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What changed in Archrock, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Archrock, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+366 added−305 removedSource: 10-K (2025-02-25) vs 10-K (2024-02-21)

Top changes in Archrock, Inc.'s 2024 10-K

366 paragraphs added · 305 removed · 245 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

69 edited+34 added−9 removed79 unchanged
Biggest changeThe primary U.S. federal environmental laws to which our operations are subject include the CAA and regulations thereunder, which regulate air emissions; the CWA and regulations thereunder, which regulate the discharge of pollutants in industrial wastewater and storm water runoff; the RCRA and regulations thereunder, which regulate the management and disposal of hazardous and non–hazardous solid wastes; and the CERCLA and regulations thereunder, known more commonly as “Superfund,” which impose liability for the remediation of releases of hazardous substances in the environment.
Biggest changeHowever, the trend in environmental regulation has been to place more restrictions on activities that may affect the environment, and thus, any changes in these laws and regulations that result in more stringent and costly waste handling, storage, transport, disposal, emission or remediation requirements could have a material adverse effect on our results of operations and financial position. 12 Table of Contents ​ The primary U.S. federal environmental laws to which our operations are subject include the CAA and regulations thereunder, which regulate air emissions; the CWA and regulations thereunder, which regulate the discharge of pollutants in industrial wastewater and storm water runoff; the RCRA and regulations thereunder, which regulate the management and disposal of hazardous and non–hazardous solid wastes; and the CERCLA and regulations thereunder, known more commonly as “Superfund,” which impose liability for the remediation of releases of hazardous substances in the environment.
We operate in two business segments: • Contract Operations – Our contract operations business is comprised of our owned fleet of natural gas compression equipment that we use to provide operations services to our customers. • Aftermarket Services – Our aftermarket services business provides a full range of services to support the compression needs of our customers that own compression equipment, including operations, maintenance, overhaul and reconfiguration services and sales of parts and components.
We operate in two business segments: • Contract Operations – Our contract operations business is comprised of our owned fleet of natural gas compression equipment that we use to provide compression services to our customers. • Aftermarket Services – Our aftermarket services business provides a full range of services to support the compression needs of our customers that own compression equipment, including operations, maintenance, overhaul and reconfiguration services and sales of parts and components.
Insurance. Typically, both we and our customers are required to carry general liability, workers’ compensation, employer’s liability, automobile and excess liability insurance. Our insurance coverage includes property damage, general liability and commercial automobile liability and other coverage we believe is appropriate.
Typically, both we and our customers are required to carry general liability, workers’ compensation, employer’s liability, automobile and excess liability insurance. Our insurance coverage includes property damage, general liability and commercial automobile liability and other coverage we believe is appropriate.
Information on our website is not incorporated by reference in this 2023 Form 10–K or any of our other securities filings. Paper copies of our filings are also available, without charge, from Archrock, Inc., 9807 Katy Freeway, Suite 100, Houston, Texas 77024, Attention: Investor Relations.
Information on our website is not incorporated by reference in this Form 10–K or any of our other securities filings. Paper copies of our filings are also available, without charge, from Archrock, Inc., 9807 Katy Freeway, Suite 100, Houston, Texas 77024, Attention: Investor Relations.
We believe this fee structure and the longevity of our operations reduces volatility and enhances the stability and predictability of our cash flows. 9 Table Archrock, Contents Diversified geographic footprint. We operate in substantially all major natural gas and crude oil producing regions in the U.S.
We believe this fee structure and the longevity of our operations reduces volatility and enhances the stability and predictability of our cash flows. 9 Table of Contents ​ Diversified geographic footprint. We operate in substantially all major natural gas and crude oil producing regions in the U.S.
This ongoing communication allows us to respond swiftly to customer requests. 11 Table Archrock, Contents Customers Our customer base consists primarily of companies engaged in all aspects of the oil and natural gas industry, including large integrated and independent oil and natural gas processors, gatherers and transporters.
This ongoing communication allows us to respond swiftly to customer requests. 11 Table of Contents ​ Customers Our customer base consists primarily of companies engaged in all aspects of the oil and natural gas industry, including large integrated and independent oil and natural gas processors, gatherers and transporters.
In an executive order issued on January 20, 2021, the POTUS asked the heads of all executive departments and agencies to review and take action to address any federal regulations, orders, guidance documents, policies and any similar agency actions promulgated during the prior administration that may be inconsistent with or present obstacles to the administration’s stated goals of protecting public health and the environment, and conserving national monuments and refuges.
In an executive order issued on January 20, 2021, the former administration asked the heads of all executive departments and agencies to review and take action to address any federal regulations, orders, guidance documents, policies and any similar agency actions promulgated during the prior administration that may be inconsistent with or present obstacles to the administration’s stated goals of protecting public health and the environment, and conserving national monuments and refuges.
We are focused on increasing productivity and optimizing our processes. Between 2019 and 2021, we invested in a process and technology transformation project that replaced our existing ERP, supply chain and inventory management systems and expanded the remote monitoring capabilities of our compression fleet. During 2023, our focus shifted to fully harnessing these technologies across our business.
We are focused on increasing productivity and optimizing our processes. Between 2019 and 2021, we invested in a process and technology transformation project that replaced our existing ERP, supply chain and inventory management systems and expanded the remote monitoring capabilities of our compression fleet. Beginning in 2023, our focus shifted to fully harnessing these technologies across our business.
Safety is a core value of our company, and safety performance is a key measure of success that has been included in our short–term incentive program for over 17 years. We actively promote the highest standards of safety behavior and environmental awareness and strive to meet or exceed all applicable local and national regulations.
Safety is a core value of our company, and safety performance is a key measure of success that has been included in our short–term incentive program for over 18 years. We actively promote the highest standards of safety behavior and environmental awareness and strive to meet or exceed all applicable local and national regulations.
Compression is typically required throughout the natural gas production and transportation cycle, including at the wellhead, throughout gathering and distribution systems, into and out of processing and storage facilities and along intrastate and interstate pipelines. Our service offerings focus primarily on midstream applications, with 75% of our operating fleet being used in the gathering and processing cycle stages.
Compression is typically required throughout the natural gas production and transportation cycle, including at the wellhead, throughout gathering and distribution systems, into and out of processing and storage facilities and along intrastate and interstate pipelines. Our service offerings focus primarily on midstream applications, with 64% of our operating fleet being used in the gathering and processing cycle stages.
The executive order also established an Interagency Working Group on the Social Cost of Greenhouse Gases, which is called on to, among other things, capture the full costs of GHG emissions, including the “social cost of carbon,” “social cost of nitrous oxide” and “social cost of methane,” which are “the monetized damages associated with incremental increases in greenhouse gas emissions,” including “changes in net agricultural productivity, human health, property damage from increased flood risk, and the value of ecosystem services.” The current administration adopted an interim social cost of carbon of $51 per ton in February 2021, but in recent rulemakings the EPA has referenced a figure as high as $2,400 per ton effective in 2030.
The executive order also established an Interagency Working Group on the Social Cost of Greenhouse Gases, which is called on to, among other things, capture the full costs of GHG emissions, including the “social cost of carbon,” “social cost of nitrous oxide” and “social cost of methane,” which are “the monetized damages associated with incremental increases in greenhouse gas emissions,” including “changes in net agricultural productivity, human health, property damage from increased flood risk, and the value of ecosystem services.” The former administration adopted an interim social cost of carbon of $51 per ton in February 2021, but in recent reports the EPA has referenced a figure as high as $2,400 per ton of methane effective in 2030.
In June 2016, the EPA issued final regulations amending the NSPS for the oil and natural gas source category and applying to sources of emissions of methane and VOC from certain processes, activities and equipment that is constructed, modified or reconstructed after September 18, 2015.
In June 2016, the EPA issued final regulations under the CAA amending the NSPS for the oil and natural gas source category and applying to sources of emissions of methane and VOC from certain processes, activities and equipment that is constructed, modified or reconstructed after September 18, 2015.
We have strong relationships with a deep base of midstream companies and natural gas and crude oil producers. Our contract operations revenue base is sourced from approximately 290 customers operating throughout all major U.S. natural gas and crude oil producing regions. Fee–based cash flows .
We have strong relationships with a deep base of midstream companies and natural gas and crude oil producers. Our contract operations revenue base is sourced from approximately 280 customers operating throughout all major U.S. natural gas and crude oil producing regions. Fee–based cash flows .
Specifically, the regulation contains both methane and VOC standards for several emission sources not previously covered by the NSPS, such as fugitive emissions from compressor stations and pneumatic pumps and methane standards for certain emission sources that are already regulated for VOC, such as equipment leaks at natural gas processing plants.
Specifically, the regulation imposed both methane and VOC standards for several emission sources not previously covered by the NSPS, such as fugitive emissions from compressor stations and pneumatic pumps and methane standards for certain emission sources that are already regulated for VOC, such as equipment leaks at natural gas processing plants.
In addition, 85% of our fleet, as measured by operating horsepower, was comprised of units that exceed 1,000 horsepower per unit. We believe the trends driving demand for large horsepower units will continue.
In addition, 74% of our fleet, as measured by operating horsepower, was comprised of units that exceed 1,000 horsepower per unit. We believe the trends driving demand for large horsepower units will continue.
We own and retain title to or have an exclusive possessory interest in all compression equipment used to provide contract operations services and we generally bear risk of loss for such equipment to the extent the loss is not caused by gas conditions, our customers’ acts or omissions or the failure or collapse of the customer’s over–water job site upon which we provide the contract operations services.
We own and retain title to or have an exclusive possessory interest in all compression equipment used to provide contract operations services and we generally bear risk of loss for such equipment to the extent the loss is not caused by gas conditions, our customers’ acts or omissions or the failure or collapse of the customer’s over–water job site upon which we provide the contract operations services. 8 Table of Contents ​ Insurance.
The remaining 25% of our operating fleet is used in gas lift applications. Wellhead and Gathering Systems . Natural gas compression is used to transport natural gas from the wellhead through the gathering system.
The remaining 36% of our operating fleet is used in gas lift applications. Wellhead and Gathering Systems . Natural gas compression is used to transport natural gas from the wellhead through the gathering system.
Learning and Talent Development We invest significant resources to develop the talent needed to provide our industry–leading natural gas compression services. We work closely with suppliers to develop training programs for our field service technicians. Our field service technicians are supported by a dedicated training team and collectively completed over 37,000 hours of operational and technical training during 2023.
Learning and Talent Development We invest significant resources to develop the talent needed to provide our industry–leading natural gas compression services. We work closely with suppliers to develop training programs for our field service technicians. Our field service technicians are supported by a dedicated training team and collectively completed over 41,000 hours of operational and technical training during 2024.
To this end, we created the TARGET ZERO program that includes over 90 safety and environmental procedures, and their necessary tools, equipment and training, which are designed to foster a mindset that integrates safety into every work process. Through this program, we achieved excellent safety performance, with a total recordable incident rate of 0.05 in 2023.
To this end, we created the TARGET ZERO program that includes over 90 safety and environmental procedures, and their necessary tools, equipment and training, which are designed to foster a mindset that integrates safety into every work process. Through this program, we achieved excellent safety performance, with a total recordable incident rate of 0.17 in 2024.
Our safety–centric culture has consistently produced industry–leading safety performance for many years, including a 2023 total recordable incident rate of 0.05. Large horsepower. As of December 31. 2023, we have the largest fleet of large horsepower equipment among all outsourced compression service providers in the U.S.
Our safety–centric culture has consistently produced industry–leading safety performance for many years, including a 2024 total recordable incident rate of 0.17. Large horsepower. As of December 31, 2024, we have the largest fleet of large horsepower equipment among all outsourced compression service providers in the U.S.
We expect this will increase the number of units a field service technician can oversee and reduce vehicle miles traveled and fuel consumption, thereby also reducing emissions. 10 Table Archrock, Contents In addition, large horsepower equipment is our primary focus in order to capitalize on the trends that have been driving, and that we believe will continue to drive, demand for large horsepower units.
We expect this will increase the number of units a field service technician can oversee and reduce vehicle miles traveled and fuel consumption, thereby also reducing emissions. 10 Table of Contents ​ In addition, our primary focus is on large horsepower equipment as we aim to continue to capitalize on the trends that have been driving, and that we believe will continue to drive the demand for these units.
In addition, our aftermarket services business provides opportunities to cross–sell our contract operations services. During the years ended December 31, 2023, 2022 and 2021, we generated 18%, 20% and 17%, respectively, of our total revenue from aftermarket services. Competitive Strengths We believe we have the following key competitive strengths: Superior safety performance.
In addition, our aftermarket services business provides opportunities to cross–sell our contract operations services. During the years ended December 31, 2024, 2023 and 2022, we generated 15%, 18% and 20%, respectively, of our total revenue from aftermarket services. Competitive Strengths We believe we have the following key competitive strengths: Superior safety performance.
We are focused on harnessing technology across all aspects of our business to drive operational efficiencies and enhance our value proposition to our customers. This includes the automation of workflows, integration of digital and mobile tools for our field service technicians, expanded remote monitoring capabilities of our compressor fleets and emissions solutions.
We are focused on harnessing technology across all aspects of our business to drive operational efficiencies and enhance our value proposition to our customers. This includes the automation of workflows, integration of digital and mobile tools for our field service technicians, expanded remote monitoring capabilities of our compression fleet and emissions solutions.
We do not believe continued implementation of the NAAQS ozone standard will have a material adverse impact on our business, financial condition, results of operations or cash flows, but we cannot yet predict the impact, if any, of any new Federal Implementation Plan involving new NAAQS standards. 13 Table Archrock, Contents General.
We do not believe continued implementation of the NAAQS ozone standard will have a material adverse impact on our business, financial condition, results of operations or cash flows, but we cannot yet predict the impact, if any, of any new Federal Implementation Plan involving new NAAQS standards. General.
Compression equipment is also used to increase the efficiency of a low–capacity natural gas field by providing a central compression point from which the natural gas can be produced and injected into a pipeline for transmission to facilities for further processing. 6 Table Archrock, Contents Processing Applications .
Compression equipment is also used to increase the efficiency of a low–capacity natural gas field by providing a central compression point from which the natural gas can be produced and injected into a pipeline for transmission to facilities for further processing. Processing Applications .
Compressors may be used in combination with natural gas production and processing equipment to process natural gas into other marketable energy sources. In addition, compression services are used for compression applications in refineries and petrochemical plants. Processing applications typically utilize multiple large horsepower compressors. Gas Lift Applications .
Compressors may be used in combination with natural gas production and processing equipment to process natural gas into other marketable energy sources. In addition, compression services are used for compression applications in refineries and petrochemical plants. Processing applications typically utilize multiple large horsepower compressors. 6 Table of Contents ​ Gas Lift Applications .
We have a meaningful presence in associated gas plays, including the Permian and Eagle Ford shales which, combined, account for approximately two-thirds of our operating horsepower. Increased size and geographic density offer compression services providers operating and cost advantages.
We have a meaningful presence in associated gas plays, including the Permian and Eagle Ford shales, which, combined, account for approximately three-fourths of our operating horsepower. Increased size and geographic density offer compression services providers operating and cost advantages.
Significant additional legislative action by Congress also occurred in August 2022 with the Inflation Reduction Act, which provides $391 billion in funding for research and development and incentives for low–carbon energy production methods, carbon capture, and other programs directed at encouraging de–carbonization and addressing climate change.
Significant additional legislative action by Congress also occurred in August 2022 with the Inflation Reduction Act, signed into law by the former administration, which provides $391 billion in funding for research and development and incentives for low-carbon energy production methods, carbon capture, and other programs directed at encouraging de-carbonization and addressing climate change.
