Archrock(US:AROC)2023-05-03 20:05Financial Data and Key Metrics Changes - In Q1 2023, net income increased to $16 million from $2 million in Q1 2022 [6] - Adjusted EBITDA for Q1 2023 was $97 million, reflecting strong underlying business performance [19] - The debt-to-EBITDA ratio improved to 4.1x from 4.4x in the previous quarter [21] Business Segment Data and Key Metrics Changes - Contract operations revenue reached $188 million in Q1 2023, up 6% sequentially [20] - Aftermarket services segment revenue was $42 million, a 25% increase year-over-year [21] - Gross margin for contract operations was 58%, consistent with the previous quarter [20] Market Data and Key Metrics Changes - The compression market is experiencing tight conditions, with fleet utilization reaching an all-time high of 94% [12] - Natural gas production in the U.S. is expected to grow, supporting demand for compression services [9] - Lead times for new equipment remain over a year due to supply chain issues [45] Company Strategy and Development Direction - The company is focused on a disciplined capital allocation strategy, including a $50 million buyback authorization [15] - Growth capital expenditures are projected between $180 million and $200 million for 2023 [16] - The company aims to achieve a leverage ratio below 4x by year-end 2023 [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the tightening compression market and expects adjusted EBITDA to trend towards the high end of the guidance range of $400 million to $430 million for 2023 [23] - The company anticipates continued strong demand for compression services driven by underinvestment in infrastructure [10] - Management highlighted the importance of maintaining pricing power in a tight market [13] Other Important Information - The company declared a quarterly dividend of $0.15 per share, representing a 6% yield [22] - Cash available for dividends totaled $46 million, leading to a dividend coverage of 2.0x [22] - The aftermarket services segment is expected to see continued growth through 2023 [14] Q&A Session Summary Question: On the buyback and market volatility - Management indicated confidence in achieving leverage targets while being opportunistic with the buyback authorization [26] Question: Fleet transformation and asset sales - Management stated that transactional activity related to fleet transformation is mostly complete, with only a few smaller asset packages remaining [28] Question: Contract mix and pricing trends - Approximately 60% of contracts are long-term, with 40% available for pricing adjustments [30] Question: Utilization rates and future potential - Utilization rates have increased since the end of Q1, with expectations of reaching around 96% [34] Question: Aftermarket services margin sustainability - Management expressed optimism about the aftermarket services segment, despite its historical volatility [39] Question: Future demand and CapEx stickiness - 90% of the 2023 CapEx budget is committed and under contract, driven by infrastructure underinvestment [42] Question: Lead times for new equipment - Lead times for new equipment remain over a year due to ongoing supply chain issues [45] Question: Outsourced versus owned compression trends - The market split remains around 70% owned and 30% outsourced, but some growth plays are trending towards more outsourced [47]