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Item 1A. Risk Factors

2021-02-23 compared with 2020-02-21 · 207 added, 186 removed, 137 unchanged (74% of the section changed)

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If any of the following risks actually occur, our business, financial condition, results of operations and cash flows could be negatively impacted.

We may not achieve the intended benefits of the Elite Acquisition as and when expected, or at all, which could have an adverse effect on our business.

On August 1, 2019, we completed the Elite Acquisition whereby we acquired from Elite Compression substantially all of its assets, liabilities and workforce for aggregate consideration of $214.0 million cash and 21.7 million shares of Archrock common stock.

See Note 4 (“Business Transactions”) to our Financial Statements for further details of this transaction.

We now operate a larger combined organization and the difficulties associated with integrating the acquired assets, infrastructure and personnel into our existing operations may require additional time or expense.

Our and Elite Compression’s employees may also be uncertain about their future roles within Archrock subsequent to the completion of the Elite Acquisition, which could lead to departures and increased expenses related to hiring and training new employees.

Further, we may not realize the benefits we expect to realize from the Elite Acquisition.

Any such difficulties could have an adverse effect on our business, results of operations and financial condition.

Further, the acquired business or assets may perform at levels below the levels we anticipated at the time of acquiring such business or assets due to factors beyond our control.

As a result, there can be no assurance that the Elite Acquisition will deliver the benefits anticipated by us, and any failure to create such benefits may result in a negative impact to, or material adverse effect on, our business, results of operations, financial condition and cash flows.

The Elite Acquisition resulted in our dependence on Hilcorp for a significant portion of our revenue.

The loss of business with Hilcorp or the inability or failure of Hilcorp to meet its payment obligations may adversely affect our financial results.

In connection with the Elite Acquisition, Elite Compression’s contract operations services agreements transferred to us and we expect that Hilcorp, the primary customer of Elite Compression, will account for a significant portion of our future revenue.

During the years ended December 31, 2019 , 2018 and 2017 , Hilcorp accounted for 3%, 1% and 1% of our revenue, respectively.

With the closing of the Elite Acquisition, we estimate that Hilcorp will become one of our most significant customers.

Any loss of business from Hilcorp, unless offset by additional contract compression services revenue from other customers, or the inability or failure of Hilcorp to meet its payment obligations could have a material adverse effect on our business, results of operations and financial condition.

Following the closing of the Elite Acquisition, an affiliate of Hilcorp now holds a significant portion of our common stock, and Hilcorp’s interest as an equity holder may conflict with the interests of our other shareholders or our noteholders.

Industry and General Economic Risks

The COVID-19 pandemic is expected to continue to significantly reduce demand for our services, and may continue to have a material adverse impact on our financial condition, results of operations and cash flows.

The effects of the COVID-19 pandemic, including actions taken by businesses and governments, have resulted in a significant and swift reduction in U.S.

economic activity.

These effects have materially adversely affected the demand for oil and, to a lesser extent, natural gas, and have had, and are expected to continue to have, a negative impact on demand for our services and products.

The collapse in the demand for oil caused by this unprecedented global health and economic crisis, coupled with oil oversupply, is expected to continue to adversely impact the demand for our services, which in turn could adversely impact our financial condition, results of operations and cash flows.

While the magnitude and duration of potential social, economic and labor instability as a direct result of the COVID-19 pandemic cannot be estimated at this time, we are closely monitoring the effects of the pandemic on commodity demands and on our customers, as well as on our operations and employees.

These effects may include adverse revenue and net income effects;

disruptions to our operations and supply chain;

customer shutdowns of oil and gas exploration and production;

employee impacts from illness, school closures and other community response measures;

and temporary inaccessibility or closures of our facilities or the facilities of our customers and suppliers.

The extent to which our operating and financial results continue to be affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic;

additional actions by businesses and governments in response to the pandemic;

and the speed and effectiveness of responses to combat the virus.

The COVID-19 pandemic may materially adversely affect our operating and financial results in a manner that is not currently known to us or that we do not currently consider to present significant risks to our operations.

Business and Operational Risks

Our operations entail inherent risks that may result in substantial liability.

We do not insure against all potential losses and could be seriously harmed by unexpected liabilities.

