Q4 2022 Enerflex Ltd Earnings Call

Speaker 2: Good morning, ladies and gentlemen, and welcome to Interflex Sports Quarter and Year-End 2022 earnings conference call. At this time, all participants on a listen-only mode. Following Interflex prepared remarks, we will conduct a question and answer session. Instructions will follow at that time. As a reminder, this conference call has been recorded.

Speaker 2: I would now like to turn the call over to your host, Stefan Alley, Vice President, Strategy, and Investor Relations. Please go ahead.

Speaker 3: Thank you operator and good morning everyone. Thanks for joining us on our fourth quarter and year end 2022 earnings conference call. With me on the call today our Mark Rosseter president and CEO Sanjay Vishnoy senior vice president and CFO and Ben Park vice president corporate controller.

Speaker 3: During today's call, we'll touch on highlights from our fourth quarter and year end results, comments on our integration efforts related to the Exeterran acquisition, and outline our strategic priorities for 2023. Before I turn it over to Mark, I'll remind everybody that today's discussion will include non-IFRS and other financial measures. Will you complete on average the technical usage and manageence?

Speaker 3: as well as forward-looking statements regarding Interflexes' expectations for future performance and business prospects.

Speaker 3: Forward-looking information involves risks and uncertainties, and the stated expectations could differ materially from actual results or performance.

Speaker 3: For more information, refer to the advisory statements within our news release, MDNA, and other regulatory filings, all available on our website and under our Cedar and Edgar profiles.

Speaker 3: All dollar amounts discussed today are in Canadian dollars unless otherwise stated. I'll now turn it over to our president and CEO , Mark Rosseter.

Speaker 3: Thanks, Deppin, and thanks to all our listeners for joining today's call. Just over a year ago, we announced the Transformational Acquisition of Exterit. It turned to action that would deliver on a decade-long strategy to grow our energy infrastructure platform to become more resilient, profitable, and better positioned for long-term success.

Speaker 3: Interflex is now an infrastructure first company that is strategically positioned to enable a sustainable future for energy through our vertically integrated low-carbon solutions.

Speaker 3: We're only four months in integration and we're already realizing many of the strategic benefits of the experiment acquisition. Our geographic footprint is concentrated in global gas producing regions, but approximately one-third of our gross margin, deriving from each of North America, Latin America, and Eastern Hemisphere. Thereby insulating us from weakness in any single market.

Speaker 3: including a recent weakness in North America natural gas prices. Our expanded product offerings, namely compression, cryo or deep cut and carbon capture and water treatment, are leading to constructive customer discussions across this broader opportunity set.

Speaker 3: Our scale and synergy realization has created operational efficiencies within our business lines and finally, our large base of energy infrastructure will stabilize business performance no matter in that grow environmental backdrop.

Speaker 3: Before I outline our strategic priorities for 2023, and speak to the considerable progress we're making on integration, I want to briefly address Interflex's 2022 financial and operational results. Our energy transition team delivered in 2022, securing over $169 of bookings.

Speaker 3: that relate primarily to carbon capture projects that will collectively capture and permanently sequester over 1 million tons of CO2 annually once in operation. Further within our North American business, we sold over 500,000 horsepower of electric compression in 2022.

Speaker 3: to the third of our compressor sales in the region.

Speaker 3: And we electrified a portion of our U.S. contract compression fleet, which entirely eliminated meaningful scope-1 greenhouse gas emissions for customers. As our customers strive to minimize their environmental footprint through carbon capture and electrification, we expect a demand for our energy transition solutions to grow meaningful over time.

Speaker 3: making it a very important profit-making business line for our company. We also reported year-over-year increase to costs across key financial metrics. Revenue's up $820 million. The majority of our gross margin came from current sources.

Speaker 3: Our adjusted evita was $90 million higher, though it was impacted by foreign currency exposure with Sanjay Woolf discussed later. And our engineered system bookings grew by almost $550 million.

Speaker 3: Allowing us to expand our backlog by nearly a billion dollars to close the year at a record 1.5 billion. Through the external acquisition, a large portion of our business is energy infrastructure, assets in Latin America and the eastern hemisphere, where the need for reliable energy backstops the long-term fundamentals for natural gas. Our U.S. contract compression fleet continues to benefit high demand with U.S.

Speaker 3: related from commodity price volatility, and our North American engineered systems business makes up a smaller part of our global platform following the acquisition.

Speaker 3: For our engineered systems business, the vast majority of our recent bookings have been concentrated in crude oil or liquid rich resource plays. Building on a solid 2022 results and our positive outlook on the key drivers of our business, our 2023 objectives remain keenly focused on the strategic priorities we laid out last year. The first being the maximized cash flow generation to delever just quickly as possible.

Speaker 3: Three of the four major infrastructure projects we developed last year are now in commercial operation, meaning we have significantly de-rest the cash flows associated with those projects.

Speaker 3: Like most of our large energy infrastructure assets, these three projects are underwritten by long-term take-or-pay contracts where interflex carriers know commodity, price, or volumetric risk.

Speaker 3: Coupled with the experienced energies we've captured in our record engineered systems backlog of over 1.5 billion, we have a clear line of sight in meeting our de-leveraging target by the end of this year. It's worked known quickly that the fourth major project, the crowd-genic facilitating Kurdistan, experienced some customer delays in 2022. However, the site was reanimated in the fourth quarter and is substantially back to full staffing levels.

Speaker 3: We now expect this project to be completed in 2024. The second strategic priority for 2023 is the successful integration of Xterrin. In the first 100 days post-close, we captured $40 million US dollars or two thirds of the $60 million US dollar target of synergies that we identified through the evaluation process.

Speaker 3: Finally, we have built the business that will continue to harness the strength of its diversification.

Speaker 3: whether that's geographic, counterparty, or product offerings to capitalize on the growth on the global opportunity set.

Speaker 3: with stand market volatility and continue executing on our business plan to generate value for our shareholders. I'll now turn over to Saundry to speak to the financial highlights from last night's release. Thanks Mark and good morning everyone. Today I will briefly touch on the key financial results from our release before turning to our updated financial guidance for 2023.

Speaker 4: First, readers of our financial statements will note that we have resegmented our reporting in an effort to align with external disclosures with how we make decisions within the business.

Speaker 4: Our new reporting segments are North America encompassing Canada and the United States, Latin America, and Eastern Hemisphere.

Speaker 4: In addition, we are now including the net impact of financial eases in our adjusted EBITDA calculation. And we have introduced a distributable cash flow measure to best illustrate or better illustrate our cash generating capabilities and assist users of the financial statements in understanding and assessing our operating cash flows.

Speaker 4: and the free cash that we are generating to fund other non-operating activities. Distributable cash flow for 2022 was $45 million or $116 million when $71 million of the one-time transaction costs are backed out. With the transaction behind us, the company can be expected to generate significant distributable cash flow.

Speaker 4: which can be used to strengthen the balance sheet, increase returns of capital to shareholders, and continue growing the business.

Speaker 4: So as Mark mentioned, we closed the year in a position of considerable strength.

Speaker 4: Year-over-year improvements in revenue, gross margin, and adjusted evadal were driven by increased activity in our North American engineering systems business, and from the partial quarter of contribution from Exterren.

Speaker 4: Regarding fourth quarter results, top line revenues reached 690 million and our gross margin was 127 million, two thirds of which was generated from recurring sources.

Speaker 4: As a percentage of revenue, our gross margin of 18.4% was down slightly from the third quarter due to a lower average margin profile associated with the acquired extern portfolio. In the fourth quarter, ENERFLEX recognized an adjusted eva-dop of $86 million.

Speaker 4: Higher revenues and gross margins were partially offset by a foreign exchange loss of $18 million recognized in our Latin American segment.

Speaker 4: These losses were driven by the ongoing evaluation of the Argentinian peso and from a legacy hatch that was in place by exterren management prior to the transaction close.

Speaker 4: While not included in our Adjusted EBITDA, we offset some of these losses with 7 million of interest income from associated instruments. With the transaction behind us, we anticipate utilizing interflexes more holistic and efficient approach to managing foreign currency risk.

Speaker 4: which should significantly improve our position by the end of the second quarter. Interplexes reported distributable cash flow, which incorporates both foreign exchange gains and losses, as well as interest income earned, will be a useful financial metric to assess our company's cash-generating capabilities going forward.

Speaker 4: Alternatively, if interest income was above the Adjusted EBITDA line, which it is not, the Adjusted EBITDA for the quarter would have been $93 million. Next, having inherited three large in-flight projects from Exterren, our energy infrastructure capital expenditures and work in progress related to finance leases were higher in the fourth quarter.

