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, ~~2021~~2022

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

For the transition period from _____ to______

Commission File 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~~1735 Hughes Landing Boulevard, Suite 200
The Woodlands,
TX			77380
(Address of Principal Executive Offices)			(Zip Code)

~~(281) 364-2244~~(832) 365-2257

(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, 2021,~~May 13, 2022, there were ~~47,971,240~~141,213,944 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			1720
Item 3. Quantitative and Qualitative Disclosures about Market Risk			2529
Item 4. Controls and Procedures			2529

PART II—OTHER INFORMATION
Item 1. Legal Proceedings			2629
Item 1A. Risk Factors			2629
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			2629
Item 3. Defaults Upon Senior Securities			2630
Item 4. Mine Safety Disclosures			2630
Item 5. Other Information			2630
Item 6. Exhibits			2731
SIGNATURES			2832

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 g~~General~~eneral p~~Partner”~~artner” 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 March 31,
		2021		2020				2022		2021
Revenues:	Revenues:						Revenues:
Compression and related services		$	54,239	$	65,765
Contract services							Contract services	$	62,807	$	56,237
Aftermarket services	Aftermarket services	11,001		17,970			Aftermarket services	12,868		11,034
Equipment rentals							Equipment rentals	3,500		2,025
Equipment sales	Equipment sales	470		1,700			Equipment sales	837		470
Total revenues	Total revenues	65,710		85,435			Total revenues	80,012		69,766
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		26,426		31,608
Cost of contract services							Cost of contract services	31,040		27,397
Cost of aftermarket services	Cost of aftermarket services	9,517		16,245			Cost of aftermarket services	10,633		9,545
Cost of equipment rentals							Cost of equipment rentals	516		154
Cost of equipment sales	Cost of equipment sales	317		1,883			Cost of equipment sales	452		360
Total cost of revenues	Total cost of revenues	36,260		49,736			Total cost of revenues	42,641		37,456
Depreciation and amortization	Depreciation and amortization	18,530		19,670			Depreciation and amortization	19,359		19,134

Selling, general, and administrative expense	Selling, general, and administrative expense	9,594		9,090			Selling, general, and administrative expense	10,841		10,301

Interest expense, net		13,898		13,169
Interest expense, net of capitalized interest of $78 in 2022 and $34 in 2021							Interest expense, net of capitalized interest of $78 in 2022 and $34 in 2021	12,381		13,708

Other (income) expense, net		324		440
Other expense, net							Other expense, net	544		294
Loss before taxes and discontinued operations	Loss before taxes and discontinued operations	(12,896)		(6,670)			Loss before taxes and discontinued operations	(5,754)		(11,127)
Provision for income taxes	Provision for income taxes	1,507		196			Provision for income taxes	816		1,706
Loss from continuing operations	Loss from continuing operations	(14,403)		(6,866)			Loss from continuing operations	(6,570)		(12,833)
Loss from discontinued operations, net of tax		(62)		(6,764)
Loss from discontinued operations, net of taxes							Loss from discontinued operations, net of taxes	—		(62)
Net loss	Net loss	$	(14,465)	$	(13,630)		Net loss	$	(6,570)	$	(12,895)

General partner interest in net loss	General partner interest in net loss	$	(202)	$	(192)		General partner interest in net loss	$	(31)	$	(179)
Common units interest in net loss	Common units interest in net loss	$	(14,263)	$	(13,438)		Common units interest in net loss	$	(6,539)	$	(12,716)

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	$	(0.05)	$	(0.27)
Loss from discontinued operations per common unit	Loss from discontinued operations per common unit	0		(0.14)			Loss from discontinued operations per common unit	—		—
Net loss per common unit	Net loss per common unit	$	(0.30)	$	(0.28)		Net loss per common unit	$	(0.05)	$	(0.27)
Weighted average common units outstanding:	Weighted average common units outstanding:						Weighted average common units outstanding:
Basic	Basic	47,723,874		47,176,640			Basic	140,770,406		47,723,874
Diluted	Diluted	47,723,874		47,176,640			Diluted	140,770,406		47,723,874

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 March 31,
		2021		2020				2022		2021
Net loss	Net loss	$	(14,465)	$	(13,630)		Net loss	$	(6,570)	$	(12,895)
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 2022 and 2021							Foreign currency translation adjustment, net of tax of $0 in 2022 and 2021	12		57
Comprehensive loss	Comprehensive loss	$	(14,408)	$	(13,983)		Comprehensive loss	$	(6,558)	$	(12,838)

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			March 31, 2022		December 31, 2021
		(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	$	17,294	$	6,598

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 allowance for doubtful accounts of $1,231 as of March 31, 2022 and $1,223 as of December 31, 2021						Trade accounts receivable, net of allowance for doubtful accounts of $1,231 as of March 31, 2022 and $1,223 as of December 31, 2021	65,256		53,520

Inventories	Inventories	32,683		31,188		Inventories	38,360		33,271

Prepaid expenses and other current assets	Prepaid expenses and other current assets	7,961		5,184		Prepaid expenses and other current assets	5,985		7,390
Current assets associated with discontinued operations		32		39

Total current assets	Total current assets	109,296		96,825		Total current assets	126,895		100,779
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	9,087		13,409
Compressors and equipment	Compressors and equipment	980,406		975,375		Compressors and equipment	1,094,369		1,072,927
Vehicles	Vehicles	7,675		7,692		Vehicles	8,464		8,469
Construction in progress	Construction in progress	11,851		12,763		Construction in progress	14,925		31,968
Total property, plant, and equipment	Total property, plant, and equipment	1,013,191		1,009,089		Total property, plant, and equipment	1,126,845		1,126,773
Less accumulated depreciation	Less accumulated depreciation	(473,065)		(457,688)		Less accumulated depreciation	(568,593)		(556,311)
Net property, plant, and equipment	Net property, plant, and equipment	540,126		551,401		Net property, plant, and equipment	558,252		570,462
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 $34,411 as of March 31, 2022 and $33,672 as of December 31, 2021						Intangible assets, net of accumulated amortization of $34,411 as of March 31, 2022 and $33,672 as of December 31, 2021	21,356		22,095
Operating lease right-of-use assets	Operating lease right-of-use assets	30,575		32,637		Operating lease right-of-use assets	29,755		25,898
Deferred tax asset	Deferred tax asset	10		10		Deferred tax asset	5		5
Other assets	Other assets	3,861		4,036		Other assets	3,400		3,122
Total other assets	Total other assets	58,762		61,740		Total other assets	54,516		51,120
Total assets	Total assets	$	708,184	$	709,966	Total assets	$	739,663	$	722,361
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	$	33,945	$	28,958

Accrued liabilities and other	Accrued liabilities and other	45,807		36,070		Accrued liabilities and other	53,235		42,075
Amounts payable to affiliates	Amounts payable to affiliates	3,291		3,234		Amounts payable to affiliates	682		—

Current liabilities associated with discontinued operations	Current liabilities associated with discontinued operations	279		345		Current liabilities associated with discontinued operations	262		262
Total current liabilities	Total current liabilities	72,486		59,415		Total current liabilities	88,124		71,295
Other liabilities:	Other liabilities:					Other liabilities:
Long-term debt, net	Long-term debt, net	638,662		638,631		Long-term debt, net	630,182		631,141
Deferred tax liabilities	Deferred tax liabilities	1,869		1,478		Deferred tax liabilities	876		819
Long-term affiliate payable		11,477		0

Operating lease liabilities	Operating lease liabilities	22,472		24,059		Operating lease liabilities	21,469		17,648
Other long-term liabilities	Other long-term liabilities	1,110		11,716		Other long-term liabilities	5,770		299
Total other liabilities	Total other liabilities	675,590		675,884		Total other liabilities	658,297		649,907
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	(1,524)		(1,486)
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 (141,213,944 units issued and outstanding at March 31, 2022 and 140,386,811 units issued and outstanding at December 31, 2021)						Common units (141,213,944 units issued and outstanding at March 31, 2022 and 140,386,811 units issued and outstanding at December 31, 2021)	9,158		17,049
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(14,336)		(14,393)		Accumulated other comprehensive loss	(14,392)		(14,404)
Total partners’ capital	Total partners’ capital	(39,892)		(25,333)		Total partners’ capital	(6,758)		1,159
Total liabilities and partners’ capital	Total liabilities and partners’ capital	$	708,184	$	709,966	Total liabilities and partners’ capital	$	739,663	$	722,361

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		$	(885)	47,352	$	(10,055)			$	(14,393)						$	(25,333)
Balance at December 31, 2021														Balance at December 31, 2021	$	(1,486)					140,386			$	17,049		$	(14,404)		$	1,159
Net loss	Net loss	(202)		—	(14,263)				0							(14,465)			Net loss		(31)			—			(6,539)			—			(6,570)
Distributions ($0.01 per unit)	Distributions ($0.01 per unit)	(7)		—	(477)				0						(484)			Distributions ($0.01 per unit)		(7)			—			(1,404)			—			(1,411)
Equity compensation		0		—	474				0						474
Equity compensation, net														Equity compensation, net	—						—			52			—			52
Vesting of Phantom Units	Vesting of Phantom Units	—		619	—		—					—		Vesting of Phantom Units	—						828			—			—			—
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	—						—			—			12			12
Acquisition of affiliate from TETRA		—		—	(141)		—					(141)

