EXTN - Earnings call transcript Q2 2019

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Operator

Greetings and welcome to the Exterran Second Quarter 2019 Earnings 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.

I would now like to turn the conference over to your host, Mr. Hancock. Blake Mr. you, Thank Hancock.

begin. may You

Blake Hancock

Financial morning and conference and second XXXX Exterran's Exterran Executive Chief Saligram, Operating Officer. welcome With me to Chief Barta, call. David President Andrew Corporation's and today Girish Officer, Exterran's quarter Way; Good Officer; are Chief Exterran's

laws this we statements These matters. securities statements of of the statements considered forward-looking may During the as regarding the meanings about U.S. similar expectations conference operations speak management's business, or call, within the of call. Company's this plans make only future and for future are date

due The factors several during this Company's to actual uncertainties filings results could trends Exchange other call. Securities factors, differ described risk refer materially Commission. the the financial the may Company's to with non-GAAP including measures and in important and and Management

accordance website. Investor the Regulation in located earnings provides press of a reconciliation portion issued Relations G, of in its a presentation these yesterday, company's and measures release the with In Company the

now over With I to the will that, Andrew. turn call

Andrew Way

Thanks to will good off would contract and with past few Operationally, weeks details. executed and Girish the and recently the To up during facility operational business, I call. this started you Middle some morning, for kick through commercial like Thanks Blake, the the joining in morning, you on the things one in East America. through well then operations on the highlights we quarter and start-up walk take the our projects commencing quarter, everyone. another Latin

will in services, Girish later. excellent discuss commercially quarter also an aftermarket had We which

by all our delivered we the were our facilities. highest teams since in adjusted results of total Our and of company the driven spin, execution revenue have strong EBITDA quarterly

working the can things management. to capital, that continue around we We terms and commercial cost especially focus control, on

another quarter drove of million. flow $XX strong operating focus very metrics of cash these on Our

XXXX, operating of we first cash $XX For recorded of flow the half million.

million shares. retiring share quarter, X little $XX million a also over spent During on we repurchases, the

now of remained have in year. returned the form booking, We to during however, million slow quarter. this shareholders buyback sales the the around $XX Product

that we've were capital to which July, projects in challenges. remain booked. several said, There customers were That into continue cautious timing on spending our pushed resulted since

challenges revealing business with projects the cases, on complexities opinion. but focus conversations have and creating in of is capital causing their are pent-up as our the they Our strong decisions and demand delays discipline

Ultimately, the industry's will supply as strain this components for while times, times remain will a on shorter demand customers lead chain constant. put cycle key

to projects. strategically built We an assigned some pipeline specific of are up have of components, a inventory which key

a keep convert over capital our we from years. on we've as are now, confident into the are eye have three and given with revenue, it indications working will inventory and we commitments We inventory watchful driven to the our levels comfortable investments customers. Right industry-leading past

as to look Our side. growing Water are both book bid discussions to our solutions diligent treatment stronger. continue continues producers progress continues every as water Treatment mid-streamers to and and the get business on for Inquiries day

Our and focus off. paid strategies

will lead customer, under an in an that too quarters. to coming we're another way pilot have international hopeful We order it with the and

sold energy and growth. is we've look add market set technologies the business. the about is their return ahead expand both for macro looking exciting toward pleased sales is landscape What systematic process strong. lies longest facilities, new the very space I'm ECO that the very the of the adoption promising While with to development to within opportunity see product past, and in is remained and the that cycle, more international we as pipeline customers a that we to Internationally,

working challenges on second the million book in will being charge North half in quarter. industry getting of that in the did year, $X.X improve our To have confidence the proactive front restructuring rightsizing Even during a already out business. of we some though we that of end, order take started we the have America are and

SG&A to around far is from of this like per level half levels and to product at But controls, were where lead to to to too $XXX from million. and organizations. should continued our the period, point drive XXXX over corporate down We're invest actions operational that business second engineering, throughout I the levels XXXX, organization $XXX rate moving These new this continuing efficiencies trough. of million significantly across which greater we in development year we've in quality. the would run out isn't

to improve have of Our to end decision adjust we're example to flow and consolidate the and drive to proactive flow. of our returns. quarter nature quickly another product we is the returns day, and acceptable scrutinizing our cash cash Houston our service business last every compression facilities At

Our business. near-term our of strategy the headwinds the has and facing term hasn't industry remains with been the longer landscape macro very supportive changed

now With I'll markets. that, Girish go pass through to our it to operations and over

Girish Saligram

low improvements sell today start to the and segment product an over business, It stickiness overhead service which the minimal years, plants, traction This for working long-term business. in is both business with feeds our has capital which products past is and of insight gives with a strong then we developed Thanks, quarter of margins, back gross and couple and the CapEx customers into and one with additional as for also second sales us significant our solid us operability important our also into the Andrew. provides ECO wanted wins. commercial requirements. aftermarket to important brought I some it

