Breaking Down Archrock, Inc. (AROC) Financial Health: Key Insights for Investors

Understanding Archrock, Inc. (AROC) Revenue Streams

Revenue Analysis

Breaking down Archrock, Inc. (AROC) revenue streams reveals key insights into the company's financial health. The primary sources of revenue include:

• Natural Gas Compression Services: This segment represents a significant portion of the revenue, providing compression for natural gas production and transportation.
• Aftermarket Services: This includes service contracts, parts sales, and maintenance services for existing compression equipment.
• Product Sales: Revenue generated from the sale of new compression equipment.
• Geographical Segmentation: Revenue is diversified across various regions including the United States and other international markets.

In terms of year-over-year revenue growth, Archrock has demonstrated various trends over recent years:

The contribution of different business segments to overall revenue is summarized below:

Significant changes in revenue streams are observed in the increase in Natural Gas Compression Services, which accounted for a notable rise in revenue in 2022, particularly due to higher demand associated with natural gas production recovery post-pandemic.

The analysis indicates a strategic focus on enhancing service offerings and expanding market reach, contributing to growth in the revenue streams. As of the latest financial reports, AROC remains well-positioned to capitalize on industry trends and optimize their revenue channels.

A Deep Dive into Archrock, Inc. (AROC) Profitability

Profitability Metrics

Analyzing the profitability metrics of Archrock, Inc. (AROC) provides critical insights for potential investors. Understanding the company's gross profit, operating profit, and net profit margins is essential to assess its financial health.

Gross Profit Margin (%) = (Gross Profit / Revenue) x 100

For Archrock:

• Gross Profit for 2022: $196.6 million
• Revenue for 2022: $530.4 million
• Gross Profit Margin for 2022: 37.06%

The Operating Profit Margin provides insight into how effectively a company converts sales into profits after covering operating expenses:

Operating Profit Margin (%) = (Operating Profit / Revenue) x 100

• Operating Profit for 2022: $78.4 million
• Operating Profit Margin for 2022: 14.79%

Meanwhile, the Net Profit Margin shows the overall profitability of the company after all expenses, including taxes and interest:

Net Profit Margin (%) = (Net Income / Revenue) x 100

• Net Income for 2022: $23.8 million
• Net Profit Margin for 2022: 4.48%

Trends in profitability over recent years can reveal AROC’s operational progress:

When comparing these profitability ratios to industry averages, it is essential to note that the average gross profit margin for the energy services industry is typically around 30%-40%, while average operating margins hover around 10%-15%.

In terms of operational efficiency, Archrock’s cost management strategies have led to consistent gross margin improvements. For instance, from 2020 to 2022, the gross margin increased from 32.15% to 37.06%, indicating a focus on reducing costs and optimizing service delivery. This might be attributed to strategic mergers and enhanced service offerings aimed at lowering operational costs.

Overall, the continuous improvement in these profitability metrics positions Archrock favorably within the competitive landscape, showcasing resilience and effective management strategies.

Debt vs. Equity: How Archrock, Inc. (AROC) Finances Its Growth

Debt vs. Equity Structure

Archrock, Inc. (AROC) presents a diversified approach to financing its growth through its debt and equity structure. As of the most recent financial reports, the company has demonstrated a balanced method in its capital structure, crucial for investors seeking insight into financial health.

As of the latest quarter, Archrock reported $1.05 billion in total debt. This figure comprises $800 million in long-term debt and $250 million in short-term obligations. The presence of both long-term and short-term debt allows the company to leverage financing for its operations while managing repayment schedules effectively.

The debt-to-equity ratio for Archrock stands at 1.38, indicating a relatively higher level of debt utilization compared to equity financing. Industry standards indicate that the average debt-to-equity ratio for similar companies is around 1.00, suggesting that Archrock is more leveraged than many of its peers.

In its recent activities, Archrock executed a refinancing strategy in the past year, which included a $250 million senior unsecured note issuance at a favorable interest rate of 4.5%. This move was designed to lower interest expenses and extend maturities, positioning the company favorably within its debt portfolio.

Credit ratings for Archrock, according to Standard & Poor's, are currently rated at B+ with a stable outlook. This rating reflects the company's operational performance and risk profile in the broader market context.

Balancing debt financing and equity funding is key for Archrock. The company actively engages in capital markets to secure funds when needed, while also maintaining sufficient equity to meet operational and strategic objectives. In the last fiscal year, Archrock raised $100 million through equity offerings to support its growth and expansion initiatives.

Understanding the dynamics of Archrock's debt and equity structure is critical for investors. The company's strategic choices reflect its commitment to maintaining financial flexibility while pursuing growth opportunities in a competitive market.

Assessing Archrock, Inc. (AROC) Liquidity

Assessing Archrock, Inc. (AROC)'s Liquidity

Liquidity is a critical measure of a company's ability to meet its short-term obligations. For Archrock, Inc. (AROC), the liquidity metrics provide insights into the company's financial health and operational flexibility.

Current and Quick Ratios

The current ratio is calculated by dividing current assets by current liabilities. As of the latest financial reports, Archrock has:

• Current Assets: $217.5 million
• Current Liabilities: $128.4 million
• Current Ratio: 1.70

The quick ratio is a more stringent measure, excluding inventories from current assets. For Archrock, the quick assets and liabilities are as follows:

• Quick Assets: $205.5 million
• Current Liabilities: $128.4 million
• Quick Ratio: 1.60

Analysis of Working Capital Trends

Working capital, calculated as current assets minus current liabilities, is fundamental for assessing operational efficiency. Archrock's working capital trends over the past two years reveal:

This trend indicates a slight increase in working capital, suggesting a stable liquidity position.

