Annual
Report
20
24
The Builders of a
Better Energy Future
Tomorrow
Starts Today
We are Enerflex.
We have the skill and expertise. We have the experience
and equipment. We have over 4,600 employees around
the globe, innovating every day whether in the office, in
the field, or in the shop. But most of all, we have a vision
that unites and guides us: Transforming Energy for a
Sustainable Future.
This vision is supported by a long-term strategy that is
founded upon four key pillars:
• Technical excellence in modularized energy solutions
• Profitable growth achieved through a leading position in
core markets and a stable infrastructure platform
• Financial strength and discipline
• Sustainable returns to shareholders
Through consistent execution of this strategy, regular
evaluation of our capital allocation priorities, and an
underlying grit and determination, we have created a
resilient business to create shareholder value.
We are looking ahead knowing that growing energy needs
worldwide will demand better equipment, services, and
solutions. And we aim to be the company who provides
them. Through innovation and collaboration, we will make
energy infrastructure more reliable, more connected, and
more efficient in 2025 and beyond.
The journey towards that future starts today. And it
starts with us. We are Enerflex – the builders of a
better energy future.
Content
CEO Message to Shareholders
Management’s Discussion and Analysis
Management’s Responsibility for
Financial Position
Management’s Responsibility for Internal
Control Over Financial Reporting
Independent Auditor’s Report
Consolidated Financial Statements
and Notes
Directors and Executives
Shareholder Information
4
6
58
59
61
66
120
121
ts
Dear Fellow Enerflex Shareholders,
On behalf of the Executive Management Team, Board of Directors,
and my 4,600 Enerflex teammates worldwide, I thank you for your
continued support of Enerflex.
Enerflex begins 2025 in a position of strength – a testament to the
dedication, resilience, and hard work of our incredible team. Over
the course of 2024, we made substantial progress advancing our
business and taking meaningful steps toward achieving our long-
term objectives.
While there remains considerable work ahead to fully realize our
ambitions, the milestones we reached last year provide a solid
foundation for continued growth and success in 2025. I am confident
that the momentum we have built will carry us forward as we
navigate the challenges and opportunities that lie ahead.
Executing On Our Goals
The underlying macroeconomic drivers for our business are strong,
and with the ongoing focus on global energy security and the growing
need for low emission natural gas, our business lines continue to
deliver solid performance. Enerflex will continue to capitalize on the
growing demand for sustainable energy infrastructure through our
vertically integrated natural gas, treated water, and energy transition
offerings. 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.
Enerflex remains committed to maximizing its operational efficiency
by optimizing its geographic footprint to enhance the profitability
of its core operations. Throughout this process, maintaining a
strong focus on safety remains a top priority. In 2024, the Company
achieved a total recordable incident rate (TRIR) of 0.40, significantly
outperforming the North American peer average of 1.00 and
improving upon our own five-year average of 0.51. This achievement
reflects our commitment to the well-being of our people while
delivering operational excellence.
Letter to
Shareholders
Marc
Rossiter
President, Chief Executive Officer,
and Director
Annual Report
4
2024
2025 Priorities
During 2025, Enerflex’s priorities include:
1.
Enhancing the profitability of core operations;
2. Leveraging the Company’s leading position in core operating
countries to capitalize on expected increases in natural gas
and produced water volumes; and
3. Maximizing free cash flow to strengthen Enerflex’s financial
position, provide direct shareholder returns, and invest in
select customer-supported growth opportunities.
Enerflex is well-positioned to deliver strong operational and
financial results in 2025, driven by the highly contracted Energy
Infrastructure product line and the recurring nature of After-Market
Services. Together, these two product lines are expected to account
for approximately 65% of the Company’s gross margin before
depreciation and amortization.
Complementing Enerflex’s recurring revenue businesses is the
Engineered Systems product line, supported by a robust backlog
of approximately USD $1.3 billion in projects as of December 31,
2024, the majority of which is expected to convert into revenue
over the next 12 months.
Closing Remarks
Our outstanding team demonstrated remarkable dedication during
2024, safely delivering exceptional results for our global clients. Their
efforts in driving operational excellence and executing on strategic
initiatives translated into significant shareholder value creation and
solidified our position as a leading provider of Energy Infrastructure.
With a clear plan for future growth that leverages our longstanding
reputation for technical expertise, we believe Enerflex is positioned
to create value for all our stakeholders over the long-term.
Marc Rossiter
President, Chief Executive Officer, and Director
February 26, 2025
5
Management’s
Discussion and Analysis
Annual Report 2024
6
M- 1
February 26, 2025
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, 2024 and 2023, 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 US dollars unless otherwise stated.
The Company
Enerflex deploys and services high-quality sustainable energy infrastructure. The Company's comprehensive
portfolio includes compression, processing, cryogenic, and treated water solutions, spanning all phases of a
project's lifecycle, from front-end engineering and design to after-market services. Enerflex is optimally
positioned to serve its client partners in core markets, enhancing long-term shareholder value through
sustainable improvements in efficiency, profitability, and cash flow generation.
Headquartered in Calgary, Alberta, Canada, the Company has operations in 17 countries across North
America, Latin America, and the Eastern Hemisphere. With over 700,000 sq. ft. of manufacturing capability in
three fabrication facilities across North America, Enerflex delivers high-quality, long-life solutions globally.
Enerflex’s stable Energy Infrastructure (“EI”) business generates steady, recurring revenue. It is through this
offering Enerflex owns, operates, and manages critical infrastructure under contract for its client partners’
operations. The Engineered Systems (“ES”) product line is the sale of customized modular natural gas-
handling and produced water solutions, enabling removal of natural gas liquids (NGLs), oil processing
technology, and treated water applications. After-market Service (“AMS”) includes installation,
commissioning, operations and maintenance, and parts sales, along with global support for all product lines.
Through its EI and AMS product lines, Enerflex continues to build an increasingly resilient and sustainable
business, stabilizing cash flows over the long term and reducing cyclicality in the business.
Enerflex’s expert teams of professionals, industry-certified mechanics and technicians, and tradespeople
cover the key disciplines of engineering, design, manufacturing, construction, commissioning, asset
maintenance, and service, and are strategically situated across a network of locations globally.
M-2 Annual Report 2024
Change in Presentation Currency
Effective January 1, 2024, the Company changed its presentation currency from Canadian dollars (“CAD”) to
United States dollars (“USD”). The change provides more relevant reporting of the Company’s financial
position, given that a significant portion of the Company’s legal entities applied USD as its functional currency
and a significant portion of the Company’s expenses, cash flows, assets, and revenue are denominated in
USD. The change in presentation currency represents a voluntary change in accounting policy. The Company
has applied the presentation currency change retrospectively. All periods presented in this MD&A have been
translated into the new presentation currency, in accordance with the guidance in IAS 21 “The Effects of
Changes in Foreign Exchange Rates”. Further details are provided in Note 4 of the Notes to the Financial
Statements and “Changes in Accounting Policies” section of this MD&A.
Enerflex Strategy
Enerflex’s 45-year success is built upon our shared Vision of: Transforming Energy for a Sustainable Future,
propelled by a long-term strategy centered on four foundational pillars:
•
Leading Position in Growing Markets: Using the Company’s strong market position in core
countries to benefit from expected growth in natural gas and produced water volumes.
•
Stable EI Platform: Building upon an EI platform that generates steady, recurring revenue.
•
ES, a Strategic Differentiator: Our ES modularized energy solutions distinguish Enerflex through our
commitment to technical excellence and provides unique advantages to Enerflex’s EI and AMS
business lines.
•
Financial Strength and Discipline: Maintaining balance sheet strength and paying a sustainable
dividend.
The underlying macroeconomic drivers for our business remains strong, and with a global focus on energy
security and rise in demand for low-emission natural gas, our business lines will continue to deliver solid
performance.
Through disciplined execution, technical expertise, and a strong brand reputation, we are well-positioned to
meet the increasing demand for sustainable energy infrastructure via our integrated natural gas, treated water,
and energy transition solutions – and continue generating lasting value for all stakeholders.
Enerflex has also developed targeted regional strategies to optimize local opportunities:
North America ("NAM")
In NAM, Enerflex provides natural gas solutions to support upstream and midstream activities required to meet
local demand. The Company benefits from increasing domestic demand and a growing liquefied natural gas
(“LNG”) export industry in North America.
•
EI: In the USA, Enerflex operates a contract compression rental fleet of approximately 428,000 HP,
with the largest portion operating in the Permian Basin. Enerflex has responded to customer demand
for lower carbon solutions, with electric drive representing approximately 20 percent of the
Company’s fleet. The Company benefits from vertical integration with its ES business, providing cost
and timing efficiencies compared to its peers.
•
AMS: Enerflex provides mechanical services and parts to a large installed base of critical natural gas
equipment across key resource plays in the USA and Canada. The Company looks to secure service
contracts with client partners as a means of enabling recurring business.
•
ES: Enerflex holds a market leading position for the engineering and manufacturing of modularized
solutions for natural gas processing and compression. With three state-of-the-art manufacturing
facilities, Enerflex maintains high standards, ensuring our client partners receive unparalleled service
and product excellence. Our solutions are delivered both domestically and internationally,
highlighting our direct sales approach to the Eastern Hemisphere and Latin America.
M- 3
Latin America ("LATAM")
In LATAM, Enerflex focuses primarily on long-term opportunities through EI ownership and AMS support. The
Company also serves the LATAM region through its ES manufacturing facility located in Houston.
•
EI: Enerflex targets long-term contract compression solutions and modularized energy infrastructure
to support increasing natural gas production across the region, with a focus on Argentina, Brazil and
Mexico.
•
AMS: Leveraging its EI footprint, Enerflex focuses on after-market services, parts, operations,
maintenance, and overhaul services. LATAM has eight fully equipped workshops providing coverage
across the region to best serve client partners.
Eastern Hemisphere ("EH")
Across the EH region, Enerflex focuses primarily on long-term opportunities through EI ownership and AMS
support. Enerflex’s core operating countries in this region include Oman and Bahrain.
•
EI: Enerflex invests in long-term infrastructure assets to support the Company’s ongoing strategy to
grow the recurring nature of its business. Projects cover compression, processing, and treated water
solutions.
•
AMS: Leveraging its EI footprint in the region, Enerflex continues to grow its AMS capabilities. The team
delivers comprehensive mechanical services, including parts distribution, operations and
maintenance, and equipment optimization.
Outlook
During 2025, Enerflex’s priorities include: (1) enhancing the profitability of core operations; (2) leveraging the
Company’s leading position in core operating countries to capitalize on expected increases in natural gas and
produced water volumes; and (3) maximizing free cash flow to further strengthen Enerflex’s financial position,
provide direct shareholder returns, and invest in selective customer supported growth opportunities.
Industry Update
Enerflex’s preliminary outlook for 2025 reflects steady demand across its business lines and geographic
regions. Operating results will be underpinned by the highly contracted EI product line and the recurring nature
of AMS, which together are expected to account for approximately 65 percent of our gross margin before
depreciation and amortization. Enerflex’s EI product line is supported by customer contracts, which are
expected to generate approximately $1.5 billion of revenue during their current terms.
Complementing Enerflex's recurring revenue businesses is the ES product line, which carried a backlog of
approximately $1.3 billion at December 31, 2024, the majority of which is expected to convert into revenue
over the next 12 months. During 2025, ES gross margin before depreciation and amortization is expected to be
more consistent with the historical long-term average for this business line, reflective of the weakness in
domestic natural gas prices during much of 2024 and a shift of project mix in Enerflex’s ES backlog.
Notwithstanding, near-term revenue for this business line is expected to remain steady. Enerflex is encouraged
by initial customer response to improved domestic natural gas prices, and the medium-term outlook for ES
products and services continues to be attractive, driven by expected increases in natural gas and produced
water volumes across Enerflex’s global footprint.
The Company continues to closely monitor geopolitical tensions across North America, including the potential
application of tariffs. Based on currently available information, the direct impact of tariffs on Enerflex’s
business is expected to be mitigated by the Company’s diversified operations and proactive risk management.
Enerflex’s operations in the USA, Canada, and Mexico are largely distinct in the customers and projects they
serve, and the Company has been working to mitigate the impact of potential tariffs. The USA is Enerflex’s
M-4 Annual Report 2024
largest operating region, generating 45 percent of consolidated revenue in 2024 by destination of sale, and we
believe the Company is well positioned to benefit from growth in domestic energy production. Enerflex’s
operations in Canada and Mexico generated 10 percent and 3 percent of consolidated revenue in 2024,
respectively.
Capital Spending
Enerflex is targeting a disciplined capital program in 2025, with total capital expenditures of $110 million to
$130 million. This includes a total of approximately $70 million for maintenance and property, plant and
equipment (“PP&E”) capital expenditures. Similar to 2024, disciplined capital spending will focus on customer
supported opportunities in the USA and the Middle East. Notably, the fundamentals for contract compression
in the USA remain strong, led by expected increases in natural gas production in the Permian basin and capital
spending discipline from market participants. Enerflex will continue to make selective customer supported
growth investments in this business.
Capital Allocation
Providing meaningful direct shareholder returns is a priority for Enerflex. With the Company operating within
its target leverage range of bank-adjusted net debt-to-EBITDA ratio of 1.5x to 2.0x, Enerflex is positioned to
increase direct shareholder returns. This is reflected through the previously announced 50 percent increase of
the Company’s quarterly dividend.
Going forward, capital allocation decisions will be based on delivering value to Enerflex shareholders and
measured against Enerflex’s ability to maintain balance sheet strength. In addition to increases to the
Company’s dividend, share repurchases, and disciplined growth capital spending, Enerflex will also consider
reducing leverage below its target range to further improve balance sheet strength and lower net finance costs.
Unlocking greater financial flexibility positions the Company to capitalize on opportunities to optimize our debt
stack and respond to evolving market conditions.
EH Cryo Project Update
During the second quarter of 2024, Enerflex suspended site activity on the EH Cryo project, demobilized its
personnel and provided its customer with notice of Force Majeure following a fatal drone attack at an adjacent
facility. Due to the continuing Force Majeure and circumstances that made it impossible for Enerflex to fulfill
its obligations under the EH Cryo project contract, Enerflex terminated the contract during the fourth quarter
of 2024.
The future revenue associated with the cancelled performance obligations of $75 million has been removed
from the Company’s ES backlog. There was no gross margin on the future revenue associated with the
cancelled performance obligation for the EH Cryo project.
On termination of the contract, the Company reassessed the value of the unbilled revenue associated with the
EH Cryo project. The previously recognized unbilled revenue of $178 million associated with the EH Cryo
project was reduced by $17 million to reflect the revised estimated transaction price. The decrease in the
unbilled revenue was accounted for as a reduction to revenue during the fourth quarter of 2024. Management
has made estimates and assumptions surrounding the expected proceeds and profitability of the EH Cryo
project contract, the estimated degree of completion based on cost progression and other factors that impact
the amount of revenue recognized for the project. Although these factors are reviewed as part of the project
management process, changes in these estimates or assumptions could lead to changes in the revenue
recognized.
The Company previously recognized a provision for unrecoverable costs of its obligation to complete the
project (“onerous loss provision”). On termination of the contract during the fourth quarter of 2024, the
outstanding provision of $17 million was derecognized as the Company no longer had an obligation to incur
M- 5
additional costs to complete the project after termination. The derecognition of the onerous loss provision was
accounted for as a reduction to cost of goods sold (“COGS”) during the fourth quarter of 2024.
The combined effect of the reduction in unbilled revenue and the derecognition of the onerous loss provision
did not impact the Company’s gross margin.
Management does not expect settlement of the outstanding amounts from the customer within the next twelve
months. As a result, the revised unbilled revenue of $161 million was reclassified to other long-term assets.
Enerflex is seeking to recover all amounts owing, including the unbilled revenue, through arbitration
proceedings.
Since inception of the project, Enerflex has maintained a $31 million Letter of Credit in support of its obligation
under the EH Cryo project contract. Enerflex would view any drawing of the financial security in the prevailing
circumstances as improper and would be considered as an additional receivable owed by the customer. See
the “Legal Proceedings” section of this MD&A.
M-6 Annual Report 2024
Summary Results
Three months ended
December 31,
Twelve months ended
December 31,
($ millions, except percentages and ratios)
2024
2023
2024
2023
Revenue
$
561
$
574
$
2,414
$
2,343
Gross margin
140
119
504
457
Gross margin as a percentage of revenue
25.0%
20.7%
20.9%
19.5%
Selling, general and administrative expenses ("SG&A")
92
74
327
293
Foreign exchange (gain) loss
(2)
16
4
43
Operating income
50
29
173
121
EBITDA1
92
-
364
240
EBIT1
47
(51)
179
42
EBT1
21
(76)
81
(52)
Net earnings (loss)
15
(95)
32
(83)
Cash provided by operating activities
113
158
324
206
Key Financial Performance Indicators (“KPIs”)2
ES bookings3
$
301
$
265
$
1,401
$
1,306
ES backlog3
1,280
1,134
1,280
1,134
EI contract backlog4
1,545
1,700
1,545
1,700
Gross margin before depreciation and amortization (“Gross
margin before D&A”)5
174
158
642
609
Gross margin before D&A as a percentage of revenue5
31.0%
27.5%
26.6%
26.0%
Adjusted EBITDA6
121
91
432
378
Free cash flow7
76
139
222
95
Net debt
616
824
616
824
Bank-adjusted net debt to EBITDA ratio
1.5x
2.3x
1.5x
2.3x
Return on capital employed (“ROCE”)8
10.3%
2.1%
10.3%
2.1%
1EBITDA is defined as earnings before finance costs, income taxes, depreciation and amortization. EBIT is defined as earnings before finance costs and income
taxes. EBT is defined as earnings before taxes.
2These KPIs are non-IFRS measures. Further detail is provided in the “Non-IFRS Measures” section of this MD&A.
3Refer to the “ES Bookings and Backlog” section of this MD&A for further details.
4Refer to the “EI Contract Backlog” section of this MD&A for further details.
5Refer to the “Gross Margin by Product line” section of this MD&A for further details.
6Refer to the “Adjusted EBITDA” section of this MD&A for further details.
7The Company amended its definition of free cash flow. Refer to the “Free Cash Flow” section of this MD&A for further details.
8Determined by using the trailing 12-month period.
Results Overview
•
Enerflex generated revenue of $561 million during the three months ended December 31, 2024, compared
to revenue of $574 million generated during the same period in 2023. The revenue decrease is primarily
due to lower ES revenue partially offset by higher AMS revenue from increased utilization and service
activity. During the twelve months ended December 31, 2024, Enerflex recorded revenue of $2,414 million
compared to $2,343 million in the same period of 2023, primarily from continued strong performance from
the Company's recurring revenue product lines as a result of steady utilization and price increases on
existing EI contracts, and steady ES revenue from project volumes in NAM.
•
During the three months ended December 31, 2024, the Company recorded gross margin of $140 million
and 25.0 percent, increasing from $119 million and 20.7 percent during the three months ended December
31, 2023. The increased gross margin is attributable to higher margin projects executed in ES and
increased contributions from EI in LATAM. Gross margin for the twelve months ended December 31, 2024,
was $504 million and 20.9 percent, increasing from $457 million and 19.5 percent during the twelve
months ended December 31, 2023.
•
Cash provided by operating activities was $113 million during the three months ended December 31, 2024,
which is a decrease of $45 million from the same period in 2023, primarily due to lower recovery of working
capital related to the timing and execution of ES projects. Free cash flow was $76 million during the three
months ended December 31, 2024, compared to $139 million during the same period last year. The
decrease in free cash flow is also attributable to lower recovery of working capital in addition to higher
capital expenditures during the fourth quarter of 2024. Cash provided by operating activities was $324
million during the twelve months ended December 31, 2024, which is an increase of $118 million from the
twelve months ended December 31, 2023. The current year includes working capital recovery of $106
million, primarily related to strong working capital management in the ES business. Free cash flow was a
source of cash of $222 million during the twelve months ended December 31, 2024, compared to $95
million during the same period last year attributable to higher recovery of working capital and lower capital
expenditures in 2024.
•
The Company recorded SG&A of $92 million and $327 million during the three and twelve months ended
December 31, 2024, compared to $74 million and $293 million during the same periods of 2023. The
variance is primarily due to higher share price in 2024 resulting in increased mark-to-market expense on
share-based compensation and a bad debt recovery of $9 million in the comparative 2023 period.
•
Enerflex reported operating income of $50 million and $173 million during the three and twelve months
ended December 31, 2024, compared to operating income of $29 million and $121 million during the three
and twelve months ended December 31, 2023. The increase in operating income was also influenced by
lower foreign exchange losses in 2024.
•
As previously announced, Enerflex completed the partial redemption of $62 million (or 10 percent of the
aggregate principal amount originally issued) of its senior secured notes (“Notes”). The redemption was
completed on October 11, 2024 (the “Redemption Date”) at a redemption price of 103 percent of the
principal amount of the Notes being redeemed, plus accrued and unpaid interest up to, but excluding, the
Redemption Date. During the twelve months ended December 31, 2024, the Company repaid $233 million
of long-term debt, which included the $62 million partial redemption of its Notes, and further reduced its
bank-adjusted net debt to EBITDA ratio to 1.5x through strong cash flow generation and continued
execution of its large ES backlog. At December 31, 2024, the Company was in compliance with its
covenants.
•
The Company invested $32 million in capital expenditures during the fourth quarter of 2024, which
comprised of $21 million related to maintenance expenditures across the Company's global EI assets and
PP&E and $11 million for growth initiatives in NAM. The Company also invested $15 million to expand an
EI project in EH that will be accounted for as a finance lease when completed.
M-8 Annual Report 2024
•
Enerflex recorded ES bookings of $301 million during the three months ended December 31, 2024,
compared to $265 million during the three months ended December 31, 2023, representing a $36 million
increase. During the twelve months ended December 31, 2024, Enerflex secured $1,401 million of ES
bookings, representing an increase of $95 million over the same period last year. The changes in ES
bookings are attributed to higher overall compression bookings, partially offset by the reversal of the
remaining $75 million of backlog related to the EH Cryo project which had no gross margin on future
revenue to be recognized. Refer to the “EH Cryo Project Update” section of this MD&A for further details.
The Company continues to have a healthy backlog of $1.3 billion at December 31, 2024, compared to $1.1
billion at December 31, 2023.
•
Enerflex introduced EI contract backlog by reporting segment as a key performance indicator of future
revenue generation for the EI product line. The Company’s EI contract backlog of $1.5 billion at December
31, 2024, decreased when compared to backlog of $1.7 billion at December 31, 2023, primarily due to
revenue recognition from existing EI contracts.
•
The Company continues to closely monitor geopolitical tensions across North America, including the
potential application of tariffs as announced by the USA and Canada Governments subsequent to
December 31, 2024. Enerflex’s operations in the USA, Canada and Mexico are largely distinct in the
customers and projects they serve, and given our diversified operations and proactive risk management,
the Company has been working to mitigate the impact of potential tariffs. The timing and impact of the
tariffs on the Company’s financial results cannot currently be quantified.
•
Subsequent to December 31, 2024, Enerflex declared a quarterly dividend of CAD $0.0375 per share,
payable on March 24, 2025, to shareholders of record on March 10, 2025. The Board will continue to
evaluate dividend payments on an ongoing basis, based on availability of cash flow, anticipated market
conditions, and general needs of the business.
M- 9
Adjusted EBITDA
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; impact of finance leases to
account for the lease principal payments received over the term of the related lease and removing the non-
cash upfront selling profit; gain or loss on redemption option associated with the Company’s Notes;
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.
Three months ended December 31, 2024
($ millions)
NAM
LATAM
EH
Total
Net earnings1
$
15
Income taxes1
6
Net finance costs1,2
26
EBIT3
$
34
$
11
$
4
$
47
Depreciation and Amortization
19
12
14
45
EBITDA
$
53
$
23
$
18
$
92
Restructuring, transaction and integration costs
1
-
-
1
Share-based compensation
11
2
3
16
Impact of finance leases
Principal payments received
-
-
10
10
Loss on redemption options3
2
Adjusted EBITDA
$
65
$
25
$
31
$
121
1The Company included net earnings, income taxes, and net finance costs on a consolidated basis to reconcile to EBIT.
2Net finance costs are considered corporate expenditures and therefore have not been allocated to reporting segments.
3EBIT includes $2 million loss on redemption options associated with the Notes. Debt is managed within Corporate and is not allocated to reporting segments.
