Archrock Q1 2025 Earnings Report

Archrock EPS Results

• Actual EPS: $0.42
• Consensus EPS: $0.39
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: N/A

Archrock Revenue Results

• Actual Revenue: $347.16 million
• Expected Revenue: $342.98 million
• Beat/Miss: Beat by +$4.19 million
• YoY Revenue Growth: N/A

Archrock Announcement Details

• Quarter: Q1 2025
• Date: 5/5/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 10:30AM ET

Archrock (NYSE:AROC), together with its subsidiaries, operates as an energy infrastructure company in the United States. The company operates in two segments, Contract Operations and Aftermarket Services. It engages in the designing, sourcing, owning, installing, operating, servicing, repairing, and maintaining of its owned fleet of natural gas compression equipment to provide natural gas compression services. The company also sells over-the-counter parts and components; and provides operations, major and routine maintenance, overhaul, and reconfiguration services to customers who own compression equipment. It serves integrated and independent oil and natural gas processors, gatherers, and transporters. The company was formerly known as Exterran Holdings, Inc. and changed its name to Archrock, Inc. in November 2015. Archrock, Inc. was founded in 1990 and is headquartered in Houston, Texas.

Archrock Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good morning. Welcome to Archrock First Quarter twenty twenty five Conference Call. Your host for today's call is Ms. Megan Repine, Vice President, Investor Relations at Archrock. I will now turn the call over to Ms.

[Operator]

Repine. You may begin.

[Megan Repine, VP - IR at Archrock]

Thank you, Van. Hello, everyone, and thanks for joining us on today's call. With me today are Brad Childers, President and Chief Executive Officer of Archrock and Doug Aaron, Chief Financial Officer of Archrock. Yesterday, Archrock released its financial and operating results for the first quarter of twenty twenty five. If you have not received a copy, you can find the information on the company's website at www.archrock.com.

[Megan Repine, VP - IR at Archrock]

During this call, we will make forward looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 based on our current beliefs and expectations as well as assumptions made by and information currently available to Archrock's management team. Although management believes that the expectations reflected in such forward looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the Securities and Exchange Commission for a list of factors that may cause actual results to differ materially from those in the forward looking statements made during this call. In addition, our discussion today will reference certain non GAAP financial measures, including adjusted net income, adjusted EBITDA, adjusted EPS and cash available for dividend. For reconciliations of these non GAAP financial measures to our GAAP financial results, please see yesterday's press release and our Form eight ks furnished to the SEC.

[Megan Repine, VP - IR at Archrock]

I'll now turn the call over to Brad to discuss R Truck's first quarter results and to provide an update of our business.

[Bradley Childers, President & CEO at Archrock]

Thank you, Megan, and good morning, everyone. Archrock delivered outstanding and once again record setting performance in the first quarter across key financial metrics, operating measures and business segments. Despite macroeconomic factors that have created uncertainty in other sectors of the economy, in the natural gas compression business that we operate, the supportive market conditions we experienced in 2024 remain in place. And the operational transformation of Archrock's business from its prior positioning as well as ongoing investments in our high quality asset base, Innovative processes and technology are driving consistent and repeatable success. Compared to the first quarter of twenty twenty four, we increased our adjusted EPS by over 60% and adjusted EBITDA by more than 50%.

[Bradley Childers, President & CEO at Archrock]

Our fleet remained fully utilized at 96%. And on a sequential basis, we increased our contract compression operating fleet by more than 70,000 horsepower, excluding sales of nonstrategic assets. This growth reflects high return organic investments in new build horsepower. We maintained our sector leading financial position including a record low quarter end leverage ratio of 3.2 times. We continue to increase shareholder returns.

[Bradley Childers, President & CEO at Archrock]

Our quarterly dividend per share was up 15% compared to a year ago and our dividend coverage on this higher dividend level was robust 3.9 times. In addition, we've been repurchasing shares under our buyback utilization authorization in this time of increased financial market volatility. Year to date through May 1, the company has repurchased approximately 23,000,000 or 977,000 shares of our common stock at an average price of $23.22 per share. In addition, the Board has approved a $50,000,000 increase to our existing share repurchase program. After accounting for the recent purchases that I just mentioned, our remaining capacity is at $65,000,000 The increased authorization reflects our confidence in the company's strategy and underscores our commitment to returning capital to shareholders.

[Bradley Childers, President & CEO at Archrock]

Our excellent underlying business performance and financial strength have positioned us to participate in value creating industry consolidation. The integration of Total Operations and Production Services, or TOPS, is progressing as planned. And during the first quarter, we also announced the acquisition of NGCS, which closed on May 1. These accretive transactions are expected to increase our scale, expand our customer relationships and deepen our operations in key regions. It has been great to welcome these highly talented teams, and I'm excited about what we get to accomplish together as our truck.