Balance at March 31, 2021		$	(1,094)	47,971	$	(24,462)	$	(14,336)				$	(39,892)

Balance at March 31, 2022														Balance at March 31, 2022	$	(1,524)					141,214			$	9,158		$	(14,392)		$	(6,758)


		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		$	180	47,079	$	63,384			$	(14,573)						$	48,991
Balance at December 31, 2020														Balance at December 31, 2020	$	(885)					47,352			$	(10,055)		$	(14,393)		$	(25,333)
Net loss	Net loss	(192)		—	(13,438)				—							(13,630)			Net loss		(179)			—			(12,716)			—			(12,895)
Distributions ($0.01 per unit)	Distributions ($0.01 per unit)	(7)		—	(471)				—						(478)			Distributions ($0.01 per unit)		(7)			—			(477)			—			(484)
Equity compensation, net	Equity compensation, net	—		—	229				—						229			Equity compensation, net		—			—			474			—			474
Vesting of Phantom Units	Vesting of Phantom Units	—		213	—		—					—		Vesting of Phantom Units	—						619			—			—			—
Consideration for the Spartan acquisition														Consideration for the Spartan acquisition	—						—			26,444			—			26,444
Translation adjustment, net of taxes of $0	Translation adjustment, net of taxes of $0	—		—	—		(353)					(353)		Translation adjustment, net of taxes of $0	—						—			—			57			57

Balance at March 31, 2020		$	(19)	47,292	$	49,704	$	(14,926)				$	34,759
Other														Other	—						—			(141)			—			(141)
Balance at March 31, 2021														Balance at March 31, 2021	$	(1,071)					47,971			$	3,529		$	(14,336)		$	(11,878)

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


	Three Months Ended March 31,
	2022		2021
Operating activities:
Net loss	$	(6,570)	$	(12,895)
Reconciliation of net loss to cash provided by operating activities:
Depreciation and amortization	19,359		19,134


Provision for deferred income taxes	39		392



Equity compensation expense	52		474
Provision for doubtful accounts	22		149
Amortization of deferred financing costs	125		191


Other non-cash charges and credits	953		42
Gain on sale of property, plant, and equipment	231		(53)

Changes in operating assets and liabilities:
Accounts receivable	(11,805)		(4,678)
Inventories	(7,720)		(3,455)
Prepaid expenses and other current assets	1,105		(3,336)
Accounts payable and accrued expenses	15,194		15,045
Other	785		534
Net cash provided by (used in) operating activities	11,770		11,544
Investing activities:
Purchases of property, plant, and equipment, net	(9,202)		(4,565)
Proceeds from sale of property, plant, and equipment	3,267		157

Acquisition of affiliate from TETRA, net of cash acquired	—		5

Acquisition of business	—		1,169
Net cash used in investing activities	(5,935)		(3,234)
Financing activities:
Proceeds from long-term debt	4,227		11
Payments of long-term debt	(5,568)		(2,521)


Distributions	(1,411)		(484)
Other financing activities	7,612		(156)


Net cash used in financing activities	4,860		(3,150)
Effect of exchange rate changes on cash	1		(12)
Increase (decrease) in cash and cash equivalents and restricted cash	10,696		5,148
Cash and cash equivalents at beginning of period	6,598		16,577
Cash and cash equivalents and restricted cash at end of period	$	17,294	$	21,725
Supplemental cash flow information:
Interest paid	$	6	$	2,926
Income taxes paid	$	2,151	$	327
Decrease (increase) in accrued capital expenditures	$	(756)	$	218

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~~treating services. Natural gas compression is used for ~~natural gas and~~ oil production, gathering, artificial lift, transmission, processing, and storage. Treating services include the removal of contaminants from a natural gas stream and cooling to reduce the temperature of produced gas and liquids. We also sell used standard compressor packages and provide aftermarket services and compressor package parts and components manufactured by third-party suppliers. We provide ~~compression~~contract and treating services and ~~equipment~~compressor parts and component sales 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, Argentina, Egypt and ~~Argentina.~~Chile. Previously, our equipment sales (new unit 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.~~Texas. 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, ~~2021,~~2022, and for the three-month periods ended March 31, ~~2021~~2022 and ~~2020,~~March 31, 2021 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 period ended March 31, ~~2021~~2022 are not necessarily indicative of results that may be expected for the twelve months ended December 31, ~~2021.~~2022.

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~~2021 and notes thereto included in our Annual Report on Form 10-K, which we filed with the SEC on March ~~4, 2021.~~14, 2022.

On November 10, 2021, the Partnership entered into a Contribution Agreement (the “Contribution Agreement”) by and among the Partnership, CSI Compressco GP LLC, a Delaware limited liability company (our “general partner”), Spartan Energy Partners, LP, a Delaware limited partnership (“Spartan”) and CSI Compressco Sub Inc., a Delaware corporation (“Compressco Sub”). Pursuant to the terms of the Contribution Agreement, Spartan contributed to the Partnership 100% of the limited liability company interest in Treating Holdco, LLC, a Delaware limited liability company (“Treating Holdco”), 100% of the common stock in Spartan Terminals Operating, Inc., a Delaware corporation (“Spartan Terminals”), and 99% of the limited liability company interests in Spartan Operating Company LLC, a Delaware limited liability company (“Spartan Operating” and together with Treating Holdco and Spartan Terminals, “Spartan Treating”) (such interests in Spartan Treating, the “Contributed Interests”) in exchange for 48.4 million common units in the partnership. We refer to the acquisition of the contributed interests as the “Spartan Acquisition.” The Spartan Acquisition was accounted for as a change in reporting entity between entities under common control in accordance with ASC 250-10-45-21. A change in reporting entity requires retrospective application for all periods as if the Spartan Acquisition had been in effect since inception of common control. As a result, the consolidated financial statements and notes thereto for the Partnership reflected in this report have been prepared as if the change in reporting entity occurred on January 29, 2021. See Note 4 - “Common Control Acquisition,” for a description of the transaction.

Table of Contents

Segments

Our ~~General Partner~~general partner has concluded that we operate in 1 reportable segment.

Business Combinations

When we acquire a business ~~segment.~~from an entity under common control, whereby the companies are ultimately controlled by the same party or parties both before and after the transaction, it is treated similar to the pooling of interests method of accounting. The assets and liabilities are recorded at the transferring entity’s historical cost instead of reflecting the fair value of assets and liabilities. Accordingly, the financial statements reflect the combined entities at historical carrying values from the date of common control for the three months ended March 31, 2022 and March 31,2021.

Significant Accounting Policies

Our significant accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, ~~2020~~2021 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, ~~2021.~~2022.

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.

~~Table of Content~~s

Reclassifications

CCertain 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, certainertain 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. We have concentrated credit risk for cash by maintaining deposits in a major bank, which may at times exceed amounts covered by insurance provided by the United States Federal Deposit Insurance Corporation (“FDIC”). We monitor the financial health of the bank and have not experienced any losses in such accounts and believe we are not exposed to any significant credit risk. Management believes the financial institutions are financially sound and risk of loss is minimal.

Financial Instruments

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

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

We have $58.5 million outstanding under our variable rate revolving credit facilities as of March 31, 2022 and face market risk exposure related to changes in applicable interest rates.

Table of Contents

Foreign Currencies

~~Accumulated other comprehensive income (loss) is included~~We have designated the Canadian dollar as the functional currency for our operations in ~~partners’ capital in~~Canada. We are exposed to fluctuations between the ~~accompanying consolidated balance sheets~~U.S. dollar and ~~consists~~certain foreign currencies, including the Canadian dollar, the Mexican peso, the Argentine peso, the Egyptian pound, and the Chilean peso as a result 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 million and ~~$1.7~~$0.4 million during the three-month periods ended March 31, ~~2021~~2022 and ~~March 31, 2020~~2021, respectively.

Leases

Lessee

As a lessee, unless the lease meets the criteria of short-term and is excluded per our policy election described below, we initially recognize a lease liability and related right-of-use asset on the commencement date. The right-of-use asset represents our right to use an underlying asset and the lease liability represents our obligation to make lease payments to the lessor over the lease term.

All of our long-term leases are operating leases and are included in operating lease right-of-use assets, accrued liabilities and other, and operating lease liabilities in our consolidated balance sheet as of March 31, 2022 and December 31, 2021. We determine whether a contract is or contains a lease at inception of the contract. Where we are a lessee in a contract that includes an option to extend or terminate the lease, we include the extension period or exclude the period covered by the termination option in our lease term in determining the right-of-use asset and lease liability, if it is reasonably certain that we would exercise the option.

