AROC - Earnings call transcript Q2 2021

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Operator

Good morning. Welcome to the Archrock Second Quarter 2021 Conference Call.

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

begin. may You

Megan Repine

Chief Hello, the today’s Katrina. 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 second are and Brad XXXX.

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

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

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

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

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

Brad Childers

Thank everyone. you, Megan, good and morning,

of horsepower our revenue. performance executed quarter in free the to financial revenue operations margin this during pleased I’m the quarter, We percentage We and discipline, level flow confidence flat of value first bookings our priorities our large highest horsepower Archrock’s utilization was on was that operations year. stabilization they’re reinforcing strategic gross that the the in of compared discipline, XXXX. saw our contract of first transition operational performance further second half second first We number in we delivered to contract XXXX. captured the quarter X%. $XX in and in saying capital total down the by XX% our XXXX. first this cash in Highlights million maintained continued operations at of with delivered Compared spending XXXX, half we meaningful second our for just assets, unchanged solid the in year. include a start and me With a at quarter the recovery. to last since million Let of of XX%, of quarter CapEx same $XXX We largely solid compared of XXXX fleet point driving

We continued and our X.X times. commitment maintained flow capital with to generated internally $XX shareholders. to in dividends dividend coverage paid ratio robust cash return a of We million

during during our more million XXXX, from $XXX these from to operating we including horsepower horsepower profitability, us end debt $XXX million and our strategy. more $XXX to allow million the we’ve of accelerate our and has year-to-date since proceeds Finally, divested to XXX,XXX expected strong XXX,XXX In and These progressed improve forward targeted repayment. year-to-date, bring to accelerated efficiency share $XXX execution asset transactions I’m fleet the proud total, that and multi-year hydrating July. the reduction XXXX. EBITDA debt or future or operational sells from million

down lows. near to As to business inflationary This typical is from the current from expansion. market investment in pressure the lower growth and the the to transition is invest cycle our starting beginning anticipated, more late-cycle to recovery measured of cycle. they’re pricing meet shortages. utilization turns or we time, tightening the of we’re initially same proving from pace year XXXX of the an cycle a accelerating at cyclical revenue we as this to up beginning expected participant, and however plans, transition in our are a face be of be concurrence to At expected customer and than the The contraction the end from to

fast growth expect backlog as get our revenue ahead of see our to raise the moving demand pricing structure. with and compression our we with is align up convert we to now to cycles, As to growing focus to cost set

we We multi-decade expect we now leverage the believe the be has growth underway. transitory gas been cycles to cycle by this market in period for and presented steady, past the to it opportunities natural as expect that is

outlook increasing beyond. expect year, of booking balance to which XXXX a activity the Archrock through for continue We into the robust for and translate should

dive deeper the backdrop. a activity market trough. quarter. second stands now above XXX, XXX% XXXX supporting to existing remain plans across North the prices more strengthened than now further patch. oil of review barrel, prices rigs $XX American currently from Commodity the and The the Turning up approximately at Oil during the per

by biased in customers Bcf conversations year XXXX production half Our future XXXX a In the compression for stronger levels XXXX. essentially pre-pandemic XX range quarter and the day than latest natural up XXXX is a in forecast, a fourth and average around with a XX optimism, of higher, flat Bcf from the X% believe the expected quarter there, the gas reach setting XXXX of in experienced the of Bcf XX increasing EIA’s point a From second day, to XX plans higher with of activity for frequency to and industry the we it’s remains XXXX. above low are day levels. the second

to proposition the a industry further cornerstone own could unfolding, the and in remains to major currently gas for fuel reducing its recovery emissions, agencies. gas value Natural positive and long-term natural upside through oil fundamentals this gas cyclical therefore as greenhouse increases And long-term forecast, remain transition demand. national business by provide its multi-decade strengthen gas’ the published energy our energy compression commitment gas and Beyond place. worldwide the a in

For presented energy by risks. Archrock, we believe the the outweigh opportunities transition

and few with the data XXXX performance our disclosure. disclosure commitment additional ESG and to We to enhancements. sustainability in third Our our strategy plan weeks includes next publish a reports growing

As a ahead. but key our you provide small certain already opportunity compression represents know, to portion a fleet customers, growth electric today, power we this of

Moving on by from in was throughout to improvement declined to or the Compared first at larger $X our significant we second flat just our the second Contract pandemic. X% quarter, sequential million exit experienced XX%. utilization the operations the quarter, decline revenue a fleet quarter segments.

