What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-02-21 compared with 2023-02-22 · 349 added, 323 removed, 978 unchanged (41% of the section changed)

3 unchanged sentences

Based on the evaluation, as of December 31, 2023, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, and made known to our principal executive officer and principal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Table Archrock, Contents

Management’s Annual Report on Internal Control Over Financial Reporting

36 unchanged sentences

Other Information

Insider Trading Arrangements

During the three months ended December 31, 2023, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “ non-Rule 10b5-1 trading arrangement ,” as each term is defined in Item 408(a) of Regulation S-K.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

1 unchanged sentence

Directors, Executive Officers and Corporate Governance

The information required by Item 10 is incorporated by reference to the sections entitled “Election of Directors,” “Governance” and “Stock Ownership” in our Proxy Statement.

The information required by Part III Item 10 of this 2023 Form 10-K is incorporated by reference to the sections entitled “Election of Directors,” “Governance” and “Stock Ownership” in the definitive proxy statement related to our 2024 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days following the end of our 2023 fiscal year.

Executive Compensation

The information required by Item 11 is incorporated by reference to the sections entitled “Governance” and “Compensation Discussion and Analysis” in our Proxy Statement.

The information required by Part III Item 11 of this 2023 Form 10-K is incorporated by reference to the sections entitled “Governance” and “Compensation Discussion and Analysis” in the definitive proxy statement related to our 2024 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days following the end of our 2023 fiscal year.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Portions of the information required in Item 12 are incorporated by reference to the section entitled “Stock Ownership” in our Proxy Statement.

Portions of the information required in Part III Item 12 of this 2023 Form 10-K are incorporated by reference to the section entitled “Stock Ownership” in the definitive proxy statement related to our 2024 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days following the end of our 2023 fiscal year.

Securities Authorized for Issuance under Equity Compensation Plans

15 unchanged sentences

(1) Comprised of the 2013 Plan, the 2020 Plan and the ESPP.

No additional grants may be made under the 2013 Plan.

(2) Comprised of unvested performance–based restricted stock units payable in common stock upon vesting at target performance.

1 unchanged sentence

(4) Comprised of our DSDP.

See Note 18 to our Financial Statements for further details of our DSDP.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by Item 13 is incorporated by reference to the section entitled “Governance” in our Proxy Statement.

See Note 19 (“Stock-Based Compensation”) to our Financial Statements for further details of our DSDP.

Table Archrock, Contents

Certain Relationships and Related Transactions and Director Independence

The information required by Part III Item 13 of this 2023 Form 10-K is incorporated by reference to the section entitled “Governance” in the definitive proxy statement related to our 2024 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days following the end of our 2023 fiscal year.

Principal Accountant Fees and Services

The information required by Item 14 is incorporated by reference to the section entitled “Ratification of the Appointment of the Independent Registered Public Accounting Firm” in our Proxy Statement.

The information required by Part III Item 14 of this 2023 Form 10-K is incorporated by reference to the section entitled “Ratification of the Appointment of the Independent Registered Public Accounting Firm” in the definitive proxy statement related to our 2024 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days following the end of our 2023 fiscal year.

Exhibits and Financial Statement Schedules

1 unchanged sentence

Financial Statements.

The following financial statements are filed as a part of this 2023 Form 10-K.

Report of Independent Registered Public Accounting Firm (PCAOB ID 34 )

12 unchanged sentences

and Archrock Partners, L.P., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8–K filed on January 2, 2018

Table Archrock, Contents

Amendment No.

1 unchanged sentence

and Amethyst Merger Sub LLC, incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8–K filed on January 16, 2018

Asset Purchase Agreement, dated as of June 23, 2019, by and among Archrock Services, L.P., Archrock, Inc.

and Elite Compression Services, LLC, incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8–K filed on June 24, 2019

Asset Purchase Agreement, dated as of June 23, 2019, by and between Archrock Services, L.P.

and Harvest Four Corners, LLC, incorporated by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8–K filed on June 24, 2019

Table Archrock, Contents

Composite Restated Certificate of Incorporation of Archrock, Inc., incorporated by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10–K for the year ended December 31, 2015

Third Amended and Restated Bylaws of Exterran Holdings, Inc.

(now Archrock, Inc.), incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8–K filed on March 20, 2013

Amendment No.

1 to Third Amended and Restated Bylaws of Archrock, Inc., incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8–K filed on May 5, 2020

Fourth Amended and Restated Bylaws of Archrock, Inc.

(incorporated by reference to Exhibit 3.1 of Archrock Inc.’s Current Report on Form 8–K filed on July 28, 2023)

Indenture, dated as of March 21, 2019, by and among Archrock Partners, L.P., Archrock Partners Finance Corp., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8–K filed on March 21, 2019

1 unchanged sentence

Description of Common Stock

Fourth Amended and Restated Omnibus Agreement, dated November 3, 2015, by and among Archrock, Inc.

(formerly named Exterran Holdings, Inc.), Archrock Services, L.P.

(formerly named Exterran US Services OpCo, L.P.), Archrock GP LLC (formerly named Exterran GP, LLC), Archrock General Partner, L.P.

(formerly named Exterran General Partner, L.P.), Archrock Partners, L.

(formerly named Exterran Partners, L.P.) and Archrock Partners Operating LLC, incorporated by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10–K filed on February 29, 2016 (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)

First Amendment to Fourth Amended and Restated Omnibus Agreement, dated November 19, 2016, by and among Archrock, Inc., Archrock Services, L.P., Archrock GP LLC, Archrock General Partner, L.P., Archrock Partners, L.P., and Archrock Partners Operating LLC incorporated by reference to the Registrant’s Current Report on Form 8–K filed on November 23, 2016 (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)

Exterran Holdings, Inc.

(now Archrock, Inc.) Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.16 of the Registrant’s Current Report on Form 8–K filed on August 23, 2007

First Amendment to Exterran Holdings, Inc.

(now Archrock, Inc.) Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.22 of the Registrant’s Annual Report on Form 10–K for the year ended December 31, 2008

Second Amendment to Exterran Holdings, Inc.

(now Archrock, Inc.) Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.16 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015

Archrock Deferred Compensation Plan, incorporated by reference to Exhibit 10.17 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015

Exterran (now Archrock, Inc.) Employees’ Supplemental Savings Plan, incorporated by reference to Exhibit 10.30 of the Registrant’s Annual Report on Form 10–K for the year ended December 31, 2007

2 unchanged sentences

Summary of Jason Ingersoll Compensation Arrangement, incorporated by reference to Exhibit 10.51 to the Registrant’s Annual Report on Form 10–K for the year ended December 31, 2015

Table Archrock, Contents

Form of Compensation Letter applicable to Mr.

1 unchanged sentence

Form of Indemnification Agreement, incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015

Exterran Holdings, Inc.

(now Archrock, Inc.) Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.16 of the Registrant’s Current Report on Form 8–K filed on August 23, 2007

First Amendment to Exterran Holdings, Inc.

(now Archrock, Inc.) Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.22 of the Registrant’s Annual Report on Form 10–K for the year ended December 31, 2008

Second Amendment to Exterran Holdings, Inc.

(now Archrock, Inc.) Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.16 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015

Form of Employment Letter applicable to Messrs.

4 unchanged sentences

Childers and Ingersoll, incorporated by reference to Exhibit 10.10 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015

Employee Matters Agreement, dated as of November 3, 2015, by and between Exterran Holdings, Inc.

(now Archrock, Inc.) and Exterran Corporation, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015

Tax Matters Agreement, dated as of November 3, 2015, by and between Exterran Holdings, Inc.

(now Archrock, Inc.) and Exterran Corporation, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015

Transition Services Agreement, dated as of November 3, 2015, by and between Exterran Holdings, Inc.

(now Archrock, Inc.) and Exterran Corporation, incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015

Supply Agreement, dated as of November 3, 2015, by and among Archrock Services, L.P., EXLP Operating LLC and Exterran Energy Solutions, L.P., incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015

Archrock, Inc.

2017 Employee Stock Purchase Plan, incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed March 16, 2017

Table Archrock, Contents

Form of Amendment to Severance Benefit Agreement incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10–Q for the quarter ended June 30, 2017

Form of Second Amendment to Severance Benefit Agreement, incorporated by reference to Exhibit 10.73 to the Registrant’s Annual Report on Form 10–K for the year ended December 31, 2017

Credit Agreement, dated as of March 30, 2017, among Archrock Partners Operating LLC, as Borrower, the other Loan Parties party thereto, the Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders, as an Issuing Bank and as Swingline Lender, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8–K filed on April 5, 2017.

Pledge and Security Agreement, dated as of March 30, 2017, among Archrock Partners Operating LLC and the other Grantors party thereto in favor or JPMorgan Chase Bank, N.A., as Administrative Agent, incorporated by reference to Exhibit 10.2 to Archrock Partners, L.P.’s Current Report on Form 8–K filed on April 5, 2017.

Amendment No.

1 to Credit Agreement, dated as of February 23, 2018, by and among Archrock Partners, L.P., the other Loan Parties thereto, the Lenders thereto, and JPMorgan Chase Bank, N.A., as the Administrative Agent, incorporated by reference to Exhibit 10.1 to the Partnership’s Current Report on Form 8–K filed on February 28, 2018.

