Exhibit 99.2

 

Interim Condensed Consolidated Financial Statements

Interim Condensed Consolidated Statements of Financial Position (unaudited)

($ United States millions)	June 30, 2024		December 31, 2023		January 1, 20231
Assets
Current assets
Cash and cash equivalents	$	126	$	95	$	187
Short-term investments		-		11		-
Accounts receivable		390		398		337
Unbilled revenue2 (Note 4)		195		174		138
Inventories (Note 2)		299		294		273
Work-in-progress related to finance leases (Note 2)		3		-		31
Current portion of finance leases receivable (Note 3b)		58		43		44
Income taxes receivable		5		3		8
Derivative financial instruments (Note 8)		-		-		1
Prepayments		51		58		53
Assets held for sale		-		7		-
Total current assets		1,127		1,083		1,072
Property, plant and equipment		100		104		113
Energy infrastructure assets (Note 3a)		733		864		914
Unbilled revenue2 (Note 4)		181		135		165
Lease right-of-use assets		60		62		58
Finance leases receivable (Note 3b)		206		161		173
Deferred tax assets		21		21		16
Intangible assets		45		55		76
Goodwill		430		433		498
Other assets		36		40		59
Total assets	$	2,939	$	2,958	$	3,144
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities	$	430	$	424	$	464
Provisions (Note 5)		33		20		14
Income taxes payable		70		56		55
Deferred revenue		333		297		270
Current portion of long-term debt (Note 6)		-		40		20
Current portion of lease liabilities		21		19		15
Derivative financial instruments (Note 8)		-		1		1
Other current liabilities		-		6		-
Liabilities associated with assets held for sale		-		5		-
Total current liabilities		887		868		839
Deferred revenue		20		22		25
Long-term debt (Note 6)		889		879		1,007
Lease liabilities		50		57		54
Deferred tax liabilities		55		65		65
Other liabilities		15		13		14
Total liabilities	$	1,916	$	1,904	$	2,004
Shareholders’ equity
Share capital	$	505	$	504	$	503
Contributed surplus		678		678		678
Retained earnings		40		58		151
Accumulated other comprehensive loss		(200)		(186)		(192)
Total shareholders’ equity		1,023		1,054		1,140
Total liabilities and shareholders’ equity	$	2,939	$	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 1 (c) for more information.

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 unaudited interim condensed consolidated financial statements, including Note 10 “Guarantees, Commitments, and Contingencies”.

 

F-1 

 

 

Interim Condensed Consolidated Statements of Earnings (Loss) and Other

Comprehensive Income (Loss) (unaudited)

	Three months ended June 30,				Six months ended June 30,
($ United States millions, except per share amounts)	2024		2023		2024		2023
Revenue (Note 7)	$	614	$	579	$	1,252	$	1,189
Cost of goods sold		478		470		1,029		961
Gross margin		136		109		223		228
Selling, general and administrative expenses		75		66		153		144
Foreign exchange loss		3		8		4		16
Operating income		58		35		66		68
Equity earnings from associates and joint ventures		-		1		-		1
Loss on financial instruments		(3)		-		(8)		-
Earnings before finance costs and income taxes		55		36		58		69
Net finance costs		23		23		49		45
Earnings before income taxes		32		13		9		24
Income taxes		27		15		22		16
Net earnings (loss)	$	5	$	(2)	$	(13)	$	8
Other comprehensive income (loss)
Items that may be reclassified to profit or loss in subsequent periods:
Loss on derivatives designated as cash flow hedges transferred to net loss, net of income tax expense		1		-		1		-
Unrealized gain (loss) on translation of foreign-denominated debt		(6)		14		(21)		15
Unrealized gain (loss) on translation of financial statements of foreign operations		-		(8)		6		(8)
Other comprehensive income (loss)		(5)		6		(14)		7
Total comprehensive income (loss)	$	-	$	4	$	(27)	$	15
Earnings (loss) per share – basic	$	0.04	$	(0.02)	$	(0.10)	$	0.06
Earnings (loss) per share – diluted	$	0.04	$	(0.02)	$	(0.10)	$	0.06
Weighted average number of shares outstanding – basic		124,015,516		123,768,301		123,986,511		123,753,742
Weighted average number of shares outstanding – diluted		124,116,924		123,958,145		123,986,511		123,975,590

See accompanying notes to the unaudited interim condensed consolidated financial statements.

