Enerflex(EFXT) - 2025 Q2 - Quarterly Report

Interim Condensed Consolidated Financial Statements Interim Condensed Consolidated Statements of Financial Position The company's financial position as of June 30, 2025, shows an increase in total assets and shareholders' equity compared to December 31, 2024, driven by growth in current assets and retained earnings | ($ United States millions) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------------- | :------------ | :---------------- | :--------- | :--------- | | Total assets | 2,884 | 2,791 | 93 | 3.33% | | Total liabilities | 1,757 | 1,742 | 15 | 0.86% | | Total shareholders' equity | 1,127 | 1,049 | 78 | 7.44% | | Cash and cash equivalents | 71 | 92 | (21) | -22.83% | | Accounts receivable | 417 | 398 | 19 | 4.77% | | Inventories | 304 | 258 | 46 | 17.83% | | Retained earnings | 157 | 80 | 77 | 96.25% | - Current assets increased by $107 million to $1,148 million, primarily due to increases in accounts receivable, inventories, and work-in-progress related to EI assets[1] - Total liabilities saw a modest increase of $15 million, with accounts payable and accrued liabilities rising by $57 million, while long-term debt decreased by $29 million[1] Interim Condensed Consolidated Statements of Earnings (Loss) and Other Comprehensive Income (Loss) The company reported significant improvements in net earnings and operating income for both the three and six months ended June 30, 2025, compared to the prior year, despite a slight decrease in revenue for the six-month period | ($ United States millions, except per share amounts) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Change (%) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Revenue | 615 | 614 | 1 | 0.16% | 1,167 | 1,252 | (85) | -6.79% | | Gross margin | 139 | 136 | 3 | 2.21% | 267 | 223 | 44 | 19.73% | | Operating income | 76 | 58 | 18 | 31.03% | 147 | 66 | 81 | 122.73% | | Net earnings (loss) | 60 | 5 | 55 | 1100.00% | 84 | (13) | 97 | 746.15% | | Earnings (loss) per share – basic | 0.49 | 0.04 | 0.45 | 1125.00% | 0.68 | (0.10) | 0.78 | 780.00% | - Net finance costs decreased for both periods, contributing to higher earnings before income taxes[3] - Total comprehensive income significantly improved, reaching $69 million for the three months and $98 million for the six months ended June 30, 2025, compared to losses or break-even in the prior year[3] Interim Condensed Consolidated Statements of Cash Flows Cash flow from operating activities for the six months ended June 30, 2025, decreased compared to the prior year, while cash used in investing activities increased. Financing activities shifted from providing cash to using cash, primarily due to net repayment of the Revolving Credit Facility and share repurchases | ($ United States millions) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | | :------------------------- | :------------------------------- | :------------------------------- | :--------- | :----------------------------- | :----------------------------- | :--------- | | Operating Activities | (4) | 12 | (16) | 92 | 113 | (21) | | Investing Activities | (10) | (17) | 7 | (36) | (24) | (12) | | Financing Activities | 10 | 23 | (13) | (76) | (55) | (21) | | Net change in cash | (4) | 16 | (20) | (21) | 31 | (52) | | Cash, end of period | 71 | 126 | (55) | 71 | 126 | (55) | - Cash used in operating activities for the three months ended June 30, 2025, was $4 million, a decrease from $12 million provided in the same period last year, largely due to a net change in working capital and other[5] - Investing activities used $36 million for the six months ended June 30, 2025, an increase from $24 million used in the prior year, primarily due to higher additions to EI assets - operating leases[5] - Financing activities resulted in a net cash outflow of $76 million for the six months ended June 30, 2025, compared to an outflow of $55 million in the prior year, driven by net repayment of the Revolving Credit Facility and shares repurchased under NCIB[5] Interim Condensed Consolidated Statements of Changes in Equity Total shareholders' equity increased to $1,127 million as of June 30, 2025, from $1,049 million at January 1, 2025, primarily due to net earnings and other comprehensive income, partially offset by share repurchases and dividends | ($ United States millions) | At January 1, 2025 | Net earnings | Other comprehensive income | Effect of stock option plans | Shares repurchased - NCIB | Dividends | At June 30, 2025 | | :------------------------- | :----------------- | :----------- | :------------------------- | :--------------------------- | :------------------------ | :-------- | :--------------- | | Share capital | 505 | - | - | 2 | (6) | - | 501 | | Contributed surplus | 678 | - | - | (1) | (8) | - | 669 | | Retained earnings | 80 | 84 | - | - | - | (7) | 157 | | Accumulated other comprehensive losses | (214) | - | 14 | - | - | - | (200) | | Total | 1,049 | 84 | 14 | 1 | (14) | (7) | 1,127 | - Net earnings of $84 million and other comprehensive income of $14 million contributed positively to equity during the six months ended June 30, 2025[6] - Share repurchases under the NCIB reduced share capital by $6 million and contributed surplus by $8 million, totaling $14 million[6] Notes to the Interim Condensed Consolidated Financial Statements Note 1. Summary of Material Accounting Policies This section outlines the basis of preparation for the interim financial statements, confirming compliance with IFRS and IAS 34, and details a recent amendment to IAS 21 regarding foreign exchange rates, which had no material adjustment upon adoption - The financial statements are prepared in accordance with IFRS as issued by the IASB, specifically IAS 34 for interim financial reporting[8][9] - A new amendment to IAS 21, effective January 1, 2025, specifies how to assess currency exchangeability and estimate spot exchange rates when a currency is not exchangeable. The company adopted this amendment with no resulting adjustment[12][13][14] - Management's estimates and assumptions, particularly concerning geopolitical events like tariffs, could impact financial results, though known facts have been incorporated[10] Note 2. Accounts Receivable and Unbilled Revenue Accounts receivable increased by $19 million to $417 million as of June 30, 2025, with a notable rise in current to 90-day trade receivables. Unbilled revenue also increased, reflecting revenue recognized but not yet billed | Accounts Receivable | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------ | :------------ | :---------------- | :--------- | :--------- | | Trade receivables | 413 | 400 | 13 | 3.25% | | Other receivables | 15 | 9 | 6 | 66.67% | | Total | 417 | 398 | 19 | 4.77% | | Aging of Trade Receivables | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------------- | :------------ | :---------------- | :--------- | :--------- | | Current to 90 days | 330 | 308 | 22 | 7.14% | | Over 90 days | 83 | 92 | (9) | -9.78% | | Unbilled Revenue Movement (Six months ended) | June 30, 2025 | December 31, 2024 | | :------------------------------------------- | :------------ | :---------------- | | Opening balance | 159 | 309 | | Unbilled revenue recognized | 366 | 766 | | Amounts billed | (351) | (753) | | Closing balance | 176 | 159 | Note 3. Energy Infrastructure Assets The company's Energy Infrastructure (EI) assets are classified as either operating or finance leases. Operating lease assets saw a slight decrease in net book value, while finance lease receivables also decreased, primarily in the greater than five-year category - EI assets include Build-Own-Operate-Maintain (BOOM) assets and contract compression assets, classified as operating or finance leases at inception[17] | EI Assets – Operating Leases (Net book value) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------------------------- | :------------ | :---------------- | :--------- | :--------- | | NAM | 295 | 286 | 9 | 3.15% | | LATAM | 175 | 185 | (10) | -5.41% | | EH | 225 | 242 | (17) | -7.02% | | Total | 695 | 713 | (18) | -2.52% | | EI Assets – Finance Leases Receivable (Present value) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :---------------------------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Less than one year | 48 | 49 | (1) | -2.04% | | Between one and five years | 148 | 145 | 3 | 2.07% | | Greater than five years | 26 | 44 | (18) | -40.91% | | Total | 222 | 238 | (16) | -6.72% | Note 4. Inventories Total inventories increased by $46 million to $304 million as of June 30, 2025, primarily driven by an increase in direct materials and work-in-progress. Work-in-progress related to EI assets – finance leases receivable also significantly increased | Inventories | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :---------- | :------------ | :---------------- | :--------- | :--------- | | Direct materials | 115 | 85 | 30 | 35.29% | | Repair and distribution parts | 97 | 94 | 3 | 3.19% | | Work-in-progress | 75 | 62 | 13 | 20.97% | | Equipment | 17 | 17 | 0 | 0.00% | | Total inventories | 304 | 258 | 46 | 17.83% | - WIP related to EI assets - finance leases receivable increased from $35 million to $91 million, indicating ongoing construction for finance lease projects[26] - Net change in inventory reserves charged to COGS for obsolescence and aging was $2 million for the six months ended June 30, 2025, up from $1 million in the prior year[26] Note 5. Other Assets Other assets increased by $16 million to $225 million as of June 30, 2025, primarily due to an increase in redemption options and investments in associates and joint ventures | Other Assets | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------- | :------------ | :---------------- | :--------- | :--------- | | Project asset | 161 | 161 | 0 | 0.00% | | Investment in associates and joint ventures | 28 | 26 | 2 | 7.69% | | Redemption option | 29 | 17 | 12 | 70.59% | | Prepaid deposits | 7 | 5 | 2 | 40.00% | | Total | 225 | 209 | 16 | 7.66% | Note 6. Deferred Revenue Deferred revenue increased to $406 million as of June 30, 2025, from $386 million at December 31, 2024. This increase is attributed to cash received in advance of revenue recognition exceeding revenue subsequently recognized during the six-month period | Deferred Revenue Movement (Six months ended) | June 30, 2025 | December 31, 2024 | | :------------------------------------------- | :------------ | :---------------- | | Opening balance | 386 | 319 | | Cash received in advance of revenue recognition | 274 | 1,067 | | Revenue subsequently recognized | (256) | (996) | | Closing balance | 406 | 386 | - Current deferred revenue increased by $20 million to $395 million, while non-current deferred revenue remained stable at $11 million[29] Note 7. Long-Term Debt Long-term debt decreased to $679 million as of June 30, 2025, from $708 million at December 31, 2024, primarily due to a reduction in drawings on the Revolving Credit Facility (RCF). The RCF maturity date has been extended to July 11, 2028, and the company remains in compliance with its debt covenants | Long-Term Debt | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :--------------- | :------------ | :---------------- | :--------- | :--------- | | Notes | 563 | 563 | 0 | 0.00% | | Drawings on RCF | 154 | 191 | (37) | -19.37% | | Total borrowings | 717 | 754 | (37) | -4.91% | | Long-term debt | 679 | 708 | (29) | -4.10% | - Subsequent to June 30, 2025, Enerflex extended the maturity date of its $800 million RCF by three years to July 11, 2028[33] | Covenant (Maximum) | Requirement | Performance (June 30, 2025) | Performance (June 30, 2024) | | :----------------- | :---------- | :---------------------------- | :---------------------------- | | Senior secured net funded debt to EBITDA ratio | 2.5x | 0.2x | 0.5x | | Bank-adjusted net debt to EBITDA ratio | 4.0x | 1.3x | 2.2x | | Interest coverage ratio (Minimum) | 2.5x | 5.4x | 3.9x | Note 8. Share Capital Share capital decreased to $501 million as of June 30, 2025, from $505 million at December 31, 2024, primarily due to shares repurchased and cancelled under the Normal Course Issuer Bid (NCIB) | Share Capital Changes (Six months ended) | Number of common shares | Common share capital ($) | | :--------------------------------------- | :---------------------- | :----------------------- | | Opening balance (Jan 1, 2025) | 124,143,179 | 505 | | Exercise of stock options | 309,849 | 2 | | Shares repurchased - NCIB | (1,875,000) | (6) | | Closing balance (June 30, 2025) | 122,578,028 | 501 | - The company commenced an NCIB on April 1, 2025, authorizing the repurchase of up to 6,159,695 common shares (approximately 5% of its public float) for cancellation[38] - During the three months ended June 30, 2025, 1,875,000 common shares were repurchased and cancelled for a total of $14 million, with $6 million impacting share capital and $8 million reducing contributed surplus[41] Note 9. Contributed Surplus Contributed surplus decreased to $669 million as of June 30, 2025, from $678 million at December 31, 2024, primarily due to the impact of shares repurchased under the NCIB | Contributed Surplus Changes | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Opening balance | 678 | 678 | | Exercise of stock options | (1) | - | | Shares repurchased - NCIB | (8) | - | | Closing balance | 669 | 