D. Bradley Childers - Chief Executive Officer, President, Director, Chairman of Exterran Partners, Chief Executive Officer of Exterran Partners and President of Exterran Partners Jon C. Biro - Chief Financial Officer and Senior Vice President David S.

Miller - Chief Financial Officer of Exterran GP LLC, Senior Vice President of Exterran GP LLC and Director of Exterran GP LLC.

Michael W. Urban - Deutsche Bank AG, Research Division James M. Rollyson - Raymond James & Associates, Inc., Research Division Blake Allen Hutchinson - Howard Weil Incorporated, Research Division Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division Majid Khan - Tourbillon Capital Partners, LP.

Good morning. Welcome to Exterran Holdings Incorporated and Exterran Partners L.P. Third Quarter 2014 Earnings Conference 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 third quarter of 2014.

If you have not received a copy, you can find the information on the company's website at www.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 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 releases issued this morning by Exterran Holdings and Exterran Partners, the companies' 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, and 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 www.exterran.com.

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

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

I'm pleased with the recent addition of John to the Exterran management team. John brings extensive experience as a public company financial executive, and he's well positioned to help lead our efforts to drive performance improvements, growth and shareholder value.

As we begin today, let me first share some thoughts about our view of the impact of recent developments in the macro market and concerns over oil price levels.

From an overall market perspective, we remain optimistic about the long-term outlook for our businesses, supported by the expectation for increasing oil and natural gas production levels over the coming years.

A potential headwind, however, has been posed by the recent decline in oil prices, which could have a moderating impact on industry activity levels. Although this heightened uncertainty, we have not yet seen an impact to our business. Looking at our business today, business development opportunity and activity levels remain high.

We've not seen changes in customer spending or order levels, and recent conversations with customers have similarly indicated no change in planned activities, though many are still early in the planning process for 2015.

All of that said, we believe that the market has put us on notice to be closely attentive to activity levels as we know changes in our industry can occur rapidly.

And to that end, we will be staying close to our customers, and we will be proactive in managing production, component orders and costs in the event of a change in customer or market activity. Now turning to our review. Exterran performed well during the quarter.

We had significant growth in operating horsepower in our North America contract operations business, driven by a recent acquisition of compression assets for MidCon Compression, and another strong quarter of organic growth, primarily in the shale-rich plays.

In our fabrication business, we achieved a 20% gross margin and had another strong quarter of bookings, including international gas processing product line in the United States. For Exterran Partners, we achieved a record level of quarterly distributable cash flow in the third quarter.

Our distributable cash flow coverage was 1.24x, excluding cost cap reimbursements of $2.7 million. And Exterran Partners closed its second acquisition with MidCon Compression in August. Turning to our operating segments.

In our North America contract operations business, we achieved a significant level of organic growth in the quarter and expect continued growth in the fourth quarter. We had organic growth of 56,000 operating horsepower in the third quarter.

This increase was driven primarily by activity in the Eagle Ford shale and the Permian, which accounted for a majority of the 81,000 horsepower of growth, primarily in liquids-rich plays and gas lift applications. This gross -- growth was partially offset by 25,000-horsepower declines, primarily in conventional dry gas areas.

Now all of these numbers exclude the effect of the MidCon acquisition that closed in August, and added 110,000 operating horsepower to our fleet. Stepping back and looking at our horsepower growth over the last 12 months, we've achieved organic growth in each of the last 4 quarters.

In this 12-month period, we had growth of 292,000 horsepower in our growth markets, partially offset by a decline of 98,000 horsepower in dry gas and conventional plays. As a result, we achieved net organic growth of 194,000 operating horsepower or about 6.8% on an annual basis.

Although lower oil prices may impact future activity levels, demand continues to be strong in our North America contract operations business. Financial performance in the quarter benefited from the compression assets added to our fleet from MidCon acquisitions as well as continued organic growth.

We recorded sequential revenue growth of 5% and a gross margin percentage of 57% in the quarter, and we continue our efforts to improve the efficiency and profitability of our field operations. In our international contract operations business, we had good performance in our key operating markets in Latin America and the Eastern Hemisphere.

