EX-99.2 4 ex992cclp2024q110q.htm EX-99.2 Document




























Consolidated Financial Statements and
Report of Independent Certified Public
Accountants
CSI Compressco LP
March 31, 2024 and 2023










CERTAIN REFERENCES IN THIS REPORT
 
References in this Quarterly Report to “CSI Compressco,” “we,” “our,” “us,” “the Partnership” or like terms refer to CSI Compressco LP and its wholly owned subsidiaries. References to “CSI Compressco GP” or “our general partner” refer to our general partner, CSI Compressco GP LLC. References to “Spartan” refer to Spartan Energy Partners LP and its controlled subsidiaries.



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,
 20242023
Revenues:
Contract services$74,732 $69,647 
Aftermarket services17,679 17,351 
Equipment rentals4,088 4,114 
Equipment sales611 259 
Total revenues97,110 91,371 
Cost of revenues (excluding depreciation and amortization expense):
Cost of contract services35,718 36,827 
Cost of aftermarket services13,781 14,214 
Cost of equipment rentals555 555 
Cost of equipment sales921 207 
Total cost of revenues50,975 51,803 
Depreciation and amortization19,964 18,851 
Selling, general, and administrative expense14,926 9,979 
Interest expense, net of capitalized interest of $4 in $2024 and $0 in $2023
13,219 13,315 
Other (income) expense, net(44)(516)
Loss before taxes and discontinued operations(1,930)(2,061)
Provision for income taxes1,008 552 
Net loss$(2,938)$(2,613)
General partner interest in net loss$(14)$(12)
Common units interest in net loss$(2,924)$(2,601)
Basic and diluted net loss per common unit:$(0.02)$(0.02)
Weighted average common units outstanding:
Basic142,439,463 141,611,588 
Diluted142,439,463 141,611,588 


See Notes to Consolidated Financial Statements
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CSI Compressco LP
Consolidated Statements of Comprehensive Loss
(In Thousands)
(Unaudited)
 
Three Months Ended
March 31,
 20242023
Net loss$(2,938)$(2,613)
Foreign currency translation adjustment, net of tax of $0 in 2024 and 2023
(215)— 
Comprehensive loss$(3,153)$(2,613)
 

See Notes to Consolidated Financial Statements
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CSI Compressco LP
Consolidated Balance Sheets
(In Thousands, Except Unit Amounts)
March 31,
2024		December 31,
2023
 (Unaudited) 
ASSETS  
Current assets:  
Cash and cash equivalents$9,458 $7,012 
Trade accounts receivable, net of allowance for credit losses of $397
as of March 31, 2024 and $460 as of December 31, 2023
47,955 58,648 
Trade receivable - affiliate935 780 
Inventories40,738 44,932 
Prepaid expenses and other current assets8,738 8,651 
Total current assets107,824 120,023 
Property, plant, and equipment:  
Land and building7,243 7,241 
Compressors and equipment1,146,650 1,134,451 
Vehicles8,834 8,783 
Construction in progress36,235 34,880 
Total property, plant, and equipment1,198,962 1,185,355 
Less accumulated depreciation(682,069)(666,075)
Net property, plant, and equipment516,893 519,280 
Other assets:  
Intangible assets, net of accumulated amortization of $40,326 as of
March 31, 2024 and $39,586 as of December 31, 2023
15,441 16,181 
Operating lease right-of-use assets26,044 28,244 
Deferred tax assets17 17 
Other assets3,415 3,291 
Total other assets44,917 47,733 
Total assets$669,634 $687,036 
LIABILITIES AND PARTNERS' CAPITAL 
Current liabilities: 
Accounts payable$14,106 $21,996 
Unearned income 1,401 2,525 
Accrued liabilities and other55,484 45,851 
Total current liabilities70,991 70,372 
Other liabilities:  
Long-term debt, net618,794 628,587 
Deferred tax liabilities1,642 1,768 
Operating lease liabilities18,080 19,526 
Other long-term liabilities3,789 5,642 
Total other liabilities642,305 655,523 
Commitments and contingencies  
Partners' capital:  
General partner interest(1,711)(1,690)
Common units (143,009,919 units issued and outstanding at March 31, 2024 and 141,995,028 units issued and outstanding at December 31, 2023)
(27,422)(22,855)
Accumulated other comprehensive loss(14,529)(14,314)
Total partners' capital (deficit)(43,662)(38,859)
Total liabilities and partners' capital$669,634 $687,036 
 
See Notes to Consolidated Financial Statements
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CSI Compressco LP
Consolidated Statements of Partners’ Capital
(In Thousands)
(Unaudited)
Partners’ Capital
Accumulated Other Comprehensive Loss
Total Partners’ Capital
 
Limited Partners
General
Partner		Common
Unitholders
AmountUnitsAmount
Balance at December 31, 2023$(1,690)141,995$(22,855)$(14,314)$(38,859)
Net loss(14)— (2,924)— (2,938)
Distributions ($0.01 per unit)
(7)— (1,419)— (1,426)
Equity compensation, net— — (224)— (224)
Vesting of Phantom Units— 1,014 — — — 
Translation adjustment, net of taxes of $0
— — — (215)(215)
Balance at March 31, $2024
$(1,711)143,009 $(27,422)$(14,529)$(43,662)
Partners’ CapitalAccumulated Other Comprehensive Income (Loss)Total Partners’ Capital
 