Three months ended December 31, 2023
($ millions)
NAM
LATAM
EH
Total
Net loss1
$
(95)
Income taxes1
19
Net finance costs1,2
25
EBIT
$
47
$
(84)
$
(14)
$
(51)
Depreciation and amortization
18
14
19
51
EBITDA
$
65
$
(70)
$
5
$
-
Restructuring, transaction and integration costs
3
2
13
18
Share-based compensation
(1)
-
-
(1)
Impact of finance leases
Principal payments received
-
-
9
9
Goodwill impairment
-
65
-
65
Adjusted EBITDA
$
67
$
(3)
$
27
$
91
1The Company included net earnings, income taxes, and net finance costs on a consolidated basis to reconcile to EBIT.
2Net finance costs are considered corporate expenditures and therefore have not been allocated to reporting segments.
M-10 Annual Report 2024
Twelve months ended December 31, 2024
($ millions)
NAM
LATAM
EH
Total
Net earnings1
$
32
Income taxes1
49
Net finance costs1,2
98
EBIT3
$
166
$
29
$
(33)
$
179
Depreciation and amortization
74
53
58
185
EBITDA
$
240
$
82
$
25
$
364
Restructuring, transaction and integration costs
7
4
3
14
Share-based compensation
19
5
5
29
Impact of finance leases
Upfront gain
-
-
(3)
(3)
Principal payments received
-
1
44
45
Gain on redemption options3
(17)
Adjusted EBITDA
$
266
$
92
$
74
$
432
1The Company included net earnings, income taxes, and net finance costs on a consolidated basis to reconcile to EBIT.
2Net finance costs are considered corporate expenditures and therefore have not been allocated to reporting segments.
3EBIT includes $17 million gain on redemption options associated with the Notes. Debt is managed within Corporate and is not allocated to reporting
segments.
Twelve months ended December 31, 2023
($ millions)
NAM
LATAM
EH
Total
Net loss1
$
(83)
Income taxes1
31
Net finance costs1,2
94
EBIT
$
127
$
(90)
$
5
$
42
Depreciation and amortization
69
48
81
198
EBITDA
$
196
$
(42)
$
86
$
240
Restructuring, transaction and integration costs
11
10
23
44
Share-based compensation
4
1
1
6
Impact of finance leases
Upfront gain
-
-
(13)
(13)
Principal payments received
-
1
35
36
Goodwill impairment
-
65
-
65
Adjusted EBITDA
$
211
$
35
$
132
$
378
1The Company included net earnings, income taxes, and net finance costs on a consolidated basis to reconcile to EBIT.
2Net finance costs are considered corporate expenditures and therefore have not been allocated to reporting segments.
Refer to the section “Segmented Results” of this MD&A for additional information about results by geographic
location.
M- 11
ES Bookings and Backlog
Enerflex monitors its ES bookings and backlog as indicators of future revenue generation and business activity
levels for the ES product line. ES 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, while revenue recognized on
ES products decrease backlog in the period the revenue is recognized. Accordingly, ES backlog is an indication
of revenue to be recognized in future periods. 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 commencement of the lease.
Enerflex recorded bookings of $301 million for the three months ended December 31, 2024, which was higher
than the $265 million bookings during the same period in 2023, and attributable to increased bookings for
compression contracts in NAM.
Enerflex recorded bookings of $1.4 billion during the twelve months ended December 31, 2024, increasing
from the $1.3 billion recorded during the twelve months ended December 31, 2023.
ES backlog of $1.3 billion at December 31, 2024, increased from a backlog of $1.1 billion at December 31,
2023, attributable to steady client activities in the ES business. Processing orders represent approximately 45
percent of Enerflex’s backlog at December 31, 2024.
Enerflex’s backlog of $1.3 billion as at December 31, 2024, provides strong visibility for the ES business and
the Company expects near-term revenue for the ES business to remain steady. Enerflex is encouraged by initial
customer response to improved natural gas prices in NAM and the medium-term outlook for ES products and
services continues to be attractive, driven by expected increases in natural gas and produced water volumes
across Enerflex’s global footprint.
ES bookings and backlog by reporting segment are disclosed in the “Segmented Results” section of this MD&A.
M-12 Annual Report 2024
EI Contract Backlog
The Company’s EI contract backlog is recognized from lease agreements executed with clients for leasing
and/or operations and maintenance of the Company’s EI assets. Lease agreements executed during the period
increases EI contract backlog while revenue recognized on EI products decreases the EI contract backlog in
the period the revenue is recognized.
Enerflex has lease agreements with clients for EI assets with initial terms ranging from one to 10 years. Enerflex
provides information on the recognition of revenue of EI contract backlog in Note 21 of the Financial
Statements.
The following table sets forth EI contract backlog by reporting segment:
($ millions)
December 31,
2024
December 31,
2023
January 1,
2023
NAM
$
136
$
83
$
60
LATAM
458
496
783
EH
951
1,121
1,275
Total EI contract backlog
$
1,545
$
1,700
$
2,118
Enerflex reported EI contract backlog of $1.5 billion at December 31, 2024, a decrease when compared to the
backlog of $1.7 billion at December 31, 2023. The decrease is largely due to conversion of an operating lease
that is now accounted for as a finance lease due to a contract extension and modification in the first quarter
of 2024 in EH, and revenue recognition from existing contracts in EH and LATAM. NAM’s backlog increased as
a result of new contracts.
Segmented Results
Enerflex has three reporting segments: NAM, LATAM, and EH, each of which are supported by Enerflex’s
corporate function. Corporate overheads are allocated to reporting segments based on revenue. In assessing
its reporting segments, the Company considers geographic locations, economic characteristics, nature of
products and services provided, nature of production processes, types of clients for its products and services,
and distribution methods used.
M- 13
NAM
Three months ended
December 31,
Twelve months ended
December 31,
($ millions, except percentages)
2024
2023
2024
2023
ES bookings
$
363
$
202
$
1,327
$
1,139
ES backlog
1,119
932
1,119
932
EI contract backlog
136
83
136
83
Segment revenue
$
384
$
354
$
1,626
$
1,449
Intersegment revenue
(6)
(11)
(62)
(36)
Revenue
$
378
$
343
$
1,564
$
1,413
EI
$
36
$
33
$
146
$
127
AMS
73
75
279
286
ES
269
235
1,139
1,000
Revenue
378
343
1,564
1,413
EI
17
16
70
55
AMS
12
15
48
53
ES
50
45
224
160
Gross margin
79
76
342
268
Gross margin %
20.9%
22.2%
21.9%
19.0%
EI
28
25
105
86
AMS
14
16
54
58
ES
52
47
230
168
Gross margin before D&A
94
88
389
312
Gross margin before D&A %
24.9%
25.7%
24.9%
22.1%
SG&A
46
31
177
144
Foreign exchange gain
(1)
-
(1)
-
Operating income
34
45
166
124
EBIT
34
47
166
127
EBITDA
53
65
240
196
Adjusted EBITDA
65
67
266
221
ES bookings of $363 million and $1,327 million in the three and twelve months ended December 31, 2024
increased by $161 million and $188 million compared to the same periods in 2023. The continued strength in
bookings is based on steady client activity levels. Accordingly, ES backlog has been strong for four consecutive
quarters and should result in ongoing strong ES revenue generation over the near term.
EI contract backlog of $136 million at December 31, 2024, is higher than $83 million at December 31, 2023, as
a result of new bookings and inflationary price adjustments.
Revenue of $378 million and $1,564 million for the three and twelve months ended December 31, 2024,
increased by $35 million and $151 million, respectively, compared to the same periods in 2023, primarily from
increased ES revenue from elevated activity levels on a strong opening backlog and sustained client bookings.
The segment also saw an increase in EI revenue due to increased EI contract backlog and inflationary price
adjustments on existing contracts. Total ES and EI revenue increases were offset by lower AMS revenue
primarily due to lower utilization. Full-year AMS revenue was also impacted by hurricanes that impacted the
Gulf Coast region during the third quarter of 2024.
Gross margin increased during the three and twelve months ended December 31, 2024, compared to 2023,
attributable to higher overall revenue and improved margins on executed ES projects.
SG&A was higher during the three and twelve months ended December 31, 2024, compared to the same
periods last year, primarily due to higher share price that resulted in increased mark-to-market expense on
share-based compensation. Year-to-date increase in SG&A is also attributable to recovery of a previously
written off receivable of $9 million in the comparative period.
At December 31, 2024, the USA contract compression fleet totaled approximately 428,000 horsepower.
Average utilization of the fleet for the three and twelve months ended December 31, 2024, was 95 percent and
94 percent respectively, consistent with the 93 percent and 94 percent for the 2023 comparative periods.
M-14 Annual Report 2024
LATAM
Three months ended
December 31,
Twelve months ended
December 31,
($ millions, except percentages)
2024
2023
2024
2023
ES bookings
$
4
$
60
$
17
$
85
ES backlog
16
79
16
79
EI contract backlog
458
496
458
496
Segment revenue
$
109
$
97
$
407
$
351
Intersegment revenue
-
-
-
(1)
Revenue
$
109
$
97
$
407
$
350
EI
$
69
$
63
$
257
$
248
AMS
21
19
70
57
ES
19
15
80
45
Revenue
109
97
407
350
EI
24
16
75
64
AMS
5
4
19
13
ES
4
-
15
8
Gross margin
33
20
109
85
Gross margin %
30.3%
20.6%
26.8%
24.3%
EI
35
27
124
107
AMS
5
5
19
14
ES
4
-
15
8
Gross margin before D&A
44
32
158
129
Gross margin before D&A %
40.4%
33.0%
38.8%
36.9%
SG&A
21
9
64
53
Foreign exchange loss
-
16
5
43
Operating income (loss)
12
(5)
40
(11)
EBIT
11
(84)
29
(90)
EBITDA
23
(70)
82
(42)
Adjusted EBITDA
25
(3)
92
35
ES bookings of $4 million and $17 million in the three and twelve months ended December 31, 2024, decreased
by $56 million and $68 million compared to the same periods in 2023. Enerflex continues to monitor potential
projects and is well positioned to capitalize on those opportunities should they proceed.
EI contract backlog was $458 million at December 31, 2024, compared to $496 million at December 31, 2023.
The decrease of $38 million is primarily due to revenue recognition from existing contracts.
Revenue was $109 million and $407 million for the three and twelve months ended December 31, 2024,
compared to $97 million and $350 million for the three and twelve months ended December 31, 2023. The
increases in revenue are primarily from increases in ES revenue based on the pace of execution on projects in
its backlog, as well as increased EI revenue due to rate adjustments on existing contracts, and increased AMS
revenue from stronger parts sales and service activities.
Gross margin increased by $13 million and $24 million during the three and twelve months ended December
31, 2024, compared to the same periods last year, mainly due to increased revenue in all product lines. Gross
margin for the twelve months ended December 31, 2024, included the sale of certain EI assets which resulted
in a higher gross margin percentage when compared to the prior year.
SG&A of $21 million and $64 million during the three and twelve months ended December 31, 2024, increased
from the $9 million and $53 million during the same periods last year, primarily attributable to increased
compensation and higher share price that resulted in increased mark-to-market expense on share-based
compensation.
Foreign exchange losses decreased during the three and twelve months ended December 31, 2024, compared
to the same periods in 2023, which is the result of a slower rate of devaluation of the Argentine peso and
effective cash management strategies implemented in Argentina.
M- 15
EH
Three months ended
December 31,
Twelve months ended
December 31,
($ millions, except percentages)
2024
2023
2024
2023
ES bookings
$
(66)
$
3
$
57
$
82
ES backlog
145
123
145
123
EI contract backlog
951
1,121
951
1,121
Segment revenue
$
75
$
138
$
447
$
588
Intersegment revenue
(1)
(4)
(4)
(8)
Revenue
$
74
$
134
$
443
$
580
EI
$
44
$
57
$
265
$
201
AMS
43
38
159
140
ES
(13)
39
19
239
Revenue
74
134
443
580
EI
15
20
66
66
AMS
11
8
34
26
ES
2
(5)
(47)
12
Gross margin
28
23
53
104
Gross margin %
37.8%
17.2%
12.0%
17.9%
EI
23
35
105
127
AMS
11
8
36
28
ES
2
(5)
(46)
13
Gross margin before D&A
36
38
95
168
Gross margin before D&A %
48.6%
28.4%
21.4%
29.0%
SG&A
25
34
86
96
Foreign exchange gain
(1)
-
-
-
Operating income (loss)
4
(11)
(33)
8
EBIT
4
(14)
(33)
5
EBITDA
18
5
25
86
Adjusted EBITDA
31
27
74
132
ES bookings were negative $66 million for the three months ended December 31, 2024, and $57 million for the
full year. The decrease from the comparable 2023 reporting periods is attributable to the reversal of the
remaining $75 million of backlog related to the EH Cryo project on termination of the contract, and which had
no gross margin on future revenue to be recognized. The decrease was offset by new bookings secured during
the year, which increased the segment’s ES backlog to $145 million at December 31, 2024.
EI contract backlog was $951 million at December 31, 2024, compared to $1,121 million at December 31,
2023. The decrease of $170 million is primarily due to conversion of an operating lease that is now accounted
for as a finance lease on modification of the lease contract in the first quarter of 2024, and revenue recognition
from existing contracts.
Revenue decreased by $60 million during the three months ended December 31, 2024, compared to the same
period last year. This decrease in revenue is primarily due to lower ES revenue relating to the EH Cryo project
that was suspended in the second quarter of 2024 and subsequently terminated during the three months
ended December 31, 2024. Lower EI revenue is attributed to the EI asset previously accounted for as an
operating lease that was converted to a finance lease in the first quarter of 2024. Offsetting the lower ES and
EI revenue was increased AMS revenue, from increased service activity and parts sales.
Revenue decreased by $137 million during the twelve months ended December 31, 2024, compared to the
same period last year. The decrease in revenue is primarily due to lower ES revenue related to the suspension
and subsequent termination of the EH Cryo project contract. Offsetting the decrease in ES revenue is
increased EI revenue due to upfront revenue recognized on the EI asset previously accounted for as an
operating lease that is now accounted for as a finance lease, and higher AMS revenue from increased service
activity and parts sales.
Gross margin was $28 million for the three months ended December 31, 2024, compared to $23 million for the
three months ended December 31, 2023. The increase is due to higher gross margin contribution from AMS
attributable to increased service activity and parts sales.
M-16 Annual Report 2024
Gross margin was $53 million for the twelve months ended December 31, 2024, compared to $104 million for
the twelve months ended December 31, 2023. The decrease is due to lower ES revenue from project delays
and increased costs on the EH Cryo project, which was suspended and subsequently terminated during the
fourth quarter of 2024, and the impact of a larger upfront gain on commencement and recognition of a finance
lease project in the first quarter of 2023.
SG&A was lower during the three and twelve months ended December 31, 2024, compared to the same
periods in 2023 due to expenditures incurred in the prior year to integrate and optimize the acquired Exterran
business. This variance was slightly offset by increased mark-to-market expense on share-based
compensation in 2024.
M- 17
Gross Margin by Product Line
Each of Enerflex’s regional business segments oversees the execution of all three product lines described in
“The Company” section of this MD&A: EI, AMS, and ES.
The Company considers its EI and AMS product lines to be recurring in nature, given that revenue is typically
contracted and extends into the future. The Company aims to diversify and expand EI and AMS offerings, which
the Company believes offer longer-term stability in earnings compared to ES revenue, which historically has
been dependent on cyclical demand for new compression, processing, and electric power equipment. While
individual EI and AMS contracts are subject to cancellation or have varying lengths, the Company does not
believe these characteristics preclude these product lines from being considered recurring in nature.
The components of each product line’s gross margin and gross margin before D&A are disclosed in the tables
below.
Three months ended December 31, 2024
($ millions, except percentages)
EI
AMS
ES1
Total
Revenue
$
149
$
137
$
275
$
561
Cost of goods sold:
Operating expenses
63
107
217
387
Depreciation and amortization
30
2
2
34
Gross margin
$
56
$
28
$
56
$
140
Gross margin %
36.9%
20.4%
20.4%
25.0%
Gross margin before D&A
$
86
$
30
$
58
$
174
Gross margin before D&A %
57.7%
21.9%
21.1%
31.0%
1 Gross margin percentage and gross margin before D&A percentage increased during the three months ended December 31, 2024, compared to the same
period last year, primarily due to project mix and recoveries as well as decreased revenue on termination of the EH Cryo project contract.
Three months ended December 31, 2023
($ millions, except percentages)
EI
AMS
ES
Total
Revenue
$
153
$
132
$
289
$
574
Cost of goods sold:
Operating expenses
66
103
247
416
Depreciation and amortization
35
2
2
39
Gross margin
$
52
$
27
$
40
$
119
Gross margin %
34.0%
20.5%
13.8%
20.7%
Gross margin before D&A
$
87
$
29
$
42
$
158
Gross margin before D&A %
56.9%
22.0%
14.5%
27.5%
Twelve months ended December 31, 2024
($ millions, except percentages)
EI
AMS
ES
Total
Revenue
$
668
$
508
$
1,238
$
2,414
Cost of goods sold:
Operating expenses
334
399
1,039
1,772
Depreciation and amortization
123
8
7
138
Gross margin
$
211
$
101
$
192
$
504
Gross margin %
31.6%
19.9%
15.5%
20.9%
Gross margin before D&A
$
334
$
109
$
199
$
642
Gross margin before D&A %
50.0%
21.5%
16.1%
26.6%
Twelve months ended December 31, 2023
($ millions, except percentages)
EI
AMS
ES
Total
Revenue
$
576
$
483
$
1,284
$
2,343
Cost of goods sold:
Operating expenses
256
383
1,095
1,734
Depreciation and amortization
135
8
9
152
Gross margin
$
185
$
92
$
180
$
457
Gross margin %
32.1%
19.0%
14.0%
19.5%
Gross margin before D&A
$
320
$
100
$
189
$
609
Gross margin before D&A %
55.6%
20.7%
14.7%
26.0%
M-18 Annual Report 2024
Non-IFRS Measures
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. These non-IFRS measures are also used by Management in its
assessment of relative investments in operations and include adjusted EBITDA, ES bookings and backlog, EI
contract backlog, gross margin before D&A, recurring gross margin before D&A, net debt, ROCE, bank-
adjusted net debt to EBITDA ratio, free cash flow, and dividend payout ratio, and should not be considered as
alternatives to net earnings or any other measure of performance under IFRS. Reconciliation of these non-IFRS
measures to the most directly comparable IFRS measure is provided below and in the relevant sections where
appropriate. ES bookings and backlog and EI contract backlog do not have a directly comparable IFRS
measure.
Gross Margin before D&A
The Company defines gross margin before D&A as gross margin excluding the impact of depreciation and
amortization. The historical costs of assets may differ if they were acquired through acquisition or constructed,
resulting in differing depreciation. Gross margin before D&A is useful to present operating performance of the
business before the impact of depreciation and amortization that may not be comparable across assets.
Reconciliation of gross margin before D&A to the most directly comparable IFRS measure is presented in the
"Gross Margin by Product Line" section of this MD&A.
Recurring Gross Margin before D&A
The Company introduced recurring gross margin before D&A as a new key performance indicator to help users
of the financial report assess Enerflex’s recurring business. Recurring gross margin before D&A is defined as
gross margin before D&A from the EI and AMS product lines. These recurring gross margin before D&A are
typically contracted and extend into the future, rather than only being recognized as a single transaction. EI
gross margin before D&A relates to compression, processing, treated water, and electric power equipment.
AMS gross margin before D&A is derived from installation, commissioning, operations and maintenance of
client equipment, and parts sales. Conversely, gross margin before D&A from the Company’s ES product line
is for the manufacturing and delivery of equipment and is non-recurring once the goods are delivered. While EI
and AMS contracts are subject to cancellation or have varying lengths, the Company does not believe these
characteristics preclude them from being considered recurring in nature.
Three months ended
December 31,
Twelve months ended
December 31,
($ millions, except percentages)
2024
2023
2024
2023
EI gross margin before D&A1
$
86
$
87
$
334
$
320
AMS gross margin before D&A1
30
29
109
100
Total recurring gross margin before D&A
$
116
$
116
$
443
$
420
Total gross margin before D&A1
$
174
$
158
$
642
$
609
% of total gross margin before D&A
66.7%
73.4%
69.0%
69.0%
1Refer to the “Gross Margin by Product Line” section of this MD&A.
M- 19
ROCE
ROCE is a measure used 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 average debt and Shareholders’ equity less average cash for the trailing four quarters.
($ millions, except percentages)
December 31,
2024
December 31, 2023
Trailing 12-month EBIT
$
179
$
42
Average Capital employed
Average Net debt1
$
704
$
887
Average Shareholders’ equity1
1,038
1,124
Average capital employed
$
1,742
2,011
ROCE
10.3%
2.1%
1Based on a trailing four-quarter average.
Bank-Adjusted Net Debt to EBITDA Ratio
The Company defines bank-adjusted net debt to EBITDA as borrowings under the Revolving Credit Facility
(“RCF”) and Notes less cash and cash equivalents, divided by EBITDA as defined by the Company’s lenders
for the trailing 12-months. In assessing whether the Company is compliant with financial covenants related to
its debt, certain adjustments are made to EBITDA to determine Enerflex's bank-adjusted net debt to EBITDA
ratio. These 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 and Dividend Payout Ratio
The Company modified its calculation of free cash flow to include a deduction for growth capital expenditures
and exclude the deduction for dividends paid. Free cash flow is now defined as cash provided by (used in)
operating activities, less total capital expenditures (growth and maintenance) for PP&E and EI assets,
mandatory debt repayments, and lease payments, while proceeds on disposals of PP&E and EI assets are
added back. This modification is aimed at providing additional clarity into Enerflex’s free cash flow and help
users of the financial statements assess the level of free cash generated to fund other non-operating activities.
These activities could include dividend payments, share repurchases, and non-mandatory debt repayments.
Free cash flow may not be comparable to similar measures presented by other companies as it does not have
a standardized meaning under IFRS. Management has adopted this non-IFRS measure to improve
comparability with its peers and will also be used in calculating the newly adopted dividend payout ratio.
The Company also introduced the dividend payout ratio, which is defined as dividends divided by free cash
flow. The dividend payout ratio is a non-IFRS measure and may not be comparable to similar measures
presented by other companies as it does not have a standardized meaning under IFRS. Dividend payout ratio
has been adopted to provide clarity on the proportion of free cash flow being returned to shareholders.
M-20 Annual Report 2024
The following table reconciles free cash flow to the most directly comparable IFRS measure, cash provided by
operating activities:
Three months ended
December 31,
Twelve months ended
December 31,
($ millions, except percentages)
2024
2023
2024
2023
Cash provided by operating activities before changes in working
capital and other1
$
74
$
46
$
218
$
193
Net change in working capital and other
39
112
106
13
Cash provided by operating activities2
$
113
$
158
$
324
$
206
Less:
Capital expenditures - Maintenance and PP&E
(21)
(13)
(53)
(45)
Capital expenditures - Growth
(11)
(4)
(22)
(61)
Mandatory debt repayments
-
(10)
(10)
(20)
Lease payments
(5)
(3)
(20)
(15)
Add:
Proceeds on disposals of PP&E and EI assets
-
11
3
30
Free cash flow
$
76
$
139
$
222
$
95
Dividends paid
2
2
9
9
Dividend payout ratio
2.6%
1.4%
4.1%
9.5%
1Enerflex also refers to cash provided by operating activities before changes in working capital and other as “Funds from operations” or “FFO”.
2Enerflex also refers to cash provided by operating activities as “Cashflow from operations” or “CFO”.
The Company experienced a higher recovery of working capital during the three months ended December 31,
2023, related to timing and execution of ES projects. While the Company has been able to efficiently manage
working capital globally, it did not experience this same magnitude of recovery during the three months ended
December 31, 2024.
Liquidity
The Company expects cashflow from operations in 2025, 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.
The following table outlines the Company’s liquidity as at December 31, 2024:
($ millions)
December 31, 2024
Cash and cash equivalents
$
92
RCF
800
Less: Drawings on RCF
(191)
Less: Letters of Credit1
(87)
522
Available for future drawings
$
614
1Represents letters of credit that the Company has funded with the RCF. Additional letters of credit of $29 million are funded from the $70 million LC Facility.
Refer to Note 17 “Long-Term Debt” of the Financial Statements for further details.
M- 21
Covenant Compliance
The Company continues to meet the covenant requirements of its funded debt, including the secured RCF and
Notes reflecting strong performance and cash flow generation; and Enerflex’s focus of repaying debt and
lowering finance costs.
The following table sets forth a summary of the covenant requirements and the Company’s performance:
2024
2023
Requirement
Performance
Performance
Senior secured net funded debt to EBITDA ratio1 – Maximum
2.5x
0.2x
0.7x
Bank-adjusted net debt to EBITDA ratio2 – Maximum
4.0x
1.5x
2.3x
Interest coverage ratio3 – Minimum
2.5x
4.5x
4.2x
1Senior secured net funded debt to EBITDA is defined as borrowings under the RCF less cash and cash equivalents, divided by trailing 12-month EBITDA as
defined by the Company’s lenders.
