Earnings Call Transcript - AROC Q4 2020

Operator, Operator

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

Megan Repine, Vice President of Investor Relations

Thank you, Michelle. 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 fourth quarter of 2020 as well as annual guidance for 2021. If you have not received a copy, you can find the information on the company's website at www.archrock.com. During the 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 the assumptions made by and information currently available to Archrock's management team. Although management believes that 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 in our Form 8-K furnished to the SEC. I'll now turn the call over to Brad to discuss Archrock's fourth quarter and full year results and to provide an update of our business.

Brad Childers, President and Chief Executive Officer

Thank you, Megan and good morning everyone. I'm happy to be with you today to close out the discussion on our financial results for 2020, a year that brought unforeseeable and even unthinkable challenges to our industry and the global economy. While I'm excited to turn the page to 2021, I'm also proud of and grateful to and want to take a moment to thank our dedicated employees who adapted quickly to help us navigate the rapidly changing environment and delivered excellent fourth quarter and full year results. On our first quarter 2020 conference call, I detailed our objectives and action plan for the downturn including significant cost savings and capital reduction initiatives. We reacted quickly to protect the value of our natural gas compression franchise, maximize our near-term performance, and position the business to emerge even stronger from this downturn. As our 2020 results show, we delivered on these objectives. We maintained a strong capital and cost discipline. As the market deteriorated in the spring, we sharply reduced new equipment capital and optimized our maintenance and other capital investments. We reduced our total capital by $245 million in 2020 to $140 million. In addition, we reduced our run rate SG&A by 12% even as we continued to invest incremental SG&A into our technology upgrading project. We enhanced our financial flexibility. We paid down debt of $155 million during 2020 resulting in an exit leverage ratio of 4.16 times, which is essentially flat from 2019. We have no near-term debt maturities and with our successful senior notes offering during the fourth quarter, we extended $300 million of bond maturities by four years to 2028, and we did this at a record low financing cost to the company, a strong signal of the market's confidence in Archrock. We continued to transform our compression fleet and drive field efficiencies. We executed several highly strategic asset sales, completed a business unit restructuring, and aligned our business for the current environment. Together, these drove a 400 basis point increase in our contract operations gross margin percentage year-over-year and further solidified our strong competitive position. Lastly, we continued our commitment to return capital to shareholders. We paid $89 million in dividends with internally generated cash flow and maintained a robust dividend coverage ratio of 2.9 times for the full year 2020. Due to our actions, we delivered adjusted EBITDA of $415 million in 2020, which was flat compared to 2019 despite a 9% decline in revenue. It's also in line with the low-end of our pre-COVID guidance range and with our cost and capital reductions, we actually increased our full year free cash flow and cash available for dividend compared to 2019 as well as compared to our initial forecasts for 2020. We're entering 2021 with optimism about the outlook for natural gas compression and Archrock. While the degree of uncertainty surrounds the pace of the COVID-19 vaccine rollout and the resumption of pre-COVID levels of overall economic activity, the energy markets are nevertheless showing early signs of a cyclical recovery. Oil prices returned to pre-pandemic levels supported by OPEC's actions in December, production declines, and the prospect of improved global demand. On the natural gas side, with favorable supply/demand dynamics, Henry Hub prices are trending around $3 per million BTUs. This provides the expectation of additional cash flow as producers look to increased drilling and completion activity in 2021 at least enough to achieve maintenance levels of production. Most U.S. natural gas forecasts show a steady increase in production in 2021, though the annual 2021 average is still expected to be 1% below 2020. Year-over-year production growth is anticipated to resume in 2022. Structural natural gas demand drivers continue to point to consistent long-term demand for our compression services. We're seeing strong power generation demands, record LNG exports, and robust annual growth in natural gas exports to Mexico so far in 2021. Given this macroeconomic backdrop, we expect our operating performance and financial results to bottom in the first half of 2021 with a pickup starting in the back half of the year. Turning to our contract operations, our actions in 2020 have further solidified our leading position in the compression market and we enter 2021 from a position of strength. For the full year 2020, contract operation revenues were $739 million, a decline of 4% compared to 2019. However, gross margin percentage increased approximately 400 basis points year-over-year due to our cost reduction activities throughout the year. Gross margin of $478 million in 2020 was actually up slightly from $474 million in 2019. With our focus on large horsepower units deployed in midstream applications and in the best U.S. basins as well as our continued