As an accounting policy election, we do not include short-term leases on our balance sheet. Short-term leases include leases with a term of 12 months or less, inclusive of renewal options we are reasonably certain to exercise. The lease payments for short-term leases are included as operating lease costs on a straight-line basis over the lease term in cost of revenues or selling, general, and administrative expense based on the use of the underlying asset. We recognize lease costs for variable lease payments not included in the determination of a lease liability in the period in which an obligation is incurred.

As allowed by U.S. GAAP, we do not separate nonlease components from the associated lease component for our contract services contracts and instead account for those components as a single component based on the accounting treatment of the predominant component. In our evaluation of whether Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842 “Leases” or ASC 606 “Revenue from Contracts with Customers” is applicable to the combined component based on the predominant component, we determined the services nonlease component is predominant, resulting in the ongoing recognition of our compression services contracts following ASC 606.

Our operating leases are recognized at the present value of lease payments over the lease term. When the implicit discount rate is not readily determinable, we use our incremental borrowing rate to calculate the discount rate used to determine the present value of lease payments. Consistent with other long-lived assets or asset groups that are held and used, we test for impairment of our right-of-use assets when impairment indicators are present.

Lessor

Our agreements for rental equipment contain an operating lease component under ASC 842 because we, as the lessor, retain substantial exposure to changes in the underlying asset’s value, unlike a sale or secured lending arrangement. Therefore, we do not unrecognize the underlying asset, and recognize income associated with providing the lessee the right to control the use of the asset ratably over the lease term.

As a lessor, we recognize operating lease revenue on our statements of operations as equipment rentals. This revenue is recognized on a straight-line basis over the term of the lease based on the monthly rate in the agreement. The leased asset remains on the balance sheets consistent with other property, plant and equipment. Cash receipts associated with all leases are classified as cash flows from operating activities in the statements of cash flows.

Table of Contents

The leased equipment primarily consists of the Spartan Treating amine plants, cooling units and production equipment. All of this equipment is modular and skid mounted. It can be moved between locations. Lease terms for this equipment vary in length. Amine plants range from one to five years while the cooling units range from six months to two years.

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~~

We did not record any impairments ~~attributed to continuing operations recorded~~of long-lived assets during the three-month periods ended March 31, ~~2021 or~~2022 and March 31, ~~2020.~~2021.

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 g~~General Partner~~eneral partner (including any distributions to our g~~General Partner~~eneral partner on its incentive distribution rights) by the weighted average number of outstanding common units during the period.

~~Table of Content~~s

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~~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 periods ended March 31, ~~2021~~2022 and March 31, ~~2020,~~2021, all unvested phantom units were excluded from the calculation of diluted common units because the impact was anti-dilutive.

Table of Contents

~~0Fair~~Fair 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 89 –

~~“Fair~~ “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~~April 19, ~~2021,~~2022, the board of directors of our ~~General Partner~~general partner declared a cash distribution attributable to the quarter ended ~~December~~March 31, ~~2020~~2022 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 was paid on ~~February 12, 2021,~~May 13, 2022 to each of the holders of common units of record as of the close of business on ~~January 29, 2021.~~April 30, 2022.

New Accounting Pronouncements

Standards adopted in ~~2021~~2022

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 standardWe did not ~~have a material impact on our consolidated financial statements.~~adopt any new standards in 2022.

Standards not yet adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses on financial instruments not accounted for at fair value through net income. The provisions require credit impairments to be measured over the contractual life of an asset and developed with consideration for past events, current conditions, and forecasts of future economic information. Credit impairments will be accounted for as an allowance for credit losses deducted from the amortized cost basis at each reporting date. Updates at each reporting date after initial adoption will be recorded through selling, general, and administrative expense. ASU 2016-13 ~~will be~~is effective for us in the first quarter of ~~2023.~~the 2023 fiscal year. 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

~~Table of Content~~s

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, 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:

Table of Contents

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 March 31,
		2021		2020			2022		2021
Revenue	Revenue	$	0	$	4,844	Revenue	$	—	$	—
Cost of revenues	Cost of revenues	22		4,817		Cost of revenues	—		22
Depreciation, amortization, and accretion		0		238
Depreciation and amortization						Depreciation and amortization	—		—
Impairments of long-lived assets	Impairments of long-lived assets	0		5,371		Impairments of long-lived assets	—		—
General and administrative expense	General and administrative expense	40		1,166		General and administrative expense	—		40

Total pretax income (loss) from discontinued operations		(62)		(6,748)
Total pretax loss from discontinued operations						Total pretax loss from discontinued operations	—		(62)
Income tax provision	Income tax provision	0		16		Income tax provision	—		—
Total income (loss) from discontinued operations		$	(62)	$	(6,764)
Total loss from discontinued operations						Total loss from discontinued operations	$	—	$	(62)

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			March 31, 2022		December 31, 2021
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	$	—	$	—
Other Current Assets	Other Current Assets	0		7		Other Current Assets	—		—
Current assets of discontinued operations	Current assets of discontinued operations	$	32	$	39	Current assets 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					Carrying amounts of major classes of liabilities included as part of discontinued operations
Accrued liabilities	Accrued liabilities	$	279	$	345	Accrued liabilities	$	262	$	262
Current liabilities of discontinued operations	Current liabilities of discontinued operations	$	279	$	345	Current liabilities of discontinued operations	$	262	$	262

~~Table of Content~~s

NOTE 3 — REVENUE FROM CONTRACTS WITH CUSTOMERS

As of March 31, ~~2021~~2022, we had ~~$38.3~~$63.3 million of remaining contractual performance obligations for compression services. As a practical expedient, this amount does not include revenue for compression service contracts whose original expected duration is less than twelve months and does not consider the effects of the time value of money. Expected revenue to be recognized in the future as of March 31, ~~2021~~2022 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


	2022		2023		2024		2025		Thereafter		Total
	(In Thousands)
Compression service contracts remaining performance obligations	$	42,970	$	16,623	$	3,343	$	216	$	120	$	63,272

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~~$5.6 million and ~~$6.8~~$4.1 million as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Table of Contents

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


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
		(In Thousands)					(In Thousands)
Unearned income, beginning of period	Unearned income, beginning of period	$	269	$	283	Unearned income, beginning of period	$	2,187	$	670
Additional unearned income	Additional unearned income	162		1,007		Additional unearned income	2,339		314
Revenue recognized	Revenue recognized	(239)		(780)		Revenue recognized	(1,773)		(320)
Unearned income, end of period	Unearned income, end of period	$	192	$	510	Unearned income, end of period	$	2,753	$	664

Unearned income is included in accrued liabilities and other on the consolidated balance sheets. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, contract costs were immaterial.

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


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020					2022		2021
		(In Thousands)				(In Thousands)
Compression and related services
Contract services								Contract services
United States	United States	$	45,986	$	57,275			United States	$	52,926	$	47,878
International	International	8,253		8,490				International	9,881		8,359
		54,239		65,765					62,807		56,237
Aftermarket services	Aftermarket services							Aftermarket services
United States								United States	12,689		10,843
International								International	179		191
									12,868		11,034
Equipment rentals								Equipment rentals
United States	United States	10,813		17,285				United States	1,966		1,140
International	International	188		685				International	1,534		885
		11,001		17,970					3,500		2,025
Equipment sales	Equipment sales							Equipment sales
United States	United States	470		1,194				United States	715		470
International	International	0		506				International	122		—
		470		1,700					837		470
Total Revenue	Total Revenue							Total Revenue
United States	United States	57,269		75,754				United States	68,296		60,331
International	International	8,441		9,681				International	11,716		9,435
		$	65,710	$	85,435				$	80,012	$	69,766

NOTE 4 — COMMON CONTROL ACQUISITION

On November 10, 2021, the Partnership entered into the Contribution Agreement with the general partner, Spartan, and Compressco Sub. Pursuant to the terms of the Contribution Agreement, Spartan contributed Spartan Treating to the Partnership in exchange for the issuance of 48.4 million common units in the Partnership to Spartan. As the Partnership and Spartan Treating were under common control at the time of the Spartan Acquisition, the acquisition was deemed to be a transaction under common control under ASC 805, “Business Combinations.” Therefore, we accounted for this transaction at the carrying amount of the net assets acquired and the results of operations have been combined for the Partnership and Spartan Treating from the date of common control, which was January 29, 2021.

Assets acquired and liabilities assumed are reported at their historical carrying amounts. The balance sheet of Spartan Treating on November 10, 2021, the date of acquisition, consisted of (in thousands):

1012

Table of ~~Content~~sContents


Current assets	$	6,616
Property, plant, and equipment	112,972
Less accumulated depreciation	(53,039)
Net property, plant, and equipment	59,933
Other assets	1,245
Total assets	67,794

Current liabilities	7,597
Long-term debt, net	32,590
Other liabilities	239
Total liabilities	40,426
Net assets	$	27,368

The Partnership’s consolidated financial statements as of March 31, 2022 and December 31, 2021 include the assets and liabilities of Spartan Treating, including intercompany eliminations. As the results of operations for Spartan Treating were consolidated as of January 29, 2021, the date common control began, the Partnership’s balances for Partners’ capital as of January 29, 2021 were adjusted to include Spartan Treating’s equity balances as of that date. On November 10, 2021, Partners capital associated with Spartan Treating was $27.4 million. In consolidation, Partners capital associated with Spartan Treating is eliminated.

