CYPRESS ENERGY PARTNERS, L.P., 10-Q filed on 5/15/2017
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2017
May 5, 2017
Document And Entity Information [Abstract]
 
 
Entity Registrant Name
Cypress Energy Partners, L.P. 
 
Entity Central Index Key
0001587246 
 
Document Type
10-Q 
 
Trading Symbol
CELP 
 
Document Period End Date
Mar. 31, 2017 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Well-known Seasoned Issuer
No 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Smaller Reporting Company 
 
Entity Common Stock, Shares Outstanding
 
11,878,675 
Document Fiscal Period Focus
Q1 
 
Document Fiscal Year Focus
2017 
 
Unaudited Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 24,779 
$ 26,693 
Trade accounts receivable, net
39,383 
38,482 
Prepaid expenses and other
2,455 
1,042 
Total current assets
66,617 
66,217 
Property and equipment:
 
 
Property and equipment, at cost
19,684 
22,459 
Less: Accumulated depreciation
7,437 
7,840 
Total property and equipment, net
12,247 
14,619 
Intangible assets, net
27,583 
29,624 
Goodwill
55,329 
56,903 
Other assets
184 
149 
Total assets
161,960 
167,512 
Current liabilities:
 
 
Accounts payable
784 
1,690 
Accounts payable - affiliates
3,227 
1,638 
Accrued payroll and other
10,044 
7,585 
Income taxes payable
1,000 
1,011 
Total current liabilities
15,055 
11,924 
Long-term debt
135,846 
135,699 
Deferred tax liabilities
 
362 
Asset retirement obligations
161 
139 
Total liabilities
151,062 
148,124 
Commitments and contingencies - Note 9
   
   
Partners' capital:
 
 
General partner
(25,876)
(25,876)
Accumulated other comprehensive loss
(2,477)
(2,538)
Total partners' capital
7,021 
14,338 
Noncontrolling interests
3,877 
5,050 
Total owners' equity
10,898 
19,388 
Total liabilities and owners' equity
161,960 
167,512 
Common Units [Member]
 
 
Partners' capital:
 
 
Partners' capital: Common units (11,878,675 and 5,945,348 units outstanding at March 31, 2017 and December 31, 2016, respectively); Subordinated units (5,913,000 units outstanding at December 31, 2016)
35,374 
(7,722)
Total owners' equity
35,374 
(7,722)
Subordinated Units [Member]
 
 
Partners' capital:
 
 
Partners' capital: Common units (11,878,675 and 5,945,348 units outstanding at March 31, 2017 and December 31, 2016, respectively); Subordinated units (5,913,000 units outstanding at December 31, 2016)
 
50,474 
Total owners' equity
 
$ 50,474 
Unaudited Condensed Consolidated Balance Sheets (Parenthetical)
Mar. 31, 2017
Dec. 31, 2016
Common Units [Member]
 
 
Partner's capital, units outstanding (in shares)
11,878,675 
5,945,348 
Subordinated Units [Member]
 
 
Partner's capital, units outstanding (in shares)
 
5,913,000 
Unaudited Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Revenues
$ 64,722 
$ 73,474 
Costs of services
58,393 
65,714 
Gross margin
6,329 
7,760 
Operating costs and expense:
 
 
General and administrative
5,110 
6,189 
Depreciation, amortization and accretion
1,171 
1,225 
Impairments
3,598 
 
Operating income (loss)
(3,550)
346 
Other (expense) income:
 
 
Interest expense, net
(1,709)
(1,618)
Other, net
45 
23 
Net loss before income tax expense
(5,214)
(1,249)
Income tax expense (benefit)
(293)
112 
Net loss
(4,921)
(1,361)
Net loss attributable to noncontrolling interests
(1,165)
(367)
Net loss attributable to partners / controlling interests
(3,756)
(994)
Net loss attributable to general partner
(921)
(968)
Net loss attributable to limited partners
(2,835)
(26)
Common Units [Member]
 
 
Other (expense) income:
 
 
Net loss
(2,835)
 
Net loss attributable to limited partners
(2,835)
(13)
Net loss per unit - basic and diluted
$ (0.32)
$ 0.00 
Weighted average units outstanding - basic and diluted
8,911,196 
5,923,167 
Subordinated Units [Member]
 
 
Other (expense) income:
 
 
Net loss attributable to limited partners
 
$ (13)
Net loss per unit - basic and diluted
 
$ 0.00 
Weighted average units outstanding - basic and diluted
2,956,500 
5,913,000 
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Statement of Comprehensive Income [Abstract]
 
 
Net loss
$ (4,921)
$ (1,361)
Other comprehensive income - foreign currency translation
61 
588 
Comprehensive loss
(4,860)
(773)
Comprehensive loss attributable to noncontrolling interests
(1,165)
(367)
Comprehensive loss attributable to general partner
(921)
(968)
Comprehensive income (loss) attributable to limited partners
$ (2,774)
$ 562 
Unaudited Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Operating activities:
 
 
Net loss
$ (4,921)
$ (1,361)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
Depreciation, amortization and accretion
1,433 
1,433 
Impairments
3,598 
 
Loss on asset disposal
11 
 
Interest expense from debt issuance cost amortization
146 
140 
Equity-based compensation expense
357 
317 
Equity in earnings of investee
(34)
(17)
Distributions from investee
 
63 
Deferred tax expense (benefit), net
(356)
36 
Non-cash allocated expenses
921 
968 
Changes in assets and liabilities:
 
 
Trade accounts receivable
(855)
7,561 
Prepaid expenses and other
(145)
334 
Accounts payable and accrued payroll and other
3,207 
1,329 
Income taxes payable
(11)
179 
Net cash provided by operating activities
3,351 
10,982 
Investing activities:
 
 
Proceeds from fixed asset disposals
 
Purchase of property and equipment
(298)
(496)
Net cash used in investing activities
(296)
(496)
Financing activities:
 
 
Repayment of long-term debt
 
(4,000)
Taxes paid related to net share settlement of equity-based compensation
(77)
 
Distributions to limited partners
(4,823)
(4,810)
Distributions to noncontrolling members
(8)
(367)
Net cash used in financing activities
(4,908)
(9,177)
Effect of exchange rates on cash
(61)
391 
Net increase (decrease) in cash and cash equivalents
(1,914)
1,700 
Cash and cash equivalents, beginning of period
26,693 
24,150 
Cash and cash equivalents, end of period
24,779 
25,850 
Non-cash items:
 
 
Changes in accounts payable excluded from capital expenditures
 
$ 67 
Unaudited Condensed Consolidated Statement of Owners' Equity (USD $)
In Thousands, unless otherwise specified
General Partner [Member]
Common Units [Member]
Subordinated Units [Member]
Accumulated Other Comprehensive Loss [Member]
Noncontrolling Interests [Member]
Total
Owners' equity, beginning at Dec. 31, 2016
$ (25,876)
$ (7,722)
$ 50,474 
$ (2,538)
$ 5,050 
$ 19,388 
Increase (Decrease) in Owners' Equity [Roll Forward]
 
 
 
 
 
 
Net loss
(921)
(2,835)
 
 
(1,165)
(4,921)
Foreign currency translation adjustment
 
 
 
61 
 
61 
Contributions attributable to general partner
921 
 
 
 
 
921 
Distributions to partners
 
(2,418)
(2,405)
 
 
(4,823)
Distributions to noncontrolling interests
 
 
 
 
(8)
(8)
Conversion of Subordinated Units to Common Units
 
48,111 
(48,111)
 
 
 
Equity-based compensation
 
315 
42 
 
 
357 
Taxes paid related to net share settlement of equity-based compensation
 
(77)
 
 
 
(77)
Owners' equity, ending at Mar. 31, 2017
$ (25,876)
$ 35,374 
 
$ (2,477)
$ 3,877 
$ 10,898 
Organization and Operations
Organization and Operations
1.Organization and Operations

 

Cypress Energy Partners, L.P. (the “Partnership”) is a Delaware limited partnership formed in 2013 to provide independent pipeline inspection and integrity services to producers, public utility companies, and pipeline companies and to provide salt water disposal (“SWD”) and other water and environmental services to U.S. onshore oil and natural gas producers and trucking companies. Trading of our common units began January 15, 2014 on the New York Stock Exchange under the symbol “CELP.”

 

Our business is organized into the Pipeline Inspection Services (“PIS”), Integrity Services (“IS”), and Water and Environmental Services (“W&ES”) segments. PIS provides pipeline inspection and other services to energy exploration and production (“E&P”) companies, public utility companies, and midstream companies and their vendors throughout the United States and Canada. The inspectors of PIS perform a variety of inspection services on midstream pipelines, gathering systems and distribution systems, including data gathering and supervision of third-party construction, inspection, and maintenance and repair projects. IS provides independent integrity services to major natural gas and petroleum pipeline companies and to pipeline construction companies located throughout the United States. Field personnel in this segment primarily perform hydrostatic testing on newly-constructed and existing natural gas and petroleum pipelines. W&ES provides services to oil and natural gas producers and trucking companies through its ownership and operation of eight commercial SWD facilities in the Bakken Shale region of the Williston Basin in North Dakota and two SWD facilities in the Permian Basin in Texas. All of the facilities utilize specialized equipment and remote monitoring to minimize downtime and increase efficiency for peak utilization. These facilities also contain oil skimming processes that remove oil from water delivered to the sites. In addition to these SWD facilities, we provide management and staffing services for an SWD facility pursuant to a management agreement (see Note 7). We also own a 25% member interest in this managed SWD facility.

Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Summary of Significant Accounting Policies
2. Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation

 

The Unaudited Condensed Consolidated Financial Statements as of March 31, 2017 and for the three months ended March 31, 2017 and 2016 include our accounts and those of our controlled subsidiaries. Investments over which we exercise significant influence, but do not control, are accounted for using the equity method of accounting. All significant intercompany transactions and account balances have been eliminated in consolidation. The Unaudited Condensed Consolidated Balance Sheet at December 31, 2016 is derived from audited financial statements.

 

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim consolidated financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The Unaudited Condensed Consolidated Financial Statements include all adjustments considered necessary for a fair presentation of the consolidated financial position and consolidated results of operations for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed herein. Accordingly, the Unaudited Condensed Consolidated Financial Statements do not include all of the information and notes required by GAAP for complete consolidated financial statements. However, we believe that the disclosures made are adequate to make the information not misleading. These interim Unaudited Condensed Consolidated Financial Statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2016 included in our Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of the Unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

 

Significant Accounting Policies

 

Our significant accounting policies are consistent with those disclosed in Note 2 to our audited financial statements as of and for the year ended December 31, 2016 included in our Form 10-K.

 

Accounts Receivable and Allowance for Bad Debts

 

We grant unsecured credit to customers under normal industry standards and terms, and have established policies and procedures that allow for an evaluation of each customer's creditworthiness. The Partnership determines allowances for bad debts based on management's assessment of the creditworthiness of the customers.  Trade receivables are written off against the allowance when deemed uncollectible. Recoveries of previously written off trade receivables are recorded when cash is received. During the quarter ended March 31, 2017, we received $0.3 million on accounts receivable previously written off which we recorded as a reduction to general and administrative expense on our Unaudited Consolidated Statements of Operations.

 

Income Taxes

 

As a limited partnership, we generally are not subject to federal, state, or local income taxes. The tax on our net income is generally borne by the individual partners. Net income (loss) for financial statement purposes may differ significantly from taxable income (loss) of the partners as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements under our partnership agreement. The aggregated difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because information regarding each partner’s tax attributes is not available to us.

 

The income of Tulsa Inspection Resources – Canada, ULC, our Canadian subsidiary, is taxable in Canada. Tulsa Inspection Resources – PUC, LLC, a subsidiary of our PIS segment that performs pipeline inspection services for utility customers, and Brown Integrity – PUC, LLC, a 51% owned subsidiary, have elected to be taxed as corporations for U.S. federal income tax purposes, and therefore these subsidiaries are subject to U.S. federal and state income tax. The amounts recognized as income tax expense, income taxes payable, and deferred tax liabilities in our Unaudited Condensed Consolidated Financial Statements represent the Canadian and U.S. taxes referred to above, as well as partnership-level taxes levied by various states, most notably franchise taxes assessed by the state of Texas.

 

As a publicly-traded partnership, we are subject to a statutory requirement that 90% of our total gross income classify as “qualifying income” (as defined by the Internal Revenue Code, related Treasury Regulations, and Internal Revenue Service pronouncements), determined on a calendar year basis. If our qualifying income does not meet this statutory requirement, we could be taxed as a corporation for federal and state income tax purposes. Our income has met the statutory qualifying income requirement for each year since our IPO.

 

Noncontrolling Interest

 

We own a 51% interest in Brown Integrity, LLC (“Brown”) and a 49% interest in CF Inspection Management, LLC (“CF Inspection”). The accounts of these subsidiaries are included in our Unaudited Condensed Consolidated Financial Statements. The portion of the net income (loss) of these entities that is attributable to outside owners is reported in net income (loss) attributable to noncontrolling interest in our Unaudited Condensed Consolidated Statements of Operations, and the portion of the net assets of these entities that is attributable to outside owners is reported in noncontrolling interests in our Unaudited Condensed Consolidated Balance Sheets.

 

Property and Equipment

 

Property and equipment consists of land, land and leasehold improvements, buildings, facilities, wells and related equipment, computer and office equipment, and vehicles. We record property and equipment at cost. Costs of renewals and improvements that substantially extend the useful lives of the assets are capitalized. Maintenance and repairs are expensed as incurred. We depreciate property and equipment on a straight-line basis over the estimated useful lives of the assets. Upon retirement or disposition of an asset, we remove the cost and related accumulated depreciation from the balance sheet and report the resulting gain or loss, if any, in the Unaudited Condensed Consolidated Statement of Operations.

 

We review property and equipment for impairment whenever events or circumstances indicate that the asset group to which they relate may be impaired. To perform an impairment assessment, we first determine whether the cash flows expected to be generated from the asset group exceed the carrying value of the asset group. If such estimated cash flows do not exceed the carrying value of the asset group, we reduce the carrying value of the asset group to its fair value and record a corresponding impairment loss.