678 | - Contributed surplus consists of accumulated stock options less the fair value of exercised options reclassified to share capital, and repurchases through the NCIB[42] Note 10. Revenue Total revenue remained stable at $615 million for the three months ended June 30, 2025, but decreased by 6.79% to $1,167 million for the six-month period compared to the prior year. Revenue from Energy Infrastructure (EI) increased for the three-month period, while Engineered Systems (ES) and After-Market Services (AMS) saw slight declines | Revenue by Product Line ($ United States millions) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Change (%) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Energy Infrastructure ("EI") | 147 | 141 | 6 | 4.26% | 300 | 370 | (70) | -18.92% | | After-Market Services ("AMS") | 124 | 127 | (3) | -2.36% | 244 | 248 | (4) | -1.61% | | Engineered Systems ("ES") | 344 | 346 | (2) | -0.58% | 623 | 634 | (11) | -1.73% | | Total revenue | 615 | 614 | 1 | 0.16% | 1,167 | 1,252 | (85) | -6.79% | | Revenue by Geographic Location ($ United States millions) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | United States | 523 | 537 | (14) | -2.61% | | Canada | 164 | 151 | 13 | 8.61% | | Argentina | 103 | 76 | 27 | 35.53% | | Oman | 63 | 157 | (94) | -59.87% | | Nigeria | 61 | 58 | 3 | 5.17% | | Mozambique | 21 | - | 21 | N/A | | Unsatisfied Performance Obligations (June 30, 2025) | Less than one year | One to two years | Greater than two years | Total | | :-------------------------------------------------- | :----------------- | :--------------- | :--------------------- | :---- | | EI | 447 | 324 | 691 | 1,462 | | AMS | 89 | 33 | 67 | 189 | | ES | 1,181 | 39 | 7 | 1,227 | | Total | 1,717 | 396 | 765 | 2,878 | Note 11. Selling, General and Administrative Expenses Selling, General and Administrative (SG&A) expenses decreased for both the three and six months ended June 30, 2025, compared to the prior year, primarily due to reductions in core SG&A and depreciation and amortization | SG&A Expenses ($ United States millions) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Change (%) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Core SG&A | 52 | 62 | (10) | -16.13% | 106 | 120 | (14) | -11.67% | | Share-based compensation | 3 | 2 | 1 | 50.00% | - | 8 | (8) | -100.00% | | Depreciation and amortization | 6 | 11 | (5) | -45.45% | 12 | 23 | (11) | -47.83% | | Total SG&A | 61 | 75 | (14) | -18.67% | 118 | 153 | (35) | -22.88% | - Core SG&A, which includes compensation, third-party services, and IT expenses, decreased by $14 million for the six-month period[47] Note 12. Segmented Information Operating income significantly improved across all segments for the six months ended June 30, 2025, with North America (NAM) and Latin America (LATAM) showing strong growth, and Eastern Hemisphere (EH) recovering from a prior-year loss. Total operating income more than doubled year-over-year | Operating Income (Loss) by Segment ($ United States millions) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | | :---------------------------------------------------------- | :------------------------------- | :------------------------------- | :--------- | :----------------------------- | :----------------------------- | :--------- | | NAM | 50 | 50 | 0 | 88 | 83 | 5 | | LATAM | 20 | 3 | 17 | 41 | 13 | 28 | | EH | 6 | 5 | 1 | 18 | (30) | 48 | | Total Operating income | 76 | 58 | 18 | 147 | 66 | 81 | | Revenue by Segment ($ United States millions) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | NAM | 795 | 788 | 7 | 0.89% | | LATAM | 191 | 184 | 7 | 3.80% | | EH | 181 | 280 | (99) | -35.36% | | Total Revenue | 1,167 | 1,252 | (85) | -6.79% | - Gross Margin for the six months ended June 30, 2025, increased by $44 million to $267 million, with significant improvements in LATAM and EH[52] Note 13. Finance Costs and Income Net finance costs decreased for both the three and six months ended June 30, 2025, primarily due to lower interest on debt | Net Finance Costs ($ United States millions) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Change (%) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :------------------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Interest on debt | 16 | 22 | (6) | -27.27% | 32 | 45 | (13) | -28.89% | | Total finance costs | 19 | 25 | (6) | -24.00% | 43 | 52 | (9) | -17.31% | | Net finance costs | 18 | 23 | (5) | -21.74% | 41 | 49 | (8) | -16.33% | - Interest income slightly decreased for both periods[55] Note 14. Financial Instruments The fair value of the company's long-term debt was $774 million at June 30, 2025, higher than its carrying value of $679 million. The company uses foreign exchange contracts to hedge currency exposure and designates USD borrowings as a net investment hedge against CAD fluctuations | Long-Term Debt ($ United States millions) | June 30, 2025 | December 31, 2024 | | :---------------------------------------- | :------------ | :---------------- | | Carrying value | 679 | 708 | | Estimated fair value | 774 | 804 | - The fair value of the Notes was determined using a discounted cash flow basis with a weighted average discount rate of 5.2% at June 30, 2025 (down from 6.3% at December 31, 2024)[58] - The company hedges its net investment in USD functional subsidiaries against CAD fluctuations by designating a portion of USD borrowings as a hedging instrument, resulting in foreign exchange gains and losses included in accumulated other comprehensive losses[60] Note 15. Supplemental Cash Flow Information Changes in working capital and other items resulted in a cash outflow of $59 million for the six months ended June 30, 2025, a significant shift from a $32 million inflow in the prior year. Cash interest paid decreased, while income taxes paid increased substantially | Net Change in Working Capital and Other ($ United States millions) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | | :----------------------------------------------------------------- | :------------------------------- | :------------------------------- | :--------- | :----------------------------- | :----------------------------- | :--------- | | Accounts receivable | (37) | 18 | (55) | (17) | 8 | (25) | | Unbilled revenue | (11) | (58) | 47 | (17) | (67) | 50 | | Inventories | (35) | (1) | (34) | (46) | (5) | (41) | | Accounts payable and accrued liabilities and provisions | 40 | (4) | 44 | 53 | 20 | 33 | | Net change in working capital and other | (93) | (51) | (42) | (59) | 32 | (91) | | Cash Interest and Taxes Paid/Received ($ United States millions) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | | :--------------------------------------------------------------- | :------------------------------- | :------------------------------- | :--------- | :----------------------------- | :----------------------------- | :--------- | | Total interest paid | 30 | 37 | (7) | 35 | 47 | (12) | | Income taxes paid | 35 | 14 | 21 | 63 | 21 | 42 | Note 16. Guarantees, Commitments, and Contingencies The company has $116 million in outstanding letters of credit and significant purchase obligations over the next three years. It is currently involved in an arbitration proceeding related to a terminated Eastern Hemisphere (EH) project, disputing claims and pursuing counterclaims - Outstanding letters of credit totaled $116 million as of June 30, 2025, with $87 million funded from the RCF and $29 million from an additional LC Facility[65] | Purchase Obligations ($ United States millions) | Amount | | :---------------------------------------------- | :----- | | 2025 | 417 | | 2026 | 129 | | 2027 | 22 | - The company is vigorously defending itself in an arbitration proceeding where a customer alleges breach of contract for an EH project, following Enerflex's termination of the contract due to Force Majeure. Enerflex has a counterclaim for amounts owing[70][71] Note 17. Seasonality The company's revenue in Canada and parts of the U.S. is subject to seasonal trends, typically higher in the fourth quarter due to weather conditions and drilling patterns. Latin America and Eastern Hemisphere segments are less impacted by seasonality - The energy sector in Canada and parts of the U.S. experiences seasonal trends, leading to generally higher revenue in the fourth quarter[72] - Revenue is also influenced by capital investment decisions of both the company and its customers[72] - LATAM and EH segments are not significantly affected by seasonal variations[72] Note 18. Subsequent Events Subsequent to the reporting period, Enerflex declared a quarterly dividend of CAD $0.0375 per share, payable on September 2, 2025 - A quarterly dividend of CAD $0.0375 per share was declared, payable on September 2, 2025, to shareholders of record on August 18, 2025[73] - The Board will continue to evaluate dividend payments quarterly based on cash flow, market conditions, and business needs[73]