The definition of “waters of the United States” and, relatedly, the scope of CWA jurisdiction, have been the subject of notable rulemaking efforts and judicial challenges over several decades. In May 2023, the U.S.
The definition of “waters of the U.S.” and, relatedly, the scope of CWA jurisdiction, have been the subject of notable rulemaking efforts and judicial challenges over several decades. In May 2023, the U.S.
In our experience, these maintenance practices maximize equipment life and unit availability, minimize emissions and avoidable downtime while reducing the overall maintenance expenditures over the equipment life. As of December 31, 2023, the average age of our operating fleet was 11 years.
In our experience, these maintenance practices maximize equipment life and unit availability, minimize emissions and avoidable downtime while reducing the overall maintenance expenditures over the equipment life. As of December 31, 2024, the average age of our operating fleet was 10 years.
In certain circumstances, if the availability of our services does not meet certain percentages specified in our contracts, our customers are generally entitled, upon request, to specified credits against our service fees. 8 Table Archrock, Contents Title and Risk of Loss.
In certain circumstances, if the availability of our services does not meet certain percentages specified in our contracts, our customers are generally entitled, upon request, to specified credits against our service fees. Title and Risk of Loss.
On October 1, 2015, the EPA issued a new NAAQS ozone standard of 70 ppb, which is a tightening from the 75 ppb standard set in 2008. This new standard became effective on December 28, 2015, and the EPA completed designating attainment/non–attainment regions under the revised ozone standard in 2018.
National Ambient Air Quality Standards. On October 1, 2015, the EPA issued a new NAAQS ozone standard of 70 ppb, which is a tightening from the 75-ppb standard set in 2008. This new standard became effective on December 28, 2015, and the EPA completed designating attainment/non–attainment regions under the revised ozone standard in 2018.
Meanwhile, several states — including, most notably, New Mexico and Colorado — have been developing their own more stringent methane rules that will or are anticipated to impose additional requirements on the industry.
Meanwhile, several states — including, most notably, New Mexico and Colorado — have continued to develop their own more stringent methane rules that will or are anticipated to impose additional requirements on the industry.
To that end, the Governance and Sustainability Committee of our Board of Directors provides oversight of our policies, practices and programs regarding the promotion of diversity and inclusion within our company and the health and safety of our employees and communities.
To that end, the Governance and Sustainability Committee of our Board of Directors provides oversight of our policies, practices and programs regarding the fair and equitable promotion of employees within our company and the health and safety of our employees and communities.
Our equipment undergoes routine and preventive maintenance in accordance with our established maintenance schedules, standards and procedures, which we update as technology changes and as our operations group develops new techniques and procedures to better service our equipment.
We maintain field service locations from which we service and overhaul our fleet. Our equipment undergoes routine and preventive maintenance in accordance with our established maintenance schedules, standards and procedures, which we update as technology changes and as our operations group develops new techniques and procedures to better service our equipment.
More recently, the international community’s December 2023 meeting known as COP28 reaffirmed commitments to the Paris Agreement and concluded an agreement that the world should move away from fossil fuel energy in a just, orderly, and equitable manner and achieve net zero GHG emissions by 2050, while recognizing a transitional role for fossil fuels.
The December 2023 COP28 meeting in Dubai reaffirmed commitments to the Paris Agreement and concluded that the world should move away from fossil fuel energy in a just, orderly, and equitable manner and aim to achieve net zero GHG emissions by 2050, while recognizing a transitional role for fossil fuels.
In addition, the EPA rules provide air permitting requirements for certain large sources of GHG emissions. The requirement for large sources of GHG emissions to obtain and comply with permits will affect some of our and our customers’ largest new or modified facilities going forward, but is not expected to cause us to incur material costs.
The requirement for large sources of GHG emissions to obtain and comply with permits will affect some of our and our customers’ largest new or modified facilities going forward but is not expected to cause us to incur material costs.
Among the newly adopted and proposed methane requirements that may impact our operations are broader applicability to compression equipment relative to the existing rules, increased work practices and inspection requirements and mandates for certain new zero–emissions equipment.
Among the newly adopted methane requirements that may impact our operations are broader applicability to compression equipment relative to the existing rules, increased work practices and inspection requirements and mandates for certain new zero–emissions equipment. Both the EPA rules and the BoLM rules are subject to ongoing judicial challenges.
Notably, opposition to energy development and infrastructure projects has led to regulatory and judicial challenges to new facilities, including compression facilities, in states such as Massachusetts and Virginia.
Notably, opposition to energy development and infrastructure projects has led to regulatory and judicial challenges to new facilities, including compression facilities, in many states.
Relatedly, the U.S. and European Union jointly announced the launch of the “Global Methane Pledge,” which aims to cut global methane pollution at least 30% by 2030 relative to 2020 levels, including “all feasible reductions” in the energy sector.
In November 2021, at COP26 in Glasgow, the U.S. and European Union jointly announced the launch of the “Global Methane Pledge,” by which signatory countries aim to cut global methane pollution at least 30% by 2030 relative to 2020 levels, including “all feasible reductions” in the energy sector.
Analogous state and local laws and regulations may also apply. 12 Table Archrock, Contents Air Emissions The CAA and analogous state laws and their implementing regulations regulate emissions of air pollutants from various sources, including natural gas compressors, and also impose various monitoring and reporting requirements.
Air Emissions The CAA and analogous state laws and their implementing regulations regulate emissions of air pollutants from various sources, including natural gas compressors, and also impose various monitoring and reporting requirements.
Climate Change Climate change legislation and regulatory initiatives may arise from a variety of sources, including international, national, regional and state levels of government and associated administrative bodies, seeking to restrict or regulate emissions of GHG, such as carbon dioxide and methane. Congress has previously considered legislation to restrict or regulate emissions of GHG.
Climate Change Climate change legislation and regulatory initiatives may arise from a variety of sources, including international, national, regional and state levels of government and associated administrative bodies, s eeking to restrict or regulate emissions of GHGs such as carbon dioxide and methane.
As noted above, the EPA has undertaken efforts to regulate emissions of methane, considered a GHG, in the oil and gas sector, with the development of additional, more stringent rules under way.
As noted above, the EPA has undertaken efforts to regulate emissions of methane, considered a GHG, in the oil and gas sector, and could develop additional, more stringent rules in the future.
During the years ended December 31, 2023, 2022 and 2021, our five most significant customers collectively accounted for 33%, 32% and 31%, respectively, of our contract operations and aftermarket services revenue. No single customer accounted for 10% or more of our revenue during the years ended December 31, 2023, 2022 and 2021.
During the years ended December 31, 2024, 2023 and 2022, our five most significant customers collectively accounted for 35%, 33% and 32%, respectively, of our contract operations and aftermarket services revenue.
Following the initial minimum term, which generally ranges from 12 to 48 months, contract operations services generally continue on a month–to–month basis until terminated by either party with 30 days’ advance notice. Fees and Expenses.
Following the initial minimum term, which generally ranges from 12 to 36 months, or up to 60 months for the largest horsepower units in our fleet, contract operations services generally continue on a month–to–month basis until terminated by either party with 30 days’ advance notice. Fees and Expenses.
The following table summarizes the size of our natural gas compression fleet as of December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Aggregate ​ ​ ​ Number ​ Horsepower ​ % of ​ ​ ​ of Units ​ (in thousands) ​ Horsepower ​ 0 — 1,000 horsepower per unit 1,356 555 15 % 1,001 — 1,500 horsepower per unit 1,304 1,765 47 % Over 1,500 horsepower per unit 688 1,439 38 % Total 3,348 3,759 100 % ​ General Terms of our Contract Operations Service Agreements We typically enter into a master service agreement with each customer that sets forth the general terms and conditions of our services, and then enter into a separate supplemental service agreement for each distinct site at which we provide contract operations services.
The following table summarizes the size of our natural gas compression fleet as of December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Aggregate ​ ​ ​ Number ​ Horsepower ​ % of ​ ​ ​ of Units ​ (in thousands) ​ Horsepower ​ 0 — 1,000 horsepower per unit 2,994 1,146 26 % 1,001 — 1,500 horsepower per unit 1,241 1,683 38 % Over 1,500 horsepower per unit 729 1,572 36 % Total 4,964 4,401 100 % ​ General Terms of our Contract Operations Service Agreements We typically enter into a master service agreement with each customer that sets forth the general terms and conditions of our services, and then enter into a separate supplemental service agreement for each distinct site at which we provide contract operations services.
In December 2018 and again in December 2020, the EPA announced that it was retaining without revision the 2015 NAAQS ozone standard. In June 2021, the EPA commenced a process for reconsidering the December 2020 decision, but more recent EPA announcements suggest that no changes are expected until 2025.
In December 2018 and again in December 2020, the EPA announced that it was retaining without revision the 2015 NAAQS ozone standard. In June 2021, the EPA commenced a process for reconsidering the December 2020 decision.
In April 2021, the current administration announced reentry of the U.S. into the Paris Agreement along with a new “nationally determined contribution” for U.S. GHG emissions that would achieve emissions reductions of at least 50% relative to 2005 levels by 2030.
After withdrawing from the Paris Agreement in November 2020, the U.S. re-entered the Paris Agreement in April 2021 along with a new “nationally determined contribution” that the U.S. would achieve GHG emissions reductions of at least 50% relative to 2005 levels by 2030.
With the exception of the proposed methane rules discussed above, we cannot predict whether re-entry into the Paris Agreement or other international pledges will result in any particular new regulatory requirements or whether such requirements will cause us to incur material costs.
Just as we cannot fully anticipate the impact of the methane rules discussed above, we also cannot predict whether potential future re-entry into, or pending withdrawal from, the Paris Agreement or other international pledges will result in any particular new federal regulatory requirements or whether such requirements will cause us to incur material costs.
We also provide our employees and their families with access to a variety of flexible and convenient health and wellness programs that support the maintenance or improvement of our employees’ physical and mental health and encourage engagement in healthy behaviors, including our employee–led RockFIT program that develops and sponsors corporate health and fitness challenges throughout the year.
We also provide our employees and their families with access to a variety of flexible and convenient health and wellness programs that support the maintenance or improvement of our employees’ physical and mental health and encourage engagement in healthy behaviors, including our employee–led RockFIT program that develops and sponsors corporate health and fitness challenges throughout the year. 18 Table of Contents ​ Building Employee and Community Connections We consider ourselves a member of every community in which we operate and believe that building connections between our employees, their families and our communities creates a more meaningful and enjoyable workplace.
We support pay equity and believe we offer competitive and comprehensive compensation benefits packages that include bonuses, an employee stock purchase plan, a 401(k) plan with employer contribution, healthcare and insurance benefits, health savings and flexible spending accounts with employer contribution, paid time off (including 16 hours per year as paid time to volunteer), family leave, an employee assistance program and tuition assistance, among many others. 16 Table Archrock, Contents We believe in the ultimate goal of serving as the best corporate citizen possible and are dedicated to inspiring and empowering our employees to operate continuously according to our core values of safety, service, integrity, respect and pride.
We support pay equity and believe we offer competitive and comprehensive compensation benefits packages that include bonuses, an employee stock purchase plan, a 401(k) plan with employer contribution, healthcare and insurance benefits, health savings and flexible spending accounts with employer contribution, paid time off (including 16 hours per year as paid time to volunteer), family leave, an employee assistance program and tuition assistance, among many others.
At this time, we cannot determine whether the administration’s efforts on social cost or other interagency climate efforts will lead to any particular actions that give rise to a material adverse effect on our business, financial condition, results of operations and cash flows. 14 Table Archrock, Contents At the international level, the U.S. joined the international community at the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France, which resulted in an agreement intended to nationally determine their contributions and set GHG emission reduction goals every five years beginning in 2020.
At this time, we cannot determine how the current administration will continue to proceed and cannot accurately predict the ensuing impact on social cost or other interagency climate efforts, which may give rise to a material adverse effect on our business, financial condition, results of operations and cash flows. 15 Table of Contents ​ At the international level, the U.S. joined the international community at the 21st COP of the UNFCCC in Paris, France, which resulted in the “Paris Agreement,” which intended for signatory countries to nationally determine their contributions and set GHG emission reduction goals every five years beginning in 2020.
Independent of Congress, the EPA has promulgated regulations controlling GHG emissions under its existing CAA authority. The EPA has adopted rules requiring many facilities, including petroleum and natural gas systems, to inventory and report their GHG emissions. In 2023, we did not operate any facilities that were subject to these reporting obligations.
The EPA has adopted rules requiring many facilities, including petroleum and natural gas systems, to inventory and report their GHG emissions. In 2024, we did not operate any facilities that were subject to these reporting obligations. In addition, the EPA rules provide air permitting requirements for certain large sources of GHG emissions.
We support diversity in hiring, as is reflected in the diversity of our Board of Directors, of which three of our independent directors are female or identify as a member of an underrepresented racial/ethnic group. Similarly, one–third of our executive leadership team is female and 28% of our total workforce is ethnically diverse.
While we operate on a merit-based approach, we support diversity and inclusion in hiring, as is reflected in the diversity of our Board of Directors, of which three of our independent directors are female or identify as a member of an underrepresented racial/ethnic group.
During the years ended December 31, 2023, 2022 and 2021, we generated 82%, 80% and 83%, respectively, of our total revenue from contract operations. 7 Table Archrock, Contents Compression Fleet The compressors that we own and use to provide contract operations services are predominantly large horsepower, which we define as greater than 1,000 horsepower per unit, and consist primarily of reciprocating compressors driven by natural gas–powered engines.
Compression Fleet The compressors that we own and use to provide contract operations services are predominantly large horsepower, which we define as greater than 1,000 horsepower per unit, and consist primarily of reciprocating compressors driven by natural gas–powered or electric motor drive engines.
We are the leading provider of natural gas compression services to customers in the energy industry throughout the U.S., in terms of total compression fleet horsepower, and a leading supplier of aftermarket services to customers that own compression equipment in the U.S.
We are a premier provider of natural gas compression services 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. Our business supports a must–run service that is essential to the production, processing, transportation and storage of natural gas.
Human Capital As of December 31, 2023, we employed approximately 1,100 employees in 14 states and conducted business in 42 states. None of our employees are subject to a collective bargaining agreement. We consider our employees to be our greatest asset and believe that our success depends on our ability to attract, develop and retain our employees.
None of our employees are subject to a collective bargaining agreement. 17 Table of Contents ​ We consider our employees to be our greatest asset and believe that our success depends on our ability to attract, develop and retain our employees.
Our fleet is largely standardized around major components and key suppliers, which minimizes our fleet operating costs and maintenance capital requirements, reduces inventory costs, facilitates low–cost compressor resizing and improves technical proficiency in our maintenance and overhaul operations, which in turn allows us to achieve higher uptime while maintaining lower operating costs.
Our fleet is largely standardized around major components and key suppliers, which minimizes our fleet operating costs and maintenance capital requirements, reduces inventory costs, facilitates low–cost compressor resizing and improves technical proficiency in our maintenance and overhaul operations, which in turn allows us to achieve higher uptime while maintaining lower operating costs. 7 Table of Contents ​ All of our compressors are designed to automatically shut down if operating conditions deviate from a pre–determined range and substantially all are also equipped with telematic devices that enable us to remotely monitor the units.
Our employee–led Archrock Cares program brings together employees across functions and backgrounds to break down traditional corporate barriers and form strong bonds through the pursuit of shared interests and volunteering and giving opportunities across the country. 17 Table Archrock, Contents Available Information Our annual reports on Form 10–K, quarterly reports on Form 10–Q, current reports on Form 8–K and any amendments to those reports are available free of charge on our website, www.archrock.com, as soon as reasonably practicable after they are filed electronically with the SEC.
Available Information Our annual reports on Form 10–K, quarterly reports on Form 10–Q, current reports on Form 8–K and any amendments to those reports are available free of charge on our website, www.archrock.com, as soon as reasonably practicable after they are filed electronically with the SEC.
