Enerflex Q3 2026 Earnings Call Transcript

Enerflex (NYSE:EFXT) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Enerflex Ltd delivered a strong third quarter with record engineered systems bookings of approximately $1 billion, increasing the backlog to $2.1 billion and providing visibility into future activity levels through 2028.

The company reported a gross margin before depreciation and amortization of $176 million, or 28% of revenue, adjusted EBITDA of $129 million and net earnings of $55 million, or $0.45 per share.

Free cash flow increased to $102 million, while net debt was reduced to $312 million. The bank-adjusted net debt to EBITDA ratio improved to 0.6 times.

Enerflex continues to focus on strategic growth initiatives, including expanding its Engineered Systems capacity, enhancing power generation capabilities and increasing its Contract Compression fleet.

The company announced a 17% increase in its quarterly dividend, reflecting confidence in its financial position and commitment to providing shareholder returns.

Enerflex has refined its capital expenditure guidance for 2026, targeting $185 to $195 million, with adjustments in maintenance capital expenditures and investments in PP&E infrastructure.

Full Transcript

Jeff (Investor Relations)

Refer to the advisory statements within our news release, MD&A and other regulatory filings, all available on our website and under our SEDAR+ and EDGAR profiles. I’ll now turn it over to Paul.

Paul M. (President & CEO)

Thanks, Jeff, and thank you for joining us on this morning’s call. Enerflex delivered a solid third quarter highlighted by healthy cash generation, record engineered systems bookings and backlog, notable commercial wins for behind-the-meter natural gas-fired power generation, and continued progress towards the strategic objectives highlighted during our May investor update. We are pleased with the progress to date and adoption of operational and efficiency initiatives across our integrated company.

Our results continue to reflect growing demand across core markets and the strength of Enerflex’s integrated platform, which allows us to support customers across compression, gas processing, power generation, and aftermarket services. We are increasingly seeing end-market opportunities that have the potential to drive meaningful growth across the business for years to come. While we are positioning the organization to capitalize, we continue to review all opportunities on a risk-adjusted basis and balance them with our focus on operational excellence and disciplined execution.

Let me start with our Engineered Systems business. The quarter was highlighted by record bookings of approximately $1 billion. During the first nine months of 2026, Engineered Systems bookings totaled approximately $2 billion, and we are on track to exceed $3 billion during 2026. This compares to our prior annual high watermark of approximately $1.5 billion in 2018. Strong bookings increased our Engineered Systems backlog to $2.1 billion at the end of Q3 and provide visibility into future activity levels through 2028.

End-market demand remains broad-based across compression, gas processing, and power generation applications, with bookings in Q3 highlighted by the award of a contract to design, engineer, fabricate, and assemble approximately 450 megawatts of behind-the-meter, natural gas-fired power generation units for a North American data center developer. The volume and quality of opportunities we see across end markets reinforces our view that demand for natural gas infrastructure remains durable and supported by long-term fundamentals.

We believe Enerflex is well positioned to take advantage of growing end-market demand, which was a key factor in our decision to invest in expanding the capacity and capabilities of our Engineered Systems business line. We expect these investments to enhance operational efficiency, support continued execution as activity levels increase, and translate into strong value creation for our shareholders. Power generation has rapidly become an important opportunity for Enerflex. We continue to see growing customer demand for reliable, dispatchable power solutions, particularly in support of data center development and in regions where grid infrastructure remains constrained. With that said, it is important to emphasize that we are taking a disciplined approach in how we review, pursue, and assess risk for power generation–related opportunities.

This underlies our go-to-market approach, which emphasizes Enerflex’s unique capabilities in providing a fully integrated solution spanning design, engineering, equipment supply, commissioning, operations, maintenance, and optimization, in addition to the projects and customers where our team focuses their efforts. We are very pleased with the market response to Enerflex’s value proposition and our ability to secure a backlog of behind-the-meter natural gas-fired power generation projects that now exceeds 1.75 gigawatts.

I would like to recognize our team for these successes and their tremendous efforts over the past year. Let me emphasize we view behind-the-meter power generation as directly connected and complementary to Enerflex’s core gas compression and processing capabilities. We are pursuing growth opportunities across all of the company’s end markets, including behind-the-meter power generation. Turning to Aftermarket Services, the business continues to perform well and is supported by healthy customer activity levels across our key operating regions. Our global installed base and growing service capabilities position us well to benefit from ongoing maintenance requirements and future service opportunities associated with both traditional energy infrastructure and power generation projects.

