Enerflex Ltd.

Good morning, ladies and gentlemen, and welcome to the Enerflex second quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. Following Enerflex's prepared remarks, we will conduct a question and answer session. Instructions will follow at that time. As a reminder, this conference call is being recorded. I want to turn the call over to your host, Stefan Ali, Vice President, Investor Relations and Business Development Energy Transition. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us on our second quarter 2023 earnings call. With me today are Mark Rossiter, President and CEO, Rod Gray, Senior Vice President and CFO, and Ben Park, Vice President, Corporate Controller. During today's call, we'll touch on highlights from our second quarter results and provide an update on how we are progressing our near-term strategic priorities. Before I turn it over to Mark, I'll remind everyone that today's discussion will include non-IFRS and other financial measures, as well as forward-looking statements regarding Enerflex's expectations for future performance and business prospects. Forward-looking information involves risks and uncertainties, and the stated expectations could differ materially from actual results or performance. For more information, refer to the advisory statements within our news release, MD&A, and other regulatory filings, all available on our website and under our CPR Plus and EDGAR profiles. All dollar amounts discussed today are in Canadian dollars, unless otherwise stated. I'll now turn it over to our President and CEO, Mark Rossiter.

Thanks, Stephan, and thanks to all our listeners for joining this morning's call. Last night, Enerflex reported results that reflect strong operational performance across our three core business lines and a continued focus on integrating Exterin and strengthening our financial position. In the second quarter, we delivered revenue of $777 million and adjusted EBITDA of $142 million, demonstrating the strength of our energy infrastructure and aftermarket services business lines. as well as continued momentum in our North American engineered systems business. The gross margin profile on our recurring businesses expanded from the first quarter. Our energy infrastructure platform benefited from more favorable terms on renewals and additional contracts and revenues generated from the new energy infrastructure assets we brought online in the first half of the year. And our aftermarket services business benefited from increased activity levels, including continued global demand for spare parts. Notably, our aftermarket services gross margin has increased by over 500 basis points from 2022 levels. Our gross margin profile from engineer systems has also improved significantly from this time last year, up 400 basis points. However, operational delays on certain in-flight projects resulted in a lower gross margin percentage in the quarter versus the prior quarter. We are focused on regaining lost time experienced on those projects to improve their margins. I'd like to quickly touch on some key activities across our business segments. Our North American business continues to perform exceptionally well across all product lines. Customer activity levels remain elevated, which has enabled us to capitalize on new opportunities and expand our book margins. Our US contract compression fleet is operating at high utilization rates, averaging 96% in the second quarter. And as a result, we are securing attractive pricing in this tight compression market. Our aftermarket services business is observing notable strength in gross margin improvements as customers continue to catch up on deferred maintenance activities and general parts and supply needs. And our engineered systems business continues to be a meaningful contributor, especially as we look to book, sorry, especially as we book larger cryogenic natural gas processing plants, which I'll touch on later. In Latin America, we are observing strong performance from our fleet of energy infrastructure assets, and are focused on optimizing our contract compression business by redeploying idle units to meet rising local demand. We're also seeing solid activity levels in aftermarket services across the LATAM region. In the Eastern Hemisphere, three of the four large in-flight projects that were being advanced through 2022 are complete and generating stable cash flows. We continue to advance the fourth in-flight project, the cryogenic facility in Kurdistan, which we expect to complete in 2024. We continue to focus our efforts on integrating Exterin. Since closing the transaction, we have captured most of the annual run rate synergies we identified at the time of the announcement, US $50 million of the US $60 million targeted, and continue to expect that we will capture the remaining US $10 million within 12 to 18 months of the transaction close. We are nine months into our integration efforts and are actively streamlining our global operations to ensure we are shaping our business for long-term success in maximizing profitability and resiliency. As we identify opportunities to optimize our global operations, we expect we will incur additional one-time restructuring and optimization costs, which should improve the overall efficiency of our business in the long term. An example of this is our previously announced plans to consolidate our global manufacturing capacity from five facilities to three. We have since identified further opportunities to simplify our geographic footprint and plan to execute on these initiatives over the next two years. Lastly, turning to our engineered systems business, EnerFlex secured $322 million of bookings in the second quarter, allowing us to maintain a significant backlog balance of $1.4 billion that we plan to convert into revenue through the balance of this year and into 2024. Notably, our second quarter bookings included $120 million of electrified natural gas infrastructure, and another $20 million for carbon capture and sequestration-related projects as we advance our energy transition business strategy. A strategic benefit from the Exterrin acquisition that I'm particularly excited about is our expanded product offerings, which have deepened our ability to serve the energy value chain, and we have diversified our backlog composition. In the second quarter, we secured $80 million of bookings for two large cryogenic natural gas processing plants in the United States. This is in addition to the cryo plant we booked in the first quarter for an international customer. Today, we are better positioned to capture these larger scaled opportunities, which should enable us to high grade the margin profile of our engineered systems backlog. I will now turn it over to Rod to speak to the financial highlights from yesterday's release and provide an update on Enerflex's outlook for the balance of 2023.