Enerflex : Q1 2024 MDA and Financials

20

24

Q1 Quarterly Report

May 7, 2024

Management's Discussion and Analysis

Management's Discussion and Analysis ("MD&A") for Ener ex Ltd. ("Ener ex" or the "Company") should be read in conjunction with the unaudited interim condensed consolidated nancial statements (the "Financial Statements") for the three months ended March 31, 2024 and 2023, the Company's 2023 Annual Report, the Annual Information Form ("AIF") for the year ended December 31, 2023, and the cautionary statements regarding forward-looking information in the "Forward-LookingStatements" 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 a ect industry conditions and/or Ener ex in the future. Additional information relating to the Company can be found in the Management Information Circular dated March 15, 2024, the AIF, and Form 40-F, which are available on the Company's website at www.ener ex.comand under the Company's SEDAR+ and EDGAR pro les at www.sedarplus.ca and www.sec.gov/edgar, respectively.

The nancial information reported herein has 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 nancial statements, including IAS 34 "Interim Financial Reporting", and is presented in United States dollars unless otherwise stated.

Change in Presentation Currency

• ective January 1, 2024, the Company changed its presentation currency from Canadian dollars ("CAD") to United States dollars ("USD"). The change will provide more relevant reporting of the

Company's nancial position, given that a signi cant portion of the Company's legal entities applied USD as its functional currency and a signi cant portion of the Company's expenses, cash ows, 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. All periods presented in this MD&A have been translated into the new presentation currency, in accordance with the guidance in IAS 21 "The E ects of Changes in Foreign Exchange Rates". Further details are provided in Note 1(c) of the Notes to the Financial Statements.

M-1

Summary Results

			Three months ended
				March 31,
($ millions, except percentages)		2024		2023
Revenue	$	638	$	610
Gross margin		87		119
Selling, general and administrative expenses ("SG&A")		78		78
Foreign exchange loss		1		8
Operating income	$	8	$	33
Earnings before finance costs, income taxes, depreciation and amortization ("EBITDA")		47		80
Earnings before finance costs and income taxes ("EBIT")		3		33
Net earnings (loss)		(18)		10
Cash provided by (used in) operating activities		101		(2)
Key Financial Performance Indicators ("KPIs")1
Engineered Systems ("ES") bookings	$	420	$	383
ES backlog		1,266		1,139
Gross margin as a percentage of revenue		13.6%		19.5%
Gross margin before depreciation and amortization ("Gross margin before D&A")		119		156
Gross margin before D&A as a percentage of revenue		18.7%		25.6%
Adjusted EBITDA		69		90
Free cash flow		78		(3)
Long-term debt		853		1,078
Net debt		743		884
Bank-adjusted net debt to EBITDA ratio		2.2		2.9
Return on capital employed ("ROCE")2		0.6%		(0.1)%

• These KPIs are non-IFRS measures. Further detail is provided in the "Non-IFRS Measures" section of this MD&A.
  2 Determined by using the trailing 12-month period.

