AROC - Earnings call transcript Q2 2020

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Operator

Good morning and welcome to Archrock Second Quarter 2020 Conference Call.

Your host for today's call is Megan Repine, Vice President of Investor Relations at Archrock. I would now like to turn the call over to Mrs. Repine.

You may begin.

Megan Repine

Devon. you, Thank thanks and us today's on Hello, for call. everyone, joining Archrock. are With Aron, and of Brad Chief today Chief Executive Officer Doug President and Childers, me Archrock; Officer Financial of results Yesterday, for Archrock financial released and the quarter of its second XXXX. operating

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

and as call, this XXE forward-looking based the made and Securities make our of available the of on the information XXXX well within team. to During statements will expectations current and by Archrock's beliefs Exchange assumptions we Section meaning as Act currently of management

Although reflected during assurance factors with for a call. are that actual statements may made that materially to be management no will the reasonable, SEC from cause in those expectations refer believes filings to forward-looking prove the in such the that statements results latest of such give list to correct. expectations it differ can this Please forward-looking our

non-GAAP margin, In measures, dividend. addition, our financial available margin and EBITDA, gross adjusted for including cash discussion today percentage will reference certain gross

reconciliations call discuss results measures provide SEC. GAAP now see an the of results, please to Brad to and to press quarter X-K I'll these financial release For financial yesterday's the our business. our turn our Archrock's Form non-GAAP second to over of furnished update and

Bradley Childers

one we and have most you, the Archrock night, quarter conference solid posted our industry context of Last Megan, the good today. second of Thank in morning. faced. I joining appreciate difficult call everyone ever and results environments the

second pandemic, of slowdown the built by in cycles. endure gas of Archrock and critical commodity the our and natural is quarter. demonstrated precipitous And for economic business Against a infrastructure. decline the market time, highlighted during company was to some global provides we've the backdrop resilience prices, As tested design U.S.

million, annually of year We our quarter, $XX and was by the gross generated SG&A from performance by EBITDA contract and expense second in million outstanding significant margin XX%. prior to the to period. sequentially in savings the X% accomplishments by the points compared and in improved we reduced percentage quarter. cost QX to efforts. flat million than capital We operations impressive $XX progress XXX field $XXX in driven execution basis the on Among Our more

quarter year-over-year, elevated down XXXX. second was we Our orders were units remained placed delivery meaningfully by somewhat to CapEx of as but that in customers took meet

lower of Aside substantially will XXXX from additional are later investment This these out that in which the call. CapEx. updated new in the the will quarter generated earning flexibility. units, less and this thereby, we cash Doug financial we've brakes our cover drive in revenue, We already the equipment year, guidance second half spend put demonstrated reflected free and differentiated the in flow on the

amount and we debt unchanged the quarter, up well, at is in EBITDA adjusted down first a ratio Our largely kept which the holding X.Xx. of from small paid our quarter leverage

by second As repayment a and peer-leading our we to complemented dividend generation attractive an expect spending, cash flow pay we significantly. CapEx result continue And half our debt to lower free coverage. dividend accelerate of

As light and cost cash an to reduction and market last and discussed flow capital order conditions effort. financial initiated aggressive we quarter, of in in proactively position, maximize our profitability,

well levels organization cash the to pleased cut our business deliver that to annualized I'm our rightsize push between Our share of and million million $XX promised to the activity on in corporate and Today, savings for are overhead. across segments May. way $XX all we

have the the year maintenance the the remainder $XXX second half in first planned. XXXX CapEx than full slashed the quarter. these maintenance already anticipate new We're expect of seeing savings compared year will no CapEx guidance. We in of as more by the midpoint and equipment XXXX to of CapEx with substantial to We declines revised accelerate for compared year as million capital budget at down our XX% our

practices optimized several our expect actions excellent expense. discretionary capital spending have to make-ready reduce standards. customer while implemented maintaining and service SG&A lower and benefits continued On from our compensation we We spend, maintenance and safety

salary hours We leadership overtime as continued the tightly well into and reductions Board to the manage previously certain for June. reductions fees went to announced retainer as team in employees, executive effect

and remain rigorous We our committed steadfast and action, furloughs the we We units focused management differentiated and layoffs savings While position. the analysis evolves. this as made maintain our additional team in and market drive to initiatives the several evaluate segments. quarter, further our a entire deeper as financial downturn, in through and of difficult our is during ongoing this retaining on flow continuously included our great soften business decision cash are a business talent free maximize to costs to take

