Archrock, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 23, 2022. This is an annual filing, not a standalone fourth-quarter report. Archrock provides U.S. natural-gas compression through Contract Operations and Aftermarket Services.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $781.5 million | $875.0 million |
| Net income (loss) | $28.2 million | ($68.4 million) |
| Operating cash flow | $237.4 million | $335.3 million |
| Capital expenditures | $97.9 million | $140.3 million |
| Interest expense | $108.1 million | $105.7 million |
| Year-end cash | $1.6 million | $1.1 million |
| Long-term debt, carrying value | $1.531 billion | $1.689 billion |
Margins: Management-defined gross margin, a non-GAAP measure, was $422.5 million, or 54% of revenue, versus $497.8 million, or 57%, in 2020. Contract Operations gross margin was $403.8 million (62% of segment revenue), down from $477.8 million (65%); Aftermarket Services gross margin was $18.7 million (14%), versus $19.9 million (15%).
Liquidity and debt: The $750 million revolving Credit Facility matures in November 2024. At year-end, $502.5 million of $506.6 million undrawn capacity was available under covenant limits; $8.9 million of letters of credit were outstanding. The company reported compliance with debt covenants. Senior notes comprise $500 million due 2027 and $800 million due 2028. Fixed-rate debt fair value was $1.361 billion versus carrying value of $1.296 billion. Interest-rate swaps covering $300 million of notional debt mature in March 2022; thereafter Credit Facility borrowings are exposed to variable rates.
Dividends: Archrock paid $0.145 per share quarterly in 2021, totaling $89.3 million. The board declared another $0.145-per-share dividend in January 2022; future dividends remain discretionary.
Changes versus 2020
- Revenue declined 11%, mainly from lower Contract Operations revenue and weaker service activity in Aftermarket Services. Net income returned to positive territory, largely because 2020 included $99.8 million of goodwill impairment and higher long-lived-asset impairment and restructuring charges.
- Operating cash flow fell $97.9 million, while cash from investing activities shifted from a $85.0 million use to a $16.1 million source, aided by asset-sale proceeds and lower capital spending.
- Operating horsepower at year-end decreased to 3.247 million from 3.388 million; average utilization fell to 82% from 86%. Year-end spot utilization improved to 84% from 82%.
- Archrock sold contract operations assets and agreements in February and July 2021, receiving $60.3 million for the July sales and recording $13.0 million in gains; the February sale generated a $6.0 million gain. Total proceeds from business dispositions and other asset sales were $112.9 million.
Outlook, commentary, and risks
- Management anticipated rising compression demand in 2022 as U.S. production recovered. The EIA outlook cited in the filing forecast 2022 increases of 3% in dry gas production and 7% in crude oil production, with further increases in 2023. These are third-party forecasts, not company guidance.
- Archrock planned approximately $213 million–$235 million of 2022 capital expenditures, including about $150 million for growth and $55 million–$75 million for maintenance, reflecting expected higher demand.
- Major risks include customer activity and commodity-market volatility, contract renewals and customer concentration, competition, supplier and labor availability, high debt and covenant restrictions, and the possibility of higher borrowing costs after swaps mature. The five largest customers represented 31% of revenue; no one customer accounted for 10% or more.
- Environmental and climate rules—particularly prospective methane requirements—could increase costs or affect demand. The company said the impact of future rule changes was not yet predictable. COVID-19, supply-chain constraints and customer maintenance deferrals also remained uncertainties.
- Hurricane Ida disrupted Louisiana operations and damaged equipment. Archrock recorded $2.8 million of insurance recovery for property damage; its business-interruption claim remained in process, with recovery not yet estimable.
- Other notable items: $21.4 million of 2021 long-lived and other asset impairment, primarily tied to retiring 230 idle compressors; $2.9 million of restructuring charges; and $30.3 million net gains on asset sales. The 2020 comparison included $99.8 million of goodwill impairment. Management and the auditor reported effective internal controls; the financial-statement audit opinion was unqualified.
Key facts for investors to verify
- Whether utilization, revenue, and segment gross margins recover as production and customer spending improve.
- Whether planned 2022 capital expenditures generate sufficient returns and are funded without weakening liquidity or leverage.
- Available borrowing capacity and covenant headroom under the Credit Facility, particularly as interest-rate swaps expire in March 2022.
- The durability of the quarterly dividend relative to operating cash flow, debt service, and investment needs.
- The final outcome and timing of the Hurricane Ida business-interruption claim, and the cost implications of evolving methane and other environmental rules.