first declined Excluding the as to hydrating to strategy, horsepower chose fleet just quarter. compared operating sell XX,XXX of XX,XXX active by we the part our horsepower

remains the horsepower horsepower sequential people the at for of the second these transactions, Booking and effort Including Revenue tremendous standby July in the quarter, not end strategy involved. was the second flat a levels during first zoom of results equipment quarter, This of activity compared for service strategies. we returning should fleet today. reached of large units XXXX, horsepower us with we’ve horsepower as robust quarter and on increased numerous horsepower to fleet another to So seen it XXXX was a small percentage active XXX,XXX benefit total in XX,XXX and providers enable which the sold to our was to to growth. our and steady required basis. the Pricing compression quarter horsepower rates. on of divest since across XX% operating all from contracting monthly organization, full win-win at our parties XX% has our our a from

down a from flat basis. first percentage the of on quarter and margin gross XXXX was year-over-year Our roughly was

and were labor During the parts to cost to make-ready we their safety. performance hard an The offset costs also to thank with expenses facing started of oil We control, a and seasonally quarter, and to higher increase safety recorded team pressures as expenses. up second $X sequentially to low with prepare In tight to customer services, million higher commitment and inflationary to rising aftermarket continue far due demand future increases. price with see efficiency want and in achieved and work we great will margin gains employees has work first zero in incidents gross our for XXXX. also meet so continued optimize quarter. I are safety revenues

maintenance field to our on capital than move upcycle. the to has cycles. is as activity. the results were lagged for like as of allocation service prior experience customers largely touch we our major This by our true closer especially expectations particularly softer framework, our in I’d However, resumption our

we appropriate investment, always, balancing of leverage will shareholders. to remain levels focused on capital and As return of

In summary, technology worked years, in a available developing. that configurations and we’re demand to hard existing in the will platform increase organization. and the practices consistence, our confident, on and primarily recovery we in compression a With fleet responsibly and invested this across the standardized focused equipment units build our the modernized our in active we’ll desired We’ve by we’ve customers. support compression several foundation, modest relatively past that forecasted gas and ahead. profitably investment necessary so as solid for Over fleets, growth field have is we’re the natural redeploying

We I’d to the outlook. place and have period performance quarter to a second review results as and this people, of provide have strategy be optimize lot XXXX of excited this and takes our like about for in recovery With reasons the to during call right latest a transition and Archrock assets we Doug the hold. XXXX, the that, over turn to

Doug Aron

Brad, morning. good and Thanks,

the and quarter the majority Let’s restructuring a our $X adjusted related EBITDA second sale second year. results of in quarter assets to in included to the look compared million million recorded for impairment declines EBITDA. net for and resulted second Net at a and income the of of which few outlook million was were first of of our one-time We smaller non-cash financial a compression We asset gains costs. latest in long-lived and a and adjusted XXXX million quarter horsepower items, $X $X summary other quarter the reported for $XX non-cash. nearly decline of the XXXX

segments. million gross horsepower. to Turning down due XXX came relatively in revenue quarter quarter, points to basis to operating only compared second lower at down managed to first million to but margin $X our first business percentage defend quarter, Contract flat year-over-year. the the We our $XXX in XX% operations the of compared

line the weighed margin, gross compared Top business. tightly X% turbocharger million standby Our to due second our came slow quarter at million guidance improved reported make-ready seasonally pressure fewer second a in and activity to the segment, managed expense. recovered quarter of as in year-over-year our first primarily margin services $XX disposition as the million on quarter, XXXX debt year, we annual annual SG&A first our units which of In quarter. decline to totaled segments the compared in to on was was million $XX expense XX%. on XXXX overhead. bad prior from additional $XX July down Revenue due corporate below aftermarket basis, down revenue we the and the for $XX

the delivery took of new For the small second invested We for $X quarter, CapEx amount growth capital equipment and of second and XXXX with a was other totaled and quarter and million. the technology of and investments. $X.X expenditures make-ready levels Maintenance modifications as in of overhaul quarter spending horsepower. exited repackages total of billion. debt well million $XX reflects higher We as

times Our X.X slightly the quarter leverage debt ratio to X.XX XXXX, kicked in lower only XX, quarter EBITDA. from June the both times of of as last of impact reduction partially up as offset adjusted second and

sales from debt However, these and pro asset July we redeployed process actions. forma for – proceeds reduction towards

