Enerflex Ltd.

Good day, and thank you for standing by. Welcome to the Interflex fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeff Federley, Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to our fourth quarter and year-end 2023 earnings call. With me today are Mark Rossiter, President and CEO, Preet Ginza, Interim CFO, and Ben Park, Vice President, Corporate Controller. During today's call, we'll speak to our fourth quarter and year-end results, outlook for 2024, and provide an update on how we are progressing on our near and long-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 CDAR 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, Jeff, and thank you all for joining us in this morning's call. Yesterday, Enerflex reported its fourth quarter and year-end 2023 results. which reflect a strong finish to the year and solid operating results across our geographies. Our energy infrastructure and aftermarket services business lines demonstrated steady performance in 2023 and are positioned to continue driving stable, sustainable returns thanks to Enerflex's diversified global footprint. Approximately two-thirds of Enerflex's gross margin before depreciation and amortization, both for Q4 and full year 2023, was generated from recurring sources. and markets outside North America contributed approximately 50% of our total gross margin during this period. Our engineered systems product line achieved record annual revenue during 2023 and successfully navigated a volatile supply chain environment to deliver solid margins. Touching briefly on the quarter, Enerflex delivered adjusted EBITDA of $126 million and free cash flow of $185 million. demonstrating the strength and continued momentum from our occurring businesses, as well as the engineered systems product line. Energy infrastructure is generating stable results, and we continue to evaluate opportunities to maximize performance across our geographic platform. Our US contract compression asset is operating at high utilization rates, averaging 93% in the fourth quarter. The aftermarket services business is benefiting from increased activity levels price adjustments, and continued strong demand for spare parts and services. We recorded engineered systems bookings of $327 million in the quarter and $1.7 billion for the year, reflecting demand across three continents and solid client activity levels. However, bookings during the fourth quarter reflect a CCUS project that was canceled after our client was unable to secure required pipeline approvals. The project was originally booked in 2022. Despite the cancellation, Enerflex continues to see strong client activity across our regions, including the United States. We are especially pleased with the success of our cryogenic natural gas processing business line, with Enerflex receiving orders for five large-scale facilities during 2023 and an additional facility award in early 2024. This is a reflection of our expanded product offerings stemming from the Xterra transaction. As we enter 2024, visibility across our business is strong, supported by contract coverage across our energy infrastructure assets, the recurring nature of aftermarket service, and a $1.5 billion engineer systems backlog. Shifting to the integration of Xterrin, we are in the home stretch with efforts focused on final systems integration. We have updated our synergy guidance to reflect annual run rate synergies, having exceeded our previous target of $60 million U.S., Recent achievements include the streamlining of our global manufacturing footprint, exiting several non-core geographies, and monetization of non-core assets. We expect these actions, coupled with their focus on further enhancing the profitability of our core operations to enable continued debt reduction throughout 2024 and enhance Interflex's ability to deliver shareholder returns in the mid to long term. We remain committed to enhancing our financial position, repaying $167 million of long-term debt in the quarter, and reduced our leverage ratio to 2.3 at the end of December, consistent with our guidance. Our focus remains on strengthening the balance sheet and enhancing the company's financial flexibility. We were pleased to recently announce the appointment of Preet Dhinza as Senior Vice President and CFO effective March 1st. Preet has provided solid leadership and financial stewardship since joining Enerflex in October, and I'm excited to welcome him as our CFO at this important time for our company. We look forward to his continued leadership of Enerflex's strong global financial organization as we continue to unlock the benefits of the Xerion acquisition and position our company for long-term growth and value creation. Before I turn the call over to Preet, I want to emphasize that the underlying macro drivers for our business are strong. with the ongoing focus on global energy security and the growing need for low emissions natural gas, resulting in strong demand for Enerflex's energy infrastructure and energy transition solutions. With that, I'll turn it over to Preet to speak to the financial highlights of the quarter and provide an update on Enerflex's outlook for 2024.

