Enerflex Ltd.

2025 earnings conference call. At this time all participants are on listen only mode. After the speakers presentation there will be a question and answer session. To ask a question during this session you'll need to press star 1-1 on your telephone. You'll then hear automated message advising your hand is raised. To withdraw your question please press star 1-1 again. Please be advised that today's conference is being recorded. I'll hand the conference over to your first speaker today Jeff Federle, Vice President Corporate Development and Capital Markets. Please go ahead.

Thank you Marvin and good morning everyone. With me today are Preet Dinza, Interim President and CEO, Joe Lettiser, Interim CFO and Ben Park, Interflex's Controller. During today's call our prepared remarks will focus on four key areas. One, the continued strong performance of Interflex's business. Two, our outlook and Interflex's strategic positioning. Three, capital allocation including our refined capital spending program for 2025, indirect returns to shareholders and four, our progress on near and long-term strategic priorities. Before I turn it over to Preet I'll remind everyone that today's discussion will include non IFRS and other financial measures as well as forward-looking statements regarding Interflex's expectations for future performance and business prospects. Forward-looking information involves risks and uncertainties and the stated expectations could differ materially from actual results or performance. For more information refer to the advisory statements within our news release, MD&A and other regulatory filings all available on our website and under our CDAR plus and EDGAR profiles. As part of our prepared remarks we will be referring to slides in our updated investor presentation which is available through a link on this webcast and on our website under the investor relations section. I'll turn it over to Preet.

Thanks Jeff and thank you all for joining us on this morning's call. We are pleased to report another strong quarter of financial and operating results that translated into a quarterly record for adjusted EBITDA. These results reflect solid performance across our geonecres and business lines as well as our ongoing efforts to optimize and streamline our business. Our energy infrastructure and aftermarket services business lines continue to deliver steady performance and reinforce Interflex's ability to generate sustainable returns across our global platform. Energy infrastructure and aftermarket services contributed 65% of gross margin before depreciation and amortization in the second quarter of 2025 and we expect these business lines will continue to represent the core of Interflex's profitability. We also maintain solid visibility on our engineering systems business supported by healthy 1.2 billion dollar backlog at the end of the second quarter. And now a few highlights from each of our business lines. The energy infrastructure business continues to perform well supported by approximately 1.5 billion dollars of revenue under contract. Our US contract compression fleet is an important part of our energy infrastructure asset base and the fundamentals for this business remain strong led by increasing natural gas production in the US. We're also pleased with the operational performance of our US contract compression business reflective of utilization remaining above 90% for the past 14 quarters and solid revenue for horsepower per month and profitability. These KPIs are highlighted in slides 18 and 19 of our investor presentation. Demand for new contract compression equipment in the US remains strong. We exit the quarter with 456,000 horsepower and expect to be over 475,000 horsepower by the end of this year. New units are being deployed under multi-year contracts and core operating regions with a focus on larger horsepower natural gas and electric drive applications. Slides 16 and 17 highlight the international energy infrastructure business which includes approximately 1.1 million horsepower of operating compression and 23 build, own, operate and maintain or boom projects in Bahrain, Oman and Latin America. Our two produced water projects in Oman continue to perform very well and we commission expansion of one project in early Q3 which is highlighted on slide 20. Our international energy infrastructure business is supported by approximately 1.3 billion dollars of contracted revenue and an average contract term for approximately five years. Turning to aftermarket services, this business line benefited from increased activity levels and customer maintenance activities during the quarter. We expect these trends to continue throughout the year of 2025. On the engineered system side we've maintained our backlog at 1.2 billion dollars at the end of the quarter consistent with the eight quarter average ES backlog of approximately 1.2 billion dollars. This sustained level of backlog over a two-year period reflects stable demand for enter flex ES solutions across global energy infrastructure markets. Enter flex recorded ES bookings of 365 million dollars during the three months ended June 30, 2025 compared to $31 million during the same period of 2024 in the eight quarter average of $329 million. ES product line maintained a book to bill ratio calculated as bookings divided by revenue of 1.1 times during the second quarter of 2025 indicating that new bookings are generally keeping pace with revenue recognition. The current balance between bookings and revenue supports near-term revenues visibility that reflects a stable demand environment. We expect ES revenue to remain steady in the near term and for growth margin from this business to align more closely with historical averages reflective of a shift in product mix. Demand across the ES product line remains constructive as we continue to actively monitor near-term risks and insurgencies including the impact of tariffs and commodity price volatility. We believe the median term outlook for ES products and services is attractive supported by anticipated growth in natural gas and produced water volumes across enter flex global footprints. Enter flex priorities in 2025 include enhancing the profitability of core operations, leveraging the company's leading position core operating countries to capitalize unexpected increases in natural gas and produced water volumes and maximizing free cash flow to strengthen enter flex financial position, provide direct shareholder returns and invest in selective customer supported growth opportunities. Before I turn the call over to Jo I'd like to call it briefly on our leadership transition. On March 19th enter flex announced that Mark Rosser stepped down as president CEO and director. Concurrently I assumed the role as interim president CEO and Jo as interim CFO. The board is undertaking a comprehensive search to identify the company's permanent CEO and has retained a leading global search firm to assist with this process. The search is making good progress and will not be and we will not be commenting further. With that I'll turn it over to Jo to speak to the financial side.

