Enerflex (EFXT) Q2 2026 Earnings Call Transcript

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DATE

Thursday, August 6, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer - Paul E. Mahoney
• Senior Vice President and Chief Financial Officer - Preet Dhindsa
• Vice President of Corporate Development and Capital Markets - Jeffrey Eric Fetterly
• Controller - Ben Park

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TAKEAWAYS

• Revenue -- $582 million, a decrease from $615 million due to project sequencing and resource allocation for U.S. contract compression fleet expansion.
• Net Earnings -- $30 million or $0.25 per share, reflecting higher share-based compensation and a lower unrealized gain on redemption options compared to the prior year.
• Adjusted EBITDA -- $128 million, representing a slight decrease from $130 million as a result of increased investments in operational improvements.
• Engineered Systems (ES) Backlog -- $1.5 billion, reaching a record level for the company and providing visibility into future revenue.
• ES Bookings -- $488 million, driven by strong demand for cryogenic gas processing, LNG refrigeration, and power generation equipment.
• Energy Infrastructure (EI) Contract Backlog -- $1.2 billion, representing contracted revenue over the remaining terms of existing customer agreements.
• Free Cash Flow -- $32 million, an increase from a use of cash of $39 million in the prior year period due to improved working capital management.
• Net Debt -- $455 million, a reduction of $153 million year over year and $46 million since the beginning of 2026.
• Bank-adjusted Net Debt to EBITDA Ratio -- 0.8x, down from 1.3x at the end of the second quarter of 2025.
• Return on Capital Employed (ROCE) -- 15.4%, a decrease from 16.4% in the prior year primarily due to lower trailing 12-month EBIT.
• 2026 Organic Capital Expenditure Guidance -- $185 million to $195 million, narrowed from the previous range of $175 million to $195 million.
• Growth Capital Expenditure -- approximately $100 million, primarily allocated to the expansion of the U.S. contract compression fleet.
• U.S. Contract Compression Utilization -- 93% across a fleet of 496,000 horsepower, reflecting strong production activity in the Permian Basin.
• Fleet Growth Target -- 10% to 15% year-over-year growth for 2026, with the majority of additions expected in the second half of the year.
• Middle East Installed Capacity -- approximately 350,000 horsepower across 17 projects in Bahrain and Oman, encompassing compression and power generation applications.
• Distributed Power Project Pipeline -- more than 7 gigawatts, driven by increasing engagement with data center operators and prime power providers.
• ES Book-to-bill Ratio -- 1.5x for the first half of 2026, indicating that new bookings are outpacing revenue recognition.
• Core SG&A -- $58 million, compared to $52 million in the prior year period due to investments in growth and operational efficiency.
• Revolving Credit Facility (RCF) Extension -- June 30, 2029 maturity date, maintaining $800 million in availability with an increased accordion feature of up to $200 million.
• Purchase Obligations -- approximately $521 million in 2026 and $350 million in 2027, secured to support multiyear fleet growth through 2029.
• Gross Margin Before Depreciation and Amortization -- $173 million or 30% of revenue, with Energy Infrastructure and After-Market Services contributing 69% of the total.
• Maintenance Capital Expenditure Guidance -- $70 million to $80 million, which remains unchanged from the original 2026 outlook.
• PP&E and Infrastructure Investment Guidance -- approximately $15 million, intended to support the ES business and adjacent electric power generation markets.
• Cash Provided by Operating Activities (CFO) -- $89 million, including a net working capital recovery of $2 million.
• International EI Average Remaining Contract Term -- approximately five years, providing durable and predictable cash flows.

SUMMARY

Management at Enerflex Ltd. (NYSE:EFXT) reported that consolidated results were driven by the Energy Infrastructure and After-Market Services segments, while the Engineered Systems business secured new project bookings. The company stated it has implemented a unified North American operational framework designed to improve collaboration and leverage scale across regional markets. Management indicated that strategic focus remains on distributed power solutions and high-value infrastructure opportunities globally. The company also prioritized capital allocation toward fleet expansion while maintaining a disciplined balance sheet through debt reduction and credit facility extensions.