The consideration for the Spartan Treating acquisition was the issuance to Spartan of 48.4 million common units. The value of the common units was approximately $65.3 million. As the acquisition is accounted for as a transaction under common control and the transfer of assets and liabilities occurs at historical cost, the value of the common units has no impact on Partners’ capital. The difference between the consideration and the net assets acquired of $37.9 million is recognized as a deemed distribution as the book value of net assets as of November 10, 2021 was less than the consideration. As the Spartan Treating acquisition was accounted for retrospectively to the date of common control, the Partnership’s Consolidated Statement of Operations includes Spartan Treating’s net income of $1.6 million corresponding to the period from January 29, 2021 to March 31, 2021.

The following tables include unaudited pro-forma financial information and the effect of the Spartan Acquisition after elimination of intercompany transactions.


	Three Months Ended March 31, 2021
	CSI Compressco LP		Spartan Treating		Total
	(In Thousands, Unaudited)
Revenue	$	65,710	$	4,056	$	69,766
Income (loss) from continuing operations	$	(12,896)	$	1,769	$	(11,127)
Net income (loss)	$	(14,464)	$	1,569	$	(12,895)

NOTE 45 — INVENTORIES

Components of inventories as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, are as follows:


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(In Thousands)					(In Thousands)
Parts and supplies	Parts and supplies	$	29,115	$	28,483	Parts and supplies	$	35,494	$	31,441
Work in progress	Work in progress	3,568		2,705		Work in progress	2,866		1,830
Total inventories	Total inventories	$	32,683	$	31,188	Total inventories	$	38,360	$	33,271

Table of Contents

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 56 — LEASES

Lessor Accounting

Our leased equipment primarily consists of amine plants, cooling units and other production equipment. Certain of our agreements with our customers for rental equipment contain an operating lease component under ASC 842 because (i) there are identified assets, (ii) the customer has the right to obtain substantially all of the economic benefits from the use of the identified asset throughout the period of use and (iii) the customer directs the use of the identified assets throughout the period of use. We have elected to apply the practical expedient provided to lessors to combine the lease and non-lease component of a contract where the revenue recognition pattern is the same and where the lease component, when accounted for separately, would be considered an operating ~~leases~~lease. The practical expedient also allows a lessor to account for ~~some~~the combined lease and non-lease components under ASC 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of ~~our office space, warehouse space,~~the combined component.

Our lease agreements generally have contract terms based on monthly rates. Lease revenue is recognized straight-line based on these monthly rates. We do not provide an option for the lessee to purchase the rented assets at the end of the lease and the lessees do not provide residual value guarantees on the rented assets.

We recognized operating ~~locations,~~lease revenue, which is included in “Equipment rentals” on the consolidated statements of operations as follows:


	March 31, 2022	March 31, 2021
	(In Thousands)
Equipment rentals	3,500	$	2,025

The following table presents the maturity of lease payments for operating lease agreements in effect as of March 31, 2022. This presentation includes minimum fixed lease payments and ~~machinery and equipment. Our leases~~does not include an estimate of variable lease consideration. These agreements have remaining lease terms upranging from 1 month to ~~ten~~7 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~~following table presents the ~~facility has a ten-year term with initial base rent of $0.5 million per year, and is~~undiscounted cash flows 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.be received related to these agreements:

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


	2022		2023	2024	2025	2026	Thereafter
	(In Thousands)
Future minimum lease revenue	$	8,807	5,518	1,744	1,599	1,576	3,421

1114

Table of ~~Content~~sContents

~~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 67 — LONG-TERM DEBT AND OTHER BORROWINGS

Long-term debt consists of the following:

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


	Scheduled Maturity	March 31, 2022		December 31, 2021
		(In Thousands)
Credit Agreement (1)	June 29, 2023	$	—	$	330
Spartan Credit Agreement (2)	January 29, 2024	57,621		58,045
7.50% First Lien Notes due 2025 (3)	April 1, 2025	398,964		399,767
10.00%/10.75% Second Lien Notes due 2026 (4)	April 1, 2026	173,597		172,999
Total long-term debt		$	630,182	$	631,141

(1) Net of unamortized deferred financing costs of $0.5 million as of December 31, 2021. Because there was no outstanding balance on the Credit Agreement, associated deferred financing costs of ~~$0.5~~$0.1 million as of March 31, ~~2021 and $0.6 million as of December 31, 2020~~2022 were classified as other long-term assets on the accompanying consolidated balance sheet.

(2) Net of ~~the~~unamortized deferred financing costs of $0.9 million and $1.0 million as of March 31, 2022 and December 31, 2021, respectively.

(3) Net of unamortized deferred financing costs of $4.2 million and $3.9 million as of March 31, 2022 and December 31, 2021, respectively, unamortized discount of $0.5 million and $0.2 million as of March 31, ~~2021~~2022 and ~~$0.3 million as of~~ December 31, ~~2020~~2021, respectively, and ~~unamortized~~ deferred ~~financing costs~~restructuring gain of ~~$0.4~~$3.6 million and $3.9 million as of March 31, ~~2021~~2022 and ~~$0.4 million as of~~ December 31, ~~2020.~~2021, respectively.

~~(3)~~(4) Net of the unamortized deferred financing costs of $4.9 million as of March 31, 2021 and $5.2 million as of December 31, 2020, net of the unamortized discount of $0.2 million as of March 31, 2021 and $0.2 million as of December 31, 2020, and net of deferred restructuring gain of $4.7 million as of March 31, 2021 and $5.0 million as of December 31, 2020.

~~(4)~~ ~~Net of the unamortized discount of $0.7 million as of March 31, 2021 and $0.7 million as of December 31, 2020, and net~~ of unamortized deferred financing costs of ~~$1.1~~$1.2 million and $2.0 million as of March 31, ~~2021~~2022 and ~~$1.2 million as of~~ December 31, ~~2020,~~2021, respectively, unamortized discount of $0.8 million and ~~net of deferred restructuring gain of $3.6~~$0.9 million as of March 31, 2022 and December 31, 2021, respectively, and ~~$3.7~~deferred restructuring gain of $2.9 million and $3.1 million as of March 31, 2022 and December 31, ~~2020.~~2021, respectively.

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, ~~2021.~~2022.

See Note 78 – “Related Party Transactions,” for a discussion of our amounts payable to affiliates and long-term affiliate payable to Spartan Energy Partners LP (“Spartan”).

~~Table of Content~~s

Credit Agreement

InOn June 11, 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~~

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. AsOn 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 ~~March 31,~~credits was released.

On November 10, 2021, ~~we had 0 balance outstanding~~the Partnership and CSI Compressco Sub Inc., as borrowers, entered into the Fourth Amendment to Loan and Security Agreement (the “Amendment”) amending the Loan and Security Agreement dated June 29, 2018 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) with Bank of America, N.A., in its capacity as administrative agent, issuing bank and swing line issuer (“Administrative Agent”), and the other lenders and loan parties party thereto. The Amendment provided for changes and modifications to the Credit Agreement as set forth therein, which include, among other things, changes to certain terms of the Credit Agreement to permit: (i) the consummation of the Spartan Acquisition pursuant to the Contribution Agreement, and after giving effect to such Spartan Acquisition, for Spartan Terminals and Spartan Operating to become Immaterial Subsidiaries (as defined in the Credit Agreement) and Treating Holdco and its subsidiaries to become Unrestricted Subsidiaries (as defined in the Credit Agreement), in each case under the Credit Agreement and ~~$1.8~~related loan documents; (ii) the sale by CSI Compressco Leasing LLC, a Delaware limited liability company and a subsidiary of the Partnership, and subsequent leaseback by CSI Compressco Operating LLC, a Delaware limited liability company and subsidiary of the Partnership, of certain compressor units with Treating Holdco and/or its subsidiaries occurring on or about the date of the Amendment (the “Spartan Sale/Leaseback”); and (iii) the consummation of the Redemption (as defined below) within 45 days following the date of the Amendment utilizing proceeds from the Spartan Sale/Leaseback, the Private

Table of Contents

Placement (as defined in our Annual Report on Form 10-K ) and the issuance of $10 million in aggregate principal amount of ~~letters~~our 10.000%/10.750% Senior Secured Second Lien Notes due 2026 (the “New Second Lien Notes”. Refer to Note 8 - “Related Party Transactions,” for a discussion of ~~credit against our Credit Agreement. Subject~~the Spartan Acquisition and the Spartan Sale/Leaseback.

As of March 31, 2022, and 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 million as~~$21.1 million.

