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Item 7. Management’s Discussion and Analysis

2025-02-25 compared with 2024-02-21 · 126 added, 122 removed, 215 unchanged (54% of the section changed)

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For a discussion of changes from 2022 to 2023 and other financial information related to 2023, refer to Part II, Item 7.

“Manag Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10–K for the year ended December 31, 2023 filed with the SEC on February 21, 2024.

We are an energy infrastructure company with a pure–play 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., in terms of total compression fleet horsepower, and a leading supplier of aftermarket services to customers that own compression equipment in the U.S.

Our business supports a must–run service that is essential to the production, processing, transportation and storage of natural gas.

The natural gas that we help transport satisfies demand from electricity generation, heating and cooking and the industrial and manufacturing sectors.

Our geographic diversity, technically experienced personnel and large fleet of natural gas compression equipment enable us to provide reliable contract operations services to our customers.

Table Archrock, Contents

We are an energy infrastructure company with a primary focus on midstream natural gas compression and a commitment to helping our customers produce, compress and transport natural gas in a safe and environmentally responsible way.

We are a premier provider of natural gas compression services to customers in the energy 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 .

Our contract operations business is comprised of our owned fleet of natural gas compression equipment that we use to provide compression operations services to our customers.

• Aftermarket Services .

Our aftermarket services business provides a full range of services to support the compression needs of our customers that own compression equipment, including operations, maintenance, overhaul and reconfiguration services and sales of parts and components.

contract operations and aftermarket services.

Our contract operations services primarily include 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.

Significant 2024 Transactions

In November 2023, we agreed to serve as the lead investor in a series A 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.

See Note 12 (“Investments in Unconsolidated Affiliates”) to our Financial Statements for additional information about this investment.

TOPS Acquisition

On August 30, 2024, we completed the TOPS Acquisition whereby we acquired all of the issued and outstanding equity interests in TOPS, including a fleet of approximately 580,000 horsepower for aggregate consideration consisting of $868.7 million in cash and approximately 6.9 million shares of common stock with an acquisition date fair value of $139.1 million.

The cash portion of the purchase price was funded with proceeds from the July 2024 Equity Offering, the 2032 Notes offering and borrowings under the Credit Facility.

See Note 4 (“Business Transactions”) for further details.

On August 26, 2024, we completed a private offering of $700.0 million aggregate principal amount of 6.625% senior notes due September 2032 and received net proceeds of $690.0 million after deducting issuance costs.

The $10.0 million of issuance costs were recorded as deferred financing costs within long-term debt in our consolidated balance sheets and are being amortized to interest expense in our consolidated statement of operations over the term of the notes.

A portion of the net proceeds was used to fund a portion of the cash consideration for the TOPS Acquisition, the 2027 Notes Tender Offer and to repay borrowings outstanding under our Credit Facility.

See Note 16 (“Long-Term Debt”) for further details.

2027 Notes Tender Offer

In connection with the TOPS Acquisition and offering of the 2032 Notes, we completed a concurrent cash tender offer of $202.0 million, which reflects approximately 101% of the aggregate principal amount of the tendered 2027 Notes and $0.2 million of agent and legal fees.

On the date of tender, the net carrying value of the tendered 2027 Notes was $198.8 million and we recorded a debt extinguishment loss of $3.2 million in our consolidated statements of operations.

See Note 16 (“Long-Term Debt”) for further details.

July 2024 Equity Offering

On July 24, 2024, Archrock sold, pursuant to a public underwriting offering, approximately 12.7 million shares of common stock, including approximately 1.7 million shares of common stock pursuant to an over-allotment option.

Archrock received net proceeds of $255.7 million, after deducting underwriting discounts, commissions and offering expenses.

Proceeds from this equity offering were used to fund a portion of the TOPS Acquisition.

See Note 18 (“Stockholders’ Equity”) for further details.

Trends and Outlook

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Approximately 64% of our operating fleet is deployed for midstream natural gas gathering applications, with the remaining fleet being used in gas lift applications to enhance oil production.

As our business is so closely aligned with production and is typically less directly impacted by commodity prices, we are not exposed to the volatility often faced in shorter–cycle oil field service businesses.