Limited Partners
General
Partner		Common
Unitholders
AmountUnitsAmount
Balance at December 31, 2022$(1,618)141,237 $(9,250)$(14,406)$(25,274)
Net loss(12)— (2,601)— (2,613)
Distributions ($0.01 per unit)
(7)— (1,414)— (1,421)
Equity compensation, net— — 75 — 75 
Vesting of Phantom Units— 758 — — — 
Balance at March 31, 2023$(1,637)141,995 $(13,190)$(14,406)$(29,233)

See Notes to Consolidated Financial Statements
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CSI Compressco LP
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
 Three Months Ended
March 31,
 20242023
Operating activities:  
Net loss$(2,938)$(2,613)
Reconciliation of net loss to cash provided by operating activities:  
Depreciation and amortization19,964 18,851 
Provision (benefit) for deferred income taxes(134)(8)
Equity compensation expense(224)75 
Provision (recovery) for doubtful accounts— (1)
Amortization of deferred financing costs65 (39)
Other non-cash charges and credits(69)94 
Gain (loss) on sale of property, plant, and equipment(301)189 
Changes in operating assets and liabilities: 
Accounts receivable10,340 583 
Inventories877 (7,179)
Prepaid expenses and other current assets(686)(357)
Accounts payable and accrued expenses2,025 9,839 
Other1,687 420 
Net cash provided by operating activities30,606 19,854 
Investing activities: 
Purchases of property, plant, and equipment, net(14,846)(14,369)
Proceeds from sale of property, plant, and equipment186 58 
Net cash used in investing activities(14,660)(14,311)
Financing activities: 
Proceeds from long-term debt88,720 113,399 
Payments of long-term debt(98,885)(116,594)
Distributions(1,426)(1,421)
Equipment financing lease, net(1,719)4,278 
Other financing activities— (65)
Net cash used in financing activities(13,310)(403)
Effect of exchange rate changes on cash(190)— 
Increase in cash and cash equivalents2,446 5,140 
Cash and cash equivalents at beginning of period7,012 8,475 
Cash and cash equivalents at end of period$9,458 $13,615 
Supplemental cash flow information: 
Interest paid $1,310 $1,217 
Income taxes paid$138 $775 
Decrease in accrued capital expenditures$342 $5,455 

See Notes to Consolidated Financial Statements
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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 and treating services. Natural gas compression is used for 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 contract and treating services and 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 and Chile. 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.

Planned Mergers with Kodiak Gas Services, Inc.

On December 19, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Partnership, Kodiak Gas Services, Inc., a Delaware corporation (“Kodiak”), Kodiak Gas Services, LLC, a Delaware limited liability company and indirect, wholly owned subsidiary of Kodiak (“Kodiak Services”), Kick Stock Merger Sub, LLC, a Delaware limited liability company and indirect, wholly owned subsidiary of Kodiak, Kick GP Merger Sub, LLC, a Delaware limited liability company and direct, wholly owned subsidiary of Kodiak Services, and Kick LP Merger Sub, LLC, a Delaware limited liability company and direct, wholly owned subsidiary of Kodiak Services, pursuant to which Kodiak will acquire the Partnership through a series of mergers (the “Mergers”). Under the terms of the Merger Agreement, (i) our common unitholders (excluding certain holders described in clause (ii)) will receive 0.086 (the “Exchange Ratio”) shares of common stock, par value $0.01 per share, of Kodiak (“Kodiak Common Stock”) in exchange for each common unit, (ii) our common unitholders that meet certain specified conditions may elect to receive as consideration for each common unit, in lieu of a number of shares of Kodiak Common Stock equal to the Exchange Ratio, a number of units (“OpCo Units”) in Kodiak Services, equal to the Exchange Ratio and an equal number of shares of Series A Preferred Stock of Kodiak (“Series A Preferred Stock”), and (iii) the owner of our general partner will receive, in consideration for the notional units representing the general partner interest in the Partnership, a number of OpCo Units and shares of Series A Preferred Stock equal to the Exchange Ratio for each such notional unit. Each OpCo Unit will be redeemable for one share of Kodiak Common Stock (together with the cancellation of one share of Series A Preferred Stock) pursuant to the terms of the Sixth Amended and Restated Limited Liability Company Agreement of Kodiak Services.

On February 21, 2024, upon the delivery of written consents approving the Mergers by each of our named executive officers and certain large unitholders, we received the requisite unitholder approval to consummate the Mergers. Completion of the Mergers remains subject to certain conditions, including certain governmental and regulatory approvals. The closing of the Mergers is currently expected to take place in the second quarter of 2024; however, no assurance can be given as to when, or if, the Mergers will occur. On April 1, 2024, the Partnership completed the transactions contemplated by the Merger Agreement.

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, 2024, and for the three-month periods ended March 31, 2024 and March 31, 2023 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, 2024 are not necessarily indicative of results that may be expected for the twelve months ended December 31, 2024.

