What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2025-02-25 compared with 2024-02-21 · 421 added, 253 removed, 1074 unchanged (39% of the section changed)

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Based on the evaluation, as of December 31, 2024, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, and made known to our principal executive officer and principal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Table Archrock, Contents

Management’s Annual Report on Internal Control Over Financial Reporting

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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, 2024.

On August 30, 2024, we completed the TOPS Acquisition which was the acquisition of a privately-held company that was not subject to Section 404 of the Sarbanes-Oxley Act.

As the TOPS Acquisition occurred during the third quarter of 2024, and TOPS was not previously subject to Section 404 of the Sarbanes-Oxley Act, management concluded there was insufficient time for management to complete its assessment of the internal controls over financial reporting related to TOPS, and, therefore, TOPS’s internal controls over financial reporting were excluded from this report on internal control over financial reporting.

Our management with the participation of the Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting excluding TOPS’ internal controls as of December 31, 2024 (covering approximately 94.3% of the revenue on the Consolidated Statements of Operations for the year ended December 31, 2024 and 70.2% of the total assets on the Consolidated Balance Sheets as of December 31, 2024) based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Based on its evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2024.

The effectiveness of internal control over financial reporting as of December 31, 2024 was audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report found within this Form 10–K.

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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.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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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, 2024, of the Company and our report dated February 25, 2025, expressed an unqualified opinion on those financial statements.

As described in Management’s Annual Report on Internal Control Over Financial Reporting, appearing in Item 9A, management excluded from its assessment the internal control over financial reporting at TOPS which was acquired on August 30, 2024, and whose financial statements constitute 29.8% and 5.7% of total assets and revenue, respectively of the consolidated financial statement amounts as of and for the year ended December 31, 2024.

Accordingly, our audit did not include the internal control over financial reporting at TOPS.

Basis for Opinion

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February 25, 2025

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Other Information

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The information required by Part III Item 10 of this 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 2025 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days following the end of our 2024 fiscal year.

We have adopted an Insider Trading Policy that governs the purchase, sale, and/or other dispositions of our securities by directors, officers and employees that is reasonably designed to promote compliance with insider trading laws, rules and regulations and NYSE listing standards.

A copy of our Insider Trading Policy is filed as Exhibit 19.1 to this Form 10-K.

Executive Compensation

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Equity compensation plans not approved by security holders (4)

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

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

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

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See Note 20 (“Stock-Based Compensation”) to our Financial Statements for further details of our DSDP.

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Certain Relationships and Related Transactions and Director Independence

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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

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Amendment No.

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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

Purchase and Sale Agreement, dated as of July 22, 2024, by and among Archrock ELT LLC, Archrock, Inc., TOPS Pledge1, LLC and TOPS Pledge2, LLC and, solely with respect to Section 6.25 of the Purchase and Sale Agreement, TOPS Holdings, LLC , incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8–K filed on July 22, 2024

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 unchanged sentences

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

Description of Common Stock

Indenture, dated as of August 26, 2024, by and among Archrock Partners, L.P., Archrock Partners Finance Corp., the guarantors party thereto and Regions Bank, as trustee , incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8–K filed on August 26, 2024

Supplemental Indenture, dated August 26, 2024, by and among Archrock Partners, L.P., Archrock Partners Finance Corp., Archrock, Inc., the other guarantors party thereto and Computershare Trust Company (as successor in interest to Wells Fargo Bank, National Association), as trustee , incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8–K filed on August 26, 2024

Supplemental Indenture, dated August 26, 2024, by and among Archrock Partners, L.P., Archrock Partners Finance Corp., Archrock, Inc., the other guarantors party thereto and Computershare Trust Company (as successor in interest to Wells Fargo Bank, National Association), as trustee , incorporated by reference to Exhibit 4.3 of the Registrant’s Current Report on Form 8–K filed on August 26, 2024

Description of Common Stock , incorporated by reference to Exhibit 4.3 of the Registrant’s Annual Report on Form 10–K for the year ended December 31, 2019

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

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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

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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

18 unchanged sentences

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

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Form of Compensation Letter applicable to Messrs.

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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

Amendment to the Archrock, Inc.

2020 Stock Incentive Plan

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

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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

First Amendment to Amended and Restated Credit Agreement, dated as of August 28, 2024, 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 August 28, 2024

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

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

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

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

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

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

(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)

Table Archrock, Contents

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)

Sixth Amended and Restated Omnibus Agreement, effective August 30, 2024, by and among Archrock, Inc., AROC Corp., AROC Services GP LLC, AROC Services LP LLC, Archrock Services, L.P., Archrock Services Leasing LLC, Archrock ELT LLC, Total Operations and Production Services, LLC, Archrock Ecotec LLC, Archrock Ionada LLC, Archrock FGC LLC, Archrock GP LLC, Archrock GP LP LLC, Archrock MLP LP LLC, Archrock General Partner, L.P., Archrock Partners Corp., Archrock Partners, L.P., Archrock Partners Operating LLC, Archrock Partners Leasing LLC and Archrock Partners Finance Corp.

