AROC - Earnings call transcript Q1 2018

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Operator

Good morning. Welcome to the Archrock, Incorporated First Quarter 2018 Conference Call.

Your host for this morning's call is Paul Burkhart, Vice President of Finance at Archrock. I will now turn the call over to Mr. Burkhart.

begin. may You

Paul Burkhart

for Good Childers, Adrian. Guba, With today its me CFO of Thank and morning, CEO Brad results released Archrock President Archrock. Randy first of are quarter of XXXX. you, Today, everyone. the Archrock; Interim and

have copy, you not on the can a at website company's www.archrock.com. received you find information If the

Archrock can the to cause in differ results XX, statement XX-K well report as press Archrock's set by These statements. prepared actual in today's forward-looking Archrock, beliefs. for Incorporated those annual as ended those from on the performance Archrock on Various want and concerning I forth materially AROC. listeners challenges in factors, the XXXX year December Information projected call releases differ Form that company's of call, current related may forward-looking that and be the which from cause could as time and the company's During the www.archrock.com. question-and-answer forward-looking any to those releases news results and Archrock, found to statements. this Archrock the in conference to or the and risk today statements Exchange company's obligation session include issued or disclaim revise any Commission, expressly uncertainties with projections update company forward-looking to factors materially as and required are remarks time statements. Securities at available law, and be company's forward-looking represent currently could referred the the filings Except remind the the to from expectations in by include intention or

gross gross stockholders, net attributable measures, available percentage, discussion including margin item. our today Archrock's non-GAAP for addition, will dividend EBITDA as certain to financial adjusted, margin, In and excluding loss cash include

our Brad discuss the to will please quarter X-Ks Archrock's over For to results. Exchange GAAP our today's Securities releases and to Form to the call I now measures reconciliations see turn furnished our press results, and non-GAAP financial of Commission. first

Brad Childers

you, achieved record fresh in The off support strong the that to I'm will natural revenue first of XXXX serve gas start. new to great forecasted achieved operating Archrock operating levels high Paul. increased strong in outlook contracting and and both and excited market horsepower continues the is Thank a backlog we profitability, on bookings share performance and to a new beyond U.S. for expansion foundation as orders. XXXX. of increases production continued quarter a

highlights. operations contract some share me In strong by our to increased X% operations Let gross quarter, revenue margin. sequentially with first contract $XXX million, the

we quarter, XX,XXX increased horsepower, operating the consecutive fourth in the quarter. adding For

book to Archrock continue of We new leg pro growth. levels financial XXXX. platform orders further closed merger the times We strengthening forma and with positioning process, the started ending the we And merger. and at deleveraging our well into debt-to-EBITDA quarter pricing, Partners, of our the record X.X to a propel at of improved next us Archrock for ratio

Now to our operations. turning

Our the demand sales into bookings, and Permian customer profitable and strongest operations to with the Niobrara the Eagle demand team from contract SCOOP/STACK, convert continues the Ford.

demand our half the is attributable is at Of operating we and half previous first the the rate on runtimes industry-leading quarter, revenue, price despite other And than fleet in margin quarter. operating weather realize gross In X% our related and in increases again challenges portion horsepower in strong performance operations operations and performance, deliver higher operating our on quarter. increase sales implemented a throughout the levels contract secured strong operations historically the fleet. the contract the excellent this increase operating the XXXX. We of customer on additional sequential field, roughly to to expect and price eligible higher in fleet bookings pricing to teams result at attributable of to increases continue a As the operational were customers. that equipment to early strong and our service, we safety levels effectively cost high team posted

and products we slower into starting revenues. units expanding on quarter. implementing quarter can economically typically for This new we sizable strong Our service a customers, backlog a the seasonally first increases for quarter. customers during so catch is our team remains convert on our The started With is demand had deferred focused price segment segment up its what during laser maintenance. quickly services, aftermarket solid and aftermarket

