Archrock, Inc. · NYSE:AROC
Archrock — Barclays CEO Energy-Power Conference 2021
41 slides from Archrock's conference presentation, Sep 8, 2021
Slide 1: Archrock, Inc. Barclays CEO Energy-Power Conference
ARCHROCK, INC. BARCLAYS CEO ENERGY-POWER CONFERENCE SEPTEMBER 8, 2021 ARCHROCK, INC. (NYSE:AROC)
Slide 2: Forward-Looking Statements
Forward-Looking Statements All statements in this presentation (and oral statements made regarding the subjects of this presentation) 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
Slide 3: Archrock – Company Overview
Archrock – Company Overview Returns oriented energy infrastructure company Natural gas compression C-Corp based in Houston, Texas • NYSE: AROC Compression is a must-run service for gas transportation • Market Cap: $1.2 billion(2) Largest outsourced compression provider in U.S.(1) • Enterprise
Slide 4: An Attractive Energy Infrastructure Investment
An Attractive Energy Infrastructure Investment Archrock Investment Highlights Structural, Midstream / Resilience Long-Term Solid Financial Proactive Large HP Focus Through Cycles Demand Drivers Position Leadership 4 ARCHROCK, INC. (NYSE:AROC)
Slide 5: Compression – What Do We Do?
Compression 101 – What Do We Do? Compression increases pressure within a pipeline to transport natural gas A Must-Run Service Equipment that moves natural gas through infrastructure systems to consuming Benefits to customer of outsourcing markets Compression also used to provide enhanced Leverag
Slide 6: Archrock's Focus on Midstream
Archrock’s Focus on Midstream Our midstream focus results in greater stability UPSTREAM MIDSTREAM DOWNSTREAM Large Pipeline/ Drilling Completions Gathering Processing Refining Marketing Storage Archrock’s Compression Focus We provide compression services primarily for midstream applications Characte
Slide 7: Enhancing The Earnings Power of Our Fleet
Enhancing The Earnings Power of Our Fleet Consistent fleet high-grading and operational efficiency gains Fleet 35% Contract Operations Gross Margin(1) Standardization Reduction in unit configurations since 2017 65% Strategic Asset ~430,000 61% 61.5% Sales Primarily small HP since 2019 59% 57% Large
Slide 8: Contract Operations Customer Base
Contract Operations Customer Base Strong relationships with top-tier energy companies Major Customers Revenue ~42% Diversification % of revenue from top 10 customers(1) Long-term ~15 years Relationships Avg. relationship length with top 10 customers(2) High 6 of 10 Top 10 customers with Quality inve
Slide 9: Aftermarket Services Capabilities
Aftermarket Services Capabilities Opportunities to service customer-owned compressors Ability to serve the entire U.S. compression market Margin contribution from customers with their own compression solutions Minimal capital requirements, enhancing overall returns Leverages existing infrast
Slide 10: U.S. Natural Gas Supply
U.S. Natural Gas Supply Production growth expected to resume by year end 2021 U.S. gas Bcf/d(1) 53 51 55 66 73 91 90 106 The U.S. experienced over 25% growth in 2000 2004 2008 2012 2016 2020 2021E 2025E U.S. natural gas production from 2016- 120 2019 Shale gas grew to ~65% of total U.S. natural
Slide 11: Natural Gas' Critical Role in a Greener Economy
Natural Gas’ Critical Role in a Greener Economy Natural gas is abundant, reliable and cleaner-burning U.S. Natural Gas Production vs. CO2 Emissions 6500 37000 U.S. CO2 emissions reductions driven by 32000 coal to natural gas switching for electricity million metric tons 6000 generation billion cub
Slide 12: Archrock: A Responsible Company
Archrock: A Responsible Company Making the difference where it matters ENVIRONMENTAL SOCIAL GOVERNANCE • Dedicated focus on air • Full range of employee • 7 of 9 directors are quality and health benefits independent • Continuous fleet efficiency • Extensive training and • 1 non-independent director
Slide 13: Reducing Our Emissions
Reducing Our Emissions Fleet strategy drives environmental improvements Improved Compression Engine Efficiency NOx Emissions Trend 100% 1.60 1.40 80% 1.20 Average NOx (g/hp-hr) % of Total Operating HP 1.00 60% 0.80 40% 0.60 0.40 20% 0.20 0% 0.00 2017 2018 2019 2020 <=0.5g Nox >0.5g NOx and <=1.0g No
Slide 14: Solid Profitability Through Cycles
Solid Profitability Through Cycles A resilient business model tied to production, not commodity prices Adjusted EBITDA margin (%)(1) 35% 38% 41% 35% 39% 43% 47% Oil Gas $/bbl $/MMBtu $120 $6 $100 $5 Track record of generating attractive EBITDA margins $80 $4 Financial performance tied to product
Slide 15: Financial & Operational Stabilization
Financial & Operational Stabilization Maintaining strong profitability and fleet utilization Revenue ($MM) Gross Margin(1)% Contract Operations Aftermarket Services 245 246 250 236 238 Contract Operations AMS Total 220 47 42 43 206 66% 66% 65% 52 199 195 196 62% 62% 63% 62% 63% 63% 54 32 59% 30 31 2
Slide 16: Continued Free Cash Generation Expected in 2021
Continued Free Cash Generation Expected in 2021 De-emphasizing growth at this point of the cycle Completion of 3-year growth strategy supports free cash flow generation in 2020 and again in 2021 Meaningfully reduced capital spending as existing compression equipment capacity sufficient to meet c
Slide 17: Reliable and Competitive Dividend
Reliable and Competitive Dividend Prioritizing shareholder returns through the downturn Full Year Cash Available for Dividend Coverage(1) Relative resilience and stability of cash flows 3.0x 2.9x support continued return of excess cash to 2.8x 2.8x shareholders 1.9x 2018 2019 2020 1Q21 2Q21 7.9% D
Slide 18: Executing on Balance Sheet Goals
Executing on Balance Sheet Goals Reducing leverage to strengthen balance sheet A B • Debt repayment in 2021 will partially offset Achieved leverage reduction via Adjusted EBITDA declines consistent growth in Adjusted EBITDA • Targeting 3.5-4.0x leverage ratio Covenant: 5.75x 5.2x 5.0x A 4.9x 4.7x 4.