Omnibus Joinder Agreement, dated as of April 26, 2018, by and among Archrock, Inc., Archrock Services, L.P., AROC Corp., AROC Services GP LLC, AROC Services LP LLC, Archrock Services Leasing LLC, Archrock GP LP LLC, and Archrock MLP LP LLC and acknowledged and accepted by JPMorgan Chase Bank, N.A., as the Administrative Agent, incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8–K filed on April 26, 2018

Table Archrock, Contents

Amendment and Supplement to Pledge and Security Agreement dated as of April 26, 2018, by and among Archrock Partners Operating LLC, Archrock Partners, L.P., Archrock Partners Finance Corp., Archrock Partners Leasing LLC, Archrock, Inc., Archrock Services, L.P., AROC Corp., AROC Services GP LLC, AROC Services LP LLC, Archrock Services Leasing LLC, Archrock GP LP LLC, Archrock MLP LP LLC and JPMorgan Chase Bank, N.A., as the Administrative Agent, incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8–K filed on April 26, 2018

13 unchanged sentences

and JPMorgan Chase Bank, N.A., incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8–K filed on March 21, 2019

Board Representation Agreement, dated as of August 1, 2019, by and between Archrock, Inc.

and JDH Capital Holdings, L.P., incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8–K filed on August 1, 2019

Registration Rights Agreement, dated as of August 1, 2019, by and between Archrock, Inc.

and JDH Capital Holdings, L.P., incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8–K filed on August 1, 2019

Amendment No.

2 to Credit Agreement, dated as of November 8, 2019, by and among Archrock, Inc., Archrock Partners Operating LLC, Archrock Services, L.P., the other Loan Parties thereto, the Lenders thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8–K filed on November 12, 2019

Purchase Agreement, dated as of December 16, 2019, by and among Archrock Partners, L.P., Archrock Partners Finance Corp., Archrock, Inc., the other guarantors party thereto and RBC Capital Markets, LLC, as representative of the initial purchasers named therein, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8–K filed on December 17, 2019

Table Archrock, Contents

Form of Compensation Letter applicable to Messrs.

1 unchanged sentence

Hildebrandt, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8–K filed on April 30, 2020

Table Archrock, Contents

Purchase Agreement, dated as of December 14, 2020, by and among Archrock Partners, L.P., Archrock Partners Finance Corp., Archrock, Inc., the other guarantors party thereto and RBC Capital Markets, LLC, as representative of the initial purchasers named therein, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8–K filed on December 15, 2020

Amendment No.

3 to Credit Agreement, dated as of February 22, 2021, by and among Archrock Inc., Archrock Partners Operating LLC, Archrock Services, L.P., the other Loan Parties thereto, the Lenders thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8–K filed on February 23, 2021

Archrock Deferred Compensation Plan, dated as of October 28, 2021, incorporated by reference to Exhibit 10.41 to Registrant’s Annual Report on Form 10-K filed on February 22, 2023

Archrock, Inc.

2020 Stock Incentive Plan

2020 Stock Incentive Plan, incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 17, 2020

Form of Letter Agreement, incorporated by reference to Exhibit 10.99 of the Registrant’s Annual Report on Form 10–K filed on February 23, 2022

10 unchanged sentences

Form of Compensation Letter (incorporated by reference and filed as Exhibit 10.1 to Form 8–K filed on April 30, 2020), incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8–K filed on June 21, 2021

Amended and Restated Credit Agreement, dated as of May 16, 2023, by and among Archrock, Inc., Archrock Partners Operating LLC, Archrock Services, L.P., the other Loan Parties thereto, the Lenders thereto, and JPMorgan Chase Bank, N.A., as the Administrative Agent, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on May 18, 2023

Retention Incentive Agreement, dated January 25, 2024, by and between Archrock, Inc.

Bradley Childers, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on January 26, 2024

Fourth Amended and Restated Omnibus Agreement, dated November 3, 2015, by and among Archrock, Inc.

(formerly named Exterran Holdings, Inc.), Archrock Services, L.P.

(formerly named Exterran US Services OpCo, L.P.), Archrock GP LLC (formerly named Exterran GP, LLC), Archrock General Partner, L.P.

(formerly named Exterran General Partner, L.P.), Archrock Partners, L.

Table Archrock, Contents

Tax Matters Agreement, dated as of November 3, 2015, by and between Exterran Holdings, Inc.

(now Archrock, Inc.) and Exterran Corporation, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015

List of Subsidiaries of Archrock, Inc.

6 unchanged sentences

Section 1350 as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002

Archrock’s Compensation Recovery Policy, dated effective October 2, 2023

Interactive data files pursuant to Rule 405 of Regulation S–T

38 unchanged sentences

We have audited the accompanying consolidated balance sheets of Archrock, Inc.

and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes listed in the Index at Item 15 (collectively referred to as the “financial statements”).

and subsidiaries (the “Company”) as of December 31, 2023, and 2022, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

16 unchanged sentences

Critical Audit Matter Description

Management’s evaluation of whether to retire compressor units from its active fleet takes into consideration the future deployment of the units that were not of the type, configuration, condition, make, or model that are cost efficient to maintain or operate.

Management’s evaluation of whether to retire certain compressor units from its active fleet takes into consideration the future deployment of compression assets that are not of the type, configuration, condition, make or model that are cost efficient to maintain and operate.

Once a compressor unit is retired from the active fleet, it is tested for impairment.

As such, the timing of the identification of compressor units for removal could have a significant impact on the amount of any impairment charge.

During the year ended December 31, 2022, the Company retired 145 units from the active fleet resulting in an asset impairment charge of $21.4 million.

During the year ended December 31, 2023, the Company retired 105 units from the active fleet resulting in an impairment charge of $12 million.

The determination of impairment requires management to make significant estimates and assumptions related to the timing of the identification of compressor units for removal.

Changes in these assumptions could have a significant impact on the amount of impairment charged.

Auditing the decisions on when compressor units are retired from the active fleet required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s assumptions.

We identified long-lived asset impairment as a critical audit matter due to the materiality of the property, plant and equipment balance, high degree of auditor judgment in auditing the decisions on when compressor units are retired from the active fleet, and an increased extent of effort, including the need to involve fair value specialists when performing audit procedures to evaluate the reasonableness of management’s assumptions.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s determination of whether to retire compressor unit from the Company’s active fleet included the following, among others:

• We tested the operating effectiveness of internal controls over long–lived asset impairment process, including those over the identification of units to be retired and assessed for impairment, which includes the type, configuration, condition, make, or model that are cost efficient to maintain or operate.

• We tested the completeness and accuracy of the compressor units identified for retirement by performing the following procedures:

– Comparing the final listing of retired compressor units to the list evaluated and approved by management.

– For a sample of compressor units, determining whether those units were (1) properly segregated from the active fleet, (2) identified appropriately in the system, and (3) no longer operating.

• We evaluated the reasonableness of Fair Market Value assigned by management on impaired units by using Internal Fair Value Specialists.

• We evaluated the reasonableness of management’s identification of the compressor units for removal, including assessments of type, configuration, condition, make, or model that are cost efficient to maintain or operate, by performing the following procedures:

Our audit procedures related to management’s determination of whether to retire compressor units from the active fleet included the following, among others:

• We evaluated the reasonableness of management’s identification of the compressor units for removal from the active fleet, including assessments of units that are not of the type, configuration, condition, make, or model that are cost efficient to maintain or operate, by performing the following procedures:

– Held discussions with management to determine the nature and cause of the unit being retired from the active fleet when compared to other idle assets residing in similar location or of the same model type.

– Comparing the rationale for compression units identified with historical rationales made for compression units of a similar type, configuration, make, or model.

– For a sample of compression units not retired, making inquiries of management and others within the Company with knowledge of the type, configuration, condition, make, or model and operating costs of the specific compressor units to identify if any units not retired exhibit characteristics indicating that they should be retired.

– Comparing the compression units identified to internal communications to management and the Board of Directors.

– Reading available peer company data and other external sources for information supporting or contradicting management’s conclusions.

– For a sample of compressor units retired from the active fleet, determined whether units were (1) properly segregated from the active fleet, (2) identified appropriately in the system, and (3) no longer operating and generating revenue.

– For a sample of compressor units not retired, made inquiries of management and others within the Company with knowledge of the type, configuration, condition, make, or model and operating costs of the specific compressor units to identify if any units not retired exhibit characteristics indicating that they should be retired.

– Read available peer company data and other external sources for information supporting or contradicting management’s conclusions.

• With the assistance of our fair value specialists, we evaluated the fair market values assigned by management on impaired units.

Our audit procedures also included testing the effectiveness of internal controls over the long-lived asset impairment process, including those over the identification of units to be retired from the active fleet and assessed for impairment.

