Archrock Q2 2025 Earnings Report

Archrock EPS Results

• Actual EPS: $0.39
• Consensus EPS: $0.37
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.23

Archrock Revenue Results

• Actual Revenue: $383.15 million
• Expected Revenue: $366.34 million
• Beat/Miss: Beat by +$16.81 million
• YoY Revenue Growth: +41.60%

Archrock Announcement Details

• Quarter: Q2 2025
• Date: 8/4/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, August 5, 2025
• Conference Call Time: 11:30AM 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 Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Record Q2 Performance: Adjusted EPS rose nearly 70% YoY and adjusted EBITDA increased over 60%, while fleet utilization hit 96% and horsepower grew by 368,000 from acquisitions and organic investments.
• Positive Sentiment: Strengthened balance sheet with a 3.3x leverage ratio, an 11% quarterly dividend increase (27% YoY) with 3.4x coverage, and 2.7 million shares repurchased averaging $18.84 per share.
• Positive Sentiment: Raised 2025 adjusted EBITDA guidance to $810–850 million and narrowed 2025 growth CapEx to $340–360 million, while targeting at least $250 million in 2026 growth investments underpinned by multiyear contracts.
• Positive Sentiment: Completed the sale of 155 compressors (47,000 HP) for $71 million to FlowCo, using proceeds to fund new build equipment and reduce net capital expenditures.
• Positive Sentiment: Aftermarket Services posted over $60 million in Q2 revenue—the highest since 2018—driven by strong service demand and contract maintenance work despite mixed parts/margin mix.

Presentation

[Operator]

Good morning, and welcome to the Archrock Second Quarter twenty twenty five Conference Call. Your host for today's call is Megan Repine, Vice President of Investor Relations at Archrock. I will now turn the call over to Ms. Repine. You may begin.

[Megan Repine, VP - IR at Archrock]

Thank you, Regina. 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, we released our financial and operating results for the 2025. 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 SEC 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, adjusted gross margin and cash available for dividend. For reconciliations of these non GAAP financial measures to the most directly comparable 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 Archrock's second quarter results and to provide an update of our business.

[D. Bradley Childers, President & CEO at Archrock]

Thank you, Megan, and good morning, everyone. Archrock's second quarter performance was outstanding. While global macro uncertainty and stock market volatility continued during the second quarter, solid demand for natural gas and compression persisted. Our operational and financial execution continued to stand out and included several quarterly records for the company. This reflected strong underlying business performance and robust earnings power from two accretive acquisitions over the last four quarters.

[D. Bradley Childers, President & CEO at Archrock]

We recorded record adjusted EPS and adjusted EBITDA during the quarter. Compared to the 2024, we increased our adjusted EPS by nearly 70 and adjusted EBITDA by more than 60%. Our fleet remained fully utilized at 96% and on a sequential basis, we increased our contract compression operating fleet by more than 368,000 horsepower. This growth was driven by the addition of the NGCS fleet that closed on May 1 as well as high return organic investments in new build horsepower. Notwithstanding the funding of $297,000,000 for the NGCS acquisition, we maintained our sector leading financial position, including a low quarter end leverage ratio of 3.3x, driven by the stability of our cash flows and prudent acquisition financing.

[D. Bradley Childers, President & CEO at Archrock]

And we raised our quarterly dividend per share by 11% compared to the prior quarter and 27% compared to a year ago, all while maintaining robust dividend coverage of 3.4x. We also accelerated the repurchase of shares under our buyback authorization given what we believe is a dislocation between our stock performance and the strength of our current business fundamentals and future expectations. Since the inception of our share repurchase program in April 2023, we've repurchased 2,700,000.0 shares of common stock at an average price of $18.84 per share for an aggregate of more than $51,000,000 I want to be clear, based on what we are experiencing in the market today in both our overall activity and bookings, we expect to grow our business and our profits through the rest of 2025, in 2026 and beyond. In short, we have confidence in what we're seeing in the market, confidence in our strategy and confidence in our operations and execution. Let me unpack each of these a bit.

[D. Bradley Childers, President & CEO at Archrock]

Confidence in the market. We expect growing LNG exports and power generation needs to create a significant demand pull for U. S. Natural gas production and midstream infrastructure, including natural gas compression across all major oil and gas basins. More to come on that in a bit.

[D. Bradley Childers, President & CEO at Archrock]

Confidence in our strategy. We've solidified our position as the compression partner of choice with our customers. We've built a modern, scalable and geographically diverse fleet positioning us to meet this robust customer demand. Confidence in our operations and execution. Beyond our assets, we've invested in the right people, training and development and processes and technology to deliver sustainable and attractive growth in earnings, free cash flow and returns to our shareholders.