Our revenue and profitability were within target levels, although lower than second quarter, which included accelerated revenue recognition for projects in Brazil and Mexico. At September 30, our international contract operation backlog of new projects stood at $62 million and included 71,000 horsepower of compression.

We expect this backlog will positively impact our financial results beginning in mid 2015. And we remain optimistic about near-term opportunities to book significant new projects, particularly in Latin America. In our aftermarket services business, our profitability continues to be within a reasonable range.

Our revenue for the quarter, however, was somewhat less than expected, primarily due to lower maintenance activity in North America and delays in projects and part sales in the Eastern Hemisphere. In our sole product businesses, we achieved solid levels of bookings and profitability in the quarter.

Revenues, however, were lower-than-expected, due primarily to a delay in the completion of a project in North America. Continued solid execution helps drive a strong 20% gross margin in the quarter as our profitability benefited from cost efficiencies, particularly in processing and treating projects.

We continue to see strong demand across our oil and gas product lines. Bookings during the quarter included key contract awards for natural gas processing and treating plants in the United States. And in addition, we're seeing solid demand for our new C-Series compression product line featuring a select range of configurations.

Our fabrication backlog at September 30 was $840 million, up over the prior quarter and prior year levels. In concluding the Exterran Holdings section of my comments, our continued strong operating performance resulted in solid financial performance.

We closed the second MidCon acquisition in the third quarter, and both acquisitions have been integrated into our business and are performing well. And including our recent acquisitions and organic growth, Exterran grew its North America contract operations operating fleet by 704,000 horsepower or 24% in the first 9 months of 2014.

Our sole product business achieved a solid level of profitability in new bookings. Overall, we're proud of the 2014 we've delivered so far, and with caution over the uncertainty posed by the macro market, are excited about what we can deliver in 2015.

Our overall opportunity set remains promising across our product and service lines, and we'll continue our efforts to grow and improve the efficiency of our core operations.

As I discussed earlier, we will continue to monitor market conditions, particularly around oil price levels, and we'll make the appropriate adjustments to our business, if needed. Now turning to Exterran Partners. We achieved a record quarterly level of distributable cash flow in the third quarter.

Exterran Partners' strong performance led to attractive distributable cash flow coverage excluding the cost cap reimbursements. We continue to expect to eliminate the need for these reimbursements by the end of 2014. Our revenues increased 32% as compared to the prior year period, driven by the 2 MidCon acquisitions and organic horsepower growth.

This organic growth was driven by demand in the shale- and liquids-rich basins where we continue to see attractive growth opportunities.

Our goal is to continue to grow the partnership through organic growth, associated with the developments of oil and natural gas infrastructure in the United States, further execution of our dropdown strategy with Exterran Holdings and third-party acquisitions.

And moving to the financial section of today's call, I'd like to turn the call over to John for a review of the financial results for Exterran Holdings and quarterly trends and guidance for the fourth quarter of 2014..

Thanks, Brad. First, let me say I'm pleased to join Exterran. I look forward to working with Brad, David and the rest of the Exterran team as we continue the companies' strong financial discipline and focus on delivering value to our investors. I will now provide a summary of the results and guidance for Exterran Holdings.

Exterran Holdings generated EBITDA as adjusted of $171 million for the third quarter compared to $161 million in the second quarter. We also reported diluted net income from continuing operations attributed to Exterran common shareholders, excluding items of $0.25 per share in the third quarter.

That compared with a net loss of $0.07 per share in the second quarter. While the $0.25 per share is a miss despite our strong operating performance, we had currency losses during the third quarter, which were included in other income and expense on our income statement.

The impact of these losses was about a $0.05 per share reduction to our EPS excluding items and included currency losses related to repatriating cash from Argentina. These losses were partially offset by a lower tax rate in the quarter. Turning to segment results.

Our North American contract operations revenue came in at $191 million in the third quarter, up 5% compared to $182 million in the second quarter due to organic growth, our second MidCon acquisition that closed in August 2014, and a full quarter contribution from the first MidCon acquisition that closed in April 2014.