[Bradley Childers, President & CEO at Archrock]

Before turning to the market, I want to emphasize that we've worked diligently over the past decade to create the best compression company we possibly could. From our world class safety and customer service to our fleet standardization and modernization program to our partnerships with blue chip customers and cutting edge technology, we solidified our position as the compression partner of choice for our customers. I could not be more proud of the stellar results that we're delivering and will continue to push to maximize our performance in the future. Turning to the market. Fundamentals for compression remained strong during the first quarter, including historically high levels of utilization, pricing and profitability.

[Bradley Childers, President & CEO at Archrock]

We have a substantial contracted backlog for 2025,

[Bradley Childers, President & CEO at Archrock]

and we are booking units for 2026 delivery to meet continued strong customer demand. Nevertheless, we are closely monitoring market developments. I want to

[Bradley Childers, President & CEO at Archrock]

share my perspective on short and long term dynamics. Beginning

[Bradley Childers, President & CEO at Archrock]

with

[Bradley Childers, President & CEO at Archrock]

the short term, OPEC's actions to bring more production into the market more quickly and tariff announcements have driven uncertainty and volatility in WTI prices. We're only weeks into this evolving environment, but to date, our customers, both producers and midstreamers have not communicated changes to their development plans for 2025 and have not meaningfully changed their capital programs that would impact beyond 2025. We are, of course, staying close to our customers and are focused on deploying our robust backlog of equipment starts, providing excellent customer service and ensuring we stay closely informed on any changes in market dynamics. Several factors make me optimistic about how well we at Archrock can manage our business in any market. First, we're a late cycle participant in the energy sector.

[Bradley Childers, President & CEO at Archrock]

As our business is tied primarily to existing production levels for natural gas and secondarily to new production additions, it is not as impacted by commodity price volatilities compared to businesses that are more closely tied to drilling and completion. This unique aspect of our business gives us improved visibility and ample time to adjust if necessary, and we're prepared to take decisive action should industry activity moderate and production growth decelerate. Even under this scenario, we believe our business model should continue to benefit from our comparatively more stable production related and midstream infrastructure position. Second, across the energy sector, a capital discipline mandate by investors has resulted in more stable activity levels through both positive and negative commodity price fluctuations. Today, we believe there is little, if any, excess or spare compression equipment in the market.

[Bradley Childers, President & CEO at Archrock]

Third, more specific to Archrock, our seasoned management team has demonstrated success in driving profitability and cash flow improvements through fleet standardization, technology implementation and innovative process improvements. In addition, we've prioritized balance sheet strength and flexibility through prudent capital allocation. Today, we have the lowest leverage ratio among our peers and in our company's history since becoming Archrock. Finally, on this topic of short term perspective, I want to reiterate that as I opened on the call, we continue to see constructive market conditions for our compression business, Specifically, stop activity year to date has been at historically low levels. Second, activity in starts remains on schedule with our 2025 business plan, and we have not seen our customers delay compression additions.

[Bradley Childers, President & CEO at Archrock]

And third, booking activity remains robust as we continue to book primarily large horsepower units into 2026 at a pace consistent with our last four quarters. Shifting to the long term, we believe the growth in global natural gas demand continues to support infrastructure investment in The U. S. For decades to come. We expect LNG demand, exports to Mexico, power generation and the emerging opportunity presented by the onshoring of AI data centers to require a significant call on U.

[Bradley Childers, President & CEO at Archrock]

S. Natural gas production. To support this, The U. S. Will need to make substantial investments to expand the natural gas transportation infrastructure.

[Bradley Childers, President & CEO at Archrock]

This includes gathering systems, processing plants, pipelines and compression. Moving on to our segments. Contract operations fundamentals and execution remained excellent during the quarter. Our fleet was fully utilized with utilization exiting the quarter at a rate of 96%. Based on what we see in the market today, we expect to be able to maintain utilization in the mid-90s this year.

[Bradley Childers, President & CEO at Archrock]

Looking at period end operating horsepower in the first quarter of twenty twenty five compared to the fourth quarter of twenty twenty four, we delivered over 70,000 in active horsepower growth, excluding approximately 15,000 horsepower in non core asset sales. As already mentioned, stop activity during the quarter was at record lows. As organic horsepower growth continues, we closed our acquisition of NGCS on May 1. Acquiring this portfolio of high quality, large horsepower and electric compression assets builds on our efforts and drives durable profitable growth for our truck shareholders. Monthly revenue per horsepower also moves higher to $23.54 during the first quarter of twenty twenty five, a company record.

