Document
false0001389050 0001389050 2020-02-19 2020-02-19
UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
WASHINGTON, D.C. 20549
  

FORM 8-K
  
CURRENT REPORT
 
 Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 

Date of Report (Date of Earliest Event Reported): February 19, 2020
 

Commission File Number 001-33666
 
ARCHROCK, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
74-3204509
(State or other jurisdiction of incorporation)
(I.R.S. Employer Identification No.)

 9807 Katy Freeway, Suite 100, Houston, TX 77024
(Address of principal executive offices, zip code)

(281) 836-8000
Registrant’s telephone number, including area code


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
  
[]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of exchange on which registered
Common stock, $0.01 par value per share
 
AROC
 
New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o




Item 2.02 Results of Operations and Financial Condition
 
On February 19, 2020, Archrock, Inc. issued a press release announcing its results for the quarter and year ended December 31, 2019. A copy of the press release is furnished as Exhibit 99.1 hereto and is incorporated herein by reference.
 
The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and will not be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933, as amended (the “Securities Act”), unless specifically identified therein as being incorporated therein by reference.

Item 9.01 Financial Statements and Exhibits
  
(d) Exhibits
 
99.1
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)

2



SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
ARCHROCK, INC.
  
 
 
 
 
 
 
By:
 
/s/ Douglas S. Aron
 
 
 
 
Douglas S. Aron
 
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
 
 
 
 
 
 
February 20, 2020


3
Exhibit




Archrock Reports Fourth Quarter and Full Year 2019 Results
and Provides 2020 Guidance

HOUSTON, February 19, 2020 – Archrock, Inc. (NYSE: AROC) (“Archrock” or the “Company”) today reported results for the fourth quarter and full year 2019 and provided 2020 financial guidance.

Fourth Quarter and Full Year 2019 Results
Achieved record net income and adjusted EBITDA for the full year 2019.
Net income for the fourth quarter was $46.0 million compared to $13.0 million in the fourth quarter of 2018.
Adjusted EBITDA (a non-GAAP measure defined below) for the fourth quarter of 2019 was $112.5 million compared to $97.6 million in the fourth quarter of 2018.
Previously declared quarterly dividend of $0.145 per common share for the fourth quarter of 2019 was 10% higher compared to the fourth quarter of 2018.
Dividend coverage was 2.8x for 2019; the leverage ratio was 4.2x at year end.

Fourth quarter 2019 net income of $46.0 million included a non-cash benefit from the release of a deferred tax asset valuation allowance of $39.6 million and a non-cash long-lived asset impairment of $25.8 million. Full year 2019 net income was $97.3 million compared to $29.2 million in 2018.

Adjusted EBITDA for the fourth quarter of 2019 was $112.5 million, up 15% compared to the fourth quarter of 2018. Full year adjusted EBITDA of $416.5 million was up 18% compared to 2018. Results for the fourth quarter and full year 2019 include $6.4 million and $16.0 million, respectively, in gains related to the sale of compression and other assets.

Management Commentary and Outlook

“Archrock’s solid operational momentum continued through the end of 2019 as we delivered a sequential increase in utilization and gross margin in our contract operations segment during the fourth quarter,” said Brad Childers, Archrock’s President and Chief Executive Officer. “We performed well against our 2019 annual targets and remain on track to meet our three-year capital allocation objectives. This includes dividend growth of between 10% and 15%, dividend coverage above 2.0x, as well as leverage below 4.0x in 2020.”
“I am proud of our team for achieving several milestones in 2019,” continued Childers. “We completed an accretive acquisition, reduced the age of our fleet, drove substantial profitability improvements and advanced our leverage reduction while eliminating our need for external financing for at least five years. Together, these successes enhance our position as the leader in U.S. natural gas compression.”
“U.S. natural gas production is expected to reach record levels for the fourth year in a row in 2020, although the annual growth rate is expected to decelerate. Against this backdrop, we expect consistent demand for our natural gas compression services, particularly for the large horsepower class where we strategically focus and deploy capital.”
“Our production-oriented business, aggressive cost management and customer commitments provide us with good visibility into our outlook in the coming year, even as industry activity moderates. Archrock’s 2020 plan aligns investment with the market environment and highlights our focus on free cash flow generation. Our fleet is highly competitive and our business has proved resilient through prior commodity cycles. This, combined with the Company’s solid financial position, gives me confidence in our ability to achieve differentiated performance within the compression industry and broader energy landscape today, and well into the future,” concluded Childers.