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

Purchase Agreement, dated as of August 12, 2024, by and among Archrock Partners, L.P., Archrock Partners Finance Corp., Archrock, Inc., the other guarantors party thereto and Wells Fargo Securities, 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 August 13, 2024

Registration Rights and Lock-Up Agreement, dated as of August 30, 2024, by and between Archrock, Inc., TOPS Pledge1, LLC, TOPS Pledge2, LLC and TOPS NewCo, LLC , incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8–K filed on August 30, 2024

Insider Trading Policy

List of Subsidiaries of Archrock, Inc.

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

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

Archrock’s Compensation Recovery Policy, dated effective October 2, 2023, incorporated by reference to Exhibit 97.1 of the Registrant’s Annual Report on Form 10–K filed on February 21, 2024

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

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Furnished, not filed .

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Certain exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5).

The Company agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request .

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.

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February 25, 2025

Table Archrock, Contents

POWER OF ATTORNEY

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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 .

TOPS ACQUISITION - Refer to Note 4 and 18 to the financial statements.

Critical Audit Matter Description

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.

The Company completed the acquisition of Total Operations and Production Services, LLC (TOPS) for cash consideration of $868.7 million and 6,873,650 shares of common stock with an acquisition date fair value of $139.1 million.

Accordingly, the purchase price paid for assets acquired and liabilities assumed was allocated, based on respective fair value, to property, plant and equipment (including compressors) and other intangible assets.

The method for determining respective fair value varied depending on the type of asset or liability and involved management making significant estimates related to assumptions such as future cash flows, discount rates, market data, projected revenue, and current market interest rates.

Given the respective fair value determination of assets acquired and liabilities assumed requires management to make significant estimates related to assumptions such as future cash flows, discount rates, market data, projected revenue, and current market interest rates, performing audit procedures to evaluate the reasonableness of these assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

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 related to management's selection of a weighted average cost of capital, and the fair value of acquired property, plant and equipment and intangible assets for TOPS included the following, among others:

• We tested the effectiveness of controls over the purchase price allocation, including management's controls over the assumptions used in the valuation of the property, plant and equipment and intangible assets, including estimating the fair value of the acquired property, plant and equipment and intangible assets, determination of the weighted average cost of capital, and reviewing the work of third-party specialists.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology, (2) current market data, (3) cost to replace certain assets, and (4) assumptions used in the discounted cash flows, including testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing our estimates to those used by management.

• We assessed the reasonableness of management’s projections of contract revenue by comparing the assumptions used in the projections to projected capital expenditures, historical data, and results from other areas of the audit.

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.

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(in thousands, except par value and share amounts )

December 31, 2024

December 31, 2023

Current assets:

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Total revenue

Cost of sales (excluding depreciation and amortization):

Cost of sales, exclusive of depreciation and amortization

Contract operations

Aftermarket services

Total cost of sales (excluding depreciation and amortization)

Total cost of sales, exclusive of depreciation and amortization

Selling, general and administrative

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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

Income before income taxes

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Archrock, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

Consolidated Statements of Comprehensive Income

(in thousands, except share amounts)

Year Ended December 31,

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Cash dividends ($ 0.58 per common share)

Shares issued in ESPP

Shares issued under ESPP

Stock-based compensation, net of forfeitures

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( 7,810,548 )

Shares repurchased

Shares withheld related to net settlement of equity awards

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Comprehensive income

Other comprehensive income

Balance at December 31, 2023

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Net proceeds from issuance of common stock

Shares issued for TOPS Acquisition

Comprehensive income

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Interest rate swaps

Debt extinguishment loss

Stock-based compensation expense

Provision for (benefit from) credit losses

Provision for credit losses

Gain on sale of assets, net

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Proceeds from insurance and other settlements

Cash paid in TOPS Acquisition, net of cash acquired

Investments in unconsolidated entities

Net cash provided by (used in) investing activities

Net cash used in investing activities

( 1,160,063 )

Cash flows from financing activities:

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Repayments of long-term debt

( 1,308,200 )

Proceeds from 2032 Notes offering

Partial repayment of 2027 Notes

Payments of debt issuance costs

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Dividends paid to stockholders

Net proceeds from issuance of common stock

Repurchases of common stock

Taxes paid related to net share settlement of equity awards

Net proceeds from issuance of common stock

Proceeds from stock issued under ESPP

Net cash used in financing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

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Cash and cash equivalents, end of period

Archrock, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Supplemental disclosure of cash flow information:

Interest paid

Income taxes paid, net

Supplemental disclosure of non-cash investing and financing transactions:

Supplemental disclosure of non-cash investing transactions:

Accrued capital expenditures

Issuance of Archrock common stock pursuant to TOPS Acquisition

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

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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 are a premier provider of natural gas compression services, in terms of total compression fleet horsepower, 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:

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Basis of Presentation

Our consolidated financial statements include the accounts of Archrock and its wholly–owned subsidiaries.

Our 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.

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Ratings assigned by external rating agencies and credit monitoring services consider past performance and forecasts of future economic conditions in assessing credit risk.

Inventory consists of parts used for maintenance of natural gas compression equipment.

Inventory primarily 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.

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Repairs and maintenance are expensed as incurred.

The goodwill acquired in connection with the TOPS Acquisition represents the excess of consideration transferred over the fair value of the assets and liabilities acquired.