/s/ DELOITTE & TOUCHE LLP

7 unchanged sentences

Cash and cash equivalents

Accounts receivable, net

Accounts receivable, net of allowance of $ 587 and $ 1,674 , respectively

Other current assets

1 unchanged sentence

Property, plant and equipment, net

Operating lease ROU asset

Operating lease right-of-use assets

Intangible assets, net

1 unchanged sentence

Deferred tax assets

Assets of discontinued operations

Non-current assets of discontinued operations

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

Accounts payable, trade

Accrued liabilities

5 unchanged sentences

Other liabilities

Liabilities of discontinued operations

Non-current liabilities of discontinued operations

Total liabilities

Commitments and contingencies (Note 16)

Stockholders' equity:

Preferred stock:

$ 0.01 par value, 50,000,000 shares authorized, zero issued

$ 0.01 par value per share, 50,000,000 shares authorized, zero issued

Common stock:

$ 0.01 par value 250,000,000 shares authorized, 163,439,013 and 161,482,852 shares issued, respectively

$ 0.01 par value per share, 250,000,000 shares authorized, 164,984,401 and 163,439,013 shares issued, respectively

Additional paid-in capital

2 unchanged sentences

( 2,509,133 )

Accumulated other comprehensive loss

Treasury stock:

9,020,454 and 7,810,548 common shares, at cost, respectively

Total stockholders' equity

Total liabilities and stockholders' equity

Total liabilities and equity

The accompanying notes are an integral part of these consolidated financial statements.

13 unchanged sentences

Long-lived and other asset impairment

Goodwill impairment

Restructuring charges

Interest expense

Debt extinguishment loss

Gain on sale of assets, net

Other expense (income), net

Income (loss) before income taxes

Provision for (benefit from) income taxes

Net income (loss)

Basic and diluted income (loss) per common share

Income before income taxes

Provision for income taxes

Basic and diluted earnings per common share

Weighted average common shares outstanding:

4 unchanged sentences

Year Ended December 31,

Net income (loss)

Other comprehensive income (loss), net of tax:

Interest rate swap gain (loss), net of reclassifications to earnings

Other comprehensive income, net of tax:

Interest rate swap gain, net of reclassifications to earnings

Amortization of dedesignated interest rate swap

Total other comprehensive income (loss), net of tax

Comprehensive income (loss)

Total other comprehensive income, net of tax

Comprehensive income

The accompanying notes are an integral part of these consolidated financial statements.

8 unchanged sentences

( 7,052,769 )

Treasury stock purchased

Shares withheld related to net settlement of equity awards

Cash dividends ($ 0.58 per common share)

1 unchanged sentence

Stock-based compensation, net of forfeitures

Contribution from Exterran Corporation

Impact of ASU 2016-13 adoption

Comprehensive loss:

Other comprehensive loss

Net proceeds from issuance of common stock

Comprehensive income

Other comprehensive income

Balance at December 31, 2021

1 unchanged sentence

( 7,417,401 )

Treasury stock purchased

Shares withheld related to net settlement of equity awards

Cash dividends ($ 0.58 per common share)

Shares issued in ESPP

Shares issued under ESPP

Stock-based compensation, net of forfeitures

5 unchanged sentences

( 7,810,548 )

Treasury stock purchased

Shares repurchased

Shares withheld related to net settlement of equity awards

Cash dividends ($ 0.61 per common share)

3 unchanged sentences

Comprehensive income

Other comprehensive income

Balance at December 31, 2023

7 unchanged sentences

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Long-lived and other asset impairment

Goodwill impairment

Non-cash restructuring charges

Unrealized change in fair value of investment in unconsolidated affiliate

Inventory write-downs

Amortization of operating lease ROU asset

Amortization of debt issuance costs

Amortization of debt discount

Amortization of operating lease right-of-use assets

Amortization of deferred financing costs

Amortization of debt premium

1 unchanged sentence

Amortization of dedesignated interest rate swap

Debt extinguishment loss

Interest rate swaps

Stock-based compensation expense

Non-cash restructuring charges

Provision for (benefit from) credit losses

(Gain) loss on sale of assets, net

Gain on sale of assets, net

Gain on sale of business

Deferred income tax provision (benefit)

Deferred income tax provision

Amortization of contract costs

12 unchanged sentences

Investments in unconsolidated entities

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

1 unchanged sentence

Repayments of long-term debt

( 1,204,375 )

Payments of debt issuance costs

2 unchanged sentences

Net proceeds from issuance of common stock

Repurchases of common stock

Taxes paid related to net share settlement of equity awards

Proceeds from stock issued under ESPP

Purchases of treasury stock

Contribution from Exterran Corporation

Net cash used in financing activities

Archrock, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Net increase (decrease) in cash and cash equivalents

1 unchanged sentence

Cash and cash equivalents, end of period

Archrock, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Supplemental disclosure of cash flow information:

Interest paid

Income taxes refunded (paid), net

Income taxes paid, net

Supplemental disclosure of non-cash investing and financing transactions:

Accrued capital expenditures

Non-cash consideration received in sales of a business

The accompanying notes are an integral part of these consolidated financial statements.

9 unchanged sentences

In our aftermarket services business, we sell parts and components and provide operations, maintenance, overhaul and reconfiguration services to customers who own compression equipment.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Significant Accounting Policies

Basis of Presentation

5 unchanged sentences

Because of the inherent uncertainties in this process, actual future results could differ from those expected as of the reporting date.

Management believes that the estimates and assumptions sued are reasonable.

Management believes that the estimates and assumptions used are reasonable.

Except as otherwise noted, any capitalized term used but not defined in our Financial Statements shall have the same meaning provided in our 2023 Form 10-K.

Significant Accounting Policies

Cash and Cash Equivalents

83 unchanged sentences

Significant judgment is involved in the estimation of the progress to completion.

Any adjustments to the measure of the progress to completion is accounted for on a prospective basis.

Changes to the scope of service is recognized as an adjustment to the transaction price in the period in which the change occurs.

Any adjustments to the measure of the progress to completion are accounted for on a prospective basis.

Changes to the scope of service are recognized as an adjustment to the transaction price in the period in which the change occurs.

Service provided based on time and materials is generally short–term in nature and labor rates and parts pricing is agreed upon prior to commencing the service.

23 unchanged sentences

During the years ended December 31, 2023, 2022 and 2021, no customers accounted for more than 10% of our consolidated revenues.

Accounting Standard Update Implemented

In December 2022, the FASB issued ASU No.

2022–06, Deferral of the Sunset Date of Reference Rate Reform (Topic 848) .

Topic 848 provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

ASU 2022–06 deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

The ASU is effective as of December 21, 2022 through December 31, 2024.

We adopted ASU 2022–06 during 2022, and the adoption did not and is currently not expected to have a material impact on our consolidated financial statements.

We continue to evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis.

No other new accounting pronouncements issued or effective during 2022 have had or are expected to have a material impact on our consolidated financial statements.

Recent Accounting Developments

Accounting Standards Updates Not Yet Implemented

Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which will require significant additional disclosures, primarily focused on the disclosure of income taxes paid and the rate reconciliation table.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025 and should be applied on a prospective basis, with a retrospective option.

Early adoption is permitted.

We are evaluating the impact that the adoption of ASU 2023-09 will have on our consolidated financial statements and related disclosures.

Segment Reporting

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which will require disclosures of significant expenses for each reportable segment, as well as certain other disclosures to help investors understand how the chief operating decision maker evaluates segment expenses and operating results.

ASU 2023-07 will also allow disclosure of multiple measures of segment profitability if those measures are used to allocate resources and assess performance.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and should be applied on a retrospective basis, unless impracticable.

Early adoption is permitted.

We are evaluating the impact that the adoption of ASU 2023-07 will have on our consolidated financial statements and related disclosures.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Business Combinations – Joint Venture Formations

In August 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture Formations (Subtopic 805-60):

Recognition and Initial Measurement, to reduce diversity in practice and provide decision-useful information to a joint venture’s investors by requiring that a joint venture apply a new basis of accounting upon formation.

By applying a new basis of accounting, a joint venture will recognize and initially measure its assets and liabilities at fair value, with exceptions to fair value measurement that are consistent with the business combinations guidance, on the date of formation.

ASU 2023-05 is effective prospectively for all joint venture formations with a formation date on or after January 1, 2025.

Additionally, a joint venture that was formed before January 1, 2025, may elect to apply the amendments retrospectively if it has sufficient information to do so.

Early adoption is permitted in any interim or annual period in which financial statements have not been issued or been made available for issuance, either prospectively or retrospectively.

We expect that the adoption of ASU 2023-05 will have no impact on our consolidated financial statements.

During 2022, we completed sales of certain contract operations customer service agreements and approximately 770 compressors, comprising approximately 172,000 horsepower, used to provide compression services under those agreements, as well as other assets used to support the operations.

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We allocated customer–related and contract–based intangible assets based on a ratio of the horsepower sold relative to the total horsepower of the asset group.

We recognized an aggregate gain on the sales of $ 19.0 million.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

In July 2020, we completed the sale of the turbocharger business included within our aftermarket services segment .

In connection with the sale, we entered into a supply agreement to purchase a minimum amount of turbocharger goods and services over a two–year term.

In addition to cash of $ 9.5 million received upon closing, an additional $ 3.0 million was received on the first anniversary of the closing date in July 2021, and $ 3.5 million was received through the purchase of turbocharger goods and services under the supply agreement, including $ 2.8 million that was received in 2021.