[Bradley Childers, President & CEO at Archrock]

And we achieved a quarterly adjusted gross margin percentage of 70% for the second quarter in a row. The aftermarket services segment had a solid quarter during what is typically a seasonally slower period. Revenues were up 3% year over year due to consistent service work with repeat customers and higher pricing. First quarter profitability exceeded our guidance expectation as we continue to focus on higher quality and higher margin work. Shifting to our capital allocation framework for 2025.

[Bradley Childers, President & CEO at Archrock]

We are committed to our prudence and returns based approach. Yesterday, we reaffirmed our 2025 growth capital plan, which includes between $330,000,000 and $370,000,000 of investment in our fleets. These investments are underpinned by multiyear contracts with blue chip customers. The IRRs at which expect to invest new build capital are strong, and we will continue to meet the needs of our customer base through new build investments that support the sustainable growth in U. S.

[Bradley Childers, President & CEO at Archrock]

Oil and gas production that we see ahead. As we invest in these compelling opportunities, we're committed to maintaining an industry leading balance sheet. We plan to maintain a leverage ratio of between three to 3.5 times. This underpins our ability to execute on our plans and opportunistically adapt to market conditions. Finally, as we invest, we are also increasing capital returns to shareholders.

[Bradley Childers, President & CEO at Archrock]

We expect to continue to grow our dividends over time along with growth in our profits. And should our stock remain undervalued relative to the strength of our business, we will continue to use buybacks as a tool for value creation. We entered the year with excitement about what we are positioned to deliver in 2025 and beyond. Our performance is exceeding expectations with one quarter in the books, and we look forward to integrating MGCS' high quality operations into Archrock. I'm proud of the performance that our team continues to deliver.

[Bradley Childers, President & CEO at Archrock]

We are focused on what we can control, starting our backlog of committed new compression unit additions, providing exceptional customer service to our customers, maintaining a solid balance sheet, maximizing our profitability and prudent capital allocation. With our production oriented business and best in class operation, I'm confident that Archrock will do very well in the short term and thrive in the long term. With that, I'd like to turn the call over to Doug for a review of our first quarter performance and to provide additional color on our updated 2025 guidance.

[Doug Aron, SVP & CFO at Archrock]

Thanks, Brad. Let's look at a summary of our first quarter results and then cover our updated financial outlook for 2025. Net income for the first quarter of twenty twenty five was $71,000,000 Excluding transaction related and restructuring cost and adjusting for the associated tax impact, we delivered adjusted net income of $74,000,000 or $0.42 per share. We reported adjusted EBITDA of $198,000,000 for the first quarter twenty twenty five. Underlying business performance was strong in the first quarter as we delivered higher total adjusted gross margin dollars for contract operations and aftermarket services on a sequential basis.

[Doug Aron, SVP & CFO at Archrock]

Results further benefited from $7,000,000 in net asset sale gains related to non strategic horsepower sales. Turning to our business segments. Contract operations revenue came in at $300,000,000 in the first quarter, up 5% compared to the fourth quarter of twenty twenty four and 35% compared to the prior year period. The increase reflects organic horsepower growth and higher pricing. Compared to the fourth quarter, we grew our adjusted gross margin dollars by more than $10,000,000 We delivered a record adjusted gross margin percentage of 70% for the second straight quarter.

[Doug Aron, SVP & CFO at Archrock]

In our aftermarket services segment, we reported first quarter twenty twenty five revenue of $47,000,000 up compared to the fourth quarter of twenty twenty four of $40,000,000 First quarter 20 20 5 AMS adjusted gross margin percentage was 25% compared to the fourth quarter of last year and prior year period of 23%. We exited the quarter with total debt of $2,300,000,000 and strong available liquidity of $590,000,000 Our leverage ratio at quarter end was 3.2 times calculated as quarter end total debt divided by our trailing twelve month EBITDA. This was down from 3.3 times in the fourth quarter of twenty twenty four and was consistent with prior year period reflecting our strong operating performance and prudent acquisition financing. On May 1, we closed the NGCS transaction. Archrock issued 2,250,000.00 new Archrock common shares to the sellers and funded the cash portion of the total consideration with available capacity under our ABL credit facility.

[Doug Aron, SVP & CFO at Archrock]

This financing strategy keeps us on track to achieve our financial targets, including our objective of maintaining a consistent leverage ratio of three to 3.5 times. The strong financial flexibility I just described continue to support increased capital returns to shareholders. We recently declared a first quarter dividend of $0.19 per share or $0.76 on an annualized basis. This is consistent with the fourth quarter dividend level and up approximately 15% year over year. Cash available for dividend for the first quarter of twenty twenty five totaled $132,000,000 leading to quarterly dividend coverage of 3.9 times.

[Doug Aron, SVP & CFO at Archrock]

In addition to increasing the dividend year to date through May 1, we repurchased approximately 977,000 shares for approximately $23,000,000 at an average price of $23.22 per share. This leaves $65,000,000 in remaining capacity for additional share repurchases on the replenished authorization. Turning to our updated outlook. Archrock increased its 2025 annual guidance to reflect first quarter outperformance and to include the NGCS acquisition. Our revised guidance reflects eight months of contribution from the transaction.