2Refer to the "Bank-Adjusted Net Debt to EBITDA Ratio" section of this MD&A.
3Interest coverage ratio is calculated by dividing the trailing 12-month EBITDA, as defined by the Company’s lenders, by interest expense over the same
timeframe.
Credit Rating
Enerflex’s credit ratings affect the cost and ability to access the capital markets, and it is the Company’s
objective to maintain high quality credit ratings.
As at February 26, 2025, S&P Global Ratings ("S&P"), Moody’s Investors Service, Inc. ("Moody’s"), and Fitch
Ratings, Inc. ("Fitch") assigned the following credit ratings to Enerflex and the Notes:
S&P
Moody’s
Fitch
Corporate Credit Rating
BB
(stable outlook)
Ba3
(stable outlook)
BB-
(positive outlook)
Notes
BB+
(stable outlook)
B1
(stable outlook)
BB
(positive outlook)
Summarized Statements of Cash Flow
Three months ended
December 31,
Twelve months ended
December 31,
($ millions)
2024
2023
2024
2023
Cash and cash equivalents, beginning of period
$
95
$
121
$
95
$
187
Cash provided by (used in):
Operating activities
113
158
324
206
Investing activities
(20)
(27)
(59)
(119)
Financing activities
(94)
(131)
(263)
(149)
Effect of exchange rate changes on cash and cash equivalents
denominated in foreign currencies
(2)
(26)
(5)
(30)
Cash and cash equivalents, end of period
$
92
$
95
$
92
$
95
Operating Activities
Cash provided by operating activities for the three months ended December 31, 2024, was lower by $45 million
when compared to the same period in 2023, primarily driven by lower working capital recovery, partially offset
by higher net earnings recognized during the fourth quarter of 2024. Cash provided by operating activities for
the twelve months ended December 31, 2024, was $118 million higher compared to the same period last year.
The year-over-year variance is primarily driven by higher net earnings and working capital recoveries for the
M-22 Annual Report 2024
twelve months ended December 31, 2024. Changes in working capital are explained in the "Financial Position"
section of this MD&A.
Investing Activities
Cash used in investing activities for the three months ended December 31, 2024, was lower than cash used in
investing activities in the same period last year, which is primarily due to the purchase of financial instruments
in the prior year, which did not repeat, partially offset by increased capital expenditures in the current year. The
decrease in cash used in investing activities for the twelve months ended December 31, 2024, compared to
the same period last year is primarily due to decreased capital expenditures.
Financing Activities
Cash used in financing activities for the three months ended December 31, 2024, was less than the same
period last year due to repayments on the Term loan and higher net repayment on the RCF during the fourth
quarter of 2023. Cash used in financing activities for the twelve months ended December 31, 2024, was higher
when compared to same period last year, primarily due to repayment of the Term Loan, partial redemption of
the Notes during the fourth quarter of 2024 and further net repayment on the RCF.
Capital Expenditures and Expenditures for
Finance Leases
Enerflex distinguishes capital expenditures (“CAPEX”) invested in EI assets as either maintenance or growth.
Maintenance expenditures are necessary costs to continue utilizing existing EI assets, while growth
expenditures are intended to expand the Company's EI assets. The Company may also incur costs related to
construction of EI assets determined to be finance leases. These costs are accounted for as work-in-progress
(“WIP”) related to finance leases, and once the project is completed and enters service, it is reclassified to
COGS.
During the three and twelve months ended December 31, 2024, Enerflex invested $32 million and $75 million
in capital expenditures, including maintenance of the Company's global EI fleet, as well as small-scale
investments to expand the fleet across all regions.
Capital expenditures and expenditures for finance leases are shown in the table below:
Three months ended
December 31,
Twelve months ended
December 31,
($ millions)
2024
2023
2024
2023
Maintenance and PP&E
$
21
$
13
$
53
$
45
Growth
11
4
22
61
Total CAPEX
32
17
75
106
Expenditures for finance leases
15
-
35
3
Total CAPEX and expenditures for finance leases
$
47
$
17
$
110
$
109
M- 23
Selling, General and Administrative Expenses
SG&A expenses comprise of costs incurred by the Company to support business operations that are not
directly attributable to the production of goods or services.
Three months ended
December 31,
Twelve months ended
December 31,
($ millions)
2024
2023
2024
2023
Core SG&A1
$
65
$
63
$
249
$
249
Share-based compensation
16
(1)
29
6
Depreciation and amortization
11
12
47
46
Bad debt expense (recovery)
-
-
2
(8)
Total SG&A
$
92
$
74
$
327
$
293
1 Core SG&A is primarily comprised of compensation, third-party services, and information technology expenses.
Total SG&A for the three and twelve months ended December 31, 2024, is higher than the same periods last
year, primarily due to the increase in share-based compensation expense as a result of a higher share price.
Financial Position
The following table outlines significant changes in the consolidated statements of financial position as at
December 31, 2024, compared to December 31, 2023:
($ millions)
Increase
(Decrease)
Explanation
Current assets
(42)
Decrease in current assets is primarily due to lower short-term investments,
unbilled revenue, inventories, and prepayments, partially offset by increased
work-in-progress related to finance leases.
Unbilled revenue
(133)
Decrease in non-current unbilled revenue is primarily due to the termination of
the EH Cryo project contract which resulted in reclassification of the revised
unbilled revenue to other assets. Refer to the “EH Cryo Project Update” section
of this MD&A for further information.
EI assets – operating leases
(151)
Decrease in EI assets is primarily due to the extension and modification of an
existing EH EI asset previously accounted for as an operating lease, which is
now accounted for as a finance lease, and depreciation, partially offset by
additions.
EI assets – finance leases
receivable
28
Increase in non-current finance leases receivable is due to the extension and
modification of an existing EI asset contract as noted above.
Intangibles
(18)
Decrease in intangibles is primarily due to amortization.
Goodwill
(11)
Decrease in goodwill is due to movement in foreign exchange rates.
Other assets
169
Increase in other assets is primarily due to the reclassification of unbilled
revenue related to the EH Cryo project on contract termination from unbilled
revenue to other assets, and recognition of redemption options on the
Company’s Notes.
Current liabilities, excluding
current portion of long-term
debt
83
Increase in current liabilities, excluding the current portion of long-term debt is
primarily due to movement in deferred revenue, driven by increased ES activity
levels.
Deferred revenue
(11)
Decrease in long-term deferred revenue is due to progression of certain
contracts that result in recognition of revenue.
Long-term debt
(211)
Decrease in total long-term debt is primarily due to the repayment of the Term
Loan, partial redemption of the Notes, and net repayment on the RCF, partially
offset by amortization of deferred transaction costs and the Notes discount.
M-24 Annual Report 2024
Selected Annual Information
Years ended December 31,
($ millions, except per share amounts)
2024
2023
2022
Revenue
$
2,414
$
2,343
$
1,355
Net earnings (loss)
32
(83)
(74)
Earnings (loss) per share (“EPS”) - basic
0.26
(0.67)
(0.76)
EPS - diluted
0.26
(0.67)
(0.76)
Total assets
2,791
2,958
3,144
Total non-current financial liabilities
708
879
1,007
Cash dividends declared per share (“DPS”) (CAD $)
0.1125
0.1000
0.1000
Quarterly Financial Information
2024
2023
($ millions, except per share amounts)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
ES bookings
$
301
$
349
$
331
$
420
$
265
$
394
$
264
$
383
ES backlog
1,280
1,271
1,251
1,266
1,134
1,158
1,080
1,139
EI contract backlog
1,545
1,601
1,604
1,639
1,700
1,881
2,025
2,096
Revenue
561
601
614
638
574
580
579
610
Gross margin
140
141
136
87
119
110
109
119
Gross margin before D&A
174
176
173
119
158
150
145
156
SG&A
92
82
75
78
74
75
66
78
EBITDA
92
122
103
47
-
77
83
80
Adjusted EBITDA
121
120
122
69
91
90
107
90
Net earnings (loss)
15
30
5
(18)
(95)
4
(2)
10
EPS – basic
0.12
0.24
0.04
(0.15)
(0.77)
0.03
(0.02)
0.08
EPS – diluted
0.12
0.24
0.04
(0.15)
(0.77)
0.03
(0.02)
0.08
FFO1
74
63
63
18
46
44
53
50
CFO2
113
98
12
101
158
51
(1)
(2)
Free cash flow3
76
78
(4)
72
139
21
(26)
(39)
DPS (CAD $)
0.0375
0.0250
0.0250
0.0250
0.0250
0.0250
0.0250
0.0250
CAPEX – Maintenance & PP&E
21
14
9
9
13
10
15
7
CAPEX – Growth
11
2
1
8
4
10
9
38
1 FFO or “Funds from operations” is also referred to by Enerflex as “Cash provided by operating activities before changes in working capital and other”.
2 CFO or “Cashflow from operations” is also referred to by Enerflex as “Cash provided by (used in) operating activities”.
3 During the fourth quarter of 2024, the Company modified its calculation of free cash flow. Refer to the “Free Cash Flow and Dividend Payout Ratio” section
of this MD&A for further details.
M- 25
Capital Resources
On January 31, 2025, Enerflex had 124,143,179 Common Shares outstanding. Enerflex has not established a
formal dividend policy, and the Board anticipates setting the Company’s quarterly dividends based on
availability of cash flow, anticipated market conditions, and general needs of the business. Subsequent to the
fourth quarter of 2024, the Board declared a quarterly dividend of CAD $0.0375 per share.
At December 31, 2024, the Company had drawings of $191 million against the RCF (December 31, 2023 – $368
million including the Term Loan, January 1, 2023 – $488 million including the Term Loan). The weighted average
interest rate on the RCF at December 31, 2024, was 7.4 percent (December 31, 2023 – 7.7 percent, January 1,
2023 – 7.0 percent).
The composition of the borrowings on the Notes and RCF were as follows:
Maturity Date
December 31, 2024
December 31, 2023
January 1,
2023
Notes
October 15, 2027
$
563
$
625
$
625
Drawings on the RCF
October 13, 2026
191
238
338
Drawings on the Term Loan
-
130
150
754
993
1,113
Deferred transaction costs and Notes discount
(46)
(74)
(86)
Long-term debt
$
708
$
919
$
1,027
Current portion of long-term debt
$
-
$
40
$
20
Non-current portion of long-term debt
708
879
1,007
Long-term debt
$
708
$
919
$
1,027
At December 31, 2024, without considering renewal at similar terms, the USD equivalent principal payments
due over the next five years are $754 million, and nil thereafter.
Contractual Obligations, Committed Capital
Investment, and Off-Balance Sheet
Arrangements
The Company’s contractual obligations are contained in the following table:
($ millions)
Long-term
debt
Leases
Purchase
obligations
Total
2025
$
-
$
24
$
539
$
563
2026
191
19
5
215
2027
563
15
1
579
2028
-
8
-
8
2029
-
4
-
4
Thereafter
-
9
-
9
Total contractual obligations
$
754
$
79
$
545
$
1,378
The Company’s lease commitments are contracts related to premises, equipment, and service vehicles.
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.
M-26 Annual Report 2024
The Company anticipates using its cash and cash equivalents, and available capacity under its RCF to fund its
contractual obligations.
The Company does not have any committed capital investments or off-balance sheet arrangements that have,
or are reasonably likely to have, a current or future material effect on the Company’s financial condition,
results of operations, liquidity, or capital expenditures.
Income Taxes
The Company reported income tax expense of $6 million for the three months ended December 31, 2024,
compared to income tax expense of $19 million in the same period of 2023. The decrease is due to the
exchange rate effects on tax basis. The Company reported income tax expense of $49 million for the twelve
months ended December 31, 2024, compared to income tax expense of $31 million in the same period of 2023.
The increase is primarily driven by increased earnings taxed in foreign jurisdictions and tax accrual for Pillar II
tax regime, partially offset by the decrease in the exchange rate effects on tax basis.
Related Parties
Enerflex transacts with certain related parties during 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 parties. During the year ended December 31, 2024,
the Company recorded revenue of $2 million (December 31, 2023 – $2 million) from transactions with Roska
DBO. There were no accounts receivables or purchases during the year ended December 31, 2024
(December 31, 2023 – nil). All related party transactions are settled in cash. There were no transactions with
the joint venture in Brazil.
Further details of the related party transactions are disclosed in Note 31 “Related Party Transactions” of the
Financial Statements.
Legal Proceedings
In the fourth quarter of 2024, Enerflex terminated its contract for the EH Cryo project citing a continuing Force
Majeure situation and circumstances that made it impossible for Enerflex to fulfill its contractual obligations.
Enerflex’s customer has commenced arbitration proceedings against the Company in connection with the EH
Cryo project. Enerflex views its customer’s claims as baseless and unsubstantiated and a wrongful attempt to
circumvent the Company’s rights under the contract. Enerflex is disputing the customer’s claims and has
brought a counterclaim against its customer to recover amounts owing following Enerflex’s termination of the
EH Cryo project contract. At December 31, 2024, the asset position associated with the EH Cryo project was
$161 million.
The Company is involved in litigation and claims associated with normal operations against which certain
provisions may be made in the Financial Statements.
M- 27
Risk Factors
An investment in Enerflex Common Shares involves a number of risks. There are general risks associated with
all businesses; industry specific risks inherent in Enerflex’s operations; and risks specific to Enerflex. This
section describes the risks that Enerflex believes are most material to its business and operations. The risks
identified herein is not a complete list of all the risks and potential risks applicable to Enerflex. Additional risks
may arise from time to time as Enerflex’s business evolves. Risks currently perceived as immaterial may
become material. While the Company has extensive policies and procedures in place to limit, manage and
mitigate risks, including the Company’s Enterprise Risk Management (“ERM”) program, there is no assurance
that Enerflex will be successful in preventing or minimizing the harm and potential harm that risks present.
General Business Risks
Failure to meet investor expectations
As with all businesses, there is a risk that Enerflex does not always meet investor expectations, including
expectations regarding financial performance and the optimal deployment of capital. Investors may have
expectations regarding the timeline for returns on an investment in Company, which may not align with the
Company’s own strategic objectives, forecasts, and scenario planning, and which may not fully consider the
volatility and cyclical nature of the oil and natural gas industry. BOOM projects in particular have a multi-year
development cycle, with returns typically materializing over a longer term than investors might anticipate.
Certain assumptions, estimates, and analysis impacting Enerflex’s growth projections may not materialize for
reasons beyond the Company’s control. See “Forward Looking Information”.
A failure to meet stakeholder expectations could adversely impact the reputation of the Company, and
investor trust and confidence in the Company, its Board and Management, such that investors reduce their
investment in Enerflex, or do not invest in Enerflex at all. This may have an adverse impact on the price and
liquidity of Enerflex’s securities, and otherwise adversely impact the Company’s financial position. A failure to
meet stakeholder expectations could also result in negative change to Enerflex’s credit ratings. These ratings
affect Enerflex’s short and long-term financing costs, liquidity, and operations over the long term, 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 9.00 percent Notes, or negatively changes its credit outlook, it could
have an adverse effect on Enerflex’s future financing costs and access to liquidity and capital.
The Company manages the risk of not meeting shareholder expectations through a combination of (a) clear,
credible, and consistent communication of its financial performance and strategic objectives to stakeholders
by way of regular market updates, a dedicated investor relations function, and engagement with shareholders
by Management and members of the Board of Directors, and (b) a disciplined focus on executing the short-,
medium- and long-term strategies communicated to investors. The Company also monitors corporate
governance developments and engages with proxy advisory firms and governance organizations in an effort to
continually improve its disclosures.
Compliance with domestic and international laws, financial reporting rules, and
applicable regulations impact Enerflex’s operations
With operations in 17 countries globally, the Company is impacted by, and required to comply with, a
multitude of international, federal, provincial, state, and local laws and regulations. Enerflex has developed
policies, procedures, and training tools designed to achieve and maintain compliance with these laws and
regulations, both in its own right and by contractors and sub-contractors. While management believes the
Company and its subsidiaries comply with current prevailing laws and regulations, these laws and regulations
are complex, subject to periodic revision, and many are becoming increasingly stringent. In addition, laws and
regulations are often subject to changes in their interpretation by administrative authorities. There is thus a
risk that the Company is not able to maintain compliance with all applicable laws or regulations in all
jurisdictions and that the Company could be exposed to investigations, claims, and other regulatory
proceedings for alleged or actual violations of laws and regulations related to its operations. This could result
in the imposition of administrative, civil, and criminal enforcement measures, including assessment of
M-28 Annual Report 2024
monetary penalties, disgorgement, obligatory modifications to business practices and compliance programs,
and issuance of injunctions as to future compliance. While Enerflex cannot accurately predict the impact of
any such proceedings, they could have a material adverse effect on the Company’s reputation, business,
financial condition, results of operations, and cash flow.
The cost of legal and regulatory compliance can also be significant. These costs impact the Company’s
operating costs and, if they increase over time, could negatively impact the demand for the Company’s
products and services.
Enerflex’s compliance obligations, and associated risks, include but are not limited to those detailed below.
(a) Corruption, anti-bribery, sanctions, and trade laws
The Company is required to comply with domestic 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, including licensing requirements and transfer pricing rules.
The Canadian government, the US Department of Justice, the SEC, 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 of anti-corruption and anti-bribery
legislation, trade laws, and sanctions laws.
(b) HSE laws and regulations
Compliance with environmental laws is a priority across Enerflex operations and in the manufacturing of the
Company's products. 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 at Company
facilities 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.
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.
(c) Laws relating to internal control over financial reporting and disclosure controls and procedures
Enerflex is required by law 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. Enerflex cannot provide assurance
that there will not be material weaknesses and deficiencies identified presently or in the future. Enerflex may
not be able to remediate material weaknesses that have been identified, or any future material weaknesses
M- 29
that may be identified, or complete any evaluation, testing and remediation in a timely manner. Where material
weaknesses and deficiencies do exist, there is a reasonable possibility that material misstatements in the
Company’s financial statements will not be prevented or detected on a timely basis. The Company’s
independent auditors may issue adverse reports if it is not satisfied with the level 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 now or in the future.
If Enerflex is unable to remediate 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 Enerflex 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.
Trade tariffs may create or heighten geopolitical and economic instability
Economic, tax and trade policies may have significant implications for Canadian, U.S. and global economies.
The potential imposition of trade tariffs by the USA on imports from Canada and other countries, together with
potential retaliatory tariffs by those countries on imports from the USA, and other potential measures,
including import and export duties, fees, economic sanctions or other trade measures, immigration policy, tax
policy, and energy regulation, present risks to Enerflex's business and operations and may create or heighten
geopolitical and economic instability and increase market volatility. Such measures, the nature, extent, and
timing of which are uncertain, could lead to increased costs, facilitate changes in interest rates and inflation,
impact commodity prices, or currency exchange rates, and lower economic growth and equity prices, any or
all of which could adversely impact Enerflex's results and/or operations.
The Company continues to closely monitor developments in this area. Enerflex’s operations in the USA,
Canada, and Mexico are largely distinct in the customers and projects they serve. The Company is working to
mitigate the impact of the potential tariffs through its diversified operations and proactive risk management.
The nature, timing, and impact of the tariffs on the Company’s financial and operational results cannot
currently be quantified or determined.
Changes in tax laws, interpretations, or rates may negatively impact Enerflex
The Company and its subsidiaries are subject to income and other taxes in multiple jurisdictions. One or more
of the jurisdictions in which Enerflex does business could seek to impose incremental or new taxes on the
Company or its subsidiaries. Effective tax rates in those jurisdictions could also be impacted by changes in tax
laws or interpretations thereof, changes in the mix of earnings in countries with differing statutory tax rates, or
changes in the valuation of deferred tax assets and liabilities. Any such change could have a material adverse
impact on the Company's financial and operational results.
While management believes the Company and its subsidiaries are in compliance with current prevailing tax
laws and requirements, the Company or its subsidiaries could be subject to assessment, reassessment, audit,
investigation, inquiry, or judicial or administrative proceedings by any of the taxing jurisdiction where it
operates. 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.
Force majeure events may impact Enerflex’s business
The Company’s operations could be impacted by disruptions beyond its control, including, but not limited to:
natural disasters; extreme weather events; the outbreak of epidemics, pandemics, or other health crises;
terrorist activities, anti-terrorist efforts, and other armed conflicts; national emergencies; trade disruptions;
acts of foreign governments, and civil unrest. Any such disruptions could result in, amongst other things, a
slowdown, or temporary, prolonged or permanent suspension of Enerflex’s operations in impacted geographic
locations; damaged infrastructure and key facility closures; reduced economic activity and corresponding
M-30 Annual Report 2024
reduced demand for the Company’s products and services; or an impaired supply chain, increasing the cost
of goods and services used in Enerflex’s operations. Disruptions may also adversely impact the health and
safety of Enerflex’s employees or otherwise restrict the availability or productivity of its workforce. Should any
such disruption occur, the Company’s business, operations, assets, financial condition, and cash flows could
be materially and adversely affected.
Emerging from any slowdown or suspension in operations presents further risks to Enerflex’s business,
financial condition, and reputation. The Company may be delayed in reaching full operational capacity and in
bringing crucial systems and processes online and may have reduced access to assets and project sites,
disrupting its ability to service client partners or making it impossible to fulfill its contractual obligations. The
Company mitigates this risk through appropriate contractual protections.
Any unforeseen disruptions could also expose Enerflex to substantial liability for personal injury, loss of life,
property damage, and pollution. Enerflex carries insurance to protect the Company against these unforeseen
events, subject to appropriate deductibles and the availability of coverage, although such insurance
protections may not be adequate to cover all losses or liabilities that the Company may incur. See “Risk
Factors - Enerflex Specific Risks - Enerflex’s business requires significant levels of insurance” in the
Company’s AIF for the limitations on insurance coverage and associated risks to the business.
ESG matters, climate change, and associated regulatory and policy changes
could impact Enerflex’s business
Practices and disclosures relating to 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) have, in recent years, attracted increasing scrutiny by stakeholders. Certain
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 investors reducing their investment in Enerflex, or not investing in Enerflex at all, thereby affecting
the price and liquidity of Enerflex’s securities. The Company’s response to addressing ESG matters, and any
negative perception thereof, can also impact Enerflex’s financial position through increased financing costs,
and impact its reputation, business prospects, and ability to hire and retain qualified employees. It could also
make the Company vulnerable to activist shareholders. Such risks could adversely affect Enerflex’s business,
future operations, and profitability.
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 GHG emissions. Although it is not possible to predict how new laws or regulations would impact the
Company’s business, any 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, or to the
Company’s public disclosure of matters relating to climate change and the environment. 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. Enerflex’s client
partners face similar risks, which could see reduced demand for the Company’s products and services.
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
M- 31
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. See “Legal Proceedings”. The Company may not be able to adequately protect itself
contractually or by relying on insurance coverage. See “Risk Factors - Enerflex Specific Risks - Enerflex’s
business requires significant levels of insurance” in the Company’s AIF for the limitations on insurance
coverage and associated risks to the business.
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.
Industry Specific Risks
Investor sentiment particularly related to the oil and natural gas industry
A number of factors, including the inherent volatility of the oil and natural gas industry, 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 limit Enerflex’s access to capital, increase its financing costs, and decrease the price
and liquidity of Enerflex’s securities.
A well-functioning supply chain and effective inventory management are
essential to Enerflex’s business
Enerflex purchases a broad range of materials and components in connection with its manufacturing and
service activities. Certain components used in Enerflex’s products are obtained from a single source or a
limited group of suppliers and original equipment manufacturers. 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. Certain original equipment manufacturers are
also limited in the ability to package and sell material and products. 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 manufacturers, it does not have long-term
contracts with all of them, and the partial or complete loss of certain of these sources could result in increased
costs and project delays, could have a negative impact on Enerflex’s results of operations, could damage
client partner relationships, and could affect Enerflex’s competitive position. 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.
Risks associated with supply chain disruptions are mitigated by dedicated supply chain management teams
and continual review of supply chain documentation and processes. 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 client partner satisfaction and Enerflex’s reputation
in the market. If the availability of equipment is constrained or delayed, or if Enerflex’s supply chain is
otherwise disrupted such that it cannot deliver products or services in a timely and cost-effective manner,
certain of the Company’s operational or financial results may be adversely impacted.
M-32 Annual Report 2024
The Company’s operational and financial results could also be adversely impacted by supply chain challenges
specific to Enerflex’s operations across multiple jurisdictions. Segmented operations can give rise to inter-
regional inefficiencies and restrict Enerflex’s ability to utilize global bulk buying power with several large
suppliers, impacting the profitability of its projects. While the fabrication of Engineered System products at
our Houston, Broken Arrow and Calgary manufacturing facilities avoids the significant markup associated with
local procurement, it can impact margins through additional transportation costs and import taxes, tariffs, and
fees. In certain countries in which the Company operates, Enerflex is required to use certain vendors, which
impacts the ability to utilize global or internal supply chains and increases costs.
