Mr. Marc Rossiter reports

ENERFLEX LTD. REPORTS FOURTH QUARTER 2023 FINANCIAL AND OPERATIONAL RESULTS

Enerflex Ltd. has released its financial and operational results for the three months and year ended Dec. 31, 2023. All amounts are presented in Canadian dollars unless otherwise stated.

Q4 2023 financial and operational overview:

• Generated revenue of $782-million, compared with $778-million in Q3 2023, with results driven by continued strong performance from recurring businesses;
• Increased gross margin before depreciation and amortization to $216-million, or 27.7 per cent of revenue, compared with $201-million, or 25.8 per cent of revenue, in Q3 2023. Energy infrastructure and after-market services product lines generated 67 per cent of consolidated gross margin before depreciation and amortization during Q4 2023, comparable with the third quarter;
• Adjusted earnings before finance costs, income taxes, depreciation and amortization (adjusted EBITDA) of $126-million, compared with $122-million in Q3 2023 and $86-million in Q4 2022:
  • In the fourth quarter of 2023, EBITDA was reduced by $39-million of losses related to foreign exchange and associated instruments. Additionally, $4-million of interest income in Q4 2023 is not reflected in adjusted EBITDA;
• Repaid $167-million of long-term debt during Q4 2023, consistent with the company's focus on strengthening the balance sheet. Reported net debt declined by $151-million, including reductions in cash and cash equivalents, and the impact of a strengthening Canadian dollar on the measurement of U.S.-dollar-denominated debt;
• Cash provided by operating activities was $209-million in Q4 2023, which included net working capital recovery of $144-million. This is a $138-million improvement over cash provided by operating activities in Q3 2023 and an increase of $225-million compared with Q4 2022. Free cash flow was $185-million in Q4 2023, compared with a use of cash of $43-million during Q4 2022;
• Invested $24-million in the business, including $6-million of growth investments in response to strong demand and customer commitments for electric drive contract compression equipment in the United States. Recorded engineered systems bookings of $327-million in Q4 2023 and $1.7-billion for the year. Exited Q4 2023 with engineered systems backlog of $1.5-billion, providing strong visibility into future revenue generation and business activity levels;
• Since closing of the transaction to acquire Exterran Corp., Enerflex has captured approximately $62-million (U.S.) of annual run-rate synergies, exceeding the $60-million (U.S.) of anticipated synergies within 18 months from transaction close of Oct. 13, 2022;
• Recognized an $87-million goodwill impairment in the Latin American segment. This non-cash impairment was largely driven by the continuing devaluation of the Argentinian peso and the restrictions on repatriating cash held in Argentina;
• Capitalized on continuing robust demand for natural gas, as customers aim to decarbonize their operations. Customer activity levels remained solid, particularly for cryogenic natural gas processing facilities, reflecting Enerflex's expanded product offering as a result of the transaction.

"We delivered a strong finish to the year, with solid operating results across Enerflex's geographies," said Marc Rossiter, Enerflex's president and chief executive officer. "Our energy infrastructure and after-market services business lines demonstrated steady performance in 2023, and are positioned to continue driving stable, sustainable returns thanks to Enerflex's diversified global footprint. Our engineered systems business line achieved record annual revenue and successfully navigated a volatile supply chain environment to deliver solid margins. As we enter 2024, visibility across our business is strong, supported by contract coverage across our energy infrastructure assets, the recurring nature of our after-market services business and a $1.5-billion engineered systems backlog. We are in the home stretch of the integration of Exterran, with over $60-million (U.S.) of annual run-rate synergies and recent achievements, including the streamlining of our global manufacturing footprint, exiting six non-core geographies and monetization of non-core assets. We expect these actions, coupled with our focus on further enhancing the profitability of core operations, to enable continued debt reduction in 2024 and enhance Enerflex's ability to deliver shareholder returns over the mid- and long term."

Preet Dhindsa, Enerflex's interim chief financial officer, added: "Enerflex's results in the fourth quarter met or exceeded the ranges provided in our most recent guidance. We are especially pleased with our ongoing efforts to more efficiently manage working capital. With the support of Enerflex's strong global leadership team and talented employees, we are improving the profitability and resiliency of our international business, with an objective to generate sustainable free cash flow, reduce debt levels, and position the company for long-term growth and value creation."

Enerflex's audited consolidated financial statements and notes (the financial statements) and management's discussion and analysis (MD&A) as at and for the year ended Dec. 31, 2023, can be accessed on the company's website and under the company's SEDAR+ and EDGAR profiles.

Balance sheet

As at Dec. 31, 2023, Enerflex's net debt balance was $1.1-billion, which included $126-million of cash and cash equivalents, and the company maintained strong liquidity with access to $473-million under its credit facility. Enerflex's bank-adjusted-net-debt-to-EBITDA ratio was approximately 2.3 times as at Dec. 31, 2023, compared with 2.7 times at the end of Q3 2023 and 3.3 times at the end of Q4 2022.

Delivering sustainable returns to shareholders

Enerflex is committed to paying an attractive and sustainable quarterly cash dividend to shareholders. The board of directors has declared a quarterly dividend of 2.5 cents per share, payable on May 1, 2024, to shareholders of record on March 13, 2024.

Outlook

Operating results in 2024 will be underpinned by the highly contracted energy infrastructure product line and the recurring nature of after-market services, which together are expected to account for 55 per cent to 65 per cent of the company's gross margin before depreciation and amortization.

Complementing Enerflex's recurring revenue businesses is the engineered systems product line, which carried a backlog of approximately $1.5-billion (Canadian) ($1.1-billion (U.S.)) as at Dec. 31, 2023, and is expected to benefit from increasing natural gas production in the company's core regions. The company expects the majority of its backlog to convert into revenue over the next 12 months.

Enerflex is targeting a disciplined capital program in 2024, with total capital expenditures of $90-million (U.S.) to $110-million (U.S.). This includes a total of approximately $70-million (U.S.) for maintenance and PP&E (plant, property and equipment) capital expenditures. Investing to expand the energy infrastructure business in 2024 is discretionary and will be allocated to customer supported opportunities that are expected to generate attractive returns and deliver value to Enerflex shareholders.

Enerflex will continue to focus on debt reduction and lowering net finance costs in 2024, which will improve the company's ability to provide shareholder returns over the medium and long term. Enerflex continues to evaluate its target long-term capital structure and capital allocation parameters and expects to provide more clarity in the coming months.

Long-term fundamentals for natural gas are robust, given its critical role in supporting global decarbonization efforts and future economic growth. Enerflex is poised for long-term growth as it continues to capitalize on the growing demand for low-carbon solutions through its vertically integrated natural gas, produced water and energy transition offerings.

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, Feb. 29, 2024, at 8 a.m. MST, where members of senior management will discuss the company's results. A question-and-answer period will follow.

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

Non-IFRS (international financial reporting standards) 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 with 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 year ended Dec. 31, 2023, information from which is incorporated by reference into this news release and can be accessed on Enerflex's website and under the company's SEDAR+ and EDGAR profiles.

About Enerflex Ltd.

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 4,800 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.

Headquartered in Calgary, Alta., Canada, Enerflex and its affiliated entities operate in over 70 locations in Canada, the United States, Argentina, Bolivia, Brazil, Colombia, Mexico, Peru, the United Kingdom, the United Arab Emirates, Bahrain, Oman, Egypt, Iraq, Nigeria, Pakistan, Saudi Arabia, Australia, Indonesia 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.

We seek Safe Harbor.