Contract Operations

For the fourth quarter of 2019, contract operations segment revenue totaled $204.4 million, reflecting an increase of 16% compared to $176.4 million in the fourth quarter of 2018. Gross margin was $128.4 million, up $23.5 million or 22% from the fourth quarter of 2018, reflecting a gross margin percentage of 63% compared to 59% in the prior year quarter. Total operating horsepower at the end of the fourth quarter of 2019 was 3.9 million, up from 3.5 million at the end of the prior year quarter, reflecting an 11% increase. Utilization at the end of the fourth quarter of 2019 remained consistent with the fourth quarter of 2018 at 89%.

For the full year 2019, contract operations segment revenue totaled $771.5 million, reflecting an increase of 15% compared to $672.5 million for the full year 2018. Gross margin was $474.3 million, up $74.8 million or 19% as compared to the prior year, reflecting a gross margin percentage of 61% compared to 59% in the prior year.

Aftermarket Services

For the fourth quarter of 2019, aftermarket services segment revenue totaled $41.6 million compared to $56.8 million in the fourth quarter of 2018 due to continued customer deferral of maintenance activities. Gross margin of $6.3 million was down from $8.6 million during the fourth quarter of 2018. Gross margin percentage of 15% was consistent with the prior year as we continued to optimize our cost structure and prioritize high-margin business within our aftermarket services operations.

For the full year 2019, aftermarket services segment revenue totaled $193.9 million for 2019 compared to $231.9 million in 2018. Gross margin was $35.0 million, down $5.6 million from 2018; however, 2019 gross margin percentage increased year-over-year to 18% from 17%.

Balance Sheet

Long-term debt as of December 31, 2019 was $1.84 billion compared to $1.83 billion as of September 30, 2019. The Company’s leverage ratio as of December 31, 2019 was 4.2x compared to 4.3x as of September 30, 2019. Our available liquidity as of December 31, 2019 was $669.7 million compared to $246.3 million as of September 30, 2019.

We amended our $1.25 billion asset-based revolving credit facility on November 8, 2019. The amendment extends the maturity date of our credit facility to November 2024 provided we refinance or repay our 2022 notes before June 3, 2022.

On December 20, 2019, we completed a private offering of $500 million of 6.25% senior unsecured notes due 2028. Net proceeds were used to repay outstanding borrowings under our revolving credit facility.

Quarterly Dividend

Archrock’s Board of Directors recently declared a quarterly dividend of $0.145 per share of common stock, or $0.580 per share on an annualized basis, unchanged sequentially and up 10% as compared to the fourth quarter 2018. Dividend coverage in the fourth quarter of 2019 was 2.9x. The dividend was paid on February 14, 2020 to stockholders of record at the close of business on February 7, 2020.






2020 Annual Guidance

Archrock is providing annual guidance as follows (in thousands, except percentages and ratios):


Full-Year 2020 Guidance
 
Low
 
High
 
 
 
 
Net income (1) 
$
67,000

 
$
102,000

Adjusted EBITDA (2)
415,000

 
450,000

Cash available for dividend (3) (4)
223,000

 
248,000

 
 
 
 
Segment
 
 
 
Contract operations revenue
$
800,000

 
$
825,000

Contract operations gross margin percentage
61.5
%
 
63.0
%
Aftermarket services revenue
$
195,000

 
$
210,000

Aftermarket services gross margin percentage
17.0
%
 
19.0
%
 
 
 
 
Selling, general and administrative
$
120,000

 
$
125,000

 
 
 
 
Capital expenditures

 
 
Growth capital expenditures
$
80,000

 
$
100,000

Maintenance capital expenditures
57,000

 
63,000

Other capital expenditures
28,000

 
32,000

 
 
 
 
Dividend growth
10-15%

 
 
Leverage
<4.0x

 
 
Cash available for dividend coverage
>2.0x

 
 

(1) 
2020 annual guidance for net income does not include the impact of long-lived asset impairment because due to its nature it cannot be accurately forecasted. Long-lived asset impairment does not impact adjusted EBITDA or cash available for dividend, however it is a reconciling item between these measures and net income. Long-lived asset impairment for the years ended 2019 and 2018 was $44.7 million and $28.1 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.
(3) 
Management uses cash available for dividend as a supplemental performance measure to compute the coverage ratio of estimated cash flows to planned dividends.
(4)
A forward-looking estimate of cash provided by operating activities is not provided because certain items necessary to estimate cash provided by operating activities, including changes in assets and liabilities, are not estimable at this time. Changes in assets and liabilities were $10.4 million and $(13.2) million for the years ended 2019 and 2018, respectively.






