Archrock, Inc. 10-K

Item 9A. Controls and Procedures Management’s Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this 2023 Form 10–K, our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a–15(e) of the Exchange Act), which are designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our reports under the Exchange Act within the time periods specified in the rules and forms of the SEC. 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. 48 Table Archrock, Contents Management’s Annual Report on Internal Control Over Financial Reporting As required by Exchange Act Rules 13a–15(c) and 15d–15(c), our management, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness as to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on the results of management’s evaluation described above, management concluded that our internal control over financial reporting was effective as of December 31, 2023. The effectiveness of internal control over financial reporting as of December 31, 2023 was audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report found within this 2023 Form 10–K. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ​ 49 Table Archrock, Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Archrock, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Archrock, Inc. and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 21, 2024, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Houston, Texas February 21, 2024 50 Table Archrock, Contents Item 9B. 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. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance 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. Item 11. Executive Compensation 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. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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 The following table sets forth information as of December 31, 2023, with respect to our compensation plans under which our common stock is authorized for issuance, aggregated as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ to be Issued Upon ​ ​ Weighted Average ​ ​ Number of Securities ​ ​ ​ Exercise of ​ ​ Exercise Price of ​ ​ Remaining Available for ​ ​ ​ Outstanding Options, ​ ​ Outstanding Options, ​ ​ Future Issuance Under ​ ​ ​ Warrants and Rights ​ ​ Warrants and Rights ​ ​ Equity Compensation Plans ​ ​ (a) ​ (b) ​ (c) Equity compensation plans approved by security holders (1) ​ 548,262 (2) ​ ​ $ — (3) ​ ​ 4,841,098 ​ Equity compensation plans not approved by security holders (4) ​ — ​ ​ — ​ 37,771 ​ Total ​ 548,262 ​ ​ — ​ 4,878,869 ​ (1) Comprised of the 2013 Plan, the 2020 Plan and the ESPP. (2) Comprised of unvested performance–based restricted stock units payable in common stock upon vesting at target performance. (3) Performance–based restricted stock units do not have an exercise price. (4) Comprised of our DSDP. See Note 19 (“Stock-Based Compensation”) to our Financial Statements for further details of our DSDP. 51 Table Archrock, Contents Item 13. 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. Item 14. Principal Accountant Fees and Services 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. PART IV Item 15. Exhibits and Financial Statement Schedules (a) List of Documents filed as a part of this 2023 Form 10–K 1. 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 ) F–1 Consolidated Balance Sheets ​ F–3 ​ Consolidated Statements of Operations ​ F–4 ​ Consolidated Statements of Comprehensive Income ​ F–5 ​ Consolidated Statements of Equity ​ F–6 ​ Consolidated Statements of Cash Flows ​ F–7 ​ Notes to Consolidated Financial Statements ​ F–9 ​ ​ 2. Financial Statement Schedules All financial statement schedules are omitted because they are not applicable or the information is set forth in the consolidated financial statements or notes thereto within Item 8 “Financial Statements and Supplementary Data.” 3. Exhibits Exhibit No. Description 2.1 ​ Separation and Distribution Agreement, dated as of November 3, 2015, by and among Exterran Holdings, Inc., Exterran General Holdings LLC, Exterran Energy Solutions, L.P., Exterran Corporation, AROC Corp., EESLP LP LLC, AROC Services GP LLC, AROC Services LP LLC and Archrock Services, L.P., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015 2.2 ​ Amendment No. 1 to Separation and Distribution Agreement, dated as of December 15, 2015, by and among Archrock, Inc., formerly named Exterran Holdings, Inc., Exterran General Holdings LLC, Exterran Energy Solutions, L.P., Exterran Corporation, AROC Corp., EESLP LP LLC, AROC Services GP LLC, AROC Services LP LLC and Archrock Services, L.P., incorporated by reference to Exhibit 2.3 to the Registrant’s Annual Report on Form 10–K for the year ended December 31, 2015 2.3 ​ Agreement and Plan of Merger, dated as of January 1, 2018, by and among Archrock, Inc., Archrock GP LLC, Archrock General Partner, L.P. 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 52 Table Archrock, Contents Exhibit No. Description 2.4 ​ Amendment No. 1 to Agreement and Plan of Merger, dated as of January 11, 2018, by and among Archrock, Inc., Archrock GP LLC, Archrock General Partner, L.P., Archrock Partners, L.P. 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 3.1 ​ 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 3.2 ​ 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) 4.1 ​ 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 4.2 ​ Indenture, dated as of December 20, 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 December 20, 2019 4.3 ​ Description of Common Stock 10.1† ​ 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 10.2† ​ Summary of Donna A. Henderson Compensation Arrangement, incorporated by reference to Exhibit 10.50 to the Registrant’s Annual Report on Form 10–K for the year ended December 31, 2015 10.3† ​ 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 10.4† ​ Form of Compensation Letter applicable to Mr. Childers, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8–K filed on August 4, 2016. 10.5† ​ 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 10.6† ​ 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 10.7† ​ 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 10.8† ​ 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 10.9† ​ Form of Employment Letter applicable to Messrs. Childers and Ingersoll, incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015 10.10† ​ Form of Severance Benefit Agreement applicable to Messrs. Childers and Ingersoll, incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8–K filed on November 5, 2015 10.11† ​ Form of Change of Control Agreement applicable to Messrs. 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 10.12† ​ 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 53 Table Archrock, Contents Exhibit No. Description 10.13† ​ 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 10.14† ​ 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 10.15 ​ 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. 10.16 ​ 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 10.17 ​ 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 10.18† ​ Form of Employment Letter applicable to Mr. Douglas S. Aron, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8–K filed on July 12, 2018 10.19† ​ Form of Change of Control Agreement applicable to Mr. Douglas S. Aron, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8–K filed on July 12, 2018 10.20† ​ Form of Archrock, Inc. Award Notice and Agreement for Restricted Stock, incorporated by reference to Exhibit 10.85 to the Registrant’s Annual Report on Form 10–K filed on February 20, 2019 10.21† ​ Form of Archrock, Inc. Award Notice and Agreement for Performance Units (Cash–Settled), incorporated by reference to Exhibit 10.87 to the Registrant’s Annual Report on Form 10–K filed on February 20, 2019 10.22† ​ Form of Archrock, Inc. Award Notice and Agreement for Performance Units (Stock–Settled), incorporated by reference to Exhibit 10.88 to the Registrant’s Annual Report on Form 10–K filed on February 20, 2019 10.23 ​ Purchase Agreement, dated as of March 7, 2019, by and among Archrock Partners, L.P., Archrock Partners Finance Corp., Archrock, Inc., the other guarantors party thereto and J.P. Morgan Securities 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 March 8, 2019 10.24 ​ Omnibus Joinder Agreement, dated as of March 21, 2019, by and among Archrock GP LLC, Archrock Partners Corp., Archrock General Partner, L.P. 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 10.25 ​ 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 54 Table Archrock, Contents Exhibit No. Description 10.26† ​ Form of Compensation Letter applicable to Messrs. Childers, Aron, Ingersoll and Thode and Mme. Hildebrandt, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8–K filed on April 30, 2020 10.27 ​ 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 10.28† ​ 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 10.29† ​ Archrock, Inc. 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 10.30† ​ 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 10.31† ​ Form of Archrock, Inc. Award Notice and Agreement for Restricted Stock, incorporated by reference to Exhibit 10.100 of the Registrant’s Annual Report on Form 10–K filed on February 23, 2022 10.32† ​ Form of Archrock, Inc. Award Notice and Agreement for Restricted Stock for Non–Employee Directors, incorporated by reference to Exhibit 10.101 of the Registrant’s Annual Report on Form 10–K filed on February 23, 2022 10.33† ​ Form of Archrock, Inc. Award Notice and Agreement for Restricted Stock Units for Non–Employee Directors, incorporated by reference to Exhibit 10.102 of the Registrant’s Annual Report on Form 10–K filed on February 23, 2022 10.34† ​ Form of Archrock, Inc. Award Notice and Agreement for Performance Units (Cash–Settled) , incorporated by reference to Exhibit 10.103 of the Registrant’s Annual Report on Form 10–K filed on February 23, 2022 10.35† ​ Form of Archrock, Inc. Award Notice and Agreement for Performance Units (Stock–Settled) , incorporated by reference to Exhibit 10.104 of the Registrant’s Annual Report on Form 10–K filed on February 23, 2022 10.36† ​ 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 10.37 ​ 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 10.38 ​ Retention Incentive Agreement, dated January 25, 2024, by and between Archrock, Inc. and D. Bradley Childers, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on January 26, 2024 10.39 ​ 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. P. (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) 55 Table Archrock, Contents Exhibit No. Description 10.40 ​ 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) 10.41 ​ 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 21.1* ​ List of Subsidiaries of Archrock, Inc. 23.1* ​ Consent of Deloitte & Touche LLP 