[D. Bradley Childers, President & CEO at Archrock]

Next, I want to dive more into the market. Fundamentals for compression are strong, and the outlook supports our expectation for continued high levels of utilization of our existing fleets and growth opportunities for new build equipment. We expect strength and durability of natural gas demand growth will provide a significant tailwind for our business well beyond 2025. LNG demand, exports to Mexico, power generation and the emerging opportunity presented by the onshoring of AI data centers are expected to require a significant call on U. S.

[D. Bradley Childers, President & CEO at Archrock]

Natural gas production to the tune of an incremental 20 to 30 Bcf a day by 2030 depending upon the forecast. Simply put, we need all the gas we can get. And to support this production, The U. S. Will need to make substantial and broad based investments to expand the natural gas transportation infrastructure.

[D. Bradley Childers, President & CEO at Archrock]

I want to expand a bit on the Permian, which is top of mind for many today. We operate more than 2,600,000 horsepower in the Permian. Even in the most recent monthly forecast by Inveris, gas production volumes are anticipated to grow by more than 30% by 02/1930. This growth in excess of 30% compares to oil volume growth of 15% over the same time period. This dynamic of natural gas production outpacing oil production is one that is consistent with historical trends in other more mature associated gas plays like the Eagle Ford and the Bakken, where rising GORs have led to natural gas volume growth long after oil volume peaks.

[D. Bradley Childers, President & CEO at Archrock]

The magnitude of the demand pull on gas production and midstream infrastructure, including gathering systems, processing plants, pipelines and compression, cannot be satisfied by the Permian alone and will require investment across other major oil and gas shale basins. Against this backdrop, I believe Archrock's scale, broad geographic footprint and modern fleet are best positioned to meet this customer demand. This diverse and formidable foothold has taken decades to establish and build. A few highlights worth noting include that Archrock is the largest contract compression provider in the Eagle Ford. Archrock provides compression for some of the largest midstream companies in the Haynesville.

[D. Bradley Childers, President & CEO at Archrock]

And Archrock has a meaningful presence in the Marcellus and the Rockies. Now moving to our segments. Our contract operations fleet was fully utilized during the quarter, 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 high utilization for the foreseeable future. Stop activity year to date has been at historically low levels, and our compressors are staying on location longer.

[D. Bradley Childers, President & CEO at Archrock]

Based on our latest data from 2024, the average time in our truck compressor stays on location is more than six years, representing a 52% improvement since 2021. This, we believe, is driven by a couple of factors. First, like the oil and gas business overall, the compression market is more stable and continues to be reinforced by capital discipline by our customers, by R Track and by others. Second, and more importantly, we standardized and high graded our fleets. This includes the divestiture of horsepower that is nonstrategic or in non growth plays and our investments in large midstream horsepower and electric motor drive compression.

[D. Bradley Childers, President & CEO at Archrock]

As part of our ongoing asset management practices, on August 1, we completed the sale of approximately 155 compressors comprising about 47,000 horsepower to Floco for $71,000,000 This transaction is a win for both companies. The horsepower is deployed primarily in high pressure gas lift applications, a type of artificial lift used in the early stage of a well's life cycle and an area of expertise for FlowCo. For Archrock, we acquired these assets as part of the TOPS transaction. Proceeds from the sale will help fund our new build equipment investments and reduce our net CapEx for the year. At quarter end, we had 4,700,000 operating horsepower, up from 4,300,000 last quarter or up by 368,000 horsepower.

[D. Bradley Childers, President & CEO at Archrock]

Excluding active asset sales and the NGCS horsepower addition, we grew horsepower organically by approximately 47,000 horsepower in the quarter. As we look ahead, we have a substantial contracted backlog for the second half of twenty twenty five, and we are booking units for 2026 delivery to meet continued strong customer demand, including in the Permian. For the fifteenth straight quarter, monthly revenue per horsepower moved higher to $23.75 during the 2025, a new company record. And we achieved a quarterly adjusted gross margin percentage of 70% for the third quarter in a row. In the Aftermarket Services segment, we reported quarterly revenue of more than $60,000,000 a level we haven't achieved since 2018.

[D. Bradley Childers, President & CEO at Archrock]

This reflected high demand for service work and an increase in contract maintenance work as exceptional customer service is driving repeat business. In addition, we had a large engine sell order in our parts business. Second quarter AMS gross margin percentage remained at impressive levels but was down sequentially given this higher mix of parts sales during the quarter. Shifting to our capital allocation framework for 2025, we are committed to our prudent and returns based approach. Yesterday, we narrowed our guidance for 2025 growth capital to between $340,000,000 to $360,000,000 of investment in our fleet from previously $330,000,000 to $370,000,000 As a reminder, these investments are underpinned by multiyear contracts with blue chip customers.

