Skip to content
    AROC
    Earnings call· Jun 2026(Q2 FY26)

    Archrock Q2 FY26 earnings call AROC

    Aug 5, 2026 Source

    Executive summary

    Archrock Q2 FY26 — Strong Performance, Increased Dividend, and Long-Term Growth Capex Plan

    Archrock delivered strong Q2 FY26 results, driven by robust contract operations profitability and high utilization, leading to increased dividends and a strong balance sheet. The company introduced a significant long-term capital allocation framework, committing $1.4 billion-$1.6 billion in growth capex from 2027-2030 to meet anticipated natural gas and compression demand, while navigating near-term cost pressures and softer aftermarket services activity. Management remains confident in the long-term outlook for natural gas and compression demand.

    Highlights

    5

    • Delivered adjusted EBITDA of $213 million in Q2 FY26, essentially flat year-over-year.

    • Achieved 71% adjusted gross margin in contract operations, marking the seventh consecutive quarter above 70%.

    • Maintained high utilization at 94.4% for the quarter.

    • Reduced leverage to 2.6x, comfortably below the long-term target range of 3x-3.5x.

    • Increased quarterly dividend to $0.23 per share, up 10% year-over-year, marking the fifth increase in 2 years.

    Concerns

    3

    • Full-year 2026 adjusted EBITDA guidance tightened to $865 million-$885 million (from $865 million-$915 million) due to near-term lube oil and make-ready cost pressures, AMS customer deferrals, and higher long-term incentive compensation.

    • Aftermarket Services (AMS) revenue declined to $42 million from $65 million year-over-year, driven by lower part sales and reduced customer demand for major maintenance.

    • Anticipates near-term cost pressures from higher make-ready costs for idle units and increased lube oil prices related to the Iran conflict.

    Guidance & targets

    9
    CategoryTargetConfidence
    Full-year 2026 Adjusted EBITDA
    $865 million to $885 million
    high materiality
    High
    Full-year 2026 Growth Capital Expenditures
    $250 million to $275 million
    high materiality
    High
    Full-year 2026 Total Capital Expenditures
    $400 million to $445 million
    medium materiality
    High
    Full-year 2026 Maintenance Capital Expenditures
    $125 million to $135 million
    low materiality
    High
    Full-year 2026 Other Capital Expenditures
    $25 million to $35 million
    low materiality
    High
    Long-term Growth Capital Investments
    $1.4 billion to $1.6 billion
    high materiality
    High
    Long-term Horsepower Additions
    approximately 1 million horsepower
    high materiality
    High
    Long-term Shareholder Returns
    25% to 35%
    high materiality
    High
    Contract Operations Adjusted Gross Margin
    around 70%
    medium materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Contract Operations
    Delivered strong performance with excellent execution and high utilization. Revenue increase reflected higher rates, contribution from NGCS acquisition, and horsepower additions, partially offset by asset sales. Adjusted gross margin improved due to pricing strength and cost management.
    Utilization: 94.4%Operating horsepower: 4.5 million (Q2 FY26 vs 4.7 million Q2 FY25)Revenue per horsepower per month: higher sequentially and year-over-year
    		$329 million3%—71%
    Aftermarket Services
    Activity was softer than expected, driven by lower part sales and reduced customer demand for major maintenance as customers deferred work due to high crude oil prices. Adjusted gross margin improved due to disciplined execution and focus on higher-quality, higher-margin work.
    		$42 milliondown from $65 million—24%

    Operational metrics

    26
    Adjusted EBITDA
    $213 millionflat year-over-year
    Q2 FY26

    Supported by solid contract operations fundamentals and disciplined execution.

    Adjusted EPS
    $0.38
    Q2 FY26

    Diluted basis.

    Adjusted Net Income
    $67 million
    Q2 FY26

    Aligned with net income for the quarter.

    Total Capital Expenditures
    $98 million
    Q2 FY26

    Includes growth, maintenance, and other CapEx.

    Growth Capital Expenditures
    $51 million
    Q2 FY26

    Part of total CapEx for the quarter.

    Maintenance Capital Expenditures
    $39 million
    Q2 FY26

    Part of total CapEx for the quarter.

    Other Capital Expenditures
    $8 million
    Q2 FY26

    Part of total CapEx for the quarter.

    Long-term debt
    $2.3 billion
    June 30

    Balance at quarter end.