Enerflex faces additional risks related to its internal supply chain and effective management of its inventory.
The Company is continually improving its strategic inventory management, using market intelligence,
automatic inventory checking, and supply chain coordination, and while the Company does leverage its global
footprint to manage its inventory levels on a larger scale, there are risks that inventory is not properly optimized
across all operations. A failure to properly manage and optimize inventory could restrict access to working
capital, restrict the Company’s ability to move quickly in securing new business, and generally negatively
impact operational efficiency and financial performance.
See “Sustainability – Social – Supply Chain Management” in the Company’s AIF for details of Enerflex’s supply
chain management processes.
The ability to hire and retain quality personnel and contractors are critical to
Enerflex’s business
The Company’s ability to attract qualified personnel by providing both market-related compensation and the
necessary organizational structure, benefits, programs, and culture to engage employees, is crucial to its
growth and to achieving its business results. The Company’s ability to provide development opportunities and
training to cultivate talent and enhance its internal skillset is equally important.
Enerflex’s product lines require a combination of skilled engineers, design professionals, tradespeople,
mechanics, and technicians. Enerflex competes to hire and retain these professionals, not only with
companies in the same industry, but with companies in other industries. These competitive pressures are
compounded in periods of high activity, when demand for skills and expertise increases and when the
Company may need to move quickly to augment its workforce, as well as by a reduction in the number of
people pursuing skilled trades. Moreover, much like certain investors’ sentiments towards investing in the oil
and natural gas industry have been affected by ESG matters, the perceived impact of oil and natural gas
operations on the environment and issues of climate change have made a career in the oil and natural gas
industry less appealing to new graduates and tradespeople entering the job market. This increases demand
and competition for the high-quality, skilled personnel necessary to deliver on Enerflex’s value proposition to
client partners across all business lines.
There are few barriers to entry in several of Enerflex's businesses, so retention of qualified personnel is
essential to differentiate Enerflex's product and service offerings and to compete in its various markets.
Enerflex’s employee retention strategies include but are not limited to comprehensive succession planning for
the EMT and personnel in key positions and investment in ongoing talent development within each region and
at the corporate head office. Total Rewards compensation and benefits programs, individual career growth
plans and other opportunities for career development, and a keen focus on employee diversity, inclusion and
wellbeing, further support the Company’s efforts to ensure the sustainability and continuity of critical
knowledge, relationships, and skills. See “Sustainability – Social – Talent Management” in the Company’s AIF
for more details of the various programs and policies supporting Enerflex’s recruitment, retention and
employee development efforts.
There can, however, be no assurance that key personnel are retained. The associated loss of knowledge,
relationships, skills, and functions (particularly engineering and trades functions), as well as loss of access to
the knowledge and relationships fundamental to the maintenance and management of key contracts, poses a
significant risk to Enerflex’s business and could adversely impact the quality or delay the completion of certain
projects, increase competitive pressures, and adversely impact the Company’s reputation.
There are certain jurisdictions where Enerflex relies on third-party contractors to carry out the operation and
maintenance of its equipment and the aforementioned risks apply equally in this context. The ability of third-
party contractors to find and retain individuals with the proper technical background and training is critical to
M- 33
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.
Financial reductions or restrictions of client partners may impact Enerflex’s
contracted revenue
Many of Enerflex’s client partners finance their activities through cash flow from operations, incurrence of
debt, or issuance of equity. In addition, a substantial portion of Enerflex's accounts receivable balances are
with client partners involved in the oil and natural gas industry, and these client partners may experience
decreased cash flow from operations, or a reduction in their ability to access capital, during times when the
oil or natural gas markets weaken. Enerflex may also extend credit to certain client partners for products and
services that it provides during its normal course of business.
If a client partner experiences decreased cash flow from operations and limitations on their ability to incur
debt or raise equity, a reduction in borrowing bases under reserve-based credit facilities, a lack of availability
of debt or equity financing, or other factors that negatively impacts its financial condition, Enerflex may not be
able to collect or enforce collections on all or a portion of the accounts receivable balance or credit balance
from that client partner. Alternatively, the affected client partner may seek to preserve capital by pursuing price
concessions, thereby putting margins under pressure, or by cancelling or determining not to renew recurring
revenue contracts. Where contracts are renewed or renegotiated, these may be on less favourable
commercial terms, or may transfer additional risk of liquidated damages, consequential loss, liability caps,
and indemnities to the Company.
Any one of these occurrences 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.
Enerflex monitors its financial exposure to its client partners, but there can be no certainty that financial losses
will not materialize or have a material adverse impact on the organization.
Enerflex is susceptible to health, safety, and environment risks throughout its
operations
Enerflex's business is susceptible to health, safety, and environment risks inherent in manufacturing,
construction, and operations in the oil and natural gas services industry. These risks include but are not limited
to: equipment defects, malfunctions, and failures; vehicle collisions and other transportation incidents; and
natural disasters or other catastrophic events 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.
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.
Preventing or responding to accidents could also require Enerflex to expend significant time and effort, as well
as financial resources to remediate safety issues, compensate injured parties, and repair damaged facilities.
If the Company or its products were to be involved in any of the aforementioned incidents, the Company could
face litigation and may be held liable for losses arising from personal injuries or death, property damage,
operational interruptions, and shutdown or abandonment of affected facilities. Defense and settlement costs
associated with lawsuits and claims can be substantial. The Company could also face government-imposed
orders to remedy unsafe conditions or circumstances, and penalties associated with the contravention of
applicable health and safety legislation.
Safety is also key factor that client partners consider when selecting a service provider. A decline in the
Company’s safety performance could result in lower demand for products or services, which could have an
adverse effect on Enerflex’s business, financial condition, and results of operations.
Enerflex reduces its exposure to HSE risks through various means, including comprehensive security and
safety assessments of all new projects and on an ongoing basis; contracting strategies; and by maintaining
prudent levels of insurance, although such protections may not be adequate to cover all losses or liabilities
that the Company may incur. See “Risk Factors - Enerflex Specific Risks - Enerflex’s business requires
M-34 Annual Report 2024
significant levels of insurance” in the Company’s AIF for the limitations on insurance coverage and associated
risks to the business.
The industry in which Enerflex operates is highly competitive
The Company has several competitors in all aspects of its business. There are low barriers to entry for natural
gas processing and compression services, the processing and compression fabrication business, and several
companies target the same client partners as Enerflex in markets where margins can be low and contract
negotiations can be challenging. With respect to new market entrants, the Company faces increasing
competition in LATAM and EH.
Consolidation within Enerflex’s customer base further increases competitive pressures, as the balance of
supply-and-demand is disrupted, and the Company is forced to compete for business from a smaller pool of
customers. In AMS, customers may develop their own internal after-market service capabilities, further
reducing the pool of potential customers. There is an ongoing risk that Enerflex’s competitors expand their
service offering or fabricate new equipment, or develop relationships with Enerflex’s key original equipment
manufacturers, which would create additional competition for the products, equipment, or services that
Enerflex offers to client partners.
Some of the Company’s competitors, particularly in the EI and ES product lines, are large, multi-national
companies that 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,
leverage more cost-efficient internal supply chains, and adopt more aggressive pricing policies.
In terms of financial and operational performance, the Company faces considerable market pressure from
competitors that may have lower costs of capital, diverse capital structures, and alternative reporting metrics.
There is a risk that Enerflex is unable to take advantage of opportunities or be competitive on pricing to the
extent necessary to compete with these companies, both for the reasons set out above and because of capital
constraints, debt levels, and the costs associated with the stringent compliance requirements that apply to
Enerflex as a public company.
The Company’s ability to secure new business, maintain its market share, and achieve its strategic objectives
could be affected by any one or more of these competitive pressures. This could have a material and adverse
impact the Company’s business, financial condition, and results of operations, as well as on the price and
liquidity of Enerflex’s securities. A detailed discussion of the competitive conditions in Enerflex’s principal
markets, and an assessment of Enerflex’s competitive position, is included the “Competitive Conditions”
section in the Company’s AIF.
Economic and industry volatility could impact Enerflex’s financial position
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 of 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. More generally, the supply and demand for oil and natural
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 by the Russian invasion of Ukraine as well
as recent conflicts in the Middle East, which have had a substantial impact on supply and resulted in significant
and rapid commodity price increases. More recently the actual or threatened imposition of import tariffs and
retaliatory measures have created volatility in markets which can influence the demand for, or price, of the
Company’s solutions.
If economic conditions or international markets decline unexpectedly, or if there is an actual or perceived
downturn in commodity prices over the long term, oil and gas producing client partners may decide to cancel
or postpone major capital expenditures. This may lead to financial losses in the short term, and reduced
demand for products and services offered by Enerflex and a restriction in the Company’s ability to generate
recurring revenue over the medium- to long term. The overall impact to the Enerflex business is difficult to
predict and depends on many factors that are continually evolving and not within Enerflex’s control, but any
M- 35
such adverse conditions could have a material adverse effect on the Company’s business, financial condition,
and results of operations.
Adverse economic conditions present additional risks to Enerflex’s business. A strong USD can make
Engineered Systems fabricated in the USA less competitive in markets outside of the USA, adversely impacting
the Company’s reputation and competitive position in international markets and adversely affecting cash
flows and access to capital for larger BOOM projects. The longer development cycle of BOOM projects also
makes them particularly susceptible to the negative impacts of higher inflation, which presents financial risk
over the lifetime of longer-term projects.
Conversely, 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 client partners 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.
The Company's liabilities include long-term debt that may be subject to fluctuations in interest rates. The
Company's 9.00 percent Notes outstanding at December 31, 2024, are at fixed interest rates and therefore will
not be impacted by fluctuations in market interest rates. The Company's RCF, however, is subject to changes
in market interest rates. As at December 31, 2024, the Company had $191 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 and in turn having material
adverse impact on Enerflex’s financial results and financial condition. For each one per cent change in the rate
of interest on the RCF, the change in interest expense for the twelve months ended December 31, 2024, would
be approximately $2 million. All interest charges are recorded in finance costs on the consolidated statements
of earnings (loss). 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” in the Company’s AIF.
Customer needs and expectations are evolving
Enerflex’s ability to remain competitive and to achieve its strategic objectives depends in part on its ability to
develop, adopt, integrate, and deploy new and emerging technologies, and to leverage technological
innovations, across its operations, product, and service offerings. It also depends on its ability to understand
and anticipate the evolving needs and expectations of its customer base more generally, across all the
jurisdictions in which it operates, and to adapt its offerings and pricing to meet those expectations.
Development and adoption of new technologies, and development of new product and service offerings,
requires significant investments of capital and resources, and the expenditure of time and costs in upskilling
and reskilling employees. These costs may or may not be recoverable in the marketplace and may result in
certain products and services being less profitable or economical than anticipated. If the Company is unable
to quickly adapt to customers’ evolving needs and expectations, either by failing to deploy technologically
innovative offerings, or by failing to meet customer expectations as to product and service quality, project
structure, pricing and contractual terms (including the allocation of risk), or otherwise, this could reduce
demand for the Company's products and place Enerflex at a considerable competitive and reputational
disadvantage. The Company’s ability to sustain and create new revenue streams in existing markets and to
enter and compete in new markets may be affected, which could have a material adverse impact on the
operational and financial performance of the Company in the long term. It could also impact the Company’s
financial position through loss of long-term client partner relationships.
Successful execution of energy transition projects 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. 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 client
partners, 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 revenue related to such projects, equipment or facilities, and/or
(iii) cause the market for future energy transition projects, equipment or facilities to be smaller. Any of the
foregoing could have a material adverse effect on the Company’s ability to pursue opportunities in the energy
M-36 Annual Report 2024
transition economy. Additionally, there are many geographies where relevant governments have not adopted
or promulgated regulatory and policy incentives related to energy transition projects and applications. Enerflex
may not be able to participate in providing energy transition solutions to client partners in those geographies
unless and until such regulatory and policy incentives are adopted.
Enerflex’s business requires significant levels of insurance
Enerflex’s operations are subject to many risks, including without limitation risks inherent in the oil and natural
gas services industry, such as equipment defects, and failures; risks of natural disasters with resultant
uncontrollable flows of oil and natural gas, fires, spills, and explosions; and the additional risks identified in
the "Risk Factors" section of the Company's AIF. 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 risks, 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, or that claims
made under the Company’s policies are not in excess of policy limits or subject to substantial deductibles.
Any losses or liabilities not so covered could have a material adverse effect on the Company’s projections,
business, results of operations, and financial condition. 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 Company’s
financial results.
An annual review of insurance coverage is completed to assess the risk of loss and risk mitigation alternatives.
Natural occurrences, and geopolitical activities in recent years have strained insurance markets leading to
increases in insurance costs and limitations on coverage. While Enerflex intends to maintain appropriate
insurance coverage in the future, there can be no assurance that such coverage will be available on
commercially reasonable terms, at levels of risk coverage or policy limits that management deems adequate,
or on terms as favourable as Enerflex's current arrangements. Any claims made under the Company's policies
may cause its premiums to increase.
Enerflex Specific Risks
Exposure to the risks associated with international operations
Enerflex is exposed to risks inherent in conducting international operations, including, but not limited to:
social, political, and economic instability or other adverse social, political, and economic conditions; armed
conflict; recessions and other economic crises that may impact the Company’s cost of conducting business;
adoption of new, or the expansion of existing, sanctions, trade restrictions, or embargoes; imposition of tariffs
or changes to or segmentation of existing tariffs; imposition of price controls; difficulties in staffing and
managing foreign operations including logistical, safety, security, and communication challenges; difficulties,
delays, and expenses experienced or incurred in connection with the movement and clearance of personnel
and goods through the customs and immigration authorities of multiple jurisdictions; difficulty in accessing
remote project sites; difficulty in obtaining external approvals and other permits required to conduct
operations; 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 and the rule of law, 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 appropriately interface with clients
or otherwise act on the Company's behalf in certain jurisdictions.
To the extent Enerflex’s international operations are affected by any of the above, the Company’s business,
financial condition, and results of operations may be materially and adversely affected. To mitigate against
these risks, the Company engages both internal and external legal counsel and expert advisors in each
jurisdiction in which it operates. The Company endeavors to have appropriate contractual protections and
prudent levels of insurance in place to mitigate these risks, although such protections may not be adequate to
cover all losses or liabilities that the Company may incur. See “Risk Factors - Enerflex Specific Risks - Enerflex’s
business requires significant levels of insurance” for the limitations on insurance coverage and associated
risks to the business.
M- 37
Challenges in optimally deploying and accessing capital may impact Enerflex’s
business
Enerflex relies on its cash, as well as the credit and capital markets, to provide some of the capital required to
continue operations. While access to capital does not present an immediate, material risk, Enerflex’s higher
costs of capital and competing demands for capital within the business could adversely impact the
Company’s financial and competitive position. The Company seeks to mitigate these risks by continuing with
disciplined capital spending in 2025 and by continuously improving its capital allocation processes and
assessments.
The Company's current financing agreements contain a number of covenants and restrictions that 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 covenants, financial ratios, or financial tests could result in events of
default, requiring 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.
The Company may also be restricted in its ability to access capital on reasonable commercial terms, if at all,
due to instability or disruptions to the capital markets, including the credit markets, or otherwise. Particularly
for BOOM projects, the ability to access in-country project financing can present challenges. These projects
are typically funded in-part by cash flows from the sale of Engineered Systems, and any reduction in these
cash flows, may further jeopardize Enerflex’s ability to fund these longer-term projects. Lack of access to
capital 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, and the ability to generate
revenue; limiting the ability to refinance debt in the future or borrow additional funds to fund ongoing
operations; and limiting the ability to pay future dividends to shareholders. See “Dividends – Restrictions on
Paying Dividends” in the Company’s AIF.
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, to conduct its 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 client partners and suppliers, or to introduce viruses or other
M-38 Annual Report 2024
malware through “trojan horse” programs into computer networks of the Company, its client partners, or
suppliers. These phishing emails may appear upon a cursory review to be legitimate emails sent by an
employee or representative of Enerflex, its client partners, or suppliers. If a member of Enerflex or a member
of one of its client partners 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 client partners, 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 its information technology infrastructure may be vulnerable to criminal cyberattacks or data security
incidents due to employee or client partner 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.
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.
See “Sustainability – Governance – Cybersecurity and Data Privacy” in the Company’s AIF for details of
Enerflex’s global cybersecurity program.
Reliance on contractors and sub-contractors exposes Enerflex to risk
Where appropriate, Enerflex may partner with third-party contractors to support project execution and delivery
of products and services, and to carry out the operation and maintenance of equipment. These partnerships
are essential for the Company’s success, but they introduce significant risks to the cost, quality, and on-time
completion of projects. While the Company undertakes thorough due diligence of all potential contractors,
they may nevertheless fail to meet the quality standards expected by the Company or its client partners, fail to
properly maintain required operational licences, or face labour or supply chain disruptions that impede their
ability to properly perform their obligations, any of which might give rise to project delays and cost overruns or
damage the Company’s reputation. The Company could suffer similar adverse impacts if there is a breakdown
of the Company’s relationship with a contractor, or if a contractor suffers financial distress or failure. There is
the additional risk that contractors use the knowledge, skills and relationships developed alongside Enerflex
to compete with the Company in future, resulting in loss of future opportunities.
Enerflex endeavors to mitigate these risks through appropriate contracting strategies with contractors, but
Enerflex remains responsible to its client partners for the work performed. Should any of these risks
materialize, they could expose Enerflex to liability and otherwise adversely impact the financial and
operational results of the business.
Enerflex’s operations are subject to foreign exchange risk
In the normal course of operations, the Company is exposed to movements in the Canadian dollar, US dollar,
Australian dollar, and 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 USA, Argentina, Brazil, Colombia, Mexico, Bahrain, Oman, the UAE, and Australia.
M- 39
The types of foreign exchange risk and the Company’s related risk management strategies are set out below.
Further information on Enerflex’s hedging activities is provided in Note 27 “Financial Instruments” in the
Financial Statements for the year ended December 31, 2024.
Transaction Exposure – The Company and its subsidiaries are exposed to translation risk of monetary items
denominated in a currency different from their functional currency. The functional currency of the Company
and Canadian operations is CAD. The operations are primarily exposed to changes in the exchange rates on
transactions denominated in USD.
The Canadian operations of the Company source the majority of its products and major components from the
USA. Consequently, reported costs of inventory and the transaction prices charged to client partners for
equipment and parts are affected by the relative strength of the CAD. The Company also sells compression
and processing packages in foreign currencies, primarily in USD. Most of Enerflex’s international orders are
manufactured in the USA if the contract is denominated in USD. This minimizes the Company’s foreign
currency exposure on these contracts. In the Middle East, the bulk of Enerflex’s operations are in countries
where local currencies have been long-term pegged to the USD, further minimizing foreign currency exposure.
The Company has intercompany loans, receivables and payables with certain of its subsidiaries denominated
in USD.
The Company identifies and hedges all significant transactional currency risks. Measures taken in terms of the
hedging policy may not achieve its objective and may not fully derisk or offset adverse exchange rate
movements, with the result that certain contractual margins are eroded.
The Company remains exposed to foreign exchange risk in light of the ongoing devaluation of the Argentine
peso. The Company has implemented cash management strategies to mitigate foreign exchange losses due
to further devaluation of the Argentine peso, primarily by minimizing cash available to sustain operations.
Translation Exposure – The functional currency of the Company is the CAD while the functional currency of
most of its subsidiaries is the USD. Enerflex uses foreign currency borrowings to hedge against the exposure
that arises from foreign subsidiaries that are translated to the CAD through a net investment hedge.
The Financial Statements of the Company are presented in USD. Assets and liabilities denominated in foreign
currencies are translated into USD using the exchange rates in effect at the reporting dates. Unrealized
translation gains and losses are deferred and included in accumulated other comprehensive losses.
Earnings from foreign currencies are translated into USD at average exchange rates for the period. As a result,
fluctuations in the value of the USD relative to these other currencies will impact reported net earnings.
The business and operations of Enerflex involve inherent project execution risk
Enerflex's project expertise encompasses field production facilities, gas compression and processing plants,
gas lift compression, refrigeration systems, treated water, 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 when compared to 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, penalties for the failure to perform, and may provide for liquidated
damages. Other projects are concluded on a fixed-fee basis, which shifts risk from the client partner to Enerflex
and which could result in unanticipated cost overruns.
The Company's ability to profitably execute on projects for client partners and meet contracted delivery dates
is dependent on numerous factors which include, but are not limited to: changes in project scope; client
partner delays; the availability and timeliness of external approvals and other required permits; skilled labor
availability, productivity, and optimization; the availability of quality contractors to support execution of the
Company’s scope on the projects; the availability and cost of materials, parts, and services; the accuracy of
design, engineering, and construction; the ability to safely access and perform work at the job site; and
weather conditions. Inefficient project execution protocols and use of resources, aging information technology
infrastructure, and over-reliance on manual processes could all also impact the Company’s ability to meet
contracted delivery dates.
Any failure to execute on projects for client partners in a timely and cost-effective manner risks the Company
being held liable for contractual penalties and payment of liquidated damages and could have an adverse
impact on the Company’s reputation and ability to secure new projects. Where such failure relates to a larger
M-40 Annual Report 2024
project, it could have a material adverse effect on the business, financial condition, results of operations,
availability of working capital, and cash flows of the Company, while impacting Enerflex’s operational and
strategic risk tolerance.
Inefficient information technology systems and infrastructure can impede
Enerflex’s operations
The Company is dependent upon information technology systems and infrastructure, and the ability to expand
and continually update this infrastructure, to conduct its daily operations. As these systems and infrastructure
mature, costs of maintenance and repair rise. There is a risk of the Company becoming overly reliant on
manual processes, which could result in operational inefficiencies and disruptions, errors in data and
calculations, and a lack of optimization of data to support decision making throughout the Company’s global
operations. Outdated infrastructure impacts the Company’s business agility, as it may be incompatible with,
or may not have the capacity to support, the leveraging of new technologies required to meet changing market
or customer needs. See also “Risk Factors - Industry specific risks - Customer needs and expectations are
evolving” in the Company’s AIF.
Any one or more of these risks has the potential to adversely impact the Company’s business, operations,
financial position, and reputation. Mitigating these risks requires ongoing investment in the development,
adoption, and integration of advanced applications or systems, which requires significant investments of
capital and resources. This could further adversely impact the Company’s financial position.
M- 41
Significant Accounting Estimates and Judgment
The timely preparation of the 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 Financial Statements:
Revenue Recognition – Performance Obligation Satisfied Over Time
The Company reflects revenue 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 revenue
recognized in a given period.
Certain contracts also include aspects of variable consideration, such as price concessions, discounts,
bonuses, liquidated damages on project delays, penalties, and disputed change orders. 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 revenue relating to performance obligations satisfied at a point in time when control is
transferred to the customer. Management applies judgment to determine the timing of when control is
transferred to the customer – indicated by transfer of the legal title, physical possession, significant risks and
rewards of ownership, or any combination of these indicators. 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
M-42 Annual Report 2024
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, EI Assets – Operating Leases and Intangible Assets
PP&E, EI assets – operating leases, 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 – operating leases, and intangible assets is reviewed on an annual basis. Assessing the reasonableness
of the estimated useful lives of PP&E, EI assets – operating leases, and intangible assets requires judgment
and is based on currently available information. PP&E, EI assets – operating leases, 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 – operating leases, 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 (“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 when there is a lease modification.
EI Assets – Finance Leases Receivable
In calculating the value of the Company’s finance leases receivable, 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. The market rate of
interest is estimated by considering the interest rate of relevant debt instruments with a similar maturity term
to the contract.
Fair Value of Financial Instruments
The fair value of financial instruments is determined using the observable market data at the reporting date.
When the fair value of financial instruments cannot be measured using observable market data, the Company
exercises judgment to determine the appropriate valuation technique and makes assumptions based on the
market conditions at the end of each reporting period. The valuation technique may include the use of third-
party models, incorporating inputs derived from observable market data, such as independent price
publications and credit spreads. Actual values may significantly differ from these estimates.
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.
M- 43
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 using 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 annual assessment performed are detailed in Note 12 “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.
Share-Based Compensation
The Company employs the fair value method of accounting for its share-based compensation. The
determination of the share-based compensation expense 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 23 “Share-Based
Compensation” of the Financial Statements.
