Archrock(AROC) - 2025 Q2 - Quarterly Report

Glossary Provides definitions for key terms and abbreviations used throughout the financial report Forward-Looking Statements Highlights cautionary language regarding future expectations and potential risks that may cause actual results to differ Part I. Financial Information Presents Archrock's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (Unaudited) Presents Archrock's unaudited condensed consolidated financial statements, including balance sheets, operations, equity, and cash flows Condensed Consolidated Balance Sheets Presents Archrock's financial position, detailing assets, liabilities, and stockholders' equity as of specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :------------------ | | Assets | | | | Cash and cash equivalents | $5,861 | $4,420 | | Accounts receivable, net | $179,922 | $132,478 | | Inventory | $106,673 | $89,686 | | Assets held for sale | $70,650 | — | | Total current assets | $376,188 | $233,122 | | Property, plant and equipment, net | $3,660,691 | $3,323,830 | | Goodwill | $124,266 | $52,155 | | Total assets | $4,431,314 | $3,824,205 | | Liabilities and Stockholders' Equity | | | | Accounts payable, trade | $80,663 | $57,567 | | Accrued liabilities | $119,358 | $124,105 | | Total current liabilities | $208,079 | $188,604 | | Long-term debt | $2,613,082 | $2,198,376 | | Deferred tax liabilities | $150,063 | $62,505 | | Total liabilities | $3,022,874 | $2,500,674 | | Total equity | $1,408,440 | $1,323,531 | | Total liabilities and equity | $4,431,314 | $3,824,205 | - Total assets increased by approximately $607.1 million from December 31, 2024, to June 30, 2025, primarily driven by increases in property, plant and equipment, goodwill, and intangible assets, largely due to acquisitions[19] - Total liabilities increased by approximately $522.2 million, mainly due to a significant rise in long-term debt and deferred tax liabilities[19] Condensed Consolidated Statements of Operations Details Archrock's revenues, expenses, and net income over specific reporting periods, reflecting operational profitability Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue: | | | | | | Contract operations | $318,327 | $225,468 | $618,724 | $448,519 | | Aftermarket services | $64,825 | $45,058 | $111,591 | $90,495 | | Total revenue | $383,152 | $270,526 | $730,315 | $539,014 | | Total cost of sales, exclusive of D&A | $146,038 | $114,436 | $271,094 | $227,179 | | Selling, general and administrative | $36,244 | $31,163 | $73,451 | $62,828 | | Depreciation and amortization | $63,139 | $43,853 | $120,759 | $86,688 | | Interest expense | $41,711 | $27,859 | $79,452 | $55,193 | | Net income | $63,420 | $34,425 | $134,270 | $74,957 | | Basic and diluted EPS | $0.36 | $0.22 | $0.76 | $0.48 | - Total revenue increased by 41.6% for the three months ended June 30, 2025, and 35.5% for the six months ended June 30, 2025, compared to the respective prior-year periods, driven by growth in both contract operations and aftermarket services[21] - Net income significantly increased by 84.2% for the three months and 79.1% for the six months ended June 30, 2025, primarily due to higher revenue and gains on asset sales, partially offset by increased operating expenses and interest[21] Condensed Consolidated Statements of Equity Outlines changes in Archrock's stockholders' equity, including net income, share issuances, and dividends, over specific periods Condensed Consolidated Statements of Equity (in thousands, except shares and per share amounts) | Metric | Balance at March 31, 2025 | Shares Issued for NGCS Acquisition | Net Income | Balance at June 30, 2025 | | :-------------------------------- | :------------------------ | :------------------------------- | :--------- | :----------------------- | | Common Stock (Amount) | $1,863 | $22 | — | $1,858 | | Common Stock (Shares) | 186,223,007 | 2,251,014 | — | 185,783,778 | | Additional Paid-in Capital | $3,885,911 | $52,944 | — | $3,892,168 | | Accumulated Deficit | $(2,401,409) | — | $63,420 | $(2,371,609) | | Treasury Stock (Amount) | $(136,382) | — | — | $(113,977) | | Total Equity | $1,349,983 | $52,966 | $63,420 | $1,408,440 | - Total equity increased from $1,323.5 million at December 31, 2024, to $1,408.4 million at June 30, 2025, primarily driven by net income and shares issued for the NGCS Acquisition, partially offset by share repurchases and cash dividends[19][23][26] - The company issued approximately 2.3 million shares of common stock for the NGCS Acquisition, valued at $53.0 million, contributing to additional paid-in capital[23][26][93] Condensed Consolidated