Speaker 4: In the quarter, we invested $47 million in growth capital, $15 million in expenditures for finance leases, and another $20 million in maintenance capital. That brings me to our financial position as we alluded to on our last call.

Speaker 4: We expected that these capital and work in progress investments would drive up our leverage ratio through the end of the year and would peak in early 2023. This is playing out as we expected.

Speaker 4: Interflex Exit at 2022 with a net debt balance of about $1.1 billion and a bank-adjusted net debt to Ebedal ratio no 3.3 times.

Speaker 4: With three of the four in-flight projects now in commercial operation and a $1.5 billion backlog that we will execute over the course of 2023 and into 2024.

Speaker 4: We are reaffirming our expectations that we will hit our debt target by the end of the year and reduce our leverage to below 2.5 times. Building on that point, we have revised our guidance for 2023 to incorporate the updated completion dates for our inflight projects.

Speaker 4: But first, let me address the items that did not change from our last guidance update in August . We are still targeting total synergies of $60 million US dollars to be realized within 12 months to 18 months of closing. Having captured $40 million US dollars by mid-January.

Speaker 4: And we expect adjusted evita to range from $380 to $420 million US dollars, which we will utilize to fund our non-discretionary expenses, allocating distributable cash flow to the valetine. Now in terms of what has changed.

Speaker 4: Work in progress is now expected to range from 40 to 50 million US dollars. This is a shifting of spending required for the cryogenic facility moving costs from 2022 into 2023 due to customer delays.

Speaker 4: Counter-balancing this shift in cash flows into 2023 is a positive trend on cash collections that we have seen in the broader business, which still keeps us comfortable that NFlex will have sufficient distributable cash flow to deliver on our strategic priority of de-leveraging, which will provide us with additional strength and flexibility to deliver increased returns to shareholder.

Speaker 4: shareholders of record on March 16, 2023.

Speaker 4: With that, I will hand it back to Mark to provide some closing remarks.

Speaker 3: When I look back at 2022, we reach some significant milestones that have important implications for interflexed long-term success.

Speaker 3: The health of our business has never been better. The utilization of our energy infrastructure assets is as high as it's ever been. We've completed three large infrastructure projects that have bolstered cash flow profile and activity within our manufacturing businesses is very robust.

Speaker 3: When coupled with our rapid synergy capture and the execution of the largest backlog in our company's history, I'm confident that Interplex will deliver on the priorities we've outlined. Maximize cash, flow to reduce debt, deliver on the integration, and enable the energy transition by providing best-in-class energy solutions to our customers' cross-quilt. I'll now pass the call back to the operator for questions. Thank you.

Speaker 2: Thank you. Ladies and gentlemen to ask the question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Speaker 4: comparing the current guidance to the original guidance. Specifically, I'm wondering are synergy realizations happening faster or slower than you expected? Is the backlog for engineered systems above or below your expectations?

Speaker 4: And our engineered systems margins above or below your expectations. Is US contract compression pricing better or worse than you expected? What about utilization? What's the negative impact of the delays? And for the Kurdistan project or any other slippage and large project timelines?

And when you take all of these variables together, presumably others as well, have your internal projections increased or decreased over the past year and left the order at Meg.

Okay, well good morning, Aaron. I need a cup of coffee, solid cup of coffee to get all those in. I guess I'll start with your synergy question. I would say that our guidance of 60 million remains unchanged. I think the $40 million that we've been able to realize.

by day 100 is a little bit ahead of schedule. So I think that's a net positive. I think that you mentioned, engineered systems backlog and margin. The bookings have been healthier. And I think it was really a lot of pent up demand that we saw. Like we do expect things.

ultimately will normalize, but with the bigger company, we do expect that we're going to see stronger bookings. So I think the bookings have been positive to the forecast. I would say on the margins side, we were expecting a recovery and I'd say that recovery in margins is really on schedule. I don't think that we're ahead or behind there. You asked a little bit about EBCC business. You know, really proud of our ECC team in the States.

They continue to really optimize the assets that we have, so I would say that the utilization has been ahead of our expectations when we first put guidance forward after completing the transaction.

And then you also asked about Kurdistan, but before I go to Kurdistan, I do want to talk a little bit about just better tailwinds in the business. Like we are, you know, because of the bookings, we're seeing a little bit more activity. I think our AMS business, our teams around the world have done a great job, not only of increasing margins in that business, but they're doing a fantastic job of collecting cash. And that really helps us from a...

just cash collection and cash position standpoint. We've had one or two really positive events where cash has come in, had a schedule on some big projects. And so those are the things that have been really helping from a forecast perspective. As we mentioned in the table in our press release on the guidance, the Middle Eastern Cryogenic Project, that will slip to the right. It's not really a negative from an overall project margin standpoint. It's just that we're shifting more of the project out of 22 and into 23.

will flow through the projection. So that the new definition of a justity of a DAW is consistent with the 380 to 420 guidance that we put forward. So Aaron, hopefully I hit all the questions that you had in there, but let me know if I missed anything.

So that the new definition of a justative of DA is consistent with the 380 to 420 guidance that we put forward. So Aaron, hopefully I hit all the questions that you had in there, but let me know if I missed

You know, the one just overall, I don't want to put words in your mouth, but it sounds like you know, your internal projections have probably increased since you originally put that guidance out. Yeah, I would say, you know, we're reaffirming the guidance, the 380-420, and I think our confidence in that has gone up, so that's probably a different way to put it.

But certainly, we're feeling really good about the initial modeling that was done and the expectations of what this transaction would bring to an influx. Maybe just as one follow-up question, one of your competitors in the U.S. contract compression space suggested that it would be pushing pricing higher with its Q4 disclosures. Are there opportunities in your mind to reprice the U.S. fleet higher over the next 12 months and is that contemplated in the guidance?

We'll see how the following quarters go.

Okay, thanks. I'll turn it over. Thank you. Please stand by for our next question.

Our next question comes from the line of Keith Mackie with RBC Capital Markets. Sl Diamond open.

Hi, good morning and thanks for taking my questions. I just wanted to start out in engineered systems. Some very strong bookings of 1.3 billion or so in 2022. Can you just talk, Mark, if you think we've hit peak booking levels or do you think 2023, 2024 could...

could match or exceed what you saw in the business in 2022. 2022 is a good year. I'm always very careful about providing guidance on Go Forward bookings because it's difficult to do. Our pipeline of opportunities are robust.

They're global in nature. They include compression and gas processing and just about every region within which we operate. So we are definitely working hard and we have internal targets for this year to be at least as good as last year. But you know, I'm not going to say I really can't predict right now what 2023 is going to look like.

Okay, fair enough. And maybe just finally on the synergies. So Sanjay mentioned you've got the 40 million of the 60 so far, a little bit ahead of what you might have thought. Do you think ultimately the synergy number comes in ahead of that? 60 million number and what types of things do you think that would have to happen to exceed that number? Okay. Okay.

Yeah, I think, you know, I'll give you my comments and maybe Mark and Cheyman too, but we're, you know, again, I want to come back to reaffirming the $60 million guidance. Like that's, our constant and the number has gone up. And I think delivering, you know, 40 million in the first 100 days is a really good data point that we have. We have really good.

line of sight to that 60. But yeah, I think we're sort of assessing some of the puts and takes that we would have in synergies. And right now, I feel very comfortable with the 60 and don't really feel like we want to expand that number. Maybe Mark can comment on a few things that people don't trust and it's so comfortable and I'm realizing that right now we have some people going on

might be sort of like pauses or negatives, but right now our official guide into still to 60. Our goal, we will hit the $60 million. That's something we're very convicted on. But our long-term goal really reaches beyond hitting this energy number.

In our long-term goal in this consolidation transaction was to really deliver sector leading S-GNA levels, sector leading cost structures, and to use that extra volume to be a really competitive cost efficient business long-term. That's what we're really focused on. Putting a target out there for synergies and hating the target for synergies is very important for short-term discipline.

is highly focused on getting that $20 million. And if we feel that it's materially higher than that, we'll communicate it to the market at that time.

Okay, thanks for that. And maybe just a quick follow up on the GNA then. I know it's all embedded within the guide, but the total number 175 for Q4, what do you think is a good, clean, cash GNA quarterly number for 2023? Is it somewhere around that 90 million number? Yeah.

So to keep, I would say that if you backed out all the one timers and really important to recognize that we've got $57 million of deal expenses that's going through S&A, we've got $18 million that related to the foreign exchange issue, which doesn't count the seven adventures that you get back, that happens.

the transaction that are non-cash items that are going through SG&A. So when you add all that up and you subtract it out of the 175, it actually gets you served in until like a mid-80s number. But that's understanding that we haven't really taken any of the synergies out yet because we've made a lot of the decisions that lead to the synergies.

