Greetings, and welcome to Exterran's Third Quarter 2018 Earnings Call. At this time, all participants are in a listen-only-mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Blake Hancock, VP, Investor Relations. Please go ahead.

Good morning and welcome to Exterran Corporation’s third quarter 2018 conference call. With me today is Exterran’s President and CEO, Andrew Way; David Barta, Exterran’s Chief Financial Officer; and Girish Saligram, Exterran’s Chief Operating Officer. During this 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 meanings of the U.S. securities laws 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 yesterday, available on the Company’s website. We have also provided a presentation to go along with our conference call that can be found on the Company’s website. With that, I will now turn the call over to Andrew.

Thanks, Blake. Good morning, everyone. Exterran had another solid quarter on many fronts, with EBITDA as adjusted of $52 million on revenue of $335 million. It was a quarter with strong bookings and continued margin rate expansion. Net cash provided by operating activities was 61 million for the quarter, and we completed a successful pilot trial with a large North America E&P producer for our produced water solution. We have continued to reiterate our belief that product orders in the U.S. would remain strong despite the Permian concerns and the quarter illustrated that. Our Q3 bookings was 344 million, up 40% when compared to Q3 2017. In product sales, we remain focused on margin expansion, and we have now had seven consecutive quarters of improvement with margins for the segment coming in at 14%. In our contract operations segment, we had an important win with a customer operating and expanding in Argentina. This is a very significant strategic win in the Vaca Muerta and sets the foundation for future growth in the country. Backlog in eco remained at 1.4 billion. Over the past several months, we have had closed 500 million of project awards within eco and product sales internationally, and we continue to see a healthy pipeline in the near future for additional projects. In AMS, our top line was in line with our expectations as overall strength in Latin America continues along with the increased activity within the Asia Pacific region. We are seeing continued commercial success internationally and are further developing capabilities in North America for expansion in the coming years. From a liquidity and balance sheet perspective, we continue to focus on managing our working capital, which showed a 200-basis-point improvement over the same period last year, despite lead times driving advanced buying of longer lead items due to the expanded OEM cycle times. We have confidence in our ability to drive improvements in our operating and financial metrics, and we remain focused on improving operational efficiencies and mix. I will now pass the call over to Girish who will discuss the global markets and the demand for our products and services.

Thanks, Andrew. I will start with North America where we see continued strong momentum on demand signals from a wide variety of our customers. There is strong compression demand and our compression orders in the U.S. doubled from the same period last year. We are also seeing a continual flow of inquiry for cryogenic and fractionation plants, but there is a longer cycle time from inquiry to order. Nonetheless, we did secure a couple of significant plant wins in Q3 that we are hopeful will be the first of multiple trains at the same locations. From a basin perspective, the Permian continues to be the largest source, but we are also seeing strong demand in the Scoop/Stack, and Marcellus and Utica along with a notable uptick in the Bakken that is likely to continue. With the short-term takeaway capacity constraints in the Permian and fractionation capacity constraints in Mont Belvieu, we expect that there will be increased activity in other areas that will translate into incremental orders with emphasis from the Bakken Powder River Basin and Niobrara and DJ Basin dependent somewhat on the outcome of Proposition 112 in Colorado. We saw gas prices in the U.S. increase from August to September, ethane was up 90%, propane up 9%, and overall Henry Hub 17% due to increased demand. While this phenomena has subsequently softened, there have been upward revisions of gas price estimates for 2019, which should solidify demand for our overall product portfolio. Coupled with the supply/demand dynamics and resulting price impacts, our midstream customers are more sensitized to the longer OEM lead times in the industry. As a result, there is a greater emphasis on planning ahead and we are already seeing inquiry for deliveries in 2020. We are continuing to improve our segmentation and targeting efforts to…

Thanks, Girish. Starting with the contract operations segment, revenues was 85 million while gross margin was 57 million, resulting the gross margin rate increased to 67% compared to 65% in Q2. The sequential change in revenue and margins were largely due to the FX headwinds in Latin America, as well as Dalton and contract recoveries. We discussed FX on the last call, and the devaluation in Argentina and Brazil accelerated during the quarter with additional translation impact. I would note that these currencies have stabilized somewhat recently and our top-line eco guidance reflects that stability continuing. In AMS, revenue of 30 million and gross margin was 8 million which result in a gross margin percent 26% all of which were in-line with our expectations. Revenue in the product sales segment was 220 million and gross margin was 32 million resulting the gross margin rate of 14%, up from 13% in the second quarter. The revenue was flat sequentially, primarily due to increased allocation of hours to our to our contract operations and mix aligned for longer cycle products. Margin improved due to the mix and our cost out initiatives, the latter of which we expect to contribute on a steady basis. During the quarter, we saw an increase in process treating revenue as we execute on backlog and was another strong quarter for compression. As Andrew noted, we had another strong bookings quarter at 344 million, our product sales backlog was 759 million at the end of the third quarter as compared to 635 million at the end of the second quarter. As we mentioned in the press release, the project has a potential to convert to eco will remain as a product sales is in our product backlog based on the customer's decision. SG&A expenses were 45 million as…

Thanks, Dave. Before I wrap up, I wanted to give you a quick update on our water business. Last quarter, we discussed the pilot that was taking place in the Permian with the large operator and we are very happy to announce that the trial was very successful, following the trial we are now in discussion with the customer for commercial deployment. We continue to strengthen our team, which included bringing on a new director of market development who brings deep domain expertise. We remain very excited about the opportunities of our water the business provides us, we look to broaden our scope of work while enhancing value to our customers. We are kicking off two additional pilots, one in the U.S. for another large E&P company and the second in the Middle East. Our strategy going forward is to truly become a systems and processes company that is focused on execution, profitability, free cash flow and returns. This will be achieved by improving our mix, not only between segments, but between products within each segment. We are also focused on delivering fully integrated plans to our customers where we believe we can add the greatest value integrated in all of the pieces of facility, improving costs execution cycles and output. We will continue to be good stewards of capital as we maintain our focus on investing in high return projects and product lines. And as we have stated, we will look for growth opportunities both organically and inorganically. The macro landscape continues to feel cooperative and receptive of our approach and there remains increased demand for midstream equipment and for new ideas to efficiently process the increase in amount of gas production. We feel that we are well positioned within the oil and gas space to capitalize on the continued global build out and are excited that the new developments within our water business. We are beginning to view ourselves more as an energy industrial company and with further wins in our focused areas, our product offering will reflect that view and help drive our financial metrics closer to industrial peers. With that, I will now turn the call back over to the operator for questions.

