Form 10-Q - Quarterly report [Sections 13 or 15(d)]

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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, 2023

☐ 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) 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 25, 2023: 156,499,576 shares.

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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 Unaudited Condensed Consolidated Financial Statements	11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	30

Part II. Other Information
Item 1. Legal Proceedings	31
Item 1A. Risk Factors	31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3. Defaults Upon Senior Securities	31
Item 4. Mine Safety Disclosures	31
Item 5. Other Information	31
Item 6. Exhibits	32

Signatures	33

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GLOSSARY

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


2022 Form 10-K	Annual Report on Form 10-K for the year ended December 31, 2022
2023 Share Repurchase Program	Share repurchase program approved by our Board of Directors on April 27, 2023 that allows us to repurchase up to $50.0 million of outstanding common stock.
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
Amended and Restated Credit Agreement	Amended and Restated Credit Agreement, dated May 16, 2023, which amended and restated that Credit Agreement, dated as of March 30, 2017, which governs the Credit Facility
Credit Facility	$750.0 million asset-based revolving credit facility due May 2028, as governed by the Amended and Restated Credit Agreement, dated May 16, 2023, which amended and restated that Credit Agreement, dated as of March 30, 2017
ECOTEC	Ecotec International Holdings, LLC
ESPP	Employee Stock Purchase Plan
Exchange Act	Securities Exchange Act of 1934, as amended
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
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
SEC	U.S. Securities and Exchange Commission
SG&A	Selling, general and administrative
SOFR	Secured Overnight Financing Rate
U.S.	United States of America
WACC	Weighted average cost of capital

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FORWARD–LOOKING STATEMENTS

This Quarterly Report on Form 10–Q (this “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 Form 10–Q are forward–looking statements within the meaning 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 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 2022 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 Form 10–Q are based on information available to us on the date of this 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 Form 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, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	1,193	$	1,566
Accounts receivable, net of allowance of $1,094 and $1,674, respectively		120,676		137,544
Inventory		93,128		84,622
Other current assets		8,571		8,228
Total current assets		223,568		231,960
Property, plant and equipment, net		2,300,589		2,199,253
Operating lease right-of-use assets		15,372		16,706
Intangible assets, net		33,315		37,077
Contract costs, net		36,884		34,736
Deferred tax assets		20,762		33,353
Other assets		41,556		37,079
Non-current assets of discontinued operations		7,974		8,586
Total assets	$	2,680,020	$	2,598,750

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade	$	65,333	$	64,324
Accrued liabilities		71,503		76,915
Deferred revenue		5,261		7,332
Total current liabilities		142,097		148,571
Long-term debt		1,639,239		1,548,334
Operating lease liabilities		13,466		14,861
Deferred tax liabilities		1,090		854
Other liabilities		20,727		17,569
Non-current liabilities of discontinued operations		7,868		7,868
Total liabilities		1,824,487		1,738,057

Commitments and contingencies (Note 6)

Equity:
Preferred stock: $0.01 par value per share, 50,000,000 shares authorized, zero issued		—		—
Common stock: $0.01 par value per share, 250,000,000 shares authorized, 164,940,249 and 163,439,013 shares issued, respectively		1,649		1,634
Additional paid-in capital		3,463,668		3,456,777
Accumulated deficit		(2,515,351)		(2,509,133)
Treasury stock: 8,440,673 and 7,810,548 common shares, at cost, respectively		(94,433)		(88,585)
Total equity		855,533		860,693
Total liabilities and equity	$	2,680,020	$	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
	June 30,				June 30,
	2023		2022		2023		2022
Revenue:
Contract operations	$	201,120	$	166,298	$	388,865	$	329,954
Aftermarket services		46,423		49,530		88,512		83,075
Total revenue		247,543		215,828		477,377		413,029
Cost of sales (excluding depreciation and amortization):
Contract operations		76,033		68,355		155,515		132,856
Aftermarket services		35,343		41,710		69,251		70,348
Total cost of sales (excluding depreciation and amortization)		111,376		110,065		224,766		203,204
Selling, general and administrative		28,649		27,691		55,074		55,464
Depreciation and amortization		41,210		41,356		81,391		84,395
Long-lived and other asset impairment		2,892		4,647		5,461		12,063
Restructuring charges		(85)		—		962		—
Interest expense		28,630		24,456		55,211		49,702
Gain on sale of assets, net		(1,176)		(18,948)		(4,781)		(21,060)
Other expense (income), net		1,463		497		2,066		533
Income before income taxes		34,584		26,064		57,227		28,728
Provision for income taxes		9,931		9,318		16,089		10,261
Net income	$	24,653	$	16,746	$	41,138	$	18,467

Basic and diluted earnings per common share	$	0.16	$	0.11	$	0.26	$	0.12

Weighted average common shares outstanding:
Basic		154,358		153,033		154,234		152,857
Diluted		154,412		153,164		154,326		152,982

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
	June 30,				June 30,
	2023		2022		2023		2022
Net income	$	24,653	$	16,746	$	41,138	$	18,467
Other comprehensive income, net of tax:
Interest rate swap gain, net of reclassifications to earnings		—		—		—		574
Amortization of dedesignated interest rate swap		—		—		—		410
Total other comprehensive income, net of tax		—		—		—		984
Comprehensive income	$	24,653	$	16,746	$	41,138	$	19,451

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 shares and per share amounts)

(unaudited)


								Accumulated
				Additional				Other
	Common Stock			Paid-in		Accumulated		Comprehensive		Treasury Stock
		Amount	Shares	Capital		Deficit		Loss			Amount	Shares	Total
Balance at March 31, 2022	$	1,629	162,919,584	$	3,443,261	$	(2,484,066)	$	—	$	(88,501)	(7,698,812)	$	872,323
Shares withheld related to net settlement of equity awards		—	—		—		—		—		(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
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

Balance at March 31, 2023	$	1,649	164,903,900	$	3,460,259	$	(2,516,500)	$	—	$	(92,358)	(8,207,390)	$	853,050
Shares repurchased		—	—		—		—		—		(2,073)	(222,250)		(2,073)
Shares withheld related to net settlement of equity awards		—	—		—		—		—		(2)	(201)		(2)
Cash dividends ($0.15 per common share)		—	—		—		(23,504)		—		—	—		(23,504)
Shares issued under ESPP		—	21,749		212		—		—		—	—		212
Stock-based compensation, net of forfeitures		—	14,600		3,197		—		—		—	(10,832)		3,197
Net proceeds from issuance of common stock		—	—		—		—		—		—	—		—
Net income		—	—		—		24,653		—		—	—		24,653
Balance at June 30, 2023	$	1,649	164,940,249	$	3,463,668	$	(2,515,351)	$	—	$	(94,433)	(8,440,673)	$	855,533

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								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
Shares withheld related to net settlement of equity awards		—	—		—		—		—		(2,366)	(272,706)		(2,366)
Cash dividends ($0.145 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
Other comprehensive income		—	—		—		—		984		—	—		984
Balance at June 30, 2022	$	1,633	163,385,390	$	3,450,603	$	(2,489,814)	$	—	$	(88,504)	(7,740,919)	$	873,918

Balance at December 31, 2022	$	1,634	163,439,013	$	3,456,777	$	(2,509,133)	$	—	$	(88,585)	(7,810,548)	$	860,693
Shares repurchased		—	—		—		—		—		(2,073)	(222,250)		(2,073)
Shares withheld related to net settlement of equity awards		—	—		—		—		—		(3,775)	(383,967)		(3,775)
Cash dividends ($0.15 per common share)		—	—		—		(47,356)		—		—	—		(47,356)
Shares issued under ESPP		1	42,000		381		—		—		—	—		382
Stock-based compensation, net of forfeitures		14	1,459,236		6,510		—		—		—	(23,908)		6,524
Net proceeds from issuance of common stock		—	—		—		—		—		—	—		—
Net income		—	—		—		41,138		—		—	—		41,138
Balance at June 30, 2023	$	1,649	164,940,249	$	3,463,668	$	(2,515,351)	$	—	$	(94,433)	(8,440,673)	$	855,533

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,
	2023		2022
Cash flows from operating activities:
Net income	$	41,138	$	18,467
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		81,391		84,395
Long-lived and other asset impairment		5,461		12,063
Unrealized change in fair value of investment in unconsolidated affiliate		1,996		—
Inventory write-downs		359		721
Amortization of operating lease right-of-use assets		1,649		1,575
Amortization of deferred financing costs		3,468		2,576
Amortization of debt premium		(1,003)		(1,003)
Amortization of capitalized implementation costs		1,202		—
Amortization of dedesignated interest rate swap		—		410
Interest rate swaps		—		631
Stock-based compensation expense		6,524		6,037
Provision for (benefit from) credit losses		(140)		365
Gain on sale of assets, net		(4,781)		(4,344)
Gain on sale of business		—		(16,716)
Deferred income tax provision		15,417		9,473
Amortization of contract costs		10,250		9,249
Deferred revenue recognized in earnings		(8,754)		(11,541)
Changes in operating assets and liabilities:
Accounts receivable, net		(5,462)		(30,370)
Inventory		(6,642)		(5,779)
Other assets		(2,109)		(1,182)
Contract costs		(12,398)		(13,007)
Accounts payable and other liabilities		(16,102)		13,051
Deferred revenue		7,106		14,032
Other		(172)		421
Net cash provided by operating activities		118,398		89,524

Cash flows from investing activities:
Capital expenditures		(187,476)		(106,066)
Proceeds from sale of business		—		55,523
Proceeds from sale of property, equipment and other assets		38,093		9,728
Proceeds from insurance and other settlements		437		2,781
Investments in unconsolidated entities		(2,000)		(8,000)
Net cash used in investing activities		(150,946)		(46,034)

Cash flows from financing activities:
Borrowings of long-term debt		417,825		405,733
Repayments of long-term debt		(327,300)		(404,500)
Payments of debt issuance costs		(5,528)		—
Payments for settlement of interest rate swaps that include financing elements		—		(1,334)
Dividends paid to stockholders		(47,356)		(45,167)
Net proceeds from issuance of common stock		—		4,230
Repurchases of common stock		(2,073)		—
Taxes paid related to net share settlement of equity awards		(3,775)		(2,366)
Proceeds from stock issued under ESPP		382		295
Net cash provided by (used in) financing activities		32,175		(43,109)
Net increase (decrease) in cash and cash equivalents		(373)		381
Cash and cash equivalents, beginning of period		1,566		1,569
Cash and cash equivalents, end of period	$	1,193	$	1,950

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

1. Description of Business and Basis of Presentation

We are an energy infrastructure company with a pure play focus on midstream natural gas compression. We are the leading provider of natural gas compression services, 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 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 consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by GAAP. Therefore, this information should be read in conjunction with our consolidated financial statements and notes contained in our 2022 Form 10-K. The information furnished herein reflects all adjustments that are, in the opinion of management, of a normal recurring nature and considered necessary for a fair statement of the results of the interim periods reported. All intercompany balances and transactions have been eliminated in consolidation. Operating results for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

2. Inventory

Inventory is comprised of the following:


	June 30,		December 31,
(in thousands)	2023		2022
Parts and supplies	$	78,953	$	70,228
Work in progress		14,175		14,394
Inventory	$	93,128	$	84,622

3. Property, Plant and Equipment

Property, plant and equipment is comprised of the following:


	June 30,		December 31,
(in thousands)	2023		2022
Compression equipment, facilities and other fleet assets	$	3,283,842	$	3,234,239
Land and buildings		38,240		44,304
Transportation and shop equipment		95,517		93,189
Computer hardware and software		77,499		77,357
Other		5,575		5,754
Property, plant and equipment		3,500,674		3,454,843
Accumulated depreciation		(1,200,085)		(1,255,590)
Property, plant and equipment, net	$	2,300,589	$	2,199,253

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 basis at initial recognition.

