Q4 2021 Archrock Inc Earnings Call
And good morning, everyone.
I'm happy to be with you today to discuss our strong fourth quarter and 2021 results and our outlook for 2022 and beyond.
As I look back on the year, we delivered operational excellence demonstrated the cash generating power of our business and advanced several strategic priorities.
And we achieved all of this with and despite the pressures of reduced revenue due to the market downturn.
Tight labor market significant inflationary pressures and the continued composition of COVID-19.
I wanted to offer my heartfelt. Thank you towards dedicated employees to never missed a beat and helped US deliver these results in 2021.
Among the accomplishments for the year.
Our proactive actions to maximize financial performance delivered positive net income and record free cash flow after dividend at the bottom of the cycle.
We maintained strong capital and cost discipline.
Sharply, reducing new equipment capital to align with the market for the second year of ROE.
Gross capex totaled $37 million during 2021 down 53% compared to 2020.
In addition, we reduced our SG&A year over year after normalizing for the nonrecurring tax benefit that we recorded in 2020.
We achieved exceptional safety performance made possible by the safety culture permeating our entire organization.
In 2021, we delivered 51 weeks with no recordable incidents.
We continue to repay a considerable amount of debt while at the same time, returning a significant amount of capital to shareholders.
Since the end of 2019, we've demonstrated the stability of our cash flows repaid $314 million in debt and returning $178 million to shareholders.
Over the last three years, we've invested nearly $50 million and a digital transformation capped by the achievement of several important technology milestones in 2021.
We completed the installation of expanded telematics across our fleet launched.
<unk> launched a new suite of mobile tools for our field service technicians.
And migrated key support functions to our new cloud based ERP system.
We now get to demonstrate the benefits of these improvements and I'll talk more about these expectations in a moment.
On the fourth quarter market fundamentals continue to strengthen and execution by team Archrock remained excellent.
We delivered a sequential increase in our contract operations revenue as well as our highest quarterly levels of operating horsepower growth in bookings for the year during the fourth quarter.
This was a great way to end the year and has given us significant momentum as we kick off 2022.
As I step back to reflect on our position today.
We have radically transformed our business to ensure our franchise offers our customers the bus.
Best service available in the compression market.
Is built to maximize financial returns to our investors.
And is prepared for energy transition.
Before and during the downturn with hybrid all aspects of our operating platform, including our customer base, our fleet, our technology and our talent.
First regarding our customers.
We've built relationships with stable financially strong companies that approached their relationships with archrock is partnerships and the value our industry, leading service levels safety performance equipment and technical expertise.
Next through the investments in strategic divestments, we have made over the most recent years. Our fleet is now positioned in the more stable large horsepower segment of the market and deployed on midstream compression applications.
This has improved our returns and will differentiate us as we look to reduce greenhouse gas emissions from our fleet.
Third technology.
Even in the midst of a severe downturn, we continued to invest and worked hard to improve our technology platform.
And we just completed several major phases of the digital transformation, we've only just begun harnessing technology in all aspects of our business.
Over time, we expect our improved technology platform to help us achieve increased asset uptime.
Improve the efficiency of our field service technicians improve our supply chain and inventory management.
Reduce the miles driven by our field service technicians, and lower our emissions and carbon footprint.
Last.
We have the talent to leverage this technology to deliver an enhanced customer experience.
We've been highly focused on workforce development, not just equipping our highly experienced field service technicians with leading edge tools, but also prioritizing the training component. So we realize the full benefit of our investments.
How can you see the results of these transformational investments and actions.
Our fleet is younger or utilization through the downturn outperformed prior cycle lows.
Our profitability on a per unit basis is higher.
Our field service technicians are more experienced and more efficient.
And critically our franchises now prepared and poised to participate in energy transition.
Moving onto the market backdrop confidence in a multiyear recovery in natural gas increased in Q4, and so far in 2022.
Oil prices in excess of $90, a barrel and U S natural gas prices north of $4 per and then btu significantly derisk producer cash flows and activity plans.
This attractive investment environment for our customers should drive healthy reinvestment rates and budget increases of at least 20% to 30% compared to 2021, even as companies increased payouts to their investors.
