UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(MARK ONE)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2020
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| TO | ||||||
Commission File No. 001-36875 | |||||||
EXTERRAN CORPORATION | |||||||
(Exact name of registrant as specified in its charter) | |||||||
Delaware | 47-3282259 | ||||||
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) | |||||
11000 Equity Drive |
|
| |||||
Houston | Texas |
| 77041 | ||||
(Address of principal executive offices) |
| (Zip Code) |
(281) 836-7000 | ||||||||||||||
(Registrant’s telephone number, including area code) | ||||||||||||||
(Former name or former address, if changed since last report) | Not Applicable | |||||||||||||
Securities registered pursuant to Section 12(b) of the Exchange Act: | ||||||||||||||
Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||||||||||||
Common Stock, $0.01 par value per share | EXTN | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||||||||||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of the common stock of the registrant outstanding as of October 26, 2020: 33,126,97527, 2021: 33,303,552 shares.
TABLE OF CONTENTS |
| Page | |||
PART I. FINANCIAL INFORMATION |
| ||||
Item 1. Financial Statements (unaudited) | |||||
3 | |||||
4 | |||||
5 | |||||
6 | |||||
7 | |||||
Notes to Unaudited Condensed Consolidated Financial Statements | 8 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 40 | ||||
40 | |||||
41 | |||||
41 | |||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 41 | ||||
41 | |||||
41 | |||||
41 | |||||
42 | |||||
43 |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EXTERRAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts)
(unaudited)
September 30, 2020 | December 31, 2019 | ||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 28,159 | $ | 16,683 | |||||||
Restricted cash | 1,670 | 19 | |||||||||
Accounts receivable, net of allowance of $10,473 and $6,019, respectively | 183,620 | 179,158 | |||||||||
Inventory (Note 4) | 114,520 | 119,358 | |||||||||
Contract assets (Note 2) | 49,092 | 36,997 | |||||||||
Other current assets | 19,333 | 22,003 | |||||||||
Current assets associated with discontinued operations (Note 3) | 28,491 | 61,705 | |||||||||
Total current assets | 424,885 | 435,923 | |||||||||
Property, plant and equipment, net (Note 5) | 770,421 | 824,194 | |||||||||
Operating lease right-of-use assets | 26,204 | 26,227 | |||||||||
Deferred income taxes | 12,331 | 13,994 | |||||||||
Intangible and other assets, net | 75,775 | 93,924 | |||||||||
Long-term assets associated with discontinued operations (Note 3) | 20,877 | 23,742 | |||||||||
Total assets | $ | 1,330,493 | $ | 1,418,004 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current liabilities: | |||||||||||
Accounts payable, trade | $ | 59,230 | $ | 82,864 | |||||||
Accrued liabilities | 99,976 | 92,641 | |||||||||
Contract liabilities (Note 2) | 105,736 | 66,695 | |||||||||
Current operating lease liabilities | 6,051 | 5,819 | |||||||||
Current liabilities associated with discontinued operations (Note 3) | 37,355 | 78,626 | |||||||||
Total current liabilities | 308,348 | 326,645 | |||||||||
Long-term debt (Note 6) | 516,584 | 443,587 | |||||||||
Deferred income taxes | 1,483 | 993 | |||||||||
Long-term contract liabilities (Note 2) | 93,643 | 156,262 | |||||||||
Long-term operating lease liabilities | 30,646 | 30,189 | |||||||||
Other long-term liabilities | 51,514 | 48,749 | |||||||||
Long-term liabilities associated with discontinued operations (Note 3) | 2,299 | 2,041 | |||||||||
Total liabilities | 1,004,517 | 1,008,466 | |||||||||
Commitments and contingencies (Note 14) | |||||||||||
Stockholders’ equity: | |||||||||||
Preferred stock, $0.01 par value per share; 50,000,000 shares authorized; 0 issued | 0 | 0 | |||||||||
Common stock, $0.01 par value per share; 250,000,000 shares authorized; 37,782,196 and 37,508,286 shares issued, respectively | 378 | 375 | |||||||||
Additional paid-in capital | 749,694 | 747,622 | |||||||||
Accumulated deficit | (385,152) | (317,238) | |||||||||
Treasury stock — 4,651,961 and 4,467,600 common shares, at cost, respectively | (57,424) | (56,567) | |||||||||
Accumulated other comprehensive income | 18,480 | 35,346 | |||||||||
Total stockholders’ equity (Note 11) | 325,976 | 409,538 | |||||||||
Total liabilities and stockholders’ equity | $ | 1,330,493 | $ | 1,418,004 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 57,520 |
|
| $ | 40,318 |
|
Restricted cash |
|
| 2,460 |
|
|
| 3,410 |
|
Accounts receivable, net of allowance of $10,307, and $10,803, respectively |
|
| 179,594 |
|
|
| 198,028 |
|
Inventory (Note 4) |
|
| 104,020 |
|
|
| 109,837 |
|
Contract assets (Note 2) |
|
| 65,710 |
|
|
| 32,642 |
|
Other current assets |
|
| 18,346 |
|
|
| 19,810 |
|
Current assets associated with discontinued operations (Note 3) |
|
| 21,713 |
|
|
| 25,325 |
|
Total current assets |
|
| 449,363 |
|
|
| 429,370 |
|
Property, plant and equipment, net (Note 5) |
|
| 631,413 |
|
|
| 733,222 |
|
Long-term contract assets (Note 2) |
|
| 18,169 |
|
|
| 33,563 |
|
Operating lease right-of-use assets |
|
| 22,150 |
|
|
| 25,428 |
|
Deferred income taxes |
|
| 7,949 |
|
|
| 8,866 |
|
Intangible and other assets, net |
|
| 72,387 |
|
|
| 71,436 |
|
Long-term assets associated with discontinued operations (Note 3) |
|
| 1,687 |
|
|
| 1,606 |
|
Total assets |
| $ | 1,203,118 |
|
| $ | 1,303,491 |
|
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable, trade |
| $ | 60,303 |
|
| $ | 60,078 |
|
Accrued liabilities |
|
| 123,254 |
|
|
| 94,404 |
|
Contract liabilities (Note 2) |
|
| 92,493 |
|
|
| 100,123 |
|
Current operating lease liabilities |
|
| 5,454 |
|
|
| 6,340 |
|
Current liabilities associated with discontinued operations (Note 3) |
|
| 3,422 |
|
|
| 13,707 |
|
Total current liabilities |
|
| 284,926 |
|
|
| 274,652 |
|
Long-term debt (Note 6) |
|
| 572,547 |
|
|
| 562,325 |
|
Deferred income taxes |
|
| 2,275 |
|
|
| 1,014 |
|
Long-term contract liabilities (Note 2) |
|
| 56,763 |
|
|
| 80,499 |
|
Long-term operating lease liabilities |
|
| 26,966 |
|
|
| 29,868 |
|
Other long-term liabilities |
|
| 43,454 |
|
|
| 57,159 |
|
Long-term liabilities associated with discontinued operations (Note 3) |
|
| 1,007 |
|
|
| 2,142 |
|
Total liabilities |
|
| 987,938 |
|
|
| 1,007,659 |
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
|
| ||
Preferred stock, $0.01 par value per share; 50,000,000 shares authorized; 0 issued |
|
| 0 |
|
|
| 0 |
|
Common stock, $0.01 par value per share; 250,000,000 shares authorized; |
|
| 380 |
|
|
| 378 |
|
Additional paid-in capital |
|
| 752,772 |
|
|
| 750,506 |
|
Accumulated deficit |
|
| (499,919 | ) |
|
| (418,529 | ) |
Treasury stock — 4,737,703 and 4,665,560 common shares, at cost, respectively |
|
| (57,742 | ) |
|
| (57,431 | ) |
Accumulated other comprehensive income |
|
| 19,689 |
|
|
| 20,908 |
|
Total stockholders’ equity (Note 11) |
|
| 215,180 |
|
|
| 295,832 |
|
Total liabilities and stockholders’ equity |
| $ | 1,203,118 |
|
| $ | 1,303,491 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
EXTERRAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Revenues (Note 2): | |||||||||||||||||||||||
Contract operations | $ | 81,679 | $ | 96,261 | $ | 254,412 | $ | 271,645 | |||||||||||||||
Aftermarket services | 30,435 | 34,893 | 83,337 | 92,308 | |||||||||||||||||||
Product sales | 57,397 | 54,796 | 123,613 | 254,367 | |||||||||||||||||||
169,511 | 185,950 | 461,362 | 618,320 | ||||||||||||||||||||
Costs and expenses: | |||||||||||||||||||||||
Cost of sales (excluding depreciation and amortization expense): | |||||||||||||||||||||||
Contract operations | 24,548 | 34,356 | 79,754 | 93,283 | |||||||||||||||||||
Aftermarket services | 23,135 | 26,079 | 63,336 | 67,814 | |||||||||||||||||||
Product sales | 54,263 | 48,187 | 125,581 | 217,073 | |||||||||||||||||||
Selling, general and administrative | 29,959 | 32,308 | 95,049 | 108,902 | |||||||||||||||||||
Depreciation and amortization | 36,630 | 41,106 | 100,887 | 113,450 | |||||||||||||||||||
Impairments (Note 8) | 1,695 | 2,970 | 1,695 | 8,889 | |||||||||||||||||||
Restructuring and other charges (Note 9) | 238 | 1,257 | 3,550 | 6,342 | |||||||||||||||||||
Interest expense | 9,623 | 10,103 | 29,214 | 28,194 | |||||||||||||||||||
Gain on extinguishment of debt (Note 6) | (780) | 0 | (3,424) | 0 | |||||||||||||||||||
Other (income) expense, net | 1,178 | 2,101 | (1,169) | 399 | |||||||||||||||||||
180,489 | 198,467 | 494,473 | 644,346 | ||||||||||||||||||||
Loss before income taxes | (10,978) | (12,517) | (33,111) | (26,026) | |||||||||||||||||||
Provision for income taxes (Note 10) | 5,745 | 477 | 18,970 | 20,209 | |||||||||||||||||||
Loss from continuing operations | (16,723) | (12,994) | (52,081) | (46,235) | |||||||||||||||||||
Income (loss) from discontinued operations, net of tax (Note 3) | (998) | 3,153 | (15,833) | 23,695 | |||||||||||||||||||
Net loss | $ | (17,721) | $ | (9,841) | $ | (67,914) | $ | (22,540) | |||||||||||||||
Basic and diluted net loss per common share (Note 13): | |||||||||||||||||||||||
Loss from continuing operations per common share | $ | (0.51) | $ | (0.38) | $ | (1.59) | $ | (1.33) | |||||||||||||||
Income (loss) from discontinued operations per common share | (0.03) | 0.09 | (0.48) | 0.68 | |||||||||||||||||||
Net loss per common share | $ | (0.54) | $ | (0.29) | $ | (2.07) | $ | (0.65) | |||||||||||||||
Weighted average common shares outstanding used in net loss per common share (Note 13): | |||||||||||||||||||||||
Basic and diluted | 32,806 | 33,783 | 32,742 | 34,839 |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenues (Note 2): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contract operations |
| $ | 83,362 |
|
| $ | 81,679 |
|
| $ | 251,874 |
|
| $ | 254,412 |
|
Aftermarket services |
|
| 24,633 |
|
|
| 30,435 |
|
|
| 79,154 |
|
|
| 83,337 |
|
Product sales |
|
| 53,304 |
|
|
| 57,397 |
|
|
| 112,634 |
|
|
| 123,613 |
|
|
|
| 161,299 |
|
|
| 169,511 |
|
|
| 443,662 |
|
|
| 461,362 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of sales (excluding depreciation and amortization expense): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contract operations |
|
| 27,790 |
|
|
| 24,548 |
|
|
| 78,898 |
|
|
| 79,754 |
|
Aftermarket services |
|
| 19,379 |
|
|
| 23,135 |
|
|
| 62,813 |
|
|
| 63,336 |
|
Product sales |
|
| 46,755 |
|
|
| 54,263 |
|
|
| 99,437 |
|
|
| 125,581 |
|
Selling, general and administrative |
|
| 34,938 |
|
|
| 29,959 |
|
|
| 101,199 |
|
|
| 95,049 |
|
Depreciation and amortization |
|
| 43,889 |
|
|
| 36,630 |
|
|
| 132,097 |
|
|
| 100,887 |
|
Impairment (Note 8) |
|
| 0 |
|
|
| 1,695 |
|
|
| 7,959 |
|
|
| 1,695 |
|
Restructuring and other charges (Note 9) |
|
| (62 | ) |
|
| 238 |
|
|
| 192 |
|
|
| 3,550 |
|
Interest expense |
|
| 10,479 |
|
|
| 9,623 |
|
|
| 30,800 |
|
|
| 29,214 |
|
Gain on extinguishment of debt (Note 6) |
|
| 0 |
|
|
| (780 | ) |
|
| 0 |
|
|
| (3,424 | ) |
Other (income) expense, net |
|
| (1,074 | ) |
|
| 1,178 |
|
|
| (1,172 | ) |
|
| (1,169 | ) |
|
|
| 182,094 |
|
|
| 180,489 |
|
|
| 512,223 |
|
|
| 494,473 |
|
Loss before income taxes |
|
| (20,795 | ) |
|
| (10,978 | ) |
|
| (68,561 | ) |
|
| (33,111 | ) |
Provision for (benefit from) for income taxes (Note 10) |
|
| (5,187 | ) |
|
| 5,745 |
|
|
| 11,105 |
|
|
| 18,970 |
|
Loss from continuing operations |
|
| (15,608 | ) |
|
| (16,723 | ) |
|
| (79,666 | ) |
|
| (52,081 | ) |
Loss from discontinued operations, net of tax (Note 3) |
|
| (695 | ) |
|
| (998 | ) |
|
| (1,724 | ) |
|
| (15,833 | ) |
Net loss |
| $ | (16,303 | ) |
| $ | (17,721 | ) |
| $ | (81,390 | ) |
| $ | (67,914 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted net loss per common share (Note 13): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss from continuing operations per common share |
| $ | (0.47 | ) |
| $ | (0.51 | ) |
| $ | (2.41 | ) |
| $ | (1.59 | ) |
Loss from discontinued operations per common share |
|
| (0.02 | ) |
|
| (0.03 | ) |
|
| (0.05 | ) |
|
| (0.48 | ) |
Net loss per common share |
| $ | (0.49 | ) |
| $ | (0.54 | ) |
| $ | (2.46 | ) |
| $ | (2.07 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding used in net loss per |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted |
|
| 33,068 |
|
|
| 32,806 |
|
|
| 33,024 |
|
|
| 32,742 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
EXTERRAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Net loss | $ | (17,721) | $ | (9,841) | $ | (67,914) | $ | (22,540) | |||||||||||||||
Other comprehensive loss: | |||||||||||||||||||||||
Foreign currency translation adjustment | (2,080) | (3,631) | (16,866) | (4,179) | |||||||||||||||||||
Comprehensive loss | $ | (19,801) | $ | (13,472) | $ | (84,780) | $ | (26,719) |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net loss |
| $ | (16,303 | ) |
| $ | (17,721 | ) |
| $ | (81,390 | ) |
| $ | (67,914 | ) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustment |
|
| (2,021 | ) |
|
| (2,080 | ) |
|
| (1,219 | ) |
|
| (16,866 | ) |
Comprehensive loss |
| $ | (18,324 | ) |
| $ | (19,801 | ) |
| $ | (82,609 | ) |
| $ | (84,780 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
EXTERRAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(unaudited)
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Income | Total | ||||||||||||||||||||||||||||||
Balance, January 1, 2019 | $ | 369 | $ | 734,458 | $ | (208,677) | $ | (11,560) | $ | 38,231 | $ | 552,821 | |||||||||||||||||||||||
Cumulative-effect adjustment from adoption of ASC 842 Leases | (6,184) | (6,184) | |||||||||||||||||||||||||||||||||
Net loss | (5,394) | (5,394) | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | (968) | (968) | |||||||||||||||||||||||||||||||||
Treasury stock purchased | (7,087) | (7,087) | |||||||||||||||||||||||||||||||||
Stock-based compensation, net of forfeitures | 6 | 3,990 | 3,996 | ||||||||||||||||||||||||||||||||
Balance, March 31, 2019 | $ | 375 | $ | 738,448 | $ | (220,255) | $ | (18,647) | $ | 37,263 | $ | 537,184 | |||||||||||||||||||||||
Net loss | (7,305) | (7,305) | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | 420 | 420 | |||||||||||||||||||||||||||||||||
Transfers from Archrock, Inc. | 420 | 420 | |||||||||||||||||||||||||||||||||
Treasury stock purchased | (14,224) | (14,224) | |||||||||||||||||||||||||||||||||
Stock-based compensation, net of forfeitures | 3,487 | 3,487 | |||||||||||||||||||||||||||||||||
Balance, June 30, 2019 | $ | 375 | $ | 742,355 | $ | (227,560) | $ | (32,871) | $ | 37,683 | $ | 519,982 | |||||||||||||||||||||||
Net loss | (9,841) | (9,841) | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | (3,631) | (3,631) | |||||||||||||||||||||||||||||||||
Treasury stock purchased | (20,285) | (20,285) | |||||||||||||||||||||||||||||||||
Stock-based compensation, net of forfeitures | 2,874 | 2,874 | |||||||||||||||||||||||||||||||||
