TABLE OF CONTENTS



	Page
Glossary	3
Forward-Looking Statements	4

Part I. Financial Information
Item 1. Financial Statements (unaudited)	5
Condensed Consolidated Balance Sheets	5
Condensed Consolidated Statements of Operations	6
Condensed Consolidated Statements of Comprehensive Income	7
Condensed Consolidated Statements of Equity	8
Condensed Consolidated Statements of Cash Flows	109
Notes to Unaudited Condensed Consolidated Financial Statements	1110
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2520
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3325
Item 4. Controls and Procedures	3325

Part II. Other Information
Item 1. Legal Proceedings	3527
Item 1A. Risk Factors	3527
Item 2. ~~Purchases~~Unregistered Sales of Equity Securities ~~by Issuer~~ and ~~Affiliated Purchasers~~Use of Proceeds	3527
Item 3. Defaults Upon Senior Securities	3527
Item 4. Mine Safety Disclosures	3527
Item 5. Other Information	3527
Item 6. Exhibits	3628

Signatures	3729

GLOSSARY

The following terms and abbreviations appearing in the text of this report have the meanings indicated below.


~~2021~~2022 Form 10-K	Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022
~~2027 Notes~~2023 Share Repurchase Program	~~$500.0~~Share repurchase program approved by our Board of Directors on April 27, 2023 that allows us to repurchase up to $50.0 million of ~~6.875% senior notes due April 2027, issued in March 2019~~
~~2028 Notes~~	~~$800.0 million of 6.25% senior notes due April 2028, $500.0 million of which was issued in December 2019, $300.0 million of which was issued in December 2020~~outstanding common stock.
Archrock, our, we, us	Archrock, Inc., individually and together with its wholly-owned subsidiaries
~~ATM Agreement~~	Equity Distribution Agreement, dated February 23, 2021, entered into with Wells Fargo Securities, LLC and BofA Securities, Inc., as sales agents, relating to the at-the-market offer and sale of shares of our common stock from time to time
Credit Facility	$750.0 million asset-based revolving credit facility due November 2024, as governed by Amendment No. 3 to Credit Agreement, dated February 22, 2021, which amended that Credit Agreement, dated as of March 30, 2017
ECOTEC	Ecotec International Holdings, LLC
~~ERP~~	~~Enterprise Resource Planning~~
ESPP	Employee Stock Purchase Plan
Exchange Act	Securities Exchange Act of 1934, as amended
~~February 2021 Disposition~~	~~Sale completed in February 2021 of certain contract operations customer service agreements, compressors and other assets~~
Financial Statements	Condensed consolidated financial statements included in Part I Item 1 of this Quarterly Report on Form 10-Q
GAAP	U.S. generally accepted accounting principles
Hilcorp	Hilcorp Energy Company
~~LIBOR~~	~~London Interbank Offered Rate~~
~~May 2022 Disposition~~	~~Sale completed in May 2022 of certain contract operations customer service agreements, compressors and other assets~~
Old Ocean Reserves	Old Ocean Reserves, LP, formerly JDH Capital Holdings, L.P.
OTC	Over-the-counter, as related to aftermarket services parts and components
~~ROU~~	~~Right-of-use, as related to the lease model under Accounting Standards Codification Topic 842 Leases~~
SEC	U.S. Securities and Exchange Commission
SG&A	Selling, general and administrative
U.S.	United States of America
WACC	Weighted average cost of capital

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~~FORWARD-LOOKING~~FORWARD–LOOKING STATEMENTS

This Quarterly Report on Form ~~10-Q~~10–Q (this “Form 10-Q”) contains ~~“forward-looking~~“forward–looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this ~~Quarterly Report on~~ Form ~~10-Q~~10–Q are ~~forward-looking~~forward–looking statements within the meaning ~~of Section 21E~~ of the Exchange Act, including, without limitation, our business growth strategy and projected costs; future financial position; the sufficiency of available cash flows to fund continuing operations and pay dividends; the expected amount of our capital expenditures; anticipated cost savings; future revenue, gross margin and other financial or operational measures related to our business; the future value of our equipment; and plans and objectives of our management for our future operations. You can identify many of these statements by words such as “believe,” “expect,” “intend,” “project,” “anticipate,” “estimate,” “will continue” or similar words or the negative thereof.

Such ~~forward-looking~~forward–looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this ~~Quarterly Report on~~ Form ~~10-Q.~~10–Q. Although we believe that the expectations reflected in these ~~forward-looking~~forward–looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. Known material factors that could cause our actual results to differ materially from the expectations reflected in these ~~forward-looking~~forward–looking statements include the risk factors described in our ~~2021~~2022 Form ~~10-K~~10–K and those set forth from time to time in our filings with the SEC, which are available through our website at www.archrock.com and through the SEC’s website at www.sec.gov.

All ~~forward-looking~~forward–looking statements included in this ~~Quarterly Report on~~ Form ~~10-Q~~10–Q are based on information available to us on the date of this ~~Quarterly Report on~~ Form ~~10-Q.~~10–Q. Except as required by law, we undertake no obligation to publicly update or revise any ~~forward-looking~~forward–looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral ~~forward-looking~~forward–looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this ~~Quarterly Report on~~ Form ~~10-Q.~~10–Q.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Archrock, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value and share amounts)

(unaudited)


	June 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	1,950	$	1,569	$	3,051	$	1,566
Accounts receivable, trade, net of allowance of $2,299 and $2,152, respectively		129,323		104,931
Accounts receivable, net of allowance of $1,318 and $1,674, respectively						110,994		137,544
Inventory		77,636		72,869		89,632		84,622
Other current assets		8,126		7,201		6,946		8,228
Total current assets		217,035		186,570		210,623		231,960
Property, plant and equipment, net		2,211,744		2,226,526		2,246,245		2,199,253
Operating lease ROU assets		16,796		17,491
Operating lease right-of-use assets						16,111		16,706
Intangible assets, net		42,187		47,887		35,196		37,077
Contract costs, net		28,784		25,418		35,998		34,736
Deferred tax assets		41,096		47,879		29,146		33,353
Other assets		34,485		28,384		38,307		37,079
Noncurrent assets associated with discontinued operations		9,199		9,811
Non-current assets of discontinued operations						8,280		8,586
Total assets	$	2,601,326	$	2,589,966	$	2,619,906	$	2,598,750

Liabilities and Equity
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade	$	78,108	$	38,920	$	78,999	$	64,324
Accrued liabilities		66,966		82,517		92,213		76,915
Deferred revenue		6,455		3,817		5,889		7,332
Total current liabilities		151,529		125,254		177,101		148,571
Long-term debt		1,532,438		1,530,825		1,547,274		1,548,334
Operating lease liabilities		14,987		15,940		14,170		14,861
Deferred tax liabilities		1,332		1,136		934		854
Other liabilities		19,254		17,505		19,509		17,569
Noncurrent liabilities associated with discontinued operations		7,868		7,868
Non-current liabilities of discontinued operations						7,868		7,868
Total liabilities		1,727,408		1,698,528		1,766,856		1,738,057
Commitments and contingencies (Note 18)

Commitments and contingencies (Note 6)

Equity:
Preferred stock: $0.01 par value per share, 50,000,000 shares authorized, 0 issued		—		—
Common stock: $0.01 par value per share, 250,000,000 shares authorized, 163,385,390 and 161,482,852 shares issued, respectively		1,633		1,615
Preferred stock: $0.01 par value, 50,000,000 shares authorized, zero issued						—		—
Common stock: $0.01 par value 250,000,000 shares authorized, 164,903,900 and 163,439,013 shares issued, respectively						1,649		1,634
Additional paid-in capital		3,450,603		3,440,059		3,460,259		3,456,777
Accumulated other comprehensive loss		—		(984)
Accumulated deficit		(2,489,814)		(2,463,114)		(2,516,500)		(2,509,133)
Treasury stock: 7,740,919 and 7,417,401 common shares, at cost, respectively		(88,504)		(86,138)
Treasury stock: 8,207,390 and 7,810,548 common shares, at cost, respectively						(92,358)		(88,585)
Total equity		873,918		891,438		853,050		860,693
Total liabilities and equity	$	2,601,326	$	2,589,966	$	2,619,906	$	2,598,750

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

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Archrock, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2022		2021		2022		2021		2023		2022
Revenue:
Contract operations	$	166,298	$	163,865	$	329,954	$	329,899	$	187,745	$	163,656
Aftermarket services		49,530		31,750		83,075		61,147		42,089		33,545
Total revenue		215,828		195,615		413,029		391,046		229,834		197,201
Cost of sales (excluding depreciation and amortization):
Contract operations		68,355		61,387		132,856		122,752		79,482		64,501
Aftermarket services		41,710		27,490		70,348		53,273		33,908		28,638
Total cost of sales (excluding depreciation and amortization)		110,065		88,877		203,204		176,025		113,390		93,139
Selling, general and administrative		27,691		26,077		55,464		51,161		26,425		27,773
Depreciation and amortization		41,356		44,193		84,395		89,905		40,181		43,039
Long-lived and other asset impairment		4,647		2,960		12,063		10,033		2,569		7,416
Restructuring charges		—		743		—		1,640		1,047		—
Interest expense		24,456		25,958		49,702		57,203		26,581		25,246
Gain on sale of assets, net		(18,948)		(3,124)		(21,060)		(14,156)		(3,605)		(2,112)
Other (income) expense, net		497		(82)		533		(1,971)
Other expense (income), net										603		36
Income before income taxes		26,064		10,013		28,728		21,206		22,643		2,664
Provision for income taxes		9,318		1,261		10,261		8,285		6,158		943
Net income	$	16,746	$	8,752	$	18,467	$	12,921	$	16,485	$	1,721

Basic and diluted net income per common share	$	0.11	$	0.06	$	0.12	$	0.08
Basic and diluted earnings per common share									$	0.10	$	0.01

Weighted average common shares outstanding:
Basic		153,033		152,033		152,857		151,537		154,116		152,690
Diluted		153,164		152,203		152,982		151,699		154,281		152,810

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

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Archrock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2022		2021		2022		2021		2023		2022
Net income	$	16,746	$	8,752	$	18,467	$	12,921	$	16,485	$	1,721
Other comprehensive income, net of tax:
Interest rate swap gain, net of reclassifications to earnings		—		966		574		1,962		—		574
Amortization of dedesignated interest rate swap		—		—		410		—		—		410
Total other comprehensive income, net of tax		—		966		984		1,962		—		984
Comprehensive income	$	16,746	$	9,718	$	19,451	$	14,883	$	16,485	$	2,705

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

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Archrock, Inc.

