Item 7. 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 Form 10–K.
This section primarily discusses 2025 and 2024 items and comparisons between these years. For a discussion of changes from 2023 to 2024 and other financial information related to 2024, refer to Part II, 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, 2024 filed with the SEC on February 25, 2025.
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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. 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 contract operations business 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. 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.
Significant 2025 Transactions
Third Amendment to the Amended and Restated Credit Agreement
On December 12, 2025, we amended our Amended and Restated Credit. We did not incur any transaction costs related to the Third Amendment to the Amended and Restated Credit Agreement. See Note 15 (“Long-Term Debt”) for further details.
2027 Notes Redemption
On November 17, 2025, we repurchased our 2027 Notes. The 2027 Notes were redeemed at 100% of their $300.0 million aggregate principal amount plus accrued and unpaid interest of approximately $2.6 million with borrowings under the Credit Facility. We recorded a debt extinguishment loss of $0.9 million related to unamortized debt issuance costs during the fourth quarter of 2025.
Flowco Disposition
On August 1, 2025, we completed the sale of certain contract operations customer agreements and approximately 155 compressors, comprising approximately 47,000 horsepower, used to provide compression services under those agreements along with other supporting assets. Goodwill, customer-related intangible assets and deferred revenue were allocated based on a ratio of the horsepower sold relative to the total horsepower of the asset group. See Note 4 (“Business Transactions”) for further details.
NGCS Acquisition
On May 1, 2025, we completed the NGCS Acquisition, whereby we acquired all of the issued and outstanding equity interests in NGCS, including a fleet of approximately 326,000 operating horsepower and an 18,000 horsepower backlog of contracted new equipment, for aggregate total consideration of $349.4 million. Total consideration consisted of $296.5 million in cash, of which we paid $265.1 million to NGCSI sellers and $31.4 million to NGCSE sellers, and approximately 2.3 million shares of common stock issued to NGCSE sellers with an NGCS acquisition date fair value of $53.0 million. The cash portion of the purchase price was funded with borrowings under the Credit Facility. See Note 4 (“Business Transactions”) for further details.
Trends and Outlook
The key driver of our business is the production of U.S. oil and natural gas. Approximately 60% 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. 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.
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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. Significant investment in domestic exploration and production and midstream infrastructure across the energy industry has been made over much of the past decade, particularly in the low–cost basins characterized by oil and associated natural gas production. 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.
Current Trends
According to the EIA Outlook, average U.S. oil and dry natural gas and production were as follows:
Year Ended December 31,
During 2025, U.S. natural gas and oil production grew to record levels, resulting in strong demand for our compression services. In response, we increased our investment in new large horsepower fleet units and expanded our fleet through the NGCS Acquisition. Our contract operations revenue and period-end total operating horsepower increased 30% and 8%, respectively, in 2025.
Outlook
The EIA Outlook forecasts the following year–over–year changes:
Year Ended December 31,
U.S. dry natural gas production 1 % 1 %
U.S. oil production 0 % (3) %
U.S. natural gas domestic consumption (1) % 1 %
Liquefied natural gas exports 9 % 10 %
The EIA Outlook expects natural gas production to continue to increase to all-time highs in 2026 and 2027. Natural gas consumption is expected to be largely consistent with 2025, reflecting consistent usage of natural gas in the electric power sector, as well as increased LNG exports and exports of natural gas via pipeline to Mexico, offset by lower industrial, residential, and commercial demand.
We believe the outlook for the energy industry in the U.S. is positive. While we anticipate that the combination of natural gas prices and demand may likely have a positive impact on activity levels in both the upstream and midstream sectors, we cannot predict the ultimate magnitude of that impact on our business and expect it to be varied across our operations, depending on the region, customer, nature of our services, contract term and other factors. However, we continue to believe that overall the long–term demand for our compression services will continue given the necessity of compression in facilitating the transportation and processing of natural gas.
Regarding our aftermarket services business, the base of owned compression in the U.S. has increased over the past several years, which we believe will help sustain our aftermarket services business over the long term.
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.
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Labor. 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. 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.
Cost Management. In order to improve our operations and further reduce operating expenses, we continue to invest significant resources into process and technology transformation that has, among other things, enhanced certain technology, supply chain and inventory management systems, replaced network infrastructure and expanded the remote monitoring capabilities of our compression fleet. Cost management continues to be challenging, however, and there is no guarantee that our efforts will result in a reduction in our operating expenses. Natural gas production growth and resulting demand for our services could cause us to experience increased operating expenses as we hire employees and incur additional expenses needed to support the rebound in market demand.
Further, we depend on suppliers for the materials, parts, equipment and lube oil necessary to our operations, which exposes us to volatility in prices. Significant price increases for these inputs, as a result of inflation, tariffs, or otherwise, could adversely affect our operating profits. Supply chain disruptions could also adversely affect our ability to obtain, or increase the cost of, such items. 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.
Capital Requirements, Availability of Capital Equipment and the Availability of External Sources of Capital. We funded a significant portion of our capital expenditures, the NGCS Acquisition and the 2027 Notes Redemption with borrowings under the Credit Facility. While we have successfully raised capital historically, and most recently in January 2026 with the issuance of the 2034 Notes, there is no guarantee in our ability to access the debt and equity markets to raise capital on affordable terms in 2026 and beyond. Additionally, extended lead times for newly fabricated equipment can increase near-term capital needs and create timing inconsistency between funding availability and capital expenditures. 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. 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. In addition, increased focus of our customers on reducing emissions from, or the use of, combustion engines in compression could increase demand for electric compressors or require us to make modifications to our existing natural gas-powered units.