Our operations entail inherent risks, including equipment defects, malfunctions and failures and natural disasters, which could result in uncontrollable flows of natural gas or well fluids, fires and explosions.

These risks may expose us, as an equipment operator, to liability for personal injury, wrongful death, property damage, pollution and other environmental damage.

The insurance we carry against many of these risks may not be adequate to cover our claims or losses.

Our insurance coverage includes property damage, general liability and commercial automobile liability and other coverage we believe is appropriate.

Additionally, we are substantially self-insured for workers’ compensation and employee group health claims in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks.

We are also self-insured for property damage to our offshore assets.

Further, insurance covering the risks we expect to face or in the amounts we desire may not be available in the future or, if available, the premiums may not be commercially justifiable.

If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur liability at a time when we are not able to obtain liability insurance, our business, results of operations and financial condition could be negatively impacted.

We face significant competitive pressures that may cause us to lose market share and harm our financial performance.

Our business is highly competitive and there are low barriers to entry.

Our competitors may be able to more quickly adapt to technological changes within our industry and changes in economic and market conditions as a whole, more readily take advantage of acquisitions and other opportunities and adopt more aggressive pricing policies.

Our ability to renew or replace existing contract operations service contracts with our customers at rates sufficient to maintain current revenue and cash flows could be adversely affected by the activities of our competitors.

If our competitors substantially increase the resources they devote to the development and marketing of competitive products, equipment or services or substantially decrease the price at which they offer their products, equipment or services, we may not be able to compete effectively.

In addition, we could face significant competition from new entrants into the compression services business.

Some of our existing competitors or new entrants may expand or fabricate new compressors that would create additional competition for the services we provide to our customers.

In addition, our customers may purchase and operate their own compression fleets in lieu of using our natural gas compression services.

We also may not be able to take advantage of certain opportunities or make certain investments because of our debt levels and our other obligations.

Any of these competitive pressures could have a material adverse effect on our business, results of operations and financial condition.

If we do not make acquisitions on economically acceptable terms, our future growth could be limited.

Our ability to grow depends, in part, on our ability to make accretive acquisitions.

If we are unable to make accretive acquisitions either because we are (i) unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts with them, (ii) unable to obtain financing for these acquisitions on economically acceptable terms or (iii) outbid by competitors, then our future growth and ability to maintain dividends could be limited.

Furthermore, even if we make acquisitions that we believe will be accretive, these acquisitions may nevertheless result in a decrease in the cash generated from operations per unit.

Any acquisition involves potential risks, including, among other things:

● an inability to integrate successfully the businesses we acquire;

● the assumption of unknown liabilities;

● limitations on rights to indemnity from the seller;

● mistaken assumptions about the cash generated or anticipated to be generated by the business acquired or the overall costs of equity or debt;

● the diversion of management’s attention from other business concerns;

● unforeseen operating difficulties;

● customer or key employee losses at the acquired businesses.

If we consummate any future acquisitions, our capitalization and results of operations may change significantly and we will not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of our future funds and other resources.

In addition, competition from other buyers could reduce our acquisition opportunities or cause us to pay a higher price than we might otherwise pay.

Following the closing of the Elite Acquisition, an affiliate of Hilcorp holds a significant portion of our common stock, and Hilcorp’s interest as an equity holder may conflict with the interests of our other shareholders or our noteholders.

In connection with the closing of the Elite Acquisition, JDH Capital, an affiliate of Hilcorp, received 21.7 million shares of our common stock, representing 14.2% of our outstanding common stock as of December 31, 2020.

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Given its ownership level and board representation, JDH Capital may have some influence over our operations and strategic direction and may have interests that conflict with the interests of other equity and debt holders.

Tax legislation and administrative initiatives or challenges to our tax positions could adversely affect our results of operations and financial condition.

We operate in locations throughout the U.S.

and, as a result, we are subject to the tax laws and regulations of U.S.

federal, state and local governments.

From time to time, various legislative or administrative initiatives may be proposed that could adversely affect our tax positions.

There can be no assurance that our tax provision or tax payments will not be adversely affected by these initiatives.

In addition, U.S.

federal, state and local tax laws and regulations are extremely complex and subject to varying interpretations.

