Q2 2022 Enerflex Ltd Earnings Call
Yeah.
Good morning, ladies and gentlemen, and welcome to an effect in our flex second quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode.
Following in our flex prepared remarks, we will conduct a question and answer session and instructions will follow at that time.
As a reminder, this conference call is being recorded.
I would now like to turn the call over to your House, Stefan Ali Vice President strategy and Investor Relations. Please go ahead.
Thanks, operator, good morning, everyone and thank you for joining us on our second quarter 2022 earnings Conference call with me on the call today are Marc Rossiter, President and Chief Executive Officer, Sanjay <unk>, <unk>, Senior Vice President and Chief Financial Officer, and Ben Park, Vice President corporate controller.
During this call we will touch on highlights from our second quarter 2022 result.
Comment briefly on the performance of our three business segments, and then provide an update on the proposed acquisition of its Eric.
Before I turn it over to Mark.
Remind everyone that today's discussion will include non <unk> and other financial measures as well as forward looking statements regarding <unk> expectations for future performance and business prospects.
Forward looking information involve risks and uncertainties and the stated expectations could differ materially from actual results or performance.
For more information please refer to the advisory comments within our news release, MD&A and other regulatory filings, which are available on our website and under our SEDAR profile.
All dollar amounts discussed today are in Canadian dollars, unless otherwise stated.
That I will turn it over to our president and CEO Mark Rothera.
Thanks, Stephanie and good morning, everyone enter flex posted another strong quarter building on the momentum we established in the first quarter as it continued to recover from the lows of the pandemic.
Reflecting the underlying strength of our base business and our ability to capitalize on improving market fundamentals. We increased our revenues grew our margins and reduced our net debt balance.
Driven by North American activity, our engineered systems business continued its recovery.
Quarterly bookings of $313 million doubled from the second quarter of 2021 and increased by 32% for the first quarter of 2020 to continue.
Continued bookings momentum generated in engineered systems backlog is $737 million at June 30. This is our largest backlog in three years, providing enter flex a declared a line of sight to value creation over the coming quarters.
Our teams have been working hard to capture expanded margins on these new bookings compared to the lower margin work, we secured during the pandemic.
Don't producers across North America continued to demonstrate capital discipline rig counts in natural gas production of rising, which we view as a leading indicator for future bookings and backlog.
Our energy infrastructure business continues to perform as expected within the U S solid market fundamentals and the growing demand for LNG exports drove our contract compression fleet to an average utilization rate of 94% during the quarter, our highest on record and a clear indicator that there is demand for our products and services.
In our rest of World segment, we continue to progress the construction of natural gas infrastructure asset that was awarded in the fourth quarter of 2021.
Excellent project execution, we'll see this asset to come online later this year, which is ahead of schedule and significantly under budget.
Lastly, despite broad based OEM supply chain challenges on the timely delivery of parts along with inflationary operating expense pressures our service business saw a considerable increase in activity from.
From a combination of improved part sales and general demand for maintenance solutions across all regions.
Barring a significant change in macro fundamentals across the energy sector, we expect demand for aftermarket services business to remain robust.
With respect to inflation, we are diligently working to protect our margins and are actively managing supply chain and inflationary pressures across all regions.
Most of the inflationary pressures, we are observing relate to the availability of materials.
And escalating operating expenses.
To mitigate this we are being strategic in our inventory planning based on the bid pipeline and working closely with our customers to reduce any significant cost exposures.
And delivery delays.
Finally, I'll touch on our energy transition business, where we are progressing several opportunities across the carbon capture renewable natural gas and hydrogen spaces and.
In addition to helping our customers eliminate scope, one ghd emissions through our electrified offerings.
Also meaningfully progressing discussions for larger scale infrastructure that will facilitate global to carbonization efforts.
Constructive public policy will assist in promoting investment in this emerging market and could begin to benefit <unk> as early as this year.
I will now turn it over to our CFO Sanjay <unk> to touch on the financial highlights from the quarter.
Thanks Mark.