 

 F-2 Interim Condensed Consolidated Financial Statements

 

 

Interim Condensed Consolidated Statements of Cash Flows (unaudited)

	Three months ended June 30,				Six months ended June 30,
($ United States millions)	2024		2023		2024		2023
Operating Activities
Net earnings (loss)	$	5	$	(2)	$	(13)	$	8
Items not requiring cash and cash equivalents:
Depreciation and amortization		48		47		92		94
Equity earnings from associates and joint ventures		-		(1)		-		(1)
Deferred income taxes expense (recovery)		5		3		(14)		(6)
Share-based compensation expense		2		5		8		7
Loss on financial instruments		3		-		8		-
Impairment of energy infrastructure assets (Note 3a)		-		1		-		1
		63		53		81		103
Net change in working capital and other (Note 9)		(51)		(54)		32		(106)
Cash provided by (used in) operating activities	$	12	$	(1)	$	113	$	(3)
Investing Activities
Additions to:
Property, plant and equipment		(4)		(5)		(7)		(7)
Energy infrastructure assets (Note 3a)		(6)		(19)		(20)		(62)
Intangible assets		(1)		(2)		(1)		(4)
Proceeds on disposal of energy infrastructure assets (Note 3a)		-		3		2		15
Net proceeds (purchases) of financial instruments		(3)		-		3		-
Net change in working capital associated with investing activities		(3)		(11)		(1)		(9)
Cash used in investing activities	$	(17)	$	(34)	$	(24)	$	(67)
Financing Activities
Net drawings from (repayment of) the Revolving Credit Facility (Note 6)	$	152	$	(17)	$	90	$	32
Repayment of the Term Loan (Note 6)		(120)		-		(130)		-
Lease liability principal repayment		(6)		(4)		(10)		(8)
Dividends		(3)		(3)		(5)		(5)
Stock option exercises		1		-		1		-
Deferred transaction costs		(1)		(2)		(1)		(2)
Cash provided by (used in) financing activities	$	23	$	(26)	$	(55)	$	17
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies	$	(2)	$	(1)	$	(3)	$	(2)
Increase (decrease) in cash and cash equivalents		16		(62)		31		(55)
Cash and cash equivalents, beginning of period		110		194		95		187
Cash and cash equivalents, end of period	$	126	$	132	$	126	$	132

See accompanying notes to the unaudited interim condensed consolidated financial statements.

 

F-3 

 

 

Interim Condensed Consolidated Statements of Changes in Equity (unaudited)

($ United States millions)	Share capital		Contributed surplus		Retained earnings		Foreign currency translation adjustments		Hedging reserve		Accumulated other comprehensive income		Total
At January 1, 2023	$	503	$	678	$	151	$	(191)	$	(1)	$	(192)	$	1,140
Net earnings		-		-		8		-		-		-		8
Other comprehensive income		-		-		-		7		-		7		7
Dividends		-		-		(5)		-		-		-		(5)
At June 30, 2023	$	503	$	678	$	154	$	(184)	$	(1)	$	(185)	$	1,150
At January 1, 2024	$	504	$	678	$	58	$	(185)	$	(1)	$	(186)	$	1,054
Net loss		-		-		(13)		-		-		-		(13)
Other comprehensive earnings (loss)		-		-		-		(15)		1		(14)		(14)
Effect of stock option plans		1		-		-		-		-		-		1
Dividends		-		-		(5)		-		-		-		(5)
At June 30, 2024	$	505	$	678	$	40	$	(200)	$	-	$	(200)	$	1,023

See accompanying notes to the unaudited interim condensed consolidated financial statements.

 

 F-4 Interim Condensed Consolidated Financial Statements

 

Notes to the Interim Condensed Consolidated

Financial Statements (unaudited)

(All amounts in millions of United States dollars, except per share amounts or as otherwise noted.)

Note 1. Summary of Material Accounting Policies

(a) Statement of Compliance

These unaudited interim condensed consolidated financial statements (“Financial Statements”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements and were approved and authorized for issue by the Board of Directors (the “Board”) on August 7, 2024.

(b) Basis of Presentation and Measurement

The Financial Statements for the three and six months ended June 30, 2024 and 2023 were prepared in accordance with IAS 34 “Interim Financial Reporting” and do not include all the disclosures included in the annual consolidated financial statements for the year ended December 31, 2023. Accordingly, these Financial Statements should be read in conjunction with the annual consolidated financial statements. Certain comparative figures have been reclassified to conform to the current period’s presentation.

Preparation of these Financial Statements requires Management to make judgments, estimates and assumptions based on existing knowledge that affect the application of accounting policies and 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.

Enerflex (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 the following section. The Financial Statements are rounded to the nearest million, except per share amounts or as otherwise noted, and are prepared on a going concern basis under the historical cost basis with certain financial assets and financial liabilities recorded at fair value. There have been no further significant changes in accounting policies compared to those described in the annual consolidated financial statements for the year-ended December 31, 2023.

