Enerflex Ltd. Q2 FY2025 earnings call

• Enerflex reported a quarterly record for adjusted EBITDA, with solid performance across geographies and business lines.
• Energy Infrastructure and After-Market Services are core to profitability, contributing 65% of gross margin before depreciation and amortization in Q2 2025.
• Engineered Systems maintained a $1.2 billion backlog, with bookings of $365 million in Q2 2025 and a book-to-bill ratio of 1.1x.
• 2025 priorities include enhancing core operations profitability, leveraging leading position in core countries, and maximizing free cash flow for shareholder returns and selective growth.
• Leadership transition: Marc Rossiter stepped down, Preet Dhindsa became Interim President and CEO, and Joe Ladouceur became Interim CFO, with a comprehensive search for permanent CEO underway.

In the second quarter of 2025, Enerflex's Energy Infrastructure and After-Market Services business lines contributed 65% of gross margin before depreciation and amortization. Energy Infrastructure had approximately $1.5 billion of revenue under contract, with the U.S. contract compression fleet exiting the quarter with 456,000 horsepower and expected to be over 475,000 horsepower by year-end. The international Energy Infrastructure business had approximately 1.1 million horsepower of operated compression and 23 BOOM projects in Bahrain, Oman, and Latin America, supported by ~$1.3 billion of contracted revenue. After-Market Services benefited from increased activity levels during the quarter. The Engineered Systems (ES) business maintained a backlog of $1.2 billion at the end of the quarter, with bookings of $365 million in Q2 2025 (compared to $331 million in Q2 2024), a book-to-bill ratio of 1.1x, and expected steady revenue with gross margin aligning to historical averages.

• Full-year 2025 capital spending is now expected to approximate $120 million (previously $110 million to $130 million), with ~$60 million earmarked for growth initiatives (previously $40 million to $60 million) and ~$60 million for maintenance/PPE (previously $70 million).
• Enerflex returned $18 million to shareholders in Q2 through dividends and share repurchases, with a NCIB authorizing repurchase of up to ~6.2 million shares by March 2026.
• Bank-adjusted net debt-to-EBITDA ratio was approximately 1.3x at end of Q2 2025, down from 2.2x at end of Q2 2024.

• Impact of tariffs and commodity price volatility on the Engineered Systems product line remains a near-term risk to monitor.

Q: Just curious if you can comment a little bit more on what's driving the tightness in utilization in U.S. contract compression. How sustainable do you think that is? And ultimately, what underpins your confidence in increasing your investment in that division now?

A: As we've talked about in prior quarters, we're seeing a favorable supply-demand balance across the U.S. contract compression market. The supply side is a function of discipline from large competitors, and the market continues to grow with natural gas supply in the U.S. Contract durations for new equipment and renewals have lengthened, underpinning confidence in increasing investment.

Q: I was just curious, press release mentioned expanding the North American manufacturing facility. Can you elaborate on what you're doing there?

A: We took on a little bit more land adjacent to our U.S. facility in Houston. Given the constructive natural gas macro and great production from that facility, it positions us well for future growth optionality. We still have sufficient capacity in current facilities but added land for future opportunities.

Q: Wondering if you can perhaps talk a little bit about what CapEx might look like in 2026 and beyond and I guess your longer-term expectations as they stand for growth of the U.S. compression fleet?

A: Recently, we announced $60 million growth earmarked for the U.S. contract compression fleet. We feel good about the market and natural gas macro, with the fleet expected to grow to around 475,000 horsepower by year-end. We're formulating formal plans for 2026, aligning with supply chain realities and customer planning cycles.

Q: Bookings number was really strong in the quarter. Was there anything lumpy in that? And can you provide any commentary on what you're seeing on the leading edge in the first sort of month or so of Q3?

A: We saw a more normalized order structure in Q2. There's nothing significant or lumpy in Q2 bookings. Looking forward, we continue to see good depth and opportunities in compression and gas processing, targeting a book-to-bill ratio of around 1x in coming quarters.

Q: You guys have been calling for a normalization in margins in the ES segment for a number of quarters now hasn't really come to fruition. How much, I guess -- can you talk about when you expect that normalization to start to hit financials?

A: We've seen some indications of margin normalization, but our teams have executed to deliver higher margins than historical. Our guidance reflects embedded margin and product mix shift. We expect margins to trend towards long-term averages while continuing strong operational execution.

Q: G&A was a strong number in Q2, down from Q1. Where do you see G&A trending as we go forward in '25 and into the out years?

A: Integration was completed last year, and we're realizing synergies. Full run-rate synergies will be achieved this year and next. We're consciously simplifying the business and optimizing legal entities and geographic footprint, with G&A being a key metric we focus on.