There can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge.

Our ability to use NOLs to offset future income may be limited.

Our ability to use any NOLs generated by us could be substantially limited if we were to experience an “ownership change” as defined under Section 382 of the Code.

In general, an “ownership change” would occur if our “5-percent stockholders,” as defined under Section 382 of the Code, including certain groups of persons treated as “5-percent stockholders,” collectively increased their ownership in us by more than 50 percentage points over a rolling three-year period.

An ownership change can occur as a result of a public offering of our common stock, as well as through secondary market purchases of our common stock and certain types of reorganization transactions.

We have experienced ownership changes, which may result in an annual limitation on the use of its pre-ownership change NOLs (and certain other losses and/or credits) equal to the equity value of our stock immediately before the ownership change, multiplied by the long-term tax-exempt rate for the month in which the ownership change occurs.

Such a limitation could, for any given year, have the effect of increasing the amount of our U.S.

federal income tax liability, which would negatively impact the amount of after-tax cash available for distribution to our stockholders and our financial condition.

While we paid quarterly dividends of $0.132 per share of common stock with respect to the first and second quarters of 2019 and $0.145 per share with respect to the third and fourth quarters of 2019, there can be no assurance that we will pay dividends in the future.

We paid quarterly cash dividends of $0.132 per share of common stock with respect to the first and second quarters of 2019 and $0.145 per share with respect to the third and fourth quarters of 2019.

While we paid quarterly dividends of $0.145 per share of common stock during the year ended December 31, 2020, there can be no assurance that we will pay dividends in the future.

We paid quarterly cash dividends of $0.145 per share of common stock during the year ended December 31, 2020.

We cannot provide assurance that we will, at any time in the future, again generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend or that our Board of Directors would determine to use any such surplus or our net profits to pay a dividend.

Future dividends may be affected by, among other factors:

the availability of surplus or net profits, which in turn depend on the performance of our business and operating subsidiaries, including the Partnership;

the amount of cash distributions we receive from the Partnership;

● the availability of surplus or net profits, which in turn depend on the performance of our business and operating subsidiaries;

● our debt service requirements and other liabilities;

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federal, state and local income tax laws or corporate laws.

We cannot provide assurance that we will declare or pay dividends in any particular amounts or at all in the future.

We cannot provide assurance that we will declare or pay dividends in any particular amount or at all in the future.

A decision not to pay dividends or a reduction in our dividend payments in the future could have a negative effect on our stock price.

We depend on distributions from the Partnership to meet our capital needs and pay dividends to our stockholders.

To generate the funds necessary to meet our obligations, fund our business and pay dividends, we depend heavily on cash distributions from the Partnership.

As our wholly-owned subsidiary, the Partnership is a significant cash-generating asset for us.

As a result, our cash flow is heavily dependent upon the ability of the Partnership to make distributions.

Applicable law and contractual restrictions, including restrictions in the Partnership’s debt instruments and partnership agreement and the rights of the creditors of the Partnership that would often be superior to our interests in the Partnership, may negatively impact our ability to obtain such distributions from our subsidiaries.

A decline in the Partnership’s business or revenues or increases in its expenses, principal and interest payments under existing and future debt instruments, working capital requirements or other cash needs could impair the Partnership’s ability to make cash distributions at the Partnership’s current distribution rate.

A reduction in the amount of cash distributions we receive from the Partnership would reduce the amount of cash available to us for payment of dividends, which could limit our ability to pay cash dividends at our current rate or at all, and would also reduce the amount of cash available to us for the payment of debt we may incur in the future and for the funding of our business requirements, which could have a material adverse effect on our business, financial condition and results of operations.

The Partnership has a substantial amount of debt that could limit our and the Partnership’s ability to fund future growth and operations and increase our exposure to risk during adverse economic conditions.

At December 31, 2019 the Partnership had $1.8 billion in outstanding debt obligations, net of unamortized debt discounts and unamortized deferred financing costs.

Many factors, including factors beyond our and the Partnership’s control, may affect our ability to make payments on the Partnership’s outstanding indebtedness.

Financial Risks

We have a substantial amount of debt that could limit our ability to fund future growth and operations and increase our exposure to risk during adverse economic conditions.