Condensed Consolidated Statements of Equity

(in thousands, except ~~share~~shares and per share amounts)

(unaudited)

Accumulated

Common

Additional

Other

Treasury

Stock

Paid-in

Comprehensive

Accumulated

Stock


Amount

Shares

Capital

Loss

Deficit

Amount

Shares

Total
Balance at March 31, 2021

$
1,613

161,323,492

$
3,430,910

$
(4,010)

$
(2,419,974)

$
(85,415)

(7,263,173)

$
923,124
Treasury stock purchased

(4)

(383)

(4)
Cash dividends ($0.145 per common share)









(22,331)



(22,331)
Shares issued under ESPP

16,062

136









136
Stock-based compensation, net of forfeitures

3,178







(14,893)

3,178
Comprehensive income















Net income









8,752





8,752
Interest rate swap gain, net of reclassifications to earnings







966







966
Balance at June 30, 2021

$
1,613

161,339,554

$
3,434,224

$
(3,044)

$
(2,433,553)

$
(85,419)

(7,278,449)

$
913,821

Balance at March 31, 2022

$
1,629

162,919,584

$
3,443,261

$
—

$
(2,484,066)

$
(88,501)

(7,698,812)

$
872,323
Treasury stock purchased











(3)

(303)

(3)
Cash dividends ($0.145 per common share)









(22,494)





(22,494)
Shares issued under ESPP

—

18,786

146









146
Stock-based compensation, net of forfeitures

—

—

2,970







(41,804)

2,970
Net proceeds from issuance of common stock

4

447,020

4,226

4,230
Comprehensive income















Net income









16,746





16,746
Balance at June 30, 2022

$
1,633

163,385,390

$
3,450,603

$
—

$
(2,489,814)

$
(88,504)

(7,740,919)

$
873,918

~~Table of Contents~~

Accumulated

Common

Additional

Other

Treasury

Stock

Paid-in

Comprehensive

Accumulated

Stock


Amount

Shares

Capital

Loss

Deficit

Amount

Shares

Total
Balance at December 31, 2020

$
1,600

160,014,960

$
3,424,624

$
(5,006)

$
(2,401,988)

$
(83,673)

(7,052,769)

$
935,557
Treasury stock purchased











(1,746)

(184,776)

(1,746)
Cash dividends ($0.290 per common share)









(44,486)





(44,486)
Shares issued under ESPP

—

44,116

371









371
Stock-based compensation, net of forfeitures

9

923,330

5,832







(40,904)

5,841
Net proceeds from issuance of common stock

4

357,148

3,397

3,401
Comprehensive income













Net income







12,921





12,921
Interest rate swap gain, net of reclassifications to earnings

1,962

1,962
Balance at June 30, 2021

$
1,613

161,339,554

$
3,434,224

$
(3,044)

$
(2,433,553)

$
(85,419)

(7,278,449)

$
913,821

Balance at December 31, 2021

$
1,615

161,482,852

$
3,440,059

$
(984)

$
(2,463,114)

$
(86,138)

(7,417,401)

$
891,438
Treasury stock purchased











(2,366)

(272,706)

(2,366)
Cash dividends ($0.290 per common share)









(45,167)





(45,167)
Shares issued under ESPP

—

38,846

295









295
Stock-based compensation, net of forfeitures

14

1,416,672

6,023







(50,812)

6,037
Net proceeds from issuance of common stock

4

447,020

4,226

4,230
Comprehensive income















Net income









18,467





18,467
Interest rate swap gain, net of reclassifications to earnings







574







574
Amortization of dedesignated interest rate swap

410

410
Balance at June 30, 2022

$
1,633

163,385,390

$
3,450,603

$
—

$
(2,489,814)

$
(88,504)

(7,740,919)

$
873,918


								Accumulated
				Additional				Other
	Common Stock			Paid-in		Accumulated		Comprehensive		Treasury Stock
		Amount	Shares	Capital		Deficit		Loss			Amount	Shares	Total
Balance at December 31, 2021	$	1,615	161,482,852	$	3,440,059	$	(2,463,114)	$	(984)	$	(86,138)	(7,417,401)	$	891,438
Treasury stock purchased		—	—		—		—		—		(2,363)	(272,403)		(2,363)
Cash dividends ($0.145 per common share)		—	—		—		(22,673)		—		—	—		(22,673)
Shares issued under ESPP		—	20,060		149		—		—		—	—		149
Stock-based compensation, net of forfeitures		14	1,416,672		3,053		—		—		—	(9,008)		3,067
Comprehensive income:														—
Net income		—	—		—		1,721		—		—	—		1,721
Other comprehensive income		—	—		—		—		984		—	—		984
Balance at March 31, 2022	$	1,629	162,919,584	$	3,443,261	$	(2,484,066)	$	—	$	(88,501)	(7,698,812)	$	872,323

Balance at December 31, 2022	$	1,634	163,439,013	$	3,456,777	$	(2,509,133)	$	—	$	(88,585)	(7,810,548)	$	860,693
Treasury stock purchased		—	—		—		—		—		(3,773)	(383,766)		(3,773)
Cash dividends ($0.15 per common share)		—	—		—		(23,852)		—		—	—		(23,852)
Shares issued under ESPP		1	20,251		169		—		—		—	—		170
Stock-based compensation, net of forfeitures		14	1,444,636		3,313		—		—		—	(13,076)		3,327
Net income		—	—		—		16,485		—		—	—		16,485
Balance at March 31, 2023	$	1,649	164,903,900	$	3,460,259	$	(2,516,500)	$	—	$	(92,358)	(8,207,390)	$	853,050

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

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Archrock, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Six Months Ended

June 30,


2022

2021
Cash flows from operating activities:




Net income

$
18,467

$
12,921
Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

84,395

89,905
Long-lived and other asset impairment

12,063

10,033
Inventory write-downs

721

511
Amortization of operating lease ROU assets

1,575

1,891
Amortization of deferred financing costs

2,576

7,551
Amortization of debt premium

(1,003)

(1,003)
Amortization of dedesignated interest rate swap

410

—
Interest rate swaps

631

2,169
Stock-based compensation expense

6,037

5,841
Provision for credit losses

365

(215)
Gain on sale of assets, net

(4,344)

(8,161)
Gain on sale of business

(16,716)

(5,995)
Deferred income tax provision

9,473

7,995
Amortization of contract costs

9,249

10,752
Deferred revenue recognized in earnings

(11,541)

(5,048)
Change in assets and liabilities:




Accounts receivable, trade

(30,370)

(2,661)
Inventory

(5,779)

(3,569)
Other assets

(1,182)

(244)
Contract costs, net

(13,007)

(6,467)
Accounts payable and other liabilities

13,051

6,358
Deferred revenue

14,032

4,068
Other

421

(15)
Net cash provided by operating activities

89,524

126,617
Cash flows from investing activities:




Capital expenditures

(106,066)

(38,749)
Proceeds from sale of business

55,523

18,795
Proceeds from sale of property, plant and equipment and other assets

9,728

18,178
Proceeds from insurance and other settlements

2,781

910
Investments in unconsolidated entities

(8,000)

—
Net cash used in investing activities

(46,034)

(866)
Cash flows from financing activities:




Borrowings of long-term debt

405,733

343,251
Repayments of long-term debt

(404,500)

(419,751)
Payments for debt issuance costs

—

(2,407)
Payments for settlement of interest rate swaps that include financing elements

(1,334)

(2,169)
Dividends paid to stockholders

(45,167)

(44,486)
Net proceeds from issuance of common stock

4,230

3,401
Proceeds from stock issued under ESPP

295

371
Purchases of treasury stock

(2,366)

(1,746)
Net cash used in financing activities

(43,109)

(123,536)
Net increase in cash and cash equivalents

381

2,215
Cash and cash equivalents, beginning of period

1,569

1,097
Cash and cash equivalents, end of period

$
1,950

$
3,312


	Three Months Ended
	March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	16,485	$	1,721
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		40,181		43,039
Long-lived and other asset impairment		2,569		7,416
Non-cash restructuring charges		927		—
Unrealized change in fair value of investment in unconsolidated affiliate		254		—
Inventory write-downs		216		294
Amortization of operating lease right-of-use assets		823		780
Amortization of deferred financing costs		1,288		1,288
Amortization of debt premium		(501)		(502)
Amortization of capitalized implementation costs		597		—
Amortization of dedesignated interest rate swap		—		410
Interest rate swaps		—		631
Stock-based compensation expense		3,327		3,067
Provision for (benefit from) credit losses		(340)		108
Gain on sale of assets, net		(3,605)		(2,112)
Deferred income tax provision		5,881		886
Amortization of contract costs		5,090		4,476
Deferred revenue recognized in earnings		(4,476)		(3,115)
Changes in operating assets and liabilities:
Accounts receivable, net		7,632		(15,084)
Inventory		(4,131)		(1,021)
Other assets		609		444
Contract costs		(6,352)		(5,320)
Accounts payable and other liabilities		18,219		32,718
Deferred revenue		3,179		6,351
Other		(16)		97
Net cash provided by operating activities		87,856		76,572

Cash flows from investing activities:
Capital expenditures		(84,392)		(44,858)
Proceeds from sale of property, equipment and other assets		28,726		5,437
Proceeds from insurance and other settlements		—		2,763
Investments in unconsolidated entities		(2,000)		—
Net cash used in investing activities		(57,666)		(36,658)

Cash flows from financing activities:
Borrowings of long-term debt		158,850		172,500
Repayments of long-term debt		(160,100)		(186,500)
Payments for settlement of interest rate swaps that include financing elements		—		(1,334)
Dividends paid to stockholders		(23,852)		(22,673)
Proceeds from stock issued under ESPP		170		149
Purchases of treasury stock		(3,773)		(2,363)
Net cash used in financing activities		(28,705)		(40,221)
Net increase (decrease) in cash and cash equivalents		1,485		(307)
Cash and cash equivalents, beginning of period		1,566		1,569
Cash and cash equivalents, end of period	$	3,051	$	1,262

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

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements

~~(unaudited)~~

1. Description of Business and Basis of Presentation

We are an energy infrastructure company with a ~~primary~~pure play focus on midstream natural gas compression. We are the leading 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 2two business segments: contract operations and aftermarket services. Our predominant segment, contract operations, primarily includes designing, sourcing, owning, installing, operating, servicing, repairing and maintaining our owned fleet of natural gas compression equipment to provide natural gas compression services to our customers. In our aftermarket services business, we sell parts and components and provide operations, maintenance, overhaul and reconfiguration services to customers who own compression equipment.

The accompanying unaudited ~~condensed~~ consolidated financial statements ~~included herein~~ have been prepared in accordance with ~~GAAP~~the instructions to Form 10-Q and ~~the rules and regulations of the SEC. Certain~~do not include all information and ~~footnote~~ disclosures ~~normally included in financial statements prepared in accordance with GAAP are not~~ required ~~in these interim financial statements and have been condensed or omitted. Management believes that the~~by GAAP. Therefore, this information furnished reflects all normal recurring adjustments necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods indicated. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with ~~the~~our consolidated financial statements ~~presented~~and notes contained in our ~~2021~~2022 Form ~~10-K, which contains~~10K. The information furnished herein reflects all adjustments that are, in the opinion of management, of a ~~more comprehensive summary~~normal recurring nature and considered necessary for a fair statement of ~~our accounting policies. The~~the results of the interim periods reported. All intercompany balances and transactions have been eliminated in consolidation. Operating results ~~reported herein~~for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for ~~a full year.~~

~~2. Business Transactions~~

~~May 2022 Disposition~~the year ending December 31, 2023.

In May 2022, we completed the sale of certain contract operations customer service agreements and approximately 380 compressors, comprising approximately 70,000 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 received cash consideration of $55.5 million for the sale and recorded a gain on the sale of $16.7 million in gain on sale of assets, net in our condensed consolidated statements of operations during the three and six months ended June 30, 2022.

~~February 2021 Disposition~~

In February 2021, we completed the sale of certain contract operations customer service agreements and approximately 300 compressors, comprising approximately 40,000 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 recorded a gain on the sale of $6.0 million in gain on sale of assets, net in our condensed consolidated statements of operations during the six months ended June 30, 2021.

3.2. Inventory

(in thousands)

June 30, 2022

December 31, 2021
Parts and supplies

$
61,571

$
63,628
Work in progress

16,065

9,241
Inventory

$
77,636

$
72,869

Inventory is comprised of the following:


	March 31,		December 31,
(in thousands)	2023		2022
Parts and supplies	$	73,573	$	70,228
Work in progress		16,059		14,394
Inventory	$	89,632	$	84,622

~~Table of Contents~~

4.3. Property, Plant and Equipment ~~net~~

(in thousands)

June 30, 2022

December 31, 2021
Compression equipment, facilities and other fleet assets

$
3,259,841

$
3,273,770
Land and buildings

44,205

43,540
Transportation and shop equipment

89,866

92,490
Computer hardware and software

77,393

76,908
Other

6,250

6,229
Property, plant and equipment

3,477,555

3,492,937
Accumulated depreciation

(1,265,811)

(1,266,411)
Property, plant and equipment, net

$
2,211,744

$
2,226,526

Property, plant and equipment is comprised of the following:

��
	March 31,		December 31,
(in thousands)	2023		2022
Compression equipment, facilities and other fleet assets	$	3,298,006	$	3,234,239
Land and buildings		44,625		44,304
Transportation and shop equipment		93,490		93,189
Computer hardware and software		77,482		77,357
Other		6,263		5,754
Property, plant and equipment		3,519,866		3,454,843
Accumulated depreciation		(1,273,621)		(1,255,590)
Property, plant and equipment, net	$	2,246,245	$	2,199,253

~~5. Equity Investments~~

4. Investment in Unconsolidated Affiliate

Investments in which we are deemed to exert significant influence, but not control, are accounted for using the equity method of accounting, except in cases where the fair value option is elected. For such investments where we have elected the fair value option, the election is irrevocable and is applied on an ~~investment-by-investment~~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. WeFor greater transparency, we have elected the fair value option ~~to account~~ for this investment.

