Core Viewpoint - Archrock (AROC) is assigned a Buy rating based on strong fundamentals, visible long-term demand, and attractive valuation, countering concerns that it is trading at peak earnings [1]. Group 1: Company Fundamentals - Archrock is believed to have strong fundamentals that support its investment potential [1]. - The company is expected to benefit from visible long-term demand in its sector [1]. Group 2: Valuation and Earnings - The current valuation of Archrock is considered attractive, suggesting potential for growth [1]. - There is a belief that Archrock is not at peak earnings, indicating room for further performance improvement [1].

Core Insights - Archrock, Inc. (AROC) reported strong third-quarter results, but political factors are overshadowing these positive outcomes [2] - The oil and gas industry is characterized as a boom-bust, cyclical sector, requiring patience and experience for successful investment [2] Company Analysis - Archrock is being analyzed for its balance sheet, competitive position, and development prospects within the oil and gas sector [1] - The focus is on identifying undervalued and under-followed oil companies, as well as out-of-favor midstream companies that present compelling investment opportunities [2] Market Sentiment - The market is currently cautious about the potential outcomes in the oil and gas sector, despite Archrock's good performance [2] - Investors in the oil and gas space are encouraged to engage in discussions and share insights through active chat rooms provided by investment groups [2]

Core Insights - Archrock, Inc. (AROC) reported strong third-quarter results, but political factors are overshadowing these positive outcomes [2] - The oil and gas industry is characterized as a boom-bust, cyclical sector, requiring patience and experience for successful investment [2] Company Analysis - Archrock is being analyzed for its balance sheet, competitive position, and development prospects within the oil and gas sector [1] - The focus is on identifying undervalued and under-followed oil companies, as well as out-of-favor midstream companies that present compelling investment opportunities [2] Market Sentiment - The market is currently cautious about the potential outcomes in the oil and gas sector, despite Archrock's good performance [2] - Investors in the oil and gas space are encouraged to engage in discussions and share insights through active chat rooms provided by investment groups [2]

Core Insights - Archrock, Inc. has published its 2024 Sustainability Report, highlighting its sustainability initiatives and performance based on 2024 data and early 2025 achievements [1][3] - The report emphasizes the company's commitment to compressing and transporting cleaner natural gas while driving revenue and earnings growth [3] - Archrock's sustainability efforts align with the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Disclosures (TCFD) frameworks [5] Sustainability Achievements - The company exceeded safety goals for Total Recordable Incident Rate and Preventable Vehicle Incident Rate [8] - Over 42,000 hours of operational and technical training were administered [8] - Achieved a 7% year-over-year reduction in Scope 1 and Scope 2 CO2 emissions intensity compared to 2023 [8] - Delivered a 6% year-over-year reduction in Scope 3 CO2 emissions intensity compared to 2023 [8] - Solidified its position as a leading electric motor drive compression provider through two acquisitions totaling $1.4 billion since August 2024 [8] - Received the 2025 Leading Abatement Strategy Award from Methane Mitigation America for its commitment to methane reduction and management [8] Business Strategy - The company is focused on expanding its Methane and NGL Solutions to market, aiming to minimize emissions and enhance safety for customers [4] - Archrock's new gas-to-value product ecosystem is designed to maximize operational profitability for its customers [4]

Core Insights - Archrock, Inc. (AROC) reported third-quarter 2025 earnings per share of 42 cents, exceeding the Zacks Consensus Estimate of 41 cents, and improved from 28 cents in the same quarter last year [1][10] - Total quarterly revenues reached $382 million, up from $292 million year-over-year, and also surpassed the Zacks Consensus Estimate of $377 million [1][10] Operational Performance - The strong quarterly performance was driven by solid contributions from both operating segments, with record-high utilization and rising demand for the company's equipment and services [2] - Contract Operations segment revenues were $326.3 million, compared to $245.4 million in the year-ago quarter [5] - Aftermarket Services segment revenues totaled $56.2 million, up from $46.7 million in the third quarter of 2024 [6] - Total operating