Energy legislation and other initiatives continue to be proposed that may be relevant to GHG emissions issues. Almost half of the states, either individually or through multi–state regional initiatives, have begun to address GHG emissions, primarily through the planned development of emission inventories or regional GHG cap and trade programs.
Almost half of the states, either individually or through multi–state regional initiatives, have begun to address GHG emissions, primarily through the planned development of emission inventories or regional GHG cap and trade programs. Various states, such as California, Colorado and New York have passed or proposed similar climate change disclosure laws.
As part of this strategy, we sold approximately 199,000 and 341,000 horsepower during the years ended December 31, 2023 and 2022, respectively, which drove an increase in our large operating horsepower from 81% of our fleet as of December 31, 2021, to 85% as of December 31, 2023. Optimize our business to generate attractive returns.
As part of this strategy, we sold approximately 175,000 and 199,000 of horsepower units during the years ended December 31, 2024 and 2023, respectively. Of the units sold during the years ended December 31, 2024 and 2023, approximately 75% and 80%, respectively, were small horsepower units. Optimize our business to generate attractive returns.
We do not believe that the current rules will have a material adverse impact on our business, financial condition, results of operations or cash flows, but we cannot yet definitively predict the impact of any revision of the current rules or issuance of new rules, which impact could be material. National Ambient Air Quality Standards.
Under the Midstream Rule, midstream facilities must begin taking steps to reduce GHG emissions from combustion fuel equipment by February 14, 2025. 13 Table of Contents ​ We do not believe that these rules will have a material adverse impact on our business, financial condition, results of operations or cash flows, but we cannot yet definitively predict the impact of any revision of the current rules or issuance of new rules, which impact could be material.
The amendments also establish methane standards for a subset of equipment that the current NSPS regulates, including reciprocating compressors and pneumatic controllers, and extend the current VOC standards to the remaining unregulated equipment. In December 2023, the EPA adopted even more stringent rules with respect to methane and VOC for new and existing sources, via NSPS OOOOb and NSPS OOOOc.
The amendments also established methane standards for a subset of equipment that the NSPS regulates, including reciprocating compressors and pneumatic controllers, and extend the VOC standards to the remaining unregulated equipment.
We are also subject to regulation under the OSHA and regulations thereunder, which regulate the protection of the safety and health of workers.
We are also subject to regulation under the OSHA and regulations thereunder, which regulate the protection of the safety and health of workers. Analogous state and local laws and regulations may also apply. We also acknowledge the potential for policy shifts that could impact our operations.
While the Agreement did not impose direct requirements on emitters, national plans to meet its pledge could have resulted in new regulatory requirements. In November 2019, however, plans were formally announced for the U.S. to withdraw from the Paris Agreement with an effective exit date in November 2020.
While the Paris Agreement did not impose direct requirements on emitters, national plans to meet its pledge resulted in new regulatory requirements.
Our employees give generously and are passionate towards many causes, for which they receive 16 hours per year of paid time off to volunteer.
Our employees give generously and are passionate towards many causes, for which they receive 16 hours per year of paid time off to volunteer. Our employee–led Archrock Cares program brings together employees across functions and backgrounds to break down traditional corporate barriers and form strong bonds through the pursuit of shared interests and volunteering and giving opportunities across the country.
The EPA and the Army Corps of Engineers issued a final rule effective September 8, 2023 to implement the terms of that decision. 15 Table Archrock, Contents Waste Management and Disposal RCRA and analogous state laws and their implementing regulations govern the generation, transportation, treatment, storage and disposal of hazardous and non–hazardous solid wastes.
The EPA and the Army Corps of Engineers issued a final rule effective September 8, 2023 to implement the terms of that decision.
Our business supports a must–run service that is essential to the production, processing, transportation and storage of natural gas. Our mission to help our customers deliver natural gas, an affordable and cleaner energy source, to a variety of critical industries, to generate electricity and to directly heat and power our homes, is more critical than ever.
Our mission to help our customers deliver natural gas in an affordable and responsible manner, to a variety of critical industries is more critical now than ever.
Depending on the particular program, we could be required to control emissions or to purchase and surrender allowances for GHG emissions resulting from our operations.
Depending on the particular program, we could be required to control emissions or to purchase and su r render allowances for GHG emissions resulting f rom our operations. Our customers or other business partners may require us to provide additional climate-related information if they are also subject to these or additional climate-related disclosure laws or regulations.
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Additionally, we provide a small but growing number of electric motor–driven compressors.
Added
During the years ended December 31, 2024, 2023 and 2022, we generated 85%, 82% and 80%, respectively, of our total revenue from contract operations.
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All of our compressors are designed to automatically shut down if operating conditions deviate from a pre–determined range and substantially all are also equipped with telematic devices that enable us to remotely monitor the units. We maintain field service locations from which we service and overhaul our fleet.
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During the year ended December 31, 2024, one customer accounted for $121.4 million, or more than 10% of our consolidated revenue, and another customer accounted for more than 13% of our consolidated trade accounts receivable, both primarily related to our contract operations segment.
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However, the trend in environmental regulation has been to place more restrictions on activities that may affect the environment, and thus, any changes in these laws and regulations that result in more stringent and costly waste handling, storage, transport, disposal, emission or remediation requirements could have a material adverse effect on our results of operations and financial position.
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On January 20, 2025, the current administration issued a series of executive orders and memoranda signaling a shift in environmental and energy policy in the U.S., including the revocation of approximately 80 former administration-era executive orders related to public health, the environment, climate change and climate-related financial risks.
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While the rules have been approved by the EPA Administrator and published on the EPA website, they have not yet been published in the Federal Register. Once published, the rules become effective 60 days thereafter. A separate BoLM rule to address methane emissions on public lands was proposed in November 2022.
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The current administration also declared a “national energy emergency,” directing agencies to expedite conventional energy projects. While the extent of the current administration’s changes to the environmental regulatory landscape in the U.S. is unknown at this time, it is possible that additional changes in the future could impact our results of operation and those of our customers.
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We, together with a consortium of other Gas Compressor Association member companies, were actively involved in the rulemaking effort in New Mexico, including working directly with the New Mexico Environmental Department and participating in the New Mexico Environmental Improvement Board’s hearing in late 2021.
Added
On March 8, 2024, the EPA published even more stringent rules with respect to methane and VOC for new and existing sources, via NSPS Subparts OOOOb and OOOOc, with the OOOOb rules for sources constructed, modified, or reconstructed after December 6, 2022, which became effective on May 7, 2024.
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Those national commitments by themselves create no binding requirements on individual companies or facilities, but they do provide indications of the current administration’s policy direction and the types of legislative and regulatory requirements, such as the EPA’s proposed methane rules, that may be needed to achieve those commitments.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAt this time, we cannot determine whether the administration’s efforts on social cost or other interagency climate efforts will lead to any particular actions that give rise to a material adverse effect on our business, financial condition, results of operations and cash flows. 29 Table Archrock, Contents At the international level, the U.S. joined the international community at the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France, which resulted in an agreement intended to nationally determine their contributions and set GHG emission reduction goals every five years beginning in 2020.
Biggest changeAt the international level, the U.S. joined the international community at the 21st COP of the UNFCCC in Paris, France, which resulted in the “Paris Agreement,” which intended for signatory countries to nationally determine their contributions and set GHG emission reduction goals every five years beginning in 2020.
We are subject to numerous and evolving cybersecurity risks and threats, including cyber-attacks, computer viruses or terrorism that threaten the confidentiality, integrity and availability of critical technology systems or information and may disrupt our operations and harm our operating results. Our industry requires the continued operation of sophisticated information technology systems and network infrastructure.
We are subject to numerous and evolving cybersecurity risks and threats, including cyber-attacks, computer viruses and terrorism that threaten the confidentiality, integrity and availability of critical technology systems or information and may disrupt our operations and harm our operating results. Our industry requires the continued operation of sophisticated information technology systems and network infrastructure.
Current, as well as potential future, laws and regulations that limit GHG emissions or that otherwise promote the use of renewable energy over fossil fuel energy sources could increase the cost of our midstream services and, thereby, further reduce demand and adversely affect our sales volumes, revenues and margins.
Current, as well as potential future, laws and regulations that limit GHG emissions or that otherwise promote the use of renewable energy over fossil fuel energy sources could increase the cost of our services and, thereby, further reduce demand and adversely affect our sales volumes, revenues and margins.
Item 1A. Risk Factors As described in “Forward–Looking Statements,” this 2023 Form 10–K contains forward–looking statements regarding us, our business and our industry. The risk factors described below, among others, could cause our actual results to differ materially from the expectations reflected in the forward–looking statements.
Item 1A. Risk Factors As described in “Forward–Looking Statements,” this Form 10–K contains forward–looking statements regarding us, our business and our industry. The risk factors described below, among others, could cause our actual results to differ materially from the expectations reflected in the forward–looking statements.
We do not believe that the current rules will have a material adverse impact on our business, financial condition, results of operations or cash flows, but we cannot yet definitively predict the impact of any revision of the current rules or issuance of new rules, which impact could be material.
We do not believe that these rules will have a material adverse impact on our business, financial condition, results of operations or cash flows, but we cannot yet definitively predict the impact of any revision of the current rules or issuance of new rules, which impact could be material.
Given the large number of facilities in which we operate, and the numerous environmental permits and other authorizations that are applicable to our operations, we may occasionally identify or be notified of technical violations of certain requirements existing in various permits or other authorizations.
Given the large number of facilities in which we operate, and the numerous environmental permits and other authorizations that are applicable to our operations, we may occasionally identify or be notified of violations of certain requirements existing in various permits or other authorizations.
Any such difficulties could have an adverse effect on our business, results of operations and financial condition. Threats of cyber-attacks or terrorism could affect our business. We rely on our information technology systems for critical operations.
Any such difficulties could have an adverse effect on our business, results of operations and financial condition. Threats of cyber-attacks or terrorism could affect our business. We rely on our information technology systems and data for critical operations.
Between 2019 and 2021, we invested in a process and technology transformation project that replaced our existing ERP, supply chain and inventory management systems and expanded the remote monitoring capabilities of our compression fleet. During 2023, our focus shifted to fully harnessing these technologies across our business.
Between 2019 and 2021, we invested in a process and technology transformation project that replaced our existing ERP, supply chain and inventory management systems and expanded the remote monitoring capabilities of our compression fleet. Beginning in 2023, our focus shifted to fully harnessing these technologies across our business.
In June 2016, the EPA issued final regulations amending the NSPS for the oil and natural gas source category and applying to sources of emissions of methane and VOC from certain processes, activities and equipment that is constructed, modified or reconstructed after September 18, 2015.
In June 2016, the EPA issued final regulations under the CAA amending the NSPS for the oil and natural gas source category and applying to sources of emissions of methane and VOC from certain processes, activities and equipment that is constructed, modified or reconstructed after September 18, 2015.
Specifically, the regulation contains both methane and VOC standards for several emission sources not previously covered by the NSPS, such as fugitive emissions from compressor stations and pneumatic pumps and methane standards for certain emission sources that are already regulated for VOC, such as equipment leaks at natural gas processing plants.
Specifically, the regulation imposed both methane and VOC standards for several emission sources not previously covered by the NSPS, such as fugitive emissions from compressor stations and pneumatic pumps and methane standards for certain emission sources that are already regulated for VOC, such as equipment leaks at natural gas processing plants.
A number of advocacy groups, both domestically and internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including increasing attention and demands for action related to climate change, promoting the use of substitutes to fossil fuel products and encouraging the divestment of companies in the fossil fuel industry.
A number of advocacy groups, both domestically and internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including demands for action related to climate change, promoting the use of substitutes to fossil fuel products and encouraging the divestment of companies in the fossil fuel industry.
The loss of all or even a portion of the services we provide to these customers, as a result of competition or otherwise, could have a material adverse effect on our business, results of operations and financial condition. 23 Table Archrock, Contents Many of our contract operations service agreements have short initial terms and are cancelable on short notice after the initial term, and we cannot be sure that such contracts will be extended or renewed after the end of the initial contractual term.
The loss of all or even a portion of the services we provide to these customers, as a result of competition or otherwise, could have a material adverse effect on our business, results of operations and financial condition. 24 Table of Contents ​ Many of our contract operations service agreements have short initial terms and are cancelable on short notice after the initial term, and we cannot be sure that such contracts will be extended or renewed after the end of the initial contractual term.
Further, a default under one or more of the Debt Agreements would trigger cross–default provisions under the other Debt Agreements, which would accelerate our obligation to repay the indebtedness under those agreements. As of December 31, 2023, we were in compliance with all covenants under the Debt Agreements.
Further, a default under one or more of the Debt Agreements would trigger cross–default provisions under the other Debt Agreements, which would accelerate our obligation to repay the indebtedness under those agreements. As of December 31, 2024, we were in compliance with all covenants under the Debt Agreements.
See Part I, Item 3 “Legal Proceedings” of this form 10-K and Note 16 (“Commitments and Contingencies”) to our Financial Statements for additional information regarding certain legal proceedings to which we are a party. 26 Table Archrock, Contents New regulations, proposed regulations and proposed modifications to existing regulations under the CAA, if implemented, could result in increased compliance costs.
See Part I, Item 3 “Legal Proceedings” of this form 10-K and Note 16 27 Table of Contents ​ (“Commitments and Contingencies”) to our Financial Statements for additional information regarding certain legal proceedings to which we are a party. New regulations, proposed regulations and proposed modifications to existing regulations under the CAA, if implemented, could result in increased compliance costs.
A significant increase in the price of such equipment, materials and services as a result of inflation, or other factors, could have a negative impact on our business, results of operations, financial condition and cash flows. 24 Table Archrock, Contents Information Technology and Cybersecurity Risks We may not realize the intended benefits of our process and technology transformation project, which could have an adverse effect on our business.
A significant increase in the price of such equipment, materials and services, as a result of inflation, or other factors, could have a negative impact on our business, results of operations, financial condition and cash flows. 25 Table of Contents ​ Information Technology and Cybersecurity Risks We may not realize the intended benefits of our process and technology transformation project, which could have an adverse effect on our business.
Any such nonrenewals, or renewals at reduced rates or the loss of contracts with any significant customer could adversely impact our results of operations. The length of our contract operations service agreements with customers varies based on operating conditions and customer needs.
Any such non renewals, or renewals at reduced rates or the loss of contracts with any significant customer could adversely impact our results of operations. The length of our contract operations service agreements with customers varies based on operating conditions and customer needs.
If our competitors substantially increase the resources they devote to the development and marketing of competitive products, equipment or services or substantially decrease the price at which they offer their products, equipment or services, we may not be able to compete effectively. In addition, we could face significant competition from new entrants into the compression services business.
If our competitors substantially increase the resources they devote to the development and marketing of competitive products, equipment or services or substantially decrease the price at which they offer their products, equipment or services, we may not be able to compete effectively. 20 Table of Contents ​ In addition, we could face significant competition from new entrants into the compression services business.
We have experienced ownership changes, which may result in an annual limitation on the use of its pre–ownership change NOLs (and certain other losses and/or credits) equal to the equity value of our stock immediately before the ownership change, multiplied by the long–term tax–exempt rate for the month in which the ownership change occurs.
We have experienced ownership changes, which may result in an annual limitation on the use of our pre–ownership change NOLs (and certain other losses and/or credits) equal to the equity value of our stock immediately before the ownership change, multiplied by the long–term tax–exempt rate for the month in which the ownership change occurred.
The loss of any of our most significant customers would result in a decline in our revenue and cash available to pay dividends to our common stockholders. Our five most significant customers collectively accounted for 33%, 32% and 31% of our revenues during the years ended December 31, 2023, 2022 and 2021, respectively.
