D. Bradley Childers - Chief Executive Officer, President, Director, Chairman of Exterran Partners, Chief Executive Officer of Exterran Partners and President of Exterran Partners David Miller - Former Vice President.

Michael W. Urban - Deutsche Bank AG, Research Division Blake Allen Hutchinson - Howard Weil Incorporated, Research Division Sharon Lui - Wells Fargo Securities, LLC, Research Division Glenn Warren Primack - PEAK6 Investments, L.P..

Good morning. Welcome to the Exterran Holdings, Inc. and Exterran Partners, L.P. First Quarter 2014 Earnings Call. At this time, I'd like to inform you this conference is being recorded. [Operator Instructions] Earlier today, Exterran Holdings and Exterran Partners released their financial results for the first quarter of 2014.

If you have not received a copy, you can find the information on the company's website at exterran.com. During today's call, Exterran Holdings may be referred to as Exterran or EXH, and Exterran Partners as either Exterran Partners or EXLP.

Because EXLP's financial results and position are consolidated into Exterran, the discussion of Exterran will include Exterran Partners unless otherwise noted. Also, the term international will be used to refer to Exterran's operations outside of the U.S. and Canada, and the combination of U.S. and Canada will be referred to as North America.

I want to remind listeners that the news release issued this morning by Exterran Holdings and Exterran Partners, the company's prepared remarks on this conference call and the related question-and-answer session include forward-looking statements.

These forward-looking statements include projections and expectations of the company's performance and represent the company's current beliefs. Various factors could cause results to differ materially from those projected in the forward-looking statements.

Information concerning the risk factors, challenges and uncertainties that could cause actual results to differ materially from those in the forward-looking statements can be found in the company's press releases, as well as in the Exterran Holdings Annual Report on Form 10-K for the year ended December 31, 2013; Exterran Partners' Annual Report on Form 10-K for the year ended December 31, 2013; and those set forth from time to time in Exterran Holdings' and Exterran Partners' filings with the Securities and Exchange Commission, which are currently available at exterran.com.

Except as required by law, the companies expressly disclaim any intention or obligation to revise or update any forward-looking statements. Your host for this morning's call is Brad Childers, President and CEO. I would now like to turn the call over to him. Mr. Childers, you may begin your conference..

Great. Thank you, operator, and good morning, everyone. With me today is David Miller, Vice President of Finance for Exterran and CFO of Exterran Partners. As we usually do, we'll provide a review of both Exterran Holdings and Exterran Partners before we open the call up for questions.

I'll review our operating highlights, business development and market direction and Dave will provide a detailed summary of Exterran Holdings' financial performance, as well as Exterran Partners' financial performance. Starting first with Exterran Holdings. Exterran had a good first quarter.

We generated a solid performance across all of our business segments. The most notable outperformance came from our fabrication operations, which produced gross margins of 20% for the quarter. Our North America contract operations business continued to demonstrate positive trends in horsepower growth.

In our international contract operations business, we booked significant horsepower additions and we see a substantial opportunity set to drive future growth. And in our AMS business, we maintained strong margins in a seasonally slow quarter.

Underlying the solid performance and strong profit margins in all of our businesses has been our ability to maintain and continue to drive improvement through the profitability improvement work that we started 2 years ago, that we continue to work on and that continues to yield better results.

Building on our solid operational performance, we completed 2 strategic moves that we believe will add value to our stockholders. First, Exterran Partners announced and recently closed the acquisition of high-quality compression assets from MidCon Compression.

This is an important transaction for us and I'll talk more about this in the Exterran Partners part of my comments today. Second, Exterran Holdings declared and paid its first regular quarterly dividend and we recently announced the payment date of our second dividend payment, which will be paid on May 16.

From an overall market perspective, we continue to see attractive opportunities across our geographic regions and across our service and product offerings. This is especially true in our compression products and services.

As we announced last week, Exterran was awarded new contract operations projects in Latin America totaling about 70,000 horsepower, which provides us a solid base of growth over the coming quarters. In North America, we were able to grow operating horsepower modestly in the first quarter, and we see a good market for continued growth throughout 2014.

In summary, we had a solid quarter and the outlook for the remainder of the year is strong. Turning to our operating segments. In North America contract operations, we increased net operating horsepower by 17,000 during the quarter.

