Archrock, Inc. Q3 FY2025 earnings call

• Third quarter performance demonstrated strength in operations and natural gas/compression markets. U.S. natural gas infrastructure build-out supported robust performance. - Contract Operations fleet is younger, larger, and in competitive basins with high-quality customers, showing high utilization (mid-90s for past 12 quarters), low stop activity, and average time on location over 6 years. - Aftermarket Services segment benefits from large base of owned compression, driving strong activity and repeat business. - Capital allocation strategy focuses on growing the business, with commitment to returns-based approach, generating positive free cash flow after dividend, and using buybacks and dividend increases to return capital to shareholders. - Natural gas demand growth, including U.S. LNG exports and AI-driven power generation, drives long-term compression industry upturn.

Contract Operations: Third quarter 2025 revenue was $326 million, up 2% compared to the second quarter. Adjusted gross margin percentage was 73%, with underlying contract operations gross margin at 70.4%, up slightly from prior quarter. Utilization exited the quarter at 96%, and the fleet had 4.7 million operating horsepower. Organic horsepower growth of approximately 56,000 horsepower in the quarter. Aftermarket Services: Third quarter 2025 revenue was $56 million, up 20% from the year ago period. Adjusted gross margin percentage was 23%, consistent with guidance.

• Raised 2025 adjusted EBITDA range to $835 million to $850 million from prior range of $810 million to $850 million. - Narrowed growth CapEx guidance to between $345 million and $355 million. - Maintenance CapEx forecasted to be approximately $110 million to $115 million. - Other CapEx expected to be approximately $35 million to $40 million, primarily for new vehicles.

• Commodity price volatility and potential oil volume flattening/decline. - Supply chain constraints, such as Caterpillar engine lead times at 60 weeks. - Market valuation impacts on share repurchase opportunities.

Q: Jim Rollyson asked about capital deployment and margin opportunity.

A: Brad Childers stated growing the business is the top priority, with returns from organic fleet growth being best, and using dividends and share repurchases to return capital. On margins, investments in technology for efficiency and cost management drive improvement.

Q: Douglas Irwin inquired about demand acceleration and growth outlook.

A: Brad Childers mentioned increased LNG project FIDs and data center announcements are driving demand, translating to concrete CapEx guidance for 2026.

Q: Timothy O'Toole asked about lead times and customer behavior.

A: Brad Childers said Caterpillar engine lead times are 60 weeks, with some available units, and no major shifts in customer AMS behavior seen.

Q: Eli Jossen asked about contracting, costs, and margins.

A: Doug Aron and Brad Childers discussed recontracting opportunities due to high utilization, cost trends in low single digits with labor costs in Permian in mid-single digits, and ability to pass on cost increases.

Q: Gabriel Moreen asked about capital return and power procurement.

A: Douglas Aron said they'll continue capital return activities, and Brad Childers stated focus is on deploying capital to grow compression infrastructure to support natural gas for power growth.

Q: Michael Blum asked about 2026 CapEx.

A: Brad Childers said $250 million CapEx is minimum for next year, consistent with prior years' levels and capital efficiency from acquisitions.

Q: Nate Pendleton asked about gas lift markets.

A: Brad Childers said there's a pause in oil-directed gas lift order activity, but gas lift remains critical and will recover.

Q: Joshua Jayne asked about CapEx and NGCSI fleet pricing.

A: Brad Childers said $400-500 million CapEx is foreseeable, and NGCSI fleet pricing will be raised over time.

Q: Steve Ferazani asked about M&A opportunities.

A: Brad Childers said M&A depends on fleet quality, strategic fit, and market conditions.

Q: Elvira Scotto asked about basins other than Permian and asset sales.

A: Brad Childers said 60% of growth is tied to Permian, with growth in other basins, and asset sales average over $95 million per year.