Thanks, Mark, and good morning, everyone. I'm pleased to continue my work at Enerflex and help unlock the business's full potential for the benefit of our shareholders, customers, employees, and other stakeholders. My efforts will be focused on supporting the execution of our global strategy, improving the profitability and resiliency of the business, generating sustainable free cash flow, and strengthening our financial position. Turning to our financial results, Enerflex met or exceeded all of its full year 2023 financial guidance metrics, as last provided with our third quarter results in November. During the fourth quarter, consolidated revenue of $782 million was largely consistent with third quarter levels and driven by continued strong performance from Enerflex's recurring businesses. Gross margin before depreciation and amortization, or DNA, increased to $216 million, or 28% of revenue, compared to $201 million or 26% of revenue in Q3 2023. Energy infrastructure and aftermarket services product lines generated 67% of consolidated gross margin before DNA during the fourth quarter of 2023, which is comparable with the third quarter. Energy infrastructure gross margin before DNA of $104 million was relatively consistent with the previous quarters in the year. In engineered systems, our gross margin before DNA improved to 18% as we executed a higher margin backlog. And our aftermarket services gross margin before DNA was 22% in the quarter, the highest level in over two years, and reflected by increased activity levels, inflationary price adjustments, and continued strong demand for spare parts. EnderFlex's SG&A of $102 million declined $13 million from the third quarter, which was largely driven by lower compensation costs. Foreign exchange losses, which were previously included in SG&A, are now presented as a separate line item on our income statement. Transaction restructuring integration costs were $25 million in Q4, compared to $6 million in Q3, as we incurred costs related to consolidating our operations and integrating systems. We expect to incur approximately $30 million restructuring and integration cost in 2024. As Mark mentioned, we're in the home stretch of completing the integration with efforts focused on final systems integration. Our adjusted EBITDA was $126 million in the fourth quarter compared to $122 million in Q3. Adjusted EBITDA was reduced this quarter by $39 million resulting from losses related to foreign exchange and associated instruments, principally in Argentina. We generate $4 million in offsetting interest income that is reported in net finance costs and excluded from adjusted EBITDA. Enerflex continues to manage foreign exchange volatility and is implementing measures to reduce exposure to the Argentine peso. Excluding the impact of foreign exchange, our business in Argentina continues to perform well and generate strong operating cash flow for the business. Cash provided by operating activities was $209 million. which included a working capital recovery of $144 million. In the third quarter, we generated $71 million of cash from operations, including $15 million from the recovery of working capital. We are pleased with our ongoing global efforts to more efficiently manage working capital and target further progress in 2024, although we do not expect that the magnitude of the recovery realized during Q4 will be repeated. We've also introduced free cash flow as a key performance measure for our company. Free cash flow helps readers assess the level of free cash available to fund other non-operating activities, such as growth capital expenditures, discretionary debt repayment, share repurchases, and or incremental dividends. During the fourth quarter, Enerflux generated $185 million of free cash flow compared to a use of cash of $46 million in the comparable quarter of 2022. including free cash flow for the fourth quarter as a benefit of $52 million related to unrealized changes in foreign exchange and short-term investments. While we do not experience an outflow of cash associated with these unrealized losses, they impact cash available to fund other non-operating activities. We invested $24 million in the business during the fourth quarter, including $6 million of growth investments and returned $3 million to shareholders through dividends. As Mark mentioned, our focus remains on strengthening the balance sheet and enhancing the company's financial flexibility. We reduced net debt by $151 million during the quarter, exiting the year at $1.1 billion, and reduced our bank-adjusted net debt to EBITDA rates 2.3 times, from 2.7 times at the end of Q3, and 3.3 times at the end of 2022. Enerflex will continue to focus on debt reduction, global cash management, and lowering net finance costs in 2024, which will improve our ability to provide shareholder returns over the medium and long term. We continue to evaluate our target long-term capital structure and capital allocation parameters and expect to provide more clarity in the coming months. Let me shift to our outlook for 2024. Operating results will be underpinned by the highly contracted energy infrastructure product line and the recurring nature of aftermarket services. which together are expected to account for 55% to 65% of gross margin before depreciation and amortization. Complementing Enerflex's recurring revenue businesses is the engineered systems product line, which carried a backlog of $1.5 billion as of December 31, 2023. The company expects the majority of its backlog to convert into revenue over the next 12 months. Enerflex is targeting a disciplined capital program in 2024 with total capital expenditures of U.S. $90 to $110 million. This includes a total of approximately $70 million for maintenance and PC&E capital expenditures. Investing to expand our energy infrastructure business in 2024 is discretionary and will be allocated to customer-supported opportunities that are expected to generate attractive returns and deliver value to Enerflex shareholders. Finally, Enerflex is committed to delivering a sustainable dividend to shareholders with our board declaring a quarterly dividend of 2.5 cents per share. The dividend is payable on May 1, 2024 to shareholders of record March 13, 2024. I'll conclude by saying that with the support of Enerflex's strong global leadership team and talented employees, we're improving the profitability and resiliency of our overall business with an objective to generate sustainable free cash flow. I'm pleased to continue my work at Enerflex and help unlock the business's full potential for the benefit of our shareholders, customers, employees, and other stakeholders. With that, over to you, Mark, for closing remarks.

Big questions per se. Thank you.

As a reminder, to ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Please wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment for our first question, please. And our first question will come from the line of Aaron McNeil with TD Cowan. Your line is now open.

Good morning, and thanks for taking my questions. Mark, you mentioned you hit the cost-efficiency target. You're on the home stretch on integration activities. I guess it sort of begs the question of how you're thinking about the market position of the combined business going forward. And maybe more specifically, are there new end market opportunities to exploit that either standalone, Enerflex, or Exterin wouldn't have been in as good of a position to capture? And I guess, how would you assess your competitive position across the various end markets and geographies today?

Aaron, in the Eastern Hemisphere and Latin America specifically, the transaction has allowed us to have the largest market share in our particular product line in those geographies. So that's good. And those businesses are highly focused on energy infrastructure. And like I said in my prepared remarks, our biggest focus right now is improving the operational effectiveness of that energy infrastructure. So our increased scale should allow us to save some money in operations and supply chain. You know, also for the last number of years, Enerflex and Xterence customers had been coming to us with increasingly large projects, increasingly complicated projects, and the combined team is much more well set up right now to co-invest with our client partners in those larger, more complicated projects down the road. You know, for now and throughout 2024 and into 2025, our focus really is on doing our best to improve gross margins in all of our product lines. But the enhanced scale, especially in Eastern Hemisphere and Latin America, will be a real catalyst for that activity. In engineered systems, you know, we're really quite happy to mention that we booked five cryo plants in 2023. More than half of those plants are destined for international destinations on an ex-work basis from our North American shops. So neither Enerflex nor Exterin would have been able on their own to do that volume of work in one year. And indeed, it's the combined efforts of our Tulsa shop and our Houston shop and our Calgary shop and that concerted effort that's allowing us to address such a high volume of international and domestic demand for gas processing and compression. So I think it's good. I mean, it was a consolidation play to realize synergies. But once the synergies are realized, which they are, focus of management has to go towards leveraging the increased scale and size to improve gross margins. And that's our focus going forward.

Makes total sense. On a similar vein, should we expect further dispositions beyond the manufacturing footprint announcements that you've done already? And if so, what would you sort of characterize as core and non-core in the combined business?

We regularly review opportunities to optimize your geographic footprint and the business platform to ensure we're appropriately positioned in the market for, you know, to now the best possible growth in gross margins and in revenue. And, you know, we operate in, we have several countries where we have high amounts of investment we've made over the past decade. Some of those countries, especially for energy infrastructure specifically, United States, Brazil, Oman, Mexico, Bahrain, and those are what I would call from an energy infrastructure point of view, those are core countries. We are not actively looking to sell assets in non-core countries, but if we have people that approach us and people that have a valuation of those assets that would allow us to increase Enerflex shareholder value in the short, medium, and long term, then we would engage in those discussions.

Makes sense.

I guess more specifically on the water business, do you see that as core or non-core, or how should we think about some of those pieces?

I view it as quite core. I mean, it represents over 10% of Rebadaw right now. We've got two very successful projects that we completed in 2023 with core customers in a core country in the Middle East, Oman. And so I do believe they're core. When the customers are core and the geography is core and the technology is working really well. And those assets, I mean, they are infrastructure. And this transaction, the strategic rationale was all about leaning into the infrastructure first strategy to provide that sustainable level of cash flow for our investors long term. And the water business is very core to that message.