[D. Bradley Childers, President & CEO at Archrock]

Beyond 2025, we see a continuation of attractive growth and the IRRs at which we expect to invest new build capital remain robust. Based on the continuation of the consistent and strong customer demand we see today, we expect 2026 growth CapEx to be not less than $250,000,000 and within the range of investment levels that we have made annually since 2023 to support the infrastructure build out we are experiencing in The U. S. In order to satisfy the growing demand for natural gas described earlier. As we invest in these compelling opportunities, we're committed to maintaining an industry leading balance sheet.

[D. Bradley Childers, President & CEO at Archrock]

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. At this level of capital expenditures, we anticipate continued growth in our earnings and free cash flow both before and after dividends. We expect to continue to grow our dividends over time along with this growth in our profits, and we will continue to use share buybacks as an additional tool for value creation for our shareholders. In summary, another quarter in the books reinforces our confidence in the near and long term outlook for Archrock.

[D. Bradley Childers, President & CEO at Archrock]

High confidence in our outlook underscored the decision to raise our 2025 adjusted EBITDA guidance, increase our quarterly cash dividend per share and accelerate share repurchases. And we believe the best is still ahead of us. With that, I'd like to turn the call over to Doug for a review of our second quarter performance and to provide additional color on our updated 2025 guidance.

[Doug Aron, SVP & CFO at Archrock]

Thanks, Brad, and good morning. Let's look at a summary of our second quarter results and then cover our updated financial outlook for 2025. Net income for the 2025 was $63,400,000 Excluding transaction related and restructuring costs and adjusting for the associated tax impact, we delivered adjusted net income of $68,400,000 or $0.39 per share. The $0.39 per share also included the negative $04 impact from an impairment on the high pressure gas lift business we sold to Floco. We reported adjusted EBITDA of $213,000,000 for the second quarter twenty twenty five.

[Doug Aron, SVP & CFO at Archrock]

Underlying business performance was strong in the second quarter as we delivered higher total adjusted gross margin dollars for the contract operations and aftermarket services on a sequential basis. Results further benefited from a $4,000,000 net gain on the sale of assets as well as $3,000,000 in other income, primarily comprised of proceeds from insurance and other settlements. Turning to our business segments. Contract operations revenue came in at $318,000,000 in the 2025, up 6% compared to the 2025 and forty one percent compared to the prior year period. The increase reflects horsepower growth, organic and acquired as well as higher pricing.

[Doug Aron, SVP & CFO at Archrock]

Compared to the first quarter, we grew our adjusted gross margin dollars by more than $11,500,000 We delivered a record adjusted gross margin percentage of approximately 70% for the third straight quarter. In our aftermarket services segment, we reported second quarter twenty twenty five revenue of $65,000,000 compared to the first quarter twenty twenty five of $47,000,000 Second quarter twenty twenty five AMS adjusted gross margin percentage was 23% compared to 25% in the 2025 and consistent with guidance. On 05/01/2025, we closed the NGCS transaction. We funded the cash portion of the total consideration for NGCS with a combination of equity and debt to keep us on track to achieve our financial targets, including our objective on maintaining a consistent leverage ratio of three to 3.5 times. Archrock issued 2,250,000.00 new common shares to the sellers and funded the $297,000,000 cash portion of total consideration with available capacity under our ABL credit facility.

[Doug Aron, SVP & CFO at Archrock]

Shortly after completion of the transaction, we closed on the upsize of our ABL facility from $1.1 to $1,500,000,000 with strong support from our existing lender group. This brought our period end total debt to $2,600,000,000 and available liquidity to $675,000,000 Our leverage ratio at quarter end was 3.3 times calculated as a quarter end total debt divided by our trailing twelve month EBITDA. This was up slightly from 3.2 times in the 2025 reflecting the acquisition. With our prudent financing strategy across two transactions in the last year and our expectation for continued strong performance in our business, we expect to continue deleveraging as the year progresses. The increase in discretionary cash flow from the addition of TOPS and NGCS further enhances our financial flexibility and capacity to increase dividends to our shareholders over time.

