GlobeNewswire Inc | Nov 1, 2021 05:04PM EDT

November 01, 2021

HOUSTON, Nov. 01, 2021 (GLOBE NEWSWIRE) -- Archrock, Inc. (NYSE: AROC) (Archrock) today reported results for the third quarter of 2021.

Third Quarter 2021 Financial Results

-- Revenue for the third quarter of 2021 was $195.2 million compared to $205.6 million in the third quarter of 2020. -- Net income for the third quarter of 2021 was$9.3 million compared to $18.3 millionin the third quarter of 2020. -- Adjusted EBITDA (a non-GAAP measure defined below) for the third quarter of 2021 was $92.4 million compared to $112.6 million in the third quarter of 2020. -- Previously declared quarterly dividend of $0.145 per common share for the third quarter of 2021 resulted in dividend coverage of 2.2x. -- Net cash provided by operating activities for the third quarter of 2021 was $82.1 million. Including $70.8 million in proceeds from the sale of non-core assets, free cash flow after dividend (a non-GAAP measure defined below) was $98.3 million. -- Leverage ratio was 4.3x compared to 4.0x as of September 30, 2020. -- Expect to achieve 2021 Adjusted EBITDA above the midpoint of our $340 million to $355 million guidance range.

Archrocks third quarter 2021 net income of $9.3 million included a pre-tax non-cash long-lived and other asset impairment of $5.1 million and pre-tax depreciation expense from the write-off of compression and other assets damaged in Hurricane Ida of $2.0 million. Archrocks third quarter 2020 net income of $18.3 million included a pre-tax non-cash long-lived asset impairment of $10.7 million and pre-tax restructuring costs related to severance benefits and property disposals totaling $2.9 million. In addition, Archrock recorded a net benefit from tax audit settlements of $10.9 million during the third quarter of 2020.

Adjusted EBITDA for the third quarter of 2021 of $92.4 million included $15.4 million in net gains related to the sale of compression and other assets. Adjusted EBITDA for the third quarter of 2020 of $112.6 million included $9.1 million in net gains primarily related to the sale of the turbocharger business included within our aftermarket services segment.

Management Commentary and Outlook

The positive trends we saw in the second quarter accelerated in the third, bolstering our confidence that the industry is in the front end of a recovery. During the third quarter, we grew our operating horsepower after adjusting for non-core asset sales, drove improved contract compression bookings for the second consecutive quarter and delivered aftermarket services revenue growth, saidBrad Childers, Archrocks President and Chief Executive Officer. In addition, our contract operations gross margin percentage remains within guidance expectations and above prior cycle lows, even in the face of sharp cost inflation. In response to higher costs, we began taking necessary action to implement price increases during the fourth quarter and expect these to be broad-based next year.

The recent change in energy supply and demand fundamentals and resulting breakout in commodity prices highlight the need for higher industry activity levels and reinforce our expectation for natural gas demand growth as the global energy mix transitions to lower carbon fuels over time, all positive news for our compression business. Although our customers will finalize their budgets early next year, our initial discussions with customers indicate that bookings momentum, and therefore our participation in the upcycle, will continue building into 2022.

Weve taken significant measures over the past several years to reposition our fleet for a more efficient and sustainable future. Our installed base of large, digitized and standardized compression horsepower is deployed in stable midstream applications in critical U.S. basins. We expect the steady and modest growth in demand for natural gas compression forecasted ahead will require higher growth capital in 2022 for lower-emitting and electric motor drive horsepower. As we selectively invest in high profit, large midstream compression units required to meet the needs of our customers, we will remain steadfast in our commitment to both maintaining a solid balance sheet and returning capital to shareholders, concluded Childers.

Contract Operations

For the third quarter of 2021, contract operations segment revenue totaled $158.9 million compared to $175.2 million in the third quarter of 2020. Gross margin was $97.6 million, compared to $114.8 million in the third quarter of 2020. This reflected a gross margin percentage of 61%, compared to 66% in the prior year quarter. Total operating horsepower at the end of the third quarter of 2021 was 3.2 million, compared to 3.5 million at the end of the prior year quarter, and reflected the sale of 146,000 active horsepower as part of our ongoing fleet high-grading initiative. Utilization at the end of the third quarter of 2021 was 82%, compared to 83% at the end of the third quarter of 2020.

Aftermarket Services

For the third quarter of 2021, aftermarket services segment revenue totaled $36.3 million, up from $30.4 million in the third quarter of 2020, driven by higher parts sales and service activity. Gross margin of $5.6 million was up from $4.7 million in the third quarter of 2020. Gross margin percentage was 15% in the third quarter of both 2021 and 2020.

