UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Section 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of November 2024

Commission File Number: 001-41531

Enerflex Ltd.

(Exact name of registrant as specified in its charter)

Suite 904, 1331 Macleod Trail S.E.

Calgary, Alberta, Canada, T2G 0K3

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F ☐    Form 40-F ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1). ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐



SIGNATURE

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: November 14, 2024     Enerflex Ltd.
    By:  

/s/ Justin D. Pettigrew

    Name:   Justin D. Pettigrew
    Title:   Corporate Secretary and Associate General Counsel, Corporate

Exhibit 99.1

 

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ENERFLEX LTD. REPORTS THIRD QUARTER 2024 FINANCIAL AND OPERATIONAL RESULTS AND A 50% DIVIDEND INCREASE

ADJUSTED EBITDA OF $120 MILLION AND FREE CASH FLOW OF $78 MILLION

ES AND EI BACKLOG STABLE AT $1.3 BILLION AND $1.6 BILLION, RESPECTIVELY, PROVIDING STRONG OPERATIONAL VISIBILITY

BANK-ADJUSTED NET DEBT-TO-EBITDA RATIO OF 1.9X AT THE END OF Q3/24, WITHIN THE COMPANY’S TARGET RANGE OF 1.5X TO 2.0X

CAPITAL SPENDING GUIDANCE FOR 2024 UPDATED TO $80 MILLION TO $90 MILLION WITH GROWTH SPENDING EXPECTED TO REMAIN BELOW LONG-TERM AVERAGE IN 2025

NEWS RELEASE

CALGARY, Alberta, November 14, 2024 – Enerflex Ltd. (TSX: EFX) (NYSE: EFXT) (“Enerflex” or the “Company”) today reported its financial and operational results for the three and nine months ended September 30, 2024.

All amounts presented are in U.S. Dollars (“USD”) unless otherwise stated.

Q3/24 FINANCIAL AND OPERATIONAL OVERVIEW

 

   

Generated revenue of $601 million compared to $580 million in Q3/23 and $614 million in Q2/24.

 

  o

Higher revenue is primarily attributed to additional project volumes in the Engineered Systems (“ES”) business line and higher utilization and price increases on renewed contracts in the Energy Infrastructure (“EI”) business line.

 

   

Recorded gross margin before depreciation and amortization of $176 million, or 29% of revenue, compared to $150 million, or 26% of revenue in Q3/23 and $173 million, or 28% of revenue during Q2/24.

 

  o

EI and After-Market Services (“AMS”) product lines generated 65% of consolidated gross margin before depreciation and amortization during Q3/24.

 

  o

ES gross margin before depreciation and amortization increased to 19% in Q3/24 compared to 16% in Q3/23 and 19% in Q2/24, benefiting from favorable product mix and strong project execution.

 

   

Adjusted earnings before finance costs, income taxes, depreciation, and amortization (“adjusted EBITDA”) of $120 million compared to $90 million in Q3/23 and $122 million during Q2/24. During Q3/24, the Company recognized a gain of $19 million related to the redemption options of its senior secured notes. This is a non-cash unrealized gain that is not included in operating income and is excluded from Adjusted EBITDA.

 

   

Cash provided by operating activities was $98 million, which included net working capital recovery of $35 million. This compares to cash provided by operating activities of $51 million in Q3/23 and $12 million in Q2/24. Free cash flow was $78 million in Q3/24 compared to $29 million during Q3/23 and a use of cash of $6 million during Q2/24.

 

   

Invested $33 million in the business, consisting of $16 million in capital expenditures and $17 million for expansion of an EI project in the Eastern Hemisphere (“EH”) that will be accounted for as a finance lease.

 

   

Recorded ES bookings of $349 million to maintain total backlog as at September 30, 2024 of $1.3 billion, providing strong visibility into future revenue generation and business activity levels.

 

   

Enerflex’s U.S. contract compression business continues to perform well, led by increasing natural gas production in the Permian.

 

   

 

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Q3/24 Earnings News Release   


  o

This business generated revenue of $37 million and gross margin before depreciation and amortization of 70% during Q3/24 compared to $33 million and 67% in Q3/23 and $37 million and 65% during Q2/24.

 

  o

Utilization remained stable at 94% across a fleet size of approximately 428,000 horsepower.

 

   

Enerflex’s Board of Directors has increased the Company’s quarterly dividend by 50% to CAD$0.0375 per common share, effective with the dividend payable in January 2025.

BALANCE SHEET AND LIQUIDITY

 

   

Enerflex exited Q3/24 with net debt of $692 million, which included $95 million of cash and cash equivalents, and the Company maintained strong liquidity with access to $588 million under its credit facility.

 

   

Enerflex’s bank-adjusted net debt-to-EBITDA ratio was approximately 1.9x at the end of Q3/24, down from 2.7x at the end of Q3/23 and 2.2x at the end of Q2/24. The leverage ratio at the end of Q3/24 is within Enerflex’s target bank-adjusted net debt-to-EBITDA ratio range of 1.5x to 2.0x.

 

   

On October 11, 2024, Enerflex redeemed $62.5 million (or 10% of the aggregate principal amount originally issued) of its 9.00% Senior Secured Notes due 2027 (the “Notes”). The redemption was completed at a price of 103% of the principal amount of the Notes redeemed, plus accrued and unpaid interest up to, but excluding, the redemption date. The redemption was funded with available liquidity, which included cash and cash equivalents and the undrawn portion of Enerflex’s lower cost $800 million revolving credit facility.

MANAGEMENT COMMENTARY

“Enerflex’s third quarter results reflect solid execution across the Company’s business lines, as well as our hard work over the last few years building a strong, resilient company positioned for sustainable growth and value creation,” said Marc Rossiter, Enerflex’s President and Chief Executive Officer. “EI and AMS, our recurring revenue business lines, continue to deliver steady results and we are pleased with the strong execution in our Engineered Systems business line. We are further enhancing the profitability of our core operations, reducing SG&A, and streamlining our geographic footprint, and look forward to reporting on our continued progress.”

Rossiter stated, “Thus far in 2024, we have successfully reduced leverage to within our target range of 1.5x to 2.0x, been disciplined with growth capital and continued to reduce the cost of our debt. Visibility across the Company’s business remains solid, including approximately $1.6 billion of contracted revenue supporting our EI assets and a $1.3 billion ES backlog. As a result, Enerflex is able to increase direct shareholder returns with the Board approving a 50% increase to our quarterly dividend.”

Preet Dhindsa, Enerflex’s Senior Vice President and Chief Financial Officer, stated, “As a result of our continued focus on financial discipline and operational execution, we have repaid $268 million of debt since the beginning of 2023 and reached our target leverage range of 1.5x to 2.0x. We expect to make further progress in coming quarters and remain committed to lowering net finance costs and optimizing the Company’s debt stack. This is reflected in our decision to redeem 10% of our Notes in early Q4/24.”

“In line with our efforts to maintain a healthy balance sheet and optimize operations, we are revising our guidance for capital spending in 2024 to $80 million to $90 million compared to previous guidance of $90 million to $110 million. We continue to deploy selective growth capital to customer supported opportunities in the U.S. and Middle East that are expected to generate attractive returns and deliver value to Enerflex shareholders,” added Dhindsa.

 

   

 

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Q3/24 Earnings News Release 2 


SUMMARY RESULTS

 

    

Three months ended

September 30,

   

Nine months ended

September 30,

 

($ millions, except percentages)

   2024     2023     2024     2023  

Revenue

   $ 601     $ 580     $ 1,853     $ 1,769  

Gross margin

     141       110       364       338  

Selling, general and administrative expenses (“SG&A”)

     82       75       235       219  

Foreign exchange loss

     2       11       6       27  

Operating income

     57       24       123       92  

EBITDA1

     122       77       272       240  

EBIT1

     74       24       132       93  

Net earnings

     30       4       17       12  

Cash provided by operating activities

     98       51       211       48  

Key Financial Performance Indicators (“KPIs”)2

        

Engineered Systems (“ES”) bookings

   $    349     $    394     $   1,100     $   1,041  

ES backlog

     1,271        1,158        1,271        1,158   

Gross margin as a percentage of revenue

     23.5%       19.0%       19.6%       19.1%  

Gross margin before depreciation and amortization (“Gross margin before D&A”)

     176       150       468       451  

Gross margin before D&A as a percentage of revenue

     29.3%       25.9%       25.3%       25.5%  

Adjusted EBITDA3

     120       90       311       287  

Free cash flow

     78       29       150       6  

Long-term debt

     787       1,038       787       1,038  

Net debt

     692       909       692       909  

Bank-adjusted net debt to EBITDA ratio

     1.9       2.7       1.9       2.7  

Return on capital employed (“ROCE”)4

     4.5%       3.0%       4.5%       3.0%  

1 EBITDA is defined as earnings before finance costs, income taxes, depreciation and amortization. EBIT is defined as earnings before finance costs and income taxes.