[Doug Aron, SVP & CFO at Archrock]

We recently declared a second quarter dividend of $0.21 per share or $0.84 on an annualized basis, our second increase in 2025 and third since our acquisition of Tops last year. Our second quarter dividend reflected an increase of 11% over the first quarter twenty twenty five dividend level and an increase of 27% over the second quarter twenty twenty four dividend level. Cash available for dividend for the 2025 totaled $125,000,000 leading to an impressive quarterly dividend coverage of 3.4 times. In addition to increasing the dividend, during the quarter, we repurchased approximately 1,200,000.0 shares for approximately $29,000,000 at an average price of $23.49 per share. This left approximately $59,000,000 in remaining capacity for additional share repurchases as of the end of the 2025.

[Doug Aron, SVP & CFO at Archrock]

Turning to our updated outlook. Archrock increased its 2025 annual guidance to reflect continued outperformance during the second quarter and growth in the second half of the year. Our guidance reflects eight months of contribution from the NGCS transaction and outperformance in our business, partially offset by the removal of five months of contribution of the high pressure gas lift business we sold to Floco. We are raising our 2025 adjusted EBITDA range to $810,000,000 to $850,000,000 from the prior range of $790,000,000 to $830,000,000 Segment level revenue and adjusted gross margin detail can be found in our earnings release issued last night. Turning to capital, including NGCS, we are narrowing our growth CapEx guidance range to between $340,000,000 and $360,000,000 to support investment in new build horsepower and repackage CapEx to meet continued customer demand.

[Doug Aron, SVP & CFO at Archrock]

Our growth CapEx is underpinned by multiyear contracts and was first half weighted. Maintenance CapEx is still forecasted to be approximately 110,000,000 to $120,000,000 We now anticipate approximately $35,000,000 to $40,000,000 in other CapEx primarily for new vehicles. Total capital expenditures are expected to be funded by operations and further supported by non strategic asset sale proceeds, which totaled more than $102,000,000 in twenty twenty five year to date, including the sale we announced last night. In summary, the supportive market conditions 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. We believe our production oriented business, high graded operation and outstanding financial position provide us with differentiated earnings and cash flow growth ahead.

[Doug Aron, SVP & CFO at Archrock]

With that, Regina, we are now ready to open the line for questions.

[Operator]

Our first question will come from the line of Gabe Moreen with Mizuho. Please go ahead. Gabe, your line might be on mute. Our next question will come from the line of Eli Johnson with JPMorgan. Please go ahead.

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

I wanted to start on the outlook for capacity additions in 2026 and beyond. Your remarks mentioned 2026 CapEx not below $250,000,000 and so we can imagine orders are filling up into 2026. But just how does the order book next year compared to what you saw this year and just the outlook for organic unit adds next year? Thanks.

[D. Bradley Childers, President & CEO at Archrock]

Thanks for the question. The order book that we're seeing reflects the inherent growth in the business. The summary I'd offer is that our customers are busy and our customers are ordering equipment, ahead of schedule, and what we normally see. This is, I think, the earliest that we've offered any outlook guidance for CapEx for the year ahead. And the reason for that is that what we see in the order book is we're already approaching the levels that we see that minimum investment level at.

[D. Bradley Childers, President & CEO at Archrock]

So the good news is we see just with the demand for natural gas growing based on LNG demand, AI data centers, distributed power demand, we see our customers getting very busy to put in place the infrastructure to meet that growing demand. Our order book to date reflects a strong order book, very consistent with what we've seen year over year, but it's already clear to us that we have at least a minimum investment level indicative of that growth ahead that we could share with our investors at this time.

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

Understood. And I appreciate the color there. And then maybe just thinking about the outlook for pricing. As you see it now, I think we continue to see revenue per horsepower per month tick up quarter over quarter. Just in terms of the outlook for that in the 2025 and in 2026, should we expect to see pricing continue to tick up?

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

How have contract terms with customers evolved? Is there any sort of change in terms of term that they're looking for? Color there would be great.

[D. Bradley Childers, President & CEO at Archrock]

So two fronts I want to take that on. The first is pricing and then the second one is contract term and time on location. For pricing, what we see right now is that our opportunity for revenue increases is reflecting a more normalized level of inflation. So we think about that year over year. We're in the mid single digits across most horsepower categories.

[D. Bradley Childers, President & CEO at Archrock]

And we expect to stay in that type of a range looking ahead based upon the inflation that we're anticipating. So that's where we think we have that pricing prerogative. Importantly, however, revenue for Horstow and pricing is not the only tool to drive profitability. Part of what you've seen is not just top line growth, but the continued improvement and stabilization of high margins, especially in our contract operations business, as we have, through the investment in systems, processes, efficiencies and candidly, the right people, driven our revenue higher while maintaining our cost at a very, candidly, much flatter level. But it's because of the changes to the and the transformation of the platform that we've invested in now over the course of a number of years.