31.1* ​ Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 31.2* ​ Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 32.1** ​ Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 32.2** ​ Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 97.1* ​ Archrock’s Compensation Recovery Policy, dated effective October 2, 2023 101.1* ​ Interactive data files pursuant to Rule 405 of Regulation S–T 104.1* ​ Cover page interactive data files pursuant to Rule 406 of Regulation S–T ​ † Management contract or compensatory plan or arrangement. * Filed herewith. ** Furnished, not filed . ​ 56 Table Archrock, Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ​ ​ ​ ​ Archrock, Inc. ​ ​ ​ /s/ D. Bradley Childers ​ D. Bradley Childers ​ President and Chief Executive Officer ​ ​ ​ February 21, 2024 ​ ​ ​ ​ 57 Table Archrock, Contents POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints D. Bradley Childers, Douglas S. Aron, Donna A. Henderson and Stephanie C. Hildebrandt, and each of them, his or her true and lawful attorneys–in–fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys–in–fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all said attorneys–in–fact and agents, or any of them, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 21, 2024. ​ ​ ​ Signature ​ Title ​ ​ ​ /s/ D. Bradley Childers ​ President, Chief Executive Officer and Director D. Bradley Childers ​ (Principal Executive Officer) ​ ​ ​ /s/ Douglas S. Aron ​ Senior Vice President and Chief Financial Officer Douglas S. Aron ​ (Principal Financial Officer) ​ ​ ​ /s/ Donna A. Henderson ​ Vice President and Chief Accounting Officer Donna A. Henderson ​ (Principal Accounting Officer) ​ ​ ​ /s/ Anne–Marie N. Ainsworth ​ Director Anne–Marie N. Ainsworth ​ ​ ​ ​ ​ /s/ Gordon T. Hall ​ Director Gordon T. Hall ​ ​ ​ ​ ​ /s/ Frances Powell Hawes ​ Director Frances Powell Hawes ​ ​ ​ ​ ​ /s/ J.W.G. Honeybourne ​ Director J.W.G. Honeybourne ​ ​ ​ ​ ​ /s/ James H. Lytal ​ Director James H. Lytal ​ ​ ​ ​ ​ /s/ Leonard W. Mallett ​ Director Leonard W. Mallett ​ ​ ​ ​ ​ /s/ Jason C. Rebrook ​ Director Jason C. Rebrook ​ ​ ​ ​ ​ /s/ Edmund P. Segner, III ​ Director Edmund P. Segner, III ​ ​ ​ ​ ​ 58 ​ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Archrock, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Archrock, Inc. 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. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2024 expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Long–Lived Asset Impairment – Refer to Note 21 to the financial statements . Critical Audit Matter Description F-1 ​ 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. 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. 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 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 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 Houston, Texas February 21, 2024 We have served as the Company’s auditor since 2007 ​ ​ F-2 Archrock, Inc. Consolidated Balance Sheets (in thousands, except par value and share amounts ) ​ ​ x ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2023 2022 Assets ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 1,338 ​ $ 1,566 Accounts receivable, net of allowance of $ 587 and $ 1,674 , respectively ​ 124,069 ​ 137,544 Inventory ​ 81,761 ​ 84,622 Other current assets ​ 5,989 ​ 8,228 Total current assets ​ 213,157 ​ 231,960 Property, plant and equipment, net ​ 2,301,982 ​ 2,199,253 Operating lease right-of-use assets ​ 14,097 ​ 16,706 Intangible assets, net ​ 30,182 ​ 37,077 Contract costs, net ​ 37,739 ​ 34,736 Deferred tax assets ​ 3,192 ​ 33,353 Other assets ​ 47,733 ​ 37,079 Non-current assets of discontinued operations ​ 7,868 ​ 8,586 Total assets ​ $ 2,655,950 ​ $ 2,598,750 ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders' Equity ​ ​ Current liabilities: ​ ​ Accounts payable, trade ​ $ 61,026 ​ $ 64,324 Accrued liabilities ​ 85,381 ​ 76,915 Deferred revenue ​ 5,736 ​ 7,332 Total current liabilities ​ 152,143 ​ 148,571 Long-term debt ​ 1,584,869 ​ 1,548,334 Operating lease liabilities ​ 12,271 ​ 14,861 Deferred tax liabilities ​ 4,921 ​ 854 Other liabilities ​ 22,857 ​ 17,569 Non-current liabilities of discontinued operations ​ 7,868 ​ 7,868 Total liabilities ​ 1,784,929 ​ 1,738,057 ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (Note 16) ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity: ​ ​ Preferred stock: $ 0.01 par value per share, 50,000,000 shares authorized, zero issued ​ — ​ — Common stock: $ 0.01 par value per share, 250,000,000 shares authorized, 164,984,401 and 163,439,013 shares issued, respectively ​ 1,650 ​ 1,634 Additional paid-in capital ​ 3,470,576 ​ 3,456,777 Accumulated deficit ​ ( 2,499,931 ) ​ ( 2,509,133 ) Treasury stock: 9,020,454 and 7,810,548 common shares, at cost, respectively ​ ( 101,274 ) ​ ( 88,585 ) Total equity ​ 871,021 ​ 860,693 Total liabilities and equity ​ $ 2,655,950 ​ $ 2,598,750 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ F-3 Archrock, Inc. Consolidated Statements of Operations (in thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 2021 Revenue: ​ ​ ​ ​ Contract operations ​ $ 809,439 ​ $ 677,801 ​ $ 648,311 Aftermarket services ​ 180,898 ​ 167,767 ​ 133,150 Total revenue ​ 990,337 ​ 845,568 ​ 781,461 Cost of sales (excluding depreciation and amortization): ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract operations ​ 306,748 ​ 278,898 ​ 244,486 Aftermarket services ​ 142,271 ​ 140,586 ​ 114,431 Total cost of sales (excluding depreciation and amortization) ​ 449,019 ​ 419,484 ​ 358,917 Selling, general and administrative ​ 116,639 ​ 117,184 ​ 107,167 Depreciation and amortization ​ 166,241 ​ 164,259 ​ ​ 178,946 Long-lived and other asset impairment ​ 12,041 ​ 21,442 ​ ​ 21,397 Restructuring charges ​ ​ 1,775 ​ ​ — ​ 2,903 Interest expense ​ 111,488 ​ 101,259 ​ 108,135 Gain on sale of assets, net ​ ​ ( 10,199 ) ​ ​ ( 40,494 ) ​ ​ ( 30,258 ) Other expense (income), net ​ 1,086 ​ 1,845 ​ ( 4,707 ) Income before income taxes ​ 142,247 ​ 60,589 ​ 38,961 Provision for income taxes ​ 37,249 ​ 16,293 ​ 10,744 Net income ​ $ 104,998 ​ $ 44,296 ​ $ 28,217 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic and diluted earnings per common share ​ $ 0.67 ​ $ 0.28 ​ $ 0.18 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding: ​ ​ ​ Basic ​ 154,126 ​ 153,281 ​ 151,684 Diluted ​ 154,344 ​ 153,410 ​ 151,830 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ F-4 Archrock, Inc. Consolidated Statements of Comprehensive Income (Loss) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 2021 Net income ​ $ 104,998 $ 44,296 $ 28,217 Other comprehensive income, net of tax: ​ ​ ​ Interest rate swap gain, net of reclassifications to earnings ​ — ​ 574 ​ 3,159 Amortization of dedesignated interest rate swap ​ — ​ 410 ​ 863 Total other comprehensive income, net of tax ​ — ​ 984 ​ 4,022 Comprehensive income ​ $ 104,998 ​ $ 45,280 ​ $ 32,239 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ F-5 Archrock, Inc. Consolidated Statements of Equity (in thousands, except share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ Other ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Paid-in ​ Accumulated ​ Comprehensive ​ Treasury Stock ​ ​ ​ ​ Amount ​ Shares Capital Deficit Income (Loss) Amount ​ Shares Total Balance at December 31, 2020 ​ $ 1,600 ​ 160,014,960 $ 3,424,624 ​ $ ( 2,401,988 ) $ ( 5,006 ) ​ $ ( 83,673 ) ​ ( 7,052,769 ) ​ $ 935,557 Shares withheld related to net settlement of equity awards ​ — ​ — ​ — ​ — ​ — ​ ( 2,465 ) ​ ( 283,972 ) ​ ( 2,465 ) Cash dividends ($ 0.58 per common share) ​ — ​ — ​ — ​ ( 89,343 ) ​ — ​ — ​ — ​ ( 89,343 ) Shares issued in ESPP ​ 1 ​ 89,988 ​ 712 ​ — ​ — ​ — ​ — ​ 713 Stock-based compensation, net of forfeitures ​ 10 ​ 1,020,756 ​ 11,326 ​ — ​ — ​ — ​ ( 80,660 ) ​ 11,336 Net proceeds from issuance of common stock ​ ​ 4 ​ 357,148 ​ ​ 3,397 ​ ​ — ​ ​ — ​ ​ — ​ — ​ 3,401 Comprehensive income ​ ​ ​ ​ ​ ​ ​ ​ ​ — Net income ​ — ​ — ​ — ​ 28,217 ​ — ​ — ​ — ​ 28,217 Other comprehensive income ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 4,022 ​ ​ — ​ — ​ 4,022 Balance at December 31, 2021 ​ $ 1,615 ​ 161,482,852 $ 3,440,059 ​ $ ( 2,463,114 ) $ ( 984 ) ​ $ ( 86,138 ) ​ ( 7,417,401 ) ​ $ 891,438 Shares withheld related to net settlement of equity awards ​ — ​ — ​ — ​ — ​ — ​ ( 2,447 ) ​ ( 283,024 ) ​ ( 2,447 ) Cash dividends ($ 0.58 per common share) ​ ​ — ​ ​ ​ ​ — ​ ( 90,315 ) ​ ​ — ​ — ​ — ​ ( 90,315 ) Shares issued under ESPP ​ ​ 1 ​ 92,469 ​ ​ 632 ​ — ​ — ​ — ​ — ​ ​ 633 Stock-based compensation, net of forfeitures ​ ​ 14 ​ 1,416,672 ​ ​ 11,914 ​ — ​ — ​ — ​ ( 110,123 ) ​ ​ 11,928 Net proceeds from issuance of common stock ​ ​ 4 ​ 447,020 ​ ​ 4,172 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ 4,176 Comprehensive income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — Net income ​ ​ — ​ — ​ ​ — ​ 44,296 ​ — ​ — ​ — ​ 44,296 Other comprehensive income ​ ​ — ​ — ​ ​ — ​ ​ ​ ​ ​ 984 ​ ​ — ​ — ​ 984 Balance at December 31, 2022 ​ $ 1,634 ​ 163,439,013 $ 3,456,777 ​ $ ( 2,509,133 ) $ — ​ $ ( 88,585 ) ​ ( 7,810,548 ) ​ $ 860,693 Shares repurchased ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 8,860 ) ​ ( 750,374 ) ​ ​ ( 8,860 ) Shares withheld related to net settlement of equity awards ​ — ​ — ​ — ​ — ​ — ​ ( 3,829 ) ​ ( 388,128 ) ​ ( 3,829 ) Cash dividends ($ 0.61 per common share) ​ ​ — ​ ​ ​ ​ — ​ ( 95,796 ) ​ ​ — ​ — ​ — ​ ( 95,796 ) Shares issued under ESPP ​ ​ 1 ​ 82,359 ​ ​ 816 ​ — ​ — ​ — ​ — ​ 817 Stock-based compensation, net of forfeitures ​ ​ 15 ​ 1,463,029 ​ ​ 12,983 ​ — ​ — ​ — ​ ( 71,404 ) ​ 12,998 Net proceeds from issuance of common stock ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — Comprehensive income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — Net income ​ ​ — ​ — ​ ​ — ​ 104,998 ​ — ​ — ​ — ​ 104,998 Balance at December 31, 2023 ​ $ 1,650 ​ 164,984,401 $ 3,470,576 ​ $ ( 2,499,931 ) $ — ​ $ ( 101,274 ) ​ ( 9,020,454 ) ​ $ 871,021 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ F-6 Archrock, Inc. Consolidated Statements of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 2021 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net income ​ $ 104,998 ​ $ 44,296 ​ $ 28,217 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ Depreciation and amortization ​ 166,241 ​ 164,259 ​ 178,946 Long-lived and other asset impairment ​ 12,041 ​ 21,442 ​ 21,397 Non-cash restructuring charges ​ ​ 221 ​ ​ — ​ ​ — Unrealized change in fair value of investment in unconsolidated affiliate ​ ​ 973 ​ ​ 1,864 ​ ​ — Inventory write-downs ​ 545 ​ 1,640 ​ 997 Amortization of operating lease right-of-use assets ​ ​ 3,319 ​ ​ 3,206 ​ ​ 3,880 Amortization of deferred financing costs ​ ​ 5,729 ​ ​ 5,152 ​ ​ 10,127 Amortization of debt premium ​ ​ ( 2,006 ) ​ ​ ( 2,006 ) ​ ​ ( 2,006 ) Amortization of capitalized implementation costs ​ ​ 2,624 ​ ​ 1,984 ​ ​ — Amortization of dedesignated interest