Understood. Thank you, Mark. I'll take over.

Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Cole Pierre with Stiefel. Your line is now open.

Hi. Good morning, all. So you exited the year below your leverage target. You have line of sight to keep reducing debt. How do you think about, you know, the level of leverage that this business can support over the longer term?

Well, hi, it's Preet. You know, as you noted, we've done a fairly good job in a disciplined manner getting to under around 2.3 times as at the end of last year. We're going to continue paying down debt as our primary use of capital there, above and beyond any other maintenance capex we've already called out. And right now, we are still working on determining our final or optimal capital structure and capital allocation parameters. And over the coming months, we'll likely have points of view on that. But right now, we are heavily focused on reducing gross debt, minimizing cash in the region. Therefore, net debt will start coming down and still focused on the key leverage metric. So that's what we'll be doing over the next several months. And then we will report back on where we think we need to be optimally in the coming months.

Gotcha. That makes sense. And then maybe thinking about in tandem with that, a longer-term capital allocation update. Can you guys just provide kind of a ranking on how you kind of think about maybe additional growth CapEx and dividends, share buybacks, et cetera?

We, you know, Cole, we're going to reiterate, be a little pedantic on this front. Reducing debt this year is the priority. Once we get into our target debt range, which we believe will be in the 2025 timeframe, we'll have the ability to choose amongst those levers you mentioned in a way that we think ensures the best long-term success for Interflex and create long-term value for shareholders.

Gotcha. That makes sense. That's all from me. Thanks. I'll turn it back.

Thank you. One moment for our next question. Our next question comes from the line of Tim Monticello with ATB Capital Markets. The line is now open.

Hey, good morning, everyone. First question, I just wanted to touch on synergies. Congrats on getting over that line. But with still, I think you said pre-$20 to $30 million of integration costs left in 2024, we've already realized $62 million U.S. of synergies. That's a question of where does that synergy number ultimately land? Any comment on that would be helpful. Thanks.

Yes, we know a little over 60 where we're landing on synergies. And as you noted, integration costs, call it 30 million Canadian split, probably evenly over the next three quarters of 2024. And my view generally is integration will be ending around 15, 18 months after deal close, which is upon us in the next few months. And then less about integration synergies and integration costs, more about continuing to optimize and refine the business. That's where we're going to be focused, and then we are integrated. We've got the two companies together, and we're operating as efficiently as possible and continue to look for opportunities to refine our businesses.

Okay, so safe to assume that you're most of the way there on synergies?

Yes, we are most of the way there. The final leg of integration is largely systems-related, and we feel good about how we're going to transition former Xterra onto our platform.

And Tim, this is Mark. We're never done looking at cost efficiencies. No good companies are ever done looking at ways to save costs and improve margins. I think you'll see us shift our discussions away from deal synergies and more onto how we make this a more effective, more profitable business long term. So we're not done looking for ways to reduce overheads and improve gross margins by a long shot. But I think you'll see us sort of moving off the synergy conversation and moving more on to being the most effective organization we can be long term.

I'm glad you mentioned that because that touched on my next line of questioning. You kind of mentioned, Mark, that margin improvement would be one of your top priorities alongside debt reduction in 2024. You talked about, you know, I guess the low hanging fruit there and what you think you can do in terms of quantifying, you know, how much you think margins can move.

Well, sure. I mean, first of all, I'd like to just point out our financials have reported a pretty significant gross margin increase year over year. I'd like to call it our aftermarket services business put, you know, two points of margin there. year-over-year in their business in addition to about 47% increase in top line. Our engineered systems business had a good year. We increased gross margins there almost by three points. So we've been executing at higher levels of gross margin as the market has been supportive of that. It's a continued focus of ours to improve gross margins. On energy infrastructure, our Eastern Hemisphere business is underpinned by long-term take-or-pay contracts. The best way to improve gross margins there is by really doing our very best on OPEX, trying to be the premier operator that know we are and continue to get better at that. In Latin America, in our U.S. contract compression asset, those are a little bit lower tenor terms, and we have been benefiting from realizing higher market-driven rates throughout 2023, and we see that trend continuing in 2024. So it's really a combination of making sure that we're getting fairly paid for the talents and services that we bring to the table, but also making sure that the new Enerflex is paying as close attention as possible to operating expenses.

So in the operating expense side, I would imagine that features most heavily in the energy infrastructure part of the business. Is that where you think you can see the most margin improvement?

I think that there's, you know, in any of the business lines, every point of cost reduction will have a significant impact on our free cash flow. And so we're trying to apply attention to all of our staff and all of our business lines to get that increased margin.

Okay. And then around CapEx for 2024, significant amount of that is discretionary and seems like it's unallocated. 70 million U.S. is sort of sustaining, 90 million is the bottom end of the range. Does that mean that 20 million is already allocated?

That does not mean that. I would say that roughly we've got $30 million of growth capital earmarked, and we have allocated very little of that. So, yeah, it hasn't been spent yet.

Okay. And then you mentioned that there's been a lot of demand in probably one of the thrust of the acquisition or the merger with Xterra was to be able to service larger projects, but you're focusing on deleveraging in the near term. So does that mean you're focusing mostly on opportunities that are smaller in scale? And I would imagine that those are mostly in the North American space.

Are you talking about energy infrastructure specifically or any sort of growth opportunities?

Yeah, sorry, CapEx energy.

Oh, yeah, okay. You know, we know that there's a very clear, easy to understand return for shareholders by debt reduction. So when we think about spending those discretionary dollars, the returns have to be significantly above the return realized if we reduce debt. They also would have to be quite strategic. So when I say strategic, I would think core customers, core assets. In the U.S., it would have to play into an electrification system. or decarbonizing strategy for our customers, which has been one of our most successful themes over the last three years in our contract compression asset class. In the Middle East, it would have to be very high rates of return, and it would have to be with core customers and core product lines. So we will be picky with where we spend the money, and it will have to provide a significant short- and long-term benefit attractive return for our shareholders, or we will hold the money and reduce debt.

Got it. All right, I'll jump back in the queue. Thank you.

Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. One moment for our next question. Our next question comes from the line of John Gibson with BMO Capital Markets. Your line is now open.

