EXTN - Earnings call transcript Q2 2018

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Operator

Greetings. And welcome to Exterran Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. pleasure your my call, for now Mr. is to host introduce today’s It President, Relations. Hancock, Investor Blake Vice Thank you.

You begin. may

Blake Hancock

Good morning. President And Officer; President XXXX Way; conference of welcome Barta, and to Exterran With David Vice today Corporation’s Girish me Global Saligram, is President Chief Services. Exterran’s Exterran’s and Senior Andrew call. CEO, Financial second and quarter

in Factors statements statements future measures future its results to several measures during company’s the due now call. business, Regulation available the the With this we important on and over filings Commission. company reconciliation operations similar the uncertainties the laws During that, company’s company’s call provides or Exchange about Risk U.S. call, website. to and forward-looking with these company’s release trends with date materially will this financial may as and expectations make this may in Securities are and matters. refer of non-GAAP a including turn meanings speak actual earnings yesterday, G, Management factors, These plans call. differ I press The within Andrew. of statements described the for considered issued of regarding In the accordance securities could to management’s the only the other the of

Andrew Way

key We convert during last pipeline and that products noted segment as bookings, Good continued has margin the in morning, product Africa, the Portfolio and $XX of ECO, adjusted our million the we the EBITDA Product began wins on opportunities quarter progress call million, about Middle continued on America growing our with record and to Blake. Thanks, orders in of and fronts, everyone. Exterran solid in AMF. had rate for many on East quarter. revenue to expansion $XXX Latin felt clearly, another good ECO on

contributing develop of increased significantly focus, $XXX the quarters quarter bookings, wins The the to first book over were a XXXX XXX% that past Contract eight-year we that will recently capability of Operation increase XXXX. operate part $XXX the past calls. maintain over a America Contract QX latter with East-Africa our Middle part execution along have to on service of awards Our signed in result a the long-term over an an over announced into the the build, we international further throughout continue call, months in Inclusive continues million, operation we topline Latin contract strength [XXXX] (sic) have go segment, order million for own, on total. bookings region. project In in our in overall six America our last with of we and to and pipeline now indicated a over projects earnings several revenue our Latin from prior signed sales in period exceeded improved the are strong $XXX the expectations, built-out globe. million Operations and In our AMS, as the

am responsiveness. deliver capabilities success This focus to in entire all business we the scaling the positioning and are our projects organization the progress win East. Middle to make capabilities in on, continue delivering to that I in with backlog, areas. pleased the continue high areas we customers year, our We a continued and of are seeing have commercial three with to degree developing are about I talked further the expertise to

across previously engineering, teams. our We construction and making good on-site progress announced on projects manufacturing are the

of while meeting capabilities We margins all and optimizing continued to our generating manufacturing our that make ensure further returns needs. customer are we progress, improved to

sharp efforts to take productivity projects should of on teams, times, excellent expansion which coming our help Our locally, our cycle the with regional supply faster make in complex us years. chain delivering margin global positioning and progress, all organization, along continues to more over company the

key to a ahead. a become design, and providing opportunities quickly processing configuration has for facility cycle service times, application manufacturing allow by and full lines, for we competitive providing from compression, the East capacity Exterran, customers detailed This additional with treating offering, for advantage to lower Middle and and product both Our support. us will service see

we As the The natural gas this exporters the gas continue is to of decade very expects grow to XXXX the to at next year nearly XX% out pace on alone. look we optimistic what the see macro, largest on be one ahead. we EIA as of U.S. production be in

markets production continues positive for term, facilities, to given growth projections. driven and services. Internationally, will the processing remain longer new now pass demand our the Permian, developments very by the a pause, and for gas treating and independence takeaway of we along and may America, China in the with gas East, who how capacity our Girish, with the in growth I products fit the product into in discuss Middle Basin with goal growth demand our over be in our Latin associated and While industrial towards over coming global and the many production is years. will to along these call

