EXTN - Earnings call transcript Q3 2019

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Operator

Greetings and welcome to Exterran Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Blake Hancock.

begin. may You

Blake Hancock

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

call, and make within statements These laws this U.S. only company's forward-looking future statements the meaning statements are expectations of securities matters. conference During management's or plans similar regarding about the the business, speak for we may future operations as important call. the could with in of other The company's differ materially described date of filings the this the Securities and actual and due factors, factors uncertainties company's results to risk Exchange and several Commission. trends the considered including

non-GAAP with website. the measures In located a a to call. in earnings in provides company and Investor financial Regulation of the of release Relations this accordance company's these reconciliation measures presentation the press its during Management may yesterday G, issued refer portion

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

Andrew Way

thanks of good I'll a covering Thanks, Blake, included by start everyone, few call. the for key our morning, earnings joining in announcements release. the and and

in shared of George Solutions we lead are the announcing Roger Water the business. our appointment Global release, to we As

technical Water ahead. addressable what approximately well will is Roger this we us new including experience, technology see has billion a opportunity serve management. growing This is $X global business on segment as product line three has he and us, development believe focuses a we the expertise market. for in significant been had with company commercial His engineering, and years various responsibilities, and product

pipeline is and the of and what over expand now well growing. to the year, immediate it continue pipeline was we have still the opportunities a that We at it's beginning Xx of

solutions more or cost Our in expertise situations sound requires better provide lower environmentally to technology brownfield and performance, that greenfield solutions. allows us and

providing equipment oil return, process business, cyclical complete We industrial a higher from. product primarily our and shared margin, build for Water goal lines business. higher ECO to from that energy shift the to and gas believe platform our with launch a have and and solutions We great less in AMS and now, provide to processing fabricating applications systems become some along time ultimately and

can contract believe business the of the create Coupled longer-term of business our The customers. in profile a is and expectation portions employees, of stability ECO that we're most company of not journey a nature that with the AMS margins on to and characteristics, very exceed the the investors, we companies. and return energy-oriented solid provide present unique

Imagine a well company on with aligned backlog, an a capital, capital all investments its realizes returns cost investments, that EBITDA summary is business. This the of XX%, industrial margins resiliency, a than requires working although company above with of significant multi-billion while we're providing contracted build. greater more that those to

So this objective. with the in overall investing accretive support not portfolio of also within businesses parts our are the which along the definitive action vision, did with portfolio, we've taken that to

Belleli fabrication and and options solutions, both now margins. U.S. business we providing CPE the Since our in the we've business. exacerbates for is process cyclicality, on systems actions sold goal exited on Building in with and centers terms business are line date the our compression in a the to revenue we've America Belleli XXXX, EPC North that in complete the spin considering our and PEQ This that business. taken of

completion that the this We schedule. this to ahead Our meaningfully our a pursue is and process remainder Houston, has facilities in of consolidating the started business. goal of reduce on will by product that is our strategy project a nearing dilution two

further consider business. options We to are the now reviewing for

this through with you provide look updates. to move forward process, we we As

significant our beyond steadily growing compression, business supported been flow and target by high margins that's backlog capital mid-teen business ECO IRRs its requirements. and at you When cash terms, the projects the AMS on remaining is initial at provides look that on the given business limited

and to natural total has us margins and chain product value and peers. mission-critical which you've allows margins the processing plant differentiate better significantly are products, gas treating Our seen than integrated versus to

years. strong Water application and diversification come business, about to of Our unique is early the innings. journey our industrial last to ample provide environmentally the excited sustainable two This a us over has which business, with the what company Power how term. and our future suggest far in designed growth just all its create is longer excited fundamentals even and about over more also value an stakeholders, which technology, has accretive the returns margins that I'm lastly, The holds. coming And

the I'll now to Girish. over call turn

Girish Saligram

brings million for over Thanks, to our flotation Andrew. had of excess to this prior order Middle Water their leverages in to. from better retrofit our wanted start a Andrew existing existing providing possible and solutions giving strong with quarter, levels. cleaner water to This facility, I project global business, today business our well specific for throughput the already, year commercial an $XX which orders customers recovery and traditional This year water technologies than in We a for reuse. alluded patented an efficiencies received facility the brownfield in East. as E&P