Balance, September 30, 2019 | $ | 375 | $ | 745,229 | $ | (237,401) | $ | (53,156) | $ | 34,052 | $ | 489,099 | |||||||||||||||||||||||
Balance, January 1, 2020 | $ | 375 | $ | 747,622 | $ | (317,238) | $ | (56,567) | $ | 35,346 | $ | 409,538 | |||||||||||||||||||||||
Net loss | (18,304) | (18,304) | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | (11,056) | (11,056) | |||||||||||||||||||||||||||||||||
Treasury stock purchased | (835) | (835) | |||||||||||||||||||||||||||||||||
Stock-based compensation, net of forfeitures | 2 | 283 | 285 | ||||||||||||||||||||||||||||||||
Balance, March 31, 2020 | $ | 377 | $ | 747,905 | $ | (335,542) | $ | (57,402) | $ | 24,290 | $ | 379,628 | |||||||||||||||||||||||
Net loss | (31,889) | (31,889) | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | (3,730) | (3,730) | |||||||||||||||||||||||||||||||||
Treasury stock purchased | (10) | (10) | |||||||||||||||||||||||||||||||||
Stock-based compensation, net of forfeitures | 1 | 1,120 | 1,121 | ||||||||||||||||||||||||||||||||
Balance, June 30, 2020 | $ | 378 | $ | 749,025 | $ | (367,431) | $ | (57,412) | $ | 20,560 | $ | 345,120 | |||||||||||||||||||||||
Net loss | (17,721) | (17,721) | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | (2,080) | (2,080) | |||||||||||||||||||||||||||||||||
Treasury stock purchased | (12) | (12) | |||||||||||||||||||||||||||||||||
Stock-based compensation, net of forfeitures | 669 | 669 | |||||||||||||||||||||||||||||||||
Balance, September 30, 2020 | $ | 378 | $ | 749,694 | $ | (385,152) | $ | (57,424) | $ | 18,480 | $ | 325,976 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||
|
|
|
|
| 'Additional |
|
|
|
|
|
|
|
| Other |
|
|
|
| ||||||
|
|
|
|
| Paid-in |
|
| Accumulated |
|
|
|
|
| Comprehensive |
|
|
|
| ||||||
|
| Common Stock |
|
| Capital |
|
| Deficit |
|
| Treasury Stock |
|
| Income |
|
| Total |
| ||||||
Balance, January 1, 2020 |
| $ | 375 |
|
| $ | 747,622 |
|
| $ | (317,238 | ) |
| $ | (56,567 | ) |
| $ | 35,346 |
|
| $ | 409,538 |
|
Net loss |
|
|
|
|
|
|
|
| (18,304 | ) |
|
|
|
|
|
|
|
| (18,304 | ) | ||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (11,056 | ) |
|
| (11,056 | ) | ||||
Treasury stock purchased |
|
|
|
|
|
|
|
|
|
|
| (835 | ) |
|
|
|
|
| (835 | ) | ||||
Stock-based compensation, net of forfeitures |
|
| 2 |
|
|
| 283 |
|
|
|
|
|
|
|
|
|
|
|
| 285 |
| |||
Balance, March 31, 2020 |
| $ | 377 |
|
| $ | 747,905 |
|
| $ | (335,542 | ) |
| $ | (57,402 | ) |
| $ | 24,290 |
|
| $ | 379,628 |
|
Net loss |
|
|
|
|
|
|
|
| (31,889 | ) |
|
|
|
|
|
|
|
| (31,889 | ) | ||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,730 | ) |
|
| (3,730 | ) | ||||
Treasury stock purchased |
|
|
|
|
|
|
|
|
|
|
| (10 | ) |
|
|
|
|
| (10 | ) | ||||
Stock-based compensation, net |
|
| 1 |
|
|
| 1,120 |
|
|
|
|
|
|
|
|
|
|
|
| 1,121 |
| |||
Balance, June 30, 2020 |
| $ | 378 |
|
| $ | 749,025 |
|
| $ | (367,431 | ) |
| $ | (57,412 | ) |
| $ | 20,560 |
|
| $ | 345,120 |
|
Net loss |
|
|
|
|
|
|
|
| (17,721 | ) |
|
|
|
|
|
|
|
| (17,721 | ) | ||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,080 | ) |
|
| (2,080 | ) | ||||
Treasury stock purchased |
|
|
|
|
|
|
|
|
|
|
| (12 | ) |
|
|
|
|
| (12 | ) | ||||
Stock-based compensation, net of forfeitures |
|
|
|
|
| 669 |
|
|
|
|
|
|
|
|
|
|
|
| 669 |
| ||||
Balance, September 30, 2020 |
| $ | 378 |
|
| $ | 749,694 |
|
| $ | (385,152 | ) |
| $ | (57,424 | ) |
| $ | 18,480 |
|
| $ | 325,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, January 1, 2021 |
| $ | 378 |
|
| $ | 750,506 |
|
| $ | (418,529 | ) |
| $ | (57,431 | ) |
| $ | 20,908 |
|
| $ | 295,832 |
|
Net loss |
|
|
|
|
|
|
|
| (29,873 | ) |
|
|
|
|
|
|
|
| (29,873 | ) | ||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,417 | ) |
|
| (2,417 | ) | ||||
Treasury stock purchased |
|
|
|
|
|
|
|
|
|
|
| (310 | ) |
|
|
|
|
| (310 | ) | ||||
Stock-based compensation, net |
|
| 2 |
|
|
| 1,471 |
|
|
|
|
|
|
|
|
|
|
|
| 1,473 |
| |||
Balance, March 31, 2021 |
| $ | 380 |
|
| $ | 751,977 |
|
| $ | (448,402 | ) |
| $ | (57,741 | ) |
| $ | 18,491 |
|
| $ | 264,705 |
|
Net loss |
|
|
|
|
|
|
|
| (35,214 | ) |
|
|
|
|
|
|
|
| (35,214 | ) | ||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,219 |
|
|
| 3,219 |
| ||||
Stock-based compensation, net of forfeitures |
|
|
|
|
| 431 |
|
|
|
|
|
|
|
|
|
|
|
| 431 |
| ||||
Balance, June 30, 2021 |
| $ | 380 |
|
| $ | 752,408 |
|
| $ | (483,616 | ) |
| $ | (57,741 | ) |
| $ | 21,710 |
|
| $ | 233,141 |
|
Net loss |
|
|
|
|
|
|
|
| (16,303 | ) |
|
|
|
|
|
|
|
| (16,303 | ) | ||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,021 | ) |
|
| (2,021 | ) | ||||
Treasury stock purchased |
|
|
|
|
|
|
|
|
|
|
| (1 | ) |
|
|
|
|
| (1 | ) | ||||
Stock-based compensation, net of forfeitures |
|
| - |
|
|
| 364 |
|
|
|
|
|
|
|
|
|
|
|
| 364 |
| |||
Balance, September 30, 2021 |
| $ | 380 |
|
| $ | 752,772 |
|
| $ | (499,919 | ) |
| $ | (57,742 | ) |
| $ | 19,689 |
|
| $ | 215,180 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
EXTERRAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended September 30, | |||||||||||
2020 | 2019 | ||||||||||
Cash flows from operating activities: | |||||||||||
Net loss | $ | (67,914) | $ | (22,540) | |||||||
Adjustments to reconcile net loss to cash provided by operating activities: | |||||||||||
Depreciation and amortization | 100,887 | 113,450 | |||||||||
Impairments | 1,695 | 8,889 | |||||||||
Amortization of deferred financing costs | 1,871 | 1,884 | |||||||||
(Income) loss from discontinued operations, net of tax | 15,833 | (23,695) | |||||||||
Provision for doubtful accounts | 4,449 | 0 | |||||||||
Gain on sale of property, plant and equipment | (269) | (1,361) | |||||||||
Gain on remeasurement of intercompany balances | (3,822) | (153) | |||||||||
(Gain) loss on foreign currency derivatives | (27) | 794 | |||||||||
Gain on extinguishment of debt | (3,424) | 0 | |||||||||
Stock-based compensation expense | 2,075 | 10,357 | |||||||||
Deferred income tax expense (benefit) | 2,779 | (5,812) | |||||||||
Changes in assets and liabilities: | |||||||||||
Accounts receivable and notes | (10,777) | 21,101 | |||||||||
Inventory | 3,695 | (18,305) | |||||||||
Contract assets | (12,561) | 23,939 | |||||||||
Other current assets | 5,271 | 16,560 | |||||||||
Accounts payable and other liabilities | (13,517) | (31,255) | |||||||||
Contract liabilities | (5,669) | 68,004 | |||||||||
Other | 5,097 | (4,396) | |||||||||
Net cash provided by continuing operations | 25,672 | 157,461 | |||||||||
Net cash used in discontinued operations | (19,884) | (34,499) | |||||||||
Net cash provided by operating activities | 5,788 | 122,962 | |||||||||
Cash flows from investing activities: | |||||||||||
Capital expenditures | (65,852) | (169,969) | |||||||||
Proceeds from sale of property, plant and equipment | 240 | 4,282 | |||||||||
Settlement of foreign currency derivatives | 0 | (794) | |||||||||
Net cash used in continuing operations | (65,612) | (166,481) | |||||||||
Net cash used in discontinued operations | (882) | (2,149) | |||||||||
Net cash used in investing activities | (66,494) | (168,630) | |||||||||
Cash flows from financing activities: | |||||||||||
Proceeds from borrowings of debt | 305,000 | 530,000 | |||||||||
Repayments of debt | (229,560) | (439,338) | |||||||||
Transfer from Archrock, Inc. | 0 | 420 | |||||||||
Purchases of treasury stock (Note 11) | (857) | (41,596) | |||||||||
Net cash provided by financing activities | 74,583 | 49,486 | |||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (750) | (1,298) | |||||||||
Net increase in cash, cash equivalents and restricted cash | 13,127 | 2,520 | |||||||||
Cash, cash equivalents and restricted cash at beginning of period | 16,702 | 19,478 | |||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 29,829 | $ | 21,998 | |||||||
Supplemental disclosure of non-cash transactions: | |||||||||||
Accrued capital expenditures | $ | 2,529 | $ | 6,358 | |||||||
|
| Nine Months Ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (81,390 | ) |
| $ | (67,914 | ) |
Adjustments to reconcile net loss to cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 132,097 |
|
|
| 100,887 |
|
Impairment |
|
| 7,959 |
|
|
| 1,695 |
|
Amortization of deferred financing costs |
|
| 1,991 |
|
|
| 1,871 |
|
Loss from discontinued operations, net of tax |
|
| 1,724 |
|
|
| 15,833 |
|
Provision for doubtful accounts |
|
| 825 |
|
|
| 4,449 |
|
Gain on sale of property, plant and equipment |
|
| (738 | ) |
|
| (269 | ) |
(Gain) loss on remeasurement of intercompany balances |
|
| 810 |
|
|
| (3,822 | ) |
(Gain) loss on foreign currency derivatives |
|
| 2,030 |
|
|
| (27 | ) |
Gain on extinguishment of debt |
|
| 0 |
|
|
| (3,424 | ) |
Stock-based compensation expense |
|
| 2,268 |
|
|
| 2,075 |
|
Deferred income tax expense |
|
| 48 |
|
|
| 2,779 |
|
Changes in assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable and notes |
|
| 17,301 |
|
|
| (10,777 | ) |
Inventory |
|
| 5,682 |
|
|
| 3,695 |
|
Contract assets and contract liabilities, net |
|
| (60,969 | ) |
|
| (18,230 | ) |
Other current assets |
|
| 986 |
|
|
| 5,271 |
|
Accounts payable and other liabilities |
|
| 7,230 |
|
|
| (13,517 | ) |
Other |
|
| 1,378 |
|
|
| 5,097 |
|
Net cash provided by continuing operations |
|
| 39,232 |
|
|
| 25,672 |
|
Net cash used in discontinued operations |
|
| (9,614 | ) |
|
| (19,884 | ) |
Net cash provided by operating activities |
|
| 29,618 |
|
|
| 5,788 |
|
|
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
|
| ||
Capital expenditures |
|
| (23,585 | ) |
|
| (65,852 | ) |
Proceeds from sale of property, plant and equipment |
|
| 844 |
|
|
| 240 |
|
Net cash used in continuing operations |
|
| (22,741 | ) |
|
| (65,612 | ) |
Net cash used in discontinued operations |
|
| 0 |
|
|
| (882 | ) |
Net cash used in investing activities |
|
| (22,741 | ) |
|
| (66,494 | ) |
|
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
|
| ||
Proceeds from borrowings of debt |
|
| 164,400 |
|
|
| 305,000 |
|
Repayments of debt |
|
| (154,292 | ) |
|
| (229,560 | ) |
Purchases of treasury stock (Note 11) |
|
| (311 | ) |
|
| (857 | ) |
Net cash provided by financing activities |
|
| 9,797 |
|
|
| 74,583 |
|
|
|
|
|
|
|
| ||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| (422 | ) |
|
| (750 | ) |
Net increase in cash, cash equivalents and restricted cash |
|
| 16,252 |
|
|
| 13,127 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
| 43,728 |
|
|
| 16,702 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 59,980 |
|
| $ | 29,829 |
|
|
|
|
|
|
|
| ||
Supplemental disclosure of non-cash transactions: |
|
|
|
|
|
| ||
Accrued capital expenditures |
| $ | 11,047 |
|
| $ | 2,529 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
EXTERRAN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Description of Business and Basis of Presentation
Description of Business
Exterran Corporation (together with its subsidiaries, “Exterran Corporation,” the “Company,” “our,” “we” or “us”), a Delaware corporation formed in March 2015, is a global sustainable systems and process company offering solutions in the oil, gas, water and power markets. We are a leader in natural gas processing and treatment, produced water treatment and compression products, solutions and services, providing critical midstream infrastructure solutions to customers throughout the world.world while helping them reduce their flaring, emissions and fresh water usage. We provide our products, solutions, and services to a global customer base consisting of companies engaged in all aspects of the oil and natural gas industry, including large integrated oil and natural gas companies, national oil and natural gas companies, independent oil and natural gas producers and oil and natural gas processors, gatherers and pipeline operators. Our manufacturing facilities are located in the United States of America (“U.S.”), Singapore and the United Arab Emirates. We operate in 3 primary business lines: contract operations, aftermarket services and product sales.
The accompanying unaudited condensed consolidated financial statements of Exterran Corporation included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.”) (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP are not required in these interim financial statements and have been condensed or omitted. Management believes that the information furnished includes all adjustments of a normal recurring nature that are necessary to fairly state our consolidated financial position, results of operations and cash flows for the periods indicated. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements presented in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. That report contains a comprehensive summary of our accounting policies. The interim results reported herein are not necessarily indicative of results for a full year. Certain reclassifications have been made for the prior year period to conform to the current year presentation.
We refer to the condensed consolidated financial statements collectively as “financial statements,” and individually as “balance sheets,” “statements of operations,” “statements of comprehensive income (loss),” “statements of stockholders’ equity” and “statements of cash flows” herein.
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption across most industries. Efforts to mitigate the spread of COVID-19 have also resulted in decreased energy demand and additional weakness in energy pricing. To help control the spread of the virus and protect the health and safety of our employees and customers, we began temporarily closing our locations or modifying operating hours in our locations around the world. This was in response to governmental requirements including “stay-at-home” orders and similar mandates and in some of our locations, we voluntarily went beyond the requirements of local government authorities. The broader implications of COVID-19 on our long-term future results of operations and overall financial condition remains uncertain. Due to the rapid market deterioration during the three months ended March 31, 2020, we concluded that a trigger existed and that we should evaluate our long-term assets for impairment. Therefore, we updated our impairment analysis and concluded that no impairment existed during the three months ended March 31, 2020. No triggering events were identified subsequent to March 31, 2020, related to the ongoing COVID-19 pandemic.
8
We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to be not applicable.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The update changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. On January 1, 2020, we adopted this update using a modified retrospective approach. The adoption of this update was immaterial to our financial statements. For more information regarding the allowance for doubtful accounts, see Note 2.
