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Business Transactions | 6 Months Ended
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Jun. 30, 2025
Business Transactions |
Business Transactions | 3. Business Transactions ​ 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 a 18,000 horsepower backlog of contracted new equipment, for aggregate total consideration of $351.5 million. Total consideration consisted of $298.5 million in cash, of which we paid $267.0 million to NGCSI sellers and $31.5 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. The purchase price paid is subject to customary post-closing adjustments in accordance with the terms of the Merger Agreements. ​ 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 preliminary allocation of the purchase price, which is subject to certain adjustments, was based upon preliminary valuations. Our estimates and assumptions are subject to change upon the completion of management’s review of the final valuations. We are in the process of finalizing valuations related to property, plant and equipment, identifiable intangible assets, deferred tax liabilities, tax contingencies and goodwill. Post-closing adjustments to the purchase price could impact future depreciation and amortization as well as income tax expense. The final valuation of net assets acquired is expected to be completed as soon as practicable, but no later than one year from the NCGS acquisition date. ​ The following table summarizes the preliminary purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed as of the NGCS acquisition date: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(in thousands) |  | NGCSI |  | NGCSE | ​ | NGCS
Cash |  | $ | 1,671 |  | $ | 188 |  | $ | 1,859
Accounts receivable | ​ | ​ | 4,960 | ​ | ​ | 47 | ​ | ​ | 5,007
Inventory | ​ | ​ | 12,891 | ​ | ​ | — | ​ | ​ | 12,891
Other current assets | ​ | ​ | 78 | ​ | ​ | — | ​ | ​ | 78
Property, plant and equipment | ​ | ​ | 208,834 | ​ | ​ | 39,629 | ​ | ​ | 248,463
Operating lease right of use asset | ​ | ​ | 138 | ​ | ​ | — | ​ | ​ | 138
Goodwill | ​ | ​ | 44,384 | ​ | ​ | 28,274 | ​ | ​ | 72,658
Intangible assets | ​ | ​ | 35,490 | ​ | ​ | 29,940 | ​ | ​ | 65,430
Accounts payable, trade | ​ | ​ | (2,700) | ​ | ​ | (49) | ​ | ​ | (2,749)
Accrued liabilities | ​ | ​ | (1,725) | ​ | ​ | (205) | ​ | ​ | (1,930)
Operating lease liabilities | ​ | ​ | (138) | ​ | ​ | — | ​ | ​ | (138)
Deferred tax liabilities | ​ | ​ | (36,875) | ​ | ​ | (13,366) | ​ | ​ | (50,241)
Purchase price | ​ | $ | 267,008 | ​ | $ | 84,458 | ​ | $ | 351,466
​ Goodwill ​ The amount of goodwill resulting from the NGCS Acquisition is attributable to the expansion of our services in the Permian Basin where we currently operate and was allocated to our contract operations segment. The goodwill recorded is considered to have an indefinite life and will be reviewed annually for impairment or more frequently if indicators of potential impairment exist. None of the goodwill recorded for the NGCS Acquisition is expected to be deductible for U.S. federal income tax purposes. ​ Tax Contingency and Indemnification ​ In connection with the NGCS Acquisition, the sellers agreed to indemnify us for certain non-income tax and environmental contingencies up to $11.4 million as of the NGCS acquisition date. Dependent upon facts and circumstances, the sellers’ indemnification obligation may be reduced over a period of four years from the NGCS acquisition date but may also be extended until the resolution of claims timely submitted to the sellers. We are currently assessing the tax and environmental contingencies and respective indemnification assets. ​ Results of Operations The results of operations attributable to the NGCS Acquisition have been included in our condensed consolidated financial statements as part of our contract operations segment since the NGCS acquisition date. Revenue attributable to the assets acquired from the NGCS acquisition date through June 30, 2025 was $13.2 million. We are unable to provide earnings attributable to the assets acquired and liabilities assumed since the NGCS acquisition date, as we do not prepare full stand-alone earnings reports for those assets and liabilities. Transaction-Related Costs ​ The following table presents transaction-related costs incurred in connection with the NGCS Acquisition by cost type: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended | ​ | Six months ended
(in thousands) | ​ | June 30, 2025 |  | June 30, 2025
Professional fees (1) | ​ | $ | 3,632 | ​ | $ | 6,502
Compensation-related costs (2) | ​ | ​ | 712 | ​ | ​ | 712
Other costs | ​ | ​ | 363 | ​ | ​ | 363
Total transaction-related costs | ​ | $ | 4,707 | ​ | $ | 7,577
(1) | Professional fees include legal, advisory, consulting and other fees.
