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Fair Value Measurements

12 Months Ended

Dec. 31, 2023

Fair Value Measurements

Fair Value Measurements

26. Fair Value Measurements

The accounting standard for fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value into the following three categories:

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Level 1 – quoted unadjusted prices for identical markets in active markets to which we have access at the date of measurement.

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Level 2 – quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model–derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or prices vary substantially over time or among brokered markets makers.

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Level 3 – model–derived valuation in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those that reflect our own assumptions regarding how market participants would price the asset or liability based on the best available information.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Investment in ECOTEC

As of December 31, 2023, we owned a 25% equity interest in ECOTEC (see Note 12 (“Investments in Unconsolidated Affiliates”)). We have elected the fair value option to account for this investment. The fair value determination of this investment primarily consisted of unobservable inputs, which creates uncertainty in the measurement of fair value as of the reporting date. The significant unobservable inputs used in the fair value measurement, which was valued through an average of an income approach (discounted cash flow method) and a market approach (guideline public company method), are the WACC and the revenue multiples. Significant increases (decreases) in these inputs in isolation would result in a significantly higher (lower) fair value measurement. As of December 31, 2023, the fair value of our investment in ECOTEC is $14.9 million.

This fair value measurement is classified as Level 3. The significant unobservable inputs are as follows:

Significant

Year Ended

Year Ended

Unobservable

December 31, 2023

December 31, 2022

Inputs

Range

Median

Range

Median

Valuation technique:

Discounted cash flow

WACC

0.4% - 20.0%

13.5%

0.0% - 22.1%

11.3%

Guideline public company

Revenue multiple

1.5x - 7.2x

3.8x

1.7x - 8.0x

3.9x

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


			Year Ended
			December 31,
(in thousands)				2023			2022
Balance at beginning of period			$	12,803		$	—
Purchases of equity interests				3,075			14,667
Unrealized loss ⁽¹⁾				(973)			(1,864)
Balance at end of period			$	14,905		$	12,803

⁽¹⁾	Included in other expense (income) in our consolidated statements of operations.

Interest Rate Swaps

Prior to their expiration in the first quarter of 2022, our interest rate swaps were valued quarterly based on the income approach (discounted cash flows) using market observable inputs, including LIBOR forward curves. These fair value measurements were classified as Level 2.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Investment in Ionada

As of December 31, 2023, we had a fully diluted ownership equity interest in Ionada of 10% (see Note 12 (“Investments in Unconsolidated Affiliates”)). We have elected the fair value measurement alternative to account for this investment. As of December 31, 2023, the carrying value of our investment in Ionada is $4.2 million.

The reconciliation of changes in the carrying value of our investment in Ionada is as follows:


		Year Ended
		December 31,
(in thousands)			2023
Purchases of equity interests		$	3,808
Transaction costs capitalized as investment activity			397
Initial cost basis			4,205
Adjustments			—
Carrying value		$	4,205

Subject to certain contractual conditions, we will invest, on the same terms and conditions as the initial investment, $1.2 million on November 1, 2024, $1.3 million on November 1, 2025, and $4.8 million prior to July 1, 2026, for a fully diluted ownership interest of 12%, 15% and 24%, respectively.

Compressors

During the years ended December 31, 2023 and 2022, we recorded nonrecurring fair value measurements related to our idle compressors (see Note 21 (“Long-Lived and Other Asset Impairment”)). Our estimate of the compressors’ fair value was primarily based on the expected net sale proceeds compared to 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. These fair value measurements are classified as Level 3.

The fair value of our compressors impaired is as follows:


		December 31,
(in thousands)		2023			2022
Impaired compressors		$	1,423		$	1,961

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 December 31, 2023		$0 - $294 per horsepower		$50 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 33% and 51% as of December 31, 2023 and 2022, respectively.

See Note 21 (“Long-Lived and Other Asset Impairment”) for further details.

Other Financial Instruments

The carrying amounts of our cash, receivables and payables approximate fair value due to the short–term nature of those instruments.

The carrying amount of borrowings outstanding under our Credit Facility approximates fair value due to its variable interest rate. 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:


		December 31,
(in thousands)		2023			2022
Carrying amount of fixed rate debt ⁽¹⁾		$	1,297,844		$	1,297,084
Fair value of fixed rate debt			1,289,000			1,214,000

(1)	Carrying amounts are shown net of unamortized debt premium and deferred financing costs. See Note 15 (“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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