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Exterran Corporation Announces Third Quarter 2018 Results

Productivity Creates Strong Operating Results

Continued Focus on Working Capital Drives Operating Cash Flow

Record Products Backlog

HOUSTON, Nov. 05, 2018 (GLOBE NEWSWIRE) -- Exterran Corporation (NYSE: EXTN) (“Exterran” or the “Company”) today reported third quarter financial results.

Andrew Way, Exterran’s President and Chief Executive Officer commented, “We are extremely pleased with our results for the third quarter, which were in-line with our expectations. Despite reports of transitory issues in the Permian, our business has remained resilient as the order activity is set for operations in late 2019 and beyond. Our Exterran Water Solution had a successful pilot with a large E&P operator providing us momentum as we head into 2019. We continued to focus on cash flow and returns that resulted in net cash from operating activities of $61 million, which fully funded our growth CAPEX.

“Product bookings of $344 million provided us a book to bill over 1.5x, as midstream companies continue to prepare for increased pipeline capacity coming into service in the second half of 2019 and beyond. Last quarter, we discussed a Middle East product order that may convert to a contract operations deal. The customer has elected to keep the award as a product sale, resulting in a product sales backlog of $759 million as of September 30, 2018. Contract operations backlog as of September 30, 2018 remained flat at $1.4 billion when compared to the prior quarter.”

Net income from continuing operations was $3.2 million, or $0.09 per share, on revenue of $334.8 million for the third quarter of 2018. This compares to net loss from continuing operations of $1.5 million, or $0.04 per share, on revenue of $343.5 million for the second quarter of 2018 and net income from continuing operations of $1.2 million, or $0.03 per share, on revenue of $314.5 million for the third quarter of 2017. EBITDA, as adjusted, was $52.1 million for the third quarter of 2018, as compared to $51.2 million for the second quarter of 2018 and $44.8 million for the third quarter of 2017. Income before taxes was $11.2 million as compared to $8.2 million for the second quarter of 2018 and $9.6 million a year ago.

Selling, general and administrative expenses were $45.1 million in the third quarter of 2018, as compared with $44.4 million in the second quarter of 2018 and $42.9 million in the third quarter of 2017.

Contract Operations Segment
Contract operations revenue in the third quarter of 2018 was $84.8 million, a 7% decrease from second quarter of 2018 revenue of $91.5 million and an 8% decrease from third quarter of 2017 revenue of $92.6 million.

Contract operations gross margin in the third quarter of 2018 was $57.1 million, as compared to gross margin of $59.1 million in the second quarter of 2018 and $58.9 million in the third quarter of 2017. Gross margin percentage in the third quarter of 2018 was 67%, as compared with 65% in the second quarter of 2018 and 64% in the third quarter of 2017.

The sequential revenue decline was primarily due to exchange rate impact on sales in Argentina and quarter over quarter change in contract recoveries.

Aftermarket Services Segment
Aftermarket services revenue in the third quarter of 2018 was $30.0 million, a 7% decrease from second quarter of 2018 revenue of $32.3 million and a 1% increase from third quarter of 2017 revenue of $29.8 million.

Aftermarket services gross margin in the third quarter of 2018 was $7.9 million, an 8% decrease from the second quarter of 2018 gross margin of $8.6 million and a 1% decrease from the third quarter of 2017 gross margin of $7.9 million. Gross margin percentage in the third quarter of 2018 was 26%, as compared with 27% in the second quarter of 2018 and 26% in the third quarter of 2017.

The sequential decline in aftermarket service revenue was driven primarily by decreases in commissioning services and operation and maintenance services.

Product Sales Segment
Product sales revenue in the third quarter of 2018 was $220.0 million, relatively flat with the second quarter of 2018 revenue of $219.7 million, and a 15% increase from third quarter of 2017 revenue of $192.1 million.

Product sales gross margin in the third quarter of 2018 was $31.8 million, a 14% increase from second quarter of 2018 gross margin of $28.0 million and a 55% increase as compared to the third quarter of 2017 gross margin of $20.5 million. Gross margin percentage in the third quarter of 2018 was 14%, as compared with 13% in the second quarter of 2018 and 11% in the third quarter of 2017.

The revenue was flat sequentially primarily due to increased allocation of hours to our contract operations and mix aligned to longer-cycle products.

