Filing summary: Exterran Holdings, Inc. — Q2 2011 Form 10-Q
Entity note: The supplied filing is for Exterran Holdings, Inc., not Archrock, Inc. It covers the quarter and six months ended June 30, 2011; the financial statements are unaudited. Investors should confirm this is the intended filing.
Business context and reporting period
Exterran provides natural-gas compression, production and processing services and equipment through contract operations, aftermarket services and fabrication. Its four reportable segments are North America contract operations, international contract operations, aftermarket services and fabrication. Exterran consolidated Exterran Partners, L.P.; public unitholders owned 65% of the Partnership at June 30, 2011.
Financial and operating metrics
Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $657.6 | $643.8 | $1,276.1 | $1,220.1 |
| Gross margin, non-GAAP | $176.4 | $209.5 | $361.6 | $420.0 |
| Net income (loss) attributable to Exterran stockholders | $(28.0) | $17.5 | $(58.1) | $34.2 |
| Adjusted EBITDA, non-GAAP | $87.2 | $117.8 | $181.5 | $241.6 |
- Revenue grew about 2% in Q2 and 5% for the first half, while gross margin and adjusted EBITDA declined. Management attributed weaker results mainly to reduced operating gross margin amid challenging markets. Prior-year comparisons also benefited from $19.2 million of revenue from an early-terminated Brazil project.
- Q2 segment revenue and gross margin: North America contract operations $150.8 million and $75.2 million; international contract operations $110.9 million and $61.2 million; aftermarket services $94.1 million and $7.6 million; fabrication $301.7 million and $32.4 million. The filing reports segment gross margin as a non-GAAP measure.
- Q2 segment trends included lower international contract operations revenue and margin, partly reflecting the prior-year Brazil item and higher Argentina and Brazil costs; aftermarket revenue increased but margin fell; fabrication revenue and gross margin increased, with North American growth partly offset by lower Eastern Hemisphere revenue.
- Cash from continuing operating activities was negative $5.5 million for the first half, versus positive $195.7 million in 2010. Capital expenditures were $107.5 million. Cash and equivalents were $35.1 million at June 30, down from $44.6 million at year-end. Working capital was $486.5 million, up from $402.4 million, primarily due to fabrication project costs incurred ahead of customer billings.
- Total debt was $1.704 billion, down from $1.897 billion at December 31, 2010. Total assets were $4.667 billion and total equity was $1.978 billion. The company reported $205.3 million of borrowing availability under its then-existing revolving facility, after considering covenant limits.
- At June 30, the company reported compliance with its existing financial covenants. Ratios calculated under the terms of the new facility were 3.6x EBITDA to interest, 4.2x total debt to EBITDA and 1.4x senior secured debt to EBITDA; the filing says it would have been compliant with that facility’s covenants on that date.
Material changes, outlook and management commentary
- In June, Exterran transferred customer agreements, compressor units and a processing plant to the Partnership for approximately $223 million of consideration, including $159.4 million of assumed debt, $62.2 million cash and general partner units. It also sold Partnership units in March and May; first-half net proceeds from Partnership unit sales were $289.9 million.
- In July 2011, Exterran replaced its former senior secured credit facility with a five-year, $1.1 billion revolving facility maturing in July 2016. Management expected a higher borrowing rate: based on June 30 balances, the new facility’s rate would have been about 1.1 percentage points higher. The company also expected to expense about $1.6 million of old financing costs in Q3.
- Management expected 2011 net capital expenditures of approximately $225–$275 million, including $85–$95 million for contract-operations maintenance. It expected operating cash flow and credit availability to fund operations, capital spending and scheduled debt service through December 31, 2011, subject to market conditions and possible additional financing needs.
- Management anticipated continued North American drilling, fabrication activity and demand for equipment, but cautioned that lower commodity prices could weaken demand and that idle industry compression capacity and modest horsepower growth could constrain North American utilization and pricing. It had not yet seen significant increases in international fabrication bookings or revenue.
- North American contract-operations horsepower utilization was 77% versus 65% a year earlier; international utilization was 82% versus 84%, and total utilization was 78% versus 70%. Fabrication backlog was $708.8 million, down from $749.7 million a year earlier.
- Venezuelan authorities took control of substantially all Exterran assets and operations there in 2009. Exterran received $50 million under expropriation insurance in 2010 and is pursuing international arbitration; the hearing on jurisdiction and merits was scheduled for July 2012. Any further compensation remained uncertain and was not recognized as a gain.
- Risk disclosures include energy-market demand and pricing, customer contract renewal, international political and currency exposure, debt and covenant compliance, counterparties, operating hazards and regulatory costs. New federal and Texas air-emissions requirements could require equipment and compliance spending; the company could not yet reliably estimate all costs. Ordinary-course legal matters were pending, with no specific material outcome stated.
- The filing reports no material off-balance-sheet arrangements. Exterran had not paid common-stock dividends and did not anticipate doing so in the foreseeable future. Its disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer: the supplied filing names Exterran Holdings, Inc., despite the request metadata naming Archrock, Inc.
- Review the full MD&A and notes for the drivers of margin deterioration, working-capital use and the decline in operating cash flow.
- Assess leverage, covenant headroom, refinancing costs and the effect of the July 2011 credit facility’s higher interest margins.
- Track 2011 capital spending against the $225–$275 million estimate and monitor utilization, fabrication backlog and segment margins.
- Follow the Venezuela arbitration and potential compensation, while recognizing that recovery timing and amount are uncertain.
- Evaluate the potential compliance costs and operational effects of emissions regulations, as well as any later updates to legal proceedings and risk disclosures.