We review the carrying amount of our goodwill in the fourth quarter of every year, or whenever indicators of potential impairment exist, to determine if the carrying amount of a reporting unit exceeds its fair value, including the applicable goodwill.

We perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is impaired.

If the fair value is more-likely-than-not impaired, we perform a quantitative impairment test to identify impairment and measure the amount of impairment loss to be recognized, if any.

Our qualitative assessment includes consideration of various events and circumstances and their potential impact to a reporting unit’s fair value, including macroeconomic and industry conditions such as a deterioration in our operating environment and limitations on access to capital and other developments in the equity and credit markets, cost factors that could have a negative effect on earnings and cash flows, relevant entity-specific and reporting unit-specific events and overall financial performance such as declining earnings or cash flows or a sustained decrease in share price.

The quantitative impairment test (i) allocates goodwill and our other assets and liabilities to our reporting units, contract operations and aftermarket services, (ii) calculates the fair value of the reporting units and (iii) determines the impairment loss, if any, as the amount by which the carrying amount of the reporting unit exceeds its fair value (limited to the total amount of goodwill allocated to that reporting unit).

All of the goodwill recognized in the TOPS Acquisition was attributed to our contract operations reporting unit.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

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.

We recognize ROU assets and operating lease 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.

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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.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

For contract operations service agreements in which we are a lessor, we do not account for these agreements as operating leases, as the services nonlease component is predominant over the compression package lease component.

Impairment of Long–Lived Assets

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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 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 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.

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Sales and usage–based taxes that are collected from the customer are excluded from revenue.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Contract Operations

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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.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Aftermarket Services

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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.

We apply an estimated adjusted gross margin percentage, which is fixed based on historical time and materials–based service, to actual costs incurred.

We evaluate the estimated adjusted gross margin percentage at the end of each reporting period and adjust the transaction price as appropriate.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Contract Assets and Liabilities

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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.

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.

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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.

We generally do not obtain collateral for trade accounts 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.

During the year ended December 31, 2024, one customer accounted for $ 121.4 million, or more than 10 % of our consolidated revenue, and another customer accounted for more than 13 % of our consolidated trade accounts receivable, both primarily related to our contract operations segment.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Recent Accounting Developments

Accounting Standards Updates Implemented

Segment Reporting

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

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

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

We adopted ASU 2023-07 retrospectively during the year ended December 31, 2024.

See Note 30 (“Segments”) for further details.

Accounting Standards Updates Not Yet Implemented

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Early adoption is permitted.

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

Segment Reporting

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

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

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

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

Early adoption is permitted.

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

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

We are assessing and modifying our systems and processes to comply with our future adoption of ASU 2023-09.

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.

In August 2023, the FASB issued ASU 2023-05, 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.

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

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

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.

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40), which will require tabular disclosures about certain expenses included in the expense captions presented on the face of the income statement, as well as disclosures about selling expenses.

ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.

Early adoption is permitted.

Entities are required to adopt ASU 2024-03 prospectively with the option for retrospective application.

We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Business Transactions

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, including approximately 530,000 operating 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.

In accordance with the terms of the purchase and sale agreement, customary post-closing adjustments were made during the fourth quarter of 2024, resulting in a $ 0.4 million reduction to the purchase price .

The TOPS Acquisition was accounted for using the acquisition method of accounting, which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the acquisition date.

The excess of the consideration transferred over those fair values was recorded as goodwill.

The following table summarizes the purchase price allocation based on the fair values of the assets acquired and liabilities assumed as of the acquisition date:

(in thousands)

Accounts receivable

Other current assets

Property, plant and equipment

Operating lease right-of-use assets

Intangible assets

Accounts payable, trade

Accrued liabilities

Operating lease liabilities

Other liabilities

Purchase price

The valuation methodologies and significant inputs for fair value measurements are detailed by significant asset class below.

The fair value measurements for property, plant and equipment and intangible assets are based on significant inputs that are not observable in the market and therefore represent Level 3 measurements.

Property, Plant and Equipment

Property, plant and equipment is primarily comprised of electric motor drive compression equipment that will depreciate on a straight-line basis over an estimated average remaining useful life of 25 years .

The fair value of the property, plant and equipment was determined using both the cost and market approach.

For most of the compression equipment, we estimated the replacement cost using the direct cost method by evaluating recent purchases of similar assets or published data, then adjusting the replacement cost for physical deterioration and functional and economic obsolescence, as applicable.

For certain compression equipment, we then considered the market approach by comparing our estimated dollar per horsepower to market comparables and market participant assumptions and adjusted as necessary.

Other fixed assets were valued using the indirect cost method, whereby we applied asset-specific trend information using published indexes to calculate the estimated replacement cost of assets that were identified to be reflected at historical cost.

Other assets were depreciated based on published normal useful life estimates and prior experience with similar assets.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Intangible Assets

The intangible assets consist of customer relationships and trade names that have estimated useful lives of 12 years and five years , respectively.

The amount of intangible assets and their associated useful life were determined based on the period over which the assets are expected to contribute directly or indirectly to our future cash flows.