2 These KPIs are non-IFRS measures. Further detail is provided in the “Non-IFRS Measures” section of this MD&A.

3 Refer to the “Adjusted EBITDA” section of this MD&A for further details.

4 Determined by using the trailing 12-month period.

Enerflex’s interim consolidated financial statements and notes (the “financial statements”) and Management’s Discussion and Analysis (“MD&A”) as at September 30, 2024, can be accessed on the Company’s website at www.enerflex.com and under the Company’s SEDAR+ and EDGAR profiles at www.sedarplus.ca and www.sec.gov/edgar, respectively.

OUTLOOK

Industry Update

Demand has remained steady across the Company’s business lines and geographic regions, including high utilization of EI assets and the AMS business line. Enerflex’s EI product line is supported by customer contracts, which are expected to generate approximately $1.6 billion of revenue during their current terms.

Complementing Enerflex’s recurring revenue businesses is the ES product line. ES results will be supported by a strong backlog of approximately $1.3 billion in projects at September 30, 2024, with the majority of this work expected to convert to revenue over the next 12 months. Demand for new ES equipment and services in North America has been impacted by extended weakness in domestic natural gas prices. This, combined with the anticipated overall mix of projects in Enerflex’s ES backlog, is expected to result in ES gross margin before depreciation and amortization more consistent with the historical long-term average for this business line. Notwithstanding, near-term revenue for this business line is expected to remain steady and the medium-term outlook for ES products and services continues to be attractive, driven by increases in natural gas, oil, and produced water volumes across Enerflex’s global footprint and decarbonization activities.

The fundamentals for contract compression in the U.S. remain strong, led by increasing natural gas production in the Permian and capital spending discipline from market participants. Enerflex will continue to make selective customer supported growth investments in this business.

 

   

 

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Q3/24 Earnings News Release 3 


Capital Spending

Enerflex expects full-year 2024 capital spending to be below its previous guidance range of $90 million to $110 million. The Company now expects capital spending in 2024 to be $80 million to $90 million, which includes approximately $60 million for maintenance and PP&E capital expenditures. Enerflex continues to make selective growth investments in its EI business line that are expected to generate attractive returns and deliver value to Enerflex shareholders.

Although Enerflex continues to develop its capital spending plans for 2025, the Company expects growth capital will remain below its long-term average. Similar to 2024, continued disciplined capital spending will focus on customer supported opportunities in the U.S. and Middle East. Further details will be provided in conjunction with the release of the Company’s full-year 2025 guidance in early January 2025.

Capital Allocation

Providing meaningful direct shareholder returns is a priority for Enerflex. With the Company now operating within its target leverage range of bank-adjusted net debt-to-EBITDA ratio of 1.5x to 2.0x, Enerflex is able to increase direct shareholder returns. This is reflected in the Board of Directors’ decision to increase the Company’s quarterly dividend by 50%.

Going forward, capital allocation priorities could include further increases to the Company’s dividend, share repurchases, disciplined growth capital spending, and/or further repayment of debt that would help in lowering net finance costs. Allocation decisions will be based on delivering value to Enerflex shareholders and measured against Enerflex’s ability to maintain balance sheet strength.

DIVIDEND DECLARATION

Enerflex is committed to paying a sustainable quarterly cash dividend to shareholders. The Board of Directors has declared a quarterly dividend of CAD$0.0375 per share, payable on January 16, 2025, to shareholders of record on November 26, 2024.

CONFERENCE CALL AND WEBCAST DETAILS

Investors, analysts, members of the media, and other interested parties, are invited to participate in a conference call and audio webcast on Thursday, November 14, 2024 at 8:00 a.m. (MDT), where members of senior management will discuss the Company’s results. A question-and-answer period will follow.

To participate, register at https://register.vevent.com/register/BI8422c47e8fb8449fb752892d24f2c1e6. Once registered, participants will receive the dial-in numbers and a unique PIN to enter the call. The audio webcast of the conference call will be available on the Enerflex website at www.enerflex.com under the Investors section or can be accessed directly at https://edge.media-server.com/mmc/p/y2vuep4e/.

NON-IFRS MEASURES

Throughout this news release and other materials disclosed by the Company, Enerflex employs certain measures to analyze its financial performance, financial position, and cash flows, including net debt-to-EBITDA ratio and bank-adjusted net debt-to-EBITDA ratio. These non-IFRS measures are not standardized financial measures under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Accordingly, non-IFRS measures should not be considered more meaningful than generally accepted accounting principles measures as indicators of Enerflex’s performance. Refer to “Non-IFRS Measures” of Enerflex’s MD&A for the three months ended September 30, 2024, for information which is incorporated by reference into this news release and can be accessed on Enerflex’s

 

   

 

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Q3/24 Earnings News Release 4 


website at www.enerflex.com and under the Company’s SEDAR+ and EDGAR profiles at www.sedarplus.ca and www.sec.gov/edgar, respectively.

ADJUSTED EBITDA

 

Three months ended

September 30, 2024

 

($ millions)

   Total     

North

America

    

Latin

America

     Eastern
Hemisphere
 

EBIT1

   $ 74      $ 49      $ 13      $ (7)  

Depreciation and amortization

     48        19        14        15   

EBITDA

     122        68        27        8  

Restructuring, transaction and integration costs

     2        1        -        1  

Share-based compensation

     5        3        2        -  

Impact of finance leases

           

Upfront gain

     -        -        -        -  

Principal repayments received

     10        -        1        9  

Gain on redemption options1

     (19)                             

Adjusted EBITDA

   $       120      $       72      $       30      $       18  

1 EBIT includes the gain on redemption options associated with the Notes and is considered a corporate adjustment, and therefore has not been allocated to a reporting segment.

 

Three months ended

September 30, 2023

 

($ millions)

   Total     

North

America

     Latin America     

Eastern

Hemisphere

 

EBIT

   $ 24      $ 32      $ (10)      $ 2   

Depreciation and amortization

     53        19        12        22  

EBITDA

     77        51        2        24  

Restructuring, transaction and integration costs

     4        2        1        1  

Share-based compensation

     -        -        -        -  

Impact of finance leases

           

Upfront gain

     -        -        -        -  

Principal repayments received

     9        -        -        9  

Adjusted EBITDA

   $       90      $      53      $        3      $        34  

Nine months ended

September 30, 2024

 

($ millions)

   Total     

North

America

     Latin America     

Eastern

Hemisphere

 

EBIT1

   $ 132      $ 132      $ 18      $ (37)  

Depreciation and amortization

     140        55        41        44   

EBITDA

     272        187        59        7  

Restructuring, transaction and integration costs

     13        6        4        3  

Share-based compensation

     13        8        3        2  

Impact of finance leases

           

Upfront gain

     (3)        -        -        (3)  

Principal repayments received

     35        -        1        34  

Gain on redemption options1

     (19)                             
         

Adjusted EBITDA

   $       311      $       201      $       67      $       43  

1 EBIT includes the gain on redemption options associated with the Notes and is considered a corporate adjustment, and therefore has not been allocated to a reporting segment.

 

   

 

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Q3/24 Earnings News Release 5 


Nine months ended

September 30, 2023

 

($ millions)

   Total     

North

America

     Latin America      Eastern
Hemisphere
 

EBIT

   $ 93      $ 80      $ (6)      $ 19   

Depreciation and amortization

     147        51        34        62  

EBITDA

     240        131        28        81  

Restructuring, transaction and integration costs

     26        8        5        13  

Share-based compensation

     7        5        1        1  

Impact of finance leases

           

Upfront gain

     (13)        -        -        (13)  

Principal repayments received

     27        -        1        26  

Adjusted EBITDA

   $       287      $       144      $       35      $       108  

FREE CASH FLOW

The Company defines free cash flow as cash provided by (used in) operating activities, less maintenance capital and PP&E expenditures, mandatory debt repayments, lease payments and dividends paid, with proceeds on disposals of PP&E and EI assets added back. Free cash flow does not consider growth capital expenditures and may not be comparable to similar measures presented by other companies as it does not have a standardized meaning under IFRS. The following tables reconciles free cash flow to the most directly comparable IFRS measure, cash provided by (used in) operating activities:

 

    

Three months ended

September 30,

    

Nine months ended

September 30,

 

($ millions)

   2024      2023      2024      2023  

Cash provided by operating activities before changes in working capital and other

   $ 63      $ 44      $ 144      $ 147   

Net change in working capital and other

     35        7        67        (99)  

Cash provided by (used in) operating activities

   $ 98      $ 51      $ 211      $ 48  

Less:

           

Maintenance capital and PP&E expenditures

     (14)        (10)        (32)        (32)  

Mandatory debt repayments

     -        (10)        (10)        (10)  

Lease payments

     (5)        (4)        (15)        (12)  

Dividends

     (2)        (2)        (7)        (7)  

Add:

           

Proceeds on disposals of PP&E and EI assets

     1        4        3        19  

Free cash flow

   $      78      $      29      $      150      $      6  

BANK-ADJUSTED NET DEBT-TO-EBITDA RATIO

The Company defines net debt as short- and long-term debt less cash and cash equivalents at period end, which is then divided by EBITDA for the trailing 12 months. In assessing whether the Company is compliant with the financial covenants related to its debt instruments, certain adjustments are made to net debt and EBITDA to determine

 

   

 

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Q2/24 Earnings News Release 6 


Enerflex’s bank-adjusted net debt-to-EBITDA ratio. These adjustments and Enerflex’s bank-adjusted net-debt-to EBITDA ratio are calculated in accordance with, and derived from, the Company’s financing agreements.