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

As of ~~June 30, 2022,~~March 31, 2023, our ownership interest in ECOTEC, was ~~14%, which was~~25% and included in other assets in our unaudited condensed consolidated balance sheets.

Changes in the fair value of this investment are recognized in other expense (income) ~~expense,~~, net in our unaudited condensed consolidated statements of operations. See Note 13 (“Fair Value Measurements”) for further details on fair value accounting.

~~6. Hosting Arrangements~~

~~We have hosting arrangements that are service contracts related to the cloud migration of our ERP system and cloud services for our mobile workforce, telematics and inventory management tools.~~

As of June 30, 2022 and December 31, 2021, we had $14.8 million and $12.7 million, respectively, of capitalized implementation costs related to these hosting arrangements included in other assets in our condensed consolidated balance sheets. Accumulated amortization was $1.6 million and $0.7 million at June 30, 2022 and December 31, 2021, respectively. We recorded $0.5 million and $0.1 million of amortization expense to SG&A in our condensed consolidated statements of operations during the three months ended June 30, 2022 and 2021, respectively, and $0.9 million and $0.2 million during the six months ended June 30, 2022 and 2021, respectively.

7.5. Long-Term Debt

(in thousands)

June 30, 2022

December 31, 2021
Credit Facility

$
235,733

$
234,500

2028 Notes

Principal

800,000

800,000
Premium, net of amortization

11,533

12,536
Deferred financing costs, net of amortization

(9,574)

(10,406)

801,959

802,130

2027 Notes

Principal

500,000

500,000
Deferred financing costs, net of amortization

(5,254)

(5,805)

494,746

494,195

Long-term debt

$
1,532,438

$
1,530,825

Long–term debt is comprised of the following:


	March 31,		December 31,
(in thousands)	2023		2022
Credit Facility	$	250,000	$	251,250

6.25% senior notes due April 2028:
Principal outstanding		800,000		800,000
Unamortized debt premium		10,029		10,530
Unamortized debt issuance costs		(8,329)		(8,744)
		801,700		801,786

6.875% senior notes due April 2027:
Principal outstanding		500,000		500,000
Unamortized debt issuance costs		(4,426)		(4,702)
		495,574		495,298

Long-term debt	$	1,547,274	$	1,548,334

~~Table of Contents~~

The Credit Facility

matures in November 2024 unless renewed or amended prior to that date. As of ~~June 30, 2022,~~March 31, 2023, there were ~~$5.8~~$4.1 million letters of credit outstanding under the Credit Facility and the applicable margin on borrowings outstanding was ~~2.3%~~2.5%. The weighted average annual interest rate on the outstanding balance under the Credit Facility, excluding the effect of interest rate swaps, was ~~3.9%~~7.4% and ~~2.6%~~6.9% at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. We incurred $0.5 million ~~and $0.4 million in~~of commitment fees on the daily unused amount of the Credit Facility ~~during~~in each of the three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021, respectively, and $1.0 million during each of the six months ended June 30, 2022 and 2021.~~2022.

As of ~~June 30, 2022,~~March 31, 2023, we were in compliance with all covenants under our Credit Facility agreement. ~~As a result of the facility’s financial ratio requirements, $476.6 million of the $508.5 million of~~Additionally, all undrawn capacity on our Credit Facility was available for ~~additional~~ borrowings as of ~~June 30, 2022.~~March 31, 2023.

6. Commitments and Contingencies

Insurance Matters

Our business can be hazardous, involving unforeseen circumstances such as uncontrollable flows of natural gas or well fluids and fires or explosions. As is customary in our industry, we review our safety equipment and procedures and carry insurance against some, but not all, risks of our business. Our insurance coverage includes property damage, general liability and commercial automobile liability and other coverage we believe is appropriate. We believe that our insurance coverage is customary for the industry and adequate for our business, however, losses and liabilities not covered by insurance would increase our costs.

Additionally, we are substantially self–insured for workers’ compensation and employee group health claims in view of the relatively high per–incident deductibles we absorb under our insurance arrangements for these risks. Losses up to the deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages. We are also self–insured for property damage to our offshore assets.

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Tax Matters

We are subject to a number of state and local taxes that are not income–based. As many of these taxes are subject to audit by the taxing authorities, it is possible that an audit could result in additional taxes due. We accrue for such additional taxes when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the liability. As of March 31, 2023 and December 31, 2022, we had $4.1 million and $3.9 million, respectively, accrued for the outcomes of non–income–based tax audits. We do not expect that the ultimate resolutions of these audits will result in a material variance from the amounts accrued. We do not accrue for unasserted claims for tax audits unless we believe the assertion of a claim is probable, it is probable that it will be determined that the claim is owed and we can reasonably estimate the claim or range of the claim. We believe the likelihood is remote that the impact of potential unasserted claims from non–income–based tax audits could be material to our consolidated financial position, but it is possible that the resolution of future audits could be material to our consolidated results of operations or cash flows.

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 March 31, 2023 and December 31, 2022, we had $0.6 million accrued for these audits.

Litigation and Claims

In ~~February 2021,~~the ordinary course of business, we ~~amended~~are involved in various pending or threatened legal actions. While we are unable to predict the ultimate outcome of these actions, we believe that any ultimate liability arising from any of these actions will not have a material adverse effect on our ~~Credit Facility~~consolidated financial position, results of operations or cash flows, including our ability to among other things, reduce the aggregate revolving commitment from $1.25 billion to $750.0 million and adjust certain financial ratios. We wrote off $4.9 million of unamortized deferred financing costs as a resultpay dividends. However, because of the ~~amendment,~~inherent uncertainty of litigation and arbitration proceedings, we cannot provide assurance that the resolution of any particular claim or proceeding to which ~~was recorded to interest expense in~~we are a party will not have a material adverse effect on our ~~condensed~~ consolidated ~~statements~~financial position, results of operations ~~during~~or cash flows, including our ability to pay dividends.

7. Stockholders’ Equity

Cash Dividends

The following table summarizes our dividends declared and paid in each of the ~~six months ended June 30, 2021.~~quarterly periods of 2023 and 2022:


	Dividends per		Dividends Paid
	Common Share		(in thousands)
2023
Q1	$	0.150	$	23,852

2022
Q4	$	0.145	$	22,589
Q3		0.145		22,559
Q2		0.145		22,494
Q1		0.145		22,673

On April 27, 2023, our Board of Directors declared a quarterly dividend of $0.15 per share of common stock to be paid on May 16, 2023 to stockholders of record at the close of business on May 9, 2023.

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

8. ~~Accumulated Other Comprehensive Loss~~

Components of comprehensive income (loss) are net income (loss) and all changes in equity during a period except those resulting from transactions with owners. Our accumulated other comprehensive loss consists of changes in the fair value of our interest rate swap derivative instruments, net of tax.

Three Months Ended

Six Months Ended

June 30,

June 30,
(in thousands)

2022

2021

2022

2021
Beginning accumulated other comprehensive loss

$
—

$
(4,010)

$
(984)

$
(5,006)
Other comprehensive income, net of tax:

Loss recognized in other comprehensive income, net of tax benefit of $0, $16, $107 and $18, respectively

—

(63)

(405)

(71)
Loss reclassified from accumulated other comprehensive loss to interest expense, net of tax benefit of $0, $273, $369 and $540, respectively

—

1,029

1,389

2,033
Total other comprehensive income

—

966

984

1,962
Ending accumulated other comprehensive loss

$
—

$
(3,044)

$
—

$
(3,044)

~~See Note 15 (“Derivatives”) for further details on our interest rate swap derivative instruments.~~

~~9. Equity~~

~~At-the-Market Continuous Equity Offering Program~~

~~During the three and six months ended June 30, 2022, we sold 447,020 shares of common stock for net proceeds of $4.2 million pursuant to our ATM agreement.~~

~~During the six months ended June 30, 2021, we sold 357,148 shares of common stock under the program for net proceeds of $3.4 million.~~

~~Table of Contents~~

~~Cash Dividends~~

~~The following table summarizes our dividends declared and paid in each of the quarterly periods of 2022 and 2021:~~

Declared Dividends

  Dividends Paid


per Common Share

(in thousands)
2022




Q2

$
0.145

$
22,494
Q1

0.145

22,673

2021




Q4

$
0.145

$
22,351
Q3

0.145

22,506
Q2

0.145

22,331
Q1

0.145

22,155

~~On July 28, 2022, our Board of Directors declared a quarterly dividend of $0.145 per share of common stock to be~~ ~~paid~~ ~~on August 16, 2022 to stockholders of record at the close of business on August 9, 2022.~~

~~10.~~ Revenue from Contracts with Customers

The following table presents our revenue from contracts with customers by segment ~~(see Note 20 (“Segments”))~~ and disaggregated by revenue source:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(in thousands)	2022		2021		2022		2021		2023		2022
Contract operations:
0 ― 1,000 horsepower per unit	$	40,489	$	45,918	$	82,331	$	92,837	$	39,954	$	41,842
1,001 ― 1,500 horsepower per unit		68,697		66,852		135,698		135,316		81,807		67,001
Over 1,500 horsepower per unit		56,885		50,939		111,479		101,342		65,714		54,594
Other ⁽¹⁾		227		156		446		404		270		219
Total contract operations revenue ⁽²⁾		166,298		163,865		329,954		329,899		187,745		163,656

Aftermarket services:
Services		26,001		17,008		43,138		33,900		21,249		17,137
OTC parts and components sales		23,529		14,742		39,937		27,247		20,840		16,408
Total aftermarket services revenue ⁽³⁾		49,530		31,750		83,075		61,147		42,089		33,545

Total revenue	$	215,828	$	195,615	$	413,029	$	391,046	$	229,834	$	197,201

(1)	Primarily relates to fees associated with owned non-compression equipment.

(2)

Includes ~~$0.9~~$0.8 million and ~~$1.4~~$0.2 million for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $1.1 million and $2.4 million for the six months ended June 30, 2022 and 2021,~~ respectively, related to billable maintenance on owned compressors that was recognized at a point in time. All other contract operations revenue is recognized over time.

(3)	Services revenue within aftermarket services is recognized over time. OTC parts and components sales revenue is recognized at a point in time.

~~Table of Contents~~See Note 15 (“Segment Information”) for further information on segments.

Performance Obligations

As of ~~June 30, 2022,~~March 31, 2023, we had ~~$286.6~~$354.7 million of remaining performance obligations related to our contract operations segment, which will be recognized through ~~2027~~2028 as follows:


(in thousands)	2022		2023		2024		2025		2026		2027		Total		2023		2024		2025		2026		2027		2028		Total
Remaining performance obligations	$	156,370	$	93,290	$	31,041	$	4,819	$	914	$	190	$	286,624	$	203,117	$	88,750	$	47,044	$	11,658	$	3,608	$	504	$	354,681

We do not disclose the aggregate transaction price for the remaining performance obligations for aftermarket services as there are no contracts with customers with an original contract term that is greater than one year.

Contract Assets and Liabilities

Contract Assets

As of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, our receivables from contracts with customers, net of allowance for credit losses, were ~~$121.0~~$104.9 million and ~~$84.7~~$111.9 million, respectively.

~~Allowance for Credit Losses~~

Trade accounts receivable are due from companies of varying size engaged principally in oil and natural gas activities throughout the U.S. We review the financial condition of customers prior to extending credit and generally do not obtain collateral for trade receivables. 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.