efforts to keep units out on location, our 2020 exit utilization continued to hold up well at 82%. This reflects a significant decline in the pace of horsepower returns over the past several months with stopped activity now beginning to approach normalized levels. Booking activity remains low, but we have a positive backlog of demand for units to be deployed in 2021. We expect to satisfy much of this demand from existing units in our idle fleet. Given this ability provided by a large base of contracted horsepower, the overall impact of pricing reductions on our financials is modest. As you would expect with our utilization hovering in the low 80s, we've certainly seen pressure on spot pricing, but given our higher quality fleet, spot pricing remains well above prior cycle lows. During the year, we continued to manage and prune our compression fleet selling 150,000 horsepower, accelerating EBITDA recognition from less strategic horsepower, and bringing in additional cash which we used to repay debt. And this month, we sold another 300 compressors totaling 40,000 horsepower, which will result in a gain on sale during the first quarter of 2021 of approximately $6 million. I also want to highlight that in the midst of a global pandemic and severe energy downturn, we continued to deliver exceptionally high service quality to our customers. Our customers have also been challenged by the downturn and we continue to work closely with them to achieve maximum production uptime and cash flows. Prioritizing these relationships and proving the value we deliver to our customers during the downturn will pay long-term dividends. Our efforts to continue to improve our customer service haven't stopped in 2021. Even as we manage costs tightly in this downturn, we continued to focus on innovation and invest both SG&A and capital dollars into our multi-year technology project. Over the last several months, we've begun to leverage the expanded Telematics capabilities on our compression units to drive an enhanced and more efficient response to downtime events. I'm excited that we'll complete the planned installation of Telematics on the remaining operating units in our fleet throughout the course of 2021. This is just one of several ongoing initiatives, which are critical to the future, enhancing the value proposition for our customers, reducing our emissions and carbon footprint, and delivering attractive returns to our shareholders. Moving to our aftermarket services segment, I appreciate the team's heavy lifting to maximize performance given the difficult hand dealt by COVID-19. The work to maintain as much profitability as possible hasn't been easy, but its importance is reflected in our results. Our fourth quarter revenue increased slightly on a sequential basis. This is particularly encouraging given the fourth quarter tends to be seasonally slow. Based on conversations with customers, our cautious optimism has carried over so far into 2021, which is reflected in our guidance for modest revenue growth this year compared to 2020. On our third quarter 2020 earnings call, we previewed our expectation for significant free cash flow generation again in 2021 supported by another significant reduction in capital expenditures. Our 2021 budget reaffirms our free cash flow expectation both pre and post dividend and fine tunes our CapEx forecast to reflect our latest customer engagements and view of the market. Our existing idle capacity provides us with meaningful capital allocation flexibility as we satisfy increased customer commitments later this year. As such, we plan to limit growth capital to between $30 million and $50 million, down from the $79 million in 2020 and $300 million in 2019. This 2021 growth CapEx includes repackaging CapEx and investments in a small number of new build units. These are high return, large horsepower opportunities with premium customers including several electric motor drive units. There is no doubt the energy sector has been one of the hardest hit by the pandemic, but every market offers an opportunity to outperform against that market context and Archrock did just that in 2020. In 2021, we will continue to do what Archrock does best, offer excellent customer service, operate safely and efficiently, and manage our financial position with discipline. These strategic principles provide a foundation for meaningful free cash flow generation, continuation of our capital allocation priorities, strong shareholder returns, and a sustainable future. Before turning the call over to Doug, I would be remiss if I did not highlight that our efforts to ensure our future have gone beyond our profitability initiatives to include a growing commitment to our ESG performance and disclosure. We published our second ESG report during the fourth quarter and with it adopted the FASB reporting standards for the midstream industry. We've also formalized the governance structure Archrock will use to manage our ESG efforts, which include the Board oversight of ESG matters and an internal employee-led sustainability committee that will assess opportunities within our operations and markets and consider and propose initiatives to improve performance. I'm confident our infrastructure assets are well positioned to participate in the global energy transition. Natural gas is reliable, affordable and cleaner burning. It has and will continue to bridge the gap between declining reliance on coal and nuclear power and increasing support for renewable energy sources. We believe our focus on natural gas and our legacy of resilience and of delivering continuous improvement will ensure that we continue to play a critical role in helping to power America. 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 2021 guidance.

