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

CALGARY, Alberta, Nov. 14, 2024 (GLOBE NEWSWIRE) -- 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.
  • 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.
  • EI and After-Market Services ("AMS”) product lines generated 65% of consolidated gross margin before depreciation and amortization during Q3/24.
  • 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.
  • 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.
  • 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.

• 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.

"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.

SUMMARY RESULTS

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.

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 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