(c) Change in Accounting Policies

i. 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 revenues 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 unaudited condensed interim consolidated statements of earnings and the unaudited condensed interim consolidated statements of cash flows have been translated into the presentation currency using the average exchange rates prevailing during each reporting period. In the unaudited condensed interim 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 income. Shareholders’ equity balances have been translated using historical rates in effect on the date of the transactions.

 

F-5 

 

 

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 three and six months ended June 30, 2023, consolidated statements of earnings and comprehensive income:

Three months ended June 30,	Previously reported in CAD 2023		Presentation currency change		Reported in USD  2023
Net earnings	$	(3)	$	1	$	(2)
Comprehensive income		(28)		32		4

Six months ended June 30,	Previously reported in CAD 2023		Presentation currency change		Reported in USD  2023
Net earnings	$	11	$	(3)	$	8
Comprehensive income		(14)		29		15

The change in presentation currency resulted in the following impact on the three and six months ended June 30, 2023, consolidated statements of cash flows:

Three months ended June 30,	Previously reported in CAD 2023		Presentation currency change		Reported in USD  2023
Cash provided by (used in):
Operating activities	$	(4)	$	3	$	(1)
Investing activities		(47)		13		(34)
Financing activities		(32)		6		(26)

Six months ended June 30,	Previously reported in CAD 2023		Presentation currency change		Reported in USD  2023
Cash provided by (used in):
Operating activities	$	(7)	$	4	$	(3)
Investing activities		(91)		24		(67)
Financing activities		24		(7)		17

 

 F-6 Notes to the Interim Condensed Consolidated Financial Statements

 

 

The change in presentation currency resulted in the following impact on the three and six months ended June 30, 2023, basic and diluted earnings per share:

Three months ended June 30,	Previously reported in CAD 2023		Presentation currency change		Reported in USD  2023
Earnings per share - basic	$	(0.02)	$	-	$	(0.02)
Earnings per share - diluted		(0.02)		-		(0.02)

Six months ended June 30,	Previously reported in CAD 2023		Presentation currency change			Reported in USD  2023
Earnings per share - basic	$	0.09	$	(0.03	)	$	0.06
Earnings per share - diluted		0.09		(0.03	)		0.06

ii. Amendments to Current Accounting Policies

a. IAS 1 Presentation of Financial Statements (“IAS 1”)

In October 2022, the IASB issued amendments to clarify that the classification of liabilities as current or non-current is based solely on a company’s right to defer settlement for at least twelve months at the reporting date. The right needs to exist at the reporting date and must have substance. In addition to the amendment from January 2020 where the IASB issued amendments to IAS 1, to provide a more general approach to the presentation of liabilities as current or non-current, only covenants with which a company must comply on or before the reporting date may affect this right. Covenants to be complied with after the reporting date do not affect the classification of a liability as current or non-current at the reporting date. 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.

b. IFRS 16 Leases (“IFRS 16”)

In September 2022, the IASB issued amendments to IFRS 16 that add subsequent measurement requirements for lease liabilities arising from sale and leaseback transactions for seller-lessees. The amendment does not prescribe specific measurement requirements for lease liabilities but measures the lease liability in a way that it does not recognise any amount of the gain or loss that relates to the right of use retained.

These amendments are effective for annual periods beginning on or after January 1, 2024, and the Company adopted these amendments as of January 1, 2024. There were no adjustments that resulted from the adoption of these amendments on January 1, 2024.

 

F-7 

 

 

iii. Standards Recently Issued, but not yet Effective

a. 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 Company is currently evaluating the impact of adopting IFRS 18 on the consolidated financial statements.

  Consequential amendments to other accounting standards

  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.

b. 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 consolidated financial statements.

 

 F-8 Notes to the Interim Condensed Consolidated Financial Statements

 

 

Note 2. Inventories

Inventories consisted of the following:

	June 30, 2024			December 31, 2023		January 1, 2023
Direct materials	$	99		$	70	$	79
Repair and distribution parts		113			115		101
Work-in-progress		77			90		73
Equipment		10			19		20
Total inventories	$	299		$	294	$	273

	June 30, 2024			December 31, 2023		January 1, 2023
Work-in-progress related to finance leases	$	3		$	-	$	31

The amount of inventory and overhead costs recognized as an expense and included in cost of goods sold (“COGS”) during the three and six months ended June 30, 2024 was $478 million and $1,029 million (June 30, 2023 – $470 million and $961 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 interim condensed consolidated statements of earnings and included in COGS for the three and six months ended June 30, 2024 was $1 million and $1 million (June 30, 2023 – $2 million and $4 million).

The costs related to the construction of Energy Infrastructure (“EI”) assets determined to be finance leases are accounted for as work-in-progress related to finance leases. Once a project is completed and enters service it is reclassified to COGS. During the three and six months ended June 30, 2024 the Company invested $2 million and $3 million related to finance leases.