Product sales backlog was $759.1 million at September 30, 2018, as compared to $634.9 million at June 30, 2018 and $559.9 million at September 30, 2017. Product sales bookings for the third quarter of 2018 were $344.1 million, resulting in a book-to-bill ratio of 156%. This compares to bookings of $439.7 million for the second quarter of 2018 and bookings of $245.5 million for the third quarter of 2017.

Conference Call Information
The Company will host a conference call at 8:00 a.m. Central Time on Tuesday, November 6, 2018. The call can be accessed from the Company’s website at www.exterran.com or by telephone at 877-524-8416. For those who cannot listen to the live call, a telephonic replay will be available through November 13, 2018 and may be accessed by calling 877-660-6853 and using the pass code 13682114.  A presentation will also be posted on the Company’s website prior to the conference call.

About Exterran Corporation
Exterran Corporation (NYSE: EXTN) is a global systems and process company offering solutions in the oil, gas, water and power markets. We are a leader in natural gas processing and treatment and compression products and services, providing critical midstream infrastructure solutions to customers throughout the world. Exterran Corporation is headquartered in Houston, Texas and operates in approximately 30 countries.

For more information, contact:
Blake Hancock, Vice President of Investor Relations, at 281-854-3043
Or visit www.exterran.com

Non-GAAP and Other Financial Information
Gross Margin is defined as revenue less cost of sales (excluding depreciation and amortization expense). Gross margin percentage is defined as gross margin divided by revenue. The Company evaluates the performance of its segments based on gross margin for each segment.

EBITDA, as adjusted, a non-GAAP measure, is defined as net income (loss) excluding income (loss) from discontinued operations (net of tax), cumulative effect of accounting changes (net of tax), income taxes, interest expense (including debt extinguishment costs), depreciation and amortization expense, impairment charges, restructuring and other charges, non-cash gains or losses from foreign currency exchange rate changes recorded on intercompany obligations, expensed acquisition costs and other items. EBITDA, as adjusted, excludes the benefit of the two previously announced sales of our Venezuelan assets.

Adjusted net income (loss) from continuing operations and diluted adjusted net income (loss) from continuing operations per common share, non-GAAP measures, are defined as net income (loss) and earnings per share, excluding the impact of income (loss) from discontinued operations (net of tax), cumulative effect of accounting changes (net of tax), impairment charges (net of tax), restructuring and other charges (net of tax), the benefit of the previously announced sale of our joint ventures’ Venezuelan assets, the effect of income tax adjustments that are outside of the Company’s anticipated effective tax rates and other items.

See tables below for additional information concerning non-GAAP financial information, including a reconciliation of the non-GAAP financial information presented in this press release to the most directly comparable financial information presented in accordance with GAAP. Non-GAAP financial information supplements should be read together with, and are not an alternative or substitute for, the Company’s financial results reported in accordance with GAAP. Because non-GAAP financial information is not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.

Forward-Looking Statements
All statements in this release (and oral statements made regarding the subjects of this release) other than historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements may include words such as “guidance,” “anticipate,” “estimate,” “expect,” “forecast,” “project,” “plan,” “intend,” “believe,” “confident,” “may,” “should,” “can have,” “likely,” “future” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. Examples of forward-looking information in this release include, but are not limited to: Exterran’s financial and operational strategies and ability to successfully effect those strategies; Exterran’s expectations regarding future economic and market conditions; Exterran’s financial and operational outlook and ability to fulfill that outlook; demand for Exterran’s products and services and growth opportunities for those products and services; and statements regarding industry activity levels and infrastructure build-out opportunities.