Operating Highlights
Year Ended December 31,
Horsepower utilization:
Spot (at period end) 95 % 96 % 96 %
(1) Defined as idle and operating horsepower. Includes new compressors completed by third party manufacturers that have been delivered to us.
(2) Defined as horsepower that is operating under contract and horsepower that is idle but under contract and generating revenue such as standby revenue.
(3) Defined as average of period end horsepower that is operating under contract and horsepower that is idle but under contract and generating revenue such as standby revenue, including operating horsepower for the compressors acquired in the NGCS Acquisition beginning May 1, 2025 through December 31, 2025 and for the compressors acquired in the TOPS Acquisition beginning September 30, 2024 through December 31, 2025.
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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.
We define adjusted gross margin as total revenue less cost of sales, exclusive of depreciation and amortization. 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. 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. In addition, depreciation and amortization may not accurately reflect the costs required to maintain and replenish the operational usage of our assets and therefore may not portray the costs of current operating activity. As an indicator of our operating performance, adjusted gross margin should not be considered an alternative to, or more meaningful than, gross margin, net income or any other measure presented in accordance with GAAP. Our adjusted gross margin may not be comparable to a similarly titled measure of other entities because other entities may not calculate adjusted gross margin in the same manner.
Adjusted gross margin has certain material limitations associated with its use as compared to net income. These limitations are primarily due to the exclusion of SG&A, depreciation and amortization, long-lived and other asset impairment, restructuring charges, debt extinguishment loss, interest expense, transaction-related costs, gain on sale of assets, net, other expense, net, provision for income taxes and equity in net loss of unconsolidated affiliate. Because we intend to finance a portion of our operations through borrowings, interest expense is a necessary element of our costs and our ability to generate revenue. Additionally, because we use capital assets, depreciation expense is a necessary element of our costs and our ability to generate revenue, and SG&A is necessary to support our operations and required corporate activities. To compensate for these limitations, management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding of our performance.
The reconciliation of net income to adjusted gross margin is as follows:
Year Ended December 31,
Restructuring charges 1,605 — 1,775
Debt extinguishment loss 890 3,181 —
Transaction-related costs 12,705 13,249 —
Equity in net loss of unconsolidated affiliate 503 — —
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The following table reconciles gross margin to adjusted gross margin, its most directly comparable to GAAP measure:
Year Ended December 31,
RESULTS OF OPERATIONS
Summary of Results
Revenue was $1,489.8 million and $1,157.6 million during the years ended December 31, 2025 and 2024, respectively. The increase in revenue was due to increased revenue from our contract operations business and aftermarket services business. See “Contract Operations” and “Aftermarket Services” below for further details.
Net income was $322.3 million and $172.2 million during the years ended December 31, 2025 and 2024, respectively. The increase was primarily driven by higher adjusted gross margin from both our contract operations business and aftermarket services business, as well as an increase in gain on sale of assets and a reduction in debt extinguishment loss. These increases were partially offset by increases in depreciation and amortization, interest expense, provision for income taxes, SG&A and long-lived and other asset impairment.
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Contract Operations
Year Ended December 31, Increase
(dollars in thousands) 2025 2024 (Decrease)
Adjusted gross margin percentage (1) 73 % 67 % 6 %
(1) Defined as adjusted gross margin divided by revenue.
Revenue in our contract operations business increased approximately $291.7 million, due primarily to the compression units acquired in the TOPS Acquisition and in the NGCS Acquisition, higher rates and an increase in average operating horsepower.
The increase in cost of sales, exclusive of depreciation and amortization, was primarily due to a $37.3 million increase in employee compensation, including the addition of headcount from the TOPS Acquisition and the NGCS Acquisition, and a $17.1 million increase in parts expense due to compression units acquired in the TOPS Acquisition and the NGCS Acquisition, as well as an increase in operating horsepower. These increases were partially offset by a net benefit of $35.0 million as a result of certain sales and use tax audit settlements and credits and a decrease of $3.1 million in lube oil expenses mainly due to lower prices.
The increases in adjusted gross margin and adjusted gross margin percentage were mainly driven by revenue growth that outpaced the increase in cost of sales, exclusive of depreciation and amortization.
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Aftermarket Services
Year Ended December 31, Increase
(dollars in thousands) 2025 2024 (Decrease)
Adjusted gross margin percentage (1) 24 % 24 % — %
(1) Defined as adjusted gross margin divided by revenue.
Revenue in our aftermarket services business increased primarily due to increased service activity driven by higher customer demand, an increase in maintenance service contracts and higher parts sales, including the non-recurring sale of overhauled engines.
The increase in cost of sales, exclusive of depreciation and amortization, was driven by increased activity, including differences in the scope, timing and type of services performed.
Costs and Expenses
Year Ended December 31,
Long-lived and other asset impairment 18,290 10,681
Restructuring charges 1,605 —
Debt extinguishment loss 890 3,181
Gain on sale of assets, net (47,081) (17,887)
Other expense, net 439 1,561
Selling, general and administrative. The increase in SG&A was primarily driven by a $8.0 million increase in employee compensation and benefits expense, a $2.0 million increase in professional fees, a $1.7 million increase in information technology expense and a $1.4 million increase in insurance expense. These increases were partially offset by a $4.9 million decrease in long-term performance-based incentive compensation expense.
