Archrock, Inc. [AROC] Filings

10-Q 1 aroc-20240630x10q.htm 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2024

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

For the transition period from to

Commission File No. 001-33666

Archrock, Inc.

(Exact name of registrant as specified in its charter)


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

9807 Katy Freeway, Suite 100, Houston, Texas 77024

(Address of principal executive offices, zip code)

(281) 836-8000

(Registrant’s telephone number, including area code)

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


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

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

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

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


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

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

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

Number of shares of the common stock of the registrant outstanding as of July 24, 2024: 168,939,131 shares.

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TABLE OF CONTENTS



	Page
Glossary	3
Forward-Looking Statements	4

Part I. Financial Information
Item 1. Financial Statements (unaudited)	5
Condensed Consolidated Balance Sheets	5
Condensed Consolidated Statements of Operations	6
Condensed Consolidated Statements of Equity	7
Condensed Consolidated Statements of Cash Flows	9
Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3. Quantitative and Qualitative Disclosures About Market Risk	33
Item 4. Controls and Procedures	33

Part II. Other Information
Item 1. Legal Proceedings	35
Item 1A. Risk Factors	35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3. Defaults Upon Senior Securities	37
Item 4. Mine Safety Disclosures	37
Item 5. Other Information	37
Item 6. Exhibits	38

Signatures	39

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GLOSSARY

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



2013 Plan	2013 Stock Incentive Plan
2020 Plan	2020 Stock Incentive Plan
2023 Form 10-K	Annual Report on Form 10-K for the year ended December 31, 2023
2027 Notes	$500.0 million of 6.875% senior notes due April 2027, issued in March 2019
2028 Notes	$800.0 million of 6.25% senior notes due April 2028, $500.0 million of which was issued in December 2019, $300.0 million of which was issued in December 2020
Amended and Restated Credit Agreement	Amended and Restated Credit Agreement, dated May 16, 2023, which amended and restated that Credit Agreement, dated as of March 30, 2017, which governs the Credit Facility
Archrock, our, we, us	Archrock, Inc., individually and together with its wholly-owned subsidiaries
Archrock ELT	Archrock ELT LLC, an indirect, wholly owned subsidiary of Archrock
ASU	Accounting Standards Update
Credit Facility	$750.0 million asset-based revolving credit facility due May 2028, as governed by the Amended and Restated Credit Agreement, dated May 16, 2023, which amended and restated that Credit Agreement, dated as of March 30, 2017
ECOTEC	Ecotec International Holdings, LLC
ESPP	Employee Stock Purchase Plan
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
Financial Statements	Condensed consolidated financial statements included in Part I Item 1 of this Quarterly Report on Form 10-Q
GAAP	U.S. generally accepted accounting principles
GHG	Greenhouse gases (carbon dioxide, methane and water vapor for example)
Hilcorp	Hilcorp Energy Company
Ionada	Ionada PLC
LIBOR	London Interbank Offered Rate
OTC	Over-the-counter, as related to aftermarket services parts and components
SEC	U.S. Securities and Exchange Commission
SG&A	Selling, general and administrative
Share Repurchase Program	Share repurchase program approved by our Board of Directors on April 27, 2023 that allowed us to repurchase up to $50.0 million of outstanding common stock for a period of twelve months, which prior to its expiration was extended on April 25, 2024 for an additional 24-month period and a replenishment of the authorized share repurchase amount to $50.0 million
TOPS	Total Operations and Production Services, LLC, a portfolio company managed by certain affiliates of Apollo Global Management, Inc.
TOPS Acquisition	Transaction announced on July 22, 2024 pursuant to the asset purchase agreement entered into on July 22, 2024 whereby Archrock will acquire all of the issued and outstanding equity interests in TOPS
SOFR	Secured Overnight Financing Rate
U.S.	United States of America
WACC	Weighted average cost of capital