But it was laid in Q4 early in Q1. So I think a lot of that run rate of synergy is ahead of us and a lot of those synergies, like 90 plus percent of the synergies hit the SG&A line. So I actually think we should be able to do better than that $90 million number that you're putting out there because of the synergies.

Okay, thanks very much. Appreciate the comments. Thank you. Please stand by for our next question. Our next question comes from the line of Andrew Bradford with Raymond James, Siolani Colinowan, so open.

Good morning guys. Thanks for taking my call from my questions here. I just want to, like, right from where you left off their Sanjay, 90% of the Synges are at the STNA one. And I'm wondering have you identified at a time since taking it all in now, like any...

more operating oriented synergies that could develop over the next while it would be above the honest. Yeah, Andrew, this is Mark in that 60 million in synergies we had definitely contemplated simplification of the business.

reduction and geographic footprint and focusing our assets, especially our manufacturing assets around the world. We reaffirm the 60. We are striving to get more than that to be the best possible company we can be.

But as of today, we're not going past the 60, but I guess rest assured that the simplification and focus theme is alive and well and something that will continue for the next year and beyond that. Okay, thanks.

I'll switch back over maybe just for a second to the backlog if you don't mind. I wonder if you could just maybe speak to what the.

margin embedded in the backlog. And I appreciate all this would be in your guidance, but how does the margin embedded in that backlog compare to what we've seen in the volume of last few quarters in engineering systems revenue? And maybe describing changes.

in the composition of the backlog as well. And also I'm kind of interested in the residency time of projects within the backlog. Is that shortening or is it extending? ? impose?

I'll take that, Andrew, the, like we said in previous quarters, the margin in the backlog represents an improvement over what we saw really from mid-20-20 through 2021 and 2022.

We have to deliver on it and the supply chain issues that have largely disappeared from the headlines are still alive and well in execution. To take new orders today either for compression or gas processing, you're looking at nine to twelve months delivery. Indeed, we've already booked some things in so far in 2023 that have a 2024 delivery date. license code.

So there is an extension of time that's happening as you can imagine when the backlogs build up. The nature of the backlog early in the pandemic recovery was heavily dominated by compression and we talked with that in those quarters. We've definitely seen more carbon capture. We've seen more gas processing. And we've seen more downstream processing orders come into the vacuum.

it was a year ago and I think that's pretty obvious and I think we've been transparent from that point of view.

I appreciate that. Thank you. And last question would be just you know earlier in your commentary, identified that you know one of the reasons why the margin was the gross margin was sequentially lower, was simply the lower margin profile.

from the acquired experiment business. And I'm just wondering, are those margins, so those are gross margins, so operating at the operating line? Yes. Is that part of, like, is remedying that, or can we see convergence of that?

acquired margin to interplexes more traditional margins or in that kind of all part and parcel with the synergy guidance. Yes, so you know I'd say the lower margins were really there was kind of two drivers I would say. The first driver is on the manufacturing side. You know we actually had a few projects and you know one big one that was on hold if you will. So you know we're earning some revenue but not really making any profit there until that one sort of goes back into you know in the completion mode. So there was certainly an effect on the engineering system side of the business on margins there but then.

We also had an effect on just the infrastructure. And that was really just sort of bringing it into the house, operating things a little bit more efficiently per the way that the antiflex team is going to operate going forward. And, you know, per that point, Andrew, I would expect that we will see a normalization of how assets perform once we're fully integrated. So, yeah, and, you know, I guess that the third point is we are bringing online, you know, three big projects. In fact, you know, they're all, they're all online now. And those have very healthy margin profiles to them and have been, have been going very well so far.

First question from me just on the Argentina FX losses the ad in the quarter. Obviously there's a lot of desoluation in the pace of this quarter and it's tough to repatriate cash. And you guys don't really, you know, just go over what your cash balances are and each geography, but can you help?

frame the conversation around how this looks like, how it might look going forward. Were cash balances higher than they had been historically average levels? And how do you think about the Argentine of business on a go-for basis? Obviously, X-JRN had a pretty large presence in Argentina. Yeah, Tim, I'll take the first half, maybe I'll turn the second half over to Mark on how we see the business. You know, so I think it's really important to quantify this $18 million loss. So where I would start is that it was really $14 million.

that was directly allocated to the devaluation. And then there was $4 million that was related to the cost of the hedge that was put in place by the legacy-experient team, which it actually didn't protect us. And so we won't be, we won't be occurring that cost going forward. So really we've got not an $18 million issue, we've got a $14 million issue. As you mentioned, the devaluation and the pace that was pretty strong in the poorer. But even if we assume that that continues, which I think is a conservative assumption.

You know, you've got to offset the $7 million that we gained in investing that cash. So really it's a $7 million issue. And what I would tell you is that our team feels pretty strongly that we can do a better job on earning money on that money versus what we were historically seeing.

So I think we're going to be able to skinny this out to even even below it being a $7 million issue. But that's not to say that it won't be an issue going forward. It will be there. We're planning that it will be there. I just think that we're going to be able to manage it down to a very efficient number here. And the other thing that I would tell you, Tim, is that our expectation of the impact that this is going to have on 2023 is already baked into that 380 to 420 guidance that we've provided.

Tim, this is Mark and the second-party question, where does Argentina fit? It's a good question. We like our people in the region. We like our assets in the region. We have really good customer relationships in the region. They're all sitting on top of one of the best shell resources in the world. From that point of view, I believe it's a very good operating region going forward.

I've got a high degree of trust in Sanjay and his Treasury team that we will manage the currency as best we can, but we are fully prepared for there to be some decay from quarter to quarter because of those things. When you add it all up, it's still a very attractive asset for us. It's a very attractive country to be in and we'll operate it as such.

I guess one follow-up question there then. Can you talk about the contract terms that you have specifically when the contract or contracts generally expire? And I guess how do you compensate yourself in those contracts for the level of risk you're taking because clearly this currency risk is?

Yeah, it's pretty. You're right. It's significant. Our customer contracts in Argentina are a blend of rental contracts and boom contracts. The.

The revenues are pegged to the US dollar and all the risk happens when we receive payment on a monthly basis. Now this isn't new to Interflex. Like we've been in Argentina since 2014 and our teams have done a very good job of managing the currency since 2014 when we entered that market.

Do we go for returns that are above average sort of a risk-adjusted return? Absolutely. And you know, that risk-adjusted return and how much do you have to put on top of normal returns to account for the fact that the currency risk is more significant and Argentina to anywhere else?

That's something that we've got experience in doing. And we will have continued challenges on the currency. But again, I've got a lot of faith in our commercial teams and our treasury teams to nullify that as much as possible and still maintain solid operations. And like I said before, is on top of one of the best shell resources in the world. And I'm reaching someptsion to the food industry and to the future of the web romance is getting going.

Are the contracts there large and lumpier? Are there a number of smaller contracts that are expired?

you know, over a period time. It's, it looks more like our US rental fleet than it does large and lumpy. Got it. Okay. Moving on. I'm just curious about how you're thinking about organic capex in 2023. Obviously, you put some guidance out there.

But, you know, if you were to see some high return projects or opportunities come through, how are you managing those and whether, um, wait a little bit more on the CAPEX or, and maybe you can just talk a little bit about the opportunity set you're seeing today for, for boom project globally.

Yes, sure, Tim. First and foremost, I want to reiterate that our number one objective.

is de-levering the balance sheet and getting below two and a half times leverage ratio. So we are spending very little right now from a discretionary growth cap ex perspective. And that will continue until we have very clear line of sight to getting below two and a half times.

And we're obviously with the excess cash there, you know, going to start thinking about how we return money to shareholders at that time, but really right now we are spending very little with the primary goal of getting leveraged down below two and a half times.

Then once you're below that level, what should we expect for organic cat-backs? And how is the opportunity set where we demand for these types of projects change? I guess I'm the last.

What should we expect for organic cat-backs? How is the opportunity set where we demand for these types of projects change? I guess in the last six months.

Yeah, look, I mean, I say demand is very strong. I think our teams have done a marvelous job of figuring out how to work constructively with our customers to take something that would have been a capital intensive project and make it into...

something that we can either sell or something that we can run on an O&M basis. They've been very creative to do that. So the demand for the products and services that Interflex provides is incredibly strong. And so that part hasn't gone away.

I would say, you know, going forward, of course, we're going to look at how do we grow the business. It's going to come after we've delivered the balance sheet below two and a half times. And it's going to come after we've decided what the right method and quantum of returning value to shareholders is. And at that point, we'll assess.

the projects and we'll be looking at investing in ways that will be accretive to the company at that point. But it really is sort of a conversation that we are not prioritizing right now because we want to make sure that we get leverage very clear to line of sight to getting leverage down below two and a half times.