The loss of any of our most significant customers would result in a decline in our revenue and cash available to pay dividends to our common stockholders. Our five most significant customers collectively accounted for 35%, 33% and 32% of our revenues during the years ended December 31, 2024, 2023 and 2022, respectively.
For example, these commitments could: • make it more difficult for us to satisfy contractual obligations; • increase our vulnerability to general adverse economic and industry conditions; • limit our ability to fund future working capital, capital expenditures, acquisitions or other corporate requirements; • increase our vulnerability to interest rate fluctuations because the interest payments on a portion of our debt are based upon variable interest rates and a portion can adjust based on our credit statistics; • limit our flexibility in planning for, or reacting to, changes in our business and our industry; • place us at a disadvantage compared to our competitors that have less debt or less restrictive covenants in such debt; and • limit our ability to incur indebtedness in the future.
For example, these commitments could: • make it more difficult for us to satisfy contractual obligations; • increase our vulnerability to general adverse economic and industry conditions; • limit our ability to fund future working capital, capital expenditures, acquisitions or other corporate requirements; • increase our vulnerability to interest rate fluctuations because the interest payments on a portion of our debt are based upon variable interest rates, and a portion can adjust based on our credit statistics; • limit our flexibility in planning for, or reacting to, changes in our business and our industry; • place us at a disadvantage compared to our competitors that have less debt or less restrictive covenants in such debt; and • limit our ability to incur indebtedness in the future. 22 Table of Contents ​ Covenants in our Debt Agreements may impair our ability to operate our business.
Despite our implementation of security measures, our technology systems are vulnerable to disability or failures due to social engineering/phishing, malware (including ransomware), malfeasance by insiders, human or technological error, hacking, viruses, and as a result of bugs, misconfigurations or exploited vulnerabilities in software or hardware, acts of war or terrorism and other causes.
Despite our implementation of security measures, our technology systems and data are vulnerable to material compromises, disruption and failures due to social engineering/phishing, malware (including ransomware), malfeasance by insiders, human or technological error, hacking, viruses, and as a result of bugs, misconfigurations or exploited vulnerabilities in software or hardware, acts of war or terrorism and other causes.
In addition, these types of events could require significant management attention and resources and could adversely affect our reputation among customers and the public. 25 Table Archrock, Contents Tax–related Risks Tax legislation and administrative initiatives or challenges to our tax positions could adversely affect our results of operations and financial condition.
In addition, these types of events could require significant management attention and resources and could adversely affect our reputation among customers and the public. Tax–related Risks Tax legislation and administrative initiatives or challenges to our tax positions could adversely affect our results of operations and financial condition.
As of December 31, 2023, we had $1.6 billion in outstanding debt obligations, net of unamortized debt premiums and unamortized deferred financing costs, outstanding under our Credit Facility and Senior Notes. Many factors, including factors beyond our control, may affect our ability to make payments on our outstanding indebtedness. These factors include those discussed elsewhere in these Risk Factors.
As of December 31, 2024, we had $2.2 billion in outstanding debt obligations, net of unamortized debt premiums and unamortized deferred financing costs, outstanding under our Credit Facility and Senior Notes. Many factors, including factors beyond our control, may affect our ability to make payments on our outstanding indebtedness. These factors include those discussed elsewhere in these Risk Factors.
Significant additional legislative action by Congress also occurred in August 2022 with the Inflation Reduction Act, which provides $391 billion in funding for research and development and incentives for low-carbon energy production methods, carbon capture, and other programs directed at encouraging de-carbonization and addressing climate change.
Significant additional legislative action by Congress also occurred in August 2022 with the Inflation Reduction Act, signed into law by the former administration, which provides $391 billion in funding for research and development and incentives for low-carbon energy production methods, carbon capture, and other programs directed at encouraging de-carbonization and addressing climate change.
Companies which do not adapt to or comply with expectations and standards on ESG matters, as they continue to evolve, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and the business, financial condition and/or stock price of such a company could be materially and adversely affected.
If we do not adapt to or comply with expectations and standards on ESG matters, as they continue to evolve, or if we are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, we may suffer from reputational damage, and our business, financial condition and/or stock price could be materially and adversely affected.
Meanwhile, several states — including, most notably, New Mexico and Colorado — have been developing their own more stringent methane rules that will or are anticipated to impose additional requirements on the industry.
Meanwhile, several states — including, most notably, New Mexico and Colorado — have continued to develop their own more stringent methane rules that will or are anticipated to impose additional requirements on the industry.
Climate change legislation and regulatory initiatives may arise from a variety of sources, including international, national, regional and state levels of government and associated administrative bodies, s eeking to restrict or regulate emissions of GHG, such as carbon dioxide and methane. Congress has previously considered legislation to restrict or regulate emissions of GHG.
Climate change legislation and regulatory initiatives may arise from a variety of sources, including international, national, regional and state levels of government and associated administrative bodies, s eeking to restrict or regulate emissions of GHGs such as carbon dioxide and methane.
We may face pressures from stakeholders, many of whom are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability while at the same time remaining a successfully operating public company.
We may face pressures from stakeholders, many of whom may be concerned by on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability while at the same time remaining a successfully operating public company.
From time to time, as part of our operations, including newly acquired operations or in the future might otherwise have an opportunity to provide contract operations, we may be subject to compliance audits by regulatory authorities in the various states in which we operate.
From time to time, as part of our operations, including newly acquired or potential future contract operations, we may be subject to compliance audits by regulatory authorities in the various states in which we operate.
If we are unable to access the capital and credit markets on favorable terms, or if we are not successful in raising capital within the time period required or at all, we may not be able to grow or maintain our business, which could have a material adverse effect on our business, results of operations and financial condition.
If we are unable to access the capital and credit markets on favorable terms, or if we are not successful in raising capital within the time period required or at all, we may not be able to grow or maintain our business, which could have a material adverse effect on our business, results of operations and financial condition. 23 Table of Contents ​ Our inability to fund purchases of additional compression equipment could adversely impact our financial results.
In addition, the EPA rules provide air permitting requirements for certain large sources of GHG emissions. The requirement for large sources of GHG emissions to obtain and comply with permits will affect some of our and our customers’ largest new or modified facilities going forward, but is not expected to cause us to incur material costs.
The requirement for large sources of GHG emissions to obtain and comply with permits will affect some of our and our customers’ largest new or modified facilities going forward but is not expected to cause us to incur material costs.
Among the newly adopted and proposed methane requirements that may impact our operations are broader applicability to compression equipment relative to the existing rules, increased work practices and inspection requirements and mandates for certain new zero–emissions equipment.
Among the newly adopted methane requirements that may impact our operations are broader applicability to compression equipment relative to the existing rules, increased work practices and inspection requirements and mandates for certain new zero–emissions equipment. Both the EPA rules and the BoLM rules are subject to ongoing judicial challenges.
Notably, opposition to energy development and infrastructure projects has led to regulatory and judicial challenges to new facilities, including compression facilities, in states such as Massachusetts and Virginia.
Notably, opposition to energy development and infrastructure projects has led to regulatory and judicial challenges to new facilities, including compression facilities, in many states.
Relatedly, the U.S. and European Union jointly announced the launch of the “Global Methane Pledge,” which aims to cut global methane pollution at least 30% by 2030 relative to 2020 levels, including “all feasible reductions” in the energy sector.
In November 2021, at COP26 in Glasgow, the U.S. and European Union jointly announced the launch of the “Global Methane Pledge,” by which signatory countries aim to cut global methane pollution at least 30% by 2030 relative to 2020 levels, including “all feasible reductions” in the energy sector.
There can be no assurance that our tax provision or tax payments will not be adversely affected by these initiatives. In addition, U.S. federal, state and local, and international tax laws and regulations are extremely complex and subject to varying interpretations.
From time to time, various legislative or administrative initiatives may be proposed that could adversely affect our tax positions. There can be no assurance that our tax provision or tax payments will not be adversely affected by these initiatives. In addition, U.S. federal, state and local, and international tax laws and regulations are extremely complex and subject to varying interpretations.
As noted above, the EPA has undertaken efforts to regulate emissions of methane, considered a GHG, in the oil and gas sector, with the development of additional, more stringent rules under way.
As noted above, the EPA has undertaken efforts to regulate emissions of methane, considered a GHG, in the oil and gas sector, and could develop additional, more stringent rules in the future.
More recently the international community’s December 2023 meeting known as COP28 reaffirmed commitments to the Paris Agreement and concluded an agreement that the world must move away from fossil fuel energy in a just, orderly, and equitable manner and achieve net zero GHG emissions by 2050, while recognizing a transitional role for fossil fuels.
The December 2023 COP28 meeting in Dubai reaffirmed commitments to the Paris Agreement and concluded that the world should move away from fossil fuel energy in a just, orderly, and equitable manner and aim to achieve net zero GHG emissions by 2050, while recognizing a transitional role for fossil fuels.
Any future pandemic or public health crisis may materially adversely affect our operating and financial results in a manner that is not currently known to us or that we do not currently consider to present significant risks to our operations. An increase in inflation could have adverse effects on our results of operation.
Any future pandemic or public health crisis may materially adversely affect our operating and financial results in a manner that is not currently known to us or that we do not currently consider to present significant risks to our operations.
Some scientists have concluded that increasing concentrations of GHG in the Earth’s atmosphere may produce climate changes that have significant weather–related effects, such as increased frequency and severity of storms, droughts, floods and other climatic events.
Some scientists have concluded that increasing concentrations of GHG in the Earth’s atmosphere may produce climate changes that have significant weather–related effects, such as increased frequency and severity of storms, droughts, hurricanes, blizzards, floods and other climatic events, in addition to more chronic changes such as shifting temperature, precipitation, and other meteorological patterns.
The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition.
The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition. Item 1B. Unresolved Staff Comments None.
In December 2018 and again in December 2020, the EPA announced that it was retaining without revision the 2015 NAAQS ozone standard. In June 2021, the EPA commenced a process for reconsidering the December 2020 decision but more recent EPA announcements suggest that no changes are expected until 2025.
In December 2018 and again in December 2020, the EPA announced that it was retaining without revision the 2015 NAAQS ozone standard. In June 2021, the EPA commenced a process for reconsidering the December 2020 decision.
The market for natural gas and natural gas liquids is generally impacted by periods of colder weather and warmer weather, so any changes in climate could affect the market for those fuels, and thus demand for our services.
The market for natural gas and natural gas liquids is generally impacted by periods of colder weather and warmer weather, so any changes in climate could affect the market for those fuels, and thus demand for our services. Increased energy use due to weather changes may require us to invest in additional equipment to serve increased demand.
In April 2021, the current administration announced reentry of the U.S. into the Paris Agreement along with a new “nationally determined contribution” for U.S. GHG emissions that would achieve emissions reductions of at least 50% relative to 2005 levels by 2030.
After withdrawing from the Paris Agreement in November 2020, the U.S. re-entered the Paris Agreement in April 2021 along with a new “nationally determined contribution” that the U.S. would achieve GHG emissions reductions of at least 50% relative to 2005 levels by 2030.
Our services are provided to these customers pursuant to contract operations service agreements, which typically have an initial term of 12 to 48 months and continue thereafter until terminated by either party with 30 days’ advance notice.
Our services are provided to these customers pursuant to contract operations service agreements, which generally have an initial term of 12 to 36 months, or up to 60 months for the largest horsepower units in our fleet, and continue thereafter until terminated by either party with 30 days’ advance notice.
As a result, we may be unable to detect, investigate, remediate or recover from future attacks or incidents, or to avoid a material adverse impact to our systems or information.
As a result, there is no guarantee that we will detect, investigate, remediate or recover from future attacks or incidents, or avoid a material adverse impact to our systems or information.
With the exception of the proposed methane rules discussed above, we cannot predict whether re-entry into the Paris Agreement or other international pledges will result in any particular new regulatory requirements or whether such requirements will cause us to incur material costs.
Just as we cannot fully anticipate the impact of the methane rules discussed above, we also cannot predict whether potential future re-entry, or pending withdrawal from, into the Paris Agreement or other international pledges will result in any particular new federal regulatory requirements or whether such requirements will cause us to incur material costs.
In addition, because we use third-party suppliers and service providers, such as cloud services that support our internal and customer-facing operations, successful cyberattacks that disrupt or result in unauthorized access to third-party technology systems can materially impact our operations and financial results.
In addition, a successful cyberattack against a critical third party could materially impact our operations and financial results, and because we cannot control the scope or effectiveness of the security measures deployed by our third-party suppliers and service providers, such as cloud services that support our internal and customer-facing operations, successful cyberattacks that disrupt or result in unauthorized access to third-party technology systems can materially impact our operations and financial results.
This temporary pause on pending approvals of LNG exports may be unpredictable and may negatively impact our business. ​ From time to time, we are subject to various claims, tax audits, litigation and other proceedings that could ultimately be resolved against us and require material future cash payments or charges, which could impair our financial condition or results of operations.
Legal and Regulatory Risks From time to time, we are subject to various claims, tax audits, litigation and other proceedings that could ultimately be resolved against us and require material future cash payments or charges, which could impair our financial condition or results of operations.
In addition, a substantial portion of our cash flow must be used to service our debt obligations. Any increase in our interest expense could negatively impact our results of operations and cash flows, including our ability to pay dividends in the future.
Any increase in our interest expense could negatively impact our results of operations and cash flows, including our ability to pay dividends in the future.
There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our systems and information. In addition, our assets may be targets of terrorist activities that could disrupt our ability to service our customers.
There also can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our systems and information.
If our information technology systems were to fail and we were unable to recover in a timely way, we may be unable to fulfill critical business functions, which could have a material adverse effect on our business, results of operations and financial condition.
If our information technology systems were to fail and we were unable to recover in a timely way, we may be unable to fulfill critical business functions, which could have a material adverse effect on our business, results of operations and financial condition. 26 Table of Contents ​ The nature of our industry and assets makes us a target for terrorist activities designed to disrupt our ability to service our customers.
Cash flow from our operations and availability under our Credit Facility may not provide us with sufficient cash to fund our capital expenditure requirements, including any funding requirements related to acquisitions. Our ability to grow our asset and customer base could be impacted by limits on our ability to access additional capital.
We may not be able to maintain or increase our asset and customer base unless we have access to sufficient capital to purchase additional compression equipment. Cash flow from our operations and availability under our Credit Facility may not provide us with sufficient cash to fund our capital expenditure requirements, including any funding requirements related to acquisitions.
New environmental regulations and proposals similar to these, when finalized, and any other new regulations requiring the installation of more sophisticated pollution control equipment or the adoption of other environmental protection measures, could have a material adverse impact on our business, financial condition, results of operations and cash flows.
We do not believe continued implementation of the NAAQS ozone standard will have a material adverse impact on our business, financial condition, results of operations or cash flows, but we cannot yet predict the impact, if any, of any new Federal Implementation Plan involving new NAAQS standards. 28 Table of Contents ​ New environmental regulations and proposals similar to these, when finalized, and any other new regulations requiring the installation of more sophisticated pollution control equipment or the adoption of other environmental protection measures, could have a material adverse impact on our business, financial condition, results of operations and cash flows.
Occasionally, we have been assessed penalties for our non–compliance, and we could be subject to such penalties in the future. We routinely deal with oil, natural gas and other petroleum products.
Occasionally, we have been assessed penalties for non–compliance, and we could be subject to such penalties in the future.
During times when the oil or natural gas markets weaken, our customers are more likely to experience a downturn in their financial condition. Additionally, some of our midstream customers may provide their gathering, transportation and related services to a limited number of companies in the oil and gas production business.
Additionally, some of our midstream customers may provide their gathering, transportation and related services to a limited number of companies in the oil and gas production business.
