USA Compression Partners, LP - Annual Report: 2019 (Form 10-K)

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•	changes in general economic conditions and changes in economic conditions of the crude oil and natural gas industries specifically;

•	competitive conditions in our industry;

•	changes in the long-term supply of and demand for crude oil and natural gas;

•	actions taken by our customers, competitors and third-party operators;

•	the deterioration of the financial condition of our customers;

•	changes in the availability and cost of capital;

•	our ability to realize the anticipated benefits of acquisitions;

•	operating hazards, natural disasters, weather-related delays, casualty losses, equipment defects and other matters beyond our control;

•	the restrictions on our business that are imposed under our long-term debt agreements;

•	information technology risks including the risk from cyberattack;

•	the effects of existing and future laws and governmental regulations; and

•	the effects of future litigation.

ITEM 1.	Business

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(1)	As of December 31, 2019, we had 56,500 large horsepower on order for delivery during 2020.

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(1)	Fleet horsepower is horsepower for compression units that have been delivered to us (and excludes units on order). As of December 31, 2019, we had 56,500 horsepower on order for delivery during 2020.

(2)

Total available horsepower is revenue generating horsepower under contract for which we are billing a customer, horsepower in our fleet that is under contract but is not yet generating revenue, horsepower not yet in our fleet that is under contract but not yet generating revenue and that is subject to a purchase order, and idle horsepower. Total available horsepower excludes new horsepower on order for which we do not have an executed compression services contract.

(3)	Revenue generating horsepower is horsepower under contract for which we are billing a customer.

(4)	Calculated as the average of the month-end revenue generating horsepower for each of the months in the period.

(5)	Calculated as the average of the month-end revenue generating horsepower per revenue generating compression unit for each of the months in the period.

(6)

Horsepower utilization is calculated as (i) the sum of (a) revenue generating horsepower, (b) horsepower in our fleet that is under contract, but is not yet generating revenue and (c) horsepower not yet in our fleet that is under contract, not yet generating revenue and that is subject to a purchase order, divided by (ii) total available horsepower less idle horsepower that is under repair. Horsepower utilization based on revenue generating horsepower and fleet horsepower was 89.9% and 90.7% at December 31, 2019 and 2018, respectively.

(7)	Calculated as the average utilization for the months in the period based on utilization at the end of each month in the period.  Average horsepower utilization based on revenue generating horsepower and fleet horsepower was 89.8% and 87.5% for the years ended December 31, 2019 and 2018, respectively.

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ITEM 1A.	Risk Factors

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•	the level of production of, demand for, and price of natural gas and crude oil, particularly the level of production in the regions where we provide compression services;

•	the fees we charge, and the margins we realize, from our compression services;

•	the cost of achieving organic growth in current and new markets;

•	the ability to effectively integrate any assets or businesses we acquire;

•	the level of competition from other companies; and

•	prevailing global and regional economic and regulatory conditions, and their impact on us and our customers.

•	the levels of our maintenance and expansion capital expenditures;

•	the level of our operating costs and expenses;

•	our debt service requirements and other liabilities;

•	fluctuations in our working capital needs;

•	restrictions contained in the Credit Agreement or the Indentures (the “Indentures”) governing the Senior Notes 2026 and Senior Notes 2027 (collectively, the “Senior Notes”);

•	the cost of acquisitions;

•	fluctuations in interest rates;

•	the financial condition of our customers;

•	our ability to borrow funds and access the capital markets; and

•	the amount of cash reserves established by the General Partner.

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•	develop new business and enter into service contracts with new customers;

•	retain our existing customers and maintain or expand the services we provide them;

•	maintain or increase the fees we charge, and the margins we realize, from our compression services;

•	recruit and train qualified personnel and retain valued employees;

•	expand our geographic presence;

•	effectively manage our costs and expenses, including costs and expenses related to growth;

•	consummate accretive acquisitions;

•	obtain required debt or equity financing on favorable terms for our existing and new operations; and

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•	meet customer specific contract requirements or pre-qualifications.

•	operating a larger combined organization in new geographic areas and new lines of business;

•	hiring, training or retaining qualified personnel to manage and operate our growing business and assets;

•	integrating management teams and employees into existing operations and establishing effective communication and information exchange with such management teams and employees;

•	diversion of management’s attention from our existing business;

•	assimilation of acquired assets and operations, including additional regulatory programs;

•	loss of customers;

•	loss of key employees;

•	maintaining an effective system of internal controls in compliance with the Sarbanes-Oxley Act of 2002 as well as other regulatory compliance and corporate governance matters; and

•	integrating new technology systems for financial reporting.

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•	our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may not be available or such financing may not be available on favorable terms;

•	we will need a portion of our cash flow to make payments on our indebtedness, reducing the funds that would otherwise be available for operating activities, future business opportunities and distributions; and

•	our debt level will make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally.

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•	incur additional indebtedness;

•	pay dividends or make other distributions or repurchase or redeem equity interests;

•	prepay, redeem or repurchase certain debt;

•	issue certain preferred units or similar equity securities;

•	make investments;

•	sell assets;

•	incur liens;

•	enter into transactions with affiliates;

•	alter the businesses we conduct;

•	enter into agreements restricting our subsidiaries’ ability to pay dividends; and

•	consolidate, merge or sell all or substantially all of our assets.