America, North double longer-term what of starting our did we in run is to the region first part XXXX, rate maintenance XXXX. on and set in to this continue initial good in In are opportunities. and volume for a half make we which operations In both progress commissioning point sales,

This on upgrades production in specific region. starting Africa to over We for offshore have million project the focus $XX single the Middle for a is platform. in of bear contract segment signing refurbishment contract talked about on that our and are fruit this past in a East, with the for an

becoming contracts to that well types believe the are positioned these we we with one year. FPSO and stronger, get two every or And complex of large of market upgrade

Pacific key parts both in and America and some overhaul Asia ranging our from contracts to signed regions, services. agreements also We maintenance operations long-term and services Latin

All maintenance despite of these some positioning are grow drop business off due long-term service. contracts out and us operations to plants having taken the this wins over of to being

maintenance focusing exiting are also aspects of as and profitable upgrade provision services, our labor. on maintenance, and such lower We services efforts the operations more AMS in routine craft and of margin

are major we had in our focus. where a contracts of this The of is low-margin impact and shifting Brazil, number

pursuing labor work and are of obligations impact in site to While in that type quarter. we of our agreements, fulfill will longer charges continue we is restructuring the included on took that the we existing no the

had idle but the our Moving returns Latin meaningful several on wins assets, to America quarter the overall East Middle us in operations our the on we asset during improving to allowing contract redeploy that and small business, base. are

during backlog fairly quarter remained couple Our a as renewals consistent came the through. of additional

expect another million still the months. we over to to million renewals next XX months said, in $XXX XX $XXX That

U.S. of As said pipeline we next have the on have capital opportunities we In billion discipline. months. still focus over XX in over our customers given the revenue prior the in calls, $X

to us leverage seeing our contract are also opportunities We operations model. for

for million reflected This these our of What which million, is orders $XXX our the up demand our facilities. there plenty sits is quarter. of are now P&T customers, feedback clearly capital provides and optimism end we slow seeing the first loop facilities the the book, over treating looming this of processing in us over suggesting $XXX Following bid topic for XXXX. discipline, from at is first of half

near-term while the Houston. last opportunities Overall, coming two consolidation services robust of about challenges we to facilities the evident, plenty and We talked business demand the for globally and compression see our our over order the remains are grow quarter in equipment of years.

certainly This is we slowed and year. the we on last Compression of consolidation volume but completed year, demand expect continue full opportunities. relative to to significant to end the track, see be by has

have as low-margin However, do compression we have plans units. commoditized not we compete to stated, for

cost While facilities of actions a a consolidation is strategic number Andrew as taken. strategic have we mentioned, Houston there very our of are significant the other action,

put have place discretionary in very all rigorous on we Firstly, controls spending.

categories, not rhythms allows have This best telecom but etc. share company. also opening spending including monitor contract We to spend, the metrics across multiple optimize travel, across MRO, and only practices us label, to

have steps competencies our we necessary headcount. optimize global our done of has SG&A X% taken as over while picks of the core in up. manner to demand difficult SG&A and been but that reduction thoughtful levels Second, remain intact our careful through This the a ensuring

and across looking in are span of we our restructuring layers. and minimize to reorganizing reporting control organization Third, maximize

is important are reduced While functional ways management finding layers. we consolidate and expertise, to always ensure it functions to

faster also decision-making. This better enables and communication

our regions the ensuring includes customers. mechanisms rhythms empowering are decision-making our Finally, and capabilities are we more that our to governance to teams with regions, the the ensuring teams. central deliver putting from in in strong while communication we This

well and for future. are our that cost optimize and efforts our help proactive footprint we us will these more under are of the All way, approach confident

will pass second Dave I results. to it now financial discuss over quarter our to

David Barta

Girish. Thanks,

a line revenue was adjusted solid in million with $XX reflects very quarter of performance $XXX of second The on EBITDA million expectations. with and our

From margin was operating margin segment posted continuing while of standpoint, mentioned, was $XX gross cash rate gross $XX operations in million. contract $XX XX%. resulting Andrew revenue operations a flow of As from million, a million,

the Middle over booked operational ago. two project we Revenue became in we years little increased fully as on a East a that

margin gross $X million. second-quarter commercial rate For resulted result sequential AMS, was of the million successes. of was recovery and a a This margin was The gross increase revenue and revenue our $XX in XX%. seasonal

of was $XX margin highest the The million, spin, in segment by gross margin the margin the $XXX a rate gross in resulting the driven since XX%. million, mix business. of was rate product the Revenue was and

product our product An declined we due Bookings all slightly achieved due while was revenue at mix. strong increase facilities, throughput $XX sales to in were the quarter of for for sequentially to margin the million. rate

quarter to at first of backlog XX.X%, of the the of was quarter, second of $XXX end revenue $XX from million, at was sales quarter. up percent XX.X% SG&A in which product million were Our the second SG&A as the $XXX the while a compared the expenses million down slightly, XXXX. was end

quarter an $X.X million bring million. certain We charge in to from the around to sell agreement expected The $X third also assets. This securing idle of is and cash. resulted should recorded completed impairment of sale in be the

