Archrock (AROC) delivered adjusted EPS of $0.49 for the third quarter, beating the $0.46 consensus by 6.5% and growing 16.7% from a year ago. GAAP EPS was $0.48, up from $0.40. The top line went the other way. Revenue of $370.8 million missed consensus by 3.0% and fell 3.0% year over year, as aftermarket services shrank and asset sales held back contract operations. That is the central tension of the quarter: earnings and cash coverage improved while revenue moved backward. Underneath both, management pointed to the strongest demand signal the company has reported in more than three years.
The quality of the beat deserves scrutiny. SG&A fell to $26.0 million from $39.6 million in the second quarter and $37.7 million a year ago, helped by a non-recurring long-term incentive credit. Management expects SG&A to rise sequentially in the fourth quarter. That roughly $13.6 million sequential SG&A decline accounts for most of the $15.8 million rise in adjusted EBITDA, to $228.4 million from $212.6 million. Lower interest expense also contributed, at $37.0 million versus $43.7 million a year ago, reflecting a lighter debt load. The operating core held up better than the headline revenue decline implies. Contract operations adjusted gross margin was 72%. On a like-for-like basis, excluding a $9.9 million tax-settlement benefit in the prior-year quarter, margin rose from 70%, despite pressure from lube oil and make-ready costs. Revenue per horsepower of $24.38 per month was up 4%, so pricing remains firm.
The weak spots are real. Contract operations revenue grew just 1.5%, decelerating from roughly 3% in the second quarter and 10% in the first. The slowdown reflects the sale of about 112,000 non-strategic operating horsepower and utilization that has drifted to 94.3% from 95.5% at the end of 2025. Aftermarket services revenue fell to $39.7 million from $56.2 million a year earlier as customers deferred major maintenance, and management offered limited visibility on a rebound. Adjusted free cash flow slid to $49.6 million, down from $67.0 million in the second quarter and $92 million in the first. After the dividend, only $9.0 million remained, as capital spending climbed to $117.9 million. No shares were repurchased.
The demand picture is what changed. Bookings were the highest since the second quarter of 2023, and year-to-date bookings are up 13%. Permian bookings reached a one-year high, supported by rising gas-to-oil ratios and new takeaway capacity: Hugh Brinson Phase I is in service and Blackcomb is wrapping up, together adding about 4 Bcf/d. Growth also broadened. The Rockies were the largest contributor, with additional gains in the Haynesville and Mid-Continent, and the Permian represented only 30% to 40% of the quarter's growth. Operating horsepower rose about 21,000 sequentially after a slight decline in the second quarter. Management expects roughly 50,000 horsepower of new-build deliveries in the fourth quarter, toward a 2026 target of about 170,000. Caterpillar lead times have eased to more than 180 weeks from about 195-200. However, long lead times still stretch the path from booking to revenue. Management also reiterated its framework of $1.4 billion to $1.6 billion in growth capital for roughly 1 million horsepower over 2027-2030.
The forward outlook offers less excitement than the bookings. Full-year adjusted EBITDA guidance of $865 million to $885 million was reaffirmed. That range was narrowed in the second quarter from an original $865 million to $915 million, effectively a midpoint cut, and this quarter did nothing to restore it. The balance sheet gives the company room to maneuver. Leverage fell to 2.5x from 3.1x a year ago, dividend coverage reached 3.8x, and the $0.23 quarterly dividend is about 10% higher year over year. Management noted capacity for inorganic opportunities.
Investor expectations have soured. Earnings Whispers sentiment moved from roughly neutral at -0.07 to a clearly negative -0.33. Shares have fallen 9.4% since the open following the August report, to $30.34, and sit about 11% below the 200-day moving average of $34.14. The market has been pricing the flat revenue, aftermarket weakness and thinning free cash flow rather than the bookings recovery. Bears have legitimate ammunition in the one-time SG&A help and a guidance range that was already trimmed.
The bottom line is that Archrock's beat was partly manufactured by a non-recurring cost credit. Even so, the call delivered a credible demand inflection, with record bookings in more than three years, broadening basin growth and resilient 72% margins. The investment debate now hinges on conversion. Investors need to see whether new-build deliveries and returning idle units can reaccelerate contract operations revenue and restore free cash flow before aftermarket deferrals and rising costs erode patience further.