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•	pay distributions on any junior securities, including our common units, prior to paying the quarterly distribution payable to the holders of the Preferred Units, including any previously accrued and unpaid distributions;

•	issue any securities that rank senior to or pari passu with the Preferred Units; however, we will be able to issue an unlimited number of securities ranking junior to the Preferred Units, including junior preferred units and additional common units; and

•	incur Indebtedness (as defined in the Credit Agreement) if, after giving pro forma effect to such incurrence, the Leverage Ratio (as defined in the Credit Agreement) determined as of the last day of the most recently ended fiscal quarter would exceed 6.5x, subject to certain exceptions.

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•	neither the Partnership Agreement nor any other agreement requires ETO to pursue a business strategy that favors us;

•	ETO and its affiliates are not prohibited from engaging in businesses or activities that are in direct competition with us or from offering business opportunities or selling assets to our competitors;

•	the General Partner is allowed to take into account the interests of parties other than us, such as its owner, in resolving conflicts of interest;

•	the Partnership Agreement limits the liability of and reduces the fiduciary duties owed by the General Partner, and also restricts the remedies available to our unitholders for actions that, without such limitations, might constitute breaches of fiduciary duty;

•	except in limited circumstances, the General Partner has the power and authority to conduct our business without unitholder approval;

•	the General Partner determines the amount and timing of asset purchases and sales, borrowings, issuance of additional partnership interests and the creation, reduction or increase of reserves, each of which can affect the amount of cash that is distributed to our unitholders;

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•	the General Partner determines the amount and timing of any capital expenditures and whether a capital expenditure is classified as a maintenance capital expenditure, which reduces operating surplus, or an expansion capital expenditure, which does not reduce operating surplus. This determination can affect the amount of cash that is distributed to our unitholders;

•	the General Partner determines which costs it incurs are reimbursable by us;

•	the General Partner may cause us to borrow funds in order to permit the payment of cash distributions;

•	the Partnership Agreement permits us to classify up to $36.6 million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus;

•	the Partnership Agreement does not restrict the General Partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf;

•	the General Partner currently limits, and intends to continue limiting, its liability for our contractual and other obligations;

•	the General Partner may exercise its right to call and purchase all of our common units not owned by it and its affiliates if together those entities at any time own more than 80% of our common units;

•	the General Partner controls the enforcement of the obligations that it and its affiliates owe to us; and

•	the General Partner decides whether to retain separate counsel, accountants or others to perform services for us.

•	how to allocate business opportunities among us and its affiliates;

•	whether to exercise its limited call right;

•	how to exercise its voting rights with respect to the common units it owns; and

•	whether or not to consent to any merger or consolidation of the Partnership or amendment to the Partnership Agreement.

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provides that whenever the General Partner makes a determination or takes, or declines to take, any other action in its capacity as the General Partner, the General Partner is required to make such determination, or take or decline to take such other action, in good faith, and will not be subject to any higher standard imposed by the Partnership Agreement, Delaware law, or any other law, rule or regulation, or at equity;

•	provides that the General Partner will not have any liability to us or our unitholders for decisions made in its capacity as general partner so long as such decisions are made in good faith, meaning that it believed that the decisions were in the best interest of the Partnership;

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provides that the General Partner and its officers and directors will not be liable for monetary damages to us, our limited partners or their assignees resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the General Partner or its officers and directors, as the case may be, acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and

•	provides that the General Partner will not be in breach of its obligations under the Partnership Agreement or its fiduciary duties to us or our unitholders if a transaction with an affiliate or the resolution of a conflict of interest is:

(a)	approved by the conflicts committee of the Board, although the General Partner is not obligated to seek such approval;

(b)	approved by the vote of a majority of our outstanding common units, excluding any common units owned by the General Partner and its affiliates;

(c)	on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or

(d)	fair and reasonable to us, taking into account the totality of the relationships among the parties involved, including other transactions that may be particularly favorable or advantageous to us.

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•	our existing common unitholders’ proportionate ownership interest in us will decrease;

•	our amount of cash available for distribution to common unitholders may decrease;

•	our ratio of taxable income to distributions may increase;

•	the relative voting strength of each previously outstanding common unit may be diminished; and

•	the market price of our common units may decline.

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•	we were conducting business in a state but had not complied with that particular state’s partnership statute; or

•	your right to act with other unitholders to remove or replace the General Partner, to approve some amendments to the Partnership Agreement or to take other actions under the Partnership Agreement constitute “control” of our business.

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ITEM 1B.	Unresolved Staff Comments

ITEM 2.	Properties

ITEM 3.	Legal Proceedings

ITEM 4.	Mine Safety Disclosures

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ITEM 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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ITEM 6.	Selected Financial Data

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(1)	Please refer to “Non-GAAP Financial Measures” below.

(2)

Net loss attributable to common and Class B unitholders’ interests and earnings per unit are not applicable to the USA Compression Predecessor as the USA Compression Predecessor had no outstanding common or Class B units prior to the Transactions. On July 30, 2019, 6,397,965 Class B Units automatically converted into common units on a one-for-one basis, resulting in the issuance of 6,397,965 common units to ETO. Following the conversion, there are no longer Class B Units outstanding.

