Executive Summary / Key Takeaways

• Robust Growth & Record Performance: Archrock delivered outstanding Q2 2025 results, with revenue up 41.2% year-over-year to $383.15 million and adjusted EBITDA surging over 60% to $213 million, driven by strategic acquisitions, pricing power, and high fleet utilization.
• Strategic Acquisitions Bolster Market Leadership: Recent accretive acquisitions of TOPS (August 2024) and NGCS (May 2025) have significantly expanded Archrock's operating horsepower, deepened its presence in the Permian Basin, and established it as a leader in electric motor drive compression.
• Technological Edge & Operational Efficiency: Investments in fleet standardization, digitization, and methane emissions solutions, alongside a focus on large midstream and electric motor drive units, have driven record-high adjusted gross margins (70% for three consecutive quarters) and extended compressor "time on location" to over six years.
• Strong Outlook & Capital Returns: Management raised 2025 adjusted EBITDA guidance to $810-$850 million and projects 2026 growth CapEx of at least $250 million, underpinned by multi-year contracts. The company continues to increase shareholder returns through a growing dividend ($0.21/share in Q2 2025) and opportunistic share repurchases.
• Differentiated Competitive Moat: Archrock's low leverage (3.3x), extensive and modern fleet, integrated aftermarket services, and strategic customer partnerships provide a resilient competitive advantage in a market poised for long-term natural gas demand growth.

The Unseen Engine of America's Energy Future

Archrock, Inc. (AROC) stands as a critical, yet often unseen, pillar of America's energy infrastructure. As a premier provider of midstream natural gas compression services and a leading supplier of aftermarket support in the U.S., Archrock plays an indispensable role in ensuring natural gas reaches its destination. The company's journey, originating as Exterran Holdings in 1990 and evolving through a strategic spin-off in 2015, has been marked by a relentless focus on operational excellence and strategic positioning. This history, punctuated by successful integrations of acquisitions like Mid-Con in 2014 and Elite in 2019, laid the groundwork for a comprehensive "platform transformation" that has reshaped Archrock into the "compression partner of choice" for its customers.

The broader energy landscape provides a powerful tailwind for Archrock. The U.S. is on the cusp of a sustained surge in natural gas demand, driven by a confluence of factors: a wave of global LNG export projects sanctioned through 2025, increasing exports to Mexico, growing domestic power generation needs, and the emerging, substantial demand from AI data centers. These forces are projected to require an incremental 20 to 30 Bcf per day of U.S. natural gas production by 2030. To meet this, the nation's midstream infrastructure—including gathering systems, processing plants, pipelines, and crucially, compression—will necessitate massive, broad-based investments. The Permian Basin, where Archrock operates over 2.6 million horsepower, is central to this narrative, with its gas production volumes anticipated to grow by more than 30% by 2030, significantly outpacing oil growth.

Archrock's strategy is precisely calibrated to capitalize on these trends. The company has deliberately repositioned its operations to concentrate on the most profitable segments of the market: large midstream compression units and electric motor drive compression units. This strategic focus, combined with a modern, scalable, and geographically diverse fleet, underpins Archrock's ability to meet robust customer demand across all major oil and gas basins.

Technological Leadership: Enhancing Efficiency and Sustainability

At the heart of Archrock's competitive edge is its commitment to technological differentiation and innovation. The company's multi-year "platform transformation" has involved extensive fleet standardization, digitization, and automation. These initiatives are not merely buzzwords; they translate into tangible operational benefits. Investments in telemetry and communication technologies, for instance, have created a highly responsive business model, improving customer uptime and driving cost efficiencies.

A key quantifiable benefit of this technological focus is the remarkable improvement in compressor "time on location." Based on 2024 data, an Archrock compressor now stays on location for over six years on average, representing a 52% improvement since 2021. This extended operational tenure is a direct result of fleet standardization and high-grading, reducing startup expenses and unit stops, and reinforcing the stability of Archrock's revenue streams.

Archrock is also at the forefront of addressing the industry's environmental challenges. The company is a recognized leader in electric motor drive compression and expertise. The planned expansion of this fleet not only offers environmental benefits through reduced emissions but also augments customer uptime and enhances Archrock’s operational efficiency. While the mix of new build capital expenditures allocated to electric motor drive is currently 20% to 25% (a slight taper from previous highs of 30%+ due to power availability constraints rather than cost), Archrock remains agnostic to customer preference, offering robust service for both gas and electric drives.

Beyond its core compression services, Archrock is actively pursuing new technological ventures aimed at reducing carbon emissions. Its "new venture theme" is advancing opportunities in methane emissions detection, measurement, and capture solutions, which are complementary to its core business. A notable partnership is with Coldstream Energy, where Archrock serves as a strategic distribution partner for the patented MaCH4 NGL Recovery Solution. This technology is designed to capture natural gas liquids, reduce VOC emissions from compressor stations, and deliver lean, dry fuel gas to engines. Archrock has committed to purchasing a minimum of $64.3 million of MaCH4 NRS equipment through March 31, 2026, demonstrating a concrete investment in these innovative, sustainability-focused solutions. These technological advancements collectively strengthen Archrock's competitive moat, contribute to higher margins, and solidify its market positioning for long-term growth.

