Archrock Reports Third-Quarter 2026 Results and Reaffirms Guidance

Archrock (NYSE: AROC ) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Archrock Inc reported strong financial performance in Q3 2026 with net income of $84.5 million and adjusted EBITDA of $228.4 million, driven by solid contract operations fundamentals. The company maintained high contract operations utilization above 94% and achieved a contract operations adjusted gross margin of 72%. Archrock returned $41 million to shareholders through dividends and ended the quarter with leverage of 2.5 times. Strategic focus remains on supporting customer growth in LNG and power generation markets, with significant bookings increases and expectations for continued high demand.

Despite challenges like higher lube oil prices and make-ready costs, the company offset these through disciplined cost management and operational efficiencies. Archrock reaffirmed its full-year 2026 adjusted EBITDA guidance of $865 million to $885 million and capital expenditure guidance of $400 million to $445 million. Management emphasized ongoing investments in technology and automation to enhance operational efficiency and profitability. The company plans to return 25-35% of operating cash flow to shareholders and continue capital investments, supported by strong demand fundamentals.

Full Transcript OPERATOR Good morning. Welcome to the Archrock third quarter 2026 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 (Vice President of Investor Relations) Thank you, Jill. Hello, and we appreciate you joining us on today's call.

With me today are Brad Childers, President and Chief Executive Officer of Archrock, and Mohit Singh, Chief Financial Officer of Archrock. Yesterday we released our financial and operating results for the third quarter of 2026. If you have not received a copy, you can find the information on the company's website at 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 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 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 EBITDA, adjusted EPS, adjusted net income, adjusted free cash flow and adjusted free cash flow after dividend.

For reconciliations of these non-GAAP financial measures to our GAAP financial results, please see yesterday's press release and our Form 8-K furnished to the SEC. I'll now turn the call over to Brad to discuss Archrock's third quarter results and to provide an update on our business. Brad Childers (President and Chief Executive Officer) Thank you, Megan, and good morning, everyone. Turning to the quarter, our strong performance reflected the quality of our operating platform and disciplined execution.

The results reinforce our confidence in the business and our ability to invest for growth while returning capital to shareholders. Before getting into the financial highlights, I want to recognize what matters most: the safety of our employees. Safety remains our first priority and we're proud to have recorded zero recordable injuries in the first three quarters of the year. That performance reflects the focus and discipline of our employees across the organization and I want to thank them for continuing to look out for one another and operating the right way every day.

A few highlights from the quarter. We delivered robust net income of $84.5 million, or $0.48 per share, and adjusted EBITDA of $228.4 million, supported by strong contract operations fundamentals and strong operating performance across the business. Contract operations utilization remained above 94% and contract operations adjusted gross margin reached 72%, our eighth consecutive quarter at 70% or higher. The third quarter was our highest bookings quarter since the second quarter of 2023, with year-to-date bookings 13% above the prior year period.

We generated $50 million of adjusted free cash flow and returned $41 million to shareholders through dividends. We ended the quarter with leverage of 2.5 times and dividend coverage of 3.8 times, underscoring our financial strength and capacity to invest in growth while returning capital to shareholders. Overall, our third quarter results reinforce our confidence in the core business and our outlook for the remainder of the year. Geopolitical volatility continues to underscore the criticality of secure and reliable energy supplies from stable regions, and the long-term strategic value of U.S.

natural gas. Domestic production is reaching record levels with 2026 volumes expected to grow approximately 2% or 2.3 Bcf per day, and Permian volumes approximately 6% or 1.4 Bcf per day, both from 2025 levels, as associated gas production outpaces oil growth. At the same time, new Permian takeaway capacity is coming online. Hugh Brinson Phase 1 entered service in the third quarter and Blackcomb is currently wrapping together.

These projects add approximately 4 Bcf per day of additional capacity with another 11 Bcf per day planned by 2030. On the demand side, LNG remains the largest and most visible source of long-term growth. Industry forecasts point to LNG-related natural gas demand increasing from approximately 18 Bcf per day in 2026 to 34 Bcf per day by 2030 and 40 Bcf per day by 2035. Beyond LNG, growing power demand from data centers and other industrial users represents another meaningful source of potential upside.

Together, these supply and demand trends are driving the need for additional compression capacity. Our customers are preparing to serve growth across LNG, power generation and other end markets, and we're supporting them through reliable service and disciplined investment in the capacity they need. That opportunity is evident in contract operations, where healthy customer demand is translating into stronger bookings, high utilization and continued requirements for compression equipment. Bookings increased sequentially, making the third quarter our highest bookings quarter since the second quarter of 2023 and bringing year-to-date bookings 13% above the prior year period.