Summary Metrics
(in thousands, except percentages and ratios)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Year Ended
 
December 31,
 
September 30,
 
December 31,
 
December 31,
 
December 31,
 
2019
 
2019
 
2018
 
2019
 
2018
Net income
$
46,044

 
$
20,407

 
$
12,968

 
$
97,330

 
$
29,160

Net income attributable to Archrock stockholders
$
46,044

 
$
20,407

 
$
12,968

 
$
97,330

 
$
21,063

Adjusted EBITDA
112,512

 
112,133

 
97,557

 
416,505

 
352,256

 
 
 
 
 
 
 
 
 
 
Contract operations revenue
$
204,437

 
$
198,337

 
$
176,380

 
$
771,539

 
$
672,536

Contract operations gross margin
$
128,374

 
$
122,396

 
$
104,827

 
$
474,279

 
$
399,523

Contract operations gross margin percentage
63
%
 
62
%
 
59
%
 
61
%
 
59
%
 
 
 
 
 
 
 
 
 
 
Aftermarket services revenue
$
41,550

 
$
46,612

 
$
56,779

 
$
193,946

 
$
231,905

Aftermarket services gross margin
$
6,314

 
$
8,987

 
$
8,598

 
$
34,968

 
$
40,551

Aftermarket services gross margin percentage
15
%
 
19
%
 
15
%
 
18
%
 
17
%
 
 
 
 
 
 
 
 
 
 
Selling, general, and administrative
$
30,594

 
$
29,526

 
$
21,108

 
$
117,727

 
$
101,563

 
 
 
 
 
 
 
 
 
 
Cash available for dividend
$
64,213

 
$
68,306

 
$
58,647

 
$
236,284

 
$
201,384

Cash available for dividend coverage
2.9x

 
3.1x

 
3.4x

 
2.8x

 
3.0x

 
 
 
 
 
 
 
 
 
 
Total available horsepower (at period end)
4,395

 
4,441

 
3,963

 
 
 
 
Total operating horsepower (at period end)
3,926

 
3,916

 
3,530

 
 
 
 
Horsepower utilization spot (at period end)
89
%
 
88
%
 
89
%
 
 
 
 

Conference Call Details

Archrock will host a conference call on Thursday, February 20, 2020, to discuss its fourth quarter 2019 financial and operating results and 2020 guidance. The call will begin at 12:00 p.m. Eastern Time. To listen to the call via a live webcast, please visit Archrock’s website at www.archrock.com. The call will also be available by dialing 1-877-407-0784 in the United States and Canada, or 1-201-689-8560 for international calls. Please call approximately 15 minutes prior to the scheduled start time and reference Archrock.
A replay of the conference call will be available on Archrock’s website for approximately seven days. Also, a replay may be accessed by dialing 1-844-512-2921 in the United States and Canada, or 1-412-317-6671 for international calls. The access code is 13697797.

*****

Adjusted EBITDA, a non-GAAP measure, is defined as net income (loss) excluding interest expense, income taxes, depreciation and amortization, long-lived asset impairment, restatement and other charges, debt extinguishment loss, transaction-related costs, stock-based compensation expense, indemnification (income) expense, net and other items. A reconciliation of adjusted EBITDA to net income, the most directly comparable GAAP measure, and a reconciliation of our full-year 2020 adjusted EBITDA guidance to net income appear below.

Gross margin, a non-GAAP measure, is defined as total 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, the most directly comparable GAAP measure, appears below.






