Enerflex Ltd

TSX:EFX

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Enerflex Fourth Quarter and Year-End 2019 Results. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I will now hand the conference over to Stefan Ali.

[Stefan Ali, Director of Investor Relations]

Good morning, everyone, and thanks for joining us. Here with me are Marc Rossiter, Enerflex's President and Chief Executive Officer; Sanjay Bishnoi, Enerflex's Senior Vice President and Chief Financial Officer; and Ben Park, Enerflex's Vice President, Corporate Controller. During this call, we'll be providing our financial results for the 3 months ended December 31, 2019, a brief commentary on the performance of our 3 business segments and a summary of our financial position. Today's discussion will include forward-looking statements regarding Enerflex's expectations for future performance and business prospects. Forward-looking information involves risks and uncertainties, and the stated expectations could differ materially from actual results or performance. Please see the advisory comments within our news release and other regulatory filings for more information on forward-looking statements and associated risk factors. Approximately 1 hour following the completion of this call, a recording will be available on our website under the Investors section. During this call, unless otherwise stated, we'll be referring to the 3 months ended December 31, 2019, compared to the same period of 2018. We'll proceed on the basis that you've all taken the opportunity to read yesterday's press release. I'll now turn the call over to Marc.

[Marc Edward Rossiter, President, CEO & Director]

Thanks, Stefan, and good morning, everyone. Enerflex's fourth quarter results conclude a strong year of performance across all product lines. During the quarter, we continued the build-out of our asset ownership platform where we've added approximately 30,000 horsepower to our U.S. contract compression fleet and continued progressing our 3 previously announced BOOM projects in Latin America and the Middle East, which we expect to begin contributing to our results at various times through to midyear 2020. Although our quarterly results were impacted by a nonrecurring write-off of specialized assets, which Sanjay will elaborate on, we see continued strength within our asset ownership platform, both within the U.S. and internationally, having landed a small but important post-quarter 5-year BOOM project in Brazil, which will strengthen our presence and reputation in that country. Details as to timing and estimated revenue contribution from this particular project will be communicated in due course after final specifications are determined. In 2020, we anticipate the continued build-out of our rental fleet with a growth CapEx spending plan similar to 2019. However, we are prepared to allocate additional capital to our growth initiatives for accretive opportunities, including utilizing the strength of our balance sheet if it makes sense to do so. We have been asked whether we're concerned about overbuilding in the rental space. We want to clarify that the majority of our rental assets under construction, whether within the U.S. or Rest of World segment, have an associated contract with a customer before we manufacture the equipment. Given that most units are underpinned by a binding customer contract before the relevant unit is constructed, our asset ownership build-out is less speculative than some might think. For BOOM assets, nothing is built on a speculative basis. Because of this dynamic, we have good visibility into where market demand for rental equipment is heading and whether or not to tap the brakes or accelerate our capital expenditures. Our fleet growth in 2019 is indicative of the health of the market as is the 87% utilization rate for our U.S. contract compression fleet, which is comparable to the largest players in the space. Turning to Engineered Systems. We continued executing on our backlog and working through the higher-margin projects that were booked at the end of 2018. These projects were milestones for the company given their size and scope and were executed to exacting standards by our Calgary and Houston teams. The margins earned on these projects were used to fund growth in our asset ownership platform, which assists in stabilizing future financial performance. While we successfully executed projects within our shops, customer disputes related to ITK projects in our international segment negatively impacted our results. These ITK projects have now been completed and are awaiting final payment. The bookings story in the quarter and through 2019, for that matter, was less than desirable. Bookings of $96 million on the quarter represent the fourth consecutive low bookings quarter and the lowest since Q1 2016. While we're obviously dissatisfied with the pace of bookings through 2019, our bid pipeline for new Engineered Systems projects clearly indicates that producers are contemplating capital projects through 2020, and we believe we will capture our market share across all geographies. The question that remains is, when do those bids convert to bookings? And while that cannot be answered with certainty, the longer this bookings downturn persists, the stronger our expectations of a rebound in activity as it becomes a matter of time until a least sustaining investment returns. As far as catalysts are concerned, the Permian Basin is still getting a lot of attention. And we're hopeful that with continued resolution of egress issues, 2020 will see a sizable addition of producing wells. Of particular interest is the international space, where we see significant opportunities for projects that will facilitate the displacement of other fuel sources for local electrical power generation in favor of natural gas. In Canada, activity across the industry is expected to be flat as egress issues remain unresolved. That said, there appears to be some opportunity within liquids recovery and electric power gen, which our teams are chasing. We are also encouraged by the strength of our aftermarket services business, which in the fourth quarter posted the second highest quarterly AMS revenue in the company's history. Unlike previous commodity price-driven downturns, the challenges of today's market revolve primarily around our customer base exercising a disciplined approach to growth capital expenditures while continuing to dedicate capital to maintenance expenditures. Barring any significant declines in commodity prices or changes in customer mindset, we expect this strength to continue through 2020. Overall, 2019 was a tremendously successful year operationally for Enerflex. And I would like to thank our 2,500 employees for their dedication and commitment to delivering quality products to our customers. For 2020, so long as the weakness in Engineered Systems bookings persists, we expect a more challenging operating environment in which our focus will turn to controlling costs and disciplined management of working capital. On a positive note, the build-out of our asset ownership platform will utilize shop space throughout the year, while the in-sourcing of work facilitated by our Houston expansion will allow for better cost controls. This is a differentiator that did not exist during the 2015 downturn and a beneficial aspect of our vertically integrated platform. I will now turn things over to Sanjay to review our financial results.