The modification or interpretation of existing environmental laws or regulations, the more vigorous enforcement of existing environmental laws or regulations, or the adoption of new environmental laws or regulations may also negatively impact oil and natural gas exploration and production, gathering and pipeline companies, including our customers, which in turn could have a negative impact on us. 28 Table Archrock, Contents Climate change legislation, regulatory initiatives and stakeholder pressures could result in increased compliance costs, financial risks and potential reduction in demand for our services.
The modification or interpretation of existing environmental laws or regulations, the more vigorous enforcement of existing environmental laws or regulations, or the adoption of new environmental laws or regulations may also negatively impact oil and natural gas exploration and production, gathering and pipeline companies, including our customers, which in turn could have a negative impact on us.
We operate in locations throughout the U.S. and, as a result, we are subject to the tax laws and regulations of U.S. federal, state and local governments. We have investments in unconsolidated affiliates that operate in the U.S. and international locations. From time to time, various legislative or administrative initiatives may be proposed that could adversely affect our tax positions.
We operate or are registered in locations throughout the U.S. and Canada and, as a result, we are subject to the tax laws and regulations of U.S. federal, state and local and Canadian governments. We have investments in unconsolidated affiliates that operate in the U.S. and international locations.
While we have not directly faced any such challenges to the facilities at which we provide contract operations and know of no pending or threatened efforts targeting those facilities, expanded opposition to energy infrastructure, including facilities at which we provide contract operations or in the future might otherwise have an opportunity to provide contract operations, could potentially give rise to material impacts in the future. 27 Table Archrock, Contents We are subject to a variety of governmental regulations; failure to comply with these regulations may result in administrative, civil and criminal enforcement measures and changes in these regulations could increase our costs or liabilities.
While we have not directly faced any such challenges to the facilities at which we provide contract operations and know of no pending or threatened efforts targeting those facilities, expanded opposition to energy infrastructure, including facilities at which we provide contract operations or in the future might otherwise have an opportunity to provide contract operations, could potentially give rise to material impacts in the future.
Any of these measures may reduce the amount of cash available for payment of dividends and the funding of our business requirements, which could have an adverse effect on our business, operations, cash flows or the price of our common stock. 21 Table Archrock, Contents The breach of any of the covenants under the Debt Agreements could result in a default under the Debt Agreements, which could cause indebtedness under the Debt Agreements to become due and payable.
Any of these measures may reduce the amount of cash available for payment of dividends and the funding of our business requirements, which could have an adverse effect on our business, operations, cash flows or the price of our common stock.
Independent of Congress, the EPA has promulgated regulations controlling GHG emissions under its existing CAA authority. The EPA has adopted rules requiring many facilities, including petroleum and natural gas systems, to inventory and report their GHG emissions. In 2023, we did not operate any facilities that were subject to these reporting obligations.
The EPA has adopted rules requiring many facilities, including petroleum and natural gas systems, to inventory and report their GHG emissions. In 2024, we did not operate any facilities that were subject to these reporting obligations. In addition, the EPA rules provide air permitting requirements for certain large sources of GHG emissions.
In sum, any legislation, regulatory programs or social pressures related to climate change could increase our costs and require substantial capital, compliance, operating and maintenance costs, reduce demand for our services and reduce our access to financial markets.
Any such litigation targeting our customers could negatively impact their operation and, in turn, decrease demand for our operations, which could have an adverse impact on our financial condition. 31 Table of Contents ​ In sum, any legislation, regulatory programs or social pressures related to climate change could increase our costs and require substantial capital, compliance, operating and maintenance costs, reduce demand for our services and reduce our access to financial markets.
We may be required by our regulators or by the future terrorist threat environment to make investments in security that we cannot currently predict. The implementation of security guidelines and measures and maintenance of insurance, to the extent available, addressing such activities could increase costs.
Increased cybersecurity regulations and an escalating cyber terrorist threat environment are expected to require additional investments in security that we cannot currently predict. The implementation of security guidelines and measures and maintenance of insurance, to the extent available, addressing such activities could increase costs.
We are subject to a variety of U.S. federal, state and local laws and regulations, including relating to the environment, health and safety, labor and employment and taxation. Many of these laws and regulations are complex, change frequently, are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time.
Many of these laws and regulations are complex, change frequently, are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time.
Increased environmental, social and governance scrutiny and changing expectations from stakeholders may impose additional costs or additional risks. In recent years, increasing attention has been given to corporate activities related to ESG matters.
As a result, it is difficult to predict how the market for our services could be affected by increased temperature volatility. Environmental, social and governance scrutiny and changing expectations from stakeholders may impose additional costs or additional risks. In recent years, attention has been given to corporate activities related to ESG matters.
A decision not to pay dividends or a reduction in our dividend payments in the future could have a negative effect on our stock price. 20 Table Archrock, Contents Financial Risks We have a substantial amount of debt that could limit our ability to fund future growth and operations and increase our exposure to risk during adverse economic conditions.
Financial Risks We have a substantial amount of debt that could limit our ability to fund future growth and operations and increase our exposure to risk during adverse economic conditions.
If any of those effects were to occur, they could have an adverse effect on our assets and operations, including damages to our or our customers’ facilities and assets from powerful wind or rising waters. We may experience increased insurance costs, or difficulty obtaining adequate insurance coverage, for our assets in areas subject to more frequent severe weather.
If any of those effects were to occur, they could have an adverse effect on our assets and operations, including, but not limited to, damages to our or our customers’ facilities and assets from powerful wind or rising waters.
We also may not be able to take advantage of certain opportunities or make certain investments because of our debt levels and our other obligations.
We also may not be able to take advantage of certain opportunities or make certain investments because of our debt levels and our other obligations. Any of these competitive pressures could have a material adverse effect on our business, results of operations and financial condition.
Energy legislation and other initiatives continue to be proposed that may be relevant to GHG emissions issues. Almost half of the states, either individually or through multi–state regional initiatives, have begun to address GHG emissions, primarily through the planned development of emission inventories or regional GHG cap and trade programs.
Almost half of the states, either individually or through multi–state regional initiatives, have begun to address GHG emissions, primarily through the planned development of emission inventories or regional GHG cap and trade programs. Various states, such as California, Colorado and New York have passed or proposed similar climate change disclosure laws.
Depending on the particular program, we could be required to control emissions or to purchase and su r render allowances for GHG emissions resulting f rom our operations.
Depending on the particular program, we could be required to control emissions or to purchase and su r render allowances for GHG emissions resulting f rom our operations. Our customers or other business partners may require us to provide additional climate-related information if they are also subject to these or additional climate-related disclosure laws or regulations.
We cannot provide assurance that we will declare or pay dividends in any particular amount or at all in the future.
We cannot provide assurance that we will declare or pay dividends in any particular amount or at all in the future. A decision not to pay dividends or a reduction in our dividend payments in the future could have a negative effect on our stock price.
The amendments also establish methane standards for a subset of equipment that the current NSPS regulates, including reciprocating compressors and pneumatic controllers, and extend the current VOC standards to the remaining unregulated equipment. In December 2023, the EPA adopted even more stringent rules with respect to methane and VOC for new and existing sources, via NSPS OOOOb and NSPS OOOOc.
The amendments also established methane standards for a subset of equipment that the NSPS regulates, including reciprocating compressors and pneumatic controllers, and extend the VOC standards to the remaining unregulated equipment.
If any of the following risks actually occur, our business, financial condition, results of operations and cash flows could be negatively impacted. Industry and General Economic Risks Pandemics and other public health crises may negatively affect demand for our services, and may have a material adverse impact on our financial condition, results of operations and cash flows.
If any of the following risks actually occur, our business, financial condition, results of operations and cash flows could be negatively impacted. Industry and General Economic Risks Macroeconomic conditions, including an increase in inflation and trade tensions, could have adverse effects on our results of operations.
Any of these competitive pressures could have a material adverse effect on our business, results of operations and financial condition. 19 Table Archrock, Contents If we do not make acquisitions on economically acceptable terms, our future growth could be limited. Our ability to grow depends, in part, on our ability to make accretive acquisitions.
If we do not make acquisitions on economically acceptable terms, our future growth could be limited. Our ability to grow depends, in part, on our ability to make accretive acquisitions.
In late February 2022, Russia launched significant military action against Ukraine, and in October 2023, Israel launched a military response against Hamas in Gaza.
Ongoing International Conflicts and Tensions The conflict in Ukraine, the Israel-Hamas war and related price volatility and geopolitical instability could negatively impact our business. In late February 2022, Russia launched significant military action against Ukraine, and in October 2023, Israel launched a military response against Hamas in Gaza.
While the Agreement did not impose direct requirements on emitters, national plans to meet its pledge could have resulted in new regulatory requirements. In November 2019, however, plans were formally announced for the U.S. to withdraw from the Paris Agreement with an effective exit date in November 2020.
While the Paris Agreement did not impose direct requirements on emitters, national plans to meet its pledge resulted in new regulatory requirements.
If we do not successfully manage expectations across these varied stakeholder interests, it could erode our stakeholder trust and thereby affect our brand and reputation.
If we do not successfully manage expectations across these varied stakeholder interests, it could erode our stakeholder trust and thereby affect our brand and reputation. The lack of an established single approach to identifying, measuring, and reporting on many ESG matters may further create uncertainty and ambiguities.
We may be vulnerable to interest rate increases due to our variable rate debt obligations. Borrowings under our Credit Facility are subject to variable interest rates. Changes in economic conditions outside of our control could result in higher interest rates, thereby increasing our interest expense and reducing the funds available for capital investment, operations or other purposes.
Changes in economic conditions outside of our control could result in fluctuations in interest rates, and higher interest rates will thereby increase our interest expense and reduce the funds available for capital investment, operations or other purposes. In addition, a substantial portion of our cash flow must be used to service our debt obligations.
At this time, there can be no assurance as to whether any alternative benchmark or resulting interest rates may be more or less favorable than SOFR. 22 Table Archrock, Contents Uncertainty relating to the phasing out of LIBOR may adversely affect the market value of our current or future debt obligations, including our Credit Facility.
At this time, there can be no assurance as to whether any alternative benchmark or resulting interest rates may be more or less favorable than SOFR. Customer and Contract Risks The erosion of the financial condition of our customers could adversely affect our business.
Despite the use of the term “global warming” as a shorthand for climate change, some studies indicate that climate change could cause some areas to experience temperatures substantially colder than their historical averages. As a result, it is difficult to predict how the market for our services could be affected by increased temperature volatility.
A decrease in energy use due to weather changes may negatively affect our financial condition through decreased revenues. Despite the use of the term “global warming” as a shorthand for climate change, some studies indicate that climate change could cause some areas to 32 Table of Contents ​ experience temperatures substantially colder than their historical averages.
Customer and Contract Risks The erosion of the financial condition of our customers could adversely affect our business. Many of our customers finance their exploration and production activities through cash flow from operations, the incurrence of debt or the issuance of equity.
Many of our customers finance their exploration and production activities through cash flow from operations, the incurrence of debt or the issuance of equity. During times when the oil or natural gas markets weaken, our customers are more likely to experience a downturn in their financial condition.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeAfter engagement, our third-party management solution provides a repeatable measure of security performance based on external security indicators, including monitoring changes to vendor cybersecurity risk scores and identification of new cybersecurity risks. Key vendor cybersecurity risk scores are included in our cybersecurity risk report provided to executive leadership on a quarterly basis.
Biggest changePrior to engagement, we conduct initial risk assessments of our vendors based on security questionnaire responses and open-source intelligence gathering. After engagement, our third-party management solution provides a repeatable measure of security performance based on external security indicators, including monitoring changes to vendor cybersecurity risk scores and identification of new cybersecurity risks.
Our IT senior management has more than a decade of experience in cybersecurity risk management, including CISSP certification. Our IT management team utilizes various processes and technologies to identify, protect, detect, respond, and recover from cybersecurity events and incidents.
Our senior manager in charge of IT security has more than a decade of experience in cybersecurity risk management, including CISSP certification. Our IT management team utilizes various processes and technologies to identify, protect, detect, respond, and recover from cybersecurity events and incidents.
Our investments have focused on implementing cloud-based solutions to replace legacy systems, the automation of workflows, integration of digital and mobile tools for our field service technicians and expanded remote monitoring capabilities of our compressor fleets.
Our investments have focused on implementing cloud-based solutions to replace legacy systems, the automation of workflows, integration of digital and mobile tools for our field service technicians and expanded remote monitoring capabilities of our compression fleet.
Cybersecurity events and incidents can be reported to our Vice President of IT in several ways, including through our external managed detection and response provider, system alerts, or employees reporting suspicious activity.
Cybersecurity events and incidents can be reported to our IT management team in several ways, including through our externally managed detection and response provider, system alerts, or employees reporting suspicious activity.
Various Audit Committee members have first-hand or supervisory experience over cybersecurity, and our Audit Committee chair is certified in the National Association of Corporate Directors Cyber Risk Oversight Program. ​ Our IT senior management team, including our Vice President of IT, is responsible for assessing and managing our material risks from cybersecurity threats and has primary responsibility for our overall cybersecurity risk management program, including supervising both our internal cybersecurity personnel and external cybersecurity consultants.
Various Audit Committee members have first-hand or supervisory experience over cybersecurity, and our Audit Committee chair is certified in the National Association of Corporate Directors Cyber Risk Oversight Program. ​ Our Vice President of IT is a member of our senior IT management team and is primarily responsible for assessing and managing our material risks from cybersecurity threats.
Cybersecurity Incidents ​ We have not experienced a material cybersecurity incident and although we are subject to ongoing and evolving cybersecurity threats, we have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition.
See Part I, Item 1A “Risk Factors – Information Technology and Cybersecurity Risks” of this Form 10-K. 33 Table of Contents ​ Cybersecurity Incidents ​ We have not experienced a material cybersecurity incident and although we are subject to ongoing and evolving cybersecurity threats, we have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition.
The Vice President of IT reports to our executive leadership team, who provides cybersecurity risk assessment and response updates to the Audit Committee on a regular basis, or as often as deemed necessary. 33 Table Archrock, Contents
The Vice President of IT reports to our executive leadership team and along with our senior manager in charge of IT security, provides cybersecurity risk assessment and response updates to the Audit Committee on a regular basis, or as often as deemed necessary.
Our IT security training program is designed to help our employees recognize and report suspicious activity. The program includes annual cybersecurity training for employees and executive leadership, phishing simulations, and other security exercises for employees.
Our IT security training program is designed to help our employees recognize and report suspicious activity. The program includes annual cybersecurity training for employees and executive leadership, phishing simulations, and other security exercises for employees. Cybersecurity awareness and education is further emphasized through a company-wide education campaign during National Cybersecurity Awareness Month.
These visibility, insights, and processes help us to manage vendor risks. Governance ​ Our Board of Directors has an active role, as a whole and through its subcommittees, in oversight of our risks and is assisted by management in the exercise of these responsibilities. Our Board of Directors delegates oversight to specific subcommittees and is informed quarterly through committee reports.
These visibility, insights, and processes help us to manage vendor risks. 34 Table of Contents ​ Risk Management with Respect to Information Technology and Cybersecurity Our Board of Directors has an active role, as a whole and through its subcommittees, in oversight of our risks and is assisted by management in the exercise of these responsibilities.
We face certain ongoing risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition. See Part I, Item 1A “Risk Factors – Information Technology and Cybersecurity Risks” of this 2023 Form 10-K.
We face certain ongoing risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition.
It is our practice that all board members are invited to committee meetings, and they typically attend these meetings. The Audit Committee of our Board of Directors is responsible for overseeing our cybersecurity risk management program.
Our Board of Directors delegates oversight to specific subcommittees and is informed quarterly through committee reports. The Audit Committee is responsible for overseeing our cybersecurity risk management program.
