Archrock Q2 Earnings Call Highlights

Key Points

• Strong core performance: Archrock reported $67 million in net income, $213 million in adjusted EBITDA and $0.38 in adjusted EPS. Contract Operations revenue rose 3% year over year, with 94.4% utilization and a 71% adjusted gross margin.
• Guidance narrowed: The company reduced its 2026 adjusted EBITDA outlook to $865 million–$885 million from $865 million–$915 million, citing higher near-term costs, customer maintenance deferrals and increased compensation expense. Management said demand fundamentals remain healthy and expects deferred maintenance activity to return.
• Growth and shareholder returns remain priorities: Archrock plans $1.4 billion–$1.6 billion of growth capital spending from 2027 through 2030 to add about 1 million horsepower, while targeting dividend growth and share repurchases. It raised its quarterly dividend to $0.23 per share and reduced leverage to 2.6 times.

Archrock NYSE: AROC reported second-quarter 2026 results marked by high contract-operations utilization, strong margins and continued free-cash-flow generation, while narrowing its full-year adjusted EBITDA outlook to account for near-term cost pressures and customer maintenance deferrals.

The company posted net income and adjusted net income of $67 million for the quarter, with adjusted earnings per share of $0.38. Adjusted EBITDA was $213 million, essentially flat from a year earlier, Chief Financial Officer Mohit Singh said. Higher adjusted gross-margin dollars in contract operations were offset by lower Aftermarket Services gross-margin dollars and higher selling, general and administrative expense.

President and CEO Brad Childers described the quarter as “outstanding,” citing healthy customer demand, high utilization, low unit-stop activity and a recently signed long-term agreement with an existing strategic customer covering approximately 665,000 horsepower for midstream applications.

Contract Operations Remain Strong

Contract Operations revenue rose 3% year over year to $329 million. Singh said higher rates, an additional month of contribution from the NGCS acquisition and revenue from added horsepower supported the increase. Those factors were partly offset by sales of active horsepower as Archrock continued to high-grade its fleet.

Contract Operations adjusted gross margin reached 71%, compared with 70% in the prior-year quarter. Fleet utilization stood at 94.4%, marking the company’s seventh consecutive quarter with adjusted gross margin above 70%.

Archrock ended the quarter with 4.5 million operating horsepower, compared with 4.7 million a year earlier. Childers said the primary reason for the year-over-year decline was the sale of about 165,000 non-strategic operating horsepower. Excluding active asset sales, operating horsepower was down roughly 7,500 sequentially.

The 665,000-horsepower customer agreement includes an eight-year base term and a two-year extension option. Childers said longer contract terms could become more common as large-horsepower units remain at customer locations for longer periods. He said large horsepower has an average duration on location of about eight years, while all horsepower averages about six years.

Archrock said Caterpillar engine lead times remain extended at just under 200 weeks, with Childers putting current equipment lead times at about 195 weeks. He said the company sees no indication that the lengthy lead times will ease, adding that packager floor space has also tightened, although Archrock has not faced challenges getting required equipment through shops.

Aftermarket Activity Declines as Customers Defer Maintenance

Aftermarket Services revenue fell to $42 million from $65 million in the second quarter of 2025. The decline reflected lower parts sales and reduced demand for major maintenance work, as some customers deferred maintenance to keep equipment running amid higher crude oil prices, Singh said. The prior-year comparison also included elevated parts sales and non-recurring sales of overhauled engines.

Despite lower revenue, Aftermarket Services adjusted gross margin improved to 24% from 23% a year earlier, which management attributed to disciplined execution and a focus on higher-quality, higher-margin work.

Childers said maintenance demand has been deferred rather than eliminated. “The equipment is going to require the maintenance,” he said during the question-and-answer session, adding that Archrock expects the work to return, though the segment remains difficult to forecast.

Guidance Narrowed Despite Continued Demand Expectations

Archrock narrowed its 2026 adjusted EBITDA guidance range to $865 million to $885 million, from its previous outlook of $865 million to $915 million. The revised outlook reflects near-term lube-oil and make-ready cost pressure, customer maintenance deferrals in Aftermarket Services, and higher long-term incentive compensation associated with the company’s rising stock price.

Childers said the adjustment does not reflect a change in demand fundamentals. For the second half, Archrock expects additional horsepower deliveries, pricing opportunities, potential Aftermarket Services recovery and internal cost-mitigation initiatives to support results. Contract Operations margins are expected to remain around 70% in the back half of the year despite anticipated lube-oil and make-ready costs.

Management also said it is seeing increased activity in the Permian Basin as additional export capacity begins to come online. However, Childers noted that Archrock’s recent bookings remain diversified, with less than half coming from the Permian and about half from other producing regions.

Capital Plan Targets Growth Through 2030

Archrock reaffirmed 2026 total capital expenditures of approximately $400 million to $445 million, including $250 million to $275 million of growth capital, $125 million to $135 million of maintenance capital, and $25 million to $35 million of other capital expenditures. Second-quarter capital expenditures totaled $98 million, including $51 million of growth capital and $39 million of maintenance capital.

The company introduced a longer-term framework calling for approximately $1.4 billion to $1.6 billion of cumulative growth capital spending from 2027 through 2030. Archrock expects to add about 1 million horsepower over that period, with investment focused predominantly on large-horsepower and electric-motor-drive compression equipment.

Childers said the forecast incorporates normalized inflation for new equipment but does not assume sharp price increases from original equipment manufacturers or packagers. The company expects to prioritize organic growth investments while returning 25% to 35% of operating cash flow to shareholders through dividend growth and opportunistic share repurchases.

Archrock generated $67 million of adjusted free cash flow during the quarter and $28 million of adjusted free cash flow after dividends. The board increased the quarterly dividend to $0.23 per share from $0.22 per share, representing the company’s fifth dividend increase in two years. Dividend coverage was 3.1 times in the quarter.

Long-term debt totaled $2.3 billion at June 30, while leverage stood at 2.6 times, down from 3.3 times a year earlier. The company said it had $631 million of available liquidity after redeeming $800 million of 6.25% senior notes due in 2028 using its revolving credit facility. Archrock said its first debt maturity is now in 2032.

As of quarter-end, the company had $113.2 million remaining under its share-repurchase authorization. Since the program began in April 2023, Archrock has repurchased about 4.6 million shares at an average price of $20.91 per share, totaling $96.9 million.

About Archrock (NYSE:AROC)

Archrock, Inc is a Houston‐based provider of natural gas compression services and equipment to the oil and gas industry in North America. Founded in 2004, the company supplies both short‐term rentals and long‐term contracts for compression solutions, serving upstream and midstream producers. Archrock's offerings include engineered compression systems, aftermarket parts, maintenance and field services designed to optimize wellhead and pipeline operations.

The company's core business activities focus on the design, manufacture, rental and sale of gas compression equipment.

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