• Adjusted Net Income: $47 million, a 53% increase year-over-year.
• Adjusted EBITDA: $151 million, up more than 25% from the prior year period.
• Adjusted Gross Margin Percentage: 67%, up 300 basis points year-over-year.
• Quarterly Dividend Per Share: Increased by 13% compared to a year ago.
• Operating Horsepower: 4.2 million, up from 3.6 million last quarter.
• Net Income: $38 million for the third quarter of 2024.
• Growth Capital Expenditures: $42 million for the third quarter.
• Maintenance and Other CapEx: $28 million for the third quarter of 2024.
• Leverage Ratio: 3.57x at quarter end.
• Cash Available for Dividend: $93 million for the third quarter of 2024.
• Share Repurchases: Approximately 650,000 shares for $12.1 million.
• 2024 Adjusted EBITDA Guidance: Raised to $575 million to $585 million.
• Contract Operations Revenue Guidance: $970 million to $980 million for the full year.
• AMS Revenue Guidance: $180 million to $185 million for the full year.
• Full Year Growth Capital Expenditure Guidance: Approximately $260 million.
• Maintenance CapEx Guidance: Approximately $85 million for the full year.

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Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Archrock Inc (NYSE:AROC) reported a 53% increase in adjusted net income to $47 million compared to the previous year.
• The company achieved a record-setting adjusted EBITDA of $151 million, marking a 25% increase from the prior year.
• Archrock Inc (NYSE:AROC) successfully completed the acquisition of TOPS, which is expected to be net income and cash flow accretive.
• The company raised its quarterly dividend per share by 13% year-over-year, maintaining a robust dividend coverage of 3x.
• Archrock Inc (NYSE:AROC) reported an impressive adjusted gross margin percentage of 67%, up 300 basis points year-over-year.

Negative Points

• The company incurred $9 million in transaction-related costs and a $3 million debt extinguishment loss during the quarter.
• Archrock Inc (NYSE:AROC) reported a leverage ratio of 3.57x, slightly above its target range of 3 to 3.5x.
• The company faces inflationary pressures impacting maintenance CapEx, which could affect future cash flow.
• There are concerns about power availability potentially gating the deployment of electric motor drive units in the Permian.
• Archrock Inc (NYSE:AROC) is experiencing increased competition and market challenges in dry gas plays, with growth primarily concentrated in the Permian.

Q & A Highlights

Q: Can you explain the strong margin performance this quarter and the impact of the TOPS acquisition? A: Brad Childers, President and CEO, explained that the strong margin performance was primarily due to the stand-alone business, which contributed significantly to the outperformance. This was driven by high utilization, pricing improvements, and investments in technology. The addition of TOPS is expected to further expand margins, making the current performance sustainable and potentially improving it further.

Q: How do you plan to allocate growth CapEx between the traditional business and the electric motor drive business? A: Brad Childers stated that they expect the investment in electric motor drive to increase as a percentage of newbuild CapEx, moving from 20-30% to potentially 40-50%. The exact allocation for 2025 is still being determined, but the trend is towards more investment in electric motor drive due to market demand.

Q: What is your outlook on the market expansion and the role of electric motor drive compression? A: Brad Childers described the market as robust, with early-stage expansion in infrastructure to support natural gas production. The demand for electric motor drive compression is expected to grow, driven by increased natural gas and oil production, particularly in the Permian Basin. The company is well-positioned to leverage these opportunities.

Q: How do you view the balance between dividend growth and share buybacks? A: Brad Childers emphasized a balanced capital allocation strategy, prioritizing growth CapEx to support expansion while also considering share buybacks based on internal value generation versus stock price. The focus is on supporting customer growth and maintaining strong relationships with blue-chip customers.

Q: What are the unique market drivers in the gas lift market, and have you seen changes in operator behavior? A: Brad Childers noted that there have been no significant changes in operator behavior regarding gas lift. The demand for compression in gas lift applications remains strong, particularly in the Permian Basin, where it is the dominant approach.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.