Active investors must pick breakout stocks for excellent returns. This method involves zeroing in on stocks whose prices vary within a narrow band.If the stock price falls below this channel, it could be the best time to sell it off. However, the best time to buy a stock per this strategy is when it is about to break above this trading band. Such stocks offer the prospect of impressive gains.To that end, BRF (BRFS) , Archrock (AROC) and Nomura (NMR) have been selected as the breakout stocks for today.Zeroin ...

Company Profile - AROC is an outsourced provider of natural gas compression services in the U S with a fleet of 3 773 000 available horsepower HP at the end of September mostly consisting of large compressors with 1 000 or more horsepower [2] - The company operates in various basins across the U S with a heavier concentration in oil driven shale plays such as the Permian Eagle Ford Scoop Stack and Niobrara as well as other basins like the Marcellus Utica and Bakken [2] - AROC serves both midstream and upstream operators with its top 10 customers representing over 50 of its revenue including companies like Enterprise Products Partners Williams Companies Enlink Chevron and Devon [2] - The company has fixed fee contracts with initial terms of 12 48 months and an aftermarket service business that accounts for nearly 20 of its revenue [2] - AROC owns a 25 stake in Ecotec International Holders which manages and monitors ethane emissions [2] Market Trends and Opportunities - AROC is benefiting from strong natural gas production particularly in oil producing regions like the Permian where associated gas production is driven by oil prices rather than natural gas prices [3] - The company has seen an increase in monthly revenue per horsepower for eight straight quarters with a 17 increase in Q3 [3] - AROC is experiencing unprecedented tightness in the compression market due to structural and industry wide changes to capital allocation practices [3] - The company s utilization rate based on horsepower reached a record 96 at the end of Q3 compared to 89 a year ago [3] - AROC is more willing to add new compression units even at elevated prices which are up about 40 since the pandemic and has raised 55 million through the sale of nonstrategic equipment to fund new build investments [3] - The company s 2024 new build capacity is already committed with growth capex expected to be about 160 million in 2024 [3] - AROC s aftermarket service business is expected to benefit from the current industry dynamics as older units stay in the field requiring more maintenance and overhauls [3] - The company has long term opportunities in carbon capture with a 25 stake in ECOTEC and a partnership with Ionada for post combustion carbon capture technology [3] Valuation and Financials - AROC trades at 8 5x the 2024 EBITDA consensus of 494 6 million and 8 0x the 2025 EBITDA consensus of 526 9 million [4] - The stock has a distributable cash flow yield of about 8 5 based on 2023 conservative projections of 225 million and pays a dividend yield of about 4 after a 6 5 increase in late January [4] - The company s dividend was covered 2 6x in Q3 and it was leveraged 3 8x at the end of Q3 [4] - AROC is less expensive than USAC despite having a similar business and historically trading at a discount to USAC [4] Conclusion - The Biden administration s pause on new LNG facility permitting adds some risk but is not expected to have a big impact over the next two years [6] - The compression market is expected to remain tight with prices continuing to rise gradually [6] - AROC is anticipated to report a solid Q4 with high utilization and sequential price increases benefiting its top and bottom lines [6] - The company is less expensive and has a better balance sheet than USAC riding many of the same market trends [6]

Investors interested in Oils-Energy stocks should always be looking to find the best-performing companies in the group. Is Archrock Inc. (AROC) one of those stocks right now? A quick glance at the company's year-to-date performance in comparison to the rest of the Oils-Energy sector should help us answer this question.Archrock Inc. is a member of the Oils-Energy sector. This group includes 249 individual stocks and currently holds a Zacks Sector Rank of #16. The Zacks Sector Rank considers 16 different grou ...

HOUSTON, Jan. 25, 2024 (GLOBE NEWSWIRE) -- Archrock, Inc. (NYSE:AROC) ("Archrock") today announced that its Board of Directors has declared an increased quarterly dividend of $0.165 per share of common stock, or $0.66 per share on an annualized basis. The fourth quarter 2023 dividend will be paid on February 13, 2024 to all stockholders of record on February 6, 2024. The fourth quarter 2023 dividend per share amount represents an increase of 6.5 percent over the Archrock third quarter 2023 dividend level an ...

Financial Data and Key Metrics Changes - Net income for Q3 2023 doubled to $31 million compared to Q3 2022 [5] - Adjusted EBITDA reached a record $120 million, up 7% sequentially [5][15] - Leverage ratio improved to 3.8x, down from 4.3x in Q3 2022 [18] - Quarterly dividend per share increased by 7% to $0.155, with a dividend coverage ratio of 2.6x [6][19] Business Segment Data and Key Metrics Changes - Contract operations revenue was $208 million, up 3% sequentially and 22% year-over-year [16] - Gross margin percentage for contract operations was 64%, up 150 basis points sequentially and nearly 600 basis points year-over-year [16] - Aftermarket services revenue remained steady at $46 million, up 6% compared to Q3 2022 [17] Market Data and Key Metrics Changes - The compression market is experiencing unprecedented tightness due to structural changes in capital allocation practices [9] - Natural gas production is expected to grow at low single-digit rates annually, driven by investments in associated gas plays [8] - Approximately 2/3 of the fleet is expected to be repriced over the next 12 months, indicating potential for revenue growth [42] Company Strategy and Development Direction - The company is focused on enhancing fleet, customer service, and profitability to drive improved returns for investors [5] - Plans to maintain a capital allocation framework prioritizing shareholder returns, including dividend increases and share repurchases [13][29] - The company aims to reduce leverage further to a range of 3 to 3.5x in 2024 while funding growth capital expenditures of approximately $160 million [19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the compression market fundamentals and the company's ability to execute effectively [20] - The outlook for natural gas production remains durable, with expectations for continued growth in LNG exports [8][14] - Management anticipates enhanced profitability and positive free cash flow in 2024, with a target dividend growth of 5% [13][20] Other Important Information - The company achieved nearly 650,000 in active horsepower growth, with fleet utilization reaching a record 96% [10] - The company has raised approximately $55 million through non-strategic equipment sales to support new build investments [17] - Total debt stood at $1.6 billion, with strong available liquidity of $439 million [18] Q&A Session Summary Question: Insights on growth and pricing dynamics - Management believes there is substantial upside in profitability through incremental horsepower growth and pricing adjustments [22][24] Question: Sustainability of utilization rates - Management confirmed that high utilization rates are expected to continue due to insufficient compression equipment in the market [30][31] Question: Competitive pricing pressures - Management acknowledged competitive pricing but emphasized that high-quality customers are accepting necessary rate increases [32][34] Question: Maintenance CapEx trends - Management indicated that there is still about 100,000 horsepower that could be made ready, but maintenance CapEx is not expected to remain at the same levels as in the first half of 2023 [35][36] Question: Future capital allocation plans - Management plans to balance capital allocation between dividends, share repurchases, and growth CapEx once leverage targets are achieved [28][47]