The fair value of the identifiable intangible assets related to customer relationships was determined using the multi-period excess earnings method, which is a specific application of the discounted cash flow method, an income approach, whereby we estimated and then discounted the future cash flows of the intangible asset by adjusting overall business revenue for attrition, obsolescence, cost of sales, operating expenses, taxes and the required returns attributable to other contributory assets acquired.

Significant estimates made in arriving at expected future cash flows included our expected customer attrition rate and the amount of earnings attributable to the assets.

To discount the estimated future cash flows, we utilized a discount rate that was at a premium to our WACC to reflect the less liquid nature of the customer relationships relative to the tangible assets acquired.

It is generally accepted that the fair market value of a trade name is best measured by the relief-from-royalty method under the income approach, whereby we calculated the royalty savings by estimating a reasonable royalty rate that a third party would negotiate in a licensing agreement expressed as a percentage of total revenue involving a trade name.

The revenue related to the trade name was multiplied by the selected royalty rate over the estimated expected useful life of the trade name to arrive at the royalty savings.

The royalty savings were tax effected and discounted to present value using a discount rate commensurate with the risk profile of the trade name relative to our WACC and the return on the other acquired assets.

The amount of goodwill resulting from the TOPS Acquisition is attributable to the expansion of our services in the Permian Basin, where we currently operate, and was allocated to our contract operations segment.

The goodwill recorded is considered to have an indefinite life and will be reviewed annually for impairment or more frequently if indicators of potential impairment exist.

All of the goodwill recorded for the TOPS Acquisition is expected to be deductible for U.S.

federal income tax purposes.

Tax Contingency and Indemnification Asset

We recorded a non-income tax based contingency of $ 4.3 million and a corresponding indemnification asset of $ 4.3 million based on facts existing on the acquisition date.

The tax contingency arose from pre-acquisition activities of TOPS.

As part of the acquisition, the sellers agreed to indemnify us for certain tax contingencies up to $ 21.6 million as of the acquisition date.

Dependent upon facts and circumstances, the sellers’ indemnification obligation may be reduced over a period of five years from the acquisition date but may also be extended until the resolution of claims timely submitted to the sellers.

Results of Operations

The results of operations attributable to the TOPS Acquisition have been included in our consolidated financial statements as part of our contract operations segment since the acquisition date.

Revenue attributable to the assets acquired from the acquisition date through December 31, 2024 was $ 65.5 million.

We are unable to provide earnings attributable to the assets and liabilities acquired since the acquisition date, as we do not prepare full stand-alone earnings reports for those assets and liabilities.

Transaction-Related Costs

We recorded $ 13.2 million of transaction-related costs in our consolidated statements of operations during the year ended December 31, 2024.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The following table presents transaction-related cost incurred by cost type:

(in thousands)

December 31, 2024

Professional fees (1)

Compensation-related costs (2)

Total transaction-related costs

(1) Professional fees include legal, advisory, consulting and other fees.

(2) Compensation-related costs include amounts related to employee retention and other compensation related arrangements associated with the acquisition.

Payments are due and payable at various times up to and including the two-year anniversary of the TOPS Acquisition.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information for the years ended December 31, 2024 and 2023 was derived by adjusting our historical financial statements in order to give effect to the assets and liabilities acquired in the TOPS Acquisition.

The TOPS Acquisition is presented in this unaudited pro forma financial information as though the acquisition occurred as of January 1, 2023, and reflects the following:

● the effects of the employee retention and other compensation-related arrangements associated with the TOPS Acquisition;

● the application of our accounting policies and adjusting the results of TOPS to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment, and intangible assets had been applied from January 1, 2023;

● the interest expense resulting from the 2032 Notes, the 2027 Notes Tender Offer, and the First Amendment to the Amended and Restated Credit Agreement;

● the exclusion of $ 11.4 million of nonrecurring financial advisory, legal, audit and other professional fees incurred related to the acquisition and recorded to transaction-related costs in our consolidated statements of operations during the year ended December 31, 2024, respectively.

For the year ended December 31, 2023, pro forma earnings were adjusted to reflect these charges;

● the income tax effects of the adjustments based on the estimated blended statutory tax rate of 23 % .

The unaudited pro forma financial information below is presented for informational purposes only and is not necessarily indicative of our results of operations that would have occurred had the transaction been consummated at the beginning of the period presented, nor is it necessarily indicative of future results.

(in thousands)

Net income attributable to Archrock stockholders

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.

The sale constituted a business, and accordingly, 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.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Accounts Receivable, net

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

As December 31, 2024 and 2023, our receivables from contracts with customers, net of allowance for credit losses, were $ 126.3 million and $ 119.7 million, respectively.

Allowance for Credit Losses

The changes in our allowance for credit losses are as follows:

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Balance at beginning of period

Provision for (benefit from) credit losses

Provision for credit losses

Write-offs charged against allowance

Balance at end of period

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Inventory is comprised of the following:

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During the years ended December 31, 2024, 2023 and 2022 we recorded write–downs to inventory of $ 0.6 million, $ 0.5 million and $ 1.6 million, respectively, for inventory considered to be excess, obsolete or carried at an amount in excess of net realizable value.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Property, Plant and Equipment, net

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Depreciation expense was $ 185.1 million, $ 159.3 million and $ 155.4 million during the years ended December 31, 2024, 2023 and 2022, 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 .

