EX-99.1 2 a201810kex991aroc.htm EXHIBIT 99.1 Exhibit


archrocklogoa06.jpg


Archrock Reports Fourth Quarter and Full Year 2018 Results and Provides 2019 Guidance

HOUSTON, February 19, 2019 – Archrock, Inc. (NYSE: AROC) (“Archrock” or the “Company”) today reported results for the fourth quarter and full year 2018 and provided 2019 financial guidance.

Fourth Quarter and Full Year 2018 Results

•
Net income for the fourth quarter of 2018 was $13.0 million compared to net income of $49.1 million in the fourth quarter of 2017. Net income for 2018 was $29.2 million, up 58% compared to 2017. The fourth quarter and full year 2017 results include an income tax benefit of $53.4 million from the Tax Cuts and Jobs Act, and the fourth quarter and full year 2018 results include a net benefit from tax audits and settlements of $9.5 million.
•
Adjusted EBITDA (a non-GAAP measure defined below) for the fourth quarter of 2018 was $97.6 million, up 31% compared to the fourth quarter of 2017. Adjusted EBITDA was $352.3 million for 2018, up 26% compared to 2017. Results for the fourth quarter and full year 2018 also include the net benefit from tax audits and settlements of $9.5 million.
•
Total operating horsepower increased by 65,000 for the fourth quarter of 2018, resulting in a 2018 total operating horsepower increase of 277,000, up 9% as compared to 2017 exit operating horsepower.
•
Previously declared quarterly dividend of $0.132 per common share for the fourth quarter of 2018 was 10% higher compared to the fourth quarter of 2017.
•
Dividend coverage was 3.00x for 2018; the leverage ratio was 4.4x at year end.

Management Commentary and Outlook

“Solid fourth quarter performance capped off an outstanding year,” said Brad Childers, Archrock’s President and Chief Executive Officer. “We grew our operating horsepower by 65,000, delivered strong operational execution and benefited from pricing momentum, which contributed to attractive adjusted EBITDA growth over last year’s fourth quarter. Compression market fundamentals during the fourth quarter remained constructive, driving strong growth across our operational footprint.”

“2018 was an exciting and successful year,” continued Childers. “We completed the merger with Archrock Partners, delivered 277,000 operating horsepower growth, achieved strong safety performance, maintained a high utilization rate on our fleet, increased adjusted EBITDA by 26% and advanced our leverage reduction.”

“U.S. natural gas production is expected to continue to grow in 2019 and beyond, driven by strong secular market demand in the U.S. and globally, especially in the form of LNG. This increased demand for natural gas is being readily met from the abundant and affordable U.S. supply from cost effective dry natural gas plays and associated gas produced with oil in several of Archrock’s key markets, including the Permian, Niobrara and SCOOP/STACK.”

“Driven by strong market fundamentals, the outlook for natural gas production growth in 2019 is translating directly into significant customer commitments, positioning Archrock for another year of strategically managed growth. We remain committed to our capital allocation policy of selectively investing in high-return assets and decreasing leverage below 4.0x in 2020, enabling us to increase our dividend 10% to 15% annually through 2020,” concluded Childers.





Contract Operations

For the fourth quarter of 2018, contract operations segment revenue totaled $176.4 million, reflecting an increase of 13% compared to $156.3 million in the fourth quarter of 2017. Gross margin was $104.8 million, up $13.2 million or 14% from the fourth quarter of 2017, reflecting a gross margin percentage of 59.4% compared to 58.6% in the prior year quarter. Total operating horsepower at the end of the fourth quarter of 2018 was 3.5 million, up from 3.3 million at the end of the prior year quarter, reflecting a 9% increase. Utilization at the end of the fourth quarter of 2018 was 89.1% compared to 84.6% at the end of the fourth quarter of 2017.

For the full year 2018, contract operations segment revenue totaled $672.5 million, reflecting an increase of 10% compared to $610.9 million for the full year 2017. Gross margin was $399.5 million, up $51.6 million or 15% as compared to the prior year, reflecting a gross margin percentage of 59.4% compared to 56.9% in the prior year.