Kris in activity levels, we experienced during the second quarter drove higher revenue and gross margin across all product lines.
Topline revenue of $372 million was 15% higher sequentially and 82% higher than second quarter of 2021 and resulted from a larger opening backlog higher rental utilization and a higher volume of work.
Enter flex recorded a gross margin of $64 million or 17, 1% as a percentage of revenue.
And our margins continue to trend positively towards pre pandemic levels.
Margins associated with our energy infrastructure and engineered system product lines were stable, while our services gross margins improved quarter over quarter.
It is important to note that the engineered systems gross margins, we reported in our second quarter results relate primarily to the conversion of lower margin bookings from 2021.
The more robust margins that we are capturing on todays bookings are expected to be converted and reflected in our financial results later this year and into 2023.
Next a higher than expected adjusted EBITDA of $45 million.
It was driven by our expanding gross margins and increased Ams activity compared to the first quarter of 2022.
As a result, our adjusted EBITDA increased by 16% from the first quarter of 2022, and 24% year over year.
Regarding capital allocation during the quarter, we invested $24 million in energy infrastructure and capital expenditures and work in progress related to finance leases.
The $24 million was evenly split between our contract compression assets and the large natural gas infrastructure project underway in the middle East.
We are currently forecasting this project to come in under budget and be completed by the end of the year at which point, our recurring revenue and free cash flow profile will improve.
Enter flex will continue to exercise discipline in our capital investments and discretionary spending to strengthen our financial position and de risked our delevering strategy. Following the close of the proposed Exterran acquisition.
At June 30, our net debt balance was 200 million or a conservative bank adjusted net debt to EBITDA ratio of 136 times.
Lastly, <unk> board of directors will continue to evaluate dividend payment on a quarterly basis based on the availability of cash flow and anticipated market conditions yesterday, declaring a dividend of $2 five per share to be paid on October six 2022.
With that I will hand, it back to Mark to give an update on the proposed acquisition of Exterran.
And our flex continues to progress all matters that need to be addressed to close the proposed acquisition of Exterran.
Today, we have obtained a number of the required regulatory approvals and we continue to pursue the SEC approval required in connection with the registration of our common shares in the United States.
Subject to receipt of all regulatory approvals, we expect to issue the information circular in the coming weeks for the special meeting of <unk> shareholders that we will consider the transaction.
Since we announced the acquisition back in January .
To enter flex and Exterran have reported better than expected financial results driven by the strength in bookings and macroeconomic conditions.
Interest rates have also risen the timing of expenditures has been delayed with some expenditures slipping from 2022 into 2023 and the timing of associated tax payments has been revised as a result, we have updated our expectations for the pro forma entity, which include.
Strong cash flow generation and higher anticipated synergies, we expect to deleverage more quickly than initially forecast and anticipate bringing our bank adjusted net debt to EBITDA to below two five times within 12 to 18 months of closing.
And through our integration planning efforts, we now expect to capture $60 million of synergies compared to the $40 million of synergies.
Closed initially.
Primarily captured through overhead savings.
And operating efficiencies.
Additionally, we expect to grow our recurring revenues to over 70% of the combined entities gross margin profile, which will stabilize the underlying business and make enter flex more resilient against future market volatility.
Exterran also continues to progress a dispute with a former employee and as disclosed that although it may incur some lies with respect to the matter the ultimate resolution will not be material to exterran.
And our flex has been regularly communicating with exterran regarding the dispute and has engaged outside legal counsel to assist in evaluating the dispute and the impact to Exterran and reflects in the potentially combined entity.
In closing energy security has become more important than ever that demand for low emission natural gas.
Is growing and we believe that <unk> is strategically positioned to contribute our expertise to projects that will deliver a safe and reliable energy solutions for years to come.
Today, our base business is delivering solid results across all regions and product lines and we are on the precipice of completing a transformational acquisition that will grow our free cash flow and will provide us with increased optionality over the long term.
We will now be happy to take questions.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone.
Thats Star one to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Tim Mona Tullow with ATB capital markets. Your line is open.