M-2 Q1 2024 Report

2024

Results Overview

• The Company recorded revenue of $638 million during the three months ended March 31, 2024 compared to $610 million during the three months ended March 31, 2023. The higher revenue is mainly attributed to the Energy Infrastructure ("EI") product line with the recognition of the upfront revenue on the extension and modification of an existing Build-Own-Operate-Maintain ("BOOM") contract previously accounted for as an operating lease that is now accounted for as a finance lease in Eastern Hemisphere ("EH"). The Company also had higher After-market Service ("AMS") revenue from increased parts sales and customer maintenance activities. The increases in EI and AMS revenue was offset by a decrease in Engineered Systems ("ES") revenue during the current quarter. The decrease in ES revenues is primarily due to project delays and increased costs on a modularized cryogenic natural gas processing facility in Kurdistan (the "EH Cryo project") partially offset by increased ES revenues in North America ("NAM") from a strong opening backlog. The prior year results also include higher upfront revenue on a larger finance lease project that commenced operations in the first quarter of 2023.
• During the three months ended March 31, 2024, the Company recorded gross margin of $87 million and 13.6 percent compared to $119 million and 19.5 percent for the three months ended March 31, 2023. The lower gross margin is primarily due to project delays and increased costs on the EH Cryo project, and the impact of a larger upfront gain on the commencement and recognition of a finance lease project in EH in the first quarter of 2023, partially offset by increased ES revenue in NAM from a strong opening backlog. The decreased gross margin percentage is attributable to the project delays and increased costs on the EH Cryo project, and lower margin on the EI asset that is now being accounted for as a finance lease in EH, partially offset by higher margin projects and strong project execution in NAM, and increased contributions from AMS due to inflationary price adjustments.
• The Company recorded SG&A of $78 million in the first quarter of 2024, remaining steady from the $78 million in the same period last year.
• The Company recorded foreign exchange losses of $1 million during the first three months of 2024 compared to foreign exchange losses of $8 million for the same period last year. The decrease in foreign exchange losses is primarily the result of decreasing cash balances in Argentina. The Company also recorded losses from associated instruments of $5 million for the first three months of 2024. Offsetting the impact of these losses, the Company earned interest income on cash and cash equivalents held in Argentina of $1 million for the first three months of 2024 compared to interest income of $6 million for the first three months of 2023. The losses from associated instruments and interest income are not reflected in operating income.
• Enerflex reported operating income of $8 million during the three months ended March 31, 2024, compared to $33 million reported during the three months ended March 31, 2023. The lower operating income is primarily due to decreased gross margin percentage from project delays and increased costs on the EH Cryo project, partially offset by lower foreign exchange losses.
• The Company invested $17 million in capital expenditures during the first three months of 2024, which is comprised of $9 million related to property, plant and equipment ("PP&E") and maintenance expenditures across the global EI assets, and $8 million of investments to expand an EI project in EH.
• Enerflex recorded ES bookings of $420 million during the three months ended March 31, 2024, compared to $383 million recorded during the three months ended March 31, 2023, mainly attributable to higher bookings in EH and NAM. These strong bookings in the current quarter has resulted in a healthy backlog of $1.3 billion at March 31, 2024, compared to $1.1 billion at December 31, 2023.

M-3

• The Company repaid $72 million of long-term debt during the three months ended March 31, 2024, which was partially offset by amortization of deferred debt issuance costs. The Company continued to reduce its net funded debt to EBITDA ("bank-adjusted net debt to EBITDA") ratio through strong cash flow generation and continued execution of its large ES backlog. At March 31, 2024, the Company was in compliance with its covenants.
• Subsequent to March 31, 2024, Ener ex suspended activity at the EH Cryo project in response to a drone a ack that resulted in fatalities at an operational facility in proximity to the EH Cryo project. Ener ex has provided its client partner with notice of Force Majeure, suspended activity at the project site and demobilized its personnel. While no Ener ex personnel were injured and there was no physical damage to the Company's assets, work at the site is suspended as Ener ex evaluates the situation in collaboration with our client partner and assesses next steps.
  There can be no assurance that the security situation will improve and while work is suspended Enerflex will not incur any material construction expenditures to complete the EH Cryo project.
• Subsequent to March 31, 2024, Enerflex declared a quarterly dividend of C$0.025 per share, payable on July 11, 2024, to shareholders of record on May 23, 2024. The Board of Directors (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.

M-4 Q1 2024 Report

2024

Adjusted EBITDA

The Company de nes EBITDA as earnings before nance costs, taxes, and depreciation and amortization. Ener ex's nancial 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.

Ener ex 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 uctuates based on share price that can be in uenced by external factors that are not directly relevant to the Company's current operations. Items the Company has adjusted for in the past include, but are not limited to, restructuring, transaction, and integration costs; share-based compensation; severance costs associated with restructuring activities; government grants; impairments or gains on idle facilities; and impairment of goodwill. These items are considered either unique, non-recurring, or non-cash transactions, and not indicative of the ongoing normal operations of the Company.

The Company also adjusts for the impact of	nance leases by eliminating the non-cash upfront selling
pro t recognized when	nance leases are put into service, and instead includes lease payments received
over the term of the related lease. The Company believes the adjustment for the impact of	nance leases
in its Adjusted EBITDA calculation provides a be er understanding of Ener	ex's cash-generating
capabilities and also improves comparability for similar EI assets with di	erent contract terms.
							Three months ended
								March 31, 2024
				North		Latin		Eastern
($ millions)		Total		America	America		Hemisphere
EBIT	$	3	$	33	$	5	$	(35)
Depreciation and amortization	44		18		10		16
EBITDA		47		51		15		(19)
Restructuring, transaction and integration
costs		6		3		2		1
Share-based compensation		6		3		1		2
Impact of finance leases
Upfront gain		(3)		-		-		(3)
Principal repayments		13		-		-		13
Adjusted EBITDA	$	69	$	57	$	18	$	(6)
							Three months ended
								March 31, 2023
				North		Latin		Eastern
($ millions)		Total		America	America		Hemisphere
EBIT	$	33	$	21	$	(1)	$	13
Depreciation and amortization	47		15		13		19
EBITDA		80		36		12		32
Restructuring, transaction and integration
costs		13		3		3		7
Share-based compensation		2		2		-		-
Impact of finance leases
Upfront gain		(13)		-		-		(13)
Principal repayments		8		-		-		8
Adjusted EBITDA	$	90	$	41	$	15	$	34

Refer to the section "Segmented Results" of this MD&A for additional information about results by geographic location.

