20
23
Annual Report
In the ever-changing global energy market, we are
building a better future. From cutting-edge engineering
to best-in-class manufacturing and after-market service,
our end-to-end approach adds exceptional value to the
entire natural gas, low-carbon and treated water value
chains. We’re more committed than ever to deploying and
servicing sustainable energy infrastructure that secures
our energy needs for today, while preparing us for the
challenges of tomorrow. We know growing global energy
needs will demand better equipment, enhanced services,
and forward-thinking solutions. So we’re building
tomorrow from the ground up. The journey starts today.
And it starts with us — Enerflex, the builders of a better
energy future.
2
Annual Report
2023
Content
4
6
60
61
CEO Message to Shareholders
Management’s Discussion and Analysis
Management’s Responsibility for
Financial Position
Management’s Responsibility for Internal
Control Over Financial Reporting
64
Independent Auditor’s Report
69
Consolidated Financial Statements
and Notes
124
Directors and Executives
125
Shareholder Information
3
CEO Message
to Shareholders
Dear Fellow Enerflex Shareholders,
On behalf of the Executive Management Team, Board of Directors,
and my 4,800 Enerflex teammates worldwide, I would like to thank
you personally for your continued support of Enerflex. I am pleased to
report that, thanks to the hard work and dedication of our incredible
team, 2023 was a year of noteworthy progress at Enerflex. While there
is still significant work ahead of us to achieve our objectives, we made
meaningful strides in advancing the business during 2023 and believe
Enerflex is in a position of strength as we begin 2024.
Executing on our Goals
Today, as a result of our success integrating the Exterran acquisition
and the decisive actions we have taken to optimize our combined
company’s geographic footprint and business model, Enerflex is
operating with increased scale and efficiency. We have significantly
expanded our product offerings to deepen our ability to serve our
client partners across the energy value chain, capitalize on and help
advance the ongoing energy transition, and pursue opportunities
across the water solutions vertical. We continue to be impressed by
the relentless commitment of our team to serving our global clients,
and as we progress through 2024, I look forward to all that we will
accomplish together.
Enerflex has a proud 40+ year history, and our mission, vision, and
purpose remain as important as ever: Transforming Energy for
a Sustainable Future. Enerflex is a meaningful contributor to the
energy transition, enabling safe and efficient capture, processing,
and transportation of natural gas. Our Company has established
itself as a prominent and trusted partner to its global clients, and we
expect demand for the services we offer to further increase in the
coming years.
As our client partners continue decarbonizing their operations, Enerflex
has aligned its goals and strategy to profitably help them achieve
their sustainability objectives. With a thoughtful, decisive, and creative
approach to our business, Enerflex is poised to capitalize on the growing
demand for sustainable energy infrastructure through our vertically
integrated natural gas, treated water, and energy transition offerings.
As consolidation across the industry continues, our enhanced scale
enables Enerflex to be a more meaningful partner to our clients. This is
especially critical as demand for natural gas and related products and
services is expected to continue to grow for years to come.
Of particular significance, in 2023, the Company achieved a total
recordable incident rate (TRIR) of 0.42. This is the lowest annual TRIR
that the Company has achieved in more than two decades and is a
further improvement from 2022 of 0.46.
Marc
Rossiter
President, Chief Executive
Officer, and Director
4
Annual Report2023 2024 Priorities
Enerflex is poised to generate strong operational and financial results
in 2024, underpinned by our highly contracted Energy Infrastructure
product line and the recurring nature of After-Market Services.
Complementing Enerflex’s recurring revenue businesses is the Engineered
Systems product line, which carried a backlog of approximately CAD$1.5
billion (US$1.1 billion) as at December 31, 2023 and is expected to
benefit from increasing natural gas production in our core regions.
Our priorities for the year include:
• Delivering strong operating results across natural gas, treated
water solutions, and energy transition end markets to support our
valued customers around the world;
• Providing meaningful shareholder returns, including paying a
sustainable dividend;
• Implementing our disciplined capital program with reduced capital
spending of between US$90 million and US$110 million; and
• Paying down debt and lowering net finance costs to further
strengthen the Company’s balance sheet and enhance Enerflex’s
ability to deliver shareholder returns over the mid-and long-term.
Closing Remarks
Our incredible people have worked safely, efficiently, and tirelessly
during 2023 to deliver for our global clients while at the same time
tackling the integration of the largest acquisition in Enerflex’s history.
I am sincerely grateful for their grit and determination.
As we move through 2024, we see meaningful opportunities to
continue evolving our business, tailoring our products and services to
the dynamic needs of our client partners, and executing our strategy to
drive enhanced value creation for our shareholders.
With a clear plan for future growth that leverages our longstanding
reputation for technical expertise, we’re proud to represent a solid
investment with ongoing value generation.
On behalf of the Enerflex team, thank you for your valued support.
Sincerely,
Marc Rossiter
President, Chief Executive Officer, and Director
February 28, 2024
5
Management’s
Discussion and
Analysis
6
Annual Report
2023
February 28, 2024
Management’s Discussion And Analysis
Management’s Discussion and Analysis (“MD&A”) for Enerflex Ltd. (“Enerflex” or the “Company”) should be read in
conjunction with the audited consolidated financial statements (the “Financial Statements”) for the years ended
December 31, 2023 and 2022, and the cautionary statements regarding forward-looking information in the “Forward-
Looking Statements” section of this MD&A.
The MD&A focuses on information and material results from the Financial Statements and considers known risks and
uncertainties relating to the energy sector. This discussion should not be considered exhaustive, as it excludes possible
future changes that may occur in general economic, political, and environmental conditions. Additionally, other factors
may or may not occur, which could affect industry conditions and/or Enerflex in the future. Additional information relating
to the Company can be found in the Company’s Annual Information Form (“AIF”), Management Information Circular and
Form 40-F, which are available on the Company’s website at www.enerflex.com and under the Company’s SEDAR+ and
EDGAR profiles at www.sedarplus.ca and www.sec.gov/edgar, respectively.
The financial information reported herein has been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and is presented in Canadian
dollars unless otherwise stated.
The Company
Enerflex is a leading global energy services company with vast experience deploying and servicing high-quality,
sustainable energy infrastructure tailored to client needs – from individual, modularized products and services to
integrated custom solutions. Headquartered in Calgary, Alberta, Canada, Enerflex has approximately 4,800 employees
worldwide, and the Company, its subsidiaries, and its interests in associates, and joint operations operate in over 70
locations globally, including Canada, the United States of America (“USA”), Argentina, Bolivia, Brazil, Colombia, Mexico,
Peru, the United Kingdom, United Arab Emirates (“UAE”), Bahrain, Oman, Egypt, Iraq, Nigeria, Pakistan, Saudi Arabia,
Australia, Indonesia, and Thailand.
A global group of engineers, manufacturers, technicians, and innovators, Enerflex is bound by a shared vision:
Transforming Energy for a Sustainable Future. This vision is supported by a long-term strategy founded on: technical
excellence in modularized energy solutions; profitable growth achieved through vertically integrated and geographically
diverse product offerings; financial strength and discipline; and sustainable returns to shareholders. Through consistent
execution of this strategy and regular evaluation of capital allocation priorities and decisions, Enerflex has managed a
resilient business and created shareholder value over a history of more than 40 years.
Growing energy needs continue to demand better equipment, services, and solutions. So, Enerflex is building tomorrow
from the ground up – innovating to make energy infrastructure more reliable, connected, and efficient for all.
On October 13, 2022, Enerflex and Exterran Corporation (“Exterran”) combined to meet these demands and become a
premier integrated global provider of energy infrastructure and energy transition solutions. With a longstanding trusted
reputation, and with a clear plan for future growth that leverages Enerflex’s technical expertise, the Company is well
positioned to continue serving clients in key natural gas, energy transition, and treated water markets.
Exterran’s operations complemented Enerflex’s, and the combined company diversifies operations across key growth
regions. This, along with Enerflex’s global energy infrastructure fleet of nearly two million horsepower, allows Enerflex
to reach far beyond cyclical needs and thrive throughout the ups and downs of energy markets.
M1
Building on its existing strategy, Enerflex has mapped out its path toward continued prosperity, expanding into key
areas of projected future growth. This includes enhancing existing product offerings, including critical BOOM offerings
which Enerflex owns, operates, and manages under contract to its clients’ operations; Engineered Systems, and the
sale of customized modular natural gas-handling and low-carbon solutions, further enhanced by Exterran’s expanded
capabilities which enable deeper removal of natural gas liquids (“NGLs”), oil processing technology, and water treatment
applications; and After-Market Services, including installation, commissioning, O&M, and parts sales, along with global
support for all product lines. It also includes leveraging the Company’s size, scope, and strong product offering in the
treated water space, representing a large and growing market.
The Company’s vertically integrated suite of product offerings includes processing, cryogenic, compression, electric
power, and treated water solutions, spanning all phases of a project’s lifecycle, from front-end engineering and design
to after-market service. Enerflex has proven expertise in delivering low-carbon solutions, including carbon capture
utilization and storage, electrification, and renewable natural gas (“RNG”), and hydrogen solutions, and the Company
works closely with its clients to help facilitate global decarbonization efforts. The Company also has state-of-the-
art fabrication and workshop facilities in Calgary; Houston, Texas, USA; Broken Arrow, Oklahoma, USA; and Brisbane,
Queensland, Australia, delivering standard or custom long-life operating systems globally.
Overall, Enerflex’s scale of operations and depth of technical expertise provides an advantage over competitors, adding
value in highly specialized areas and representing a solid ongoing investment with sustainable value generation.
North America
The Energy Infrastructure (“EI”) product line in North America (“NAM”) provides natural gas compression infrastructure
under contract to oil and natural gas clients in the USA under its Contract Compression operations, primarily operating
in crude oil and liquids-rich plays, managing a fleet of low- to high-horsepower packages. These compressor packages
are typically used in natural gas gathering systems, gas-lift, wellhead, and other applications primarily in connection with
natural gas, NGLs, and oil production. In addition, power generation rental solutions are available in Canada.
The Engineered Systems (“ES”) product line consists of custom and standard compression packages for reciprocating
and screw compressor applications from Enerflex’s manufacturing facilities located in Houston; Broken Arrow; and
Calgary. In addition, the Company engineers, designs, manufactures, constructs, and installs modular natural gas
processing equipment, low-carbon solutions, cryogenic systems, electric power solutions, and treated water solutions.
Retrofit provides re-engineering, re-configuration, and re-packaging of compressors for various field applications.
Enerflex provides integrated turnkey (“ITK”) power generation, gas compression, and processing facilities.
The After-Market Services (“AMS”) product line provides after-market mechanical services and parts distribution, as well
as maintenance solutions to the oil and natural gas industry.
M2
Annual Report2023 Latin America
The EI product line in Latin America (“LATAM”) provides natural gas compression and processing infrastructure under
contract to oil and gas clients in the region. Enerflex has several operating Build-Own-Operate-Maintain (“BOOM”)
facilities of varying size and scope in this region, providing clients with alternate solutions to meet their energy needs.
These BOOM facilities provide for the receipt of contracted long-term lease payments and are treated as either operating
or finance leases.
The region provides ES products, including ITK natural gas compression, processing, and electric power solutions, with
local construction and installation capabilities. Most of the equipment deployed in the region is fabricated in Houston,
Texas.
The AMS product line focuses on after-market mechanical services, parts, and components, as well as operations,
maintenance, and overhaul services.
Eastern Hemisphere
The Eastern Hemisphere (“EH”) segment comprises operations in the UK, UAE, Bahrain, Oman, Egypt, Iraq, Nigeria,
Pakistan, Saudi Arabia, Australia, Indonesia, and Thailand.
The EI product line provides natural gas compression, processing, and treated water infrastructure under contract to oil
and gas clients in the region. Enerflex has several BOOM facilities of varying size and scope in this region providing clients
with alternate solutions to meet their energy and produced water needs. These BOOM facilities provide for the receipt of
contracted long-term lease payments and are treated as either operating or finance leases.
The region also provides engineering, design, procurement, project management, and construction services for
compression, process, treated water and power generation equipment, as well as after-market service, parts, and
operations and maintenance services for gas compression, processing, and treated water facilities in the region.
Manufacturing capabilities are sourced from Enerflex’s facilities in Houston.
The Australia region is headquartered in Brisbane with additional locations throughout Queensland and western Australia
providing after-market services, equipment supply, parts supply, and general asset management. The Brisbane facility
also packages power generation equipment for use across the region.
M3
Energy Infrastructure
The EI product line includes infrastructure solutions under contract for natural gas processing, compression, treated
water, and electric power equipment. Our infrastructure is deployed across the globe and provides comprehensive
contract operations services to clients in each of those regions. Our EI product line provides clients with trained personnel,
equipment, tools, materials, and supplies to meet their natural gas processing, compression, treated water, and power
generation needs, as well as designing, sourcing, installing, operating, servicing, repairing, and maintaining equipment
owned by the Company necessary to provide these services. These activities give rise to the receipt of future cash
payments of varying terms, even though they have different accounting treatments depending on the terms of the lease.
After-Market Services
Enerflex’s AMS product line provides after-market mechanical services, parts distribution, operations and maintenance
solutions, equipment optimization and maintenance programs, manufacturer warranties, exchange components, long-
term service agreements, and technical services to our global clients. The product line operates through an extensive
network of branch offices and generally provides its services at the client’s wellsite location using trained technicians and
mechanics. Enerflex’s after-market service and support business includes distribution and remanufacturing facilities,
with significant presence situated in active natural gas producing areas.
Engineered Systems
The ES product line is comprised of the following product offerings: processing, compression, cryogenic, electric power,
treated water, and low-carbon solutions, including carbon capture. Enerflex can combine one or more of these product
offerings into an ITK solution, including civil works; piping and structural fabrication; and electrical, instrumentation,
controls, and automation, as well as installation and commissioning. Enerflex’s ITK offerings allow clients to simplify their
supply chain, eliminate interface risk, and reduce the concept-to-commissioning cycle time of major projects.
Compression packages range from low-specification field compressors to high-specification process compressors for
onshore and offshore applications. The Company provides retrofit solutions, including re-engineering, re-configuration,
and re-packaging of compressors for various field applications. Processing equipment includes, but is not limited to,
dehydration and liquids recovery, refrigeration and cryogenic processing, oil and natural gas separators, and amine
sweetening to remove hydrogen sulfide or carbon dioxide. Electric power units can be natural-gas fired or electric. The
Company also delivers systems to treat water from engineering to manufacturing, construction, and commissioning
ranging in volumes from approximately 158 m3 to 160,000 m3 of water per day.
The Company is exploring opportunities with clients to evaluate decarbonization, carbon capture technology, and
supporting infrastructure for renewable energy by leveraging its expertise in providing modularized engineer-to-order
process solutions.
M4
Annual Report2023 Summary Results
($ thousands, except percentages)
Revenue
Gross margin
Selling, general and administrative expenses
Foreign exchange loss1
Operating income (loss)
Earnings before finance costs, income taxes,
depreciation and amortization (“EBITDA”)
Earnings before finance costs and income
taxes (“EBIT”)2
Net loss
Cash provided by (used in) operating activities
$
$
Three months ended
December 31,
2022
689,839 $
126,814
156,741
18,451
2023
782,208 $
163,082
102,271
22,445
38,366 $
2023
3,162,095 $
617,146
395,875
58,933
Twelve months ended
December 31,
2022
1,777,798
322,716
301,242
19,202
2,272
(48,378) $
162,338 $
2,382
17,897
325,383
87,477
(67,959)
(127,339)
208,979
(44,747)
(81,118)
(16,330)
57,864
(110,924)
273,311
(40,810)
(100,943)
19,768
Key Financial Performance Indicators
(“KPIs”)3
ES bookings
ES backlog
Gross margin as a percentage of revenue
Gross margin before depreciation and
amortization (“Gross margin before D&A”)
Adjusted EBITDA
Free cash flow4
Long-term debt
Net debt
Bank-adjusted net debt to EBITDA ratio
Return on capital employed (“ROCE”)5
$
327,240 $
415,073 $
1,499,044
20.8%
216,422
125,961
185,377
1,214,918
1,088,829
2.3
2.1%
1,505,870
18.4%
177,235
86,143
(43,251)
1,390,325
1,136,549
3.3
(2.2)%
1,725,369 $
1,499,044
19.5%
823,017
512,650
193,279
1,214,918
1,088,829
2.3
2.1%
1,312,883
1,505,870
18.2%
430,700
223,601
(27,052)
1,390,325
1,136,549
3.3
(2.2)%
1 The Company disaggregated foreign exchange loss from total selling, general and administrative expenses (“SG&A”) following continuing review of
SG&A presentation by the Company’s management (“Management”). Please refer to Note 2(b) of the Notes to the Consolidated Financial
Statements for additional details.
2 EBIT includes a $87 million goodwill impairment for the three and twelve-months ending December 31, 2023 (December 31, 2022 – nil and $48
million).
3 These KPIs are non-IFRS measures. Further detail is provided in the “Non-IFRS Measures” section of this MD&A.
4 Refer to the “Non-IFRS Measures” section of this MD&A for more information on free cash flow.
5 Determined by using the trailing 12-month period.
M5
M-5
Results Overview
• Enerflex generated revenue of $782 million during the three months ended December 31, 2023, which is an
increase of $92 million compared to the three months ended December 31, 2022, and is driven by continued strong
performance from the Company’s recurring businesses. During the twelve months ended December 31, 2023,
Enerflex recorded revenue of $3,162 million compared to $1,778 million in the same period of 2022, primarily due
to increases in ES, higher EI activity in EH, increased AMS activities from parts sales and client maintenance, in
addition to the contributions of having a full year of operations from the acquired Exterran business.
• During the three months ended December 31, 2023, the Company recorded gross margin of $163 million (20.8
percent), increasing from $127 million (18.4 percent) during the three months ended December 31, 2022. The
increase is primarily due to higher EI revenues in all regions and ES revenue in NAM. Gross margin percentage
increased in the same period from higher margin opening backlog and strong project execution in NAM, and
increased contribution from AMS due to inflationary price adjustments, partially offset by lower gross margin
percentage in EI, particularly in EH on lower margin yielding projects and increased transportation costs. Gross
margin for the twelve months ended December 31, 2023, was $617 million (19.5 percent), increasing from $323
million (18.2 percent) during the twelve months ended December 31, 2022, primarily due to higher revenues from
increased volumes of work, and the contribution from the acquired Exterran business. Gross margin percentage for
the twelve months ended December 31, 2023, was higher compared to the twelve months ended December 31,
2022, from higher margin opening backlog and strong project execution in NAM, and increased contribution from
AMS due to inflationary price adjustments, partially offset by lower gross margin percentage in EI, particularly in EH
on lower margin yielding projects and increased transportation costs.
• The Company recognized an $87 million goodwill impairment in the LATAM segment. This non-cash impairment
was largely driven by the ongoing devaluation of the Argentine peso (“ARS”) and the restrictions on repatriating
cash held in Argentina.
• The Company recorded SG&A of $102 million during the three months ended December 31, 2023, a decrease from
$157 million during the three months ended December 31, 2022, driven by synergies realized from the acquisition
of Exterran (the “Transaction”), lower integration and transaction costs, and lower share-based compensation on
mark-to-market movements. SG&A for the twelve months ended December 31, 2023, was $396 million, compared
to $301 million during the twelve months ended December 31, 2022, primarily due to a full year impact of costs
required to support the acquired Exterran business, including increases to total compensation, third party services,
and information technology expenses, partially offset by decreases in share-based compensation and a bad debt
recovery.
• The Company recorded foreign exchange losses of $22 million and $59 million during the three and twelve months
ended December 31, 2023, compared to foreign exchange losses of $18 million and $19 million for the three and
twelve months ended December 31, 2022, primarily due to the ongoing devaluation of the ARS caused by high
inflation. The Company also recorded losses from associated instruments of $17 million and $18 million for the three
and twelve months ended December 31, 2023, also due to the ongoing devaluation of the ARS. The Company did
not have these instruments in 2022. To offset these losses, the Company earned interest income on cash and cash
equivalents held in Argentina of $4 million and $27 million for the three and twelve months ended December 31,
2023, respectively, compared to interest income of $8 million during 2022. The losses from associated instruments
and interest income are not reflected in operating income.
• Enerflex reported operating income of $38 million during the three months ended December 31, 2023, compared
to an operating loss of $48 million during the three months ended December 31, 2022, primarily due to higher
gross margins from increased revenue, and lower SG&A. The Company reported $162 million of operating
income for the twelve months ended December 31, 2023, an increase of $160 million from the twelve months
M6
Annual Report2023 ended December 31, 2022, primarily due to increased revenue and an improved gross margin percentage, which
was partially offset by increased SG&A.
• The Company invested $24 million in capital expenditures in the fourth quarter of 2023, predominantly comprised
of $18 million of maintenance property, plant and equipment (“PP&E”) capital expenditures across the Company’s
global EI fleet, and $6 million of investments to expand the amount of electric driven equipment in the USA fleet
based on client demand.
• Enerflex continued to execute on its previously disclosed deleveraging plan throughout 2023. The Company
repaid $164 million of long-term debt in the twelve months ended December 31, 2023, which was offset by
the amortization of the deferred debt issuance costs. The Company continued to reduce its net funded debt to
EBITDA (“bank-adjusted net debt to EBITDA”) ratio to less than 2.5 times by the end of 2023 through strong cash
flow generation and the execution of its large ES backlog. Enerflex plans to continue to strengthen its financial
position to ensure the Company has significant flexibility through industry cycles. At December 31, 2023, the
Company’s senior secured net funded debt to EBITDA ratio was 0.7:1, compared to a maximum ratio of 2.5:1, and
the Company’s bank-adjusted net debt to EBITDA ratio was 2.3:1, compared to a maximum ratio of 4.0:1, according
to the Company’s debt covenants.
• The Company recorded ES bookings of $327 million during the three months ended December 31, 2023, compared
to $415 million during the three months ended December 31, 2022. Enerflex continues to observe strong client
activity levels in North America, notably for cryogenic natural gas processing facilities and for electric compression,
as clients aim to decarbonize their operations. During the twelve months ended December 31, 2023, Enerflex
secured $1,725 million of ES bookings, representing an increase of $412 million from the same period in 2022.
• ES backlog at December 31, 2023, was $1.5 billion, remaining consistent with the $1.5 billion at December 31, 2022.
• Subsequent to December 31, 2023, Enerflex declared a quarterly dividend of $0.025 per share, payable on May 1,
2024, to shareholders of record on March 13, 2024. The Board of Directors (the “Board”) will continue to evaluate
dividend payments on an ongoing basis, based on the availability of cash flow, anticipated market conditions, and
the general needs of the business.
M7
Organizational Update
As previously announced, Mr. Preet Dhindsa has been appointed as Enerflex’s Senior Vice President and Chief Financial
Officer (“CFO”), effective March 1, 2024, overseeing the Company’s capital markets, corporate development, investor
relations, financial reporting, internal audit, tax, and treasury functions and supporting Enerflex’s global strategic and
capital allocation decisions. Mr. Dhindsa comes to Enerflex with more than 25 years of experience, primarily in the energy
and financial services sectors. Prior to joining Enerflex in October, 2023, as Interim CFO, Mr. Dhindsa served as Executive
Vice President and CFO at ENMAX Corporation, a regulated utility with energy generation and retail lines of business,
where he was accountable for the finance and information technology functions across operations in both Canada
and the United States. Prior to that he was SVP & CFO, Global Banking & Markets at Scotiabank, where he managed
international finance teams and critical regulatory relationships in Canada, the United States, Europe, and Asia-Pacific.
He holds a Bachelor of Science degree in Mathematics & Statistics from Western University and a Graduate Diploma in
Accounting from Wilfred Laurier University. Mr. Dhindsa is a Chartered Professional Accountant and Chartered Director.
Adjusted EBITDA
The Company defines EBITDA as earnings before finance costs, taxes, and depreciation and amortization. Enerflex’s
financial results include items that are unique, and items that Management and users of the Financial Statements adjust
for when evaluating results. The Company removes the impact of these items when calculating Adjusted EBITDA. The
presentation of Adjusted EBITDA should not be considered in isolation from EBIT or EBITDA or as a replacement for
measures prepared as determined under IFRS. Adjusted EBITDA may not be comparable to similar non-IFRS measures
disclosed by other issuers.
Enerflex believes the adjustment of items that are unique or not in the normal course of continuing operations increases
the comparability across items within the Financial Statements or between periods of the Financial Statements. An
example of items that are considered unique are restructuring, transaction, and integration costs, while an example of
an item that increases comparability includes share-based compensation, which fluctuates based on share price that
can be influenced by external factors that are not directly relevant to the Company’s current operations. Items the
Company has adjusted for in the past include, but are not limited to, restructuring, transaction, and integration costs;
share-based compensation; severance costs associated with restructuring activities; government grants; impairments
or gains on idle facilities; and impairment of goodwill. These items are considered either unique, non-recurring, or non-
cash transactions, and not indicative of the ongoing normal operations of the Company.
The Company also adjusts for the impact of finance leases by eliminating the non-cash selling profit recognized when
finance leases are put into service, and instead including lease payments received over the term of the related lease.
The Company believes the adjustment for the impact of finance leases in its Adjusted EBITDA calculation provides a
better understanding of Enerflex’s cash-generating capabilities and also improves comparability for similar EI assets
with different contract terms.
M8
Annual Report2023 ($ thousands)
EBIT
Depreciation and Amortization
EBITDA
Restructuring, transaction and integration
costs
Share-based compensation
Impairment of goodwill
Impact of finance leases
Adjusted EBITDA
($ thousands)
EBIT
Depreciation and amortization
EBITDA
Transaction and integration costs
Share-based compensation
Impact of finance leases
Adjusted EBITDA
($ thousands)
EBIT
Depreciation and amortization
EBITDA
Restructuring, transaction and integration
costs
Share-based compensation
Impairment of goodwill
Impact of finance leases
Adjusted EBITDA
($ thousands)
EBIT
Depreciation and amortization
EBITDA
Transaction and integration costs
Share-based compensation
Impairment of goodwill
Impact of finance leases
Adjusted EBITDA
$
$
$
$
$
$
$
$
Total
(67,959) $
70,341
2,382 $
24,953
(1,084)
87,168
12,542
125,961 $
Total
(44,747) $
62,644
17,897 $
56,502
11,683
61
86,143 $
Total
57,864 $
267,519
325,383 $
60,873
7,652
87,168
31,574
North
America
Latin
America
Three months ended
December 31, 2023
Eastern
Hemisphere
63,230 $
26,500
89,730 $
(109,017) $
16,620
(92,397) $
(22,172)
27,221
5,049
4,263
(581)
-
-
93,412 $
2,817
(82)
87,168
60
(2,434) $
17,873
(421)
-
12,482
34,983
North
America
(5,551) $
23,211
17,660 $
30,092
6,921
21
54,694 $
Three months ended
December 31, 2022
Eastern
Hemisphere
Latin
America
(22,632) $
18,565
(4,067) $
14,206
2,622
663
13,424 $
(16,564)
20,868
4,304
12,204
2,140
(623)
18,025
North
America
Twelve months ended
December 31, 2023
Eastern
Hemisphere
Latin
America
172,978 $
95,063
(118,559) $
62,158
268,041 $
(56,401) $
16,380
5,103
-
-
14,033
1,416
87,168
1,877
48,093 $
3,445
110,298
113,743
30,460
1,133
-
29,697
175,033
$
512,650 $
289,524 $
Total
(40,810) $
128,287
87,477 $
70,554
16,162
48,000
1,408
223,601 $
$
$
$
North
America
(28,414) $
63,973
35,559 $
40,288
9,746
48,000
181
133,774 $
Twelve months ended
December 31, 2022
Eastern
Hemisphere
Latin
America
(14,550) $
34,344
19,794 $
15,790
3,488
-
663
39,735 $
2,154
29,970
32,124
14,476
2,928
-
564
50,092
Refer to the section “Segmented Results” of this MD&A for additional information about results by
geographic location.
M9
M-9
Engineered Systems Bookings and Backlog
Engineered Systems Bookings and Backlog
Enerflex monitors its ES bookings and backlog as indicators of future revenue generation and business activity levels.
Bookings are recorded in the period when a firm commitment or order is received from clients. Bookings increase
Enerflex monitors its ES bookings and backlog as indicators of future revenue generation and business
backlog in the period they are received, while revenue recognized on ES products decreases backlog in the period the
activity levels. Bookings are recorded in the period when a firm commitment or order is received from
revenue is recognized.
clients. Bookings increase backlog in the period they are received, while revenue recognized on ES
products decreases backlog in the period the revenue is recognized.
The following tables set forth the ES bookings and backlog by reporting segment:
The following tables set forth the ES bookings and backlog by reporting segment:
($ thousands)
ES Bookings
North America
Latin America
Eastern Hemisphere
Total ES bookings
($ thousands)
ES Backlog
North America
Latin America
Eastern Hemisphere
Total ES backlog
Three months ended
December 31,
2022
2023
Twelve months ended
December 31,
2022
2023
$
247,963 $
352,566 $
1,508,032 $
1,213,254
77,896
1,381
44,157
18,350
111,374
105,963
75,118
24,511
$
327,240 $
415,073 $
1,725,369 $
1,312,883
December 31,
2023
December 31,
2022
$
1,232,663 $
1,074,151
103,994
162,387
52,825
378,894
$
1,499,044 $
1,505,870
Enerflex recorded bookings of $327 million for the three months ended December 31, 2023, which were
lower than the $415 million bookings during the three months ended December 31, 2022, primarily due
Enerflex recorded bookings of $327 million for the three months ended December 31, 2023, which were lower than
to a cancellation of a CCUS project after the client was unable to secure required pipeline approvals. The
the $415 million bookings during the three months ended December 31, 2022, primarily due to a cancellation of a
project was originally booked in 2022. Despite the cancellation, Enerflex continues to observe strong
CCUS project after the client was unable to secure required pipeline approvals. The project was originally booked in
client activity levels. Included in the Company’s bookings for the twelve months ended December 31,
2022. Despite the cancellation, Enerflex continues to observe strong client activity levels. Included in the Company’s
2023 were two large cryogenic natural gas processing facilities, reflecting Enerflex’s expanded product
bookings for the twelve months ended December 31, 2023, were two large cryogenic natural gas processing facilities,
offerings stemming from the Transaction. Enerflex recorded bookings of $1,725 million during the
reflecting Enerflex’s expanded product offerings stemming from the Transaction. Enerflex recorded bookings of $1,725
twelve months ended December 31, 2023, increasing $412 million from the twelve months ended
million during the twelve months ended December 31, 2023, increasing $412 million from the twelve months ended
December 31, 2022.
December 31, 2022.
The ES backlog of $1.5 billion at December 31, remained consistent with the $1.5 billion from December 31, 2022.
The ES backlog of $1.5 billion at December 31, remained consistent with the $1.5 billion from December
31, 2022.
The global demand for natural gas remains robust, and Enerflex is well positioned to expand its ES business by serving
The global demand for natural gas remains robust, and Enerflex is well positioned to expand its ES
the growing natural gas markets in the Company’s key operating regions. However, continued volatility in commodity
business by serving the growing natural gas markets in the Company’s key operating regions. However,
prices and recessionary fears could affect the Company’s ability to secure future bookings.
continued volatility in commodity prices and recessionary fears could affect the Company’s ability to
secure future bookings.
Segmented Results
Segmented Results
Enerflex has three reporting segments: NAM, LATAM, and EH, each of which are supported by Enerflex’s corporate function.
Corporate overheads are allocated to the operating segments based on revenue. In assessing its operating segments, the
Enerflex has three reporting segments: NAM, LATAM, and EH, each of which are supported by Enerflex’s
Company considers geographic locations, economic characteristics, the nature of products and services provided, the
corporate function. Corporate overheads are allocated to the operating segments based on revenue. In
nature of production processes, the types of clients for its products and services, and distribution methods used.
assessing
locations, economic
characteristics, the nature of products and services provided, the nature of production processes, the
types of clients for its products and services, and distribution methods used.
its operating segments, the Company considers geographic
M10
M-10 Annual Report 2023
Annual Report2023
North America Segment Results
North America Segment Results
$
$
$
$
($ thousands, except percentages)
ES bookings
ES backlog
Segment revenue
Intersegment revenue
Revenue
EI
AMS
ES
Gross margin
Gross margin before D&A
Gross margin %
Gross margin before D&A %
SG&A
Foreign exchange loss
Operating income (loss)
EBIT
EBITDA
Adjusted EBITDA
Revenue as a % of consolidated revenue
Three months ended
December 31,
2022
352,566 $
1,074,151
2023
247,963 $
1,232,663
Twelve months ended
December 31,
2022
1,213,254
1,074,151
2023
1,508,032 $
1,232,663
479,004 $
(11,901)
467,103 $
45,666 $
100,671
320,766
103,877
122,540
22.2%
26.2%
42,298
82
61,497
63,230
89,730
93,412
59.7%
443,006 $
(22,333)
420,673 $
36,673 $
88,688
295,312
70,043
86,950
16.7%
20.7%
78,605
519
(9,081)
(5,551)
17,660
54,694
61.0%
1,939,778 $
(33,168)
1,906,610 $
171,276 $
385,814
1,349,520
364,497
424,572
19.1%
22.3%
194,870
398
169,229
172,978
268,041
289,524
60.3%
1,303,885
(93,778)
1,210,107
141,900
298,333
769,874
195,503
249,131
16.2%
20.6%
179,862
872
14,769
(28,414)
35,559
133,774
68.1%
Enerflex recorded ES bookings of $248 million in the NAM segment in the fourth quarter of 2023, which
is a decrease of $105 million compared to the fourth quarter of 2022, primarily due to a cancellation of
Enerflex recorded ES bookings of $248 million in the NAM segment in the fourth quarter of 2023, which is a decrease of
a CCUS project after the client was unable to secure required pipeline approvals. The project was
$105 million compared to the fourth quarter of 2022, primarily due to a cancellation of a CCUS project after the client was
originally booked in 2022. Bookings for the twelve months ended December 31, 2023 were $1,508
unable to secure required pipeline approvals. The project was originally booked in 2022. Bookings for the twelve months
million, representing a considerable increase of $295 million compared to the twelve months ended
ended December 31, 2023, were $1,508 million, representing a considerable increase of $295 million compared to the
December 31, 2022, reflecting sustained client activity levels in the energy sector. Accordingly, NAM’s
twelve months ended December 31, 2022, reflecting sustained client activity levels in the energy sector. Accordingly,
ES backlog of $1,233 million at December 31, 2023 is expected to result in strong ES revenue generation
NAM’s ES backlog of $1,233 million at December 31, 2023, is expected to result in strong ES revenue generation over
over the near term.
the near term.
Revenue of $467 million and $1,907 million for the three and twelve months ended December 31, 2023
Revenue of $467 million and $1,907 million for the three and twelve months ended December 31, 2023, increased by
increased by $46 million and $697 million, respectively, compared to the same periods in 2022. The NAM
$46 million and $697 million respectively, compared to the same periods in 2022. The NAM segment continues to record
segment continues to record strong revenue in all product lines in 2023, most significantly in ES, which
strong revenue in all product lines in 2023, most significantly in ES, which saw elevated activity levels on a stronger
saw elevated activity levels on a stronger opening backlog and sustained bookings activity. AMS
opening backlog and sustained bookings activity. AMS revenues increased on strong parts sales, inflationary price
revenues increased on strong parts sales, inflationary price adjustments, and an increased volume of
adjustments, and an increased volume of work. EI revenue also increased from a larger fleet and the positive impacts
work. EI revenue also increased from a larger fleet and the positive impacts of inflationary price
of inflationary price adjustments.
adjustments.
Gross margin increased during the three and twelve months ended December 31, 2023 compared to
Gross margin increased during the three and twelve months ended December 31, 2023, compared to 2022, which is
2022, which is attributable to higher overall revenues, as well as improved margins on sold ES projects.
attributable to higher overall revenues, as well as improved margins on sold ES projects. Gross margin percentage increased
Gross margin percentage increased during the three and twelve months ended December 31, 2023
during the three and twelve months ended December 31, 2023, compared to same periods in 2022, primarily due to higher
compared to same periods in 2022, primarily due to higher margin projects and strong project execution
margin projects and strong project execution in ES.
in ES.
SG&A was lower during the three months ended December 31, 2023, compared to the same period last year, which is
SG&A was lower during the three months ended December 31, 2023 compared to the same period last
primarily due to lower Transaction costs in the current period compared to last year. SG&A was higher during the twelve
year, which is primarily due to lower Transaction costs in the current period compared to last year. SG&A
months ended December 31, 2023, compared to the same period last year, which is primarily due to additional costs
was higher during the twelve months ended December 31, 2023 compared to the same period last year,
required to support the acquired Exterran business, as well as restructuring, transaction, and integration costs. These
which is primarily due to additional costs required to support the acquired Exterran business, as well as
higher costs in the twelve months ended December 31, 2023, were partially offset by a one-time bad debt recovery of a
restructuring, transaction, and integration costs. These higher costs in the twelve months ended
$12 million receivable that had previously been written off.
December 31, 2023 were partially offset by a one-time bad debt recovery of a $12 million receivable that
had previously been written off.
At December 31, 2023, the USA Contract Compression fleet totaled approximately 419,000 horsepower. Average utilization
of the fleet for the three months ended December 31, 2023, was 93 percent, decreasing from 95 from the three months
At December 31, 2023, the USA Contract Compression fleet totaled approximately 419,000
ended December 31, 2022. Average utilization of the fleet for the 12 months ended December 31, 2023, was 94 percent,
horsepower. Average utilization of the fleet for the three months ended December 31, 2023 was 93
remaining consistent with the twelve months ended December 31, 2022.
percent, decreasing from 95 from the three months ended December 31, 2022. Average utilization of
the fleet for the 12 months ended December 31, 2023 was 94 percent, remaining consistent with the
twelve months ended December 31, 2022.
M11
M-11
Latin America Segment Results
Latin America Segment Results
$
$
$
$
($ thousands, except percentages)
ES bookings
ES backlog
Segment revenue
Intersegment revenue
Revenue
EI
AMS
ES
Gross margin
Gross margin before D&A
Gross margin %
Gross margin before D&A %
SG&A
Foreign exchange loss
Operating loss
EBIT
EBITDA
Adjusted EBITDA
Revenue as a % of consolidated revenue
Three months ended
December 31,
2022
44,157 $
52,825
2023
77,896 $
103,994
Twelve months ended
December 31,
2022
75,118
52,825
2023
111,374 $
103,994
132,515 $
(522)
131,993 $
86,111 $
26,216
19,666
29,544
41,304
22.4%
31.3%
12,105
22,430
(4,991)
(109,017)
(92,397)
(2,434)
16.9%
98,964 $
473,824 $
(399)
98,565 $
76,801 $
16,923
4,841
26,453
44,494
26.8%
45.1%
31,746
17,443
(22,736)
(22,632)
(4,067)
13,424
14.3%
(1,295)
472,529 $
335,532 $
76,792
60,205
115,569
174,688
24.5%
37.0%
71,538
58,398
(14,367)
(118,559)
(56,401)
48,093
14.9%
221,628
(434)
221,194
129,723
38,057
53,414
50,015
81,681
22.6%
36.9%
47,379
17,290
(14,654)
(14,550)
19,794
39,735
12.4%
LATAM’s ES bookings of $78 million and $111 million in the three and twelve months ended December
31, 2023, are increased by $34 million and $36 million compared to the same periods of 2022 as the
LATAM’s ES bookings of $78 million and $111 million in the three and twelve months ended December 31, 2023, are
Company was able to secure a large project in the fourth quarter of 2023.
increased by $34 million and $36 million compared to the same periods of 2022 as the Company was able to secure a
Revenue for the three months ended December 31, 2023 increased by $33 million compared to the
large project in the fourth quarter of 2023.
same period last year. The increase is primarily due to higher ES revenue on higher opening backlog. AMS
revenue increased due to higher parts sales and increased volume of work. EI revenue increased
Revenue for the three months ended December 31, 2023, increased by $33 million compared to the same period last year.
primarily as a result of recovered demobilization costs. Revenue for the twelve months ended December
The increase is primarily due to higher ES revenue on higher opening backlog. AMS revenue increased due to higher parts
31, 2023, increased by $251 million from the comparative period, primarily due to higher EI revenue from
sales and increased volume of work. EI revenue increased primarily as a result of recovered demobilization costs. Revenue
the expanded fleet from Exterran and the sale of a BOOM and a finance lease contract during the year.
for the twelve months ended December 31, 2023, increased by $251 million from the comparative period, primarily due to
There was an increase in AMS revenue resulting from a larger volume of work. Finally, ES revenues
higher EI revenue from the expanded fleet from Exterran and the sale of a BOOM and a finance lease contract during the
increased from a higher opening backlog inherited from Exterran.
year. There was an increase in AMS revenue resulting from a larger volume of work. Finally, ES revenues increased from a
higher opening backlog inherited from Exterran.
Gross margin increased during the three and twelve months ended December 31, 2023, compared to
the same periods in 2022 as a result of higher overall revenues from increased activity, partially offset
Gross margin increased during the three and twelve months ended December 31, 2023, compared to the same periods in
by the devaluation of receivable balances related to certain revenue contracts and the associated cost
2022 as a result of higher overall revenues from increased activity, partially offset by the devaluation of receivable balances
of goods sold (“COGS”) denominated in ARS. Gross margin expanded during the twelve months ended
related to certain revenue contracts and the associated cost of goods sold (“COGS”) denominated in ARS. Gross margin
December 31, 2023, compared to the same period in 2022 as a result of higher overall revenues from
expanded during the twelve months ended December 31, 2023, compared to the same period in 2022 as a result of higher
increased activity and the sale of a BOOM and finance lease contract during the year, partially offset by
overall revenues from increased activity and the sale of a BOOM and finance lease contract during the year, partially offset
the devaluation of receivable balances related to certain revenue contracts and the associated COGS
by the devaluation of receivable balances related to certain revenue contracts and the associated COGS denominated in
denominated in ARS. Gross margin percentage decreased for the three months ended December 31,
ARS. Gross margin percentage decreased for the three months ended December 31, 2023, compared to the same period
2023, compared to the same period in 2022 as a result of the devaluation of the aforementioned
in 2022 as a result of the devaluation of the aforementioned receivable balances denominated in ARS, partially offset by
receivable balances denominated in ARS, partially offset by the stronger parts sales. Gross margin
the stronger parts sales. Gross margin percentage increased for the twelve months ended December 31, 2023, when
percentage increased for the twelve months ended December 31, 2023 when compared to the twelve
compared to the twelve months ended December 31, 2022, as a result of the sale of the BOOM and finance lease contracts
months ended December 31, 2022 as a result of the sale of the BOOM and finance lease contracts during
during the current year, partially offset by the devaluation of the aforementioned receivable balances denominated in ARS.
the current year, partially offset by the devaluation of the aforementioned receivable balances
denominated in ARS.
SG&A was lower during the three months ended December 31, 2023, compared to the same period in 2022, primarily due
to one-time costs associated with the Transaction in 2022. SG&A was higher during the twelve months ended December
SG&A was lower during the three months ended December 31, 2023, compared to the same period in
31, 2023, compared to 2022, as a result of additional costs required to support the acquired Exterran business, as well as
2022, primarily due to one-time costs associated with the Transaction in 2022. SG&A was higher during
restructuring, transaction, and integration costs.
the twelve months ended December 31, 2023, compared to 2022, as a result of additional costs
required to support the acquired Exterran business, as well as restructuring, transaction, and integration
costs.
M12
M-12 Annual Report 2023
Annual Report2023
Foreign exchange losses increased during the three and twelve months ended December 31, 2023, compared to the same
period in 2022, primarily due to ongoing devaluation of the ARS. The Company also recognized losses from associated
instruments of $17 million and $18 million during the three and twelve months ended December 31, 2023. The losses were
partially offset by $4 million and $27 million of interest income earned on cash and cash equivalents held in Argentina for
the three and twelve months ended December 31, 2023. The losses from associated instruments and interest income are
not reflected in operating income.
LATAM recognized an $87 million goodwill impairment during the three months ended December 31, 2023. The impairment
was largely driven by the ongoing devaluation of the ARS having an adverse affect on future cash flows, as well as the
restrictions on repatriating cash held in Argentina. This impairment represents the entire balance of goodwill allocated
to the segment.