Yeah.
Hey, good morning, everyone.
Good morning.
Happy to see the update on the merger I was just curious if you could give a little bit more detail around the changes to the EPS and cash flow per share accretion assumption.
Particularly like.
I guess, what timeline is that over and are you able to you Blake.
To give what EPS and cash flow per share assumptions are underlying us.
Accretion numbers.
Yes sure Tim This is Sanjay I'll take that one.
So.
A few questions in there I guess from a timeline perspective, the accretion that we're giving is for 2023.
And.
I think the important thing the big the big mover from the previous.
Guidance that we'd given when we announced the transaction.
It's really related to interest.
<unk> costs as the market has gone up in terms of interest rates.
We've gotten a little bit smarter on.
Some other things like taxes, and depreciation and so in the purchase price allocation and so it's really those things that are have moved the dial there.
Big one being interest rates and I think important to point out that.
We do have some protections on the maximum interest rate that we can observe.
On the financing and we've moved to the most conservative position when we're modeling that now that we've kind of moved that to the.
To the cap if you will.
And that's what's reflected in the numbers that we put forward last night.
Okay got it so I guess.
Hearing that against the.
I guess more aggressive deleveraging targets that you've set.
Is it fair to say that that is more a function of increasing EBITDA.
And decreasing leverage over the next 12 to 18 months.
No.
We actually I think one thing sort of lead to the other and we took a really hard look at how.
How we want to run the business, especially if we've got a little bit higher cost on the financing.
And so there's just a greater emphasis on delevering the balance sheet at this point, that's really been the bigger driver to point towards the lower end of the range previously were.
We have given at two five to three range and.
We just think it's prudent in the higher cost environment to get it down to two five.
Okay. Thank.
Can you provide a little bit more detail on just your timing expectations in <unk>.
And the next steps to close the transaction.
So you talked about.
The circular being released over the next few weeks.
When you think you'll tap the high yield market.
Yes so.
Just stepping through that.
Steps here, we first need to get final approval from the SEC, we expect that.
Within the next couple of weeks.
That will then kick off.
Issuing the circular.
Let's call that sort of.
Within within the next several weeks that we think we can we can get to that point.
And then we do have an obligation to give shareholders a certain amount of time I think it's I think it's 30 days to read the circular before the vote.
And then we would proceed to close the transaction after the vote. So.
That's kind of the timeline in terms.
Accessing the high yield markets.
Those of you that follow the high yield markets know that.
Lot of the investors.
Market is fairly quiet for the second half of August and so I don't anticipate that will be approaching the market index.
Call. It several weeks here I do think that we're going to wait.
Until we've got a little bit more clarity on the exact timeline of the transaction and we're post labor day, and we're into more constructive.
Period of the market historically.
My guess is that's what it will be.
Thinking about hitting the market.
How does the ongoing dispute.
The Mexican.
Labor Board for Exterran impact the timing of any of these items.
It doesn't.
Okay.
And then just shifting gears here on <unk>.
Bookings and margins.
Maybe you can just clarify it sounds like margins are improving on new bookings, but maybe more pressured.
Then they were historically what are your expectations for margins I guess within the engineered systems business in North America, specifically over the next 12 months.
We expect it to grow and we said that in the prepared comments, we will stop short of giving an exact number.
But the margin is.
In the bookings received in Q2.
Is definitely higher than the gross margin reported in the segment in Q1 so.
So we sort of know what we have in our back pocket at the bookings we know what we what we delivered in Q1 and we know that there is that we expect an increase over time when we deliver those.
Going from the bookings margin to deliver it's all about costs and right now we feel like we've got a reasonable hand on the cost to execute on that backlog and we're quite comfortable in our ability to control those costs and that's why we don't mind, saying, we expect engineered systems gross margins to increase I don't think that it's that much different now that we're through there really.
They're really stressful supply chain challenges that existed in Q4 and Q1.
That this this.
Recovery in engineered systems feels very similar to recoveries in past cycles. So it's not really that much more or less competitive in the market now and maybe what were feeling six months ago.