    Leverage ratio
    2.6xdown meaningfully from 3.3x a year ago
    Q2 FY26

    Comfortably below long-term target range, reflecting earnings growth and cash flow.

    Available liquidity
    $631 million
    June 30

    Preserves flexibility for investments and shareholder returns.

    Quarterly dividend per share
    $0.23up from $0.22 per share (prior quarter)
    Q2 FY26

    Declared by the Board, payable August 11 to shareholders of record on August 4.

    Dividend coverage
    3.1x
    Q2 FY26

    Underscores sustainability of return of capital framework.

    Remaining share repurchase authorization
    $113.2 million
    June 30

    Provides flexibility for opportunistic buybacks.

    Cumulative share repurchases
    $96.9 million
    since April 2023

    Total amount and shares repurchased since the inception of the program.

    Nonstrategic asset sale proceeds
    $21 million
    YTD

    Supports funding of growth CapEx and fleet high-grading.

    Operating horsepower
    4.5 milliondown from 4.7 million at Q2 FY25
    Q2 FY26

    Reflects continued high demand and fleet quality, with largest driver of YoY change being nonstrategic asset sales.

    Nonstrategic operating horsepower sold
    165,000
    YoY

    Largest driver of the change in operating horsepower year-over-year.

    Cat engine lead times
    195 weeksjust under 200 weeks
    Q2 FY26

    Lead times for compression equipment, with orders now being placed for 2029, reflecting a tight market.

    Large horsepower average time on location
    8 years
    current

    Indicates durability and customer commitment.

    All horsepower average time on location
    6 years
    current

    Indicates durability and customer commitment.

    Permian gas-to-oil ratio increase
    21%
    by 2030

    Expected increase, driving compression intensity in the basin.

    LNG-related natural gas demand
    20 Bcf/day
    2026

    Industry forecast for current LNG demand.

    LNG-related natural gas demand
    35 Bcf/day
    by 2030

    Industry forecast for future LNG demand.

    LNG-related natural gas demand
    40 Bcf/day
    by 2035

    Industry forecast for future LNG demand.

    Permian takeaway capacity
    4.6 Bcf/day
    H2 2026

    Expected to come online, improving basin economics and facilitating production growth.

    Permian takeaway capacity
    6.7 Bcf/day
    2027-2030

    Anticipated to come online, further supporting natural gas production growth.

    Industry KPIs

    5
    MetricValueDetails
    Rpo backlog195 weeksweeks
    FCF CAPEX leverage2.6x
    M a integration progress—
    Orders bookings by segment665,000 horsepowerhorsepower
    Segment adjusted EBITDA margin71%%

    Orderbook & backlog

    2
    Long-term contract for midstream applications665,000 horsepowerQ2 FY26

    8-year base term with 2-year extension option with an existing strategic customer.

    Remaining share repurchase authorization$113.2 millionJune 30

    Flexibility to be disciplined and opportunistic using buybacks.

    Deals & partnerships

    1
    Existing strategic customerLong-term compression services agreement for midstream applications.8-year base term with 2-year extension option

    Underscores the value of Archrock's fleet, strong customer demand, and the importance of partnering with strategic customers over multiyear development cycles.

    Capital programs

    1
    Long-term Growth Capital Investmentsannounced$1.4 billion to $1.6 billion
    Start: 2027

    Benefit: 1 million horsepower additions

    Cumulative growth capital over a 4-year timeframe for high-return organic growth opportunities, predominantly in large horsepower and electric motor drive new compression, to meet forecasted natural gas demand growth.

    Risks & headwinds

    4
    Near-term lube oil and make-ready cost pressuresSecond half of 2026

    Impacted full-year 2026 adjusted EBITDA guidance tightening.

    Mitigation: Team is working hard to mitigate with other cost initiatives; margins expected to remain around 70%.

    Aftermarket Services (AMS) customer deferralsQ2 FY26, ongoing

    AMS revenue declined to $42 million from $65 million year-over-year.

    Mitigation: Management believes deferred maintenance work will eventually return; profitability remains solid in the segment.

    Higher long-term incentive compensationOngoing

    Impacted full-year 2026 adjusted EBITDA guidance tightening.

    Tight market and long lead times for compression equipmentOngoing, extending into 2029

    Cat engine lead times are just under 200 weeks (195 weeks), with orders placed for 2029.

