Enerflex Ltd. Q3 FY2025 earnings call

Strategic and Operational Highlights

• U.S. Contract compression fleet had 94% utilization in Q3 and on track to grow to ~485,000 horsepower by end of 2025; awarded a 200,000,000 cubic standard feet per day cryogenic gas processing facility contract.
• Completed Oman project ahead of schedule; delivered electric gas compression station in Argentina; received award for Guyana gas-to-energy project.

Business Lines

• Engineered Systems: Backlog $1,100,000,000 as of Sep 30, bookings $339,000,000 in Q3, book-to-bill ratio 0.9 times in Q3.
• Aftermarket Services: Benefited from increased activity levels and customer maintenance; trends expected to continue into 2026.
• Energy Infrastructure: Strong performance with ~$1,400,000,000 in revenue under contract, ~1,100,000 horsepower of operated compression and 24 BOOM projects.

Strategic Priorities

• Focus on strengths and excellence, stay true to values, emphasize discipline; near-term priorities include enhancing core operations, leveraging leading positions in core countries, maximizing free cash flow.
• Emerging opportunities in electrical power generation, including data centers, with modularized power generation solutions a core competency.

The energy infrastructure and aftermarket services business lines contributed 58% of gross margin before depreciation and amortization during the third quarter. The Engineered Systems business line had a backlog as of September 30 of $1,100,000,000, bookings of $339,000,000 during Q3, and a book-to-bill ratio of 0.9 times in Q3. The Aftermarket services business line benefited from increased activity levels and customer maintenance activities. The energy infrastructure business had approximately $1,400,000,000 of revenue under contract.

Financial Highlights

• Q3 revenue $777,000,000, adjusted EBIT $145,000,000 (new quarterly record).
• Gross margin before depreciation and amortization $206,000,000 (27% of revenue).
• Capital allocation: Targeted capital expenditures ~$120,000,000 in 2025; dividend increased by 13% to CAD 4.25 per common share; share repurchases in Q3.
• Guidance: Engineered Systems gross margin expected to align with historical averages.

Near-term risks monitored include tariffs and commodity price volatility.

Q: Hey, morning all. Thanks for taking my questions. And Paul, congratulations on the new role. I can appreciate you're gonna give us an update in the coming months, but I guess I'm just curious to know what the team is telling you throughout the early days of your tenure in terms of what they think Enerflex does really well and what they think needs to be improved? And how does your prior experience sort of inform your perspective?

A: Yes. Welcome. Thank you, Aaron, for the question and the comments. You know, first let me start that the openness and the transparency through my visitations for the first thirty days have been wonderful. I've probably met well over 1,300 to 1,400 people in thirty days. And so what I would say has been confirmation of really focusing and seeing the benefits still in front of us around ruthless focus on some execution levers. Being able to drive cost price opportunities and gross margin along with driving working capital efficiency and the efficient use of capital remain priorities as Enerflex has demonstrated. I do see opportunities to enhance our core operation with digitization initiatives and efforts all while staying focused on our investment discipline. That being, around investing in core competent areas, core countries, and having a very strong specific line of sight for customer activity.

Q: Hi, good morning. Thanks for taking my questions and welcome to the call, Paul. Just to continue on the power angle. I know you noted it was across engineered systems and energy infrastructure. Can you maybe just detail a little bit more how you think you might be able to participate in both of those areas? And then as a follow-up would just be what your readiness would be to capitalize on some of these opportunities. Certainly, as you've mentioned, speed is of the essence, and the market appears to be moving at a very fast rate with a lot of announcements out from various types of companies these days. So incremental color you can give on that would be appreciated.

A: Yeah. Sure. So as I mentioned, I think speed being directly correlated to some of the OEM delivery pieces is what we're working through at the moment. There's opportunity around the recip engine space, natural gas being cost-efficient, speed being a differentiator, and Enerflex having a history and ability to execute are all coming together. It's very, very dynamic. You know, I see opportunities in engineered systems, but what we haven't mentioned is there's a strong opportunity for a follow-on, aftermarket services play for operations and maintenance. So, it's very exciting. And we're working very hard to build those partnerships. Partnerships here are going to be not only with the supply base but also the power-related folks that are out there trying to solve this challenge for behind-the-meter activity and microgrid activity. And those partnership meetings and events have been occurring at a high pace.

Q: Hey. Good morning, everyone, and congrats, Paul. First question, I just wanted to follow-up on the Allergan portfolio. You mentioned in your prepared remarks that you might be developing some additional product lines that you think maybe are better suited. My understanding is you have a pretty wide breadth of, I guess, megawatt packages that you can package for the market, but perhaps more suited to the smaller end of that. Can you talk a little bit about what the demand looks like in terms of package sizes and where your product lines fit in and what you might be developing?

A: As Paul referenced in the prepared remarks, there's a very wide range of potential applications, both size that you referenced, as well as configurations. I don't think it's appropriate for us to get into the details of that in any specific nature on the call. But as we talked about, we see a wide range of applications and significant opportunities that could align with those as well.

Q: In terms of, I guess, the natural gas compression market, can you talk about leading edge demand a little bit and where we stand for lead times on key components like CAT engines and compressors?

A: Yeah. Good question, Tim. You know, clearly in the production oil and gas production space, let's focus maybe on the Permian a bit. You do see a constrained capital discipline environment that's impacting, right, drilling and completions and things like that. But what you're also seeing is operators really trying to get the most out of their dollar spend. And so production optimization, production efficiencies are very, very high on the agenda. What that looks like from a compression standpoint, you still see the centralization of compression happening and occurring. You're seeing growth rates in perhaps different production technologies that would utilize the gas, the available gas, gas lift production technologies. So the demand doesn't necessarily correlate with what you may think on drilling and completions and things. It's correlating to more centralization and leveraging gas for production optimization efforts.

Q: And then last one for me. Can you help quantify how much was pulled forward from Q4 into Q3?

A: Tim, I think the easiest rule of thumb is when you look at the average in the ES business over the last couple of years, it's been between $300,000,000 and $325,000,000 per quarter. If you look at what we reported at close at just over $400,000,000 or close to $400,000,000, you back out the BSAT C expansion that we referenced, I think that would give you an indication of the strength of Q3 and the execution we saw in Q3 relative to normal cadence.