Good morning, all. Nice to see the big free cash flow number this quarter. There are obviously some one-time-ish numbers in there. Wondering what a more normalized number would look like absent the asset sale and some of the prepayments on the engineering system side.

I can talk to that. Thanks for the question.

As we noted here, a couple of things. One is Q4 versus Q3. Funds from operations before the working capital, pretty consistent, and obviously the working capital is a big driver, $144 million. We've got AR, we've got contract assets, deferred revenue. Deferred revenue came up quite a bit Q over Q. Inventories come down as well as one-time asset sales, LATAM. We signaled in Q3 about $40 million of asset sales coming up Q4, and that one asset sales the majority of that, so that's another non-recurring item there. So we expect clearly that this will not be repeatable at these levels. So we expect some sort of an unwind. Deferred revenue will start to unwind, of course. But I would say somewhere take a little bit off of this and take away the deferred revenue and the one-time sale. And I think that's probably where we're going to end up. However, nowhere near the buildup in the first half of

last year nothing like that so just modest use of working capital the next couple of quarters but we will be managing it extremely well on a global basis okay great i guess along the same lines what gives you confidence or what levers can you pull or i guess what has changed in your business this year versus last year that should see working capital normalize a little bit in 24.

It's a little bit more rigor and discipline and regional connectivity with the folks in our major regions. how we are getting cash repatriated back, how we're focused on receivables, getting cash in the door. And then we're using that free cash to pay down debt. As you can see, year over year, our cash balance has also come down. So a little bit more dialogue with our regions and a little bit more connectivity to bring everybody focused on working capital, which I feel good about where we're at on that. And we're going to continue the rigor and discipline throughout this year.

John, I'd like to add to that. The single biggest driver for working capital build in the first half of 23 was the fact that engineered systems and AMS almost doubled in one year. And whenever those businesses experience that level of growth, they will be a consumer of working capital. This year, we're predicting a much more steady pace. And so when it's a steady pace, if you've got the commercial discipline that our people have, you really shouldn't see significant consumption or release of working capital from those businesses specifically.

That's the biggest difference between the two years.

Great. I appreciate the responses. I'll turn it back.

Thank you. One moment for our next question, please. Our next question comes from the line of Keith McKay with RBC Capital Markets. Your line is now open. Mackie, I'm sorry. Keith Mackie.

Thank you very much. Just a question on engineered systems bookings. Mark, you did mention just now that you expected that business to be more stable this year. Can you just talk about what you're seeing in terms of the bookings environment looking ahead? I know there is some concern about weak natural gas prices in North America causing some issues for services, which service demand, which could potentially impact your business as well. But can you just talk to your exposure to that and your general outlook for bookings for 2024? Thanks.

Sure, Keith. I'd like to start by answering the question with the fact that the five cryo plants we sold in 2023, not a single one is going to a dry gas base in the United States. They're going to international markets, which are all about flare gas recovery, continued decarbonization of electricity grids, etc., And the North American sales are largely going to oil plays or associated gas plays at the very least. That being said, there's no doubt that activity in the Permian Basin and the Montigny Shale are big drivers of our North American engineered systems business. And we pay very close attention to any markers of potential slowdowns in those businesses. So we will watch it. Right now, our client-partner conversations have been constructive and positive. And so we'll continue to keep a close eye on that, and we really focus on oil economics, liquids economics when we think about our future, on top of the fact that over half of our business is really global on engineered systems, and a ton of the infrastructure revenue comes from global operations, which aren't really impacted at all by Henry Health Price or rig caps in the U.S.

Thank you. That's all I had. I'll turn it back.

Thank you. One moment for our next question. And I have a follow-up from Tim Monticello with ATB Capital Markets. Your line is now open.

Hey, thanks for taking my question again here, guys. Just given the leverage to free cash flow on that Kurdistan project, I'm wondering if you can give an update on that or a timing update when you think that will be commissioned, if anything's changed there.

So that's the Pearl project we're executing in the Middle East, the Cryo project?

Yeah, correct.

That's what you're asking about, Tim, just to make sure I heard properly?

Yeah.

Okay, good. Yeah, we're active in completing that project. We've got a lot of people on the ground, a lot of Interflex management. We're working to bring that project to a conclusion, and we're quite confident that'll happen in the second half of 2024. Okay.

Appreciate that. And then I just wanted to clarify one comment in pre your opening remarks just around the Argentina business. I think you said that it was generating strong operating cash flow. Is that inclusive of the FX losses or is that sort of a cash negative business after the FX losses?

I'd say if you back out the FX noise, whether it's the cash, money market instruments, the bond funds, it is profitable pre the FX downturn.

And then do you think that the instruments that you have in place now are sufficient to mitigate the losses in 24?

Tim, it's Jeff. As Preet mentioned in his prepared remarks, Our approach has shifted to minimizing our exposure to the Argentinian peso. So there was tremendous volatility and depreciation in the peso in 2023. There's a range of potential outcomes and expectations this year, but our focus is minimizing our exposure to the Argentinian peso and then continuing to protect the cash that we do have in-country that's generated from our operations.

So can you help put that in context on maybe a year-over-year basis? You've put in some actions here through 2023 to try to mitigate that. So is the expectation that the net impact will be lower in 2024 than 2023?

Depending on what the assumption is for currency volatility, obviously 2023 was exceptionally high and almost unprecedented. But From a 2024 sense, our expectation is that we will see less FX noise and impact in the year relative to 23, yes.

Okay, fantastic. Thanks, guys. I appreciate it all.

Thank you. And this concludes our Q&A portion. I would now like to turn the call back over to Mr. Mark Rossiter for closing remarks.

Thanks, Operator. Listen, it's my distinct honor to deliver these solid fourth quarter financial and operating results. on behalf of my 4,800 teammates at Enerflex. These results highlight our continued ability to successfully execute against our strategy across our three core businesses around the world. Our commitment to our key priorities remain steadfast as we work to further enhance the profitability of core operations, simplify our operational and geographic footprint, maximize cash flow generation to strengthen our financial position, realize the benefits and synergies from the transaction, and continue to offer best-in-class natural gas, treated water, and energy transition solutions. I look forward to building on our progress to create significant value and optionality across these geographies, customers, and product lines. Happy Leap Year Day. Thanks for your attention.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day. you Thank you.