Depreciation and amortization. The increase in depreciation and amortization was primarily due to fixed assets additions, including depreciation and amortization associated with the compression units and intangible assets acquired in the TOPS Acquisition and the NGCS Acquisition. The increase was partially offset by a decrease in depreciation associated with assets reaching the end of their depreciable lives as well as compression and other asset sales.
Long–lived and other asset impairment. The increase in long-lived and other asset impairment was primarily due to remeasurement of assets in connection with the Flowco Disposition of $9.6 million. See Note 4 (“Business Transactions”) for further details. This increase was partially offset by a decrease of $2.0 million in compression fleet impairment.
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We periodically review the future deployment of our idle compressors for units that are not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. We also evaluate for impairment our idle units that have been culled from our compression fleet in prior years and are available for sale. See Note 21 (“Long-Lived Asset and Other Impairment”) for further details. The following table presents the results of our compression fleet impairment review, as recorded in our contract operations segment:
Year Ended December 31,
Idle compressors retired from the active fleet 90 95
Horsepower of idle compressors retired from the active fleet 38,000 66,000
Restructuring charges. Restructuring charges of $1.6 million during the year ended December 31, 2025 consisted of severance and property disposal as well as consolidation and closure costs. See Note 22 (“Restructuring Charges”) for further details.
Debt extinguishment loss. We incurred $0.9 million of debt extinguishment loss during the year ended December 31, 2025 as a result of the 2027 Notes Redemption compared to $3.2 million during the year ended December 31, 2024 as a result of the 2027 Notes Tender Offer.
Interest expense. The increase in interest expense was primarily due to a higher average outstanding balance of long-term debt primarily due to the 2032 Notes and borrowings under our Credit Facility to fund cash consideration of the TOPS Acquisition and the NGCS Acquisition. These increases were partially offset by the 2027 Notes Redemption, the 2027 Notes Tender Offer and a decrease in the weighted average effective interest rate.
Transaction-related costs. We incurred $9.1 million of professional fees, compensation and other costs related to the NGCS Acquisition during the year ended December 31, 2025, and we incurred $3.6 million and $13.2 million of professional fees, compensation and other costs related to the TOPS Acquisition during the years ended December 31, 2025 and 2024, respectively. See Note 4 (“Business Transactions”) for further details.
Gain on sale of assets, net. The increase in gain on sale of assets, net was primarily due to gains of $45.3 million on compression asset sales during the year ended December 31, 2025, compared to gains of $17.6 million on compression asset sales during the year ended December 31, 2024.
Other expense, net. The decrease in other expense, net was primarily due to an increase in proceeds from insurance and other settlements and a decrease in unrealized change in the fair value of our investment in an unconsolidated affiliate recognized during the year ended December 31, 2025, compared to the year ended December 31, 2024. These changes were partially offset by a limited liability agreement amendment fee of $3.6 million paid to FGC Holdco, see Note 27 (“Related Party Transactions”) for further details.
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, 2025, compared to the year ended December 31, 2024.
Year Ended December 31, Increase
(dollars in thousands) 2025 2024 (Decrease)
Effective tax rate 24 % 26 % (2) %
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LIQUIDITY AND CAPITAL RESOURCES
Overview
Our ability to fund operations, finance capital expenditures, fund share repurchases and pay dividends depends on the levels of our operating cash flows and access to the capital and credit markets. Our primary sources of liquidity are cash flows generated from our operations and our borrowing availability under our Credit Facility. Our cash flow is affected by numerous factors, including prices and demand for our services, oil and natural gas exploration and production spending, conditions in the financial markets and other factors. We have no near-term maturities and believe that our operating cash flows and borrowings under the Credit Facility will be sufficient to meet our liquidity needs in the next twelve months and beyond.
We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, may be material, will be upon terms and prices as we may determine and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
Cash Requirements
Our contract operations business is capital intensive, requiring significant investment to maintain and upgrade existing operations. Our capital spending is primarily dependent on the demand for our contract operations services and the availability of the type of compression equipment required for us to provide those contract operations services to our customers. Our capital requirements have consisted primarily of, and we anticipate will continue to consist of, the following:
• growth capital expenditures;
• maintenance capital expenditures;
• interest on our outstanding debt obligations;
• dividend payments to our stockholders; and
Capital Expenditures
Growth Capital Expenditures. The majority of our growth capital expenditures are related to the acquisition cost of new compressors when our idle equipment cannot be reconfigured to economically fulfill a project’s requirements, and the new compressor is expected to generate economic returns that exceed our cost of capital over the compressor’s expected useful life. In addition to newly–acquired compressors, growth capital expenditures include the upgrading of major components on an existing compression package where the current configuration of the compression package is no longer in demand and the compressor is not likely to return to an operating status without the capital expenditures. These expenditures substantially modify the operating parameters of the compression package such that it can be used in applications for which it previously was not suited.
Growth capital expenditures were $347.7 million and $250.9 million for the years ended December 31, 2025 and 2024, respectively.
Maintenance Capital Expenditures. 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.
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Maintenance capital expenditures were $110.7 million and $87.8 million during the years ended December 31, 2025 and 2024, respectively. The increase in maintenance capital expenditures was primarily due to an increase in scheduled and unscheduled maintenance activities due to maintenance cycle requirements and the addition of the compression units acquired in the NGCS Acquisition and the TOPS Acquisition, partially offset by lower make–ready investment.