Thank you, Brayden. Good morning everyone. I'll start with highlights from the second quarter. We reported consolidated revenues of $615 million compared to $614 million in Q2-24 and $552 million in Q1-2025. Gross margin before depreciation and amortization was $175 million or 29% of revenue compared to $173 million or 28% of revenue in Q2-2024 and $161 million or 29% of revenue during Q1-2025. As pre-referenced the EI and AMS product lines generated 65% of consolidated gross margin before depreciation and amortization during Q2- 2025 and we continue to expect similar results for the remainder of the year. Energy infrastructure performance continued to be strong with gross margin before DNA of $86 million compared to $77 million in Q2-24 and $86 million in Q1-25. Aftermarket services gross margin before DNA was 23% in the quarter benefiting from strong customer maintenance programs. SG&A was $61 million for the three months ended June 30, 2025 down $14 million for the prior year period. This is driven by cost saving initiatives, improved operational efficiencies, and the absence of one-time integration costs that were occurred in Q2-2024. Adjusted EBITDA was $130 million which represents a new quarterly record for Enerflex. This compares to $122 million in Q2-24 and $113 million during the first quarter of 2025. Cash provided by operating activities before changes in working capital or FFO increased to $89 million in Q2-2025 compared to $63 million in Q2-24 and $62 million in the first quarter of 2025. This is a function of higher adjusted EBITDA, lower net finance costs, and lower current tax expense. Free cash flow was a use of cash $39 million in Q2-2025 compared to a use of cash of $4 million during Q2-24 and a source of cash of $85 million during Q1-2025. Compared to the second quarter of 2024, an increase in capital was more than offset by an increased growth capital spending and a bill to net working capital. Notably, strategic inventory investments to support future projects including work in progress related to EI assets and purchases of select major components with increasing lead times, income taxes payable, and finally executive transition costs. Compared to the first quarter of 2025, net working capital was also impacted by an increase in accounts receivable which related to strong revenue recognition during the latter part of the quarter which we expect to normalize. Now I'd like to touch on our financial position. We exited the quarter with net debt of $608 million which included $71 million of cash and available liquidity of $630 million compared to $672 million in the first quarter. Interflex's bank adjusted net debt to EBITDA ratio was approximately 1.3 times at the end of Q2-25. That is down from 2.2 times at the end of Q2-2024 and consistent with Q1-2025. Further details are included on slide 13 of our investor presentation. Entering Q3, Interflex entered into an amended and restated credit agreement with respect to its syndicated secured revolving credit facility, the RCF. The maturity date of the RCF has been extended by three years to July 11th, 2028 and availability is unchanged at $800 million. Now let me shift to capital allocation. First on our CapEx plans. We invested $71 million in the business consisting of $34 million in capital expenditures, $23 million of which was for growth and $37 million for expansion of an EI project in our Eastern Hemisphere region that was commissioned in Q3-2025 and is now accounted for as a finance lease. Full year 2025 capital spending is now expected to approximate $120 million compared to our previous guidance of $110 million to $130 million. This includes approximately $60 million earmarked for growth initiatives compared to the previous guidance of $40 to $60 million. Growth investment will focus on customer supported opportunities primarily in the US contract compression business line where the fundamentals remain strong. Maintenance and PPE capital expenditures are now expected to be approximately $60 million compared to our prior guidance of $70 million and this is reflective of our continued efforts to realize efficiencies across our operations. And now I'll turn to direct shareholder returns. EnterFlex returned $18 million to shareholders in Q2 through dividends and share repurchases. Our NCIB commenced on April 1st and authorizes the company to repurchase up to approximately 6.2 million shares through the end of March 2026. EnterFlex repurchased ,899,200 common shares at an average price of $10.08 Canadian per share during the second quarter. Going forward capital allocation decisions will be based on delivering value to EnterFlex shareholders and measured against EnterFlex's ability to maintain balance sheet strength. In addition to discipline growth capital spending, share repurchases and dividends, EnterFlex will also consider further debt reduction to strengthen its balance sheet and lower net finance costs. Unlocking greater financial flexibility positions the company to respond to evolving market conditions and capitalize on opportunities to optimize its debt stack. I want to thank EnterFlex employees for their efforts in delivering strong operational financial results. We continue to prioritize profitability and operational resilience to ensure EnterFlex delivers strong and reliable returns for our shareholders. With that I will turn the call back to Preet for closing remarks.

