EXTN - Earnings call transcript Q2 2020

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Operator

Greetings, and welcome to the Exterran Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

As a reminder, this conference is being recorded. pleasure Investor your Relations. my Vice Blake now of President is to host, introduce Hancock, It Thank you.

begin. may You

Blake Hancock

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

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

Andrew Way

and everyone, call the joining good today. for and thanks Blake, morning, Thanks,

the of trying customers. as really only all to to the we times during have most COVID the especially our staff in of are vendors’ the travel impacting Middle But and to to Asia many and related in COVID-XX seen restrictions, in earnings First, I employees’ offices most progressing business. quarter, our of America, offices, shown of towards Today to strategy. working employees were discuss to end opening At beginning very will long-term how however, monitor am travel of degree starting office development of we're of time the had situations customers’, call, continues parts global the Latin up and the discuss our continues our then North elevated COVID making extremely East COVID-XX AMS America support part of of our checked is quarter to appear. we last local impact see I lives. on the along the we normalcy second to and collaboration of and remotely. last continue work closing our and since our with and call, challenging, we work to On and dedication continue we see appreciative back closely. levels, more returning our challenge these

its operating quarter But and global expected the in as rhythm second daily management we'd employees, had to Our largely low crisis the team $XX the guided our mid customers. perspective, range. to contractors an of from million EBITDA to safety continues we ensure came as

specifically logistics, equipment During AMS, customer impacts the all inability the lines, had ECO impact around of and largest globe. business move all an parts with the to people we to the manage across COVID coming around our and where quarter, had from challenging

investments. We decisions worked business to operations year, longer delaying out business. customers strategic oriented they new to energy as over also impact We've as that past making fabrication more core normalize bookings, the we an the and the service related company saw making before to on their industrial resembles our a no product that a from our U.S. was the additional with plan laid company. announcement This included of to look compression move projects

the business U.S. be expect we in the today, out of quarter. to of fourth fabrication compression As

outcomes to fourth with all closely fully a in complete Exterran to whether the our sold current outcome and fully parties the to we be fairly or with liquidated similar expect the working and quarter. Regardless, backlog shareholders. presents all potential are strategic We buyer

in continue have in work way costs and for control We service to come while our ensuring as complete and they we the the the commitments to that from business backlog customers down, know appreciate all Exterran. the comes

investment the today XXXX of beginning still CFS information the business we financials, For is today's while the have backlog since gross margin the appendix presentation. in provided revenue, earnings community, of our and in

how legacy, water downturn has our part success. we lot key production, water. While to talking time oil was have of spent slowed future our Obviously will compression a the of be about including

the continues cut to the in is awards pipeline. U.S. their are right. budgets, That and The drive produce a are cancels projects cuts The water the seeing seeing our in not to customers yet that internationally, actually water have positive growth seen demand. of we We in have said, specifically high pushed any our also fields conventional timing news

process. to tendering With and current a communication are go well time the market commercial COVID dynamics projects normal as taking as hurdles, through these related

We are a have large few global and company, be business, only contract. ECO grow its output the These helping will water our also well-positioned. large first a but projects that we water not imminent, are for projects significant giving

We've in orders the Girish at will been signs months, as in CapEx. down shut American didn't section. for some North started market X America any we half we the largely foresee his promising to details Looking forthcoming material second have of the to very year, see new provide more North that to appeared product XX and

our constructive guidance. guidance not of aspects markets incorporating all EBITDA. any remains conversations in pleased million our guidance for we year of For quarter when at as EBITDA to purposes, full differentiation, continue time. planning our last show this between the just to this with and our to I'm show and resiliency provided million international The year that $XXX report into customers activity we're we of regions, $XXX one of continue have

it impacting the prices the as Today, remain I and question build on product country-specific travel exchange restrictions, orders half factory several the dependent still in improvement itself could restrictions customers as outcomes. outflows commodity supply sizable the the of year, you still collaboration these, incorporated in projects, improvements as These travel new in quarter with macroeconomic manifest the Let over chain COVID key last wins and the remind conditions are assumptions impact rest assumed remote timing product continued me second for improvement the execution supply execution around pertains We slow activities of this. and open that rates. reflect the the on of cash chain, to year, achieve key over the no quarters, on linearity on we to challenges on and inflows and the project we cycle. booked during last in EBITDA