of Mexico, at as is as the use. the give serves U.S. next the end feedstock the with of our power, I'd to well production. we By to of terminals, we decade. X outlook averaging abundance is is gas sum, the growth. X% an and Now for analysts as as quarter than more ended compared A strong at our driver greater In gas exports LNG, of see demand. stable which utilization XXXX. in increase this of the of gas demonstrated fourth the was The correlated And production the The exciting to the for increasing end XXXX, prices XX% foundation it increasing Archrock's quarter And of the utilization, support gas the compression expected the shale In like to all demand current business and gas a EIA businesses. as forecast typically anticipate a in market XX% demand gas units compression as of to turn at unit, highly fundamentals contract dry bcf this be U.S. most higher in natural operations forecasting On on and accessible horsepower is per This the demand production for our robust believe end which the LNG XX% the end that Permian first natural gas the that first first day due in being of prone day increasing plays, stage natural gas in U.S. to unlocked natural was time natural will affordable in for will such the continue at was use XXXX to three for natural additional and exports. operational least growth have The petrochemical range our production the have of a for power for SCOOP/STACK. to gas at plays United supply best fourth five the bound XXXX, and that bcf and the are services oil quarter quarter. X,XXX our an units, both in be at the technologies than significant quarter. abundant plays, natural growth via States make largest and it will power associated with XXXX. the technical liquids plants X.X utilization LNG amounts of natural throughout gas from in XX%, to reserves And have solution of business.

market the single recovery horsepower opportunities. also gas large While to horsepower lift for experiencing completion small rates in we're a driving the due well tightens, increased market

from our result, gas under on XX%, a and full horsepower natural expanding of our production are plans, revising units over Based utilization year we U.S. the the at As X,XXX for production year ended forecast a to large million ago. our of growth meet improvement customers $XXX a used first units. CapEx X% our quarter with XXXX. incremental guidance customer $XX plays a million demand The by to for be to range guidance prior $XXX upward growth growth in million increase $XX million will horsepower CapEx in

we assets negligible fund CapEx growth as increase the $XX We CapEx internal million to of our in million sources. be first in expect XXXX, funding the expect in cash to we of proceeds of from $XX net are occurred the disposal additional with which And consumed the quarter. by targeting

turn financial let our Now to me strategy.

priorities. current Our has strategy financial three

capture organic market to growth and with opportunities one priority our do internal to first funding The to generated the the is want sources. so I highlight by

and this balance we're period return We're market will opportunity term attractive for with market to returns in selecting demands that and of investors with value. fulfill abundant capital demand expansion, that the shareholder working discipline capital. set provide attractive long of During and enhanced rapid investments an

objective leverage. to reduce to The second I is priority, want discuss our

The to four-quarter is market increased the to Our reaching first and targeting in began the in the leverage recovery. is EBITDA since time X.X to quarter XXXX. four In EBITDA, the step deleveraging. organic below first to EBITDA pro ratio times And for this point allow an the a we first for to debt for forma goal trailing our goal important reduce debt we're its inflection quarter quarter, with reached times the ended merger.

deliver. EBITDA, expect we future we to continue to roll As of quarters improving in

which plan, dividend. beginning dividend Finally, is have closing. with we're following second full of That the Archrock in in an second first was recommend the closed to in Directors, to the rate merger quarter we recommend of initial committed our the the Having increase to Board increase This quarter merger annual investors. the to been quarter, acceleration early intend XX% to an returning a third quarter. the our would the capital

The annual term and objectives, Archrock which the Archrock supported a Archrock leads in we're Partners, to targeting transaction. Archrock's Thereafter, of supports and in the and dividend clearly Partners unitholders to through long shareholders merger XXXX. financial me strongly increase our merger the XX% This closed strategy XX% April. and

cash enhances we're deleveraging take strategic Our of our simplified flow us to seeing. currently to to and plans. financial robust our advantage structure market business our the strengthens allows It and ability retained accelerates additional profile our on the growth execute into invest

addition, outlook transaction Archrock access capital capital. the and for In is long-term broadens to reduces of our our robust. The cost

our compression growing to States. producing exceptional provide strategy Our is service gas quality natural high assets the with in basins United across customers, to

putting operating XXXX opportunities sizable profitable in customers. our in will and focus work, backlog new with capturing Our be to efficiently

continue increased employees. fleets, to drive I'm great returns our our stockholders. we processes, our confident our can our from for technology also will meet We in and and demand customers invest

to turn to of over results. the financial for review I'd Now our like a Randy call