As of June 30, 2023, our ownership interest in ECOTEC, a company specializing in methane detection, monitoring and management, is 25% and included in other assets in our unaudited condensed consolidated balance sheets. For greater transparency, we have elected the fair value option for this investment.

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

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

5. Long-Term Debt

Long–term debt is comprised of the following:


	June 30,		December 31,
(in thousands)	2023		2022
Credit Facility	$	341,775	$	251,250

6.25% senior notes due April 2028:
Principal outstanding		800,000		800,000
Unamortized debt premium		9,527		10,530
Unamortized debt issuance costs		(7,913)		(8,744)
		801,614		801,786

6.875% senior notes due April 2027:
Principal outstanding		500,000		500,000
Unamortized debt issuance costs		(4,150)		(4,702)
		495,850		495,298

Long-term debt	$	1,639,239	$	1,548,334

As of June 30, 2023, there were $4.5 million letters of credit outstanding under the Credit Facility and the applicable margin on borrowings outstanding was 2.4%. The weighted average annual interest rate on the outstanding balance under the Credit Facility, excluding the effect of interest rate swaps, was 7.7% and 6.9% at June 30, 2023 and December 31, 2022, respectively. We incurred $0.4 million and $0.5 million of commitment fees on the daily unused amount of the Credit Facility during the three months ended June 30, 2023 and 2022, respectively, and $0.9 million and $1.0 million during the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, we were in compliance with all covenants under our Credit Facility agreement. Additionally, all undrawn capacity on our Credit Facility was available for borrowings as of June 30, 2023.

Amended and Restated Credit Agreement

On May 16, 2023, we amended and restated our Credit Facility to, among other things:

●

extend the maturity date of the Credit Facility from November 8, 2024 to May 16, 2028 (or December 2, 2026 or December 3, 2027 if any portion of 2027 Senior Notes and 2028 Senior Notes, respectively, remain outstanding at such date);

●

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

●

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

We incurred $6.0 million in transaction costs related to the Amended and Restated Credit Agreement, which were included in other assets in our condensed consolidated balance sheets and are being amortized over the remaining term of the Credit Facility. In addition, we wrote off $1.0 million of unamortized deferred financing costs as a result of the

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Amended and Restated Credit Agreement, which was recorded to interest expense in our condensed consolidated statements of operations during the three and six months ended June 30, 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.

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, 2023 and December 31, 2022, we had $4.0 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 June 30, 2023 and December 31, 2022, we had $0.6 million accrued for these audits.

Litigation and Claims

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

7. Stockholders’ Equity

2023 Share Repurchase Program

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

applicable federal securities laws, at any time until April 27, 2024. The actual timing, manner, number, and value of shares repurchased under the program will be determined by us at our discretion.

The following table summarizes shares repurchased under the 2023 Share Repurchase Program during the three and six months ended June 30, 2023:


	Three Months Ended		Six Months Ended
(dollars and shares in thousands, except per share amounts)	June 30, 2023		June 30, 2023
Total cost of shares repurchased	$	2,073	$	2,073
Average price per share	$	9.33	$	9.33
Total number of shares repurchased		222		222

Cash Dividends

The following table summarizes our dividends declared and paid in each of the quarterly periods of 2023 and 2022:


	Dividends per		Dividends Paid
(dollars in thousands, except per share amounts)	Common Share		(in thousands)
2023
Q2	$	0.150	$	23,504
Q1		0.150		23,852

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

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Notes to Condensed Consolidated Financial Statements (continued)

8. Revenue from Contracts with Customers

The following table presents our revenue from contracts with customers by segment and disaggregated by revenue source:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2023		2022		2023		2022
Contract operations:
0 ― 1,000 horsepower per unit	$	43,176	$	40,489	$	83,130	$	82,331
1,001 ― 1,500 horsepower per unit		88,008		68,697		169,814		135,698
Over 1,500 horsepower per unit		69,672		56,885		135,386		111,479
Other ⁽¹⁾		264		227		535		446
Total contract operations revenue ⁽²⁾		201,120		166,298		388,865		329,954

Aftermarket services:
Services		24,567		26,001		45,816		43,138
OTC parts and components sales		21,856		23,529		42,696		39,937
Total aftermarket services revenue ⁽³⁾		46,423		49,530		88,512		83,075

Total revenue	$	247,543	$	215,828	$	477,377	$	413,029

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

(2)

Includes $1.1 million and $0.9 million for the three months ended June 30, 2023 and 2022, respectively, and $1.9 million and $1.1 million for the six months ended June 30, 2023 and 2022, 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.

See Note 15 (“Segment Information”) for further information on segments.

Performance Obligations

As of June 30, 2023, we had $413.4 million of remaining performance obligations related to our contract operations segment, which will be recognized through 2028 as follows:


(in thousands)	2023		2024		2025		2026		2027		2028		Total
Remaining performance obligations	$	179,142	$	142,684	$	66,507	$	20,055	$	4,246	$	795	$	413,429

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 June 30, 2023 and December 31, 2022, our receivables from contracts with customers, net of allowance for credit losses, were $115.7 million and $111.9 million, respectively.

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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 months ended June 30, 2023:


(in thousands)
Balance at beginning of period	$	1,674
Benefit from credit losses		(140)
Write-offs charged against allowance		(440)
Balance at end of period	$	1,094

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. As of June 30, 2023 and December 31, 2022, our contract liabilities were $6.4 million and $8.0 million, respectively.

During the six months ended June 30, 2023, we deferred revenue of $7.1 million and recognized $8.8 million as revenue. The revenue recognized during the period primarily related to freight billings and milestone billings on aftermarket services.

9. 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.

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Notes to Condensed Consolidated Financial Statements (continued)

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(dollars in thousands)	2023		2022		2023		2022
Idle compressors retired from the active fleet		15		30		45		75
Horsepower of idle compressors retired from the active fleet		9,000		26,000		23,000		57,000
Impairment recorded on idle compressors retired from the active fleet	$	2,892	$	4,647	$	5,461	$	12,056

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

10. Restructuring Charges

During the first quarter of 2023, a plan to further streamline our organization and more fully align our teams to improve our customer service and profitability was approved by management. We expect to incur additional restructuring charges of $0.3 million related to these restructuring activities.

The following table presents the changes to our accrued liability balance related to restructuring charges during the six months ended June 30, 2023:




(in thousands)	Total
Balance at December 31, 2022	$	—
Charges incurred		962
Payments		(962)
Balance at June 30, 2023	$	—

The following table presents restructuring charges incurred by segment:


	Contract		Aftermarket
(in thousands)	Operations		Services		Other⁽¹⁾		Total
Three months ended June 30, 2023
Organizational restructuring	$	(101)	$	—	$	16	$	(85)
Total restructuring charges	$	(101)	$	—	$	16	$	(85)

Six months ended June 30, 2023
Organizational restructuring	$	101	$	—	$	861	$	962
Total restructuring charges	$	101	$	—	$	861	$	962

(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, 2023		June 30, 2023
Organizational restructuring
Severance costs	$	(85)	$	705
Consulting costs		—		257
Total restructuring charges	$	(85)	$	962

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Notes to Condensed Consolidated Financial Statements (continued)

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 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, 2023 differed significantly from our statutory rate primarily due to state taxes, unrecognized tax benefits and the limitation on executive compensation.

Unrecognized Tax Benefits

As of June 30, 2023, we believe it is reasonably possible that $2.8 million of our unrecognized tax benefits, including penalties, interest and discontinued operations, will be reduced prior to June 30, 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.

12. Earnings Per Common Share

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

Diluted earnings per common share is computed using the weighted average number of common shares outstanding adjusted for the incremental common stock equivalents attributed to outstanding performance–based restricted stock units and stock to be issued pursuant to our ESPP unless their effect would have been anti–dilutive.

The following table shows the calculation of net income attributable to common stockholders, which is used in the calculation of basic and diluted earnings per common share, potential shares of common stock that were included in computing diluted earnings per common share and the potential shares of common stock issuable that were excluded from computing diluted earnings per common share as their inclusion would have been anti–dilutive:

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Notes to Condensed Consolidated Financial Statements (continued)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2023		2022		2023		2022
Net income	$	24,653	$	16,746	$	41,138	$	18,467
Less: Allocation of earnings to participating securities		(354)		(305)		(1,072)		(819)
Net income attributable to common stockholders	$	24,299	$	16,441	$	40,066	$	17,648

Weighted average common shares outstanding used in basic earnings per common share		154,358		153,033		154,234		152,857
Effect of dilutive securities:
Performance-based restricted stock units		54		128		89		123
ESPP shares		—		3		3		2
Weighted average common shares outstanding used in diluted earnings per common share		154,412		153,164		154,326		152,982

13. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of June 30, 2023, we own a 25% equity interest in 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 investment primarily consisted of unobservable inputs, which creates uncertainty in the measurement of fair value as of the reporting date. Significant increases (decreases) in these inputs in isolation would result in a significantly higher (lower) fair value measurement. As of June 30, 2023, the fair value of our investment in ECOTEC was $12.8 million.

This fair value measurement is classified as Level 3. The significant unobservable inputs used in the fair value measurement are the WACC and the revenue multiples. Additional quantitative information related to the significant unobservable inputs are as follows:


	Significant Unobservable Inputs		Range	Median
Valuation technique:
Discounted cash flow	WACC	0% - 17.4%		10.0%
Guideline public company	Revenue multiple	1.6x - 10x		4.0x

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)		2023		2022		2023		2022
Balance at beginning of period	$	14,549	$	—	$	12,803	$	—
Purchases of equity interests		—		8,000		2,000		8,000
Unrealized loss ⁽¹⁾		(1,742)		—		(1,996)		—
Balance at end of period	$	12,807	$	8,000	$	12,807	$	8,000

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

See Note 4 (“Investment in Unconsolidated Affiliate”) for further details.

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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


(in thousands)	June 30, 2023		December 31, 2022
Impaired compressors	$	550	$	1,961

These fair value measurements are classified as Level 3. 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, 2023	$0 - $310 per horsepower	$50 per horsepower
As of December 31, 2022	$0 - $621 per horsepower	$47 per horsepower

(1)	Calculated based on an estimated discount for market liquidity of 38% and 51% as of June 30, 2023 and December 31, 2022, respectively.

See Note 9 (“Long-Lived and Other Asset Impairments”) for further details.

Other Financial Instruments

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

The carrying amount of borrowings outstanding under our Credit Facility approximates fair value due to 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, 2023		December 31, 2022
Carrying amount of fixed rate debt ⁽¹⁾	$	1,297,464	$	1,297,084
Fair value of fixed rate debt		1,231,000		1,214,000

(1) Carrying amounts are shown net of unamortized premium and deferred financing costs. See Note 5 (“Long-Term Debt”).

14. Related Party Transactions

Old Ocean Reserves, an affiliate of our customer Hilcorp, has the right to designate one director to serve on our board of 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, 2023, Old Ocean Reserves owned 9.2% 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.