Cash available for dividend, a non-GAAP measure, is defined as net income (loss) excluding interest expense, income taxes, depreciation and amortization, long-lived asset impairment, restatement and other charges, debt extinguishment loss, transaction-related costs, stock-based compensation expense and indemnification (income) expense, net less maintenance capital expenditures, other capital expenditures, cash taxes and cash interest expense. Reconciliations of cash available for dividend to net income and cash flows from operating activities, the most directly comparable GAAP measures, appear 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, with approximately 1,700 employees. 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: our ability to achieve the expected synergies and other benefits of the Elite Compression acquisition; guidance or estimates related to Archrock’s results of operations or of financial condition; fundamentals of Archrock’s industry, including the attractiveness of returns and valuation, stability of cash flows, demand dynamics and overall outlook, and Archrock’s ability to realize the benefits thereof; Archrock’s expectations regarding future economic and market conditions and trends; Archrock’s operational and financial strategies, including planned growth, coverage and leverage reduction strategies, Archrock’s ability to successfully effect those strategies and the expected results therefrom; Archrock’s financial and operational outlook; demand and growth opportunities for Archrock’s services; structural and process improvement initiatives, the expected timing thereof, Archrock’s ability to successfully effect those initiatives and the expected results therefrom; the operational and financial synergies provided by Archrock’s size; and statements regarding Archrock’s 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; the financial condition of Archrock’s customers; the failure of any customer to perform its contractual obligations; changes in safety, health, environmental and other regulations; and the effectiveness of Archrock’s 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 Archrock’s Annual Report on Form 10-K for the year ended December 31, 2018, and those set forth from time to time in Archrock’s 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 Repine
VP of Investor Relations
281-836-8360
investor.relations@archrock.com






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

 
Three Months Ended
 
Year Ended
 
December 31,
 
September 30,
 
December 31,
 
December 31,
 
December 31,
 
2019

2019

2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
 
 
Contract operations
$
204,437

 
$
198,337

 
$
176,380

 
$
771,539

 
$
672,536

Aftermarket services
41,550

 
46,612

 
56,779

 
193,946

 
231,905

Total revenue
245,987

 
244,949

 
233,159

 
965,485

 
904,441


 
 
 
 
 
 
 
 
 
Cost of sales (excluding depreciation and amortization):
 
 
 
 
 
 
 
 
 
Contract operations
76,063

 
75,941

 
71,553

 
297,260

 
273,013

Aftermarket services
35,236

 
37,625

 
48,181

 
158,978

 
191,354

Total cost of sales (excluding depreciation and amortization)
111,299

 
113,566

 
119,734

 
456,238

 
464,367

Selling, general and administrative
30,594

 
29,526

 
21,108

 
117,727

 
101,563

Depreciation and amortization
50,087

 
48,409

 
43,381

 
188,084

 
174,946

Long-lived asset impairment
25,842

 
7,097

 
9,804

 
44,663

 
28,127

Restatement and other charges

 

 
214

 
445

 
19

Interest expense
27,709

 
27,401

 
23,926

 
104,681

 
93,328

Debt extinguishment loss

 

 

 
3,653

 
2,450

Transaction-related costs
441

 
4,905

 
169

 
8,213

 
10,162

Gain on sale of assets, net
(6,372
)

(7,859
)

(2,766
)

(16,016
)

(5,674
)
Other (income) loss, net
(280
)

49


384


(661
)

(157
)
Income before income taxes
6,667

 
21,855

 
17,205

 
58,458

 
35,310

Provision for (benefit from) income taxes
(39,377
)
 
1,448

 
4,237

 
(39,145
)
 
6,150

Income from continuing operations
46,044

 
20,407

 
12,968

 
97,603

 
29,160

Loss from discontinued operations, net of tax

 

 

 
(273
)
 

Net income
46,044

 
20,407

 
12,968

 
97,330

 
29,160

Less: Net income attributable to the noncontrolling interest

 

 

 

 
(8,097
)
Net income attributable to Archrock stockholders
$
46,044

 
$
20,407

 
$
12,968

 
$
97,330

 
$
21,063

 
 
 
 
 
 
 
 
 
 
Basic and diluted net income per common share attributable to Archrock common stockholders (1)
$
0.30


$
0.14


$
0.10


$
0.70


$
0.19

 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
150,426

 
142,931

 
128,036

 
137,492

 
109,305

Diluted
150,465

 
142,965

 
128,133

 
137,528

 
109,421

——————
(1) 
Basic and diluted net income per common share attributable to Archrock common stockholders was 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 nonforfeitable 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 attributable to Archrock common stockholders.







