Archrock, Inc. earnings

Management highlights

• Permian gas growth expected with mid-single-digit gas growth supported by rising gas-to-oil ratios and new takeaway. Geopolitical risk in Middle East reinforces strategic value of U.S. supply. • Contract operations had outstanding performance with 95% fleet utilization, 4.5 million operating horsepower, and monthly revenue per horsepower moving higher. • Aftermarket services performance solid in Q1 despite seasonal slowdown, delivering strong profitability. • Capital allocation: Disciplined, returns-focused, with $250 to $275 million growth capital plan for fleet investment, reaffirmed dividend of 22 cents per share up 16% y-o-y, and $113 million remaining share repurchase authorization.

Guidance

• Reaffirmed full-year 2026 adjusted EBITDA guidance of $865 to $915 million. • Contract operations outlook reflects year-over-year growth in horsepower, revenue, and profitability. • Aftermarket services expected to have strong revenue and profitability. • Leverage ratio at quarter end was 2.6 times, operating below target of three times. • Dividend of 22 cents per share declared, consistent with prior quarter, with robust coverage.

Segment performance

Contract operations: Q1 2026 revenue was $331 million, up 10% y-o-y driven by horsepower growth and higher pricing. Operating horsepower at quarter end was 4.53 million, up ~250,000 y-o-y. Adjusted gross margin percentage was 72%. Aftermarket services: Q1 2026 revenue was $43 million, seasonally slower but delivered strong profitability with adjusted gross margin percentage of 23%, consistent with guidance range.

Risks & headwinds

• Geopolitical risk in Middle East, including Iran-related volatility, could impact global LNG fundamentals. • Tight supply chain for CAT equipment, extending lead times, which could affect equipment delivery and deployment. • Oil price headwinds in back half of year, with lag time in passing on lube oil cost increases to customers.

Analyst Q&A

• Q: Asked about guidance not being raised despite underlying business performance exceeding basis, and CAT equipment lead time.

  A: Guidance not raised as it feels early in the year, and CAT lead times extend with market coiled for growth.

• Q: Asked about color on multiple years ahead and customer equipment needs.

  A: Working closely with customers, using strong balance sheet to place orders and ensure equipment availability.

• Q: Asked about price trending and horsepower deployment.

  A: Pricing showing strength, revenue per horsepower growing, horsepower deliveries expected to grow with back-half weighting.

• Q: Asked about oil price headwinds and asset sales.

  A: Expect oil price headwinds in back half, mitigating through cost management; asset sales part of disciplined program to optimize fleet.

• Q: Asked about opportunities outside Permian and unit sizes.

  A: Opportunities spread geographically, unit sizes more diverse in electric motor drives.

• Q: Asked about procurement strategy and cash flow with long lead times.

  A: Aligned with packagers, cash flow effective with unit revenue recognized soon after capital outlay.

• Q: Asked about inorganic growth and market balance.

  A: Well-positioned for inorganic growth but disciplined; see potential bottlenecks in supply chain.

• Q: Asked about maintenance and other capex.

  A: Incremental uptick in maintenance CapEx due to timing of horsepower addition, other CapEx timing related to fleet growth.