Enerflex(EFXT) - 2025 Q1 - Quarterly Report

Interim Condensed Consolidated Financial Statements Interim Condensed Consolidated Statements of Financial Position Total assets decreased slightly to $2,758 million at March 31, 2025, from $2,791 million, while total liabilities decreased, leading to an increase in total shareholders' equity | Metric | March 31, 2025 ($M) | December 31, 2024 ($M) | Change ($M) | Change (%) | | :-------------------------- | :-------------------- | :--------------------- | :---------- | :--------- | | Total Assets | 2,758 | 2,791 | (33) | -1.18% | | Total Liabilities | 1,683 | 1,742 | (59) | -3.39% | | Total Shareholders' Equity | 1,075 | 1,049 | 26 | 2.48% | | Cash and cash equivalents | 75 | 92 | (17) | -18.48% | | Accounts receivable | 378 | 398 | (20) | -5.03% | | Inventories | 269 | 258 | 11 | 4.26% | | Long-term debt | 639 | 708 | (69) | -9.75% | | Deferred revenue (current) | 401 | 375 | 26 | 6.93% | Interim Condensed Consolidated Statements of Earnings (Loss) and Other Comprehensive Income (Loss) The company achieved a significant turnaround to net earnings of $24 million in Q1 2025 from a $18 million loss in Q1 2024, driven by higher gross margin and reduced SG&A expenses despite decreased revenue | Metric | Three months ended March 31, 2025 ($M) | Three months ended March 31, 2024 ($M) | Change ($M) | Change (%) | | :----------------------------------- | :------------------------------------- | :------------------------------------- | :---------- | :--------- | | Revenue | 552 | 638 | (86) | -13.48% | | Cost of goods sold ("COGS") | 424 | 551 | (127) | -23.05% | | Gross margin | 128 | 87 | 41 | 47.13% | | Selling, general and administrative expenses ("SG&A") | 57 | 78 | (21) | -26.92% | | Operating income | 71 | 8 | 63 | 787.50% | | Net earnings (loss) | 24 | (18) | 42 | -233.33% | | Earnings (loss) per share – basic | 0.19 | (0.15) | 0.34 | -226.67% | Interim Condensed Consolidated Statements of Cash Flows Operating cash flow slightly decreased, while cash used in investing and financing activities increased, primarily due to higher RCF repayments and increased dividends | Metric | Three months ended March 31, 2025 ($M) | Three months ended March 31, 2024 ($M) | Change ($M) | Change (%) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :---------- | :--------- | | Cash provided by operating activities | 96 | 101 | (5) | -4.95% | | Cash used in investing activities | (26) | (7) | (19) | 271.43% | | Cash used in financing activities | (86) | (78) | (8) | 10.26% | | Increase (decrease) in cash and cash equivalents | (17) | 15 | (32) | -213.33% | | Cash and cash equivalents, end of period | 75 | 110 | (35) | -31.82% | Interim Condensed Consolidated Statements of Changes in Equity Total shareholders' equity increased to $1,075 million at March 31, 2025, from $1,049 million at January 1, 2025, driven by net earnings and other comprehensive income, partially offset by dividends | Metric | At March 31, 2025 ($M) | At January 1, 2025 ($M) | Change ($M) | Change (%) | | :-------------------------------- | :--------------------- | :---------------------- | :---------- | :--------- | | Total Shareholders' Equity | 1,075 | 1,049 | 26 | 2.48% | | Retained Earnings | 101 | 80 | 21 | 26.25% | | Accumulated other comprehensive losses | (209) | (214) | 5 | -2.34% | Notes to the Interim Condensed Consolidated Financial Statements Note 1. Summary of Material Accounting Policies The financial statements are prepared in accordance with IFRS and IAS 34, with no significant changes in accounting policies except for the adoption of amendments to IAS 21 regarding exchangeability of currency, which had no adjustment impact on January 1, 2025 - The unaudited interim condensed consolidated financial statements were prepared in accordance with IFRS as issued by the IASB and IAS 34, approved by the Board on May 7, 2025[9][10] - The company adopted amendments to IAS 21, 'The Effects of Changes in Foreign Exchange Rates,' effective January 1, 2025, which clarify how to assess currency exchangeability and estimate spot rates, with no adjustment resulting from its adoption[13][14][16] Note 2. Accounts Receivable and Unbilled Revenue Accounts receivable