Bradley Childers - President and Chief Executive Officer Jon Biro - Senior Vice President and Chief Financial Officer David Miller - Senior Vice President and Chief Financial Officer, Exterran Partners, LP.

Blake Hutchinson - Howard Weil, Inc. Marshall Adkins - Raymond James Sharon Lui - Wells Fargo Securities.

Good morning. Welcome to the Exterran Holdings' and Exterran Partners' First Quarter 2015 earnings call. At this time, I'd like to inform you this conference is being recorded, and that all participants are in a listen-only mode. We will open the teleconference for questions after the presentation.

Earlier today, Exterran Holdings and Exterran Partners released their financial results for the first quarter 2015. 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 the US and Canada, and the combination of US 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 release, as well as in the Exterran Holdings' Annual Report on Form 10-K for the year ended December 31, 2014, Exterran Partners' Annual Report on Form 10-K for the year ended December 31, 2014 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 Bradley Childers, President and CEO. I would now like to turn the call over to him. Mr. Childers, you may begin your conference..

Thank you, operator. 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 the call up for questions. So let me start with some comments about our recent results.

Despite the challenges of the current market, I'm pleased with how well our businesses performed in the first quarter.

While the industry-wide decline in customer spending has impacted our operations, our more production-related businesses, particularly our North America and international service businesses, delivered very good results in the quarter, highlighted by generally flat operating horsepower levels, and increasing gross margin dollars.

Although bookings in our service businesses were lower than we experienced in recent quarters, the performance of these businesses continues to demonstrate stability compared to other businesses that are more closely tied to drilling and completions activity.

For our fabrication business, the high backlog levels we were able to build late last year positioned us to deliver solid operating and financial performance in the first quarter. Fabrication bookings, on the other hand, were substantially reduced by the sequential and year-over-year basis, leading to a reduction in our backlog.

While a reduction in bookings was expected given market conditions, the severity of the drop-off, I believe, reflects both reduced activity levels in response to the decline in oil prices, and extreme caution on the part of our customers as they reset capital budgets and aggressively sought to reduce costs during the first quarter.

We expect our customers to increase their activity levels from this very low point, but the timing of that increase is very difficult to predict. As a result, our visibility into the activity levels for our fabrication business in the second half of the year is low.

In response, we are aggressively reducing our costs in accordance with activity levels to preserve our profitability and maximize our cash flow during this downturn. And we will continue to do so until market conditions improve. In addition to delivering very good operating performance, we accomplished a great deal on the corporate side, as well.

We made significant progress on the separation of our company into two more focused companies, which we now expect we will be able to close in the third quarter. We increased our borrowing capacity at EXLP. We prepared for the dropdown of assets into EXLP, which was closed on April 17, 2015. And we reduced both our operating and our overhead costs.

Turning to the performance of our operating segments. In North America contract operations, operating horsepower was essentially flat, increasing horsepower in the Utica, Bakken, and Eagle Ford shale, and the Permian and Niobrara accounted for the majority of the 50,000 horsepower of growth we saw, primarily in liquids-rich and gas lift applications.

This growth was offset by 61,000 horsepower declines, mostly in conventional plays. We achieved solid financial performance in the contract operations segment in North America. Gross margin was a stout 59% in the first quarter of 2015, compared to 57% in the fourth quarter of 2014.

Our results benefited from lower lube oil and truck fuel expense, due to lower oil prices, as well as lower parts and make-ready expense. Our international contract operations business also generated solid operating results in the first quarter, with revenue and profitability generally in line with expectations.

While our underlying operating performance was solid, financial results did include the benefit of cost recoveries in Argentina that are not expected to repeat in the second quarter. Operating horsepower declined modestly, as increased activity in Mexico was offset by declines in other Latin American markets, as well as in Indonesia.

As March 31, our international contract operations backlog of new projects stood at $54 million of annual revenue and 59,000 horsepower of compression.

For 2015, we are focused on the execution of our new projects, which include a compression project in Brazil that’s scheduled to start in the second half of 2015, a compression project in Bolivia, and a processing and treating project in Brazil. The last two projects are expected to contribute to our financial results beginning in 2016.

Our aftermarket service business profitability continues to be within our target range. As part of our ongoing work to simplify our operations, take out costs, and improve profitability, we’ve determined to exit some of the markets in which we have operated, and this has included our exit from Australia and Gabon over the past several months.