Due to the short-term nature of our trade receivables, we consider the amortized cost to be the same as the carrying amount of the receivable, excluding the allowance for credit losses. We recognize an allowance for credit losses when a receivable is recorded, even when the risk of loss is remote. We utilize an aging schedule to determine our allowance for credit losses and measure expected credit losses on a collective (pool) basis when similar risk characteristics exist. We rely primarily on ratings assigned by external rating agencies and credit monitoring services to assess credit risk and aggregate customers first by low, medium or high risk asset pools, and then by delinquency status. We also consider the internal risk associated with geographic location and the services we provide to the customer when determining asset pools. If a customer does not share similar risk characteristics with other customers, we evaluate the customer’s outstanding trade receivables for expected credit losses on an individual basis. Trade receivables evaluated individually are not included in our collective assessment. Each reporting period, we reassess our customers’ risk profiles and determine the appropriate asset pool classification, or perform individual assessments of expected credit losses, based on the customers’ risk characteristics at the reporting date.

The contractual life of our trade receivables is primarily 30 days based on the payment terms specified in the contract. Contract operations services are generally billed monthly at the beginning of the month in which service is being provided. Aftermarket services billings typically occur when parts are delivered or service is completed. Loss rates are separately determined for each asset pool based on the length of time a trade receivable has been outstanding. We analyze two years of internal historical loss data, including the effects of prepayments, write-offs and subsequent recoveries, to determine our historical loss experience. Our historical loss information is a relevant data point for estimating credit losses, as the data closely aligns with trade receivables due from our customers. Ratings assigned by external rating agencies and credit monitoring services consider past performance and forecasts of future economic conditions in assessing credit risk. We routinely update our historical loss data to reflect our customers’ current risk profile, to ensure the historical data and loss rates are relevant to the pool of assets for which we are estimating expected credit losses.

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Allowance for Credit Losses

Our allowance for credit losses balance changed as follows during the ~~six~~three months ended ~~June 30, 2022:~~March 31, 2023:


(in thousands)
Balance at December 31, 2021	$	2,152
Provision for credit losses		365
Balance at beginning of period			$	1,674
Provision for (benefit from) credit losses				(340)
Write-offs charged against allowance		(218)		(16)
Balance at June 30, 2022	$	2,299
Balance at end of period			$	1,318

Contract Liabilities

Freight billings to customers for the transport of compression assets, ~~customer-specified~~customer–specified modifications of compression assets and milestone billings on aftermarket services often result in a contract liability. ~~Our~~As of March 31, 2023 and December 31, 2022, our contract liabilities were ~~$6.9~~$6.8 million and ~~$4.4~~$8.0 million, ~~as of June 30, 2022 and December 31, 2021, respectively, and were included in deferred revenue and other liabilities in our condensed consolidated balance sheets.~~ respectively.

During the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, we deferred revenue of ~~$14.0~~$3.2 million and recognized ~~$11.5 million as revenue.~~deferred revenue of $4.5 million. The revenue recognized ~~and deferred~~ during the period primarily related to freight billings and milestone billings on aftermarket services.

~~11.~~9. Long-Lived and Other Asset Impairment

We review ~~long-lived~~long–lived assets, including property, plant and equipment and identifiable intangibles that are being amortized, for impairment whenever events or changes in circumstances, including the removal of compressors from our active fleet, indicate that the carrying amount of an asset may not be recoverable.

Compression Fleet

We periodically review the future deployment of our idle compression assets for units that are not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. Based on these reviews, we determine that certain idle compressors should be retired from the active fleet. The retirement of these units from the active fleet triggers a review of these assets for impairment and as a result of our review, we may record an asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit is estimated based on the expected net sale proceeds compared to other fleet units we recently sold, a review of other units recently offered for sale by third parties or the estimated component value of the equipment we plan to use.

In connection with our review of our idle compression assets, we evaluate for impairment idle units that were culled from our fleet in prior years and are available for sale. Based on that review, we may reduce the expected proceeds from disposition and record additional impairment to reduce the book value of each unit to its estimated fair value.

The following table presents the results of our compression fleet impairment review as recorded toin our contract operations segment:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(dollars in thousands)	2022		2021		2022		2021		2023		2022
Idle compressors retired from the active fleet		30		45		75		115		30		45
Horsepower of idle compressors retired from the active fleet		26,000		13,000		57,000		37,000		14,000		31,000
Impairment recorded on idle compressors retired from the active fleet	$	4,647	$	2,832	$	12,056	$	9,844	$	2,569	$	7,409

See Note 13 (“Fair Value Measurements”) for further details on fair value accounting.

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Table of Contents

Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

~~12.~~10. Restructuring Charges

In response to the decreased activity level of our customers that resulted from the coronavirus pandemic beginning in the second quarter of 2020, we incurred severance costs totaling $7.0 million to right-size our business in 2020 and 2021. NaN additional costs will be incurred under this restructuring plan.

During the ~~third~~first quarter of ~~2020,~~2023, a plan to ~~dispose of certain non-core properties~~further streamline our organization and more fully align our teams to improve our customer service and profitability was approved by management. We ~~incurred~~expect to incur additional restructuring charges of $1.5 million ~~of costs in 2020 and 2021 as a result of~~related to these ~~property disposals. NaN additional costs will be incurred under this~~ restructuring ~~plan.~~activities.

The ~~severance and property disposal costs incurred under~~following table presents the ~~above restructuring plans were recorded~~changes to our accrued liability balance related to restructuring charges ~~in our condensed consolidated statements of operations.~~during the quarter ended March 31, 2023:




(in thousands)	Total
Balance at December 31, 2022	$	—
Charges incurred		1,047
Payments		(120)
Balance at March 31, 2023	$	927

The following table presents restructuring charges incurred by segment:

Contract

Aftermarket

(in thousands)

Operations

Services

Other⁽¹⁾

Total
Three months ended June 30, 2021

Pandemic restructuring

$
337

$
121

$
147

$
605
2020 property restructuring

—

—

7

7
Other restructuring

—

—

131

131
Total restructuring charges

$
337

$
121

$
285

$
743

Six months ended June 30, 2021

Pandemic restructuring

$
616

$
145

$
732

$
1,493
2020 property restructuring

—

—

16

16
Other restructuring

—

—

131

131
Total restructuring charges

$
616

$
145

$
879

$
1,640


	Contract		Aftermarket
(in thousands)	Operations		Services		Other⁽¹⁾		Total
Three months ended March 31, 2023
Organizational restructuring	$	203	$	—	$	844	$	1,047
Total restructuring charges	$	203	$	—	$	844	$	1,047

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

The following table presents restructuring charges incurred by cost type:


	Three Months Ended		Six Months Ended		Three Months Ended
(in thousands)	June 30, 2021		June 30, 2021		March 31, 2023
Organizational restructuring
Severance costs	$	605	$	1,493	$	789
Property disposal costs
Impairment		—		9
Other exit costs		7		7
Total property disposal costs		7		16
Other restructuring costs		131		131
Consulting costs						258
Total restructuring charges	$	743	$	1,640	$	1,047

~~Table of Contents~~

~~13.~~11. Income Taxes

Valuation Allowance

The amount of our deferred tax assets considered realizable could be adjusted if projections of future taxable income are reduced or objective negative evidence in the form of a ~~three-year~~three–year cumulative loss is present or both. Should we no longer have a level of sustained profitability, excluding nonrecurring charges, we will have to rely more on our future projections of taxable income to determine if we have an adequate source of taxable income for the realization of our deferred tax assets, namely net operating loss, interest limitation and tax credit carryforwards. This may result in the need to record a valuation allowance against all or a portion of our deferred tax assets.

Effective Tax Rate

The year-to-date effective tax rate for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 differed significantly from our statutory rate primarily due to unrecognized tax benefits and the limitation on executive compensation.

Table of Contents

Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Unrecognized Tax Benefits

As of ~~June 30, 2022,~~March 31, 2023, we believe it is reasonably possible that $2.7 million of our unrecognized tax benefits, including penalties, interest and discontinued operations, will be reduced prior to ~~June 30, 2023~~March 31, 2024 due to the settlement of audits or the expiration of statutes of limitations or both. However, due to the uncertain and complex application of the tax regulations, it is possible that the ultimate resolution of these matters may result in liabilities that could materially differ from this estimate.

~~14.~~12. Earnings ~~per~~Per Common Share

Basic ~~net income (loss)~~earnings per common share is computed using the ~~two-class~~two–class method, which is an earnings allocation formula that determines net income ~~(loss)~~ per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Under the ~~two-class~~two–class method, basic ~~net income (loss)~~earnings per common share is determined by dividing net income, ~~(loss),~~ after deducting amounts allocated to participating securities, by the weighted average number of common shares outstanding for the period. Participating securities include unvested restricted stock and ~~stock-settled~~stock–settled restricted stock units that have nonforfeitable rights to receive dividends or dividend equivalents, whether paid or unpaid. During periods of net loss, only distributed earnings (dividends) are allocated to participating securities, as participating securities do not have a contractual obligation to participate in our undistributed losses.

Diluted ~~net income (loss)~~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 ~~options, performance-based~~performance–based restricted stock units and stock to be issued pursuant to our ESPP unless their effect would ~~be anti-dilutive.~~have been anti–dilutive.

The following table shows the calculation ~~for~~of net income attributable to common stockholders, which is used in the calculation of basic and diluted ~~net income~~earnings per common ~~share:~~

Three Months Ended

Six Months Ended

June 30,

June 30,
(in thousands)

2022

2021

2022

2021
Net income

$
16,746

$
8,752

$
18,467

$
12,921
Less: Earnings attributable to participating securities

(305)

(285)

(819)

(454)
Net income attributable to common stockholders

$
16,441

$
8,467

$
17,648

$
12,467

~~Table of Contents~~

~~The following table shows the~~share, potential shares of common stock that were included in computing diluted ~~net income~~earnings per common ~~share:~~

Three Months Ended

Six Months Ended

June 30,

June 30,
(in thousands)

2022

2021

2022

2021
Weighted average common shares outstanding including participating securities

155,188

154,047

155,005

153,334
Less: Weighted average participating securities outstanding

(2,155)

(2,014)

(2,148)

(1,797)
Weighted average common shares outstanding used in basic net income per common share

153,033

152,033

152,857

151,537
Net dilutive potential common shares issuable:






On vesting of restricted stock units

128

169

123

159
On settlement of ESPP shares

3

1

2

3
Weighted average common shares outstanding used in diluted net income per common share

153,164

152,203

152,982

151,699

~~The following table shows~~share and the potential shares of common stock issuable that were excluded from computing diluted ~~net income~~earnings per common share as their inclusion would have been ~~anti-dilutive:~~anti–dilutive:


	Three Months Ended		Six Months Ended		Three Months Ended
	June 30,		June 30,		March 31,
(in thousands)	2022	2021	2022	2021	2023		2022
On exercise of options where exercise price is greater than average market value for the period	—	22	—	33
Net income					$	16,485	$	1,721
Less: Allocation of earnings to participating securities						(735)		(515)
Net income attributable to common stockholders					$	15,750	$	1,206

Weighted average common shares outstanding used in basic earnings per common share						154,116		152,690
Effect of dilutive securities:
Performance-based restricted stock units						162		117
ESPP shares						3		3
Weighted average common shares outstanding used in diluted earnings per common share						154,281		152,810

~~15. Derivatives~~

~~We are exposed to market risks associated with changes~~

13. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of March 31, 2023, we own a 25% equity interest in the variable interest rate of our Credit Facility. We have used derivative instruments, in the form of interest rate swaps, to manage our exposure to fluctuations in this variable interest rate and thereby minimize the risks and costs associated with financial activities. We do not use derivative instruments for trading or other speculative purposes.

In March 2022, our $300.0 million notional value of interest rate swaps expired. We previously entered into these swaps to offset changes in expected cash flows due to fluctuations in the associated variable interest rates and designated them as cash flow hedges. There was no nonperformance by any counterparty during the terms of the interest rate swaps and 0 collateral was posted for the instruments.

