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Exterran Corporation Announces Second Quarter 2018 Results

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HOUSTON, Aug. 06, 2018 (GLOBE NEWSWIRE) -- Exterran Corporation (NYSE:EXTN) ("Exterran" or the "Company") today reported second quarter financial results.

Andrew Way, Exterran's President and Chief Executive Officer commented, "We are extremely pleased with the strong results announced for the second quarter. We delivered these results while continuing to focus on our long-term value creation strategy.

"Record product bookings of $440 million provides the basis for continued strong results. In addition, the booking of contract operations awards for a key customer in Latin America and the previously announced award for a contract in the MEA region are significant steps in converting the project pipeline we have discussed in prior quarters. We booked more than $250 million in Contract Operations projects in the first half of the year. Finally, we are seeing continued traction on AMS with key parts and service contract wins globally."

Net loss from continuing operations was $1.5 million, or $0.04 per share, on revenue of $343.5 million for the second quarter of 2018. This compares to net income from continuing operations of $3.9 million, or $0.11 per share, on revenue of $350.4 million for the first quarter of 2018 and net income from continuing operations of $3.2 million, or $0.09 per share, on revenue of $317.7 million for the second quarter of 2017. EBITDA, as adjusted, was $51.2 million for the second quarter of 2018, as compared to $50.7 million for the first quarter of 2018 and $43.3 million for the second quarter of 2017. Income before taxes was $8.2 million as compared to $9.4 million for the first quarter of 2018 and $2.5 million a year ago. The loss from continuing operations was driven by the higher provision for income taxes resulting from the geographic mix of profits and the impact from foreign currency exchange rate changes on taxable income in Latin America.

Selling, general and administrative expenses were $44.4 million in the second quarter of 2018, as compared with $44.2 million in the first quarter of 2018 and $44.6 million in the second quarter of 2017.

Contract Operations Segment
Contract operations revenue in the second quarter of 2018 was $91.5 million, a 5% decrease from first quarter of 2018 revenue of $96.5 million and a 4% decrease from second quarter of 2017 revenue of $95.3 million.

Contract operations gross margin in the second quarter of 2018 was $59.1 million, as compared to gross margin of $61.1 million in the first quarter of 2018 and $60.7 million in the second quarter of 2017. Gross margin percentage in the second quarter of 2018 was 65%, as compared with 63% in the first quarter of 2018 and 64% in the second quarter of 2017.

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

The announced Latin America contract is an 8-year contract to build, own and operate a compression station for a major operator and is valued at more than $150 million. This award strengthens the company's presence in Latin America and is a testament to the capability of the company in deploying fast track projects with a combination of local and global expertise. The project will go through the design and construction phase and is expected to be operational in the latter part of 2019. The capital investment required for this project is included in the Company's previously provided capital expenditure guidance.

Aftermarket Services Segment
Aftermarket services revenue in the second quarter of 2018 was $32.3 million, a 22% increase from first quarter of 2018 revenue of $26.4 million and a 33% increase from second quarter of 2017 revenue of $24.2 million.

Aftermarket services gross margin in the second quarter of 2018 was $8.6 million, a 15% increase from the first quarter of 2018 gross margin of $7.5 million and a 23% increase from the second quarter of 2017 gross margin of $7.0 million. Gross margin percentage in the second quarter of 2018 was 27%, as compared with 28% in the first quarter of 2018 and 29% in the second quarter of 2017.

The sequential increase in aftermarket service revenue and gross margin were driven primarily by an increase in part sales and commissioning services in the Latin America region and an increase in part sales in the Middle East and Africa region. The reduction in the gross margin percentage was driven by mix.

Product Sales Segment
Product sales revenue in the second quarter of 2018 was $219.7 million, a 3% decrease from first quarter of 2018 revenue of $227.5 million, and an 11% increase from second quarter of 2017 revenue of $198.1 million.

Product sales gross margin in the second quarter of 2018 was $28.0 million, a 3% increase from first quarter of 2018 gross margin of $27.2 million and a 39% increase as compared to the second quarter of 2017 gross margin of $20.1 million. Gross margin percentage in the second quarter of 2018 was 13%, as compared with 12% in the first quarter of 2018 and 10% in the second quarter of 2017.

The sequential decrease in revenue was primarily due to the timing of orders received during the quarter which shifted revenue to the third quarter. The gross margin improvement primarily results from a continued strong focus on productivity.