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Revenue from Hilcorp was $8.7 million and $9.2 million during the three months ended June 30, 2023 and 2022, respectively, and $17.8 million and $18.6 million during the six months ended June 30, 2023 and June 30, 2022, respectively. Accounts receivable, net due from Hilcorp was $3.0 million as of June 30, 2023 and as of December 31, 2022.

15. Segment Information

We manage our business segments primarily based on the type of product or service provided. We have two segments: contract operations and aftermarket services. Our contract operations segment primarily provides natural gas compression services to meet specific customer requirements. 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. 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 June 30, 2023
Revenue	$	201,120	$	46,423	$	247,543
Gross margin		125,087		11,080		136,167

Three months ended June 30, 2022
Revenue	$	166,298	$	49,530	$	215,828
Gross margin		97,943		7,820		105,763

Six months ended June 30, 2023
Revenue	$	388,865	$	88,512	$	477,377
Gross margin		233,350		19,261		252,611

Six months ended June 30, 2022
Revenue	$	329,954	$	83,075	$	413,029
Gross margin		197,098		12,727		209,825

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2023		2022		2023		2022
Total gross margin	$	136,167	$	105,763	$	252,611	$	209,825
Less:
Selling, general and administrative		28,649		27,691		55,074		55,464
Depreciation and amortization		41,210		41,356		81,391		84,395
Long-lived and other asset impairment		2,892		4,647		5,461		12,063
Restructuring charges		(85)		—		962		—
Interest expense		28,630		24,456		55,211		49,702
Gain on sale of assets, net		(1,176)		(18,948)		(4,781)		(21,060)
Other expense (income), net		1,463		497		2,066		533
Income before income taxes	$	34,584	$	26,064	$	57,227	$	28,728

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ITEM 2. 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 Form 10-Q and in conjunction with our 2022 Form 10-K.

OVERVIEW

We are an energy infrastructure company with a pure–play focus on midstream natural gas compression. We are the leading provider of natural gas compression services, 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.

Operating Highlights


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(horsepower in thousands)	2023		2022		2023		2022
Total available horsepower (at period end)⁽¹⁾	3,770		3,810		3,770		3,810
Total operating horsepower (at period end)⁽²⁾	3,578		3,322		3,578		3,322
Average operating horsepower	3,549		3,297		3,513		3,277
Horsepower utilization:
Spot (at period end)	95	%	87	%	95	%	87	%
Average	95	%	86	%	94	%	85	%

(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 Financial Measures

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

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

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Gross margin has certain material limitations associated with its use as compared to net income. These limitations are primarily due to the exclusion of SG&A, depreciation and amortization, impairments, restructuring charges, interest expense, gain on sale of assets, net, other expense (income), net and provision for income taxes. Because we intend to finance a portion of our operations through borrowings, interest expense is a necessary element of our costs and our ability to generate revenue. 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 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)	2023		2022		2023		2022
Net income	$	24,653	$	16,746	$	41,138	$	18,467
Selling, general and administrative		28,649		27,691		55,074		55,464
Depreciation and amortization		41,210		41,356		81,391		84,395
Long-lived and other asset impairment		2,892		4,647		5,461		12,063
Restructuring charges		(85)		—		962		—
Interest expense		28,630		24,456		55,211		49,702
Gain on sale of assets, net		(1,176)		(18,948)		(4,781)		(21,060)
Other expense (income), net		1,463		497		2,066		533
Provision for income taxes		9,931		9,318		16,089		10,261
Gross margin	$	136,167	$	105,763	$	252,611	$	209,825

RESULTS OF OPERATIONS

Summary of Results

Revenue was $247.5 million and $215.8 million during the three months ended June 30, 2023 and 2022, respectively, and $477.4 million and $413.0 million during the six months ended June 30, 2023 and 2022, respectively. The increase in consolidated revenue was primarily due to increased revenue from our contract operations business during the three months ended June 30, 2023 and from both our contract operations business and aftermarket services business during the six months ended June 30, 2023. See “Contract Operations” and “Aftermarket Services” below for further details.

Net income was $24.7 million and $16.7 million during the three months ended June 30, 2023 and 2022, respectively. The increase was primarily driven by higher gross margin from both our contract operations business and aftermarket services business, and a decrease in long-lived and other asset impairment expense.

Net income was $41.1 million and $18.5 million during the six months ended June 30, 2023 and 2022, respectively. The increase was primarily driven by higher gross margin from both our contract operations business and aftermarket services business, and decreases in depreciation and amortization and long-lived and other asset impairment expense.

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Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Contract Operations


	Three Months Ended
	June 30,						Increase
(dollars in thousands)	2023			2022			(Decrease)
Revenue	$	201,120		$	166,298		21	%
Cost of sales (excluding depreciation and amortization)		76,033			68,355		11	%
Gross margin	$	125,087		$	97,943		28	%
Gross margin percentage ⁽¹⁾		62	%		59	%	3	%

(1)	Defined as gross margin divided by revenue.

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

Gross margin percentage increased primarily due to an increase in revenue which exceeded the increase in cost of sales. 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. Further, cost of sales for the three months ended June 30, 2023 includes an increase of $2.2 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 2022.

Aftermarket Services


	Three Months Ended
	June 30,						Increase
(dollars in thousands)	2023			2022			(Decrease)
Revenue	$	46,423		$	49,530		(6)	%
Cost of sales (excluding depreciation and amortization)		35,343			41,710		(15)	%
Gross margin	$	11,080		$	7,820		42	%
Gross margin percentage		24	%		16	%	8	%

Revenue in our aftermarket services business decreased as a result of a decline in parts sales and service activities compared to the prior year, when the market recovery drove a sharp increase in customer demand.

Gross margin increased in our aftermarket services business as a result of decreases in cost of sales for service activities and parts sales resulting from differences in the scope, timing and type of service activities performed as well as the mix of parts sold which more than offset the decreased revenue from service activities and parts sales.

Costs and Expenses


	Three Months Ended
	June 30,
(in thousands)	2023		2022
Selling, general and administrative	$	28,649	$	27,691
Depreciation and amortization		41,210		41,356
Long-lived and other asset impairment		2,892		4,647
Restructuring charges		(85)		—
Interest expense		28,630		24,456
Gain on sale of assets, net		(1,176)		(18,948)
Other expense (income), net		1,463		497

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Selling, general and administrative. The increase in SG&A was primarily due to a $2.5 million increase in compensation and benefit costs, a $0.3 million increase in professional expenses and a $0.3 million increase in software and maintenance expense. Further, SG&A for the three months ended June 30, 2023 includes a decrease of $2.2 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.

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 and long-lived asset impairments. These decreases were 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. 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 June 30, 2023 and 2022, we recognized $2.9 million and $4.6 million, respectively, of impairment charges to write down these compressors to their fair value. See Note 9 (“Long-Lived Asset and Other Impairments”) for further 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)	2023		2022
Idle compressors retired from the active fleet		15		30
Horsepower of idle compressors retired from the active fleet		9,000		26,000
Impairment recorded on idle compressors retired from the active fleet	$	2,892	$	4,647

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

Gain on sale of assets, net. The decrease in gain on sale of assets was primarily due to gains of $0.6 million on compression asset sales during the three months ended June 30, 2023 compared to gains of $19.2 million on compression asset sales during the three months ended June 30, 2022.

Other expense (income), net. The increase in other expense (income), net was primarily due to a $1.7 million unrealized change in the fair value of our investment in an unconsolidated affiliate.

Provision for Income Taxes

The increase in provision for income taxes was primarily due to the tax effect of the increase in book income and valuation allowance during the three months ended June 30, 2023 compared with the three months ended June 30, 2022.


	Three Months Ended
	June 30,						Increase
(dollars in thousands)	2023			2022			(Decrease)
Provision for income taxes	$	9,931		$	9,318		7	%
Effective tax rate		29	%		36	%	(7)	%

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Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Contract Operations


	Six Months Ended
	June 30,						Increase
(dollars in thousands)	2023			2022			(Decrease)
Revenue	$	388,865		$	329,954		18	%
Cost of sales (excluding depreciation and amortization)		155,515			132,856		17	%
Gross margin	$	233,350		$	197,098		18	%
Gross margin percentage ⁽¹⁾		60	%		60	%	—	%

(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 compression in response to market conditions, partially offset by the impact of strategic dispositions of horsepower in 2022.

Despite the increase in revenue, gross margin percentage was unchanged year over year. 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 six months ended June 30, 2023 includes an increase of $4.2 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 2022.

Aftermarket Services


	Six Months Ended
	June 30,						Increase
(dollars in thousands)	2023			2022			(Decrease)
Revenue	$	88,512		$	83,075		7	%
Cost of sales (excluding depreciation and amortization)		69,251			70,348		(2)	%
Gross margin	$	19,261		$	12,727		51	%
Gross margin percentage		22	%		15	%	7	%

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

Gross margin increased in our aftermarket services business as a result of increased revenue and a decrease in cost of sales primarily from differences in the scope, timing and type of service activities performed resulting in lower costs associated with service activities.

Costs and Expenses


	Six Months Ended
	June 30,
(in thousands)	2023		2022
Selling, general and administrative	$	55,074	$	55,464
Depreciation and amortization		81,391		84,395
Long-lived and other asset impairment		5,461		12,063
Restructuring charges		962		—
Interest expense		55,211		49,702
Gain on sale of assets, net		(4,781)		(21,060)
Other expense (income), net		2,066		533

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Selling, general and administrative. The decrease in SG&A was due to a $0.7 million decrease in allowance for credit losses, offset by a $3.5 million increase in employee compensation and benefit costs and a $1.1 million increase in software and maintenance expense. Further, SG&A for the six months ended June 30, 2023 includes a decrease of $4.2 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.

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 long-lived asset impairments. 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. 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 six months ended June 30, 2023 and 2022, we recognized $5.5 million and $12.1 million, respectively, of impairment charges to write down these compressors to their fair value. See Note 9 (“Long-Lived Asset and Other Impairments”) for further details on these impairment charges. 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)	2023		2022
Idle compressors retired from the active fleet		45		75
Horsepower of idle compressors retired from the active fleet		23,000		57,000
Impairment recorded on idle compressors retired from the active fleet	$	5,461	$	12,056

Restructuring charges. Restructuring charges of $1.0 million during the six months ended June 30, 2023 consisted of severance and consulting costs related to our restructuring activities. See Note 10 (“Restructuring Charges”) for further details on these restructuring charges.

Gain on sale of assets, net. The decrease in gain on sale of assets was primarily due to gains of $3.9 million on compression asset sales during the six months ended June 30, 2023 compared to gains of $20.6 million on compression asset sales during the six months ended June 30, 2022.

Other expense (income), net. The increase in other expense (income), net was primarily due to a $2.0 million unrealized change in the fair value of our investment in an unconsolidated affiliate.

Provision for Income Taxes

The increase in provision for income taxes was primarily due to the tax effect of the increase in book income during the six months ended June 30, 2023 compared with the six months ended June 30, 2022.


	Six Months Ended
	June 30,						Increase
(dollars in thousands)	2023			2022			(Decrease)
Provision for income taxes	$	16,089		$	10,261		57	%
Effective tax rate		28	%		36	%	(8)	%

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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.

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.