M13
Eastern Hemisphere Segment Results
Eastern Hemisphere Segment Results
Three months ended
December 31,
2022
$
$
$
$
($ thousands, except percentages)
ES bookings
ES backlog
Segment revenue
Intersegment revenue
Revenue
EI
AMS
ES
Gross margin
Gross margin before D&A
Gross margin %
Gross margin before D&A %
SG&A
Foreign exchange gain (loss)
Operating income (loss)
EBIT
EBITDA
Adjusted EBITDA
Revenue as a % of consolidated revenue
2023
1,381 $
162,387
186,919 $
(3,807)
183,112 $
76,816 $
52,595
53,701
29,661
52,578
16.2%
28.7%
47,868
67
(18,140)
(22,172)
5,049
34,983
23.4%
18,350 $
378,894
173,022 $
(2,421)
170,601 $
49,449 $
39,915
81,237
30,318
45,791
17.8%
26.8%
46,390
489
(16,561)
(16,564)
4,304
18,025
24.7%
Twelve months ended
December 31,
2022
24,511
378,894
2023
105,963 $
162,387
792,716 $
(9,760)
782,956 $
270,894 $
189,592
322,470
137,080
223,757
17.5%
28.6%
129,467
(137)
7,476
3,445
113,743
175,033
24.8%
349,247
(2,750)
346,497
109,464
107,270
129,763
77,198
99,888
22.3%
28.8%
74,001
(1,040)
2,157
2,154
32,124
50,092
19.5%
Bookings of $106 million in the twelve months ended December 31, 2023 increased significantly
compared to the twelve months ended December 31, 2022 primarily as a result of an increased scope
Bookings of $106 million in the twelve months ended December 31, 2023, increased significantly compared to the twelve
for an in-flight project acquired from Exterran. EH’s backlog decreased in the current period primarily
months ended December 31, 2022, primarily as a result of an increased scope for an in-flight project acquired from
due to revenue outpacing new bookings and a natural gas infrastructure project that commenced
Exterran. EH’s backlog decreased in the current period primarily due to revenue outpacing new bookings and a natural
operations in the first quarter of 2023. The project is being accounted for as a finance lease.
gas infrastructure project that commenced operations in the first quarter of 2023. The project is being accounted for as a
Revenue increased by $13 million and $436 million during the three and twelve months ended December
finance lease.
31, 2023, compared to the three and twelve months ended December 31, 2022. ES revenue was lower
for the three months ended December 31, 2023 compared to the same period in 2022 as a result of the
Revenue increased by $13 million and $436 million during the three and twelve months ended December 31, 2023,
non-cash selling profit recognized from a natural gas infrastructure project which commenced
compared to the three and twelve months ended December 31, 2022. ES revenue was lower for the three months ended
operations in the fourth quarter of 2022 and did not repeat in 2023. ES revenue was higher for the
December 31, 2023, compared to the same period in 2022 as a result of the non-cash selling profit recognized from a
twelve months ended December 31, 2023, as a result of a strong opening backlog. EI revenues
natural gas infrastructure project which commenced operations in the fourth quarter of 2022 and did not repeat in 2023.
increased primarily from the contribution of a full year of a previously disclosed natural gas infrastructure
ES revenue was higher for the twelve months ended December 31, 2023, as a result of a strong opening backlog. EI
project and two BOOM treated water facilities that were brought to commercial operation in the fourth
revenues increased primarily from the contribution of a full year of a previously disclosed natural gas infrastructure project
quarter of 2022 and the first quarter of 2023. AMS revenues increased from client maintenance
and two BOOM treated water facilities that were brought to commercial operation in the fourth quarter of 2022 and the
activities and parts sales in all regions.
first quarter of 2023. AMS revenues increased from client maintenance activities and parts sales in all regions.
Gross margin for the three months ended December 31, 2023 was lower than the three months ended
Gross margin for the three months ended December 31, 2023, was lower than the three months ended December 31,
December 31, 2022 as a result of the non-cash selling profit recognized from a natural gas infrastructure
2022, as a result of the non-cash selling profit recognized from a natural gas infrastructure project which commenced
project which commenced operations in the fourth quarter of 2022 and did not repeat in 2023, offset
operations in the fourth quarter of 2022 and did not repeat in 2023, offset by increased revenue in EI and AMS. Gross
by increased revenue in EI and AMS. Gross margin for the twelve months ended December 31, 2023
margin for the twelve months ended December 31, 2023, was higher than in the twelve months ended December 31,
was higher than in the twelve months ended December 31, 2022, primarily due to overall higher revenue
2022, primarily due to overall higher revenue from increased activity and higher margin ES projects being executed. Gross
from increased activity and higher margin ES projects being executed. Gross margin percentage for the
margin percentage for the three and twelve months ended December 31, 2023, decreased when compared to the same
three and twelve months ended December 31, 2023 decreased when compared to the same periods
periods last year, due to lower margin projects in EI, delays of certain projects in ES, and fees incurred that are related to
last year, due to lower margin projects in EI, delays of certain projects in ES, and fees incurred that are
exiting certain countries.
related to exiting certain countries.
SG&A was higher during the three and twelve months ended December 31, 2023, compared to the same periods in
SG&A was higher during the three and twelve months ended December 31, 2023 compared to the same
2022 due to fees incurred that are related to exiting certain countries as the Company continues to optimize its portfolio
periods in 2022 due to fees incurred that are related to exiting certain countries as the Company
strategy, additional costs required to support the acquired Exterran business, as well as restructuring, transaction, and
continues to optimize its portfolio strategy, additional costs required to support the acquired Exterran
integration costs.
business, as well as restructuring, transaction, and integration costs.
M14
M-14 Annual Report 2023
Annual Report2023
Gross Margin by Product Line
Gross Margin by Product Line
Each of Enerflex’s regional business segments oversees the execution of all three product lines described in “The Company”
Each of Enerflex’s regional business segments oversees the execution of all three product lines
section of this MD&A: EI, AMS, and ES.
described in “The Company” section of this MD&A: EI, AMS, and ES.
The Company considers its EI and AMS product lines to be recurring in nature, given that revenues are typically contracted
The Company considers its EI and AMS product lines to be recurring in nature, given that revenues are
and extend into the future. The Company aims to diversify and expand EI and AMS offerings, which the Company believes
typically contracted and extend into the future. The Company aims to diversify and expand EI and AMS
offer longer-term stability in earnings compared to ES revenues, which historically have been dependent on the cyclical
offerings, which the Company believes offer longer-term stability in earnings compared to ES revenues,
demand for new compression, processing, and electric power equipment. While individual EI and AMS contracts are subject
which historically have been dependent on the cyclical demand for new compression, processing, and
to cancellation or have varying lengths, the Company does not believe these characteristics preclude these product lines
electric power equipment. While individual EI and AMS contracts are subject to cancellation or have
from being considered recurring in nature.
varying lengths, the Company does not believe these characteristics preclude these product lines from
being considered recurring in nature.
The components of each product line’s gross margins are disclosed in the tables below.
The components of each product line’s gross margins are disclosed in the tables below.
($ thousands, except percentages)
Total
EI
AMS
Three months ended
December 31, 2023
ES
Revenue
Cost of goods sold:
Operating expenses
Depreciation and amortization
Gross margin
Gross margin %
$
782,208 $
208,593 $
179,482 $
394,133
565,786
53,340
$
163,082 $
20.8%
104,158
39,201
65,234 $
31.3%
139,373
2,294
37,815 $
21.1%
322,255
11,845
60,033
15.2%
($ thousands, except percentages)
Total
EI
AMS
Three months ended
December 31, 2022
ES
Revenue
Cost of goods sold:
Operating expenses
Depreciation and amortization
Gross margin
Gross margin %
$
689,839 $
162,923 $
145,526 $
381,390
512,604
50,421
126,814 $
18.4%
$
64,843
43,205
54,875 $
33.7%
116,636
2,831
26,059 $
17.9%
331,125
4,385
45,880
12.0%
($ thousands, except percentages)
Total
EI
Twelve months ended
December 31, 2023
ES
AMS
Revenue
Cost of goods sold:
Operating expenses
Depreciation and amortization
Gross margin
Gross margin %
$
3,162,095 $
777,702 $
652,198 $
1,732,195
2,339,078
205,871
617,146 $
19.5%
$
361,719
173,608
242,375 $
31.2%
516,171
11,038
124,989 $
19.2%
1,461,188
21,225
249,782
14.4%
($ thousands, except percentages)
Total
EI
Twelve months ended
December 31, 2022
ES
AMS
Revenue
Cost of goods sold:
Operating expenses
Depreciation and amortization
Gross margin
Gross margin %
$
1,777,798 $
381,087 $
443,660 $
953,051
1,347,098
107,984
322,716 $
18.2%
$
151,570
88,239
141,278 $
37.1%
362,058
10,355
71,247 $
16.1%
833,470
9,390
110,191
11.6%
M15
M-15
Income Taxes
The Company reported an income tax expense of $26 million for the three months ended December 31, 2023, compared
to an income tax expense of $10 million in the same period of 2022. The increase is the result of major asset dispositions
that created significant taxable gains, utilization of tax losses in foreign jurisdictions, and an increase in the exchange
effect of foreign assets. The Company reported an income tax expense of $42 million for the twelve months ended
December 31, 2023, compared to an income tax expense of $21 million in the same period of 2022. The increase is
primarily driven by contributions of having a full year of operations from the acquired Exterran business.
Legal Proceedings
On January 31, 2022, the Local Labor Board of the State of Tabasco in Mexico (the “Labor Board”) awarded a former
employee of Exterran MXN$2,152 million plus other benefits that could increase the award to MXN$2,431 million in
connection with a dispute relating to the employee’s severance pay following termination of their employment in 2015.
Enerflex believes the order of the Labor Board is in error and has no credible basis in law or fact. In 2017, the Labor Board
ruled that the former employee was entitled to approximately MXN$1.4 million as severance based on an appellate
court’s determination that the employee’s salary was approximately MXN$3,500 per day. However, the Labor Board’s
January, 2022, order significantly increased the amount the employee is owed, ignoring the actual salary that had been
established by the appellate court and, instead, basing it on a salary that the former employee never actually received
while working for Exterran.
Enerflex has appealed the decision, and the appeal is pending before the courts in Mexico. In the meantime, the
Company is pursuing all other available avenues to preserve its rights, including rights under the USMCA investment
treaty arguing that the conduct of the Labor Board in Mexico amounts to violations of protections available under the
North American Free Trade Agreement.
The Company is involved in litigation and claims associated with normal operations against which certain provisions
may be made in the Financial Statements. Management is of the opinion that any resulting settlement arising from
the litigation would not materially affect the consolidated financial position, results of operations, or liquidity of the
Company.
Enerflex Strategy
Enerflex’s Vision of Transforming Energy for a Sustainable Future is supported by a long-term strategy that is founded
upon the following key pillars: technical excellence in modularized energy solutions; profitable growth achieved through
vertically integrated and geographically diverse product offerings; financial strength and discipline; and sustainable
returns to shareholders. Through consistent execution of this strategy and regular evaluation of the Company’s capital
allocation priorities and decisions, Enerflex has managed a resilient business to create shareholder value over its
40-plus-year history.
Enerflex delivers energy infrastructure and energy transition solutions across the globe by leveraging its enhanced
presence in growing natural gas markets. The Company’s vertically integrated suite of product offerings includes
processing, cryogenic, compression, electric power, low-carbon, and treated water solutions, spanning all phases of
a project’s lifecycle, from front-end engineering and design to after-market service. Enerflex has proven expertise in
delivering low-carbon solutions, including carbon capture utilization and storage, electrification, RNG, and hydrogen
solutions, and works closely with its client partners to help facilitate global decarbonization efforts.
M16
Annual Report2023 Enerflex will continue to build an increasingly resilient and sustainable business through its EI and AMS product lines
over the long term, stabilizing cash flows and reducing cyclicality in the business.
To support its overarching corporate strategy, Enerflex has developed region-specific strategies:
North America
In NAM, Enerflex provides natural gas solutions to support the development of upstream resources and the midstream
infrastructure required to meet local demand. Enerflex benefits from a growing liquefied natural gas (“LNG”) export
industry in the USA and anticipates that a future LNG export industry in Canada will provide additional opportunities for
the Company.
• EI: In the USA, Enerflex profitably invests in the organic expansion of its Contract Compression fleet by engineering,
designing, fabricating, and operating compression units to clients on a contracted basis.
• AMS: Enerflex services a large installed base of compression solutions across key resource plays in the USA and
Canada, and looks to secure long-term service and maintenance contracts with clients.
• ES: Enerflex engineers, designs, fabricates, and sells modularized processing, cryogenic, compression, electric
power, and carbon capture solutions.
Latin America
In LATAM, Enerflex focuses primarily on long-term growth opportunities through energy infrastructure ownership.
• EI: Enerflex targets long-term BOOM solutions and other infrastructure leases of varying size and scope to
support the Company’s ongoing strategy to grow the recurring nature of its business.
• AMS: Leveraging its large EI and ES footprint, Enerflex continues to grow its after-market service capabilities.
• ES: Enerflex delivers electric power solutions to meet the rising need for reliable power, and engineers,
designs, compression and processing solutions which require construction and installation support at site.
Eastern Hemisphere
Across the EH region, Enerflex focuses primarily on long-term growth opportunities through energy infrastructure
ownership.
• EI: Enerflex targets long-term BOOM solutions and other infrastructure leases of varying size and scope to
support the Company’s ongoing strategy to grow the recurring nature of its business.
• AMS: Leveraging its large EI and ES footprint to grow its after-market service capabilities.
• ES: Enerflex delivers electric power solutions to meet the rising need for reliable power, and engineers, designs, and
manufactures compression, processing and treated water solutions which require construction and installation
support at site.
M17
Outlook
Outlook
Operating results in 2024 will be underpinned by the highly contracted EI product line and the recurring
Operating results in 2024 will be underpinned by the highly contracted EI product line and the recurring nature of AMS,
nature of AMS, which together are expected to account for 55 percent to 65 percent of the Company’s
which together are expected to account for 55 percent to 65 percent of the Company’s gross margin before D&A.
gross margin before D&A.
Complementing Enerflex’s recurring revenue businesses is the ES product line, which carried a backlog of approximately
Complementing Enerflex's recurring revenue businesses is the ES product line, which carried a backlog
CAD$1.5 billion (US$1.1 billion) as at December 31, 2023, and is expected to benefit from increasing natural gas production
of approximately CAD$1.5 billion (US$1.1 billion) as at December 31, 2023 and is expected to benefit
in our core regions. The Company expects the majority of its backlog to convert into revenue over the next 12 months.
from increasing natural gas production in our 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 US$90 million to US$110
million. This includes a total of approximately US$70 million for maintenance and PP&E capital expenditures. Investing
Enerflex is targeting a disciplined capital program in 2024, with total capital expenditures of US$90
to expand our EI business in 2024 is discretionary and will be allocated to clients supported opportunities that are
million to US$110 million. This includes a total of approximately US$70 million for maintenance and PP&E
expected to generate attractive returns and deliver value to Enerflex shareholders.
capital expenditures. Investing to expand our EI business in 2024 is discretionary and will be allocated
to clients supported opportunities that are expected to generate attractive returns and deliver value to
Enerflex will continue to focus on debt reduction and lowering net finance costs in 2024, which will improve the
Enerflex shareholders.
Company’s ability to provide shareholder returns over the medium and long-term. The Company continues to evaluate
its target long-term capital structure and capital allocation parameters and expect to provide more clarity in the coming
Enerflex will continue to focus on debt reduction and lowering net finance costs in 2024, which will
months.
improve the Company’s ability to provide shareholder returns over the medium and long-term. The
Company continues to evaluate its target long-term capital structure and capital allocation parameters
Long-term fundamentals for natural gas are robust, given its critical role in supporting global decarbonization efforts and
and expect to provide more clarity in the coming months.
future economic growth. Enerflex is poised for long-term growth as it continues to capitalize on the growing demand
for low-carbon solutions, as well as its vertically integrated natural gas, treated water, and energy transition offerings.
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, as well as its vertically
integrated natural gas, treated water, and energy transition offerings.
Integration of Exterran Corporation
Integration of Exterran Corporation
Enerflex is well advanced in the integration of Exterran, with the Company positioned to operate with increased scale
and efficiency in 2024 and beyond. Since closing the Transaction, Enerflex has captured approximately US$62 million
of annual run-rate synergies, exceeding the US$60 million of anticipated synergies within 18 months from Transaction
Enerflex is well advanced in the integration of Exterran, with the Company positioned to operate with
close of October 13, 2022.
increased scale and efficiency in 2024 and beyond. Since closing the Transaction, Enerflex has captured
approximately US$62 million of annual run-rate synergies, exceeding the US$60 million of anticipated
synergies within 18 months from Transaction close of October 13, 2022.
2023 Guidance
2023 Guidance
Enerflex met or exceeded all of its full-year 2023 financial guidance metrics, as last provided with our third quarter
Enerflex met or exceeded all of its full-year 2023 financial guidance metrics, as last provided with our
results.
third quarter results.
(US$ millions, except ratios and percentages)
Annual run-rate synergies2
Adjusted EBITDA2,3
Bank-adjusted net debt to EBITDA ratio3,4
Capital expenditures and contract assets
Maintenance capital expenditures
Contract assets related to the Cryogenic Facility5
PP&E and growth capital expenditures
Total
Other non-discretionary expenditures6
December 31, 2023 November 8, 20231
62
380
2.3x
29
29
77
135
179
60
380 – 420
<2.5x
40 – 50
40 – 50
80 – 90
160 – 190
180 – 210
1 Refer to the November 8, 2023 news release entitled “Enerflex Ltd. Reports Third Quarter 2023 Financial and Operational Results”.
2 Synergy capture is subject to timing considerations of being realized within 12 to 18 months of Transaction close.
3 Non-IFRS measure that is not a standardized financial measure under IFRS and may not be comparable to similar non-IFRS measures disclosed
by other issuers. Refer to “Forward-Looking Statements” of this MD&A.
4 Calculated in accordance with the Company’s debt covenants to a maximum of 4.0:1.
5 Formerly referred to as work-in-progress in the Company’s financial guidance. The Cryogenic Facility is being accounted for as a sale within the ES
product line and presented as a contract asset on Enerflex’s consolidated statements of financial position.
6 Includes net working capital, finance costs, cash income taxes, and dividends.
M18
M-18 Annual Report 2023
Annual Report2023
Energy Transition
As the transition to a lower-carbon economy unfolds, Enerflex is collaborating with client partners to advance projects
that decarbonize and electrify operations and support infrastructure for RNG, biofuels, and hydrogen solutions. In the
USA, the Inflation Reduction Act has accelerated the development of numerous carbon capture projects, growing the
future opportunity set for Enerflex given its expertise in delivering modularized engineered-to-order process solutions.
Enerflex has also engaged in several projects to engineer, design, and manufacture carbon capture and other low-
carbon applications, including piloting activities to accelerate the identification and implementation of best-in-class
solutions.
Enerflex has observed that the pace of the market’s transition to a lower-carbon economy is not as rapid as initially
expected which could be influenced by the prevailing trend of gas prices and the market’s perception of carbon-based
energy. Enerflex will continue to evaluate and identify paths that will facilitate involvement in developing and growing
markets expected to impact the energy transition landscape over the next several decades.
Outlook by Segment
North America
Capital discipline continues to be at the forefront for North American upstream exploration and production companies.
In the USA, Enerflex continues to observe strong demand for its products and services in the liquids-weighted Permian
Basin. Enerflex anticipates that utilization rates for its contract compression fleet will remain elevated, demand for
the Cryogenic product line will be strong, and sold margins on new ES bookings will remain healthy. Additionally, the
Company expects increased AMS-related activities across the region will continue through 2024, including parts
sales, overhauls, and retrofitting activities. However, Enerflex continues to monitor the impact on client activity levels
as a result of weak near-term natural gas prices. In Canada, Enerflex’s market outlook is constructive, driven by the
continued development of key resource plays and the potential for increasing activity to support LNG exports.
Latin America
With its expanded EI platform, Enerflex generates predictable recurring revenues in LATAM and will continue to manage
regional geopolitical risks. Over time, the Company plans to increase its Contract Compression fleet utilization by re-
contracting and redeploying idle fleet to meet rising local demand since many nations throughout the region have
indicated a growing need for reliable and sustainable energy supply and a desire to reduce their overall dependency on
imported natural gas. Enerflex’s presence and product offering is aligned with market drivers and the overall Company
strategy.
Eastern Hemisphere
Enerflex’s near-term focus in Europe, Africa, and the Middle East is strong operational execution, delivering cost
improvements within existing operations, and safely advancing the cryogenic facility project. The Company also
continues to explore new markets and opportunities requiring modular solutions to bolster cash flows in the region.
Over the long term, Enerflex expects ongoing demand for larger-scale energy infrastructure assets and ITK projects.
In Asia Pacific, a strong LNG export market, and recent legislation surrounding emissions-reduction targets in Australia,
are expected to strengthen the demand for natural gas and energy transition solutions in the region.
M19
Definitions
Enerflex measures its financial performance using several key financial performance indicators, some of which do
not have standardized meanings as prescribed by IFRS and therefore may not be comparable to similar measures
presented by other issuers. Refer to the Non-IFRS Measures section of this MD&A.
Engineered Systems Bookings and Backlog
Bookings and backlog are monitored by Enerflex as an indicator of future revenue and business activity levels for the ES
product line. Bookings are recorded in the period when a firm commitment or order is received from clients. Bookings
increase backlog in the period they are received. Revenue recognized on ES products decreases backlog in the period the
revenue is recognized. Accordingly, backlog is an indication of revenue to be recognized in future periods using percentage-
of-completion accounting. Revenue from contracts that have been classified as finance leases for newly built equipment
is recorded as ES bookings. The full amount of revenue is removed from backlog at the commencement of the lease.
Recurring Revenue
Recurring revenue is defined as revenue from the EI and AMS product lines, as well as the impact of finance leases where
Enerflex is the lessor by removing margin recognized on commencement and the non-cash interest income earned, and
adding the cash received from the client. These revenue streams are typically contracted and extend into the future, rather
than only being recognized as a single transaction. EI revenues relate to compression, processing, treated water, and electric
power equipment. AMS revenues are derived from the ongoing maintenance of equipment that produces gas over the life
of a field. Conversely, revenue from the Company’s ES product line are for the manufacturing and delivery of equipment and
are non-recurring once the goods are delivered. While the contracts are subject to cancellation or have varying lengths,
the Company does not believe that these characteristics preclude them from being considered recurring in nature.
Operating Income
Operating income assists the reader in understanding the net contributions made from the Company’s core businesses
after considering SG&A and foreign exchange gains or losses. Each operating segment assumes responsibility for
its operating results as measured by, amongst other factors, operating income, which is defined as income before
income taxes, interest (or finance) costs (net of interest income), equity earnings or loss, gain or loss on sale of assets,
and gain or loss on investments. Financing and related charges are not attributable to business segments on a
meaningful basis. Business segments and income tax jurisdictions are not synonymous, and it is believed that the
allocation of income taxes distorts the historical comparability of the operating performance of business segments.
EBIT
EBIT provides the results generated by the Company’s primary business activities prior to consideration
of how those activities are financed or taxed in the various jurisdictions in which the Company operates.
EBITDA
EBITDA provides the results generated by the Company’s primary business activities prior to consideration of how
those activities are financed, how its assets are amortized, or how the results are taxed in various jurisdictions.
M20
Annual Report2023
Net Debt to EBITDA
Net debt is defined as short- and long-term debt less cash and cash equivalents at the end of the period which is then
divided by EBITDA for the trailing 12 months.
ROCE
ROCE is a measure to analyze operating performance and efficiency of the Company’s capital allocation process. The
ratio is calculated by taking EBIT for the 12-month trailing period divided by capital employed. Capital employed is debt
and equity less cash for the trailing four quarters.
M21
Non-IFRS Measures
Non-IFRS Measures
Enerflex measures its financial performance using several key financial performance indicators, some of which do
Enerflex measures its financial performance using several key financial performance indicators, some of
not have standardized meanings as prescribed by IFRS and therefore may not be comparable to similar measures
which do not have standardized meanings as prescribed by IFRS and therefore may not be comparable
presented by other issuers. These non-IFRS measures are also used by Management in its assessment of relative
to similar measures presented by other issuers. These non-IFRS measures are also used by
investments in operations and include ES bookings and backlog, recurring revenue, EBITDA, net debt to EBITDA
Management in its assessment of relative investments in operations and include ES bookings and
ratio, bank-adjusted net debt to EBITDA ratio, gross margin before D&A, ROCE, and free cash flow and should not be
backlog, recurring revenue, EBITDA, net debt to EBITDA ratio, bank-adjusted net debt to EBITDA ratio,
considered as an alternative to net earnings or any other measure of performance under IFRS. The reconciliation of
gross margin before D&A, ROCE, and free cash flow and should not be considered as an alternative to
these non-IFRS measures to the most directly comparable IFRS measure is provided below where appropriate. ES
net earnings or any other measure of performance under IFRS. The reconciliation of these non-IFRS
bookings and backlog do not have a directly comparable IFRS measure.
measures to the most directly comparable IFRS measure is provided below where appropriate. ES
bookings and backlog do not have a directly comparable IFRS measure.
Three months ended
December 31,
2022
Twelve months ended
December 31,
2022
($ thousands)
2023
2023
EBIT, EBITDA and Adjusted EBITDA
EBIT
EBITDA
Adjusted EBITDA1
Recurring Revenue
EI
AMS
Impact of finance leases
Total recurring revenue
% of total revenue
ROCE
$
(67,959) $
(44,747) $
57,864 $
(40,810)
2,382
125,961
17,897
86,143
325,383
512,650
87,477
223,601
$
208,593 $
162,923 $
777,702 $
381,087
179,482
12,542
145,526
11,036
652,198
49,416
443,660
18,939
$
400,617 $
319,485 $
1,479,316 $
843,686
51.2%
46.3%
46.8%
47.5%
Trailing 12-month EBIT
$
57,864 $
(40,810) $
57,864 $
(40,810)
Capital employed – beginning of period
Net debt2
Shareholders’ equity
Capital employed – end of period
Net debt2
Shareholders’ equity
$
1,239,997 $
169,626 $
1,136,549 $
158,664
1,546,975
1,419,844
1,542,908
1,353,754
$
2,786,972 $
1,589,470 $
2,679,457 $
1,512,418
$
1,088,829 $
1,136,549 $
1,088,829 $
1,136,549
1,394,022
1,542,908
1,394,022
1,542,908
$
2,482,851 $
2,679,457 $
2,482,851 $
2,679,457
Average capital employed3
$
2,694,110 $
1,848,678 $
2,694,110 $
1,848,678
ROCE
2.1%
(2.2)%
2.1%
(2.2)%
1 Refer to the “Adjusted EBITDA” section of this MD&A.
2 Net debt is defined as short- and long-term debt less cash and cash equivalents.
3 Based on a trailing four-quarter average.
M22
M-22 Annual Report 2023
Annual Report2023
Gross Margin before D&A
Gross Margin before D&A
The Company defines gross margin before D&A as gross margin excluding the impact of depreciation and amortization.
The Company defines gross margin before D&A as gross margin excluding the impact of depreciation
The historical costs of assets may differ if they were acquired through acquisition or constructed, resulting in differing
and amortization. The historical costs of assets may differ if they were acquired through acquisition or
depreciation. Gross margin before D&A is useful to present operating performance of the business before the impact
constructed, resulting in differing depreciation. Gross margin before D&A is useful to present operating
of depreciation and amortization that may not be comparable across assets.
performance of the business before the impact of depreciation and amortization that may not be
comparable across assets.
Bank-Adjusted Net Debt to EBITDA Ratio
Bank-Adjusted Net Debt to EBITDA Ratio
The Company defines net debt as short- and long-term debt less cash and cash equivalents at period end, which is
The Company defines net debt as short- and long-term debt less cash and cash equivalents at period
then divided by EBITDA for the trailing 12 months. In assessing whether the Company is compliant with the financial
end, which is then divided by EBITDA for the trailing 12 months. In assessing whether the Company is
covenants related to its debt instruments, certain adjustments are made to net debt and EBITDA to determine Enerflex’s
compliant with the financial covenants related to its debt instruments, certain adjustments are made to
bank-adjusted net debt to EBITDA ratio. These adjustments and Enerflex’s bank-adjusted net debt to EBITDA ratio are
net debt and EBITDA to determine Enerflex's bank-adjusted net debt to EBITDA ratio. These
calculated in accordance with, and derived from, the Company’s financing agreements.
adjustments and Enerflex's bank-adjusted net debt to EBITDA ratio are calculated in accordance with,
and derived from, the Company's financing agreements.
Free Cash Flow
Free Cash Flow
The Company has introduced a new key performance indicator for free cash flow. Free cash flow may not be
The Company has introduced a new key performance indicator for free cash flow. Free cash flow may
comparable to similar measures presented by other companies as it does not have a standardized meaning under
not be comparable to similar measures presented by other companies as it does not have a standardized
IFRS. Management has adopted this non-IFRS measure to help users of the financial statements assess the level of
meaning under IFRS. Management has adopted this non-IFRS measure to help users of the financial
free cash generated to fund other non-operating activities.
statements assess the level of free cash generated to fund other non-operating activities.
The Company defines free cash flow as cash provided by (used in) operating activities, less maintenance capital
The Company defines free cash flow as cash provided by (used in) operating activities, less maintenance
expenditures, mandatory debt repayments, lease payments and dividends paid, with proceeds on disposals of PP&E
capital expenditures, mandatory debt repayments, lease payments and dividends paid, with proceeds
and EI assets added back. The following table reconciles free cash flow to the most directly comparable IFRS measure,
on disposals of PP&E and EI assets added back. The following tables reconciles free cash flow to the
cash provided by (used in) operating activities:
most directly comparable IFRS measure, cash provided by (used in) operating activities:
($ thousands)
Cash flow from operating activities before
changes in working capital and other
Net change in working capital and other
Cash provided by (used in) operating activities
Less:
Maintenance capital and PP&E expenditures
Mandatory debt repayments
Lease payments
Dividends
Add:
Three months ended
December 31,
2022
2023
Twelve months ended
December 31,
2022
2023
$
$
65,024 $
143,955
208,979 $
(1,336) $
(14,994)
(16,330) $
259,584 $
13,727
273,311 $
(17,587)
(13,226)
(3,935)
(3,097)
(22,801)
-
(4,801)
(2,243)
(60,336)
(26,746)
(20,422)
(12,378)
91,086
(71,318)
19,768
(38,416)
-
(15,758)
(8,969)
Proceeds on disposals of PP&E and EI assets
14,243
2,924
39,850
16,323
Free cash flow
$
185,377 $
(43,251) $
193,279 $
(27,052)
The Company experienced positive movements in working capital during the three months ended
The Company experienced positive movements in working capital during the three months ended December 31, 2023.
December 31, 2023. This positive working capital change is primarily attributable to significant cash
This positive working capital change is primarily attributable to significant cash collections that impacted accounts
collections that impacted accounts receivable, contract assets and deferred revenues; use of
receivable, contract assets and deferred revenues; use of inventories; and the sale of an asset that was accounted
inventories; and the sale of an asset that was accounted for as a finance lease. While the Company has
for as a finance lease. While the Company has been able to efficiently manage its working capital globally, it does not
been able to efficiently manage its working capital globally, it does not expect the magnitude of the
expect the magnitude of the recovery realized to be repeated.
recovery realized to be repeated.
The free cash flow for the three months ended December 31, 2023, does not include the impact of $34 million of
The free cash flow for the three months ended December 31, 2023 does not include the impact of $34
unrealized foreign exchange losses on cash, and $18 million of unrealized losses on short-term investments. While
million of unrealized foreign exchange losses on cash, and $18 million of unrealized losses on short-term
the Company does not experience an outflow of cash associated with these unrealized losses on cash or short-term
investments. While the Company does not experience an outflow of cash associated with these
investments, these unrealized losses impact the cash available to fund other non-operating activities.
unrealized losses on cash or short-term investments, these unrealized losses impact the cash available
to fund other non-operating activities.
M23
M-23
December 31, 2023
126,089
$
14,425
December 31, 2023
925,820
126,089
$
14,425
314,705
925,820
137,982
613,647
314,705
137,982
613,647
$
$
The Company expects that cash flows from operations in 2023, together with cash and cash equivalents on hand and
The Company expects that cash flows from operations in 2023, together with cash and cash
currently available credit facilities, will be sufficient to fund its requirements for investments in working capital and
equivalents on hand and currently available credit facilities, will be sufficient to fund its requirements for
capital assets.
investments in working capital and capital assets.
The Company expects that cash flows from operations in 2023, together with cash and cash
equivalents on hand and currently available credit facilities, will be sufficient to fund its requirements for
investments in working capital and capital assets.
Liquidity
Liquidity
Liquidity
($ thousands)
Cash and cash equivalents
Short-term investments
($ thousands)
Total Revolving Credit Facility (US$700,000)
Cash and cash equivalents
Less:
Short-term investments
Total Revolving Credit Facility (US$700,000)
Less:
Available for future drawings
Drawings on Revolving Credit Facility
Letters of Credit1
Drawings on Revolving Credit Facility
Letters of Credit1
Available for future drawings
1 This represents the letters of credit that the Company has funded with the Revolving Credit Facility. Additional letters of credit of $48 million (US$36
million) are funded from the US$70 million LC Facility. Refer to Note 20 “Long-Term Debt” of the Financial Statements for more information.
The Company continues to meet the covenant requirements of its funded debt, including the three year
1 This represents the letters of credit that the Company has funded with the Revolving Credit Facility. Additional letters of credit of $48 million (US$36
million) are funded from the US$70 million LC Facility. Refer to Note 20 “Long-Term Debt” of the Financial Statements for more information.
The Company continues to meet the covenant requirements of its funded debt, including the three year secured
secured revolving credit facility (“Revolving Credit Facility”), the three year secured term loan (“Term
revolving credit facility (“Revolving Credit Facility”), the three year secured term loan (“Term Loan”) and senior secured
Loan”) and senior secured notes (the “Notes”), with the senior secured net funded debt, which is
The Company continues to meet the covenant requirements of its funded debt, including the three year
notes (the “Notes”), with the senior secured net funded debt, which is comprised of the Revolving Credit Facility and
comprised of the Revolving Credit Facility and the Term Loan, to EBITDA ratio of 0.7:1, compared to a
secured revolving credit facility (“Revolving Credit Facility”), the three year secured term loan (“Term
the Term Loan, to EBITDA ratio of 0.7:1, compared to a maximum ratio of 2.5:1, and a bank-adjusted net debt to EBITDA
maximum ratio of 2.5:1, and a bank-adjusted net debt to EBITDA ratio of 2.3:1, compared to a maximum
Loan”) and senior secured notes (the “Notes”), with the senior secured net funded debt, which is
ratio of 2.3:1, compared to a maximum ratio of 4.0:1. The Company exited the year with an interest coverage ratio of
ratio of 4.0:1. The Company exited the year with an interest coverage ratio of 4.2:1 compared to a
comprised of the Revolving Credit Facility and the Term Loan, to EBITDA ratio of 0.7:1, compared to a
4.2:1 compared to a minimum ratio of 2.5:1. The interest coverage ratio is calculated by dividing the trailing 12-month
minimum ratio of 2.5:1. The interest coverage ratio is calculated by dividing the trailing 12-month EBITDA,
maximum ratio of 2.5:1, and a bank-adjusted net debt to EBITDA ratio of 2.3:1, compared to a maximum
EBITDA, as defined by the Company’s lenders, by interest expense over the same timeframe.
as defined by the Company's lenders, by interest expense over the same timeframe.
ratio of 4.0:1. The Company exited the year with an interest coverage ratio of 4.2:1 compared to a
minimum ratio of 2.5:1. The interest coverage ratio is calculated by dividing the trailing 12-month EBITDA,
as defined by the Company's lenders, by interest expense over the same timeframe.
Summarized Statements of Cash Flow
Summarized Statements of Cash Flow
Summarized Statements of Cash Flow
($ thousands)
Three months ended
December 31,
2022
Three months ended
198,787 $
December 31,
2022
2023
163,429 $
2023
Twelve months ended
December 31,
2022
Twelve months ended
172,758
December 31,
2022
2023
253,776 $
2023
Cash and cash equivalents, beginning of period
($ thousands)
Cash provided by (used in):
$
Cash and cash equivalents, beginning of period
Operating activities
$
163,429 $
208,979
198,787 $
(16,330)
253,776 $
273,311
Cash provided by (used in):
Investing activities
Operating activities
Financing activities
Investing activities
Effect of exchange rate changes on cash and
cash equivalents denominated in foreign
currencies
Financing activities
Effect of exchange rate changes on cash and
Cash and cash equivalents, end of period
cash equivalents denominated in foreign
currencies
(37,750)
208,979
(174,218)
(37,750)
(174,218)
(34,351)
54,184
(16,330)
20,730
54,184
20,730
(3,595)
(158,888)
273,311
(200,494)
(158,888)
(200,494)
(41,616)
$
126,089 $
(34,351)
253,776 $
(3,595)
126,089 $
(41,616)
172,758
19,768
43,248
19,768
11,854
43,248
11,854
6,148
253,776
6,148
$
253,776
253,776 $
126,089 $
126,089 $
Operating Activities
Operating Activities
Cash and cash equivalents, end of period
For the three and twelve months ended December 31, 2023, cash provided by operating activities was
Operating Activities
higher than the comparative periods, primarily driven by lower net loss when removing the non-cash
impact of the goodwill impairment, and the net changes in working capital. Movements in the net change
For the three and twelve months ended December 31, 2023, cash provided by operating activities was
in working capital are explained in the "Financial Position" section of this MD&A.
higher than the comparative periods, primarily driven by lower net loss when removing the non-cash
impact of the goodwill impairment, and the net changes in working capital. Movements in the net change
For the three and twelve months ended December 31, 2023, cash provided by operating activities was higher than the
Investing Activities
in working capital are explained in the "Financial Position" section of this MD&A.
comparative periods, primarily driven by lower net loss when removing the non-cash impact of the goodwill impairment,
Cash used in investing activities for the three months ended December 31, 2023 was lower than the
and the net changes in working capital. Movements in the net change in working capital are explained in the “Financial
Investing Activities
cash provided by investing activities in the same period last year, primarily due to the cash acquired from
Position” section of this MD&A.
the Transaction, and reduced additions to PP&E and EI assets during the current period, partially offset
Cash used in investing activities for the three months ended December 31, 2023 was lower than the
by the purchase of short-term investments. Cash used in investing activities for the twelve months
cash provided by investing activities in the same period last year, primarily due to the cash acquired from
ended December 31, 2023 is higher than the cash provided by investing activities in the twelve months
the Transaction, and reduced additions to PP&E and EI assets during the current period, partially offset
ended December 31, 2022 due to the capital spending on the two BOOM water projects that slipped
by the purchase of short-term investments. Cash used in investing activities for the twelve months
into 2023, and the purchase of short-term investments, partially offset by the cash acquired from the
ended December 31, 2023 is higher than the cash provided by investing activities in the twelve months
Transaction.
ended December 31, 2022 due to the capital spending on the two BOOM water projects that slipped
into 2023, and the purchase of short-term investments, partially offset by the cash acquired from the
Transaction.
M24
M-24 Annual Report 2023
M-24 Annual Report 2023
Annual Report2023
Investing Activities
Cash used in investing activities for the three months ended December 31, 2023, was lower than the cash provided by
investing activities in the same period last year, primarily due to the cash acquired from the Transaction, and reduced
additions to PP&E and EI assets during the current period, partially offset by the purchase of short-term investments.
Cash used in investing activities for the twelve months ended December 31, 2023, is higher than the cash provided
by investing activities in the twelve months ended December 31, 2022, due to the capital spending on the two BOOM
water projects that slipped into 2023, and the purchase of short-term investments, partially offset by the cash acquired
from the Transaction.
Financing Activities
Cash used in financing activities increased during the three and twelve months ended December 31, 2023, compared
to the cash provided by financing activities for the three and twelve months ended December 31, 2022, primarily due
Financing Activities
to repayments on the Term Loan and the net repayment on the Revolving Credit Facility, partially offset by net debt
Cash used in financing activities increased during the three and twelve months ended December 31,
obtained as a result of the Transaction used to extinguish the assumed debt, and the related deferred transaction
2023 compared to the cash provided by financing activities for the three and twelve months ended
costs incurred to obtain the new debt.
December 31, 2022, primarily due to repayments on the Term Loan and the net repayment on the
Revolving Credit Facility, partially offset by net debt obtained as a result of the Transaction used to
extinguish the assumed debt, and the related deferred transaction costs incurred to obtain the new debt.
Capital Expenditures and
Capital Expenditures and Expenditures for
Expenditures for Finance Leases
Finance Leases
Enerflex distinguishes capital expenditures invested in EI assets as either maintenance or growth.
Enerflex distinguishes capital expenditures invested in EI assets as either maintenance or growth. Maintenance
Maintenance expenditures are necessary costs to continue utilizing existing EI assets, while growth
expenditures are necessary costs to continue utilizing existing EI assets, while growth expenditures are intended to
expenditures are intended to expand the Company's EI fleet. The Company may also incur costs related
expand the Company’s EI fleet. The Company may also incur costs related to the construction of EI assets determined
to the construction of EI assets determined to be finance leases. These costs are accounted for as work-
to be finance leases. These costs are accounted for as work-in-progress (“WIP”) related to finance leases, and once the
in-progress (“WIP”) related to finance leases, and once the project is completed and enters service, it is
project is completed and enters service, it is reclassified to COGS.
reclassified to COGS.
During the three months ended December 31, 2023, Enerflex invested $24 million in capital expenditures, including
During the three months ended December 31, 2023, Enerflex invested $24 million in capital
maintenance of the Company’s global EI fleet, as well as small-scale investments to expand the fleet across all regions.
expenditures, including maintenance of the Company's global EI fleet, as well as small-scale
During the twelve months ended December 31, 2023, Enerflex invested $143 million in capital expenditures, primarily
investments to expand the fleet across all regions. During the twelve months ended December 31, 2023,
for the completion of two large BOOM treated water facilities in the Middle East.
Enerflex invested $143 million in capital expenditures, primarily for the completion of two large BOOM
treated water facilities in the Middle East.
Capital expenditures and expenditures for finance leases are shown in the table below:
Capital expenditures and expenditures for finance leases are shown in the table below:
($ thousands)
Maintenance and PP&E
Growth
Total capital expenditures
Expenditures for finance leases
Total capital expenditures and expenditures
$
Three months ended
December 31,
2022
2023
Twelve months ended
December 31,
2022
2023
17,587 $
6,085
23,672
-
22,801 $
46,821
69,622
14,526
60,336 $
82,642
142,978
4,730
38,416
77,424
115,840
74,543
for finance leases
$
23,672 $
84,148 $
147,708 $
190,383
M25
M-25
Financial Position
The following table outlines significant changes in the consolidated statements of financial position as at December 31,
2023, compared to December 31, 2022:
Financial Position
The following table outlines significant changes in the consolidated statements of financial position as
at December 31, 2023 compared to December 31, 2022:
($ millions)
Increase
(Decrease)
Current assets
(16)
Property, plant and
equipment
Energy infrastructure
assets
Contract assets
Finance leases
receivable
Intangibles
Goodwill
Other assets
Current liabilities
Long-term debt
Total shareholders’
equity
(16)
(94)
(44)
(22)
(30)
(103)
(31)
11
(201)
(149)
Explanation
Decrease in current assets is due to lower cash and cash equivalents, and the WIP
related to finance leases transferred to COGS upon commencement of Enerflex’s
natural gas infrastructure project in the Middle East, partially offset by increases in
accounts receivable, contract assets, inventories, short-term investments, assets
held for sale, and prepayments.
Decrease in PP&E is primarily due to depreciation and disposals, offset by
investments.
Decrease in EI assets is primarily due to depreciation, foreign exchange impacts,
and disposals, offset by organic investments in the Company’s EI fleet.
Decrease in long-term contract assets is due to a large project in the Middle East
that will commence operations in 2024 whereby the Company will begin invoicing
the client. The amount expected to be invoiced was reclassified to the current
contract assets.
Decrease in the long-term portion of finance leases receivable is due to billings and
payments from clients, and disposition of a finance lease receivable, partially offset
by the recognition of a 10-year natural gas infrastructure project that commenced
operations during the first quarter of 2023.
Decrease in intangibles is primarily due to amortization and foreign exchange
impacts.
Decrease in goodwill is due to the impairment in LATAM which arose from the
ongoing devaluation of the ARS, and the restrictions on repatriating cash held in
Argentina; and the impact of foreign exchange.
Decrease in other assets is primarily due to the preferred shares that the Company
previously held which were redeemed during the year, and a portion of deferred
costs reclassified to other current assets.
Increase in current liabilities is primarily due to movements in deferred revenues,
and the current portion of long-term debt and lease liabilities, partially offset by a
decrease in accounts payable and accrued liabilities and provisions.
Decrease in long-term debt is primarily due to the net repayment on the three-year
Term Loan and the Revolving Credit Facility.
Decrease in total shareholders’ equity is due to the net loss, unrealized losses on the
translation of foreign operations, and dividends, offset by the impact of stock
options.