Balance Sheet

Long-term debt was $1.5 billion at September 30, 2021, reflecting net debt repayment of $96.5 million during the third quarter of 2021. Our leverage ratio was 4.3x, compared to 4.0x as of September 30, 2020. Our available liquidity totaled $517.5 million as of September 30, 2021.

Quarterly Dividend

Our Board of Directors recently declared a quarterly dividend of $0.145 per share of common stock, or $0.58 per share on an annualized basis, resulting in dividend coverage in the third quarter of 2021 of 2.2x. The dividend will be paid on November 16, 2021 to stockholders of record at the close of business on November 9, 2021.

Summary Metrics(in thousands, except percentages, per share amounts and ratios)

Three Months Ended September30, June30, September30, 2021 2021 2020 Net income $ 9,304 $ 8,752 $ 18,332 Adjusted EBITDA $ 92,351 $ 87,045 $ 112,634 Contract operations $ 158,911 $ 163,865 $ 175,223 revenueContract operations $ 97,631 $ 102,478 $ 114,779 gross marginContract operationsgross margin 61 % 63 % 66 %percentage Aftermarket services $ 36,255 $ 31,750 $ 30,408 revenueAftermarket services $ 5,603 $ 4,260 $ 4,699 gross marginAftermarket servicesgross margin 15 % 13 % 15 %percentage Selling, general, and $ 28,839 $ 26,077 $ 18,681 administrative Cash available for $ 50,128 $ 42,446 $ 77,246 dividendCash available for 2.2 x 1.9 x 3.5 xdividend coverage Free cash flow $ 120,828 $ 31,678 $ 100,453 Free cash flow after $ 98,322 $ 9,347 $ 78,145 dividend Total availablehorsepower (at period 3,913 4,041 4,153 end)Total operatinghorsepower (at period 3,196 3,295 3,465 end)Horsepowerutilization spot (at 82 % 82 % 83 %period end)

Conference Call Details

Archrock will host a conference call on Tuesday, November 2, 2021, to discuss third quarter 2021 financial results. The call will begin at 10:00 a.m. Eastern Time.

To listen to the call via a live webcast, please visit Archrocks website at www.archrock.com. The call will also be available by dialing 1-833-989-2934 in the United States and Canada or 1-587-505-2692 for international calls. The access code is 1124236.

A replay of the webcast will be available on Archrocks website for 90 days following the event.

Adjusted EBITDA, a non-GAAP measure, is defined as net income (loss) excluding interest expense, income taxes, depreciation and amortization, long-lived and other asset impairment, goodwill impairment, restructuring charges, debt extinguishment loss, non-cash stock-based compensation expense, indemnification income (expense), net and other items. A reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, and a reconciliation of our full year 2021 Adjusted EBITDA guidance to net income (loss) appear below.

Gross margin, a non-GAAP measure, is defined as revenue less cost of sales (excluding depreciation and amortization). Gross margin percentage is defined as gross margin divided by revenue. A reconciliation of gross margin to net income (loss), the most directly comparable GAAP measure, appears below.

Cash available for dividend, a non-GAAP measure, is defined asnet income (loss) excluding interest expense, income taxes, depreciation and amortization, long-lived and other asset impairment, goodwill impairment, restructuring charges, debt extinguishment loss, non-cash stock-based compensation expense, indemnification income (expense), net and other items, less maintenance capital expenditures, other capital expenditures, cash taxes and cash interest expense. Reconciliations of cash available for dividend to net income (loss) and net cash provided by operating activities, the most directly comparable GAAP measures, appear below.

Free cash flow, a non-GAAP measure, is defined as net cash provided by operating activities plus net cash provided by (used in) investing activities. A reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable GAAP measure, appears below.

Free cash flow after dividend, a non-GAAP measure, is defined as net cash provided by operating activities plus net cash provided by (used in) investing activities less dividends paid to stockholders. A reconciliation of free cash flow after dividend to net cash provided by operating activities, the most directly comparable GAAP measure, appears below.

About Archrock

Archrock is an energy infrastructure company with a pure-play focus on midstream natural gas compression.Archrock is the leading provider of natural gas compression services to customers in the oil and natural gas industry throughout the U.S. and a leading supplier of aftermarket services to customers that own compression equipment in the U.S. Archrock is headquartered in Houston, Texas. For more information, please visit www.archrock.com.