 

Identifiable Intangible Assets

 

Our intangible assets consist primarily of customer relationships, trade names, and our database of inspectors. We recorded these intangible assets as part of our accounting for the acquisitions of businesses, and we amortize these assets on a straight-line basis over their estimated useful lives, which typically range from 5 – 20 years.

 

We review our intangible assets for impairment whenever events or circumstances indicate that the asset group to which they relate may be impaired. To perform an impairment assessment, we first determine whether the cash flows expected to be generated from the asset group exceed the carrying value of the asset group. If such estimated cash flows do not exceed the carrying value of the asset group, we reduce the carrying values of the assets to their fair values and record a corresponding impairment loss.

 

Goodwill

 

Goodwill is not amortized, but is subject to an annual review for impairment on November 1 (or at other dates if events or changes in circumstances indicate that the carrying value of goodwill may be impaired) at a reporting unit level. The reporting units used to evaluate and measure goodwill for impairment are determined primarily from the manner in which the business is managed or operated. We have determined that our PIS, IS, and W&ES segments are the appropriate reporting units for testing goodwill impairment.

 

To perform a goodwill impairment assessment, we perform an analysis to assess whether it is more likely than not that the fair value of the reporting unit exceeds its carrying value. If we determine that it is more likely than not that the carrying value of the reporting unit exceeds its fair value, we reduce the carrying value of goodwill and record a corresponding impairment expense.

 

Accrued Payroll and Other

 

Accrued payroll and other on our Unaudited Condensed Consolidated Balance Sheets includes the following:

 

    March 31, 2017     December 31, 2016  
    (in thousands)  
             
Accrued payroll   $ 8,235     $ 5,594  
Other     1,809       1,991  
    $ 10,044     $ 7,585  

 

 

Foreign Currency Translation

 

Our Unaudited Condensed Consolidated Financial Statements are reported U.S. dollars. We translate our Canadian dollar-denominated assets and liabilities into U.S. dollars at the exchange rate in effect at the balance sheet date. We translate our Canadian dollar-denominated revenues and expenses into U.S. dollars at the average exchange rate in effect during the period. We report gains and losses on foreign currency translation in other comprehensive income (loss).

 

Our Unaudited Condensed Consolidated Balance Sheet at March 31, 2017 includes $2.5 million of accumulated other comprehensive loss associated with accumulated currency translation adjustments, all of which relate to our Canadian operations. If at some point in the future, we were to sell or substantially liquidate our Canadian operations, we would reclassify the balance in accumulated other comprehensive loss to Partners’ capital, which would be reported in the Unaudited Condensed Consolidated Statement of Operations as a reduction to net income.

 

Subordination

 

With the payment of the fourth quarter distribution and the fulfillment of other requirements associated with the termination of the subordination period, the Partnership emerged from subordination on February 14, 2017, converting the 5,913,000 subordinated units into common units on a one-for-one basis.

 

New Accounting Standards

 

In 2017, the Partnership adopted the following new accounting standards issued by the Financial Accounting Standards Board (“FASB”);

 

The FASB issued Accounting Standards Update (“ASU”) 2016-09 – Compensation – Stock Compensation in March 2016. This ASU gives entities the option to account for forfeitures of share-based awards when the forfeitures occur (previously, entities were required to estimate future forfeitures and reduce their share-based compensation expense accordingly). We adopted this new standard on January 1, 2017 and elected to account for forfeitures when they occur. The adoption of this ASU had no significant effect on our Unaudited Condensed Consolidated Financial Statements.

 

The FASB issued ASU 2017-04 – Intangibles – Goodwill and Other in January 2017. The objective of this guidance is to simplify how an entity is required to test goodwill for impairment. We adopted this new standard effective January 1, 2017 in order to simplify the measurement process for the potential impairment of goodwill. Under the new standard, we perform a goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount. If the carrying amount exceeds the reporting unit’s fair value, we record a goodwill impairment charge for the excess (not exceeding the carrying value of the reporting unit’s goodwill). 

 

Other accounting guidance proposed by the FASB that may impact our Unaudited Condensed Consolidated Financial Statements, which we have not yet adopted include:

 

The FASB issued ASU 2016-02 – Leases in February 2016. This guidance attempts to increase transparency and comparability among organizations by recognizing certain lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between previous GAAP and this new guidance is the recognition on the balance sheet of certain lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently examining the guidance provided in the ASU and determining the impact this guidance will have on our Unaudited Condensed Consolidated Financial Statements.

 

The FASB issued ASU 2014-09 – Revenue from Contracts with Customers in May 2014. ASU 2014-09 is intended to clarify the principles for recognizing revenue and to develop a common standard for recognizing revenue for GAAP and International Financial Reporting Standards that is applicable to all organizations. We will be required to adopt this standard in 2018 and to apply its provisions either retrospectively to each prior reporting period presented or prospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application (modified retrospective method). Although we continue to evaluate the financial impact of this ASU on the Partnership, we currently plan to adopt this standard utilizing the modified retrospective method and do not anticipate that the adoption of this ASU will materially impact our financial position, results of operations or cash flows.

 

Impairments
Impairments
3. Impairments

 

During the three months ended March 31, 2017, the largest customer of TIR-Canada, the Canadian subsidiary of our PIS segment, completed a bid process and selected different service providers for its inspection projects. During the three months ended March 31, 2017, pipeline inspection services to this customer accounted for approximately $12.9 million of revenue and $0.9 million of gross margin, which represented approximately 90% of the revenues and 90% of the gross margin of our Canadian operations (and approximately 20% of our consolidated revenues and 14% of our consolidated gross margin for the three months ended March 31, 2017). In consideration of the loss of this contract, we recorded impairments to the carrying values of certain intangible assets of $1.3 million during the three months ended March 31, 2017. Of this amount, $1.1 million related to customer relationships and $0.2 million related to trade names. Based on discounted cash flow calculations, which represent Level 3 non-recurring fair value adjustments, we concluded the fair value of the customer relationships and trade names was zero, and thus, have written off the full amount. We continue to perform inspection and integrity work for customers in Canada (including integrity work for the customer referred to above).

 

During the three months ended March 31, 2017, we recorded an impairment of $0.7 million to the property, plant and equipment at one of our SWD facilities. We have temporarily shut down the operations at this facility in 2017 because of low volumes due to competition in the area and due to low levels of exploration and production activity near the facility. Because of the decline in revenues and the temporary shut down of the facility, we performed a discounted cash flow calculation, which represents a Level 3 non-recurring fair value adjustment, concluding that the fair value of the facility was limited to the fair value of the land.  As such, we recorded an impairment to reduce the carrying value of the facility to $0.1 million at March 31, 2017, all of which is attributable to land.

 

During the three months ended March 31, 2017, we recorded an impairment of $1.6 million to the goodwill of our Integrity Services segment. Revenues of this segment were lower than we had expected for the three months ended March 31, 2017, especially in March. In addition, for this segment, the level of  bidding activity for work is typically high in March and April, once customers have finalized their budgets for the upcoming year. While we have won bids on a number of projects and our backlog has begun to improve, the improvement in the backlog has been slower than we had originally anticipated, and accordingly, in May, we revised downward our expectations of the near-term operating results of the segment. For our goodwill impairment assessment, we calculated an estimated fair value of the Integrity Services segment using a discounted cash flow analysis. We prepared two calculations of cash flows for the next twelve months, one of which represented our estimate of the high end of the range of probable cash flows and the other of which represented our estimate of the low range of probable cash flows. We estimated cash flows for the following four years assuming a 2% increase in each succeeding year, to account for estimated inflation, and calculated a terminal value using a Gordon Growth model. We then discounted the future cash flows at a discount rate of 18%. The mid-point of the estimated fair values produced by these two calculations indicated that a full impairment of the value of the goodwill of the Integrity Services segment was warranted. These calculations represent Level 3 non-recurring fair value measurements. If anticipated operating results in this segment do not meet expectations, it is possible that finite-lived intangibles may also become impaired in the future.

 

In January 2017, a lightning strike at our Orla SWD facility initiated a fire that effectively destroyed the surface equipment at the facility. As a result, we wrote off the net book value of the surface equipment ($1.3 million) of the facility and recorded a receivable in prepaid expenses and other on our Unaudited Condensed Consolidated Balance Sheet at March 31, 2017 related to a property insurance policy we carried on the property. This had no impact on our Unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2017. In May 2017 we  received $1.6 million of insurance proceeds. We will record a gain in the second quarter of 2017 for the difference between the proceeds received and the net book value of the property written off. 

Credit Agreement
Credit Agreement
4. Credit Agreement

 

We are party to a credit agreement (as amended, the “Credit Agreement”) that provides up to $200.0 million in borrowing capacity, subject to certain limitations. The Credit Agreement includes a working capital revolving credit facility (“Working Capital Facility”), which provides up to $75.0 million in borrowing capacity to fund working capital needs, and an acquisition revolving credit facility (“Acquisition Facility”), which provides up to $125.0 million in borrowing capacity to fund acquisitions and expansion projects. In addition, the Credit Agreement provides for an accordion feature that allows us to increase the availability under the facilities by an additional $125.0 million if lenders agree to increase their commitments. The Credit Agreement matures December 24, 2018.

 

Outstanding borrowings at March 31, 2017 and December 31, 2016 under the Credit Agreement were as follows:

 

    March 31, 2017     December 31, 2016  
    (in thousands)  
             
Working Capital Facility   $ 48,000     $ 48,000  
Acquisition Facility     88,900       88,900  
Total borrowings     136,900       136,900  
Debt issuance costs     (1,054     (1,201 ) 
Long-term debt   $ 135,846     $ 135,699  

 

The carrying value of our long-term debt approximates fair value, as the borrowings under the Credit Agreement are considered to be priced at market for debt instruments having similar terms and conditions (Level 2 of the fair value hierarchy).

 

Borrowings under the Working Capital Facility are limited by a monthly borrowing base calculation as defined in the Credit Agreement. If, at any time, outstanding borrowings under the Working Capital Facility exceed our calculated borrowing base, a principal payment in the amount of the excess is due upon submission of the borrowing base calculation. Available borrowings under the Acquisition Facility may be limited by certain financial covenant ratios as defined in the Credit Agreement. The obligations under our Credit Agreement are secured by a first priority lien on substantially all of our assets.

 

All borrowings under the Credit Agreement bear interest, at our option, on a leveraged based grid pricing at (i) a base rate plus a margin of 1.25% to 2.75% per annum (“Base Rate Borrowing”) or (ii) an adjusted LIBOR rate plus a margin of 2.25% to 3.75% per annum (“LIBOR Borrowings”). The applicable margin is determined based on the leverage ratio of the Partnership, as defined in the Credit Agreement. Generally, the interest rate on our Credit Agreement borrowings ranged between 3.90% and 4.73% for the three months ended March 31, 2017 and 3.54% and 4.19% for the three months ended March 31, 2016. Interest on Base Rate Borrowings is payable monthly. Interest on LIBOR Borrowings is paid upon maturity of the underlying LIBOR contract, but no less often than quarterly. Commitment fees are charged at a rate of 0.50% on any unused credit and are payable quarterly. Interest paid during the three months ended March 31, 2017 and 2016 was $1.6 million and $1.3 million, respectively, including commitment fees.

 

Our Credit Agreement contains various customary affirmative and negative covenants and restrictive provisions. Our Credit Agreement also requires maintenance of certain financial covenants, including a combined total adjusted leverage ratio (as defined in our Credit Agreement) of not more than 4.0 to 1.0 and an interest coverage ratio (as defined in our Credit Agreement) of not less than 3.0 to 1.0. At March 31, 2017, our combined total adjusted leverage ratio was 3.47 to 1.0 and our interest coverage ratio was 3.68 to 1.0, pursuant to the Credit Agreement. Upon the occurrence and during the continuation of an event of default, subject to the terms and conditions of our Credit Agreement, the lenders may declare any outstanding principal of our Credit Agreement debt, together with accrued and unpaid interest, to be immediately due and payable and may exercise the other remedies set forth or referred to in our Credit Agreement. We were in compliance with all debt covenants as of March 31, 2017 and expect to remain in compliance with all of our financial debt covenants for the next twelve months following the filing of this Form 10-Q. Working capital borrowings, which are fully secured by our net working capital, are subject to a monthly borrowing base and are excluded from our debt compliance ratios.

 

In addition, our Credit Agreement restricts our ability to make distributions on, or redeem or repurchase, our equity interests. However, we may make distributions of available cash so long as, both at the time of the distribution and after giving effect to the distribution, no default exists under our Credit Agreement, the borrowers and the guarantors are in compliance with the financial covenants, the borrowing base (which includes 100% of cash on hand) exceeds the amount of outstanding credit extensions under the Working Capital Facilities by at least $5.0 million, and at least $5.0 million in lender commitments are available to be drawn under the Working Capital Facility.

Income Taxes
Income Taxes
5.Income Taxes

 

The income tax expense (benefit) reported in our Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016 differs from the statutory tax rate of 35% due to the fact that, as a partnership, we are generally not subject to U.S. federal income taxes. Our income tax provision relates primarily to our corporate subsidiary that services public utility customers, which is subject to U.S. federal income taxes, our Canadian subsidiary, which is subject to Canadian income taxes, and to certain state income taxes, including the Texas franchise tax. 

Equity Compensation
Equity Compensation
6. Equity Compensation

 

Our General Partner has adopted a long-term incentive plan (“LTIP”) that authorizes the issuance of up to 1,182,600 common units. Certain directors and employees of the Partnership have been awarded Phantom Restricted Units (“Units”) under the terms of the LTIP. The fair value of the awards is determined based on the quoted market value of the publicly-traded common units at each grant date, adjusted for certain discounts. Compensation expense is recorded on a straight-line basis over the vesting period of the grant. We recorded expense of $0.4 million and $0.3 million during the three months ended March 31, 2017 and 2016, respectively related to the Unit awards.