Okay, got it. CCUS bookings were, you know, it's at change in 2022.

How are you thinking about the quantum and obviously bookings are hard to call, but I guess the opportunities then in TQS for 23 relative to 22?

I think like I said to Keith earlier, the pipeline is positive and we're working real hard to try to make 2023 at least as good as 2022. That's our goal and we'll take a quarter by quarter. You'll see the bookings as we report the quarters and that's about as forward looking as I would like to get on that front. Okay, and then last one for me. You've got two water projects, Commission now that were...

in flight and Exterren was very enthusiastic about his water business.

How are you guys thinking about it? Are you enthusiastic as they were? We are. I'm pretty sure we mentioned this part of the transaction. Some of the water technology and the relationships they have provides this new set of growth opportunities for us. They are customers that we know, they are regions that we know, they are in.

They're in sort of geopolitical risk that's a very good for us. So we like the opportunity set and we'll evaluate growth opportunities after we get below two and a half of the water jobs right next to all of our natural gas and energy transition projects and the projects that generate the best return will be the ones that get that excess cash flow. But we do like it the team you know the two projects within 2022.

You know, represented about $200 million with a capital, roughly, and they executed them really well. And more or less on budget, more or less on time, and so far generating the terms that were anticipated in the models. So from that point of view, our confidence sort of interflex leadership confidence in the water business visibility to land projects.

and operate them is very high. So it provides sort of another leg to the stool if you will in our energy infrastructure strategy.

Okay, and I guess they lied. I got one more follow up on that. When you went across all of the portfolios that Xdaren brought along with it and now that you have it under your umbrella, can you talk a little about the return profile of Xdaren's business on a project basis compared to?

you know, what your expectations and herald rates are and an anaphyl axis. It's they're similar. You know, they're similar to what we used before. You know, that being said, the the go forward is pretty straightforward. You know, we know what our cost of capital is. We know what we have to do with respect to debt and returning cash to shareholders. I think they'll be.

plenty of free cash flow to go around in 2024 and beyond to get us that modest growth algorithm that we want to deliver. But you know, to mention specific returns on specific external assets, it's in line with the business and we haven't been greatly surprised. Okay, thanks a lot. I really appreciate it.

Thank you. Please stand by for our next question. Our next question comes from the line of one moment.

Jamie Kubik with C-I-B-C, Yalan, it's open. Yeah, good morning. Thanks for taking my question. Most of them have been answered. Here's so only have one. But can you provide any added commentary on...

the resolution of the BC government and Blueberry River First Nations and maybe the types of projects you're potentially seeing Coming here and when you believe that could you know start to favorably impact your operations. Thanks

Thanks, Jamie. I think that the Canadian, the Western Canadian sedimentary basin is specifically the Monteney area is in need of liquid projects. You know, there are several midstreamers that have talked about sanctioning liquid projects.

And we play a role in those. You know, we've got the ability to build gas processing and liquid handling projects in Canada we have in the past. And those are good projects. So to the degree that that settlement will further development of that kind of critical infrastructure in the basin, we will do our very best to be involved. And indeed, the sentiment from our customer base has definitely ticked upwards in the last month.

since that happened, no doubt about it. I think it's early innings on whether or not you'll see significant changes in our backlog driven by that decision specifically. But I think it's maybe the best news to come out of the Canadian macro story in a long time. And we'll see how we'll see if the orders flow in subsequent quarters.

Okay, that is helpful. I'll sneak one more in here actually. I mean, it's a bit on the same lines that Tim was asking, is just as it relates to your capital allocation priorities, and when you hit your net debt to even a target of two and a half times, like how should we be thinking about...

shareholder returns changing at that point and can you talk a little bit more on that? You know once we get the depot in a half we will have the freedom to think about what cash return to shareholders looks like of a junior infrastructure company you know which is really what we are becoming and how we want to manage the business. So in the case, moving of your account that you are having now longtemps business, classes, notes and official have a new scope to disclose what's?i to an differently whatsoever.

You know, once we think about what those kinds of returns look like for a junior infrastructure company, I think there will be free cash flow leftover for the most recreated growth projects. And so it's balanced. You know, it's a hundred percent balanced once we get below the two and a half is we're going to balance our return of cash and and balance the smart conservative growth going forward. That's a 2024 story and beyond. That's how we're thinking about it. and

Okay, that's it for me. Thanks. Thank you. Please stand by for our next question.

Our next question comes from a line of coal, pariah with sirfoll, the Slackiness of cotton.

Hi, good morning. On the USES Margin Front.

Do you think they could hit prior cycle peaks or is that unlikely just given the change in the US shale strategy? And do you think any weakness in gas markets called the Marcellus in Haynesville could impact the margin recovery or is that just a different type of compression unrelated to your more Permian focused footprint?

We're not going to say exactly where we expect margins to shake out in U.S. engineered systems. We do expect them to go upwards. Whether or not they're going to hit the peak of 2018 is just something we're not going to comment on. Secondly, I think your question is around, is the current gas price have an impact on margins? Zero.

amount of business in the Hainesville or the Marcellus. It's opportunistic, but it's not the core of our US engineering system strategy. The core of our business is really in the Permian and the Equal Ferdinand of the Balkan to a certain degree. So, and international, you know, our US engineering systems business, it's under their revenue line in the disclosures, but a lot of that represents business that.

which is quickly on the Kurdistan project. So theoretically, if the project costs, where do you increase? Can you just remind us if there's some sort of mechanism to recover that within the contract?

There's no automatic mechanism, but we have a good contract. We understand it very well. We've developed excellent relationships with our customer. And I'd like to say that I feel our team is managing any increase in cost very well. And all of that is included in the confirmation of our guidance. Thank you.

There's no automatic mechanism, but we have a good contract. We understand it very well. We've developed excellent relationships with our customer. And I'd like to say that I feel our team is managing any increase in cost very well. And all of that is included in the confirmation of our guidance. Got it. That's all from me. Thanks.

I'll turn it back. Thank you. Please stand by for our next question. We have a follow-up from the line of Aaron McMail with TD Security. The line is open.

Thank you. Please stand by for our next question. We have a follow-up from the line of Erin McMail with TD Security. The line is open. Thanks so much.

squeeze one more and can you give us a sense of the owned and operated compression horsepower gas processing capacity and water infrastructure capacity split by the two new international segments, the Latin American and Eastern hemisphere segments, even, you know, a rough split would be great and what I'm ultimately trying to get at is, you know, the drivers of each of those segments.

So you're asking of the revenue in eastern hemisphere how much comes from gas processing, how much comes from combustion, how much comes from water in energy infrastructure specifically?

of the revenue in eastern hemisphere, how much comes from gas processing, how much comes from combustion, how much comes from water in energy infrastructure specifically? Yeah, and just, you know...

Obviously, there's no specific disclosures on course power by segment. Yeah. You know, I guess what I'd say, because we don't disclose that level of detail. But I do think that it's helpful to know that our businesses in Latin America

It's predominantly gas business.

But, you know, the two water projects that have been brought online are in the Middle Eastern region. So that water exposure is really 100% right now in the Middle East, but we have a very energetic water team, and their ambitions are global.

So they're all looking at opportunities outside of the region, but I would say that most of what they are looking at today is really focused on the Middle Eastern region. And I expect that that's what we'll see from them in a short time in term.

outside of the region, but I would say that most of what they are looking at today is really focused on the Middle Eastern region, and I expect that that's what we'll see from them in a short-term meeting term. Maybe it's the better way to ask.

the question is, you know, you split the rest of world segment into, you know, what's the split of

I guess you've got as a lot of boxing that's not exactly. Okay. And that's at which note in the... It's in the second note, in the financial... Okay. So yes, I think if you look through the segmented information in the financial statements, you'll get total assets by region.

I guess you could use that as a lockboxy that's not exactly. Okay. And where is that, that's at which note in the, it's in the second I said no, because there's no sort of financial. Okay. Okay. So yeah, so I think if you look through the segmented information in the financial statements, you'll get total assets by region. Okay. Great. I'll turn it over. Thanks. Thank you.

that's not exactly. Okay. And in words, that's at which note in the segmented note to the financial. Okay. Okay. So yes, I think if you look through the segmented information in the financial statements, you'll get total assets by region. Okay. Great. I'll turn it over. Thanks. Thank you. Please stand by for our next question.