Aftermarket Services

For the fourth quarter of 2018, aftermarket services segment revenue totaled $56.8 million, reflecting an increase of 8% compared to $52.6 million in the fourth quarter of 2017. Gross margin was $8.6 million, essentially unchanged from the fourth quarter of 2017, reflecting a gross margin percentage of 15.1% and down compared to 16.2% in the prior year quarter as a result of higher costs in the fourth quarter of 2018.

For the full year 2018, aftermarket services segment revenue totaled $231.9 million for 2018, reflecting an increase of 26% compared to $183.7 million in 2017. Gross margin was $40.6 million, up $12.7 million or 46% from 2017, reflecting a gross margin percentage of 17.5% compared to 15.1% in the prior year.

Balance Sheet

Total consolidated debt as of December 31, 2018 was $1.53 billion compared to $1.52 billion as of September 30, 2018. The Company’s leverage ratio as of December 31, 2018 was 4.4x compared to 4.7x as of September 30, 2018. Our available liquidity as of December 31, 2018 was $391.6 million compared to $324.0 million as of September 30, 2018.

During the quarter, we received an $18.7 million payment made to us by Exterran in connection with the spin-off, involving proceeds it received from PDVSA relating to the sale of Exterran’s previously nationalized Venezuelan assets in 2012.  This payment did not affect our income statement.

Quarterly Dividend

Archrock’s Board of Directors recently declared a quarterly dividend of $0.132 per share of common stock, or $0.528 per share on an annualized basis, unchanged sequentially and up 10% as compared to the fourth quarter 2017. Dividend coverage in the fourth quarter of 2018 was 3.40x, and included a net benefit of $9.5 million from tax audits and settlements. The dividend was paid on February 14, 2019 to stockholders of record at the close of business on February 8, 2019.





2019 Annual Guidance

Archrock is providing annual guidance as follows (in thousands, except percentages and ratios):


 
Full-Year 2019 Guidance
 
 
Low
 
High
 
 
 
 
 
Net income (1) 
 
$
73,000

 
$
103,000

Adjusted EBITDA (2)
 
370,000

 
400,000

Cash available for dividend (3) (4)
 
174,000

 
194,000

 
 
 
 
 
Segment
 
 
 
 
Contract operations revenue
 
$
730,000

 
$
760,000

Contract operations gross margin percentage
 
60
%
 
62
%
Aftermarket services revenue
 
$
225,000

 
$
255,000

Aftermarket services gross margin percentage
 
17
%
 
19
%
 
 
 
 
 
Selling, general and administrative
 
$
118,000

 
$
124,000

 
 
 
 
 
Capital expenditures
 

 
 
Growth capital expenditures
 
$
250,000

 
$
300,000

Maintenance capital expenditures
 
57,000

 
63,000

Other capital expenditures
 
43,000

 
47,000

 
 
 
 
 
Dividend growth
 
10-15% annually through 2020
Leverage
 
Below 4.0x in 2020
Cash available for dividend coverage
 
Above 2.0x through 2020
 
 
 
 
 

(1)
2019 annual guidance for net income does not include the impact of long-lived asset impairment because due to its nature it cannot be accurately forecasted. Long-lived asset impairment does not impact adjusted EBITDA or cash available for dividend, however it is a reconciling item between these measures and net income. Long-lived asset impairment for the years ended 2018 and 2017 was $28.1 million and $29.1 million, respectively.

(2)  
Management believes adjusted EBITDA provides useful information to investors because this non-GAAP measure, when viewed with our GAAP results and accompanying reconciliations, provides a more complete understanding of our performance than GAAP results alone. Management uses this non-GAAP measure as a supplemental measure to review current period operating performance, comparability measures and performance measures for period-to-period comparisons.

(3) 
Management uses cash available for dividend as a supplemental performance measure. Using this metric, management can quickly compute the coverage ratio of estimated cash flows to planned dividends.

