• Revenue: $614 million in Q2 2024, up from $579 million in Q2 2023.
• Gross Margin Before Depreciation and Amortization: $173 million or 28% of revenue in Q2 2024, compared to $145 million or 25% in Q2 2023.
• Adjusted EBITDA: $122 million in Q2 2024, up from $107 million in Q2 2023.
• US Contract Compression Fleet Utilization: Averaged 94% across approximately 428,000 horsepower.
• Free Cash Flow: $72 million generated in the first half of 2024.
• Capital Expenditures: $9 million in growth capital expenditures in the first half of 2024.
• Net Debt: $763 million at the end of Q2 2024.
• Leverage Ratio: 2.2 times at the end of Q2 2024.
• Backlog: $1.3 billion at the end of Q2 2024.
• Dividend: CAD$0.025 per share declared for Q2 2024.

• Warning! GuruFocus has detected 6 Warning Signs with EFXT.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Enerflex Ltd (NYSE:EFXT) reported a strong operational performance, achieving a high watermark for adjusted EBITDA.
• The company's Engineered Systems business line showed favorable product mix and strong execution, supported by a $1.3 billion backlog.
• Enerflex Ltd (NYSE:EFXT) generated $72 million of free cash flow in the first half of the year, while keeping growth capital expenditures low.
• The US Contract Compression fleet operated at high utilization levels, averaging 94% across approximately 428,000 horsepower.
• Enerflex Ltd (NYSE:EFXT) extended the maturity date of its secured revolving credit facility by one year and increased availability to $800 million.

Negative Points

• Enerflex Ltd (NYSE:EFXT) faced challenges with the modularized cryogenic natural gas processing facility in Kurdistan, leading to suspended activities.
• The company is actively monitoring the near-term impact of weak natural gas prices on customer demand, particularly in North America.
• Free cash flow was negative $6 million in Q2 2024, compared to a positive $78 million in Q1 2024.
• Enerflex Ltd (NYSE:EFXT) experienced a net build of $85 million in working capital during the second quarter, impacting cash flow.
• The company's leverage ratio was 2.2 times at the end of Q2, above the target range of 1.5 to 2 times.

Q & A Highlights

Q: Can you explain how booking activity relates to rig count or commodity prices, and if there's a lag time involved? A: Marc Rossiter, CEO, explained that the Engineered Systems backlog typically lags the rig count by six to nine months. They anticipated a slower Q2 due to this lag but were pleasantly surprised by the bookings level, driven by liquids infrastructure rather than gas production. Jeff Fetterly, VP of Corporate Development and Investor Relations, added that despite weak gas prices, they continue to see opportunities in cryogenic processing.

Q: What are your thoughts on Archrock's acquisition of Total and its implications for your business? A: Marc Rossiter, CEO, noted that the acquisition reinforces the value of the contract compression business, which Enerflex has been investing in. The transaction highlights the discipline in growth capital among major players and supports Enerflex's strategy of investing in this asset class, given the strong North American natural gas macro outlook.

Q: Can you discuss the factors driving your CapEx to be at the lower end of the $90 million to $110 million range? A: Preet Dhindsa, CFO, stated that they are carefully managing free cash flow and prioritizing debt repayment. They are being precise with maintenance and growth CapEx, focusing on deploying capital where it generates the best returns, which is why they expect to be at the low end of the guidance range.

Q: What is the timeline for reaching your financial leverage target of 1.5 to 2 times? A: Preet Dhindsa, CFO, mentioned that while it's difficult to pinpoint an exact timeline, they expect the second half of the year to be constructive for free cash flow. The focus remains on debt repayment, and they aim to reach the leverage target in the near to medium term.

Q: Are the strong margins in the quarter due to synergies or structural changes, and are there areas for optimization? A: Jeff Fetterly, VP of Corporate Development and Investor Relations, explained that margins benefited from favorable mix and execution, particularly in cryogenic gas processing. While some synergy benefits are being realized, they do not expect the high margins to fully carry forward. Marc Rossiter, CEO, added that they are focused on operational excellence and managing macroeconomic factors to optimize margins.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.