The growth in our operating horsepower was driven by activity in the Eagle Ford and Permian regions, which accounted for the majority of the 49,000 horsepower of net growth that we experienced in our growth markets. This growth was offset by a decline of about 32,000 horsepower that was operating predominantly in conventional dry gas areas.

Our North America contract operations booking activity for the quarter was higher than expected, and our overall opportunity set is solid. These activity levels have led us to increase our growth CapEx budget for the remainder of 2014.

In our international contract operations business, our results were down from the prior quarter, which was positively impacted by some out-of-quarter retroactive rate increases in Argentina. We also experienced a delay at a project in Latin America in the first quarter, which negatively impacted our revenue.

This project did start at the end of the first quarter, however, and we expect to see good results from it going forward.

Despite lower revenue, we were able to generate a higher gross margin percentage in the first quarter due to the positive impact of rate adjustments at the end of 2013 and solid operating performance on our large base of installed equipment.

As already mentioned, we're excited about significant contract operations awards so far this year in Latin America, primarily in Brazil and Mexico, which total about 70,000 horsepower. These awards provide us a strong backlog of horsepower additions on which to grow this business.

And given the size and the scope of these projects, they will not significantly impact revenues until 2015. Our backlog of new contracted international projects now equates to approximately $66 million in annual revenue, including the awards I just mentioned.

And even after signing these large projects, we continue to have an attractive list of near-term growth opportunities that we are pursuing in Latin America.

In our aftermarket services business, revenue was down sequentially as the first quarter is typically the lowest activity level of the year, though revenue was up 5% compared to the prior-year period.

Profitability in this business continues to be in our target range, and we see good prospects for aftermarket services business, particularly in North America and in the Eastern Hemisphere. Turning to our product sales activity. Performance in our fabrication business was a highlight for the quarter.

We were able to deliver both sequential and year-over-year growth in gross margin despite a significant sequential and year-over-year reduction in quarterly revenue. Our gross margin percentage was 20% in the first quarter compared to 14% in the fourth quarter of 2013 and 12% in the prior-year period.

These results reflect performance in our sold compression business, outperformance in a couple of projects, as well as some cost recovery out of a project we completed last year.

From bookings perspective for the quarter, we saw a strong demand for our compression equipment, especially in North America, offset by softness in production equipment and processing and treating and a delay in a key potential project award for Belleli.

We continue to believe that the market for our sold products remains attractive, as bid activity levels have increased compared to the prior quarter. In conclusion of the Exterran Holdings section of my comments, we had good performance in the quarter and are executing well in our operations.

We completed a key acquisition and paid out our first quarterly dividend. Looking at our markets, our overall opportunity set remains promising across our product and service lines, and demand is particularly active for compression products and services in North America.

We remain focused on improving the efficiency of our core operations through our process-driven initiatives and I believe we will continue to drive and improve our performance. As a result, I believe we remain on track to achieve our third consecutive year of strong performance in 2014. Now turning to Exterran Partners.

I would like to open with some additional details and perspective on the MidCon acquisition. In this transaction, we acquired 337 units, totaling approximately 444,000 horsepower. These units average over 1,300 horsepower per unit and operate in some of the most attractive shale and oil-rich plays in the U.S.

We also have welcomed into Exterran about 100 former MidCon employees comprised of excellent service and support personnel. As part of the transaction, we entered into a 7-year contract services agreement with Access Midstream Partners, the largest gathering and processing MLP in the U.S.

Access is a great customer and we look forward to building a great working relationship and continuing to deliver excellent service for the benefit of Access and its customers.

We expect this transaction to be accretive to distributable cash flow and further our progress toward eliminating the need for cost cap support from Exterran Holdings to Exterran Partners. And finally, this transaction is an important milestone for us.

We worked hard over the last couple of years to improve and standardize our operations, and to put us in a strong competitive position to make acquisitions and integrate them into our existing operations while maintaining our service culture and cost focus. Now turning to the financial results.

Exterran Partners delivered another solid performance in the quarter. Exterran Partners achieved a 14% increase in revenue compared to the results for the prior-year period, driven by the compression assets we acquired from Exterran Holdings in March of 2013, as well as organic horsepower growth.

EXLP should continue to benefit from the strong opportunities for intrinsic growth that we're seeing in the North America contract compression market.