These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and factors, many of which are outside Exterran’s control, which could cause actual results to differ materially from such statements. As a result, any such forward-looking statements are not guarantees of future performance or results. While Exterran believes that the assumptions concerning future events are reasonable, it cautions that there are inherent difficulties in predicting certain important factors that could impact the future performance or results of its business. Among the factors that could cause results to differ materially from those indicated by such forward-looking statements are: local, regional, national and international economic conditions and the impact they may have on Exterran and its customers; Exterran’s reduced profit margins or loss of market share resulting from competition or the introduction of competing technologies by other companies; Exterran’s ability to secure new oil and gas product sales customers; conditions in the oil and gas industry, including a sustained imbalance in the level of supply or demand for oil or natural gas or a sustained low price of oil or natural gas; Exterran’s ability to timely and cost-effectively execute projects; Exterran enhancing its asset utilization, particularly with respect to its fleet of compressors; Exterran’s ability to integrate acquired businesses; employment and workforce factors, including the ability to hire, train and retain key employees; Exterran’s ability to accurately estimate costs and time required under Exterran’s fixed price contracts; liability related to the use of Exterran’s products and services; changes in political or economic conditions in key operating markets, including international markets; changes in current exchange rates, including the risk of currency devaluations by foreign governments, and restrictions on currency repatriation; risks associated with Exterran’s operations, such as equipment defects, equipment malfunctions and natural disasters; risks associated with cyber-based attacks or network security breaches; any non-performance by third parties of their contractual obligations, including the financial condition of our customers; changes in safety, health, environmental and other regulations; the results of governmental actions relating to Exterran’s pending Securities and Exchange Commission investigation; and Exterran’s indebtedness and its ability to fund its operations, capital commitments and other contractual cash obligations, including our debt obligations.

These forward-looking statements are also affected by the risk factors, forward-looking statements and challenges and uncertainties described in Exterran’s Annual Report on Form 10-K for the year ended December 31, 2017, and other filings with the Securities and Exchange Commission available on the Securities and Exchange Commission’s website www.sec.gov. A discussion of these risks is expressly incorporated by reference into this release. Except as required by law, Exterran expressly disclaims any intention or obligation to revise or update any forward-looking statements whether as a result of new information, future events or otherwise.

EXTERRAN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
             
    Three Months Ended
    September 30, 2018   June 30, 2018   September 30, 2017
Revenues:            
Contract operations   $ 84,828     $ 91,487     $ 92,561  
Aftermarket services   29,993     32,267     29,799  
Product sales   220,028     219,717     192,119  
    334,849     343,471     314,479  
Costs and expenses:            
Cost of sales (excluding depreciation and amortization expense):            
Contract operations   27,768     32,372     33,640  
Aftermarket services   22,138     23,706     21,903  
Product sales   188,206     191,762     171,619  
Selling, general and administrative   45,103     44,382     42,880  
Depreciation and amortization   31,108     30,184     27,010  
Long-lived asset impairment   2,054          
Restatement related charges (recoveries), net   (342 )   (597 )   1,997  
Restructuring and other charges   264     1,422     417  
Interest expense   7,685     6,883     7,860  
Other (income) expense, net   (285 )   5,204     (2,424 )
    323,699     335,318     304,902  
Income before income taxes   11,150     8,153     9,577  
Provision for income taxes   7,954     9,622     8,363  
Income (loss) from continuing operations   3,196     (1,469 )   1,214  
Income from discontinued operations, net of tax   2,173     1,544     2,139  
Net income   $ 5,369     $ 75     $ 3,353  
             
Basic net income per common share:            
Income (loss) from continuing operations per common share   $ 0.09     $ (0.04 )   $ 0.03  
Income from discontinued operations per common share   0.06     0.04     0.06  
Net income per common share   $ 0.15     $     $ 0.09  
             
Diluted net income per common share:            
Income (loss) from continuing operations per common share   $ 0.09     $ (0.04 )   $ 0.03  
Income from discontinued operations per common share   0.06     0.04     0.06  
Net income per common share   $ 0.15     $     $ 0.09  
             
Weighted average common shares outstanding used in net income per common share:            
Basic   35,480     35,455     35,046  
Diluted   35,544     35,455     35,120  
                   


EXTERRAN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
       
  September 30, 2018   December 31, 2017
ASSETS      
       
Current assets:      
Cash and cash equivalents $ 36,966     $ 49,145  
Restricted cash 546     546  
Accounts receivable, net 243,441     266,052  
Inventory, net 141,846     107,909  
Costs and estimated earnings in excess of billings on uncompleted contracts     40,695  
Contract assets 71,841      
Other current assets 40,482     38,707  
Current assets held for sale     15,761  
Current assets associated with discontinued operations 12,925     23,751  
Total current assets 548,047     542,566  
Property, plant and equipment, net 860,997     822,279  
Deferred income taxes 13,731     10,550  
Intangible and other assets, net 87,415     76,980  
Long-term assets held for sale     4,732  
Long-term assets associated with discontinued operations 2,302     3,700  
Total assets $ 1,512,492     $ 1,460,807  
       
