UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM~~Form 10-Q

(Mark One)

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

For the quarterly period ended ~~June~~September 30, 2019

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

For the transition period from to

Commission File No. 001-33078

Archrock Partners, L.P.

(Exact name of registrant as specified in its charter)



Delaware			22-3935108
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

9807 Katy Freeway, Suite 100, Houston, Texas 77024

(Address of principal executive offices, zip code)

(281) 836-8000

(Registrant’s telephone number, including area code)

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



Title of each class	Trading Symbol	Name of exchange on which registered
None	N/A	N/A

Archrock Partners, L.P. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

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

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

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



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

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

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

At October 28, 2019, the registrant’s common equity consisted of 70,231,036 common units, all of which were held indirectly by Archrock, Inc.

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TABLE OF CONTENTS

	Page
GLOSSARY	3
FORWARD-LOOKING STATEMENTS	4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	65
Condensed Consolidated Balance Sheets	65
Condensed Consolidated Statements of Operations	76
Condensed Consolidated Statements of Comprehensive Income	87
Condensed Consolidated Statements of Partners’ Capital	98
Condensed Consolidated Statements of Cash Flows	1110
Notes to Unaudited Condensed Consolidated Financial Statements	12
Notes to Condensed Consolidated Financial Statements (unaudited)	11
Item 2. Management’s Narrative Analysis of Results of Operations	2223
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2324
Item 4. Controls and Procedures	2324
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	2526
Item 1A. Risk Factors	2526
Item 2. Unregistered Sales of Equity Securities	2627
Item 3. Defaults Upon Senior Securities	2627
Item 4. Mine Safety Disclosures	2627
Item 5. Other Information	2627
Item 6. Exhibits	2728
SIGNATURES	2829

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GLOSSARY

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

2018 Form 10-K	Archrock Partners, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2018
2021 Notes	$350.0 million of 6% senior notes due April 2021, issued in March 2013
2022 Notes	$350.0 million of 6% senior notes due October 2022, issued in April 2014
2027 Notes	$500.0 million of 6.875% senior notes due April 2027, issued in March 2019
Amendment No. 1	Amendment No. 1 to Credit Agreement dated February 23, 2018, which amended that certain Credit Agreement, dated as of March 30, 2017, which governs the Credit Facility
Archrock	Prior to the Merger: Archrock, Inc., individually and together with its wholly-owned subsidiaries. Subsequent to the Merger: Archrock, Inc., individually and together with its wholly-owned subsidiaries, excluding the Partnership
Archrock	Prior to the Merger: Archrock, Inc., individually and together with its wholly-owned subsidiariesSubsequent to the Merger: Archrock, Inc., individually and together with its wholly-owned subsidiaries, excluding the Partnership
ASC 606 Revenue	Accounting Standards Codification Topic 606 Revenue from Contracts with Customers
ASC 842 Leases	Accounting Standards Codification Topic 842 Leases
ASU 2016-13	Accounting Standards Update No. 2016-13 —Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
ASU 2017-12	Accounting Standards Update No. 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
ASU 2017-04	Accounting Standards Update No. 2017-04—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
ASU 2018-13	Accounting Standards Update No. 2018-13 Fair Value Measurement (Topic 820) — Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement
ASU 2017-12	Accounting Standards Update No. 2017-12—Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
Credit Facility	$1.25 billion asset-based revolving credit facility due March 2022, as amended by Amendment No. 1
ASU 2018-13	Accounting Standards Update No. 2018-13—Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
Credit Facility	$1.25 billion asset-based revolving credit facility due March 2022, as governed by Amendment No. 1 to Credit Agreement, dated February 23, 2018, which amended that certain Credit Agreement, dated as of March 30, 2017
EBITDA	Earnings before interest, taxes, depreciation and amortization
Elite Acquisition	Transaction ~~expected~~completed toon ~~close~~August in1, ~~the third quarter of~~ 2019 pursuant to the Asset Purchase Agreement entered into by Archrock and Elite Compression on June 23, 2019
Elite Compression	Elite Compression Services, LLC
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
Financial Statements	Condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q
GAAP	U.S. generally accepted accounting principles
General Partner	Archrock General Partner, L.P., the Partnership’s general partner, and an indirect, wholly-owned subsidiary of Archrock
Harvest	Harvest Four Corners, LLC
Harvest Sale	Transaction ~~expected~~completed toon ~~close~~August in1, ~~the third quarter of~~ 2019 pursuant to the Asset Purchase Agreement entered into by Archrock and Harvest on June 23, 2019
Hilcorp	Hilcorp Energy Company
JDH Capital	JDH Capital Holdings, L.P.
Merger	Transaction completed on April 26, 2018 in which Archrock acquired all of the Partnership’s outstanding common units not already owned by Archrock pursuant to the Agreement and Plan of Merger, dated as of January 1, 2018, among Archrock and the Partnership, which was amended by Amendment No. 1 to Agreement and Plan of Merger on January 11, 2018
Omnibus Agreement	Partnership’s Fifth Amended and Restated Omnibus Agreement with certain Archrock entities, dated as of April 26, 2018, which governs various services and transactions that may occur between the Partnership and Archrock
Partnership, we, our, us	Archrock Partners, L.P., together with its subsidiaries
Revolving Loan Agreement	Agreement dated April 26, 2018 among the Partnership and Archrock under which the Partnership may make loans to Archrock
ROU	Right-of-use, as related to the new lease model under ASC 842 Leases
SEC	U.S. Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
SG&A	Selling, general and administrative
U.S.	United States of America

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements including, without limitation, statements regarding the effects of the Merger; or the ~~Partnership’s~~Elite Acquisition; our business growth strategy and projected costs; future financial position; the sufficiency of available cash flows to fund continuing operations and make cash distributions; anticipated cost savings; future revenue and other financial or operational measures related to our business; the future value of our equipment; and plans and objectives of our management for our future operations. You can identify many of these statements by words such as “believe,” “expect,” “intend,” “project,” “anticipate,” “estimate,” “will continue” or similar words or the negative thereof.

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this Quarterly Report on Form 10-Q. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. Known material factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include the risk factors described in our 2018 Form 10-K and those set forth from time to time in our filings with the SEC, which are available through our website at www.archrock.com and through the SEC’s website at www.sec.gov, as well as the following ~~risks and uncertainties~~:

• the risk that cost savings, tax benefits and any other synergies from the ~~Merger~~Elite Acquisition may not be fully realized or may take longer to realize than expected;.

•All ~~conditions~~forward-looking statements included in ~~the~~this ~~oil~~Quarterly ~~and~~Report ~~natural~~on ~~gas~~Form ~~industry,~~10-Q ~~including~~are based on information available to us on the ~~level~~date of ~~production~~this ofQuarterly Report on Form 10-Q. Except as required by law, ~~demand~~we ~~for~~undertake no obligation to publicly update or ~~price~~revise any forward-looking statement, whether as a result of ~~oil~~new information, future events or ~~natural~~otherwise. ~~gas;~~All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this Quarterly Report on Form 10-Q.

• our reduced profit margins or the loss of market share resulting from competition or the introduction of competing technologies by other companies;

• our dependence on Archrock to provide personnel and services, including its ability to hire, train and retain key employees and to cost-effectively perform the services necessary to conduct our business;

• changes in economic or political conditions, including terrorism and legislative changes;

• the inherent risks associated with our operations, such as equipment defects, impairments, malfunctions and natural disasters;

• the risk that counterparties will not perform their obligations under our financial instruments;

• the financial condition of our customers;

• our ability to implement certain business and financial objectives, such as:

– winning profitable new business;

– growing our asset base and enhancing asset utilization;

– integrating acquired businesses;

– generating sufficient cash; and

– accessing the capital markets at an acceptable cost;

• liability related to the use of our services;

• changes in governmental safety, health, environmental or other regulations, which could require us to make significant expenditures; and

• our level of indebtedness and ability to fund our business.