Girish Saligram

there for to a in be to part processing a will the the in XX to and not and believe don’t in in impact Starting This year. the of treating on takeaway Permian capacity the continued to we we for middle this a and capacity America, by while Permian, impacts. global expectations slowing any online Today begin driven issue business, treating continue hot U.S. and and lower I pipeline prepare we the about North are have late continue would Andrew. been of have need until has you talk robust we is year, don’t long-term material processing next topic come early recognized to the for seen The with Thanks, dynamics. across additional see compression, capacity see companies orders surprised our compression any demand demand, and and as

the look Additionally, current the constraints view. will and gas longer lead with plants actions beyond necessary customers times take means for the a long-term our that

factors. second incrementally the go In significant activity a portion of are In engine Marcellus, The contributing main to line. our dynamic the and impact greater mention significant for returns STACK, Utica saw foreshadows basins. the into times seeing applications, America power to Permian, and oil the associated of pipeline is We cycle the and North growth SCOOP very our and in multiple quarter the down we on capacity increased which LNG expect operators. deliveries. is gathering capacity provides the We orders in from of demands, driver compression long wave gas continued processing another production business, final in demand are

we seeing in recognition times, the of new significantly change, ahead we the to a strong these and While In Africa which of as space. customers planning is a the are cycle situation East demand result not see are relatively seeing supply customer in continue region, investments. Middle we phenomenon

than However, much North the cycle America. are times, while longer in still getting faster,

processing produced fit early a focusing for demand and water typically gas, solutions oil solution for Inquiries with incorporate resurgence the treatment on we space seeing rise, solutions. is are are of coupled production power water volumes, facilities are We that and that for need gas oil, on. capacity associated that the for and and

strong be region our and investments facility customer Our confident in as Hamriyah seeing engineering and Iraq presence Bahrain Oman, us have local out where the significant countries make and to key regional continues hub. we in expertise from are to in and building we demand relationships. Kuwait, signals feel manufacturing our focus The serve long-term a further the

strategic such in Our expertise are place ability Africa. same Kingdom the service build of greater also in parts competitive we putting Sub-Saharan Northern design, of the to provide as a becoming more countries and Saudi penetration the drive initiatives and of in time, is Arabia locally At region, and differentiator. to

assets, declining believe Design-Build-Own-Operate and that a With and our gas DBOOM, model the win-win production opportunity. need investment increase we oil to drive Maintain to provides production replace or

and For like the about nations. deploying initiatives benefits of a beginning customers, the by their operations not faster and feels contracts up by in America talked to centers of and to us, growing gas returns. past is new gas we We’ve midstream at a economics, while with mechanism the Bolivia contract is the driven of are demands production a Brazil brings solutions cycle. Argentina, grow fundamental as monetize to natural higher extensively our but for it assets, at base, Latin long-term path it scalable solely

and the more growth we in of the Muerta the As capacity. first gas remain investments were IOCs Andrew operational Vaca In in on one working foretell of large see significant discussed, has and are we for the awards to confident investments we In onshore opportunities expecting are future. the the Argentina for soon. first reforms need come fruition significant continued processing play Brazil, to the seeing and

see important be awarded up recovery of Asia-Pacific but to get starting services continues we the new within the hopefully Finally, to year. drive for will region we signs starting region. projects see some us come are are to this activity volume, The in to earlier that

We have and services discuss to expertise customer very second that in financial competitive should will us results. delivering manufacturing now to aid in Dave I region it capacity our offerings. the over pass strong quarter

David Barta

Thanks Girish.

million increased down in and increase margin Latin was a the in delta of $XX that results, decline. segment rate and while was slight compared part to will in margin of the revenue The sequential rate movements of changes East resulted increase driver make segment The gross gross biggest shortly. comparisons pushed projects dynamic margin revenue into was in I’ll increased Revenue contract a due $XX Sales result sales $XX up margin $XX was while to part increased operations from $XXX The In FX in of revenue up in quarter. as in from million, gross first the quarter. in QX. the largely in sales QX. in our more sequential Starting performance. discussed million, Latin FX a quarterly million prior posted recoveries. and sales compared in was was resulting with was XX%, in well America, to Middle XX% primarily contract XX% I I $X gross and talk percent As and Product due gross margin margin of revenue to were gross XX%, XX% were and timing XX% in Africa, about margin a million sequential segment, decline to of margin QX. to mix to the XX% the as resulting million, This the XX% percentage the AMS, America, a and was couple commissioning

while strong basis, and and from quarter down the versus process compression orders a sequential year. revenue on prior slightly Another up treating for was

a record in we bookings As $XXX Product Sales noted, Andrew million. hit of

this ECO an million we’ve that to been compared mention that I new about, Sales discussing hope initiatives, million $XX end a at flat Exterran their haven’t on Product development. manage should costs, and quarter. X in product in while SG&A certainly, the order the continued convert such to was end to earlier the topic talked decision a to $XXX Corporation. release QX, in were the FX, we at with Our product contract during We our as potential press $XXX of referenced the expenses at million, as of QX. customer we comments, revenue-producing we as have investing to backlog

to or a wanted call standpoint FX FX in couple both. can either the ways, I a a company take the So volatility a company. on the or to transactional translational in impact and few impacts today on a minutes discuss of

to peg We the impacts in our contracts equipment that not in thus country to that margins there’s impact approaches these, is hard exposures, is into Because of U.S. to it’s contract, majority mitigate With -- the get to the margin currency, significant way transactional impact really we U.S. a currency practices regard foreign equipment costs dollars. though than generally reduced. FX local our squeeze. the the EBITDA. EBITDA have O&M to are so business significantly and disciplines would and FX from dollar, translational contract not a to a like even per isolating other exposure the support but Also, is here of Generally, the as us of revenue pressures the U.S. many translational

translation the margin when and local peso peso revenue seen degree, Argentine gross versus of dollar real. year. dollar a the Brazilian impact U.S. dollar. since protected, XX% devalued the beginning over might the we a well while reported The in reduction have Year-to-date, U.S. a be the of is devaluing So lesser will significant devaluation the the be vis-à-vis currency has the to

similar devaluation level countries impact in of the these FX of a a in So at sequential on is million basis, this real expect a We’ll peso sales for of QX. be to reduction for shortly, and reported rates year. but discuss the the QX we $X the the remainder

$XX in CapEx and quarter, expenditures. $XXX expected was segment. driven the million, capital projects Operations $XXX estimated million, to second by CapEx full Gross currently our Turning In the with to primarily Contract around to million. other year CapEx for is in growth investing maintenance million, be and be the at total $XX growth

payments receive advance which we account deferred expect to $XX of revenue. this We million for as year,

Moving to of million. quarter balance $XXX sheet. end credit $XXX Total the was the of at available with second the debt million

which our credit as Our times end leverage was in ratio, is debt-to-adjusted-EBITDA of QX. QX, the defined X.X with at flat agreement

in Our long-term an up net from the at debt of million debt investment increase or million, CapEx. result of end with less stood $XXX cash $XXX a QX, at growth

XXXX, to witnessed of to the advantage from margin be million should levels. of sequential Contract Operations, We to high in high drive of QX. trends Latin to EBITDA decline. for the that to similar to revenue level somewhere gross see in with been pipeline third In we In a would $XX regard discussing. we the expect a what the we’ve FX are revenue QX QX the similar percentage we range positioned capital quarter levels With outlook expect well opportunities with take adequate America,

back product to ongoing For million focus turn the product potential with $XX in should with convert our for $XX’s customer in around investments increase high Sales now to be higher and the our to slightly million. If to million due QX be million $XX sequentially, ECO cost initiatives. incremental I’ll sales and convert order continued mid-$XX’s Product earlier, the low to sequential ECO, be Andrew. out outlook SG&A should their should X% XX% roughly In segment flat one the and and an new productivity with elects to mentioned between customer this AMS, for I margins the revenue revenue on to to their segment, should over the discussion $XX the million, year-over-year would in contract. call up sequentially. increase initiatives. be range,

Andrew Way

Dave. Thanks

year Exterran of have we a initiatives. and be Investment as new of As will stated, growth the in investment come our form execute will capital product this plan. expenditures for we

gas our efficiently and on stewards which of and additive capital, high-return of the receptive continue renewed for midstream investing end an process equipment and focus we our to good product new We continue will our talked and cooperative be and to as feel maintain product I’ve capital ideas approach appetite in to lines. maintain R&D strategy. working The focus projects growth about our the markets of we in increasing in past demands production. be development, believe regional will to

I and a into would up oil to business allow continue at have Water are a us looks to company. we running, would little the bit development what is the us space Water fully gas systems business. time within developments global we that our new our to a business that to excited capitalize evolution in market look addressable we Additionally, our the like with discussing where allowing function feel the and on of becoming inorganic opportunities and the help like process. and of build-out We continued within process well-positioned are and spend corporate

critical issue topic For is the of space big with and produced in customers. X well annually. barrels a North is service our is of unconventional oilfield Water space key today’s America, a water within of billion many over

projects secondary as face have water we’ll look is our base to deployed a treatment lot to already a and that leverage Additionally, of perspective. in these We the practical a grow. conventional space, regulatory and challenge international a from also a customers existing

value the patented being a deliver technologies total of number to across adapted water that solution a have chain. are We

that and As with today, of a have both in of a series select production projects customers number we are of pilot full phase.

water With efforts solution problems our customers, key and total that addresses with the are industry the we collaborative learnings faced. that introducing a

product commercialize capabilities pursuing the the multiple are and We in ‘XX, half quarters. enhance of to in further looking are projects and for coming EWS second

customers’ in to relationships. operator the enabler support strong are in at footprint we now and plans, to questions. we those global meeting a driving our call our believe look that, we over I’ll back their With investment well-positioned turn is the As objectives them for

Operator

from Our your Monachello question. comes Tim proceed AltaCorp Instructions] Capital. with first [Operator with question Please

Tim Monachello

morning. Good Hey.

Andrew Way

Tim. Good morning,

Girish Saligram

Good morning.

Tim Monachello

can a hoping I saw you that bit regional quarter? where Product was a this on just bookings breakdown you Sales give little guys of the coming from

Andrew Way

Sure. Yeah.

So this is Andrew.

orders relation to through markets. Eastern First we’ve described came that strong. Middle America the of regions did East all, Permian similar that -- from to saw we region. the phone a the our we have on talking first quarter SCOOP/STACK in in continued all international been some kind and the as be as The year, North trend we saw Middle we of

of very first what the the bookings the we we inquiries So first, somewhat closure similar similar quarter the to saw in what quarter. second was we the saw inbound that in in also saw also was to

Tim Monachello

you Would of saw to much all outside North how quantify America? able be at you

Andrew Way

about that we Latin East, quarter our the -- Middle Middle being we Outside, of that came orders saw from in saw largest the the East the with half markets, America and part both percentage. of international second

Tim Monachello

Contract country willing you the Okay. $XXX are project Operations Great. million at talk landed And was which guys to in? all the

Andrew Way

particular quite exciting we’ve overall good that a already this an supports seen various forward from it our for the six the order and delivering region We’ve terms months so customer. we’re was project countries in past in have Yeah. We the and activity. really over about talked team Bolivia that region. extensively to further This is the looking of

Tim Monachello

Great. Thank much. you very

Andrew Way

Thanks.

Operator

Our from Please Hoh with proceed Evercore is Samantha ISI. with next question question. your

Samantha Hoh

could Andrew, Hi. Yeah. you…

Andrew Way

morning. Good

Samantha Hoh

this structured? side? on these the or about business? more to hit us side contracts tell How the little product going it books maybe in ECO Is bit Water … the a are

Andrew Way

Yeah.

that Water business two developing. to So, been the we’ve segments got Samantha, Solutions we’ve

describe First both space, is, what we conventional which I the and but the similar scalable. second technologies would that the is water somewhat have are unconventional,

business, the as to to or of there’s inside conventional that various come framework. past, really a model sizes all, and we appetite a our that that typically a can testing So, in disguises that for are whether ECO understand first market through we currently and Product for conversion Sale different we’ve seen in the operate

we’re of a a longer has pipeline a we so have business life, have certainly that in to we over the we to next right number projects and to that time in today, so projects long have here now. that revenue activity And period have And of the the hope have ability it’s generate characteristics quarters. and some a several exploring positive the

the is really than the facilitate On less different are we applications of that really and that technology X flotation in deoiling unconventional, core we removal, cases, micro a and have solids PPM, many around is applying number the bubble it it. so

now, right go. have about we to space, tertiary, cover what mandate today differentiator that that solution mobile We scalable patented technologies and key secondary for a does all a feel we the that and the in it’s both unconventional, call one unit, nine is in that, footprint the primary that we smaller

And business are excited so and we the about the we really testing speak. there we’re as model technology

and updates really to a commercial with pilots and have more ascertain with is over this we encouraged initial and of testing the But a of now, the key more you to coming in are the we industry, if speak. right number for hope have of as like, a or Product play we’re number very the We players product things testing we’re quarters. Sale, ECO an you of side results whether in just today

Samantha Hoh

life it’s Sales you’re me there there of be -- aftermarket Can of that like you in kind type mean, tell ECO. these what real terms of seasonality when do anything of in an there’s like Is Product equipment of you you regardless field. component would putting if there’s sounds it terms margins to would this the on equipment? I -- like of out can type long or sounds it And is like maintenance those for envision?