M-5

Engineered Systems Bookings and Backlog

Ener ex monitors its ES bookings and backlog as indicators of future revenue generation and business activity levels. Bookings are recorded in the period when a rm commitment or order is received from clients. Bookings increase backlog in the period they are received, while revenue recognized on ES products decreases backlog in the period the revenue is recognized.

The following tables set forth ES bookings and backlog by reporting segment:

					Three months ended
						March 31,
($ millions)				2024		2023
Bookings
North America		$		319	$	308
Latin America				5		7
Eastern Hemisphere				96		68
Total bookings		$		420	$	383
		March 31,	December 31,		January 1,
($ millions)		2024		2023		2023
Backlog
North America	$	984	$	932	$	793
Latin America		71		79		39
Eastern Hemisphere		211		123		280
Total backlog	$	1,266	$	1,134	$	1,112

The Company maintained the strong momentum generated in 2023 within its manufacturing business, recording bookings of $420 million during the three months ended March 31, 2024. The increased bookings is based on continuing strong client activity levels.

ES backlog of $1.3 billion at March 31, 2024 increased slightly from the backlog at December 31, 2023. The signi cant project bookings that were added to Ener ex's backlog has been o set by the drawdown of existing backlog that contributed to ES revenue recognized in the period.

Global demand for natural gas remains robust, and Ener ex is well positioned to expand its ES business by serving the growing natural gas markets in the Company's key operating regions. However, weak natural gas prices in North America and recessionary fears could a ect the Company's ability to secure future bookings.

Segmented Results

Ener ex has three reporting segments: NAM, Latin America ("LATAM"), and EH, each of which are supported by Ener ex's corporate functions. Corporate overhead is allocated to the operating segments based on revenue. In assessing its operating segments, the Company considers geographic locations, economic characteristics, the nature of products and services provided, the nature of production processes, the types of clients for its products and services, and distribution methods used.

M-6 Q1 2024 Report

2024

North America Segment Results

				Three months ended
				March 31,
($ millions, except percentages)		2024		2023
ES bookings	$	319	$	308
ES backlog		984		854
Segment revenue	$	385	$	357
Intersegment revenue		(16)		(13)
Revenue	$	369	$	344
EI	$	36	$	28
AMS		66		68
ES		267		248
Gross margin		75		59
Gross margin before D&A		86		69
Gross margin %		20.3%		17.2%
Gross margin before D&A %		23.3%		20.1%
SG&A		42		39
Operating income		33		20
EBIT		33		21
EBITDA		51		36
Adjusted EBITDA		57		41
Revenue as a % of consolidated revenue		57.8%		56.5%

Ener ex recorded ES bookings of $319 million in the NAM segment in the rst quarter of 2024, compared to $308 million the same period last year. The increase is a ributable to a large volume of bookings in both the USA and Canada. Increased bookings re ect steady activity levels in the energy sector in the USA and Canada, with sold margins continuing to increase on new bookings. Accordingly, NAM's ES backlog of $984 million at March 31, 2024 is expected to result in strong ES revenue generation over the near term.

Revenue increased by $25 million during the three months ended March 31, 2024 compared to the same period last year, which is primarily from increased ES revenues from elevated activity levels on a stronger opening backlog and sustained client bookings. The segment also saw an increase in EI revenue as a result of its expanded contract compression eet and in ationary price adjustments. These increases to revenue is o set by slightly decreased AMS revenues from lower parts sales.

Gross margin increased during the three months ended March 31, 2024 compared to the same period last year, which is a ributable to higher overall revenues and improved margins on sold ES projects. Gross margin percentage also increased during the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to higher margin projects and strong project execution in ES.

SG&A was higher during the three months ended March 31, 2023 compared to the same period last year, which is primarily due to increased compensation costs.