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 .

Assets under construction of $ 125.0 million and $ 64.7 million at December 31, 2024 and 2023, respectively, primarily consisted of compression equipment and other fleet assets .

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

Our leases have remaining lease terms of less than one year to approximately eight 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.

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Total lease liabilities

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Year Ended December 31,

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Total lease cost

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Year Ended December 31,

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

(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.

(1) Includes decreases to our ROU assets of $ 0.4 million, and $ 0.2 million related to lease amendments and terminations during 2023 and 2022 respectively.

There were no lease amendments or terminations during 2024 that resulted in decreases to our ROU assets.

Weighted-average remaining lease term (in years)

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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 include customer relationships associated with various business and asset acquisitions as well as a trade name intangible asset associated with the TOPS Acquisition.

These acquired intangible assets were recorded at fair value determined as of the acquisition date and are being amortized over the period we expect to benefit from the assets.

Intangible assets, net is comprised of the following:

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Intangible assets, net

Intangible assets are amortized on a straight–line basis with estimated useful lives ranging from five to 25 years .

Amortization expense was $ 8.1 million, $ 6.9 million and $ 8.9 million during the years ended December 31, 2024, 2023 and 2022, respectively.

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:

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

(in thousands)

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.

For our contract operations segment, we capitalize incremental costs to obtain a contract with a customer if we expect to recover those costs.

Capitalized contract costs include 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 $ 4.1 million and $ 2.2 million associated with sales commissions recorded in our consolidated balance sheets as of December 31, 2024 and 2023, 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.

For our contract operations segment, 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.

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We had contract costs of $ 19.8 million and $ 18.9 million associated with freight and mobilization recorded in our consolidated balance sheets as of December 31, 2024 and 2023, 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 operations obtainment and fulfillment costs are amortized based on the transfer of service to which the assets relate, which is estimated to be 46 months based on average contract term, including anticipated renewals.

Annually, we assess whether the 46–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).

Contract costs associated with freight and mobilization are amortized to cost of sales, exclusive of depreciation and amortization.

During the years ended December 31, 2024, 2023 and 2022, we amortized $ 2.3 million, $ 1.9 million and $ 1.9 million, respectively, related to sales commissions, and $ 21.5 million, $ 19.4 million and $ 17.3 million, respectively, related to freight and mobilization.

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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.

Investment in ECOTEC

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

We have elected the fair value option to account for this investment, and during the years ended December 31, 2024, 2023 and 2022, we recognized unrealized losses of $ 1.5 million, $ 1.0 million and $ 1.9 million, respectively, related to the change in fair value of our investment (see Note 27 (“Fair Value Measurements”)).

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

During the years ended December 31, 2024 and 2023, we contributed $ 1.3 million and $ 3.1 million, respectively, to maintain our 25 % ownership interest in ECOTEC, which is included in other assets in our consolidated balance sheets.

Investment in Ionada

In November 2023, we agreed and made initial investment of $ 3.8 million, 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.

As of December 31, 2024 and 2023, we had a fully diluted ownership equity interest in Ionada of 12 % and 10 %, respectively.

We have elected the fair value measurement alternative to account for this investment (see Note 27 (“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 .

On November 19, 2024, subject to the same terms and conditions of our initial investment, we invested an additional $ 1.2 million and as a result, the carrying value of our investment in Ionada at December 31, 2024 was $ 5.5 million, including cumulative transaction costs of $ 0.5 million, and is included in other assets in our consolidated balance sheets.

There were no upward adjustments, impairments or downward adjustments to the carrying value of the investment as of December 31, 2024.

Subject to certain contractual conditions, we may invest on the same terms and conditions as the initial and secondary investments, $ 1.3 million in November 2025 and $ 4.8 million prior to July 2026, for a fully diluted ownership interest of 15 % and 24 %, respectively.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Accrued Liabilities

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

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

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

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

During the years ended December 31, 2024 and 2023, we deferred revenue of $ 18.1 million and $ 15.4 million, respectively, and recognized revenue of $ 15.0 million and $ 16.5 million, respectively.

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

Long–Term Debt

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Credit Facility

6.625 % senior notes due September 2032:

Principal outstanding

Unamortized debt issuance costs

6.25 % senior notes due April 2028:

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Long-term debt

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Credit Facility

First Amendment to the Amended and Restated Credit Agreement

On August 28, 2024, we amended our Amended and Restated Credit Agreement to, among other things:

● increase the borrowing capacity of the Credit Facility from $ 750.0 million to $ 1.1 billion;

● increase the portion of the Credit Facility available for the issuance of swing line loans from $ 75.0 million to $ 110.0 million;

● increase the cash dominion trigger threshold amount from $ 75.0 million to $ 110.0 million;

● add certain financial institutions as lenders under the Credit Facility;

● join a newly formed wholly owned subsidiary of Archrock Services, L.P.

as a guarantor and grantor under the Credit Facility;

● modify certain other covenants to which we are subject.

We incurred $ 2.6 million in transaction costs related to the First Amendment to the Amended and Restated Credit Agreement, which were included in other assets in our consolidated balance sheets and are being amortized over the remaining term of the Credit Facility.

