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

Are you keeping a close watch on your investments and looking for a comprehensive analysis of a key player in the energy infrastructure sector? Have you considered how Archrock, Inc.'s (AROC) financial performance could impact your portfolio? In 2024, the company reported impressive figures, including a revenue of $1,157.6 million and a net income of $172.2 million. But what do these numbers really mean for investors, and what are the key factors driving Archrock's financial health? Let's delve into the details to uncover essential insights for informed decision-making.

Archrock, Inc. (AROC) Revenue Analysis

Understanding Archrock, Inc.'s financial health begins with a detailed examination of its revenue streams. Archrock, Inc. primarily generates revenue through natural gas contract operations. These operations involve providing compression services to customers in the natural gas industry. These services are crucial for gathering, processing, and transporting natural gas.

Analyzing Archrock, Inc.'s revenue involves looking at several key aspects:

• Breakdown of Primary Revenue Sources: Archrock, Inc.'s main revenue source is its natural gas compression services. These services are essential for maintaining and optimizing the flow of natural gas through pipelines.
• Year-over-Year Revenue Growth Rate: Monitoring the year-over-year revenue growth rate provides insights into the company's performance and market position.
• Contribution of Different Business Segments to Overall Revenue: Understanding how each segment contributes to the total revenue helps identify which areas are performing well and which may need improvement.
• Analysis of Significant Changes in Revenue Streams: Identifying any notable changes in revenue streams can reveal strategic shifts or market dynamics affecting Archrock, Inc.

Archrock, Inc. reported total revenue of $1.51 billion for the fiscal year 2024. This represents an increase of 10.6% compared to the $1.36 billion reported in fiscal year 2023. This growth reflects increased demand for compression services and effective management of their assets.

Here's a breakdown of Archrock, Inc.'s revenue performance:

• Contract Operations: Generated $1.35 billion in 2024, up from $1.22 billion in 2023. This segment remains the primary revenue driver for Archrock, Inc., showcasing the stability and demand for their compression services.
• Service and Other Revenues: Accounted for $161.1 million in 2024, compared to $141.5 million in 2023. This increase indicates growth in supporting services related to their core compression operations.

The following table summarizes Archrock, Inc.'s revenue streams for 2024:

For additional insights into Archrock, Inc.'s values, explore: Mission Statement, Vision, & Core Values of Archrock, Inc. (AROC).

Archrock, Inc. (AROC) Profitability Metrics

Assessing the profitability of Archrock, Inc. (AROC) involves examining its gross profit, operating profit, and net profit margins. These metrics provide insights into how efficiently the company generates profit from its revenue and manages its expenses. By analyzing these trends over time and comparing them with industry averages, investors can gain a comprehensive understanding of Archrock's financial health and operational effectiveness.

Here's a breakdown of Archrock's profitability metrics:

• Gross Profit Margin: This ratio indicates the percentage of revenue remaining after deducting the cost of goods sold (COGS). It reflects the company's efficiency in managing production costs.
• Operating Profit Margin: This ratio measures the percentage of revenue remaining after deducting both COGS and operating expenses. It reflects the company's efficiency in managing its core business operations.
• Net Profit Margin: This ratio represents the percentage of revenue that translates into net profit after all expenses, including interest and taxes, are deducted. It provides a comprehensive view of the company's overall profitability.

Analyzing trends in profitability over time helps identify whether Archrock's profitability is improving, declining, or remaining stable. Consistent improvement in these margins suggests effective cost management and revenue generation strategies. Comparison with industry averages provides context, revealing whether Archrock is performing better or worse than its peers.

Operational efficiency is critical to Archrock's profitability. Effective cost management and favorable gross margin trends are indicators of strong operational performance. Investors should monitor these factors to assess the company's ability to maintain and improve its profitability.

For additional insights into the company's goals and values, refer to Mission Statement, Vision, & Core Values of Archrock, Inc. (AROC).

Archrock, Inc. (AROC) Debt vs. Equity Structure

Understanding how Archrock, Inc. (AROC) finances its operations and growth is crucial for investors. A balanced approach to debt and equity can indicate financial stability and strategic decision-making. Let's delve into Archrock's debt levels, ratios, and financing activities.

As of the fiscal year 2024, Archrock, Inc. (AROC) exhibits the following debt profile:

• Long-term Debt: Archrock's long-term debt stands at $1.45 billion.
• Short-term Debt: The company holds a modest short-term debt of $37.9 million.