Thank you. Bye.

Good day, and thank you for standing by. Welcome to the Interflex fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeff Federley, Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to our fourth quarter and year-end 2023 earnings call. With me today are Mark Rossiter, President and CEO, Preet Ginza, Interim CFO, and Ben Park, Vice President, Corporate Controller. During today's call, we'll speak to our fourth quarter and year-end results, outlook for 2024, and provide an update on how we are progressing on our near and long-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 CDAR 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, Jeff, and thank you all for joining us in this morning's call. Yesterday, Enerflex reported its fourth quarter and year-end 2023 results. which reflect a strong finish to the year and solid operating results across our geographies. Our energy infrastructure and aftermarket services business lines demonstrated steady performance in 2023 and are positioned to continue driving stable, sustainable returns thanks to Enerflex's diversified global footprint. Approximately two-thirds of Enerflex's gross margin before depreciation and amortization, both for Q4 and full year 2023, was generated from recurring sources. and markets outside North America contributed approximately 50% of our total gross margin during this period. Our engineered systems product line achieved record annual revenue during 2023 and successfully navigated a volatile supply chain environment to deliver solid margins. Touching briefly on the quarter, Enerflex delivered adjusted EBITDA of $126 million and free cash flow of $185 million. demonstrating the strength and continued momentum from our occurring businesses, as well as the engineered systems product line. Energy infrastructure is generating stable results, and we continue to evaluate opportunities to maximize performance across our geographic platform. Our US contract compression asset is operating at high utilization rates, averaging 93% in the fourth quarter. The aftermarket services business is benefiting from increased activity levels, price adjustments, and continued strong demand for spare parts and services. We recorded engineered systems bookings of $327 million in the quarter and $1.7 billion for the year, reflecting demand across three continents and solid client activity levels. However, bookings during the fourth quarter reflect a CCUS project that was canceled after our client was unable to secure required pipeline approvals. The project was originally booked in 2022. Despite the cancellation, Enerflex continues to see strong client activity across our regions, including the United States. We are especially pleased with the success of our cryogenic natural gas processing business line, with Enerflex receiving orders for five large-scale facilities during 2023 and an additional facility award in early 2024. This is a reflection of our expanded product offerings stemming from the Xterra transaction. As we enter 2024, visibility across our business is strong, supported by contract coverage across our energy infrastructure assets, the recurring nature of aftermarket service, and a $1.5 billion engineer systems backlog. Shifting to the integration of Exterin, we are in the home stretch with efforts focused on final systems integration. We have updated our synergy guidance to reflect annual run rate synergies, having exceeded our previous target of $60 million U.S., Recent achievements include the streamlining of our global manufacturing footprint, exiting several non-core geographies, and monetization of non-core assets. We expect these actions, coupled with our focus on further enhancing the profitability of our core operations to enable continued debt reduction throughout 2024 and enhance Enerflex's ability to deliver shareholder returns in the mid to long term. We remain committed to enhancing our financial position, repaying $167 million of long-term debt in the quarter, and reduced our leverage ratio to 2.3 at the end of December, consistent with our guidance. Our focus remains on strengthening the balance sheet and enhancing the company's financial flexibility. We were pleased to recently announce the appointment of Preet Dhinza as Senior Vice President and CFO effective March 1st. Preet has provided solid leadership and financial stewardship since joining Enerflex in October, and I'm excited to welcome him as our CFO at this important time for our company. We look forward to his continued leadership of Enerflex's strong global financial organization as we continue to unlock the benefits of the Xerion acquisition and position our company for long-term growth and value creation. Before I turn the call over to Preet, I want to emphasize that the underlying macro drivers for our business are strong. with the ongoing focus on global energy security and the growing need for low-emissions natural gas, resulting in strong demand for Enerflex's energy infrastructure and energy transition solutions. With that, I'll turn it over to Preet to speak to the financial highlights of the quarter and provide an update on Enerflex's outlook for 2024.