Statements of Cash Flows Summarizes Archrock's cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $243,099 | $208,353 | | Net cash used in investing activities | $(541,697) | $(173,488) | | Net cash provided by (used in) financing activities | $300,039 | $(35,284) | | Net increase (decrease) in cash and cash equivalents | $1,441 | $(419) | | Cash and cash equivalents, end of period | $5,861 | $919 | - Net cash provided by operating activities increased by $34.7 million, primarily due to higher adjusted gross margin and increased activity levels, including impacts from the NGCS and TOPS Acquisitions[29][223] - Net cash used in investing activities significantly increased by $368.2 million, mainly due to $298.5 million cash paid for the NGCS Acquisition and an $88.6 million increase in capital expenditures[29][224] - Financing activities shifted from using $35.3 million cash in 2024 to providing $300.0 million in 2025, driven by a $390.3 million increase in net long-term debt borrowings, partially offset by higher dividends and share repurchases[29][225] Notes to Unaudited Condensed Consolidated Financial Statements Detailed disclosures and explanations for Archrock's unaudited condensed consolidated financial statements 1. Description of Business and Basis of Presentation Outlines Archrock's core business as an energy infrastructure company specializing in natural gas compression services - Archrock, Inc. is an energy infrastructure company focused on midstream natural gas compression, operating in two segments: contract operations and aftermarket services[30] - The contract operations segment involves designing, owning, operating, and maintaining natural gas compression equipment for customers in the U.S[30] - The aftermarket services segment provides parts, operations, maintenance, overhaul, and reconfiguration services for customer-owned compression equipment[30] 2. Recent Accounting Developments Summarizes recently adopted and pending accounting standards updates and their impact on Archrock's financial statements - Archrock adopted ASU 2023-07 (Segment Reporting) retrospectively in 2024, requiring disclosures of significant expenses for each reportable segment[32] - ASU 2023-05 (Business Combinations – Joint Venture Formations) was adopted in Q1 2025, requiring joint ventures to apply a new basis of accounting upon formation, but had no impact on Archrock's financial statements[33] - The company is evaluating the impact of ASU 2024-03 (Disaggregation of Income Statement Expenses) and ASU 2023-09 (Income Tax Disclosures), effective for fiscal years beginning after December 15, 2026, and 2024, respectively[34][35] 3. Business Transactions Details significant business transactions, including the NGCS and TOPS Acquisitions, their financial impact, and purchase price allocations - On May 1, 2025, Archrock completed the NGCS Acquisition for $351.5 million, acquiring approximately 326,000 operating horsepower and a 18,000 horsepower backlog[36] - The NGCS Acquisition consideration included $298.5 million in cash (funded by the Credit Facility) and approximately 2.3 million shares of common stock valued at $53.0 million[36] NGCS Acquisition Preliminary Purchase Price Allocation (in thousands) | Asset/Liability | Amount | | :-------------------------- | :------- | | Cash | $1,859 | | Accounts receivable | $5,007 | | Inventory | $12,891 | | Property, plant and equipment | $248,463 | | Goodwill | $72,658 | | Intangible assets | $65,430 | | Deferred tax liabilities | $(50,241) | | Purchase price | $351,466 | - The NGCS Acquisition resulted in $72.7 million in goodwill, allocated to the contract operations segment and not expected to be deductible for U.S. federal income tax purposes[39] - Revenue attributable to the NGCS Acquisition from May 1 to June 30, 2025, was $13.2 million[41] - On August 30, 2024, Archrock completed the TOPS Acquisition for $1,007.7 million, acquiring approximately 580,000 horsepower, including 530,000 operating horsepower[49][50] - The TOPS Acquisition consideration included $868.7 million in cash and approximately 6.9 million shares of common stock valued at $139.1 million[49] - Transaction-related costs for NGCS Acquisition were $7.6 million for the six months ended June 30, 2025, and for TOPS Acquisition were $2.5 million for the same period[43][54] 4. Inventory Details the composition and changes in Archrock's inventory, including parts, supplies, and work in progress Inventory Composition (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :------------------ | | Parts and supplies | $92,913 | $76,505 | | Work in progress | $13,760 | $13,181 | | Total Inventory | $106,673 | $89,686 | - Total inventory increased by $16.9 million from December 31, 2024, to June 30, 2025, primarily due to an increase in parts and supplies[62] 5. Property, Plant and Equipment, Net Provides a breakdown of Archrock's property, plant, and equipment, net of accumulated depreciation, and changes over time Property, Plant and Equipment, Net (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :------------------ | | Compression equipment, facilities and other | $4,784,256 | $4,392,818 | | Land and buildings | $33,362 | $32,060 | | Transportation and shop equipment | $137,595 | $118,413 | | Computer hardware and software | $78,908 | $78,021 | | Other | $7,983 | $7,411 | | Total Property, plant and equipment | $5,042,104 | $4,628,723 | | Accumulated depreciation | $(1,381,413) | $(1,304,893) | | Property, plant and equipment, net | $3,660,691 | $3,323,830 | - Net property, plant and equipment increased by $336.9 million from December 31, 2024, to June 30, 2025, primarily due to additions from the NGCS and TOPS Acquisitions[63] 6. Investments in Unconsolidated Affiliates Details Archrock's equity interests in unconsolidated affiliates, including ECOTEC, Ionada, and FGC Holdco, and their carrying values - Archrock holds a 25% equity interest in ECOTEC, accounted for using the fair value option, with a fair value of $14.7 million as of June 30, 2025, and December 31, 2024[68][130] - The company has a 12% fully diluted ownership equity interest in Ionada, a carbon capture technology company, with a carrying value of $5.5 million as of June 30, 2025[69][70][132] - Archrock invested in FGC Holdco, a MaCH4 NRS equipment company, holding a 32% unit interest and accounting for it using the equity method. The carrying value was $0.4 million at June 30, 2025[71][73] - Archrock recognized a loss of $0.2 million related to its investment in FGC Holdco for the three and six months ended June 30, 2025[74] 7. Long-Term Debt Provides a detailed breakdown of Archrock's long-term debt, including credit facilities and senior notes, and changes in balances Long-Term Debt Composition (in thousands) | Debt Instrument | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :------------------ | | Credit Facility | $822,250 | $408,325 | | 6.625% senior notes due September 2032 | $691,019 | $690,391 | | 6.25% senior notes due April 2028 | $800,946 | $801,118 | | 6.875% senior notes due April 2027 | $298,867 | $298,542 | | Total Long-Term Debt | $2,613,082 | $2,198,376 | - Total long-term debt increased by $414.7 million from December 31, 2024, to June 30, 2025, primarily due to increased borrowings under the Credit Facility[76] - The Credit Facility's borrowing capacity was increased from $1.1 billion to $1.5 billion on May 16, 2025, with potential for further increases up to $2.3 billion[77] - Archrock completed a private offering of $700.0 million of 6.625% senior notes due September 2032 in August 2024, with net proceeds used for the TOPS Acquisition and 2027 Notes Tender Offer[82] - A concurrent cash tender offer of $202.0 million for the 2027 Notes resulted in a $3.2 million debt extinguishment loss in Q3 2024[86] 8. Commitments and Contingencies Outlines Archrock's self-insurance programs, tax audit accruals, and ongoing legal actions, assessing their potential financial impact - Archrock is substantially self-insured for workers' compensation and employee group health claims, and for property damage to offshore assets[89] - As of June 30, 2025, $7.5 million was accrued for non-income-based tax audits, with $4.4 million having an offsetting indemnification asset[90][91] - The company is involved in various legal actions but believes any ultimate liability will not materially adversely affect its financial position, results of operations, or cash flows[92] 9. Stockholders' Equity Details changes in Archrock's common stock, additional paid-in capital, accumulated deficit, and treasury stock - Archrock issued approximately 2.3 million common shares for the NGCS Acquisition (May 1, 2025) and 6.9 million common shares for the TOPS Acquisition (August 30, 2024), impacting common stock and additional paid-in capital[93][95] - A public underwriting offering in July 2024 generated $255.7 million in net proceeds from the sale of approximately 12.7 million shares, used to fund a portion of the TOPS Acquisition[96] - The Board of Directors approved an increase of $50.0 million to the Share Repurchase Program in April 2025, bringing available capacity to $58.9 million as of June 30, 2025[97][98] Share Repurchases and Withheld Shares (in thousands, except per