Natural gas production outperformed expectations in 2021, increasing more than 2% compared to expectations of an annual decline going into the year and.
In lower 48 natural gas production hit an all time record in December .
The EIA currently forecast, 2% to 3% annual growth in U S natural gas production in both 2022 and 2023.
However, our positive view on natural gas fundamentals extends well beyond the next two years.
Our bullishness is rooted in the undeniable rule that U S. Natural gas can play in reducing cotwo emissions and energy consumption growth both at home and abroad.
Given the abundance accessibility and price stability of natural gas in the U S. Our country is ideally positioned to satisfy what we expect to be a massive call on LNG globally.
And Archrock will be there to help transport and deliver this gas to the market.
Our current positive long term view has been further reinforced by the recent energy crisis in Europe .
Which highlights the complexities created when vicious net zero targets meet the realities of growing energy demand and unplanned, but inevitable geopolitical tensions.
The improved recognition that traditional sources of energy will be needed alongside new energy sources to meet the world's growing consumption is probable especially for natural gas.
And we expect the value of our natural gas platform to become even more visible and more appreciated over time.
Moving on to our segments the positive momentum in our contract operations top line drivers accelerated during the fourth quarter bolstering our confidence that the industry is in the early stages of a recovery.
Compared to the third quarter or fourth quarter exit fleet utilization increased to 84% from the cycle bottom 82%.
In our operating horsepower grew by 56000, excluding the 5000 active horsepower, we chose to sell as part of our fleet high grading strategy.
Moving to booking activity, our sales team capitalized on the higher level of customer activity in the quarter.
The Permian and northeast continue to lead the charge, but we're also seeing higher bookings in other basins as commodity prices have continued to strengthen.
We delivered contract operations gross margin for the fourth quarter in this year of 62%.
Down from 2020, but well above historical levels.
This performance is even more impressive in the context of the unique market we experienced in 2021.
As our revenues hit cyclical lows, we started to see higher costs due not only to an increase in make ready expense as we prepared to meet higher customer demand, but also due to rapidly rising parts lube oil and labor expenses impacting the entire global economy.
We expect these pressures will persist in 2022 and have aggressive plans in place to mitigate impacts as much as we can through tight cost control supply chain inventory management efficiency gains and technology.
In addition, as discussed on our last quarter call.
We began taking necessary commercial action implementing our own price increases during the fourth quarter.
These rate increases will continue to benefit us throughout 2022 and.
And we've already executed an additional increased this year to combat inflation as the market continues to tighten.
Moving to our aftermarket services segment, we saw improved performance for the second quarter in a row.
Revenues for the second half of 2021 were up 18% compared to the first half.
<unk> activity has picked up in a meaningful way as our customers resume internal maintenance programs.
We're starting to see more encouraging trends in the service business as well with greater visibility into our planned maintenance schedule.
We expect the business to benefit from improving market conditions going forward and are focused on growing higher profit.
Ams business activity and ensuring we have the manpower to fulfill our customers' needs.
Okay.
I'd now like to outline our capital allocation framework for 2022.
Yeah.
As we transition to the upcycle for natural gas and therefore compression we intend to make high return investments in our fleet to grow prudently and profitably with our customers.
Continue our dividend commitment all the while maintaining a healthy balance sheet and financial flexibility.
First on slate investment.
I am excited about the opportunity to deploy capital at premium pricing under multiyear contracts at returns well in excess of our cost of capital.
Our assets will be needed to meet growing production and energy needs and as we indicated on our third quarter call higher growth capital will be required in 2022 compared to 2021 to meet these demands.
In line with this yesterday, we announced a growth capital budget of approximately $150 million.
This is up from 2021, but significantly less than the $250 million to $300 million spent in both 2018 in 2019, when we experienced record natural gas production growth in the United States.
We are focused on growing responsibly with our strategic growth oriented customers in key basins.
Our commitment to strong returns and reducing our emissions footprint are driving our investment strategy.
Further this strategy, we expect approximately 25% of our growth Capex budget to fund expansion of our electric motor drive horsepower.
Second.