Doug Aron, Chief Financial Officer

Thank you, 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 2020 was $5 million and included a non-cash $7 million long-lived asset impairment and $1 million in restructuring costs. We reported adjusted EBITDA of $89 million for the fourth quarter 2020. Adjusted EBITDA was down for the third quarter as expected due to lower operating horsepower and $20 million in non-recurring third quarter items which makes for challenging sequential comparisons. Our fourth quarter adjusted EBITDA performance kept us flat on a year-over-year basis for the full year 2020 and put us firmly above the midpoint of our annual guidance range. Achieving this in the face of the significant industry downturn demonstrates the stability of our business model and strong operating performance. Turning to our business segments, contract operations revenue came in at $169 million in the fourth quarter compared to $175 million in the third quarter due primarily to lower operating horsepower. We delivered a strong gross margin percentage of 65% as our operating team continued to pull out all the stops to reduce overtime, parts, lube oil, and make-ready expenses. For the full year, we delivered a meaningful increase in our gross margin percentage compared to 2020 despite revenue headwinds. In our aftermarket services segment, we reported fourth quarter 2020 revenue of $31 million compared to $30 million in the third quarter. The small increase occurred despite the more typical fourth quarter seasonal decline. Fourth quarter AMS gross margin of 13% was slightly below expectations. We had a few cost items come in above our forecast for the quarter including higher benefits and workers' compensation costs. For the year, we delivered a gross margin of 15%, which was consistent with the midpoint of our guidance. SG&A totaled $27 million for the fourth quarter, down 12% compared to the $31 million quarterly run rate earlier this year. The one-time $7 million benefit from tax audits and settlements included in the third quarter 2020 results affected quarter-over-quarter comparability. For the fourth quarter, growth capital expenditures totaled $1 million for equipment modifications and repackages. We had no new equipment CapEx for the quarter. Our full year growth CapEx of $79 million was down from $300 million in 2019 and in line with our guidance. Maintenance and other CapEx for the fourth quarter of 2020 was $9 million. This brings the full year total to $61 million, down $24 million or 28% year-over-year. This was also within our guidance. Late last year, we successfully completed an opportunistic debt offering, which further increased our financial flexibility. We took advantage of favorable debt market conditions to issue $300 million in senior notes at 5.125%. Proceeds were used to pay down a portion of borrowings on our revolving credit facility. I'm very pleased with the continued support from our lenders and the debt markets, a testament to the health and steadiness of our business. We exited the year with total debt of $1.7 billion, down over $42 million compared to the third quarter and as Brad mentioned, down by $155 million compared to the end of 2019. This significant reduction helped mitigate the leverage ratio impact of lower adjusted EBITDA. Our leverage ratio was just under 4.2 times compared to 4.0 times last quarter and was slightly improved versus the fourth quarter of 2019. We also had available liquidity of $444 million as of December 31st. Today, we announced two amendments to our credit facility. We reduced our facility size to $750 million from $1.25 billion. And although we don't expect to need it, the amendment also provides for higher leverage ratio covenants. The total leverage ratio covenant is stepping up from 5.25 times to 5.75 times through the fourth quarter of 2022. It will be 5.5 times in the first quarter of 2023 through the third quarter of 2023 and then return to 5.25 times in the fourth quarter of 2023 and thereafter. We do not anticipate our covenant leverage exceeding the high fours even at the low end of our guidance range, but the proactive amendment gives us additional cushion in the event of another unexpected market disruption like the one we witnessed in 2020 with COVID-19. We also put into place an aftermarket equity offering program totaling $50 million. We've had a few constructive conversations with our customers about possibly purchasing their compression assets for Archrock to operate. If successful, we believe partially funding these potential transactions using equity would be prudent in the current market. We recently declared a fourth quarter dividend of $0.145 per share or $0.58 on an annualized basis. Our latest dividend represents a compelling yield of 6% 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 2020 totaled $56 million leading to healthy fourth quarter dividend coverage of 2.5 times. Finally on guidance, all of the customary detail can be found in the materials published last night and for the purposes of this call, I will keep my comments high level. As we have discussed for some time now, we expect our 2021 adjusted EBITDA to be lower on a full year basis compared to 2020 due primarily to our expectation of lower average operating horsepower this year. As a later cycle and production-oriented participant in the energy value chain, we believe 2021 will be a transition year and we expect our earnings to stabilize in the first part of the year and begin to recover in the later part of the year and into 2022. We currently forecast 2021 adjusted EBITDA to be in the range of $335 million to $375 million. And comparing 2021 guidance to 2020 performance, I'll remind you that our 2020 adjusted EBITDA included $22 million in gain on asset sales and tax benefits. We will maintain capital discipline to continue to maximize our cash flow and ability to repay debt and prudently fund our dividend in 2021. On a full year basis, we expect total capital expenditures of $80 million to $106 million. This represents a decline of $47 million on the heels of the impressive $245 million reduction we delivered in 2020. Booking activity remains low, which will drive capital reinvestment even lower next year compared to 2020. We expect growth CapEx to be between $30 million and $50 million. As we put idle equipment back out to work to meet customer demand, we expect additional make-ready investment, which is reflected in our expectation for a modest increase in maintenance capital for 2021. Other CapEx ticked down meaningfully as planned as we reach the tail end of our technology investment period and as we tightly manage spending on our truck fleet. To sum it up, our expected operating performance combined with the reduced CapEx profile will drive strong free cash flow generation pre and post-dividend as well as meaningful debt reduction.