a and produced wells, the and to is of opportunity volume of global older marginal rate for thoroughly The the the use attractive million efficient drives especially technology X.X with of greenfield with This natural utilize customers enhanced treat project to existing oil water. to to recovery beyond less for upgrade steam barrels where the opportunities. need efficiently set retrofit highlights This tanks our allows day. flow for up a technology

contract. United XXX,XXX exciting with long-term a we treatment fit MOU where benefits Antelope to this Management can development, a the we very We signed build attractive technology that in States, and for an Water will facility. looking significant announced barrel In water be day they have another per is our believe under provide a

with differentiator economically. produced is traction and as technology the industry reuse gaining to Our water in recycle the a ability

environmentally broaden opportunity The out proven producers, basis, with footprint facilities set our the our grow other continues greater and now allowing sustainable to are reach. quarterly technology and at disposal adoption. looking our and mid-streamers space on global is have a players in We for to

to adding in and on remain America We operations. operations we our and events safe a are facilities. stable working asset station the operations economic to on political cycle quarter, successfully months, multiple this commenced In Latin America, few our compressor of the contract of new past large Moving focused base. but dominating over the Latin

in in headwind; the Argentina structure, our contract relationships our region. country Currency in has volatility, but created we and the especially and given a confident and in a business bit of challenges remain

and the Muerta We we to that monitor should carefully, believe to while will especially and region progress; developments, continue but region the new our be committed to ebbs the there continue customers. remain flows, Vaca and

of asset normalization to go-forward a end Dave I are ownership in to the projects of transfer year. potentially customer couple a the of on will the basis. for with provide that having bit, a you a want and revenue note lead negotiations customers could guidance This we a then fourth a result ECO change on ownership but in QX of the ongoing with commercial in in by could to that quarter, positive impact

likely our the more the which contract one as potential revenue drop. a AMS we these have would the partially would that facilities, were for benefit get also contracts ownership, or business ECO of the change to if would O&M is that There of offset

also ownership is I'd give to an very impactful most during As customers. And expansions XXXX, a illustration, that XX%, two for a has for of we and of our returns for there capital on one time, one bit it years. have like an the contracts if on exceeded is have our have renewals. customer rewarding facility The these multiple change. to XX you had investment insight and and operated the This been

asset as after to long and/or philosophy as has current customers this, has value depreciated Sometimes, book the been period, a significantly ownership the directly their choose such evolved. own

it drop the has our nature, power along investment natural for potential asset cash for of the renewals. model, capital of of cash a a While decade. ECO it returns represent does is a in power conclusion demonstrates this This and revenue, off thrown which with a

and an expecting tensions Geopolitical are East interconnected to our going we opportunity the Middle we continues set contract, likely projects future. forward, exemplifies truly would The project this for and high, remain strategy. greatest go-to-market the track. of On that immediate get provide to power market this and nature the on AMS on new but contract bidding to in contracts come are

and have conversations operations promising we quarter, trains had additional we for on and we commenced previously As projects equipment won on. which continue last to discussed

traction. globe Regarding We to the received AMS, to transactional core service quarter gain continues continues. provide the organic it additional O&M during contracts and model the stability and our continues across growth

symbiotic revenue further increase the reported an QX, ECO of from an saw also We by in nature AMS driven segments. in our contract, pull-through demonstrating

Moving orders the we to the expected, are international shoots you are seeing talked had quarter to have additional driven coming by about product power year. Andrew green and the opportunities in sales. our in water that in had markets. providing business and success we in uptick We water, an as in

caution U.S processing on driven the capital and For and spend. by treating restraint overall in remains market orders slow,

QX of to have quarter few point, customers levels the see seasonality. remain indications are spend immediate green a driven many believe the at but recent are suggest that likely good most Orders the fourth remain capital by get XXXX to but depressed, continue space through acquisitions. are point will likely year, we in in this the a this At we working throughout conversion that typical Early low We remain and budgets, the activity, are bid will for course XXXX light. that future. assessing there projects feel critical will at witnessed

will we prove finds avenues us the global be At believe as current for differentiator our the environment. provide its product same additional sales footing to under footprint the U.S. a time, to

solutions will be term, value-added to closely us commercial, engineering customers our leading as for we just continue being teams and longer equipment greater which, operational a returns. than work find improved for drive should problems over continue differentiator an to the to with rather opportunities partnerships, Our provider, their to for

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

Dave Barta

Thanks, Girish.