Projected Capital Expenditures. We currently plan to spend approximately $400 million to $445 million on capital expenditures during 2026, primarily consisting of approximately $250 million to $275 million for growth capital expenditures and approximately $125 million to $135 million for maintenance capital expenditures.
Returning Capital to Stockholders
We continue to return capital to stockholders through quarterly dividends and share repurchases. On January 29, 2026, our Board of Directors declared a quarterly dividend of $0.22 per share of common stock, which was paid on February 18, 2026 to stockholders of record at the close of business on February 10, 2026. 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. In October 2025, our Board of Directors approved an additional increase to our Share Repurchase Program of $100.0 million through December 31, 2026, and as of December 31, 2025, available capacity under the Share Repurchase Program was $117.7 million. The actual number of shares repurchased will depend on prevailing market conditions, alternative uses of capital and other factors, and will be determined at management’s discretion.
2027 Notes Redemption
On November 17, 2025, we repurchased our 2027 Notes. The 2027 Notes were redeemed at 100% of their $300.0 million aggregate principal amount plus accrued and unpaid interest of approximately $2.6 million with borrowings under the Credit Facility. We recorded a debt extinguishment loss related to unamortized debt issuance costs of $0.9 million during the fourth quarter of 2025.
Contractual Obligations
Our material contractual obligations as of December 31, 2025 consisted of the following:
• Long–term debt of $2.4 billion, all of which is due in 2028 and 2032;
In addition, we had $31.3 million of unrecognized tax benefits (including discontinued operations) recorded as liabilities related to uncertain tax positions at December 31, 2025, which are uncertain as to if or when such amounts may be settled. We had a liability of $2.8 million recorded for potential penalties and interest (including discontinued operations) related to these unrecognized tax benefits at December 31, 2025, which we are uncertain as to if or when such amounts may be settled.
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Sources of Cash
Credit Facility
On December 12, 2025, we amended our Amended and Restated Credit Agreement to, among other things, remove the 0.10% per annum credit spread adjustment that was previously included in the calculation of the interest rate applicable to the loans made under the Credit Facility, decrease the applicable margin for all borrowings by 0.25% per annum such that the applicable margin for borrowings varies and decrease the commitment fee payable on the daily unused amount of the Credit Facility from 0.375% per annum to 0.25% per annum when less than 50% of the Credit Facility is utilized.
On May 16, 2025, we amended our Amended and Restated Credit Agreement to, among other things, increase the borrowing capacity of the Credit Facility from $1.1 billion to $1.5 billion and provide for the ability for the borrowers to request additional increases in the aggregate commitments under the Credit Facility to a total amount not to exceed $2.3 billion (with any increase being at the discretion of the lenders and subject to the satisfaction of certain conditions set forth in the Amended and Restated Credit Agreement).
During the years ended December 31, 2025 and 2024, our Credit Facility had an average daily balance of $713.8 million and $315.0 million, respectively. The weighted average annual interest rate on the outstanding balance under the Credit Facility was 5.8% and 6.8% at December 31, 2025 and 2024, respectively. As of December 31, 2025, there were $3.0 million of letters of credit outstanding under the Credit Facility and the applicable margin on borrowings outstanding was 2.0%.
Credit Facility Terms. Our Credit Facility matures on May 16, 2028 (or December 3, 2027 if any portion of our 2028 Notes remain outstanding at such date) and has an aggregate revolving commitment of $1.5 billion. 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. The Credit Facility borrowing base consists of eligible accounts receivable, inventory and compressors.
Covenants. Our Amended and Restated Credit Agreement requires that we meet certain financial ratios 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. As of December 31, 2025, we were in compliance with all covenants under our Amended and Restated Credit Agreement. See Note 15 (“Long-Term Debt”) for further details.
2034 Notes
On January 21, 2026, we completed a private offering of $800.0 million aggregate principal amount of 6.0% senior notes due 2034 and received net proceeds of $789.4 million after deducting issuance costs. In January 2026, the approximately $10.6 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. The net proceeds were used to repay borrowings outstanding under our Credit Facility.
2027 Notes Redemption
On November 17, 2025, we repurchased our 2027 Notes. The 2027 Notes were redeemed at 100% of their $300.0 million aggregate principal amount plus accrued and unpaid interest of approximately $2.6 million with borrowings under the Credit Facility. We recorded a debt extinguishment loss related to unamortized debt issuance costs of $0.9 million during the fourth quarter of 2025.
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Other Sources of Cash
We received proceeds of $191.8 million and $67.6 million from asset sales and business dispositions during the years ended December 31, 2025 and 2024, respectively. 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.
Cash Flows
Cash flows provided by (used in) each type of activity were as follows:
Year Ended December 31,
Net cash provided by (used in):
Net (decrease) increase in cash and cash equivalents $ (2,867) $ 3,082
Operating Activities.
The increase in net cash provided by operating activities was primarily due to higher adjusted gross margin from both our contract operations business and aftermarket services business, as well as an overall increase in levels of activity, including the impact from the NGCS Acquisition and the TOPS Acquisition. These increases were partially offset by the tax refund receivable of $41.5 million recorded as a result of certain sales and use tax audit settlements and credits, as well as an increase in inventory.
Investing Activities.
The decrease in net cash used in investing activities was primarily due to cash paid in the TOPS Acquisition of $868.7 million in 2024 compared to cash paid in the NGCS Acquisition of $296.5 million in 2025, an increase of $71.0 million in proceeds from the sale of a business and an increase of $53.2 million in proceeds from the sale of property, equipment and other assets. These changes were partially offset by an increase of $143.4 million in capital expenditures.