M26
M-26 Annual Report 2023
Annual Report2023
Quarterly Summary
Quarterly Summary
Quarterly Summary
$
$
Revenue1
Three months ended
($ thousands, except per share amounts)
782,208 $
Three months ended
December 31, 2023
Revenue1
($ thousands, except per share amounts)
778,173
September 30, 2023
782,208 $
December 31, 2023
776,670
June 30, 2023
778,173
September 30, 2023
825,044
March 31, 2023
776,670
June 30, 2023
689,839
December 31, 2022
825,044
March 31, 2023
392,813
September 30, 2022
689,839
December 31, 2022
June 30, 2022
372,077
392,813
September 30, 2022
323,069
March 31, 2022
372,077
June 30, 2022
1 The significant increase in revenue from September 30, 2022 to December 31, 2022 is due to the contribution from the acquired Exterran business.
323,069
March 31, 2022
When looking at the comparative reported revenue on a quarter-over-quarter basis from 2022 to 2023, the increase is due to the contribution from
the acquired Exterran business.
1 The significant increase in revenue from September 30, 2022 to December 31, 2022 is due to the contribution from the acquired Exterran business.
2 The following summarizes select changes in net earnings (loss):
When looking at the comparative reported revenue on a quarter-over-quarter basis from 2022 to 2023, the increase is due to the contribution from
i) During the three months ended September 30, 2022, the Company reported a $48 million non-cash goodwill impairment in the Canada
the acquired Exterran business.
2 The following summarizes select changes in net earnings (loss):
ii) During the three months ended December 31, 2022, the Company’s net loss was primarily due to the contribution from the acquired Exterran
i) During the three months ended September 30, 2022, the Company reported a $48 million non-cash goodwill impairment in the Canada
business and the significantly higher SG&A related to one-time Transaction costs and foreign exchange losses due to the ongoing devaluation
segment
of the ARS.
Earnings (loss)
per share –
basic
Earnings (loss)
per share –
(1.03) $
basic
0.05
(1.03) $
(0.02)
0.05
0.11
(0.02)
(0.68)
0.11
(0.37)
(0.68)
0.15
(0.37)
(0.00)
0.15
(0.00)
Earnings (loss)
per share –
diluted
Earnings (loss)
per share –
(1.03)
diluted
0.05
(1.03)
(0.02)
0.05
0.11
(0.02)
(0.68)
0.11
(0.37)
(0.68)
0.15
(0.37)
(0.00)
0.15
(0.00)
Net earnings
(loss)2,3
Net earnings
(127,339) $
(loss)2,3
5,714
(127,339) $
(2,823)
5,714
13,524
(2,823)
(81,118)
13,524
(32,808)
(81,118)
13,352
(32,808)
(369)
13,352
(369)
segment
ii) During the three months ended December 31, 2022, the Company’s net loss was primarily due to the contribution from the acquired Exterran
iii) During the three months ended December 31, 2023, the Company reported a $87 million non-cash goodwill impairment in the LATAM segment
business and the significantly higher SG&A related to one-time Transaction costs and foreign exchange losses due to the ongoing devaluation
and foreign exchange losses due to the ongoing devaluation of the ARS.
of the ARS.
3 Net earnings (loss) for all periods in the table above is the same as net earnings (loss) from continuing operations.
iii) During the three months ended December 31, 2023, the Company reported a $87 million non-cash goodwill impairment in the LATAM segment
and foreign exchange losses due to the ongoing devaluation of the ARS.
3 Net earnings (loss) for all periods in the table above is the same as net earnings (loss) from continuing operations.
Selected Annual Information
Selected Annual Information
Selected Annual Information
Twelve months ended
($ thousands, except per share amounts)
2023
2022
2021
Twelve months ended
Revenue1
($ thousands, except per share amounts)
Net loss2
Revenue1
Loss per share - basic
Net loss2
Loss per share - diluted
Loss per share - basic
Total assets3
Loss per share - diluted
Total non-current financial liabilities4
Total assets3
Cash dividends declared per share
Total non-current financial liabilities4
Cash dividends declared per share
$
$
3,162,095 $
2023
(110,924)
3,162,095 $
(0.90)
(110,924)
(0.90)
(0.90)
3,911,980
(0.90)
1,162,014
3,911,980
0.100
1,162,014
0.100
1,777,798 $
2022
(100,943)
1,777,798 $
(1.04)
(100,943)
(1.04)
(1.04)
4,258,068
(1.04)
1,363,237
4,258,068
0.100
1,363,237
0.100
960,156
2021
(18,455)
960,156
(0.21)
(18,455)
(0.21)
(0.21)
2,191,442
(0.21)
331,422
2,191,442
0.085
331,422
0.085
1 The increases in revenue year-over-year from 2021 to 2022 and from 2022 to 2023 are due to the contribution from the acquired Exterran
business.
2 Net loss for all periods in the table above is the same as net loss from continuing operations.
1 The increases in revenue year-over-year from 2021 to 2022 and from 2022 to 2023 are due to the contribution from the acquired Exterran
3 The increase in total assets from December 31, 2021 to December 31, 2022 is due to the assets acquired from Exterran.
business.
4 The increase in total non-current financial liabilities from December 31, 2021 to December 31, 2022 is due to the debt issued to complete the
2 Net loss for all periods in the table above is the same as net loss from continuing operations.
Transaction.
3 The increase in total assets from December 31, 2021 to December 31, 2022 is due to the assets acquired from Exterran.
4 The increase in total non-current financial liabilities from December 31, 2021 to December 31, 2022 is due to the debt issued to complete the
Transaction.
Risk Factors
Risk Factors
Risk Factors
An investment in common shares in the capital of Enerflex (“Common Shares”) involves a number of
risks. There are general risks associated with all business; industry specific risks inherent in Enerflex’s
An investment in common shares in the capital of Enerflex (“Common Shares”) involves a number of
operations; and risks specific to Enerflex. This section describes the risks that Enerflex believes are most
risks. There are general risks associated with all business; industry specific risks inherent in Enerflex’s
material to its business and operations. The risks identified in this MD&A are not a complete list of all the
An investment in common shares in the capital of Enerflex (“Common Shares”) involves a number of risks. There are
operations; and risks specific to Enerflex. This section describes the risks that Enerflex believes are most
risks and potential risks applicable to Enerflex. Additional risks may arise as Enerflex’s business evolves.
general risks associated with all business; industry specific risks inherent in Enerflex’s operations; and risks specific to
material to its business and operations. The risks identified in this MD&A are not a complete list of all the
Risks currently perceived as immaterial may become material. While the Company has extensive policies
Enerflex. This section describes the risks that Enerflex believes are most material to its business and operations. The
risks and potential risks applicable to Enerflex. Additional risks may arise as Enerflex’s business evolves.
and procedures in place to limit, manage and mitigate risks, including the Company’s enterprise risk
risks identified in this MD&A are not a complete list of all the risks and potential risks applicable to Enerflex. Additional
Risks currently perceived as immaterial may become material. While the Company has extensive policies
management program, there is no assurance that Enerflex will be successful in preventing or minimizing
risks may arise as Enerflex’s business evolves. Risks currently perceived as immaterial may become material. While the
and procedures in place to limit, manage and mitigate risks, including the Company’s enterprise risk
the harm and potential harm that the following risks present.
Company has extensive policies and procedures in place to limit, manage and mitigate risks, including the Company’s
management program, there is no assurance that Enerflex will be successful in preventing or minimizing
enterprise risk management program, there is no assurance that Enerflex will be successful in preventing or minimizing
the harm and potential harm that the following risks present.
the harm and potential harm that the following risks present.
M27
M-27
M-27
General Business Risks
The business in which Enerflex operates is highly competitive
The business in which Enerflex operates is highly competitive with low barriers to entry for natural gas processing
and compression services, contract compression, the processing and compression fabrication business, and the
produced water business. Several companies target the same client partners as Enerflex in markets where margins
can be low and contract negotiations can be challenging. Enerflex has several competitors in all aspects of its business,
both domestically and abroad. Some of these competitors, particularly in the Energy Infrastructure and Engineered
Systems product lines, are large, multi-national companies who may be able to adapt more quickly to technological
changes within the industry or changes in economic and market conditions, more readily take advantage of acquisitions
and other opportunities, and adopt more aggressive pricing policies. In addition, the Company could face significant
competition from new entrants. Some of Enerflex’s existing competitors or new entrants may expand or fabricate new
equipment that would create additional competition for the products, equipment, or services that Enerflex offers to
clients. Further, the Company may not be able to take advantage of certain opportunities or make certain investments
because of capital constraints, debt levels, and other obligations.
Any of these competitive pressures could have a material adverse effect on the Company’s business, financial condition,
and results of operations. See “Competitive Conditions” of the Company’s AIF.
Enerflex’s liabilities are subject to fluctuations in interest rates
The Company’s liabilities include long-term debt that may be subject to fluctuations in interest rates. The Company’s
9.0 percent Notes outstanding at December 31, 2023, are at fixed interest rates and therefore will not be impacted
by fluctuations in market interest rates. The Company’s Revolving Credit Facility and Term Loan, however, are subject
to changes in market interest rates. As at December 31, 2023, the Company had $487 million of indebtedness that is
effectively subject to floating interest rates. Changes in economic conditions outside of Enerflex’s control could result
in higher interest rates, thereby increasing Enerflex’s interest expense which may have a material adverse impact on
Enerflex’s financial results, financial condition, or ability to declare and pay dividends.
For each one percent change in the rate of interest on the Revolving Credit Facility and Term Loan, the change in interest
expense for the twelve months ended December 31, 2023, would be approximately $3 million. All interest charges are
recorded in finance costs on the consolidated statements of earnings. Any increase in market interest rates could have
a material adverse impact on the Company’s financial results, financial condition, or ability to declare and pay dividends.
See “Dividends – Restrictions on Paying Dividends” of the Company’s AIF.
Gross margin and the profitability of Enerflex is subject to
inflationary pressures
Strong economic conditions and competition for available personnel, materials, and major components may result in
significant increases in the cost of obtaining such resources. To the greatest extent possible, Enerflex passes such cost
increases on to its clients and attempts to reduce these pressures through proactive supply chain and human resource
practices. Should these efforts not be successful, the gross margin and profitability of Enerflex could be adversely affected.
Enerflex is susceptible to health and safety risks throughout its operations
Enerflex’s business is susceptible to health and safety risks inherent in manufacturing, construction, and operations.
These risks include but are not limited to: explosions caused by natural gas leaks; fires; malfunctioning or improperly
used tools and equipment; and vehicle collisions and other transportation incidents. Safety is a key factor that clients
consider when selecting a service provider. A decline in the Company’s safety performance could result in lower
demand for services, which could have a material adverse effect on Enerflex’s business, financial condition, and results
of operations.
M28
Annual Report2023 Failure to mitigate, prevent, or appropriately respond to a safety or health incident could result in injuries or fatalities
among employees, contractors, visitors, or residents in communities near Company operations. Such incidents may
lead to liabilities arising out of personal injuries or death, property damage, operational interruptions, and shutdown
or abandonment of affected facilities, including government-imposed orders to remedy unsafe conditions or
circumstances, penalties associated with the contravention of applicable health and safety legislation, and potential
civil liability. Preventing or responding to accidents could require Enerflex to expend significant time and effort, as well
as financial resources to remediate safety issues, compensate injured parties, and repair damaged facilities. Any of the
foregoing could have an adverse impact on the Company’s operations, financial results, and reputation which could
result in increased costs associated with Enerflex’s business.
Information technology and information security is of critical importance
to Enerflex
The Company is dependent upon the availability, capacity, reliability, and security of information technology
infrastructure and the Company’s ability to expand and continually update this infrastructure, to conduct daily
operations. Information technology assets and protocols become increasingly important to Enerflex as it continues to
expand internationally, provide information technology access to global personnel, develop web-based applications,
to monitor products, and improve its business software applications. If any such programs or systems were to fail or
create erroneous information in the Company’s hardware or software network infrastructure, it could have a material
adverse effect on the Company’s business activities and reputation.
Enerflex may be threatened by or subjected to cyberattack risks such as cyber-fraud, viruses, malware infections,
or social engineering activities like phishing and employee impersonation, which may result in adverse outcomes
including, but not limited to, the exposure of sensitive data, disruption of operations, and diminished operating results.
In recent years, cyberattacks have become more prevalent and much harder to detect and defend against. These
threats may arise from a variety of sources, all ranging in sophistication from an individual hacker to alleged state-
sponsored attacks. A cyberattack may be generic, or it may be custom crafted to target the specific information
technology used by Enerflex. The occurrence of any such cyberattacks could adversely affect the Company’s financial
condition, operating results, and reputation.
The Company may be targeted by parties using fraudulent spoof and phishing emails to misappropriate Enerflex
information, or the information of clients and suppliers, or to introduce viruses or other malware through “trojan horse”
programs into computer networks of the Company, its clients, or suppliers. These phishing emails may appear upon
a cursory review to be legitimate emails sent by an employee or representative of Enerflex, its clients, or suppliers. If
a member of Enerflex or a member of one of its clients or suppliers fails to recognize that a phishing email has been
sent or received and responds to or forwards the phishing email, the attack could corrupt the computer networks
and/or access confidential information of Enerflex, its clients, employees, and/or suppliers, including passwords,
through email or downloaded malware. In addition to spoof and phishing emails, network and storage applications
may be subject to unauthorized access by hackers or breached due to operator error, malfeasance, or other system
disruptions. It is often difficult to anticipate or immediately detect such incidents and the damage caused by them.
Security measures, such as incident monitoring, vulnerability testing, tabletop exercises, response planning, and
employee education and training have been implemented to protect the Company’s information security and network
infrastructure. However, the Company’s mitigation measures cannot provide absolute security, and the information
technology infrastructure may be vulnerable to criminal cyberattacks or data security incidents due to employee or
client error, malfeasance, or other vulnerabilities. Additionally, Enerflex is reliant on third-party service providers for
certain information technology applications. While the Company conducts due-diligence and believes that these third-
party service providers have adequate security measures, there can be no assurance that these security measures
will prevent any cyber events or computer viruses from impacting the applications upon which Enerflex relies.
M29
If Enerflex’s information technology systems were to fail and the Company was unable to recover in a timely way, the
Company might be unable to fulfill critical business functions, which could damage the Company’s reputation and have a
material adverse effect on the business, financial condition, and results of operations. A breach of Enerflex’s information
security measures or controls could result in losses of material or confidential information, reputational consequences,
financial damages, breaches of privacy laws, damage to assets, safety issues, operational downtime or delays, and
revenue losses. The significance of any such event is difficult to quantify but may in certain circumstances be material to
the Company and could have adverse effects on the Company’s business, financial condition, and results of operations.
The nature of Enerflex’s operations brings inherent litigation risk and liability
claims
The Company’s operations entail inherent risks, including but not limited to equipment defects, malfunctions and
failures, and natural disasters that could result in uncontrollable flows of natural gas, untreated water or well fluids, fires,
and explosions. Some of the Company’s products are used in hazardous applications where an accident or a failure
of a product could cause personal injury or loss of life, or damage to property, equipment, or the environment, as well
as the suspension of the end-user’s operations. The Company seeks to mitigate its exposure to these risks through
various means including contracting strategies, however, if the Company’s products were to be involved in any of these
incidents, the Company could face litigation and may be held liable for those losses.
In the normal course of Enerflex’s operations, the Company may become involved in, named as a party to, or be the
subject of various legal proceedings, including regulatory proceedings, tax proceedings, and legal actions related to
contract disputes, property damage, environmental matters, employment matters, and personal injury. The Company
may not be able to adequately protect itself contractually and insurance coverage may not be available or adequate in
risk coverage or policy limits to cover all losses or liabilities that it may incur. Moreover, the Company may not be able
to maintain insurance in the future at levels of risk coverage or policy limits that management deems adequate. Any
claims made under the Company’s policies may cause its premiums to increase. Any future damages deemed to be
caused by the Company’s products or services that are not covered by insurance, or that are in excess of policy limits or
subject to substantial deductibles, could have a material adverse effect on the Company’s projections, business, results
of operations, and financial condition.
Defense and settlement costs associated with lawsuits and claims can be substantial, even with respect to
lawsuits and claims that have no merit. Due to the inherent uncertainty of the litigation process, the resolution
of any legal proceeding could have an adverse effect on Enerflex’s operating results or financial performance.
The ability of Enerflex to access capital on reasonable terms, if at all, may
impact its business
Enerflex relies on its cash, as well as the credit and capital markets, to provide some of the capital required to continue
operations. Significant instability or disruptions to the capital markets, including the credit markets, may impact the
Company’s ability to access capital on reasonable commercial terms, if at all, and this in turn may result in adverse
consequences including: making it more difficult to satisfy contractual obligations; increasing vulnerability to general
adverse economic conditions and industry conditions; limiting the ability to fund future working capital, capital
expenditures, or acquisitions; limiting the ability to refinance debt in the future or borrow additional funds to fund
ongoing operations; and paying future dividends to shareholders.
The Company’s Revolving Credit Facility also contains a number of covenants and restrictions which Enerflex, and
its subsidiaries, must comply with including, but not limited to, use of proceeds, limitations on the ability to incur
additional indebtedness, transactions with affiliates, mergers and acquisitions, and the Company’s ability to sell
assets. The Company’s ability to comply with these covenants and restrictions may be affected by events beyond
its control, including prevailing economic, financial, and industry conditions. If market or other economic conditions
deteriorate, the Company’s ability to comply with these covenants may be impaired. Failure to meet any of these
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covenants, financial ratios, or financial tests could result in events of default which require the Company to repay
its indebtedness and could impair the Company’s ability to access the capital markets for financing. While Enerflex
is currently in compliance with all covenants, financial ratios, and financial tests, there can be no assurance that it
will be able to comply with these covenants, financial ratios, and financial tests in future periods. These events could
restrict the Company’s and other guarantors’ ability to fund its operations, meet its obligations associated with financial
liabilities, or declare and pay dividends. See “Dividends – Restrictions on Paying Dividends” of the Company’s AIF.
Public health crises may impact Enerflex’s business
The Company’s business, operations, and financial condition could be materially adversely affected by the outbreak
of epidemics, pandemics, or other health crises. Such public health crises may adversely affect Enerflex, causing a
slowdown or temporary suspension of Enerflex’s operations in geographic locations impacted by an outbreak, including
due to: reduced global economic activity and a corresponding decrease in demand for oil and natural gas, which could
result in producers being forced to shut-in production and serve to lower demand for the Company’s products and
services; impaired supply chain as a result of mass quarantines, lockdowns, or border closures, thereby limiting the
supply and increasing the cost of goods and services used in Enerflex’s operations; and restricted workforce as a result
of quarantines and health impacts, rendering employees unable to work or travel.
Enerflex continues to adhere to all public health orders and governmental guidance and maintains communication with
suppliers, clients, stakeholders, and other business partners to identify and monitor potential risks to Enerflex’s ongoing
operations. Any outbreak of epidemics, pandemics, or other health crises could materially and adversely impact the
Company’s business, operations, financial condition, and cash flows.
Industry Specific Risks
Energy prices, industry conditions, and the cyclical nature of the energy
industry
The industry in which Enerflex operates is highly reliant on the levels of capital expenditures made by oil and gas producers
and explorers. The capital expenditures of these companies, along with those midstream companies who service these
oil and gas explorers and producers, impact the demand for Enerflex’s equipment and services. Capital expenditure
decisions are based on various factors, including but not limited to: demand for hydrocarbons and prices of related
products; exploration and development prospects in various jurisdictions; reserve production levels; oil and natural
gas prices; regulatory compliance; and access to capital, none of which can be accurately predicted. Any downturn in
commodity prices may lead to reduced levels of capital expenditures, which may negatively impact the demand for the
products and services that Enerflex offers. Even the perception of lower oil or gas prices over the long term can result in
a decision to cancel or postpone exploration and production capital expenditures, which may lead to reduced demand
for products and services offered by Enerflex. If economic conditions or international markets decline unexpectedly and
oil and gas producing clients decide to cancel or postpone major capital expenditures, the Company’s business may be
adversely impacted.
The supply and demand for oil and gas is influenced by a number of factors, including political, economic, or military
circumstances throughout the energy producing regions of the world. This has been highlighted with the Russian invasion
of Ukraine which has had significant impacts on supply resulting in significant and rapid commodity price increases. The
impact to the Enerflex business is difficult to predict and depends on many factors that are evolving and not within the
control of Enerflex and such impact could have a material adverse effect on the Company’s business, financial condition,
and results of operations.
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Enerflex’s operations are subject to foreign exchange risk
A significant percentage of Enerflex’s revenues and expenses are denominated in currencies other than Canadian dollars.
The Company identifies and hedges significant transactional currency risks, and its hedging policy remains unchanged
in the current year. Further information on Enerflex’s hedging activities is provided in Note 30 “Financial Instruments” in
the Financial Statements.
Transaction Exposure – the Company sources the majority of its products and major components for its Canadian
operations from the USA. Consequently, reported costs of inventory and the transaction prices charged to clients for
equipment and parts are affected by the relative strength of the Canadian dollar. The Company also sells compression
and processing packages in foreign currencies, primarily the US dollar. Most of Enerflex’s international orders are
manufactured in the USA where the contracts are primarily denominated in US dollars. This minimizes the Company’s
foreign currency exposure on these contracts.
The Company remains exposed to foreign exchange risk in light of the recent and ongoing devaluation of the Argentine
peso. To mitigate this risk, Management has invested funds in country to earn interest income thereby partially offsetting
the devaluation and continues to explore opportunities to further minimize the impacts of future devaluation.
The Company has implemented a hedging policy, applicable primarily to the Canadian operations, with the objective of
securing the margins earned on awarded contracts denominated in currencies other than Canadian dollars. In addition,
the Company may hedge input costs that are paid in a currency other than the home currency of the subsidiary executing
the contract. The Company utilizes a combination of foreign denominated debt and currency forward contracts to meet
its hedging objectives.
Translation Exposure – the Company’s earnings from and net investment in foreign subsidiaries are exposed to
fluctuations in exchange rates. The Company is also exposed to the translation risk of monetary items in their local
currency to their functional currency. The currencies with the most significant impact are the US dollar, Australian dollar,
and Brazilian real.
Assets and liabilities of foreign subsidiaries are translated into Canadian dollars using the exchange rates in effect at
the balance sheet dates. Unrealized translation gains and losses are deferred and included in accumulated other
comprehensive income. The cumulative currency translation adjustments are recognized in earnings when there has
been a reduction in the net investment in foreign operations.
Earnings from foreign operations are translated into Canadian dollars each period at average exchange rates for
the period. As a result, fluctuations in the value of the Canadian dollar relative to these other currencies will impact
reported net earnings. Such exchange rate fluctuations could be material year-over-year relative to the overall earnings
or financial position of the Company.
ESG and investor sentiment particularly related to the oil and gas business
A number of factors, including the impact of oil and natural gas operations on the environment, the effects of the use
of hydrocarbons on climate change, ecological damage relating to spills of petroleum products during production and
transportation, and human rights, have affected certain investors’ sentiments towards investing in the oil and natural gas
industry. As a result of these concerns, some institutional, retail, and governmental investors have announced that they
are no longer willing to fund or invest in companies in the oil and natural gas industry or are reducing the amount of their
investment over time. Any reduction in the investor base interested or willing to invest in the oil and natural gas industry
may result in limiting Enerflex’s access to capital, increasing its cost of capital, and decreasing the price and liquidity of
Enerflex’s securities.
In addition, practices and disclosures relating to environmental, social, and governance matters (“ESG”) matters (including
but not limited to governance practices, climate change and emissions, diversity and inclusion, data security and privacy,
ethical sourcing, and water, waste, and ecological management) are attracting increasing scrutiny by stakeholders. Certain
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stakeholders are requesting that issuers develop and implement more robust ESG policies and practices. Developing and
implementing such policies and practices can involve significant costs and require a significant time commitment from the
Board of Directors, Executive Management Team, and employees of Enerflex. Failing to implement the policies and practices,
as requested, or expected by Enerflex’s stakeholders, may result in such investors reducing their investment in Enerflex, or
not investing in Enerflex at all. The Company’s response to addressing ESG matters, and any negative perception thereof
can also impact Enerflex’s reputation, business prospects, ability to hire and retain qualified employees, and vulnerability
to activist shareholders. Such risks could adversely affect Enerflex’s business, future operations, and profitability.
Climate change and associated regulatory and policy changes could impact
Enerflex’s business
Climate change policy is quickly evolving at regional, national, and international levels, and political and economic events
may significantly affect the scope and timing of climate change measures that are ultimately put in place. While Enerflex
does not currently exceed the applicable thresholds for emissions-reduction initiatives in its jurisdictions of operations,
there is a global trend in recent periods towards greater regulation of greenhouse gas emissions. Although it is not
possible at this time to predict how new laws or regulations would impact the Company’s business, any such future
requirements imposing carbon pricing schemes, carbon taxes, or emissions-reduction obligations on the Company’s
energy infrastructure, equipment, and operations could require it to incur costs to reduce emissions or to purchase
emission credits or offsets, and may cause delays or restrictions in its ability to offer its products and services. Failure
to comply with such laws and regulations could result in significant liabilities or penalties being imposed on Enerflex.
There is also a risk that Enerflex could face claims initiated by third parties relating to climate change or related laws and
regulations. Any such claims, laws, or regulations could also increase the costs of compliance for Enerflex’s clients, and
thereby negatively impact demand for the Company’s products and services. The direct or indirect costs of such claims,
and compliance with such laws or regulations, may have a material adverse effect on the business, financial condition,
results of operations, and prospects of the Company.
There has been public discussion that climate change may be associated with extreme weather conditions such as
more intense hurricanes, flooding, droughts, forest fires, thunderstorms, tornadoes, and snow or ice storms, as well as
rising sea levels and other acute (event-driven) and chronic (long-term) climate events. Another possible consequence
of climate change is increased volatility in seasonal temperatures with some studies suggesting that climate change
could cause some areas to experience temperatures substantially colder or warmer than their historical averages.
To the extent there are significant climate changes in the markets Enerflex serves or areas where Company assets
reside, Enerflex could incur increased costs, its assets could be damaged, operations could be materially impacted (for
instance, shut-down requirements), there may be health implications for its employees, and its clients may experience
operational disruptions causing reduced demand for the Company’s products. At this time, the Company is unable to
determine the extent to which climate change may affect its operations.
Demand for the Company’s products may also be affected by the development and demand for new technologies in
response to global climate change. Many governments provide, or may in the future provide, tax incentives and other
subsidies to support the use and development of alternative energy technologies. Technological advances and cost
declines in alternative energy sources (such as hydrogen and renewables, electric grids, electric vehicles, and batteries)
may reduce demand for hydrocarbons, which could lead to a lower demand for the Company’s low-carbon products
and services although such initiatives may create opportunities for the Company given its expertise in providing
electrification, hydrogen, and bioenergy (including renewable natural gas) solutions. If client preferences shift, the
Company may also be required to develop new technologies, requiring significant investments of capital and resources,
which may or may not be recoverable in the marketplace and which could result in certain products becoming less
profitable or uneconomic. At this time, the Company is unable to determine the extent to which such technological risks
may detrimentally impact its business prospects, financial condition, and operations.
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The success of the energy transition is reliant on regulatory and
policy incentives
In many cases, successful execution of projects within Enerflex’s Energy Transition business is reliant on regulatory
and policy incentives such as the Section 45Q tax credit for CCUS, the Section 45V tax credit for clean hydrogen
production, California low-carbon fuel standards, and many others. These incentives make the development of energy
transition projects, equipment and facilities more competitive by providing tax credits or other financial incentives
as well as (in some cases) accelerated depreciation for a portion of the development costs, decreasing the costs
and risks associated with developing such projects, equipment, or facilities. The elimination or loss of, or reduction
in, such incentives could (i) decrease the attractiveness of such energy transition projects, equipment, or facilities to
potential clients, reducing the Company’s opportunities to commercialize the relevant projects, equipment, or facilities,
(ii) reduce the Company’s willingness to pursue or develop certain projects, equipment, or facilities due to higher
operating costs or decreased revenues related to such projects, equipment, or facilities, (iii) cause the market for
future energy transition projects, equipment, or facilities to be smaller and/or (iv) result in increased financing costs
and difficulty in obtaining financing on acceptable terms with respect to the Energy Transition business. Any of the
foregoing could have a material adverse effect on the Company’s ability to pursue and achieve success in its Energy
Transition business. Additionally, there are many geographies where relevant governments have not adopted or
promulgated regulatory and policy incentives related to energy transition projects and applications. If such geographies
do not adopt such regulatory and policy incentives, then Enerflex may not be able to participate in providing energy
transition solutions to clients in such geographies unless and until such regulatory and policy incentives are adopted.
The energy transition is highly reliant on technological advancements
The success of Enerflex’s Energy Transition business is reliant on technological advancement. While there are some
technological applications for energy transition initiatives which are currently economically feasible based upon
existing regulatory and policy incentives, there are also energy transition technology applications which are not yet
economically feasible even when taking into account existing regulatory and policy incentives. Enerflex expects that,
in a significant percentage of energy transition projects, technological advancement and improvement will be required
before the relevant applications can become commercialized. If technological advancement and improvement is not
successfully achieved on economically feasible terms, then widespread adoption of the relevant applications may not
occur and Enerflex’s Energy Transition business may not be able to successfully commercialize relevant offerings and
its ability to succeed may be adversely impacted.
The Energy Transition and the ability of Enerflex to succeed,
has inherent risks
Enerflex’s ability to succeed in its Energy Transition business is dependent on the extent to which it can effectively
execute new business strategies which are necessary in connection with energy transition initiatives. While Enerflex
has identified diverse opportunities within the energy transition marketplace which are within or related to its core
competencies, there is no guarantee or certainty that Enerflex will be able to achieve commercial success within these
areas, if at all. While the energy transition presents such opportunities, given that commercial viability of most of these
opportunities is reliant on regulatory and policy support and requires widespread adoption by relevant client partner
bases which is currently not achieved, Enerflex cannot predict with certainty the extent to which it will be able to
commercialize solutions pursued or conceived by its Energy Transition business. As with any new business initiative,
Enerflex’s Energy Transition business involves inherent uncertainty and, while Enerflex believes it is well situated to
participate in Energy Transition-related projects and initiatives, many factors outside of the control of the Company will
influence whether these projects and initiatives achieve commercial success, if at all, including regulations and policy,
widespread adoption of practices, advancement of technology, access to capital, and others. Failure to successfully
execute the Company’s strategy for its Energy Transition business may result in Enerflex not being able to fully implement
or realize the anticipated results or benefits of its Energy Transition business strategy and may further result in Enerflex
not being able to meaningfully participate in the energy transition industry.
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Corruption, sanctions, and trade compliance issues may impact the
business of Enerflex
The Company is required to comply with Canadian, USA, and international laws and regulations regarding corruption,
anti-bribery, sanctions, and trade compliance. Enerflex conducts business in many parts of the world that experience
high levels of corruption, relies on third-party agents to act on the Company’s behalf in some jurisdictions where the
Company does not have a presence, and is subject to various laws that govern the import and export of its equipment.
While Enerflex has developed policies, procedures, screening protocols, and training designed to achieve and maintain
compliance with applicable laws, the Company could be exposed to investigations, claims, and other regulatory
proceedings for alleged or actual violations of laws related to Company operations, including anti-corruption and anti-
bribery legislation, trade laws, and sanctions laws. The Canadian government, the US Department of Justice, the U.S.
Securities and Exchange Commission, the US Office of Foreign Assets Control, and similar agencies and authorities
in other jurisdictions have a broad range of civil and criminal penalties they may seek to impose against companies
and individuals for violations, including injunctive relief, disgorgement, fines, penalties, and modifications to business
practices and compliance programs, among other things. While Enerflex cannot accurately predict the impact of any
of these factors, if any of those risks materialize, it could have a material adverse effect on the Company’s reputation,
business, financial condition, results of operations, and cash flow.
Compliance with HSE regulations
The Company and many of its clients are subject to a variety of federal, provincial, state, local, and international laws
and regulations relating to health, safety, and environment (“HSE”). Enerflex has developed policies, procedures, and
standards designed to ensure compliance with HSE laws and regulations and to otherwise ensure that Enerflex’s
operations are conducted in a manner that ensures the health and safety of stakeholders and the protection of the
environment. Nevertheless, these laws and regulations are complex, subject to periodic revision, and are becoming
increasingly stringent. The cost of compliance with these requirements may increase over time, thereby increasing the
Company’s operating costs or negatively impacting the demand for the Company’s products and services. Failure to
comply with these laws and regulations may result in reputational damage, as well as the imposition of administrative, civil,
and criminal enforcement measures, including assessment of monetary penalties, imposition of remedial requirements,
and issuance of injunctions as to future compliance.
Compliance with environmental laws is a priority across Enerflex operations and in the manufacturing of the Company’s
products, as the Company uses and stores hazardous substances in its operations. In addition, many of the Company’s
current and former properties are or have been used for industrial purposes. Certain environmental laws may impose joint
and several and strict liability for environmental contamination, which may render the Company liable for remediation
costs, natural resource damages, and other damages as a result of Company conduct or the conduct of, or conditions
caused by, prior owners or operators or other third parties. In addition, where contamination may be present, it is possible
that neighbouring landowners and other third parties may file claims for personal injury, property damage, and recovery
of response costs. Remediation costs and other damages arising as a result of environmental laws and regulations could
be substantial and could negatively impact financial condition, profitability, and results of operations.
Enerflex may need to apply for or amend facility permits or licenses from time to time with respect to storm water,
waste handling, or air emissions relating to manufacturing activities or equipment operations, which may subject
Enerflex to new or revised permitting conditions. These permits and authorizations may contain numerous compliance
requirements, including monitoring and reporting obligations and operational restrictions, such as emission limits, which
may be onerous or costly to comply with. Given the large number of jurisdictions and facilities in which Enerflex operates,
and the numerous environmental permits and other authorizations that are applicable to its operations, the Company
may occasionally identify or be notified of technical violations of certain compliance requirements and could be subject
to penalties related thereto.
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The adoption of new HSE laws or regulations, or more vigorous enforcement of existing laws or regulations, may also
negatively impact Enerflex’s clients and demand for the Company’s products and services, which in turn would have a
negative impact on the Company’s financial results and operations.
The Company is also subject to various federal, provincial, state, and local laws and regulations relating to safety
and health conditions in its manufacturing facilities and other operations. Those laws and regulations may also
subject the Company to material financial penalties or liabilities for any noncompliance, as well as potential
business disruption if any of its facilities, or a portion of any facility, is required to be temporarily closed as a
result of any violation of those laws and regulations. Any such financial liability or business disruption could have
a material adverse effect on the Company’s projections, business, results of operations, and financial condition.
Enerflex’s business requires significant levels of insurance
Enerflex’s operations are subject to risks inherent in the oil and natural gas services industry, such as equipment defects,
malfunctions and failures, and natural disasters with resultant uncontrollable flows of oil and natural gas, fires, spills, and
explosions. These risks could expose Enerflex to substantial liability for personal injury, loss of life, business interruption,
property damage, pollution, and other liabilities. Enerflex carries prudent levels of insurance to protect the Company
against these unforeseen events, subject to appropriate deductibles and the availability of coverage. However, there can
be no assurance that any such insurance policies will cover all losses or liabilities that may arise from the operation of
Enerflex’s business. An annual review of insurance coverage is completed to assess the risk of loss and risk mitigation
alternatives.
Extreme weather conditions, natural occurrences, and terrorist activity have strained insurance markets leading
to increases in insurance costs and limitations on coverage. It is anticipated that appropriate insurance coverage will
be maintained in the future, but there can be no assurance that such insurance coverage will be available on commercially
reasonable terms or on terms as favourable as Enerflex’s current arrangements. The occurrence of a significant event
outside of the scope of coverage of the Enerflex insurance policies could have a material adverse effect on the results
of the organization.
Seasonal factors associated with the oil and gas business
impacts demand
Demand for natural gas fluctuates largely with the heating and electric power requirements caused by the changing
seasons in North America. Hot summers and cold winters typically increase demand for, and the price of, natural gas.
This increases clients’ cash flow, which can have a positive impact on Enerflex. At the same time, access to many western
Canadian oil and natural gas properties is limited to the period when the ground is frozen so that heavy equipment can
be transported to well locations. As a result, the first quarter of the year is generally accompanied by increased winter
deliveries of equipment. Warm winters in western Canada, however, can both reduce demand for natural gas and make
it difficult for producers to reach well locations. This restricts drilling and development operations, reduces the ability
to supply natural gas production in the short-term, and can negatively impact the demand for Enerflex’s products and
services.
Enerflex Specific Risks
The business and operations of Enerflex involve inherent project
execution risk
Enerflex engineers, designs, manufactures, constructs, commissions, operates, and services systems that process
and/or compress products in a gaseous state. Enerflex’s expertise encompasses field production facilities, gas
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compression and processing plants, gas lift compression, refrigeration systems, and electric power equipment, primarily
serving the natural gas production industry. The Company participates in some projects that have a relatively larger
size and scope than the majority of its projects, which may translate into more technically challenging conditions or
performance specifications for its products and services. These projects typically specify delivery dates, performance
criteria, and penalties for the failure to perform. The Company’s ability to profitably execute on these solutions
for clients is dependent on numerous factors which include, but are not limited to: changes in project scope; the
availability and timeliness of external approvals and other required permits; skilled labor availability and productivity;
availability and cost of materials, parts, and services; the accuracy of design, engineering, and construction; the
ability to safely access the job site; and the availability of contractors to support execution of the Company’s scope
on these projects. Any failure to execute on these larger projects in a timely and cost-effective manner could have
a material adverse effect on the business, financial condition, results of operations, and cash flows of the Company.
Enerflex is exposed to the risks associated with international operations
Enerflex’s operations in countries outside of North America account for a significant amount of the Company’s revenue.
Enerflex is exposed to risks inherent in conducting international operations, including, but not limited to: social, political,
and economic instability; changes in foreign government policies, laws, regulations, and regulatory requirements, or
the interpretation, application and/or enforcement thereof; tax increases or changes in tax laws or in the interpretation,
application and/or enforcement thereof; difficulties in staffing and managing foreign operations including logistical,
safety, security, and communication challenges; difficulties, delays, and expenses that may be experienced or incurred
in connection with the movement and clearance of personnel and goods through the customs and immigration
authorities of multiple jurisdictions; recessions and other economic crises that may impact the Company’s cost of
conducting business in those countries; the adoption of new, or the expansion of existing, trade restrictions, or
embargoes; limitations on the Company’s ability to repatriate cash, funds, or capital invested or held in jurisdictions
outside Canada; difficulty or expense of enforcing contractual rights due to the lack of a developed legal system or
otherwise; confiscation, expropriation, or nationalization of property without fair compensation; and difficulties in
engaging third-party agents to interface with clients or otherwise act on the Company’s behalf in certain jurisdictions.
In addition, Enerflex may expand the business to markets where the Company has not previously conducted business.
The risks inherent in establishing new business ventures, especially in international markets where local customs, laws,
and business procedures present special challenges, may affect Enerflex’s ability to be successful in these ventures.
To the extent Enerflex’s international operations are affected by unexpected or adverse economic, political, and other
conditions, the Company’s business, financial condition, and results of operations may be adversely affected.
The ability to hire and retain personnel and contractors are critical to
Enerflex’s business
The Company’s ability to attract and retain qualified personnel and provide the necessary organizational structure,
programs, and culture to engage and develop employees is crucial to its growth and achieving its business results.
Enerflex’s Engineered Systems product line requires skilled engineers and design professionals to maintain client
satisfaction through industry-leading design, build, and installation of the Company’s product offerings. Enerflex
competes for these professionals, not only with other companies in the same industry, but with companies in other
industries. In periods of high activity, demand for the skills and expertise of these professionals increases, making the
hiring and retention of these individuals more difficult.
Enerflex’s After-Market Services product line relies on the skills and availability of trained and experienced tradespeople,
mechanics, and technicians to provide efficient and appropriate services to Enerflex and its clients. Hiring and retaining
such individuals is critical to the success of Enerflex’s business. Over recent years, there has been a reduction in the
number of people pursuing skilled trades, making Enerflex’s access to skilled individuals more difficult and more
competitive.
There are certain jurisdictions where Enerflex relies on third-party contractors to carry out the operation and maintenance
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of its equipment. The ability of third-party contractors to find and retain individuals with the proper technical background
and training is critical to the continued success of the contracted operations in these jurisdictions. If Enerflex’s third-
party contractors are unable to find and retain qualified operators, or the cost of these qualified operators increases
substantially, the contract operations business could be materially impacted.
There are few barriers to entry in a number of Enerflex’s businesses, so retention of qualified staff is essential in order
to differentiate Enerflex’s businesses and compete in its various markets. Enerflex’s success depends on key personnel
and its ability to hire and retain skilled personnel. The loss of skilled personnel could delay the completion of certain
projects or otherwise adversely impact certain operational and financial results.
Financial reductions or restrictions of Enerflex client partners may impact
Enerflex’s contracted revenue
Many of Enerflex’s clients finance their exploration and development activities through cash flow from operations,
incurrence of debt, or issuance of equity. If clients experience decreased cash flow from operations and limitations on
their ability to incur debt or raise equity, then they may seek to preserve capital by pursuing price concessions on revenue
contracts, cancelling contracts, or determining not to renew contracts. Under these circumstances, the Company may
be unable to renew recurring revenue contracts with clients on favorable commercial terms, if at all. Terms of new
contracts or renegotiated contracts may also transfer additional risk of liquidated damages, consequential loss, liability
caps, and indemnities to the Company. These factors may lead to a reduction in revenue and net income, which reduction
could have a material adverse effect on Enerflex’s business, financial condition, results from operations, and cash flows.
The Contract Compression business has considerable contract-related risks
The duration of Enerflex’s Contract Compression arrangements with clients varies based on operating conditions
and client needs. Initial contract terms typically are not long enough to enable the Company to recoup the cost of the
equipment deployed in the Energy Infrastructure segment. Many of Enerflex’s North American Energy Infrastructure
contracts have short initial terms, and after the initial term, are cancelable on short notice. While these contracts are
frequently extended beyond their initial terms, Enerflex cannot accurately predict which of these contracts will be
extended or renewed beyond the initial term or that any client will continue to contract with Enerflex. The inability to
negotiate extensions or renew a substantial portion of the Company’s Energy Infrastructure contracts, the renewal
of such contracts at reduced rates, the inability to contract for additional services with clients, or the loss of all or
a significant portion of such contracts with any client could lead to a reduction in revenues and net income, which
reduction could have a material adverse effect upon Enerflex’s business, financial condition, results of operations and
cash flows.
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Terrorism and terrorist-related activities may create instability and disruption
Terrorist activities, anti-terrorist efforts, and other armed conflicts may adversely affect the global economies and could
prevent the Company from meeting its financial and other obligations to the extent such activities or conflicts impact
operations. If any of these events occur, the resulting political instability and societal disruption could reduce overall
demand for oil and natural gas, potentially putting downward pressure on demand for the Company’s products and
services and causing a reduction in the Company’s revenues. In addition, the Company’s assets may be direct targets of
terrorist attacks that could disrupt Enerflex’s ability to service its clients. The Company may be required by regulators, or by
the future threat environment, to make investments in security that cannot be predicted. The implementation of security
guidelines and measures and the maintenance of insurance, to the extent available, to address such activities could increase
Enerflex’s costs. These types of events could materially adversely affect the Company’s business and results of operations.
Enerflex’s credit ratings may change
Credit ratings affect Enerflex’s financing costs, liquidity and operations over the long term. Credit ratings affect Enerflex’s
ability to obtain short and long-term financing and the cost of this financing, and its ability to engage in certain business
activities cost-effectively. If a rating agency downgrades Enerflex’s current corporate credit rating or the rating of its
9.0 percent Notes, or negatively changes its credit outlook, it could have an adverse effect on Enerflex’s financing costs
and access to liquidity and capital.
Enerflex’s business is with client partners in the oil and gas business
which brings credit risk
A substantial portion of Enerflex’s accounts receivable balances are with clients involved in the oil and natural gas industry.
Many clients finance their exploration and development activities through cash flow from operations, the incurrence
of debt, or the issuance of equity. During times when the oil or natural gas markets weaken, clients may experience
decreased cash flow from operations, or a reduction in their ability to access capital. A reduction in borrowing bases
under reserve-based credit facilities, the lack of availability of debt or equity financing or other factors that negatively
impact clients’ financial condition may impair their ability to pay for products or services rendered.
Enerflex may extend credit to certain clients for products and services that it provides during its normal course
of business. Enerflex monitors its credit exposure to its clients, but there can be no certainty that a credit-related
loss will not materialize or have a material adverse impact on the organization. The financial failure of a client may
impair the Company’s ability to collect on all or a portion of the accounts receivable balance from that client.