On during won the all to project first in project execution Middle East remind like we side, quarter. the the large I'd you a

We closely keep to with work progressing. our continue project this to customer

company another our or one can products phase the years expertise from For our just the company and few travel the quarters year first heavily where handle local operational required the us We've a two of it's complex transformation in of that engineering to minimum strategic for were differentiate and past global largely the from project several and invested example where over ago. the was engineering projects years, and in manufacturing. we talent

June, of quarter. XD tools critical [indiscernible] we over the Our Girish. of all an now remotely completing about job outstanding last milestones I'll With global technology the leveraging turn and of to engineering achieved did spoke modeling January facility the that, teams whilst through it from

Girish Saligram

his Andrew I'll as be like to year-to-date. on and large the this would East Andrew. and success that I Middle up remotely largely of we team comments complex the to Thanks, had the second to this with start project a touched engineering undertaking is execute a huge to point able upon, such working project. have accomplishments

to so optimized develop methodology pick that we systems throughput global our we further of and this can productivity internal up. as addition, In continue efficiency volumes leverage

utilizing have the develop the enhance engineering to few organization. addition past further we our In and focus, months to been also

We are have teams. technical while we have practices that training significant and operating world. focus to a the best significant delivered certified development fully that a ensuring we amount successfully also opportunity throughout ensures training This used sharing of on and compliant, this and remain around put

from We are in partnerships our value base. making inroads and addition greater supply also broader

operations to the The of customers with along that demand This pandemic, headway as with them on includes on all While operators to put to that a cost tremendous more and our opportunities COVID rather greater coming them, the our pressure the doing, have some under. focused creating duration for key more contracts terms everyone we towards are spending pain. of has impacts market itself. this on seen continues local pressure value supply designs, equation the to the consolidating work all suppliers. industry we with our better from sharing initiative to to in operations. Yet balance longer along their scrutiny our The near pushing again, volume assess made of we pressure their is improve creation our last the with customers than value launched weighing purchases customers, with the operations our across customers Since have and this is facilities customers the commodities facilities of sourcing, regions, we more navigate pandemic, the needs. lot longer concessions, term our costs and these and as and come balancing cetera. a and of request is them collaborate many under as macroeconomic proceeds, all et continue The call, our simply situation looking efficient and

we effort contract field contracts with customers maximum us to for the factories. to operate engage to is our This it the ensure and we for turn them. provides us this across and Our Collectively discussions. is our functions Exterran but a customers, to efficiencies our lead as that long-term meaningful to customers allow relationships are our stability in strong in future us getting and focused collaborative ensure the success long-term of bandwidth our in operating and the both and be well-coordinated important

as a to market limited. North I incremental American extremely our overview for the call, needs compared market faint. would market for are demand turning be to global XXXXs albeit Now demand have U.S. facility to last said, a does say quiet dynamics. of continues pulse That The

some We opportunity broad-based to see demand are signs customer needs unique beginning niche than rather are more life as arise, slowly of signals. which

not significant changed more am foresee I we was While than a in that future. don't view I the for any immediate our has about the demand last optimistic region the quarter, bit U.S.

potential capabilities, along progressing some power well us some on helping are processing We unique generation initiatives expand applications. with

small, on particularly normalize. the us Latin gap product currencies be core of current to In While may lines these more environment have have been help America, until countries. the hard several the our we potential bridge effects in the the

how prior top-line and risk, there manage we in margins calls significantly explained and this why a impact have protected. our We are is

us is region activity customers Middle and inquiries have this region be the and to the we and can declines through The we are commodity tenders, discussions benefit customer over the continue most from East be around pressure the to where seeing and how longer our new operations and feel period. to to both continue we to near project this of customers continues highest Our the collaborative term.

