GlobeNewswire Inc | Aug 10, 2020 07:00AM EDT

August 10, 2020

Strong Operational Performance despite Challenging EnvironmentCompany to Exit the U.S. Compression Fabrication Business in the Fourth Quarter

HOUSTON, Aug. 10, 2020 (GLOBE NEWSWIRE) -- Exterran Corporation (NYSE: EXTN) (Exterran or the Company) today reported second quarter financial results.

Andrew Way, Exterrans President and Chief Executive Officer commented, The second quarter proved to be a challenging quarter as we had to manage the COVID-19 impacts coupled with the effects of the commodity price declines. Despite those significant challenges, the company performed extremely well to deliver results in-line with our expectations while continuing to execute on our projects in backlog. We are beginning to see some global improvements in our ability to move people and equipment around more efficiently than we had in the previous several months. The overall COVID-19 situation remains a challenge and we continue to monitor the situation and are focused on continuing to serve our customers, keep our employees safe and delivering on our financial commitments.

With regard to the U.S. compression fabrication business, we expect to exit the business in the fourth quarter and are in the process of liquidating inventory, assets and the facility. It is possible that a strategic buyer will purchase a significant portion of the business assets. I want to thank all of the employees for their patience, hard work and dedication throughout this process.

Net loss from continuing operations was $31.8 million, or $0.97 per share, on revenue of $171.6 million for the second quarter of 2020. This compares to net loss from continuing operations of $18.2 million, or $0.56 per share, on revenue of $210.4 million for the first quarter of 2020 and net loss from continuing operations of $14.8 million, or $0.42 per share, on revenue of $390.9 million for the second quarter of 2019. Net loss was $31.9 million for the second quarter of 2020, as compared to net loss of $18.3 million for the first quarter of 2020 and net loss of $7.3 million for the second quarter of 2019. EBITDA, as adjusted, was $24.2 million for the second quarter of 2020, as compared to $33.8 million for the first quarter of 2020 and $53.2 million for the second quarter of 2019. Loss before taxes was $27.9 million as compared to loss before taxes of $8.8 million for the first quarter of 2020 and loss before taxes of $4.2 million for the second quarter of 2019.

Selling, general and administrative expenses were $34.4 million in the second quarter of 2020, as compared with $38.1 million in the first quarter of 2020 and $45.6 million in the second quarter of 2019. The year over year reduction was driven primarily by aggressive cost reductions and improved efficiencies. The Company also recorded additional restructuring charges of $7.7 million.

Contract Operations SegmentContract operations revenue in the second quarter of 2020 was $77.9 million, an 18% decrease from first quarter of 2020 revenue of $94.8 million and a 13% decrease from second quarter of 2019 revenue of $89.7 million.

Contract operations gross margin in the second quarter of 2020 was $54.2 million, a 14% decrease from the first quarter of 2020 gross margin of $63.3 million and a 9% decrease from the second quarter of 2019 gross margin of $59.3 million. Gross margin percentage in the second quarter of 2020 was 70%, as compared with 67% in the first quarter of 2020 and 66% in the second quarter of 2019.

Revenue declined sequentially primarily due to the impacts of the previously discussed asset sales of contracted equipment during the first quarter, unfavorable FX and COVID-19. Gross margin percentage increased due to continued focus on driving efficiencies through our operations.

Aftermarket Services SegmentAftermarket services revenue in the second quarter of 2020 was $25.0 million, a 10% decrease from first quarter of 2020 revenue of $27.9 million and a 17% decrease from second quarter of 2019 revenue of $30.1 million.

Aftermarket services gross margin in the second quarter of 2020 was $6.0 million, an 11% decrease from the first quarter of 2020 gross margin of $6.7 million and a 34% decrease from the second quarter of 2019 gross margin of $9.1 million. Gross margin percentage in the second quarter of 2020 was 24%, as compared with 24% in the first quarter of 2020 and 30% in the second quarter of 2019.

