Greetings. Welcome to the Exterran Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I will now turn the conference over to your host, Blake Hancock, Vice President of Investor Relations. You may begin..

Good morning, and welcome to Exterran Corporation’s third quarter 2021 conference call. With me today are Exterran’s President and Chief Executive Officer, Andrew Way; and David Barta, Exterran’s Chief Financial Officer.

During this conference call, we may make statements regarding future expectations about the company’s business, management’s plans for future operations or similar matters. These statements are considered forward-looking statements within the meaning of the U.S. securities laws and speak only as of the date of this call.

The company's actual results could differ materially due to several important factors including the risk factors and other trends and uncertainties described in the company’s filings with the Securities and Exchange Commission. Management may refer to non-GAAP financial measures during this call.

In accordance with Regulation G, the company provides a reconciliation of these measures and its earnings press release issued yesterday and a presentation located in the Investor Relations portion of the company’s website. With that I will now turn the call over to Andrew..

Thanks, Blake. Good morning, everyone, and welcome to our third quarter results for 2021. Exterran performed well in the third quarter as we executed on our global backlog and capitalized on a robust and growing commercial pipeline.

Overall, the quarter came in-line with our expectations on EBITDA, as adjusted basis, net debt decreased by $15 million and commercially we achieved success with over $125 million in ECO renewals in Latin America, in addition to closing a long sought after water contract.

In regards to the $125 million in extensions, this increases our renewals in Latin America to over $450 million since the start of 2020.

Additionally, these extensions have added the benefit of requiring minimal CapEx investment with our contract operations backlog now over $1.4 billion, the highest in nearly three years; we have excellent visibility to our ECO outlook for the next several years. The product sales pipeline remains robust and continues to improve.

As I have stated in the past, projecting timing of these awards is challenging given the size and scope of the projects along with the fact that many projects have multiple partners involved in the decision-making process. We continue to pursue many larger near term projects than we anticipate and we anticipate closing in the next several months.

As previously announced in September, I’m happy to share an update on the significant contract Exterran Water Solutions was awarded. This is a long-term multi-year contract that will treat over 150,000 barrels of water a day, leveraging our Gas Flotation Technology. With this win, Water now comprises over 25% of our ECO backlog.

This award along with the prior significant water contract award in the first quarter of this year underpins our transition as we continue to position ourselves as a fully integrated gas and water solutions company. Moving on to operations. COVID-19 and its variants continue to pose potential hurdles for the industry.

The environment continues to remain dynamic and we have experienced some minor logistical challenges in transporting people at equipment site. However, we continue to make great operational strides and have seen no meaningful delays in the execution of our projects.

While we continue to work to mitigate these risks, we anticipate potential challenges through the remainder of this year and into the early part of next. Lastly, over the past few quarters, we have spoken about the capital structure review we undertook to position ourselves to take full advantage of our commercial pipeline.

We are in the midst of 2022 planning and continue to feel very positive about the forecast of 15% growth in EBITDA year-over-year. Additionally, we continue to pursue operational items that can enhance liquidity, leverage, or both. This could include improved working capital, asset sales or contract renewals.

To close in summary, we are performing well today and see significant opportunities to continue growing as we transition to a fully integrated gas and water solutions company. And with that, I’ll turn it over to Dave..

Thanks, Andrew. For the quarter, we delivered EBITDA as adjusted of $35 million on revenue of $161 million, which is in-line with our guidance. This resulted in an EBITDA margin rate of 22%.

From a segment perspective, revenue per contract operations was $83 million, while adjusted gross margin was $56 million resulted in a segment gross margin rate of 67%. Revenue decreased sequentially primarily due to the acceleration of deferred revenue in the prior quarter that we did not repeat.

ECO backlog at the end of the quarter, as Andrew shared, stood at approximately $1.4 billion, driven by the new water booking and the renewals Andrew mentioned. For AMS revenue was $25 million and adjusted gross margin was $5 million. This resulted in a segment gross margin rate of 21%.

Revenue declined sequentially due to the timing of global part sales while the margin rate rose slightly from favorable mix. Revenue in the product sales segment was $53 million, an increase of nearly 82% from the prior quarter and adjusted gross margin was $7 million nearly tripling from Q2. This resulted in a gross margin rate of 12%.

