Filing summary
Entity note: The supplied filing is for Exterran Holdings, Inc., not Archrock, Inc. Verify the registrant before attributing these results to Archrock. This unaudited Form 10-Q covers the quarter ended March 31, 2011; comparative results are for Q1 2010.
Business context and results
Exterran provides natural-gas compression and related production, processing, fabrication, and aftermarket services. It reports four segments and consolidates Exterran Partners, L.P.; public unitholders held approximately 60% of the Partnership at quarter-end.
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Revenue | $618.5 million | $576.3 million; up 7% |
| Gross margin | $185.2 million; 29.9% of revenue | $210.6 million; 36.5% |
| Net income (loss) attributable to Exterran stockholders | $(30.0) million; $(0.48) per share | $16.7 million; $0.27 per share |
| Adjusted EBITDA | $94.3 million | $123.9 million |
| Interest expense | $37.2 million | $32.9 million |
| Cash from operating activities | $26.1 million, including $0.7 million from discontinued operations | $107.1 million |
| Capital expenditures | $51.4 million | $47.9 million |
Revenue growth was led by fabrication and aftermarket services, but overall gross margin fell. Segment gross margins were: North America contract operations $70.5 million (47% of segment revenue), international contract operations $64.7 million (61%), aftermarket services $9.2 million (11%), and fabrication $40.8 million (15%).
Financial position and liquidity
- At March 31, cash and cash equivalents were $37.8 million, down from $44.6 million at December 31, 2010. Working capital was $413.3 million, versus $402.4 million.
- Total assets were $4.68 billion; total liabilities were $2.77 billion. Long-term debt was $1.74 billion, down from $1.90 billion at year-end.
- Cash from investing activities was $138.6 million, chiefly reflecting $162.2 million of net proceeds from a Partnership unit offering. Financing activities used $170.2 million, primarily for net debt repayments. Cash declined by $6.8 million overall.
- Exterran reported $553.2 million of undrawn capacity on its revolving facility, of which $402.6 million was available for additional borrowing under covenant limits. The Partnership had $250.0 million undrawn, of which $200.9 million was available under its then-applicable covenant limit.
- Exterran and the Partnership reported compliance with their financial covenants at quarter-end. Exterran’s reported ratios were 4.1x EBITDA to interest, 3.8x total debt to EBITDA, and 1.6x senior secured debt to EBITDA.
Changes, outlook, and key risks
- Compared with Q1 2010, revenue increased, but the company moved from profit to loss and adjusted EBITDA declined. Management attributed weaker results mainly to lower operating gross margin amid challenging market conditions. Operating cash flow also decreased substantially.
- Fabrication revenue rose 15%, while gross margin fell 13%, reflecting higher North American sales at lower margins and weaker Eastern Hemisphere revenue. North America contract operations margin declined amid higher field costs; aftermarket margin also compressed in a more competitive market.
- Management cited increased North American drilling, fabrication orders, and bookings and expected North American activity and demand for related equipment to improve during 2011. It cautioned that lower commodity prices, idle industry compression equipment, and limited horsepower growth could constrain utilization and pricing. International fabrication bookings and revenue had not yet shown significant recovery.
- Management planned 2011 net capital expenditures of approximately $225 million–$275 million, including $85 million–$95 million of contract-operations maintenance capital. It expected operating cash flow and credit availability to fund operations, capital spending, interest, and scheduled debt repayments through year-end 2011, subject to market conditions.
- Management expected to refinance credit facilities maturing in 2012 and 2013 and cautioned replacement financing could carry higher rates. Average effective interest rates rose to 7.8% from 5.8%; the increase included amortization of terminated swaps and a $1.4 million charge for deferred financing costs on the terminated ABS facility.
- In March, Exterran sold Partnership units for $162.2 million net and used the proceeds to repay borrowings. The public Partnership ownership rose to about 60%. Exterran also repaid the $6.0 million balance on, and terminated, its 2007 asset-backed securitization facility.
- The filing records a $15.0 million probable recovery on a fabrication loss contract; MD&A says net fabrication change-order recoveries exceeded cost overruns by $8.6 million. These items benefited reported results and merit review for their nature, timing, and cash impact.
- Venezuela had taken control of substantially all Exterran operations and assets there in 2009. The company had collected $50 million under expropriation insurance but said any further compensation was uncertain; no gain contingency was recorded. Q1 2011 discontinued operations reported a $2.1 million loss.
- Other disclosed exposures include foreign-exchange movements, interest rates, customer and commodity-market conditions, covenant and refinancing risk, operational hazards, and litigation. The company reported no material off-balance-sheet arrangements and no material change in previously disclosed risk factors.
Important facts for investors to verify
- Confirm whether this Exterran Holdings filing is the intended document for an Archrock review.
- Review the drivers and expected persistence of lower segment margins, operating cash flow, and adjusted EBITDA, and distinguish recurring performance from the loss-contract recovery.
- Check covenant headroom and available borrowing capacity, including the Partnership leverage-limit step-down after March 31, and assess upcoming refinancing needs and likely interest costs.
- Compare planned 2011 capital expenditures with realized spending, fleet utilization, contract pricing, and cash generation.
- Track the status and potential recovery of Venezuelan expropriated assets and related claims; compensation remains uncertain.