(3)	Working capital is defined as current assets minus current liabilities.

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•	the financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets;

•	the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;

•	the ability of our assets to generate cash sufficient to make debt payments and to pay distributions; and

•	our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods and capital structure.

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(1)

For the years ended December 31, 2019 and 2018, unit-based compensation expense included $2.5 million and $1.3 million of cash payments related to quarterly payments of distribution equivalent rights on outstanding phantom unit awards, respectively, and $0.6 million and $3.7 million related to the cash portion of any settlement of phantom unit awards upon vesting, respectively. The remainder of the unit-based compensation expense is related to non-cash adjustments to the unit-based compensation liability.

(2)	Represents certain expenses related to potential and completed transactions and other items. We believe it is useful to investors to exclude these fees.

(3)	Represents non-cash charges incurred to write down long-lived assets with recorded values that are not expected to be recovered through future cash flows.

(4)	For further discussion of the goodwill impairment the USA Compression Predecessor recognized for the year ended December 31, 2017, please refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Goodwill – Impairment Assessments”.

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(1)

For the years ended December 31, 2019 and 2018, unit-based compensation expense included $2.5 million and $1.3 million of cash payments related to quarterly payments of distribution equivalent rights on outstanding phantom unit awards, respectively, and $0.6 million and $3.7 million related to the cash portion of any settlement of phantom unit awards upon vesting, respectively. The remainder of the unit-based compensation expense is related to non-cash adjustments to the unit-based compensation liability.

(2)	Represents certain expenses related to potential and completed transactions and other items. We believe it is useful to investors to exclude these fees.

(3)	Represents non-cash charges incurred to write down long-lived assets with recorded values that are not expected to be recovered through future cash flows.

(4)	For further discussion of the goodwill impairment the USA Compression Predecessor recognized for the year ended December 31, 2017, please refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Goodwill – Impairment Assessments”.

(5)	Reflects actual maintenance capital expenditures for the periods presented. Maintenance capital expenditures are capital expenditures made to maintain the operating capacity of our assets and extend their useful lives, replace partially or fully depreciated assets, or other capital expenditures that are incurred in maintaining our existing business and related cash flow.

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(1)	Represents distributions to the holders of our common units as of the record date.

(2)	Represents distributions to holders enrolled in the DRIP as of the record date.

(3)	Represents cash distributions declared on our common units not participating in the DRIP.

(4)

Distributions for the year ended December 31, 2018 reflect only three quarters of distributions as the USA Compression Predecessor did not pay distributions prior to the Transactions Date. DCF, however, reflects a full year of DCF. On a pro forma basis, both the DCF Coverage Ratio and Cash Coverage Ratio for the year ended December 31, 2018 were 1.10x when using comparable three quarters of DCF and three quarters of distributions.

(5)	DCF Coverage Ratio and Cash Coverage Ratio are not applicable to the USA Compression Predecessor as the USA Compression Predecessor had no outstanding common units for each period.

ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

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(1)	Fleet horsepower is horsepower for compression units that have been delivered to us (and excludes units on order). As of December 31, 2019, we had 56,500 horsepower on order for delivery during 2020.

(2)

Total available horsepower is revenue generating horsepower under contract for which we are billing a customer, horsepower in our fleet that is under contract but is not yet generating revenue, horsepower not yet in our fleet that is under contract but not yet generating revenue and that is subject to a purchase order, and idle horsepower. Total available horsepower excludes new horsepower on order for which we do not have an executed compression services contract.

(3)	Revenue generating horsepower is horsepower under contract for which we are billing a customer.

(4)	Calculated as the average of the month-end revenue generating horsepower for each of the months in the period.

(5)	Calculated as the average of the result of dividing the contractual monthly rate for all units at the end of each month in the period by the sum of the revenue generating horsepower at the end of each month in the period.

(6)	Calculated as the average of the month-end revenue generating horsepower per revenue generating compression unit for each of the months in the period.

(7)

Horsepower utilization is calculated as (i) the sum of (a) revenue generating horsepower, (b) horsepower in our fleet that is under contract, but is not yet generating revenue and (c) horsepower not yet in our fleet that is under contract, not yet generating revenue and that is subject to a purchase order, divided by (ii) total available horsepower less idle horsepower that is under repair. Horsepower utilization based on revenue generating horsepower and fleet horsepower was 89.9% and 90.7% at December 31, 2019 and 2018, respectively.

(8)	Calculated as the average utilization for the months in the period based on utilization at the end of each month in the period.  Average horsepower utilization based on revenue generating horsepower and fleet horsepower was 89.8% and 87.5% for the years ended December 31, 2019 and 2018, respectively.

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(1)

Gross operating margin, Adjusted EBITDA, DCF, DCF Coverage Ratio and Cash Coverage Ratio are all non-GAAP financial measures. Definitions of each measure, as well as reconciliations of each measure to its most directly comparable financial measure(s) calculated and presented in accordance with GAAP, can be found under the caption “Non-GAAP Financial Measures” in Part II, Item 6 “Selected Financial Data”.