Availability of raw materials, component parts, or finished products is
essential to Enerflex’s business
Enerflex purchases a broad range of materials and components in connection with its manufacturing and service
activities. Some of the components used in Enerflex’s products are obtained from a single source or a limited group of
suppliers. While Enerflex makes it a priority to maintain and enhance these strategic relationships in its supply chain,
there can be no assurance that these relationships will continue. Reliance on suppliers involves several risks, including
price increases, delivery delays, inferior component quality, and unilateral termination. Long-lead times for high demand
components, such as engines, can result in project delays. While Enerflex has long standing relationships with recognized
and reputable suppliers and original equipment manufactures, it does not have long-term contracts with all of them, and
the partial or complete loss of certain of these sources could have a negative impact on Enerflex’s results of operations
and could damage client relationships. Further, a significant increase in the price of one or more of these components
could have a negative impact on Enerflex’s operational or financial results.
Though Enerflex is generally not dependent on any single source of supply, the ability of suppliers to meet performance,
quality specifications, and delivery schedules is important to the maintenance of Enerflex client satisfaction. If the
availability of certain original equipment manufacturer components and repair parts is constrained or delayed, certain
of Enerflex’s operational or financial results may be adversely impacted.
M39
Enerflex’s ability to continue to pay dividends in the future
The amount and frequency of future cash dividends paid by the Company, if any, is subject to the discretion of the
Board of Directors and may vary depending on a variety of factors and conditions existing from time to time, including,
among other things, significant declines and volatility in commodity prices, demand for Enerflex products and services,
restricted cash flows, capital expenditure requirements, debt service requirements, operating costs, foreign exchange
rates, the risk factors described in this MD&A, and the satisfaction of the liquidity and solvency tests imposed by applicable
corporate law for the declaration and payment of dividends. Depending on these and various other factors, many of
which are beyond the control of Enerflex, future cash dividends could be reduced or suspended entirely or made less
frequently. The market value of Enerflex Common Shares may deteriorate if cash dividends are reduced or suspended.
Enerflex is required to establish and maintain adequate internal control over
financial reporting and disclosure controls and procedures
Enerflex is required by applicable laws to maintain effective internal control over financial reporting and disclosure
controls and procedures, including under the Sarbanes-Oxley Act of 2002 (SOX). Under SOX requirements, Enerflex
must furnish a report by management on, among other things, the effectiveness of its internal control over financial
reporting. This assessment includes disclosure of any material weaknesses identified by management in the Company’s
internal control over financial reporting. Under standards established by the U.S. Securities and Exchange Commission,
a material weakness is a deficiency or combination of deficiencies in internal control over financial reporting and exists
when the design or operation of a control does not allow management or personnel, in the normal course of performing
their assigned functions, to prevent or detect misstatements on a timely basis. If a material weakness is identified, there
is a possibility that a material misstatement in annual or interim consolidated financial statements will not be prevented
or detected and corrected on a timely basis.
As more fully disclosed under “Internal Control Over Financial Reporting”, as of December 31, 2023, Enerflex had
material weaknesses in its internal control over financial reporting, and as a result, the Company’s disclosure controls
and procedures and internal control over financial reporting were not effective as of December 31, 2023. The Company
identified deficiencies in the following three components of internal control as defined by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) 2013 Framework: (i) control activities; (ii) information and
communication; and (iii) monitoring components. Enerflex cannot provide assurance that there will not be additional
material weaknesses and deficiencies identified in the future.
The material weaknesses did not result in any restatements of consolidated financial statements previously reported
by Enerflex, there were no changes in previously released financial results, and management has concluded that the
Financial Statements included in this report present fairly, in all material respects, the Company’s financial position,
results of operations, and cash flows for the periods presented, in conformity with IFRS. While there were no material
accounting errors identified, a reasonable possibility exists that material misstatements in the Company’s financial
statements will not be prevented or detected on a timely basis because of the material weaknesses.
With oversight of the Audit Committee of Enerflex’s Board of Directors, Management evaluated its control environment
and designed a remediation plan to address the material weaknesses and enhance its internal control environment.
Under this remediation plan, the Company: (i) enhanced, and will continue to dedicate, internal and external resources
to adopt a detailed remediation plan to assess and document the adequacy of internal control over financial reporting;
(ii) will continue to improve control processes as appropriate, including resolution of the material weaknesses identified
to-date; (iii) will test and validate that controls are functioning as documented; (iv) will implement a continuous reporting
and improvement process for internal control over financial reporting; and (v) will compile the system and process
documentation necessary to perform the evaluation needed to comply with SOX.
Compliance with SOX necessitates that Enerflex incur substantial expense, train employees and expend significant
Management efforts. Enerflex may not be able to remediate the material weaknesses identified to-date, or any future
material weaknesses that may be identified, or complete its evaluation, testing and remediation in a timely manner.
Therefore, the Company’s independent auditors may issue further adverse reports if it is not satisfied with the level
M40
Annual Report2023
at which Enerflex’s controls are designed, documented or operating. Consequently, the Company cannot provide
assurance that its independent auditors will be able to attest to the effectiveness of the Company’s internal control over
financial reporting in the future.
If Enerflex is unable to remediate the known material weaknesses, or if it identifies additional material weaknesses
or deficiencies, it may be unable to produce accurate and timely financial statements in conformity with IFRS,
which could lead to investors losing confidence in the Company’s financial disclosures, trigger an event of
default under its credit agreements and harm its business, which could have a material adverse effect on
the trading price of its common shares, could result in the Company being unable to comply with applicable
securities laws and stock exchange listing requirements, or could restrict its future access to capital markets.
Changes in tax laws, interpretations, or rates may negatively impact Enerflex
The Company and its subsidiaries are subject to income and other taxes in Canada, the USA, and numerous foreign
jurisdictions. Changes in tax laws or interpretations thereof, or tax rates in the jurisdictions in which the Company or
its subsidiaries do business could adversely affect the Company’s results from operations, returns to shareholders,
and cash flow. Enerflex’s effective tax rates could also be affected by changes in the mix of earnings in countries
with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax
laws or their interpretation. While management believes the Company and its subsidiaries are in compliance with
current prevailing tax laws and requirements, one or more taxing jurisdictions could seek to impose incremental or
new taxes on the Company or its subsidiaries, or the Company or its subsidiaries could be subject to assessment,
reassessment, audit, investigation, inquiry, or judicial or administrative proceedings by any such taxing jurisdiction.
The timing or impacts of any such assessment, reassessment, audit, investigation, inquiry, or judicial or administrative
proceedings, or any future changes in tax laws, including the impacts of proposed regulations, cannot be predicted.
Any adverse tax developments, including legislative changes, judicial holdings, or administrative interpretations, could
have a material and adverse effect on the results of operations, financial condition, and cash flows of the Company.
labor regulations could materially
Unionization efforts and
Enerflex’s costs
Efforts may be made from time to time to unionize portions of the Company’s workforce. Enerflex may be subject to
strikes or work stoppages and other labor disruptions in connection with unionization efforts or renegotiation of existing
contracts with unions. Unionization efforts, if successful, new collective bargaining agreements, or work stoppages could
materially increase the Company’s labor costs, reduce its revenues, and adversely impact its operations and cash flow.
increase
The ability of Enerflex to pursue or complete future acquisitions
Enerflex may, from time to time, seek to expand its business and operations by acquiring or developing additional
businesses or assets in existing or new markets. Enerflex expects to realize strategic opportunities and other benefits
as a result of its acquisitions. However, there can be no assurances as to whether, or to what extent, such benefits or
opportunities will be realized. Enerflex can not predict whether it will be able to successfully identify, acquire, develop,
or profitably manage additional acquisitions, or successfully integrate any acquired business or assets into Enerflex’s
business, or to adjust to an increased scope of operations as a result of such acquisitions. There is a risk that any future
acquisitions could adversely impact Enerflex’s operations and results.
M41
Capital Resources
Capital Resources
On January 31, 2024, Enerflex had 123,956,865 Common Shares outstanding. Enerflex has not
established a formal dividend policy and the Board anticipates setting the Company’s quarterly dividends
based on the availability of cash flow, anticipated market conditions, and the general needs of the
On January 31, 2024, Enerflex had 123,956,865 Common Shares outstanding. Enerflex has not established a formal
business. Subsequent to the fourth quarter of 2023, the Board declared a quarterly dividend of $0.025
dividend policy and the Board anticipates setting the Company’s quarterly dividends based on the availability of cash
per share.
flow, anticipated market conditions, and the general needs of the business. Subsequent to the fourth quarter of 2023,
the Board declared a quarterly dividend of $0.025 per share.
At December 31, 2023, the Company had combined drawings of $487 million against the Revolving
At December 31, 2023, the Company had combined drawings of $487 million against the Revolving Credit Facility and
Credit Facility and Term Loan (December 31, 2022 – $662 million). The weighted average interest rate
Term Loan (December 31, 2022 – $662 million). The weighted average interest rate on the Revolving Credit Facility and
on the Revolving Credit Facility and Term Loan at December 31, 2023 was 7.7 percent and 9.0 percent,
Term Loan at December 31, 2023 was 7.7 percent and 9.0 percent, respectively (December 31, 2022 – 7.0 percent and
respectively (December 31, 2022 – 7.0 percent and 7.8 percent, respectively).
7.8 percent, respectively).
The composition of the borrowings on the Revolving Credit Facility, Term Loan, and the Notes were as follows:
The composition of the borrowings on the Revolving Credit Facility, Term Loan, and the Notes were as
follows:
($ thousands)
Drawings on the Revolving Credit Facility
(US$700,000)
Drawings on the Term Loan (US$130,000)
Notes (US$625,000)
Deferred transaction costs and Notes discount
Current portion of long-term debt
Non-current portion of long-term debt
Long-term debt
Maturity Date
December 31,
2023
December 31, 2022
October 13, 2025 $
October 13, 2025
October 15, 2027
$
$
$
314,705 $
171,938
826,625
1,313,268
(98,350)
1,214,918 $
52,904 $
1,162,014
1,214,918 $
459,202
203,160
846,500
1,508,862
(118,537)
1,390,325
27,088
1,363,237
1,390,325
At December 31, 2023, without considering renewal at similar terms, the Canadian dollar equivalent
principal payments due over the next five years are $1,313 million, and nil thereafter.
At December 31, 2023, without considering renewal at similar terms, the Canadian dollar equivalent principal payments
due over the next five years are $1,313 million, and nil thereafter.
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M-42 Annual Report 2023
Annual Report2023
Contractual Obligations, Committed
Capital Investment, and Off-Balance
Contractual Obligations, Committed Capital
Contractual Obligations, Committed Capital
Sheet Arrangements
Investment, and Off-Balance Sheet
Investment, and Off-Balance Sheet
Arrangements
Arrangements
The Company’s contractual obligations are contained in the following table:
The Company’s contractual obligations are contained in the following table:
The Company’s contractual obligations are contained in the following table:
($ thousands)
($ thousands)
2024
2024
2025
2025
2026
2026
2027
2027
2028
2028
Thereafter
Thereafter
Total contractual obligations
Total contractual obligations
$
$
Long-term
Long-term
debt
debt
52,904 $
52,904 $
433,739
433,739
-
-
826,625
826,625
-
-
-
-
Leases
Leases
29,346 $
29,346 $
26,384
26,384
19,475
19,475
15,348
15,348
24,537
24,537
7,569
7,569
Purchase
Purchase
obligations
obligations
528,003 $
528,003 $
22,047
22,047
937
937
-
-
-
-
-
-
$
$
1,313,268 $
1,313,268 $
122,659 $
122,659 $
550,987 $
550,987 $
Total
Total
610,253
610,253
482,170
482,170
20,412
20,412
841,973
841,973
24,537
24,537
7,569
7,569
1,986,914
1,986,914
The Company’s lease commitments are contracts related to premises, equipment, and service vehicles.
The Company’s lease commitments are contracts related to premises, equipment, and service vehicles.
The Company’s lease commitments are contracts related to premises, equipment, and service vehicles.
The majority of the Company’s purchase commitments relate to major components for the EI and ES
The majority of the Company’s purchase commitments relate to major components for the EI and ES
product lines and to long-term information technology and communications contracts entered into in
product lines and to long-term information technology and communications contracts entered into in
order to reduce the overall cost of services received.
order to reduce the overall cost of services received.
The majority of the Company’s purchase commitments relate to major components for the EI and ES product lines and
to long-term information technology and communications contracts entered into in order to reduce the overall cost of
services received.
The Company anticipates using its cash and cash equivalents, and available capacity under its Revolving Credit Facility
to funds its contractual obligations.
The Company anticipates using its cash and cash equivalents, and available capacity under its Revolving
The Company anticipates using its cash and cash equivalents, and available capacity under its Revolving
Credit Facility to funds its contractual obligations.
Credit Facility to funds its contractual obligations.
The Company does not have off-balance sheet arrangements that have, or are reasonably likely to have, a current or
The Company does not have off-balance sheet arrangements that have, or are reasonably likely to have,
The Company does not have off-balance sheet arrangements that have, or are reasonably likely to have,
future material effect on the Company’s financial condition, results of operations, liquidity, or capital expenditures.
a current or future material effect on the Company’s financial condition, results of operations, liquidity, or
a current or future material effect on the Company’s financial condition, results of operations, liquidity, or
capital expenditures.
capital expenditures.
Related Parties
Related Parties
Related Parties
Enerflex transacts with certain related parties during the normal course of business. Related parties
Enerflex transacts with certain related parties during the normal course of business. Related parties
include Roska DBO, and the Company’s 65 percent interest in a joint venture in Brazil.
include Roska DBO, and the Company’s 65 percent interest in a joint venture in Brazil.
Enerflex transacts with certain related parties during the normal course of business. Related parties include Roska DBO,
and the Company’s 65 percent interest in a joint venture in Brazil.
All transactions occurring with related parties were in the normal course of business operations under the same terms
and conditions as transactions with unrelated parties. A summary of the financial statement impacts of all transactions
with all related parties is as follows:
All transactions occurring with related parties were in the normal course of business operations under
All transactions occurring with related parties were in the normal course of business operations under
the same terms and conditions as transactions with unrelated parties. A summary of the financial
the same terms and conditions as transactions with unrelated parties. A summary of the financial
statement impacts of all transactions with all related parties is as follows:
statement impacts of all transactions with all related parties is as follows:
Years ended December 31,
Years ended December 31,
Associate – Roska DBO
Associate – Roska DBO
Revenue
Revenue
Purchases
Purchases
Accounts receivable
Accounts receivable
2023
2023
$
$
2,543 $
2,543 $
-
-
12
12
2022
2022
1,755
1,755
4
4
22
22
All related party transactions are settled in cash. There were no transactions with the joint venture in Brazil.
All related party transactions are settled in cash. There were no transactions with the joint venture in
All related party transactions are settled in cash. There were no transactions with the joint venture in
Brazil.
Brazil.
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M-43
M-43
Significant Accounting Estimates and
Judgment
The timely preparation of the MD&A requires that Management make estimates and assumptions and use judgment.
Estimates, assumptions, and judgments are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the circumstances, uncertainties
about the current economic environment including significant market volatility in commodity prices, high inflation, high
interest rates, and increasing energy prices.
Uncertainty about these assumptions and estimates could however result in outcomes that require a material adjustment
to the carrying amount of the asset or liability affected in future periods. In the process of applying the Company’s
accounting policies, Management has made the following judgments, estimates, and assumptions, applicable to each of the
Company’s reportable segments, which have a significant effect on the amounts recognized in the Financial Statements:
Revenue Recognition – Performance Obligation Satisfied Over Time
The Company reflects revenues relating to performance obligations satisfied over time using the percentage-of-
completion approach of accounting. The Company uses the input method of percentage-of-completion accounting,
whereby actual input costs as a percentage of estimated total costs is used as the basis for determining the extent
to which performance obligations are satisfied. The input method of percentage-of-completion accounting provides
a faithful depiction of the transfer of control to the client, as the Company is able to recover costs incurred relating to
the satisfaction of the associated performance obligation. This approach to revenue recognition requires Management
to make a number of estimates and assumptions surrounding the expected profitability of the contract, the estimated
degree of completion based on cost progression, and other detailed factors. Although these factors are routinely
reviewed as part of the project management process, changes in these estimates or assumptions could lead to changes
in the revenues recognized in a given period.
Certain contracts also include aspects of variable consideration, such as liquidated damages on project delays. For
these contracts, Management must make estimations as to the likelihood of the variable consideration being recognized
or constrained, based on the status of each project, the potential value of variable consideration, communication
received from the client, and other factors. Management continues to monitor these factors. Changes in estimated cost
or revenue associated with a project, including variable consideration, could result in material changes to revenue and
gross margin recognized on certain projects.
Revenue Recognition – Performance Obligation Satisfied at a Point in Time
The Company reflects revenues relating to performance obligations satisfied at a point in time when control – indicated
by transfer of the legal title, physical possession, significant risks and rewards of ownership, or any combination of these
indicators – is transferred to the client. When the Company is a lessor, and determines that a lease is a finance lease, the
upfront sale of equipment is recognized at a point in time at lease commencement.
Provisions for Warranty
Provisions set aside for warranty exposures either relate to amounts provided systematically based on historical
experience under contractual warranty obligations or specific provisions created in respect of individual client issues
undergoing commercial resolution and negotiation. Amounts set aside represent Management’s best estimate of the
likely settlement and the timing of any resolution with the relevant client.
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Annual Report2023
Business Acquisitions
In a business acquisition, the Company may acquire assets and assume certain liabilities of an acquired entity.
Estimates are made as to the fair value of PP&E, intangible assets, and goodwill, among other items. In certain
circumstances, such as the valuation of PP&E and intangible assets acquired, the Company relies on independent
third-party valuators. The determination of these fair values involves a variety of assumptions, including revenue
growth rates, projected cash flows, client attrition rates, operating margins, discount rates, and economic lives.
PP&E, Energy Infrastructure Assets and Intangible Assets
PP&E, EI assets, and intangible assets are stated at cost less accumulated depreciation and accumulated amortization
and any impairment losses. Depreciation and amortization is calculated using the straight-line method over the estimated
useful lives of the assets. The estimated useful lives of PP&E, EI assets, and intangible assets is reviewed on an annual
basis. Assessing the reasonableness of the estimated useful lives of PP&E, EI assets, and intangible assets requires
judgment and is based on currently available information. PP&E, EI assets, and intangible assets are also reviewed for
potential impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable.
Changes in circumstances, such as technological advances and changes to business strategy can result in actual
useful lives differing significantly from estimates. The assumptions used, including rates and methodologies, are
reviewed on an ongoing basis to ensure they continue to be appropriate. Revisions to the estimated useful lives of
PP&E, EI assets, and intangible assets constitutes a change in accounting estimate and are applied prospectively.
Right-of-Use Asset and Lease Liability
The Company determines the right-of-use asset and lease liability for each lease upon commencement. In calculating
the right-of-use asset and lease liability, the Company is required to determine a suitable discount rate in order to calculate
the present value of the contractual payments for the right to use the underlying asset during the lease term. In addition,
the Company is required to assess the term of the lease, including if the Company is reasonably certain to exercise options
to extend the lease or terminate the lease. Discount rates and lease assumptions are reassessed on a periodic basis.
Finance Lease Receivables
In calculating the value of the Company’s finance lease receivables, the Company is required to determine
the fair value of the underlying assets
lower, the present
if
value of the
interest. The fair value of the underlying
assets should reflect the amount that the Company would otherwise recognize on a sale of those assets.
lease payments discounted using a market rate of
lease transaction, or,
in the finance
included
Allowance for Doubtful Accounts
Amounts included in allowance for doubtful accounts reflect the expected credit losses for trade receivables. The
Company determines allowances based on Management’s best estimate of future expected credit losses, considering
historical default rates, current economic conditions, and forecasts of future economic conditions. Future economic
conditions, especially around the oil and gas industry, may have a significant impact on the collectability of trade receivables
from clients and the corresponding expected credit losses. Management has implemented additional monitoring
processes in assessing the creditworthiness of clients and believes the current provision appropriately reflects the best
estimate of its future expected credit losses. Significant or unanticipated changes in economic conditions could impact
the magnitude of future expected credit losses.
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Impairment of Inventories
The Company regularly reviews the nature and quantities of inventory on hand and evaluates the net realizable value of
items based on historical usage patterns, known changes to equipment or processes, and client demand for specific
products. Significant or unanticipated changes in business conditions could impact the magnitude and timing of
impairment recognized.
Impairment of Non-Financial Assets
Impairment exists when the carrying value of an asset or group of assets exceeds its recoverable amount, which is
the higher of its fair value less costs to sell and its value-in-use. The fair value less costs to sell calculation is based on
available data from binding sales transactions, in an arm’s length transaction of similar assets or observable market
prices, less incremental costs for disposing of the asset. The value-in-use calculation is based on a discounted cash
flow model, which requires the Company to estimate future cash flows and use judgment to determine a suitable
discount rate to calculate the present value of those cash flows.
Impairment of Goodwill
The Company tests goodwill for impairment at least on an annual basis, or when there is any indication that goodwill
may be impaired. This requires an estimation of the value-in-use of the groups of cash-generating units (“CGUs”) to
which the goodwill is allocated. The Company has determined the group of CGUs to be its operating segments for
purposes for its impairment assessment. Estimating the value-in-use requires an estimate of the expected future
cash flows from each group of CGUs and use judgment to determine a suitable discount rate in order to calculate the
present value of those cash flows. The methodology and assumptions used, as well as the results of the assessment
performed are detailed in Note 15 “Goodwill and Impairment Review of Goodwill” of the Financial Statements.
Income Taxes
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future
taxable income. Given the wide range of international business relationships and the long-term nature and complexity
of existing contractual agreements, differences arising between the actual results and the assumptions made, or future
changes to such assumptions, could necessitate future adjustments to taxable income. The Company establishes
provisions for uncertain tax positions, based on reasonable estimates, for possible consequences of audits by the tax
authorities of the respective countries in which it operates. The amount of such provisions is based on various factors,
such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the
responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the
conditions prevailing in the respective company’s domicile. The Company reviews the adequacy of these provisions
at the end of each reporting period and adjusts them as required. However, it is possible that, at some future date,
current income tax liabilities are in excess of the Company’s current income tax provision as a result of these audits,
adjustments, or litigation with tax authorities. These differences could materially impact the Company’s assets, liabilities,
and net income.
Deferred tax assets are recognized for all unused tax losses, carried forward tax credits, or other deductible
temporary differences to the extent that it is probable that taxable profit will be available against which these
deferred tax assets can be utilized. Significant judgment is required to determine the amount of deferred tax
assets that can be recognized, based upon the timing of reversal, expiry of losses and the level of future taxable
profits together with future tax planning strategies. The basis for this estimate is Management’s cash flow
projections. To the extent the Company determines the recoverability of deferred tax assets is unlikely, the
deferred tax asset is not recognized. Management regularly assesses the unrecognized deferred tax asset
to determine what portion can be recognized in response to changing economic conditions or recent events.
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Annual Report2023
Share-Based Compensation
The Company employs the fair value method of accounting for stock options and phantom share entitlement. The
determination of the share-based compensation expense for stock options and phantom share entitlement requires the
use of estimates and assumptions based on exercise prices, market conditions, vesting criteria, length of employment,
and past experiences of the Company. Changes in these estimates and future events could alter the determination of
the provision for such compensation. Details concerning the assumptions used are described in Note 26 “Share-Based
Compensation” of the Financial Statements.
Changes in Accounting Policies
Amendments to Existing Standards
The Company has reviewed amendments to existing accounting standards. The following amendments, effective for
annual periods beginning on or after January 1, 2023, were adopted by the Company as of January 1, 2023. There were
no adjustments that resulted from the adoption of these amendments on January 1, 2023.
(a) IAS 1 Presentation of Financial Statements (“IAS 1”) and IFRS
Practice Statement 2
Effective January 1, 2023, the IASB issued amendments to IAS 1, which helps companies provide useful accounting
policy disclosures. The key amendments include (a) requiring companies disclose their material accounting policies
rather than focusing on significant accounting policies; (b) clarifying that accounting policies related to immaterial
transactions, other events or conditions are themselves immaterial and as such need not be disclosed; and (c) clarifying
that not all accounting policies that relate to material transactions, other events or conditions are themselves material to
a company’s financial statements.
(b) IAS 8 Accounting Policies, Changes
in Accounting Estimates
and Errors (“IAS 8”)
Effective January 1, 2023, the definition of accounting estimates was amended under IAS 8. Under the amended
definition, a change in an input or a change in a measurement technique are changes in accounting estimates if they
do not result from the correction of prior period errors. The amendment further clarifies that accounting estimates are
monetary amounts in the financial statements subject to measurement uncertainty.
(c) IAS 12 Income Taxes (“IAS 12”)
i.
ii.
In May 2021, the IASB issued amendments to IAS 12, which narrows the scope of the initial recognition exception
under IAS 12, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary
differences. Under the amendments, the initial recognition exception does not apply to transactions that, on initial
recognition, give rise to equal taxable and deductible temporary differences. It only applies if the recognition of a
related asset and liability give rise to taxable and deductible temporary differences that are not equal.
In May 2023, the IASB issued final amendments to International Tax Reform – Pillar Two Model Rules.
introduced a temporary exception to entities from the recognition and disclosure of
The amendments
information about deferred tax assets and liabilities related to Pillar Two model rules. The Company is
within the scope of the Organisation for Economic Co-operation and Development Pillar Two model rules,
and under the legislation, the Company is liable to pay a top-up tax for the difference between its GLoBE
effective tax rate per jurisdiction, and the 15 percent minimum rate. The Company’s subsidiaries have an
effective tax rate that exceeds 15 percent, except for certain subsidiaries that operate in the UAE and Bahrain.
M47
For the year ended December 31, 2023, earnings before income taxes from the UAE and Bahrain was approximately
$37 million with an average tax rate of 0 percent as calculated in accordance with IAS 12. Management has determined
that these jurisdictions are more likely than not to have additional current tax liability. Due to the complexities in applying
the legislation and calculating GLoBE income, the quantitative impact of this legislation is not yet reasonably estimated.
New Accounting Pronouncements
The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective.
(a) IAS 1 Presentation of Financial Statements (“IAS 1”)
In October 2022, the IASB issued amendments to clarify that the classification of liabilities as current or non-current is
based solely on a company’s right to defer settlement for at least twelve months at the reporting date. The right needs
to exist at the reporting date and must have substance. In addition to the amendment from January 2020 where the
IASB issued amendments to IAS 1, to provide a more general approach to the presentation of liabilities as current or
non-current, only covenants with which a company must comply on or before the reporting date may affect this right.
Covenants to be complied with after the reporting date do not affect the classification of a liability as current or non-
current at the reporting date.
These amendments are effective January 1, 2024, and are to be applied retrospectively. Management believes these
amendments will have no significant impacts on the Company.
(b) IFRS 16 Leases (“IFRS 16”)
In September 2022, the IASB issued amendments to IFRS 16 that add subsequent measurement requirements for
lease liabilities arising from sale and leaseback transactions for seller-lessees. The amendment does not prescribe
specific measurement requirements for lease liabilities but measures the lease liability in a way that it does not recognise
any amount of the gain or loss that relates to the right of use retained.
These amendments are effective January 1, 2024, and are to be applied retrospectively. Management believes these
amendments will have no significant impacts on the Company.
(c) IAS 21 The Effects of Changes in Foreign Exchange Rates (“IAS 21”)
In August 2023, the IASB issued amendments to IAS 21 which specifies how an entity should assess whether a
currency is exchangeable and how to estimate the spot exchange rate when a currency is not exchangeable.
Under the amendment, a currency is considered to be exchangeable into another currency when an entity is able to obtain
the other currency within a time frame that allows for a normal administrative delay and through a market or exchange
mechanism in which an exchange transaction would create enforceable rights and obligations. When a currency is not
exchangeable, an entity estimates the spot rate as the rate at which an orderly transaction would take place between
market participants at the measurement date that would reflect the prevailing economic conditions. An entity is required
to disclose information that would enable users to evaluate when and how a currency’s lack of exchangeability affects
financial performance, financial positions, and cash flows of an entity.
The amendments are effective January 1, 2025, with early adoption permitted. Management has not yet determined the
full impact this amendment will have on the Company.
M48
Annual Report2023 Internal Control Over Financial Reporting
Disclosure controls and procedures are designed to ensure that information required to be disclosed in Enerflex’s
financial reports is recorded, processed, summarized, and reported to the Company’s Management, including its
Chief Executive Officer (“CEO”) and CFO, as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating disclosure controls and procedures, Management recognizes that any system of controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives. Due to the inherent limitations of control systems, not all misstatements may be detected.
For example, there may be faulty judgments in decision-making or breakdowns can occur because of a simple error
or mistake. Additionally, controls can be circumvented by the acts of individuals, by collusion of two or more people, or
by Management override of the control. Controls and procedures can only provide reasonable, not absolute, assurance
that the desired control objectives have been met.
Management is also responsible for establishing and maintaining adequate internal control over financial reporting
(“ICFR”). In conjunction with the Company’s listing on the New York Stock Exchange, Management undertook the
implementation of a U.S. SOX Compliance program to augment the Company’s existing controls as required by
Canadian regulations to which Enerflex remains subject. As part of this program in 2023, Management:
• Established an internal SOX compliance team to manage overall program planning and execution;
• Engaged an experienced third-party advisory firm with relevant subject matter expertise and significant resources
to support Management and the internal SOX compliance team with the design, implementation, and execution of
several compliance initiatives;
• Developed and refined internal control designs and processes;
• Enhanced control framework documentation and risk assessment;
• Trained control owners on the execution and documentation of internal controls;
• Enhanced documentary evidence of controls;
• Planned and executed testing to assess the effectiveness of internal controls, communicate deficiencies to control
owners, and develop and execute remediation plans; and
• Established an Internal Control Steering Committee to drive SOX compliance program accountability throughout
the Company.
Under the supervision, and with the participation, of Enerflex’s Management, including the CEO and Interim CFO,
the Company conducted an evaluation of the effectiveness of its ICFR as of December 31, 2023. In conducting this
evaluation, Management used the criteria described in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO 2013 Framework). Based on the
Company’s evaluation, Management concluded that its disclosure controls and procedures and its ICFR were not
effective as of December 31, 2023.
The Company is required to report any material weaknesses in the design or operating effectiveness of ICFR. A material
weakness is a deficiency (or a combination of deficiencies) in ICFR, such that there is a reasonable possibility that a
material misstatement of the Company’s annual or interim consolidated financial statements may not be prevented or
detected on a timely basis. Enerflex identified control deficiencies that, in aggregate, constitute material weaknesses
in three components of internal control as defined by the COSO 2013 Framework, specifically the control activities,
information and communication, and monitoring components.
In 2023, the Company underwent significant expansion of operations and revenue growth following the acquisition of
Exterran in October 2022. As a consequence of this transaction, Enerflex was required to be compliant with SOX by
December 31, 2023. Despite efforts to achieve compliance with SOX by December 31, 2023, the Company was unable
to assert that its system of internal control was effective as of December 31, 2023. Enerflex has identified the following
four material weaknesses in ICFR that impact its financial statement accounts:
M49
• Lack of consistent written policies and control procedures designed to be sufficiently precise to prevent and detect
errors that have the potential to aggregate to a material amount;
• Insufficient evidencing and retention of documentation to support the review and approval of various controls;
• An ineffective information and communication process resulting from insufficient design and operation of control
activities and inconsistent validation of the accuracy and completeness of information used in the execution
of internal controls, primarily related to reports used to extract information from financial reporting systems and
spreadsheets that utilize the extracted data; and
• As a consequence of the above material weaknesses the Company was unable to achieve effective monitoring, as
controls did not operate over a sufficient period to enable an evaluation of operating effectiveness.
Due to the above, Management, including the CEO and Interim CFO, has concluded that the Company’s ICFR was not
effective as of December 31, 2023.
The material weaknesses did not result in any restatements of consolidated financial statements previously reported by
Enerflex and there were no changes in previously released financial results. Accordingly, Management has concluded that
the Financial Statements included in this report present fairly, in all material respects, the Company’s financial position,
results of operations, and cash flows for the periods presented, in conformity with IFRS. While there were no material
accounting errors identified, there is a possibility that material misstatements in the Company’s Financial Statements will
not be prevented or detected on a timely basis because of the material weaknesses.
Remediation Plan and Activities:
Management and the Board of Directors of the Company are committed to maintaining a strong internal control
environment, including continued investment in the Company’s SOX Compliance Program and prompt remediation
of the material weaknesses described above. With oversight of the Audit Committee of Enerflex’s Board of Directors,
management has evaluated its control environment and designed a remediation plan to address the material
weaknesses and enhance its internal control environment.
In addition to work underway as part of the Company’s 2024 SOX Compliance Program, the remediation plan includes
the following activities:
• Enhancing regional resources to support remediation of control activities and improve documentary evidence
protocols at the control execution level;
• Engaging additional experienced third-party advisors on various compliance initiatives, including monitoring of
control remediation;
• Improving the design of existing controls and supporting policies by enhancing process documentation and
refining precision levels in policies and procedures to facilitate the detection and prevention of errors that have the
potential to aggregate to a material amount;
• Training control owners to support compliance efforts with existing and enhanced policies that establish steps
and procedures required to be performed in executing and documenting internal controls, particularly in relation to
information used in controls;
• Engaging individuals with project management expertise to ensure execution of the steps and procedures required
to be performed in executing and documenting internal controls, in line with a project plan, a timeline and enhanced
resources to evaluate the operating effectiveness of internal controls;
• Establishing a cross-regional project management committee to improve information flow; and
• Increasing the frequency of engagement between the internal controls and procedures implementation team,
senior management, Enerflex’s external auditor and the Audit Committee to review progress on remediation
activities.
M50
Annual Report2023 As the Company continues to evaluate and work to improve its internal control over financial reporting, Management
may determine it necessary to take additional measures to address control deficiencies. The control environment
cannot be considered remediated until the applicable controls operate for a sufficient period and management has
concluded, through testing, that the controls are operating effectively. Management is committed to implementing
the remediation plan throughout 2024 and believes it has committed sufficient resources to remediate the material
weaknesses as soon as possible.
Changes in Internal Control Over Financial Reporting:
Management regularly reviews its system of ICFR and makes changes to the Company’s processes and systems to
improve controls and increase efficiency including, but not limited to, the changes set forth under “Remediation Plan
and Activities”, with a view to ensuring that the Company maintains an effective internal control environment. Other
than is disclosed in this MD&A, there have been no significant changes in the design of the Company’s ICFR during
the twelve months ended December 31, 2023, that would materially affect, or is reasonably likely to materially affect,
the Company’s ICFR.
Subsequent Events
Subsequent to December 31, 2023, Enerflex declared a quarterly dividend of $0.025 per share, payable on May 1, 2024,
to shareholders of record on March 13, 2024. The Board will continue to evaluate dividend payments on a quarterly
basis, based on the availability of cash flow, anticipated market conditions, and the general needs of the business.
Forward-Looking Statements
This MD&A contains “forward-looking information” within the meaning of applicable Canadian securities laws and
“forward-looking statements” (and together with “forward-looking information”, “forward-looking information and
statements”) within the meaning of the safe harbor provisions of the US Private Securities Litigation Reform Act of
1995. These statements relate to the respective Management expectations about future events, results of operations,
and the future performance (both financial and operational) and business prospects of Enerflex. All statements other
than statements of historical fact are forward-looking information and statements. The use of any of the words
“anticipate”, “future”, “plan”, “contemplate”, “continue”, “estimate”, “expect”, “intend”, “propose”, “might”, “may”, “will”,
“shall”, “project”, “should”, “could”, “would”, “believe”, “predict”, “forecast”, “pursue”, “potential”, “objective”, “capable”, and
similar expressions, are intended to identify forward-looking information and statements. In particular, this MD&A
includes (without limitation) forward-looking information and statements pertaining to: the exploration and evaluation
by the Company of decarbonization, carbon capture technology, and supporting infrastructure for renewable energy
and the timing associated therewith; expectations for continuing strong client demand in North America particularly
for cryogenic natural gas processing facilities and electric compression; that global demand for natural gas remains
and will continue to be robust particularly in the Company’s key operating regions; the Company’s ability to secure
future bookings; the expectations that NAM’s ES backlog of $1,233 million as December 31, 2023 will result in strong
ES revenue generation over the near term; expectations to stabilize cash flows and reduce cyclicality in the business
over the long term through the Company’s EI and AMS product lines; the development of a future LNG export industry
in North America, that such industry will provide additional opportunities for the Company and the timing associated
therewith; disclosures under the heading “Outlook” including: (i) that operating results in 2024 will be underpinned by
the EI and AMS product lines, which together will account for 55 percent to 65 percent of the Company’s gross margin
before depreciation and amortization; (ii) the ES product line and the expectation that it will benefit from increasing
natural gas production in the Company’s core regions; (iii) the backlog of approximately $1.5 billion (US$1.1 billion) as
at December 31, 2023, will be converted into revenue over the next 12 months; (iv) that the 2024 capital program will
be disciplined with total capital expenditures of US$90 million to US$110 million, inclusive of approximately $70 million
M51
for maintenance and PP&E capital expenditures; (v) the quantum of, and timing associated with, the investment by the
Company to expand the EI business and that such investments will be allocated to client supported opportunities and
that such opportunities will generate attractive returns and deliver value to Enerflex shareholders; (vi) the continued
focus by the Company on debt reduction and lowering net finance costs over 2024 and that such actions will provide
shareholder returns over the medium and long-term; (vii) the continued evaluation of the Company’s target long-term
capital structure and capital allocation parameters that the timing on which additional details will be provided; (viii)
the ongoing integration of Exterran which is positioning the Company to operate with increased scale and efficiency
in 2024 and beyond; and (ix) expectations that developing and growing markets will shape the energy transition
landscape over the next several decades; disclosures under the heading “Outlook by Segment” including: (i) in North
America, the potential for increased activity from opportunities to support LNG exports and the timing and quantum
of such opportunities; expectations that utilization rates for the Company’s Contract Compression fleet will remain
elevated, strong demand for the Cryogenic product line will continue and solid margins on new ES bookings will
remain healthy; expectations for increases in AMS-related activities across the region; (ii) in Latin America, the growing
need for reliable and sustainable energy and a desire to reduce overall dependency on imported natural gas through
out the region, will facilitate increased contract compression fleet utilization rates through re-contracting and
redeploying of the idle fleet; (iii) in the Eastern Hemisphere, expectations on new markets and opportunities that will
require modular solutions which will improve cash flows in the region; expectations that over the long-term, there will
be growing demand for larger-scale energy infrastructure assets and integrated turnkey projects; that a strong LNG
export market and recent legislative amendments regarding emission-reduction targets in Australia, will strengthen
demand for natural gas and energy transition solutions in the Asia Pacific region; expectations that the Company
will use cash and cash equivalents, and available capacity under its Revolving Credit Facility to fund contractual
obligations; the remediation plans and activities and the expectations that such plans and activities will remediate
the material weaknesses and the timing associated therewith; and that the Board will set the Company’s quarterly
dividends based on the availability of cash flow, anticipated market conditions, and the general needs of the business
and that this will support expectations regarding the continued payment of the quarterly dividend of at least $0.025
per share.
This forward-looking information and statements are based on assumptions, estimates, and analysis made by Enerflex
and its perception of trends, current conditions, and expected developments, as well as other factors that are believed
by Enerflex to be reasonable and relevant in the circumstances. All forward-looking information and statements in
this MD&A are subject to important risks, uncertainties, and assumptions, which are difficult to predict and which
may affect Enerflex’s operations, including, without limitation: the impact of economic conditions including volatility
in the price of crude oil, natural gas, and natural gas liquids; supply chain interruptions leading to delays in receiving
materials and parts to produce equipment; interest rates and foreign exchange rates; industry conditions including
supply and demand fundamentals for crude oil and natural gas, and the related infrastructure; new environmental,
taxation, and other laws and regulations; the ability to complete the integration of Exterran and the timing and
costs associated therewith; the ability to continue to build and improve on proven manufacturing capabilities and
innovate into new product lines and new and emerging markets; increased competition; insufficient funds to support
capital investments required to grow the business; the lack of availability of qualified personnel or management and
difficulties in retaining qualified personnel; political unrest; and other factors, many of which are beyond the control
of Enerflex. Readers are cautioned that the foregoing list of assumptions and risk factors should not be construed as
exhaustive. While Enerflex believes that there is a reasonable basis for the forward-looking information and statements
included in this MD&A, as a result of such known and unknown risks, uncertainties, and other factors, actual results,
performance, or achievements could differ and such differences could be material from those expressed in, or implied
by, these statements. The forward-looking information and statements included in this MD&A should not be unduly
relied upon as a number of factors could cause actual results to differ materially from the results discussed in these
forward-looking statements, including but not limited to: the ability of Enerflex fully to realize the anticipated benefits
of, and synergies from, the Transaction and the timing and quantum thereof; the interpretation and treatment of
the Transaction by tax authorities; the success of business integration activities and the time and costs required to
successfully integrate Exterran; the ability to maintain desirable financial ratios; the ability to access various sources
of debt and equity capital, generally, and on acceptable terms, if at all; the ability to utilize tax losses in the future;
the ability to maintain relationships with partners, including Legacy Exterran partners, and to successfully manage
and operate the integrated business as a single and unified entity; risks associated with technology and equipment,
M52
Annual Report2023 including potential cyberattacks; the occurrence of unexpected events such as pandemics, war, terrorist threats, and
the instability resulting therefrom; risks associated with existing and potential future lawsuits, shareholder proposals,
and regulatory actions; and those factors referred to under the heading “Risk Factors” in Enerflex’s AIF for the year
ended December 31, 2023.
This MD&A contains information that may constitute future-oriented financial information or financial outlook
information (“FOFI”) about Enerflex and its prospective financial performance, financial position, or cash flows, all
of which is subject to the same assumptions, risk factors, limitations, and qualifications as set forth above. Except
as otherwise stated herein, the FOFI included in this MD&A was made and approved by management as of the date
hereof. Readers are cautioned that the assumptions used in the preparation of such information, although considered
reasonable at the time of preparation, may prove to be imprecise or inaccurate and, as such, undue reliance should
not be placed on FOFI. The Company’s actual results, performance and achievements could differ materially from
those expressed in, or implied by, FOFI. The inclusion of FOFI in this MD&A is to provide readers with a more complete
perspective on the Company’s future operations and Management’s current expectations regarding the Company’s
future performance. Readers are cautioned that such information may not be appropriate for other purposes.
The forward-looking information and statements and FOFI contained herein is expressly qualified in its entirety by
the above cautionary statement. The forward-looking information and statements included in this MD&A are made
as of the date of this MD&A and, other than as required by law, the Company disclaims any intention or obligation to
update or revise any forward-looking information and statements, whether as a result of new information, future
events or otherwise.
M53
Management’s Responsibility
for Financial Position
To the Shareholders of Enerflex Ltd.
The accompanying consolidated financial statements and all information in the Annual Report have been prepared by
Management and approved by the Board of Directors of the Company. The consolidated financial statements have been
prepared in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board, and, where appropriate, reflect Management’s best estimates and judgments. Management is
responsible for the accuracy, integrity, and objectivity of the consolidated financial statements within reasonable limits of
materiality and for the consistency of financial data included in the text of the Annual Report with that in the consolidated
financial statements.
To assist management in the discharge of these responsibilities, the Company maintains a system of internal controls
over financial reporting as described in Management’s Annual Report on Internal Control Over Financial Reporting on
page M-49 of Management’s Discussion and Analysis.
The Audit Committee is appointed by the Board of Directors annually, and is comprised exclusively of outside,
independent directors. The Audit Committee meets with management, as well as with the external auditors, Ernst &
Young LLP, to satisfy itself that management is properly discharging its financial reporting responsibilities and to review
the consolidated financial statements and the auditors’ report. The Audit Committee reports its findings to the Board of
Directors for consideration in approving the consolidated financial statements for presentation to the shareholders. The
external auditors have direct access to the Audit Committee of the Board of Directors.
The consolidated financial statements have been audited independently by Ernst & Young LLP on behalf of the shareholders
in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB). Their
report outlines the nature of their audits and expresses their opinion on the consolidated financial statements.
[signed] “Marc E. Rossiter”
Marc E. Rossiter
President, Chief Executive Officer,
and Director
February 28, 2024
[signed] “Preet Dhindsa”
Preet Dhindsa
Interim Chief Financial Officer
Management’s Responsibility
for Internal Control Over Financial
Reporting
To the Shareholders of Enerflex Ltd.
The following report is provided by Management in respect of Enerflex Ltd. (“Enerflex” or the “Company”) internal control
over financial reporting as defined in Rules 13a-15f and 15d-15f under the United States Securities Exchange Act of 1034
and National Instrument 52-109 Certification of Disclosure in issuers’ Annual and Interim Filings.