Okay.
In terms of lead times for inputs can you talk a little bit about about that specifically.
Compressors and engines.
Yes, sure I think we would normally say that our backlog convert to revenue in the six to nine to 12 month timeframe and probably a year ago that was more like six to nine months I would say now we will be converting backlog in the nine to 12 month timeframe.
I don't want to give you a specific deliveries on engines and compressors, but if we get an order for a package youll start seeing significant revenue recognition nine to 12 months out.
Okay got it.
I appreciate all the details guys I'll turn it back.
Thank you.
Please standby for our next question.
Our next question comes from the line of Aaron Macneil with TD Securities. Your line is open.
Hey, good morning, all and thanks for taking my questions nice to see the guidance Tom.
As it relates to the synergies target I guess.
What sort of early integration work have you done to get more comfort on that figure.
We've done a ton of pre integration work and I should correct myself to $40 million to $60 million is U S dollars were at the beginning of the presentation. Steffen said, it's all Canadian those are the only numbers that I would say are in U S dollars.
It's been six months, Eric since we announced this transaction and you can imagine we are working on it for months and months prior to that so since we announced the transaction we've been able to get.
Enter flex people and Exterran people.
Within the bounds of all the antitrust regulations working together to think about what the pro forma entity looks like and how we can deliver upon the synergies that we need to.
And in a consolidation play to make the deal appropriate, but also thinking about the future natural gas infrastructure, which we think has got a really strong tailwind. So we put a I guess I can say, we put a lot of time into it I believe very strongly in the $60 million number and I believe it's achievable.
Okay.
Sticking with Exterran and the legal dispute.
I think exterran did a pretty good job in the 10-Q to highlight the absurdity of the issue.
I know youre not going to want to indirectly give a legal opinion. So let me maybe be the one to say that.
In a scenario where this lawsuit.
Appears to be frivolous.
Based on your conversations with investors do you think that.
This issue will negatively impact and reflects the shareholder support for the transaction.
It won't positively impacted that's for sure I think it's one of many issues that our shareholders will have to consider when they when they consider the overall benefits to them of doing this deal.
Reflects management and the board still believe very strongly in the overall benefits of this deal to enter flex shareholders. The strategic rationale of of getting 70% of our gross margin from recurring revenues from really being a global natural gas player, which in pretty much the hottest commodity in the world today, and what we think will be very strong.
Macroeconomic backdrop for natural gas for decades to come those are the two main things that really make this.
This acquisition.
Make a ton of SaaS and the Mexico situation is something that really sticks out there, but upon careful consideration and everything that we know and based on seeking legal legal advice like we said in the press release for two separate counsel.
We still believe very strongly in the overall benefits of this acquisition to enter flex shareholders over the long term.
Okay, maybe I'll sneak one more question please.
Please.
Relates to the rest of World segment margins.
Yes, I just would have.
Expected margins to be a bit higher given the infrastructure waiting.
Revenue profile.
Is there anything nonrecurring or maybe something that is recurring that's causing a drag on the margins over the past couple of quarters.
Yes, we had.
We had a couple of things Erinn. This is sanjay.
That impacted those margins.
I think it's indicative of what we expect in the long run up the business.
The first was actually a project that we.
We actually sold it in rest of world, but a lot of the margins were actually recognized in the U S business, just because it was a manufacturing job.
So the revenue width breadth of world, but a lot of the a lot of the margin was captured in the U S.
The other one the other drivers we did have a project that had some supply chain inflationary issues and and did drive down.
Margins and that's very much an isolated incident there. So I think those two factors are what's showing up in the numbers and we don't we don't expect that that's going to be a continuing issue.
Okay. Thanks, I'll turn it back.
Thank you.
Please standby for our next question.
Our next question comes from the line of Andrew <unk> with Raymond James Your line is open.
Good morning, guys.
Andrew.
Hi.
Yeah.
Can we just start with the Exterran quickly here.
Can you can.
