AROC - Earnings call transcript Q3 2020

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Operator

Good morning. Welcome to the Archrock Third Quarter 2020 Conference Call.

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

begin. may You

Megan Repine

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

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

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

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

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

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

Brad Childers

responded could this challenges morning. prouder I brought despite we the how headwinds and not faced everyone significant good night, results I posted we year. team the call Archrock of by you, Thank quarter Last COVID-XX. be on has well our third to Megan, appreciate joining conference solid today. demand

defended after structure field the EBITDA slightly were we possible. excellent We results adjusted wherever our generated quarter, year attack quarter and Among a margin versus of driving cost tax SG&A benefit. for our driven prior a We non-recurring the up in adjusting adjusting XX% on that compared benefit $XXX XXX than point by third in unrelenting QX reduced to accomplishments year more percentage quarter. gross strong the tax the a basis effort contract basis standout also non-recurring for in to an and further increase by expenses period. current in operations execution Our million, period the prior sequential this

of than other $XXX and million, We total in this geographies. spending sacrifices in our And totals and efforts lower to operational us is of by sale We We've finally, operating costs cash quarterly coverage. measures complemented reduce our point quarter. we to free CapEx months. all Archrock. $XXX grateful pay the and capital free several repay attractive $XX This to action employees disruptions in all XXXX. across our dividends the robust dividend peer-leading impact outcomes business, implemented results generate cut aggressive the before last million efforts cash million. this flow continue And resilience, at leverage significant our the everywhere. of in times. disciplined combined spending, to to after an Year-to-date, continued $XXX maintenance, everyone to over growth, expenditures cash has flow, reduction total, were dividend the In segments are These dividends after cost squeeze flow at the million capital for very enabled our our maintained credit required industry our I'm across facility and board asset expenditures. on and we've the demonstrate and compared improvement our of from X.X borrowings approximately The capital taken positive continued out and to proceeds. non-core both more Year-to-date,

compared CapEx reduced to budget to run QX. full expect SG&A our on rate approximately basis substantially XXXX total and both XX% XXXX. in reduce $XXX QX We or year We by a million

We tightly to reductions and Board for all announced remain discretionary retainer hours fees, executive certain the reductions salary spending. employees as previously in And manage leadership overtime team effect. as continue well to in the

focused talent than to as decisions also opportunity on organization much the great right had XXXX. we're the headcount our as While we've since end a reduction for retaining resulted has to difficult of possible, the This set. of size make more in XX%

invest We even. technology continue in to

capital the the manage both our future. in for costs reduce help this our continued and also foundation both improvement cost service dollars investing structure. tightly and we've These customer delivery carbon lay As downturn, we will been investments our us emissions operating SG&A in to in and footprint

we to XX allocation fleet, of horsepower, at technology AMS profitability on efforts XXX,XXX our portion we our cash July, objectives, age with significant attractive an of free cycle Year-to-date, commitment business. grade years. delivering average operations multiple. to and will high our continue business a our Finally, we to in an enhance sold upgrade These And flow. our our capital to deliver invest in including and full support our continue sold

and over modestly the months third to our the quarter, second to compared The energy last the market business. U.S. quarter. the at and stabilized during customers higher levels. Overall rig outlook oil like count gas have conditions At of is an the few market I’d to draw Now and of assuming the and uncompleted the prices natural turn path for about grew recovery. the wells. drilled magnitude and have pandemic, we're economic on full timing developments, including and dependent same external beginning ultimately uncertain to immediate future highly cautious recovery time, down the are COVID-XX improved but inventories of which

into in in and producers for modest to levels maintenance for as improved the XXXX and later drilling decline achieve potential U.S. forecasts limit Looking in cash the annual of year. to a completion conditions persist with production gas gas we're Accordingly, market production activity the show planning most compression into natural flows. XXXX natural softness