Amended and Restated Credit Agreement

On May 16, 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 if any portion of the 2027 Notes and 2028 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;

● 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 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 consolidated statements of operations during the year ended December 31, 2023.

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

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.

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

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

Additionally, all undrawn capacity on our Credit Facility was available for borrowings as of December 31, 2024.

Amendment to the Credit Facility

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

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

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

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

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

Other Facility Terms

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

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

Other Facility Terms

As of December 31, 2024, our Credit Facility had an aggregate borrowing commitment of $ 1.1 billion.

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 $ 750.0 million.

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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.

We incurred $ 2.1 million, $ 1.7 million and $ 1.9 million in commitment fees during the years ended December 31, 2024, 2023 and 2022, 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:

The Amended and Restated Credit 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 Amended and Restated Credit Agreement also contains various covenants requiring mandatory prepayments from the net cash proceeds of certain asset transfers.

As of December 31, 2024, the following consolidated financial ratios, as defined in our Amended and Restated Credit Agreement, were required:

EBITDA to Interest Expense

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(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.

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 were 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.

The 2032 Notes have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the U.S.

except pursuant to a registration exemption under the Securities Act and applicable state securities laws.

We offered and issued the 2032 Notes only to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to certain non-U.S.

persons outside the U.S.

in accordance with Regulation S under the Securities Act.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The 2032 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by us, and by all of our existing subsidiaries, other than Archrock Partners Finance Corp., which is the issuer of the 2032 Notes.

The 2032 Notes and the guarantees rank equally in right of payment with all of our and the guarantors’ existing and future senior unsecured indebtedness.

We may, at our option, redeem all of part of the 2032 Notes at any time on or after September 1, 2027, at specified redemption prices, plus any accrued and unpaid interest.

In addition, prior to September 1, 2027, we may redeem up to 40 % of the 2032 Notes, in an amount equal to the net cash proceeds of one or more equity offerings, at a specified redemption price, plus any accrued and unpaid interest.

We may also redeem all or part of the 2032 Notes at any time prior to September 1, 2027 at a redemption price equal to the principal amount and a make whole premium, plus any accrued and unpaid interest.

2027 Notes Tender Offer

In connection with the 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 during the year ended December 31, 2024.

2027 Notes and 2028 Notes

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

In August 2024, we completed a cash tender offer to purchase $ 200 million aggregate principal amount of the 2027 Notes, after which $ 300 million aggregate principal amount of the 2027 Notes remained outstanding.

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

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

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

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

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 and the guarantees rank equally in right of payment with all of our and the guarantors’ existing and future senior unsecured 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.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Maturities of Long–Term Debt

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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.

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.

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

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

As of both December 31, 2024 and 2023, we accrued $ 8.6 million and $ 3.9 million, respectively, 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.

1 unchanged sentence

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.

As of both December 31, 2024 and 2023, $ 0.6 million of the tax contingencies mentioned above related to audits that have advanced from the audit review phase to the contested hearing phase.

As of December 31, 2024, $ 4.3 million of the tax contingencies mentioned above had an offsetting indemnification asset.

None were indemnified as of December 31, 2023.

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

3 unchanged sentences

Stockholders’ Equity

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.

TOPS Acquisition

On August 30, 2024, we completed the TOPS Acquisition and issued approximately 6.9 million shares of common stock to the sellers as part of the acquisition purchase price.

The acquisition date fair value was $ 139.1 million and is reflected in common stock and additional paid-in capital in our consolidated statements of equity.

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

Share Repurchases

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.

On April 27, 2023, our Board of Directors authorized a share repurchase program that allowed us to repurchase up to $ 50.0 million of outstanding common stock.

Under the 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.

On April 25, 2024, our Board of Directors approved an extension of the Share Repurchase Program upon expiry of the current authorization on April 27, 2024, for an additional 24-month period.

In connection with the extension, the Board of Directors replenished the amount of shares authorized for repurchase under the Share Repurchase Program, resulting in available capacity of $ 50.0 million at that time.

Through December 31, 2024, we had repurchased 1,483,200 common shares at an average price of $ 14.97 per share for an aggregate of $ 22.2 million.

As of December 31, 2024, $ 37.9 million remained available for purchase under the Share Repurchase Program.

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)

Shares Withheld to Cover

The 2020 Plan allows 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.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The following table summarizes shares repurchased:

December 31, 2024

Total cost of shares repurchased

(dollars in thousands, except per share amounts)

Total Number of Shares Repurchased

Average Price per Share

Total Cost of Shares Repurchased

Shares repurchased under the Share Repurchase Program

Shares withheld related to net settlement of equity awards

December 31, 2023

(dollars in thousands, except per share amounts)

Total Number of Shares Repurchased

Average Price per Share

Total Cost of Shares Repurchased

Shares repurchased under the Share Repurchase Program

Shares withheld related to net settlement of equity awards

At–the–Market Continuous Equity Offering Program

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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.

There were no shares of common stock sold during the years ended December 31, 2024 and 2023.

Archrock, Inc.