Slide 19: Top-Tier Metrics Vs. Compression Peers
Top-Tier Metrics Vs. Compression Peers A unique combination of attractive attributes and valuation Dividend Yield(1) Leverage Ratio(2) Cash Available for EV/EBITDA(3) (4) Dividend Coverage(2) 13.7% 6.5x 9.7x 13.3x 5.0x 7.9x 7.5x 4.1x 7.5% 3.0% 1.9x 1.0x AROC Peer A Peer B AROC Peer A Peer B AROC Pee
Slide 20: Key Takeaways
Key Takeaways We are the leader in U.S. natural gas compression Structural, Midstream / Resilience Long-Term Solid Financial Proactive Large HP Focus Through Cycles Demand Drivers Position Leadership 20 ARCHROCK, INC. (NYSE:AROC)
Slide 21: Appendix
APPENDIX ARCHROCK, INC. (NYSE:AROC)
Slide 22: An Attractive Energy Infrastructure Investment
An Attractive Energy Infrastructure Investment Archrock Investment Highlights • Gathering focus; a leading provider of large HP, 80% of fleet(1) Midstream / • Compression is a must-run service for gas transportation Large HP Focus • Attractive, long-term & diversified customer relationships Resilien
Slide 23: Our Rich Company Legacy
Our Rich Company Legacy Successful 60+ year company history with proven success over time South Coast Gas 1950’s 1990 – 2006 2007 – 2014 2015 – Current South Coast Gas Hanover Compressor Exterran formed by merger Archrock is the renamed Compression established founded (1990) / IPO of Hanover
Slide 24: The Leader in U.S. Natural Gas Compression
The Leader in U.S. Natural Gas Compression Leading contract compression position supplemented by AMS capabilities Total Compression Market Outsourced Owned ~30% of market ~70% of market Contract Operations(1) Aftermarket Services (AMS) 0 1,000 2,000 3,000 4,000 AROC 3,295 Category 2 2,913 2,500 Cate
Slide 25: A Market Leader in Large Horsepower
A Market Leader in Large Horsepower Leveraging the growing industry trend towards larger HP units 20% Small 80% Large HP HP Fleet Allocation(1) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Drivers of Large HP Demand Drilling Efficiency High probability drilling programs allow for efficient infrastr
Slide 26: Diversified Platform Across Key Shale Basins
Diversified Platform Across Key Shale Basins Stability and growth opportunity across U.S. production basins Marcellus / Utica Material presence and scale Niobrara in all major U.S. shale production basins Largest U.S. provider of SCOOP / STACK compression services by fleet size Barnett Regiona
Slide 27: Long-Term Secular Natural Gas Demand Drivers
Long-Term Secular Natural Gas Demand Drivers Robust demand drivers led by natural gas export opportunities Bcf/d U.S. Natural Gas Demand Growth(1) 105 3 -4 LNG Exports 2 99 100 5 95 93 90 85 80 Residential & 2020 LNG Exports Net Pipeline Industrial Other 2025 Commercial Exports Domestic Demand Bcf/d
Slide 28: Recent Financial Highlights
Recent Financial Highlights Solid performance in 2Q 2021 In 000s, except dividend coverage and 2Q 2020 1Q 2021 2Q 2021 horsepower utilization Revenue $220,316 $195,431 $195,615 Net income (loss) $(30,381) $4,169 $8,752 Adjusted EBITDA(1) $100,509 $97,914 $87,045 Cash available for dividend(1) $58,03
Slide 29: Solid Balance Sheet Position
Solid Balance Sheet Position Manageable leverage and no near-term debt maturities Balance Sheet & Funding Overview Debt Maturity Schedule(1) ($MM) No near-term debt maturities A Revolving credit facility due November 2024 Expect more than $150 million debt reduction C 6.875% senior in 2021 B not
Slide 30: Updated 2021 Financial Guidance