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

Our of first and at quarter. leverage shape is Xx at compares to the X.Xx ratio in great the end

be Now the mid-$XX low mid-XX% million should the range. operations margin gross the quarter. sequentially in Contract with the for third in to to turning revenue outlook up range,

revenue the in second quarter, for normal should be AMS, For more segment to margins should a be mid-XX% and similar the range.

spec of million segment, $XXX quarter. from sales revenue million. In should in be and equipment between segment this Gross the and And should revenue be flat for assuming our the Product margin not sequentially. converting only $XXX is Sales relatively backlog any

SG&A we some should we be offset cost rate between levels and this EBITDA improvements product forward. third of going $XX hold the declines as taken the by actions revenue would million ECO. expect be million, $XX Adjusted quarter in around should for at and $XX million the have and these are to run

further year, cost impairment roughly the The $XX reduction should restructuring assets. XXXX at prior further actions could for or be to guidance expected Revised additional and from payment which from result million Advanced million. around our which CapEx idle is is $XXX excludes $XXX around charges, million, net down CapEx of be putting for guidance. sales

closing his that, for I'll the back And over turn with remarks. Andrew call to

Andrew Way

Dave. Thanks,

a quarter. backlog was The many ECO The in support our customers in us of execution AMS year first gives awards. proposals half level converting a we companies of as to have. being strong and product period this, the our challenges each revenue don't us record space strong generated Despite for

what product are We around on allocation, customer focused capital we costs relationships. and development and control can new

we For the for should had than softer no even be though worse is adjusted EBITDA the last market year's the year than full-year now XXXX, results. anticipated,

for be The order on second the exact outcome will year. half the dependent profile the of

for stability differentiator our product ECO on key for segments, quarter-to-quarter. business despite there provide product AMS is of a focus number, our are the order While the us which our does what order book and strong lot

This recently product projects here, help year long-term. The created the online the that came also from AMS both of will two these business will cyclicality with our some further ECO along our segment. this alleviate support growing of over

margins in strategy and on ECO, that in our expertise strong while the services improved provide our provider. and to midstream align experience and with AMS we products products water, segment desire have of well growing focusing and believe be leading a our driving solutions We

return fully continuing We to profile. cash flow are portfolio value maximize our evaluate shareholder generation to our and and determined drive are to

told new in you they and quarter, look believe couple improve this to and customers' of behaviors at investment of needs. beyond I CapEx changes resumes. look to is understand cash industry their better course beginning to As it's flows while It to normal, is longer-term business last We're our the and like oil minimize as before gas quarters feel here. beginning I does the are era their new the a still due returns. quarters coming maybe our of customers seeing

commencing wrap this I up I for the commercial project one work second quarter during around here early thank of and AMS in our As third all second to commencement call, – on strong quarter. ECO the quarter the record delivering hard wins want employees second their products the the of revenue, success and large

Exterran. you enable we've of that asked You continued the all to everything have success of responded to

operator. turn you. with that, now I'll to call back And the Thank the

Operator

Thank May of of the One Please [Operator question. Our with comes instructions] question Securities. your Kyle first line Capital proceed you. from

Kyle May

growth Good update in year? can place, detail of ECO business. on back know if with any the morning. give you the bit you're us remarks. pilots I I that's the the little you we prepared the could half and with a what was in on start your But potential contract wondering seeing on an more it water touched in

Andrew Way

Kyle, good Yes. morning.

using reference that And that major operating we a talked I'd like is say others. operations that for as now U.S. – well. to for for in very the we that the First, about right E&P the we're going this have

this reference, for to customer the some opportunities but by using now have for other some only in scope on play. and the bring customers water spec expand the technology we're customer quarters, a see time to the in we producing been hope with We've able site not this this also, and as coming

end as we momentum, more since signing. Also also an quarter, and in of of the that above where bid final we've but number so grow seeing were the in is in the We're been back quarter. second probably pipeline to year last first this our observation of continues a seeing the were stages projects