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 $295 million in capital expenditures during 2023, primarily consisting of approximately $200 million for growth capital expenditures and approximately $79 million for maintenance capital expenditures. We currently anticipate growth capital expenditures in the $160 million range in 2024, down approximately 20% compared to 2023. The increase in 2023 capital expenditures, and further into 2024 particularly for growth capital expenditures, as compared to 2022 is due to increased investment in new compression equipment as a result of higher customer demand.

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Dividends

On July 27, 2023, our Board of Directors declared a quarterly dividend of $0.155 per share of common stock to be paid on August 15, 2023 to stockholders of record at the close of business on August 8, 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.

The following table summarizes shares repurchased under the 2023 Share Repurchase Program during the three and six months ended June 30, 2023:


	Three Months Ended		Six Months Ended
(dollars and shares in thousands, except per share amounts)	June 30, 2023		June 30, 2023
Total cost of shares repurchased	$	2,073	$	2,073
Average price per share	$	9.33	$	9.33
Total number of shares repurchased		222		222

Sources of Cash

Revolving Credit Facility

During the six months ended June 30, 2023 and 2022, our Credit Facility had an average debt balance of $282.5 million and $231.5 million, respectively. The weighted average annual interest rate on the outstanding balance under the Credit Facility, excluding the effect of interest rate swaps, was 7.7% and 6.9% at June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023, there were $4.5 million letters of credit outstanding under the Credit Facility and the applicable margin on borrowings outstanding was 2.4%.

As of June 30, 2023, we were in compliance with all covenants under our Credit Facility. Additionally, all undrawn capacity on our Credit Facility was available for borrowings as of June 30, 2023.

Cash Flows

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


	Six Months Ended
	June 30,
(in thousands)	2023		2022
Net cash provided by (used in):
Operating activities	$	118,398	$	89,524
Investing activities		(150,946)		(46,034)
Financing activities		32,175		(43,109)
Net (decrease) increase in cash and cash equivalents	$	(373)	$	381

Operating Activities

The increase in net cash provided by operating activities was primarily due to increased cash inflows from gross margin and accounts receivable, partially offset by changes in accounts payable and other liabilities and deferred revenue.

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Investing Activities

The increase in net cash used in investing activities was primarily due to an $81.4 million increase in capital expenditures and a $55.5 million decrease in proceeds from the sale of business, partially offset by a $28.4 million increase in proceeds from sales of property, plant and equipment.

Financing Activities

The increase in net cash provided by financing activities was primarily due to an $89.3 million increase in net borrowings of long-term debt, partially offset by a $5.5 million payment for debt issuance costs related to the Amended and Restated Credit Agreement, a $2.2 million increase in dividends paid to stockholders and $2.1 million of common stock purchased under the 2023 Share Repurchase Program.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks associated with changes in the variable interest rate of our Credit Facility. A 1% increase in the effective interest rate on our Credit Facility’s outstanding balance at June 30, 2023 would have resulted in an annual increase in our interest expense of $3.4 million.

ITEM 4. 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 of the Exchange Act included in this Form 10–Q as Exhibits 31.1 and 31.2.

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, 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.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

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

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

Sales of Unregistered Securities

None

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

The following table summarizes our share repurchase activity for the three months ended June 30, 2023:


					Approximate Dollar
					Value of Shares
				Total Number of	That May Yet be
		Average		Shares Purchased	Purchased Under
	Total Number	Price		as Part of Publicly	the Publicly
	of Shares	Paid per		Announced Plans	Announced Plans
(dollars in thousands, except per share amounts)	Purchased ⁽¹⁾	Share⁽²⁾		or Programs	or Programs
April 1, 2023 — April 30, 2023	201	$	9.36	—	$	50,000
May 1, 2023 — May 31, 2023	191,450		9.29	191,450		48,222
June 1, 2023 — June 30, 2023	30,800		9.57	30,800		47,927
Total	222,451	$	9.33	222,250

(1)

Represents shares of common stock purchased from employees to satisfy tax withholding obligations in connection with the vesting of restricted stock awards and shares repurchased under the 2023 Share Repurchase Program during the period. See Note 7 (“Stockholders’ Equity”) for further details on the 2023 Share Repurchase Program.

(2)	Average price paid per share includes costs associated with the repurchase, as applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

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



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

* Filed herewith

** Furnished, not filed

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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 1, 2023

Exhibit 31.1

Certification

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, D. Bradley Childers, certify that:

1.	I have reviewed this Quarterly Report on Form 10–Q of Archrock, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 1, 2023


By:	/s/ D. Bradley Childers
	Name: D. Bradley Childers
	Title: President and Chief Executive Officer
	(Principal Executive Officer)

Exhibit 31.2

Certification

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Douglas S. Aron, certify that:

1.	I have reviewed this Quarterly Report on Form 10–Q of Archrock, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 1, 2023

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

Exhibit 32.1

Certification of CEO Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10–Q of Archrock, Inc. (the “Company”) for the quarter ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), D. Bradley Childers, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002, that, to his knowledge:

1.	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ D. Bradley Childers
Name: D. Bradley Childers
Title: President and Chief Executive Officer

Date: August 1, 2023

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

Certification of CFO Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10–Q of Archrock, Inc. (the “Company”) for the quarter ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Douglas S. Aron, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002, that, to his knowledge:

1.	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Douglas S. Aron
Name: Douglas S. Aron
Title: Senior Vice President and Chief Financial Officer

Date: August 1, 2023

Cover - shares	6 Months Ended
Cover - shares	Jun. 30, 2023	Jul. 25, 2023
Cover page.
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2023
Document Transition Report	false
Commission File Number	001-33666
Entity Registrant Name	Archrock, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	74-3204509
Entity Street Address	9807 Katy Freeway
Entity Suite Number	Suite 100
Entity City	Houston
Entity State	TX
Entity Postal Zip Code	77024
City Area Code	281
Local Phone Number	836-8000
Title of each class	Common stock, $0.01 par value per share
Trading Symbol	AROC
Name of exchange on which registered	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		156,499,576
Entity Central Index Key	0001389050
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q2
Amendment Flag	false

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Current assets:
Cash and cash equivalents	$ 1,193	$ 1,566
Accounts receivable, net of allowance of $1,094 and $1,674, respectively	120,676	137,544
Inventory	93,128	84,622
Other current assets	8,571	8,228
Total current assets	223,568	231,960
Property, plant and equipment, net	2,300,589	2,199,253
Operating lease right-of-use assets	15,372	16,706
Intangible assets, net	33,315	37,077
Contract costs, net	36,884	34,736
Deferred tax assets	20,762	33,353
Other assets	41,556	37,079
Non-current assets of discontinued operations	7,974	8,586
Total assets	2,680,020	2,598,750
Current liabilities:
Accounts payable, trade	65,333	64,324
Accrued liabilities	71,503	76,915
Deferred revenue	5,261	7,332
Total current liabilities	142,097	148,571
Long-term debt	1,639,239	1,548,334
Operating lease liabilities	13,466	14,861
Deferred tax liabilities	1,090	854
Other liabilities	20,727	17,569
Non-current liabilities of discontinued operations	7,868	7,868
Total liabilities	1,824,487	1,738,057
Commitments and contingencies (Note 6)
Equity:
Preferred stock: $0.01 par value per share, 50,000,000 shares authorized, zero issued
Common stock: $0.01 par value per share, 250,000,000 shares authorized, 164,940,249 and 163,439,013 shares issued, respectively	1,649	1,634
Additional paid-in capital	3,463,668	3,456,777
Accumulated deficit	(2,515,351)	(2,509,133)
Treasury stock: 8,440,673 and 7,810,548 common shares, at cost, respectively	(94,433)	(88,585)
Total equity	855,533	860,693
Total liabilities and equity	$ 2,680,020	$ 2,598,750

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Condensed Consolidated Balance Sheets
Accounts receivable, allowance	$ 1,094	$ 1,674
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	50,000,000	50,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	250,000,000	250,000,000
Common stock, shares issued (in shares)	164,940,249	163,439,013
Treasury stock, common shares (in shares)	8,440,673	7,810,548

Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Revenues	$ 247,543	$ 215,828
Total cost of sales (excluding depreciation and amortization)	111,376	110,065
Selling, general and administrative	28,649	27,691
Depreciation and amortization	41,210	41,356
Long-lived and other asset impairment	2,892	4,647
Restructuring charges	(85)
Interest expense	28,630	24,456
Gain on sale of assets, net	(1,176)	(18,948)
Other expense (income), net	1,463	497
Income before income taxes	34,584	26,064
Provision for income taxes	9,931	9,318
Net income	$ 24,653	$ 16,746
Basic earnings per common share (in dollars per share)	$ 0.16	$ 0.11
Diluted earnings per common share(in dollars per share)	$ 0.16	$ 0.11
Weighted average common shares outstanding:
Basic (in shares)	154,358	153,033
Diluted (in shares)	154,412	153,164
Contract Operations
Revenues	$ 201,120	$ 166,298
Total cost of sales (excluding depreciation and amortization)	76,033	68,355
Aftermarket Services
Revenues	46,423	49,530
Total cost of sales (excluding depreciation and amortization)	$ 35,343	$ 41,710

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Condensed Consolidated Statements of Comprehensive Income
Net income	$ 24,653	$ 16,746	$ 41,138	$ 18,467
Other comprehensive income, net of tax:
Interest rate swap gain, net of reclassifications to earnings				574
Amortization of dedesignated interest rate swap				410
Total other comprehensive income, net of tax				984
Comprehensive income	$ 24,653	$ 16,746	$ 41,138	$ 19,451