Disclosure controls and procedures are designed to ensure that information required to be disclosed in Enerflex’s
financial reports is recorded, processed, summarized and reported to the Company’s Management, including its Chief
Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating disclosure controls and procedures, Management recognizes that any system of
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
the desired control objectives. Due to the inherent limitations of control systems, not all misstatements may be detected.
For example, there may be faulty judgments in decision-making or breakdowns can occur because of a simple error or
mistake. Additionally, controls can be circumvented by the acts of individuals, by collusion of two or more people, or by
Management override of the control. Controls and procedures can only provide reasonable, not absolute, assurance that
the desired control objectives have been met.
Management is also responsible for establishing and maintaining adequate internal control over financial reporting
(“ICFR”). In conjunction with the Company’s listing on the New York Stock Exchange, Management undertook the
implementation of a U.S. SOX Compliance program to augment the Company’s existing controls as required by Canadian
regulations to which Enerflex remains subject. As part of this program in 2023, Management:
• Established an internal SOX compliance team to manage overall program planning and execution;
• Engaged an experienced third-party advisory firm with relevant subject matter expertise and significant
resources to support Management and the internal SOX compliance team with the design, implementation and
execution of several compliance initiatives;
• Developed and refined internal control designs and processes;
• Enhanced control framework documentation and risk assessment;
• Trained control owners on the execution and documentation of internal controls;
• Enhanced documentary evidence of controls;
• Planned and executed testing to assess the effectiveness of internal controls, communicate deficiencies to
control owners, and develop and execute remediation plans; and
• Established an Internal Control Steering Committee to drive SOX compliance program accountability throughout
the Company.
Under the supervision, and with the participation, of Enerflex’s Management, including the CEO and Interim CFO,
the Company conducted an evaluation of the effectiveness of its ICFR as of December 31, 2023. In conducting this
evaluation, Management used the criteria described in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO 2013 Framework). Based on the
Company’s evaluation, Management concluded that its disclosure controls and procedures and its ICFR were not
effective as of December 31, 2023.
The Company is required to report any material weaknesses in the design or operating effectiveness of ICFR. A material
weakness is a deficiency (or a combination of deficiencies) in ICFR, such that there is a reasonable possibility that a
material misstatement of the Company’s annual or interim consolidated financial statements may not be prevented or
detected on a timely basis. Enerflex identified control deficiencies that, in aggregate, constitute material weaknesses
in three components of internal control as defined by the COSO 2013 Framework, specifically the control activities,
information and communication, and monitoring components.
In 2023, the Company underwent significant expansion of operations and revenue growth following the acquisition of
Exterran in October 2022. As a consequence of this transaction, Enerflex was required to be compliant with SOX by
December 31, 2023. Despite efforts to achieve compliance with SOX by December 31, 2023, the Company was unable
to assert that its system of internal control was effective as of December 31, 2023. Enerflex has identified the following
four material weaknesses in ICFR that impact its financial statement accounts:
• Lack of consistent written policies and control procedures designed to be sufficiently precise to prevent and detect
errors that have the potential to aggregate to a material amount;
• Insufficient evidencing and retention of documentation to support the review and approval of various controls;
• An ineffective information and communication process resulting from insufficient design and operation of control
activities and inconsistent validation of the accuracy and completeness of information used in the execution of
internal controls, primarily related to reports used to extract information from financial reporting systems and
spreadsheets that utilize the extracted data; and
• As a consequence of the above material weaknesses the Company was unable to achieve effective monitoring, as
controls did not operate over a sufficient period to enable an evaluation of operating effectiveness.
Due to the above, Management, including the CEO and Interim CFO, has concluded that the Company’s ICFR was not
effective as of December 31, 2023.
The material weaknesses did not result in any restatements of consolidated financial statements previously reported by
Enerflex and there were no changes in previously released financial results. Accordingly, Management has concluded
that the Financial Statements included in this report present fairly, in all material respects, the Company’s financial
position, results of operations, and cash flows for the periods presented, in conformity with IFRS. While there were
no material accounting errors identified, there is a possibility that material misstatements in the Company’s Financial
Statements will not be prevented or detected on a timely basis because of the material weaknesses.
Remediation Plan and Activities:
Management and the Board of Directors of the Company are committed to maintaining a strong internal control
environment, including continued investment in the Company’s SOX Compliance Program and prompt remediation
of the material weaknesses described above. With oversight of the Audit Committee of Enerflex’s Board of Directors,
management has evaluated its control environment and designed a remediation plan to address the material weaknesses
and enhance its internal control environment.
In addition to work underway as part of the Company’s 2024 SOX Compliance Program, the remediation plan includes
the following activities:
• Enhancing regional resources to support remediation of control activities and improve documentary evidence
protocols at the control execution level;
• Engaging additional experienced third-party advisors on various compliance initiatives, including monitoring of
control remediation;
• Improving the design of existing controls and supporting policies by enhancing process documentation and
refining precision levels in policies and procedures to facilitate the detection and prevention of errors that have the
potential to aggregate to a material amount;
• Training control owners to support compliance efforts with existing and enhanced policies that establish steps
and procedures required to be performed in executing and documenting internal controls, particularly in relation to
information used in controls;
• Engaging individuals with project management expertise to ensure execution of the steps and procedures required
to be performed in executing and documenting internal controls, in line with a project plan, a timeline and enhanced
resources to evaluate the operating effectiveness of internal controls;
• Establishing a cross-regional project management committee to improve information flow; and
• Increasing the frequency of engagement between the internal controls and procedures implementation team,
senior management, Enerflex’s external auditor and the Audit Committee to review progress on remediation
activities.
As the Company continues to evaluate and work to improve its internal control over financial reporting, Management
may determine it necessary to take additional measures to address control deficiencies. The control environment cannot
be considered remediated until the applicable controls operate for a sufficient period and management has concluded,
through testing, that the controls are operating effectively. Management is committed to implementing the remediation
plan throughout 2024 and believes it has committed sufficient resources to remediate the material weaknesses as soon
as possible.
Changes in Internal Control Over Financial Reporting:
Management regularly reviews its system of ICFR and makes changes to the Company’s processes and systems to
improve controls and increase efficiency including, but not limited to, the changes set forth under “Remediation Plan
and Activities”, with a view to ensuring that the Company maintains an effective internal control environment. Other
than is disclosed in this MD&A, there have been no significant changes in the design of the Company’s ICFR during the
twelve months ended December 31, 2023, that would materially affect, or is reasonably likely to materially affect, the
Company’s ICFR.
Ernst & Young LLP, who has audited the consolidated financial statements of Enerflex for the year ended December
31, 2023, has also issued a report on ICFR under the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”). Their report outlines the nature of their audits and expresses their opinion on the consolidated
financial statements.
[signed] “Marc E. Rossiter”
Marc E. Rossiter
President, Chief Executive Officer,
and Director
February 28, 2024
[signed] “Preet Dhindsa”
Preet Dhindsa
Interim Chief Financial Officer
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Enerflex Ltd.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Enerflex Ltd. (the “Company”)
as of December 31, 2023 and 2022, the related consolidated statements of loss, comprehensive loss, cash flows and
changes in equity for the years then ended, and the related notes (collectively referred to as the “consolidated
financial statements“). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at December 31, 2023 and 2022, and its financial performance and its cash
flows for the years then ended, in conformity with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission “(2013 framework),” and our report dated February 28, 2024 expressed an adverse opinion
thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company‘s management. Our responsibility is
to express an opinion on the Company‘s consolidated financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Measurement of revenue recognized from the supply of engineered systems
Description of the
Matter
For the year ended December 31, 2023, the Company recognized $1,732.2 million of
revenue from the supply of engineered systems. As described in notes 3r, 5 and 25 to the
consolidated financial statements, revenues from the supply of engineered systems
typically involve engineering, design, manufacture, installation and start-up of equipment
recognized on a percentage-of-completion basis proportionate to the costs incurred in
the construction of the project.
How We
Addressed the
Matter in Our
Audit
Description of
the Matter
Auditing the Company’s measurement of the revenue recognized related to engineered
systems projects where the Company had not fulfilled all performance obligations of the
contract’s scope of work at December 31, 2023 was determined to be a critical audit matter
as it involved especially subjective auditor judgement because the percentage-of-
completion accounting related to these projects involves subjective management
assumptions about estimates of the expected margin to be earned and the estimated
remaining costs to complete for each project.
To test the estimate of the measurement of revenue recognized based on the
percentage-of-completion accounting, we performed audit procedures that included,
among others, evaluating a sample of contractual arrangements, including pricing and
billing terms, change orders and terms and conditions impacting revenue recognition, if
any. For a sample of projects, we obtained an understanding of the projects’ performance
throughout the year and at year-end through inquiries with project managers from the
contract project team. We evaluated the reasonableness of management’s assumptions
for estimated costs to complete by comparing the key inputs in the initial budget to
actual costs incurred, and assessing trends based on our knowledge of similar projects.
We evaluated the reasonableness of management’s historical assumptions of estimated
costs to complete by comparing previous cost estimation forecasts to actual results.
Evaluation of goodwill impairment
At December 31, 2023, the Company's goodwill was $571.8 million. As disclosed in notes
3a, 5, 15 and 36 to the consolidated financial statements, for the purposes of its
impairment assessment, goodwill is allocated to cash generating units, which the
Company has determined to be its operating segments. Goodwill is tested for impairment
annually, or at any time an indicator of impairment exists. During the year ended
December 31, 2023, the Company performed its impairment tests which resulted in the
Company recording $87.2 million of goodwill impairment allocated to its Latin America
operating segment. No impairment was recorded in the other operating segments.
Auditing the recoverable amounts in the Company’s goodwill impairment tests was
determined to be a critical audit matter as it involved significant estimation uncertainty
and judgement primarily due to the sensitivity of the respective operating segments’
estimated recoverable amounts to underlying significant assumptions. Significant
assumptions included cash flow projections, discount rates, revenue growth rate,
operating margins and terminal growth rate, which are affected by expectations about
future market and economic conditions.
How We
Addressed the
Matter in Our
Audit
To test the estimated recoverable amounts of the Company’s operating segments, our
audit procedures included, among others, assessing management’s methodologies and
testing the significant assumptions discussed above and the completeness and accuracy
of underlying data used by the Company in its analysis. We involved our valuation
specialists to assess the Company’s impairment models, valuation methodology applied,
and certain significant assumptions, including the discount rate and terminal growth rate.
We compared commodity price forecasts used in management’s estimated bookings
calculation to external industry outlook data. We also assessed the historical accuracy of
management’s estimates and performed sensitivity analyses on significant assumptions
to evaluate the changes in the recoverable amounts of the operating segments that
would result from changes in the assumptions.
/s/ Ernst & Young LLP
Chartered Professional Accountants
We have served as the Company’s auditor since 2010.
Calgary, Canada
February 28, 2024
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Enerflex Ltd.
Opinion on Internal Control Over Financial Reporting
We have audited Enerflex Ltd.’s internal control over financial reporting as of December 31, 2023, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material
weaknesses described below on the achievement of the objectives of the control criteria, Enerflex Ltd. (the
Company) has not maintained effective internal control over financial reporting as of December 31, 2023, based on
the COSO criteria.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis. The following material weaknesses have been
identified and included in management’s assessment. Management has identified material weaknesses with respect
to (1) written policies and control procedures that were not designed with a sufficient level of precision (2)
insufficient evidencing and retention of documentation to support the review and approval of various controls (3)
insufficient design and operation of control activities and validation of the accuracy and completeness of
information used in execution of internal controls, and (4) controls did not operate over a sufficient period to enable
an evaluation of operating effectiveness.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2023 and
2022, the related consolidated statements of loss, comprehensive loss, cash flows and changes in equity for the years
then ended and the related notes. These material weaknesses were considered in determining the nature, timing and
extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect
our report dated February 28, 2024 which expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included under the heading Internal
Control Over Financial Reporting contained in the accompanying management’s discussion and analysis. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Ernst & Young LLP
Chartered Professional Accountants
Calgary, Canada
February 28, 2024
Consolidated
Financial Statements
Consolidated Financial Statements
Consolidated Statements of Financial Position
($ Canadian thousands)
Assets
Current assets
Cash and cash equivalents (Note 7)
Short-term investments
Accounts receivable (Note 8)
Contract assets (Note 8)
Inventories (Note 9)
Work-in-progress related to finance leases (Note 9)
Current portion of finance leases receivable (Note 13)
Income taxes receivable (Note 22)
Derivative financial instruments (Note 30)
Prepayments
Assets held for sale (Note 10)
Total current assets
Property, plant and equipment (Note 11)
Energy infrastructure assets (Note 11)
Contract assets (Note 8)
Lease right-of-use assets (Note 12)
Finance leases receivable (Note 13)
Deferred tax assets (Note 22)
Intangible assets (Note 14)
Goodwill (Note 15)
Other assets (Note 16)
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities (Note 17)
Provisions (Note 18)
Income taxes payable (Note 22)
Deferred revenue (Note 19)
Current portion of long-term debt (Note 20)
Current portion of lease liabilities (Note 21)
Derivative financial instruments (Note 30)
Other current liabilities
Liabilities associated with assets held for sale (Note 10)
Total current liabilities
Deferred revenue (Note 19)
Long-term debt (Note 20)
Lease liabilities (Note 21)
Deferred tax liabilities (Note 22)
Other liabilities
Total liabilities
Shareholders’ equity
Share capital (Note 23)
Contributed surplus (Note 24)
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2023
December 31,
20221
$
$
$
$
$
$
126,089 $
14,425
525,854
230,455
389,398
-
56,982
4,090
594
76,579
9,225
1,433,691
136,472
1,143,668
178,928
82,213
212,557
27,520
73,245
571,810
51,876
3,911,980 $
561,120 $
25,976
73,530
392,371
52,904
25,453
1,019
7,936
6,319
1,146,628
29,485
1,162,014
75,259
86,502
18,070
2,517,958 $
591,598 $
660,030
40,892
101,502
1,394,022
3,911,980 $
253,776
-
455,841
186,259
369,298
41,986
60,020
10,397
901
71,398
-
1,449,876
152,505
1,237,550
223,179
78,372
234,484
21,857
102,773
674,396
83,076
4,258,068
628,086
18,826
74,086
366,085
27,088
20,125
977
-
-
1,135,273
33,435
1,363,237
72,908
88,550
21,757
2,715,160
589,827
660,072
164,200
128,809
1,542,908
4,258,068
1 Certain balances as at December 31, 2022 have been re-presented as a result of measurement period adjustments for the acquisition of Exterran as required by
IFRS 3 “Business Combinations”, refer to Note 6 “Acquisition” for more information.
See accompanying notes to the consolidated financial statements, including Note 33 “Guarantees, Commitments,
and Contingencies”.
F-1
F1
Annual Report2023
Consolidated Statements of Loss
($ Canadian thousands, except per share amounts)
Revenue (Note 25)
Cost of goods sold
Gross margin
Selling, general and administrative expenses
Foreign exchange loss
Operating income
Gain (loss) on disposal of property, plant and equipment (Note 11)
Loss on short-term investments
Equity earnings from associates and joint ventures
Impairment of goodwill (Note 15)
Earnings (loss) before finance costs and income taxes
Net finance costs (Note 28)
Loss before income taxes
Income taxes (Note 22)
Net loss
Loss per share – basic (Note 29)
Loss per share – diluted (Note 29)
Weighted average number of shares – basic
Weighted average number of shares – diluted
See accompanying notes to the consolidated financial statements.
Years ended December 31,
2023
$
3,162,095 $
2,544,949
617,146
395,875
58,933
162,338
(2,146)
(17,624)
2,464
(87,168)
57,864
126,392
(68,528)
42,396
2022
1,777,798
1,455,082
322,716
301,242
19,202
2,272
199
-
4,719
(48,000)
(40,810)
38,923
(79,733)
21,210
$
$
$
(110,924) $
(100,943)
(0.90) $
(0.90) $
(1.04)
(1.04)
123,834,242
123,834,242
97,045,917
97,045,917
F-2 Annual Report 2023
F2
Consolidated Statements of Comprehensive Loss
($ Canadian thousands)
Net loss
Other comprehensive income (loss):
Other comprehensive income (loss) that may be reclassified to profit or loss in subsequent
periods:
Change in fair value of derivatives designated as cash flow hedges, net of income tax
recovery
(Gain) loss on derivatives designated as cash flow hedges transferred to net loss, net of
income tax expense
Unrealized gain (loss) on translation of foreign-denominated debt
Unrealized gain (loss) on translation of financial statements of foreign operations
Other comprehensive income (loss)
Total comprehensive loss
See accompanying notes to the consolidated financial statements.
Years ended December 31,
2023
2022
$
(110,924) $
(100,943)
(363)
29
18,728
(45,701)
(27,307) $
360
(389)
11,779
72,406
84,156
(138,231) $
(16,787)
$
$
F3
F-3
Annual Report2023
Consolidated Statements of Cash Flows
($ Canadian thousands)
Operating Activities
Net loss
Items not requiring cash and cash equivalents:
Depreciation and amortization
Equity earnings from associates and joint ventures
Deferred income taxes (Note 22)
Share-based compensation expense (Note 26)
(Gain) loss on disposal of property, plant and equipment (Note 11)
Loss on short-term investments
Impairment of energy infrastructure assets (Note 11)
Impairment of goodwill (Note 15)
Net change in working capital and other (Note 32)
Cash provided by operating activities
Investing Activities
Net cash acquired from Acquisition (Note 6)
Additions to:
Property, plant and equipment (Note 11)
Energy infrastructure assets (Note 11)
Intangibles (Note 14)
Proceeds on disposal of:
Property, plant and equipment (Note 11)
Energy infrastructure assets (Note 11)
Purchase of short-term investments
Investment in associates and joint ventures
Dividends received from associates and joint ventures
Net change in working capital associated with investing activities
Cash provided by (used in) investing activities
Financing Activities
Net proceeds from (repayment of) the Revolving Credit Facility (Note 20)
Issuance of the Notes
Issuance (repayment) of the Term Loan (Note 20)
Repayment of assumed debt on Acquisition
Repayment of the Notes on Acquisition
Repayment of the Bank Facility on Acquisition
Net proceeds from (repayment of) the Asset-Based Facility on Acquisition
Lease liability principal repayment (Note 21)
Dividends
Stock option exercises (Note 23)
Deferred transaction costs
Cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents denominated in foreign
currencies
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period (Note 7)
Cash and cash equivalents, end of period (Note 7)
See accompanying notes to the consolidated financial statements.
F-4 Annual Report 2023
Years ended December 31,
2023
2022
$
(110,924) $
(100,943)
267,519
(2,464)
(10,863)
7,652
2,146
17,624
1,726
87,168
259,584
13,727
273,311 $
128,287
(4,719)
3,265
16,162
(199)
-
1,233
48,000
91,086
(71,318)
19,768
- $
133,218
(21,818)
(121,160)
(6,481)
7,514
32,336
(32,049)
-
-
(17,230)
(158,888) $
(137,343)
-
(26,746)
-
-
-
-
(20,422)
(12,378)
1,279
(4,884)
(200,494) $
(41,616) $
(127,687)
253,776
126,089 $
(8,043)
(107,797)
-
416
15,907
-
(5,950)
3,094
12,403
43,248
464,624
797,629
207,062
(1,022,112)
(285,722)
(31,213)
(39,295)
(15,758)
(8,969)
260
(54,652)
11,854
6,148
81,018
172,758
253,776
F4
$
$
$
$
$
$
$
Consolidated Statements of Changes in Equity
($ Canadian thousands)
Share capital
Contributed
surplus
Retained
earnings
Foreign
currency
translation
adjustments
Accumulated
other
comprehensive
income
Hedging
reserve
Total
At January 1, 2022
$
375,524 $
658,615 $
274,962 $
44,544 $
109 $
44,653 $
1,353,754
Net loss
Other comprehensive
income
Common shares issued
(Note 6 and 23)
Effect of stock option
plans (Note 23 and 24)
Dividends
-
-
213,942
361
-
-
-
-
1,457
(100,943)
-
-
-
-
84,185
-
-
-
-
(9,819)
-
(29)
-
-
-
-
(100,943)
84,156
84,156
-
-
-
213,942
1,818
(9,819)
At December 31, 2022
$
589,827 $
660,072 $
164,200 $
128,729 $
80 $
128,809 $
1,542,908
Net loss
Other comprehensive
loss
Effect of stock option
plans (Note 23 and 24)
Dividends
-
-
1,771
-
-
-
(42)
-
(110,924)
-
-
-
(110,924)
-
-
(12,384)
(26,973)
(334)
(27,307)
(27,307)
-
-
-
-
-
-
1,729
(12,384)
At December 31, 2023 $ 591,598 $ 660,030 $
40,892 $
101,756 $
(254) $
101,502 $
1,394,022
See accompanying notes to the consolidated financial statements.
F5
F-5
Annual Report2023
Notes to the Consolidated Financial Statements
(All amounts in thousands of Canadian dollars, except per share amounts or as otherwise noted.)
Note 1. Nature and Description of the Company
Enerflex Ltd. (“Enerflex” or “the Company”) deploys and services high-quality sustainable energy
infrastructure tailored to customers' needs – from individual, modularized products and services to
integrated custom solutions. A leading energy services company, the Company's vertically integrated
suite of product offerings includes processing, cryogenic, compression, electric power, and treated
water solutions, spanning all phases of a project's lifecycle, from front-end engineering and design to
after-market service. Enerflex’s infrastructure business has proven expertise in delivering low-carbon
solutions, including carbon capture utilization and storage, electrification, renewable natural gas, and
hydrogen solutions.
Headquartered in Calgary, Alberta, Canada, Enerflex’s registered office is located at 904, 1331 Macleod
Trail SE, Calgary, Alberta, Canada. Enerflex has approximately 4,800 employees worldwide. Enerflex, its
subsidiaries, interests in associates and joint operations, operate in over 70 locations globally, including
Canada, the United States of America (“USA”), Argentina, Bolivia, Brazil, Colombia, Mexico, Peru, the United
Kingdom, United Arab Emirates (“UAE”), Bahrain, Oman, Egypt, Iraq, Nigeria, Pakistan, Saudi Arabia,
Australia, Indonesia, and Thailand. Enerflex operates four business segments and reports in three
business segments: Canada and USA, which combine into the North America (“NAM”) reporting segment,
Latin America (“LATAM”) which includes our operations in Mexico and South America, and Eastern
Hemisphere (“EH”) which includes the Company’s international operations in Europe, Africa, the Middle
East, Australia, and Asia.
The following table represents material subsidiaries of the Company as at December 31, 2023:
Name
Enerflex Ltd.
Jurisdiction of
Incorporation
Ownership
Operating Segment
Canada
Public Shareholders
North America
Enerflex International Holdings Ltd.
Barbados
Enerflex Energy Systems Inc.
Delaware, USA
Enerflex US Holdings Inc.1
Delaware, USA
Exterran Energy Solutions, LP
Enerflex Energy Systems (Australia)
Delaware, USA
PTY Ltd.
Enerflex Middle East LLC
Enerflex Middle East WLL
Australia
Oman
Bahrain
Enerflex Holding Company NL B.V.
Netherlands
Exterran Middle East LLC
Oman
1 Formerly named Exterran Corporation.
2 Enerflex indirectly owns 100 percent of Enerflex Middle East LLC.
100 percent
100 percent
100 percent
100 percent
100 percent
70 percent2
100 percent
100 percent
100 percent
Eastern Hemisphere
North America
North America
North America
Eastern Hemisphere
Eastern Hemisphere
Eastern Hemisphere
Eastern Hemisphere
Eastern Hemisphere
F-6 Annual Report 2023
F6
Note 2. Basis of Presentation
(a) Statement of Compliance
These consolidated financial statements (the “Financial Statements”) have been prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”) and were approved and authorized for issue by the Board of
Directors (the “Board”) on February 28, 2024. Certain prior period amounts have been reclassified to
conform with current period’s presentation.
(b) Basis of Presentation and Measurement
These Financial Statements are prepared on a historical cost basis except as detailed in the
accounting policies disclosed in Note 3 “Summary of Material Accounting Policies”. The accounting
policies described in Note 3 and Note 4 “Changes in Accounting Policies” have been applied
consistently to all periods presented in these Financial Statements. Standards and guidelines issued
but not yet effective for the current accounting period are described in Note 4 under the “New
Accounting Pronouncements” sub-section.
Management performed a review of the presentation of certain selling, general and administrative
expenses (“SG&A”). Following its review, the Company has disaggregated foreign exchange loss and
loss on short-term investments from SG&A and presented them separately within the consolidated
statements of loss. This disaggregation provides more relevant information and reflects the impact
of the ongoing devaluation of the Argentine peso, caused by high inflation. More information can be
found in Note 30 “Financial Instruments”. For the year ended December 31, 2022, the impact of this
disaggregation resulted in SG&A of $301 million and foreign exchange loss of $19 million compared
to the previously reported SG&A of $320 million which included the aforementioned foreign
exchange loss. The Company did not report any gain or loss on short-term investments for the year
ended December 31, 2022. There was no impact to operating income for the year ended December
31, 2022 as a result of this disaggregation.
(c) Functional Currency and Presentation Currency
These Financial Statements are presented in Canadian dollars, which is the Company’s presentation
currency, rounded to the nearest thousand, except per share amounts or as otherwise noted.
Transactions of the Company’s individual entities are recorded in their own functional currency
based on the primary economic environment in which it operates.
(d) Use of Estimates and Judgment
The timely preparation of these Financial Statements requires that Management make judgments,
estimates, and assumptions based on existing knowledge that affect the application of accounting
policies and the reported amounts and disclosures. Actual results could differ from these estimates
and assumptions. Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the estimates are revised
and in any future periods affected. Significant estimates and judgments used in the preparation of
the Financial Statements are described in Note 5 “Significant Accounting Estimates and Judgment”.
(e) Basis of Consolidation
These Financial Statements include the accounts of the Company and its subsidiaries. Subsidiaries
are fully consolidated from the date of acquisition and continue to be consolidated until the date that
control ceases. The financial statements of the subsidiaries are prepared for the same reporting
period as the parent Company, using consistent accounting policies. All intra-group balances,
income and expenses, and unrealized gains and losses resulting from intra-group transactions are
eliminated in full.
F7
F-7
Annual Report2023
Note 2. Basis of Presentation
(a) Statement of Compliance
These consolidated financial statements (the “Financial Statements”) have been prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”) and were approved and authorized for issue by the Board of
Directors (the “Board”) on February 28, 2024. Certain prior period amounts have been reclassified to
conform with current period’s presentation.
(b) Basis of Presentation and Measurement
These Financial Statements are prepared on a historical cost basis except as detailed in the
accounting policies disclosed in Note 3 “Summary of Material Accounting Policies”. The accounting
policies described in Note 3 and Note 4 “Changes in Accounting Policies” have been applied
consistently to all periods presented in these Financial Statements. Standards and guidelines issued
but not yet effective for the current accounting period are described in Note 4 under the “New
Accounting Pronouncements” sub-section.
Management performed a review of the presentation of certain selling, general and administrative
expenses (“SG&A”). Following its review, the Company has disaggregated foreign exchange loss and
loss on short-term investments from SG&A and presented them separately within the consolidated
statements of loss. This disaggregation provides more relevant information and reflects the impact
of the ongoing devaluation of the Argentine peso, caused by high inflation. More information can be
found in Note 30 “Financial Instruments”. For the year ended December 31, 2022, the impact of this
disaggregation resulted in SG&A of $301 million and foreign exchange loss of $19 million compared
to the previously reported SG&A of $320 million which included the aforementioned foreign
exchange loss. The Company did not report any gain or loss on short-term investments for the year
ended December 31, 2022. There was no impact to operating income for the year ended December
31, 2022 as a result of this disaggregation.
(c) Functional Currency and Presentation Currency
These Financial Statements are presented in Canadian dollars, which is the Company’s presentation
currency, rounded to the nearest thousand, except per share amounts or as otherwise noted.
Transactions of the Company’s individual entities are recorded in their own functional currency
based on the primary economic environment in which it operates.
(d) Use of Estimates and Judgment
The timely preparation of these Financial Statements requires that Management make judgments,
estimates, and assumptions based on existing knowledge that affect the application of accounting
policies and the reported amounts and disclosures. Actual results could differ from these estimates
and assumptions. Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the estimates are revised
and in any future periods affected. Significant estimates and judgments used in the preparation of
the Financial Statements are described in Note 5 “Significant Accounting Estimates and Judgment”.
(e) Basis of Consolidation
These Financial Statements include the accounts of the Company and its subsidiaries. Subsidiaries
are fully consolidated from the date of acquisition and continue to be consolidated until the date that
control ceases. The financial statements of the subsidiaries are prepared for the same reporting
period as the parent Company, using consistent accounting policies. All intra-group balances,
income and expenses, and unrealized gains and losses resulting from intra-group transactions are
eliminated in full.
Note 3. Summary of Material Accounting Policies
(a) Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at fair value on the date of
the acquisition. Acquisition costs incurred are expensed and included in SG&A, except for those
associated with the issuance of debt, which are included in the initial carrying amount of the liability.
Results of operations of businesses acquired are included in the Company’s consolidated financial
statements from the date of acquisition.
Goodwill arising on an acquisition of a business is initially measured at cost, being the excess of the
aggregate of the consideration transferred over the net identifiable assets acquired and liabilities
assumed. Following initial recognition, goodwill is measured at cost less any accumulated
impairment losses.
Goodwill allocated to a group of cash-generating units (“CGUs”) is reviewed for impairment annually,
or when there is an indication that a related group of CGUs may be impaired. Impairment is
determined by assessing the recoverable amount of the group of CGUs to which the goodwill relates.
Where the recoverable amount of the group of CGUs is less than the carrying amount of the CGUs
and related goodwill, an impairment loss is recognized in the consolidated statements of earnings.
Impairment losses on goodwill are not reversed.
(b) Investments in Associates and Joint Ventures
Investments in associates and joint ventures are accounted for under the equity method. Under this
method, the investment is carried on the consolidated statements of financial position at cost plus
post-acquisition changes in the Company’s share of net assets of the associate or joint venture. The
significant associates and joint ventures held by the Company are as follows:
45 percent interest in Roska DBO Inc. (“Roska DBO”).
65 percent interest in a joint venture in Brazil.
The consolidated statements of earnings reflect the Company’s share of the results of operations of
associates and joint ventures. Unrealized gains and losses resulting from transactions between the
Company and associates are eliminated to the extent of the interest in the associate or joint venture.
The Company’s share of profits from associates and joint ventures is shown on the face of the
consolidated statements of earnings. This is the profit attributable to equity holders of the associates
and joint venture partners and, therefore, is profit after tax and non-controlling interests in the
subsidiaries of the associates and joint ventures.
(c) Foreign Currency Translation
In the accounts of individual subsidiaries, transactions in currencies other than the individual
subsidiaries’ functional currency are recorded at the prevailing rate of exchange at the date of the
transaction. At year-end, monetary assets and liabilities denominated in foreign currencies are
translated at the prevailing exchange rate at that date. Non-monetary items that are measured in
terms of historical cost in a foreign currency are translated using the exchange rates at the dates of
the initial transactions. Non-monetary assets and liabilities measured at fair value in a foreign
currency are translated using the rates of exchange at the date the fair value was determined.
The assets and liabilities on the statements of financial position of foreign subsidiaries are translated
into Canadian dollars at the prevailing exchange rate at the reporting date. The statements of
earnings of foreign subsidiaries are translated at average exchange rates for the reporting period.
Exchange differences arising on the translation of net assets are taken to accumulated other
comprehensive income.
All foreign exchange gains and losses are taken to the consolidated statements of earnings with the
exception of exchange differences arising on monetary assets and liabilities that form part of the
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Company’s net investment in subsidiaries. These are taken directly to other comprehensive income
until the disposal of the foreign subsidiary at which time the unrealized gain or loss is recognized in
the consolidated statements of earnings.
On the disposal of a foreign subsidiary, accumulated exchange differences are recognized in the
consolidated statements of earnings as a component of the gain or loss on disposal.
(d) Cash and Cash Equivalents
Cash and cash equivalents comprise primarily of cash at banks, term deposits, investments in money
market funds, and all other short-term highly liquid deposits with original maturities of three months
or less, that are held for the purpose of meeting short-term cash commitments, readily convertible
to a known amount of cash and subject to an insignificant change in value.
(e) Short-Term Investments
Short-term investments comprise of investments into mutual funds other than money market funds.
The Company examines all information provided by the fund managers and external sources to the
extent possible to determine if the net asset value (“NAV”) provided by the fund represents fair value.
If it is determined that NAV represents fair value, the investment is adjusted to reflect NAV and
unrealized gains or losses are recorded through profit or loss.
(f) Trade Receivables
Trade receivables are recognized and carried at original invoice amount less an allowance for any
amounts estimated to be uncollectible. The Company calculates an expected credit loss based on
historical experience of bad debts and specific provisions created when there is objective evidence
that the collection of the full amount of a receivable is no longer probable under the terms of the
original invoice. The amount of this allowance represents Management’s best estimate of expected
credit losses. Trade receivables are derecognized when they are assessed as uncollectible.
(g) Contract Assets
The payment terms and conditions in customer contracts may vary from the timing of revenue
recognition. Contract assets result when the Company has recognized revenue based on
performance obligations satisfied, but invoicing hasn’t occurred. Once the contract permits invoicing,
the contract assets are reclassified to trade receivables.
(h) Assets Held for Sale
Assets and the associated liabilities are classified as held for sale if their carrying amounts are
expected to be recovered through a disposition rather than through continued use. The assets or
disposal groups are measured at the lower of their carrying amount or estimated fair value less costs
of disposal. Impairment losses on initial classification as well as subsequent gains or losses on
remeasurement are recognized in the statement of earnings. Assets classified as held for sale are
not depreciated or amortized after classification.
(i) Impairment of Non-Financial Assets (excluding Goodwill)
At least annually, the Company reviews the carrying amounts of its tangible and intangible assets
with finite lives to assess whether there is an indication that those assets may be impaired. If any
such indication exists, the Company makes an estimate of the asset’s recoverable amount. An asset’s
recoverable amount is the higher of an asset’s fair value less costs to sell and its value-in-use. In
assessing its value-in-use, the estimated future cash flows attributable to the asset are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying
amount of the asset is reduced to its recoverable amount. A corresponding impairment loss is
recognized in the consolidated statements of earnings.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to
the revised estimate of its recoverable amount, but only to the extent that the increased carrying
amount does not exceed the original carrying amount that would have been determined, net of
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Annual Report2023
depreciation, had no impairment loss been recognized for the asset in prior years. Any impairment
reversal is recognized in the consolidated statements of earnings.
(j) Inventories
Inventories are valued at the lower of cost and net realizable value. Serialized inventory is determined
on a first-in, first-out basis. Non-serialized inventory is determined based on a weighted average
cost.
Cost of equipment, repair and distribution parts, and direct materials, include purchase costs and
costs incurred in bringing each product to its present location and condition.
Cost of work-in-progress includes cost of direct materials, labour, and an allocation of overheads,
based on normal operating capacity. Costs of work-in-progress related to finance leases pertain to
the construction of projects that will be accounted for as finance leases. Once the project is
completed and enters service the costs will be reclassified to cost of goods sold.
Cost of inventories includes the transfer from accumulated other comprehensive income of gains
and losses on qualifying cash flow hedges in respect of the purchase of inventory.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated
costs of completion and the estimated costs necessary to make the sale.
Inventories are written down to net realizable value when the cost of inventories is estimated to be
unrecoverable due to obsolescence, damage, or declining selling prices. Inventories are not written
down below cost if the finished products in which they will be incorporated are expected to be sold
at or above cost. When circumstances that previously caused inventories to be written down no
longer exist or when there is clear evidence of an increase in selling prices, the amount of the write-
down previously recorded is reversed.
(k) Property, Plant and Equipment
Property, plant and equipment (“PP&E”) are stated at cost less accumulated depreciation and any
accumulated impairment losses. Cost comprises the purchase price or construction cost and any
costs directly attributable to making the asset capable of operating as intended. Depreciation is
provided using the straight-line method over the estimated useful lives of the various classes of
assets and commences when the assets are ready for intended use.
Asset Class
Buildings
Equipment
Estimated Useful Life Range
5 to 20 years
2 to 20 years
Major renewals and improvements are capitalized when they are expected to provide future
economic benefit. When significant components of PP&E are required to be replaced at intervals, the
Company derecognizes the replaced part, and recognizes the new part with its own associated
useful life and depreciation. No depreciation is charged on land or assets under construction. Repairs
and maintenance costs are charged to operations as incurred.
The carrying amount of an item of PP&E is derecognized on disposal or when no future economic
benefits are expected from its use or disposal. The gain or loss arising from derecognition of PP&E is
included in the consolidated statements of earnings when the item is derecognized.
Each asset’s estimated useful life, residual value, and method of depreciation are reviewed and
adjusted, if appropriate, at each year end, or when factors and circumstances suggest a different
useful life for the asset.
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(l) Energy Infrastructure Assets
Energy infrastructure (“EI”) assets are stated at cost less accumulated depreciation and any
accumulated impairment losses. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets, which are generally between five and 20 years.
When the Company is responsible for major maintenance and overhauls, the actual overhaul cost is
capitalized and depreciated over the estimated useful life of the overhaul, generally between two and
five years. Repairs and maintenance costs are charged to operations as incurred.
Each asset’s estimated useful life, residual value, and method of depreciation are reviewed and
adjusted, if appropriate, at each year-end, or when factors and circumstances suggest a different
useful life for the asset.
(m) Leases
Company as a Lessee
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration.
The Company recognizes a right-of-use (“ROU”) asset and a lease liability to reflect the benefit the
Company obtains from the underlying asset in the lease and the requirement to pay the amounts
included in the lease contract, respectively.
The ROU asset is measured at cost and is subsequently depreciated using the straight-line method
over the lesser of the lease term or the useful life of the underlying asset, where appropriate.
The lease liability is initially measured at the present value of remaining lease payments, discounted
using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s
incremental borrowing rate. Subsequently, lease liabilities are measured at amortized cost using the
effective interest method. Lease liabilities are remeasured when there is a change in future lease
payments arising from a change in an index or rate, if there is a change in the Company’s estimate of
the amount expected to be payable under a residual value guarantee, or if the Company changes its
assessment of whether it will exercise a purchase, extension, or termination option.
The payments related to short-term and low value leases are recognized as expenses over the lease
term.
Sale and leaseback transaction
For sale and leaseback transactions, the Company applies the requirements of IFRS 15 “Revenue
from Contracts with Customers” (“IFRS 15”) to determine whether the transfer of an asset is
accounted for as a sale due to a change in control. If the transfer of the asset is a sale in accordance
with IFRS 15, the Company will recognize the proportion of the asset not retained by the Company
through the lease as revenue immediately after the sale. The proportion of the asset retained by the
Company through the lease is recognized as a ROU asset and the lease liability is measured as the
present value of the future lease payments.
Company as a Lessor
Leases in which the Company is the lessor are assessed upon commencement and are classified as
either an operating lease or a finance lease. An operating lease does not transfer substantially all the
risks and rewards of the leased asset to the customer. Lease payments from operating leases are
recorded as income on a straight-line basis over the life of the lease. A finance lease exists when the
terms of the lease transfer substantially all the risks and rewards incidental to ownership of the
leased asset to the lessee.
Amounts due from lessees under finance leases are recorded as finance lease receivables. Finance
leases are initially recognized at amounts equal to the net investment in the lease, determined to be
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(l) Energy Infrastructure Assets
Energy infrastructure (“EI”) assets are stated at cost less accumulated depreciation and any
accumulated impairment losses. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets, which are generally between five and 20 years.
When the Company is responsible for major maintenance and overhauls, the actual overhaul cost is
capitalized and depreciated over the estimated useful life of the overhaul, generally between two and
five years. Repairs and maintenance costs are charged to operations as incurred.
Each asset’s estimated useful life, residual value, and method of depreciation are reviewed and
adjusted, if appropriate, at each year-end, or when factors and circumstances suggest a different
useful life for the asset.
(m) Leases
Company as a Lessee
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration.
The Company recognizes a right-of-use (“ROU”) asset and a lease liability to reflect the benefit the
Company obtains from the underlying asset in the lease and the requirement to pay the amounts
included in the lease contract, respectively.
The ROU asset is measured at cost and is subsequently depreciated using the straight-line method
over the lesser of the lease term or the useful life of the underlying asset, where appropriate.
The lease liability is initially measured at the present value of remaining lease payments, discounted
using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s
incremental borrowing rate. Subsequently, lease liabilities are measured at amortized cost using the
effective interest method. Lease liabilities are remeasured when there is a change in future lease
payments arising from a change in an index or rate, if there is a change in the Company’s estimate of
the amount expected to be payable under a residual value guarantee, or if the Company changes its
assessment of whether it will exercise a purchase, extension, or termination option.
The payments related to short-term and low value leases are recognized as expenses over the lease
term.
Sale and leaseback transaction
For sale and leaseback transactions, the Company applies the requirements of IFRS 15 “Revenue
from Contracts with Customers” (“IFRS 15”) to determine whether the transfer of an asset is
accounted for as a sale due to a change in control. If the transfer of the asset is a sale in accordance
with IFRS 15, the Company will recognize the proportion of the asset not retained by the Company
through the lease as revenue immediately after the sale. The proportion of the asset retained by the
Company through the lease is recognized as a ROU asset and the lease liability is measured as the
present value of the future lease payments.
Company as a Lessor
Leases in which the Company is the lessor are assessed upon commencement and are classified as
either an operating lease or a finance lease. An operating lease does not transfer substantially all the
risks and rewards of the leased asset to the customer. Lease payments from operating leases are
recorded as income on a straight-line basis over the life of the lease. A finance lease exists when the
terms of the lease transfer substantially all the risks and rewards incidental to ownership of the
leased asset to the lessee.
Amounts due from lessees under finance leases are recorded as finance lease receivables. Finance
leases are initially recognized at amounts equal to the net investment in the lease, determined to be
the fair value of the underlying asset, or, if lower, the present value of the lease payments discounted
using a market rate of interest. Payments that are part of the leasing arrangement are divided
between a reduction in the finance lease receivable and finance lease income. Finance lease income
is recognized to produce a constant rate of return on the Company’s investment in the lease and is
included in revenues.
(n) Deferred Revenue
The payment terms and conditions in customer contracts may vary from the timing of revenue
recognition. Deferred revenue occurs when the company has collected payment but has not
delivered the product or service that satisfies the performance obligation. Deferred revenue is
recognized to the income statement as the underlying products and services are delivered.
(o) Financial Instruments
Financial instruments are measured at fair value on initial recognition of the instrument, plus or minus
transaction costs that are directly attributable to the acquisition or issue of the financial asset or
financial liability. For the purposes of measuring financial assets after initial recognition, the Company
classifies financial assets as either amortized cost, fair value through other comprehensive income
(“FVOCI”), or fair value through profit or loss (“FVTPL”), based on the contractual cash flow
characteristics and the Company’s business model for managing the financial asset. For the
purposes of measuring financial liabilities after initial recognition, the Company classifies all financial
liabilities as amortized cost, except certain financial liabilities, such as derivatives, which are classified
as FVTPL.
The Company applies the market approach for recurring fair value measurements. Three levels of
inputs may be used to measure fair value:
Level 1: Fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities. Active markets are those in which transactions
occur in sufficient frequency and volume to provide pricing information on an on-going
basis;
Level 2: Fair value measurements are those derived from inputs, other than quoted prices
included in Level 1, that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and
Level 3: Fair value measurements are those derived from inputs for the asset or liability that
are not based on observable market data (unobservable inputs). In these instances,
internally developed methodologies are used to determine fair value.
The level in the fair value hierarchy within which the fair value measurement is categorized in its
entirety is determined on the basis of the lowest level input that is significant to the fair value
measurement in its entirety. Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgment, considering factors specific to the asset or liability,
and may affect placement within.
The Company has made the following classifications:
Short-term investments are measured at fair value through profit or loss. Gains and losses
resulting from the periodic revaluation are recorded in the consolidated statements of
earnings;
Accounts receivable, preferred shares, and cash and cash equivalents are recorded at
amortized cost using the effective interest rate method; and
Accounts payable, accrued liabilities, and long-term debt are recorded at amortized cost
using the effective interest rate method.
Transaction costs are expensed as incurred for financial instruments classified or designated as
FVTPL. Transaction costs related to financial liabilities classified and measured at amortized cost are
added to the value of the instrument at acquisition and taken into the consolidated statements of
earnings using the effective interest rate method.
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(p) Derivative Financial Instruments and Hedge Accounting
The Company formally documents its risk management objectives and strategies to manage
exposures to fluctuations
interest rates. The risk
management policy permits the use of certain derivative financial instruments, including forward
foreign exchange contracts and interest rate swaps, to manage these fluctuations. The Company
does not enter into derivative financial agreements for speculative purposes.
in foreign currency exchange rates and
Derivative financial instruments are measured at their fair value upon initial recognition and are
remeasured to their fair value at the end of each reporting period. The fair value of quoted derivatives
is equal to their positive or negative market value. Derivatives are carried as assets when the fair value
is positive and as liabilities when the fair value is negative.