reliable solution natural the to we infrastructure customers, to and energy for as emission prominent a and has been from critical Beyond U.S. energy in the increases. it needs renewables our U.S. contributor affordable, as XXXX burning long-term, growing natural gas According lower believe provide the sector, particularly remain gas confident to cleaner generation in fuels to an role meet play worldwide. energy-related provides We we fundamentals continues to positive electric cleaner the displace to in such as natural mix higher generation energy emissions the largest as EIA gas greenhouse even coal. gas

in meet them safety U.S. their to customers’ streams flowing, XX%. keeping production between natural powering fact, objectives and to declined XXXX while our play by and role the by increased environmental gas In emissions well We into U.S. in COX look XXXX, continuing and gas energy forward important XX%, the an America to partnering future. with natural

we operations manage cost to focused and We're our contract structure, including we control Turning in how can we service we execute customers. what our operation. our on how how

off. X% Our holding horsepower is of sequentially, third the to was quarter. primarily fell second is decline in Pricing third quarter up XXX,XXX losses quarter compared declines. quarterly by the horsepower improvement well. a our that the during due full decreased we results paying sustained Revenues focus overall The the are evidence impact to and modestly significant

XX% the second exit from quarter of XX% the end third quarter. to utilization at Our declined

next services us operations downturn. teams Even which the the AMS pressures, and fleet to efforts expect our declines our set, debt levels focus in of in gross aftermarket redeployed focuses profitability utilization our posted high XX% benefit. through rightsized key We strategy, range. or through on performance reducing track excellent two we gross bringing to portion capital Archrock's the our we'll up for business, well-defined continue keep a priorities: we period. tax XX% guidance early In believe and and our performance to cash, shareholder a horsepower we nicely the challenging which to focused sell made with on top-line the allocation grading maximizing that on modest debt. last quarters. drove to period. a our remain have We margin third maintaining for on standpoint, our in gross few From we will XX% business This policy with the to performance. committed quarter return year this and And repayment. ago the this capital We quarter, see additional margin decision for But in outperform annual business, multiyear opportunity period in the is adjusting from the consistent believe margin we're strategic

been While has others been Archrock prudent able an have maintain attractive dividend cut downturn. dividend and to sharp dividends, to forced through this coverage

in to execute all are We continues the confident compare will sectors. to strongly to yield our for a reduce measures dividend our and other both paying and our in available Our we're believe position. do protect Of to and key ability Archrock, debt reducing energy drivers importance, current companies debt dividend equal environment. to income-oriented value financial continue and well we other

Coast that company call anniversary our I'll Company Before share the celebrated Doug, as turning with our the over you South in September, Gas XXth XXXX. to of in founding

companies a other third in this While like of gone, compression. turn to the to endured industry our natural and company have that, over review in leader call Doug come and U.S. With quarter grown I'd the become has outlook. gas to industry for performance our and

Doug Aron

Brad, Thank good you, and morning.

financial quarter outlook. third cover then at of our summary look a and results Let's our

quarter liquidity, of the Our higher third We goals quarter and $XXX our strongly generating slightly reducing supports cash million, free third of protecting EBITDA reported performance financial XXXX. adjusted flow debt. than of

assets in for during long-lived of to recorded $XX million and third related a million period. charge the few quarter benefit to $XX EBITDA of and majority which with million included benefit adjusted tax $X margin. tax were net property items, this benefits asset sale the quarter income our third million in reflected We million, We quarter XXXX gross net an XX% a restructuring related from recorded an covering non-cash. remaining took in recorded one-time contract severance Our closures. which SG&A, audit the net the of impairment XX% of operations' the and of $X cash gains a X-year settlements included was $XX