Recent project awards align with Enerflex’s commercial capabilities to support the full-cycle requirements of behind-the-meter power generation development and are expected to provide opportunities for future commissioning, installation, and Aftermarket Services support, including digital solutions through Enerflex’s Reliacor Asset Performance ecosystem. We continue to view Aftermarket Services as an attractive source of recurring revenue and long-term value creation.

Turning to Energy Infrastructure, our U.S. Contract Compression business continues to perform well as increasing natural gas production supports demand for compression services. Utilization remained strong at 94% while fleet size increased to approximately 521,000 horsepower at quarter end. We continue to target customer-supported fleet growth of 10% to 15% during 2026 and are securing long-lead components to support growth into 2029. Our international Energy Infrastructure portfolio also continues to be a durable source of cash flow supported by long-term customer relationships and contracted assets.

During the quarter, we also completed the divestiture of the majority of our Asia Pacific operations. The transaction advances several of the objectives outlined during our Investor Update in May, including sharpening our geographic focus, simplifying the business, and further concentrating our efforts on the markets and product lines where we see the greatest opportunities for long-term value creation. As we discussed at our Investor Update in May, our focus remains on growing revenue ahead of our underlying markets, improving profitability, enhancing cash conversion, and driving higher returns on capital. To support these objectives, we continue to advance initiatives across the organization, including the integration of our North American operations, strengthening our supply-chain execution, driving continuous improvement and lean, an enhanced focus on our commercial execution, and advancing digital enablement.

The deployment of Reliacor is an increasingly important component of our integrated service offering. In addition to supporting our existing installed base, Reliacor enhances our ability to deliver remote monitoring, operational support, and asset optimization solutions across both traditional energy infrastructure and emerging power generation applications. These capabilities extend service coverage, accelerate issue resolution, and build the foundation for advanced analytics and predictive maintenance capabilities that are expected to improve asset performance, reduce downtime, and create long-term economic value for both Enerflex and our client partners.

As we look ahead, we believe Enerflex is exceptionally well positioned. Record backlog provides visibility into future activity levels, our Contract Compression business continues to grow, demand for natural gas infrastructure remains constructive, and our emerging power generation platform continues to gain momentum. With that, I’ll turn the call over to Preet.

Preet S. Dhindsa CPA, CA, Chartered Director (Chief Financial Officer)

Thanks, Paul, and good morning, everyone. I’ll begin by touching on a few highlights from our third quarter financial results. Gross margin before depreciation and amortization was $176 million, or 28% of revenue in Q3 26, compared to $206 million, or 27% of revenue in the prior-year period, and $173 million, or 30% of revenue in the second quarter. The year-over-year decline primarily reflects the upfront gain related to commencement of the BSFC expansion facility, as well as the achievement of certain engineered systems project milestones in the prior-year period.

Compared to the second quarter, margins reflected a shift in revenue mix and project sequencing, with engineered systems revenue improving sequentially and margins consistent with our historical average. Energy infrastructure and aftermarket services once again provided a strong foundation for earnings generation, contributing approximately 68% of consolidated gross margin before depreciation and amortization. During the quarter, SG&A was $64 million, down $7 million from the prior-year period, primarily due to lower share-based compensation. Core SG&A increased to $58 million from $53 million in Q3 25, reflecting costs to support growth and operational optimization in the business. Adjusted EBITDA is $129 million, compared to $145 million in the third quarter of 2025, and $128 million in the second quarter of this year. Compared to the prior year, results reflect timing of project milestones and a higher level of operational activity in ES during the prior-year period.

Free cash flow was $102 million, compared to $43 million in the prior-year period, and $32 million last quarter. The increase in free cash flow compared to the prior year and prior period reflected higher CFO, including net working capital recovery of $51 million, being partially offset by higher capital spending compared to the prior-year period. Return on capital employed was 15.8% in Q3 26, compared to 16.9% in Q3 25 and 15.4% in Q2 26. The sequential increase benefited from lower average capital employed, predominantly due to a reduction in net debt.

