Fair Value Measurements

9 Months Ended

Sep. 30, 2024

FAIR VALUE MEASUREMENTS

Financial Instruments

Investments

We retained an interest in CSI Compressco, which was acquired by Kodiak on April 1, 2024, and we received shares of Kodiak in exchange for our common units in CSI Compressco in connection with such acquisition. In December 2021, we invested in a $5.0 million convertible note issued by CarbonFree. During 2023, we invested $0.4 million in convertible notes issued by KMX. During the three months ended September 30, 2024, these convertible notes converted into preferred units and we invested $1.0 million in additional preferred units. We also received common units issued by KMX. In addition, we receive stock of Standard Lithium under the terms of our arrangements as noted in Note 4 - “Investments.”

Our investments in Kodiak, Standard Lithium, and, formerly, CSI Compressco, are recorded in investments on our consolidated balance sheets based on the quoted market stock price (Level 1 fair value measurements). The stock component of consideration received from Standard Lithium was initially recorded as unearned income based on the quoted market price at the time the stock is received, then recognized in income over the contract term. Changes in the value of stock are recorded in other (income) expense, net in our consolidated statements of operations.

Our investment in preferred units issued by KMX as of September 30, 2024 were recorded based on observable market-based inputs for preferred units issued to several investors during August and September 2024 (Level 2 fair value measurement). Our investment in convertible notes and common units issued by CarbonFree and our investment in common units issued by KMX are recorded in our consolidated financial statements based on an internal valuations with assistance from a third-party valuation specialist (Level 3 fair value measurement). The valuations are impacted by key assumptions, including the assumed probability and timing of potential debt or equity offerings. The convertible note issued by CarbonFree includes an option to convert the note into equity interests issued by CarbonFree. The change in the fair value of the embedded option, as well as the KMX preferred units and common units, are included in other (income) expense, net in our consolidated statements of operations. The change in the fair value of the convertible note issued by CarbonFree, excluding the embedded option, is included in other comprehensive income (loss) in our consolidated statements of comprehensive income.

The change in our investments for the three-month and nine-month periods ended September 30, 2024 and 2023 are as follows:


	Three Months Ended September 30, 2024
	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Investment balance at beginning of period	$	13,279	$	—	$	7,148	$	20,427
Purchase of investments	—		1,000		21		1,021
Reclassification between Level 2 and Level 3 fair value	—		350		(350)		—
Unrealized gain on equity securities	1,072		38		193		1,303
Unrealized loss on embedded option	—		—		(553)		(553)
Unrealized gain on convertible note, excluding embedded option	—		—		556		556
Investment balance at end of period	$	14,351	$	1,388	$	7,015	$	22,754













	Three Months Ended September 30, 2023
	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Unobservable Inputs
	(Level 1)		(Level 3)		Total
	(in thousands)
Investment balance at beginning of period	$	10,199	$	6,519	$	16,718
Purchase of investments	—		100		100
Unrealized loss on equity securities	(707)		—		(707)
Unrealized gain on embedded option	—		148		148
Unrealized gain on convertible note, excluding embedded option	—		146		146
Investment balance at end of period	$	9,492	$	6,913	$	16,405


	Nine Months Ended September 30, 2024
	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Investment balance at beginning of period	$	10,154	$	—	$	7,200	$	17,354
Purchase of investments	—		1,000		21		1,021
Reclassification between Level 2 and Level 3 fair value	—		350		(350)		—
Unrealized gain on equity securities	4,197		38		1,070		5,305
Unrealized loss on embedded option	—		—		(1,714)		(1,714)
Unrealized gain on convertible note, excluding embedded option	—		—		788		788
Investment balance at end of period	$	14,351	$	1,388	$	7,015	$	22,754


	Nine Months Ended September 30, 2023
	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Unobservable Inputs
	(Level 1)		(Level 3)		Total
	(in thousands)
Investment balance at beginning of period	$	8,147	$	6,139	$	14,286
Purchase of investments	—		350		350
Unrealized gain on equity securities	1,345		—		1,345
Unrealized loss on embedded option	—		(50)		(50)
Unrealized gain on convertible note, excluding embedded option	—		474		474
Investment balance at end of period	$	9,492	$	6,913	$	16,405

Recurring fair value measurements by valuation hierarchy as of September 30, 2024 and December 31, 2023 are as follows:


			Fair Value Measurements Using
	Total as of		Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	September 30, 2024		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Investment in Kodiak	$	13,063	$	13,063	$	—	$	—
Investment in CarbonFree	6,805		—		—		6,805
Investment in Standard Lithium	1,288		1,288		—		—
Investment in KMX Technologies	1,598		—		1,388		210

Total investments	$	22,754


			Fair Value Measurements Using
	Total as of		Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	December 31, 2023		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Investment in CSI Compressco	$	8,538	$	8,538	$	—	$	—
Investment in CarbonFree	6,850		—		—		6,850
Investment in Standard Lithium	1,616		1,616		—		—
Investment in KMX Technologies	350		—		—		350

Investments	$	17,354

Other

The fair values of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, short-term borrowings and long-term debt approximate their carrying amounts. See Note 5 - “Long-Term Debt and Other Borrowings” for further discussion.

- Definition

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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