipment sales	610		2,449		(1,839)		0.5	%	1.5	%	(75.1)	%
Total revenues	135,468		158,205		(22,737)		100.0	%	100.0	%	(14.4)	%
Cost of revenues:
Cost of compression and related services	53,023		57,003		(3,980)		39.1	%	36.0	%	(7.0)	%
Cost of aftermarket services	21,476		29,678		(8,202)		15.9	%	18.8	%	(27.6)	%
Cost of equipment sales	346		2,587		(2,241)		0.3	%	1.6	%	(86.6)	%
Total cost of revenues	74,845		89,268		(14,423)		55.2	%	56.4	%	(16.2)	%
Depreciation and amortization	37,527		39,550		(2,023)		27.7	%	25.0	%	(5.1)	%
Impairments and other charges	—		8,874		(8,874)		—	%	5.6	%	(100.0)	%
Insurance recoveries	—		(517)		517		—	%	(0.3)	%	(100.0)	%
Selling, general, and administrative expense	18,710		18,331		379		13.8	%	11.6	%	2.1	%

Interest expense, net	27,830		26,749		1,081		20.5	%	16.9	%	4.0	%

Other income expense, net	227		4,843		(4,616)		0.2	%	3.1	%	(95.3)	%
Loss before taxes and discontinued operations	(23,671)		(28,893)		5,222		(17.5)	%	(18.3)	%	(18.1)	%
Provision for income taxes	2,526		1,157		1,369		1.9	%	0.7	%	118.3	%
Loss from continuing operations	$	(26,197)	$	(30,050)	$	3,853	(19.3)	%	(19.0)	%	(12.8)	%
Loss from discontinued operations, net of taxes	$	(353)	$	(8,158)	$	7,805	(0.3)	%	(5.2)	%	(95.7)	%
Net loss	$	(26,550)	$	(38,208)	$	11,658	(19.6)	%	(24.2)	%	(30.5)	%

Revenues

Compression and related services revenues decreased by $12.5 million, or 10.2%, in the current year period compared to the prior year period due to the COVID-19 pandemic’s impact on demand for oil and natural gas which continued to affect demand for compression services. In the second quarter of 2020, we experienced returned compressors, compressors placed on standby rates, and made some pricing concessions, all contributing to a decrease in revenues. With the recent stabilization of oil prices, most of the compressors previously placed on standby have now been returned to service, however, fleet utilization and pricing are still lower in the current year compared to 2020.

Aftermarket services revenues decreased $8.4 million, or 25.0%, during the current year period compared to the prior year period resulting from decreased demand for parts and services as a result of the impact of the COVID-19 pandemic on the global economy including the energy sector.

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Equipment sales revenues decreased $1.8 million, or 75.1%, during the current year period compared to the prior year period due to a decrease in used unit sales. In 2020, the Partnership increased efforts to sell non-core used compressors to shore up liquidity in anticipation of the market downturn.

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 services revenues increased from 46.7% during the prior year period to 48.4% during the current year period. The increase was due to higher make-ready expenses in the current year which we expect will contribute to higher revenues in the second half of 2021, an increase in operating expenses resulting from a lower percentage of our fleet on standby rates compared to the prior year period, and due to certain cost categories impacted by inflation in the current year.

Cost of aftermarket services and cost of equipment sales decreased during the current year 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 period primarily due to impairments recorded in 2020, reducing the cost basis for our compression fleet.

Impairments and other charges

During the six-month period ended June 30, 2020, we recorded impairments and other charges of $9.0 million primarily on non-core used compressor equipment, the low-horsepower class of our compression fleet, and field inventory for compression and related services. There were no impairments recorded in the current year.

Selling, general, and administrative expense

Selling,general, and administrativeexpenses were consistent during the current year period compared to the prior year period.

Interest expense, net

Interest expense, net, increased $1.1 million compared to the prior year period due to higher interest rates associated with our Second Lien Notes following the June 2020 debt exchange transaction.

