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Archrock, Inc. (AROC)·Q3 2025 Earnings Summary

Executive Summary

  • Archrock delivered strong Q3 2025 results: revenue $382.4M (+31% y/y), GAAP EPS $0.40, adjusted EPS $0.42, and adjusted EBITDA $220.9M; contract ops margin reached 73% (70% ex. a $9.9M tax settlement) .
  • Revenue and EPS exceeded S&P Global consensus: $382.4M vs $379.3M*, and $0.42 vs $0.3925*, respectively; adjusted EBITDA performance was strong vs EBITDA consensus $210.5M* .
  • Full‑year 2025 guidance raised: adjusted EBITDA to $835–$850M (from $810–$850M), cash available for dividend to $526–$531M, with growth capex narrowed to $345–$355M .
  • Strategic and capital actions: $100M buyback authorization increase, Q3 repurchases of ~1.1M shares ($25.4M), quarterly dividend maintained at $0.21/share (20% y/y), and announced redemption of all $300M 6.875% senior notes due 2027 at par (Nov 17, 2025) .
  • Catalysts: guidance raise, sustained high utilization (96%), pricing momentum and AI/LNG demand narrative; potential positive estimate revisions and balance sheet de‑risking via note redemption .

What Went Well and What Went Wrong

What Went Well

  • Record profitability: adjusted EBITDA $220.9M, margin 58%; contract ops adjusted gross margin 73% (70% underlying) on strong pricing and cost execution .
  • Fleet growth and utilization: operating horsepower stable at 4.651M with spot utilization at 96%; sequential fleet growth of ~56,000 HP (ex asset sales) and historically low stop activity .
  • Management confidence and strategic positioning: “We expect…robust 2025 performance to continue into 2026 and beyond,” citing visible AI-driven power and LNG export demand; guidance raised and buybacks expanded .
    • Quote: “Strength in the outlook is underpinned by visible growth in natural gas demand for U.S. LNG exports and emerging demand for AI-driven power.”

What Went Wrong

  • Mix headwinds to unit economics: revenue/Cost per average operating HP/month declined vs Q2 due to NGCS acquisition pricing below legacy and larger average unit size (899 → 927 HP/unit) after divesting small high-pressure gas lift units .
  • Aftermarket services deceleration q/q: AMS revenue fell to $56.2M from $64.8M, and margin held at 23% (down y/y vs 26%) .
  • Non-recurring costs: $3.6M Mach4 amendment fee recorded in other expense; transaction-related, restructuring, and impairment charges impacted GAAP results .

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Total Revenue ($USD Millions)$292.2 $383.2 $382.4
GAAP Diluted EPS ($USD)$0.22 $0.36 $0.40
Adjusted EPS ($USD)$0.28 $0.39 $0.42
Adjusted EBITDA ($USD Millions)$150.9 $212.7 $220.9
Adjusted EBITDA % of Revenue52% 56% 58%

Segment breakdown

Segment MetricQ3 2024Q2 2025Q3 2025
Contract Ops Revenue ($USD Millions)$245.4 $318.3 $326.3
Contract Ops Adjusted Gross Margin ($USD Millions)$165.6 $222.2 $239.6
Contract Ops Adjusted GM %67% 70% 73% (70% underlying)
AMS Revenue ($USD Millions)$46.7 $64.8 $56.2
AMS Adjusted Gross Margin ($USD Millions)$12.3 $14.9 $13.0
AMS Adjusted GM %26% 23% 23%

KPIs and operating metrics

KPIQ3 2024Q2 2025Q3 2025
Operating HP (Period End, Millions)4.179 4.651 4.651
Spot Utilization (Period End)95% 96% 96%
Average Operating HP (Millions)3.757 4.467 4.647
Cash Available for Dividend ($USD Millions)$92.9 $125.1 $135.7
Dividend Coverage (x)3.0x 3.4x 3.7x
Long-term Debt ($USD Billions)$2.236 $2.613 $2.560
Leverage Ratio (x)3.6x 3.3x 3.1x

Consensus vs Actual (S&P Global)

MetricQ1 2025Q2 2025Q3 2025
Revenue Consensus Mean ($USD Millions)*$342.5*$365.8*$379.3*
Actual Revenue ($USD Millions)$347.2 $383.2 $382.4
Primary EPS Consensus Mean ($USD)*$0.37*$0.34*$0.3925*
Actual Adjusted EPS ($USD)$0.42 $0.39 $0.42
EBITDA Consensus Mean ($USD Millions)*$185.9*$197.6*$210.5*
Company Adjusted EBITDA ($USD Millions)$197.8 $212.7 $220.9

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious Guidance (Q2 2025)Current Guidance (Q3 2025)Change
Adjusted EBITDA ($USD Millions)FY 2025$810–$850 $835–$850 Raised low end by $25M
Cash Available for Dividend ($USD Millions)FY 2025$502–$527 $526–$531 Raised range
Contract Ops Revenue ($USD Millions)FY 2025$1,260–$1,280 $1,265–$1,280 Slight increase at low end
Contract Ops Adjusted GM %FY 202569–71% 71.0–71.5% Raised midpoint/low end
AMS Revenue ($USD Millions)FY 2025$205–$215 $210–$220 Raised
AMS Adjusted GM %FY 202523–24% 23–24% Maintained
SG&A ($USD Millions)FY 2025$151–$147 $150–$148 Minor adjustment
Growth Capex ($USD Millions)FY 2025$340–$360 $345–$355 Narrowed range
Maintenance Capex ($USD Millions)FY 2025$110–$120 $110–$115 Narrowed down
Other Capex ($USD Millions)FY 2025$35–$40 $35–$40 Maintained
Dividend per Share ($USD)Q3 2025$0.21 (Q2 declared) $0.21 (Q3 declared) Maintained y/y +20%

