EXTN - Earnings call transcript Q4 2018

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Operator

Greetings. Welcome to the Exterran Fourth Quarter 2018 Earnings Call. [Operator Instructions]. Please note that this conference is being recorded. I'll now turn the conference over to Blake Hancock. Mr. begin. now may you Hancock,

Kenneth Hancock

and Good morning, Conference and Fourth XXXX Financial Exterran Andrew Officer. Chief welcome With me to Officer; Chief Call. Exterran's President David Corporation's Saligram, today Exterran's Way; Operating Quarter Barta, and Girish is CEO, Exterran's

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

Andrew Way

we and morning, progress Thanks, through the Blake, strategic you to like I'd update Girish the this out To and improvements and financials. you ago off and before good morning, the take things everyone, joining. and a thanks operations kick Dave on operational year for laid

business being and Exterran from with more we initiated an a changes true one recurring This flows. the a and to a international the process business the transition supports company. of cash with systems key organization's away cyclical evolution of transformational stable One global domestic fabricator to from service was

for become more midstream comprehensive significant has and Exterran entire a bridge prevalent. well-thought-out chain with they traditional factors gaps process a become that product the that integrated midstream become As the to are traditional less power and operational have and these they areas operating -- set water are customers noncore solutions the companies of power distinct, that central as solutions solutions has lines a value -- and and as covers and upstream our themes The water. between service once need performance offers set for oil, reliability. best-in-class engineered services proven in operations gas, of costs becoming

improved past XX product portfolio our of in Over months, ways. the we've a number

greater sale mix was of through PEQ product driving and in a second enhancements on with new development was pricing; focus to expansion emissions the The lower-margin first on growth. a existing water our new business; a our emphasis business; our and was invest operational finally, for the development products; services margin of balanced driving technology was of efficiencies, of productivity third and fourth

we margins, each improving increasing have also penetration While focused customer within account. on

to fully and are a for efficiencies. We market a integrated process with designed seeing integrity approach a systems plants, ensure need

the in three America. have in in currently another projects we're the station and two We integrated simultaneously complete an while that and Latin region on East XX last designed plants deployed developing successfully months compressor Middle have working

with budget on sales X over since our ECO cash gas project is and largest long-term was with and announce with projects executed flows million provide happy producing no with time cost man-hours and project returns these of in This our have and All to the condensate. stable solid no I'm overruns. line that spin lost capital. now

the complexity difficult of As from environments. we due especially the know, suffer in the in execution challenges Middle-East industry, region, can projects to

fully domestically competitive industry seeing the a integrated four sales also similar last need segment plants an Our benchmark both major awarded serves and and product currently for in in execution. internationally We're as differentiator a performance us. year with and

started have total mobile operating using Besides Our project the pay with the We've provided business is in first in customer, technology. the in of footprint, and incorporated treatment a simpler footprint unconventional to project and a that we the costs, off reduction unit we a has a XX% in produced patented customer our project day XXX,XXX that benefits reduction EGFT ECO U.S. has in large for awarded strong a treatment pipeline region started space. in our operate, in CapEx RevoLift the in reducing water to This reduction XX% our been operating uses less leading East product patented a and also and focus water both our expense. to a projects our total smaller portfolio, incorporates barrel for a approach solution significant have with building results solutions on plant microbubble Middle technology With a produced XX% chemicals. conventional

of the won awarded to new contracts, the AMS in more continuing billion totaling of adding over extended $XX each several portfolio million the course $X.X we and of backlog our plant-based Over the contracts year mix projects, to XXXX, course we million. of totaling segment, the growing stable $XXX O&M over region, and In several were contracts. ECO over

