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Fair Value Measurements

9 Months Ended

Sep. 30, 2023

Fair Value Measurements

Fair Value Measurements

14. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of September 30, 2023, we own a 25% equity interest in ECOTEC. The fair value is determined using an average of the income approach that includes the use of a discounted cash flow model, and the market approach that includes the financial metrics of comparable public companies under the guideline public company method. The determination of this investment primarily consisted of unobservable inputs, which creates uncertainty in the measurement of fair value as of the reporting date. Significant increases (decreases) in these inputs in isolation would result in a significantly higher (lower) fair value measurement. As of September 30, 2023, the fair value of our investment in ECOTEC was $12.8 million.

This fair value measurement is classified as Level 3. The significant unobservable inputs used in the fair value measurement are the WACC and the revenue multiples. Additional quantitative information related to the significant unobservable inputs are as follows:


		Significant Unobservable Inputs				Range			Median
Valuation technique:
Discounted cash flow		WACC			0% - 17.4%				10.0%
Guideline public company		Revenue multiple			1.6x - 10x				4.0x

The reconciliation of changes in the fair value of our investment in ECOTEC is as follows:


		Three Months Ended						Nine Months Ended
		September 30,						September 30,
(in thousands)			2023			2022			2023			2022
Balance at beginning of period		$	12,807		$	8,000		$	12,803		$	—
Purchases of equity interests			—			4,000			2,000			12,000
Unrealized loss ⁽¹⁾			—			—			(1,996)			—
Balance at end of period		$	12,807		$	12,000		$	12,807		$	12,000

(1)	Included in other expense (income), net in our unaudited condensed consolidated statement of operations.

See Note 5 (“Investment in Unconsolidated Affiliate”) for further details.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the nine months ended September 30, 2023, we recorded nonrecurring fair value measurements related to our idle compressors. Our estimate of the compressors’ fair value was primarily based on the expected net sale proceeds compared with other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. We discounted the expected proceeds, net of selling and other carrying costs, using a weighted average disposal period of four years. The fair value of our compressors impaired in 2023 and 2022 was as follows:


(in thousands)				September 30, 2023			December 31, 2022
Impaired compressors				$	1,036		$	1,961

These fair value measurements are classified as Level 3. The significant unobservable inputs used to develop the above fair value measurements were weighted by the relative fair value of the compressors being measured. Additional quantitative information related to our significant unobservable inputs follows:


		Range		Weighted Average ⁽¹⁾
Estimated net sale proceeds:
As of September 30, 2023		$0 - $310 per horsepower		$51 per horsepower
As of December 31, 2022		$0 - $621 per horsepower		$47 per horsepower

(1)	Calculated based on an estimated discount for market liquidity of 35% and 51% as of September 30, 2023 and December 31, 2022, respectively.

See Note 10 (“Long-Lived and Other Asset Impairments”) for further details.

Other Financial Instruments

The carrying amounts of our cash, accounts receivable and accounts payable approximate fair value due to the short–term nature of these instruments.

The carrying amount of borrowings outstanding under our Credit Facility approximates fair value due to the variable interest rate. The measurement of the fair value of these outstanding borrowings is a Level 3 measurement.

The fair value of our fixed rate debt is estimated using yields observable in active markets, which are Level 2 inputs, and was as follows:


(in thousands)		September 30, 2023			December 31, 2022
Carrying amount of fixed rate debt ⁽¹⁾		$	1,297,654		$	1,297,084
Fair value of fixed rate debt			1,230,000			1,214,000

(1) Carrying amounts are shown net of unamortized premium and deferred financing costs. See Note 6 (“Long-Term Debt”).

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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