[Part I. Financial Information](index=6&type=section&id=Part%20I.%20Financial%20Information) This section presents Archrock, Inc.'s unaudited condensed consolidated financial statements for Q3 2023, covering balance sheets, operations, cash flows, and notes [Financial Statements (unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) Presents Archrock, Inc.'s unaudited condensed consolidated financial statements for Q3 2023, including balance sheets, statements of operations, and cash flows, with detailed notes [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$2.67 billion** from **$2.60 billion**, driven by property, plant, and equipment, while liabilities rose to **$1.81 billion** Condensed Consolidated Balance Sheets (in thousands) | Assets & Liabilities | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total current assets** | $224,877 | $231,960 | | **Property, plant and equipment, net** | $2,302,417 | $2,199,253 | | **Total assets** | **$2,672,110** | **$2,598,750** | | **Total current liabilities** | $159,375 | $148,571 | | **Long-term debt** | $1,604,554 | $1,548,334 | | **Total liabilities** | **$1,811,017** | **$1,738,057** | | **Total equity** | **$861,093** | **$860,693** | | **Total liabilities and equity** | **$2,672,110** | **$2,598,750** | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q3 2023 total revenue rose to **$253.4 million** and net income doubled to **$30.9 million**, with nine-month revenue reaching **$730.7 million** Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | $253,367 | $213,668 | $730,744 | $626,697 | | **Income before income taxes** | $42,312 | $19,637 | $99,539 | $48,365 | | **Net Income** | $30,858 | $15,371 | $71,996 | $33,838 | | **Diluted EPS** | $0.20 | $0.10 | $0.46 | $0.21 | [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased to **$238.5 million**, while cash used in investing rose to **$208.2 million** and financing decreased to **$31.4 million** Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $238,468 | $166,332 | | Net cash used in investing activities | ($208,157) | ($66,546) | | Net cash used in financing activities | ($31,395) | ($99,313) | | **Net (decrease) increase in cash** | **($1,084)** | **$473** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes explain business segments, accounting developments, financial items, and key events including credit facility amendment, share repurchase, and restructuring - Archrock operates as a pure-play midstream natural gas compression company with two segments: contract operations and aftermarket services[35](index=35&type=chunk) - The Credit Facility was amended on May 16, 2023, extending maturity to May 2028, changing the reference rate to SOFR, and incurring **$6.0 million** in transaction costs[46](index=46&type=chunk)[47](index=47&type=chunk) - A **$50.0 million** share repurchase program was authorized on April 27, 2023, with **576 thousand** shares repurchased for **$6.5 million** as of September 30, 2023[54](index=54&type=chunk)[55](index=55&type=chunk) - A Q3 2023 dividend of **$0.155 per share** was declared, an increase from **$0.145 per share** in Q3 2022[59](index=59&type=chunk) Revenue by Segment (in thousands) | Segment | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Contract operations | $207,552 | $170,497 | $596,417 | $500,451 | | Aftermarket services | $45,815 | $43,171 | $134,327 | $126,246 | | **Total revenue** | **$253,367** | **$213,668** | **$730,744** | **$626,697** | - A Q1 2023 restructuring plan resulted in **$1.6 million** in charges for the nine months ended September 30, 2023, primarily for severance[73](index=73&type=chunk)[138](index=138&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition and operational results, highlighting strong performance from increased revenue and gross margin in contract operations and aftermarket services, alongside liquidity, capital resources, and shareholder returns Operating Highlights (Horsepower) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Total available horsepower (thousands) | 3,773 | 3,747 | | Total operating horsepower (thousands) | 3,608 | 3,353 | | Horsepower utilization (Spot) | 96% | 89% | [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Q3 2023 saw revenue increases of **22%** in Contract Operations and **6%** in Aftermarket Services, driving gross margin growth, with overall net income rising due to higher gross margins Contract Operations Performance - Q3 2023 vs Q3 2022 (in thousands) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $207,552 | $170,497 | 22% | | Gross Margin | $132,279 | $98,803 | 34% | | Gross Margin % | 64% | 58% | 6% | Aftermarket Services Performance - Q3 2023 vs Q3 2022 (in thousands) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $45,815 | $43,171 | 6% | | Gross Margin | $9,127 | $7,338 | 24% | | Gross Margin % | 20% | 17% | 3% | - SG&A expense decreased in Q3 2023 primarily due to a **$2.2 million** accounting change for sales taxes, now recorded in cost of sales[119](index=119&type=chunk) - Interest expense increased in Q3 2023 due to higher interest rates and a larger average outstanding debt balance[123](index=123&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Primary liquidity sources are cash from operations and a **$750.0 million** revolving credit facility, with planned **$295 million** in 2023 capital expenditures and continued shareholder returns - Projected 2023 capital expenditures are approximately **$295 million**, including **$200 million** for growth, with growth capex anticipated to reduce to **$160 million** in 2024[147](index=147&type=chunk) - A quarterly dividend of **$0.155 per share** was declared on October 26, 2023[148](index=148&type=chunk) Share Repurchase Summary - Q3 2023 | Metric | Value | | :--- | :--- | | Total cost of shares repurchased | $4.42 million | | Average price per share | $12.49 | | Total number of shares repurchased | 354 thousand | - Net cash from operating activities increased for the nine months ended September 30, 2023, primarily due to higher cash inflows from gross margin and accounts receivable[154](index=154&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure is variable interest rates on its Credit Facility, with a **1%** increase potentially raising annual interest expense by **$3.1 million** - A **1%** increase in the Credit Facility's effective interest rate would result in an approximate **$3.1 million** annual increase in interest expense[158](index=158&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, ensuring timely and accurate information reporting - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of September 30, 2023, ensuring timely information recording, processing, and reporting[161](index=161&type=chunk) [Part II. Other Information](index=43&type=section&id=Part%20II.