GROSS MARGIN BEFORE DEPRECIATION AND AMORTIZATION

Gross margin before depreciation and amortization is a non-IFRS measure defined as gross margin excluding the impact of depreciation and amortization. The historical costs of assets may differ if they were acquired through acquisition or constructed, resulting in differing depreciation. Gross margin before depreciation and amortization is useful to present operating performance of the business before the impact of depreciation and amortization that may not be comparable across assets.

ADVISORY REGARDING FORWARD-LOOKING INFORMATION

This news release contains “forward-looking information” within the meaning of applicable Canadian securities laws and “forward-looking statements” (and together with “forward-looking information”, “forward-looking information and statements”) within the meaning of the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking information and statements. The use of any of the words “future”, “continue”, “estimate”, “expect”, “may”, “will”, “could”, “believe”, “predict”, “potential”, “objective”, and similar expressions, are intended to identify forward-looking information and statements. In particular, this news release includes (without limitation) forward-looking information and statements pertaining to: expectations that growth spending in 2025 will remain below the long-term average; expectations that the Company will make further progress on lowering net finance costs and optimizing the Company’s debt stack and the timing associated therewith, if at all; disclosures under the heading “Outlook” including: (i) expectations that customer contracts which support the Energy Infrastructure product line will generate $1.6 billion of revenue during their current terms; (ii) expectations that a majority of the $1.3 billion backlog will convert to revenue over the next 12 months; (iii) in response to weakness in near-term natural gas prices combined with the anticipated overall mix of projects in Enerflex’s Engineered Systems backlog, expectations that the Engineered Systems gross margin before depreciation and amortization will be more consistent with the historical long-term average for this business line with near-term revenue expected to remain steady; (iv) expectations for capital spending in full-year 2024 to be $80 million to $90 million, which includes approximately $60 million for maintenance and PP&E capital expenditures; and (v) capital allocation priorities going forward could include increases to the Company’s dividend, share repurchases, additional growth spending, and/or further repayment of debt, if any, and the timing associated therewith, if at all; and the continuation by the Company of paying a sustainable quarterly cash dividend.

All forward-looking information and statements in this news release are subject to important risks, uncertainties, and assumptions, which may affect Enerflex’s operations, including, without limitation: the impact of economic conditions; the markets in which Enerflex’s products and services are used; general industry conditions; changes to, and introduction of new, governmental regulations, laws, and income taxes; increased competition; insufficient funds to support capital investments; availability of qualified personnel or management; political unrest and geopolitical conditions; and other factors, many of which are beyond the control of Enerflex. As a result of the foregoing, actual results, performance, or achievements of Enerflex could differ and such differences could be material from those expressed in, or implied by, these statements, including but not limited to: the ability of Enerflex to realize the anticipated benefits of, and synergies from, the acquisition of Exterran and the timing and quantum thereof; the interpretation and treatment of the transaction to acquire Exterran by applicable tax authorities; the ability to maintain desirable financial ratios; the ability to access various sources of debt and equity capital, generally, and on acceptable terms, if at all; the ability to utilize tax losses in the future; the ability to maintain relationships with partners and to successfully manage and operate the business; risks associated with technology and equipment, including potential cyberattacks; the occurrence and continuation of unexpected events such as pandemics, severe weather events, war, terrorist threats, and the instability resulting therefrom; risks associated with existing and potential future lawsuits, shareholder proposals, and regulatory actions; and those factors referred to under the heading “Risk Factors” in: (i) Enerflex’s Annual Information Form for the year ended December 31, 2023, (ii)

 

   

 

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Q2/24 Earnings News Release 7 


Enerflex’s management’s discussion and analysis for the year ended December 31, 2023, and (iii) Enerflex’s Management Information Circular dated March 15, 2024, each of the foregoing documents being accessible under the electronic profile of the Company on SEDAR+ and EDGAR at www.sedarplus.ca and www.sec.gov/edgar, respectively.

Readers are cautioned that the foregoing list of assumptions and risk factors should not be construed as exhaustive. The forward-looking information and statements included in this news release are made as of the date of this news release and are based on the information available to the Company at such time and, other than as required by law, Enerflex disclaims any intention or obligation to update or revise any forward-looking information and statements, whether as a result of new information, future events, or otherwise. This news release and its contents should not be construed, under any circumstances, as investment, tax, or legal advice.

The outlook provided in this news release is based on assumptions about future events, including economic conditions and proposed courses of action, based on Management’s assessment of the relevant information currently available. The outlook is based on the same assumptions and risk factors set forth above and is based on the Company’s historical results of operations. The outlook set forth in this news release was approved by Management and the Board of Directors. Management believes that the prospective financial information set forth in this news release has been prepared on a reasonable basis, reflecting Management’s best estimates and judgments, and represents the Company’s expected course of action in developing and executing its business strategy relating to its business operations. The prospective financial information set forth in this news release should not be relied on as necessarily indicative of future results. Actual results may vary, and such variance may be material.

ABOUT ENERFLEX

Enerflex is a premier integrated global provider of energy infrastructure and energy transition solutions, deploying natural gas, low-carbon, and treated water solutions – from individual, modularized products and services to integrated custom solutions. With over 4,600 engineers, manufacturers, technicians, and innovators, Enerflex is bound together by a shared vision: Transforming Energy for a Sustainable Future. The Company remains committed to the future of natural gas and the critical role it plays, while focused on sustainability offerings to support the energy transition and growing decarbonization efforts.

Enerflex’s common shares trade on the Toronto Stock Exchange under the symbol “EFX” and on the New York Stock Exchange under the symbol “EFXT”. For more information about Enerflex, visit www.enerflex.com.

For investor and media enquiries, contact:

Marc Rossiter

President and Chief Executive Officer

E-mail: MRossiter@enerflex.com

Preet S. Dhindsa

Senior Vice President and Chief Financial Officer

E-mail: PDhindsa@enerflex.com

Jeff Fetterly

Vice President, Corporate Development and Investor Relations

E-mail: JFetterly@enerflex.com

 

   

 

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Q2/24 Earnings News Release 8 

Exhibit 99.2

 

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Interim Condensed Consolidated Financial Statements

Interim Condensed Consolidated Statements of Financial Position (unaudited)

 

     ($ United States millions)    September 30, 2024    December 31, 2023      January 1, 20231  
 

Assets

       
 

Current assets

       
 

Cash and cash equivalents

   $ 95      $ 95      $ 187  
 

Short-term investments

     -       11        -  
 

Accounts receivable

     450       398        337  
 

Unbilled revenue2 (Note 2)

     150       174        138  
 

Inventories (Note 3)

     292       294        273   
 

Work-in-progress related to finance leases (Note 3)

     20       -        31  
 

Current portion of energy infrastructure (“EI”) assets - finance leases receivable (Note 4b)

     56       43        44  
 

Income taxes receivable

     4       3        8  
 

Derivative financial instruments (Note 10)

     -       -        1  
 

Prepayments

     55       58        53  
   

Assets held for sale

     -       7        -  
 

Total current assets

     1,122       1,083        1,072  
 

Unbilled revenue2 (Note 2)

     182       135        165  
 

Property, plant and equipment

     97       104        113  
 

EI assets – operating leases (Note 4a)

     717       864        914  
 

EI assets - finance leases receivable (Note 4b)

     198       161        173  
 

Lease right-of-use assets

     60       62        58  
 

Deferred tax assets

     24       21        16  
 

Intangible assets

     40       55        76  
 

Goodwill

     433       433        498  
   

Other assets (Note 5)