Compared to Q3 25, ROCE reflects lower trailing twelve-month EBIT, as the prior-year period benefited from the upfront gain related to recognition of the BSFC expansion, as well as lower share-based compensation. Net earnings of $55 million, or $0.45 per share, compared to $37 million, or $0.30 per share, in the prior-year period, and $30 million, or $0.25 per share, in the second quarter. Turning to the balance sheet, Enerflex ended the quarter with net debt of $312 million, including $227 million of cash. The increase in cash reflects proceeds of $62 million from the APAC divestiture on September 30th, as well as strong free cash flow generation, including collections and customer deposits. Near the end of the quarter, our bank-adjusted net debt to EBITDA ratio improved to approximately 0.6 times.

Let me shift to capital allocation. First, on our capex plans and growth: We invested $42 million in the business during the third quarter, comprised of $26 million for growth, primarily allocated to expand the company’s contract compression fleet in the U.S., and $16 million for maintenance and PP&E. Enerflex is refining its organic capital expenditure guidance for 2026. The company continues to target spending of $185 to $195 million during the year, which includes organic growth capital expenditures of approximately $100 million, unchanged from prior guidance; maintenance capital expenditures of approximately $55 million versus prior guidance of $70 to $80 million; and PP&E infrastructure investments of $30 to $40 million versus prior guidance of $15 million. The reduction in forecasted maintenance capital reflects efficiencies as well as a shift of some spending into 2027. The additional investments in PP&E infrastructure will be used to support the company’s ES business line and activity in adjacent markets, including electric power generation.

As we announced in early October, Enerflex has authorized investments to expand its EF facilities and capabilities, including $30 to $40 million included in Enerflex’s 2026 capital expenditure guidance and $85 million expected to be incurred during 2027. These investments, combined with ongoing initiatives to enhance collaboration, leverage scale, improve operational efficiency, and solidify capabilities, are expected to significantly increase the revenue capacity of Enerflex.

Enerflex also continues to evaluate selective, disciplined tuck-in acquisition opportunities. Inorganic growth will remain focused on enhancing capabilities and accelerating scale in the company’s core North American markets. All opportunities will be balanced with Enerflex’s focus on maintaining a strong financial position and providing direct shareholder returns. Now shifting to direct shareholder returns, Enerflex’s Board of Directors has increased the company’s quarterly dividend by 17% to 3.5 cents U.S. per common share, effective with a dividend payable in November 2026. The board’s decision to increase the dividend for a third consecutive year reflects confidence in our business, given Enerflex is in a strong financial position, and aligns with our objective of providing meaningful direct shareholder returns.

With that, I’ll turn the call back to Paul.

Paul M. (President & CEO)

Thanks, Preet. The third quarter represented another meaningful step forward as we continue to execute on the priorities outlined during our investor update in May. We generated strong free cash flow, delivered record bookings and backlog, increased our dividend for a third consecutive year, and continued executing towards the strategic objectives. As we look ahead, we believe Enerflex is well positioned to capitalize on growing demand for natural gas infrastructure and power generation solutions. With engineered systems bookings on track to more than double our previous annual record and backlog at an all-time high, we remain focused on converting these opportunities into long-term value for shareholders.

I’d also like to thank our employees for their continued commitment and dedication, and our client partners, suppliers, and stakeholders for their ongoing support. I will now turn the call back to the operator for questions.

OPERATOR (Moderator)

Certainly. And ladies and gentlemen, as a reminder, if you do have a question at this time, please press star 11 on your telephone. Our first question for today comes from the line of Aaron McNeil from TD Cowen. Your question, please.

Aaron McNeil (Analyst)

Hey, morning all. Thanks for taking my questions. I wanted to start by focusing on the strong bookings for the quarter, particularly within just the sort of the core business of compression and processing. Did the bookings include anything unusually large, like a cryo order? Or was it just, you know, the results are another indication of the broad-based strength you’re seeing across the platform?

Paul M. (President & CEO)

Yeah. Good morning, Aaron, and thank you for the question. There’s nothing really significantly different than what we’ve been observing over the last few quarters. The $1 billion bookings has a healthy power component, as we’ve discussed. I mean, nothing unusually large in the balance of compression or gas processing. However, we did have a nice incremental win in Latin America, in Argentina, in our gas processing business. That was a nice order, but it’s well within the trailing eight-quarter line in our core business—nothing unusual.