The revenue decline was driven largely by COVID-19 impacts, limiting the companys ability to move people and equipment around countries and to sites and reduced customer maintenance activities.

Product Sales SegmentProduct sales revenue in the second quarter of 2020 was $68.7 million, a 22% decrease from first quarter of 2020 revenue of $87.7 million, and a 75% decrease from second quarter of 2019 revenue of $271.1 million.

Product sales gross margin in the second quarter of 2020 was $(2.1) million, a decrease from the first quarter of 2020 gross margin of $3.2 million and a decrease as compared to the second quarter of 2019 gross margin of $30.5 million. Gross margin percentage in the second quarter of 2020 was (3)%, as compared with 4% in the first quarter of 2020 and 11% in the second quarter of 2019.

Revenue declined sequentially driven by the expected low conversion of revenue from backlog during the quarter and by COVID-19 impacts at some facilities. Margin declined due to fixed cost under absorption at our manufacturing facilities, mix and customer negotiations resulting in scope changes and associated costs.

Product sales backlog was $576.3 million at June30, 2020, as compared to $648.3 million at March31, 2019 and $361.7 million at June30, 2019. Product sales bookings for the second quarter of 2020 were $(3.3) million, resulting in a book-to-bill ratio of (5)%. This compares to bookings of $458.0 million for the first quarter of 2020 and bookings of $79.3 million for the second quarter of 2019. New orders for the second quarter were $5.6 million, but were offset by a canceled U.S. compression order and negative change orders.

Conference Call InformationThe Company will host a conference call at 10:00 a.m. Central Time on Monday, August10, 2020.The call can be accessed from the Companys 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 August 17, 2020 and may be accessed by calling 877-660-6853 and using the pass code 13707192. A presentation will also be posted on the Companys website prior to the conference call.

About Exterran CorporationExterran 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 Corporationis headquartered inHouston, Texasand operates in approximately 25 countries.

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

Non-GAAP and Other Financial InformationGross 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, gain on extinguishment of debt and other items.

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), gain on extinguishment of debt, the effect of income tax adjustments that are outside of the Companys 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 Companys 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 StatementsAll 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: Exterrans financial and operational strategies and ability to successfully effect those strategies; Exterrans expectations regarding future economic and market conditions; the expected impact of COVID-19 and oil price declines on Exterrans business; Exterrans financial and operational outlook and ability to fulfill that outlook; demand for Exterrans 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 Exterrans 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: conditions in the oil and natural 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, which could depress or reduce the demand or pricing for Exterrans natural gas compression and oil and natural gas production and processing equipment and services; reduced profit margins or the loss of market share resulting from competition or the introduction of competing technologies by other companies; economic or political conditions in the countries in which Exterran does business, including civil developments such as uprisings, riots, terrorism, kidnappings, violence associated with drug cartels, legislative changes and the expropriation, confiscation or nationalization of property without fair compensation; risks associated with natural disasters, pandemics and other public health crisis, and other catastrophic events outside of Exterrans control, including the continued spread and impact of, and the response to, the COVID-19 pandemic; changes in currency exchange rates, including the risk of currency devaluations by foreign governments, and restrictions on currency repatriation; risks associated with cyber-based attacks or network security breaches; changes in international trade relationships, including the imposition of trade restrictions or tariffs relating to any materials or products (such as aluminum and steel) used in the operation of Exterrans business; risks associated with Exterrans operations, such as equipment defects, equipment malfunctions, environmental discharges and natural disasters; the risk that counterparties will not perform their obligations under their contracts with Exterran or other changes that could impact Exterrans ability to recover its fixed asset investment; the financial condition of Exterrans customers; Exterrans ability to timely and cost-effectively obtain components necessary to conduct its business; employment and workforce factors, including Exterrans ability to hire, train and retain key employees; Exterrans ability to implement its business and financial objectives, including: (i) winning profitable new business, (ii) timely and cost-effective execution of projects, (iii) enhancing or maintaining Exterrans asset utilization, particularly with respect to its fleet of compressors and other assets, (iv) integrating acquired businesses, (v) generating sufficient cash to satisfy Exterrans operating needs, existing capital commitments and other contractual cash obligations, including Exterrans debt obligations, and (vi) accessing the financial markets at an acceptable cost; Exterrans ability to accurately estimate its costs and time required under its fixed price contracts; liability related to the use of Exterrans products and services; changes in governmental safety, health, environmental or other regulations, which could require Exterran to make significant expenditures; and Exterrans level of indebtedness and ability to fund its business.

