Business context and reporting period
The supplied filing is Exterran Holdings, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2015, not a filing under the name Archrock, Inc. Exterran provided natural-gas compression and related services, aftermarket support, and fabricated energy equipment. It consolidated Exterran Partners, L.P., in which public unitholders held 63% at quarter-end.
Financial performance and position
Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $729.1 | $643.0; up 13% |
| Gross margin | $269.0; 36.9% of revenue | $233.5; 36.3% |
| Income from continuing operations | $22.4 | $16.2 |
| Net income attributable to Exterran stockholders | $32.1; $0.46 diluted per share | $32.6; $0.47 diluted per share |
| Adjusted EBITDA | $182.0 | $144.8 |
| Cash provided by operating activities | $134.6 | $53.9 |
| Capital expenditures | $139.8 | $99.2 |
| Cash and cash equivalents | $52.0 at March 31 | $39.7 at December 31, 2014 |
| Total debt | $2,047.6 at March 31 | $2,026.9 at December 31, 2014 |
Revenue growth was led by North America contract operations and fabrication. North America contract operations revenue increased 29%, with gross margin up 40%; international contract operations revenue rose 9%. Fabrication revenue increased 11%, but its gross margin fell 10% and margin percentage declined from 20% to 16%. Aftermarket services revenue was down 1%, while gross margin rose 3%, helped by a $2.2 million customer settlement benefit.
Working capital was approximately $684.2 million at March 31, 2015, based on reported current assets less current liabilities. The filing’s MD&A contains an apparent date inconsistency in its working-capital comparison. The company reported $454.7 million of undrawn and available capacity under its own revolving credit facility; the Partnership had $398.0 million undrawn, of which $354.7 million was available under its leverage limitation. Exterran and the Partnership were in compliance with their financial covenants at quarter-end.
Material changes and unusual items
- Net income attributable to Exterran stockholders edged down despite higher total net income, primarily because a larger share of Partnership earnings was attributable to noncontrolling public unitholders.
- Other expense included a $7.5 million foreign-currency remeasurement loss; reported foreign-currency losses were $10.0 million, compared with $0.6 million in Q1 2014.
- Long-lived asset impairment was $12.7 million, versus $3.8 million a year earlier. The 2015 charge included $11.3 million for approximately 80 idle compressor units totaling 30,000 horsepower.
- Restructuring charges of $4.8 million mainly related to the proposed spin-off. The prior-year quarter also included $4.8 million of charges, primarily for make-ready shop centralization.
- The company received $18.7 million in Q1 2015 under the Venezuelan asset-sale arrangement; this installment income is reported in discontinued operations. Approximately $99 million of principal remained due from PDVSA Gas, payable through Q3 2016, but was not recorded as a receivable.
- The company recorded a $3.7 million benefit in Q1 from its Texas compressor property-tax position. Cumulative benefits were $30.6 million, of which $24.4 million was disputed in litigation; an adverse outcome could require repayment, penalties and interest, and increase future costs.
Outlook, management commentary and risks
- Management expected 2015 net operating cash flow and credit availability to cover operating costs, capital spending, scheduled debt service and anticipated dividends through year-end, subject to market conditions.
- Planned 2015 net capital expenditures were approximately $400–$450 million, including $250–$300 million for contract-operations growth and $100–$110 million for maintenance.
- Management expected weaker North American activity amid lower oil and gas prices. North America fabrication bookings fell approximately 82% from Q4 2014; total fabrication backlog was $730.4 million, down from $953.2 million at December 31, 2014 but above $669.1 million a year earlier. Management anticipated less North American fabrication booking activity in 2015 if customer investment remained low.
- The proposed spin-off of international contract operations, international aftermarket services and global fabrication was targeted for the second half of 2015, but remained subject to market conditions, tax and regulatory matters, agreements and board approval. Timing and completion were not assured; total separation costs could not yet be estimated.
- On April 17, 2015, after quarter-end, Exterran transferred contracts and compressor assets to the Partnership for approximately $102.3 million of Partnership units.
- Risks highlighted include lower commodity prices and customer spending, fabrication project delays and cost overruns, foreign-exchange volatility and Argentina’s restrictions on cash repatriation, Venezuela collections, leverage and covenant capacity, and litigation/property-tax exposure. A 1 percentage-point increase in effective rates on debt subject to floating rates would increase annual interest expense by approximately $5.1 million.
Important facts for investors to verify
- Confirm issuer identity and corporate history: this source is an Exterran Holdings 10-Q, notwithstanding the request metadata naming Archrock.
- Review spin-off terms, timing, expected separation costs, debt allocation and the resulting standalone financial profiles.
- Track fabrication backlog, bookings, margins and project execution, particularly following the sharp sequential decline in North American bookings.
- Assess the collectability and timing of remaining Venezuelan payments and the outcome of Texas property-tax litigation.
- Check liquidity and covenant headroom against the planned capital-spending program, Partnership distributions and changing operating conditions.