The Company elected to apply hedge accounting for foreign exchange forward contracts for
anticipated transactions. These are designated as cash flow hedges. For cash flow hedges, fair value
changes of the effective portion of the hedging instrument are recognized in accumulated other
comprehensive income, net of taxes. The ineffective portion of the fair value changes is recognized
in the consolidated statements of earnings. Amounts charged to accumulated other comprehensive
income are reclassified to the consolidated statements of earnings when the hedged transaction
affects the consolidated statements of earnings.
The Company’s U.S. dollar-denominated long-term debt has been designated as a hedge of net
investment in self-sustaining foreign operations. As a result, a portion of unrealized foreign exchange
gains and losses on the U.S. dollar-denominated long-term debt are included in the cumulative
translation account in other comprehensive income.
On an ongoing basis, an assessment is made as to whether the designated derivative financial
instruments continue to be effective in offsetting changes in cash flows of the hedged transactions.
(q) Intangible Assets
Intangible assets are carried at cost less accumulated amortization and any accumulated
impairment losses. Intangible assets with a finite life are amortized on a straight-line basis over
Management’s best estimate of their expected useful lives. The amortization charge is included in
SG&A in the consolidated statements of earnings. The expected useful lives and amortization
method are reviewed on an annual basis with any change in the useful life or pattern of consumption
adjusted at year end. Intangible assets are tested for impairment whenever there is an indication
that the asset may be impaired.
Acquired identifiable intangible assets with finite lives are amortized on a straight-line basis over their
estimated useful lives. Customer relationships, software, and other intangible assets have an
estimated useful life range of two to 11 years.
(r) Revenue Recognition
Revenue is recognized as the Company satisfies its performance obligations by transferring
promised goods or services to customers, regardless of when payment is received. Revenue is
measured at the amount of consideration to which the Company expects to be entitled, in exchange
for transferring promised goods or services to a customer, excluding amounts collected on behalf of
third parties, and may include fixed amounts, variable amounts, or both. Variable amounts are
recorded using either the “expected value approach” or the “most likely outcome approach”, as
determined upon initial recognition of the contract, and are reassessed at each reporting period. The
expected value approach measures variable consideration by probability weighting all the potential
outcomes. The most likely outcome approach measures variable consideration as Management’s
best estimate of the variable component. In estimating variable consideration, the Company reviews
any potential for returns, refunds, and other similar obligations. For contracts containing multiple
performance obligations, the amount of consideration to which the Company expects to be entitled
is allocated to individual performance obligations proportionately based on the stand-alone selling
price.
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(p) Derivative Financial Instruments and Hedge Accounting
The Company formally documents its risk management objectives and strategies to manage
exposures to fluctuations
in foreign currency exchange rates and
interest rates. The risk
management policy permits the use of certain derivative financial instruments, including forward
foreign exchange contracts and interest rate swaps, to manage these fluctuations. The Company
does not enter into derivative financial agreements for speculative purposes.
Derivative financial instruments are measured at their fair value upon initial recognition and are
remeasured to their fair value at the end of each reporting period. The fair value of quoted derivatives
is equal to their positive or negative market value. Derivatives are carried as assets when the fair value
is positive and as liabilities when the fair value is negative.
The Company elected to apply hedge accounting for foreign exchange forward contracts for
anticipated transactions. These are designated as cash flow hedges. For cash flow hedges, fair value
changes of the effective portion of the hedging instrument are recognized in accumulated other
comprehensive income, net of taxes. The ineffective portion of the fair value changes is recognized
in the consolidated statements of earnings. Amounts charged to accumulated other comprehensive
income are reclassified to the consolidated statements of earnings when the hedged transaction
affects the consolidated statements of earnings.
The Company’s U.S. dollar-denominated long-term debt has been designated as a hedge of net
investment in self-sustaining foreign operations. As a result, a portion of unrealized foreign exchange
gains and losses on the U.S. dollar-denominated long-term debt are included in the cumulative
translation account in other comprehensive income.
On an ongoing basis, an assessment is made as to whether the designated derivative financial
instruments continue to be effective in offsetting changes in cash flows of the hedged transactions.
(q) Intangible Assets
Intangible assets are carried at cost less accumulated amortization and any accumulated
impairment losses. Intangible assets with a finite life are amortized on a straight-line basis over
Management’s best estimate of their expected useful lives. The amortization charge is included in
SG&A in the consolidated statements of earnings. The expected useful lives and amortization
method are reviewed on an annual basis with any change in the useful life or pattern of consumption
adjusted at year end. Intangible assets are tested for impairment whenever there is an indication
that the asset may be impaired.
Acquired identifiable intangible assets with finite lives are amortized on a straight-line basis over their
estimated useful lives. Customer relationships, software, and other intangible assets have an
estimated useful life range of two to 11 years.
(r) Revenue Recognition
Revenue is recognized as the Company satisfies its performance obligations by transferring
promised goods or services to customers, regardless of when payment is received. Revenue is
measured at the amount of consideration to which the Company expects to be entitled, in exchange
for transferring promised goods or services to a customer, excluding amounts collected on behalf of
third parties, and may include fixed amounts, variable amounts, or both. Variable amounts are
recorded using either the “expected value approach” or the “most likely outcome approach”, as
determined upon initial recognition of the contract, and are reassessed at each reporting period. The
expected value approach measures variable consideration by probability weighting all the potential
outcomes. The most likely outcome approach measures variable consideration as Management’s
best estimate of the variable component. In estimating variable consideration, the Company reviews
any potential for returns, refunds, and other similar obligations. For contracts containing multiple
performance obligations, the amount of consideration to which the Company expects to be entitled
is allocated to individual performance obligations proportionately based on the stand-alone selling
price.
Energy Infrastructure
Revenue from EI assets is recognized in accordance with the terms of the relevant agreement with
the customer over the term of the agreement. Payments are typically required on a monthly basis
with no unusual payment terms. Certain rental contracts contain an option for the customer to
purchase the assets at the end of the rental period. Should the customer exercise this option to
purchase, revenue from the sale of the equipment is recognized directly in the consolidated
statements of earnings.
Revenue from contracts that have been classified as finance leases relating to existing or pre-owned
equipment, are recorded as EI revenue. At the inception of a contract, all leases are classified as
either an operating or finance lease. A lease is classified as a finance lease if it transfers substantially
all the risks and rewards incidental to ownership of an underlying asset. Whether a lease is an
operating or finance lease depends on the substance of the transaction rather than the form of the
contract. Examples of situations, which typically would lead to a lease being classified as a finance
lease, include but are not limited to:
a)
b)
c)
the lease transfers ownership of the underlying asset to the lessee by the end of the lease
term;
the lessee has the option to purchase the underlying asset at a price that is expected to be
sufficiently lower than the fair value at the date the option becomes exercisable for it to be
reasonably certain, at the inception date, that the option will be exercised;
the lease term is for the major part of the economic life of the underlying asset even if title is
not transferred;
d) at the inception date, the present value of the lease payments amounts to at least
e)
substantially all of the fair value of the underlying asset; and
the underlying asset is of such a specialised nature that only the lessee can use it without
major modifications.
At the commencement of these finance leases, the Company recognizes revenue and a finance lease
receivable equal to the net investment in the lease. Finance income is recognized in EI revenue
reflecting a constant periodic rate of return on the Company's net investment in the lease over the
lease term.
After-Market Services
After-Market Services (“AMS”) revenues include the sales of parts and equipment, as well as the
servicing and maintenance of equipment. For the sale of parts and equipment, revenue is recognized
when the transfer of control passes, which is typically at the point of shipping. For servicing and
maintenance of equipment, revenue is recognized on a straight-line basis based on performance of
the contracted-upon service.
long-term service contracts
Revenue from
is recognized on a stage of completion basis
proportionate to the service work that has been performed based on parts and labour service
provided. Payments are typically required on a monthly basis or as work is performed, with no
unusual payment terms. At the completion of the contract, any remaining profit on the contract is
recognized as revenue. Any expected losses on such projects are charged to operations when
determined. Long-term service contracts include scheduled milestone maintenance, corrective or
crash maintenance, the supply of parts, and the operation of equipment.
Engineered Systems
Revenue from the supply of equipment systems – contracts typically involving engineering, design,
manufacture, installation, and start-up of equipment – is accounted for as Engineered Systems (“ES”)
revenue. Such revenue is recognized on a percentage-of-completion basis proportionate to the
costs incurred in the construction of the project. At the completion of the contract, any remaining
profit on the contract is recognized as revenue. When it is probable that total contract costs will
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2023
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exceed total contract revenue, the expected loss is recognized as an expense immediately. Revenue
from ES includes the supply of compression, processing, and electric power equipment, as well as
retrofit work and construction on integrated turnkey projects. The Company also provides a
warranty on manufactured equipment as part of the standard terms and conditions of the contract.
No options are provided for the customer to purchase a warranty separately.
For ES contracts, the Company generally requires customers to pay based on milestones as
manufacturing progresses. These milestones are generally structured to keep the Company cash
flow-positive. Contracts are also generally structured to ensure the Company is made whole for
costs incurred in the event of a cancellation.
Revenue from contracts that have been classified as finance leases for newly manufactured
equipment are recorded as ES revenue for the upfront sale of equipment recognized at a point in
time when the lease commences.
ES projects are typically completed within a year; however, this timing can be impacted by both
internal and external factors such as shop loading and customer delivery requests.
in the
The Company has elected to omit adjusting for significant financing components
consideration amount if the entity expects payment within one year of transferring goods or services
to a customer. Incremental costs of obtaining a contract predominantly relate to commission costs
on ES projects, which are typically completed within one year. Accordingly, the Company did not
recognize commission costs incurred as an asset in the consolidated statements of financial
position.
(s) Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a
result of past events, it is probable that an outflow of resources will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation.
(t) Onerous Contracts
A provision for onerous contracts is recognized when the expected benefits to be derived by the
Company from a contract are lower than the unavoidable cost of meeting its obligations under the
contract. The provision is measured at the present value of the lower of the expected cost of
terminating the contract and the expected net cost of continuing with the contract. Before a
provision is established, the Company recognizes any impairment loss on the assets associated with
that contract.
(u) Employee Future Benefits
The Company sponsors various defined contribution pension plans, which cover substantially all
employees and are funded in accordance with applicable plan and regulatory requirements. Regular
contributions are made by the Company to the employees’ individual accounts, which are
administered by a plan trustee, in accordance with the plan document. The actual cost of providing
benefits through defined contribution pension and the 401(k) matched savings plans is charged to
earnings in the period in respect of which contributions become payable.
(v) Finance Income and Costs
Finance income comprises interest income on funds invested. Finance income is recognized as it
accrues in profit or loss, using the effective interest rate method.
Finance costs comprise interest expense on borrowings, amortization of the Notes discount using
the effective interest rate method, and interest incurred on lease liabilities.
(w) Share-Based Payments
Equity-Settled Share-Based Payments
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The Company offers a Stock Option Plan to key employees, measured at the fair value of the equity
instrument at the grant date. Details regarding the determination of the fair value of equity-settled
share-based transactions are set out in Note 26 “Share-Based Compensation”.
The fair value of equity-settled share-based payments is expensed over a five-year vesting period
with a corresponding increase in equity. Stock options have a seven-year expiry and are exercisable
at the designated common share price, which is determined by the average of the market price of
the Company’s shares on the five days preceding the date of the grant. The cumulative expense
recognized for equity-settled transactions at each reporting date until the vesting date reflects the
extent to which the vesting period has expired and the Company’s best estimate of the number of
equity instruments that will ultimately vest.
Cash-Settled Share-Based Payments
The Company offers Deferred Share Unit (“DSU”), Performance Share Unit (“PSU”), Restricted Share
Unit (“RSU”), and Cash Performance Target (“CPT”) plans to certain employees. The Company also
offers the DSU plan to non-employee directors. For each cash-settled share-based payment plan, a
liability is recognized at the fair value of the liability. At the end of each reporting period until the
liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with
changes in fair value recognized in the consolidated statements of earnings.
The Company also offers a Phantom Share Entitlement (“PSE”) plan to certain employees of affiliates
located in Australia and the UAE. PSEs are measured at the fair value of the equity instrument at the
grant date and expensed over a five-year vesting period and expire on the seventh anniversary. The
exercise price of each PSE equals the average of the market price of the Company’s shares on the
five days preceding the date of the grant. At the end of each reporting period until the liability is
settled, and at the date of settlement, the fair value of the liability is remeasured, with changes in fair
value recognized in the consolidated statements of earnings. The award entitlements for increases
in the share trading value of the Company are to be paid to the recipient in cash upon exercise.
(x) Income Taxes
Income tax expense represents the sum of current income tax and deferred tax.
Current income tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the taxation authorities. Taxable earnings differ
from earnings as reported in the consolidated statements of earnings as it excludes temporary and
permanent differences. The Company’s current tax assets and liabilities are calculated by using tax
rates that have been enacted or substantively enacted at the reporting date.
Deferred income tax is recognized on all temporary differences at the reporting date based on the
difference between the carrying amounts of assets and liabilities in the consolidated financial
statements and the corresponding tax bases used in the computation of taxable profit, with the
following exceptions:
Where the temporary difference arises from the initial recognition of goodwill or of an asset
or liability in a transaction that is not a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss;
In respect of taxable temporary differences associated with investments in subsidiaries,
associates and joint ventures, where the timing of the reversal of the temporary difference
can be controlled and it is probable that the temporary difference will not reverse in the
foreseeable future; and
Deferred income tax assets are recognized only to the extent that it is probable that a taxable
profit will be available against which the deductible temporary differences, carried forward
tax credits, or tax losses can be utilized.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced
to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or
F-16 Annual Report 2023
F16
part of the deferred income tax assets to be utilized. Unrecognized deferred income tax assets are
reassessed at each reporting date and are recognized to the extent that it has become probable that
future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates
that are expected to apply when the asset is realized or the liability is settled, based on tax rates and
tax laws enacted or substantively enacted at the reporting date.
Current and deferred income taxes are charged or credited directly to equity if it relates to items that
are credited or charged to equity in the same period. Otherwise, income tax is recognized in the
consolidated statements of earnings.
In accordance with IAS 12 Income taxes, where an entity’s tax return is prepared in a currency other
than its functional currency, changes in the exchange rate between the two currencies create
temporary differences with respect to the valuation of non-monetary assets and liabilities. As a
result, deferred tax is recognized in the consolidated statements of earnings and the consolidated
statement of financial position.
(y) Earnings Per Share
Basic earnings per share is calculated by dividing the net earnings for the period by the weighted
average number of common shares outstanding during the period.
Diluted earnings per share is calculated by adjusting the weighted average number of common
shares outstanding for dilutive common shares related to the Company’s equity-settled share-
based compensation plan.
Note 4. Changes in Accounting Policies
Amendments to Existing Standards
The Company has reviewed amendments to existing accounting standards, The following amendments,
effective for annual periods beginning on or after January 1, 2023, were adopted by the Company as of
January 1, 2023. There were no adjustments that resulted from the adoption of these amendments on
January 1, 2023.
(a) IAS 1 Presentation of Financial Statements (“IAS 1”) and IFRS Practice Statement 2
Effective January 1, 2023, the IASB issued amendments to IAS 1, which helps companies provide
useful accounting policy disclosures. The key amendments include (a) requiring companies disclose
their material accounting policies rather than focusing on significant accounting policies; (b)
clarifying that accounting policies related to immaterial transactions, other events or conditions are
themselves immaterial and as such need not be disclosed; and (c) clarifying that not all accounting
policies that relate to material transactions, other events or conditions are themselves material to a
company’s financial statements.
(b) IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”)
Effective January 1, 2023, the definition of accounting estimates was amended under IAS 8. Under
the amended definition, a change in an input or a change in a measurement technique are changes
in accounting estimates if they do not result from the correction of prior period errors. The
amendment further clarifies that accounting estimates are monetary amounts in the financial
statements subject to measurement uncertainty.
F17
F-17
Annual Report2023
(c) IAS 12 Income Taxes (“IAS 12”)
(i) In May 2021, the IASB issued amendments to IAS 12, which narrows the scope of the initial
recognition exception under IAS 12, so that it no longer applies to transactions that give rise to
equal taxable and deductible temporary differences. Under the amendments, the initial
recognition exception does not apply to transactions that, on initial recognition, give rise to equal
taxable and deductible temporary differences. It only applies if the recognition of a related asset
and liability give rise to taxable and deductible temporary differences that are not equal.
(ii) In May 2023, the IASB issued final amendments to International Tax Reform – Pillar Two Model
Rules. The amendments introduced a temporary exception to entities from the recognition and
disclosure of information about deferred tax assets and liabilities related to Pillar Two model
rules. The Company is within the scope of the Organisation for Economic Co-operation and
Development Pillar Two model rules, and under the legislation, the Company is liable to pay a top-
up tax for the difference between its GLoBE effective tax rate per jurisdiction, and the 15%
minimum rate. The Company’s subsidiaries have an effective tax rate that exceeds 15%, except
for certain subsidiaries that operate in the UAE and Bahrain.
For the year ended December 31, 2023, earnings before income taxes from the UAE and Bahrain
was approximately $37 million with an average tax rate of 0% as calculated in accordance with
IAS 12. Management has determined that these jurisdictions are more likely than not to have
additional current tax liability. Due to the complexities in applying the legislation and calculating
GLoBE income, the quantitative impact of this legislation is not yet reasonably estimated.
New Accounting Pronouncements
The Company has reviewed new and revised accounting pronouncements that have been issued but are
not yet effective.
(a) IAS 1 Presentation of Financial Statements (“IAS 1”)
In October 2022, the IASB issued amendments to clarify that the classification of liabilities as
current or non-current is based solely on a company’s right to defer settlement for at least twelve
months at the reporting date. The right needs to exist at the reporting date and must have substance.
In addition to the amendment from January 2020 where the IASB issued amendments to IAS 1, to
provide a more general approach to the presentation of liabilities as current or non-current, only
covenants with which a company must comply on or before the reporting date may affect this right.
Covenants to be complied with after the reporting date do not affect the classification of a liability as
current or non-current at the reporting date.
These amendments are effective January 1, 2024 and are to be applied retrospectively. Management
believes these amendments will have no significant impacts on the Company.
(b) IFRS 16 Leases (“IFRS 16”)
In September 2022, the IASB issued amendments to IFRS 16 that add subsequent measurement
requirements for lease liabilities arising from sale and leaseback transactions for seller-lessees. The
amendment does not prescribe specific measurement requirements for lease liabilities but
measures the lease liability in a way that it does not recognise any amount of the gain or loss that
relates to the right of use retained.
These amendments are effective January 1, 2024 and are to be applied retrospectively. Management
believes these amendments will have no significant impacts on the Company.
(c) IAS 21 The Effects of Changes in Foreign Exchange Rates (“IAS 21”)
In August 2023, the IASB issued amendments to IAS 21 which specifies how an entity should
assess whether a currency is exchangeable and how to estimate the spot exchange rate when a
currency is not exchangeable.
F-18 Annual Report 2023
F18
Under the amendment, a currency is considered to be exchangeable into another currency when an
entity is able to obtain the other currency within a time frame that allows for a normal administrative
delay and through a market or exchange mechanism in which an exchange transaction would create
enforceable rights and obligations. When a currency is not exchangeable, an entity estimates the
spot rate as the rate at which an orderly transaction would take place between market participants
at the measurement date that would reflect the prevailing economic conditions. An entity is required
to disclose information that would enable users to evaluate when and how a currency's lack of
exchangeability affects financial performance, financial positions, and cash flows of an entity.
The amendments are effective January 1, 2025, with early adoption permitted. Management has not
yet determined the full impact this amendment will have on the Company.
Note 5. Significant Accounting Estimates and Judgment
The timely preparation of these Financial Statements requires that Management make estimates and
assumptions and use judgment. Estimates, assumptions and judgments are continually evaluated and
are based on historical experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances, uncertainties about the current economic
environment including significant market volatility in commodity prices, high inflation, high interest rates,
and increasing energy prices.
Uncertainty about these assumptions and estimates could however result in outcomes that require a
material adjustment to the carrying amount of the asset or liability affected in future periods. In the
process of applying the Company’s accounting policies, Management has made the following
judgments, estimates, and assumptions, which have a significant effect on the amounts recognized in
the consolidated financial statements:
Revenue Recognition – Performance Obligation Satisfied Over Time
The Company reflects revenues relating to performance obligations satisfied over time using the
percentage-of-completion approach of accounting. The Company uses the
input method of
percentage-of-completion accounting, whereby actual input costs as a percentage of estimated total
costs is used as the basis for determining the extent to which performance obligations are satisfied. The
input method of percentage-of-completion accounting provides a faithful depiction of the transfer of
control to the customer, as the Company is able to recover costs incurred relating to the satisfaction of
the associated performance obligation. This approach to revenue recognition requires Management to
make a number of estimates and assumptions surrounding the expected profitability of the contract, the
estimated degree of completion based on cost progression, and other detailed factors. Although these
factors are routinely reviewed as part of the project management process, changes in these estimates
or assumptions could lead to changes in the revenues recognized in a given period.
Certain contracts also include aspects of variable consideration, such as liquidated damages on project
delays. For these contracts, Management must make estimations as to the likelihood of the variable
consideration being recognized or constrained, based on the status of each project, the potential value
of variable consideration, communication received from the customer, and other factors. Management
continues to monitor these factors. Changes in estimated cost or revenue associated with a project,
including variable consideration, could result in material changes to revenue and gross margin
recognized on certain projects.
Revenue Recognition – Performance Obligation Satisfied at a Point in Time
The Company reflects revenues relating to performance obligations satisfied at a point in time when
control – indicated by transfer of the legal title, physical possession, significant risks and rewards of
ownership, or any combination of these indicators – is transferred to the customer. When the Company
is a lessor, and determines that a lease is a finance lease, the upfront sale of equipment is recognized at
a point in time at lease commencement.
F19
F-19
Annual Report2023
Under the amendment, a currency is considered to be exchangeable into another currency when an
entity is able to obtain the other currency within a time frame that allows for a normal administrative
delay and through a market or exchange mechanism in which an exchange transaction would create
enforceable rights and obligations. When a currency is not exchangeable, an entity estimates the
spot rate as the rate at which an orderly transaction would take place between market participants
at the measurement date that would reflect the prevailing economic conditions. An entity is required
to disclose information that would enable users to evaluate when and how a currency's lack of
exchangeability affects financial performance, financial positions, and cash flows of an entity.
The amendments are effective January 1, 2025, with early adoption permitted. Management has not
yet determined the full impact this amendment will have on the Company.
Note 5. Significant Accounting Estimates and Judgment
The timely preparation of these Financial Statements requires that Management make estimates and
assumptions and use judgment. Estimates, assumptions and judgments are continually evaluated and
are based on historical experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances, uncertainties about the current economic
environment including significant market volatility in commodity prices, high inflation, high interest rates,
and increasing energy prices.
Uncertainty about these assumptions and estimates could however result in outcomes that require a
material adjustment to the carrying amount of the asset or liability affected in future periods. In the
process of applying the Company’s accounting policies, Management has made the following
judgments, estimates, and assumptions, which have a significant effect on the amounts recognized in
the consolidated financial statements:
Revenue Recognition – Performance Obligation Satisfied Over Time
The Company reflects revenues relating to performance obligations satisfied over time using the
percentage-of-completion approach of accounting. The Company uses the
input method of
percentage-of-completion accounting, whereby actual input costs as a percentage of estimated total
costs is used as the basis for determining the extent to which performance obligations are satisfied. The
input method of percentage-of-completion accounting provides a faithful depiction of the transfer of
control to the customer, as the Company is able to recover costs incurred relating to the satisfaction of
the associated performance obligation. This approach to revenue recognition requires Management to
make a number of estimates and assumptions surrounding the expected profitability of the contract, the
estimated degree of completion based on cost progression, and other detailed factors. Although these
factors are routinely reviewed as part of the project management process, changes in these estimates
or assumptions could lead to changes in the revenues recognized in a given period.
Certain contracts also include aspects of variable consideration, such as liquidated damages on project
delays. For these contracts, Management must make estimations as to the likelihood of the variable
consideration being recognized or constrained, based on the status of each project, the potential value
of variable consideration, communication received from the customer, and other factors. Management
continues to monitor these factors. Changes in estimated cost or revenue associated with a project,
including variable consideration, could result in material changes to revenue and gross margin
recognized on certain projects.
Revenue Recognition – Performance Obligation Satisfied at a Point in Time
The Company reflects revenues relating to performance obligations satisfied at a point in time when
control – indicated by transfer of the legal title, physical possession, significant risks and rewards of
ownership, or any combination of these indicators – is transferred to the customer. When the Company
is a lessor, and determines that a lease is a finance lease, the upfront sale of equipment is recognized at
a point in time at lease commencement.
Provisions for Warranty
Provisions set aside for warranty exposures either relate to amounts provided systematically based on
historical experience under contractual warranty obligations or specific provisions created in respect of
individual customer issues undergoing commercial resolution and negotiation. Amounts set aside
represent Management’s best estimate of the likely settlement and the timing of any resolution with the
relevant customer.
Business Acquisitions
In a business acquisition, the Company may acquire assets and assume certain liabilities of an acquired
entity. Estimates are made as to the fair value of PP&E, intangible assets, and goodwill, among other
items. In certain circumstances, such as the valuation of PP&E and intangible assets acquired, the
Company relies on independent third-party valuators. The determination of these fair values involves a
variety of assumptions, including revenue growth rates, projected cash flows, customer attrition rates,
operating margins, discount rates, and economic lives.
PP&E, Energy Infrastructure Assets and Intangible Assets
PP&E, EI assets, and intangible assets are stated at cost less accumulated depreciation and
accumulated amortization and any impairment losses. Depreciation and amortization is calculated using
the straight-line method over the estimated useful lives of the assets. The estimated useful lives of PP&E,
EI assets, and intangible assets is reviewed on an annual basis. Assessing the reasonableness of the
estimated useful lives of PP&E, EI assets, and intangible assets requires judgment and is based on
currently available information. PP&E, EI assets, and intangible assets are also reviewed for potential
impairment on an annual basis or whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
Changes in circumstances, such as technological advances and changes to business strategy can result
in actual useful lives differing significantly from estimates. The assumptions used, including rates and
methodologies, are reviewed on an ongoing basis to ensure they continue to be appropriate. Revisions
to the estimated useful lives of PP&E, EI assets, and intangible assets constitutes a change in accounting
estimate and are applied prospectively.
ROU Asset and Lease Liability
The Company determines the ROU asset and lease liability for each lease upon commencement. In
calculating the ROU asset and lease liability, the Company is required to determine a suitable discount
rate in order to calculate the present value of the contractual payments for the right to use the underlying
asset during the lease term. In addition, the Company is required to assess the term of the lease,
including if the Company is reasonably certain to exercise options to extend the lease or terminate the
lease. Discount rates and lease assumptions are reassessed on a periodic basis.
Finance Lease Receivables
In calculating the value of the Company’s finance lease receivables, the Company is required to
determine the fair value of the underlying assets included in the finance lease transaction, or, if lower, the
present value of the lease payments discounted using a market rate of interest. The fair value of the
underlying assets should reflect the amount that the Company would otherwise recognize on a sale of
those assets.
Allowance for Doubtful Accounts
Amounts included in allowance for doubtful accounts reflect the expected credit losses for trade
receivables. The Company determines allowances based on Management’s best estimate of future
expected credit losses, considering historical default rates, current economic conditions, and forecasts
of future economic conditions. Future economic conditions, especially around the oil and gas industry,
may have a significant impact on the collectability of trade receivables from customers and the
corresponding expected credit losses. Management has implemented additional monitoring processes
in assessing the creditworthiness of customers and believes the current provision appropriately reflects
the best estimate of its future expected credit losses. Significant or unanticipated changes in economic
conditions could impact the magnitude of future expected credit losses.
F-19
F-20 Annual Report 2023
F20
Impairment of Inventories
The Company regularly reviews the nature and quantities of inventory on hand and evaluates the net
realizable value of items based on historical usage patterns, known changes to equipment or processes,
and customer demand for specific products. Significant or unanticipated changes in business conditions
could impact the magnitude and timing of impairment recognized.
Impairment of Non-Financial Assets
Impairment exists when the carrying value of an asset or group of assets exceeds its recoverable
amount, which is the higher of its fair value less costs to sell and its value-in-use. The value-in-use
calculation is based on a discounted cash flow model, which requires the Company to estimate future
cash flows and use judgment to determine a suitable discount rate to calculate the present value of those
cash flows.
Impairment of Goodwill
The Company tests goodwill for impairment at least on an annual basis, or when there is any indication
that goodwill may be impaired. This requires an estimation of the value-in-use of the groups of CGUs to
which the goodwill is allocated. The Company has determined the group of CGUs to be its operating
segments for purposes for its impairment assessment. Estimating the value-in-use requires an estimate
of the expected future cash flows from each group of CGUs and use judgment to determine a suitable
discount rate in order to calculate the present value of those cash flows. The methodology and
assumptions used, as well as the results of the assessment performed are detailed in Note 15 “Goodwill
and Impairment Review of Goodwill� ”.
Income Taxes
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and
timing of future taxable income. Given the wide range of international business relationships and the
long-term nature and complexity of existing contractual agreements, differences arising between the
actual results and the assumptions made, or future changes to such assumptions, could necessitate
future adjustments to taxable income. The Company establishes provisions for uncertain tax positions,
based on reasonable estimates, for possible consequences of audits by the tax authorities of the
respective countries in which it operates. The amount of such provisions is based on various factors,
such as experience of previous tax audits and differing interpretations of tax regulations by the taxable
entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of
issues depending on the conditions prevailing in the respective company’s domicile. The Company
reviews the adequacy of these provisions at the end of each reporting period and adjusts them as
required. However, it is possible that, at some future date, current income tax liabilities are in excess of
the Company’s current income tax provision as a result of these audits, adjustments, or litigation with tax
authorities. These differences could materially impact the Company’s assets, liabilities, and net income.
Deferred tax assets are recognized for all unused tax losses, carried forward tax credits, or other
deductible temporary differences to the extent that it is probable that taxable profit will be available
against which these deferred tax assets can be utilized. Significant judgment is required to determine
the amount of deferred tax assets that can be recognized, based upon the timing of reversal, expiry of
losses and the level of future taxable profits together with future tax planning strategies. The basis for
this estimate is Management’s cash flow projections. To the extent the Company determines the
recoverability of deferred tax assets is unlikely, the deferred tax asset is not recognized. Management
regularly assesses the unrecognized deferred tax asset to determine what portion can be recognized in
response to changing economic conditions or recent events.
F21
F-21
Annual Report2023 Impairment of Inventories
Share-Based Compensation
The Company regularly reviews the nature and quantities of inventory on hand and evaluates the net
realizable value of items based on historical usage patterns, known changes to equipment or processes,
and customer demand for specific products. Significant or unanticipated changes in business conditions
could impact the magnitude and timing of impairment recognized.
Impairment of Non-Financial Assets
Impairment exists when the carrying value of an asset or group of assets exceeds its recoverable
amount, which is the higher of its fair value less costs to sell and its value-in-use. The value-in-use
calculation is based on a discounted cash flow model, which requires the Company to estimate future
cash flows and use judgment to determine a suitable discount rate to calculate the present value of those
cash flows.
Impairment of Goodwill
The Company tests goodwill for impairment at least on an annual basis, or when there is any indication
that goodwill may be impaired. This requires an estimation of the value-in-use of the groups of CGUs to
which the goodwill is allocated. The Company has determined the group of CGUs to be its operating
segments for purposes for its impairment assessment. Estimating the value-in-use requires an estimate
of the expected future cash flows from each group of CGUs and use judgment to determine a suitable
discount rate in order to calculate the present value of those cash flows. The methodology and
assumptions used, as well as the results of the assessment performed are detailed in Note 15 “Goodwill
and Impairment Review of Goodwill� ”.
Income Taxes
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and
timing of future taxable income. Given the wide range of international business relationships and the
long-term nature and complexity of existing contractual agreements, differences arising between the
actual results and the assumptions made, or future changes to such assumptions, could necessitate
future adjustments to taxable income. The Company establishes provisions for uncertain tax positions,
based on reasonable estimates, for possible consequences of audits by the tax authorities of the
respective countries in which it operates. The amount of such provisions is based on various factors,
such as experience of previous tax audits and differing interpretations of tax regulations by the taxable
entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of
issues depending on the conditions prevailing in the respective company’s domicile. The Company
reviews the adequacy of these provisions at the end of each reporting period and adjusts them as
required. However, it is possible that, at some future date, current income tax liabilities are in excess of
the Company’s current income tax provision as a result of these audits, adjustments, or litigation with tax
authorities. These differences could materially impact the Company’s assets, liabilities, and net income.
Deferred tax assets are recognized for all unused tax losses, carried forward tax credits, or other
deductible temporary differences to the extent that it is probable that taxable profit will be available
against which these deferred tax assets can be utilized. Significant judgment is required to determine
the amount of deferred tax assets that can be recognized, based upon the timing of reversal, expiry of
losses and the level of future taxable profits together with future tax planning strategies. The basis for
this estimate is Management’s cash flow projections. To the extent the Company determines the
recoverability of deferred tax assets is unlikely, the deferred tax asset is not recognized. Management
regularly assesses the unrecognized deferred tax asset to determine what portion can be recognized in
response to changing economic conditions or recent events.
The Company employs the fair value method of accounting for stock options and phantom share
entitlement. The determination of the share-based compensation expense for stock options and
phantom share entitlement requires the use of estimates and assumptions based on exercise prices,
market conditions, vesting criteria, length of employment, and past experiences of the Company.
Changes in these estimates and future events could alter the determination of the provision for such
compensation. Details concerning the assumptions used are described in Note 26 “Share-Based
Compensation”.
Note 6. Acquisition
On October 13, 2022, the Company completed the acquisition (the “Transaction”) of Exterran
Corporation (“Exterran”) for total consideration of $223 million. The following table summarizes the final
details of the consideration and the recognized amounts of assets acquired and liabilities assumed at
the date of acquisition.
October 13, 2022
Purchase consideration
Shares exchanged
Fair value of vested stock-based compensation1
Total purchase consideration
Identifiable assets acquired and liabilities assumed
Net working capital
Property, plant, and equipment
Energy infrastructure assets
Contract assets
Finance leases receivables
Intangible assets
Other long-term assets
Long-term debt
Other long-term liabilities
Total net identifiable assets
Goodwill
Final
Preliminary
$
$
$
$
$
213,942 $
8,641
222,583 $
63,290 $
60,395
568,550
217,585
77,578
102,789
69,024
(1,019,436)
(51,636)
88,139 $
134,444 $
213,942
8,641
222,583
56,715
60,395
581,338
217,585
77,578
102,789
66,602
(1,019,436)
(60,408)
83,158
139,425
1 Included in the fair value of vested stock-based compensation is $2 million of cash payments to Exterran stockholders that held fractional shares
on the date of acquisition.
During the three months ended March 31, 2023, the Company sold certain EI assets which resulted in
the adjustment of fair value. The adjusted purchase price allocation resulted in decreases to EI assets of
$13 million and net working capital, less than $1 million, and increases to deferred tax assets of $4 million
and goodwill of $10 million.
During the three months ended September 30, 2023, the Company finalized its assessment of deferred
and current taxes, which led to further purchase price allocation adjustments resulting in decreases to
deferred taxes of $7 million and current taxes of $10 million, and an increase to accrued liabilities of $2
million. The impact of these adjustments was a $15 million decrease to goodwill.
The net impact of these adjustments was a decrease of $5 million to goodwill, and resulted in final
goodwill for the Transaction of $134 million.
During the year ended December 31, 2023, the Company incurred $61 million (December 31, 2022 – $71
million) of further restructuring, transaction, and integration costs directly related to the Transaction.
These costs are included in cost of goods sold (“COGS”) and SG&A in the consolidated statements of
loss.
F-21
F-22 Annual Report
2023
F22
Note 7. Cash and Cash Equivalents
Cash and cash equivalents consisted of the following:
December 31,
Cash
Money market fund
Cash and cash equivalents
2023
2022
122,271 $
253,776
3,818
-
126,089 $
253,776
$
$
Note 8. Accounts Receivable and Contract Assets
Accounts receivable consisted of the following:
December 31,
Trade receivables
Less: allowance for doubtful accounts
Trade receivables, net
Other receivables
Total accounts receivable
2023
529,550 $
(12,539)
517,011 $
8,843
525,854 $
$
$
$
20221
457,850
(7,652)
450,198
5,643
455,841
1 Certain balances as at December 31, 2022 have been re-presented as a result of measurement period adjustments related to the Transaction as
required by IFRS 3 “Business Combinations”, refer to Note 6 “Acquisition” for more information.
Aging of trade receivables:
December 31,
Current to 90 days
Over 90 days
Trade receivables
Movement in allowance for doubtful accounts:
December 31,
Opening balance
Impairment provision additions on receivables
Amounts settled and derecognized during the period
Currency translation effects
Closing balance
2023
440,459 $
89,091
529,550 $
$
$
2023
$
7,652 $
1,858
2,582
447
$
12,539 $
2022
405,196
52,654
457,850
2022
10,334
628
(3,499)
189
7,652
F23
F-23
Annual Report2023
Movement in contract assets:
December 31,
Opening balance
Acquisition (Note 6)
Unbilled revenue recognized
Amounts billed
Currency translation effects
Closing balance
Current contract assets
Non-current contract assets
Total contract assets
2023
$
409,438 $
-
1,364,706
(1,354,908)
(9,853)
2022
82,760
281,509
559,229
(517,828)
3,768
$
$
$
409,383 $
409,438
230,455 $
178,928
409,383 $
186,259
223,179
409,438
Amounts recognized as current contract assets are typically billed to customers within three months
and amounts recognized as non-current contract assets will be billed to customers more than twelve
months from the date of the balance sheet.
Note 9. Inventories
Inventories consisted of the following:
December 31,
Direct materials
Repair and distribution parts
Work-in-progress
Equipment
Total inventories
December 31,
Work-in-progress related to finance leases
2023
$
92,132 $
152,282
119,254
25,730
2022
107,575
136,876
98,297
26,550
$
$
389,398 $
369,298
2023
- $
2022
41,986
The amount of inventory and overhead costs recognized as expense and included in COGS during the
year ended December 31, 2023 was $2,545 million (December 31, 2022 – $1,455 million). COGS is made
up of direct materials, direct labour, depreciation on manufacturing assets, post-manufacturing
expenses, and overhead. COGS also includes inventory write-downs pertaining to obsolescence and
aging, and recoveries of past write-downs upon disposition. The net change in inventory reserves
charged to the consolidated statements of loss and included in COGS for the year ended December 31,
2023 was $1 million (December 31, 2022 – $2 million).
The costs related to the construction of EI assets determined to be finance leases are accounted for as
work-in-progress related to finance leases. Once a project is completed and enters service it is
reclassified to COGS. During the year ended December 31, 2023 the Company invested $5 million
(December 31, 2022 – $75 million) related to finance leases that commenced operations in the period.
The Company does not have any finance lease projects in progress as at December 31, 2023.
F-24 Annual Report 2023
F24
Note 10. Assets and Liabilities Classified as Held for Sale
As part of the Company’s portfolio optimization strategy, Management committed to a plan to sell certain
assets within the EH segment. Accordingly, these assets and associated liabilities are presented as held
for sale. In the fourth quarter of 2023, the Company entered into a sales agreement for these assets and
the sale closed subsequent to December 31, 2023.
As of December 31, 2023, assets and liabilities held for sale are comprised of cash and cash equivalents,
lease ROU assets, the related lease liabilities, and accounts payables and accrued liabilities.
Assets classified as held for sale:
Cash and cash equivalents
Lease ROU assets
Total assets classified as held for sale
Liabilities associated with assets classified as held for sale:
Accounts payable and accrued liabilities
Lease liabilities
Total liabilities associated with assets classified as held for sale
December 31, 2023
$
$
$
$
3,319
5,906
9,225
110
6,209
6,319
The Company measured its non-current assets classified as held for sale at the lower of its carrying
amount and the fair value less costs to sell, and no impairment was required.
F25
F-25
Annual Report2023 Note 11. Property, Plant and Equipment and Energy
Infrastructure Assets
A reconciliation of the changes in the carrying amount of PP&E and EI assets were as follows:
Cost
December 31, 2022
Additions
Reclassification
Disposals
Reclassified to assets held
for sale (Note 10)
Currency translation
effects
December 31, 2023
Accumulated depreciation
December 31, 2022
Depreciation charge
Impairment
Disposals
Reclassified to assets held
for sale (Note 10)
Currency translation
effects
December 31, 2023
Net book value –
December 31, 2023
Cost
December 31, 2021
Acquisition (Note 6)
Additions
Reclassification
Disposals
Currency translation
effects
December 31, 2022
Accumulated depreciation
December 31, 2021
Depreciation charge
Impairment
Disposals
Currency translation
effects
December 31, 2022
Net book value –
December 31, 2022
$
$
$
$
$
$
$
$
$
$
Land
Building
Equipment
Assets under
construction
Total
property,
plant and
equipment
Energy
infrastructure
assets
23,559 $
-
120
(612)
151,400 $
376
2,985
(7,979)
90,698 $
4,585 $
270,242 $
2,402
13,340
(17,128)
19,040
(17,519)
-
21,818
(1,074)
(25,719)
1,529,166
121,160
-
(96,788)
-
(5,880)
(2,331)
-
(8,211)
-
(421)
22,646 $
(3,990)
136,912 $
(4,787)
82,194 $
2,758
8,864 $ 250,616 $
(6,440)
(42,815)
1,510,723
- $
-
-
-
-
-
-
(58,666) $
(9,901)
-
4,774
5,880
2,176
(59,071) $
(16,965)
-
11,285
2,331
4,013
$ (55,737) $
(58,407) $
- $
-
-
-
(117,737) $
(26,866)
-
16,059
(291,616)
(171,932)
(1,726)
73,393
-
-
-
8,211
6,189
-
24,826
$ (114,144)
$
(367,055)
22,646 $
81,175 $
23,787 $
8,864 $
136,472 $
1,143,668
Land
Building
Equipment
Assets under
construction
Total
property,
plant and
equipment
Energy
infrastructure
assets1
18,411 $
4,237
-
-
(6)
114,021 $
31,864
6
885
(1,100)
64,492 $
22,952
2,001
4,022
(1,925)
3,068 $
1,342
6,036
(5,314)
-
199,992 $
60,395
8,043
(407)
(3,031)
839,734
568,550
107,797
-
(23,233)
917
23,559 $
5,724
151,400 $
(844)
90,698 $
(547)
4,585 $
5,250
270,242 $
36,318
1,529,166
- $
-
-
-
-
- $
(50,087) $
(7,205)
-
987
(2,361)
(58,666) $
(53,491) $
(8,352)
-
1,827
945
(59,071) $
$
- $
-
-
-
(103,578)
(15,557)
-
2,814
(229,406)
(83,289)
(1,233)
9,671
-
- $
(1,416)
(117,737) $
12,641
(291,616)
23,559 $
92,734 $
31,627 $
4,585 $
152,505 $
1,237,550
1 Certain balances as at December 31, 2022 have been re-presented as a result of measurement period adjustments related to the Transaction as
required by IFRS 3 “Business Combinations”, refer to Note 6 “Acquisition” for more information.
Depreciation of PP&E and EI assets included in net loss for the year ended December 31, 2023, was
$199 million (December 31, 2022 –$99 million), of which $183 million was included in COGS (December
31, 2022 – $95 million) and $16 million was included in SG&A (December 31, 2022 – $4 million).
Impairment of EI assets included in earnings for the year ended December 31, 2023, was $2 million
(December 31, 2022 – $1 million).