Note 3. Energy Infrastructure Assets

The Company’s EI assets are Energy Infrastructure assets 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.

A reconciliation of the changes in the carrying amount of EI assets was as follows:

	June 30, 2024			December 31, 2023
Cost
Balance, January 1	$	1,142		$	1,129
Additions		20			90
Disposals1		(114)			(70)
Currency translation effects		(14)			(7)
Total cost	$	1,034		$	1,142
Accumulated depreciation
Balance, January 1	$	(278)		$	(215)
Depreciation charge		(56)			(127)
Impairment		-			(1)
Disposals1		23			53
Currency translation effects		10			12
Total accumulated depreciation	$	(301)		$	(278)
Net book value	$	733		$	864

¹ During the three months ended March 31, 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.

 

F-9 

 

 

During the three and six months ended June 30, 2024, the Company recognized $58 million and $111 million of revenue related to operating leases in its Latin America (“LATAM”) and Eastern Hemisphere (“EH”) segments (June 30, 2023 – $63 million and $115 million), and $35 million and $71 million of revenue related to its North America (“NAM”) contract compression fleet (June 30, 2023 – $31 million and $59 million).

(b) EI Assets - Finance Leases

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 entered into finance lease arrangements for certain of its EI assets, with initial terms ranging from 5 to 10 years.

The value of the 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
	June 30, 2024		December 31, 2023		January 1, 2023		June 30, 2024			December 31, 2023		January 1,  2023
Less than one year	$	59	$	46	$	54	$	58		$	43	$	44
Between one and five years		197		129		145		155			106		110
Later than five years		71		90		107		51			55		63
	$	327	$	265	$	306	$	264		$	204	$	217
Less: Unearned interest revenue		(63)		(61)		(89)		-			-		-
Closing balance	$	264	$	204	$	217	$	264		$	204	$	217

	June 30, 2024		December 31, 2023
Opening balance	$	204	$	217
Additions1		87		48
Interest revenue		11		23
Payments (principal and interest)		(36)		(59)
Derecognition on disposal		-		(24)
Other		(2)		(2)
Currency translation effects		-		1
Closing balance	$	264	$	204

¹ During the three months ended March 31, 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 less than $1 million and $3 million for the three and six months ended June 30, 2024 (June 30, 2023 – nil and $13 million). Additionally, the Company recognized $5 million and $11 million of interest revenue on finance leases receivable during the three and six months ended June 30, 2024 (June 30, 2023 – $6 million and $12 million). Total cash received in respect of finance leases during the three and six months ended June 30, 2024 was $17 million and $36 million (June 30, 2023 – $15 million and $30 million), as reflected in principal and interest payments.

 

 F-10 Notes to the Interim Condensed Consolidated Financial Statements

 

 

The average interest rates implicit in the leases are fixed at the contract date for the entire lease term. At June 30, 2024, the average interest rate was 7.9 percent per annum (December 31, 2023 – 8.6 percent). The finance leases receivables at the end of reporting period are neither past due nor impaired.

 

F-11 

 

 

Note 4. Unbilled Revenue

Movement in unbilled revenue:

	June 30, 2024			December 31, 2023
Opening balance	$	309		$	303
Acquisition		-			-
Unbilled revenue recognized		459			1,011
Amounts billed		(392)			(1,004)
Currency translation effects		-			(1)
Closing balance	$	376		$	309
Current unbilled revenue	$	195		$	174
Non-current unbilled revenue		181			135
Total unbilled revenue	$	376		$	309

Amounts recognized as current unbilled revenue are typically billed to customers within twelve months and amounts recognized as non-current unbilled revenue will be billed to customers more than twelve months from the date of the balance sheet.

Enerflex has suspended activity at a modularized cryogenic natural gas processing facility in Kurdistan (the “EH Cryo project”) and has provided its client partner with notice of Force Majeure and demobilized its personnel. The ultimate duration of the Force Majeure declaration and impact of the suspension on the EH Cryo project is indeterminable at this time.

The unbilled revenue associated with the EH Cryo project is $177 million and is included in non-current unbilled revenue. The Company has also recorded an onerous contract provision of $17 million, resulting in a net position of $160 million.