rate swap ​ ​ — ​ ​ 410 ​ ​ 863 Interest rate swaps ​ — ​ 631 ​ 3,539 Stock-based compensation expense ​ 12,998 ​ 11,928 ​ 11,336 Provision for (benefit from) credit losses ​ 224 ​ 206 ​ ( 90 ) Gain on sale of assets, net ​ ( 10,199 ) ​ ( 12,396 ) ​ ( 11,313 ) Gain on sale of business ​ ​ — ​ ​ ( 28,098 ) ​ ​ ( 18,945 ) Deferred income tax provision ​ 35,658 ​ 15,229 ​ 10,379 Amortization of contract costs ​ ​ 21,289 ​ ​ 19,162 ​ ​ 19,990 Deferred revenue recognized in earnings ​ ​ ( 16,464 ) ​ ​ ( 20,956 ) ​ ​ ( 10,382 ) Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable, net ​ ​ ( 9,123 ) ​ ​ ( 19,971 ) ​ ​ 4,445 Inventory ​ ​ 4,189 ​ ​ ( 10,520 ) ​ ​ ( 12,989 ) Other assets ​ ​ ( 1,895 ) ​ ​ ( 2,653 ) ​ ​ 635 Contract costs ​ ​ ( 24,292 ) ​ ​ ( 29,575 ) ​ ​ ( 16,991 ) Accounts payable and other liabilities ​ ​ ( 12,166 ) ​ ​ 13,529 ​ ​ 5,269 Deferred revenue ​ ​ 15,386 ​ ​ 24,642 ​ ​ 10,217 Other ​ ​ ( 103 ) ​ ​ 45 ​ ​ ( 121 ) Net cash provided by operating activities ​ 310,187 ​ 203,450 ​ 237,400 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ ​ Capital expenditures ​ ( 298,632 ) ​ ( 239,867 ) ​ ( 97,885 ) Proceeds from sale of business ​ ​ — ​ ​ 99,611 ​ ​ 83,345 Proceeds from sale of property, equipment and other assets ​ 72,206 ​ 20,654 ​ 29,562 Proceeds from insurance and other settlements ​ ​ 1,222 ​ ​ 3,353 ​ ​ 1,085 Investments in unconsolidated entities ​ ​ ( 7,287 ) ​ ​ ( 14,667 ) ​ ​ — Net cash provided by (used in) investing activities ​ ( 232,491 ) ​ ( 130,916 ) ​ 16,107 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities: ​ ​ ​ Borrowings of long-term debt ​ 802,825 ​ 826,733 ​ 704,751 Repayments of long-term debt ​ ( 767,050 ) ​ ( 809,983 ) ​ ( 863,251 ) Payments of debt issuance costs ​ ( 6,031 ) ​ — ​ ( 2,451 ) Payments for settlement of interest rate swaps that include financing elements ​ — ​ ( 1,334 ) ​ ( 4,390 ) Dividends paid to stockholders ​ ( 95,796 ) ​ ( 90,315 ) ​ ( 89,343 ) Net proceeds from issuance of common stock ​ ​ — ​ ​ 4,176 ​ ​ 3,401 Repurchases of common stock ​ ​ ( 8,860 ) ​ ​ — ​ ​ — Taxes paid related to net share settlement of equity awards ​ ​ ( 3,829 ) ​ ​ ( 2,447 ) ​ ​ ( 2,465 ) Proceeds from stock issued under ESPP ​ 817 ​ 633 ​ 713 Net cash used in financing activities ​ ( 77,924 ) ​ ( 72,537 ) ​ ( 253,035 ) Net increase (decrease) in cash and cash equivalents ​ ( 228 ) ​ ( 3 ) ​ 472 Cash and cash equivalents, beginning of period ​ 1,566 ​ 1,569 ​ 1,097 Cash and cash equivalents, end of period ​ $ 1,338 ​ $ 1,566 ​ $ 1,569 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ F-7 Archrock, Inc. Consolidated Statements of Cash Flows (in thousands) Supplemental disclosure of cash flow information: ​ ​ ​ Interest paid ​ $ 107,765 ​ $ 98,406 ​ $ 100,002 Income taxes paid, net ​ ​ ( 1,311 ) ​ ​ ( 407 ) ​ ​ ( 247 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of non-cash investing and financing transactions: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accrued capital expenditures ​ $ 25,689 ​ $ 9,899 ​ $ 7,641 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ F-8 ARCHROCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ 1. Description of Business We are an energy infrastructure company with a primary focus on midstream natural gas compression. We are the leading provider of natural gas compression services to customers in the oil and natural gas industry throughout the U.S. and a leading supplier of aftermarket services to customers that own compression equipment in the U.S. We operate in two business segments: contract operations and aftermarket services. Our predominant segment, contract operations, primarily includes designing, sourcing, owning, installing, operating, servicing, repairing and maintaining our owned fleet of natural gas compression equipment to provide natural gas compression services to our customers. In our aftermarket services business, we sell parts and components and provide operations, maintenance, overhaul and reconfiguration services to customers who own compression equipment. 2. Basis of Presentation and Significant Accounting Policies Basis of Presentation Our consolidated financial statements include the accounts of Archrock and its wholly–owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In the Notes to Consolidated Financial Statements, all dollar and share amounts in tabulations are in thousands of dollars and shares, respectively, unless otherwise noted. Our Financial Statements are prepared in accordance with GAAP and the rules and regulations of the SEC. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures of contingent assets and liabilities. 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 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 We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts Receivable and Allowance for Credit Losses The contractual life of our trade receivables is primarily 30 days based on the payment terms specified in the contract. Contract operations services are generally billed monthly at the beginning of the month in which service is being provided. Aftermarket services billings typically occur when parts are delivered or service is completed. Due to the short–term nature of our trade accounts receivable, we consider the amortized cost to be the same as the carrying value amount of the receivable, excluding the allowance for credit losses. We recognize an allowance for credit losses when a receivable is recorded, even when the risk of loss is remote. We utilize an aging schedule to determine our allowance for credit losses, and measure expected credit losses on a collective (pool) basis when similar risk characteristics exist. We rely primarily on ratings assigned by external rating agencies and credit monitoring services to assess credit risk and aggregate customers first by low, medium or high-risk asset pools, and then by delinquency status. We also consider the internal risk associated with geographic location and the services we provide to the customer when determining asset pools. If a customer does not share similar risk characteristics with other customers, we evaluate the customer’s outstanding trade receivables for expected credit losses on an individual basis. Each reporting period, we reassess our customers’ risk profiles and determine the appropriate asset pool classification, or perform individual assessments of expected credit losses, based on the customers’ risk characteristics at the reporting date. F-9 Archrock, Inc. Notes to Consolidated Financial Statements (continued) Loss rates are separately determined for each asset pool based on the length of time a trade receivable has been outstanding. We analyze two years of internal historical loss data, including the effects of prepayments, write–offs and subsequent recoveries, to determine our historical loss experience. Our historical loss information is a relevant data point for estimating credit losses, as the data closely aligns with trade receivables due from our customers. Ratings assigned by external rating agencies and credit monitoring services consider past performance and forecasts of future economic conditions in assessing credit risk. Inventory Inventory consists of parts used for maintenance of natural gas compression equipment. Inventory is stated at the lower of cost and net realizable value using the average cost method. Property, Plant and Equipment Property, plant and equipment are recorded at cost and depreciated using the straight–line method over their estimated useful lives as follows: ​ ​ ​ ​ Compression equipment, facilities and other fleet assets 3 to 30 years Buildings ​ 20 to 35 years Transportation and shop equipment ​ 3 to 10 years Computer hardware and software ​ 3 to 5 years Other ​ 3 to 10 years ​ Major improvements that extend the useful life of an asset are capitalized and depreciated over the estimated useful life of the major improvement, up to seven years . Repairs and maintenance are expensed as incurred. Leases We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. We recognize ROU assets and liabilities based on the present value of lease payments over the lease term. As the discount rate implicit in the lease is rarely readily determinable, we estimate our incremental borrowing rate using information available at commencement date in determining the present value of the lease payments. The lease term includes options to extend when we are reasonably certain to exercise the option. Short–term leases, those with an initial term of 12 months or less, are not recorded on the balance sheet. Variable costs such as our proportionate share of actual costs for utilities, common area maintenance, property taxes and insurance are not included in the lease liability and are recognized in the period in which they are incurred. Operating lease expense for lease payments is recognized on a straight–line basis over the term of the lease. Our facility leases, of which we are the lessee, contain lease and nonlease components, which we have elected to account for as a single lease component, as the nonlease components are not significant to the total consideration of the contract and separating the nonlease component would have no effect on lease classification. For contract operations service agreements in which we are a lessor, as the services nonlease component is predominant over the compression package lease component, we do not account for these agreements as operating leases. ​ F-10 Archrock, Inc. Notes to Consolidated Financial Statements (continued) Impairment of Long–Lived Assets We review long–lived assets, including property, plant and equipment and identifiable intangibles that are being amortized, for impairment whenever events or changes in circumstances, including the removal of compressors from our active fleet, indicate that the carrying amount of an asset may not be recoverable. An impairment loss exists when estimated undiscounted cash flows expected from the use of the asset and its eventual disposition are less than its carrying amount. Impairment losses are recognized in the period in which the impairment occurs and represent the excess of the asset carrying value over its fair value. Internal–Use Software Certain of our contracts have been deemed to be hosting arrangements that are service contracts, including those related to the cloud migration of our ERP system and cloud services for our new mobile workforce, telematics and inventory management tools. Certain costs incurred for the implementation of a hosting arrangement that is a service contract are capitalized and amortized on a straight–line basis over the term of the respective contract. Amortization begins for each component of the hosting arrangement when the component becomes ready for its intended use. Capitalized implementation costs are presented in other assets, the same line item in our consolidated balance sheets that a