Archrock, Inc. (NYSE:AROC) Q2 2020 Earnings Conference Call - Final Transcript

Jul 31, 2020 • 11:00 am ET

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Archrock, Inc. (NYSE:AROC) Q2 2020 Earnings Conference Call - Final Transcript

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Operator
Operator

Good morning and welcome to Archrock Second Quarter 2020 Conference Call. Your host for today's call is Megan Repine, Vice President of Investor Relations at Archrock. I would now like to turn the call over to Ms. Repine. You may begin.

Executive
Megan Repine

Thank you, Devin. Hello, everyone, and thanks for joining us on today's call. With me today are Brad Childers, President and Chief Executive Officer of Archrock and Doug Aron, Chief Financial Officer of Archrock.

Yesterday, Archrock released its financial and operating results for the second quarter of 2020. If you have not received a copy, you can find the information on the company's website at www.archrock.com.

During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, based on our current beliefs and expectations as well as assumptions made by and information currently available to Archrock's management team. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call.

In addition, our discussion today will reference certain non-GAAP financial measures, including adjusted EBITDA, gross margin, gross margin percentage and cash available for dividend. For reconciliations of these non-GAAP financial measures to our GAAP financial results, please see yesterday's press release and our Form 8-K furnished to the SEC.

I'll now turn the call over to Brad, to discuss Archrock's second quarter results and provide an update of our business.

Executive
D. Bradley Childers

Thank you, Megan, and good morning. I appreciate everyone joining our conference call today. Last night, we posted solid second quarter results in the context of one of the most difficult environments the industry and Archrock have ever faced.

As we've highlighted for some time, Archrock provides critical U.S. natural gas infrastructure and the company is built by design to endure market cycles, I guess the backdrop of a global pandemic, economic slowdown and precipitous decline in commodity prices. The resilience of our business was tested and demonstrated during the second quarter.

Our impressive performance was driven by outstanding execution in the field and significant progress on our cost and capital savings efforts. Among the accomplishments in the quarter, we generated EBITDA of $101 million, flat compared to the prior year period. We improved our contract operations gross margin percentage by 400 basis points sequentially and annually to 66%.

We reduced SG&A expense by more than 6% from $31 million in Q1 to $29 million in the second quarter. Our second quarter capex was down meaningfully year-over-year, but remain somewhat elevated as we took delivery of the units to meet orders that were placed by customers in 2019. Aside from these units. which are already out earning revenue, we put the brakes on additional 2020 new equipment capex. This will drive substantially less