(4)  
A forward-looking estimate of cash provided by operating activities is not provided because certain items necessary to estimate cash provided by operating activities, including changes in assets and liabilities, are not estimable at this time. Changes in assets and liabilities were $(13.2) million and $2.6 million for the years ended 2018 and 2017, respectively.








Summary Metrics
(in thousands, except percentages and ratios)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Year Ended
 
December 31,
 
September 30,
 
December 31,
 
December 31,
 
December 31,
 
2018
 
2018
 
2017
 
2018
 
2017
Net income
$
12,968

 
$
9,974

 
$
49,142

 
$
29,160

 
$
18,410

Net income attributable to Archrock stockholders
$
12,968

 
$
9,974

 
$
47,560

 
$
21,063

 
$
18,953

Adjusted EBITDA
$
97,557

 
$
89,466

 
$
74,278

 
$
352,256

 
$
280,377

 
 
 
 
 
 
 
 
 
 
Contract operations revenue
$
176,380

 
$
169,509

 
$
156,299

 
$
672,536

 
$
610,921

Contract operations gross margin
$
104,827

 
$
100,453

 
$
91,585

 
$
399,523

 
$
347,916

Contract operations gross margin percentage
59
%
 
59
%
 
59
%
 
59
%
 
57
%
 
 
 
 
 
 
 
 
 
 
Aftermarket services revenue
$
56,779

 
$
62,863

 
$
52,636

 
$
231,905

 
$
183,734

Aftermarket services gross margin
$
8,598

 
$
12,820

 
$
8,546

 
$
40,551

 
$
27,817

Aftermarket services gross margin percentage
15
%
 
20
%
 
16
%
 
17
%
 
15
%
 
 
 
 
 
 
 
 
 
 
Selling, general, and administrative
$
21,108

 
$
26,298

 
$
29,660

 
$
101,563

 
$
111,483

 
 
 
 
 
 
 
 
 
 
Cash available for dividend (1)
$
58,647

 
$
50,370

 
N/A

 
$
201,384

 
N/A

Cash available for dividend coverage (1)
3.40x

 
2.95x

 
N/A

 
3.00x

 
N/A

 
 
 
 
 
 
 
 
 
 
 
December 31,
 
September 30,
 
December 31,
 
 
 
 
 
2018
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total available horsepower
3,963

 
3,937

 
3,847

 
 
 
 
Total operating horsepower
3,530

 
3,465

 
3,253

 
 
 
 
Horsepower utilization spot
89
%
 
88
%
 
85
%
 
 
 
 


(1)
Concurrent with the closing of the merger of Archrock, Inc. and Archrock Partners, L.P., the definition of cash available for dividend was changed. As such, historical periods are not presented.


Conference Call Details

Archrock will host a conference call on Wednesday, February 20, 2019, to discuss their fourth quarter 2019 financial results. The call will begin at 11:00 a.m. Eastern Time.

To listen to the call via a live webcast, please visit Archrock’s website at www.archrock.com. The call will also be available by dialing 1-888-517-2458 in the United States and Canada or +1-847-413-3538 for international calls. Please call approximately 15 minutes prior to the scheduled start time and reference Archrock conference call number 8552 120#.

A replay of the conference call will be available on Archrock’s website for approximately seven days. Also, a replay may be accessed by dialing 1-888-843-7419 in the United States and Canada, or +1-630-652-3042 for international calls. The access code is 8552 120#.

*****





Adjusted EBITDA, a non-GAAP measure, is defined as net income (loss) excluding loss from discontinued operations, net of tax, income taxes, interest expense, depreciation and amortization, long-lived asset impairment, restatement and other charges, restructuring and other charges, corporate office relocation costs, debt extinguishment loss, merger-related costs, indemnification (income) expense, net, non-cash stock-based compensation expense and other items. A reconciliation of adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, appears below.

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. A reconciliation of gross margin to net income (loss), the most directly comparable GAAP measure, appears below.