XXXX, cash our reduction prune our streamline to our our technology accelerating we EBITDA reduction. gains. manage to invest in runway Beyond additional recognition horsepower strategic to extend efficiency cost business efforts, and to bringing in redeploy and toward compression continue debt and from Building on transform and we continue fleet, our for in less fleet, success our uneconomic

will that of during nearly third During years. quarter the in an just of million. quarter, average we XX And age gain-on-sale $X we end, sold AMS income business, had a XX,XXX our after of result horsepower portion the which about sold quarter

benefits not primarily past were based we no the of production longer units configuration. those their our than equipment horsepower operations On our in work, retired technology put quarters of some review also conducted field. serviced in was customers we As we the From operations. a did and field of we resulted or proceeding investment from due has portions capabilities do back for extensive longer and review, good our this noncash that its and making frame. investment communications determining and million. economic. is that sharpness no seeing back locations $XX not expanding downturn XXX,XXX or age redeployment investment impairment we're time go on the economic That throughout nicely, of upgrading to larger an work the progress our number is this identified Unsurprisingly, to compression that of operating start in quarter, were either XXXX fleet warrant to that additional our in to on to monitoring also remote expect every likely This

services. by knowing for cause exact as for to took call, like the and the At our clear I'd day. U.S. customers. second quarter market to in quick quickly a and widespread demand the XX% Bcf earnings XX during commodity timing pending our the well was the action pandemic. as of our turn the capital The Now result from magnitude production a sharply deteriorated and count quarter change would to demand market it gas XX the businesses. fell Bcf outlook the price second rig COVID-XX the and without day downturn We dried low as over over time of and a to during COVID-XX of pandemic first inevitable quarter, as fell prepare reductions compression our impacts severe for as The

and not of operations off Oil the we recovery, of began a signs producers will prices April the try backlog year. compression as pace gas overall rig of third prices stabilization of the capital production also half in drilled resumed the large to timing in hold in see our we've slowing, we some to quarter. wells have have in but and predict seen entering to wells look could weeks of in improved current growth up, production. the uncompleted the While declines recent modest we market is lows, count see this allocate natural oil second of shut-in to Should

the downturn, all While these hopeful improvements of the remains worst visibility limited. encouraging and we're are we've of seen

monitor to we As success. developments, control closely we position will we for market continue Archrock can what to

commodity prices, second in quarter. increase costs return initiatives gross during quickly resulted and first in margin I'll of equipment cases, producers our quarter percentage field. Turning compression rationalized drop the some versus from lower challenges strong With and first an touch to the contract sharp the our midstreamers in drove a In operations. despite in the compression, this on horsepower. execution cost-savings our the in

certainly mitigate strategy large impact. Our long-term on midstream the applications helped focus standby contracts, horsepower and

second and still However, exit declined. quarter operating our horsepower utilization

to can. to as horsepower both and our drove basis our basis. operations continue positive points we contract note, We maximize and their revenue operating up businesses, second the on we strongly maintain a XX% in pricing support in gross margin annual closely a with increase customers work On XXX an best sequential to and quarter,

the record This result employees. severe excellent talent As want in to speaks a conditions. continue equipment safety had culture key reminder, with a a our of and are as performance of and significant service a the to and portion our strong to energy market also great business safety we align to global to uptime. and of our provide pandemic customer that adjustments variable, operating costs I highlight made we midst our advantage and downturn,

to our Services business. Aftermarket on Moving

still of on With commodity and the COVID-XX decreased low This margin and resulted decline delaying effects capital and a gross maintenance preserving already in customers often activity their base. revenue prices, equipment. are

we've optimizing customer on our cost changes we focused to As structure. yet any in remain see behavior, AMS