in with The another and as solid performance expectations. adjusted, third our $XXX on of million EBITDA, with quarter line reflects million revenue was of $XX

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

in America during increased quarter. a we commenced as for Revenue Latin operations facility the

a from $X the incremental was power an gross as of For ECO of million, had we was was in margin This AMS, and a in $XX XX%. increase The resulted America our positive result highlighting Latin pull-through business again, revenue of gross revenue sequential million. adjustments project, contract margin model.

margin gross for Revenue in was million. of and gross were segment million XX%. quarter $XXX was a Bookings $XX products $XXX million, in rate margin the resulting the

$XX backlog of focus organization. the Our product SG&A million across million $XXX was end at compared third down continue sequentially to the of at XXXX. $XXX we expenses quarter were sales million, quarter, end to the of efficiencies third XX% as driving on our the

to end million the third with the at $XX of available to of X.X $XXX sheet. the $XXX Total year-to-date million. to was million. $XX million the deployed in debt the million credit about Moving shares, about bringing repurchases balance quarter quarter repurchase We

debt quarter leverage quarter year-end shape at expect below to the be third to levels. the and total would second the Our XXXX. is compares end We of in great ratio Xx X.Xx the of at at

margin mid-$XX fourth the gross mid-XX% to quarter. million should turning in the operations range, in range. with Now revenue be rate Contract the

for should the segment low revenue the $XXX remain of product revenue converting in AMS, our relatively only should assuming segment, In spec range. million from during is equipment any Margins revenue current quarter. low the the range, For $XX be million backlog not flat. and should be this in and sales sales

is million XXXX of mass the mid-XX revenue $XXX in adjusted the gross product operations. partially be $XX offset the we quarter million, basis. on X% by million a be to third expected and core to putting similar CapEx should net for critical as as low the taken. CapEx margin have X%, should we quarter payments segment be $XXX cost level. SG&A should Gross some range, around to around should fourth actions will between roughly million $XXX our preserve million to as be be million. to $XXX declines EBITDA in for for the in Advanced be XXXX

not potential included projects ECO that in of could these Girish are this that discussed The changes ownership any the quarter on occur in projections.

planning in growth phase While we're $XX of next still for is right committed pegged XXXX, now, CapEx as the million. net at for around year our

next opportunity year our to set, this to water at strong that projects and number targets. above returns with we or ECO add Given our hope historical generate

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

Andrew Way

Dave. Thanks,

The XXXX, year along supported entering by our execution. with was backlog first quarters exceptional the three of in

were optimistic especially and case. CapEx costs that have cash in been point believe the our control time, capital not would respond that driving are we this While in through the meaningfully in working focused U.S., management. and by factors orders within reducing on We controlling and the has

and as think this QX we are took seeing XXXX. benefits and We action in especially year quick about the

on Next of down bit currently working XXXX. as XX%, were Girish weigh year, point segment. the through we backlog in the year is a we where And transition maybe that contracts ECO at our the a spoke year are this compared may roughly products to to in

backlog in water opportunities substantial ECO and power, excited the across where I'm is of ECO with the substantial given market. heading, a offerings organization product pipeline our and along differentiated about our

the focus on our goal capital, the leveraging business generation, global by invested return footprint. is Our on and cash to along improving power differentiation flow our with demonstrate of

company, services a multiple improved and of flow ultimately, long-term business traditional than an products rate ourselves in industrial more to energy EBITDA a driving rather to higher. Our cash we is being margins, provider lead leading representative that and a solutions true

turn And with the the back will now that, I operator. to call

Operator

first from go Please from May Kyle Capital Securities. [Operator Instructions] One ahead. Our question comes

Kyle May

morning. Good

Andrew Way

Kyle. morning, Good

Kyle May

I wondering U.S. you're little could a more was compression considering for you perhaps fabrication talk about business? bit options, the if the

Andrew Way

Yes, sure.

that raising the that continued I market in our step the that is or year that Clearly, few the over longer-term have market and technology we sort sure challenging. suits have just Kyle, and to last organization, of feel direction. products the think making years, So, goal as the been vision on an a this bar the demonstrate natural we've this we

integral most continue the we of business. an will our have to part and that that compression highlights the an within clearly cyclicality area It's announced This that announcement global we've portfolio U.S. or necessary. impact it to ECO, us to ability the support say, ability add plants where AMS market impact doesn't our integrated really for today be the compression to, nor for does

said in overall as hence, margins to product rate. I've a also North is EBITDA that product compression and, dilutive reported our stand-alone our America before

we a So, and year-end. with there are I be that are wide update a to review fourth at say quarter working give through. range you completed the of hope we this options all better that will in

Kyle May

XXXX. the also Got appreciate it. That's helpful. And preliminary look at

different if the wondering little fundamental that talk how more Just a bit seeing could factors and about could you're the you that affect business next year?