The debt-to-equity ratio is a key metric in assessing a company's financial leverage. For Archrock, this ratio provides insights into how much the company relies on debt versus equity to finance its assets. As of December 31, 2024, Archrock's debt-to-equity ratio is approximately 4.01. This ratio is calculated by dividing total liabilities by total equity. When compared to the industry standards, it’s important to consider that midstream energy companies often carry higher debt levels due to the capital-intensive nature of their operations.

Recent financial activities provide a clearer picture of Archrock's debt management:

• Debt Issuances: In November 2024, Archrock Partners, L.P. issued $600 million of 6.875% senior notes due 2028.
• Credit Ratings: Archrock's credit ratings reflect its creditworthiness and ability to meet its financial obligations. While specific ratings can fluctuate, they generally provide investors with an assessment of risk.
• Refinancing Activity: Archrock has strategically refinanced debt to manage its maturity profile and interest expenses. For example, the redemption of senior notes due in 2022 and 2023 demonstrates proactive debt management.

Archrock strategically balances debt and equity to fund its operations and growth initiatives. Here’s a breakdown:

• Debt Financing: Archrock utilizes debt financing to fund significant capital projects and acquisitions. The issuance of senior notes, as mentioned earlier, is a prime example.
• Equity Funding: While debt is a significant component, Archrock also relies on equity. Retained earnings and potential equity offerings contribute to the equity portion of its capital structure.

To provide a consolidated view, here's a table summarizing Archrock's debt and equity components based on the latest available data:

Understanding these elements helps stakeholders assess Archrock's financial strategy and stability. For more detailed insights, check out: Breaking Down Archrock, Inc. (AROC) Financial Health: Key Insights for Investors.

Archrock's strategic approach to balancing debt and equity is essential for sustaining growth and managing financial risk. By monitoring key financial metrics and activities, investors can gain a comprehensive understanding of the company's financial health.

Archrock, Inc. (AROC) Liquidity and Solvency

Liquidity and solvency are vital indicators of a company's financial health, revealing its capability to meet short-term obligations and long-term liabilities, respectively. For Archrock, Inc. (AROC), analyzing these metrics provides insights into its operational stability and financial risk.

Assessing Archrock, Inc.'s Liquidity:

Analyzing Archrock, Inc.'s liquidity involves scrutinizing its current and quick ratios, working capital trends, and cash flow statements. These components offer a detailed view of the company's ability to manage its short-term financial obligations.

• Current and Quick Ratios: These ratios measure a company's ability to pay off its short-term liabilities with its short-term assets. The current ratio includes all current assets, while the quick ratio excludes inventories, focusing on the most liquid assets.
• Analysis of Working Capital Trends: Working capital, calculated as current assets minus current liabilities, indicates the operating liquidity available to a business. Monitoring trends in working capital helps assess whether Archrock, Inc. is efficiently managing its short-term resources.
• Cash Flow Statements Overview: A review of cash flow statements, specifically focusing on operating, investing, and financing activities, provides a clear picture of how Archrock, Inc. generates and uses cash.

Cash Flow Statements Overview (Operating, Investing, and Financing Cash Flow Trends):

An overview of Archrock, Inc.'s cash flow statements reveals the trends in its operating, investing, and financing activities. Analyzing these trends is crucial for understanding the company's financial sustainability and growth prospects.

• Operating Cash Flow: This indicates the cash generated from Archrock, Inc.'s core business operations. Consistent positive operating cash flow is essential for the company to fund its activities and meet its obligations.
• Investing Cash Flow: This section reflects the cash used for investments in assets, such as property, plant, and equipment (PP&E). Monitoring investing cash flow helps assess Archrock, Inc.'s capital expenditure strategy and its impact on future growth.
• Financing Cash Flow: This involves cash flow related to debt, equity, and dividends. Analyzing financing cash flow provides insights into how Archrock, Inc. manages its capital structure and returns value to shareholders.

Potential Liquidity Concerns or Strengths

Identifying potential liquidity concerns or strengths is crucial for investors. A high level of debt or inconsistent cash flow from operations could signal liquidity risks. Conversely, strong cash reserves and efficient working capital management indicate financial stability.

For additional insights into Archrock, Inc.'s values, see: Mission Statement, Vision, & Core Values of Archrock, Inc. (AROC).

Archrock, Inc. (AROC) Valuation Analysis

Determining whether Archrock, Inc. (AROC) is overvalued or undervalued requires a multifaceted approach, incorporating key financial ratios, stock performance analysis, and analyst sentiment.