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

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except unit amounts)

(unaudited)

	June 30, 2019			December 31, 2018
	September 30, 2019			December 31, 2018
Assets
Current assets:
Cash	$	~~229~~174		$	264
Accounts receivable, trade, net of allowance of $1,064 and $1,253, respectively	84,003			80,606
Accounts receivable, trade, net of allowance of $1,345 and $1,253, respectively	98,668			80,606
Tax refund receivable	—			14,000
Derivative asset	~~336~~73			3,185
Other current assets	815,182			123
Total current assets	84104,~~649~~097			98,178
Property, plant and equipment	3,~~106~~378,~~909~~272			2,933,568
Accumulated depreciation	(1,~~084~~073,~~111~~321		)	(1,042,182		)
Property, plant and equipment, net	2,~~022~~304,~~798~~951			1,891,386
Intangible assets, net	3864,~~903~~851			45,839
Contract costs, net	3537,~~901~~182			32,220
Loan receivable due from Archrock	9,500			20,000
Goodwill	104,133			—
Other assets	11,585			17,801
Loan receivable due from Archrock	51,350			20,000
Total assets	$	2,203,336		$	2,105,424
Other assets	10,554			17,801
Total assets	$	2,677,118		$	2,105,424
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable, trade	$	1019,~~158~~899		$	10,646
Accrued liabilities	1113,~~968~~689			10,129
Deferred revenue	98,~~036~~836			9,577
Accrued interest	1731,~~249~~384			11,999
Due to Archrock, net	1,132			17,251
Derivative liability	456			—
Total current liabilities	49,543			59,602
Due to Archrock, net	1,143			17,251
Long-term debt	1,628,814			1,529,501
Total current liabilities	75,407			59,602
Other liabilities	11,837			9,175
Long-term debt	1,825,475			1,529,501
Total liabilities	1,690,194			1,598,278
Other liabilities	14,338			9,175
Commitments and contingencies (Note 11)
Total liabilities	1,915,220			1,598,278
Commitments and contingencies (Note 12)
Partners’ capital:
Common units: 70,231,036 issued and outstanding	~~502~~751,~~504~~860			488,209
General partner units: 1,422,458 issued and outstanding	1112,~~876~~691			11,630
Accumulated other comprehensive income (loss)	(12,~~238~~653		)	7,307
Total partners’ capital	~~513~~761,~~142~~898			507,146
Total liabilities and partners’ capital	$	2,~~203~~677,~~336~~118		$	2,105,424

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

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ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(unaudited)

	Three Months EndedJune 30,						Six Months EndedJune 30,
	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2019			2018			2019			2018
Revenue	$	~~169~~182,~~384~~673		$	~~150~~154,~~866~~033		$	~~335~~517,~~103~~776		$	~~297~~451,~~868~~901
Cost of sales (excluding depreciation and amortization)	6470,~~343~~100			6062,~~226~~068			~~132~~202,~~067~~167			~~116~~178,~~528~~596
Selling, general and administrative	2122,~~502~~830			1918,~~344~~143			4265,~~609~~439			3957,~~145~~288
Depreciation and amortization	3638,~~439~~828			3334,~~898~~095			71110,~~815~~643			68102,~~224~~319
Long-lived asset impairment	34,~~621~~551			3,~~846~~673			610,~~305~~856			610,~~912~~585
Interest expense, net	2527,~~720~~005			22,~~542~~767			4976,~~148~~153			4466,~~151~~918
Debt extinguishment loss	~~3,653~~—			—			3,653			—
Transaction-related costs	24,~~292~~497			~~1,340~~2			26,~~292~~789			2,~~716~~718
Other income, net	(1,413		)	(394		)	(861		)	(681		)
Other (income) loss, net	(7,622		)	126			(8,483		)	(555		)
Income before income taxes	1322,~~227~~484			1013,~~064~~159			2850,~~075~~559			2034,~~873~~032
Provision for (benefit from) income taxes	586			(417		)	1,115			102
Provision for income taxes	919			546			2,034			648
Net income	$	1221,~~641~~565		$	1012,~~481~~613		$	2648,~~960~~525		$	2033,~~771~~384

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

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ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Three Months EndedJune 30,					Six Months EndedJune 30,
	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2019			2018		2019			2018
Net income	$	1221,~~641~~565		$	1012,~~481~~613	$	2648,~~960~~525		$	2033,~~771~~384
Other comprehensive income (loss):
Other comprehensive income (loss)
Interest rate swap gain (loss), net of reclassifications to earnings	(51,~~320~~415		)	21,~~178~~213		(89,~~545~~960		)	78,~~163~~376
Amortization of terminated interest rate swaps	—			61—		—			227
Total other comprehensive income (loss)	(51,~~320~~415		)	21,~~239~~213		(89,~~545~~960		)	78,~~390~~603
Comprehensive income	$	720,~~321~~150		$	1213,~~720~~826	$	1838,~~415~~565		$	2841,~~161~~987

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

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ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(in thousands, except unit and per unit amounts)

(unaudited)

	Partners’ Capital									~~Treasury~~AccumulatedOther ~~Units~~Comprehensive Income (Loss)						~~AccumulatedOther Comprehensive Income (Loss)~~
	Common Units					General Partner Units
	Amount			Units		Amount			Units	~~Amount~~			~~Units~~Total						~~Total~~
Balance at April 1, 2018	$	506,035		70,363,681		$	11,650		1,422,458	$	(2,591	)	(132,645	)		$	9,627		$	524,721
Balance at July 1, 2018	$	497,875		70,231,036		$	11,543		1,422,458	$	11,866		$	521,284
Distribution of capital, net	(321		)																(321		)
Contribution of capital	40												40
Cash distributions ($0.221 per common unit)	(15,521		)			(315		)											(15,836		)
Cash distributions ($0.2432 per common unit)	(17,080		)			(346		)					(17,426		)
Merger-related adjustments	(2,591		)	(132,645	)					2,591			132,645						—
Comprehensive income
Comprehensive income
Net income	12,362					251							12,613
Net income	10,273					208													10,481
Interest rate swap gain, net of reclassifications to earnings										1,213			1,213
Interest rate swap gain, net of reclassifications to earnings																2,178			2,178
Balance at September 30, 2018	$	493,197		70,231,036		$	11,448		1,422,458	$	13,079		$	517,724
Amortization of terminated interest rate swaps																61			61
Balance at July 1, 2019	$	502,504		70,231,036		$	11,876		1,422,458	$	(1,238	)	$	513,142
Balance at June 30, 2018	$	497,875		70,231,036		$	11,543		1,422,458	$	—		—			$	11,866		$	521,284
Distribution of capital, net	(2,151		)			(27		)					(2,178		)
Balance at April 1, 2019	$	506,032		70,231,036		$	11,933		1,422,458	$	—		—			$	4,082		$	522,047
Contribution of capital - excess of fair market value of equipment sold to Archrock over equipment purchased from Archrock	2,659					54							2,713
Distribution of capital, net	(1,488		)			(54		)											(1,542		)
Cash distributions ($0.3075 per common unit)	(21,596		)			(437		)					(22,033		)
Contribution of capital - excess of fair market value of equipment sold to Archrock over equipment purchased from Archrock	2,427					86													2,513
Cash contributions from Archrock	39,353					797							40,150
Cash distributions ($0.240 per common unit)	(16,856		)			(341		)											(17,197		)
Contribution for Elite Acquisition	209,954												209,954
Comprehensive income
Net income	1221,~~389~~137					~~252~~428							21,565						~~12,641~~
Interest rate swap loss, net of reclassifications to earnings										(1,415		)	(1,415		)	~~(5,320~~		)	~~(5,320~~		)
Balance at June 30, 2019	$	502,504		70,231,036		$	11,876		1,422,458	$	—		—			$	(1,238	)	$	513,142
Balance at September 30, 2019	$	751,860		70,231,036		$	12,691		1,422,458	$	(2,653	)	$	761,898

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

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ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(in thousands, except unit and per unit amounts)

(unaudited)

	Partners’ Capital									Treasury Units					AccumulatedOther Comprehensive Income (Loss)
	Common Units					General Partner Units
	Amount			Units		Amount			Units	Amount			Units					Total
Balance at January 1, 2018	$	501,023		70,310,590		$	11,582		1,421,768	$	(2,341	)	(113,609	)	$	4,476		$	514,740
Issuance of common units for vesting of phantom units				53,091
Treasury units purchased										(250		)	(19,036	)				(250		)
Issuance of general partner units						9			690									9
Contribution of capital, net	1,~~504~~544																	1,~~504~~544
Cash distributions ($0.506 per common unit)	(35,571		)			(720		)										(36,291		)
Cash distributions ($0.7492 per common unit)	(52,651		)			(1,066		)										(53,717		)
Unit-based compensation expense	314																	314
Impact of adoption of ASC 606 Revenue	12,462					252												12,714
Impact of adoption of ASU 2017-12	375					8												383
Merger-related adjustments	(2,591		)	(132,645	)					2,591			132,645					—
Comprehensive income
Net income	2032,~~359~~721					~~412~~663												2033,~~771~~384
Interest rate swap gain, net of reclassifications to earnings															78,~~163~~376			78,~~163~~376
Amortization of terminated interest rate swaps															227			227
Balance at June 30, 2018	$	497,875		70,231,036		$	11,543		1,422,458	$	—		—		$	11,866		$	521,284
Balance at September 30, 2018	$	493,197		70,231,036		$	11,448		1,422,458	$	—		—		$	13,079		$	517,724
Balance at January 1, 2019	$	488,209		70,231,036		$	11,630		1,422,458	$	—		—		$	7,307		$	507,146
Distribution of capital, net	(35,~~268~~419		)			(~~110~~137		)										(35,~~378~~556		)
Contribution of capital - excess of fair market value of equipment sold to Archrock over equipment purchased from Archrock	46,~~267~~926					86140												47,~~353~~066
Cash distributions ($0.480 per common unit)	(33,711		)			(683		)										(34,394		)
Cash distributions ($0.7875 per common unit)	(55,307		)			(1,120		)										(56,427		)
Cash contributions from Archrock	2059,~~583~~936					~~417~~1,214												2161,~~000~~150
Contribution for Elite Acquisition	209,954																	209,954
Comprehensive income
Net income	2647,~~424~~561					~~536~~964												2648,~~960~~525
Interest rate swap loss, net of reclassifications to earnings															(89,~~545~~960		)	(89,~~545~~960		)
Balance at June 30, 2019	$	502,504		70,231,036		$	11,876		1,422,458	$	—		—		$	(1,238	)	$	513,142
Balance at September 30, 2019	$	751,860		70,231,036		$	12,691		1,422,458	$	—		—		$	(2,653	)	$	761,898