Revenue increased from the prior quarter as significant progress was made on our Middle East project. The gross margin percent improved to double digits as a result of improved volume and lower under-absorption. Our product sales backlog was $365 million at the end of the third quarter compared to $411 million at the end of the second quarter.

SG&A for the quarter was almost $35 million, a small increase from the $34 million reported in Q2. Moving to the balance sheet. Our total debt at the end of the quarter was $573 million, while our net debt was $513 million. Our leverage ratio was 3.6 times, which was flat to the second quarter and our total available capacity was $143 million.

With respect to the fourth quarter, we expect adjusted EBITDA to be in the low to mid $40 million-range. We expect continued progress on key projects in the Middle East region, which should drive further increases and product sales revenue along with the revenue impact from some of the expected bookings.

For the year, our outlook has been adjusted slightly based on Q3 results and the Q4 outlook. This is driven by the timing delay of product sales awards. Therefore, we are modestly lowering our full-year guidance for adjusted EBITDA to between $143 million and $148 million.

CapEx for 2021 is expected to be between $55 million and $65 million with reimbursable CapEx around $35 million. Maintenance and other CapEx to be approximately $20 million and cash taxes are forecasted to be around $20 million as well. Lastly, I’d like to provide further insight into current views on the previously announced capital structure review.

But before I do that, let’s revisit the original driver of this announcement. Earlier in the year, we provided some guardrails for our multi-year forecast and based on that forecast, there was not a requirement to undertake any capital structure-related actions.

The forecast provided ample resources to execute our plan without leverage or liquidity concerns.

The purpose of the announcement was to explore opportunities to increase our ability to tackle a $3.5 billion project pipeline we are working, given the amount of eco-type projects that are included in that pipeline and to make sure we have prudent liquidity cushion. As Andrew shared, we remain confident in the forecast provided.

So, the focus remains on all sensibly preparing for customer opportunities. Over the past few quarters, we’ve also talked about our pursuit of operational projects to improve our balance sheet in the nearer term. We’re making great progress on that front with potential opportunities to sell surplus inventory and certain fixed assets.

We believe we could begin to see these benefits in Q4. With respect to the longer term, while the capital required to fund the two water orders announced this year was included in our forecast under the assumption that we self-fund those projects.

We continue to develop opportunities to partner with third-party capital providers to fund the CapEx needed for future ECO projects. We are fairly deep in exploring the third-party approach and are working on a couple of early stage projects with this structure in mind.

This approach would mean the equipment will fall off under product sales and we would have AMS contracts for the operational portion. While we change the P&L geography of these deals, it would mean unlimited growth opportunities for the company.

Let me conclude by saying that we are continuously assessing ideas to drive value for shareholders through all available financing approaches, balancing the various factors and such decisions and reviewing any and all opportunities to ensure we have sufficient liquidity to execute our strategy.

And with that, I’ll turn the call back over to Andrew for his closing remarks..

Thanks, Dave. The commercial activity in the third quarter feels like signs of what’s to come over the next several quarters. Improved markets both in terms of pricing and demand gives us confidence in more projects to increase supply, as well as the growing focus on improving existing production and reducing emissions.

As we look to close the year, we are focused on project execution and converting the robust pipeline that is laid in front of us in the backlog, thus setting the stage for our three-year outlook. That will not only show remarkable growth, but additional value to our stakeholders.

The strategy the company has undertaken over the past several years has started to take a hold on our leveraged to natural gas and water, exemplifies our participation in the sustainability movement. And with that, I'll now turn the call back to the operator..

Thank you. At this time, we'll be conducting a question and answer session. [Operator Instructions] Our first question comes from the line of Kyle May with Capital One Securities. You may proceed with your question..

Hi. Good morning, everyone. Maybe just a couple of questions around the capital structure review.

First one, just for clarification, now that you are focused on operational opportunities, is it fair to assume that there is no intent to issue equity at least in the near term?.

Yes. Again, maybe the risk of being a little bit repetitive. We are focused on the operational elements, we talked about. I think those are basically – it’s prudent business opportunities that we have and again, reflecting a little bit on my comments, there wasn’t some pressing -- and maybe we erred and not being clear from the start.

The forecast we provided certainly did not indicate any significant pressure points. So, this is really more about offensively preparing ourselves to take advantage of what we see is really strong pipeline.

So, we’re going to focus on the operational opportunities we have and we touched on some of those both Andrew and I on this call or other calls can help liquidity, help leverage, help both and we think those are the most prudent place to have our attention at the current time..

Got it. Okay, that makes lot of sense. And, Dave I know you touched on the availability to partner with third-party capital providers.

Is there any -- and I realize it’s a work in progress or you're exploring all opportunities, but is there any other, I guess, color that you can provide, kind of giving us the sense of maybe the range of opportunities that you are considering, or maybe things that you're not considering to kind of narrow down the field?.

Yes. It’s really kind of situation-specific, I would say. Maybe this has taken longer than it should have that you are trying to thread limitations we might have in our current credit agreements or notes you’re dealing with customers. There’s a reason why customers call us and favor the ECO approach, favor us owning that equipment.

And then also you of course got an accounting ramification depending on structure. So, if you try to come weave your way through those, I think a couple of things have kind of come to the top in terms of how we think about this. And the potential types of people we could interact with would range from true capital providers.

So, people that are in the business of providing capital to even joint projects with other people that might participate in that project that would put their balance sheet to work.

So, it really is situational-specific and I would say we kind of have elements of all of those as we are looking at kind of a current project list and where we go in the future.

Those challenges, too, you bid these projects sometimes a year or two ahead of when they finally were awarded and some of this need to kind of be laid out at that time for the customer. So, there is a longer lead time as well as trying to account -- I want to say thread the needle on being successful on every front.

So really, it depends on the project, but we’re kind of in the mode of different projects with different potential partners on this, which obviously again would provide our ability to say yes to every ECO projects, should we come up with solutions here that makes sense and that pipeline becomes fully accessible to us..

Okay, that’s helpful. And then maybe shifting gears just a moment. I don’t want to say there is a pivot or a change in the business, but maybe it sounded like -- I think it was a comment that the business is now more leveraged to natural gas and water.

And obviously we’ve seen this change over the last year or so, especially with the latest project award for the water business in September.

But maybe if you could just kind of give us an update on the outlook for the business, kind of how the different pieces come together between natural gas and water and then obviously it seems like maybe the other components are going to be a smaller piece of the business.

But how should we think about that mix going forward?.

Yes, I think that’s a great, great observation. And I think it starts with the work we’ve done over the past few years as we’ve exited some of the non-core, more cyclical-related products with lower margins.

As you can see in the financials that were provided today, we are by definition becoming more aligned to natural gas and we’ve invested significantly in our water business and as we outlined in this earnings call, water now represents over 25% of our $1.4 billion of backlog. So, it is certainly an area that we’re seeing more interest.

We’re certainly seeing the opportunities to integrate solutions in a broader and a bigger way. I think the expertise of the company is moving from rotating equipment to more of a molecule approach.

And so, we’re adding talent and resources in the areas that can integrate and both of those commodities have the ability for us to help drive efficiency, productivity, enhance the better environment, sustainability and those topics that we’re talking to our customers is what’s differentiating us.

So, if you look at our pipeline today of the order potential that we have, it’s more revolved around those two structure of businesses. And so we spent quite a bit of time working on how to integrate those solutions and we’re starting to see that pay off.

So much less cyclical once you booked the backlog, but of course, the business that we had with PEQ and some of the assets that we had in North America compression and some of the assets we had in Belleli, were more highly and that’s now become more of a rear view mirror for us. So it’s a natural progression for us.

Our customers are taking us there and we’re seeing that become a real key differentiator for us with the technologies that we have in our portfolio..

Got it, okay. Andrew, Dave, I really appreciate the time this morning. It’s great to get an update from all of you..

Thanks..

Our next question comes from the line of Doug Becker with Benchmark Research. You may proceed with your question..

Thanks. I just wanted to follow up on the capital structure review a little bit more. Based on the commentary, it doesn’t sound like a facility sale where you keep the aftermarket business a priority or particular focus at this point.

Is that fair to say?.

Doug, first of all, congratulations on your move to a new shop. So, look forward to working with you going forward. I would say that falls under the operational side of things and that is and I think when we mentioned sale of fixed assets that would fall under that.

So we have had over the last 18 months a couple of situations where customers have decided to buy assets, but we retain the O&M side or the aftermarket.

And that certainly is -- we have a couple of those, obviously, we always have those kinds of discussions going on and there are a couple of those that are kind of in front of us as we talk nothing tremendously significant.

They tend to be oftentimes smaller in scope, but no, that would be something that if someone has an interest in some existing assets and it makes sense for them, it makes sense for us and we retain the O&M contract, that absolutely could fit into our view of operational opportunities..

Got it.

And then how advanced are some of the discussions about trying to manage the working capital better? Whether vendor supplier payments versus the milestone payments you might receive?.

I think that has been a focus and I think it’s been a focus since the spin. If you go back to the time of the spin and they have to go back and say we probably freed up a couple of hundred million of working capital. So, it’s kind of a tremendous focus for the company and continues to be. We’re in an industry, as you well know, that cash is king.

And so, we’re seeing from our customer’s part of the focus on more customers asking about ECO is looking for ways for them to offload that capital investment on others and frankly we’re not a bank. So we’ve got then our vendor partners have to participate. If they want to participate in this industry, they have to also anticipate in what’s required.

And so that continue to be a big focus and I mentioned some opportunities around inventory regardless of how good you are, you always have some inventory you can move. We’ve got a real focus on that and have some good opportunities there. We focused on fixed assets that are available or could be available. We have things that roll off contract.

We’re focused on that. And I think our internal teams both from an operational standpoint, I think the plants have probably never been better run than what they are today. Really impressed compared to where we were at the spin with the way our manufacturing is performing.

And then on top of that, I think we’ve got a tremendous sourcing group, tremendous engineering group, tremendous project management group, that all work together to control what we can within our four walls, but also deal with our customers and our vendors to push out terms with vendors and do what we can on the customer side to make sure we’re taking advantage of the opportunity to get those advanced payments and other things that are important to our cash flow..

Sounds encouraging. And then a last one, just maybe an update on the Middle East project. I know you said it’s making progress, but particularly thinking about in the context of working capital requirements going forward..

Yes. That project as we said, it has really kicked into full gear now. It’s a major project, so not only our internal resources, but also vendor partners, a lot going on. It’s a global project for us both in terms of our resources, but in terms of vendors who are involved. So every day, there is challenges.

We got everything from COVID, springs up in certain geographies and other areas, and so we’re actually performing incredibly well considering some of the things that the hurdles that are there. So the projects in full gear, we’re on-site where concrete is pouring, and dirt is moving, and we’re gearing up our people on site.

Our facility in the UAE is quickly approaching kind of record-level of employees on-site. So very, very happy all the way around with how that’s progressing on the timeline. Customer seems happy with us. So, that’s all going quite well.

In the structure of the timing of things, no significant change from what we communicated earlier this year, Next year would be a working capital year and is primarily again related to this project. So, no changes to that.

We are in the process of developing our 2022 plan, so premature to give you any exact numbers by quarter or even for the year, but I think our view of, as Andrew said, 15% EBITDA growth, still in play and leverage had a flat with where we’ll end this year.

We’re obviously working to take that down, but I have to say, pretty much on the plan that we laid out earlier in the year..

Got it. Thank you very much..

Our next question comes from the line of Tim Monachello with ATB Capital Markets. You may proceed with your question..

Hey. Good morning, everyone. The first question I have is around the product sales. It sounds like the Q4 guidance change had to do with some movement in your opportunity set.

Am I reading it the right way to think that you may have been expecting some projects to convert in Q3, which generated revenue in Q4? And now that's perhaps more of a Q4 award story?.

Yes. I don’t think we’ve been this busy on the commercial front for years. It’s hard to remember again as busy as we are globally. So, the opportunities are there. The bidding activity, incredibly strong, a lot going on. I would say what’s not changed material as a fact is still a process to get things on the customer side from bid to order.

So, things, just a little bit to the right, nothing new. I would say it’s not worse by any means. But, yes, there are some orders. This water order we announced for example, we’ve been kind of hinting and talking about that for quite a while. And so, some things have slid a bit to the right, but all still active projects.

It just comes down to timing and since product sales or percentage of completion accounting. If the order slides to the right, you’re going to see a quarterly revenue impact slide to the right as well. But no change in the opportunity set we see. It’s just customers are still being incredibly diligent on putting their capital to work.

It’s still a competitive space. They’ve got to go through their processes and frankly, there has been even some cases where COVID, inability to get in front of people and get document signed has slowed some things down.

But at this point, the commercial pipeline looks incredibly strong and we’re just working as diligently as we can and pestering customers as much as they will take to try to get quotes and bids turned into orders..

And Tim, one follow-up to that. I think what is important that you kind of picture is that as we build this pipeline, we constantly force rank the pipeline into probability of go-and-get.

And so, get means is Exterran going to win? And go is, when is the project going to happen? So we’re constantly an organization working through our S&OP plan, identifying the go’s and making sure that we’re in great position on the get. So, that doesn’t mean if you win an order, the whole start-up process initiates from that point.

We have a lot of application work that’s in advance. We invest heavily upfront in engineering. Dave alluded to working capital unwind as one of our operational goals. We have inventory aligned to certain projects that can be recognized in terms of revenue fairly quickly should these orders come through at a certain point.

And so, there is an element here of making sure that we have a good pipeline, we have a good set of activity both from an engineering application work and in some cases material that’s positioned in our manufacturing facility. We’re constantly balancing the overall under-absorption versus taking vets [ph] on certain projects.

And so as Dave said, pipeline is feeling good. I’d say North America is probably the noticeable area that’s picked up since we last spoke.

We’ve seen a lot more inquiries in North America for our traditional processing equipment with some of the ancillary equipment and some of the applications, predominantly in the Permian, but also in some other locations.

That’s the region that we’ve probably on an absolute value, compared to the same quarter last year I’ve seen an increase in activity in terms of bid activity. But Middle East still continues to remain strong. Latin America, if you go back to my fourth quarter script last year, we talked about this year was going to be a year of the renewals.

And we've demonstrated that with a tremendous commercial team that have done amazing work renewing contracts with really little capital that's required on a go-forward. So the $1.4 billion of backlog that we’ve seen, it just happened to be in the area that we had assets installed and we’ve been able to renew them.

But since probably the summer, we’ve also seen a significant increase in appetite for new projects, mostly aligned to our gas processing and also some water projects in Latin America.

We’ve got some assets that we’re trailing right now with a large customer in Latin America on the water side and we’re feeling very good about the get side of certain applications that we’re bidding on in LATAM. So across the board, we’ve seen a really good pickup in commercial activity and really helping here in the next couple of months.

We start to see that come to fruition and have a better position to talk about how we’re building for the next couple of years, as we indicated in the earnings script. So, hopefully that gives you a little bit more color..

Yes. That was extremely helpful.

I guess when you look across the opportunity set and your ability to execute on that, and also considering the delays that you saw in Q3, I guess just on around awards, is there anything in terms of what’s happening in the global supply chain picture that might continue to impact the ability to both translate bids into awards over the near term or extend times for delivery on projects just given issues around supply chain?.

It’s a great question and I have been listening to a lot of our peers and some others in the industry who talked about this and I think we’ve got a little bit of a unique situation. Two things.

First of all, a few quarters back, we talked extensively about the fact that we will maintain in the critical workforce and we weren’t going to allow expertise to simply leave because we had a shortfall in volume.

And we’ve seen that with some areas in the industry where talent has been a challenge and people are struggling with some execution because they let critical talent go. We decided this cycle, certainly in our North America and our P&T and just globally in some of the areas, particularly in water where we’ve been adding talent.

We maintain a very healthy set of expertise and utilize them in ways that help us drive productivity. We’ve had a lot of projects internally of how we design cost out of various applications.

And so, we’ve been focusing the resource on areas of productivity, health efficiency, quality and even design and more efficiencies into our safety and all of those metrics we’re seeing coming through in a great way.

What we are seeing in terms of supply chain, I think my biggest concern is just a little bit more of the unknown when it comes to logistics. We’ve seen in North America, we’ve seen various reasons why the North America supply chain has been challenged, we’ve seen pictures of the ports.

We’re seeing similar challenges in other markets, but working in alternative routes. We are having to work through trade-offs between over land, on sea, or maybe air. And so we are constantly working on those three areas to make sure that the components and the products can ship.

In the case of our larger projects, one of the big changes that we made a number of years ago was to manufacture in the closest country to origin of where the products are being shipped to.

So, Dave talked about our Hamriyah facility, pre-spin of the existing Exterran and really in the first year or two, Hamriyah was a Belleli facility, manufacturing a very different product. And we’ve invested and developed the capabilities there.

So what you see today, Hamriyah facility is large infrastructure that’s already built, tested, equipped almost modular-like that then can be shipped to the destination without having to worry of shipping components from all over the world to central location somewhere in the middle of a customer location and then working through the supply chain and logistics.

So, I think part of what I’m describing here is a little bit of self-help operationally. The manufacturing teams have done a really great job this last 18 months preparing for this. COVID has allowed us to reflect and stand back and really get into the heart of the operations.

Whilst at the same time, Tim, I think you’re aware, we’ve been significantly invested in a new Oracle program, taking all of our business to the cloud and so it’s really allowed us as a company to focus on the basic processes, along with the specifics of how we are able to improve and have the flexibility and ability to see some of the bottleneck.

So, a lot of investment in that area, focusing on productivity, driving efficiencies while engineering, which all of which has allowed us to kind of get our arms around some of the supply chain issues that the industry has faced.

That doesn’t mean to say we're out of the woods, but I think you’ll get a sense from this discussion, we have our arms around it and we can forecast that than we ever have in terms of being able to predict the challenges ahead..

Okay, that’s helpful. Next one from me, just on -- it was nice to see that the net debt came down quarter-over-quarter. This is the first time we’ve seen that in probably since the beginning of 2020.

Was there anything that was, I guess abnormal in the quarter that drove that? Did you have any prepayments or was that a result of operational?.

Yes. Nothing, no one-timers or anything. So, nothing out of the ordinary.

It was just -- I think we described a lot of efforts going around in the company and one that hasn’t stopped and its people for part-time job or full-time job is focusing on running the business, and working capital, getting customer payments on-time and so forth and just a lot of hard work around the world by everyone to make sure that we’re performing as well as we can in the environment we’re in, so, nothing out of the ordinary..

Okay, so on that front, Dave, when you look at and maybe next few quarters, how do you see that net debt progressing?.

Yes, I think as I mentioned, the project in the Middle East is a on running well. So, we are starting to really get into the meat of that project. So, that working capital investment is really underway, I would say.

I think this year, we said we’d finish the year $60 million to $70 million negative free cash flow and we’re ahead slightly better than that, probably more in the $50 million to $60 million range. And so I think we’re obviously continuing to work on ways to improve even upon that.

And then as we move into next year, we will be in the heart of that project. So again, the business plan isn’t done, so I really can’t yet give you -- as Doug asked, what’s the progression on working capital investment, that we'll be making that investment next year and work and be in the heart of that project, the majority of that next year.

We also have the two water projects. So, there is capital involved in those which was included in the forecast we provided earlier this year and those projects are moving quickly from engineering stages into figuring and building equipment and so forth, so that CapEx will start picking up next year as well..

Okay, got it. And then just following up on some of the questions on the capital structure review. I guess this question is a few parts of it.

It seems that the options that you’re pursuing right now in terms of using project financing partners and some asset sales wouldn’t result in I guess a finite end to this capital structure review? Just this sort of a change of strategy around financing which would probably be on a project-by-project basis and opportunities, I guess, to sell some assets that you would deem non-core over the next couple of years.

Is that the right way to think about it?.

I’m not sure. Again, and then maybe our issue, this feels like a bit of overstatement of where we are again. When we started this, it was really about offensively positioning the company as best we could to take advantage of opportunities where customers tend to be looking for more ECO, not less.

And so, I would say the change of strategy may be more around the project financing, where it used to be a hallmark of this company for a long time to use our balance sheet. And so that’s probably the piece of the change of strategy. I would say everything else is just running the company.

We’re always going to look for opportunities that are accretive to value -- whether that’s selling an asset that's been deployed for a long time to the customer and now wants to buy, looking for opportunities to monetize inventory -- those kind of things are just how we run the company and I think going forward, that it’s probably more important in this environment, I think obvious to folks that understands this industry and some of the others that serve it.

It’s a changing world. Financial markets tend to be a little more volatile. They can be wildly opened and closed, the industry could be in favor, then out of favor; traditional lines of financing like banks can love an industry and year later, they hate it.

And so a lot of that is just running the company and that’s why we are going to focus on the things we can control first, but always keep our head up around what’s going on in the world that we need to anticipate.

So, we spend a lot of time trying to project a year from now, two years from now the purpose of developing this long range forecast and sharing some elements of it was around.

The main purpose of that forecast with us looking forward and making sure we're prepared to take advantage of opportunities and frankly head off anything that could be a challenge.

So actually really in many ways, it’s not a change in strategy other than this idea of bringing the project financing to a company that’s never significantly been involved in that in the past although we have some history way back..

Okay. So I guess more specifically on the project finance side. I guess an example would be you would sign the contract to the customer -- a typical customer for a given contract. You would sell that contract basically to a third party and then you would build it and then operate it on the AMS side.

After that, their capital will be used to finance to build. Now, how would that translate to returns on those projects compared to historical returns? I would imagine that the capital that they will provide, be a higher cost capital than you would get from a bank line or one of those good finances today..

Yes. As I said, the equipment, 10-to-1 would be we would have a partner from the start. I think that’s one thing we’ve seen. We’ve looked at -- to an earlier question we looked at, is there ability to kind of once you’re up and running to do something to monetize a contract. Those are difficult for lots of reasons.

This is more of an approach where we would have a – I’ll call them a partner and use that term loosely from the start. We’ve got to go I think in at the bid time and that’s part of the reason for the timing. We really need to go in front of the customer at the time of the bid and say, here we are, we are bidding this project.

And by the way, here is our partner that may be financial only or may have some operational role as well. And so it would be likely from the start that we would head into that. So it would be recognized as a product sale upfront. So, it does change the – I’ll call the distribution of revenue. So it’s not like we don't have that element anymore.

It’s just a product sale and then we would have a long-term contract, which shows up in AMS where today, the equipment call it lease and the O&M effectively shows up in the ECO. So I think, yes, we wouldn’t be capturing that economics from of all the lease side of that like we traditionally have done.

But when you look at a pipeline of $3.5 billion and the potential capital, we couldn’t do it all anyway and our goal is to figure out how we can do at all. And so, will there be some projects we’d self-fund? Sure.

Not going to say that there wouldn’t be, but we certainly want to take that opportunity where the economics permitted to get a long-term AMS contract, get a product sale deal and not have to carry that capital on that project..

And perhaps your cost capital is too high anyway, to justify, that we saw the economics anyway.

I guess last one for me, I guess is just around that, are you planning to try one partner, or a couple of partners that would sound like an MOU and say, we will finance any project that meets these sort of specifications? Or would you have to seek out project partners on an individual basis?.

I would say it’s a combination. We are talking to some folks that have -- one of the challenges when you look at the 25 plus countries we’re in, it’s hard to find someone that covers all that overlap of the footprint, but there are people.

So, we’re talking to some people that could be more of a global partner wherever we go, but I would say the highest degree of success so far and where we’re probably further along is more regional or country where people, that’s where they operate.

So they are comfortable in that space where they may not be someone that has the global footprint to deal with the project in any other side of the globe..

Got it. Thank you so much. I'll turn it back..

At this time we have reached the end of the question and answer session. I will now turn the call back over to Andrew Way for any closing remarks..

Thank you, Operator, and thanks, everyone, for participating today. We look forward to updating you after our fourth quarter earnings. Thank you very much..

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great day..