    Mitigation: Archrock is booking ahead and deploying capital to secure equipment to meet future demand.

    What to watch in Q3 FY26

    5

    Aftermarket Services activity

    next quarter
    Currentsofter than expected
    TargetRecovery in activity

    Why it matters

    Impacts AMS revenue and overall profitability; management expects deferred maintenance to return.

    AMS is notoriously difficult to forecast. And this unexpectedly high oil price in the current quarter, in 2026, primarily driven by the Iran conflict, we believe is driving significant deferrals by our customer base. But we said in the past, too, that this is a business it's pay us now or pay us later. The equipment is going to require the maintenance. It's going to require the parts. The market is just not taking that right now. It's a not-yet scenario, but we believe we will see this work come back. We absolutely will see the work come back.

    Q&A highlights

    7

    Why did Archrock decide to announce the multi-year CapEx plan for 2027-2030 now, and what are the drivers behind the significant increase in average annual spend?

    Management explained that the timing is driven by the need to book ahead due to extended lead times for compression equipment and the clear visibility of sharply increasing natural gas and compression demand from 2027 onwards, fueled by LNG and data center power demand. They see a 'calm before the storm' in 2026, with robust growth expected.

    “The amount of demand for nat gas and for compression that we see for '27 through '30 and beyond is about to incline sharply higher, as we see a significant amount of LNG come online, as I shared in my prepared remarks, as well as expanded pipeline capacity out of the Permian, all of this being fueled by LNG and by data center power demand.”

    asked by James Rollyson · answered by D. Childers

    2 min read6 chapters

    Detailed Narrative

    01

    Market Outlook and Demand Drivers

    Natural gas demand is projected to grow significantly, driven by LNG exports, which are expected to reach approximately 35 Bcf/day by 2030 and 40 Bcf/day by 2035, up from 20 Bcf/day in 2026. Additionally, Permian takeaway capacity is expanding, with 4.6 Bcf/day coming online in H2 2026 and another 6.7 Bcf/day anticipated between 2027 and 2030. Data center and AI-related power demand also represent an additional source of upside, with natural gas-fired generation playing an important role in meeting growing electricity needs, all contributing to a favorable backdrop for compression demand.

    02

    Strategic Customer Contract

    Archrock signed a significant long-term agreement with an existing strategic customer, covering approximately 665,000 horsepower for midstream applications. This contract includes an 8-year base term and a 2-year extension option, highlighting the value of Archrock's fleet, strong customer demand, and the importance of multi-year partnerships. This deal signifies a long-standing, highly valued partnership and recognition of Archrock's integral operating role.

    03

    Equipment Lead Times and Market Tightness

    Cat engine lead times remain extended at just under 200 weeks (approximately 195 weeks), indicating a tight market for compression equipment. This reflects the strength of natural gas demand, the production growth outlook, and the equipment required to support it. Management does not foresee these long lead times abating, underscoring the importance for Archrock to secure equipment and maintain its position to grow with customers.

    04

    Aftermarket Services (AMS) Dynamics

    Aftermarket Services activity was softer than anticipated, with revenue declining to $42 million from $65 million year-over-year. This was primarily due to customer deferrals of major maintenance in the current high crude oil price environment. Despite the revenue decline, AMS adjusted gross margin improved to 24% from 23% year-over-year, reflecting disciplined execution and a focus on higher-quality, higher-margin work. Management expects this deferred maintenance work to eventually return.

    05

    Balance Sheet Strength and Credit Ratings

    Archrock ended the quarter in a strong financial position with a leverage ratio of 2.6x, comfortably below its long-term target range of 3x-3.5x. This improvement reflects strong earnings growth and cash flow. All three rating agencies (Moody's, S&P) recently reaffirmed Archrock's credit ratings and revised their outlooks to positive, recognizing the company's consistent cash generation, financial strength, and strong business outlook.

    06

    Debt Refinancing and Liquidity

    During the quarter, Archrock completed the repurchase of its $800 million 6.25% senior notes due April 2028, using borrowings under its revolving credit facility. This transaction cleared the company's debt maturity schedule until 2032. Archrock ended June with $631 million of available liquidity, preserving flexibility for investments, high-return growth opportunities, and shareholder returns.

    AI-generated summary of the company’s earnings call. Not investment advice.