over continues to available leverage ratio XX, quarter of on primary or year, of million $X.XX top declared share, bringing are X.XX times. reduction and had We as free committed an to XX plenty down we as second of financial $XXX are focus ratio Brad to dividend of flow our this And We cash mentioned, least flexibility of on for time recovers. Our we recently Archrock. was be as the a $XXX repayment EBITDA a per $X.XXX our June generating. leverage annualized as at us of June liquidity of basis. giving already million Debt

payments closing X% leading coverage yesterday’s even for for dividend X.X during of totaled second dividend to making represents provided semi-annual the protection dividend our especially times, healthy $XX given coverage. price, dividend our yield compelling the Cash quarter million a available the by after interest Our a industry-leading quarter. based of XXXX on of

our to outlook. on Moving updated

in guidance million $XXX to press million. We the last XXXX are full and earnings revenue adjusted $XXX issued margin detail tightening of found night. EBITDA Full we segment gross the range be release level our year and can

high the cost absorbed operations, with the the our flat XXXX we gross second pressures to Relatedly, as materialize inflationary we discuss step XXXX. down and percent contract year start today, horsepower to assumed margin our still expected activity the year. anticipate during expect of will be in horsepower half to the of guidance, For full operating growth of now year-over-year end we in

AMS our annual recovery. our revising view revenue of or also and year-to-date are gross and latest account reflect We to week a margin performance for to guidance

asset million EBITDA, our the guidance $XX net the million the net incorporates sales, year-to-date well from effect Finally, in the lost both sales. of asset as $XX updated in as million $XX gains

full This represents delivered is the million expected heels the and CapEx year. the million I’ll total in million. impressive Katrina, now a to we’ll of we the to questions you, XXXX, last to over the of turn For $XX that, the $XXX from of reduction on call $XX those range unchanged take With year be back on and line. $XXX million decline

Operator

Instructions] our One. May Kyle from have We question Thank you, from first sir. Capital [Operator

line open. Your is

Kyle May

Hi, good morning, everyone.

Brad Childers

Good morning.

Kyle May

the a follow up Maybe, guidance. quick question to on just Doug,

driven really that set mentioned Looking to the operations revenue in at back the else looks decline going loss like in EBITDA there primarily the this half in segment? contract or on segment, the is the you is something of Is by year. it

Doug Aron

Yes.

half is of addition in Lube U.S., availability in driving sort shortages things, the offset saw, So what price experiencing lubricants EBITDA parts two forecasted that throughout we much higher for to away, which game you’re the expense, globally. really country that the about, obviously previously. likely the are goes some of very oil expense also lube of into seeing Kyle. and it but is the commodity is and price, the oil gosh, us that by all equivalent in second was It of year. the hearing frankly, $XXX Higher the oil you’re that is we and inflation

again our with And that’s fact after third you dealing particularly the labor, And parts, is and basins, we’re in pressures to certain Permian, see we’re then expect. our in highest So that. on which costs, cost. which labor largest would starting some

that we’re I to of think be some seeing happened able faster that to inflation pass going than through.

second margin so the for gross leading lower really that’s half. to what’s And forecast that

Kyle May

Got it.

for for helpful. help growth how and the kind That’s of Okay. us about you maybe outlook And recent next on year? bookings up what Archrock you’re frame the think based Brad, seeing with can activity, for to

Brad Childers

seeing starts early Kyle. I that develop. Thanks, materialize on and how is optimistic. new in will It’s activity show is XXXX that activation we’re firmly in what The to too XXXX locations But going bookings I’m for and in to really know already like early, top growth And that a but good taking By nice going stop to place with start too at just what normal net rate. is translating it’s it’s and is it, that activity. developing. outlook look a on of the growth that’s

it. So we’re excited about

Kyle May

Great. the color jump in appreciate this the Understood. I’ll Well, back queue. morning.

Brad Childers

Thanks, Kyle.

Operator

is Instructions] [Operator next Akyol Selman Our from Stifel. question from

open. Your line is

Selman Akyol

Thank you. Good morning,

Brad Childers

Good morning.