Strategic Expansion and Competitive Dominance

Archrock's recent history is defined by strategic, value-accretive acquisitions that have significantly expanded its market footprint and capabilities. In August 2024, the company completed the acquisition of Total Operations and Production Services (TOPS) for $868.7 million, comprising cash and approximately 6.9 million common shares. This transformative deal added approximately 580,000 horsepower (530,000 operating) and established Archrock as a leader in electric motor drive compression, particularly with blue-chip customers in the Permian. The TOPS acquisition is expected to boost Archrock's 2025 earnings per share by 10% and cash available for dividend per share by at least 20%. Building on this momentum, Archrock acquired Natural Gas Compression Systems, Inc. (NGCS) in May 2025 for approximately $351.5 million (cash and ~2.3 million common shares), adding 326,000 operating horsepower and an 18,000 horsepower backlog. This further expanded Archrock's scale and customer relationships in key regions like the Permian.

These acquisitions, coupled with disciplined asset management, reinforce Archrock's competitive standing. The company strategically divested approximately 47,000 horsepower to Flowco for $71 million in August 2025, reallocating capital from non-core assets (primarily high-pressure gas lift units from the TOPS acquisition) to fund new build equipment and reduce net capital expenditures. This "nip and tuck" approach to fleet management ensures a highly competitive and optimized asset base.

Archrock's competitive advantages are multi-faceted. It maintains the lowest leverage ratio in the industry, standing at 3.3x at the end of Q2 2025, with a target range of 3.0x to 3.5x. This financial discipline provides significant flexibility. Its fleet utilization consistently hovers at 96%, a level 5-7 percentage points higher than historical peaks, offering a strong starting point in any market scenario. The company's customer base is strategically diversified, with approximately 50% midstream and 50% producers, a significant shift from a decade ago that enhances stability. Archrock's integrated aftermarket services, offering comprehensive solutions from parts sales to full operational support, provide a distinct edge over competitors like CSI Compressco LP (CCLP), which may have less robust aftermarket offerings. This integration fosters stronger customer loyalty and more stable cash flow generation.

Compared to Kodiak Gas Services (KGS), which often focuses on large-scale project execution, Archrock's broader service portfolio and established relationships position it as a more holistic partner. While USA Compression Partners (USAC) boasts a large fleet, Archrock's emphasis on technological innovation and a younger, high-graded fleet allows it to command competitive pricing and deliver superior operational reliability. The industry's high barriers to entry—stemming from substantial capital requirements, regulatory complexities, and specialized expertise—further protect Archrock's market position, limiting the emergence of new direct competitors.

Financial Performance: A Story of Consistent Outperformance

Archrock's financial performance in recent periods vividly illustrates the success of its strategic initiatives and operational effectiveness. The second quarter of 2025 was particularly strong, with total revenue reaching $383.15 million, a substantial 41.2% increase from $225.47 million in Q2 2024. This growth was primarily fueled by the contributions from the TOPS and NGCS acquisitions, coupled with higher pricing and an expanded average operating horsepower. The company's adjusted gross margin for the quarter soared by 52% year-over-year to $222.18 million, achieving an impressive 70% adjusted gross margin percentage for the third consecutive quarter. Net income for Q2 2025 was $63.42 million, an 84.2% increase from $34.43 million in the prior year, translating to an adjusted EPS of $0.39, nearly 70% higher year-over-year. Adjusted EBITDA also saw robust growth, exceeding 60% year-over-year to $213 million.

For the first half of 2025, Archrock reported total revenue of $730.32 million, up 35.5% from $539.01 million in H1 2024, and adjusted gross margin of $459.22 million, a 47.3% increase. Net income for the six-month period was $134.27 million, up 79.1% from $74.96 million in H1 2024. These figures underscore management's ability to drive profitability even as costs associated with acquisitions and increased activity rise. While cost of sales, SGA, depreciation, and interest expenses all increased due to the expanded operations and debt financing for acquisitions, revenue growth consistently outpaced these increases, leading to significant margin expansion.

Archrock maintains a strong liquidity position, primarily driven by robust operating cash flows and access to its Credit Facility. Net cash provided by operating activities for H1 2025 was $243.10 million, up from $208.35 million in H1 2024. The company recently upsized its Credit Facility from $1.1 billion to $1.5 billion, with the capacity to expand further to $2.3 billion, and reported $675 million in available liquidity as of June 30, 2025. This financial strength supports its capital allocation strategy, which prioritizes shareholder returns. Archrock declared a quarterly dividend of $0.21 per share in Q2 2025, an 11% sequential and 27% year-over-year increase, maintaining a robust dividend coverage of 3.4x. The company also actively repurchased approximately 1.2 million shares for $29 million in Q2 2025, with $58.9 million remaining under its authorization, reflecting management's belief in a "dislocation" between the stock's performance and its strong fundamentals.