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FORWARD-LOOKING STATEMENTS

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

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this Form 10-Q. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. Known material factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include the risk factors described in our 2023 Form 10-K and those set forth from time to time in our filings with the SEC, which are available through our website at www.archrock.com and through the SEC’s website at www.sec.gov. These risk factors include, but are not limited to, inability to consummate the TOPS Acquisition; inability to achieve the expected benefits of the TOPS Acquisition and difficulties in integrating TOPS; risks of the acquisitions, including the TOPS Acquisition, to reduce our ability to make distributions to our common stockholders; risks related to pandemics and other public health crises; an increase in inflation; ongoing international conflicts and tensions; risks related to our operations; competitive pressures; inability to make acquisitions on economically acceptable terms; uncertainty to pay dividends in the future; risks related to a substantial amount of debt and our debt agreements; inability to access the capital and credit markets or borrow on affordable terms to obtain additional capital; inability to fund purchases of additional compression equipment; vulnerability to interest rate increases; uncertainty relating to the phasing out of LIBOR; erosion of the financial condition of our customers; risks related to the loss of our most significant customers; uncertainty of the renewals for our contract operations service agreements; risks related to losing management or operational personnel; dependence on particular suppliers and vulnerability to product shortages and price increases; information technology and cybersecurity risks; tax-related risks; legal and regulatory risks, including climate-related and environmental, social and governance risks.

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

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Archrock, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value and share amounts)

(unaudited)


	June 30, 2024		December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	919	$	1,338
Accounts receivable, net of allowance of $556 and $587, respectively		115,351		124,069
Inventory		79,233		81,761
Other current assets		8,671		5,989
Total current assets		204,174		213,157
Property, plant and equipment, net		2,372,069		2,301,982
Operating lease right-of-use assets		14,481		14,097
Intangible assets, net		27,293		30,182
Contract costs, net		35,674		37,739
Deferred tax assets		2,445		3,192
Other assets		46,643		47,733
Non-current assets of discontinued operations		7,868		7,868
Total assets	$	2,710,647	$	2,655,950

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade	$	43,976	$	61,026
Accrued liabilities		83,555		85,381
Deferred revenue		5,661		5,736
Total current liabilities		133,192		152,143
Long-term debt		1,608,956		1,584,869
Operating lease liabilities		12,391		12,271
Deferred tax liabilities		27,310		4,921
Other liabilities		26,434		22,857
Non-current liabilities of discontinued operations		7,868		7,868
Total liabilities		1,816,151		1,784,929

Commitments and contingencies (Note 7)

Equity:
Preferred stock: $0.01 par value per share, 50,000,000 shares authorized, zero issued		—		—
Common stock: $0.01 par value per share, 250,000,000 shares authorized, 165,793,798 and 164,984,401 shares issued, respectively		1,658		1,650
Additional paid-in capital		3,478,597		3,470,576
Accumulated deficit		(2,476,793)		(2,499,931)
Treasury stock: 9,493,262 and 9,020,454 common shares, at cost, respectively		(108,966)		(101,274)
Total equity		894,496		871,021
Total liabilities and equity	$	2,710,647	$	2,655,950

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

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Archrock, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Revenue:
Contract operations	$	225,468	$	201,120	$	448,519	$	388,865
Aftermarket services		45,058		46,423		90,495		88,512
Total revenue		270,526		247,543		539,014		477,377
Cost of sales, exclusive of depreciation and amortization
Contract operations		79,278		76,033		157,021		155,515
Aftermarket services		35,158		35,343		70,158		69,251
Total cost of sales, exclusive of depreciation and amortization		114,436		111,376		227,179		224,766
Selling, general and administrative		31,163		28,649		62,828		55,074
Depreciation and amortization		43,853		41,210		86,688		81,391
Long-lived and other asset impairment		4,401		2,892		6,969		5,461
Restructuring charges		—		(85)		—		962
Interest expense		27,859		28,630		55,193		55,211
Transaction-related costs		1,782		—		1,782		—
Gain on sale of assets, net		(576)		(1,176)		(2,957)		(4,781)
Other expense, net		128		1,463		267		2,066
Income before income taxes		47,480		34,584		101,065		57,227
Provision for income taxes		13,055		9,931		26,108		16,089
Net income	$	34,425	$	24,653	$	74,957	$	41,138

Basic and diluted earnings per common share	$	0.22	$	0.16	$	0.48	$	0.26

Weighted average common shares outstanding:
Basic		154,496		154,358		154,342		154,234
Diluted		154,785		154,412		154,648		154,326

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

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Archrock, Inc.