horsepower remained at 4.7 million, with a utilization rate of 96%, up from 95% in the prior-year quarter [6] Costs and Expenses - Total cost of sales for the quarter was $129.8 million, an increase from $114.2 million in the year-ago period [7] - Depreciation and amortization expenses were $67.1 million for the quarter [7] Liquidity Position & Capital Expenditure - As of September 30, 2025, the company had long-term debt of $2.6 billion and total available liquidity of $728 million [8] - Net capital expenditures for the third quarter amounted to $124 million [8] Share Repurchase and Dividend - The company repurchased 1,094,516 shares at an average price of $23.18 per share, totaling approximately $25.4 million during the third quarter [3] - The board approved a $100 million increase to the share repurchase program, extending it through December 31, 2026, bringing the total repurchase capacity to $130.4 million [4] - A quarterly dividend of 21 cents per share was declared, approximately 20% higher than the third quarter of 2024, with a dividend coverage of 3.7x [9] Guidance - The company projects net income between $265.2 million and $280.2 million for 2025, with adjusted EBITDA expected in the range of $835 million to $850 million [11] - Anticipated revenues for Contract Operations are projected between $1.27 billion and $1.28 billion, with an adjusted gross margin of 71-71.5% [12] - Aftermarket Services revenues are expected to range from $210 million to $220 million, with an adjusted gross margin of 23-24% [12] - Growth capital expenditures are expected between $345 million and $355 million, while maintenance capital spending is set at $110-$115 million [13]

Financial Performance - Revenue for the three months ended September 30, 2025, was $382.4 million, a 31% increase from $292.2 million in the same period of 2024[169] - Net income for the three months ended September 30, 2025, was $71.2 million, up 90% from $37.5 million in the same period of 2024[171] - Adjusted gross margin for the three months ended September 30, 2025, was $252.6 million, representing a 42% increase from $178.0 million in the same period of 2024[168] - Revenue in contract operations increased by 36% to $944.993 million for the nine months ended September 30, 2025, compared to $693.939 million in the same period of 2024[190] - Adjusted gross margin for contract operations rose by 47% to $672.332 million, with an adjusted gross margin percentage of 71%, up from 66%[190] Operational Metrics - Total available horsepower at the end of September 30, 2025, was 4,845 thousand, an increase from 4,418 thousand at the end of September 30, 2024[161] - Average operating horsepower for the three months ended September 30, 2025, was 4,647 thousand, compared to 3,757 thousand in the same period of 2024, reflecting a 24% increase[161] - Revenue from contract operations increased by approximately $80.8 million due to acquisitions and higher rates[174] - Aftermarket services revenue increased by 20% to $56.2 million for the three months ended September 30, 2025, compared to $46.7 million in 2024[177] Expenses and Impairments - Selling, general and administrative expenses rose to $37.7 million for the three months ended September 30, 2025, from $34.1 million in 2024[180] - Interest expense increased to $43.7 million for the three months ended September 30, 2025, compared to $30.2 million in 2024, primarily due to higher long-term debt[184] - The company recorded a long-lived asset impairment of $4.7 million for the three months ended September 30, 2025, compared to $2.5 million in 2024[182] Capital Expenditures - Growth capital expenditures were $299.0 million for the nine months ended September 30, 2025, compared to $181.6 million in 2024, reflecting increased investment in new compressors[211] - Maintenance capital expenditures increased to $84.8 million for the nine months ended September 30, 2025, from $66.1 million in 2024, driven by higher maintenance activities[212] Taxation - The provision for income taxes increased by 66% to $68.994 million for the nine months ended September 30, 2025, compared to $41.545 million in 2024[205] - The effective tax rate increased to 27% for the nine months ended September 30, 2025, compared to 25% in the same period of 2024[205] Dividends and Shareholder Returns - The company declared a quarterly dividend of $0.21 per share, payable on November 13, 2025, to stockholders of record on November 4, 2025[216] Debt and Financing - The Credit Facility was amended to increase borrowing capacity from $1.1 billion to $1.5 billion, with potential increases up to $2.3 billion[218] - The average debt balance under the Credit Facility was $653.6 million for the nine months ended September 30, 2025, compared to $268.7 million for the same period