Financing Activities.
The change to net cash used in financing activities from net cash provided by financing activities was primarily due to a decrease of $409.2 million in net borrowings of long-term debt, a decrease of $255.7 million in net proceeds for the issuance of common stock, an increase of $56.9 million of common stock purchased under the Share Repurchase Program and an increase of $31.2 million for dividends paid to stockholders.
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. As disclosed in Note 2, the preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures of contingent assets and liabilities. We evaluate our estimates and accounting policies on an ongoing basis and base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. The results of this process form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 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.
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Business Combinations
We account for acquisitions using the acquisition method of accounting, which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the date of acquisition. We estimate the fair values of the assets acquired and liabilities assumed using accepted valuation methods, and, in many cases, such estimates are based on our judgments as to the future operating cash flows expected to be generated from the acquired assets throughout their estimated useful lives. The excess of the consideration transferred over those fair values is recorded as goodwill. The assumptions and inputs incorporated within the fair value estimates are subject to considerable management judgement and are based on industry, market, and economic conditions prevalent at the time of the acquisition. Actual results may differ from the projected results used to determine fair value.
Depreciation
Property, plant and equipment, net, at December 31, 2025 was $3.7 billion and depreciation expense was $242.3 million for the year ended December 31, 2025. Property, plant and equipment are carried at cost and depreciated using the straight–line basis over the estimated useful life of the asset.
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. The use of different assumptions and judgments in the calculation of depreciation, especially those involving useful lives, would likely result in significantly different net book values and results of operations.
The estimated useful life of an asset is monitored to determine its appropriateness, especially when business circumstances change. For example, changes in technology, excessive wear and tear, or unanticipated government actions may result in a shorter estimated useful life than originally anticipated. In these cases, we would depreciate the remaining net book value over the new estimated remaining life, thereby increasing depreciation expense per year on a prospective basis. 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, 2025, we recorded long–lived and other asset impairments of $18.3 million.
Impairment Assessments of Property, Plant and Equipment, Goodwill and Identifiable Intangible Assets
We review long–lived assets, which include property, plant and equipment, goodwill and intangible assets that are being amortized, for impairment whenever events or changes in circumstances, including the removal of compressors from our active fleet, indicate that the carrying amount of an asset may not be recoverable. An impairment loss may exist when the estimated undiscounted cash flows expected from the use of the asset and its eventual disposition are less than its carrying amount. Determining whether the carrying amount of an asset is recoverable requires us to make judgments regarding long-term forecasts of future revenue and costs related to the asset subject to review. These forecasts are uncertain as they require significant assumptions about future market conditions. Significant and unanticipated changes to these assumptions could require a provision for impairment in a future period. Given the nature of these evaluations and their application to specific assets and specific times, it is not possible to reasonably quantify the impact of changes in these assumptions.
Compression Fleet. The fair value of a compressor is estimated on the expected net sale proceeds compared to fleet units we recently sold, a review of other units recently offered for sale by third parties or the estimated component value of the equipment we plan to use. See Note 21 (“Long-Lived and Other Asset Impairment”) and Note 25 (“Fair Value Measurements”) for further details.
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Goodwill and Identifiable Intangible Assets. We review the carrying amount of our goodwill and intangible assets on a quarterly basis, or whenever indicators of potential impairment exist, to determine if the carrying amount of a reporting unit exceeds its fair value, including the applicable goodwill and intangible assets. In addition, we perform an annual qualitative assessment, during the fourth quarter, to determine whether it is more-likely-than-not that the fair value of a reporting unit is impaired. If the fair value is more-likely-than-not impaired, we perform a quantitative impairment test to identify impairment and measure the amount of impairment loss to be recognized, if any. See Note 2 (“Basis of Presentation and Significant Accounting Policies”) and Note 9 (“Goodwill and Intangibles Assets, net”) for further details.
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. We operate in the U.S. and have investments in unconsolidated affiliates that operate in the U.S. and international locations. Significant judgments and estimates are required in determining consolidated income tax expense.
Deferred income taxes arise from temporary differences between the financial statements and the tax basis of assets and liabilities. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence including scheduled reversals of deferred tax liabilities, projected future taxable income, tax–planning strategies and results of recent operations. In projecting future taxable income, we begin with historical results adjusted for results of discontinued operations and changes in accounting policies and incorporate assumptions, including the amount of future U.S. federal, state, and international pretax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax–planning strategies. 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.
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. 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.
The accounting standards for income taxes provide that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. We adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the liabilities. Such differences are reflected as increases or decreases to income tax expense in the period in which the new information becomes available.
Recent Accounting Developments
See Note 3 (“Recent Accounting Developments”) for further details.
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, 2025, we had $918.5 million of variable interest rate indebtedness outstanding at a weighted average interest rate of 5.8%.
A 1% increase or decrease in the effective interest rate on the outstanding balance under our Credit Facility at December 31, 2025 would have resulted in an annual increase or decrease in our interest expense of approximately $9.2 million.
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Item 8. Financial Statements and Supplementary Data
The information specified by this Item is presented in Part IV, Item 15 of this Form 10–K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Management’sEvaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Form 10–K, our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a–15(e) of the Exchange Act), which are designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our reports under the Exchange Act within the time periods specified in the rules and forms of the SEC. Based on the evaluation, as of December 31, 2025, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, and made known to our principal executive officer and principal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Management’s Annual Report on Internal Control Over Financial Reporting
As required by Exchange Act Rules 13a–15(c) and 15d–15(c), our management, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness as to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on the results of management’s evaluation described above, management concluded that our internal control over financial reporting was effective as of December 31, 2025.