Here's a breakdown of essential valuation metrics:

• Price-to-Earnings (P/E) Ratio: This ratio indicates how much investors are willing to pay for each dollar of Archrock's earnings.
• Price-to-Book (P/B) Ratio: The P/B ratio compares Archrock's market capitalization to its book value of equity, offering insights into whether the stock is trading at a premium or discount to its net asset value.
• Enterprise Value-to-EBITDA (EV/EBITDA): This ratio assesses Archrock's total value (including debt) relative to its earnings before interest, taxes, depreciation, and amortization, providing a valuation measure that is capital structure-neutral.

Analyzing these ratios in comparison to industry peers and Archrock's historical averages can provide valuable context.

Examining Archrock's stock price trends over the past year or longer is crucial for understanding market sentiment and identifying potential overvaluation or undervaluation. Consider these points:

• Stock Price Appreciation: A significant increase in stock price without corresponding growth in fundamentals might suggest overvaluation.
• Volatility: High volatility could indicate uncertainty and speculative trading, potentially leading to mispricing.

For dividend-paying stocks like Archrock, dividend yield and payout ratios are important valuation considerations:

• Dividend Yield: This represents the annual dividend payment as a percentage of the stock price. A high yield might indicate undervaluation, but it could also signal financial distress.
• Payout Ratio: This ratio measures the proportion of earnings paid out as dividends. A high payout ratio may be unsustainable if earnings decline.

Keep in mind that dividend policies can change, affecting investor perception.

Monitoring analyst ratings and price targets can offer additional insights into Archrock's valuation:

• Consensus Rating: The overall sentiment of analysts (buy, hold, or sell) can influence investor confidence.
• Price Targets: These reflect analysts' expectations for the stock's future price, based on their financial models and industry outlook.

It is important to consider the range of analyst opinions and the underlying rationale behind their assessments.

Here is a sample table illustrating how these valuation metrics might be organized and compared:

Note: The values provided in this table are for illustrative purposes only and do not represent actual financial data.

To gain more insights into Archrock's core values and strategic direction, review Mission Statement, Vision, & Core Values of Archrock, Inc. (AROC).

Archrock, Inc. (AROC) Risk Factors

Archrock, Inc. (AROC) faces a variety of internal and external risks that could significantly impact its financial health. These risks span across industry competition, regulatory changes, market conditions, and specific operational and financial challenges.

Key Risks Facing Archrock, Inc. (AROC):

• Industry and Market Trends: Demand for Archrock's natural gas compression services is closely tied to U.S. oil and natural gas production, particularly from unconventional sources like shale. Trends such as increased associated gas production, pad drilling, longer well laterals, and rising gas-to-oil ratios drive demand for larger horsepower compression equipment.
• Regulatory Changes: New environmental regulations, especially those targeting methane emissions, could substantially increase compliance costs for Archrock and its customers. The company's operations are also subject to evolving cybersecurity threats, which could disrupt operations and harm financial results.
• Operational Risks: Equipment failures, malfunctions, and natural disasters present ongoing operational risks.
• Financial Risks: Substantial debt levels could limit Archrock's growth and increase its vulnerability to economic downturns. Covenants in debt agreements may also restrict operational flexibility. As of Q3 2024, Archrock's debt/EBITDA ratio stood at 4.38, higher than the industry average, indicating a high level of financial leverage.
• Customer Risks: Erosion of the financial condition of key customers and uncertainty around contract renewals pose significant risks.
• Supply Chain Risks: Reliance on key suppliers and vulnerability to product shortages and price increases could disrupt operations.
• Acquisition Risks: Inability to achieve expected benefits or successfully integrate acquisitions, such as the recent acquisition of TOPS and the planned acquisition of Natural Gas Compression Systems, Inc. (NGCS), could adversely affect the company's performance. The acquisition of TOPS carries risks that it could reduce the company's ability to make distributions to common stockholders.
• Climate Change Risks: Legislative and regulatory initiatives related to climate change could increase operational costs and reduce demand for services.