see difficult, growing in as well. the We or including we customers demand additional the awards while continue the see been most. than opportunities, current from has train of potential water the XXXX. is customer and CapEx early line some signing in spend always new region base, are our year product the later oil more to do resilient And and for needs

projects we as new Finally, business grow Asia to our in continue to the add Pacific, AMS into continues segment.

while, our outstanding first to total to of Overall, and the largely remotely. the are region the beginning meaningful cleaning and also and smaller world, for continue the than job rest some accretive facilities managing a customers And the processing are of region. demand our our in in and overall do can an operations the see number to opportunities although our For team time this to be we operations, business.

with mission constructive us equipment critical our beneficial. allowed that have Our facilities customers mutually to and have conversations are

natural to America more exposed the our oil North are now Dave. to weighting opportunity at provides largely greater stability international come. specifically turn many to and our for While this in I'll set customers of time, gas and struggling strong us and With it over a that, quarters heavy tying remain to

David Barta

gross U.S. this million. challenging EBITDA segment was of revenue adjusted revenue and expectations with of a the From perspective, from of of impact price on and at $XX million a sales $XX the resulting gross a equipment end million, first $X due unfavorable the operations declines through during declined margin Despite COVID-XX as million margin with manufacturing operations. our to Revenue line to end COVID, $XX $XX the we was U.S. delivered compression said, completed margin while Thanks, million, quarter, for of the primarily FX the focus attributed Andrew ECO million. in compression sequentially Girish. on of occurred impacts. during commodity and the the we backlog in was be continued billion. and to Gross results The quarter. revenue fourth of at June of as with XX%. $XXX impacts our gross due percent quarter managing previously of rate expect contracted quarter assets along contract million, stood at backlog margin efficiencies discussed $XX that driving $X.XX increased

and limiting [scale] roughly and XX%. Revenue margin in beginning We're which million. revenue a $X.X was incremental and costs customer million Margin was decline equipment at $X projects negotiations, people ramp which see For move a than of AMS, manufacturing under sites The the by margin COVID-XX the to million. costs. resulting margin segment reduced loss resulted which largely we associated absorption continued was June to the impacts, gross Product facilities, margin resulted million revenue as under ability $X in less absorption our rate changes around $X million, was in as driven million, gross and was and the of mix due gross up was Product fixed customer rate abate to negative $XX declined on X%. to was $XX in countries activities. of gross and maintenance and company's and the

million Our first sales quarter. million down million, the $XXX were the quarter. $XX million $XXX compared was at end the to at first expenses the second of end in backlog product of quarter, SG&A from the $XX the

balance Moving second million]. the the at [$XXX quarter sheet, was to net end debt of the

expected at of over the quarter. Our the reduction first X $XXX year-over-year This times, million. with EBITDA. also liquidity I’d maturities. total of the X.X no you leverage was We to had times in was that have we ratio compared remind end increase available near-term

current allocation in Our next environment, our in strategy resolver our is the maturity XXXX. Even hasn't changed. capital

responsible We growth balance levels, with sheet organic funding while will and be opportunities. prioritizing the leverage

bought roughly and bonds roughly XX% During interest a of XX after the quarter, we also million at discount our fees. back accrued

balance focus We be to maintaining will deals, to well a on regarding as work continue with potential to capital opportunistic ECO put buybacks strong a as sheet.

on EBITDA. moved lower leverage Our

for maturities. revolver have Andrew our We our unchanged ample include which continue does on to liquidity XXXX, available U.S. touched on with fabrication no the outlook EBITDA near-term compression business.

not of $XXX be and EBITDA exclusion presented XXXX, the the However, change to the the U.S. still fabrication of business $XXX EBITDA should forecasted for million. be million. SG&A million is in range year does rate million to between $XXX even for the as $XXX and

Maintenance is XXXX for $X $XX CapEx reimbursable million. be interest our million. to SG&A other includes business. and our with around revenue-based and growth million reminder, a million million South Company's taxes should around America million. Cash associated roughly million $XX with CapEx million $XX be $XX expected should and As of between and approximately taxes between $XX be $XX expense $XX CapEx

During CapEx the with planned no the reimbursable real was first half for reimburses of the XXXX $X.X million of second year. half

third will the in resulting won’t our annualized we for saw adjusted project. quarter, better during than are as discussed to should customer challenges with million. we -- all around work what to we changes Turning continue no With the have second full quarter to be that activity parts to expect Andrew Middle talked product COVID moving through second that started customers baked tiny year in and quarter outlook third for East as on open projects business continue be But conversations, we bookings be matter COVID expect and $XX between quarter. included or the key on are EBITDA logistical all these guidance. execution the our guidance in EBITDA the and has into new the we much guidance. about the we up, half giving full-year related we There our

also great and of there a XXXX remains business process. in the planning uncertainty While beginning environment, variability deal the we're

to not set in terms East project This today, Middle is revenue Andrew grow provide While in the XXXX. quarterly we due in largely to QX. to on quantitative mentioned our of guidance in as EBITDA prior are awarded we're up position call, a certainly and

the logistical to margin the will the given and on on work will closing to over We we continue challenges. I'll the the that, call with the recognizing customer result the feel use will schedule structure. for revenue mention of project Andrew that forward I confident with project we the gross on significant a And working as the progress We basis. remarks. size make back project turn capital in XXXX in and POC move given

Andrew Way

in Dave. cost put over five of months organization current reaping in The to in Thanks, we environment. were the which customers its today remotely the place out first responded thus working year our exceptionally to the far. in for ability benefits We is half to for well early macro XXXX, handle with managing initiatives respond

cash and working We continue working our on hard on to with flow focus sheet hand-in-hand customers project execution and balance and managing while -- our operations.

balance strong allow us no with flexibility the plenty coming manage near-term Our of to sheet through quarters. maturities

to important company the While be post spending the we time plan core compression this we're significant the to all of U.S. the on protect fabrication is exit. business, of

transformation financial progressing we the know all You are towards.

EBITDA a would I've years. out, margins, laid a where improve adjusted or XX% coming strong returns As greater backlog, company the we as have over

to Our tied larger facilities desirable supply cycle real create where transition projects products and our can a bring with one a to table margins expertise business we engineering chain and short less to to from to than continues one the operational value. to

And internal to be lumpier have as giving greater us focus, likely churn given order build margin book continue which through is should backlog ahead. longer larger for world cycles, the in project normalizes can overall will capital the ahead. projects quarters improve the quarters scale the and visibility lowering while portfolio years profile the to company require Our and

foresee strong that for I'd While just back to you. orders and for meaningful give I be year, turn that, Thank the to growth me about confidence the company. like the to the now with spoke we operator. XXXX remainder backlog characteristics don’t the And a year this of continue will call

Operator

you. Thank

with One question now of be a Our of session. We [Operator Please instructions] Securities. first proceed from will the Capital Kyle question. come conducting line question-and-answer May has your

Kyle May

Want quarter uncertainty still just of any ahead, but I could And with or lot guidance. third if things wondering $XX to realized put or million us could north consider watermark? you of the there's drivers a start that the you give to south

Andrew Way

we had our see will are be the out, So, at to to to have will certain have ability pipeline And of continuing and greater we factories clearly things. more quarter, normality, out we prepared visibility the as second ECO, is, I customers into but think be we in have an points operating how locations, have back indicated, say an which moving will we that question is Kyle, booked exact that operate, every the continue two I we the rate what the to I'd outlined of to people in two my really the coming us a from assumptions couple things that But Dave quarter? will visibility. do the perspective certain in pretty far our As we our locations. Asia take on AMS remarks, allow a location laid and really have as and challenges that operations good our backlog. we that consideration the will already to East predictable. Middle impact in is some

to more it's it converting than orders, booking that going physical COVID-related operations activity. and really new win, So just is

through to just to We need good feet backlog. the have have We the quarter. get

Kyle May

for That compression back the mean it. then in And it, about margins business half and Got of forward? year, be should sense. fabrication, as got that EBITDA segment U.S. piece how that going forward the we about does what business the of we margins the makes think the going in without thinking

David Barta

Yes.

I the posted historic information on see compression. in think you'll that's some presentation

of at back look low is high and water the right again, we levels, the forward our certainly businesses based process mid-teens. go product that -- volume U.S. certainly segment results. level. and time as would I'll on And compression as also of in is a can in now the margins take gross in But the you piece volume that see aren't somewhat in this So call current out utilization treating penalty to certainly we operating

business, manufacturing into see over if And into up teens margins as those So, see business well. the U.S. in in and time, business Andrew this without EBITDA total I’d manufacturing volume basis P&T of north the XX% margins on we see the compression as we high high more in a coming kind cycle, pro back we teens normalized -- the move take said, our of EBITDA would margins forma for company. that a point

Kyle May

more, and of That's some mentioned around. it. improvements around beginning kind Got maybe equipment move you've the then helpful. starting Okay. of one global employees And just your see better to ability and comments to of

any there's recently and what your if wondering more you last compares on Just you're to when this provided expectations how quarter? guidance revised or seeing color insight additional

Girish Saligram

a it other And countries lot terms started Kyle, their in quarter, think of the when of still very were especially of last I out a what shutdowns arrangements and in the was vis-à-vis flux were of beginning Sure. lot the process. countries. at this, we specific

today got, a bit and think clarity I and on the hand, a stability, reopening. little see to more one we've starting we're

contrasts. it's different a lot So, of

UAE more got now out the got you've movement. in people where example, for you've move to and are allowed lot So, and a

into people On flights, still the to you've we around. got U.S., restricted, starting in move you this have which hand, the ability cetera. to fairly international have is but the have don't you've Whereas is that to other people Nigeria got still the open up et still Oman, ability move

remote the been We've very a is global to type seen the basis. remote work adopt on and in tender with a strong been of mixed concept that a as of and done a to East has though the collaboratively. through see us be lot of it's from So, Middle activity, What fashion. bag and customers a encouraging industry whole all has adapting home very especially working

overall improvement, all dependent have we of but out. of definitely seen on how the pandemic is it So, kind pans an

Operator

you. Thank

Please line Monachello ATB next the question Capital Tim is proceed of your with with Our coming question. from Markets.

Tim Monachello

that million from Curious million. guidance changed to XX there the and for X the year the reimbursable CapEx

maybe, you little can Just detail that if provide on a more bit change?

David Barta

Yes, so reimbursable CapEx always dependent progress to highly the on project. upon likely is be a

fourth ECO a regulated So, in we into why so there's back. forth some one It’s we've got year, and quarter, possibility late particular probably fourth that potential falling project quarter there's CapEx the these get that's and of difficulties that's the reimbursable see sites next based on schedule getting to project. that pulled are of could still

Tim Monachello

And progressing? you then guess that I curious if how materially if to anything do in to with down million. quarter came or or about in I'm the backlog had bit that has deferrals just view changed little the on a renewals, ECO regards backlog timing, $XXX more it's if

Girish Saligram

that get then third ability We versus was Sure. number Tim, did nature But customer saw a that of sign-up extensions phenomena to we few didn't a do one cases, longer chose, the the have term have that getting was expect and extensions quarter fully of we the it of many happen. it. to operations customers that given the the different disrupted otherwise short-term subsequent factors really quarters. groove did they for that extensions in still

extension. expect months we get track that's range half one really extensions the the it. to drove which year. or very natural We're to the saw to second that months of expect would versus even still two get the a in multiyear and significant for X on much what more in we extensions But of type So, X of

couple had their things capability much fundamental the other want and how dynamics changes In lot long-term like relooking and any how versus of contract to real short-term are But change. FX happen deploy. of much addition we a some fleet of that, to overall operations and deciding they a customers as at

Tim Monachello

projects. that business, event I curious be had comments to was be to material any large you curious, and if you how the that I two expect imminent the if then understand ongoing, two also just negotiations details, projects? XXXX that water more the probably are And around in could but I'm

Andrew Way

Well, really the and I we in my of pipeline East. opportunity majority is see good and said activity, the Middle a remarks, in as continue to prepared which

with for Our team the doing plans has months, customers, the few laying remotely working last themselves. job our during actual projects the been again out really a great

And the meaningful so, question, year which is of second answer and I and on we in to this expect was think will a if be they they’re half company. of I award timing, made, heard have I would sizeable all terms to the the when impact the

we So, overall we're and been timing has now kind specific working that we're outcome working happy in-country finalization The those a the has of of designs They're right addressed. and of through been have on the the through alignment very with the projects applications. of as speak, customer. technology we lot finer detail the already technical with the already proven this particular

quarter, quarter, late we we hope this activity. of third half see in So, some would maybe year, fourth second that the early should

Tim Monachello

Okay, great.

just guess to sounds as other parties details, due well? uncertainty contract some final be it are that there. might finalizing I follow up just Is on the that like or around bidding the there the So, work case,

Andrew Way

been I'd say, we've the what on we've read end has it's that in upside mean, terms, general. the just I purely just you when of operational we from I front in put down into operations world timing the what and news practical doing globally with, standpoint. seen on terms an turned been COVID, mean, of what

ends alignment been able And being in get on you so, both make just itself. that has to an uphold sure incredible and of have people task

functioning working It's just aren’t as when timing. operations customers’ your And remotely so, in locations. people still many normal, are

ahead implications And go will awarded. so, sure that, and second projects when confident be successful? we the is that are projects, going those we're be checking half combine to these making you On we always work when as is and fairly to going the two, of the through those, we project the feel

Tim Monachello

Got it.

backlog backlog margin fabrication come at from quarter looks the And for do absorption that changing? or then pretty Okay. the you the on has substantially year. last X% just just result around margin that That's costs like of It market. one implied a U.S. that with the and fixed me, maybe in actual broader backlog through is down last to the Is helpful. has XX% second that regarding still lower comment that have just about on revenue,

David Barta

The has in since No. we how seen that the looks. material and sold haven't been the a market in change margin backlog projects

build new running significant for a months, a opportunity perspective. the and that been and dealing a we've other and contract-by-contract we're we've seeing careful said been haven't We liquidating business for customer-by-customer many with in as inventory down very And being customers.

have in the than thing the with in we a the for leaves that what past. tends intent a product that's projects, our right the that's have amount customers been during and we would make certain to we sure period finish what areas more costs structure So, some and right to do probably quality, make that come cost the with higher our been a than we little a that sure little of held normally to

down. the that this We a significant business, out have year at taken volume not amount cost which the but has pacing come in just of

few sale a unit-by-unit, we're have about we customer-by-customer months. now assets working on parallel, as off sight customers also to with strategic a we working in with through. So, that. potential run backlog we're of next good talked working the here the that over to liquidate And We're line our

clearly come that. to by good So few months, and next the that will will quarter light and which we’re communicate be the through in will through more process be fourth that time able once through being get we here to

Operator

call now back There hand over at remarks. will time. this questions are the for closing to no any I management further

Andrew Way

So, listening dialing-in today. thanks. and Thanks, for everyone

to also really in and the Girish have spending said I through conditions, customer highlighted, the prepared job they’re sure As our remarks all it's working very we employees of focusing few difficult been time appreciative. the that and months an on wanted thank that making outstanding past done really

say like you look Thank I'd quarter. next updating that, after we you. with to So, forward thank you to and

Operator

conclude does This call. today's

and your for a may lines this You your day. have disconnect Thank time. at great you participation

Exterran (EXTN) 10 Aug 202020 Q2 Earnings call transcript