Condensed Consolidated Statements of Equity - USD ($) $ in Thousands	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Loss	Treasury Stock, Common	Total
Beginning balance at Dec. 31, 2021	$ 1,615	$ 3,440,059	$ (2,463,114)	$ (984)	$ (86,138)	$ 891,438
Beginning balance (in shares) at Dec. 31, 2021	161,482,852
Treasury stock, common shares, Beginning balance (in shares) at Dec. 31, 2021					7,417,401
Increase (Decrease) in Stockholders' Equity
Shares withheld related to net settlement of equity awards					$ (2,366)	(2,366)
Shares withheld related to net settlement of equity awards (in shares)					272,706
Cash dividends			(45,167)			(45,167)
Shares issued in ESPP		295				295
Shares issued in ESPP (in shares)	38,846
Stock-based compensation, net of forfeitures	$ 14	6,023				6,037
Stock-based compensation, net of forfeitures (in shares)	1,416,672				50,812
Net proceeds from issuance of common stock	$ 4	4,226				4,230
Net proceeds from issuance of common stock (in shares)	447,020
Comprehensive income
Net income			18,467			18,467
Other comprehensive income				$ 984		984
Ending balance at Jun. 30, 2022	$ 1,633	3,450,603	(2,489,814)		$ (88,504)	873,918
Ending balance (in shares) at Jun. 30, 2022	163,385,390
Treasury stock, common shares, Ending balance (in shares) at Jun. 30, 2022					7,740,919
Beginning balance at Mar. 31, 2022	$ 1,629	3,443,261	(2,484,066)		$ (88,501)	872,323
Beginning balance (in shares) at Mar. 31, 2022	162,919,584
Treasury stock, common shares, Beginning balance (in shares) at Mar. 31, 2022					7,698,812
Increase (Decrease) in Stockholders' Equity
Shares withheld related to net settlement of equity awards					$ (3)	(3)
Shares withheld related to net settlement of equity awards (in shares)					303
Cash dividends			(22,494)			(22,494)
Shares issued in ESPP		146				146
Shares issued in ESPP (in shares)	18,786
Stock-based compensation, net of forfeitures		2,970				2,970
Stock-based compensation, net of forfeitures (in shares)					41,804
Net proceeds from issuance of common stock	$ 4	4,226				4,230
Net proceeds from issuance of common stock (in shares)	447,020
Comprehensive income
Net income			16,746			16,746
Ending balance at Jun. 30, 2022	$ 1,633	3,450,603	(2,489,814)		$ (88,504)	873,918
Ending balance (in shares) at Jun. 30, 2022	163,385,390
Treasury stock, common shares, Ending balance (in shares) at Jun. 30, 2022					7,740,919
Beginning balance at Dec. 31, 2022	$ 1,634	3,456,777	(2,509,133)		$ (88,585)	$ 860,693
Beginning balance (in shares) at Dec. 31, 2022	163,439,013
Treasury stock, common shares, Beginning balance (in shares) at Dec. 31, 2022					7,810,548	7,810,548
Increase (Decrease) in Stockholders' Equity
Shares repurchased					$ (2,073)	$ (2,073)
Shares repurchased (in shares)					222,250
Shares withheld related to net settlement of equity awards					$ (3,775)	(3,775)
Shares withheld related to net settlement of equity awards (in shares)					383,967
Cash dividends			(47,356)			(47,356)
Shares issued in ESPP	$ 1	381				382
Shares issued in ESPP (in shares)	42,000
Stock-based compensation, net of forfeitures	$ 14	6,510				6,524
Stock-based compensation, net of forfeitures (in shares)	1,459,236				23,908
Comprehensive income
Net income			41,138			41,138
Ending balance at Jun. 30, 2023	$ 1,649	3,463,668	(2,515,351)		$ (94,433)	$ 855,533
Ending balance (in shares) at Jun. 30, 2023	164,940,249
Treasury stock, common shares, Ending balance (in shares) at Jun. 30, 2023					8,440,673	8,440,673
Beginning balance at Mar. 31, 2023	$ 1,649	3,460,259	(2,516,500)		$ (92,358)	$ 853,050
Beginning balance (in shares) at Mar. 31, 2023	164,903,900
Treasury stock, common shares, Beginning balance (in shares) at Mar. 31, 2023					8,207,390
Increase (Decrease) in Stockholders' Equity
Shares repurchased					$ (2,073)	(2,073)
Shares repurchased (in shares)					222,250
Shares withheld related to net settlement of equity awards					$ (2)	(2)
Shares withheld related to net settlement of equity awards (in shares)					201
Cash dividends			(23,504)			(23,504)
Shares issued in ESPP		212				212
Shares issued in ESPP (in shares)	21,749
Stock-based compensation, net of forfeitures		3,197				3,197
Stock-based compensation, net of forfeitures (in shares)	14,600				10,832
Comprehensive income
Net income			24,653			24,653
Ending balance at Jun. 30, 2023	$ 1,649	$ 3,463,668	$ (2,515,351)		$ (94,433)	$ 855,533
Ending balance (in shares) at Jun. 30, 2023	164,940,249
Treasury stock, common shares, Ending balance (in shares) at Jun. 30, 2023					8,440,673	8,440,673

Condensed Consolidated Statements of Equity (Parenthetical) - $ / shares	3 Months Ended						6 Months Ended
	Jun. 30, 2023	Mar. 31, 2023	Dec. 31, 2022	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Jun. 30, 2023	Jun. 30, 2022
Condensed Consolidated Statements of Equity
Dividend declared per common stock (in dollars per share)	$ 0.150	$ 0.150	$ 0.145	$ 0.145	$ 0.145	$ 0.145	$ 0.15	$ 0.145

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Cash flows from operating activities:
Net income	$ 41,138	$ 18,467
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	81,391	84,395
Long-lived and other asset impairment	5,461	12,063
Unrealized change in fair value of investment in unconsolidated affiliate	1,996
Inventory write-downs	359	721
Amortization of operating lease right-of-use assets	1,649	1,575
Amortization of deferred financing costs	3,468	2,576
Amortization of debt premium	(1,003)	(1,003)
Amortization of capitalized implementation costs	1,202
Amortization of dedesignated interest rate swap		410
Interest rate swaps		631
Stock-based compensation expense	6,524	6,037
Provision for (benefit from) credit losses	(140)	365
Gain on sale of assets, net	(4,781)	(4,344)
Gain on sale of business		(16,716)
Deferred income tax provision	15,417	9,473
Amortization of contract costs	10,250	9,249
Deferred revenue recognized in earnings	(8,754)	(11,541)
Changes in operating assets and liabilities:
Accounts receivable, net	(5,462)	(30,370)
Inventory	(6,642)	(5,779)
Other assets	(2,109)	(1,182)
Contract costs	(12,398)	(13,007)
Accounts payable and other liabilities	(16,102)	13,051
Deferred revenue	7,106	14,032
Other	(172)	421
Net cash provided by operating activities	118,398	89,524
Cash flows from investing activities:
Capital expenditures	(187,476)	(106,066)
Proceeds from sale of business		55,523
Proceeds from sale of property, equipment and other assets	38,093	9,728
Proceeds from insurance and other settlements	437	2,781
Investments in unconsolidated entities	(2,000)	(8,000)
Net cash used in investing activities	(150,946)	(46,034)
Cash flows from financing activities:
Borrowings of long-term debt	417,825	405,733
Repayments of long-term debt	(327,300)	(404,500)
Payments of debt issuance costs	(5,528)
Payments for settlement of interest rate swaps that include financing elements		(1,334)
Dividends paid to stockholders	(47,356)	(45,167)
Net proceeds from issuance of common stock		4,230
Repurchases of common stock	(2,073)
Taxes paid related to net share settlement of equity awards	(3,775)	(2,366)
Proceeds from stock issued under ESPP	382	295
Net cash used in financing activities	32,175	(43,109)
Net increase (decrease) in cash and cash equivalents	(373)	381
Cash and cash equivalents, beginning of period	1,566	1,569
Cash and cash equivalents, end of period	$ 1,193	$ 1,950

Description of Business and Basis of Presentation

6 Months Ended

Jun. 30, 2023

Description of Business and Basis of Presentation

Description of Business and Basis of Presentation

1. Description of Business and Basis of Presentation

Inventory

6 Months Ended

Jun. 30, 2023

Inventory

Inventory

2. Inventory

Inventory is comprised of the following:


	June 30,		December 31,
(in thousands)	2023		2022
Parts and supplies	$	78,953	$	70,228
Work in progress		14,175		14,394
Inventory	$	93,128	$	84,622

Property, Plant and Equipment

6 Months Ended

Jun. 30, 2023

Property, Plant and Equipment

Property, Plant and Equipment

3. Property, Plant and Equipment

Property, plant and equipment is comprised of the following:


	June 30,		December 31,
(in thousands)	2023		2022
Compression equipment, facilities and other fleet assets	$	3,283,842	$	3,234,239
Land and buildings		38,240		44,304
Transportation and shop equipment		95,517		93,189
Computer hardware and software		77,499		77,357
Other		5,575		5,754
Property, plant and equipment		3,500,674		3,454,843
Accumulated depreciation		(1,200,085)		(1,255,590)
Property, plant and equipment, net	$	2,300,589	$	2,199,253

Investment in Unconsolidated Affiliate

6 Months Ended

Jun. 30, 2023

Investment in Unconsolidated Affiliate

Investment in Unconsolidated Affiliate

4. Investment in Unconsolidated Affiliate

Long-Term Debt

6 Months Ended

Jun. 30, 2023

Long-Term Debt

Long-Term Debt

5. Long-Term Debt

Long–term debt is comprised of the following:


	June 30,		December 31,
(in thousands)	2023		2022
Credit Facility	$	341,775	$	251,250

6.25% senior notes due April 2028:
Principal outstanding		800,000		800,000
Unamortized debt premium		9,527		10,530
Unamortized debt issuance costs		(7,913)		(8,744)
		801,614		801,786

6.875% senior notes due April 2027:
Principal outstanding		500,000		500,000
Unamortized debt issuance costs		(4,150)		(4,702)
		495,850		495,298

Long-term debt	$	1,639,239	$	1,548,334

Amended and Restated Credit Agreement

On May 16, 2023, we amended and restated our Credit Facility to, among other things:

●

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

●

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

Amended and Restated Credit Agreement, which was recorded to interest expense in our condensed consolidated statements of operations during the three and six months ended June 30, 2023.

Commitments and Contingencies

6 Months Ended

Jun. 30, 2023

Commitments and Contingencies

Commitments and Contingencies

6. Commitments and Contingencies

Insurance Matters

Tax Matters

Litigation and Claims

Stockholders' Equity

6 Months Ended

Jun. 30, 2023

Stockholders' Equity

Stockholders' Equity

7. Stockholders’ Equity

2023 Share Repurchase Program

applicable federal securities laws, at any time until April 27, 2024. The actual timing, manner, number, and value of shares repurchased under the program will be determined by us at our discretion.

The following table summarizes shares repurchased under the 2023 Share Repurchase Program during the three and six months ended June 30, 2023:


	Three Months Ended		Six Months Ended
(dollars and shares in thousands, except per share amounts)	June 30, 2023		June 30, 2023
Total cost of shares repurchased	$	2,073	$	2,073
Average price per share	$	9.33	$	9.33
Total number of shares repurchased		222		222

Cash Dividends

The following table summarizes our dividends declared and paid in each of the quarterly periods of 2023 and 2022:


	Dividends per		Dividends Paid
(dollars in thousands, except per share amounts)	Common Share		(in thousands)
2023
Q2	$	0.150	$	23,504
Q1		0.150		23,852

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

Revenue from Contracts with Customers

6 Months Ended

Jun. 30, 2023

Revenue from Contracts with Customers

Revenue from Contracts with Customers

8. Revenue from Contracts with Customers

The following table presents our revenue from contracts with customers by segment and disaggregated by revenue source:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2023		2022		2023		2022
Contract operations:
0 ― 1,000 horsepower per unit	$	43,176	$	40,489	$	83,130	$	82,331
1,001 ― 1,500 horsepower per unit		88,008		68,697		169,814		135,698
Over 1,500 horsepower per unit		69,672		56,885		135,386		111,479
Other ⁽¹⁾		264		227		535		446
Total contract operations revenue ⁽²⁾		201,120		166,298		388,865		329,954

Aftermarket services:
Services		24,567		26,001		45,816		43,138
OTC parts and components sales		21,856		23,529		42,696		39,937
Total aftermarket services revenue ⁽³⁾		46,423		49,530		88,512		83,075

Total revenue	$	247,543	$	215,828	$	477,377	$	413,029

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

(2)

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

See Note 15 (“Segment Information”) for further information on segments.

Performance Obligations

As of June 30, 2023, we had $413.4 million of remaining performance obligations related to our contract operations segment, which will be recognized through 2028 as follows:


(in thousands)	2023		2024		2025		2026		2027		2028		Total
Remaining performance obligations	$	179,142	$	142,684	$	66,507	$	20,055	$	4,246	$	795	$	413,429

Contract Assets and Liabilities

Contract Assets

As June 30, 2023 and December 31, 2022, our receivables from contracts with customers, net of allowance for credit losses, were $115.7 million and $111.9 million, respectively.