[Doug Aron, SVP & CFO at Archrock]

We are raising our 2025 adjusted EBITDA range to seven ninety million dollars to $830,000,000 from the prior range of $750,000,000 to $790,000,000 Segment level revenue and adjusted gross margin detail can be found in our earnings release issued yesterday afternoon. Turning to capital, including NGCS, we still expect growth CapEx to total between $330,000,000 and $370,000,000 to support investment in our new build horsepower and repackage CapEx to meet continued customer demand. Our growth CapEx is underpinned by multiyear contracts and is expected to be first half weighted, and we expect we will be able to tighten our guidance range as the year progresses. Maintenance CapEx is now forecasted to be approximately 110,000,000 to $120,000,000 up slightly compared to our prior range to reflect planned overhaul activity for the newly acquired fleet. We also continue to anticipate approximately $35,000,000 to $50,000,000 in other CapEx primarily for new vehicles.

[Doug Aron, SVP & CFO at Archrock]

Total capital expenditures are expected to be funded by operations and with the potential for additional support from non strategic asset sale proceeds as we continue to high grade our fleet. Before we open the line for questions, I want to conclude by emphasizing that we believe our production oriented business, high graded operation and outstanding financial position provide us with differentiated cash flow stability. These factors, combined with our robust and committed backlog, give us good visibility into our outlook this coming year. Even in the face of macroeconomic uncertainty, our strategy hasn't changed. We will drive value and positive impact for our partners by providing excellent customer service and will maximize value for our shareholders.

[Doug Aron, SVP & CFO at Archrock]

With that, Van, can you please open the line for questions?

[Operator]

Your first question comes from the line of Jim Rolson from Raymond James. Please go ahead.

[Jim Rollyson, Director & Equity Research Analyst at Raymond James Financial]

Hey, guys. Good morning. Nice quarter and update with the new fleet. Brad, curious if you kind of look at the negative macro headwinds on oil you referenced and kind of combine that with just the continued positive outlook on the gas side. I mean, we've had additional LNG export facility permits approved under the new administration.

[Jim Rollyson, Director & Equity Research Analyst at Raymond James Financial]

Kind of curious how you think about the impact we might see if the Permian growth slows down like we've seen some budget adjustments already and obviously we need that associated gas. I'm curious as you kind of look at the different basins, we get some kind of flowing of growth in the oily basins, we're obviously going to need the gas from somewhere. Maybe how you guys think about that and how you feel like you're positioned for that type of scenario?

[Bradley Childers, President & CEO at Archrock]

Thanks, Jim. A few thoughts in response to the question. First of all, what we've seen publicly right now is some of the producers, especially looking at CapEx reductions in 2025 of in the 5% range with one coming out more in the 10% range just yesterday. And so that's a fairly modest adjustment to the overall CapEx spend. But really critically, the CapEx spend for 2025 that we have in our backlog and contracts we have in hand with our customers is fully committed through the year.

[Bradley Childers, President & CEO at Archrock]

And so we see very little impact no impact to 2025 deployment of the growth that is in the books. So that's one factor that hit us in the market when we looked at it. Second, I'll remind you that natural gas, as you pointed out with LNG projects, is very much a demand driven commodity, and it has to come from somewhere. Even if we see some flattening or reduction of the growth cycle on oil in the Permian, we still expect to see natural gas grow measurably out of the same production just based upon the characteristics of the play into the basin. And then finally, I'll point out that for Archrock, we have the benefit of having a footprint in every major oil and gas reducing play.

[Bradley Childers, President & CEO at Archrock]

So we have the ability to adjust and go to where the drill bit is going to bring the gas to market because we already have operations in those locations. So I think that those that combination of factors tells us that the direct impact to our business in 2025 is not going to be there. Beyond 2025, I think in a sustained oil price deterioration especially that we could see a deceleration of growth on the oil side, but it's hard to see that for natural gas.

[Jim Rollyson, Director & Equity Research Analyst at Raymond James Financial]

Understood. Appreciate the thoughts. And if you kind of follow-up on the tariff side of things, curious what you guys are hearing from your suppliers potentially equipment pricing just given that over the last few years the tight market plus inflation, pretty meaningful inflation in equipment costs have driven up your pricing on new equipment to sustain returns. Just curious kind of how you guys are seeing that potentially play out.