 

The following table summarizes the LTIP Unit activity for the three months ended March 31, 2017 and 2016:

 

    Three Months Ended March 31,  
    2017     2016  
                         
    Number
of Units
    Weighted
Average
Grant
Date Fair
Value / Unit
    Number
of Units
    Weighted
Average
Grant
Date Fair
Value / Unit
 
                         
Units at January 1     573,902     $ 9.86       361,698     $ 14.30  
Units granted     245,331     $ 7.16       331,098     $ 6.33  
Units vested and issued     (26,366 )   $ 15.25       (8,208 )   $ 16.71  
Units forfeited     (9,328 )   $ 9.50       (14,165 )   $ 14.74  
                                 
Units at March 31     783,539     $ 8.83       670,423     $ 10.33  

 

The majority of the awards vest in three tranches, with one-third of the units vesting three years from the grant date, one-third vesting four years from the grant date, and one-third vesting five years from the grant date. However, certain of the awards have different, and typically shorter, vesting periods. Two grants, totaling 77,495 units, vest three years from the grant dates, contingent upon the recipient meeting certain performance targets. Distributions are not paid on unvested Units during the vesting period. Total unearned compensation associated with the Unit awards was $4.9 million at March 31, 2017, and the awards had an average remaining life of 2.76 years.

  

Related-Party Transactions
Related-Party Transactions
7. Related-Party Transactions

 

Omnibus Agreement

 

We are party to an omnibus agreement with Holdings and other related parties. The omnibus agreement governs the following matters, among other things:

 

  our payment of a quarterly administrative fee in the amount of $1.0 million to Holdings, for providing certain partnership overhead services, including certain executive management services by certain officers of our General Partner, and payroll services for substantially all employees required to manage and operate our businesses. This fee also includes the incremental general and administrative expenses we incur as a result of being a publicly traded partnership. For the quarters ended March 31, 2017 and 2016, Holdings provided sponsor support to us by waiving payment of the quarterly administrative fee;

 

  our right of first offer on Holdings’ and its subsidiaries’ assets used in, and entities primarily engaged in, providing SWD and other water and environmental services; and

 

  indemnification of us by Holdings for certain environmental and other liabilities, including events and conditions associated with the operation of assets that occurred prior to the closing of the IPO and our obligation to indemnify Holdings for events and conditions associated with the operation of our assets that occur after the closing of the IPO and for environmental liabilities related to our assets to the extent Holdings is not required to indemnify us.

 

So long as affiliates of Holdings control our General Partner, the omnibus agreement will remain in effect, unless we and Holdings agree to terminate it sooner. If affiliates of Holdings cease to control our General Partner, either party may terminate the omnibus agreement, provided that the indemnification obligations will remain in full force and effect in accordance with their terms. We and Holdings may agree to amend the omnibus agreement; however, amendments will also require the approval of the Conflicts Committee of our Board of Directors.

 

Holdings incurred expenses of $0.9 million and $1.0 million on our behalf during the three months ended March 31, 2017 and 2016, respectively. These expenses are reported within general and administrative in the accompanying Unaudited Condensed Consolidated Statements of Operations and as contribution from general partner in the accompanying Unaudited Condensed Consolidated Statement of Owners’ Equity.

 

Alati Arnegard, LLC

 

We provide management services to a 25% owned entity, Alati Arnegard, LLC (“Arnegard”). Management fee revenue earned from Arnegard totaled $0.2 million for the three months ended March 31, 2017 and 2016. Accounts receivable from Arnegard were less than $0.1 million and $0.1 million at March 31, 2017 and December 31, 2016, respectively, and are included in trade accounts receivable, net in the Unaudited Condensed Consolidated Balance Sheets.

Earnings per Unit and Cash Distributions
Earnings per Unit and Cash Distributions
8.Earnings per Unit and Cash Distributions

 

Our net income (loss) is attributable and allocable to several types of owners. Income attributable to noncontrolling interests represents 49% of the income of Brown and 51% of the income of CF Inspection. Income attributable to the general partner includes expenses incurred by Holdings and not charged to us. Income attributable to common and subordinated units represents the remaining net income (loss), after consideration of amounts attributable to noncontrolling interests and to the general partner; such amounts were allocated to common and subordinated units ratably based on the weighted-average number of such units outstanding during the relevant time period. In February 2017, all of the outstanding subordinated units converted to common units. Since the subordinated units did not share in the distribution of cash generated subsequent to December 31, 2016, we did not allocate any income or loss after that date to the subordinated units.

 

Diluted net income (loss) per common and subordinated unit includes the dilutive impact of unvested unit awards granted as share-based compensation to employees and directors. Such awards had no dilutive effect during the three months ended March 31, 2017 and 2016, as we incurred net losses attributable to limited partners during those periods.

 

The following table summarizes the cash distributions declared and paid to our limited partners since our IPO.

             
Payment Date  Per Unit Cash
Distributions
   Total Cash
Distributions
   Total Cash
Distributions
to Affiliates (a)
 
         (in thousands) 
             
May 15, 2014 (b)  $0.301389   $3,565   $2,264 
August 14, 2014   0.396844    4,693    2,980 
November 14, 2014   0.406413    4,806    3,052 
Total 2014 Distributions   1.104646    13,064    8,296 
                
February 14, 2015   0.406413    4,806    3,052 
May 14, 2015   0.406413    4,808    3,053 
August 14, 2015   0.406413    4,809    3,087 
November 13, 2015   0.406413    4,809    3,092 
Total 2015 Distributions   1.625652    19,232    12,284 
                
February 12, 2016   0.406413    4,810    3,107 
May 13, 2016   0.406413    4,812    3,099 
August 12, 2016   0.406413    4,817    3,103 
November 14, 2016   0.406413    4,819    3,105 
Total 2016 Distributions   1.625652    19,258    12,414 
                
February 13, 2017   0.406413    4,823    3,107 
May 15, 2017 (c)   0.210000    2,495    1,606 
    0.616413    7,318    4,713 
                
  Total Distributions (through May 15, 2017 since IPO)  $4.972363   $58,872   $37,707 

 

(a)Approximately 64.4% of the Partnership’s outstanding units at March 31, 2017 were held by affiliates.
(b)Distribution was pro-rated from the date of our IPO through March 31, 2014.
(c)First quarter 2017 distribution was declared and will be paid in the second quarter of 2017.
Commitments and Contingencies
Commitments and Contingencies
9. Commitments and Contingencies

 

Security Deposits

 

We have various performance obligations which are secured with short-term security deposits of $0.5 million at March 31, 2017 and December 31, 2016, included in prepaid expenses and other on the Unaudited Condensed Consolidated Balance Sheets.

 

Employment Contract Commitments

 

We have employment agreements with certain executives. These agreements provide for minimum annual compensation for specified terms, after which employment will continue on an “at will” basis. Certain agreements provide for severance payments in the event of specified termination of employment. At March 31, 2017, the aggregate commitment for future compensation and severance was approximately $0.9 million.

 

Compliance Audit Contingencies

 

Certain customer master service agreements (“MSA’s”) offer our customers the opportunity to perform periodic compliance audits, which include the examination of the accuracy of our invoices. Should our invoices be determined to be inconsistent with the MSA, the MSA’s may provide the customer the right to receive a credit or refund for any overcharges identified. At any given time, we may have multiple audits ongoing. At March 31, 2017, the Partnership had an estimated liability of $0.1 million recorded for such contingencies.

 

Legal Proceedings

 

On July 3, 2014, a group of former minority shareholders of Tulsa Inspection Resources, Inc. (“TIR Inc.”, the predecessor of the TIR Entities), formerly an Oklahoma corporation, filed a civil action in the United States District Court for the Northern District of Oklahoma against TIR LLC, members of TIR LLC, and certain affiliates of TIR LLC’s members. TIR LLC is the successor in interest to TIR Inc., resulting from a merger between the entities. The former shareholders of TIR Inc. claim that they did not receive sufficient value for their shares and are seeking compensatory and punitive damages. We believe that the possibility of the Partnership incurring material losses as a result of this action is remote. In addition, the Partnership anticipates no disruption in its business operations related to this action.

 

In September 2015, Flatland Resources I, LLC and Flatland Resources II, LLC, two of our management services customers (under common ownership) initiated a civil action in the District Court for the McKenzie County District of the State of North Dakota against CES LLC. The customers claimed that CES LLC breached the management agreements and interfered with their business relationships, and sought to rescind the management agreements and recover any damages. In the first quarter of 2017, CES received a cash payment and other consideration and the parties settled the matter and dismissed all associated claims.

 

Internal Revenue Service Audit

 

In January 2016, we received notice from the Internal Revenue Service (“IRS”) that conveyed its intent to audit the consolidated income tax return of one of our predecessor entities for the 2012 tax year. Although this audit is not yet complete, we believe, based on correspondence from the IRS, that any adjustments related to this income tax audit should not be material. Additionally, based on the terms of our omnibus agreement with Holdings, Holdings would indemnify us for certain liabilities (including income tax liabilities) associated with the operation of assets that occurred prior to the closing of our IPO should any liabilities arise as a result of these audits. Because of this, we believe that the possibility of incurring material losses as a result of this IRS audit is remote. 

 

Reportable Segments
Reportable Segments
10.Reportable Segments

 

Our operations consist of three reportable segments: (i) Pipeline Inspection Services (“PIS”), (ii) Integrity Services (“IS”) and (iii) Water and Environmental Services (“W&ES”).

 

PIS – This segment represents our pipeline inspection services operations. This segment provides independent inspection and integrity services to various energy, public utility, and pipeline companies. The inspectors in this segment perform a variety of inspection services on midstream pipelines, gathering and distribution systems, including data gathering and supervision of third-party construction, inspection, and maintenance and repair projects. Our results in this segment are driven primarily by the number and type of inspectors performing services for customers and the fees charged for those services, which depend on the nature and duration of the projects.

 

IS – This segment provides independent hydro-testing integrity services to major natural gas and petroleum pipeline companies, and to pipeline construction companies located throughout the United States. Field personnel in this segment primarily perform hydrostatic testing on newly-constructed and existing natural gas and petroleum pipelines. Results in this segment are driven primarily by field personnel performing services for customers and the fees charged for those services, which depend on the nature, scope, and duration of the projects.

 

W&ES – This segment includes the operations of ten SWD facilities and an ownership interest in one managed facility. Segment results are driven primarily by the volumes of water we inject into our SWD facilities and the fees we charge for our services. These fees are charged on a per-barrel basis and vary based on the quantity and type of saltwater disposed, competitive dynamics, and operating costs. In addition, for minimal marginal cost, we generate revenue by selling residual oil we recover from the disposed water.

 

Other – These amounts represent general and administrative expenses not specifically allocable to our reportable segments.

  

The following tables show operating income (loss) by reportable segment and a reconciliation of segment operating income (loss) to net loss before income tax expense.

 

    PIS     IS     W&ES     Other     Total  
    (in thousands)  
                               
Three months ended March 31, 2017                                        
                                         
Revenue   $ 62,148     $ 696     $ 1,878     $     $ 64,722  
Costs of services     56,601       904       888             58,393  
Gross margin     5,547       (208 )     990             6,329  
General and administrative     3,254       446       218       1,192       5,110  
Depreciation, amortization and accretion     599       157       415             1,171  
Impairments     1,329       1,581       688             3,598  
Operating income (loss)   $ 365     $ (2,392 )   $ (331 )   $ (1,192 )     (3,550 )
Interest expense, net                                     (1,709 )
Other, net                                     45  
Net loss before income tax expense                                   $ (5,214 )
                                         
Three months ended March 31, 2016                                        
                                         
Revenue   $ 66,709     $ 4,258     $ 2,507     $     $ 73,474  
Costs of services     60,844       3,732       1,138             65,714  
Gross margin     5,865       526       1,369             7,760  
General and administrative     3,440       991       556       1,202       6,189  
Depreciation, amortization and accretion     617       159       449             1,225  
Operating income (loss)   $ 1,808     $ (624 )   $ 364     $ (1,202 )     346  
Interest expense, net                                     (1,618 )
Other, net                                     23  
Net loss before income tax expense                                   $ (1,249 )
                                         
Total Assets                                        
                                         
March 31, 2017   $ 130,988     $ 9,396     $ 29,361     $ (7,785 )   $ 161,960  
                                         
December 31, 2016   $ 124,840     $ 12,079     $ 38,141     $ (7,548 )   $ 167,512  
Condensed Consolidating Financial Information
Condensed Consolidating Financial Information
11. Condensed Consolidating Financial Information

 

The following financial information reflects consolidating financial information of the Partnership and its wholly owned guarantor subsidiaries and non-guarantor subsidiaries for the periods indicated. The information is presented in accordance with the requirements of Rule 3-10 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of financial position, results of operations, or cash flows had the guarantor subsidiaries or non-guarantor subsidiaries operated as independent entities. The Partnership has not presented separate financial and narrative information for each of the guarantor subsidiaries or non-guarantor subsidiaries because it believes such financial and narrative information would not provide any additional information that would be material in evaluating the sufficiency of the guarantor subsidiaries and non-guarantor subsidiaries. The Partnership anticipates issuing debt securities that will be fully and unconditionally guaranteed by the guarantor subsidiaries. These debt securities will be jointly and severally guaranteed by the guarantor subsidiaries. There are no restrictions on the Partnership’s ability to obtain cash dividends or other distributions of funds from the guarantor subsidiaries.