share amounts) | Activity | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :------------------------------------------ | :------------------------------- | :----------------------------- | | Shares repurchased under Share Repurchase Program | 1,226,954 shares ($28,822) | 1,236,115 shares ($29,045) | | Shares withheld related to net settlement of equity awards | 601 shares ($14) | 504,968 shares ($14,988) | | Total | 1,227,555 shares ($28,836) | 1,741,083 shares ($44,033) | Cash Dividends Declared and Paid (in thousands, except per share amounts) | Period | Dividends per Common Share | Dividends Paid | | :----- | :------------------------- | :------------- | | 2025 Q2 | $0.190 | $33,620 | | 2025 Q1 | $0.190 | $34,185 | | 2024 Q4 | $0.175 | $30,690 | | 2024 Q3 | $0.165 | $27,865 | | 2024 Q2 | $0.165 | $25,819 | | 2024 Q1 | $0.165 | $26,000 | - On July 24, 2025, the Board declared a quarterly dividend of $0.21 per share, payable August 12, 2025[102] 10. Revenue from Contracts with Customers Analyzes Archrock's revenue by segment and source, detailing performance obligations and receivables from customer contracts Revenue from Contracts with Customers by Segment and Source (in thousands) | Revenue Source | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Contract operations: | | | | | | 0 – 1,000 horsepower per unit | $108,670 | $45,334 | $210,902 | $90,661 | | 1,001 – 1,500 horsepower per unit | $106,354 | $94,687 | $207,956 | $190,357 | | Over 1,500 horsepower per unit | $103,155 | $85,290 | $199,571 | $167,155 | | Total contract operations revenue | $318,327 | $225,468 | $618,724 | $448,519 | | Aftermarket services: | | | | | | Services | $33,107 | $25,675 | $59,162 | $51,113 | | OTC parts and components sales | $29,846 | $19,383 | $50,557 | $39,382 | | Total aftermarket services revenue | $64,825 | $45,058 | $111,591 | $90,495 | | Total revenue | $383,152 | $270,526 | $730,315 | $539,014 | - Contract operations revenue increased by 41.2% for the three months and 37.9% for the six months ended June 30, 2025, compared to the prior year, with significant growth across all horsepower categories[103] - Aftermarket services revenue grew by 43.9% for the three months and 23.3% for the six months ended June 30, 2025, driven by increased services and OTC parts sales[103] - Remaining performance obligations for the contract operations segment totaled $933.7 million as of June 30, 2025, to be recognized through 2030[107] - Receivables from contracts with customers, net, increased to $171.6 million at June 30, 2025, from $126.3 million at December 31, 2024[108] 11. Long-Lived and Other Asset Impairment Discusses impairment charges on Archrock's idle compression fleet and assets classified as held for sale, reflecting valuation adjustments Compression Fleet Impairment Review (dollars in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Idle compressors retired from active fleet | 30 | 40 | 50 | 65 | | Horsepower of idle compressors retired | 12,000 | 32,000 | 17,000 | 46,000 | | Impairment recorded on idle compressors | $2,110 | $4,401 | $3,082 | $6,969 | - Impairment charges on idle compressors decreased due to increased customer demand and higher equipment utilization[179][200] - A write-down of $8.7 million was recorded for assets classified as held for sale during the three and six months ended June 30, 2025, to adjust their carrying value to estimated fair value less costs to sell[116][150] 12. Restructuring Charges Details Archrock's restructuring charges, including property disposal and severance costs, and future expected expenses - Archrock incurred $0.1 million in restructuring charges for property disposal costs during Q2 2025, related to exiting uneconomical facilities[117][181] - Total restructuring charges for the six months ended June 30, 2025, were $0.8 million, comprising $0.6 million in severance costs and $0.2 million in property disposal costs[120][202] - The company expects to incur an additional $1.0 million to $2.0 million in restructuring charges over the next twelve months[117] 13. Income Taxes Discusses the impact of recent tax law changes, the effective tax rate, and unrecognized tax benefits on Archrock's financial statements - The OB3 Tax Law, signed July 4, 2025, made permanent certain elements of the Tax Cuts and Jobs Act, including reinstating depreciation/amortization add-back for business interest expense, 100% bonus depreciation, and full expensing for domestic R&E expenditures[121][123] - The year-to-date effective tax rate for the six months ended June 30, 2025, differed from the statutory rate primarily due to state taxes, unrecognized