in 2024, with a weighted-average interest rate of 6.6%[219] - As of September 30, 2025, the company had $768.7 million of variable interest rate debt outstanding at a weighted average interest rate of 6.6%[227] - A 1% change in the effective interest rate on the Credit Facility's outstanding balance would result in an annual interest expense change of $7.7 million[228] - The company was in compliance with all covenants under its Credit Facility as of September 30, 2025, with all undrawn capacity available for borrowings[220] Cash Flow - Net cash provided by operating activities increased to $407.6 million for the nine months ended September 30, 2025, up from $305.3 million in 2024[223] - Net cash provided by financing activities decreased by $617.4 million, primarily due to a reduction in long-term debt borrowings and common stock issuance[226] - The company recorded a net decrease in cash and cash equivalents of $337,000 for the nine months ended September 30, 2025, compared to an increase of $2.4 million in 2024[223] Acquisitions - Transaction-related costs for the NGCS Acquisition totaled $8.7 million for the nine months ended September 30, 2025, while costs related to the TOPS Acquisition were $3.1 million[201] - The company spent $868.7 million on the TOPS acquisition, compared to $296.5 million for the NGCS Acquisition, reflecting a significant investment in growth[225] Asset Sales - The gain on sale of assets increased to $13.8 million for the nine months ended September 30, 2025, compared to $5.1 million in 2024[202] Debt Repurchase - The company initiated the repurchase of its 2027 Notes, expected to be redeemed on November 17, 2025, at 100% of their $300 million principal amount plus approximately $2.6 million in accrued interest[217]

Financial Data and Key Metrics Changes - In Q3 2025, adjusted EPS increased by 50% and adjusted EBITDA rose by more than 46% compared to Q3 2024 [5][20] - Net income for Q3 2025 was $71 million, with adjusted net income of $73 million, equating to $0.42 per share [20] - The quarterly dividend per share increased by 20% year-over-year, with robust dividend coverage of 3.7 times [6][23] Business Segment Data and Key Metrics Changes - Contract operations revenue reached $326 million in Q3 2025, up 2% from Q2 2025, driven by growth in horsepower and pricing [21] - Aftermarket services segment reported revenue of $56 million in Q3 2025, down from $65 million in Q2 2025 but up 20% from $47 million in the same period last year [22] - Adjusted gross margin percentage for contract operations was 70.4%, slightly up from the previous quarter, while aftermarket services maintained a gross margin percentage of 23% [15][22] Market Data and Key Metrics Changes - The U.S. natural gas infrastructure buildout continues to support strong performance, with expectations for continued growth into 2026 and beyond [5][7] - Natural gas production growth in the U.S. is expected to be in the low single digits, with significant demand anticipated from LNG exports and AI-driven power generation [9][10] - The compression industry is entering a durable upturn driven by natural gas demand growth and capital discipline across the energy sector [8] Company Strategy and Development Direction - The company aims to drive success through customer experience, innovative technology, and returns-based capital allocation, positioning itself for sustained growth in earnings and free cash flow [7][16] - Capital expenditures for growth in 2026 are expected to be no less than $250 million, consistent with historical investment levels [17][25] - The company plans to maintain a target leverage ratio of between 3 to 3.5 times while continuing to return capital to shareholders through dividends and share repurchases [17][24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the structural growth in natural gas production and compression, focusing on expanding the business and enhancing earnings power [18][25] - The current environment is characterized by commodity price volatility and potential declines in oil volumes, but natural gas production is expected to grow [7][8] - Management highlighted the importance of maintaining operational efficiency and customer relationships to capitalize on market opportunities [34][60] Other Important Information - The company repurchased approximately 1.1 million shares for about $25 million in Q3 2025, with a total of $159 million returned to shareholders through dividends and share repurchases in the first three quarters of 2025 [17][23] - The company has a substantial contracted backlog and continues to book units for 2026 delivery to meet strong customer demand [12][25] Q&A Session Summary Question: Thoughts on deploying free cash flow and capital allocation - Management emphasized that