Cash available for dividend, a non-GAAP measure, is defined as net income (loss) excluding income taxes, interest expense, depreciation and amortization, long-lived asset impairment, restatement and other charges, debt extinguishment loss, merger-related costs, indemnification (income) expense, net and non-cash stock-based compensation expense less maintenance capital expenditures, other capital expenditures, cash taxes and cash interest expense. Reconciliations of cash available for dividend to net income (loss) and cash flows from operating activities, the most directly comparable GAAP measures, appear below.

About Archrock

Archrock is an energy infrastructure company with a pure-play focus on midstream natural gas compression.  Archrock is the leading provider of natural gas compression services to customers in the oil and natural gas industry throughout the U.S. and a leading supplier of aftermarket services to customers that own compression equipment. Archrock is headquartered in Houston, Texas, with approximately 1,700 employees. For more information, please visit www.archrock.com.

Forward-Looking Statements

All statements in this release (and oral statements made regarding the subjects of this release) 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 statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and factors that could cause actual results to differ materially from such statements, many of which are outside the control of Archrock, Inc. Forward-looking information includes, but is not limited to statements regarding: guidance or estimates related to Archrock’s results of operations or of financial condition; fundamentals of Archrock’s industry, including the attractiveness of returns and valuation, stability of cash flows, demand dynamics and overall outlook, and Archrock’s ability to realize the benefits thereof; Archrock’s expectations regarding future economic and market conditions and trends; Archrock’s operational and financial strategies, including planned growth strategies, Archrock’s ability to successfully effect those strategies and the expected results therefrom; Archrock’s financial and operational outlook; demand and growth opportunities for Archrock’s services; structural and process improvement initiatives, the expected timing thereof, Archrock’s ability to successfully effect those initiatives and the expected results therefrom; the operational and financial synergies provided by Archrock’s size; and statements regarding Archrock’s dividend policy.

While Archrock believes that the assumptions concerning future events are reasonable, it cautions that there are inherent difficulties in predicting certain important factors that could impact the future performance or results of its business. The factors that could cause results to differ materially from those indicated by such forward-looking statements include, but are not limited to: changes in customer, employee or supplier relationships; local, regional and national economic and financial market conditions and the impact they may have on Archrock and its customers; changes in tax laws; conditions in the oil and gas industry, including a sustained decrease in the level of supply or demand for oil or natural gas or a sustained decrease in the price of oil or natural gas; changes in economic conditions in key operating markets; the financial condition of Archrock’s customers; the failure of any customer to perform its contractual obligations; changes in safety, health, environmental and other regulations; the effectiveness of Archrock’s control environment, including the identification of additional control deficiencies; the results of reviews, investigations or other preceding by government authorities; the results of any shareholder actions relating to Archrock’s restatement of financial statements that may be filed; and the potential additional costs related to Archrock’s restatement, cost sharing with Exterran Corporation and addressing reviews, investigation or other proceedings by government authorities or shareholder actions.





These forward-looking statements are also affected by the risk factors, forward-looking statements and challenges and uncertainties described in Archrock’s Annual Report on Form 10-K for the year ended December 31, 2017, and those set forth from time to time in Archrock’s filings with the Securities and Exchange Commission, which are available at www.archrock.com. Except as required by law, Archrock expressly disclaims any intention or obligation to revise or update any forward-looking statements whether as a result of new information, future events or otherwise.


SOURCE: Archrock, Inc.

For information, contact:

Paul Burkhart
Treasurer & VP of Investor Relations
281-836-8688
investor.relations@archrock.com





ARCHROCK, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
(in thousands, except per share amounts)

 
Three Months Ended
 
Year Ended
 
December 31,
 
September 30,
 
December 31,
 
December 31,
 
December 31,
 
2018

2018

2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
 
 
Contract operations
$
176,380

 
$
169,509

 
$
156,299

 
$
672,536

 
$
610,921

Aftermarket services
56,779

 
62,863

 
52,636

 
231,905

 
183,734

Total revenue
233,159

 
232,372

 
208,935

 
904,441

 
794,655


 
 
 
 
 
 
 
 
 
Cost of sales (excluding depreciation and amortization):
 