$XXX the of metrics leading our year-end improve to also record We as basis XX% from $X.X Financially, bookings XX%, of product working over X% year. XXXX. and our within backlog key same EBITDA, adjusted, continued we to time, at margins segment over points grew to record the had revenue XX our XX% as million. of At up the we of over adjusted, revenue all year, as on billion a capital lowered previous grew EBITDA, start the were

of $XXX cash year. flow and operating of flow the the in second All operations drove actions generated from of half million positive continued cash free these

how growing Over the years, deploy past several able capital. built to is a to have we on business make choices that

the with have capital balancing back focus company the long-term capital We value building shareholders. by the growth, on key returning shareholder always invested deleveraging and to

flow years, our a XXXX. microenvironment the effective company's approved solid and has -- market on over confidence positive generate coming and to $XXX program, million ability the is which the our until board share buyback With cash February returns

allocation the in we several within in authorization have Girish, to over plans global discuss been discuss to This capital our past have demand driving some the continued pay the provides operational able invest us greater the significantly value. shareholder flexibility optionality business. to over while call years, we've now buyback We debt down as I'll and pass dynamics. specifics who'll

Girish Saligram

segments with will and I Andrew. in of regional start transition Thanks, of then each demand our view dynamics a to few a signals.

year for plant over had year-end XX% with the like including Iraq of of It through NGL fully our bookings. and two that a This ended in for international Andrew backlog large integrated at provide orders In of mentioned. growing additional XXXX, in higher a order both this, year, framework course domestically, single in the strategic was like to solution, from Iraq product we trains major a first significant spin, ability QX showcase our and a the and customers key is the trains with XXXX. for partner for to sales backlog level is success since a plants the than customer. internationally the we wins integrated our and have order Basrah Gas the wins part that segment, Over our be Company strategic initiative highest had strategic our

through annualized needs, the on to of in our creation value combination margins we we these larger will over as that spin, bigger is belief execution signed of and productivity we orders. our alone. projects online. our portion be able grow a new In $XXX customers' get million of revenue of since million contracts $XXX project natural come a take ECO Our and with over to the $XXX segment, an in as XXXX leads was over we million of that have these That

new growth dramatically compression and and portion book by is It start-stop integrated generally this the of of factors contracts plant is a predictable more field and style higher pure by to unavailability, FX to an of significant business is gas nature contracts, returns characterized declines in end packages. versus an offset different. more While coming due like the

are in win on. and over see of nature longer but of to we continue these very similar pipeline that the executing be is The of rate years. projects we cycle, focused volume remain we large couple to next confident to a Additionally, projects a

we characterized highlighted one starts our by starting off. The AMS, of contracts, new by in contracts orders are longer-term fourth extensions and pay region. margins. that lower key booked on parts, Middle talked in multiple to is O&M and O&M new in focus East/Africa O&M contract the path those with $XX million Finally, quarter, and transactional the have to the about We typically close to

to more to expect that building can will effect the services we customer the upgrade for a and longer of lead mid- it us XXs As margin rates lowering to back segment, up will an are this level. term, high bring we base, that in have but opportunities lucrative our

to concept the demand signing spending P&T but along dimension, secured also the and will for wins by next significant We new you of a perspective, lot to Marcellus/Utica, this absolute well two is demand being a high customers year. likely the the to that continue. with are contracts wins years. parts have these bring the to customers basin the start as rates year at that year regional start key From they be this O&M We public strong source, a started in are plants North the a secured notable the in as our seeing continues we A aware as SCOOP/STACK Bakken largest with sound, Permian some uptick are timing large in basins. look Overall with On a P&T in and most with off in compression. that where strength the uncertain Bakken off with be reflecting continues projects Marcellus, still and on I relationship. continued transactional we to are companies, this customers America proven structurally little with

on As commitments, delaying part. on reduction coupled causing degree producer a on Permian, there slight pressure pricing in additional is the planning comes the greater to plants. slight that some for appellation with in that potential on demand producers natural gas is rigs drilling leading timing a of their gas This, in uncertainty is capacity is new

current Over who waiting resolves, focusing to this to expectation customers environment to do, expect farther orders these place in We in. prior With times, few a few midstream are gas seen of with this. customers have tentativeness, placing locked locked have that the delay experienced ahead orders. faster an commitments advanced planning we for our commitments this producer cycle however, and traditional we chain a plan all having we supply prior there to and address slight past for our plants be years, will when are get of

orders. product of sold of offering million We their expiration roughly the customer With are primarily business for realized America. our XXXX agreements capable now AMS service $X parts sales was services we of in noncompete, commissioning seeds in P&T. North about This with and and

in as focus, U.S. to to time but remain global small our it our fully grow a the grow we we As AMS take it number expect this will build in of terms business relatively will year, contribution out.