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

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ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months EndedJune 30,
	Nine Months EndedSeptember 30,
	2019			2018
Cash flows from operating activities:
Net income	$	2648,~~960~~525		$	2033,~~771~~384
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	71110,~~815~~643			68102,~~224~~319
Long-lived asset impairment	610,~~305~~856			610,~~912~~585
Amortization of deferred financing costs	34,~~041~~569			24,~~862~~371
Amortization of debt discount	~~545~~726			~~694~~1,049
Amortization of terminated interest rate swaps	—			227
Debt extinguishment loss	3,653			—
Interest rate swaps	(~~802~~1,063		)	~~327~~166
Unit-based compensation expense	—			314
Provision for (benefit from) doubtful accounts	(15		)	549
Provision for doubtful accounts	449			773
Gain on sale of property, plant and equipment	(~~527~~8,098		)	(~~618~~621		)
Deferred income tax provision (benefit)	892			(140		)
Deferred income tax provision	1,659			294
Amortization of contract costs	813,~~834~~972			47,~~758~~962
Deferred revenue recognized in earnings	(913,~~385~~951		)	(59,~~403~~326		)
Changes in assets and liabilities:
Changes in assets and liabilities, net of acquisitions:
Accounts and other receivables	41,~~746~~210			(25,~~477~~881		)
Contract costs, net	(1218,~~515~~934		)	(1321,~~102~~176		)
Deferred revenue	913,~~039~~483			814,~~118~~010
Other assets and liabilities	723,~~131~~881			113,~~707~~810
Net cash provided by operating activities	~~119~~191,~~717~~580			93152,~~723~~260
Cash flows from investing activities:
Capital expenditures	(~~219~~284,~~910~~760		)	(~~115~~217,~~510~~692		)
Proceeds from sale of property, plant and equipment	1848,~~760~~457			1317,~~719~~336
Proceeds from insurance and other settlements	~~676~~2,830			252
Loans receivable from Archrock, net	10,500			(60,500		)
Loans receivable due from Archrock, net	(31,350		)	(53,500		)
Net cash used in investing activities	(189,974		)	(162,039		)
Cash paid in Elite Acquisition	(214,233		)	—
Net cash used in investing activities	(479,056		)	(253,604		)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt	1,254,000			272,830
Borrowings of long-term debt	1,685,250			425,830
Repayments of long-term debt	(1,~~151~~386,~~000~~250		)	(~~176~~273,636		)
Payments for debt issuance costs	(8,829		)	(3,332		)
(Payments for) proceeds from settlement of interest rate swaps that include financing elements	800			(207		)
Proceeds from (payments for) settlement of interest rate swaps that include financing elements	1,123			(61		)
Distributions paid to unitholders	(3456,~~394~~427		)	(3653,~~291~~717		)
Contributions from Archrock	2161,~~000~~150			—
Net proceeds from issuance of general partner units	—			9
Purchases of treasury units	—			(250		)
Increase (decrease) in amounts due to Archrock, net	(11,355		)	4,166
Decrease in amounts due to Archrock, net	(8,631		)	(1,334		)
Net cash provided by financing activities	70287,~~222~~386			6093,~~289~~509
Net decrease in cash	(3590		)	(87,~~027~~835		)
Cash, beginning of period	264			8,078
Cash, end of period	$	~~229~~174		$	51243
Supplemental disclosure of non-cash investing and financing transactions:
Contribution of capital for equipment overhauls and swaps	$	2,178		$	1,504
Contribution of capital for Elite Acquisition	$	209,954		$	—
Distribution of capital for net book value difference of intercompany equipment sales	(5,556		)	—
Contribution of capital for equipment overhauls and swaps	1,328			1,544
Contribution of capital for net excess of fair market value of intercompany equipment sales	4,353			—
Distribution of capital for net book value difference of intercompany equipment sales	(6,884		)	—
Contribution of capital for net excess of fair market value of intercompany equipment sales	7,066			—

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

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ARCHROCK PARTNERS, L.P.

NOTES TO ~~UNAUDITED~~ CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Organization and Basis of Presentation

We are a leading provider of natural gas compression services to customers in the oil and natural gas industry throughout the U.S. Our contract operations services primarily include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining natural gas compression equipment to provide natural gas compression services to our customers.

In April 2018, Archrock completed the acquisition of all of our outstanding common units that it did not already own and, as a result, we became its wholly-owned subsidiary. See Note 1011 (“Partners’ Capital”) for further details of the Merger.

The accompanying unaudited condensed consolidated financial statements included herein have been prepared in accordance with GAAP and the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP are not required in these interim financial statements and have been condensed or omitted. Management believes that the information furnished includes all adjustments, consisting only of normal recurring adjustments, which are necessary to present fairly our consolidated financial position, results of operations and cash flows for the periods indicated. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements presented in our 2018 Form 10-K, which contains a more comprehensive summary of our accounting policies. The interim results reported herein are not necessarily indicative of results for a full year. Certain prior year amounts have been reclassified to conform to the current year presentation.

Omission of Information by Certain Wholly-Owned Subsidiaries

We meet the conditions specified in General Instruction H(1)(a) and (b) of Form 10-Q and are thereby permitted to use the reduced disclosure format for wholly-owned subsidiaries of reporting companies specified therein. Accordingly, we have omitted from this report the information called for by Part I Item 3 “Quantitative and Qualitative Disclosures About Market Risk,” Part II Item 2 “Unregistered Sales of Equity Securities” and Part II Item 3 “Defaults Upon Senior Securities.” In addition, in lieu of the information called for by Part I Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we have included, under Item 2, “Management’s Narrative Analysis of Results of Operations” to explain the reasons for material changes in the amount of revenue and expense items in the year-to-date periods reported herein.

Recent Business Developments

Elite Acquisition

On June 23, 2019, Archrock entered into an asset purchase agreement with Elite Compression pursuant to which Archrock will acquire from Elite Compression substantially all of its assets, including a fleet of predominantly-large compressor units comprising approximately 430,000 horsepower, a fleet of vehicles, real personal property and parts inventory, and certain liabilities for aggregate consideration of $205.0 million cash and 21,656,683 newly-issued shares of Archrock common stock. The cash portion of the purchase price will be funded with borrowings on our Credit Facility. The Elite Acquisition is expected to close in the third quarter of 2019 subject to certain closing conditions and the consummation of the Harvest Sale (see below). As a result of this transaction, we expect to own the purchased fleet of compressor units and the units’ associated customer contracts.

Harvest Sale

On June 23, 2019, Archrock entered into an asset purchase agreement with Harvest pursuant to which Harvest will acquire from Archrock approximately 80,000 active and idle compression horsepower, vehicles and parts inventory for consideration of $30 million to be paid in cash. All of the compression horsepower to be sold to Harvest is owned by us. The Harvest Sale is expected to close in the third quarter of 2019, subject to customary closing conditions.

During the three and six months ended June 30, 2019, we incurred transaction costs of $2.3 million related to the Elite Acquisition and Harvest Sale, which is reflected in transaction-related costs in our condensed consolidated statements of operations.

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2. Recent Accounting Developments

Accounting Standards Updates Implemented

Leases

ASC 842 Leases establishes a ~~ROU~~right-of-use model that requires a lessee to record a ~~ROU~~right-of-use asset and a lease liability on the balance sheet. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Under the new guidance, lessor accounting is largely unchanged. We are a party to leases in our contract operations services agreements. We adopted ASC 842 Leases on January 1, 2019, and ~~have~~ determined that ASC 842 Leases ~~will~~does not have an impact on our condensed consolidated financial statements.

ASC 842 Leases provides several practical expedients, one of which is for lessors to not separate lease and nonlease components and instead account for those components as a single component if certain conditions are met. ASC 842 Leases also provides clarification for lessors on whether ASC 842 Leases or ASC 606 Revenue is applicable to the combined component based on determination of the predominant component. We have concluded that for our contract operations services agreements, in which we are a lessor, the services nonlease component is predominant over the compression unit lease component and therefore ongoing recognition of these agreements will continue to follow the ASC 606 Revenue guidance.

