Archrock Inc. (AROC) is a leading provider of natural gas compression services and aftermarket services in the United States. The company has demonstrated exceptional operational and financial performance, driven by strong market fundamentals, a transformed business platform, and prudent capital allocation.
Financials
In the fiscal year 2023, Archrock reported annual net income of $104,998,000, annual revenue of $990,337,000, annual operating cash flow of $310,187,000, and annual free cash flow of $11,555,000. The company's strong financial results have continued into 2024, with the first quarter delivering impressive growth.
For the first quarter of 2024, Archrock reported net income of $40.5 million, up significantly from $16.5 million in the same period of 2023. Quarterly revenue increased to $268.5 million, compared to $229.8 million in the prior-year quarter. The company's operational and financial performance has been bolstered by several key factors.
Operational Performance
First, Archrock's contract operations segment has continued to show broad-based strength, with historically high levels of utilization, pricing, and profitability. The company exited the first quarter with near-record utilization of 95%, and it expects to maintain utilization in the mid-90s for the full year. Archrock has also been successful in capturing additional rate increments, with its monthly revenue per horsepower increasing by 5% to $20.62 in the first quarter.
The Aftermarket Services segment also had a solid quarter, with revenues up 8% year-over-year due to higher pricing and increased customer demand for services. Profitability in this segment exceeded the company's guidance expectations as Archrock continues to focus on higher-quality and higher-margin work.
Capital Allocation
Archrock's strong financial position has enabled the company to increase capital returns to shareholders. The company recently declared a quarterly dividend of $0.165 per share, representing a 10% increase on an annualized basis. Additionally, Archrock's Board of Directors has approved an extension of the company's share repurchase program, with renewed available capacity of $50 million.
The company's robust financial performance and capital allocation strategy have been recognized by the market. In March 2024, S&P Global Ratings upgraded Archrock's issuer credit rating to BB- from B+ with a stable outlook, and also raised the issue-level rating on the company's senior unsecured debt to BB- from B+.
Outlook
Looking ahead, Archrock is well-positioned to capitalize on the favorable market environment. The company has raised its 2024 annual adjusted EBITDA guidance range to $510 million to $540 million, up from the previous range of $500 million to $530 million. This improved guidance reflects Archrock's confidence in its ability to sustain historically high levels of utilization, pricing, and profitability for the remainder of the year.
Geographically, Archrock continues to see strong demand in the Permian Basin, which accounts for approximately 60% of the company's growth capital expenditures. The company is also experiencing increased activity in other key markets, such as the Rockies, South Texas, and the Northeast.
Revenue Breakdown
In terms of revenue breakdowns, Archrock's contract operations segment generated $223.1 million in revenue during the first quarter of 2024, up 19% from the prior-year period. This increase was driven by higher pricing and an increase in average operating horsepower. The Aftermarket Services segment reported revenue of $45.4 million, an 8% year-over-year increase, due to higher levels of service activities and improved pricing.
Business Platform
Archrock's transformed business platform, which includes investments in innovative technology and digitization, has also been a key driver of the company's success. These initiatives have enabled Archrock to improve its operational efficiency, enhance customer service, and capture additional profitability gains.
Liquidity
The company's strong financial position, with a leverage ratio of 3.2x at the end of the first quarter, provides Archrock with the flexibility to continue investing in growth opportunities while also returning capital to shareholders. The company's prudent capital allocation strategy, which balances growth investments, dividend payments, and share repurchases, has been well-received by the market.
Conclusion
Archrock's 70-year legacy and its transformed business platform position the company for continued success. The favorable market environment, driven by growth in natural gas production, heightened capital discipline across the energy sector, and the increasing importance of natural gas as a clean energy source, provide a robust backdrop for Archrock's operations.
As Archrock celebrates its 70th anniversary, the company's exceptional operational and financial performance, coupled with its strong market positioning and prudent capital allocation, make it an attractive investment opportunity for shareholders.