• CEO Mahoney stated that the "year is off to a strong start with first half bookings approaching $1 billion or approximately 75% of our full year bookings during 2025."
• The company launched its Houston-based remote operations center, leveraging smart dispatch technology and ReliaCore Edge devices to connect customer assets with technical expertise.
• Management confirmed that the divestiture of the majority of its Asia Pacific operations to INNIO Group remains on track to close during the second half of 2026.
• The company secured a commitment for gas compression stations in the Vaca Muerta play in Argentina, supported by a long-term contract with a strategic client.
• Management reported that the 7-gigawatt distributed power pipeline includes intense commercial focus on the top 2 gigawatts of opportunities.
• Despite regional volatility, the company's Middle East operations have remained uninterrupted to date, with local teams executing established contingency plans.
• The unified North American framework was created to unlock collaboration and standardize services across the Canadian and U.S. operations.

INDUSTRY GLOSSARY

• After-Market Services (AMS): Segment providing parts, maintenance, and repair services for energy equipment.
• Book-to-bill Ratio: The ratio of orders received to revenue recognized, used as an indicator of future demand.
• BOOM: Build-Own-Operate-Maintain; a contract structure where the service provider owns and operates the equipment for a fee.
• Distributed Power Solutions: On-site power generation using natural gas or other fuels, often used for data centers or industrial applications.
• Energy Infrastructure (EI): Enerflex segment focused on long-term rental and operation of natural gas compression and processing equipment.
• Engineered Systems (ES): Segment providing custom and standard compression packages, processing equipment, and power solutions.
• Permian Basin: A large sedimentary basin in the southwestern United States known for significant oil and natural gas production.
• RCF: Revolving Credit Facility; a flexible line of credit provided by lenders to a company.
• ReliaCore: A digitally connected service platform used by Enerflex for remote asset monitoring and predictive maintenance.
• Vaca Muerta: An unconventional shale gas and oil formation located in the Neuquén Basin in Argentina.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Enerflex Second Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeffrey Eric Fetterly, Vice President of Corporate Development and Capital Markets. Please go ahead.

Jeffrey Eric Fetterly: Thank you, Shannon, and good morning, everyone. With me today are Paul E. Mahoney, Enerflex's President and CEO Preet Dhindsa, Senior Vice President and Chief Financial Officer and Ben Park, Enerflex Controller. Before I turn it over to Paul, I will remind everyone that today's discussion will include non-IFRS and other financial measures as well as forward looking statements regarding Enerflex' 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 SEDAR plus 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 will now turn it over to Paul.

Paul E. Mahoney: Thanks, Jeffrey, and thank you all for joining us on this morning's call. During the second quarter, Enerflex delivered solid operational performance, reflecting disciplined execution, and our focus on operational excellence. Results continue to be underpinned by our energy infrastructure and aftermarket services business lines. While the engineered systems business maintained strong commercial momentum. As we highlighted during our investor update in May, Enerflex is focused on competing intentionally in the markets where we can win. Improving relentlessly through operational excellence, and delivering disciplined growth for our shareholders. We are moving with urgency to execute on these priorities including initiatives to enhance collaboration, leverage our scale improve operational efficiency and strengthen our capabilities across the business.

Let me speak in more detail about near term performance. Starting with Engineered Systems, bookings remain very strong during the quarter at $488 million compared to a trailing 8-quarter average of $3.63. The year is off to a strong start with first half bookings approaching $1 billion or approximately 75% of our full year bookings during 2025. Strong bookings has translated into increasing visibility for our ES business. With a book-to-bill ratio of 1.5x during the first half of 26 and our forward visibility for ES revenue increasing to $1.5 billion the highest level in Enerflex's history.

ES bookings during the second quarter reflect a broad mix of end markets, including cryogenic gas processing, refrigeration for LNG exports, large compression stations, and power generation. The outlook for our Engineered Systems business remains strong. Supported by healthy demand for compression and processing equipment across our key markets. Together with increasing natural gas associated liquids, and electric power generation activity. Interest in Distributed Power Solutions also continues to build. With our pipeline of opportunities now exceeding 7 gigawatts, across data center and other power generation applications. Turning to aftermarket services. Results improved during the second quarter after a slower start to the year in North America.

Performance reflected steady customer maintenance spending, particularly in regions where we also operate energy infrastructure assets. Highlighting the strength of our integrated platform, and competitive positioning across our core markets. As highlighted during our investor update, our core priorities for the AMS business include: 1. growing profitable services notably in our retrofit segment. 2. optimizing costs through base and focus and pooling of resources across AMS and contract compression business lines. And 3. capturing opportunities for installation and O&M services associated with power generation. The energy infrastructure business continues to deliver solid performance supported by approximately $1.2 billion of contracted revenue over the remaining terms of our customer contracts. Within this segment, Enerflex's U. S.