Condensed Consolidated Statements of Equity

(in thousands, except shares and per share amounts)

(unaudited)



				Additional
	Common Stock			Paid-in		Accumulated		Treasury Stock
		Amount	Shares	Capital		Deficit			Amount	Shares	Total
Balance at March 31, 2023	$	1,649	164,903,900	$	3,460,259	$	(2,516,500)	$	(92,358)	(8,207,390)	$	853,050
Shares repurchased		—	—		—		—		(2,073)	(222,250)		(2,073)
Shares withheld related to net settlement of equity awards		—	—		—		—		(2)	(201)		(2)
Cash dividends ($0.150 per common share)		—	—		—		(23,504)		—	—		(23,504)
Shares issued under ESPP		—	21,749		212		—		—	—		212
Stock-based compensation, net of forfeitures		—	14,600		3,197		—		—	(10,832)		3,197
Net income		—	—		—		24,653		—	—		24,653
Balance at June 30, 2023	$	1,649	164,940,249	$	3,463,668	$	(2,515,351)	$	(94,433)	(8,440,673)	$	855,533

Balance at March 31, 2024	$	1,657	165,775,863	$	3,474,777	$	(2,485,399)	$	(108,955)	(9,489,406)	$	882,080
Shares repurchased		—	—		—		—		—	—		—
Shares withheld related to net settlement of equity awards		—	—		—		—		(11)	(597)		(11)
Cash dividends ($0.165 per common share)		—	—		—		(25,819)		—	—		(25,819)
Shares issued under ESPP		—	17,317		308		—		—	—		308
Stock-based compensation, net of forfeitures		1	618		3,512		—		—	(3,259)		3,513
Net proceeds from issuance of common stock		—	—		—		—		—	—		—
Net income		—	—		—		34,425		—	—		34,425
Balance at June 30, 2024	$	1,658	165,793,798	$	3,478,597	$	(2,476,793)	$	(108,966)	(9,493,262)	$	894,496

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

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Archrock, Inc.

Condensed Consolidated Statements of Equity

(in thousands, except shares and per share amounts)

(unaudited)



				Additional
	Common Stock			Paid-in		Accumulated		Treasury Stock
		Amount	Shares	Capital		Deficit			Amount	Shares	Total
Balance at December 31, 2022	$	1,634	163,439,013	$	3,456,777	$	(2,509,133)	$	(88,585)	(7,810,548)	$	860,693
Shares repurchased		—	—		—		—		(2,073)	(222,250)		(2,073)
Shares withheld related to net settlement of equity awards		—	—		—		—		(3,775)	(383,967)		(3,775)
Cash dividends ($0.300 per common share)		—	—		—		(47,356)		—	—		(47,356)
Shares issued under ESPP		1	42,000		381		—		—	—		382
Stock-based compensation, net of forfeitures		14	1,459,236		6,510		—		—	(23,908)		6,524
Net income		—	—		—		41,138		—	—		41,138
Balance at June 30, 2023	$	1,649	164,940,249	$	3,463,668	$	(2,515,351)	$	(94,433)	(8,440,673)	$	855,533

Balance at December 31, 2023	$	1,650	164,984,401	$	3,470,576	$	(2,499,931)	$	(101,274)	(9,020,454)	$	871,021
Shares repurchased		—	—		—		—		(1,230)	(82,972)		(1,230)
Shares withheld related to net settlement of equity awards		—	—		—		—		(6,462)	(386,577)		(6,462)
Cash dividends ($0.330 per common share)		—	—		—		(51,819)		—	—		(51,819)
Shares issued under ESPP		—	35,117		552		—		—	—		552
Stock-based compensation, net of forfeitures		8	774,280		7,469		—		—	(3,259)		7,477
Net income		—	—		—		74,957		—	—		74,957
Balance at June 30, 2024	$	1,658	165,793,798	$	3,478,597	$	(2,476,793)	$	(108,966)	(9,493,262)	$	894,496