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

(3)

Distributions for the year ended December 31, 2018 reflect only three quarters of distributions as the USA Compression Predecessor did not pay distributions prior to the Transactions Date. DCF, however, reflects a full year of DCF. On a pro forma basis, both the DCF Coverage Ratio and Cash Coverage Ratio for the year ended December 31, 2018 were 1.10x when using comparable three quarters of DCF and three quarters of distributions.

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•	maintenance capital expenditures, which are capital expenditures made to maintain the operating capacity of our assets and extend their useful lives, to replace partially or fully depreciated assets, or other capital expenditures that are incurred in maintaining our existing business and related operating income; and

•	expansion capital expenditures, which are capital expenditures made to expand the operating capacity or operating income capacity of assets, including by acquisition of compression units or through modification of existing compression units to increase their capacity, or to replace certain partially or fully depreciated assets that were not currently generating operating income.

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(1)	We assumed that the amount outstanding under the Credit Agreement at December 31, 2019 would be repaid in April 2023, the maturity date of the facility. The $725.0 million aggregate principal amount of our Senior Notes 2026 outstanding is due April 1, 2026, and the $750.0 million aggregate principal amount of our Senior Notes 2027 outstanding is due September 1, 2027.

(2)	Represents future interest payments under the Credit Agreement based on outstanding borrowings as of December 31, 2019, and the effective interest rate and unused commitment fee as of December 31, 2019 of 4.31% and 0.375%, respectively, and interest payments on our $1.5 billion aggregate principal amount of the Senior Notes.

(3)	Represents commitments for new compression units that are being fabricated and is a component of our overall projected expansion capital expenditures during 2020 of $110.0 million to $120.0 million.

(4)	Represents commitments for future minimum lease payments on noncancelable operating and finance leases.

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ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk

ITEM 8.	Financial Statements and Supplementary Data

ITEM 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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ITEM 9A.	Controls and Procedures

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ITEM 9B.	Other Information

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ITEM 10.	Directors, Executive Officers and Corporate Governance

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ITEM 11.	Executive Compensation

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•	Eric D. Long, President and CEO;

•	Matthew C. Liuzzi, Vice President, Chief Financial Officer and Treasurer;

•	William G. Manias, Vice President and Chief Operating Officer;

•	David A. Smith, Vice President and President, Northeast Region; and

•	Sean T. Kimble, Vice President, Human Resources.

•	compensate executives with an industry-competitive total compensation package of competitive base salaries and significant incentive opportunities yielding a total compensation package at or near the 50th percentile of the market;

•	attract, retain and reward talented executive officers and key members of management by providing a total compensation package competitive with those of their counterparts at similarly situated companies;

•	motivate executive officers and key employees to achieve strong financial and operational performance;

•	emphasize performance-based or “at risk” compensation; and

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•	reward individual performance.

•	establishes and approves target compensation levels for each NEO;

•	approves Partnership performance measures and goals;

•	determines the mix between cash and equity compensation, short-term and long-term incentives and benefits;

•	verifies the achievement of previously established performance goals; and

•	approves the resulting cash or equity awards to the NEOs.

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(1)	Represents the awards earned under the applicable Bonus Plan for the years ended December 31, 2018 and 2017 for Messrs. Long, Liuzzi and Manias, and for the year ended December 31, 2018 for Messrs. Smith and Kimble.

(2)

The phantom unit values reflect the grant date fair value of the awards calculated in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 718, disregarding the estimated likelihood of forfeitures. For a discussion of the assumptions utilized in determining the fair value of these awards, please see Note 15 in Part II, Item 8 “Financial Statements and Supplementary Data”. In the 2017 and 2018 years, the awards reflected in this column reflect both Phantom Units and performance-based phantom unit awards, which were all accelerated in connection with the Transactions and are no longer outstanding.

(3)	Represents the awards earned under the Bonus Plan for 2019 for each of the NEOs. Amounts earned for the 2019 year will be paid after the Partnership’s audited financials are finalized.

(4)	See the chart below for a detailed breakdown of amounts reported in this column:

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(1)	The potential payout pursuant to the 2019 Bonus Plan awards could be zero, thus we have not reflected a threshold amount in the table above. Actual amounts earned for the 2019 year have been reflected within the Summary Compensation Table above.

(2)

The Retention Units granted on December 5, 2019 to Messrs. Long and Liuzzi and the Phantom Units granted on December 5, 2019 to all of the NEOs will vest incrementally, with 60% of the Retention Units and Phantom Units vesting on December 5, 2022 and the remaining 40% of the Retention Units and Phantom Units vesting on December 5, 2024. The Retention Units and the Phantom Units granted on December 5, 2019 will also vest in full upon a Change in Control (as defined in the LTIP) or the death or Disability (as defined in the LTIP) of the NEO. If Mr. Long retires after attaining the age of 65, 60% of his then-unvested Retention Units will be forfeited, and the remainder will vest, at the time of retirement. With respect to the Phantom Units granted December 5, 2019 to all of the NEOs, if the NEO retires after attaining the age of 65, 60% of his then-unvested Phantom Units will be forfeited, and the remainder will vest, at the time of retirement. If the NEO is over age 68 at the time of retirement, 50% of his then-unvested Phantom Units granted December 5, 2019 will be forfeited, and the remainder will vest, at the time of retirement.