 
 
 
 
 
 
 
 
Contract operations
71,553

 
69,056

 
64,714

 
273,013

 
263,005

Aftermarket services
48,181

 
50,043

 
44,090

 
191,354

 
155,917

Total cost of sales (excluding depreciation and amortization)
119,734

 
119,099

 
108,804

 
464,367

 
418,922

Selling, general and administrative
21,108

 
26,298

 
29,660

 
101,563

 
111,483

Depreciation and amortization
43,381

 
43,779

 
46,080

 
174,946

 
188,563

Long-lived asset impairment
9,804

 
6,660

 
8,284

 
28,127

 
29,142

Restatement and other charges
214

 
396

 
1,083

 
19

 
4,370

Restructuring and other charges
—

 
—

 
141

 
—

 
1,386

Interest expense
23,926

 
23,518

 
21,943

 
93,328

 
88,760

Debt extinguishment loss
—

 
—

 
—

 
2,450

 
291

Merger-related costs
169

 
182

 
275

 
10,162

 
275

Other income, net
(2,382
)
 
(660
)
 
(1,446
)
 
(5,831
)
 
(5,918
)
Income (loss) before income taxes
17,205

 
13,100

 
(5,889
)
 
35,310

 
(42,619
)
Provision for (benefit from) income taxes
4,237

 
3,126

 
(55,031
)
 
6,150

 
(61,083
)
Income from continuing operations
12,968

 
9,974

 
49,142

 
29,160

 
18,464

Loss from discontinued operations, net of tax
—

 
—

 
—

 
—

 
(54
)
Net income
12,968

 
9,974

 
49,142

 
29,160

 
18,410

Less: Net (income) loss attributable to the noncontrolling interest
—

 
—

 
(1,582
)
 
(8,097
)
 
543

Net income attributable to Archrock stockholders
$
12,968

 
$
9,974

 
$
47,560

 
$
21,063

 
$
18,953

 
 
 
 
 
 
 
 
 
 
Net income attributable to Archrock common stockholders per common share: Basic and diluted(1)
$
0.10


$
0.08


$
0.67


$
0.19


$
0.26

 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding used in income per common share:
 
 
 
 
 
 
 
 
 
Basic
128,036

 
127,842

 
69,709

 
109,305

 
69,552

Diluted
128,133

 
127,955

 
69,809

 
109,421

 
69,664

——————
(1) 
Basic and diluted net income attributable to Archrock common stockholders per common share was computed using the two-class method to determine the net income per share for each class of common stock and participating security (restricted stock and stock-settled restricted stock units that have nonforfeitable rights to receive dividends or dividend equivalents) according to dividends declared and participation rights in undistributed earnings. Accordingly, we have excluded net income attributable to participating securities from our calculation of basic and diluted net income attributable to Archrock common stockholders per common share.






ARCHROCK, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
(in thousands, except percentages, per share amounts and ratios)

 
Three Months Ended
 
Year Ended
 
December 31,
 
September 30,
 
December 31,
 
December 31,

December 31,
 
2018

2018

2017
 
2018

2017
Revenue:
 
 
 
 
 
 
 
 
 
Contract operations
$
176,380

 
$
169,509

 
$
156,299

 
$
672,536

 
$
610,921

Aftermarket services
56,779

 
62,863

 
52,636

 
231,905

 
183,734

Total revenue
$
233,159

 
$
232,372

 
$
208,935

 
$
904,441

 
$
794,655

 
 
 
 
 
 
 
 
 
 
Gross margin (1):
 
 
 
 
 
 
 
 
 
Contract operations
$
104,827

 
$
100,453

 
$
91,585

 
$
399,523

 
$
347,916

Aftermarket services
8,598

 
12,820

 
8,546

 
40,551

 
27,817

Total gross margin
$
113,425

 
$
113,273

 
$
100,131

 
$
440,074

 
$
375,733

 
 
 
 
 
 
 
 
 
 
Gross margin percentage:
 
 
 
 
 
 
 
 
 