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

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Archrock, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended
	June 30,
	2024		2023
Cash flows from operating activities:
Net income	$	74,957	$	41,138
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		86,688		81,391
Long-lived and other asset impairment		6,969		5,461
Unrealized change in fair value of investment in unconsolidated affiliate		—		1,996
Inventory write-downs		517		359
Amortization of operating lease right-of-use assets		1,827		1,649
Amortization of deferred financing costs		2,323		3,468
Amortization of debt premium		(1,003)		(1,003)
Amortization of capitalized implementation costs		1,562		1,202
Stock-based compensation expense		7,477		6,524
Provision for (benefit from) credit losses		5		(140)
Gain on sale of assets, net		(2,957)		(4,781)
Deferred income tax provision		24,900		15,417
Amortization of contract costs		11,725		10,250
Deferred revenue recognized in earnings		(5,606)		(8,754)
Changes in operating assets and liabilities:
Accounts receivable, net		8,836		(5,462)
Inventory		2,073		(6,642)
Other assets		(4,004)		(2,109)
Contract costs		(9,660)		(12,398)
Accounts payable and other liabilities		(4,661)		(16,102)
Deferred revenue		6,315		7,106
Other		70		(172)
Net cash provided by operating activities		208,353		118,398

Cash flows from investing activities:
Capital expenditures		(191,026)		(187,476)
Proceeds from sale of property, equipment and other assets		17,550		38,093
Proceeds from insurance and other settlements		45		437
Investments in unconsolidated entities		(57)		(2,000)
Net cash used in investing activities		(173,488)		(150,946)

Cash flows from financing activities:
Borrowings of long-term debt		485,825		417,825
Repayments of long-term debt		(462,150)		(327,300)
Payments of debt issuance costs		—		(5,528)
Dividends paid to stockholders		(51,819)		(47,356)
Repurchases of common stock		(1,230)		(2,073)
Taxes paid related to net share settlement of equity awards		(6,462)		(3,775)
Proceeds from stock issued under ESPP		552		382
Net cash provided by (used in) financing activities		(35,284)		32,175
Net decrease in cash and cash equivalents		(419)		(373)
Cash and cash equivalents, beginning of period		1,338		1,566
Cash and cash equivalents, end of period	$	919	$	1,193

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

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements

1. Description of Business and Basis of Presentation

We are an energy infrastructure company with a primary focus on midstream natural gas compression. We are a premier provider of natural gas compression services, in terms of total compression fleet horsepower, to customers in the energy industry throughout the U.S., and a leading supplier of aftermarket services to customers that own compression equipment in the U.S. We operate in two business segments: contract operations and aftermarket services. Our predominant segment, contract operations, primarily includes designing, sourcing, owning, installing, operating, servicing, repairing and maintaining our owned fleet of natural gas compression equipment to provide natural gas compression services to our customers. In our aftermarket services business, we sell parts and components and provide operations, maintenance, overhaul and reconfiguration services to customers who own compression equipment.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by GAAP. Therefore, this information should be read in conjunction with our consolidated financial statements and notes contained in our 2023 Form 10-K. The information furnished herein reflects all adjustments that are, in the opinion of management, of a normal recurring nature and considered necessary for a fair statement of the results of the interim periods reported. All intercompany balances and transactions have been eliminated in consolidation. Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

2. Recent Accounting Developments

Accounting Standards Updates Not Yet Implemented

Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which will require significant additional disclosures, primarily focused on the disclosure of income taxes paid and the rate reconciliation table. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2025, and should be applied on a prospective basis, with a retrospective option. Early adoption is permitted. We are evaluating the impact that the adoption of ASU 2023-09 will have on our consolidated financial statements and related disclosures.

Segment Reporting

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which will require disclosures of significant expenses for each reportable segment, as well as certain other disclosures to help investors understand how the chief operating decision maker evaluates segment expenses and operating results. ASU 2023-07 will also allow disclosure of multiple measures of segment profitability if those measures are used to allocate resources and assess performance. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and should be applied on a retrospective basis, unless impracticable. Early adoption is permitted. We are evaluating the impact that the adoption of ASU 2023-07 will have on our segment disclosures. We expect that the adoption of ASU 2023-07 will not have a material impact on our consolidated financial statements.