And as I said, we’ve added a power generation win to that.

Aaron McNeil (Analyst)

Okay, fair enough. And then, you know, maybe shifting to shareholder returns. The balance sheet’s in good shape, you’ve got clear visibility of future earnings and, you know, I can appreciate the dividend increases meaningfully in percentage terms, but maybe not meaningfully on a use-of-cash perspective. So I guess I’m wondering, you know, about the continued reluctance to sort of enhance direct shareholder returns more meaningfully from current levels.

Paul M. (President & CEO)

Thanks, Aaron. So, I mean, we did do the dividend increase—third year in a row—and you’re right, 17%, a decent increase over 10% last year and 50% the year prior. We continue to assess all capital allocation levers, including direct shareholder returns, including share buybacks. As we’ve discussed many times, our growth agenda—organic and inorganic tuck-ins in good markets, good asset classes, primarily in the U.S.—is something we’re focused on. This is all in context of a very strong balance sheet, which we feel very good about where we are today, and some of the cash inflows, we will be deploying those towards execution of the ES projects that are currently in our high-quality backlog.

But to say, we assess all different levers—we assess direct returns, inorganic, organic growth—in context of continuing to paying down debt. But we feel good about where the balance sheet’s at, and once again we have these discussions, managed from the board. And there’s no reluctance, but there’s often a lot of assessment in different levers at different points in time. And some of our capex requirements to be able to execute on the power-gen transactions are something we are also focused on, which is why we’re refining our capex guidance this year and put a marker up for next year.

Aaron McNeil (Analyst)

Fair enough. Thanks, everybody. I’ll turn it back.

OPERATOR (Moderator)

Thank you. And our next question comes from the line of Keith Mackey from RBC Capital Markets. Your question, please.

Keith Mackey (Analyst)

Hey, thanks and good morning. I guess I’ll start out with the data center bookings—certainly very strong bookings in Q3 and coming up in Q4—but certainly there is concern around data center backlash and potentially what might happen from a regulatory standpoint if we see the U.S. turn more, call it, blue in the House and the Senate after the midterms. So can you just talk about in more detail some of those gating factors and some of the scrutiny you conduct when you accept or when you bid on these awards and ultimately win them, and ultimately what drives your confidence in being able to execute these projects that you’ve booked?

Paul M. (President & CEO)

Yeah, thanks, Keith, and good morning. You know, as we’ve talked over several quarters, we’ve had originally a little over 7 gigawatts of commercial activity and opportunity. I’m quite happy and pleased with the team’s ability to strategically look at the 7 gigawatts. If you remember a couple quarters ago, we started to zero this down into 2 gigawatts of seriousness, and a lot of that is a reflection of that strategic filtering. So when I think about companies that have really, really strong investment-grade positions, creditworthiness, strong counterparties that have well-developed line of sight of engineering, well-developed line of sight of the regulatory environment, very close to the local markets that they are participating in, we have really focused on those. And I would tell you that—very happy, very pleased with the commercial activity in the business units to build this filtering process—to whereby this 1.8 gigawatts in our backlog that we see now, we feel very, very good about.

And certainly it’s an ongoing discussion. We stay close to it, but we’ve done our best to participate and partner with those that are lower risk.

Keith Mackey (Analyst)

Okay, appreciate the comments there, Paul. Just maybe a follow-up on the data center pipeline then—so narrowed the 7 gigawatts down to roughly the 2 gigawatts that you’ve already won. What is your outlook for replenishing of that pipeline of new projects that would potentially also fit in your wheelhouse over the next several years? Or are you pretty much happy with what you’ve booked and that’s it for the data center opportunity?

Paul M. (President & CEO)

Yeah, no, great question, Keith. You know, as we work through our strategic priorities and built our strategic plan, you know, clearly the avenue here in this adjacency was to build an installed base and harvest the aftermarket services over time. And so we did and walked into a 7 gigawatt set of opportunities. We narrowed it to our best view. We focused on bringing those home. In the 1.8. I would tell you today that I see probably an additional one and a half to two in a very filtered manner to the description that I laid out there.

The gating item obviously is going to be equipment supply. And so the timing of what that looks like is something to walk through, but I would say right now one and a half to two gigawatts falls into the similar realm.