We have a follow up question from the line of Andrew Bradford with Raymond and Jay. Yalena is all this. Thanks to be fair that disclosure was probably on page like 98. It was late night last night. But so one follow up I have here is just thinking about the discussion on the lead time on the major components as we were talking about that in the context of engineering systems. But I'm sort of thinking about it also in the context of EI projects which

As you said, you're not going to do much in 2023, as the priority is to allocate capital to the balance sheet, but Casual to the balance sheet. But as 22 progresses, your guidance range has been an hour, obviously, and your confidence on timing of hitting your debt thresholds will improve. And is that threshold data approaches? Will you be like in advance? Like should we, I guess, short class should we expect in 2023, even before you hit that debt threshold that you'll start talking?

more openly about what the sitting pipeline looks like on boom projects or anything like that. Yes, Andrea. I think that's all very logical. We're being quite pedantic about assuring the investor community that we're focused on that reduction and we are.

At the same time, we are challenging our commercial teams to look at projects because some of the projects, especially in the eastern hemisphere in Latin America, can take years to develop. So they're not doing nothing during this period of time where our primary capital allocation focuses that reduction.

And we feel very comfortable. Interplex has an attractive growth algorithm going forward once we get our balance sheet to where we think it needs to be in a long term. So that the commercial teams are working, we've given them high hurdles and high targets to make sure that they're developing the very best possible business.

And I think it's quite reasonable that in future quarters we'll be able to communicate to the markets and nature of the growth that we would look at once we reach those targets.

That's perfect. Thank you very much Mark. Thank you. I'm sure no further questions in the queue. I will now let's turn the call back to Mark for closing remarks.

Thank you very much operator with no further questions. I would like to thank everyone for joining us today. We appreciate your time and interest in our flex and we look forward to connecting you. We look forward to connecting with you for our next update in May. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. The next.

The conference will begin shortly. To raise and lower your hand during Q&A you can dial star 1-1.

yeah.

Pro public, I public.

The.

Good morning, ladies and gentlemen, and welcome to Interflex, Fourth quarter and year-end 2022, Ernest Conference Call.

At this time, all participants on a listen only mode.

Following and I'll select prepared remarks, we will conduct a question and answer session. Instructions will follow at that time. As a reminder, this conference call has been recorded. I would now like to turn the call over to your host, Stefan Alley, Vice President, Strategy, and Investor Relations. Please go ahead. Thank you, operator, and good morning, everyone. Thanks for joining us on our four. Thank you.

acquisition and outline our strategic priorities for 2023.

Before I turn it over to Mark, I'll remind everybody that today's discussion will include non-IFRS and other financial measures, as well as forward looking statements regarding Interflexes, 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, MDNA, and other regulatory filings, all available on our website and under our Cedar 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 Rosseter. Thanks, Stefan, and thanks to all our listeners for joining today's call. Just over a year ago, we announced the transformational acquisition of Xterit, a transaction that would deliver on a decade-long strategy to grow our energy infrastructure platform to become more resilient, profitable, and better positioned for long-term success. Interplexed is now an infrastructure-first company that is strategically positioned to enable a sustainable future for energy.

through our vertically integrated low-carbon solutions. We're only four-month in integration, and we're already realizing many of the strategic benefits of the EXPARANIC position.

Our geographic footprint is concentrated in global gas producing regions, but approximately one-third of our gross margin, deriving from each of North America, Latin America, and Eastern Hemisphere, thereby insulating us from weakness in any single market, including recent weakness in North America natural gas prices. Our expanded product offerings, namely compression, cryo or deep cut, and carbon.

environmental backdrop.

Before I outline our strategic priorities for 2023, and speak to the considerable progress we're making on integration, I want to briefly address the interflexes 2022 financial and operational results.

Our energy transition team delivered in 2022, securing over $160 million of bookings that relate primarily to carbon capture projects that will collectively capture and permanently sequester over 1 million tons of CO2 annually once in operation. Further within our North American business, we sold over 500,000 horsepower of electric compression in 2022.

two-thirds of our compressor sales in the region. And we electrified a portion of our US contract compression fleet, which entirely eliminates meaningful scope on greenhouse gas emissions for our customers. As our customers strive to minimize their environmental footprint through carbon capture and electrification, we expect a demand for our energy transition solutions to grow meaningful over time.

making it a very important profit-making business sign for our company. We also reported year-over-year increase to costs across key financial metrics. Revenue's up $820 million. The majority of our gross margin came from occurring sources.

Our adjusted EBITDA was $90 million higher, though it was impacted by foreign currency exposure with Sanjay Woolf discussed later. And our engineered systems bookings grew by almost $550 million, allowing us to expand or backlog by nearly a billion dollars to close the year at a record $1.5 billion. Through the external acquisition, a large portion of our business is energy infrastructure.

we do not anticipate that near-term weakness in natural gas prices will significantly impact our pipeline of opportunities. Our business is predominantly driven by energy infrastructure, which is insulated from commodity price volatility, and our North American engineered systems business makes up a smaller part of our global platform following the acquisition. For our engineered systems business, the vast majority of our recent bookings have been concentrated in crude oil.

three of the four major infrastructure projects we developed last year are now in commercial operation.

meaning we have significantly de-risked the cash flows associated with those projects. Like most of our large energy infrastructure assets, these three projects are underwritten by long-term take-or-pay contracts, where interflex carriers know commodity, price, or volumetric risk.

Coupled with the experienced energies we've captured in our record engineered systems backlog of over 1.5 billion, we have a clear line of sight in meeting our de-leveraging target by the end of this year. It's worked known quickly that the fourth major project, the CROGENIC Facilining Kurdistan, experienced some customer delays in 2022.

However, the site was reanimated in the fourth quarter and is substantially back to full staffing levels. We now expect this project to be completed in 2024. The second strategic priority for 2023 is the successful integration of Xterrin. In the first 100 days post-close, we captured $40 million US dollars or two thirds of the $60 million US dollar target of synergies that we identified through the evaluation process.

Finally, we have built a business that will continue to harness the strength of its diversification, whether that's geographic, counterparty, or product offerings to capitalize on the growth on the global opportunity set, with stand market volatility and continue executing on our business plan to generate value for our shareholders. Thank you.

I'll now turn it over to Sanjay to speak to the financial highlights from last night's release.

Thanks Mark and good morning everyone. Today I will briefly touch on the key financial results from our release before turning to our updated financial guidance for 2023.

First, readers of our financial statements will note that we have resegmented our reporting in an effort to align with external disclosures with how we make decisions within the business. Our new reporting segments are North America encompassing Canada and the United States, Latin America, and Eastern Hemisphere. In addition, we are now including the net impact of financial eases in our adjusted EBITDA calculation.

And we have introduced a distributable cash flow measure to best illustrate or better illustrate our cash generating capabilities and assist users of the financial statements in understanding and assessing our operating cash flows and the free cash that we are generating to fund other non-operating activities. The distributable cash flow for 2022 was 45 million or 116 million when the

we close the year in a position of considerable strength, year-over-year improvements in revenue, growth margin, and adjusted EBITDA were driven by increased activity in our North American engineering systems business, and from the partial quarter of contribution from EXTERN. Regarding fourth quarter results.

Topline revenues reached 690 million and our gross margin was 127 million, two thirds of which was generated from recurring sources.

As a percentage of revenue, our gross margin of 18.4% was down slightly from the third quarter due to a lower average margin profile associated with the acquired extern portfolio. In the fourth quarter, NFLEX recognized an adjusted EBITDAF of $86 million. Higher revenues and gross margins were partially offset by a foreign exchange loss of $18 million recognized.

in our Latin American segment. These losses were driven by the ongoing evaluation of the Argentinian peso and from a legacy hedge that was placed by an external management prior to the transaction close. While not included in our adjusted EBITDA, we offset some of these losses with 7 million of interest income from associated instruments.

With the transaction behind us, we anticipate utilizing Interflex's moral holistic and efficient approach to managing foreign currency risk, which should significantly improve our position by the end of the second quarter. Interflex has reported distributable cash flow, which incorporates both foreign exchange gains and losses.

as well as interest income earned will be a useful financial metric to assess our company's cash generating capabilities going forward. Alternatively, if interest income was above the Adjusted EBITDA line, which it is not, the Adjusted EBITDA for the corner would have been 93 million.

Next, having inherited three large in-flight projects from Xterrin, our energy infrastructure capital expenditures and work in progress related to finance leases were higher in the fourth quarter. In the quarter, we invested $47 million in growth capital.