So folks now the standardizing of their of our as great continuing see probably in outside seeing second Middle relationships most the particular what a couple we And multiple we're and first producer I'd where the the go and in one hopefully, U.S. where booked we're traction. the strategic momentum into to a quarter, half. we with East, large is around right solution. that's we're that's of building technology say

grow piloting between sites. to the barrels. And the handle we've It's been see continue the some called can for larger year, CFU. now that running a we've to and XXX,XXX get introducing the started technology balance of U.S. we're And be and technology that larger pilot this really into water the XX we've we'll volumes around and processing centered product this as

adoption, is our in technology gaining and off. for So as takes is I clearly nature on that Kyle, longer-term prepared the more strategy for a said remarks, showing paying newer bit is usually the but little a this in my space traction

some and for the And adoption we've larger-scale very great with the half progress into hopes East, barrels and year with so been produced so Middle in pleased have technology of far. the so the technology running both the second lesser also the for next that the smaller we

Kyle May

of a the in it. an cyclicality rate? can give got realize business? maybe order there's I some next, update you bit helpful. That's us Okay, little very And on the

Andrew Way

year we have one that's bid pipeline clearly, growing. the that And in somewhat felt Yes. most certain been the in products the areas said been remarks, prepared we've as the it's because all frustrating of

of away more and for in from our been the of that because quite that has opportunities and markets there the plants honestly, that mentioned focus sort stayed in lower seen are niche spec integrated around purposely, we've compression more compression. Girish around margin still processing we've some

But more be to my a seems as to or things. as that to opposed the a not. in just of couple lot people said committing prepared conversations encouraged by timing I conversation are dialogue will projects we're and happen more orders of and if One, healthier remarks,

itself this the quarter strong. rate P&T more July half our quarter, also, first The received the as so to is orders already That's all the that processing in for facilities. set booked timing, which the risen run than pretty been we robust, has I $XXX has a said second opportunity in gas and over U.S., tough. a of of but million up in fairly part We've earlier, was little

this orders those a part to is and in convert probably think there's that of if that relation Kyle, Also, the quickly come second – I that quick how through. question, you because

some have key on components. We a view strategic taken

$XX our customers inventory of sort for in that of fourth that we've you've year have seen probably we number And around a the Q quarter projects. identified of since to last built we've million that allocated

come if So revenue through, we a recognition, recognition then see orders capital cycle also can faster those not be certainly that only help working but times, lead. will and cash will

to so for right treating now, processing still and around we're XX XX lead times weeks. And seeing

this be projects there been to pent-up So track of just public. the these end if projects able committed are there's have you of a demand And the a by having going inventory, in number lot a in lot to pipeline of we're amount that's users. activities. areas that's where because to help of And

to than the a of It's online a typical place you these them how question can times. do lead bring where get facilities we faster

it very area the showing that feel certainly in that an we has that's So light than strong more past.

order that product taken we the to and as in quarter. for today backlog said, as we've commitment then, the provided have And guidance that sort of relation the Dave and revenue,

it's So in really we have what executing backlog today. only

in converted to get clearly plants communicated today. the spec those of some see just we've we what quarter. if upside obviously, That's And

see all what bit the of strength to And in so markets. internationally, see. then we little we're And continuing that's a

that the a of but lot two pleased Middle And prepared or for in train repeat East. we've that we're for with or they delivered to my we're I project. In coming said remarks customers, train as very back projects of of Latin some progress three are pleased also America, that in us projects, very the past the that a

the very we're call to in will just of we I so of comfortable part the cyclicality stall what seeing next fruition. with and projects terms very And of product this strategy the in side, And the year, very but feel come and half in would sort overall of what second a is do. on comfortable hopeful that those we're what early long-term

Kyle May

maybe very, guess if could clarify, That's of Okay. very XQ. had orders press us I helpful. And release, you just July what thing, I any one early part the on kind you you'd more improving or contexts seen in Can you know of mentioned from the that? were give

Andrew Way

conversion. Yes. that it's a – you and activity give I sense we important feeling there out we're put both can a because of a from to how bid

in converted than and more to-date, seen of we've what QX. July So XX% in we've

order look if entire our and for QX rate already QX is at for you booked QX more our of the And you if quarter. than order run we what at number, numbers, half our look

that significant orders. from commercial as So it's of it's indication activity the to a converting realization is certainly though activity bid feeling

Kyle May

it. Well, all additional the got morning. me appreciate color. Okay, this that's for I That's helpful.

Andrew Way

Kyle. Thanks, Great.

Operator

would conference. the further [Operator back conference over over audio Instructions] to turn the There management are like closing portion remarks. of for to I no questions the

Andrew Way

Thank today in in dialing and you, thank Exterran end of interest forward at you. to showing for you and your Well, QX. everyone, the updating look Great.

Operator

you conference. participation. Thank your This concludes for today's

may your disconnect day. a your Have this rest lines You of time. at wonderful

Exterran (EXTN) 11 Aug 192019 Q2 Earnings call transcript