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Segments

Our general partner has concluded that we operate in one reportable segment. The Partnership’s Chief Executive Officer, who is considered to be the chief operating decision maker, manages the Partnership’s operations as a whole and reviews financial information presented on a consolidated basis, accompanied by information about product revenue, for purposes of evaluating financial performance and allocating resources.

Significant Accounting Policies

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.

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, and Chile. 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 $46.0 million outstanding under our variable rate revolving credit facilities pursuant to the Credit Agreement and the Spartan Credit Agreement as of March 31, 2024 and face market risk exposure related to changes in applicable interest rates.

Significant Customers

During the years ended March 31, 2024 and March 31, 2023, two individual customers and one individual customer, respectively, accounted for 10% or more of our revenues. As of March 31, 2024 and December 31, 2023, one individual customer represented 10% or more of our consolidated trade accounts receivable net of allowance for credit losses.

Foreign Currencies
 
We have designated the Canadian dollar as the functional currency for our operations in Canada. We are exposed to fluctuations between the U.S. dollar and certain foreign currencies, including the Canadian dollar, the Mexican peso, the Argentine peso, and the Chilean peso as a result of our international operations. Foreign currency exchange (gains) losses are included in other (income) expense, net and totaled $0.4 million and $0.04 million during the three-month periods ended March 31, 2024 and March 31, 2023 respectively.

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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, 2024 and December 31, 2023. 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 twelve 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 non-lease 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 non-lease 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 derecognize 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 statement of cash flows. Certain lease agreements provide renewal options. Either party can terminate prior to the next notice period. If neither party terminates the lease automatically renews.

The leased equipment primarily consists of the Spartan Treating amine plants, gas coolers 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. Lease terms for amine plants range from two to six years while the gas coolers range from one month to two years.

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Allowance for Credit Losses

Trade accounts receivable are stated at their net realizable value. The allowance for credit losses against gross trade accounts receivable reflects the best estimate of expected credit losses of the receivables portfolio determined on the basis of historical experience, current information, and forecasts of future economic conditions. In developing the estimate for expected credit losses, trade accounts receivables are segmented into pools of assets depending on market (U.S. versus international), delinquency status, and customer type, and fixed reserve percentages are established for each pool of trade accounts receivables.

In determining the reserve percentages for each pool of trade accounts receivables, we considered our historical experience with certain customers and customer types, regulatory and legal environments, country and political risk, and other relevant current and future forecasted macroeconomic factors. These credit risk indicators are monitored on a quarterly basis to determine whether there have been any changes in the economic environment that would indicate the established reserve percentages should be adjusted and are considered on a regional basis to reflect more geographic-specific metrics. Additionally, write-offs and recoveries of customer receivables are tracked against collections on a quarterly basis to determine whether the reserve percentages remain appropriate. When management becomes aware of certain customer-specific factors that impact credit risk, specific allowances for these known troubled accounts are recorded. Trade accounts receivable are written off after all reasonable means to collect the full amount (including litigation, where appropriate) have been exhausted.

Changes in the allowance are as follows:
Three Months Ended
20242023
(In Thousands)
At beginning of period$460 $736 
Activity in the period:
Provision (recovery) for credit losses— 99 
Account charge-offs, net(63)(375)
Other adjustments— — 
At end of period$397 $460 

Inventories
 
Inventories consist primarily of compressor package spare parts and supplies and work in progress. For compressor package spare parts and supplies, and cost is determined using the weighted average cost method. The cost of work in progress is determined using the specific identification method.

Property, Plant, and Equipment
 
Property, plant, and equipment are stated at cost. Expenditures that increase the useful lives of assets are capitalized. The cost of repairs and maintenance is charged to cost of revenues as incurred. Compressors include compressor packages currently placed in service and available for service. Depreciation is computed using the straight-line method based on the following estimated useful lives:

Buildings15 – 30 years
Compressors, Amine plants, and Production equipment
12 – 25 years
Other equipment
2 – 8 years
Vehicles3 – 5 years
Information systems7 years

Depreciation expense for the three months ended March 31, 2024 and 2023 was $19.1 million and $18.1 million, respectively.

Leasehold improvements are depreciated over the shorter of the remaining term of the associated building lease or their useful lives.

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Construction in progress as of March 31, 2024 and 2023 is primarily associated with the expansion of our contract services fleet and capital expenditures that sustain the capacity of our existing fleet.
 
Intangible Assets
 
Trademarks/trade names, customer relationships, and other intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from two to fifteen years. Amortization expense related to intangible assets was $0.7 million and $0.7 million for the three months ended March 31, 2024 and 2023, respectively, and is included in depreciation and amortization. The estimated future annual amortization expense of trademarks/trade names, customer relationships, and other intangible assets is $2.9 million each year for 2024 to 2028.
 
    Our intangible assets are tested for recoverability whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In such an event, we will determine the fair value of the asset using an undiscounted cash flow analysis of the asset at the lowest level for which identifiable cash flows exist. If an impairment has occurred, we will recognize a loss for the difference between the carrying value and the estimated fair value of the intangible asset.

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.

We did not record any impairments of long-lived assets during the three-month periods ended March 31, 2024 and March 31, 2023, respectively.