Forward-Looking Statements

All statements in this release (and oral statements made regarding the subjects of this release) other than historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and factors that could cause actual results to differ materially from such statements, many of which are outside the control of Archrock, Inc. Forward-looking information includes, but is not limited to statements regarding: the effects of the COVID-19 pandemic on our business, operations, customers and financial conditions; guidance or estimates related to Archrocks results of operations or of financial condition; fundamentals of Archrocks industry, including the attractiveness of returns and valuation, stability of cash flows, demand dynamics and overall outlook, and Archrocks ability to realize the benefits thereof; Archrocks expectations regarding future economic and market conditions and trends; Archrocks operational and financial strategies, including planned growth, coverage and leverage reduction strategies, Archrocks ability to successfully effect those strategies and the expected results therefrom; Archrocks financial and operational outlook; demand and growth opportunities for Archrocks services; structural and process improvement initiatives, the expected timing thereof, Archrocks ability to successfully effect those initiatives and the expected results therefrom; the operational and financial synergies provided by Archrocks size; and statements regarding Archrocks dividend policy.

While Archrock believes that the assumptions concerning future events are reasonable, it cautions that there are inherent difficulties in predicting certain important factors that could impact the future performance or results of its business. The factors that could cause results to differ materially from those indicated by such forward-looking statements include, but are not limited to: changes in customer, employee or supplier relationships; local, regional and national economic and financial market conditions and the impact they may have on Archrock and its customers; changes in tax laws; conditions in the oil and gas industry, including a sustained decrease in the level of supply or demand for oil or natural gas or a sustained decrease in the price of oil or natural gas; changes in economic conditions in key operating markets; impacts of world events, including the COVID-19 pandemic; the financial condition of Archrocks customers; the failure of any customer to perform its contractual obligations; changes in safety, health, environmental and other regulations; and the effectiveness of Archrocks control environment, including the identification of control deficiencies.

These forward-looking statements are also affected by the risk factors, forward-looking statements and challenges and uncertainties described in Archrocks Annual Report on Form 10-K for the year ended December31, 2020, Archrocks Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021, and those set forth from time to time in Archrocks filings with the Securities and Exchange Commission, which are available at www.archrock.com. Except as required by law, Archrock expressly disclaims any intention or obligation to revise or update any forward-looking statements whether as a result of new information, future events or otherwise.

SOURCE: Archrock, Inc.

For information, contact:

Megan RepineVP of Investor Relations281-836-8360investor.relations@archrock.com

ARCHROCK, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)

Three Months Ended September30, June30, September30, 2021 2021 2020Revenue: Contract $ 158,911 $ 163,865 $ 175,223 operationsAftermarket 36,255 31,750 30,408 servicesTotal revenue 195,166 195,615 205,631 Cost of sales(excludingdepreciation andamortization):Contract 61,280 61,387 60,444 operationsAftermarket 30,652 27,490 25,709 servicesTotal cost ofsales(excluding 91,932 88,877 86,153 depreciationandamortization)Selling,general and 28,839 26,077 18,681 administrativeDepreciationand 45,280 44,193 47,279 amortizationLong-lived andother asset 5,121 2,960 10,727 impairmentRestructuring 313 743 2,900 chargesInterest 25,508 25,958 25,221 expenseGain on sale (15,393 ) (3,124 ) (9,146 )of assets, netOther (income) 337 (82 ) (324 )expense, netIncome before 13,229 10,013 24,140 income taxesProvision for 3,925 1,261 5,808 income taxesNet income $ 9,304 $ 8,752 $ 18,332 Basic anddiluted netincome per $ 0.06 $ 0.06 $ 0.12 common share ^(1) Weightedaverage common sharesoutstanding:Basic 152,158 152,033 150,974 Diluted 152,297 152,203 151,038

(1)Basic and diluted net income per common share is computed using the two-class method to determine the net income per share for each class of common stock and participating security (restricted stock and stock-settled restricted stock units that have non-forfeitable rights to receive dividends or dividend equivalents) according to dividends declared and participation rights in undistributed earnings. Accordingly, we have excluded net income attributable to participating securities from our calculation of basic and diluted net income per common share.

ARCHROCK, INC.UNAUDITED SUPPLEMENTAL INFORMATION(in thousands, except percentages, per share amounts and ratios)