Contract operations
59
%
 
59
%
 
59
%
 
59
%
 
57
%
Aftermarket services
15
%
 
20
%
 
16
%
 
17
%
 
15
%
Total gross margin percentage
49
%
 
49
%
 
48
%
 
49
%
 
47
%
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
$
21,108

 
$
26,298

 
$
29,660

 
$
101,563

 
$
111,483

% of revenue
9
%
 
11
%
 
14
%
 
11
%
 
14
%
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA (1)
$
97,557

 
$
89,466

 
$
74,278

 
$
352,256


$
280,377

% of revenue
42
%
 
39
%
 
36
%
 
39
%
 
35
%
 
 
 
 
 
 
 
 
 
 
Capital expenditures
$
77,919

 
$
109,011

 
$
69,445

 
$
319,102

 
$
221,693

Less: Proceeds from sale of property, plant and equipment
(9,866
)
 
(4,868
)
 
(24,273
)
 
(33,927
)
 
(46,954
)
Net capital expenditures
$
68,053

 
$
104,143

 
$
45,172

 
$
285,175

 
$
174,739

 
 
 
 
 
 
 
 
 
 
Total available horsepower (at period end) (2)
3,963

 
3,937

 
3,847

 
3,963

 
3,847

Total operating horsepower (at period end) (3)
3,530

 
3,465

 
3,253

 
3,530

 
3,253

Average operating horsepower
3,502

 
3,406

 
3,234

 
3,386

 
3,152

Horsepower utilization:
 
 
 
 
 
 
 
 
 
Spot (at period end)
89
%
 
88
%
 
85
%
 
89
%
 
85
%
Average
88
%
 
87
%
 
84
%
 
87
%
 
82
%
 
 
 
 
 
 
 
 
 
 
Dividend declared for the period per share
$
0.132

 
$
0.132

 
$
0.120

 
$
0.516

 
$
0.480

Dividend declared for the period to all shareholders
$
17,261

 
$
17,094

 
$
8,519

 
$
67,024

 
$
34,125

Cash available for dividend coverage (4)(5)
3.40x

 
2.95x

 
N/A

 
3.00x

 
N/A

——————
(1) 
Management believes gross margin and adjusted EBITDA provide useful information to investors because these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide a more complete understanding of our performance than GAAP results alone. Management uses these non-GAAP measures as supplemental measures to review current period operating performance, comparability measures and performance measures for period to period comparisons.
(2) 
Defined as idle and operating horsepower. New compressor units completed by a third party manufacturer that have been delivered to us are included in the fleet.
(3) 
Defined as horsepower that is operating under contract and horsepower that is idle but under contract and generating revenue such as standby revenue.
(4) 
Concurrent with the closing of the merger of Archrock, Inc. and Archrock Partners, L.P., the definition of cash available for dividend was changed. As such, historical periods are not presented.
(5) 
Defined as cash available for dividend divided by dividends declared for the period.

 
December 31,
 
September 30,
 
December 31,
 
2018
 
2018
 
2017
Balance Sheet:
 
 
 
 
 
Debt - Parent level
$
—

 
$
—

 
$
56,000

Debt - Archrock Partners, L.P.
1,529,501

 
1,515,679

 
1,361,053

Total consolidated debt, net (1)
$
1,529,501

 
$
1,515,679

 
$
1,417,053

Archrock stockholders’ equity
$
841,574

 
$
827,798

 
$
777,049

——————
(1) 
Carrying values are shown net of unamortized debt discounts and unamortized deferred financing costs.