     54       40        59  
   

Total assets

   $        2,927     $        2,958      $        3,144  
 

Liabilities and Shareholders’ Equity

       
 

Current liabilities

       
 

Accounts payable and accrued liabilities

   $ 463     $ 424      $ 464  
 

Provisions (Note 6)

     37       20        14  
 

Income taxes payable

     81       56        55  
 

Deferred revenue

     341       297        270  
 

Current portion of long-term debt (Note 7)

     -       40        20  
 

Current portion of lease liabilities

     22       19        15  
 

Derivative financial instruments (Note 10)

     -       1        1  
 

Other current liabilities

     -       6        -  
   

Liabilities associated with assets held for sale

     -       5        -  
 

Total current liabilities

     944       868        839  
 

Deferred revenue

     21       22        25  
 

Long-term debt (Note 7)

     787       879        1,007  
 

Lease liabilities

     50       57        54  
 

Deferred tax liabilities

     52       65        65  
   

Other liabilities

     16       13        14  
   

Total liabilities

   $ 1,870     $ 1,904      $ 2,004  
 

Shareholders’ equity

       
 

Share capital

   $ 505     $ 504      $ 503  
 

Contributed surplus

     678       678        678  
 

Retained earnings

     68       58        151  
   

Accumulated other comprehensive loss

     (194)       (186)        (192)  
   

Total shareholders’ equity

     1,057       1,054        1,140  
   

Total liabilities and shareholders’ equity

   $ 2,927     $ 2,958      $ 3,144  

1 Effective January 1, 2024, the Company changed its presentation currency from Canadian dollars to United States dollars. Refer to Note 1(c) for more information.

2 Unbilled revenue was previously titled contract assets. There were no dollar amounts reclassified as a result of the change in name.

See accompanying notes to the unaudited interim condensed consolidated financial statements, including Note 12 “Guarantees, Commitments, and Contingencies”.

 

 

 

LOGO

   F-1  LOGO


 

Interim Condensed Consolidated Statements of Earnings and Other Comprehensive

 

Income (Loss) (unaudited)

 

         Three months ended September 30,     Nine months ended September 30,  
     ($ United States millions, except per share amounts)    2024     2023     2024     2023  
 

Revenue (Note 8)

   $ 601     $ 580     $ 1,853     $ 1,769  
   

Cost of goods sold

     460       470       1,489       1,431   
 

Gross margin

     141        110        364        338  
 

Selling, general and administrative expenses

     82       75       235       219  
   

Foreign exchange loss

     2       11       6       27  
 

Operating income

     57       24       123       92  
 

Equity earnings from associates and joint ventures

     -       -       -       1  
 

Loss on financial instruments

     (2)       -       (10)       -  
   

Gain on redemption options (Note 10)

     19       -       19       -  
 

Earnings before finance costs and income taxes (“EBIT”)

     74       24       132       93  
   

Net finance costs (Note 9)

     23       24       72       69  
 

Earnings before income taxes (“EBT”)

     51       -       60       24  
 

Current income taxes

     24       9       60       31  
   

Deferred income taxes

     (3)       (13)       (17)       (19)  
   

Income taxes

     21       (4)       43       12  
   

Net earnings

   $ 30     $ 4     $ 17     $ 12  
 

Other comprehensive income (loss)

        
 

Items that may be reclassified to profit or loss in subsequent periods:

        
 

Gain on derivatives designated as cash flow hedges transferred to net loss, net of income tax expense

     -       -       1       -  
 

Unrealized gain (loss) on translation of foreign-denominated debt

     8       (13)       (13)       2  
   

Unrealized gain (loss) on translation of financial statements of foreign operations

     (2)       4       4       (4)  
   

Other comprehensive income (loss)

     6       (9)       (8)       (2)  
   

Total comprehensive income (loss)

   $ 36     $ (5)     $ 9     $ 10  
 

Earnings per share – basic

   $ 0.24     $ 0.03     $ 0.14     $ 0.10  
 

Earnings per share – diluted

   $ 0.24     $ 0.03     $ 0.14     $ 0.10  
 

Weighted average number of shares outstanding – basic

     124,044,811       123,888,473       124,005,873       123,799,145  
   

Weighted average number of shares outstanding – diluted

       124,155,265         124,106,107         124,109,107         124,014,367  

See accompanying notes to the unaudited interim condensed consolidated financial statements.

 

 

 

LOGO  F-2 Interim Condensed Consolidated Financial Statements

  


 

 Interim Condensed Consolidated Statements of Cash Flows (unaudited)

 

         Three months ended September 30,     Nine months ended September 30,  
     ($ United States millions)    2024     2023     2024      2023  
 

Operating Activities

         
 

Net earnings

   $ 30      $ 4      $ 17       $ 12  
 

Items not requiring cash and cash equivalents:

         
 

Depreciation and amortization

     48       53       140        147   
 

Equity earnings from associates and joint ventures

     -       -       -        (1)  
 

Deferred income taxes recovery

     (3)       (13)       (17)        (19)  
 

Share-based compensation expense

           5       -             13              7  
 

Loss on financial instruments

     2       -       10        -  
 

Gain on redemption options (Note 10)

     (19)       -       (19)        -  
   

Impairment of EI assets (Note 4a)

     -       -       -        1  
       63       44       144        147  
   

Net change in working capital and other (Note 11)

     35             7       67        (99)  
   

Cash provided by operating activities

   $ 98     $ 51     $ 211      $ 48  
 

Investing Activities

         
 

Additions to:

         
 

Property, plant and equipment

     (4)       (4)       (11)        (11)  
 

EI assets (Note 4a)

     (12)       (16)       (32)        (78)  
 

Intangible assets

     -       -       (1)        (4)  
 

Proceeds on disposal of property, plant and equipment

     -       1       -        1  
 

Proceeds on disposal of EI assets (Note 4a)

     1       3       3        18  
 

Net proceeds (purchases) of financial instruments

     (2)       (6)       1        (6)  
   

Net change in working capital associated with investing activities

     2       (3)       1        (12)  
   

Cash used in investing activities

   $ (15)     $ (25)     $ (39)      $ (92)  
 

Financing Activities

         
 

Net drawings from (repayment of) the Revolving Credit Facility (Note 7)

   $ (107)     $ (19)     $ (17)      $ 13  
 

Repayment of the Term Loan (Note 7)

     -       (10)       (130)        (10)  
 

Lease liability principal repayment

     (5)       (4)       (15)        (12)  
 

Dividends

     (2)       (2)       (7)        (7)  
 

Stock option exercises

     -       1       1        1  
   

Deferred transaction costs

     -       (1)       (1)        (3)  
   

Cash used in financing activities

   $ (114)     $ (35)     $ (169)      $ (18)  
   

Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies

   $ -     $ (2)     $ (3)      $ (4)  
 

Decrease in cash and cash equivalents

     (31)       (11)       -        (66)  
   

Cash and cash equivalents, beginning of period

     126       132       95        187  
   

Cash and cash equivalents, end of period

   $ 95     $ 121     $ 95      $ 121  

See accompanying notes to the unaudited interim condensed consolidated financial statements.

 

 

 

LOGO

   F-3  LOGO


 

Interim Condensed Consolidated Statements of Changes in Equity (unaudited)

 

     ($ United States millions)    Share capital      Contributed
surplus
    

Retained

earnings

     Foreign currency
translation
adjustments
     Hedging reserve      Accumulated other
comprehensive
income
     Total  
 

At January 1, 2023

   $ 503      $ 678      $ 151      $ (191)      $ (1)      $ (192)      $ 1,140  
 

Net earnings

     -        -        12        -        -        -        12   
 

Other comprehensive loss

     -        -        -        (2)        -        (2)        (2)  
 

Effect of stock option plans

     1        -        -        -        -        -        1  
   

Dividends

     -        -        (7)        -        -        -        (7)  
   

At September 30, 2023

   $      504      $      678      $      156      $ (193)      $ (1)      $ (194)      $      1,144  
 

At January 1, 2024

   $ 504      $ 678      $ 58      $ (185)      $ (1)      $ (186)      $ 1,054  
 

Net earnings

     -        -        17        -        -        -        17  
 

Other comprehensive loss

     -        -        -        (9)        1        (8)        (8)  
 

Effect of stock option plans

     1        -        -        -        -        -        1  
   

Dividends

     -        -        (7)        -        -        -        (7)  
   

At September 30, 2024

   $ 505      $ 678      $ 68      $ (194)      $ -      $ (194)      $ 1,057  

See accompanying notes to the unaudited interim condensed consolidated financial statements.