The maturity date of the Credit Agreement is June 29, 2023. As of March 31, ~~2021. See Note 11 – “Subsequent Events” for further information regarding~~2022 we had no outstanding balance and had $2.1 million in letters of credit against our Credit Agreement.

~~Borrowings under~~Spartan Credit Agreement

On November 10, 2021, certain unrestricted subsidiaries of the ~~credit facility are subject~~Partnership, Spartan Energy Services LLC, as borrower, and Treating Holdco, as new guarantor, entered into the First Amendment to Loan, Security and Guaranty Agreement (the “Spartan Amendment”) amending the Loan, Security and Guaranty Agreement dated January 29, 2021 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Spartan Credit Agreement”) with Bank of America, N.A., in its capacity as agent, and the other lenders and loan parties party thereto. The Spartan Amendment provided for changes and modifications to the ~~applicable margin related~~Spartan Credit Agreement as set forth therein, which include, among other things, changes to certain terms of the Spartan Credit Agreement as follows: (i) ~~LIBOR Rate Loans~~increase in Commitments (as defined in the Spartan Credit Agreement) ~~between 3.00%~~from $55,000,000 to $70,000,000; (ii) permit the consummation of the Spartan Acquisition pursuant to the Contribution Agreement, and ~~3.50%~~after giving effect to such Spartan Acquisition, the release of each of Spartan, Spartan Terminals and ~~(ii) Base Rate Loans~~Spartan Operating as Obligors (as defined in the Spartan Credit Agreement) ~~between 2.00%~~ and ~~2.50%. The commitment fee~~the joinder of Spartan Treating as a Guarantor (as defined in ~~respect~~the Spartan Credit Agreement), in each case under the Spartan Credit Agreement and related loan documents; (iii) revise Change of Control (as defined in the Spartan Credit Agreement) to allow for Control (as defined in the Spartan Credit Agreement) by the Partnership and the general partner; and (iv) permit the Spartan Sale/Leaseback. Refer to Note 8 - “Related Party Transactions,” for a discussion of the ~~unutilized commitments under~~Spartan Acquisition and the ~~Credit Agreement is 0.50%.~~Spartan Sale/Leaseback.

~~7.25% Senior Notes due 2022~~

As of March 31, ~~2021, our 7.25% Senior Notes due~~ 2022, ~~(the “Senior Notes”)~~and subject to compliance with the covenants, borrowing base, and other provisions of the agreements that may limit borrowings under the Spartan Credit Agreement, we had ~~$80.1 million outstanding net~~availability of unamortized discounts and unamortized deferred financing costs. Interest on these notes is payable on February 15 and August 15 of each year. The Senior Notes are unsecured obligations, and are guaranteed on a unsecured basis by the Partnership’s subsidiaries that guarantee the Credit Agreement.$5.1 million.

~~Our Senior Notes are jointly and severally, and fully and unconditionally, guaranteed by each~~The maturity date of the ~~Partnership’s domestic restricted subsidiaries (other than CSI Compressco Finance Inc.) that guarantee~~Spartan Credit Agreement is January 29, 2024. As of March 31, 2022, we had $58.5 million outstanding and no letters of credit against 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.Spartan Credit Agreement.

7.50% First Lien Notes due 2025

As of March 31, ~~2021,~~2022, our 7.50% First Lien Notes due 2025 (the “First Lien Notes”) had ~~$399.6~~$399.0 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, ~~2021,~~2022, our 10.000%/10.750% Second Lien Notes due 2026 (the “Second Lien Notes”) had ~~$158.9~~$173.6 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

Table of Contents

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”).

~~Table of Content~~s

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 2021, the second quarter of 2021 and the second quarter of 2020, the Partnership elected to increase the principal amount outstanding ~~by $1.6 million~~ through the issuance of PIK notes. ~~This amount is included in the balance outstanding as~~As of March 31, ~~2021. See Note 11 – “Subsequent Events” for further information regarding~~2022, our ~~Second Lien Notes.~~

principal amount outstanding included $7.2 million of PIK notes.

Finance Agreement

During the first quarter of March 31, 2022, CSI Compressco Leasing LLC and CSI Compressco Operating LLC (individually and collectively as Debtor), with CSI Compressco LP (as Guarantor), entered into a Master Equipment Finance Agreement (the “Finance Agreement”) with a third party in the amount of $7.8 million to finance certain compression equipment. The note is payable in monthly installments of $0.2 million for 36 months. The current portion of this amount is classified in accrued liabilities and other and the long-term portion is classified in other long-term liabilities on the accompanying consolidated balance sheet.

NOTE 78 — RELATED PARTY TRANSACTIONS

GP Sale

On January 29, 2021, Spartan acquired from TETRA Technologies, Inc. (“TETRA”) the Partnership’s ~~General Partner, IDRs~~general partner, its incentive distribution rights (the “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~~

Acquisition of Spartan entities

~~Under~~

On November 10, 2021, the Partnership entered into the Contribution Agreement by and among the Partnership, the general partner, Spartan, and Compressco Sub. Pursuant to the terms of the ~~Omnibus~~Contribution Agreement,~~ourGeneral Partner providedall personnel and services reasonably necessary to manageouroperations and conductourbusiness(other than in Mexico, Canada, and Argentina),andcertain ofTETRA’sLatin American-based subsidiaries provided personnel and services necessaryfor theconductof certain ofourLatin American-based businesses. In addition, under the Omnibus Agreement,TETRAprovidedcertain corporate and general and administrative servicesas requested by ourGeneralPartner,including, without limitation, legal, accounting and financial reporting, treasury, insurance administration, claims processing and risk management, health, safety and environmental,information technology, human resources, credit, payroll, internal audit,and tax services. Pursuant to the Omnibus Agreement,~~we~~reimbursedourGeneralPartnerandTETRAfor services they provide to~~us. Upon the closing of the GP Sale, the Omnibus Agreement terminated in accordance with its terms. Beginning in February 2021, we will reimburse our General Partner under the terms of our partnership agreement for any expenses and expenditures incurred or payments made on our behalf, including, operating expenses related to our operations and for the provision of various general and administrative services for our benefit.

~~Transition Services Agreement~~

~~TETRA will continue to provide back office support~~ Spartan contributed to the Partnership ~~under a Transition Services Agreement for a period~~100% of ~~time until~~the limited liability company interest in Treating Holdco, 100% of the common stock in Spartan Terminals, and 99% of the limited liability company interests in Spartan Operating and the general partner agreed to cancel its IDRs in the Partnership ~~has completed~~in exchange for 48.4 million common units representing the limited partner interests in the Partnership. We refer to the acquisition of the Contributed Interests as the Spartan Acquisition. The general partner agreed to cancel its IDRs in the Partnership within 60 days of the Spartan Acquisition, and amended and restated its limited partnership agreement on January 6, 2022 to effect such cancellation. In connection with the Spartan Acquisition, we closed a ~~full separation from TETRA’s back-office support functions.~~private placement of common units to certain investors for gross proceeds of $52.7 million (the “Private Placement”).

Spartan and General Partner Ownership

As of March 31, ~~2021,~~2022, Spartan’s ownership interest in us was approximately ~~23%~~45.5%, with the common units held by the public representing an approximate ~~65%~~55% interest in us. As of March 31, 2022, Spartan’s ownership was through various wholly owned subsidiaries and consisted of approximately 45.0% of the limited partner interests plus the approximate 0.5% general partner interest. As a result of its ownership of common units and its general partner interest in us, Spartan received distributions of $0.6 million during the three months ended March 31, 2022. Prior to the GP sale, as a result of its ownership of common units and its general partner interest in us, TETRA received distributions of $0.1 million during the three months ended March 31, 2021.

Indemnification Agreement

We anticipate entering into indemnification agreements with each of our current directors and officers with regard to their services as a director or officer, in order to enhance the indemnification rights provided under Delaware law and our Partnership Agreement. The individual indemnification agreements provide each such director or officer with the right to receive his or her costs of defense if he or she is made a party or witness to any proceeding other than a proceeding brought by or in the right of us, provided that such director or officer has not acted in bad faith or engaged in fraud with respect to the action that gave rise to his or her participation in the proceeding.

