Archrock, Inc. Q2 FY2025 earnings call

• Archrock's second quarter performance was outstanding with record adjusted EPS and EBITDA. Adjusted EPS increased nearly 70% and adjusted EBITDA by more than 60% compared to Q2 2024.
• Fleet remains fully utilized at 96%, and contract compression operating fleet increased by over 368,000 horsepower.
• Completed the NGCS acquisition on May 1 and sold approximately 155 compressors for $71 million.
• Raised quarterly dividend per share by 11% QoQ and 27% YoY with dividend coverage of 3.4x.
• Accelerated share repurchases under buyback authorization.
• Confidence in market driven by growing LNG exports, power generation needs, and onshoring of AI data centers.
• Contract operations had a substantial contracted backlog for the second half of 2025 and is booking units for 2026.
• Aftermarket services revenue was over $60 million, a level not seen since 2018.

Contract Operations: In the second quarter of 2025, contract operations revenue was $318 million, up 6% compared to the first quarter and 41% compared to the prior year period. The adjusted gross margin percentage was a record approximately 70% for the third consecutive quarter. Fleet utilization was 96%, and horsepower stood at 4.7 million, an increase of 368,000 horsepower from the prior quarter. Aftermarket Services: Second quarter 2025 aftermarket services revenue was $65 million, up from $47 million in the first quarter. The adjusted gross margin percentage was 23% in Q2 2025, consistent with guidance.

• Raised 2025 adjusted EBITDA range to $810 million to $850 million from $790 million to $830 million.
• Narrowed growth CapEx guidance for 2025 to between $340 million to $360 million.
• Expects 2026 CapEx not less than $250 million, driven by strong customer demand for natural gas infrastructure.

Q: Elias Max Jossen asked about the outlook for capacity additions in 2026 and beyond, specifically how the order book for 2026 compares to 2025 and organic unit adds.

A: D. Bradley Childers responded that the order book reflects inherent growth, customers are ordering equipment ahead of schedule, and the company sees a minimum investment level indicative of growth ahead.

Q: Elias Max Jossen followed up on pricing outlook and contract terms.

A: D. Bradley Childers said pricing is in mid-single digits year-over-year, expecting to stay in that range. Contract terms target 3-5 year base terms, and units are staying on location longer, with an average of over 6 years since 2024.

Q: James Michael Rollyson asked about the outlook for capacity additions outside the Permian and impact of rig count slowdown.

A: D. Bradley Childers stated the Permian still leads the order book, but other plays like Eagle Ford, Haynesville, etc., also have activity. The company sees continued growth in all shale plays despite Permian dynamics.

Q: Nate Pendleton asked about elasticity of demand for horsepower and durability of the 2026 order book.

A: D. Bradley Childers said the order book is durable and robust, not expecting shifting in spend. Douglas S. Aron added natural gas volumes in North America are growing meaningfully, supporting the minimum CapEx.

Q: Douglas Baker Irwin asked about buybacks vs dividend growth and unpacking updated guidance.

A: D. Bradley Childers said both dividends and buybacks are tools to return capital, with buybacks price-sensitive. Douglas S. Aron explained the $20 million guidance increase includes outperformance in segments, asset sale gains, and other income.

Q: Stephen Michael Ferazani asked about strength in aftermarket services and its extendability.

A: D. Bradley Childers said aftermarket services have performed well due to market demand for equipment maintenance, with some engine sales in the quarter but overall sustainability expected.

Q: Josh Jayne asked about the dislocation between share price and future expectations and buyback aggressiveness.

A: D. Bradley Childers said confidence in the business, transformed platform, and market valuation dislocations make them strategic in using dividends and buybacks to return capital.