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Cybersecurity awareness and education is further emphasized through a company-wide education campaign during National Cybersecurity Awareness Month. 32 Table Archrock, Contents Independent Third-Party Assessment To complement our existing enterprise risk management program, in 2022, we engaged a third party to assist in the development and implementation of a business continuity plan that includes our planned response procedures in the event of a critical system outage or operational disruption.
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Independent Third-Party Assessment As part of our cybersecurity strategy, we engage third-party firms to perform assessments, including detailed penetration testing, to identify potential vulnerabilities and evaluate the effectiveness of our security controls.
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We maintain cybersecurity procedures covering crisis management, emergency response and incident communication. During 2023, we engaged an independent third-party specialist to assist in deployment of foundational systems to help position Archrock for future advancement in cybersecurity tooling, including the implementation of multi-factor authentication to enhance user access security and application protection.
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In addition, we maintain a Business Continuity and Incident Response Plan, which is validated through tabletop exercises to support our readiness to respond to cybersecurity events. ​ Third-Party Risk Oversight We utilize a third-party risk management solution to monitor key vendors.
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In addition, our IT team monitors ratings applied to our security environment by outside firms and responds accordingly. ​ Third-Party Risk Oversight We utilize a third-party risk management solution to monitor key vendors. Prior to engagement, we conduct initial risk assessments of our vendors based on security questionnaire responses and open-source intelligence gathering.
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Key vendor cybersecurity risk scores are included in our cybersecurity risk report provided to executive leadership when there is a noticeable change in the vendor’s cybersecurity risk score.
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Our Vice President of IT has over 29 years of experience managing enterprise applications, a majority of this time in a global environment adhering to General Data Protection Regulation compliance and other regulations. Additional experience includes managing large scale technology transformations involving applications, infrastructure and security.
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Our Vice President of IT has primary responsibility for our overall cybersecurity risk management program, including supervising both our internal cybersecurity personnel and external cybersecurity consultants. Our Vice President of IT has over 25 years of experience primarily focused on managing large scale, complex programs and projects as well as managing application development teams in a global environment.
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During 2024, our IT management team initiated an independent evaluation of our cybersecurity framework and implemented certain company-wide security enhancements. In addition, the IT management team is subject to specific key performance indicators and performance against such key performance indicators is reviewed by our Audit Committee.
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To create awareness in our first line of defense, training is also provided to employees to help them identify security risks, which includes routine phishing exercises and appraisal of and assistance with security-related performance.
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Other Areas of Risk Management See our 2023 Sustainability Report at www.archrock.com for information associated with additional areas of risk management addressed by our management team and reviewed by our Board of Directors and committees of our Board of Directors. ​ 35 Table of Contents ​

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeProperties The following table describes the material facilities that we owned or leased at December 31, 2023: ​ ​ ​ ​ ​ ​ ​ Location Status Square Feet Use by Segment Houston, Texas Leased 75,000 Corporate office — Contract Operations and Aftermarket Services Greeley, Colorado ​ Leased ​ 10,000 ​ Contract Operations and Aftermarket Services Houma, Louisiana ​ Owned ​ 60,000 ​ Contract Operations and Aftermarket Services Carlsbad, New Mexico ​ Leased ​ 11,200 ​ Contract Operations and Aftermarket Services Yukon, Oklahoma Owned 85,000 Contract Operations and Aftermarket Services West Alexander, Pennsylvania Leased 15,000 Contract Operations and Aftermarket Services Asherton, Texas Leased 9,000 Contract Operations and Aftermarket Services Kenedy, Texas ​ Leased ​ 11,000 ​ Contract Operations and Aftermarket Services Midland, Texas Owned 51,000 Contract Operations and Aftermarket Services Pecos, Texas Leased 10,000 Contract Operations and Aftermarket Services Victoria, Texas ​ Owned ​ 23,000 ​ Contract Operations and Aftermarket Services Victoria, Texas Owned 66,000 Contract Operations and Aftermarket Services ​ Our executive office is located at 9807 Katy Freeway, Suite 100, Houston, Texas 77024 and our telephone number is 281–836–8000.
Biggest changeProperties The following table describes the material facilities, all of which are used by both of our business segments, that we owned or leased at December 31, 2024: ​ ​ ​ ​ ​ Location Status Square Feet Houston, Texas - Corporate office Leased 75,000 Greeley, Colorado ​ Leased ​ 10,000 Houma, Louisiana ​ Owned ​ 60,000 Carlsbad, New Mexico ​ Leased ​ 11,200 Yukon, Oklahoma Owned 85,000 West Alexander, Pennsylvania Leased 15,000 Asherton, Texas Leased 9,000 Midland, Texas Owned 51,000 Midland, Texas ​ Leased ​ 17,000 Midland, Texas ​ Leased ​ 28,375 Pecos, Texas Leased 10,000 Victoria, Texas ​ Owned ​ 23,000 Victoria, Texas Owned 53,700 ​ Our executive office is located at 9807 Katy Freeway, Suite 100, Houston, Texas 77024 and our telephone number is 281–836–8000.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSee note 16 (“Commitments and Contingencies”) to our Financial Statements for additional information regarding litigation, claims and other legal proceedings. Item 4. Mine Safety Disclosures Not applicable. PART II
Biggest changeSee Note 17 (“Commitments and Contingencies”) to our Financial Statements for additional information regarding litigation, claims and other legal proceedings. Item 4. Mine Safety Disclosures Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePurchases of Equity Securities by Issuer and Affiliated Purchasers The following table summarizes our purchases of equity securities during the three months ended December 31, 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 October 1, 2023 — October 31, 2023 ​ 79,112 ​ $ 12.26 ​ 79,112 ​ $ 42,535 November 1, 2023 — November 30, 2023 3,444 ​ 13.18 — 42,535 December 1, 2023 — December 31, 2023 95,000 ​ 14.68 95,000 41,140 Total 177,556 ​ $ 13.57 174,112 ​ ​ (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.
Biggest changePurchases of Equity Securities by Issuer and Affiliated Purchasers The following table summarizes our purchases of equity securities during the three months ended December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 (3) or Programs (3) October 1, 2024 — October 31, 2024 ​ — ​ $ — ​ — ​ $ 37,893 November 1, 2024 — November 30, 2024 309 ​ 19.86 — 37,893 December 1, 2024 — December 31, 2024 — ​ — — 37,893 Total 309 ​ $ 19.86 — ​ ​ (1) Represents shares of common stock purchased from employees to satisfy tax withholding obligations in connection with the vesting of restricted stock awards.
The performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this 2023 Form 10–K into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under those Acts.
The performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Form 10–K into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under those Acts.
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 Financial Statements, the notes thereto, and the other financial information appearing elsewhere in this 2023 Form 10–K. The following discussion includes forward–looking statements that involve certain risks and uncertainties.
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 Financial Statements, the notes thereto, and the other financial information appearing elsewhere in this Form 10–K. The following discussion includes forward–looking statements that involve certain risks and uncertainties.
See “Forward–Looking Statements” and Part I, Item 1A. “Risk Factors” in this 2023 Form 10–K. This section primarily discusses 2023 and 2022 items and comparisons between these years. For a discussion of changes from 2021 to 2022 and other financial information related to 2021, refer to Part II,
See “Forward–Looking Statements” and Part I, Item 1A. “Risk Factors” in this Form 10–K. This section primarily discusses 2024 and 2023 items and comparisons between these years. For a discussion of changes from 2022 to 2023 and other financial information related to 2023, refer to Part II,
See Note 17 (“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 6. [Reserved] Item 7.
(2) Average price paid per share includes costs associated with the repurchase, as applicable. (3) See Note 18 (“Stockholders’ Equity”) for further details on the Share Repurchase Program. ​ Item 6. [Reserved] ​ Item 7.
Holders As of February 14, 2024, there were approximately 1,550 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by banks, brokers and other nominees.
Holders As of February 18, 2025, there were approximately 1,200 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by banks, brokers and other nominees.
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this 2023 Form 10–K. 35 Table Archrock, Contents Unregistered Sales of Equity Securities and Use of Proceeds None.
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Form 10–K. 37 Table of Contents ​ Unregistered Sales of Equity Securities and Use of Proceeds None.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Our common stock is traded on the New York Stock Exchange under the symbol “AROC.” On February 14, 2024, the closing price of our common stock was $16.26 per share. 34 Table Archrock, Contents Comparison of Five Year Cumulative Total Return The performance graph below shows the cumulative total stockholder return on our common stock compared with the S&P 500, AMNAX and AMZ indices over the five–year period beginning on December 31, 2018.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Our common stock is traded on the New York Stock Exchange under the symbol “AROC.” On February 18, 2025, the closing price of our common stock was $27.96 per share. 36 Table of Contents ​ Comparison of Five Year Cumulative Total Return The performance graph below shows the cumulative total stockholder return on our common stock compared with the S&P 500, AMNAX and AMZ indices over the five–year period beginning on December 31, 2019.
Dividends On January 25, 2024, our Board of Directors declared a quarterly dividend of $0.165 per share of common stock, or approximately $25.9 million, which was paid on February 13, 2024 to stockholders of record at the close of business on February 6, 2024.
Dividends On January 30, 2025, our Board of Directors declared a quarterly dividend of $0.19 per share of common stock, or approximately $33.5 million, which was paid on February 19, 2025 to stockholders of record at the close of business on February 12, 2025.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeTo 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. 39 Table Archrock, Contents The reconciliation of net income to gross margin is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2023 2022 2021 Net income ​ $ 104,998 ​ $ 44,296 ​ $ 28,217 Selling, general and administrative ​ 116,639 ​ 117,184 ​ 107,167 Depreciation and amortization ​ 166,241 ​ 164,259 ​ 178,946 Long-lived and other asset impairment ​ 12,041 ​ 21,442 ​ 21,397 Restructuring charges ​ ​ 1,775 ​ ​ — ​ ​ 2,903 Interest expense ​ 111,488 ​ 101,259 ​ 108,135 Gain on sale of assets, net ​ ​ (10,199) ​ ​ (40,494) ​ ​ (30,258) Other expense (income), net ​ 1,086 ​ 1,845 ​ (4,707) Provision for income taxes ​ 37,249 ​ 16,293 ​ 10,744 Gross margin ​ $ 541,318 ​ $ 426,084 ​ $ 422,544 ​ RESULTS OF OPERATIONS Summary of Results Revenue was $990.3 million and $845.6 million during the years ended December 31, 2023 and 2022, respectively.
Biggest changeThe reconciliation of net income to adjusted gross margin is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2024 2023 2022 Net income ​ $ 172,231 ​ $ 104,998 ​ $ 44,296 Selling, general and administrative ​ 139,121 ​ 116,639 ​ 117,184 Depreciation and amortization ​ 193,194 ​ 166,241 ​ 164,259 Long-lived and other asset impairment ​ 10,681 ​ 12,041 ​ 21,442 Restructuring charges ​ ​ — ​ ​ 1,775 ​ ​ — Debt extinguishment loss ​ ​ 3,181 ​ ​ — ​ ​ — Interest expense ​ 123,610 ​ 111,488 ​ 101,259 Transaction-related costs ​ ​ 13,249 ​ ​ — ​ ​ — Gain on sale of assets, net ​ ​ (17,887) ​ ​ (10,199) ​ ​ (40,494) Other expenses, net ​ 1,561 ​ 1,086 ​ 1,845 Provision for income taxes ​ 60,149 ​ 37,249 ​ 16,293 Adjusted gross margin ​ $ 699,090 ​ $ 541,318 ​ $ 426,084 ​ The following table reconciles adjusted gross margin to gross margin, its most directly comparable to GAAP measure: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2024 2023 2022 Total revenues ​ $ 1,157,591 ​ $ 990,337 ​ $ 845,568 Cost of sales, exclusive of depreciation and amortization ​ (458,501) ​ (449,019) ​ (419,484) Depreciation and amortization ​ (193,194) ​ (166,241) ​ (164,259) Gross margin ​ 505,896 ​ 375,077 ​ 261,825 Depreciation and amortization ​ ​ 193,194 ​ ​ 166,241 ​ ​ 164,259 Adjusted gross margin ​ $ 699,090 ​ $ 541,318 ​ $ 426,084 ​ 42 Table of Contents ​ RESULTS OF OPERATIONS Summary of Results Revenue was $1,157.6 million and $990.3 million during the years ended December 31, 2024 and 2023, respectively.
As our business is so closely aligned with production and is typically less directly impacted by commodity prices, we are not exposed to the volatility often faced in shorter–cycle oil field service businesses.
As our business is so closely aligned with production and is typically less directly impacted by commodity prices, we are not as exposed to the volatility often faced in shorter–cycle oil field service businesses.
Domestic natural gas production generally occurs in either basins where natural gas is produced alongside oil, also known as “associated” gas, such as the Permian and Delaware Basins, the Eagle Ford and the Mid–Continent or in natural gas basins, such as the Marcellus, Utica and Haynesville Shales.
Domestic natural gas production generally occurs either in basins where natural gas is produced alongside oil, also known as “associated” gas, such as the Permian and Delaware Basins, the Eagle Ford and the Mid–Continent or in natural gas basins, such as the Marcellus, Utica and Haynesville Shales.
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.
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.
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.
We believe adjusted 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.
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.
Maintenance capital expenditures are related to major overhauls of significant components of a compression package, such as the engine, electric motor, 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.
In addition, we had $19.5 million of unrecognized tax benefits (including discontinued operations) recorded as liabilities related to uncertain tax positions at December 31, 2023, which are uncertain as to if or when such amounts may be settled.
In addition, we had $19.5 million of unrecognized tax benefits (including discontinued operations) recorded as liabilities related to uncertain tax positions at December 31, 2024, which are uncertain as to if or when such amounts may be settled.
Our Credit Facility agreement requires that we meet certain financial ratios (see Note 15 (“Long-Term Debt”) and contains various additional covenants including, but not limited to, mandatory prepayments from the net cash proceeds of certain asset transfers, restrictions on the use of proceeds from borrowings and limitations on our ability to incur additional indebtedness, engage in transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay distributions.
Our Amended and Restated Credit Agreement requires that we meet certain financial ratios (see Note 16 (“Long-Term Debt”)) and contains various additional covenants including, but not limited to, mandatory prepayments from the net cash proceeds of certain asset transfers, restrictions on the use of proceeds from borrowings and limitations on our ability to incur additional indebtedness, engage in transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay distributions.
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.
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. 45 Table of Contents ​ Cash Requirements Our contract operations business is capital intensive, requiring significant investment to maintain and upgrade existing operations.
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.
Adjusted 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, exclusive of depreciation and amortization, which are key components of our operations.
Portions of the Credit Facility, up to $75.0 million, are available for the issuance of swing line loans and $50.0 million is available for the issuance of letters of credit. Subject to certain conditions, including approval by the lenders, we are able to increase the aggregate commitments under the Credit Facility by up to an additional $250.0 million.
Portions of the Credit Facility, up to $110.0 million, are available for the issuance of swing line loans and $50.0 million is available for the issuance of letters of credit. Subject to certain conditions, including approval by the lenders, we are able to increase the aggregate commitments under the Credit Facility by up to an additional $750.0 million.
While we generally attempt to mitigate the impact of increased prices through strategic purchasing decisions, diversification of our supplier base, where possible, and the passing along of increased costs to customers, there may be a time delay between the increased commodity prices and the ability to increase the price of our services. 38 Table Archrock, Contents Labor.
While we generally attempt to mitigate the impact of increased prices through strategic purchasing decisions, diversification of our supplier base, where possible, and the passing along of increased costs to customers, there may be a time delay between the increased commodity prices and the ability to increase the price of our services.