In June 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). Topic 848 is effective for fiscal years and interim periods beginning as of March 12, 2020 through December 31, 2022. This update provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. It is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The adoption of ASU 2020-04 did not have a material impact of the update onto our financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
There are no recently issued accounting pronouncements not yet adopted that we are aware of at this time that would have a material impact on the Company.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
Revenue by Products and Services | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
Contract Operations Segment: | ||||||||||||||||||||||||||
Contract operations services (1) | $ | 81,679 | $ | 96,261 | $ | 254,412 | $ | 271,645 | ||||||||||||||||||
Aftermarket Services Segment: | ||||||||||||||||||||||||||
Operation and maintenance services (1) | $ | 12,966 | $ | 14,069 | $ | 38,184 | $ | 40,844 | ||||||||||||||||||
Part sales (2) | 11,490 | 10,208 | 31,999 | 32,197 | ||||||||||||||||||||||
Other services (1) | 5,979 | 10,616 | 13,154 | 19,267 | ||||||||||||||||||||||
Total aftermarket services | $ | 30,435 | $ | 34,893 | $ | 83,337 | $ | 92,308 | ||||||||||||||||||
Product Sales Segment(3): | ||||||||||||||||||||||||||
Compression equipment (1) | $ | 40,300 | $ | 4,764 | $ | 73,654 | $ | 10,516 | ||||||||||||||||||
Processing and treating equipment (1) | 14,220 | 47,843 | 34,836 | 236,926 | ||||||||||||||||||||||
Production equipment (2) | 0 | 0 | 578 | 2,458 | ||||||||||||||||||||||
Other product sales (1) (2) | 2,877 | 2,189 | 14,545 | 4,467 | ||||||||||||||||||||||
Total product sales revenues | $ | 57,397 | $ | 54,796 | $ | 123,613 | $ | 254,367 | ||||||||||||||||||
Total revenues | $ | 169,511 | $ | 185,950 | $ | 461,362 | $ | 618,320 |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
Revenue by Products and Services |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Contract Operations Segment: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contract operations services (1) |
| $ | 83,362 |
|
| $ | 81,679 |
|
| $ | 251,874 |
|
| $ | 254,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Aftermarket Services Segment: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operation and maintenance services (1) |
| $ | 11,655 |
|
| $ | 12,966 |
|
| $ | 36,171 |
|
| $ | 38,184 |
|
Part sales (2) |
|
| 10,680 |
|
|
| 11,490 |
|
|
| 33,000 |
|
|
| 31,999 |
|
Other services (1) |
|
| 2,298 |
|
|
| 5,979 |
|
|
| 9,983 |
|
|
| 13,154 |
|
Total aftermarket services |
| $ | 24,633 |
|
| $ | 30,435 |
|
| $ | 79,154 |
|
| $ | 83,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product Sales Segment: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Compression equipment (1) (3) |
| $ | 5,795 |
|
| $ | 40,300 |
|
| $ | 13,767 |
|
| $ | 73,654 |
|
Processing and treating equipment (1) |
|
| 41,825 |
|
|
| 14,220 |
|
|
| 85,715 |
|
|
| 34,836 |
|
Other product sales (1) (2) |
|
| 5,684 |
|
|
| 2,877 |
|
|
| 13,152 |
|
|
| 15,123 |
|
Total product sales revenues |
| $ | 53,304 |
|
| $ | 57,397 |
|
| $ | 112,634 |
|
| $ | 123,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenues |
| $ | 161,299 |
|
| $ | 169,511 |
|
| $ | 443,662 |
|
| $ | 461,362 |
|
9
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
Revenue by Geographical Regions |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
North America |
| $ | 2,099 |
|
| $ | 13,364 |
|
| $ | 11,524 |
|
| $ | 31,694 |
|
Latin America |
|
| 68,507 |
|
|
| 60,302 |
|
|
| 197,717 |
|
|
| 195,451 |
|
Middle East and Africa |
|
| 81,034 |
|
|
| 69,682 |
|
|
| 200,192 |
|
|
| 177,768 |
|
Asia Pacific |
|
| 9,659 |
|
|
| 26,163 |
|
|
| 34,229 |
|
|
| 56,449 |
|
Total revenues |
| $ | 161,299 |
|
| $ | 169,511 |
|
| $ | 443,662 |
|
| $ | 461,362 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
Revenue by Geographical Regions | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
North America | $ | 13,364 | $ | 22,007 | $ | 31,694 | $ | 95,813 | ||||||||||||||||||
Latin America | 60,302 | 85,928 | 195,451 | 240,576 | ||||||||||||||||||||||
Middle East and Africa | 69,682 | 66,601 | 177,768 | 249,861 | ||||||||||||||||||||||
Asia Pacific | 26,163 | 11,414 | 56,449 | 32,070 | ||||||||||||||||||||||
Total revenues | $ | 169,511 | $ | 185,950 | $ | 461,362 | $ | 618,320 |
|
| Contract Operations |
|
| Product Sales |
| ||
|
| Segment |
|
| Segment |
| ||
Remainder of 2021 |
| $ | 79,586 |
|
| $ | 76,553 |
|
2022 |
|
| 247,050 |
|
|
| 195,242 |
|
2023 |
|
| 251,867 |
|
|
| 59,787 |
|
2024 |
|
| 230,749 |
|
|
| 16,045 |
|
2025 |
|
| 209,521 |
|
|
| 17,557 |
|
Thereafter |
|
| 414,537 |
|
|
| 0 |
|
Total backlog |
| $ | 1,433,310 |
|
| $ | 365,184 |
|
Contract Operations Segment | Product Sales Segment | ||||||||||
Remainder of 2020 | $ | 75,935 | $ | 46,284 | |||||||
2021 | 283,571 | 177,333 | |||||||||
2022 | 224,186 | 200,041 | |||||||||
2023 | 165,739 | 34,681 | |||||||||
2024 | 144,456 | 9,000 | |||||||||
Thereafter | 314,252 | 29,315 | |||||||||
Total backlog | $ | 1,208,139 | $ | 496,654 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Accounts receivables, net |
| $ | 179,594 |
|
| $ | 198,028 |
|
Contract assets and contract liabilities: |
|
|
|
|
|
| ||
Current contract assets |
|
| 65,710 |
|
|
| 32,642 |
|
Long-term contract assets |
|
| 18,169 |
|
|
| 33,563 |
|
Current contract liabilities |
|
| 92,493 |
|
|
| 100,123 |
|
Long-term contract liabilities |
|
| 56,763 |
|
|
| 80,499 |
|
September 30, 2020 | December 31, 2019 | |||||||||||||
Accounts receivables, net | $ | 183,620 | $ | 179,158 | ||||||||||
Contract assets and contract liabilities: | ||||||||||||||
Current contract assets | 49,092 | 36,997 | ||||||||||||
Long-term contract assets | 7,701 | 16,280 | ||||||||||||
Current contract liabilities | 105,736 | 66,695 | ||||||||||||
Long-term contract liabilities | 93,643 | 156,262 |
10
September 30, 20202021 was primarily driven by the acceleration of deferred revenue on two separate contracts due to a change in the remaining term of a contract operation services contractterms in the Latin America region.
Balance at December 31, 2020 |
| $ | 10,803 |
|
Write-offs during the period |
|
| (496 | ) |
Balance at September 30, 2021 |
| $ | 10,307 |
|
Note 3 - Discontinued Operations
In addition, in connection with our review of options for the U.S. compression fabrication business, we reviewed the assets in this business compared to our estimate of future cash flows and recorded impairments of $6.5 million during the nine months ended September 30, 2020 to adjust the carrying value to our estimate of fair market value.
In the first quarter of 2016, we began executing the exit of our Belleli EPC business that has historically been comprised of engineering, procurement and construction for the manufacture of tanks for tank farms and the manufacture of evaporators and brine heaters for desalination plants in the Middle East (referred to as “Belleli EPC” or the “Belleli EPC business” herein) by ceasing the bookings of new orders. As of the fourth quarter of 2017, we had substantially exited our Belleli EPC business and, in accordance with GAAP, it is reflected as discontinued operations in our financial statements for all periods presented. Although we have reached mechanical completion on all remaining Belleli EPC contracts, we are still subject to risks and uncertainties potentially resulting from warranty obligations, customer or supplier claims against us, settlement of claims against customers, completion of demobilization activities and litigation developments. The facility previously utilized to manufacture products for our Belleli EPC business has been repurposed to manufacture product sales equipment. As such, certain personnel, buildings, equipment and other assets that were previously related to our Belleli EPC business remain a part of our continuing operations. As a result, activities associated with our ongoing operations at our repurposed facility are included in continuing operations.
11
The following table summarizes the operating results of discontinued operations (in thousands):
Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||
Belleli EPC | US Compression | Total | Belleli EPC | US Compression | Other disco | Total | |||||||||||||||||||||||||||||||||||
Revenue | $ | 1,100 | $ | 27,434 | $ | 28,534 | $ | 31 | $ | 116,481 | $ | 0 | $ | 116,512 | |||||||||||||||||||||||||||
Cost of sales (excluding depreciation and amortization expense) | 84 | 25,371 | 25,455 | 1,204 | 104,824 | 0 | 106,028 | ||||||||||||||||||||||||||||||||||
Selling, general and administrative | (70) | 1,387 | 1,317 | 231 | 5,394 | 114 | 5,739 | ||||||||||||||||||||||||||||||||||
Depreciation and amortization | 0 | 443 | 443 | 0 | 1,027 | 0 | 1,027 | ||||||||||||||||||||||||||||||||||
Restructuring and other charges | 0 | 2,336 | 2,336 | 0 | 537 | 0 | 537 | ||||||||||||||||||||||||||||||||||
Other (income) expense, net | (52) | 0 | (52) | 28 | 0 | 0 | 28 | ||||||||||||||||||||||||||||||||||
Provision for income taxes | 33 | 0 | 33 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | $ | 1,105 | $ | (2,103) | $ | (998) | $ | (1,432) | $ | 4,699 | $ | (114) | $ | 3,153 |
Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||
Belleli EPC | US Compression | Total | Belleli EPC | US Compression | Other disco | Total | |||||||||||||||||||||||||||||||||||
Revenue | $ | 1,224 | $ | 117,565 | $ | 118,789 | $ | 265 | $ | 426,431 | $ | 0 | $ | 426,696 | |||||||||||||||||||||||||||
Cost of sales (excluding depreciation and amortization expense) | 268 | 109,316 | 109,584 | (395) | 386,079 | 0 | 385,684 | ||||||||||||||||||||||||||||||||||
Selling, general and administrative | 144 | 8,743 | 8,887 | 921 | 17,888 | 182 | 18,991 | ||||||||||||||||||||||||||||||||||
Depreciation and amortization | 0 | 1,767 | 1,767 | 0 | 3,219 | 0 | 3,219 | ||||||||||||||||||||||||||||||||||
Impairments | 0 | 6,512 | 6,512 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||
Restructuring and other charges | 0 | 7,889 | 7,889 | 0 | 1,624 | 0 | 1,624 | ||||||||||||||||||||||||||||||||||
Other income, net | (3) | 0 | (3) | (304) | 0 | 0 | (304) | ||||||||||||||||||||||||||||||||||
Benefit from income taxes | (14) | 0 | (14) | (6,213) | 0 | 0 | (6,213) | ||||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | $ | 829 | $ | (16,662) | $ | (15,833) | $ | 6,256 | $ | 17,621 | $ | (182) | $ | 23,695 |
|
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 |
| ||||||||||||||||||||
|
| Belleli EPC |
|
| US |
|
| Total |
|
| Belleli EPC |
|
| US |
|
| Total |
| ||||||
Revenue |
| $ | 0 |
|
| $ | 2,944 |
|
| $ | 2,944 |
|
| $ | 1,100 |
|
| $ | 27,434 |
|
| $ | 28,534 |
|
Cost of sales (excluding depreciation and amortization |
|
| 0 |
|
|
| 3,324 |
|
|
| 3,324 |
|
|
| 84 |
|
|
| 25,371 |
|
|
| 25,455 |
|
Selling, general and administrative |
|
| 234 |
|
|
| 0 |
|
|
| 234 |
|
|
| (70 | ) |
|
| 1,387 |
|
|
| 1,317 |
|
Depreciation and amortization |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 443 |
|
|
| 443 |
|
Restructuring and other charges |
|
| 0 |
|
|
| 305 |
|
|
| 305 |
|
|
| 0 |
|
|
| 2,336 |
|
|
| 2,336 |
|
Other (income) expense, net |
|
| 3 |
|
|
| 0 |
|
|
| 3 |
|
|
| (52 | ) |
|
| 0 |
|
|
| (52 | ) |
Provision for (benefit from) income taxes |
|
| (227 | ) |
|
| 0 |
|
|
| (227 | ) |
|
| 33 |
|
|
| 0 |
|
|
| 33 |
|
Income (loss) from discontinued operations, net of tax |
| $ | (10 | ) |
| $ | (685 | ) |
| $ | (695 | ) |
| $ | 1,105 |
|
| $ | (2,103 | ) |
| $ | (998 | ) |
|
| Nine Months Ended September 30, 2021 |
|
| Nine Months Ended September 30, 2020 |
| ||||||||||||||||||
|
| Belleli EPC |
|
| US |
|
| Total |
|
| Belleli EPC |
|
| US |
|
| Total |
| ||||||
Revenue |
| $ | 0 |
|
| $ | 2,997 |
|
| $ | 2,997 |
|
| $ | 1,224 |
|
| $ | 117,565 |
|
| $ | 118,789 |
|
Cost of sales (excluding depreciation and amortization |
|
| 55 |
|
|
| 3,496 |
|
|
| 3,551 |
|
|
| 268 |
|
|
| 109,316 |
|
|
| 109,584 |
|
Selling, general and administrative |
|
| 478 |
|
|
| 413 |
|
|
| 891 |
|
|
| 144 |
|
|
| 8,743 |
|
|
| 8,887 |
|
Depreciation and amortization |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,767 |
|
|
| 1,767 |
|
Impairments |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 6,512 |
|
|
| 6,512 |
|
Restructuring and other charges |
|
| 0 |
|
|
| 305 |
|
|
| 305 |
|
|
| 0 |
|
|
| 7,889 |
|
|
| 7,889 |
|
Other (income) expense, net |
|
| 37 |
|
|
| 59 |
|
|
| 96 |
|
|
| (3 | ) |
|
| 0 |
|
|
| (3 | ) |
Provision for (benefit from) income taxes |
|
| (122 | ) |
|
| 0 |
|
|
| (122 | ) |
|
| (14 | ) |
|
| 0 |
|
|
| (14 | ) |
Income (loss) from discontinued operations, net of tax |
| $ | (448 | ) |
| $ | (1,276 | ) |
| $ | (1,724 | ) |
| $ | 829 |
|
| $ | (16,662 | ) |
| $ | (15,833 | ) |
The following table summarizes the balance sheet data for discontinued operations (in thousands):
September 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||
Belleli EPC | US Compression | Total | Belleli EPC | US Compression | Total | ||||||||||||||||||||||||||||||
Accounts receivable | $ | 1,891 | $ | 8,492 | $ | 10,383 | $ | 3,990 | $ | 23,179 | $ | 27,169 | |||||||||||||||||||||||
Inventory | 0 | 15,213 | 15,213 | 0 | 24,180 | 24,180 | |||||||||||||||||||||||||||||
Contract assets | 114 | 2,304 | 2,418 | 46 | 9,540 | 9,586 | |||||||||||||||||||||||||||||
Other current assets | 0 | 477 | 477 | 296 | 474 | 770 | |||||||||||||||||||||||||||||
Total current assets associated with discontinued operations | 2,005 | 26,486 | 28,491 | 4,332 | 57,373 | 61,705 | |||||||||||||||||||||||||||||
Property, Plant, and Equipment | 0 | 18,438 | 18,438 | 0 | 20,216 | 20,216 | |||||||||||||||||||||||||||||
Intangible and other assets, net | 1,994 | 445 | 2,439 | 2,970 | 556 | 3,526 | |||||||||||||||||||||||||||||
Total assets associated with discontinued operations | $ | 3,999 | $ | 45,369 | $ | 49,368 | $ | 7,302 | $ | 78,145 | $ | 85,447 | |||||||||||||||||||||||
Accounts payable | $ | 295 | $ | 21,908 | $ | 22,203 | $ | 1,503 | $ | 40,580 | $ | 42,083 | |||||||||||||||||||||||
Accrued liabilities | 4,313 | 8,656 | 12,969 | 5,959 | 11,889 | 17,848 | |||||||||||||||||||||||||||||
Contract liabilities | 956 | 1,227 | 2,183 | 2,536 | 16,159 | 18,695 | |||||||||||||||||||||||||||||
Total current liabilities associated with discontinued operations | 5,564 | 31,791 | 37,355 | 9,998 | 68,628 | 78,626 | |||||||||||||||||||||||||||||
Other long-term liabilities | 994 | 1,305 | 2,299 | 758 | 1,283 | 2,041 | |||||||||||||||||||||||||||||
Total liabilities associated with discontinued operations | $ | 6,558 | $ | 33,096 | $ | 39,654 | $ | 10,756 | $ | 69,911 | $ | 80,667 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||
|
| Belleli EPC |
|
| US |
|
| Total |
|
| Belleli EPC |
|
| US |
|
| Total |
| ||||||
Accounts receivable |
| $ | 268 |
|
| $ | 3,065 |
|
| $ | 3,333 |
|
| $ | 268 |
|
| $ | 3,171 |
|
| $ | 3,439 |
|
Inventory |
|
| 0 |
|
|
| 17,964 |
|
|
| 17,964 |
|
|
| 0 |
|
|
| 21,107 |
|
|
| 21,107 |
|
Contract assets |
|
| 0 |
|
|
| 234 |
|
|
| 234 |
|
|
| 0 |
|
|
| 458 |
|
|
| 458 |
|
Other current assets |
|
| 182 |
|
|
| 0 |
|
|
| 182 |
|
|
| 213 |
|
|
| 108 |
|
|
| 321 |
|
Total current assets associated with discontinued |
|
| 450 |
|
|
| 21,263 |
|
|
| 21,713 |
|
|
| 481 |
|
|
| 24,844 |
|
|
| 25,325 |
|
Property, Plant, and Equipment |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Intangible and other assets, net |
|
| 1,687 |
|
|
| 0 |
|
|
| 1,687 |
|
|
| 1,606 |
|
|
| 0 |
|
|
| 1,606 |
|
Total assets associated with discontinued operations |
| $ | 2,137 |
|
| $ | 21,263 |
|
| $ | 23,400 |
|
| $ | 2,087 |
|
| $ | 24,844 |
|
| $ | 26,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
| $ | 35 |
|
| $ | 173 |
|
| $ | 208 |
|
| $ | 139 |
|
| $ | 5,093 |
|
| $ | 5,232 |
|
Accrued liabilities |
|
| 2,750 |
|
|
| 244 |
|
|
| 2,994 |
|
|
| 2,939 |
|
|
| 5,037 |
|
|
| 7,976 |
|
Contract liabilities |
|
| 197 |
|
|
| 23 |
|
|
| 220 |
|
|
| 197 |
|
|
| 302 |
|
|
| 499 |
|
Total current liabilities associated with discontinued |
|
| 2,982 |
|
|
| 440 |
|
|
| 3,422 |
|
|
| 3,275 |
|
|
| 10,432 |
|
|
| 13,707 |
|
Other long-term liabilities |
|
| 722 |
|
|
| 285 |
|
|
| 1,007 |
|
|
| 765 |
|
|
| 1,377 |
|
|
| 2,142 |
|
Total liabilities associated with discontinued operations |
| $ | 3,704 |
|
| $ | 725 |
|
| $ | 4,429 |
|
| $ | 4,040 |
|
| $ | 11,809 |
|
| $ | 15,849 |
|
Note 4 - Inventory
12
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Parts and supplies |
| $ | 61,699 |
|
| $ | 65,576 |
|
Work in progress |
|
| 39,150 |
|
|
| 41,020 |
|
Finished goods |
|
| 3,171 |
|
|
| 3,241 |
|
Inventory |
| $ | 104,020 |
|
| $ | 109,837 |
|
13
September 30, 2020 | December 31, 2019 | ||||||||||
Parts and supplies | $ | 66,809 | $ | 76,398 | |||||||
Work in progress | 44,470 | 39,719 | |||||||||
Finished goods | 3,241 | 3,241 | |||||||||
Inventory | $ | 114,520 | $ | 119,358 |
Note 5 - Property, Plant and Equipment, Net
September 30, 2020 | December 31, 2019 | ||||||||||
Compression equipment, processing facilities and other fleet assets | $ | 1,580,483 | $ | 1,607,769 | |||||||
Land and buildings | 50,488 | 51,062 | |||||||||
Transportation and shop equipment | 54,219 | 57,469 | |||||||||
Computer software | 51,004 | 50,091 | |||||||||
Other | 41,501 | 37,716 | |||||||||
1,777,695 | 1,804,107 | ||||||||||
Accumulated depreciation | (1,007,274) | (979,913) | |||||||||
Property, plant and equipment, net | $ | 770,421 | $ | 824,194 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Compression equipment, processing facilities and other fleet assets(1) |
| $ | 1,519,537 |
|
| $ | 1,562,528 |
|
Land and buildings |
|
| 51,151 |
|
|
| 50,908 |
|
Transportation and shop equipment |
|
| 54,065 |
|
|
| 54,763 |
|
Computer software |
|
| 63,394 |
|
|
| 54,486 |
|
Other |
|
| 40,372 |
|
|
| 40,305 |
|
|
|
| 1,728,519 |
|
|
| 1,762,990 |
|
Accumulated depreciation |
|
| (1,097,106 | ) |
|
| (1,029,768 | ) |
Property, plant and equipment, net |
| $ | 631,413 |
|
| $ | 733,222 |
|
Note 6 - Debt
September 30, 2020 | December 31, 2019 | ||||||||||
Revolving credit facility due October 2023 | $ | 170,000 | $ | 74,000 | |||||||
8.125% senior notes due May 2025 | 351,000 | 375,000 | |||||||||
Other debt | 13 | 132 | |||||||||
Unamortized deferred financing costs of 8.125% senior notes | (4,416) | (5,413) | |||||||||
Total debt | 516,597 | 443,719 | |||||||||
Less: Amounts due within one year (1) | (13) | (132) | |||||||||
Long-term debt | $ | 516,584 | $ | 443,587 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Revolving credit facility due October 2023 |
| $ | 226,000 |
|
| $ | 216,500 |
|
8.125% senior notes due May 2025 |
|
| 350,000 |
|
|
| 350,000 |
|
Other |
|
| 608 |
|
|
| 0 |
|
Unamortized deferred financing costs of 8.125% senior notes |
|
| (3,453 | ) |
|
| (4,175 | ) |
Total debt |
|
| 573,155 |
|
|
| 562,325 |
|
Less: Amounts within one year(1) |
|
| (608 | ) |
|
| 0 |
|
Long-term debt |
| $ | 572,547 |
|
| $ | 562,325 |
|
We and our wholly owned subsidiary, Exterran Energy Solutions, L.P. (“EESLP”), are parties to an amended and restated credit agreement (the “Credit“Amended Credit Agreement”) consisting of a $700.0$650.0 million revolving credit facility expiring in October 2023.
