Exterran Corporation (EXTN) Q1 2019 Earnings Call Transcript

Exterran Corporation (EXTN)
Q1 2019 Earnings Call
May. 02, 2019, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Exterran's first-quarter 2019 earnings conference [Operator instructions] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Blake Hancock, vice president of investor relations. Please proceed, sir.

Kenneth Hancock -- Vice President of Investor Relations

Good morning, and welcome to Exterran Corporation's first-quarter 2019 conference call. With me today are Exterran's President and CEO Andrew Way; David Barta, Exterran's chief financial officer; and Girish Saligram, Exterran's chief operating 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 speaks 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 in 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.

Andrew Way -- President and Chief Executive Officer

Thanks, Blake, and good morning, everyone. Thanks for joining the call. To kick things off this morning, I'd like to take you through the highlights for the quarter and update you on our key strategic initiatives before Girish walks you through operational and regional market details. The quarter shaped up as we had expected and communicated.

Our continued focus on working capital, commercial terms and cost management drove very strong results on operating cash flow, which was $49 million for the quarter or close to 100% of EBITDA, allowing us to further invest in the business for long-term success while returning share -- capital to shareholders. During the quarter, we spent $4.7 million on share buybacks over the 17 days the trading window was open. Today, we feel the stock value is extremely attractive and plan to use the share buyback authority aggressively going forward. We executed well on our ECO projects and product backlog, generating the highest revenue we have seen in product sales since the spin.

Product bookings in North America rather were slow during the quarter. And beyond seasonality, we believe our customers are being more cautious on capital-spending time lines, resulting in order delays. This coincides with slower producer commitments, especially in the Northeast. We remain optimistic about the rest of the year, but decisions have been slower than normal and timing has pushed to the right, especially for process and treating related activity.

Compression demand has been more resilient, but given our focus on improving returns, we have elected to not participate in lower-margin deals. The progress we have made in the water business is encouraging. We saw approximately $25 million in the orders in products and ECO contracts during the quarter and successfully commercialized the RevoLift in the U.S. under an ECO contract, which is expected to lead to additional opportunities.

We have seen inquiries pick up both domestically and internationally as we continue to have successful pilot trials using different products within our water portfolio. We currently see the potential for over $100 million of orders from customers in the next 12 months. Internationally, our major countries of operations that we have spoken to in the past continue to be on path toward providing residential and commercial power using natural gas and also looking toward -- move toward gas independence or even to become net exporters as much of the world looks to capitalize on the LNG buildout. As new gas field discovery gets monetized over the next few years, this will lead to greater gas production.

We continue to focus on operational efficiencies, cost-out initiatives, new product development and capital allocation, all to further drive shareholder value. Regardless of the current market environment, these are factors in our control and continue to improve our competitive edge and ability to generate strong recurring cash flows and higher returns. I will now pass the call over to Girish, who will discuss some operational highlights and global demand dynamics.

Girish Saligram -- Chief Operating Officer

Thanks, Andrew. To begin, I'm going to elaborate a bit on the operational efficiencies that Andrew mentioned. You've heard us discuss the rationalization of our product portfolio over the past couple of years, including Belleli and the PEQ businesses. While we believe that our current product portfolio is well-positioned to deliver fully integrated solutions for customers, there is an opportunity for optimization.

Our view is the -- over the past couple of years, compression manufacturing capacity within the industry has grown significantly, leaving ample supply for today's demand especially in more commoditized configurations. Our focus has been on improving margins within compression through a combination of higher volume orders, specific customer and configuration mix and operational improvements. We are going to continue this effort by consolidating our two Houston compression facilities and streamlining production. This 12-month project will result in a single, world-class facility in Brittmoore Road in Houston, capable of supporting our customers' needs while simultaneously reducing cost.

This project will be cash flow neutral to positive and the capex will be managed within our announced guidance for the year. At the conclusion of this transformation, we expect to see margin rate for the overall product sales to modesty improve. Shifting from operations to the market, I want to provide some additional color on P&T orders and what we are seeing near term. Customer feedback that the need for integrated plans is very prevalent, and that is reflected in our big booked orders, P&T segment.

We have quoted opportunities for over $500 million, including several integrated facilities, which we expect to move closer to fruition over the next 12 months. We are seeing strong demand for 200 million scf per day cryo plants with a strong uptick in interest in 250 million and even 300 million scf per day plants. Framing from a production standpoint, industry sources suggest that gas and NGL production in the U.S. could grow between 25 and 30 billion cubic feet per day over the next few years.

That's over 100 of the 200 to 300 million scf per day gas plants that would be needed to process this gas. That context is the basis for the confidence we have in the medium to long term for significant demand for our products and opportunities to expand our services. Internationally, the opportunity set remained strong across our entire footprint, as Andrew stated earlier. We did have some small wins in Latin America across several customers, showing the progression that is beginning to take place in certain countries.

At the same time, we also continue to work with customers on renewals of our existing contract base, which is a key element of our ECO recurring revenue. ECO backlog ended the quarter at $1.36 billion. And as a reminder, this does not include renewals. As we look at expected renewals over the next 12 months, we expect those to add between $300 million and $500 million.

I will now pass it over to Dave to discuss our first-quarter financial results.

Dave Barta -- Chief Financial Officer

Thanks, Girish. And before I get to the quarterly financial results, I'd like to let you know that we're pleased to announce that the SEC provided written notice to us stating that they have concluded their restatement-related investigation and do not intend to recommend any enforcement actions. So with regard to the results, we had another solid quarter with EBITDA, as adjusted, of $50.2 million on revenue of $351 million. The quarter came together as we'd expected.

Our base business progressed nicely, leading to operating cash flow from continuing operations of $49 million. Free cash flow was modestly negative due to planned capital investments and previously announced projects. From a segment perspective, contract to operations posted revenue of $86 million. Our gross margin was $57 million, resulting in a gross-margin rate of 67%.

Revenue and margins declined slightly sequentially as we'd expected given the impact of commercial negotiations that occurred in Q4. Year over year, the revenue decline is largely driven by FX impacts of roughly $8 million along with stocks related to normal course of business. In AMS, revenue was $27 million and gross margin was $7 million. This results in a gross-margin percentage of 24%, all in line with our expectations.

The sequential revenue decline is largely seasonal where the year-over-year impact to margins is driven by a shift mix. Revenue in the product sales segment was $238 million, the highest since the spin, and gross margin was $29 million, resulting in a gross-margin rate of 12%. Bookings for the quarter were $86 million. The increase in revenue for product sales sequentially was due to the strong throughput we achieved through our facilities, while margin rate declined slightly due to product mix.

Our product sales backlog was $554 million at the end of Q1, compared to $427 million at the end of Q1 2018. SG&A expenses were $43 million, down sequentially as we continue to closely manage SG&A as a percent of revenue, which was 12.4%, down from 13.4% in Q4. Moving to the balance sheet. Total debt at the end of the first quarter was $434 million with available credit of $548 million.

And our leverage ratio, which is debt to adjusted EBITDA as defined in our credit agreement, was 1.9 times, compared to 1.8 at the end of Q4. For our 2019 outlook, our current EBITDA outlook is at the low end of our prior guidance. This was largely dependent however on order rates over the next several months. Capex guidance for 2019 remains unchanged at $205 million to $215 million with roughly $115 million in advanced payments.

Focusing on second quarter, adjusted EBITDA should be up mid-single digits sequentially. Contract operations revenue should be around $90 million with gross margin in the low to mid-60% range. For AMS, second-quarter revenue should be around $30 million, margins for the segment should be in the low to mid-20% range. In our product sales segment, Q2 revenue should be up mid-single digits sequentially, with margin rate holding relatively flat driven by the mix of sales.

And SG&A expenses should be around $45 million. And with that, I'll now turn the call back over to Andrew.

Andrew Way -- President and Chief Executive Officer

Thanks, Dave. So the first quarter was a solid start to the year for us operationally as we continue to execute well on our backlog. As I highlighted last quarter, this will be the year of execution. In the near term, timing around orders remain a challenge, but the global production projections provide us a high degree of confidence that the long-term prospects for the company are very compelling.

The new era of oil and gas investment appears to be upon us as the industry looks to improve cost structures, drive cash flow and focus on returns. While pauses may occur across the space as the industry digest this new norm, we remain very confident in our business approach and our long-term strategy. Since the spin, we have focused on improving returns, paying down debt, investing in the business and creating a stable cash flow business. We continue to focus on three key areas.

The first being operational efficiencies and cost-out initiatives. Girish took you through the consolidation of facilities in Houston as we look to optimize our operations while taking additional cost out of the system. Our SG&A as a percentage of revenue continues to decline, and we will lean hard on that metric going forward as we continue to monitor order flow. The second area is the new product development and expansion of our service offering.

This is where you have heard me talk about growing our AMS business in the U.S., the development of our water and power business globally but also our investment in new products and integrated plans. We have invested significantly in new product development, expanded our engineering capability. We've issued 47 patents and have 28 patents pending, all in new areas of technology, which has led to a growing pipeline of new sales opportunity. And the third area of focus is capital allocation where we will continue to look at all possibilities of capital deployment, whether that be ECO projects, M&A, debt reduction or buybacks.

As I stated earlier in my remarks, Exterran's current stock price is extremely attractive, and we plan to be aggressive in the execution of our authorized buyback program going forward. With that, I will now turn the call back to the operator for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Kyle May with Capital One Securities. Please proceed with your question.

Kyle May -- Capital One Securities -- Analyst

Good morning. I'd like to start with the product sales category. So you talked about some of the factors that affected product sales in the first quarter. Just wondering what are you thinking about bookings for the remainder of the year and the factors that could swing that one direction or the other.

Andrew Way -- President and Chief Executive Officer

Yeah. So Kyle, I think the first thing to highlight is that we've had several years now of history utilizing salesforce.com, tracking our income and bid activity. And it really starts there. So the same rigor and discipline that we had when we booked over $1 billion of orders last year.

The good news is that we have bid activity that supports our current outlook. And the volume that we have in our pipeline is at a level that we've seen previously when we've supported strong orders with a book to bill over one. And so this really has been a question of timing. This is also supported by, as Girish mentioned, $500 million of P&T quotations outstanding.

Over $100 million -- well over $100 million of pipeline in water and really sufficient compression activity that supports what Dave was describing in our guidance. But the order timing is paramount and really for sort of the tail end of the fourth quarter and 2020 product revenue conversion. What you may have seen is that in the anticipation of that order timing, we have released advanced critical material of about $50 million across the portfolio. That was started in the later part of last year so that revenue can be generated faster than the industry-expected cycle times.

And so we have instigated a slot plan in process a number of years ago, and we've been operating to that policy, both in our facilities in Broken Arrow, Oklahoma for our P&T book -- business and also here in Houston for compression. So we currently believe, Kyle, that Q1 will represent a trough quarter for us for product orders. We currently think that Q2 book to bill will still be less than one but certainly, in the second half, move back to a more normal rhythm of greater than one. Also, I think it's worth pointing out, Kyle, that while orders for products are important, clearly, product sales represents about 30% of our gross margin and obviously much less of an impact to EBITDA given the 12% gross margin that we currently see in that segment.

So the key message is that the teams are working hard. We're connecting with our customers. We have a very strong pipeline. And a lot of the activity that we've bid, we've already seen publicly where that volume is being committed by our customers to their investors also.

And so there really has been a pause due to some of the things that we've seen in the last six months with regards to the midstream and the upstream really focusing on slowing down capex. But a lot of that commitment is already being made to their investors, so it's just a question of timing. So we're very confident in the second half, and that kind of remains our outlook.

Kyle May -- Capital One Securities -- Analyst

OK. Got it. Really appreciate that. That helps shape things up for the rest of the year.

And the next thing I want to touch on was the share buyback. So in the release, you mentioned that Exterran will aggressively -- or will be aggressive with the buyback. Can you expand on how you envision how you're going to work with that going forward?

Dave Barta -- Chief Financial Officer

Yeah. Kyle, this is Dave. So I think just to frame first what we did in the first half or first quarter, we bought back, as we reported, 268,500 shares. That was really only over a 17-day window of period for us, and we exercised the buyback basically at half the rate of a 10b18 limit.

So as we move to Q2, we essentially have over double the number of open trading days for the quarter versus what we saw in Q1 and the ability to double, frankly, the daily cadence of the buyback. And I'd add that when the Board put this authorization in place, they certainly and we felt that the opportunity was compelling. And obviously, I would say the opportunity is even more compelling at current levels. And so we still -- we view this as an extremely attractive investment opportunity.

And at the same time, I think it's important to keep in mind that we're still monitoring the ECO opportunity pipeline of over $2 billion of opportunities and M&A potential opportunities as well.

Kyle May -- Capital One Securities -- Analyst

OK. And one other thing on the buyback that I think a lot of investors are curious about is I understand your view that the stock is attractive at these levels, but curious how you think about the trade-off between buying back shares at the attractive levels and then the trading liquidity in the market.

Dave Barta -- Chief Financial Officer

Yeah, again, it's always something you consider. But I think, again, with the stock price where it is, it obviously -- to say it's attractive, I think, is probably an understatement. And I think it's, first and foremost, it's us investing. We gave guidance earlier this year that said we would be free cash-flow positive this year.

So we obviously -- and with low leverage, we certainly have the opportunity to be thoughtful about how we're deploying capital and what investment area. And I think we said in the fourth-quarter call that this isn't a big change in strategy in any means. So we've got, as Andrew and Girish discussed, a lot of opportunities across the business to push the various levels -- levers to do what we need to do for long-term success of this company and reward certainly, our shareholders throughout that time. So I think I, again, it doesn't change the strategy, but you make those calls based on the attractiveness of the opportunities.

And we would have to weigh those. The ECO opportunities are not all the same, different return profiles and so forth. So our job is to make sure we're deploying capital in a way that best benefits our shareholders over the long run.

Kyle May -- Capital One Securities -- Analyst

OK. Got it. And one more if I may. I wanted to follow up back on the water business.

So in your prepared remarks, you mentioned over $100 million of customer orders over the next 12 months. Can you talk a little bit more about what you're seeing here?

Andrew Way -- President and Chief Executive Officer

So Kyle, I think as we talked about in the last quarter and what we're seeing every single quarter is as our team gets out in the field and spend more time in front of customers, represent the business at trade shows, really do a better job of marketing the organization of the total portfolio, it's really becoming an interesting theme that we're seeing take a hold, and so both on the conventional side and the unconventional side. We've talked in previous quarters at the two different kind of markets that we see both from the conventional technology and how the water produced in that segment space. And we're seeing internationally right now a lot of opportunities with our team spending time in a market that we've traditionally seen as more of an integrated planned opportunity. And so as we pull through more activity in our ECO world, we're seeing an additional opportunity to help our customers with water solutions, whether that be in Oman or Kuwait or Saudi or other countries of that nature.

So that's very encouraging. That's the largest scale technology that we've discussed in the past, some of them more flotation technology. And then here in the U.S., on more of the unconventional, that microbubble technology that we've talked about with our RevoLift is really getting a lot of traction. We've already advance-released a number of assets that we've got being currently manufactured.

We've got trials being operated right now in a number of locations both throughout the Permian and elsewhere. We signed our first ECO deal, which is terrific because it's got great returns. It's fairly capital-light in terms of the intensity. And really, we believe that's a game-changer for us.

So we're excited as we look at the total portfolio in a very short space of time, the opportunities for our water business from a bid activity has grown significantly. It's -- by nature of its product sales, we're excited because it's far more profitable than the current portfolio that we have, so it will be accretive over time to the company. And then if we can continue to focus on the RevoLift activity here in North America and get traction, it really does have some great opportunities for us to grow the company. So we're very excited about the water space, and we're just getting going but very encouraging with the pipeline.

And we'll keep you posted, over the next couple of months, where we get to with that business.

Kyle May -- Capital One Securities -- Analyst

OK. Great. Well, I look forward to hearing more about it, and I'll turn it back here. Thanks a lot.

Operator

Thank you. Our next question comes from Tim Monachello with AltaCorp Capital. Please proceed with your question.

Tim Monachello -- AltaCorp Capital -- Analyst

Hey, good morning, everybody. First question, you mentioned that you're turning down lower margin work. I'm wondering if you could quantify how much you think you turned down in the first quarter and if you could give some color around what your threshold is for margins on new orders.

Andrew Way -- President and Chief Executive Officer

Well, we obviously track unit by unit. And while the rental side of the market has been performing in the way that they've been performing, we have seen a significant increase in capacity in the space that we're in. Certainly, since the downturn, there's been either more entrants or people have been building capacity in compression. We've definitely seen a change in relation to the lead times that we've seen from some of the OEMs.

And so whether it was an original pent-up demand in sort of last year as a result of this, time will tell. But we have certainly set some pretty disciplined internal pricing hurdles, and we estimate over $100 million of compression orders didn't meet our internal threshold for double-digit margins. And over time, we could fill factories and continue to fill factories with low-margin business, but it doesn't help the cause. If we're generating, at the total company, 12% reported margins and our process and treating business is a higher-margin segment than our compression margin segment, then it doesn't take a lot to figure out that if you continue to fill the factories with a lot of compression volume in the way that the current market is buying, then I think it's going to have a detrimental effect to our overall returns as we go forward.

So we set a fairly aggressive internal return. It's painful at times because clearly there's an opportunity for us to book, and the last thing you want to do is get on a call and report $86 million of orders. But I think the more that we can focus on the right returns for the company, right-set the capacity, follow the long-term strategy to build more of a process and systems company with better returns, with better cash flows and if we -- you think about the stable cash flows that we have today, we generated $49 million of operating cash in the first quarter on roughly $15 million of EBITDA. I mean if you think about it, we didn't invest one more dollar in capital, that yield is pretty incredible.

So we have optionality. And over time here, we have the ability to, as Girish mentioned, put two facilities together, create one facility that's dedicated to the portfolio of compression that we believe can yield the returns that will generate the kind of returns that our investors are looking from us over time. It may be a smaller compression business over time, and that's OK. But if it's got better returns and we grow our water segment and we keep focusing on our integrated plans, that will eventually come through and generate the right portfolio of profitability and cash flow that we want.

And so it's been a real hard lesson inside the company. It's very difficult to turn business away when you know that you've got a backlog that is so much right now, and we're kind of focusing on the second half of the year. And that's why we're communicating what we are today and getting in front of it and making sure that we can rightsize that cost structure to support the strategy. So hopefully, that gives you a little bit more color around what we've done and why we've done it.

Tim Monachello -- AltaCorp Capital -- Analyst

No, that's very helpful. So on that note, does that mean that you anticipate going forward that your normalized bookings are going to be below the level they've been historically as you're consistently transitioning to being more process-oriented? And does that mean that you can scale your production capacity and cost base down to meet sort of a lower level of demand? Or is it just a higher proportion of processing?

Andrew Way -- President and Chief Executive Officer

I think we haven't disadvantaged ourselves with the quantity and size and volume of orders going forward by what I just said on compression. There's still demand that in our total pipeline that we feel can get to the same level of bookings that we've been in the past. I think water, as that grows, will certainly, on a volume, will display some of the lower-margin revenue that we just talked about, but clearly with higher margins. We see our P&T pipeline very, very strong.

And so there's nothing that I see right now that would indicate that our volume of orders in value would be different materially going forward as a result of what we just described. I think for 2019, our compression revenue will continue to fall through in line with what we've seen. We have some optionality next year based on some of the segmentation that we've been doing. We certainly see the area of opportunity where we can design and build equipment in a certain configuration for customers that have a certain need.

We track brownfield, greenfield. We track pipeline. We track opportunities associated with overall compression stations. And so I think we feel very confident that the configuration of a product that we will be building going forward will meet the hurdle rates.

I just don't need two factories to do that. We can do it with one and get synergies. We can drive a lot of efficiencies, and we've been working on for some time streamlining the facility. So just to highlight, this is not slamming two facilities together without any investment.

As we highlighted, we believe that the payback will be fairly neutral in terms of what we're doing. We are going to invest in a facility that has the ability to manufacture in the way that you should in today's environment. I mean the facilities are not modern. They're not accustomed to flow technology or any form of Lean or Six Sigma, they will be going forward, and we will have the ability to design into these facilities operational efficiencies that will deliver better returns.

And so we don't see this as a negative to limit suddenly the orders and suddenly Exterran's $100 million, $150 million order a quarter. It's far from it. And over time, we'll share more of the successes as clearly they come through. But very confident with the pipeline, extremely comfortable with the communication that we're receiving from our customers.

It's just a question of timing. And no one is more frustrated on this than me, believe it. So we're working hard on it. We hope to get some good news soon and start converting the bid pipeline into orders and have a very strong second half.

Tim Monachello -- AltaCorp Capital -- Analyst

OK. Really helpful. What's the timing on the Houston manufacturing facility consolidation?

Andrew Way -- President and Chief Executive Officer

So we've communicated it to the organization, all the plans are under way. We should have all of the activity buttoned up and completed by Q4 this year. The activity will start to flow and migrate. And obviously, we have the opportunity to manage the flow of volume over the course of the next six months.

And so I'd say by the time we get to the end of this year, the facility will be complete and fully operational as we get to Q1 2020.

Tim Monachello -- AltaCorp Capital -- Analyst

OK. And do you expect any sort of disruptions in your throughput capacity over the midterm as that facility is upgraded and brought online?

Andrew Way -- President and Chief Executive Officer

No, I really don't. We spend a lot of time on that topic for obvious reasons, and I'm very confident that there won't be disruptions in the workplace. We've got an incredible team. I'm very confident that they're focusing on the right topics and the right areas.

We've clearly got some oversight that we'll continue to focus on. I think of safety, I think of management change, I think of all those topics that come to mind. But very comfortable with the current plan, the detailed plan that we've got. We've got a lot of activity here obviously in the second quarter.

Dave guided to an increased revenue from the first quarter, so this will be another record quarter for us in terms of product sales revenue. And it's an important quarter for us also for obvious reasons. So very comfortable with where we are right now, and we've got a very detailed plan that will help us to transition into the facility over the course of the next six months.

Tim Monachello -- AltaCorp Capital -- Analyst

OK. Really helpful. And then just one last one for me. Have you seen any material change in outlook across international regions? And I'm wondering if you can like maybe just give us a breakdown of where you're seeing the most demand or the best near-term opportunities in terms of ECO contract wins.

Andrew Way -- President and Chief Executive Officer

Yeah. No, we haven't. I'd say we've got a really great data point. We took the entire Board to Argentina last week and had our annual meeting there.

And so we spent almost a week with customers, an industry oversight in different parts of that region and I, honestly, left very encouraged at the opportunities that we see. Clearly, there are some short-term challenges that we've got to navigate in Argentina, particularly with some potential changes that's coming through political and governmental changes. But from an absolute investment and the longer-term plans in, specifically, Argentina, we feel very good. And we're seeing some wins.

We reported some wins in the first quarter in Argentina, which was very encouraging. And then overall in Latin America, we'll still continue to work on the opportunities that we're seeing particularly in Brazil. We see more opportunities in some of the other smaller countries that we've been operating for a number of years. And then as we shift gears into Asia, we're seeing some very encouraging signs with some of the FPSO opportunities.

People need to be reminded at times, we have a facility that supports that market that's based in Singapore, a very competent facility. And when the FPSO market is hot, it really lends itself to the work that we do on the topside. So we're bidding, a lot of activity right now in that region. And then the Middle East continues to get strong and stronger.

And we're very encouraged at both the short-term opportunities that we see sort of over the next 12 to 18 months and started really working with some of our customers on the longer term, sort of the two- to three- to four-year outlook and looking at some of the activity that they're planning on drilling that would lend itself to more gas development. So in the countries that we're in today, we're continuing to see strength. The projects that we are executing today, and in particular Iraq, is working through the system very well. We continue to see more opportunities there and other parts of the region.

And we really haven't spent a lot of time in places like Africa and West Africa. We obviously have activity on the East Coast -- on the West Coast today, and that's been stable for some time and actually growing. And so overall, I say the outlook for the international market is as strong as it's been for a long time, and we're very encouraged with both the renewal rates that we're seeing in the short term. Girish mentioned in his prepared remarks that we've got between $300 million and $500 million of renewals that we see a line of sight to by the end of this year, which is again another great sign of being able to grow that long-term revenue, stable cash flow without significant capital investment.

When you're doing a lot of renewals, that helps a lot, and so feel very good about the ECO segment. And then similarly on AMS we're seeing, across the market, activity. And for once, we're also seeing some really interesting opportunities in North America. We've been talking about it for a while, about developing a pipeline and we started to develop that pipeline.

And we've got activities that we're working on right now to go back into the portfolio that we've built over the years with process and treating and look at some of the debottlenecking and bringing our AMS capabilities to provide our customers with additional throughput and output. And so we're very excited about that. And clearly, we've got to get it from an excitement and a pipeline to an order, and we're working through that. But you can't book an order unless you do the work upfront, and that activity has been ongoing.

So very encouraged about the global outlook, and it should set us up well for a very strong 2019 in ECO.

Tim Monachello -- AltaCorp Capital -- Analyst

OK. Great color. Sorry, just one follow-up there. In terms of Argentina specifically, what do you think your sort of gross-margin consolidated exposure is to Argentina in 2019?

Dave Barta -- Chief Financial Officer

Yeah, we've never really shared down to that level. But just generally, Argentina, and we've said this before, is an important country to us. We've been there, I believe in one way or another, for 60 years. So we've got a great business there.

It performs well. But beyond that, won't share anymore country-by-country details.

Tim Monachello -- AltaCorp Capital -- Analyst

All right. It was worth a shot, though. Appreciate it.

Andrew Way -- President and Chief Executive Officer

Great. Thank you.

Operator

[Operator instructions] There are no further questions in queue. I'd like to turn the call back to management for closing comments. Please proceed with your question.

Andrew Way -- President and Chief Executive Officer

Great. Thank you, Tonia. I appreciate this morning's participation. Thanks, everyone, for your continued interest in Exterran, and we look forward to updating you at the end of Q2.

Thanks very much.

Operator

[Operator signoff] 

Duration: 42 minutes

Call participants:

Kenneth Hancock -- Vice President of Investor Relations

Andrew Way -- President and Chief Executive Officer

Girish Saligram -- Chief Operating Officer

Dave Barta -- Chief Financial Officer

Kyle May -- Capital One Securities -- Analyst

Tim Monachello -- AltaCorp Capital -- Analyst

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