Domestic natural gas production generally occurs in either basins where natural gas is produced alongside oil, also known as “associated” gas, such as the Permian and Delaware Basins, the Eagle Ford and the Mid–Continent or in natural gas basins, such as the Marcellus, Utica and Haynesville Shales.

As our business is so closely aligned with production and is typically less directly impacted by commodity prices, we are not as exposed to the volatility often faced in shorter–cycle oil field service businesses.

Domestic natural gas production generally occurs either in basins where natural gas is produced alongside oil, also known as “associated” gas, such as the Permian and Delaware Basins, the Eagle Ford and the Mid–Continent or in natural gas basins, such as the Marcellus, Utica and Haynesville Shales.

Significant investment in domestic exploration and production and midstream infrastructure across the energy industry has been made over much of the past decade, particularly in the low–cost basins characterized by oil and associated natural gas production.

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During 2024, U.S.

natural gas and oil production grew to record levels, resulting in strong demand for our compression services and we increased our investment in new fleet units.

natural gas and oil production grew to record levels, resulting in strong demand for our compression services.

In response, we increased our investment in new large horsepower fleet units and expanded our fleet through the TOPS Acquisition.

Our contract operations revenue and total operating horsepower increased 21% and 17%, respectively in 2024.

Similar increases in demand in 2023 were seen in our aftermarket services business, where we experienced an increase of 8% in aftermarket services revenue.

Table Archrock, Contents

The EIA Outlook forecasts the following year–over–year changes:

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The EIA Outlook expects natural gas production to continue to increase to all-time highs in 2025 and 2026.

Natural gas consumption is also expected to increase, reflecting consistent usage of natural gas in the electric power generation and residential sectors, as well as increased LNG exports and exports of natural gas via pipeline to Mexico.

Natural gas consumption is expected to be largely consistent with 2024, reflecting consistent usage of natural gas in the electric power generation and residential sectors, as well as increased LNG exports and exports of natural gas via pipeline to Mexico.

We believe the outlook for the energy industry in the U.S.

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In addition to general market conditions in the oil and natural gas industry and competition in the natural gas compression industry, we believe the following represent the key challenges and uncertainties we will face in the future.

Capital Requirements and the Availability of External Sources of Capital.

We have funded a significant portion of our capital expenditures and acquisitions through borrowings under our Credit Facility and have issued a substantial amount of debt, which could limit our ability to fund future planned capital expenditures.

Current conditions could limit our ability to access the debt and equity markets to raise capital on affordable terms in 2024 and beyond.

If we are not successful in raising capital within the time period required or at all, we may not be able to fund these capital expenditures, which could impair our ability to grow or maintain our business.

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

Although we have been able to historically satisfy our personnel needs, retaining employees in our industry continues to be a challenge.

Our ability to grow and to continue our current level of service to our customers will depend in part on our success in hiring, training and retaining our employees.

Further, the cost of labor has increased and may continue to increase in the future with increases in demand, which will require us to incur additional costs.

Cost Management .

In order to improve our operations and further reduce operating expenses, we are investing significant resources into a process and technology transformation project that has, among other things, replaced our existing ERP, supply chain and inventory management systems and expanded the remote monitoring capabilities of our compression fleet.

In order to improve our operations and further reduce operating expenses, we invested and continue to invest significant resources into a process and technology transformation project that has, among other things, replaced our former ERP, supply chain and inventory management systems and expanded the remote monitoring capabilities of our compression fleet.

Cost management continues to be challenging, however, and there is no guarantee that our efforts will result in a reduction in our operating expenses.

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While we generally attempt to mitigate the impact of increased prices through strategic purchasing decisions, diversification of our supplier base, where possible, and the passing along of increased costs to customers, there may be a time delay between the increased commodity prices and the ability to increase the price of our services.

Table Archrock, Contents

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

Although we have been able to historically satisfy our personnel needs, retaining employees in our industry continues to be a challenge.

Our ability to grow and to continue our current level of service to our customers will depend in part on our success in hiring, training and retaining our employees.

Further, the cost of labor has increased and may continue to increase in the future with increases in demand, which will require us to incur additional costs.

Capital Requirements and the Availability of External Sources of Capital.