$15 million in expenditures for finance leases, and another 20 million in maintenance capital. That brings me to our financial position. As we alluded to on our last call, we expected that these capital and work in progress investments would drive up our leverage ratio.

through the end of the year and with peak in early 2023. This is playing out as we expected. Interflex Exited 2022 with a net debt balance of about $1.1 billion and a bank adjusted net debt to EBITDA ratio of 3.3 times. With three of the four in-flight projects now in commercial operation.

and a $1.5 billion backlog that we will execute over the course of 2023 and into 2024. We are reaffirming our expectations that we will hit our debt target by the end of the year and reduce our leverage to below 2.5 times. Building on that point, we have revised our guidance for 2023 to incorporate the updated completion dates for our inflight projects. The first let me address the items that did not change from our last guidance update in August . We are still targeting total synergies of 60 million

This is a shifting of spending required for the cryogenic facility moving costs from 2022 into 2023 due to customer delays. Counterbalancing this shift in cash flows into 2023 is a positive trend on cash collections that we have seen in the broader business.

which still keeps us comfortable that antiflex will have sufficient distributable cash flow to deliver on our strategic priority of de-leveraging, which will provide us with additional strength and flexibility to deliver increased returns to shareholders and evaluate a creative yet discipline growth opportunities thereafter.

Finally, Interflex remains committed to paying a sustainable dividend to our shareholders. Last night, the board declared a dividend of $2.5 per share, which will be paid on April 6, 2023 to shareholders of record on March 16, 2023. With that, I will hand it back to Mark.

to provide some closing remarks. When I look back at 2022, we reach some significant milestones that have important implications for interflexed long-term success. The health of our business has never been better. The utilization of our energy infrastructure assets is as high as it's ever been. We've completed three large infrastructure projects that have bolstered cash flow profile and activity within our manufacturing businesses very robust. When coupled with their rapid...

synergy capture and the execution of the largest backlog in our company's history. I'm confident that Interplex will deliver on the priorities we've outlined. Maximize cash, flow to reduce debt, deliver on the integration, and enable the energy transition by providing best in class energy solutions to our customers across the globe.

I'll now pass the call back to the operator for questions. Thank you. Ladies and gentlemen, to ask the question, please press star 11 on your cell phone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Please stand by while we compile the Q&A roster. Our first question comes from Eric McNeil with TV Security. The line is open.

Hey, morning all, thanks for taking my questions. Sanjay, a lot changed since you introduced 2023 Gottlieb. It didn't spill over a year ago. You know, you've largely obviously maintained that with this quarter, but I'm hoping you can give us a bit more details on some of the puts and takes, you know, comparing the current guidance to the original guidance. And, you know, specifically I'm wondering. Who knows what is to come in for price and minimum credit? I haveica. I have its own assets, dirty money. And give it truth. That means it cannot stay for the rest of the time.

Are synergy realizations happening faster or slower than you expected? Is the backlog for engineered systems above or below your expectations? Are engineered systems margins above or below your expectations? Is US contract compression pricing better or worse than you expected? What about utilization? What's the negative impact of the delays and for the Kurdistan project or any other slippage and large project timelines? And when you take all of these variables together, presumably others as well.

have your internal projections increased or decreased over the past year and left the order of magnitude? Okay, well good morning, Aaron. I need a cup of coffee, solid cup of coffee to get all those in. I guess I'll start with your synergy question. I would say that our guidance of 60 million remains unchanged. I think the 40 million dollars that we've been able to realize by day 100 is a little bit of ahead of schedule. So I think that's...

That's a net positive. I think that you mentioned engineered systems, backlog and margin. The bookings have been healthier. And I think it was really a lot of pent up demand that we saw. We do expect things ultimately will normalize, but with the bigger company, we do expect that we're going to see stronger.

business, you know, really proud of our ECC team in the states. They continue to really optimize the assets that we have. So I would say that utilization has been ahead of our expectations when we first put guidance forward after completing the transaction. And then you also asked about Kurdistan, but before I...

And that really helps us from, you know, from...

just cash collection and cash position standpoint. We've had one or two really positive events where cash has come in, had a schedule on some big projects. And so those are the things that have been really helping from a forecast perspective. As we mentioned in the table in our press release on the guidance,

the Middle Eastern Cryogenic Project, that will slip to the right. It's not really a net negative from an overall project, margin standpoint. It's just that we're shifting more of the project out of 22 and into 23. And therefore, there's going to be some extra expenditures in 2023 versus what we had initially anticipated. But those are kind of the puts and takes. And then I would say,

We've also now incorporated a little bit of a headwind from foreign exchange issues that we alluded to on the opening comments. But we also adjusted the EBITDA definition and we've just sort of normalized how the EBITDA will flow through the projection so that the new definition of adjusted EBITDA is.

internal projections have probably increased since you originally put that.

Is that a fair statement for her? Yeah, I would say, we're reaffirming the guidance. The 380 to 420, and I think our confidence in that has gone up. So that's probably a different way to put it. But certainly, we're feeling really good about the initial modeling that was done. And it's...

in your mind to reprise the US fleet higher over the next 12 months and is that contemplated in the guidance? There is the opportunity. getting on those assets is higher than it has been in previous quarters. I don't know that that asset class in and unto itself and those incremental price increases on their own are enough to drive guidance higher.

I think that there's a lot of good things going on with the business early in the year. And we'll see how the following quarters go. Please stand by for our next question. Our next question comes from the line of Keith Mackie with RBC Capital Market. Jillana Sultan. Hi, good morning and thanks for taking my questions.

Just wanted to start out in engineered systems. Some very strong bookings of 1.3 billion or so in 2022. Can you just talk, Mark, if you think we've hit peak booking levels or do you think 2023, 2024 could match or exceed what you saw in the business in 2022?

2022 is a good year. I'm always very careful about providing guidance on GoFord bookings because it's difficult to do. Our pipeline of opportunities are robust. They're global in nature. They include compression and gas processing.

and just about every region within which we operate. So we are definitely working hard and we have internal targets for this year to be at least as good as last year. But I'm not gonna say, I really can't predict right now what 2023 is gonna look like. Okay.

about every region within which we operate. So we are definitely working hard and we have internal targets for this year to be at least as good as last year. But I'm not gonna say, I really can't predict right now what 2023 is gonna look like. Okay fair enough.

And maybe just finally on the synergies. So Sanjay mentioned you've got the 40 million of the 60 so far, a little bit ahead of what you might have thought. Do you think ultimately the synergy number comes in ahead of that? 60 million number and what types of things do you think that would have to happen to exceed that number? Yeah, I think, you know, I'll give you my comments and maybe Mark and Chiamin too, but we're, you know, I want to come back to reaffirming the $60 million guidance.

number. You know, maybe Mark can comment on a few things that might be like be sort of like positive or negatives, but you know, right now our official guidance is still the 60.

Keith, our goal, you know, we will hit the $60 million. That's something we're very convicted on. But our long-term goal really reaches beyond hitting this energy number. In our long-term goal in this consolidation transaction was to really deliver sector leading S-GNA levels, sector leading cost structures, and to use that extra volume to be a really competitive

cost efficient business long-term. That's what we're really focused on. You know, putting a target out there for synergies and hitting the target for synergies is very important for short-term discipline and to make sure the market knows exactly what we're doing. But, you know, our goals are to get a company that's really efficient, that's got the lowest possible overhead and that could very well point to synergies that are higher than $60 million. For now, I think that we stick to the 60, our integration team and our leadership team.

is highly focused on getting that $20 million. And if we feel that it's materially higher than that, we'll communicate it to the market at that time. OK, thanks for that. And maybe just a quick follow up on the GNA then. I know it's all embedded within the guide, but the total number 175 for Q4.

What do you think is a good, clean cash GNA quarterly number for 2023? Is it somewhere around that 90 million number? You know, so to keep, I would say that if you backed out all the one timers and, you know, really important to recognize that we've got $57 million of deal expenses that's going through SNA, we've got $18 million that related to the foreign exchange issue, which doesn't count the seven of interest that you get back. That

gets you served in until like a mid 80s number. But that's understanding that we haven't really taken any of the synergies out yet because we've made a lot of the decisions that lead to the synergies, but it was laid in Q4 early in Q1. So I think a lot of that run rate of synergy is ahead of us and a lot of those synergies like 90 plus percent of the synergies hit the SCNA line.

So I actually think we should be able to do better than that $90 million number that you're putting out there because of the synergies. Okay, thanks very much. Appreciate the comments. Thank you. Please stand by for our next question.

All right. Our next question comes from the line of Andrew Bradford with Raymond James, Yolanda Sullivan. Morning, guys. Thanks for taking my call or my questions here. I just want to make a break from where you left off there, Sanjay. 90% of the sentence views are

Andrew, this is Mark. In that 60 million in synergies, we had definitely contemplated simplification of the business, reduction in geographic footprint, and focusing our assets, especially our manufacturing assets around the world. We reaffirm the 60.