the best use of cash remains investing in business growth, with plans to continue growing dividends and share repurchases while capitalizing on market opportunities [30][31] Question: Insights on margins and sustainability - Management noted that strong gross margins were achieved through pricing and excellent cost management, with ongoing investments in technology driving efficiency [32][34] Question: Demand side dynamics and customer discussions - Management observed robust demand for LNG and data centers, leading to increased discussions with customers and confidence in multi-year growth [38][41] Question: Lead times and customer behavior in a lower crude environment - Lead times for Caterpillar engines are currently at 60 weeks, with no major shifts in customer behavior noted despite seasonal activity [50][52] Question: Recontracting discussions and pricing mechanisms - Management indicated that a significant portion of contracts includes pricing mechanisms, allowing for continued pricing power in the market [60][61] Question: Input costs and inflation trends - Overall costs are trending at normalized levels of inflation, with manageable increases expected, particularly in labor costs in the Permian [63][65] Question: Future CapEx and market support - Management believes that a growth CapEx of $400 million to $500 million is feasible, supported by contracts despite supply chain constraints [92] Question: Update on new venture investments - Management provided updates on the Mach 4 natural gas liquid recovery project and other new ventures, emphasizing customer enthusiasm and the potential for market growth [84][86]

Financial Data and Key Metrics Changes - In Q3 2025, adjusted EPS increased by 50% and adjusted EBITDA rose by more than 46% compared to Q3 2024 [5][20] - The quarterly dividend per share was up 20% year-over-year, with a robust dividend coverage of 3.7x [6][23] - Net income for Q3 2025 was reported at $71 million, with adjusted net income at $73 million, equating to $0.42 per share [20] Business Segment Data and Key Metrics Changes - Contract operations revenue reached $326 million in Q3 2025, up 2% sequentially, driven by growth in horsepower and pricing [21] - Aftermarket services segment revenue was $56 million, down from $65 million in Q2 2025 but up 20% from $47 million in the same period last year [22] - Adjusted gross margin percentage for contract operations was 70.4%, slightly up from the previous quarter, while the overall adjusted gross margin percentage was reported at 73% [15][20] Market Data and Key Metrics Changes - The U.S. natural gas infrastructure buildout continues to support robust performance, with expectations for continued growth into 2026 and beyond [5] - Natural gas production growth in the U.S. is expected to be in the low single digits, with significant demand pressures anticipated from LNG exports and AI-driven power generation [9][10] Company Strategy and Development Direction - The company aims to leverage its strong operational execution and customer service to drive growth, focusing on innovative technology and returns-based capital allocation [7] - A growth CapEx of not less than $250 million is expected for 2026, consistent with annual investment levels since 2023, to support infrastructure buildout [16][25] - The company plans to maintain a target leverage ratio of between 3x-3.5x while continuing to return capital to shareholders through dividends and share repurchases [17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the structural growth in natural gas production and compression, highlighting a strong outlook for earnings and free cash flow generation [18] - The current environment is characterized by commodity price volatility, but natural gas production is expected to outpace oil production, supporting long-term growth [8][9] - Management noted that the compression industry is entering a durable upturn driven by natural gas demand growth and capital discipline across the energy sector [8] Other Important Information - The company repurchased approximately 1.1 million shares for about $25 million in Q3 2025, with an additional $100 million authorized for share repurchases [23][24] - The company reported a $9.9 million cash tax credit that contributed to the increase in gross margin [15][20] Q&A Session Summary Question: Thoughts on capital allocation given strong free cash flow - Management emphasized that the best use of capital remains investing in business growth, with plans to continue growing dividends and share repurchases while also considering M&A opportunities [29][30] Question: Insights on margin sustainability and drivers - Management highlighted that margins are driven by pricing prerogatives and excellent cost management, with technology investments