Our management with the participation of the Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2025.
The effectiveness of internal control over financial reporting as of December 31, 2025 was audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report found within this Form 10–K. Deloitte & Touche LLP has issued an attestation report on the Company’s internal control over financial reporting, which is included in this Annual Report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Archrock, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Archrock, Inc. and subsidiaries (the “Company”) as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) the consolidated financial statements as of and for the year ended December 31, 2025, of the Company and our report dated February 26, 2026, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 26, 2026
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Item 9B. Other Information
Insider Trading Arrangements
During the three months ended December 31, 2025, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1trading arrangement,” as each term is defined in Item 408 of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Part III Item 10 of this Form 10-K is incorporated by reference to the sections entitled “Election of Directors,” “Governance” and “Stock Ownership” in the definitive proxy statement related to our 2026 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days following the end of our 2025 fiscal year.
We have adopted a Securities Trading Policy that governs the purchase, sale, and/or other dispositions of our securities by directors, officers and employees that is reasonably designed to promote compliance with insider trading laws, rules and regulations, New York Stock Exchange listing standards and NYSE Texas listing standards. A copy of our Securities Trading Policy is included as Exhibit 19.1 to this Form 10-K.
Item 11. Executive Compensation
The information required by Part III Item 11 of this Form 10-K is incorporated by reference to the sections entitled “Governance” and “Compensation Discussion and Analysis” in the definitive proxy statement related to our 2026 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days following the end of our 2025 fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Portions of the information required in Part III Item 12 of this Form 10-K are incorporated by reference to the section entitled “Stock Ownership” in the definitive proxy statement related to our 2026 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days following the end of our 2025 fiscal year.
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Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information as of December 31, 2025, with respect to our compensation plans under which our common stock is authorized for issuance, aggregated as follows:
Number of Securities
to be Issued Upon Weighted Average Number of Securities
Exercise of Exercise Price of Remaining Available for
Outstanding Options, Outstanding Options, Future Issuance Under
(a) (b) (c)
(1) Comprised of the 2020 Plan and the ESPP.
(3) Performance–based restricted stock units do not have an exercise price.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Part III Item 13 of this Form 10-K is incorporated by reference to the section entitled “Governance” in the definitive proxy statement related to our 2026 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days following the end of our 2025 fiscal year.
Item 14. Principal Accountant Fees and Services
The information required by Part III Item 14 of this Form 10-K is incorporated by reference to the section entitled “Ratification of the Appointment of the Independent Registered Public Accounting Firm” in the definitive proxy statement related to our 2026 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days following the end of our 2025 fiscal year.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) List of Documents filed as a part of this Form 10–K
Report of Independent Registered Public Accounting Firm (PCAOB ID 34) F–1
Consolidated Balance Sheets F–3
Consolidated Statements of Operations F–4
Consolidated Statements of Equity F–5
Consolidated Statements of Cash Flows F–6
Notes to Consolidated Financial Statements F–8
2.Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable or the information is set forth in the consolidated financial statements or notes thereto within Item 8 “Financial Statements and Supplementary Data.”
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3.Exhibits
Exhibit No. Description
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Exhibit No. Description
61
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Exhibit No. Description
62
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Exhibit No. Description
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Exhibit No. Description
21.1* List of Subsidiaries of Archrock, Inc.
23.1* Consent of Deloitte & Touche LLP
101.1* Interactive data files pursuant to Rule 405 of Regulation S–T
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† Management contract or compensatory plan or arrangement.
* Filed herewith.
** Furnished, not filed.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Archrock, Inc.
/s/ D. Bradley Childers
D. Bradley Childers
President and Chief Executive Officer
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints D. Bradley Childers, Douglas S. Aron, Donna A. Henderson and Stephanie C. Hildebrandt, and each of them, his or her true and lawful attorneys–in–fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys–in–fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all said attorneys–in–fact and agents, or any of them, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 26, 2026.
Signature Title
/s/ D. Bradley Childers President, Chief Executive Officer and Director
D. Bradley Childers (Principal Executive Officer)
/s/ Douglas S. Aron Senior Vice President and Chief Financial Officer
Douglas S. Aron (Principal Financial Officer)
/s/ Donna A. Henderson Vice President and Chief Accounting Officer
Donna A. Henderson (Principal Accounting Officer)
/s/ Anne–Marie N. Ainsworth Director
Anne–Marie N. Ainsworth
/s/ Gordon T. Hall Director
Gordon T. Hall
/s/ Frances Powell Hawes Director
Frances Powell Hawes
/s/ J.W.G. Honeybourne Director
J.W.G. Honeybourne
/s/ James H. Lytal Director
James H. Lytal
/s/ Leonard W. Mallett Director
Leonard W. Mallett
/s/ Jason C. Rebrook Director
Jason C. Rebrook
/s/ Edmund P. Segner, III Director
Edmund P. Segner, III
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Archrock, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Archrock, Inc. and subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations, equity, and cash flows, for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2026, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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NGCS ACQUISITION - Refer to Notes 4 and 9 to the financial statements.