At December 31, 2020, we had $1.7 billion in outstanding debt obligations, net of unamortized debt discounts and unamortized deferred financing costs.

Many factors, including factors beyond our control, may affect our ability to make payments on our outstanding indebtedness.

These factors include those discussed elsewhere in these Risk Factors.

The Partnership’s substantial debt and associated commitments could have important adverse consequences.

Our substantial debt and associated commitments could have important adverse consequences to our liquidity, particularly to the extent our borrowing capacity becomes covenant restricted.

For example, these commitments could:

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● limit our ability to fund future working capital, capital expenditures, acquisitions or other corporate requirements;

increase our vulnerability to interest rate fluctuations because the interest payments on a portion of our debt are based upon variable interest rates and a portion can adjust based on our and the Partnership’s credit statistics;

● increase our vulnerability to interest rate fluctuations because the interest payments on a portion of our debt are based upon variable interest rates and a portion can adjust based on our credit statistics;

● limit our flexibility in planning for, or reacting to, changes in our business and our industry;

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● limit our ability to incur indebtedness in the future.

Covenants in the Partnership Debt Agreements may impair our and the Partnership’s ability to operate our respective businesses.

The Partnership Debt Agreements, including the indenture dated as of March 21, 2019 and the indenture dated as of December 20, 2019, pursuant to which we guarantee the 2027 Notes and 2028 Notes on a senior unsecured basis, contain various covenants with which we or certain of our subsidiaries or the Partnership must comply, including, but not limited to, restrictions on the use of proceeds from borrowings, limitations on the incurrence of indebtedness, investments, acquisitions, making loans, liens on assets, repurchasing equity, making dividends or distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements.

The Partnership Debt Agreements also contain various covenants requiring mandatory prepayments from the net cash proceeds of certain asset transfers.

In addition, if as of any date the Partnership has cash and cash equivalents (other than proceeds from a debt or equity issuance in the 30 days prior to such date reasonably expected to be used to fund an acquisition permitted under the Credit Facility) in excess of $50 million, then such excess amount will be used to pay down outstanding borrowings of a corresponding amount under the Credit Facility.

The Credit Facility is also subject to financial covenants, including the following ratios, as defined in its agreement:

Covenants in our Debt Agreements may impair our ability to operate our business.

Our Debt Agreements contain various covenants with which we or certain of our subsidiaries must comply, including, but not limited to, restrictions on the use of proceeds from borrowings, limitations on the incurrence of indebtedness, investments, acquisitions, making loans, liens on assets, repurchasing equity, making dividends or distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements.

The Debt Agreements also contain various covenants requiring mandatory prepayments from the net cash proceeds of certain asset transfers.

The Credit Facility is also subject to financial covenants, including the following ratios after giving effect to Amendment No.

3, as defined in the corresponding agreement:

EBITDA to Interest Expense

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Through fiscal year 2022

Through second quarter of 2020

January 1, 2023 through September 30, 2023

Thereafter (1)

(1) Subject to a temporary increase to 5.50 to 1.0 for any quarter during which an acquisition satisfying certain thresholds is completed and for the two quarters immediately following such quarter.

If the Partnership was to anticipate non-compliance with these financial ratios, the Partnership may take actions to maintain compliance with them.

If we were to anticipate non-compliance with these financial ratios, we may take actions to maintain compliance with them.

These actions include reductions in its general and administrative expenses, capital expenditures or the payment of cash distributions.

Any of these measures, including a reduction in the amount of cash distributions we receive from the Partnership, may reduce the amount of cash available for payment of dividends and the funding of our business requirements, which could have an adverse effect on our business, operations, cash flows or the price of our common stock.

The breach of any of the covenants under the Partnership Debt Agreements, including the Partnership’s financial covenants, could result in a default under the Partnership Debt Agreements, which could cause indebtedness under the Partnership Debt Agreements to become due and payable.

If the repayment obligations under the Partnership Debt Agreements were to be accelerated, the Partnership may not be able to repay the debt or refinance the debt on acceptable terms and the Partnership’s financial position would be materially adversely affected.