[Sanjay Bishnoi, Senior VP & CFO]

Thanks, Marc. Fourth quarter revenue was consistent with the prior year period but decreased from the previous quarter due to lower Engineered Systems revenue on weaker bookings through 2019 and scope changes on major projects that slowed revenue recognition. The decline in Engineered Systems revenue was partially offset by increased contributions from our aftermarket services segment and our growing contract compression fleet with recurring revenue increasing by 14.5% year-over-year. Gross margins increased over the comparative quarter, driven primarily by higher-margin Engineered Systems projects that were booked near the end of 2018 and which will be completed in Q1 of 2020. On an annual basis, consolidated 2019 gross margins of 21% represent the highest annual gross margins in the company's history. However, fourth quarter gross margins were negatively impacted by 3 events. Firstly, an increase in warranty expenses for a Canadian project completed in 2019; secondly, expenses related to customer disputes in our Rest of World segment; and thirdly, most significantly, a write-off of rental equipment totaling approximately $24 million. The majority of this write-off relates to specialized compression units, which were acquired as a part of our 2014 acquisition and which have never been utilized by Enerflex nor generated revenue for Enerflex. The asset write-offs is a nonrecurring event, but its impact on quarterly gross margins, and ultimately EBIT, is material. We also took action to better align our cost structure with near-term activity levels expected from the Engineered Systems business. Selling, general and administrative expenses increased over the comparative quarter due to the effects of cost recoveries recognized in the prior year as well as increased compensation on higher headcount, partially offset by mark-to-market impacts on share-based compensation. EBIT was consistent with the comparative period. However, once adjusted for unique items and nonrecurring events, the fourth quarter of 2019 was notably better than the same period of 2018. Going forward, we reiterate our message that we anticipate gross margins reverting to their historical norms due to the slower activity in the Engineered Systems segment. As Marc alluded to, Engineered Systems bookings activity is anticipated to be sluggish to start 2020. However, our bid pipeline is encouraging, particularly in international markets, giving us some cautious optimism that bookings activity may pick up in the back end of 2020. Growth of our asset ownership platform was strong in the quarter with $76 million deployed towards rental assets. While rental results in the quarter were hampered by the asset write-off, a portion of this was a unique nonrecurring charge and added back for adjusted EBITDA purposes. Notwithstanding this write-off, our rental product line is well positioned with a global fleet consisting of 670,000 horsepower, 310,000 of which is allocated to our U.S. contract compression business. For perspective, today's U.S. contract compression market comprises over 13 million of horsepower. From a capital allocation perspective, our priorities in 2020 are threefold: first, deploying capital towards organic rental fleet additions; second, growing the dividend at an affordable and sustainable rate; and third, seeking inorganic growth opportunities. We do expect to deploy capital at a similar pace to that of 2019. That said, additional accretive opportunities may arise throughout the year across our diverse geographies and with a net debt-to-EBITDA of 1:1 and access of up to $557 million of additional credit, we are prepared to utilize our balance sheet strength to capture opportunities that move us closer towards our strategic goals. With respect to inorganic growth, we continue to assess potential acquisition and purchase leaseback opportunities but are exercising patience and discipline in our approach. This completes the formal component of the webcast. Additional details can be found in our February 20 press release. We will now be happy to take any questions.