[Bradley Childers, President & CEO at Archrock]

First, I'll respond by even with our vendors, there still remains a lot of uncertainty as to the long term impact placement of and impact of tariffs. Second, for us, especially when I think about our purchased equipment and backlog of equipment, that pricing is locked in for orders that are in the book for 'twenty five and the orders that are going to come in, in 2026. It's substantially totally locked in from a CapEx expenditure perspective. And then finally, on parts and materials, we think that the impact of tariffs on our vendors right now as best we've been able to estimate and measure are in the low single digit range as they impact our business. And our business plan and our guidance for 2025 reflect what we think could be the increased impact of costs due to tariff increases based on that best estimate so far.

[Operator]

Our next question comes from the lines of Gab Marin from Mizuho Securities.

[Gabriel Moreen, Managing Director at Mizuho Financial Group, Inc.]

Can I ask a little maybe to expand on sort of the decisive actions that you kind of talked about today on the call in the press release? Are you mostly thinking about costs, CapEx, you know, getting more defensive on the balance sheet and capital allocation? Just curious kind of which markers you're most focused on when you made when you're talking about decisive actions.

[Bradley Childers, President & CEO at Archrock]

I can address that. First, before I do, the thing I really want to emphasize, however, is that in the environment we see today, we need to be aware and stay close to our customers, stay close to the market dynamics and make sure that we don't ignore the macro environment that has implications for primarily beyond '25 impact to the oil and gas sector. But I'm going to emphasize that right now, what we see is significant positives in the fundamentals driving our business. Historically low level of stop activity, great levels of start activity with our customers not deferring starts in 2025 based on anything that we've seen, and bookings that continue apace consistent with the prior four quarters. But should a sustained oil price require a moderation of activity in the sector and we see that that could if that could impact our business, we have the benefit in the compression business of great visibility as a lag time business.

[Bradley Childers, President & CEO at Archrock]

We will get to see it coming quarters before it hits, and that gives us ample time to adjust a structure that has great flexibility. I'm going to point out that our OpEx is highly variable. So we have the ability to reduce our OpEx very quickly. And similarly, our CapEx is highly variable. We have the ability within a couple of quarters to turn down our CapEx.

[Bradley Childers, President & CEO at Archrock]

That gives us just a remarkable amount of overall operational flexibility to take out both CapEx and OpEx to keep this business generating cash flow. And in those times, we'll generate that cash flow and balance how well we get to direct those cash flows to return it to our investors, to repay debt or otherwise. So it's just a business that has some really strong built in levers, including visibility and highly variable cost structure on both OpEx and CapEx.

[Gabriel Moreen, Managing Director at Mizuho Financial Group, Inc.]

Thanks, Brad. And maybe if I can ask a follow-up on kind of pricing conversations with customers in real life sensitivity. But with the guidance that you updated for NGCS, I guess any changes in terms of your pricing assumptions around renewals for your fleet this year or discussions in customers? And then just one more on guidance if I could. It doesn't look like you changed your growth CapEx at all for NGCS.

[Gabriel Moreen, Managing Director at Mizuho Financial Group, Inc.]

Was that always in the plan? Or is there some shifting going in there?

[Bradley Childers, President & CEO at Archrock]

So with the acquisition and the environment, no changing in our overall pricing strategy. I will point out that our pricing increases have moderated over the last couple of quarters as we have substantially caught up from the inflationary period that drove a lot of the pricing increase over the last three years. Those price increases have moderated. But with this exceptionally tight compression market, we're at 96% utilization. We believe the industry is in the same really tight level of utilization.

[Bradley Childers, President & CEO at Archrock]

There's no spare equipment in the market. That gives us the opportunity to invest at solid returns, and that's what we continue to do. Pricing will reflect that returns based approach as well, though it has moderated, as I described. For CapEx, there is no reason for us to increase our CapEx guidance. We can absorb the NGCS backlog of new equipment into our existing guidance without having to increase it.

[Bradley Childers, President & CEO at Archrock]

It's one of the benefits of the transaction that's immediately accretive to earnings per share and to cash flow, and it gives us the ability to absorb this acquisition with only positive financial impacts and no additional material investment in equipment required outside of what we can absorb.

[Operator]

Your next question comes from the line of Doug Irwin from Citi. Please go ahead.

[Doug Irwin, Vice President at Citi]

Hey, thanks for the question. I wanted to start with the NGCS deal. I was wondering if you could maybe provide a little more detail around the assumptions behind your guided sub-7x multiple. Does that rely on some of that incremental horsepower being brought on? Or is that pretty immediate?

[Doug Irwin, Vice President at Citi]

And maybe just any detail around potential synergies or upside that might drive that multiple lower would be helpful as well.

[Doug Aron, SVP & CFO at Archrock]

Yes. Thanks for the question. So look, the revised guidance that we put out last night, I think, looks at our Q1 outperformance on the base business. And if you think about midpoint to midpoint, we've raised guidance by $40,000,000 last night, and you should think of that as about $10,000,000 of first quarter outperformance on the base business and then roughly $30,000,000 of NGCS for eight months. If you going back and then trying to tie back to that $7,100,000 or 7.1 times sort of purchase price, which I think we actually might have reflected just inside of seven times.