 

 

 

LOGO  F-4 Interim Condensed Consolidated Financial Statements

  


LOGO

 

Notes to the Interim Condensed Consolidated

Financial Statements (unaudited)

(All amounts in millions of United States dollars, except per share amounts or as otherwise noted.)

Note 1. Summary of Material Accounting Policies

 

(a)

Statement of Compliance

These unaudited interim condensed consolidated financial statements (“Financial Statements”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements and were approved and authorized for issue by the Board of Directors (the “Board”) on November 13, 2024.

 

(b)

Basis of Presentation and Measurement

The Financial Statements for the three and nine months ended September 30, 2024 and 2023 were prepared in accordance with IAS 34 “Interim Financial Reporting” and do not include all the disclosures included in the annual consolidated financial statements for the year ended December 31, 2023. Accordingly, these Financial Statements should be read in conjunction with the annual consolidated financial statements. Certain comparative figures have been reclassified to conform to the current period’s presentation.

Preparation of these Financial Statements requires Management to make judgments, estimates and assumptions based on existing knowledge that affect the application of accounting policies and reported amounts and disclosures. Actual results could differ from these estimates and assumptions. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Enerflex Ltd. (the “Company”) changed its presentation currency of the Financial Statements from Canadian dollars (“CAD”) to United States dollars (“USD”). This change in accounting policy is detailed in the following section. The Financial Statements are rounded to the nearest million, except per share amounts or as otherwise noted, and are prepared on a going concern basis under the historical cost basis with certain financial assets and financial liabilities recorded at fair value. There have been no further significant changes in accounting policies compared to those described in the annual consolidated financial statements for the year-ended December 31, 2023.

 

(c)

Change in Accounting Policies

 

  i.

Change in Presentation Currency

Effective January 1, 2024, the Company changed its presentation currency from CAD to USD. The change will provide more relevant reporting of the Company’s financial position, given that a significant portion of the Company’s legal entities apply USD as its functional currency and a significant portion of the Company’s expenses, cash flows, assets, and revenues are denominated in USD. The change in presentation currency represents a voluntary change in accounting policy. The Company has applied the presentation currency change retrospectively, in accordance with the guidance in IAS 8 “Account Policies, Changes in Accounting Estimates and Errors”. All periods presented in the Financial Statements have been translated into the new presentation currency, in accordance with the guidance in IAS 21 “The Effects of Changes in Foreign Exchange Rates”.

The unaudited condensed interim consolidated statements of earnings and the unaudited condensed interim consolidated statements of cash flows have been translated into the presentation currency using the average exchange rates prevailing during each reporting period. In the unaudited condensed interim consolidated statements of financial position, all assets and liabilities have been translated using the period-end exchange rates, and all resulting exchange differences have been recognized in accumulated other comprehensive income. Shareholders’ equity balances have been translated using historical rates in effect on the date of the transactions.

 

 

 

LOGO  F-5 Notes to the Interim Condensed Consolidated Financial Statements


 

The functional currency of the parent Company and all its subsidiaries remain the same and will not be impacted by the presentation currency change. The functional currency of the parent Company is CAD and functional currency of most of its subsidiaries is USD.

The change in presentation currency resulted in the following impact on January 1, 2023, opening consolidated statement of financial position:

 

     

 Previously reported in

CAD

January 1, 2023

    

 Presentation currency

change

    

  Reported in USD 

January 1, 2023 

 

 Total assets

   $ 4,258      $ (1,114)      $ 3,144   

 Total liabilities

     2,715        (711)        2,004   

 Total shareholders’ equity

     1,543        (403)        1,140   

The change in presentation currency resulted in the following impact on the December 31, 2023, consolidated statement of financial position:

 

     

 Previously reported in

CAD

December 31, 2023

    

 Presentation currency

change

     Reported in USD 
 December 31, 2023 
 

 Total assets

   $ 3,912      $ (954)      $ 2,958   

 Total liabilities

     2,518        (614)        1,904   

 Total shareholders’ equity

     1,394        (340)        1,054   

The change in presentation currency resulted in the following impact on the three and nine months ended September 30, 2023, consolidated statements of earnings and comprehensive income:

 

 Three months ended September 30,   

 Previously reported in

CAD

2023

    

 Presentation currency

change

    

  Reported in USD 

2023 

 

 Net earnings

   $ 6      $ (2)      $ 4   

 Comprehensive income

     26        (31)        (5)   

 

Nine months ended September 30,   

 Previously reported in

CAD

2023

    

 Presentation currency

change

    

  Reported in USD 

2023 

 

Net earnings

   $ 16      $ (4)      $ 12   

Comprehensive income

     12        (2)        10   

The change in presentation currency resulted in the following impact on the three and nine months ended September 30, 2023, consolidated statements of cash flows:

 

 Three months ended September 30,   

 Previously reported in

CAD

2023

    

 Presentation currency

change

    

  Reported in USD 

2023 

 

 Cash provided by (used in):

        

  Operating activities

   $ 71      $ (20)      $ 51   

  Investing activities

     (30)        5        (25)   

  Financing activities

     (50)        15        (35)   

 

 Nine months ended September 30,   

 Previously reported in

CAD

2023

    

 Presentation currency

change

    

  Reported in USD 

2023 

 

 Cash provided by (used in):

        

  Operating activities

   $ 64      $ (16)      $ 48   

  Investing activities

     (121)        29        (92)   

  Financing activities

     (26)        8        (18)   

 

 

 

LOGO  F-6 Notes to the Interim Condensed Consolidated Financial Statements

  


 

The change in presentation currency resulted in the following impact on the three and nine months ended September 30, 2023, basic and diluted earnings per share:

 

 Three months ended September 30,   

 Previously reported in

CAD

2023

      Presentation currency
change
    

  Reported in USD 

2023 

 

 Earnings per share - basic

   $ 0.05      $ (0.02)      $ 0.03   

 Earnings per share - diluted

     0.05        (0.02)        0.03   

 

 Nine months ended September 30,   

 Previously reported in

CAD

2023

    

 Presentation currency

change

    

  Reported in USD 

2023 

 

 Earnings per share - basic

   $ 0.13      $ (0.03)      $ 0.10   

 Earnings per share - diluted

     0.13        (0.03)        0.10   

 

  ii.

Amendments to Current Accounting Policies

 

  a.

IAS 1 Presentation of Financial Statements (“IAS 1”)

In October 2022, the IASB issued amendments to clarify that the classification of liabilities as current or non-current is based solely on a company’s right to defer settlement for at least twelve months at the reporting date. The right needs to exist at the reporting date and must have substance. In addition to the amendment from January 2020 where the IASB issued amendments to IAS 1, to provide a more general approach to the presentation of liabilities as current or non-current, only covenants with which a company must comply on or before the reporting date may affect this right. Covenants to be complied with after the reporting date do not affect the classification of a liability as current or non-current at the reporting date. However, disclosure about covenants is required to help users understand the risk that those liabilities could become repayable within 12 months after the reporting date.

 

  b.

IFRS 16 Leases (“IFRS 16”)

In September 2022, the IASB issued amendments to IFRS 16 that add subsequent measurement requirements for lease liabilities arising from sale and leaseback transactions for seller-lessees. The amendment does not prescribe specific measurement requirements for lease liabilities but measures the lease liability in a way that it does not recognise any amount of the gain or loss that relates to the right of use retained.

These amendments are effective for annual periods beginning on or after January 1, 2024, and the Company adopted these amendments as of January 1, 2024. There were no adjustments that resulted from the adoption of these amendments on January 1, 2024.

 

 

 

LOGO

   F-7  LOGO


 

  iii.

Standards Recently Issued, but not yet Effective

 

  a.

IFRS 18 Presentation and Disclosure in Financial Statements (“IFRS 18”)

On April 9, 2024, the IASB issued IFRS 18, the new standards on presentation and disclosure in financial statements. IFRS 18 will require defined subtotals in the Consolidated Statements of Earnings (Loss), require disclosure of management-defined performance measures (“MPM”), provide principles for the aggregation and disaggregation of information, and improve comparability across entities and reporting periods.

IFRS 18 will replace IAS 1 and retains many of the existing principals in IAS 1. IFRS 18 will be effective for years beginning on or after January 1, 2027, with earlier application permitted. Retrospective application is required. The Company is currently evaluating the impact of adopting IFRS 18 on the consolidated financial statements.

 

 

Consequential amendments to other accounting standards

 

 

IAS 7 Statement of Cash Flows (“IAS 7”)

Narrow-scope amendments have been made to IAS 7, which include changing the starting point for determining cash flows from operations under the indirect method from ‘profit or loss’ to ‘operating profit or loss’. The optionality around classification of cash flows from dividends and interest in the statement of cash flows has also largely been removed.