Andrew quarter. business, In the to water additional addition to agreements are other pursuing begin that highlighted we solutions regarding this trials also with our win E&Ps

America. in see Bolivia. Latin We Argentina, Brazil to on Moving and opportunities multiple still

the While of with been a development our subsidy in Argentina of the temporary Muerta pullback a stop will Vaca has not opinion. dynamics, there in on discussion lot the gas

and stations. progress develops In demand the in other Oman, about Iraq, for processing plants those stable we exporter, region, the continue prospects there believe countries, will be talked to we East compression well As as a gas and develop. we Bahrain, and Middle have see and Kuwait in past Argentina as Africa into

region. both the During throughout the ECO quarter, and success in we had AMS

upgrades Finally, opportunities term. not for business for in are our and opportunities are pipeline for success is convert to ECO strong, in Asia-Pacific, this are we The the pursuing we year. FPSO having getting seeing AMS projects only we but longer

to to now We continue over Dave fourth our will region discuss in our pass results. for base. leverage opportunities quarter to additional financial to capabilities the customer I look our it enhance and and

David Barta

with quarter as together had came million EBITDA, of The Girish. adjusted, quarter on of We $XX.X $XXX million. Thanks, as solid another had revenue expected. we

was and operating compared to flow. free gross Our second base a million segment million, of perspective, free nicely, $XX row margin Revenue margin between of increase million, product sales $X cash sequentially revenue continuing gross expectations million million, resulted in commercial due success the Revenue gains business was our in exceeded from In while negotiations. the the gross of margin quarter and cash percentage XX%. the $XXX in given The some $X resulting increase that third a progressed declined million. flow and $XX productivity sales leading in to XX%. in and a cash operations gross $XX $XX margin mix million, operations quarter commercial AMS, of the rate flow margin the to of was XX% O&M. in our discussed. gross contract parts was This a margin was The margin From for sequential revenue was to in positive the gross $XX and gross margin to of due million posted segment rate resulting XX% quarter. of Girish

shop were from by of for That were in million, the highest $X.X the since product sequentially sales largely shift with our the process and ECO year $X.X Our $XXX bookings billion. hours they QX billion, full been putting revenue cost driven full book-to-bill projects. due bookings spin, orders treating the compression was a our incremental impacted timing to have said, out at committed were along decline to and being year mix margins The our negatively the for segment compression. were towards initiatives. quarter the by Margins largely

to $XXX were $XX of product development. while and at continue QX the compared water to flat sequentially XXXX. business, was costs expenses as the sales in such Our end million initiatives, million, $XXX our of product as backlog investing SG&A at million revenue-producing new end we manage

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

as flat debt the was credit Our third leverage to ratio, with our agreement, quarter. is EBITDA in which is X.Xx, adjusted which defined

Girish you million look turn XXXX we impressive provide perspective, ECO to million the outlook FX segment year-on-year and we half business since $XXX strength the over couple the our and should talk expect AMS, performance. EBITDA, representing year, XXXX of going first a If nice includes debt, million, of be the quarter. of guidance be Within to have down quarters led the show in second the a some and $XXX year margins of primary half dictate of The biggest in which product is rest our start-up another opinion EBITDA adjusted, be increase the revenue line for for with will big other quarter capital ECO where of success, new about to discussed, translation $XXX variable -- with of given a end the XXXX, a adjusted XXXX. historical to I'm revenue in XXXX. of and of paid digits mid-single the with then headwind, picture in the the now up second to another second for the is projects, continue this one I'll half. From of as the two bookings line of The segment back, amount and next as the commercial the between investment. growth. and will

of compared segment's top two the other to we most the for quarters, year-on-year improve in expectation to improve expect segments. the the orders line couple next backlog hand to With and this

negotiations is stay and growth maintenance SG&A and million. focused to online, between we to be taxes the drive be is $XXX ECO year between DD&A with on driven coming mix new to be impacts. expected to CapEx and help now of to million, $XXX $XX and million with by $XX organization. continue $XXX expect to is year around as be along cash expected around our full Gross other million relatively million, year $XXX We efficiencies with Full $XXX projects productivity impact million commercial lease for to interest to we to million look offset the continue CapEx million accounting within million, the to $XX $XXX Full standard. committed estimated million and currently CapEx expected year-on-year. And to flat XXXX to $XX expense for XXXX the

deferred would at account receive We which million. million to that $XXX $XXX we payments year, $XX to put but our CapEx for for around of also expect additional as full million net advanced the around revenue,

mix. EBITDA by EBITDA Now should should year. the to I'll from but this QX. low turn point be also perspective impacted negative to will Adjusted for QX This slightly an similar be represent