In addition, we believe that the performance improvement initiatives being implemented in our North America contract operations business will continue to improve the efficiency of our operations and help drive enhanced financial performance for Exterran Partners in the second half of 2014.

Now moving to the financial section of today's call, I'd like to turn the call over to David for a review of the financial results for Exterran Holdings and Exterran Partners, including a summary of our quarterly trends and guidance for the second quarter..

Thanks, Brad. I'll provide a summary of the results for Holdings first and then Partners. I'll discuss the segment results and then I'll give guidance for the second quarter. EXH generated EBITDA as adjusted of $145 million for the first quarter of 2014 as compared to $154 million in the fourth quarter of 2013 and $146 million in the prior-year period.

We also reported diluted net income from continuing operations attributed to Exterran common stockholders, excluding items of $0.20 per share in the first quarter. That compares with $0.18 in the fourth quarter and $0.21 per share in the prior-year period. Now turning to segment results.

Our North American contract operations revenue came in at $157 million in the first quarter, slightly higher than last quarter, as we increased working horsepower by 17,000 in the quarter. Gross margin was 55% in the quarter, in line with the fourth quarter and the prior-year period.

In the second quarter, we expect revenue to increase to the upper $170 million level, driven primarily by the contribution from the MidCon acquisition and gross margin percentage to be in the mid-50% range.

We expect to see further benefits from ongoing field initiatives to improve the operating efficiency of our North America contract operations business, beginning in the second half of this year.

Maintenance capital spending was $15 million in North America during the first quarter as compared to $16 million in the fourth quarter of 2013, and $19 million in the prior-year period. We expect maintenance capital spending in the second quarter to be somewhat higher than the first quarter levels.

In looking at the international contract operations business in the first quarter, revenue came in at $111 million. Somewhat lower than expected as we experienced further delays in the projects in Brazil that Brad mention, although it did start up late in the first quarter.

By comparison, revenue was $131 million in the fourth quarter and $110 million in the first quarter of last year. As a reminder, fourth quarter 2013 revenue benefited from retroactive contract rate adjustments in Latin America, which helped offset expenses incurred in previous quarters.

Gross margins in international contract operations was 63% in the first quarter as compared to 62% in the fourth quarter and 58% in the first quarter of last year. Profitability in the first quarter was positively impacted by the fourth quarter contract rate adjustments in Latin America.

In the second quarter of 2014, we expect international contract operations revenues to be in the mid-$120 million range and the gross margin percentage to be in the low 60%. Second quarter revenues are expected to benefit from the recognition of deferred revenue related to the delayed project we recently started in Brazil.

Our international operating horsepower was 984,000 at March 31, 2014, relatively flat for the quarter. Now moving on to fabrication. Our fabrication operations had another solid quarterly performance.

Revenue came in at $287 million, at the lower end of our guidance range, primarily due to a delay in the completion of a large project in the United States, as compared to $342 million in the fourth quarter and $459 million in the year-ago period.

Fabrication revenue during the first quarter was comprised of about 35% compression, 55% production and processing and installation and about 10% from Belleli. Fab revenue was roughly 60% from North America and 40% from international.

Fabrication gross margin came in at 20%, an increase from 14% in the fourth quarter of 2013 and 12% in the year-ago period, driven by continued solid execution, particularly in compression, strong performance on a couple of large projects and a cost recapture on an international project completed last year.

Our fabrication backlog came in at $669 million at March 31, 2014, as compared to $680 million at December 31, 2013, and $994 million at March 31, 2013. About 50% of the reduction from 2013 to 2014 was related to a project for one customer that was completed in 2013.

Bookings were $277 million for the first quarter as compared to $403 million in the fourth quarter of 2013 and $387 million for the first quarter of 2013.

In the first quarter, bookings were roughly 2/3 from North America and 1/3 from international markets, while quarter end backlog was roughly 45% from North America and 55% from international markets. For the second quarter, we expect fabrication revenues in the $300 million to $335 million range with gross margins in the 16% to 17% range.

Moving on to our AMS business, our aftermarket service business had a good quarter as well, with revenue of $88 million and a gross margin of 23%.

Looking at the second quarter, we expect aftermarket services revenue to be between $100 million and $110 million, with gross margins in the low 20% range, as better weather typically leads to more activity in this segment, in North America, particularly. SG&A expenses were $93 million in the first quarter.