~~Prior to expiration, during the third quarter of 2021, we dedesignated $125.0 million notional value of our interest rate swaps.~~ECOTEC. The fair value is determined using an average of the income approach that includes the use of a discounted cash flow model, and the market approach that includes the financial metrics of comparable public companies under the guideline public company method. The determination of this ~~interest rate swap immediately prior to dedesignation was a liability~~investment primarily consisted on unobservable inputs, which creates uncertainty in the measurement 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~~fair value as of the ~~swap through~~reporting date. Significant increases (decreases) in these inputs in isolation would result in a significantly higher (lower) fair value measurement. As of March ~~2022. Changes in~~31, 2023, the fair value of ~~the dedesignated interest rate swap after dedesignation and prior to expiration were recorded~~our investment in ~~interest expense.~~

The remaining $175.0 million notional value of our interest rate swaps were designated as (highly effective) cash flow hedging instruments until their expiration. Changes in the fair value of cash flow hedging instruments are recognized as a component of other comprehensive income (loss) until the hedged transaction affects earnings. At that time, amounts are reclassified into earnings to interest expense, the same statement of operations line item to which the earnings effect of the hedged item is recorded. Cash flows from derivatives designated as hedges are classified in our condensed consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions unless the derivative contract contains a significant financing element, in which case, the cash settlements for those derivatives are classified as cash flows from financing activities.ECOTEC was $14.5 million.

1916

Table of Contents

Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

This fair value measurement is classified as Level 3. The ~~following table presents~~significant unobservable inputs used in the ~~effect of our derivative instruments on our condensed consolidated balance sheets:~~fair value measurement are the WACC and the revenue multiples. Additional quantitative information related to the significant unobservable inputs are as follows:

(in thousands)

June 30, 2022

December 31, 2021
Interest rate swaps designated as cash flow hedging instruments

Accrued liabilities

$
—

$
727

Interest rate swaps not designated as hedging instruments

Accrued liabilities

—

523

Total derivative liabilities

$
—

$
1,250


	Significant Unobservable Inputs		Range	Median
Valuation technique:
Discounted cash flow	WACC	0% - 22.1%		11.3%
Guideline public company	Revenue multiple	1.7x - 8.0x		3.9x

The ~~following table presents~~reconciliation of changes in the ~~effect~~fair value of our ~~derivative instruments on our condensed consolidated statements of operations:~~investment in ECOTEC is as follows:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(in thousands)	2022		2021		2022		2021			2023		2022
Total amount of interest expense in which the effects of cash flow hedges and undesignated interest rate swaps are recorded	$	24,456	$	25,958	$	49,702	$	57,203

Interest rate swaps designated as cash flow hedging instruments
Pre-tax loss recognized in other comprehensive income	$	—	$	(79)	$	(512)	$	(89)
Pre-tax loss reclassified from accumulated other comprehensive loss into interest expense		—		(1,302)		(1,758)		(2,573)

Interest rate swaps not designated as hedging instruments
Gain recognized in interest expense	$	—	$	—	$	523	$	—
Balance at beginning of period									$	12,803	$	—
Purchases of equity interests										2,000		—
Unrealized loss ⁽¹⁾										(254)		—
Balance at end of period									$	14,549	$	—

(1)	Included in other expense (income) in our unaudited condensed consolidated statement of operations.

See Note 84 (“~~Accumulated Other Comprehensive Loss”) and Note 16 (“Fair Value Measurements”~~Investment in Unconsolidated Affiliate”) for further ~~details on our derivative instruments.~~

~~16. Fair Value Measurements~~

~~Assets and Liabilities Measured at Fair Value on a Recurring Basis~~

~~Investment in ECOTEC~~

During the three months ended June 30, 2022, we acquired a 14% equity interest in ECOTEC. To provide for greater transparency, we elected the fair value option to account for this investment. The fair value is internally calculated using a market approach and is classified as a Level 3 measurement. At June 30, 2022, the fair value of our equity interest in ECOTEC was as follows:details.

(in thousands)

June 30, 2022
Investment in ECOTEC

$
8,000

~~Table of Contents~~

~~Interest Rate Swaps~~

Prior to their expiration in the first quarter of 2022, our interest rate swap derivative instruments were valued quarterly based on the income approach (discounted cash flow) using market observable inputs, including LIBOR forward curves. These fair value measurements were classified as Level 2. The following table presents our derivative position measured at fair value on a recurring basis, with pricing levels as of the date of valuation:

(in thousands)

June 30, 2022

December 31, 2021
Derivative liabilities

$
0

$
1,250

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the ~~six~~three months ended ~~June 30, 2022,~~March 31, 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 towith other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. We discounted the expected proceeds, net of selling and other carrying costs, using a weighted average disposal period of 4four years. The fair value of our compressors impaired in 2023 and 2022 was as follows:


(in thousands)	March 31, 2023		December 31, 2022
Impaired compressors	$	448	$	1,961

These fair value measurements are classified as Level 3. ~~The fair value of our compressors impaired during 2022 and 2021 was as follows:~~

(in thousands)

June 30, 2022

December 31, 2021
Impaired compressors

$
1,010

$
4,380

The significant unobservable inputs used to develop the above fair value measurements were weighted by the relative fair value of the compressors being measured. Additional quantitative information related to our significant unobservable inputs follows:


	Range	Weighted Average ⁽¹⁾
Estimated net sale proceeds:
As of ~~June 30,~~March 31, 2023	$0 - $621 per horsepower	$53 per horsepower
As of December 31, 2022	$0 - $621 per horsepower	$~~41 per horsepower~~
~~As of December 31, 2021~~	~~$0 - $621 per horsepower~~	~~$35~~47 per horsepower

(1)	Calculated based on an estimated discount for market liquidity of ~~57%~~44% and ~~64%~~51% as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

See Note 119 (“Long-Lived and Other Asset ~~Impairment”~~Impairments”) for further details.

Table of Contents

Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Other Financial Instruments

The carrying amounts of our cash, ~~receivables~~accounts receivable and ~~payables~~accounts payable approximate fair value due to the ~~short-term~~short–term nature of ~~those~~these instruments.

The carrying amount of borrowings outstanding under our Credit Facility approximates fair value due to ~~its~~the variable interest rate. The measurement of the fair value of these outstanding borrowings is a Level 3 measurement.

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

(in thousands)

June 30, 2022

December 31, 2021
Carrying amount of fixed rate debt ⁽¹⁾

$
1,296,705

$
1,296,325
Fair value of fixed rate debt

1,161,000

1,361,000

~~(1)~~

~~Carrying amounts are shown net of unamortized premium and deferred financing costs. See Note 7 (“Long-Term Debt”).~~


(in thousands)	March 31, 2023		December 31, 2022
Carrying amount of fixed rate debt ⁽¹⁾	$	1,297,274	$	1,297,084
Fair value of fixed rate debt		1,259,000		1,214,000

~~Table~~(1) Carrying amounts are shown net of ~~Contents~~

~~17. Stock-Based Compensation~~

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

deferred financing costs. See Note 5 (“Long-Term Debt”).

Three Months Ended

Six Months Ended

June 30,

June 30,
(in thousands)

2022

2021

2022

2021
Equity award expense

$
2,970

$
3,178

$
6,037

$
5,841
Liability award expense

377

408

880

994
Total stock-based compensation expense

$
3,347

$
3,586

$
6,917

$
6,835

~~The following table presents our restricted stock activity during the six months ended June 30, 2022:~~14. Related Party Transactions

Weighted

Average

Grant Date

Shares

Fair Value

(in thousands)

Per Share
Non-vested restricted stock, December 31, 2021

2,578

$
10.35
Granted

1,861

9.03
Vested

(1,106)

10.31
Canceled

(188)

9.35
Non-vested restricted stock, June 30, 2022 ⁽¹⁾

3,145

9.64

~~(1)~~

~~Comprised of 508 cash-settled units and 2,637 stock-settled awards and units.~~

~~As of June 30, 2022, we expect $21.3 million of unrecognized compensation cost related to our non-vested awards and units to be recognized over the weighted average period of 2.1 years.~~

~~18. Commitments and Contingencies~~

~~Insurance Matters~~

Additionally, we are substantially self-insured for workers’ compensation and employee group health claims in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks. Losses up to the deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages. ~~We are also self-insured for property damage to our offshore assets.~~

~~Table of Contents~~

~~Tax Matters~~

We are subject to a number of state and local taxes that are not income-based. As many of these taxes are subject to audit by the taxing authorities, it is possible that an audit could result in additional taxes due. We accrue for such additional taxes when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the liability. As of June 30, 2022 and December 31, 2021, we had $3.9 million and $5.8 million, respectively, accrued for the outcomes of non-income-based tax audits. We do not expect that the ultimate resolutions of these audits will result in a material variance from the amounts accrued. We do not accrue for unasserted claims for tax audits unless we believe the assertion of a claim is probable, it is probable that it will be determined that the claim is owed and we can reasonably estimate the claim or range of the claim. We believe the likelihood is remote that the impact of potential unasserted claims from non-income-based tax audits could be material to our consolidated financial position, but it is possible that the resolution of future audits could be material to our consolidated results of operations or cash flows.

In 2021, one of our sales and use tax audits advanced from the audit review phase to the contested hearing phase. We had $0.6 million accrued for this audit as of both June 30, 2022 and December 31, 2021.

~~Litigation and Claims~~

~~In the~~ ordinary course of business, we are involved in various pending or threatened legal actions. While we are unable to predict the ultimate outcome of these actions, we believe that any ultimate liability arising from any of these actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows, including our ability to pay dividends. However, because of the inherent uncertainty of litigation and arbitration proceedings, we cannot provide assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our consolidated financial position, results of operations or cash flows, including our ability to pay dividends.

~~19. Related Party Transactions~~

Old Ocean Reserves, an affiliate of our customer Hilcorp, has the right to designate 1one director to serve on our ~~Board~~board of ~~Directors~~directors as long as Old Ocean Reserves or its successors (together with its affiliates) owns at least 7.5% of our outstanding common stock. As of ~~June 30, 2022,~~March 31, 2023, Old Ocean Reserves owned ~~10.7%~~9.4% of our outstanding common stock. Jason C. Rebrook, Chief Executive Officer and Director of Harvest Midstream Company, a Hilcorp affiliate, has served as Old Ocean Reserves’ representative director since July 2020.

Revenue from Hilcorp ~~and affiliates~~ was ~~$9.2~~$9.1 million and ~~$9.6~~$9.4 million during the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $18.6 million and $19.1 million during the six months ended June 30, 2022 and 2021, respectively~~.respectively. Accounts receivable, net due from Hilcorp ~~and affiliates~~ was ~~$4.3~~$3.1 million and ~~$3.7~~$3.0 million as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

~~20. Segments~~

15. Segment Information

We manage our business segments primarily based on the type of product or service provided. We have ~~2 segments which we operate within the U.S.:~~two segments: contract operations and aftermarket services. ~~The~~Our contract operations segment primarily provides natural gas compression services to meet specific customer requirements. ~~The~~Our 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. All of our operations are located in the U.S.

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. ~~Revenue~~Segment revenue includes only sales to external customers.

Summarized financial information for our reporting segments is shown below:


	Contract		Aftermarket
(in thousands)	Operations		Services		Total
Three months ended March 31, 2023
Revenue	$	187,745	$	42,089	$	229,834
Gross margin		108,263		8,181		116,444

Three months ended March 31, 2022
Revenue	$	163,656	$	33,545	$	197,201
Gross margin		99,155		4,907		104,062

2318

Table of Contents

Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Contract

Aftermarket


(in thousands)

Operations

Services

Total
Three months ended June 30, 2022






Revenue

$
166,298

$
49,530

$
215,828
Gross margin

97,943

7,820

105,763

Three months ended June 30, 2021






Revenue

$
163,865

$
31,750

$
195,615
Gross margin

102,478

4,260

106,738

Six months ended June 30, 2022






Revenue

$
329,954

$
83,075

$
413,029
Gross margin

197,098

12,727

209,825

Six months ended June 30, 2021






Revenue

$
329,899

$
61,147

$
391,046
Gross margin

207,147

7,874

215,021

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


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(in thousands)	2022		2021		2022		2021		2023		2022
Total gross margin	$	105,763	$	106,738	$	209,825	$	215,021	$	116,444	$	104,062
Less:
Selling, general and administrative		27,691		26,077		55,464		51,161		26,425		27,773
Depreciation and amortization		41,356		44,193		84,395		89,905		40,181		43,039
Long-lived and other asset impairment		4,647		2,960		12,063		10,033		2,569		7,416
Restructuring charges		—		743		—		1,640		1,047		—
Interest expense		24,456		25,958		49,702		57,203		26,581		25,246
Gain on sale of assets, net		(18,948)		(3,124)		(21,060)		(14,156)		(3,605)		(2,112)
Other (income) expense, net		497		(82)		533		(1,971)
Other expense (income), net										603		36
Income before income taxes	$	26,064	$	10,013	$	28,728	$	21,206	$	22,643	$	2,664

~~21. Impact~~

16. Subsequent Events

On April 27, 2023, our Board of ~~Hurricane~~

~~In August 2021, Hurricane Ida caused operational disruptions, damage~~Directors authorized a share repurchase program that allows us to ~~compressors and a temporary shutdown~~repurchase up to $50.0 million of ~~facilities in Louisiana that negatively impacted~~outstanding common stock. Under the 2023 Share Repurchase Program, shares of our ~~financial performance~~common stock may be repurchased periodically, including in the ~~quarter. At December 31, 2021, we had an insurance recovery receivable~~open market, privately negotiated transactions, or otherwise in accordance with applicable federal securities laws, at any time until April 27, 2024. The actual timing, manner, number, and value of ~~$2.8 million related to~~shares repurchased under the facility and compressor damages, which we received in cash in the first quarter of 2022. The remaining portion of our insurance claim pertaining to business interruption is in process. Any amount recovered will not be subject to an additional deductible andprogram will be ~~recognized upon notice of final settlement.~~determined by us at our discretion.

