Enerflex(EFXT) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Third quarter revenue was $265 million, a substantial decrease compared to the prior year due to lower Engineered Systems revenue and weaker bookings [12][10] - Service revenue declined by 11% due to COVID-19 travel restrictions and pricing pressure in the U.S. [12] - Gross margins decreased, but the gross margin percentage remained consistent due to increased contributions from recurring revenue product lines [12] - Net debt decreased by $62 million in the quarter, totaling an $80 million reduction since March 31, demonstrating cash flow discipline [18] Business Line Data and Key Metrics Changes - The Engineered Systems business faced significant weakness, with bookings and revenue down from previous years [10] - The aftermarket services (AMS) business showed resilience, supported by the return of North American production [7] - The global asset ownership platform maintained an average utilization of 81% in the U.S. fleet, with contributions from BOOM projects in Argentina and Brazil [8] Market Data and Key Metrics Changes - The oil and gas sector continues to experience uncertainty around commodity prices due to COVID-19's impact on energy demand [6] - The Rest of World segment is less sensitive to commodity price fluctuations, with recent successes in Latin America and the Middle East [9][10] Company Strategy and Development Direction - The company is focusing on maintaining capital discipline and pursuing only the most attractive projects in the current environment [10] - Investments in asset ownership and AMS businesses are expected to drive consistent financial performance into 2021 [11] - The company is monitoring performance and making cost reduction decisions in response to industry turbulence [11] Management's Comments on Operating Environment and Future Outlook - Management anticipates that broader weakness in Engineered Systems bookings will persist into 2021 [6] - There is cautious optimism regarding a gradual recovery in customer inquiries and orders based on macro indicators [30] - The company is prepared for potential shifts towards electrified compression and lower carbon intensity projects [6][37] Other Important Information - Capital spending for 2020 is now estimated at approximately $135 million to $140 million, an increase from previous estimates due to project completion costs [15] - The company declared a $0.02 per share dividend to be paid on January 7, 2021, based on cash flow availability [17] Q&A Session Summary Question: Utilization levels for the contract compression fleet - Management noted stable utilization in the fleet but refrained from making predictions about future levels [21] Question: Pricing pressure and customer sentiment - Management confirmed that while customers remain price-sensitive, there is a high need for reliability and good service, which supports pricing stability [22] Question: Confidence in CapEx controls and risk mitigation - Management expressed confidence in their underwriting process and risk evaluation for ongoing projects, despite market volatility [25] Question: Demand for gas-focused drilling in 2021 - Management observed a muted yet positive comeback in customer inquiries and orders, particularly in key basins [30] Question: Cost structure in the Engineered Systems business - Management emphasized the importance of right-sizing the business in response to market conditions and indicated ongoing capital planning for 2021 [33] Question: Challenges in ramping up the business - Management highlighted the difficulty in retaining talent while adjusting cost structures, which is crucial for future growth [35] Question: Electrified compression and alternative demand sources - Management is monitoring customer interest in electric-driven solutions and is prepared to meet potential demand shifts [36][39]