[Operator]

[Operator Instructions] And we have a question from the line of Matthew Weekes with Industrial Alliance.

[Matthew Weekes, Analyst]

My first question was just a clarification. So there was the $24 million in impairment charges. Now I was looking at the adjusted EBITDA. And I'm sorry if you've covered this already, but it looked like $14 million was added back to arrive at that figure, but the other $10 million was not accounted for there. Was it included in expenses when arriving at our adjusted EBITDA?

[Sanjay Bishnoi, Senior VP & CFO]

Yes. That's correct, Matthew. This is Sanjay. So you're correct. The full impairment was $24 million. Those were all idle assets that we're not generating any revenue for Enerflex. And we did think a little bit about whether we should add back the full $24 million into adjusted EBITDA. We took a little bit more of a conservative approach. And we only added back the $14 million, which is associated with assets that were never utilized under the ownership of Enerflex, and that's what came back into adjusted EBITDA. But you're correct that the full $24 million does hit the expenses.

[Matthew Weekes, Analyst]

Okay. So if you had added it all back, EBITDA could have been bigger then.

[Sanjay Bishnoi, Senior VP & CFO]

That's correct. Yes. It would have been just around $100 million for the quarter if we had added the full amount back.

[Matthew Weekes, Analyst]

Okay. Okay. That makes sense. And my next question was just around bookings. I was wondering, we -- I was kind of -- we were expecting bookings to be low, but this was a particularly low quarter in the context of the year. I was wondering if there were any large projects that maybe you're bidding on that you didn't win? Or if you weren't getting your share of bookings in the market or kind of what happened there? Or if it was just, in general, weak industry spending?

[Marc Edward Rossiter, President, CEO & Director]

This is Marc Rossiter. I would say, in general, weak industry spending.

[Matthew Weekes, Analyst]

Okay. So it wasn't due to a lack of market share or anything like that or any big misses in particular.

[Marc Edward Rossiter, President, CEO & Director]

No.

[Matthew Weekes, Analyst]

Okay. And the outlook for bookings, would you say, as far as things look like right now, is pretty similar, at least in North America going forward, but you see more upside in the international market?

[Marc Edward Rossiter, President, CEO & Director]

I would say that our level of bidding activity over the last 1.5 months, 2 months, has been more promising than it was in Q3 and Q4 of 2019. And like we said in the prepared comments, the real question is when that bidding activity gets backed up with orders from clients. We feel better today than we did 3, 4 months ago. But we're still cautious that people have to pull the trigger and spend money on things, and that's specific to North American Engineered System sales. Internationally, we feel a much different and more exciting sentiment in the Middle East and Latin America for new projects than we did throughout most of 2019. So we're optimistic. Now in those regions, we spend a lot of time and effort on asset ownership opportunities and a little bit less so on the sale of Engineered Systems. So if good things happen, you'll see it in announcements of new BOOM contracts, new rental contracts, et cetera, throughout those regions. But I think that a lot of companies in our space, the narrative is: North America, slow; international, good. I would agree with that sentiment in general. But there's been a slight pickup in the bidding activity in North America, and we'll kind of believe it when we see it, if you know what I mean.