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
AI/data center power demandHighlighted emerging AI-driven power demand; bookings into 2026; robust backlog “Emerging demand for AI-driven power” as core driver alongside LNG; expects durable upturn Strengthening
LNG export demandVisible growth in LNG exports; basin diversification (Permian-led, Haynesville/Eagle Ford/Marcellus activity) “U.S. demand expected to grow >17 Bcf/d by 2030”; confident participation Strengthening
Supply chain lead timesTariff impact low single digits; pricing locked for orders Cat gas-drive engines ~60-week lead times; some spot availability at packagers Tightening
Pricing and marginsPricing up; adjusted gross margin ~70% for second straight quarter (Q1) and third straight (Q2) Installed base pricing increased; underlying contract ops margin 70.4% plus $9.9M tax benefit; continued pricing opportunity Sustained strength
Contract terms/time on location3–5 year terms; average >6 years time on location (Q1) Predominantly at higher end (5 years); >6 years average; repricing mechanisms on 60–65% of contracts Longer duration, annual repricing
Electric vs gas-drive mix~30% of newbuild capex toward electrics; constrained by power availability Mix shift toward gas-drive continues due to grid constraints; electrics 20–25% (from Q2 color) Moderating electric mix
Regional trendsPermian 60–80% of growth; others incremental (DJ, Eagle Ford, Marcellus) Permian ~60% of growth, could be higher; bookings also in Haynesville, Rockies, Northeast Permian-led, others rising

Management Commentary

  • “We expect the U.S. natural gas infrastructure build out…to continue into 2026 and beyond…underpinned by visible growth in natural gas demand for U.S. LNG exports and emerging demand for AI-driven power.”
  • “We grew our fleet by 56,000 horsepower sequentially, after adjusting for asset sales…delivered a leverage ratio of 3.1x.”
  • CFO: “We intend to…redeem all $300 million of our outstanding senior notes due 2027 at par…Our leverage ratio at quarter end was 3.1 times.”
  • On margins: “Underlying operating profitability was 70.4%…Results further benefited from the receipt of a $9.9 million cash tax settlement.”
  • On technology: telemetry and edge sensors, big-data engine driving cost efficiency and runtime improvements .

Q&A Highlights

  • Capital allocation: priority on organic fleet growth IRRs; continued dividend growth and opportunistic buybacks given valuation dislocation; added $100M to repurchase authorization (~$130M capacity) .
  • Repricing and contract duration: annual repricing via indices/openers on ~60–65% of contracts; average time on location >6 years, with strategic MSAs supporting stability .
  • Lead times and costs: Cat engines ~60 weeks; cost inflation low single digits ex labor (Permian mid-single digits); lube oil moderated with crude .
  • Demand drivers: acceleration in LNG FIDs and data center projects; pipeline gas exports to Mexico peaked; durable compression demand outlook .
  • Mix and margins: NGCS pricing slightly below legacy fleet; opportunity to move rates to market over time; AMS strong but seasonally mixed .

Estimates Context

  • Q3 2025 revenue and EPS beat consensus: $382.4M vs $379.3M* and $0.42 vs $0.3925*, respectively .
  • Company adjusted EBITDA of $220.9M was above EBITDA consensus $210.5M*; note definitional differences vs S&P “EBITDA” .
  • Guidance raise (adj. EBITDA $835–$850M; cash available for dividend $526–$531M) implies potential upward pressure on FY models .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Q3 delivered clean beats on revenue and adjusted EPS vs consensus, with robust adjusted EBITDA and margins; underlying contract ops margin is sustainably around 70% .
  • The narrative—AI/data center power + LNG—continues to firm; order book visibility supports a minimum $250M growth capex in 2026 despite softer oil macro .
  • Capital returns remain attractive: 3.7x dividend coverage, $0.21/share quarterly dividend, expanded buyback capacity, and balance sheet de‑risking via note redemption at par .
  • Pricing power and annual repricing mechanisms across ~60–65% of contracts, with longer time on location (>6 years), underpin margin durability .
  • Short-term trading: guidance raise and debt redemption are positive catalysts; watch for continued 96% utilization and any pricing commentary next quarter .
  • Medium-term thesis: compression is structurally tight; Archrock’s scale, fleet quality, and tech-enabled operations support sustained free cash flow growth and shareholder returns .
  • Risks to monitor: supply-chain constraints (60-week engine lead times), Permian labor inflation, and integration/pricing uplift on acquired fleets .

Non-GAAP notes: Q3 adjusted gross margin benefited by a $9.9M sales/use tax settlement; company reported a $3.8M net gain on asset sales and a $3.6M Mach4 amendment fee in other expense .