[Doug Aron, SVP & CFO at Archrock]

There is still some backlog that will come online. When we talked about that, we see that as sort of a July run rate annualized for next year. So no synergies were included in that initial estimate. We closed that transaction last Thursday. As Brad mentioned, really excited to welcome that team on, but everything we've seen of them so far has not given us any indication that it will be different than that.

[Doug Aron, SVP & CFO at Archrock]

And then to the point on synergies, while none were modeled, we'll certainly work hard to see if there could be upside there. But hopefully, that gives you the color to understand how we got from previous guidance to the one we gave last night.

[Doug Irwin, Vice President at Citi]

Yes. That's helpful detail. Thanks. And then maybe a follow-up on one of the earlier comments around just the broader natural gas demand. I was wondering if you can maybe talk a little bit about compression intensity just in the Permian versus dry gas basins And maybe to the extent that we do see a shift in activity towards the Haynesville or more dry gas production, what that might mean for just overall tightness in the market moving forward?

[Bradley Childers, President & CEO at Archrock]

The compression intensity in the Permian is definitely the highest intensity that we see in the marketplace today. I mean that's just true of associated gas plays in general that per end, they require more compression than certainly some of the dry gas plays like the Haynesville that can be and still remains very highly pressured, if not over pressured. And so as you see that migration from the Permian into other plays, you will see various levels of compression intensity required. So you're right in thinking that if there's a major migration away from the Permian, then it's going to not have the same level of compression intensity. That said, for us, the Haynesville, because of its overpressured nature, is about 2% to 3% of our fleet.

[Bradley Childers, President & CEO at Archrock]

It's a very small portion of it today, and we wouldn't expect that to increase materially. But we also know that when we look around to the Eagle Ford, to the Marcellus, Utica, the DJ and the Mid Continent, that if capital is no longer moving into the Permian, the capital will move to those other plays to drive some of that gas performance, especially that can make it to the Gulf Coast. And fortunately for us, we have an operating footprint where we get to mitigate that lack of growth in the Permian. It's probably going be a lack of growth, not a decline, by mitigating that with growth in other players.

[Operator]

Your next question comes from the lines of Jeremy Tonet from JPMorgan. Please go ahead.

[Eli Jossen, Equity Research Vice President at JP Morgan]

Hey, this is Eli Johnson on for Jeremy. Maybe just to think about the deals you guys are signing now into 2026. I know you've been very clear that the market remains tight, but are you seeing any changes in terms of month to month shifts? Are you getting the same amount of term that you were before we saw this increased market volatility?

[Bradley Childers, President & CEO at Archrock]

No and no. I mean, we're not seeing any shift and changes in the terms, pricing at all to accommodate the volumes of gas that we're our customers are wanting us to bring our services on-site to compress. I'm going to point out that the infrastructure investment engine to bring this gas to market, it does not turn on a monthly oil price. It doesn't turn even on a quarterly. Significant infrastructure is going to be required to meet the demand for natural gas that we see in the marketplace ahead.

[Bradley Childers, President & CEO at Archrock]

For the factors we described, combination of AI data centers, LNG exports, exports to Mexico, that, that pipeline of infrastructure work that is required is what we have in our backlog, and we're not seeing a change for what we see in booking for 2026. We also have not seen a change, and we are continuing to book and with bookings that look a lot like they did for the past four quarters.

[Eli Jossen, Equity Research Vice President at JP Morgan]

Got it. That's helpful. And then in your opening remarks, you also talked about mid-90s utilization rates. I know you guys are at 96 now. I don't think you guide to a specific utilization rate.

[Eli Jossen, Equity Research Vice President at JP Morgan]

But just if we see any shifts, is that something that we should keep an eye on as possibly dipping? Or I think or do you think that that should be pretty solid where it's at now through the rest of the year and into 2026?

[Bradley Childers, President & CEO at Archrock]

Whether we're at 95%, ninety seven % in that mid range, it's just a solid level of utilization that primarily will be driven and reflect the amount and timing of horsepower adds. By way of example, horsepower moves into our fleet, that is into the denominator, as soon as it's delivered, even if we have yet to start it. So if we have yet to start it, it's going to have potentially an impact on utilization until we do, which could be a month or two out. Typically, when equipment hits the ground, it starts earning revenue within that thirty to ninety day period of time. But that's one of the things that we see in the fluctuation.

[Bradley Childers, President & CEO at Archrock]

We're just pointing out that in this mid nineties level of utilization, it's effectively just a high level and solid level of utilization that we get to we get to leverage to both deliver value to our investors as well as to manage pricing in the market.