Keith Mackey (Analyst)

Okay, appreciate it. Thanks very much.

OPERATOR (Moderator)

Thank you. And once again, ladies and gentlemen, as a reminder, if you do have a question at this time, please press star 11 on your telephone. Our next question comes from the line of Tim Monticello from ATB Capital Markets. Your question please.

Tim Monticello (Analyst)

Hey, good morning everyone. Just wanted to ask about the inherent systems margins in the quarter. We saw those dip down from, I guess, the range they’ve been running at for the last few quarters. Is there anything one time in the margin profile there?

Preet S. Dhindsa CPA, CA, Chartered Director (Chief Financial Officer)

Yeah, I mean, primarily it’s mix, project sequencing, and these margins that we reported in Q3 are aligned fairly well with the historical average. So nothing obvious jumps out at us that way, but just those criteria is what I would say.

Tim Monticello (Analyst)

When you look at the backlog of projects you have, and clearly with the Power Gen coming through, I would think that margins are going to tick higher. But do you have any guidance or provide any context on where you think margins are heading in ES?

Preet S. Dhindsa CPA, CA, Chartered Director (Chief Financial Officer)

What we’ve been saying about the win that we had in Q3 and the subsequent win that’s going to be reported in Q4 in Power Gen, we feel those margins are accretive to our current reported historical ES margins. But that’s not going to hit until likely late 2027, call it Q4 into 2028. But overall we’ve got pretty healthy, historically aligned gross margins in the ES business and we’ll continue to optimize to try to improve that going forward.

Tim Monticello (Analyst)

Got it. And then with the increase in the PP&E spend in 2026, is that more pull forward of spend that you’re expecting to happen in 27, 28, or is that incremental and what do you like? Will that increase your capacity in any way versus what your expectations were?

Preet S. Dhindsa CPA, CA, Chartered Director (Chief Financial Officer)

Yeah. So we talked about 15 million PP&E for 2026 and 85 million in 2027. Some of that will be pulled forward into 26. What we did, we took the maintenance CapEx, dropped that at midpoint of value about $20 million, increased the PP&E, reflecting some pull forward, but also increasing capabilities and capacities above and beyond what we mentioned a few weeks ago. But overall we think it’s still a healthy range of PP&E and maintenance CapEx. Some of it we feel we can defer into 2027.

But overall CapEx guidance is in the same range of 185 to 195.

Tim Monticello (Analyst)

I guess what I’m trying to get at is that. Sorry, go ahead.

Paul M. (President & CEO)

No, Tim, I was just going to add to Preet just for maybe helping as well conceptually. So in our TELGE facility we’re talking about adding acreage, right? So the question of is this incremental? It’s incremental acreage. It’s incremental buildings. So there’ll be a test building and there’ll be a fabrication building. These are incremental. So to really start to zero in conceptually, is this going to give us increased capacity? The answer is yes.

Jeff (Investor Relations)

Tim. Sorry, it’s Jeff, just one more item to clarify. We’re also investing across all of the ES facilities, including in Canada and the Broken Arrow facility in Oklahoma. And that’s reflective of end market demand and also the desire to solidify capabilities across the businesses that we’re executing on.

Tim Monticello (Analyst)

Okay, got it. I guess what I’m trying to get at is clearly there’s some capacity constraints within the ES business which you’re addressing with these expansions, which will largely come in for 2028. Is there anything that any other levers you can pull to try to expand capacity sooner? And maybe you could help by just providing some bookends on where you think your manufacturing throughput stands for 27 and 28, given the expansions that you’re doing.

Paul M. (President & CEO)

There’s several things, Tim, that we’ve been looking at. Nothing concrete at this point, but certainly how do we accelerate with partners? And that’s definitely something we’re working through. We’re not ready to kind of come forward with that, but we’re looking to expand in other ways as needed.

Tim Monticello (Analyst)

Okay, great. I appreciate it.

OPERATOR (Moderator)

Thank you. And this does conclude the question and answer session of today’s program. I’d like to hand the program back to Paul Mahoney for any further remarks.

Paul Mahoney

Well, thank you for joining today’s call and for your continued interest in Enerflex. We appreciate your time and look forward to sharing our fourth quarter and year end results with you in February. Thank you.

OPERATOR (Moderator)

Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.