tax benefits, and executive compensation limitations, offset by equity-settled long-term incentive compensation benefits[124] - Archrock believes it is reasonably possible that $3.7 million of unrecognized tax benefits will be reduced by June 30, 2026, due to audit settlements or statute of limitations expirations[125] 14. Earnings Per Common Share Presents the calculation of Archrock's basic and diluted earnings per common share, reflecting net income and share counts Earnings Per Common Share Calculation (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to common stockholders | $62,934 | $33,990 | $132,379 | $73,777 | | Basic earnings per common share | $0.36 | $0.22 | $0.76 | $0.48 | | Diluted net income attributable to common stockholders | $62,918 | $33,852 | $132,827 | $73,554 | | Diluted earnings per common share | $0.36 | $0.22 | $0.76 | $0.48 | | Weighted-average common shares outstanding (Basic) | 175,007 | 154,496 | 174,513 | 154,342 | | Weighted-average common shares outstanding (Diluted) | 175,264 | 154,785 | 174,821 | 154,648 | - Basic and diluted EPS increased significantly for both the three-month and six-month periods ended June 30, 2025, reflecting higher net income[129] - The weighted-average common shares outstanding (basic and diluted) increased year-over-year, partly due to shares issued for acquisitions[129] 15. Fair Value Measurements Details Archrock's fair value measurements for investments, impaired assets, and fixed rate debt, including valuation methodologies - The fair value of the investment in ECOTEC remained $14.7 million as of June 30, 2025, and December 31, 2024, with no unrealized gains or losses recognized[130] - The fair value of the impaired compression fleet was $0.4 million at June 30, 2025, down from $1.0 million at December 31, 2024, with estimated net sale proceeds averaging $50 per horsepower[134] - The fair value of fixed rate debt was $1,817.0 million at June 30, 2025, compared to its carrying amount of $1,790.8 million[137] - The estimated fair value less costs to sell for the disposal group classified as assets held for sale was $70.7 million as of June 30, 2025[139][151] 16. Related Party Transactions Reports Archrock's transactions with related parties, including purchases from affiliates and revenue from customers with affiliated board members - Purchases from unconsolidated affiliate ECOTEC were $0.2 million and $0.3 million for the three and six months ended June 30, 2025, respectively[140] - Archrock committed to purchase a minimum of $64.3 million of MaCH4 NRS equipment from FGC Holdco through March 31, 2026, with purchases of $1.2 million and $3.1 million for the three and six months ended June 30, 2025, respectively[141] - Revenue from Hilcorp, a customer with an affiliated board member, was $10.6 million and $21.7 million for the three and six months ended June 30, 2025, respectively[143] 17. Segment Information Provides financial data for Archrock's operating segments, contract operations and aftermarket services, with performance evaluated by adjusted gross margin - Archrock operates in two U.S. segments: contract operations and aftermarket services, with performance evaluated primarily based on adjusted gross margin[144][145] Segment Revenue and Adjusted Gross Margin (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue: | | | | | | Contract Operations | $318,327 | $225,468 | $618,724 | $448,519 | | Aftermarket Services | $64,825 | $45,058 | $111,591 | $90,495 | | Total Revenue | $383,152 | $270,526 | $730,315 | $539,014 | | Adjusted Gross Margin: | | | | | | Contract Operations | $222,175 | $146,190 | $432,773 | $291,498 | | Aftermarket Services | $14,939 | $9,900 | $26,448 | $20,337 | | Total Adjusted Gross Margin | $237,114 | $156,090 | $459,221 | $311,835 | - Contract operations adjusted gross margin increased by 52.0% for the three months and 48.5% for the six months ended June 30, 2025, with the margin percentage rising from 65% to 70%[146][168][191] - Aftermarket services adjusted gross margin increased by 50.9% for the three months and 30.0% for the six months ended June 30, 2025, with the margin percentage rising from 22% to 23-24%[146][172][193] 18. Assets Held for Sale Details the disposal group classified as assets held for sale, including compressors and customer agreements, and the subsequent sale transaction - As of June 30, 2025, Archrock classified a disposal group, including 155 compressors (approximately 47,000 horsepower) and related customer agreements, as assets held for sale[149] - A write-down of $8.7 million was recorded to adjust the carrying value of the disposal group