Other (income) expense, net

Other (income) expense, net, was $0.2 million of expense during the current year period, compared to $4.8 million of expense during the prior year period. The decrease in other expense is primarily due to $4.8 million of fees associated primarily with the debt exchange transaction in the prior year period.

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 six-month period ended June 30, 2021, was negative 10.7% 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

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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 an $8.2 million loss for the prior year quarter to a $0.4 million loss for the current year quarter. The Partnership exited the new unit sales business during 2020, with final deliveries made in October. The prior year loss includes $28.5 million of new unit sales revenues, offset by $28.5 million of costs of sales, $5.5 million of impairments and $2.1 million of selling, general, and administrative expenses.

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, vehicle leases 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 personnel, as well as expenses related to their training and safety. Additional information regarding our operating expenses for the ~~three-month~~three and six-month periods ended ~~March 31,~~June 30, 2021, is provided within the Results of Operations sections 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, gain on extinguishment of debt, write-off of unamortized financing costs, and excluding, 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.

The following table reconciles net income (loss) to Adjusted EBITDA for the periods indicated:

Three Months Ended
March 31,
2021 2020
(In Thousands)
Net loss $ (14,465) $ (13,630)
Provision for income taxes 1,507 196
Depreciation and amortization 18,530 19,670
Interest expense, net 13,898 13,169
Equity compensation 833 324
Severance 114 272
Non-cash cost of compressors sold 360 1,809
Provision for income taxes, depreciation, amortization and
impairments attributed to discontinued operations — 5,625
Other 308 327
Adjusted EBITDA $ 21,085 $ 27,762

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	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In Thousands)
Net loss	$	(12,085)	$	(24,578)	$	(26,550)	$	(38,208)
Provision for income taxes	1,019		961		2,526		1,157
Depreciation and amortization	18,997		19,880		37,527		39,550
Impairments and other charges	—		8,874		—		8,874


Interest expense, net	13,932		13,580		27,830		26,749
Equity compensation	477		488		1,310		812





Debt exchange expenses	—		4,755		—		4,755
Prior year sales tax accrual adjustment	367		0		367		0
Manufacturing engine order cancellation charge	300		0		300		0
Severance	—		1,084		114		1,356
Non-cash cost of compressors sold	78		631		438		2,440

Provision for income taxes, depreciation, amortization and impairments attributed to discontinued operations	—		395		—		6,020
Other	—		977		308		1,304
Adjusted EBITDA	$	23,085	$	27,047	$	44,170	$	54,809

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 March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020				2021		2020		2021		2020
		(In Thousands)				(In Thousands)				(In Thousands)
Net cash provided by operating activities		$	9,614	$	13,357
Net cash (used in) provided by operating activities							Net cash (used in) provided by operating activities	$	(9,686)	$	4,823	$	(72)	$	18,180
Capital expenditures, net of sales proceeds	Capital expenditures, net of sales proceeds	(4,479)		(6,483)			Capital expenditures, net of sales proceeds	(5,370)		(1,125)		(9,849)		(7,608)

Free cash flow	Free cash flow	$	5,135	$	6,874		Free cash flow	$	(15,056)	$	3,698	$	(9,921)	$	10,572

Net cash ~~provided by~~used in operating activities infor the ~~first quarter of~~three months ended June 30, 2021 includes ~~$5.5~~$7.9 million of revenues in excess of cash expenses and ~~$4.0~~decreases of $17.6 million in working capital changes. Net cash used in operating activities for the six months ended June 30, 2021 includes $13.4 million of revenues in excess of cash expenses and decreases of $13.4 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.

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The following table sets forth the total horsepower in our compression fleet, our total horsepower in service, and our horsepower utilization rate by each horsepower class of our compression fleet as of the dates shown.


