Mr. Marc Rossiter reports

ENERFLEX LTD. REPORTS STRONG SECOND-QUARTER 2023 FINANCIAL AND OPERATIONAL RESULTS

Enerflex Ltd. has released its financial and operational results for the three and six months ended June 30, 2023.

"Enerflex's solid second quarter 2023 operational results underscore the sustainability of our three core business lines being executed on a global scale. The two business lines that comprise our recurring revenues, energy infrastructure and aftermarket services, both expanded their margins compared to the first quarter of 2023. Our engineered systems business line booked an additional $322-million in new orders in the quarter, including several energy-transition-related initiatives, resulting in a backlog of $1.4-billion," said Marc Rossiter, Enerflex's president and chief executive officer. "This quarter represents the second full quarter of Enerflex's operations as a combined global business following the acquisition of Exterran [Corp.], with synergy capture and operations tracking to plan. We are hard at work executing the global backlog and operating our assets at high levels of utilization, while simultaneously restructuring and streamlining our operations and systems to establish a sustainable, profitable enterprise. We remain focused on reducing our overall leverage and continue to expect our bank-adjusted net debt to [earnings before interest, taxes, depreciation and amortization] ratio to be 2.5 times at year-end."

Overview

• Enerflex reported solid Q2 2023 financial results that included revenue of $777-million and a gross margin of $147-million or 18.9 per cent of revenue. Revenue generation was strong across all segments compared with first quarter 2023. The eastern hemisphere segment revenue decreased from Q1 2023 due to non-cash finance lease revenue recorded in Q1 2023.
• The company continues to focus on expanding gross margins and reducing overall costs. Through year-to-date 2023, the aftermarket services gross margin percentage has increased by over 500 basis points from YTD 2022, and the engineered systems gross margin percentage is up 400 basis points over the same time frame.
• Enerflex delivered $142-million of adjusted earnings before finance costs, income taxes, depreciation and amortization (1) in Q2 2023, compared with $123-million in Q1 2023 as a result of strong business performance and an expanded energy infrastructure portfolio.
• Enerflex executed on a $32-million capital expenditure program in Q2 2023, with approximately $12-million of growth capital expenditures directed at customer-sanctioned energy infrastructure projects. Enerflex continues to prioritize a conservative balance sheet and absolute debt reduction.
• Total long-term debt decreased by $50-million during Q2 2023; however, net debt increased by $38-million from the end of Q1 2023 primarily due to an increase in net working capital associated with the growth of the aftermarket services business in North America and the timing of cash flows in the engineered systems business. Enerflex's bank-adjusted net debt to EBITDA ratio was 2.8 times (2) as at June 30, 2023.
• Enerflex is reaffirming its full-year 2023 financial guidance for adjusted EBITDA, bank-adjusted net debt to EBITDA ratio and synergies. Guidance for expected growth capital expenditures is being introduced, and guidance for the company's non-discretionary expenses is being updated to account for higher anticipated net working capital levels as the business grows, and higher estimated cash taxes in 2023.
• Enerflex is just over nine months into the integration of Exterran, and continues to actively integrate and streamline its global operations. As previously announced, Enerflex plans to consolidate its global manufacturing capacity from five facilities to three. This, in addition to other activities aimed at reducing costs and focusing Enerflex's efforts on the best possible regions and assets, will reduce the company's long-term cost structure.

(1) A non-international financial reporting standard measure that may not be comparable with similar non-IFRS measures disclosed by other issuers.

(2) A non-IFRS measure that may not be comparable with similar non-IFRS measures disclosed by other issuers.

Enerflex's unaudited interim condensed consolidated financial statements, notes, and management's discussion and analysis as at and for the three and six months ended June 30, 2023, can be viewed on the company's website and under the company's SEDAR+ and EDGAR profiles.

Outlook

Strategic priorities:

• Enerflex's primary focus for 2023 is to progress the integration of Exterran and strengthen its financial position. Once its debt reduction target has been met, Enerflex plans to continue strengthening its financial position to ensure the company has financial stability and flexibility through industry cycles. By reducing its long-term debt requirements and optimizing debt service costs, Enerflex expects to lower its overall cost of debt, thereby accruing incremental value to Enerflex shareholders.

Integration of Exterran:

• Enerflex is progressing the integration of Exterran to become a more resilient and profitable business. Since closing the transaction, Enerflex has captured approximately $50-million (U.S.) of annual run-rate synergies and expects to realize the total $60-million (U.S.) of anticipated synergies within 12 to 18 months from transaction close of Oct. 13, 2022.
• To further optimize its global operations and shape the business for long-term success, Enerflex will incur one-time restructuring and optimization costs as such opportunities are identified. These include costs associated with the closing of Enerflex's manufacturing facilities in the United Arab Emirates and Singapore and the company's plans to simplify its geographic footprint.

2023 guidance:

• Enerflex is reaffirming its full-year 2023 financial guidance for adjusted EBITDA, bank-adjusted net debt to EBITDA ratio, annual run-rate synergies, maintenance capital expenditures and expenditures related to the modularized cryogenic natural gas processing facility that is being advanced in the Middle East.
• To reflect year-to-date 2023 activity and the company's expectations for the balance of the year, Enerflex is introducing guidance for property, plant and equipment and growth capital expenditures and revising its guidance for other non-discretionary expenses.