(3)	The reported grant date fair value of unit awards was calculated by multiplying $15.90, the closing price of the Partnership’s common units on the date of grant (December 5, 2019) by the number of units granted, as required by FASB ASC Topic 718.

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(1)

On November 1, 2018, Mr. Long received a grant of 90,000 Retention Units pursuant to the LTIP and a Retention Agreement entered into by Mr. Long and the General Partner. The Retention Units vest incrementally, with 60% of the Retention Units vesting on December 5, 2021 and 40% of the Retention Units vesting on December 5, 2023. On December 5, 2018, Mr. Long received a grant of 176,874 Phantom Units pursuant to the LTIP with the same vesting schedule as the Retention Units.

(2)	Represents the number of Phantom Units granted on February 13, 2017 pursuant to the LTIP that had not vested as of December 31, 2019. The Phantom Units vest in three equal annual installments on each subsequent February 15th, beginning with the first installment that vested on February 15, 2018.

(3)

Includes Phantom Units granted pursuant to the LTIP on February 12, 2018 that had not vested as of December 31, 2019. The Phantom Units granted on February 12, 2018 vest in three equal annual installments on each subsequent February 15th, beginning with the first installment that vested on February 15, 2019. Amounts shown also include Phantom Units granted on December 5, 2018 to each of the NEOs. The Phantom Units granted on December 5, 2018 vest incrementally, with 60% of the Phantom Units vesting on December 5, 2021 and 40% of the Phantom Units vesting on December 5, 2023.

(4)	Includes Retention Units granted on November 1, 2018 pursuant to the LTIP and a Retention Agreement entered into by the applicable NEO and the General Partner that had not vested as of December 31, 2019. The Retention Units vest incrementally, with 60% of the Retention Units vesting on December 5, 2021 and the remaining 40% of the Retention Units vesting on December 5, 2023.

(5)

Includes Phantom Units granted pursuant to the LTIP on December 5, 2019 to each of the NEOs: 167,056 to Mr. Long; 64,779 to Mr. Liuzzi; 63,708 to Mr. Manias; 31,446 to Mr. Smith; and 34,878 to Mr. Kimble. The Phantom Units granted on December 5, 2019 vest incrementally, with 60% of the Phantom Units vesting on December 5, 2022 and the remaining 40% of the Phantom Units vesting on December 5, 2024.

(6)	On December 5, 2019, Mr. Long also received a grant of 41,764 Retention Units pursuant to the LTIP and a Retention Agreement entered into by Mr. Long and the General Partner. The Retention Units vest incrementally, with 60% of the Retention Units vesting on December 5, 2022 and 40% of the Retention Units vesting on December 5, 2024.

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(7)

On December 5, 2019, Mr. Liuzzi also received a grant of 25,911 Retention Units pursuant to the LTIP and a Retention Agreement entered into by Mr. Liuzzi and the General Partner. Each Retention Unit is the economic equivalent of one common unit. The Retention Units vest incrementally, with 60% of the Retention Units vesting on December 5, 2022 and the remaining 40% of the Retention Units vesting on December 5, 2024.

(8)	The market value of Phantom Units is calculated by multiplying $18.14, the closing price of the Partnership’s common units on December 31, 2019, by the number of Phantom Units outstanding.

(1)	Mr. Liuzzi settled approximately 50% of his newly vested Phantom Units in cash in the amount of $394,987 (before taxes), which cash settlement was reported as a disposition of those Phantom Units. The remaining 26,349 Phantom Units vested following such cash settlement.

(2)	Mr. Manias settled approximately 35% of his newly vested Phantom Units in cash in the amount of $348,637 (before taxes), which cash settlement was reported as a disposition of those Phantom Units. The remaining 43,188 Phantom Units vested following such cash settlement.

(3)	Mr. Smith settled approximately 50% of his newly vested Phantom Units in cash in the amount of $171,980 (before taxes), which cash settlement was reported as a disposition of those Phantom Units. The remaining 11,471 Phantom Units vested following such cash settlement.

(4)	Mr. Kimble settled approximately 50% of his newly vested Phantom Units in cash in the amount of $277,105 (before taxes), which cash settlement was reported as a disposition of those Phantom Units. The remaining 18,485 Phantom Units vested following such cash settlement.

(5)	The value realized on vesting of Phantom Units was calculated by multiplying $14.99, the closing price of the Partnership’s common units on the date of vesting (February 15, 2019) by the number of Phantom Units vesting.

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(1)

The listed salary for each of Messrs. Smith and Kimble represents his annualized rate of pay as of December 31, 2019, plus, with respect to the first three columns of the table, his accrued but unused paid time off as of December 31, 2019. The listed bonus amount for each of Messrs. Smith and Kimble is his bonus awarded with respect to the year ended December 31, 2019. Because the assumed termination date for each NEO is December 31, 2019, no pro rata bonus amounts based on a partial year of continued employment prior to termination are included. The amount shown for each of Messrs. Long, Liuzzi and Manias represents the amount of earned but unpaid base salary he would be entitled to receive.

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(2)

The Employment Agreements for each of Messrs. Smith and Kimble provide that upon termination by the Company without Cause or by the NEO for Good Reason, the NEO is entitled to receive one times his base salary, payable in equal semimonthly installments over the course of one year (or, if such termination occurs within two years after a “change in control event” within the meaning of Treasury Regulation 1.409A-3(i)(5), in a lump sum within 30 days of termination of employment).