Table of Contents

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,~~

~~Table of Content~~s

~~pursuant~~Pursuant to this arrangement, $14.8 million ~~had been~~was funded by TETRA for the construction of new compressor services equipment and all compression units were completed and deployed under this agreement. For accounting purposes, the inclusion of a repurchase option that allowed us to repurchase the equipment at a fixed price during certain periods of the agreement caused the transaction to be accounted for as a financing transaction, as opposed to a sale-leaseback, resulting in the funded amount being recorded as a financing obligation. Accordingly, the compressor services equipment was included in property, plant, and equipment and corresponding financing obligations were included in amounts payable to affiliates and long-term affiliate payable in our consolidated balance sheet as of December 31, 2020. In December 2020, TETRA sold these compressors and assigned the corresponding leases to ~~Spartan. As~~Spartan Energy Partners LP (“Spartan”). In January 2021, TETRA sold the general partner, IDRs and a majority of ~~March 31,~~its common units in the Partnership to Spartan who assumed the financing obligation. On November 10, 2021, the ~~financing obligation owed to~~Partnership completed the Spartan ~~was $11.3 million~~Acquisition. See ‘Acquisition of Spartan entities’ for further description above. This resulted in the reassessment of the lease as an operating lease, thus the Partnership derecognized the assets and ~~is included in accounts payable to affiliate and other and other long-term~~the related liabilities ~~in our consolidated balance sheet~~ as of ~~March 31,~~November 10, 2021. ~~The balances~~Additionally, all revenue and expenses were ~~included~~eliminated in accrued liabilities and other long-term liabilities in our consolidated balance sheet as of December 31,2020. Imputed interest expense recognized for the three-month period ended March 31, 2021 was $0.6 million.consolidation.

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 89 — 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.

Table of Contents

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, ~~2021,~~2022, 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

18,566

21.01

4/4/2022

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

~~Table of Content~~s

features that would require us to post assets or collateral for contracts that are classified as liabilities. During the three-month periods ended March 31, ~~2021~~2022 and March 31, ~~2020,~~2021, we recognized ~~$(0.1)~~$1.1 million and ~~$(1.4)~~$(0.1) million, respectively, of net (gains) losses associated with our foreign currency derivatives program. 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
Carrying Value Fair Value Carrying Value Fair Value
(In Thousands)
7.25% Senior Notes $ 80,722 $ 76,686 $ 80,722 $ 67,274
7.50% First Lien Notes 400,000 408,000 400,000 369,680
10.000%/10.750% Second Lien Notes 157,162 138,303 157,162 114,728
$ 637,884 $ 622,989 $ 637,884 $ 551,682


	March 31, 2022				December 31, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In Thousands)

7.50% First Lien Notes	$	400,000	$	392,000	$	400,000	$	405,000
10.00%/10.75% Second Lien Notes	172,717		167,751		172,717		168,399
	$	572,717	$	559,751	$	572,717	$	573,399

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.

NOTE 910 — 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. State tax expense relating to the Texas franchise

Table of Contents

tax liability is included in the provision for income taxes. 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 period ended March 31, ~~2021,~~2022, was negative ~~(11.7)%~~14.2% 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 1011 — 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 1112 — SUBSEQUENT EVENTS

On April 19, ~~2021,~~2022, the board of directors of our ~~General Partner~~general partner declared a cash distribution attributable to the quarter ended March 31, ~~2021~~2022 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~~was paid on May ~~14, 2021~~13, 2022 to each of the holders of common units of record as of the close of business on April 30, ~~2021.~~2022.

~~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.~~

~~Table of Content~~s

~~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.~~

~~Table of Content~~s

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the Partnership’s financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in “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~~2021 filed with the SEC on March ~~4, 2021~~14, 2022 (“~~2020~~2021 Annual Report”). This discussion includes forward-looking statements that involve certain risks and uncertainties.

Business Overview

We provide services including natural gas compression ~~services~~and treating services. Natural gas compression equipment is used for natural gas and oil production, gathering, artificial lift, production enhancement, transmission, processing, and storage. We also provide a variety of natural gas treating services. Our compression ~~and related services~~ business includes a fleet of approximately ~~4,900~~4,800 compressor packages providing approximately 1.2 million in aggregate horsepower, utilizing a full spectrum of low-, medium-, and high-horsepower engines. Our treating fleet includes amine units, gas coolers, and related equipment. Our aftermarket business provides compressor package overhaul, repair, engineering and design, reconfiguration and maintenance services, as well as the sale of compressor package parts and components manufactured by third-party suppliers. Our customers operate throughout many of the onshore producing regions of the United States, as well as in a number of international locations, including Mexico, Canada, Argentina, Egypt and ~~Argentina.~~Chile.

Demand for our services is directly driven by the production of crude oil and associated natural gas from unconventional shale plays, production of natural gas ~~production in~~from conventional plays ~~along with~~and the 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~~service our customers compression ~~solutions ranging from low horsepower production enhancement~~ needs at the wellhead through ~~large horsepower~~high-horsepower compression needs at centralized gathering and gas lift facilities.

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

~~Unit releases continued to slow~~2020 and gained strength throughout 2021 and in the first ~~weeks~~quarter of ~~2021. In March, net unit sets turned positive for the first time since December~~2022. West Texas Intermediate oil prices reached an average of ~~2019. Oil prices crossed $50~~$95 per barrel in ~~early January and continued to edge upwards, exceeding $60 per barrel~~the first quarter of 2022. This increase in ~~mid-February and stayed~~commodity prices, as well as a recovering economy, has resulted in ~~that range throughout the quarter. Along with these commodity price improvements, we have seen~~ an increase in ~~quote~~ activity ~~and awards across~~levels from our ~~compression and related~~contract services and aftermarket services ~~businesses.~~customers. Revenue from contract services increased each quarter in 2021 and through the first quarter of 2022. In addition, we secured orders from key customers for high-horsepower and electric compressors that started

Table of Contents

~~A significant portion~~generating revenues in the fourth quarter of 2021 and will continue to be deployed throughout 2022. Our customers continue to be focused on capital discipline; however, we continue to see improvement in the levels of quote activity and awards. As the market environment continues to evolve, competition for field employees continues to increase and inflationary pressures have driven certain costs higher. In addition, supply chain disruptions have impacted the availability of parts and supplies. In addition, war and other armed conflicts, including conflict related to Russia’s invasion of Ukraine, and any resulting economic downturn could adversely affect our ~~fleet was exposed~~results of operations, impair our ability to raise capital or otherwise adversely impact our ability to realize certain business strategies. We will continue to monitor these risks and take the ~~winter weather that had a severe impact on Texas and neighboring states in February, creating challenges~~necessary actions 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.

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

~~We continue to take~~In 2020, we took an aggressive approach towards cost management to improve our financial performance and liquidity. In 2021, with the improvement in market conditions, we reversed most of the cost-reduction actions taken in 2020 ~~we implemented temporary~~ and ~~permanent cost reductions, including reductions in~~increased capital ~~expenditures, workforce and salaries. We also implemented furloughs, a reduction in~~allocated to growth. With 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,rapidly changing market environment, we will continue to ~~monitor our operations and~~ proactively manage our capital allocation strategies and monitor 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~~the conflict between Russia and Ukraine will continue to impact overall market conditions, the demand for oil ~~will continue, or what impact~~and gas, and the effect they will ultimately have on our business, we ~~saw~~continued to see activity ~~leveling out at the end of the fourth quarter of 2020 and~~levels increase in the first quarter of ~~2021.~~2022. We are encouraged by

~~Table of Content~~s

~~improvements in~~ the strong oil and gas commodity prices ~~throughout the quarter~~ and projections for demand ~~recovery, driven by COVID-19 vaccinations as they are administered on a wider scale. However,~~recovery; however, the risk of additional strains of COVID-19, ~~increases in the number of cases,~~risk 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, and the impact of continued political conflicts, makes any forecast for improvement uncertain. In addition, continued capital discipline throughout the energy sector may limit production growth even when the economy recovers from ~~the pandemic.~~these external factors. Despite challenging and changing market conditions, we will continue to maintain our commitment to safety and service quality for our customers.

Table of Contents

Results of Operations

The following data should be read in conjunction with the Consolidated Financial Statements and the associated Notes contained elsewhere in this document. On ~~July 2, 2020, we completed~~November 10, 2021, Spartan contributed Spartan Treating to the ~~sale~~Partnership. As the Partnership and Spartan Treating were under common control at the time of the Spartan Acquisition, the results of operations have been combined for the Partnership and Spartan Treating from the date common control began which was January 29, 2021. See Note 4 - “Common Control Acquisition” in the Notes to Consolidated Financial Statements for further information. Previously, our ~~Midland manufacturing facility. The Midland facility was used to design, fabricate and assemble new standard and customized compressor packages for~~equipment sales business included our new unit sales ~~business. In connection with~~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. We sold the Midland ~~manufacturing~~ facility ~~sale,~~in July 2020. In the fourth quarter of 2020, 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~~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” in the Notes to ~~continue~~Consolidated Financial Statements for further information. Used equipment sales revenue continues 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 reportedbe included in equipment sales ~~revenues and are now reflected as discontinued operations in our financial statements for all periods presented.~~revenue.