Contract compression business continues to perform well, led by increasing natural gas production in the Permian Basin. Utilization was strong at 93% across a fleet of approximately 496 thousand horsepower. Additional operating KPIs for the business are available on Slides 33 and 34 of our investor presentation. We continue to target customer supported fleet growth of 10% to 15% during 2026, with the majority of additions in the second half of the year. We are also securing long lead time components to support fleet growth in 2027, 2028 and 2029. Turning to our international energy infrastructure operations, which are outlined on Slides 31 and 36.

This portfolio continues to be supported by a strong contract position with a weighted average remaining term of approximately 5 years providing durable and predictable cash flows that we expect will continue to support Enerflex's financial performance for years to come. I would also like to touch briefly on our operations in The Middle East. While we continue to closely monitor the situation in the region, our operations have remained uninterrupted to date. The safety of our people remains our highest priority, and our local teams continue to execute established response processes and contingency plans while maintaining reliable operations, for our customers.

Today, Enerflex's operations in Bahrain and Oman comprise of 17 projects supported by an installed fleet of approximately 350 thousand horsepower across compression and power generation applications. We remain focused on supporting our customers while continuing to execute safely and reliably across the region. Let me now speak about progress. We are making on the strategic priorities outlined during our investor update in May. We continue to advance a disciplined enterprise wide approach to operational excellence. We are also progressing the professionalization of our $1.9 billion per year enterprise wide supply chain. Driving productivity improvements and modernizing IT and automation systems. We expect each of these initiatives to be meaningful contributors in achieving our financial objectives.

Preet will provide additional detail on the financial impact and targets associated with these priorities during his prepared remarks. We have developed 5 specific work streams. With meaningful projects underway in each region and across key partner functions. 1. 1 example is the recent alignment of our Canadian and US operations under a unified North American framework. This change is designed to unlock greater collaboration, leverage our scale, drive standardization, improve operational efficiency and strengthen customer service. Enerflex reached several important ReliCore milestones in the quarter. Advancing the company's digitally connected service ecosystem. We launched our Houston based remote operations center.

Leveraging smart dispatch technology to connect customer assets with technical expertise and intelligent workflows. as well as developed and deploying Enerflex's first ReliCore Edge devices. Together, these capabilities extend service coverage, accelerate issue resolution, and build the foundation for advanced analytics and predictive maintenance capabilities that are expected to improve asset performance, reduce downtime, and create long term economic value for both Enerflex and our client partners. Let me conclude by reiterating that our priorities remain clear. As a company, we are focused on improving productivity across our global operations. Pursuing the highest value growth opportunities in markets where Enerflex can win and allocating capital in a disciplined manner to drive long term value creation.

We are encouraged by early progress and we remain focused on building momentum as we execute against these initiatives. We look forward to providing updates on our progress over the coming quarters. With that, I will turn the call over to Preet to speak to the financial highlights.

Preet Dhindsa: Thanks, Paul, and good morning, everyone. Start with highlights from the second quarter. We generated revenue of $582 million compared to $615 million in Q2 25 and $584 million in Q1 2026. Lower revenue compared with prior year was primarily driven by project sequencing and resource allocation for expansion of Enerflex's U. S. Contract compression fleet, within the engineered systems product line. ES book-to-bill ratio calculated as bookings divided by revenue was 1.6x during Q2 2026, and 1.5x during the first half of the year. This translated into our backlog increasing to a record $1.5 billion at the end of Q2. Gross margin before depreciation and amortization was $173 million or 30% of revenue.

Compared to $175 million or 29% of revenue in Q2 25 and $179 million or 31% of revenue during Q1 2026. Energy infrastructure and AMS product lines generated 69% of consolidated gross margin before depreciation and amortization. During the quarter. ES gross margin before depreciation and amortization of 18% in Q2 26 compared to 18% in Q2 2025 and 19% in Q1 26 with a sequential decrease related primarily to revenue mix and project sequencing. SG&A was $81 million for 3 months ended June 30, 2026. Up $20 million from the prior year period due to higher stock based compensation expense and investments to support growth and operational improvements.

Core SG&A was $58 million for the 3 months ended June 30, 2026. Compared to $52 million in Q2 2025, and $55 million during the first quarter of 26. Adjusted EBITDA of $128 million compared to $130 million in Q2 25 $137 million in Q1 2026. Cash provided by operating activities before changes in working capital or FFO of $87 million in Q2 26 compared to $89 million in Q2 25 and $95 million in Q1 26. A function of lower adjusted EBITDA.