Operator, Operator

Our first question comes from the line of Daniel Burke. Sir, your line is now open.

Daniel Burke, Analyst

Yes, hey, good morning guys.

Brad Childers, President and Chief Executive Officer

Good morning.

Daniel Burke, Analyst

Let's see, I had a question on contract ops margin in 2021. A little bit of a step down year-over-year, not a surprise, but would you expect the contract ops margin to sort of mirror I think the general progression you described for this year? Will it be lower in the first half of the year and then begin to recover or should we think of that as more of a steady state margin?

Brad Childers, President and Chief Executive Officer

Looking back at 2020, we had a few factors that elevated our gross margin percentage which we do not anticipate repeating in 2021. One of those factors was a significant amount of horsepower transitioning to standby during the year, which provided an immediate gross margin benefit in 2020 that we will not experience in 2021. On a positive note, this horsepower is now in use, indicating a recovery and improved market conditions for 2021, as standby horsepower levels have normalized, allowing for the introduction of new horsepower. Additionally, we benefited from a one-time tax advantage in our gross margin. As we evaluate the gross margin year-over-year, we expect it to remain relatively flat, although we are facing some incremental challenges, including rising lube oil prices due to higher oil costs and the need to get more equipment operational as activity increases. Overall, this presents a clearer picture of our gross margin year-over-year.

Daniel Burke, Analyst

I appreciate that insight, Brad. I have two related questions regarding the fleet refreshment. Could you discuss the potential scale of customer fleet acquisition opportunities that may arise as the year progresses? Additionally, could you provide a broader perspective on asset sales? Specifically, do you think the experiences from 2020 will repeat themselves in 2021? I understand there’s limited visibility, but perhaps you could share a base case, as it could influence the guidance range for the year.

Brad Childers, President and Chief Executive Officer

Sure, let me address both questions and then Doug can add anything I might miss. Regarding customer acquisition, we’ve noticed that customers are now more focused on their balance sheets, capital discipline, and free cash flow, which could be beneficial for our business. We are optimistic about this shift and see a variety of opportunities emerging. While we won’t provide specific numbers, we are preparing to act quickly if we can capture them. I’ve noted before that such transactions can be challenging, but we currently see some positive momentum and want to ensure Archrock is ready to seize any opportunities that arise. I’m looking forward to hopefully announcing something in the near future. On the fleet improvement initiative, this is a significant long-term strategy for Archrock. As we prioritize enhancements in large horsepower, midstream gathering, and the best areas in the U.S. Lower 48, we will continue this effort when market conditions allow. However, our current capital allocation is centered on free cash flow, debt reduction, returning capital to shareholders, and maintaining discipline during this investment cycle. Additionally, the fleet improvement involves evaluating less strategic horsepower based on factors like market location and the horsepower itself. The advantages of this program are substantial. Firstly, it aids in standardizing our fleet, which enhances our financial performance through improved logistics and supply chain efficiency. Secondly, it accelerates EBITDA by generating gains that reflect an increase in earnings. This surge of cash will also support our debt repayment, which is one of our primary focuses. While we can’t predict whether 2021 will mirror 2020 due to the unpredictable nature of these transactions, we intend to pursue these opportunities with the same vigor in 2021 as we did in 2020.