Outlook and Guidance: Sustained Growth Ahead

Archrock's management expresses high confidence in the company's future, projecting sustained growth through 2025, 2026, and beyond. This optimism is reflected in its updated 2025 guidance, which was raised to an adjusted EBITDA range of $810 million to $850 million. This revised outlook incorporates continued outperformance in its core business and the contributions from the NGCS acquisition, partially offset by the recent asset sale to Flowco.

The company's capital expenditure plan for 2025 is robust, with total CapEx expected to be between $485 million and $520 million. Growth CapEx, specifically, has been narrowed to $340 million to $360 million, all underpinned by multi-year contracts with blue-chip customers. Maintenance CapEx is projected at $110 million to $120 million, with an additional $35 million to $40 million for other CapEx, primarily new vehicles. These investments are expected to be funded by operations and supported by non-strategic asset sale proceeds, which totaled over $102 million year-to-date in 2025. Looking further ahead, Archrock anticipates 2026 growth CapEx to be "not less than $250 million," signaling continued strong customer demand and a healthy contracted backlog.

Pricing is expected to reflect a "normalized level of inflation," with mid-single-digit year-over-year increases across most horsepower categories. The aftermarket services segment is also expected to maintain its strong performance, driven by sustainable market demand for equipment maintenance, though a non-recurring large engine sale in Q2 2025 will not repeat. Management's forward-looking statements are reinforced by a disciplined approach: new horsepower orders are only placed with firm customer commitments and contracts in hand, mitigating speculative investment risk. The average time a compressor stays on location, currently over six years, is expected to extend further as Archrock continues to add larger horsepower units to its fleet, enhancing long-term revenue stability.

Risks and Strategic Responses in a Dynamic Energy Landscape

While Archrock's outlook is compelling, investors should consider the inherent risks. Acquisition integration, particularly with recent large transactions like TOPS and NGCS, always presents challenges, including the potential for unforeseen liabilities, higher-than-expected costs, and difficulties in fully realizing anticipated benefits. The market price of Archrock's common stock could be affected if these integrations are unsuccessful or if the expected accretion targets are not met as rapidly as projected.

Operational hazards are also a constant in the energy infrastructure business, involving risks such as natural gas flows, fires, and explosions. Archrock is substantially self-insured for certain risks, including workers' compensation, employee health claims, and property damage to offshore assets, meaning uncovered losses could increase costs. Furthermore, the company is subject to state and local tax audits and litigation, which carry inherent uncertainties that could materially impact financial results.

Macroeconomic conditions, including global uncertainty and stock market volatility, can influence investor sentiment and energy demand. However, Archrock's business is positioned as a late-cycle participant, primarily tied to existing natural gas production and midstream infrastructure, making it less susceptible to immediate commodity price fluctuations than drilling and completion-focused businesses. Management notes that tariffs are not expected to have a material impact in 2025 or 2026, as its supply chain is predominantly U.S.-based. A slowdown in oil production growth, while potentially dampening overall business expansion, is not expected to lead to a decline in production, given the leverage to existing output. A key constraint for the growth of electric motor drive compression is the availability of power infrastructure, which is currently under "tremendous strain."

Archrock's strategic responses to these challenges are robust. Its lowest-in-industry leverage provides financial resilience. The company's highly variable operating and capital expenditures offer significant flexibility to adjust quickly to market shifts. Its diversified geographic footprint, with a strong presence in the Permian (55-80% of order book) but also in the Eagle Ford, Haynesville, DJ, Powder River, and Marcellus (20-30% of order book), allows it to adapt to regional production dynamics. The increasing trend of outsourcing compression services, particularly in the Permian, driven by capital discipline and a tight labor market, further benefits Archrock's contract operations model.

Conclusion

Archrock, Inc. presents a compelling investment thesis rooted in its strategic transformation, technological leadership, and dominant position within the critical natural gas compression sector. The company's history of adaptability has culminated in a modern, high-efficiency fleet and an integrated service model that consistently delivers record financial performance. With a robust backlog, accretive acquisitions bolstering its scale and capabilities, and a clear roadmap for continued growth in a market driven by insatiable natural gas demand, Archrock is well-positioned to capitalize on the ongoing energy infrastructure build-out.

The company's commitment to financial discipline, evidenced by its industry-leading low leverage and increasing shareholder returns, further strengthens its investment appeal. While macroeconomic uncertainties and operational risks persist, Archrock's proactive management, technological innovation in areas like methane emissions reduction, and strategic competitive advantages provide a durable moat. For investors seeking exposure to a resilient, high-growth energy infrastructure play that is powering America's energy future, Archrock offers a compelling opportunity.