We recognized a gain on the sale of $ 9.3 million in 2020.

In March 2020, we completed the sale of certain contract operations customer service agreements and approximately 200 compressors, comprising approximately 35,000 horsepower, used to provide compression services under those agreements as well as other assets used to support the operations.

We allocated customer–related and contract–based intangible assets and goodwill based on a ratio of the horsepower sold relative to the total horsepower of the asset group.

We recognized a gain on the sale of $ 3.2 million in 2020.

We recognized an aggregate gain of $ 19.0 million.

Accounts Receivable, net

Accounts receivable, net is comprised of the following:

(in thousands)

Customer related:

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Accounts receivable, net

(1) See Note 27 for additional information.

(1) See Note 28 (“Related Party Transactions”) for additional information.

(2) Other receivables primarily consist of amounts due from the sale of used equipment.

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Year Ended December 31,

Balance at January 1

Impact of adoption of new accounting standard

Provision for credit losses

(in thousands)

Balance at beginning of period

Provision for (benefit from) credit losses

Write-offs charged against allowance

Balance at December 31

Balance at end of period

Archrock, Inc.

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Inventory is comprised of the following:

(in thousands)

Parts and supplies

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Property, plant and equipment, net is comprised of the following:

(in thousands)

Compression equipment, facilities and other fleet assets

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We have operating leases and subleases for office space, temporary housing, storage and shops.

Our leases have remaining lease terms of less than one year to approximately ten years and most include options to extend the lease term, at our discretion, for an additional six months to ten years .

We are not, however, reasonably certain that we will exercise any of the options to extend and as such, they have not been included in the remaining lease terms.

Our leases have remaining lease terms of less than one year to approximately nine years and most include options to extend the lease term, at our discretion, for an additional one to ten years .

We are not, however, reasonably certain that we will exercise any of the options to extend them and as such, they have not been included in the remaining lease terms.

Financial and other supplemental information related to our operating leases is as follows:

(in thousands)

Classification

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Year Ended December 31,

(in thousands)

Operating lease cost

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Year Ended December 31,

(in thousands)

Operating cash flows - cash paid for amounts included in the measurement of operating lease liabilities

Operating lease ROU assets obtained in exchange for lease liabilities, net (1)

(3) Includes decreases to our ROU assets of $ 0.2 million and $ 0.6 million related to lease amendments and terminations during 2022 and 2021, respectively.

(1) Includes decreases to our ROU assets of $ 0.04 million, $ 0.2 million, and $ 0.3 million related to lease amendments and terminations during 2023, 2022 and 2021 respectively.

Weighted average remaining lease term (in years)

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Remaining maturities of our lease liabilities as of December 31, 2023 are as follows:

(in thousands)

Total lease payments

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Intangible assets, net is comprised of the following:

(in thousands)

Gross carrying amount

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Estimated amortization expense for each of the subsequent five fiscal years is expected to be as follows:

(in thousands)

Contract Costs

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Capitalized contract costs included commissions paid to our sales force to obtain contract operations contracts.

As of December 31, 2022 and 2021, we had contract costs of $ 3.0 million and $ 2.6 million associated with sales commissions recorded in our consolidated balance sheets.

We also capitalize costs incurred to fulfill a contract if those costs relate directly to a contract, enhance resources that we will use in satisfying performance obligations and we expect to recover those costs.

We expense commissions paid for sales of service contracts and OTC parts and components within our aftermarket services segment, as the amortization period is less than one year.

We had contract costs of $ 2.2 million and $ 3.0 million associated with sales commissions recorded in our consolidated balance sheets as of December 31, 2023 and 2022, respectively.

We capitalize costs incurred to fulfill a contract if those costs relate directly to a contract, enhance resources that we will use in satisfying performance obligations and if we expect to recover those costs.

Contract costs incurred to fulfill our customer contracts include freight charges to transport compression assets before transferring services to the customer and mobilization activities associated with our contract operations services.

As of December 31, 2022 and 2021, we had contract costs of $ 31.7 million and $ 22.8 million associated with freight and mobilization recorded in our consolidated balance sheets.

Aftermarket services fulfillment costs are recognized based on the percentage–of–completion method applicable to the customer contract and do not typically result in the recognition of a contract asset.

These obtainment and fulfillment costs associated with our contract operations segment are amortized based on the transfer of service to which the assets relate, which is estimated to be 36 months based on average contract term, including anticipated renewals.

We had contract costs of $ 18.9 million and $ 31.7 million associated with freight and mobilization recorded in our consolidated balance sheets as of December 31, 2023 and 2022, respectively.

Contract operation obtainment and fulfillment costs are amortized based on the transfer of service to which the assets relate, which is estimated to be 38 months based on average contract term, including anticipated renewals.

We periodically assess whether the 38 –month estimate fairly represents the average contract term and adjust as appropriate.

Costs associated with sales commissions in our aftermarket services segment are expensed when paid, as the amortization period is less than one year .

Costs associated with sales commissions in our contract operations segment are amortized to SG&A.

During the years ended December 31, 2022, 2021 and 2020, we amortized $ 1.9 million, $ 2.2 million and $ 3.0 million, respectively, related to sales commissions.

Contract costs associated with freight and mobilization are amortized to costs of sales (excluding depreciation and amortization).

During the years ended December 31, 2022, 2021 and 2020, we amortized $ 17.3 million, $ 17.8 million and $ 23.6 million, respectively, related to freight and mobilization.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Contract costs associated with commissions are amortized to SG&A.

Contract costs associated with freight and mobilization are amortized to cost of sales (excluding depreciation and amortization).

During the years ended December 31, 2023, 2022 and 2021, we amortized $ 1.9 million, $ 1.9 million and $ 2.2 million, respectively, related to sales commissions, and $ 19.4 million, $ 17.3 million and $ 17.8 million, respectively, related to freight and mobilization.

Hosting Arrangements

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Capitalized implementation costs and accumulated amortization related to our hosting arrangements that are service contracts are as follows:

(in thousands)

Hosting arrangements

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Hosting arrangements, net

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

These costs are included in other assets in our consolidated balance sheets.

Amortization expense, which is recorded in SG&A in our consolidated statements of operations, was $ 2.0 million, $ 0.3 million and $ 0.3 million during the years ended December 31, 2022, 2021 and 2020, respectively.

During the year ended December 31, 2020, we impaired $ 1.7 million of capitalized implementation costs related to the hosting arrangements of the mobile workforce component of our project due to the termination of the agreement, which was included in long–lived and other asset impairment in our consolidated statements of operations.

INVESTMENT IN UNCONSOLIDATED AFFILIATE

Amortization expense, which is recorded in SG&A in our consolidated statements of operations, was $ 2.6 million, $ 2.0 million and $ 0.3 million during December 31, 2023, 2022 and 2021, respectively.

Investments in Unconsolidated Affiliates

Investments in which we are deemed to exert significant influence, but not control, are accounted for using the equity method of accounting, except in cases where the fair value option is elected.

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In April 2022, we agreed to acquire for cash a 25 % equity interest in ECOTEC, a company specializing in methane emissions detection, monitoring and management.

We have elected the fair value option to account for this investment, and during the year ended December 31, 2022, we recognized an unrealized loss of $ 1.9 million related to the change in fair value of our investment (see Note 25).

During the year ended December 31, 2023, we contributed $ 3.1 million to maintain our 25 % ownership interest in ECOTEC.

We have elected the fair value option to account for this investment, and during the years ended December 31, 2023 and 2022, we recognized unrealized losses of $ 1.0 million and $ 1.9 million, respectively, related to the change in fair value of our investment (see Note 26 (“Fair Value Measurements”)).

Changes in the fair value of this investment are recognized in other (income) expense, net in our consolidated statements of operations.

As of December 31, 2023, our ownership interest in ECOTEC is 25 %, which is included in other assets in our consolidated balance sheets.

The remaining 2.3 % interest was acquired in January 2023.

For ownership interests that are not accounted for under the equity method and that do not have readily determinable fair values, we have elected the fair value measurement alternative to record these investments at cost minus impairment, if any, including adjustments for observable price changes in orderly transactions for an identical or similar investment of the same issuer.

Investments in equity securities measured using the fair value measurement alternative are reviewed for impairment or observable price changes in orderly transactions each reporting period.

In November 2023, we agreed to serve as the lead investor in a series A preferred financing round for Ionada, a global carbon capture technology company committed to reducing GHG emissions and creating a sustainable future.

Ionada has developed a post-combustion carbon capture solution to reduce carbon dioxide emissions from various small to mid-sized industrial emitters in the energy, marine and e-fuels industries, among others.

We have elected the fair value measurement alternative to account for this investment (see Note 26 (“Fair Value Measurements”)).

Adjustments to the carrying value are recognized in other (income) expense, net in our condensed consolidated statements of operations.

Our initial investment in Ionada was $ 3.8 million and as of December 31, 2023, our fully diluted ownership interest in Ionada is 10 %, which is included in other assets in our consolidated balance sheets.

Subject to certain conditions, our ownership interest will increase to 24 % over the next three years .

