Exterran Corporation

Greetings and welcome to Xterra's first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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 this conference over to your host, Mr. Blake Hancock, Vice President of Investor Relations. Thank you, sir. You may begin.

Good morning. and welcome to Xterran Corporation's first quarter 2021 conference call. With me today are Xterran's President and Chief Executive Officer, Andrew Way, and David Bardo, Xterran'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 Law and speak only as of 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 will now turn the call over to Andrew.

Thanks, Blake, and good morning, everyone. Xterra performed well in the first quarter as we remained focused on employee safety, operational efficiency, strong execution of our global backlog, and positioning the company to capitalize on a robust bid activity pipeline. The first quarter was a strong commercial start for the company in 2021 as we won and have begun execution of our first multi-year contract operations award for Xterra and Water Solutions worth approximately 200 million. While the effects of the COVID-19 pandemic are being felt globally, the rollout of the vaccination is starting to have positive ramifications. That said, part of the eastern hemisphere are still having outbreaks of the virus that could create additional timing challenges as we work with our vendors and suppliers to advance our projects. Looking at our growing pipeline of opportunities, We remain bullish on the commercial outlook for international markets. The recovery in oil prices and our customer needs continue to improve their natural gas production, which is paving the way for strong local demand for our traditional products and services. As I look at the addressable market opportunity over the next several years, we see over $2 billion for gas projects and over $1.5 billion of project award opportunities for water. As we've said before, we believe that natural gas demand will continue to grow and be an integral part of the energy ecosystem in the years to come. And clearly, the pipeline of opportunities we see demonstrates this thesis. We're excited to help advance the ongoing global energy transition. Even more important to our own transition is our external water solutions business. The win we had in the first quarter really underpins the confidence we have in this product line and its bright prospects for continued growth and value creation. I want to spend a little more time today on our water business, covering what we do and outlining our total addressable market across multiple industries. I also want to provide an update on how we see the business progressing. Our technology was initially developed in the municipal water segment for removal of iron and bacterial growth through mass transfer using a micro bubble reactor. The concept was then translated for environmental applications for aeration and pond management. The technology was further refined to address the harsh water conditions in the oil sands where extensive water treatment of large volumes of water was required. The growth of the oil and gas industry and the inherently high volumes of produced water presents a large market opportunity. Innovating with an application focus, we have now built a family of product lines that provide our customers a complete solution, covering primary, secondary, and tertiary treatment, which is scalable across different ranges of volume. We are proud to now be a leader in this space with a commercially proven and fully integrated solution. With over 70 patents, our core technology translates well into high flow and challenging fluids, and we are developing applications that extend into mining, utility waste water treatment, and produce water desalination. For the oil and gas industry, although all production is being forecasted to be flat until 2030, natural gas production is still expected to grow. Contrary to the flat production of oil, produced water volumes are rapidly increasing, which is attributable to the increase in water to oil ratio, as well as mature. In certain parts of the world where we operate, water cuts larger than 90% are now the norm. Industry sources expect to see 30% growth in produced water by 2025, and then potentially another 20% growth by 2030. It is a significant and meaningful opportunity for our company. Translating all of this to the addressable markets we serve, we see the produced water oil and gas industry as presenting a $30 billion opportunity with our micro bubble flotation technology being applicable to roughly $5 billion of this total market. But as I stated earlier, We see our technology as having applications across many industries, including petroleum, mining, where this technology originated in municipal water waste, to name a few. We are confident that our water business is poised for rapid growth that will drive enhanced financial performance and a compelling value creation. To wrap up this discussion on water, I want to provide some insight to how we see the business developing and growing over the next several years. Clearly, coming into 2020, EWX was a small part of our revenue and margin, but as we look out over the next several years and assess the pipeline of opportunities, we are confident that our annual revenue contribution from Water could exceed $150 million. Ultimately, given the tremendous market opportunity we're targeting, Water could drive more than 30 percent of the company's total adjusted EBITDA by 2023. And with that, I'll now turn it over to Dave.