A material adverse effect on the Partnership’s assets, liabilities, financial condition, business or operations, that, taken as a whole, impacts the Partnership’s ability to perform the obligations under the Partnership Debt Agreements could lead to a default under those agreements.

Further, a default under one or more of the Partnership Debt Agreements would trigger cross-default provisions under the other Partnership Debt Agreements, which would accelerate the Partnership’s obligation to repay the indebtedness under those agreements.

As of December 31, 2019 , the Partnership was in compliance with all covenants under the Partnership Debt Agreements.

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the market value of our current or future debt obligations, including the Partnership’s senior notes and the Credit Facility.

Regulators and law enforcement agencies in the United Kingdom and elsewhere are conducting civil and criminal investigations into whether the banks that contributed to the BBA in connection with the calculation of daily LIBOR may have been under-reporting or otherwise manipulating or attempting to manipulate LIBOR.

A number of BBA member banks have entered into settlements with their regulators and law enforcement agencies with respect to this alleged manipulation of LIBOR.

Actions by the BBA or any other administrator of LIBOR, regulators or law enforcement agencies may result in changes to the manner in which LIBOR is determined, the phasing out of LIBOR or the establishment of alternative reference rates.

For example, on July 27, 2017, the U.K.

Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

As a result, LIBOR may be discontinued by 2021.

Furthermore, in the U.S., efforts to identify a set of alternative U.S.

dollar reference interest rates that could replace LIBOR include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York.

At this time, it is not possible to predict whether any such changes will occur, whether LIBOR will be phased out or any such alternative reference rates or other reforms to LIBOR will be enacted in the United Kingdom, the U.S.

or elsewhere or the effect that any such changes, phase out, alternative reference rates or other reforms, if they occur, would have on the amount of interest paid on, or the market value of, our current or future debt obligations, including the Partnership’s senior notes and the Credit Facility.

Uncertainty as to the nature of such potential changes, phase out, alternative reference rates or other reforms may materially adversely affect the trading market for LIBOR-based securities, including the Partnership’s senior notes, as well as the terms of the Credit Facility and any interest rate swaps or other derivative agreements to which we are a party.

Reform of, or the replacement or phasing out of, LIBOR and proposed regulation of LIBOR and other “benchmarks” may materially adversely affect the market value of, the applicable interest rate on and the amount of interest paid on our current or future debt obligations, including the Partnership’s senior notes and the Credit Facility.

In addition, even if we have entered into interest rate swaps or other derivative instruments for purposes of managing our interest rate exposure, our hedging strategies may not be effective as a result of the replacement or phasing out of LIBOR and other “benchmarks” and we may incur substantial losses as a result.

Any of these measures may reduce the amount of cash available for payment of dividends and the funding of our business requirements, which could have an adverse effect on our business, operations, cash flows or the price of our common stock.

The breach of any of the covenants under the Debt Agreements could result in a default under the Debt Agreements, which could cause indebtedness under the Debt Agreements to become due and payable.

If the repayment obligations under the Debt Agreements were to be accelerated, we may not be able to repay the debt or refinance the debt on acceptable terms and our financial position would be materially adversely affected.

A material adverse effect on our assets, liabilities, financial condition, business or operations that, taken as a whole, impacts our ability to perform the obligations under the Debt Agreements could lead to a default under those agreements.

Further, a default under one or more of the Debt Agreements would trigger cross-default provisions under the other Debt Agreements, which would accelerate our obligation to repay the indebtedness under those agreements.

As of December 31, 2020, we were in compliance with all covenants under the Debt Agreements.

We may be unable to access the capital and credit markets or borrow on affordable terms to obtain additional capital that we may require.

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If we are unable to access the capital and credit markets on favorable terms, or if we are not successful in raising capital within the time period required or at all, we may not be able to grow or maintain our business, which could have a material adverse effect on our business, results of operations and financial condition.

Our ability to manage and grow our business effectively may be adversely affected if we lose management or operational personnel.

We believe that our ability to hire, train and retain qualified personnel will continue to be challenging and important.

The supply of experienced operational and field personnel, in particular, decreases as other energy companies’ needs for the same personnel increase.

Our ability to grow and to continue our current level of service to our customers will be adversely impacted if we are unable to successfully hire, train and retain these important personnel.