Accrued Liabilities

Accrued liabilities are comprised of the following:

(in thousands)

Accrued salaries and other benefits

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Accrued interest

Derivative liability

Other accrued liabilities

Accrued liabilities

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Contract Liabilities

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These liabilities are included in deferred revenue and other liabilities in our consolidated balance sheets.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

We deferred revenue of $ 15.4 million and $ 24.6 million, respectively, and recognized $ 16.5 million and $ 21.0 million, respectively, as revenue during the years ended December 31, 2023 and 2022, respectively.

The revenue recognized and deferred during the periods primarily related to freight billings and milestone billings on aftermarket services.

The revenue recognized and deferred during the periods is primarily related to freight billings and milestone billings on aftermarket services.

Long–Term Debt

Long–term debt is comprised of the following:

(in thousands)

Credit Facility

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Credit Facility

As of December 31, 2022, our Credit Facility has an aggregate borrowing commitment of $ 750.0 million and will expire in November 2024 unless renewed or amended prior to that date.

Subject to certain conditions, including approval by the lenders, we are able to increase the aggregate commitments under the Credit Facility by up to an additional $ 250.0 million.

We may use up to $ 50.0 million for swing line loans and an additional $ 50.0 million for letters of credit.

As of December 31, 2022, there were $ 5.7 million letters of credit outstanding under the Credit Facility.

The Credit Facility borrowing base consists of eligible accounts receivable, inventory and compressors, the largest of which is compressors.

Borrowings under the Credit Facility are secured by substantially all of our personal property assets and certain of our subsidiaries.

Borrowings under the Credit Facility bear interest at, based on our election, either a base rate or LIBOR, plus an applicable margin.

The base rate is the highest of (i) the prime rate announced by JPMorgan Chase Bank, (ii) the Federal Funds Effective Rate plus 0.50 % and (iii) one-month LIBOR plus 1.00 %.

Depending on our leverage ratio, the applicable margin varies (i) in the case of base rate loans, from 1.00 % to 1.75 % and (ii) in the case of LIBOR loans, from 2.00 % to 2.75 %.

As of December 31, 2023, there were $ 4.5 million letters of credit outstanding under the Credit Facility and the applicable margin on borrowings was 2.1 %.

The weighted average annual interest rate on the outstanding balance under our Credit Facility, excluding the effect of interest rate swaps, was 7.7 % and 6.9 % at December 31, 2023 and 2022, respectively.

Additionally, we are required to pay commitment fees based on the daily unused amount of the Credit Facility at a rate of 0.375 %.

We incurred $ 1.9 million, $ 2.0 million and $ 2.0 million in commitment fees during 2022, 2021 and 2020, respectively.

As of December 31, 2023, we were in compliance with all covenants under our Credit Facility agreement.

Additionally, all undrawn capacity on our Credit Facility was available for borrowings as of December 31, 2023.

Amendment to the Credit Facility

In May 2023, we amended and restated our Credit Facility to, among other things extend the maturity date of the Credit Facility from November 8, 2024 to May 16, 2028 (or December 2, 2026 or December 3, 2027, as applicable, if any portion of 2027 Senior Notes and 2028 Senior Notes, respectively, remain outstanding at such date);

change the referenced rate from LIBOR to SOFR so that borrowings under the Credit Facility bear interest at, based on our election, either a base rate or SOFR, plus an applicable margin;

and increase the portion of the Credit Facility available for the issuance of swing line loans from $ 50.0 million to $ 75.0 million.

We incurred $ 6.0 million in transaction costs related to the Amended and Restated Credit Agreement, which were included in other assets in our condensed consolidated balance sheets and are being amortized over the remaining term of the Credit Facility.

In addition, we wrote off $ 1.0 million of unamortized deferred financing costs as a result of the Amended and Restated Credit Agreement, which was recorded to interest expense in our condensed consolidated statements of operations during the year ended December 31, 2023.

Other Facility Terms

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

As a result of the facility’s ratio requirements, $ 487.6 million of the $ 493.0 million of undrawn capacity was available for additional borrowings as of December 31, 2022.

As of December 31, 2023, our Credit Facility had an aggregate borrowing commitment of $ 750.0 million.

Subject to certain conditions, including approval by the lenders, we are able to increase the aggregate commitments under the Credit Facility by up to an additional $ 250.0 million.

Portions of the Credit Facility, up to $ 75.0 million, are available for the issuance of swing line loans and $ 50.0 million is available for the issuance of letters of credit.

The Credit Facility bears interest at either a base rate or SOFR, at our option, plus an applicable margin.

The base rate is the highest of (i) the Prime Rate, (ii) the Federal Funds Effective Rate plus 0.50 % and (iii) one-month SOFR plus 1.00 %.

Depending on our leverage ratio, the applicable margin varies (i) in the case of base rate loans, from 1.00 % to 1.75 % and (ii) in the case of SOFR loans, from 2.00 % to 2.75 %.

Additionally, we are required to pay commitment fees based on the daily unused amount of the Credit Facility at a rate of 0.25 % to 0.375 % depending on the ratio of the outstanding balance to the aggregate borrowing commitment.

We incurred $ 1.7 million, $ 1.9 million and $ 2.0 million in commitment fees during 2023, 2022 and 2021, respectively.

The Credit Facility borrowing base consists of eligible accounts receivable, inventory and compressors, the largest of which is compressors.

Borrowings under the Credit Facility are secured by substantially all of our personal property assets and certain of our subsidiaries.

The Credit Facility agreement contains various covenants including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on our ability to incur additional indebtedness, engage in transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay distributions.

The Credit Facility agreement also contains various covenants requiring mandatory prepayments from the net cash proceeds of certain asset transfers.

As of December 31, 2023, the following consolidated financial ratios, as defined in our Credit Facility agreement, were required:

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Total Debt to EBITDA (1)

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.

In addition to the financial covenants discussed above, the Credit Facility agreement contains various covenants including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on our ability to incur additional indebtedness, engage in transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay distributions.

The Credit Facility agreement also contains various covenants requiring mandatory prepayments from the net cash proceeds of certain asset transfers.

As of December 31, 2022, we were in compliance with all covenants under our Credit Facility agreement.

2027 Notes and 2028 Notes

Our 2027 Notes were issued under an indenture dated March 21, 2019 and mature on April 1, 2027.

The notes were issued in a private offering at 100 % of their face value and have an effective interest rate of 7.9 % .

We received net proceeds of $ 491.2 million after deducting issuance costs of $ 8.8 million.

Our 2028 Notes were issued under an indenture dated December 20, 2019 and mature on April 1, 2028.

The 2028 Notes were issued in two private offerings of $ 500.0 million and $ 300.0 million in December 2019 and December 2020, respectively.

In December 2020, we completed a private offering of $ 300.0 million aggregate principal amount of 6.25 % senior notes due April 2028, which were issued pursuant to the indenture under which we completed a private offering of $ 500.0 million aggregate principal amount of 6.25 % senior notes in December 2019.

The notes of the two offerings have identical terms and are treated as a single class of securities.

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We received net proceeds of $ 309.9 million, after deducting issuance costs of $ 4.7 million, from our December 2020 offering and net proceeds of $ 491.8 million, after deducting issuance costs of $ 8.2 million, from our December 2019 offering.

In March 2019, we completed a private offering of $ 500.0 million aggregate principal amount of 6.875 % senior notes due April 2027 and received net proceeds of $ 491.2 million after deducting issuance costs of $ 8.8 million.

The $ 500.0 million of notes were issued at 100 % of their face value and have an effective interest rate of 7.9 %.

The net proceeds from the 2027 Notes and 2028 Notes were used to repay borrowings outstanding under our Credit Facility.

Issuance costs related to the 2027 Notes and 2028 Notes are considered deferred financing costs, and together with the issue premium of the December 2020 offering of 2028 Notes, are recorded within long-term debt in our consolidated balance sheets and are being amortized to interest expense in our consolidated statements of operations over the terms of the notes.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The 2027 Notes and 2028 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by us and all of our existing subsidiaries, other than Archrock Partners, L.P.

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The 2027 Notes and 2028 Notes may be redeemed at any time, in whole or in part, at specified redemption prices and make–whole premiums, plus any accrued and unpaid interest.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Maturities of Long–Term Debt

As of December 31, 2023, the maturities of our long–term debt, excluding interest to be accrued, are as follows:

(in thousands)

Commitments and Contingencies

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We accrue for such additional taxes when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the liability.

As of December 31, 2022 and 2021, we accrued $ 3.9 million and $ 5.8 million, respectively, for the outcomes of non–income–based tax audits.

As of both December 31, 2023 and 2022, we accrued $ 3.9 million for the outcomes of non–income–based tax audits.

We do not expect that the ultimate resolutions of these audits will result in a material variance from the amounts accrued.

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We believe the likelihood is remote that the impact of potential unasserted claims from non–income–based tax audits could be material to our consolidated financial position, but it is possible that the resolution of future audits could be material to our consolidated results of operations or cash flows.

During the years ended December 31, 2022 and 2021, certain of our sales and use tax audits advanced from the audit review phase to the contested hearing phase.

As of both December 31, 2022 and 2021, we accrued $ 0.6 million for these audits.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

In 2020, we settled a certain sales and use tax audit for which we recorded a $ 12.4 million net benefit in our consolidated statements of operations.