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Goodwill

On October 1, 2019, we prospectively adopted ASU 2017-04 which simplifies the test for goodwill impairment by eliminating Step 2 in the test for goodwill impairment, which required an entity to calculate the implied fair value of goodwill. Under this amendment, an entity should perform its goodwill impairment test on at least an annual basis by comparing the fair value of a reporting unit, including any income tax effects from any tax deductible goodwill, with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

Accounting Standards Updates Not Yet Implemented

In August 2018, the FASB issued ASU 2018-13 which amends the required fair value measurements disclosures related to valuation techniques and inputs used, uncertainty in measurement and changes in measurements applied. These amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty are to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments are to be applied retrospectively to all periods presented upon their effective date. We are currently evaluating the impact of ASU 2018-13 on our consolidated financial statements and footnote disclosures.

In June 2016, the FASB issued ASU 2016-13 which changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in earlier recognition of allowance for losses. For public entities that meet the definition of an SEC filer, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019. ~~and~~Early ~~early~~ adoption is permitted. Entities will apply ASU 2016-13 provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements and footnote disclosures.

3. ~~Related~~Business ~~Party~~ Transactions

~~Revolving~~Elite ~~Loan Agreement with Archrock~~Acquisition

InOn ~~conjunction~~August 1, ~~with~~2019, the ~~closing~~Elite ofAcquisition ~~the~~was ~~Merger,~~completed whereby we and Archrock ~~entered~~acquired ~~into~~from ~~the~~Elite ~~Revolving~~Compression ~~Loan~~substantially ~~Agreement~~all ~~under~~of ~~which~~its weassets ~~may~~and ~~make~~certain ~~loans~~liabilities. toAs part of the transaction, Archrock ~~from~~assigned ~~time~~to us the obligation to ~~time~~directly inpurchase anfrom ~~aggregate~~Elite ~~amount~~Compression ~~not~~a tofleet ~~exceed~~of ~~the~~predominantly ~~Credit~~large ~~Facility~~compressor units comprising approximately 430,000 horsepower and the units’s ~~outstanding~~associated ~~balance.~~customer ~~The~~contracts, ~~Revolving~~accounts ~~Loan~~receivable ~~Agreement~~and ~~matures~~liabilities onfor ~~the~~aggregate ~~maturity~~consideration ~~date~~consisting of ~~our~~$209.2 ~~Credit~~million ~~Facility.~~in ~~Interest~~cash, which was funded with borrowings on ~~amounts~~our ~~loaned~~Credit ~~under~~Facility, ~~the~~and ~~Revolving~~a ~~Loan~~non-cash ~~Agreement~~capital iscontribution ~~payable~~from toArchrock usof on$210.0 amillion. ~~monthly~~The ~~basis~~purchase ~~and~~price paid is ~~calculated~~subject asto acustomary ~~proportion~~post-closing ofadjustments ~~our~~in ~~total~~accordance ~~interest~~with ~~expense~~the onterms of the ~~Credit~~acquisition's ~~Facility~~asset purchase agreement.

AtThe ~~June 30,~~Elite ~~2019,~~Acquisition was accounted for using the ~~balance~~acquisition ofmethod ~~outstanding~~which ~~borrowings~~requires, ~~under~~among ~~the~~other ~~Revolving~~things, ~~Loan~~assets ~~Agreement~~acquired ~~was~~and ~~$9.5~~liabilities ~~million.~~assumed Weto be recorded ~~interest~~at ~~income~~their ~~earned~~fair value on ~~loans~~the toacquisition ~~Archrock~~date. ~~under~~The excess of the ~~Revolving~~consideration ~~Loan~~transferred ~~Agreement~~over those fair values is recorded as goodwill. The preliminary allocation of the purchase price, which ~~was~~is ~~included~~subject into ~~interest~~certain ~~expense~~adjustments, ~~net~~was inbased upon preliminary valuations and our ~~condensed~~estimates ~~consolidated~~and ~~statements~~assumptions ofare ~~operations,~~subject to change upon the completion of ~~$0.2~~management’s ~~million~~review ~~and~~of $0the final valuations.6 ~~million~~We ~~during~~are in the ~~three~~process ~~months~~of ~~ended~~finalizing ~~June 30~~valuations related to property, ~~2019~~plant and ~~2018~~equipment, ~~respectively,~~identifiable intangible assets and $0goodwill.3 ~~million~~Post-closing adjustments to the purchase price could impact future depreciation and $0amortization expense as well as income tax expense.6 ~~million~~The ~~during~~final ~~the~~valuation ~~six~~of ~~months~~net ~~ended~~assets ~~June 30,~~acquired ~~2019~~is ~~and~~expected ~~2018~~to be completed as soon as possible, ~~respectively~~but no later than one year from the acquisition date.

~~Common Control Transactions~~12

~~Transactions~~Table ~~between us and Archrock and its affiliates are transactions between entities under common control. Under GAAP, transfers~~ of assets and liabilities between entities under common control are to be initially recorded on the books of the receiving entity at the carrying value of the transferor. Any difference between consideration given and the carrying value of the assets or liabilities received is treated as a capital distribution or contribution. Contents

The following table summarizes the preliminary purchase price allocation based on the estimated fair values of the acquired assets and liabilities as of the acquisition date (in millions):



Accounts receivable	$	9.0
Property, plant and equipment	279.6
Intangible assets	29.1
Goodwill	104.1
Accrued liabilities	(2.6		)
Purchase price	$	419.2

The preliminary amount of property, plant and equipment is primarily comprised of compression equipment that will be depreciated on a straight-line basis over an estimated average remaining useful life of 15 years.

The intangible assets consist of customer relationships that have an estimated useful life of 15 years. The preliminary 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 preliminary amount of goodwill resulting from the acquisition is attributable to the expansion of our services in various regions in which we currently operate. 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 this acquisition is expected to be deductible for U.S. federal income tax purposes.

The results of operations attributable to the assets and liabilities acquired in the Elite Acquisition have been included in our condensed consolidated financial statements since the date of acquisition. Revenue attributable to the assets acquired from the date of acquisition, August 1, 2019, through September 30, 2019 was $13.1 million. We are unable to provide earnings attributable to the assets and liabilities acquired since the date of acquisition as we do not prepare full stand-alone earnings reports for those assets and liabilities.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information for the three and nine months ended September 30, 2019 and 2018 was derived by adjusting our historical financial statements in order to give effect to the assets and liabilities acquired in the Elite Acquisition. The Elite Acquisition is presented in this unaudited pro forma financial information as though the acquisition occurred as of January 1, 2018, and reflects the following:


•	the acquisition of Elite Compression’s fleet of compressor units comprising approximately 430,000 horsepower and the units’ associated customer contracts, accounts receivable and liabilities;


•	borrowings of $209.2 million under the Credit Facility for cash consideration exchanged in the acquisition; and


•	the exclusion of $4.5 million and $6.8 million of financial advisory, legal and other professional fees incurred related to the acquisition and recorded to transaction-related costs in our condensed consolidated statements of operations during the three and nine months ended September 30, 2019, respectively.

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~~Sales~~The unaudited pro forma financial information below is presented for informational purposes only and is not necessarily indicative of ~~Compression~~our ~~Equipment~~results ~~with~~of ~~Archrock~~operations that would have occurred had the transaction been consummated at the beginning of the period presented, nor is it necessarily indicative of future results.

If Archrock determines in good faith that we or Archrock’s contract operations services business needs to sell compression equipment between Archrock and us, the Omnibus Agreement permits such transactions if it will not cause us to breach any existing contracts, suffer a loss of revenue under any existing contract operations services contracts or incur any unreimbursed costs. As consideration for the sale of compression equipment, the transferee will make a distribution to or receive a contribution from the transferor in an amount equal to the net book value of the compression equipment sold.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenue	$	189,229	$	172,721	$	562,054	$	508,807
Net income	27,957		15,281		63,735		42,188

Harvest Sale

On August 1, 2019, we and Archrock completed an asset sale in which Harvest acquired from us approximately 80,000 active and idle compression horsepower for cash consideration of $27.1 million. We recorded a $6.7 million gain on this sale to other (income) loss, net in our condensed consolidated statements of operations during the three and nine months ended September 30, 2019.

4. Related Party Transactions

Hilcorp and Affiliates

In connection with the closing of the Elite Acquisition, Archrock issued 21,656,683 shares of Archrock common stock to JDH Capital, an affiliate of our customer Hilcorp. As long as JDH Capital, together with affiliates of Hilcorp, owns at least 7.5% of Archrock’s outstanding common stock, it will have the right to designate one director to the Archrock board of directors. On August 1, 2019, Jeffery D. Hildebrand, founder and executive chairman of Hilcorp, was elected to the Archrock board of directors. As of September 30, 2019, JDH Capital owned 14.3% of Archrock’s outstanding common stock.

Revenue from Hilcorp and affiliates was $8.3 million and $1.5 million during the three months ended September 30, 2019 and 2018, respectively, and $16.8 million and $4.8 million during the nine months ended September 30, 2019 and 2018, respectively. Accounts receivable, net due from Hilcorp and affiliates were $4.5 million and $2.6 million as of September 30, 2019 and December 31, 2018, respectively.