As we reinvest in our business our quarterly dividend will remain a fundamental pillar of our 2022 capital allocation, reflecting our confidence in archrock strong cash generation capacity.
As shareholders the board and I recognize cash return is an important component to the overall value equation and today high yield is a compelling 7%.
Finally, maintaining a strong balance sheet liquidity underpins our ability to execute on our plans.
We've completed nearly $250 million in strategic divestments of older noncore assets over the last three years.
This allowed us to effectively manage our leverage through the downturn and now with a much improved investment environment, we've essentially pre funded our growth investments and higher profit large midstream compression units.
Although it is not our practice to incorporate future asset sales into our guidance. We continue to look for opportunities to divest non strategic assets.
We haven't quantified potential proceeds for the year. However, we expect noncore asset sales will be an important tool for us in 2022, as we strive to be as close to free cash flow neutral as possible. During this reinvestment period.
Regarding leverage I am confident in our ability to drive higher quality EBITDA growth, it's accelerating and over time, we intend to meet our long term leverage objective of 335 to four times.
In summary, with our optimized standardized and now digitized business platform. We are in an exciting inflection point.
We have visible technology and ESG catalysts on the horizon that will help us achieve new pinnacles of operational excellence customer service employee satisfaction and sustainability.
The stage is set for a multi year recovery in natural gas and therefore, our compression business.
And we will continue leveraging the strong foundation of our core compression business as we explore de carbonization opportunities.
Let me expand on our approach to de Carbonization before turning the call over to Doug.
We spent the last several years, demonstrating our commitment to ESG disclosure and performance.
More recently.
Through work led by our internal sustainability technology and <unk> interest teams, we have increased our business focus on reducing the emissions intensity of our fleet.
The work underway has already helped inform our investments and incremental electric driven compression.
<unk> trend, we expect to continue.
The team is also working diligently to evaluate technologies and opportunities that will help us steward, our business and our customers' businesses through energy transition.
I can assure you that we are being highly selective in progressing these solutions that play to our strengths and can help us deliver long term value for our customers and shareholders. While we stay true to our core as the leading provider of natural gas compression in the U S.
It's still very early days and look forward to updating you on these potential sources of upside for Archrock in the future.
With that I'd like to turn the call over to Doug for a review of our fourth quarter and full year performance and to provide additional color on our 2022 guidance.
Thanks, Brad and good morning.
Let's look at a summary of our fourth quarter and full year results and then cover our financial outlook.
Net income for the fourth quarter of 2021 was $6 million and included a non cash $6 million long lived asset impairment of $3 million insurance settlement related to damages caused by hurricane Ida and nearly $1 million in restructuring costs.
We reported adjusted EBITDA of $83 million for the fourth quarter 2021 or.
Our fourth quarter adjusted EBITDA performance put us firmly ahead of our annual guidance range.
Underlying business performance was strong in the fourth quarter as we delivered higher contract operations gross margin dollars and lower SG&A.
And we would've reported.
Sequential increase in adjusted EBITDA.
The more than $15 million in third quarter asset sale gains.
Turning to our business segments contract operations revenue came in at $160 million in the fourth quarter up slightly compared to the third quarter.
Operating horsepower and pricing both increased sequentially.
We delivered a strong gross margin percentage of 62% this.
This was ahead of third quarter levels and above our internal expectations as our operating team continued to pull out all the stops to manage costs in the face of continued inflationary pressures on labor lube oil and parts.
In our aftermarket services segment, we reported fourth quarter 2021 revenue of $36 million similar to third quarter levels and up nearly 17% on a year over year basis, despite seasonal softness as customers began catching up with maintenance deferred during the downturn.
Yeah.
Fourth quarter Ams gross margin of 15% was consistent with guidance and third quarter performance.
Growth capital expenditures in the fourth quarter totaled $13 million and reflected an increase in customer activity.
Our full year growth Capex of $37 million was down from $79 million in 2020 and down from $300 million in 2019.
Maintenance and other Capex for the fourth quarter of 2021 was $14 million, bringing the full year total to $61 million.
We exited the year with total debt of $1 5 billion down $159 million for the year.
And as Brad mentioned down by 314, compared $314 million compared to the end of 2019.