This net benefit was primarily reflected as decreases of $ 4.4 million and $ 7.9 million to cost of sales (excluding depreciation and amortization) and SG&A, respectively.

We received a cash refund of $ 17.3 million in the fourth quarter of 2020 related to this settlement and have a $ 2.0 million accrued liability recorded as of December 31, 2022, which is included in our accrual for non–income–based tax audits discussed above.

During the years ended December 31, 2022 and 2021, certain of our sales and use tax audits advanced from the audit review phase to the contested hearing phase.

As of both December 31, 2023 and 2022, we accrued $ 0.6 million for these audits.

Litigation and Claims

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Stockholders’ Equity

2023 Share Repurchase Program

In April 2023, our Board of Directors authorized the 2023 Share Repurchase Program, which allows us to repurchase up to $ 50.0 million of outstanding common stock.

Under the 2023 Share Repurchase Program, shares of our common stock may be repurchased periodically, including in the open market, privately negotiated transactions, or otherwise in accordance with applicable federal securities laws, at any time until April 27, 2024.

The actual timing, manner, number, and value of shares repurchased under the program will be determined by us at our discretion.

The following table summarizes shares repurchased under the 2023 Share Repurchase Program during the year ended December 31, 2023:

(dollars in thousands, except per share amounts)

December 31, 2023

Total cost of shares repurchased

Average price per share

Total number of shares repurchased

At–the–Market Continuous Equity Offering Program

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Any sales agent may also terminate the ATM Agreement but only with respect to itself.

During the years ended December 31, 2022 and 2021, we sold 447,020 and 357,148 shares of common stock, respectively, for net proceeds of $ 4.2 million and $ 3.4 million, respectively, pursuant to the ATM Agreement.

During the year ended December 31, 2022, we sold 447,020 shares of common stock for net proceeds of $ 4.2 million, pursuant to the ATM Agreement.

There were no shares of common stock sold during the year ended December 31, 2023.

Archrock, Inc.

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Dividends per

(dollars in thousands, except per share amounts)

Dividends Paid

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Accumulated Other Comprehensive Loss

Components of comprehensive income (loss) are net income (loss) and all changes in equity during a period except those resulting from transactions with owners.

Components of comprehensive income are net income (and all changes in equity during a period except those resulting from transactions with owners.

Our accumulated other comprehensive loss consists of changes in the fair value of our interest rate swap derivative instruments, net of tax.

See Note 24 for further details on our interest rate swap derivative instruments.

See Note 25 (“Derivatives and Hedging”) for further details on our interest rate swap derivative instruments.

The following table presents the changes in accumulated other comprehensive loss, net of tax:

Year Ended December 31,

(in thousands)

Beginning accumulated other comprehensive loss

Other comprehensive income (loss), net of tax:

Other comprehensive income, net of tax:

Loss recognized in other comprehensive income

Loss reclassified from accumulated other comprehensive loss to interest expense

Total other comprehensive income (loss)

Total other comprehensive income

Ending accumulated other comprehensive loss

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Revenue from Contracts with Customers

The following table presents our revenue from contracts with customers by segment (see Note 28) and disaggregated by revenue source:

The following table presents our revenue from contracts with customers by segment (see Note 29 (“Segments”)) and disaggregated by revenue source:

Year Ended December 31,

(in thousands)

Contract operations:

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As of December 31, 2023, we had $ 440.1 million of remaining performance obligations related to our contract operations segment, which will be recognized through 2028 as follows:

(in thousands)

Remaining performance obligations

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Stock–Based Compensation

The 2020 Plan and the 2013 Plan both provide for the granting of stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards, other stock–based awards and dividend equivalent rights to our employees, directors and consultants.

No additional grants may be made under the 2013 Plan following the adoption of the 2020 Plan.

Previous grants made under the 2013 Plan continue to be governed by that plan and the applicable award agreements.

As of December 31, 2022, the maximum number of shares of common stock available for issuance under the 2020 Plan is 8,500,000 , and 5.9 million shares remain available for grant.

Each stock–settled award granted under the 2020 Plan reduces the number of shares available for issuance by one share.

Cash–settled awards are not counted against the aggregate share limit.

Shares subject to awards granted under the 2020 Plan that are subsequently canceled, terminated, settled in cash or forfeited, excluding shares withheld to satisfy tax withholding obligations or to pay the exercise price of an option, are available for future grant under the 2020 Plan.

Our policy is to issue new shares when restricted stock units and performance–based restricted stock units are vested.

We recognize stock-based compensation expense related to restricted stock awards, restricted stock units, performance-based restricted stock units and shares issued under our ESPP.

We account for forfeitures as they occur.

Year Ended December 31,

(in thousands)

Equity award expense

Liability award expense (1)

Total stock-based compensation expense

(1) Liability award benefit for the year ended December 31, 2021, includes a reversal of prior period expense of $ 2.1 million during the fourth quarter as the result of revised estimates of performance achievement of our 2019 and 2020 cash-settled performance-based restricted stock units.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Both the 2020 Plan and the 2013 Plan allow us to withhold shares upon vesting of restricted stock at the then–current market price to cover taxes required to be withheld on the vesting date.

Stock Incentive Plans

The 2020 Plan was adopted in April 2020 and provides for the granting of stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards, other stock-based awards and dividend equivalent rights to employees, directors and consultants of Archrock.

The 2020 Plan is administered by the Compensation Committee of our Board of Directors.

Under the 2020 Plan, the maximum number of shares of common stock available for issuance is 8,500,000 .

Each stock-settled award granted under the 2020 Plan reduces the number of shares available for issuance by one share.

Cash-settled awards are not counted against the aggregate share limit.

No additional grants may be made under the 2013 Plan following the adoption of the 2020 Plan.

Previous grants made under the 2013 Plan continue to be governed by that plan and the applicable award agreements.

The 2020 Plan and 2013 Plan allow us to withhold shares upon vesting of restricted stock at the then–current market price to cover taxes required to be withheld on the vesting date.

During the years ended December 31, 2023, 2022 and 2021, we withheld 388,128 shares valued at $ 3.8 million, 283,024 shares valued at $ 2.4 million and 283,972 shares valued at $ 2.5 million, respectively, to cover tax withholding.

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Activity related to our restricted stock and performance–based restricted stock units is as follows:

(in thousands, except per share amounts)

Non-vested restricted stock and performance-based restricted stock units, December 31, 2022

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Grants of cash–settled performance units vest at the end of the three year vesting period and are payable in an amount of cash equivalent to the value of our common stock at the vesting date for each unit vested.

These awards are subject to one of more performance conditions and are accounted for as liability awards with expense based on the fair value measured at the end of each reporting period.

These awards also include dividend equivalent rights that accumulated during the vesting period.

These awards are subject to one or more performance conditions and are accounted for as liability awards with expense based on the fair value measured at the end of each reporting period.

These awards also include dividend equivalent rights that accumulate during the vesting period.

At the end of each reporting period, the Compensation Committee of our Board of Directors approves the determination of achievement for each performance measure, which can range from 0 % to 200 %.

Activity related to our cash–settled performance units is as follows:

(in thousands, except per share amounts)

Non-vested cash-settled performance units, December 31, 2022

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The grant date fair value of the cash settled performance units granted during the years ended December 31, 2023, 2022 and 2021 was $ 1.9 million, $ 2.5 million and $ 2.3 million, respectively.

Cash paid upon vesting of these cash settled performance units during the years ended December 31, 2022, 2021 and 2020 was $ 1.2 million, $ 0.6 million and $ 0.5 million, respectively.

The performance criteria for the cash settled performance units granted during the year ended December 31, 2020, were not met over the performance period, therefore the Compensation Committee of our Board of Directors determined that no payout was earned, and no cash was paid upon vesting during the year ended December 31, 2023.

Cash paid upon vesting of the cash settled performance units during the years ended December 31, 2022 and 2021 was $ 1.2 million and $ 0.6 million, respectively.

Archrock, Inc.

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Each quarter, eligible employees may elect to withhold a portion of their salary up to the lesser of $ 25,000 per year or 10 % of their eligible pay at a price equal to 85 % to 100 % of the fair market value of the stock as defined by the plan.

The purchase discount under the ESPP is 5 % of the fair market value of our common stock on the first or last trading day of the quarter, whichever is lesser.

For the year ended December 31, 2023 and for prior years, the purchase discount under the ESPP was 5 % of the fair market value of our common stock on the first or last trading day of the quarter, whichever is lower.

Effective on January 1, 2024, the purchase discount under the ESPP increased to 10 % of the fair market value of our common stock on the first or last trading day or the quarter, whichever is lower.

Our ESPP is compensatory and, as a result, we record an expense in our consolidated statements of operations related to the ESPP.

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There are 100,000 shares reserved under the DSDP and, as of December 31, 2023, 37,771 shares remained available to be issued under the plan.

Stock–Based Compensation Expense

Stock–based compensation expense is as follows:

Year Ended December 31,

Equity award expense

Liability award expense (1)

Total stock-based compensation expense

(1) In 2021, we reversed a prior period expense of $ 2.1 million as the result of revised estimates of performance achievement of our 2020 and 2019 cash–settled performance–based restricted stock units.