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

Year Ended December 31,

(in thousands)

December 31, 2022

Beginning accumulated other comprehensive loss

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(3) Services revenue within aftermarket services is recognized over time.

OTC parts and components sales revenue is recognized at a point in time.

OTC parts and components sales and other revenue is recognized at a point in time.

Performance Obligations

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Total stock-based compensation expense

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

Archrock, Inc.

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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.

The 2020 Plan allows 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, 2024, 2023 and 2022, we withheld 392,177 shares valued at $ 6.6 million, 383,128 shares valued at $ 3.8 million and 283,024 shares valued at $ 2.4 million, respectively, to cover tax withholding.

On February 19, 2025, the Compensation Committee approved an amendment to the 2020 Plan that provides for the delegation to a subcommittee, which may be comprised of one or more officers of the Company, the authority to grant awards to employees who are not subject to Section 16 of the Exchange Act, subject to certain award size and other limitations.

Restricted Stock Awards and Performance–Based Restricted Stock Units

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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.

We have performance–based restricted stock units whose vesting is dependent on 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, as well as performance–based restricted stock units whose vesting is contingent on meeting various horsepower utilization targets 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 250 % 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.

The fair value of the horsepower utilization performance-based restricted stock units is equal to the fair value of our common stock at the grant date.

The fair value of the total shareholder return 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.

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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:

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The assumptions that were used to estimate the fair value of our restricted stock units and performance–based stock units are as follows:

Year Ended December 31,

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Grant-date fair value

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

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

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Non-vested restricted stock and performance-based restricted stock units, December 31, 2023

Adjustment for performance

Non-vested restricted stock and performance-based restricted stock units, December 31, 2024

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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 %.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

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

1 unchanged sentence

Non-vested cash-settled performance units, December 31, 2023

Adjustment for performance

Non-vested cash-settled performance units, December 31, 2024

The grant date fair value of the cash settled performance units granted during the years ended December 31, 2024, 2023 and 2022 was $ 2.1 million, $ 1.9 million and $ 2.5 million, respectively.

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

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, 2024 and 2022 was $ 4.3 million and $ 1.2 million, respectively.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

As of December 31, 2024, we expect $ 8.4 million of unrecognized compensation cost related to our non–vested liability awards to be recognized over the weighted–average period of 1.5 years.

Time-Based Cash or Equity Settled Performance Units

In 2024, we issued time-based equity awards that vest in three equal installments following the grant date.

These awards are payable in either cash or restricted stock units, at the employees’ option, based on the value of the Company’s common stock at the vesting date.

These awards are subject to certain qualifying retirement provisions, are classified as liability awards and expense recognized 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.

During the year ended December 31, 2024, 187,500 restricted stock units were granted, with a total grant date fair value of $ 3.0 million, none of which vested during the year.

As of December 31, 2024, we expect $ 1.8 million of unrecognized compensation cost related to non-vested restricted stock units over a weighted-average period of 1.5 years.

Employee Stock Purchase Plan

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As of December 31, 2024, 281,067 shares remained available for purchase under the ESPP.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Directors’ Stock and Deferral Plan

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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 make discretionary matching contributions to each participant’s account at a rate of 100 % of each participant’s contributions up to 6 % of eligible compensation as of July 2024.

Prior to July 2024, we made 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 $ 5.9 million, $ 5.2 million and $ 4.9 million during the years ended December 31, 2024, 2023 and 2022, respectively.

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

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

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

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Impairment recorded on idle compressors retired from the active fleet

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

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.

We did not incur restructuring charges during the year ended December 31, 2024, and we do no t expect to incur additional restructuring charges related to these restructuring activities .

The following table presents restructuring charges incurred by segment:

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Total restructuring charges

Pandemic restructuring

Property restructuring

Other restructuring

Total restructuring charges

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

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The following table presents restructuring charges incurred by cost type:

Year Ended December 31,

(in thousands)

Severance costs

December 31, 2023

Organizational Restructuring

Pandemic restructuring

Total severance costs

Property restructuring

Organizational costs

Other restructuring costs

Total restructuring costs

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

(in thousands)

Balance at December 31, 2022

Charges incurred

Balance at December 31, 2023

Current and Deferred Tax Provision

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Provision for income taxes

The provision for income taxes for the years ended December 31, 2024, 2023 and 2022 resulted in effective tax rates of 26 %, 26 % and 27 %, respectively.

During the years ended December 31, 2024, 2023 and 2022, we paid income taxes, net of $2.2 million, $1.3 million and $0.4 million, respectively.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

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

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

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Basis difference in unconsolidated affiliate

Goodwill and intangible assets

Accrued liabilities

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federal and $ 162.9 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.

In connection with the state NOL deferred tax asset, we recorded a valuation allowance of $ 0.5 million as of both December 31, 2024 and 2023.

At December 31, 2024, we had a U.S.

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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.

We recorded $ 0.3 million of potential expenses or releases of interest or penalties in our consolidated statements of operations during 2024, $ 0.3 million of potential expenses or releases of interest or penalties during 2023, and no potential interest expense and penalties during 2022.

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.

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

federal jurisdiction and in numerous state jurisdictions.

federal income tax returns are generally subject to examination for up to three years after filing the returns.

federal and state jurisdictions.