We funded a significant portion of our capital expenditures and the TOPS Acquisition with proceeds from the July 2024 Equity Offering and the 2032 Notes offering and borrowings under the Credit Facility.

Current conditions could limit our ability to access the debt and equity markets to raise capital on affordable terms in 2025 and beyond.

If we are not successful in raising capital within the time period required or at all, we may not be able to fund these capital expenditures or acquisitions, which could impair our ability to grow or maintain our business.

Demand for natural gas-powered compression.

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(2) Defined as horsepower that is operating under contract and horsepower that is idle but under contract and generating revenue such as standby revenue.

(3) Defined as average of period end horsepower that is operating under contract and horsepower that is idle but under contract and generating revenue such as standby revenue, including operating horsepower as of September 30, 2024 through December 31, 2024 for compressors acquired in the TOPS Acquisition.

Non–GAAP Financial Measures

Management uses a variety of financial and operating metrics to analyze our performance.

These metrics are significant factors in assessing our operating results and profitability and include the non–GAAP financial measure of gross margin.

We define gross margin as total revenue less cost of sales (excluding depreciation and amortization).

Gross margin is included as a supplemental disclosure because it is a primary measure used by our management to evaluate the results of revenue and cost of sales (excluding depreciation and amortization), which are key components of our operations.

We believe gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations, the indirect costs associated with our SG&A activities, our financing methods and income taxes.

These metrics are significant factors in assessing our operating results and profitability and include the non-GAAP financial measure of adjusted gross margin.

We define adjusted gross margin as total revenue less cost of sales, exclusive of depreciation and amortization.

Adjusted gross margin is included as a supplemental disclosure because it is a primary measure used by our management to evaluate the results of revenue and cost of sales, exclusive of depreciation and amortization, which are key components of our operations.

We believe adjusted gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations, the indirect costs associated with our SG&A activities, our financing methods and income taxes.

In addition, depreciation and amortization may not accurately reflect the costs required to maintain and replenish the operational usage of our assets and therefore may not portray the costs of current operating activity.

As an indicator of our operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP.

Our gross margin may not be comparable to a similarly–titled measure of other entities because other entities may not calculate gross margin in the same manner.

Gross margin has certain material limitations associated with its use as compared to net income (loss).

These limitations are primarily due to the exclusion of SG&A, depreciation and amortization, impairments, restructuring charges, interest expense, debt extinguishment loss, gain on sale of assets, net, other (income) expense, net, and provision for (benefit from) income taxes.

As an indicator of our operating performance, adjusted gross margin should not be considered an alternative to, or more meaningful than, gross margin, net income (loss) or any other measure presented in accordance with GAAP.

Our adjusted gross margin may not be comparable to a similarly titled measure of other entities because other entities may not calculate adjusted gross margin in the same manner.

Adjusted gross margin has certain material limitations associated with its use as compared to net income.

These limitations are primarily due to the exclusion of SG&A, depreciation and amortization, long-lived and other asset impairments, restructuring charges, debt extinguishment loss, interest expense, transaction-related costs, gain on sale of assets, net, other expense (income), net and provision for income taxes.

Because we intend to finance a portion of our operations through borrowings, interest expense is a necessary element of our costs and our ability to generate revenue.

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To compensate for these limitations, management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding of our performance.

Table Archrock, Contents

The reconciliation of net income to gross margin is as follows:

The reconciliation of net income to adjusted gross margin is as follows:

Year Ended December 31,

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Restructuring charges

Debt extinguishment loss

Interest expense

Transaction-related costs

Gain on sale of assets, net

Other expense (income), net

Other expenses, net

Provision for income taxes

Adjusted gross margin

The following table reconciles adjusted gross margin to gross margin, its most directly comparable to GAAP measure:

Year Ended December 31,

(in thousands)

Total revenues

Cost of sales, exclusive of depreciation and amortization

Depreciation and amortization

Adjusted gross margin

RESULTS OF OPERATIONS

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Revenue was $1,157.6 million and $990.3 million during the years ended December 31, 2024 and 2023, respectively.

The increase in revenue was due to increased revenue from both our contract operations business and aftermarket services business.