to its estimated fair value less costs to sell, which was $70.7 million[150][151] - The sale of this disposal group to Flowco for $71.0 million in cash was completed on August 1, 2025[152] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on Archrock's financial condition and results of operations, including key metrics, non-GAAP measures, and liquidity OVERVIEW Provides a high-level summary of Archrock's business, operating segments, key performance indicators, and non-GAAP financial measures - Archrock is a premier provider of natural gas compression services and a leading supplier of aftermarket services in the U.S., operating in contract operations and aftermarket services segments[155] Operating Highlights (horsepower in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total available horsepower (period end) | 4,843 | 3,806 | 4,843 | 3,806 | | Total operating horsepower (period end) | 4,651 | 3,601 | 4,651 | 3,601 | | Average operating horsepower | 4,467 | 3,605 | 4,371 | 3,607 | | Horsepower utilization (Spot) | 96 % | 95 % | 96 % | 95 % | | Horsepower utilization (Average) | 96 % | 95 % | 96 % | 95 % | - Total available and operating horsepower significantly increased year-over-year, reflecting the impact of the NGCS and TOPS Acquisitions[156][158] - Horsepower utilization remained high at 96% for both spot and average metrics in 2025, up from 95% in 2024[156] - Adjusted gross margin, a non-GAAP measure, is used by management to evaluate segment performance, focusing on current operating performance by excluding depreciation, amortization, SG&A, financing, and taxes[160][162] RESULTS OF OPERATIONS Analyzes Archrock's financial performance, including revenue, net income, and segment-specific results, for current and prior periods - Total revenue increased to $383.2 million (Q2 2025) and $730.3 million (YTD Q2 2025), up from $270.5 million and $539.0 million respectively, driven by growth in both contract operations and aftermarket services[164] - Net income rose to $63.4 million (Q2 2025) and $134.3 million (YTD Q2 2025), compared to $34.4 million and $75.0 million, respectively, primarily due to higher adjusted gross margin and gains on asset sales[165][167] Contract Operations Performance (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $318,327 | $225,468 | $618,724 | $448,519 | | Cost of sales, exclusive of D&A | $96,152 | $79,278 | $185,951 | $157,021 | | Adjusted gross margin | $222,175 | $146,190 | $432,773 | $291,498 | | Adjusted gross margin percentage | 70 % | 65 % | 70 % | 65 % | - Contract operations revenue increased by $92.9 million (Q2) and $170.2 million (YTD Q2), mainly due to the NGCS and TOPS Acquisitions, higher rates, and increased average operating horsepower[169][189] - Cost of sales for contract operations increased due to acquired units and headcount, with employee compensation up $11.2 million (Q2) and $20.4 million (YTD Q2)[170][190] Aftermarket Services Performance (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $64,825 | $45,058 | $111,591 | $90,495 | | Cost of sales, exclusive of D&A | $49,886 | $35,158 | $85,143 | $70,158 | | Adjusted gross margin | $14,939 | $9,900 | $26,448 | $20,337 | | Adjusted gross margin percentage | 23 % | 22 % | 24 % | 22 % | - Aftermarket services revenue increased due to higher parts sales (including non-recurring overhauled engines), increased service activity, and more maintenance service contracts[173][194] - SG&A expenses increased by $5.1 million (Q2) and $10.6 million (YTD Q2), driven by higher employee compensation, professional fees, and IT expenses[176][196] - Depreciation and amortization increased by $19.3 million (Q2) and $34.1 million (YTD Q2) due to fixed asset additions from the TOPS and NGCS Acquisitions[177][197] - Interest expense increased by $13.9 million (Q2) and $24.3 million (YTD Q2) due to a higher average outstanding long-term debt balance from the 2032 Notes offering and Credit Facility borrowings for acquisitions[183][203] - Gain on sale of assets, net, increased significantly to $4.3 million (Q2) and $11.6 million (YTD Q2) from $0.6 million and $3.0 million, respectively, primarily from compression asset sales[185][205] Provision for Income Taxes (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Provision for income taxes | $22,433 | $13,055 | $43,569 | $26,108 | | Effective tax rate | 26 % | 27 % | 24 % | 26 % | LIQUIDITY AND CAPITAL RESOURCES Assesses Archrock's ability to meet financial obligations and fund operations, detailing cash flows, capital expenditures, and debt facilities - Archrock's primary liquidity sources are operating cash flows and borrowing availability under its Credit Facility, which are believed to be sufficient for future needs[208] - The contract operations business is capital intensive, with requirements for operating expenses, growth and maintenance capital expenditures, debt interest, dividends, and share repurchases[210][212] - Growth capital expenditures were $206.7 million (YTD Q2 2025), up from $139.7 million (YTD Q2 2024)[213] - Maintenance capital expenditures were $55.2 million (YTD Q2 2025), up from $44.9 million (YTD Q2 2024), due to increased maintenance activities and acquired units[214] - Projected capital expenditures for 2025 are $485 million to $520 million, including $340 million to $360 million for growth and $110 million to $120 million for maintenance[215] - The Credit Facility's borrowing capacity was increased to $1.5 billion in May 2025, with all undrawn capacity available as of June 30, 2025[217][219] - Net cash provided by operating activities increased to $243.1 million (YTD Q2 2025) from $208.4 million (YTD Q2 2024)[222][223] - Net cash used in investing activities increased to $541.7 million (YTD Q2 2025) from $173.5 million (YTD Q2 2024), primarily due to the NGCS Acquisition and higher capital expenditures[222][224] - Net cash provided by financing activities was $300.0 million (YTD Q2 2025), a significant shift from $35.3 million used in the prior year, driven by increased long-term debt borrowings[222][225] Item 3. Quantitative and Qualitative Disclosures About Market Risk Archrock is exposed to market risks from variable interest rates on its Credit Facility, with $822.3 million in indebtedness as of June 30, 2025 - A 1% increase or decrease in the effective interest rate on the Credit Facility's outstanding balance would result in an annual change of $8.2 million in interest expense[227] Item 4. Controls and Procedures Management evaluated Archrock's disclosure controls and procedures as of June 30, 2025, concluding they were effective for timely and accurate reporting - No material changes occurred in internal control over financial reporting during the last fiscal quarter[231] Part II. Other Information Contains additional disclosures not included in the financial statements, such as legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings Archrock is involved in various legal actions, but management believes ultimate liability will not materially affect financial position or results Item 1A. Risk Factors Updated risk factors focus on the NGCS Acquisition, including integration difficulties, failure to achieve benefits, and unknown liabilities - Risks related to the NGCS Acquisition include difficulties in integrating NGCS's business and workforce, potential increases in costs, and the inability to achieve expected benefits[236] - Acquisitions, including NGCS, carry risks such as assuming unknown liabilities, inability to obtain satisfactory title to assets, and significant changes like asset impairment or restructuring charges[239][241] - Failure to realize anticipated benefits from the NGCS Acquisition could adversely affect Archrock's business, results of operations, financial condition, and stock price[237][238] Item 2. Unregistered Sales of Equity Securities by Issuer and Use of Proceeds Details Archrock's purchase of equity securities, including repurchased shares and those withheld for tax obligations related to equity awards Purchase of Equity Securities by the Issuer (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs | | :------------------------ | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------- | | April 1, 2025 — April 30, 2025 | 918,057 | $23.17 | 918,057 | $66,397 | | May 1, 2025 — May 31, 2025 | 144,048 | $24.20 | 143,447 | $62,925 | | June 1, 2025 — June 30, 2025 | 165,450 | $24.63 | 165,450 | $58,850 | | Total | 1,227,555 | $23.49 | 1,226,954 | | - The Share Repurchase Program was increased by an additional $50.0 million in April 2025, with $58.9 million of available capacity remaining as of June 30, 2025[245] Item 3. Defaults Upon Senior Securities Confirms no defaults upon senior securities occurred during the reporting period Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to Archrock's operations Item 5. Other Information Confirms no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements Item 6. Exhibits Lists the exhibits filed or furnished as part of the Form 10-Q report, including corporate governance documents, acquisition agreements, and certifications Signatures Contains the required signatures for the Form 10-Q report, confirming its submission on behalf of Archrock, Inc. by authorized officers