This significant reduction helped mitigate the leverage ratio impact of lower adjusted EBITDA for the year.
Our leverage ratio at year end was four three times, just a small uptick compared to four two times in the fourth quarter of 2020.
We had available liquidity of $503 million as of December 31, 2021.
We recently declared a fourth quarter dividend of $14 five per share were <unk> 58 on an annualized basis.
Our latest dividend represents a compelling yield of 7% based on yesterday's closing price, especially given the protection provided by our industry leading dividend coverage.
Cash available for dividend for the fourth quarter of 2021 totaled $46 million and for the full year totaled $200 million.
Leading to impressive 2021 dividend coverage of two two times.
As you saw in our earnings release issued yesterday Archrock introduce 2020 to annual guidance.
All of the customary details can be found in the materials published last night and for the purposes of this call I will keep my comments high level we.
We announced a 2022 adjusted EBITDA guidance range of $320 million to $360 million as we have discussed for some time success with our divestiture program has and will continue to provide significant operational and financial benefits for Archrock.
Keep in mind, when comparing our 2022 EBITDA performance with 2021, however, with the expected EBITDA solving these ramps and these transactions was approximately $19 million on an annualized basis.
In contract operations, we expect full year revenue to be in the range of $660 million to $690 million as.
As we continue to grow our operating fleet and benefit from higher pricing on existing and newly deployed units. We expect gross margins of between 60 and 62% for the year as we maximize our profitability by leveraging technology and continuing our focus on controlling expenses as we face continued inflationary.
Rate pressure.
In our Ams business, we forecast full year revenue of $140 million to $155 million up 11% at the midpoint.
Higher revenue should translate into better cost absorption and we will continue to focus on higher margin activity.
This results in our expectation of an annual increase in gross margin to a range of 16% to 18%.
The first and fourth quarters generally experienced some seasonal impacts compared to the second and third quarters.
Turning to capital on a full year basis, we expect total capital expenditures to be between 213 and $235 million.
Of that we expect Newbuild capex to total approximately $150 million to support higher startup cost and unit and unit modifications as we deploy additional horsepower repackaged capex as well as building new horsepower.
Maintenance Capex is forecasted to be approximately 55% to $75 million.
The increase compared to 2021 reflects overhaul timing and our expectations for lower horsepower returns in 2022.
We also anticipate $8 million to $10 million and other capex, primarily for new vehicles, as well as building and shop repairs and upgrades with.
With that Joanne I think we're ready to open up the lines for questions.
Thank you. Thank you I'd like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press star one again.
Pause for just a moment to compile the Q&A roster.
Our first question comes from T. J Schultz from RBC. Please go ahead. Your line is open.
Yeah.
Great Good morning.
You made the comment.
That utilization held up better during this downturn when compared to prior cycles and I assume.
That's driven by the higher mix of larger horsepower.
Youre divestments that you've talked about it but is there anything else you saw in the downturn, but allowed utilization.
Outperformed prior cycles, and then coming out of.
This downturn is there any change to your view on how quickly you may see utilization start to.
The increase as the market improves.
Would you expect utilization to exit this year.
Good morning T. J. Thanks for the question you are right by the way I think that the positioning of the larger midstream position horsepower is definitely at eight two.
The stabilized utilization in this most recent market cycle compared to prior cycles, but I think another expression of that is reflected in the amount of upgrading we've done not just fund size and positioning in the market, but and just improved just improving the quality of our fleet.
Through investments and divestments over the last.
Five plus years and that resulted in a higher quality more stable operation I think thats. The second part of it to the second part of your question. We're pleased to see utilization already moving up a couple of percentage points. So quickly in this market today, we think that that is a good sign of things to come I'm not sure we'll keep.
The pace of two percentage points of improvement per quarter.
But we do expect to see utilization continued to tick up at a pretty good pace as the market tightens.
Okay, and what was the comment on pricing are you able to pushing price because price increases right now even at.
Utilization, where it is.
We are.
I appreciate that question, because what I need to highlight is that not all parts of the fleet at the same level of utilization.
Our largest horsepower categories.