 

 

IAS 33 Earnings per Share (“IAS 33”)

IAS 33 has been amended to include additional requirements that permit entities to disclose additional amounts per share, only if the numerator used in the calculation is an amount attributed to ordinary equity holders of the parent entity and a total or subtotal identified by IFRS 18, or MPM as defined by IFRS 18.

 

  b.

IFRS 9 Financial Instruments (“IFRS 9”) and IFRS 7 Financial Instruments: Disclosures (“IFRS 7”)

In May 2024, the IASB issued amendments to IFRS 9 and IFRS 7 to clarify financial assets and financial liabilities are recognized and derecognized at settlement date except for regular way purchases or sales of financial assets and financial liabilities meeting conditions for new exception. The new exception permits companies to elect to derecognize certain financial liabilities settled via electronic payment systems earlier than the settlement date.

They also provide guidelines to assess contractual cash flow characteristics of financial assets, which apply to all contingent cash flows, including those arising from environmental, social, and governance (ESG)-linked features.

Additionally, these amendments introduce new disclosure requirements and update others.

The amendments will be effective for years beginning on or after January 1, 2026, with earlier adoption permitted. The Company is currently evaluating the impact of adopting the amendments to IFRS 9 and IFRS 7 on its consolidated financial statements.

 

 

 

LOGO  F-8 Notes to the Interim Condensed Consolidated Financial Statements

  


 

Note 2. Unbilled Revenue

A reconciliation of the changes in unbilled revenue was as follows:

 

           September 30, 2024      December 31, 2023   
 

Opening balance

   $          309      $ 303   
 

Unbilled revenue recognized

     710               1,011  
 

Amounts billed

     (686)       (1,004)  
   

Currency translation effects

     (1)       (1)  
   

Closing balance

   $ 332     $ 309  
 

Current unbilled revenue

   $ 150     $ 174  
   

Non-current unbilled revenue

     182       135  
   

Total unbilled revenue

   $ 332     $ 309  

Amounts recognized as current unbilled revenue are typically billed to customers within twelve months and amounts recognized as non-current unbilled revenue will be billed to customers more than twelve months from the date of the balance sheet.

During the second quarter of 2024, Enerflex suspended activity at a modularized cryogenic natural gas processing facility in Kurdistan (the “EH Cryo project”), provided its customer with notice of Force Majeure and demobilized its personnel. The ultimate duration of the Force Majeure declaration and impact of the suspension on the EH Cryo project remains indeterminable. During the third quarter of 2024, and as previously announced, Enerflex received notice from its customer purporting to terminate the EH Cryo project contract. Enerflex is disputing such wrongful purported termination and protecting its position in respect of the EH Cryo project.

The unbilled revenue associated with the EH Cryo project is $178 million and is included in non-current unbilled revenue. The Company also recorded an onerous contract provision of $17 million, resulting in a net position of $161 million. Management has made estimates and assumptions surrounding the customer’s purported contract termination, the expected proceeds and profitability of the EH Cryo project contract, the estimated degree of completion based on cost progression and other factors that impact the amount of revenue recognized for the project. Although these factors are routinely reviewed as part of the project management process, changes in these estimates or assumptions could lead to changes in the revenues recognized.

Since inception of the project, Enerflex has maintained a $31 million Letter of Credit in support of its obligation under the EH Cryo project contract. Enerflex would view any drawing of the financial security in the prevailing circumstances as improper and would be considered as an additional receivable owed by the customer.

Management continues to assess the status of the EH Cryo project and its impact on the Financial Statements.

 

 

 

LOGO

   F-9  LOGO


 

Note 3. Inventories

Inventories consisted of the following:

 

           September 30, 2024     December 31, 2023      January 1, 2023   
 

Direct materials

   $ 99     $ 70      $ 79   
 

Repair and distribution parts

     106        115        101   
 

Work-in-progress

     77       90        73   
   

Equipment

               10                 19                 20   
   

Total inventories

   $ 292     $ 294      $ 273   

 

           September 30, 2024     December 31, 2023      January 1, 2023   
   

Work-in-progress related to finance leases

   $           20      $            -      $          31   

The amount of inventory and overhead costs recognized as an expense and included in cost of goods sold (“COGS”) during the three and nine months ended September 30, 2024, was $460 million and $1,489 million (September 30, 2023 – $470 million and $1,431 million). COGS is made up of direct materials, direct labour, depreciation on manufacturing assets, post-manufacturing expenses, and overhead. COGS also includes inventory write-downs pertaining to obsolescence and aging, and recoveries of past write-downs upon disposition. The net change in inventory reserves charged to the interim condensed consolidated statements of earnings and included in COGS for the three and nine months ended September 30, 2024, was less than $1 million and $1 million (September 30, 2023 – less than $1 million and $4 million).

The costs related to the construction of EI assets determined to be finance leases are accounted for as work-in-progress related to finance leases. Once a project is completed and enters service it is reclassified to COGS. During the three and nine months ended September 30, 2024, the Company invested $17 million and $20 million related to finance leases.

Note 4. Energy Infrastructure Assets

The Company’s EI assets are Energy Infrastructure assets comprised of Build-Own-Operate-Maintain (“BOOM”) assets, and contract compression assets which are leased to customers. At the inception of a lease contract, all leases are classified as either an operating lease or a finance lease.

 

(a)

EI Assets – Operating Leases

EI assets under lease arrangements that are classified and accounted for as operating leases under the definition of IFRS 16 are stated at cost less accumulated depreciation and impairment losses.

A reconciliation of the changes in the carrying amount of EI assets was as follows:

 

           September 30, 2024     December 31, 2023   
 

Cost

    
 

Balance, January 1

   $          1,142      $         1,129   
 

Additions

     32       90   
 

Disposals1

     (117)       (70)   
   

Currency translation effects

     (12)       (7)   
   

Total cost

   $ 1,045     $ 1,142   
 

Accumulated depreciation

    
 

Balance, January 1

   $ (278)     $ (215)   
 

Depreciation charge

     (85)       (127)   
 

Impairment

     -       (1)   
 

Disposals1

     26       53   
   

Currency translation effects

     9       12   
   

Total accumulated depreciation

   $ (328)     $ (278)   
   

Net book value

   $ 717     $ 864   

1 During the three months ended March 31, 2024, disposals include the conversion of a BOOM asset, which was previously accounted for as an operating lease, to a finance lease as a result of a contract modification.

 

 

 

LOGO  F-10 Notes to the Interim Condensed Consolidated Financial Statements

  


 

During the three and nine months ended September 30, 2024, the Company recognized $59 million and $170 million of revenue related to operating leases in its Latin America (“LATAM”) and Eastern Hemisphere (“EH”) segments (September 30, 2023 – $58 million and $173 million), and $36 million and $107 million of revenue related to its North America (“NAM”) contract compression fleet (September 30, 2023 – $32 million and $91 million).

 

(b)

EI Assets - Finance Leases

Lease arrangements for certain EI assets are considered finance leases when the risks and rewards of ownership are transferred to the lessee, which generally occurs if ownership of the lease is transferred to the lessee by the end of the lease term; the lessee has the option to purchase the leased asset at a price that is sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception date, that option will be exercised; the term of the lease is for the major part of the economic life of the asset; or the present value of the lease payments amounts to substantially all of the fair value of the asset.

The Company has entered into finance lease arrangements for certain of its EI assets, with initial terms ranging from 5 to 10 years.

The value of the finance leases receivable were comprised of the following:

 

         Minimum lease payments and unguaranteed residual
value
   

Present value of minimum lease payments and 

unguaranteed residual value 

 
           September 30,
2024
    December 31,
2023
     January 1,
2023
   

September 30,

2024

    December 31,
2023
     January 1, 
2023 
 
 

Less than one year

   $ 57     $ 46      $ 54     $ 56     $ 43      $ 44   
 

Between one and five years

           192              129            145              150              106            110   
   

Later than five years

     63       90        107       48       55        63   
     $ 312     $ 265      $ 306     $ 254     $ 204      $ 217   
   

Less: Unearned interest revenue

     (58)       (61)        (89)       -       -        -   
   

Closing balance

   $ 254     $ 204      $ 217     $ 254     $ 204      $ 217   

 

           September 30, 2024      December 31, 2023   
 

Opening balance

   $ 204      $ 217   
 

Additions1

               87                 48   
 

Interest revenue

     17        23   
 

Payments (principal and interest)

     (52)        (59)   
 

Derecognition on disposal

     -        (24)   
 

Other

     (2)        (2)   
   

Currency translation effects

     -        1   
   

Closing balance

   $ 254      $ 204   

1 During the three months ended March 31, 2024, additions included the conversion of a BOOM asset, which was previously accounted for as an operating lease, to a finance lease as a result of a contract modification.