(3)	Upon the death or Disability of Mr. Kimble or Mr. Smith during the Severance Period (as defined in the Employment Agreements), his salary payment will be accelerated and he (or his estate) will be entitled to the same bonus payment as if the death or Disability had not occurred.

(4)	In the event of the termination of employment by any of the NEOs without Good Reason, the NEO will be entitled to all earned but unpaid annual base salary.

(5)

The NEOs are not entitled to a certain level of compensation in the event of continued employment following a Change in Control, but for purposes of this table it is assumed that the NEO would continue to receive a level of base salary, bonus, benefits and other compensation in the event of continued employment following a Change in Control that is the same as, or similar to, the amounts shown in the Summary Compensation Table. Accordingly, no additional amounts are shown for salary, bonus or health and welfare plan benefits because those amounts would remain as in effect at the time of the Change in Control, and only the acceleration values of outstanding equity at the time of a Change of Control have been reflected.

(6)

In the event of Mr. Smith’s or Mr. Kimble’s termination by the Company without Cause or by the NEO with Good Reason, he and his eligible dependents will be entitled to continued health insurance benefits for a period of 24 months following his Separation from Service (the “Coverage Period”), as follows: (i) for the first twelve months of the Coverage Period, the Company will provide such health insurance coverage at its own expense (other than the NEO’s monthly cost-sharing contribution under the Company’s group health plan, as in effect at the time of the NEO’s Separation from Service) (ii) for the following six months of the Coverage Period, such health insurance coverage will be at the NEO’s sole expense; and (iii) for the final six months of the Coverage Period, the Company will be responsible for the proportion of the cost of such health insurance coverage that the NEO covered in the first 12 months of the Coverage Period; and the NEO will be responsible for the proportion that the Company covered during the first 12 months of the Coverage Period. The amount shown represents the Company’s contribution to the NEO’s health insurance benefits during the first half of the Coverage Period. Messrs. Long, Liuzzi and Manias are not currently party to any contractual arrangements providing for continued health insurance coverage by the Company following a termination of employment.

(7)

In the event of the NEO’s cessation of service for any reason (other than death or Disability), 100% of the NEO’s Phantom Units that have not vested prior to or in connection with such cessation of service shall be automatically forfeited. Notwithstanding the foregoing, with respect to the Phantom Units granted on December 5, 2018 and on December 5, 2019, if the NEO retires after attaining the age of 65, 60% of his then-unvested Phantom Units will be forfeited, and the remainder will vest, at the time of retirement. For the Phantom Units granted on December 5, 2018 and on December 5, 2019, if the NEO is over age 68 at the time of retirement, 50% of his then-unvested Phantom Units will be forfeited, and the remainder will vest, at the time of retirement. For the Phantom Units granted on December 5, 2018 and on December 5, 2019, in the event of the death or Disability of the NEO, 100% of the then-unvested Phantom Units shall vest in full immediately prior to such cessation of service due to death or Disability. In the event of a Change in Control (as defined under the LTIP), 100% of the NEO’s outstanding, unvested Phantom Units granted on December 5, 2018 and on December 5, 2019 would vest. As noted above, the Phantom Units granted prior to the Transactions contained a double-trigger change in control provision, and the Transactions satisfied the first trigger, therefore they could become vested upon a termination by the Company without Cause or by the NEO without Good Reason that occurred on December 31, 2019.

(8)

The Retention Agreements for Messrs. Long, Liuzzi and Manias provide that 100% of the outstanding, unvested Retention Units held by the applicable NEO will vest immediately prior to the NEO’s Separation from Service for the following reasons: (i) termination of the NEO by the Company without Cause or by the NEO with Good Reason, (ii) upon a Change in Control, and (iii) upon the death or Disability of the NEO. Also, if Mr. Long terminates his employment due to retirement, if he is at the time of retirement 65 years of age or older, 40% of his then-unvested Retention Units will vest and the remaining 60% of his then-unvested Retention Units will be forfeited.

(9)	For Messrs. Long, Liuzzi and Manias, provided that the NEO executes and does not revoke a general release and waiver of claims, the NEO will be entitled to a severance payment intended to capture the value of future distributions associated with Retention Units forfeited for tax withholding purposes.

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•	The annual total compensation of our CEO, as reported in the Summary Compensation Table included elsewhere within this Form 10-K, was $5,459,946.

•	Based on this information, for 2019 the ratio of the annual total compensation of Mr. Long to the median of the annual total compensation of all employees was reasonably estimated to be 46.2 to 1.

•	We determined that, as of December 31, 2019, our employee population consisted of approximately 879 individuals with all of these individuals located in the United States (as reported in Part I, Item 1 “Business”, above). This population consisted of our full-time, as we do not have any part-time, temporary employees, or seasonal workers.

•	We selected December 31, 2019 as our identification date for determining our median employee because it enabled us to make such identification in a reasonably efficient and economic manner.

•	We used a consistently applied compensation measure to identify our median employee of comparing the amount of salary or wages, bonuses, compensation received from equity award vesting, and any other compensation items reported to the Internal Revenue Service on Form W-2 for 2019.