[Matthew Weekes, Analyst]

Yes. Exactly. So just one last kind of follow-up to that, and you say there's been sort of a recent pickup in North America. And that's kind of contrary to what I was expecting. So you haven't seen kind of a decline in the customer conversations due to what we're seeing with the COVID-19 virus?

[Marc Edward Rossiter, President, CEO & Director]

No. That hasn't actually come up at all in our North American bidding activity.

[Operator]

And our next question comes from Jon Morrison with CIBC Capital Markets.

[Jon Morrison]

Sanjay, sorry to get granular on the write-downs, but can you just disaggregate those numbers a little bit more? So the -- there was $9 million that effectively, you elected to not add back in the adjusted number. Can you give any more color on what the nature of those write-downs were versus the $15 million that was obviously very related to assets that hadn't been used for a period of time and you thought it was just prudent? So effectively, I assume you wrote those down to 0. But what was the actual nature of the other $9 million?

[Sanjay Bishnoi, Senior VP & CFO]

Yes. So the other $9 million were sort of other older assets that had been used, but they were idle at this time. And we just -- they did carry some book value to them, but they weren't generating any revenue for Enerflex. And we just felt that the value of the assets wasn't really there. They weren't really redeployable without significant investment to the assets. So that's the general nature. There's a couple of different categories. A lot of it was still in Latin America, but there was stuff in the United States as well.

[Jon Morrison]

And would there be some likelihood to those assets eventually being redeployed? Or do you largely view those to be going to the salvager at this point?

[Sanjay Bishnoi, Senior VP & CFO]

Yes. There's -- so there is actually some likelihood that they do get put back to work. In fact, we've had some commercial interest in them but nothing to the point that we felt like we shouldn't be doing the prudent thing and taking the write-off at this time.

[Jon Morrison]

Okay. The inventory number, obviously, built throughout the year, and you ended about $100 million higher than you did Q4 '18. Was that entirely a function of ordering things for the strong Engineered Systems bookings that were coming in and basically being able to take advantage of the supply chain that was long at that point? Or should we be thinking about some of that higher inventory number eventually being converted into some of the contract compression fleet build-out that you're doing right now?

[Sanjay Bishnoi, Senior VP & CFO]

Yes. I think the driver -- I think you hit the nail on the head with the driver, Jon. So it was very much tight supply chains, things really active in all business lines, really, contract compression plus engineered services. And so we needed to order long lead items to kind of stay ahead of the orders at the time. And as we all know the story, orders fell off pretty quickly. And I think it's a pretty common effect where you've still got your supply chain active and you still have assets coming at you. So that's really what drove the increase in inventory. I would say that all the assets that compose that inventory are all fungible assets, so they're all things that we're going to need. Whether it's in the Engineering Systems business and it comes up as an order or whether it's assets that we roll into the U.S. contract compression fleet, I think that remains to be seen. And we'll put them to work in the most logical place that it makes sense to put them to work. But we view them as perfectly fungible assets, and eventually, we'll use them.

[Jon Morrison]

Okay. So it's Caterpillar engines, compressors, things along those lines that maybe the inventory number comes down a little bit slower than you'd like, but it will fall into one of those 2 buckets and there's no oddity to those assets that you wouldn't expect to use them in the coming years?

[Sanjay Bishnoi, Senior VP & CFO]

Yes. Yes. That's a good way to think about it, Jon.

[Jon Morrison]

Okay. International margins going forward, obviously, they were negative in the quarter. Was that a function of just the low Engineered Systems number? Or was asset utilization in any particular country maybe a drag to performance?