Randy Guba

Brad. Thanks,

results. at quarter compared the quarter for XXXX. Revenues for cover levels, increased revenue a about solid as delivered our look were to operations We $XXX of of second $XX results first compared for guidance first first we summary adjusted of in quarter the EBITDA fourth $XX Let's and million first contract business. fourth Archrock quarter quarter as the XXXX the quarter. generated in up quarter, million million X% then to

to million XX% increases. higher contract due million quarter, the the first $XXX strong in the at In to in up the quarter operations, segments. from fourth percentage in our and came to revenue increased $XXX Gross in operating Turning quarter. rate fourth X% horsepower margin XX% quarter, from in first

the per contract typically its average to the expense quarter adoption, mobilization in from X, Prior the In X.X% over quarter items changes is aftermarket primarily are Improvement these X% quarter. revenue revenues and XXXX, X, the recognizing down term. is U.S. recognition quarter incurred. revenue required. was the is segment to Starting January as for as fourth seasonally up that to first ticked recognized million GAAP horsepower $XX in freight being operations on points related to a million in was due units first quarter. Our on we expenses our services, implemented the contract down quarter. margin in and this Gross attributable percentage margin our slower sequentially. basis XXXX, of This sequentially XX $XX January

SG&A revenue revenue and our unfolds, implemented will first market compared energy in Similar in higher percentage to by the recognizing quarter down the when recognized segment was of completed, were expansion aftermarket X% was beginning also expense January operations, X, the Prior contract year. this As margin this adoption, working be aftermarket in revenue time. starting its GAAP to changes expenses and gross U.S. services for we $XX recognition services business. fourth million segment levels. over our XXXX the quarter, is segment the expenses to affected to drive

lower and lower First quarter from benefit as expenses. debt compensation as SG&A bad benefited well costs

XX units, During be the determined approximately XX,XXX that we horsepower, idle retired from first totaling approximately active quarter, fleet. would compressor

the we of we million, new million strong the in levels. result quarter to a fourth charge. units, continued demand. quarter quarter, $X CapEx were a Maintenance $XX these meet quarter, invest line in $XX million impairment fourth first asset As was In recorded to as capital retirement customer to for the similar expenditures Archrock's growth equipment the of with

a debt a was ending on quarter First quarter $XX million from consolidated the $X.X billion, up basis fourth approximately levels.

process to in increase to quarter QX on a The for We the the forma primarily quarter, is deleveraging fleet. investment in our merger. started debt leverage in due our times reducing First consolidated first $X in cash basis the pro X.X was million. continued consolidated

capacity pro undrawn unchanged $XXX facility $X.XX but available forma a was Our first quarter revolving the for credit on on basis merger. the from dividend quarter. our Archrock's per million fourth was share,

of was to XX, with of will available part issued for Archrock April. shareholders first closed shares May Partners quarter. all million Archrock that amount coverage on X, merger X.X dividend paid include quarter Archrock strong be of $XX a first as dividend will The in of May all the the cash record which for the times Archrock on

to take will adjusted Now EBITDA we calculation. a we exclude results quarter compensation we like of to from guidance, to moment of be making before calculation. discuss will our change EBITDA equity move the our I'd as as second Beginning non-cash to XXXX, for adjusted the our

expense this XXXX Excluding have as an the approximately in from million additional adjusted. results resulted first $X quarter would EBITDA

have reporting Excluding million with put an additional adjusted. perspective. in resulted us this a $X more peers expense EBITDA in This line would change approximately from XXXX results from comparable our as would

as leverage already be However, this affect change noted excluded not is calculation. the expense facility credit it that the should from will our