Retirement Benefit Plan

2 unchanged sentences

We recorded matching contributions of $ 5.2 million, $ 4.9 million and $ 4.4 million during the years ended December 31, 2023, 2022 and 2021, respectively.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Long–Lived and Other Asset Impairment

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The fair value of each unit is estimated based on the expected net sale proceeds compared to other fleet units we recently sold, a review of other units recently offered for sale by third parties or the estimated component value of the equipment we plan to use.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

In connection with our review of our idle compression assets, we evaluate for impairment idle units that were culled from our fleet in prior years and are available for sale.

2 unchanged sentences

Year Ended December 31,

(dollars in thousands)

Idle compressors retired from the active fleet

1 unchanged sentence

Impairment recorded on idle compressors retired from the active fleet

In the first quarter of 2020, the global response to the COVID–19 pandemic significantly impacted our market capitalization and estimates of future revenues and cash flows, which triggered the need to perform a quantitative test of the fair value of our contract operations reporting unit as of March 31, 2020.

The quantitative test determined that the carrying amount of our contract operations reporting unit exceeded its fair value and we recorded a goodwill impairment loss of $ 99.8 million during the first quarter of 2020.

Other Impairment

During the year ended December 31, 2020, $ 1.7 million of capitalized implementation and unamortized prepaid costs related to the mobile workforce component of our process and technology transformation project was impaired.

See Note 10 for further details.

Restructuring Charges

In response to the decreased activity level of our customers that resulted from the COVID–19 pandemic, we recorded pandemic restructuring charges for severance costs of $ 1.7 million and $ 5.3 million during the years ended December 31, 2021 and 2020, respectively.

During the first quarter of 2023, a plan to further streamline our organization and more fully align our teams to improve our customer service and profitability was approved by management.

We expect to incur additional restructuring charges of approximately $ 0.4 million related to these restructuring activities.

During the year ended December 31, 2021, in response to the decreased activity level of our customers that resulted from the COVID–19 pandemic, we recorded pandemic restructuring charges for severance costs of $ 1.7 million.

We do not expect to incur additional material costs under this restructuring plan.

During the year ended December 31, 2021, management approved and initiated a plan to exit a facility no longer deemed economical for our business, and we incurred $ 0.9 million of costs to complete the exit of the facility.

In addition, during the year ended December 31, 2021, management approved and initiated a plan to exit a facility no longer deemed economical for our business, and we incurred $ 0.9 million of costs to complete the exit of the facility.

We do not expect to incur additional material costs under this restructuring plan.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

During the year ended December 31, 2020, we completed restructuring activities to further streamline our organization and more fully align our teams to improve our customer service and profitability.

We incurred severance costs of $ 1.7 million related to these activities during the first quarter of 2020.

No additional costs will be incurred for this organizational restructuring.

Management also approved a plan to dispose of certain non–core properties, and we incurred $ 1.5 million of costs as a result of these property disposals.

No additional charges will be incurred under this restructuring plan.

The following table presents restructuring charges incurred by segment:

Pandemic restructuring

2021 property restructuring

2020 property restructuring

Other restructuring

Total restructuring charges

(in thousands)

Organizational restructuring

Total restructuring charges

Pandemic restructuring

Property restructuring

Impairment loss

Other restructuring

Total restructuring charges

(1) Represents expense incurred within our corporate function and not directly attributable to our segments.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The following table presents restructuring charges incurred by cost type:

Year Ended December 31,

(in thousands)

Severance costs

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Total severance costs

Property disposal costs:

Impairment loss

Other exit costs

Total property disposal costs

Property restructuring

Other restructuring costs

Total restructuring charges

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Total restructuring costs

The following table presents the changes to our accrued liability balance related to restructuring charges during the year ended December 31, 2023:

(in thousands)

Balance at December 31, 2022

Charges incurred

Balance at December 31, 2023

Current and Deferred Tax Provision

Our provision for (benefit from) income taxes consisted of the following:

Our provision for income taxes consisted of the following:

Year Ended December 31,

Current tax provision (benefit):

(in thousands)

Current tax provision:

Total current

Deferred tax provision (benefit):

Deferred tax provision:

Total deferred

Provision for (benefit from) income taxes

The provision for (benefit from) income taxes for the years ended December 31, 2022, 2021 and 2020 resulted in effective tax rates of 27 %, 28 % and 20 % , respectively.

Provision for income taxes

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The provision for income taxes for the years ended December 31, 2023, 2022 and 2021 resulted in effective tax rates of 26 %, 27 % and 28 %, respectively.

The reconciliation of these effective tax rates to the U.S.

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Year Ended December 31,

(in thousands)

Income taxes at U.S.

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Executive compensation limitation

Provision for (benefit from) income taxes

Provision for income taxes

(1) Includes the expiration of statute of limitations.

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(2) See “Tax Attributes and Valuation Allowances” below for further details.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Deferred income tax balances are the direct effect of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the taxes are actually paid or recovered.

The tax effects of our temporary differences that gave rise to deferred tax assets and deferred tax liabilities were as follows:

(in thousands)

Deferred tax assets:

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Interest expense limitation carryforward

Basis difference in unconsolidated affiliate

Accrued liabilities

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Property, plant and equipment

Basis difference in the Partnership

Basis difference in partnership

Total deferred tax liabilities

Net deferred tax asset (2)

Net deferred tax asset (liability) (2)

(1) See “Tax Attributes and Valuation Allowances” below for further details.

(2) The 2022 net deferred tax assets are reflected in our consolidated balance sheets as deferred tax assets of $ 33.4 million and $ 47.9 million, respectively, and deferred tax liabilities of $ 0.9 million and $ 1.1 million, respectively.

(2) The 2023 and 2022 net deferred tax asset or liability are reflected in our consolidated balance sheets as deferred tax assets of $ 3.2 million and $ 33.4 million, respectively, and deferred tax liabilities of $ 4.9 million and $ 0.9 million, respectively.

Both the 2023 and 2022 balances are based on a U.S.

federal tax rate of 21 %.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Tax Attributes and Valuation Allowances

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Year Ended December 31,

(in thousands)

Balance at beginning of period

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federal income tax may be limited in the future if we have a 50% or more ownership change in our 5% stockholders.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

We record valuation allowances when it is more likely than not that some portion or all of our deferred tax assets will not be realized.

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This may result in the need to record a valuation allowance against all or a portion of our deferred tax assets.

As of December 31, 2023, we recorded a valuation allowance of $ 0.7 million on our deferred tax asset associated with our ECOTEC investment.

At December 31, 2023, we had U.S.

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These carryforwards have no expiration.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Unrecognized Tax Benefits

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Year Ended December 31,

(in thousands)

Beginning balance

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We had $ 19.5 million, $ 19.7 million and $ 19.6 million of unrecognized tax benefits at December 31, 2023, 2022 and 2021, respectively, of which $ 1.1 million, $ 1.1 million and $ 2.1 million, respectively, would affect the effective tax rate if recognized and $ 7.9 million, $ 7.9 million and $ 7.9 million, respectively, would be reflected in income from discontinued operations, net of tax if recognized.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

We recorded $ 2.1 million, $ 2.2 million and $ 2.1 million of potential interest expense and penalties related to unrecognized tax benefits associated with uncertain tax positions (including discontinued operations) in our consolidated balance sheets as of the years ended December 31, 2022, 2021 and 2020, respectively.

We recorded $ 2.5 million, $ 2.1 million and $ 2.2 million of potential interest expense and penalties related to unrecognized tax benefits associated with uncertain tax positions (including discontinued operations) in our consolidated balance sheets as of year ended December 31, 2023, 2022 and 2021, respectively.

To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as reductions in income tax expense.

We recorded no potential expenses or releases of interest or penalties in our consolidated statements of operations during 2022, $ 0.1 million of potential interest expense and penalties during 2021, and releases of $ 0.1 million during 2020.

We recorded $ 0.3 million of potential expenses or releases of interest or penalties in our consolidated statements of operations during 2023, no potential interest expense and penalties during 2022, and $ 0.1 million of potential interest expense and penalties during 2021.

Subject to the provisions of our tax matters agreement with Exterran Corporation, both parties agreed to indemnify the primary obligor of any return for tax periods beginning before and ending before or after the Spin–off (including any ongoing or future amendments and audits for these returns) for the portion of the tax liability (including interest and penalties) that relates to their respective operations reported in the filing.

As of both December 31, 2022 and 2021, we recorded an indemnification asset (including penalties and interest) of $ 7.9 million, which is related to unrecognized tax benefits in our consolidated balance sheets (see Note 26).

As of December 31, 2023 and 2022, we recorded an indemnification asset (including penalties and interest) of $ 7.9 million and $ 7.9 million, respectively, which is related to unrecognized tax benefits in our consolidated balance sheets (see Note 27 (“Discontinued Operations”)).

We and our subsidiaries file consolidated and separate income tax returns in the U.S.

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therefore, expanding our examination period beyond 20 years.

In 2020, the IRS completed their examination of our 2014 and 2015 tax years.

Due to this audit being related to tax periods that commenced prior to the Spin–off, Exterran Corporation was also involved in the audit.