That's up from $89 million in the fourth quarter and $85 million in the first quarter of 2013. First quarter 2014 results included a sequential increase in long-term incentive compensation expenses. In the second quarter, we expect SG&A expenses to be at the low $90 million level.

In the quarter, there was a long-lived asset impairment of $4 million related to the idle fleet and a $5 million restructuring charge related to the contract operations and aftermarket services business in North America. This restructuring charge was driven by shop closures in the field to streamline our makeready activities.

Depreciation and amortization was $86 million in the first quarter and we expect that to be in the $100 million to $105 million range in the second quarter, with the sequential increase driven primarily by amortization of startup costs in the previously mentioned project in Brazil and assets associated with the MidCon acquisition.

We expect depreciation and amortization to return to more normalized levels in the third quarter, in the low to mid-$90 million range. The consolidated tax rate was 37% for the quarter. For 2014, our tax rate for net income -- from continuing operations attributable to Exterran stockholders, excluding items, is expected to be in the high 30%.

Shifting to capital. Growth capital spending in the first quarter was $70 million, which includes $54 million in North America, primarily for our fleet build program. Proceeds from the sale of property, plant and equipment were approximately $11 million in the quarter.

And as a result, net capital expenditures came in at $88 million for the first quarter. Maintenance capital for the quarter was $19 million, slightly below fourth quarter levels. As Brad mentioned, we have significant opportunities to invest capital profitably in 2014.

We now expect that net capital expenditures will be in the $500 million to $550 million range, an increase from our prior guidance of $400 million to $450 million, primarily driven by growth opportunities in North America and new contract operations projects in Latin America.

We continue to expect maintenance capital in the $100 million to $110 million range. We now expect to spend about $330 million to $370 million in fleet growth capital and about $70 million for other expenditures. Currently, we expect a fleet growth capital will be split approximately 65-35 between North America and international, respectively.

In North America, we expect about 85% of these investments will be for customers of Exterran Partners and will be funded by Exterran Partners. Now turning to cash flow.

During the first quarter, we received our eighth installment payment of $4.9 million from the sale of our joint venture assets in Venezuela, and as noted on our fourth quarter call, the sixth installment of approximately $18 million from the sale of our wholly-owned Venezuelan asset.

These cash payments from the sale of Venezuelan assets are not included in the EBITDA as adjusted and are not included in net income from continuing operations attributed to Exterran stockholders, excluding items. Looking forward, we are still due approximately $201 million of principal payments from the sale of these assets in Venezuela.

Turning to debt. During the first quarter, debt increased by $40 million at the Exterran Holdings level, which was driven primarily by the timing of international billings in our fabrication operations and increased cash balances internationally. Debt increased by $44 million at the partnership level.

Exterran Holdings had total leverage -- Exterran Holdings' total leverage ratio, which is the total debt to adjusted EBITDA, as defined in our credit agreement, was 1.6x at March 31, 2014. That is unchanged as compared to December 31, 2013 levels, and down from 2.5x at March 31, 2013.

In March 2014, we announced that all of Exterran Holdings' outstanding 4.25% convertible senior notes due June 2014 submitted for conversion on or after March 15, 2014 will be settled in cash and shares.

The cash portion is expected to total approximately $370 million, assuming -- and assuming a stock price of around $42 per share, we estimate that approximately 3.4 million shares will be issued primarily in the fourth quarter of 2014, as we unwind our call spread.

Cash distributions received by Exterran Holdings based on its limited partner and general partner interest in Exterran Partners was $13.7 million for the first quarter of 2014, compared to $13 million for the fourth quarter of 2013 and $12.2 million for the first quarter of 2013.

As a reminder, the distribution level for the third and fourth quarters of 2013 and the first quarter of 2014 is in the 50-50 split, which provide the general partner with an increased share of incremental distributable cash flows generated by the partnership.

As Brad mentioned, Exterran Holdings Board of Directors declared the second quarterly cash dividend to common stockholders of $0.15 per share to be paid on May 16, 2014. We believe this action reflects our confidence in the strength and ability of our long-term financial position and our commitment to create value for our stockholders.

Now turning to Exterran Partners. In the first quarter of 2014, Exterran Partners had a good overall performance. As Brad mentioned, Exterran Partners completed the $363 million acquisition of assets from MidCon Compression on April 10.