M-44 Annual Report 2024
Changes in Accounting Policies
(a) Change in Presentation Currency
Effective January 1, 2024, the Company changed its presentation currency from CAD to USD. The change
provides more relevant reporting of the Company’s financial position, given that a significant portion of the
Company’s legal entities apply USD as its functional currency and a significant portion of the Company’s
expenses, cash flows, assets, and revenue are denominated in USD. The change in presentation currency
represents a voluntary change in accounting policy. The Company has applied the presentation currency
change retrospectively, in accordance with the guidance in IAS 8 “Account Policies, Changes in Accounting
Estimates and Errors”. All periods presented in the Financial Statements have been translated into the new
presentation currency, in accordance with the guidance in IAS 21 “The Effects of Changes in Foreign Exchange
Rates”.
The consolidated statements of earnings (loss) and other comprehensive income (loss) and the consolidated
statements of cash flows have been translated into the presentation currency using the average exchange
rates prevailing during each reporting period. In the consolidated statements of financial position, all assets
and liabilities have been translated using the period-end exchange rates, and all resulting exchange
differences have been recognized in accumulated other comprehensive losses. Shareholders’ equity
balances have been translated using historical rates in effect on the date of the transactions.
The functional currency of the parent Company and all its subsidiaries remain the same and will not be
impacted by the presentation currency change. The functional currency of the parent Company is CAD and
functional currency of most of its subsidiaries is USD.
The change in presentation currency resulted in the following impact on January 1, 2023, opening consolidated
statement of financial position:
Previously reported in CAD
January 1, 2023
Presentation currency
change
Reported in USD
January 1, 2023
Total assets
$
4,258
$
(1,114)
$
3,144
Total liabilities
2,715
(711)
2,004
Total shareholders’ equity
1,543
(403)
1,140
The change in presentation currency resulted in the following impact on the December 31, 2023, consolidated
statement of financial position:
Previously reported in CAD
December 31, 2023
Presentation currency
change
Reported in USD
December 31, 2023
Total assets
$
3,912
$
(954)
$
2,958
Total liabilities
2,518
(614)
1,904
Total shareholders’ equity
1,394
(340)
1,054
The change in presentation currency resulted in the following impact on the year ended December 31, 2023,
consolidated statements of loss and comprehensive loss:
Previously reported in CAD
2023
Presentation currency
change
Reported in USD
2023
Net loss
$
(111)
$
28
$
(83)
Total comprehensive loss
(138)
61
(77)
M- 45
The change in presentation currency resulted in the following impact on the year ended December 31, 2023,
consolidated statements of cash flows:
Previously reported in CAD
2023
Presentation currency
change
Reported in USD
2023
Cash provided by (used in):
Operating activities
$
273
$
(67)
$
206
Investing activities
(159)
40
(119)
Financing activities
(200)
51
(149)
The change in presentation currency resulted in the following impact on the year ended December 31, 2023,
basic and diluted loss per share:
Previously reported in CAD
2023
Presentation currency
change
Reported in USD
2023
Loss per share - basic
$
(0.90)
$
0.23
$
(0.67)
Loss per share - diluted
(0.90)
0.23
(0.67)
(b) 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, 2024, were adopted by the Company as of January
1, 2024. There were no adjustments or additional disclosures that resulted from the adoption of these
amendments.
i. 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. However, disclosure about
covenants is required to help users understand the risk that those liabilities could become repayable within
12 months after the reporting date.
ii. 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 recognize any amount of the gain or loss that relates to the right of use
retained.
(c) New Accounting Pronouncements
The Company has reviewed new and revised accounting pronouncements that have been issued but are not
yet effective.
i. 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 timeframe that allows for a normal administrative delay and through
M-46 Annual Report 2024
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 believes this
amendment will have no significant impact on the Company.
ii. IFRS 9 Financial Instruments (“IFRS 9”) and IFRS 7 Financial Instruments:
Disclosures (“IFRS 7”)
In May 2024, the IASB issued amendments to IFRS 9 and IFRS 7 to clarify financial assets and financial
liabilities are recognized and derecognized at settlement date except for regular way purchases or sales of
financial assets and financial liabilities meeting conditions for new exception. The new exception permits
companies to elect to derecognize certain financial liabilities settled via electronic payment systems earlier
than the settlement date.
They also provide guidelines to assess contractual cash flow characteristics of financial assets, which apply
to all contingent cash flows, including those arising from environmental, social, and governance (ESG)-linked
features.
Additionally, these amendments introduce new disclosure requirements and update others.
The amendments will be effective for years beginning on or after January 1, 2026, with earlier adoption
permitted. The Company is currently evaluating the impact of adopting the amendments to IFRS 9 and IFRS 7
on its Financial Statements.
iii. IFRS 18 Presentation and Disclosure in Financial Statements (“IFRS 18”)
On April 9, 2024, the IASB issued IFRS 18, the new standards on presentation and disclosure in financial
statements. IFRS 18 will require defined subtotals in the Consolidated Statements of Earnings (Loss), require
disclosure of management-defined performance measures (“MPM”), provide principles for the aggregation
and disaggregation of information, and improve comparability across entities and reporting periods. IFRS 18
will replace IAS 1, presentation of financial statements, and retains many of the existing principals in IAS 1.
IFRS 18 will be effective for years beginning on or after January 1, 2027, with earlier application permitted.
Retrospective application is required.
The issuance of IFRS 18 had consequential amendments to other accounting standards as follows:
IAS 7 Statement of Cash Flows (“IAS 7”)
Narrow-scope amendments have been made to IAS 7, which include changing the starting point for
determining cash flows from operations under the indirect method from ‘profit or loss’ to ‘operating profit or
loss’. The optionality around classification of cash flows from dividends and interest in the statement of cash
flows has also largely been removed.
IAS 33 Earnings per Share (“IAS 33”)
IAS 33 has been amended to include additional requirements that permit entities to disclose additional
amounts per share, only if the numerator used in the calculation is an amount attributed to ordinary equity
holders of the parent entity and a total or subtotal identified by IFRS 18, or MPM as defined by IFRS 18.
The Company is currently evaluating the impact of adopting IFRS 18 and the consequential amendments to
other accounting standards on its Financial Statements.
M- 47
Disclosure Controls and Procedures
Management is responsible for establishing and maintaining adequate disclosures controls and processes
(“DC&P”). DC&P 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 and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. 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.
Based on the Company’s evaluation, Management concluded that its DC&P were effective as of December 31,
2024.
Internal Control Over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal control over financial
reporting (“ICFR”). ICFR is a framework designed to provide reasonable assurance regarding the preparation
and reliability of the consolidated financial statements for external reporting in accordance with IFRS.
Under the supervision, and with the participation, of Enerflex’s Management, including the Chief Executive
Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its ICFR as
of December 31, 2024, the end of the period covered by this MD&A. 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 ICFR were effective as of December 31,
2024.
Ernst & Young LLP, an independent registered public accounting firm, who audited and reported on our
Financial Statements for the year ended December 31, 2024, has issued an attestation report on our ICFR as
of December 31, 2024. Their attestation report is included with our Financial Statements.
Remediation of Previously Reported Material Weaknesses
As previously disclosed in Enerflex’s Management Discussion and Analysis for the financial year ended
December 31, 2023, in connection with its assessment for the year ended December 31, 2023, Enerflex’s
Management identified the following material weaknesses in its ICFR that existed as of December 31, 2023
based on the provisions of the COSO 2013 Framework, specifically the control activities, information and
communication, and monitoring components:
•
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.
M-48 Annual Report 2024
To address the material weakness pertaining to a 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, Management implemented the following remediation steps:
•
Developed consistent written policies and control procedures that were sufficiently precise to prevent
and detect errors;
•
Documented all significant processes, the inherent financial reporting risks associated with those
processes, and the controls in place to mitigate those risks;
•
Enhanced resources to support the development of the policies and procedures; and
•
Trained control owners while providing support to ensure understanding of the requirements outlined in
the policies and procedures.
To address the material weakness pertaining to insufficient evidencing and retention of documentation to
support the review and approval of various controls, Management implemented the following remediation
steps:
•
Developed written policies clearly outlining the requirements associated with evidencing and retaining
documentation to support review and approval of all controls;
•
Enhanced resources to support the evidencing and retention of documentation;
•
Provided additional training and support to control owners to ensure understanding of the requirements
for evidencing and retention of documentation to support the review and approval of all controls;
•
Engaged subject matter experts to address and educate control owners on any deficiencies that were
identified through testing.
To address the material weakness pertaining to 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,
Management implemented the following remediation steps:
•
Centralized the identification of all reports used in the execution of internal controls, with the support of
internal audit and third parties;
•
Enhanced resources to support the design and operation of control activities associated with validation
of the accuracy and completeness of information used in the execution of controls;
•
Enhanced the required access controls, change management controls and spreadsheet controls over
the Company’s key reports to ensure that proper validation of the accuracy and completeness of the
data in the key reports; and
•
Provided additional training and support to control owners to ensure understanding of requirements for
evidence and documentation to demonstrate that the reports and data used in the execution of the
internal controls are accurate and complete.
To address the material weakness that 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, Management implemented the following remediation steps:
•
Remediated the above material weaknesses to permit the evaluation of the operating effectiveness of
those controls;
•
Invested in a centrally managed, cross-regional SOx coordination network to drive progress;
•
Established a SOx Steering Committee at the executive leadership level to embed SOx compliance
accountability throughout the Company;
•
Enhanced resources to support remediation of control activities and improve audit evidence protocols;
•
Invested in documenting all significant processes, their inherent financial reporting risks, the controls in
place to mitigate them, and training those accountable for performing the controls;
•
Ensured frequent communication and oversight by the Audit Committee and the Executive Management
Team;
•
Embedded SOx compliance as a component in the 2024 employee compensation model; and
•
Leveraged third party and internal audit resources to support Management’s assessment of the control
environment for 2024 and to address deficiencies identified in a consistent, efficient and effective
manner.
M- 49
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. Except for the changes in connection with our
implementation of the remediation plan discussed above, there have been no significant additional changes
in the design of the Company’s ICFR during the three months ended December 31, 2024, that would materially
affect, or is reasonably likely to materially affect, the Company’s ICFR.
Subsequent Events
Potential USA and Canada Tariffs
The Company continues to closely monitor geopolitical tensions across North America, including the potential
application of tariffs as announced by the USA and Canada Governments subsequent to December 31, 2024.
Enerflex’s operations in the USA, Canada and Mexico are largely distinct in the customers and projects they
serve, and given our diversified operations and proactive risk management, the Company has been working to
mitigate the impact of potential tariffs. The timing and impact of the tariffs on the Company’s financial results
cannot currently be quantified.
Declaration of Dividends
Subsequent to December 31, 2024, Enerflex declared a quarterly dividend of CAD $0.0375 per share, payable
on March 24, 2025, to shareholders of record on March 10, 2025. 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”, “FLI”) 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 FLI. 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 FLI. In particular, this MD&A includes (without limitation) FLI pertaining
to: the ability of the Company to successfully secure service contracts on favourable terms with client partners
to facilitate recurring business; that global demand for natural gas remains and will continue to be robust
particularly in the Company’s key operating regions; disclosures under the heading “Outlook” including: (i) for
2025, steady demand across business lines and geographic regions; (ii) that operating results will be
underpinned by the EI and AMS product lines, which together will account for 65 percent of the Company’s
gross margin before depreciation and amortization; (iii) the EI product line, supported by customer contracts,
will generate approximately $1.5 billion of revenue during their current terms; (iv) in respect of the ES product
line, a majority of the approximate $1.3 billion backlog (as at December 31, 2024), will be converted into
revenue over the next 12 months; (v) ES gross margin before depreciation and amortization is expected to be
more consistent with the historical long-term average for this business line; notwithstanding, near-term
revenue is expected to remain steady; (vi) the direct impact on Enerflex’s business, in light of certain
geopolitical tensions, including potential tariffs, is expected to be mitigated by the Company’s diversified
operations and proactive risk management; (vii) in respect of the USA, expectations that the Company is well
positioned to benefit from growth in domestic energy production; (viii) that the 2025 capital program will be
disciplined with total capital expenditures of $110 million to $130 million, inclusive of approximately $70
million for maintenance and PP&E capital expenditures; (ix) the ability of the Company to increase direct
shareholder returns and the timing and quantum, if any, associated therewith; (x) expectations to settle the
M-50 Annual Report 2024
outstanding amounts with the customer in respect of the EH Cryo project within the next twelve months; and
(xi) the ability of Enerflex to recover all amounts owing in respect of the EH Cryo project, including the unbilled
revenue, if at all; risks that new tariffs imposed along with any countervailing tariffs, may adversely affect the
demand and/or market price for Enerflex's products and/or otherwise adversely affects Enerflex; the
Company’s backlog including the ES backlog and the ability to secure future ES bookings which increases the
backlog in the period they are received; expectations for near-term revenue of the ES business driven by the
backlog of $1.3 billion as at December 31, 2024; the ability of the Company to capitalize on opportunities
should they proceed including opportunities in the LATAM region; the ability of the Company to diversify and
expand its EI and AMS offerings which will offer longer-term stability in earnings; expectations that cashflow
from operations in 2025, together with cash and cash equivalents on hand and currently available credit
facilities, will be sufficient to fund Enerflex’s requirements for investments in working capital and capital
assets; the ability for the Company to continue to meet its covenant requirements of its funded debt, including
the secured RCF and Notes; expectations that the Company uses its cash and cash equivalents, and available
capacity under its RCF to fund its contractual obligations; risks that the assumptions, estimates, and analysis
impacting Enerflex’s growth projections may not materialize for reasons beyond the Company’s control or at
all, and this may negatively impact the Company’s business, financial condition, results of operations, and
cash flow; risks associated with Enerflex’s supply chain and the partial or complete loss of certain suppliers
could result in increased costs and project delays, could have a negative impact on Enerflex’s results of
operations, could damage client partner relationships, and could affect Enerflex’s competitive position; risks
associated with the ability of the Company to obtain and maintain prudent levels of insurance, and that such
coverage will be available on commercially reasonable terms, at levels of risk coverage or policy limits that
management deems adequate, or on terms as favourable as Enerflex's current arrangements; expectations
that third-party service providers have adequate security measures and that such security measures will
prevent any cyber events or computer viruses from impacting the applications upon which Enerflex relies; risks
associated with foreign exchange and movement in the Canadian dollar, US dollar, Australian dollar, and
Brazilian real and efforts by the Company to hedge all significant transactional currency risks and that such
efforts will be successful; the development and continued growth of a future LNG export industry in North
America, that such industry will provide additional opportunities for the Company, 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 CAD $0.0375 per share.
This FLI is 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 FLI 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: industry conditions including supply and demand fundamentals for crude oil and
natural gas; expected increases in natural gas and produced water volumes across Enerflex’s core operating
countries; 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 and/or the impact of tariffs and/or retaliatory tariffs on the supply chain; interest rates and foreign
exchange rates; new environmental, taxation, and other laws and regulations; fundamentals for contract
compression in the USA and expected increases in natural gas production in the Permian and capital spending
discipline from market participants; estimates and assumptions surrounding the expected proceeds and
profitability of the EH Cryo project contract, the estimated degree of completion based on cost progression
and other factors that impact the amount of revenue recognized for the project; improved natural gas prices in
NAM and the medium-term outlook for ES products and services; the fulfilment by our customer partners of
the terms of their contracts; 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 across all
business lines; 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 FLI 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,
M- 51
these statements. The FLI 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 interpretation and treatment of the acquisition of Exterran Corporation by tax
authorities; 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 and to successfully manage and operate the business; risks
associated with technology and equipment, 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, 2024.
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 FLI and FOFI contained herein is expressly qualified in its entirety by the above cautionary statement. The
FLI 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 FLI, whether as a result of new
information, future events or otherwise.
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-47
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 26, 2025
[signed] “Preet S. Dhindsa”
Preet S. Dhindsa
Senior Vice President and 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.
Management is responsible for establishing and maintaining adequate disclosures controls and processes
(“DC&P”). DC&P 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 and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. 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.
Based on the Company’s evaluation, Management concluded that its DC&P were effective as of December 31,
2024.
Management is also responsible for establishing and maintaining adequate internal control over financial
reporting (“ICFR”). ICFR is a framework designed to provide reasonable assurance regarding the preparation
and reliability of the consolidated financial statements for external reporting in accordance with IFRS.
Under the supervision, and with the participation, of Enerflex’s Management, including the Chief Executive
Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its ICFR as
of December 31, 2024. 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 ICFR were effective as of December 31,
2024.
Ernst & Young LLP, an independent registered public accounting firm, who audited and reported on our
Financial Statements for the year ended December 31, 2024, has issued an attestation report on our ICFR as
of December 31, 2024. Their attestation report is included with our Financial Statements.
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. Except for the changes in connection with our
implementation of the remediation plan discussed above, there have been no significant additional changes
in the design of the Company’s ICFR during the three months ended December 31, 2024, that would materially
affect, or is reasonably likely to materially affect, the Company’s ICFR.
[signed] “Marc E. Rossiter”
Marc E. Rossiter
President, Chief Executive Officer, and Director
February 26, 2025
[signed] “Preet S. Dhindsa”
Preet S. Dhindsa
Senior Vice President and Chief Financial Officer
Report of Independent Registered Public Accounting Firm
To the Shareholders and the 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, 2024 and 2023 and January 1, 2023, the related consolidated statements of earnings (loss) and
other comprehensive income (loss), cash flows and changes in equity for the years ended December 31, 2024 and
2023, 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, 2024 and 2023 and January 1, 2023, and its financial performance and its cash flows for the years ended
December 31, 2024 and 2023, 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, 2024, 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 26, 2025 expressed an unqualified opinion
thereon.
Change in Presentation Currency
As discussed in Note 4 to the consolidated financial statements, the Company has elected to change its presentation
currency from Canadian dollars to United States dollars in the year ended December 31, 2024 on a retrospective basis.
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, 2024, the Company recognized $1,238 million of
revenue from the supply of engineered systems. As described in notes 3r, 5 and 21 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
Auditing the Company’s measurement of revenue related to engineered systems projects
recognized using percentage-of-completion accounting, where the Company had not
fulfilled all performance obligations of the contract’s scope of work at December 31,
2024, was determined to be a critical audit matter as it involved significant judgement in
estimating the efforts to complete such projects or to determine the variable consideration
expected under the contract. This requires a high degree of auditor judgement and effort
in evaluating audit evidence related to management assumptions including estimates of
the expected profitability of each contract and estimates of efforts required to complete
any remaining performance obligations. In addition, auditor judgment was involved in
evaluating management’s estimates 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.
We obtained an understanding, evaluated the design and tested the operating effectiveness
of relevant internal controls over the Company’s revenue recognition process including
internal controls over management’s review of the estimated degree of completion based
on cost progression for each contract and management’s validation that the data used in
these estimates was complete and accurate. We also tested internal controls over
management’s estimates related to variable consideration including the Company’s
assessment of factors that can affect these estimates.
To test the measurement of revenue recognized based on 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 estimates of efforts required to complete any
remaining performance obligations by comparing previous cost estimation forecasts to
actual results. For a sample of projects, we also evaluated the reasonableness of
management’s assumptions related to estimated variable consideration by making
inquiries of management about their assessment of factors that can affect these estimates
and examining documentation that supports management’s estimates.
Evaluation of goodwill impairment – Eastern Hemisphere operating segment
Description of the
Matter
At December 31, 2024, the Company's goodwill was $422 million, of that, $258 million
relates to the Eastern Hemisphere operating segment. As disclosed in notes 3k, 5, 12 and
33 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.
Auditing the recoverable amount in the Company’s goodwill impairment test for the
Eastern Hemisphere operating segment was determined to be a critical audit matter as it
involved significant estimation uncertainty and judgement primarily due to the sensitivity
of the estimated recoverable amount to underlying significant assumptions. Significant
assumptions included revenue growth rate, EBIT, terminal growth rate and discount rate,
which are affected by expectations about future market and economic conditions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness
of controls over the Company’s goodwill impairment review process, including controls
over management’s development and review of the significant assumptions described
above and review of the reasonableness of the data utilized in the Company’s valuation
analysis.
To test the estimated recoverable amount of the Company’s Eastern Hemisphere
operating segment, 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
evaluated management’s cash flow projections, revenue growth rate, and EBIT to
identify, understand and evaluate changes as compared to historical results. We
compared commodity price forecasts used in management’s revenue growth rate
assumption to external industry outlook data. We involved our valuation specialists to
assess the Company’s impairment model, valuation methodology applied, and certain
significant assumptions, including the discount rate and terminal growth rate. We also
assessed the historical accuracy of management’s estimates and performed sensitivity
analyses on significant assumptions including EBIT and the discount rate to evaluate the
changes in the recoverable amount of the operating segment 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 26, 2025
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, 2024, 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, Enerflex Ltd. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024,
based on the COSO criteria.
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, 2024 and
2023 and January 1, 2023, the related consolidated statements of earnings (loss) and other comprehensive income
(loss), cash flows and changes in equity for the two years ended December 31, 2024 and 2023 and the related notes,
and our report dated February 26, 2025 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 generally accepted accounting principles. 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 generally accepted accounting principles, 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 26, 2025
Consolidated
Financial Statements
Annual Report 2024
66
F- 1
Consolidated Financial Statements
Consolidated Statements of Financial Position
($ United States millions)
December 31, 2024
December 31, 2023
January 1,20231
Assets
Current assets
Cash and cash equivalents
$
92
$
95
$
187
Short-term investments
-
11
-
Accounts receivable (Note 6)
398
398
337
Unbilled revenue2 (Note 6)
157
174
138
Inventories (Note 7)
258
294
273
Work-in-progress related to finance leases (Note 7)
35
-
31
Energy infrastructure (“EI”) assets – finance leases receivable (Note 9b)
49
43
44
Income taxes receivable (Note 19)
3
3
8
Derivative financial instruments (Note 27)
-
-
1
Prepayments
49
58
53
Assets held for sale
-
7
-
Total current assets
1,041
1,083
1,072
Unbilled revenue2 (Note 6)
2
135
165
Property, plant and equipment ("PP&E") (Note 8)
96
104
113
EI assets – operating leases (Note 9a)
713
864
914
EI assets – finance leases receivable (Note 9b)
189
161
173
Lease right-of-use assets (Note 10)
58
62
58
Deferred tax assets (Note 19)
24
21
16
Intangible assets (Note 11)
37
55
76
Goodwill (Note 12)
422
433
498
Other assets (Note 13)
209
40
59
Total assets
$
2,791
$
2,958
$
3,144
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities (Note 14)
$
413
$
424
$
464
Provisions (Note 15)
22
20
14
Income taxes payable (Note 19)
79
56
55
Deferred revenue (Note 16)
375
297
270
Current portion of long-term debt (Note 17)
-
40
20
Lease liabilities (Note 18)
22
19
15
Derivative financial instruments (Note 27)
-
1
1
Other current liabilities
-
6
-
Liabilities associated with assets held for sale
-
5
-
Total current liabilities
911
868
839
Deferred revenue (Note 16)
11
22
25
Long-term debt (Note 17)
708
879
1,007
Lease liabilities (Note 18)
47
57
54
Deferred tax liabilities (Note 19)
48
65
65
Other liabilities
17
13
14
Total liabilities
$
1,742
$
1,904
$
2,004
Shareholders’ equity
Share capital (Note 20)
$
505
$
504
$
503
Contributed surplus
678
678
678
Retained earnings
80
58
151
Accumulated other comprehensive losses
(214)
(186)
(192)
Total shareholders’ equity
1,049
1,054
1,140
Total liabilities and shareholders’ equity
$
2,791
$
2,958
$
3,144
1 Effective January 1, 2024, the Company changed its presentation currency from Canadian dollars to United States dollars. Refer to Note 4 “Changes in Accounting Policies” for
further details.
2 Unbilled revenue was previously titled contract assets. There were no dollar amounts reclassified as a result of the change in name.
See accompanying notes to the consolidated financial statements, including Note 30 “Guarantees, Commitments, and Contingencies”.
F-2 Annual Report 2024
Consolidated Statements of Earnings (Loss) and Other Comprehensive Income (Loss)
Years ended December 31,
($ United States millions, except per share amounts)
2024
2023
Revenue (Note 21)
$
2,414
$
2,343
Cost of goods sold ("COGS")
1,910
1,886
Gross margin
504
457
Selling, general and administrative expenses ("SG&A") (Note 22)
327
293
Foreign exchange ("FX") loss
4
43
Operating income
173
121
Loss on disposal of PP&E (Note 8)
-
(2)
Loss on financial instruments
(11)
(14)
Gain on redemption options (Note 13)
17
-
Equity earnings from associates and joint ventures
-
2
Impairment of goodwill (Note 12)
-
(65)
Earnings before finance costs and income taxes (“EBIT”)
179
42
Net finance costs (Note 25)
98
94
Earnings (loss) before income taxes (“EBT”)
81
(52)
Current income taxes
72
39
Deferred income taxes
(23)
(8)
Income taxes (Note 19)
49
31
Net earnings (loss)
$
32
$
(83)
Other comprehensive income (loss)
Items that may be reclassified to profit or loss in subsequent periods:
Gain on derivatives designated as cash flow hedges transferred to net earnings (loss), net of
income tax expense
1
-
Unrealized gain (loss) on translation of foreign-denominated debt
(51)
15
Unrealized gain (loss) on translation of financial statements of foreign operations
22
(9)
Other comprehensive income (loss)
(28)
6
Total comprehensive income (loss)
$
4
$
(77)
Earnings (loss) per share – basic (Note 26)
$
0.26
$
(0.67)
Earnings (loss) per share – diluted (Note 26)
$
0.26
$
(0.67)
Weighted average number of shares – basic
124,023,920
123,834,242
Weighted average number of shares – diluted
124,164,271
123,834,242
See accompanying notes to the consolidated financial statements.