See “Contract Operations” and “Aftermarket Services” below for further details.

The increase in revenue was primarily due to increased revenue from our contract operations business.

See “Contract Operations” below for further details.

Net income was $172.2 million and $105.0 million during the years ended December 31, 2024 and 2023, respectively.

The increase was primarily driven by a higher gross margin from both our contract operations business and aftermarket services business and decreases in long-lived asset impairment expense and SG&A.

These changes were partially offset by a decrease in the gain on sale of assets and the unrealized change in fair value of our investment in an unconsolidated affiliate and increases in our provision for income taxes, interest expense, depreciation and amortization and restructuring charges.

The increase was primarily driven by higher adjusted gross margin from our contract operations business and higher gain on sale of assets, net.

These increases were partially offset by increases in depreciation and amortization, provision for income taxes, SG&A, transaction-related costs, interest expense and debt extinguishment loss.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

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(dollars in thousands)

Cost of sales (excluding depreciation and amortization)

Gross margin percentage (1)

(1) Defined as gross margin divided by revenue.

Revenue in our contract operations business increased primarily due to higher rates for contract compression in response to market conditions and an increase in average operating horsepower, partially offset by the impact of strategic dispositions of horsepower in 2022.

Table Archrock, Contents

The increase in cost of sales was primarily due to a $10.8 million increase in parts expense as a result of an increase in maintenance activities and a $1.9 million increase in lube oil expenses which were both driven by higher pricing throughout our supply chain, as well as increased volumes associated with unit redeployment as customer activity accelerated.

The increase in cost of sales was also due to an increase of $8.1 million in total employee compensation expense.

Further, cost of sales for the year ended December 31, 2023 includes an increase of $9.1 million for sales tax as a result of a change in tax compliance for sales tax associated with contract operations cost of sales.

Prior to 2023, contract operations sales tax amounts were recognized in SG&A.

Partially offsetting these cost increases was the decrease in expense attributable to the horsepower sold in 2022.

Gross margin percentage increased primarily due to an increase in revenue which exceeded the increase in cost of sales.

Cost of sales, exclusive of depreciation and amortization

Adjusted gross margin

Adjusted gross margin percentage (1)

(1) Defined as adjusted gross margin divided by revenue.

Revenue in our contract operations business increased approximately $105.6 million due to higher rates and an increase in average operating horsepower, as well as an increase of $65.5 million due to the compression units acquired in the TOPS Acquisition.

The increase in cost of sales, exclusive of depreciation and amortization, was primarily due to a $17.9 million increase in employee compensation, including the addition of headcount from the TOPS Acquisition, a $4.1 million increase in parts expense, a $1.4 million increase in auto expense and a $1.3 million increase in local and miscellaneous taxes.

This increase was partially offset by a decrease of $6.6 million in startup expenses resulting from average horsepower utilization for the fleet at record levels as well as fewer unit stops and a decrease of $2.9 million in lube oil expenses mainly due to lower prices.

The increases in adjusted gross margin and adjusted gross margin percentage were mainly driven by revenue growth that outpaced the increase in cost of sales, exclusive of depreciation and amortization.

Aftermarket Services

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(dollars in thousands)

Cost of sales (excluding depreciation and amortization)

Gross margin percentage

Revenue in our aftermarket services business increased primarily due to higher service activities and parts sales from the continuation of the market recovery which began in the prior year and continues to drive an increase in customer demand.

Gross margin increased in our aftermarket services business as a result of increased revenues which exceeded the increase in cost of sales due to differences in the scope, timing and type of activities performed.

The increase in cost of sales resulted from an increase in cost of service activities of $5.0 million attributable to increased labor and parts costs, which was partially offset by a reduction in the use of parts and labor from third party providers, which resulted in savings of $3.2 million.

Cost of sales, exclusive of depreciation and amortization

Adjusted gross margin

Adjusted gross margin percentage (1)

(1) Defined as adjusted gross margin divided by revenue.

Revenue in our aftermarket services business decreased primarily due to lower parts sales, which was partially offset by increased service activity driven by higher customer demand, and an increase in maintenance service contracts.