As of September 30, 2020,2021, we had $170.0$226.0 million in outstanding borrowings and $11.8$53.4 million in outstanding letters of credit under our revolving credit facility. At September 30, 2020,2021, taking into account guarantees through letters of credit, we had undrawn capacity of $518.2$370.6 million under our revolving credit facility. Our Amended Credit Agreement limits our Total Debt to EBITDA ratio (as defined in the Amended Credit Agreement) on the last day of the fiscal quarter to no greater than 4.50 to 1.0. As a result of this limitation, $145.9$143.3 million of the $518.2$370.6 million of undrawn capacity under our revolving credit facility was available for additional borrowings as of September 30, 2020.
8.125% Senior Notes Due May 2025
14
In April 2017, our 100%100% owned subsidiaries EESLP and EES Finance Corp. issued $375.0$375.0 million aggregate principal amount of 8.125%8.125% senior unsecured notes due 2025 (the “2017 Notes”). which have $350.0 million outstanding as of September 30, 2021. We guarantee the 2017 Notes on a senior unsecured basis. We may redeem the 2017 Notes at any time in cash, in whole or part, at certain redemption prices, including the applicable make-whole premium plus accrued and unpaid interest, if any, to the date of redemption.
During the nine months ended September 30, 2020, we purchased and retired $24.0$24.0 million principal amount of our 2017 Notes for $20.6$20.6 million (including $0.3including $0.3 million of accrued interest) resulting ininterest. During the nine months ended September 30, 2020, we recognized a gain on extinguishment of debt of $3.4 million. The gain$3.4 million, which was calculated as the difference between the repurchase price and the carrying amount of the 2017 Notes, partially offset by $0.2$0.2 million in related deferred financing costs. The gain on extinguishment of debt is included as a separate item in our statements of operations. During October 2020, we purchased and retired an additional $1.0 million of our 2017 Notes for $0.9 million including accrued interest.
Note 7 - Fair Value Measurements
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||||
Foreign currency derivatives liabilities |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (247 | ) |
September 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||||||||||
Foreign currency derivatives assets | $ | 0 | $ | 8 | $ | 0 | N/A | N/A | N/A |
We are exposed to market risks associated with changes in foreign currency exchange rates, including foreign currency exchange rate changes recorded on intercompany obligations. From time to time, we may enter into foreign currency hedges to manage existing exposures to foreign exchange risk related to assets and liabilities recorded on our balance sheets including intercompany activity. During the nine months ended September 30, 2021, we recognized a loss of $2.0 million, on forward currency exchange contracts. As of September 30, 2020,2021, we were a party to forward currency exchange contractsdo not have derivative financial instruments outstanding to mitigate exposures to the Argentine Peso and Indonesian Rupiah with a total notional value of $13.5 million. These contracts expire at varying dates through December 2020. We did not designate these forward currency exchange contracts as hedge transactions. Changes in fair value and gains and losses on settlement on these forward currency exchange contracts are recognized in other (income) expense, net, in our statements of operations. Our estimate of the fair value of foreign currency derivatives as of September 30, 2020 was determined using quoted forward exchange rates in active markets at September 30, 2020. Foreign currency derivative assets are included in other current assets in our balance sheets.
Nine months ended September 30, 2020 | Nine months ended September 30, 2019 | ||||||||||||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||||||||||
Impaired long-lived assets (1) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||||||||
Impaired assets- assets held for sale (2) | 0 | 0 | 0 | 0 | 0 | 2,142 | |||||||||||||||||||||||||||||
Long-term note receivable (3) | 0 | 0 | 11,165 | 0 | 0 | 15,104 |
|
| Nine Months Ended September 30, 2021 |
|
| Nine Months Ended September 30, 2020 |
| ||||||||||||||||||
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||||
Impaired long-lived assets (1) |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Long-term note receivable (2) |
|
| 0 |
|
|
| 0 |
|
|
| 12,481 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11,165 |
|
15
Our financial instruments consistsconsist of cash, restricted cash, receivables, payables and debt. At September 30, 20202021 and December 31, 2019,2020, the estimated fair values of cash, restricted cash, receivables and payables approximated their carrying amounts as reflected in our balance sheets due to the short-term nature of these financial instruments.
The fair value of the 2017 Notes was estimated based on model derived calculations using market yields observed in active markets, which are Level 2 inputs. As of September 30, 20202021 and December 31, 2019,2020, the carrying amount of the 2017 Notes, excluding unamortized deferred financing costs, of $351.0 million and $375.0$350.0 million was estimated to have a fair value of $300.0$334.8 million and $371.0$297.0 million, respectively. Due to the variable rate nature of our revolving credit facility, the carrying value as of September 30, 20202021 and December 31, 20192020 approximated the fair value as the rate was comparable to the then-current market rate at which debt with similar terms could have been obtained.
We review long-lived assets, including property, plant and equipment and identifiable intangibles that are being amortized, for impairment whenever events or changes in circumstances, including the removal of compressor units from our active fleet, indicate that the carrying amount of an asset may not be recoverable.
During the thirdthree months ended September 30, 2021, there were no events, or changes in circumstances to indicate that the carrying amount of an asset may not be recoverable. During the second quarter of 2020, we impaired certain assets in Argentina due to the termination of a contract operations project where it was not cost effective to move the assets and try to utilize them with a different customer. As a result, we removed them from the fleet and recorded an impairment of $1.7 million to write-down these assets to their approximate fair values for the three and nine months ended September 30, 2020.
Note 9 - Restructuring and Other Charges
|
| Cost |
| |
|
| Reduction Plan |
| |
Beginning balance at January 1, 2020 |
| $ | 2,281 |
|
Additions for costs expensed, net |
|
| 3,550 |
|
Reductions for payments |
|
| (3,791 | ) |
Foreign exchange impact |
|
| (393 | ) |
Ending balance at September 30, 2020 |
| $ | 1,647 |
|
|
|
|
| |
Beginning balance at January 1, 2021 |
| $ | 1,351 |
|
Additions for costs expensed, net |
|
| 192 |
|
Reductions for payments |
|
| (1,428 | ) |
Foreign exchange impact |
|
| 74 |
|
Ending balance at September 30, 2021 |
| $ | 189 |
|
16
Cost Reduction Plan | Relocation Plan | Total | |||||||||||||||
Beginning balance at January 1, 2019 | $ | 0 | $ | 309 | $ | 309 | |||||||||||
Additions for costs expensed | 6,049 | 293 | 6,342 | ||||||||||||||
Reductions for payments | (2,873) | (602) | (3,475) | ||||||||||||||
Ending balance at September 30, 2019 | $ | 3,176 | $ | 0 | $ | 3,176 | |||||||||||
Beginning balance at January 1, 2020 | $ | 2,281 | $ | 0 | $ | 2,281 | |||||||||||
Additions for costs expensed, net | 3,550 | 0 | 3,550 | ||||||||||||||
Reductions for payments | (3,791) | 0 | (3,791) | ||||||||||||||
Foreign exchange impact | (393) | 0 | (393) | ||||||||||||||
Ending balance at September 30, 2020 | $ | 1,647 | $ | 0 | $ | 1,647 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Employee termination benefits | $ | 238 | $ | 1,257 | $ | 986 | $ | 6,098 | |||||||||||||||
Consulting fees | 0 | 0 | 2,564 | 0 | |||||||||||||||||||
Relocation costs | 0 | 0 | 0 | 244 | |||||||||||||||||||
Total restructuring and other charges | $ | 238 | $ | 1,257 | $ | 3,550 | $ | 6,342 |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Employee termination benefits |
| $ | (62 | ) |
| $ | 238 |
|
| $ | 121 |
|
| $ | 986 |
|
Legal fees |
|
| 0 |
|
|
| 0 |
|
|
| 71 |
|
|
| 2,564 |
|
Consulting fees |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total restructuring and other charges |
| $ | (62 | ) |
| $ | 238 |
|
| $ | 192 |
|
| $ | 3,550 |
|
The following table summarizes the components of charges included in restructuring and other charges incurred since the announcement of the cost reduction plan in the secondthird quarter of 2019 (in thousands):
|
| Total |
| |
Employee termination benefits |
| $ | 6,365 |
|
Legal fees |
|
| 71 |
|
Consulting fees |
|
| 3,205 |
|
Total restructuring and other charges |
| $ | 9,641 |
|
Note 10 - Provision for Income Taxes
The following items had the most significant impact on the difference between our statutory U.S. federal income tax rate of 21.0%21% and our effective tax rate of (52.3)24.9% for the three months ended September 30, 2020:2021: (i) a (49.9)16.2% negative impact resulting from unrecognized tax benefits under FASB’s Interpretation No. 48 of Financial Accounting Standard 109 (“FIN 48”), (ii) a (22.4)% negativepositive impact resulting from foreign currency devaluations in Argentina, (iii)(ii) a (29.1)(4.3)% negative impact resulting from foreign taxes in excess of the U.S. tax rate and other rate drivers, and (iv)(iii) a 31.7%4.3% positive impact resulting from deemed inclusions in the U.S. and (iv) a release(9.8)% negative impact resulting from an addition of valuation allowances against U.S. deferred tax assets.
The following items had the most significant impact on the difference between our statutory U.S. federal income tax rate of 21%21% and our effective tax rate of (57.3)(16.2)% for the nine months ended September 30, 2020:2021: (i) a (27.7)% negative impact resulting primarily from rate differences between U.S. and foreign jurisdictions including foreign withholding taxes, (ii) a (26.7)% negative impact resulting from unrecognized tax benefits under FIN 48, (iii) a (15.6)(3.1)% negative impact resulting from foreign currency devaluations in Argentina, and (iv)(ii) a (2.7)(15.2)% negative impact resulting from foreign taxes in excess of the recordingU.S. tax rate and other rate drivers, (iii) a (7.1)% negative impact resulting from deemed inclusions in the U.S. and (iv) a (7.5)% negative impact resulting from an addition of valuation allowances against U.S. deferred tax assets.
Our effective tax rate decreasedincreased for the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 primarily due to a decreasean increase in valuation allowances recorded in the U.S., a decreasean increase in foreign withholdingtaxes in excess of the U.S. tax rate, an increase in deemed inclusions in the U.S., a decrease in the FIN 48 reserve and a decrease in tax related to foreign exchange movement in Argentina.
Note 11 - Stockholders’ Equity
On February 20, 2019, our board of directors approved a share repurchase program under which the Company is authorized to purchase up to $100.0$100.0 million of its outstanding common stock through February 2022. The timing and method of any repurchases under the program will depend on a variety of factors, including prevailing market conditions among others. Purchases under the program may be suspended or discontinued at any time and we have no obligation to repurchase any amount of our common shares under the program. Shares of common stock acquired through the repurchase program are held in treasury at cost. During the nine months ended September 30, 2019, we repurchased 3,054,338 shares of our common stock for $38.9 million in connection with our share repurchase program. During the nine months ended September 30,2021 and 2020, we did 0t0t repurchase any shares under this program. As of September 30, 2020,2021, the remaining authorized repurchase amount under the share repurchase program was $57.7$57.7 million.
17
Additionally, treasury stock purchased during the nine months ended September 30, 20202021 and 20192020 included shares withheld to satisfy employees’ tax withholding obligations in connection with vesting of restricted stock awards.
Note 12 - Stock-Based Compensation
There were 0 stock options granted during the nine months ended September 30, 20202021 and 2019.
Restricted Stock, Restricted Stock Units and Performance Units
For grants of restricted stock, restricted stock units and performance units, we recognize compensation expense over the applicable vesting period equal to the fair value of our common stock at the grant date. Grants of restricted stock, restricted stock units and performance units generally vest one third per yearover two or three years proportionately on each of the first three anniversaries of the grant date. Certain grants of restricted stock vest on the third anniversary of the grant date and certain grants of performance units vest on the second anniversary of the grant date.
|
| Equity Awards |
|
| Liability Awards |
| ||||||||||
|
|
|
|
| Weighted Average |
|
|
|
|
| Weighted Average |
| ||||
|
| Shares |
|
| Grant-Date Fair |
|
| Shares |
|
| Grant-Date Fair |
| ||||
|
| (in thousands) |
|
| Value Per Share |
|
| (in thousands) |
|
| Value Per Share |
| ||||
Non-vested awards, January 1, 2021 |
|
| 320 |
|
| $ | 16.02 |
|
|
| 1,198 |
|
| $ | 9.35 |
|
Granted |
|
| 227 |
|
|
| 4.76 |
|
|
| 1,446 |
|
|
| 4.84 |
|
Vested |
|
| (294 | ) |
|
| 12.85 |
|
|
| (371 | ) |
|
| 14.02 |
|
Cancelled |
|
| (11 | ) |
|
| 17.42 |
|
|
| (55 | ) |
|
| 6.25 |
|
Non-vested awards, September 30, 2021 |
|
| 242 |
|
|
| 9.25 |
|
|
| 2,218 |
|
|
| 5.71 |
|
Equity Awards | Liability Awards | ||||||||||||||||||||||
Shares (in thousands) | Weighted Average Grant-Date Fair Value Per Share | Shares (in thousands) | Weighted Average Grant-Date Fair Value Per Share | ||||||||||||||||||||
Non-vested awards, January 1, 2020 | 842 | $ | 22.79 | 318 | $ | 17.01 | |||||||||||||||||
Granted | 167 | 6.91 | 1,182 | 8.54 | |||||||||||||||||||
Vested | (440) | 20.59 | (80) | 26.24 | |||||||||||||||||||
Cancelled | (242) | 28.07 | (207) | 9.90 | |||||||||||||||||||
Non-vested awards, September 30, 2020 | 327 | 13.73 | 1,213 | 9.36 |
Note 13 - Net Income (Loss) Per Common Share
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Numerator for basic and diluted net loss per common share: | |||||||||||||||||||||||
Loss from continuing operations | $ | (16,723) | $ | (12,994) | $ | (52,081) | $ | (46,235) | |||||||||||||||
Income (loss) from discontinued operations, net of tax | (998) | 3,153 | (15,833) | 23,695 | |||||||||||||||||||
Less: Net income attributable to participating securities | 0 | 0 | 0 | 0 | |||||||||||||||||||
Net loss — used in basic and diluted net loss per common share | $ | (17,721) | $ | (9,841) | $ | (67,914) | $ | (22,540) | |||||||||||||||
Weighted average common shares outstanding including participating securities | 33,152 | 34,523 | 33,147 | 35,623 | |||||||||||||||||||
Less: Weighted average participating securities outstanding | (346) | (740) | (405) | (784) | |||||||||||||||||||
Weighted average common shares outstanding — used in basic net loss per common share | 32,806 | 33,783 | 32,742 | 34,839 | |||||||||||||||||||
Net dilutive potential common shares issuable: | |||||||||||||||||||||||
On exercise of options and vesting of restricted stock units | * | * | * | * | |||||||||||||||||||
Weighted average common shares outstanding — used in diluted net loss per common share | 32,806 | 33,783 | 32,742 | 34,839 | |||||||||||||||||||
Net loss per common share: | |||||||||||||||||||||||
Basic and diluted | $ | (0.54) | $ | (0.29) | $ | (2.07) | $ | (0.65) |
18
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Numerator for basic and diluted net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss from continuing operations |
| $ | (15,608 | ) |
| $ | (16,723 | ) |
| $ | (79,666 | ) |
| $ | (52,081 | ) |
Loss from discontinued operations, net of tax |
|
| (695 | ) |
|
| (998 | ) |
|
| (1,724 | ) |
|
| (15,833 | ) |
Less: Net income attributable to participating securities |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Net loss — used in basic and diluted net loss per common share |
| $ | (16,303 | ) |
| $ | (17,721 | ) |
| $ | (81,390 | ) |
| $ | (67,914 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding including participating |
|
| 33,417 |
|
|
| 33,152 |
|
|
| 33,328 |
|
|
| 33,147 |
|
Less: Weighted average participating securities outstanding |
|
| (349 | ) |
|
| (346 | ) |
|
| (304 | ) |
|
| (405 | ) |
Weighted average common shares outstanding — used in basic net |
|
| 33,068 |
|
|
| 32,806 |
|
|
| 33,024 |
|
|
| 32,742 |
|
Net dilutive potential common shares issuable: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
On exercise of options and vesting of restricted stock units |
| * |
|
| * |
|
| * |
|
| * |
| ||||
Weighted average common shares outstanding — used in diluted net |
|
| 33,068 |
|
|
| 32,806 |
|
|
| 33,024 |
|
|
| 32,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted |
| $ | (0.49 | ) |
| $ | (0.54 | ) |
| $ | (2.46 | ) |
| $ | (2.07 | ) |
*Excluded from diluted net income (loss) per common share as their inclusion would have been anti-dilutive.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net dilutive potential common shares issuable: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
On exercise of options where exercise price is greater than |
|
| 0 |
|
|
| 30 |
|
|
| 0 |
|
|
| 39 |
|
Net dilutive potential common shares issuable |
|
| 0 |
|
|
| 30 |
|
|
| 0 |
|
|
| 39 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Net dilutive potential common shares issuable: | |||||||||||||||||||||||
On exercise of options where exercise price is greater than average market value | 30 | 69 | 39 | 70 | |||||||||||||||||||
Net dilutive potential common shares issuable | 30 | 69 | 39 | 70 |
Note 14 - Commitments and Contingencies
Contingencies
We have agreements with financial institutions under which approximately $
In addition to U.S. federal, state and local and foreign income taxes, we are subject to a number of taxes that are not income-based. As many of these taxes are subject to audit by the taxing authorities, it is possible that an audit could result in additional taxes due. We accrue for such additional taxes when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the liability. As of September 30, 20202021 and December 31, 2019,2020, we had accrued $3.5$1.5 million and $3.7$3.5 million, respectively, for the outcomes of non-income-based tax audits. We do not expect that the ultimate resolutions of these audits will result in a material variance from the amounts accrued. We do not accrue for unasserted claims for tax audits unless we believe the assertion of a claim is probable, it is probable that it will be determined that the claim is owed and we can reasonably estimate the claim or range of the claim. We do not have any unasserted claims from non-income based tax audits that we have determined are probable of assertion. We also believe the likelihood is remote that the impact of potential unasserted claims from non-income-based tax audits could be material to our financial position, but it is possible that the resolution of future audits could be material to our results of operations or cash flows for the period in which the resolution occurs.
