• Consolidated Revenue: $561 million in Q4 2024, compared to $574 million in Q4 2023 and $601 million in Q3 2024.
• Gross Margin Before Depreciation and Amortization: $174 million or 31% of revenue in Q4 2024, compared to $158 million or 28% in Q4 2023.
• Adjusted EBITDA: $121 million in Q4 2024, compared to $91 million in Q4 2023.
• Net Debt: $616 million at the end of Q4 2024, with $92 million in cash and available liquidity of $614 million.
• Free Cash Flow: $76 million in Q4 2024, compared to $139 million in Q4 2023.
• SG&A Expenses: $92 million in Q4 2024, up $18 million year-over-year.
• Contract Backlog: $1.5 billion for Energy Infrastructure assets and $1.3 billion for Engineered Systems.
• Energy Infrastructure Gross Margin Before D&A: $86 million in Q4 2024, compared to $87 million in Q4 2023.
• After-market Services Gross Margin Before D&A: 22% in Q4 2024.
• Capital Expenditures: $47 million in Q4 2024, with $32 million for maintenance and $15 million for expansion.
• Dividend Payout: $2 million returned to shareholders in Q4 2024, with a 50% increase announced for Q1 2025.

• Warning! GuruFocus has detected 2 Warning Signs with EFXT.

Release Date: February 27, 2025

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

Positive Points

• Enerflex Ltd (NYSE:EFXT) delivered strong operational performance across its geographies and product lines, with Energy Infrastructure and After-market Services generating 69% of gross margin before depreciation and amortization in 2024.
• The company achieved a rapid deleveraging of its balance sheet, reaching the low end of its target leverage range at 1.5 times by the end of 2024, down from 2.3 times at the end of Q4 2023.
• Enerflex Ltd (NYSE:EFXT) has a robust contract backlog, with $1.5 billion for Energy Infrastructure assets and $1.3 billion for Engineered Systems, supporting future revenue streams.
• The US contract compression business showed strong operational performance with utilization in the mid-90% range and plans to grow the fleet from 428,000 horsepower to over 475,000 horsepower in 2025.
• Enerflex Ltd (NYSE:EFXT) plans to increase direct shareholder returns, including a 50% increase in dividends starting Q1 2025, reflecting confidence in its financial position.

Negative Points

• Geopolitical tensions and potential tariffs pose risks, although Enerflex Ltd (NYSE:EFXT) is working to mitigate these impacts through diversified operations and proactive risk management.
• Engineered Systems gross margin is expected to normalize to historical averages in 2025 due to weaker natural gas prices and a shift in project mix.
• SG&A expenses increased by $18 million year-over-year, partly due to increased share-based compensation and a bad debt recovery in the previous year.
• Free cash flow decreased to $76 million in Q4 2024 from $139 million in Q4 2023, reflecting changes in working capital recovery.
• The company anticipates a modest unwind in working capital in 2025, which could impact cash flow stability.

Q & A Highlights

Q: Now that Enerflex has hit the low end of its debt target range, what's preventing a more prescriptive capital allocation strategy? A: Marc Rossiter, President and CEO, explained that Enerflex is comfortable with its operations and committed to a range of capital spending. Preet Dhindsa, CFO, added that further deleveraging is prudent to optimize the debt stack, reduce interest costs, and maintain flexibility in response to evolving market conditions, such as tariffs.

Q: Do you have a specific leverage target in mind? A: Preet Dhindsa, CFO, stated that Enerflex aims to stay within the 1.5 to 2 times leverage range, though they may dip lower for strategic reasons.

Q: Can you elaborate on the expectations for Engineered Systems (ES) margins and when normalization might occur? A: Jeff Fetterly, VP of Corporate Development and Capital Markets, noted that Q4 results benefited from good execution and a favorable product mix. The backlog is increasingly compression-oriented, which typically generates lower margins. Margins are expected to normalize as the $1.3 billion backlog is executed over time.

Q: Is the US rental compression business's margin contribution sustainable? A: Marc Rossiter, President and CEO, affirmed that the market for contract compression in the US is strong, driven by increased gas-to-oil ratios and demand for gas compression. Enerflex's high-quality fleet and strategic customer relationships support sustainable margins.

Q: What are the potential impacts of tariffs on Enerflex's business? A: Marc Rossiter, President and CEO, explained that tariffs primarily affect supply chain costs, particularly in Engineered Systems. Enerflex has been proactive in mitigating potential impacts by working closely with suppliers and adjusting pricing strategies. The company is well-positioned to manage tariff risks due to its diversified operations.

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