$XXX business the lower $XXX the million compared Contract due quarter in revenue in to came to quarter third segments. primarily Turning million second horsepower. to in operations the operating at

a $XX a XXXX down in to to percentage, to $XX key from our at compared despite margin our of structure, as percentage align adjustments advantage million, we the Looking business benefit our segment, third from meaningful market to continue We AMS million reported we on our margin quarter cost second we gross revenue a headwinds. increase remain gross In make variable in XXXX track conditions. highly deliver quarter. to with continue revenue

cost Our delivering percentage revenue a of given XXXX activity, drove and third XX%. up back sales our We from business. our the target, percentage to our of lower turbocharger reflected well margin margin market AMS AMS gross uncertainty gross as customer constraints lost quarter divestment as

for the focus during business quarter $XX this We the continue period. and labor quarter million totaled compared higher-margin million to to third second utilization the on $XX period. optimizing our $XX in slower year SG&A million for prior and

million still $X the tax quarter $X basis. SG&A our million benefit, down was on sequential a Excluding third over

we limited from For the down our growth third $XX second to capital XX% quarter, the million during than $X expenditures quarter. more million,

repackage completed costs bit was of growth year spend remainder in the the the during the newbuild July last of Our quarter. unit comprising new for start-up with CapEx and

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

and first XXXX, sales three nearly our strategic continue makes asset fleet as $XX non-core million quarters it businesses divest the where sense. to For of completed we of prune we

our to planned mitigate debt recovers, deliver times on we goal repayment in the capital and expenditures leverage the can from proceeds to asset sales, the times. of continues quarter. With third in accelerated X.X ratio our expansion until X.X of market and the This go-forward decline

net the billion since in over million of total Our repayments debt and $XXX beginning debt $XX the $X.X quarter million third of in XXXX. reflected

down with of quarter a leverage the $XXX on Our and and times $X.XXX prior unchanged ample liquidity recently exited quarter compared X.X the basis, per the times third times basis. third an dividend XXXX. X.X of of available in annualized quarter $X.XX X.X in on million. ratio We We annual or was quarter of quarterly to a declared third share

strong generation, third be quarter dividend payout million. available for by cash the continues totaled coverage. to dividend robust for dividend our sheet and $XX Our balance supported internal Cash

EBITDA dividend holding reduced further well, Our and is of maintenance our quarter interest X.X capital, up times. leading strong third we coverage and to

full quarter during to ability are yield range are quarter value and attractive this in as million on execution operating from of an seasonal adjusted on even in a not proud our the $XXX EBITDA that the the and third quarter QX third year to Based EBITDA delivering modestly items guided. sequential We lower view of downturn. market, and horsepower million softness fourth basis, midpoint, normal current million our decline dividend our At end continue through $XX shareholders go-forward $XXX the solid XXXX to we million tightening expected. will end on as high implies low reflects on $XXX million recur. this $XXX to a guidance previously This

Last CapEx. deliver next this think debt compared demand to year work it's remains worth flow more available which free reductions even goal and we of cash cost for I To up, quarter, support too cash how our dividend and we to of maximize we capital $XXX simply and ending lowered continue It's call, $XXX on with we've range reductions, it my our dividends, further the repayment. will capital unutilized to our $XXX low, or equipment the $XXX cash and tightening cash lower million we out to today's are for strong flows, cash will next reinvestment after sales, lay detailed flow base year guidance the customer expect now asset sum range drive enhanced our as available where activity cash our We to dividend year to Booking and are million $XXX in year. for free with XXXX, satisfy substantial million, cost total capital we but to which of Turning about With for outlook capital particularly thinking early and to possible. and expenditure remarks XXXX. with flow between million. for free our for today, million year.

While we in And for to in that, again than positioning with to be open offset once expect line by we'd XXXX, will now more a free cash achieve to spending, be our Doug? compared after down up this the dividends XXXX. like moderation questions. EBITDA us substantial to flow

Operator

Instructions]. [Operator

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

Kyle May

your formalized I you that of don't utilization about think in when the XQ one and next Appreciate follow-up about think the quarters, you the XXXX, preliminary or comments. yet. rate? trajectory to look how on realize you change rate Brad, to of the wanted compared at But have guidance the I of compression couple And do

Brad Childers

Yes.