Revolving Loan Agreement with Archrock

In conjunction with the closing of the Merger, we entered into the Revolving Loan Agreement with Archrock under which we may make loans to Archrock from time to time in an aggregate amount not to exceed the Credit Facility’s outstanding balance. The Revolving Loan Agreement matures on the maturity date of our Credit Facility. Interest on amounts loaned under the Revolving Loan Agreement is payable to us on a monthly basis and is calculated as a proportion of our total interest expense on the Credit Facility.

At September 30, 2019, the balance of outstanding borrowings under the Revolving Loan Agreement was $51.4 million. We recorded interest income earned on loans to Archrock under the Revolving Loan Agreement, which was included in interest expense, net in our condensed consolidated statements of operations, of $0.3 million and $0.7 million during the three months ended September 30, 2019 and 2018, respectively, and $0.6 million and $1.3 million during the nine months ended September 30, 2019 and 2018, respectively.

Common Control Transactions with Archrock

Transactions between us and Archrock and its affiliates are transactions between entities under common control. Transfers of assets and liabilities between entities under common control are to be initially recorded on the books of the receiving entity at the carrying value of the transferor. Any difference between consideration given and the carrying value of the assets or liabilities received is treated as a capital distribution or contribution.

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Sales of Compression Equipment

If Archrock determines in good faith that we or Archrock’s contract operations business needs to sell compression equipment between Archrock and us, the Omnibus Agreement permits such transactions if it will not cause us to breach any existing contracts, suffer a loss of revenue under any existing contract operations services contracts or incur any unreimbursed costs. As consideration for the sale of compression equipment, the transferee makes a distribution to or receives a contribution from the transferor in an amount equal to the net book value of the compression equipment sold. In addition, the transferee makes a distribution to or receives a contribution from the transferor in an amount equal to the fair market value in excess of the net book value of the compression equipment sold.

The following table summarizes compressor unit sales activity between Archrock and us (dollars in thousands):

Three Months EndedJune 30, 2019

Six Months EndedJune 30, 2019

Three Months EndedSeptember 30, 2019

Nine Months EndedSeptember 30, 2019

Sold to Archrock

Purchased from Archrock

Sold to Archrock

Purchased from Archrock

Compressor units

2416

2922

3551

5981

Horsepower

711,~~860~~109

109,~~030~~842

1627,~~301~~410

2029,~~119~~961

Net book value

76,~~342~~387

45,~~653~~059

1420,~~335~~723

813,~~779~~839

During the three and ~~six~~nine months ended ~~June~~September 30, 2019, we recorded capital distributions of $21.73 million and $5.6.9 million, respectively, related to the difference in net book value of the compression equipment sold to and acquired from Archrock. In addition, in accordance with the Omnibus Agreement, we recorded capital contributions of $2.57 million and $47.41 million during the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, which represented the net excess of the fair market value of the equipment sold to Archrock over the equipment purchased from Archrock. No customer contracts were included in these sales.

Sales of Overhauls

During the three months ended ~~June~~September 30, 2019 and 2018, ~~Archrock~~we ~~contributed~~distributed to usArchrock $10.19 million and weArchrock ~~distributed~~contributed to ~~Archrock~~us less than $0.21 million, respectively, related to the completion of overhauls on compression equipment that was sold to us and where the overhauls were in progress on the date of the sale. Archrock contributed to us $21.23 million and $1.7 million related to the completion of such overhauls during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, respectively.

Reimbursement of Operating and SG&A Expense

Archrock provides all operational staff, corporate staff and support services reasonably necessary to run our business. These services may include, without limitation, operations, marketing, maintenance and repair, periodic overhauls of compression equipment, inventory management, legal, accounting, treasury, insurance administration and claims processing, risk management, health, safety and environmental, information technology, human resources, credit, payroll, internal audit, taxes, facilities management, investor relations, enterprise resource planning system, training, executive, sales, business development and engineering.

Archrock charges us for costs that are directly attributable to us. Costs that are indirectly attributable to us and Archrock’s other operations are allocated among Archrock’s other operations and us. The allocation methodologies vary based on the nature of the charge and have included, among other things, headcount and horsepower. We believe that the allocation methodologies used to allocate indirect costs to us are reasonable.

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45. Long-Term Debt

Long-term debt consisted of the following (in thousands):

	June 30, 2019			December 31, 2018
	September 30, 2019			December 31, 2018
Credit Facility	$	~~792~~988,500		$	839,500
2027 Notes	500,000			—
Less: Deferred financing costs, net of amortization	(8,~~550~~275		)	—
	491,450			—
	491,725			—
2022 Notes	350,000			350,000
Less: Debt discount, net of amortization	(2,~~411~~230		)	(2,766		)
Less: Deferred financing costs, net of amortization	(2,~~725~~520		)	(3,133		)
	344,864			344,101
	345,250			344,101
2021 Notes	—			350,000
Less: Debt discount, net of amortization	—			(1,789		)
Less: Deferred financing costs, net of amortization	—			(2,311		)
	—			345,900
Long-term debt	$	1,~~628~~825,~~814~~475		$	1,529,501

Credit Facility

As of ~~June~~September 30, 2019, there were $15.2 million letters of credit outstanding under the Credit Facility and the applicable margin on borrowings outstanding was 2.7%. The weighted average annual interest rate on the outstanding balance under the Credit Facility, excluding the effect of interest rate swaps, was 54.39% and 5.4% at ~~June~~September 30, 2019 and December 31, 2018, respectively. We incurred $0.4 million and $0.6 million in commitment fees on the daily unused amount of the Credit Facility during ~~each of~~ the three months ended ~~June~~September 30, 2019 and 2018, respectively, and $1.15 million ~~during~~and ~~each~~$1.7 ofmillion during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, respectively.

We must maintain the following consolidated financial ratios, as defined in our Credit Facility agreement:



EBITDA to Interest Expense	2.5 to 1.0
Senior Secured Debt to EBITDA	3.5 to 1.0
Total Debt to EBITDA
Through fiscal year 2019	5.75 to 1.0
Through second quarter of 2020	5.50 to 1.0
Thereafter ⁽¹⁾	5.25 to 1.0

——————


⁽¹⁾	Subject to a temporary increase to 5.5 to 1.0 for any quarter during which an acquisition satisfying certain thresholds is completed and for the two quarters immediately following such quarter.

As of ~~June~~September 30, 2019, the ratio requirements above did not constrain ~~the~~our undrawn capacity and as such, all of the $~~442~~246.3 million of undrawn capacity was available for additional borrowings. As of ~~June~~September 30, 2019, we were in compliance with all covenants under the Credit Facility agreement.

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2027 Notes

On March 21, 2019, we completed a private offering of $500.0 million aggregate principal amount of 6.875% senior notes due April 2027 and received net proceeds of $491.2 million after deducting issuance costs. The $8.8 million of issuance costs were recorded as deferred financing costs within long-term debt in our condensed consolidated balance sheets and are being amortized to interest expense in our condensed consolidated statement of operations over the term of the notes. The net proceeds were used to repay borrowings outstanding under our Credit Facility as of March 31, 2019.

The 2027 Notes have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the U.S. except pursuant to a registration exemption under the Securities Act and applicable state securities laws. We offered and issued the 2027 Notes only to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to certain non-U.S. persons outside the U.S. in accordance with Regulation S under the Securities Act.

The 2027 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Archrock and all of its existing subsidiaries, other than Archrock Partners, L.P. and APLP Finance Corp., which are co-issuers of the 2027 Notes, and certain of its future subsidiaries. The 2027 Notes and the guarantees rank equally in right of payment with all of Archrock and the guarantors’ existing and future senior indebtedness.

The 2027 Notes may be redeemed at any time, in whole or in part, at specified redemption prices and make-whole premiums, plus any accrued and unpaid interest.

Redemption of 2021 Notes

On April 5, 2019, the 2021 Notes were redeemed at 100% of their $350.0 million aggregate principal amount plus accrued and unpaid interest of $0.2 million with borrowings from the Credit Facility. We recorded a debt extinguishment loss of $3.7 million related to the redemption during the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2019.

2022 Notes

The 2022 Notes are guaranteed on a senior unsecured basis by all of our existing subsidiaries (other than Archrock Partners Finance Corp., which is a co-issuer of the 2022 Notes) and certain of our future subsidiaries. The 2022 Notes and the guarantees, respectively, are our and the guarantors’ general unsecured senior obligations, rank equally in right of payment with all of our and the guarantors’ other senior obligations and are effectively subordinated to all of our and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In addition, the 2022 Notes and guarantees are effectively subordinated to all existing and future indebtedness and other liabilities of any future non-guarantor subsidiaries. All of our subsidiaries are 100% owned, directly or indirectly, by us and guarantees by our subsidiaries are full and unconditional and constitute joint and several obligations. We have no assets or operations independent of our subsidiaries and there are no significant restrictions upon our subsidiaries’ ability to distribute funds to us. Archrock Partners Finance Corp. has no operations and does not have revenue other than as may be incidental as co-issuer of the 2022 Notes. Because we have no independent operations, the guarantees are full and unconditional (subject to customary release provisions) and constitute joint and several obligations of our subsidiaries other than Archrock Partners Finance Corp. and as a result, we have not included consolidated financial information of our subsidiaries.

