10-K: Archrock Reports Increased Revenue and Net Income in 2023 Annual Report

Sentiment:

Annual Results 21 February 2024 4:19 PM

Archrock's 2023 Form 10-K reveals a year of growth, with increased revenue and net income driven by strong demand for compression services.

Better than expectedThe company's revenue and net income increased significantly compared to the previous year.

Summary

Archrock's Form 10-K for the year ended December 31, 2023, highlights the company's performance and financial position.
The company reported revenue of $990.3 million in 2023, compared to $845.6 million in 2022.
Net income increased to $105.0 million in 2023 from $44.3 million in the previous year.
The contract operations segment saw revenue increase by 19% due to higher rates and increased operating horsepower.
Aftermarket services revenue also increased by 8% due to higher service activities and parts sales.
The company's total available horsepower was 3,759,000 as of December 31, 2023, with operating horsepower at 3,607,000.
Archrock anticipates capital expenditures between $275.0 million and $290.0 million for 2024.
The company's Board of Directors declared a quarterly dividend of $0.165 per share.
Archrock is focused on harnessing technology to drive operational efficiencies and improve profitability.
The company is subject to various environmental regulations, including the CAA, CWA, and RCRA.
Archrock faces risks related to competition, customer financial health, and regulatory changes.

Sentiment

Score: 8

Explanation: The document presents a positive outlook for Archrock, with increased revenue, net income, and a strong position in the natural gas compression services market. While risks are acknowledged, the overall tone is optimistic.

Positives

Revenue increased by 19% to $990.3 million.
Net income increased significantly to $105.0 million.
Contract operations and aftermarket services both experienced revenue growth.
The company maintains a strong safety culture, with a 2023 total recordable incident rate of 0.05.
Archrock has a diversified geographic footprint, operating in major U.S. natural gas and crude oil producing regions.
The company is focused on technology deployment to drive operational efficiencies.
Archrock has a share repurchase program allowing for up to $50.0 million of outstanding common stock to be repurchased.

Negatives

Archrock has a substantial amount of debt, with $1.6 billion in outstanding debt obligations as of December 31, 2023.
The company is exposed to risks related to fluctuations in energy prices and customer financial health.
Archrock faces significant competitive pressures in the natural gas compression services business.
The company is subject to stringent environmental regulations, which could increase compliance costs.
Archrock is vulnerable to cyber-attacks and terrorism, which could disrupt operations.

Risks

Pandemics and other public health crises may negatively affect demand for services.
An increase in inflation could have adverse effects on results of operation.
Ongoing international conflicts and tensions could negatively impact the business.
Operations entail inherent risks that may result in substantial liability.
Significant competitive pressures may cause a loss of market share.
Failure to make acquisitions on economically acceptable terms could limit future growth.
Breach of covenants in Debt Agreements could result in a default.
Inability to fund purchases of additional compression equipment could adversely impact financial results.
Vulnerability to interest rate increases due to variable rate debt obligations.
Erosion of the financial condition of customers could adversely affect the business.
Loss of any of the most significant customers would result in a decline in revenue.
Many contract operations service agreements have short initial terms and are cancelable on short notice after the initial term.
Inability to manage and grow the business effectively may be adversely affected if management or operational personnel are lost.
Dependence on particular suppliers makes the company vulnerable to product shortages and price increases.
Failure to realize the intended benefits of the process and technology transformation project could have an adverse effect on the business.
Threats of cyber-attacks or terrorism could affect the business.
Tax legislation and administrative initiatives or challenges to tax positions could adversely affect results of operations and financial condition.
Ability to use NOLs and interest expense limitation carryovers to offset future income may be limited.
Temporary pause on pending approvals of LNG exports may negatively impact the business.
New regulations, proposed regulations and proposed modifications to existing regulations under the CAA, if implemented, could result in increased compliance costs.
Failure to comply with governmental regulations may result in administrative, civil and criminal enforcement measures and changes in these regulations could increase costs or liabilities.
Climate change legislation, regulatory initiatives and stakeholder pressures could result in increased compliance costs, financial risks and potential reduction in demand for services.
Climate change may increase the frequency and severity of weather events that could result in severe personal injury, property and environmental damage, which could curtail our or our customers operations and otherwise materially adversely affect our cash flows.
Increased environmental, social and governance scrutiny and changing expectations from stakeholders may impose additional costs or additional risks.

Future Outlook

Archrock anticipates reducing capital expenditures in 2024 to support free cash flow generation after dividends, with projected capital expenditures between $275.0 million and $290.0 million.

Management Comments

Management uses a variety of financial and operating metrics to analyze our performance.
Management believes that the estimates and assumptions used are reasonable.

Industry Context

Archrock operates in the energy infrastructure sector, providing natural gas compression services essential to the production, processing, transportation, and storage of natural gas. The company's performance is closely tied to the production of U.S. oil and natural gas, particularly in basins with associated gas production. The industry is subject to environmental regulations and faces increasing scrutiny regarding emissions and climate change.

Comparison to Industry Standards

The document does not provide specific comparisons to industry standards or benchmarks.
The document mentions that Archrock is the leading provider of natural gas compression services in the U.S. in terms of total compression fleet horsepower.
The document mentions that Archrock's safety performance is industry-leading.
The document mentions that Archrock's large horsepower fleet is the largest among all outsourced compression service providers in the U.S.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Compensation Recovery Policy	Archrock adopted a Compensation Recovery Policy pursuant to the listing rules of the national securities exchange on which the Company is listed, which listing rules generally require the Company to recover reasonably promptly the amount of erroneously awarded incentive-based compensation from Officers if the Company is required to prepare a Restatement due to the noncompliance of the Company with any financial reporting requirement under securities laws.	October 2, 2023	The policy is intended to enhance the effect of any recoupment, forfeiture or similar policies in any employment agreement, bonus plan, equity-based award agreement or similar agreement.