ARCHROCK, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
(in thousands)

 
Three Months Ended
 
Year Ended
 
December 31,
 
September 30,
 
December 31,
 
December 31,

December 31,
 
2018
 
2018
 
2017
 
2018

2017
Reconciliation of Net Income to Adjusted EBITDA and Gross Margin
 
 
 
 
 
 
 
 
 
Net income
$
12,968


$
9,974

 
$
49,142

 
$
29,160

 
$
18,410

Less: Loss from discontinued operations, net of tax
—


—

 
—

 
—

 
(54
)
Income from continuing operations
12,968


9,974

 
49,142

 
29,160

 
18,464

Depreciation and amortization
43,381

 
43,779

 
46,080

 
174,946

 
188,563

Long-lived asset impairment
9,804

 
6,660

 
8,284

 
28,127


29,142

Restatement and other charges
214

 
396

 
1,083

 
19


4,370

Restructuring and other charges
—

 
—

 
141

 
—


1,386

Corporate office relocation costs (1)
—

 
—

 
—

 
—

 
1,318

Interest expense
23,926

 
23,518

 
21,943

 
93,328

 
88,760

Debt extinguishment loss
—

 
—

 
—

 
2,450

 
291

Merger-related costs
169

 
182

 
275

 
10,162

 
275

Stock-based compensation expense
1,821

 
1,804

 
2,344

 
7,388

 
8,461

Indemnification expense, net (2)
1,037

 
27

 
17

 
526


430

Provision for (benefit from) income taxes
4,237

 
3,126

 
(55,031
)
 
6,150

 
(61,083
)
Adjusted EBITDA(3)
97,557

 
89,466

 
74,278

 
352,256

 
280,377

Selling, general and administrative
21,108

 
26,298

 
29,660

 
101,563

 
111,483

Corporate office relocation costs
—

 
—

 
—

 
—

 
(1,318
)
Stock-based compensation expense
(1,821
)
 
(1,804
)
 
(2,344
)
 
(7,388
)
 
(8,461
)
Indemnification expense, net
(1,037
)
 
(27
)
 
(17
)
 
(526
)
 
(430
)
Other income, net
(2,382
)
 
(660
)
 
(1,446
)
 
(5,831
)
 
(5,918
)
Gross margin (3)
$
113,425

 
$
113,273

 
$
100,131

 
$
440,074

 
$
375,733

——————
(1) 
Includes charges associated with the relocation of our corporate headquarters in the third quarter of 2017, which are included in selling, general and administrative in our consolidated statement of operations.
(2) 
Represents net expense incurred pursuant to indemnification provisions of our separation and distribution and tax matters agreements with Exterran Corporation.
(3) 
Management believes adjusted EBITDA and gross margin provide useful information to investors because these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide a more complete understanding of our performance than GAAP results alone. Management uses these non-GAAP measures as supplemental measures to review current period operating performance, comparability measures and performance measures for period-to-period comparisons.






ARCHROCK, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
(in thousands)

 
Three Months Ended

Year Ended
 
December 31,

September 30,

December 31,
 
2018

2018

2018
Reconciliation of Net Income to Adjusted EBITDA and Cash Available for Dividend
 
 
 
 
 
Net income
$
12,968

 
$
9,974

 
$
29,160

Depreciation and amortization
43,381

 
43,779

 
174,946

Long-lived asset impairment
9,804

 
6,660

 
28,127

Restatement and other charges
214

 
396

 
19

Interest expense
23,926

 
23,518

 
93,328

Debt extinguishment loss
—

 
—

 
2,450

Merger-related costs
169

 
182

 
10,162

Stock-based compensation expense
1,821

 
1,804

 
7,388

Indemnification expense, net
1,037

 
27

 
526

Provision for income taxes
4,237

 
3,126

 
6,150

Adjusted EBITDA (1)
97,557

 
89,466

 
352,256

Less: Maintenance capital expenditures
(12,924
)
 
(12,553
)
 
(49,733
)
Less: Other capital expenditures
(3,975
)
 
(4,797
)
 
(17,815
)
Less: Cash tax (payment) refund
91

 
(78
)
 
2,131

Less: Cash interest
(22,102
)
 
(21,668
)
 
(85,455
)
Cash available for dividend (2)
$
58,647

 
$
50,370

 
$
201,384

——————
(1) 
Management believes adjusted EBITDA provides useful information to investors because this non-GAAP measure, when viewed with our GAAP results and accompanying reconciliations, provides a more complete understanding of our performance than GAAP results alone. Management uses this non-GAAP measure as a supplemental measure to review current period operating performance, comparability measure and performance measure for period-to-period comparisons.
(2) 
Management uses cash available for dividend as a supplemental performance measure. Using this metric, management can quickly compute the coverage ratio of estimated cash flows to planned dividends.