These forward-looking statements are also affected by the risk factors, forward-looking statements and challenges and uncertainties described in Exterrans Annual Report on Form 10-K for the year ended December 31, 2019, and other filings with the Securities and Exchange Commission available on the Securities and Exchange Commissions 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 CORPORATIONUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts) Three Months Ended June30, March 31, June 30, 2020 2020 2019Revenues: Contract operations $ 77,945 $ 94,788 $ 89,684 Aftermarket services 24,993 27,909 30,113 Product sales 68,687 87,660 271,077 171,625 210,357 390,874 Costs and expenses: Cost of sales (excluding depreciation and amortization expense):Contract operations 23,746 31,460 30,336 Aftermarket services 19,020 21,181 21,017 Product sales 70,824 84,439 240,606 Selling, general and administrative 34,407 38,052 45,636 Depreciation and amortization 32,958 32,610 36,319 Impairments 6,512 ? 5,919 Restatement recoveries ? ? (28 )Restructuring and other charges 7,677 1,188 5,788 Interest expense 9,638 9,953 9,928 Gain on extinguishment of debt (2,644 ) ? ? Other (income) expense, net (2,641 ) 294 (477 ) 199,497 219,177 395,044 Loss before income taxes (27,872 ) (8,820 ) (4,170 )Provision for income taxes 3,895 9,330 10,592 Loss from continuing operations (31,767 ) (18,150 ) (14,762 )Income (loss) from discontinued (122 ) (154 ) 7,457 operations, net of taxNet loss $ (31,889 ) $ (18,304 ) $ (7,305 ) Basic net loss per common share: Loss from continuing operations per $ (0.97 ) $ (0.56 ) $ (0.42 )common shareIncome from discontinued operations per ? ? 0.21 common shareNet loss per common share $ (0.97 ) $ (0.56 ) $ (0.21 ) Diluted net loss per common share: Loss from continuing operations per $ (0.97 ) $ (0.56 ) $ (0.42 )common shareIncome from discontinued operations per ? ? 0.21 common shareNet loss per common share $ (0.97 ) $ (0.56 ) $ (0.21 ) Weighted average common sharesoutstanding used in net loss per common share:Basic 32,803 32,653 35,149 Diluted 32,803 32,653 35,149

EXTERRAN CORPORATIONUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands) June30, 2020 December 31, 2019ASSETS Current assets: Cash and cash equivalents $ 27,051 $ 16,683 Restricted cash ? 19 Accounts receivable, net 213,857 202,337 Inventory 130,152 143,538 Contract assets 39,763 46,537 Other current assets 21,519 22,477 Current assets associated with discontinued 4,401 4,332 operationsTotal current assets 436,743 435,923 Property, plant and equipment, net 803,571 844,410 Operating lease right of use assets 27,145 26,783 Deferred income taxes 10,313 13,994 Intangible and other assets, net 75,139 93,300 Long-term assets held for sale 442 624 Long-term assets associated with discontinued 1,750 2,970 operationsTotal assets $ 1,355,103 $ 1,418,004 LIABILITIES AND STOCKHOLDERS? EQUITY Current liabilities: Accounts payable, trade $ 91,699 $ 123,444 Accrued liabilities 99,617 104,081 Contract liabilities 100,069 82,854 Current operating lease liabilities 6,223 6,268 Current liabilities associated with discontinued 7,725 9,998 operationsTotal current liabilities 305,333 326,645 Long-term debt 483,843 443,587 Deferred income taxes 1,056 993 Long-term contract liabilities 136,571 156,262 Long-term operating lease liabilities 32,116 30,958 Other long-term liabilities 50,083 49,263 Long-term liabilities associated with 981 758 discontinued operationsTotal liabilities 1,009,983 1,008,466 Total stockholders? equity 345,120 409,538 Total liabilities and stockholders? equity $ 1,355,103 $ 1,418,004