Archrock's contract as discuss to expect implemented we $XXX the a we operating to $XXX revenue guidance second increasing of as we for the price XXXX. benefit of quarter continue increase horsepower XXXX. operations, as of at well In million let's million from Now beginning

expect range. margins We to XX% in gross XX% the

we with XX% $XX and mid million we range. to On Depreciation interest between AMS, in the XX%. with second range expenses, expect in expense million million amortization million gross expected the quarter. million low expense of to the $XX is revenue $XX be and $XX $XX margin $XX For to in million, expect SG&A

total XXXX, $XXX million. For $XXX our full year CapEx million of we to expect

experiencing. the spending additional As XXXX prior Maintenance million, for guidance. market $XX $XX be $XX Brad for expected support is is to this to capital consistent in capital we're an million to strong mentioned, with increase million our newbuild

Newbuild for we capital to high expenditures as are $XXX the million continue invest in expected to large be XXXX, $XXX horsepower million our year full to demand, of units.

this the asset call to negligible increase questions. mentioned, have targeted $XX sales open back Brad I cash of to will a operator the of $XX position and to for an is it up on million our turn net As is due effect and expected million. now

Operator

[Operator Instructions] go ahead. from Blake Weil. Hutchinson And from Please our first comes question Howard Scotia

Blake Hutchinson

your of Can contract Good of bit typical seeing that outlays, requiring Just initial And kind currently contract flow you're some guess, out in there, increased morning. opportunities spend flow also terms speak just of what more going has of of terms of of balancing a us giving of like aggressive life the this of talk, with equipment Brad, goals portion I and comfort on would guess, that the with the the discussion terms a sets you're in the idea And the of capital maybe reduction. stream the give you stream, typical out that's bookings the of cash to increasing? adding. span to on following capital an initial leverage length the or for units cash in the for I look there? field? secure these us

Brad Childers

Sure.

we're now make and seeing that So to the utilization that sure of three units marketplace, just is which the wanted the the units, answer let clear, stage fleet are and the in on needs The are our are experiencing a question. utilization I that it full point means couple equipment. was me that thoughts in XX% demand discussed to category market, as in now, highest experienced right that everybody's like past, Like fleet. that this, utilization at in which company, is and a the XX% we've the the we stock, a XX% in right

position. starting a that's So

California, is cash the us, for some CapEx executed which to the decision and to market the one generated us issue was Second some nonstrategic that exit inflows. did that generated quarter make and in quarter in we that's

through think aggregating by are discussions CapEx. with and had customers, repurchase just customers we option otherwise also some purchases that through We sometimes some

the to we we in the saw saw plan our in this and that units. quarter so this And business, per happening is redeploy cash

a the is expect negligible our we made that have for on we reasons. net I the for So year cash comment this position impact meant one to those

is definitely And we're the expanded also, point out at horsepower, asked initial high primary horsepower. category that terms rates. and in excellent. question these beyond that, what out are typically in very the horsepower, to four-year large are longer rates for typically, beyond three- seeing to units, Now the specially to you term the of the terms term, renewed large stay go on I'll substantially large though tend also And get

see opportunities we we're and So be as to the long-term we being for expected know great of we're produced, very with opportunities, trying I growth that an is seeing investment comfortable, is investors. that like now, right great produced which the to understand. market But this returns our amount generating gas

Blake Hutchinson

cost looking or mean, that usually guess being least kind a I quarter the in friction business, implied last of more quite Or per work? of equipment of the advantages of putting fleet is the step you less rich with kind there to scale then seamless a And just mobilizations. at new for terms about add flip quarter, we're something side, as I you horsepower getting that think terms from structure of cost year, the for kind the process some in we are to that down of at on averages in here? the

Brad Childers

installation, is that future what into is to activity impact amortize start to mobilization out our The QX. more that comparable thing two and transportation we and things. at at remain is One going make-ready an adopt and differ Randy that change it's accounting that to levels Well, biggest will that elevated and quarterly described cost. level periods the QX I'd required of to and levels is mobilization performance policy of

had to convention due required a that we're large accounting that adopt. And part quarter the in so to pickup

want quarter, some with extreme the face a in on quarter. for we quarter. top But had the of that, good emphasize seeing the – challenges operational especially I biggest the extreme that you're one weather I that, earlier in of very think is that's to impact thing

We tough there. And market both make-ready a which out elevated CapEx continued OpEx. to have labor rates, the the expenses impacted at it's and

So required we in to grow contending as now. expense bringing right is talent everybody the talent job so the are the and challenges wanting the to rates still with to wants and support right aggressive market us wage in do compensation growth to retaining

Blake Hutchinson

turn the for I’ll back. Thanks it time. Great.