Close to 800 horsepower, especially utilization in the market is already tight and Thats. The reason were ordering new equipment today is that the market just doesn't have any.
And so in that category, we're seeing price.
Pricing is very good and we have <unk>.
Increased our spot pricing in that category, particularly there are other categories of smaller horsepower, where utilization is lower and it's harder to push a price increase through.
So what we try to do it in a disciplined way and working with our customers so as to not catch them off guard with their budget process.
As to where we have the ability to move pricing up at our contracts have that dialogue early and yes, we've already pushed through pricing at.
At the end of 2021, and we're still continuing to implement those price increases.
Especially on the installed base in 2022.
T J I might I might also mentioned.
Lead times on new equipment are really starting to push out I mean, I think in that large horsepower class frankly newbuild equipment.
<unk> is starting to push somewhere into the call. It mid <unk> to low <unk>, depending on who you ask so I think that's instructive of a market that we started to see more as.
Sort of the upturn as opposed to coming out of a downturn and I think can help you appreciate that yes pricing is.
He is moving back up particularly on that large horsepower class.
Okay. Thanks, and then just lastly on the <unk>.
Electric.
<unk> drive horsepower.
<unk>.
That trend accelerating even more into 2023, I guess thats, what made 25% of the Capex.
Nick on electric the right percentage this year and availability from suppliers demand from customers just trying to think about.
That mix of horsepower.
New spend may shift over the coming years.
It's more of a pull through and identification of the market from our customers than it is availability of supply driven so that's where we see the market moving we believe that over time, we'll see.
Increasing electrification.
Oil oilfield, including compression.
This is the start I'm going to point out however that we've been operating electric motor drive horsepower in this industry and certainly as Archrock for a number of years, but in the past it has been.
Driven by locations that have had the most stringent air quality.
Regimes placed on it for example in the northern Rockies.
So that's where we've seen it in the past and what's happening now is we're seeing an expansion of demand for emissions management as well as increasingly available power generation.
And distribution in the field I think thats going to be the gating item is that we see electrification as an opportunity to reduce emissions, but it's going to going to require that the power grid continue to expand and that's not going to happen rapidly, but I believe it's going to happen steadily.
Okay.
Perfect. Thank you.
Thank you our next our next question comes from Daniel Burke from Johnson Rice. Please go ahead. Your line is open.
Yeah, Hey, good morning, guys.
Morning.
Let's see Brad when I look at I.
I look at the outlook on the <unk> upside.
For gross margin percentage to be call it flat to down a touch year over year.
I guess the.
The question I would have is are you achieving net pricing gains as we as we look at 'twenty two versus $21 is the right baseline to think that the pricing gains youre, capturing or were largely offset by by the input cost pressures that you industry and everyone will continue to contend with.
Yes no.
We're achieving net pricing gains and the difference that's not allowing that to come through in the gross margin line is primarily driven by increased investment in make ready Daniel because we have to we just have to invest more right now to put more of the units back to work and so that's helpful to drive up utilization, but it does stabilize or have.
Extra expense in the gross margin line that youre not getting the way are you seeing that net pricing gains come through.
We're excited about on that is that even with that if you look at our overall revenue revenue per horsepower over the last four six quarters, it's been very stable and now it's slightly improving we expect to see that continue to improve even though we're investing a bit more and make ready input.
Growth for both our operating horsepower and improved utilization.
Okay.
That's a helpful point.
Can you.
Well, let's see let me, let me ask one on maintenance.
I know Doug mentioned, a couple of reasons, maybe call it maintenance capex per deployed horsepower would be a little bit higher help me better understand the lower horsepower returns element.
That trend in 'twenty, two and whether that also maybe dissipates a bit.
Taking a longer view.
Yeah.
Yes.
Yeah.
So just.
To be clear youre, asking about our higher maintenance.
<unk> on that end.
As it related.
I'm asking you about the year over year step up in maintenance Capex and you've mentioned lower horsepower returns is one of the contributors to that and I just wanted to better understand that factor.
Yes.
Let me, let me try to answer part of it and then make sure make sure we're on to Daniel's so not asking the question you're answering that answering the question you asked please.
Please tell us the main step up in the maintenance Capex that we're seeing for the year, it's really driven by the timing.