prepayment of the fees for the associated hosting arrangement would be presented. Amortization expense of the capitalized implementation costs is presented in SG&A, the same line item in our consolidated statements of operations as the expense for fees for the associated hosting arrangement. Revenue Recognition We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we are entitled to receive in exchange for those goods or services. Sales and usage–based taxes that are collected from the customer are excluded from revenue. Contract Operations Natural gas compression services. Natural gas compression services are generally satisfied over time, as the customer simultaneously receives and consumes the benefits provided by these services. Our performance obligation is a series in which the unit of service is one month, as the customer receives substantially the same benefit each month from the services regardless of the type of service activity performed, which may vary. If the transaction price is based on a fixed fee, revenue is recognized monthly on a straight–line basis over the period that we are providing services to the customer. Amounts invoiced to customers for costs associated with moving our compression assets to a customer site are also included in the transaction price and are amortized over the initial contract term. We do not consider the effects of the time value of money, as the expected time between the transfer of services and payment for such services is less than one year. Variable consideration exists if customers are billed at a lesser standby rate when a unit is not running. We recognize revenue for such variable consideration monthly, as the invoice corresponds directly to the value transferred to the customer based on our performance completed to date. The rate for standby service is lower to reflect the decrease in costs and effort required to provide standby service when a unit is not running. Billable Maintenance Service . We perform billable maintenance service on our natural gas compression equipment at the customer’s request on an as–needed basis. The performance obligation is satisfied, and revenue is recognized at the agreed–upon transaction price at the point in time when service is complete and the customer has accepted the work performed and can obtain the remaining benefits of the service that the unit will provide. F-11 Archrock, Inc. Notes to Consolidated Financial Statements (continued) Aftermarket Services OTC Parts and Components Sales . For sales of OTC parts and components, the performance obligation is generally satisfied at the point in time when delivery takes place, and the customer obtains control of the part or component. The transaction price is the fixed sales price for the part stated in the contract. Revenue is recognized upon delivery, as we have a present right to payment and the customer has legal title. Maintenance, Overhaul and Reconfiguration Services . For our service activities, the performance obligation is satisfied over time, as the work performed enhances the customer–controlled asset and another entity would not have to substantially re–perform the work we completed if they were to fulfill the remaining performance obligation. The transaction price may be a fixed monthly service fee, a fixed quoted fee or entirely variable, calculated on a time and materials basis. For service provided based on a fixed monthly fee, the performance obligation is a series in which the unit of service is one month. The customer receives substantially the same benefit each month from the service, regardless of the type of service activity performed, which may vary. As the progress towards satisfaction of the performance obligation is measured based on the passage of time, revenue is recognized monthly based on the fixed fee provided for in the contract. For service provided based on a quoted fixed fee, progress towards satisfaction of the performance obligation is measured using an input method based on the actual amount of labor and material costs incurred. The amount of the transaction price recognized as revenue each reporting period is determined by multiplying the transaction price by the ratio of actual costs incurred to date to total estimated costs expected for the service. Significant judgment is involved in the estimation of the progress to completion. 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. We apply an estimated gross margin percentage, which is fixed based on historical time and materials–based service, to actual costs incurred. We evaluate the estimated gross margin percentage at the end of each reporting period and adjust the transaction price as appropriate. Contract Assets and Liabilities We recognize a contract asset when we have the right to consideration in exchange for goods or services transferred to a customer when the right is conditioned on something other than the passage of time. We recognize a contract liability when we have an obligation to transfer goods or services to a customer for which we have already received consideration. Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rate on deferred tax assets and liabilities is recognized in income in the period of the enactment date. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax–planning strategies and results of recent operations. If a valuation allowance was previously recorded and we subsequently determined we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax assets’ valuation allowance, which would reduce the provision for income taxes. F-12 Archrock, Inc. Notes to Consolidated Financial Statements (continued) We record uncertain tax positions in accordance with the accounting standard on income taxes under a two–step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more–likely–than–not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents and trade accounts receivable. Our temporary cash investments have a zero–loss expectation because we maintain minimal balances in our cash investment accounts and have no history of loss. Trade accounts receivable are due from companies of varying size engaged principally in oil and natural gas activities throughout the U.S; therefore, our customers may be similarly affected by changes in economic and other conditions within the industry. We perform periodic evaluations of our customers’ financial condition, including monitoring our customers’ payment history and current credit worthiness to manage this risk. We generally do not obtain collateral for trade receivables, but we may require payment in advance. Payment terms are on a short–term basis and in accordance with industry practice. We consider this credit risk to be limited due to these companies’ financial resources, the nature of the products and services we provide and the terms of our customer agreements. During the years ended December 31, 2023, 2022 and 2021, no customers accounted for more than 10% of our consolidated revenues. ​ 3. 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. F-13 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. ​ 4. Dispositions 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. 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 of $ 28.1 million. During 2021, we completed sales of certain contract operations customer service agreements and approximately 875 compressors, comprising approximately 140,000 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 based on a ratio of the horsepower sold relative to the total horsepower of the asset group. We recognized an aggregate gain of $ 19.0 million. 5. Accounts Receivable, net Accounts receivable, net is comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) ​ ​ 2023 ​ 2022 Customer related: ​ ​ ​ ​ ​ ​ Third party ​ $ 116,475 ​ $ 110,636 Related parties (1) ​ ​ 3,839 ​ ​ 2,998 Other (2) ​ 4,342 ​ 25,584 Accounts receivable ​ ​ 124,656 ​ ​ 139,218 Allowance for credit losses ​ ​ ( 587 ) ​ ​ ( 1,674 ) Accounts receivable, net ​ $ 124,069 ​ $ 137,544 (1) See Note 28 (“Related Party Transactions”) for additional information. (2) Other receivables primarily consist of amounts due from the sale of used equipment. The changes in our allowance for credit losses are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) 2023 2022 2021 Balance at beginning of period $ 1,674 ​ $ 2,152 $ 3,370 Provision for (benefit from) credit losses ​ ​ 224 ​ ​ 206 ​ ​ ( 90 ) Write-offs charged against allowance ​ ​ ( 1,311 ) ​ ​ ( 684 ) ​ ​ ( 1,128 ) Balance at end of period ​ $ 587 ​ $ 1,674 ​ $ 2,152 ​ F-14 Archrock, Inc. Notes to Consolidated Financial Statements (continued) ​ 6. Inventory Inventory is comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) ​ 2023 ​ 2022 Parts and supplies ​ $ 70,759 ​ $ 70,228 Work in progress ​ 11,002 ​ 14,394 Inventory ​ $ 81,761 ​ $ 84,622 ​ During the years ended December 31, 2023, 2022 and 2021 we recorded write–downs to inventory of $ 0.5 million, $ 1.6 million and $ 1.0 million, respectively, for inventory considered to be excess, obsolete or carried at an amount in excess of net realizable value. 7. Property, Plant and Equipment, net Property, plant and equipment, net is comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) ​ 2023 ​ 2022 Compression equipment, facilities and other fleet assets ​ $ 3,326,919 ​ $ 3,234,239 Land and buildings ​ 30,169 ​ 44,304 Transportation and shop equipment ​ 100,474 ​ 93,189 Computer hardware and software ​ 77,532 ​ 77,357 Other ​ 5,678 ​ 5,754 Property, plant and equipment ​ 3,540,772 ​ 3,454,843 Accumulated depreciation ​ ( 1,238,790 ) ​ ( 1,255,590 ) Property, plant and equipment, net ​ $ 2,301,982 ​ $ 2,199,253 ​ Depreciation expense was $ 159.3 million, $ 155.4 million and $ 167.6 million during the years ended December 31, 2023, 2022 and 2021, respectively. Assets under construction of $ 64.7 million and $ 92.5 million at December 31, 2023 and 2022, respectively, primarily consisted of compression equipment, facilities and other fleet assets . 