Archrock Inc

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 intwo 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.

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:

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:

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.

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 nexttwo years.

6. Long-Term Debt

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

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.

Amended and Restated Credit Agreement

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

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.

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.

The following table summarizes shares repurchased:

Cash Dividends

The following table summarizes our dividends declared and paid in each of the quarterly periods of 2024 and 2023:

On July 25, 2024, our Board of Directors declared a quarterly dividend of $0.165 per share of common stock to be paid on August 13, 2024 to stockholders of record at the close of business on August 6, 2024.

9. Revenue from Contracts with Customers

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

See Note 16 (“Segment Information”) for further information on segments.

Performance Obligations

As of June 30, 2024, we had $631.8 million of remaining performance obligations related to our contract operations segment, which will be recognized through 2029 as follows:

We do not disclose the aggregate transaction price for the remaining performance obligations for aftermarket services as there are no contracts with customers with an original contract term that is greater than one year.

Contract Assets and Liabilities

Contract Assets

As June 30, 2024 and December 31, 2023, our receivables from contracts with customers, net of allowance for credit losses, were $108.3 million and $119.7 million, respectively.

Allowance for Credit Losses

Our allowance for credit losses balance changed as follows during the six months ended June 30, 2024:

Contract Liabilities

Freight billings to customers for the transport of compression assets, customer-specified modifications of compression assets and milestone billings on aftermarket services often result in a contract liability. As of June 30, 2024 and December 31, 2023, our contract liabilities were $7.7 million and $7.0 million, respectively.

During the six months ended June 30, 2024, we deferred revenue of$6.3 million and recognized$5.6 million as revenue. The revenue recognized during the period primarily related to freight billings and milestone billings on aftermarket services.

10. Long-Lived and Other Asset Impairment

We review long-lived assets, including property, plant and equipment and identifiable intangibles that are being amortized, for impairment whenever events or changes in circumstances, including the removal of compressors from our active fleet, indicate that the carrying amount of an asset may not be recoverable.

Compression Fleet

We periodically review the future deployment of our idle compression assets for units that are not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. Based on these reviews, we determine that certain idle compressors should be retired from the active fleet. The retirement of these units from the active fleet triggers a review of these assets for impairment and as a result of our review, we may record an asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit is estimated based on the expected net sale proceeds compared to other fleet units we recently sold, a review of other units recently offered for sale by third parties or the estimated component value of the equipment we plan to use.

In connection with our review of our idle compression assets, we evaluate for impairment idle units that were culled from our fleet in prior years and are available for sale. Based on that review, we may reduce the expected proceeds from disposition and record additional impairment to reduce the book value of each unit to its estimated fair value.

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

See Note 14 (“Fair Value Measurements”) for further details on fair value accounting.

11. Restructuring Charges

During the first quarter of 2023, a plan to further streamline our organization and more fully align our teams to improve our customer service and profitability was approved by management. While we did not incur restructuring charges during the six months ended June 30, 2024, we expect to incur additional restructuring charges of $0.1 million related to these restructuring activities.

The following table presents restructuring charges incurred by segment:

The following table presents restructuring charges incurred by cost type:

12. Income Taxes

Valuation Allowance

The amount of our deferred tax assets considered realizable could be adjusted if projections of future taxable income are reduced or objective negative evidence in the form of a three-year cumulative loss is present or both. Should we no longer have a level of sustained profitability, excluding nonrecurring charges, we will have to rely more on our future projections of taxable income to determine if we have an adequate source of taxable income for the realization of our deferred tax assets, namely net operating loss, interest expense limitation and tax credit carryforwards. This may result in the need to record a valuation allowance against all or a portion of our deferred tax assets.

Effective Tax Rate

The year-to-date effective tax rate for the six months ended June 30, 2024 differed significantly from our statutory rate primarily due to state taxes, unrecognized tax benefits and the limitation on executive compensation offset by the benefit from equity-settled long term incentive compensation.

Unrecognized Tax Benefits

As of June 30, 2024, we believe it is reasonably possible that $3.4 million of our unrecognized tax benefits, including penalties, interest and discontinued operations, will be reduced prior to June 30, 2025 due to the settlement of audits or the expiration of statutes of limitations or both. However, due to the uncertain and complex application of the tax regulations, it is possible that the ultimate resolution of these matters may result in liabilities that could materially differ from this estimate.

13. Earnings Per Common Share

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

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

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

14. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Investment in ECOTEC

As of June 30, 2024, we owned a 25% equity interest in ECOTEC (see Note 5 (“Investments in Unconsolidated Affiliates”)). We have elected the fair value option to account for this investment. As of June 30, 2024, the fair value of our investment in ECOTEC was $14.9 million and is classified as Level 3.