 

 F-12 Notes to the Interim Condensed Consolidated Financial Statements

 

 

Note 5. Provisions

A reconciliation of the changes in provisions was as follows:

	June 30, 2024			December 31, 2023		January 1, 2023
Onerous contracts	$	17		$	-	$	-
Warranties		10			11		10
Restructuring		6			7		1
Legal		-			2		3
Total provisions	$	33		$	20	$	14

June 30, 2024	Onerous Contracts		Warranties		Restructuring		Legal		Total
Opening balance	$	-	$	11	$	7	$	2	$	20
Additions during the year		19		3		-		-		22
Amounts settled and released in the year		(2)		(3)		(1)		-		(6)
Reversal		-		-		-		(2)		(2)
Currency translation effects		-		(1)		-		-		(1)
Closing balance	$	17	$	10	$	6	$	-	$	33
December 31, 2023	Onerous Contracts		Warranties		Restructuring		Legal		Total
Opening balance	$	-	$	10	$	1	$	3	$	14
Additions during the year		-		7		6		-		13
Amounts settled and released in the year		-		(6)		-		(1)		(7)
Closing balance	$	-	$	11	$	7	$	2	$	20

 

F-13 

 

 

Note 6. Long-Term Debt

During the three months ended June 30, 2024, the Company entered into an agreement to extend the maturity of its secured revolving credit facility (“RCF”) by one year to October 13, 2026 (the “Maturity Date”). Availability under the RCF has been 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 senior secured notes (the “Notes”) consist of $625 million principal amount, bears interest of 9.0 percent, and has a maturity of October 15, 2027.

The Company has a $70 million unsecured credit facility “LC Facility” with one of the lenders in its RCF. This LC Facility allows the Company to request the issuance of letters of guarantee, standby letters of credit, performance bonds, counter guarantees, import documentary credits, country standby letters of credit or similar credits to finance the day-to-day operations of the Company. This LC Facility is supported by performance security guarantees provided by Export Development Canada. As at June 30, 2024, the Company utilized $36 million of the $70 million limit.

The Company is required to maintain certain covenants on the RCF and the Notes. As at June 30, 2024, the Company was in compliance with its covenants.

Composition of the borrowings on the RCF, Term Loan, and the Notes were as follows:

	Maturity Date		June 30, 2024		December 31, 2023		January 1, 2023
Drawings on the RCF		October 13, 2026	$	327	$	238	$	338
Drawings on the Term Loan				-		130		150
Notes		October 15, 2027		625		625		625
				952		993		1,113
Deferred transaction costs and Notes discount				(63)		(74)		(86)
Long-term debt			$	889	$	919	$	1,027
Current portion of long-term debt			$	-	$	40	$	20
Non-current portion of long-term debt				889		879		1,007
Long-term debt			$	889	$	919	$	1,027

The weighted average interest rate on the RCF for the six months ended June 30, 2024 was 7.7 percent (December 31, 2023 – 7.7 percent, January 1, 2023 – 7.0 percent). At June 30, 2024, without considering renewal at similar terms, the USD equivalent principal payments due over the next five years are $952 million, and nil thereafter.

 

 F-14 Notes to the Interim Condensed Consolidated Financial Statements

 

 

Note 7. Revenue

Revenue by product line were as follows:

	Three months ended June 30,						Six months ended June 30,
	2024			2023			2024			2023
Energy Infrastructure	$	141		$	143		$	370		$	282
After-market Services		127			113			248			228
Engineered Systems		346			323			634			679
Total revenue	$	614		$	579		$	1,252		$	1,189

Revenue by geographic location, which is attributed by destination of sale, were as follows:

	Three months ended June 30,						Six months ended June 30,
	2024			2023			2024			2023
United States	$	255		$	245		$	537		$	479
Oman		32			38			157			73
Canada		92			64			151			118
Argentina		40			43			76			85
Nigeria		40			55			58			113
Australia		15			17			33			32
Brazil		16			19			31			43
Mexico		18			15			31			29
Iraq		16			38			24			82
Thailand		10			8			23			16
Bahrain		10			11			21			69
Peru		16			-			19			1
Colombia		5			3			17			6
Others		49			23			74			43
Total revenue	$	614		$	579		$	1,252		$	1,189

The following table outlines the Company’s unsatisfied performance obligations, by product line, as at June 30, 2024:

	Less than one year		One to two years		Greater than two years		Total
Energy Infrastructure	$	396	$	353	$	855	$	1,604
After-market Services		71		40		91		202
Engineered Systems		1,046		190		15		1,251
Total	$	1,513	$	583	$	961	$	3,057

 

F-15 

 

 

Note 8. Financial Instruments

Designation and Valuation of Financial Instruments

Financial instruments at June 30, 2024 were designated in the same manner as they were at December 31, 2023. Accordingly, with the exception of the Notes, the estimated fair values of financial instruments approximated their carrying values. The carrying value and estimated fair value of the Notes as at June 30, 2024 was $625 million and $652 million, respectively (December 31, 2023 – $625 million and $622 million, January 1, 2023 – $625 million and $642 million, respectively). The fair value of these Notes at June 30, 2024 was determined on a discounted cash flow basis with a weighted average discount rate of 8.3 percent (December 31, 2023 – 9.0 percent, January 1, 2023 – 9.0 percent).