%20Other%20Information) This section provides other required information, including legal proceedings, risk factors, equity sales, and exhibits [Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal actions, with management expecting no material adverse effect on financial position, operations, or cash flows - The company does not expect pending legal actions to have a material adverse effect on its consolidated financial position, results of operations, or cash flows[162](index=162&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) No material changes or updates to previously disclosed risk factors have occurred since the last Annual Report on Form 10-K - No material changes or updates to risk factors have occurred since the last Form 10-K filing[163](index=163&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's equity security repurchases during Q3 2023 under the publicly announced 2023 Share Repurchase Program Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Approx. Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | July 2023 | 0 | $— | 0 | $47,927 thousand | | August 2023 | 164,089 | $12.66 | 163,372 | $45,858 thousand | | September 2023 | 190,640 | $12.34 | 190,640 | $43,505 thousand | | **Total** | **354,729** | **$12.49** | **354,012** | **—** | [Defaults Upon Senior Securities](index=43&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities during the period - No defaults upon senior securities occurred during the period[165](index=165&type=chunk) [Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This disclosure item is not applicable[165](index=165&type=chunk) [Other Information](index=43&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item for the period - No additional information is reported under this item[165](index=165&type=chunk) [Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q report, including officer certifications and interactive data files - Exhibits filed with the report include officer certifications (31.1, 31.2, 32.1, 32.2) and interactive data files (101.1, 104.1)[168](index=168&type=chunk)

Archrock, Inc. (NYSE:AROC) Q2 2023 Earnings Conference Call August 1, 2023 12:00 PM ET Company Participants Megan Repine - Manager, IR, Noble Midstream Partners LP Bradley Childers - President, CEO & Director Douglas Aron - SVP & CFO Conference Call Participants James Rollyson - Raymond James & Associates Selman Akyol - Stifel, Nicolaus & Company Stephen Ferazani - Sidoti & Company Operator Good morning. Welcome to the Archrock Second Quarter 2023 Conference Call. Your host for today's call is Megan Repine, ...

```markdown [Glossary](index=4&type=section&id=Glossary) The glossary defines key terms and abbreviations used throughout the report - The glossary defines key terms and abbreviations used throughout the report, such as '**2023 Share Repurchase Program**', '**2027 Notes**', '**2028 Notes**', '**Amended and Restated Credit Agreement**', '**Credit Facility**', '**ECOTEC**', '**ESPP**', '**Exchange Act**', '**Financial Statements**', '**GAAP**', '**Hilcorp**', '**LIBOR**', '**Old Ocean Reserves**', '**OTC**', '**SEC**', '**SG&A**', '**SOFR**', '**U.S.**', and '**WACC**'[8](index=8&type=chunk)[9](index=9&type=chunk)[10](index=10&type=chunk) [Forward-Looking Statements](index=5&type=section&id=FORWARD%E2%80%93LOOKING%20STATEMENTS) This section outlines the inherent risks and uncertainties associated with forward-looking statements, disclaiming future updates except as legally required - This section contains forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The company does not undertake to publicly update or revise any forward-looking statement, except as required by law[12](index=12&type=chunk)[13](index=13&type=chunk)[14](index=14&type=chunk) [Part I. Financial Information](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial performance and liquidity [Item 1. Financial Statements (unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, equity, and cash flows, along with detailed notes providing context and breakdowns of key accounts and transactions [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's condensed consolidated balance sheets as of June 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :------------ | :------------------ | | **Assets** | | | | Total current assets | $223,568 | $231,960 | | Property, plant and equipment, net | $2,300,589 | $2,199,253 | | Total assets | $2,680,020 | $2,598,750 | | **Liabilities and Stockholders' Equity** | | | | Total current liabilities | $142,097 | $148,571 | | Long-term debt | $1,639,239 | $1,548,334 | | Total liabilities | $1,824,487 | $1,738,057 | | Total equity | $855,533 | $860,693 | | Total liabilities and equity | $2,680,020 | $2,598,750 | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents the company's condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $247,543 | $215,828 | $477,377 | $413,029 | | Total cost of sales (excluding D&A) | $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 | | Interest expense | $28,630 | $24,456 | $55,211 | $49,702 | | 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 | [Condensed Consolidated Statements of Comprehensive Income](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the company's condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $24,653 | $16,746 | $41,138 | $18,467 | | Total other comprehensive income, net of tax | $0 | $0 | $0 | $984 | | Comprehensive income | $24,653 | $16,746 | $41,138 | $19,451 | [Condensed Consolidated Statements of Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) This section presents the company's condensed consolidated statements of equity for the three months ended June 30, 2023 Condensed Consolidated Statements of Equity (in thousands, except shares and per share amounts) | Metric | Balance at March 31, 2023 | Shares Repurchased | Cash Dividends Paid | Stock-based Compensation | Net Income | Balance at June 30, 2023 | | :------------------------------------------ | :------------------------ | :----------------- | :------------------ | :----------------------- | :--------- | :----------------------- | | Common Stock (shares) | 164,903,900 | — | — | 14,600 | — | 164,940,249 | | Common Stock (amount) | $1,649 | — | — | — | — | $1,649 | | Additional Paid-in Capital | $3,460,259 | — | — | $3,197 | — | $3,463,668 | | Accumulated Deficit | $(2,516,500) | — | $(23,504) | — | $24,653 | $(2,515,351) | | Treasury Stock (amount) | $(92,358) | $(2,073) | — | — | — | $(94,433) | | Total Equity | $853,050 | $(2,073) | $(23,504) | $3,197 | $24,653 | $855,533 | - The company repurchased **222,250 common shares** for **$2,073 thousand** during the six months ended June 30, 2023[25](index=25&type=chunk)[27](index=27&type=chunk) - Cash dividends of **$0.15 per common share** were paid during the three months ended June 30, 2023, totaling **$23,504 thousand**[25](index=25&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $118,398 | $89,524 | | Net cash used in investing activities | $(150,946) | $(46,034) | | 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, end of period | $1,193 | $1,950 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes to the unaudited condensed consolidated financial statements, offering context and breakdowns of key accounts and transactions [1. Description of Business and Basis of Presentation](index=13&type=section&id=1.