Allowance for Credit Losses

Our allowance for credit losses balance changed as follows during the six months ended June 30, 2023:


(in thousands)
Balance at beginning of period	$	1,674
Benefit from credit losses		(140)
Write-offs charged against allowance		(440)
Balance at end of period	$	1,094

Contract Liabilities

Long-Lived and Other Asset Impairment

6 Months Ended

Jun. 30, 2023

Long-Lived and Other Asset Impairment

Long-Lived and Other Asset Impairment

9. Long-Lived and Other Asset Impairment

Compression Fleet

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(dollars in thousands)	2023		2022		2023		2022
Idle compressors retired from the active fleet		15		30		45		75
Horsepower of idle compressors retired from the active fleet		9,000		26,000		23,000		57,000
Impairment recorded on idle compressors retired from the active fleet	$	2,892	$	4,647	$	5,461	$	12,056

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

Restructuring Charges

6 Months Ended

Jun. 30, 2023

Restructuring Charges

Restructuring Charges

10. Restructuring Charges

The following table presents the changes to our accrued liability balance related to restructuring charges during the six months ended June 30, 2023:




(in thousands)	Total
Balance at December 31, 2022	$	—
Charges incurred		962
Payments		(962)
Balance at June 30, 2023	$	—

The following table presents restructuring charges incurred by segment:


	Contract		Aftermarket
(in thousands)	Operations		Services		Other⁽¹⁾		Total
Three months ended June 30, 2023
Organizational restructuring	$	(101)	$	—	$	16	$	(85)
Total restructuring charges	$	(101)	$	—	$	16	$	(85)

Six months ended June 30, 2023
Organizational restructuring	$	101	$	—	$	861	$	962
Total restructuring charges	$	101	$	—	$	861	$	962

(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, 2023		June 30, 2023
Organizational restructuring
Severance costs	$	(85)	$	705
Consulting costs		—		257
Total restructuring charges	$	(85)	$	962

Income Taxes

6 Months Ended

Jun. 30, 2023

Income Taxes

Income Taxes

11. Income Taxes

Valuation Allowance

Effective Tax Rate

Unrecognized Tax Benefits

Earnings Per Common Share

6 Months Ended

Jun. 30, 2023

Earnings Per Common Share

Earnings Per Common Share

12. Earnings Per Common Share


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2023		2022		2023		2022
Net income	$	24,653	$	16,746	$	41,138	$	18,467
Less: Allocation of earnings to participating securities		(354)		(305)		(1,072)		(819)
Net income attributable to common stockholders	$	24,299	$	16,441	$	40,066	$	17,648

Weighted average common shares outstanding used in basic earnings per common share		154,358		153,033		154,234		152,857
Effect of dilutive securities:
Performance-based restricted stock units		54		128		89		123
ESPP shares		—		3		3		2
Weighted average common shares outstanding used in diluted earnings per common share		154,412		153,164		154,326		152,982

Fair Value Measurements

6 Months Ended

Jun. 30, 2023

Fair Value Measurements

Fair Value Measurements

13. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis


	Significant Unobservable Inputs		Range	Median
Valuation technique:
Discounted cash flow	WACC	0% - 17.4%		10.0%
Guideline public company	Revenue multiple	1.6x - 10x		4.0x

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)		2023		2022		2023		2022
Balance at beginning of period	$	14,549	$	—	$	12,803	$	—
Purchases of equity interests		—		8,000		2,000		8,000
Unrealized loss ⁽¹⁾		(1,742)		—		(1,996)		—
Balance at end of period	$	12,807	$	8,000	$	12,807	$	8,000

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

See Note 4 (“Investment in Unconsolidated Affiliate”) for further details.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis


(in thousands)	June 30, 2023		December 31, 2022
Impaired compressors	$	550	$	1,961


	Range	Weighted Average ⁽¹⁾
Estimated net sale proceeds:
As of June 30, 2023	$0 - $310 per horsepower	$50 per horsepower
As of December 31, 2022	$0 - $621 per horsepower	$47 per horsepower

(1)	Calculated based on an estimated discount for market liquidity of 38% and 51% as of June 30, 2023 and December 31, 2022, respectively.

See Note 9 (“Long-Lived and Other Asset Impairments”) for further details.

Other Financial Instruments

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

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, 2023		December 31, 2022
Carrying amount of fixed rate debt ⁽¹⁾	$	1,297,464	$	1,297,084
Fair value of fixed rate debt		1,231,000		1,214,000

(1) Carrying amounts are shown net of unamortized premium and deferred financing costs. See Note 5 (“Long-Term Debt”).

Related Party Transactions

6 Months Ended

Jun. 30, 2023

Related Party Transactions

Related Party Transactions

14. Related Party Transactions

Segment Information

6 Months Ended

Jun. 30, 2023

Segment Information

Segment Information

15. Segment Information

Summarized financial information for our reporting segments is shown below:


	Contract		Aftermarket
(in thousands)	Operations		Services		Total
Three months ended June 30, 2023
Revenue	$	201,120	$	46,423	$	247,543
Gross margin		125,087		11,080		136,167

Three months ended June 30, 2022
Revenue	$	166,298	$	49,530	$	215,828
Gross margin		97,943		7,820		105,763

Six months ended June 30, 2023
Revenue	$	388,865	$	88,512	$	477,377
Gross margin		233,350		19,261		252,611

Six months ended June 30, 2022
Revenue	$	329,954	$	83,075	$	413,029
Gross margin		197,098		12,727		209,825

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2023		2022		2023		2022
Total gross margin	$	136,167	$	105,763	$	252,611	$	209,825
Less:
Selling, general and administrative		28,649		27,691		55,074		55,464
Depreciation and amortization		41,210		41,356		81,391		84,395
Long-lived and other asset impairment		2,892		4,647		5,461		12,063
Restructuring charges		(85)		—		962		—
Interest expense		28,630		24,456		55,211		49,702
Gain on sale of assets, net		(1,176)		(18,948)		(4,781)		(21,060)
Other expense (income), net		1,463		497		2,066		533
Income before income taxes	$	34,584	$	26,064	$	57,227	$	28,728

Description of Business and Basis of Presentation (Policies)	6 Months Ended
	Jun. 30, 2023
Description of Business and Basis of Presentation
Basis of Presentation	The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by GAAP. Therefore, this information should be read in conjunction with our consolidated financial statements and notes contained in our 2022 Form 10-K. The information furnished herein reflects all adjustments that are, in the opinion of management, of a normal recurring nature and considered necessary for a fair statement of the results of the interim periods reported. All intercompany balances and transactions have been eliminated in consolidation. Operating results for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Inventory (Tables)

6 Months Ended

Jun. 30, 2023

Inventory

Schedule of inventory, net of reserves


	June 30,		December 31,
(in thousands)	2023		2022
Parts and supplies	$	78,953	$	70,228
Work in progress		14,175		14,394
Inventory	$	93,128	$	84,622

Property, Plant and Equipment (Tables)

6 Months Ended

Jun. 30, 2023

Property, Plant and Equipment

Schedule of property, plant and equipment, net


	June 30,		December 31,
(in thousands)	2023		2022
Compression equipment, facilities and other fleet assets	$	3,283,842	$	3,234,239
Land and buildings		38,240		44,304
Transportation and shop equipment		95,517		93,189
Computer hardware and software		77,499		77,357
Other		5,575		5,754
Property, plant and equipment		3,500,674		3,454,843
Accumulated depreciation		(1,200,085)		(1,255,590)
Property, plant and equipment, net	$	2,300,589	$	2,199,253

Long-Term Debt (Tables)

6 Months Ended

Jun. 30, 2023

Long-Term Debt

Schedule of long-term debt


	June 30,		December 31,
(in thousands)	2023		2022
Credit Facility	$	341,775	$	251,250

6.25% senior notes due April 2028:
Principal outstanding		800,000		800,000
Unamortized debt premium		9,527		10,530
Unamortized debt issuance costs		(7,913)		(8,744)
		801,614		801,786

6.875% senior notes due April 2027:
Principal outstanding		500,000		500,000
Unamortized debt issuance costs		(4,150)		(4,702)
		495,850		495,298

Long-term debt	$	1,639,239	$	1,548,334

Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2023

Stockholders' Equity

Summary of shares repurchased


	Three Months Ended		Six Months Ended
(dollars and shares in thousands, except per share amounts)	June 30, 2023		June 30, 2023
Total cost of shares repurchased	$	2,073	$	2,073
Average price per share	$	9.33	$	9.33
Total number of shares repurchased		222		222

Summary of entity's dividends per common share


	Dividends per		Dividends Paid
(dollars in thousands, except per share amounts)	Common Share		(in thousands)
2023
Q2	$	0.150	$	23,504
Q1		0.150		23,852

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

Revenue from Contracts with Customers (Tables)

6 Months Ended

Jun. 30, 2023

Revenue from Contracts with Customers

Schedule of disaggregation of revenue


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2023		2022		2023		2022
Contract operations:
0 ― 1,000 horsepower per unit	$	43,176	$	40,489	$	83,130	$	82,331
1,001 ― 1,500 horsepower per unit		88,008		68,697		169,814		135,698
Over 1,500 horsepower per unit		69,672		56,885		135,386		111,479
Other ⁽¹⁾		264		227		535		446
Total contract operations revenue ⁽²⁾		201,120		166,298		388,865		329,954

Aftermarket services:
Services		24,567		26,001		45,816		43,138
OTC parts and components sales		21,856		23,529		42,696		39,937
Total aftermarket services revenue ⁽³⁾		46,423		49,530		88,512		83,075

Total revenue	$	247,543	$	215,828	$	477,377	$	413,029

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

(2)

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

Schedule of remaining Performance Obligation


(in thousands)	2023		2024		2025		2026		2027		2028		Total
Remaining performance obligations	$	179,142	$	142,684	$	66,507	$	20,055	$	4,246	$	795	$	413,429

Summary of changes in allowance for credit losses


(in thousands)
Balance at beginning of period	$	1,674
Benefit from credit losses		(140)
Write-offs charged against allowance		(440)
Balance at end of period	$	1,094

Long-Lived and Other Asset Impairment (Tables)

6 Months Ended

Jun. 30, 2023

Long-Lived and Other Asset Impairment

Schedule of impairment of long-lived assets


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(dollars in thousands)	2023		2022		2023		2022
Idle compressors retired from the active fleet		15		30		45		75
Horsepower of idle compressors retired from the active fleet		9,000		26,000		23,000		57,000
Impairment recorded on idle compressors retired from the active fleet	$	2,892	$	4,647	$	5,461	$	12,056

Restructuring Charges (Tables)

6 Months Ended

Jun. 30, 2023

Restructuring Charges

Schedule of changes to accrued liability balance related to restructuring charges




(in thousands)	Total
Balance at December 31, 2022	$	—
Charges incurred		962
Payments		(962)
Balance at June 30, 2023	$	—

Schedule of restructuring charges by segment


	Contract		Aftermarket
(in thousands)	Operations		Services		Other⁽¹⁾		Total
Three months ended June 30, 2023
Organizational restructuring	$	(101)	$	—	$	16	$	(85)
Total restructuring charges	$	(101)	$	—	$	16	$	(85)

Six months ended June 30, 2023
Organizational restructuring	$	101	$	—	$	861	$	962
Total restructuring charges	$	101	$	—	$	861	$	962

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

Schedule of restructuring charges by type


	Three Months Ended		Six Months Ended
(in thousands)	June 30, 2023		June 30, 2023
Organizational restructuring
Severance costs	$	(85)	$	705
Consulting costs		—		257
Total restructuring charges	$	(85)	$	962

Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2023

Earnings Per Common Share

Schedule calculation of basic and diluted net income (loss) per common share


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2023		2022		2023		2022
Net income	$	24,653	$	16,746	$	41,138	$	18,467
Less: Allocation of earnings to participating securities		(354)		(305)		(1,072)		(819)
Net income attributable to common stockholders	$	24,299	$	16,441	$	40,066	$	17,648

Weighted average common shares outstanding used in basic earnings per common share		154,358		153,033		154,234		152,857
Effect of dilutive securities:
Performance-based restricted stock units		54		128		89		123
ESPP shares		—		3		3		2
Weighted average common shares outstanding used in diluted earnings per common share		154,412		153,164		154,326		152,982

Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2023

Fair value

Schedule of carrying value and estimated fair value of debt instruments


(in thousands)	June 30, 2023		December 31, 2022
Carrying amount of fixed rate debt ⁽¹⁾	$	1,297,464	$	1,297,084
Fair value of fixed rate debt		1,231,000		1,214,000

(1) Carrying amounts are shown net of unamortized premium and deferred financing costs. See Note 5 (“Long-Term Debt”).