~~22. Subsequent Event~~

~~On July 1, 2022, we acquired an additional 5% equity interest in ECOTEC, which increased our total ownership interest to 19%.~~

2419

Table of Contents

~~Item~~ITEM 2. ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Financial Statements and the notes thereto included in this ~~Quarterly Report on~~ Form 10-Q and in conjunction with our ~~2021~~2022 Form 10-K.

~~Overview~~OVERVIEW

We are an energy infrastructure company with a ~~primary~~pure–play focus on midstream natural gas compression. We are the leading 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: contract operations and aftermarket services. Our contract operations services primarily include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining our owned fleet of natural gas compression equipment to provide natural gas compression services to our customers. In our aftermarket services business, we sell parts and components and provide operations, maintenance, overhaul and reconfiguration services to customers who own compression equipment.

~~Recent Business Developments~~

~~May 2022 Disposition~~Operating Highlights

In May 2022, we completed the sale of certain contract operations customer service agreements and approximately 380 compressors, comprising approximately 70,000 horsepower, used to provide compression services under those agreements, as well as other assets used to support the operations. We received cash consideration of $55.5 million for the sale and recorded a gain on the sale of $16.7 million during the three and six months ended June 30, 2022. See Note 2 (“Business Transactions”) to our Financial Statements for further details of this transaction.

~~Investment in ECOTEC~~

In April 2022, we agreed to acquire for cash a 25% equity interest in ECOTEC, a company specializing in methane emissions monitoring and management. As of June 30, 2022, our ownership interest was 14%. See Note 5 (“Equity Investments”) to our Financial Statements for further details.

~~Operating Highlights~~


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(horsepower in thousands)	2022		2021		2022		2021		2023		2022
Total available horsepower (at period end)⁽¹⁾	3,810		4,041		3,810		4,041		3,729		3,881
Total operating horsepower (at period end)⁽²⁾	3,322		3,295		3,322		3,295		3,504		3,275
Average operating horsepower	3,297		3,316		3,277		3,339		3,475		3,257
Horsepower utilization:
Spot (at period end)	87	%	82	%	87	%	82	%	94	%	84	%
Average	86	%	82	%	85	%	82	%	93	%	84	%

(1)	Defined as idle and operating horsepower. Includes new compressors completed by third party manufacturers that have been delivered to us.

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

~~Non-GAAP~~Non–GAAP Financial Measures

Management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include the ~~non-GAAP~~non–GAAP financial measure of gross margin.

~~Table of Contents~~

We define gross margin as total revenue less cost of sales (excluding depreciation and amortization). Gross margin is included as a supplemental disclosure because it is a primary measure used by our management to evaluate the results of revenue and cost of sales (excluding depreciation and amortization), which are key components of our operations. We believe gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations, the indirect costs associated with our SG&A activities, our financing methods and income taxes. In addition, depreciation and amortization may not accurately reflect the costs required to maintain and replenish the operational usage of our assets and therefore may not portray the costs of current operating activity. As an indicator of our operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP. Our gross margin may not be comparable to a ~~similarly-titled~~similarly–titled measure of other entities because other entities may not calculate gross margin in the same manner.

Table of Contents

Gross margin has certain material limitations associated with its use as compared to net ~~income (loss).~~income. These limitations are primarily due to the exclusion of SG&A, depreciation and amortization, impairments, restructuring charges, interest expense, ~~(gain) loss~~gain on sale of assets, net, other expense (income) ~~expense,~~, net and provision for ~~(benefit from)~~ income taxes. Because we intend to finance a portion of our operations through borrowings, interest expense is a necessary element of our costs and our ability to generate revenue. Additionally, because we use capital assets, depreciation expense is a necessary element of our costs and our ability to generate revenue and SG&A is necessary to support our operations and required corporate activities. To compensate for these limitations, management uses this ~~non-GAAP~~non–GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding of our performance.

The following table reconciles net income to gross margin:

Three Months Ended

Six Months Ended

June 30,

June 30,
(in thousands)

2022

2021

2022

2021
Net income

$
16,746

$
8,752

$
18,467

$
12,921
Selling, general and administrative

27,691

26,077

55,464

51,161
Depreciation and amortization

41,356

44,193

84,395

89,905
Long-lived and other asset impairment

4,647

2,960

12,063

10,033
Restructuring charges

—

743

—

1,640
Interest expense

24,456

25,958

49,702

57,203
Gain on sale of assets, net

(18,948)

(3,124)

(21,060)

(14,156)
Other (income) expense, net

497

(82)

533

(1,971)
Provision for income taxes

9,318

1,261

10,261

8,285
Gross margin

$
105,763

$
106,738

$
209,825

$
215,021


	Three Months Ended
	March 31,
(in thousands)	2023		2022
Net income	$	16,485	$	1,721
Selling, general and administrative		26,425		27,773
Depreciation and amortization		40,181		43,039
Long-lived and other asset impairment		2,569		7,416
Restructuring charges		1,047		—
Interest expense		26,581		25,246
Gain on sale of assets, net		(3,605)		(2,112)
Other expense (income), net		603		36
Provision for income taxes		6,158		943
Gross margin	$	116,444	$	104,062

~~Results of Operations:~~ RESULTS OF OPERATIONS

Summary of Results

~~Revenue~~

Revenue was ~~$215.8~~$229.8 million and ~~$195.6~~$197.2 million during the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $413.0 million and $391.0 million during the six months ended June 30, 2022 and 2021,~~ respectively. The ~~increases~~increase in consolidated revenue ~~during these periods were~~was primarily due to increased revenue from both our contract operations business and aftermarket services business. See “Contract Operations” and “Aftermarket Services” below for further details.

~~Net Income~~

Net income was ~~$16.7~~$16.5 million and ~~$8.8~~$1.7 million during the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. The increase was primarily driven by ~~increases~~higher gross margin from both our contract operations business and aftermarket services business, an increase in gain on sale of assets, net and ~~gross margin from our aftermarket services business, as well as~~ decreases in depreciation and amortization and interest expense. These changes were partially offset by a decrease in gross margin from our contract operations business and increases in our provision for income taxes, SG&A and long-lived and other asset impairment.

~~Table of Contents~~

Net income was $18.5 million and $12.9 million during the six months ended June 30, 2022 and 2021, respectively. The increase was primarily driven by increases in gain on sale of assets, net and gross margin from our aftermarket services business, as well as decreases in interest expense, depreciation and amortization and restructuring charges. These changes were partially offset by a decrease in gross margin from our contract operations business, increases in SG&A, long-lived and other asset impairment ~~and provision for income taxes and a change from net other income to net other~~ expense.

~~Results of Operations:~~ Three Months Ended ~~June 30, 2022~~March 31, 2023 Compared to Three Months Ended ~~June 30, 2021~~March 31, 2022

Contract Operations


	Three Months Ended								Three Months Ended
	June 30,						Increase		March 31,						Increase
(dollars in thousands)	2022			2021			(Decrease)		2023			2022			(Decrease)
Revenue	$	166,298		$	163,865		1	%	$	187,745		$	163,656		15	%
Cost of sales (excluding depreciation and amortization)		68,355			61,387		11	%		79,482			64,501		23	%
Gross margin	$	97,943		$	102,478		(4)	%	$	108,263		$	99,155		9	%
Gross margin percentage ⁽¹⁾		59	%		63	%	(4)	%		58	%		61	%	(3)	%

(1)	Defined as gross margin divided by revenue.

Revenue in our contract operations business increased primarily due to an increase in average operating horsepower and higher rates for contract ~~operations rates~~compression in response to improving market conditions, ~~and units returning to operating status from standby, which was~~ partially offset by the impact of ~~the~~ strategic ~~disposition~~dispositions of ~~147,000~~ horsepower in ~~2021. Adjusting for these dispositions, operating horsepower increased quarter over quarter.~~2022.

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Despite ~~this~~the increase in revenue, gross margin percentage decreased due to ~~a larger~~an increase in cost of sales. ~~Start-up, maintenance,~~Maintenance, start–up, lube oil and other operating expenses increased, driven by higher pricing throughout our supply chain, as well as increased volumes associated with unit redeployment as customer activity accelerated. Further, cost of sales for the three months ended March 31, 2023 includes an increase of $2.0 million for sales tax as a result of a change in tax compliance for sales tax associated with contract operations cost of sales. Amounts in prior periods were recognized in SG&A. Partially offsetting these cost increases was the decrease in expense attributable to the horsepower sold in ~~2021.~~2022.

Aftermarket Services

Three Months Ended

June 30,

Increase

(dollars in thousands)

2022

2021

(Decrease)

Revenue

$
49,530

$
31,750

56
%
Cost of sales (excluding depreciation and amortization)

41,710

27,490

52
%
Gross margin

$
7,820

$
4,260

84
%
Gross margin percentage

16
%

13
%
3
%


	Three Months Ended
	March 31,						Increase
(dollars in thousands)	2023			2022			(Decrease)
Revenue	$	42,089		$	33,545		25	%
Cost of sales (excluding depreciation and amortization)		33,908			28,638		18	%
Gross margin	$	8,181		$	4,907		67	%
Gross margin percentage		19	%		15	%	4	%

Revenue in our aftermarket services business increased primarily due to ~~increases in~~higher parts sales and service activities, as the market recovery drove an increase in customer demand.

Gross margin increased ~~due to~~in our aftermarket services business as a result of increased revenue partially offset by the ~~increase in revenue and despite an~~associated increase in cost of sales, which was primarily driven by the same increases in parts sales and service activities.

~~Table of Contents~~

Costs and Expenses

Three Months Ended

June 30,
(in thousands)

2022

2021
Selling, general and administrative

$
27,691

$
26,077
Depreciation and amortization

41,356

44,193
Long-lived and other asset impairment

4,647

2,960
Restructuring charges

—

743
Interest expense

24,456

25,958
Gain on sale of assets, net

(18,948)

(3,124)
Other (income) expense, net

497

(82)


	Three Months Ended
	March 31,
(in thousands)	2023		2022
Selling, general and administrative	$	26,425	$	27,773
Depreciation and amortization		40,181		43,039
Long-lived and other asset impairment		2,569		7,416
Restructuring charges		1,047		—
Interest expense		26,581		25,246
Gain on sale of assets, net		(3,605)		(2,112)
Other expense (income), net		603		36

Selling, general and administrative. The ~~increase~~decrease in SG&A was ~~primarily~~ due to a ~~$0.7~~$0.4 million decrease in allowance for credit losses, partially offset by a $1.2 million increase in ~~bad debt expense~~employee compensation and benefit costs. Further, SG&A for the three months ended March 31, 2023 includes a ~~$0.7~~decrease of $2.0 million ~~increase~~for sales tax as a result of a change in ~~information technology expense, which largely consisted~~tax compliance for sales tax associated with contract operations cost of ~~increased service agreement costs and amortization of capitalized implementation costs related to the substantial completion of our process and technology transformation project at the end of 2021.~~sales. Amounts in prior periods were recognized in SG&A.

Depreciation and amortization. The decrease in depreciation and amortization expense was primarily due to a decrease in depreciation expense resulting from assets reaching the end of their depreciable lives, and the impact of compression and other asset ~~sales.~~sales and long-lived asset impairments. These decreases were partially offset by an increase in depreciation expense associated with fixed asset additions.

Table of Contents

Long-lived and other asset ~~impairment.~~impairment.We periodically review the future deployment of our idle compressors for units that are not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. ~~In addition, we~~We also evaluate for impairment our idle units that have been culled from our compression fleet in prior years and are available for sale. During the three months ended March 31, 2023 and 2022, we recognized $2.6 million and $7.4 million, respectively, of impairment charges to write down these compressors to their fair value. See Note 119 (“Long-Lived Asset and Other ~~Asset Impairment”~~Impairments”) ~~to our Financial Statements~~ for further ~~details.~~details on these impairment charges. The following table presents the results of our compression fleet impairment review, as recorded in our contract operations segment:

Three Months Ended

June 30,
(dollars in thousands)

2022

2021
Idle compressors retired from the active fleet

30

45
Horsepower of idle compressors retired from the active fleet

26,000

13,000
Impairment recorded on idle compressors retired from the active fleet

$
4,647

$
2,832


	Three Months Ended
	March 31,
(dollars in thousands)	2023		2022
Idle compressors retired from the active fleet		30		45
Horsepower of idle compressors retired from the active fleet		14,000		31,000
Impairment recorded on idle compressors retired from the active fleet	$	2,569	$	7,409

Restructuring charges.Restructuring charges of ~~$0.7~~$1.0 million during the three months ended ~~June 30, 2021 primarily~~March 31, 2023 consisted of severance and consulting costs related to our ~~pandemic~~ restructuring activities. See Note 1210 (“Restructuring Charges”) ~~to our Financial Statements~~ for further ~~details.~~details on these restructuring charges

Interest expense. The ~~decrease~~increase in interest expense was ~~primarily~~ due to a ~~decrease in the~~higher average outstanding balance of ~~long-term debt.~~long–term debt and a higher average interest rate as a result of the expiration of our interest rate swaps in the first quarter of 2022, partially offset by an increase in capitalized interest.

Gain on sale of assets, net. The increase in gain on sale of assets ~~net~~ was primarily due to ~~the $16.7 million gain on the May 2022 Disposition and~~ gains of ~~$1.8~~$3.3 million ~~recognized~~ on ~~other~~ compression ~~assets sold~~asset sales during the three months ended ~~June 30, 2022,~~March 31, 2023 compared to gains of ~~$2.1~~$1.3 million ~~and $1.1 million recognized~~ on ~~sales of~~ compression ~~assets and transportation and shop assets, respectively,~~asset sales during the three months ended ~~June 30, 2021.~~March 31, 2022.

~~Table of Contents~~

Provision for Income Taxes

Three Months Ended

June 30,

Increase

(dollars in thousands)

2022

2021

(Decrease)

Provision for income taxes

$
9,318

$
1,261

639
%
Effective tax rate

36
%

13
%
23
%

The increase in provision for income taxes was primarily due to the tax effect of the increase in book income during the three months ended ~~June 30, 2022~~March 31, 2023 compared towith the three months ended ~~June 30, 2021.~~March 31, 2022.


	Three Months Ended
	March 31,						Increase
(dollars in thousands)	2023			2022			(Decrease)
Provision for income taxes	$	6,158		$	943		553	%
Effective tax rate		27	%		35	%	(8)	%

~~Results of Operations: Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021~~

~~Contract Operations~~LIQUIDITY AND CAPITAL RESOURCES

Six Months Ended

June 30,

Increase

(dollars in thousands)

2022

2021

(Decrease)

Revenue

$
329,954

$
329,899

—
%
Cost of sales (excluding depreciation and amortization)

132,856

122,752

8
%
Gross margin

$
197,098

$
207,147

(5)
%
Gross margin percentage

60
%

63
%
(3)
%

Revenue was unchanged primarily due to an increase in contract operations rates in response to improving market conditions and units returning to operating status from standby, and the offsetting impact of the strategic disposition of 147,000 horsepower in 2021. Adjusting for these dispositions, operating horsepower increased year over year.

With revenue unchanged, gross margin decreased with the increase in cost of sales. Start-up, maintenance, lube oil and other operating expenses increased, driven by higher pricing throughout our supply chain, as well as increased volumes associated with unit redeployment as customer activity accelerated. Partially offsetting these cost increases was the decrease in expense attributable to the horsepower sold in 2021.

~~Aftermarket Services~~

Six Months Ended

June 30,

Increase

(dollars in thousands)

2022

2021

(Decrease)

Revenue

$
83,075

$
61,147

36
%
Cost of sales (excluding depreciation and amortization)

70,348

53,273

32
%
Gross margin

$
12,727

$
7,874

62
%
Gross margin percentage

15
%

13
%
2
%

~~Revenue increased primarily due to increases in parts sales and service activities, as the market recovery drove an increase in customer demand.~~

~~Gross margin increased due to the increase in revenue and despite an increase in cost of sales, which was primarily driven by the same increases in parts sales and service activities.~~

~~Table of Contents~~

~~Costs and Expenses~~Overview

Six Months Ended

June 30,
(in thousands)

2022

2021
Selling, general and administrative

$
55,464

$
51,161
Depreciation and amortization

84,395

89,905
Long-lived and other asset impairment

12,063

10,033
Restructuring charges

—

1,640
Interest expense

49,702

57,203
Gain on sale of assets, net

(21,060)

(14,156)
Other (income) expense, net

533

(1,971)

~~Selling, general and administrative.~~ The increase in SG&A was primarily due to a $1.8 million increase in sales and use tax that was mainly driven by audit settlements in 2021 and no comparable settlements in 2022, a $0.7 million increase in information technology expense, which largely consisted of increased service agreement costs and amortization of capitalized implementation costs related to the substantial completion of our process and technology transformation project at the end of 2021, and $0.6 million increases in each of employee travel and meeting expense and bad debt expense.

~~Depreciation and amortization.~~ The decrease in depreciation and amortization expense was primarily due to a decrease in depreciation expense resulting from assets reaching the end of their depreciable lives, the impact of compression and other asset sales and impairments and a decrease in amortization expense as certain intangible assets reached the end of their useful lives. These decreases were partially offset by an increase in depreciation expense associated with fixed asset additions.

~~Long-lived and other asset impairment.~~ We periodically review the future deployment of our idle compressors for units that are not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. In addition, we evaluate for impairment idle units that have been culled from our compression fleet in prior years and are available for sale. See Note 11 (“Long-Lived and Other Asset Impairment”) to our Financial Statements for further details. The following table presents the results of our compression fleet impairment review, as recorded in our contract operations segment:

Six Months Ended

June 30,
(dollars in thousands)

2022

2021
Idle compressors retired from the active fleet

75

115
Horsepower of idle compressors retired from the active fleet

57,000

37,000
Impairment recorded on idle compressors retired from the active fleet

$
12,056

$
9,844

~~Restructuring charges.~~ Restructuring charges of $1.6 million during the six months ended June 30, 2021 primarily consisted of severance costs related to our pandemic restructuring activities. See Note 12 (“Restructuring Charges”) to our Financial Statements for further details.

~~Interest expense.~~ The decrease in interest expense was primarily due to the $4.9 million write-off of unamortized deferred financing costs related to the amendment of our Credit Facility in the first quarter of 2021 and a decrease in the average outstanding balance of long-term debt.

~~Gain on sale of assets, net~~. Our net gain on the sale of assets during the six months ended June 30, 2022 was primarily due to the $16.7 million gain on the May 2022 Disposition and gains of $3.2 million and $1.1 million recognized on sales of other compression assets and transportation and shop assets, respectively, during the period.

~~Table of Contents~~

Our net gain on the sale of assets during the six months ended June 30, 2021 was primarily due to the $6.0 million gain on the February 2021 Disposition and gains of $6.4 million and $2.1 million recognized on sales of other compression assets and transportation and shop assets, respectively, during the period.

~~Other (income) expense, net~~. The change from net other income to net other expense was primarily due to a $0.9 million reduction in indemnification expense in 2021 due to the settlement of an audit pursuant to our tax matters agreement with Exterran Corporation, as well as income in 2021 of $0.3 million and $0.3 million related to compressor parts recycling and equipment damaged at a customer site, respectively.

~~Provision for Income Taxes~~

Six Months Ended

June 30,

Increase

(dollars in thousands)

2022

2021

(Decrease)

Provision for income taxes

$
10,261

$
8,285

24
%
Effective tax rate

36
%

39
%
(3)
%

The increase in provision for income taxes was primarily due to the tax effect of the increase in book income during the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

~~Liquidity and Capital Resources~~

~~Overview~~

Our ability to fund operations, finance capital expenditures and pay dividends depends on the levels of our operating cash flows and access to the capital and credit markets. Our primary sources of liquidity are cash flows generated from our operations and our borrowing availability under our Credit Facility. Our cash flow is affected by numerous factors including prices and demand for our services, oil and natural gas exploration and production spending, conditions in the financial markets and other factors. We have no near-term maturities and believe that our operating cash flows and borrowings under the Credit Facility will be sufficient to meet our future liquidity needs.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, may be material, will be upon terms and prices as we may determine and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Table of Contents

Cash Requirements

Our contract operations business is capital intensive, requiring significant investment to maintain and upgrade existing operations. Our capital spending is primarily dependent on the demand for our contract operations services and the availability of the type of compression equipment required for us to provide those contract operations services to our customers. Our capital requirements have consisted primarily of, and we anticipate will continue to consist of, the following:

•

operating expenses, namely employee compensation and benefits and inventory and lube oil purchases;

•

growth capital expenditures;

•

maintenance capital expenditures;

•

interest on our outstanding debt obligations; and

•

dividend payments to our stockholders.

~~Table of Contents~~

Capital Expenditures

Growth Capital Expenditures. The majority of our growth capital expenditures are related to the acquisition cost of new compressors when our idle equipment cannot be reconfigured to economically fulfill a project’s requirements and the new compressor is expected to generate economic returns that exceed our cost of capital over the compressor’s expected useful life. In addition to newly-acquired compressors, growth capital expenditures include the upgrading of major components on an existing compression package where the current configuration of the compression package is no longer in demand and the compressor is not likely to return to an operating status without the capital expenditures. These expenditures substantially modify the operating parameters of the compression package such that it can be used in applications for which it previously was not suited.

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

Projected Capital Expenditures. We currently plan to spend approximately ~~$230~~$270 million to ~~$235~~$295 million in capital expenditures during ~~2022,~~2023, primarily consisting of approximately ~~$150~~$180 million to $200 million for growth capital expenditures and approximately ~~$70~~$75 million to ~~$75~~$80 million for maintenance capital expenditures. ~~We anticipate increased 2022~~The increase in 2023 capital expenditures, particularly growth capital expenditures, as compared to ~~2021~~2022 is due to increased investment in new compression equipment as a result of higher customer demand.

Dividends

On ~~July 28, 2022,~~April 27, 2023, our Board of Directors declared a quarterly dividend of ~~$0.145~~$0.15 per share of common stock to be paid on ~~August~~May 16, ~~2022~~2023 to stockholders of record at the close of business on ~~August~~May 9, ~~2022.~~2023. Any future determinations to pay cash dividends to our stockholders will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations and credit and loan agreements in effect at that time and other factors deemed relevant by our Board of Directors.

Share Repurchase Program

On April 27, 2023, our Board of Directors authorized a share repurchase program that allows us to repurchase up to $50.0 million of outstanding common stock. Under the 2023 Share Repurchase Program, shares of our common stock may be repurchased periodically, including in the open market, privately negotiated transactions, or otherwise in accordance with applicable federal securities laws, at any time until April 27, 2024. The actual timing, manner, number, and value of shares repurchased under the program will be determined by us at our discretion.