[D. Bradley Childers, President & CEO at Archrock]

And then thinking about our contract terms, our contract terms remain the same for large horsepower targeting that three- to five year base term. But importantly, as I put in our prepared remarks, based on a study that we did in the most recent quarter, what we're seeing is that independent of contract term, that our units are staying on location on average greater than six years. This is a tremendous level of stability that we're achieving, and it again reflects the repositioning of this business to focus on large infrastructure position midstream horsepower and the electric motor drive businesses that we've invested in. And then finally, I do want to point out is that the order book that we described for 2026, nothing is ordered without a contract in hand. And so it's not speculative investment expecting that they will show up.

[D. Bradley Childers, President & CEO at Archrock]

The way this industry is working today and the way we are running our business today is that we place orders for horsepower for our fleet only when we have a firm commitment and a firm contract in hand from our customers.

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

Understood. Thanks.

[Operator]

Our next question will come from the line of Jim Rulison with Raymond James. Please go ahead.

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

Hey, good morning, guys. Brad, if I go back to the beginning of the year and what we were looking at for growth and investment in data centers and power driven gas demand over the next several years as well as LNG, they both have actually gone up over the last six months. And so that long term outlook doesn't seem like it's changed. It's only gotten actually better. But obviously, we've got some softer oil macro, you've touched on this a little bit.

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

I would love to hear some color of what you're hearing from your core customers in the Permian, but also from other basins if you're actually seeing that reflected in the order book that we're obviously going to have to need to meet this demand some way. And if the Permian isn't growing quite as fast maybe with the rig count slowdown, just love to hear what you're seeing from that level of detail, please.

[D. Bradley Childers, President & CEO at Archrock]

Thanks, Jim. What we see with our customer base right now is consistent activity. And to be really clear, the Permian is still leading the order book by like 60% to 80% depending upon how you cut the time frame. Even in the nearest term, we're looking at 55% of our order book in the quarter coming from the Permian. But interestingly, that means that the rest is coming from other plays as well.

[D. Bradley Childers, President & CEO at Archrock]

And although it is all incremental compared to the volumes that we see in the Permian, we do see activity in the Eagle Ford, in the Haynesville, in the DJ, the Powder River, in particular, a little bit in the Marcellus. So we see that the reactivation of some of the dry gas plays, but certainly the continued growth and investment in all of the Shell plays is something that we see ahead. There is uncertainty, however, as to how much of that gas is going to come or need to come from these other plays depending upon how the Permian performs. In any event, really importantly, the Permian gas volumes, our compression business in the Permian is going to grow near term, medium term and long term. It's just so much volume is tied up there in that most cost effective play that we have in the country that, that seems to be an inescapable dynamic in the production of oil and gas that we see ahead.

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

That's very helpful. And maybe as a follow-up, just curious, last time we spoke a quarter ago, really hadn't seen much of an impact at that stage on the tariff front and I'd love to get an update there if possible from your OEMs.

[D. Bradley Childers, President & CEO at Archrock]

We don't expect a material impact to the tariffs on our business. It's certainly not in 2025 and very limited in 2026. The supply chain that feeds us is predominantly U. S.-based and domestic. And in any event, any cost increases that we would expect for 2025 have been put into our guidance.

[D. Bradley Childers, President & CEO at Archrock]

But it's just been very negligible as an impact to our business and our outlook.

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

Thanks for the color, Brad, and nice results. And maybe you guys can get to executing on that remaining $59,000,000 in repurchases given your share price today.

[D. Bradley Childers, President & CEO at Archrock]

Thank you, Jim.

[Operator]

Our next question comes from the line of Nate Pendleton with Texas Capital. Please go ahead.

[Nate Pendleton, Vice President at Texas Capital]

Good morning and congrats on the strong quarter. Historically, your contract compression model has been resilient throughout commodity cycles as has been discussed over the past few quarters. Now that we've seen the rigs dropping, can you talk in a little bit more detail about the elasticity of demand for your horsepower? Specifically, how much of that 2026 order book is durable versus potentially subject to customer delays or renegotiation?

[D. Bradley Childers, President & CEO at Archrock]

Thank you for the question. The order book that we have in place and the level that we talked about, we think, is durable and it's robust and durable. We are not expecting a lot any shifting in that level of spend. I'm going to point out what we cited was an expectation for a minimal a minimum level of spend that's going to be required to meet customer demand. I think that the odds are greater that we're going to have a higher top end to our guidance when we can give top end guidance.

