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Segment Information

3 Months Ended

Mar. 31, 2025

Segment Information

Segment Information

17. Segment Information

We manage our business segments primarily based on the type of product or service provided. We have two 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.

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The CODM of Archrock is our President & CEO. Our CODM evaluates the performance of our segments and allocates resources primarily based on adjusted gross margin, defined as revenue less cost of sales, exclusive of depreciation and amortization, which are key components of segment operations. Adjusted gross margin is the primary measure used by our CODM to evaluate segment performance because it focuses on the current performance of segment operations and excludes the impact of the prior historical costs of 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. Our CODM considers adjusted gross margin forecast to actual results and period over period financial variances in conjunction with product and customer service metrics and market trends when assessing segment performance and deciding how to allocate resources.

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.

Summarized financial information for our reporting segments is shown below:

​	​	​	​	​	​	​	​	​	​
​		Contract			Aftermarket			​	​
(in thousands)		Operations			Services			Total
Three months ended March 31, 2025		​			​			​
Revenue	​	$	300,397	​	$	46,766	​	$	347,163
Cost of sales, exclusive of depreciation and amortization	​	​	89,799	​	​	35,257	​	​	125,056
Adjusted gross margin	​		210,598	​		11,509	​		222,107
​	​	​	​	​	​	​	​	​	​
Three months ended March 31, 2024	​			​			​
Revenue	​	$	223,051	​	$	45,437	​	$	268,488
Cost of sales, exclusive of depreciation and amortization	​	​	77,743	​	​	35,000	​	​	112,743
Adjusted gross margin	​		145,308	​		10,437	​		155,745

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The following table reconciles gross margin to adjusted gross margin, its most directly comparable to GAAP measure:

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​	​	​	​	​	​	​
​	​	Three Months Ended
​	​	March 31,
(in thousands)		2025			2024
Total revenues	​	$	347,163	​	$	268,488
Cost of sales, exclusive of depreciation and amortization	​		(125,056)	​		(112,743)
Depreciation and amortization	​		(57,620)	​		(42,835)
Gross margin	​		164,487	​		112,910
Depreciation and amortization	​	​	57,620	​	​	42,835
Adjusted gross margin	​	$	222,107	​	$	155,745

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

​

​	​	​	​	​	​	​
​		Three Months Ended
​	​	March 31,
(in thousands)		2025			2024
Adjusted gross margin	​	$	222,107	​	$	155,745
Less:	​			​
Selling, general and administrative	​		37,207	​		31,665
Depreciation and amortization	​		57,620	​		42,835
Long-lived and other asset impairment	​		972	​		2,568
Restructuring charges	​	​	665	​	​	—
Interest expense	​		37,741	​		27,334
Transaction-related costs	​	​	3,935	​	​	—
Gain on sale of assets, net	​	​	(7,335)	​	​	(2,381)
Other (income) expense, net	​		(684)	​		139
Income before income taxes	​	$	91,986	​	$	53,585

​

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The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

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