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56. Revenue from Contracts with Customers

Disaggregation of Revenue

The following table presents our revenue from contracts with customers disaggregated by revenue source (in thousands):

Three Months EndedJune 30,

Six Months EndedJune 30,

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2019

2018

2019

2018

0 - 1,000 horsepower per unit

5760,~~826~~594

5455,~~389~~215

~~115~~176,~~987~~581

~~108~~164,~~816~~031

1,001 - 1,500 horsepower per unit

6976,~~546~~033

63,~~390~~806

~~137~~213,~~753~~786

~~124~~187,~~084~~890

Over 1,500 horsepower per unit

4145,~~684~~736

3234,~~465~~156

80126,~~709~~445

6398,~~900~~056

Other (1)

~~328~~310

~~622~~856

~~654~~964

1,~~068~~924

Total revenue (2)

~~169~~182,~~384~~673

~~150~~154,~~866~~033

~~335~~517,~~103~~776

~~297~~451,~~868~~901

——————


⁽¹⁾	Primarily relates to fees associated with owned non-compressor equipment.

(2) Included $2.1.6 million and $1.4 million for the three months ended ~~June~~September 30, 2019 and 2018, respectively, and $45.29 million and $23.59 million for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, respectively, related to billable maintenance on owned units that was recognized at a point in time. All other revenue is recognized over time.

Performance Obligations

As of ~~June~~September 30, 2019, we had $~~289~~434.0 million of remaining performance obligations related to our contract operations services. We have elected to apply the practical expedient to not consider the effects of the time value of money, as the expected time between the transfer of services and payment for such services is less than one year. The remaining performance obligations will be recognized through 2024 as follows (in thousands):

	2019				2020				2021				2022				2023				2024				Total
Remaining performance obligations	$	~~134~~105,~~148~~964			$	~~109~~190,~~586~~451			$	3598,~~531~~044			$	834,~~295~~878			$	14,~~122~~090			$	~~293~~563			$	~~288~~433,~~975~~990

Contract Balances

As of ~~June~~September 30, 2019 and December 31, 2018, our receivables from contracts with customers, net of allowance for doubtful accounts, were $8296.19 million and $78.6 million, respectively. As of June 30, 2019 and December 31, 2018, our contract liabilities were $9.4 million and $9.7 million, respectively, which are included in deferred revenue and other liabilities in our condensed consolidated balance sheets. Freight billings to customers for the transport of compressor assets often result in a contract liability. We recognized $9.4 million of our December 31, 2018 contract liability balance as revenue during the six months ended June 30, 2019, primarily related to freight billings.

6Freight billings to customers for the transport of compressor assets and customer-specified modifications of compressor assets often result in a contract liability. ~~Derivatives~~As of September 30, 2019 and December 31, 2018, our contract liabilities were $9.2 million and $9.7 million, respectively, which were included in deferred revenue and other liabilities in our condensed consolidated balance sheets. We recognized $14.0 million of our December 31, 2018 contract liability balance as revenue during the nine months ended September 30, 2019.

7. Derivatives

We are exposed to market risks associated with changes in the variable interest rate of the Credit Facility. We use derivative instruments to manage our exposure to fluctuations in this variable interest rate and thereby minimize the risks and costs associated with financial activities. We do not use derivative instruments for trading or other speculative purposes.

At ~~June~~September 30, 2019, the following interest rate swaps, entered into to offset changes in expected cash flows due to fluctuations in the associated variable interest rates, were outstanding (in millions):



Expiration Date	Notional Value
May 2020	$	100
March 2022	300
	$	400

The counterparties to our derivative agreements are major financial institutions. We monitor the credit quality of these financial institutions and do not expect non-performance by any counterparty, although such non-performance could have a material adverse effect on us. We have no collateral posted for the derivative instruments.18

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We have designated these interest rate swaps as cash flow hedging instruments. Changes in the fair value of the interest rate swaps are recognized as a component of other comprehensive income (loss) until the hedged transaction affects earnings. At that time, amounts are reclassified into earnings to interest expense, net, the same statement of operations line item to which the earnings effect of the hedged item is recorded. Cash flows from derivatives designated as hedges are classified in our condensed consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions, unless the derivative contract contains a significant financing element; in this case, the cash settlements for these derivatives are classified as cash flows from financing activities.

We expect the hedging relationship to be highly effective as the swap terms substantially coincide with the hedged item and are expected to offset changes in expected cash flows due to fluctuations in the variable rate. We perform quarterly qualitative prospective and retrospective hedge effectiveness assessments unless facts and circumstances related to the hedging relationships change such that we can no longer assert qualitatively that the cash flow hedge relationships were and continue to be highly effective. We estimate that $0.34 million of the deferred ~~gain~~loss attributable to interest rate swaps included in accumulated other comprehensive income (loss) at ~~June~~September 30, 2019 will be reclassified into earnings as interest ~~income~~expense at then-current values during the next 12 months as the underlying hedged transactions occur.

As of ~~June~~September 30, 2019, the weighted average effective fixed interest rate on our interest rate swaps was 1.8%.

The following table presents the effect of our derivative instruments designated as cash flow hedging instruments on our condensed consolidated balance sheets (in thousands):

	June 30, 2019			December 31, 2018
	September 30, 2019			December 31, 2018
Derivative asset	$	~~336~~73		$	3,185
Other assets	—			4,122
Total derivative assets	$	~~336~~73		$	7,307
Other liabilities	$	(1,574	)	$	—
Derivative liability	$	(456	)	$	—
Other liabilities	(2,270		)	—
Total derivative liabilities	$	(2,726	)	$	—

The following tables present the effect of our derivative instruments designated as cash flow hedging instruments on our condensed consolidated statements of operations (in thousands):

	Three Months EndedJune 30,					Six Months EndedJune 30,
	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2019			2018		2019			2018
Pre-tax gain (loss) recognized in other comprehensive income (loss)	$	(~~4,529~~933	)	$	21,~~245~~642	$	(67,~~828~~761	)	$	68,~~941~~583
Pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) into interest expense, net	~~791~~482			6429		12,~~717~~199			(~~449~~20		)

Three Months EndedJune 30,

Six Months EndedJune 30,

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2019

2018

2019

2018

Total amount of interest expense, net in which the effects of cash flow hedges are recorded

2527,~~720~~005

22,~~542~~767

4976,~~148~~153

4466,~~151~~918

Amount of gain reclassified from accumulated other comprehensive income (loss) into interest expense, net

~~791~~482

~~207~~429

12,~~717~~199

~~153~~582

See Note 78 (“Fair Value Measurements”) for further details on our derivative instruments.

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78. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

On a quarterly basis, our interest rate ~~swaps~~swap derivative instruments are valued based on the income approach (discounted cash flow) using market observable inputs, including London Interbank Offered Rate forward curves. These fair value measurements are classified as Level 2. The following table presents our ~~interest~~derivative ~~rate swaps~~ asset and liability measured at fair value on a recurring basis, with pricing levels as of the date of valuation (in thousands):

	June 30, 2019			December 31, 2018
	September 30, 2019			December 31, 2018
Interest rate swaps asset	$	336		$	7,307
Derivative asset	$	73		$	7,307
Interest rate swaps liability	(1,574		)	—
Derivative liability	(2,726		)	—

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the ~~six~~nine months ended ~~June~~September 30, 2019, we recorded non-recurring fair value measurements related to our idle and previously-culled compressor units. Our estimate of the compressor units’ fair value was primarily based on the expected net sale proceeds compared to 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 of four years. These fair value measurements are classified as Level 3. The fair value of our impaired compressor units was $01.83 million and $1.0 million at ~~June~~September 30, 2019 and December 31, 2018, respectively. See Note 89 (“Long-Lived Asset Impairment”) for further details.

Other Financial Instruments

The carrying amounts of our cash, receivables and payables approximate fair value due to the short-term nature of those instruments.

The carrying amount of borrowings outstanding under our Credit Facility approximates fair value due to its variable interest rate. The fair value of these outstanding borrowings was estimated using a discounted cash flow analysis based on interest rates offered on loans with similar terms to borrowers of similar credit quality, which are Level 3 inputs.

The fair value of our fixed rate debt was estimated based on quoted prices in inactive markets and is considered a Level 2 measurement. The following table summarizes the carrying amount and fair value of our fixed rate debt (in thousands):

	June 30, 2019		December 31, 2018
	September 30, 2019		December 31, 2018
Carrying amount of fixed rate debt (1)	$	836,~~314~~975	$	690,001
Fair value of fixed rate debt	~~881~~887,000		674,000

——————

(1) Carrying amounts are shown net of unamortized debt discounts and unamortized deferred financing costs. See Note 45 (“Long-Term Debt”).