Accrued Liabilities

Accrued liabilities are detailed as follows: 
 
March 31,
December 31,
 20242023
 (In Thousands)
Accrued interest$23,924 $12,147 
Operating lease liabilities, current portion7,998 8,762 
Compensation and employee benefits5,560 8,542 
Equipment finance agreements, current portion7,584 7,450 
Accrued taxes5,006 5,037 
Accrued capital expenditures715 1,056 
Other accrued liabilities4,697 2,857 
Total accrued liabilities and other
$55,484 $45,851 

Revenue Recognition

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

    Depending on the terms of the arrangement, we may also defer the recognition of revenue for a portion of the consideration received because we have to satisfy a future performance obligation.

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

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

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

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

Contract Assets and Liabilities. We consider contract assets to be trade accounts receivable when we have an unconditional right to consideration and only the passage of time is required before payment is due. In certain instances, particularly those requiring customer specific documentation prior to invoicing, our invoicing of the customer is delayed until certain documentation requirements are met. In those cases, we recognize a contract asset rather than a billed trade accounts receivable until we are able to invoice the customer. Contract assets, along with billed trade accounts receivable, are included in trade accounts receivable in our consolidated balance sheets.

    We classify contract liabilities as unearned income in our consolidated balance sheets.

Equity-Based Compensation
    
    We have an equity incentive compensation plan which provides for the granting of phantom units and performance phantom units to the executive officers, key employees, non-executive officers, and directors of our general partner. Total equity-based compensation expense for the three months ended March 31, 2024 and 2023, was $0.4 million and $0.4 million, respectively. For further discussion of equity-based compensation, see Note 7 - “Equity-Based Compensation.”

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.

Accumulated Other Comprehensive Income (Loss)
 
Certain of our international operations maintain their accounting records in the local currencies that are their functional currencies. For these operations, the functional currency financial statements are converted to U.S. dollar equivalents, with the effect of the foreign currency translation adjustment reflected as a component of accumulated
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other comprehensive income (loss). Accumulated other comprehensive income (loss) is included in partners’ capital in the accompanying audited consolidated balance sheets and consists of the cumulative currency translation adjustments associated with such international operations. Activity within our accumulated other comprehensive income (loss) is not subject to reclassifications to net income.

Allocation of Net Income (Loss)
 
Our net income (loss) is allocated to partners’ capital accounts in accordance with the provisions of the Partnership Agreement.

Earnings (Loss) Per Common Unit
 
Our computations of earnings per common unit are based on the weighted average number of common units outstanding during the applicable period. Basic earnings per common unit are determined by dividing net income (loss) allocated to the common units after deducting the amount allocated to our general partner by the weighted average number of outstanding common units during the period.
 
When computing earnings per common unit under the two class method in periods when distributions are greater than earnings, the amount of the distribution is deducted from net income (loss) and the excess of distributions over earnings is allocated between the general partner and common units based on how our Partnership Agreement allocates net losses.
 
Diluted earnings per common unit are computed using the treasury stock method, which considers the potential future issuance of limited partner common units. Unvested phantom units are not included in basic earnings per common unit, as they are not considered to be participating securities, but are included in the calculation of diluted earnings per common unit. For the three-month periods ended March 31, 2024 and March 31, 2023, all unvested phantom units were excluded from the calculation of diluted common units because the impact was anti-dilutive.

Fair Value Measurements

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

Distributions

On January 18, 2024, the board of directors of our general partner declared a cash distribution attributable to the quarter ended December 31, 2023 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 14, 2024 to each of the holders of common units of record as of the close of business on January 31, 2024.

New Accounting Pronouncements

Standards adopted in 2024

We did not adopt any new standards in 2024.    

Standards Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” ASU 2023-07 provides accounting
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guidance to improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods after December 15, 2024. This guidance is expected to impact the disclosures only with no impact to the results of operations, financial position or cash flows.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 provides accounting guidance to enhance the transparency and decision usefulness of income tax disclosures. The guidance includes improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid. This guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Partnership is in the process of evaluating this guidance and the potential effects this guidance will have on its disclosures.
NOTE 2 — REVENUE FROM CONTRACTS WITH CUSTOMERS

    As of March 31, 2024, we had $307.1 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, 2024 for completion of performance obligations of compression service contracts are as follows:
 2024202520262027ThereafterTotal
 (In Thousands)
Compression services contracts remaining performance obligations
$141,249 $108,871 $47,857 $8,394 $739 $307,110 
    
    Our contract asset balances included in trade accounts receivable in our consolidated balance sheet, primarily associated with revenue accruals prior to invoicing, were $3.4 million and $2.9 million as of March 31, 2024 and December 31, 2023, respectively.

    The following table reflects the changes in unearned income in our consolidated balance sheets for the periods indicated:
Three Months Ended
March 31,
 
2024
2023
 (In Thousands)
Unearned income, beginning of period$2,525 $2,590 
Additional unearned income643 2,868 
Revenue recognized(1,767)(1,360)
Unearned income, end of period$1,401 $4,098 

    Unearned income is included in accrued liabilities and other on the consolidated balance sheets. As of March 31, 2024 and December 31, 2023, contract costs were immaterial.