The increases in adjusted gross margin and adjusted gross margin percentage were mainly due to a reduction in cost of sales, exclusive of depreciation and amortization, due to a difference in the scope, timing and type of services performed, including additional work associated with maintenance service contracts, which outpaced the decline in overall revenue.

Costs and Expenses

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Restructuring charges

Debt extinguishment loss

Interest expense

Transaction-related costs

Gain on sale of assets, net

Other expense (income), net

Other expense, net

Selling, general and administrative.

The decrease in SG&A was primarily due to a decrease of $8.0 million for sales tax as a result of a change in tax compliance for sales tax associated with contract operations cost of sales.

Beginning in 2023, contract operations sales tax amounts are recognized in contract operations cost of sales.

Further, SG&A for the year ended December 31, 2023 includes a $2.2 million decrease in professional expense and a $1.3 million decrease in accrued expenses, partially offset by a $5.4 million increase in long-term performance-based incentive compensation expense, a $4.0 million increase in short-term incentive expense and a $1.6 million increase in software and maintenance expense.

The increase in SG&A was primarily driven by a $17.2 million increase in employee incentive and other compensation expense, a $2.4 million increase in professional and consulting fees, a $0.8 million increase in network and computer-related costs and a $0.7 million increase in insurance expense.

Depreciation and amortization.

The increase in depreciation and amortization expense was primarily due to an increase in depreciation expense associated with fixed asset additions and accelerated depreciation associated with certain assets.

These increases were partially offset by a decrease in depreciation expense resulting from assets reaching the end of their depreciable lives, the impact of compression and other asset sales, and long-lived asset impairments.

Table Archrock, Contents

The increase in depreciation and amortization was primarily due to fixed assets additions, including $15.8 million depreciation and amortization associated with the compression units and intangible assets acquired in the TOPS Acquisition, and accelerated depreciation associated with certain assets.

The increase was partially offset by a decrease in depreciation associated with assets reaching the end of their depreciable lives, the impact of compression and other asset sales, and long-lived asset impairments.

Long–lived and other asset impairment.

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See Note 23 (“Restructuring Charges”) for further details on these restructuring charges.

Debt extinguishment loss.

We incurred $3.2 million of debt extinguishment loss during the year ended December 31, 2024 as a result of the 2027 Notes Tender Offer.

Interest expense.

The increase in interest expense was due to an increase in interest rates, a higher average outstanding balance of long–term debt and the write-off of $1.0 million of unamortized deferred financing costs as a result of the Amended and Restated Credit Agreement, partially offset by an increase in capitalized interest.

The increase in interest expense was primarily due to a higher average outstanding balance of long-term debt due to the 2032 Notes offering, an increase in the outstanding balance on the Credit Facility and higher interest rates.

These increases were partially offset by the 2027 Notes Tender Offer and the write-off of $1.0 million of unamortized deferred financing costs as a result of the Amended and Restated Credit Agreement during the year ended December 31, 2023.

Transaction-related costs.

We incurred $13.2 million of professional fees, compensation-related and other costs during the year ended December 31, 2024 related to the TOPS Acquisition.

See Note 4 (“Business Transactions”) for further details on these transaction-related costs.

Gain on sale of assets, net.

The decrease in gain on sale of assets was primarily due to gains of $7.6 million on compression asset sales during the year ended December 31, 2023 compared to gains of $38.5 million on compression asset sales during the year ended December 31, 2022.

The net gain on the sales of assets during 2022 was primarily the result of $28.1 million of gains recognized on sales of certain contract operations customer service agreements and approximately 770 compressors and $12.4 million of gains recognized on other compression asset sales and transportation and shop asset sales during the period.

Other expense (income), net.

The decrease in other expense (income), net was primarily due to a $0.9 million decrease in the unrealized change in the fair value of our investment in an unconsolidated affiliate during the year ended December 31, 2023 compared to the year ended December 31, 2022.

The increase in gain on sale of assets, net was primarily due to gains of $17.6 million on compression asset sales during the year ended December 31, 2024 compared to gains of $7.6 million on compression asset sales during the year ended December 31, 2023.

Other expense, net.