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) This section describes Archrock, Inc.'s business as an energy infrastructure company focused on natural gas compression services - Archrock, Inc. is an energy infrastructure company focused on midstream natural gas compression, providing compression services and aftermarket services in the U.S[34](index=34&type=chunk) - The company operates in two business segments: contract operations (designing, owning, operating, and maintaining compression equipment) and aftermarket services (selling parts, providing maintenance, overhaul, and reconfiguration services)[34](index=34&type=chunk) [2. Inventory](index=13&type=section&id=2.%20Inventory) This section details the composition of the company's inventory, including parts, supplies, and work in progress Inventory Composition (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :---------------- | :------------ | :------------------ | | Parts and supplies | $78,953 | $70,228 | | Work in progress | $14,175 | $14,394 | | Total Inventory | $93,128 | $84,622 | [3. Property, Plant and Equipment](index=13&type=section&id=3.%20Property,%20Plant%20and%20Equipment) This section outlines the composition of the company's property, plant, and equipment, including compression equipment, land, buildings, and transportation assets Property, Plant and Equipment Composition (in thousands) | Category | June 30, 2023 | December 31, 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 (gross) | $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](index=13&type=section&id=4.%20Investment%20in%20Unconsolidated%20Affiliate) This section details Archrock's investment in ECOTEC, an unconsolidated affiliate specializing in methane detection and management - As of **June 30, 2023**, Archrock holds a **25% ownership interest** in ECOTEC, a company specializing in methane detection, monitoring, and management[39](index=39&type=chunk) - The investment in ECOTEC is accounted for using the fair value option, with changes in fair value recognized in other expense (income), net[39](index=39&type=chunk)[41](index=41&type=chunk) - The fair value of the investment in ECOTEC was **$12.8 million** as of **June 30, 2023**[83](index=83&type=chunk) [5. Long-Term Debt](index=15&type=section&id=5.%20Long-Term%20Debt) This section provides an overview of the company's long-term debt, including the Credit Facility and senior notes, and recent amendments Long-Term Debt Composition (in thousands) | Debt Type | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :------------ | :------------------ | | Credit Facility | $341,775 | $251,250 | | 6.25% senior notes due April 2028 | $801,614 | $801,786 | | 6.875% senior notes due April 2027 | $495,850 | $495,298 | | Total Long-Term Debt | $1,639,239 | $1,548,334 | - The weighted average annual interest rate on the Credit Facility increased to **7.7%** at **June 30, 2023**, from **6.9%** at **December 31, 2022**[42](index=42&type=chunk) - On **May 16, 2023**, the Credit Facility was amended and restated to extend its maturity date to **May 16, 2028**, change the referenced rate from LIBOR to SOFR, and increase swing line loan availability from **$50.0 million** to **$75.0 million**[44](index=44&type=chunk) - The company incurred **$6.0 million in transaction costs** related to the Amended and Restated Credit Agreement and wrote off **$1.0 million of unamortized deferred financing costs**[45](index=45&type=chunk)[47](index=47&type=chunk) [6. Commitments and Contingencies](index=17&type=section&id=6.%20Commitments%20and%20Contingencies) This section outlines the company's self-insurance programs, accrued tax liabilities, and assessment of legal actions - Archrock is substantially self-insured for workers' compensation and employee group health claims, as well as for property damage to offshore assets[49](index=49&type=chunk) - Accrued liabilities for non-income-based tax audits were **$4.0 million** as of **June 30, 2023**, up from **$3.9 million** at **December 31, 2022**[50](index=50&type=chunk) - The company believes that the ultimate liability from various pending or threatened legal actions will not have a material adverse effect on its consolidated financial position, results of operations, or cash flows[52](index=52&type=chunk) [7. Stockholders' Equity](index=17&type=section&id=7.%20Stockholders'%20Equity) This section details the company's share repurchase program and cash dividend declarations - On **April 27, 2023**, the Board of Directors authorized a share repurchase program for up to **$50.0 million** of outstanding common stock, valid until **April 27, 2024**[53](index=53&type=chunk)[55](index=55&type=chunk) Share Repurchase Program Activity (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2023 | Six Months Ended 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 Declared and Paid (in thousands, except per share amounts) | Period | Dividends per Share | Dividends Paid | | :------------------------------------------ | :------------------ | :------------- | | Q2 2023 | $0.150 | $23,504 | | Q1 2023 | $0.150 | $23,852 | | Q4 2022 | $0.145 | $22,589 | | Q3 2022 | $0.145 | $22,559 | | Q2 2022 | $0.145 | $22,494 | | Q1 2022 | $0.145 | $22,673 | - On **July 27, 2023**, a quarterly dividend of **$0.155 per share** was declared, payable on **August 15, 2023**[58](index=58&type=chunk) [8. Revenue from Contracts with Customers](index=20&type=section&id=8.%20Revenue%20from%20Contracts%20with%20Customers) This section presents a breakdown of revenue from contracts with customers by segment and source, along with remaining performance obligations Revenue from Contracts with Customers by Segment and Source (in thousands) | Revenue Source | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 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 | | Total contract operations revenue | $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 | $46,423 | $49,530 | $88,512 | $83,075 | | **Total revenue** | $247,543 | $215,828 | $477,377 | $413,029 | Remaining Performance Obligations for Contract Operations (in thousands) | Year | Amount | | :---------------- | :------- | | 2023 | $179,142 | | 2024 | $142,684 | | 2025 | $66,507 | | 2026 | $20,055 | | 2027 | $4,246 | | 2028 | $795 | | Total | $413,429 | - Contract liabilities were **$6.4 million** as of **June 30, 2023**, down from **$8.0 million** at **December 31, 2022**. During the six months ended **June 30, 2023**, **$7.1 million in deferred revenue** was recognized as revenue[67](index=67&type=chunk) [9. Long-Lived and Other Asset Impairment](index=21&type=section&id=9.