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    Disaggregated revenue from contracts with customers by geography is as follows:
Three Months Ended
March 31,
 20242023
(In Thousands)
Contract services
United States$68,514 $63,677 
International6,218 5,970 
74,732 69,647 
Aftermarket services
United States16,233 16,893 
International1,446 458 
17,679 17,351 
Equipment rentals
United States3,495 2,805 
International593 1,309 
4,088 4,114 
Equipment sales
United States467 84 
International144 175 
611 259 
Total Revenue
United States88,709 83,459 
International8,401 7,912 
$97,110 $91,371 

NOTE 3 — INVENTORIES

Components of inventories as of March 31, 2024 and December 31, 2023, are as follows: 
 March 31, 2024December 31, 2023
 (In Thousands)
Parts and supplies$39,372 $42,736 
Work in progress1,366 2,196 
Total inventories$40,738 $44,932 

Inventories consist primarily of compressor package spare parts and supplies. Work in progress inventories consist of work in progress for our aftermarket business that has not been invoiced.
NOTE 4 — LEASES
Lessee Accounting

    We have operating leases for some of our office space, warehouse space, operating locations, and machinery and equipment. Our leases have remaining lease terms up to ten years. Some of our leases have options to extend for various periods, while some have termination options with prior notice of generally 30 days or six months. Our leases generally require us to pay all maintenance and insurance costs. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

    Lease costs are included in either cost of revenues or selling, general, and administrative expense depending on the use of the underlying asset. Total lease expense (inclusive of lease expense for leases not included on our consolidated balance sheet based on our accounting policy election to exclude leases with a term of 12 months or less), was $3.0 million for the three month period ended March 31, 2024, of which $1.0 million related to short-term leases. Total lease expense was $3.9 million for the three month period ended March 31, 2023, of which $0.2 million related to short-term leases. Variable rent expense was not material.

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Operating lease supplemental cash flow information:
 Three Months Ended March 31,
20242023
 (In Thousands)
Cash paid for amounts included in the measurement of lease liabilities:
     Operating cash flows - operating leases$5,716 $3,717 
Right-of-use assets obtained in exchange for lease obligations:
     Operating leases$464 $6,023 

Supplemental balance sheet information:
 March 31, 2024December 31, 2023
 (In Thousands)
Operating leases:
     Operating right-of-use asset$26,044 $28,244 
     Accrued liabilities and other$7,998 $8,762 
     Operating lease liabilities18,080 19,526 
     Total operating lease liabilities$26,078 $28,288 

Additional operating lease information:
 March 31, 2024December 31, 2023
Weighted average remaining lease term:
     Operating leases4.63 years4.60 years
Weighted average discount rate:
     Operating leases9.45 %9.94 %

    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, 2024:
 Operating Leases
 (In Thousands)
Remainder of 2024$8,137 
20257,466 
20266,409 
20273,301 
20281,522 
Thereafter5,101 
Total lease payments31,936 
Less imputed interest(5,858)
Total lease liabilities$26,078 

Lessor Accounting

Our leased equipment primarily consists of amine plants, gas coolers, 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 lease. The practical expedient also allows a lessor to account for the combined lease and non-lease components under
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ASC 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of 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 lease revenue, which is included in “Equipment rentals” on the consolidated statements of operations as follows:

Three Months Ended
March 31,
 20242023
 (In Thousands)
Equipment rentals$4,088 $4,114 

The following table presents the maturity of lease payments for operating lease agreements in effect as of March 31, 2024. This presentation includes minimum fixed lease payments and does not include an estimate of variable lease consideration. These agreements have remaining lease terms ranging from 1 month to 5 years. The following table presents the undiscounted cash flows expected to be received related to these agreements:

 20242025202620272028Thereafter
 (In Thousands)
Future minimum lease revenue$9,000 $2,532 $1,576 $1,576 $1,576 $263 
NOTE 5 — LONG-TERM DEBT AND OTHER BORROWINGS

Long-term debt consists of the following:
March 31, 2024December 31, 2023
Scheduled Maturity(In Thousands)
Credit Agreement (1)
June 29, 2025$— $9,419 
Spartan Credit Agreement (2)
October 17, 202546,184 46,501 
7.50% First Lien Notes due 2025 (3)
April 1, 2025400,032 400,086 
10.00%/10.75% Second Lien Notes due 2026 (4)
April 1, 2026172,578 172,581 
Total long-term debt618,794 628,587 
Other borrowings (5)
Various11,373 13,092 
Total long-term debt and other borrowings$630,167 $641,679 

(1) As there was no outstanding balance on the Credit Agreement, associated deferred financing costs of $0.3 million as of March 31, 2024 were classified as other long-term assets on the accompanying consolidated balance sheet. Balances as of December 31, 2023 are net of unamortized deferred financing costs of $0.3 million.
(2) Net of unamortized deferred financing costs of $0.4 million and $0.5 million as of March 31, 2024 and December 31, 2023, respectively.
(3) Net of unamortized deferred financing costs of $1.0 million and $1.3 million as of March 31, 2024 and December 31, 2023, respectively, unamortized discount of $0.1 million and $0.1 million as of March 31, 2024 and December 31, 2023, respectively, and deferred restructuring gain of $1.1 million and $1.4 million as of March 31, 2024 and December 31, 2023, respectively.
(4) Net of unamortized deferred financing costs of $1.2 million and $1.3 million, unamortized discount of $0.4 million and $0.5 million, and deferred restructuring gain of $1.5 million and $1.7 million as of March 31, 2024 and December 31, 2023, respectively.
(5) Includes $7.6 million and $5.4 million of current liability classified as Accrued liabilities and other, and $3.8 million and $8.7 million classified as Other long-term liabilities on the accompanying consolidated balance sheet as of March 31, 2024 and December 31, 2023, 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, 2024.