Cash provided by operating activities, or CFO was $89 million which included net working capital recovery of $2 million This compares to cash used in operating activities of $4 million in Q2 25 and cash provided by operating activities of 32 million in Q1 26. Free cash flow increased to $32 million in Q2 2026 compared to a use of cash of $39 million during Q2 25 and a source of cash of $15 million during Q1 26. The increase in free cash flow compared to prior year and prior period reflected higher CFO, being partially offset by higher capital spending.

Return on capital employed was 15.4% in Q2 26 compared to 16.4% in Q2 2025 and 17.3% during Q1 2026. Lower ROCE primarily reflects the decrease in trailing 12-month EBIT, which is impacted by unrealized gains on redemption options related to the senior secured notes recognized in prior periods, partially offset by lower average capital employed primarily due to decline in net debt. Net earnings of $30 million or $0.25 per share in Q2 26 compared to $60 million or $0.49 per share in Q2 2025 and $43 million or $0.35 per share in Q1 2026. Compared to Q2 25, profitability benefited from lower net finance costs.

However, it was offset by higher share based compensation expense and an unrealized gain of $15 million related to the redemption options of his senior secured notes recognized in the prior year. Enerflex exited Q2 2026 with net debt of $455 million which included $74 million of cash and cash equivalents, reduction of $153 million compared to Q2 25 and $46 million since the beginning of 2026. Enerflex's bank adjusted net to EBITDA ratio is approximately 0.8x at the end of Q2 26, down from 1.3x at the end of Q2 2025 and 0.9x at the end of Q1 2026.

On June 24, Enerflex entered into an amended and restated credit agreement with respect to our syndicated secured revolving credit facility. The maturity date of the RCF has been extended to June 30, 2029, and availability is unchanged at $800 million The limit under the RCF may be increased by up to $200 million at the request of the company subject to lenders' consent, compared to $50 million previously. Enerflex also continues to maintain a $70 million unsecured LC facility with 1 of its lenders and its RCF syndicates. Let me now shift to capital allocation.

We invested $53 million in the business during the second quarter, comprised of $35 million for growth, primarily allocated to expand the company's contract compression fleet in The U. S. And $18 million for maintenance and PP&E.

Enerflex is refining its capital expenditure range for 2026 now targeting organic growth capital expenditures of $185 million to $195 million compared to prior guidance of $175 million to $195 million The updated guidance includes organic growth capital expenditures of approximately $100 million prior guidance of $90 million to $100 million maintenance capital expenditures of $70 million to $80 million unchanged from original guidance and PP&E and infrastructure investments of approximately $15 million to support the company's ES business and activity in adjacent markets including electric power generation. Enerflex continues to evaluate selective, disciplined bolt on acquisition opportunities. Inorganic growth will be focused on enhancing capabilities and accelerating scale in the company's core North American markets.

All opportunities will be balanced with Enerflex's focus on maintaining a strong financial position and opportunities to provide direct shareholder returns. Lastly, I would like to touch on the value creation drivers connected to our strategic objectives. These were highlighted during our Investor Day in May and are summarized on Slide 16. Our objectives on a full cycle basis are to grow our business ahead of underlying markets, increase profitability, and prioritize disciplined capital allocation. Specifically, we are focused on increasing adjusted EBITDA margin by 200-plus basis points improving cash conversion ratio by 200-plus basis points and driving return on capital employed 200-plus basis points higher.

As highlighted by the steady improvement in adjusted EBITDA margin shown on Slide 9, we are encouraged by early progress and look forward to providing further updates. With that, I will turn the call back over to Paul for closing remarks.

Paul E. Mahoney: As we have discussed today, we continue to make meaningful progress executing our strategy while maintaining a disciplined focus on operational excellence, profitable growth and capital allocation. We believe the fundamentals across our core markets remain attractive and Enerflex is well positioned to capitalize on those opportunities through our integrated platform global footprint, and long standing customer relationships. While there is still work ahead, I am confident in our team's ability to create long term value for our shareholders. I would like to thank our employees around the world for their continued dedication and I would also like to thank our client partners suppliers, and stakeholders for their ongoing support.

I will now turn the call back to the operator for questions.

Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Please stand by. Our first question comes from Keith MacKey from RBC Capital Markets. Please go ahead.