 

 Condensed Consolidating Balance Sheet
As of March 31, 2017
(in thousands)

                               
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                               
ASSETS                                        
Current assets:                                        
Cash and cash equivalents   $ 695     $ 21,196     $ 2,888     $     $ 24,779  
Trade accounts receivable, net           31,073       8,882       (572 )     39,383  
Accounts receivable - affiliates           11,042             (11,042 )      
Prepaid expenses and other           2,450       43       (38 )     2,455  
Total current assets     695       65,761       11,813       (11,652 )     66,617  
Property and equipment:                                        
Property and equipment, at cost           16,592       3,092             19,684  
Less: Accumulated depreciation           6,239       1,198             7,437  
Total property and equipment, net           10,353       1,894             12,247  
Intangible assets, net           23,310       4,273             27,583  
Goodwill           53,913       1,416             55,329  
Investment in subsidiaries     21,755       (2,868 )           (18,887 )      
Notes receivable - affiliates           13,631             (13,631      
Other assets           174       10             184  
Total assets   $ 22,450     $ 164,274     $ 19,406     $ (44,170   $ 161,960  
                                         
LIABILITIES AND OWNERS’ EQUITY                                        
Current liabilities:                                        
Accounts payable   $     $ 1,201     $ 174     $ (591   $ 784  
Accounts payable - affiliates     8,906             5,363       (11,042     3,227  
Accrued payroll and other     38       8,825       1,200       (19 )     10,044  
Income taxes payable           923       77             1,000  
Total current liabilities     8,944       10,949       6,814       (11,652     15,055  
Long-term debt     (1,054     131,400       5,500             135,846  
Notes payable - affiliates                 13,631       (13,631      
                                         
Asset retirement obligations           161                   161  
Total liabilities     7,890       142,510       25,945       (25,283     151,062  
                                         
Owners’ equity:                                        
Total partners’ capital     10,683       17,887       (6,539     (15,010     7,021  
Non-controlling interests     3,877       3,877             (3,877 )     3,877  
Total owners’ equity     14,560       21,764       (6,539 )   (18,887     10,898  
Total liabilities and owners’ equity   $ 22,450     $ 164,274     $ 19,406     $ (44,170   $ 161,960  

   

Condensed Consolidating Balance Sheet
As of December 31, 2016
(in thousands)

  

                               
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                               
ASSETS                              
Current assets:                                        
Cash and cash equivalents   $ 695     $ 20,251     $ 5,747     $     $ 26,693  
Trade accounts receivable, net           33,046       6,125       (689 )     38,482  
Accounts receivable - affiliates           12,622             (12,622 )      
Prepaid expenses and other           996       46             1,042  
Total current assets     695       66,915       11,918       (13,311 )     66,217  
Property and equipment:                                        
Property and equipment, at cost           19,366       3,093             22,459  
Less: Accumulated depreciation           6,798       1,042             7,840  
Total property and equipment, net           12,568       2,051             14,619  
Intangible assets, net           23,875       5,749             29,624  
Goodwill           53,914       2,989             56,903  
Investment in subsidiaries     29,454       (417 )           (29,037 )      
Notes receivable - affiliates           13,662             (13,662 )      
Other assets           139       10             149  
Total assets   $ 30,149     $ 170,656     $ 22,717     $ (56,010 )   $ 167,512  
                                         
LIABILITIES AND OWNERS’ EQUITY                                        
Current liabilities:                                        
Accounts payable   $     $ 1,653     $ 712     $ (675 )   $ 1,690  
Accounts payable - affiliates     8,860             5,400       (12,622 )     1,638  
Accrued payroll and other     15       7,082       503       (15 )     7,585  
Income taxes payable           967       44             1,011  
Total current liabilities     8,875       9,702       6,659       (13,312 )     11,924  
Long-term debt     (1,201 )     131,400       5,500             135,699  
Notes payable - affiliates                 13,662       (13,662 )      
Deferred tax liabilities           8       354             362  
Asset retirement obligations           139                   139  
Total liabilities     7,674       141,249       26,175       (26,974 )     148,124  
                                         
Owners’ equity:                                        
Total partners’ capital     17,425       24,357       (3,458 )     (23,986 )     14,338  
Non-controlling interests     5,050       5,050             (5,050 )     5,050  
Total owners’ equity     22,475       29,407       (3,458 )     (29,036 )     19,388  
Total liabilities and owners’ equity   $ 30,149     $ 170,656     $ 22,717     $ (56,010 )   $ 167,512  

 

Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2017
(in thousands)

                                         
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                                         
Revenues   $     $ 49,669     $ 16,420     $ (1,367   $ 64,722  
Costs of services           44,099       15,661       (1,367     58,393  
Gross margin           5,570       759             6,329  
                                         
Operating costs and expense:                                        
General and administrative     1,192       3,014       904             5,110  
Depreciation, amortization and accretion           995       176             1,171  
Impairments           688       2,910             3,598  
Operating income (loss)     (1,192     873       (3,231           (3,550
                                         
Other income (expense):                                        
Equity earnings (loss) in subsidiaries     (1,667     (2,498           4,165        
Interest expense, net     (225     (1,288     (196           (1,709
Other, net           37       8             45  
Net income (loss) before income tax benefit     (3,084     (2,876     (3,419     4,165       (5,214
Income tax benefit           (44     (249           (293
Net income (loss)     (3,084     (2,832     (3,170     4,165       (4,921
                                         
Net loss attributable to non-controlling interests           (1,165                 (1,165
Net income (loss) attributable to controlling interests     (3,084     (1,667     (3,170     4,165       (3,756
                                         
Net loss attributable to general partner     (921                       (921
Net income (loss) attributable to limited partners   $ (2,163   $ (1,667   $ (3,170   $ 4,165     $ (2,835

  

Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2016
(in thousands)

                               
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                               
Revenues   $     $ 62,172     $ 13,884     $ (2,582 )   $ 73,474  
Costs of services           55,431       12,865       (2,582 )     65,714  
Gross margin           6,741       1,019             7,760  
                                         
Operating costs and expense:                                        
General and administrative     1,202       3,578       1,409             6,189  
Depreciation, amortization and accretion           1,038       187             1,225  
Impairments                              
Operating income (loss)     (1,202 )     2,125       (577 )           346  
                                         
Other income (expense):                                        
Equity earnings (loss) in subsidiaries     468       (749 )           281        
Interest expense, net     (218 )     (1,191 )     (209 )           (1,618 )
Other, net           19       4             23  
Net income (loss) before income tax expense     (952 )     204       (782 )     281       (1,249 )
Income tax expense           103       9             112  
Net income (loss)     (952 )     101       (791 )     281       (1,361 )
                                         
Net loss attributable to non-controlling interests           (367 )                 (367 )
Net income (loss) attributable to controlling interests     (952 )     468       (791 )     281       (994 )
                                         
Net loss attributable to general partner     (968 )                       (968 )
Net income (loss) attributable to limited partners   $ 16     $ 468     $ (791 )   $ 281     $ (26 )

 

Condensed Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended March 31, 2017
(in thousands)

                                         
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                                         
Net income (loss)   $ (3,084   $ (2,832   $ (3,170   $ 4,165     $ (4,921
Other comprehensive income - Foreign currency translation           (57     118             61  
                                         
Comprehensive income (loss)   $ (3,084   $ (2,889   $ (3,052   $ 4,165     $ (4,860
                                         
Comprehensive (loss) attributable to non-controlling interests           (1,165                 (1,165
Comprehensive (loss) attributable to general partner     (921                       (921
Comprehensive income (loss) attributable to controlling interests   $ (2,163   $ (1,724   $ (3,052   $ 4,165     $ (2,774

  

Condensed Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended March 31, 2016
(in thousands)

                               
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                               
Net income (loss)   $ (952 )   $ 101     $ (791 )   $ 281     $ (1,361 )

Other comprehensive income –

Foreign currency translation

          192       396             588  
                                         
Comprehensive income (loss)   $ (952 )   $ 293     $ (395 )   $ 281     $ (773 )
                                         
Comprehensive loss attributable to non-controlling interests           (367 )                 (367 )
Comprehensive loss attributable to general partner     (968 )                       (968 )
Comprehensive income (loss) attributable to controlling interests   $ 16     $ 660     $ (395 )   $ 281     $ 562  

  

Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2017
(in thousands)

                               
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                               
Operating activities:                                        
Net income (loss)   $ (3,084   $ (2,832   $ (3,170   $ 4,165     $ (4,921
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:                                        
Depreciation, amortization and accretion           1,122       311             1,433  
Impairments           688       2,910             3,598  
Gain (loss) on asset disposal           11                   11  
Interest expense from debt issuance cost amortization     146                         146  
Equity-based compensation expense     357                         357  
Equity in earnings of investee           (34                 (34
Equity earnings in subsidiaries     1,667       2,498             (4,165      
Deferred tax benefit, net           (8     (348           (356
Non-cash allocated expenses     921                         921  
Changes in assets and liabilities:                                        
Trade accounts receivable           1,973       (2,711     (117     (855
Receivables from affiliates           1,555             (1,555      
Prepaid expenses and other           (120     (6     (19     (145
Accounts payable and accrued payroll and other     70       1,291       155       1,691       3,207  
Income taxes payable           (44     33             (11
Net cash provided by (used in) operating activities     77       6,100       (2,826           3,351  
                                         
Investing activities:                                        
Proceeds from fixed asset disposals           2                   2  
Purchases of property and equipment           (298                 (298
Net cash used in investing activities           (296                 (296
                                         
Financing activities:                                        
                                         
Taxes paid related to net share settlement of equity-based compensation     (77                       (77
Distributions from subsidiaries     4,823       (4,815     (8            
Distributions to limited partners     (4,823                       (4,823
Distributions to non-controlling members                 (8           (8
Net cash provided by (used in) financing activities     (77     (4,815     (16           (4,908
                                         
Effects of exchange rates on cash           (44     (17           (61
                                         
Net increase (decrease) in cash and cash equivalents           945       (2,859           (1,914
Cash and cash equivalents, beginning of period     695       20,251       5,747             26,693  
Cash and cash equivalents, end of period   $ 695     $ 21,196     $ 2,888     $     $ 24,779  
                                         

   

Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2016
(in thousands)

                               
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                               
Operating activities:                                        
Net income (loss)   $ (952 )   $ 101     $ (791 )   $ 281     $ (1,361 )
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:                                        
Depreciation, amortization and accretion           1,119       314             1,433  
Interest expense from debt issuance cost amortization     140                         140  
Equity-based compensation expense     317                         317  
Equity in earnings of investee           (17 )                 (17 )
Distributions from investee           63                   63  
Equity earnings in subsidiaries     (468 )     749             (281 )      
Deferred tax expense, net                 36             36  
Non-cash allocated expenses     968                         968  
Changes in assets and liabilities:                                        
Trade accounts receivable           13,298       (83 )     (5,654 )     7,561  
Prepaid expenses and other     (115 )     263       28       158       334  
Accounts payable and accrued payroll and other     (61 )     (5,196 )     1,125       5,461       1,329  
Income taxes payable           69       75       35       179  
Net cash provided by (used in) operating activities     (171 )     10,449       704             10,982  
                                         
Investing activities:                                        
Purchases of property and equipment           (407 )     (89 )           (496 )
Net cash used in investing activities           (407 )     (89 )           (496 )
                                         
Financing activities:                                        
Repayments of long-term debt           (4,000 )                 (4,000 )
Distributions from subsidiaries     4,810       (4,810 )                  
Distributions to limited partners     (4,810 )                       (4,810 )
Distributions to non-controlling members           383       (750 )           (367 )
Net cash used in financing activities           (8,427 )     (750 )           (9,177 )
                                         
Effects of exchange rates on cash           192       199             391  
                                         
Net increase (decrease) in cash and cash equivalents     (171 )     1,807       64             1,700  
Cash and cash equivalents, beginning of period     378       19,570       4,202             24,150  
Cash and cash equivalents, end of period   $ 207     $ 21,377     $ 4,266     $     $ 25,850  
                                         
Non-cash items:                                        
Changes in accounts payable excluded from capital expenditures   $     $ 13     $ 54     $     $ 67  
Basis of Presentation and Summary of Significant Accounting Policies (Policies)

Basis of Presentation

 

The Unaudited Condensed Consolidated Financial Statements as of March 31, 2017 and for the three months ended March 31, 2017 and 2016 include our accounts and those of our controlled subsidiaries. Investments over which we exercise significant influence, but do not control, are accounted for using the equity method of accounting. All significant intercompany transactions and account balances have been eliminated in consolidation. The Unaudited Condensed Consolidated Balance Sheet at December 31, 2016 is derived from audited financial statements.

 

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim consolidated financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The Unaudited Condensed Consolidated Financial Statements include all adjustments considered necessary for a fair presentation of the consolidated financial position and consolidated results of operations for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed herein. Accordingly, the Unaudited Condensed Consolidated Financial Statements do not include all of the information and notes required by GAAP for complete consolidated financial statements. However, we believe that the disclosures made are adequate to make the information not misleading. These interim Unaudited Condensed Consolidated Financial Statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2016 included in our Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of the Unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

Accounts Receivable and Allowance for Bad Debts

 

We grant unsecured credit to customers under normal industry standards and terms, and have established policies and procedures that allow for an evaluation of each customer's creditworthiness. The Partnership determines allowances for bad debts based on management's assessment of the creditworthiness of the customers.  Trade receivables are written off against the allowance when deemed uncollectible. Recoveries of previously written off trade receivables are recorded when cash is received. During the quarter ended March 31, 2017, we received $0.3 million on accounts receivable previously written off which we recorded as a reduction to general and administrative expense on our Unaudited Consolidated Statements of Operations.

 

Income Taxes

 

As a limited partnership, we generally are not subject to federal, state, or local income taxes. The tax on our net income is generally borne by the individual partners. Net income (loss) for financial statement purposes may differ significantly from taxable income (loss) of the partners as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements under our partnership agreement. The aggregated difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because information regarding each partner’s tax attributes is not available to us.

 

The income of Tulsa Inspection Resources – Canada, ULC, our Canadian subsidiary, is taxable in Canada. Tulsa Inspection Resources – PUC, LLC, a subsidiary of our PIS segment that performs pipeline inspection services for utility customers, and Brown Integrity – PUC, LLC, a 51% owned subsidiary, have elected to be taxed as corporations for U.S. federal income tax purposes, and therefore these subsidiaries are subject to U.S. federal and state income tax. The amounts recognized as income tax expense, income taxes payable, and deferred tax liabilities in our Unaudited Condensed Consolidated Financial Statements represent the Canadian and U.S. taxes referred to above, as well as partnership-level taxes levied by various states, most notably franchise taxes assessed by the state of Texas.

 

As a publicly-traded partnership, we are subject to a statutory requirement that 90% of our total gross income classify as “qualifying income” (as defined by the Internal Revenue Code, related Treasury Regulations, and Internal Revenue Service pronouncements), determined on a calendar year basis. If our qualifying income does not meet this statutory requirement, we could be taxed as a corporation for federal and state income tax purposes. Our income has met the statutory qualifying income requirement for each year since our IPO.