		March 31,					June 30,
		2021		2020			2021		2020
Horsepower	Horsepower					Horsepower
Total horsepower in fleet	Total horsepower in fleet	1,182,090		1,195,186		Total horsepower in fleet	1,181,485		1,178,721
Total horsepower in service	Total horsepower in service	900,328		1,033,256		Total horsepower in service	908,614		967,505

Horsepower utilization	Horsepower utilization					Horsepower utilization
Low-horsepower (0-100)	Low-horsepower (0-100)	58.6	%	66.4	%	Low-horsepower (0-100)	56.4	%	63.6	%
Medium-horsepower (101-1,000)	Medium-horsepower (101-1,000)	75.3	%	83.6	%	Medium-horsepower (101-1,000)	77.2	%	79.4	%
High-horsepower (1,001 and over)	High-horsepower (1,001 and over)	80.7	%	93.5	%	High-horsepower (1,001 and over)	81.3	%	88.2	%
Total horsepower utilization rate	Total horsepower utilization rate	76.2	%	86.5	%	Total horsepower utilization rate	76.9	%	82.1	%

The total horsepower utilization rate and the utilization rate by each horsepower class decreased this quarter compared to the prior year period due to significantly lower customer activity levels. This was driven by a low commodity price environment for oil and gas driven by the COVID-19 pandemic and reduced investment in the 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

Our primary cash requirements are for distributions, working capital requirements, debt service, normal operating expenses, and capital expenditures. Our potential sources of funds are our 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~~half of 2021 from their lows ~~earlier~~ in the first half of 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. Please read Part I, Item 1A “Risk Factors” included in our 2020 Annual Report.

Capital expenditures in 2021 are expected to range from ~~$30.0~~$45.0 million to ~~$40.0~~$50.0 million. These capital expenditures include approximately $20.0 million to ~~$24.0~~$22.0 million of maintenance capital expenditures and approximately ~~$8.0~~$21.0 million to ~~$12.0~~$23.0 million of capital expenditures primarily associated with the expansion of our large horsepower compression services fleet and ~~$2.0~~$4.0 million to ~~$4.0~~$5.0 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~~July 19, 2021, the board of directors of our General Partner declared a cash distribution attributable to the quarter ended ~~March 31,~~June 30, 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,~~August 13, 2021 to each of the holders of common units of record as of the close of business on ~~April~~July 30, 2021.

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Cash Flows

A summary of our sources (uses) of cash during the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020 is as follows:


		Three Months Ended March 31,					Six Months Ended June 30,
		(In Thousands)					(In Thousands)
		2021		2020			2021		2020
Operating activities	Operating activities	$	9,614	$	13,357	Operating activities	$	(72)	$	18,180
Investing activities	Investing activities	(4,474)		(6,483)		Investing activities	(9,541)		(7,091)
Financing activities	Financing activities	(777)		(1,863)		Financing activities	1,374		(6,694)

Operating Activities

Net cash ~~provided by~~used in operating activities decreased by ~~$3.7~~$18.3 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, for the prior year, the sale of new compressor packages. The decrease in cash provided by operating activities was primarily due to a decrease in revenue ~~partially offset by the effect of~~in addition to changes in working ~~capital movements.~~capital.

Cash provided from our foreign operations is subject to various uncertainties, including the volatility associated with interruptions caused by customer budgetary 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.

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Investing Activities

Capital expenditures during the ~~three~~six months ended ~~March 31,~~June 30, 2021, decreased by ~~$1.9~~$1.0 million compared to the same period in 2020, as we adjusted to current market conditions. Maintenance capital expenditures decreased during the ~~three~~six months ended ~~March 31,~~June 30, 2021 compared to the prior year period. The cost of fleet compression units sold ~~were~~was $0.4 million. Total capital expenditures for the current period include ~~$2.8~~$7.1 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 the ~~three~~six months ended ~~March 31,~~June 30, 2021, we distributed ~~$0.5~~$1.0 million of cash distributions to our common unitholders and General Partner.