Turning to our capital strategy. allocation

last quarter is focus our and remains message of balancing levels appropriate and investment, reduction Our consistent with return. shareholder on debt

meet work support this the having of to with the our are, to company, important Board reliable for first, infrastructure our downturn. our each and our future is years, returns believe assess even and dividend forward quarter gas and to the U.S. next dividend. With We and attractive few we our in and during to views production needs already the value continue flows cash our of shareholder of to natural place priorities a will investors customers the

cycle financial this is leverage somewhere to and compression available Our X.X point business. Ultimately, debt at between for of believe we reduce equally our is priority all our protect the and second optimal but the level to important Xx execute stable position. our measures

compelling only one the stands you few when turning you call to of as realm the proposition, across with energy over sectors income-oriented what but out leave a I'll Archrock's at well. look is not thoughts value I investments, other Doug, Before believe on that

free flows We business challenges, predictable outlook. that, free quarter review over turn as out into cash the of today won't differentiated our a XXXX to and for second financial continue the excited durable, deliver framework model attractive yield well what to our Doug call well and I'm well-funded With can prove like performance I'd and the cash future. a of to flow distribution. coming while quarters as to demonstrate be and And

Douglas Aron

Great. Thank you, Brad.

our look million cover adjusted quarter to compared management. $XXX Let's of summary Lower EBITDA results cost XXXX. offset of quarter revenues second We more intense maintained outlook. than at the our flat then by and second of a financial were

quarter sale $XX of XXXX the recorded million, second included the loss $X EBITDA charges, net adjusted of net included quarter losses which majority related were to a assets. onetime of second We for of which million Our noncash. in the several

long-lived million quarter. $XX impairment a recorded and horsepower during operating XXX,XXX the asset retired we mentioned, Brad As

We also charge took noncash retirement early a had of $X with the benefits to $X related and severance associated restructuring a million million loss debt.

during had noncash we income Finally, million $X benefit the quarter. second tax an

income these items, approximately we million. net Excluding of reported $XX

Turning business due quarter down to came operating Contract to standby. our revenue in on million and million in at in first $XXX pressure segments. from horsepower $XXX pricing second quarter, the lower horsepower, the operations

improved revenue uncertainty. including In XXXX quarter in and However, We Services quarter, million, higher low cost gross the above our to a $XX market Aftermarket second warranty come from margin management. items segment, constraints for to our few remained cost in cost quarter. solid Customer down due of the first activity $XX forecast XX% million had we given expenses. reported

nearly margin often discretionary $X our utilization during was to other we and business lumpy AMS and reductions with below resulted million in we labor the gross was balance the quarter the high-quality $XX both million lower levels, experienced nature retaining that technicians the our as down cost mid-teens benefits target. of to work as for our of given quarter the saw savings. prior rightsizing activity second compared also initial continue quarter's spending AMS We SG&A

from For than quarter, million, growth $XX second quarter. during more the expenditures totaled first million down $XX capital XX% the

$XX CapEx the second to million $XX of quarter. during also the quarter maintenance We million XXXX and reduced in from prior other

net second in debt quarter. of total during reflected $X.X million billion repayments debt the $X Our

currently million $XXX over liquidity. credit XXXX, mature Our and available facility we have doesn't until in

Our quarter leverage to compared of ratio quarter, was XXXX. but the second prior down X.Xx from from the flat of essentially X.Xx

our recently basis. mitigate We second recovers on of $X.XXX second of our $X.XX debt on to we and of deliver leverage in will a repayment to can market unchanged go-forward expansion and the a quarter share on which accelerate until expect per ratio or an quarterly of We the X.X Xx. goal annualized annual the year, basis, the half dividend declared

robust and X.Xx. second supported strong balance is cash by dividend totaled payout our of $XX dividend representing generation, the dividend coverage. coverage million, Cash dividend for peer-leading sheet for Our internal available quarter

Our existing shareholders on outlook. committed We debt free our with yesterday's from our commentary some X% to cash based to flow. represents price. available yield of closing end a I'll reducing on dividend to remain and compelling returning cash XXXX

provide release deliver $XXX our some night. between cash we've $XXX the provided commodity view for in as you As last relative cost available second execution to reductions, million year flow enhanced and COVID-XX know, the capital XXXX EBITDA. and due pulling We've adjustments solid an million to outlook companies and cash expect year. with still pandemic price to many our segment quarter of our to the declines. XXXX for resilience press distribution and were May market, full us updated in forecast business issued outlook the on current allowed in Based and guidance we of the And our adjusted free for

a contract budgets our the maintaining as continued as for horsepower we're EBITDA are In on In have largely cost provided revenue management. below by releasing trending customers operations, delayed in guidance May volatility. further range and maintenance being lower their wider AMS, given mitigated aggressive year expectations work. track we're We market adjusted for is

lowered capital. X% million the we practices. $XXX compared $XXX being expenditure our to basis, down CapEx to savings maintenance to or to a On previous about driven largely we've Turning maintenance full as year continue at total guidance. our capital million is This optimize by to range midpoint

year high an of our acceleration range the prior million To Our a million with $X operating million. sum expected reduced in to of our adjust second the of CapEx $XX range up, the it down cash by free will performance of profile end combined CapEx updated $XX flow drive growth half generation.