Product sales backlog was $634.9 million at June 30, 2018, as compared to $426.9 million at March 31, 2018 and $506.5 million at June 30, 2017. Product sales bookings for the second quarter of 2018 were $439.7 million, resulting in a book-to-bill ratio of 200%. This compares to bookings of $193.4 million for the first quarter of 2018 and bookings of $280.1 million for the second quarter of 2017.

As previously announced, the Company had entered into an agreement for the sale of its North America production equipment manufacturing assets, including equipment and facilities, and associated inventory. The sale was completed at the end of June. This resulted in a reduction of backlog of $12 million.

Conference Call Information
The Company will host a conference call at 9:00 a.m. Central Time on Tuesday, August 7, 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 Tuesday, August 14, 2018 and may be accessed by calling 877-660-6853 and using the pass code 13682114.

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
    June 30, 2018   March 31, 2018   June 30, 2017
Revenues:            
Contract operations   $ 91,487     $ 96,493     $ 95,341  
Aftermarket services   32,267     26,371     24,244  
Product sales   219,717     227,519     198,116  
    343,471     350,383     317,701  
Costs and expenses:            
Cost of sales (excluding depreciation and amortization expense):            
Contract operations   32,372     35,385     34,691  
Aftermarket services   23,706     18,897     17,278  
Product sales   191,762     200,336     178,025  
Selling, general and administrative   44,382     44,242     44,564  
Depreciation and amortization   30,184     31,029     26,348  
Long-lived asset impairment       1,804      
Restatement related charges (recoveries), net   (597 )   621     (1,158 )
Restructuring and other charges   1,422         310  
Interest expense   6,883     7,219     12,382  
Other (income) expense, net   5,204     1,420     2,731  
    335,318     340,953     315,171  
Income before income taxes   8,153     9,430     2,530  
Provision for (benefit from) income taxes   9,622     5,492     (640 )
Income (loss) from continuing operations   (1,469 )   3,938     3,170  
Income from discontinued operations, net of tax   1,544     1,399     374  
Net income   $ 75     $ 5,337     $ 3,544  
             
Basic net income per common share:            
Income (loss) from continuing operations per common share   $ (0.04 )   $ 0.11     $ 0.09  
Income from discontinued operations per common share   0.04     0.04     0.01  
Net income per common share   $     $ 0.15     $ 0.10  
             
Diluted net income per common share:            
Income (loss) from continuing operations per common share   $ (0.04 )   $ 0.11     $ 0.09  
Income from discontinued operations per common share   0.04     0.04     0.01  
Net income per common share   $     $ 0.15     $ 0.10  
             
Weighted average common shares outstanding used in net income per common share:            
Basic   35,455     35,301     35,018  
Diluted   35,455     35,373     35,094  


EXTERRAN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
       
  June 30, 2018   December 31, 2017
ASSETS      
       
Current assets:      
Cash and cash equivalents $ 18,192     $ 49,145  
Restricted cash 546     546  
Accounts receivable, net 261,914     266,052  
Inventory, net 161,208     107,909  
Costs and estimated earnings in excess of billings on uncompleted contracts     40,695  
Contract assets 72,374      
Other current assets 30,104     38,707  
Current assets held for sale     15,761  
Current assets associated with discontinued operations 15,029     23,751  
Total current assets 559,367     542,566  
Property, plant and equipment, net 838,055     822,279  
Deferred income taxes 12,477     10,550  
Intangible and other assets, net 100,958     76,980  
Long-term assets held for sale     4,732  
Long-term assets associated with discontinued operations 2,577     3,700  
Total assets $ 1,513,434     $ 1,460,807  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
       
Current liabilities:      
Accounts payable, trade $ 190,613     $ 148,744  
Accrued liabilities 112,512     114,336  
Deferred revenue     23,902  
Billings on uncompleted contracts in excess of costs and estimated earnings     89,565  
Contract liabilities 105,298      
Current liabilities associated with discontinued operations 20,705     31,971  
Total current liabilities 429,128     408,518  
Long-term debt 401,119     368,472  
Deferred income taxes 6,206     9,746  
Long-term deferred revenue     92,485  
Long-term contract liabilities 85,062      
Other long-term liabilities 39,073     20,272  
Long-term liabilities associated with discontinued operations 5,895     6,528  
Total liabilities 966,483     906,021  
Total stockholders' equity 546,951     554,786  
Total liabilities and stockholders' equity $ 1,513,434     $ 1,460,807  


EXTERRAN CORPORATION
UNAUDITED SUPPLEMENTAL INFORMATION
(In thousands, except percentages)
             
    Three Months Ended
    June 30, 2018   March 31, 2018   June 30, 2017
Revenues:            
Contract operations   $ 91,487     $ 96,493     $ 95,341  
Aftermarket services   32,267     26,371     24,244  
Product sales   219,717     227,519     198,116  
    $ 343,471     $ 350,383     $ 317,701  
             