Thanks, Mark, and good morning, everyone. I'm pleased to continue my work at Enerflex and help unlock the business's full potential for the benefit of our shareholders, customers, employees, and other stakeholders. My efforts will be focused on supporting the execution of our global strategy, improving the profitability and resiliency of the business, generating sustainable free cash flow, and strengthening our financial position. Turning to our financial results, Enerflex met or exceeded all of its full-year 2023 financial guidance metrics, as last provided with our third quarter results in November. During the fourth quarter, consolidated revenue of $782 million was largely consistent with third quarter levels and driven by continued strong performance from Enerflex's recurring businesses. Gross margin before depreciation and amortization, or DNA, increased to $216 million, or 28% of revenue, compared to $201 million or 26% of revenue in Q3 2023. Energy infrastructure and aftermarket services product lines generated 67% of consolidated gross margin before DNA during the fourth quarter of 2023, which is comparable with the third quarter. Energy infrastructure gross margin before DNA of $104 million was relatively consistent with the previous quarters in the year. In engineered systems, our gross margin before DNA improved to 18% as we executed a higher margin backlog. And our aftermarket services gross margin before DNA was 22% in the quarter, the highest level in over two years, and reflected by increased activity levels, inflationary price adjustments, and continued strong demand for spare parts. Enerflex's SG&A of $102 million declined $13 million from the third quarter, which was largely driven by lower compensation costs. Foreign exchange losses, which were previously included in the SG&A, are now presented as a separate line item on our income statement. Transaction restructuring integration costs were $25 million in Q4, compared to $6 million in Q3, as we incurred costs related to consolidating our operations and integrating systems. We expect to incur approximately $30 million restructuring and integration cost in 2024. As Mark mentioned, we're in the home stretch of completing the integration, with efforts focused on final systems integration. Our adjusted EBITDA was $126 million in the fourth quarter, compared to $122 million in Q3. Adjusted EBITDA was reduced this quarter by $39 million, resulting from losses related to foreign exchange and associated instruments, principally in Argentina. We generate $4 million in offsetting interest income that is reported in net finance costs and excluded from adjusted EBITDA. Enerflex continues to manage foreign exchange volatility and is implementing measures to reduce exposure to the Argentine peso. Excluding the impact of foreign exchange, our business in Argentina continues to perform well and generate strong operating cash flow for the business. Cash provided by operating activities was $209 million. which included a working capital recovery of 144 million. In the third quarter, we generated 71 million of cash from operations, including 15 million from the recovery of working capital. We are pleased with our ongoing global efforts to more efficiently manage working capital and target further progress in 2024, although we do not expect that the magnitude of the recovery realized during Q4 will be repeated. We've also introduced free cash flow as a key performance measure for our company. Free cash flow helps readers assess the level of free cash available to fund other non-operating activities, such as growth capital expenditures, discretionary debt repayment, share repurchases, and or incremental dividends. During the fourth quarter, Enerflex generated $185 million of free cash flow compared to a use of cash of $46 million in the comparable quarter of 2022. including free cash flow for the fourth quarter as a benefit of $52 million related to unrealized changes in foreign exchange and short-term investments. While we do not experience an outflow of cash associated with these unrealized losses, they impact cash available to fund other non-operating activities. We invested $24 million in the business during the fourth quarter, including $6 million of growth investments and returned $3 million to shareholders through dividends. As Mark mentioned, our focus remains on strengthening the balance sheet and enhancing the company's financial flexibility. We reduced net debt by $151 million during the quarter, exiting the year at $1.1 billion, and reduced our bank-adjusted net debt to EBITDA raised 2.3 times, from 2.7 times at the end of Q3, and 3.3 times at the end of 2022. Enerflex will continue to focus on debt reduction, global cash management, and lowering net finance costs in 2024, which will improve our ability to provide shareholder returns over the medium and long term. We continue to evaluate our target long-term capital structure and capital allocation parameters and expect to provide more clarity in the coming months. Let me shift to our outlook for 2024. Operating results will be underpinned by the highly contracted energy infrastructure product line and the recurring nature of aftermarket services. which together are expected to account for 55% to 65% of gross margin before depreciation and amortization. Complementing Enerflex's recurring revenue businesses is the engineered systems product line, which carried a backlog of $1.5 billion as of December 31, 2023. The company expects the majority of its backlog to convert into revenue over the next 12 months. Enerflex is targeting a disciplined capital program in 2024 with total capital expenditures of U.S. $90 to $110 million. This includes a total of approximately $70 million for maintenance and PT&E capital expenditures. Investing to expand our energy infrastructure business in 2024 is discretionary and will be allocated to customer-supported opportunities that are expected to generate attractive returns and deliver value to Enerflex shareholders. Finally, Enerflex is committed to delivering a sustainable dividend to shareholders with our board declaring a quarterly dividend of 2.5 cents per share. The dividend is payable on May 1, 2024 to shareholders of record March 13, 2024. I'll conclude by saying that with the support of Enerflex's strong global leadership team and talented employees, we're improving the profitability and resiliency of our overall business with an objective to generate sustainable free cash flow. I'm pleased to continue my work at Enerflex and help unlock the business's full potential for the benefit of our shareholders, customers, employees, and other stakeholders. With that, over to you, Mark, for closing remarks.

Big questions per se. Thank you.

As a reminder, to ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Please wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment for our first question, please. And our first question will come from the line of Aaron McNeil with TD Cowan. Your line is now open.

Good morning, and thanks for taking my questions. Mark, you mentioned you hit the cost synergy target. You're on the home stretch on integration activities. I guess it sort of begs the question of how you're thinking about the market position of the combined business going forward. And maybe more specifically, are there new end market opportunities to exploit that either standalone, Enerflex, or Exterin wouldn't have been in as good of a position to capture? And I guess, how would you assess your competitive position across the various end markets and geographies today?

Aaron, in the Eastern Hemisphere and Latin America specifically, the transaction has allowed us to have the largest market share in our particular product line in those geographies. So that's good. And those businesses are highly focused on energy infrastructure. And like I said in my prepared remarks, our biggest focus right now is improving the operational effectiveness of that energy infrastructure. So our increased scale should allow us to save some money in operations and supply chain. You know, also for the last number of years, Enerflex and Xterence customers had been coming to us with increasingly large projects, increasingly complicated projects, and the combined team is much more well set up right now to co-invest with our client partners in those larger, more complicated projects down the road. You know, for now and throughout 2024 and into 2025, our focus really is on doing our best to improve gross margins in all of our product lines. But the enhanced scale, especially in Eastern Hemisphere and Latin America, will be a real catalyst for that activity. In engineered systems, you know, we're really quite happy to mention that we booked five cryo plants in 2023. More than half of those plants are destined for international destinations on an ex-work basis from our North American shops. So neither Enerflex nor Exterin would have been able on their own to do that volume of work in one year. And indeed, it's the combined efforts of our Tulsa shop and our Houston shop and our Calgary shop and that concerted effort that's allowing us to address such a high volume of international and domestic demand for gas processing and compression. So I think it's good. I mean, it was a consolidation play to realize synergies. But once the synergies are realized, which they are, focus of management has to go towards leveraging the increased scale and size to improve gross margins. And that's our focus going forward.

Makes total sense. On a similar vein, should we expect further dispositions beyond the manufacturing footprint announcements that you've done already? And if so, what would you sort of characterize as core and non-core in the combined business?

We regularly review opportunities to optimize your geographic footprint and the business platform to ensure we're appropriately positioned in the market for, you know, to now the best possible growth in gross margins and in revenue. And, you know, we operate in, we have several countries where we have high amounts of investment we've made over the past decade. Some of those countries, especially for energy infrastructure specifically, United States, Brazil, Oman, Mexico, Bahrain, and those are what I would call from an energy infrastructure point of view, those are core countries. We are not actively looking to sell assets in non-core countries, but if we have people that approach us and people that have a valuation of those assets that would allow us to increase Enerflex shareholder value in the short, medium, and long term, then we would engage in those discussions.

Makes sense.

I guess more specifically on the water business, do you see that as core or non-core, or how should we think about some of those pieces?

I view it as quite core. I mean, it represents over 10% of Rebadaw right now. We've got two very successful projects that we completed in 2023 with core customers in a core country in the Middle East, Oman. And so I do believe they're core. When the customers are core and the geography is core and the technology is working really well. And those assets, I mean, they are infrastructure. And this transaction, the strategic rationale was all about leaning into the infrastructure first strategy to provide that sustainable level of cash flow for our investors long term. And the water business is very core to that message.