Noncontrolling Interest

 

We own a 51% interest in Brown Integrity, LLC (“Brown”) and a 49% interest in CF Inspection Management, LLC (“CF Inspection”). The accounts of these subsidiaries are included in our Unaudited Condensed Consolidated Financial Statements. The portion of the net income (loss) of these entities that is attributable to outside owners is reported in net income (loss) attributable to noncontrolling interest in our Unaudited Condensed Consolidated Statements of Operations, and the portion of the net assets of these entities that is attributable to outside owners is reported in noncontrolling interests in our Unaudited Condensed Consolidated Balance Sheets.

Property and Equipment

 

Property and equipment consists of land, land and leasehold improvements, buildings, facilities, wells and related equipment, computer and office equipment, and vehicles. We record property and equipment at cost. Costs of renewals and improvements that substantially extend the useful lives of the assets are capitalized. Maintenance and repairs are expensed as incurred. We depreciate property and equipment on a straight-line basis over the estimated useful lives of the assets. Upon retirement or disposition of an asset, we remove the cost and related accumulated depreciation from the balance sheet and report the resulting gain or loss, if any, in the Unaudited Condensed Consolidated Statement of Operations.

 

We review property and equipment for impairment whenever events or circumstances indicate that the asset group to which they relate may be impaired. To perform an impairment assessment, we first determine whether the cash flows expected to be generated from the asset group exceed the carrying value of the asset group. If such estimated cash flows do not exceed the carrying value of the asset group, we reduce the carrying value of the asset group to its fair value and record a corresponding impairment loss.

Identifiable Intangible Assets

 

Our intangible assets consist primarily of customer relationships, trade names, and our database of inspectors. We recorded these intangible assets as part of our accounting for the acquisitions of businesses, and we amortize these assets on a straight-line basis over their estimated useful lives, which typically range from 5 – 20 years.

 

We review our intangible assets for impairment whenever events or circumstances indicate that the asset group to which they relate may be impaired. To perform an impairment assessment, we first determine whether the cash flows expected to be generated from the asset group exceed the carrying value of the asset group. If such estimated cash flows do not exceed the carrying value of the asset group, we reduce the carrying values of the assets to their fair values and record a corresponding impairment loss.

Goodwill

 

Goodwill is not amortized, but is subject to an annual review for impairment on November 1 (or at other dates if events or changes in circumstances indicate that the carrying value of goodwill may be impaired) at a reporting unit level. The reporting units used to evaluate and measure goodwill for impairment are determined primarily from the manner in which the business is managed or operated. We have determined that our PIS, IS, and W&ES segments are the appropriate reporting units for testing goodwill impairment.

 

To perform a goodwill impairment assessment, we perform an analysis to assess whether it is more likely than not that the fair value of the reporting unit exceeds its carrying value. If we determine that it is more likely than not that the carrying value of the reporting unit exceeds its fair value, we reduce the carrying value of goodwill and record a corresponding impairment expense.

Accrued Payroll and Other

 

Accrued payroll and other on our Unaudited Condensed Consolidated Balance Sheets includes the following:

 

    March 31, 2017     December 31, 2016  
    (in thousands)  
             
Accrued payroll   $ 8,235     $ 5,594  
Other     1,809       1,991  
    $ 10,044     $ 7,585  

 

Foreign Currency Translation

 

Our Unaudited Condensed Consolidated Financial Statements are reported U.S. dollars. We translate our Canadian dollar-denominated assets and liabilities into U.S. dollars at the exchange rate in effect at the balance sheet date. We translate our Canadian dollar-denominated revenues and expenses into U.S. dollars at the average exchange rate in effect during the period. We report gains and losses on foreign currency translation in other comprehensive income (loss).

 

Our Unaudited Condensed Consolidated Balance Sheet at March 31, 2017 includes $2.5 million of accumulated other comprehensive loss associated with accumulated currency translation adjustments, all of which relate to our Canadian operations. If at some point in the future, we were to sell or substantially liquidate our Canadian operations, we would reclassify the balance in accumulated other comprehensive loss to Partners’ capital, which would be reported in the Unaudited Condensed Consolidated Statement of Operations as a reduction to net income.

Subordination

 

With the payment of the fourth quarter distribution and the fulfillment of other requirements associated with the termination of the subordination period, the Partnership emerged from subordination on February 14, 2017, converting the 5,913,000 subordinated units into common units on a one-for-one basis.

 

New Accounting Standards

 

In 2017, the Partnership adopted the following new accounting standards issued by the Financial Accounting Standards Board (“FASB”);

 

The FASB issued Accounting Standards Update (“ASU”) 2016-09 – Compensation – Stock Compensation in March 2016. This ASU gives entities the option to account for forfeitures of share-based awards when the forfeitures occur (previously, entities were required to estimate future forfeitures and reduce their share-based compensation expense accordingly). We adopted this new standard on January 1, 2017 and elected to account for forfeitures when they occur. The adoption of this ASU had no significant effect on our Unaudited Condensed Consolidated Financial Statements.

 

The FASB issued ASU 2017-04 – Intangibles – Goodwill and Other in January 2017. The objective of this guidance is to simplify how an entity is required to test goodwill for impairment. We adopted this new standard effective January 1, 2017 in order to simplify the measurement process for the potential impairment of goodwill. Under the new standard, we perform a goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount. If the carrying amount exceeds the reporting unit’s fair value, we record a goodwill impairment charge for the excess (not exceeding the carrying value of the reporting unit’s goodwill). 

 

Other accounting guidance proposed by the FASB that may impact our Unaudited Condensed Consolidated Financial Statements, which we have not yet adopted include:

 

The FASB issued ASU 2016-02 – Leases in February 2016. This guidance attempts to increase transparency and comparability among organizations by recognizing certain lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between previous GAAP and this new guidance is the recognition on the balance sheet of certain lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently examining the guidance provided in the ASU and determining the impact this guidance will have on our Unaudited Condensed Consolidated Financial Statements.

 

The FASB issued ASU 2014-09 – Revenue from Contracts with Customers in May 2014. ASU 2014-09 is intended to clarify the principles for recognizing revenue and to develop a common standard for recognizing revenue for GAAP and International Financial Reporting Standards that is applicable to all organizations. We will be required to adopt this standard in 2018 and to apply its provisions either retrospectively to each prior reporting period presented or prospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application (modified retrospective method). Although we continue to evaluate the financial impact of this ASU on the Partnership, we currently plan to adopt this standard utilizing the modified retrospective method and do not anticipate that the adoption of this ASU will materially impact our financial position, results of operations or cash flows.

Basis of Presentation and Summary of Significant Accounting Policies (Tables)
Schedule of accrued payroll and other

Accrued payroll and other on our Unaudited Condensed Consolidated Balance Sheets includes the following:

 

    March 31, 2017     December 31, 2016  
    (in thousands)  
             
Accrued payroll   $ 8,235     $ 5,594  
Other     1,809       1,991  
    $ 10,044     $ 7,585  

 

Credit Agreement (Tables)
Schedule of outstanding borrowings

Outstanding borrowings at March 31, 2017 and December 31, 2016 under the Credit Agreement were as follows:

 

    March 31, 2017     December 31, 2016  
    (in thousands)  
             
Working Capital Facility   $ 48,000     $ 48,000  
Acquisition Facility     88,900       88,900  
Total borrowings     136,900       136,900  
Debt issuance costs     (1,054     (1,201 ) 
Long-term debt   $ 135,846     $ 135,699  

 

Equity Compensation (Tables)
Schedule of share-based compensation

The following table summarizes the LTIP Unit activity for the three months ended March 31, 2017 and 2016:

 

   Three Months Ended March 31, 
   2017   2016 
                 
   Number
of Units
   Weighted
Average
Grant
Date Fair
Value / Unit
   Number
of Units
   Weighted
Average
Grant
Date Fair
Value / Unit
 
                 
Units at January 1   573,902   $9.86    361,698   $14.30 
Units granted   245,331   $7.16    331,098   $6.33 
Units vested and issued   (26,366)  $15.25    (8,208)  $16.71 
Units forfeited   (9,328)  $9.50    (14,165)  $14.74 
                     
Units at March 31   783,539   $8.83    670,423   $10.33 
Earnings per Unit and Cash Distributions (Tables)
Schedule of cash distributions declared and paid by the Partnership

The following table summarizes the cash distributions declared and paid to our limited partners since our IPO.

             
Payment Date  Per Unit Cash
Distributions
   Total Cash
Distributions
   Total Cash
Distributions
to Affiliates (a)
 
         (in thousands) 
             
May 15, 2014 (b)  $0.301389   $3,565   $2,264 
August 14, 2014   0.396844    4,693    2,980 
November 14, 2014   0.406413    4,806    3,052 
Total 2014 Distributions   1.104646    13,064    8,296 
                
February 14, 2015   0.406413    4,806    3,052 
May 14, 2015   0.406413    4,808    3,053 
August 14, 2015   0.406413    4,809    3,087 
November 13, 2015   0.406413    4,809    3,092 
Total 2015 Distributions   1.625652    19,232    12,284 
                
February 12, 2016   0.406413    4,810    3,107 
May 13, 2016   0.406413    4,812    3,099 
August 12, 2016   0.406413    4,817    3,103 
November 14, 2016   0.406413    4,819    3,105 
Total 2016 Distributions   1.625652    19,258    12,414 
                
February 13, 2017   0.406413    4,823    3,107 
May 15, 2017 (c)   0.210000    2,495    1,606 
    0.616413    7,318    4,713 
                
  Total Distributions (through May 15, 2017 since IPO)  $4.972363   $58,872   $37,707 

 

(a)Approximately 64.4% of the Partnership’s outstanding units at March 31, 2017 were held by affiliates.
(b)Distribution was pro-rated from the date of our IPO through March 31, 2014.
(c)First quarter 2017 distribution was declared and will be paid in the second quarter of 2017.
Reportable Segments (Tables)
Schedule of segment operating income and reconciliation to net income

The following tables show operating income (loss) by reportable segment and a reconciliation of segment operating income (loss) to net loss before income tax expense.

 

    PIS     IS     W&ES     Other     Total  
    (in thousands)  
                               
Three months ended March 31, 2017                                        
                                         
Revenue   $ 62,148     $ 696     $ 1,878     $     $ 64,722  
Costs of services     56,601       904       888             58,393  
Gross margin     5,547       (208 )     990             6,329  
General and administrative     3,254       446       218       1,192       5,110  
Depreciation, amortization and accretion     599       157       415             1,171  
Impairments     1,329       1,581       688             3,598  
Operating income (loss)   $ 365     $ (2,392 )   $ (331 )   $ (1,192 )     (3,550 )
Interest expense, net                                     (1,709 )
Other, net                                     45  
Net loss before income tax expense                                   $ (5,214 )
                                         
Three months ended March 31, 2016                                        
                                         
Revenue   $ 66,709     $ 4,258     $ 2,507     $     $ 73,474  
Costs of services     60,844       3,732       1,138             65,714  
Gross margin     5,865       526       1,369             7,760  
General and administrative     3,440       991       556       1,202       6,189  
Depreciation, amortization and accretion     617       159       449             1,225  
Operating income (loss)   $ 1,808     $ (624 )   $ 364     $ (1,202 )     346  
Interest expense, net                                     (1,618 )
Other, net                                     23  
Net loss before income tax expense                                   $ (1,249 )
                                         
Total Assets                                        
                                         
March 31, 2017   $ 130,988     $ 9,396     $ 29,361     $ (7,785 )   $ 161,960  
                                         
December 31, 2016   $ 124,840     $ 12,079     $ 38,141     $ (7,548 )   $ 167,512  
Condensed Consolidating Financial Information (Tables)

 Condensed Consolidating Balance Sheet
As of March 31, 2017
(in thousands)

                               
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                               
ASSETS                                        
Current assets:                                        
Cash and cash equivalents   $ 695     $ 21,196     $ 2,888     $     $ 24,779  
Trade accounts receivable, net           31,073       8,882       (572 )     39,383  
Accounts receivable - affiliates           11,042             (11,042 )      
Prepaid expenses and other           2,450       43       (38 )     2,455  
Total current assets     695       65,761       11,813       (11,652 )     66,617  
Property and equipment:                                        
Property and equipment, at cost           16,592       3,092             19,684  
Less: Accumulated depreciation           6,239       1,198             7,437  
Total property and equipment, net           10,353       1,894             12,247  
Intangible assets, net           23,310       4,273             27,583  
Goodwill           53,913       1,416             55,329  
Investment in subsidiaries     21,755       (2,868 )           (18,887 )      
Notes receivable - affiliates           13,631             (13,631      
Other assets           174       10             184  
Total assets   $ 22,450     $ 164,274     $ 19,406     $ (44,170   $ 161,960  
                                         
LIABILITIES AND OWNERS’ EQUITY                                        
Current liabilities:                                        
Accounts payable   $     $ 1,201     $ 174     $ (591   $ 784  
Accounts payable - affiliates     8,906             5,363       (11,042     3,227  
Accrued payroll and other     38       8,825       1,200       (19 )     10,044  
Income taxes payable           923       77             1,000  
Total current liabilities     8,944       10,949       6,814       (11,652     15,055  
Long-term debt     (1,054     131,400       5,500             135,846  
Notes payable - affiliates                 13,631       (13,631      
                                         
Asset retirement obligations           161                   161  
Total liabilities     7,890       142,510       25,945       (25,283     151,062  
                                         
Owners’ equity:                                        
Total partners’ capital     10,683       17,887       (6,539     (15,010     7,021  
Non-controlling interests     3,877       3,877             (3,877 )     3,877  
Total owners’ equity     14,560       21,764       (6,539 )   (18,887     10,898  
Total liabilities and owners’ equity   $ 22,450     $ 164,274     $ 19,406     $ (44,170   $ 161,960  

   

Condensed Consolidating Balance Sheet
As of December 31, 2016
(in thousands)

  