[D. Bradley Childers, President & CEO at Archrock]

But right now, we had enough of an order book build that we thought we could share that level of growth that we think that is in the books for 2026 at this earlier date. We think it is durable.

[Doug Aron, SVP & CFO at Archrock]

And look, I might just add, I realize what we see reflected on the screen, what we're seeing in some other calls is that maybe some uncertainty around oil activity. I think Brad hit it really well in his prepared remarks. Natural gas volumes in North America are growing and growing meaningfully, and we are seeing that reflected in historically low levels of stop activity for our equipment. And again, with large midstream customers that are seeing a significant amount of new gas coming online in 2026 is what is supporting our view for that minimum level of CapEx. So it is we are there for our customers and we expect that gas to come even if oil production doesn't grow at the same rate that we have been seeing it grow over the last several years.

[Nate Pendleton, Vice President at Texas Capital]

Got it. Really appreciate the color, Brad and Doug. And if I may, my second question, in the prepared remarks, you talked about your geographic diversification. Can you talk a little bit more about the current competitive dynamics you're seeing outside the Permian? And if there are opportunities to expand any of those basins really in a meaningful way going forward?

[D. Bradley Childers, President & CEO at Archrock]

Every basin has a couple of players in it at least. So every basin has a competitive dynamic. What we're experiencing in this market, however, is that with our customer base, we are essentially their partner and contract compression provider of choice. And when they have horsepower needs, they predominantly come to us. Now I think that that works for others in the market as well, but it gives us a much better planning cycle, look into the market and level of dependence because of the very critical position we play in the operational kind of capabilities of our customers as well as in their capital stack.

[D. Bradley Childers, President & CEO at Archrock]

They know they can count on us to deliver excellent service in the field. They know they can count on us to bring equipment and our capital to bear when they need it. And that creates a very close working relationship and dependence between us and our top customers with which we put out new capital and expect to grow.

[Nate Pendleton, Vice President at Texas Capital]

Understood. Thanks for taking my questions.

[D. Bradley Childers, President & CEO at Archrock]

Thank you.

[Operator]

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

[Doug Irwin, Vice President at Citi]

Thanks for the question. I just wanted to start by getting your latest thoughts around capital allocation that you've leaned pretty heavily on the buyback program this quarter and obviously announced a dividend increase as well. Just curious how you're thinking about buybacks versus dividend growth moving forward, given both your level of confidence and the outlook moving forward, which is more durable and then maybe some of the asset sales that potentially free up some more onetime cash flow here as well?

[D. Bradley Childers, President & CEO at Archrock]

Doug, thanks for the question. On the good news front, we expect to grow this business. We expect to grow our profits. And that means we expect to be able to continue to return the amount of capital we return to our investors, both in the form of dividend as well as in the form of buybacks. The dividend rate that we get to grow at with the coverage that we have, I think, should be viewed as our expectation is the business continues to perform the way it has over the last several years and quarters, that we should have the opportunity to increase our dividend consistent with the way that you've seen it raised over the last several years and quarters.

[D. Bradley Childers, President & CEO at Archrock]

Buybacks on the other hand are activated by our potential value capture on what we see as the ability to not just return capital to our investors and to our shareholders, but based on the price of the market. We are definitely price sensitive on that. And currently, we might be ambitious. But that's the way we think of it. Both are tools we expect to use to the benefit of our investors going forward.

[Doug Irwin, Vice President at Citi]

Understood. And then I was just hoping you could help unpack the updated guidance range a little bit here. There were obviously a few different moving pieces with acquisitions and sales and some of the updated segment margins as well. Just curious how much of this guidance you would categorize as maybe being more nonrecurring tied to gains on asset sales and things like that versus more operational outperformance across the two segments that's going to be a bit more ratable moving forward here?

[Doug Aron, SVP & CFO at Archrock]

Yes. I'll take that one, Doug. It's look, let's start with outperformance in both our legacy and acquired businesses on the contract compression side. That's a little less than half of the $20,000,000 guide upwards. It's about $9,000,000 comes from that outperformance on the AMS side with gross margins and revenues both being a little higher than forecasted, albeit gross margins on AMS were slightly lower because of the parts sale that Brad mentioned.

[Doug Aron, SVP & CFO at Archrock]

That's about $4,000,000 of it. So that gets you to sort of call it 13,000,000 of the $20,000,000 And then we had $4,000,000 in asset sale gains in the quarter and about $3,000,000 in other income that we talked about mostly being from insurance sales. And then I think important to understand that that $20,000,000 in increase was offset by the assets that we sold in the Flowcode transaction. And while we're not giving any guidance on what that EBITDA was, all of that kind of gets you to the $20,000,000 that we raised guidance by today.