See Note 21 (“Long-Lived Asset and Other Impairments”) for further details on these impairment charges.
See Note 22 (“Long-Lived Asset and Other Impairments”) for further details on these impairment charges.
Actual results may differ from these estimates under different assumptions or conditions and these differences can be material to our financial condition, results of operations and cash flows. Depreciation Property, plant and equipment, net, at December 31, 2023 was $2.3 billion and depreciation expense was $159.3 million for the year ended December 31, 2023.
Actual results may differ from these estimates under different assumptions or conditions and these differences can be material to our financial condition, results of operations and cash flows. Depreciation Property, plant and equipment, net, at December 31, 2024 was $3.3 billion and depreciation expense was $185.1 million for the year ended December 31, 2024.
During the years ended December 31, 2023 and 2022, we recognized $12.0 million and $21.4 million, respectively, of impairment charges to write down these compressors to their fair value. The decrease in impairment charges on compressors is due to an increase in customer demand and as a result, higher utilization of our equipment.
During the years ended December 31, 2024 and 2023, we recognized $10.7 million and $12.0 million, respectively, of impairment charges to write down these compressors to their fair value. The decrease in impairment charges on compressors is due to an increase in customer demand and as a result, higher utilization of our equipment.
Our Credit Facility matures on May 16, 2028 (or December 2, 2026 or December 3, 2027, as applicable, if any portion of our 2027 Senior Notes and 2028 Senior Notes, respectively, remain outstanding at such date) and has an aggregate revolving commitment of $750.0 million.
Our Credit Facility matures on May 16, 2028 (or December 2, 2026 or December 3, 2027, as applicable, if any portion of our 2027 Senior Notes and 2028 Senior Notes, respectively, remain outstanding at such date) and has an aggregate revolving commitment of $1.1 billion.
Although the EIA currently forecasts natural gas demand will grow through 2050, technological advances and accelerated adoption of renewable sources of energy could reduce demand for natural gas in our markets and have an adverse effect on our business.
Demand for our services is dependent on the demand for natural gas in the markets we serve. Although the EIA currently forecasts natural gas demand will grow through 2050, technological advances and accelerated adoption of renewable sources of energy could reduce demand for natural gas in our markets and have an adverse effect on our business.
Likewise, if the estimated useful life is increased, the adjustment to the useful life would decrease depreciation expense per year on a prospective basis. Impairment of Assets During the year ended December 31, 2023, we recorded long–lived and other asset impairments of $12.0 million.
Likewise, if the estimated useful life is increased, the adjustment to the useful life would decrease depreciation expense per year on a prospective basis. Impairment of Assets During the year ended December 31, 2024, we recorded long–lived and other asset impairments of $10.7 million.
Natural gas consumption is also expected to increase, reflecting consistent usage of natural gas in the electric power generation and residential sectors, as well as increased LNG exports and exports of natural gas via pipeline to Mexico. We believe the outlook for the energy industry in the U.S. is positive.
Natural gas consumption is expected to be largely consistent with 2024, reflecting consistent usage of natural gas in the electric power generation and residential sectors, as well as increased LNG exports and exports of natural gas via pipeline to Mexico. We believe the outlook for the energy industry in the U.S. is positive.
In order to improve our operations and further reduce operating expenses, we are investing significant resources into a process and technology transformation project that has, among other things, replaced our existing ERP, supply chain and inventory management systems and expanded the remote monitoring capabilities of our compression fleet.
In order to improve our operations and further reduce operating expenses, we invested and continue to invest significant resources into a process and technology transformation project that has, among other things, replaced our former ERP, supply chain and inventory management systems and expanded the remote monitoring capabilities of our compression fleet.
See Note 21 (“Long-Lived and Other Asset Impairment”) and Note 26 (“Fair Value Measurements”) to our Financial Statements for further details of our fleet asset impairments. Income Taxes Our income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid.
See Note 22 (“Long-Lived and Other Asset Impairment”) and Note 27 (“Fair Value Measurements”) to our Financial Statements for further details of our fleet asset impairments. 49 Table of Contents ​ Income Taxes Our income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid.
Restructuring charges of $1.8 million during the year ended December 31, 2023 consisted of severance and consulting costs related to our restructuring activities. See Note 22 (“Restructuring Charges”) for further details on these restructuring charges. Interest expense.
Restructuring charges of $1.8 million during the year ended December 31, 2023 consisted of severance and consulting costs related to our restructuring activities. See Note 23 (“Restructuring Charges”) for further details on these restructuring charges. Debt extinguishment loss.
The following table presents the results of our compression fleet impairment review, as recorded in our contract operations segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (dollars in thousands) ​ 2023 2022 Idle compressors retired from the active fleet ​ ​ 105 ​ 145 Horsepower of idle compressors retired from the active fleet ​ ​ 53,000 ​ 100,000 Impairment recorded on idle compressors retired from the active fleet ​ $ 12,034 ​ $ 21,431 ​ Restructuring charges .
The following table presents the results of our compression fleet impairment review, as recorded in our contract operations segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (dollars in thousands) ​ 2024 2023 Idle compressors retired from the active fleet ​ ​ 95 ​ 105 Horsepower of idle compressors retired from the active fleet ​ ​ 66,000 ​ 53,000 Impairment recorded on idle compressors retired from the active fleet ​ $ 10,681 ​ $ 12,034 ​ Restructuring charges .
The decrease in other expense (income), net was primarily due to a $0.9 million decrease in the unrealized change in the fair value of our investment in an unconsolidated affiliate during the year ended December 31, 2023 compared to the year ended December 31, 2022.
The increase in other expense, net was primarily due to a $0.5 million increase in unrealized change in the fair value of our investment in an unconsolidated affiliate recognized during the year ended December 31, 2024, compared to the year ended December 31, 2023.
If we are not successful in raising capital within the time period required or at all, we may not be able to fund these capital expenditures, which could impair our ability to grow or maintain our business. Cost Management .
If we are not successful in raising capital within the time period required or at all, we may not be able to fund these capital expenditures or acquisitions, which could impair our ability to grow or maintain our business. Demand for natural gas-powered compression.
Operating Highlights ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ (horsepower in thousands) 2023 ​ 2022 ​ 2021 ​ Total available horsepower (at period end) (1) ​ 3,759 3,726 3,878 ​ Total operating horsepower (at period end) (2) ​ 3,607 3,448 3,247 ​ Average operating horsepower ​ 3,554 3,328 3,282 ​ Horsepower utilization: ​ ​ Spot (at period end) ​ 96 % 93 % 84 % Average ​ 95 % 87 % 82 % (1) Defined as idle and operating horsepower.
Operating Highlights ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ (horsepower in thousands) 2024 ​ 2023 ​ 2022 ​ Total available horsepower (at period end) (1) 4,401 3,759 3,726 Total operating horsepower (at period end) (2) 4,227 3,607 3,448 Average operating horsepower (3) 3,794 3,554 3,328 Horsepower utilization: Spot (at period end) 96 % 96 % 93 % Average 95 % 95 % 87 % (1) Defined as idle and operating horsepower.
The increase in net cash used in investing activities was primarily due to a $58.8 million increase in capital expenditures and a $99.6 million decrease in proceeds from the sale of business, partially offset by a $51.6 million increase in proceeds from sales of property, plant and equipment and a $7.4 million decrease in investments in non-consolidated affiliates. Financing Activities.
The increase in net cash used in investing activities was primarily due to $868.7 million of cash paid in the TOPS Acquisition and a $60.4 million increase in capital expenditures, partially offset by a decrease of $4.8 million in investment in non-consolidated affiliates and a $4.6 million decrease in proceeds from the sale of property, plant and equipment. Financing Activities.
The increase in revenue was due to increased revenue from both our contract operations business and aftermarket services business. See “Contract Operations” and “Aftermarket Services” below for further details. Net income was $105.0 million and $44.3 million during the years ended December 31, 2023 and 2022, respectively.
The increase in revenue was primarily due to increased revenue from our contract operations business. See “Contract Operations” below for further details. Net income was $172.2 million and $105.0 million during the years ended December 31, 2024 and 2023, respectively.
The decrease in gain on sale of assets was primarily due to gains of $7.6 million on compression asset sales during the year ended December 31, 2023 compared to gains of $38.5 million on compression asset sales during the year ended December 31, 2022.
The increase in gain on sale of assets, net was primarily due to gains of $17.6 million on compression asset sales during the year ended December 31, 2024 compared to gains of $7.6 million on compression asset sales during the year ended December 31, 2023. Other expense, net.
Dividends On January 25, 2024, our Board of Directors declared a quarterly dividend of $0.165 per share of common stock, or approximately $25.9 million, which was paid on February 13, 2024 to stockholders of record at the close of business on February 6, 2024.
Dividends On January 30, 2025, our Board of Directors declared a quarterly dividend of $0.19 per share of common stock, or approximately $33.5 million, which was paid on February 19, 2025 to stockholders of record at the close of business on February 12, 2025.
Trends and Outlook The key driver of our business is the production of U.S. oil and natural gas. Approximately 75% of our operating fleet is deployed for midstream natural gas gathering applications, with the remaining fleet being used in gas lift applications to enhance oil production.
Approximately 64% of our operating fleet is deployed for midstream natural gas gathering applications, with the remaining fleet being used in gas lift applications to enhance oil production.
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.
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.
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).
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 adjusted gross margin. 41 Table of Contents ​ We define adjusted gross margin as total revenue less cost of sales, exclusive of depreciation and amortization.
Our capital requirements have consisted primarily of, and we anticipate will continue to consist of, the following: • operating expenses, namely employee compensation and benefits, 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.
Our capital requirements have consisted primarily of, and we anticipate will continue to consist of, the following: • operating expenses, namely employee compensation and benefits, inventory and lube oil purchases; • growth capital expenditures; • maintenance capital expenditures; • interest on our outstanding debt obligations; • dividend payments to our stockholders; and • shares repurchased under the Share Repurchase Program and to cover taxes required to be withheld on the vesting date of long-term incentive grants to employees.
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 year ended December 31, 2023, compared to the year ended December 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Increase ​ (dollars in thousands) ​ 2023 2022 (Decrease) ​ Provision for income taxes ​ $ 37,249 ​ $ 16,293 129 % Effective tax rate ​ 26 % 27 % (1) % ​ 42 Table Archrock, Contents 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.
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 the limitation on executive compensation offset by the benefit from equity-settled long-term incentive compensation during the year ended December 31, 2024, compared to the year ended December 31, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Increase ​ (dollars in thousands) ​ 2024 2023 (Decrease) ​ Provision for income taxes ​ $ 60,149 ​ $ 37,249 61 % Effective tax rate ​ 26 % 26 % - % 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.
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.
As an indicator of our operating performance, adjusted gross margin should not be considered an alternative to, or more meaningful than, gross margin, net income (loss) or any other measure presented in accordance with GAAP.
We are the leading provider of natural gas compression services to customers in the oil and natural gas industry throughout the U.S., in terms of total compression fleet horsepower, and a leading supplier of aftermarket services to customers that own compression equipment in the U.S.
We are a premier provider of natural gas compression services 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.
These increases were partially offset by 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. 41 Table Archrock, Contents Long–lived and other asset impairment.
The increase was partially offset by a decrease in depreciation associated with assets reaching the end of their depreciable lives, the impact of compression and other asset sales, and long-lived asset impairments. Long–lived and other asset impairment.
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. Growth capital expenditures were $190.3 million and $146.3 million during the years ended December 31, 2023 and 2022, respectively.
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. Growth capital expenditures for the year ended December 31, 2024 were $250.9 million, including TOPS’ specific growth capital expenditures of $69.4 million.
Gross margin has certain material limitations associated with its use as compared to net income (loss). These limitations are primarily due to the exclusion of SG&A, depreciation and amortization, impairments, restructuring charges, interest expense, debt extinguishment loss, gain on sale of assets, net, other (income) expense, net, and provision for (benefit from) income taxes.
These limitations are primarily due to the exclusion of SG&A, depreciation and amortization, long-lived and other asset impairments, restructuring charges, debt extinguishment loss, interest expense, transaction-related costs, gain on sale of assets, net, other expense (income), net and provision for income taxes.
Property, plant and equipment are carried at cost and depreciated using the straight–line basis over the estimated useful life of the asset. 46 Table Archrock, Contents Our estimate of useful lives and salvage values are based on assumptions and judgments that reflect both historical experience and expectations regarding future use of our assets, including wear and tear, obsolescence, technical standards, market demand and geographic location.
Our estimate of useful lives and salvage values are based on assumptions and judgments that reflect both historical experience and expectations regarding future use of our assets, including wear and tear, obsolescence, technical standards, market demand and geographic location.
These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use to manage the underlying businesses.
These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative income (loss) before income taxes.
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10–K for the year ended December 31, 2022 filed with the SEC on February 23, 2023. Overview We are an energy infrastructure company with a pure–play focus on midstream natural gas compression.
Item 7. “Manag Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10–K for the year ended December 31, 2023 filed with the SEC on February 21, 2024.
Similar increases in demand in 2023 were seen in our aftermarket services business, where we experienced an increase of 8% in aftermarket services revenue. 37 Table Archrock, Contents Outlook The EIA Outlook forecasts the following year–over–year changes: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2024 ​ 2025 ​ U.S. dry natural gas production 1 % ​ 2 % U.S. oil production 1 % ​ 3 % U.S. natural gas domestic consumption ​ 2 % ​ (1) % Liquefied natural gas exports 2 % ​ 19 % The EIA Outlook expects natural gas production to continue to increase to all-time highs in 2024 and 2025.
Outlook The EIA Outlook forecasts the following year–over–year changes: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2025 ​ 2026 ​ U.S. dry natural gas production 2 % ​ 2 % U.S. oil production 3 % ​ 1 % U.S. natural gas domestic consumption ​ 1 % ​ (1) % Liquefied natural gas exports 17 % ​ 16 % The EIA Outlook expects natural gas production to continue to increase to all-time highs in 2025 and 2026.
Costs and Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) 2023 2022 Selling, general and administrative $ 116,639 ​ $ 117,184 Depreciation and amortization 166,241 ​ 164,259 Long-lived and other asset impairment 12,041 ​ 21,442 Restructuring charges ​ ​ 1,775 ​ ​ — Interest expense 111,488 ​ 101,259 Gain on sale of assets, net ​ ​ (10,199) ​ ​ (40,494) Other expense (income), net ​ ​ 1,086 ​ ​ 1,845 ​ Selling, general and administrative.
Costs and Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) 2024 2023 Selling, general and administrative $ 139,121 ​ $ 116,639 Depreciation and amortization 193,194 ​ 166,241 Long-lived and other asset impairment 10,681 ​ 12,041 Restructuring charges ​ ​ — ​ ​ 1,775 Debt extinguishment loss ​ ​ 3,181 ​ ​ — Interest expense 123,610 ​ 111,488 Transaction-related costs ​ ​ 13,249 ​ ​ — Gain on sale of assets, net ​ ​ (17,887) ​ ​ (10,199) Other expense, net ​ ​ 1,561 ​ ​ 1,086 ​ Selling, general and administrative.
Key Challenges and Uncertainties In addition to general market conditions in the oil and natural gas industry and competition in the natural gas compression industry, we believe the following represent the key challenges and uncertainties we will face in the future. Capital Requirements and the Availability of External Sources of Capital.
Key Challenges and Uncertainties In addition to general market conditions in the oil and natural gas industry and competition in the natural gas compression industry, we believe the following represent the key challenges and uncertainties we will face in the future. Labor. We believe that our ability to hire, train and retain qualified personnel will continue to be important.