                               
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                               
ASSETS                              
Current assets:                                        
Cash and cash equivalents   $ 695     $ 20,251     $ 5,747     $     $ 26,693  
Trade accounts receivable, net           33,046       6,125       (689 )     38,482  
Accounts receivable - affiliates           12,622             (12,622 )      
Prepaid expenses and other           996       46             1,042  
Total current assets     695       66,915       11,918       (13,311 )     66,217  
Property and equipment:                                        
Property and equipment, at cost           19,366       3,093             22,459  
Less: Accumulated depreciation           6,798       1,042             7,840  
Total property and equipment, net           12,568       2,051             14,619  
Intangible assets, net           23,875       5,749             29,624  
Goodwill           53,914       2,989             56,903  
Investment in subsidiaries     29,454       (417 )           (29,037 )      
Notes receivable - affiliates           13,662             (13,662 )      
Other assets           139       10             149  
Total assets   $ 30,149     $ 170,656     $ 22,717     $ (56,010 )   $ 167,512  
                                         
LIABILITIES AND OWNERS’ EQUITY                                        
Current liabilities:                                        
Accounts payable   $     $ 1,653     $ 712     $ (675 )   $ 1,690  
Accounts payable - affiliates     8,860             5,400       (12,622 )     1,638  
Accrued payroll and other     15       7,082       503       (15 )     7,585  
Income taxes payable           967       44             1,011  
Total current liabilities     8,875       9,702       6,659       (13,312 )     11,924  
Long-term debt     (1,201 )     131,400       5,500             135,699  
Notes payable - affiliates                 13,662       (13,662 )      
Deferred tax liabilities           8       354             362  
Asset retirement obligations           139                   139  
Total liabilities     7,674       141,249       26,175       (26,974 )     148,124  
                                         
Owners’ equity:                                        
Total partners’ capital     17,425       24,357       (3,458 )     (23,986 )     14,338  
Non-controlling interests     5,050       5,050             (5,050 )     5,050  
Total owners’ equity     22,475       29,407       (3,458 )     (29,036 )     19,388  
Total liabilities and owners’ equity   $ 30,149     $ 170,656     $ 22,717     $ (56,010 )   $ 167,512  

Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2017
(in thousands)

                                         
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                                         
Revenues   $     $ 49,669     $ 16,420     $ (1,367   $ 64,722  
Costs of services           44,099       15,661       (1,367     58,393  
Gross margin           5,570       759             6,329  
                                         
Operating costs and expense:                                        
General and administrative     1,192       3,014       904             5,110  
Depreciation, amortization and accretion           995       176             1,171  
Impairments           688       2,910             3,598  
Operating income (loss)     (1,192     873       (3,231           (3,550
                                         
Other income (expense):                                        
Equity earnings (loss) in subsidiaries     (1,667     (2,498           4,165        
Interest expense, net     (225     (1,288     (196           (1,709
Other, net           37       8             45  
Net income (loss) before income tax benefit     (3,084     (2,876     (3,419     4,165       (5,214
Income tax benefit           (44     (249           (293
Net income (loss)     (3,084     (2,832     (3,170     4,165       (4,921
                                         
Net loss attributable to non-controlling interests           (1,165                 (1,165
Net income (loss) attributable to controlling interests     (3,084     (1,667     (3,170     4,165       (3,756
                                         
Net loss attributable to general partner     (921                       (921
Net income (loss) attributable to limited partners   $ (2,163   $ (1,667   $ (3,170   $ 4,165     $ (2,835

  

Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2016
(in thousands)

                               
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                               
Revenues   $     $ 62,172     $ 13,884     $ (2,582 )   $ 73,474  
Costs of services           55,431       12,865       (2,582 )     65,714  
Gross margin           6,741       1,019             7,760  
                                         
Operating costs and expense:                                        
General and administrative     1,202       3,578       1,409             6,189  
Depreciation, amortization and accretion           1,038       187             1,225  
Impairments                              
Operating income (loss)     (1,202 )     2,125       (577 )           346  
                                         
Other income (expense):                                        
Equity earnings (loss) in subsidiaries     468       (749 )           281        
Interest expense, net     (218 )     (1,191 )     (209 )           (1,618 )
Other, net           19       4             23  
Net income (loss) before income tax expense     (952 )     204       (782 )     281       (1,249 )
Income tax expense           103       9             112  
Net income (loss)     (952 )     101       (791 )     281       (1,361 )
                                         
Net loss attributable to non-controlling interests           (367 )                 (367 )
Net income (loss) attributable to controlling interests     (952 )     468       (791 )     281       (994 )
                                         
Net loss attributable to general partner     (968 )                       (968 )
Net income (loss) attributable to limited partners   $ 16     $ 468     $ (791 )   $ 281     $ (26 )

Condensed Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended March 31, 2017
(in thousands)

                                         
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                                         
Net income (loss)   $ (3,084   $ (2,832   $ (3,170   $ 4,165     $ (4,921
Other comprehensive income - Foreign currency translation           (57     118             61  
                                         
Comprehensive income (loss)   $ (3,084   $ (2,889   $ (3,052   $ 4,165     $ (4,860
                                         
Comprehensive (loss) attributable to non-controlling interests           (1,165                 (1,165
Comprehensive (loss) attributable to general partner     (921                       (921
Comprehensive income (loss) attributable to controlling interests   $ (2,163   $ (1,724   $ (3,052   $ 4,165     $ (2,774

  

Condensed Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended March 31, 2016
(in thousands)

                               
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                               
Net income (loss)   $ (952 )   $ 101     $ (791 )   $ 281     $ (1,361 )

Other comprehensive income –

Foreign currency translation

          192       396             588  
                                         
Comprehensive income (loss)   $ (952 )   $ 293     $ (395 )   $ 281     $ (773 )
                                         
Comprehensive loss attributable to non-controlling interests           (367 )                 (367 )
Comprehensive loss attributable to general partner     (968 )                       (968 )
Comprehensive income (loss) attributable to controlling interests   $ 16     $ 660     $ (395 )   $ 281     $ 562  

Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2017
(in thousands)

                               
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                               
Operating activities:                                        
Net income (loss)   $ (3,084   $ (2,832   $ (3,170   $ 4,165     $ (4,921
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:                                        
Depreciation, amortization and accretion           1,122       311             1,433  
Impairments           688       2,910             3,598  
Gain (loss) on asset disposal           11                   11  
Interest expense from debt issuance cost amortization     146                         146  
Equity-based compensation expense     357                         357  
Equity in earnings of investee           (34                 (34
Equity earnings in subsidiaries     1,667       2,498             (4,165      
Deferred tax benefit, net           (8     (348           (356
Non-cash allocated expenses     921                         921  
Changes in assets and liabilities:                                        
Trade accounts receivable           1,973       (2,711     (117     (855
Receivables from affiliates           1,555             (1,555      
Prepaid expenses and other           (120     (6     (19     (145
Accounts payable and accrued payroll and other     70       1,291       155       1,691       3,207  
Income taxes payable           (44     33             (11
Net cash provided by (used in) operating activities     77       6,100       (2,826           3,351  
                                         
Investing activities:                                        
Proceeds from fixed asset disposals           2                   2  
Purchases of property and equipment           (298                 (298
Net cash used in investing activities           (296                 (296
                                         
Financing activities:                                        
                                         
Taxes paid related to net share settlement of equity-based compensation     (77                       (77
Distributions from subsidiaries     4,823       (4,815     (8            
Distributions to limited partners     (4,823                       (4,823
Distributions to non-controlling members                 (8           (8
Net cash provided by (used in) financing activities     (77     (4,815     (16           (4,908
                                         
Effects of exchange rates on cash           (44     (17           (61
                                         
Net increase (decrease) in cash and cash equivalents           945       (2,859           (1,914
Cash and cash equivalents, beginning of period     695       20,251       5,747             26,693  
Cash and cash equivalents, end of period   $ 695     $ 21,196     $ 2,888     $     $ 24,779  
                                         

   

Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2016
(in thousands)

                               
    Parent     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  
                               
Operating activities:                                        
Net income (loss)   $ (952 )   $ 101     $ (791 )   $ 281     $ (1,361 )
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:                                        
Depreciation, amortization and accretion           1,119       314             1,433  
Interest expense from debt issuance cost amortization     140                         140  
Equity-based compensation expense     317                         317  
Equity in earnings of investee           (17 )                 (17 )
Distributions from investee           63                   63  
Equity earnings in subsidiaries     (468 )     749             (281 )      
Deferred tax expense, net                 36             36  
Non-cash allocated expenses     968                         968  
Changes in assets and liabilities:                                        
Trade accounts receivable           13,298       (83 )     (5,654 )     7,561  
Prepaid expenses and other     (115 )     263       28       158       334  
Accounts payable and accrued payroll and other     (61 )     (5,196 )     1,125       5,461       1,329  
Income taxes payable           69       75       35       179  
Net cash provided by (used in) operating activities     (171 )     10,449       704             10,982  
                                         
Investing activities:                                        
Purchases of property and equipment           (407 )     (89 )           (496 )
Net cash used in investing activities           (407 )     (89 )           (496 )
                                         
Financing activities:                                        
Repayments of long-term debt           (4,000 )                 (4,000 )
Distributions from subsidiaries     4,810       (4,810 )                  
Distributions to limited partners     (4,810 )                       (4,810 )
Distributions to non-controlling members           383       (750 )           (367 )
Net cash used in financing activities           (8,427 )     (750 )           (9,177 )
                                         
Effects of exchange rates on cash           192       199             391  
                                         
Net increase (decrease) in cash and cash equivalents     (171 )     1,807       64             1,700  
Cash and cash equivalents, beginning of period     378       19,570       4,202             24,150  
Cash and cash equivalents, end of period   $ 207     $ 21,377     $ 4,266     $     $ 25,850  
                                         
Non-cash items:                                        
Changes in accounts payable excluded from capital expenditures   $     $ 13     $ 54     $     $ 67  
Organization and Operations (Details Narrative)
3 Months Ended
Mar. 31, 2017
Member interest as percentage in managed wells
25.00% 
North Dakota [Member]
 
Number of commercial saltwater disposal facilities
Texas [Member]
 
Number of commercial saltwater disposal facilities
Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Dec. 31, 2016
Threshold for nontaxation
90.00% 
 
Accumulated other comprehensive loss
$ (2,477)
$ (2,538)
Subordinated Units [Member]
 
 
Description of conversion
 
Conversion ratio
100.00% 
 
Units converted
(5,913,000)
 
Common Units [Member]
 
 
Units converted
5,913,000 
 
Minimum [Member]
 
 
Finite-lived intangible asset, useful life
5 years 
 
Maximum [Member]
 
 
Finite-lived intangible asset, useful life
20 years 
 
Brown Integrity, LLC [Member]
 
 
Subsidiary ownership interest
51.00% 
 
CF Inspection Management, LLC [Member]
 
 
Subsidiary ownership interest
49.00% 
 
Pipeline Inspection [Member] |
PUC, LLC [Member]
 
 
Subsidiary ownership interest
51.00% 
 

With the payment of the fourth quarter distribution and the fulfillment of other requirements associated with the termination of the subordination period, the Partnership emerged from subordination on February 14, 2017, converting the 5,913,000 subordinated units into common units on a one-for-one basis.

Basis of Presentation and Summary of Significant Accounting Policies (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Accounting Policies [Abstract]
 
 
Accrued payroll
$ 8,235 
$ 5,594 
Other
1,809 
1,991 
[us-gaap:AccruedLiabilitiesCurrent]
$ 10,044 
$ 7,585 
Impairments (Details Narrative) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 3 Months Ended 0 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Mar. 31, 2017
Revenue Concentration [Member]
Mar. 31, 2017
Gross Margin Concentration [Member]
Mar. 31, 2017
Canadian Operations [Member]
Revenue Concentration [Member]
Mar. 31, 2017
Canadian Operations [Member]
Gross Margin Concentration [Member]
Mar. 31, 2017
Water and Environmental Services [Member]
Mar. 31, 2016
Water and Environmental Services [Member]
Mar. 31, 2017
Water and Environmental Services [Member]
Orla SWD Facility [Member]
Mar. 31, 2017
Pipeline Inspection [Member]
Mar. 31, 2016
Pipeline Inspection [Member]
Mar. 31, 2017
Pipeline Inspection [Member]
Customer Relationships [Member]
Mar. 31, 2017
Pipeline Inspection [Member]
Trade Names [Member]
Mar. 31, 2017
Pipeline Inspection [Member]
TIR-Canada [Member]
Mar. 31, 2017
Integrity Services [Member]
Mar. 31, 2016
Integrity Services [Member]
May 12, 2017
Subsequent Event [Member]
Water and Environmental Services [Member]
Orla SWD Facility [Member]
Revenue
$ 64,722 
$ 73,474 
 
 
 
 
 
$ 1,878 
$ 2,507 
 
$ 62,148 
$ 66,709 
 
 
$ 12,900 
$ 696 
$ 4,258 
 
Gross margin
6,329 
7,760 
 
 
 
 
 
990 
1,369 
 
5,547 
5,865 
 
 
900 
(208)
526 
 
Concentration percentage
 
 
 
20.00% 
14.00% 
90.00% 
90.00% 
 
 
 
 
 
 
 
 
 
 
 
Impairment of intangible assets
 
 
 
 
 
 
 
 
 
 
1,300 
 
1,100 
200 
 
 
 
 
Impairment of property, plant and equipment
 
 
 
 
 
 
 
700 
 
 
 
 
 
 
 
 
 
 
Write-off of facility due to fire
 
 
 
 
 
 
 
 
 
(1,300)
 
 
 
 
 
 
 
 
Carry value of facility
19,684 
 
22,459 
 
 
 
 
100 
 
 
 
 
 
 
 
 
 
 
Impairment of goodwill
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,600 
 
 
Insurance settlement receivable
 
 
 
 
 
 
 
 
 
1,300 
 
 
 
 
 
 
 
 
Proceeds from insurance receivable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 1,600 
Credit Agreement (Details Narrative) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Line of credit facility, maximum borrowing capacity
$ 200,000 
 
Line of credit facility additional borrowings
125,000 
 
Description of interest rate
 
Line of credit facility, commitment fee percentage
0.50% 
 
Interest paid, net
1,600 
1,300 
Debt covenant total adjusted leverage ratio maximum
4.0 
 
Debt covenant interest coverage ratio minimum
3.0 
 
Total adjusted leverage ratio
3.47 
 
Interest coverage ratio
3.68 
 
Line of credit facility minimum extended available borrowing capacity
5,000 
 
Amount borrowing base must exceed outstanding balance of working capital revolving credit facility
5,000 
 
Minimum [Member]
 
 
Debt instrument, interest rate, effective percentage
3.90% 
3.54% 
Maximum [Member]
 
 
Debt instrument, interest rate, effective percentage
4.73% 
4.19% 
Working Capital Facility [Member]
 
 
Line of credit facility, capacity available for trade purchases
75,000 
 
Acquisition Facility [Member]
 
 
Line of credit facility, capacity available for specific purpose other than for trade purchases
$ 125,000 
 

(i) a base rate plus a margin of 1.25% to 2.75% per annum (“Base Rate Borrowing”) or (ii) an adjusted LIBOR rate plus a margin of 2.25% to 3.75% per annum (“LIBOR Borrowings”).