[Sanjay Bishnoi, Senior VP & CFO]

So that is directly related to the impairment, Jon. And the vast majority of the impairment was taken in the international segment. And so if you add back that $24 million to the gross margin line, you'd see that it was pretty in line quarter relative to Q3. So that's really what's driving that. I don't think that there's too much beyond that, that would be material.

[Jon Morrison]

Okay. And Mexico, obviously, there's been some choppiness in that market in the Rest of World segment. Any update on whether the line of sight for 2020 would be stronger than maybe what we saw in 2019?

[Sanjay Bishnoi, Senior VP & CFO]

I think we're kind of expecting a fairly flat outlook for that geography in particular. But again, as you say, it's a geography that's kind of prone to surprises, both on the positive side and the negative side.

[Jon Morrison]

Okay. Just in terms of the order inquiry in the Middle East being strong, is that specific to BOOM projects? Is it specific to Engineered Systems? And any idea around gestation period just because the sales cycle is naturally longer outside of North America? Is that something that you would think hitting from a 2020 perspective? Or is it longer term in nature than that?

[Marc Edward Rossiter, President, CEO & Director]

Jon, this is Marc. The -- we have our sales teams pointed in the Middle East, preferentially towards asset ownership opportunities. But they look at Engineered Systems opportunities as they come in. The stuff we have in front of us right now that we're working the hardest on are asset ownership opportunities. And there are several that would have a closing date in 2020 if the customers proceed on the sort of pace that they've told us they will. And we've got an experience that sometimes customers don't proceed at the same pace that they initially tell us they will. So we'll see, but I'm quite optimistic that we'll have -- we'll be driving towards some BOOM opportunities in 2020.

[Jon Morrison]

Okay. Marc, I understand that the contract compression business is positive and that you're not effectively building out or anything on spec. Everything is largely contracted when it goes into the shop and gets built out, and that would largely hold to be true for most of your peers. But contracts are also constantly rolling off in kind of the broader installed base in the field and sometimes those renewals don't always come as expected. So what gives you confidence that we couldn't end up in a minor oversupply situation if activity doesn't inflect? Or said another way, what would be the orange light that you'd be looking for to maybe pull back on some of those newbuild opportunities?

[Marc Edward Rossiter, President, CEO & Director]

Well, we monitor net additions and units going into service and out of service on a weekly basis. Our sales team talk to our customers a lot, and we spend a lot of time making sure we understand the underlying resource, where the equipment is. So a lot of our equipments in the Permian Basin, we have a view as to that resource. We know what our equipment is being used to do in the basin. We look at weekly sets and removals to confirm our assumptions and we sort of go from there. So there's nothing saying that we won't ever get surprised, that it will for sure happen from time to time, but we keep a really close weekly eye on it. One of the benefits, we believe, in having a rental company and the manufacturing company under one roof is that the supply chain is tightly controllable. So we can buy engines and compressors, sit on them, and only release those 2 main components for manufacturing when we have good indications on a weekly basis. So we can really control that and not overspend it. So we may have approved the manufacturer of a number of units for the fleet, but the team in Houston will only build individual units when they see the need arrives. So it's a tightly controlled thing because we definitely don't want to overbuild. We want to have utilizations as high as possible, and we don't really want to flood the overall market with idle equipment that would be -- put a downward pressure on prices.

[Jon Morrison]

Okay. Maybe just one last one for me, continuing on the theme of building up the asset ownership model. Are there more deals like Mesa to be found out in the market? And how are you thinking about valuation thresholds on buying something in the field, either through a sale-leaseback opportunity or an outright purchase of another competitor considering that you could internally build those units for effectively new assets for replacement cost? How are you thinking about the buy-versus-build argument right now?