Permian bookings were the highest in a year as rising gas-to-oil ratios and an improving production outlook continued to drive compression demand. We exited the quarter at a strong 94.3% utilization, reflecting healthy customer demand and the quality of our fleet. Operating horsepower increased approximately 21,000 sequentially. We expect to put additional idle equipment back to work by year end as we continue to meet customer demand.

Contract operations revenue increased approximately 1.5% year over year to $331 million despite the sale of approximately 112,000 non-strategic operating horsepower since the prior year period. Revenue per horsepower per month increased 4% year over year to $24.38. Adjusted gross margin remained excellent at 72%. Higher lube oil prices and make-ready costs associated with returning idle equipment to service created near-term cost pressure, but through disciplined cost management and our relentless pursuit of operating efficiencies, our operations team was able to offset these headwinds and sustain strong third quarter margins.

Cat engine lead times remain extended at over 180 weeks, reinforcing the importance of securing equipment to support our customers' growth. Our financial strength and market position allow us to plan for these requirements and deploy new horsepower through a disciplined, returns-based investment program. Moving to our aftermarket services segment, we continued to see customers defer major maintenance activity during the quarter. The timing of this work can be lumpy and difficult to predict and our near-term visibility remains limited.

Against that backdrop, profitability was a strong point in the quarter, however, reflecting disciplined execution and our continued focus on higher-quality, higher-margin work. Turning to capital allocation, we remain disciplined and returns-focused, balancing high-return growth investment, durable shareholder returns and balance sheet strength. For 2026, we're reaffirming growth capital expenditures of $250 to $275 million to meet customer demand.

Looking further ahead, the outlook we outlined last quarter continues to support $1.4 to $1.6 billion of cumulative growth capital investment from 2027 through 2030 to fund the purchase of approximately 1 million horsepower, predominantly in large horsepower and electric motor drive new-build compression. Strong demand fundamentals and attractive returns reinforce our confidence in this investment outlook. We plan to return 25 to 35% of operating cash flow to shareholders through continued dividend growth and opportunistic share repurchases. Our quarterly dividend of $0.23 per share is approximately 10% higher year over year, supported by strong dividend coverage.

We also retain approximately $113 million of share repurchase authorization, providing flexibility to act opportunistically when we see attractive value in our shares. After funding these growth investments and shareholder returns, we expect to continue to generate free cash flow together with leverage of 2.5x, comfortably below our long-term target of 3 to 3.5x. That cash flow gives us capacity to selectively pursue inorganic opportunities that complement our core business, strengthen our platform and meet our disciplined return criteria. In summary, bookings momentum and high utilization reflect durable demand for compression capacity.

Our cash flow and balance sheet give us the flexibility to invest alongside our customers while maintaining meaningful shareholder returns. We remain focused on deploying capital at attractive returns, supporting long-term customer growth and creating sustainable value for shareholders. With that, I'll turn the call over to Mohit to walk through our third quarter results and 2026 outlook. Mohit Singh (Chief Financial Officer) Thanks, Brad, and good morning, everyone.

Thank you for joining us. Let's review our third quarter results and then discuss our current financial outlook for the balance of 2026. Third quarter net income was $84.5 million, or $0.48 per share, up from $71.2 million, or $0.40 per share, in the third quarter of 2025. Excluding transaction-related costs and restructuring charges and adjusting for the associated tax impact, adjusted net income was $84.7 million, or $0.49 per share, up from $73.2 million, or $0.42 per share, in the third quarter of 2025.

We delivered adjusted EBITDA of $228.4 million for the third quarter of 2026, up from $220.9 million in the third quarter of 2025. This year-over-year increase was driven by lower SG&A expense, which more than offset lower gross margin dollars in Contract Operations NAM and a lower net gain on the sale of non-strategic compression and other assets. The comparison also includes a $9.9 million sales and use tax audit benefit recorded in Contract Operations cost of sales in the prior year quarter that did not recur in the third quarter.

Total capital expenditure was $117.9 million, including $78.4 million of growth capex, $33.3 million of maintenance capex, and $6.2 million of other capex. Turning to our business segments, Contract Operations revenue came in at $331 million in the third quarter, up 1.5% compared to the third quarter of 2025. This year-over-year increase further reflected higher rates, partially offset by active horsepower sales to high-grade our fleet. Contract Operations adjusted gross margin percentage was 72% in the third quarter, compared with 73% in the year-ago quarter.