Credit Agreement (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Line of credit, gross
$ 136,900 
$ 136,900 
Debt issuance costs
1,054 
1,201 
Long-term debt
135,846 
135,699 
Working Capital Facility [Member]
 
 
Line of credit, gross
48,000 
48,000 
Acquisition Facility [Member]
 
 
Line of credit, gross
$ 88,900 
$ 88,900 
Income Taxes (Details Narrative)
3 Months Ended
Mar. 31, 2017
Income Tax Disclosure [Abstract]
 
Statutory tax rate
35.00% 
Equity Compensation (Details Narrative) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Share-based compensation expense
$ 357 
$ 317 
Long Term Incentive Plan [Member]
 
 
Shares authorized under plan
1,182,600 
 
Share-based compensation expense
400 
300 
Number of units which have specific performance vesting terms
77,495 
 
Vesting terms of units with specific performance vesting terms
 
Compensation cost not yet recognized
$ 4,900 
 
Period for recognition of compensation cost
2 years 9 months 4 days 
 
Long Term Incentive Plan [Member] |
Tranche One [Member]
 
 
Percentage of awards vesting
33.33% 
 
Vesting period
3 years 
 
Long Term Incentive Plan [Member] |
Tranche Two [Member]
 
 
Percentage of awards vesting
33.33% 
 
Vesting period
4 years 
 
Long Term Incentive Plan [Member] |
Tranche Three [Member]
 
 
Percentage of awards vesting
33.33% 
 
Vesting period
5 years 
 

vest three years from the grant dates, contingent upon the recipient meeting certain performance targets

Equity Compensation (Details) (USD $)
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
 
 
Units at beginning
573,902 
361,698 
Units granted
245,331 
331,098 
Units vested and issued
(26,366)
(8,208)
Units forfeited
(9,328)
(14,165)
Units at ending
783,539 
670,423 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
 
 
Units at beginning
$ 9.86 
$ 14.30 
Units granted
$ 7.16 
$ 6.33 
Units vested and issued
$ 15.25 
$ 16.71 
Units forfeited
$ 9.50 
$ 14.74 
Units at ending
$ 8.83 
$ 10.33 
Related-Party Transactions (Details Narrative) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Alati Arnegard LLC [Member]
 
 
 
Subsidiary ownership interest
25.00% 
 
 
Management fee revenue from related parties
$ 200 
$ 200 
 
Accounts receivable from related parties
100 
 
100 
General Partner [Member] |
Omnibus Agreement [Member]
 
 
 
Quarterly administrative fee due to related parties
1,000 
 
 
Incurred expenses by Holdings on our behalf
$ 900 
$ 1,000 
 
Earnings per Unit and Cash Distributions (Details Narrative)
3 Months Ended
Mar. 31, 2017
Percentage of partnership units held by affiliates
64.40% 
Brown Integrity, LLC [Member]
 
Percentage of income attributable to noncontrolling interests
49.00% 
CF Inspection Management, LLC [Member]
 
Percentage of income attributable to noncontrolling interests
51.00% 
Earnings per Unit and Cash Distributions (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
0 Months Ended 3 Months Ended 12 Months Ended 40 Months Ended 0 Months Ended 3 Months Ended 12 Months Ended 40 Months Ended 0 Months Ended
Feb. 13, 2017
Nov. 14, 2016
Aug. 12, 2016
May 13, 2016
Feb. 12, 2016
Nov. 13, 2015
Aug. 14, 2015
May 14, 2015
Feb. 14, 2015
Nov. 14, 2014
Aug. 14, 2014
May 15, 2014
Mar. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
May 15, 2017
May 15, 2017
Subsequent Event [Member]
Feb. 13, 2017
Affiliated Entity [Member]
Nov. 14, 2016
Affiliated Entity [Member]
Aug. 12, 2016
Affiliated Entity [Member]
May 13, 2016
Affiliated Entity [Member]
Feb. 12, 2016
Affiliated Entity [Member]
Nov. 13, 2015
Affiliated Entity [Member]
Aug. 14, 2015
Affiliated Entity [Member]
May 14, 2015
Affiliated Entity [Member]
Feb. 14, 2015
Affiliated Entity [Member]
Nov. 14, 2014
Affiliated Entity [Member]
Aug. 14, 2014
Affiliated Entity [Member]
May 15, 2014
Affiliated Entity [Member]
Mar. 31, 2017
Affiliated Entity [Member]
Dec. 31, 2016
Affiliated Entity [Member]
Dec. 31, 2015
Affiliated Entity [Member]
Dec. 31, 2014
Affiliated Entity [Member]
May 15, 2017
Affiliated Entity [Member]
May 15, 2017
Affiliated Entity [Member]
Subsequent Event [Member]
Per Unit Cash Distribution (in dollars per share)
$ 0.406413 
$ 0.406413 
$ 0.406413 
$ 0.406413 
$ 0.406413 
$ 0.406413 
$ 0.406413 
$ 0.406413 
$ 0.406413 
$ 0.406413 
$ 0.396844 
$ 0.301389 1
$ 0.616413 
$ 1.625652 
$ 1.625652 
$ 1.104646 
$ 4.972363 
$ 0.210000 2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Cash Distribution
$ 4,823 
$ 4,819 
$ 4,817 
$ 4,812 
$ 4,810 
$ 4,809 
$ 4,809 
$ 4,808 
$ 4,806 
$ 4,806 
$ 4,693 
$ 3,565 1
$ 7,318 
$ 19,258 
$ 19,232 
$ 13,064 
$ 58,872 
$ 2,495 2
$ 3,107 3
$ 3,105 3
$ 3,103 3
$ 3,099 3
$ 3,107 3
$ 3,092 3
$ 3,087 3
$ 3,053 3
$ 3,052 3
$ 3,052 3
$ 2,980 3
$ 2,264 1 3
$ 4,713 3
$ 12,414 3
$ 12,284 3
$ 8,296 3
$ 37,707 3
$ 1,606 3
Commitments and Contingencies (Details Narrative) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
TIR Litigation [Member]
Mar. 31, 2017
CES Litigation [Member]
Mar. 31, 2017
Performance Obligation Collateral [Member]
Dec. 31, 2016
Performance Obligation Collateral [Member]
Mar. 31, 2017
Employment Contract Commitments [Member]
Mar. 31, 2017
Compliance Audit Contingencies [Member]
Security deposits kept as collateral
 
 
$ 500 
$ 500 
 
 
Loss contingency
 
 
 
 
$ 900 
$ 100 
Complaint filing date
2014-07-03 
2015-09-30 
 
 
 
 
Plantiff name
 
 
 
 
Defendant names
 
 
 
 
Complaint description
 
 
 
 
Partnership status in case
 
 
 
 
 
Domicile of litigation
 
 
 
 
Description of litigation resolution
 
 
 
 
 

a group of former minority shareholders of Tulsa Inspection Resources, Inc. (“TIR Inc.”, the predecessor of the TIR Entities)

Flatland Resources I, LLC and Flatland Resources II, LLC

TIR LLC, members of TIR LLC, and certain affiliates of TIR LLC’s members

CES LLC

The former shareholders of TIR Inc. claim that they did not receive sufficient value for their shares in the TIR Merger and are seeking rescission of the TIR Merger or, alternatively, compensatory and punitive damages.

The customers claim that CES LLC breached the management agreements and interfered with their business relationships, and seek to rescind the management agreements and recover any damages.

The Partnership is not named as a defendant in this civil action.

United States District Court for the Northern District of Oklahoma

District Court for the McKenzie County District of the State of North Dakota

In the first quarter of 2017, CES received a cash payment and other consideration and the parties settled the matter and dismissed all associated claims.

Reportable Segments (Details Narrative)
3 Months Ended
Mar. 31, 2017
Number
Number of reportable segments
Water and Environmental Services [Member]
 
Number of commercial saltwater disposal facilities
10 
Number of facilities, equity owned
Reportable Segments (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Revenues
$ 64,722 
$ 73,474 
 
Costs of services
58,393 
65,714 
 
Gross margin
6,329 
7,760 
 
General and administrative
5,110 
6,189 
 
Depreciation, amortization and accretion
1,224 
1,225 
 
Impairments
3,598 
 
 
Operating income (loss)
(3,550)
346 
 
Interest expense, net
(1,709)
(1,618)
 
Other, net
45 
23 
 
Net loss before income tax expense
(5,214)
(1,249)
 
Total assets
161,960 
 
167,512 
Pipeline Inspection [Member]
 
 
 
Revenues
62,148 
66,709 
 
Costs of services
56,601 
60,844 
 
Gross margin
5,547 
5,865 
 
General and administrative
3,254 
3,440 
 
Depreciation, amortization and accretion
599 
617 
 
Impairments
1,329 
 
 
Operating income (loss)
365 
1,808 
 
Total assets
130,988 
 
124,840 
Integrity Services [Member]
 
 
 
Revenues
696 
4,258 
 
Costs of services
904 
3,732 
 
Gross margin
(208)
526 
 
General and administrative
446 
991 
 
Depreciation, amortization and accretion
157 
159 
 
Impairments
1,581 
 
 
Operating income (loss)
(2,392)
(624)
 
Total assets
9,396 
 
12,079 
Water and Environmental Services [Member]
 
 
 
Revenues
1,878 
2,507 
 
Costs of services
888 
1,138 
 
Gross margin
990 
1,369 
 
General and administrative
218 
556 
 
Depreciation, amortization and accretion
(415)
449 
 
Impairments
688 
 
 
Operating income (loss)
(331)
364 
 
Total assets
29,361 
 
38,141 
Other Segments [Member]
 
 
 
General and administrative
1,192 1
1,202 2
 
Operating income (loss)
(1,192)
(1,202)
 
Total assets
$ (7,785)
 
$ (7,548)
Condensed Consolidating Financial Information (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Mar. 31, 2016
Dec. 31, 2015
Current assets:
 
 
 
 
Cash and cash equivalents
$ 24,779 
$ 26,693 
$ 25,850 
$ 24,150 
Trade accounts receivable, net
39,383 
38,482 
 
 
Prepaid expenses and other
2,455 
1,042 
 
 
Total current assets
66,617 
66,217 
 
 
Property and equipment:
 
 
 
 
Property and equipment, at cost
19,684 
22,459 
 
 
Less: Accumulated depreciation
7,437 
7,840 
 
 
Total property and equipment, net
12,247 
14,619 
 
 
Intangible assets, net
27,583 
29,624 
 
 
Goodwill
55,329 
56,903 
 
 
Other assets
184 
149 
 
 
Total assets
161,960 
167,512 
 
 
Current liabilities:
 
 
 
 
Accounts payable
784 
1,690 
 
 
Accounts payable - affiliates
3,227 
1,638 
 
 
Accrued payroll and other
10,044 
7,585 
 
 
Income taxes payable
1,000 
1,011 
 
 
Total current liabilities
15,055 
11,924 
 
 
Long-term debt
135,846 
135,699 
 
 
Deferred tax liabilities
 
362 
 
 
Asset retirement obligations
161 
139 
 
 
Total liabilities
151,062 
148,124 
 
 
Owners' equity:
 
 
 
 
Total partners' capital
7,021 
14,338 
 
 
Non-controlling interests
3,877 
5,050 
 
 
Total owners' equity
10,898 
19,388 
 
 
Total liabilities and owners' equity
161,960 
167,512 
 
 
Eliminations [Member]
 
 
 
 
Current assets:
 
 
 
 
Trade accounts receivable, net
(572)
(689)
 
 
Accounts receivable - affiliates
(11,042)
(12,622)
 
 
Prepaid expenses and other
(38)
 
 
 
Total current assets
(11,652)
(13,311)
 
 
Property and equipment:
 
 
 
 
Investment in subsidiaries
(18,887)
(29,037)
 
 
Notes receivable - affiliates
(13,631)
(13,662)
 
 
Total assets
(44,170)
(56,010)
 
 
Current liabilities:
 
 
 
 
Accounts payable
(591)
(675)
 
 
Accounts payable - affiliates
(11,042)
(12,622)
 
 
Accrued payroll and other
(19)
(15)
 
 
Total current liabilities
(11,652)
(13,312)
 
 
Notes payable - affiliates
(13,631)
(13,662)
 
 
Total liabilities
(25,283)
(26,974)
 
 
Owners' equity:
 
 
 
 
Total partners' capital
(15,010)
(23,986)
 
 
Non-controlling interests
(3,877)
(5,050)
 
 
Total owners' equity
(18,887)
(29,036)
 
 
Total liabilities and owners' equity
(44,170)
(56,010)
 
 
Parent Company [Member]
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
695 
695 
207 
378 
Total current assets
695 
695 
 
 
Property and equipment:
 
 
 
 
Investment in subsidiaries
21,755 
29,454 
 
 
Total assets
22,450 
30,149 
 
 
Current liabilities:
 
 
 
 
Accounts payable - affiliates
8,906 
8,860 
 
 
Accrued payroll and other
38 
15 
 
 
Total current liabilities
8,944 
8,875 
 
 
Long-term debt
(1,054)
(1,201)
 