Legal Proceedings

In the ordinary course of business, Archrock is involved in various pending or threatened legal actions.
The company believes that any ultimate liability arising from these actions will not have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

Related Party Transactions

Archrock has a customer relationship with Hilcorp and its affiliates, with revenue from Hilcorp accounting for $35.4 million in 2023.

Stakeholder Impact

Shareholders: The company's increased profitability and dividend payments are positive for shareholders.
Employees: Archrock considers its employees to be its greatest asset and offers competitive compensation and benefits packages.
Customers: Archrock aims to provide reliable and efficient compression services to meet customer needs.
Suppliers: The company has pricing agreements in place with primary suppliers and works closely with them on value engineering.
Communities: Archrock considers itself a member of every community in which it operates and supports various causes through its Archrock Cares program.

Next Steps

Archrock intends to continue capitalizing on its competitive strengths to meet customer needs.
The company plans to invest in strategically growing its business both organically and through third-party acquisitions.
Archrock will continue to focus on increasing productivity and optimizing processes.
The company will continue to monitor and comply with environmental regulations.

Key Dates

Date	Description
February 2007	Archrock was incorporated.
August 2007	Universal Compression Holdings, Inc. and Hanover Compressor Company merged into Archrock's wholly-owned subsidiaries.
November 2015	Archrock completed the spinoff of its international contract operations, international aftermarket services and global fabrication business into Exterran Corporation.
September 18, 2015	Date after which the EPA's NSPS regulations apply to sources of emissions of methane and VOC from certain processes, activities and equipment that is constructed, modified or reconstructed.
June 2016	The EPA issued final regulations amending the NSPS for the oil and natural gas source category.
March 30, 2017	Date of the Credit Agreement.
January 1, 2018	Date of the Agreement and Plan of Merger by and among Archrock, Inc., Archrock GP LLC, Archrock General Partner, L.P. and Archrock Partners, L.P.
March 21, 2019	Date of the Indenture by and among Archrock Partners, L.P., Archrock Partners Finance Corp., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee.
December 20, 2019	Date of the Indenture by and among Archrock Partners, L.P., Archrock Partners Finance Corp., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee.
April 30, 2020	Date of the Form of Compensation Letter applicable to Messrs. Childers, Aron, Ingersoll and Thode and Mme. Hildebrandt.
December 14, 2020	Date of the Purchase Agreement, by and among Archrock Partners, L.P., Archrock Partners Finance Corp., Archrock, Inc., the other guarantors party thereto and RBC Capital Markets, LLC, as representative of the initial purchasers named therein.
February 23, 2021	Date of the Equity Distribution Agreement, entered into with Wells Fargo Securities, LLC and BofA Securities, Inc., as sales agents, relating to the atthemarket offer and sale of shares of our common stock from time to time.
January 20, 2021	Date of the executive order issued by the POTUS asking the heads of all executive departments and agencies to review and take action to address any federal regulations, orders, guidance documents, policies and any similar agency actions promulgated during the prior administration.
August 2021	Hurricane Ida made landfall in Louisiana.
November 2021	Congress passed the $1 trillion legislative infrastructure package.
February 2022	Russia launched significant military action against Ukraine.
March 2022	Archrock's interest rate swaps matured.
April 2022	Archrock agreed to acquire a 25% equity interest in ECOTEC.
August 2022	Congress passed the Inflation Reduction Act.
October 2022	Enerflex, Ltd. acquired Exterran Corporation.
November 2022	A separate BoLM rule to address methane emissions on public lands was proposed.
May 16, 2023	Archrock amended and restated its Credit Facility.
April 27, 2023	Archrock's Board of Directors authorized the 2023 Share Repurchase Program.
May 2023	The U.S. Supreme Court announced a decision that sharply narrowed the definition of waters of the United States.
September 8, 2023	The EPA and the Army Corps of Engineers issued a final rule effective to implement the terms of that decision.
October 2023	Israel launched a military response against Hamas in Gaza.
October 2, 2023	Effective date of Archrock's Compensation Recovery Policy.
November 2023	Archrock agreed to serve as the lead investor in a series A financing round for Ionada.
December 2023	The EPA adopted more stringent rules with respect to methane and VOC for new and existing sources, via NSPS OOOOb and NSPS OOOOc.
December 2023	The international community's meeting known as COP28 reaffirmed commitments to the Paris Agreement.
January 25, 2024	Archrock's Board of Directors declared a quarterly dividend of $0.165 per share of common stock.
January 26, 2024	The Biden administration announced that the U.S. implemented a temporary pause on pending decisions on permits to export LNG to non-Free Trade Agreement countries.
February 6, 2024	Record date for Archrock's quarterly dividend.
February 13, 2024	Payment date for Archrock's quarterly dividend.
February 14, 2024	Closing price of Archrock's common stock was $16.26 per share; number of shares of common stock outstanding was 165,655,913 shares.
February 21, 2024	Date of the filing of the Form 10-K.
April 27, 2024	End date of the 2023 Share Repurchase Program.

Keywords

natural gas compression, contract operations, aftermarket services, revenue, net income, EBITDA, Form 10-K, financial results, Archrock, compression services

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