19
believe is appropriate. We believe that our insurance coverage is customary for the industry and adequate for our business; however, losses and liabilities not covered by insurance would increase our costs.
Litigation and Claims
On December 19, 2020, we initiated arbitration in the International Court of Arbitration of the International Chamber of Commerce (“ICC”) against Iberoamericana de Hidrocarburos, S.A. De C.V. (“IHSA”) to collect approximately $
On July 5, 2021, Inesco Ingenieria & Construccion, S.A. (“Inesco”) filed a Demand for Arbitration in the ICC against Exterran Bolivia S.R.L. claiming it is owed approximately $13 million for certain goods and services allegedly provided to Exterran, delay damages, and increased expenses. Based on currently available information we believe Inesco’s claims are without merit; however, the results cannot be predicted with certainty.
In the ordinary course of business, we are involved in various pending or threatened legal actions. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from any of these actions will not have a material adverse effect on our financial position, results of operations or cash flows. However, because of the inherent uncertainty of litigation and arbitration proceedings, we cannot provide assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our financial position, results of operations or cash flows.
Note 15 - Reportable Segments
Our chief operating decision maker manages business operations, evaluates performance and allocates resources based upon the type of product or service provided. We have 3 reportable segments: contract operations, aftermarket services and product sales. In our contract operations segment, we provide processing, treating, compression and water treatment services through the operation of our natural gas compression equipment,and crude oil production and process equipment, natural gas production and processcompression equipment and water treatment equipment for our customers. In our aftermarket services segment, we sell parts and components and provide operations, maintenance, repair, overhaul, upgrade, startup and commissioning and reconfiguration services to customers who own their own oil and natural gas compression, production, processing, treating and related equipment. In our product sales segment, we design, engineer, manufacture, install and sell equipment used in the treating and processing of crude oil, natural gas and water as well as natural gas compression packages to our customers throughout the world and for use in our contract operations business line.
We evaluate the performance of our segments based on adjusted gross margin for each segment. Revenue only includes sales to external customers. We do not include intersegment sales when we evaluate our segments’ performance.
20
The following table presents revenue and other financial information by reportable segment for the three and nine months ended September 30, 20202021 and 20192020 (in thousands):
Three Months Ended | Contract Operations | Aftermarket Services | Product Sales(2) | Reportable Segments Total | ||||||||||||||||||||||
September 30, 2020: | ||||||||||||||||||||||||||
Revenue | $ | 81,679 | $ | 30,435 | $ | 57,397 | $ | 169,511 | ||||||||||||||||||
Gross margin (1) | 57,131 | 7,300 | 3,134 | 67,565 | ||||||||||||||||||||||
September 30, 2019: | ||||||||||||||||||||||||||
Revenue | $ | 96,261 | $ | 34,893 | $ | 54,796 | $ | 185,950 | ||||||||||||||||||
Gross margin (1) | 61,905 | 8,814 | 6,609 | 77,328 |
Nine Months Ended | Contract Operations | Aftermarket Services | Product Sales(2) | Reportable Segments Total | ||||||||||||||||||||||
September 30, 2020: | ||||||||||||||||||||||||||
Revenue | $ | 254,412 | $ | 83,337 | $ | 123,613 | $ | 461,362 | ||||||||||||||||||
Gross margin (1) | 174,658 | 20,001 | (1,968) | 192,691 | ||||||||||||||||||||||
September 30, 2019: | ||||||||||||||||||||||||||
Revenue | $ | 271,645 | $ | 92,308 | $ | 254,367 | $ | 618,320 | ||||||||||||||||||
Gross margin (1) | 178,362 | 24,494 | 37,294 | 240,150 |
|
|
|
|
|
|
|
|
|
|
| Reportable |
| ||||
|
| Contract |
|
| Aftermarket |
|
|
|
|
| Segments |
| ||||
Three Months Ended September 30, |
| Operations |
|
| Services |
|
| Product sales (2) |
|
| Total |
| ||||
2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 83,362 |
|
| $ | 24,633 |
|
| $ | 53,304 |
|
| $ | 161,299 |
|
Adjusted gross margin(1) |
|
| 55,572 |
|
|
| 5,254 |
|
|
| 6,549 |
|
|
| 67,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 81,679 |
|
| $ | 30,435 |
|
| $ | 57,397 |
|
| $ | 169,511 |
|
Adjusted gross margin(1) |
|
| 57,131 |
|
|
| 7,300 |
|
|
| 3,134 |
|
|
| 67,565 |
|
|
|
|
|
|
|
|
|
|
|
| Reportable |
| ||||
|
| Contract |
|
| Aftermarket |
|
|
|
|
| Segments |
| ||||
Nine Months Ended September 30, |
| Operations |
|
| Services |
|
| Product sales (2) |
|
| Total |
| ||||
2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 251,874 |
|
| $ | 79,154 |
|
| $ | 112,634 |
|
| $ | 443,662 |
|
Adjusted gross margin(1) |
|
| 172,976 |
|
|
| 16,341 |
|
|
| 13,197 |
|
|
| 202,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 254,412 |
|
| $ | 83,337 |
|
| $ | 123,613 |
|
| $ | 461,362 |
|
Adjusted gross margin(1) |
|
| 174,658 |
|
|
| 20,001 |
|
|
| (1,968 | ) |
|
| 192,691 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Loss before income taxes | $ | (10,978) | $ | (12,517) | $ | (33,111) | $ | (26,026) | |||||||||||||||
Selling, general and administrative | 29,959 | 32,308 | 95,049 | 108,902 | |||||||||||||||||||
Depreciation and amortization | 36,630 | 41,106 | 100,887 | 113,450 | |||||||||||||||||||
Impairments | 1,695 | 2,970 | 1,695 | 8,889 | |||||||||||||||||||
Restructuring and other charges | 238 | 1,257 | 3,550 | 6,342 | |||||||||||||||||||
Interest expense | 9,623 | 10,103 | 29,214 | 28,194 | |||||||||||||||||||
Gain on extinguishment of debt | (780) | 0 | (3,424) | 0 | |||||||||||||||||||
Other (income) expense, net | 1,178 | 2,101 | (1,169) | 399 | |||||||||||||||||||
Total gross margin | $ | 67,565 | $ | 77,328 | $ | 192,691 | $ | 240,150 | |||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenues |
| $ | 161,299 |
|
| $ | 169,511 |
|
| $ | 443,662 |
|
| $ | 461,362 |
|
Cost of sales (excluding depreciation and amortization |
|
| 93,924 |
|
|
| 101,946 |
|
|
| 241,148 |
|
|
| 268,671 |
|
Depreciation and amortization (1) |
|
| 42,008 |
|
|
| 35,182 |
|
|
| 126,861 |
|
|
| 96,489 |
|
Total gross margin |
|
| 25,367 |
|
|
| 32,383 |
|
|
| 75,653 |
|
|
| 96,202 |
|
Depreciation and amortization (1) |
|
| 42,008 |
|
|
| 35,182 |
|
|
| 126,861 |
|
|
| 96,489 |
|
Total adjusted gross margin |
| $ | 67,375 |
|
| $ | 67,565 |
|
| $ | 202,514 |
|
| $ | 192,691 |
|
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of Exterran’s financial statements with a narrative from the perspective of management. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Condensed Consolidated Financial Statements in Part I, Item 1 (“Financial Statements”) of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019.
Disclosure Regarding Forward-Looking Statements
This report contains “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, without limitation, statements regarding our business growth strategy and projected costs; future financial position; the sufficiency of available cash flows to fund continuing operations; the expected amount of our capital expenditures; anticipated cost savings, future revenue, adjusted gross margin and other financial or operational measures related to our business and our primary business segments; the future value of our equipment; and plans and objectives of our management for our future operations. You can identify many of these statements by looking for words such as “believe,” “expect,” “intend,” “project,” “anticipate,” “estimate,” “will continue” or similar words or the negative thereof.
Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. Known material factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, and those set forth from time to time in our filings with the Securities and Exchange Commission (“SEC”), which are available through our website at www.exterran.com and through the SEC’s website at www.sec.gov, as well as the following risks and uncertainties:
22
All forward-looking statements included in this report are based on information available to us on the date of this report. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this report.
General
Exterran Corporation (together with its subsidiaries, “Exterran Corporation,” the “Company,” “our,” “we” or “us”), a Delaware corporation formed in March 2015, is a global sustainable systems and process company offering solutions in the oil, gas, water and power markets. We are a leader in natural gas processing and treatment, produced water treatment and compression products, solutions and services, providing critical midstream infrastructure solutions to customers throughout the world.world while helping them reduce their flaring, emissions and fresh water usage. Our manufacturing facilities are located in the United States of America (“U.S.”), Singapore and the United Arab Emirates.
We provide our products, solutions and services to a global customer base consisting of companies engaged in all aspects of the oil and natural gas industry, including large integrated oil and natural gas companies, national oil and natural gas companies, independent oil and natural gas producers and oil and natural gas processors, gatherers and pipeline operators. We operate in three primary business lines: contract operations, aftermarket services and product sales. The nature and inherent interactions between and among our business lines provide us with opportunities to cross-sell and offer integrated product and service solutions to our customers.
In our contract operations business line, we provide processing, treating, compression and water treatment services through the operation of our natural gas compression equipment,and crude oil production and process equipment, natural gas production and processcompression equipment and water treatment equipment for our customers. In our aftermarket services business line, we sell parts and components and provide operations, maintenance, repair, overhaul, upgrade, startup and commissioning and reconfiguration services to customers who own their own oil and natural gas compression, production, processing, treating and related equipment. In our product sales business line, we design, engineer, manufacture, install sell and financesell equipment used in the treating and processing of crude oil, natural gas and water as well as natural gas compression packages to our customers throughout the world and for use in our contract operations business line. We also offer our customers, on either a contract operations basis or a sale basis, the engineering, design, project management, procurement and construction services necessary to incorporate our products into production, processing and compression facilities, which we refer to as integrated projects.
We have continued to work toward our strategy to be a company that leverages our sustainable technology offering in treating natural gas and produced water to help our customers better utilize their natural resources while enhancing our operational excellence to provide complete systems and process solutions in energy and industrial applications. Over the past several years, we have made significant progress in this journey by taking actions to protect our core business, develop important organizational capabilities, commercialize new products, solutions and services and implement new processes to position Exterran for success. We are focused on optimizinghave optimized our portfolio of products, solutions and services to better serve our global customers and help them improve their environmental impacts while providing a more attractive investment option for our investors. As we continue on this path, we decided that our U.S. compression fabrication business iswas non-core to our strategy, going forward and during the third quarter of 2020, we entered into an agreement to sell the business which closed on November 2, 2020. We did not sell certain items in inventory, which we expect to liquidate over time. During the third quarter of 2020, this business met the held for sale criteria and is also now reflected as discontinued operations in our financial statements for all periods presented. The U.S. compression fabrication business was
23
previously included in our product sales segment and hashad been reclassified to discontinued operations in our financial statements for all periods presented. Compression revenue from sales to international customers continues to be included in our product sales segment.
We refer to the condensed consolidated financial statements collectively as “financial statements,” and individually as “balance sheets,” “statements of operations,” “statements of comprehensive income (loss),” “statements of stockholders’ equity” and “statements of cash flows” herein.
Overview
Our business environment and corresponding operating results are affected by the level of energy industry spending for the exploration, development and production of oil and natural gas reserves along with spending within the midstream space. Spending by oil and natural gas exploration and production companies and midstream providers is dependent upon these companies’ forecasts regarding the expected future supply, demand and pricing of oil and natural gas products as well as their estimates of risk-adjusted costs to find, develop, produce, transport and treat these reserves. Although we believe our contract operations business is typically less impacted by short-term commodity prices than certain other energy products, solutions and service providers, changes in oil and natural gas exploration and production spending normally result in changes in demand for our products, solutions and services.
Our revenue, earnings and financial position are affected by, among other things, market conditions that impact demand and pricing for natural gas compression, oil and natural gas production and processing and produced water treatment solutions along with our customers’ decisions to use our products, solutions and services, use our competitors’ products and services or own and operate the equipment themselves.
Aggregate booking activity levels for our product sales segment in North America and international markets during the nine months ended September 30, 2021 were $12.5 million, which represents a decrease of 97% compared to the nine months ended September 30, 2020. The decrease in bookings was primarily driven by the impact of energy industry conditions and the COVID-19 pandemic. During the first quarter of 2020, we recorded a large processing plant booking in the Middle East. Fluctuations in the size and timing of customers’ requests for bid proposals and awards of new contracts tend to create variability in booking activity levels from period to period.
Historically, oil, natural gas and natural gas liquids prices and the level of drilling and exploration activity in North America have been volatile. The Henry Hub spot price for natural gas was $1.66$5.94 per MMBtu at September 30, 2020,2021, which was 21%152% and 30% lower258% higher than the prices at December 31, 20192020 and September 30, 2019,2020, respectively, and the U.S. natural gas liquid composite price was $4.54$8.44 per MMBtu for the month of July 2020,September 2021, which was 15%47% and 10% lower78% higher than the prices for the month of December 20192020 and September 2019,2020, respectively. In addition, the West Texas Intermediate crude oil spot price as of September 30, 20202021 was 34%52% and 26% lower83% higher than the price at December 31, 20192020 and at September 30, 2019,2020, respectively. Volatility in demand for energy and in commodity prices as well as an industry trend towards
24
disciplined capital spending and improving returns have caused timing uncertainties in demand for our products recently. These uncertainties have caused delays in the timing of new equipment orders and lower bookings in our product sales segment. Booking activity levels for our product sales segment in North America during the nine months ended September 30, 20202021 were $1.4$5.6 million, which represents a decrease of 96% compared to theup from $1.3 million in nine months ended September 30, 2019.
Longer-term fundamentals in our international markets partially depend on international oil and gas infrastructure projects, many of which are based on the longer-term plans of our customers that can be driven by their local market demand and local pricing for natural gas. As a result, we believe our international customers make decisions based more on longer-term fundamentals that may be less tied to near term commodity prices than our North American customers. Over the long-term, weWe believe the demand for our products, solutions and services in international markets will continue, and we expect to have opportunities to continue to invest ingrow our international businesses. Booking activity levels for our product sales segment in international markets during the nine months ended September 30, 20202021 were $6.9 million, down from $449.2 million which represents an increase of 221% compared toin the nine months ended September 30, 2019.
Our level of capital spending largely depends on the demand for our contract operations services and the equipment required to provide such services to our customers. Based on our current backlog of contracts,opportunities we currentlyanticipate in international markets, we expect to invest lessmore capital in our contract operations business in 20202021 than we did in 2019.
s.