• Enerflex anticipates that total 2023 PP&E and growth capital expenditures will range from $80-million (U.S.) to $90-million (U.S.), approximately half of which is for the completion of two Boom produced water projects that were originally anticipated in 2022 but were largely recognized in Q1 2023. In addition, Enerflex plans to complete required upgrades on several facilities acquired through the transaction and invest in various small-scale, customer-sanctioned projects in the United States, Latin America and the eastern hemisphere.
• Enerflex is revising its guidance for its other non-discretionary expenses to a range of $180-million (U.S.) to $210-million (U.S.) from a range of $130-million (U.S.) to $160-million (U.S.), primarily due to the increase in working capital associated with higher activity levels in Enerflex's aftermarket Services and engineered systems businesses, as well as higher expected cash taxes in 2023.
• As the company focuses on actively integrating Exterran while concurrently executing its growing business, Enerflex expects that increased 2023 expenditures will impact the near-term timing of cash flows. As a result of increased net working capital due to the growth in business activity and increased taxes, the company now anticipates 2023 transaction-related accretion for both earnings per share and cash flow per share to be 32 per cent dilutive and 1 per cent accretive, respectively (both previously 20 per cent accretive) this year. The company has reviewed its disclosure in respect of 2023 transaction-related accretion for both EPS and CFPS, and has decided to discontinue this disclosure. Accordingly, the company is withdrawing its 2023 guidance for these measures and will not be providing any further updates regarding such financial metrics.

Market outlook:

• The long-term fundamentals for natural gas are robust, given its critical role in supporting global decarbonization efforts and future economic growth. Enerflex is poised to capitalize on the growing demand for low-carbon solutions through its vertically integrated natural gas and energy transition offerings:
  • Enerflex strategically expanded its recurring energy infrastructure and aftermarket services product lines to underpin the company's financial performance. In Q2 2023, these two recurring businesses contributed approximately 65 per cent of the company's gross margin.
  • Over the long term, Enerflex's large platform of international energy infrastructure assets is expected to continue serving the growing need for reliable power and energy independence.
• Enerflex's U.S. contract compression fleet utilization is expected to remain elevated, given continuing strength in customer demand.
• Complementing Enerflex's recurring businesses is the engineered systems product line, which carries a backlog of $1.4-billion that the company expects to convert into revenue through the balance of 2023 and 2024:
  • While rig counts have been decreasing in the United States in response to near-term weakness in natural gas prices, most of Enerflex's new bookings continue to serve the Permian basin, where rig counts remain relatively high. Enerflex is also diversifying its backlog composition by securing several larger cryogenic natural gas processing projects.
  • In Canada, Enerflex's market outlook is constructive following the initial agreement on future resource development between Blueberry River First Nations and the government of British Columbia, coupled with increasing activity for eventual liquefied natural gas exports.

Organizational update

Board of directors update:

• Joanne Cox has been appointed to the board, effective Aug. 9, 2023. Ms. Cox has over 30 years of executive and legal experience in the energy sector, including extensive involvement in numerous strategic initiatives. In her career, Ms. Cox held senior roles with global upstream exploration and production companies and energy services companies, including, most recently, Ovintiv Inc. and Precision Drilling Corp. Enerflex is pleased to welcome Ms. Cox to the board.
• Maureen Cormier Jackson has elected to retire from the board after six years of service. Enerflex would like to thank Ms. Cormier Jackson for her guidance and wisdom to the board, audit committee and management teams during this period. With Ms. Cormier Jackson's retirement, Mona Hale has assumed the role of chair of the audit committee.

"I would like to sincerely thank Maureen for her invaluable contributions to Enerflex during her tenure and wish her the very best in her future endeavours," said Kevin Reinhart, Enerflex's board chair. "I would also like to welcome Joanne to Enerflex. On behalf of the board, we look forward to working alongside Joanne as we continue to strategically advance the business to deliver long-term shareholder value."

Chief financial officer appointment:

• As previously announced, Rodney D. Gray was appointed as Enerflex's senior vice-president and chief financial officer, effective July 1, 2023, overseeing the company's capital markets, corporate development, financial reporting, internal audit, tax and treasury functions and supporting Enerflex's strategic and capital allocation decisions. Mr. Gray comes to Enerflex with over 30 years of accounting and finance experience in the energy sector, including the last nine years with Baytex Energy Corp., where he served most recently as executive vice-president and CFO. Enerflex is delighted to welcome Mr. Gray to the team.

Conference call and webcast details

Enerflex's senior leadership team will be hosting a conference call and webcast to discuss the company's second quarter 2023 results on Thursday, Aug. 10, 2023, at 8 a.m. MDT.

To participate, please register. Once registered, participants will receive the dial-in numbers and a unique PIN to enter the call. The live audio webcast of the conference call will be available on the Enerflex website under the investors section.

About Enerflex Ltd.

Enerflex is a premier integrated global provider of energy infrastructure and energy transition solutions, delivering natural gas processing, compression, power generation, refrigeration, cryogenic and produced water solutions.

Headquartered in Calgary, Alta., Canada, Enerflex, its subsidiaries and interests in associates and joint ventures, operate in over 90 locations in: Canada, the United States, Argentina, Bolivia, Brazil, Colombia, Ecuador, Mexico, Peru, the United Kingdom, the Netherlands, the United Arab Emirates, Bahrain, Oman, Egypt, Kuwait, India, Iraq, Nigeria, Pakistan, Saudi Arabia, Australia, China, Indonesia, Malaysia, Singapore and Thailand.

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.

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