[Marc Edward Rossiter, President, CEO & Director]

Well, we're -- in our priorities, we've got -- organic growth capital is what we really like. So the multiples are all in the neighborhood. If you buy a company or if you build new, they're all kind of in the same neighborhood-ish. But we like new stuff and we like new stuff that we build for sure. So that's our preference, is organic growth. There's no doubt that there are rental fleets in the United States that, for the right multiple, we could buy. And we're looking at those all the time. But as of to date, we're quite happy with building their own stuff, and we'll go from there.

[Operator]

Our next question comes from Keith MacKey with RBC.

[Keith MacKey, Analyst]

The first one here, and you may have touched on it briefly in the prepared remarks, but just wondering about the potential risk that if you rightsize the Engineered Systems business over the next few months, assuming bookings stay low, and then we do see a pickup in the second half of the year, will you still be able to respond to those new opportunities in a similar level of execution that you'd expect and that your customers would expect? Or would there be a lag or a drop in efficiency should that scenario happen, which would almost be a good problem to have but something we're monitoring?

[Marc Edward Rossiter, President, CEO & Director]

Keith, that question strikes at the heart of what our engineering systems leaders have been thinking about for 9 months in Canada and the United States. And it's -- every downturn, you have to trim costs in accordance with revenue. But you want to keep the people that will really drive growth in the company. So I would say that's a person-by-person analysis that we do whenever we think about reducing our workforce. And it's something we trust our managers to do, but it's a challenge for certain.

[Keith MacKey, Analyst]

Okay. Understood. Next question is so we originally -- or we got new disclosures on revenue by -- or gross margin by business line. And we saw a -- as kind of what we would have expected at higher margins and the growing compression rentals business. Now in the comments in your prepared remarks, we kind of see -- we heard that you expect gross margins to revert to historical norms. So should we take that to mean that you're just talking about the Engineered Systems gross margins or corporate gross margins, implying that Engineered Systems margins could be much worse than historical norms but offset by the new growing higher compression rental margins and netting out at around the same?

[Marc Edward Rossiter, President, CEO & Director]

Well, I think it behooves people to think about Enerflex in those different product lines when it comes to the margin. There's no doubt that our Engineered Systems margins are at a high point today due to stuff we booked when things were busy and that they'll be under pressure going forward. What the overall mix for the all enterprise looks like going forward is not something that we provide guidance on, but I think you'll see our Engineered Systems margins come under pressure for the balance of the year. We've got this growing amount of revenue from asset ownership that's a higher margin. And that's kind of the whole point of our strategy, is to keep the overall enterprise margin as high as possible.

[Operator]

Our next question comes from Aaron MacNeil with TD Securities.

[Aaron MacNeil, Analyst]

Do you guys view the weakness in Engineered Systems and the pickup in spending on the rental side as a change in the way that you're engaging with your North American customers? And I guess I'm wondering, even relative to last quarter, if your customers are increasingly asking you to put the assets on your balance sheet instead of theirs as they kind of move towards this self-funding, returns-focused business model.

[Marc Edward Rossiter, President, CEO & Director]

Aaron, good question. I would say that the customers we've had for Engineered Systems traditionally are different than our rental customers. So people have asked us, do you have customer X that used to buy that's now renting because you offer that? That's not as common. Having the rental fleet, especially in the United States, has introduced us to a whole new group of customers that have always been traditional rental companies. Bigger midstream companies can swing back and forth from buying to renting depending on their own capital situation. That would be the only exception to that rule. But most of our rental customers are upstream oil and gas producers that we didn't sell equipment to before anyways because they were mainly rental guys.

[Aaron MacNeil, Analyst]

Okay. And then, obviously, growing the Rentals business has been a very long-term focus for Enerflex, but it does seem as though the rate at which you're deploying capital and plan to do so in the future has increased. So I guess I'm wondering what level of leverage you'd be comfortable with, assuming that the increased leverage would also come with contracted cash flow. Or maybe asked differently, what do you see as like an optimal capital structure?