8. Leases 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 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) Classification 2023 2022 ROU assets Operating lease ROU assets ​ $ 14,097 ​ $ 16,706 ​ ​ ​ ​ ​ ​ ​ ​ ​ Lease liabilities ​ ​ Current Accrued liabilities ​ $ 3,160 ​ $ 3,244 Noncurrent Operating lease liabilities ​ 12,271 ​ 14,861 Total lease liabilities ​ $ 15,431 ​ $ 18,105 ​ F-15 Archrock, Inc. Notes to Consolidated Financial Statements (continued) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2023 ​ 2022 ​ 2021 Operating lease cost ​ $ 4,131 ​ $ 4,041 ​ $ 4,836 Short-term lease cost ​ 412 ​ 447 ​ 169 Variable lease cost ​ 1,881 ​ 1,802 ​ 2,123 Total lease cost ​ $ 6,424 ​ $ 6,290 ​ $ 7,128 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2023 ​ 2022 ​ 2021 Operating cash flows - cash paid for amounts included in the measurement of operating lease liabilities ​ $ 6,157 ​ $ 5,951 ​ $ 6,568 Operating lease ROU assets obtained in exchange for lease liabilities, net (1) ​ 710 ​ 2,421 ​ 2,135 (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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ Weighted average remaining lease term (in years) ​ 6.0 ​ 6.7 ​ 7.2 ​ Weighted average discount rate ​ 4.9 % 4.7 % 4.6 % ​ Remaining maturities of our lease liabilities as of December 31, 2023 are as follows: ​ ​ ​ ​ ​ (in thousands) ​ ​ ​ 2024 ​ $ 3,577 2025 ​ ​ 2,979 2026 ​ 2,556 2027 ​ 2,374 2028 ​ ​ 2,193 Thereafter ​ 4,295 Total lease payments ​ 17,974 Less: Interest ​ ( 2,543 ) Total lease liabilities ​ $ 15,431 ​ ​ 9. Intangible Assets, net Intangible assets include customer relationships associated with various business and asset acquisitions. These acquired intangible assets were recorded at fair value determined as of the date of acquisition and are being amortized over the period we expect to benefit from the assets. Intangible assets, net is comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) ​ 2023 ​ 2022 Gross carrying amount ​ $ 142,336 ​ $ 141,462 Accumulated amortization ​ ( 112,154 ) ​ ( 104,385 ) Intangible assets, net ​ $ 30,182 ​ $ 37,077 ​ F-16 Archrock, Inc. Notes to Consolidated Financial Statements (continued) Intangible assets are amortized on a straight–line basis with estimated useful lives ranging from 15 to 25 years . Amortization expense was $ 6.9 million, $ 8.9 million and $ 11.3 million during the years ended December 31, 2023, 2022 and 2021, respectively. Estimated amortization expense for each of the subsequent five fiscal years is expected to be as follows: ​ ​ ​ ​ ​ (in thousands) ​ ​ ​ 2024 ​ $ 5,721 2025 ​ 3,595 2026 ​ 3,032 2027 ​ 2,157 2028 ​ 1,803 Thereafter ​ 13,874 Total ​ $ 30,182 ​ ​ 10. Contract Costs We capitalize incremental costs to obtain a contract with a customer if we expect to recover those costs. Capitalized contract costs included commissions paid to our sales force to obtain contract operations contracts. 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. 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. 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. 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. 11. Hosting Arrangements We have hosting arrangements that are service contracts for cloud applications including our ERP, mobile workforce, telematics and inventory management tools. Capitalized implementation costs and accumulated amortization related to our hosting arrangements that are service contracts are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) ​ 2023 ​ 2022 Hosting arrangements ​ $ 17,832 ​ $ 15,675 Accumulated amortization ​ ( 5,320 ) ​ ( 2,637 ) Hosting arrangements, net ​ $ 12,512 ​ $ 13,038 ​ F-17 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 $ 2.6 million, $ 2.0 million and $ 0.3 million during December 31, 2023, 2022 and 2021, respectively. 12. 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. For such investments where we have elected the fair value option, the election is irrevocable and is applied on an investment–by–investment basis at initial recognition. 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. 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. 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 . ​ 13. Accrued Liabilities Accrued liabilities are comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) 2023 2022 Accrued salaries and other benefits ​ $ 37,425 ​ $ 22,288 Accrued income and other taxes ​ 7,160 ​ 10,108 Accrued interest ​ 22,464 ​ 22,380 Other accrued liabilities ​ 18,332 ​ 22,139 Accrued liabilities ​ $ 85,381 ​ $ 76,915 ​ ​ 14. Contract Liabilities As of December 31, 2023 and 2022, our contract liabilities were $ 7.0 million and $ 8.0 million, respectively. These liabilities are included in deferred revenue and other liabilities in our consolidated balance sheets. F-18 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 is primarily related to freight billings and milestone billings on aftermarket services. 15. Long–Term Debt Long–term debt is comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) 2023 ​ 2022 Credit Facility ​ $ 287,025 ​ $ 251,250 ​ ​ ​ ​ ​ ​ ​ 6.25 % senior notes due April 2028: ​ ​ ​ ​ ​ ​ Principal outstanding ​ 800,000 ​ 800,000 Unamortized debt premium ​ ​ 8,524 ​ 10,530 Unamortized debt issuance costs ​ ( 7,081 ) ​ ( 8,744 ) ​ ​ 801,443 ​ 801,786 ​ ​ ​ ​ ​ ​ ​ 6.875 % senior notes due April 2027: ​ ​ ​ ​ ​ ​ Principal outstanding ​ ​ 500,000 ​ 500,000 Unamortized debt issuance costs ​ ​ ( 3,599 ) ​ ( 4,702 ) ​ ​ ​ 496,401 ​ 495,298 ​ ​ ​ ​ ​ ​ ​ Long-term debt ​ $ 1,584,869 ​ $ 1,548,334 ​ Credit Facility 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. 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 ​ F-19 Archrock, Inc. Notes to Consolidated Financial Statements (continued) 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: ​ ​ ​ ​ EBITDA to Interest Expense 2.5 to 1.0 Senior Secured Debt to EBITDA 3.0 to 1.0 Total Debt to EBITDA (1) 5.25 to 1.0 (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. 2027 Notes and 2028 Notes 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. The $ 300.0 million of notes were issued at 104.875 % of their face value and have an effective interest rate of 5.6 %. The $ 500.0 million of notes were issued at 100 % of their face value and have an effective interest rate of 6.8 %. 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. F-20 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. and Archrock Partners Finance Corp., which are co–issuers of both offerings, and certain of our future subsidiaries. The 2027 Notes and 2028 Notes and the guarantees rank equally in right of payment with all of our and the guarantors’ existing and future senior indebtedness. 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. 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) ​ ​ ​ 2024 ​ $ — 2025 ​ — 2026 ​ — 2027 ​ ​ 496,401 2028 ​ 1,088,466 Thereafter ​ — ​ ​ 16. Commitments and Contingencies Insurance Matters Our business can be hazardous, involving unforeseen circumstances such as uncontrollable flows of natural gas or well fluids and fires or explosions. As is customary in our industry, we review our safety equipment and procedures and carry insurance against some, but not all, risks of our business. Our insurance coverage includes property damage, general liability and commercial automobile liability and other coverage we believe is appropriate. We believe that our insurance coverage is customary for the industry and adequate for our business, however, losses and liabilities not covered by insurance would increase our costs. Additionally, we are substantially self–insured for workers’ compensation and employee group health claims in view of the relatively high per–incident deductibles we absorb under our insurance arrangements for these risks. Losses up to the deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages. We are also self–insured for property damage to our offshore assets. In August 2021, Hurricane Ida made landfall in Louisiana, causing operational disruptions, damage to compressors and a temporary shutdown of facilities in Louisiana that negatively impacted our financial performance in the quarter. As of December 31, 2021, we had an insurance recovery of $ 2.8 million related to the facility and compressor damages, which we received in cash during the three months ended March 31, 2022. In September 2022, we received an additional $ 0.4 million related to business interruption insurance recovery proceeds. Tax Matters We are subject to a number of state and local taxes that are not income–based. As many of these taxes are subject to audit by the taxing authorities, it is possible that an audit could result in additional taxes due. 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 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. We do not accrue for unasserted claims for tax audits unless we believe the assertion of a claim is probable, it is probable that it will be determined that the claim is owed and we can reasonably estimate the claim or range of the claim. 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. F-21 Archrock, Inc. Notes to Consolidated Financial Statements (continued) 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 In the ordinary course of business, we are involved in various pending or threatened legal actions. While we are unable to predict the ultimate outcome of these actions, we believe that any ultimate liability arising from any of these actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows, including our ability to pay dividends. However, because of the inherent uncertainty of litigation and arbitration proceedings, we cannot provide assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our consolidated financial position, results of operations or cash flows, including our ability to pay dividends. 17. 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: ​ ​ ​ ​ ​ ​ Year Ended (dollars in thousands, except per share amounts) ​ December 31, 2023 Total cost of shares repurchased ​ $ 8,860 Average price per share ​ $ 11.81 Total number of shares repurchased ​ 750,374 ​ At–the–Market Continuous Equity Offering Program ​ In February 2021, we entered into the ATM Agreement, pursuant to which we may offer and sell shares of our common stock from time to time for an aggregate offering price of up to $ 50.0 million. We use the net proceeds of these offerings, after deducting sales agent fees and offering expenses, for general corporate purposes. Offerings of common stock pursuant to the ATM Agreement will terminate upon the earlier of (i) the sale of all shares of common stock subject to the ATM Agreement or (ii) the termination of the ATM Agreement by us or by each of the sales agents. Any sales agent may also terminate the ATM Agreement but only with respect to itself. 