Thanks Joe. We've made significant operational, financial, and strategic strides in recent quarters. I want to thank the EnterFlex team across our global operations for their efforts delivering these results. We believe the long-term fundamentals driving our growth including global energy security and the continued increase in demand for natural gas remain firmly in place. We believe EnterFlex is well positioned for those fundamentals and we are focused on taking advantage of opportunities across our global platform. I look forward to building on our progress and with that we will now turn the call to the operator for questions.

Thank you. At this time we'll conduct the question and answer session. As a reminder to ask a question you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Keith Mackey of RBC Capital Markets. Your line is now open.

Oh hi, good morning. Just curious if you can comment a little bit more on what's driving the tightness in utilization in US contract compression. How sustainable do you think that is and ultimately what underpins your confidence in increasing your investment in that division now?

Morning Keith, it's Jeff.

As we've talked about in prior quarters we're seeing a favorable supply-demand balance across the US contract compression market and the supply side is very much a function of the discipline we're seeing from the three largest competitors. Underlying that is the market continues to grow nicely in line with the supply growth from the natural gas standpoint in the US as well. As we've talked about in previous quarters the contract durations that we're signing for both new equipment and on renewals of existing equipment have continued to lengthen over the last year and our expectation is that we'll continue to see those fundamentals in place. So the the increase in our guidance from a growth capital standpoint to the top end the range is to support the continued demand that we're seeing from customers and opportunities across the US especially in the Permian and we believe those investments are de-risked by the longer duration contracts that have been put

in place to support those assets. Understood. Can you

just comment also a little bit more on the type of growth you expect to see out of that division over the next two, four plus quarters to the extent that you can kind of map the investment and the market into your financial results?

So

from a fleet side we exited Q1 at just under 450,000 horsepower. We're at 456,000 coming out of the end of the quarter into June as we've talked about in guidance the expectation is that the fleet will be over 475,000 horsepower by the end of the year. We do expect those additions to be more weighted to the fourth quarter than the third quarter but those assets as they're deployed go on contract and go on rent so we'd expect the financial performance of the business to to move concurrently as the fleet continues to grow as pre-talked about in his prepared remarks. Our expectation and visibility is for utilization and pricing to remain stable and attractive across that business so we don't expect any significant impact from that side in terms of the financial performance

for our contract compression business. Understood. That's it for me. Thanks very much.

Thank you. One moment for our next question. Again as a reminder to ask a question you'll need to press star 1-1 on your telephone. In our next question comes from line of Tim Monagello of ATB Accountable Markets and line is now open.

Hey good morning everyone. Can you hear me?

Yeah, good morning Tim.

Okay cool. I'm just curious, Presley's mentioned expanding the North American manufacturing facility. Can you elaborate on what you're doing there?

Can you just repeat the last part of that Tim? I'm just

wondering if you can elaborate on what you're doing with that expansion.

