Archrock, Inc. Q1 FY2025 earnings call

• Financial Performance: Archrock delivered outstanding results with adjusted EPS up over 60% and adjusted EBITDA up more than 50% compared to Q1 2024. Fleet utilization was 96%, and contract compression operating fleet increased by over 70,000 horsepower. Quarter-end leverage ratio was a record low 3.2 times.
• Shareholder Returns: Quarterly dividend per share up 15% year-over-year with a robust dividend coverage of 3.9 times. Repurchased approximately $23 million of shares, and the Board approved a $50 million increase to the share repurchase program, leaving $65 million remaining capacity.
• Acquisitions: Acquired NGCS on May 1, which includes high-quality, large horsepower, and electric compression assets, expected to increase scale and deepen operations.
• Market Fundamentals: Compression fundamentals strong with historically high utilization, pricing, and profitability, and substantial contracted backlog for 2025.
• Capital Allocation: 2025 growth capital plan between $330 million and $370 million for fleets, maintenance CapEx forecasted at ~$110 million to $120 million, and other CapEx ~$35 million to $50 million, aiming to maintain a leverage ratio of 3 to 3.5 times.

Contract Operations: In the first quarter of 2025, contract operations revenue was $300 million, up 5% compared to the fourth quarter of 2024 and 35% compared to the prior year period. The fleet was fully utilized at 96%, and monthly revenue per horsepower reached a company record of $23.54. The adjusted gross margin percentage was 70% for the second consecutive quarter. Aftermarket Services: Revenues were up 3% year-over-year due to consistent service work with repeat customers and higher pricing, with profitability exceeding guidance expectations.

• Revised 2025 adjusted EBITDA range raised to $790 million to $830 million from prior $750 million to $790 million, reflecting Q1 outperformance and NGCS acquisition contribution. Growth CapEx remains between $330 million and $370 million, maintenance CapEx ~$110 million to $120 million, and other CapEx ~$35 million to $50 million.

• Macroeconomic factors creating uncertainty in other sectors, potentially impacting oil and gas sector activity beyond 2025. - Tariff impacts on equipment pricing and costs, currently estimated to be in the low single digits but monitored closely.

Q: Jim Rollyson from Raymond James asks about negative macro headwinds on oil and impact on gas side, especially Permian growth slowdown.

A: Bradley Childers responds that 2025 CapEx backlog with customers is fully committed, natural gas is expected to grow from Permian production, and Archrock has a footprint in all major oil and gas plays to adjust to growth shifts.

Q: Gab Moreen from Mizuho Securities asks about decisive actions, pricing conversations, and NGCS guidance.

A: Bradley Childers talks about operational flexibility with variable OpEx and CapEx, no change in pricing strategy despite moderated price increases, and NGCS acquisition is within existing growth CapEx plan.

Q: Doug Irwin from Citi asks about NGCS deal assumptions and natural gas demand shift.

A: Doug Aron explains revised guidance includes Q1 outperformance and 8 months of NGCS contribution, and Bradley Childers discusses compression intensity in Permian vs dry gas basins and potential market shifts.

Q: Selman Akyol from Stifel asks about inquiries from other basins and electric compression demand.

A: Bradley Childers states there are inquiries from other basins with bookings in DJ, Marcellus, etc., and electric demand is ~30% of newbuild CapEx budget, tied to power availability.

Q: Steve Ferazani from Sidoti asks about customer reactions to slower growth and contract conversions.

A: Bradley Childers mentions contracts are firm but can be adjusted cooperatively with customers, and sees higher outsourcing in Permian due to capital discipline and labor market factors.

Q: Nate Pendleton from Texas Capital asks about pricing spread between new and old assets and noncore horsepower.

A: Bradley Childers says there are negligible noncore horsepower divestments, and pricing differentials for older equipment are minimal within 10 years, but increase for equipment over 10-20 years.