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. F-22 Archrock, Inc. Notes to Consolidated Financial Statements (continued) Cash Dividends The following table summarizes our dividends declared and paid in each of the quarterly periods of 2023, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends per ​ (dollars in thousands, except per share amounts) Common Share Dividends Paid 2023 ​ ​ Q4 ​ $ 0.155 ​ $ 24,190 Q3 ​ ​ 0.155 ​ ​ 24,250 Q2 ​ ​ 0.150 ​ ​ 23,504 Q1 ​ ​ 0.150 ​ ​ 23,852 ​ ​ ​ ​ ​ ​ ​ 2022 ​ ​ Q4 ​ $ 0.145 ​ $ 22,589 Q3 ​ 0.145 ​ 22,559 Q2 ​ 0.145 ​ 22,494 Q1 ​ 0.145 ​ 22,673 ​ ​ ​ ​ ​ ​ ​ 2021 ​ ​ Q4 ​ $ 0.145 ​ $ 22,351 Q3 ​ 0.145 ​ 22,506 Q2 ​ 0.145 ​ 22,331 Q1 ​ 0.145 ​ 22,155 ​ On January 25, 2024, our Board of Directors declared a quarterly dividend of $ 0.165 per share of common stock, or approximately $ 25.9 million, which was paid on February 13, 2024 to stockholders of record at the close of business on February 6, 2024. Accumulated Other Comprehensive Loss 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 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) ​ 2023 2022 2021 Beginning accumulated other comprehensive loss ​ $ — ​ $ ( 984 ) ​ $ ( 5,006 ) Other comprehensive income, net of tax: ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss recognized in other comprehensive income ​ — ​ ( 405 ) ​ ( 962 ) Loss reclassified from accumulated other comprehensive loss to interest expense ​ — ​ 1,389 ​ 4,984 Total other comprehensive income ​ — ​ 984 ​ 4,022 Ending accumulated other comprehensive loss ​ $ — ​ $ — ​ $ ( 984 ) ​ ​ F-23 Archrock, Inc. Notes to Consolidated Financial Statements (continued) 18. Revenue from Contracts with Customers 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) ​ 2023 2022 2021 Contract operations: ​ ​ ​ ​ ​ ​ 0 ― 1,000 horsepower per unit ​ $ 170,320 ​ $ 159,140 ​ $ 175,457 1,001 ― 1,500 horsepower per unit ​ 350,961 ​ 285,758 ​ 267,191 Over 1,500 horsepower per unit ​ 287,183 ​ 231,923 ​ 204,893 Other (1) ​ 975 ​ 980 ​ 770 Total contract operations revenue (2) ​ 809,439 ​ 677,801 ​ 648,311 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Aftermarket services: ​ ​ ​ Services ​ 98,803 ​ 88,728 ​ 69,876 OTC parts and components sales ​ 82,095 ​ 79,039 ​ 63,274 Total aftermarket services revenue (3) ​ 180,898 ​ 167,767 ​ 133,150 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total revenue ​ $ 990,337 ​ $ 845,568 ​ $ 781,461 (1) Primarily relates to fees associated with owned non–compression equipment. (2) Includes $ 4.2 million, $ 3.2 million and $ 4.0 million during the years ended December 31, 2023, 2022 and 2021, respectively, related to billable maintenance on owned compressors that was recognized at a point in time. All other contract operations revenue is recognized over time. (3) Services revenue within aftermarket services is recognized over time. OTC parts and components sales revenue is recognized at a point in time. Performance Obligations 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) 2024 ​ 2025 2026 2027 2028 Total Remaining performance obligations ​ $ 267,825 ​ $ 114,456 ​ $ 42,574 ​ $ 10,082 ​ $ 5,181 ​ $ 440,118 ​ We do not disclose the aggregate transaction price for the remaining performance obligations for aftermarket services as there are no contracts with customers with an original contract term that is greater than one year. 19. Stock–Based Compensation 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) ​ 2023 2022 2021 Equity award expense ​ $ 12,998 ​ $ 11,928 ​ $ 11,336 Liability award expense (1) ​ 7,910 ​ 2,569 ​ ( 816 ) Total stock-based compensation expense ​ $ 20,908 ​ $ 14,497 ​ $ 10,520 (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. F-24 Archrock, Inc. Notes to Consolidated Financial Statements (continued) 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. 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. 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. Restricted Stock Awards and Performance–Based Restricted Stock Units Grants of restricted stock are subject to forfeiture, restrictions on transfer and certain other conditions until vesting, which generally occurs in three equal installments following the date of grant. Compensation expense is recognized over the vesting period equal to the fair value of our common stock at the grant date. Our restricted stock includes rights to receive dividends or dividend equivalents. Grants of performance–based restricted stock units are three –year equity settled awards linked to the performance of our common stock. The awards also include dividend equivalent rights that accumulate during the vesting period. The vesting of the performance–based restricted stock units is dependent of the satisfaction of a combination of certain service–related conditions and our total shareholder return ranked against that of a predetermined peer group over a three –year performance period. The awards vest in their entirety on the date specified in the award agreement following the conclusion of the performance period. The final number of shares of common stock issuable upon vesting can range from 0 % to 200 % of the initial grant depending on the level of achievement as determined by the Compensation Committee of our Board of Directors. The fair value of the performance–based restricted stock units, incorporating the market condition, is estimated on the grant date using a Monte Carlo simulation model. Expected volatilities for us and each peer company utilized in the model are estimated using a historical period consistent with the awards’ remaining performance period as of the grant date. The risk–free interest rate is based on the yield on U.S. Treasury Separate Trading of Registered Interest and Principal Securities for a term consistent with the remaining performance period. The dividend yield used is 0.0 % to approximate accumulation of earnings. The assumptions that were used to estimate the fair value of our performance–based stock units are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ Remaining performance period as of grant date (in years) ​ 2.9 ​ 2.9 ​ 2.8 Risk-free interest rate used ​ 3.9 % ​ 1.4 % ​ 0.3 % Grant-date fair value ​ $ 15.68 ​ $ 11.96 ​ $ 14.30 ​ ​ F-25 Archrock, Inc. Notes to Consolidated Financial Statements (continued) Activity related to our restricted stock and performance–based restricted stock units is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ ​ ​ ​ Grant Date ​ ​ ​ ​ Fair Value (in thousands, except per share amounts) Shares Per Share Non-vested restricted stock and performance-based restricted stock units, December 31, 2022 2,473 ​ $ 9.79 Granted 1,486 ​ 10.28 Vested ( 1,266 ) ​ 8.89 Canceled ( 68 ) ​ 9.26 Non-vested restricted stock and performance-based restricted stock units, December 31, 2023 2,625 ​ $ 10.19 ​ The grant date fair value of the restricted stock and performance–based restricted stock units granted during the years ended December 31, 2023, 2022 and 2021 was $ 15.3 million, $ 14.3 million and $ 12.1 million, respectively. The fair value of the restricted stock and performance–based restricted stock units vested during the years ended December 31, 2023, 2022 and 2021 was $ 12.4 million, $ 9.3 million and $ 8.5 million, respectively. As of December 31, 2023, we expect $ 14.4 million of unrecognized compensation cost related to our non–vested restricted stock and performance–based restricted stock units to be recognized over the weighted–average period of 1.7 years. Cash Settled Performance Units 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 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ ​ ​ ​ Grant Date ​ ​ ​ ​ Fair Value (in thousands, except per share amounts) Shares Per Share Non-vested cash-settled performance units, December 31, 2022 509 ​ $ 9.27 Granted 199 ​ 9.42 Vested — ​ - Canceled ( 160 ) ​ 9.09 Non-vested cash-settled performance units, December 31, 2023 548 ​ $ 9.37 ​ 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. 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. F-26 Archrock, Inc. Notes to Consolidated Financial Statements (continued) As of December 31, 2023, we expect $ 6.3 million of unrecognized compensation cost related to our non–vested liability awards to be recognized over the weighted–average period of 1.7 years. Employee Stock Purchase Plan Our ESPP provides employees with an opportunity to participate in our long–term performance and success through the purchase of shares of common stock at a price that may be less than fair market value. 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. 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. The ESPP will terminate on the date that all shares of common stock authorized for sale under the ESPP have been purchased, unless it is extended. The maximum number of shares of common stock available for purchase under the ESPP is 1.0 million. As of December 31, 2023, 346,891 shares remained available for purchase under the ESPP. Directors’ Stock and Deferral Plan Our DSDP provides non–employee members of the Board of Directors with an opportunity to elect to receive our common stock as payment for a portion or all of their retainer. The number of shares paid each quarter is determined by dividing the dollar amount of fees elected to be paid in common stock by the closing sales price per share of the common stock on the last day of the quarter. In addition, directors who elect to receive a portion or all of their fees in the form of common stock may also elect to defer, until a later date, the receipt of a portion or all of their fees to be received in common stock. In this case, we issue restricted stock units and the rights to receive dividends or dividend equivalents is accrued and paid when the shares are issued. 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. 20. Retirement Benefit Plan Our 401(k) retirement plan provides for optional employee contributions up to the applicable IRS annual limit and discretionary employer matching contributions. We make discretionary matching contributions to each participant’s account at a rate of 100 % of each participant’s contributions up to 5 % of eligible compensation. 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. 21. Long–Lived and Other Asset Impairment Compression Fleet We periodically review the future deployment of our idle compression assets for units that are not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. Based on these reviews, we determine that certain idle compressors should be retired from the active fleet. The retirement of these units from the active fleet triggers a review of these assets for impairment and as a result of our review, we may record an asset impairment to reduce the book value of each unit to its estimated fair value. 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. F-27 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. Based on that review, we may reduce the expected proceeds from disposition and record additional impairment to reduce the book value of each unit to its estimated fair value. The following table presents the results of our compression fleet impairment review as recorded to our contract operations segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (dollars in thousands) ​ 2023 2022 2021 Idle compressors retired from the active fleet ​ ​ 105 ​ 145 ​ 230 Horsepower of idle compressors retired from the active fleet ​ 53,000 ​ 100,000 ​ 85,000 Impairment recorded on idle compressors retired from the active fleet ​ $ 12,034 ​ $ 21,431 ​ $ 21,208 ​ ​ 22. Restructuring Charges 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. 