    See Note 6 – “Related Party Transactions,” for a discussion of our amounts payable to affiliates and long-term affiliate payable to Spartan Energy Partners LP (“Spartan”).
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Credit Agreement

On June 30, 2022, the Partnership, CSI Compressco Sub Inc. and CSI Compressco Operating LLC (collectively with the Partnership and CSI Compressco Sub Inc., the “Borrowers”), and certain subsidiaries of the Partnership named therein as guarantors (the “Guarantors”), entered into that certain Fifth Amendment to Loan and Security Agreement (the “Fifth Amendment”) with the Lenders (as defined below) party thereto, and Bank of America, N.A., in its capacity as administrative agent (in such capacity, “Administrative Agent”), collateral agent, letter of credit issuer and swing line lender.

The Fifth Amendment amends and modifies that certain Loan and Security Agreement among the Borrowers, the Guarantors, the financial institutions from time to time party thereto as lenders (the “Lenders”) and the Administrative Agent dated as of June 29, 2018 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”). The Fifth Amendment provided for changes and modifications to the Credit Agreement as set forth therein, which include, among other things, the reduction of the reserve to $3.5 million and the extension of the Termination Date (as defined in the Credit Agreement) from June 29, 2023 to June 29, 2025.

As of March 31, 2024, 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 $27.5 million.

The maturity date of the Credit Agreement is June 29, 2025. As of March 31, 2024 we had no outstanding balance and $1.3 million in letters of credit against our Credit Agreement.

Spartan Credit Agreement

As of March 31, 2024, 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 availability of $23.2 million.

As of March 31, 2024, we had $46.0 million outstanding and no letters of credit against the Spartan Credit Agreement and the maturity date of the Spartan Credit Agreement is October 17, 2025.

7.50% First Lien Notes due 2025

As of March 31, 2024, our 7.50% First Lien Notes due 2025 (the “First Lien Notes”) had $400.0 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, 2024, our 10.000%/10.750% Second Lien Notes due 2026 (the “Second Lien Notes”) had $172.6 million outstanding, net of unamortized discounts, unamortized deferred financing costs and deferred restructuring gains. Interest on the Second Lien Notes is payable on April 1 and October 1 of each year. The Second Lien Notes are secured by a second-priority security interest in substantially all of the Partnership’s and its subsidiaries assets, subject to certain permitted encumbrances and exceptions, and are guaranteed on a senior secured basis by each of the Partnership’s U.S. restricted subsidiaries (other than Finance Corp and certain other excluded U.S. subsidiaries). In connection with the payment of PIK Interest (as defined below), if any, in respect of the Second Lien Notes, the issuers will be entitled, to increase the outstanding aggregate principal amount of the Second Lien Notes or issue additional notes (“PIK notes”) under the Second Lien Notes indenture on the same terms and conditions as the already outstanding Second Lien Notes. Interest will accrue at (1) the annual rate of 7.250% payable in cash, plus (2) at the election of the Issuers (made by delivering a notice to the Second Lien Trustee not less than five business days prior to the record date), the annual rate of (i) 2.750% payable in cash (together with the annual rate set forth in clause (1), the “Cash Interest Rate”) or (ii) 3.500% payable by increasing
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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”).

As of March 31, 2024, our principal amount outstanding included $7.2 million of PIK notes.

On April 1, 2024, in connection with the closing of the Mergers, Kodiak, and/or one or more of its subsidiaries, on behalf of the Partnership, repaid in full all outstanding indebtedness under (i) that certain Loan, Security and Guaranty Agreement, dated January 29, 2021 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to the Closing Date, the “Spartan Credit Agreement”), by and among Spartan Energy Services LLC (“Spartan Energy Services”), Treating Holdco LLC, Bank of America, N.A., as agent for the lenders, and the lenders from time to time party thereto, and (ii) that certain Loan and Security Agreement, dated as of June 29, 2018 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to the Closing Date, the “CSI Credit Agreement” and, together with the Spartan Credit Agreement, the “Credit Agreements”), by and among the Partnership, CSI Compressco Sub Inc., CSI Compressco Operating LLC, each as borrowers, certain subsidiaries of the borrowers from time to time named as guarantors therein, the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent (the “Repayment”). Simultaneous with the Repayment, the Partnership and Spartan Energy Services, as applicable, terminated all remaining commitments and other obligations under the Credit Agreements and the Credit Agreements are of no further force and effect.

Finance Agreements

During 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 with a third party in the amount of $16.6 million to finance certain compression equipment. The note is payable in monthly installments of $0.5 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.

During the first quarter of 2023, 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 Agreements with a third party totaling $5.1 million to finance certain compression equipment. The notes are payable in monthly installments totaling $0.2 million for 36 months. The current portion of these amounts are 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 6 — RELATED PARTY TRANSACTIONS

Spartan and General Partner Ownership

As of March 31, 2024, Spartan’s ownership interest in us was approximately 44.9%, with the common units held by the public representing an approximate 55% interest in us. As of March 31, 2024, Spartan’s ownership was through various wholly owned subsidiaries and consisted of approximately 44.6% 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 and $0.6 million during the three months ended March 31, 2024 and 2023, respectively.

Indemnification Agreement

We have entered 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.
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NOTE 7 — EQUITY-BASED COMPENSATION
2011 Long Term Incentive Plan
 
    We have granted phantom unit and performance phantom unit awards to certain employees, officers, and directors of our general partner pursuant to the CSI Compressco LP Third Amended and Restated 2011 Long Term Incentive Plan. Awards of phantom units generally vest over a three-year period. Awards of performance phantom units cliff vest at the end of a performance period and are settled based on achievement of related performance measures over the performance period. Each of the phantom unit and performance phantom unit awards includes distribution equivalent rights that enable the recipient to receive additional units equal in value to the accumulated cash distributions made on the units subject to the award from the date of grant. Accumulated distributions associated with each underlying unit are payable upon settlement of the related phantom unit award (and are forfeited if the related award is forfeited). Phantom units are notional units that entitle the grantee to receive a common unit upon the vesting of the award.
 
During the year ended March 31, 2024, we granted to certain officers and employees an aggregate of 1,049,749 phantom unit and performance phantom unit awards, having an average market value (equal to the closing price of the common units on the dates of grant) of $1.99 per unit, or an aggregate market value of $2.1 million. The fair value of awards vesting during 2024 and 2023 was approximately $1.8 million. The fair value of awards is amortized straight-line over the vesting period. Adjustments to the amortized expense related to performance phantom units may be recognized prior to vesting depending on the expected achievement of the performance target.
The following is a summary of unit activity for the year ended March 31, 2024:
UnitsWeighted Average
Grant Date Fair
Value Per Unit
(In Thousands)
Nonvested units outstanding at December 31, 2023
1,764 $1.54 
Units granted1,049 1.99 
Cancelled/forfeited(5)1.63 
Exercised/released(1,119)1.63 
Nonvested units outstanding at March 31, 2024
1,689 $1.75 


Total estimated unrecognized equity-based compensation expense from unvested units as of March 31, 2024, was approximately $2.8 million and is expected to be recognized over a weighted average period of approximately 2.6 years. The amount recognized in 2024was approximately $0.9 million and is included in selling, general, and administrative expense in our consolidated statements of operations.
NOTE 8 — FAIR VALUE MEASUREMENTS

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

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

Derivative Contracts

    We have currency exchange rate risk exposure related to transactions denominated in a foreign currency as well as to investments in certain of our international operations. We enter into 30-day foreign currency forward derivative contracts as part of a program designed to mitigate the currency exchange rate risk exposure on selected transactions of certain foreign subsidiaries. As of March 31, 2024, we did not use forward contracts to hedge foreign exchange currency risk.

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 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, 2024 and March 31, 2023 we recognized $0.01 million and $0.2 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, 2024
December 31, 2023
Carrying ValueFair ValueCarrying ValueFair Value
(In Thousands)
7.50% First Lien Notes
$400,000 $399,500 $400,000 $399,000 
10.00%/10.75% Second Lien Notes
172,717 180,921 172,717 178,330 
$572,717 $580,421 $572,717 $577,330 

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 9 — INCOME TAXES
 
As a partnership, we are generally not subject to income taxes at the entity level because our income is included in the tax returns of our partners. Our operations are treated as a partnership for federal tax purposes with each partner being separately taxed on its share of taxable income. However, a portion of our business is conducted through taxable U.S. corporate subsidiaries. Accordingly, a U.S. federal and state income tax provision has been reflected in the accompanying statements of operations. State tax expense relating to the Texas franchise 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 rates for the three-month periods ended March 31, 2024 and March 31, 2023 were negative 52.2% and negative 26.8%, respectively, 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
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recorded. Included in our deferred tax assets are net operating loss carryforwards and tax credits that are available to offset future income tax liabilities in the U.S. as well as in certain foreign jurisdictions.
NOTE 10— EARNINGS PER COMMON UNIT
 
The computations of earnings per common unit are based on the weighted average number of common units outstanding during the applicable full-year period. Basic earnings per common unit is determined by dividing net income (loss) allocated to the common units after deducting the amount allocated to our general partner by the weighted average number of outstanding common units during the period.
 
When computing earnings per common unit under the two-class method in periods when distributions are greater than earnings, the amount of the distributions is deducted from net income (loss) and the excess of distributions over earnings is allocated between the general partner and common units based on how our partnership agreement allocates net losses.
 
When earnings are greater than distributions, we determine cash distributions based on available cash. The amount of net income is allocated between the general partner and common units based on how our partnership agreement allocates net earnings.
 