Cash Flow Statements Overview

Understanding the cash flow statement is essential for analyzing liquidity. Archrock's cash flow components are as follows:

• Operating Cash Flow: $78.3 million
• Investing Cash Flow: -$35.5 million
• Financing Cash Flow: -$14.7 million

Operating cash flow remains positive, indicating effective core operations. The negative investing cash flow illustrates ongoing capital expenditures, which is typical in capital-intensive industries.

Potential Liquidity Concerns or Strengths

While Archrock's liquidity ratios suggest adequate coverage for short-term liabilities, the slight increase in current liabilities compared to current assets might raise concerns about potential liquidity strains during economic downturns. Furthermore, the negative financing cash flow signals increased debt servicing or dividends, which, if unsustainable, could affect liquidity in the future.

Is Archrock, Inc. (AROC) Overvalued or Undervalued?

Valuation Analysis

To assess whether Archrock, Inc. (AROC) is overvalued or undervalued, we will analyze key financial metrics including the Price-to-Earnings (P/E) ratio, Price-to-Book (P/B) ratio, and Enterprise Value-to-EBITDA (EV/EBITDA) ratios. As of the latest data:

• P/E Ratio: 19.5
• P/B Ratio: 3.1
• EV/EBITDA Ratio: 12.8

Next, let's examine stock price trends over the last 12 months.

The stock has shown a consistent upward trend over the past year, rising from $12.00 to $15.00, reflecting a growth of 25% over the year.

Additionally, we can evaluate the company's dividend yield and payout ratios:

• Dividend Yield: 5.2%
• Payout Ratio: 45%

The dividend yield indicates a solid return for investors, while the payout ratio suggests a sustainable policy. This is especially relevant for income-focused investors looking at long-term stability.

Finally, let's look at the analyst consensus on stock valuation:

• Buy: 8 Analysts
• Hold: 2 Analysts
• Sell: 1 Analyst

With a predominance of 'Buy' ratings, the market sentiment leans toward a favorable outlook for Archrock's stock.

Key Risks Facing Archrock, Inc. (AROC)

Risk Factors

Archrock, Inc. (AROC) faces several internal and external risks that may significantly impact its financial health. Understanding these risks is crucial for investors looking at the company.

Industry Competition: The natural gas compression market is characterized by intense competition. AROC competes with both large, well-capitalized companies and smaller regional players. As of 2023, the market is projected to grow from $10 billion in 2022 to approximately $13 billion by 2028, increasing competition further.

Regulatory Changes: Regulatory changes in environmental policies and energy production can affect operations. For instance, in 2022, the U.S. enacted stricter emissions regulations that could increase compliance costs. This amplifies risk as AROC must continuously adapt its operations to meet evolving regulations.

Market Conditions: Fluctuations in natural gas prices can materially affect AROC's revenues. In Q2 2023, natural gas prices averaged $2.58 per million British thermal units (MMBtu), up from $1.87 per MMBtu in Q2 2022. Such price volatility impacts demand for compression services.

Operational Risks: AROC relies on its equipment and workforce to deliver services. Downtime due to maintenance or unexpected failures can result in lost revenues. In 2022, AROC reported that approximately 10% of its fleet was offline due to repairs at any given time, affecting operational efficiency.

Financial Risks: Increased debt can pose financial risks. As of the latest financial report, AROC carries a total debt of approximately $697 million, with an interest coverage ratio of 2.86. This ratio indicates how well earnings can cover interest obligations, which investors should monitor closely.

Strategic Risks: The company’s growth strategies, including mergers and acquisitions, come with inherent risks. AROC's acquisition of a competitor in 2021 for roughly $150 million resulted in integration challenges and unexpected costs, illustrating potential pitfalls in strategic growth initiatives.

Below is a summary of the key risk factors facing Archrock, Inc.:

Mitigation strategies are essential to navigate these risks effectively. For example, AROC has implemented rigorous maintenance schedules to minimize operational downtime and is actively engaged in lobbying for favorable regulatory conditions to manage compliance costs.

Future Growth Prospects for Archrock, Inc. (AROC)

Growth Opportunities

Archrock, Inc. (AROC) presents several compelling growth opportunities driven by strategic initiatives, competitive advantages, and market expansion. As a provider of natural gas compression services, the company is well-positioned to capitalize on the evolving energy landscape.

Key Growth Drivers:

• Product Innovations: Archrock's focus on enhancing product efficiency could lead to significant cost savings for clients, enabling them to improve operational reliability.
• Market Expansions: The company aims to increase its footprint in the Permian Basin, a region that has witnessed a production increase from approximately 3 million barrels per day in 2015 to over 5 million barrels per day in 2023.
• Acquisitions: AROC's strategy includes potential acquisitions to enhance service offerings. The U.S. midstream sector had an aggregate of $4 billion in acquisition activity in 2022 alone.

Future Revenue Growth Projections:

The revenue growth projections for Archrock indicate a compound annual growth rate (CAGR) of approximately 6% from 2023 to 2026. The earnings before interest, taxes, depreciation, and amortization (EBITDA) is estimated to reach around $600 million by 2026.

Strategic Initiatives:

• Partnerships: Collaborations with key players in the oil and gas sector aim to enhance service offerings and capture greater market share. Recent partnerships have yielded 15% more contract renewals compared to prior years.
• Eco-Friendly Solutions: Introductions of low-emission compression systems are expected to increase market competitiveness and align with changing regulatory environments.

Competitive Advantages:

• Market Position: With a fleet of over 7,000 compression units, Archrock is one of the largest providers in the U.S., providing a significant competitive edge.
• Operational Efficiency: The company has maintained a utilization rate of approximately 83%, demonstrating effective management of resources to maximize revenue.

As Archrock navigates these growth opportunities, its strategic focus on innovation, market expansion, and partnerships positions the company for sustained growth in a dynamic environment.