Fleet overhaul demand and fleet maintenance demand when we add units to the fleet it takes roughly.
Roughly three years before they had their mid lifecycle roughly six to seven years before we have a major maintenance events and when we see an uptick in our major maintenance activity is primarily driven by the operational needs of the units. That's what we're seeing for the step up in our maintenance Capex This year.
And Thats, just totally driven by the fleet by timing and by maintenance.
The lower RPI, the less horsepower returns meaning.
As utilization goes back up you've got more maintenance that has to be accomplished versus units that come back that don't require that maintenance.
Daniel Apologies I would go back and look at my notes as.
To what I said in the guidance and I appreciate what you were asking but.
It's really it's the utilization question morning, more active horsepower.
Is more maintenance.
Okay, that's fair and thanks for circling back to that element of it Doug all that makes sense. Let me let me ask one final one maybe a more straightforward question.
When I look at the EBITDA guidance for this year just to be clear does the high end of the guide incorporate any assumption or any amount of asset sale gains.
It does not okay.
Okay, great. Thank you for the clarification, alright, guys I'll leave it there. Thank you.
Thanks Daniel.
Our next question comes from Kyle May from capital One Securities. Please go ahead. Your line is open.
Hi, good morning, everyone.
Following up on the.
Hey, Brian Good morning.
I want to follow up on the electric motor drive horsepower that you that you talked about maybe two questions here.
First can you talk about the cost difference between electric drive versus your other equipment and then second are there any notable differences on the operational side between different types.
Okay.
So on the.
First part of the question the cost per acquisition is really comparable for electric motor drives compared to internal combustion driven.
Natural gas fired compression.
On the operating expense candidly the opex for the maintenance of electric motor drive is incrementally less expensive than natural gas fired.
One one.
Point that that doesn't take into account however, as someone has to actually pay for the price of power and that's the customization of the prices of the electricity.
So thats the way it stacks out and then finally from an operational perspective.
No there are not significant operating differences, though the reason the electric motor drives are incrementally less expensive to operate as candidly. They are also less demanding for operational maintenance spend.
Question engine.
Got it okay. That's helpful.
And then.
Maybe one shifting gears, so maybe broader optionality for the business. We're hearing more about carbon capture projects more recently and I was wondering if you could share any thoughts about how archrock and the compression business could potentially factor in.
Yeah, so the market's struggling quite a bit to understand the full scope of carbon capture opportunities.
I'll end my comment with that but as I look at the broader stepping even back further.
The goal, we have around emissions management youre not going to be surprised to hear that our first focus is to control what we can control.
Initially and then continue to expand our perspective and potentially our activities to help our customers with the full scope of emissions management.
And emissions and carbon capture so starting with the stuff that we can do first the switch to electric motor drives is not going to be inconsequential to the marketplace. We see a lot of the incremental growth really should be and we will take <unk>.
Electric Motor drive.
Horsepower across all horsepower classes and thats going to be a good thing.
Good thing for the business overall, we also see that our migration to large horsepower equipment is also a step in the right direction, both in limiting the amount of emissions and pollutants coming out of.
The compression part of the oil and gas business. So those first two steps are already taken place.
And then also with the technology, we put in place, we're really focused on improving overall performance for our customers one time and that should reduce the number of trips will make into the field to really attack our miles driven and the amount of emissions, we're generating from that activity those are the closest.
The home opportunities that we're focused on now and we expect to make some good progress on as we make progress on those other opportunities including monitoring.
And leak detection and repair as well as thinking about capture opportunities for <unk> and carbon capture are in the sights of things. The industry is working on and focused on the challenge is small scale carbon capture at the level, we look at for us.
Production location in our compression location is still.
Way too expensive and without more action from the government in the form of carbon offsets are direct pay subsidies.
Just don't see that we're going to reach that level of carbon capture in the near term the carbon capture opportunities that are likely to.
The first is going to be all of it really massive scale.
And then it will move as the carbon economy develops suite, we see it could move into smaller scale carbon capture opportunities and when and as that happens we expect to be a participant.
Yeah.
Understood and appreciate all the additional color there.