89. Long-Lived 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 compressor units from our active fleet, indicate that the carrying amount of an asset may not be recoverable.

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 compressor units 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.

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The following table presents the results of our impairment review (dollars in thousands):

	Three Months EndedJune 30,				Six Months EndedJune 30,
	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	2019		2018		2019		2018
Idle compressor units retired from the active fleet	7540		7035		90130		~~105~~140
Horsepower of idle compressor units retired from the active fleet	19,000		1714,000		3251,000		3044,000
Impairment recorded on idle compressor units retired from the active fleet	$	34,~~621~~551	$	3,~~846~~673	$	610,~~305~~856	$	610,~~912~~585

910. Income Taxes

Unrecognized Tax Benefits

As of ~~June~~September 30, 2019, we believe it is reasonably possible that $1.2 million of our unrecognized tax benefits, including penalties and interest, will be reduced prior to ~~June~~September 30, 2020 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 which could materially differ from this estimate.

1011. Partners’ Capital

Merger Transaction

In April 2018, Archrock completed the acquisition of all of our outstanding common units and we became a wholly-owned subsidiary of Archrock. Additionally, all outstanding treasury units were retired and our incentive distribution rights, all of which were previously owned by Archrock prior to the Merger, were canceled and ceased to exist. As a result of the Merger, our common units are no longer publicly traded. Our 2021 Notes and 2022 Notes were not impacted by the Merger.

Prior to the Merger, public unitholders held a 57% ownership interest in us and Archrock owned our remaining equity interests, including 29,064,637 common units and 1,422,458 general partner units, collectively representing a 43% interest.

Cash Distributions

As of the closing of the Merger, any distributions are paid to Archrock as the owner of all outstanding common and general partner units. On ~~July~~October 2928, 2019, our board of directors approved a cash distribution of $0.3075 per common unit, or approximately $22.0 million, to be paid to Archrock on ~~August 14~~November 13, 2019.

1112. 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. Archrock insures our property and operations against many, but not all, of these risks. 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.

In addition, Archrock is substantially self-insured for worker’s compensation, ~~employer’s liability, property, auto liability, general liability~~ and employee group health claims in view of the relatively high per-incident deductibles it absorbs under its insurance arrangements for these risks. Losses up to the deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages.

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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 ~~each of June~~September 30, 2019 and December 31, 2018, we accrued $1.2 million and $3.2 million 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.

Litigation and Claims

In the ordinary course of business, we are involved in various pending or threatened legal actions. While management is unable to predict the ultimate outcome of these actions, it believes 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. 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.

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Item 2. Management’s Narrative Analysis of Results of Operations

The following analysis of our results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Financial Statements of this Quarterly Report on Form 10-Q and in conjunction with our 2018 Form 10-K.

Financial Results of Operations

The following table presents our results for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the ~~six~~nine months ended ~~June~~September 30, 2018 (in thousands):

	Six Months EndedJune 30,
	Nine Months EndedSeptember 30,
	2019			2018
Revenue	$	~~335~~517,~~103~~776		$	~~297~~451,~~868~~901
Cost of sales (excluding depreciation and amortization)	~~132~~202,~~067~~167			~~116~~178,~~528~~596
Selling, general and administrative	4265,~~609~~439			3957,~~145~~288
Depreciation and amortization	71110,~~815~~643			68102,~~224~~319
Long-lived asset impairment	610,~~305~~856			610,~~912~~585
Interest expense, net	4976,~~148~~153			4466,~~151~~918
Debt extinguishment loss	3,653			—
Transaction-related costs	26,~~292~~789			2,~~716~~718
Other income, net	(~~861~~8,483		)	(~~681~~555		)
Provision for income taxes	12,~~115~~034			~~102~~648
Net income	$	2648,~~960~~525		$	2033,~~771~~384

Revenue. The increase in revenue during the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the ~~six~~nine months ended ~~June~~September 30, 2018 was primarily due to an increase in contract operations rates driven by an increase in customer demand, ~~as well as~~ an increase in average operating horsepower and $13.1 million of revenue associated with the compressor units acquired in the Elite Acquisition during the nine months ended September 30, 2019.

Cost of sales (excluding depreciation and amortization). The increase in cost of sales (excluding depreciation and amortization) during the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the ~~six~~nine months ended ~~June~~September 30, 2018 was primarily driven by increases in maintenance, freight and lube oil expense associated with the increase in average operating horsepower.

Selling, general and administrative. SG&A is primarily comprised of an allocation of expenses, including costs for personnel support and related expenditures, from Archrock to us pursuant to the terms of the Omnibus Agreement. The increase in SG&A was primarily due to an increase in costs allocated to us by Archrock, ~~partially~~and ~~offset~~an byincrease ain ~~decrease~~sales inand ~~bad~~use ~~debt~~tax expense. The increase in costs allocated to us by Archrock was driven by an overall increase in SG&A incurred by Archrock and an increase in our available horsepower as compared to the combined available horsepower of Archrock and us.

Depreciation and amortization. The increase in depreciation and amortization expense during the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the ~~six~~nine months ended ~~June~~September 30, 2018 was primarily due to an increase in depreciation expense associated with fixed asset additions and assets purchased from Archrock, ~~partially~~which ~~offset~~more bythan offset a decrease in ~~depreciation~~ expense ~~resulting~~ from ~~certain~~ assets reaching the end of their ~~depreciable~~useful lives, asasset ~~well~~retirements asand the impact of asset impairments during 2018 and ~~early~~ 2019. The increase in depreciation expense was partially offset by a decrease in amortization expense resulting from certain intangible assets reaching the end of their useful lives.

Long-lived asset impairment. During the six months ended June 30, 2019 and 2018, we reviewed the future deployment of our idle compression assets for units that were not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. In addition, we evaluated for impairment idle units that had been culled from our fleet in prior years and were available for sale. See Note 8 (“Long-Lived Asset Impairment”) to our Financial Statements for further details.23

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Long-lived asset impairment. During the nine months ended September 30, 2019 and 2018, we reviewed the future deployment of our idle compression assets for units that were not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. In addition, we evaluated for impairment idle units that had been culled from our fleet in prior years and were available for sale. See Note 9 (“Long-Lived Asset Impairment”) to our Financial Statements for further details.

The following table presents the results of our impairment review (dollars in thousands):

	Six Months EndedJune 30,
	Nine Months EndedSeptember 30,
	2019		2018
Idle compressor units retired from the active fleet	90130		~~105~~140
Horsepower of idle compressor units retired from the active fleet	3251,000		3044,000
Impairment recorded on idle compressor units retired from the active fleet	$	610,~~305~~856	$	610,~~912~~585

Interest expense, net. The increase in interest expense, net during the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the ~~six~~nine months ended ~~June~~September 30, 2018 was primarily due to an increase in the average outstanding balance of long-term debt, partially offset by a decrease in the weighted average effective interest rate.

Debt extinguishment loss. We recorded a debt extinguishment loss of $3.7 million during the ~~six~~nine months ended ~~June~~September 30, 2019 as a result of the redemption of our 2021 Notes. See Note 45 (“Long-Term Debt”) to our Financial Statements for further details.

Transaction-related costs. During the ~~six~~nine months ended ~~June~~September 30, 2019, we incurred $26.38 million of financial advisory, legal and other professional fees related to the Elite Acquisition ~~and Harvest Sale~~. During the ~~six~~nine months ended ~~June~~September 30, 2018, we incurred $2.7 million of such fees related to the Merger. See Note 13 (“~~Organization~~Business ~~and Basis of Presentation~~Transactions”) and Note 1011 (“Partners’ Capital”) to our Financial Statements for further details of these transactions.

Other income, net. The increase in other income, net during the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the ~~six~~nine months ended ~~June~~September 30, 2018 was primarily due to a $7.5 million increase in the gain on sale of property, plant and equipment, of which $6.7 million related to the Harvest Sale completed in August 2019, and income of $0.3 million related to equipment damaged at a customer site during the ~~six~~nine months ended ~~June~~ September 30, 2019,. ~~partially~~See ~~offset~~Note 3 by(“Business aTransactions”) ~~$0.1~~to ~~million~~our ~~decrease~~Financial inStatements ~~the~~for ~~gain~~further ondetails ~~sale~~ of ~~property,~~the ~~plant~~Harvest ~~and equipment~~Sale.

Provision for income taxes. The increase in provision for income taxes during the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the ~~six~~nine months ended ~~June~~September 30, 2018 was primarily due to the release of an unrecognized tax benefit due to the settlement of a tax audit during the ~~six~~nine months ended ~~June~~September 30, 2018.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information called for by this Item 3 is omitted pursuant to General Instruction H(2) to Form 10-Q (Omission of Information by Certain Wholly-Owned Subsidiaries).

Item 4. Controls and Procedures

This Item 4 includes information concerning the controls and controls evaluation referred to in the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Exchange Act included in this Quarterly Report as Exhibits 31.1 and 31.2.