[Doug Irwin, Vice President at Citi]

Got it. That's helpful detail. Appreciate the time.

[D. Bradley Childers, President & CEO at Archrock]

Thank you.

[Operator]

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

[Steve Ferazani, Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC]

Afternoon, everyone. Appreciate all the detail on the call. The other piece I wanted to ask about, Brad and Doug, was the strength in the aftermarket because that was certainly how you beat me on revenue in the quarter and you did raise the aftermarket guidance. Can you talk about what happened in the quarter and how extendable that is? Was there anything specific there?

[D. Bradley Childers, President & CEO at Archrock]

Overall, we've been really pleased, very pleased with how the aftermarket service businesses have performed, especially over the last probably now going on eight quarters. Part of what you're seeing just reflects the market needs equipment it needs equipment to run, and that has placed more demand on both of our businesses, contract compression, as well as our aftermarket services businesses. Our customers are doing a better job maintaining their own equipment and to maintain better run times for themselves. So that overall market dynamic, we think, is definitely sustainable. We don't see that changing in the near term.

[D. Bradley Childers, President & CEO at Archrock]

Our team has done an excellent job capturing that and doing good work, excellent work for our customers. So we see that part of it being sustainable. But I will point out, as I put in my prepared remarks, on the top line, however, this quarter did include a large some engine sales that took the top line up and also diluted the margin just a little bit. We don't expect that to repeat. That's a more unusual transaction.

[D. Bradley Childers, President & CEO at Archrock]

It happens, but it's more unusual. But overall, we remain ambitious about the value we can bring to our customers and that we can get from this aftermarket services business today.

[Steve Ferazani, Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC]

Great. And then I want to ask about the mix in the order book. We know electric demand was growing, but in this more volatile oil price environment, knowing that that's higher priced and knowing a lot of your customers are cost conscious, are you seeing any shift away from electric to go to a lower cost option?

[D. Bradley Childers, President & CEO at Archrock]

We are seeing a shift in the mix to include more gas drive and incrementally less electric motor drive. But it's not as a sharp a turn as you might expect. I think looking ahead, we expect 20% to 25% of the business to be CapEx to go toward electric motor drive compared to where we were, which was 30% or higher previously. So it's tapered off a bit. The issue, however, I don't believe is cost.

[D. Bradley Childers, President & CEO at Archrock]

The issue is power availability. We're seeing is tremendous strain on the grid and the inability of even distributed power opportunities to keep up with the overall demand. And I think that is driving our customer some of our customers to include more gas drives where they would have had a preference for electric motor drives had power been available.

[Steve Ferazani, Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC]

That makes sense. Thanks Brad.

[D. Bradley Childers, President & CEO at Archrock]

Thank you.

[Operator]

Our next question comes from the line of Selman Ochil with Stifel. Please go ahead.

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

Thank you. Good morning and appreciate you taking the questions. Just going back to the order book, I just want to ask the question a little bit differently. You've referenced the $275,000,000 and you haven't done that previously. So my question directly is, if we look back to 2024, are you ahead this time this year as opposed to where you were last year?

[D. Bradley Childers, President & CEO at Archrock]

Selman, number one, I want to just take on the number. What we guided was that we see a minimum of $250,000,000 for 2026 CapEx. That's okay. I just want to get that out. But I'd say we're very much in line with what we saw at this point in 2024 and in prior years.

[D. Bradley Childers, President & CEO at Archrock]

But we have more clarity in the order book today than I think we may have had at that time of the year. We also know that, candidly, a lot of discussion today and questions from our investors are focused on what's going on in the market and are we going to see a pause in the growth in investment in infrastructure because we're seeing a decline in rig count and we're seeing some lay down for crews also in oil and gas services. And our answer to that included the fact we wanted to come out with what we're seeing in the market today to say very distinctly that is not what we expect to experience. We had growth in 2025. We expect growth in 2026.

[D. Bradley Childers, President & CEO at Archrock]

And our order book, including the level of minimum capital commitment that we see, we thought was helpful information to support our assertion that notwithstanding the macro, our business is poised to perform and to grow.

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

Got it. Appreciate that. And again, my apologies. You referred in your opening comments you talked about largest contractor in the Eagle Ford in the Haynesville. So I was just going to ask you if you could expand a little bit more on what you're seeing in the Haynesville?

