Exterran Corporation

Greetings and welcome to the Exteron fourth quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Blake Hancock, Vice President and Best Relations for Exteron. Thank you. You may begin.

Good morning, and welcome to Exterin Corporation's fourth quarter 2020 conference call. With me today are Exterin's President and Chief Executive Officer, Andrew Way, and David Barta, Exterin's Chief Financial Officer. During this conference call, we may make statements regarding future expectations about the company's business, management's plans for future operations, or similar matters. These statements are considered forward-looking statements within the meaning of the U.S. securities laws and speaks only as the date of this call. The company's actual results could differ materially due to several important factors, including the risk factors and other trends and uncertainties described in the company's filings with the Securities and Exchange Commission. Management may refer to non-GAAP financial measures during this call. In accordance with Regulation G, the company provides a reconciliation of these measures in its earnings press release issued earlier today and a presentation located in the investor relations portion of the company's website. With that, I'll now turn the call over to Andrew.

Thanks, Blake, and good morning, everyone. I hope you and your families are keeping well during these difficult times. I'm sure you will all agree that the fourth quarter and 2020 as a whole has been challenging for many reasons, primarily related to the COVID pandemic, which has greatly affected the global economy and changed our lives in many ways. At Exterin, our primary focus throughout 2020 was employee safety, particular attention to cost actions, and executing our strong backlog, all while navigating the challenging oil and gas macro environment. During the fourth quarter, Exterin executed well against its performance metrics with our expectations and guidance in the high 30 million EBITDA range. As adjusted, EBITDA came in at 39 million. This was driven by a modest improvement in contract operations revenue, along with improved margins in our product sales business, underscored by strong cost management, both at the operating expense and SG&A levels. As we look forward, the rollout of the COVID vaccination brings hope that life will one day return to a semblance of normalcy, which is becoming evident with travel and indicators like the rebound in commodity prices over the past couple of months. However, I believe the pandemic is far from over as we continue to see some logistical challenge emerge, with hotspots appearing in some regions across our operations. We remain optimistic about all the events that have unfolded during the past couple of months and the proactive steps we have taken to achieve positive results despite these challenges. Commercially, we had some very significant wins. beginning with the large Middle East product sales award we secured in the first quarter of 2020, followed by over 200 million of contract operations renewals in Latin America. We continued to manage what was in our control as our SG&A came down by another 13% year over year as we focused on margin improvements and returns. I'm excited to report today that 2020 saw us continue on our strategic journey to transition away from a traditional oilfield service company to an energy industrial service company. This took a significant step forward at the end of the year with the closing of the sale of our U.S. compression fabrication business, which considerably reduces the volatility in earnings whilst also demonstrating the stability and higher margins delivered by our core business. Another important element of our transformation is our water solutions business, or EWS, which had a very productive year in 2020. The team focused on driving market penetration around knowledge of our products and services, while also looking to progress our industry-leading technology. Over the past couple of quarters, I've talked about the increasing commercial discussions we've been engaged in regarding our EWS business. And I'm extremely happy to announce that during the first quarter of 2021, the company won its first significant eco project, This exciting project is a multi-year contract in the Middle East worth over $200 million. This project represents a stake in the ground for Xterrin and further launches our transformation to an energy industrial service company. Just looking at our eco backlog at the end of the year, in addition to this award, EWS now makes up approximately 15% of the company's backlog. What is even more exciting is the fact that we see additional opportunities for the percentage to grow over the coming year, given other projects that are in the pipeline. Globally, we're seeing an increase in opportunities for pilots of our products, which supports our strategic direction to use the company's geographic scale to position the product line. The team is also working on a number of key product development initiatives that will support increased efficiencies in process and operations that will drive a step change in the carbon footprints of water treatment facilities. Additionally, we have launched an initiative to readdress the usability of produced water with an integrated process and system approach that will drive costs down dramatically to obtain desalination water from produced water. The team has filed patents over the course of 2020 related to some of these developments, and we are keen to see the opportunities unfold over the coming years. This product line is valuable to us for many reasons, including the fact that it is an environmental and sustainable solution. It has strong IP, high margins, and has applications across multiple industries over the medium to long term. As more companies and industries look to control their waste consumption, the need to reuse and recycle will be critical to environmental sustainability. This all bodes well for our technology having a long-term solution for these problems. As I look at our traditional product lines around the world, I feel better about what the next 12 months holds compared to six months ago. We continue to see resiliency in the international markets and new opportunities in eco, product sales, and our AMS segment. The US market, however, continues to face challenges, but there are some green shoots, albeit limited. While the timing of new project awards and turnaround in the U.S. market is challenging, we're also investing a significant amount of time exploring how we will participate and contribute to the energy transition. Xterran's foundation is built on processing and moving molecules and electrons, whether that be oil, gas, water, or electricity, which provides us with the needed skill set to contribute to some of the cleaner energies. However, even closer to home, we're focused on expanding our service offerings to our customers. As many of you know, many in the industry are targeting meaningful emission reductions over the coming years. Our aftermarket service teams are enhancing our service offerings to provide customers with additional sustainable offerings, including conversion kits to electric drive, low-emission valves, leak detection and repair services, along with the preventative maintenance solutions to drive lower operating costs. and improve cleaner operating efficiencies. Overall, I'm extremely pleased with the progress the company has made in its transformation and the long-term prospect for the company to participate in the energy transition. And with that, I'll turn it over to Dave.