LIABILITIES AND STOCKHOLDERS’ EQUITY      
       
Current liabilities:      
Accounts payable, trade $ 166,358     $ 148,744  
Accrued liabilities 127,854     114,336  
Deferred revenue     23,902  
Billings on uncompleted contracts in excess of costs and estimated earnings     89,565  
Contract liabilities 89,187      
Current liabilities associated with discontinued operations 15,978     31,971  
Total current liabilities 399,377     408,518  
Long-term debt 418,668     368,472  
Deferred income taxes 6,356     9,746  
Long-term deferred revenue     92,485  
Long-term contract liabilities 89,736      
Other long-term liabilities 38,948     20,272  
Long-term liabilities associated with discontinued operations 6,301     6,528  
Total liabilities 959,386     906,021  
Total stockholders’ equity 553,106     554,786  
Total liabilities and stockholders’ equity $ 1,512,492     $ 1,460,807  
               


EXTERRAN CORPORATION
UNAUDITED SUPPLEMENTAL INFORMATION
(In thousands, except percentages)
             
    Three Months Ended
    September 30, 2018   June 30, 2018   September 30, 2017
Revenues:            
Contract operations   $ 84,828     $ 91,487     $ 92,561  
Aftermarket services   29,993     32,267     29,799  
Product sales   220,028     219,717     192,119  
    $ 334,849     $ 343,471     $ 314,479  
             
Gross margin:            
Contract operations   $ 57,060     $ 59,115     $ 58,921  
Aftermarket services   7,855     8,561     7,896  
Product sales   31,822     27,955     20,500  
Total   $ 96,737     $ 95,631     $ 87,317  
             
Gross margin percentage:            
Contract operations   67 %   65 %   64 %
Aftermarket services   26 %   27 %   26 %
Product sales   14 %   13 %   11 %
Total   29 %   28 %   28 %
             
Selling, general and administrative   $ 45,103     $ 44,382     $ 42,880  
% of revenue   13 %   13 %   14 %
             
EBITDA, as adjusted   $ 52,083     $ 51,210     $ 44,795  
% of revenue   16 %   15 %   14 %
             
Capital expenditures   $ 57,992     $ 45,015     $ 34,906  
Less: Proceeds from sale of PP&E   (58 )   (112 )   (128 )
Net Capital expenditures   $ 57,934     $ 44,903     $ 34,778  
             
Revenue by Geographical Regions:            
North America   $ 215,015     $ 222,357     $ 188,816  
Latin America   64,960     72,638     74,772  
Middle East and Africa   41,653     31,353     36,518  
Asia Pacific   13,221     17,123     14,373  
Total revenues   $ 334,849     $ 343,471     $ 314,479  
             
    As of
    September 30, 2018   June 30, 2018   September 30, 2017
Product Sales Backlog:            
Compression equipment   $ 464,866     $ 294,498     $ 282,372  
Processing and treating equipment   284,943     330,654     237,255  
Production equipment   5,450         22,941  
Other product sales   3,879     9,741     17,329  
Total product sales backlog   $ 759,138     $ 634,893     $ 559,897  
                         


EXTERRAN CORPORATION
UNAUDITED NON-GAAP FINANCIAL MEASURES
(In thousands, except per share amounts)
             
    Three Months Ended
    September 30, 2018   June 30, 2018   September 30, 2017
Non-GAAP Financial Information—Reconciliation of Income before income taxes to Total gross margin:            
Income before income taxes   $ 11,150     $ 8,153     $ 9,577  
Selling, general and administrative   45,103     44,382     42,880  
Depreciation and amortization   31,108     30,184     27,010  
Long-lived asset impairment   2,054          
Restatement related charges (recoveries), net   (342 )   (597 )   1,997  
Restructuring and other charges   264     1,422     417  
Interest expense   7,685     6,883     7,860  
Other (income) expense, net   (285 )   5,204     (2,424 )
Total gross margin (1)   $ 96,737     $ 95,631     $ 87,317  
             