[D. Bradley Childers, President & CEO at Archrock]

We see activity. And what we said on the Haynesville in particular is that we support the business of some of the largest midstream operators in the Haynesville is the way we characterize that. And we do see incremental demand in the Haynesville. Now I'll point out again, it tells in scale to what we see going on in the Permian, but we do see constructive and profitable horsepower additions going into that play into the Haynesville, which we're happy to see. Right now, I think that Permian is attracting so much capital, so much labor and so many so much operational focus.

[D. Bradley Childers, President & CEO at Archrock]

We like seeing a diversification of the growth in every other play that we can see growth in as well. And that's the nature of what we want to share there.

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

All right. Thank you so much. Thank you.

[Operator]

And our next question comes from the line of Josh Jane with Daniel Energy Partners. Please go ahead.

[Josh Jayne, Managing Director at Daniel Energy Partners]

Thanks for taking my question. Just one sort of longish one for me, which is in the prepared remarks you talked about the dislocation that you believe exists between the share price today and future expectations. Could you expand on that a bit more and how you're ultimately thinking about that? Because you've been buying back stock obviously at the dividend, but it sounded like you were potentially going to be a bit more aggressive moving forward on the buyback based on what you're seeing in the business and thoughts on 2026 and 2027. So long winded question, but has anything changed in the last six months or so to make you more aggressive about using those tools?

[Josh Jayne, Managing Director at Daniel Energy Partners]

And maybe you could just expand on that mindset a little bit.

[D. Bradley Childers, President & CEO at Archrock]

Sure. I'll share a few thoughts. First, we have great confidence in the future of this business. And again, our confidence is both near, medium and long term. So that makes us ambitious about the way this company is operating.

[D. Bradley Childers, President & CEO at Archrock]

Second, we've transformed this platform significantly to focus on large horsepower, very stable midstream applications and operations. And from the firm that we stay on location, you've seen a complete change, almost close to a doubling of the time we stay on location with our units. So the stability of this business is there as well. The macro environment has got us poised for growth. And so it means that we are very strategic in using both our dividend and the share buybacks as a way to return capital to investors.

[D. Bradley Childers, President & CEO at Archrock]

But we are not price insensitive. And what's changed over the most recent environment is that, the market seems to be valuing energy and valuing some of our shares, less than we think, ultimately in a longer term more stable market should be the case. And so that does make us want to look at using both tools as well as we can to return capital and cash to our investors.

[Doug Aron, SVP & CFO at Archrock]

And I just would add one additional comment, which is a bit of a differentiating point, I think, in the compression space. And that is we have the lowest leverage in the industry. We have continued to delever over the last couple of years, which has put us in a position to be able to do that. So yes, we see our share price as very attractive. I think I said in my prepared comments that it's our expectation that we will continue to delever through the year.

[Doug Aron, SVP & CFO at Archrock]

And I do think as folks think about Archrock and compare us to some of our peers perhaps, that's a bit of a differentiating factor.

[Josh Jayne, Managing Director at Daniel Energy Partners]

Great. Thanks. And then actually just one quick follow-up. You had mentioned that equipment staying on location sort of 50% longer than it was in 2021. How do you see that evolving going forward?

[Josh Jayne, Managing Director at Daniel Energy Partners]

Like when we're sitting here two, three, five years from now, how do you ultimately see that playing out based on what you're seeing today?

[D. Bradley Childers, President & CEO at Archrock]

We believe that, that number is likely to extend to longer over a period of time. I'm going to point out that the amount of turnover in the fleet varies significantly by horsepower size. And since we're adding predominantly more large horsepower into the mix, that is, by nature, going to pull that term into more years, not less. So we think that number is going to continue to increase over time based on the investment profile and the position we have in the infrastructure and midstream marketplace today.

[Josh Jayne, Managing Director at Daniel Energy Partners]

Thanks. I'll turn it back.

[D. Bradley Childers, President & CEO at Archrock]

Thanks.

[Operator]

And there are no further questions. I'll turn the call back over to Mr. Childers for any final remarks.

[D. Bradley Childers, President & CEO at Archrock]

Great. Thank you everyone for participating in our Q2 twenty twenty five review. I look forward to updating you on our progress next quarter. Thank you.

[Operator]

This concludes today's call. Thank you for joining. You may now disconnect.

Participants

Executives

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

Analysts

• Eli Jossen, Equity Research Vice President at JP Morgan
• Jim Rollyson, Director & Equity Research Analyst at Raymond James Financial
• Nate Pendleton, Vice President at Texas Capital
• Doug Irwin, Vice President at Citi
• Steve Ferazani, Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC
• Selman Akyol, Managing Director - Energy & Power sector at Stifel Financial Corp
• Josh Jayne, Managing Director at Daniel Energy Partners