Can you add any color on why the FCC approvals are taking longer than you might have initially anticipated.
Yes, it's really.
Is the first time.
Issuer, one when the deal closes.
As a first time issuer or the SEC.
Not not atypical for them to just take a little bit more time and getting to know.
Enter flex as a company and a lot of it has just been Q&A back and forth with understanding our.
Our company a little bit better so I'd say that's been the primary factor.
Theres been no one issue that they have been more or less hung up on a normal no one area of operations, where they've been for hung up on than others.
Not really I mean, they did take some time to digest.
<unk> 16, and treatment of finance leases to that that back and forth and how we were thinking about that.
Has has represented a little bit of a Q&A back and forth but.
Outside of that I would say.
It's Ben.
Across the board no real specific issue.
Okay. Thanks for that.
And I will get this one out of the way too so.
So im sure your counsel in Mexico provided you with.
Considerable comfort regarding the ultimate cost of this action, but it doesn't sound like they give you.
Guidance that the timing of the resolution will be particularly convenient for you in respect of the mailing of the boat is if I got that right.
Yeah, Andrew I don't think that there will be a legal.
Let's call it solution to this situation.
Before we want to close the deal and before we have to close the deal.
Okay.
Okay.
That said for what it's worth it.
I have a degree of there.
It was pretty good disclosure by Exterran on Shine, a bright light on some of the absurdities of.
What's going on down there so hopefully that provides some comfort.
Let's switch back over here too.
The bookings.
Bookings and backlog.
Okay.
Lead times embedded in these orders it looks like backlog conversion is running a bit longer than usual.
Expect that maybe because your customers are trying to anticipate.
Supply chain difficulties.
Is that right.
We definitely have some customers, especially operators in the Permian basin.
Have a very positive outlook for their business and they're placing orders for equipment that they want to receive.
Over the 9% to almost 18 month timeframe.
And there are sort of planning ahead based on our rig count in their relationships with their producers what they expect to come throughout 2023, So let's call those almost fleet orders from different midstream players in the Permian basin that they don't necessarily need every single one of those units as soon as we can deliver them. They have a certain delivery schedule they want to react to it.
Increases in gas production from their customers so.
Thats one of the driving factors in the bookings in Q2.
<unk>.
Big in the United States also pretty big in Canada, and its midstream operators reacting to higher rig counts in the major basins in the United States.
It's where it's all coming from.
Okay, So where we might have seen conversion of the backlog.
And the 30 plus.
<unk> percent range.
We can probably expect that to on a quarterly basis pardon me, we can probably expect that to drop a bit or stay stay lower here for the next.
It sounds like the next.
Several quarters.
That's reasonable okay.
And just.
Just out of curiosity.
He mentioned electric drive a fair bit in the press release, yes.
In rough terms.
What is the as a percent of your.
Total compression packages that are sitting on the book there.
Also what percentage of our compression orders in the backlog are electric yes.
I don't have a number for you it's significant when I walk around the facilities in Houston, and Calgary I see a lot of electric motors.
And I just would hate to give you a number on that but it's significant.
I don't want to producer puts.
A package in the field with an electric motor instead of a gas engine. If indeed the grid. They are pulling from has a high percentage of renewable energy hydroelectric wind solar or whatever then they are overall scope one for that particular package is significant significantly reduced so they like that.
They like the lower cost of an electric motor or at least from the package point of view they have to balance that against the time and cost of bringing in high voltage power to the facility. So we're seeing a lot of our electric motor drive packages.
Our associated with pretty significant natural gas infrastructure, I think a deep cut plant or a cryo plant, where they are bringing in highlight power anyhow for field gas gathering units, it's less likely to be electric because the cost of bringing in the power starts to erode some of the benefits of the lower cost packaging and due to reduce scope. One so there's a lot they tend to be high.
Your horsepower units 5000 horsepower and up which we're particularly good at.
Packaged more 8000 horsepower and higher units.
Compressor packages than anybody in the world. So that's a segment that we really like and that's the way a lot of producers are going for the residue compression associated with <unk>.
