Archrock, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Archrock provides U.S. natural gas compression through contract operations and aftermarket services.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $195.4 million | $249.7 million; down 22% |
| Gross margin | $108.3 million; 55.4% of revenue | $136.1 million; 54.5% |
| Net income (loss) | $4.2 million; $0.03 per diluted share | $(61.2) million; $(0.41) per share |
| Operating cash flow | $77.6 million | $99.1 million |
| Capital expenditures | $11.5 million | $71.9 million |
| Cash and cash equivalents | $1.9 million at March 31 | $1.1 million at December 31, 2020 |
| Long-term debt, carrying value | $1.619 billion at March 31 | $1.689 billion at December 31, 2020 |
Contract operations revenue fell 20% to $166.0 million; segment gross margin declined 18% to $104.7 million, while margin rate improved to 63% from 62%. Aftermarket services revenue fell 31% to $29.4 million; gross margin declined 53% to $3.6 million, and margin rate fell to 12% from 18%.
Operating cash flow less capital expenditures was approximately $66.0 million, compared with $27.2 million in Q1 2020. Financing cash outflow was $93.2 million, including $69.5 million of net debt repayments and $22.2 million of dividends. The company reported $414.1 million available for additional Credit Facility borrowings and compliance with its covenants.
Material changes and notable items
- Revenue decreased by $54.3 million, reflecting lower contract operations rates and horsepower, customer returns of horsepower, reduced aftermarket service and parts activity, and the prior sale of the turbocharger business.
- Net income improved from a prior-year loss, principally because Q1 2020 included a $99.8 million non-cash goodwill impairment. Q1 2021 also included $7.1 million of long-lived asset impairment and $11.0 million of net gains on asset sales.
- Archrock sold customer agreements and approximately 300 compressors representing about 40,000 horsepower in February 2021, recording a $6.0 million gain.
- In February, the company amended its revolving facility, reducing commitments from $1.25 billion to $750 million and revising leverage covenant limits. It recorded a $4.9 million write-off of financing costs, contributing to higher interest expense.
- The company established a $50 million at-the-market equity program and sold 357,148 shares for net proceeds of $3.4 million during the quarter.
Outlook, risks and contingencies
- Management expects 2021 capital expenditures of approximately $80 million to $106 million, including $30 million to $50 million for growth and $40 million to $45 million for maintenance. It expects lower spending than in 2020, particularly for growth.
- Management stated that horsepower, utilization and revenue were expected to remain below Q1 2020 and earlier periods into 2021, while rising U.S. onshore activity could provide growth prospects in the second half of 2021.
- The filing cites continuing uncertainty from COVID-19, customer spending and production levels, commodity demand, and potential further pandemic surges or variants. These factors could affect revenue, cash flows and equipment values.
- The quarterly dividend remained $0.145 per share; the board declared the same amount for payment in May 2021. Future dividends remain subject to board discretion, financial condition and credit agreements.
- Ordinary-course legal matters were described as not expected to have a material adverse effect, though outcomes cannot be assured. The filing also discusses tax audit exposures and insurance risks; no material changes to previously disclosed risk factors were reported.
Key facts for investors to verify
- Whether compression utilization and customer activity recover as management anticipates, and the effect of the February disposition on future revenue and cash flow.
- Remaining borrowing capacity, covenant headroom and the implications of the reduced $750 million revolving commitment.
- Whether operating cash flow can fund planned capital spending, debt service and dividends, particularly given the low quarter-end cash balance.
- Progress and potential dilution under the $50 million ATM program, and whether the asset-sale gains or other unusual items affect comparisons with recurring performance.
- The filing reports $311.6 million of remaining contract operations performance obligations through 2025; investors may wish to assess timing, execution and customer concentration associated with those commitments.