Three months ended March 31, ~~2021~~2022 compared to three months ended March 31, ~~2020~~2021


		Three Months Ended March 31,													Three Months Ended March 31,
						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	2022		2021		2022 vs. 2021		2022		2021		2022 vs. 2021
		(In Thousands)													(In Thousands)
Revenues:	Revenues:													Revenues:
Compression and related services		$	54,239	$	65,765	$	(11,526)	82.5	%	77.0	%	(17.5)	%
Contract services														Contract services	$	62,807	$	56,237	$	6,570	78.5	%	80.6	%	11.7	%
Aftermarket services	Aftermarket services	11,001		17,970		(6,969)		16.7	%	21.0	%	(38.8)	%	Aftermarket services	12,868		11,034		1,834		16.1	%	15.8	%	16.6	%
Equipment rentals														Equipment rentals	3,500		2,025		1,475		4.4	%	2.9	%	72.8	%
Equipment sales	Equipment sales	470		1,700		(1,230)		0.7	%	2.0	%	(72.4)	%	Equipment sales	837		470		367		1.0	%	0.7	%	78.1	%
Total revenues	Total revenues	65,710		85,435		(19,725)		100.0	%	100.0	%	(23.1)	%	Total revenues	80,012		69,766		10,246		100.0	%	100.0	%	14.7	%
Cost of revenues:	Cost of revenues:													Cost of revenues:
Cost of compression and related services		26,426		31,608		(5,182)		40.2	%	37.0	%	(16.4)	%
Cost of contract services														Cost of contract services	31,040		27,397		3,643		38.8	%	39.3	%	13.3	%
Cost of aftermarket services	Cost of aftermarket services	9,517		16,245		(6,728)		14.5	%	19.0	%	(41.4)	%	Cost of aftermarket services	10,633		9,545		1,088		13.3	%	13.7	%	11.4	%
Cost of equipment rentals														Cost of equipment rentals	516		154		362		0.6	%	0.2	%	235.1	%
Cost of equipment sales	Cost of equipment sales	317		1,883		(1,566)		0.5	%	2.2	%	(83.2)	%	Cost of equipment sales	452		360		92		0.6	%	0.5	%	25.6	%
Total cost of revenues	Total cost of revenues	36,260		49,736		(13,476)		55.2	%	58.2	%	(27.1)	%	Total cost of revenues	42,641		37,456		5,185		53.3	%	53.7	%	13.8	%
Depreciation and amortization	Depreciation and amortization	18,530		19,670		(1,140)		28.2	%	23.0	%	(5.8)	%	Depreciation and amortization	19,359		19,134		225		24.2	%	27.4	%	1.2	%

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	10,841		10,301		540		13.5	%	14.8	%	5.2	%

Interest expense, net	Interest expense, net	13,898		13,169		729		21.2	%	15.4	%	5.5	%	Interest expense, net	12,381		13,708		(1,327)		15.5	%	19.6	%	(9.7)	%

Other income (expense), net		324		440		(116)		0.5	%	0.5	%	(26.4)	%
Other (income) expense, net														Other (income) expense, net	544		294		250		0.7	%	0.4	%	85.0	%
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	(5,754)		(11,127)		5,373		(7.2)	%	(15.9)	%	(48.3)	%
Provision for income taxes	Provision for income taxes	1,507		196		1,311		2.3	%	0.2	%	668.9	%	Provision for income taxes	816		1,706		(890)		1.0	%	2.4	%	(52.2)	%
Loss from continuing operations	Loss from continuing operations	(14,403)		(6,866)		(7,537)		(21.9)	%	(8.0)	%	109.8	%	Loss from continuing operations	(6,570)		(12,833)		6,263		(8.2)	%	(18.4)	%	(48.8)	%
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	—		(62)		62		—	%	(0.1)	%	(100.0)	%
Net loss	Net loss	$	(14,465)	$	(13,630)	$	(835)	(22.0)	%	(16.0)	%	6.1	%	Net loss	$	(6,570)	$	(12,895)	$	6,325	(8.2)	%	(18.5)	%	(49.1)	%

Revenues

~~Compression and related~~Contract services revenues ~~decreased $11.5~~increased $6.6 million or ~~17.5%~~11.7%, in the current year quarter compared to the prior year quarter. The ~~COVID-19 pandemic’s impact on demand for~~increase in revenues is due to an increase in activity levels driven by the increase in oil and ~~natural~~ gas ~~continued~~commodity prices and the improving market conditions as a whole. Fleet utilization and operating horsepower both increased in the first quarter of 2022 compared to ~~affect demand for compression services. During~~ the ~~current quarter, with~~prior year quarter. In addition, due to the ~~stabilization of oil prices,~~improved market conditions, we recovered some of the ~~compressors previously~~price concessions given in 2020 and 2021 with price increases that became effective in the first quarter of 2022. Operating horsepower increased compared to the prior year quarter due to the redeployment of idle compressor units in late 2021 and in the first quarter of 2022 and due to new High-horsepower compressor units placed ~~on standby have now been returned to service.~~in service during the fourth quarter of 2021 from our growth capital investments.

Table of Contents

Aftermarket services revenues ~~decreased $7.0~~increased $1.8 million or 16.6% during the current year quarter compared to the prior year quarter due to increased demand for parts and services resulting from an increase in activity levels by our customers. With the improvement in market conditions and the strong oil and gas commodity prices, customers have increased production of oil and gas which, in turn, increased the demand for parts and services needed to maintain their compression fleet.

Equipment rentals revenues increased $1.5 million or 72.8% during the current year quarter compared to the prior year quarter due to the addition of Spartan Treating revenues in the consolidated financial statements of the Partnership effective January 29, 2021.The prior year period only includes approximately 2 months of revenues compared to 3 months in the current year period.

Equipment sales revenues increased $0.4 million during the current year quarter compared to the prior year quarter due to ~~decreased demand for parts and services as a result of lower customer activity levels.~~

~~Table of Content~~s

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

Cost of revenues

~~The cost~~Cost of ~~compression and related~~contract services revenue ~~decreased 16.4%~~increased compared to the prior year quarter consistent with ~~decreased~~increased revenues. Cost of contract services as a percentage of contract services revenues increased from 48.7% in 2021 to 49.4% in 2022. This increase is primarily due to inflationary pressures which have resulted in increased costs in certain operating cost categories in the first quarter of 2022 including field labor, parts and fuel costs.

Cost of aftermarket services ~~and cost~~revenues increased compared to the prior year quarter consistent with the increase in associated revenues.

Cost of equipment rentals increased during the current quarter consistent with the increase in the corresponding revenues.

Cost of equipment sales ~~also decreased~~increased during the current year quarter consistent with ~~decreased~~the increase in the corresponding 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~~remained relatively consistent compared to the prior year ~~quarter primarily due to impairments recorded during 2020, reducing the cost basis for our compression fleet.~~quarter.

Selling, general, and administrative expense

Selling, general, and administrative expenses increased during the current year quarter compared to the prior year quarter ~~primarily~~due in part to costs associated with the transition from the Transition Services Agreement with TETRA to our new fully independent model. The Transition Services Agreement expired on January 31, 2022 and our transition is complete. Additionally, the increase in expenses is 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~~transaction costs incurred ~~during~~in the ~~current year related to the GP Sale.~~first quarter of 2022.

Interest expense, net

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

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

Other ~~income (expense),~~(income) expense, net, ~~remained relatively flat at $0.3~~was $0.5 million of expense, net, during the current year quarter compared to ~~$0.4~~$0.3 million of expense, net, during the prior year quarter.The change in other (income) expense, net is primarily due to higher foreign currency losses in the first quarter of 2022, primarily from our operations in Mexico.

Table of Contents

Provision for income taxes

Our effective tax rate for the current year quarter was negative ~~11.7%~~14.2% primarily attributable to taxes in certain foreign jurisdictions and Texas gross margin taxes, combined with losses generated in entities for which no related tax benefit has been recorded. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.

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

Loss from discontinued operations, net of tax changed from a $6.8 million loss for the prior year quarter to a $0.1 million loss for current year quarter. The Partnership exited the new unit sales business during 2020, with final completions in October. The prior year loss includes $4.8 million of new unit sales revenues, offset by $4.8 million of costs of sales, $5.4 million of impairments and $1.2 million of selling, general, and administrative expenses.

~~Table of Content~~s

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 periods ended March 31, 2022 and March 31, 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

2124

Table of ~~Content~~sContents


	Three Months Ended March 31,
	2022		2021
	(In Thousands)
Net loss	$	(6,570)	$	(12,895)
Provision for income taxes	816		1,706
Depreciation and amortization	19,359		19,134



Interest expense, net	12,381		13,708
Equity compensation	342		833






Transaction costs	105		—

Severance	—		114
Non-cash cost of compressors sold	452		360


Other	—		308
Adjusted EBITDA	$	26,885	$	23,268

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 March 31,
		2021		2020				2022		2021
		(In Thousands)					(In Thousands)
Net cash provided by operating activities	Net cash provided by operating activities	$	9,614	$	13,357	Net cash provided by operating activities		$	11,770	$	11,544
Capital expenditures, net of sales proceeds	Capital expenditures, net of sales proceeds	(4,479)		(6,483)		Capital expenditures, net of sales proceeds		(5,935)		(4,408)

Free cash flow	Free cash flow	$	5,135	$	6,874	Free cash flow		$	5,835	$	7,136

Net cash provided by operating activities infor the ~~first quarter of 2021~~three months ended March 31, 2022 includes ~~$5.5~~$14.2 million of revenues in excess of cash expenses and ~~$4.0~~a decrease of $2.4 million infrom 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.