Keith MacKey: Hey, good morning, and thanks for taking my questions. Just firstly on the capital investment raise or refinement, can you just kind of run through the priorities for that spend? What gives you the confidence in the returns that you will generate from it, and, you know, is this-- is it-- is the increase based on inflationary factors or is it an increase in the amount of work you are actually able to put out?

Paul E. Mahoney: Yeah. Good question, Keith. Yeah. As you know, it is primarily our contract compression business. And so the refinement on the upper range is really a confidence in our ability to contract a business. We do have our 26 log filled. We do have portions of our 2027 log filled, and so it is more of increasing than it is an inflationary related item.

Keith MacKey: Got it. Appreciate the color there, Paul. Maybe just to follow-up on the bookings. Certainly, very strong this quarter. Can you comment on the mix of those bookings? Was there any data center activity in those? And ultimately, you know, do you expect the $400 million to $500 million range to be the new normal for Enerflex over the next 12 months? Or was this an exceptional quarter? Exceptional first half, I should say.

Paul E. Mahoney: Yeah. Great question, Keith. And along our commitments in our Investor Day regarding growing above market This is yet another quarter in a row of increasing bookings and Q2 is watermark for us. It does not include any bookings for data center in there. there is cryogenic gas processing, there is refrigeration processing for LNG export. Large compression, and some industrial related power in that. So this has been a multi-quarter expression of bookings, and we see this continuing here into Q3. And just to reiterate, Q2 does not have data center elements in it.

Keith MacKey: Okay. Thanks very much.

Operator: Thank you. Our next question comes from Tim Monachello from ATB Cormark Capital Markets. Please go ahead.

Tim Monachello: Thanks for taking my questions. The EI backlog continues to sort of trend lower. The revenue throughput seems to be pretty consistent, and obviously those projects are long in duration. I am just curious if you are expecting to see that revenue profile decline or if there is some perhaps contract renewals in the foreseeable future that will start to boost that backlog?

Paul E. Mahoney: Yeah. Look, Tim, great question. I would say that what you are seeing and witnessing is the result of optimizing our footprint. it is not as much about contract rollover if you will, on the large BOOM contracts. it is more about optimizing our footprint mainly in our Latin American region. So just to put some color behind what you are seeing, Okay.

Tim Monachello: that is helpful. And then a lot of players in the U.S. contract compression market have been talking about extending lead times, even further now. For engine components up to almost 4 years now. Can you talk a little bit about your strategy to be able to fulfill new orders given that extending lead time for components, if there is anything we can do outside of normal supply chain channels to procure engines, within the market.

Paul E. Mahoney: Yes, and the company has purchase obligations over the next 4 years from 2026 through 2029 significant, right? We have $521 in 2026, dollars $350 some-odd million in 2027, and $191 million in 2028, and $53 million in 2029. So I would say we are in an interesting position having an advanced SNOP process. While the lead times have gone out. And, yes, do we need to look for some alternative items outside of engines and things like that? We constantly are seeking and working that. But this is an area that I think our team has done a remarkable job putting in the purchase obligations.

We have clear line of sight, 2026 and 2027, and we are working from that type of framework on the engine. So again, I think it is a unique strength being in the compression business. At large, both contracts and the purchase side. and a normal standard SNLP process that is been extending over the last 12-plus months.

Tim Monachello: Okay. Got it. And then last 1 for me just on the power gen opportunity set that continues to grow. Can you talk a little bit more about the strategy and the go-to-market and if you are finding any partners in the hyperscaler space or any other partners that may be showing a little bit of momentum and could point to some medium term more tangible results in terms of bookings in that space?

Paul E. Mahoney: Yes, great question, Tim. I would tell you that we have reported many quarters now about our growing C in the market, which is at 7 gigawatts. We have reported out on that. I would tell you that our commercial operations and our organization has been intensely focused on probably the top 2 gigawatts. And as we continue to drive that intensity, what we are seeing is an advancement in our sales funnel on that level of activity. So our engagement is with hyperscalers, and our engagement is with prime power providers.

The partners come and go, but I would say that the stable connectivity that Enerflex has been able to achieve with the hyperscalers has been consistent now for a few quarters.

Tim Monachello: Alright. I appreciate it. I will turn it back.

Operator: Thank you. I am showing no further questions at this time. I would now like to turn it back over to Paul E. Mahoney for closing remarks.

Paul E. Mahoney: Well, thank you, everyone, for joining us today and for your continued interest in Enerflex. We appreciate your time and look forward to providing further updates on our strategic progress with third quarter results at the end of October. Thank you.

Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

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