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Business Combinations – Joint Venture Formations

In August 2023, the FASB issued ASU 2023-05, to reduce diversity in practice and provide decision-useful information to a joint venture’s investors by requiring that a joint venture apply a new basis of accounting upon formation. By applying a new basis of accounting, a joint venture will recognize and initially measure its assets and liabilities at fair value, with exceptions to fair value measurement that are consistent with the business combinations guidance, on the date of formation. ASU 2023-05 is effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. Additionally, a joint venture that was formed before January 1, 2025, may elect to apply the amendments retrospectively if it has sufficient information to do so. Early adoption is permitted in any interim or annual period in which financial statements have not been issued or been made available for issuance, either prospectively or retrospectively. We expect that the adoption of ASU 2023-05 will have no impact on our consolidated financial statements.

3. Inventory

Inventory was comprised of the following as of June 30, 2024 and December 31, 2023:


	June 30,		December 31,
(in thousands)	2024		2023
Parts and supplies	$	66,932	$	70,759
Work in progress		12,301		11,002
Inventory	$	79,233	$	81,761

4. Property, Plant and Equipment, Net

Property, plant and equipment, net was comprised of the following as of June 30, 2024 and December 31, 2023:


	June 30,		December 31,
(in thousands)	2024		2023
Compression equipment, facilities and other fleet assets	$	3,431,348	$	3,326,919
Land and buildings		31,570		30,169
Transportation and shop equipment		101,887		100,474
Computer hardware and software		77,711		77,532
Other		6,079		5,678
Property, plant and equipment		3,648,595		3,540,772
Accumulated depreciation		(1,276,526)		(1,238,790)
Property, plant and equipment, net	$	2,372,069	$	2,301,982

5. Investments in Unconsolidated Affiliates

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

In April 2022, we agreed to acquire for cash a 25% equity interest in ECOTEC, a company specializing in methane emissions detection, monitoring and management. We have elected the fair value option to account for this investment, and during the three and six months ended June 30, 2023, we recognized unrealized losses of $1.7 million and $2.0 million, respectively, related to the change in fair value of our investment (see Note 14 (“Fair Value Measurements”)). Changes in the fair value of this investment are recognized in other expense, net in our condensed consolidated statements of operations. As of June 30, 2024, our ownership interest in ECOTEC was 25%, which is included in other assets in our condensed consolidated balance sheets.

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

For ownership interests that are not accounted for under the equity method and that do not have readily determinable fair values, we have elected the fair value measurement alternative to record these investments at cost minus impairment, if any, including adjustments for observable price changes in orderly transactions for an identical or similar investment of the same issuer. Investments in equity securities measured using the fair value measurement alternative are reviewed for impairment or observable price changes in orderly transactions each reporting period.

In November 2023, we agreed to serve as the lead investor in a series A preferred financing round for Ionada, a global carbon capture technology company committed to reducing GHG emissions and creating a sustainable future. 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. We have elected the fair value measurement alternative to account for this investment (see Note 14 (“Fair Value Measurements”)). Adjustments to the carrying value are recognized in other expense, net in our condensed consolidated statements of operations. As of June 30, 2024, the carrying value of our investment in Ionada was $4.3 million which includes our initial investment of $3.8 million; and our fully diluted ownership interest in Ionada was 10%, which is included in other assets in our condensed consolidated balance sheets. Subject to certain conditions, our ownership interest will increase to 24% over the next two years.

6. Long-Term Debt

Long-term debt was comprised of the following as of June 30, 2024, and December 31, 2023:


(in thousands)	June 30, 2024		December 31, 2023
Credit Facility	$	310,700	$	287,025

6.25% senior notes due April 2028:
Principal outstanding		800,000		800,000
Unamortized debt premium		7,521		8,524
Unamortized debt issuance costs		(6,231)		(7,081)
		801,290		801,443

6.875% senior notes due April 2027:
Principal outstanding		500,000		500,000
Unamortized debt issuance costs		(3,034)		(3,599)
		496,966		496,401

Long-term debt	$	1,608,956	$	1,584,869

As of June 30, 2024, there were $4.1 million letters of credit outstanding under the Credit Facility and the applicable margin on borrowings outstanding was 2.1%. The weighted average annual interest rate on the outstanding balance under the Credit Facility was 7.6% and 7.7% at June 30, 2024 and December 31, 2023, respectively. We incurred $0.4 million of commitment fees on the daily unused amount of the Credit Facility during each of the three months ended June 30, 2024 and 2023, and $0.9 million during each of the six months ended June 30, 2024 and 2023.