decreased by $20 million due to reduced trade receivables, while unbilled revenue slightly increased, with a significant portion remaining current | Metric | March 31, 2025 ($M) | December 31, 2024 ($M) | Change ($M) | Change (%) | | :-------------------------- | :-------------------- | :--------------------- | :---------- | :--------- | | Accounts receivable | 378 | 398 | (20) | -5.03% | | Trade receivables, net | 363 | 389 | (26) | -6.68% | | Current to 90 days | 303 | 308 | (5) | -1.62% | | Over 90 days | 71 | 92 | (21) | -22.83% | | Total unbilled revenue | 165 | 159 | 6 | 3.77% | Note 3. Energy Infrastructure Assets Net book value of EI assets under operating leases decreased slightly, while revenue from these leases increased in LATAM and EH segments, with finance lease receivables also decreasing at a 7.6% average interest rate | Metric | March 31, 2025 ($M) | December 31, 2024 ($M) | Change ($M) | Change (%) | | :-------------------------------- | :-------------------- | :--------------------- | :---------- | :--------- | | EI assets - operating leases (Net book value) | 696 | 713 | (17) | -2.38% | | EI assets - finance leases receivable (Closing balance) | 230 | 238 | (8) | -3.36% | - Revenue from operating leases for the three months ended March 31, 2025, was $50 million in LATAM and EH segments (up from $47 million in 2024) and $37 million from NAM contract compression fleet (up from $36 million in 2024)[22] - The average interest rate implicit in finance leases was 7.6% per annum at March 31, 2025, unchanged from December 31, 2024[27] Note 4. Deferred Revenue Deferred revenue increased by $26 million from the opening balance, primarily due to cash received in advance of revenue recognition exceeding revenue subsequently recognized | Metric | Three months ended March 31, 2025 ($M) | Twelve months ended December 31, 2024 ($M) | | :------------------------------------- | :------------------------------------- | :----------------------------------------- | | Opening balance | 386 | 319 | | Cash received in advance of revenue recognition | 219 | 1,067 | | Revenue subsequently recognized | (193) | (996) | | Closing balance | 412 | 386 | | Current deferred revenue | 401 | 375 | Note 5. Long-Term Debt Long-term debt decreased by $69 million due to reduced RCF drawings, with the company remaining compliant with all debt covenants and showing improved ratios | Metric | March 31, 2025 ($M) | December 31, 2024 ($M) | Change ($M) | Change (%) | | :-------------------------------- | :-------------------- | :--------------------- | :---------- | :--------- | | Long-term debt | 639 | 708 | (69) | -9.75% | | Notes | 563 | 563 | 0 | 0.00% | | Drawings on the RCF | 117 | 191 | (74) | -38.74% | Debt Covenants Performance (Three months ended March 31) | Covenant | Requirement | 2025 Performance | 2024 Performance | | :------------------------------------- | :---------- | :--------------- | :--------------- | | Senior secured net funded debt to EBITDA ratio – Maximum | 2.5x | 0.1x | 0.5x | | Bank-adjusted net debt to EBITDA ratio – Maximum | 4.0x | 1.3x | 2.2x | | Interest coverage ratio – Minimum | 2.5x | 5.1x | 3.7x | - The weighted average interest rate on the RCF for the three months ended March 31, 2025, was 6.1%, down from 7.4% at December 31, 2024[33] Note 6. Share Capital Common share capital remained stable at $505 million, with a slight increase in shares outstanding due to option exercises, and an NCIB was approved to repurchase up to 5% of public float | Metric | March 31, 2025 | December 31, 2024 | | :-------------------- | :------------- | :---------------- | | Number of common shares | 124,150,067 | 124,143,179 | | Common share capital ($M) | 505 | 505 | - The Toronto Stock Exchange approved the company's application for a Normal Course Issuer Bid (NCIB) to acquire up to 6,159,695 Common Shares (approximately 5% of its public float) for cancellation, commencing April 1, 2025, and terminating no later than March 31, 2026[37][38] Note 7. Revenue Total revenue decreased by 13.48% year-over-year, primarily driven by a decline in Energy Infrastructure, with significant geographical shifts including decreases in Oman and the United States, offset by growth in