Yeah so we took on a little bit more land adjacent to our US facility in Houston. We had the option to take it. Our view is that given the constructive natural gas macro we've got great production out of that facility and just want to keep optionality for future growth as and when appropriate. We've got a significant facility there as well as Broken Arrow and the opportunity came up to take the land so we did it. And once again it just positions us well for taking advantage of any further follow-on activity that we can execute on through that plant.

Okay but are you running anywhere close to capacity in your current manufacturing facilities in North America?

We still have a fair bit of capacity and we've got a great talent pool and we can flex up and down as necessary with that talent pool in Houston as we're talking about primarily. But overall we've got sufficient capacity and that additional land creates optionality for future growth of the business. Yes, that is business.

Okay got it. I'm 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 US compression fleet?

I'll start with it maybe Jeff will lead into that. So this recently we just just announced 60 million growth primarily earmarked for the US contract compression fleet. We do feel good about the depth of the market and the constructive natural gas macro as we mentioned and continue to build to the end of this year in the US fleet up around 475,000 horsepower from quarter 28,000 at the end of last year. But overall you know growth is a very important lever that we can deploy free cash flow and we do feel the market in the US fleet highly constructive, good economics meaning utilization and revenue per horsepower per month. So we feel good about what we've invested in we plan to invest this year and we'll follow on in 2026.

As Tim has

mentioned in his prepared remarks around the working capital side we've been making strategic investments on the inventory side reflective of increasing lead times on equipment especially the engine side and so we're trying to align ourselves with the customers planning cycle and our strategic partnerships that we have in that business and so we're still formulating our formal plans for 2026 but we are certainly progressing quicker than in prior years associated with mapping out our growth and growth intentions going into next year.

Okay got it and I guess given that you're a vertically integrated player in the US rental compression space what do you think your time to market is for new compression versus what it might be for some of your competitors that use third-party manufacturer?

A little bit of a subjective question because it depends on an application equipment scheduling but we still believe that our time to market is a competitive advantage relative to other players in the market and those especially that are not vertically integrated.

And you'd have a cost advantage as well I imagine?

We believe so yes.

Okay booking summer is really strong in the quarter was there anything lumpy in that and can you provide any commentary what you're seeing on the leading edge in the first sort of month or so of Q3?

As Preet talked about in his prepared remarks and we saw much more normalized reflective order structure during the second quarter as we talked about back in May you know first quarter bookings for us were partly impacted by a pull forward into the fourth quarter but then also some selected pauses on the customer side. We saw much more normalized cadence for order flow in the second quarter. To your specific question there's nothing significant and lumpy in the second quarter bookings that we don't expect to be normal course. As we look forward into the third and fourth quarters we continue to see good depth and good opportunities within the market. They touch on both the compression and the gas processing or deep cut side and we expect as we've talked about sort of when you look at the eight quarter average for bookings at about 330 million we continue to target a book to bill ratio of around one times in coming quarters.

Okay and you have been calling for a normalization and 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?

You've seen some indications of it but the team has done a fantastic job of executing and delivering margins that are higher than we've seen on historical basis. The guidance that we're providing we believe is reflective of embedded margin but also the mix that we're seeing in the shift more towards compression based work relative to gas processing work. So we're still comfortable with margins trending towards the long-term average but also very much reflective of the strong operational execution our teams have been doing as well.

So do you think it's plausible that if your teams continue to execute you can continue to maintain margins that are above the level you've seen over the last two quarters?

We continue to challenge them to deliver strong margins but our guidance is reflective of what we believe a good base case is today.

Okay and then the last one for me I promised. GNA was a strong number in Q2 down from Q1. Where do you see GNA trending as we go forward in 25 and into the out years?

Tim, as we've been mentioning over several quarters integration was done last year. We've got some synergies out of integration. Full run rate synergies are going to be achieved this year and next year. So we feel good about the level of GNA and that's a high focus of ours as we continue to simplify our business. You know get out legal entities that that are somewhat dormant and just look at our geographic footprint. So we're consciously looking at ways to simplify and optimize our business and GNA is a key metric that we continually

focus on.

Okay appreciate it. I'll turn it back. Congrats on a great four.

Thanks Tim. Thank

you.

Thank you. I'm showing no further questions at this time. I'll now turn it back to Preet and stuff for closing remarks.

Since there are no further questions thank you for joining today's call. We look forward to providing you with our third quarter financial results in November.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.