We achieved organic growth of 56,000 operating horsepower in the quarter, an increase of 1.6% over June 30, 2014, operating horsepower levels. In addition, the August MidCon acquisition added an incremental 110,000 operating horsepower. Gross margin was 57% in the quarter.

For the fourth quarter in North America contract operations, we expect revenue to increase to the mid- to upper-$190 million level, driven primarily by a full quarter impact -- full quarter contribution from the August MidCon acquisition and organic horsepower growth. We expect gross margin to be in the 56% to 58% range.

Maintenance capital was in line with our expectations at $20 million in North America during the third quarter. We expect North American contract operations' maintenance capital spending in the fourth quarter to be similar to third quarter levels. Now regarding our international contract operations business in the third quarter.

Revenue came in at $124 million compared to $134 million in the second quarter. As a reminder, second quarter revenues and gross margin benefited from accelerated revenue recognition of deferred revenue on 2 projects in Latin America. Our international operating horsepower was 952,000 at September 30, 2014.

Gross margin for international contract operations was 61% in the third quarter compared to 65% in the second quarter. Again, as I previously mentioned, second quarter results were impacted by accelerated revenues with no offsetting operating expenses on projects in Latin America, which resulted in a higher gross margin in the second quarter.

In the fourth quarter, we expect revenues from our international contract operations business to be in the $120 million to $125 million range and the gross margin to be around 60%. Moving on to fabrication. Our fabrication operations had another solid quarter.

Revenue was $312 million in the third quarter, somewhat lower than expected due primarily to slippage in the timing of one installation project. Fabrication revenue during the quarter was roughly comprised of about 55% production and processing installation, 30% compression and about 15% from Belleli.

Geographically, the revenue split was roughly 70% from North America and 30% from international. Fabrication gross margins came in at 20%, somewhat higher than expected, driven by solid manufacturing execution in our fabrication facilities. Our fabrication backlog increased to $840 million at September 30, 2014, compared to $818 million at June 30.

Bookings were $334 million for the third quarter compared to $472 million in the second quarter of 2014 and $276 million in the third quarter of 2013.

In the 2014 3rd quarter, bookings were roughly 85% from North America and 15% from international markets, while the quarterly backlog was roughly 55% from North America and 45% from international markets. We expect fabrication revenues to improve in the fourth quarter into the $350 million to $390 million range with gross margins of around 17%.

Our aftermarket services business had a good quarter of profitability with gross margins of 21% in the third quarter. Revenues were $96 million lower-than-expected due to lower maintenance activity in North America and delays in project and part sales in the Eastern Hemisphere, as previously discussed.

In the fourth quarter, we expect aftermarket service revenue to be between $90 million to $100 million with gross margins around 20%. SG&A expenses were $95 million in the third quarter. In the fourth quarter, we expect SG&A expenses to be in the low- to mid-$90 million level.

Depreciation and amortization expense was $98 million, down from $112 million in the second quarter, which included accelerated depreciation on 2 -- regarding 2 projects in Latin America, as previously discussed in our second quarter conference call. Depreciation and amortization should be around $95 million in the fourth quarter.

In the third quarter, there were noncash, long-lived asset impairments of $12 million related to our idle compressor fleet. Interest expense was $25.7 million in the third quarter of 2014, and we expect similar level of expense of around $26 million in the fourth quarter.

The consolidated tax rate was 32% for the quarter, which included a state tax benefit of approximately $3 million, which lowered our rate by roughly 8%.

For the fourth quarter and full year 2014, our effective tax rate from net income from continuing operations attributable to Exterran stockholders, excluding items, is expected to be in the high 30% range. Shifting to capital spending. Net capital expenditures came in at $141 million for the third quarter.

Growth capital spending in the third quarter was $105 million, which included $80 million in North America, primarily for our fleet build program. Maintenance CapEx for the quarter was $29 million, up from second quarter levels of $24 million.

We continue to expect that net capital expenditures will be in the $500 million to $550 million range, including maintenance capital in the $100 million to $110 million range. Currently, we expect fleet growth capital will be split approximately 70%, 30% between North America and international, respectively.

In North America, we expect about 80% of these units will be for customers of Exterran Partners and will be funded by Exterran Partners.

During the third quarter, we received our 10th installment payment of $5 million from the sale of our joint venture assets in Venezuela and the eighth installment payment of $18.2 million from the sale of our wholly-owned Venezuelan assets.

These cash payments from the sale of Venezuelan assets are not included in EBITDA as adjusted, and are not included in net income from continuing operations attributed to Exterran stockholders excluding items.

As of September 30, 2014, we are still due $159 million of principal payments from the sale of these assets in Venezuela, and these amounts are due to be paid over the next 8 quarters. During the third quarter, debt declined by $73 million at the Exterran Holdings level.

Debt increased by $178 million at the partnership level, largely due to the closing of the August MidCon acquisition for a total consideration of $130 million funded with bonds under the partnership's revolver. In total, consolidated debt increased by $105 million in the quarter.

Exterran Holdings total leverage ratio, which is the total debt-to-adjusted EBITDA as defined in our credit agreement was 1.6x at September 30, down slightly from 1.7x at June 30, 2014.

In June 2014, we completed the redemption and settlement of all Exterran Holdings outstanding 4.25% convertible senior notes and the related call transaction in exchange for $307 million in cash and net common shares of 251,000 shares.

During the quarter -- the third quarter of 2014, approximately 498,000 common shares were issued pursuant to the exercise of warrants associated with the cost spread we put in place. At September 30, the majority of these warrants remain outstanding.

Assuming a stock price of around $37 per share between now and the end of the exercise period on January 7, 2015, we expect that an additional 1.8 million shares will be issued primarily in the fourth quarter of 2014 to satisfy the exercise of these warrants.

Cash distributions received by Exterran Holdings based on its limited partner and general partner interest in Exterran Partners was $14.8 million for the third quarter compared to $14 million for the second quarter of 2014.

And finally, last week, Exterran Holdings' Board of Directors declared the fourth quarterly cash dividend to common stockholders of $0.15 per share to be paid on November 17, 2014, to shareholders of record on November 10. I'll now turn it over to David to talk about Exterran Partners..

Thanks, John. Exterran Partners had another solid quarter in Q3. Third quarter ending operating horsepower increased sequentially by 157,000 to approximately 2.95 million as a result of the August 2014 MidCon acquisition and significant organic horsepower growth of 47,000. Turning to financial results.

Exterran Partners EBITDA as adjusted was up 10% to $75.1 million as compared to $68.6 million in the second quarter of 2014. This increase was driven by the August 2014 MidCon acquisition, a full quarter contribution from the April 2014 MidCon acquisition and organic growth.

Distributable cash flow was $45.7 million in the third quarter of 2014, up 8%, compared to $42.4 million in the second quarter of 2014. Maintenance capital expenditures were $13.4 million in the third quarter as compared to $11.9 million in the second quarter.

Distributable cash flow coverage in the third quarter was 1.31x as compared to 1.26x in the second quarter. Excluding the benefit of the cost cap payments, our distributable cash flow coverage was a solid 1.24x in the third quarter of 2014.

Cost cap reimbursements from EXH to EXLP were $2.7 million related to the SG&A cost cap and 0 related to the operating cost cap in the third quarter of 2014 compared to $1.4 million of total cost cap reimbursements in Q2 2014.

With a solid level of distributable cash flow coverage, we remain on track to eliminate the need for cost cap reimbursements by the end of 2014. Revenue for the third quarter was $153.2 million as compared to $145.7 million in the second quarter. Gross margin improved to 60% in the third quarter from 59% in the second quarter.

Cost of sales per average operating horsepower was $21.50 in the third quarter, down 3% compared to the second quarter of 2014 and down 7% from prior year levels, driven by the benefits of our recent acquisitions, organic growth and efficiency initiatives.

SG&A expenses for the third quarter were $20.7 million compared to $19 million in the second quarter, up in part, due to the impact of the August 2014 MidCon acquisition. Depreciation and amortization for the third quarter was $33.6 million compared to $31.7 million in the second quarter.

Interest expense for the third quarter was $16.1 million compared to $14.8 million in the second quarter, largely due to higher debt levels. Net income for a limited partner unit was $0.26 in the third quarter, unchanged as compared to $0.26 in the second quarter.

Last week, Exterran Partners announced its distribution of $0.5525 per limited partner unit or $2.21 per limited partner unit on an annualized basis. Our quarterly distribution is $0.01 higher than the second quarter distribution and $0.025 higher than the third quarter 2013 distribution.

The sequential distribution increase of $0.01 per limited partner unit for the quarter included an incremental $0.005 related to the second MidCon acquisition. On the balance sheet, total debt increased by $178 million during the quarter to $1.22 billion at September 30, 2014.

The increase in debt was due to the funding of the August 2014 MidCon acquisition and additional borrowings to fund organic growth opportunities. Available but undrawn debt capacity under Exterran Partners debt facilities at September 30 was approximately $270 million.

As of September 30, 2014, Exterran Partners had a total leverage ratio, which is covenant debt to adjusted EBITDA as defined in the credit agreement, of 4.1x as compared to 3.8x at the end of the second quarter.

Excluding the August 2014 MidCon acquisition, gross capital expenditures for the third quarter were $77 million, consisting of $64 million for fleet growth capital and $13 million for maintenance activities.

For the full year 2014, we expect total fleet growth capital expenditures to be in the $200 million to $225 million range, and maintenance capital expenditures of approximately $50 million.

In summary, third quarter highlights for Exterran Partners include its solid distributable cash flow coverage with and without the benefit of the cost caps, strong organic growth and the completion of a significant acquisition. At this point, I'd like to turn the call back over to the operator to open it up for questions..

[Operator Instructions] The first question is from Mike Urban with Deutsche Bank..

In the North American compression business, solid margin there, I guess, roughly flat, maybe down just a bit versus Q2. Were there any disruptions there? Any cause? The only reason I ask of it was a very good performance. One, you did have more contribution from the higher-margin MidCon assets.

And one of the things you talked about previously was seeing more of the benefits from some of the previous initiatives service delivery model and some of the other efficiency efforts that you're working on becoming more evident in the second half.

So one, wondering again if there any offsets? Are there any delays? Unexpected costs? And 2, should we expect to see that margin impact a little bit more going forward?.

Sure, Mike. It's Brad. Overall, the operation is performing really well. So the financial performance that is -- what we're doing on a cost basis is very solid in the core operation in the business.

We did see a little bit of noise with this level of start activity, our make-ready expense in the quarter and our freight expense in the quarter, some of which is not reimbursed, a good chunk of which is -- was also a little bit higher in the quarter and that's dilutive to gross margin percentage when it comes out.

So when you look at the underlying cost in the business performing very well -- but we did see a little more noise in the quarter from the make-ready and freight. To the broader question, we're continuing to work and squeeze really hard to build more efficiency into our operations.

What I've tried to communicate consistently is that this is now really hard work. We are down into the field at multiple levels to drive the next improvement, and we're going to continue to squeeze. I do think we have more opportunity ahead. It's incremental. I have tried to emphasize that each quarter..

That's great. And then as you look at the overall structure of the business, as you just noted in the underlying operating performance coming along pretty nicely, so maybe a little bit more opportunity to be -- look a little bit perspectively, specifically.

You talked a bit about in the past about the potential to be able to drop at least some of the aftermarket business in the MLP. I wonder if you just had any updated views on that. And then also the thoughts on the fabrication business longer-term. You've done a great job in restructuring that and getting the profitability up there.

It would seem like that maybe an opportune time to do something potentially monetize that business?.

Sure so 2 questions. I think, Mike, in that, one is on the dropdown strategy. I will say we do remain fully committed to getting that business into EXLP over time. So no change in the ultimate strategy to get that business drop down. As you know, we don't talk about timing of particular drop downs.

And then second on the fabrication business, let me just say that fabrication business has been a contributor to our overall business strategy to date. It is a contributor in allowing us to both control our destiny on the new build side, control our costs. And it is contributing nicely to our EBITDA today.

And so we've seen that as an important component to our overall operation..

And then finally, just one quick last one. Was the -- with the express project that you announced, was that -- that was to be announced right at the end of the third quarter.

Was that in the backlog for Q3?.

It is in the backlog for Q3..

The next question is from Jim Rollyson with Raymond James..

Brad, I know you don't give drop-down timing guidance, but would it be logical to assume for partners, given that you had 2 big external M&A acquisitions closed plus the big organic growth that it's -- you're probably not likely to do something in this calendar year? Is that a logical assumption?.

Boy -- look, Jim, I just can't really address the question. Whether I say we're not doing, or doing or give any information for it or not, it's not a road we're going to go down. I do think that what we said in the past, the best guidance is to look at our track record and start to extrapolate that. It's been an effective strategy for us.

Unless we have other things going on, which is you pointed out, we did with a couple of M&A transactions. But that's the most guidance we can give..

That's okay. I tried. On the -- this year, you had a very strong organic build rate, pretty strong demand it sounds like out there.

Can you maybe give us a little bit of color on what you're seeing? As we head into '15, do you see customer demand to continue to build organically? And when you think about the balance sheet, how high are you willing to go? It's like -- in other words, should we see -- expect to see maybe similar organic growth next year versus what we've seen this year?.

Well, sure. When we look at the business for '15 compared to business for '14, we have not seen any let up in the pace of activity, order activity, from our customers at all. Now the current market is one everybody is sorting through. And I tried to address it in my call that we really do have a caution as to the future impact.

Now our business is a lifetime business. We typically see some impact on new activity on a delayed basis. Overall in contract compressions, something like 6, maybe even 9 months. So there's a lot of uncertainty as to where our customers are going to focus on in 2015.

But the communications from our customers to date in conversations, the order activity we've seen, the opportunities that we've seen shows that we have, right now, a similar level of market activity in 2015 as we've seen in 2014..

That's very helpful. And last one just on partner's point of view. As the cost caps go away this year, you guys have obviously built up coverage to the pretty comfortable level planning for that.

Any thoughts on the longer-term horizon? Maybe where you think of our target for coverage for partners?.

Yes, with -- I'll give my view, and David can top me up, if he needs to. But overall, to be really comfortable in a stable business subject to growth expectations in market, uncertainty as well as what we're managing internally, right around 1.1 or a little higher would be a comfortable place ultimately to get to somewhere in that 1.1 to 1.2 range.

David?.

[Operator Instructions] The next question is from Blake Hutchinson with Howard Weil..

Brad, I just wanted to touch on some of your opening commentary.

I thought it's interesting as you laid out kind of the organic and even nonorganic build for the year, that although we typically associate with you very gassy type business profile, that the reality is a lot of it is touched to places like the Eagle Ford and Permian, and much more oily than you've been historically.

If we look at kind of your average operating horsepower, can you help us understand what might be still tied to the kind of old dry gas environment or even unconventional gas versus what realistically your oil exposure maybe at this point?.

Yes, I can. And as you asked the question, it's not totally clear to me whether we're looking for the sensitivity to oil or to gas, but let me just tell you what I can about overall horsepower position.

We think we have about 50% of the horsepower to date deployed on more rich liquids prone associated gas and/or gas lift type applications that are very tied to liquids production, and about half tied to dry gas production.

And within that dry gas production, however, there's a fair amount that's also on shale plays that are very economic at lower gas price levels or much more stable in offshore.

So it's about 50-50, but even with the 50% of dry gas exposure, a reasonable amount of it may be as much as 20% or so is still very stable horsepower on very cost-effective shale gas plays..

That's exactly what I was looking for. I'm glad you're able to gather that through my poorly-worded question.

And then the extension of that, if we think about the profile of the business where you are in -- at the wellhead versus the gathering line, does your more liquids-prone exposure actually argue -- that it's more for greater stability and utilization, is it closer to or deeper into the gathering system today than perhaps dry wellhead gas equipment was, generations ago were it's very sensitive to gas movement?.

Yes, your thesis is right on an overall basis, but I am not going to be able to quantify that one, Blake. But you're right in positing that the move to a more shale play activity, which we've certainly seen, has moved us further from dry gas wellhead applications, which made -- which in today's market I would view as more volatile.

So your thesis is right, it has moved. And I do believe that we have a more stable profile in our overall horsepower position to date than we had previously..

The next question is from Daniel Burke with Johnson Rice..

I wanted to ask one on international contract ops. Over the last 6-or-so quarters, it seems like we've seen the average operating horsepower there to continue to drift lower. We've seen revenue per horsepower coming up as an offset. I was wondering if you could, first of all, comment on what that trend is telling us.

And then secondly, you mentioned, Brad, the revenue backlog on a forward basis around $60 million.

Can you update us on -- any comments on the extent to which you think that backlog might be subsumed by some drift in the existing base lower?.

Yes, Daniel totally fair question. The business in Latin America tends to be very lumpy, and what I think you've seen is we had some fairly significant horsepower stops, particularly out of Brazil in '12. And then it was stable.

And then we've seen -- we have one project, actually, we had 2 projects that we had -- we terminated this year earlier than expected. It wasn't an early termination on the contract, but it did terminate earlier than expected, and so that's provided some of that downward momentum in horsepower.

And what we expect looking forward right now is candidly, a pretty good market in booking but fairly normal activity, which could include some pluses and some minuses and some drift as you described in the overall horsepower level.

Until we see an uptick, which we expect in the back half of '15 as some of these large projects get started up in the second half of 2015. What I really like about the business is that it's a stable cash flow generating machine even if the horsepower has drifted a little bit, you've seen that.

But we have a nice backlog of large installations that we're going to start up in 2015, and we have yet more projects that we're competing for very aggressively that we expect to land this year or early next year to continue to build that business back up..

That's helpful. And then another one, again, just jumping around here. On aftermarket, it doesn't capture a lot of scrutiny, but I thought I heard you all reference lower maintenance activity in North America. I didn't hear a reason or a thought on what would drive that trend..

Yes, sometimes the market just gives us that. And in this quarter, what we saw and we did not expect to either candidly was incremental lower activity on the maintenance side out of North America. Some of it we know is associated with the displacement of our activity as we are both selling and growing a contract compression.

Some of the same resources are pulled between those 2 businesses, so we think there's a touch of it there. But overall, what we'd say is that some of our customers were less active in the quarter than we expected. I wouldn't make much more of it beyond that..

Okay. So not a signal of what would happen going forward. One last one for me just on the -- on guidance. The share count -- 1.8 million shares to be added during Q4.

What was the share count as of the end of September?.

Hey, Daniel, we may not have that handy.

If it's okay, can we follow up on that after the call?.

Yes, not a problem..

The next question is from Majid Khan with Tourbillon Capital..

I have a quick question for you, but let me bother Brad for a little bit. Brad, I think we all appreciate how conservatively you run the business, but clearly, some of your comments this morning have got people very worried about the future potential of the business.

So I was just wondering, would you mind quantifying what your exposure to oil is through gas lift? And my understanding is that a lot of the gas production in the U.S. is going -- more production growth in the U.S. is very linked to LNG demand in the future, which works around $70 on brand.

So it doesn't sound like we're going to see a lull on that, so given that, like how concerned are you about oil activity levels and offset by growing gas production in the shale plays?.

Okay, interesting. Majid, I don't think there's an overly conservative approach. I do think that we have, from both the analyst community and from the producers right now who watch both oil price, gas price and the future impacts.

We have noticed that 2015 has a lot more uncertainty in it than we've had to deal with recently, and we just want to be heads up in how we talk about that. But if I step back and think about your question, I'll tell you that the data's easy on one point, we have about 16% of our units on a horsepower basis on gas lift right now.

But we have more of our units on the gathering side compressing associated gas that's driven by a lot of oil activity, and we're seeing that in the marketplace today. It feels very detached from it, disassociated from natural gas price to the extent it's producing liquids rich or associated gas applications.

So there's that part of it that I answered your question very directly. But stepping back, I can give you a broader perspective and maybe some context around the way we're thinking about the business today. On the first side, we think the secular trends for our business are excellent on an intermediate and longer-term basis.

We totally see and agree that the demand for natural gas is going to continue to increase over time as we look at both export in the form of LNG as well as pipeline to Mexico. We see increasing use for PowerGen, we see increasing growth in transportation and we're very bullish on what that's going to mean on an intermediate and longer-term basis.

So that part of the business absolutely solid on. Secondly, on the strategic side, we think we're doing a lot to the business, to improve its core operations profitability withstand any market as well as to grow in the markets that we expect to see ahead.

But from a cyclical basis, we could have a very challenging oil price and potentially, even a lower gas price in a short-term basis to deal with. And we just want to be real clear about that.

What we've also being clear about on the call, on a close here is that, to date, we have not seen a change in activity levels or in customer sentiment around that. But we also know we're a lifetime business, and wanted to make sure that people understood that..

Got it. Just 2 quick follow-ups. My conversations with your customers sort of indicate, one, that in the event oil or associated gas activity slows down, gas prices might actually move up, which is probably not so bad for dry or wet gas production.

Along with that, it seems like a lot of the liquid-rich plays, the cost curves are such that people aren't really worried about cutting production at these prices. Certainly, the growth will slow down, but they don't expect activity levels to slow down much especially, given the high decline rates in those wells.

So I was just wondering if you've had those conversations with your customers at that level, and given your exposures to some of the shale plays, will there be some offsetting kind of -- I guess, offsetting business fundamentals as if oil prices move down, let's say, even further from here..

Yes, look -- fair enough, there's a part of this that's really good speculation by the marketplace. I think other people are probably in a better position to do that than me. What we look at is what is the appropriate response to what the market may offer, including feedback from our customers.

And the feedback has been pretty consistent that at $80 a barrel level, people did not expect a lot of change where a lot of the production comes out of a breakeven that's closer to $60. But at $70, people are going to start to get concerned at the expression that we've seen, and if they're going to their planning exercise.

And dealing with the same uncertainty in this marketplace that felt like fair information for us to think about..

Fair enough. Just one last question for you, Brad, before I have one for John. But obviously, your stock is way off the highs. And I understand you have your own opinion on where to go to realize the value on some of the parts basis.

Judging by your comments on fabrication, I was wondering -- I looked at your CapEx guidance and it seems like organic CapEx or maintenance CapEx might be slowing in the coming years.

How are you feeling about increasing the dividend going forward, buying back stock? You've sort of expressed your opinion on the fabrication piece, but I'm just wondering what are you thinking about closing the gap between the sum of the parts value that is expressed in your long-term excitement about the business versus where the stock is trading in the market?.

Yes, fair point. Look, on the dividend itself, the amount will be set by the Board of Directors, taking into consideration where we are in the marketplace, free cash flow and competing uses for capital going forward. And so that's the approach we have on the dividend. It's one that we will revisit when those factors are warranted.

For the overall business right now, I'll point out we are consuming a bit of capital, and we've seen some investment opportunities that we want to take advantage of. And so we've seen this in the cycle pausing today's cautionary point on oil price and maybe gas going forward.

We've seen good opportunities for growth in the market place we want to take advantage of. So that's the way I think about the cash flow and the free cash flow right now. As far as the overall value in the company, I'll just remind -- reiterate, that we are fully determined to get the full value of our operations into our stock price over time.

We have various methods that we can look at doing it, but it's not something that is a part of our quarterly discussion right now or anything that we want to say anything about..

Fair enough.

Just a quick question for -- I was just wondering not having had the benefit, I think, for the market to talk to you, why do you find this opportunity exciting at Exterran? Why did you come over?.

Good industry, good people, see the opportunity. I think this is a place where we can create value for our investors, so I'm looking forward to contributing and working with the team here..

And we have no further questions at this time. I'd like to turn the call back to Brad Childers for closing remarks..

Okay. Everybody, thanks very much for your interest in Exterran Holdings and Exterran Partners. We look forward to talking to you again next quarter. Thanks..

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect..