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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

or

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from         to        

Commission File No. 001-33666

Archrock, Inc.

(Exact name of registrant as specified in its charter)

Delaware

74-3204509

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

9807 Katy Freeway, Suite 100, Houston, Texas 77024

(Address of principal executive offices, zip code)

(281) 836-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Number of shares of the common stock of the registrant outstanding as of July 27, 2022: 155,624,577 shares.

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

10

Notes to Condensed Consolidated Financial Statements

11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3. Quantitative and Qualitative Disclosures About Market Risk

33

Item 4. Controls and Procedures

33

Part II. Other Information

Item 1. Legal Proceedings

35

Item 1A. Risk Factors

35

Item 2. Purchases of Equity Securities by Issuer and Affiliated Purchasers

35

Item 3. Defaults Upon Senior Securities

35

Item 4. Mine Safety Disclosures

35

Item 5. Other Information

35

Item 6. Exhibits

36

Signatures

37

2

GLOSSARY

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

2021 Form 10-K

Annual Report on Form 10-K for the year ended December 31, 2021

2027 Notes

$500.0 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

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

3

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “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 are 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 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. Although we believe that the expectations reflected in these 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 statements include the risk factors described in our 2021 Form 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 statements included in this Quarterly Report on Form 10-Q are based on information available to us on the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral 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.

4

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

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

1,950

$

1,569

Accounts receivable, trade, net of allowance of $2,299 and $2,152, respectively

 

129,323

 

104,931

Inventory

 

77,636

 

72,869

Other current assets

 

8,126

 

7,201

Total current assets

 

217,035

 

186,570

Property, plant and equipment, net

 

2,211,744

 

2,226,526

Operating lease ROU assets

 

16,796

 

17,491

Intangible assets, net

 

42,187

 

47,887

Contract costs, net

 

28,784

 

25,418

Deferred tax assets

 

41,096

 

47,879

Other assets

 

34,485

 

28,384

Noncurrent assets associated with discontinued operations

 

9,199

 

9,811

Total assets

$

2,601,326

$

2,589,966

Liabilities and Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable, trade

$

78,108

$

38,920

Accrued liabilities

 

66,966

 

82,517

Deferred revenue

 

6,455

 

3,817

Total current liabilities

 

151,529

 

125,254

Long-term debt

 

1,532,438

 

1,530,825

Operating lease liabilities

 

14,987

 

15,940

Deferred tax liabilities

 

1,332

 

1,136

Other liabilities

 

19,254

 

17,505

Noncurrent liabilities associated with discontinued operations

 

7,868

 

7,868

Total liabilities

 

1,727,408

 

1,698,528

Commitments and contingencies (Note 18)

 

  

 

  

Equity:

 

  

 

  

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

 

 

Common stock: $0.01 par value per share, 250,000,000 shares authorized, 163,385,390 and 161,482,852 shares issued, respectively

 

1,633

 

1,615

Additional paid-in capital

 

3,450,603

 

3,440,059

Accumulated other comprehensive loss

 

 

(984)

Accumulated deficit

 

(2,489,814)

 

(2,463,114)

Treasury stock: 7,740,919 and 7,417,401 common shares, at cost, respectively

 

(88,504)

 

(86,138)

Total equity

 

873,918

 

891,438

Total liabilities and equity

$

2,601,326

$

2,589,966

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

5

Archrock, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

Revenue:

 

  

 

  

 

  

 

  

Contract operations

$

166,298

$

163,865

$

329,954

$

329,899

Aftermarket services

 

49,530

 

31,750

 

83,075

 

61,147

Total revenue

 

215,828

 

195,615

 

413,029

 

391,046

Cost of sales (excluding depreciation and amortization):

 

Contract operations

 

68,355

 

61,387

 

132,856

 

122,752

Aftermarket services

 

41,710

 

27,490

 

70,348

 

53,273

Total cost of sales (excluding depreciation and amortization)

 

110,065

 

88,877

 

203,204

 

176,025

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)

Income before income taxes

 

26,064

 

10,013

 

28,728

 

21,206

Provision for income taxes

 

9,318

 

1,261

 

10,261

 

8,285

Net income

$

16,746

$

8,752

$

18,467

$

12,921

Basic and diluted net income per common share

$

0.11

$

0.06

$

0.12

$

0.08

Weighted average common shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

153,033

 

152,033

 

152,857

 

151,537

Diluted

 

153,164

 

152,203

 

152,982

 

151,699

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

6

Archrock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

Net income

$

16,746

    

$

8,752

    

$

18,467

    

$

12,921

Other comprehensive income, net of tax:

 

  

 

  

 

  

 

  

Interest rate swap gain, net of reclassifications to earnings

 

 

966

 

574

 

1,962

Amortization of dedesignated interest rate swap

 

 

 

410

 

Total other comprehensive income, net of tax

 

 

966

 

984

 

1,962

Comprehensive income

$

16,746

$

9,718

$

19,451

$

14,883

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

7

Archrock, Inc.

Condensed Consolidated Statements of Equity

(in thousands, except share 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

8

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

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

9

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

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

10

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 focus on midstream natural gas compression. We are the leading provider of natural gas compression services to customers in the energy industry throughout the U.S. and a leading supplier of aftermarket services to customers that own compression equipment in the U.S. We operate in two business segments: contract operations 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 and the rules and regulations of the SEC. Certain 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 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 consolidated financial statements presented in our 2021 Form 10-K, which contains a more comprehensive summary of our accounting policies. The interim results reported herein are not necessarily indicative of results for a full year.