Management’s Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, 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 June 30, 2019 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.24

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As of the end of the period covered by this Quarterly Report on Form 10-Q, 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 September 30, 2019 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.

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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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

The following risk factors became significant to us in the ~~second~~third quarter of 2019 and should be read in conjunction with the risk factors previously disclosed in our 2018 Form 10-K.

The ~~proposed~~ Elite Acquisition may require significant time and attention of our management, and we may not achieve the intended benefits of the transaction as and when expected, or at all. Difficulties with the integration of the Elite Compression business and workforce could have an adverse effect on our business.

On ~~June~~August 231, 2019, ~~Archrock~~we ~~entered~~and ~~into~~Archrock ancompleted ~~asset~~the ~~purchase agreement with~~ Elite ~~Compression~~Acquisition ~~pursuant~~whereby towe ~~which~~acquired ~~Archrock will acquire~~ from Elite Compression substantially all of its assets, ~~liabilities~~ and ~~workforce for aggregate consideration of $205~~liabilities.0 million cash and 21,656,683 newly-issued shares of Archrock common stock. The Elite Acquisition is expected to close in the third quarter of 2019, subject to certain customary closing conditions and the consummation of the Harvest Sale. See Note 3 1 (“~~Organization~~Business ~~and Basis of Presentation~~Transactions”) to our Financial Statements for further details of ~~these~~this ~~transactions~~transaction.

The integration of Elite Compression will continue to require significant expense, time and the attention of our management, which may divert resources away from the operation of our business and the execution of our other strategic initiatives. In addition, Archrock ~~will~~now ~~operate~~operates a larger combined organization and the difficulties associated with integrating the acquired assets, infrastructure and personnel into its existing operations may require additional time or expense. We do not have any of our own employees, but rather rely on Archrock’s employees to operate our business. Archrock’s and Elite Compression’s employees may also be uncertain about their future roles within Archrock ~~pending~~subsequent to the completion of the Elite Acquisition, which could lead to departures and increased expenses related to hiring and training new employees. Further, ~~if the Elite Acquisition is completed,~~ we may not realize the benefits we expect to realize from the Elite Acquisition. Any such difficulties could have an adverse effect on our business, results of operations and financial condition.

Further, we may not be successful in integrating the ~~proposed~~ Elite Acquisition into our existing operations within our anticipated timeframe, which may result in unforeseen operational difficulties and expenses, diminish our financial performance or require a disproportionate amount of our management’s attention to address. In addition, the acquired business or assets may perform at levels below the levels Archrock anticipated at the time of acquiring such business or assets due to factors beyond its control. As a result, there can be no assurance that the ~~proposed~~ Elite Acquisition will deliver the benefits anticipated by us, and any failure to create such benefits may result in a negative impact to, or material adverse effect on, our business, results of operations and financial condition.

The ~~proposed~~ Elite Acquisition ~~will~~resulted ~~result~~ in our dependence on Hilcorp for a significant portion of our revenue. The loss of business with Hilcorp or the inability or failure of Hilcorp to meet its payment obligations may adversely affect our financial results.

In connection with the ~~proposed~~ Elite Acquisition, Elite Compression’s contract operations services agreements ~~will~~transferred ~~transfer~~ to us and we expect that Hilcorp, the primary customer of Elite Compression, will account for a significant portion of our future revenue.

During the year ended December 31, 2018, Hilcorp accounted for approximately 1% of our revenue. IfWith the ~~Elite~~closing ~~Acquisition~~of isthe ~~completed~~Elite Acquisition, we estimate that Hilcorp will become one of our most significant customers. Any loss of business from Hilcorp, unless offset by additional contract compression services revenue from other customers, or the inability or failure of Hilcorp to meet its payment obligations could have a material adverse effect on our business, results of operations and financial condition.

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Following the closing of the Elite Acquisition, an affiliate of Hilcorp now holds a significant portion of Archrock’s common stock, and Hilcorp’s interest as an equity holder may conflict with our interests or those of our noteholders.

In connection with the closing of the Elite Acquisition, JDH Capital, an affiliate of Hilcorp, received 21,656,683 shares of Archrock common stock, representing 14.3% of outstanding Archrock common stock as of September 30, 2019. As long as JDH Capital, together with affiliates of Hilcorp, owns at least 7.5% of the outstanding Archrock common stock, it will have the right to nominate one director to the Archrock board of directors. Given its ownership level and board representation, JDH Capital may have some influence over our operations and strategic direction and may have interests that conflict with the interests of our debt holders.

Item 2. Unregistered Sales of Equity Securities

The information called for by this Item 2 is omitted pursuant to General Instruction H(2) to Form 10-Q (Omission of Information by Certain Wholly-Owned Subsidiaries).

Item 3. Defaults Upon Senior Securities

The information called for by this Item 3 is omitted pursuant to General Instruction H(2) to Form 10-Q (Omission of Information by Certain Wholly-Owned Subsidiaries).

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated as of January 1, 2018, by and among Archrock, Inc., Archrock GP LLC, Archrock General Partner, L.P. and Archrock Partners, L.P., incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed on January 2, 2018
2.2		Amendment No. 1 to Agreement and Plan of Merger, dated as of January 11, 2018, by and among Archrock, Inc., Archrock GP LLC, Archrock General Partner, L.P., Archrock Partners, L.P. and Amethyst Merger Sub LLC, incorporated by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K filed on January 16, 2018
3.1		Certificate of Limited Partnership of UCO Partners, L.P. (now Archrock Partners, L.P), incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 filed on June 27, 2006
3.2		Certificate of Amendment to Certificate of Limited Partnership of Universal Compression Partners, L.P. (now Archrock Partners, L.P.), dated as of August 20, 2007, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on August 24, 2007
3.3		Certificate of Amendment of Certificate of Limited Partnership of Exterran Partners, L.P. (now Archrock Partners, L.P.), incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 5, 2015
3.4		Composite Certificate of Limited Partnership of Archrock Partners, L.P., incorporated by reference to Exhibit 3.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015
3.5		First Amended and Restated Agreement of Limited Partnership of Exterran Partners, L.P. (now Archrock Partners, L.P.), as amended, incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008
3.6		Certificate of Limited Partnership of UCO General Partner, LP (now Archrock General Partner, L.P.), incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form S-1 filed on June 27, 2006
3.7		Amended and Restated Limited Partnership Agreement of UCO General Partner, LP (now Archrock General Partner, L.P.), incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on October 26, 2006
3.8		Certificate of Formation of UCO GP, LLC (now Archrock GP, LLC), incorporated by reference to Exhibit 3.5 to the Registrant’s Registration Statement on Form S-1 filed June 27, 2006
3.9		Amended and Restated Limited Liability Company Agreement of UCO GP, LLC (now Archrock GP, LLC), incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed on October 26, 2006
3.10		Amendment No. 2 to the First Amended and Restated Agreement of Limited Partnership of Archrock Partners, L.P., dated December 22, 2017, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 22, 2017
4.1		Indenture, dated as of March 27, 2013, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 28, 2013
4.2		Registration Rights Agreement, dated as of March 27, 2013, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Securities, LLC, as representative of the Initial Purchasers, incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on March 28, 2013
4.3		Indenture, dated as of April 7, 2014, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on April 11, 2014
4.4		Registration Rights Agreement, dated as of April 7, 2014, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Securities, LLC, as representative of the Initial Purchasers, incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on April 11, 2014
4.5		Indenture, dated as of March 21, 2019, by and among Archrock Partners, L.P., Archrock Partners Finance Corp., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 21, 2019
31.1*		Certification of the Principal Executive Officer of Archrock GP LLC (as general partner of the general partner of Archrock Partners, L.P.) pursuant to Rule 13a-14 under the Securities Exchange Act of 1934
31.2*		Certification of the Principal Financial Officer of Archrock GP LLC (as general partner of the general partner of Archrock Partners, L.P.) pursuant to Rule 13a-14 under the Securities Exchange Act of 1934
32.1**		Certification of the Chief Executive Officer of Archrock GP LLC (as general partner of the general partner of Archrock Partners, L.P.) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification of the Chief Financial Officer of Archrock GP LLC (as general partner of the general partner of Archrock Partners, L.P.) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.1*		Interactive data files pursuant to Rule 405 of Regulation S-T
104.1*		Cover page interactive data files pursuant to Rule 406 of Regulation S-T


*	Filed herewith.


**	Furnished, not filed.

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Table of Contents

SIGNATURES

Pursuant to the requirements 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 PARTNERS, L.P.
	By:	ARCHROCK GENERAL PARTNER, L.P.
		its General Partner
	By:	ARCHROCK GP LLC
		its General Partner
	By:	/s/ DOUGLAS S. ARON
		Douglas S. Aron
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)
	By:	/s/ DONNA A. HENDERSON
		Donna A. Henderson
		Vice President and Chief Accounting Officer
		(Principal Accounting Officer)
		July 30, 2019
		October 30, 2019

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Filing Compare · Archrock Partners, L.P.