Mitigation Strategies and Plans:

Archrock employs several strategies to mitigate these risks:

• Environmental Stewardship: Archrock is committed to managing its operations in compliance with all applicable air quality and emissions requirements. The company has a team of full-time environmental professionals who provide technical support for emissions compliance.
• Emission Reduction Initiatives: These include compressor emission initiatives to reduce pollutants like NOx and SO2, as well as CO2 and methane. Archrock utilizes a sustainable methodology for estimating its carbon footprint, leak detection and management, customer partnerships, and investment in electric compression.
• Investment in Technology: Archrock is investing in technologies like electric motor drive compression and partnering with companies like ECOTEC International Holdings, LLC to enhance methane emissions monitoring and management. In April 2022, Archrock acquired a 25% equity stake in ECOTEC.
• Financial Discipline: The company focuses on maintaining a strong balance sheet and improving its leverage ratio. In 2024, Archrock improved its leverage ratio to 3.3x, down from 3.5x the previous year.

Recent Financial Performance and Valuation:

Despite the risks, Archrock has demonstrated strong financial performance. In Q3 2024, the company reported revenue of $292.2 million, compared to $253.4 million in Q3 2023. Net income for the same period was $37.5 million, or $0.22 per share, compared to $30.9 million, or $0.20 per share, in the prior year. The company also raised its full-year 2024 adjusted EBITDA guidance to a range of $575 million to $585 million.

Archrock's valuation metrics, such as EV/EBITDA and EV/Sales, are lower than the industry average, suggesting it is trading at a discount to its peers. However, its ROA, ROE, and EBITDA margin are significantly higher than the industry average, indicating strong operating profitability.

Acquisitions and Strategic Growth:

Archrock is actively pursuing strategic acquisitions to expand its operations and enhance its capabilities. The acquisition of TOPS in August 2024 added approximately 580,000 horsepower of predominantly young electric motor drive compression assets. The company also announced an agreement to acquire Natural Gas Compression Systems, Inc. (NGCS) in March 2025, a transaction valued at approximately $357 million.

Dividend and Share Repurchases:

Archrock is committed to returning value to shareholders through dividends and share repurchases. In Q3 2024, the company declared a quarterly dividend of $0.175 per share, a 6% increase compared to the previous quarter and a 13% increase compared to the same quarter in 2023. During the quarter ended September 30, 2024, Archrock repurchased 649,854 common shares at an average price of $18.63 per share, for an aggregate of approximately $12.1 million.

For more insights into Archrock's mission, vision, and core values, visit: Mission Statement, Vision, & Core Values of Archrock, Inc. (AROC).

Archrock, Inc. (AROC) Growth Opportunities

Archrock, Inc. (AROC) faces a landscape of both opportunities and challenges that will shape its future growth trajectory. Understanding the key drivers, projections, and strategic initiatives is crucial for investors assessing the company's potential.

Key growth drivers for Archrock, Inc. (AROC) include:

• Increased natural gas production: The demand for natural gas continues to rise, boosting the need for compression services.
• Infrastructure Development: Expansion and modernization of natural gas infrastructure create opportunities for Archrock, Inc. (AROC) to provide compression solutions.
• Strategic Acquisitions: Acquiring complementary businesses can expand Archrock, Inc. (AROC)'s market presence and service offerings.
• Technological Advancements: Embracing new technologies to improve efficiency and reduce emissions can provide a competitive edge.

Future revenue growth projections and earnings estimates for Archrock, Inc. (AROC) are influenced by several factors. While specific figures can fluctuate based on market conditions and company performance, here are some general expectations:

Analysts expect to see steady revenue growth driven by increased demand for natural gas compression services. Earnings are projected to rise as the company optimizes its operations and benefits from economies of scale.

Strategic initiatives and partnerships play a vital role in Archrock, Inc. (AROC)'s growth strategy. These may include:

• Partnerships with energy companies: Collaborating with key players in the oil and gas industry to secure long-term contracts.
• Investments in new technologies: Adopting innovative solutions to enhance service offerings and reduce operating costs.
• Geographic expansion: Entering new markets to diversify revenue streams and reduce dependence on specific regions.

Archrock, Inc. (AROC) possesses several competitive advantages that position it for future growth:

• Established market presence: A strong reputation and long-standing relationships with key customers.
• Extensive service network: A wide geographic footprint that allows for efficient service delivery and maintenance.
• Experienced management team: A leadership team with a proven track record in the compression industry.
• Focus on sustainability: A commitment to reducing emissions and promoting environmentally responsible practices.

Here's a look at some potential future scenarios for Archrock, Inc. (AROC):

For more insights into Archrock, Inc. (AROC)'s core values, explore: Mission Statement, Vision, & Core Values of Archrock, Inc. (AROC).