Revenue moving sequentially, in margins with with operations. starting the gross more back mid-XX% So should range. normalized contract to relatively level flat a be

January margin $XX AMS, according in should will segment mid-XX% between million we've holding talked The new For I'll the relatively product be mid-$XX for first flat and Margins also sales sequentially, on should into go be before, touch range. $XX be lease the be which revenue rate on the quarter sequentially. segment, low effect revenue mid-teens another SG&A to this In QX will X, our standard, about topic million. million with in up morning. should range. XXXX.

to for balance be a on any our X, be back material adoption turn than after our us be and/or the respect or contracts leased will lessee, the is ASC to entered over a future and XXXX, XXX of to estimated liabilities related As standard. will revenue-recognition January upon these new a record cash new have as more or new we'll Currently, XXX required standards ASC in to believe this into lessor, now adoption impacts on I'll the of With lease lease call of modified accordance sheet. payments on guidance. that long-term flow. assessed million assets no the statements standard operations Andrew. effect We $XX do the with not

Andrew Way

Thanks, Dave.

solid launched capabilities, into greatly engineering within product as for a achieving our business, globally and year commercial our we improved results. Exterran So water focus all organization connected new the solid was expanded a team, a transitioned XXXX financial our while

XXXX. to ahead looking So

on of that eye in are manner a goals the cash been have be place and keen maintaining key for on time, our safe year will and backlog of in we the execution have differentiators flow. On a while a budget year this First, and Exterran. delivery

we We value. continued execution drives ECO products completing are large where have high along strong a historic backlog several project with

are this extremely but business growth in to XXXX. on service substantial North inorganically, show business, understand and achieved growing organically Girish improve focused of the region America said, we year metrics. We the the may this of should both our as this build-out and be our financial And importance versus

to we've water a to it's had have domestically time wins and both distinct segment the business, internationally. our that early Now in scale impact,

leverage been we very customer opportunities of has our is feedback pipeline Our as globally. growing, strong promising relationships and

engineering looking product development are in offerings on technology bring of our new drive With to now innovation landscape for selective at our with the LNG, with our allow the countries see fully macro independent, desires to capabilities XXXX, year for globe, and improved The be versus leads plant integrated remains our peers of penetration expanding to we some of timing to by driven the brought and for into offerings. differentiation along supply. capital needs a question. greater being allocation. in-country across gas this additional We business robust, biggest demand for All power

invested have and flow and discipline, several this into positive year, allocation over even years cash heavily remain We and returns. past free on capital focused we in the ECO

look year. Operator, to we all Exterran now for available shareholder had next have updating deliver we in the quarter We open can the are buyback for the are in investors like that uses confidence their I personally for if to in new of that our this we would and work to XXXX. capital ability I employees place, you Thanks. to to forward ahead, drive to progress all on thank dedication all success long-term led at our value. questions? call year our hard and on demonstrating with

Operator

Instructions]. [Operator

with from Our Tim AltaCorp. is first question Monachello

Tim Monachello

the should something expansion. going just driven, nearly was to that's if margin I'm price My if that forward. XX% around mostly It we and question to was sustainable that in expect is wondering quarter. be up operations contract the

Andrew Way

we've So, manufacturing working overall also itself. both and the Tim, the area in we're on field and initiatives of further over a how components operating in been past from productivity to parts number service a XX the actual month, costs, drive factories,

that lot we So particularly, we some productivity business. in and favorable. the also seen of that quarter have were And had ECO move a fourth into negotiations commercial the

over lumpy things continue improve. to the ECO right directionally, based the I an business, topic. term the improve course depending you'll -- of you're quarters on repair see how So XX work but we'll over the a months, think longer to expect continue see through margins It's that in from should to think and full the we on I and on little overall the maintenance, margins