Doug Aron, Chief Financial Officer

And Daniel, this is Doug, what I would say is in Brad's prepared remarks, he talks about one that we closed already here in 2021 and to further illustrate just really how meaningful that is to us, the average age of the equipment we sold in that transaction that he mentioned of 40,000 horsepower and 300 compressors was 25 years old and so the fact that we were able to sell that for what it amounted to about right at $6 million gain on sale of assets reflects that there is still usefulness. There are probably some smaller companies out there that can operate that horsepower frankly more efficiently than we can and allows us to focus our existing team on the more standardized larger fleet that we've described. So, really a win-win. Those are a little difficult to forecast. We are hopeful there are a couple of more similarly-sized transactions out there this year. Those are hard to bank on. I know if you'd asked sort of that as it relates to potentially to our guidance for the year and we've given perhaps a little bit of a wider range on EBITDA than we typically would. That higher or highest end of the guidance range might include another similarly-sized transaction this year whereas the midpoint of our guidance for this year really assumes that our horsepower stays flat to last year. And so, I know you guys are trying to sort of do the impossible which is to peg where you think we're going to be, but hopefully that helps frame that the ends of the spectrum.

Daniel Burke, Analyst

Yes, that's all helpful comments guys. I'll leave it there. Thank you.

Brad Childers, President and Chief Executive Officer

Thanks, Daniel.

Operator, Operator

Your next question comes from the line of Tom Curran. Your line is now open.

Thomas Curran, Analyst

Good morning.

Brad Childers, President and Chief Executive Officer

Good morning.

Thomas Curran, Analyst

Brad, has any segment of the customer base started or signaled preparations to expand their budgeted activity in order to capitalize on these sustained stronger than anticipated commodity prices and if so, would you just expound on who in terms of customer type, not specific names, and where with regards to basins you've detected such a response?

Brad Childers, President and Chief Executive Officer

I wish I could give you an extremely positive answer to that question, but the reality is that the market is still showing caution with capital budget increases as companies prioritize free cash flow and monitor the recovery of the market. Our conversations with customers reveal a sense of optimism about future plans if the market continues to perform well. There are pending projects they are eager to pursue, but it seems to us that the timing for moving forward will likely occur in the latter half of this year rather than the first half. While the discussions are encouraging, we are still seeing some hesitance in our customers' activities.

Thomas Curran, Analyst

Got it. That's consistent with what we've heard from many others. Turning to the technology modernization project, would you update us on where you're at with some of the implementation of some of that program's other initiatives such as the ERP system migration and remote monitoring and then just thematically, what's the next secular phase of technology evolution, is it a step up in automation? Is it some aspect of digitization? Just looking beyond Telematics, what seems like is going to come next for the future of compression?

Brad Childers, President and Chief Executive Officer

Sure, make a note as I think. I want to make sure I answer both parts of your question. So number one on the good news front. On the Telematics side, our rollout is going well and we're going to complete the installation of the remaining parts of our fleet that don't have full telemetry within 2021. That's our target and that's going well. Where we have installed it, the really good news for us is exciting to see us change our method of operating to take advantage and leverage that increased visibility as to what's going on, on the units, on an instantaneous basis as well as to use that information to drive better coordination of response with our customers for their benefit and for the benefit of uptime and certainly for cost management. So as we roll that out, we expect to continue to get the benefits of that. On the ERP, the team is working hard. We are going to spend 2021 preparing our systems for that and as you can probably imagine, you got to pick at least a quarter end if not a year-end for the flip of a switch on the ERP system and so we're targeting having that switch move at the end of this year and we have an adequate time and really a good time to prepare for that and to continue to prepare for that. So that's going well. And then the only other point I'm going to make on the rollout currently is that behind both of those and in between both of those, the ERP and field systems is going to come much better logistics management through our investment in our supply chain capabilities with much more information flow and more timely and instantaneous information around inventory, amounts and locations and needs. So those are some of the exciting things that we're going to get from the project as we move forward. I think that the next immediate phase of once it's fully implemented and we've practiced operationalizing and have fully operationalized the benefits of that communication system and information flow is to look at data and have data tell us more on a preventative and predictive basis where we need to focus our time and attention so that we can get ahead of not waiting for it to happen but seeing it before it happens and taking preventative and predictive actions or actions based on a predictive and preventative approach. I think that's really the next phase. Automation will be like a yet out there stage. I think that's a ways off. There are some inherent safety issues around how much automation is going to go into managing compression equipment, but that's the optimistic view I have right now about how well we're going to be able to operationalize the benefits of this investment.