Long-Term Debt

Our ~~revolving credit facility agreement~~Credit Agreement provides for a maximum credit ~~commitment~~commitments of $35.0 million and includes a ~~$10.0~~$5.0 million reserve ~~with respect to the borrowing base~~ which ~~would result~~results in reduced borrowing availability. As of ~~March 31,~~June 30, 2021, we had no balance outstanding ~~balance, $1.8~~under the Credit Agreement and $2.1 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~~resulting in $17.1 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,~~July 28, 2021, we ~~have $2.2 million~~had no balance outstanding under our Credit Agreement and ~~$1.8~~$2.1 million in letters of credit, resulting in ~~$11.6~~$15.7 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.

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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 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. Pursuant to this arrangement, $14.8 million had been funded by TETRA through November 30, 2020 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. 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 further information.~~

Off Balance Sheet Arrangements

As of ~~March 31,~~June 30, 2021, we had no “off balance sheet arrangements” that may have a current or future material effect on our 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 2020 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.

For a discussion of new accounting pronouncements that may affect our consolidated financial statements, see Note 1 – “Organization, Basis of 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.

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”, “could”, “estimates”, “expects”, “forecasts”, “goal”, “intends”, “may”, “might”, “plans”, “predicts”, “projects”, “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 20 20 2020 Annual Report, and those described from time to time in our future reports filed with the SEC.

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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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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 quarter ended ~~March 31,~~June 30, 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.

Item 1A. Risk Factors.

There have been no material changes in the information pertaining to our Risk Factors as disclosed in our 2020 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) None.

(b) None.

Period

Total Number
of Units Purchased

Average
Price
Paid per Unit

Total Number of Units Purchased as Part of Publicly Announced Plans or Programs

Maximum Number (or Approximate Dollar Value) of Units that May Yet be Purchased Under the Publicly Announced
Plans or Programs

~~January~~April 1 – ~~January 31,~~April 30, 2021

—

N/A

~~February~~May 1 – ~~February 28,~~May 31, 2021

—

N/A

~~March~~June 1 – ~~March 3,~~June 30, 2021

—

N/A

Total

—

N/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*			~~Form of Cash Award Agreement under the CSI Compressco LP Second Amended and Restated 2011 Long Term Incentive Plan.~~
31.1*			Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*			Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**			Certification of Principal Executive Officer Furnished Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**			Certification of Principal Financial Officer Furnished Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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-month~~three and six-month periods ended ~~March 31,~~June 30, 2021 and 2020; (ii) Consolidated Statements of Comprehensive Income for the ~~three-month~~three and six-month periods ended ~~March 31,~~June 30, 2021 and 2020; (iii) Consolidated Balance Sheets as of ~~March 31,~~June 30, 2021 and December 31, 2020; (iv) Consolidated Statement of Partners’ Capital for the ~~three-month~~six-month periods ended ~~March 31,~~June 30, 2021 and 2020; (v) Consolidated Statements of Cash Flows for the ~~three-month~~six-month periods ended ~~March 31,~~June 30, 2021 and 2020; and (iv) Notes to Consolidated Financial Statements for the ~~three~~six months ended ~~March 31,~~June 30, 2021.

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SIGNATURES

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


		CSI COMPRESSCO LP
		By:	CSI Compressco GP ~~Inc.,~~LLC,
			its General Partner

Date:	~~May 3,~~July 30, 2021	By:	/s/John E. Jackson
			John E. Jackson
			Chief Executive Officer
			Principal Executive Officer

Date:	~~May 3,~~July 30, 2021	By:	/s/Jonathan W. Byers
			Jonathan W. Byers
			Chief Financial Officer
			Principal Financial Officer

Date:	~~May 3,~~July 30, 2021	By:	/s/Michael E. Moscoso
			Michael E. Moscoso
			Vice President - Finance
			Principal Accounting Officer

2830


	March 31, 2021		December 31, 2020
Weighted average remaining lease term:
Operating leases	4.58 years		4.73 years

Weighted average discount rate:
Operating leases	9.16	%	9.02	%


	Operating Leases
	(In Thousands)

Remainder of 2021	$	7,725
2022	8,684
2023	7,068
2024	4,812
2025	4,237
Thereafter	4,583
Total lease payments	37,109
Less imputed interest	(6,942)
Total lease liabilities	$	30,167