EXTERRAN CORPORATIONUNAUDITED SUPPLEMENTAL INFORMATION(In thousands, except percentages) Three Months Ended June30, 2020 March 31, 2020 June 30, 2019Revenues: Contract operations $ 77,945 $ 94,788 $ 89,684 Aftermarket services 24,993 27,909 30,113 Product sales 68,687 87,660 271,077 $ 171,625 $ 210,357 $ 390,874 Gross margin: Contract operations $ 54,199 $ 63,328 $ 59,348 Aftermarket services 5,973 6,728 9,096 Product sales (2,137 ) 3,221 30,471 Total $ 58,035 $ 73,277 $ 98,915 Gross margin percentage: Contract operations 70 % 67 % 66 %Aftermarket services 24 % 24 % 30 %Product sales (3 )% 4 % 11 %Total 34 % 35 % 25 % Selling, general and $ 34,407 $ 38,052 $ 45,636 administrative% of revenue 20 % 18 % 12 % EBITDA, as adjusted $ 24,192 $ 33,810 $ 53,165 % of revenue 14 % 16 % 14 % Capital expenditures $ 24,226 $ 17,025 $ 49,762 Revenue by Geographical Regions:North America $ 49,922 $ 58,539 $ 202,751 Latin America 58,352 76,797 76,161 Middle East and Africa 52,373 55,713 100,469 Asia Pacific 10,978 19,308 11,493 Total revenues $ 171,625 $ 210,357 $ 390,874 As of June30, 2020 March 31, 2020 June 30, 2019Contract Operations Backlog:Contract operations $ 1,253,962 $ 1,352,627 $ 1,318,985 services Product Sales Backlog: Compression equipment $ 87,510 $ 142,679 $ 241,237 Processing and treating 453,729 465,535 94,758 equipmentOther product sales 35,031 40,066 25,679 Total product sales $ 576,270 $ 648,280 $ 361,674 backlog