25
The following table summarizes our contract operations and product sales backlog (in thousands):
September 30, 2020 | December 31, 2019 | September 30, 2019 | |||||||||||||||
Contract Operations Backlog: | |||||||||||||||||
Contract operations services | $ | 1,208,139 | $ | 1,252,001 | $ | 1,210,187 | |||||||||||
Product Sales Backlog: | |||||||||||||||||
Compression equipment(1) | $ | 18,165 | $ | 54,541 | $ | 40,899 | |||||||||||
Processing and treating equipment | 447,109 | 69,912 | 50,176 | ||||||||||||||
Other product sales | 31,380 | 47,094 | 62,174 | ||||||||||||||
Total product sales backlog | $ | 496,654 | $ | 171,547 | $ | 153,249 |
|
| September 30, 2021 |
|
| December 31, 2021 |
|
| September 30, 2020 |
| |||
Contract Operations Backlog: |
|
|
|
|
|
|
|
|
| |||
Contract operations services |
| $ | 1,433,310 |
|
| $ | 1,100,929 |
|
| $ | 1,208,139 |
|
|
|
|
|
|
|
|
|
|
| |||
Product Sales Backlog: |
|
|
|
|
|
|
|
|
| |||
Compression equipment(1) |
|
| 6,291 |
|
|
| 10,218 |
|
|
| 18,165 |
|
Processing and treating equipment |
|
| 334,406 |
|
|
| 425,292 |
|
|
| 447,109 |
|
Other product sales |
|
| 24,487 |
|
|
| 29,835 |
|
|
| 31,380 |
|
Total product sales backlog |
| $ | 365,184 |
|
| $ | 465,345 |
|
| $ | 496,654 |
|
As discussed in Note 3 to the Financial Statements, the results from continuing operations for all periods presented exclude the results of our Belleli EPC business and our U.S. compression fabrication business. Those results are reflected in discontinued operations for all periods presented.
26
Revenue during the three months ended September 30, 2021 and 2020 and 2019 was $169.5$161.3 million and $186.0$169.5 million, respectively. The decrease in revenue during the three months ended September 30, 20202021 compared to the three months ended September 30, 20192020 was due to decreases in revenue in our contract operationsthe aftermarket services and aftermarket servicesproduct sales segments, partially offset by an increase in the contract operations segment. The increase in our contract operations segment was primarily due to an increase in the acceleration of deferred revenue due to a contract change in Latin America, partially offset by a decrease in the Asia Pacific region due to contract stops. The decrease in aftermarket services revenue was primarily due to decreases in revenue in the Asia Pacific region related to part sales. The decrease in our product sales segment.
Revenue during the nine months ended September 30, 2021 and 2020 and 2019 was $461.4$443.7 million and $618.3$461.4 million, respectively. The decrease in revenue during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 was due to decreases in revenue in all three segments. The decrease in our product sales, aftermarket services and contract operations segments.segment was primarily due to a decrease in revenue in the Latin America region, partially offset by an increase in revenue in the Middle East and Africa region. The overall decrease in contract operations revenue was due to contract stops, the sale of equipment pursuant to a purchase option exercised by a customer during the prior year period, partially offset by the acceleration of deferred revenue on two separate contracts due to a change in the terms. The decrease in our product sales segment was primarily due to an overall declinedecreases in bookings as a consequence of market conditionscompression and water revenue partially offset by increases in North America.
Net loss.
We generated a net loss of $17.7$16.3 million and $9.8$17.7 million during the three months ended September 30, 20202021 and 2019,2020, respectively. The increasedecrease in net loss during the three months ended September 30, 20202021 compared to the three months ended September 30, 20192020 was primarily due to decreases in income taxes, impairment expense and restructuring expense and increases in adjusted gross margin for our product sales segment and in other income. This was partially offset by increases in depreciation and amortization expense, selling, general and administrative ("SG&A") expense and interest expense and decreases in adjusted gross margin for our contract operations product sales and aftermarket services segments an increase in income taxes and a decrease in income from discontinued operations, netthe gain on extinguishment of tax, partially offset by a decrease in depreciation and amortization expense, a decrease in selling, general and administrative (“SG&A”) expense, a decrease in impairments and a decrease in restructuring and other charges. Net loss during the three months ended September 30, 2020 included loss from discontinued operations, net of tax, of $1.0 million and net loss during the three months ended September 30, 2019 included income from discontinued operations, net of tax, of $3.2 million due to the recognition of our U.S. compression fabrication business as discontinued operations.
We generated a net loss of $67.9$81.4 million and $22.5$67.9 million during the nine months ended September 30, 20202021 and 2019,2020, respectively. The increase in net loss during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 was primarily due to decreasesincreases in depreciation and amortization expense, SG&A expense and interest expense, an $8.0 million impairment recognized in the current year period, a decrease in adjusted gross margin of our aftermarket service and contract operations segments and a decrease in gain on extinguishment of debt. This was partially offset by a decrease in loss from discontinued operations, net of tax, an increase in adjusted gross margin for our product sales aftermarket servicessegment and contract operations segments, a decrease in income taxes and restructuring expense. Net loss during the nine months ended September 30, 2021 included loss from discontinued operations, net of tax, and an increase in interest expense, partially offset by decreases in SG&A expense, depreciation and amortization expenses, impairments, income taxes and restructuring and other charges, a gain on extinguishment of debt of $3.4$1.7 million and a decrease in foreign currency losses of $1.5 million. Netnet loss during the nine months ended September 30, 2020 included loss from discontinued operations, net of tax, of $15.8 million and net loss during the nine months ended September 30, 2019 included income from discontinued operations, net of tax of $23.7 million due to the recognition of our U.S. compression fabrication business as discontinued operationsactivity.and a $6.5 million tax benefit in Belleli EPC related to a settlement of Italian tax litigation previously recorded as an unrecognized tax benefit.
EBITDA, as adjusted.
27
EBITDA, as adjusted, is a non-GAAP financial measure. For a reconciliation of EBITDA, as adjusted, to net loss, its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “— Non-GAAP Financial Measures” included elsewhere in this Quarterly Report.
Contract Operations
(dollars in thousands)
Three Months Ended September 30, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||||||||||
Revenue | $ | 81,679 | $ | 96,261 | $ | (14,582) | (15) | % | |||||||||||||||
Cost of sales (excluding depreciation and amortization expense) | 24,548 | 34,356 | (9,808) | (29) | % | ||||||||||||||||||
Gross margin | $ | 57,131 | $ | 61,905 | $ | (4,774) | (8) | % | |||||||||||||||
Gross margin percentage (1) | 70 | % | 64 | % | 6 | % | 9 | % |
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Revenue |
| $ | 83,362 |
|
| $ | 81,679 |
|
| $ | 1,683 |
|
|
| 2 | % |
Cost of sales (excluding depreciation and amortization expense) |
|
| 27,790 |
|
|
| 24,548 |
|
|
| 3,242 |
|
|
| 13 | % |
Adjusted gross margin |
| $ | 55,572 |
|
| $ | 57,131 |
|
| $ | (1,559 | ) |
|
| (3 | )% |
Adjusted gross margin percentage (1) |
|
| 67 | % |
|
| 70 | % |
|
| (3 | )% |
|
| (4 | )% |
(dollars in thousands)
Three Months Ended September 30, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||||||||||
Revenue | $ | 30,435 | $ | 34,893 | $ | (4,458) | (13) | % | |||||||||||||||
Cost of sales (excluding depreciation and amortization expense) | 23,135 | 26,079 | (2,944) | (11) | % | ||||||||||||||||||
Gross margin | $ | 7,300 | $ | 8,814 | $ | (1,514) | (17) | % | |||||||||||||||
Gross margin percentage | 24 | % | 25 | % | (1) | % | (4) | % |
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Revenue |
| $ | 24,633 |
|
| $ | 30,435 |
|
| $ | (5,802 | ) |
|
| (19 | )% |
Cost of sales (excluding depreciation and amortization expense) |
|
| 19,379 |
|
|
| 23,135 |
|
|
| (3,756 | ) |
|
| (16 | )% |
Adjusted gross margin |
| $ | 5,254 |
|
| $ | 7,300 |
|
| $ | (2,046 | ) |
|
| (28 | )% |
Adjusted gross margin percentage |
|
| 21 | % |
|
| 24 | % |
|
| (3 | )% |
|
| -13 | % |
The decrease in revenue during the three months ended September 30, 20202021 compared to the three months ended September 30, 20192020 was primarily due to a decrease in installationpart sales in the Asia Pacific region and a decrease in overhaul services offset by an increase in part sales. Grossthe Middle East and Africa region. Adjusted gross margin during the three months ended September 30, 20202021 compared to the three months ended September 30, 20192020 decreased primarily due to the revenue decreasedecreases explained above. GrossAdjusted gross margin percentage during the three months ended September 30, 20202021 compared to the three months ended September 30, 2019 remained relatively flat.
(dollars in thousands)
Three Months Ended September 30, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||||||||||
Revenue | $ | 57,397 | $ | 54,796 | $ | 2,601 | 5 | % | |||||||||||||||
Cost of sales (excluding depreciation and amortization expense) | 54,263 | 48,187 | 6,076 | 13 | % | ||||||||||||||||||
Gross margin | $ | 3,134 | $ | 6,609 | $ | (3,475) | (53) | % | |||||||||||||||
Gross margin percentage | 5 | % | 12 | % | (7) | % | (58) | % |
28
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Revenue |
| $ | 53,304 |
|
| $ | 57,397 |
|
| $ | (4,093 | ) |
|
| (7 | )% |
Cost of sales (excluding depreciation and amortization expense) |
|
| 46,755 |
|
|
| 54,263 |
|
|
| (7,508 | ) |
|
| (14 | )% |
Adjusted gross margin |
| $ | 6,549 |
|
| $ | 3,134 |
|
| $ | 3,415 |
|
|
| 109 | % |
Adjusted gross margin percentage |
|
| 12 | % |
|
| 5 | % |
|
| 7 | % |
|
| 140 | % |
The increasedecrease in revenue during the three months ended September 30, 20202021 compared to the three months ended September 30, 20192020 was primarily due to a decrease of $30.9 million in compression revenue mainly in the Middle East and Africa and in the Asia Pacific regions due to the completion of projects prior to the current quarter. This was partially offset by increases of $27.6 million in processing and treating revenue. The increase in processing and treating revenue was due to an increase of $35.5$37.5 million for a project in compression revenue,the Middle East and Africa region, partially offset by a decrease of $33.6$9.9 million in processing and treating equipment revenuethe North America region due to nearing completion on a specific project and a declinedecrease in bookings. The decline in bookings is due to volatility in demand for energy and in commodity prices as well as an industry trend towards disciplined capital spending. Grossactivity. Adjusted gross margin decreasedincreased during the three months ended September 30, 20202021 compared to the three months ended September 30, 20192020 due to higher expenses on a specific project. Grossproject in the prior year period. Adjusted gross margin percentage decreasedincreased during the three months ended September 30, 20202021 compared to the three months ended September 30, 20192020 due to the higher expenses discussed above during the prior year period and a shift in product mix during the current year period.
(dollars in thousands)
Three Months Ended September 30, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||||||||||
Selling, general and administrative | $ | 29,959 | $ | 32,308 | $ | (2,349) | (7) | % | |||||||||||||||
Depreciation and amortization | 36,630 | 41,106 | (4,476) | (11) | % | ||||||||||||||||||
Impairments | 1,695 | 2,970 | (1,275) | (43) | % | ||||||||||||||||||
Restructuring and other charges | 238 | 1,257 | (1,019) | (81) | % | ||||||||||||||||||
Interest expense | 9,623 | 10,103 | (480) | (5) | % | ||||||||||||||||||
Gain on extinguishment of debt | (780) | — | (780) | N/A | |||||||||||||||||||
Other (income) expense, net | 1,178 | 2,101 | (923) | (44) | % |
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Selling, general and administrative |
| $ | 34,938 |
|
| $ | 29,959 |
|
| $ | 4,979 |
|
|
| 17 | % |
Depreciation and amortization |
|
| 43,889 |
|
|
| 36,630 |
|
|
| 7,259 |
|
|
| 20 | % |
Impairment |
|
| — |
|
|
| 1,695 |
|
|
| (1,695 | ) |
|
| (100 | )% |
Restructuring and other charges |
|
| (62 | ) |
|
| 238 |
|
|
| (300 | ) |
|
| (126 | )% |
Interest expense |
|
| 10,479 |
|
|
| 9,623 |
|
|
| 856 |
|
|
| 9 | % |
Gain on extinguishment of debt |
|
| — |
|
|
| (780 | ) |
|
| 780 |
|
|
| (100 | )% |
Other (income) expense, net |
|
| (1,074 | ) |
|
| 1,178 |
|
|
| (2,252 | ) |
|
| (191 | )% |
Selling, general and administrative
SG&A expense decreasedincreased during the three months ended September 30, 20202021 compared to the three months ended September 30, 20192020 primarily due to a decreaseincreases in compensation, costs.legal expenses and network related expenses in the current year period. SG&A expense as a percentage of revenue was 18%22% and 17%18% during the three months ended September 30, 2021 and 2020, and 2019, respectively.
Depreciation and amortization expense during the three months ended September 30, 20202021 compared to the three months ended September 30, 2019 decreased2020 increased primarily due to a decrease inapproximately $5.7 million of additional depreciation expense of approximately $9.5 millionrecognized in the current year period resulting from the sale of equipment on a contract operations contractproject due to changes in the fourthremaining terms of a contract during the third quarter of 2019. This decrease was partially offset by an increase ofthe prior year and approximately $3.1$2.2 million in depreciation for equipment on a contract operations project that was not operating in the prior year periodyear. This was partially offset by a decrease of $1.7 million in the Middle East and additional depreciation expenseAfrica region for a project that ended. Additionally, in the first quarter of $2.6 million recognized during2021, we evaluated the salvage values of our property, plant and equipment. As a result of this evaluation, we changed the salvage values for our compression equipment to a maximum salvage value of 5% from 15%. During the three months ended September 30, 2020 on2021, we recorded an increase to depreciation expense of approximately $1.0 million as a contract operations project due to changesresult of this change in the terms of a contract.
Impairment
During the third quarter of 2020, we impaired certain assets due to the termination of a contract operations project where it was not cost effective to move the assets and tryattempt to utilize them with a different customer. As a result, we removed themthese assets from the fleet and recorded an impairment of $1.7 million during the three months ended September 30, 2020.
29
The energy industry’s focus on capital discipline and improving returns has caused delays in the timing of new equipment orders. As a result, in the third quarter of 2019, we announced a cost reduction plan primarily focused on workforce reductions. We incurredDuring the three months ended September 30, 2021, we released an unused portion of previously expensed restructuring and other charges associated with these activities of $0.2$0.1 million and $1.3 million during the three months ended September 30, 2020, we incurred restructuring and 2019, respectively.
The decreaseincrease in interest expense during the three months ended September 30, 20202021 compared to the three months ended September 30, 20192020 was primarily due to a lowerhigher average interest rate on thebalance of long-term debt. During the three months ended September 30, 20202021 and 2019,2020, the average daily outstanding borrowings of long-term debt were $575.8 million and $503.4 million, and $519.9 million, respectively.
During the third quarter of 2020, we purchased and retired $5.0 million principal amount of our 8.125% senior unsecured notes due 2025 (the “2017 Notes”). for $4.3 million including $0.1 million of accrued interest. During the three months ended September 30, 2020, we recognized a gain on extinguishment of debt of $0.8 million, which was calculated as the difference between the repurchase price and the carrying amount of the 2017 Notes.
Other (income) expense, net
The change in other (income) expense, net, was primarily due to an increase in interest income of $3.5 million in the current year period. This was partially offset by foreign currency losses of $2.2$3.2 million during the three months ended September 30, 20202021 compared to foreign currency losses of $3.1$2.3 million during the three months ended September 30, 2019.2020. Foreign currency losses and gains included translation gains, net of gains on foreign currency derivatives, of $0.6 million and translation losses of $0.9$1.6 million and gains of $0.6 million during the three months ended September 30, 20202021 and 2019,2020, respectively, related to the currency remeasurement of our foreign subsidiaries’ non-functional currency denominated intercompany obligations.
Income Taxes
(dollars in thousands)
Three Months Ended September 30, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||||||||||
Provision for income taxes | $ | 5,745 | $ | 477 | $ | 5,268 | 1,104 | % | |||||||||||||||
Effective tax rate | (52.3) | % | (3.8) | % | (48.5) | % | 1,276 | % |
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
|
|
| ||||
Provision for (benefit from) income taxes |
| $ | (5,187 | ) |
| $ | 5,745 |
|
| $ | (10,932 | ) |
|
| (190 | )% |
Effective tax rate |
|
| 24.9 | % |
|
| (52.3 | )% |
|
| 77.2 | % |
|
| (148 | )% |
Our effective tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn, or losses we incur, in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. Our effective tax rate is also affected by valuation allowances recorded against loss carryforwards in the U.S. and certain other jurisdictions, foreign withholding taxes and changes in foreign currency exchange rates.
(dollars in thousands)
Three Months Ended September 30, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | $ | (998) | $ | 3,153 | $ | (4,151) | (132) | % |
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Loss from discontinued operations, net of tax |
| $ | (695 | ) |
| $ | (998 | ) |
| $ | 303 |
|
|
| (30 | )% |
30
Loss from discontinued operations, net of tax, includes our Belleli EPC business and our U.S. compression fabrication business.
Income (loss)Loss from discontinued operations, net of tax, during the three months ended September 30, 20202021 compared to the three months ended September 30, 2019 decreased due to2020 was flat overall, however there was a $6.8$1.4 million decrease in income fromloss for U.S. compression partially offset byand a $2.5$1.1 million increase in income fromloss for Belleli EPC. The decrease in income in U.S. compression business was primarily driven by the decrease in orders for the business. The increase in income in Belleli EPC was primarily driven by payment received from a customer for amounts that were previously reserved. For further details on our discontinued operations, see Note 3 to the Financial Statements.
Contract Operations
(dollars in thousands)
Nine Months Ended September 30, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||||||||||
Revenue | $ | 254,412 | $ | 271,645 | $ | (17,233) | (6) | % | |||||||||||||||
Cost of sales (excluding depreciation and amortization expense) | 79,754 | 93,283 | (13,529) | (15) | % | ||||||||||||||||||
Gross margin | $ | 174,658 | $ | 178,362 | $ | (3,704) | (2) | % | |||||||||||||||
Gross margin percentage (1) | 69 | % | 66 | % | 3 | % | 5 | % |
|
| Nine Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Revenue |
| $ | 251,874 |
|
| $ | 254,412 |
|
| $ | (2,538 | ) |
|
| (1 | )% |
Cost of sales (excluding depreciation and amortization expense) |
|
| 78,898 |
|
|
| 79,754 |
|
|
| (856 | ) |
|
| (1 | )% |
Adjusted gross margin |
| $ | 172,976 |
|
| $ | 174,658 |
|
| $ | (1,682 | ) |
|
| (1 | )% |
Adjusted gross margin percentage (1) |
|
| 69 | % |
|
| 69 | % |
|
| 0 | % |
|
| 0 | % |
___________________
The decrease in revenue during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 was primarily due to decreases of approximately $22.9 million for changes in rates, $12.6$21.5 million in contract stops, $8.1$5.3 million impact of devaluation on the Argentine Peso during the current year period $6.6 million impact of foreign currency exchange rates in Brazil, and $6.2$10.0 million from the sale of equipment pursuant to a purchase option exercised by customersa customer during the fourth quarter of 2019.prior year period. These revenue decreases were partially offset by an increase of $29.9$9.0 million due to the start-up of projectsa project that werewas not operating in the prior year period, an increase of $10.3 million from the sale of equipment pursuant to a purchase option exercised by customers during the first quarter of 2020 and an increase of $3.2$25.1 million primarily driven by an increase of deferred revenue recognized resulting from a change in the remaining term of a contract that will result in our recognizing $87 millionthe third quarter of remaining deferred revenue previously received from2020 and the customer over two remaining years insteadearly termination of eight years. Grossa contract in the current year period. Adjusted gross margin decreased during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 2019 primarily2020 due to the revenue decreaseschanges explained above. The change in the remaining termterms of the contractcontracts noted above resulted in additional costs during the nine months ended September 30, 20202021 in the form of depreciation expense, which is excluded from adjusted gross margin. GrossAdjusted gross margin percentage during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 remained flat.
increased primarily due to reduced operating expenses relative to the prior year
.
(dollars in thousands)
Nine Months Ended September 30, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||||||||||
Revenue | $ | 83,337 | $ | 92,308 | $ | (8,971) | (10) | % | |||||||||||||||
Cost of sales (excluding depreciation and amortization expense) | 63,336 | 67,814 | (4,478) | (7) | % | ||||||||||||||||||
Gross margin | $ | 20,001 | $ | 24,494 | $ | (4,493) | (18) | % | |||||||||||||||
Gross margin percentage | 24 | % | 27 | % | (3) | % | (11) | % |
|
| Nine Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Revenue |
| $ | 79,154 |
|
| $ | 83,337 |
|
| $ | (4,183 | ) |
|
| (5 | )% |
Cost of sales (excluding depreciation and amortization expense) |
|
| 62,813 |
|
|
| 63,336 |
|
|
| (523 | ) |
|
| (1 | )% |
Adjusted gross margin |
| $ | 16,341 |
|
| $ | 20,001 |
|
| $ | (3,660 | ) |
|
| (18 | )% |
Adjusted gross margin percentage |
|
| 21 | % |
|
| 24 | % |
|
| (3 | )% |
|
| -13 | % |
The decrease in revenue during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 was primarily due to decreasesa decrease in installation services and operation and maintenance services. Grossand overhaul services in the Middle East and Africa region, partially offset by an increase in part sales in the Asia Pacific region. Adjusted gross margin and adjusted gross margin percentage decreased during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 decreased primarily due to the revenue decrease explained above and the product mix during the current year period.
Product Sales
(dollars in thousands)
Nine Months Ended September 30, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||||||||||
Revenue | $ | 123,613 | $ | 254,367 | $ | (130,754) | (51) | % | |||||||||||||||
Cost of sales (excluding depreciation and amortization expense) | 125,581 | 217,073 | (91,492) | (42) | % | ||||||||||||||||||
Gross margin | $ | (1,968) | $ | 37,294 | $ | (39,262) | (105) | % | |||||||||||||||
Gross margin percentage | (2) | % | 15 | % | (17) | % | (113) | % |
31
|
| Nine Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Revenue |
| $ | 112,634 |
|
| $ | 123,613 |
|
| $ | (10,979 | ) |
|
| (9 | )% |
Cost of sales (excluding depreciation and amortization expense) |
|
| 99,437 |
|
|
| 125,581 |
|
|
| (26,144 | ) |
|
| (21 | )% |
Adjusted gross margin |
| $ | 13,197 |
|
| $ | (1,968 | ) |
| $ | 15,165 |
|
|
| (771 | )% |
Adjusted gross margin percentage |
|
| 12 | % |
|
| (2 | )% |
|
| 14 | % |
|
| (700 | )% |
The decrease in revenue during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 was primarily due to a decreasedecreases of $202.1 million in processing and treating equipment revenue due to nearing completion on a specific project and a decline in bookings. The decline in bookings is due to volatility in demand for energy and in commodity prices as well as an industry trend towards disciplined capital spending. This decrease was partially offset by increases of $63.2$54.9 million and $11.1$9.0 million in compression revenue and water solutions revenue, respectively. Grossrespectively, partially offset by an increase of $50.9 million in processing and treating equipment revenue. The decrease in compression revenue was mainly due to a decrease in revenue in the Middle East and Africa region in the current year period and the completion of projects in the Asia Pacific region during the first quarter of 2021. The decrease in water solutions revenue was due to projects in the Middle East and Africa region. The increase in processing and treating equipment revenue were due to projects in the Middle East and Africa region partially offset by a decrease in the North America region due to less activity. Adjusted gross margin decreasedincreased during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 due to the revenue decrease explained above and higher expenses on a specific project. Grossproject in the prior year period. Adjusted gross margin percentage increased during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 2019 decreased primarily2020 due to the higher expenses discussed above during the prior year period and a shift in product mix during the current year period.
(dollars in thousands)
Nine Months Ended September 30, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||||||||||
Selling, general and administrative | $ | 95,049 | $ | 108,902 | $ | (13,853) | (13) | % | |||||||||||||||
Depreciation and amortization | 100,887 | 113,450 | (12,563) | (11) | % | ||||||||||||||||||
Impairments | 1,695 | 8,889 | (7,194) | (81) | % | ||||||||||||||||||
Restructuring and other charges | 3,550 | 6,342 | (2,792) | (44) | % | ||||||||||||||||||
Interest expense | 29,214 | 28,194 | 1,020 | 4 | % | ||||||||||||||||||
Gain on extinguishment of debt | (3,424) | — | (3,424) | N/A | |||||||||||||||||||
Other (income) expense, net | (1,169) | 399 | (1,568) | (393) | % |
|
| Nine Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Selling, general and administrative |
| $ | 101,199 |
|
| $ | 95,049 |
|
| $ | 6,150 |
|
|
| 6 | % |
Depreciation and amortization |
|
| 132,097 |
|
|
| 100,887 |
|
|
| 31,210 |
|
|
| 31 | % |
Impairment |
|
| 7,959 |
|
|
| 1,695 |
|
|
| 6,264 |
|
|
| 370 | % |
Restructuring and other charges |
|
| 192 |
|
|
| 3,550 |
|
|
| (3,358 | ) |
|
| (95 | )% |
Interest expense |
|
| 30,800 |
|
|
| 29,214 |
|
|
| 1,586 |
|
|
| 5 | % |
Gain on extinguishment of debt |
|
| — |
|
|
| (3,424 | ) |
|
| 3,424 |
|
|
| (100 | )% |
Other (income) expense, net |
|
| (1,172 | ) |
|
| (1,169 | ) |
|
| (3 | ) |
|
| — |
|
Selling, general and administrative
SG&A expense decreasedincreased during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 primarily due to a decreaseincreases in compensation, costs,legal and network related expenses in the current year period, partially offset by the increasea decrease in allowance for doubtful accounts recorded during the prior year period primarily due to the expected impact of COVID-19 on our customers. SG&A expense as a percentage of revenue was 21%23% and 18%21% during the nine months ended September 30, 2021 and 2020, and 2019, respectively.
Depreciation and amortization expense during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 2019 decreased2020 increased primarily due to a decrease inapproximately $23.6 million of additional depreciation expense of approximately $27.9 millionrecognized in the current year period resulting fromon two contract operations projects due to changes in the saleremaining terms of a contract during the third quarter of 2020 and the early termination of a contract in the current year period, and approximately $6.2 million in depreciation for equipment on a contract operations contract in the fourth quarter of 2019. This decreaseproject that was partially offset by an increase of approximately $16.3 million in depreciation for installation costs and equipment on contract operations projects that were not operating in the prior year periodperiod. This was partially offset by a decrease of $1.7 million in the Middle East and an additional depreciation expenseAfrica region for a project that ended. Additionally, in the first quarter of $2.6 million recognized during2021, we evaluated the salvage values of our property, plant and equipment. As a result of this evaluation, we changed the salvage values for our compression equipment to a maximum salvage value of 5% from 15%. During the nine months ended September 30, 2020 on a contract operations project due2021, we recorded an increase to changes in the remaining termdepreciation expense of a contract.
Impairment
During the nine months ended September 30, 2020.
32
where it is highly unlikely we classified certain long-lived assets as assets held for sale in our balance sheets. In conjunction with the planned disposition of these units,will generate future cash flows. As a result, we recorded an $8.0 million asset impairment chargesto reduce the book value of $8.9 million to write-down these assets to their approximatezero, which is its estimated fair values for the nine months endedvalue as of September 30, 2019 based on the expected net proceeds.
The energy industry’s focus on capital discipline and improving returns has caused delays in the timing of new equipment orders. As a result, in the secondthird quarter of 2019, we announced a cost reduction plan primarily focused on workforce reductions. We incurred restructuring and other charges associated with these activities of $3.6$0.2 million and $6.1$3.6 million during the nine months ended September 30, 2021 and 2020, and 2019, respectively.
The increase in interest expense during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 was primarily due to a decrease in capitalized interest.higher average balance of long-term debt. During the nine months ended September 30, 20202021 and 2019,2020, the average daily outstanding borrowings of long-term debt were $580.1 million and $496.7 million, and $508.8 million, respectively.
During the nine months ended September 30, 2020, we purchased and retired $24.0 million principal amount of our 2017 Notes for $20.6 million including $0.3 million of accrued interest. During the nine months ended September 30, 2020, we recognized a gain on extinguishment of debt of $3.4 million, which was calculated as the difference between the repurchase price and the carrying amount of the 2017 Notes, partially offset by $0.2 million in related deferred financing costs.
Other (income) expense, net
The change in other (income) expense, net, was primarily due to an increase of $8.4 million in interest income in the current year period. This is almost fully offset by foreign currency losses $8.2 million during the nine months ended September 30, 2021 compared to foreign currency losses of $2.0 million during the nine months ended September 30, 2020 compared to foreignas well as an increase of $2.1 million in derivative losses in the current year period. Foreign currency losses netincluded translation losses of losses on foreign currency derivatives,$0.8 million and gains of $3.5$3.8 million during the nine months ended September 30, 2019. Foreign currency losses2021 and gains included translation gains, net of gains on foreign currency derivatives, of $3.8 million and translation losses, net of losses on foreign currency derivatives, of $0.1 million during the nine months ended September 30, 2020, and 2019, respectively, related to the currency remeasurement of our foreign subsidiaries’ non-functional currency denominated intercompany obligations. The change in other (income) expense, net, also included a decrease of $1.1 million in gains on sale of property, plant and equipment in the current year period.
(dollars in thousands)
Nine Months Ended September 30, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||||||||||
Provision for income taxes | $ | 18,970 | $ | 20,209 | $ | (1,239) | (6) | % | |||||||||||||||
Effective tax rate | (57.3) | % | (77.6) | % | 20.3 | % | (26) | % |
|
| Nine Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Provision for income taxes |
| $ | 11,105 |
|
| $ | 18,970 |
|
| $ | (7,865 | ) |
|
| (41 | )% |
Effective tax rate |
|
| (16.2 | )% |
|
| (57.3 | )% |
|
| 41.1 | % |
|
| (72 | )% |
Our effective tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn, or losses we incur, in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. Our effective tax rate is also affected by valuation allowances recorded against loss carryforwards in the U.S. and certain other jurisdictions, foreign withholding taxes and changes in foreign currency exchange rates.
Discontinued Operations
(dollars in thousands)
Nine Months Ended September 30, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | ||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | $ | (15,833) | $ | 23,695 | $ | (39,528) | (167) | % |
33
|
| Nine Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
|
|
|
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Loss from discontinued operations, net of tax |
| $ | (1,724 | ) |
| $ | (15,833 | ) |
| $ | 14,109 |
|
|
| (89 | )% |
Loss from discontinued operations, net of tax, includes our Belleli EPC business and our U.S. compression fabrication business.
Income (loss)Loss from discontinued operations, net of tax, during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 decreased due to a $34.3$15.4 million decrease in incomeloss from U.S. compression business and a $5.4 million decrease in income from Belleli EPC.compression. The decrease in incomeloss in U.S. compression business was primarily driven by the decrease in ordersactivity for the business, and a $6.5 million impairment. The decrease in income from Belleli EPCimpairment recorded during the nine months ended September 30, 2020. This was primarily due to $6.5 million tax benefit related to a settlement of Italian tax litigation previously recorded as an unrecognized tax benefit, partially offset by payment receiveda $1.3 million increase in loss from a customer for amounts that were previously reserved.Belleli EPC. For further details on our discontinued operations, see Note 3 to the Financial Statements.
Our unrestricted cash balance was $28.2$57.5 million at September 30, 20202021 compared to $16.7$40.3 million at December 31, 2019.2020. Working capital increased to $116.5$164.4 million at September 30, 20202021 from $109.3$154.7 million at December 31, 2019.2020. The increase in working capital was primarily due to a decrease in accounts payable and increases in contract assets and accounts receivables, partially offset by increasesdecreases in contract liabilities and current liabilities associated with discontinued operations, and increases in cash and contract assets, partially offset by an increase in accrued liabilities and a decreasedecreases in accounts receivable and inventory. The decrease in accounts payable was largely caused by the timing of purchases and payments to suppliers during the current year period. The increase in contract assets was primarily driven by the timing of milestone billings on product sales projects. The increase in accounts receivables was due to a delay in payments from customers. The increase in contract liabilities was primarily driven by the changeprogression of product sales projects and the timing of milestones billings in the termMiddle East and Africa region. The decrease in current liabilities associated with discontinued operations was driven by the decrease in activities in our U.S. compression fabrication business. The increase in cash is explained below within the operating, investing and financing activities. The increase in contract assets is due to the timing of a contract operation services contract.milestone billings in the Middle East and Africa region. The increase in accrued liabilities was primarily due to progression of product sales projects in the Middle East and Africa region. The decrease in accounts receivables was due to timing of collections primarily in the interest payment of the 2017 Notes.Middle East and Africa region. The decrease in inventory was primarily driven by the progression of product sales activity.
Nine Months Ended September 30, | |||||||||||
2020 | 2019 | ||||||||||
Net cash provided by (used in) continuing operations: | |||||||||||
Operating activities | $ | 25,672 | $ | 157,461 | |||||||
Investing activities | (65,612) | (166,481) | |||||||||
Financing activities | 74,583 | 49,486 | |||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (750) | (1,298) | |||||||||
Discontinued operations | (20,766) | (36,648) | |||||||||
Net change in cash, cash equivalents and restricted cash | $ | 13,127 | $ | 2,520 |
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net cash provided by (used in) continuing operations: |
|
|
|
|
|
| ||
Operating activities |
| $ | 39,232 |
|
| $ | 25,672 |
|
Investing activities |
|
| (22,741 | ) |
|
| (65,612 | ) |
Financing activities |
|
| 9,797 |
|
|
| 74,583 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| (422 | ) |
|
| (750 | ) |
Discontinued operations |
|
| (9,614 | ) |
|
| (20,766 | ) |
Net change in cash, cash equivalents and restricted cash |
| $ | 16,252 |
|
| $ | 13,127 |
|
Operating Activities.The decreaseincrease in net cash provided by operating activities during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 was primarily attributable to a decrease inimproved working capital and improved adjusted gross margin for our product sales segmentsegment. Working capital changes during the nine months ended September 30, 2021 included an increase of $17.3 million in accounts receivable and notes, an increase of $5.7 million in inventory, a decrease of $61.0 million in cash received from upfront billings on contract operations projects.assets and contract liabilities, net, and an increase of $7.2 million in accounts payable and accrued liabilities. Working capital changes during the nine months ended September 30, 2020 included a decrease of $13.5 million in accounts payable and other liabilities, an increase of $12.6$18.2 million in contract assets and an increasecontract liabilities, net, a decrease of $10.8 million in accounts receivable and notes. Working capital changes during the nine months ended September 30, 2019 included an increase of $68.0 million in contract liabilities, an increase of $18.3 million in inventorynotes and a decrease of $23.9$13.5 million in contract assets.accounts payable and accrued liabilities.
Investing Activities.The decrease in net cash used in investing activities during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 was primarily attributable to a $104.1$42.2 million decrease in capital expenditures. The decrease in capital expenditures was primarily driven by the timing of awards and growth in capital expenditures for new contract operations projects.
Financing Activities.The increasedecrease in net cash provided by financing activities during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 was primarily attributable to a decrease of $40.7 million in purchases of treasury stock, partially offset by a decrease in net borrowings of $15.2$65.3 million on our long-term debt.
34
Discontinued Operations.The decrease in net cash used in discontinued operations during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 was primarily attributable to working capital changes related to our U.S. compression fabrication business.
Capital Requirements.Our contract operations business is capital intensive, requiring significant investment to maintain and upgrade existing operations.Our capital spending is primarily dependent on the demand for our contract operations services and the availability of the type of equipment required for us to render those contract operations services to our customers. Our capital requirements have consisted primarily of, and we anticipate will continue to consist of, the following:
Long-Term Debt.We and our wholly owned subsidiary, Exterran Energy Solutions, L.P. (“EESLP”), are parties to an amended and restated creditagreement (the “Credit“Amended Credit Agreement”) consisting of a $700.0$650.0 million revolving credit facility expiring in October 2023.