F- 3
Consolidated Statements of Cash Flows
Years ended December 31,
($ United States millions)
2024
2023
Operating Activities
Net earnings (loss)
$
32
$
(83)
Items not requiring cash and cash equivalents:
Depreciation and amortization
185
198
Equity earnings from associates and joint ventures
-
(2)
Deferred income taxes (Note 19)
(23)
(8)
Share-based compensation expense (Note 23)
29
6
Loss on disposal of PP&E (Note 8)
-
2
Loss on financial instruments
11
14
Gain on redemption options (Note 13)
(17)
-
Impairment of EI assets – operating leases (Note 9a)
1
1
Impairment of goodwill (Note 12)
-
65
218
193
Net change in working capital and other (Note 29)
106
13
Cash provided by operating activities
$
324
$
206
Investing Activities
Additions to:
PP&E (Note 8)
$
(16)
$
(16)
EI assets – operating leases (Note 9a)
(59)
(90)
Intangibles (Note 11)
(2)
(5)
Proceeds on disposal of:
PP&E (Note 8)
-
6
EI assets – operating leases (Note 9a)
3
24
Net purchases of financial instruments
-
(25)
Net change in working capital associated with investing activities
15
(13)
Cash used in investing activities
$
(59)
$
(119)
Financing Activities
Repayment of the Revolving Credit Facility (Note 17)
$
(41)
$
(102)
Repayment of the Notes (Note 17)
(62)
-
Repayment of the Term Loan (Note 17)
(130)
(20)
Lease liability principal repayment (Note 18)
(20)
(15)
Dividends
(9)
(9)
Stock option exercises (Note 20)
1
1
Deferred transaction costs
(2)
(4)
Cash used in financing activities
$
(263)
$
(149)
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies
$
(5)
$
(30)
Decrease in cash and cash equivalents
(3)
(92)
Cash and cash equivalents, beginning of period
95
187
Cash and cash equivalents, end of period
$
92
$
95
See accompanying notes to the consolidated financial statements.
F-4 Annual Report 2024
Consolidated Statements of Changes in Equity
($ United States millions)
Share
capital
Contributed
surplus
Retained
earnings
Foreign
currency
translation
adjustments
Hedging
reserve
Accumulated
other
comprehensive
losses
Total
At January 1, 2023
$
503
$
678
$
151
$
(191)
$
(1)
$
(192)
$
1,140
Net loss
-
-
(83)
-
-
-
(83)
Other comprehensive income
-
-
-
6
-
6
6
Effect of stock option plans (Note 20)
1
-
-
-
-
-
1
Dividends
-
-
(10)
-
-
-
(10)
At December 31, 2023
$
504
$
678
$
58
$
(185)
$
(1)
$
(186)
$
1,054
Net earnings
-
-
32
-
-
-
32
Other comprehensive loss
-
-
-
(29)
1
(28)
(28)
Effect of stock option plans (Note 20)
1
-
-
-
-
-
1
Dividends
-
-
(10)
-
-
-
(10)
At December 31, 2024
$
505
$
678
$
80
$
(214)
$
-
$
(214)
$
1,049
See accompanying notes to the consolidated financial statements.
F- 5
Notes to the Consolidated Financial Statements
(All amounts in millions of United States 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 our client partners' 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 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 over 4,600 employees worldwide. Enerflex, its subsidiaries,
interests in associates and joint operations, operates in 17 countries globally, spanning North America
(“NAM”), Latin America (“LATAM”), and the Eastern Hemisphere (“EH”). Enerflex operates four business
segments and reports in three business segments: Canada and the United States of America (“USA”), which
combine into the NAM reporting segment, LATAM which includes our operations in Mexico and South America,
and EH which includes the Company’s international operations in Europe, Africa, the Middle East, Australia,
and Asia.
The following table represents Enerflex and its material subsidiaries as at December 31, 2024:
Name
Jurisdiction of
Incorporation
Ownership
Reporting Segment
Enerflex Ltd.
Canada
Public Shareholders
North America
Enerflex International Holdings Ltd.
Barbados
100 percent
Eastern Hemisphere
Enerflex Energy Systems Inc.
Delaware, USA
100 percent
North America
Enerflex US Holdings Inc.
Delaware, USA
100 percent
North America
Exterran Energy Solutions, LP
Delaware, USA
100 percent
North America
Enerflex Energy Systems (Australia) PTY Ltd.
Australia
100 percent
Eastern Hemisphere
Enerflex Middle East LLC
Oman
70 percent1
Eastern Hemisphere
Enerflex Middle East WLL
Bahrain
100 percent
Eastern Hemisphere
Enerflex Holding Company NL B.V.
Netherlands
100 percent
Eastern Hemisphere
Exterran Middle East LLC
Oman
100 percent
Eastern Hemisphere
1 Enerflex Ltd. holds 100 percent of the beneficial interest.
F-6 Annual Report 2024
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 26, 2025. 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 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.
(c) Functional Currency and Presentation Currency
The Company changed its presentation currency of the Financial Statements from Canadian dollars
(“CAD”) to United States dollars (“USD”). This change in accounting policy is detailed in Note 4. The
Financial Statements are rounded to the nearest million, 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) 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
USD 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 losses.
F- 7
All foreign exchange gains and losses are taken to the consolidated statements of earnings (loss) with the
exception of exchange differences arising on monetary assets and liabilities that form part of the
Company’s net investment in subsidiaries. These are taken directly to other comprehensive income (loss)
until the disposal of the foreign subsidiary at which time the unrealized gain or loss is recognized in the
consolidated statements of earnings (loss).
On the disposal of a foreign subsidiary, accumulated exchange differences are recognized in the
consolidated statements of earnings (loss) as a component of the gain or loss on disposal.
(b) 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.
(c) 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 Management’s
best estimate of future expected credit losses, considering historical experience of bad debts, current
economic conditions and forecasts of future economic conditions; 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 written off when they are assessed as uncollectible.
(d) Unbilled Revenue
The payment terms and conditions in customer contracts may vary from the timing of revenue recognition.
Unbilled revenue result when the Company has recognized revenue based on performance obligations
satisfied, but invoicing has not occurred. Once the contract permits invoicing, the unbilled revenue are
reclassified to trade receivables. Amounts recognized as current unbilled revenue are typically billed to
customers within 12 months and amounts recognized as non-current unbilled revenue will be billed to
customers more than 12 months from the date of the statement of financial position.
(e) Inventories
Inventories are valued at the lower of cost and net realizable value, and primarily consists of direct
materials, repair and distribution parts, work-in-progress, and equipment. The cost of equipment and
work-in-progress is determined on a first-in, first-out basis, while direct materials and repair and
distribution parts are valued using the weighted average cost method.
Cost of direct materials, repair and distribution parts, and equipment, include purchase costs and costs
incurred in bringing each product to its present location and condition.
Cost of work-in-progress includes the 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 EI assets that will be accounted for as finance leases. Once the EI asset is completed and
enters service, the costs will be recognized as COGS.
Cost of inventories includes the transfer from accumulated other comprehensive losses 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.
F-8 Annual Report 2024
(f)
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
Estimated Useful Life Range
Buildings
5 to 20 years
Equipment
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 (loss) 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.
(g) EI Assets – Operating Leases
EI assets – operating leases 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 30 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 from the time of the
overhaul to the next major overhaul. 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.
(h) 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.
F- 9
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.
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)
the lease transfers ownership of the underlying asset to the lessee by the end of the lease term;
b)
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;
c)
the lease term is for 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 substantially all
of the fair value of the underlying asset; and
e)
the underlying asset is of such a specialised nature that only the lessee can use it without major
modifications.
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.
Amounts due from lessees under finance leases are recorded as EI assets – finance leases 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 EI assets – finance leases 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 included in
EI revenue.
(i)
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 expenses in the
consolidated statements of earnings (loss). 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.
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 eleven years.
F-10 Annual Report 2024
(j)
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 (loss).
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 depreciation, had no
impairment loss been recognized for the asset in prior years. Any impairment reversal is recognized in the
consolidated statements of earnings (loss).
(k) 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 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 (loss). Impairment
losses on goodwill are not reversed.
(l)
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 (loss) 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 or joint ventures are eliminated to the extent of the interest in the associates or
joint ventures.
The Company’s share of profits from associates and joint ventures is shown on the face consolidated
statements of earnings (loss). 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.
F- 11
(m) 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.
(n) 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. Onerous provision is reversed
once the Company fulfils its contractual obligations or upon termination of the contract.
(o) 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 consolidated
statements of earnings (loss) as the underlying products and services are delivered. Amounts recognized
as current deferred revenue are typically recognized into revenue within 12 months and amounts
recognized as non-current deferred revenue will be recognized into revenue more than 12 months from
the date of the statement of financial position.
(p) 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 derivative financial instruments, 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, derivative and embedded derivative financial instruments are measured
at FVTPL. Gains and losses resulting from the periodic revaluation are recorded in the
consolidated statements of earnings (loss);
•
Cash and cash equivalents, accounts receivable, unbilled revenue, EH Cryo project asset and
preferred shares are recorded at amortized cost using the effective interest rate method; and
F-12 Annual Report 2024
•
Accounts payable and accrued liabilities, other current 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 (loss)
using the effective interest rate method.
(q) 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.
Derivative financial instruments embedded in financial contracts are assets and liabilities that are
accounted for as separate derivatives if their risks and characteristics are not closely related to their host
contracts, and the contracts are not measured at fair value. The embedded derivative components of
these hybrid financial instruments are measured at fair value at each reporting date with gains or losses in
fair value recognized through profit or loss.
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 losses,
net of taxes. The ineffective portion of the fair value changes is recognized in the consolidated statements
of earnings (loss). Amounts charged to accumulated other comprehensive losses are reclassified to the
consolidated statements of earnings (loss) when the hedged transaction affects the consolidated
statements of earnings (loss).
The Company’s US 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 US dollar-denominated long-term debt are included in the cumulative translation account in other
comprehensive income (loss).
Designated hedges are assessed at each reporting date to determine if the relationship between the
derivative or other hedging instrument and the underlying hedged exposure is still effective.
(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
F- 13
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 (loss).
At inception of a contract, all leases are classified as either an operating or finance lease. Classification
of leases where the Company is a lessor is described in See Note 3 (h) Leases.
Lease payments from operating leases are recorded as EI revenue on a straight-line basis over the life of
the lease. At commencement of finance leases, the Company recognizes revenue and EI assets – finance
leases receivable equal to the net investment in the lease. The revenue is determined as the lower of the
fair value of the EI asset and the present value of minimum lease payments discounted using the market
rate of interest. Revenue from contracts that have been classified as finance leases relating to existing or
pre-owned equipment, are recorded as EI revenue. 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”) revenue include the sales of parts and equipment, as well as the servicing
and maintenance of equipment not owned by the Company. 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 service.
Revenue from long-term service contracts 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 customers’ 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 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.
The Company has elected to omit adjusting for significant financing components in the 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.
F-14 Annual Report 2024
(s) 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.
(t)
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 debt, amortization of the Notes discount using the effective
interest rate method, interest incurred on lease liabilities and other interest expense.
(u) Share-Based Payments
Equity-Settled Share-Based Payments
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 23 “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 (loss).
The Company also offers a Phantom Share Entitlement (“PSE”) plan to certain employees of affiliates
located in Australia and the United Arab Emirates ("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 (loss). The award entitlements for increases
in the share trading value of the Company are to be paid to the recipient in cash upon exercise.
(v) 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 (loss) 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 Financial Statements and the
corresponding tax bases used in the computation of taxable profit, with the following exceptions:
F- 15
•
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 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 (loss).
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 (loss) and the consolidated statement of financial
position.
The Company is within the scope of the Organization for Economic Co-operation and Development Pillar
Two model rules, and under this 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. The Company has applied the temporary exception from the accounting
requirements for deferred taxes in relation to Pillar Two legislation. Accordingly, the Company neither
recognizes nor discloses information about deferred tax assets and liabilities related to Pillar Two income
taxes.
(w) 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.
F-16 Annual Report 2024
Note 4. Changes in Accounting Policies
(a) Change in Presentation Currency
Effective January 1, 2024, the Company changed its presentation currency from CAD to USD. The change
will provide more relevant reporting of the Company’s financial position, given that a significant portion of
the Company’s legal entities apply USD as its functional currency and a significant portion of the
Company’s expenses, cash flows, assets, and revenue are denominated in USD. The change in
presentation currency represents a voluntary change in accounting policy. The Company has applied the
presentation currency change retrospectively, in accordance with the guidance in IAS 8 “Account Policies,
Changes in Accounting Estimates and Errors”. All periods presented in the Financial Statements have
been translated into the new presentation currency, in accordance with the guidance in IAS 21 “The Effects
of Changes in Foreign Exchange Rates”.
The consolidated statements of earnings (loss) and other comprehensive income (loss) and the
consolidated statements of cash flows have been translated into the presentation currency using the
average exchange rates prevailing during each reporting period. In the consolidated statements of
financial position, all assets and liabilities have been translated using the period-end exchange rates, and
all resulting exchange differences have been recognized in accumulated other comprehensive losses.
Shareholders’ equity balances have been translated using historical rates in effect on the date of the
transactions.
The functional currency of the parent Company and all its subsidiaries remain the same and will not be
impacted by the presentation currency change. The functional currency of the parent Company is CAD
and functional currency of most of its subsidiaries is USD.
The change in presentation currency resulted in the following impact on January 1, 2023, opening
consolidated statement of financial position:
Previously reported in CAD
January 1, 2023
Presentation currency
change
Reported in USD
January 1, 2023
Total assets
$
4,258
$
(1,114)
$
3,144
Total liabilities
2,715
(711)
2,004
Total shareholders’ equity
1,543
(403)
1,140
The change in presentation currency resulted in the following impact on the December 31, 2023,
consolidated statement of financial position:
Previously reported in CAD
December 31, 2023
Presentation currency
change
Reported in USD
December 31, 2023
Total assets
$
3,912
$
(954)
$
2,958
Total liabilities
2,518
(614)
1,904
Total shareholders’ equity
1,394
(340)
1,054
The change in presentation currency resulted in the following impact on the year ended December 31,
2023, consolidated statements of loss and comprehensive loss:
Previously reported in CAD
2023
Presentation currency
change
Reported in USD
2023
Net loss
$
(111)
$
28
$
(83)
Total comprehensive loss
(138)
61
(77)
F- 17
The change in presentation currency resulted in the following impact on the year ended December 31,
2023, consolidated statements of cash flows:
Previously reported in CAD
2023
Presentation currency
change
Reported in USD
2023
Cash provided by (used in):
Operating activities
$
273
$
(67)
$
206
Investing activities
(159)
40
(119)
Financing activities
(200)
51
(149)
The change in presentation currency resulted in the following impact on the year ended December 31,
2023, basic and diluted loss per share:
Previously reported in CAD
2023
Presentation currency
change
Reported in USD
2023
Loss per share - basic
$
(0.90)
$
0.23
$
(0.67)
Loss per share - diluted
(0.90)
0.23
(0.67)
(b) Amendments to Existing Standards
The following amendments, effective for annual periods beginning on or after January 1, 2024, were
adopted by the Company as of January 1, 2024. There were no adjustments or additional disclosures that
resulted from the adoption of these amendments.
(i) 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. The new
amendments specify that only covenants which a company must comply with 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. However, disclosure about
covenants is required to help users understand the risk that those liabilities could become repayable
within 12 months after the reporting date.
(ii) 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.
(c) New Accounting Pronouncements
The Company has reviewed new and revised accounting pronouncements that have been issued but are
not yet effective.
(i) 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 timeframe 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
F-18 Annual Report 2024
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 believes the
adoption of these amendments will have no significant impact on the Company’s Financial Statements.
(ii) IFRS 9 Financial Instruments (“IFRS 9”) and IFRS 7 Financial Instruments: Disclosures (“IFRS 7”)
In May 2024, the IASB issued amendments to IFRS 9 and IFRS 7 to clarify financial assets and financial
liabilities are recognized and derecognized at settlement date except for regular way purchases or sales
of financial assets and financial liabilities meeting conditions for new exception. The new exception
permits companies to elect to derecognize certain financial liabilities settled via electronic payment
systems earlier than the settlement date.
They also provide guidelines to assess contractual cash flow characteristics of financial assets, which
apply to all contingent cash flows, including those arising from environmental, social, and governance
(ESG)-linked features.
Additionally, these amendments introduce new disclosure requirements and update others.
The amendments will be effective for years beginning on or after January 1, 2026, with earlier adoption
permitted. The Company is currently evaluating the impact of the amendments to IFRS 9 and IFRS 7 on its
Financial Statements.
(iii) IFRS 18 Presentation and Disclosure in Financial Statements ("IFRS 18")
On April 9, 2024, the IASB issued IFRS 18, the new standards on presentation and disclosure in financial
statements. IFRS 18 will require defined subtotals in the consolidated statements of earnings (loss),
require disclosure of management-defined performance measures (“MPM”), provide principles for the
aggregation and disaggregation of information, and improve comparability across entities and reporting
periods. IFRS 18 will replace IAS 1, presentation of financial statements, and retains many of the existing
principals in IAS 1. IFRS 18 will be effective for years beginning on or after January 1, 2027, with earlier
application permitted. Retrospective application is required.
The issuance of IFRS 18 had consequential amendments to other accounting standards as follows:
IAS 7 Statement of Cash Flows (“IAS 7”)
Narrow-scope amendments have been made to IAS 7, which include changing the starting point for
determining cash flows from operations under the indirect method from ‘profit or loss’ to ‘operating profit
or loss’. The optionality around classification of cash flows from dividends and interest in the statement
of cash flows has also largely been removed.
IAS 33 Earnings per Share (“IAS 33”)
IAS 33 has been amended to include additional requirements that permit entities to disclose additional
amounts per share, only if the numerator used in the calculation is an amount attributed to ordinary equity
holders of the parent entity and a total or subtotal identified by IFRS 18, or MPM as defined by IFRS 18.
The Company is currently evaluating the impact of adopting IFRS 18 and the consequential amendments
to other accounting standards on its Financial Statements.
F- 19
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 Financial Statements:
Revenue Recognition – Performance Obligation Satisfied Over Time
The Company reflects revenue 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 revenue
recognized in a given period.
Certain contracts also include aspects of variable consideration, such as price concessions, discounts,
bonuses, liquidated damages on project delays, penalties, and disputed change orders. 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 revenue relating to performance obligations satisfied at a point in time when control is
transferred to the customer. Management applies judgment to determine the timing of when control is
transferred to the customer – indicated by transfer of the legal title, physical possession, significant risks and
rewards of ownership, or any combination of these indicators. 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,
F-20 Annual Report 2024
including revenue growth rates, projected cash flows, customer attrition rates, operating margins, discount
rates, and economic lives.
PP&E, EI Assets – Operating Leases and Intangible Assets
PP&E, EI assets – operating leases, 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 – operating leases, and intangible assets is reviewed on an annual basis. Assessing the reasonableness
of the estimated useful lives of PP&E, EI assets – operating leases, and intangible assets requires judgment
and is based on currently available information. PP&E, EI assets – operating leases, 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 – operating leases, 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 when there is a lease modification.
EI Assets – Finance Leases Receivable
In calculating the value of the Company’s finance leases receivable, 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. The market rate of
interest is estimated by considering the interest rate of relevant debt instruments with a similar maturity term
to the contract.
Fair Value of Financial Instruments
The fair value of financial instruments is determined using the observable market data at the reporting date.
When the fair value of financial instruments cannot be measured using observable market data, the Company
exercises judgment to determine the appropriate valuation technique and makes assumptions based on the
market conditions at the end of each reporting period. The valuation technique may include the use of third-
party models, incorporating inputs derived from observable market data, such as independent price
publications and credit spreads. Actual values may significantly differ from these estimates.
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- 21
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 12 “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.
Share-Based Compensation
The Company employs the fair value method of accounting for its share-based compensation. The
determination of the share-based compensation expense 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 23 “Share-Based
Compensation”.
F-22 Annual Report 2024
Note 6. Accounts Receivable and Unbilled Revenue
(a) Accounts Receivable
Accounts receivable consisted of the following:
December 31, 2024
December 31, 2023
January 1, 2023
Trade receivables
$
400
$
400
$
339
Less: allowance for doubtful accounts
(11)
(9)
(6)
Trade receivables, net
389
391
333
Other receivables
9
7
4
Accounts receivable
$
398
$
398
$
337
Aging of trade receivables:
December 31, 2024
December 31, 2023
January 1, 2023
Current to 90 days
$
308
$
333
$
300
Over 90 days
92
67
39
Trade receivables
$
400
$
400
$
339
Movement in allowance for doubtful accounts:
December 31,
2024
2023
Opening balance
$
9
$
6
Impairment provision additions on receivables
2
1
Amounts settled and derecognized during the period
-
2
Closing balance
$
11
$
9
(b) Unbilled Revenue
Movement in unbilled revenue:
December 31,
2024
2023
Opening balance
$
309
$
303
Unbilled revenue recognized
766
1,011
Amounts billed
(753)
(1,004)
Transfer of EH Cryo project asset (Note 13)
(161)
-
Currency translation effects
(2)
(1)
Closing balance
$
159
$
309
Current unbilled revenue
$
157
$
174
Non-current unbilled revenue
2
135
Total unbilled revenue
$
159
$
309
F- 23
Note 7. Inventories
Inventories consisted of the following:
December 31, 2024
December 31, 2023
January 1, 2023
Direct materials
$
85
$
70
$
79
Repair and distribution parts
94
115
101
Work-in-progress
62
90
73
Equipment
17
19
20
Total inventories
$
258
$
294
$
273
December 31, 2024
December 31, 2023
January 1, 2023
Work-in-progress related to finance leases
$
35
$
-
$
31
The amount of inventory and overhead costs recognized as expense and included in COGS during the year
ended December 31, 2024, was $1,910 million (December 31, 2023 – $1,886 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 earnings (loss) and included in COGS for the year ended December 31, 2024, was $3 million
(December 31, 2023 – less than $1 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.
F-24 Annual Report 2024
Note 8. Property, Plant and Equipment
A reconciliation of the changes in the carrying amount of PP&E were as follows:
Building
Equipment
Assets under
Total
Estimated useful life
Land
5 to 20 years
2 to 20 years
construction
PP&E
Cost
December 31, 2023
$
17
$
104
$
62
$
7
$
190
Additions
-
-
2
14
16
Reclassification
-
5
9
(15)
(1)
Disposals
-
(5)
(7)
-
(12)
Currency translation effects
-
(2)
(3)
(1)
(6)
December 31, 2024
$
17
$
102
$
63
$
5
$
187
Accumulated depreciation
December 31, 2023
$
-
$
(42)
$
(44)
$
-
$
(86)
Depreciation charge
-
(10)
(10)
-
(20)
Disposals
-
5
7
-
12
Currency translation effects
-
1
2
-
3
December 31, 2024
$
-
$
(46)
$
(45)
$
-
$
(91)
Net book value – December 31, 2024
$
17
$
56
$
18
$
5
$
96
Building
Equipment
Assets under
Total
Estimated useful life
Land
5 to 20 years
2 to 20 years
construction
PP&E
Cost
January 1, 2023
$
18
$
112
$
67
$
3
$
200
Additions
-
-
2
14
16
Reclassification
-
2
10
(13)
(1)
Disposals
-
(6)
(13)
-
(19)
Reclassified to assets held for sale
-
(4)
(2)
-
(6)
Currency translation effects
(1)
-
(2)
3
-
December 31, 2023
$
17
$
104
$
62
$
7
$
190
Accumulated depreciation
January 1, 2023
$
-
$
(43)
$
(44)
$
-
$
(87)
Depreciation charge
-
(7)
(13)
-
(20)
Disposals
-
3
9
-
12
Reclassified to assets held for sale
-
4
2
-
6
Currency translation effects
-
1
2
-
3
December 31, 2023
$
-
$
(42)
$
(44)
$
-
$
(86)
Net book value – December 31, 2023
$
17
$
62
$
18
$
7
$
104
Depreciation of PP&E included in net earnings for the year ended December 31, 2024, was $20 million
(December 31, 2023 – $20 million), of which $10 million was included in COGS (December 31, 2023 – $8
million) and $10 million was included in SG&A (December 31, 2023 – $12 million).