Thomas Curran, Analyst

Great overview. Thanks for taking my questions.

Brad Childers, President and Chief Executive Officer

Yes, thank you.

Operator, Operator

Your next question comes from the line of Selman Akyol. Your line is now open.

Selman Akyol, Analyst

Got it, thank you. Good morning.

Brad Childers, President and Chief Executive Officer

Good morning.

Selman Akyol, Analyst

Thank you. I had a difficult time hearing. So let me ask you just two quick questions. So when you talk about potentially picking up some assets from your customers and I understand up to the $50 million, but how do you think about the earnings on that investment? How should we be thinking about it?

Brad Childers, President and Chief Executive Officer

On the topic of the high end of the CapEx range?

Selman Akyol, Analyst

Well, you guys talked about putting an ATM in place in order to purchase some compression from customers and so if we see that, I'm just wondering how we should be thinking about that?

Brad Childers, President and Chief Executive Officer

We still don't have an announcement to make regarding this, and until we do, it will be challenging to provide specifics. Generally, when considering new unit construction, we aim for mid-teens returns, at least 13%, varying with the contract length. Our perspective is that the cost of equity is higher than the cost of debt, and we previously committed to maintaining our leverage under four times by the end of 2020. However, COVID interrupted that goal. If we can allocate equity with mid-teens returns through term contracts with high-quality customers while owning their equipment, we see value in that approach, along with reducing our leverage. That's how we plan to evaluate these contracts, and we hope to report progress with interested customers. Given our scale and expertise in compression, we typically operate equipment at lower costs than our customers can achieve. Therefore, while a mid-teens return may seem attractive to us, it may appear lower to them due to their higher operating costs.

Selman Akyol, Analyst

Is there a reason why they would particularly come to you or is there chances they would go to several different compression players and get bids from everybody?

Brad Childers, President and Chief Executive Officer

It's a competitive market and there’s competitive work on projects like this too, but what we find is that customers with which we have a material amount of business, so significant strategic relationships, which tends to be the bulk of our top 10 customers, will want to work with us because that's their sort of provider of choice already and in fairness, a few of our competitors probably get the same benefit from their customer deck.

Selman Akyol, Analyst

Very good. And then, just last one for me. As you get your Telematics fully rolled out, should we see that show up in cost savings as well?

Brad Childers, President and Chief Executive Officer

Yes, you're already seeing it and the truth is, it will show up in cost savings and efficiencies. We're experiencing some of that and it's starting with the implementation of the expanded Telematics even in the back half of 2020. The question is going to be how well we can capture that and continued profit growth, which we've demonstrated for several years in a row now and how much that we show with our customers in pricing to gain more growth with our customers in the market, but it's absolutely going to come through in continued improvement in our cost base and its impacted profitability constructively already. We expect more of that.

Selman Akyol, Analyst

Very good. Thank you, Brad.

Brad Childers, President and Chief Executive Officer

Yes, thanks.

Operator, Operator

There are no more questions. Now, I'd like to turn the call back over to Ms. Childers for final remarks.

Brad Childers, President and Chief Executive Officer

Great. Thank you, operator. Thank you everyone for participating in our Q4 review today. As our results demonstrate, we continue to take the right steps to differentiate Archrock and to deliver value to our customers and our shareholders. Our future is bright and I look forward to updating you on our progress again next quarter. Thank you.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.