year for Devon, questions. approaching which flow full $XXX that, after we'd expect open to generation, up million, now like repay to With cash be expect dividends, to lines use We free debt. we substantial, to the

Operator

Instructions]. [Operator

of line Our Capital comes Securities. question One from first with the Kyle May

Kyle May

Brad, that you're what operations you Can also you're about third to hearing your seeing you from field? the started compression in quarter. more mentioned entering stabilize and talk customers what the

Bradley Childers

Sure.

to -- And So at to revenue it's of we saw business. activity saw QX May. in of more we a which half I the an mean when of timing it this, back that economics. standby initially amazing hit quarter units a strong quickly. we Bookings a activity about but a put hit stop What on and stop standby you standby, we stop and that customers off sharp is already at -- normal rate. levels coming that's into had which we moving standby. still remind I'll normalized on standby rightsized our that already look collect in for we starts what really was lower already has went of horsepower, level. And the increase part a so basically as came number and for the production activity for pace, is a record come what is

to production ones normalization as And that expected would activity dry markets, of partially are that timing it's the stop a I'd some of positives incremental indications shelf back at production of decreases on return the saw on point some gas full in the expectations. previous that see spot, are as think market had, But offset of operations we we've bright Haynesville, we the the and brought continue including plays. the couple a those did the be that that growth and Northeast the we of I given in despite and least to out was the on however, some we've lag those Look standby seen. Bookings, seen. so horsepower to of

were So in what and all highlights And about the think those it way market. the we are I seeing bad. currently wasn't the

Kyle May

Got it.

equipment guess in you Okay. But the the sustainable how of is That's it gross of I partially margin And you're standby. strengthened to cost that helpful. the can go follow-up, you sounds And margin highlighted into more And that maybe on XXXX? year, as like second that detail better equipment back beyond the and as look my returns if at that's maybe being half then percentage about thinking quarter. really about the you management? due some

Bradley Childers

Sure.

our this operating lube as operations team to the it indicating the There managing cost beyond comment XX%, investments and in we So of as savings costs on from structure, how amount up an moved well range associated job gross to standby we're a we're almost forward which ambitious that the both in improved market saw variable all be to well job contract X did margin based of rightsize the out, expect highly first of just great going can with drive very XXXX. of X looking what going cost parts from continue it. structure, revenue, they off, hang components really declines. our to of profitability as -- And But our the did results, obviously oil. and business. but getting for a to our results which into we we as was, certainly Kyle, contribution you XX% outstanding And not profitability is that, the a pointed We're to has field into to the our have guidance to about managing XXXX, get ahead to we technology business as profitability labor, on more well. in to

we So we're drive can how pretty well ambitious this. about

Operator

Instructions]. [Operator

of Daniel with next Burke Rice. Johnson question Our the from comes line

Daniel Burke

half it be year? activity, what to was if Any stop I year lot you stops. think about don't of ask second second to wondering of sort of horsepower. way trying I Brad, but will work, would that? of mean to of to the one I what's think Maybe there the way ask terms contracted rate think business the a to in half of the in net just this, prevail know about if that's run but the won't in be to normal the of adds, going a about how trajectory

Bradley Childers

Yes.

just not still flat gas And going level great. that course I customers the So a year. the of into of is number visibility at, one, slightly throughout to declining think, with the express am now the market I look to production communications our right

same our see don't to And for changes time, lot market. the production. bookings for gas revenue And current see have of our also we rest of available the expectations be we -- the commentary is levels that guidance a there's at so going horsepower I year. finally, in And horsepower the to includes though, forecasting for contract what's growth required my or in operations. to stabilization a the the best around that going that happen think we in indication in that's the And

Daniel Burke

then X enough. gets Clear just All quarters, Yes. Okay. on AMS one a smaller in. little a right. With the box to that it Maybe easier side.