(2) | Compensation-related costs include amounts related to NGCSI employee retention and severance associated with the NGCS Acquisition. Payments are due and payable at various times up to and including the one-year anniversary of the NGCS Acquisition.
​ Unaudited Pro Forma Financial Information ​ The unaudited pro forma financial information for the three and six months ended June 30, 2025 and 2024 was derived by adjusting our historical financial statements in order to give effect to the assets acquired and liabilities assumed in the NGCS Acquisition. The NGCS Acquisition is presented in this unaudited pro forma financial information as though the acquisition occurred as of January 1, 2024, and reflects the following: ​
| ● | the effects of the NGCSI employee retention and other compensation-related arrangements associated with the NGCS Acquisition;
| ● | the application of our accounting policies and adjusting the results of NGCS to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment, and intangible assets had been applied from January 1, 2024;
| ● | the interest expense resulting from borrowings under the Credit Facility used to fund the cash portion of the purchase price;
| ● | the amortization of debt issuance costs associated with the Second Amendment to the Amended and Restated Credit Agreement;
| ● | the exclusion of $4.0 million and $6.9 million of nonrecurring financial advisory, legal, audit and other professional fees incurred related to the NGCS Acquisition and recorded to transaction-related costs in our condensed consolidated statements of operations during the three and six months ended June 30, 2025, respectively. The six months ended June 30, 2024 pro forma earnings were adjusted to reflect these charges; and
| ● | the income tax effects of the adjustments based on the estimated blended statutory tax rate of 23%.
​ The unaudited pro forma financial information below combines the effects of the NGCSI Merger Agreement and the NGCSE Merger Agreement, as the Merger Agreements were negotiated as a single transaction and mutually dependent to close. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of our results of operations that would have occurred had the NCGS Acquisition been consummated at the beginning of the period presented, nor is it necessarily indicative of future results. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​ | Six Months Ended
​ | ​ | June 30, | ​ | June 30,
(in thousands) |  | 2025 |  | 2024 |  | 2025 |  | 2024
Revenue | ​ | $ | 389,990 | ​ | $ | 289,099 | ​ | $ | 756,592 | ​ | $ | 576,289
Net income attributable to Archrock stockholders | ​ | ​ | 67,556 | ​ | ​ | 32,502 | ​ | ​ | 140,733 | ​ | ​ | 66,757
​ TOPS Acquisition ​ On August 30, 2024, we completed the TOPS Acquisition, whereby we acquired all of the issued and outstanding equity interests in TOPS, including a fleet of approximately 580,000 horsepower, including approximately 530,000 operating horsepower, for aggregate consideration consisting of $868.7 million in cash and approximately 6.9 million shares of common stock with a TOPS acquisition date fair value of $139.1 million. The cash portion of the purchase price was funded with proceeds from the July 2024 Equity Offering, the 2032 Notes offering and borrowings under the Credit Facility. In accordance with the terms of the purchase and sale agreement, customary post-closing adjustments were made during the fourth quarter of 2024, resulting in a $0.4 million reduction to the purchase price. ​ The TOPS 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 TOPS acquisition date. The excess of the consideration transferred over those fair values is recorded as goodwill. ​ The following table summarizes the purchase price allocation based on the fair values of the assets acquired and liabilities assumed as of the TOPS acquisition date: ​
​ | ​ | ​ | ​
(in thousands) |  | ​ | ​
Cash |  | $ | 2,498
Accounts receivable | ​ | ​ | 9,737
Inventory | ​ | ​ | 7,346
Other current assets | ​ | ​ | 495
Property, plant and equipment | ​ | ​ | 912,877
Operating lease right-of-use assets | ​ | ​ | 1,424
Goodwill | ​ | ​ | 52,155
Intangible assets | ​ | ​ | 76,228
Other assets | ​ | ​ | 4,032
Accounts payable, trade | ​ | ​ | (48,946)
Accrued liabilities | ​ | ​ | (4,667)
Operating lease liabilities | ​ | ​ | (1,424)
Other liabilities | ​ | ​ | (4,032)
Purchase price | ​ | $ | 1,007,723
​ Goodwill The amount of goodwill resulting from the TOPS Acquisition is attributable to the expansion of our services in the Permian Basin where we currently operate and was allocated to our contract operations segment. The goodwill recorded is considered to have an indefinite life and will be reviewed annually for impairment or more frequently if indicators of potential impairment exist. All of the goodwill recorded for the TOPS Acquisition is expected to be deductible for U.S. federal income tax purposes. Tax Contingency and Indemnification Asset We recorded a non-income tax based contingency of $4.3 million and a corresponding indemnification asset of $4.3 million based on facts existing on the TOPS acquisition date. The tax contingency arose from pre-acquisition activities of TOPS. As part of the TOPS