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. The following table presents restructuring charges incurred by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract ​ Aftermarket ​ ​ ​ ​ ​ ​ (in thousands) ​ Operations ​ Services ​ Other (1) ​ Total 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Organizational restructuring ​ $ 101 ​ $ 387 ​ $ 1,287 ​ $ 1,775 Total restructuring charges ​ $ 101 ​ $ 387 ​ $ 1,287 ​ $ 1,775 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pandemic restructuring ​ $ 616 ​ $ 145 ​ $ 956 ​ $ 1,717 Property restructuring ​ ​ 929 ​ ​ - ​ ​ 35 ​ ​ 964 Other restructuring ​ ​ - ​ ​ - ​ ​ 222 ​ ​ 222 Total restructuring charges ​ $ 1,545 ​ $ 145 ​ $ 1,213 ​ $ 2,903 (1) Represents expense incurred within our corporate function and not directly attributable to our segments. F-28 Archrock, Inc. Notes to Consolidated Financial Statements (continued) The following table presents restructuring charges incurred by cost type: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2023 ​ 2021 Severance costs ​ ​ ​ ​ ​ ​ Organizational Restructuring ​ $ 1,517 ​ $ — Pandemic restructuring ​ ​ — ​ ​ 1,717 Total severance costs ​ ​ 1,517 ​ ​ 1,717 Property restructuring ​ ​ — ​ ​ 964 Other restructuring costs ​ ​ 258 ​ ​ 222 Total restructuring costs ​ $ 1,775 ​ $ 2,903 ​ The following table presents the changes to our accrued liability balance related to restructuring charges during the year ended December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Total Balance at December 31, 2022 $ — Charges incurred ​ 1,775 Payments ​ ​ ( 1,554 ) Balance at December 31, 2023 ​ $ 221 ​ ​ ​ ​ ​ 23. Income Taxes Current and Deferred Tax Provision Our provision for income taxes consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) 2023 2022 2021 Current tax provision: ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. federal ​ $ — ​ $ — ​ $ ( 1 ) State ​ 1,591 ​ 1,064 ​ 366 Total current ​ ​ 1,591 ​ ​ 1,064 ​ ​ 365 Deferred tax provision: ​ ​ ​ ​ ​ ​ U.S. federal ​ ​ 32,928 ​ ​ 14,320 ​ ​ 8,800 State ​ 2,730 ​ 909 ​ 1,579 Total deferred ​ ​ 35,658 ​ ​ 15,229 ​ ​ 10,379 Provision for income taxes ​ $ 37,249 ​ $ 16,293 ​ $ 10,744 ​ F-29 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. statutory rate of 21 % is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2023 2022 2021 Income taxes at U.S. federal statutory rate $ 29,872 $ 12,724 $ 8,182 Net state income taxes ​ 3,614 ​ 1,795 ​ 1,374 Tax credits ​ — ​ ( 26 ) ​ ( 720 ) Unrecognized tax benefits (1) ​ 118 ​ 17 ​ 598 Valuation allowances and write off of tax attributes (2) ​ 570 ​ ( 68 ) ​ ( 167 ) Executive compensation limitation ​ 3,470 ​ 1,901 ​ 1,559 Stock ​ ( 213 ) ​ 152 ​ 162 Other ​ ( 182 ) ​ ( 202 ) ​ ( 244 ) Provision for income taxes ​ $ 37,249 ​ $ 16,293 ​ $ 10,744 (1) Includes the expiration of statute of limitations. See “Unrecognized Tax Benefits” below for further details. (2) See “Tax Attributes and Valuation Allowances” below for further details. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) ​ 2023 ​ 2022 Deferred tax assets: ​ ​ Net operating loss carryforwards ​ $ 164,972 ​ $ 191,916 Interest expense limitation carryforward ​ 30,343 ​ 19,327 Basis difference in unconsolidated affiliate ​ ​ 686 ​ ​ — Accrued liabilities ​ 6,704 ​ 4,979 Other ​ 12,015 ​ 12,834 ​ ​ ​ 214,720 ​ ​ 229,056 Valuation allowances (1) ​ ( 1,177 ) ​ ( 607 ) Total deferred tax assets ​ ​ 213,543 ​ ​ 228,449 ​ ​ ​ ​ ​ ​ ​ Deferred tax liabilities: ​ ​ Property, plant and equipment ​ ​ ( 12,125 ) ​ ​ ( 8,386 ) Basis difference in partnership ​ ( 197,999 ) ​ ( 181,377 ) Other ​ ( 5,148 ) ​ ( 6,187 ) Total deferred tax liabilities ​ ( 215,272 ) ​ ( 195,950 ) ​ ​ ​ ​ ​ ​ ​ Net deferred tax asset (liability) (2) ​ $ ( 1,729 ) ​ $ 32,499 (1) See “Tax Attributes and Valuation Allowances” below for further details. (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 %. F-30 Archrock, Inc. Notes to Consolidated Financial Statements (continued) Tax Attributes and Valuation Allowances Changes in our valuation allowance are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2023 2022 2021 Balance at beginning of period $ ( 607 ) $ ( 735 ) $ ( 1,027 ) Additions to valuation allowance ​ ​ ( 742 ) ​ ​ ( 88 ) ​ ​ — Reductions to valuation allowance ​ ​ 172 ​ ​ 216 ​ ​ 292 Balance at end of period ​ $ ( 1,177 ) ​ $ ( 607 ) ​ $ ( 735 ) ​ Pursuant to Sections 382 and 383 of the Code, utilization of loss and credit carryforwards are subject to annual limitations due to any ownership changes of 5% stockholders. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a rolling three–year period. We do not currently expect that any loss carryforwards or credit carryforwards will expire as a result of any 382 or 383 limitations. Our ability to utilize loss carryforwards and credit carryforwards against future U.S. federal taxable income and future U.S. federal income tax may be limited in the future if we have a 50% or more ownership change in our 5% stockholders. 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. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions in the future. If we do not meet our expectations with respect to taxable income, we may not realize the full benefit from our deferred tax assets, which would require us to record a valuation allowance in our tax provision in future years. As of each reporting date, we consider new evidence to evaluate the realizability of our net deferred tax asset position by assessing the available positive and negative evidence. Changes to the valuation allowance are reflected in the statement of operations. The amount of our deferred tax assets considered realizable could be adjusted if projections of future taxable income are reduced or objective negative evidence in the form of a three–year cumulative loss is present or both. Should we no longer have a level of sustained profitability, excluding nonrecurring charges, we will have to rely more on our future projections of taxable income to determine if we have an adequate source of taxable income for the realization of our deferred tax assets, namely NOL, interest expense limitation, and tax credit carryforwards. 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. federal and state NOL carryforwards of $ 727.5 million and $ 283.9 million, respectively, included in our NOL deferred tax asset that are available to offset future taxable income. If not used, the federal and state NOL carryforwards will begin to expire in 2037 and 2024, respectively, though $ 629.3 million of the U.S. federal and $ 167.2 million of the state NOL carryforwards have no expiration date. In connection with the state NOL deferred tax asset, we recorded a valuation allowance of $ 0.5 million and $ 0.6 million as of December 31, 2023 and 2022, respectively. At December 31, 2023, we had a U.S. federal tax credit carryforward of $ 3.0 million. If not used, the federal tax credit carryforward will begin to expire in 2037. As of December 31, 2023, we had U.S. federal and state interest expense limitation carryforwards of $ 135.3 million and $ 43.8 million, respectively, included in our interest expense limitation deferred tax asset that are available to offset future taxable income. These carryforwards have no expiration. F-31 Archrock, Inc. Notes to Consolidated Financial Statements (continued) Unrecognized Tax Benefits Changes in our unrecognized tax benefits (including discontinued operations) are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2023 2022 2021 Beginning balance $ 19,651 $ 19,594 $ 18,892 Additions based on tax positions related to current year ​ 1,886 ​ 2,151 ​ 2,246 Additions based on tax positions related to prior years ​ — ​ 6 ​ 632 Reductions based on tax positions related to prior years ​ ( 7 ) ​ ( 105 ) ​ ( 138 ) Reductions based on lapse of statute of limitations ​ ( 2,065 ) ​ ( 1,995 ) ​ ( 2,038 ) Ending balance ​ $ 19,465 ​ $ 19,651 ​ $ 19,594 ​ 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. 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 $ 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 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. federal jurisdiction and in numerous state jurisdictions. U.S. federal income tax returns are generally subject to examination for up to three years after filing the returns. Due to our NOL carryforwards, our U.S. federal income tax returns can be examined back to the inception of our NOL carryforwards; therefore, expanding our examination period beyond 20 years. State income tax returns are generally subject to examination for a period of three to five years after filing the returns. However, the state impact of any U.S. federal audit adjustments and amendments remains subject to examination by various states for up to one year after formal notification to the states. We are not currently involved in any state audits. As of December 31, 2023, we believe it is reasonably possible that $ 3.3 million of our unrecognized tax benefits, including penalties, interest and discontinued operations, will be reduced prior to December 31, 2024 due to the settlement of audits or the expiration of statutes of limitations or both. 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. F-32 Archrock, Inc. Notes to Consolidated Financial Statements (continued) Impact of New Legislation ​ 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. 24. 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 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, (in thousands) ​ 2023 2022 2021 Net income ​ $ 104,998 ​ $ 44,296 ​ $ 28,217 Less: Allocation of earnings to participating securities ​ ( 1,878 ) ​ ( 1,429 ) ​ ( 1,172 ) Net income attributable to common stockholders ​ $ 103,120 ​ $ 42,867 ​ $ 27,045 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding used in basic earnings per common share ​ ​ 154,126 ​ ​ 153,281 ​ ​ 151,684 Effect of dilutive securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance-based restricted stock units ​ ​ 207 ​ ​ 125 ​ ​ 144 ESPP shares ​ ​ 11 ​ ​ 4 ​ ​ 2 Weighted average common shares outstanding used in diluted earnings per common share ​ ​ 154,344 ​ ​ 153,410 ​ ​ 151,830 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Anti-dilutive shares excluded from diluted income per common share ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock options ​ ​ — ​ ​ — ​ ​ 31 Performance-based restricted stock units ​ ​ — ​ ​ — ​ ​ — ESPP shares ​ ​ — ​ ​ — ​ ​ — Net dilutive potential common shares issuable ​ ​ — ​ ​ — ​ ​ 31 ​ ​ ​ ​ F-33 Archrock, Inc. Notes to Consolidated Financial Statements (continued) 25. Derivatives and Hedging Prior to the expiration of our interest rate swaps in March 2022, we used derivative instruments to manage our exposure to fluctuations in the variable interest rate of our Credit Facility. We do not use derivative instruments for trading or other speculative purposes. We had entered into three interest rate swaps with an aggregate notional amount of $ 300.0 million to offset changes in the expected cash flows due to fluctuations in the associated variable interest rates and designated them as cash flow hedges. In 2021, we dedesignated one of the interest rate swaps with a $ 125.0 million notional value. At the time of dedesignation, the fair value of this interest rate swap was a liability of $ 1.6 million. The associated amount in accumulated other comprehensive loss related to this interest rate swap was amortized into interest expense over the remaining term of the swap through its expiration in March 2022. Changes in the fair value of this interest rate swap subsequent to dedesignation and prior to expiration were recorded in interest expense, the same consolidated statement of operations line item to which the earnings effect of the hedged item was recorded. The remaining interest rate swaps had a $ 175.0 million notional value and were designated as (highly effective) cash flow hedging instruments until their expiration. Changes in the fair value of these interest rate swaps were recognized as a component of other comprehensive income (loss) until the hedged transactions affected earnings. 