In early April, Exterran Partners issued $350 million in 6% senior notes due 2022, and raised $170 million through the sale of 6.2 million limited partner units to finance the MidCon transaction and repaid borrowings under our revolving credit facility.

In connection with the acquisition, the omnibus agreement between Exterran Partners and Exterran Holdings was amended to increase the cap on SG&A cost from $15 million per quarter to $17.7 million per quarter. The cap on operating costs remained unchanged at $22.50 per operating horsepower per quarter.

Both of these caps terminate on December 31, 2014. Our plan to eliminate the need for cost cap payments by the end of 2014 is strengthened by the expected contribution from the MidCon acquisition. Turning to financial results in the first quarter.

Exterran Partners ending operating horsepower increased by 6,000 to approximately 2.27 million, as growth in shale and liquids-rich plays offset net stops in conventional dry gas plays.

For the quarter, Exterran Partners generated EBITDA, as further adjusted, of $56.1 million, as compared to $59 million in the fourth quarter of 2013 and $53 million in the prior-year period. The sequential decline in EBITDA, as further adjusted, is predominantly related to the reduction in cost cap support that went into effect January 1, 2014.

As a reminder, in the first quarter of 2014, we increased our SG&A cost cap from $12.5 million per quarter to $15 million per quarter, and our operating cost cap from $21.75 per horsepower per quarter to $22.50 per horsepower per quarter.

Distributable cash flow was $36.1 million in the first quarter of 2014 as compared to $37.8 million in the fourth quarter of 2013 and $37.1 million in the first quarter of 2013. Again, the sequential decline in distributable cash flow was largely related to the reduction in cost cap support referenced earlier.

Maintenance capital expenditures were $10.2 million for the partnership in the first quarter as compared to $10.8 million in the fourth quarter and $8.3 million in the prior-year period. Distributable cash flow coverage in the first quarter was 1.09x.

Excluding the benefit of the cost caps, our distributable cash flow coverage was 0.91x in the first quarter of 2014 as compared to 1.02x in the fourth quarter of 2013 and 1.15x in the prior-year period.

As a reminder, we are paying the distributions on a 6.34 million LP and GP units that we issued to finance a portion of the MidCon acquisition, but did not have the benefit of those assets in the quarter as the transaction closed on April 10.

Absent distribution on those units, our distributable cash flow coverage would have been 1.23x and 1.03x with and without the cost cap's reimbursements, respectively. Revenue for the first quarter was $121 million as compared to $118.9 million in the fourth quarter and $106.1 million in the prior-year period.

Gross margin was 56% in the first quarter, in line with the fourth quarter and prior-year period. Going forward, Exterran Partners expects to benefit from further cost reductions through field initiatives we are implementing in North American operation, as discussed earlier.

Cost of sales for average operating horsepower was $23.45 in the first quarter, relatively flat compared to the fourth quarter of 2013 and down 1% from prior year levels. SG&A expenses for the quarter were $19.4 million compared to $17.2 million in the fourth quarter of 2013 and $12.6 million in the prior-year period.

We expect SG&A levels to remain in the $19 million to $20 million range in Q2 2014. Depreciation and amortization expense for the quarter was $27.9 million, compared to $26.8 million in the fourth quarter of 2013 and $22.7 million in the prior-year period.

We expect depreciation and amortization expense to be in the low- to mid-$30 million range in the second quarter, with the addition of the MidCon assets. Interest expense for the quarter was $9.7 million compared to $9.6 million in the fourth quarter of 2013 and $7.4 million in the prior-year period.

We expect interest expense to be approximately $15 million in the second quarter due to the recent senior notes offering. Net income per limited partner unit was $0.09 in the first quarter compared to $0.19 in the fourth quarter 2013 and $0.31 in the prior-year period.

Late last month, Exterran Partners announced its distribution of $0.5375 per limited partner unit or $2.15 per limited partner unit on an annualized basis. Our quarterly distribution is $0.005 higher than the fourth quarter 2013 distribution and $0.02 higher than the first quarter 2013 distribution.

On the balance sheet, total debt increased by $44 million during the quarter to $802 million at March 31, 2014 as, capital was deployed to fund internal growth opportunities and the escrow deposit for the MidCon acquisition. Available but undrawn debt capacity under our debt facilities at March 31 was approximately $344 million.