Compressors

Fair value

Schedule of significant unobservable inputs


	Range	Weighted Average ⁽¹⁾
Estimated net sale proceeds:
As of June 30, 2023	$0 - $310 per horsepower	$50 per horsepower
As of December 31, 2022	$0 - $621 per horsepower	$47 per horsepower

(1)	Calculated based on an estimated discount for market liquidity of 38% and 51% as of June 30, 2023 and December 31, 2022, respectively.

Schedule of non-recurring fair value assets


(in thousands)	June 30, 2023		December 31, 2022
Impaired compressors	$	550	$	1,961

Ecotec | Equity investment

Fair value

Schedule of significant unobservable inputs


	Significant Unobservable Inputs		Range	Median
Valuation technique:
Discounted cash flow	WACC	0% - 17.4%		10.0%
Guideline public company	Revenue multiple	1.6x - 10x		4.0x

Schedule of changes in assets measured at fair value on a recurring basis


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)		2023		2022		2023		2022
Balance at beginning of period	$	14,549	$	—	$	12,803	$	—
Purchases of equity interests		—		8,000		2,000		8,000
Unrealized loss ⁽¹⁾		(1,742)		—		(1,996)		—
Balance at end of period	$	12,807	$	8,000	$	12,807	$	8,000

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

Segment Information (Tables)

6 Months Ended

Jun. 30, 2023

Segment Information

Summary of revenue and other financial information by reportable segment


	Contract		Aftermarket
(in thousands)	Operations		Services		Total
Three months ended June 30, 2023
Revenue	$	201,120	$	46,423	$	247,543
Gross margin		125,087		11,080		136,167

Three months ended June 30, 2022
Revenue	$	166,298	$	49,530	$	215,828
Gross margin		97,943		7,820		105,763

Six months ended June 30, 2023
Revenue	$	388,865	$	88,512	$	477,377
Gross margin		233,350		19,261		252,611

Six months ended June 30, 2022
Revenue	$	329,954	$	83,075	$	413,029
Gross margin		197,098		12,727		209,825

Reconciliation of total gross margin to income before taxes


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2023		2022		2023		2022
Total gross margin	$	136,167	$	105,763	$	252,611	$	209,825
Less:
Selling, general and administrative		28,649		27,691		55,074		55,464
Depreciation and amortization		41,210		41,356		81,391		84,395
Long-lived and other asset impairment		2,892		4,647		5,461		12,063
Restructuring charges		(85)		—		962		—
Interest expense		28,630		24,456		55,211		49,702
Gain on sale of assets, net		(1,176)		(18,948)		(4,781)		(21,060)
Other expense (income), net		1,463		497		2,066		533
Income before income taxes	$	34,584	$	26,064	$	57,227	$	28,728

Description of Business and Basis of Presentation (Details)	6 Months Ended
	Jun. 30, 2023 segment
Description of Business and Basis of Presentation
Number of reportable segments	2

Inventory (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Composition of Inventory net of reserves
Parts and supplies	$ 78,953	$ 70,228
Work in progress	14,175	14,394
Inventory	$ 93,128	$ 84,622

Property, Plant and Equipment (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Property, Plant and Equipment
Property, plant and equipment	$ 3,500,674	$ 3,454,843
Accumulated depreciation	(1,200,085)	(1,255,590)
Property, plant and equipment, net	2,300,589	2,199,253
Compression equipment, facilities and other fleet assets
Property, Plant and Equipment
Property, plant and equipment	3,283,842	3,234,239
Land and buildings
Property, Plant and Equipment
Property, plant and equipment	38,240	44,304
Transportation and shop equipment
Property, Plant and Equipment
Property, plant and equipment	95,517	93,189
Computer hardware and software
Property, Plant and Equipment
Property, plant and equipment	77,499	77,357
Other
Property, Plant and Equipment
Property, plant and equipment	$ 5,575	$ 5,754

Investment in Unconsolidated Affiliate (Details)	Jun. 30, 2023
Ecotec
Investments
Ownership interest (as a percent)	25.00%

Long-Term Debt - Schedule of Long-term Debt (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Debt Instruments
Long-term debt	$ 1,639,239	$ 1,548,334
Credit Facility
Debt Instruments
Long-term debt	341,775	251,250
6.25% senior notes due April 2028
Debt Instruments
Principal outstanding	800,000	800,000
Unamortized debt premium	9,527	10,530
Unamortized debt issuance costs	(7,913)	(8,744)
Long-term debt	$ 801,614	$ 801,786
Interest rate (as a percent)	6.25%	6.25%
6.875% senior notes due April 2027
Debt Instruments
Principal outstanding	$ 500,000	$ 500,000
Unamortized debt issuance costs	(4,150)	(4,702)
Long-term debt	$ 495,850	$ 495,298
Interest rate (as a percent)	6.875%	6.875%

Long-Term Debt - Credit Facility (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	May 16, 2023	Mar. 31, 2023	Dec. 31, 2022
Credit Facility
Line of Credit Facility
Letter of credit outstanding	$ 4.5		$ 4.5
Debt instrument, variable rate (percentage)			2.40%
Debt instrument weighted average interest rate (percent)	7.70%		7.70%				6.90%
Commitment fee amount	$ 0.4	$ 0.5	$ 0.9	$ 1.0
Debt issuance cost written off			$ 1.0
Swing Line Loans, Credit Facility
Line of Credit Facility
Maximum borrowing capacity					$ 75.0	$ 50.0
Credit Facility, Amendment 4
Line of Credit Facility
Transaction costs					$ 6.0

Commitments and Contingencies- Tax Matters - Loss contingencies (Details) - USD ($) $ in Millions	Jun. 30, 2023	Dec. 31, 2022
Non-income based tax audits
Loss Contingencies
Accrued liability	$ 4.0	$ 3.9
Non-income based tax audits in contested hearing phase
Loss Contingencies
Accrued liability	$ 0.6	$ 0.6

Stockholders' Equity - 2023 Share Repurchase Program (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2023	Apr. 27, 2023
Treasury Stock
Total cost of shares repurchased (in dollars)	$ 2,073	$ 2,073
2023 Share Repurchase Program
Treasury Stock
Shares authorized to be repurchased (in dollars)			$ 50,000
Total cost of shares repurchased (in dollars)	$ 2,073	$ 2,073
Average price per share (in dollars per share)	$ 9.33	$ 9.33
Total number of shares repurchased (in shares)	222	222

Stockholders' Equity - Cash Dividends (Details) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended						6 Months Ended
	Aug. 08, 2023	Jul. 27, 2023	Jun. 30, 2023	Mar. 31, 2023	Dec. 31, 2022	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Jun. 30, 2023	Jun. 30, 2022
Distributions
Declared Dividends per Common Share (in dollars per share)			$ 0.150	$ 0.150	$ 0.145	$ 0.145	$ 0.145	$ 0.145	$ 0.15	$ 0.145
Dividends Paid (in dollars)			$ 23,504	$ 23,852	$ 22,589	$ 22,559	$ 22,494	$ 22,673	$ 47,356	$ 45,167
Forecasted
Distributions
Dividends Paid (in dollars per share)	$ 0.155
Subsequent Event.
Distributions
Declared Dividends per Common Share (in dollars per share)		$ 0.155

Revenue from Contracts with Customers - Disaggregate Revenue (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023 USD ($) hp	Jun. 30, 2022 USD ($) hp	Jun. 30, 2023 USD ($) hp	Jun. 30, 2022 USD ($) hp
Disaggregation of Revenue
Revenue	$ 247,543	$ 215,828	$ 477,377	$ 413,029
Contract Operations
Disaggregation of Revenue
Revenue	201,120	166,298	388,865	329,954
Contract Operations \| Transferred at Point in Time
Disaggregation of Revenue
Revenue	1,100	900	1,900	1,100
Contract Operations \| 0 - 1,000 horsepower per unit
Disaggregation of Revenue
Revenue	$ 43,176	$ 40,489	$ 83,130	$ 82,331
Contract Operations \| 0 - 1,000 horsepower per unit \| Minimum
Disaggregation of Revenue
Compressor unit horsepower (horsepower) \| hp	0	0	0	0
Contract Operations \| 0 - 1,000 horsepower per unit \| Maximum
Disaggregation of Revenue
Compressor unit horsepower (horsepower) \| hp	1,000	1,000	1,000	1,000
Contract Operations \| 1,001 - 1,500 horsepower per unit
Disaggregation of Revenue
Revenue	$ 88,008	$ 68,697	$ 169,814	$ 135,698
Contract Operations \| 1,001 - 1,500 horsepower per unit \| Minimum
Disaggregation of Revenue
Compressor unit horsepower (horsepower) \| hp	1,001	1,001	1,001	1,001
Contract Operations \| 1,001 - 1,500 horsepower per unit \| Maximum
Disaggregation of Revenue
Compressor unit horsepower (horsepower) \| hp	1,500	1,500	1,500	1,500
Contract Operations \| Over 1,500 horsepower per unit
Disaggregation of Revenue
Revenue	$ 69,672	$ 56,885	$ 135,386	$ 111,479
Contract Operations \| Over 1,500 horsepower per unit \| Minimum
Disaggregation of Revenue
Compressor unit horsepower (horsepower) \| hp	1,500	1,500	1,500	1,500
Contract Operations \| Other
Disaggregation of Revenue
Revenue	$ 264	$ 227	$ 535	$ 446
Aftermarket Services
Disaggregation of Revenue
Revenue	46,423	49,530	88,512	83,075
Aftermarket Services \| Services
Disaggregation of Revenue
Revenue	24,567	26,001	45,816	43,138
Aftermarket Services \| OTC parts and components sales
Disaggregation of Revenue
Revenue	$ 21,856	$ 23,529	$ 42,696	$ 39,937