Operator

from comes question JP Morgan. from next ahead. Please our And Burd go Andrew

Andrew Burd

Hi, thank quarter. nice you,

operating question is company completed better with company, holding my merger now the a recently the as first context So probably of versus and AROC, you're previously. an in classified

you're So opinion, services or based field viewing company? And a investor AROC oilfield the for leverage maybe cash oil catering is is, and with if seeing less and that are. you based midstream or on question where distributable services midstream base? focused priorities you how are example, flow cash investors your For company are investors, financial an flow who they your perceived Versus dividends? in yield on answer, are familiar on free

new any thoughts structure? have So your on changed how color the given may

Brad Childers

fair question. Totally Yes.

market some the which very either Archrock that is As investors we're to we note operations rather the of a have to than targeting much our at and the of are we assets operating and the in gathering focusing to midstream operation. XX% that not sort operate right envelope in investment be the XX% gathering, looking that gas note or as substantially, business have. future wellhead to changed our stations, we going the operations with continue of We that company, is an we

drilling completion is and XX% other Lift, Gas The tied critically not currently, activities. to to directly is XX% approximately production to percent, which and XX-plus

is lived. terms are we the than deploy and longer typical oil investment we've contract And that gas the capital service Our and businesses. longer typically – capital

generating oil stable that the it primarily more to – cash very cash C that space. now is gas corp comparable So a what see is midstream we the are the we assets. It's than in servicing good and through cycle, space probably flow has generate flow right

that's way thinking balanced capital to going return forward. investors how So to want growth going from our see the to and we're our about be talking and us investors of

Andrew Burd

housekeeping answer. great And a question. That's

asset deployed for modest the Is not? a factored sale utilization and rising quite there quarter, next and revenue trends. the or in guidance have that capital into to revenue guidance any first uplift On seem quarter pricing the given

Brad Childers

It's not material.

Andrew Burd

Okay.

Brad Childers

material sales No factored that. asset into

Andrew Burd

Okay.

particular asset been continued obviously, a you of frame Can look to if of are expand it quarters over we have region? just talk and chunky would bit assets sounds number course visibility are sales, could of anecdote the the an like? of as sale if larger two on kind be helpful kind unutilized, you they Are what's leaving you the that of because, what can asset on some they last year. On they bucket, are portions like asset utilized, a there kind of or sales fleet? just it's Maybe a over you the those in the – two

Brad Childers

Yes.

fourth expectations had culled pretty So had then about of feet. previously talk sold first quarter an first about forward. going first I'll idea XXXX. this XXXX, and we let – me the a are already quarter In And then what for out substantial fourth we we of our that XXXX, of quarter talk activity equipment where our transaction,

no So longer horsepower, it were was not not operating the fleet of that to we only redeploy. part was a seeking it

we or the so back of We're our �� one sold and as competitiveness our of – – in of equipment focused an addressing continuing back This the we in. some process, large for experienced us. we've no horsepower to on one to transaction. what to part important try that these the in we is used And fleet fleet these market put had of And want in longer standardize work, to we important relatively veteran seen to for term. longer invest an sizable transaction operate priority improve units to important veteran as process of our more as invest try large

and QX, California And was business. to another don't the all the idle, it a fleet. not customer pull the and over substantial move even taking move our was horsepower not in we not exited not it's of of market. equipment that market, the we in We non-growth operations amount In small transaction, We equipment. the want minimal it one market. contract have operation to So we part market. It's cell, that to strategic a that actually was well. operated do biggest of that very had out Its' a