F- 25
Note 9. Energy Infrastructure Assets
The Company’s EI assets are comprised of Build-Own-Operate-Maintain (“BOOM”) assets, and contract
compression assets which are leased to customers. At the inception of a lease contract, all leases are
classified as either an operating lease or finance lease.
(a) EI Assets – Operating Leases
EI assets under lease arrangements that are classified and accounted for as operating leases under the
definition of IFRS 16 are stated at cost less accumulated depreciation and impairment losses. The estimated
useful lives of EI assets are generally between five and 30 years.
A reconciliation of the changes in the carrying amount of EI assets was as follows:
December 31,
2024
2023
Cost
Balance, January 1
$
1,142
$
1,129
Additions
59
90
Disposals1
(119)
(70)
Currency translation effects
(23)
(7)
Total cost
$
1,059
$
1,142
Accumulated depreciation
Balance, January 1
$
(278)
$
(215)
Depreciation charge
(111)
(127)
Impairment
(1)
(1)
Disposals1
27
53
Currency translation effects
17
12
Total accumulated depreciation
$
(346)
$
(278)
Net book value
$
713
$
864
1 During the first quarter of 2024, disposals include the conversion of a BOOM asset, which was previously accounted for as an operating lease, to a finance
lease as a result of a contract modification.
Depreciation of EI assets – operating leases included in COGS for the year ended December 31, 2024, was
$111 million (December 31, 2023 – $127 million).
Impairment of EI assets – operating leases included in net earnings for the year ended December 31, 2024, was
$1 million (December 31, 2023 – $1 million).
During the year ended December 31, 2024, the Company recognized $229 million of revenue related to
operating leases in its LATAM and EH segments (December 31, 2023 – $242 million), and $144 million of
revenue related to its NAM contract compression fleet (December 31, 2023 – $125 million).
F-26 Annual Report 2024
(b) EI Assets – Finance Leases Receivable
Lease arrangements for certain EI assets are considered finance leases when the risks and rewards of
ownership are transferred to the lessee, which generally occurs if ownership of the lease is transferred to the
lessee by the end of the lease term; the lessee has the option to purchase the leased asset at a price that is
sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain,
at the inception date, that option will be exercised; the term of the lease is for the major part of the economic
life of the asset; or the present value of the lease payments amounts to substantially all of the fair value of the
asset.
The Company has finance lease arrangements for certain of its EI assets, with initial terms ranging from 5 to
10 years.
The value of the EI assets – finance leases receivable were comprised of the following:
Minimum lease payments and unguaranteed
residual value
Present value of minimum lease payments and
unguaranteed residual value
December 31,
2024
December 31,
2023
January 1,
2023
December 31,
2024
December 31,
2023
January 1,
2023
Less than one year
$
49
$
46
$
54
$
49
$
43
$
44
Between one and five
years
188
129
145
145
106
110
Greater than five years
54
90
107
44
55
63
$
291
$
265
$
306
$
238
$
204
$
217
Less: Unearned
interest revenue
(53)
(61)
(89)
-
-
-
Closing balance
$
238
$
204
$
217
$
238
$
204
$
217
December 31,
2024
2023
Opening balance
$
204
$
217
Additions1
87
48
Interest revenue
22
23
Payments (principal and interest)
(73)
(59)
Derecognition on disposal
-
(24)
Other
(2)
(2)
Currency translation effects
-
1
Closing balance
$
238
$
204
1 During the first quarter of 2024, additions included the conversion of a BOOM asset, which was previously accounted for as an operating lease, to a finance
lease as a result of a contract modification.
The Company recognized non-cash selling profit related to the commencement of finance leases of $3 million
for the year ended December 31, 2024 (December 31, 2023 – $13 million).
The average interest rates implicit in the leases are fixed at the contract date for the entire lease term. At
December 31, 2024, the average interest rate was 7.6 percent per annum (December 31, 2023 – 8.6 percent,
January 1, 2023 – 9.4 percent). The EI assets – finance leases receivable at the end of reporting period are
neither past due nor impaired.
F- 27
Note 10. Lease Right-of-Use Assets
A reconciliation of the changes in the carrying amount of lease ROU assets were as follows:
Land and
buildings
Equipment
Total lease
ROU assets
Cost
December 31, 2023
$
64
$
30
$
94
Additions
5
18
23
Disposals
(7)
(3)
(10)
Currency translation effects
(2)
(3)
(5)
December 31, 2024
$
60
$
42
$
102
Accumulated depreciation
December 31, 2023
$
(22)
$
(10)
$
(32)
Depreciation charge
(11)
(8)
(19)
Disposals
2
3
5
Currency translation effects
2
-
2
December 31, 2024
$
(29)
$
(15)
$
(44)
Net book value – December 31, 2024
$
31
$
27
$
58
Land and
buildings
Equipment
Total lease
ROU assets
Cost
January 1, 2023
$
69
$
19
$
88
Additions
16
17
33
Disposals
(11)
(6)
(17)
Lease remeasurement adjustment
(6)
-
(6)
Reclassified to assets held for sale
(5)
-
(5)
Currency translation effects
1
-
1
December 31, 2023
$
64
$
30
$
94
Accumulated depreciation
January 1, 2023
$
(20)
$
(10)
$
(30)
Depreciation charge
(12)
(5)
(17)
Disposals
8
5
13
Lease remeasurement adjustment
1
-
1
Reclassified to assets held for sale
1
-
1
Currency translation effects
-
-
-
December 31, 2023
$
(22)
$
(10)
$
(32)
Net book value – December 31, 2023
$
42
$
20
$
62
Depreciation of lease ROU assets included in net earnings for the year ended December 31, 2024, was
$19 million (December 31, 2023 – $17 million), of which $16 million was included in COGS (December 31, 2023
– $11 million) and $3 million was included in SG&A (December 31, 2023 – $6 million).
F-28 Annual Report 2024
Note 11. Intangible Assets
A reconciliation of the changes in the carrying amount of intangible assets were as follows:
Customer
relationships
and other
Software
Total intangible
assets
Cost
December 31, 2023
$
112
$
57
$
169
Additions
-
2
2
Reclassification
-
1
1
Disposal
-
(13)
(13)
Currency translation effects
(2)
(3)
(5)
December 31, 2024
$
110
$
44
$
154
Accumulated amortization
December 31, 2023
$
(68)
$
(46)
$
(114)
Amortization charge
(14)
(7)
(21)
Disposal
-
13
13
Currency translation effects
2
3
5
December 31, 2024
$
(80)
$
(37)
$
(117)
Net book value – December 31, 2024
$
30
$
7
$
37
Customer
relationships
and other
Software
Total intangible
assets
Cost
January 1, 2023
$
112
$
55
$
167
Additions
-
5
5
Reclassification
-
1
1
Disposal
-
(1)
(1)
Currency translation effects
-
(3)
(3)
December 31, 2023
$
112
$
57
$
169
Accumulated amortization
January 1, 2023
$
(54)
$
(37)
$
(91)
Amortization charge
(14)
(9)
(23)
Disposal
-
1
1
Currency translation effects
-
(1)
(1)
December 31, 2023
$
(68)
$
(46)
$
(114)
Net book value – December 31, 2023
$
44
$
11
$
55
F- 29
Note 12. Goodwill and Impairment Review of Goodwill
A reconciliation of the changes in goodwill were as follows:
December 31,
2024
2023
Opening balance
$
433
$
498
Impairment
-
(65)
Currency translation effects
(11)
-
Closing balance
$
422
$
433
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, the USA, LATAM, and EH. At December 31, 2024,
the Company performed its annual goodwill assessment by comparing the carrying value and recoverable
amounts for Canada, the USA, and EH operating segments in accordance with IAS 36.10(b). There is no
goodwill remaining in the LATAM operating segment as the Company recognized an impairment of $65 million
as at December 31, 2023.
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, 2024.
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 2025 and Management’s expectations of cash flows
for 2026 to 2029.
Key Assumptions Used in Value-In-Use Calculations:
The Company completed its annual assessment for goodwill impairment and determined that the recoverable
amount for Canada, the USA, and EH operating segments exceeded the carrying value using discount rates
which ranged from 10.1 percent to 13.6 percent (December 31, 2023 – 9.5 percent to 13.5 percent, January 1,
2023 – 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. Assumptions include future EBIT changing by 10 percent
or 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. The EH segment is more sensitive to changes in EBIT and the
discount rate 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 10 percent change in EBIT in the EH segment would not trigger an impairment.
•
Discount Rate: Management determines a discount rate for each segment based on the estimated
weighted average cost of capital 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. A one percent increase in the discount rate in the EH segment would
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.
F-30 Annual Report 2024
Note 13. Other Assets
Other assets were comprised of the following:
December 31, 2024
December 31, 2023
January 1, 2023
EH Cryo project asset (a)
$
161
$
-
$
-
Investment in associates and joint ventures
26
28
25
Redemption options (b)
17
-
-
Prepaid deposits
5
12
9
Long-term receivables
-
-
25
Total other assets
$
209
$
40
$
59
(a) EH Cryo project asset
During the second quarter of 2024, Enerflex suspended site activity on the EH Cryo project, demobilized its
personnel and provided its customer with notice of Force Majeure following a fatal drone attack at an adjacent
facility. Due to the continuing Force Majeure and circumstances that made it impossible for Enerflex to fulfill
its obligations under the EH Cryo project contract, Enerflex terminated the contract during the fourth quarter
of 2024.
The future revenue associated with the cancelled performance obligations of $75 million has been removed
from the Company’s ES backlog. There was no gross margin on the future revenue associated with the
cancelled performance obligation for the EH Cryo project.
On termination of the contract, the Company reassessed the value of the unbilled revenue associated with the
EH Cryo project. The previously recognized unbilled revenue of $178 million associated with the EH Cryo
project was reduced by $17 million to reflect the revised estimated transaction price. The decrease in the
unbilled revenue was accounted for as a reduction to revenue during the fourth quarter of 2024. Management
has made estimates and assumptions surrounding the expected proceeds and profitability of the EH Cryo
project contract, the estimated degree of completion based on cost progression and other factors that impact
the amount of revenue recognized for the project. Although these factors are reviewed as part of the project
management process, changes in these estimates or assumptions could lead to changes in the revenue
recognized.
The Company previously recognized a provision for unrecoverable costs of its obligation to complete the
project (“onerous loss provision”). On termination of the contract during the fourth quarter of 2024, the
outstanding provision of $17 million was derecognized as the Company no longer had an obligation to incur
additional costs to complete the project after termination. The derecognition of the onerous loss provision was
accounted for as a reduction to COGS during the fourth quarter of 2024.
The combined effect of the reduction in unbilled revenue and the derecognition of the onerous loss provision
did not impact the Company’s gross margin.
Management does not expect settlement of the outstanding amounts from the customer within the next twelve
months. As a result, the revised unbilled revenue of $161 million was reclassified to other long-term assets.
Enerflex is seeking to recover all amounts owing, including the unbilled revenue, through arbitration
proceedings.
Since inception of the project, Enerflex has maintained a $31 million Letter of Credit in support of its obligation
under the EH Cryo project contract. Enerflex would view any drawing of the financial security in the prevailing
circumstances as improper and would be considered as an additional receivable owed by the customer. See
the “Legal Proceedings” section of Note 30 for further details.
(b) Redemption Options
The Company’s senior secured notes (“Notes”) contain optional redemption features that allow the Company
to redeem all or part of the Notes at prices set forth in the Notes agreement at a premium, following certain
dates specified in the Notes agreement. These redemption features constitute embedded derivatives that are
required to be separated from the Notes and measured at fair value.
F- 31
The embedded derivative components of these hybrid financial instruments are measured at fair value at each
reporting date with gains or losses in fair value recognized through profit or loss. The decline in risk-free rates
has resulted in a significant increase to the value of the redemption options, and accordingly, the Company
has recognized an embedded derivative asset of $17 million as at December 31, 2024 (December 31, 2023 –
nil, January 1, 2023 – nil) related to these redemption options. At December 31, 2024, the Company recognized
a gain on redemption options of $17 million (December 31, 2023 – nil).
Note 14. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities were comprised of the following:
December 31, 2024
December 31, 2023
January 1, 2023
Trade payables and accrued liabilities
$
395
$
416
$
452
Accrued dividend payable
3
2
2
Cash-settled share-based payments
15
6
10
Total accounts payable and accrued liabilities
$
413
$
424
$
464
Note 15. Provisions
Provisions were comprised of the following:
December 31, 2024
December 31, 2023
January 1, 2023
Warranties
$
16
$
11
$
10
Other provisions
6
9
4
Total provisions
$
22
$
20
$
14
December 31, 2024
Warranties
Other provisions
Total
Opening balance
$
11
$
9
$
20
Additions during the year
13
19
32
Amounts settled and/or released in the year
(8)
(3)
(11)
Reversal
-
(19)
(19)
Closing balance
$
16
$
6
$
22
December 31, 2023
Warranties
Other provisions
Total
Opening balance
$
10
$
4
$
14
Additions during the year
7
6
13
Amounts settled and/or released in the year
(6)
(1)
(7)
Closing balance
$
11
$
9
$
20
F-32 Annual Report 2024
Note 16. Deferred Revenue
Deferred revenue was comprised of the following:
December 31,
2024
2023
Opening balance
$
319
$
295
Cash received in advance of revenue recognition
1,067
660
Revenue subsequently recognized
(996)
(636)
Currency translation effects
(4)
-
Closing balance
$
386
$
319
Current deferred revenue
$
375
$
297
Non-current deferred revenue
11
22
Deferred revenue
$
386
$
319
F- 33
Note 17. Long-Term Debt
The secured revolving credit facility (“RCF”), which was extended during the second quarter of 2024, has a
maturity date of October 13, 2026 (the “Maturity Date”). Availability under the RCF increased to $800 million
from $700 million and may be increased by $50 million at the request of the Company, subject to the lenders’
consent. The Maturity Date of the RCF may be extended annually on or before the anniversary date with the
consent of the lenders. In conjunction with the extension of the RCF, the Company repaid its secured term
loan (“Term Loan”) which had a balance of $120 million at March 31, 2024. The Notes consist of $563 million
principal amount, bears interest of 9.0 percent, and has a maturity of October 15, 2027.
As part of the RCF, the Company can request the issuance of up to $150 million in 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. As at December 31,
2024, the Company utilized $87 million of the $150 million limit. The Company also has an additional $70
million unsecured credit facility (“LC Facility”) with one of the lenders in its RCF. This LC Facility allows the
Company to request the same forms of credits as under the RCF. This LC Facility is supported by performance
security guarantees provided by Export Development Canada. As at December 31, 2024, the Company utilized
$29 million of the $70 million limit.
During the fourth quarter of 2024, the Company completed the partial redemption of $62 million (or 10 percent
of the aggregate principal amount originally issued) of its Notes. The redemption was completed on October
11, 2024 (the “Redemption Date”) at a redemption price of 103 percent of the principal amount of the Notes
being redeemed, plus accrued and unpaid interest up to, but excluding the Redemption Date.
The Company is required to maintain certain covenants on the RCF and the Notes. As at December 31, 2024,
the Company was in compliance with its covenants.
Composition of the borrowings on the RCF, Notes, and the Term Loan were as follows:
Maturity Date
December 31, 2024
December 31, 2023
January 1, 2023
Notes
October 15, 2027
$
563
$
625
$
625
Drawings on the RCF
October 13, 2026
191
238
338
Drawings on the Term Loan
-
130
150
754
993
1,113
Deferred transaction costs and Notes discount
(46)
(74)
(86)
Long-term debt
$
708
$
919
$
1,027
Current portion of long-term debt
$
-
$
40
$
20
Non-current portion of long-term debt
708
879
1,007
Long-term debt
$
708
$
919
$
1,027
The weighted average interest rate on the RCF for the year ended December 31, 2024, was 7.4 percent
(December 31, 2023 – 7.7 percent, January 1, 2023 – 7.0 percent). At December 31, 2024, without considering
renewal at similar terms, the USD equivalent principal payments due over the next five years are $754 million,
and nil thereafter.
F-34 Annual Report 2024
Note 18. Lease Liabilities
December 31,
2024
2023
Opening balance
$
76
$
69
Additions
24
33
Lease interest
4
5
Payments made against lease liabilities (principal and interest)
(24)
(20)
Transfer to liabilities associated with assets held for sale
-
(5)
Disposals
(7)
-
Lease remeasurement adjustment
(1)
(5)
Currency translation effects
(3)
(1)
Closing balance
$
69
$
76
Current portion of lease liabilities
$
22
$
19
Non-current portion of lease liabilities
47
57
Lease liabilities
$
69
$
76
The total cash outflow related to leases were as follows:
Years ended December 31,
2024
2023
Payments made against lease liabilities (principal and interest)
$
24
$
20
Short-term and low value leases
1
-
Variable lease payments in:
COGS
1
1
SG&A
1
1
Total cash outflow for leases
$
27
$
22
Future minimum lease payments under non-cancellable leases were as follows:
December 31, 2024
2025
$
24
2026
19
2027
15
2028
8
2029
4
Thereafter
9
$
79
Less:
Imputed interest
10
Short-term leases
-
Low-value leases
-
Lease liabilities
$
69
F- 35
Note 19. Income Taxes
(a) Income Tax Recognized in Net Earnings
The components of income taxes were as follows:
Years ended December 31,
2024
2023
Current income taxes
$
72
$
39
Deferred income taxes
(23)
(8)
Income taxes
$
49
$
31
(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,
2024
2023
Earnings (loss) before income taxes
$
81
$
(52)
Canadian statutory rate
23.4%
23.5%
Expected income tax provision
$
19
$
(12)
Add (deduct):
Earnings taxed in foreign jurisdictions
22
2
Change in unrecognized deferred tax asset
15
16
Amounts not deductible (taxable) for tax purposes
7
(7)
Impact of OCED Pillar Two current taxes
3
-
Exchange rate effects on tax basis
(16)
17
Impairment of goodwill
-
15
Other
(1)
-
Income taxes
$
49
$
31
The applicable statutory tax rate is the aggregate of the Canadian federal income tax rate of 15.0 percent (2023
– 15.0 percent) and provincial income tax rate of 8.4 percent (2023 – 8.5 percent).
The Company’s effective tax rate is subject to fluctuations in the Argentine peso and Mexican peso exchange
rate against the USD. 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 USD and as a result, the related local currency tax bases are revalued periodically to reflect the closing
USD 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 USD, 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.
The Company did not recognize income tax in other comprehensive income (loss) for the years ended
December 31, 2024 and 2023.
F-36 Annual Report 2024
(c) 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
Total1
December 31, 2023
$
27
$
27
$
(69)
$
(29)
$
(44)
Charged to net earnings
(14)
3
15
19
23
Exchange differences
2
-
(2)
(3)
(3)
December 31, 2024
$
15
$
30
$
(56)
$
(13)
$
(24)
1 Net deferred tax liabilities at December 31, 2024, of $24 million consist of liabilities of $48 million net of assets of $24 million.
Accounting
provisions
and accruals
Tax losses
Long-term
assets
Exchange
rate effects
on tax
bases
Total1
January 1, 2023
$
3
$
42
$
(82)
$
(12)
$
(49)
Charged to net loss
23
(15)
16
(16)
8
Exchange differences
1
-
(3)
(1)
(3)
December 31, 2023
$
27
$
27
$
(69)
$
(29)
$
(44)
1 Net deferred tax liabilities at December 31, 2023, of $44 million consist of liabilities of $65 million net of assets of $21 million (January 1, 2023 – net deferred
tax liabilities of $49 million consist of liabilities of $65 million net of assets of $16 million).
(d) Unrecognized Deferred Tax Assets
As at December 31, 2024, the Company did not recognize deductible temporary differences of $955 million
(December 31, 2023 – $915 million) and unused Canadian tax credits of $1 million (December 31, 2023 – $1
million) for which it is unlikely that sufficient future taxable income will be available to offset against. An
additional $62 million (December 31, 2023 – $59 million) of US 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,
2024
2023
Canadian:
Tax losses
$
229
$
254
Restricted interest
39
-
Long-term assets
(2)
1
Accounting provisions and other accruals
35
15
Foreign:
Tax losses
646
688
Restricted interest
13
-
Long-term assets
(5)
(41)
Accounting provisions and other accruals
-
(2)
Total unrecognized deferred tax assets
$
955
$
915
The Company’s unused tax losses and tax credits are subject to expiration in the years 2025 through 2044 with
some having an indefinite life.
F- 37
Note 20. Share Capital Authorized
The Company is authorized to issue an unlimited number of common shares without par value. 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
2024
2023
December 31,
Number of
common shares
Common
share
capital
Number of
common shares
Common
share capital
Opening balance
123,956,865
$
504
123,739,020
$
503
Exercise of stock options
186,314
1
217,845
1
Closing balance
124,143,179
$
505
123,956,865
$
504
Total dividends declared in the year were $10 million, or CAD $0.1125 per share (December 31, 2023 – $10
million, or CAD $0.10 per share, January 1, 2023 – $7 million, or CAD $0.10 per share).
Note 21. Revenue
Years ended December 31,
2024
2023
Energy Infrastructure
$
668
$
576
After-market Services
508
483
Engineered Systems
1,238
1,284
Total revenue
$
2,414
$
2,343
Revenue by geographic location, which is attributed by destination of sale, was as follows:
Years ended December 31,
2024
2023
USA
$
1,076
$
997
Canada
243
260
Oman
221
164
Argentina
175
163
Nigeria
148
175
Mexico
71
62
Australia
70
63
Brazil
61
76
Peru
54
4
Bahrain
46
94
Guyana
43
6
Thailand
35
30
Colombia
24
21
Iraq
22
144
UAE
18
6
Other
107
78
Total revenue
$
2,414
$
2,343
F-38 Annual Report 2024
The following table outlines the Company’s unsatisfied performance obligations, by product line, as at
December 31, 2024:
Less than
one year
One to two
years
Greater than
two years
Total
Energy Infrastructure
$
427
$
345
$
773
$
1,545
After-market Services
74
36
63
173
Engineered Systems
1,181
84
15
1,280
Total
$
1,682
$
465
$
851
$
2,998
Note 22. Selling, General and Administrative Expenses
SG&A expenses comprise of costs incurred by the Company to support the business operations that are not
directly attributable to the production of goods or services.
Years ended December 31,
2024
2023
Core SG&A1
$
249
$
249
Share-based compensation (Note 23)
29
6
Depreciation and amortization
47
46
Bad debt expense (recovery)
2
(8)
Total SG&A
$
327
$
293
1 Core SG&A is primarily comprised of compensation, third-party services, and information technology expenses.
Note 23. Share-Based Compensation
(a) Share-Based Compensation Expense
The share-based compensation expense included in the determination of net earnings (loss) was:
Years ended December 31,
2024
2023
Deferred share units
$
11
$
(1)
Performance share units
7
-
Restricted share units
10
5
Cash performance target
1
2
Share-based compensation expense
$
29
$
6
(b) Equity-Settled Share-Based Payments
2024
2023
Years ended December 31,
Number of
options
TSX CAD
Weighted average
exercise price
Number of
options
TSX CAD
Weighted average
exercise price
Options outstanding, beginning of period
2,297,975
$
11.12
3,089,229
$
10.77
Exercised1
(186,314)
5.95
(217,845)
5.87
Forfeited
(118,935)
8.45
(318,840)
9.54
Expired
(466,403)
15.33
(254,569)
13.32
Options outstanding, end of period
1,526,323
$
10.67
2,297,975
$
11.12
Options exercisable, end of period
1,237,006
$
11.54
1,589,639
$
12.52
1 The weighted average share price of options at the date of exercise for the year ended December 31, 2024, was CAD $10.42 (December 31, 2023 – CAD
$8.16).
F- 39
The Company did not grant stock options for the years ended December 31, 2024 and 2023.
The following table summarizes options outstanding and exercisable at December 31, 2024:
Options Outstanding
Options Exercisable
Range of exercise prices1
Number
outstanding
Weighted
average
remaining
life (years)
Weighted
average
exercise
price
Number
outstanding
Weighted
average
remaining
life (years)
Weighted
average
exercise
price
$5.51 – $6.68
323,237
2.62 $
5.51
212,730
2.62 $
5.51
$6.69 – $13.07
519,320
3.32
8.53
340,510
3.17
8.89
$13.08 – $16.12
683,766
1.19
14.74
683,766
1.19
14.74
Total
1,526,323
2.22 $
10.67
1,237,006
1.98 $
11.54
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 ("TSX").