The Company previously held preferred shares that were initially recorded at fair value and subsequently measured at amortized cost and recognized as long-term receivables in Other assets. During the three months ended March 31, 2023 the Company redeemed these preferred shares and recognized a gain in excess of the carrying value, which is included in the interim condensed consolidated statements of earnings. The carrying value and estimated fair value of the preferred shares at December 31, 2023 was nil (January 1, 2023 – $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 June 30, 2024:

		Notional amount		Maturity
Canadian Dollar Denominated Contracts
Purchase contracts	USD	$	22	July 2024 – May 2025
Sales contracts	USD		(28)	July 2024 – December 2024

At June 30, 2024, the fair value of derivative financial instruments classified as financial assets was less than $1 million, and as financial liabilities was less than $1 million (December 31, 2023 – less than $1 million and $1 million, January 1, 2023 – $1 million and $1 million, respectively).

Foreign Currency Translation Exposure

The Company is subject to foreign currency translation exposure, primarily due to fluctuations of the USD against the CAD, Australian dollar (“AUD”), and Brazilian real (“BRL”). Enerflex uses foreign currency borrowings to hedge against the exposure that arises from foreign subsidiaries that are translated to the Canadian dollar through a net investment hedge. As a result, foreign exchange gains and losses on the translation of $658 million in designated foreign currency borrowings are included in accumulated other comprehensive loss for June 30, 2024. The functional currencies for all entities remain the same. Refer to Note 1(c) “Change in Accounting Policies” for further details. The following table shows the sensitivity to a five percent weakening of the USD against the CAD, AUD, and BRL.

US dollar weakens by five percent	CAD		AUD		BRL
Earnings from foreign operations
Earnings before income taxes	$	(3)	$	-	$	-
Financial instruments held in foreign operations
Other comprehensive income (loss)	$	34	$	1	$	-
Financial instruments held in Canadian operations
Earnings before income taxes	$	5	$	-	$	-

The movement in net earnings before tax in Canadian operations is a result of a change in the fair values of financial instruments. The majority of these financial instruments are hedged.

 

 F-16 Notes to the Interim Condensed Consolidated Financial Statements

 

 

With the ongoing devaluation of the Argentine peso (“ARS”), caused by high inflation, the Company is at risk for foreign exchange losses on its cash balances denominated in ARS. During the three and six months ended June 30, 2024, the Company had foreign exchange losses in Argentina of $2 million and $3 million. If the ARS weakens by five percent, the Company could experience additional foreign exchange losses of approximately less than $1 million. There is a risk of higher losses based on the further devaluation of the ARS. The Company continues to explore its options to minimize the impact of future devaluation.

Interest Rate Risk

The Company’s liabilities include long-term debt that is subject to fluctuations in interest rates. The Company’s Notes outstanding at June 30, 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 $3 million. All interest charges are recorded in the interim condensed consolidated statements of earnings as finance costs.

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 RCF for future drawings to meet the Company’s requirements for investments in working capital and capital assets.

	June 30, 2024
Cash and cash equivalents	$	126
Total RCF		800
Less:
Drawings on the RCF		327
Letters of Credit1		87
Available for future drawings	$	512

¹ This represents the letters of credit that the Company has funded with the RCF. Additional letters of credit of $36 million are funded from the $70 million LC Facility. Refer to Note 6 “Long-Term Debt” for more information.

The Company continues to meet the covenant requirements of its funded debt, including the RCF and Notes. The senior secured net funded debt, which is comprised of the RCF to EBITDA ratio was 0.5:1, compared to a maximum ratio of 2.5:1, the net funded debt to EBITDA (“bank-adjusted net debt to EBITDA”) ratio was 2.2:1, compared to a maximum ratio of 4.0:1, and an interest coverage ratio was 3.9:1 compared to a minimum ratio of 2.5:1. The interest coverage ratio is calculated by dividing the trailing 12-month EBITDA, as defined by the Company’s lenders, by interest expense over the same timeframe.

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 June 30, 2024:

	Less than 3 months		3 months to 1 year		Greater than 1 year		Total
Derivative financial instruments
Accounts payable and accrued liabilities		430		-		-		430
Long-term debt – RCF		-		-		327		327
Long-term debt – Notes		-		-		625		625
Other long-term liabilities		-		-		15		15

The Company expects that cash flows from operations in 2024, 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.