you But the like fall kind gross the I you'll of for or have there think any impact scale look the we margin was it and year. range Doug year wondering particularly at in sound to full on It where sale. I guidance did was didn't for a as balance it highlighted was that sizable. if try out

Bradley Childers

that the us is but portion of our able subsection, market, by we would to be allocation for was of future some way, accelerate really. we of we The the and value great subset however, changes of we served that Not when capital well debt a too, that that business. given that which did reduction a team. a just that what some and monetizing Yes. buyer business, priorities transaction. It happened, has value, so a business has It was it in a had lot in time that the well a sold business. small good saw By at that it in value

as we're and of out do pleased really we monetize the debt. the in we're So figure can reduce where all one with to doing context steps incremental that transaction we of can

Douglas Aron

And visibility from relatively our guidance, out, shouldn't Brad an an guidance. less would that range hopeful in again, add, AMS what range grand that impact. pointed modeling captured half was, back there the in the Daniel, put really it out for have more reflects scheme a And the we're we business perspective of updated year, I our the but the right that just for small because as we've it even in

Operator

the Our next of comes B. Ryan FBR. line question from with Pfingst Riley

Ryan Pfingst

the some side? activity cost of to just you with are a mentioned spend, understandable that range? Or on of are would But you it that maintaining there to do what actually save is Is EBITDA you room you get more wider Doug, end guidance uncertainty. levels? the think the factors higher the

Douglas Aron

mean modeling commodity did, start highlighted, to in I $X impact. way sales activity our a be AMS big have levels I up price. sale have needs are. We think drilled probably organization the really of that to see Look, as going pick back comes Daniel, fill we be the talked down And is continuing there what the I activity in wells expect but Your do where on a to there. think obviously about are will we of million in to all half? And than hopeful of uncompleted as to terms business. we it with gain ours portion just better Brad

you we our include that previously. on for include that line it. be don't. we In as think that to or of that, So I each above adjusted varies whether Including know we'll you described we midpoint that you do the it EBITDA,

based to you on don't, today. what will certainly more it If we little least there challenging get be at know a

outlook just So -- goes what and thinking XXXX that But pretty at in more good point again, the we of outside wider-than-usual every range appreciate industry through wide this broadly guidance the of Apple Amazon, and industry for feel into that the bit the Archrock. all rest -- energy about is the year. about going little of of our a

Ryan Pfingst

right then in of capital allocation on this now. entered M&A, certainly, priority helpful. And That's terms

at any of would Just now? wondering struggling the right seeing what your if And have competitors you're appetite with some out market potentially you price? the right perhaps in

Bradley Childers

really industry M&A on hasn't perspective Our consolidation changed. and

it we I -- We favor wherever end, -- industry. of and consolidation. side, see that come capital the are think On occurs. capital subsectors, other certainly out discipline through brings like into could costs some as need to the it there there's And that, special consolidation would the think of one with a especially

value We the operation quality some us. a growth. a participant that's where in are combined absolutely same and think for good find can get We willing incremental to we that always path

back, equipment, Looking last still bring which we But of the excellent Elite I'll excellent and completely with was point our we're with pleased very both well-run stress had company, Compression, the effectively. team, acquisition that really to year doesn't out onto we often, that platform quality were operations. the able in come

strategy. fleet which in with, range consistent between XX upgrading consistent today we've average to ever fleet the we point years. to any of in the to We've be the that disciplined that, quality now that fleet that make with businesses quarter we've be gotten in we and that the point, is consolidation and things the sure want grow. which of acquisition operate, or the and work, is our in most just has noted fleet stick age upgrading the resulted locations and competitive And to fleet age XX which participate strategy we so any And the one the the invest and And continued standardization our our to in that of we continuously that we that of are youngest in and on growing needs basins, acquisition of where had. operating has to

Operator

back further final I no the for would there are Instructions]. Childers to any questions, to [Operator Mr. over Since remarks. call like turn

Bradley Childers

QX current Thank cost right to we later plan in position continue call. focus the remainder capital the you, and in take updating taken year. We believe the third XXXX. forward navigate much. to quarter on to of participating Thanks call everyone, cycle Archrock our steps look in to very and to for you our continue for this have I to management and

Operator

teleconference. This concludes today's

disconnect You lines this Thank your have may day. time. for a now participation you wonderful and your at

Archrock (AROC) 31 Jul 202020 Q2 Earnings call transcript