improving operational efficiency [32][34] Question: Demand trends and customer discussions - Management noted robust demand for LNG and data centers, with increased discussions with customers translating into a positive multi-year growth outlook [38][40] Question: Lead times and customer behavior in a lower crude environment - Lead times for engines are currently at 60 weeks, with no major shifts in customer behavior observed, maintaining high levels of utilization across the industry [50][52] Question: Recontracting discussions and pricing mechanisms - Management indicated that a significant portion of contracts includes pricing mechanisms for repricing, allowing for continued pricing power in a high-utilization environment [56][57] Question: Update on new venture investments and market acceptance - Management provided updates on the Mach 4 natural gas liquid recovery project, noting successful pilot results and strong customer enthusiasm for the product [81][84]

Financial Data and Key Metrics Changes - In Q3 2025, adjusted EPS increased by 50% and adjusted EBITDA rose by more than 46% compared to Q3 2024 [4][18] - Net income for Q3 2025 was $71 million, with adjusted net income at $73 million or $0.42 per share [18] - Adjusted gross margin percentage reached 73%, benefiting from a $9.9 million cash tax credit [13][14] Business Segment Data and Key Metrics Changes - Contract operations revenue was $326 million in Q3 2025, up 2% from Q2 2025, driven by growth in horsepower and pricing [19] - Aftermarket services segment reported revenue of $56 million in Q3 2025, down from $65 million in Q2 2025 but up 20% from $47 million in Q3 2024 [20] - Adjusted gross margin for aftermarket services remained at 23%, consistent with previous guidance [20] Market Data and Key Metrics Changes - The U.S. natural gas infrastructure buildout continues to support robust performance, with expectations for growth in natural gas production in the low single digits [4][7] - Significant growth in U.S. LNG exports is anticipated, with demand expected to increase by more than 17 BCF/day by 2030 [8] - The compression industry is entering a durable upturn driven by natural gas demand growth and capital discipline across the energy sector [7][8] Company Strategy and Development Direction - The company aims to drive growth through customer experience, innovative technology, and returns-based capital allocation [6] - A growth CapEx of at least $250 million is expected for 2026 to support infrastructure buildout in response to growing natural gas demand [15][24] - The company plans to maintain a target leverage ratio of between 3 to 3.5 times while continuing to return capital to shareholders through dividends and share repurchases [16][22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's ability to generate free cash flow and return capital to shareholders, highlighting a strong operational and financial execution [5][17] - The current environment is characterized by commodity price volatility, but natural gas production growth is expected to continue [6][7] - Management noted that the compression market is experiencing strong demand due to underinvestment in infrastructure [39] Other Important Information - The company repurchased approximately 1.1 million shares for about $25 million in Q3 2025, with a total of $159 million returned to shareholders through dividends and share repurchases in the first three quarters of 2025 [22][16] - The company has a total debt of $2.6 billion and available liquidity of $728 million [21] Q&A Session Summary Question: Thoughts on deploying free cash flow and capital allocation - Management emphasized that the best use of capital remains investing in business growth, with plans to continue growing dividends and share repurchases [27][30] Question: Insights on margins and sustainability - Management highlighted that gross margins were driven by pricing and excellent cost management, with technology investments improving operational efficiency [31][33] Question: Demand side and customer discussions - Management noted robust demand for LNG and data centers, leading to increased discussions with customers and confidence in multi-year growth [36][39] Question: Lead times and customer behavior - Lead times for Caterpillar engines are currently at 60 weeks, with no major shifts in customer behavior observed despite lower crude prices [46][48] Question: Extended time on location and recontracting - Management indicated that units are staying on location longer, which is expected to lead to longer contract terms and opportunities for repricing [51][53] Question: Capital expenditures and market conditions - Management stated that a $250 million growth CapEx for 2026 is consistent with prior years and reflects confidence in the market [65][66]