The fair value determination of this investment primarily consisted of unobservable inputs, which creates uncertainty in the measurement of fair value as of the reporting date. The significant unobservable inputs used in the fair value measurement, which was valued through an average of an income approach (discounted cash flow method) and a market approach (guideline public company method), are the WACC and the revenue multiples. Significant increases (decreases) in these inputs in isolation would result in a significantly higher (lower) fair value measurement.

Additional quantitative information related to the significant unobservable inputs are as follows:

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Investment in Ionada

As of June 30, 2024, we had a fully diluted ownership equity interest in Ionada of 10% (see Note 5 (“Investments in Unconsolidated Affiliates”)). We have elected the fair value measurement alternative to account for this investment. 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 cumulative transaction costs of $0.5 million. There have beenno upward adjustments, impairments ordownward adjustments to the carrying value of the investment. Subject to certain contractual conditions, we will invest, on the same terms and conditions as the initial investment, $1.2 million on November 1, 2024, $1.3 million on November 1, 2025, and $4.8 million prior to July 1, 2026, for a fully diluted ownership interest of 12%,15% and 24%, respectively.

Compressors

During the six months ended June 30, 2024, we recorded nonrecurring fair value measurements related to our idle compressors. Our estimate of the compressors’ fair value was primarily based on the expected net sale proceeds compared with other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. We discounted the expected proceeds, net of selling and other carrying costs, using a weighted average disposal period offour years. These fair value measurements are classified as Level 3. The fair value of our compressors impaired as of June 30, 2024 and December 31, 2023 was as follows:

The significant unobservable inputs used to develop the above fair value measurements were weighted by the relative fair value of the compressors being measured. Additional quantitative information related to our significant unobservable inputs follows:

See Note 10 (“Long-Lived and Other Asset Impairments”) for further details.

Other Financial Instruments

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

The carrying amount of borrowings outstanding under our Credit Facility approximates fair value due to the variable interest rate. The measurement of the fair value of these outstanding borrowings is a Level 3 measurement.

The fair value of our fixed rate debt is estimated using yields observable in active markets, which are Level 2 inputs, and was as follows:

(1)Carrying amounts are shown net of unamortized premium and deferred financing costs. See Note 6 (“Long-Term Debt”).

15. Related Party Transactions

From August 2019 to present, our Board of Directors has included a member affiliated with our customer Hilcorp or its subsidiaries or affiliates. Revenue from Hilcorp was $9.9 million and $8.7 million during the three months ended June 30, 2024 and 2023, respectively, and $20.4 million and $17.8 million during the six months ended June 30, 2024 and 2023, respectively. Accounts receivable, net due from Hilcorp was $3.4 million and $3.8 million as of June 30, 2024 and December 31, 2023, respectively.

16. Segment Information

We manage our business segments primarily based on the type of product or service provided. We havetwo segments that we operate within the U.S.: contract operations and aftermarket services. Our contract operations segment primarily provides natural gas compression services to meet specific customer requirements. Our aftermarket services segment provides a full range of services to support the compression needs of customers, from parts sales and normal maintenance services to full operation of a customer’s owned assets.

We evaluate the performance of our segments based on adjusted gross margin, defined as revenue less cost of sales, exclusive of depreciation and amortization, for each segment. Segment revenue includes only sales to external customers.

Summarized financial information for our reporting segments is shown below:

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

17. Subsequent Events

TOPS Acquisition

On July 22, 2024, Archrock and Archrock ELT entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with TOPS Pledge1, LLC (“Pledge1”) and TOPS Pledge2, LLC (together with Pledge1, “Sellers”), pursuant to which, among other things, Archrock ELT will acquire all of the issued and outstanding equity interests in TOPS, a portfolio company managed by certain affiliates of Apollo Global Management, Inc., and, solely with respect to Section 6.25 of the Purchase and Sale Agreement, TOPS Holdings, LLC, a Delaware limited liability company, in exchange for total consideration consisting of: (i) cash equal to $820 million, (ii)6.87 million newly issued shares of Archrock’s common stock, par value $0.01 per share, subject to adjustment as described below (“Archrock Common Stock” and such shares of Archrock Common Stock issued in connection with the Transaction is referred to herein as the “Stock Consideration”), and (iii) up to approximately $6 million in deferred cash payments (the “Deferred Cash Payments”) payable pursuant and subject to the terms of certain Transaction Payment Agreements entered into and to be entered into between Archrock ELT and certain indirect equity holders of the Sellers who are current employees of TOPS (the “Transaction”). On July 22, 2024, the Board of Directors of Archrock unanimously approved the Purchase and Sale Agreement.