%20Long-Lived%20and%20Other%20Asset%20Impairment) This section describes the company's policy for reviewing long-lived assets for impairment and provides details on compression fleet impairment - The company reviews long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable, particularly for idle compression assets retired from the active fleet[68](index=68&type=chunk)[69](index=69&type=chunk) Compression Fleet Impairment Review (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Idle compressors retired from active fleet | 15 | 30 | 45 | 75 | | Horsepower of idle compressors retired | 9,000 | 26,000 | 23,000 | 57,000 | | Impairment recorded | $2,892 | $4,647 | $5,461 | $12,056 | [10. Restructuring Charges](index=22&type=section&id=10.%20Restructuring%20Charges) This section details restructuring charges incurred by the company related to organizational streamlining efforts - A plan to streamline the organization was approved in **Q1 2023**, with an expectation to incur an additional **$0.3 million** in restructuring charges[73](index=73&type=chunk) Restructuring Charges by Cost Type (in thousands) | Cost Type | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :---------------- | :------------------------------- | :----------------------------- | | Severance costs | $(85) | $705 | | Consulting costs | — | $257 | | Total restructuring charges | $(85) | $962 | [11. Income Taxes](index=23&type=section&id=11.%20Income%20Taxes) This section discusses the company's effective tax rate and potential reductions in unrecognized tax benefits - The year-to-date effective tax rate for the six months ended **June 30, 2023**, differed significantly from the statutory rate primarily due to state taxes, unrecognized tax benefits, and executive compensation limitations[79](index=79&type=chunk) - It is reasonably possible that **$2.8 million** of unrecognized tax benefits, including penalties, interest, and discontinued operations, will be reduced prior to **June 30, 2024**[80](index=80&type=chunk) [12. Earnings Per Common Share](index=23&type=section&id=12.%20Earnings%20Per%20Common%20Share) This section provides the calculation of basic and diluted earnings per common share for the periods presented Earnings Per Common Share Calculation (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to common stockholders | $24,299 | $16,441 | $40,066 | $17,648 | | Weighted average common shares outstanding (basic) | 154,358 | 153,033 | 154,234 | 152,857 | | Weighted average common shares outstanding (diluted) | 154,412 | 153,164 | 154,326 | 152,982 | [13. Fair Value Measurements](index=24&type=section&id=13.%20Fair%20Value%20Measurements) This section presents fair value measurements for the company's investment in ECOTEC, impaired compressors, and fixed rate debt Reconciliation of Changes in Fair Value of Investment in ECOTEC (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $14,549 | $0 | $12,803 | $0 | | Purchases of equity interests | $0 | $8,000 | $2,000 | $8,000 | | Unrealized loss | $(1,742) | $0 | $(1,996) | $0 | | Balance at end of period | $12,807 | $8,000 | $12,807 | $8,000 | Fair Value of Impaired Compressors (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :---------------- | :------------ | :------------------ | | Impaired compressors | $550 | $1,961 | Fair Value of Fixed Rate Debt (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :------------ | :------------------ | | Carrying amount of fixed rate debt | $1,297,464 | $1,297,084 | | Fair value of fixed rate debt | $1,231,000 | $1,214,000 | [14. Related Party Transactions](index=25&type=section&id=14.%20Related%20Party%20Transactions) This section discloses transactions with related parties, including Old Ocean Reserves and Hilcorp - Old Ocean Reserves, an affiliate of customer Hilcorp, owned **9.2% of Archrock's outstanding common stock** as of **June 30, 2023**, and has the right to designate **one director** to the board[92](index=92&type=chunk) - Revenue from Hilcorp was **$8.7 million** for the three months ended **June 30, 2023** (down from **$9.2 million** in **2022**) and **$17.8 million** for the six months ended **June 30, 2023** (down from **$18.6 million** in **2022**)[94](index=94&type=chunk) - Accounts receivable, net, due from Hilcorp remained stable at **$3.0 million** as of **June 30, 2023**, and **December 31, 2022**[94](index=94&type=chunk) [15. Segment Information](index=27&type=section&id=15.%20Segment%20Information) This section provides financial information by business segment, including revenue, gross margin, and a reconciliation to income before income taxes Segment Revenue and Gross Margin (in thousands) | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 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 | | **Gross Margin:** | | | | | | Contract Operations | $125,087 | $97,943 | $233,350 | $197,098 | | Aftermarket Services | $11,080 | $7,820 | $19,261 | $12,727 | | Total Gross Margin | $136,167 | $105,763 | $252,611 | $209,825 | Reconciliation of Total Gross Margin to Income Before Income Taxes (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total gross margin | $136,167 | $105,763 | $252,611 | $209,825 | | 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) | $0 | $962 | $0 | | 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 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including an overview of the business, operating highlights, detailed analysis of revenue and expenses by segment, and discussion of liquidity and capital resources [Overview](index=29&type=section&id=OVERVIEW) This section provides an overview of Archrock's business as a leading provider of natural gas compression services and aftermarket services in the U.S - Archrock is a leading provider of natural gas compression services and aftermarket services in the U.S., operating in contract operations and aftermarket services segments[99](index=99&type=chunk) Operating Highlights (horsepower in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total available horsepower (at period end) | 3,770 | 3,810 | 3,770 | 3,810 | | Total operating horsepower (at period end) | 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% | | Horsepower utilization (Average) | 95% | 86% | 94% | 85% | - Gross margin, a non-GAAP financial measure, is defined as total revenue less cost of sales (excluding depreciation and amortization) and is used by management to evaluate operating performance[102](index=102&type=chunk) [Results of Operations](index=31&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's consolidated financial results, including revenue, net income, and segment performance [Summary of Results](index=31&type=section&id=Summary%20of%20Results) This section summarizes the company's consolidated financial results, highlighting key changes in revenue and net income Summary of Consolidated Financial Results (in millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $247.5 | $215.8 | $477.4 | $413.0 | | Net Income | $24.7 | $16.7 | $41.1 | $18.5 | - The increase in consolidated revenue was primarily driven by growth in contract operations for the three months ended **June 30, 2023**, and by both contract operations and aftermarket services for the six months ended **June 30, 2023**[106](index=106&type=chunk) - Net income increased for both periods, mainly due to higher gross margin from both business segments and a decrease