Updated 2021 Financial Guidance Forecast reflects business resiliency and additional capital discipline 2021 Guidance(1) 2020 ($MM) ($MM) Net Income (Loss): $(68) $19 – $34 Adjusted EBITDA: (2) $415 $340 – $355 Selling, General & Administrative: $105 $108 – $110 Cash Available for Dividend: (2) $254
Slide 31: Management Overview
Management Overview Highly qualified and experienced management team D. Bradley Childers, President and Chief Executive Officer Brad Childers is President, Chief Executive Officer and a director of Archrock, Inc. Previously, he served as Chairman of the Board of Archrock GP LLC, the managing general
Slide 32: Archrock Addendum I-A
Archrock Addendum I-A Archrock, Inc. Gross margin, a non-GAAP measure, is defined as total revenue less cost of sales (excluding depreciation and amortization). Gross margin percentage is defined as gross margin divided by revenue. Adjusted EBITDA, a non-GAAP measure, is defined as net income (loss)
Slide 33: Archrock Addendum I-B
Archrock Addendum I-B ($ in thousands) Q1-17 Q2-17 Q3-17 Q4-17 2017 Q1-18 Q2-18 Q3-18 Q4-18 2018 Q1-19 Q2-19 Q3-19 Q4-19 2019 Q1-20 Q2-20 Q3-20 Q4-20 2020 Q1-21 Q2-21 Revenue Contract Operations $149,984 $151,114 $153,524 $156,299 $610,921 $161,197 $165,450 $169,509 $176,380 $672,536 $182,507 $186,2
Slide 34: Archrock Addendum I-C
Archrock Addendum I-C Reconciliation of Net Income (Loss) to Gross Margin (in thousands) Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Net income (loss) ($14,013) ($4,036) ($12,683) $49,142 $2,069 $4,149 $9,974 $12,968 $19,456 $11,423 $20
Slide 35: Archrock Addendum I-D
Archrock Addendum I-D Reconciliation of Net Income (Loss) to Adjusted EBITDA ($ in thousands) Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Net income (loss) ($14,013) ($4,036) ($12,683) $49,142 $2,069 $4,149 $9,974 $12,968 $19,456 $11,42
Slide 36: Archrock Addendum I-E
Archrock Addendum I-E Reconciliation of Net Income (Loss) to Adjusted EBITDA ($ in thousands) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Net income (loss) ($355,308) ($37,696) $126,606 $88,661 ($125,697) ($65,243) $18,410 $29,160 $97,330 ($68,445) (Income) loss from discontinued operations, n
Slide 37: Archrock Addendum I-F
Archrock Addendum I-F Reconciliation of Net Income (Loss) to Adjusted EBITDA and Cash Available for Dividend ($ in thousands) Q1-18 Q2-18 Q3-18 Q4-18 2018 Q1-19 Q2-19 Q3-19 Q4-19 2019 Q1-20 Q2-20 Q3-20 Q4-20 2020 Q1-21 Q2-21 . Net income (loss) $2,069 $4,149 $9,974 $12,968 $29,160 $19,456 $11,423 $2
Slide 38: Archrock Addendum I-F (cont.)
Archrock Addendum I-F (cont.) Reconciliation of Cash Flows from Operating Activities to Cash Available for Dividend ($ in thousands) Q1-18 Q2-18 Q3-18 Q4-18 2018 Q1-19 Q2-19 Q3-19 Q4-19 2019 Q1-20 Q2-20 Q3-20 Q4-20 2020 Q1-21 Q2-21 Cash flows from operating activities $62,455 $42,760 $65,490 $55,242
Slide 39: 2021 Guidance
2021 Guidance Full Year 2021 Guidance (1) $ in thousands Low High Net income (2) $19,000 $34,000 Adjusted EBITDA (3) (4) 340,000 355,000 Cash available for dividend (4) (5) 193,000 202,000 Segment Contract operations revenue $635,000 $645,000 Contract operations gross margin percentage 61.0% 62.0% A
Slide 40: Archrock Addendum I-G
Archrock Addendum I-G Reconciliation of Net Income to Adjusted EBITDA and Cash Available for Dividend Full-Year 2021 Guidance (1) Low High Net income (2) $34,000 $74,000 Depreciation and amortization 183,000 183,000 Interest expense 107,000 107,000 Stock-based compensation expense 10,000 10,000 Bene
Slide 41: Contact Us
CONTACT US Investor Relations Megan Repine, VP of Investor Relations (281) 836-8360 investor.relations@archrock.com www.archrock.com/aroc Corporate Headquarters 9807 Katy Freeway Suite 100 Houston, TX 77024 ARCHROCK, INC. (NYSE:AROC)