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. ​ The effect of our derivative instruments on our consolidated statements of operations is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2023 2022 2021 Total amount of interest expense in which the effects of cash flow hedges and undesignated interest rate swaps are recorded ​ $ — ​ $ 101,259 ​ $ 108,135 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swaps designated as cash flow hedging instruments: ​ ​ ​ ​ ​ ​ ​ ​ ​ Pre-tax loss recognized in other comprehensive income ​ $ — ​ $ ( 512 ) ​ $ ( 1,219 ) Pre-tax loss reclassified from accumulated other comprehensive loss into interest expense ​ — ​ ( 1,758 ) ​ ( 6,308 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swaps not designated as hedging instruments: ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain recognized in interest expense ​ $ — ​ $ 523 ​ $ 1,088 ​ See Note 17 (“Stockholders’ Equity”) and Note 26 (Fair Value Measurements”) for further details on our derivative instruments. F-34 Archrock, Inc. Notes to Consolidated Financial Statements (continued) 26. Fair Value Measurements The accounting standard for fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value into the following three categories: ● Level 1 – quoted unadjusted prices for identical markets in active markets to which we have access at the date of measurement. ● Level 2 – quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model–derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or prices vary substantially over time or among brokered markets makers. ● Level 3 – model–derived valuation in which one or more significant inputs or significant value drivers are unobservable. 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. Assets and Liabilities Measured at Fair Value on a Recurring Basis Investment in ECOTEC ​ 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. The fair value determination of this investment primarily consisted of unobservable inputs, which creates uncertainty in the measurement of fair value as of the reporting date. The significant unobservable inputs used in the fair value measurement, which was valued through an average of an income approach (discounted cash flow method) and a market approach (guideline public company method), are the WACC and the revenue multiples. Significant increases (decreases) in these inputs in isolation would result in a significantly higher (lower) fair value measurement. As of December 31, 2023, the fair value of our investment in ECOTEC is $ 14.9 million. This fair value measurement is classified as Level 3 . The significant unobservable inputs are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant ​ Year Ended ​ Year Ended ​ ​ Unobservable ​ December 31, 2023 ​ December 31, 2022 ​ ​ Inputs ​ Range ​ Median ​ Range ​ Median Valuation technique: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Discounted cash flow ​ WACC ​ 0.4 % - 20.0 % ​ ​ 13.5 % ​ 0.0 % - 22.1 % ​ ​ 11.3 % Guideline public company ​ Revenue multiple ​ 1.5 x - 7.2 x ​ ​ 3.8 x ​ 1.7 x - 8.0 x ​ ​ 3.9 x ​ The reconciliation of changes in the fair value of our investment in ECOTEC is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, (in thousands) ​ ​ ​ 2023 ​ ​ 2022 Balance at beginning of period ​ $ 12,803 $ — Purchases of equity interests ​ ​ ​ 3,075 ​ ​ 14,667 Unrealized loss (1) ​ ​ ​ ( 973 ) ​ ​ ( 1,864 ) Balance at end of period ​ ​ $ 14,905 ​ $ 12,803 (1) Included in other expense (income) in our consolidated statements of operations. F-35 Archrock, Inc. Notes to Consolidated Financial Statements (continued) Interest Rate Swaps 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. These fair value measurements were classified as Level 2. ​ Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis 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: ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (in thousands) ​ ​ 2023 Purchases of equity interests $ 3,808 Transaction costs capitalized as investment activity ​ ​ 397 Initial cost basis ​ ​ 4,205 Adjustments ​ ​ — Carrying value ​ $ 4,205 ​ 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. ​ Compressors 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. We discounted the expected proceeds, net of selling and other carrying costs, using a weighted average disposal period of four years. These fair value measurements are classified as Level 3. The fair value of our compressors impaired is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) ​ 2023 ​ 2022 Impaired compressors ​ $ 1,423 ​ $ 1,961 ​ F-36 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. Additional quantitative information related to our significant unobservable inputs follows: ​ ​ ​ ​ ​ ​ ​ Range Weighted Average (1) Estimated net sale proceeds: ​ ​ ​ ​ As of December 31, 2023 ​ $ 0 - $ 294 per horsepower ​ $ 50 per horsepower As of December 31, 2022 ​ $ 0 - $ 621 per horsepower ​ $ 47 per horsepower (1) Calculated based on an estimated discount for market liquidity of 33 % and 51 % as of December 31, 2023 and 2022, respectively . See Note 21 (“Long-Lived and Other Asset Impairment”) for further details. Other Financial Instruments The carrying amounts of our cash, receivables and payables approximate fair value due to the short–term nature of those instruments. The carrying amount of borrowings outstanding under our Credit Facility approximates fair value due to its variable interest rate. The fair value of these outstanding borrowings is a Level 3 measurement. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) ​ 2023 ​ 2022 Carrying amount of fixed rate debt (1) ​ $ 1,297,844 ​ $ 1,297,084 Fair value of fixed rate debt ​ 1,289,000 ​ 1,214,000 (1) Carrying amounts are shown net of unamortized debt premium and deferred financing costs. See Note 15 (“Long-Term Debt”). ​ ​ 27. Discontinued Operations In order to effect the Spin-off and govern our relationship with Exterran Corporation after the Spin-off, we entered into several agreements with Exterran Corporation, including a tax matters agreement, which governs the respective rights, responsibilities and obligations of Exterran Corporation and us with respect to certain tax matters. As of both December 31, 2023 and 2022, we had $ 7.9 million, of unrecognized tax benefits (including interest and penalties) related to Exterran Corporation operations prior to the Spin-off recorded to liabilities of discontinued operations in our consolidated balance sheets. 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. Assets and liabilities of discontinued operations are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) ​ 2023 ​ 2022 Other assets ​ $ 7,868 ​ $ 7,868 Deferred tax assets ​ ​ — ​ ​ 718 Assets of discontinued operations ​ $ 7,868 ​ $ 8,586 ​ ​ ​ ​ ​ ​ ​ Deferred tax liabilities ​ $ 7,868 ​ $ 7,868 Liabilities of discontinued operations ​ $ 7,868 ​ $ 7,868 ​ F-37 Archrock, Inc. Notes to Consolidated Financial Statements (continued) The acquisition of Exterran Corporation by Enerflex, Ltd. in October 2022 had no impact on the Spin–off related agreements discussed above. ​ ​ ​ 28. Related Party Transactions 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 $ 3.8 million and $ 3.0 million as of December 31, 2023 and 2022, respectively (see Note 5 (“Accounts Receivable, net”)). 29. Segments We manage our business segments primarily based on the type of product or service provided. We have two segments which we operate within the U.S.: contract operations and aftermarket services. The contract operations segment primarily provides natural gas compression services to meet specific customer requirements. The aftermarket services segment provides a full range of services to support the compression needs of customers, from parts sales and normal maintenance services to full operation of a customer’s owned assets. We evaluate the performance of our segments based on gross margin, defined as revenue less cost of sales (excluding depreciation and amortization) for each segment. Segment revenue includes only sales to external customers. Summarized financial information for our segments is shown below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract Aftermarket ​ ​ ​ (in thousands) Operations Services Other (1) Total 2023 ​ ​ ​ ​ Revenue ​ $ 809,439 ​ $ 180,898 ​ $ — ​ $ 990,337 Gross margin ​ 502,691 ​ 38,627 ​ — ​ 541,318 Capital expenditures ​ ​ 294,315 ​ 3,300 ​ 1,017 ​ 298,632 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ Revenue ​ $ 677,801 ​ $ 167,767 ​ $ — ​ $ 845,568 Gross margin ​ 398,903 ​ 27,181 ​ — ​ 426,084 Capital expenditures ​ 237,246 ​ 1,964 ​ 657 ​ 239,867 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ ​ ​ ​ Revenue ​ $ 648,311 ​ $ 133,150 ​ $ — ​ $ 781,461 Gross margin ​ 403,825 ​ 18,719 ​ — ​ 422,544 Capital expenditures ​ 94,863 ​ 2,675 ​ 347 ​ 97,885 (1) Corporate–related items. ​ F-38 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) 2023 ​ 2022 Contract operations assets ​ $ 2,518,282 ​ $ 2,431,145 Aftermarket services assets ​ 57,459 ​ 61,282 Segment assets ​ ​ 2,575,741 ​ ​ 2,492,427 Other assets (1) ​ ​ 72,341 ​ ​ 97,737 Assets of discontinued operations ​ ​ 7,868 ​ ​ 8,586 Total assets ​ $ 2,655,950 ​ $ 2,598,750 (1) Corporate–related items. The reconciliations of total gross margin to income before income taxes are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2023 2022 2021 Total gross margin ​ $ 541,318 ​ $ 426,084 ​ $ 422,544 Less: ​ ​ ​ Selling, general and administrative ​ 116,639 ​ 117,184 ​ 107,167 Depreciation and amortization ​ 166,241 ​ 164,259 ​ 178,946 Long-lived and other asset impairment ​ 12,041 ​ 21,442 ​ 21,397 Restructuring charges ​ ​ 1,775 ​ ​ — ​ ​ 2,903 Interest expense ​ 111,488 ​ 101,259 ​ 108,135 Gain on sale of assets, net ​ ​ ( 10,199 ) ​ ​ ( 40,494 ) ​ ​ ( 30,258 ) Other expense (income), net ​ 1,086 ​ 1,845 ​ ( 4,707 ) Income before income taxes ​ $ 142,247 ​ $ 60,589 ​ $ 38,961 ​ ​ ​ ​ ​ ​ ​ ​ F-39