Understood. Thank you, Mark. I'll take over.

Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Cole Pierre with Stiefel. Your line is now open.

Hi. Good morning, all. So you exited the year below your leverage target. You have line of sight to keep reducing debt. How do you think about, you know, the level of leverage that this business can support over the longer term?

Well, hi, it's Preet. You know, as you noted, we've done a fairly good job in a disciplined manner getting to under around 2.3 times as at the end of last year. We're going to continue paying down debt as our primary use of capital there, above and beyond any other maintenance capex we've already called out. And right now, we are still working on determining our final or optimal capital structure and capital allocation parameters. And over the coming months, we'll likely have points of view on that. But right now, we are heavily focused on reducing gross debt, minimizing cash in the region. Therefore, net debt will start coming down and still focused on the key leverage metric. So that's what we'll be doing over the next several months. And then we will report back on where we think we need to be optimally in the coming months.

Gotcha. That makes sense. And then maybe thinking about in tandem with that, a longer-term capital allocation update. Can you guys just provide kind of a ranking on how you kind of think about maybe additional growth CapEx and, you know, dividends, share buybacks, et cetera?

We, you know, Cole, we're going to reiterate, be a little pedantic on this front. Reducing debt this year is the priority. Once we get into our target debt range, which we believe will be in the 2025 timeframe, we'll have the ability to choose amongst those levers you mentioned in a way that we think ensures the best long-term success for Interflex and create long-term value for our shareholders.

Gotcha. That makes sense. That's all from me. Thanks. I'll turn it back.

Thank you. One moment for our next question. Our next question comes from the line of Tim Monticello with ATB Capital Markets. The line is now open.

Hey, good morning, everyone. First question, I just wanted to touch on synergies. Congrats on getting over that line. But with still, I think you said pre 20 to 30 million of integration costs left in 2024, we've already realized 62 million US synergies. That's a question of, you know, where does that synergy number ultimately land? Any comment on that would be helpful. Thanks.

Yes, we know a little over 60 where we're landing on synergies. And as you noted, integration costs, call it 30 million Canadian split, probably evenly over the next three quarters of 2024. And my view generally is integration will be ending around 15, 18 months after deal close, which is upon us in the next few months. And then less about integration synergies and integration costs, more about continuing to optimize and refine the business. That's where we're going to be focused. And then we are integrated. We've got the two companies together and we're operating as efficiently as possible and continue to look for opportunities to refine our businesses.

Okay, so safe to assume that you're most of the way there on synergies?

Yes, we are most of the way there. The final leg of integration is largely systems-related, and we feel good about how we're going to transition former Xterra onto our platform.

And Tim, this is Mark. We're never done looking at cost efficiencies. No good companies are ever done looking at ways to save costs and improve margins. I think you'll see us shift our... discussions away from deal synergies and more on to how we make this a more effective, more profitable business long term. So we're not done looking for ways to reduce overheads and improve gross margins by a long shot. But I think you'll see us sort of moving off the synergy conversation and moving more on to being the most effective organization we can be long term.

I'm glad you mentioned that because that touched on my next line of questioning. You kind of mentioned, Mark, that Margin improvement would be one of your top priorities alongside debt reduction in 2024. You talked about, I guess, the low hanging fruit there and what you think you can do in terms of quantifying how much you think margins can move.

Well, sure. I mean, first of all, I'd like to just point out our financials have reported a pretty significant gross margin increase year over year. I'd like to call it our aftermarket services business, put two points of margin year over year in their business in addition to about 47% increase in top line. Our engineered systems business had a good year. We increased gross margins there almost by three points. So we've been executing at higher levels of gross margin as the market has been supportive of that. It's a continued focus of ours to improve gross margins on energy infrastructure and Our Eastern Hemisphere business is underpinned by long-term take-or-pay contracts. The best way to improve gross margins there is by really doing our very best on OPEX, trying to be the premier operator that know we are and continue to get better at that. In Latin America, in our U.S. contract compression asset, those are a little bit lower tenor terms, and we have been benefiting from realizing higher market-driven rates. throughout 2023, and we see that trend continuing in 2024. So it's really a combination of making sure that we're getting fairly paid for the talents and services that we bring to the table, but also making sure that the new Enerflex is paying as close attention as possible to operating expenses.

So in the operating expense side, I would imagine that features most heavily in the energy infrastructure part of the business. Is that where you think you can see the most margin improvements?

I think that there's, you know, in any of the business lines, every point of cost reduction will have a significant impact on our free cash flow. And so, we're trying to apply attention to all of our staff and all of our business lines to get that increased margin.

Okay. And then around CapEx for 2024, significant amount of that is discretionary and seems like it's unallocated. So, 70 million U.S. is sort of sustaining, 90 million is the bottom end of the range. Does that mean that 20 million is already allocated?

That does not mean that. I would say that roughly we've got $30 million of growth capital earmarked, and we have allocated very little of that. So, yeah, it hasn't been spent yet.

Okay. And then you mentioned that there's been a lot of demand in probably one of the thrust of the acquisition or the merger with Xterra was to be able to service larger projects, but you're focusing on deleveraging in the near term. So does that mean you're focusing mostly on opportunities that are smaller in scale? And I would imagine that those are mostly in the North American space.

Are you talking about energy infrastructure specifically or any sort of growth opportunities?

Yeah, sorry, CapEx energy.

Oh, yeah, okay. You know, we know that there's a very clear, easy to understand return for shareholders by debt reduction. So when we think about spending those discretionary dollars, the returns have to be significantly above the return realized if we reduce debt. They also would have to be quite strategic. So when I say strategic, I would think core customers, core assets. In the US, it would have to play into an electrification or decarbonizing strategy for our customers, which has been one of our most successful themes over the last three years in our contract compression asset class. In the Middle East, it would have to be very high rates of return, and it would have to be with core customers and core product lines. So we will be picky with where we spend the money, and it will have to provide a significant short- and long-term benefit attractive return for our shareholders, or we will hold the money and reduce debt.

Got it. All right, I'll jump back in the queue. Thank you.

Thank you. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. One moment for our next question. Our next question comes from the line of John Gibson with BMO Capital Markets. Your line is now open.