The Company recognized non-cash selling profit related to the commencement of finance leases of nil and $3 million for the three and nine months ended September 30, 2024 (September 30, 2023 – nil and $13 million). Additionally, the Company recognized $6 million and $17 million of interest revenue on finance leases receivable during the three and nine months ended September 30, 2024 (September 30, 2023 – $6 million and $18 million). Total cash received in respect of finance leases during the three and nine months ended September 30, 2024, was $16 million and $52 million (September 30, 2023 – $15 million and $45 million), as reflected in principal and interest payments.

 

 

 

LOGO

   F-11  LOGO


 

The average interest rates implicit in the leases are fixed at the contract date for the entire lease term. At September 30, 2024, the average interest rate was 7.9 percent per annum (December 31, 2023 – 8.6 percent). The finance leases receivables at the end of reporting period are neither past due nor impaired.

 

 

 

LOGO  F-12 Notes to the Interim Condensed Consolidated Financial Statements

  


 

Note 5. Other Assets

Other assets were comprised of the following:

 

           September 30, 2024     December 31, 2023      January 1, 2023   
 

Investment in associates and joint ventures

   $           28     $          28      $         25   
 

Redemption options1

     19        -        -   
 

Prepaid deposits

     7       12        9   
   

Long-term receivables

     -       -        25   
   

Total other assets

   $ 54     $ 40      $ 59   

1 The Company’s senior secured notes contain optional redemption features that allow Enerflex to redeem the notes prior to maturity at a premium. Refer to Note 7 “Long-Term Debt” for more information.

Note 6. Provisions

Provisions were comprised of the following:

 

           September 30, 2024     December 31, 2023      January 1, 2023   
 

Onerous contracts

   $           17     $ -      $ -   
 

Warranties

     14                 11                10   
 

Restructuring

     6       7        1   
   

Legal

     -       2        3   
   

Total provisions

   $ 37     $ 20      $ 14   

A reconciliation of the changes in provisions was as follows:

 

     September 30, 2024   

Onerous

Contracts

     Warranties      Restructuring      Legal      Total   
 

Opening balance

   $ -      $ 11      $ 7      $ 2      $ 20   
 

Additions during the year

             19                 8                 -                 -                27   
 

Amounts settled and released in the year

     (2)        (5)        (1)        -        (8)   
   

Reversal

     -        -        -        (2)        (2)   
   

Closing balance

   $ 17      $ 14      $ 6      $ -      $ 37   
                
     December 31, 2023   

Onerous

Contracts

     Warranties      Restructuring      Legal      Total   
 

Opening balance

   $ -      $ 10      $ 1      $ 3      $ 14   
 

Additions during the year

     -        7        6        -        13   
   

Amounts settled and released in the year

     -        (6)        -        (1)        (7)   
   

Closing balance

   $ -      $ 11      $ 7      $ 2      $ 20   

 

 

 

LOGO

   F-13  LOGO


 

Note 7. Long-Term Debt

The secured revolving credit facility (“RCF”), which was extended during the three months ended June 30, 2024, has a maturity date of October 13, 2026 (the “Maturity Date”). Availability under the RCF increased to $800 million from $700 million and may be increased by $50 million at the request of the Company, subject to the lenders’ consent. The Maturity Date of the RCF may be extended annually on or before the anniversary date with the consent of the lenders. In conjunction with the extension of the RCF, the Company repaid its secured term loan (“Term Loan”) which had a balance of $120 million at March 31, 2024. The senior secured notes (the “Notes”) consist of $625 million principal amount, bears interest of 9.0 percent, and has a maturity of October 15, 2027.

As part of the RCF, the Company can request the issuance of up to $150 million in letters of guarantee, standby letters of credit, performance bonds, counter guarantees, import documentary credits, country standby letters of credit or similar credits to finance the day-to-day operations of the Company. As at September 30, 2024, the Company utilized $87 million of the $150 million limit. The Company also has an additional $70 million unsecured credit facility (“LC Facility”) with one of the lenders in its RCF. This LC Facility allows the Company to request the same forms of credits as under the RCF. This LC Facility is supported by performance security guarantees provided by Export Development Canada. As at September 30, 2024, the Company utilized $29 million of the $70 million limit.

The Company is required to maintain certain covenants on the RCF and the Notes. As at September 30, 2024, the Company was in compliance with its covenants.

Composition of the borrowings on the Notes, RCF and Term Loan were as follows:

 

           Maturity Date       September 30, 2024     December 31, 2023      January 1, 2023   
 

Notes

     October 15, 2027       $ 625     $ 625      $ 625   
 

Drawings on the RCF

     October 13, 2026         220       238        338   
   

Drawings on the Term Loan

              -                130                150   
                   845        993        1,113   
   

Deferred transaction costs and Notes discount

 

     (58)       (74)        (86)   
   

Long-term debt

            $ 787     $ 919      $ 1,027   
            
 

Current portion of long-term debt

 

   $ -     $ 40      $ 20   
   

Non-current portion of long-term debt

 

     787       879        1,007   
   

Long-term debt

            $ 787     $ 919      $ 1,027   

Subsequent to September 30, 2024, the Company issued a notice of partial redemption for $62.5 million of its Notes, refer to Note 15 “Subsequent Events” for more information.

The weighted average interest rate on the RCF for the nine months ended September 30, 2024, was 7.6 percent (December 31, 2023 – 7.7 percent, January 1, 2023 – 7.0 percent). At September 30, 2024, without considering renewal at similar terms, the USD equivalent principal payments due over the next five years are $845 million, and nil thereafter.

Redemption Options

The Company’s Notes contain optional redemption features that allow the Company to redeem all or part of the Notes at prices set forth in the Notes agreement at a premium, following certain dates specified in the Notes agreement. These redemption features constitute embedded derivatives that are required to be separated from the Notes and measured at fair value.

The embedded derivative components of these hybrid financial instruments are measured at fair value at each reporting date with gains or losses in fair value recognized through profit or loss. The decline in risk-free rates has resulted in a significant increase to the value of the redemption options, and accordingly, the Company has recognized an embedded derivative asset of $19 million as at September 30, 2024 (December 31, 2023 - nil) related to these redemption options.

 

 

 

LOGO  F-14 Notes to the Interim Condensed Consolidated Financial Statements

  


 

Note 8. Revenue

Revenue by product line were as follows:

 

         Three months ended September 30,     Nine months ended September 30,   
           2024     2023     2024     2023   
 

Energy Infrastructure

   $ 149     $ 141     $ 519     $ 423   
 

After-market Services

           123              123              371              351   
   

Engineered Systems

     329       316       963       995   
   

Total revenue

   $ 601     $ 580     $ 1,853     $ 1,769   

Revenue by geographic location, which is attributed to destination of sale, were as follows:

 

         Three months ended September 30,     Nine months ended September 30,   
           2024     2023     2024     2023   
 

United States

   $        268      $        256      $       825      $       735   
 

Oman

     33       46       190       119   
 

Canada

     53       68       178       186   
 

Argentina

     51       39       127       124   
 

Nigeria

     45       43       109       156   
 

Mexico

     19       14       50       43   
 

Australia

     16       16       49       48   
 

Brazil

     13       18       44       61   
 

Peru

     23       2       42       3   
 

Bahrain

     11       12       32       81   
 

Iraq

     7       34       31       116   
 

Thailand

     7       7       30       23   
 

Colombia

     3       5       20       11   
   

Others

     52       20       126       63   
   

Total revenue

   $ 601     $ 580     $ 1,853     $ 1,769   

The following table outlines the Company’s unsatisfied performance obligations, by product line, as at September 30, 2024:

 

     

Less than

one year

    

One to two

years

    

Greater than

two years

     Total   

 Energy Infrastructure

   $ 445      $ 348      $ 808      $ 1,601   

 After-market Services

     74        43        68        185   

 Engineered Systems

     1,135        121        15        1,271   

 Total

   $       1,654      $         512      $         891      $       3,057   

 

 

 

LOGO

   F-15  LOGO


 

Note 9. Finance Costs and Income

Net finance costs were comprised of the following:

 

         Three months ended September 30,     Nine months ended September 30,   
           2024     2023     2024     2023   
 

Finance Costs

        
 

Interest on debt

   $        21      $        26      $        66      $        78   
 

Accretion of Notes discount

     2       1       6       5   
 

Lease interest expense

     1       1       3       3   
   

Other interest expense

     -       2       1       4   
   

Total finance costs

   $ 24     $ 30     $ 76     $ 90   
          
 

Finance Income

        
   

Interest income

     1       6       4       21   
   

Net finance costs

     23       24       72       69   

Note 10. Financial Instruments

Designation and Valuation of Financial Instruments

Financial instruments at September 30, 2024, were designated in the same manner as they were at December 31, 2023. Accordingly, with the exception of the Notes, the estimated fair values of financial instruments approximated their carrying values. The carrying value and estimated fair value of the Notes as at September 30, 2024, was $625 million and $687 million, respectively (December 31, 2023 - $625 million and $622 million, January 1, 2023 – $625 million and $642 million, respectively). The fair value of these Notes at September 30, 2024, was determined on a discounted cash flow basis with a weighted average discount rate of 7.0 percent (December 31, 2023 – 9.0 percent, January 1, 2023 – 9.0 percent).