EXTERRAN CORPORATIONUNAUDITED NON-GAAP FINANCIAL MEASURES(In thousands, except per share amounts) Three Months Ended June30, March 31, June 30, 2020 2020 2019Non-GAAP FinancialInformation?Reconciliation of Loss before income taxes to Total grossmargin:Loss before income taxes $ (27,872 ) $ (8,820 ) $ (4,170 )Selling, general and administrative 34,407 38,052 45,636 Depreciation and amortization 32,958 32,610 36,319 Impairments 6,512 ? 5,919 Restatement recoveries ? ? (28 )Restructuring and other charges 7,677 1,188 5,788 Interest expense 9,638 9,953 9,928 Gain on extinguishment of debt (2,644 ) ? ? Other (income) expense, net (2,641 ) 294 (477 )Total gross margin ^(1) $ 58,035 $ 73,277 $ 98,915 Non-GAAP FinancialInformation?Reconciliation of Net loss to EBITDA, as adjusted:Net loss $ (31,889 ) $ (18,304 ) $ (7,305 )(Income) loss from discontinued 122 154 (7,457 )operations, netoftaxDepreciation and amortization 32,958 32,610 36,319 Impairments 6,512 ? 5,919 Restatement recoveries ? ? (28 )Restructuring and other charges 7,677 1,188 5,788 Interest expense 9,638 9,953 9,928 Gain on extinguishment of debt (2,644 ) ? ? Gain on currency exchange rate (2,077 ) (1,121 ) (591 )remeasurement of intercompany balancesProvision for income taxes 3,895 9,330 10,592 EBITDA, as adjusted^ (2) $ 24,192 $ 33,810 $ 53,165 Non-GAAP FinancialInformation?Reconciliation of Net loss to Adjusted net loss from continuingoperations:Net loss $ (31,889 ) $ (18,304 ) $ (7,305 )(Income) loss from discontinued 122 154 (7,457 )operations, net of taxLoss from continuing operations (31,767 ) (18,150 ) (14,762 )Adjustment for items: Impairments 6,512 ? 5,919 Restatement recoveries ? ? (28 )Restructuring and other charges 7,677 1,188 5,788 Gain on extinguishment of debt (2,644 ) ? ? Tax impact of adjustments ^(3) ? ? (517 )Adjusted net loss from continuing $ (20,222 ) $ (16,962 ) $ (3,600 )operations ^(4) Diluted loss from continuing operations $ (0.97 ) $ (0.56 ) $ (0.42 )per common shareAdjustment for items, after-tax, per 0.35 0.04 0.32 diluted common shareDiluted adjusted net loss fromcontinuing operations per common share ^ $ (0.62 ) $ (0.52 ) $ (0.10 )(4) (5)

^(1) Management evaluates the performance of each of the Company?s segmentsbased on gross margin. Total gross margin, a non-GAAP measure, is includedas a supplemental disclosure because it is a primary measure used by ourmanagement to evaluate the results of revenue and cost of sales (excludingdepreciation and amortization expense), which are key components of ouroperations. Management believes total gross margin is important supplementalinformation for investors because it focuses on the current performance ofour operations and excludes the impact of the prior historical costs of theassets acquired or constructed that are utilized in those operations, theindirect costs associated with our SG&A activities, the impact of ourfinancing methods, restatement related charges (recoveries), restructuringand other charges, gain on extinguishment of debt and income taxes. Inaddition, the inclusion of depreciation and amortization expense may notaccurately reflect the costs required to maintain and replenish theoperational usage of our assets and therefore may not portray the costs fromcurrent operating activity.

^(2) Management believes EBITDA, as adjusted, is an important measure ofoperating performance because it allows management, investors and others toevaluate and compare our core operating results from period to period byremoving the impact of our capital structure (interest expense fromoutstanding debt), asset base (depreciation and amortization), oursubsidiaries? capital structure (non-cash gains or losses from foreigncurrency exchange rate changes on intercompany obligations), taxconsequences, impairment charges, restatement related charges (recoveries),restructuring and other charges, expensed acquisition costs, gain onextinguishment of debt 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 periodcomparisons. In addition, the Company's compensation committee has usedEBITDA, as adjusted, in evaluating the performance of the Company andmanagement 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 statutorytax rates applicable to each item in the appropriate taxing jurisdictions.Using statutory tax rates for presentation of the non-GAAP measures allows aconsistent basis for investors to understand financial performance of theCompany across historical periods. The overall effective tax rate onadjustments was impacted by the inability to recognize tax benefits fromcharges in jurisdictions that are in cumulative-loss positions. ^(4) Management believes adjusted net income (loss) from continuingoperations and diluted adjusted net income (loss) from continuing operationsper common share provides useful information to investors because it allowsmanagement, investors and others to evaluate and compare our core operatingresults from period to period by removing the impact of impairment charges,restructuring and other charges, restatement related charges (recoveries),expensed acquisition costs, gain on extinguishment of debt and other itemsnot appropriately reflective of our core business. ^(5) Diluted adjusted net income (loss) from continuing operations percommon share, was computed using the two-class method to determine the netincome (loss) per share for each class of common stock and participatingsecurity (certain of our restricted stock and restricted stock units)according to participation rights in undistributed earnings.