Table of Contents

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,					March 31,
		2021		2020			2022		2021
Horsepower	Horsepower					Horsepower
Total horsepower in fleet	Total horsepower in fleet	1,182,090		1,195,186		Total horsepower in fleet	1,195,755		1,182,090
Total horsepower in service	Total horsepower in service	900,328		1,033,256		Total horsepower in service	973,428		900,328

Horsepower utilization	Horsepower utilization					Horsepower utilization
Low-horsepower (0-100)	Low-horsepower (0-100)	58.6	%	66.4	%	Low-horsepower (0-100)	57.5	%	58.6	%
Medium-horsepower (101-1,000)	Medium-horsepower (101-1,000)	75.3	%	83.6	%	Medium-horsepower (101-1,000)	81.2	%	75.3	%
High-horsepower (1,001 and over)	High-horsepower (1,001 and over)	80.7	%	93.5	%	High-horsepower (1,001 and over)	86.7	%	80.7	%
Total horsepower utilization rate	Total horsepower utilization rate	76.2	%	86.5	%	Total horsepower utilization rate	81.4	%	76.2	%

The total horsepower utilization rate ~~and the utilization rate by each horsepower class decreased this quarter~~increased as of March 31, 2022 compared to the prior year period due to ~~significantly lower~~an increase in customer activity levels. This was driven by a ~~low~~high commodity price environment for oil and gas ~~driven by~~and the continued recovery from the impact of the COVID-19 pandemic on the global economy and ~~reduced investment in~~ the energy sector. The market environment has improved in the current year resulting in an increase in total utilization of 5.2% compared to the utilization rate as of March 31, 2021 with meaningful gains in utilization in the Medium and High-horsepower categories. Operating horsepower increased by more than 73,000 horsepower which includes the redeployment of previously idle horsepower and new High-horsepower compressors placed in service resulting from our growth capital investments.

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

~~Table of Content~~s

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~~2022.We have secured orders from key customers for high-horsepower and ~~natural gas prices have recovered~~electric compressors which will drive our investment in ~~the last half of 2020~~growth capital and consume liquidity in 2022.

During the first quarter of ~~2021 from their lows earlier~~2022, oil and gas commodity prices continued to increase resulting in ~~2020,~~an increase in activity levels by our customers. Although uncertainty remains, the outlook for the ~~remainder of 2021 is uncertain.~~energy sector continues to improve. If oil and natural gas prices decrease from current levels, our businesses could be ~~further~~ negatively impacted. Despite these ~~challenges,~~uncertainties, we remain committed to a long-term growth strategy. Our near-term focus is to ~~maintain~~balance our ~~compression fleet,~~investment in growth against our investment in maintaining our revenue-generating assets, 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 and adversely affect our cash flows and, ~~together~~when coupled with risks associated with current debt and equity market conditions, our ability or desire to issue ~~such~~ securities.Please ~~read~~refer to Part I, Item 1A “Risk Factors” included in our ~~2020~~2021 Annual Report.

Capital expenditures in ~~2021~~2022 are expected to range from ~~$30.0~~$50.0 million to ~~$40.0~~$60.0 million. These capital expenditures include approximately ~~$20.0~~$18.0 million to ~~$24.0~~$22.0 million of maintenance capital expenditures and approximately ~~$8.0~~$24.0 million to ~~$12.0~~$28.0 million of capital expenditures primarily associated with the expansion of our large horsepower compression services fleet and ~~$2.0~~$8.0 million to ~~$4.0~~$10.0 million of capital expenditures related to

Table of Contents

investments in technology, primarily software and systems. The foregoing estimates are based on assumptions regarding our assessment of the oil and gas market.

On April 19, ~~2021,~~2022, the board of directors of our ~~General Partner~~general partner declared a cash distribution attributable to the quarter ended March 31, ~~2021~~2022 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~~was paid on May ~~14, 2021~~13, 2022 to each of the holders of common units of record as of the close of business on April 30, ~~2021.~~2022.

Cash Flows

A summary of our sources (uses) of cash during the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 is as follows:


		Three Months Ended March 31,					Three Months Ended March 31,
		(In Thousands)					(In Thousands)
		2021		2020			2022		2021
Operating activities	Operating activities	$	9,614	$	13,357	Operating activities	$	11,770	$	11,544
Investing activities	Investing activities	(4,474)		(6,483)		Investing activities	(5,935)		(3,234)
Financing activities	Financing activities	(777)		(1,863)		Financing activities	4,860		(3,150)

Operating Activities

Net cash provided by operating activities ~~decreased~~increased by ~~$3.7~~$0.2 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 working capital movements.contract services.

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.

~~Table of Content~~s

Investing Activities

Capital expenditures during the three months ended March 31, ~~2021, decreased~~2022, increased by ~~$1.9~~$4.6 million compared to the same period in ~~2020, as we adjusted~~2021, primarily to ~~current market conditions.~~grow and maintain the capacity of our compression fleet. Maintenance capital expenditures decreased during the three months ended March 31, ~~2021~~2022 compared to the prior year period. The cost of fleet compression units sold ~~were $0.4~~was $0.5 million. Total capital expenditures for the current period include ~~$2.8~~$3.8 million of maintenance capital expenditures.

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

Financing Activities

Distributions

During the three months ended March 31, ~~2021,~~2022, we distributed ~~$0.5~~$1.4 million of cash distributions to our common unitholders and ~~General Partner.~~general partner.

Long-Term Debt

Credit Agreement

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, ~~2021,~~2022, 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

Table of Contents

$21.1 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, 2021,~~May 12, 2022, we ~~have $2.2~~had $8.3 million outstanding under our Credit Agreement and ~~$1.8~~$1.9 million in letters of credit, resulting in ~~$11.6~~$19.9 million of availability.

Spartan Credit Agreement

The Spartan Credit Agreement provides for maximum credit commitments of $70.0 million. As of March 31, 2022, we had $58.5 million outstanding, no letters of credit and $5.1 million of availability. As of May 12, 2022, we had $60.0 million outstanding, no letters of credit, and $5.2 million of availability.

See Note 67 – “Long-Term ~~Debt”~~Debt and ~~Note 11 – “Subsequent Events”~~Other Borrowings” in the Notes to Consolidated Financial Statements in this Quarterly Report for further information regarding our ~~7.25% Senior Notes due 2022,~~ 7.50% First Lien Notes due 2025 and 10.000%/10.750% Second Lien Notes due 2026.

Leases

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

Other Financing

In February 2019, we entered into an arrangement with TETRA under which a 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, ~~2021,~~2022, 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.

~~Table of Content~~s

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~~2021 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

Table of Contents

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 2021 Annual Report, and those described from time to time in our future reports filed with the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 4. Controls and Procedures.

Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer of our general partner, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the quarter ended March 31, ~~2021.~~2022. 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, ~~2021,~~2022, the end of the period covered by this Quarterly Report.

During the quarter ended March 31, 2022, we deployed a new Enterprise Resource Planning (“ERP”) system. In connection with this ERP system implementation, the Partnership updated its internal controls over financial reporting, as necessary, to accommodate modifications to its business processes and accounting procedures. We do not believe that this ERP system implementation will have an adverse effect on the Partnership’s internal control over financial reporting.

There were no other changes in the internal control over financial reporting that occurred during the quarter ended March 31, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Content~~s

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~~2021 Annual Report.

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

(a) None.

(b) None.

Table of Contents

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 1 – January 31, ~~2021~~2022

—

N/A

February 1 – February 28, ~~2021~~2022

—

N/A

March 1 – March ~~3, 2021~~31, 2022

—

N/A

Total

—

N/A

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

2630

Table of ~~Content~~sContents

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 periods ended March 31, ~~2021~~2022 and ~~2020;~~2021; (ii) Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, ~~2021~~2022 and ~~2020;~~2021; (iii) Consolidated Balance Sheets as of March 31, ~~2021~~2022 and December 31, ~~2020;~~2021; (iv) Consolidated Statement of Partners’ Capital for the three-month periods ended March 31, ~~2021~~2022 and ~~2020;~~2021; (v) Consolidated Statements of Cash Flows for the three-month periods ended March 31, ~~2021~~2022 and ~~2020;~~2021; and (iv) Notes to Consolidated Financial Statements for the three months ended March 31, ~~2021.~~2022.

2731

Table of ~~Content~~sContents

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, 2021~~16, 2022	By:	/s/John E. Jackson
			John E. Jackson
			Chief Executive Officer
			Principal Executive Officer

Date:	May ~~3, 2021~~16, 2022	By:	/s/Jonathan W. Byers
			Jonathan W. Byers
			Chief Financial Officer
			Principal Financial Officer

Date:	May ~~3, 2021~~16, 2022	By:	/s/Michael E. Moscoso
			Michael E. Moscoso
			Vice President - Finance
			Principal Accounting Officer

2832


	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