[Operator]

Your next question comes from the line of Salman Akhil from Stifel. Please go ahead.

[Selman Akyol, Managing Director - Energy & Power sector at Stifel Financial Corp]

Thank you. Good morning. Appreciate the time. I just wanted to follow-up on your comments when you talk about the Eagle Ford, Utica, the DJ, the Marcellus in terms of a shift away. Are you seeing any pickup in inquiries from the other basins at all?

[Selman Akyol, Managing Director - Energy & Power sector at Stifel Financial Corp]

Any tone, anything changing from that standpoint?

[Bradley Childers, President & CEO at Archrock]

The answer is yes, but not in contrast to the Permian. The bookings that we have right now remain approximately 70%, eighty % in the Permian, but helpfully 20% to 30% in the other plays. The DJ has a good breakeven price, so that's attracting capital. And we are booking horsepower in several other plays beyond the Permian, but not at the expense of the Permian. We're not seeing a shift away.

[Bradley Childers, President & CEO at Archrock]

We're seeing the addition of.

[Selman Akyol, Managing Director - Energy & Power sector at Stifel Financial Corp]

Got it. Understood. And then just, can you just maybe talk about the demand you're seeing for electric out there? Is it still what it was? Thank you.

[Bradley Childers, President & CEO at Archrock]

Sure. About 30% of our newbuild CapEx budget is still dedicated to electrics, and we still see demand in that market at about that level. But the gating item to more bookings on the electric motor drive side will be the availability of power in the marketplace. And until the power market catches up, there I think we will see the electric motor drives at that level, stay at that level or potentially decline. But to be really clear, we're agnostic.

[Bradley Childers, President & CEO at Archrock]

Whether the customer wants compression with gas drive or electric motor drive, we have a fabulous service offering and fleet and capability to operate and offer both.

[Operator]

Our next question comes from the line of Steve Ferrizani from Sidoti. Please go ahead.

[Steve Ferazani, Senior Equity Analyst at Sidoti & Company]

Good morning, everyone. Appreciate all the detail on the call. Doug, I want Brad, sorry. I wanna ask you about, you know, over the last five to ten years, you talked about the change over in your fleet. It's younger.

[Steve Ferazani, Senior Equity Analyst at Sidoti & Company]

It's higher horsepower. You're much larger. Your customer base is more tied towards blue chips. When we've seen previous cycle slowdowns, how differently are you positioned this time?

[Bradley Childers, President & CEO at Archrock]

Appreciate the question a lot. I'm not going to repeat the whole thing. The one thing I'd still pause and just point out is that right now, we are not seeing a slowdown, but we recognize that we need to stay close to the market and in a sustained low oil price environment that we could. To answer your question directly, this business is completely differentiated and differently positioned from what it was in the past. Number one, if you look in the past, the mix of customers between producers and midstreamers ten years ago was heavily weighted toward producers.

[Bradley Childers, President & CEO at Archrock]

Today, at the top of our customer concentration and the horsepower spread that we offer, it's about fifty-fifty between midstreamers and producers. And even with the producers, as you pointed out, it's much more oriented to the large horsepower gathering portion of that upstream producers' business. That's one factor that just gives us a different level of stability going forward and has positioned us to be much more of an infrastructure and transportation positioned company. That's one factor. Second factor, our fleet quality and high levels of utilization, we would be entering in a different market at the highest level of utilization by at least five to seven percentage points compared to anything we've seen in the past.

[Bradley Childers, President & CEO at Archrock]

So that would give us, I think, a very different position and starting point to endure any change in market conditions. Third, one item I emphasized on the call is that the entire sector has been benefited by the capital discipline mandate that the investment community has put on all of us. I think the result of that one result of that is going to be a very different amplitude and range of performance between upside and downside pressures in the industry. We expect that we're going to have a much more stable overall environment, and we know that we are a part of that too as we've imposed our own capital discipline. We expect to benefit by both achieving a higher peak upside, which is what we're delivering today, as well as a lower downside in utilization and pricing compared to the past.

[Bradley Childers, President & CEO at Archrock]

We think these factors are going to play out very favorably for the industry should market conditions go to a sustained level and a low oil price environment.

[Steve Ferazani, Senior Equity Analyst at Sidoti & Company]

Great. Thanks, Brad. For my follow-up, I just wanted to ask about, you know, in these events, and again, if we see a slower growth, how your customers would typically react and what's in the contracts? One, with these firm commitments, if drilling slows, can they push some of those deliveries to the right in the event they need to? And two, in the event that operators are trying to work within lower cash flow, does that provide any optimism that maybe we see more conversion from purchased to contracted, compression?