Maybe one last question and as we think about the budget for this year can you just help remind us.
Archrock see the full benefit of that new equipment. This year or is there going to be some carryover into 2023.
Yes.
Your question Kyle so.
We won't see all of the benefit of the spending is forecasted to be largely ratable for the year and so as you think about it the stuff. We've spent in the first quarter, we will get benefit for for three quarters, and then on down I would say.
The most part that quarter or that capital budget that we spend in Q4.
We really won't start to see the benefits for until Q1 of next year.
Again, as you think about that guidance and then maybe ask well what about the same capital that was spent in Q4 of 2021 that.
That was off of a base that was less than $40 million, so will be dramatically different but.
All of that should be reflected in our current guidance.
Got it I appreciate the time this morning.
Thank you thank.
Thank you.
Our next question comes from Selman <unk> from Stifel. Please go ahead. Your line is open.
Thank you good morning.
Just wanted to follow up a little bit on the capex comments or at least start there.
<unk>.
So you noted sort of 40 to 50 weeks extended lead.
Lead time.
And I think in your opening comments you also discuss some pretty positive conversations with the producers.
If I start thinking about <unk>.
<unk> 23 in lead times, extending should we be expecting your capex budget to increase over the year as you guys start spending money in order to secure slots for 2023.
For assets.
No.
But what we've put in our Capex budget for the year. We think is what is what.
<unk>.
In the year for the guidance that we've offered it would take a.
<unk> seen injection of a cool opportunity for us to think about spending more in the year. We start seeing that also with lead times out as far as they are we think that it's going to be hard to spend more in 2022 candidly.
Then because lead times are already pushing into 2023. So no. We're very comfortable with Capex budget that we've laid out we don't expect to see an increase never say never but if there is an increase it's going to be one we're going to be talking about why it increased with an identifiable opportunity category our opportunity at <unk>.
To it.
Understood.
Yes, so maybe just talking about with sand.
We have.
Again, we have no plans full stop on that as Brad said, our guidance is our guidance.
That said, if we can continue to convert 20 plus year old equipment.
400 horsepower into the more highly demanded either electric motor drive where larger equipment.
It's going to need to have them pretty soon because as Brad said Youre looking at 50 weeks and as you also sort of part of your question be 2023, Capex, where we're obviously not yet ready to guide on what our 'twenty three capex number is going to be but Brad also mentioned in the prepared remarks section that look we are we're very focused on continuing to.
Target leverage long term between three five and four times.
On generating as close to free cash flow positivity or breakeven.
Being in a growth cycle like the one we're in right now have that have that being breakeven is very much a goal. So.
The focus has not changed here and I think that.
It won't change as we try to triangulate on all three of those things.
Got it and I appreciate that I was really just trying to understand the dynamics between ordering long lead time equipment and what you guys have to commit capital in order for that so very helpful.
All of that.
In terms of the asset sales.
I presume that will be assets, they're generating EBITDA.
And that's been captured in guidance as well.
King.
Yes, so again asset sales are not included in guidance, because they're very difficult to forecast.
That said, yes in 2021 and in 2020, we sold some assets that were producing EBITDA and we sold some assets that were in our idle fleet. So that will continue to be the case as we look to high grade all parts of our business.
And move towards more midstream focus larger horsepower.
Understood and then just the last one for me can you guys.
You took a restructuring charge for $1 million in that large but can you just maybe explain a little bit of what was being written down.
Yeah.
What I will tell you the categories historically when it was larger in 2022 were largely around reductions in force.
We had some.
Building disposals.
Yes.
Type of thing that it would be.
Okay.
<unk> stands out to me of that million dollars.
Alright, thank you.
Thank you.
Yeah.
No more questions now I would like to turn the call back over to Mr. Childers for final remarks.
Great. Thank you everyone for participating in our Q4 vehicle, we're entering a multiyear upturn in natural gas and I'm excited about the value of our franchise can deliver today and well into the future.
I look forward to updating you on our progress next quarter.
Thanks, everyone.
This concludes today's conference call you may now disconnect.
Okay.
Hum.
Okay.
[music].
Okay.
[music].
Yes.
Sure.
[music].