We had a liability of $2.5 million recorded for potential penalties and interest (including discontinued operations) related to these unrecognized tax benefits at December 31, 2023, which we are uncertain as to if or when such amounts may be settled. 44 Table Archrock, Contents Sources of Cash Revolving Credit Facility During the years ended December 31, 2023 and 2022, our Credit Facility had an average daily balance of $298.8 million and $235.4 million, respectively.
We had a liability of $2.7 million recorded for potential penalties and interest (including discontinued operations) related to these unrecognized tax benefits at December 31, 2024, which we are uncertain as to if or when such amounts may be settled.
The increase in depreciation and amortization expense was primarily due to an increase in depreciation expense associated with fixed asset additions and accelerated depreciation associated with certain assets.
The increase in depreciation and amortization was primarily due to fixed assets additions, including $15.8 million depreciation and amortization associated with the compression units and intangible assets acquired in the TOPS Acquisition, and accelerated depreciation associated with certain assets.
Our ability to grow and to continue our current level of service to our customers will depend in part on our success in hiring, training and retaining our employees. Further, the cost of labor has increased and may continue to increase in the future with increases in demand, which will require us to incur additional costs.
Further, the cost of labor has increased and may continue to increase in the future with increases in demand, which will require us to incur additional costs. 40 Table of Contents ​ Cost Management .
We amended and restated our Credit Facility on May 16, 2023; see Note 15 (“Long-Term Debt”) to our Financial Statements for details on the Amended and Restated Credit Agreement. Credit Facility Terms.
As of December 31, 2024, there were $4.0 million of letters of credit outstanding under the Credit Facility and the applicable margin on borrowings outstanding was 2.2%. We amended and restated our Credit Facility on May 16, 2023; see Note 16 (“Long-Term Debt”) to our Financial Statements for details on the Amended and Restated Credit Agreement. Credit Facility Terms.
We believe that our ability to hire, train and retain qualified personnel will continue to be important. Although we have been able to historically satisfy our personnel needs, retaining employees in our industry continues to be a challenge.
Although we have been able to historically satisfy our personnel needs, retaining employees in our industry continues to be a challenge. Our ability to grow and to continue our current level of service to our customers will depend in part on our success in hiring, training and retaining our employees.
Current Trends According to the EIA Outlook, average U.S. oil and dry natural gas and production were as follows: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 2021 Average dry natural gas production (Bcf/d) 103.8 98.0 93.6 Average oil production (MMb/d) 12.9 11.9 11.2 ​ During 2023, U.S. natural gas and oil production grew to record levels, resulting in strong demand for our compression services and we increased our investment in new fleet units.
The development of these basins producing both commodities has created additional incremental demand for natural gas compression over the recent past as it is a critical method to transport associated gas volumes or enhance oil production through gas lift. 39 Table of Contents ​ Current Trends According to the EIA Outlook, average U.S. oil and dry natural gas and production were as follows: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2024 2023 2022 Average dry natural gas production (Bcf/d) 103.0 103.8 98.0 Average oil production (MMb/d) 13.2 12.9 11.9 ​ During 2024, U.S. natural gas and oil production grew to record levels, resulting in strong demand for our compression services.
The increase in net cash provided by operating activities was primarily due to increased cash inflows of $115.2 million from gross margin and changes of $15.4 million in deferred revenue, partially offset by changes of $24.3 million in contract costs, $12.2 million in accounts payable and other liabilities and decreased cash inflows of $9.1 million from accounts receivable. Investing Activities.
The increase in net cash provided by operating activities was primarily due to increased cash inflows of $161.4 million from adjusted gross margin, excluding deferred revenue recognized in earnings and amortization of freight and mobilization charges, changes of $9.6 million in accounts receivable due to increased cash receipts from customers and of $2.7 million in deferred revenue.
Management is not aware of any such changes that would have a material effect on our financial position, results of operations or cash flows. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various state and local jurisdictions.
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Aside from the budget reconciliation process currently occurring in Congress, management is not aware of any such changes that would have a material effect on our financial position, results of operations or cash flows.
These changes were partially offset by a decrease in the gain on sale of assets and the unrealized change in fair value of our investment in an unconsolidated affiliate and increases in our provision for income taxes, interest expense, depreciation and amortization and restructuring charges. ​ Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Contract Operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Increase ​ (dollars in thousands) ​ 2023 2022 (Decrease) ​ Revenue ​ $ 809,439 ​ $ 677,801 ​ 19 % Cost of sales (excluding depreciation and amortization) ​ 306,748 ​ 278,898 ​ 10 % Gross margin ​ $ 502,691 ​ $ 398,903 ​ 26 % Gross margin percentage (1) ​ 62 % 59 % 3 % (1) Defined as gross margin divided by revenue.
These increases were partially offset by increases in depreciation and amortization, provision for income taxes, SG&A, transaction-related costs, interest expense and debt extinguishment loss. ​ Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Contract Operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Increase ​ (dollars in thousands) ​ 2024 2023 (Decrease) ​ Revenue ​ $ 980,405 ​ $ 809,439 ​ 21 % Cost of sales, exclusive of depreciation and amortization ​ 323,052 ​ 306,748 ​ 5 % Adjusted gross margin ​ $ 657,353 ​ $ 502,691 ​ 31 % Adjusted gross margin percentage (1) ​ 67 % 62 % 5 % (1) Defined as adjusted gross margin divided by revenue.
We have funded a significant portion of our capital expenditures and acquisitions through borrowings under our Credit Facility and have issued a substantial amount of debt, which could limit our ability to fund future planned capital expenditures. Current conditions could limit our ability to access the debt and equity markets to raise capital on affordable terms in 2024 and beyond.
Current conditions could limit our ability to access the debt and equity markets to raise capital on affordable terms in 2025 and beyond.
We typically use the proceeds from these sales to repay borrowings outstanding under our Credit Facility, however, we are not able to estimate the timing of asset sales nor the amount of proceeds to be received and as such, we do not rely on asset sale proceeds as a future source of capital. 45 Table Archrock, Contents Cash Flows Cash flows provided by (used in) each type of activity were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ 2023 2022 Net cash provided by (used in): ​ ​ ​ Operating activities ​ $ 310,187 ​ $ 203,450 Investing activities ​ (232,491) ​ (130,916) Financing activities ​ ​ (77,924) ​ (72,537) Net decrease in cash and cash equivalents ​ $ (228) ​ $ (3) ​ Operating Activities.
We typically use the proceeds from these sales to repay borrowings outstanding under our Credit Facility; however, we are not able to estimate the timing of asset sales or the amount of proceeds to be received and as such, we do not rely on asset sale proceeds as a future source of capital.
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 increase in interest expense was primarily due to a higher average outstanding balance of long-term debt due to the 2032 Notes offering, an increase in the outstanding balance on the Credit Facility and higher interest rates.
Other Sources of Cash Business Dispositions and Other Asset Sales. We received proceeds of $72.2 million and $120.3 million from business dispositions and other asset sales during the years ended December 31, 2023 and 2022, respectively.
Archrock received net proceeds of $255.7 million, after deducting underwriting discounts, commissions and offering expenses. See Note 18 (“Stockholders’ Equity”) for further details. Other Sources of Cash Asset Sales. We received proceeds of $67.6 million and $72.2 million from asset sales during the years ended December 31, 2024 and 2023, respectively.
The increase was primarily driven by a higher gross margin from both our contract operations business and aftermarket services business and decreases in long-lived asset impairment expense and SG&A.
The increase was primarily driven by higher adjusted gross margin from our contract operations business and higher gain on sale of assets, net.
Our contract operations business is comprised of our owned fleet of natural gas compression equipment that we use to provide compression operations services to our customers. • 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.
Maintenance capital expenditures were $92.2 million and $84.2 million during the years ended years ended December 31, 2023 and 2022, respectively.
Growth capital expenditures for the year ended December 31, 2023 were $190.3 million. Maintenance Capital Expenditures.
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 December 31, 2023 and 2022, respectively. As of December 31, 2023, there were $4.5 million of letters of credit outstanding under the Credit Facility and the applicable margin on borrowings outstanding was 2.1%.
Sources of Cash Revolving Credit Facility During the years ended December 31, 2024 and 2023, our Credit Facility had an average daily balance of $315.0 million and $298.8 million, respectively. The weighted average annual interest rate on the outstanding balance under the Credit Facility was 6.8% and 7.7% at December 31, 2024 and 2023, respectively.
The increase in net cash used in financing activities was primarily due to $8.9 million of common stock purchased under the 2023 Share Repurchase Program, a $6.0 million payment for debt issuance costs related to the Amended and Restated Credit Agreement, a $5.5 million increase in dividends paid to stockholders and a $4.2 million decrease in proceeds from the sale of shares under the ATM Agreement, partially offset by a $19.0 million increase in net borrowings of long-term debt.
The change from net cash used in financing activities in 2023 to net cash provided by financing activities in 2024 was primarily due to $700.0 million of proceeds from the issuance of the 2032 Notes, $255.7 million of proceeds from the July 2024 Equity Offering and a $85.5 million increase in net borrowings of long-term debt, partially offset by $202.0 million for the 2027 Notes Tender Offer, a $14.6 million increase in dividends to Archrock shareholders, a $6.3 million increase in debt issuance costs paid, a $4.5 million increase in shares repurchased under the Share Repurchase Program and a $2.7 million increase in taxes paid related to net share settlement of equity awards. 48 Table of Contents ​ Critical Accounting Estimates We describe our significant accounting policies more fully in Note 2 (“Basis of Presentation and Significant Accounting Policies”) to our Financial Statements.
The actual timing, manner, number, and value of shares repurchased under the program will be determined by us at our discretion. ​ The following table summarizes shares repurchased under the 2023 Share Repurchase Program during the year ended December 31, 2023: ​ ​ ​ ​ ​ ​ Year Ended (dollars in thousands, except per share amounts) ​ December 31, 2023 Total cost of shares repurchased ​ $ 8,860 Average price per share ​ $ 11.81 Total number of shares repurchased ​ 750,374 Contractual Obligations Our material contractual obligations as of December 31, 2023 consisted of the following: • Long–term debt of $1.6 billion, all of which is due in 2027 and 2028; • Estimated interest on our long–term debt of $428.8 million, consisting of annual payments of approximately $108.3 million in 2024 through 2026, approximately $82.5 million in 2027, and approximately $21.4 million in 2028; • Purchase commitments of $192.7 million, of which $151.6 million is due in 2024, that primarily consist of commitments to purchase fleet assets and information technology–related costs; and • Operating lease payments of $18.0 million that are spread relatively evenly in 2024 through 2032.
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. 46 Table of Contents ​ Contractual Obligations Our material contractual obligations as of December 31, 2024 consisted of the following: • Long–term debt of $2.2 billion, all of which is due in 2027, 2028 and 2032; • Estimated interest on our long–term debt of $666.1 million, consisting of annual payments of approximately $147.1 million in 2025 and 2026, approximately $131.7 million in 2027, approximately $70.1 million in 2028, approximately $46.4 million in 2029, and approximately $123.7 million thereafter; • Purchase commitments of $341.1 million, of which $337.5 million is due in 2025, that primarily consist of commitments to purchase fleet assets; and • Operating lease payments of $18.9 million, consisting of annual payments of approximately $4.6 million in 2025, approximately $4.0 million in 2026, approximately $3.0 million in 2027, approximately $2.5 million in 2028 and 2029, and approximately $2.3 million thereafter.
Our contract operations revenue and total operating horsepower increased 19% and 5%, respectively in 2023.
In response, we increased our investment in new large horsepower fleet units and expanded our fleet through the TOPS Acquisition. Our contract operations revenue and total operating horsepower increased 21% and 17%, respectively in 2024.
Removed
Our business supports a must–run service that is essential to the production, processing, transportation and storage of natural gas. The natural gas that we help transport satisfies demand from electricity generation, heating and cooking and the industrial and manufacturing sectors.
Added
Overview We are an energy infrastructure company with a primary focus on midstream natural gas compression and a commitment to helping our customers produce, compress and transport natural gas in a safe and environmentally responsible way.
Removed
Our geographic diversity, technically experienced personnel and large fleet of natural gas compression equipment enable us to provide reliable contract operations services to our customers. 36 Table Archrock, Contents We operate in two business segments: • Contract Operations .
Added
In our aftermarket services business, we sell parts and components and provide operations, maintenance, overhaul and reconfiguration services to customers who own compression equipment. 38 Table of Contents ​ Significant 2024 Transactions TOPS Acquisition On August 30, 2024, we completed the TOPS Acquisition whereby we acquired all of the issued and outstanding equity interests in TOPS, including a fleet of approximately 580,000 horsepower for aggregate consideration consisting of $868.7 million in cash and approximately 6.9 million shares of common stock with an acquisition date fair value of $139.1 million.
Removed
Our aftermarket services business provides a full range of services to support the compression needs of our customers that own compression equipment, including operations, maintenance, overhaul and reconfiguration services and sales of parts and components.
Added
The cash portion of the purchase price was funded with proceeds from the July 2024 Equity Offering, the 2032 Notes offering and borrowings under the Credit Facility.
Removed
Significant 2023 Transactions In November 2023, we agreed to serve as the lead investor in a series A financing round for Ionada, a global carbon capture technology company committed to reducing GHG emissions and creating a sustainable future.
Added
See Note 4 (“Business Transactions”) for further details. 2032 Notes On August 26, 2024, we completed a private offering of $700.0 million aggregate principal amount of 6.625% senior notes due September 2032 and received net proceeds of $690.0 million after deducting issuance costs.
Removed
Ionada has developed a post-combustion carbon capture solution to reduce carbon dioxide emissions from various small to mid-sized industrial emitters in the energy, marine and e-fuels industries, among others. See Note 12 (“Investments in Unconsolidated Affiliates”) to our Financial Statements for additional information about this investment.
Added
The $10.0 million of issuance costs were recorded as deferred financing costs within long-term debt in our consolidated balance sheets and are being amortized to interest expense in our consolidated statement of operations over the term of the notes.
Removed
The development of these basins producing both commodities has created additional incremental demand for natural gas compression over the recent past as it is a critical method to transport associated gas volumes or enhance oil production through gas lift.
Added
A portion of the net proceeds was used to fund a portion of the cash consideration for the TOPS Acquisition, the 2027 Notes Tender Offer and to repay borrowings outstanding under our Credit Facility.
Removed
Demand for natural gas-powered compression. Demand for our services is dependent on the demand for natural gas in the markets we serve.
Added
See Note 16 (“Long-Term Debt”) for further details. 2027 Notes Tender Offer In connection with the TOPS Acquisition and offering of the 2032 Notes, we completed a concurrent cash tender offer of $202.0 million, which reflects approximately 101% of the aggregate principal amount of the tendered 2027 Notes and $0.2 million of agent and legal fees.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA 1% increase in the effective interest rate on the outstanding balance under our Credit Facility at December 31, 2023 would have resulted in an annual increase in our interest expense of $2.9 million. Item 8. Financial Statements and Supplementary Data The information specified by this Item is presented in Part IV, Item 15 of this 2023 Form 10–K.
Biggest changeA 1% increase or decrease in the effective interest rate on the outstanding balance under our Credit Facility at December 31, 2024 would have resulted in an annual increase or decrease in our interest expense of approximately $4.1 million. Item 8.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk associated with changes in the variable interest rate of our Credit Facility.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk associated with changes in the variable interest rate of our Credit Facility. As of December 31, 2024, we had $408.3 million of variable interest rate indebtedness outstanding at a weighted average interest rate of 6.8%.
Removed
We had previously used derivative instruments to manage our exposure to fluctuations in this variable interest rate; however, our interest rate swaps matured in March 2022, and all borrowings under the Credit Facility are now subject to variable interest rates.
Added
Financial Statements and Supplementary Data The information specified by this Item is presented in Part IV, Item 15 of this Form 10–K.
Removed
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.

Other AROC 10-K year-over-year comparisons