[Sanjay Bishnoi, Senior VP & CFO]

Yes. It's a good question, Aaron. And I think the way that we generally think about it is we view 2x leverage ratio as being kind of a soft ceiling. Having said that, we're always gauging the market in terms of the opportunity to deploy capital to grow our recurring revenue business line faster. So we're flexible, I guess, in terms of the amount of CapEx that we're putting out the door. And -- but I would say that we're always viewing 2x as kind of a ceiling on that, a soft ceiling on that, with the only exception being, again, if we find an opportunity to do a larger deal that sort of moves the needle more in the recurring -- towards the recurring revenue side of the business. That might change our philosophy on leverage, but it will come with a pretty healthy move towards a more recurring business, if that makes sense.

[Aaron MacNeil, Analyst]

Yes. You had mentioned as one of your capital priorities, potentially increasing the dividend. I guess 2 questions for me. Would that be kind of married to your contracted cash flow? And then second, can we assume that the timing of a dividend increase would probably be consistent with prior years and along with Q3 results?

[Sanjay Bishnoi, Senior VP & CFO]

Yes. I mean, I'd say on the dividend, those are Board-level decisions. So we don't want to speculate too much in terms of what the overall Board thinks is appropriate. But I guess what I would say on the dividend is I wouldn't expect any major changes. We've been pretty predictable in terms of how we've grown the dividend and what we've done and I don't anticipate any broad changes in direction there.

[Operator]

[Operator Instructions] And our next question is from Anthony Linton with National Bank.

[Anthony Linton, Associate]

Just a question on the rental fleet. We just saw that CapEx jumped in Q4 over Q3 on the rental fleet. I was just wondering, is that a result of seeing more opportunities? Or what drove that?

[Marc Edward Rossiter, President, CEO & Director]

It's important to note that CapEx for asset ownership, we've got 4 regions. So don't assume that all that money went directly to the U.S. rental fleet. We've got BOOM projects that we're executing in the Middle East and Latin America. So I just want to make sure that that's -- that you can't just say that whole $74 million was the U.S. rental fleet. There's other things going on. So that being said, the number doesn't surprise us too much. It's underpinned by demand. It's underpinned by BOOM contracts, so we've had -- we've been executing for 9 to 12 months. And it's done in a really measured, controlled way. Even though it was a lot for the quarter, we understand that. We're comfortable with it. And we definitely have a plan going forward about the cash spend in accordance with demand from our customers.

[Anthony Linton, Associate]

Okay. So moving into 2020, you guys talked about spending at a similar level to 2019. Does that mean you're looking to spend kind of around $200 million in CapEx?

[Marc Edward Rossiter, President, CEO & Director]

I mean we were vague in the comments for a reason. We were seeing -- so far this year, we're seeing demand from our U.S. fleet very similar to demand we had last year for the fleet. We're also seeing increased levels of activity for new BOOM projects and rentals globally. So based on what we know today, it feels very similar last year, if not maybe a little bit better in some of our international markets. So we could see our ability to deploy the same amount of capital, but it's going to be tightly controlled.

[Anthony Linton, Associate]

Okay. And then just thinking about the growth rate on the Rentals business. I think in your prepared comments, you said around 15%. Is that kind of what you're thinking moving into 2020?

[Sanjay Bishnoi, Senior VP & CFO]

Yes. I mean I think the best way to get your head around that is if you look at it historically, our recurring revenue business lines have grown 13% year-over-year in 2018 and 14.5% year-over-year in 2019. So sitting here today, given that our expectation is to deploy capital at a similar rate, I would say the historical trend is a pretty good indicator of what we would expect going forward.

[Operator]

And there is no more questions in the queue. I would like to turn the call back to Marc Rossiter for his final remarks.

[Marc Edward Rossiter, President, CEO & Director]

Since there are no further questions, I would like to once again thank you for joining us on the call. We look forward to giving you our first quarter results in May. Have a great weekend.

[Operator]

And with that, ladies and gentlemen, we thank you for participating in today's conference. You may now disconnect. Have a great day.