Archrock(US:AROC)2025-05-06 19:24markdown [Part I. Financial Information](index=8&type=section&id=Part%20I.%20Financial%20Information) [Financial Statements (unaudited)](index=8&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Archrock reported significant Q1 2025 growth, with total revenue up **29.3%** to **$347.2 million** and net income up **74.8%** to **$70.9 million**, driven by contract operations and the TOPS Acquisition - The financial statements are unaudited and should be read in conjunction with the 2024 Annual Report on Form 10-K They reflect all normal recurring adjustments necessary for a fair statement of the interim period results[29](index=29&type=chunk) - Subsequent to the quarter's end, on May 1, 2025, the company completed the acquisition of Natural Gas Compression System, Inc. (NGCS) for total consideration of **$352.3 million**, consisting of **$299.3 million** in cash and approximately **2.25 million shares** of common stock[124](index=124&type=chunk) [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2025, total assets increased to **$3.96 billion** from **$3.82 billion** at year-end 2024, primarily due to property, plant, and equipment growth, while total liabilities rose to **$2.61 billion** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | **Total Assets** | **$3,964,732** | **$3,824,205** | | Total current assets | $271,973 | $233,122 | | Property, plant and equipment, net | $3,429,357 | $3,323,830 | | **Total Liabilities** | **$2,614,749** | **$2,500,674** | | Total current liabilities | $184,627 | $188,604 | | Long-term debt | $2,297,767 | $2,198,376 | | **Total Equity** | **$1,349,983** | **$1,323,531** | [Condensed Consolidated Statements of Operations](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q1 2025, total revenue increased **29.3%** year-over-year to **$347.2 million**, driven by a **34.7%** rise in contract operations revenue, leading to net income growth of **74.8%** to **$70.9 million** Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :--- | :--- | :--- | | **Total Revenue** | **$347,163** | **$268,488** | | Contract operations | $300,397 | $223,051 | | Aftermarket services | $46,766 | $45,437 | | **Income before income taxes** | **$91,986** | **$53,585** | | **Net Income** | **$70,850** | **$40,532** | | **Diluted EPS** | **$0.40** | **$0.26** | | Diluted weighted-average shares | 174,371 | 154,501 | [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities decreased to **$115.6 million** in Q1 2025 from **$137.7 million** in Q1 2024, while investing activities used **$164.0 million** and financing activities provided **$48.8 million** Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $115,628 | $137,702 | | Net cash used in investing activities | ($164,031) | ($85,923) | | Net cash provided by (used in) financing activities | $48,819 | ($51,962) | | **Net increase (decrease) in cash** | **$416** | **($183)** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q1 2025 performance to robust industry fundamentals and the TOPS Acquisition, with contract operations revenue growing **35%** YoY and adjusted gross margin expanding **45%** - Total operating horsepower at period end increased to **4,283,000 HP** in Q1 2025 from **3,593,000 HP** in Q1 2024, with horsepower utilization remaining high at **96%**[128](index=128&type=chunk) - The company plans to spend approximately **$475 million to $540 million** on capital expenditures in 2025, with **$330 million to $370 million** for growth and **$110 million to $120 million** for maintenance[159](index=159&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) Consolidated revenue for Q1 2025 increased by **$78.7 million** YoY, primarily driven by a **$77.3 million** increase in contract operations, leading to net income rising to **$70.9 million** Contract Operations Performance (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $300,397 | $223,051 | 35% | | Adjusted Gross Margin | $210,598 | $145,308 | 45% | | Adjusted Gross Margin % | 70% | 65% | 5% | Aftermarket Services Performance (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $46,766 | $45,437 | 3% | | Adjusted Gross Margin | $11,509 | $10,437 | 10% | | Adjusted Gross Margin % | 25% | 23% | 2% | - Transaction-related costs of **$3.9 million** were incurred in Q1 2025, comprising **$2.9 million** for the NGCS Acquisition and **$1.1 million** for the TOPS Acquisition[148](index=148&type=chunk) - The increase in interest expense was due to a higher average outstanding debt balance, primarily from the 2032 Notes offering[147](index=147&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) Primary liquidity sources are cash from operations and the **$1.1 billion** Credit Facility, with Q1 2025 operating cash flow at **$115.6 million** and **$164.0 million** used in investing activities Capital Expenditures (in millions) | Type | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | | Growth Capital | $139.4 | $77.3 | | Maintenance Capital | $22.8 | $19.5 | - As of March 31, 2025, the company was in compliance with all covenants under its Credit Facility, and all undrawn capacity was available for borrowing[162](index=162&type=chunk) - On April 24, 2025, the Board of Directors declared a quarterly dividend of **$0.19 per share**[160](index=160&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk is interest rate changes on the variable-rate Credit Facility, with **$507.3 million** outstanding as of March 31, 2025, where a **1%** rate change impacts annual interest expense by **$5.1 million** - As of March 31, 2025, the company had **$507.3 million** of variable interest rate debt outstanding under its Credit Facility[169](index=169&type=chunk) - A **1%** increase or decrease in the effective interest rate would result in an annual change in interest expense of **$5.1 million**[170](index=170&type=chunk) [Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2025, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[174](index=174&type=chunk) - There were no changes in internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[175](index=175&type=chunk) [Part II. Other Information](index=49&type=section&id=Part%20II.%20Other%20Information) [Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal actions in the ordinary course of business, but management believes they will not have a material adverse effect on financial position or results - In the ordinary course of business, the company is involved in various pending or threatened legal actions, but does not expect any to have a material adverse effect[177](index=177&type=chunk) [Risk Factors](index=49&type=page&id=Item%201A.%20Risk%20Factors) New risks relate to the NGCS Acquisition, including potential integration difficulties, failure to achieve expected benefits, and assumption of unknown liabilities, which could adversely affect business results - A new risk factor has been added concerning the NGCS Acquisition, stating the company may not achieve expected benefits and could encounter significant difficulties in integration[179](index=179&type=chunk) - Challenges of integration include managing the combined workforce, aligning business practices, and potential for increased costs, liabilities, or diversion of management's attention[181](index=181&type=chunk)[184](index=184&type=chunk) - Acquisitions, including the NGCS deal, involve risks such as assuming unknown liabilities and could potentially reduce the company's ability to make distributions to common stockholders[183](index=183&type=chunk)[185](index=185&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q1 2025, the company repurchased **513,528 shares**, including **9,161** under its program at **$24.39 per share** and **504,367** withheld for employee tax obligations Share Repurchases and Withholding - Q1 2025 | Description | Number of Shares | Average Price Paid per Share | | :--- | :--- | :--- | | Shares repurchased under program | 9,161 | $24.39 | | Shares withheld for tax obligations | 504,367 | $29.69 | | **Total** | **513,528** | **$29.59** | [Other Information](index=53&type=section&id=Item%205.%20Other%20Information) During Q1 2025, none of the company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended March 31, 2025[191](index=191&type=chunk)