3. Business Transactions

Flowco Disposition

On August 1, 2025, we completed the sale of certain contract operations customer agreements and approximately 155 compressors, comprising approximately 47,000 horsepower, used to provide compression services under those agreements along with other supporting assets, for aggregate total consideration of $71.0 million. Goodwill, customer-related intangible assets and deferred revenue were allocated based on a ratio of the horsepower sold relative to the total horsepower of the asset group. The disposal group was classified as held for sale as of June 30, 2025, and its carrying value was adjusted to estimated fair value less costs to sell. We recorded a write-down of $8.7 million during the three and six months ended June 30, 2025, which is included in long-lived and other asset impairment in our condensed consolidated statements of operations.

NGCS Acquisition

On May 1, 2025, we completed the NGCS Acquisition, whereby we acquired all of the issued and outstanding equity interests in NGCS, including a fleet of approximately 326,000 operating horsepower and an 18,000 horsepower backlog of contracted new equipment, for aggregate total consideration of $349.4 million. Total consideration consisted of $296.5 million in cash, of which we paid $265.1 million to NGCSI sellers and $31.4 million to NGCSE sellers, and approximately 2.3 million shares of common stock issued to NGCSE sellers with an NGCS acquisition date fair value of $53.0 million. The cash portion of the purchase price was funded with borrowings under the Credit Facility. In accordance with the terms of the Merger Agreement, customary post-closing adjustments were made during the third quarter of 2025, resulting in a reduction to the purchase price of approximately $2.0 million.

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The NGCS Acquisition was accounted for using the acquisition method of accounting, which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the NGCS acquisition date. The excess of the consideration transferred over those fair values is recorded as goodwill.

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The following table summarizes the purchase price allocation based on the fair values of the assets acquired and liabilities assumed as of the NGCS acquisition date:

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Goodwill

The amount of goodwill resulting from the NGCS Acquisition is attributable to the expansion of our services in the Permian Basin where we currently operate and was allocated to our contract operations segment. The goodwill recorded is considered to have an indefinite life and will be reviewed annually for impairment or more frequently if indicators of potential impairment exist. None of the goodwill recorded for the NGCS Acquisition is expected to be deductible for U.S. federal income tax purposes.

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Tax Contingency and Indemnification

We recorded a non-income tax-based contingency of $0.5 million and a corresponding indemnification asset of $0.5 million based on facts existing on the NGCS acquisition date. The non-income tax-based contingency arose from pre-acquisition activity at NGCS. As part of the NGCS Acquisition, the sellers agreed to indemnify us for certain non-income tax and environmental contingencies up to $11.4 million as of the NGCS acquisition date. Dependent upon facts and circumstances, the sellers’ indemnification obligation may be reduced over a period of four years from the NGCS acquisition date but may also be extended until the resolution of claims timely submitted to the sellers.

Results of Operations

The results of operations attributable to the NGCS Acquisition have been included in our condensed consolidated financial statements as part of our contract operations segment since the NGCS acquisition date. We are unable to provide earnings attributable to the assets acquired and liabilities assumed since the NGCS acquisition date, as we do not prepare full stand-alone earnings reports for those assets and liabilities.

Transaction-Related Costs

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The following table presents transaction-related costs incurred in connection with the NGCS Acquisition by cost type:

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Unaudited Pro Forma Financial Information

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The unaudited pro forma financial information for the three and six months ended June 30, 2025 was derived by adjusting our historical financial statements in order to give effect to the assets acquired and liabilities assumed in the NGCS Acquisition. The NGCS Acquisition is presented in this unaudited pro forma financial information as though the acquisition occurred as of January 1, 2024, and reflects the following:

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The unaudited pro forma financial information below combines the effects of the NGCSI Merger Agreement and the NGCSE Merger Agreement, as the Merger Agreements were negotiated as a single transaction and mutually dependent to close. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of our results of operations that would have occurred had the NGCS Acquisition been consummated at the beginning of the period presented, nor is it necessarily indicative of future results.

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Valuation Methodologies

The valuation methodologies and significant inputs for fair value measurements associated with the NGCS Acquisition are detailed by significant asset class below. The fair value measurements for property, plant and equipment and intangible assets are based on significant inputs that are not observable in the market and therefore represent Level 3 measurements.

Property, Plant and Equipment

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Property, plant and equipment is primarily comprised of natural gas and electric motor drive compression equipment that will depreciate on a straight-line basis over an estimated average remaining useful life of 15 years. The fair value of the property, plant and equipment was determined using both the cost and market approach. For most of the compression equipment, we estimated the replacement cost using the direct cost method by evaluating recent purchases of similar assets or published data, then adjusting the replacement cost for physical deterioration and functional and economic obsolescence, as applicable. For certain compression equipment, we then considered the market approach by comparing our estimated dollar per horsepower to market comparables and market participant assumptions and adjusted as necessary.

Other fixed assets were valued using the indirect cost method, whereby we applied asset-specific trend information using published indexes to calculate the estimated replacement cost of assets that were identified to be reflected at historical cost. Other assets were depreciated based on published normal useful life estimates and prior experience with similar assets.

Intangible Assets

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The intangible assets consist of customer relationships and trade names that have estimated useful lives of 12 years and five years, respectively. The amount of intangible assets and their associated useful lives were determined based on the period over which the assets are expected to contribute directly or indirectly to our future cash flows.

The fair value of the identifiable intangible assets related to customer relationships was determined using the multi-period excess earnings method, which is a specific application of the discounted cash flow method, an income approach, whereby we estimated and then discounted the future cash flows of the intangible asset by adjusting overall business revenue for attrition, obsolescence, cost of sales, operating expenses, taxes and the required returns attributable to other contributory assets acquired. Significant estimates made in arriving at expected future cash flows included our expected customer attrition rate and the amount of earnings attributable to the assets. To discount the estimated future cash flows, we utilized a discount rate that was at a premium to our WACC to reflect the less liquid nature of the customer relationships relative to the tangible assets acquired.

The trade name fair market value was measured using the relief-from-royalty method under the income approach, whereby we calculated the royalty savings by estimating a reasonable royalty rate that a third party would negotiate in a licensing agreement expressed as a percentage of total revenue involving a trade name. The revenue related to the trade name was multiplied by the selected royalty rate over the estimated expected useful life of the trade name to arrive at the royalty savings. The royalty savings were tax effected and discounted to present value using a discount rate commensurate with the risk profile of the trade name relative to our WACC and the return on the other acquired assets.