So stop is a And dried through the too early those output it and the that up, to are from talk the are let now into is factors customers' giving and utilization quantification you opaque. about eyes without preliminary. view candidly, the which our because activity look, even me bookings remains just right XXXX,

to do we maybe bookings gas XXXX. with still the have is regrowth, expecting net to to the us then lines course part the and what see in of to also back steadily stop as QX expect, -- saw the opportunity softness see we growth, the horsepower activity QX. and into moderate half for we of expect cross So we're QX of XXXX, to continue horsepower see I however, in from first mean, up natural some both production we to And to pick compared to as have seen in QX. QX But in continue

the best can curve So it, Kyle. without which quantify of that you trying be work, I shape give guess just to that's would my

Kyle May

It's switching these Totally out? cost and see to how Can you us you ongoing more to that cost that's any to over understand, color helpful. detail nice also reductions? take are if maybe can attention cost Also, there's sustainable give And the control. there.

Brad Childers

Sure.

positive that of one costs highly front, good can majority, are on also And really free maintain the gives flow, of By just size cash it to to the business lot really a profitability. XXXX, quickly about be seen So news highly not of like improve as you've CapEx a the the variable. to things business maintain in compression our our it. but respond the And our way, is us both variable. OpEx we chance a right

The a margin just have teams gross cost operations in on just our the in sustainable. you've been is and real the expanding way focused business pull believe to both that time. be The improving our seen tremendously well strength that it's a to AMS, continue profitability model field, and So can going we're improvements we to on focus we over contract out. in will in sustainable, profitability

based too see some expect And into Now we sustainable. pricing we overall, if to investment headwinds the put technology. of But we some the our our in see them think we business expand candidly, utilization, erosion. on course, hit much and profitability improvements may giveback are we over as time we've leverage

Operator

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

Daniel Burke

downturn in horsepower contrast you the is can when compare it or alluded case to you you I talk ago? the modern occurred had you've this pretty and but year? you guess compare that's what's sidelined. I to this this guess, maybe Brad, horsepower it was earlier, equipment it high-quality, maybe we had year least -- sideline about Is been at to than 'XX a the 'XX this XX 'XX, horsepower imagine and to, of the and I the years sidelined more would portion pushed was X can

Brad Childers

less inclination And is the fleet idle and going today to or experienced larger is the work we've quality improvements completely more X even years to think cost back downturns. quickly put can. in fleet That's to I Yes, we more put that your give us of correct. younger, really but past The reduced XX it cost. is the I X, in over than opportunity certainly, paying the in -- and and higher last, a at that off put into

So prior what the aspect fleet have today in of we we in compared that we downturns. to like what experienced

is right. your So inclination

equipment remains very newer well that in out younger I in, thing fleet utilized as downturn, is pricing and point been that remains solid. overall, equipment this large hit our is is to the that and other and even horsepower we want which The investing we've

well. over fleet really just strong of the aspect it's we've we And the just last made our and the points see the several results of years. one that of that, performing investments So

Daniel Burke

it. Got

that the the one a morning. guidance in year. update this per CapEx And in basis? was points And sustainable going more expected? maintenance does what's utilization Is advanced? fallen of you're this it that on smaller Okay. just reduction that program a active then you of on to wondering, -- is fact it sort is maybe Or expectations for of There's the this assertively? horsepower has more expectation reduced has Or off as than reflect more that it year that managing drive

Brad Childers

a our a maintenance absolutely the that thing one, CapEx is really One to that of managing the our CapEx. it's point not doing well. or great to combination. do to team Well, detriment place the the customer service job we is equipment have in maintain we standards Number maintenance I'd out manage and equipment either

one. that's So

seeing benefit Second, the however, you're of both.

all more has of our really that decreased new of combination It's those a average the fleet. any factors. fact of as The factor. as but decreasing CapEx, maintenance horsepower single have our some had well in is we age fleet activity. the And stop that not We