At March 31, 2024, the USA contract compression eet totaled approximately 424,000 horsepower. The average utilization of the USA contract compression eet for the three months ended March 31, 2024 was 93 percent, which is a decrease from 96 percent utilization for the three months ended March 31, 2023. Despite the decrease in utilization, the Company has seen increased revenue due to improved rental pricing.

M-7

Latin America Segment Results

				Three months ended
				March 31,
($ millions, except percentages)		2024		2023
ES bookings	$	5	$	7
ES backlog		71		36
Segment revenue	$	84	$	87
Intersegment revenue		-		-
Revenue	$	84	$	87
EI	$	57	$	63
AMS		14		14
ES		13		10
Gross margin		24		21
Gross margin before D&A		35		32
Gross margin %		28.6%		24.1%
Gross margin before D&A %		41.7%		36.8%
SG&A		13		13
Foreign exchange loss		1		8
Operating income (loss)		10		-
EBIT		5		(1)
EBITDA		15		12
Adjusted EBITDA		18		15
Revenue as a % of consolidated revenue		13.2%		14.2%

ES bookings were lower during the three months ended March 31, 2024 compared to the same period of 2023 by $2 million. Ener ex continues to monitor potential projects in LATAM and is well positioned to capitalize on those opportunities should they proceed.

For the three months ended March 31, 2024, LATAM revenues decreased by $3 million when compared to the same period last year, primarily from decreased EI revenue due to the sale of certain EI assets during 2023. The decrease in revenue is o set by increases in ES revenue based on the pace of execution on projects in its backlog.

Gross margin increased by $3 million in the three months ended March 31, 2024 compared to the same period last year, which is mainly due to increases in ES revenues and improved gross margins on ES projects. Gross margin percentage increase during the three months ended March 31, 2024 compared to the same period last year is the result of the increased scope of work on certain projects.

SG&A of $13 million during the three months ended March 31, 2024 remained steady from the $13 million in the same period last year.

Foreign exchange losses decreased during the three months ended March 31, 2024, compared to the same period in 2023, which is the result of decreasing cash balances in Argentina. The Company also recognized losses from associated instruments of $5 million during the three months ended March 31, 2024. The losses were partially o set by $1 million interest income earned on cash and cash equivalents held in Argentina for the three months ended March 31, 2024 compared to the interest income of $6 million recorded in the rst three months of 2023. The losses from associated instruments and interest income are not re ected in operating income.

M-8 Q1 2024 Report

2024

Eastern Hemisphere Segment Results

				Three months ended
				March 31,
($ millions, except percentages)		2024		2023
ES bookings	$	96	$	68
ES backlog		211		250
Segment revenue	$	186	$	180
Intersegment revenue		(1)		(1)
Revenue	$	185	$	179
EI	$	136	$	48
AMS		41		33
ES		8		98
Gross margin		(12)		39
Gross margin before D&A		(2)		55
Gross margin %		(6.5)%		21.8%
Gross margin before D&A %		(1.1)%		30.7%
SG&A		23		26
Operating income		(35)		13
EBIT		(35)		13
EBITDA		(19)		32
Adjusted EBITDA		(6)		34
Revenue as a % of consolidated revenue		29.0%		29.3%
The Company reported $96 million of bookings during the		rst three months of 2024, a $28 million

increase over the same period in 2023 and mainly relates to an expansion project of an existing EI asset, which is being accounted for as a nance lease. Once the expansion project is complete, it will be accounted for as a nance lease. EH's backlog decreased in the current period due to revenue recognition outpacing new bookings in the period.

Revenue increased by $6 million during the three months ended March 31, 2024 compared to the same period last year. This increase in revenue is primarily due to higher EI revenue due to the upfront revenue recognized on the extension and modi cation of an existing BOOM contract previously accounted for as an operating lease that is now accounted for as a nance lease, in addition to increased AMS revenues from higher customer maintenance activities and parts sales across the region. The increase in revenue is o set by signi cantly lower ES revenue relating to project delays and increased costs on the EH Cryo project, as well as the higher upfront revenue on the commencement of a larger nance lease project during the rst three months of 2023.

Gross margin and gross margin percentage for the three months ended March 31, 2024 were lower than the same period in 2023 primarily due to decreased ES revenue from project delays and increased costs on the EH Cryo project and the impact of a larger upfront gain on the commencement and recognition of a nance lease project in EH in the rst quarter of 2023.

SG&A was lower during the three months ended March 31, 2024 when compared to the same period last year. This favourable variance is due to lower restructuring, transaction, and integration costs during the current quarter, partially o set by increased compensation costs.

M-9