F-26 Annual Report
2023
F26
Note 12. Lease Right-of-Use Assets
A reconciliation of the changes in the carrying amount of lease ROU assets were as follows:
Cost
December 31, 2022
Additions
Disposal
Lease measurement adjustment
Reclassified to assets held for sale (Note 10)
Currency translation effects
December 31, 2023
Accumulated depreciation
December 31, 2022
Depreciation charge
Disposal
Lease measurement adjustment
Reclassified to assets held for sale (Note 10)
Currency translation effects
December 31, 2023
Net book value – December 31, 2023
Cost
December 31, 2021
Acquisition (Note 6)
Additions
Disposal
Currency translation effects
December 31, 2022
Accumulated depreciation
December 31, 2021
Depreciation charge
Disposal
Currency translation effects
December 31, 2022
Net book value – December 31, 2022
Land and buildings
Equipment
Total lease
right-of-use assets
$
94,107 $
25,058 $
22,131
(15,444)
(7,413)
(6,971)
(1,344)
22,287
(7,096)
-
-
(262)
119,165
44,418
(22,540)
(7,413)
(6,971)
(1,606)
$
$
$
$
85,066 $
39,987 $
125,053
(27,157) $
(13,636) $
(16,866)
10,428
1,900
1,065
959
(6,217)
6,583
-
-
101
(40,793)
(23,083)
17,011
1,900
1,065
1,060
(29,671) $
(13,169) $
(42,840)
55,395 $
26,818 $
82,213
Land and buildings
Equipment
Total lease
right-of-use assets
$
58,380 $
24,359 $
31,192
7,173
(3,935)
1,297
1,240
4,029
(6,129)
1,559
94,107 $
25,058 $
(20,198) $
(12,654) $
(9,994)
3,543
(508)
(5,824)
5,731
(889)
(27,157) $
66,950 $
(13,636) $
11,422 $
$
$
$
$
82,739
32,432
11,202
(10,064)
2,856
119,165
(32,852)
(15,818)
9,274
(1,397)
(40,793)
78,372
Depreciation of lease ROU assets included in net loss for the year ended December 31, 2023 was $23
million (December 31, 2022 –$16 million), of which $16 million was included in COGS (December 31,
2022 – $13 million) and $7 million was included in SG&A (December 31, 2022 – $3 million).
F27
F-27
Annual Report2023
Note 12. Lease Right-of-Use Assets
A reconciliation of the changes in the carrying amount of lease ROU assets were as follows:
December 31, 2022
$
94,107 $
25,058 $
Land and buildings
Equipment
right-of-use assets
Total lease
Net book value – December 31, 2023
55,395 $
26,818 $
82,213
(29,671) $
(13,169) $
(42,840)
Cost
Additions
Disposal
Lease measurement adjustment
Reclassified to assets held for sale (Note 10)
Currency translation effects
December 31, 2023
Accumulated depreciation
December 31, 2022
Depreciation charge
Disposal
Lease measurement adjustment
Reclassified to assets held for sale (Note 10)
Currency translation effects
December 31, 2023
Cost
December 31, 2021
Acquisition (Note 6)
Additions
Disposal
Currency translation effects
December 31, 2022
Accumulated depreciation
December 31, 2021
Depreciation charge
Disposal
Currency translation effects
December 31, 2022
22,287
(7,096)
-
-
(262)
(6,217)
6,583
-
-
101
1,240
4,029
(6,129)
1,559
(5,824)
5,731
(889)
119,165
44,418
(22,540)
(7,413)
(6,971)
(1,606)
(40,793)
(23,083)
17,011
1,900
1,065
1,060
82,739
32,432
11,202
(10,064)
2,856
119,165
(32,852)
(15,818)
9,274
(1,397)
(40,793)
78,372
Land and buildings
Equipment
right-of-use assets
Total lease
$
58,380 $
24,359 $
94,107 $
25,058 $
(20,198) $
(12,654) $
22,131
(15,444)
(7,413)
(6,971)
(1,344)
(16,866)
10,428
1,900
1,065
959
31,192
7,173
(3,935)
1,297
(9,994)
3,543
(508)
$
$
$
$
$
$
$
$
Net book value – December 31, 2022
(27,157) $
66,950 $
(13,636) $
11,422 $
Depreciation of lease ROU assets included in net loss for the year ended December 31, 2023 was $23
million (December 31, 2022 –$16 million), of which $16 million was included in COGS (December 31,
2022 – $13 million) and $7 million was included in SG&A (December 31, 2022 – $3 million).
Note 13. Finance Leases Receivable
The Company has entered into finance lease arrangements for certain of its EI assets, with initial terms
of 10 years.
The value of the finance leases receivable were comprised of the following:
December 31,
Less than one year
Between one and five years
Later than five years
85,066 $
39,987 $
125,053
Less: Unearned finance income
(27,157) $
(13,636) $
Minimum lease payments and
unguaranteed residual value
Present value of minimum lease payments
and unguaranteed residual value
2023
2022
2023
60,832 $
73,614 $
56,982 $
170,174
119,354
196,314
144,482
140,307
72,250
350,360 $
414,410 $
269,539 $
(80,821)
(119,906)
-
2022
60,020
149,052
85,432
294,504
-
269,539 $
294,504 $
269,539 $
294,504
$
$
$
December 31,
Opening balance
Acquisition (Note 6)
Additions
Interest income
Billings and payments
Derecognition
Other
Currency translation effects
Closing balance
2023
$
294,504 $
-
64,112
30,203
(79,619)
(33,353)
(2,254)
(4,054)
$
269,539 $
2022
103,358
110,097
86,602
14,801
(33,740)
-
-
13,386
294,504
The Company recognized non-cash selling profit related to the commencement of finance leases of $18
million for the year ended December 31, 2023 (December 31, 2022 – $18 million). Additionally, the
Company recognized $30 million of interest income on finance leases receivable during the year ended
December 31, 2023 (December 31, 2022 – $15 million). The total cash received in respect of finance
leases for the year ended December 31, 2023 was $80 million (December 31, 2022 – $34 million), as
reflected in billings and payments.
The average interest rates implicit in the leases are fixed at the contract date for the entire lease term. At
December 31, 2023, the average interest rate was 8.6 percent per annum (December 31, 2022 – 9.4
percent). The finance leases receivable at the end of reporting period are neither past due nor impaired.
During the year ended December 31, 2023, the Company disposed of certain assets that were
accounted for as finance leases, resulting in the derecognition of the associated finance lease receivable
of $33 million.
F-27
F-28 Annual Report 2023
F28
Note 14. Intangible Assets
A reconciliation of the changes in the carrying amount of intangible assets were as follows:
Cost
December 31, 2022
Additions
Reclassification
Disposal
Currency translation effects
December 31, 2023
Accumulated amortization
December 31, 2022
Amortization charge
Disposal
Currency translation effects
December 31, 2023
Net book value – December 31, 2023
Cost
December 31, 2021
Acquisition (Note 6)
Disposal
Reclassification
Currency translation effects
December 31, 2022
Accumulated amortization
December 31, 2021
Amortization charge
Disposal
Currency translation effects
December 31, 2022
Net book value – December 31, 2022
Customer
relationships
and other
Software
Total intangible
assets
$
151,310 $
74,303 $
225,613
-
-
-
(3,784)
6,481
1,074
(1,632)
(3,973)
6,481
1,074
(1,632)
(7,757)
147,526 $
76,253 $
223,779
(73,427) $
(49,413) $
(122,840)
(18,233)
(12,940)
-
2,313
1,632
(466)
(31,173)
1,632
1,847
(89,347) $
(61,187) $
(150,534)
58,179 $
15,066 $
73,245
$
$
$
$
Customer
relationships
and other
Software
Total intangible
assets
$
69,594 $
49,069 $
80,514
-
-
1,202
22,275
(11)
407
2,563
118,663
102,789
(11)
407
3,765
$
$
$
$
151,310 $
74,303 $
225,613
(63,817) $
(44,728) $
(108,545)
(7,239)
-
(2,371)
(2,198)
11
(2,498)
(9,437)
11
(4,869)
(73,427) $
(49,413) $
(122,840)
77,883 $
24,890 $
102,773
F29
F-29
Annual Report2023
Note 15. Goodwill and Impairment Review of Goodwill
December 31,
Opening balance
Acquisition (Note 6)
Impairment
Currency translation effects
Closing balance
2023
$
674,396 $
-
(87,168)
(15,418)
$
571,810 $
20221
566,270
134,444
(48,000)
21,682
674,396
1 Certain balances as at December 31, 2022 have been re-presented as a result of measurement period adjustments related to the Transaction as
required by IFRS 3 “Business Combinations”, refer to Note 6 “Acquisition” for more information.
Goodwill acquired through historical business combinations has been allocated to groups of CGUs,
which are the Company’s operating segments that represent the lowest level at which goodwill is
monitored for internal management purposes. The Company’s CGUs are Canada, USA, LATAM, and EH.
At December 31, 2023, the Company performed its annual goodwill assessment by comparing the
carrying value and recoverable amounts for each operating segment in accordance with IAS 36.10(b)
which resulted in an $87 million impairment in LATAM.
In assessing whether goodwill has been impaired, the carrying amount of each operating segment
(including goodwill) is compared with its recoverable amount. The recoverable amount is the higher of
the fair value less costs to sell and value-in-use (“VIU”). The recoverable amounts for the operating
segments have been determined based on VIU calculations, using discounted cash flow projections as
at December 31, 2023. Management has adopted a five-year projection period to assess each operating
segment’s VIU. A two percent terminal value was used in the perpetual growth methodology based on
the fifth year. This five-year projection includes the financial budgets approved by the Board for 2024
and Management’s expectations of cash flows for 2025 to 2028.
Key Assumptions Used in Value-In-Use Calculations:
The Company completed its annual assessment for goodwill impairment and determined that goodwill
associated with LATAM of $87 million was not recoverable at December 31, 2023, and an impairment
charge for this amount has been recorded in the consolidated statements of loss. The cash flows used
in the impairment calculation were discounted using a 17.0 percent (December 31, 2022 – 15.5 percent)
post-tax discount rate, resulting in a recoverable amount that was less than the carrying amount of $395
million.
The recoverable amount for the Canada, USA, and EH operating segments exceeded the carrying
amounts. Discount rates used for the goodwill impairment calculation at December 31, 2023 for Canada,
USA, and EH ranged from 9.5 percent to 13.5 percent (December 31, 2022 – 10.7 percent to 15.3 percent)
post-tax discount rate.
The estimation of VIU involves significant judgment in the determination of inputs to the discounted cash
flow model and is most sensitive to changes in cash flow projections, revenue growth rate, operating
margins, terminal growth and discount rates. These key assumptions were tested for sensitivity by
applying a reasonable possible change to those assumptions. Future earnings before finance costs and
taxes (“EBIT”) were changed by ten percent while the discount rate was changed by one percent. The
USA and Canada operating segments have sufficient room as their recoverable amounts are significantly
higher than their carrying values, and therefore, the sensitivities will not indicate an impairment. LATAM
has no further goodwill to apply these sensitivities to. The impact of these sensitivities on the Company’s
remaining three operating segments are as follows:
EBIT: Management has made estimates relating to the amount and timing of revenue recognition
for projects included in backlog, and the assessment of the likelihood of maintaining and growing
market share. A ten percent change in EBIT in the Company’s remaining three segments would
not trigger an impairment.
F-30 Annual Report 2023
F30
Discount Rate: Management determines a discount rate for each segment based on the estimated
weighted average cost of capital (“WACC”) of the Company, using the five-year average of the
Company’s peer group debt to total enterprise value, adjusted for a number of risk factors specific
to each operating segment. This discount rate has been calculated using an estimated risk-free
rate of return adjusted for the Company’s estimated equity market risk premium, the Company’s
cost of debt, and the tax rate in the local jurisdiction. For each one percent change in the discount
rate, the impact on the VIU would be $160 million for the EH segment. A one percent increase in
WACC would trigger an impairment in the EH segment. A one percent change in the discount rate
in the Company’s other two segments would not trigger an impairment.
Management will continue to assess the long-term projected cash flows, as certain factors may cause a
material variance from previously used cash flow projections. Management notes that there is potential
for future impairments as interest rates continue to fluctuate, and as the Company gets more visibility
regarding future cash flows.
Note 16. Other Assets
December 31,
Investment in associates and joint ventures
Prepaid deposits
Long-term receivables1
Total other assets
2023
37,544 $
13,932
400
51,876 $
$
$
1 During the first quarter of 2023, the Company received proceeds of $28 million from the settlement of preferred shares.
Note 17. Accounts Payable and Accrued Liabilities
December 31,
Accounts payable and accrued liabilities
Accrued dividend payable
Cash-settled share-based payments
Total accounts payable and accrued liabilities
$
$
2023
550,639 $
3,098
7,383
561,120 $
628,086
1 Certain balances as at December 31, 2022 have been re-presented as a result of measurement period adjustments for the acquisition of Exterran
as required by IFRS 3 “Business Combinations”, refer to Note 6 “Acquisition” for more information.
F31
F-31
2022
34,977
13,972
34,127
83,076
20221
611,516
3,093
13,477
Annual Report2023
Discount Rate: Management determines a discount rate for each segment based on the estimated
weighted average cost of capital (“WACC”) of the Company, using the five-year average of the
Company’s peer group debt to total enterprise value, adjusted for a number of risk factors specific
to each operating segment. This discount rate has been calculated using an estimated risk-free
rate of return adjusted for the Company’s estimated equity market risk premium, the Company’s
cost of debt, and the tax rate in the local jurisdiction. For each one percent change in the discount
rate, the impact on the VIU would be $160 million for the EH segment. A one percent increase in
WACC would trigger an impairment in the EH segment. A one percent change in the discount rate
in the Company’s other two segments would not trigger an impairment.
Management will continue to assess the long-term projected cash flows, as certain factors may cause a
material variance from previously used cash flow projections. Management notes that there is potential
for future impairments as interest rates continue to fluctuate, and as the Company gets more visibility
regarding future cash flows.
Note 16. Other Assets
December 31,
Investment in associates and joint ventures
Prepaid deposits
Long-term receivables1
Total other assets
December 31,
Accounts payable and accrued liabilities
Accrued dividend payable
Cash-settled share-based payments
1 During the first quarter of 2023, the Company received proceeds of $28 million from the settlement of preferred shares.
Note 17. Accounts Payable and Accrued Liabilities
2023
37,544 $
13,932
400
51,876 $
2023
550,639 $
3,098
7,383
2022
34,977
13,972
34,127
83,076
20221
611,516
3,093
13,477
$
$
$
$
Total accounts payable and accrued liabilities
561,120 $
628,086
1 Certain balances as at December 31, 2022 have been re-presented as a result of measurement period adjustments for the acquisition of Exterran
as required by IFRS 3 “Business Combinations”, refer to Note 6 “Acquisition” for more information.
Note 18. Provisions
December 31,
Warranty provisions
Restructuring provisions
Legal provisions
Total provisions
2023
Opening balance
Acquisition (Note 6)
Additions during the year
Amounts settled and released in the year
Currency translation effects
2023
14,151 $
9,646
2,179
25,976 $
$
$
Warranty
Provisions
Restructuring
Provisions
Legal
Provisions
2022
13,411
2,009
3,406
18,826
Total
$
13,411 $
2,009 $
3,406 $
18,826
-
8,609
(7,595)
(274)
-
7,936
(299)
-
-
-
(1,225)
(2)
-
16,545
(9,119)
(276)
Closing balance
$
14,151 $
9,646 $
2,179 $
25,976
2022
Opening balance
Acquisition (Note 6)
Additions during the year
Amounts settled and released in the year
Currency translation effects
Warranty
Provisions
Restructuring
Provisions
Legal
Provisions
$
6,636 $
5,888
4,395
(3,669)
161
- $
-
2,009
-
-
- $
2,691
717
-
(2)
Total
6,636
8,579
7,121
(3,669)
159
Closing balance
$
13,411 $
2,009 $
3,406 $
18,826
Note 19. Deferred Revenue
December 31,
Opening balance
Acquisition (Note 6)
Cash received in advance of revenue recognition
Revenue subsequently recognized
Currency translation effects
Closing balance
Current deferred revenue
Non-current deferred revenue
Deferred revenue
2023
$
399,520 $
-
892,622
(857,797)
(12,489)
2022
84,614
135,409
526,924
(354,531)
7,104
$
$
$
421,856 $
399,520
392,371 $
29,485
421,856 $
366,085
33,435
399,520
Amounts recognized as current deferred revenue are typically recognized into revenue within six
months and amounts recognized as non-current deferred revenue will be recognized into revenue more
than twelve months from the date of the balance sheet.
F-31
F-32 Annual Report 2023
F32
Note 20. Long-Term Debt
The three-year secured term loan (“Term Loan”) and the three-year secured revolving credit facility
(“Revolving Credit Facility”) have a maturity date of October 13, 2025 (the “Maturity Date”). In addition,
the Revolving Credit Facility may be increased by US$150 million at the request of the Company, subject
to the lenders’ consent. The Maturity Date of the Revolving Credit Facility may be extended annually on
or before the anniversary date with the consent of the lenders. The senior secured notes (the “Notes”)
consist of US$625 million principal amount, bears interest of 9.0 percent, and has a maturity of October
15, 2027.
The Company has a $93 million (US$70 million) unsecured credit facility “LC Facility” with one of the
lenders in its Revolving Credit Facility. This LC Facility allows the Company to request the issuance of
letters of guarantee, standby letters of credit, performance bonds, counter guarantees, import
documentary credits, counter standby letters of credit or similar credits to finance the day-to-day
operations of the Company. This LC Facility is supported by performance security guarantees provided
by Export Development Canada. As at December 31, 2023, the Company utilized $48 million (US$36
million) of the $93 million (US$70 million) limit.
The Company is required to maintain certain covenants on the Revolving Credit Facility, Term Loan and
the Notes. As at December 31, 2023, the Company was in compliance with its covenants.
The composition of the borrowings on the Revolving Credit Facility, Term Loan, and the Notes were as
follows:
December 31,
Drawings on the Revolving Credit Facility
(US$700,000)
Drawings on the Term Loan (US$130,000)
Notes (US$625,000)
Deferred transaction costs and Notes discount
Long-term debt
Current portion of long-term debt
Non-current portion of long-term debt
Long-term debt
Maturity Date
2023
2022
October 13, 2025 $
October 13, 2025
October 15, 2027
$
$
$
314,705 $
171,938
826,625
1,313,268
(98,350)
1,214,918 $
52,904 $
1,162,014
1,214,918 $
459,202
203,160
846,500
1,508,862
(118,537)
1,390,325
27,088
1,363,237
1,390,325
The weighted average interest rate on the Revolving Credit Facility for the year ended December 31,
2023 was 7.7 percent (December 31, 2022 – 7.0 percent), and the weighted average interest rate on the
Term Loan for the year ended December 31, 2023 was 9.0 percent (December 31, 2022 – 7.8 percent).
At December 31, 2023 without considering renewal at similar terms, the Canadian dollar equivalent
principal payments due over the next five years are $1,313 million, and nil thereafter.
F33
F-33
Annual Report2023
Note 20. Long-Term Debt
Note 21. Lease Liabilities
The three-year secured term loan (“Term Loan”) and the three-year secured revolving credit facility
(“Revolving Credit Facility”) have a maturity date of October 13, 2025 (the “Maturity Date”). In addition,
the Revolving Credit Facility may be increased by US$150 million at the request of the Company, subject
to the lenders’ consent. The Maturity Date of the Revolving Credit Facility may be extended annually on
or before the anniversary date with the consent of the lenders. The senior secured notes (the “Notes”)
consist of US$625 million principal amount, bears interest of 9.0 percent, and has a maturity of October
15, 2027.
The Company has a $93 million (US$70 million) unsecured credit facility “LC Facility” with one of the
lenders in its Revolving Credit Facility. This LC Facility allows the Company to request the issuance of
letters of guarantee, standby letters of credit, performance bonds, counter guarantees, import
documentary credits, counter standby letters of credit or similar credits to finance the day-to-day
operations of the Company. This LC Facility is supported by performance security guarantees provided
by Export Development Canada. As at December 31, 2023, the Company utilized $48 million (US$36
million) of the $93 million (US$70 million) limit.
The Company is required to maintain certain covenants on the Revolving Credit Facility, Term Loan and
the Notes. As at December 31, 2023, the Company was in compliance with its covenants.
The composition of the borrowings on the Revolving Credit Facility, Term Loan, and the Notes were as
follows:
December 31,
(US$700,000)
Drawings on the Revolving Credit Facility
Drawings on the Term Loan (US$130,000)
Notes (US$625,000)
October 13, 2025
October 15, 2027
Deferred transaction costs and Notes discount
Long-term debt
Current portion of long-term debt
Non-current portion of long-term debt
Long-term debt
Maturity Date
2023
2022
October 13, 2025 $
314,705 $
171,938
826,625
1,313,268
(98,350)
1,214,918 $
52,904 $
1,162,014
1,214,918 $
$
$
$
459,202
203,160
846,500
1,508,862
(118,537)
1,390,325
27,088
1,363,237
1,390,325
The weighted average interest rate on the Revolving Credit Facility for the year ended December 31,
2023 was 7.7 percent (December 31, 2022 – 7.0 percent), and the weighted average interest rate on the
Term Loan for the year ended December 31, 2023 was 9.0 percent (December 31, 2022 – 7.8 percent).
At December 31, 2023 without considering renewal at similar terms, the Canadian dollar equivalent
principal payments due over the next five years are $1,313 million, and nil thereafter.
December 31,
Opening balance
Acquisition (Note 6)
Additions
Lease interest
Payments made against lease liabilities
Transfer to liabilities associated with assets held for sale (Note 10)
Lease measurement adjustment
Currency translation effects and other
Closing balance
Current portion of lease liabilities
Non-current portion of lease liabilities
Lease liabilities
2023
$
93,033 $
-
44,583
6,789
(27,211)
(6,209)
(6,781)
(3,492)
100,712 $
25,453 $
75,259
100,712 $
$
$
$
2022
57,014
39,845
9,977
3,398
(19,156)
-
-
1,955
93,033
20,125
72,908
93,033
In addition to the lease payments made above, during the year ended December 31, 2023, the Company
paid less than $1 million (December 31, 2022 – $1 million) relating to short-term and low-value leases
which were expensed as incurred. During the year ended December 31, 2023, the Company also paid
$2 million (December 31, 2022 – $2 million) in variable lease payments not included in the measurement
of lease liabilities, of which $1 million (December 31, 2022 – $1 million) was included in COGS and $1
million (December 31, 2022 – $1 million) was included in SG&A. Interest expense on lease liabilities was
$7 million for the year ended December 31, 2023 (December 31, 2022 – $3 million). Total cash outflow
for leases for the year ended December 31, 2023 was $35 million (December 31, 2022 – $22 million).
Future minimum lease payments under non-cancellable leases were as follows:
2024
2025
2026
2027
2028
Thereafter
Less:
Imputed interest
Short-term leases
Low-value leases
Lease liabilities
December 31, 2023
$
29,346
26,384
19,475
15,348
24,537
7,569
$
122,659
21,886
59
2
$
100,712
F-33
F-34 Annual Report 2023
F34
Note 22. Income Taxes
(a) Income Tax Recognized in Net Earnings
The components of income taxes were as follows:
Years ended December 31,
Current income taxes
Deferred income taxes
Income taxes
2023
53,259 $
(10,863)
42,396 $
$
$
2022
17,945
3,265
21,210
(b) Reconciliation of Income Taxes
The provision for income taxes differs from that which would be expected by applying Canadian
statutory rates. A reconciliation of the difference is as follows:
Years ended December 31,
Loss before income taxes
Canadian statutory rate
Expected income tax provision
Add (deduct):
Change in unrecognized deferred tax asset
Exchange rate effects on tax basis
Impairment of goodwill
Earnings taxed in foreign jurisdictions
Amounts not deductible (taxable) for tax purposes
Impact of accounting for associates and joint ventures
Other
Income taxes
2023
2022
$
$
(68,528) $
(79,733)
23.5%
23.4%
(16,104) $
(18,658)
21,128
23,493
20,484
2,063
(8,869)
(579)
780
$
42,396 $
27,664
(2,223)
11,232
543
4,373
(1,104)
(617)
21,210
The applicable statutory tax rate is the aggregate of the Canadian federal income tax rate of 15.0 percent
(2022 – 15.0 percent) and the Alberta provincial income tax rate of 8.5 percent (2022 – 8.4 percent).
The Company’s effective tax rate is subject to fluctuations in the Argentine peso and Mexican peso
exchange rate against the U.S. dollar. Since the Company holds significant EI assets in Argentina and
Mexico, the tax base of these assets are denominated in Argentine peso and Mexican peso, respectively.
The functional currency is the U.S. dollar and as a result, the related local currency tax bases are revalued
periodically to reflect the closing U.S. dollar rate against the local currency. Any movement in the
exchange rate results in a corresponding unrealized exchange rate gain or loss being recorded as part of
deferred income tax expense or recovery. During periods of large fluctuation or devaluation of the local
currency against the U.S. dollar, these amounts may be significant but are unrealized and may reverse in
the future. Recognition of these amounts is required by IFRS, even though the revalued tax basis does
not generate any cash tax obligation or liability in the future.
F35
F-35
Annual Report2023
(b) Reconciliation of Income Taxes
The provision for income taxes differs from that which would be expected by applying Canadian
statutory rates. A reconciliation of the difference is as follows:
Note 22. Income Taxes
(a) Income Tax Recognized in Net Earnings
The components of income taxes were as follows:
Years ended December 31,
Current income taxes
Deferred income taxes
Income taxes
Years ended December 31,
Loss before income taxes
Canadian statutory rate
Expected income tax provision
Add (deduct):
Change in unrecognized deferred tax asset
Exchange rate effects on tax basis
Impairment of goodwill
Earnings taxed in foreign jurisdictions
Amounts not deductible (taxable) for tax purposes
Impact of accounting for associates and joint ventures
Other
Income taxes
$
$
$
$
2023
53,259 $
(10,863)
42,396 $
2022
17,945
3,265
21,210
2023
2022
(68,528) $
(79,733)
23.5%
23.4%
(16,104) $
(18,658)
21,128
23,493
20,484
2,063
(8,869)
(579)
780
27,664
(2,223)
11,232
543
4,373
(1,104)
(617)
21,210
The applicable statutory tax rate is the aggregate of the Canadian federal income tax rate of 15.0 percent
(2022 – 15.0 percent) and the Alberta provincial income tax rate of 8.5 percent (2022 – 8.4 percent).
The Company’s effective tax rate is subject to fluctuations in the Argentine peso and Mexican peso
exchange rate against the U.S. dollar. Since the Company holds significant EI assets in Argentina and
Mexico, the tax base of these assets are denominated in Argentine peso and Mexican peso, respectively.
The functional currency is the U.S. dollar and as a result, the related local currency tax bases are revalued
periodically to reflect the closing U.S. dollar rate against the local currency. Any movement in the
exchange rate results in a corresponding unrealized exchange rate gain or loss being recorded as part of
deferred income tax expense or recovery. During periods of large fluctuation or devaluation of the local
currency against the U.S. dollar, these amounts may be significant but are unrealized and may reverse in
the future. Recognition of these amounts is required by IFRS, even though the revalued tax basis does
not generate any cash tax obligation or liability in the future.
(c) Income Tax Recognized in Other Comprehensive Income
Years ended December 31,
Deferred Tax
2023
2022
Arising on income and expenses recognized in other comprehensive income:
Fair value remeasurement of hedging instruments entered into for cash flow
hedges
Arising on income and expenses reclassified from other comprehensive
income to net earnings:
Relating to cash flow hedges
Total income tax recognized in other comprehensive income
$
$
118
$
(55)
(11)
107 $
59
4
(d) Net Deferred Tax Assets (Liabilities)
Deferred tax assets and liabilities arise from the following:
Accounting
provisions
and
accruals
Tax losses
Long-term
assets
Exchange
rate effects
on tax bases
Cash flow
hedges
Total1
December 31, 2022
$
4,356 $
56,497 $
(111,777) $
(15,769) $
- $
(66,693)
Charged to net earnings
30,159
(19,678)
22,226
(21,737)
Charged to OCI
Exchange differences
-
1,474
-
237
-
-
(3,419)
(1,551)
(107)
107
-
10,863
107
(3,259)
December 31, 2023
$ 35,989 $
37,056 $
(92,970) $ (39,057) $
- $
(58,982)
1 Net deferred tax liabilities at December 31, 2023 of $59 million consist of liabilities of $87 million net of assets of $28 million.
Accounting
provisions
and
accruals
Tax losses
Long-
term
assets
Exchange
rate
effects on
tax bases
Other
Cash flow
hedges
Total1,2
$
42,396 $
December 31, 2021
$
7,022 $
6,519 $
(86,255) $
511 $
(10,476) $
- $
(82,679)
4,750
49,513
(24,033)
Acquisition (Note 6) 2
Charged to net
earnings
Charged to OCI
Exchange
differences
(7,467)
-
51
1,325
-
(860)
1,022
-
(2,511)
(511)
-
-
-
(6,538)
1,859
-
(614)
-
(4)
4
-
23,692
(3,265)
4
(4,445)
December 31, 2022
$
4,356 $
56,497 $
(111,777)
$
- $
(15,769) $
- $
(66,693)
1 Net deferred tax liabilities at December 31, 2022 of $67 million consist of liabilities of $89 million net of assets of $22 million.
2 Certain balances as at December 31, 2022 have been re-presented as a result of measurement period adjustments related to the Transaction as
required by IFRS 3 “Business Combinations”, refer to Note 6 “Acquisition” for more information.
F-35
F-36 Annual Report 2023
F36
(e) Unrecognized Deferred Tax Assets
As at December 31, 2023, the Company did not recognize deductible temporary differences of $1,210
million (December 31, 2022 – $1,179 million) and unused Canadian tax credits of $1 million (December
31, 2022 – $1 million) for which it is unlikely that sufficient future taxable income will be available to offset
against. An additional $78 million (December 31, 2022 – $75 million) of U.S. tax credits were acquired but
utilization is restricted and therefore the benefit is not recognized.
The deductible temporary differences consist of:
Years ended December 31,
Canadian:
Tax losses
Long-term assets
Accounting provisions and other accruals
Foreign2:
Tax losses
Long-term assets
Accounting provisions and other accruals
Total unrecognized deferred tax assets
2023
20221
$
336,414 $
667
20,092
910,300
(53,940)
(3,718)
215,703
23,896
29,143
975,297
(53,830)
(11,145)
$
1,209,815 $
1,179,064
1 Certain balances as at December 31, 2022 have been restated as a result of measurement period adjustments related to the Transaction as required
by IFRS 3 “Business Combinations”, refer to Note 6 “Acquisition” for more information.
2 The movement in foreign tax losses, long-term assets, and accounting provisions and other accruals for 2022 were primarily acquired as part of
the Transaction.
The Company’s unused tax losses and tax credits are subject to expiration in the years 2024 through
2042 with some having an indefinite life.
Note 23. Share Capital Authorized
The Company is authorized to issue an unlimited number of common shares. Share capital comprises
only one class of ordinary shares. The ordinary shares carry a voting right and a right to a dividend.
Issued and Outstanding
December 31,
Opening balance
2023
2022
Number of
common shares
Common
share capital
Number of
common shares
Common
share capital
123,739,020 $
589,827
89,678,845 $
375,524
213,942
361
Issued on Acquisition (Note 6)
Exercise of stock options
-
217,845
-
1,771
34,013,055
47,120
Closing balance
123,956,865 $
591,598
123,739,020 $
589,827
As a result of the Transaction on October 13, 2022, Enerflex acquired all issued and outstanding Exterran
common stock in exchange for 1.021 Enerflex common shares. Enerflex issued 34,013,055 Enerflex
common shares with a fair value of $214 million, based on the October 12, 2022 closing share price of
$6.29.
Total dividends declared in the year were $12 million, or $0.10 per share (December 31, 2022 – $10
million, or $0.10 per share).
F37
F-37
Annual Report2023
Note 24. Contributed Surplus
Contributed surplus consists of accumulated stock option expense less the fair value of the options at
the grant date that have been exercised and reclassified to share capital. Changes in contributed surplus
were as follows:
December 31,
Opening balance
Share-based compensation
Exercise of stock options
Closing balance
Note 25. Revenue
Years ended December 31,
Energy Infrastructure1
After-Market Services
Engineered Systems
Total revenue
2023
2022
660,072 $
658,615
450
(492)
1,558
(101)
660,030 $
660,072
2023
777,702 $
652,198
1,732,195
2022
381,087
443,660
953,051
3,162,095 $
1,777,798
$
$
$
$
1 During the year ended December 31, 2023, the Company recognized $274 million of revenue related to operating leases in its LATAM and EH
segments (December 31, 2022 – $111 million). Additionally, the Company recognized $169 million of revenue related to its NAM Contract
Compression fleet (December 31, 2022 – $127 million).
Revenue by geographic location, which is attributed by destination of sale, was as follows:
Years ended December 31,
United States of America
2023
2022
$
1,347,408 $
890,899
Canada
Nigeria
Oman
Argentina
Iraq
Bahrain
Brazil
Australia
Mexico
Thailand
Colombia
Other
350,490
261,865
232,481
221,538
18,420
119,906
220,608
80,524
193,789
25,917
127,009
85,540
102,164
45,367
85,515
84,400
40,037
28,977
127,679
65,618
64,325
11,523
21,278
86,616
Total revenue
$
3,162,095 $
1,777,798
F-38 Annual Report 2023
F38
The following table outlines the Company’s unsatisfied performance obligations, by product line, as at
December 31, 2023:
Less than
one year
One to two
years
Greater than
two years
Total
Energy Infrastructure
$
537,622 $
474,220 $
1,236,395 $
2,248,237
After-Market Services
Engineered Systems
90,047
1,277,348
50,023
201,384
138,850
20,312
278,920
1,499,044
Total
$
1,905,017 $
725,627 $
1,395,557 $
4,026,201
Note 26. Share-Based Compensation
(a) Share-Based Compensation Expense
The share-based compensation expense included in the determination of net earnings was:
Years ended December 31,
Equity-settled share-based payments
Deferred share units
Phantom share entitlement plan
Performance share units
Restricted share units
Cash performance target
2023
$
450 $
(1,713)
(187)
(442)
6,764
2,780
2022
1,558
3,622
117
4,172
4,454
2,239
Share-based compensation expense
$
7,652 $
16,162
(b) Equity-Settled Share-Based Payments
Years ended December 31,
Options outstanding, beginning of
period
Exercised1
Forfeited
Expired
Number of
options
3,089,229 $
(217,845)
(318,840)
(254,569)
Options outstanding, end of period
2,297,975 $
Options exercisable, end of period
1,589,639 $
2023
Weighted
average
exercise price
10.77
5.87
9.54
13.32
11.12
12.52
Number of
options
4,456,444 $
(47,120)
(27,286)
(1,292,809)
3,089,229 $
1,671,421 $
2022
Weighted
average
exercise price
11.66
5.51
13.51
13.98
10.77
12.48
1 The weighted average share price of options at the date of exercise for the year ended December 31, 2023 was $8.16 (December 31, 2022 –
$8.03).
The Company did not grant stock options for the years ended December 31, 2023 and 2022.
The following table summarizes options outstanding and exercisable at December 31, 2023:
Range of exercise
prices1
$5.51 – $6.68
$6.69 – $14.75
$14.76 – $16.12
Total
Options Outstanding
Weighted
average
remaining
life (years)
Number
outstanding
517,559
1,142,861
637,555
3.62 $
3.54
1.21
Weighted
average
exercise
price
5.51
10.95
15.97
Options Exercisable
Weighted
average
remaining
life (years)
Number
outstanding
250,394
701,690
637,555
3.62 $
3.21
1.21
Weighted
average
exercise
price
5.51
11.89
15.97
2,297,975
2.91 $
11.12
1,589,639
2.47 $
12.52
1 The range of exercise prices equal the weighted average market price of the Company’s shares on the five days preceding the effective date of
the grant based on prices from the Toronto Stock Exchange.
F39
F-39
Annual Report2023
The following table outlines the Company’s unsatisfied performance obligations, by product line, as at
December 31, 2023:
Less than
one year
One to two
years
Greater than
two years
Total
Energy Infrastructure
$
537,622 $
474,220 $
1,236,395 $
2,248,237
After-Market Services
Engineered Systems
90,047
1,277,348
50,023
201,384
138,850
20,312
278,920
1,499,044
Total
$
1,905,017 $
725,627 $
1,395,557 $
4,026,201
Note 26. Share-Based Compensation
(a) Share-Based Compensation Expense
The share-based compensation expense included in the determination of net earnings was:
2022
1,558
3,622
117
4,172
4,454
2,239
11.66
5.51
13.51
13.98
10.77
12.48
$
450 $
2023
(1,713)
(187)
(442)
6,764
2,780
Years ended December 31,
Equity-settled share-based payments
Deferred share units
Phantom share entitlement plan
Performance share units
Restricted share units
Cash performance target
Years ended December 31,
Options outstanding, beginning of
period
Exercised1
Forfeited
Expired
$8.03).
Share-based compensation expense
$
7,652 $
16,162
(b) Equity-Settled Share-Based Payments
2023
Weighted
average
exercise price
Number of
options
2022
Weighted
average
exercise price
Number of
options
(217,845)
(318,840)
(254,569)
3,089,229 $
4,456,444 $
10.77
5.87
9.54
13.32
11.12
12.52
(47,120)
(27,286)
(1,292,809)
3,089,229 $
1,671,421 $
Options outstanding, end of period
2,297,975 $
Options exercisable, end of period
1,589,639 $
1 The weighted average share price of options at the date of exercise for the year ended December 31, 2023 was $8.16 (December 31, 2022 –
The Company did not grant stock options for the years ended December 31, 2023 and 2022.
The following table summarizes options outstanding and exercisable at December 31, 2023:
Options Outstanding
Options Exercisable
Weighted
average
remaining
life (years)
Weighted
average
exercise
Number
price
outstanding
5.51
10.95
15.97
250,394
701,690
637,555
Weighted
average
remaining
life (years)
3.62 $
3.21
1.21
Weighted
average
exercise
price
5.51
11.89
15.97
517,559
1,142,861
637,555
3.62 $
3.54
1.21
Range of exercise
prices1
Number
outstanding
$5.51 – $6.68
$6.69 – $14.75
$14.76 – $16.12
Total
1 The range of exercise prices equal the weighted average market price of the Company’s shares on the five days preceding the effective date of
the grant based on prices from the Toronto Stock Exchange.
(c) Deferred Share Units
The Company offers a DSU plan for executives and non-employee directors, whereby they may elect on
an annual basis to receive all or a portion of their annual bonus, or retainer and fees, respectively, in DSUs.
In addition, the Board may grant discretionary DSUs to executives. A specified component of non-
employee directors’ compensation must be received in DSUs. A DSU is a notional unit that entitles the
holder to receive payment, as described below, from the Company equal to the implied market value
calculated as the number of DSUs multiplied by the weighted average price per share on the TSX for the
five trading days immediately preceding the grant.
Additional Enerflex DSUs will be credited on the regular dividend payment dates as all dividends are
assumed to be reinvested.
DSUs may be granted to eligible participants on an annual basis and will vest upon being credited to the
executive or non-employee director’s account. Participants are not able to cash in their DSUs until they
are no longer employed by or cease to be directors of Enerflex. The Company satisfies its payment
obligation through cash payments to the participant.
DSUs represent an indexed liability of the Company relative to the Company’s share price. For the year
ended December 31, 2023, the value of directors’ compensation and executive bonuses elected to be
received in DSUs totalled $2 million (December 31, 2022 – $2 million). The Company paid $3 million for
the year ended December 31, 2023 representing units vested in the year (December 31, 2022 – less that
$1 million).
DSUs outstanding, January 1, 2022
Granted
In lieu of dividends
Vested
DSUs outstanding, December 31, 2023
Number of DSUs
Weighted average grant
date fair value per unit
1,625,513 $
314,208
20,817
(400,428)
1,560,110 $
10.16
7.44
7.65
6.75
10.45
The carrying amount of the liability relating to DSUs as at December 31, 2023 included in current liabilities
was $2 million (December 31, 2022 – $3 million) and in other long-term liabilities was $8 million
(December 31, 2022 – $11 million).
(d) Phantom Share Entitlement Plan
The Company utilizes a PSE plan for key employees of affiliates located in Australia and the UAE, for
whom the Company’s Stock Option Plan would have negative personal taxation consequences.
The exercise price of each PSE equals the average of the market price of the Company’s shares on the
TSX for the five days preceding the date of the grant. The PSEs vest at a rate of one-fifth on each of the
first five anniversaries of the date of the grant and expire on the seventh anniversary. The award
entitlements for increases in the share trading value of the Company are to be paid to the recipient in
cash upon exercise.
There were no PSEs granted to employees during the years ended December 31, 2023 and 2022.
2,297,975
2.91 $
11.12
1,589,639
2.47 $
12.52
PSEs outstanding, December 31, 2023
PSEs outstanding, December 31, 2022
Exercised
Expired
Number of PSEs
Weighted average grant
date fair value per unit
200,251 $
(13,941)
(27,397)
158,913 $
12.21
5.51
13.27
12.61
The carrying amount of the liability relating to the PSEs as at December 31, 2023 included in current
liabilities was less than $1 million (December 31, 2022 – less than $1 million) and in other long-term
liabilities was less than $1 million (December 31, 2022 – less than $1 million).
F-39
F-40 Annual Report 2023
F40
(e) Performance Share Units
The Company offers a PSU plan for executive officers of the Company. A PSU is a notional unit that
entitles the holder to receive payment, as described below, from the Company equal to the number of
vested PSUs multiplied by the weighted average price per share on the TSX and NYSE during the last five
trading days immediately preceding the grant. Vesting is based on the achievement of performance
measures and objectives specified by the Board of Directors. The Board of Directors assess performance
to determine the vesting percentage, which can range from zero percent to 200 percent. Within 14 days
after the determination of the vesting percentage, the holder will be paid for the vested PSUs either in
cash or in shares of the Company acquired on the open market on behalf of the holder, at the discretion
of the Company.
Additional Enerflex PSUs will be credited on the regular dividend payment dates as all dividends are
assumed to be reinvested.
The Company paid $2 million for the year ended December 31, 2023 representing units vested in the
year (December 31, 2022 – $2 million).
TSX Canadian
Dollar
Weighted
average grant
date fair value
per unit
Number of
PSUs
NYSE US Dollar
Weighted
average grant
date fair value
per unit
Number of
PSUs
PSUs outstanding, December 31, 2022
1,641,746 $
Granted
In lieu of dividends
Vested
Forfeited
341,072
19,150
(227,074)
(563,999)
PSUs outstanding, December 31, 2023
1,210,895 $
8.51
8.40
7.81
9.25
6.21
9.40
- $
271,566
1,163
-
-
-
6.24
4.30
-
-
272,729 $
6.23
The carrying amount of the liability relating to PSUs as at December 31, 2023 included in current liabilities
was $2 million (December 31, 2022 – $4 million) and in other long-term liabilities was $2 million
(December 31, 2022 – $3 million).
(f) Restricted Share Units
The Company offers a RSU plan to executive officers and other key employees of the Company or its
related entities. RSUs may be granted at the discretion of the Board. An RSU is a notional unit that entitles
the holder to receive payment, as described below, from the Company equal to the number of vested
RSUs multiplied by the weighted average price per share on the TSX and NYSE during the last five trading
days immediately preceding the vesting date. Unless otherwise determined by the Board, RSUs vest at a
rate of one-third on the first, second, and third anniversaries of the award date. Within 30 days of the
vesting date, the holder will be paid for the vested RSUs. Executive officers receive payment in the form
of Company shares acquired on the open market, and other key employees receive either cash or
Company shares, at the discretion of the Company.
Additional Enerflex RSUs will be credited on the regular dividend payment dates as all dividends are
assumed to be reinvested.
In 2023, the Board granted 1,869,012 RSUs to executive officers and other key employees of the
Company (2022 – 995,336).
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Annual Report2023
(e) Performance Share Units
The Company offers a PSU plan for executive officers of the Company. A PSU is a notional unit that
entitles the holder to receive payment, as described below, from the Company equal to the number of
vested PSUs multiplied by the weighted average price per share on the TSX and NYSE during the last five
trading days immediately preceding the grant. Vesting is based on the achievement of performance
measures and objectives specified by the Board of Directors. The Board of Directors assess performance
to determine the vesting percentage, which can range from zero percent to 200 percent. Within 14 days
after the determination of the vesting percentage, the holder will be paid for the vested PSUs either in
cash or in shares of the Company acquired on the open market on behalf of the holder, at the discretion
of the Company.
assumed to be reinvested.
Additional Enerflex PSUs will be credited on the regular dividend payment dates as all dividends are
The Company paid $2 million for the year ended December 31, 2023 representing units vested in the
year (December 31, 2022 – $2 million).
PSUs outstanding, December 31, 2022
1,641,746 $
- $
TSX Canadian
Dollar
Weighted
average grant
date fair value
per unit
8.51
8.40
7.81
9.25
6.21
9.40
Number of
PSUs
341,072
19,150
(227,074)
(563,999)
NYSE US Dollar
Weighted
average grant
date fair value
per unit
6.24
4.30
-
-
-
Number of
PSUs
271,566
1,163
-
-
In lieu of dividends
Granted
Vested
Forfeited
(December 31, 2022 – $3 million).