Cryo plants and deep cut plants.
Do you care like in terms of so it sounds like.
It's lower cost for the producers, but what does it do to your margin I guess.
The margin on these units roughly the same or it's roughly the same we like we like both and we're really good at both and we've got a long track record of doing well at both there is definitely more service associated with gas engines.
From that point of view on a gas engine goes out in the field, we've got a service opportunity and that over the course of the next 20 years to capture that business and electric motor itself doesn't require as much service as an engine you still need to service the compressor and everything else, but it does it does.
The motor has less service opportunities long term in the engine does.
But fair to say that electric drive in the field or in the field and in the plants are still maybe a high percentage of your backlog, but won't be a high percentage of the.
Total deployed.
Pete.
Eric I guess so.
You can model it the way you see fit it's tough for me to give you an exact number of where we are in engine versus electric.
Yes.
I'll leave it there thanks, a lot guys.
Thanks, Andrew.
Thank you.
Please standby for our next question.
Our next question comes from the line of Michael Robertson with National Bank Financial Your line is open.
Hey, Thank you good morning, congrats on a solid quarter and I. Appreciate you taking my question here.
I was just wondering I believe you guys noted record level.
Utilization for the rental fleet.
In the quarter and.
Was just.
Wondering what your sort of high level thoughts were in terms of.
Your available capacity.
I would imagine you want to always have some flexibility to be able to tap.
Rapidly respond to a situation with deployment if need be.
Just just any of your sort of high level thoughts in terms of the positioning the fleet today and based on based on inbounds that youre seeing from from clients at the moment, how you see that sort of moving forward and the impact that that tightness might have on that on pricing at the leading edge.
And Michael Thank you.
For starters I'd like to express my gratitude to our contract compression team in the United States for achieving that 94% utilization.
They reactivate it a lot of equipment and got it out in the field for the benefit of our customers and it's been a lot of hard work in the first half of the year to get to that 94%.
In let's say over the past 20 years of contract compression once you get over 90% people start spending to build new units to give them that increased flexibility to respond to customer demand.
Haven't done that.
We definitely have demand for from our customers and we're doing our best to serve our best customers with our equipment, but we're also being very cautious with capital just in general, but also knowing that the number one priority for the Exterran acquisition is for us to deleverage the balance sheet to two five times within 12 to 18 months, so 94% utilization.
I would tell you that there is demand you should be able to increase prices you should be building more units.
We're going to be cautious on that front and we're going to thank our teams for delivering that equivalent to 94% in the best possible margins, we're getting price increases on that equipment when when the contracts rollover.
And so I would expect to see.
Potentially increase margins in that business.
In the coming quarters, but the costs are increasing a little bit too from <unk>.
Lube oil and people and diesel for the trucks et cetera. So.
It's a great business, we like being in it.
Definitely not deploying a lot of growth capex to it even though that utilization number is as high we're going to stand Pat right now.
And get the most we can out of those assets.
Got it.
That's interesting and interesting dynamic and I appreciate the color.
With 94% I would imagine it's tight across the board, but are there any like horsepower ranges that you are effectively sold that at this point.
94% were effectively we're effectively sold out of a lot of it.
From that point of view and we're a little bit different than some of the other public fleet and that we we have a broad spectrum of of equipment sizes from large to small from electric to gas engine from wellhead gas lift to midstream gas gathering so we're pretty much sold out of most of it.
Right now and we're actively the Capex, we are putting into the fleet is retrofitting old engine drive units, especially small ones to electric because theres been quite a big demand for electric wellhead units and as we complete those and get them out into the field will be increasing revenue, but it is a modest spend like when you're retrofitting unit to capex.
<unk> way less than building a new one we think and you get a very good return on that investment when you do it.
Maybe just one sort of follow up to that and I'll turn it back but do you have.
Decent amount of sort of idle equipment that youre able to do that too.
It's getting less and less everyday which is that which is a blessing as you can imagine.
We did have a lot of idle.