Table of Contents

Sources of Cash

Revolving Credit Facility

During the ~~six~~three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, the~~our Credit Facility had an average ~~daily~~debt balance of ~~$231.5~~$252.3 million and ~~$345.3~~$225.9 million, respectively. The weighted average annual interest rate on the outstanding balance under the Credit Facility, excluding the effect of interest rate swaps, was ~~3.9%~~7.4% and ~~2.6%~~6.9% at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. As of ~~June 30, 2022,~~March 31, 2023, there were ~~$5.8~~$4.1 million letters of credit outstanding under the Credit Facility and the applicable margin on borrowings outstanding was ~~2.3%~~2.5%.

As of ~~June 30, 2022,~~March 31, 2023, we were in compliance with all covenants under our Credit Facility. ~~As a result of the facility’s financial ratio requirements, $476.6 million of the $508.5 million of~~Additionally, all undrawn capacity on our Credit Facility was available for ~~additional~~ borrowings as of ~~June 30, 2022.~~March 31, 2023.

~~At-the-Market Continuous Equity Offering Program~~

During the six months ended June 30, 2022 and 2021, we sold 447,020 and 357,148 shares of common stock for net proceeds of $4.2 million and $3.4 million, respectively, pursuant to our ATM agreement. See Note 9 (“Equity”) to our Financial Statements for further details.

~~Table of Contents~~

Cash Flows

Our cash flows, as reflected in our unaudited condensed consolidated statements of cash flows, are summarized below:


	Six Months Ended				Three Months Ended
	June 30,				March 31,
(in thousands)	2022		2021		2023		2022
Net cash provided by (used in):
Operating activities	$	89,524	$	126,617	$	87,856	$	76,572
Investing activities		(46,034)		(866)		(57,666)		(36,658)
Financing activities		(43,109)		(123,536)		(28,705)		(40,221)
Net increase in cash and cash equivalents	$	381	$	2,215
Net (decrease) increase in cash and cash equivalents					$	1,485	$	(307)

Operating Activities

The ~~decrease~~increase in net cash provided by operating activities was primarily due to increased cash ~~outflow for cost of sales, contract costs, SG&A~~inflows from net income and ~~inventory, as well as decreased cash inflow from~~ accounts ~~receivable. Partially offsetting these decreases~~receivable, partially offset by changes in ~~operating cash were increased cash inflow from revenue and deferred revenue and decreased cash outflow for~~ accounts payable and other ~~liabilities, restructuring charges and interest paid on long-term debt.~~liabilities.

Investing Activities

The increase in net cash used in investing activities was primarily due to a ~~$67.3~~$39.5 million increase in capital expenditures, a decrease of $2.8 million in insurance and other settlements and the ~~$8.0~~$2.0 million investment made in unconsolidated entities during the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023. These cash outflows were partially offset by ~~a $28.3~~an increase of $23.3 million ~~increase~~ in proceeds from ~~the~~ sales of property, plant and equipment.

Financing Activities

The decrease in net cash used in financing activities was primarily due to ~~$76.5~~a $12.8 million ofreduction in net repayments of long-term debt, ~~during 2021, compared to~~partially offset by increases of $1.4 million and $1.2 million in ~~net borrowings in 2022.~~purchases of treasury stock and dividends paid to stockholders, respectively.

~~Item~~ITEM 3. ~~Quantitative and Qualitative Disclosures About Market Risk~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market ~~risk~~risks associated with changes in the variable interest rate of our Credit Facility. We have previously used derivative instruments to manage our exposure to fluctuations in this variable interest rate, however, our interest rate swaps expired in the first quarter of 2022, and all borrowings under the Credit Facility are now subject to variable interest rates.

A 1% increase in the effective interest rate on our Credit Facility’s outstanding balance at ~~June 30, 2022~~March 31, 2023 would have resulted in an annual increase in our interest expense of ~~$2.4~~$2.5 million.

~~Item~~ITEM 4. ~~Controls and Procedures~~CONTROLS AND PROCEDURES

This Item 4 includes information concerning the controls and controls evaluation referred to in the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule ~~13a-14~~13a–14 of the Exchange Act included in this ~~Quarterly Report~~Form 10–Q as Exhibits 31.1 and 31.2.

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Management’s Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act), which are designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our reports under the Exchange Act within the time periods specified in the rules and forms of the SEC. Based on the evaluation, as of ~~June 30, 2022~~March 31, 2023 our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, and made known to our principal executive officer and principal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

~~Changes in Internal Control over Financial Reporting~~

During the first quarter of 2022, we implemented a new ERP system, which replaced our existing core financial systems, resulting in changes to our financial close processes and procedures. As a result of the implementation, certain internal controls over financial reporting were automated, modified or implemented. While we believe the new ERP system will enhance our internal controls, there are inherent risks in implementing any new system, and we will continue to evaluate these control changes as part of our assessment of control design and effectiveness throughout 2022.

There were no other 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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Table of Contents

PART II. OTHER INFORMATION

~~Item~~ITEM 1. ~~Legal Proceedings~~LEGAL PROCEEDINGS

In the ordinary course of business, we are involved in various pending or threatened legal actions. While we are unable to predict the ultimate outcome of these actions, we believe that any ultimate liability arising from any of these actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows, including our ability to pay dividends. However, because of the inherent uncertainty of litigation and arbitration proceedings, we cannot provide assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our consolidated financial position, results of operations or cash flows, including our ability to pay dividends.

~~Item~~ITEM 1A. ~~Risk Factors~~RISK FACTORS

There have been no material changes or updates to the risk factors previously disclosed in our ~~2021~~ Form ~~10-K.~~10–K.

~~Item~~ITEM 2. ~~Purchases~~UNREGISTERED SALES OF EQUITY SECURITIES BY ISSUER AND USE OF PROCEEDS

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

The following table summarizes our purchases of equity securities during the three months ended ~~June 30, 2022:~~March 31, 2023:

Maximum

Number of Shares

Total Number of

That May Yet be

Total Number of

That May Yet be

Average

Shares Purchased

Purchased Under

Average

Shares Purchased

Purchased Under

Total Number

Price

as Part of Publicly

the Publicly

Total Number

Price

as Part of Publicly

the Publicly

of Shares

Paid per

Announced Plans

of Shares

Paid per

Announced Plans

Purchased ⁽¹⁾

Share

or Programs

Purchased ⁽¹⁾

Share

or Programs

April 1, 2022 — April 30, 2022

303

9.16

N/A

May 1, 2022 — May 31, 2022

—

N/A

June 1, 2022 — June 30, 2022

—

N/A

January 1, 2023 — January 31, 2023

298,693

9.37

N/A

February 1, 2023 — February 28, 2023

—

N/A

March 1, 2023 — March 31, 2023

85,073

11.45

N/A

Total

303

9.16

N/A

383,766

9.83

N/A

(1)	Represents shares ~~withheld~~of common stock purchased from employees to satisfy ~~employees’~~ tax withholding obligations in connection with the vesting of restricted stock awards during the period.

~~Item~~ITEM 3. ~~Defaults upon Senior Securities~~DEFAULTS UPON SENIOR SECURITIES

None.

~~Item~~ITEM 4. ~~Mine Safety Disclosures~~MINE SAFETY DISCLOSURES

Not applicable.

~~Item~~ITEM 5. ~~Other Information~~OTHER INFORMATION

None.

3527

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~~Item~~ITEM 6. ~~Exhibits~~EXHIBITS

The exhibits listed below are filed or furnished as part of this report:



~~Exhibit No.~~		~~Description~~
3.1		Composite Certificate of Incorporation of Archrock, Inc. ~~(as~~, as amended as of November 3, ~~2015), incorporated~~2015, (incorporated by reference to Exhibit 3.3 to ~~the Registrant’s~~Archrock Inc.’s Annual Report on Form ~~10-K~~10–K for the year ended December 31, 2015)
3.2		Third Amended and Restated Bylaws of Exterran Holdings, Inc. ~~(now~~, now Archrock, Inc.~~), incorporated~~ (incorporated by reference to Exhibit 3.1 of ~~the Registrant’s~~Archrock Inc.’s Current Report on Form ~~8-K~~8–K filed on March 20, 2013)
3.3		Amendment No. 1 to Third Amended and Restated Bylaws of Archrock, Inc.~~, incorporated~~ (incorporated by reference to Exhibit 3.1 of ~~the Registrant’s~~Archrock Inc.’s Current Report on Form ~~8-K~~8–K filed on May 5, 2020)
31.1*		Certification of the Principal Executive Officer pursuant to Section 302 of the ~~Sarbanes-Oxley~~Sarbanes–Oxley Act of 2002
31.2*		Certification of the Principal Financial Officer pursuant to Section 302 of the ~~Sarbanes-Oxley~~Sarbanes–Oxley Act of 2002
32.1**		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the ~~Sarbanes-Oxley~~Sarbanes–Oxley Act of 2002
32.2**		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the ~~Sarbanes-Oxley~~Sarbanes–Oxley Act of 2002
101.1*		Interactive data files (formatted in Inline XBRL) pursuant to Rule 405 of Regulation ~~S-T~~S–T
104.1*		Cover page interactive data file (formatted in Inline XBRL) pursuant to Rule 406 of Regulation ~~S-T~~S–T

* Filed ~~herewith.~~herewith

** Furnished, not ~~filed.~~filed

3628

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Archrock, Inc.

	By:	/s/ Douglas S. Aron
		Douglas S. Aron
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

	By:	/s/ Donna A. Henderson
		Donna A. Henderson
		Vice President and Chief Accounting Officer
		(Principal Accounting Officer)

		~~August~~May 3, ~~2022~~2023

3729


Delaware	74-3204509
(State or other jurisdiction of incorporation or organization) or organization)	(I.R.S. Employer Identification No.)


Title of each class	Trading Symbol	Name of exchange on which registered
Common stock, $0.01 par value per share	AROC	New York Stock Exchange


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐


						Accumulated
	Common			Additional		Other				Treasury
	Stock			Paid-in		Comprehensive		Accumulated		Stock
	Amount		Shares	Capital		Loss		Deficit		Amount		Shares	Total
Balance at March 31, 2021	$	1,613	161,323,492	$	3,430,910	$	(4,010)	$	(2,419,974)	$	(85,415)	(7,263,173)	$	923,124
Treasury stock purchased											(4)	(383)		(4)
Cash dividends ($0.145 per common share)									(22,331)					(22,331)
Shares issued under ESPP			16,062		136									136
Stock-based compensation, net of forfeitures					3,178							(14,893)		3,178
Comprehensive income
Net income									8,752					8,752
Interest rate swap gain, net of reclassifications to earnings							966							966
Balance at June 30, 2021	$	1,613	161,339,554	$	3,434,224	$	(3,044)	$	(2,433,553)	$	(85,419)	(7,278,449)	$	913,821

Balance at March 31, 2022	$	1,629	162,919,584	$	3,443,261	$	—	$	(2,484,066)	$	(88,501)	(7,698,812)	$	872,323
Treasury stock purchased											(3)	(303)		(3)
Cash dividends ($0.145 per common share)									(22,494)					(22,494)
Shares issued under ESPP		—	18,786		146									146
Stock-based compensation, net of forfeitures		—	—		2,970							(41,804)		2,970
Net proceeds from issuance of common stock		4	447,020		4,226									4,230
Comprehensive income
Net income									16,746					16,746
Balance at June 30, 2022	$	1,633	163,385,390	$	3,450,603	$	—	$	(2,489,814)	$	(88,504)	(7,740,919)	$	873,918


	Declared Dividends		Dividends Paid
	per Common Share		(in thousands)
2022
Q2	$	0.145	$	22,494
Q1		0.145		22,673

2021
Q4	$	0.145	$	22,351
Q3		0.145		22,506
Q2		0.145		22,331
Q1		0.145		22,155


		Weighted
		Average
		Grant Date
	Shares	Fair Value
	(in thousands)	Per Share
Non-vested restricted stock, December 31, 2021	2,578	$	10.35
Granted	1,861		9.03
Vested	(1,106)		10.31
Canceled	(188)		9.35
Non-vested restricted stock, June 30, 2022 ⁽¹⁾	3,145		9.64