 

F-17 

 

 

Note 9. Supplemental Cash Flow Information

Changes in working capital and other during the period:

	Three months ended June 30,						Six months ended June 30,
	2024			2023			2024			2023
Accounts receivable1	$	18		$	(12)		$	8		$	(8)
Unbilled revenue		(58)			(23)			(67)			(49)
Inventories		(1)			(23)			(5)			(36)
Work-in-progress related to finance leases		(2)			-			(3)			31
Finance leases receivable		11			8			26			(32)
Income taxes receivable		2			(2)			(2)			(2)
Prepayments		2			(6)			7			10
Net assets held for sale		-			-			2			-
Long-term receivables related to preferred shares		-			-			-			21
Accounts payable and accrued liabilities and provisions2		(4)			24			20			(6)
Income taxes payable		3			8			14			13
Deferred revenue		(27)			(30)			41			(44)
Other current liabilities		-			-			(6)			-
Foreign currency and other		5			2			(3)			(4)
Net change in working capital and other	$	(51)		$	(54)		$	32		$	(106)

¹ The change in accounts receivable represents only the portion relating to operating activities.

² The change in accounts payable and accrued liabilities and provisions represents only the portion relating to operating activities.

Cash interest and taxes paid and received during the period:

	Three months ended June 30,						Six months ended June 30,
	2024			2023			2024			2023
Interest paid – short- and long-term borrowings	$	36		$	35		$	45		$	52
Interest paid – lease liabilities		1			1			2			2
Total interest paid	$	37		$	36		$	47		$	54
Interest received		1			5			2			11
Income taxes paid		14			12			21			16

Changes in liabilities arising from financing activities during the period:

	Three months ended June 30,						Six months ended June 30,
	2024			2023			2024			2023
Long-term debt, opening balance	$	853		$	1,078		$	919		$	1,027
Changes from financing cash flows		32			(17)			(40)			32
The effect of changes in foreign exchange rates		-			2			1			-
Amortization of deferred transaction costs		3			2			6			5
Accretion of Notes discount		2			2			4			4
Deferred transaction costs		(1)			(2)			(1)			(3)
Long-term debt, closing balance	$	889		$	1,065		$	889		$	1,065

 

 F-18 Notes to the Interim Condensed Consolidated Financial Statements

 

 

Note 10. Guarantees, Commitments, and Contingencies

Guarantees

At June 30, 2024, the Company had outstanding letters of credit of $123 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 $36 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:

2024	$	514
2025		69
2026		3

Legal Proceedings

During the second quarter of 2024, the Tenth Circuit Collegiate Court on Labor Matters in Mexico (the “Court”) set aside a January 31, 2022 decision of a Labor Board in the State of Tabasco, Mexico (the “Labor Board”) that had ordered subsidiaries of Exterran Corporation (now subsidiaries of Enerflex) to pay a former employee MXN$2,152 million (approximately $125 million) plus other benefits in connection with a dispute relating to the employee’s severance pay following termination of his employment in 2015.

In rendering its decision, the Court ruled in favor of Enerflex’ arguments that the Labor Board ruling was in error and had no credible basis in law or fact. The matter has now been returned to the Labor Board to issue a new judgement in accordance with the Court’s ruling and directives, which support the Company’s view that the Labor Board’s ultimate resolution will be immaterial to its financial results.

The Company is involved in litigation and claims associated with normal operations against which certain provisions may be made in the Financial Statements. Management is of the opinion that any resulting settlement arising from the litigation would not materially affect the consolidated financial position, results of operations, or liquidity of the Company.

Note 11. 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. The Company’s ES revenues can fluctuate on a quarter-over-quarter basis as a result of these seasonal trends. Revenues are also impacted by both the Company’s and its customers’ capital investment decisions. The LATAM and EH segments are not significantly impacted by seasonal variations, while certain parts of the USA can be impacted by seasonal trends depending on customer activity, demand, and location. Variations from these trends usually occur when hydrocarbon energy fundamentals are either improving or deteriorating. The overall seasonality of the Company’s operations are mitigated by the increase in recurring revenue streams in the USA, LATAM, and EH, which provide stable revenues throughout the year.

 

F-19 

 

 

Note 12. 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, After-market Services (“AMS”) and Engineered Systems (“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” of the Company’s annual consolidated financial statements for the year-ended December 31, 2023.

For internal management reporting, the Company’s Chief Operating Decision Maker (“CODM”) has identified four operating segments which include: Canada, USA, LATAM, and EH. Each of the operating segments are supported by the Corporate head office. Corporate overheads are allocated to the operating segments based on revenue. In assessing its reporting and operating segments, the Company considered geographic locations, economic characteristics, the nature of products and services provided, the nature of production processes, the types of customers for its products and services, and distribution methods used. These considerations also factored into the decision to combine Canada and USA into one reporting segment. For each of the operating segments, the CODM reviews internal management reports on at least a quarterly basis. For the six months ended June 30, 2024, the Company had no individual customer which accounted for more that 10 percent of its revenue (June 30, 2023 – none).