Our inability to fund purchases of additional compression equipment could adversely impact our financial results.

We may not be able to maintain or increase our asset and customer base unless we have access to sufficient capital to purchase additional compression equipment.

Cash flow from our operations and availability under our Credit Facility may not provide us with sufficient cash to fund our capital expenditure requirements, including any funding requirements related to acquisitions.

Our ability to grow our asset and customer base could be impacted by limits on our ability to access additional capital.

We may be vulnerable to interest rate increases due to our variable rate debt obligations.

As of December 31, 2020, after taking into consideration interest rate swaps, we had $93.0 million of outstanding indebtedness that was effectively subject to variable interest rates.

Changes in economic conditions outside of our control could result in higher interest rates, thereby increasing our interest expense and reducing the funds available for capital investment, operations or other purposes.

A 1% increase in the effective interest rate on our outstanding debt subject to variable interest rates at December 31, 2020 would result in an annual increase in our interest expense of $0.9 million.

In addition, a substantial portion of our cash flow must be used to service our debt obligations.

Any increase in our interest expense could negatively impact our results of operations and cash flows, including our ability to pay dividends in the future.

On July 27, 2017, the FCA announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

As a result, LIBOR may be discontinued by 2022.

Furthermore, in the U.S., efforts to identify a set of alternative U.S.

dollar reference interest rates that could replace LIBOR include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York.

In addition, any other legal or regulatory changes made by the FCA, ICE Benchmark Administration Limited, the European Money Markets Institute (formerly Euribor-EBF), the European Commission or any other successor governance or oversight body, or future changes adopted by such body, in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR and changes in the rules or methodologies in LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination.

This could result in LIBOR no longer being determined or published.

If a published U.S.

dollar LIBOR rate is unavailable after 2021, the interest rate paid on our current or future debt obligations, including the Credit Facility, will need to be determined using alternative methods, which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on any current of future debt obligations, including the Credit Facility, if U.S.

dollar LIBOR was available in its current form.

Uncertainty as to the nature of such potential changes, phase out, alternative reference rates or other reforms may materially adversely affect the terms of the Credit Facility and any interest rate swaps or other derivative agreements to which we are a party.

Customer and Contract Risks

The erosion of the financial condition of our customers could adversely affect our business.

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In addition, in the event of the financial failure of a customer, we could experience a loss on all or a portion of our outstanding accounts receivable associated with that customer.

The loss of our business with Williams Partners or the inability or failure of Williams Partners to meet its payment obligations may adversely affect our and the Partnership’s financial results, which could limit the amount of cash the Partnership has available for distribution to us.

During the years ended December 31, 2019 , 2018 and 2017 , Williams Partners accounted for 8% , 11% and 13% , respectively, of our revenue.

No other customer accounted for 10% or more of our revenue during these years.

There is no guarantee that, upon the expiration of the Partnership’s existing services agreements with Williams Partners, Williams Partners will choose to renew these existing services agreements or enter into similar agreements with the Partnership.

The loss of business with Williams Partners, unless offset by additional contract compression services revenue from other customers, or the inability or failure of Williams Partners to meet its payment obligations under contractual arrangements, could have a material adverse effect on the Partnership’s business, results of operations, financial condition and ability to make cash distributions to us, and on our business, results of operations, financial condition and ability to pay cash dividends.

The loss of any of our most significant customers would result in a decline in our revenue and cash available to pay dividends to our common stockholders.

Our five most significant customers collectively accounted for approximately 25% , 26% and 29% of our revenue for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Our five most significant customers collectively accounted for 28%, 25% and 26% of our revenue for the years ended December 31, 2020, 2019 and 2018, respectively.

Our services are provided to these customers pursuant to contract compression services agreements, which typically have an initial term of 12 to 48 months and continue thereafter until terminated by either party with 30 days’ advance notice.

The loss of all or even a portion of the services we provide to these customers, as a result of competition or otherwise, could have a material adverse effect on our business, results of operations and financial condition.

We are subject to continuing contingent tax liabilities following the Spin-off.