Argentina and Canada Revenue by Product Line (Three months ended March 31) | Product Line | 2025 ($M) | 2024 ($M) | Change ($M) | Change (%) | | :------------- | :-------- | :-------- | :---------- | :--------- | | EI | 153 | 229 | (76) | -33.19% | | AMS | 120 | 121 | (1) | -0.83% | | ES | 279 | 288 | (9) | -3.13% | | Total revenue | 552 | 638 | (86) | -13.48% | Revenue by Geographic Location (Three months ended March 31) | Geographic Location | 2025 ($M) | 2024 ($M) | Change ($M) | Change (%) | | :------------------ | :-------- | :-------- | :---------- | :--------- | | United States | 246 | 282 | (36) | -12.77% | | Canada | 76 | 59 | 17 | 28.81% | | Argentina | 57 | 36 | 21 | 58.33% | | Oman | 32 | 125 | (93) | -74.40% | | Nigeria | 28 | 18 | 10 | 55.56% | | Total revenue | 552 | 638 | (86) | -13.48% | Unsatisfied Performance Obligations as at March 31, 2025 | Product Line | Less than one year ($M) | One to two years ($M) | Greater than two years ($M) | Total ($M) | | :------------- | :---------------------- | :-------------------- | :-------------------------- | :--------- | | EI | 441 | 336 | 720 | 1,497 | | AMS | 76 | 36 | 70 | 182 | | ES | 1,108 | 87 | 11 | 1,206 | | Total | 1,625 | 459 | 801 | 2,885 | Note 8. Selling, General and Administrative Expenses Total SG&A expenses decreased by $21 million year-over-year, primarily driven by a reduction in share-based compensation and depreciation and amortization | Metric | Three months ended March 31, 2025 ($M) | Three months ended March 31, 2024 ($M) | Change ($M) | Change (%) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :---------- | :--------- | | Core SG&A | 54 | 58 | (4) | -6.90% | | Share-based compensation | (3) | 6 | (9) | -150.00% | | Depreciation and amortization | 6 | 12 | (6) | -50.00% | | Bad debt expense | - | 2 | (2) | -100.00% | | Total SG&A | 57 | 78 | (21) | -26.92% | Note 9. Segmented Information NAM and LATAM segments improved operating income, while EH's operating loss narrowed, leading to a substantial overall increase in operating income due to better gross margins and reduced SG&A Revenue by Segment (Three months ended March 31) | Segment | 2025 ($M) | 2024 ($M) | Change ($M) | Change (%) | | :-------- | :-------- | :-------- | :---------- | :--------- | | NAM | 362 | 369 | (7) | -1.90% | | LATAM | 102 | 84 | 18 | 21.43% | | EH | 88 | 185 | (97) | -52.43% | | Total | 552 | 638 | (86) | -13.48% | Operating Income (Loss) by Segment (Three months ended March 31) | Segment | 2025 ($M) | 2024 ($M) | Change ($M) | Change (%) | | :-------- | :-------- | :-------- | :---------- | :--------- | | NAM | 38 | 33 | 5 | 15.15% | | LATAM | 21 | 10 | 11 | 110.00% | | EH | 12 | (35) | 47 | -134.29% | | Total | 71 | 8 | 63 | 787.50% | - Depreciation and amortization for the three months ended March 31, 2025, was $16 million in NAM (down from $18 million in 2024), $11 million in LATAM (up from $10 million in 2024), and $12 million in EH (down from $16 million in 2024)[48] Note 10. Finance Costs and Income Net finance costs decreased by $3 million year-over-year, primarily due to a reduction in interest on debt | Metric | Three months ended March 31, 2025 ($M) | Three months ended March 31, 2024 ($M) | Change ($M) | Change (%) | | :---------------- | :------------------------------------- | :------------------------------------- | :---------- | :--------- | | Interest on debt | 16 | 23 | (7) | -30.43% | | Total finance costs | 24 | 27 | (3) | -11.11% | | Net finance costs | 23 | 26 | (3) | -11.54% | Note 11. Financial Instruments The fair value of long-term debt was $728 million, exceeding its carrying value of $639 million, with the company utilizing foreign exchange contracts and designating USD borrowings for net investment hedging | Metric | March 31, 2025 ($M) | December 31, 2024 ($M) | | :------------------------------------- | :-------------------- | :--------------------- | | Carrying value of long-term debt | 639 | 708 | | Estimated fair value of long-term debt | 728 | 804 | - The fair value of the Notes at March 31, 2025, was determined using a discounted cash flow basis with a weighted average discount rate of 7.2% (compared to 6.3% at December 31, 2024)[53] - The company hedges its