Three Months Ended September30, June30, September30, 2021 2021 2020Revenue: Contract operations $ 158,911 $ 163,865 $ 175,223 Aftermarket services 36,255 31,750 30,408 Total revenue $ 195,166 $ 195,615 $ 205,631 Gross margin ^(1): Contract operations $ 97,631 $ 102,478 $ 114,779 Aftermarket services 5,603 4,260 4,699 Total gross margin $ 103,234 $ 106,738 $ 119,478 Gross margin percentage:Contract operations 61 % 63 % 66 %Aftermarket services 15 % 13 % 15 %Total gross margin 53 % 55 % 58 %percentage Selling, general and $ 28,839 $ 26,077 $ 18,681 administrative% of revenue 15 % 13 % 9 % Adjusted EBITDA ^(1) $ 92,351 $ 87,045 $ 112,634 % of revenue 47 % 44 % 55 % Capital expenditures $ 32,132 $ 27,210 $ 17,054 Proceeds from sale ofproperty, plant and (70,785 ) (9,691 ) (17,707 )equipment and otherassetsNet capital $ (38,653 ) $ 17,519 $ (653 )expenditures Total availablehorsepower (at period 3,913 4,041 4,153 end) ^(2)Total operatinghorsepower (at period 3,196 3,295 3,465 end) ^(3)Average operating 3,225 3,316 3,536 horsepowerHorsepower utilization:Spot (at period end) 82 % 82 % 83 %Average 82 % 82 % 85 % Dividend declared for $ 0.145 $ 0.145 $ 0.145 the period per shareDividend declared forthe period to all $ 22,393 $ 22,404 $ 22,216 shareholdersCash available for 2.2 x 1.9 x 3.5 xdividend coverage ^(4) Free cash flow ^(5) $ 120,828 $ 31,678 $ 100,453 Free cash flow after $ 98,322 $ 9,347 $ 78,145 dividend ^(5)

(1)Management believes gross margin and Adjusted EBITDA provide useful information to investors because these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide a more complete understanding of our performance than GAAP results alone. Management uses these non-GAAP measures as supplemental measures to review current period operating performance, comparability measures and performance measures for period-to-period comparisons.(2)Defined as idle and operating horsepower. New compressor units completed by a third party manufacturer that have been delivered to us are included in the fleet.(3)Defined as horsepower that is operating under contract and horsepower that is idle but under contract and generating revenue such as standby revenue.(4)Defined as cash available for dividend divided by dividends declared for the period.(5)Management believes free cash flow and free cash flow after dividend provide useful information to investors because these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide a more complete understanding of our performance and the amount of cash that is available for dividends, debt repayment and other general corporate purposes.

September30, June30, September30, 2021 2021 2020Balance SheetLong-term $ 1,516,135 $ 1,612,490 $ 1,731,459debt ^(1)Total 904,047 913,821 949,685equity

(1)Carrying values are shown net of unamortized debt discount, premium and deferred financing costs.

ARCHROCK, INC.UNAUDITED SUPPLEMENTAL INFORMATION(in thousands)

Three Months Ended September30, June30, September30, 2021 2021 2020Reconciliation of Net Income toAdjusted EBITDA and Gross MarginNet income $ 9,304 $ 8,752 $ 18,332 Depreciation and amortization 45,280 44,193 47,279 Long-lived and other asset 5,121 2,960 10,727 impairmentRestructuring charges 313 743 2,900 Interest expense 25,508 25,958 25,221 Stock-based compensation 2,900 3,178 2,645 expenseIndemnification income, net ^ ? ? (278 )(1)Provision for income taxes 3,925 1,261 5,808 Adjusted EBITDA ^(2) 92,351 87,045 112,634 Selling, general and 28,839 26,077 18,681 administrativeStock-based compensation (2,900 ) (3,178 ) (2,645 )expenseIndemnification income, net ^ ? ? 278 (1)Gain on sale of assets, net (15,393 ) (3,124 ) (9,146 )Other (income) expense, net 337 (82 ) (324 )Gross margin ^(2) $ 103,234 $ 106,738 $ 119,478

(1)Represents the net income earned or net expense incurred pursuant to indemnification provisions of our separation and distribution and tax matters agreements with Exterran Corporation.(2)Management believes Adjusted EBITDA and gross margin provide useful information to investors because these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide a more complete understanding of our performance than GAAP results alone. Management uses these non-GAAP measures as supplemental measures to review current period operating performance, comparability measures and performance measures for period-to-period comparisons.