In connection with the Spin-off, we entered into a tax matters agreement with Exterran Corporation that allocates the responsibility for prior period taxes of the Exterran Holdings consolidated U.S.

federal and state tax reporting group between us and Exterran Corporation.

If Exterran Corporation is unable to pay any prior period taxes related to these consolidated U.S.

federal and state tax filings for which it is responsible, we would be required to pay the entire amount of such taxes.

We might not be able to engage in desirable strategic transactions and equity issuances because of certain restrictions relating to requirements for tax-free distributions.

Our ability to engage in significant equity transactions could be limited or restricted in order to preserve, for U.S.

federal income tax purposes, the tax-free nature of the Spin-off.

Even if the Spin-off otherwise qualifies for tax-free treatment under Section 355 of the Code, it may result in corporate-level taxable gain to us under Section 355(e) of the Code if there is a 50% or greater change in ownership, by vote or value, of shares of our stock, Exterran Corporation’s stock or the stock of a successor either occurring as part of a plan or series of related transactions that includes the Spin-off.

Under the tax matters agreement that we entered into with Exterran Corporation, we are prohibited from taking or failing to take any action that prevents the Spin-off from being tax-free.

These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business.

Moreover, the tax matters agreement also may provide that we are responsible for any taxes imposed on us or any of our affiliates as a result of the failure of the Spin-off to qualify for favorable treatment under the Code if such failure is attributable to certain actions taken after the Spin-off by or in respect of us, any of our affiliates or our shareholders.

Many of our contract operations services contracts have short initial terms and are cancelable on short notice after the initial term, and we cannot be sure that such contracts will be extended or renewed after the end of the initial contractual term.

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This could have a material adverse effect upon our business, results of operations, financial condition and cash flows.

Labor and Supply Chain Risks

Our ability to manage and grow our business effectively may be adversely affected if we lose management or operational personnel.

We believe that our ability to hire, train and retain qualified personnel will continue to be challenging and important.

The supply of experienced operational and field personnel, in particular, decreases as other energy companies’ needs for the same personnel increase.

Our ability to grow and to continue our current level of service to our customers will be adversely impacted if we are unable to successfully hire, train and retain these important personnel.

We depend on particular suppliers and are vulnerable to product shortages and price increases.

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If we are unable to purchase compression equipment in particular on a timely basis to meet the demands of our customers, our existing customers may terminate their contractual relationships with us, or we may not be able to compete for business from new or existing customers, which, in each case, could have a material adverse effect on our business, results of operations and financial condition.

Our inability to fund purchases of additional compression equipment could adversely impact our financial results.

We may not be able to maintain or grow our asset and customer base unless we have access to sufficient capital to purchase additional compression equipment.

Our ability to grow our asset and customer base could be impacted by limits on our ability to access additional capital.

If we do not make acquisitions on economically acceptable terms, our future growth could be limited.

Our ability to grow depends, in part, on our ability to make accretive acquisitions.

Furthermore, even if we make acquisitions that we believe will be accretive, these acquisitions may nevertheless result in a decrease in the cash generated from operations per unit.

Any acquisition involves potential risks, including, among other things:

an inability to integrate successfully the businesses we acquire;

the assumption of unknown liabilities;

limitations on rights to indemnity from the seller;

mistaken assumptions about the cash generated or anticipated to be generated by the business acquired or the overall costs of equity or debt;

the diversion of management’s attention from other business concerns;

unforeseen operating difficulties;

customer or key employee losses at the acquired businesses.

In addition, competition from other buyers could reduce our acquisition opportunities or cause us to pay a higher price than we might otherwise pay.

From time to time, we are subject to various claims, tax audits, litigation and other proceedings that could ultimately be resolved against us and require material future cash payments or charges, which could impair our financial condition or results of operations.

The size, nature and complexity of our business make us susceptible to various claims, tax audits, litigation and binding arbitration proceedings.

We are currently, and may in the future become, subject to various claims, which, if not resolved within amounts we have accrued, could have a material adverse effect on our financial position, results of operations or cash flows, including our ability to pay dividends.

Similarly, any claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future.

See Part I Item 3 “Legal Proceedings” and Note 26 (“Commitments and Contingencies”) to our Financial Statements for additional information regarding certain legal proceedings to which we are a party.