We are striving to get more than that. It would be the best possible company we can be. But as of today, we're not going past the 60. But I guess rest assured that the simplification and focus theme is alive and well and it's something that will continue for the next year and beyond that. Okay, thanks.

I'll just switch back over maybe just for a second to the backlog if you don't mind. I wonder if you just maybe speak to what the margin embedded in the backlog and I appreciate all this would be in your guidance, but how does the margin embedded in that backlog compared to what we've seen, involving a lot of few quarters in engineering systems revenue? And maybe describing changes in the composition of the backlog as well. And also I'm kind of interested in this.

largely disappeared from the headlines are still alive and well in execution.

You know, to take new orders today, either for compression or gas processing, you're looking at 9 to 12 months delivery. Indeed, we've already booked some things in so far in 2023 that have a 2024 delivery date. So there is an extension of time that's happening as you can imagine when the backlogs will build up.

The nature of the backlog early in the pandemic recovery was heavily dominated by compression. We talked about that in those corridors. We've definitely seen more carbon capture, we've seen more gas processing and we've seen more downstream processing orders come into the backlog. Those traditionally have been higher margin than compression. So we look at the backlog and we work all those expected margins into the guidance and we reaffirm the guidance. So it's sort of the sum total of all the things.

But in general, the backlog and the composition and the margin is better than it was a year ago. I think that's pretty obvious and I think we've been transparent from that point of view. I appreciate that. Thank you. And last question would be just earlier in your commentary, you identified that one of the reasons why the gross margin was sequentially lower.

was simply the lower margin profile from the acquired experiment business. And I'm just wondering, are those margins, so those are gross margins, so operating at the operating line, is that part of, like, is remedying that or is, can we see convergence of that acquired margin to interplexes more?

traditional margins or in that kind of all part and parcel with the synergy guidance. Yeah, so you know I'd say the lower margins were really there was kind of two drivers I would say. The first driver is on the manufacturing side. You know we actually had a few projects and you know one big one that was on hold if you will.

So, you know, we're earning some revenue, but not really making any profit there until that one sort of goes back into completion mode. So there was certainly an effect on the engineering system side of the business on margins there, but then we also had an effect on just the infrastructure.

And that was really just sort of bringing it into the house, operating things a little bit more efficiently per the way that the NFlex team is going to operate going forward. And, you know, for that point, Andrew, I would expect that we will see a normalization of how assets perform once we're fully integrated. So, yeah, and, you know, I guess the third point is we are bringing online.

to historical margins that you have seen from the infrastructure side of the house.

historical margins that you have seen from the infrastructure side of the house. Perfect, that's it for me. Thank you very much.

Thank you. Please stand by for our next question. Our next question comes from the line of 10 Monotello with ATB Capital Monk. The line of 10 Monotello.

Thank you. Please stand by for our next question. Our next question comes from the line of 10 Monticello with ATB Capital Markets. Your line is open. Hey, good morning everyone.

First question from me just on the Argentina FX losses the ad in the quarter. Obviously there's a lot of desalue from the pace of this quarter and it's tough to repatriate cash and you guys don't really, you know, disclose what your cash balances are in each geography. But can you help frame the conversation around how this looks like, how it might look going forward? Were cash balances higher than they had been historically average levels? And how do you think about the Argentina business?

on a go-forward basis, obviously. Next year, I had a pretty large presence in Argentina.

Yeah, Tim, I'll take the first half, maybe I'll turn the second half over to Mark on how we see the business. So I think it's really important to quantify this $18 million loss. So where I would start is that it was really $14 million.

that was directly allocated to the devaluation. And then there was $4 million that was related to the cost of a hedge that was put in place by the Legacy Extern team, which it actually didn't protect us. And so we won't be, we won't be occurring that cost going forward. So really we've got not an $18 million issue, we've got a $14 million issue. As you mentioned, the devaluation and the pace that was pretty strong in the money.

that money versus what we were historically seeing. So I think we're going to be able to skinny this out even below it being a $7 million issue. But that's not to say that it won't be an issue going forward. It will be there. We're planning that it will be there. I just think that we're going to be able to manage it down to a very efficient number here.

And the other thing that I would tell you, Tim, is that our expectation of the impact that this is going to have on 2023 is already baked into that 380 to 420 guidance that we've provided. And Tim, this is Mark, and the second part of the question, where does Argentina fit? It's a good question. We like to, our people in the region, we like our assets in the region, we have really good customer relationships in the region, and they're all sitting on top of one of the the shell resources in the world. From that point of view, I believe it's a very good operating region going forward.

you know, when the contract or contracts generally expire and I guess.

How do you compensate yourself in those contracts for the level of risk you're taking because, you know, clearly this currency risk is is pretty good.

You're right, it's significant. Our customer contracts in Argentina are a blend of rental contracts and boom contracts. The revenues are pegged to the US dollar and all the risk happens when we receive payment on a monthly basis. Now, this isn't new to Interflex. We've been in Argentina since 2014.

And our teams have done a very good job of managing the currency since 2014 when we entered that market. Do we go for returns that are above average or the risk adjusted return? Absolutely. And that risk adjusted return and how much do you have to put on top of normal returns to account for the fact that the currency risk is more significant and Argentina than anywhere else? That's something that we've got experience in doing. And we will have continued challenges on the currency.

But again, I've got a lot of faith in our commercial teams and our treasury teams to nullify that as much as possible and still maintain solid operations. And like I said before, is on top of one of the best shell resources in the world? Are the contracts there large and lumpier? There are a number of smaller contracts that have cremated a egg and a mixed to tell what its plan are doing.

over period time. It looks more like our US rental fleet than it does large and lumpy. Got it. Okay. Moving on. I'm just curious about how you're thinking about organic capex in 2023. Obviously, you put some...

some guidance out there. But, you know, if you were to see some high return projects or opportunities come through, how are you managing those and then they're waiting over them on the CAPEX or... And maybe you can just talk a little bit about the opportunity set you're seeing today for Boom Projects globally.

Yeah, sure, Tim. First and foremost, I want to reiterate that our number one objective is de-levering the balance sheet and getting below two and a half times leverage ratio. So we are spending very little right now.

from a discretionary growth cap ex perspective. And that will continue until we have very clear line of sight to getting below two and a half times. And we're obviously with the excess cash there, you know, going to start thinking about how we return.

money to shareholders at that time, but really right now we're spending very little. You know, with the primary goal of getting leveraged down below two and a half times. Then once you're below that level.

What should we expect for organic cat-backs? How is the opportunity set where we demand for these types of projects change? I guess over the last six months. Yeah, look, I mean, I'd say demand is very strong. I think our teams have done a marvelous job of figuring out how to work constructively with our customers to take something that would have been a capital intensive project and make it into something that we can either sell or something that we can run on on an O&M basis.

They've been very creative to do that. So the demand for the products and services that Interflex provides is incredibly strong. And so that part hasn't gone away. I would say, going forward, of course, we're going to look at how do we grow the business. It's going to come after we've delivered the Valhashee below two and a half times. And it's going to come after we've decided what the right method and quantum of returning value to shareholder is.

And at that point, we'll assess the projects and we'll be looking at investing in ways that will be accretive to the company at that point. But it really is sort of a conversation that we are not prioritizing right now because we want to make sure that we get leverage very clear line of sites getting leverage down below two and a half times. Okay. Got it. CCUS bookings were, you know, it's at change in 2022.

will assess the projects and we'll be looking at investing in ways that will be accretive to the company at that point. But it really is sort of a conversation that we are not prioritizing right now because we want to make sure that we get leverage very clear line of sites getting leverage down below two and a half times. Okay, got it. CCUS both things were, you know, it's at change in 2022.

the projects and we'll be looking at investing in ways that will be accretive to the company at that point. But it really is a conversation that we are not prioritizing right now because we want to make sure that we get leverage very clear line of sites getting leverage down below two and a half times. Okay, got it. CCUS bookings were, you know, step change in 2022. How are you thinking about?

about the quantum and obviously bookings are hard to call, but I guess the opportunities then in CCUS for 2023 relative to 2023. I think like I said to Keith earlier, the pipeline's positive and we're working real hard to try to make 2023 at least as good as 2022, that's our goal. And we'll take it quarter by quarter. You'll see the bookings as we report the quarters and that's about as forward looking as I would like to get on that front.

Okay, and then last one for me, you've got two water projects, commission now that were in flight, and Exterren was very enthusiastic about his water business. How were you guys thinking about it? And are you enthusiastic because they were?

We are. I'm pretty sure we mentioned this part of the transaction. Some of the water technology and the relationships they have provides this new set of growth opportunities for us. They're customers that we know. They're regions that we know. They're in them.