During the three months ended June 30, 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 three and six months ended June 30, 2023. The impact to the reporting segments operating income for the three and six months ended June 30, 2023 is a decrease of $3 million for NAM; an increase of $1 million for LATAM and an increase of $2 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 the operating effectiveness of, and returns on the operating and finance leases of its EI assets, and given their prominence on the balance sheet, has made the decision to disaggregate and separately identify EI assets and finance leases receivable, refer to the Segment Assets tables below. 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-20 Notes to the Interim Condensed Consolidated Financial Statements

 

 

The following tables provide certain financial information by the Company’s reporting segments.

Revenues and Operating Income

	North America						Latin America						Eastern Hemisphere						Total
Three months ended June 30,	2024			2023			2024			2023			2024			2023			2024			2023
Segment revenue	$	439		$	364		$	100		$	86		$	97		$	137		$	636		$	587
Intersegment revenue		(20)			(7)			-			-			(2)			(1)			(22)			(8)
Revenue		419			357			100			86			95			136			614			579
EI		37			33			63			65			41			45			141			143
AMS		72			67			16			12			39			34			127			113
ES		310			257			21			9			15			57			346			323
Revenue		419			357			100			86			95			136			614			579
EI		16			14			13			20			16			14			45			48
AMS		14			11			5			4			8			7			27			22
ES		63			36			4			2			(3)			1			64			39
Gross Margin		93			61			22			26			21			22			136			109
SG&A		43			34			16			14			16			18			75			66
Foreign exchange loss		-			-			3			8			-			-			3			8
Operating income	$	50		$	27		$	3		$	4		$	5		$	4		$	58		$	35
	North America						Latin America						Eastern Hemisphere						Total
Six months ended June 30,	2024			2023			2024			2023			2024			2023			2024			2023
Segment revenue	$	824		$	721		$	184		$	173		$	283		$	317		$	1,291		$	1,211
Intersegment revenue		(36)			(20)			-			-			(3)			(2)			(39)			(22)
Revenue		788			701			184			173			280			315			1,252			1,189
EI		73			61			120			128			177			93			370			282
AMS		138			135			30			26			80			67			248			228
ES		577			505			34			19			23			155			634			679
Revenue		788			701			184			173			280			315			1,252			1,189
EI		35			25			31			36			31			29			97			90
AMS		24			23			9			7			18			13			51			43
ES		109			72			6			4			(40)			19			75			95
Gross Margin		168			120			46			47			9			61			223			228
SG&A		85			73			29			27			39			44			153			144
Foreign exchange loss		-			-			4			16			-			-			4			16
Operating income (loss)	$	83		$	47		$	13		$	4		$	(30)		$	17		$	66		$	68

 

F-21 

 

 

Segment Assets

	North America						Latin America						Eastern Hemisphere						Total
	Jun. 30, 2024			Dec. 31, 2023			Jun. 30, 2024			Dec. 31, 2023			Jun. 30, 2024			Dec. 31, 2023			Jun. 30, 2024			Dec. 31, 2023
Segment assets	$	785		$	734		$	307		$	272		$	246		$	264		$	1,338		$	1,270
EI assets		288			298			188			209			257			357			733			864
Finance leases receivable1		-			-			1			-			263			204			264			204
Goodwill2		166			167			-			-			264			266			430			433
Corporate		-			-			-			-			-			-			174			187
Total segment assets	$	1,239		$	1,199		$	496		$	481		$	1,030		$	1,091		$	2,939		$	2,958
	North America						Latin America						Eastern Hemisphere						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
Segment assets	$	734		$	841		$	272		$	395		$	264		$	52		$	1,270		$	1,287
EI assets		298			342			209			195			357			377			864			914
Finance leases receivable1		-			-			-			26			204			191			204			217
Goodwill2		167			166			-			66			266			266			433			498
Corporate		-			-			-			-			-			-			187			227
Total segment assets	$	1,199		$	1,349		$	481		$	682		$	1,091		$	886		$	2,958		$	3,144

¹ Refer to Note 3b “EI Assets – Finance Leases” for a continuity of the Company’s finance leases receivable.

² The total amount of goodwill in the Canada and USA operating segments were $30 million and $136 million, respectively (December 31, 2023 – $31 million and $136 million, January 1, 2023 – $30 million and $136 million, respectively).

Note 13. Subsequent Events

Subsequent to June 30, 2024, Enerflex declared a quarterly dividend of C$0.025 per share, payable on October 2, 2024, to shareholders of record on August 22, 2024. The Board will continue to evaluate dividend payments on a quarterly basis, based on the availability of cash flow, anticipated market conditions, and the general needs of the business.

 

 F-22 Notes to the Interim Condensed Consolidated Financial Statements