(f) Restricted Share Units
PSUs outstanding, December 31, 2023
1,210,895 $
272,729 $
6.23
The carrying amount of the liability relating to PSUs as at December 31, 2023 included in current liabilities
was $2 million (December 31, 2022 – $4 million) and in other long-term liabilities was $2 million
The Company offers a RSU plan to executive officers and other key employees of the Company or its
related entities. RSUs may be granted at the discretion of the Board. An RSU is a notional unit that entitles
the holder to receive payment, as described below, from the Company equal to the number of vested
RSUs multiplied by the weighted average price per share on the TSX and NYSE during the last five trading
days immediately preceding the vesting date. Unless otherwise determined by the Board, RSUs vest at a
rate of one-third on the first, second, and third anniversaries of the award date. Within 30 days of the
vesting date, the holder will be paid for the vested RSUs. Executive officers receive payment in the form
of Company shares acquired on the open market, and other key employees receive either cash or
Company shares, at the discretion of the Company.
Additional Enerflex RSUs will be credited on the regular dividend payment dates as all dividends are
assumed to be reinvested.
Company (2022 – 995,336).
In 2023, the Board granted 1,869,012 RSUs to executive officers and other key employees of the
In connection with the Transaction, Enerflex replaced the Exterran cash-settled share-based with
572,260 units RSU’s to executive officers and other key employees. The Company paid $9 million for
units vested during the year ended December 31, 2023 (December 31, 2022 – $2 million).
TSX Canadian
Dollar
Weighted
average grant
date fair value
per unit
Number of
RSUs
NYSE US Dollar
Weighted
average grant
date fair value
per unit
Number of
RSUs
RSUs outstanding, December 31, 2022
2,001,833 $
Granted
In lieu of dividends
Vested
Forfeited
1,069,821
24,121
(933,104)
(389,079)
RSUs outstanding, December 31, 2023
1,773,592 $
6.90
8.53
7.71
8.87
7.17
6.79
- $
799,191
3,596
(16,388)
(57,808)
728,591 $
-
6.27
4.46
6.83
6.36
6.24
The carrying amount of the liability included in current liabilities relating to RSUs at December 31, 2023
was $3 million (December 31, 2022 – $4 million) and in other long-term liabilities was less than $1 million
(December 31, 2022 – $1 million).
(g) Cash Performance Target Plan
The Company offers a CPT plan to certain non-executive, U.S.-based employees of the Company or its
related entities. The plan is denominated in U.S. dollars and may be granted at the discretion of the Board.
Although the liability associated with the CPT plan follows Enerflex’s share performance, no actual shares
or securities are issued under the plan. The cash payment fluctuates based on the percentage of
appreciation or depreciation in the share price over the life of the award, which is calculated using the
last five days immediately preceding the vesting date. The cash grants are held for three years, and vest
at a rate of one-third on the first, second, and third anniversaries of the award date. Within 30 days of the
vesting date, the holder will be paid for the vested cash grants, at the discretion of the Company.
During 2023, the Board of Directors did not grant CPT (2022 – $3 million). The Company paid $4 million
for the year ended December 31, 2023, representing units vested in the year (December 31, 2022 – $2
million). The weighted average grant fair value per unit for December 31, 2023 was nil (December 31,
2022 – $6.29), using the average share price over the five days preceding the grant date.
The carrying amount of the liability included in current liabilities relating to CPT plan at December 31,
2023 was $1 million (December 31, 2022 – $1 million).
(h) Employee Share Purchase Plan
The Company offers an employee share purchase plan whereby employees who meet the eligibility
criteria can purchase shares by way of payroll deductions. There is a Company match of up to $1,000
per employee per annum based on contributions by the Company of $1 for every $3 contributed by the
employee. Company contributions vest to the employee immediately. Company contributions are
charged to SG&A when paid. This plan is administered by a third party.
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F-42 Annual Report 2023
F42
Note 27. Retirement Benefits Plan
The Company sponsors arrangements for substantially all of its employees through defined contribution
plans in Canada, UK, Asia, and Australia, and a 401(k) matched savings plan in the United States. In the
case of the defined contribution plans, regular contributions are made to the employees’ individual
accounts, which are administered by a plan trustee, in accordance with the plan document. Both in the
case of the defined contribution plans and the 401(k) matched savings plan, the pension expenses
recorded in earnings are the amounts of actual contributions the Company is required to make in
accordance with the terms of the plans.
Years ended December 31,
Defined contribution plans
401(k) matched savings plan
Net pension expense
Note 28. Finance Costs and Income
Years ended December 31,
Finance Costs
Short and long-term borrowings1
Interest on lease liability
Total finance costs
Finance Income
Interest income
Net finance costs
2023
6,780 $
7,238
14,018 $
2022
5,169
4,110
9,279
2023
2022
152,005 $
6,789
158,794 $
32,402 $
126,392 $
46,009
3,398
49,407
10,484
38,923
$
$
$
$
$
$
1 Finance costs on short- and long-term borrowings relate primarily to interest on the Company’s Revolving Credit Facility, Term Loan and Notes.
Refer to Note 20 “Long-Term Debt” for more information on interest rates on the Revolving Credit Facility, Term Loan and Notes.
Note 29. Earnings Per Share
Year ended December 31, 2023
Basic
Dilutive effect of stock option conversion
Diluted
Year ended December 31, 2022
Basic
Dilutive effect of stock option conversion
Diluted
Weighted average
shares
outstanding
Net loss
Per share
(110,924)
123,834,242 $
(0.90)
-
-
-
(110,924)
123,834,242 $
(0.90)
Net loss
Weighted average
shares outstanding
(100,943)
97,045,917 $
-
-
(100,943)
97,045,917 $
Per share
(1.04)
-
(1.04)
$
$
$
$
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Annual Report2023
Note 30. Financial Instruments
Designation and Valuation of Financial Instruments
The Company has designated ifs financial instruments as follows:
December 31, 2023
Financial Assets
Cash and cash equivalents
Short-term investments
Derivative instruments in designated hedge accounting relationships
Loans and receivables:
Accounts receivable
Financial Liabilities
Carrying
value
Estimated
fair value
$
126,089 $
14,425
594
126,089
14,425
594
525,854
525,854
Derivative instruments in designated hedge accounting relationships
1,019
1,019
Other financial liabilities:
Accounts payable and accrued liabilities
Other current liabilities
Long-term debt – Revolving Credit Facility
Long-term debt – Term Loan
Long-term debt – Notes
Other long-term liabilities
December 31, 2022
Financial Assets
Cash and cash equivalents
561,120
7,936
314,705
171,938
826,625
18,070
561,120
7,936
314,705
171,938
823,198
18,070
Carrying
value
Estimated
fair value
$
253,776 $
253,776
Derivative instruments in designated hedge accounting relationships
901
901
Loans and receivables:
Accounts receivable
Preferred shares receivable
Financial Liabilities
455,841
27,954
455,841
28,702
Derivative instruments in designated hedge accounting relationships
977
977
Other financial liabilities:
Accounts payable and accrued liabilities
Long-term debt – Revolving Credit Facility
Long-term debt – Term Loan
Long-term debt – Notes
Other long-term liabilities
628,086
459,202
203,160
846,500
21,757
628,086
459,202
203,160
869,288
21,757
Designation and Valuation of Financial Instruments
The following table presents information about the Company’s financial assets and financial liabilities
measured at fair value on a recurring basis as at December 31, 2023 and indicates the fair value hierarchy
of the valuation techniques used to determine such fair value. During the year ended December 31, 2023,
there were no transfers between Level 1 and Level 2 fair value measurements.
Fair values are determined using quoted market prices that are observable for the asset or liability, either
directly or indirectly. Fair values determined using inputs including forward market rates and credit
spreads that are readily observable and reliable, or for which unobservable inputs are determined not to
be significant to the fair value, are categorized as Level 2. If there is no active market, fair value is
F-44 Annual Report 2023
F44
established using valuation techniques, including discounted cash flow models. The inputs to these
models are taken from observable market data where possible, including recent arm’s-length market
transactions, and comparisons to the current fair value of similar instruments. Where this is not feasible,
inputs such as liquidity risk, credit risk, and volatility are used.
Carrying
value
Fair Value
Level 1
Level 2
Level 3
Financial Assets
Short-term investments
$
14,425 $
- $
14,425 $
Derivative financial instruments
594
-
594
Financial Liabilities
Derivative financial instruments
$
1,019 $
Long-term debt – Notes
826,625
- $
-
1,019 $
823,198
-
-
-
-
Cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued
liabilities, other current liabilities, and other liabilities are reported at amounts approximating their fair
values on the consolidated statement of financial position. The fair values approximate the carrying
values for these instruments due to their short-term nature.
The fair value of derivative financial instruments is measured using the discounted value of the difference
between the contract’s value at maturity based on the contracted foreign exchange rate and the
contract’s value at maturity based on prevailing exchange rates. The Company’s credit risk is also taken
into consideration in determining fair value.
Long-term debt associated with the Company’s Notes is recorded at amortized cost using the effective
interest rate method. Transaction costs associated with the debt were deducted from the debt and are
being recognized using the effective interest rate method over the life of the related debt. The fair value
of these Notes, determined on a discounted cash flow basis using a weighted average discount rate of
9.0 percent, was $823 million at December 31, 2023.
Preferred Shares
The Company previously held preferred shares that were initially recorded at fair value, subsequently
measured at amortized cost and recognized as long-term receivables in Other assets. During the first
quarter of 2023, the Company redeemed these preferred shares and recognized a gain in excess of the
carrying value, which is included in the consolidated statements of loss. The carrying value and estimated
fair value of the preferred shares at December 31, 2022 was $28 million and $29 million, respectively.
Derivative Financial Instruments and Hedge Accounting
Foreign exchange contracts are transacted with financial institutions to hedge foreign currency
denominated obligations and cash receipts related to purchases of inventory and sales of products.
The following table summarizes the Company’s commitments to buy and sell foreign currencies as at
December 31, 2023:
Notional amount
Maturity
Canadian Dollar Denominated Contracts
Purchase contracts
Sales contracts
USD
USD
$ 30,780
January 2024 – December 2024
(21,321)
January 2024 – November 2024
Management estimates that a loss of less than $1 million would be realized if the contracts were
terminated on December 31, 2023. Certain of these forward contracts are designated as cash flow
hedges and accordingly, a loss of less than $1 million has been included in other comprehensive income
for the year ended December 31, 2023 (December 31, 2022 – gain of less than $1 million). These losses
are not expected to affect net earnings as the losses will be reclassified to net earnings and will offset
losses recorded on the underlying hedged items, namely foreign currency denominated accounts
F-45
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Annual Report2023
established using valuation techniques, including discounted cash flow models. The inputs to these
models are taken from observable market data where possible, including recent arm’s-length market
transactions, and comparisons to the current fair value of similar instruments. Where this is not feasible,
inputs such as liquidity risk, credit risk, and volatility are used.
Carrying
value
Level 1
Level 2
Level 3
Fair Value
-
-
-
-
-
-
Derivative financial instruments
594
594
$
14,425 $
- $
14,425 $
Financial Assets
Short-term investments
Financial Liabilities
Derivative financial instruments
$
1,019 $
- $
1,019 $
Long-term debt – Notes
826,625
823,198
Cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued
liabilities, other current liabilities, and other liabilities are reported at amounts approximating their fair
values on the consolidated statement of financial position. The fair values approximate the carrying
values for these instruments due to their short-term nature.
The fair value of derivative financial instruments is measured using the discounted value of the difference
between the contract’s value at maturity based on the contracted foreign exchange rate and the
contract’s value at maturity based on prevailing exchange rates. The Company’s credit risk is also taken
into consideration in determining fair value.
Long-term debt associated with the Company’s Notes is recorded at amortized cost using the effective
interest rate method. Transaction costs associated with the debt were deducted from the debt and are
being recognized using the effective interest rate method over the life of the related debt. The fair value
of these Notes, determined on a discounted cash flow basis using a weighted average discount rate of
9.0 percent, was $823 million at December 31, 2023.
Preferred Shares
The Company previously held preferred shares that were initially recorded at fair value, subsequently
measured at amortized cost and recognized as long-term receivables in Other assets. During the first
quarter of 2023, the Company redeemed these preferred shares and recognized a gain in excess of the
carrying value, which is included in the consolidated statements of loss. The carrying value and estimated
fair value of the preferred shares at December 31, 2022 was $28 million and $29 million, respectively.
Derivative Financial Instruments and Hedge Accounting
Foreign exchange contracts are transacted with financial institutions to hedge foreign currency
denominated obligations and cash receipts related to purchases of inventory and sales of products.
The following table summarizes the Company’s commitments to buy and sell foreign currencies as at
December 31, 2023:
Notional amount
Maturity
Canadian Dollar Denominated Contracts
Purchase contracts
Sales contracts
USD
USD
$ 30,780
January 2024 – December 2024
(21,321)
January 2024 – November 2024
Management estimates that a loss of less than $1 million would be realized if the contracts were
terminated on December 31, 2023. Certain of these forward contracts are designated as cash flow
hedges and accordingly, a loss of less than $1 million has been included in other comprehensive income
for the year ended December 31, 2023 (December 31, 2022 – gain of less than $1 million). These losses
are not expected to affect net earnings as the losses will be reclassified to net earnings and will offset
losses recorded on the underlying hedged items, namely foreign currency denominated accounts
payable and accounts receivable. The amount removed from other comprehensive income during the
year and included in the carrying amount of the hedged items for the year ended December 31, 2023,
was a gain of less than $1 million (December 31, 2022 – loss of less than $1 million).
All hedging relationships are formally documented, including the risk management objective and
strategy. On an on-going basis, an assessment is made as to whether the designated derivative financial
instruments continue to be effective in offsetting changes in cash flows of the hedged transactions.
Risks Arising from Financial Instruments and Risk Management
In the normal course of business, the Company is exposed to financial risks that may potentially impact
its operating results in any or all of its business segments. The Company employs risk management
strategies with a view to mitigating these risks on a cost-effective basis. Derivative financial agreements
are used to manage exposure to fluctuations in exchange rates and interest rates. The Company does
not enter into derivative financial agreements for speculative purposes.
Foreign Currency Translation Exposure
In the normal course of operations, the Company is exposed to movements in the U.S. dollar, the
Australian dollar, and the Brazilian real. In addition, Enerflex has significant international exposure
through export from its Canadian operations, as well as a number of foreign subsidiaries, the most
significant of which are located in the United States, Argentina, Brazil, Colombia, Mexico, Bahrain, Oman,
the UAE, and Australia.
The types of foreign exchange risk and the Company’s related risk management strategies are as follows:
Transaction Exposure
The Canadian operations of the Company source the majority of its products and major components
from the United States. Consequently, reported costs of inventory and the transaction prices charged to
customers for equipment and parts are affected by the relative strength of the Canadian dollar. The
Company also sells compression and processing packages in foreign currencies, primarily the U.S. dollar.
Most of Enerflex’s international orders are manufactured in the United States if the contract is
denominated in U.S. dollars. This minimizes the Company’s foreign currency exposure on these
contracts.
The Company identifies and hedges all significant transactional currency risks. The Company has
implemented a hedging policy, applicable primarily to the Canadian domiciled business units, with the
objective of securing the margins earned on awarded contracts denominated in currencies other than
Canadian dollars. In addition, the Company may hedge input costs that are paid in a currency other than
the home currency of the subsidiary executing the contract.
Translation Exposure
The Company’s earnings from and net investment in foreign subsidiaries are exposed to fluctuations in
exchange rates. The Company is also exposed to the translation risk of monetary items in their local
currency to their functional currency. The currencies with the most significant impact are the U.S. dollar
(“USD”), Australian dollar (“AUD”), and Brazilian real (“BRL”). Enerflex uses foreign currency borrowings to
hedge against the exposure that arises from foreign subsidiaries that are translated to the Canadian
dollar through a net investment hedge. As a result, foreign exchange gains and losses on the translation
of US$621 million in designated foreign currency borrowings are included in accumulated other
comprehensive income (loss) for the year ended December 31, 2023.
Assets and liabilities denominated in foreign currencies are translated into Canadian dollars using the
exchange rates in effect at the reporting dates. Unrealized translation gains and losses are deferred and
included in accumulated other comprehensive income. The cumulative currency translation adjustments
are recognized in earnings when there has been a reduction in the net investment in the foreign
operations.
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F-46 Annual Report 2023
F46
Earnings from foreign operations are translated into Canadian dollars each period at average exchange
rates for the period. As a result, fluctuations in the value of the Canadian dollar relative to these other
currencies will impact reported net earnings. The following table shows the effect of a five percent
weakening of the Canadian dollar against the U.S. dollar, Australian dollar, and Brazilian real on net
earnings before tax for the year ended December 31, 2023, all else being equal. A five percent
strengthening of the Canadian dollar would have an equal and opposite effect. This sensitivity analysis is
provided as an indicative range in a volatile currency environment.
Canadian dollar weakens by five percent
USD
AUD
BRL
Earnings from foreign operations
Earnings before income taxes
Sensitivity Analysis
$
5,920 $
28 $
(1,726)
The following sensitivity analysis is intended to illustrate the sensitivity to changes in foreign exchange
rates on the Company’s financial instruments and show the impact on net earnings and other
comprehensive income. Financial instruments affected by currency risk include cash and cash
equivalents, accounts receivable, accounts payable, derivative financial instruments, and long-term debt.
The following table shows the Company’s sensitivity to a five percent weakening of the Canadian dollar
against the U.S. dollar, Australian dollar, and Brazilian real. A five percent strengthening of the Canadian
dollar would have an equal and opposite effect. This sensitivity analysis relates to the position as at
December 31, 2023 and for the year then ended.
Canadian dollar weakens by five percent
USD
AUD
BRL
Financial instruments held in foreign operations
Other comprehensive income
Financial instruments held in Canadian operations
Earnings before income taxes
$
$
12,446 $
639 $
246
(10,042) $
- $
-
The movement in net earnings before tax in Canadian operations is a result of a change in the fair values
of financial instruments. The majority of these financial instruments are hedged.
With the ongoing devaluation of the Argentine peso (“ARS”), caused by high inflation, the Company is at
risk for foreign exchange losses on its cash balances denominated in ARS. During the year ended
December 31, 2023, the Company had foreign exchange losses in Argentina of $83 million. If the ARS
weakens by five percent, the Company could experience additional foreign exchange losses of $1 million.
There is a risk of higher losses based on the further devaluation of the ARS. The Company will continue
to explore its options to minimize the impact of future devaluation.
Interest Rate Risk
The Company’s liabilities include long-term debt that is subject to fluctuations in interest rates. The
Company’s Notes outstanding at December 31, 2023 has a fixed interest rate and therefore the related
interest expense will not be impacted by fluctuations in interest rates. Conversely, the Company’s
Revolving Credit Facility and Term Loan are subject to changes in market interest rates.
For each one percent change in the rate of interest on the Revolving Credit Facility and Term Loan, the
change in annual interest expense would be $3 million. All interest charges are recorded in the
consolidated statements of loss as finance costs.
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Annual Report2023
Earnings from foreign operations are translated into Canadian dollars each period at average exchange
rates for the period. As a result, fluctuations in the value of the Canadian dollar relative to these other
currencies will impact reported net earnings. The following table shows the effect of a five percent
weakening of the Canadian dollar against the U.S. dollar, Australian dollar, and Brazilian real on net
earnings before tax for the year ended December 31, 2023, all else being equal. A five percent
strengthening of the Canadian dollar would have an equal and opposite effect. This sensitivity analysis is
provided as an indicative range in a volatile currency environment.
Canadian dollar weakens by five percent
USD
AUD
BRL
$
5,920 $
28 $
(1,726)
Earnings from foreign operations
Earnings before income taxes
Sensitivity Analysis
The following sensitivity analysis is intended to illustrate the sensitivity to changes in foreign exchange
rates on the Company’s financial instruments and show the impact on net earnings and other
comprehensive income. Financial instruments affected by currency risk include cash and cash
equivalents, accounts receivable, accounts payable, derivative financial instruments, and long-term debt.
The following table shows the Company’s sensitivity to a five percent weakening of the Canadian dollar
against the U.S. dollar, Australian dollar, and Brazilian real. A five percent strengthening of the Canadian
dollar would have an equal and opposite effect. This sensitivity analysis relates to the position as at
December 31, 2023 and for the year then ended.
$
$
Canadian dollar weakens by five percent
USD
AUD
BRL
Financial instruments held in foreign operations
Other comprehensive income
12,446 $
639 $
246
Financial instruments held in Canadian operations
Earnings before income taxes
(10,042) $
- $
-
The movement in net earnings before tax in Canadian operations is a result of a change in the fair values
of financial instruments. The majority of these financial instruments are hedged.
With the ongoing devaluation of the Argentine peso (“ARS”), caused by high inflation, the Company is at
risk for foreign exchange losses on its cash balances denominated in ARS. During the year ended
December 31, 2023, the Company had foreign exchange losses in Argentina of $83 million. If the ARS
weakens by five percent, the Company could experience additional foreign exchange losses of $1 million.
There is a risk of higher losses based on the further devaluation of the ARS. The Company will continue
to explore its options to minimize the impact of future devaluation.
Interest Rate Risk
The Company’s liabilities include long-term debt that is subject to fluctuations in interest rates. The
Company’s Notes outstanding at December 31, 2023 has a fixed interest rate and therefore the related
interest expense will not be impacted by fluctuations in interest rates. Conversely, the Company’s
Revolving Credit Facility and Term Loan are subject to changes in market interest rates.
For each one percent change in the rate of interest on the Revolving Credit Facility and Term Loan, the
change in annual interest expense would be $3 million. All interest charges are recorded in the
consolidated statements of loss as finance costs.
Credit Risk
Financial instruments that potentially subject the Company to credit risk consist of cash equivalents,
short-term investments, accounts receivable, net investment in finance lease, and derivative financial
instruments.
The Company manages its credit risk on cash and cash equivalents and short-term investments by
investing in instruments issued by credit-worthy financial institutions and in short-term instruments
issued by the federal government.
The Company has accounts receivable from clients engaged in various industries. These specific
industries may be affected by economic factors that may impact accounts receivable. Credit quality of
the customer is assessed based on an extensive credit rating scorecard and individual credit limits are
defined in accordance with this assessment. Credit is extended based on an evaluation of the customer’s
financial condition and, generally, advance payment is not required. Outstanding customer receivables
are regularly monitored and an allowance for doubtful accounts is established based on expected credit
losses.
The Company evaluates the concentration of risk at December 31, 2023 with respect to trade
receivables as low, as its customers are located in several jurisdictions and industries and operate in
largely independent markets. At December 31, 2023 and 2022, the Company had no individual
customers that accounted for more than 10 percent of its revenue or accounts receivable. The maximum
exposure to credit risk at the reporting date is the carrying value of each class of financial assets
disclosed in this note. The Company does not hold collateral as security.
The credit risk associated with the net investment in finance leases arises from the possibility that the
counterparties may default on their obligations. In order to minimize this risk, the Company enters into
finance lease transactions only in select circumstances. Close contact is maintained with the customer
over the duration of the lease to ensure visibility to issues as and if they arise.
The credit risk associated with derivative financial instruments arises from the possibility that the
counterparties may default on their obligations. In order to minimize this risk, the Company enters into
derivative transactions only with highly-rated financial institutions.
Liquidity Risk
Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations associated
with financial liabilities. In managing liquidity risk, the Company has access to a significant portion of its
Revolving Credit Facility for future drawings to meet the Company’s requirements for investments in
working capital and capital assets.
($ thousands)
Cash and cash equivalents
Short-term investments
Total Revolving Credit Facility (US$700,000)
Less:
Drawings on the Revolving Credit Facility
Letters of Credit1
Available for future drawings
December 31, 2023
126,089
$
14,425
925,820
314,705
137,982
613,647
$
1 This represents the letters of credit that the Company has funded with the Revolving Credit Facility. Additional letters of credit of $48 million (US$36
million) are funded from the US$70 million LC Facility. Refer to Note 20 “Long-Term Debt” for more information.
The Company continues to meet the covenant requirements of its funded debt, including the Revolving
Credit Facility, Term Loan and Notes. Senior secured net funded debt, defined as borrowings under the
Revolving Credit Facility and Term Loan, net of cash, to EBITDA ratio is 0.7:1, compared to a maximum
ratio of 2.5:1, and a net funded debt to EBITDA (“bank-adjusted net debt to EBITDA”) ratio of 2.3:1,
compared to a maximum ratio of 4.0:1, and an interest coverage ratio of 4.2:1 compared to a minimum
ratio of 2.5:1. The interest coverage ratio is calculated by dividing the trailing 12-month EBITDA, as
defined by the Company’s lenders, by interest expense over the same timeframe.
F-47
F-48 Annual Report
2023
F48
A liquidity analysis of the Company’s financial instruments has been completed on a maturity basis. The
following table outlines the cash flows, including interest associated with the maturity of the Company’s
financial liabilities, as at December 31, 2023:
($ thousands)
Derivative financial instruments
Foreign currency forward contracts
Accounts payable and accrued liabilities
Other current liabilities
Long-term debt – Revolving Credit Facility
Long-term debt – Term Loan
Long-term debt – Notes
Other long-term liabilities
Less than 3
months
3 months
to 1 year
Greater
than 1 year
$
596 $
561,120
7,936
-
13,226
-
-
423 $
-
-
-
39,678
-
-
- $
-
-
314,705
119,034
826,625
18,070
Total
1,019
561,120
7,936
314,705
171,938
826,625
18,070
The Company expects that cash flows from operations in 2024, together with cash and cash equivalents
on hand, short-term investments, the Revolving Credit Facility and the Term Loan, will be more than
sufficient to fund its requirements for investments in working capital and capital assets.
Note 31. Capital Disclosures
The capital structure of the Company consists of net debt plus shareholders’ equity.
Years ended December 31,
Long-term debt
Cash and cash equivalents
Net debt
Total shareholders’ equity
Total capital
2023
1,214,918 $
(126,089)
1,088,829 $
1,394,022
2022
1,390,325
(253,776)
1,136,549
1,542,908
2,482,851 $
2,679,457
$
$
$
The Company manages its capital to ensure that entities in the Company will be able to continue to grow
while maximizing the return to shareholders through the optimization of the debt and equity balances.
The Company adjusts its capital structure in light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company
may adjust the amount of dividends paid to shareholders, issue new Company shares, or access debt
markets.
The Company remains focused on maintaining a strong financial position and to continue reducing its
debt levels.
The Company formally reviews the capital structure on an annual basis and monitors it on an on-going
basis. As part of this review, the cost of capital and the risks associated with each class of capital are
considered.
F49
F-49
Annual Report2023
A liquidity analysis of the Company’s financial instruments has been completed on a maturity basis. The
following table outlines the cash flows, including interest associated with the maturity of the Company’s
financial liabilities, as at December 31, 2023:
($ thousands)
Derivative financial instruments
Less than 3
months
3 months
to 1 year
Greater
than 1 year
Foreign currency forward contracts
$
596 $
423 $
Accounts payable and accrued liabilities
Other current liabilities
Long-term debt – Revolving Credit Facility
Long-term debt – Term Loan
Long-term debt – Notes
Other long-term liabilities
561,120
7,936
-
-
-
13,226
39,678
-
-
-
-
-
- $
-
-
314,705
119,034
826,625
18,070
Total
1,019
561,120
7,936
314,705
171,938
826,625
18,070
The Company expects that cash flows from operations in 2024, together with cash and cash equivalents
on hand, short-term investments, the Revolving Credit Facility and the Term Loan, will be more than
sufficient to fund its requirements for investments in working capital and capital assets.
Note 31. Capital Disclosures
The capital structure of the Company consists of net debt plus shareholders’ equity.
Years ended December 31,
Long-term debt
Cash and cash equivalents
Net debt
Total shareholders’ equity
Total capital
2023
1,214,918 $
(126,089)
1,088,829 $
1,394,022
2022
1,390,325
(253,776)
1,136,549
1,542,908
2,482,851 $
2,679,457
$
$
$
The Company manages its capital to ensure that entities in the Company will be able to continue to grow
while maximizing the return to shareholders through the optimization of the debt and equity balances.
The Company adjusts its capital structure in light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company
may adjust the amount of dividends paid to shareholders, issue new Company shares, or access debt
The Company remains focused on maintaining a strong financial position and to continue reducing its
The Company formally reviews the capital structure on an annual basis and monitors it on an on-going
basis. As part of this review, the cost of capital and the risks associated with each class of capital are
markets.
debt levels.
considered.
Note 32. Supplemental Cash Flow Information
Changes in working capital and other during the period:
Years ended December 31,
Accounts receivable
Contract assets
Inventories
Work-in-progress related to finance leases
Finance leases receivable
Income taxes receivable
Prepayments
Net assets held for sale
Long-term receivables related to preferred shares
Accounts payable and accrued liabilities and provisions1
Income taxes payable
Deferred revenue
Other current liabilities
Foreign currency and other
Net change in working capital and other
2023
(70,013) $
55
(20,100)
41,986
24,965
6,307
(5,181)
(2,906)
27,954
(42,586)
(556)
22,336
7,936
23,530
13,727 $
$
$
1 The change in accounts payable and accrued liabilities and provisions represents only the portion relating to operating activities.
Cash interest and cash taxes paid and received during the period:
Years ended December 31,
Interest paid – short- and long-term borrowings
Interest paid – lease liabilities
Total interest paid
Interest received
Taxes paid
Taxes received
$
$
Changes in liabilities arising from financing activities during the period:
Years ended December 31,
Long-term debt, opening balance
Debt assumed on Acquisition (Note 6)
Changes from financing cash flows
The effect of changes in foreign exchange rates
Amortization of deferred transaction costs
Accretion of Notes discount
Debt transaction costs
Long-term debt, closing balance
$
$
2023
143,114 $
6,789
149,903 $
36,168
56,644
1,024
2023
1,390,325 $
-
(164,089)
(31,557)
14,488
10,635
(4,884)
1,214,918 $
2022
(56,861)
(45,169)
(78,697)
(5,817)
(81,049)
3,097
(35,198)
-
-
77,875
(11,042)
179,497
-
(17,954)
(71,318)
2022
29,640
3,398
33,038
1,269
27,813
5,399
2022
331,422
1,022,112
90,973
(4,099)
4,046
2,070
(56,199)
1,390,325
F-49
F-50 Annual Report
2023
F50
Note 33. Guarantees, Commitments, and Contingencies
Guarantees
As of December 31, 2023, the Company had outstanding letters of credit of $186 million (December 31,
2022 – $175 million). Of the total outstanding letters of credit, $138 million (December 31, 2022 – $175
million) are funded from the Revolving Credit Facility and $48 million (US$36 million) (December 31,
2022 – nil) are funded from the US$70 million LC Facility.
Commitments
The Company has purchase obligations over the next three years as follows:
2024
2025
2026
Legal Proceedings
$
528,003
22,047
937
On January 31, 2022, the Local Labor Board of the State of Tabasco in Mexico (the "Labor Board")
awarded a former employee of Exterran MXN$2,152 million plus other benefits that could increase the
award to MXN$2,431 million in connection with a dispute relating to the employee’s severance pay
following termination of their employment in 2015.
Enerflex believes the order of the Labor Board is in error and has no credible basis in law or fact. In 2017,
the Labor Board ruled that the former employee was entitled to approximately MXN$1.4 million as
severance based on an appellate court’s determination that the employee’s salary was approximately
MXN$3,500 per day. However, the Labor Board’s January 2022 order significantly increased the amount
the employee is owed, ignoring the actual salary that had been established by the appellate court and,
instead, basing it on a salary that the former employee never actually received while working for Exterran.
Enerflex has appealed the decision, and the appeal is pending before the courts in Mexico. In the
meantime, the Company is pursuing all other available avenues to preserve its rights, including rights
under the USMCA investment treaty arguing that the conduct of the Labor Board in Mexico amounts to
violations of protections available under the North American Free Trade Agreement.
The Company is involved in litigation and claims associated with normal operations against which certain
provisions may be made in the Financial Statements. Management is of the opinion that any resulting
settlement arising from the litigation would not materially affect the consolidated financial position,
results of operations, or liquidity of the Company.
F51
F-51
Annual Report2023
Note 33. Guarantees, Commitments, and Contingencies
Note 34. Related Party Transactions
As of December 31, 2023, the Company had outstanding letters of credit of $186 million (December 31,
2022 – $175 million). Of the total outstanding letters of credit, $138 million (December 31, 2022 – $175
million) are funded from the Revolving Credit Facility and $48 million (US$36 million) (December 31,
2022 – nil) are funded from the US$70 million LC Facility.
The Company has purchase obligations over the next three years as follows:
$
528,003
22,047
937
Guarantees
Commitments
2024
2025
2026
Legal Proceedings
On January 31, 2022, the Local Labor Board of the State of Tabasco in Mexico (the "Labor Board")
awarded a former employee of Exterran MXN$2,152 million plus other benefits that could increase the
award to MXN$2,431 million in connection with a dispute relating to the employee’s severance pay
following termination of their employment in 2015.
Enerflex believes the order of the Labor Board is in error and has no credible basis in law or fact. In 2017,
the Labor Board ruled that the former employee was entitled to approximately MXN$1.4 million as
severance based on an appellate court’s determination that the employee’s salary was approximately
MXN$3,500 per day. However, the Labor Board’s January 2022 order significantly increased the amount
the employee is owed, ignoring the actual salary that had been established by the appellate court and,
instead, basing it on a salary that the former employee never actually received while working for Exterran.
Enerflex has appealed the decision, and the appeal is pending before the courts in Mexico. In the
meantime, the Company is pursuing all other available avenues to preserve its rights, including rights
under the USMCA investment treaty arguing that the conduct of the Labor Board in Mexico amounts to
violations of protections available under the North American Free Trade Agreement.
The Company is involved in litigation and claims associated with normal operations against which certain
provisions may be made in the Financial Statements. Management is of the opinion that any resulting
settlement arising from the litigation would not materially affect the consolidated financial position,
results of operations, or liquidity of the Company.
(a) Key Management Compensation
Key management includes members of the Board and executive management. Remuneration of
directors and executive management is determined by the Board having consideration of overall
performance of individuals and market trends. Information on key management compensation is shown
below:
Years ended December 31,
2023
Salaries, Director fees and other short-term benefits
$
5,580 $
Post-employment compensation1
Share-based payments
690
8,446
2022
6,350
721
8,315
1 Post-employment compensation represent the present value of future pension benefits earned during the year.
(b) Other Related Party Transactions
Enerflex transacts with certain related parties in the normal course of business. Related parties include
the Company’s 45 percent equity investment in Roska DBO and the Company’s 65 percent interest in a
joint venture in Brazil.
All transactions occurring with related parties were in the normal course of business operations under
the same terms and conditions as transactions with unrelated companies. A summary of the financial
statement impacts of all transactions with all related parties is as follows:
Years ended December 31,
Associate – Roska DBO
Revenue
Purchases
Accounts receivable
2023
$
2,543 $
-
12
2022
1,755
4
22
All related party transactions are settled in cash. There were no transactions with the joint venture in
Brazil.
Note 35. Seasonality
The energy sector in Canada and in some parts of the USA has a distinct seasonal trend in activity levels
which results from well-site access and drilling pattern adjustments to take advantage of weather
conditions. Generally, the Company has experienced higher revenues in the fourth quarter of each year
related to these seasonal trends. Revenues are also impacted by both the Company’s and its customers’
capital investment decisions. The LATAM and EH segments are not significantly impacted by seasonal
variations, while certain parts of the USA can be impacted by seasonal trends depending on customer
activity, demand, and location. Variations from these trends usually occur when hydrocarbon energy
fundamentals are either improving or deteriorating.
F-51
F-52 Annual Report 2023
F52
Note 36. Segmented Information
The Company has identified three reporting segments for external reporting:
NAM consists of operations in Canada and the USA.
LATAM consists of operations in Argentina, Bolivia, Brazil, Colombia, Mexico, and Peru.
EH consists of operations in the Middle East, Africa, Europe, Australia and Asia.
Each segment generates revenue from the EI, AMS and ES product lines.
The accounting policies of these reportable operating segments are the same as those described in Note
3 “Summary of Material Accounting Policies”.
For internal Management reporting, the Company’s Chief Operating Decision Maker (“CODM”) has
identified four operating segments which include: Canada, USA, LATAM, and EH. Each of the operating
segments are supported by the Corporate head office. Corporate overheads are allocated to the
operating segments based on revenue. In assessing its reporting and operating segments, the Company
considered geographic locations, economic characteristics, the nature of products and services
provided, the nature of production processes, the types of customers for its products and services, and
distribution methods used. These considerations also factored into the decision to combine Canada and
USA into one reporting segment. For each of the operating segments, the CODM reviews internal
management reports on at least a quarterly basis.
The following tables provide certain financial information by the Company’s reporting segments.
Revenues and Operating Income
Years ended
December 31,
North America
Latin America
Eastern Hemisphere
Total
2023
2022
2023
2022
2023
2022
2023
2022
Segment revenue
$ 1,939,778 $
1,303,885 $
473,824 $
221,628 $
792,716 $
349,247 $ 3,206,318 $
1,874,760
Intersegment revenue
(33,168)
(93,778)
(1,295)
(434)
(9,760)
(2,750)
(44,223)
(96,962)
Revenue
$ 1,906,610 $
1,210,107 $
472,529 $
221,194 $
782,956 $
346,497 $ 3,162,095 $
1,777,798
EI
AMS
ES
171,276
141,900
335,532
129,723
270,894
109,464
777,702
381,087
385,814
298,333
76,792
38,057
189,592
107,270
652,198
443,660
1,349,520
769,874
60,205
53,414
322,470
129,763
1,732,195
953,051
Gross Margin
364,497
195,503
115,569
50,015
137,080
77,198
617,146
322,716
SG&A
194,870
179,862
71,538
47,379
129,467
74,001
395,875
301,242
Foreign exchange loss
398
872
58,398
17,290
137
1,040
58,933
19,202
Operating income (loss)
$
169,229 $
14,769 $
(14,367) $
(14,654) $
7,476 $
2,157 $
162,338 $
2,272
Segment Assets
As at December 31,
2023
20221
2023
20221
2023
20221
2023
20221
North America
Latin America
Eastern Hemisphere
Total
Segment assets
$ 1,606,304 $
1,602,755 $
631,577 $
829,676 $
1,099,817 $
828,517 $ 3,337,698 $ 3,260,948
Goodwill2
Corporate
220,657
224,992
-
-
-
-
89,264
351,153
360,140
571,810
674,396
-
-
-
2,472
322,724
Total segment assets $
1,826,961 $
1,827,747 $
631,577 $
918,940 $ 1,450,970 $
1,188,657 $ 3,911,980 $ 4,258,068
1 Certain balances as at December 31, 2022 have been re-presented as a result of measurement period adjustments for the acquisition of Exterran
as required by IFRS 3 “Business Combinations”, refer to Note 6 “Acquisition” for more information.
2 The total amount of goodwill in the Canada and USA operating segments are $40 million and $181 million, respectively (December 31, 2022 – $40
million and $185 million, respectively).
F53
F-53
Annual Report2023
Note 36. Segmented Information
Note 37. Subsequent Events
Subsequent to December 31, 2023, Enerflex declared a quarterly dividend of $0.025 per share, payable
on May 1, 2024, to shareholders of record on March 13, 2024. The Board will continue to evaluate
dividend payments on a quarterly basis, based on the availability of cash flow, anticipated market
conditions, and the general needs of the business.
The Company has identified three reporting segments for external reporting:
NAM consists of operations in Canada and the USA.
LATAM consists of operations in Argentina, Bolivia, Brazil, Colombia, Mexico, and Peru.
EH consists of operations in the Middle East, Africa, Europe, Australia and Asia.
Each segment generates revenue from the EI, AMS and ES product lines.
The accounting policies of these reportable operating segments are the same as those described in Note
3 “Summary of Material Accounting Policies”.
For internal Management reporting, the Company’s Chief Operating Decision Maker (“CODM”) has
identified four operating segments which include: Canada, USA, LATAM, and EH. Each of the operating
segments are supported by the Corporate head office. Corporate overheads are allocated to the
operating segments based on revenue. In assessing its reporting and operating segments, the Company
considered geographic locations, economic characteristics, the nature of products and services
provided, the nature of production processes, the types of customers for its products and services, and
distribution methods used. These considerations also factored into the decision to combine Canada and
USA into one reporting segment. For each of the operating segments, the CODM reviews internal
management reports on at least a quarterly basis.
The following tables provide certain financial information by the Company’s reporting segments.
Revenues and Operating Income
Years ended
December 31,
North America
Latin America
Eastern Hemisphere
Total
2023
2022
2023
2022
2023
2022
2023
2022
Segment revenue
$ 1,939,778 $
1,303,885 $
473,824 $
221,628 $
792,716 $
349,247 $ 3,206,318 $
1,874,760
Intersegment revenue
(33,168)
(93,778)
(1,295)
(434)
(9,760)
(2,750)
(44,223)
(96,962)
Revenue
$ 1,906,610 $
1,210,107 $
472,529 $
221,194 $
782,956 $
346,497 $ 3,162,095 $
1,777,798
EI
AMS
ES
171,276
141,900
335,532
129,723
270,894
109,464
777,702
381,087
385,814
298,333
76,792
38,057
189,592
107,270
652,198
443,660
1,349,520
769,874
60,205
53,414
322,470
129,763
1,732,195
953,051
Gross Margin
364,497
195,503
115,569
50,015
137,080
77,198
617,146
322,716
SG&A
194,870
179,862
71,538
47,379
129,467
74,001
395,875
301,242
Foreign exchange loss
398
872
58,398
17,290
137
1,040
58,933
19,202
Operating income (loss)
$
169,229 $
14,769 $
(14,367) $
(14,654) $
7,476 $
2,157 $
162,338 $
2,272
Segment Assets
As at December 31,
2023
20221
2023
20221
2023
20221
2023
20221
North America
Latin America
Eastern Hemisphere
Total
Segment assets
$ 1,606,304 $
1,602,755 $
631,577 $
829,676 $
1,099,817 $
828,517 $ 3,337,698 $ 3,260,948
Goodwill2
Corporate
220,657
224,992
89,264
351,153
360,140
571,810
674,396
-
-
-
-
-
2,472
322,724
-
-
Total segment assets $
1,826,961 $
1,827,747 $
631,577 $
918,940 $ 1,450,970 $
1,188,657 $ 3,911,980 $ 4,258,068
1 Certain balances as at December 31, 2022 have been re-presented as a result of measurement period adjustments for the acquisition of Exterran
as required by IFRS 3 “Business Combinations”, refer to Note 6 “Acquisition” for more information.
2 The total amount of goodwill in the Canada and USA operating segments are $40 million and $181 million, respectively (December 31, 2022 – $40
million and $185 million, respectively).
F-53
F-54 Annual Report 2023
F54
Executive
Management
Marc Rossiter
President and Chief Executive Officer
Calgary, AB, CA
Preet Dhindsa
SVP and Chief Financial Officer
Calgary, AB, CA
Roger George
President, Water Solutions
Atlanta, GA, USA
David Izett
SVP and General Counsel
Calgary, AB, CA
Mauricio Meineri
President, Latin America
Houston, TX, USA
Robert Mitchell
SVP and Chief Administrative Officer
Houston, TX, USA
Phil Pyle
President, Eastern Hemisphere
Abu Dhabi, UAE
Greg Stewart
President, USA
Houston, TX, USA
Helmuth Witulski
President, Canada
Calgary, AB, CA
Board of
Directors
Kevin Reinhart
Board Chair
Calgary, AB, CA
Fernando Assing 1
Houston, TX, USA
Joanne Cox 2
Calgary, AB, CA
W. Byron Dunn 1, 3
Human Resources and Compensation
Committee Chair
Dallas, TX, USA
Laura Folse 1, 3
Boerne, TX, USA
James Gouin 2
Belle River, ON, CA
Mona Hale 2
Audit Committee Chair
Edmonton, AB, CA
Marc Rossiter
President and Chief Executive Officer
Calgary, AB, CA
Juan Carlos Villegas 1, 3
Lo Barnechea, RM, CL
Michael Weill 2, 3
Nominating and Corporate Governance
Committee Chair
Houston, TX, USA
1 Member of Human Resources and Compensation Committee
2 Member of Audit Committee
3 Member of Nominating and Corporate Governance Committee
Shareholder
Information
Stock Exchange Listings
Toronto Stock Exchange
Trading Symbol: EFX
New York Stock Exchange
Trading Symbol: EFXT
Transfer Agent, Registrar, and
Dividend-Disbursing Agent
TSX Trust Company
PO Box 700
Station B
Montreal, QC, CA H3A 2A6
North America: 1-800-387-0825
Outside North America: 1-416-682-3860
E-Mail: shareholderinquiries@tmx.com
Website: https://tsxtrust.com
Auditors
Ernst & Young LLP Chartered Professional
Accountants
Calgary, AB, CA
Investor Relations
Telephone: 1-403-387-6377
E-Mail: ir@enerflex.com
Website: enerflex.com
Corporate Calendar
May 7, 2024
Q1 2024 Results
Enerflex Ltd.
Suite 904, 1331 Macleod Trail SE
Calgary, AB, Canada T2G 0K3
1-403-387-6377 | enerflex.com