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

 
Three Months Ended
 
Year Ended
 
December 31,
 
September 30,
 
December 31,
 
December 31,

December 31,
 
2019

2019

2018
 
2019

2018
Revenue:
 
 
 
 
 
 
 
 
 
Contract operations
$
204,437

 
$
198,337

 
$
176,380

 
$
771,539

 
$
672,536

Aftermarket services
41,550

 
46,612

 
56,779

 
193,946

 
231,905

Total revenue
$
245,987

 
$
244,949

 
$
233,159

 
$
965,485

 
$
904,441

 
 
 
 
 
 
 
 
 
 
Gross margin (1):
 
 
 
 
 
 
 
 
 
Contract operations
$
128,374

 
$
122,396

 
$
104,827

 
$
474,279

 
$
399,523

Aftermarket services
6,314

 
8,987

 
8,598

 
34,968

 
40,551

Total gross margin
$
134,688

 
$
131,383

 
$
113,425

 
$
509,247

 
$
440,074

 
 
 
 
 
 
 
 
 
 
Gross margin percentage:
 
 
 
 
 
 
 
 
 
Contract operations
63
%
 
62
%
 
59
%
 
61
%
 
59
%
Aftermarket services
15
%
 
19
%
 
15
%
 
18
%
 
17
%
Total gross margin percentage
55
%
 
54
%
 
49
%
 
53
%
 
49
%
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
$
30,594

 
29,526

 
$
21,108

 
$
117,727

 
$
101,563

% of revenue
12
%
 
12
%
 
9
%
 
12
%
 
11
%
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA (1)
$
112,512

 
$
112,133

 
$
97,557

 
$
416,505


$
352,256

% of revenue
46
%
 
46
%
 
42
%
 
43
%
 
39
%
 
 
 
 
 
 
 
 
 
 
Capital expenditures
$
81,731

 
$
68,495

 
$
77,919

 
$
385,198

 
$
319,102

Less: Proceeds from sale of property, plant and equipment
(25,287
)
 
(33,720
)
 
(9,866
)
 
(80,961
)
 
(33,927
)
Net capital expenditures
$
56,444

 
$
34,775

 
$
68,053

 
$
304,237

 
$
285,175

 
 
 
 
 
 
 
 
 
 
Total available horsepower (at period end) (2)
4,395

 
4,441

 
3,963

 
4,395

 
3,963

Total operating horsepower (at period end) (3)
3,926

 
3,916

 
3,530

 
3,926

 
3,530

Average operating horsepower
3,920

 
3,770

 
3,502

 
3,708

 
3,386

Horsepower utilization:
 
 
 
 
 
 
 
 
 
Spot (at period end)
89
%
 
88
%
 
89
%
 
89
%
 
89
%
Average
88
%
 
88
%
 
88
%
 
88
%
 
87
%
 
 
 
 
 
 
 
 
 
 
Dividend declared for the period per share
$
0.145

 
$
0.145

 
$
0.132

 
$
0.567

 
$
0.516

Dividend declared for the period to all shareholders
$
22,183

 
$
22,051

 
$
17,261

 
$
83,482

 
$
67,024

Cash available for dividend coverage (4)
2.9x

 
3.1x

 
3.4x

 
2.8x

 
3.0x

——————
(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.

 
December 31,
 
September 30,
 
December 31,
 
2019
 
2019
 
2018
Balance Sheet
 
 
 
 
 
Long-term debt (1)
$
1,842,549

 
$
1,825,475

 
$
1,529,501

Archrock stockholders’ equity
1,085,963

 
1,057,018

 
841,574

——————
(1) 
Carrying values are shown net of unamortized debt discounts and unamortized deferred financing costs.