Financial Performance - Archrock reported third quarter 2025 revenue of $382.4 million, a 31% increase from $292.2 million in the same quarter of 2024[8]. - Net income for the third quarter 2025 was $71.2 million, with adjusted net income at $73.2 million, compared to $37.5 million and $47.3 million in the third quarter of 2024, respectively[5][8]. - Adjusted EBITDA for the third quarter 2025 was $220.9 million, up 46% from $150.9 million in the third quarter of 2024[8]. - The contract operations segment revenue increased by 33% to $326.3 million in the third quarter 2025, compared to $245.4 million in the same quarter of 2024[9]. - Total revenue for Q3 2025 was $382.43 million, a 31% increase from $292.16 million in Q3 2024[40]. - Adjusted EBITDA for Q3 2025 was $220.94 million, representing 58% of total revenue, compared to 52% in Q3 2024[42]. - Net income for Q3 2025 was $71.25 million, or $0.40 per share, compared to $37.52 million, or $0.22 per share, in Q3 2024[40]. - Adjusted EBITDA for the three months ended September 30, 2025, was $220,944 thousand, compared to $212,678 thousand in the previous quarter and $150,854 thousand in the same quarter last year[51]. - Total revenues for the three months ended September 30, 2025, were $382,430 thousand, slightly down from $383,152 thousand in the previous quarter but up from $292,161 thousand year-over-year[53]. Margins and Expenses - Archrock's adjusted gross margin for the third quarter 2025 was $239.6 million, a 45% increase from $165.6 million in the third quarter of 2024, with a gross margin percentage of 73%[11]. - Adjusted gross margin for Q3 2025 was $252.61 million, with an adjusted gross margin percentage of 66%, up from 61% in Q3 2024[42]. - Adjusted gross margin for the three months ended September 30, 2025, was $252,605 thousand, representing an adjusted gross margin percentage of 66%, compared to 62% in the previous quarter and 61% in the same quarter last year[53]. - The company reported a gross margin of $185,475 thousand with a gross margin percentage of 48% for the three months ended September 30, 2025, compared to 45% in the previous quarter and 44% in the same quarter last year[53]. - Interest expense for the three months ended September 30, 2025, was $43,661 thousand, up from $41,711 thousand in the previous quarter and $30,179 thousand year-over-year[51]. Shareholder Returns - The company declared a quarterly dividend of $0.21 per share for the third quarter 2025, representing a 20% increase year-over-year, with a dividend coverage ratio of 3.7x[8][14]. - Archrock returned $159.1 million to shareholders through dividends and share repurchases in the first three quarters of 2025, compared to $93.0 million in the same period of 2024[8]. - Cash available for dividend coverage was 3.7 times the dividends declared for the period[42]. - The company declared a dividend of $0.21 per share for the period, consistent with the previous quarter[42]. - Cash available for dividend for the three months ended September 30, 2025, was $135,737 thousand, an increase from $125,055 thousand in the previous quarter and $92,887 thousand year-over-year[57]. Debt and Liquidity - Long-term debt stood at $2.6 billion with available liquidity of $728 million as of September 30, 2025, resulting in a leverage ratio of 3.1x[13]. - Long-term debt as of September 30, 2025, was $2.56 billion, an increase from $2.24 billion in Q3 2024[45]. - Total equity increased to $1.42 billion as of September 30, 2025, compared to $1.29 billion in Q3 2024[45]. Capital Expenditures and Guidance - Capital expenditures for Q3 2025 totaled $135.07 million, an increase from $70.02 million in Q3 2024[42]. - The company raised its full-year 2025 adjusted EBITDA guidance to a range of $835 million to $850 million[8][17]. - 2025 annual guidance for net income is projected between $265.2 million and $280.2 million[62]. - Adjusted EBITDA is expected to range from $835 million to $850 million[62]. - Cash available for dividend is estimated to be between $526 million and $531 million[62]. - Long-lived and other asset impairment for 2025 is estimated at $16.5 million, with previous years being $10.7 million in 2024 and $12.0 million in 2023[62]. Management Insights - Management emphasizes that adjusted EBITDA provides a more complete understanding of performance compared to GAAP results alone[64]. - Cash available for dividend is used to compute the coverage ratio of estimated cash flows to planned dividends[65]. - Changes in assets and liabilities were $(25.8) million in 2024 and $(28.0) million in 2023, which are not estimable for future cash provided by operating activities[66]. - Estimated transaction-related costs for the TOPS and NGCS acquisitions are reflected in the financials[63].