Critical Audit Matter Description
The Company completed the acquisition of NGCS (Natural Gas Compression Systems, Inc. (“NGCSI”), and NGCSE, Inc. (“NGCSE”)), whereby the Company acquired all of the issued and outstanding equity interests in NGCS including a fleet of approximately 326,000 horsepower and a 18,000 horsepower backlog of contracted new equipment, for aggregate total consideration of $349.4 million, which included a cash consideration of $296.5 million and issuance of approximately 2.3 million shares of common stock issued to NGCSE sellers with a NGCS acquisition date fair value of $53.0 million. The NGCS acquisition was accounted for using the acquisition method of accounting, which requires, among other things, assets acquired, and liabilities assumed to be recorded at their fair value on the NGCS acquisition date. The excess of the consideration transferred over those fair values is recorded as goodwill. The method for determining relative fair value varied depending on the type of asset or liability and involved management making significant estimates related to assumptions such as future cash flows, discount rates, market data, projected revenue, and current market interest rates.
Given the relative fair value determination of assets acquired and liabilities assumed requires management to make significant estimates related to assumptions such as future cash flows, discount rates, market data, projected revenue, and current market interest rates, performing audit procedures to evaluate the reasonableness of these assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management's selection of a weighted average cost of capital, and the fair value of acquired property, plant and equipment and intangible assets for NGCS included the following, among others:
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 26, 2026
We have served as the Company’s auditor since 2007
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Archrock, Inc.
Consolidated Balance Sheets
(in thousands, except par value and share amounts)
x
Assets
Current assets:
Cash and cash equivalents $ 1,553 $ 4,420
Tax refund receivable 41,479 —
Operating lease right-of-use assets 13,581 15,365
Non-current assets of discontinued operations 7,868 7,868
Liabilities and Stockholders' Equity
Current liabilities:
Non-current liabilities of discontinued operations 7,868 7,868
Commitments and contingencies (Note 16)
Equity:
The accompanying notes are an integral part of these consolidated financial statements.
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Archrock, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
Year Ended December 31,
Revenue:
Cost of sales, exclusive of depreciation and amortization
Restructuring charges 1,605 — 1,775
Debt extinguishment loss 890 3,181 —
Transaction-related costs 12,705 13,249 —
Equity in net loss of unconsolidated affiliate 503 — —
Basic and diluted earnings per common share $ 1.83 $ 1.05 $ 0.67
Weighted-average common shares outstanding:
The accompanying notes are an integral part of these consolidated financial statements.
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Archrock, Inc.
Consolidated Statements of Equity
(in thousands, except share amounts)
Additional
Common Stock Paid-in Accumulated Treasury Stock
Shares repurchased — — — — (8,860) (750,374) (8,860)
Shares issued under ESPP 1 82,359 816 — — — 817
Shares issued under ESPP — 65,824 1,117 — — — 1,117
Shares issued under ESPP — 72,189 1,633 — — — 1,633
Contribution to Enerflex — — (1,123) — — — (1,123)
The accompanying notes are an integral part of these consolidated financial statements.
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Archrock, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
Cash flows from operating activities:
Non-cash restructuring charges — — 221
Equity in net loss of unconsolidated affiliate 503 — —
Amortization of deferred financing costs 6,360 5,072 5,729
Amortization of debt premium (2,006) (2,006) (2,006)
Amortization of capitalized implementation costs 3,335 3,009 2,624
Debt extinguishment loss 890 3,181 —
Deferred revenue recognized in earnings (23,983) (15,001) (16,464)
Changes in operating assets and liabilities:
Accounts receivable, net (9,291) 524 (9,123)
Accounts payable and other liabilities 3,501 (15,850) (12,166)
Cash flows from investing activities:
Proceeds from sale of business 71,000 — —
Proceeds from insurance and other settlements 3,811 45 1,222
Cash paid in TOPS Acquisition, net of cash acquired — (866,170) —
Cash paid in NGCS Acquisition, net of cash acquired (294,613) — —
Investments in unconsolidated affiliates (5,471) (2,497) (7,287)
Cash flows from financing activities:
Proceeds from 2032 Notes offering — 700,000 —
Net proceeds from issuance of common stock — 255,747 —
Proceeds from stock issued under ESPP 1,633 1,117 817
Contribution to Enerflex (1,123) — —
Net (decrease) increase in cash and cash equivalents (2,867) 3,082 (228)
Cash and cash equivalents, beginning of period 4,420 1,338 1,566
Cash and cash equivalents, end of period $ 1,553 $ 4,420 $ 1,338
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Archrock, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Supplemental disclosure of cash flow information:
Supplemental disclosure of non-cash investing transactions:
The accompanying notes are an integral part of these consolidated financial statements.
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ARCHROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
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. Our business supports a must–run service that is essential to the production, processing, transportation and storage of natural gas.
We operate in two business segments: contract operations and aftermarket services. Our contract operations business 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. 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.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
Our Financial Statements include the accounts of Archrock and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Our Financial Statements are prepared in accordance with GAAP and the rules and regulations of the SEC. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures of contingent assets and liabilities. Because of the inherent uncertainties in this process, actual future results could differ from those expected as of the reporting date. Management believes that the estimates and assumptions used are reasonable.
Except as otherwise noted, any capitalized term used but not defined in our Financial Statements or our 2025 Form 10-K shall have the same meaning provided in our 2024 Form 10-K.