Dave Barta

if these and ECO. in next for happens, considerably the that year. biggest the keep question probably with although couple impact There's from and obviously, we've but and a the points on that products obviously, It's in some that regarding open it still option, next have backlog an Kyle, think, I may year of rate on main both Yes, ago. that impact, backlog of Girish single the the or been, really, where would two main exercise ECO buying where one, customer margin mind, mentioned was three I year the line maybe Number to contracts a that down is things.

think flip that, then the impact well as on we've two what a mentioned, the that this is. water up full as ECO the as for year, started of the this basically And next year on contracts side, really year our got on of rate I healthy year. business, be the And revenue top which Girish double then positive orders is will this order annual year

there. So, nice uptick we're seeing a

a these got the an help next contracts in made, will on costs negative of question the next then on the business, rate products year. as ECO for top the into those SG&A our that impact with on plants. for full-year that, run be water And we've and And slide certainly, at lower open noted So, with the pack reductions of much we've year. then we're going a SG&A side,

to rate. So, EBITDA that it comes when a also will help be

Kyle May

have working can. to quite something helpful. And more and the new focus on That's Okay, order. I I for got more, you And on is It's the know guys while. business it. been a if that water one this see nice

Just your water details wondering business give maybe you see broader any the set opportunity particular for us can the if products? about that you in

Andrew Way

So, can as you about we're spaces, see. excited water the

making few our be by Roger of in underpins so, and an full-time now that in this on space. weeks to water the see decision the what it And hope of past what and supports of capabilities we acceleration market implication business, the we the

months, about XX space what right number of factors. to the in now continued And to commercialize a we're the develop patents. lot terms We've a past technology, the water product. are learning Over of been add the we've seeing how new

in U.S., One, customers reuse focus technology a regulation. our more the that around lot allows water. got there's the We've to

seeing described, to into a freshwater. the space a product bring level we both a a almost go the counties, commercial are the and of water. just so, a of example a interest a able level. municipality significant And number as states water you that people in water in their as model back opposed state Antelope to similar of use then We're also at and in and about facilities using it's think They that clean at where number

to we capability capabilities. that that tanks the and be platforms, have XX,XXX the ultimately up those potential of the we XX,XXX, technology water see applied seeing larger across to smaller it so, to And barrel we're up continue barrels sort some of

concern. So, sustainability able to focusing where the technology technology reuse industry either in water customers applications that and being plays big on or I'd and markets there's provide and really there's the the and are say into a scarcity ESG

customers also model customers with an seeing through technology the like lot both of and individually aggregation with of Antelope. a this we're So, there traction

while, to bring through technology but in how It's continuing that The brings of we're seen announcement that for similar been what had, we America better this different a made cleaner them starting technology to bigger ideas offshore a but the environmental. customer we've also a starting Internationally, better actually similar the we East scale. replicating and quarter develop Latin better efficiency, trend. work something can and where was in a Middle savings, the we see some to relationships in cost through

we're that utilizing retrofit. a And some technology they been came some actually of up and and that's for is capabilities already we show and we out a This that better there continue certain more a greenfield that, a be that's And can actually our been help to technology both to operating and retrofitting efficient technology a now. is so, facility also day, the that's wasn't just barrels our that do found a time, with, over something in this running this wanted provide both we million customer technology and them trials, brownfield where customers feel water they ultimately and provided to already savings. retrofit has them

feel so, get additional It we progress we've with where a we're a go. focus now And feel we excited made takes but being where about at the this to accepted going that while can this with that we're embraced. bring technology industry, it the into place we're technology right is to and the leadership,

working a you sense bit gives that a hopefully, so of And on. what of little we're

Kyle May

That’s all it guys. interesting. really the That’s I’ll back. me. Appreciate from Yes. turn update

Andrew Way

Kyle. Okay. Thanks

Operator

ahead. Please Tim question Instructions] Monachello go Thank Capital. from from you. AltaCorp Your [Operator comes next

Tim Monachello

Hi, morning, good everyone.