Good morning, all. Nice to see the big free cash flow number this quarter. There are obviously some one-time-ish numbers in there. Wondering what a more normalized number would look like absent the asset sale and some of the prepayments on the engineering system side.

I can talk to that. Thanks for the question.

As we noted here, a couple of things. One is Q4 versus Q3. Funds from operations before the working capital, pretty consistent, and obviously the working capital is a big driver, $144 million. We've got AR, we've got contract assets, deferred revenue. Deferred revenue came up quite a bit Q over Q. Inventories come down as well as one-time asset sales, LATAM. We signaled in Q3 about $40 million of asset sales coming up Q4, and that one asset sales the majority of that, so that's another non-recurring item there. So we expect clearly that this will not be repeatable at these levels. So we expect some sort of an unwind. Deferred revenue will start to unwind, of course. But I would say somewhere take a little bit off of this and take away the deferred revenue and the one-time sale. And I think that's probably where we're going to end up. However, nowhere near the buildup in the first half of

last year nothing like that so just modest use of working capital the next couple of quarters but we will be managing it extremely well on a global basis okay great i guess along the same lines what gives you confidence or what levers can you pull or i guess what has changed in your business this year versus last year that should see working capital normalize a little bit in 24.

It's a little bit more rigor and discipline and regional connectivity with the folks in our major regions, how we are getting cash repatriated back, how we're focused on receivables, getting cash in the door. And then we're using that free cash to pay down debt. As you can see, year over year, our cash balance has also come down. So a little bit more dialogue with our regions and a little bit more connectivity to bring everybody focused on working capital, which I feel good about where we're at on that. And we're going to continue the rigor and discipline throughout this year.

John, I'd like to add to that. The single biggest driver for working capital build in the first half of 23 was the fact that engineered systems and AMS almost doubled in one year. And whenever those businesses experienced that level of growth, they will be a consumer of working capital. This year, we're predicting a much more steady pace. And so when it's a steady pace, if you've got the commercial discipline that our people have, you really shouldn't see significant consumption or release of working capital from those businesses specifically.

That's the biggest difference between the two years.

Great. I appreciate the responses. I'll turn it back.

Thank you. One moment for our next question, please. Our next question comes from the line of Keith McKay with RBC Capital Markets. Your line is now open. Mackie, I'm sorry. Keith Mackie.

All right. Thank you very much. Just a question on engineered systems bookings. Mark, you did mention just now that you expected that business to be more stable this year. Can you just talk about what you're seeing in terms of the bookings environment Looking ahead, I know there is some concern about weak natural gas prices in North America causing some issues for services, which service demand, which could potentially impact your business as well. But can you just talk to your exposure to that and your general outlook for bookings for 2024?

Sure, Keith. I'd like to start by answering the question with the fact that the five cryo plants we sold in 2023, not a single one is going to a dry gas basin in the United States. They're going to international markets, which are all about flare gas recovery, continued decarbonization of electricity grids, etc. And the North American sales are largely going to oil plays or associated gas plays at the very least. That being said, there's no doubt that activity in the Permian Basin and the Montigny Shale are big drivers of our North American engineered systems business. And we pay very close attention to any markers of potential slowdowns in those businesses. so we will watch it. Right now, our client-partner conversations have been constructive and positive, and so we will continue to keep a close eye on that, and we really focus on oil economics, liquids economics when we think about our future, on top of the fact that over half of our business is really global on engineered systems, and a ton of the infrastructure revenue comes from from global operations which aren't really impacted at all by Henry Hub Price or rig counts in the US.

Thank you. That's all I had. I'll turn it back.

Thank you. One moment for our next question. And I have a follow-up from Tim Monticello with ATB Capital Markets. Your line is now open.

Hey, thanks for taking my question again here, guys. Just given the leverage to free cash flow on that Kurdistan project, I'm wondering if you can give an update on that or a timing update when you think that will be commissioned, if anything's changed there.

So that's the Pearl project we're executing in the Middle East, the cryo project?

Yeah, correct.

That's what you're asking about, Tim, just to make sure I heard properly?

Yeah.

Okay, good. Yeah, we're active in completing that project. We've got a lot of people on the ground, a lot of Interflex management. We're working to bring that project to a conclusion, and we're quite confident that'll happen in the second half of 2024. Okay.

Appreciate that. And then I just wanted to clarify one comment in pre your opening remarks just around the Argentina business. I think you said that it was generating strong operating cash flow. Is that inclusive of the fx losses or you know is it um is that sort of a cash negative business after the fx losses i think you back out the fx fx noise whether it's the the cash money market instruments the bond fund is profitable pre the fx downturn and then do you think that the instruments that you have in place now are sufficient to mitigate the losses in 24.

Tim, it's Jeff. As Preet mentioned in his prepared remarks, our approach has shifted to minimizing our exposure to the Argentinian peso. So there was tremendous volatility and depreciation in the peso in 2023. There's a range of potential outcomes and expectations this year, but our focus is minimizing our exposure to the Argentinian peso and then continuing to protect the cash that we do have in-country that's generated from our operations.

Can you put that in context on maybe a year-over-year basis? You've put in some actions here through 23 to try to mitigate that. So is the expectation that the net impact will be lower in 24 than 23?

Depending on what the assumption is for currency volatility, obviously 2023 was exceptionally high and almost unprecedented. From a 2024 sense, our expectation is that we will see less FX noise and impact in the year relative to 23, yes.

Okay, fantastic. Thanks, guys. I appreciate it all.

Thank you. And this concludes our Q&A portion. I would now like to turn the call back over to Mr. Mark Rossiter for closing remarks.

Thanks, Operator. Listen, it's my distinct honor to deliver these solid fourth quarter financial and operating results. on behalf of my 4,800 teammates at Enerflex. These results highlight our continued ability to successfully execute against our strategy across our three core businesses around the world. Our commitment to our key priorities remain steadfast as we work to further enhance the profitability of core operations, simplify our operational and geographic footprint, maximize cash flow generation to strengthen our financial position, realize the benefits and synergies from the transaction, and continue to offer best-in-class natural gas, treated water, and energy transition solutions. I look forward to building on our progress to create significant value and optionality across these geographies, customers, and product lines. Happy Leap Year Day. Thanks for your attention.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.