Archrock(AROC) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In 2025, the company achieved a 68% increase in Adjusted EPS and a 51% increase in Adjusted EBITDA compared to 2024 [4] - For Q4 2025, net income was $117 million and Adjusted EBITDA was $269 million, bringing full-year net income to $322 million and Adjusted EBITDA to $901 million [20][21] - The year-end leverage ratio was 2.7 times, down from 3.3 times in Q4 2024, indicating improved financial health [26] Business Segment Data and Key Metrics Changes - Contract operations revenue for Q4 2025 was $327 million, consistent with Q3 2025, with an adjusted gross margin percentage of approximately 78% [23] - The aftermarket services segment reported Q4 2025 revenue of $50 million, up from $40 million a year ago, with an adjusted gross margin percentage of 24% [24] - The average time an Archrock compressor remains on location increased to 73 months, reflecting strong demand and operational efficiency [11] Market Data and Key Metrics Changes - U.S. natural gas volumes are expected to increase incrementally in 2026, particularly in the Permian Basin, where gas volumes are projected to grow at mid-single-digit rates [9] - LNG exports are anticipated to continue growing, with an additional 2 BCF per day of export capacity coming online in 2026 [10] - The company has a substantial backlog for 2026, with 85% contracted, and has already booked units for 2027 delivery [10] Company Strategy and Development Direction - The company's strategy for 2026 focuses on investing in natural gas infrastructure, maximizing service reliability, and maintaining disciplined capital allocation [6][7] - The company aims to enhance its fleet through disciplined portfolio actions and has completed two accretive acquisitions in 18 months [5] - The focus remains on high-return growth opportunities while returning capital to shareholders and maintaining a strong balance sheet [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand for natural gas and the company's ability to capture growth opportunities in a robust market [8] - The company anticipates continued earnings growth driven by disciplined execution and capital allocation, supported by durable market tailwinds [19] - Management noted that while lead times for equipment have extended, they are well-positioned to meet customer needs for 2026 and beyond [35] Other Important Information - The company returned $212 million to shareholders through dividends and share repurchases in 2025, a 70% increase year-over-year [6] - The fourth quarter dividend was increased to $0.22 per share, reflecting a 5% increase from the previous quarter and a 16% increase year-over-year [26] - Total capital expenditures for 2026 are expected to be approximately $400 million to $445 million, with growth CapEx between $250 million and $275 million [29] Q&A Session Summary Question: Growth CapEx guidance and organic horsepower addition - The company expects the CapEx to translate into about 170,000 horsepower to be added in 2026, with approximately 60% of that expected to start up in the first half of the year [34] Question: Lead times and pricing power - Lead times for gas drive equipment have extended significantly, but the company is booked to meet customer needs for 2026, with pricing expected to increase at a more modest level [35][38] Question: M&A opportunities and capital returns - The company remains open to M&A opportunities and believes there are more compression companies available for acquisition, while also focusing on returning capital to shareholders [46][47] Question: Aftermarket services growth and labor constraints - The company is selective about the jobs it takes in aftermarket services and anticipates labor constraints may limit growth, focusing on profitability [82] Question: Technology investments and AI initiatives - The company is investing in technology to improve service quality and operational efficiency, with ongoing AI initiatives aimed at enhancing customer experience and profitability [88][90]