exposure to CAD/USD fluctuations on its net investment in USD functional subsidiaries by designating a portion of USD borrowings as a hedging instrument, with foreign exchange gains and losses on translation of $593 million in designated USD borrowings included in accumulated other comprehensive losses[55] Note 12. Supplemental Cash Flow Information Net change in working capital and other significantly decreased due to shifts in accounts receivable, unbilled revenue, and deferred revenue, while cash interest paid decreased and income taxes paid substantially increased | Metric | Three months ended March 31, 2025 ($M) | Three months ended March 31, 2024 ($M) | Change ($M) | Change (%) | | :------------------------------------- | :------------------------------------- | :------------------------------------- | :---------- | :--------- | | Net change in working capital and other | 34 | 83 | (49) | -59.04% | | Accounts receivable | 20 | (10) | 30 | -300.00% | | Unbilled revenue | (6) | (9) | 3 | -33.33% | | Deferred revenue | 26 | 53 | (27) | -50.94% | | Total interest paid | 5 | 10 | (5) | -50.00% | | Income taxes paid | 28 | 7 | 21 | 300.00% | Note 13. Guarantees, Commitments, and Contingencies The company held $112 million in outstanding letters of credit and significant 2025 purchase obligations, while actively engaged in legal proceedings, including an arbitration for the EH Cryo project with a counterclaim filed | Metric | March 31, 2025 ($M) | December 31, 2024 ($M) | | :-------------------------- | :-------------------- | :--------------------- | | Outstanding letters of credit | 112 | 116 | Purchase Obligations | Year | Amount ($M) | | :--- | :---------- | | 2025 | 565 | | 2026 | 10 | | 2027 | 2 | - Enerflex declared Force Majeure on the EH Cryo project in Q2 2024 due to a fatal attack at an adjacent site, with the customer initiating arbitration alleging breach of contract, which Enerflex disputes, filing a counterclaim to recover amounts owing, and remaining assets for this project were $161 million at March 31, 2025[64] Note 14. Seasonality Canadian and some U.S. energy operations exhibit seasonal trends, typically yielding higher Q4 revenue due to well-site access and drilling, while LATAM and EH segments are less impacted - The energy sector in Canada and parts of the USA exhibits seasonal trends, leading to generally higher revenue in the fourth quarter due to well-site access and drilling pattern adjustments[65] - LATAM and EH segments are not significantly impacted by seasonal variations, though certain parts of the USA can be affected depending on customer activity, demand, and location[65] Note 15. Subsequent Events Subsequent to the reporting period, Enerflex declared a quarterly dividend of CAD $0.0375 per share, payable on June 3, 2025 - Enerflex declared a quarterly dividend of CAD $0.0375 per share, payable on June 3, 2025, to shareholders of record on May 21, 2025[66] Corporate Information Board of Directors The Board of Directors includes Kevin Reinhart as Board Chair and members serving on various committees such as Human Resources and Compensation, Audit, and Nominating and Corporate Governance - Kevin Reinhart serves as the Board Chair, with key committees including Human Resources and Compensation, Audit, and Nominating and Corporate Governance[68][69] Executive Management The executive management team is led by Preet S. Dhindsa as interim President & CEO and Joe Ladouceur as interim CFO, with other key leaders overseeing legal, administrative, and regional operations - Preet S. Dhindsa is the interim President & CEO, and Joe Ladouceur is the interim CFO, with other executive roles including SVP and General Counsel, SVP and Chief Administrative Officer, and Presidents for Latin America, Eastern Hemisphere, USA Region, and Canada[68] Shareholder Information Enerflex Ltd. is listed on the Toronto Stock Exchange (TSX) and New York Stock Exchange (NYSE) under the trading symbols EFX and EFXT, respectively, with TSX Trust Company serving as the transfer agent - Enerflex is listed on the Toronto Stock Exchange (EFX) and New York Stock Exchange (EFXT), with TSX Trust Company as the transfer agent, registrar, and dividend-disbursing agent[70]