The increase in other expense, net was primarily due to a $0.5 million increase in unrealized change in the fair value of our investment in an unconsolidated affiliate recognized during the year ended December 31, 2024, compared to the year ended December 31, 2023.

Provision for Income Taxes

The increase in provision for income taxes was primarily due to the tax effect of the increase in book income during the year ended December 31, 2023, compared to the year ended December 31, 2022.

The increase in provision for income taxes was primarily due to the tax effect of the increase in book income and the limitation on executive compensation offset by the benefit from equity-settled long-term incentive compensation during the year ended December 31, 2024, compared to the year ended December 31, 2023.

Year Ended December 31,

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Effective tax rate

Table Archrock, Contents

LIQUIDITY AND CAPITAL RESOURCES

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• dividend payments to our stockholders;

• shares repurchased under the Share Repurchase Program and to cover taxes required to be withheld on the vesting date of long-term incentive grants to employees.

Capital Expenditures

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These expenditures substantially modify the operating parameters of the compression package such that it can be used in applications for which it previously was not suited.

Growth capital expenditures were $190.3 million and $146.3 million during the years ended December 31, 2023 and 2022, respectively.

The increase in growth capital expenditures from 2022 to 2023 was the result of increased investment in new compression equipment as a result of higher customer demand.

Growth capital expenditures for the year ended December 31, 2024 were $250.9 million, including TOPS’ specific growth capital expenditures of $69.4 million.

Growth capital expenditures for the year ended December 31, 2023 were $190.3 million.

Maintenance Capital Expenditures.

Maintenance capital expenditures are related to major overhauls of significant components of a compression package, such as the engine, compressor and cooler, which return the components to a like–new condition, but do not modify the application for which the compression package was designed.

Maintenance capital expenditures were $92.2 million and $84.2 million during the years ended years ended December 31, 2023 and 2022, respectively.

The increase in maintenance capital expenditures from 2022 to 2023 was the result of an increase in scheduled maintenance activities due to maintenance cycle requirements as well as additional make–ready investment as we return idle equipment to work to meet customer demand.

Table Archrock, Contents

Maintenance capital expenditures are related to major overhauls of significant components of a compression package, such as the engine, electric motor, compressor and cooler, which return the components to a like–new condition, but do not modify the application for which the compression package was designed.

Maintenance capital expenditures were $87.8 million and $92.2 million during the years ended December 31, 2024 and 2023, respectively.

The decrease in maintenance capital expenditures from 2023 to 2024 was primarily due to lower make–ready investment, as our fleet’s average horsepower utilization reached record levels, and we experienced fewer stops in 2024 compared to 2023.

This decrease was partially offset by an increase in scheduled and unscheduled maintenance activities due to maintenance cycle requirements.

Projected Capital Expenditures.

While market activity continues to be strong, we currently anticipate reducing capital expenditures in 2024 compared to 2023 to support free cash flow generation after dividends, and plan to spend approximately $275.0 million to $290.0 million in capital expenditures during the year ended December 31, 2024, primarily consisting of approximately $175.0 million to $180.0 million for growth capital expenditures and approximately $80.0 million to $85.0 million for maintenance capital expenditures.

We currently plan to spend approximately $470 million to $535 million on capital expenditures during 2025, primarily consisting of approximately $330 million to $370 million for growth capital expenditures and approximately $105 million to $115 million for maintenance capital expenditures.

On January 30, 2025, our Board of Directors declared a quarterly dividend of $0.19 per share of common stock, or approximately $33.5 million, which was paid on February 19, 2025 to stockholders of record at the close of business on February 12, 2025.

Any future determinations to pay cash dividends to our stockholders will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, and credit and loan agreements in effect at that time and other factors deemed relevant by our Board of Directors.

Share Repurchase Program

On April 27, 2023, our Board of Directors authorized the 2023 Share Repurchase Program which allows us to repurchase up to $50.0 million of outstanding common stock.