The following is the number of the weighted average basic and diluted common units outstanding:
 Three Months Ended March 31,
20242023
Weighted average basic and diluted common units outstanding142,439,463 141,611,588 

    Diluted earnings per 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. As of March 31, 2024 and 2023 there were no units excluded from the dilution calculation.
NOTE 11 — SEGMENTS

    ASC 280, “Segment Reporting”, defines the characteristics of an operating segment as (i) being engaged in business activity from which it may earn revenues and incur expenses, (ii) being reviewed by the company’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated and to assess its performance, and (iii) having discrete financial information. The Partnership (excluding Spartan Treating) and Spartan Treating operating segments are both individually material, however, because they have similar economic characteristics and are similar in the nature of products and services, the type or class of customers, methods used to distribute their products or provides services, and production process and regulatory environment, management has determined that they should be aggregated. Based on this, our general partner has concluded that we operate in one reportable segment. 
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NOTE 12 — GEOGRAPHIC INFORMATION
 
 
Our headquarters are in the United States of America and we also have operations in Latin America, Canada, and to a lesser extent, in other countries located in Europe and the Asia-Pacific region. As of June 30, 2023, we no longer have operations in Egypt. We attribute revenue to the countries based on the location of customers. Long-lived assets consist primarily of compressor packages and are attributed to the countries based on the physical location of the compressor packages at a given year-end. Information by geographic area is as follows:
 Three Months Ended March 31,
 20242023
 (In Thousands)
Revenues from external customers:  
U.S.
$88,709 $83,459 
Latin America
6,804 5,743 
Canada
1,479 1,222 
Egypt— 826 
Other
118 121 
Total
$97,110 $91,371 
March 31,December 31,
20242023
Identifiable assets:  
U.S.
$621,498 $629,567 
Latin America
42,234 51,901 
Egypt— — 
Canada
5,902 5,568 
Total identifiable assets
$669,634 $687,036 
NOTE 13 — 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 14 — SUBSEQUENT EVENTS

On April 1, 2024 (the “Closing Date”), CSI Compressco LP, a Delaware limited partnership (the “Partnership”), completed the transactions contemplated by that certain Agreement and Plan of Merger, dated as of December 19, 2023 (the “Merger Agreement”), by and among Kodiak Gas Services, Inc., a Delaware corporation (“Kodiak”), Kodiak Gas Services, LLC, a Delaware limited liability company and wholly owned subsidiary of Kodiak (“Kodiak Services”), Kick Stock Merger Sub, LLC, a Delaware limited liability company and indirect, wholly owned subsidiary of Kodiak (“Stock Merger Sub”), Kick GP Merger Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of Kodiak Services (“GP Merger Sub”), Kick LP Merger Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of Kodiak Services (“Unit Merger Sub”), the Partnership, and CSI Compressco GP LLC, a Delaware limited liability company and the general partner of the Partnership (the “General Partner”), whereby (a) Stock Merger Sub was merged with and into the Partnership (the “Initial LP Merger” and the effective time of such merger, the “Initial Effective Time”), with the Partnership surviving the Initial LP Merger (the “Initial LP Surviving Entity”), (b) following the Initial LP Merger, GP Merger Sub merged with and into the General Partner (the “GP Merger”), with the General Partner surviving the GP Merger as a direct, wholly-owned subsidiary of Kodiak Services and (c) Unit Merger Sub merged with and into the Initial LP Surviving Entity (the “Subsequent LP
24

Merger” and, together with the Initial LP Merger and the GP Merger, the “Mergers”), with the Initial LP Surviving Entity surviving the Subsequent LP Merger as a wholly owned subsidiary of Kodiak Services.

On the Closing Date, in connection with the closing of the Mergers, Kodiak, and/or one or more of its subsidiaries, on behalf of the Partnership, repaid in full all outstanding indebtedness under (i) that certain Loan, Security and Guaranty Agreement, dated January 29, 2021 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to the Closing Date, the “Spartan Credit Agreement”), by and among Spartan Energy Services LLC (“Spartan Energy Services”), Treating Holdco LLC, Bank of America, N.A., as agent for the lenders, and the lenders from time to time party thereto, and (ii) that certain Loan and Security Agreement, dated as of June 29, 2018 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to the Closing Date, the “CSI Credit Agreement” and, together with the Spartan Credit Agreement, the “Credit Agreements”), by and among the Partnership, CSI Compressco Sub Inc., CSI Compressco Operating LLC, each as borrowers, certain subsidiaries of the borrowers from time to time named as guarantors therein, the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent (the “Repayment”). Simultaneous with the Repayment, the Partnership and Spartan Energy Services, as applicable, terminated all remaining commitments and other obligations under the Credit Agreements and the Credit Agreements are of no further force and effect.

In connection with the consummation of the Mergers, The Nasdaq Stock Market LLC (the “Nasdaq”) was notified that each outstanding Partnership Common Unit was converted into the right to receive the consideration described above, subject to the terms and conditions of the Merger Agreement. Kodiak Services, as the successor in interest to the Partnership, requested that the Nasdaq file a notification of removal from listing on Form 25 with the SEC with respect to the delisting of the Partnership Common Units. The Partnership Common Units ceased being traded following the close of trading on April 1, 2024 and will no longer be listed on the Nasdaq effective as of the open of trading on April 2, 2024.
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