Enerflex Ltd.

Hello, and welcome to the InterFlex first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vice President, Corporate Development and Investor Relations, Jeff Federley.

Thank you, Andrew, and good morning, everyone. Welcome to our first quarter of 2024 earnings call. With me today are Mark Rossiter, President and CEO, Preet Dhinza, SVP and CFO, and Ben Park, Vice President, Corporate Controller. During today's call, our prepared remarks will focus on three key areas. First, the strong operational performance of the business during Q1 and our outlook for the balance of 2024. Second, an update on the modularized cryogenic natural gas processing facility in the Middle East that Enerflex has been constructing for a client partner. And third, our progress on near and long-term strategic priorities. Before I turn 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. Effective January 1, 2024, the company changed its presentation currency from Canadian dollars to U.S. dollars to provide more relevant reporting of Interflex's financial position. As a result, all amounts discussed on this call are in U.S. dollars unless otherwise stated. As part of our prepared remarks, We will also be referring to slides in our investor presentation, which is available on our website under the investor relations section. I'll now turn it over to Mark Rossiter, Enerflex's president and CEO.

Thanks, Jeff, and thank you all for joining us on this call. Yesterday, Enerflex reported its first quarter 2024 results, which reflects solid operating results across our geographies and business lines. The energy infrastructure and aftermarket service business lines continue to generate stable, sustainable returns. These businesses are the foundation of Enerflex's financial performance, generating approximately 73% of our gross margin before depreciation and amortization over the past 12 months, and we believe underwrite the majority of the company's current debt. Turning to the specifics of our business, I'll begin with our energy infrastructure business line, which includes two main parts, contract compression operations in the United States, and two, compression, processing, and treated water assets located in the Middle East and Latin America. Performance of our U.S. contract compression business continues to be very solid, with a fleet size of approximately 424,000 horsepower and utilization that has exceeded 90% for two consecutive years. The business generates approximately 16% of our gross margin before depreciation and amortization over the past 12 months. The fundamentals for contract compression in the United States remain very strong, led by increasing natural gas production in the Permian Basin, and we have been focused on adding electric drive units to support larger client partners in their decarbonization efforts. Further detail of our U.S. contract compression business is included on slide seven of our investor presentation. Our international energy infrastructure business operates in seven countries and includes nearly 1.5 million horsepower of compression, over 25 natural gas processing plants, and two treated water facilities. We have approximately $1.5 billion of go-forward revenue and payments under contract, with the weighted average contract term exceeding five years and extending out to 2023. Slide eight of our investor presentation provides more detail around our international energy infrastructure business. During Q1-24, Enerflex expanded the scope and extended the term of an existing build, own, operate, maintain contract in the Eastern Hemisphere. The contract supports the expansion of the company's treated water solutions business, increases Enerflex's presence in a core operating country of Oman, and is expected to double Enerflex's revenue from the project and improve the company's returns during its additional four-year term. As prescribed by international finance reporting standards, the contract is now being accounted for as a finance lease. Turning to the aftermarket services business, this segment is benefiting from increased activity levels, inflationary price adjustments, and continued strong demand for spare parts. We expect these trends to continue throughout 2024. Our engineer systems product line recorded strong bookings and is steadily executing through its backlog. Our book-to-bill ratio was above one time during the quarter as we received several large orders, resulting in our order backlog increasing to $1.3 billion at the end of Q1, a new quarterly record for Enerflex. We are especially pleased with the success of our cryogenic natural gas processing business line, with Enerflex receiving orders for six large-scale facilities during 2023 and two additional facilities thus far in 2024. This demand is a reflection of our expanded product offering stemming from the exterior transaction. While we are actively monitoring the near-term impact of weak natural gas prices on customer demand, notably in North America, order activity in engineered systems continues to benefit from activity in oil-producing regions and with customers who maintain a positive medium-term view of U.S. natural gas fundamentals. As previously mentioned, the fundamentals for contract compression in the U.S. remain strong, led by increasing natural gas production in the Permian Basin. Now I'd like to provide an update on a modularized cryogenic natural gas processing facility in the Middle East, which we will refer to as the EH Cryo Project. As at March 31, 2024, construction of the EH Cryo Project was approximately 85% complete. However, construction has progressed at a slower pace than expected, and the expected costs to complete have increased. As a result, gross margin and adjusted EBITDA were reduced by $41 million based on the company's estimate of the remaining spend to complete the project of approximately $105 million. However, subsequent to Q124, in response to a drone attack that resulted in fatalities at an operational facility in proximity to the EH crowd project, Enerflex has provided its client partner with notice of force majeure, suspended activity at the project site, and demobilized their personnel. We extend our deepest condolences to the families of the people killed and those that have been affected by this attack. While no Enerflex personnel were injured and there was no physical damage to companies' assets, work at the site is suspended as Enerflex evaluates the situation in collaboration with our client partner and assesses next steps. As we look to the remainder of the year, we will continue to focus on enhancing our financial flexibility and strengthening the balance sheet. We were pleased to have repaid an additional $72 million of debt during Q1, bringing the total debt reduction since the beginning of 2023 to $193 million. Our leverage ratio was reduced to 2.2 at the end of March. In 2024, we will continue to prioritize generating free cash flow, repaying debt, improving our leverage ratio, and lowering our overall net finance costs. Before I turn the call over to Preet, I want to emphasize that the underlying macro drivers of 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. Against this backdrop, our business lines continue to deliver solid performance, and we are focused on enhancing the profitability of our core operations and Enerflex's ability to focus on growth and return of capital to shareholders. With that, I'll turn the call over to Preet to speak to the financial highlights of the quarter and provide an update on Interflex's outlook for 2024.