ARCHROCK, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
(in thousands)

 
Three Months Ended
 
Year Ended
 
December 31,
 
September 30,
 
December 31,
 
December 31,

December 31,
 
2019
 
2019
 
2018
 
2019

2018
Reconciliation of Net Income to Adjusted EBITDA and Gross Margin
 
 
 
 
 
 
 
 
 
Net income
$
46,044


$
20,407

 
$
12,968

 
$
97,330

 
$
29,160

Less: Loss from discontinued operations, net of tax



 

 
(273
)
 

Income from continuing operations
46,044


20,407

 
12,968

 
97,603

 
29,160

Depreciation and amortization
50,087

 
48,409

 
43,381

 
188,084

 
174,946

Long-lived asset impairment
25,842

 
7,097

 
9,804

 
44,663


28,127

Restatement and other charges

 

 
214

 
445


19

Interest expense
27,709

 
27,401

 
23,926

 
104,681

 
93,328

Debt extinguishment loss

 

 

 
3,653

 
2,450

Transaction-related costs
441

 
4,905

 
169

 
8,213

 
10,162

Stock-based compensation expense
1,960

 
2,276

 
1,821

 
8,105

 
7,388

Indemnification (income) expense, net (1)
(194
)
 
190

 
1,037

 
203


526

Provision for (benefit from) income taxes
(39,377
)
 
1,448

 
4,237

 
(39,145
)
 
6,150

Adjusted EBITDA(2)
112,512

 
112,133

 
97,557

 
416,505

 
352,256

Selling, general and administrative
30,594

 
29,526

 
21,108

 
117,727

 
101,563

Stock-based compensation expense
(1,960
)
 
(2,276
)
 
(1,821
)
 
(8,105
)
 
(7,388
)
Indemnification income (expense), net (1)
194

 
(190
)
 
(1,037
)
 
(203
)
 
(526
)
Gain on sale of assets, net
(6,372
)
 
(7,859
)
 
(2,766
)
 
(16,016
)
 
(5,674
)
Other (income) loss, net
(280
)
 
49

 
384

 
(661
)
 
(157
)
Gross margin (2)
$
134,688

 
$
131,383

 
$
113,425

 
$
509,247

 
$
440,074

——————

(1) 
Represents net (income) 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

Year Ended
 
December 31,

September 30,
 
December 31,

December 31,
 
December 31,
 
2019

2019
 
2018

2019
 
2018
Reconciliation of Net Income to Adjusted EBITDA and Cash Available for Dividend
 
 
 
 
 
 
 
 
 
Net income
$
46,044

 
$
20,407

 
$
12,968

 
$
97,330

 
$
29,160

Loss from discontinued operations, net of tax

 

 

 
273

 

Depreciation and amortization
50,087

 
48,409

 
43,381

 
188,084

 
174,946

Long-lived asset impairment
25,842

 
7,097

 
9,804

 
44,663

 
28,127

Restatement and other charges

 

 
214

 
445

 
19

Interest expense
27,709

 
27,401

 
23,926

 
104,681

 
93,328

Debt extinguishment loss

 

 

 
3,653

 
2,450

Transaction-related costs
441

 
4,905

 
169

 
8,213

 
10,162

Stock-based compensation expense
1,960

 
2,276

 
1,821

 
8,105

 
7,388

Indemnification (income) expense, net
(194
)
 
190

 
1,037

 
203

 
526

Provision for (benefit from) income taxes
(39,377
)
 
1,448

 
4,237

 
(39,145
)
 
6,150

Adjusted EBITDA (1)
112,512

 
112,133

 
97,557

 
416,505

 
352,256

Less: Maintenance capital expenditures
(12,748
)
 
(14,145
)
 
(12,924
)
 
(58,592
)
 
(49,733
)
Less: Other capital expenditures
(10,005
)
 
(5,566
)
 
(3,975
)
 
(26,151
)
 
(17,815
)
Less: Cash tax refund
288

 
1,514

 
91

 
1,973

 
2,131

Less: Cash interest expense
(25,834
)
 
(25,630
)
 
(22,102
)
 
(97,451
)
 
(85,455
)
Cash available for dividend (2)
$
64,213

 
$
68,306

 
$
58,647

 
$
236,284

 
$
201,384

——————
(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
 
Year Ended
 
December 31,
 
September 30,
 
December 31,
 
December 31,
 
December 31,
 
2019
 
2019
 
2018
 
2019
 
2018
Reconciliation of Cash Flows from Operations to Cash Available for Dividend
 
 
 
 
 
 
 
 
 
Cash flows provided by operating activities
$
66,522

 
$
74,962

 
$
55,242

 
$
290,147

 
$
225,947

Cash flows used in discontinued operations

 
269

 

