Q3 2021 Exterran Corp Earnings Call
Greetings and welcome to the Exterran third quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
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Please note that this conference is being recorded I will now turn the conference over to your host Blake Hancock, Vice President of Investor Relations you may begin.
Okay.
Good morning, and welcome to Exterran Corporation's third quarter 2021 conference call.
With me today are president and Chief Executive Officer, Andrew Way, David Barta, Exterran, Chief Financial Officer.
During this conference call, we may make statements regarding future expectations about the company's business management's plans for future operations or similar matters.
These statements are considered forward looking statements within the meaning of the U S securities laws and speak only as of the date of this call.
The company's actual results could differ materially due to several important factors, including the risk factors and other trends and uncertainties described in the Companys 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 Companys website with that I will now turn the call over to Andrew.
Thanks, Blake good morning, everyone and welcome to our third quarter results for 2021.
Exterran performed well in the third quarter as we executed on our global backlog and capitalize on a robust and growing commercial pipeline overall.
Overall, the quarter came in line with our expectations on EBITDA as adjusted basis net debt decreased by $15 million and commercially we achieved success with over $125 million and eco renewals in Latin America. In addition to closing the long sought after.
Water contract.
In regards to the 125 million extension this increases our renewals in Latin America to over $450 million since the start of 2020. Additionally, these extensions have added the benefit of requiring minimal capex investment with our contract operations backlog now over $1 4 billion.
The highest in nearly three years, we have excellent visibility to our ego outlook for the next several years.
The product sales pipeline remains robust and continues to improve as I have stated in the past projected timing of these awards is challenging given the size and scope of the projects along with the fact that many projects have multiple partners involved in the decision making process.
We continue to pursue many larger near term projects than we anticipate and we anticipate closing in the next several months.
As previously announced in September I'm happy to share an update on the significant contract Extern order solutions was awarded this is a long term multi year contract that will treat over 150000 barrels of water a day leveraging our gas flotation technology with this win water now comprises over two.
<unk>, 5% of our eco backlog This award along with a prior significant water contract awarded in the first quarter of this year.
Underpins our transition as we continue to position ourselves as a fee.
Fully integrated gas and water solutions company.
Moving onto operations COVID-19, and its variants continue to pose potential hurdles for the industry. The environment continues to remain dynamic and we have experienced some minor logistical challenges in transporting people and equipment to site.
However, we continue to make great operational strides and I've seen no meaningful delays in the execution of our projects. While we continue to work to mitigate these risks we anticipate potential challenges through the remainder of this year and into the early part of next.
Lastly over the past few quarters, we have spoken about the capital structure review, we undertook to position ourselves to take full advantage of our commercial pipeline.
We are in the midst of 2022 planning and continue to feel very positive about the forecast of 15% growth in EBITDA year over year. Additionally, we continue to pursue operational items that can enhance liquidity leverage or both this could include improved working capital asset sales.
Or contract renewals.
To close in summary, we're performing well today and see significant opportunities to continue growing as we transition to a fully integrated gas and water solutions company and with that I'll turn it over to Dave. Thanks, Andrew for the quarter, we delivered EBITDA as adjusted of 35 million on revenue of $161 million.
Which was in line with our guidance. This resulted in an EBITDA margin rate of 22%.
Segment respective revenue for contract operations was 83 million, while adjusted gross margin was $56 million resulted in a segment gross margin rate of 67%.
Revenue decreased sequentially, primarily due to the acceleration of deferred revenue and the per order that did not repeat.
<unk> backlog at the end of the quarter as Andrew shares stood at approximately $1 4 billion driven by the new water bookings and the renewals Andrew mentioned for Ams revenue was $25 million and adjusted gross margin was $5 million. This resulted in segment gross margin rate of 21% revenue declined sequentially due to the timing of global parts.
Sales, while the margin rate rose slightly from favorable mix.
Revenue in the product sales segment was $53 million, an increase of nearly 82% from the prior quarter and adjusted gross margin was $7 million nearly tripling from Q2. This resulted in a gross margin rate of 12%.
Revenue increased from the prior quarter and significant progress was made on our middle East project. The gross margin percent improved double digits as a result of improved volume and lower under absorption.
Our product sales backlog was $365 million at the end of the third quarter compared to $411 million at the end of the second quarter SG&A for the quarter was almost $35 million small increase from $34 million reported in Q2.
Moving to the balance sheet, our total debt at the end of the quarter was 573 million, while our net debt was 513 million our leverage ratio was three six times, which was flat to the second quarter and our total available capacity was $143 million.
With respect to the fourth quarter, we expect adjusted EBITDA would be in the low to mid $40 million range. We expect continued progress on key projects in the Middle East region, which should drive further increases in product sales revenue along with revenue the revenue impact from some expected bookings.
For the year, our outlook has been adjusted slightly based on Q3 results and the Q4 outlook. This was driven by the timing delay of product sales awards. Therefore, we are modestly lowering our full year guidance for adjusted EBITDA between 143 and $148 million.
Capex for 2021, that's expected to be between $55 million and $65 million with Reimbursable capex around 35 million maintenance and other capex to be approximately $20 million and cash taxes are forecasted to be around $20 million as well.
Lastly, I'd like to provide further insight into current views on the previously announced capital structure review.
But before I do that let's revisit the original driver of this announcement early in the year, we provided some guardrails for our multiyear forecast and based on that forecast there was not a requirement to undertake any capital structure related actions. The forecast provided ample resources to execute our plan without leverage or liquidity concerns purposes announcement was to explore.
<unk> to increase our ability to tackle the $3 5 billion dollar project pipeline. We are working given the amount of eco type projects that are included in that pipeline and to make sure we have prudent liquidity cushion as.
As Andrew share we remain confident in the forecast provided so the focus remains on offensive Lee preparing for customer opportunities over the past few quarters. We've also talked about our pursuit of operational projects to improve our balance sheet in the nearer term, we're making great progress on that front with potential opportunities to sell surplus inventory and certain fixed assets.
And we believe we could begin to see these benefits in Q4.
With respect to the longer term, while the capital required to fund the two water orders announced this year was included in our forecast under the assumption that we self fund those projects. We continue to develop opportunities to partner with third party capital providers to fund the capex needed for future <unk> projects.
We're fairly deepen exploring the third party approach and are working on a couple of early stage projects with this structure in mind. This approach would mean equipment will fall under the product sales and we would have ams contracts for the operational portion.
While it will change the P&L geography of these deals it would mean unlimited growth opportunities for the company.
Let me conclude by saying that we are continuously assessing ideas to drive value for shareholders through all available financing approaches balancing the various factors and such decisions and reviewing any and all opportunities to ensure we have sufficient liquidity to execute our strategy and with that I will turn the call back over to Andrew for his closing remarks, thanks, Dave the commercial.
Activity in the third quarter feels like signs of what's to come over the next several quarters improved market. Both in terms of pricing and demand gives us confidence in more projects to increase supply as well as the drilling focused on improving the existing production and reduce emissions as.
As we look to close the year, we are focused on project execution and convert into the robust pipeline that is laid in front of us into backlog.
Setting the stage for our three year outlook that will not only show remarkable growth, but additional value to our stakeholders the.
The strategy of the company has undertaken over the past several years is starting to take a hold on our leverage to natural gas and water exemplifies our participation in the sustainability movement and with that I'll now turn the call back to the operator.
Thank you.
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One moment, please while we poll for questions.
Our first question comes from the line of Kyle May with capital One Securities. You May proceed with your question.
Hi, good morning, everyone.
Maybe just a couple questions around the capital structure review.
First one just for clarification now that you are focused on operational opportunities is it fair to assume that there is no intent to issue equity at least in the near term.
Again, maybe the risk of being a little bit repetitive we are focused on the operational.
Elements, we talked about I think those are.
Basically it's prudent business opportunities that we have and again.
Sure.
Reflecting a little bit on my comments there wasn't some pressing needs maybe we are not being clear from the start the forecast. We provided certainly did not indicate any significant pressure points. So this is really more about offensive Lee.
Pairing ourselves to take advantage of what we see is really strong pipeline. So we're going to focus on the operational.
Opportunities, we have and we touched on some of those both Andrew and I. This call other calls.
Can help liquidity to help leverage helped both that and we think those are the most prudent place to <unk>.
Our have our attention at the current time.
Got it okay that makes a lot of sense and Dave I know you touched on.
The availability to partner with third party capital providers.
Is there any and I realize it's a work in progress youre exploring all opportunities, but is there any other color that you can provide kind of giving us a sense of maybe the range of opportunities that you are considering or maybe things that you are not considering to kind of narrow down the field.
Yes.
It's really kind of situation specific I would say in it.
Maybe this has taken longer than it should have that youre trying to thread.
No limitations, we might have in our current credit agreements or notes.
Youre dealing with customers I mean, there is a reason why customers call us.
Favre leeco approach favor us owning that equipment.
And then also of course got it and accounting ramification, depending on structure. So as you try to weave.
We have your way through those I think a couple of things have kind of.
Come to the top in terms of how we think about this and the potential types of people, we could interact with would range from true capital providers. So people that are in the business of providing capital to even <unk>.
Joining projects with other people that might participate in that project.
That would put their balance sheet to work. So it really is situational specific and I would say we kind of have.
Elements of all of those as we are looking at.
Kind of a current project list and where we go in the future in this.
Challenges to your bid these projects, sometimes a year or two ahead of when they finally are awarded and some of this needs to be laid out at that time for the customer. So there is a longer lead time as well as trying to account for let's say thread the needle on.
Being successful on every front so.
Really it depends on the project that we're kind of in the mode on different projects with different potential partners on this which obviously again would provide.
Our ability to say, yes to every eco projects should we come up with solutions here that makes sense in.
That pipeline becomes fully accessible to us.
Okay. That's helpful.
And then maybe shifting gears just a moment.
Okay.
I don't want to say Theres, a pivot or a change in the business, but it did since like.
Maybe it sounded like I think there was a comment that the business is now more leverage to natural gas and water.
Obviously, we've seen this change over the last year or so, especially with.
The latest project award for the water business in September, but maybe if you could just kind of give us an update on that.
The outlook for the business kind of how how the different pieces come together between natural gas and water.
And then obviously it seems like the maybe the other components are going to be a smaller piece of the business, but how should we think about that mix going forward.
Yes, I think that's a great great observation and I think it stops with the work we've done over the past few years as we've exited some of the non coal.
More cyclical related products with lower margins as you can see in the in the financials that we that we're providing today.
We are by definition, becoming more aligned to natural gas and we invested significantly in our water business and as we outlined in this earnings call water now represents over 25% of <unk>, one 4 billion of backlog.
It is certainly an area that we're seeing more interest with Sydney seeing the opportunities to integrate solutions in a broader in a big way I think the expertise of the company is moving from rotating equipment to more of a molecule approach and so we're adding talent and resources in the areas.
That can integrate and both of those commodities have the ability for us to help drive efficiency productivity enhance the battery environment sustainability in those topics that we're talking to our customers is what's differentiating us. So if you look at our pipeline today.
The holder of potential that we have it's more revolved around those two to structure of businesses and so we spent quite a bit of time working on how to integrate those solutions and we're starting to see that pay off so much less cyclical once you've booked the backlog but of course, the the business that we had with peak.
Q and some of the assets that we had in north American compression and some of the assets. We had in <unk> were more highly and Thats now become more of a rearview mirror for us. So it's a natural progression for us our customers have taken us there and we're seeing that become a real key differentiator for us with the technologies that we have.
That portfolio.
Got it Okay, Andrew Dave I really appreciate the time. This morning is great great to get an update from all of you.
Thanks.
Our next question comes from the line of Doug Becker with Benchmark Research you May proceed with your question.
Thanks, just wanted to follow up on the capital structure of you a little bit more based.
Based on the commentary it doesn't sound like a facility sale, where you keep the aftermarket business is a priority or particular focus at this point is that fair to say.
Doug first of all congratulations on your move to a new shop. So look forward to working with you going forward.
No I would not I would say that falls under the operational side of things and that is I think we mentioned sale of fixed assets that would fall under that so we have had over the last 18 months a couple of situations where customers have decided to buy assets that we retain the O&M side.
Or the aftermarket and Thats certainly is I mean, we have a couple of those I would say, we always have those kind of discussions going on and there are a couple of those that are kind of in front of us as we talk nothing.
Tremendously significant they tend to be oftentimes smaller in scope, but no that would be something that.
If someone has an interest in.
Some existing assets and it makes sense for them it makes sense for us and we retain the.
O&M contract.
Absolutely can fit into our view of operational opportunities.
Got it and then how advanced are some of the discussions about trying to manage the working capital better weather.
<unk> supplier payments versus the milestone payments you might receive.
Yes.
There has been a focus and I think it has been our focus since the spin if you go back to the time of the spin and I'd have to go back and see we probably freed up.
A couple of hundred million dollars of working capital. So it's been a tremendous focus for the company and.
<unk> continues to be.
We're in a industry as you well know that cash is king.
So we're seeing from our customers I mean part of the focus on more customers asking about eco is looking for ways for them to offload that capital investment on others and frankly, we're not a bank and so we've got it then our vendor partners have to participate if they want to participate in this industry.
To also.
Dissipated and what's required and so that continues to be a big focus and I mentioned some opportunities around inventory.
Regardless of how good you are you're always have some inventory you can move we've got a real focus on that and have some good opportunities there.
We've focused on fixed assets.
Our available or it could be available we have things that roll off contract. We're focused on that and I think our internal teams both from an operational standpoint, I think the.
The plants have probably never been better run than what they are today really impressed compared to where we were at the spin with the way our manufacturing is performing and then on top of that I think we've got a tremendous sourcing group tremendous engineering group tremendous project management groups that all work together.
To control, what we can within our four walls, but also deal with our customers and our vendors to.
To push out terms with vendors.
What we can on the customer side to.
Make sure we're taking advantage of the opportunity to get those advanced payments and other things that are important to our cash flow.
Sounds encouraging and then.
Last one just maybe an update on the Middle East project I know you said, it's making progress, but particularly thinking about it in the context of working capital requirements going forward.
So that project as we said it is really kicked into full gear now.
Where it is.
Major projects so.
Not only our internal resources, but also vendor partners a lot going on.
A global project for US both in terms of our resources, but in terms of vendors who are involved so everyday there is challenges.
Everything from.
Covid springs up in certain geographies and other areas in.
So we're actually performing incredibly well considering some of the things that the hurdles that are there.
So the projects in full gear were onsite.
Concrete is pouring in dirt is moving and we're gearing up our people onsite our facility in the UAE.
Is quickly approaching kind of record level of employees onsite. So.
Very very happy all the way around with how Thats progressing.
On the timeline customer seems happy with us So that's all gone by.
Right.
And the structure of the timing of things.
No significant change from what we.
Communicated earlier this year next year would be a working capital use and is primarily again related to this project. So.
No changes to that we are in the process of developing our 2022 plan. So premature to give you any exact numbers by quarter or even for the year, but I think our view of as Andrew said, 15% EBITDA growth still.
And play in.
Leverage.
Kind of flat with where we'll end this year.
Obviously working to take that down but.
Sure.
I would say pretty much on.
The plan that we laid out earlier in the year.
Got it thank you very much.
Our next question comes from the line of Tim Monticello with ATV capital markets. You May proceed with your question.
Hey, good morning, everyone.
First question I have is around the product sales awards. It sounds like the Q4 guidance change had to do with some movement in and your opportunity set am I reading it the right way to think that you may have been expecting some projects to convert in Q3, which generated revenue in Q4 and now thats.
Perhaps more of a Q4 award story.
Yes, I think the.
We're.
I don't think we have been this busy on the commercial front for years, it's hard to remember again as busy as we are globally. So the opportunities are there and the bidding activity incredibly strong.
Lot going on I would say what's not.
Change materially the fact is still.
Our process to get things.
On the customer side from kind of bid to order. So things are a little bit to the right nothing new I would say, it's not worse by any means but yes. There are some orders.
This water order, we announced for example.
<unk> been talking about that for quite a while.
So.
Some things have slowed a bit to the right, but all still active projects is just comes down to timing and since product sales are percentage of completion accounting if something if the order slides that right youre going to see.
Quarterly revenue impacts slide to the right as well, but no change in the opportunity set we see it's just.
<unk> are still being incredibly diligent on.
Putting their capital to work.
Still a competitive space so they've got to do there go through their processes and frankly, there's been even some cases where COVID-19.
The ability to get in front of people and get document scientists slowed some things down but.
At this point.
The commercial pipeline looks incredibly strong and we're working as diligently as we can and pester and customers as much as they will take to try to get.
Quotes and bids turned into orders and Tim one follow up to that I think what is important that you.
Kind of picture is that as we build this pipeline we constantly force rank the pipeline into probability of go and get and so get means is extend I'm going to win and when is the project going to happen. So we're constantly as an organization working to our ethanol P plan identifying that.
Those and making sure that we're in great position on the gas and so that doesn't mean, if you win an order the whole startup process.
Initiate from that point, we have a lot of application work that in advance we invest heavily upfront in engineering.
Dave alluded to working capital unwind as one of our operational goals, we have inventory aligned to certain projects that can be recognized in terms of revenue fairly quickly should these orders come through at a certain point and so there is an element here of of making sure that we we have a good pipeline we have a good.
Set of activity both from an engineering application work and in some cases material that's positioned in our manufacturing facility. We're constantly balancing the overall under absorption versus taking bets on certain projects and so as Dave said pipeline is feeling good I would say North America is probably.
The noticeable areas Thats picked up since we last spoke.
We've seen a lot more inquiries in North America for our traditional processing equipment.
Some of the ancillary equipment and some of the applications predominant in the Permian, but also in some other locations.
That's the region that we've probably on an absolute value compared to the same quarter last year I've seen an increase in activity in terms of bid activity, but middle East still continues to remain strong Latin America.
Go back to my fourth quarter script last year, we talked about this year was going to be a year of the renewables.
We've demonstrated that with a tremendous commercial team that have done amazing work renewing contracts with really.
Little capital that's required on a go forward so the $1 billion for a backlog that we've seen.
Happy to be in the area that we had assets installed and we've been able to renew them, but since probably the summer. We've also seen a significant increase in appetite for new projects, mostly aligned to our gas processing and also some water projects in Latin America. We've got some assets that we're trialing right now is that with <unk>.
A large customer in Latin America on our water side, and we're feeling very good about the get sight of certain applications that we're bidding on in Latam. So across the board we've seen a really good pickup in commercial activity and really hoping here in the next couple of months, we start to see that come to fruition.
And have a better position to talk about how we are building for the next couple of years as we indicated in the earnings script. So hopefully that gives you a little bit more color.
Yes.
Extremely helpful.
Sure.
I guess when you look across the opportunity set and the ability to execute on that and and also considering the delays that you saw in Q3, I guess just on around awards.
Is there anything.
In terms of what's happening in the global supply chain.
Picture that might.
Continue to impact the ability to track.
Translate into awards over the near term or.
<unk> times for delivery on projects just given.
Issues around supply chain.
So it's a <unk>.
Great question.
Listening to a lot of our peers and some others in the industry has talked about this and I think we've we've got a little bit of a unique situation.
Two things first of all a few quarters back we talked extensively about the fact that we were maintaining a critical workforce and we weren't going to allow expertise is simply leave because we had.
The shortfall in volume and we've seen that with some areas in the industry, where talent has been a challenge and people are struggling with some execution because they lack critical talent go we decided this cycle certainly in North America, and a PNT and just just globally in some of the areas, particularly.
And in water, where we've been adding talent.
We maintain a very healthy.
Set of expertise and utilize them in ways that helped us drive productivity. We've had a lot of projects internally of how we design cost out of various applications and so we've been focusing the results on areas of productivity help efficiency quality and even design and more.
Since these into our safety in all of those metrics, we're seeing coming through in a great way what we're seeing in terms of supply chain. I think my biggest concern is just a little bit more of the unknown when it comes to logistics.
We've seen it in North America, we've seen.
Various reasons why the North America supply chain is being challenged we've seen pictures of the ports.
We're seeing similar Jayson.
But working alternative routes.
Having to work through tradeoffs between overland on fee or maybe a and so we're constantly working on those three areas to make sure that the components and the products can ship.
In the case of our larger projects.
One of the big changes that we made a number of years ago was to manufacture it in in the closest country to origin of where the products have been shipped to so Dave talked about I'll hand Maria facility.
Pre spin of the existent Exterran and Rudy in the fifth year to Henry was a valley facility manufacturing, a very different product and we've invested and developed the capability. There. So what you see today Maria facility is large infrastructure that's already built tested equipped almost.
Modular like that then can be shipped to the destination without having to worry of shipping components from all over the world to central locations is somewhere in the middle of the of our customer location and then working through the supply chain and logistics. So I think part of what I'm, describing here is a little bit of self help operationally the manufacturing.
Teams have done a really great job. This last 18 months preparing for this.
Covid has allowed us to reflect and step back and really get into the heart of the operations whilst at the same time came I think youre aware, we've been significantly investing.
Our new Oracle program taken all of our business to the cloud and so its really allowed us as a company to focus on the basic processes in along with the specifics of how we are able to.
Improve and have the flexibility and the ability to to see some of the bottleneck. So a lot of investment in that area focusing on productivity drive inefficiencies, while engineering, which all of which has allowed us to kind of get our arms around some of the supply chain issues that the industry has faced.
That doesn't mean to say we are out of the woods, but I think you'll get a sense from this discussion we have our arms around it and we can forecast that.
And then we have a half in terms of being able to predict the challenges ahead.
Okay. That's helpful.
Next one for me just on well wait to see that the net debt came down quarter over quarter. This first time, we've seen that in.
Probably since the beginning of 2020.
Was there anything that was I guess abnormal in the quarter that drove that did you have any prepayments or was that a result of operational.
No it <unk>.
Yes, nothing no one timers or anything so nothing out of the ordinary or it was just.
Yes.
I think we've described a lot of efforts going around in the company and one that hasnt stopped and it's peoples.
For part time job a full time job is focusing on running the business and working capital in.
Getting customer payments on time, and so forth and just a lot of hard work around the world.
Everyone to make sure that we're performing as well as we can.
In the environment, we're in so nothing out of the ordinary.
Okay. So on that front, Dave when you look at it.
Maybe.
Next few quarters, how do you see that net debt progressing.
Yes, I think.
As we mentioned that the project in the Middle East.
As a business.
Well so we're.
Starting to really get into the meat of that project, so that working capital.
<unk> is really <unk>.
<unk> I would say so.
I think this year, we said we finished the year.
Yes.
To $70 million negative free cash flow and we are.
Heading into the slightly better than that probably more in the $50 million to $60 million range and so.
I think that's we're obviously continuing to work on ways to.
To improve upon that and then as we move into next year, we will be in the heart of that project. So.
Again, the business plan isn't done so I really cant yet give you as Doug asked what's the progression.
On working capital investment, but we will be making that investment.
Next year, and we're kind of being in the heart of that project. The majority of that next year and we also have.
The two water projects. So there is capital involved in those which was included in the forecast. We provided earlier this year and those projects are moving quickly from engineering stages into.
Pickering and building equipment, and so forth so that capex will start picking up next year as well.
Okay got it.
And then just following up on some of the questions on the capital structure.
I guess.
This question is a key part.
It seems that the auctions.
We are seeing right now in terms of.
Using project financing partners.
Asset sales.
Wouldn't result in I guess, a finite end to this capital structure review it just be sort of this change of strategy around financing.
Which would probably be on a project by project basis.
And opportunities I guess to sell.
Some some assets that you deemed non core over the next couple of years is that the right way to think about it.
I'm not sure.
And then again, maybe our issue.
It feels like a bit of overstatement of where we are again.
When we started this it was really about offensive really positioning the company as best we could to take advantage of opportunities where customers tend to be looking for more eco not less.
And so I would say the change of strategy may be more around the project financing where it used to be the hallmark of this company for a long time too.
Use of our balance sheet and.
So that's probably the piece of the change of strategy I would say everything else is just running the company.
We're always going to look for opportunities that are accretive.
To value, whether thats selling an asset thats been deployed for a long time that a customer now wants to buy.
Looking for opportunities to to.
To monetize inventory those kind of things or just how we run the company and I think going forward.
It's probably more important in this environment I think obvious to to.
Folks that understand this industry and some of the others that serve it it's a changing world.
Financial markets tend to be a little more volatile that can be wildly opened and closed and.
Youre interested can be in favor of an out of favor.
Traditional lines of financing like banks can love an industry and a year later they hate it.
So a lot of that's just running the company and that's why we're going to focus on the things we can control one.
But always keep our head up.
Around what's going on in the world that we need to anticipate so we spend a lot of time trying to project a year.
Year from now two years from now the purpose of developing this long range forecast and sharing some elements of it was around the.
The main purpose of that forecast with us looking forward and making sure we're prepared to take advantage of opportunities and frankly head off anything that could be a challenge so.
Not really in many ways, it's not a change in strategy other than this idea.
Bringing project financing to a company that has never significantly been involved in that in the past, although we have some history way back.
Okay. So I guess more specifically on the project finance side.
Okay.
I guess, an example, if you sign the contract and the customer typical customer for it gave them contract you.
You would sell.
<unk>.
That contract basically to a third party <unk>.
And then operated on the E&S side after that.
Well the capital it needs to finance the build.
Now how would that translate to returns on those projects compared to the historical returns I would imagine that the capital that they will provide via higher cost capital then that you would get from our bank line or yes.
Yes, so as I said the equipment.
Tend to one would be would have a partner from the start I think thats. One thing we have seen we've looked at.
To an earlier question, we looked at is our ability to kind of once youre up and running to do something to monetize a contract those are difficult for lots of reasons. This is more of an approach where we would have a I'll call them a partner and use that term loosely from the start we've got to go.
And at the bid time and Thats part of the reason for the timing of this we really need to go in front of the customer at the time of the bids and so here. We are we're bidding. This this project and Oh by the way here is our partner that may be financial only or may have some operational.
Roll as well and so it would be likely from the start that we would we would head into that so it would be a product sale recognizes the product sale upfront. So it does change the I'll call. It the distribution of revenue. So it's not like we don't have that element anymore. It's just a product sale and then we would have a long term.
Contract, which shows up in.
Ams, where today the equipment call it lease.
The O&M is effectively shows up in the eco.
So.
I think.
Yes, we wouldn't be capturing the economics from I'll call. It the lease side of that like we traditionally have done but.
When you look at our pipeline of $3 5 billion and the potential capital we couldn't do it all anyway and our goal is to figure out how we can do it all and so will there be some projects, we self fund sure.
Im going to say that there wouldn't be but we certainly want to take an opportunity where the.
The economics permitted.
Get a long term Ams contracts.
<unk> sale.
Deal and not have to carry that capital on that project.
And perhaps your cost capital is too high to justify that we said yes.
So anyway.
I guess.
Last one for me I guess is just around that are you planning to find one partner or a couple of partners that would say like an Mou and say we will finance any project gives me sort of specifications or would you have to seek out project partners on that on an individual basis.
I would say, it's a combination we're talking to some folks that have.
I mean, one of the challenges when you look at the 25 plus countries, we're in hard to find someone that.
It covers all.
Overlap of the footprint, but there are people. So we're talking to some people that could be more of a global partner wherever we go but.
I would say.
Highest degree of success, so far and where we're probably further along as more regional or country, where people that's where they operate so they are comfortable.
In that space, where they may not be someone that has a global footprint to deal with the project and the other side of the globe.
Got it thanks, so much I'll turn it back.
At this time, we have reached the end of the question and answer session. I will now turn the call back over to Andrew way for any closing remarks.
Thank you operator, and thanks, everyone for participating today, we look forward to updating you after our fourth quarter earnings. Thank you very much.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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