Good morning. Welcome to the Exterran Holdings Inc. and Exterran Partners LP Second Quarter 2014 Earnings Conference Call. At this time, I'd like to inform you that this conference is being recorded. [Operator Instructions] Earlier today, Exterran Holdings and Exterran Partners released their financial results for the second quarter of 2014. If you have not received a copy, you can find the information on the company's website at exterran.com. During today's call, Exterran Holdings may be referred to as Exterran or EXH, and Exterran Partners as either Exterran Partners or EXLP. Because EXLP's financial results and position are consolidated into Exterran, the discussion of Exterran will include Exterran Partners, unless otherwise noted. Also, the term international will be used to referred to Exterran's operations outside the U.S. and Canada, and a combination of U.S. and Canada will be referred to as North America. I want to remind listeners that the news release issued this morning by Exterran Holdings and Exterran Partners, the company's prepared remarks on the 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, 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, 2013; Exterran Partners' annual report on Form 10-K for the year ended December 31, 2013; and those set forth from time to time in Exterran Holdings and Exterran Partners filings with the Securities and Exchange Commission, which are currently available at exterran.com. Except as required by law, the companies expressly disclaim any intention or obligation to revise or update any forward-looking statements. Your host this morning is -- for this morning's call is Brad Childers, President and CEO. I would now like to turn the call over to Mr. Childers. You may begin your conference.

Thank you, operator, and good morning, everyone. With me today is David Miller, Vice President of Finance for Exterran and CFO of Exterran Partners. As we usually do, we'll provide a review of both Exterran Holdings and Exterran Partners, before we open the call up for questions. Exterran achieved solid performance this quarter. Second quarter highlights include: Strong organic horsepower growth in our North America contract operations business, continuing the positive trend that we started in late 2013; improved gross margins in our North America contract operations business, driven by the recent acquisition of compression assets from MidCon and improving operating performance; the highest level of fabrication bookings in our sold products business in 2 years, leading to a healthy backlog level; and solid fabrication gross margins in the quarter, excluding a warranty expense accrual for our prior year projects. At EXLP, highlights include distributable cash flow coverage of 1.22x, excluding cost capital reimbursements of $1.4 million, which demonstrates further progress toward eliminating the need for the cost caps by the end of 2014. And Exterran Partners closed its first acquisition transaction with MidCon Compression in April, and in July, reached agreement to acquire additional compression assets from MidCon in a second transaction. Now our results for the quarter include several items that contributed to a $0.07 loss per common share from continuing operations, excluding items for the second quarter. Of these items, about half of it was driven by an $11 million warranty accrual on our fabrication business and about half was attributable to tax rate and accelerated depreciation on projects terminating in Latin America. Without these items, our earnings for the quarter would have been positive and generally in line with our expectations. From an overall market perspective, we generated significant bookings across all of our service and…

Thanks, Brad. I'll provide a summary of the results and guidance for Holdings, and then a summary of the results for Partners. The guidance that I'll provide excludes the impact of the second MidCon acquisition, which has been announced but not closed. Exterran Holdings generated EBITDA as adjusted, of $161 million for the second quarter, as compared to $145 million in the first quarter. We also reported diluted net loss from continuing operations, attributed to Exterran common stockholders, excluding items, of $0.07 per share in the second quarter. That compared with net income of $0.20 per share in the first quarter. Earnings in the second quarter were negatively impacted by an $11 million warranty expense accrual in our fabrication business, and a higher effective tax rate that included $6 million of charges, primarily due to valuation allowances recorded against prior year's net operating losses in certain foreign jurisdictions. Also affecting earnings in the quarter was accelerated depreciation in excess of accelerated revenue, related to 2 projects in Latin America that are terminating earlier than expected. Turning to segment results. Our North America contract operations revenue came in at $182 million in the second quarter, up 16% compared to $157 million in the first quarter, due to our recently closed acquisition and organic growth. We achieved organic growth of 77,000 horsepower in the quarter. In addition, we completed the April 2014 MidCon acquisition, which added an incremental 444,000 operating horsepower. Gross margin was 57% in the quarter, up from 55% in the first quarter. Revenue and gross margin in the second quarter were somewhat higher than expected, due to the performance of the units acquired in the April 2014 MidCon transaction, higher-than-expected organic growth and improving operating performance. For the third quarter in North America contract operations, excluding the most recently…

[Operator Instructions] We have a question from Mike Urban of Deutsche Bank.

So it looked like a really great upward in performance and general, specially in the compression segments. Do you have a sense for how much of the improvement in North America margin was the MidCon deal, versus some of the underlying operating improvements you've been talking about? Our sense was, or at least your guidance was, that we should expect some significant improvement, but more in the second half. So just trying to, I guess, establish the underlying improvement, versus how much was the deal?

Yes. This is still the second quarter, not yet the second half. And so that guidance that we gave remains in place. And we're still ambitious about improvements that we can drive in the North America contract operations margin through operating performance improvement. But we did have really good sequential improvement in our operating results, without including the impact of the acquisition, and the acquisition topped it up from there. So from my perspective, we were really right on track with a very good operating quarter, and the MidCon acquisition brought the gap up nicely.

And then, kind of focusing in on the MidCon deal, obviously nice improvement there, just having a partial quarter. You did have the most of the quarter though, but -- I mean, were there any transitional items there, integration issues, such that you think you can improve on the performance of MidCon, as well?

The North America team, the HR team, did a great job integrating that acquisition. It went -- and by the way, the MidCon team also supported this, the integration really well. So we look at that right now as just a tremendous success in integrating that acquisition in, without any hiccups.

And our next question comes from Jim Rollyson of Raymond James. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Brad, you guys have stepped up the organic growth this year in addition to external M&A. And you mentioned it sounds like it's going to continue, at least for the second half. Can you give us some sense of magnitude, in terms of second half and maybe even thinking beyond 2014. You guys historically have spent more time getting idle units back to work, and now you're kind of past a lot of that, and getting the organic side. What's the appetite like out there, to continue to grow at this kind of, like you said, 100,000 horsepower of gross new and obviously a little under 80,000 net. Are we looking at a similar performance in the second half, and as we think about this past '14, is this something that's repeatable in '15 and '16, given what's going on with infrastructure growth?

Yes, Jim. When you think about what we've seen in -- at the end of '13, ending Q1, Q2, needless to say, the Q2 growth at 77,000 horsepower at the overall North America level, is fairly outstanding compared to what we've accomplished in prior quarters. So it's really challenging to extrapolate that as a trend. But what I will say is that, in the near term, we still see good, really robust bookings levels and demand across our unit, in our horsepower ranges for growth, given us some perspective that we got -- we have good growth ahead in the second half of '14. Stepping one back off for the macro, we think that the business is well poised to take advantage of this infrastructure build-out in North America, beyond that. So we feel real good about the business prospects. But on the longer term, as you guys know, as we all know, the business can still throw us, everybody's on vacillation in the demand and in pricing, that's a -- is a little bit harder to predict. But we think in the near term, well positioned for growth, and in the long-term, we're going to participate in the infrastructure build-out. So we think the appetite is good. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Given what's going on organically this year, and how strong of a year it's been for you from an M&A perspective, with the 2 MidCon acquisitions, how do we think about drop downs, which has been your main driver of growth, at least at the partner side, historically. Are you at a point where you probably can write-off the idea of doing another drop-down this year, and push it into next? Or is that something that's still possibly at the table?

Well, we're not going to, as usual, predict the timing, the next drop-down. It is fair to say that the drop-down that could have been expected, before now, or at this time, was preempted by other activity that we've been engaged in and pretty excited about. But we do remain fully committed to the drop-down strategy, and we expect to execute drop-downs in the future. We're not going to talk about timing. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Fair enough. And last one, just -- outlook for possible future M&A. Is there still stuff out there beyond the MidCon stuff that interest you?

Yes, in a word, there is, I believe still -- there are still some good assets being operated out there. We will be opportunistic in looking at what the market's going to offer us. But we're also going to remain disciplined in buying high quality asset packages only, when we look at what's out there. So we may actually bypass a couple of transactions because of our demand to improve the operating quality of our fleet, the competitiveness of our fleet and the tradeoff between what we can do from a high-quality growth perspective with organic investments or investments in the fleet ourselves, versus what's on the marketplaces, one that we're going to balance pretty aggressively. So yes, I think the market will consolidate a bit further, and we've seen some activity by others and we like to see that consolidation. We'll be opportunistic about the transactions that we get to look at, and are willing to invest in.

Our next question comes from Blake Hutchinson of Howard Weil.

Just interested to get some commentary around, kind of the competitive landscape in North America. I guess, in other periods of expansion where you're enjoying the sort of organic growth you are, I might have expected to see the compressor portion of your fab business pick up quite a bit. Is there something unique about this expansion, with regard to kind of operators or midstream participants and their appetite to own their own equipment, versus you use a third-party contractor that keeps the share of the competitive landscape more toward you and your peer group, or unique about the assets you're putting back at the contract structure, how should we think about that?

Let me give it a try, Blake. It's a -- there's a lot in your question. But the first is, the premise out the gate, we are seeing very good demand for our fabricated compression product, and we think the market demand is pretty, pretty high there, also. So right now, what we're seeing in contract operations reflects good market capture, and some of the customers in our portfolio, that are opting for the contract operations option more than the buy option in a few of the plays that are developing. But I do want to share with you that we're seeing pretty good demand in overall fabricated cells. And so is the market, and the market still has quite a bit of capacity in the fabrication space. So I don't think you're seeing a change overall in the split between the outsource model and the insource model by our customers, or for us, the contract operations versus the sold compression in our business. I think it's actually still fairly consistent, but we are seeing pretty good demand in CFS, as we saw a reduction in some of the other manufactured products that may not be coming through as strongly as it should.

Okay, that's great. And then, your near quarter guidance for fab suggests that margins could be on par would your recent experience, but you did call out a larger percentage of Belleli, and we had some install running through there. I mean, what's the confidence level that we can maintain margins, as mix shifts a bit?

My confidence level is good. The margin that we are guiding to reflects the fact that we have improved the underlying performance and profitability of several of these businesses. And the projects that we're booking now and moving into backlogs will support that. The projects that we're executing on, that will run through revenue in Q3, also support that. So I would say our confidence level is pretty good.

And then, just finally, I think on the last call or recently, you've been talking about having about 70,000 horsepower of pure compression assets to put to work internationally. Is that separate from the $75 million in backlog that you called out, that would kick in more in '15, and we can actually see international compression count maybe creep up a little bit up between now and that period, decided for perhaps a higher revenue run rate to kick in?

The 70,000 horsepower, and the $75 million of annual revenue are the same projects going to work.

Okay, so that timing is good for layering those in?

Yes.

And our next question comes from the Bhavesh Lodaya of Crédit Suisse. Bhavesh Lodaya - Crédit Suisse AG, Research Division: Most of my questions were asked. But just a follow-up on the organic side of things. What are the size of units that you are seeing most in demand today?

For the horsepower size, we see good demand across our horsepower ranges. I think in quantity, the bulk of what we are putting to work by horsepower is in the 1,000 to 1,300 horsepower range. By horsepower, that's the biggest volume. But we're also seeing very good demand in -- for gas lift units down to the 200-horsepower range. And then, the following -- the middle category, which is going to be in the 800 horsepower range and lower, but not so small as 200, is going to come in third. But demand is pretty high among those horsepower ranges, all horsepower ranges. Bhavesh Lodaya - Crédit Suisse AG, Research Division: And could you remind us, at like what kind of horsepower is your idle capacity at the parent level, and if that could be reconditioned and brought back into use?

The average horsepower of the idle is not substantially different from the horsepower of the operating fleet, right in the 450-horsepower per unit range. But it cuts across the board. So the average is not very meaningful. There is a lot of that horsepower that will go back to work in the right locations and in some plays, somewhat dependent upon both demand, gas pricing and how the dry gas plays, whether they get activated or reactivated. So that's the picture I paint on the idle fleet. Bhavesh Lodaya - Crédit Suisse AG, Research Division: Right. And maybe on the future investments on the organic side. Are you seeing any cost pressures or shortages of labor and materials? And if so, where and what is the way that we should be think about the kind of multiples you are getting from the organic spending?

So the market is competitive, that definitely impacts pricing, and it has an impact on equipment availability, going out, and so when the market really heats up and customers remanding equipment, we do see some pressures and management is required of what we can get from the OEMs for components, that is our engines, and the compressors and other components, to get into the fleet fast enough. To date, we have not experienced and we don't believe the market has experienced a substantial delay in the availability of equipment. We have seen times out, go out from our OEMs, but it's not been a substantial delay. We have not seen the same thing in the labor market for fabricating the units, so we can actually get them through our shops pretty efficiently. We believe the market can, too. So those pressures have not exacted much of a pull to date. The labor markets that are of most concern are where we see demand for field personnel in high-growth areas. And we and our customers and our competitors, are all working very hard to get the manpower and labor into the right locations to drive that growth, and that we made a bit of cost pressure for us. Bhavesh Lodaya - Crédit Suisse AG, Research Division: Right. And how should we think about the multiples for your organic investments?

We look at low teens returns on our organic horsepower investments. That's the way to think about them.

And our next question comes from Tristan Richardson of D.A. Davidson. Tristan Richardson - D.A. Davidson & Co., Research Division: All my questions have been answered.

And our next question comes from Daniel Burke of Johnson Rice. Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division: Brad, I wouldn't think this will be the case, I mean, MidCon was so recently acquired. But is the MidCon acquisition, as of Q2, enabling via any backlog or commitments they have, a portion of that substantial uptick in organic additions you guys saw in Q2?

It's not a substantial portion of the organic additions, but there are some, in that what we acquired with that horsepower included some growth opportunities that we are able to pursue. And we're very pleased about that. It's -- the acquisition was -- it not just well supported by MidCon, but it was also very well supported by Access, the customer on the other side of that service. We've developed a very good relationship with Access, and we have gotten a few growth opportunities because of the acquisition, just not substantial in the number. Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division: Okay. And then maybe I missed this, but I know as typically you guys provide an update on organic CapEx plans, but what is the total organic horsepower amount you'll bring to market this year?

We only provide guidance for our growth capital that we want to spend, and so we don't really give out a horsepower number. Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division: Okay. I thought I had a 200,000 number from earlier, a couple of quarters ago. I assume it's moved up since that time, was just looking for an update, but that's no problem. And -- but maybe one other one. How -- any thought with nat gas prices weakening here a little. How responsive do you guys feel horsepower returns are at this point? I mean we've seen a lot of pressure on nat gas pricing for a long time, but how responsive are horsepower returns to sort of near month nat gas prices?

Interesting question, Dan. They are not overly responsive, within the price bands that we're seeing currently. So even though they're -- we -- over a long period of time, sustained lowering of natural gas prices will definitely have an impact. In the near term, within the price band that we've seen for the last few quarters, it has not driven change in our stop activity, including in dry gas plays. In fact, our dry gas stop activity in the second quarter was as low as we've seen in a while, notwithstanding some pressure on natural gas pricing during that period of time. So the correlation is longer term. And the other factor I'd throw out is that, when you think about our growth and where we're putting horsepower to work, a huge amount of it, I mean, the vast majority of it is for associated gas and/or gas lift, which means that the correlation on the growth side is not there on natural gas pricing, it's really there on the oil and liquids. So those 2 dynamics right now are working to help support the growth that we're seeing. Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division: All right, and maybe I'll cram one more then. Speaking of associated gas, could you maybe just comment a little bit on the health on the fabrication side of production and processing in the U.S. market?

Sure. On the production equipment side, we've seen very good levels of demand, especially in the most recent quarter. Demand was a little lower in Q1, but it picked up nicely in Q2, and we see a pretty -- we see very robust demand right now in production equipment. On processing and treating, year-to-date, demand has been a little lower than we expected, but current activity levels are high, and so we're still expecting that product line to perform well for the year. And I should say, performance well, especially in the back half of the year.

And our next question comes from Sharon Lui of Wells Fargo.

With regards to, I guess, the second pending MidCon acquisition, can you maybe just provide commentary on the multiple, maybe touch on the quality of the assets and whether the contract terms in pricing is pretty consistent with your existing metrics?

I'll do it, and ask David to top me up a bit. But -- #1, high quality assets, about 110,000 horsepower, with a solid customer, in a great play and a predominantly younger, larger equipment. So it's just high quality. From a contract term, it's under a long-term contract for a bulk of the horsepower, that's in excess of what we typically contract for, on new -- at smaller horsepower levels, but it's consistent with what we would contract it for larger horsepower levels. So longer term contract, high quality customer, high quality equipment and we're pretty happy about that. As far as the transaction multiples, we don't really share that information. If you want to do the math, though, thinking about, it's larger horsepower in our gross margin dollars per horsepower, something you can back into.

Okay, that's helpful. And then, I guess for the recent CSI acquisition, I was just wondering if you were involved in the process, or is that package of assets would've been of interest?

Sharon, it's not really our business to comment on the transactions that others have. We respected CSI as a competitor and as a good company, and we wish that, that business and its new ownership structure well.

And our next question comes from Joe Gibney of Capital One.

I just had one quick modeling housekeeping question. Just a lot of moving parts with the MidCon deal pulling through. I was just curious if you could give us a little bit of assistance on -- expectation on interest expense, the EXH level, into 3Q?

At the EXH level?

Yes.

In the $25 million range, maybe a little bit north of that. We'll call -- we call the converts and as you know, there's a pretty high interest rate on diverting the convert.

And our next question comes from Majid Khan of Tourbillon Capital.

Most of my questions have been asked, but I was wondering, given that -- well, maybe first, there's been a lot of talk about condensate exports in the market, specifically, I guess, Pioneer and Enterprise have authorizations from the Commerce Department through exports and condensates. I'm wondering if, on the fabrication side, you guys have seen any pick up an interest for distillation towers or stabilizers?

Yes. We have seen the opportunity for -- especially stabilization, to drive and pick up in some of our product offerings. And so we are seeing it. It hasn't yet come to the scale of materiality in what we see from a bookings perspective, I want you to be clear. But there definitely is a shift and some interest in those products, as a result of the possibility for export.

Got it. And I guess this will be a trickier one. Given the organic horsepower growth and the fact that the EXLP cost caps are almost gone, I'm wondering, how you and the board are thinking about the dividend policy on a going-forward basis. I know that's -- you're doing a very good job of hiding the value of the GP from the market. So I'm just wondering how you guys are thinking about that, for the future?

Yes. Look, fair question, and can I promise you that we are not intentionally trying to hide the value of the GP, or any of the value that we have, structurally in the EXLP in North America operations. But for the dividend policy, that is what we said, at the discretion of the board, and we're going to look at a number of factors going forward, and they're going to include earnings, availability of cash flow and market conditions and impeding uses of capital in setting the dividend policy.

And we have no further questions at this time. I will now turn the call back over to Mr. Childers.

Everyone, we appreciate very much your interest in Exterran Holdings and Exterran Partners, and we look forward to talking to you next quarter. Thank you.

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