In our fabrication business, good execution and throughput in our facilities helped drive solid profitability in the first quarter, though our backlog declined to $730 million at March 31, due to the lower level of bookings in the quarter.

Bookings in the quarter included contract awards for Belleli and a reasonable level of bookings for production equipment in the US, considering the current market environment. The product lines that saw the sharpest decrease in new order activity were processing and treating, and compression.

Now turning to our markets and the outlook for our business, I’m going to start with our North America contract operations. Through the first part of 2015, we’ve seen a reduction in new bookings, and an increased level of stopped activity as customers focus on production costs.

These trends resulted in relatively flat operating horsepower levels when comparing the first quarter of 2015 to the fourth quarter of 2014. In response, we’ve reduced our 2015, growth capital expenditures in North America contract operations from our prior guidance, and we now expect a 40% reduction over prior year levels.

While we believe our production-related business model should lead to relatively stable performance for our North America contract operations business over the course of the year, we expect that delays in drilling and completion activities, and increased cost focus by our customers will exert pressure on both our new bookings and the level of stopped activity we may see until the market improves.

Turning to our international contract operations, these activities are driven largely by natural gas production in international markets, which is expected to remain relatively stable or grow in 2015.

In addition, most of our international infrastructure projects are driven by longer-term plans from our customers, and are tied more closely to look like markets and commodity pricing in those markets than to global commodity prices.

In 2015, a key focus is on the execution of the strong backlog of committed projects underpinned by relatively long-term contracts. As a reminder, a significant portion, and that is about 50%, of our international growth capital expenditures in 2015 are reimbursable from our customers on start-up of the projects.

In our aftermarket services business, we provide maintenance, services, and parts on equipment owned by our customers operating in the oil and gas industry. In the first quarter, we experienced atypical seasonal sequential decline in our aftermarket services business.

Looking ahead, we expect aftermarket services revenue in the US to decline relative to 2014 levels, as we expect some of our customers to defer maintenance activity as a way of temporarily lowering costs in their businesses.

Internationally, we expect a year-over-year decline in revenues from 2014 to 2015 due, in large part, to our exit from the two markets in the Eastern hemisphere already mentioned.

Turning to our fabrication business, as I discussed, first quarter bookings declined significantly compared to the exceptionally strong level of bookings achieved in the fourth quarter of 2014.

And while we do not believe recent bookings levels are sustainable for a long period of time, we are adjusting our cost structure to reflect current market conditions.

Regarding our cost reduction activities, while the downturn will impact each of our products and services businesses differently, we are taking appropriate actions in each of our business lines and at the corporate level to ensure our company is and will remain right-sized for business activity levels.

Some actions that we've taken already include that we have implemented a pay freeze across the company. We've undertaken a program of cost reductions with our vendors to maximize the savings opportunities available in this market, and to achieve a timely realization of those cost benefits.

We achieved a significant reduction in SG&A in the first quarter of 2015 compared to 2014, and we’ve reduced planned CapEx for 2015.

We’ll continue to work closely with our customers to monitor activity levels in each of our businesses, and continue to reduce cost and capital commitments, as appropriate, to maximize our free cash flow and protect our capital structure.

We are not only committed to focusing on profitability, but also to being well positioned to take advantage of market opportunities as they present themselves during this downturn, and when the cyclical recovery begins.

Now, regarding our planned separation transaction, we continue to make progress with the plan to separate our international services and global fabrication businesses into a new publicly traded company.

In March, five new Directors were nominated to the Exterran Holdings Board in contemplation of the separation transaction, and we now expect to close the transaction in the third quarter of 2015. So now let me close my Exterran Holdings part of this call.

We are pleased with the solid operating performance in the first quarter, which we believe highlights the relative stability of our production-oriented businesses.

Looking ahead, we are focused on managing our costs, in line with activity levels, executing on existing projects, particularly in Latin America and seeking long-term growth opportunities across our businesses. In addition, we remain on track with the execution of our strategic separation transaction.

We believe this will create two strong businesses, the US service business and the international services and global fabrication businesses that will be better positioned to capture more profit and growth, as well as generate more value for our investors.

We remain optimistic about the outlook for our production-oriented products and services, underpinned by long-term oil and gas supply and demand trends. In particular, the prospects for natural gas are compelling, given industry investment in petrochem, gas-fired power plants, and LNG export facilities. Now, turning to Exterran Partners.

Exterran Partners generated solid results in the first quarter, delivering a 36% increase in revenue year-over-year and a 40% increase in EBITDA, as further adjusted. Without the impact of the cost caps, the year-over-year increase in EBITDA, as further adjusted, was 58%.

During the quarter, our results benefited from the two significant acquisitions we completed last year, as well as our fleet investment program. For the first quarter of 2015, we increased the quarterly distribution to $0.5625per limited partner unit, or $2.25 on an annualized basis, up 4.7% compared to the year ago period.

Exterran Partners' solid financial performance highlights the relative stability of our production-oriented fee-based business model.

Last month, we completed a drop-down transaction between Exterran Holdings and Exterran Partners, which will improve EXLP's capital structure and increase its leadership position in the US contract compression business.

We will continue to seek to grow the partnership through fleet investments and acquisitions, including the purchase of additional assets from Exterran Holdings. And now, moving to the financial section of today’s call.

I'd like to turn the call over to Jon for a review of the financial results for Exterran Holdings and quarterly trends and guidance for the second quarter of 2015..

Thanks, Brad. First, I'll provide a summary of the results for the first quarter, and then I’ll provide guidance for Exterran Holdings. Exterran generated EBITDA, as adjusted, of $182 million for the first quarter, consistent with our solid fourth quarter results.

Revenues were $725 million for the first quarter, compared to $794 million in the fourth quarter. We also reported diluted net income from continuing operations attributed to Exterran common shareholders, excluding items, of $0.27 per share in the first quarter. This compares with $0.31 per share in the fourth quarter.

The first quarter results of $0.27 per share included currency losses of $7.5 million. Those losses were related to the re-measurement of US dollar-denominated intercompany obligations at our foreign subsidiaries. And the primary driver was the substantial weakening of the Brazilian real relative to the US dollar during the quarter.

These currency losses, which are included in other income and expense on our income statement resulted in a reduction of about $0.10 per share in the first quarter. Now turning to segment results. North America contract operations revenue came in at $202 million in the first quarter, up 1% compared to $200 million in the fourth quarter.

Operating horsepower in the quarter declined slightly by 11,000 compared to December 31, 2014 levels. This decline included the sale of operating units representing 9,000horsepower, primarily to one customer during the quarter.

In our North America contract operations business, growth capital expenditures were $77 million in the first quarter, down compared to $83 million in the fourth quarter. Maintenance capital expenditures were $17 million in the first quarter compared to $18 million in the fourth quarter. Now, regarding our international contract operations business.

Revenue was $121 million in the first quarter compared to $124 million in the fourth quarter. Gross margin was 63% in the first quarter, somewhat higher than expected primarily due to increased activity in Mexico, and as Brad said, cost recoveries in Argentina that are not expected to repeat in the second quarter.

Last, our international operating horsepower is 960,000 at March 3, 2013. With respect to our North America and international contract operations businesses, we have received requests for pricing discounts from some of our customers in US and international markets.

We are working through these issues and have incorporated any expected impact in our commentary and guidance. In our aftermarket services business, revenues were $87 million and gross margin was 24%.

Our first quarter results include the non-recurring receipt of a cost recovery settlement from a customer relating to the termination of a project in the eastern hemisphere. This positively impacted revenue by $3.7 million and gross margin dollars by $2.2 million in the quarter. We had another solid quarter in our fabrication business.

Revenue of $319 million during the first quarter breaks down as about 55% production and processing installation, 30% compression, and about 50% from Belleli. Geographically, the revenue split was roughly two-thirds from North America and one-third from international.

Fabrication margins were 16% compared to 18% in the fourth quarter 2014.As a reminder, fourth-quarter results included the benefit of $4 million warranty expense reversal that did repeat in the first quarter.

Our fabrication backlog decreased to $730 million at March 31, 2015 compared to $953 million at December 31, 2014.Bookings were $96 million for the first quarter, representing a significant decline from robust fourth quarter levels. In the first quarter, bookings were roughly 60% from North America and 40% from international markets.