The tax adjustments recorded from this audit did not have a material impact on our consolidated financial position or results of operations.

State income tax returns are generally subject to examination for a period of three to five years after filing the returns.

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However, due to the uncertain and complex application of the tax regulations, it is possible that the ultimate resolution of these matters may result in liabilities that could materially differ from this estimate.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Impact of New Legislation

On August 16, 2022, President Biden signed into law the Inflation Reduction Act (Public Law Number 117–169).

The legislation is expected to have an immaterial impact to our effective tax rate.

NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per common share is computed using the two–class method, which is an earnings allocation formula that determines net income (loss) per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings.

Under the two–class method, basic net income (loss) per common share is determined by dividing net income (loss), after deducting amounts allocated to participating securities, by the weighted average number of common shares outstanding for the period.

The OECD has proposed a framework to implement a global minimum tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2).

During 2023, many countries took steps to incorporate Pillar 2 model rule concepts into their domestic laws.

While it is uncertain whether the U.S.

will enact legislation to adopt Pillar 2, certain countries in which our unconsolidated affiliates operate have adopted legislation.

We do not expect Pillar 2 to have a material impact on our financial statements.

Earnings per Common Share

Basic earnings per common share is computed using the two–class method, which is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings.

Under the two–class method, basic earnings per common share is determined by dividing net income, after deducting amounts allocated to participating securities, by the weighted average number of common shares outstanding for the period.

Participating securities include unvested restricted stock and stock–settled restricted stock units that have nonforfeitable rights to receive dividends or dividend equivalents, whether paid or unpaid.

During periods of net loss, only distributed earnings (dividends) are allocated to participating securities, as participating securities do not have a contractual obligation to participate in our undistributed losses.

Diluted net income (loss) per common share is computed using the weighted average number of shares outstanding adjusted for the incremental common stock equivalents attributed to outstanding options, performance–based restricted stock units and stock to be issued pursuant to our ESPP unless their effect would be anti–dilutive.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The following table shows the calculations for net income (loss) attributable to common stockholders and potential shares of common stock, which is used in the calculation of basic and diluted net income (loss) per common share:

Diluted earnings per common share is computed using the weighted average number of common shares outstanding adjusted for the incremental common stock equivalents attributed to outstanding performance–based restricted stock units and stock to be issued pursuant to our ESPP unless their effect would be anti–dilutive.

The following table shows the calculation of net income attributable to common stockholders, which is used in the calculation of basic and diluted earnings per common share, potential shares of common stock that were included in computing diluted earnings per common share and the potential shares of common stock issuable that were excluded from computing diluted earnings per common share as their inclusion would have been anti–dilutive:

Year Ended December 31,

Net income (loss)

(in thousands)

Allocation of earnings to participating securities

Net income (loss) attributable to common stockholders

Weighted average common shares outstanding used in basic income (loss) per common share

Net income attributable to common stockholders

Weighted average common shares outstanding used in basic earnings per common share

Effect of dilutive securities:

Performance-based restricted stock units

Weighted average common shares outstanding used in diluted income (loss) per common share

Anti-dilutive shares excluded from diluted income (loss) per common share

Weighted average common shares outstanding used in diluted earnings per common share

Anti-dilutive shares excluded from diluted income per common share

Stock options

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Net dilutive potential common shares issuable

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Derivatives and Hedging

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At that time, amounts were reclassified into earnings to interest expense, the same consolidated statement of operations line item to which the earnings effect of the hedged items were recorded.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The effect of our derivative instruments on our consolidated balance sheet is as follows:

Interest rate swaps designated as cash flow hedging instruments

Accrued liabilities

Interest rate swaps not designated as hedging instruments

Accrued liabilities

Total derivative liabilities

The effect of our derivative instruments on our consolidated statements of operations is as follows:

Year Ended December 31,

(in thousands)

Total amount of interest expense in which the effects of cash flow hedges and undesignated interest rate swaps are recorded

4 unchanged sentences

Gain recognized in interest expense

See Note 16 and Note 25 for further details on our derivative instruments.

See Note 17 (“Stockholders’ Equity”) and Note 26 (Fair Value Measurements”) for further details on our derivative instruments.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Fair Value Measurements

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Unobservable inputs are those that reflect our own assumptions regarding how market participants would price the asset or liability based on the best available information.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Investment in ECOTEC

As of December 31, 2022, we owned a 22.7 % equity interest in ECOTEC (see Note 11).

As of December 31, 2023, we owned a 25 % equity interest in ECOTEC (see Note 12 (“Investments in Unconsolidated Affiliates”)).

We have elected the fair value option to account for this investment.

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The significant unobservable inputs are as follows:

Significant Unobservable Inputs

December 31, 2023

December 31, 2022

Valuation technique:

Discounted cash flow

0.4 % - 20.0 %

0.0 % - 22.1 %

Guideline public company

1 unchanged sentence

1.5 x - 7.2 x

1.7 x - 8.0 x

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

Year Ended December 31,

Balance at January 1

(in thousands)

Balance at beginning of period

Purchases of equity interests

Unrealized loss (1)

Balance at December 31

Balance at end of period

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

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Interest Rate Swaps

As of December 31, 2021, the fair value of our interest rate swaps was a liability of $ 1.3 million.

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

1 unchanged sentence

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the years ended December 31, 2022 and 2021, we recorded nonrecurring fair value measurements related to our idle compressors (see Note 20).

Investment in Ionada

As of December 31, 2023, we had a fully diluted ownership equity interest in Ionada of 10 % (see Note 12 (“Investments in Unconsolidated Affiliates”)).

We have elected the fair value measurement alternative to account for this investment.

As of December 31, 2023, the carrying value of our investment in Ionada is $ 4.2 million.

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

(in thousands)

Purchases of equity interests

Transaction costs capitalized as investment activity

Initial cost basis

Carrying value

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

During the years ended December 31, 2023 and 2022, we recorded nonrecurring fair value measurements related to our idle compressors (see Note 21 (“Long-Lived and Other Asset Impairment”)).

Our estimate of the compressors’ fair value was primarily based on the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

1 unchanged sentence

These fair value measurements are classified as Level 3.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The fair value of our compressors impaired is as follows:

(in thousands)

Impaired compressors

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The significant unobservable inputs used to develop the above fair value measurements were weighted by the relative fair value of the compressors being measured.

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(1) Calculated based on an estimated discount for market liquidity of 33 % and 51 % as of December 31, 2023 and 2022, respectively .

See Note 20 for further details.

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

Other Financial Instruments

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The fair value of our fixed rate debt is estimated using yields observable in active markets, which are Level 2 inputs, and was as follows:

(in thousands)

Carrying amount of fixed rate debt (1)

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

See Note 15 (“Long-Term Debt”).

Discontinued Operations

2 unchanged sentences

We had an offsetting indemnification asset of $ 7.9 million related to these unrecognized tax benefits recorded to assets of discontinued operations as of both December 31, 2023 and 2022.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Assets and liabilities of discontinued operations are as follows:

(in thousands)

Deferred tax assets

2 unchanged sentences

Liabilities of discontinued operations

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The acquisition of Exterran Corporation by Enerflex, Ltd.

1 unchanged sentence

Related Party Transactions

Old Ocean Reserves, an affiliate of our customer Hilcorp, has the right to designate one director to serve on our board of directors as long as Old Ocean Reserves or its successors (together with its affiliates) owns at least 7.5 % of our outstanding common stock.

As of December 31, 2022, Old Ocean Reserves owned 10.8 % of our outstanding common stock.

Rebrook, Chief Executive Officer and Director of Harvest Midstream Company, a Hilcorp affiliate, has served as Old Ocean Reserves’ representative director since July 2020.

From August 2019 to present, our Board of Directors has included a member affiliated with our customer Hilcorp or its subsidiaries or affiliates.

Revenue from Hilcorp and affiliates was $ 35.4 million, $ 36.2 million and $ 38.2 million during the years ended December 31, 2023, 2022 and 2021, respectively.

Accounts receivable, net due from Hilcorp and affiliates was $ 3.0 million and $ 3.7 million as of December 31, 2022 and 2021, respectively (see Note 4).

SEGMENT INFORMATION

Accounts receivable, net due from Hilcorp and affiliates was $ 3.8 million and $ 3.0 million as of December 31, 2023 and 2022, respectively (see Note 5 (“Accounts Receivable, net”)).

We manage our business segments primarily based on the type of product or service provided.

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Segment revenue includes only sales to external customers.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Summarized financial information for our segments is shown below:

(in thousands)

Capital expenditures

2 unchanged sentences

(1) Corporate–related items.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The reconciliations of total assets by segment to total assets per the consolidated balance sheets are as follows:

(in thousands)

Contract operations assets

4 unchanged sentences

(1) Corporate–related items.

The reconciliations of total gross margin to income (loss) before income taxes are as follows:

The reconciliations of total gross margin to income before income taxes are as follows:

Year Ended December 31,

(in thousands)

Total gross margin

2 unchanged sentences

Long-lived and other asset impairment

Goodwill impairment

Restructuring charges

Interest expense

Debt extinguishment loss

Gain on sale of assets, net

Other expense (income), net

Income (loss) before income taxes

Income before income taxes

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures