Enerflex(EFXT) - 2021 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Enerflex reported its highest quarterly revenue since the beginning of the pandemic in Q4 2021, driven by strong demand recovery in oil and natural gas markets [6] - Operating income was lower compared to the previous year due to competitive margin pressures and lower government grants received, despite improvements in Engineered Systems revenues [13][14] - SG&A costs decreased to $40 million, down from the same period last year, due to lower share-based compensation and decreased profit share expense [14] Business Line Data and Key Metrics Changes - Engineered Systems bookings exceeded $320 million, indicating strong demand across global regions, particularly in Latin America [6][10] - The aftermarket service business gradually recovered from the downturn, while the Energy Infrastructure platform showed resilience with improved revenues and higher utilization rates [9] - The Rest of World segment secured a 10-year extension on a BOOM asset, reinforcing the strategic goal of generating long-term stable cash flows [10] Market Data and Key Metrics Changes - The recovery in demand was broad-based across Canada, the U.S., and Rest of World segments, with significant bidding activity noted in Latin America [6] - The company is navigating supply chain constraints and inflationary pressures on materials and freight costs, which are expected to persist throughout 2022 [7] Company Strategy and Development Direction - Enerflex is focused on energy transition initiatives, including decarbonization projects and partnerships for CCUS, renewable natural gas, hydrogen, and electrification [7][8] - The company announced an all-share acquisition of Exterran, aiming to create a comprehensive energy infrastructure company and increase recurring gross margin [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the macroeconomic fundamentals driving demand in major basins, despite geopolitical uncertainties [26] - The company is focused on preserving the strength of its balance sheet and maintaining conservative leverage, exiting the quarter with a net debt-to-EBITDA ratio of 1.0 to 1 [17] Other Important Information - Enerflex's 2022 capital expenditures are projected to be between $200 million to $220 million for growth CapEx, with additional amounts allocated for work in progress and maintenance [16] - The company derecognized $45 million in deferred tax assets related to unused tax losses, indicating a cautious approach to future taxable income in Canada [14][15] Q&A Session Summary Question: Energy transition initiatives traction and backlog - Management indicated that Engineered Systems bookings in the hydrogen and non-fossil fuel space range from $10 million to $30 million, with significant potential in CCUS projects valued at $30 million to $60 million [20][21] Question: Demand for bookings and bidding activity in early 2022 - Management noted a good pipeline for bookings, with macroeconomic fundamentals supporting demand in key regions despite geopolitical unrest [26] Question: Renewals and finance lease structures - It was indicated that most renewals are likely to be accounted for as finance leases, with a focus on evaluating each project individually [27] Question: Cash windfall related to deferred revenue - Management clarified that the cash increase was due to effective cash collection and working capital management, but it is not expected to be sustainable [30] Question: Engineered Systems margins outlook - Management acknowledged challenges in margins but expressed hope for improvement as the backlog shifts towards higher-margin projects [34][35] Question: Exposure to Russia and Ukraine - Management confirmed minimal exposure to Russia and Ukraine, emphasizing that the geopolitical situation does not materially impact Enerflex's business [45]