Andrew Way

the depends it through, model we on that I work Samantha. ultimately think

unit service and you that I a the various that’s think, that time application Product customer required location, useful put an sure, are period a at if of interaction life and a there’s a parts element for asset Exterran. customer with of Sale of would a and that want you over can picture there has

finalize the through it’s to whether asset I think serve hard we it’s sales, or define. we until ECO an that model product

have So trial cycle. some as we’ll that on it have update completions units the to to of commercial bring here better that next to and on better the so. feeling or a quarter a the these in we full We hope

Samantha Hoh

Thanks so Okay. much. Great.

Andrew Way

Samantha. Thanks,

Operator

[Operator Capital Instructions] from Please with comes One. Joe proceed question your with question. next Our Gibney

Joe Gibney

Good morning. Thanks. Yeah.

Just wanted the on circle to back side. little indicator a bit order

of order in once? came as But sense I on trying trying were sounds that’s I like the order Permian where just on view pretty or a it just air lifts internationally. extent of color very compression at of a XQ side? So on to of we all there. year, constructive situation both back P&T momentum of queue the indicators it a international and in coalesced the the look well appreciate get broad-based side half the into together sort that what international understand pocket, while get advertised. I’m the a any to Was had for sense it you just

Girish Saligram

Girish. is This Joe. Hey,

lot I tend cycle be think in mentioned the a prepared times is, international longer. really it remarks, of earlier on lot side, the a as to these I

the it’s pipeline how customers a been the tough, to quite have deals working So fruition. we’ve on for with planning in that it to and while through been bring that

fairly driver. again, the deals So of a really ones through go the tender process. was to that international And be that tend side in rigorous main majority the

and the quarters. be susceptible change over that timing So months to on a little to tends several

to there next be expect further over orders, spread the in be So months. contracts, see will time will but further we there several

we in come next options geographically, Andrew of the several America, for quarters Middle orders will of some fruition. as well Latin set well subsequent would East to mentioned, trains as particular and spread this as between as hope So come are that with that were them the orders

Joe Gibney

while, on seeing just certainly Andrew, the has for been aftermarket, on in little a that’s bit question a And focus portfolio. lift Understood. a more this a Okay.

nice momentum of in certainly team the step engender more touch little up, XQ. if focus a here, have aftermarket initiatives some a sort you and the into there? could a rejigged XQ, to company. with there like like some on certainly sounds bit Sounds You continued an results you of within tried Maybe in

So XQ. comments a appreciate up any there. nice It step in was

Andrew Way

Yeah.

I think hit you the -- hit you right. it,

a I of to we’re and think the kind we’ve solid put together and back some real gone areas are in teams looking team now. basics very proud of what right through

We’re unit just this our and with of more a productivity this the -- to that supply opportunities for a needle notion fewer focuses of move just customers. on and to try more reliability, seeing availability from parts

And had our in enjoying business to the try regions. our what we’ve spend to lot run own that with experienced customers team internally, the that takes various a internationally really replicate really from the have leveraging those and understanding field our in so been facilities time level that of really ECO it efficiency we of just success and at the

I think is no momentum Latin in more built-in question We’ve got inbound There’s seeing coverage America. definitely we’re that’s some there better today. opportunities.

seeing and in various locations. that were to be win we success and seeing the pleased not we’re that before continue level we more opportunities perhaps the with So of just rate we’re

hard will of balance lot this a of year. results the year -- continue the of and hopefully, throughout it into and it’s work, next So

Joe Gibney

you. Thank guys. appreciated right. All I

Operator

like to closing end call gentlemen, for back time, the session. turn we’ve question-and-answer Way Andrew to At the the comments. reached this Ladies of and I’d

Andrew Way

Yeah.

in So appreciate continued the to much. of look today. I’d updating forward third to Thanks everyone like support thank very your end and at dialing the you for We quarter.

Operator

today’s concludes conference. This

for lines thank time disconnect we may your and You you participation. your this at

Exterran (EXTN) 12 Aug 182018 Q2 Earnings call transcript