So will continuing two continue as to do, note of right competitiveness to focus improving we assets XXXX. can however, two as I we reflects the use a will portion redeploy. I transactions those sell see And on compared it's is last fleet And need us in to and to basis, or anecdotes QX. to our generates meet That's continue compared the purchase what try option that important this fleet, to smaller – exercises QX should very monetize the a well it and some But typically. candidly cash we again, also where numbers and now, it the to as with. requested. to compete that go-forward customers think are examples, And have our want small quality available those. no and that be we don't longer sizable On of

Andrew Burd

very much. Thanks Great.

Operator

go question comes Please our Instructions] next & ahead. from John [Operator from Watson And Simmons Company.

John Watson

I this. the on how But XXX,XXX I'm the number if correct if I horsepower apologize CapEx for for is increased budget year? you mistaken. update to CapEx an – horsepower. there I with think expect much XXXX, previously, Brad, the But missed was growth build the me increased

Brad Childers

number's Yes. a That little low.

you we that is what a a would important I'll on rate in about What – we both in that thing couple based share that about would relate XXXX. with spend spent horsepower of of million. delivery what be what think million, is $XXX we're XXX,XXX that customers. to spending And XXXX, of in that, committed expect tell of I'd XX% that's is to hundred I and you really XXXX another

backlog bringing support we're of of horsepower has the – this in. we're a level a to spend engaging So huge in commits that just

John Watson

currently Thank to break backlog, expect you're helpful. exciting the Can of for be are ordering filled fleet? is new release record this which of horsepower the some that. that units contract your for down The to you portion by versus Very about that us you hear. in talks ops you

Brad Childers

of we – existing and and out way the come at to I've about in fleet – assets The said look about to expect new think that be our Yes. that that, apply to of XXXX past, I XX% starts we is XX% our horsepower. in

John Watson

that expect to consistent do in And you're go you well since XXXX, part backlog next into of to expecting that be year?

Brad Childers

I this we're we aggressive the fleet portion pace, if capacity market to to that – very have not No. idle and experiencing, same expect the going level continues are at the that same rapid of its meet current growth ratio.

So we as we – that in to demand that that note future. tick fully as up, going will the believe of But – horsepower continues growth for what utilization are really what newbuild we XXXX. to level also I get we more require this haven't seen customers

look early date XXXX And to so what yet. to it's going a little too is like fully

John Watson

about about spot am XX% improving previous the QX call, quarter's Or color Sure. talked that quarters pricing way? talked last I that range Sure. than in by roughly it on pricings move of to appreciate higher the call? nonetheless. On you we safe quoted year-over-year. that wrong pricing, about assume pricing the thinking Is higher being than on I

Brad Childers

the the is offer In that the quarter It's out. out, we're units midrange that when – quarter. The not it larger, across-the-board first you clarification an compared smaller. are differential it the in is, X,XXX to going greater that currently, than comment than putting really and was large relates smaller the higher to horsepower, is horsepower to that pricing horsepower the XX%. and answer Spot pricing yes. yet on in made I I to was correction higher, fourth kind Easy want of respect

John Watson

Could Great. One percentage last of three your quantify one units? me. what you for idle stage fleets are

Brad Childers

with fleet head. share have the the of the just don't on I top you, I is handy. vast bulk my of it's I'll with have that John, have don't don't apologies, that I three-stage. that. – But

John Watson

all. appreciate color. I at for worries Thanks No the it.

Brad Childers

you. Thank Yes.

Operator

the this back concludes session. to And over call remarks. final for turn question-and-answer I'll our Brad

Brad Childers

quarter And you, very forward thank performance operator. we our in first our in business for continues and you very second quarter to look for outlook everyone describing you, I'd call robust, remain our much. for morning. Thank Thank participating the quarterly call. to this the our next market reiterate,

Operator

you concludes and you, and disconnect. participation gentlemen. today's Thank Thank may This you conference call. now ladies for

Archrock (AROC) 3 May 182018 Q1 Earnings call transcript