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

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

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

(dollars in thousands, except per share amounts)

December 31, 2023

Total cost of shares repurchased

Average price per share

Total number of shares repurchased

Contractual Obligations

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• Long–term debt of $2.2 billion, all of which is due in 2027, 2028 and 2032;

• Estimated interest on our long–term debt of $428.8 million, consisting of annual payments of approximately $108.3 million in 2024 through 2026, approximately $82.5 million in 2027, and approximately $21.4 million in 2028;

• Purchase commitments of $192.7 million, of which $151.6 million is due in 2024, that primarily consist of commitments to purchase fleet assets and information technology–related costs;

• Operating lease payments of $18.0 million that are spread relatively evenly in 2024 through 2032.

• Estimated interest on our long–term debt of $666.1 million, consisting of annual payments of approximately $147.1 million in 2025 and 2026, approximately $131.7 million in 2027, approximately $70.1 million in 2028, approximately $46.4 million in 2029, and approximately $123.7 million thereafter;

• Purchase commitments of $341.1 million, of which $337.5 million is due in 2025, that primarily consist of commitments to purchase fleet assets;

• Operating lease payments of $18.9 million, consisting of annual payments of approximately $4.6 million in 2025, approximately $4.0 million in 2026, approximately $3.0 million in 2027, approximately $2.5 million in 2028 and 2029, and approximately $2.3 million thereafter.

In addition, we had $19.5 million of unrecognized tax benefits (including discontinued operations) recorded as liabilities related to uncertain tax positions at December 31, 2024, which are uncertain as to if or when such amounts may be settled.

We had a liability of $2.7 million recorded for potential penalties and interest (including discontinued operations) related to these unrecognized tax benefits at December 31, 2024, which we are uncertain as to if or when such amounts may be settled.

Table Archrock, Contents

Sources of Cash

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During the years ended December 31, 2024 and 2023, our Credit Facility had an average daily balance of $315.0 million and $298.8 million, respectively.

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

The weighted average annual interest rate on the outstanding balance under the Credit Facility was 6.8% and 7.7% at December 31, 2024 and 2023, respectively.

As of December 31, 2024, there were $4.0 million of letters of credit outstanding under the Credit Facility and the applicable margin on borrowings outstanding was 2.2%.

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Credit Facility Terms.

Our Credit Facility matures on May 16, 2028 (or December 2, 2026 or December 3, 2027, as applicable, if any portion of our 2027 Senior Notes and 2028 Senior Notes, respectively, remain outstanding at such date) and has an aggregate revolving commitment of $750.0 million.

Portions of the Credit Facility, up to $110.0 million, are available for the issuance of swing line loans and $50.0 million is available for the issuance of letters of credit.

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The Credit Facility borrowing base consists of eligible accounts receivable, inventory and compressors.

Our Credit Facility agreement requires that we meet certain financial ratios (see Note 15 (“Long-Term Debt”) and contains various additional covenants including, but not limited to, mandatory prepayments from the net cash proceeds of certain asset transfers, 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.

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.

As of both December 31, 2023 and 2022, we had a principal balance of $1.3 billion of outstanding senior notes that consisted of the following:

• $800.0 million of 6.25% senior notes due in April 2028 and

• $500.0 million of 6.875% senior notes due in April 2027.

See Note 15 (Long-term Debt”) to our Financial Statements for further details of these notes.

At–the–Market Continuous Equity Offering Program

Under our ATM Agreement, we may sell, from time to time, shares of our common stock having an aggregate offering price of up to $50.0 million.

The agreement terminates upon the earlier of (i) the sale of all shares of common stock subject to the agreement or (ii) the termination of the agreement by us or by each of the sales agents.

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

We used the net proceeds of these offerings for general corporate purposes.

During the year ended December 2022, we sold 447,020 shares of common stock, respectively, 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.

Our Amended and Restated Credit Agreement requires that we meet certain financial ratios (see Note 16 (“Long-Term Debt”)) and contains various additional covenants including, but not limited to, mandatory prepayments from the net cash proceeds of certain asset transfers, 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.

As of December 31, 2024, we were in compliance with all covenants under our Amended and Restated Credit Agreement.

2032 Notes and 2027 Notes Tender Offer

In connection with the offering of the 2032 Notes, we completed a concurrent cash tender offer of $202.0 million for our 2027 Notes.

See Note 16 (“Long-Term Debt”) for further details.

July 2024 Equity Offering

Archrock received net proceeds of $255.7 million, after deducting underwriting discounts, commissions and offering expenses.