The year-over-year decline primarily reflected the previously mentioned absence of the $9.9 million net benefit from certain sales and use tax audit settlements recorded in the prior-year period, along with higher make-ready costs to return idle compression equipment to service and lube oil cost headwinds. Through disciplined cost management and our continued pursuit of operating efficiencies, we offset those headwinds with lower lube oil purchase volume, parts expense, and employee compensation and benefits expense. In our aftermarket services segment, third quarter 2026 revenue was $40 million compared to $56 million in the third quarter of 2025.

The decline was driven primarily by reduced customer demand for major maintenance activity as some customers continued to defer work and the timing of planned maintenance remained difficult to predict, as well as lower parts sales. Adjusted gross margin percentage was 23% in the quarter, unchanged from 23% in the year-ago period, reflecting disciplined execution and our continued focus on higher-quality, higher-margin work even in a challenging market. Turning to the balance sheet, we ended the quarter in a strong financial position, with long-term debt of $2.3 billion as of September 30.

Our leverage ratio was 2.5 times at quarter-end, down from 3.1 times a year ago, comfortably below our long-term target range. That improvement reflects the strength of our earnings growth and cash flow profile, giving us financial flexibility as we continue to invest in the fleet and explore strategic opportunities. On shareholder returns, our board recently declared a quarterly dividend of $0.23 per share, or $0.92 per share annualized, consistent with our prior quarterly dividend and up approximately 10% from the third quarter of last year.

Dividend coverage remains strong at 3.8 times in the third quarter, demonstrating the sustainability of our return of capital framework. The third quarter dividend is payable November 10th to stockholders of record at the close of business on November 3rd. We ended September with $113.2 million of remaining capacity under our authorization, which gives us meaningful flexibility to be disciplined and opportunistic, using buybacks alongside the dividend and growth investments to enhance long-term shareholder returns when market conditions are attractive.

Since the inception of the share repurchase program in April 2023, we have repurchased approximately 4.6 million shares at an average price of $20.91 for a total of $96.9 million. Based on our third quarter performance and expectations for the fourth quarter, we are reaffirming our full-year 2026 adjusted EBITDA guidance of $865 million to $885 million. Strong Contract Operations performance and disciplined cost management support this outlook.

While we continue to manage customer maintenance deferrals in AMS and near-term lube oil and make-ready cost pressures, we are also reaffirming our 2026 total capital expenditure guidance of $400 million to $445 million, including $250 million to $275 million of growth capital to meet customer demand, $125 million to $135 million of maintenance capital, and $25 million to $35 million of other capital, primarily for new vehicles. We expect to fund growth investment through operating cash flow, supplemented by proceeds from non-strategic asset sales as we continue to high-grade our fleet. With that, I'll turn the call back to Jill to begin the Q&A. OPERATOR Thank you.

At this time, we will conduct the question-and-answer session. To ask a question, you will need to press on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Our first question comes from the line of Eli Josin with J.P. Morgan. Please go ahead. Your line is open.

Eli Josin (Analyst at J.P. Morgan) Hey, good morning. Thanks for taking the question. Maybe just start on the bookings commentary, which stood as a bit of a departure from your typical demand framing.

Can you walk us through the conversion timeline from bookings to revenue and how these are trending on pricing and margin relative to the existing contracted fleet? Brad Childers (President and Chief Executive Officer) Good morning. There was a lot in that question. Let me address the bookings first and then talk about margins second.

So on the booking side, what we've seen overall in this most recent 12- to 18-month period environment has been relatively stable but flat utilization and overall somewhat flat horsepower growth. And that has, I think, reflected a bit of some of the external factors, including export transport capacity coming out of the Permian, pent-up activity from some of the customers. And what we're seeing with pipelines coming online, LNG projects coming online, is our customers starting to ramp up to address what is going to be a period of, we expect, future growth.

So that's, I think, some of what we're seeing in the business is reflected in our bookings activity, and that's what we wanted to share. On margin, you can still see just strong pricing environment — close to record revenue per horsepower, dollars per horsepower on the revenue side per month — and really strong overall margins and profitability in the business. So it's just a really solid environment to see both growth and a really good margin, high-return business. Eli Josin (Analyst at J.P.

Morgan) Got it. That's helpful. And then obviously some tailwinds in SG&A this quarter.