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

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.

Due to our NOL carryforwards, our U.S.

federal income tax returns can be examined back to the inception of our NOL carryforwards;

federal and state 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.

We are not currently involved in federal nor any state income tax audits.

As of December 31, 2024, we believe it is reasonably possible that $ 3.6 million of our unrecognized tax benefits, including penalties, interest and discontinued operations, will be reduced prior to December 31, 2025 due to the settlement of audits or the expiration of statutes of limitations or both.

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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).

The Organization for Economic Co-operation and Development 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.

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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.

Based on enacted law we have determined that Pillar 2 does not have a material impact on our Financial Statements.

Earnings per Common Share

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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.

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 have been 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:

3 unchanged sentences

Net income attributable to common stockholders

Allocation of earnings to cash or share settled restricted stock units

Diluted net income attributable to common stockholders

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

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

Anti-dilutive shares excluded from diluted income per common share

Stock options

Performance-based restricted stock units

Net dilutive potential common shares issuable

Archrock, Inc.

2 unchanged sentences

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.

We did not use derivative instruments for trading or other speculative purposes.

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

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Gain recognized in interest expense

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

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

See Note 18 (“Stockholders’ Equity”) for further details on our derivative instruments.

Fair Value Measurements

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

As of December 31, 2024, the fair value of our investment in ECOTEC is $ 14.7 million.

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

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.

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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 .

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

Year Ended December 31,

(in thousands)

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Balance at end of period

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

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Interest Rate Swaps

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.

Included in other expense, net in our consolidated statements of operations.

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”)).

As of December 31, 2024 and 2023, we had a fully diluted ownership equity interest in Ionada of 12 % and 10 %, respectively, (see Note 13 (“Investments in Unconsolidated Affiliates”)).

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

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

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

(in thousands)

Purchases of equity interests

Transaction costs capitalized as investment activity

Initial cost basis

Carrying value

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

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

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

On November 19, 2024, subject to the same terms and conditions of our initial investment of $ 3.8 million, we invested an additional $ 1.2 million dollars and as a result, the carrying value of our investment in Ionada at December 31, 2024 was $ 5.5 million, which includes cumulative transaction costs of $ 0.5 million.

There were no upward adjustments, impairments or downward adjustments to the carrying value of the investment as of December 31, 2024.

Compression Fleet

During the years ended December 31, 2024 and 2023, we recorded nonrecurring fair value measurements related to our idle compressors.

Our estimate of the compressors’ fair value was primarily 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.

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:

The fair value of our impaired compression fleet impaired is as follows:

(in thousands)

Impaired compressors

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

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

Impaired compression fleet

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

Additional quantitative information related to our significant unobservable inputs follows:

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Deferred tax liabilities

Liabilities of discontinued operations

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

Liabilities of discontinued operations

The acquisition of Exterran Corporation by Enerflex, Ltd.

1 unchanged sentence

Related Party Transactions

During the year ended December 31, 2024, we made purchases of $ 0.5 million from our unconsolidated affiliate ECOTEC for use in our operations.

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

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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.:

We operate two segments 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 contract operations segment 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:

(in thousands)

Capital expenditures

(1) Corporate–related items.

The CODM of Archrock is our President & CEO.

Our CODM evaluates the performance of our segments and allocates resources primarily based on adjusted gross margin, defined as revenue less cost of sales, exclusive of depreciation and amortization, which are key components of segment operations.

Adjusted gross margin is the primary measure used by our CODM to evaluate segment performance because it focuses on the current performance of segment operations and excludes the impact of the prior historical costs of 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.

Our CODM considers adjusted gross margin forecast to actual results and period over period financial variances in conjunction with product and customer service metrics and market trends when assessing segment performance and deciding how to allocate resources.

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.

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:

Summarized financial information for our reporting segments is shown below:

(in thousands)

Contract operations assets

Aftermarket services assets

Segment assets

Other assets (1)

Assets of discontinued operations

(1) Corporate–related items.

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

Cost of sales, exclusive of depreciation and amortization

Adjusted gross margin

Cost of sales, exclusive of depreciation and amortization

Adjusted gross margin

Cost of sales, exclusive of depreciation and amortization

Adjusted gross margin

(1) Segment revenue includes only sales to external customers.

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

Year Ended December 31,

(in thousands)

Total gross margin

Total revenues

Cost of sales, exclusive of depreciation and amortization

Depreciation and amortization

Adjusted gross margin

The following table reconciles total adjusted gross margin to income before income taxes:

Year Ended December 31,

(in thousands)

Total adjusted gross margin

Selling, general and administrative

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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

Income before income taxes

Archrock, Inc.

Notes to Consolidated Financial Statements (continued)

The following table reconciles capital expenditures by segment to total capital expenditures:

Year Ended December 31,

(in thousands)

Contract Operations

Aftermarket services

Segment capital expenditures

Total capital expenditures

(1) Corporate–related items.

The following table reconciles total assets by segment to total assets per the consolidated balance sheets:

(in thousands)

Contract operations assets

Aftermarket services assets

Segment assets

Other assets (1)

Assets of discontinued operations

(1) Corporate–related items.

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

What changed 10-K

Item 9A. Controls and Procedures