•	We identified our median employee by consistently applying this compensation measure to all of our employees included in our analysis. Since all of our employees, including our CEO, are located in the United States, we did not make any cost of living adjustments in identifying the median employee.

•

After we identified our median employee, we combined all of the elements of such employee’s compensation for the 2019 year in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $118,073. The difference between such employee’s total W-2 earnings and the employee’s annual total compensation represents the estimated value of the employee’s net health care benefits (estimated at $4,115 per employee), the employer’s 401(k) matching contribution (estimated at $5,194 per employee) and the employee’s 401(k) contribution (estimated at $18,698 per employee).

•	With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of our 2019 Summary Compensation Table included in this Form 10-K.

(1)	Represents the grant date fair value of our Phantom Units, calculated in accordance with ASC 718. For a detailed discussion of the assumptions utilized in coming to these values, please see Note 15 in Part II, Item 8 “Financial Statements and Supplementary Data”. As of December

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(2)	Amounts in this column reflect the value of DERs, received by the directors with respect to their outstanding phantom unit awards. For Messrs. Joyce and Waldheim, the amount shown includes DERs paid with respect to the Partnership’s quarterly distribution on its common units with respect to each quarter in the 2019 year.

(3)	Mr. Hartman was appointed to the Board pursuant to that certain Board Representation Agreement entered to among us, the General Partner, ETE and EIG on the Transactions Date in connection with our private placement to EIG of Preferred Units and Warrants. Mr. Hartman does not receive compensation for his service on the Board.

ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters

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•	each person who beneficially owns 5% or more of the Partnership’s outstanding common units;

•	all of the directors of the General Partner;

•	each NEO of the General Partner; and

•	all directors and NEOs of the General Partner as a group.

*	Less than 1%.

(1)	Energy Transfer Operating, L.P. has sole voting and dispositive power over 46,056,228 common units based on a Schedule 13D/A filed on August 5, 2019 with the SEC.  The principal business address of Energy Transfer Operating, L.P. is 8111 Westchester Drive, Suite 600, Dallas, Texas 75225.

(2)	Includes 8,000,000 common units held by USA Compression GP, LLC.

(3)

Invesco Ltd. has the shared power to dispose or to direct the disposition of 18,649,774 common units based on Schedule 13G/A filed on February 7, 2020 with the SEC. Pursuant to the provisions of the Partnership Agreement providing that the holder of 20% or more of any class of the Partnership’s securities may not, subject to certain exceptions, vote any of those securities, Invesco Ltd. does not have the shared power to vote or direct the vote with respect to any of the common units it owns. The principal business address of Invesco Ltd. is 1555 Peachtree Street NE, Suite 1800, Atlanta GA 30309.

(4)

EIG Veteran Equity Aggregator, L.P. holds Warrants to acquire (i) 4,206,640 common units of the Partnership at an exercise price of $17.03 per common unit and (ii) 8,413,281 common units of the Partnership at an exercise price of $19.59 per common unit. The Warrants became exercisable on April 2, 2019 and will expire on April 2, 2028. Upon exercise of the Warrants in full and assuming the Partnership does not elect to settle the Warrants in common units on a net basis, EIG would have sole voting and dispositive power over 12,619,921 common units of the Partnership based on the Schedule 13D filed on February 4, 2019 with the SEC. The principal business address of EIG Veteran Equity Aggregator, L.P. is 333 Clay Street, Suite 3500, Houston, Texas 77002.

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(5)

Includes 414,926 common units held directly by Mr. Long, 17,592 common units held by Aladdin Partners, L.P., a limited partnership affiliated with Mr. Long, 55,248 common units held by certain trusts of which Mr. Long is the trustee and 2,174 common units held by Mr. Long’s spouse. Mr. Long disclaims any beneficial ownership of the units held by Mr. Long’s spouse, except to the extent of his pecuniary interest therein.

(6)	Includes 22,409 common units that Mr. Liuzzi has the right to acquire within 60 days upon the vesting and/or settlement of his Phantom Units and Retention Units, subject to Compensation Committee discretion.

(7)	Includes 28,456 common units that Mr. Manias has the right to acquire within 60 days upon the vesting and/or settlement of his Phantom Units and Retention Units, subject to Compensation Committee discretion.

(8)	Includes 10,422 common units that Mr. Smith has the right to acquire within 60 days upon the vesting and/or settlement of his Phantom Units, subject to Compensation Committee discretion.

(9)	Includes 15,578 common units that Mr. Kimble has the right to acquire within 60 days upon the vesting and/or settlement of his Phantom Units, subject to Compensation Committee discretion.

(10)	Includes 81,547 common units that certain of our directors and executive officers have the right to receive within 60 days upon the vesting and/or settlement of phantom units held by such directors and executive officers.

(1)

As of December 31, 2019, the number of common units that may be delivered pursuant to awards under the LTIP was 8,606,984 common units before giving effect to any outstanding awards. Phantom units withheld to satisfy the exercise price or tax withholdings of an award and phantom units that are forfeited, cancelled, paid or otherwise terminate or expire without the actual delivery of common units will be available for delivery pursuant to other awards. Currently, only phantom unit awards are outstanding under the LTIP.  Pursuant to the terms of the LTIP, each phantom unit is the economic equivalent of one common unit and, other than director phantom unit awards, may be settled in cash or common units at the discretion of the Board or a committee thereof. Any phantom unit settled in cash will not result in the actual delivery of a common unit.