Daniel Burke

included to we at horsepower? guess be on or -- that is your with compared standby I maybe -- it. would fair. still mop utilization there's on look pricing, an one with I I update but But where be maybe, what's look natural for meaningful imagine of where given now sort gas a wouldn't And up horsepower, as I utilization figured but you stand to certainly, given out, in me last Got of going standby that component

Brad Childers

had for and back small Sure. of the see small been turned horsepower -- on. We compared traditional And horsepower of down run of is operational middle amount that back quarter customers what a work back our of maintain peak to delta second we standby reasons. to rate standby the a that The a has in like the always gone vast maintain just standby as horsepower amount annual normal XX%. the bulk we between of

that the significant it's standby amount of was in So the improvement used during horsepower that time.

Operator

line with Selman Our from the comes next question Stifel. Akyol of

Selman Akyol

into out can see you, XXXX, to I And little you was but the by a maybe going ask I guess what Appreciate surprised, looking basin? just you out there about some I'm talk and but not corner, guys. other I'm heard with things with speaking potentially least optimism the that over really $X at when turning the of sense you I sure companies, difficulty from strip

talk by hearing you was I kind curious basin, your if just it of just maybe from customers? could about what you're So

Brad Childers

Sure.

our we're we gas XXXX see production, and as including production. aggregate Utica. a we back And they're customers, both price. would natural with plays maybe -- the as So customers as But an some certainly in for you're pick Marcellus, we've oil have we to discord XXXX. from customers, dialogue expect That balance we that and gas share optimism, that moving of the or gas be seen gas commodity driven associated with analysts include gas that much by that in well looking still of include in hearing of going But at are that dry our view. levels, more plays, I up the into looking plays -- is at by a we're are production where associated the to driven the associated that We dry optimism. half think the softness to is expectation commentary gas able that with opposed take is moderate businesses to in more the have oil that businesses optimistic

Selman Akyol

Appreciate that.

We've any on Is really that in to sort starting one other terms relating a there concentrations, and seen me. those one kind E&P to for Just see of lot consolidation, customer issues? of of of just customer thoughts it.

Brad Childers

us. for concerns any up throw doesn't It

key the of take financial that. at into can stable costs get service candidly, And discipline of do and operations grade and beneficiary help We discipline base bringing consolidating a as longer a have be them one out, top that we that customers as and outsourced providers expect term, their of business to looking more that in we do just with. to they're capital

good discipline any don't be So not or to participants. further for them. supportive and plan one be see optimistic to sector that consolidation is overall the We of the we reasons and flags any in strong

Selman Akyol

as X thoughts we ask more there? asset say more, Should I'm continuously just that under sales just review? sorry. in is could can Is XXXX? expect terms Or I anything Any always there more? of if you And Understood.

Brad Childers

than Yes. assets continue It's of higher and to out be looking We're it. we've we think moving been strategic business. But years, we've prior level disciplined our fleet in that in years. sales operations are very had prior and continuous. XXXX going asset in to has all not hard at certainly for our a had our

And will level sales of so a be asset ongoing.

Doug Aron

in transpired, natural area. in and gas what's Brad gas that a is gases, fuel we this think very of his is outlook. like want and And in I'd opaque, on see the we Yes, prepared but message, major And on being on Brad's greenhouse the it's and reduction I demand of longer-term our to longer Doug. I remarks, top-up saying term, as impacts too mentioned demand And maybe see of on don't do great. -- is to one answer heated. the we're today's XXXX be a I market simply natural caution that as is much really think this lost well future,

just our in skis this is Is And get to think point, in later trying more feel year? it earlier a question over we it Our at little 'XX? I rather than on half of that. to the where year? the predict that's Is that back

Operator

line Securities. Our comes Curran B. question next Riley with of from the Thomas

Thomas Curran

September each decline from And operating tracking decline did we've is seen past month month demand horsepower the typical through trending understand recoveries. lowest? Trying lag XQ? the to then Which October? in to horsepower how was completions sequentially Did your to relative operating the