ARCHROCK, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
(in thousands)

 
Three Months Ended
 
Year Ended
 
December 31,
 
September 30,
 
December 31,
 
2018
 
2018
 
2018
Reconciliation of Cash Flows from Operations to Cash Available for Dividend
 
 
 
 
 
Cash flows from operating activities
$
55,242

 
$
65,490

 
$
225,947

Inventory write-downs
(429
)
 
(167
)
 
(1,614
)
Provision for doubtful accounts
(133
)
 
(636
)
 
(1,677
)
Gain on sale of assets
2,780

 
706

 
5,674

Current income tax provision
513

 
285

 
912

Cash tax (payment) refund
91

 
(78
)
 
2,131

Amortization of contract costs
(4,607
)
 
(4,051
)
 
(14,939
)
Deferred revenue recognized in earnings
11,008

 
6,146

 
28,428

Restatement and other charges
214

 
396

 
19

Merger-related costs
169

 
182

 
10,162

Indemnification expense, net
1,037

 
27

 
526

Changes in assets and liabilities
9,410

 
(726
)
 
13,173

Maintenance capital expenditures
(12,924
)
 
(12,553
)
 
(49,733
)
Other capital expenditures
(3,975
)
 
(4,797
)
 
(17,815
)
Proceeds from settlement of interest rate swaps that include financing elements
251

 
146

 
190

Cash available for dividend (1)
$
58,647

 
$
50,370

 
$
201,384

——————
(1) 
Management uses cash available for dividend as a supplemental performance measure. Using this metric, management can quickly compute the coverage ratio of estimated cash flows to planned dividends.





ARCHROCK, INC.
UNAUDITED FOWARD LOOKING SUPPLEMENTAL INFORMATION
(in thousands)

 
Annual Guidance Range
 
2019
 
Low
 
High
Reconciliation of Net Income to Adjusted EBITDA and Cash Available for Dividend
 
 
 
Net income (1)
$
73,000

 
$
103,000

Depreciation and amortization
180,000

 
180,000

Interest expense
103,000

 
103,000

Stock-based compensation expense
9,000

 
9,000

Provision for (benefit from) income taxes
5,000

 
5,000

Adjusted EBITDA (2)
370,000

 
400,000

Less: Maintenance capital expenditures
(57,000
)
 
(63,000
)
Less: Other capital expenditures
(43,000
)
 
(47,000
)
Less: Cash tax (payment) refund
(1,000
)
 
(1,000
)
Less: Cash interest expense
(95,000
)
 
(95,000
)
Cash available for dividend (3) (4)
$
174,000

 
$
194,000

——————
(1) 
2019 annual guidance for net income does not include the impact of long-lived asset impairment because due to its nature it cannot be accurately forecasted. Long-lived asset impairment does not impact adjusted EBITDA or cash available for dividend, however it is a reconciling item between these measures and net income. Long-lived asset impairment for the years ended 2018 and 2017 was $28.1 million and $29.1 million, respectively.
(2) 
Management believes adjusted EBITDA provides useful information to investors because this non-GAAP measure, when viewed with our GAAP results and accompanying reconciliations, provides a more complete understanding of our performance than GAAP results alone. Management uses this non-GAAP measure as a supplemental measure to review current period operating performance, comparability measure and performance measure for period-to-period comparisons.
(3) 
Management uses cash available for dividend as a supplemental performance measure. Using this metric, management can quickly compute the coverage ratio of estimated cash flows to planned dividends.
(4)
A forward-looking estimate of cash provided by operating activities is not provided because certain items necessary to estimate cash provided by operating activities, including changes in assets and liabilities, are not estimable at this time. Changes in assets and liabilities were $(13.2) million and $2.6 million for the years ended 2018 and 2017, respectively.