Thank you. [Operator Instructions] Our first question comes from Kyle May with Capital One Securities. Please go ahead.

Good morning. I was wondering if we could maybe talk a little bit more about the water pilot, and if you could, maybe give us a sense of how this fits in with your existing business or maybe the expansion opportunities it provides.

Sure. Kyle this is Girish. The water pilot really was in North America where we had a pilot that lasted about a month, where we took a substantial amount of produced water, ran the pilot continuously and demonstrated the efficacy of our technology essentially to prove to the customer that we are able to get a significant amount of improvement in that produced water that they can therefore reuse. So that really what the pilot was. At this point, we are not really at liberty to disclose too much around the specifications, et cetera, but those will be forthcoming as we progress with the discussions. In terms of the technology itself, the way I would describe it is if you look at a lot of the geologies today when a customer drills a well, you really have three streams that come out of it, you generally have oil, there is some associated gas, and a lot of the geologies you have produced water that needs to be treated. So for us, it's really a complementary part of the business. We have the capability to do oil processing. We definitely have the capability to drive gas both from a compression standpoint as well as from a processing and treating standpoint, and the water piece now is a very complementary piece, so this allows us therefore to produce a totally integrated plant and integrated solution to the customer. And then when you add on power generation, it allows us to build entirely within the fence, a fully integrated facility for the customer to monetize their entire hydrocarbon stream.

Got it. Okay, that is really helpful. And one other question I had, if I'm not mistaken, your non-compete with Archrock expired I believe on November 3. Just wondering if you have any strategic changes in mind now that the non-compete has expired.

Kyle, this is Andrew. I think the focus that we have had is how do we build our capabilities in North America, and we have been working on that in a number of different ways. Girish mentioned, one way, which is the fully integrated plant and that can be provided via both a product sale and also a contract operations perspective. There is no immediate big news that we have to announce today in terms of a change in focus. We have been quietly working on a number of opportunities. We believe that the AMS market is of interest, and we will continue to work that avenue both organically and inorganically, and where there is opportunities to put plants to work, where we have the opportunity with a customer to put operations together with the contract operations view, and we will work that. But we are not switching gears to become a short-term rental company that is sitting in our scope, but where there are opportunities to build AMS, we will continue and we have had some success commercially and hopefully over the next couple of months we will continue to build upon that.

Okay, got it. Thanks guys, I appreciate the additional color.

Our next question comes from Tim Monachello with AltaCorp Capital. Please go ahead.

Hey good morning guys. My question is just around product sales segment, noticed pretty substantial uptick in percentage margins there, just curious how much of that was mix, how much of that is just targeting higher margin products and how much of that is pricing? Looking forward, do you expect margins to stay elevated? You mentioned that mix should impact margin in the fourth quarter, but should we think about that through 2019 and 2020?

Yes. So directionally all three of those are correct. In terms of the areas we have been focusing on, we have certainly been doing more segmentation on input margins to target the particular products that generate better returns for us. We have certainly seen productivity, we laid out a path almost a year and a half ago, a supply chain exercise to be able to drive better productivity, better utilization of our assets, and also just driving better coordination between sort of the handoffs within the factories, that is coming through. What we saw in the third quarter was a lot more of our hours allocated to eco, so if you think about the factories, we have talked about the ability to leverage the factories to manufacture equipment both for products and eco, and we saw that in the third quarter where there was a larger proportion of the hours tied up in eco for projects that will be delivered over the next six to 12 months. And then if you think about mix component, we obviously have different profitabilities within each of the components of what we served. I referred to that in my prepared remarks that we are going to continue to take further steps within even the product range to drive that. So, we certainly aren’t going to go backwards to the place that we saw a couple of quarters ago or even last year, but there may be some between quarter-to-quarter with mixed implications going forward. We guided in the fourth quarter, there will be a little bit of a mixed implication that we have. But it’s not significant in the overall terms, but there may be a 50 to 150 basis point sort of range on a continual go-forward basis where we see margins up one quarter and down just from a mixed point of view, and that is something that we manage every quarter coming in with the input volume, and we track those hours to make sure that we are at least understanding it, hence guidance for this quarter.

Okay. So would you say the third quarter, 14.5% gross margin, is that on a normalized basis sort of where you expect to see that going forward?

Yes, I think we have said a number of times that over the next couple of years we certainly target a higher product margin than where we would be and if you look at the pre downturn, the history of some of the products slightly different configuration in certain aspects, but we have certainly seen margin higher than what we have just done in the third quarter. So I’m not saying that we peaked or that is normalized, I think we have a good robust cost in front of us to continue to drive profitability and that is our intention both in products AMS.

Thank you. There are no further questions. I would like to turn the floor over to Andrew Way for closing comments.

Okay, so thanks everyone for dialing in this morning. We appreciate your participation and look forward to updating you at the year-end. Thanks very much. Bye-bye.

This concludes today’s conference. You may disconnect your lines at this time and thank you for your participation.