Brad Childers

second steady, us the So the rate to give what month-over-month, stop right we pretty it's is and exit includes ratable today. had, utilization we're is announced horsepower quarter -- in the quarter-over-quarter than decline activity. fairly midpoint seeing and and And that activity we exit it as now the to higher horsepower rate to that includes a of quarter start that

Thomas Curran

Okay.

at So then? not a yet bottom quite clear

Brad Childers

expect Well, some far we ahead then And we so the back for see quarters. of candidly, we've indicate as a of see that do would outpaced half bottom think think XXXX. opportunity in us what of softness for is I said we couple to still growth the

Doug Aron

Yes.

The slowed in significantly, in rate Just, decline our still, again, further has clarification. decline ahead. of horsepower view, but

Thomas Curran

guidance all Doug, you. sense. two makes That follow-ups for

For then comes when the it split the turbocharger and X% at to between aftermarket's you guidance the XQ? And could range for of revenue the cut disposal reflect midpoint, parts does the XXXX solely business? give services that me reduction

Doug Aron

almost also weaker tends turbocharger. On to one quarters. the seasonally be yes, the of QX guidance, it's all the

that's guess, piece. a historical question, was And what So parts versus I the service? then on

Thomas Curran

what and Just it …. was XQ, for

Doug Aron

QX percent on was parts like and service and of was revenue, XX%, services XX%, that XX.X% parts. XX.X% on

Thomas Curran

rate Great. And think the $XXX to $XXX this run million XXXX? on million a from current step there down? to this range nice $XXX guidance are And reduction to behind million in then latest factors SG&A, $XXX you quarterly sustainable million what is the of into do

Brad Childers

be salary point candid margin have I of improvements longer permanent are reductions think, I'll while perpetuity. back and salary you overall want at SG&A that I be Because reductions and the and our levels able less to look, retain see those at yes, organization, gross talent. all in as to some the headcount attract tell being sustainable on would part of term, that, to get at think we lower permanency we some into see high-quality cut I the levels we -- do levels do

Operator

The Schultz next comes question TJ the from Markets. Capital with RBC of line

TJ Schultz

modifications or some that back it are costs? if cost of money in the need you around the just what mobilization to bring more units horsepower. units units? idle Is younger and on things as idle those to other think you maybe moving wasn't the gas there mix are the need whereas be that basins, different maybe made large would or tracted to And Or to meaningful there it's So larger capacity moving to to major redeploy market spend before?

Brad Childers

take and it's gas units do sure is The make our maintenance And they've back been work if to make-ready. time is that gives Sure. opportunity we been interrupting so since production. customers' it that the a is without do up-to-date. for location, units the through to idle on in then idle they just sat of the us time, primary go period or if to putting expense That

of So expense a ready. making it, unit part make-ready the just that is

yet, is, and startup. Second shipping

associated are or And units in costs then have the we that. the some activity. potentially size so to If some to to additional the with would it's those we next configuration, changes whether their need to main engage that repackage application, to move that controls,

that growth CapEx. shows up in of Some

of reactivate. in our in of OpEx. I'll Some margin and that's spend always that, the are are CapEx. expenses that guidance, up business, shows a our that or But primary in to gross that that's out or those required on level is investment point in either And our

TJ Schultz

But OpEx? Okay. make-ready are costs

Brad Childers

Yes.

Operator

are remarks. questions to the to Childers in the no further call back I'd like There queue. closing for Mr. hand

Brad Childers

Thank Thank today. for you, in Great. our call everyone, you. participating

As Archrock shareholders. demonstrate, everyone. I fourth and right continue look forward we steps differentiate our to you updating deliver quarter on Thanks, our call the value year. for next early take our results to to

Operator

gentlemen, your for Ladies and this conclude participation. Thank you does today’s teleconference.

You may your lines have time at this wonderful disconnect a day. and

Archrock (AROC) 3 Nov 202020 Q3 Earnings call transcript