As of June 30, 2024, we were in compliance with all covenants under our Amended and Restated Credit Agreement. Additionally, all undrawn capacity on our Credit Facility was available for borrowings as of June 30, 2024.

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Amended and Restated Credit Agreement

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

●

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

●

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

●

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

During the second quarter of 2023, we incurred $6.0 million in transaction costs related to the Amended and Restated Credit Agreement, which were included in other assets in our condensed consolidated balance sheets and are being amortized over the remaining term of the Credit Facility. In addition, during the second quarter of 2023, we wrote off $1.0 million of unamortized deferred financing costs as a result of the Amended and Restated Credit Agreement, which was recorded to interest expense in our condensed consolidated statements of operations during the three and six months ended June 30, 2023.

7. Commitments and Contingencies

Insurance Matters

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

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

Tax Matters

We are subject to a number of state and local taxes that are not income-based. As many of these taxes are subject to audit by the taxing authorities, it is possible that an audit could result in additional taxes due. We accrue for such additional taxes when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the liability. As of June 30, 2024 and December 31, 2023, we had $4.3 million and $3.9 million, respectively, accrued for the outcomes of non-income-based tax audits. We do not expect that the ultimate resolutions of these audits will result in a material variance from the amounts accrued. We do not accrue for unasserted claims for tax audits unless we believe the assertion of a claim is probable, it is probable that it will be determined that the claim is owed and we can reasonably estimate the claim or range of the claim. We believe the likelihood is remote that the impact of potential unasserted claims from non-income-based tax audits could be material to our consolidated financial position, but it is possible that the resolution of future audits could be material to our consolidated results of operations or cash flows.

During the years ended December 31, 2022, and 2021, certain of our sales and use tax audits advanced from the audit review phase to the contested hearing phase. As of each of June 30, 2024 and December 31, 2023, we accrued $0.6 million for these audits.

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Archrock, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Litigation and Claims

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

8. Stockholders’ Equity

Share Repurchases

Share Repurchase Program

On April 27, 2023, our Board of Directors authorized a share repurchase program that allowed us to repurchase up to $50.0 million of outstanding common stock. Under the Share Repurchase Program, shares of our common stock may be repurchased periodically, including in the open market, privately negotiated transactions, or otherwise in accordance with applicable federal securities laws, at any time. On April 25, 2024, our Board of Directors approved an extension of the Share Repurchase Program upon expiry of the current authorization on April 27, 2024, for an additional 24-month period. Through June 30, 2024, the Company had repurchased 833,346 common shares at an average price of $12.11 per share for an aggregate of $10.1 million. In connection with the extension, the Board of Directors replenished the amount of shares authorized for repurchase under the Share Repurchase Program, resulting in available capacity of $50.0 million. The actual timing, manner, number, and value of shares repurchased under the program will be determined by us at our discretion.

Shares Withheld to Cover

The 2020 Plan and 2013 Plan allow us to withhold shares upon vesting of restricted stock at the then-current market price to cover taxes required to be withheld on the vesting date.

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Notes to Condensed Consolidated Financial Statements (continued)

The following table summarizes shares repurchased:


	Three Months Ended						Six Months Ended
	June 30, 2024						June 30, 2024
(dollars in thousands, except per share amounts)	Total Number of Shares Repurchased		Average Price per Share		Total Cost of Shares Repurchased		Total Number of Shares Repurchased		Average Price per Share		Total Cost of Shares Repurchased
Shares repurchased under the Share Repurchase Program		—	$	—	$	—		82,972	$	14.83	$	1,230
Shares withheld related to net settlement of equity awards		597		17.72		11		386,577		16.72		6,462
Total		597	$	17.72	$	11		469,549	$	16.38	$	7,692

	Three Months Ended						Six Months Ended
	June 30, 2023						June 30, 2023
(dollars in thousands, except per share amounts)	Total Number of Shares Repurchased		Average Price per Share		Total Cost of Shares Repurchased		Total Number of Shares Repurchased		Average Price per Share		Total Cost of Shares Repurchased
Shares repurchased under the Share Repurchase Program		222,250	$