The Transaction is expected to close by the end of 2024, subject to customary closing conditions, including (i) the absence of specified legal impediments to the consummation of the Transaction; (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), with respect to the Transaction; (iii) the parties’ performance, in all material respects, of their respective obligations under the Purchase and Sale Agreement; (iv) subject to specified materiality standards, the accuracy of the parties’ respective representations and warranties as of the closing of the Transaction (the “Closing”); (v) the absence of a Buyer Material Adverse Effect; and (vi) the authorization for listing of the Stock Consideration on the New York Stock Exchange, subject to official notice of issuance.

The Purchase and Sale Agreement contains customary representations, warranties and covenants by the parties. The Purchase and Sale Agreement also contains customary covenants and agreements, including covenants and agreements relating to, among other things, (i) the conduct of the business of TOPS between the date of the signing of the Purchase and Sale Agreement and the Closing and (ii) the efforts of the parties to cause the Transaction to be completed, including actions which may be necessary to cause the expiration or termination of the waiting period under the HSR Act, if applicable. Pursuant to the terms of the Purchase and Sale Agreement, the parties have agreed to take all actions reasonably necessary and appropriate to obtain antitrust clearance in order to facilitate the Closing. However, none of Archrock, Archrock ELT or their respective Affiliates will be required to sell, divest or dispose any assets, properties or businesses in connection with the transactions contemplated by the Purchase and Sale Agreement.

The Purchase and Sale Agreement may be terminated, subject to certain exceptions, (i) upon the mutual written consent of Archrock ELT and Sellers, (ii) if the Closing has not occurred by December 31, 2024, (subject to extension pursuant to the terms of the Purchase and Sale Agreement), (iii) for certain material breaches of representations and warranties or covenants that remain uncured or (iv) upon the occurrence of certain other events specified in the Purchase and Sale Agreement. The Purchase and Sale Agreement further provides that, in certain circumstances upon a valid termination of the Purchase and Sale Agreement pursuant to its terms, Archrock ELT may be required to pay Sellers a termination fee equal to $30.0 million. Further, Sellers may be required to pay Archrock ELT a termination fee equal to $20.0 million.

In connection with the transactions contemplated by the Purchase and Sale Agreement, and as a condition precedent to the Closing, Archrock and Sellers have agreed to enter into a registration rights and lock-up agreement (the “Registration Rights Agreement”) pursuant to which, among other things, Archrock will agree to provide Sellers with customary registration rights with respect to the Stock Consideration. In addition, on the terms and subject to the conditions set forth in the Registration Rights Agreement, Sellers will agree not to sell, transfer or dispose of (i)50% of the Stock Consideration during a holding period that expires 90 days after the Closing Date and (ii) the remaining 50% of the Stock Consideration during a holding period that expires 180 days after the Closing Date.

In connection with the Transaction, certain indirect equity holders of the Sellers who are current employees of TOPS (the “Participants”) have each entered into a Transaction Payment Agreement with Archrock ELT, pursuant to which the Participants have agreed that a portion of the Transaction proceeds distributions they will receive in respect of their indirect equity interests in the Sellers will be in the form of the Deferred Cash Payments. The Deferred Cash Payments are generally payable for most participants 50% on the one-year anniversary of the closing of the Transaction and 50% on the two-year anniversary of the closing of the Transaction and are subject to the Participant’s continued employment with Archrock through the payment date, except in the event the Participant’s employment is terminated by Archrock without cause or due to the Participant’s death or disability.

The Offering

On July 22, 2024, Archrock entered into an Underwriting Agreement (the “Underwriting Agreement”) with J.P. Morgan Securities LLC, Evercore Group L.L.C., Wells Fargo Securities, LLC and Citigroup Global Markets Inc. as representatives of the several underwriters (the “Underwriters”), relating to an underwritten offering of 11,000,000 shares of common stock, par value $0.01 per share, of the Company (such offering, the “Offering”). Under the terms of the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to 1,650,000 additional shares of Common Stock. On July 23, 2024, the Underwriters exercised this option in full.

The Underwriting Agreement contains customary representations and warranties, agreements and obligations, closing conditions and termination provisions. The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”), and to contribute to any payment that the Underwriter may be required to make because of any of those liabilities.

The Offering was made pursuant to a shelf registration statement on Form S-3 (File No. 333-267523) (the “Registration Statement”) that was filed with the SEC and became effective on September 20, 2022, including the prospectus forming a part of the Registration Statement, a preliminary prospectus supplement, which was filed with the SEC on July 22, 2024, and a final prospectus supplement, which was filed with the SEC on July 23, 2024, pursuant to Rule 424(b) under the Securities Act.

The Offering closed on July 24, 2024. The Company intends to use the approximately $256.4 million of net proceeds from the Offering to fund the Transaction, along with cash on hand, borrowings under the Company’s revolving credit facility and, opportunistically to the extent market conditions warrant, other debt financings. In the event that the Transaction is not completed, the proceeds from the Offering will be used for general corporate purposes.