[Bradley Childers, President & CEO at Archrock]

On the first point, our contracts are firm. They're binding. They're structured to take or pay contracts. And that said, we do work with our customers if we can to allow them to push equipment out into the right within some limitations. We would also work hard to, if they needed to, put that equipment to work with another customer.

[Bradley Childers, President & CEO at Archrock]

One of the benefits of our business model and one of the primary purposes that the customers like using our business model is we have the ability to put our equipment to work across a broader geography and a broader customer base than the customer can themselves. So we can and will facilitate that cooperatively with our customers where we can, subject to the fact that these are still binding contracts and our customers typically respect the contracts. We have not had a period of time where that has not been the case. So that was the first part of the first question. The second question, remind me.

[Bradley Childers, President & CEO at Archrock]

I think just around

[Steve Ferazani, Senior Equity Analyst at Sidoti & Company]

converting to more contracted versus purchased in the event of

[Bradley Childers, President & CEO at Archrock]

I didn't want to lose track of that. The answer right now is we're seeing, especially in the Permian, a higher level of outsourcing than we've experienced in the past. I think that that's driven by a combination of factors, including capital discipline and capital allocation choices, a tight labor market primarily. And so those are the factors that are encouraging the outsourcing today. I don't think that a change in the price environment will necessarily change the philosophy of the producers of the midstreamers, especially in light of the fact that historically speaking, downturns typically last eighteen to twenty four months, and that doesn't really encourage a philosophical change in capital allocation if people look back at how long these periods last and how the cycle endures.

[Bradley Childers, President & CEO at Archrock]

So I don't expect a major change in capital allocation based on that alone.

[Operator]

Your final question comes from the line of Nat Pendleton from Texas Capital. Congrats

[Nate Pendleton, Vice President at Texas Capital]

on the strong quarter. When we look at the tightness in the space that you have alluded to multiple times, how should we think about the impact on pricing of older compression assets versus new assets? What I'm trying to get at is as the market remains tight, could the spread between the brand what brand new equipment prices at and say assets on their second or third contract compress over time?

[Bradley Childers, President & CEO at Archrock]

I like the question a lot. The short answer is no. Fortunately for us, one of the benefits of the prior period is that we invested in an outstanding fleet of compression equipment over the last decade, certainly including investments over the last five and seven year period of time. And the value of that equipment has gone up considerably based upon the current market pricing. It's allowed us to achieve a different level of returns on our capital than we could in the past.

[Bradley Childers, President & CEO at Archrock]

We do not see overall a difference in pricing between new and used equipment within the limitation of generations of equipment. Here's what I mean by that. We typically can whether it's on a second or third contract application, if a unit is ten years or less, it's a current it's a very current unit that's just as powerful, just as emissions efficient and just as able to be managed through a great control system, whether it's one year old or five years old. When equipment is ten years old to twenty years old, there is a difference in both the power of the engine driving the compressor. There can be a difference in the emissions profile, and there can be a difference in the control technology that best works on that equipment or at least with which that equipment was originally equipped.

[Bradley Childers, President & CEO at Archrock]

And for that, sometimes we do see some pricing differentials. But overall, the short answer is that we don't see strong differentials within the first or second or third contract application.

[Nate Pendleton, Vice President at Texas Capital]

Got it. I really appreciate all that color. And you guys have proven to be an active manager of your fleet horsepower with additional noncore divestments again this quarter. Can you provide some color on how much of your horsepower may be viewed as noncore?

[Bradley Childers, President & CEO at Archrock]

It's very negligible. At the level of utilization that we're achieving in the market and the transformation of the fleet program that we've had in place now for a number of years, it's really more in the nip and tuck stage strategic and surgical removals than it is in wholesale or large blocks. So we're at that stage now where great asset management is going to require that continued surgical approach to our fleet. We have great systems in place. We have great people in place to drive that process.

[Bradley Childers, President & CEO at Archrock]

And we believe that because of the job we're doing on that, it should keep our fleet in a very highly competitive position for years to come.

[Operator]

There are no more questions. I would like to turn the call back over to Mr. Childers for final remarks.

[Bradley Childers, President & CEO at Archrock]

Thank you, everyone, for participating in our Q1 twenty twenty five review. I look forward to updating you on our progress next quarter. Thank you.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Megan Repine, VP - IR
• Bradley Childers, President & CEO
• Doug Aron, SVP & CFO

Analysts

• Jim Rollyson, Director & Equity Research Analyst at Raymond James Financial
• Gabriel Moreen, Managing Director at Mizuho Financial Group, Inc.
• Doug Irwin, Vice President at Citi
• Eli Jossen, Equity Research Vice President at JP Morgan
• Selman Akyol, Managing Director - Energy & Power sector at Stifel Financial Corp
• Steve Ferazani, Senior Equity Analyst at Sidoti & Company
• Nate Pendleton, Vice President at Texas Capital