(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 when determined by the Board to be aligned
with the long-term interests of the Company and shareholder value creation. 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, 2024, the value of directors’ compensation and executive bonuses elected to be received in
DSUs totalled $2 million (December 31, 2023 – $2 million). The Company paid $3 million for the year ended
December 31, 2024, representing units vested in the year (December 31, 2023 – $2 million).
TSX CAD
NYSE USD
DSUs outstanding
Number of
DSUs
Weighted average
grant date fair
value per unit
Number of
DSUs
Weighted average
grant date fair
value per unit
December 31, 2023
1,560,110
$
10.45
-
$
-
Granted
259,563
8.66
12,711
6.24
In lieu of dividends
22,566
7.16
122
5.72
Vested
(396,062)
10.01
-
-
Forfeited
(1,220)
5.89
-
-
December 31, 2024
1,444,957
$
10.20
12,833
$
6.24
The carrying amount of the liability relating to DSUs as at December 31, 2024, included in current liabilities
was $4 million (December 31, 2023 – $1 million, January 1, 2023 – $2 million) and in other long-term liabilities
was $10 million (December 31, 2023 – $6 million, January 1, 2023 – $8 million).
F-40 Annual Report 2024
(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, 2024 and 2023.
PSEs outstanding
Number of PSEs
TSX CAD
Weighted average
grant date fair
value per unit
December 31, 2023
158,913
$
12.61
Exercised
(28,770)
6.72
Expired
(27,352)
15.75
December 31, 2024
102,791
$
13.42
The carrying amount of the liability relating to the PSEs as at December 31, 2024, included in current liabilities
was less than $1 million (December 31, 2023 – less than $1 million, January 1, 2023 – less than $1 million) and
in other long-term liabilities was less than $1 million (December 31, 2023 – less than $1 million, January 1, 2023
– less than $1 million).
(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 New York Stock Exchange (“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, 2024, representing units vested in the year
(December 31, 2023 – $2 million).
TSX CAD
NYSE USD
PSUs outstanding
Number of
PSUs
Weighted average
grant date fair
value per unit
Number of
PSUs
Weighted average
grant date fair
value per unit
December 31, 2023
1,210,895
$
9.40
272,729
$
6.23
Granted
378,438
7.98
185,842
5.88
In lieu of dividends
15,996
7.18
3,641
5.34
Vested
(274,113)
7.67
(63,699)
5.41
Forfeited
(168,680)
7.60
(46,887)
6.24
December 31, 2024
1,162,536
$
9.58
351,626
$
6.18
The carrying amount of the liability relating to PSUs as at December 31, 2024, included in current liabilities was
$4 million (December 31, 2023 – $2 million, January 1, 2023 – $3 million) and in other long-term liabilities was
$3 million (December 31, 2023 – $2 million, January 1, 2023 – $2 million).
F- 41
(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 when determined by the Board to be aligned with
the long-term interests of the Company and shareholder value creation. 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 2024, the Board granted 1,647,707 RSUs to executive officers and other key employees of the Company
(2023 – 1,869,012).
The Company paid $7 million for units vested during the year ended December 31, 2024 (December 31, 2023
– $7 million).
TSX CAD
NYSE USD
RSUs outstanding
Number of
RSUs
Weighted average
grant date fair
value per unit
Number of
RSUs
Weighted average
grant date fair
value per unit
December 31, 2023
1,773,592
$
6.79
728,591
$
6.24
Granted
958,680
7.99
689,027
5.88
In lieu of dividends
23,403
7.19
10,664
5.38
Vested
(831,454)
8.11
(275,857)
5.80
Forfeited
(171,629)
7.24
(122,038)
6.14
December 31, 2024
1,752,592
$
6.78
1,030,387
$
6.12
The carrying amount of the liability included in current liabilities relating to RSUs at December 31, 2024, was
$6 million (December 31, 2023 – $2 million, January 1, 2023 – $3 million) and in other long-term liabilities was
nil (December 31, 2023 – less than $1 million, January 1, 2023 – less than $1 million).
(g) Cash Performance Target Plan
The Company offers a CPT plan to certain non-executive, US-based employees of the Company or its related
entities. The plan is denominated in US 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 2024, the Board of Directors did not grant CPT (2023 – nil). The Company paid $1 million for the year
ended December 31, 2024, representing units vested in the year (December 31, 2023 – $2 million).
The carrying amount of the liability included in current liabilities relating to CPT plan at December 31, 2024,
was $1 million (December 31, 2023 – $1 million, January 1, 2023 – $1 million) and in other long-term liabilities
was nil (December 31, 2023 – nil, January 1, 2023 – nil).
(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
F-42 Annual Report 2024
contributions vest to the employee immediately. Company contributions are charged to SG&A when paid. This
plan is administered by a third party.
Note 24. 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 USA. 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,
2024
2023
Defined contribution plans
$
4
$
5
401(k) matched savings plan
6
5
Total pension expense
$
10
$
10
Note 25. Finance Costs and Income
Years ended December 31,
2024
2023
Finance Costs
Interest on debt
$
86
$
101
Accretion of Notes discount1
12
8
Lease interest expense
4
5
Other interest expense
1
4
Total finance costs
$
103
$
118
Finance Income
Interest income
$
5
$
24
Net finance costs
$
98
$
94
1 Accretion of Notes discount for the year ended December 31, 2024, includes $3 million of accretion related to the early redemption of 10 percent of the
Notes. Refer to Note 17 “Long-Term Debt” for further details.
Note 26. Earnings Per Share
Year ended December 31, 2024
Net earnings
Weighted average
shares outstanding
Per share
Basic
$
32
124,023,920
$
0.26
Dilutive effect of stock option conversion
-
140,351
-
Diluted
$
32
124,164,271
$
0.26
Year ended December 31, 2023
Net loss
Weighted average
shares outstanding
Per share
Basic
$
(83)
123,834,242
$
(0.67)
Dilutive effect of stock option conversion
-
-
-
Diluted
$
(83)
123,834,242
$
(0.67)
F- 43
Note 27. Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, short-term investments, accounts
receivable, unbilled revenue, EH Cryo project asset, derivatives, redemption options, preferred shares
receivable, accounts payable and accrued liabilities, other current liabilities, and long-term debt.
Fair Value Hierarchy 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, 2024, and indicates the fair value hierarchy of
the valuation techniques used to determine such fair value. During the year ended December 31, 2024, 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 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.
Fair Value as at December 31, 2024
Carrying
value
Level 1
Level 2
Level 3
Financial Assets
Redemption options
$
17
$
-
$
17
$
-
Financial Liabilities
Long-term debt – Notes
531
-
613
-
Long-term debt – RCF
177
-
191
-
Fair Value as at December 31, 2023
Carrying
value
Level 1
Level 2
Level 3
Financial Assets
Short-term investments
$
11
$
-
$
11
$
-
Financial Liabilities
Derivative financial instruments
1
-
1
-
Long-term debt – Notes
561
-
622
-
Long-term debt – RCF
229
-
238
-
Long-term debt – Term Loan
129
-
130
-
Fair Value as at January 1, 2023
Carrying
value
Level 1
Level 2
Level 3
Financial Assets
Derivative financial instruments
$
1
$
-
$
1
$
-
Financial Liabilities
Derivative financial instruments
1
-
1
-
Long-term debt – Notes
549
-
642
-
Long-term debt – RCF
329
-
338
-
Long-term debt – Term Loan
149
-
150
-
F-44 Annual Report 2024
Cash and cash equivalents, short-term investments, accounts receivable, unbilled revenue, EH Cryo project
asset, preferred shares receivable, accounts payable and accrued liabilities, and other current 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.
The Company’s embedded derivatives related to its redemption options of its Notes are measured at fair value
determined using a valuation model based on inputs from observable market data, including independent
price publications and third-party pricing services. Changes in fair value are recorded as gains or losses on the
consolidated statements of earnings (loss).
Long-term debt associated with the Company’s Notes are 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 the Notes
were determined on a discounted cash flow basis using a weighted average discount rate of 6.3 percent.
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 was included in the consolidated statements of earnings (loss). The carrying value and estimated fair
value of the preferred shares at January 1, 2023, was $21 million and $21 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, 2024:
Notional amount
Maturity
Canadian Dollar Denominated Contracts
Purchase contracts
USD
$
11
January 2025 - December 2025
Sales contracts
USD
(11)
January 2025 - July 2025
Management estimates that a loss of less than $1 million would be realized if the contracts were terminated
on December 31, 2024. 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, 2024 (December 31, 2023 – loss 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 gains 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, 2024, was a loss of $1 million (December 31, 2023 – gain 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.
F- 45
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 CAD, USD, the Australian
dollar (“AUD”), and the Brazilian real (“BRL”). 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 USA, 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 Company and its subsidiaries are exposed to translation risk of monetary items denominated in a currency
different from their functional currency. The currencies with the most significant impact are the CAD, USD, and
the Argentine peso (“ARS”).
The functional currency of the parent Company and Canadian operations is CAD. The operations are primarily
exposed to changes in the exchange rates on financial instruments denominated in USD.
The Canadian operations of the Company source the majority of its products and major components from the
USA. Consequently, reported costs of inventory and the transaction prices charged to customers for
equipment and parts are affected by the relative strength of the CAD. The Company also sells compression
and processing packages in foreign currencies, primarily the USD. Most of Enerflex’s international orders are
manufactured in the USA if the contract is denominated in USD. This minimizes the Company’s foreign
currency exposure on these contracts. The parent Company has intercompany loans, receivables and
payables denominated in the USD. 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 the CAD. 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. If the CAD weakens by five percent, the
Company could experience foreign exchange gains recorded in the consolidated statements of earnings (loss)
of $2 million on its USD denominated financial instruments.
The functional currency of the Argentinian operation is the USD. The operation has cash and cash equivalents,
and certain financial instruments denominated in its local currency ARS. With the ongoing devaluation of the
ARS, caused by high inflation, the Company is at risk for foreign exchange losses on its financial instruments
denominated in ARS. During the year ended December 31, 2024, the Company had foreign exchange losses in
Argentina of $4 million. There is a risk of higher losses based on the further devaluation of the ARS. The
Company has implemented cash management strategies to mitigate foreign exchange losses due to further
devaluation of the ARS, primarily by minimizing cash available to sustain operations. If the ARS weakens by
five percent, the Company could experience additional foreign exchange losses of less than $1 million.
The Company had immaterial foreign exchange losses in other locations.
Translation Exposure
The functional currency of the parent Company is the CAD while the functional currency of most of its
subsidiaries is the USD. Enerflex uses foreign currency borrowings to hedge against the exposure that arises
from foreign subsidiaries that are translated to the CAD through a net investment hedge. As a result, foreign
exchange gains and losses on the translation of $651 million in designated foreign currency borrowings are
included in accumulated other comprehensive losses for the year ended December 31, 2024. The cumulative
currency translation adjustments are recognized in earnings when there has been a reduction in the net
investment in the foreign operations. If the CAD weakens by five percent, the Company could experience
additional foreign exchange losses recorded in the consolidated statements of other comprehensive income
(loss) of $33 million on the foreign currency borrowings.
F-46 Annual Report 2024
The Financial Statements of the Company are presented in USD. Assets and liabilities denominated in foreign
currencies are translated into USD using the exchange rates in effect at the reporting dates. Unrealized
translation gains and losses are deferred and included in accumulated other comprehensive losses.
Earnings from foreign currencies are translated into USD each period at average exchange rates for the period.
As a result, fluctuations in the value of the USD relative to these other currencies will impact reported net
earnings.
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, 2024, has a fixed interest rate and therefore the related
interest expense will not be impacted by fluctuations in interest rates. Conversely, the Company’s RCF is
subject to changes in market interest rates.
For each one percent change in the rate of interest on the RCF, the change in annual interest expense would
be $2 million. All interest charges are recorded in the consolidated statements of earnings (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, unbilled revenue, net investment in finance lease, derivative financial
instruments and EH Cryo project asset.
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 and unbilled revenue 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, 2024, 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, 2024, the Company had one customer that accounted for approximately 11 percent
of total accounts receivable (December 31, 2023 – no individual customers that accounted for more than
10 percent of accounts receivable). At December 31, 2024 and 2023, the Company had no individual
customers that accounted for more than 10 percent of its revenue. 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.
F- 47
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.
December 31, 2024
Cash and cash equivalents
$
92
RCF
800
Less: Drawings on RCF
(191)
Less: Letters of Credit1
(87)
522
Available for future drawings
$
614
1 Represents the letters of credit that the Company has funded with the RCF. Additional letters of credit of $29 million are funded from the $70 million LC
Facility. Refer to Note 17 “Long-Term Debt” for further details.
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, 2024:
Less than 3
months
3 months to
1 year
Greater than
1 year
Total
Accounts payable and accrued liabilities
$
413
$
-
$
-
$
413
Long-term debt – Notes
-
-
563
563
Long-term debt – RCF
-
-
191
191
The Company expects that cash flows from operations in 2025, together with cash and cash equivalents on
hand and the RCF, will be more than sufficient to fund its requirements for investments in working capital and
capital assets.
Covenant Compliance
The Company continues to meet the covenant requirements of its funded debt, including the three-year
secured RCF and Notes reflecting strong performance and cash flow generation; and Enerflex’s focus of
repaying debt and lowering finance costs. The senior secured net funded debt is comprised of the RCF.
The following table sets forth a summary of the covenant requirements and the Company’s performance:
2024
2023
Requirement
Performance
Performance
Senior secured net funded debt to EBITDA ratio1 – Maximum
2.5x
0.2x
0.7x
Bank-adjusted net debt to EBITDA ratio2 – Maximum
4.0x
1.5x
2.3x
Interest coverage ratio3 – Minimum
2.5x
4.5x
4.2x
1 Senior secured net funded debt to EBITDA is defined as borrowings under the RCF less cash and cash equivalents, divided by trailing 12-month EBITDA as
defined by the Company’s lenders.
2 Bank-adjusted net debt to EBITDA is defined as borrowings under the RCF and Notes less cash and cash equivalents, divided by the trailing 12-month EBITDA
as defined by the Company’s lenders.
3 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-48 Annual Report 2024
Note 28. Capital Disclosures
The capital structure of the Company consists of net debt plus shareholders’ equity.
December 31, 2024
December 31, 2023
January 1, 2023
Long-term debt
$
708
$
919
$
1,027
Cash and cash equivalents
(92)
(95)
(187)
Net debt
$
616
$
824
$
840
Total shareholders’ equity
1,049
1,054
1,140
Total capital
$
1,665
$
1,878
$
1,980
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, buy back 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.
Note 29. Supplemental Cash Flow Information
Changes in working capital and other during the period:
Years ended December 31,
2024
2023
Accounts receivable
$
-
$
(61)
Unbilled revenue
(28)
(6)
Inventories
36
(21)
Work-in-progress related to finance leases
(35)
31
EI assets – finance leases receivable
52
13
Income taxes receivable
-
5
Prepayments
9
(5)
Net assets held for sale
2
(2)
Long-term receivables
-
21
Accounts payable and accrued liabilities and provisions1
(7)
(21)
Income taxes payable
23
1
Deferred revenue
74
24
Other current liabilities
(6)
6
Foreign currency and other
(14)
28
Net change in working capital and other
$
106
$
13
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,
2024
2023
Interest paid – short- and long-term borrowings
$
87
$
106
Interest paid – lease liabilities
4
5
Total interest paid
$
91
$
111
Interest received
4
27
Taxes paid
45
41
Taxes received
-
1
F- 49
Changes in liabilities arising from financing activities during the period:
Years ended December 31,
2024
2023
Long-term debt, opening balance
$
919
$
1,027
Net repayment of long-term debt
(233)
(122)
The effect of changes in foreign exchange rates
(1)
(1)
Amortization of deferred transaction costs
13
11
Accretion of Notes discount
12
8
Deferred transaction costs
(2)
(4)
Long-term debt, closing balance
$
708
$
919
Note 30. Guarantees, Commitments, and Contingencies
Guarantees
As of December 31, 2024, the Company had outstanding letters of credit of $116 million (December 31, 2023
– $140 million, January 1, 2023 – $129 million). Of the total outstanding letters of credit, $87 million
(December 31, 2023 – $104 million, January 1, 2023 – $129 million) are funded from the RCF and $29 million
(December 31, 2023 – $36 million, January 1, 2023 – nil) are funded from the $70 million LC Facility.
Commitments
The Company has purchase obligations over the next three years as follows:
2025
$
539
2026
5
2027
1
Legal Proceedings
In the fourth quarter of 2024, Enerflex terminated its contract for the EH Cryo project citing a continuing Force
Majeure situation and circumstances that made it impossible for Enerflex to fulfill its contractual obligations.
Enerflex’s customer has commenced arbitration proceedings against the Company in connection with the EH
Cryo project. Enerflex views its customer’s claims as baseless and unsubstantiated and a wrongful attempt to
circumvent the Company’s rights under the contract. Enerflex is disputing the customer’s claims and has
brought a counterclaim against its customer to recover amounts owing following Enerflex’s termination of the
EH Cryo project contract. At December 31, 2024, the asset position associated with the EH Cryo project was
$161 million.
The Company is involved in litigation and claims associated with normal operations against which certain
provisions may be made in the Financial Statements.
F-50 Annual Report 2024
Note 31. Related Party Transactions
(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,
2024
2023
Salaries, Director fees and other short-term benefits
$
5
$
4
Post-employment compensation1
1
1
Share-based payments
7
6
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. During the year ended December 31,
2024, the Company recorded revenue of $2 million (December 31, 2023 – $2 million) from transactions with
Roska DBO. There were no accounts receivables or purchases during the year ended December 31, 2024
(December 31, 2023 – nil). All related party transactions are settled in cash. There were no transactions with
the joint venture in Brazil.
Note 32. 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 revenue in the fourth quarter of each year related to these
seasonal trends. Revenue is 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
Note 33. 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 the USA into one reporting segment. For each of the
operating segments, the CODM reviews internal management reports on at least a quarterly basis. For the
twelve months ended December 31, 2024, the Company had no individual customer which accounted for
more that 10 percent of its revenue (December 31, 2023 – none).
During the second quarter of 2024, the CODM reassessed how it analyzes the gross margin for each of the
Company’s product lines, which resulted in the disaggregation of gross margin by product line and impacted
operating income in the reporting segments for the year ended December 31, 2023. The impact to the reporting
segments operating income for the year ended December 31, 2023, is a decrease of $1 million for NAM and an
increase of $1 million for EH. Total consolidated gross margin and operating income remained unchanged.
The CODM also reassessed how it analyzes the total assets of each of the Company’s reporting segments. The
CODM relies on information about each of the reporting segments’ “EI assets – operating leases” and “EI
assets – finance leases receivable”. Such information includes the operating effectiveness of these assets and
the returns on the related operating and finance leases.
In order to provide relevant information, the Company reclassified intercompany loans to Corporate from the
respective reporting segments to conform to the current year presentation. The impact on segment assets for
December 31, 2023, is a decrease of $183 million for NAM; a decrease of $6 million for EH; an increase of $3
million for LATAM and an increase of $186 million for Corporate. The impact on segment assets for January 1,
2023, was an increase of $8 million and $3 million for EH and LATAM and a decrease of $11 million for
Corporate.
F-52 Annual Report 2024
The following tables provide certain financial information by the Company’s reporting segments.
Revenue and Operating Income
NAM
LATAM
EH
Total
Years ended December 31,
2024
2023
2024
2023
2024
2023
2024
2023
Segment revenue
$
1,626
$
1,449
$
407
$
351
$
447
$
588
$
2,480
$
2,388
Intersegment revenue
(62)
(36)
-
(1)
(4)
(8)
(66)
(45)
Revenue
$
1,564
$
1,413
$
407
$
350
$
443
$
580
$
2,414
$
2,343
EI
146
127
257
248
265
201
668
576
AMS
279
286
70
57
159
140
508
483
ES
1,139
1,000
80
45
19
239
1,238
1,284
Revenue
1,564
1,413
407
350
443
580
2,414
2,343
EI
76
72
182
184
199
135
457
391
AMS
231
233
51
44
125
114
407
391
ES
915
840
65
37
66
227
1,046
1,104
COGS1
1,222
1,145
298
265
390
476
1,910
1,886
EI
70
55
75
64
66
66
211
185
AMS
48
53
19
13
34
26
101
92
ES
224
160
15
8
(47)
12
192
180
Gross Margin
342
268
109
85
53
104
504
457
SG&A1
177
144
64
53
86
96
327
293
FX loss (gain)
(1)
-
5
43
-
-
4
43
Operating income (loss)
$
166
$
124
$
40
$
(11)
$
(33)
$
8
$
173
$
121
1 Depreciation and amortization for the reporting segments are recorded in COGS and SG&A. During the year-ended December 31, 2024 the amount of
depreciation and amortization in NAM was $74 million (December 31, 2023 – $69 million); LATAM was $53 million (December 31, 2023 – $48 million); and EH
was $58 million (December 31, 2023 – $81 million).
Segment Assets
NAM
LATAM
EH
Total
As at December 31,
2024
2023
2024
2023
2024
2023
2024
2023
EI assets – operating leases
$
286
$
298
$
185
$
209
$
242
$
357
$
713
$
864
EI assets – finance leases receivable
-
-
-
-
238
204
238
204
Goodwill1
164
167
-
-
258
266
422
433
Other segment assets
586
734
316
272
309
264
1,211
1,270
Corporate
-
-
-
-
-
-
207
187
Total segment assets
$ 1,036
$ 1,199
$
501
$
481
$ 1,047
$ 1,091
$ 2,791
$ 2,958
NAM
LATAM
EH
Total
Dec 31,
2023
Jan 1,
2023
Dec 31,
2023
Jan 1,
2023
Dec 31,
2023
Jan 1,
2023
Dec 31,
2023
Jan 1,
2023
EI assets – operating leases
$
298
$
342
$
209
$
195
$
357
$
377
$
864
$
914
EI assets – finance leases receivable
-
-
-
26
204
191
204
217
Goodwill1
167
166
-
66
266
266
433
498
Other segment assets
734
841
272
395
264
52
1,270
1,288
Corporate
-
-
-
-
-
-
187
227
Total segment assets
$
1,199
$ 1,349
$
481
$
682
$ 1,091
$
886
$
2,958
$ 3,144
1 Total amount of goodwill in the Canada and USA operating segments at December 31, 2024, were $28 million and $136 million, respectively (December 31,
2023 – $31 million and $136 million, January 1, 2023 – $30 million and $136 million, respectively).
F- 53
Note 34. Subsequent Events
Potential USA and Canada Tariffs
The Company continues to closely monitor geopolitical tensions across North America, including the potential
application of tariffs as announced by the USA and Canada Governments subsequent to December 31, 2024.
Enerflex’s operations in the USA, Canada and Mexico are largely distinct in the customers and projects they
serve, and given our diversified operations and proactive risk management, the Company has been working to
mitigate the impact of potential tariffs. The timing and impact of the tariffs on the Company’s financial results
cannot currently be quantified.
Declaration of Dividends
Subsequent to December 31, 2024, Enerflex declared a quarterly dividend of CAD $0.0375 per share, payable
on March 24, 2025, to shareholders of record on March 10, 2025. 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.
Kevin Reinhart
Board Chair
Alberta, CA
Fernando Assing 1
Texas, USA
Joanne Cox 1,3
Human Resources and Compensation
Committee Chair
Alberta, CA
Ben Cherniavsky 2
British Columbia, CA
James Gouin 2
Ontario, CA
Mona Hale 2
Audit Committee Chair
Alberta, CA
Marc Rossiter
President and Chief Executive Officer
Alberta, CA
Thomas B. Tyree Jr. 1,3
Nominating and Corporate Governance
Committee Chair
Colorado, USA
Juan Carlos Villegas 1, 3
Region Metropolitana, Chile
1 Member of Human Resources and Compensation Committee
2 Member of Audit Committee
3 Member of Nominating and Corporate Governance Committee
Marc Rossiter
President and Chief Executive Officer
Alberta, CA
Preet S. Dhindsa
SVP and Chief Financial Officer
Alberta, CA
David Izett
SVP and General Counsel
Alberta, CA
Mauricio Meineri
President, Latin America
Texas, USA
Robert Mitchell
SVP and Chief Administrative Officer
Texas, USA
Phil Pyle
President, Eastern Hemisphere
Abu Dhabi, UAE
Greg Stewart
President, USA Region
Texas, USA
Helmuth Witulski
President, Canada
Alberta, CA
Board of
Directors
Executive
Management
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
Alberta, CA
Investor Relations
Telephone: 1-403-387-6377
E-Mail: ir@enerflex.com
Website: enerflex.com
Shareholder
Information
Enerflex Ltd.
Suite 904, 1331 Macleod Trail SE
Calgary, AB, Canada T2G 0K3
1-403-387-6377 | enerflex.com