 
269

 

Inventory write-downs
(282
)
 
(170
)
 
(429
)
 
(944
)
 
(1,614
)
Provision for doubtful accounts
(1,588
)
 
(644
)
 
(133
)
 
(2,567
)
 
(1,677
)
Gain on sale of assets, net
6,372

 
7,859

 
2,780

 
16,016

 
5,674

Current income tax provision (benefit)
(110
)
 
(41
)
 
513

 
452

 
912

Cash tax refund
288

 
1,514

 
91

 
1,973

 
2,131

Amortization of operating lease ROU assets
(780
)
 
(726
)
 

 
(2,931
)
 

Amortization of contract costs
(6,496
)
 
(6,110
)
 
(4,607
)
 
(23,330
)
 
(14,939
)
Deferred revenue recognized in earnings
8,730

 
8,311

 
11,008

 
42,268

 
28,428

Restatement and other charges

 

 
214

 
445

 
19

Transaction-related costs
441

 
4,905

 
169

 
8,213

 
10,162

Indemnification (income) expense, net
(194
)
 
190

 
1,037

 
203

 
526

Changes in assets and liabilities
14,006

 
(2,625
)
 
9,410

 
(10,367
)
 
13,173

Maintenance capital expenditures
(12,748
)
 
(14,145
)
 
(12,924
)
 
(58,592
)
 
(49,733
)
Other capital expenditures
(10,005
)
 
(5,566
)
 
(3,975
)
 
(26,151
)
 
(17,815
)
Proceeds from settlement of interest rate swaps that include financing elements
57

 
323

 
251

 
1,180

 
190

Cash available for dividend (1)
$
64,213

 
$
68,306

 
$
58,647

 
$
236,284

 
$
201,384

——————
(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 FOWARD-LOOKING SUPPLEMENTAL INFORMATION
(in thousands)

 
Annual Guidance Range
 
2020
 
Low
 
High
Reconciliation of Net Income to Adjusted EBITDA and Cash Available for Dividend
 
 
 
Net income (1)
$
67,000

 
$
102,000

Depreciation and amortization
198,000

 
198,000

Interest expense
116,000

 
116,000

Stock-based compensation expense
11,000

 
11,000

Provision for income taxes
23,000

 
23,000

Adjusted EBITDA (2)
415,000

 
450,000

Less: Maintenance capital expenditures
(57,000
)
 
(63,000
)
Less: Other capital expenditures
(28,000
)
 
(32,000
)
Less: Cash tax payments
(1,000
)
 
(1,000
)
Less: Cash interest expense
(106,000
)
 
(106,000
)
Cash available for dividend (3) (4)
$
223,000

 
$
248,000

——————
(1) 
2020 annual guidance for net income does not include the impact of long-lived asset impairment because due to its nature it cannot be accurately forecasted. Long-lived asset impairment does not impact adjusted EBITDA or cash available for dividend, however it is a reconciling item between these measures and net income. Long-lived asset impairment for the years ended 2019 and 2018 was $44.7 million and $28.1 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.
(3) 
Management uses cash available for dividend as a supplemental performance measure to compute the coverage ratio of estimated cash flows to planned dividends.
(4)
A forward-looking estimate of cash provided by operating activities is not provided because certain items necessary to estimate cash provided by operating activities, including changes in assets and liabilities, are not estimable at this time. Changes in assets and liabilities were $10.4 million and $(13.2) million for the years ended 2019 and 2018, respectively.



v3.19.3.a.u2
Cover Page Document
Feb. 19, 2020
Cover page.  
Entity Central Index Key 0001389050
Amendment Flag false
Document Type 8-K
Document Period End Date Feb. 19, 2020
Entity File Number 001-33666
Entity Registrant Name ARCHROCK, INC.
Entity Incorporation, State or Country Code DE
Entity Tax Identification Number 74-3204509
Entity Address, Street 9807 Katy Freeway
Entity Address, Suite Suite 100
Entity Address, City Houston
Entity Address, State TX
Entity Address, Postal Zip Code 77024
City Area Code 281
Local Phone Number 836-8000
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of each class Common stock, $0.01 par value per share
Trading Symbol AROC
Name of exchange on which registered NYSE
Entity Emerging Growth Company false