And quarter-end backlog was roughly 50% for North America and 50% for international markets. SG&A expenses were $87 million during the first quarter. This is a decline of 8% compared to $95 million in the fourth quarter, primarily driven by reduced compensation and benefits expense, and compared to $93 million in the first quarter of 2014.

Depreciation and amortization expense was $96 million for the first quarter, an increase from $90 million in the fourth quarter. It was driven by investment in new US fleet units and increased activity in Mexico.

In the quarter, we recognized non-cash long-lived asset impairments of $13 million, primarily related to our idle compressor fleet, and restructuring charges of $5 million related to our separation transaction. Interest expense was $27 million, which was flat compared to fourth quarter levels. Last, our consolidated tax rate was 42% for the quarter.

Now turning to guidance for the second quarter of 2015. In North America contract operations, we expect revenue of approximately $200 million and gross margin to be in the 56% to 58% range. For our international contract operations, we expect revenue in the $150 million range.

Gross margin is expected to be around 60%, down from first quarter levels, driven primarily by the cost recovery in Argentina I mentioned earlier that is not expected to repeat. For the second quarter of 2015, we expect aftermarket service revenue to be between $70 million and $80 million, with gross margins around 20%.

In our fabrication business, we expect revenue between $270 million and $310 million and we expect gross margins around 15%. Profitability is expected to be down from first quarter levels, due to manufacturing cost inefficiencies and pricing pressure for some shorter-cycle products.

Regarding SG&A expenses, we expect them to be around the mid-$80 million level. Depreciation and amortization expenses should be in the $95 million to $100 million range.

And interest expense should be approximately $28 million in the second quarter of 2015.For the second quarter and full year 2015, our effective tax rate from net income from continuing operations attributable to Exterran stockholders, excluding items, is expected to be around 45%. Now regarding capital spending.

Net capital expenditures were $131 million for the first quarter. Growth capital spending in the first quarter was $107 million, which included $77 million from North America, primarily for our fleet new-build program. Maintenance capital expenditures for the quarter were $22 million, down from fourth quarter levels of $24 million.

For 2015, we now expect net capital expenditures to be between $400 million and $450 million, down from previous guidance of $475 million to $525 million. This is driven by timing of international projects and a reduction in new-build program requirements. For 2015, we expect maintenance capital expenditures of between $100 million and $110 million.

In our North American contract operations business, we now expect growth capital spending in the $160 million to $180 million range in 2015, down from $292 million in 2014, and we expect growth capital will be split roughly equally between our North America and international operations.

In North America, we expect about 85% of these capital expenditures will be for customers of Exterran Partners, and will be funded by Exterran Partners. North American contract operations maintenance capital spending in the second quarter is expected to be flat to slightly higher compared to first quarter levels.

For our international operations, approximately half our growth capital expenditures in 2015 of around $140 million are reimbursables from our customers upon project start-up. During the first quarter, debt declined $21 million at the Exterran Holdings parent level.

Debt increased $42 million at the Partnership level, largely due to fleet investments funded under the Partnership’s revolver. In total, consolidated debt increased $21 million in the quarter. Exterran Holdings’ leverage ratio, as defined in our credit agreement, was 1.5 times at March 31, 2015 compared to 1.6 times at December 31, 2014.

At March 31, 2015, we had undrawn and available capacity of $809million under our credit facilities, including$355 million at Exterran Partners.

Cash distributions due to be received by Exterran Holdings based on its limited partner and general partner interests in Exterran Partners are $15.6 million for the first quarter compared to $15.2 million for the fourth quarter.

And finally, last week, Exterran Holdings Board of Directors declared the sixth quarterly cash dividend to common stockholders of $0.15 per share. This dividend will be paid on May 18, 2015 to shareholders of record on May 11.In conclusion, we are pleased with the solid operating performance across our business segments.

Looking ahead, we are focused on managing our costs in line with activity levels, while at the same time seeking long-term growth opportunities. I will now turn it over to David Miller to talk about Exterran Partners.

David?.

Thanks, Jon. Exterran Partners had a very strong first quarter. As a reminder, we eliminated a need for cost cap reimbursement at the end of 2014, given EXLP’s solid level of distribution coverage. The cost caps provision of the omnibus agreement terminated on December 31, 2014.

Cost cap reimbursements from EXH to EXLP were $3.6 million in the fourth quarter of 2014, all of which related to the SG&A cost cap. Our EBITDA, as further adjustment without the benefit of the cost caps for comparative purposes, was $78.7 million in the first quarter of 2015 compared to $76.9 million in the fourth quarter of 2014.

Distributable cash flow without the benefit of the cost caps was $51 million in the first quarter of 2015 compared to $49.8 million in the fourth quarter of 2014.Maintenance capital expenditures were $10.1 million in the first quarter as compared to $9.8 million in the fourth quarter of 2014.

Our distributable cash flow coverage was a solid 1.42 times in the first quarter of 2015. First quarter ending operating horsepower decreased sequentially by 8,000 to approximately 3.03 million operating horsepower.

Revenue for the first quarter was $164.3 million as compared to $161.1 million in the fourth quarter, due largely to higher average operating horsepower in the first quarter, given the growth in operating horsepower during the fourth quarter of 2014.

Gross margin was 60% in the first quarter, down from 61% in the fourth quarter, which is a seasonally high margin quarter. Cost of sales per average operating horsepower was $21.48 in the first quarter. This was up 1.5% compared to the fourth quarter of 2014.

Cost of sales per average operating horsepower was down 8% from prior year levels, driven by the benefits of our recent acquisitions, organic growth and efficiency initiatives. SG&A expenses were $21.2 million in the first quarter, essentially unchanged from fourth quarter levels.

Depreciation and amortization for the first quarter was $36.1 million compared to $35 million in the fourth quarter. Interest expense for the first quarter was $17.8 million compared to $17.2 million in the fourth quarter, largely due to higher debt levels.

Net income per limited partner unit was $0.28 in the first quarter, up from $0.27 in the fourth quarter. Net income per limited partner unit, excluding items, for the first quarter was $0.35, excluding charges of $3.5 million due to non-cash, long-lived asset impairment charges related to our fleet.

Last week, Exterran Partners announced its distribution of $0.5625 per limited partner unit or $2.25 per limited partner unit on an annualized basis. Our quarterly distribution is $0.005 higher than the fourth quarter distribution and $0.025 higher than the first quarter 2014 distribution.

On the balance sheet, we increased the borrowing capacity of our credit facility by $250 million to $1.05 billion during the first quarter. Total debt increased by $42 million during the quarter to $1.3 billion at March 31, 2015. The increase in debt was due to additional borrowings to fund growth capital expenditures.

Available undrawn debt capacity at Exterran Partners' debt facilities at March 31 was approximately $355 million. As of March 31, 2015, Exterran Partners had a total leverage ratio, which is covenant debt to adjusted EBITDA as defined in the credit agreement, of 4.4 times as compared to 4.3 times at the end of the fourth quarter.

As Brad mentioned, on April 17, 2015, Exterran Partners acquired assets from Exterran Holdings for consideration valued at $102.3 million, including customer contracts serving 60 customers together with 238 compressor units used to provide compression services under those contracts. Those compressor units represent approximately 148,000 horsepower.

In addition, the acquisition included 179 compressor units comprising approximately 66,000 horsepower previously leased from Exterran Holdings to Exterran Partners. The consideration paid to Exterran Holdings' affiliates consisted entirely of Exterran Partners’ equity composed of approximately 4 million common units and 80,000 general partner units.

The all-equity dropdown increases Exterran Partners' leadership position in compression services in the US, and improves Exterran Partners' credit metrics. Growth capital expenditures for the first quarter were $68 million, consisting of $58 million of fleet growth capital and $10 million of maintenance capital.

For the full year 2015, we now expect total fleet growth capital expenditures to be in the $135 million to $155 million range, down from previous guidance of $145 million to $165 million.

In addition for 2015, we now expect maintenance capital expenditures of approximately $50 million to $55 million, down from previous guidance of $55 million to $60 million.

In summary, first quarter highlights for Exterran Partners include an expansion of our credit facility, preparation for a dropdown that closed on April 17, solid operating performance and distributable cash flow coverage of 1.14 times. At this point, we'd like to turn the call back over to the operator to open it up for questions..

Thank you. [Operator Instructions] And our first question is from Blake Hutchinson of Howard Weil. Please go ahead..

Good morning..

Good morning, Blake..

Just wanted to look first at your North American contract operations guidance for the second quarter. I guess when we started the year it was your feeling that new capital equipment deployed might roughly match up to the stoppages.

In your commentary, you kind of alluded to perhaps the fact that the stoppages were accelerating a bit as we exited the quarter.

I guess I'm trying to get a feel for this, or would you point to the type of stoppage activity you had in the first quarter as kind of a good run rate as we look out through the year?.

Blake, it’s Brad. So looking out into the year is challenging in the market environment even though we really do believe we have a stable operating business that we’re going to benefit from that performance all year long. We know that historically we see more stop activity in the back half of Q2 and the front part of Q3.

It’s a little bit of a seasonal bump that shows up in our data all the time. The challenge in this market is how far to extrapolate that, so there’s uncertainty in the answer, but what we expect is real solid stability.

But we know right now that the stop activity levels tend to be a little higher at this time of the year and right into the front part of Q3, and they typically moderate after that. So we stand by the stability comment, I stand by the fact that we can really expect this business to perform with stability throughout the course of the year.

But know that there is more uncertainty in this market as to what the buying activities and investment activities of our customers are going to look like. It also is impacted by their cost-savings initiatives, which can translate into higher stop activity. So we need to see how long that continues.

That’s the balance of factors that we are weighing and looking at how we think about that business going forward..

And then your international guidance for 2Q as well, we understand sporadically you can have issues, like the cost recovery in Argentina.

I guess with the kind of lower guidance for 2Q, is that indicative of the matching up of that contract actually stopping or somebody prepaying out, or is there a currency impact that is a kind of one-time reset of your top line? And then, along with that question, can you talk about when the bulk of the kind of revenue backlog should kind of start to offset that in terms of timing?.

Okay. That was a lot in your question. Let me do the best I can. So in ICO what we’re seeing for the revenue reduction is driven by, yeah, the one-time Argentina impact is probably the biggest from a magnitude. You’ll note also horsepower declined modestly in this quarter. That sets up for an incremental decline going forward.

And then we have had some price discussions with our customers that we have both anticipated and are working on, we’ve put into our forward guidance as well. So I think you're seeing a summation of those three factors in looking at what our ICO revenue is going to do in Q2..

And then just a commentary on when we should start seeing the backlog kind of trickle in?.

Yeah, the project that I referred to in Brazil, we have one that starts up in the second half of 2015, so it’s Q3, Q4 event. And then the other major backlog events don’t occur until late 2015 and the beginning of 2016, primarily impacting 2016..

Okay. Thanks for that. I’ll turn it back..

Sure..

Thank you. Our next question is from Marshall Adkins from Raymond James. Please go ahead..

Good morning guys..

Good morning..

Morning..

You gave us some detail on your costs coming down. I want to delve into that a little bit further.

Can you give us a little more color on kind of where the costs are coming down? Is it fuel, for fuel operations at lubricants, or are we seeing some labor reductions just given the overall pullback in the oilfield?.

Sure. The biggest driver, and most of that reference felt like it was to NACO, and since we have businesses that operate differently, let me talk to each of them separately.

Through the first quarters, you can see from our results, we didn’t see a lot of impact from the drop-off in activity levels and I’ve noted in the past and we’ve discussed in the past that our business really experiences about a six-month lag time between when the real upstream impact is felt, so when we see it in our business.

What we’re seeing to date coincides and reinforces that perspective for most of our businesses overall. So it means that activity levels for us did not drop off in Q1, and so we did not take a lot of direct labor out of the field, in fact, our operating horsepower in both ICO and NACO were fairly stable. So that was not the driver.

And in our fabrication businesses, again, we had accelerated pull-through and activity in our shops that we benefited from, so you didn’t really see reductions there either. Where the cost benefit did kick in in NACO is we did benefit from lower lube and fuel expense. That was most noticeable.

We chased to ensure we were getting that expense through negotiations with our vendors as timely as we could. And we also put in place rapid repricing discussions with our vendors to ensure that the market environment that we’re experiencing gets passed on and they share in it as well as we can also. So we saw some lower materials expense.

And then finally, we saw the major impact of lower comp as we flattened out comp for the year and put in a wage freeze across the board early in the year and taken other steps to manage compensation. So those were the main impacts that we saw on the cost savings in the quarter..

So you had a wage freeze, but it doesn't sound like overall wages are coming down like it is for a lot of the other areas upstream..

We haven’t experienced that yet..

Okay.

But possible six months down the road?.

Sure. Yeah, it’s definitely possible, but I’ll point out that for a lot of the other service companies, they are operating in an environment where the utilization of their equipment and of their overall system and labor has dropped and is a lot lower.

What we expect to see is a lot of stability in the utilization of both our equipment and our workforce. Given that environment with our stilled workforce, it remains right now not as competitive as it was certainly at the back half of 2014, but it remains competitive in the marketplace, especially in growth markets for labor and for equipment..

Right, that makes sense. Last one for me. Obviously, the upstream side is getting a lot pricing pressure. Given the stability you referenced, are you seeing any pressure in pricing from your customers or is that holding relatively stable? I'm referring more specifically on the North American side..

So in North America contract ops, we have had pricing pressure and experienced pricing pressure from our customers. What we have accomplished to date is to maintain what I think is still a strong gross margin, revenue contribution and revenue per operating horsepower with the strength of our operations to date.

And anything else that we think we needed to reflect, we've baked into our forward guidance. Otherwise, talking about forward pricing is off-limits..

Okay. Thanks guys..

Thank you..

Thank you..

Thank you. [Operator Instructions] Our next question is from Sharon Lui of Wells Fargo. Please go ahead..

Hi, good morning..

Good morning, Sharon..

Sharon, good morning..

To follow up on your previous comment, at this point, are you not able to talk about the magnitude of price - potential price or rate decreases in North America?.

Thanks, Sharon. Yeah, the conflict is, just from an antitrust perspective, talking about what we are doing or are seeing from a forward-pricing perspective is not something that's permitted. So from an antitrust perspective we stay away from forward pricing guidance.

We try to be very clear in describing what we’ve accomplished and what we've done after we’ve done it. And that’s the divide, Sharon. That’s why. We’re not trying to be cute on this, just trying to make sure we can answer it as fully as we can and comply.

So what I’d still say on pricing is that we think we have relatively strong pricing position that we’ve put into - what we accomplished in Q1 and what we’ve put into our Q2 outlook..

Okay. That's helpful. And then just trying to quantify, I guess, the amount of EBITDA still available for drop-downs to EXLP.

If I just look at the consolidated 2014 results and the Form 10 filing, can we assume, I guess, the difference in EBITDA of about $52 million before the last drop is a close estimate?.

The way to think about it, Sharon, I think is if you look at our horsepower remaining at EXH after this drop-down, it’s kind of around 500,000 horsepower and then I think I would use that to back into EBITDA..

Okay.

So at this point the aftermarket service business, are there thoughts about getting a PLR, or what are your thoughts in terms of dropping those assets?.

Sharon, it’s Brad. What we said in the past is and I believe most of that AMS business is qualifying income-generating business. We actually believe that and we said it. To date, however, no one has gotten a PLR on that business that would assure that it generates qualifying income, and the IRS has not been in the business issuing PLRs recently.

So we don’t have any update on the status of that beyond that..

Okay. And then I guess just a last follow-up on the CapEx spending. You, I guess, reduced the CapEx for North America contract ops.

Are there specific regions where you're seeing more weakness than others?.

Yes. That definitely is the case. We still see and this is - it’s not a change in the location when we think about the geographic plays that are attracting investment compared to those that are not attractive investment currently.

And where see the growth for us and where investment is still going in is the place that you’d expect big in the Permian, the Eagle Ford, the Niobrara and a few of the other plays I listed are still attracting investment.

Where we see downturns remain in conventional older legacy plays that are just more expensive to operate in this operating environment. And that includes both dry gas as well as candidly some of the conventional plays that have more rich gas, but are not as cost effective in this commodity price environment.

But it’s not a change in the location of what’s attracting investment. It’s really a change in the magnitude..

Okay, great. Thanks for your commentary..

Thanks, Sharon..

Thank you. I will now turn the call back over to Bradley Childers for final comments..

Great. Thank you everyone for your interest in Exterran Holdings and Exterran Partners. We are proud of the quarter we had and we look forward to talking to you again at the end of our second quarter. Thanks very much..

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