Non-GAAP Financial Information—Reconciliation of Net income to EBITDA, as adjusted:            
Net income   $ 5,369     $ 75     $ 3,353  
Income from discontinued operations, net of tax   (2,173 )   (1,544 )   (2,139 )
Depreciation and amortization   31,108     30,184     27,010  
Long-lived asset impairment   2,054          
Restatement related charges (recoveries), net   (342 )   (597 )   1,997  
Restructuring and other charges   264     1,422     417  
Interest expense   7,685     6,883     7,860  
(Gain) loss on currency exchange rate remeasurement of intercompany balances   164     3,451     (2,447 )
Loss on sale of business       1,714      
Penalties from Brazilian tax programs           381  
Provision for income taxes   7,954     9,622     8,363  
EBITDA, as adjusted (2)   $ 52,083     $ 51,210     $ 44,795  
             
Non-GAAP Financial Information—Reconciliation of Net income to Adjusted net income (loss) from continuing operations:            
Net income   $ 5,369     $ 75     $ 3,353  
Income from discontinued operations, net of tax   (2,173 )   (1,544 )   (2,139 )
Income (loss) from continuing operations   3,196     (1,469 )   1,214  
Adjustment for items:            
Long-lived asset impairment   2,054          
Restatement related charges (recoveries), net   (342 )   (597 )   1,997  
Restructuring and other charges   264     1,422     417  
Loss on sale of business       1,714      
Penalties from Brazilian tax programs           381  
Interest expense from Brazilian tax programs           53  
Tax impact of adjustments (3)   (196 )   (450 )   (136 )
Income tax benefit from Brazilian tax programs           (2,846 )
Adjusted net income from continuing operations (4)   $ 4,976     $ 620     $ 1,080  
             
Diluted income (loss) from continuing operations per common share   $ 0.09     $ (0.04 )   $ 0.03  
Adjustment for items, after-tax, per diluted common share   0.05     0.06      
Diluted adjusted net income from continuing operations per common share (4) (5)   $ 0.14     $ 0.02     $ 0.03  


(1) Management evaluates the performance of each of the Company’s segments based on gross margin. Total gross margin, a non-GAAP measure, is included as a supplemental disclosure because it is a primary measure used by our management to evaluate the results of revenue and cost of sales (excluding depreciation and amortization expense), which are key components of our operations. Management believes total gross margin is important supplemental information for investors because it focuses on the current performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations, the indirect costs associated with our SG&A activities, the impact of our financing methods, restatement related charges (recoveries), restructuring and other charges and income taxes. In addition, the inclusion of depreciation and amortization expense may not accurately reflect the costs required to maintain and replenish the operational usage of our assets and therefore may not portray the costs from current operating activity.
 
(2) Management believes EBITDA, as adjusted, is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of our capital structure (interest expense from outstanding debt), asset base (depreciation and amortization), our subsidiaries’ capital structure (non-cash gains or losses from foreign currency exchange rate changes on intercompany obligations), tax consequences, impairment charges, restatement related charges (recoveries), restructuring and other charges, expensed acquisition costs and other items. Management uses EBITDA, as adjusted, as supplemental measures to review current period operating performance, comparability measures and performance measures for period to period comparisons. In addition, the Company's compensation committee has used EBITDA, as adjusted, in evaluating the performance of the Company and management and in evaluating certain components of executive compensation, including performance-based annual incentive programs.
             
(3) The tax impacts of adjustments were based on the Company’s statutory tax rates applicable to each item in the appropriate taxing jurisdictions. Using statutory tax rates for presentation of the non-GAAP measures allows a consistent basis for investors to understand financial performance of the Company across historical periods. The overall effective tax rate on adjustments was impacted by the inability to recognize tax benefits from charges in jurisdictions that are in cumulative-loss positions.
             
(4) Management believes adjusted net income (loss) from continuing operations and diluted adjusted net income (loss) from continuing operations per common share provides useful information to investors because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of impairment charges, restructuring and other charges, restatement related charges (recoveries), expensed acquisition costs and other items not appropriately reflective of our core business.
             
(5) Diluted adjusted net income (loss) from continuing operations per common share, was computed using the two-class method to determine the net income (loss) per share for each class of common stock and participating security (certain of our restricted stock and restricted stock units) according to participation rights in undistributed earnings. Accordingly, we have excluded adjusted net income from continuing operations attributable to participating securities of $0.1 million for the three months ended September 30, 2018 from our calculation of diluted adjusted net income (loss) from continuing operations per common share.

 

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