 
Total liabilities
7,890 
7,674 
 
 
Owners' equity:
 
 
 
 
Total partners' capital
10,683 
17,425 
 
 
Non-controlling interests
3,877 
5,050 
 
 
Total owners' equity
14,560 
22,475 
 
 
Total liabilities and owners' equity
22,450 
30,149 
 
 
Guarantors [Member]
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
21,196 
20,251 
21,377 
19,570 
Trade accounts receivable, net
31,073 
33,046 
 
 
Accounts receivable - affiliates
11,042 
12,622 
 
 
Prepaid expenses and other
2,450 
996 
 
 
Total current assets
65,761 
66,915 
 
 
Property and equipment:
 
 
 
 
Property and equipment, at cost
16,592 
19,366 
 
 
Less: Accumulated depreciation
6,239 
6,798 
 
 
Total property and equipment, net
10,353 
12,568 
 
 
Intangible assets, net
23,310 
23,875 
 
 
Goodwill
53,913 
53,914 
 
 
Investment in subsidiaries
(2,868)
(417)
 
 
Notes receivable - affiliates
13,631 
13,662 
 
 
Other assets
174 
139 
 
 
Total assets
164,274 
170,656 
 
 
Current liabilities:
 
 
 
 
Accounts payable
1,201 
1,653 
 
 
Accrued payroll and other
8,825 
7,082 
 
 
Income taxes payable
923 
967 
 
 
Total current liabilities
10,949 
9,702 
 
 
Long-term debt
131,400 
131,400 
 
 
Deferred tax liabilities
 
 
 
Asset retirement obligations
161 
139 
 
 
Total liabilities
142,510 
141,249 
 
 
Owners' equity:
 
 
 
 
Total partners' capital
17,887 
24,357 
 
 
Non-controlling interests
3,877 
5,050 
 
 
Total owners' equity
21,764 
29,407 
 
 
Total liabilities and owners' equity
164,274 
170,656 
 
 
Non-Guarantors [Member]
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
2,888 
5,747 
4,266 
4,202 
Trade accounts receivable, net
8,882 
6,125 
 
 
Prepaid expenses and other
43 
46 
 
 
Total current assets
11,813 
11,918 
 
 
Property and equipment:
 
 
 
 
Property and equipment, at cost
3,092 
3,093 
 
 
Less: Accumulated depreciation
1,198 
1,042 
 
 
Total property and equipment, net
1,894 
2,051 
 
 
Intangible assets, net
4,273 
5,749 
 
 
Goodwill
1,416 
2,989 
 
 
Other assets
10 
10 
 
 
Total assets
19,406 
22,717 
 
 
Current liabilities:
 
 
 
 
Accounts payable
174 
712 
 
 
Accounts payable - affiliates
5,363 
5,400 
 
 
Accrued payroll and other
1,200 
503 
 
 
Income taxes payable
77 
44 
 
 
Total current liabilities
6,814 
6,659 
 
 
Long-term debt
5,500 
5,500 
 
 
Notes payable - affiliates
13,631 
13,662 
 
 
Deferred tax liabilities
 
354 
 
 
Total liabilities
25,945 
26,175 
 
 
Owners' equity:
 
 
 
 
Total partners' capital
(6,539)
(3,458)
 
 
Total owners' equity
(6,539)
(3,458)
 
 
Total liabilities and owners' equity
$ 19,406 
$ 22,717 
 
 
Condensed Consolidating Financial Information (Details 1) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Revenues
$ 64,722 
$ 73,474 
Costs of services
58,393 
65,714 
Gross margin
6,329 
7,760 
Operating costs and expense:
 
 
General and administrative
5,110 
6,189 
Depreciation, amortization and accretion
1,171 
1,225 
Impairments
3,598 
 
Operating income (loss)
(3,550)
346 
Other income (expense):
 
 
Interest expense, net
(1,709)
(1,618)
Other, net
45 
23 
Net income (loss) before income tax expense
(5,214)
(1,249)
Income tax benefit
(293)
112 
Net income (loss)
(4,921)
(1,361)
Net loss attributable to non-controlling interests
(1,165)
(367)
Net income (loss) attributable to controlling interests
(3,756)
(994)
Net (loss) attributable to general partner
(921)
(968)
Net income (loss) attributable to limited partners
(2,835)
(26)
Eliminations [Member]
 
 
Revenues
(1,367)
(2,582)
Costs of services
(1,367)
(2,582)
Other income (expense):
 
 
Equity earnings (loss) in subsidiaries
4,165 
281 
Net income (loss) before income tax expense
4,165 
281 
Net income (loss)
4,165 
281 
Net income (loss) attributable to controlling interests
4,165 
281 
Net income (loss) attributable to limited partners
4,165 
281 
Parent Company [Member]
 
 
Operating costs and expense:
 
 
General and administrative
1,192 
1,202 
Operating income (loss)
(1,192)
(1,202)
Other income (expense):
 
 
Equity earnings (loss) in subsidiaries
(1,667)
468 
Interest expense, net
(225)
(218)
Net income (loss) before income tax expense
(3,084)
(952)
Net income (loss)
(3,084)
(952)
Net income (loss) attributable to controlling interests
(3,084)
(952)
Net (loss) attributable to general partner
(921)
(968)
Net income (loss) attributable to limited partners
(2,163)
16 
Guarantors [Member]
 
 
Revenues
49,669 
62,172 
Costs of services
44,099 
55,431 
Gross margin
5,570 
6,741 
Operating costs and expense:
 
 
General and administrative
3,014 
3,578 
Depreciation, amortization and accretion
995 
1,038 
Impairments
688 
 
Operating income (loss)
873 
2,125 
Other income (expense):
 
 
Equity earnings (loss) in subsidiaries
(2,498)
(749)
Interest expense, net
(1,288)
(1,191)
Other, net
37 
19 
Net income (loss) before income tax expense
(2,876)
204 
Income tax benefit
(44)
103 
Net income (loss)
(2,832)
101 
Net loss attributable to non-controlling interests
(1,165)
(367)
Net income (loss) attributable to controlling interests
(1,667)
468 
Net income (loss) attributable to limited partners
(1,667)
468 
Non-Guarantors [Member]
 
 
Revenues
16,420 
13,884 
Costs of services
15,661 
12,865 
Gross margin
759 
1,019 
Operating costs and expense:
 
 
General and administrative
904 
1,409 
Depreciation, amortization and accretion
176 
187 
Impairments
2,910 
 
Operating income (loss)
(3,231)
(577)
Other income (expense):
 
 
Interest expense, net
(196)
(209)
Other, net
Net income (loss) before income tax expense
(3,419)
(782)
Income tax benefit
(249)
Net income (loss)
(3,170)
(791)
Net income (loss) attributable to controlling interests
(3,170)
(791)
Net income (loss) attributable to limited partners
$ (3,170)
$ (791)
Condensed Consolidating Financial Information (Details 2) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Net income (loss)
$ (4,921)
$ (1,361)
Other comprehensive income -
 
 
Foreign currency translation
61 
588 
Comprehensive income (loss)
(4,860)
(773)
Comprehensive loss attributable to non-controlling interests
(1,165)
(367)
Comprehensive loss attributable to general partner
(921)
(968)
Comprehensive income (loss) attributable to controlling interests
(2,774)
562 
Eliminations [Member]
 
 
Net income (loss)
4,165 
281 
Other comprehensive income -
 
 
Comprehensive income (loss)
4,165 
281 
Comprehensive income (loss) attributable to controlling interests
4,165 
281 
Parent Company [Member]
 
 
Net income (loss)
(3,084)
(952)
Other comprehensive income -
 
 
Comprehensive income (loss)
(3,084)
(952)
Comprehensive loss attributable to general partner
(921)
(968)
Comprehensive income (loss) attributable to controlling interests
(2,163)
16 
Guarantors [Member]
 
 
Net income (loss)
(2,832)
101 
Other comprehensive income -
 
 
Foreign currency translation
(57)
192 
Comprehensive income (loss)
(2,889)
293 
Comprehensive loss attributable to non-controlling interests
(1,165)
(367)
Comprehensive income (loss) attributable to controlling interests
(1,724)
660 
Non-Guarantors [Member]
 
 
Net income (loss)
(3,170)
(791)
Other comprehensive income -
 
 
Foreign currency translation
118 
396 
Comprehensive income (loss)
(3,052)
(395)
Comprehensive income (loss) attributable to controlling interests
$ (3,052)
$ (395)
Condensed Consolidating Financial Information (Details 3) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Operating activities:
 
 
Net income (loss)
$ (4,921)
$ (1,361)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
 
 
Depreciation, amortization and accretion
1,433 
1,433 
Impairments
3,598 
 
Gain (loss) on asset disposal
11 
 
Interest expense from debt issuance cost amortization
146 
140 
Equity-based compensation expense
357 
317 
Equity in earnings of investee
(34)
(17)
Distributions from investee
 
63 
Deferred tax expense (benefit), net
(356)
36 
Non-cash allocated expenses
921 
968 
Changes in assets and liabilities:
 
 
Trade accounts receivable
(855)
7,561 
Prepaid expenses and other
(145)
334 
Accounts payable and accrued payroll and other
3,207 
1,329 
Income taxes payable
(11)
179 
Net cash provided by (used in) operating activities
3,351 
10,982 
Investing activities:
 
 
Proceeds from fixed asset disposals
 
Purchases of property and equipment
(298)
(496)
Net cash used in investing activities
(296)
(496)
Financing activities:
 
 
Taxes paid related to net share settlement of equity-based compensation
(77)
 
Repayments of long-term debt
 
(4,000)
Distributions to limited partners
(4,823)
(4,810)
Distributions to non-controlling members
(8)
(367)
Net cash used in financing activities
(4,908)
(9,177)
Effect of exchange rates on cash
(61)
391 
Net increase (decrease) in cash and cash equivalents
(1,914)
1,700 
Cash and cash equivalents, beginning of period
26,693 
24,150 
Cash and cash equivalents, end of period
24,779 
25,850 
Non-cash items:
 
 
Change in accounts payable excluded from capital expenditures
 
67 
Eliminations [Member]
 
 
Operating activities:
 
 
Net income (loss)
4,165 
281 
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
 
 
Equity earnings in subsidiaries
(4,165)
(281)
Changes in assets and liabilities:
 
 
Trade accounts receivable
(117)
(5,654)
Receivables from affiliates
(1,555)
 
Prepaid expenses and other
(19)
158 
Accounts payable and accrued payroll and other
1,691 
5,461 
Income taxes payable
 
35 
Parent Company [Member]
 
 
Operating activities:
 
 
Net income (loss)
(3,084)
(952)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
 
 
Interest expense from debt issuance cost amortization
146 
140 
Equity-based compensation expense
357 
317 
Equity earnings in subsidiaries
1,667 
(468)
Non-cash allocated expenses
921 
968 
Changes in assets and liabilities:
 
 
Prepaid expenses and other
 
(115)
Accounts payable and accrued payroll and other
70 
(61)
Net cash provided by (used in) operating activities
77 
(171)
Financing activities:
 
 
Taxes paid related to net share settlement of equity-based compensation
(77)
 
Distributions from subsidiaries
4,823 
4,810 
Distributions to limited partners
(4,823)
(4,810)
Net cash used in financing activities
(77)
 
Net increase (decrease) in cash and cash equivalents
   
(171)
Cash and cash equivalents, beginning of period
695 
378 
Cash and cash equivalents, end of period
695 
207 
Guarantors [Member]
 
 
Operating activities:
 
 
Net income (loss)
(2,832)
101 
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
 
 
Depreciation, amortization and accretion
1,122 
1,119 
Impairments
688 
 
Gain (loss) on asset disposal
11 
 
Equity in earnings of investee
(34)
(17)
Distributions from investee
 
63 
Equity earnings in subsidiaries
2,498 
749 
Deferred tax expense (benefit), net
(8)
 
Changes in assets and liabilities:
 
 
Trade accounts receivable
1,973 
13,298 
Receivables from affiliates
1,555 
 
Prepaid expenses and other
(120)
263 
Accounts payable and accrued payroll and other
1,291 
(5,196)
Income taxes payable
(44)
69 
Net cash provided by (used in) operating activities
6,100 
10,449 
Investing activities:
 
 
Proceeds from fixed asset disposals
 
Purchases of property and equipment
(298)
(407)
Net cash used in investing activities
(296)
(407)
Financing activities:
 
 
Repayments of long-term debt
 
(4,000)
Distributions from subsidiaries
(4,815)
(4,810)
Distributions to non-controlling members
 
383 
Net cash used in financing activities
(4,815)
(8,427)
Effect of exchange rates on cash
(44)
192 
Net increase (decrease) in cash and cash equivalents
945 
1,807 
Cash and cash equivalents, beginning of period
20,251 
19,570 
Cash and cash equivalents, end of period
21,196 
21,377 
Non-cash items:
 
 
Change in accounts payable excluded from capital expenditures
 
13 
Non-Guarantors [Member]
 
 
Operating activities:
 
 
Net income (loss)
(3,170)
(791)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
 
 
Depreciation, amortization and accretion
311 
314 
Impairments
2,910 
 
Deferred tax expense (benefit), net
(348)
36 
Changes in assets and liabilities:
 
 
Trade accounts receivable
(2,711)
(83)
Prepaid expenses and other
(6)
28 
Accounts payable and accrued payroll and other
155 
1,125 
Income taxes payable
33 
75 
Net cash provided by (used in) operating activities
(2,826)
704 
Investing activities:
 
 
Purchases of property and equipment
 
(89)
Net cash used in investing activities
 
(89)
Financing activities:
 
 
Distributions from subsidiaries
(8)
 
Distributions to non-controlling members
(8)
(750)
Net cash used in financing activities
(16)
(750)
Effect of exchange rates on cash
(17)
199 
Net increase (decrease) in cash and cash equivalents
(2,859)
64 
Cash and cash equivalents, beginning of period
5,747 
4,202 
Cash and cash equivalents, end of period
2,888 
4,266 
Non-cash items:
 
 
Change in accounts payable excluded from capital expenditures
 
$ 54