ARCHROCK, INC.UNAUDITED SUPPLEMENTAL INFORMATION(in thousands)

Three Months Ended September30, June30, September30, 2021 2021 2020Reconciliation of Net Income toAdjusted EBITDA and Cash Available for DividendNet income $ 9,304 $ 8,752 $ 18,332 Depreciation and amortization 45,280 44,193 47,279 Long-lived and other asset 5,121 2,960 10,727 impairmentRestructuring charges 313 743 2,900 Interest expense 25,508 25,958 25,221 Stock-based compensation 2,900 3,178 2,645 expenseIndemnification income, net ? ? (278 )Provision for income taxes 3,925 1,261 5,808 Adjusted EBITDA ^(1) 92,351 87,045 112,634 Less: Maintenance capital (14,086 ) (13,015 ) (3,817 )expendituresLess: Other capital (3,430 ) (5,814 ) (7,363 )expendituresLess: Cash tax payment ? (601 ) (407 )Less: Cash interest expense (24,707 ) (25,169 ) (23,801 )Cash available for dividend ^ $ 50,128 $ 42,446 $ 77,246 (2)

(1)Management believes Adjusted EBITDA provides useful information to investors because this non-GAAP measure, when viewed with our GAAP results and accompanying reconciliations, provides a more complete understanding of our performance than GAAP results alone.Management uses this non-GAAP measure as a supplemental measure to review current period operating performance, comparability measure and performance measure for period-to-period comparisons.(2)Management uses cash available for dividend as a supplemental performance measure to compute the coverage ratio of estimated cash flows to planned dividends.

ARCHROCK, INC.UNAUDITED SUPPLEMENTAL INFORMATION(in thousands)

Three Months Ended September30, June30, September30, 2021 2021 2020Reconciliation of Cash FlowsFrom Operating Activities to Cash Available for DividendNet cash provided by operating $ 82,108 $ 49,062 $ 99,760 activitiesInventory write-downs (110 ) (293 ) (220 )(Provision for) benefit from (366 ) 439 47 credit lossesGain on sale of assets, net 15,393 3,124 9,146 Current income tax provision 142 (142 ) (21 )(benefit)Cash tax payment ? (601 ) (407 )Amortization of operating lease (1,031 ) (941 ) (928 )ROU assetsAmortization of contract costs (4,771 ) (5,161 ) (6,630 )Deferred revenue recognized in 3,033 2,720 4,421 earningsCash restructuring charges 313 743 1,402 Indemnification income, net ? ? (278 )Changes in assets and (25,953 ) 13,419 (16,797 )liabilitiesMaintenance capital (14,086 ) (13,015 ) (3,817 )expendituresOther capital expenditures (3,430 ) (5,814 ) (7,363 )Payments for settlement ofinterest rate swaps that (1,114 ) (1,094 ) (1,069 )include financing elementsCash available for dividend ^ $ 50,128 $ 42,446 $ 77,246 (1)

(1)Management uses cash available for dividend as a supplemental performance measure to compute the coverage ratio of estimated cash flows to planned dividends.

ARCHROCK, INC.UNAUDITED SUPPLEMENTAL INFORMATION(in thousands)

Three Months Ended September30, June30, September30, 2021 2021 2020Reconciliation of CashFlows From OperatingActivities to Free Cash Flow and FreeCash Flow AfterDividendNet cash provided by $ 82,108 $ 49,062 $ 99,760 operating activitiesNet cash provided by(used in) investing 38,720 (17,384 ) 693 activitiesFree cash flow ^(1) 120,828 31,678 100,453 Dividends paid to (22,506 ) (22,331 ) (22,308 )stockholdersFree cash flow after $ 98,322 $ 9,347 $ 78,145 dividend ^(1)

(1)Management believes free cash flow and free cash flow after dividend provide useful information to investors because these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide a more complete understanding of our performance and the amount of cash that is available for dividends, debt repayment and other general corporate purposes.

ARCHROCK, INC.UNAUDITED SUPPLEMENTAL INFORMATION(in thousands)

Annual Guidance Range 2021 Low HighReconciliation of Net Income to Adjusted EBITDA Net income ^(1) $ 19,000 $ 34,000Depreciation and amortization 178,000 178,000Interest expense 108,000 108,000Stock-based compensation expense 11,000 11,000Long-lived and other asset impairment 10,000 10,000Provision for income taxes 13,000 13,000Other expense 1,000 1,000Adjusted EBITDA ^(2) $ 340,000 $ 355,000

(1)2021 annual guidance for net income includes $15.2 million of long-lived and other asset impairments and $2.0 million of restructuring charges as of September 30, 2021, but does not include the impact of any such future costs, because due to their nature, they cannot be accurately forecasted. Such costs do not impact Adjusted EBITDA or cash available for dividend, however they are reconciling items between these measures and net income. Long-lived and other asset impairment for our full years 2020 and 2019 was $79.6 million and $44.7 million, respectively.(2)Management believes Adjusted EBITDA provides useful information to investors because this non-GAAP measure, when viewed with our GAAP results and accompanying reconciliations, provides a more complete understanding of our performance than GAAP results alone. Management uses this non-GAAP measure as a supplemental measure to review current period operating performance, comparability measure and performance measure for period-to-period comparisons.