Revenue from Contracts with Customers - Performance Obligations (Details) $ in Thousands	Jun. 30, 2023 USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction
Remaining performance obligations	$ 413,429
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction
Remaining performance obligations	$ 179,142
Performance obligations expected to be satisfied, expected timing	6 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction
Remaining performance obligations	$ 142,684
Performance obligations expected to be satisfied, expected timing	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2025-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction
Remaining performance obligations	$ 66,507
Performance obligations expected to be satisfied, expected timing	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2026-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction
Remaining performance obligations	$ 20,055
Performance obligations expected to be satisfied, expected timing	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2027-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction
Remaining performance obligations	$ 4,246
Performance obligations expected to be satisfied, expected timing	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2028-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction
Remaining performance obligations	$ 795
Performance obligations expected to be satisfied, expected timing	1 year

Revenue from Contracts with Customers - Contract Assets (Details) - USD ($) $ in Millions	Jun. 30, 2023	Dec. 31, 2022
Revenue from Contracts with Customers
Accounts receivable, net of allowance - Customer related	$ 115.7	$ 111.9

Revenue from Contracts with Customers - Allowance for Credit Losses (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Changes in the allowance for credit losses balance
Balance at beginning of period	$ 1,674
Benefit from credit losses	(140)	$ 365
Write-offs charged against the allowance	(440)
Balance at end of period	$ 1,094

Revenue from Contracts with Customers - Contract Liabilities (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Revenue from Contracts with Customers
Contract liability	$ 6,400		$ 8,000
Deferred revenue	7,106	$ 14,032
Deferred revenue recognized in earnings	$ 8,754	$ 11,541

Long-Lived and Other Asset Impairment (Details) - Idle Compressor Units hp in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023 USD ($) CompressorUnit hp	Jun. 30, 2022 USD ($) CompressorUnit hp	Jun. 30, 2023 USD ($) CompressorUnit hp	Jun. 30, 2022 USD ($) CompressorUnit hp
Impaired Long-Lived Assets Held and Used
Idle compressors retired from the active fleet \| CompressorUnit	15	30	45	75
Horsepower of idle compressors retired from the active fleet \| hp	9	26	23	57
Impairment recorded on idle compressors retired from the active fleet \| $	$ 2,892	$ 4,647	$ 5,461	$ 12,056
Impairment, Long-Lived Asset, Held-for-Use, Statement of Income or Comprehensive Income	Long-lived and other asset impairment	Long-lived and other asset impairment	Long-lived and other asset impairment	Long-lived and other asset impairment

Restructuring Charges - Changes to accrued liability balance (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2023 USD ($)	Jun. 30, 2023 USD ($)
Restructuring Charges
Expected additional charges	$ 300	$ 300
Changes to accrued liability balance related to restructuring
Restructuring charges	$ (85)	962
Payments		$ (962)

Restructuring Charges - By segment (Details) $ in Thousands	3 Months Ended	6 Months Ended
Restructuring Charges - By segment (Details) $ in Thousands	Jun. 30, 2023 USD ($)	Jun. 30, 2023 USD ($)
Restructuring charges
Restructuring charges	$ (85)	$ 962
Expected additional charges	300	300
Organizational Restructuring
Restructuring charges
Restructuring charges	(85)	962
Corporate
Restructuring charges
Restructuring charges	16	861
Corporate \| Organizational Restructuring
Restructuring charges
Restructuring charges	16	861
Contract Operations \| Operating
Restructuring charges
Restructuring charges	(101)	101
Contract Operations \| Operating \| Organizational Restructuring
Restructuring charges
Restructuring charges	$ (101)	$ 101

Restructuring Charges - By type (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2023
Restructuring charges
Restructuring charges	$ (85)	$ 962
Organizational Restructuring
Restructuring charges
Restructuring charges	(85)	962
Severance costs \| Organizational Restructuring
Restructuring charges
Restructuring charges	$ (85)	705
Consulting costs \| Organizational Restructuring
Restructuring charges
Restructuring charges		$ 257

Income Taxes (Details) $ in Millions	Jun. 30, 2023 USD ($)
Income Taxes
Potential decrease in unrecognized tax benefit in next twelve months	$ 2.8

Earnings Per Common Share (Details) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Earnings Per Common Share
Net income	$ 24,653	$ 16,746	$ 41,138	$ 18,467
Less: Allocation of earnings to participating securities	(354)	(305)	(1,072)	(819)
Net income (loss) attributable to common stockholders, basic	24,299	16,441	40,066	17,648
Net income (loss) attributable to common stockholders, diluted	$ 24,299	$ 16,441	$ 40,066	$ 17,648
Weighted average common shares outstanding including participating securities	154,358	153,033	154,234	152,857
Effect of dilutive securities:
Performance-based restricted stock units (in shares)	54	128	89	123
ESPP shares (in shares)		3	3	2
Weighted average common shares outstanding used in diluted income (loss) per common share (in shares)	154,412	153,164	154,326	152,982

Fair Value Measurements - FV on Recurring Basis - Investment (Details) - Ecotec $ in Millions	Jun. 30, 2023 USD ($)
Fair value measurement of assets and liabilities
Ownership interest (as a percent)	25.00%
Investment	$ 12.8

Fair Value Measurements - Investment unobservable inputs (Details) - Ecotec - Equity investment - Level 3	Jun. 30, 2023
Discounted cash flow \| WACC \| Minimum
Fair value measurement of assets and liabilities
Equity Securities, FV-NI, Measurement Input	0
Discounted cash flow \| WACC \| Maximum
Fair value measurement of assets and liabilities
Equity Securities, FV-NI, Measurement Input	0.174
Discounted cash flow \| WACC \| Median
Fair value measurement of assets and liabilities
Equity Securities, FV-NI, Measurement Input	0.100
Guideline public company \| Revenue multiple \| Minimum
Fair value measurement of assets and liabilities
Equity Securities, FV-NI, Measurement Input	1.6
Guideline public company \| Revenue multiple \| Maximum
Fair value measurement of assets and liabilities
Equity Securities, FV-NI, Measurement Input	10
Guideline public company \| Revenue multiple \| Median
Fair value measurement of assets and liabilities
Equity Securities, FV-NI, Measurement Input	4.0

Fair Value Measurements - Reconciliation of changes in FV of investment (Details) - Ecotec - Equity investment - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Reconciliation of changes in fair value
Balance, beginning of period	$ 14,549		$ 12,803
Purchases of equity interests		$ 8,000	2,000	$ 8,000
Unrealized loss	(1,742)		(1,996)
Balance, end of period	$ 12,807	$ 8,000	$ 12,807	$ 8,000

Fair Value Measurements - Measured on Nonrecurring Basis (Details) - Level 3 - Impaired Long-Lived Assets - Compressors $ in Thousands	Jun. 30, 2023 USD ($) $ / hp Y	Dec. 31, 2022 USD ($) $ / hp
Measurement Input, Weighted average disposal period
Fair value
Measurement input \| Y	4
Measurement Input, Sale proceeds \| Minimum
Fair value
Measurement input	0	0
Measurement Input, Sale proceeds \| Maximum
Fair value
Measurement input	310	621
Measurement Input, Sale proceeds \| Weighted average
Fair value
Measurement input	50	47
Measurement Input, Discount for market liquidity
Fair value
Measurement input	0.38	0.51
Nonrecurring Basis
Fair value
Impaired assets \| $	$ 550	$ 1,961

Fair Value Measurements - Other Financial Instruments (Details) - Fixed Rate Debt - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Carrying Amount
Fair Value, Balance Sheet Grouping, Financial Statement Captions
Long-term debt, fair value	$ 1,297,464	$ 1,297,084
Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions
Long-term debt, fair value	$ 1,231,000	$ 1,214,000
Long-Term Debt, Fair Value by Fair Value Hierarchy Level	us-gaap:FairValueInputsLevel2Member	us-gaap:FairValueInputsLevel2Member

Related Party Transactions (Details) $ in Thousands	3 Months Ended		6 Months Ended
Related Party Transactions (Details) $ in Thousands	Jun. 30, 2023 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2023 USD ($) director	Jun. 30, 2022 USD ($)	Dec. 31, 2022 USD ($)
Related Party Transaction
Revenue	$ 247,543	$ 215,828	$ 477,377	$ 413,029
Accounts receivable, net of allowance - Customer related	115,700		115,700		$ 111,900
Accounts receivable, net of allowance of $1,487 and $2,152, respectively	120,676		120,676		137,544
Affiliated entity
Related Party Transaction
Revenue	8,700	$ 9,200	17,800	$ 18,600
Accounts receivable, net of allowance - Customer related	$ 3,000		$ 3,000		$ 3,000
Revenue, Related Party, Name [Extensible Enumeration]	aroc:HilcorpAndAffiliatesMember	aroc:HilcorpAndAffiliatesMember	aroc:HilcorpAndAffiliatesMember	aroc:HilcorpAndAffiliatesMember
Accounts Receivable, after Allowance for Credit Loss, Current, Related Party, Name [Extensible Enumeration]	aroc:HilcorpAndAffiliatesMember		aroc:HilcorpAndAffiliatesMember		aroc:HilcorpAndAffiliatesMember
Affiliated entity \| Old Ocean Reserves \| Archrock, Inc.
Related Party Transaction
Ownership interest (percent)	9.20%		9.20%
Affiliated entity \| Old Ocean Reserves
Related Party Transaction
Number of directors shareholders have right to designate \| director			1
Minimum ownership interest of outstanding shares required to elect a board of director (percent)	7.50%		7.50%

Segment Information - Number (Details)	6 Months Ended
Segment Information - Number (Details)	Jun. 30, 2023 segment
Segment Information
Number of reportable segments	2

Segment Information - Revenue and Gross Margin by Reportable Segment (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Revenue and other financial information by reportable segment
Revenue	$ 247,543	$ 215,828	$ 477,377	$ 413,029
Gross margin	136,167	105,763	252,611	209,825
Contract Operations
Revenue and other financial information by reportable segment
Revenue	201,120	166,298	388,865	329,954
Gross margin	125,087	97,943	233,350	197,098
Aftermarket Services
Revenue and other financial information by reportable segment
Revenue	46,423	49,530	88,512	83,075
Gross margin	$ 11,080	$ 7,820	$ 19,261	$ 12,727

Segment Information - Reconciliation of gross margin to income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Reconciliation of total gross margin to income
Total gross margin	$ 136,167	$ 105,763	$ 252,611	$ 209,825
Less:
Selling, general and administrative	28,649	27,691	55,074	55,464
Depreciation and amortization	41,210	41,356	81,391	84,395
Long-lived and other asset impairment	2,892	4,647	5,461	12,063
Restructuring charges	(85)		962
Interest expense	28,630	24,456	55,211	49,702
Gain on sale of assets, net	(1,176)	(18,948)	(4,781)	(21,060)
Other expense (income), net	1,463	497	2,066	533
Income before income taxes	$ 34,584	$ 26,064	$ 57,227	$ 28,728

Pay vs Performance Disclosure - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
Pay vs Performance Disclosure - USD ($) $ in Thousands	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Pay vs Performance Disclosure
Net Income (Loss)	$ 24,653	$ 16,746	$ 41,138	$ 18,467

Insider Trading Arrangements	3 Months Ended
Insider Trading Arrangements	Jun. 30, 2023
Trading Arrangements, by Individual
Rule 10b5-1 Arrangement Adopted	false
Non-Rule 10b5-1 Arrangement Adopted	false
Rule 10b5-1 Arrangement Terminated	false
Non-Rule 10b5-1 Arrangement Terminated	false