See Note 18 (“Stockholders’ Equity”) for further details.

Other Sources of Cash

Business Dispositions and Other Asset Sales.

We received proceeds of $72.2 million and $120.3 million from business dispositions and other asset sales during the years ended December 31, 2023 and 2022, respectively.

We typically use the proceeds from these sales to repay borrowings outstanding under our Credit Facility, however, we are not able to estimate the timing of asset sales nor the amount of proceeds to be received and as such, we do not rely on asset sale proceeds as a future source of capital.

Table Archrock, Contents

We received proceeds of $67.6 million and $72.2 million from asset sales during the years ended December 31, 2024 and 2023, respectively.

We typically use the proceeds from these sales to repay borrowings outstanding under our Credit Facility;

however, we are not able to estimate the timing of asset sales or the amount of proceeds to be received and as such, we do not rely on asset sale proceeds as a future source of capital.

Cash flows provided by (used in) each type of activity were as follows:

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Financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating Activities.

The increase in net cash provided by operating activities was primarily due to increased cash inflows of $115.2 million from gross margin and changes of $15.4 million in deferred revenue, partially offset by changes of $24.3 million in contract costs, $12.2 million in accounts payable and other liabilities and decreased cash inflows of $9.1 million from accounts receivable.

The increase in net cash provided by operating activities was primarily due to increased cash inflows of $161.4 million from adjusted gross margin, excluding deferred revenue recognized in earnings and amortization of freight and mobilization charges, changes of $9.6 million in accounts receivable due to increased cash receipts from customers and of $2.7 million in deferred revenue.

These increases were partially offset by changes of $6.1 million in inventory and of $3.7 million in accounts payable and accrued liabilities.

Investing Activities.

The increase in net cash used in investing activities was primarily due to a $58.8 million increase in capital expenditures and a $99.6 million decrease in proceeds from the sale of business, partially offset by a $51.6 million increase in proceeds from sales of property, plant and equipment and a $7.4 million decrease in investments in non-consolidated affiliates.

The increase in net cash used in investing activities was primarily due to $868.7 million of cash paid in the TOPS Acquisition and a $60.4 million increase in capital expenditures, partially offset by a decrease of $4.8 million in investment in non-consolidated affiliates and a $4.6 million decrease in proceeds from the sale of property, plant and equipment.

Financing Activities.

The increase in net cash used in financing activities was primarily due to $8.9 million of common stock purchased under the 2023 Share Repurchase Program, a $6.0 million payment for debt issuance costs related to the Amended and Restated Credit Agreement, a $5.5 million increase in dividends paid to stockholders and a $4.2 million decrease in proceeds from the sale of shares under the ATM Agreement, partially offset by a $19.0 million increase in net borrowings of long-term debt.

The change from net cash used in financing activities in 2023 to net cash provided by financing activities in 2024 was primarily due to $700.0 million of proceeds from the issuance of the 2032 Notes, $255.7 million of proceeds from the July 2024 Equity Offering and a $85.5 million increase in net borrowings of long-term debt, partially offset by $202.0 million for the 2027 Notes Tender Offer, a $14.6 million increase in dividends to Archrock shareholders, a $6.3 million increase in debt issuance costs paid, a $4.5 million increase in shares repurchased under the Share Repurchase Program and a $2.7 million increase in taxes paid related to net share settlement of equity awards.

Critical Accounting Estimates

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Property, plant and equipment are carried at cost and depreciated using the straight–line basis over the estimated useful life of the asset.

Table Archrock, Contents

Our estimate of useful lives and salvage values are based on assumptions and judgments that reflect both historical experience and expectations regarding future use of our assets, including wear and tear, obsolescence, technical standards, market demand and geographic location.

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In evaluating the objective evidence that historical results provide, we consider three years of cumulative income (loss) before income taxes.

Table Archrock, Contents

Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future.

Management is not aware of any such changes that would have a material effect on our financial position, results of operations or cash flows.

Aside from the budget reconciliation process currently occurring in Congress, management is not aware of any such changes that would have a material effect on our financial position, results of operations or cash flows.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various state and local jurisdictions.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis