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Exterran Corporation (EXTN)
Q4 2019 Earnings Call
Feb 27, 2020, 9:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings, and welcome to Exterran's fourth-quarter 2019 earnings conference call. [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.

Thank you. You may begin.

Blake Hancock -- Vice President of Investor Relations

Good morning, and welcome to Exterran Corporation's fourth-quarter 2019 conference call. With me today are Exterran's president and chief executive officer, 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.

security 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 in its earnings press release issued yesterday and a presentation located in the Investor Relations portion of the company's website.

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With that, I will now turn the call over to Andrew.

Andrew Way -- President and Chief Executive Officer

Thanks, Blake. Good morning, everyone, and thanks for joining the call today. I will start by covering a few of the key subsequent events from our press release that occurred during the first quarter, followed by a brief recap on the fourth quarter, full-year 2019 and then some high-level commentary on 2020. As we stated in our press release, we are close to finalizing our decision in our strategic review of the U.S.

compression fabrication business. We can advise you that we do not foresee the U.S. compression fabrication being a part of our core business going forward. However, we plan to partner with U.S.

compression equipment providers where we have the need to provide compression for the U.S. integrated plant market and utilize our own global footprint to support our international markets for both contract operations and product sales. While compression has been a key part of our legacy. And this particular segment in North America has been a big part of our history.

The last 12 months have highlighted the need to focus on less cyclicality, more value-added service orientated product lines. This decision will allow us to focus on higher margin, higher returns, and recurring revenue products and services. To give some insight into this business during 2019, revenue was roughly 65% of all product sales with gross margins dilutive to our overall reported product sales margins. The backlog for the business at the end of the year was $106 million.

Also during the first quarter, we were awarded our largest product sale order in history, which was a fully integrated gas processing plant in the Middle East. This award was booked as a product sale order during the first quarter, and we will provide equipment, integrated project management, along with a five-year O&M services agreement. We are extremely excited to have been awarded this opportunity, especially considering that win in train one typically provides the platform for future relationships. Total orders for the first quarter to date are now in excess of $400 million, which is a very strong start to the year.

The fourth quarter was a strong quarter for the company as we delivered EBITDA as adjusted of $47 million, which was at the high end of our guidance range and also generated operating cash flow from continuing operations of $55 million. This pushed free cash flow to positive territory for the full year. This is something we focused on all year, allowing us to bring our net debt down to $427 million from $473 million at the end of the third quarter. Given the challenges that the industry faced during the second half of '19, we're very pleased with our ability to flow cash to pay down debt, while investing in new projects in the business.

Looking back at 2019, I want to spend a little time talking about some of the accomplishments despite the challenging macro environment. The organization moved decisively to get ahead of the slowdown in orders. We were very quick to react with the consolidation of our two compression facilities in Houston, driving efficiencies, while at the same time, able to take out over $40 million of costs between both OpEx and SG&A. Just looking year over year at our SG&A in the fourth quarter, it was down over 15%, a huge testament to the speed in which the organization moved.

While we made significant inroads on taking cost out in 2019, we made the important decision to protect and preserve critical expertise in key engineering competencies and manufacturing capabilities, supporting our global processing and treating and integrated facilities business. This will manifest as an under absorption in Q1 that will abate over the coming quarters. We continued our strong focus around controls that we've put in place since the spin and continue to refine our enterprise risk management system. One value deeply entrenched in our culture is safety, and during the year, we recorded 317 incident-free days.

Looking at industry benchmarks, we recorded 56% fewer recordable and lost-time incidents, compared to our peer benchmark resulting in a TRIR of 0.23. Keeping our employees and contractors safe will continue to remain a top priority for the organization. Turning to 2020, we believe the overall market will be similar to 2019, but we're well-positioned in key markets where we have invested in prior years to gain market share in critical infrastructure build-out. The first quarter will represent the trough in revenue, margins and EBITDA, driven by lower backlog exited in 2019.

We would expect revenue and margins to begin to expand headed into later quarters, especially as the first quarter orders begin to flow through. Our water bid activity continues to grow, which now sits over $400 million, which gives us confidence that we're getting traction in the marketplace. We continue to expand our team and technology while growing our customer reach globally. There are three distinct markets that we can now address: Conventional, unconventional and recently offshore.

We have been an active market participant in the conventional space for several years and cover a number of countries and customers in the Middle East. Customers here have mature water management strategies and goals. The challenge is that fields have rapidly growing water cuts, making water management even more critical. With our patented Micro-Bubble Flotation technology, we're able to separate oil and water at significantly higher efficiencies, reducing development and operational costs for our customers.

We ended the unconventional space with smaller mobile products that are currently operating in North America and performing very well. We look toward the North American market as an emerging opportunity. Only a small portion of produced water is treated today, but a greater emphasis on ESG that our technology supports can grow our addressable market. Today, the industry is fragmented with no clear universal water standards or guidelines.

As the industry matures, we believe that we are well-positioned to provide an economic alternative to freshwater, untreated disposal at SWDs. We have already seen a much larger interest and a pipeline of projects in the U.S. and anticipate increasing our footprint this year. In 2019, our installed technology treated over 664 million barrels of water, while recovering over 775,000 barrels of oil for our customers.

My optimism is backed by the growing demand and significant experience we have in treating produced water, as well as the confidence of our current customers who are starting to standardize their water treatment solutions using our patented technology. This segment is a large growth driver for the organization over the coming years and one that is not tied to production growth. I believe that 2020 will be the breakout year for our water business, given what I can see and know today, and I look forward to keeping you all updated on the growth in the business over the course of the year. Before I turn it over to Girish, I want to reiterate our corporate goal of transitioning from primarily fabricating oil and gas equipment to providing complete integrated systems and process solutions.

And as a result, becoming a higher margin, higher return, and less cyclical business. We believe that the water business, along with our ECO, AMS, processing and power product lines provide a great platform to launch from with environmentally sustainable solutions compared to alternative choices our customers may have. Our global footprint affords us several benefits compared to many within the energy complex, exemplified by our great start to 2020. The long term and stable nature of the ECO business and portions of the AMS business provide recurring revenue streams that many within the energy industry are not afforded.

Coupled with the solid margins and return characteristics, we believe we are far along on this journey to create a very unique company that can exceed the expectations of our employees, investors, and customers. This journey we're on is designed to create value for all of our stakeholders, and I'm excited about how far the company has come and even more excited about what the future holds. With that, I'll now turn it over to Girish.

Girish Saligram -- Chief Operating Officer

Thanks, Andrew. I would like to start with the two ECO projects that we discussed on our third quarter call. In both cases, our customers have elected to take ownership of the facilities and therefore, they will no longer contribute to ECO revenue and margins. While we always hope to negotiate extensions or renewals to our ECO deals, at some point, the own versus lease is a decision that our customers make, while balancing multiple variables.

In both of these cases, the projects were renewed at least once, and the total return for each was in line with, if not greater than our targeted returns. At the same time, in a demonstration of the effectiveness of our integrated business model, we will be providing operations and maintenance services for these facilities, which will be reported in our AMS segment. The guidance that Dave provides for the first quarter and full year will have both of these included. Before I dive into the geographies, I do want to touch on the coronavirus situation that everyone is aware of.

Being a global company provides us many supply chain opportunities to diversify our supply base, but situations like this can create ramifications across the broader industry value chain. Currently, we see minimal impact on our supply chain and therefore, little impact on our business operations on both projects and services. However, the duration and severity of the outbreak is still fluid and ultimately could create challenges for many providers around the globe. We remain committed to keeping our employees safe, first and foremost, along with providing our customers with reliable equipment on time and to their satisfaction.

We will continue to monitor this closely and respond as appropriate. Moving on to operations, I will start with the international markets. Similar to what you've heard from other global companies, we continue to see spending and opportunity sets improving internationally. Customers there react less to near-term commodity price volatility and are more focused on the long-term nature of their projects.

I want to reiterate that many of the projects we work on and develop have a social dimension, as well as economics, where our facilities are moving gas to regions to provide power to those that may have never experienced it before. That, in conjunction with the creation of jobs, industrialization and community development is a strategic factor in many oil and gas projects. The Middle East continues to be a hotspot for activity as evidenced by a large project award during the first quarter. We continue to see projects progressing both in ECO and product sales.

Our traditional product lines and water, along with follow-on work from projects we have won previously. We have now seen the largest project award in our company history, set a new record, roughly every year for the past three coming out of this region. This is a testament to the immense potential and pipeline here, as well as to our operating teams for their expertise and customer focus. This region also is providing solid support for the water bid book that Andrew discussed, as we are seeing more opportunities present themselves around conventional fields.

Roughly over half of the book of business we are looking to build at this point is in the Middle East and is enhanced by long-standing relationships with customers. Up to this point, most of the success we have had around our water systems in the region has been as product sales. But over the past several quarters, we are beginning to see an acceleration of ECO opportunities as well. Latin America continues to be a steady region for us with continued opportunities on both new projects and extensions.

We are beginning to see more unconventional tenders arise as countries look to grow beyond their conventional fields. The Asia Pacific region is beginning to come back, and our facility in the region is providing differentiation for additional opportunities, both for our product sales, but also from an aftermarket perspective. Lastly, turning to the U.S. market, clearly, you're all aware of the focus from U.S.

producers and midstreamers to drive free cash flow and returns. This is causing customers to slow their order cycle as they wait to access their producers' plans. We continue to see opportunities for large processing and treating and integrated plant projects, but with very low conversion. We remain laser-focused on the opportunities that are present and continue to have constructive conversations with customers who are looking to bring on additional volume in the next 18 months.

Clearly, growth CAPEX from midstream customers in the U.S. is migrating lower, but there is still ample growth CAPEX in this space, and we continue to see demand for our products. Capital allocation continues to be the biggest driver of the reduced CAPEX in our opinion, along with the need for additional gas takeaway capacity in the Permian. As these come online in the coming years, it will also drive additional needs for processing and treating facilities.

I would also add that as the industry focuses more on environmental solutions our P&T facilities provide much greener solutions versus flaring the gas. At the same time, we are looking beyond our traditional Cryo space and starting to carve out new areas of growth. Over the coming months, we will be analyzing additional spaces in the gas value chain, with our core competencies of modularization, standardization and a scalable platform can provide customers with innovative solutions. Our water business in the U.S.

continues to gain traction with the full spectrum of customers from service companies to water midstreamers and producers. Conversations with potential customers have increased dramatically in the past several months. As everyone is beginning to look for options to recycle and/or our reuse water versus full fresh water. This is driven not only by the fact that treatment can be economically viable versus fresh water but also the treating and reusing water is sustainable and environmentally friendly.

To wrap up, I would like to echo what Andrew said regarding our transformation and that I believe our global footprint and commercial, engineering and operational teams will prove to be a differentiator for us over the coming years. This all leads to being a strong provider of integrated solutions and having a greater focus on complex sustainable projects with strong services pull-through versus just fabricating equipment. I will now pass it over to Dave to discuss our fourth-quarter financial results.

Dave Barta -- Chief Financial Officer

Thanks, Girish. The fourth quarter reflects another strong performance with EBITDA, as adjusted, of $47 million on revenue of $273 million and was at the high end of our expectations. Operating cash flow was $55 million for the quarter and $176 million for the full year, leading us to be free cash flow positive for the year, excluding share repurchases. From a segment perspective, contract operations posted revenue of $96 million, while gross margin was $62 million, resulting in a gross margin rate of 64%, both relatively flat sequentially as there are limited fluctuations within our ECO segment.

For AMS, revenue was $37 million and gross margin was $9 million. This resulted in a gross margin rate of 25%. Sequential revenue increase was the result of a pickup of part sales for the quarter. Revenue in the products segment was $139 million and gross margin was $12 million, resulted in a gross margin rate of 9%, and bookings for the quarter were $109 million.

Our product sales backlog was $278 million at the end of the fourth quarter, compared to $706 million at the end of the prior year. SG&A expenses were $38 million, down over 15% year over year as we continue to focus on driving efficiencies across the organization. Moving to the balance sheet, total debt at the end of the fourth quarter was $444 million with available credit of $513 million. We deployed a little over $3 million in the quarter to repurchase 441,000 shares, bringing the year-to-date repurchases to $42 million.

Our leverage ratio is in great shape at 2.1 times, compared to 2.3 times at the end of the third quarter. The strong cash flow conversion during the quarter is a testament to the efforts of our employees along with the resiliency of our business. Our capital allocation strategy hasn't changed. We will be responsible for the balance sheet and prioritize funding organic growth, however, M&A and buyback will remain options.

As we discussed in our press release, we recorded noncash impairment charges in the fourth quarter, primarily related to the decision to monetize certain idle compression assets of our contract operations segment, and also as a result of the review of our U.S. compression business. The impairment value in total was $66 million to $21 million tied to the review of the U.S. compression business and the remainder related to the idle assets.

Before I provide guidance for the first quarter and full year of 2020, I want to clarify that all of the EBITDA guidance ranges I provide include our U.S. compression fabrication business, however, the exclusion of the U.S. compression fabrication business does not change the ranges we present. For full-year 2020, EBITDA, as adjusted, should be between $155 million and $175 million.

This will be more of a second-half loaded as we work from a low point in EBITDA in the first quarter, driven by the impact of the strong first-quarter bookings. Regarding the segment guidance, ECO revenue should be between $330 million and $350 million, with margins in the low to mid-60% range. AMS revenue should be between $125 million and $135 million with margins in the mid-20% range. Product sales is the wildcard at this point, our guidance is primarily based on what is in backlog today with very little speculative conversion included.

If orders continue internationally and the U.S. picks up, there could be upside depending on the timing of those orders. SG&A for the year should be between $140 million and $150 million, cash taxes should be between $20 million and $25 million and interest expense between $35 million and $40 million. Currently committed growth CAPEX for 2020 is expected to be between $60 million and $70 million with reimbursable CAPEX around $20 million to $25 million.

And maintenance and other CAPEX for 2020 should be around $25 million. Now I'll turn to the first quarter. Contract operations revenue should be in the mid $90 million range, with gross margins in the low to mid-60% range. For AMS, revenue should be in the mid to high $20 million range and margins for the segment should be in the mid-20% range.

In our product sales segment, revenue should be between $90 million and $100 million, and this includes our U.S. compression fabrication business results. Excluding the U.S. compression fabrication business, revenue would be between $35 million and $45 million.

Lastly, product gross margins will be negatively impacted by unfavorable absorption of over $5 million. SG&A should be between $35 million and $40 million. EBITDA as adjusted for the first quarter should be between $30 million and $35 million. I want to remind you that we expect this to be the low point of EBITDA for the year.

And as I said earlier, the range would be valid with or without our U.S. compression business being included. And with that, I'll now turn the call back to Andrew for his closing remarks.

Andrew Way -- President and Chief Executive Officer

Thanks, Dave. First, 2019 proved to be a much more challenging year for the energy industry than many had expected. That said, our teams around the globe worked tirelessly to deliver several key contract operations contracts along with executing on the strong backlog we had entering the year. This led to a strong operating cash flow number while investing in several multiyear ECO projects and producing positive free cash flow for the year.

2020 internationally is off to a much stronger start, and we are hopeful that the U.S. market will rebound for Exterran driven by specific projects that we are tracking. The investment we have made in our global footprint allows us to flex accordingly to deliver sustainable solutions to our customers in a safe and efficient manner. Our goal and focus is to demonstrate the differentiation in our business by improving returns, cash flow generation, along with leveraging the power of our global reach.

Our products and services lead us to be in a true long-term sustainable solutions provider that is less representative of a traditional energy company. And I believe the start of 2020 is a strong step in this direction. We also provide a unique set of sustainability offerings to our stakeholders. Flaring, as we've heard, is a huge topic across the industry and clearly getting a lot of attention in the Permian region.

Our integrated plant solution can provide an important role in addressing these concerns in the coming years. While I think you all understand the environmental benefit of our water business, the fact that our technology allows for immediate treating with both modular and scalable solutions, this allows us to drastically reduce the amount of freshwater needed for fracking or reinjection. Our goal is to help our customers with their needs in a sustainable and environmentally friendly manner. I would like to leave you all again with the company that we are looking to become.

As I mentioned last quarter, and I will continue to reiterate, think of a company with multibillion-dollar contracted backlog, EBITDA margins greater than 20%, that although requires investment realizes significant returns on those investments well above its cost of capital, all while providing the consistency more aligned with an industrial business. With compression being a smaller part of our portfolio, our product sales segment will have higher margins, predictable supply chain cycles and align to more mission-critical infrastructure. This new model is much more stable, and given the criticality of our product offerings will be resilient even if the market slows. This transformation, we are well into.

These are not aspirational goals, but ones we believe can achieve with our strategic plan. I look forward to updating you all over the course of the year of additional successes we have across all of our product lines and regions. And with that, I will now turn the call back to the operator.

Questions & Answers:


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

Kyle May -- Capital One Securities -- Analyst

Hey. Good morning. I want to start with your 2020 guidance. David mentioned that product sales are going to be a bit of a wild card.

I was wondering if you could help us quantify the product sales revenue that is, I guess, factored into your guidance this year? And how should we think about this segment of the business?

Dave Barta -- Chief Financial Officer

Sure, Kyle. And yes, we'll really iterate that I think the wildcard really on the U.S. as you would expect. But again, I think even with that said, given what we have now is a longer cycle business, longer-term nature, better visibility.

We certainly have pretty good visibility to a core amount of revenue in the product sales business. I would say, based on our guidance, and I know this is a wide range. You could drive a truck through. But probably $300 million to $350 million would be that range that we provided at this point.

Kyle May -- Capital One Securities -- Analyst

Got it. OK. That's helpful. And then also with the surge of business that you've already seen in the early part of 2020.

How should we think about the growth profile of the business this year and into next year and early '21?

Andrew Way -- President and Chief Executive Officer

So, Kyle, I think the first quarter has really demonstrated the work that we put in last year and was building a very solid pipeline, and that pipeline continues to build. And so we're not at the end of the pipeline. That's part of why there's some wild card here in terms of what Dave just described. I think this year, the guidance that we provide, we're comfortable with or without compression.

So as you can kind of clean from that. It really doesn't have a material impact on the company, depending on how we play out here in the next couple of months. For next year, we're certainly building a backlog and feel very confident that '21 is a growth year. Already what we see in the backlog today, not a lot of that EBITDA will flow through this year in terms of the numbers that we provided, far more next year.

And as we continue throughout the balance of the year and continue to build projects and the outlook that we see for the rest of the year with orders, then '21 looks to be a very solid year.

Kyle May -- Capital One Securities -- Analyst

Got it. Got it. That sounds good. And the last one for me.

In your prepared remarks, you mentioned the significant new product sales in the Middle East. Can you give us more details on those projects and quantify the revenue there?

Girish Saligram -- Chief Operating Officer

Sure, Kyle. This is Girish. Over the last couple of years, we have announced deals in both product sales and ECO in the $200 million and $250 million range. This particular order is well north of that in excess of $300 million.

And what it is really is an integrated facility. It's a gas processing facility that has gas dehydration, it has a Cryo plant, it has balance of the plant utilities, all of it coming together in a comprehensive solution, where we provide the project management and also an associated services stream for five years for operations and maintenance and really demonstrates the whole business coming together and all of the different capabilities that we have. And again, as Andrew mentioned, what gives us a lot of confidence is getting this first platform out there and then typically, as we have seen with modular build-outs, it leads to future relationships and hopefully more growth over the coming years. So we are very excited about the project, and we'll be executing it over the next couple of years.

Kyle May -- Capital One Securities -- Analyst

OK. Great. That's all for me. Thanks, guys.


[Operator instructions] Our next question comes from the line of Tim Monachello with AltaCorp Capital. Please proceed with your question.

Tim Monachello -- AltaCorp Capital -- Analyst

Good morning, guys. Just a few for me. The first one, just on the compression fabrication review process. I'm wondering if you could outline some of the possible outcomes here? And if you expect any material proceeds from divestitures or any incremental writedowns from that review process?

Dave Barta -- Chief Financial Officer

Yes. I think, Tim, this is Dave, between the press release and the prepared comments, we are narrowing this down. And as we said, it will not be part of our core business going forward. So I think that leads you to potential outcomes that we've narrowed as to.

From a standpoint within those options, I think at this point, we'll probably not share any more details. I think, hopefully, this is something that we're back with an update within, hopefully, a matter of weeks or so, probably wait until that time to provide you more color on where we were with the business and some of the historic numbers and so forth.

Tim Monachello -- AltaCorp Capital -- Analyst

OK. Sounds good. In terms of the water management business, encouraging here, you've got a pretty substantial bid pipeline out around $400 million today. What would that number have looked like a year ago? Just so that we can get some direction.

Andrew Way -- President and Chief Executive Officer

So good question, Tim. This time about a year ago, we probably had about $100 million line of sight in terms of pipeline bidding. We've done a few things in the last 12 months to increase that pipeline. First of all, we've continued to invest in technology.

We've got some new patented technology that we've just put out into our own engineering teams to start to commercialize. We built the team, both here in North America, in Canada, where our headquarters and our technical team does a lot of the lab work and also in the Middle East. And as a result of having now a dedicated leader, Roger George has moved from an engineering role to a full-time role, leading water, and we've been able to integrate the business into commercial operations around the world. So with our existing customers in the Middle East, we've seen a lot more opportunity where we're building-integrated facilities, both early production facilities, as well as the water separation for a number of the key customers that we've been very close with and had very successful relationships with over the last few years, many of the ECO deals that we've talked about in the past are with the same customers.

And so we continue to build our technology into their standards into their technology. And so now we're working very closely with pre-feed and some of the applications to be able to deliver even additional solutions. It's in that region that we produced last year, over 650 million barrels of water in terms of the process that we have. So we've got a fairly large footprint in that region.

And then in North America, we've been very active with a multitude of providers from midstream that are already doing it today but are looking for better technology to even working with certain state departments working on applications where we can bring a larger capability to the whole of the state. And so it's a very exciting time for us. And we've got a very good backlog and a great pipeline and is continuing to build. And so now we've got to convert that pipeline, and that's our focus in the next few months.

Tim Monachello -- AltaCorp Capital -- Analyst

OK. That's a really good color. You mentioned that it sounds like North American bids are really accelerating. In that $400 million, how much of that would have been in North America? And do you think that there's a chance that the strength in that backlog could help backfill some of the weakness in more traditional product sales orders in 2020?

Andrew Way -- President and Chief Executive Officer

Well, I think the way to think about it is that we've now scaled our manufacturing capabilities back in North America to suit the traditional processing and treating an integrated plant business that we have. A lot of our water technology that we built, although we own the IP, we have a limited amount of internal capacity. We decided purposely to have a model where we would work with partners externally to help us build that technology and put it together. So from a manufacturing footprint, even though the bid activity in water has been growing.

It doesn't necessarily mean that we have to fill factories. That was a purposed decision that we made a few years ago. Of the total $400 million of the pipeline, probably over $300 million of that is outside of the U.S. and less than $100 million of that is inside the U.S.

I think the U.S. market will continue to grow. We've got a lot of technology today that's in the field in trial mode. We have several more units that are going in the field in the next few months with additional trials.

And if that works, that there will be additional capabilities that we can put for that customer in multiple fields. But I do want to reiterate that we've been trying to build, and we've talked about this for a few months now that this business that we're building is a business that will have less cyclicality, have the ability for us to drive higher margins and doesn't have that need to go through the high cycles and the low cycles, which are constantly managing utilization of the hourly workforce and the organization. So we're very well positioned to continue on the journey. I think 2020 is going to be a breakthrough year, led by our water and our Middle East region.

Tim Monachello -- AltaCorp Capital -- Analyst

OK. And then the last one here for me. I was wondering if you could quantify the impact of the ownership? Or should the purchase options on those two ECO contracts to customers for 2020 versus 2019?

Girish Saligram -- Chief Operating Officer

Sure. So as we've mentioned, it is already baked into the guidance that we provided. The impact on the first-quarter revenue is order of magnitude, about $10 million with our typical margins. And what we have had is some offsets to that with the commercial arrangements on the purchase itself, but we'll see that really sort of pull-through in the remainder of the quarters.

And again, there will be some puts and takes as we bring additional contracts on, but that's sort of a rough sense. And then look, as I mentioned earlier, more importantly, it's also the integrated business model where the facilities are being taken over, but we will still be providing operations and maintenance services. And a portion of that will come back to us that we'll report in our AMS segment.

Tim Monachello -- AltaCorp Capital -- Analyst

OK. And also, I got one more question. In terms of U.S. product sales, obviously, things still continue to languish across the market.

Are you getting any sense that things have changed structurally? Have your inquiry levels changed materially since where they would have been at the end of the last quarter?

Girish Saligram -- Chief Operating Officer

No. Look, we are still seeing a lot of inquiries, but the conversion rate remains pretty strong. We are talking to all of the operators and having very good conversations. There is an appetite from a customer standpoint to actually deploy capital, but it's the overall macro-environment that's limiting that today.

So we don't see that changing noticeably in the immediate future, but remain optimistic over the longer term.

Andrew Way -- President and Chief Executive Officer

And Tim, on the specific mix around compression, we've seen year over year a little bit of a decline for sure. And I think that's consistent with a lot of others that have already reported, but we have seen an uptick from third to fourth to first quarter, in inquiries, as Girish already mentioned, it's a question now of conversion rate. And when these bids go out and when will they convert into orders. So we're not banking on North America getting a whole lot better in line with the guidance that we've already provided.

The strength of what we're talking about today is what we've already booked in the first quarter gives us enormous confidence for the year. And it gives us a great backlog moving into 2021, where the company will go back into growth mode. And if the year continues with the pipeline that we see, then we've got a very solid two years in front of us.

Tim Monachello -- AltaCorp Capital -- Analyst

OK. Great. I'll turn it back.


We have reached the end of our question-and-answer session. And I would like to turn the call back over to Mr. Andrew Way for any closing remarks.

Andrew Way -- President and Chief Executive Officer

OK. Thanks, everyone, for dialing in this morning and listening to the prepared remarks, and I appreciate all the interest in the company. I'd like to thank everyone, and I look forward to updating you after the first quarter. Thank you.


[Operator signoff]

Duration: 42 minutes

Call participants:

Blake 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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