As of March 31, 2014, Exterran Partners had a total leverage ratio which is covenant debt to adjusted EBITDA, as defined in the credit agreement, of 3.3x, as compared to 3.1x at the end of the fourth quarter and 3.4x at March 31, 2013.

We believe that our debt capacity gives us the financial flexibility to finance organic growth and positions the partnership for future acquisitions. Gross capital expenditures for the first quarter of 2014 were $53 million, consisting of $42.8 million for fleet growth capital and $10.2 million for maintenance activities.

For the full year 2014, we now expect total fleet growth capital to be in the $200 million to $225 million range, which compares to the previous guidance in the $150 million to $175 million range. And maintenance capital expenditures of approximately $50 million, which compares to previous guidance of $45 million to $50 million.

In summary, for Exterran Partners, first quarter highlights included the announcement of a significant acquisition and related financings, growth in operating horsepower, 1.09x distributable cash flow coverage and a 3.3x covenant debt-to-EBITDA ratio. At this point, I'd like to turn the call back over to Brad for some closing comments..

Thanks, David. As a final note, in connection with Bill Austin's retirement last quarter, we started the search for a new CFO and the process is going well.

At a deference for the candidates that we're speaking to and support a good process, we're not saying anything more about the candidates and the timing, other than to state that we expect a successful conclusion of our search in the next few months. Operator, at this point, we'd like to open up the call for questions..

[Operator Instructions] And our first question is from Mike Urban of Deutsche Bank..

The -- so a little bit of progress in terms of operating horsepower in North America, but a continuation of a trend that's been out there for quite a while where you're seeing net returns over declines in conventional and dry gas plays. You've talked about some -- I don't know if green cheeks is the right word on that front.

Last quarter, although we're not necessarily seeing a lot of new gas drilling, with what gas prices have done, I would at least think those shutdowns and those returns would be slowing.

Any indication that, that's happening or when that might bottom out?.

Actually, we have seen a subtle, a slight slowdown in our stop activity, but I wouldn't make much of it yet. We're not talking about it, for that reason. We really haven't seen enough of a change in the approach and the investment levels in the dry gas plays, to see a trend.

So although we have actually seen a modest decrease in some of our stop activity, it's not enough to really make much of it yet, Mike..

Okay. And then on the fabrication business, you talked about, I think, it was a project that you're maybe bidding on at Belleli that was delayed.

Any idea when that might get award and what the kind of the scope or size of that might be?.

Well, we mentioned it, so we do expect this is an award that will come through. Rather than talk specifically about just the Belleli project, however, what I would try to emphasize, as I tried to on the call, is our overall backlog of projects that we're bidding on, and fabrication is really a nice book of business.

And we expect to achieve a good bookings result in Q2 inclusive of that project. So pretty excited about what the business is going to go and what we're going to see for bookings in Q2. Is what I'd like to say, Mike..

Okay, that's helpful. Then last question for me, again sticking with fabrication business. Nice improvement in the profitability there, even adjusting for some what seemed like a one-off type items or true-ups from prior periods.

How does that business fit in longer term, strategically? I mean is it something you need to be in? Is it helpful for you? Are there synergies there? Or as the profitability of that business improves, there is something else you could look to do with that?.

Yes, the thing that excites us most in the near-term is to continue to drive improvement, both on the business levels that we can achieve and certainly the profitability that we can bring in that business. It has been a strategic fit.

As the infrastructure build-out in North America continues as well as the amount of business activity that we're seeing in international continues, we're pretty excited about what we can do with that business in the near term. And so that's what -- the way we look at it in our portfolio today, it looks like it's going to do well.

And we did have good performance, I'll just highlight the few one-timers that you saw in the quarter. Number one, it's nice to see positive one-timers rather than negative one-timers in that business, which is traditionally a very lumpy business.

But that was on the base of really nice results that our team's driven -- that our team drove in the quarter, on which that additional margin got built with a couple of special items..

Our next question is from Blake Hutchinson of Howard Weil..

I guess, going back to your commentary around -- and bullishness on the North American compression market here, despite the fact that the dry gas putbacks have kind of continued, you noted that your net growth for the quarter might prove modest compared to the future periods over the year.

What have we -- what's happened here in terms of an inflection point? Is it the market kind of coming back to some of your core regions? Are we seeing some of the smaller vendors kind of fill up and Exterran kind of acting as a swing producer? Is there something more than meets the eye? Or just -- what are we seeing unfold here that we've reached this inflection point, considering we've had kind of a tough time in the first half of the year, putting net horsepower out there in the last couple of years?.

The main driver is just the activity level that we're seeing in a few of the plays. Those include the Eagle Ford, the Permian and Mid-Continent, as well as in a few of the other plays, including the Niobrara, the Mississippi Lime and even the Marcellus.

We just see a lot of activity and we are doing a good job of capturing market in the areas that we are strong. But we see good activity levels across the market. And we see that we're winning well in a few of the areas that are really our strongest markets.

I think it's more a general level of activity and an improved capture rate, improved operating capability that we are experiencing in our business that's helping to drive the growth. I think it's the intersection of those 2 points more than it has to do with anything going on within the competitors..

Okay.

And then your bullishness for the year, in terms of order flow is, obviously, an extension of that, and we'll probably see more North American-based compression running through fabrication, and just to help square that with your margin guidance, I guess, I had thought of the compressor fabrication as being maybe a bit below par in terms of overall fabrication margins.

Has that changed? Have you made headway in terms of standardization of product? And how should we think of just the compressor fabrication business as plus or minus? Kind of your guidance here on the margin side in fabrication..

Yes, look, Blake, it's a really interesting question. And it's a good question. Because what we do see in our fabrication results is definitely driven, in large part, by product mix. And compression has typically not been one of the higher-margin products in the mix. So I understand that you'd expect that to be pulling margins down.

But what we're seeing in the overall product mix is a lower level and a more profitable level of installation activity. That's a big part of what we're achieving in product mix.

And also, with compression, even though it does remain on the lower side of what we can get from a profitability perspective out of our fabricated products, that has improved and moved up based on a lot of the improvements that we've driven internally.

And so it's a bigger contributor to our profitability in fabrication than it has been for the prior couple of years..

Okay. Great.

And then just finally, on the restructuring charge, should this represent -- as it relates to physically what's going on at the field level, does that represent kind of most of what you wanted to do in terms of helping open up back half margins? Or is there still a little bit more in process?.

There's definitely more in process. What this really was, was a major move by us to rationalize the make-ready capacity and location of our make-ready work that we do in the field. So this is a good contribution to improving our system and driving some cost out. But, no, this was just one step.

We are continuing to work to improve profitability in North America through other initiatives..

Our next question is from Sharon Lui of Wells Fargo..

Just wondering if you could maybe talk about the utilization of the MidCon assets, and whether the horsepower rate is pretty much in line with your existing fleet..

By rate, Sharon, just a clarification, are you referring to the pricing?.

Correct..

Okay. So look, the assets that we bought are highly utilized, and the rate that we have those operating in is very comparable, it's very much market pricing, very comparable to what we have in our fleet already at the same competitive horsepower range and application..

Okay.

And then on this cost side, is there any opportunities to streamline?.

Yes. What we -- one of the things that made this acquisition so attractive from a financial perspective and from a platform is that we get to bring this horsepower and these operations right on top of or right next to the existing infrastructure that we have in the field.

So we do believe that with increased density on our operations and having so much horsepower operated in an area, that we can use that as one of the other tools we have to continue to improve our cost base..

Okay.

And just curious if you had the opportunity to acquire the assets in the northeast that eventually went to Access?.

No, those assets and that transaction was one that was negotiated between Access and Chesapeake and MidCon and it was not a transaction that we were involved in..

[Operator Instructions] And our next question is from Glenn Primack of PEAK6..

I'm just wondering if you're still exposed to FPSO projects within your fabrication division? And if so, do you expect increased bidding activity there this year?.

Sure. We are still exposed. We are actively participating in the FPSO business. Although from an overall product mix, it's a very modest contributor to our activity levels in fabrication overall. And candidly, we have seen increased bidding activity in the FPSO business.

In particular, there is a building market of projects that are being worked right now, targeted at West Africa. So the answer is yes. But its contribution to our overall fabrication business is modest..

We have no further questions. I will now turn the call back over to Brad Childers..

Great. Thanks, everybody, for your interest in Exterran Holdings and Exterran Partners. We look forward to talking to you following our second quarter. Thanks very much..

Thanks..

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..