Tim Monachello

Okay.

contracts So are generally those open renegotiation? for pricing

Andrew Way

up contract as of we the renegotiate open we as They end extensions. to typically get the

that So is to make are there if have the think changes, in contract, we a the the where are certain changes we that configuration, that way. life order we to about place in if the right that people there producing particular at can times negotiations equipped right take a work make as us be well producing throughout of have the there sure for scope we're any and

are there are opportunities said. tends you some yes. as renegotiate, we So there a contract, throughout but open But fixed the back to to up it can sometimes life, be where

Tim Monachello

then And repurchase helpful. is question share on that's program. Okay, the second

you your projects and allocation how would priorities rank share between growth repurchases? So capital

David Barta

Yes, a sure I guess, as priorities of Andrew strategy maybe I I have just, I'm said, This by or vote would confidence our not I Tim, changed. is it saying really summarize by think, another our overall to and committed, still just what interest in ability long-term to in flow company to we're driving is value. cash drive capital. shareholder option doing of I the the best But guess, think deploy

it's in that business, So inorganic If head path. it if creation. down that this opportunities improve us that's organically revenue to shareholder investing again, another we'll will Or value be. that value, gives the drive

Tim Monachello

Okay.

option, at at looking as necessarily not a an So capital point? it more something that's this priority you're

David Barta

This the authorization. toolkit we've, bonds just again, and in got we us the business so can, up invest it. outstanding, for inorganically. got organically, I buyback the look think opens way the to that's at obviously, a We've

long-term So with opportunistically a view we'll this look and to shareholder at value creation.

Andrew Way

optionality. has business ourselves -- the position we've key, that to Tim, is have the put The in

process around generating a last intense pretty the cash. we've few Over years, ran

metrics. focused than on see hard and lower now We really we're will range. X% operational you'll working and today X%, the capital, the later We've in file

over the put to of continuing so, and optionality. have really, All our that EBITDA of operating it's we've foundations and can create time further drive so in place, operating leverage cash key more to the quality we

think and in over that because Girish is important the we're based that for very ballpark mentioned, and and the if and we company, And driving it's will value. not have the Exterran on pipeline in and of come not that bid goal XX America. And confident right question right our that as right of I some growing it's projects right shareholders. some not the months. still the for that we were we're so in and But very Dave course the shareholder as growth on for in timing along the is the projects on are we returns be large, some the aren't, long-term returns, short-term the orders returns our real of of the ECO pipeline, to XX And said, very the next focused see in North

And -- extra nothing to that through allocate so mentioned, going the just as we right Dave an us has capital option think forward. in gives terms this But how of we strategy. changed

Tim Monachello

you cash within buyback? you Okay. the Or on that one buyback. organic open just generation? guys flow final using leverage be stick to And just Would for then would

David Barta

Andrew as cash is focus, the think I generation. really around surplus said,

Tim Monachello

projects these so And ECO projects? one contracts those do question the far the on line Okay. All water then margins And right, of going water be on ECO all forward just -- up Will margins? solutions do typical with understood. the business.

Girish Saligram

is Yes, Tim, this Girish.

to We there's a be little expect bit of a going mix.

a the our use will model. that more under typically, contract RevoLift, these along of lines Some services be ECO of the

be fairly product large segment, what with will more services large have the tanks execution we the within expect sales. our overall And project be portfolio. the we is when cycles, However, in they'll and commensurate margins

see our So side, then we we product overall it to to be any And the on portfolio. there. expect accretive won't issues product

Operator

time, [Operator Instruction]. At further back to for the this floor management turn I'll remarks.

Andrew Way

appreciate Exterran look a updating the the everyone, dialing for this to and Thanks your thanks, QX. in full Well, morning, and interest end in year, for of you Okay. lot. forward at

Operator

today's conference. conclude will This you. Thank

You may disconnect participation. you for and your lines, your thank

Exterran (EXTN) 26 Feb 192018 Q4 Earnings call transcript