Andrew Way

Tim. morning, Good

Tim Monachello

questions from few a here. me Just

be have You fact a little sluggish in to bit fourth continued that quarter. guys sales the bookings alluded product to the

product around you from quarter? to if flat, like? sales what you down customers your some be the with up, wondering and give context conversations are expect Or Just do third could that

Girish Saligram

start lot the a to having seen really Tim, been of international robust very a from the year, customer I'll restraint whole be this driving and saying, in fourth we conversations this we good expect from are We're a with is continue with capital this as and notion a continues conversations State factor, of that's business the quarter have lift positive that our that well. the Girish. customers. of to by discussions standpoint. side, driven side

to the excess absorb customers So, is system that demand. in doing capacity are the what incremental using that's right really now

limit which pointed come you additions. does to will a new as there level We’re greenlighted a spending projects we really see also that their saw plant and we Having seeing maintain it's if few not for production some that, growing, increase the do causing next get said on at more production year, capital as damper going a producers out, on, incremental and because we in production be time, to XXXX is especially will point we also of little but believe, takeaway in will, back sure. capacities to that XXXX that be bit

continue well their still of visibility said as it'll Having opportunities to provide that, look, bit So, have into very them support those continue closely pipelines, frames with the we work all expected develop, customers muted. as And good as be and time are. we'll into a our their need. what to they

Tim Monachello

Okay.

had In stateside mentioned inquiry weak, time the are change a second levels that You'd grown, but in actually aspect, terms you conversions inquiry has the still that... levels? of seen at but of have quarter material the

Girish Saligram

Yes.

So, yes.

a to we understanding see is think that different remained stable as and or in revalidating I A relatively did It's certain Look, we quarter. a customers the flat. it So, lot extent, second also, options. of uptick, question. good mentioned

plants, et the they to want example, processing sizing ethane, different on looking, methodologies, for So, do options, what different cetera. with

of a seen an more that we customers but discussing, optionality fundamental profile. there's are overall in shift So, set haven't demand the

Tim Monachello

Okay.

Next me, around just water business. one the for

compression margin from do power U.S. product things you away would sales differential nature. basis? and shifts businesses What fabrication between business those on the of water, a towards generation, the this be As expect

Andrew Way

Yes.

is But kind can guidelines by component to dilutive has still explicit compression my to We dilutive level. back in over say, on and Tim, today, talked was a overall and don't and margins prepared remarks, company have on the is needless product overall accretive so the XX%, about to that. So, water margins business. into of I that business you EBITDA a

the we continue water to will the see, company. that good a a and it's think overall power I business impact positive build thing, as strong as so, on have out that you'll And

so that And will hopefully, help.

Tim Monachello

of Okay. able and you downside could fourth And product sales sales product terms to going are or any Yes. converted ECO the expect No, helpful. that's the in context you range the outcomes to these upside are in if forward? provide fourth in of ECO quarter to contracts then be quantify quarter what to

Girish Saligram

Yes.

Tim, So, it's discussions to given again. of level, limits the the of At But we're it's right Girish, sort restricted overall all it's of in this, the fairly range, an now. totality. about of blending boundary – at that a XX% wide in is that of looking X% to that kind

Dave Barta

annual. of about talking You're

Girish Saligram

Correct. on alone. On an annual segment basis, ECO

Tim Monachello

Right.

sales? then a And they would fourth as Okay. the that what range be converted product expect onetime you if in were for quarter, do

Girish Saligram

We're about Tim. not this customers, That's discussion at going to that's ongoing still a point. talk that with

Tim Monachello

if expect are those press or release that you fourth before Do would enough. fair you fourth that quarter? these the the that come converted quarter, out Okay, would just of

Blake Hancock

quarter fourth probably this release. the in Blake. out come just would That Tim, earnings is

Tim Monachello

your time Thanks for so much today. Okay.

Operator

Thank you.

I reached will turn have Way call question-and-answer end for Mr. remarks. over the We the And closing of now Andrew the session. to

Andrew Way

the everyone, look you a to today. for have listening of in day. and the We Thanks lot. updating a dialing quarter, Thanks, forward at good and fourth end

Exterran (EXTN) 9 Nov 192019 Q3 Earnings call transcript