They're in sort of geopolitical risk that's very good for us. So we like the opportunities that we'll evaluate growth opportunities after we get below two and a half of the water jobs right next to all of our natural gas and energy transition projects and the projects that generate the best return will be the ones that get that excess cash flow. But we do like it. The team, you know, the two projects we did in 2022, you know, represented about $200 million worth of capital, roughly, and they executed them really well. And more or less on budget, more or less on time.

and so far generating the terms that were anticipated in the models. So, from that point of view, our confidence sort of interflex leadership confidence in the water business visibility to land projects, deliver them and operate them is very high. So, it provides sort of another leg to the stool, if you will, in our energy infrastructure strategy. Okay. And I guess I lied. I got one more fall up on that. When you went across all of the portfolios that the external brought along with it and now that you have it under your umbrella, can you talk a little about the return profile of the experience business on a project basis compared to, you know, what your expectations and hurdle rates are and an interflexus. It's they're similar. You know, they're similar to what we used before. You know, that being said, the go forward.

is pretty straightforward. You know, we know what our cost of capital is, we know what we have to do with respect to debt and returning cash to shareholders. I think there'll be plenty of free cash flow to go around in 2024 and beyond to get us that modest growth algorithm that we want to deliver. But you know, to mention specific returns and specific external assets, it's in line with the business and we haven't been greatly surprised. Okay, thanks a lot. I really appreciate it, too. Thank you. Please stand by for our next question.

Next question comes from Milan of one moment. Jamie Kubik with CRBC, Yelana, help us. Good morning. Thanks for taking my question. Most of them have been answered. Here's so only have one. Can you provide any added commentary on? Thank you.

the resolution of the BC government and Blueberry River First Nations and maybe the types of projects you're potentially seeing Coming here and when you believe that could you know start to favorably impact your operations. Thanks Thanks Jamie. I think that the Canadian

The Western Canadian sedimentary basin is specifically the Montany area is in need of liquids projects. You know, there are several midstreamers that have talked about sanctioning liquids projects and that we play a role in those. You know, we've got the ability to build gas processing and liquid handling projects in Canada we have in the past and those are good projects. So to the degree that that settlement will further development of that kind of critical infrastructure in the basin, we will do our very best to be involved. And indeed, the sentiment from our customer base has definitely ticked upwards in the last month.

priorities and when you hit your net debt to even a target of two and a half times, like how should we be thinking about shareholders returns changing at that point? And can you talk a little bit more on that? You know, once we get the debt below two and a half, we will have the freedom to think about what cash return to shareholders looks like of a junior infrastructure company.

which is really what we are becoming and how we wanna manage the business. Once we think about what those kinds of returns look like for a junior infrastructure company, I think there will be free cash flow leftover for the most accretive growth projects. And so it's balanced, it's 100% balanced once we get below the two and a half, is we're gonna balance our return to cash and balance the smart conservative growth going forward. That's a 2024 story and beyond. That's how we're thinking about it. Okay, that's it for me. Thanks. Thank you.

what we are becoming and how we want to manage the business. Once we think about what those returns look like for a junior infrastructure company, I think there will be free cash flow left over for the most accretive growth projects. So it's balanced. It's 100% balanced once we get below the 2.5. Is we're going to balance our return of cash and balance the smart conservative growth going forward. That's a 2024 story and beyond. That's how we're thinking about it. Okay, that's it for me. Thanks. Thank you. Please stand back for our next question.

Our next question comes from a land of coal, Paria with Siouxville, Yalanda Sultan.

Hi, good morning. On the US ES margin front, do you think they could hit prior cycle peaks or is that unlikely just given the change in the US shale strategy? And do you think any weakness in gas markets, call it the Marcellus and Haynesville, could impact the margin recovery or is that just a different type of compression unrelated to your more Permian focused footprint? Cole, we're not going to say exactly where we expect margins to shake out and you...

Permian. We don't have a significant amount of business in the Hainesville of the Marcellus. It's opportunistic, but it's not the core of our US Engineer's System strategy. The core of our business is really in the Permian and the Equal Ferdinand of the Bach into a certain degree. And international, our US Engineer Systems business.

and it's sorted by design, if you will.

Got it, that's helpful thanks. And just quickly on the Kurdistan project, so theoretically if the project costs were to increase, can you just remind us if there's some sort of mechanism to recover that within the contract?

There's no automatic mechanism, but we have a good contract. We understand it very well. We've developed excellent relationships with our customer. And I'd like to say that I feel our team is managing any increase in cost very well. And all of that is included in the confirmation of our guidance. Thank you.

Got it. That's all for me, thanks. I'll turn it back. Thank you. Please stand by for our next question.

We have a follow-up from the line of Aaron McMail with TD Security. The line is open.

We have a follow-up from the line of Aaron McMail with TD Security. The line is open. Thanks, so. Thanks.

We have a follow up from the line of Aaron McMail with TD Security. The line is open. So squeeze one more and can you.

You give us a sense of the owned and operated compression horsepower gas processing capacity and water infrastructure capacity to be split by the two new international segments, the Latin American and Eastern atmosphere segments even, you know, rough split would be great and what I'm ultimately trying to get at is, you know, the drivers of each of those segments. So you're asking like of the revenue in Eastern hemisphere how much comes from gas processing, comes from compression, how much comes from water in energy infrastructure specifically? Yeah, and just, you know, obviously there's no specific disclosures on horsepower by segment. So, just trying to get us in. Yeah. It's...

I guess what I'd say, because we don't disclose that level of detail, Aaron, but I do think that it's helpful to know that our businesses in Latin America and the Eastern Hemisphere are very leveraged towards the recurring side of the business. So a lot of energy infrastructure in both of those areas and some aftermarket services as well. So that's generally speaking. As we sit here today, it's predominantly gas business, but the two water projects that have been brought online are in the Middle Eastern region. So that water exposure is really 100% right now.

in the Middle East, but we have a very energetic water team, and their ambitions are global. So they're always looking at opportunities outside of the region, but I would say that most of what they are looking at today is really focused on the Middle Eastern region, and I expect that that's what we'll see from them in the short to medium term.

Maybe the better way to ask the question is, you know, you split the rest of world segment into, you know, what's the split of invested capital between like 50, 50, 60, 40, like even just trying to get a sense of...

Maybe the better way to ask the question is, you know, you split the rest of world segment into, you know, what's the split of invested capital between like 50, 50, 60, 40, like even just trying to get a sense of, you know that...

I don't know that we disclosed that. I'm looking over – There's total assets that are disclosed in the note disclosure in terms of associated with that, but I guess you could use that as a rough proxy. That's not exactly – Okay. And where is – that's at which note in the – It's in the segmented note in the notes for the financials. Okay. Okay. So, yes, I think if you look through the segmented information in the financial statements, you'll get total assets by region. Okay. Great.

I'll turn it over. Thanks. Thank you. Please stand by for our next question. We have a follow-up question from the line of Andrew Bradford with Raymond and Jay. Your line is open. Thanks. To be fair, that disclosure was probably on page like 98. It was a late night last night. One follow-up I have here is just thinking about the discussion on the lead time on major components. We were talking about that in the context of engineering systems. I'm sort of thinking about it also in the context of EI projects, which, as you said, you're not going to do much in 2023, as the priority is to allocate capital to the balance sheet. But as 2023 progresses, your guidance range is going to narrow, obviously. Your confidence on timing of hitting your debt thresholds will improve. As that threshold date approaches, will you be in advance? I guess, short question, should we expect in 2023 to be in advance?

even before you hit that debt threshold, that you'll start talking more openly about what the bidding pipeline looks like on boom projects or anything like that. Yes, Andrea, I think that's all very logical. We're being quite pedantic about assuring the investor community that we're focused on debt reduction and we are. At the same time, we are challenging our commercial teams to look at projects because some of the projects, especially in the eastern hemisphere in Latin America, can take years to develop. So they're not doing nothing during this period of time where our primary capital allocation focuses debt reduction. And we feel very comfortable. Interflex has an attractive growth algorithm going forward once we get our balance sheet to where we think it needs to be long-term. So the commercial teams are working. We've given them high hurdles and high targets.

to make sure that they're developing the very best possible business. And I think it's quite reasonable that in future quarters, we'll be able to communicate to the market the nature of the growth that we would look at once we reach those targets. That's perfect. Thank you very much, Mark. Thank you. I'm sure no further questions in the queue. I would now like to send the call back to Mark for closing remarks. Thank you very much, operator. With no further questions, I would like to thank everyone for joining us today. We appreciate your time and interest in Interflex, and we look forward to connecting with you for our next update in May. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.