Our strategic priority for US was to look at our global fleet idle equipment, and if we had idle equipment in Mexico for instance, that we could retrofit and put to work in the Permian Basin. We wanted to place a priority on that and we've done that a lot but globally. The equipment that is you could put back.
Into service with a reasonable amount of Capex is getting smaller every day again thats a good news story.
And we don't have plans right now on changing our allocation of capital to increase it.
Into the rental fleet, we do expect.
Over the course of next 12 to 18 months to be.
To be quite conservative on any growth capex.
PCC.
Got it thanks, Mark I appreciate the color I'll turn it back.
Thank you.
Please standby for our next question.
Okay.
Our next question comes from the line of John Gibson with BMO Nesbitt Burns Your line is open.
Good morning, guys.
First of all just comes from a comment you made from one of Tim's questions. What is the maximum rate on the high yield financing you've assumed.
Just based on your guidance.
Or maybe put differently could you put some goalposts around total interest charges in 2023.
Yes, John this is Sanjay.
The way that.
We've dealt with this situation is we are silent on on.
The structure of that loan until we go to the high yield market and the intension areas I just don't want to influence the market in terms of whats kind of been priced into our models and pricing or lines. We just we think we're putting.
The company.
We're exposing the company if we do that so.
We've been silent on the cap.
I would suggest because I understand you guys need to think about models et cetera, as I would.
I would just look at the ratings that we've published or that the S&P and Fitch have allowed us.
To publish those are double b negative ratings for the issuer.
You can look at the high yield market and we're a double B energy services credit trades, and I think thats a really good.
Proxy for where we are right now.
Okay fair enough.
And then just lastly could you maybe talk about some of the energy transition projects Youre working on I know you've discussed this in the past, but just wondering if you expect some sort of contribution in 2022 or 2023 or are they still more in the bidding or increase it.
We expect bookings in 2022, we expect revenue in 2023.
Working on electrification of compression, which is which is an ongoing every every day every month kind of thing carbon capture utilization and storage, especially in light of the mentioned Schumer deal that was announced couple of weeks ago and it's passing in the Senate.
It's definitely a very positive macroeconomic signals for carbon capture projects in the United States, We're working quite quite hard on pre combustion and post combustion carbon capture in Canada, and the United States. We're even doing engineering studies in our rest of World segment, Canada, United States I would expect orders this year and again.
Revenue in 2023, it's something we're very excited about we've always felt that <unk> core capabilities sit right on top of the needs of the carbon capture business, especially at the capture plants.
Thank fertilizer plants ethanol plants.
Even post combustion on the back end of of engines and gas turbines et cetera. So it's a sector. We are really happy about.
Renewable natural gas, it's a business in the United States, primarily where we sell equipment to RMG developers.
Renewable natural gas once it actually comes out of the bio feedstock requires a fair amount of processing to purify it to put it into the grid and this is stuff that enter flex has been doing for 30 40 years. So the technology isn't new the way you put it together and the sizes and some of the impurities in the gas is different for every.
But we've got some great customers in United States that look to us to help them with those packaged solutions and so R&D, even though as an overall kind of segment people have different opinions about the profitability in the long term benefit of R&D.
From landfill from dairy from other animal waste facilities. There are a lot of projects going on in Canada, United States, and we're supplying equipment to those folks.
On hydrogen are.
Our involvement in hydrogen is more upstream we've been packaging hydrogen compression for upwards of 20 years. The reciprocating compressors that we packaged the screw compressors that we package have been used in blue hydrogen plants since hydrogen plants are necessary for hydro <unk> and diesel 20 <unk>.
Years ago, it's the same skill sets that we're looking at for for Green hydrogen applications, but the numbers Theyre just not as big for US today is carbon capture and R&D would be.
Great I appreciate the color I'll turn it back.
Thank you.
At this time I would like to turn the call back over to Marc Rossiter for closing remarks.
With no further questions I'd like to thank everyone. Once again for joining US today, we look forward to connecting with you in November to discuss our third quarter results.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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Yeah.
Okay.
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Okay.
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Yes.
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