Acquisition, the sellers agreed to indemnify us for certain tax contingencies up to $21.6 million as of the TOPS acquisition date. Dependent upon facts and circumstances, the sellers’ indemnification obligation may be reduced over a period of five years from the TOPS acquisition date but may also be extended until the resolution of claims timely submitted to the sellers. Results of Operations The results of operations attributable to the TOPS Acquisition have been included in our condensed consolidated financial statements as part of our contract operations segment since the TOPS acquisition date. Transaction-Related Costs ​ The following table presents transaction-related costs incurred in connection with the TOPS Acquisition by cost type: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​ | Six Months Ended
​ | ​ | June 30, | ​ | June 30,
(in thousands) | ​ | 2025 |  | 2024 |  | 2025 |  | 2024
Professional fees (1) | ​ | $ | 358 | ​ | $ | 1,782 | ​ | $ | 563 | ​ | $ | 1,782
Compensation-related costs (2) | ​ |  | 1,062 | ​ |  | — | ​ |  | 1,922 | ​ |  | —
Total transaction-related costs | ​ | $ | 1,420 | ​ | $ | 1,782 | ​ | $ | 2,485 | ​ | $ | 1,782
(1) | Professional fees include legal, advisory, consulting and other fees.
(2) | Compensation-related costs include amounts related to employee retention and other compensation-related arrangements associated with the TOPS Acquisition. Payments are due and payable at various times up to and including the two-year anniversary of the TOPS Acquisition.
Valuation Methodologies The valuation methodologies and significant inputs for fair value measurements associated with our business acquisitions are detailed by significant asset class below. The fair value measurements for property, plant and equipment and intangible assets are based on significant inputs that are not observable in the market and therefore represent Level 3 measurements. ​ Property, Plant and Equipment ​ Property, plant and equipment is primarily comprised of natural gas and electric motor drive compression equipment that will depreciate on a straight-line basis over an estimated average remaining useful life of 15 years for the NGCS Acquisition and 25 years for the TOPS Acquisition. The fair value of the property, plant and equipment was determined using both the cost and market approach. For most of the compression equipment, we estimated the replacement cost using the direct cost method by evaluating recent purchases of similar assets or published data, then adjusting the replacement cost for physical deterioration and functional and economic obsolescence, as applicable. For certain compression equipment, we then considered the market approach by comparing our estimated dollar per horsepower to market comparables and market participant assumptions and adjusted as necessary. ​ Other fixed assets were valued using the indirect cost method, whereby we applied asset-specific trend information using published indexes to calculate the estimated replacement cost of assets that were identified to be reflected at historical cost. Other assets were depreciated based on published normal useful life estimates and prior experience with similar assets. Intangible Assets ​ The intangible assets consist of customer relationships and trade names that have estimated useful lives of 12 years and five years, respectively. The amount of intangible assets and their associated useful life were determined based on the period over which the assets are expected to contribute directly or indirectly to our future cash flows. The fair value of the identifiable intangible assets related to customer relationships was determined using the multi-period excess earnings method, which is a specific application of the discounted cash flow method, an income approach, whereby we estimated and then discounted the future cash flows of the intangible asset by adjusting overall business revenue for attrition, obsolescence, cost of sales, operating expenses, taxes and the required returns attributable to other contributory assets acquired. Significant estimates made in arriving at expected future cash flows included our expected customer attrition rate and the amount of earnings attributable to the assets. To discount the estimated future cash flows, we utilized a discount rate that was at a premium to our WACC to reflect the less liquid nature of the customer relationships relative to the tangible assets acquired. The trade name fair market value was measured using the relief-from-royalty method under the income approach, whereby we calculated the royalty savings by estimating a reasonable royalty rate that a third party would negotiate in a licensing agreement expressed as a percentage of total revenue involving a trade name. The revenue related to the trade name was multiplied by the selected royalty rate over the estimated expected useful life of the trade name to arrive at the royalty savings. The royalty savings were tax effected and discounted to present value using a discount rate commensurate with the risk profile of the trade name relative to our WACC and the return on the other acquired assets.

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