Archrock, Inc. annual report, FY2012

Filing summary

Registrant and period: The supplied filing is Exterran Holdings, Inc.’s Form 10-K for the fiscal year ended December 31, 2012, filed February 26, 2013—not a filing identified as Archrock, Inc. The source includes unaudited quarterly results for Q4 2012 as well as full-year results. Verify the entity before attributing these figures to Archrock.

Exterran provided natural-gas compression and production and processing services, aftermarket support, and fabricated equipment. It consolidated Exterran Partners, L.P.; public unitholders owned 69% of the Partnership at year-end.

Key financial results

Operating cash flow less capital expenditures was approximately negative $38.8 million in 2012. Year-end total assets were $4.255 billion and Exterran stockholders’ equity was $1.479 billion. The company reported $134.4 million of interest expense. The reported net loss includes substantial impairments and other unusual items; adjusted EBITDA and gross margin are non-GAAP measures and should not be viewed as substitutes for GAAP results or cash flow.

Q4 2012 snapshot

Quarterly revenue was $838.9 million; net loss attributable to Exterran stockholders was $5.7 million, or $0.09 per share. Q4 included a $46.8 million impairment associated with the planned exit from contract water treatment, as well as $16.8 million of Venezuelan asset-sale proceeds and $4.6 million of equity income from Venezuelan joint-venture asset-sale payments.

Changes versus prior year

• Revenue rose 6.6%, gross margin increased 14.5%, and adjusted EBITDA increased 17.5%. Net loss narrowed substantially from 2011, which included a $196.8 million goodwill impairment.
• All segments increased revenue year over year. North America contract operations gross margin rose to $316.1 million from $285.0 million; international contract operations margin rose to $279.3 million from $260.7 million; aftermarket services margin rose to $82.3 million from $59.6 million; and fabrication margin rose to $156.5 million from $123.2 million.
• Fabrication backlog, including installation backlog, increased to $1.066 billion from $735.3 million. Total compressor horsepower utilization rose to 84% from 79%.
• Long-lived asset impairments increased to $183.4 million from $6.1 million. Cash capital expenditures increased by $156.5 million, while debt carrying value declined by about $208 million.

Outlook, risks, and unusual items

• Management expected 2013 fabrication revenue to be similar to 2012 and planned net capital expenditures of $425–$450 million, including $105–$115 million of contract-operations maintenance capital. It expected operating cash flow and credit-facility availability to cover operations, capital spending, interest, and scheduled debt repayments through December 31, 2013, subject to market conditions.
• North American natural-gas prices remained historically low after falling to about $2.00/MMBtu in April 2012, with a reported December price of about $3.40/MMBtu. Management cited lower dry-gas activity and competition from newly added industry equipment as risks to demand and pricing.
• Debt was approximately $1.6 billion. The company reported covenant compliance at year-end; its credit agreement had leverage and interest-coverage tests and cross-default provisions. It reported $646.1 million of available capacity on its own revolver and $199.4 million of borrowing capacity available to the Partnership under its facility after covenant limitations.
• In January 2013, Exterran redeemed $143.8 million of 4.75% notes using its revolver. The filing’s year-end debt maturity schedule showed $498.8 million due in 2014 and $680.5 million in 2015, including Partnership facilities.
• Venezuelan asset sales to PDVSA Gas generated about $550 million of aggregate consideration. Approximately $305 million of principal remained payable in installments through 2016; the company had not recorded those unpaid amounts as receivables and recognized payments as received. Collection and timing are material uncertainties.
• Exterran planned to sell its Canadian contract operations and aftermarket businesses and abandon contract water treatment by the end of 2013. The Canadian disposition generated $80.2 million of 2012 impairments; water treatment exit-related impairments were $46.8 million.
• Other material risks include international political and currency exposure (including inability to repatriate Argentine pesos), customer credit and short-term North American contracts, execution and cost overruns on fixed-price projects, supplier constraints, environmental compliance costs, self-insured and offshore exposures, and impairment estimates. Ordinary-course litigation was not expected by management to be material, but outcomes were uncertain.
• The company had no material off-balance-sheet arrangements and paid no common-stock dividends. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.

Investor verification points

• Confirm the filing issuer and corporate lineage: the document names Exterran Holdings, Inc., while the request identifies Archrock, Inc.
• Review the audited statements and notes for the treatment, collectibility, and installment schedule of Venezuelan sale proceeds, and for the status and proceeds of the planned Canadian sale.
• Assess the recurring earnings and cash-generation picture excluding impairments, sale-related income, and other unusual items; reconcile non-GAAP measures to GAAP results.
• Check actual 2013 capital spending, operating cash flow, debt repayments, revolver usage, covenant headroom, and refinancing of near-term maturities against management’s stated outlook.
• Examine compressor utilization, segment margins, fabrication backlog conversion and project estimates, and exposure to low natural-gas prices and international currency or political risk.