2. Business Transactions

May 2022 Disposition

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. 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

11

4. 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

5. Equity Investments

Investments in which we are deemed to exert significant influence, but not control, are accounted for using the equity method of accounting, except in cases where the fair value option is elected. For such investments where we have elected the fair value option, the election is irrevocable and is applied on an investment-by-investment basis at initial recognition. In April 2022, we agreed to acquire for cash a 25% equity interest in ECOTEC, a company specializing in methane emissions monitoring and management. We have elected the fair value option to account for this investment. As of June 30, 2022, our ownership interest in ECOTEC was 14%, which was included in other assets in our condensed consolidated balance sheets. Changes in the fair value of this investment are recognized in other (income) expense, net in our condensed consolidated statements of operations.

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. 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

12

Credit Facility

As of June 30, 2022, there were $5.8 million letters of credit outstanding under the Credit Facility and the applicable margin on borrowings outstanding was 2.3%. The weighted average annual interest rate on the outstanding balance under the Credit Facility, excluding the effect of interest rate swaps, was 3.9% and 2.6% at June 30, 2022 and December 31, 2021, respectively. We incurred $0.5 million and $0.4 million in commitment fees on the daily unused amount of the Credit Facility during the three months ended June 30, 2022 and 2021, respectively, and $1.0 million during each of the six months ended June 30, 2022 and 2021.

As of June 30, 2022, 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 undrawn capacity was available for additional borrowings as of June 30, 2022.

In February 2021, we amended our Credit Facility 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 result of the amendment, which was recorded to interest expense in our condensed consolidated statements of operations during the six months ended June 30, 2021.

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.

13

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

June 30, 

June 30, 

(in thousands)

    

2022

    

2021

    

2022

    

2021

Contract operations:

  

  

  

  

0 ― 1,000 horsepower per unit

$

40,489

$

45,918

$

82,331

$

92,837

1,001 ― 1,500 horsepower per unit

 

68,697

 

66,852

 

135,698

 

135,316

Over 1,500 horsepower per unit

 

56,885

 

50,939

 

111,479

 

101,342

Other (1)

 

227

 

156

 

446

 

404

Total contract operations revenue (2)

 

166,298

 

163,865

 

329,954

 

329,899

Aftermarket services:

 

  

 

  

 

  

 

  

Services

 

26,001

 

17,008

 

43,138

 

33,900

OTC parts and components sales

 

23,529

 

14,742

 

39,937

 

27,247

Total aftermarket services revenue (3)

 

49,530

 

31,750

 

83,075

 

61,147

Total revenue

$

215,828

$

195,615

$

413,029

$

391,046

(1) Primarily relates to fees associated with owned non-compression equipment.
(2) Includes $0.9 million and $1.4 million for the three months ended June 30, 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.

14

Performance Obligations

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

(in thousands)

    

2022

    

2023

    

2024

    

2025

    

2026

    

2027

    

Total

Remaining performance obligations

$

156,370

$

93,290

$

31,041

$

4,819

$

914

$

190

$

286,624

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 and December 31, 2021, our receivables from contracts with customers, net of allowance for credit losses, were $121.0 million and $84.7 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.

15

Our allowance for credit losses balance changed as follows during the six months ended June 30, 2022:

(in thousands)

Balance at December 31, 2021

      

$

2,152

Provision for credit losses

365

Write-offs charged against allowance

(218)

Balance at June 30, 2022

$

2,299

Contract Liabilities

Freight billings to customers for the transport of compression assets, customer-specified modifications of compression assets and milestone billings on aftermarket services often result in a contract liability. Our contract liabilities were $6.9 million and $4.4 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. During the six months ended June 30, 2022, we deferred revenue of $14.0 million and recognized $11.5 million as revenue. The revenue recognized and deferred during the period primarily related to freight billings and milestone billings on aftermarket services.

11. Long-Lived and Other Asset Impairment

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

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 to our contract operations segment:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

(dollars in thousands)

    

2022

    

2021

    

2022

    

2021

Idle compressors retired from the active fleet

 

30

 

45

 

75

 

115

Horsepower of idle compressors retired from the active fleet

 

26,000

 

13,000

 

57,000

 

37,000

Impairment recorded on idle compressors retired from the active fleet

$

4,647

$

2,832

$

12,056

$

9,844

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12. 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. No additional costs will be incurred under this restructuring plan.

During the third quarter of 2020, a plan to dispose of certain non-core properties was approved by management. We incurred $1.5 million of costs in 2020 and 2021 as a result of these property disposals. No additional costs will be incurred under this restructuring plan.

The severance and property disposal costs incurred under the above restructuring plans were recorded to restructuring charges in our condensed consolidated statements of operations.

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

(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

(in thousands)

June 30, 2021

    

June 30, 2021

Severance costs

$

605

$

1,493

Property disposal costs

Impairment

9

Other exit costs

7

7

Total property disposal costs

7

16

Other restructuring costs

131

131

Total restructuring charges

$

743

$

1,640

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13. 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 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 months ended June 30, 2022 differed significantly from our statutory rate primarily due to unrecognized tax benefits and the limitation on executive compensation.

Unrecognized Tax Benefits

As of June 30, 2022, 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 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.