The Company previously held preferred shares that were initially recorded at fair value and subsequently measured at amortized cost and recognized as long-term receivables in Other assets. During the three months ended March 31, 2023, the Company redeemed these preferred shares and recognized a gain in excess of the carrying value, which is included in the interim condensed consolidated statements of earnings. The carrying value and estimated fair value of the preferred shares at December 31, 2023, was nil (January 1, 2023 – $21 million and $21 million), respectively.

Derivative Financial Instruments and Hedge Accounting

Foreign exchange contracts are transacted with financial institutions to hedge foreign currency denominated obligations and cash receipts related to purchases of inventory and sales of products.

The following table summarizes the Company’s commitments to buy and sell foreign currencies as at September 30, 2024:

 

              Notional amount      Maturity 

 Canadian Dollar Denominated Contracts

 Purchase contracts

     USD         $           21      October 2024 – May 2025 

 Sales contracts

     USD           (18)      October 2024 – December 2025 

At September 30, 2024, the fair value of derivative financial instruments classified as financial assets was less than $1 million, and as financial liabilities was less than $1 million (December 31, 2023 – less than $1 million and $1 million, January 1, 2023 - $1 million and $1 million, respectively).

 

 

 

LOGO  F-16 Notes to the Interim Condensed Consolidated Financial Statements

  


 

Redemption Options

During the three months ended September 30, 2024, the Company recognized embedded derivatives related to the redemption options of its Notes, refer to Note 7 “Long-Term Debt” for more information. The Company measures these embedded derivatives at fair value and the gain or losses that result from periodic revaluation are recorded through profit or loss.

The fair value of these redemption options are determined using a valuation model based on inputs from observable market data, including independent price publications and third-party pricing services, which are considered Level 2 inputs. Refer to Note 3 “Summary of Material Accounting Policies” of the Company’s annual consolidated financial statements for the year ended December 31, 2023, for more information on the fair value hierarchy. The fair value of the embedded derivatives was $19 million as at September 30, 2024 (December 31, 2023 - nil, January 1, 2023 - nil), which is included in Other assets on the interim condensed consolidated statements of financial position.

Foreign Currency Translation Exposure

The Company is subject to foreign currency translation exposure, primarily due to fluctuations of the USD against the CAD, Australian dollar (“AUD”), and Brazilian real (“BRL”). Enerflex uses foreign currency borrowings to hedge against the exposure that arises from foreign subsidiaries that are translated to the Canadian dollar through a net investment hedge. As a result, foreign exchange gains and losses on the translation of $652 million in designated foreign currency borrowings are included in accumulated other comprehensive loss for September 30, 2024. The functional currencies for all entities remain the same. Refer to Note 1(c) “Change in Accounting Policies” for further details. The following table shows the sensitivity to a five percent weakening of the USD against the CAD, AUD, and BRL.

 

US dollar weakens by five percent    CAD      AUD      BRL   

 Earnings from foreign operations

        

  EBT

   $ (3)      $ -      $ -   

 Financial instruments held in foreign operations

        

  Other comprehensive income (loss)

   $        33      $        -      $        1   

 Financial instruments held in Canadian operations

        

  EBT

   $ 3      $ -      $ -   

The movement in EBT in Canadian operations is a result of a change in the fair values of financial instruments. The majority of these financial instruments are hedged.

With the ongoing devaluation of the Argentine peso (“ARS”), caused by high inflation, the Company is at risk for foreign exchange losses on its cash balances denominated in ARS. During the three and nine months ended September 30, 2024, the Company had foreign exchange losses in Argentina of $1 million and $4 million. If the ARS weakens by five percent, the Company could experience additional foreign exchange losses of approximately less than $1 million. There is a risk of higher losses based on the further devaluation of the ARS. The Company continues to explore its options to minimize the impact of future devaluation.

Interest Rate Risk

The Company’s liabilities include long-term debt that is subject to fluctuations in interest rates. The Company’s Notes outstanding at September 30, 2024, have a fixed interest rate and therefore the related interest expense will not be impacted by fluctuations in interest rates. Conversely, the Company’s RCF is subject to changes in market interest rates.

For each one percent change in the rate of interest on the RCF, the change in annual interest expense would be $2 million. All interest charges are recorded in the interim condensed consolidated statements of earnings as finance costs.

 

 

 

LOGO

   F-17  LOGO


 

Liquidity Risk

Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations associated with financial liabilities. In managing liquidity risk, the Company has access to a significant portion of its RCF for future drawings to meet the Company’s requirements for investments in working capital and capital assets.

 

           September 30, 2024   
 

Cash and cash equivalents

   $ 95   
 

Total RCF

     800   
 

Less:

  
 

Drawings on the RCF

     220   
   

Letters of Credit1

     87   
   

Available for future drawings

   $         588   

1 This represents the letters of credit that the Company has funded with the RCF. Additional letters of credit of $29 million are funded from the $70 million LC Facility. Refer to Note 7 “Long-Term Debt” for more information.

The Company continues to meet the covenant requirements of its funded debt, including the RCF and Notes. The senior secured net funded debt, which is comprised of the RCF to EBITDA ratio was 0.3:1, compared to a maximum ratio of 2.5:1, the net funded debt to EBITDA (“bank-adjusted net debt to EBITDA”) ratio was 1.9:1, compared to a maximum ratio of 4.0:1, and an interest coverage ratio was 4.2:1 compared to a minimum ratio of 2.5:1. The interest coverage ratio is calculated by dividing the trailing 12-month EBITDA, as defined by the Company’s lenders, by interest expense over the same timeframe.

A liquidity analysis of the Company’s financial instruments has been completed on a maturity basis. The following table outlines the cash flows, including interest associated with the maturity of the Company’s financial liabilities, as at September 30, 2024:

 

      Less than 3
months
     3 months to
1 year
     Greater than
1 year
     Total   

 Accounts payable and accrued liabilities

     463        -        -        463   

 Long-term debt – Notes

     -        -        625        625   

 Long-term debt – RCF

     -        -            220            220   

 Other long-term liabilities

     -        -        16        16   

The Company expects that cash flows from operations in 2024, together with cash and cash equivalents on hand and the RCF, will be more than sufficient to fund its requirements for investments in working capital and capital assets.

 

 

 

LOGO  F-18 Notes to the Interim Condensed Consolidated Financial Statements

  


 

Note 11. Supplemental Cash Flow Information

Changes in working capital and other during the period:

 

         Three months ended September 30,     Nine months ended September 30,  
           2024     2023     2024     2023  
 

Accounts receivable1

   $ (60)     $ (17)     $ (52)     $ (25)  
 

Unbilled revenue

     44       20       (23)       (29)  
 

Inventories

     7       -       2       (36)  
 

Work-in-progress related to finance leases

     (17)       -       (20)       31  
 

EI assets - finance leases

           10              12              36        (20)  
 

Income taxes receivable

     1       2       (1)       3  
 

Prepayments

     (4)       (3)       3       7  
 

Net assets held for sale

     -       -       2       -  
 

Long-term receivables related to preferred shares

     -       -       -             21   
 

Accounts payable and accrued liabilities and provisions2

     35       (3)       55       (5)  
 

Income taxes payable

     11       (5)       25       12  
 

Deferred revenue

     9       (5)       50       (49)  
 

Other current liabilities

     -       -       (6)       -  
   

Foreign currency and other

     (1)       6       (4)       (9)  
   

Net change in working capital and other

   $ 35     $ 7     $ 67     $ (99)  

1 The change in accounts receivable represents only the portion relating to operating activities.

2 The change in accounts payable and accrued liabilities and provisions represents only the portion relating to operating activities.

Cash interest and taxes paid and received during the period:

 

         Three months ended September 30,     Nine months ended September 30,  
           2024     2023     2024     2023  
 

Interest paid – short- and long-term borrowings

   $ 7     $ 14     $ 52     $ 66  
   

Interest paid – lease liabilities

     1       1       3       3  
 

Total interest paid

   $ 8     $ 15     $