Gross margin:            
Contract operations   $ 59,115     $ 61,108     $ 60,650  
Aftermarket services   8,561     7,474     6,966  
Product sales   27,955     27,183     20,091  
Total   $ 95,631     $ 95,765     $ 87,707  
             
Gross margin percentage:            
Contract operations   65 %   63 %   64 %
Aftermarket services   27 %   28 %   29 %
Product sales   13 %   12 %   10 %
Total   28 %   27 %   28 %
             
Selling, general and administrative   $ 44,382     $ 44,242     $ 44,564  
% of revenue   13 %   13 %   14 %
             
EBITDA, as adjusted   $ 51,210     $ 50,733     $ 43,324  
% of revenue   15 %   14 %   14 %
             
Capital expenditures   $ 45,015     $ 49,219     $ 23,626  
Less: Proceeds from sale of PP&E   (112 )   (2,260 )   (3,843 )
Net Capital expenditures   $ 44,903     $ 46,959     $ 19,783  
             
    June 30, 2018   March 31, 2018   June 30, 2017
Product Sales Backlog:            
Compression equipment   $ 294,498     $ 206,252     $ 248,147  
Processing and treating equipment   330,654     199,122     200,940  
Production equipment       9,481     36,782  
Other product sales   9,741     12,041     20,662  
Total product sales backlog   $ 634,893     $ 426,896     $ 506,531  


EXTERRAN CORPORATION
UNAUDITED NON-GAAP FINANCIAL MEASURES
(In thousands, except per share amounts)
             
    Three Months Ended
    June 30, 2018   March 31, 2018   June 30, 2017
Non-GAAP Financial Information—Reconciliation of Income before income taxes to Total gross margin:            
Income before income taxes   $ 8,153     $ 9,430     $ 2,530  
Selling, general and administrative   44,382     44,242     44,564  
Depreciation and amortization   30,184     31,029     26,348  
Long-lived asset impairment       1,804      
Restatement related charges (recoveries), net   (597 )   621     (1,158 )
Restructuring and other charges   1,422         310  
Interest expense   6,883     7,219     12,382  
Other (income) expense, net   5,204     1,420     2,731  
Total gross margin (1)   $ 95,631     $ 95,765     $ 87,707  
             
Non-GAAP Financial Information—Reconciliation of Net income to EBITDA, as adjusted:            
Net income   $ 75     $ 5,337     $ 3,544  
Income from discontinued operations, net of tax   (1,544 )   (1,399 )   (374 )
Depreciation and amortization   30,184     31,029     26,348  
Long-lived asset impairment       1,804      
Restatement related charges (recoveries), net   (597 )   621     (1,158 )
Restructuring and other charges   1,422         310  
Interest expense   6,883     7,219     12,382  
Loss on currency exchange rate remeasurement of intercompany balances   3,451     630     1,436  
Loss on sale of business   1,714          
Brazilian Tax Regularization Program penalties           1,476  
Provision for (benefit from) income taxes   9,622     5,492     (640 )
EBITDA, as adjusted (2)   $ 51,210     $ 50,733     $ 43,324  
             
Non-GAAP Financial Information—Reconciliation of Net income to Adjusted net income (loss) from continuing operations:            
Net income   $ 75     $ 5,337     $ 3,544  
Income from discontinued operations, net of tax   (1,544 )   (1,399 )   (374 )
Income (loss) from continuing operations   (1,469 )   3,938     3,170  
Adjustment for items:            
Long-lived asset impairment       1,804      
Restatement related charges (recoveries), net   (597 )   621     (1,158 )
Restructuring and other charges   1,422         310  
Loss on sale of business   1,714          
Brazilian Tax Regularization Program penalties           1,476  
Brazilian Tax Regularization Program interest expense           2,351  
Tax impact of adjustments (3)   (450 )       (1,240 )
Income tax benefit from Brazilian Tax Regularization Program           (10,998 )
Adjusted net income (loss) from continuing operations (4)   $ 620     $ 6,363     $ (6,089 )
             
Diluted income (loss) from continuing operations per common share   $ (0.04 )   $ 0.11     $ 0.09  
Adjustment for items, after-tax, per diluted common share   0.06     0.07     (0.26 )
Diluted adjusted net income (loss) from continuing operations per common share (4) (5)   $ 0.02     $ 0.18     $ (0.17 )
             
(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 provide 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 stock settled restricted stock units) according to participation rights in undistributed earnings.

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