Significant Accounting Policies
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Credit Losses
The contractual life of our trade receivables is primarily 30 days based on the payment terms specified in the contract. Contract operations services are generally billed monthly at the beginning of the month in which service is being provided. Aftermarket services billings typically occur when parts are delivered or service is completed. Due to the short–term nature of our trade accounts receivable, we consider the amortized cost to be the same as the carrying value amount of the receivable, excluding the allowance for credit losses.
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Archrock, Inc.
Notes to Consolidated Financial Statements (continued)
We recognize an allowance for credit losses when a receivable is recorded, even when the risk of loss is remote. We utilize an aging schedule to determine our allowance for credit losses, and measure expected credit losses on a collective (pool) basis when similar risk characteristics exist. We rely primarily on ratings assigned by external rating agencies and credit monitoring services to assess credit risk and aggregate customers first by low, medium or high-risk asset pools, and then by delinquency status. We also consider the internal risk associated with geographic location and the services we provide to the customer when determining asset pools. If a customer does not share similar risk characteristics with other customers, we evaluate the customer’s outstanding trade receivables for expected credit losses on an individual basis. Each reporting period, we reassess our customers’ risk profiles and determine the appropriate asset pool classification, or perform individual assessments of expected credit losses, based on the customers’ risk characteristics at the reporting date.
Loss rates are separately determined for each asset pool based on the length of time a trade receivable has been outstanding. We analyze two years of internal historical loss data, including the effects of prepayments, write–offs and subsequent recoveries, to determine our historical loss experience. Our historical loss information is a relevant data point for estimating credit losses, as the data closely aligns with trade receivables due from our customers. Ratings assigned by external rating agencies and credit monitoring services consider past performance and forecasts of future economic conditions in assessing credit risk.
Inventory
Inventory primarily consists of parts used for maintenance of natural gas compression equipment. Inventory is stated at the lower of cost and net realizable value using the average cost method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated using the straight–line method over their estimated useful lives as follows:
Compression equipment, facilities and other fleet assets 3 to 30 years
Buildings 20 to 35 years
Transportation and shop equipment 3 to 10 years
Computer hardware and software 3 to 5 years
Other 3 to 10 years
Major improvements that extend the useful life of an asset are capitalized and depreciated over the estimated useful life of the major improvement, up to seven years. Repairs and maintenance are expensed as incurred.
Goodwill
The goodwill acquired in connection with the TOPS Acquisition and the NGCS Acquisition represents the excess of consideration transferred over the fair value of the assets acquired and liabilities assumed. We review the carrying amount of our goodwill on a quarterly basis, or whenever indicators of potential impairment exist, to determine if the carrying amount of a reporting unit exceeds its fair value, including the applicable goodwill. In addition, we perform an annual qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is impaired. If the fair value is more-likely-than-not impaired, we perform a quantitative impairment test to identify impairment and measure the amount of impairment loss to be recognized, if any.
Our qualitative assessment includes consideration of various events and circumstances and their potential impact to a reporting unit’s fair value, including macroeconomic and industry conditions such as a deterioration in our operating environment and limitations on access to capital and other developments in the equity and credit markets, cost factors that could have a negative effect on earnings and cash flows, relevant entity-specific and reporting unit-specific events and overall financial performance such as declining earnings or cash flows or a sustained decrease in share price.
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Archrock, Inc.
Notes to Consolidated Financial Statements (continued)
The quantitative impairment test (i) allocates our assets and liabilities to our reporting units, contract operations and aftermarket services, (ii) calculates the fair value of the reporting units and (iii) determines the impairment loss, if any, as the amount by which the carrying amount of the reporting unit exceeds its fair value (limited to the total amount of goodwill allocated to that reporting unit). All of the goodwill recognized in the TOPS Acquisition and the NGCS Acquisition was attributed to our contract operations reporting unit.
Leases
We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. We recognize ROU assets and operating lease liabilities based on the present value of lease payments over the lease term. As the discount rate implicit in the lease is rarely readily determinable, we estimate our incremental borrowing rate using information available at commencement date in determining the present value of the lease payments.
The lease term includes options to extend when we are reasonably certain to exercise the option. Short–term leases, those with an initial term of 12 months or less, are not recorded on the balance sheet. Variable lease costs such as our proportionate share of actual costs for utilities, common area maintenance, property taxes and insurance are not included in the lease liability and are recognized in the period in which they are incurred. Operating lease expense for lease payments is recognized on a straight–line basis over the term of the lease.
Our facility leases, of which we are the lessee, contain lease and nonlease components, which we have elected to account for as a single lease component, as the nonlease components are not significant to the total consideration of the contract and separating the nonlease component would have no effect on lease classification.
For contract operations service agreements in which we are a lessor, we do not account for these agreements as operating leases, as the services nonlease component is predominant over the compression package lease component.
Impairment of Long–Lived Assets
We review long–lived assets, including property, plant and equipment and identifiable intangibles that are being amortized, for impairment whenever events or changes in circumstances, including the removal of compressors from our active fleet, indicate that the carrying amount of an asset may not be recoverable. An impairment loss exists when estimated undiscounted cash flows expected from the use of the asset and its eventual disposition are less than its carrying amount. Impairment losses are recognized in the period in which the impairment occurs and represent the excess of the asset carrying value over its fair value.
Internal–Use Software
Certain of our contracts have been deemed to be hosting arrangements that are service contracts. Certain costs incurred for the implementation of a hosting arrangement that is a service contract are capitalized and amortized on a straight–line basis over the term of the respective contract. Amortization begins for each component of the hosting arrangement when the component becomes ready for its intended use.