35
which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. On March 5, 2021, the FCA announced that USD LIBOR will no longer be published after June 30, 2023. It is unclear whether, at that time, LIBOR will cease to exist or if new methods of calculating LIBOR will be established. Central banks and regulators in a number of major jurisdictions (for example, U.S., United Kingdom, European Union, Switzerland, and Japan) have convened working groups to find and implement the transition to suitable replacement benchmarks. In the U.S. theThe Alternative Reference Rates Committee, a groupsteering committee consisting of large U.S. financial institutions convened by the U.S. Federal Reserve Board and the Federal Reserve Bank of New York, identifiedhas recommended replacing LIBOR with the Secured Overnight Financing Rate a rate based on U.S. report trading, as its preferred alternative rate for LIBOR.(“SOFR”), an index supported by short-term Treasury repurchase agreements. We are in the beginning stages of creating a program that focuses on identifying, evaluating,continuing to evaluate and monitoringmonitor financial and non-financial impacts and risks that may result ifwhen LIBOR rates are no longer published after 2021.
We have agreements with financial institutions under which approximately $47.5 million of letters of credit or bank guarantees were outstanding as of September 30, 2021. These are put in place in certain situations to guarantee our performance obligations under contracts with counterparties.
The Amended Credit Agreement contains various covenants with which we, EESLP and our respective restricted subsidiaries must comply, including, but not limited to, limitations on the incurrence of indebtedness, investments, liens on assets, repurchasing equity, making distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements. We are required to maintain, on a consolidated basis, a minimum interest coverage ratio (as defined in the Amended Credit Agreement) of 2.25 to 1.00; a maximum total leverage ratio (as defined in the Amended Credit Agreement) of 4.50 to 1.00; and a maximum senior secured leverage ratio (as defined in the Amended Credit Agreement) of 2.75 to 1.00. As of September 30, 2020,2021, we maintained a 4.36.3 to 1.0 interest coverage ratio, a 3.53.6 to 1.0 total leverage ratio and a 1.21.4 to 1.0 senior secured leverage ratio. As of September 30, 2020,2021, we were in compliance with all financial covenants under the Amended Credit Agreement.
During the nine months ended September 30, 2020, we purchased and retired $24.0 million principal amount of our 2017 Notes for $20.6 million (includingincluding $0.3 million of accrued interest) resulting ininterest. During the nine months ended September 30, 2020, we recognized a gain on extinguishment of debt of $3.4 million. The gainmillion, which was calculated as the difference between the repurchase price and the carrying amount of the 2017 Notes, partially offset by $0.2 million in related deferred financing costs.
We may from time to time seek to retire, extend or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such extensions, repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Unrestricted Cash.Of our $28.2$57.5 million unrestricted cash balance at September 30, 2020, $27.42021, $56.2 million was held by our non-U.S. subsidiaries. In the event of adistribution of earnings to the U.S. in the form of dividends, we may be subject to foreign withholding taxes. We do not believe that the cash held by our non-U.S. subsidiaries has an adverse impact on our liquidity because we expect that the cash we generate in the U.S., the available borrowing capacity under our revolving credit facility and the repayment of intercompany liabilities from our non-U.S. subsidiaries will be sufficient to fund the cash needs of our U.S. operations for the foreseeable future.
Share Repurchase Program. On February 20, 2019, our board of directors approved a share repurchase program under which the Company is authorized topurchase up to $100.0 million of its outstanding common stock through February 2022. The timing and method of any repurchases under the program will depend on a variety of factors, including prevailing market conditions among others. Purchases under the program may be suspended or discontinued at any time and we have no obligation to repurchase any amount of our common shares under the program.
36
Shares of common stock acquired through the repurchase program are held in treasury at cost. During the nine months ended September 30, 2019, we repurchased 3,054,338 shares of our common stock for $38.9 million in connection with our share repurchase program. During the nine months ended September 30,2021 and 2020, we did not repurchase any shares under this program. As of September 30, 2020,2021, the remaining authorized repurchase amount under the share repurchase program was $57.7 million.
Dividends.We do not currently anticipate paying cash dividends on our common stock. We currently intend to retain our future earnings to support thegrowth and development of our business. The declaration of any future cash dividends and, if declared, the amount of any such dividends, will be subject to our financial condition, earnings, capital requirements, financial covenants, applicable law and other factors our board of directors deems relevant.
Supplemental Guarantor Financial Information
In April 2017, our 100% owned subsidiaries EESLP and EES Finance Corp. (together, the “Issuers”) issued the 2017 Notes, which consistsconsisted of $375.0 million aggregate principal amount senior unsecured notes.notes which have $350.0 million outstanding as of September 30, 2021. The 2017 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by Exterran Corporation (“Parent”). The 2017 Notes and Parent’s guarantee are:
Federal bankruptcy and state fraudulent transfer laws permit a court to void all or a portion of the obligations of the Parent pursuant to its guarantee, or to subordinate the Parent’s obligations under its guarantee to claims of the Parent’s other creditors, reducing or eliminating the ability to recover under the guarantee. Although laws differ among jurisdictions, in general, under applicable fraudulent transfer or conveyance laws, the guarantee could be voided as a fraudulent transfer or conveyance if (i) the guarantee was incurred with the intent of hindering, delaying or defrauding creditors or (ii) the Parent received less than reasonably equivalent value or fair consideration in return for incurring the guarantee and either (x) the Parent was insolvent or rendered insolvent by reason of the incurrence of the guarantee or subsequently became insolvent for other reasons, (y) the incurrence of the guarantee left the Parent with an unreasonably small amount of capital to carry on the business, or (z) the Parent intended to, or believed that it would, incur debts beyond its ability to pay such debts as they mature. A court would likely find that Parent did not receive reasonably equivalent value or fair consideration for its guarantee if it determined that the Parent did not substantially benefit directly or indirectly from the issuance of the 2017 Notes. If a court were to void a guarantee,noteholders would no longer have a claim against the Parent. In addition, the court might direct noteholders to repay any amounts that you already received from the Parent. Parent’s guarantee contains a provision intended to limit the Parent’s liability under the guarantee to the maximum amount that the Parentcould incur without causing the incurrence of obligations under its guarantee to be deemed a fraudulent transfer. This provision may not be effective to protect the guarantee from being voided under fraudulent transfer law.
All consolidated subsidiaries of Exterran other than the Issuers are collectively referred to as the “Non-Guarantor Subsidiaries.” The 2017 Notes are structurally subordinated to any indebtedness and other liabilities (including trade payables) of any of the Non-Guarantor Subsidiaries. The Non-Guarantor Subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the 2017 Notes, or to make any funds available therefor, whether by dividends, loans, distributions or other payments. Holders of the 2017 Notes will have no claim as a creditor against any Non-Guarantor Subsidiaries. In the event of bankruptcy, liquidation or
37
reorganization of any of the Non-Guarantor Subsidiaries, such subsidiaries will pay current outstanding obligations to the holders of their debt and their trade creditors before they will be able to distribute any of their assets to the Parent or the Issuers. As a result, in the context of a bankruptcy, liquidation or reorganization, holders of the 2017 Notes would likely receive less, ratably, than holders of indebtedness and other liabilities (including trade payables of such entities).
The Parent and EESLP are also parties to our credit agreement, which covenants with which the Parent, EESLP and our respective restricted subsidiaries must comply, including, but not limited to, limitations on the incurrence of indebtedness, investments, liens on assets, repurchasing equity, making distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements. These covenants may impact the ability of the Parent and EESLP to repay the 2017 Notes or amounts owing under Parent’s guarantee.
Summarized Financial Information (in thousands)
As a result of the Parent’s guarantee, we are presenting the following summarized financial information for the Issuers’ and Parent (collectively referred to as the “Obligated Group”) pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. For purposes of the following summarized financial information, transactions between the Parent and the Issuers, presented on a combined basis, have been eliminated and information for the Non-Guarantor Subsidiaries have been excluded. Amounts due from or due to the Non-Guarantor Subsidiaries and other related parties, as applicable, have been separately presented within the summarized financial information.
|
| September 30, |
| |
Summarized Statement of Operations: |
|
|
| |
Revenues(1) |
| $ | 69,139 |
|
Cost of sales(1) |
|
| 46,016 |
|
Loss from continuing operations |
|
| (159,986 | ) |
Net loss |
|
| (161,262 | ) |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Summarized Balance Sheet: |
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
|
| ||
Intercompany receivables due from non-guarantors |
| $ | 207,504 |
|
| $ | 206,267 |
|
Total current assets |
|
| 333,536 |
|
|
| 334,675 |
|
Total long-term assets |
|
| 198,174 |
|
|
| 230,334 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| ||
Intercompany payables due to non-guarantors |
| $ | 361,832 |
|
| $ | 362,221 |
|
Total current liabilities |
|
| 456,765 |
|
|
| 439,707 |
|
Long-term liabilities |
|
| 623,399 |
|
|
| 613,994 |
|
September 30, 2020 | December 31, 2019 | ||||||||||
Summarized Balance Sheet: | |||||||||||
ASSETS | |||||||||||
Intercompany receivables due from non-guarantors | $ | 190,323 | $ | 177,649 | |||||||
Total current assets | 323,244 | 353,431 | |||||||||
Total long-term assets | 256,063 | 249,732 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Intercompany payables due to non-guarantors | $ | 363,609 | $ | 399,645 | |||||||
Total current liabilities | 481,885 | 552,941 | |||||||||
Long-term liabilities | 571,058 | 495,829 |
We define EBITDA, as adjusted, as net income (loss) excluding income (loss) from discontinued operations (net of tax), cumulative effect of accounting changes (net of tax), income taxes, interest expense (including debt extinguishment costs), depreciation and amortization expense, impairment charges, restructuring and other charges, non-cash gains or losses from foreign currency exchange rate changes recorded on intercompany obligations, expensed acquisition costs, gain on extinguishment of debt, and other items. We believe EBITDA, as adjusted, is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization), our subsidiaries’ capital structure (non-cash gains or losses from foreign currency exchange rate changes on intercompany obligations), tax consequences, impairment charges, restructuring and other charges, expensed acquisition costs, gain on extinguishment of debt, and other items. Management uses EBITDA, as adjusted, as a supplemental measure to review current period operating performance, comparability measures and performance measures for period to period comparisons. In addition, the compensation committee has used EBITDA, as adjusted, in evaluating the performance of the Company and management and in evaluating certain components of
38
executive compensation, including performance-based annual incentive programs. Our EBITDA, as adjusted, may not be comparable to a similarly titled measure of another company because other entities may not calculate EBITDA in the same manner.
The following table reconciles our net loss to EBITDA, as adjusted (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Net loss | $ | (17,721) | $ | (9,841) | $ | (67,914) | $ | (22,540) | |||||||||||||||
(Income) loss from discontinued operations, net of tax | 998 | (3,153) | 15,833 | (23,695) | |||||||||||||||||||
Depreciation and amortization | 36,630 | 41,106 | 100,887 | 113,450 | |||||||||||||||||||
Impairments | 1,695 | 2,970 | 1,695 | 8,889 | |||||||||||||||||||
Restatement related charges, net | — | — | — | 20 | |||||||||||||||||||
Restructuring and other charges | 238 | 1,257 | 3,550 | 6,342 | |||||||||||||||||||
Interest expense | 9,623 | 10,103 | 29,214 | 28,194 | |||||||||||||||||||
Gain on extinguishment of debt | (780) | — | (3,424) | — | |||||||||||||||||||
(Gain) loss on currency exchange rate remeasurement of intercompany balances | (624) | 884 | (3,822) | 55 | |||||||||||||||||||
Provision for income taxes | 5,745 | 477 | 18,970 | 20,209 | |||||||||||||||||||
EBITDA, as adjusted | $ | 35,804 | $ | 43,803 | $ | 94,989 | $ | 130,924 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net loss |
| $ | (16,303 | ) |
| $ | (17,721 | ) |
| $ | (81,390 | ) |
| $ | (67,914 | ) |
Loss from discontinued operations, net of tax |
|
| 695 |
|
|
| 998 |
|
|
| 1,724 |
|
|
| 15,833 |
|
Depreciation and amortization |
|
| 43,889 |
|
|
| 36,630 |
|
|
| 132,097 |
|
|
| 100,887 |
|
Impairment |
|
| — |
|
|
| 1,695 |
|
|
| 7,959 |
|
|
| 1,695 |
|
Restructuring and other charges |
|
| (62 | ) |
|
| 238 |
|
|
| 192 |
|
|
| 3,550 |
|
Interest expense |
|
| 10,479 |
|
|
| 9,623 |
|
|
| 30,800 |
|
|
| 29,214 |
|
Gain on extinguishment of debt |
|
| — |
|
|
| (780 | ) |
|
| — |
|
|
| (3,424 | ) |
(Gain) loss on currency exchange rate remeasurement of intercompany balances |
|
| 1,620 |
|
|
| (624 | ) |
|
| 810 |
|
|
| (3,822 | ) |
Provision for (benefit from) income taxes |
|
| (5,187 | ) |
|
| 5,745 |
|
|
| 11,105 |
|
|
| 18,970 |
|
EBITDA, as adjusted |
| $ | 35,131 |
|
| $ | 35,804 |
|
| $ | 103,297 |
|
| $ | 94,989 |
|
39
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks associated with changes in foreign currency exchange rates due to our significant international operations. While the majority of our revenue contracts are denominated in, or indexed to, the U.S. dollar, certain contracts or portions of certain contracts, most notably within our contract operations segment, are exposed to foreign currency fluctuations. Approximately 15%60% of revenues in our contract operations segment are denominated in a currency other than the U.S. dollar. The currencies for which we have our largest exchange rate exposures are related to changes in the Argentine Peso and the Brazilian Real. During the nine months ended September 30, 2020,2021, the Argentine Peso depreciated by approximately 21%15% and the Brazilian Real depreciated by approximately 29%4%. The impact of foreign currency risk on income for these contracts is generally mitigated by matching costs with revenues in the same currency.
Additionally, the net assets and liabilities of these operations are exposed to changes in foreign currency exchange rates. These operations may also have net assets and liabilities not denominated in their functional currency, which exposes us to changes in foreign currency exchange rates that impact income. We recorded foreign currency losses of $2.0$8.2 million and foreign currency losses of $2.7$2.0 million in our statements of operations during the nine months ended September 30, 20202021 and 2019,2020, respectively. Our foreign currency gainslosses and lossesgains are primarily due to exchange rate fluctuations related to monetary asset balances denominated in currencies other than the functional currency, including foreign currency exchange rate changes recorded on intercompany obligations. Foreign currency losses and gains included translation losses of $0.8 million and gains of $3.8 million and $0.2 million during the nine months ended September 30, 20202021 and 2019,2020, respectively, related to the functional currency remeasurement of our foreign subsidiaries’ non-functional currency denominated intercompany obligations. During the nine months ended September 30, 2020 and 2019,2021, we entered into forward currency exchange contracts to mitigate exposures in U.S. dollars related to the Argentine Peso, Brazilian Real and Indonesian Rupiah.Peso. As a result of entering into these contracts, we recognized losses of $0.8$2.0 million during the nine months ended September 30, 2019.2021. Changes in exchange rates may create gains or losses in future periods to the extent we maintain net assets and liabilities not denominated in the functional currency.
As of September 30, 2021, we do not have any derivative financial instruments outstanding to mitigate foreign currency risk. In the future, we may utilize derivative instruments to manage the risk of fluctuations in foreign currency exchange rates that could potentially impact our future earnings and forecasted cash flows.
Item 4. Controls and Procedures
This Item 4 includes information concerning the controls and controls evaluation referred to in the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Exchange Act included in this Quarterly Report as Exhibits 31.1 and 31.2.
Management’s Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.
In connection with the preparation of this Quarterly Report on Form 10-Q, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2020.2021. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, and made known to our principal executive officer and principleprincipal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
40
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, we are involved in various pending or threatened legal actions. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from any of these actions will not have a material adverse effect on our financial position, results of operations or cash flows. However, because of the inherent uncertainty of litigation and arbitration proceedings, we cannot provide assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our financial position, results of operations or cash flows.
For further details on the current legal proceedings, see
Item 1A. Risk Factors
There have been no material changes or updates to our risk factors that were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, except as follows:
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Period | Total Number of Shares Repurchased(1) | Average Price Paid Per Unit | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Approximate Dollar Value of Shares yet to be Purchased Under the Publicly Announced Plans or Programs (2) | |||||||||||||||||||
July 1, 2020 - July 31, 2020 | 504 | $ | 5.22 | — | $ | 57,726,011 | |||||||||||||||||
August 1, 2020 - August 31, 2020 | 1,372 | 5.94 | — | 57,726,011 | |||||||||||||||||||
September 1, 2020 - September 30, 2020 | 142 | 4.06 | — | 57,726,011 | |||||||||||||||||||
Total | 2,018 | $ | 5.63 | — | $ | 57,726,011 |
|
|
|
|
|
|
|
| Total Number of Shares |
|
| Approximate Dollar Value of Shares |
| ||||
|
| Total Number |
|
| Average |
|
| Purchased as Part of |
|
| yet to be Purchased Under the |
| ||||
|
| of Shares |
|
| Price Paid |
|
| Publicly Announced |
|
| Publicly Announced |
| ||||
Period |
| Repurchased(1) |
|
| Per Unit |
|
| Plans or Programs (2) |
|
| Plans or Programs (2) |
| ||||
July 1, 2021 - July 31, 2021 |
|
| 293 |
|
| $ | 4.21 |
|
|
| — |
|
| $ | 57,726,011 |
|
August 1, 2021 - August 31, 2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 57,726,011 |
|
September 1, 2021 - September 30, 2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 57,726,011 |
|
Total |
|
| 293 |
|
| $ | 4.21 |
|
|
| — |
|
| $ | 57,726,011 |
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
41
Item 6. Exhibits
________________________________
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Exterran Corporation | ||||||||||
Date: November | By: | /s/ DAVID A. BARTA | |||||||||
|
| David A. Barta | |||||||||
|
| Senior Vice President and Chief Financial Officer | |||||||||
|
| (Principal Financial Officer) | |||||||||
43