Selman Akyol

Couple of quick ones.

talked about any? if talk for you that strategies maybe Can on difference seeing compression you you’re as growth what and pricing electric opportunity. a compression, So electric about

Brad Childers

Sure.

in operating really do the profitability out our electrification on contribution pricing, with field that margin make citizen the are what more we the than the our being including gas on and really our double electric ESG of they put news entire last engine. we inevitable. one, And I see. have as the looked our the emissions have equivalent contribution is compression, compression we turn the as in to our we’re amount that reciprocating be base On and number two, with opportunities to that where we number best we, and triple and of customer field all in for good then and industry, like customers more efforts is seeing share that with year, returns would attention from margin what drive you front, natural as can drive And that, to the which corporate investment motor amount perspective we the motor continual this great migration managing or to that electric time can that is

an So, overall equivalent it’s contribution.

exciting experienced looking developed, it’s we and meeting the forward customer’s drive to needs for see have So motor with future. growing our it it’s something we’re compression in, to electric

Selman Akyol

you. Thank that. Appreciate

starts Or eventual year. for anyway, that? in turning optimistic think I of terms just there, percentage you’re can for into locations in kind there a things think revenues? is know, we sort about and of guess of just bookings we don’t about mentioned I You in bookings Is new next could

Doug Aron

trouble I the is Doug. capital, dependent is, or the Selman, to what first looking say with be I’d spend on just that ability on a the going is our with guess, little to equipment That’s at will this board for bit our part XXXX. our XXXX. preliminarily be time of desire, discussion we our new for had

much to love as I’d into guidance, we’re there. so start the not And just getting as XXXX

I and of particularly much are not mean, industry. a horsepower classes. There’s horsepower I is much X,XXXs utilization class, still percent equipment in you away. larger preliminary very see those kind that in We’re can as available think, discussions XX-plus idle what that again, quarter if X,XXXs, any an but

that And about year give you is into look like, next to already going so, XX inquiring that’s of you to more don’t customers plan, our mind. having but back what the several that we’re of us all XXXX will fact sort what calling and bake days if to formula the goes availability on come for

Selman Akyol

No, appreciate not I a problem. understand, commentary. the I

Let there be can looking Is strengths ask if terms that of can anything know we of in any Permian a all for I general basins? this okay, I talk other like coming? question. about standpoint. that just mean, me you there basins particular But in is we more from see should

Doug Aron

fields position see that some Permian in still the And it’s have places. that buoyant other have a especially the activity producers invested think more player, there’s and Rockies. But attracts Northern good It’s still some industry Permian don’t other it conventional will to a right. with prolific, we profitable the and perspective the their capital dominant is you’re in locations, the large I than in Permian So, in be such the after price. expect that oil

places, and developed We we’re some and some Aumsville. all are services. same hearing dry important opportunities in still good good compression which at Northeast. in seeing activity to the base seeing incremental scale of in the but couple a our And are Permian, of including markets customer as gas also our the Nothing provide for

Selman Akyol

right. All very me. much, it and does for it you Thank

Doug Aron

you. Thank

Operator

Eric a Management. Asset Hess [Operator have from Instructions] Newfleet question We from

Your open. line is

Eric Hess

Good morning.

Just that any you demand sold on was large the on stuff? in comments And July, medium, compression smaller trends across the small, horsepower fleets?

Brad Childers

sales our range horsepower the all horsepower small we’ve on And largest yes. around the average we’ve was ranges, the is size across asset demand in conducted that say remains answer The and year-to-date. in The tightest The conducted horsepower the sales definitely primarily are fleets. demand categories. horsepower Sure. of as horsepower smaller for the that I’d

the lower little – it’s in demand X,XXX above close a percent is in horsepower all smaller is ranges the XX% tight across X,XXX Generally tight in utilization range. relatively but XX-plus above, is to horsepower utilization the market see So bit of range, very the where also range. horsepower. we range. pretty utilization the demand is And in down softer, And mid really in still the good, then XX% there’s the horsepower

Eric Hess

you. Thank

Brad Childers

You’re welcome.

Operator

are further questions. no There

Now I’d like to turn final Mr. for remarks. the call back over Childers to

Brad Childers

our I’m to our contributions our call. success. their to Well, of I’m results earnings thankful and thank our employees you in everyone ongoing for quarter for second participating proud continued

I’m future. will Thank backlog the profitably and in confident to put well, work we you, growing deploy everyone. and safely assets as executing we our We’re

Operator

day. gentlemen, concludes you this Thank Ladies presenters. participation conference. your and have a for and you, today’s wonderful Thank

disconnect. all may You

Archrock (AROC) 30 Jul 212021 Q2 Earnings call transcript