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ITEM 13.	Certain Relationships and Related Party Transactions, and Director Independence

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ITEM 14.	Principal Accountant Fees and Services

(1)	In connection with the Transactions, we appointed Grant Thornton as our independent registered public accounting firm on April 5, 2018, replacing KPMG LLP. No fees were paid to KPMG LLP for professional services rendered related to fiscal year 2018.

(2)	Expenditures classified as “Audit Fees” above were billed to the Partnership and include the audits of our annual financial statements and internal control over financial reporting, reviews of our quarterly financial statements, and fees associated with comfort letters and consents related to securities offerings and registration statements.

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ITEM 15.	Exhibits and Financial Statement Schedules

(a)	Documents filed as a part of this report.

1.	Financial Statements.  See “Index to Consolidated Financial Statements” set forth on Page F-1.

2.	Financial Statement Schedule

1.	Exhibits

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*	Filed Herewith.

#	Furnished herewith; not considered to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.

†	Management contract or compensatory plan or arrangement.

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•	Reviewed the application of the relevant accounting guidance with respect to the qualitative factors considered by the Partnership.

•	Evaluated the qualitative factors assessed by management for reasonableness.

•	Compared the actual current results of the reporting unit to the Partnership’s historical and forecasted performance.

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(1)	Organization and Description of Business

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(2)	Basis of Presentation and Significant Accounting Policies

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(3)	Acquisitions

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(1)	Goodwill recognized from the business combination primarily relates to the value attributed to additional growth opportunities, synergies and operating leverage within the Partnership’s areas of operation.  The valuation of goodwill recognized from the business combination is final.

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(4)	Trade Accounts Receivable

(5)	Inventories

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(6)	Property and Equipment, Identifiable Intangible Assets and Goodwill

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(1)	Additions for customer relationships recognized during the year ended December 31, 2018 were related to the Transactions, see Note 3 for further information on the purchase price and fair value allocation.

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(7)	Other Current Liabilities

(1)	Refer to Note 17 for further detailed information on the accrued sales tax contingencies.

(8)	Lease Accounting

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(9)	Income Tax Expense (Benefit)

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(10)	Long-Term Debt

•	grant liens;

•	make certain loans or investments;

•	incur additional indebtedness or guarantee other indebtedness;

•	enter into transactions with affiliates;

•	merge or consolidate;

•	sell our assets; or

•	make certain acquisitions.

•	a minimum EBITDA to interest coverage ratio of 2.5 to 1.0, determined as of the last day of each fiscal quarter; and

•	a maximum funded debt to EBITDA ratio, determined as of the last day of each fiscal quarter, for the annualized trailing three months of (i) 5.5 to 1.0 through the end of the fiscal quarter ending December 31, 2019 and (ii) 5.0 to 1.0 thereafter,

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(11)	Preferred Units and Warrants

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(1)	Pro-rated initial distribution

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(12)	Partners’ Capital

•	right to receive distributions of our available cash within 45 days after the end of each quarter, so long as we have paid the required distributions on the Preferred Units for such quarter;

•	right to transfer limited partner unit ownership to substitute limited partners;

•	right to approve certain amendments of the Partnership Agreement;

•	right to electronic access of an annual report, containing audited financial statements and a report on those financial statements by our independent public accountants within 90 days after the close of the fiscal year end; and

•	right to receive information reasonably required for tax reporting purposes within 90 days after the close of the calendar year.

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(13)	Revenue Recognition

(1)	As noted above, 2017 amounts have not been adjusted under the modified retrospective method of ASC Topic 606.

(1)	As noted above, 2017 amounts have not been adjusted under the modified retrospective method of ASC Topic 606.

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(1)	All current deferred revenue as of December 31, 2018 was recognized during the year ended December 31, 2019.

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(1)	Related party receivables as of December 31, 2019 and 2018 from ETO included $44.9 million related to indemnification for sales tax contingencies incurred by the USA Compression Predecessor. See Note 17 for more information related to such sales tax contingencies.

(2)	Related party payables are included in accounts payable on our consolidated balance sheets.

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(15)	Unit-Based Compensation

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(1)

Following the Transactions Date, the outstanding unvested phantom units granted by the USA Compression Predecessor were forfeited and the outstanding unvested phantom units granted by the Partnership prior to the Transactions Date were maintained. The number of units assumed upon change in control represent the Partnership’s unvested outstanding phantom units as of March 31, 2018. The subsequent number of units granted, vested and forfeited reflect activity following the Transactions Date through December 31, 2018.

(16)	Employee Benefit Plans

(17)	Commitments and Contingencies

(a)	Major Customers

(b)	Litigation

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(c)	Equipment Purchase Commitments

(d)	Sales Tax Contingencies

(e)	Self-Insurance

(f)	Environmental

(18)	Recent Accounting Pronouncements

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(1)	Gross profit is defined as revenue less cost of operations, exclusive of depreciation and amortization expense.

(2)	Earnings per unit is not applicable to the USA Compression Predecessor for periods prior to the Transactions Date as the USA Compression Predecessor had no outstanding common units prior to the Transactions.