in long-lived and other asset impairment expense[106](index=106&type=chunk)[107](index=107&type=chunk) [Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022](index=32&type=section&id=Three%20Months%20Ended%20June%2030,%202023%20Compared%20to%20Three%20Months%20Ended%20June%2030,%202022) This section provides a comparative analysis of the company's financial performance for the three months ended June 30, 2023, versus the same period in 2022 [Contract Operations](index=32&type=section&id=Contract%20Operations_3M) This section analyzes the performance of the contract operations segment for the three months ended June 30, 2023, compared to 2022 Contract Operations Performance (Three Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Increase (Decrease) | | :------------------------------------------ | :----- | :----- | :------------------ | | Revenue | $201,120 | $166,298 | 21% | | Cost of sales (excluding D&A) | $76,033 | $68,355 | 11% | | Gross margin | $125,087 | $97,943 | 28% | | Gross margin percentage | 62% | 59% | 3% | - Revenue increased due to higher rates and increased average operating horsepower, partially offset by strategic dispositions in **2022**[110](index=110&type=chunk) - Gross margin percentage improved as revenue growth outpaced the increase in cost of sales, despite higher maintenance, lube oil, and other operating expenses, and a **$2.2 million** reclassification of sales tax from SG&A to cost of sales[111](index=111&type=chunk) [Aftermarket Services](index=32&type=section&id=Aftermarket%20Services_3M) This section analyzes the performance of the aftermarket services segment for the three months ended June 30, 2023, compared to 2022 Aftermarket Services Performance (Three Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Increase (Decrease) | | :------------------------------------------ | :----- | :----- | :------------------ | | Revenue | $46,423 | $49,530 | (6)% | | Cost of sales (excluding D&A) | $35,343 | $41,710 | (15)% | | Gross margin | $11,080 | $7,820 | 42% | | Gross margin percentage | 24% | 16% | 8% | - Revenue decreased due to a decline in parts sales and service activities compared to the prior year's market recovery[112](index=112&type=chunk) - Gross margin increased significantly due to decreases in cost of sales for service activities and parts sales, which more than offset the revenue decline[113](index=113&type=chunk) [Costs and Expenses](index=32&type=section&id=Costs%20and%20Expenses_3M) This section details the changes in various cost and expense categories for the three months ended June 30, 2023, compared to 2022 Costs and Expenses (Three Months Ended June 30, in thousands) | Expense Category | 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) | $0 | | Interest expense | $28,630 | $24,456 | | Gain on sale of assets, net | $(1,176) | $(18,948) | | Other expense (income), net | $1,463 | $497 | - SG&A increased primarily due to higher compensation and benefits, professional expenses, and software/maintenance, partially offset by a **$2.2 million** reclassification of sales tax to cost of sales[116](index=116&type=chunk) - Depreciation and amortization decreased due to assets reaching the end of their depreciable lives and asset sales, partially offset by fixed asset additions[116](index=116&type=chunk) - Interest expense increased due to higher interest rates, a larger average outstanding debt balance, and a **$1.0 million** write-off of deferred financing costs from the Credit Agreement amendment[118](index=118&type=chunk) - Gain on sale of assets, net, decreased significantly from **$19.2 million** in **2022** to **$0.6 million** in **2023**[119](index=119&type=chunk) [Provision for Income Taxes](index=34&type=section&id=Provision%20for%20Income%20Taxes_3M) This section analyzes the provision for income taxes and the effective tax rate for the three months ended June 30, 2023, compared to 2022 Provision for Income Taxes (Three Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Increase (Decrease) | | :---------------- | :----- | :----- | :------------------ | | Provision for income taxes | $9,931 | $9,318 | 7% | | Effective tax rate | 29% | 36% | (7)% | - The increase in provision for income taxes was primarily due to the tax effect of increased book income and valuation allowance[120](index=120&type=chunk) [Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022](index=36&type=section&id=Six%20Months%20Ended%20June%2030,%202023%20Compared%20to%20Six%20Months%20Ended%20June%2030,%202022) This section provides a comparative analysis of the company's financial performance for the six months ended June 30, 2023, versus the same period in 2022 [Contract Operations](index=36&type=section&id=Contract%20Operations_6M) This section analyzes the performance of the contract operations segment for the six months ended June 30, 2023, compared to 2022 Contract Operations Performance (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Increase (Decrease) | | :------------------------------------------ | :----- | :----- | :------------------ | | Revenue | $388,865 | $329,954 | 18% | | Cost of sales (excluding D&A) | $155,515 | $132,856 | 17% | | Gross margin | $233,350 | $197,098 | 18% | | Gross margin percentage | 60% | 60% | 0% | - Revenue increased due to higher rates and increased average operating horsepower, partially offset by strategic dispositions in **2022**[124](index=124&type=chunk) - Gross margin percentage remained unchanged despite increased revenue, as maintenance, start-up, lube oil, and other operating expenses rose due to higher pricing and increased unit redeployment volumes. A **$4.2 million** reclassification of sales tax from SG&A to cost of sales also impacted costs[124](index=124&type=chunk) [Aftermarket Services](index=36&type=section&id=Aftermarket%20Services_6M) This section analyzes the performance of the aftermarket services segment for the six months ended June 30, 2023, compared to 2022 Aftermarket Services Performance (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Increase (Decrease) | | :------------------------------------------ | :----- | :----- | :------------------ | | Revenue | $88,512 | $83,075 | 7% | | Cost of sales (excluding D&A) | $69,251 | $70,348 | (2)% | | Gross margin | $19,261 | $12,727 | 51% | | Gross margin percentage | 22% | 15% | 7% | - Revenue increased primarily due to higher parts sales and service activities, driven by continued market recovery and increased customer demand[125](index=125&type=chunk) - Gross margin increased significantly due to higher revenue and a decrease in cost of sales, mainly from differences in the scope, timing, and type of service activities performed[126](index=126&type=chunk) [Costs and Expenses](index=36&type=section&id=Costs%20and%20Expenses_6M) This section details the changes in various cost and expense categories for the six months ended June 30, 2023, compared to 2022 Costs and Expenses (Six Months Ended June 30, in thousands) | Expense Category | 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 | $0 | | Interest expense | $55,211 | $49,702 | | Gain on sale of assets, net | $(4,781) | $(21,060) | | Other expense (income), net | $2,066 | $533 | - SG&A decreased due to a **$0.7 million decrease in allowance for credit losses** and a **$4.2 million** reclassification of sales tax, partially offset by a **$3.5 million increase in employee compensation and benefits** and a **$1.1 million increase in software and maintenance expense**[129](index=129&type=chunk) - Depreciation and amortization decreased due to assets reaching the end of their depreciable lives, asset sales, and impairments, partially offset by fixed asset additions[129](index=129&type=chunk) - Restructuring charges of **$1.0 million** were incurred in **2023** for severance and consulting costs related to organizational streamlining[131](index=131&type=chunk) - Interest expense increased due to higher interest rates, a larger average outstanding debt balance, and a **$1.0 million** write-off of deferred financing costs[132](index=132&type=chunk) - Gain on sale of assets, net, decreased significantly from **$20.6 million** in **2022** to **$3.9 million** in **2023**[132](index=132&type=chunk) [Provision for Income Taxes](index=38&type=section&id=Provision%20for%20Income%20Taxes_6M) This section analyzes the provision for income taxes and the effective tax rate for the six months ended June 30, 2023, compared to 2022 Provision for Income Taxes (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Increase (Decrease) | | :---------------- | :----- | :----- | :------------------ | | Provision for income taxes | $16,089 | $10,261 | 57% | | Effective tax rate | 28% | 36% | (8)% | - The increase in provision for income taxes was primarily due to the tax effect of increased book income[133](index=133&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's sources of liquidity, cash requirements, capital expenditures, and dividend policies [Overview](index=40&type=section&id=Overview_Liquidity) This section provides an overview of Archrock's primary liquidity sources and its ability to meet future financial obligations - Archrock's primary liquidity sources are cash flows from operations and borrowing availability under its Credit Facility[136](index=136&type=chunk) - The company believes its operating cash flows and Credit Facility borrowings will be sufficient to meet future liquidity needs, with no near-term debt maturities[136](index=136&type=chunk) [Cash Requirements](index=40&type=section&id=Cash%20Requirements) This section outlines the company's key cash requirements, including operating expenses, capital expenditures, interest on debt, and dividend payments - Key cash requirements include operating expenses (compensation, inventory, lube oil), growth capital expenditures, maintenance capital expenditures, interest on debt, and dividend payments[138](index=138&type=chunk) [Capital Expenditures](index=40&type=section&id=Capital%20Expenditures) This section defines and details the company's growth and maintenance capital expenditures, including projected amounts for 2023 and 2024 - Growth capital expenditures are primarily for new compressors or major component upgrades that substantially modify operating parameters, driven by demand and expected economic returns[139](index=139&type=chunk) - Maintenance capital expenditures relate to major overhauls of compression package components to return them to like-new condition without modifying their application[140](index=140&type=chunk) - Projected capital expenditures for **2023** are approximately **$295 million**, including **$200 million for growth** and **$79 million for maintenance**. Growth capital expenditures are anticipated to be around **$160 million in 2024**, a **20% decrease** from **2023**[140](index=140&type=chunk) [Dividends](index=42&type=section&id=Dividends_Liquidity) This section reports on recent dividend declarations and the factors influencing future dividend payments - On **July 27, 2023**, the Board declared a quarterly dividend of **$0.155 per share**, payable on **August 15, 2023**[142](index=142&type=chunk) - Future dividend payments are at the discretion of the Board of Directors, dependent on financial condition, results of operations, credit agreements, and other relevant factors[142](index=142&type=chunk) [Share Repurchase Program](index=42&type=section&id=Share%20Repurchase%20Program_Liquidity) This section provides details on the company's 2023 Share Repurchase Program, including authorized amounts and activity - The **2023 Share Repurchase Program**, authorized on **April 27, 2023**, allows for repurchases of up to **$50.0 million** of common stock until **April 27, 2024**[143](index=143&type=chunk) Share Repurchase Program Activity (Three and Six Months Ended June 30, 2023, in thousands) | Metric | Three Months Ended June 30, 2023 | Six Months Ended 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](index=42&type=section&id=Sources%20of%20Cash) This section details the company's sources of cash, including its revolving credit facility and cash flow activities [Revolving Credit Facility](index=42&type=section&id=Revolving%20Credit%20Facility) This section provides information on the company's Credit Facility, including debt balances, interest rates, and covenant compliance - The Credit Facility had an average debt balance of **$282.5 million** for the six months ended **June 30, 2023**, up from **$231.5 million** in the prior year[145](index=145&type=chunk) - The weighted average annual interest rate on the Credit Facility's outstanding balance increased to **7.7%** at **June 30, 2023**, from **6.9%** at **December 31, 2022**[145](index=145&type=chunk) - As of **June 30, 2023**, the company was in compliance with all Credit Facility covenants, and all undrawn capacity was available for borrowings[145](index=145&type=chunk) [Cash Flows](index=42&type=section&id=Cash%20Flows) This section summarizes the company's cash flow activities from operations, investing, and financing for the six months ended June 30, 2023 and 2022 Summary of Cash Flows (Six Months Ended June 30, in thousands) | Activity | 2023 | 2022 | | :------------------------------------------ | :------- | :------- | | Net cash provided by operating activities | $118,398 | $89,524 | | Net cash used in investing activities | $(150,946) | $(46,034) | | Net cash provided by (used in) financing activities | $32,175 | $(43,109) | | Net (decrease) increase in cash and cash equivalents | $(373) | $381 | - Net cash from operating activities increased primarily due to higher cash inflows from gross margin and accounts receivable, partially offset by changes in accounts payable and deferred revenue[148](index=148&type=chunk) - Net cash used in investing activities increased significantly due to an **$81.4 million increase in capital expenditures** and a **$55.5 million decrease in proceeds from business sales**, partially offset by a **$28.4 million increase in proceeds from property, plant, and equipment sales**[150](index=150&type=chunk) - Net cash provided by financing activities increased due to an **$89.3 million increase in net borrowings of long-term debt**, partially offset by debt issuance costs, increased dividends, and common stock repurchases[151](index=151&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to market risks, specifically related to changes in variable interest rates - A **1% increase** in the effective interest rate on the Credit Facility's outstanding balance at **June 30, 2023**, would result in an annual increase of **$3.4 million in interest expense**[152](index=152&type=chunk) [Item 4. Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details management's evaluation of the effectiveness of the company's disclosure controls and procedures - As of **June 30, 2023**, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective to provide reasonable assurance that required information is recorded, processed, summarized, and reported within SEC specified time periods[155](index=155&type=chunk) [Part II. Other Information](index=45&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part covers legal proceedings, risk factors, equity security sales, defaults, mine safety, and other miscellaneous information [Item 1. Legal Proceedings](index=45&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section addresses the company's involvement in legal actions and their potential financial impact - The company is involved in various pending or threatened legal actions but believes that any ultimate liability will not have a material adverse effect on its consolidated financial position, results of operations, or cash flows[157](index=157&type=chunk) [Item 1A. Risk Factors](index=45&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section confirms whether there have been any material changes to the risk factors previously disclosed - There have been no material changes or updates to the risk factors previously disclosed in the company's Form 10-K[158](index=158&type=chunk) [Item 2. Unregistered Sales of Equity Securities by Issuer and Use of Proceeds](index=45&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20BY%20ISSUER%20AND%20USE%20OF%20PROCEEDS) This section provides details on the company's equity security repurchase activities during the quarter - There were no unregistered sales of equity securities by the issuer[158](index=158&type=chunk) Share Repurchase Activity (Three Months Ended June 30, 2023, in thousands, except per share amounts) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet be Purchased Under the Publicly Announced Plans 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 | | [Item 3. Defaults Upon Senior Securities](index=45&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This section reports on any defaults upon senior securities - There were no defaults upon senior securities[160](index=160&type=chunk) [Item 4. Mine Safety Disclosures](index=45&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section indicates the applicability of mine safety disclosures - Mine safety disclosures are not applicable to the company[160](index=160&type=chunk) [Item 5. Other Information](index=45&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section covers any other information not specifically addressed elsewhere - There is no other information to report in this section[160](index=160&type=chunk) [Item 6. Exhibits](index=47&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed or furnished as part of the report - Key exhibits include the Composite Certificate of Incorporation, Amended and Restated Bylaws, Certifications of the Principal Executive Officer and Principal Financial Officer (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), and Interactive Data Files (XBRL)[163](index=163&type=chunk) [Signatures](index=48&type=section&id=Signatures) This section confirms the official signing of the report by the principal executive and financial officers - The report is duly signed by Douglas S. Aron, Senior Vice President and Chief Financial Officer, and Donna A. Henderson, Vice President and Chief Accounting Officer, on **August 1, 2023**[164](index=164&type=chunk)[165](index=165&type=chunk) ```

Financial Data and Key Metrics Changes - In Q1 2023, net income increased to $16 million from $2 million in Q1 2022 [6] - Adjusted EBITDA for Q1 2023 was $97 million, reflecting strong underlying business performance [19] - The debt-to-EBITDA ratio improved to 4.1x from 4.4x in the previous quarter [21] Business Segment Data and Key Metrics Changes - Contract operations revenue reached $188 million in Q1 2023, up 6% sequentially [20] - Aftermarket services segment revenue was $42 million, a 25% increase year-over-year [21] - Gross margin for contract operations was 58%, consistent with the previous quarter [20] Market Data and Key Metrics Changes - The compression market is experiencing tight conditions, with fleet utilization reaching an all-time high of 94% [12] - Natural gas production in the U.S. is expected to grow, supporting demand for compression services [9] - Lead times for new equipment remain over a year due to supply chain issues [45] Company Strategy and Development Direction - The company is focused on a disciplined capital allocation strategy, including a $50 million buyback authorization [15] - Growth capital expenditures are projected between $180 million and $200 million for 2023 [16] - The company aims to achieve a leverage ratio below 4x by year-end 2023 [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the tightening compression market and expects adjusted EBITDA to trend towards the high end of the guidance range of $400 million to $430 million for 2023 [23] - The company anticipates continued strong demand for compression services driven by underinvestment in infrastructure [10] - Management highlighted the importance of maintaining pricing power in a tight market [13] Other Important Information - The company declared a quarterly dividend of $0.15 per share, representing a 6% yield [22] - Cash available for dividends totaled $46 million, leading to a dividend coverage of 2.0x [22] - The aftermarket services segment is expected to see continued growth through 2023 [14] Q&A Session Summary Question: On the buyback and market volatility - Management indicated confidence in achieving leverage targets while being opportunistic with the buyback authorization [26] Question: Fleet transformation and asset sales - Management stated that transactional activity related to fleet transformation is mostly complete, with only a few smaller asset packages remaining [28] Question: Contract mix and pricing trends - Approximately 60% of contracts are long-term, with 40% available for pricing adjustments [30] Question: Utilization rates and future potential - Utilization rates have increased since the end of Q1, with expectations of reaching around 96% [34] Question: Aftermarket services margin sustainability - Management expressed optimism about the aftermarket services segment, despite its historical volatility [39] Question: Future demand and CapEx stickiness - 90% of the 2023 CapEx budget is committed and under contract, driven by infrastructure underinvestment [42] Question: Lead times for new equipment - Lead times for new equipment remain over a year due to ongoing supply chain issues [45] Question: Outsourced versus owned compression trends - The market split remains around 70% owned and 30% outsourced, but some growth plays are trending towards more outsourced [47]

Table of Contents 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 March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 001-33666 Archrock, Inc. (Exact name of registrant as specified in its charter) Delaware 74-3204509 (State or other j ...