Enerflex Ltd.
TSX : EFX

Enerflex Ltd.

March 02, 2017 19:25 ET

Enerflex Reports Fourth Quarter 2016 Financial Results and Quarterly Dividend

CALGARY, ALBERTA--(Marketwired - March 2, 2017) - Enerflex Ltd. (TSX:EFX) ("Enerflex" or "the Company" or "we" or "our"), a leading supplier of products and services to the global energy industry, today reported its financial and operating results for the three and twelve months ended December 31, 2016.

Summary Table of Fourth Quarter and Twelve Months of 2016 Financial and Operating Results

(unaudited)
($ Canadian millions, except per share amounts, horsepower, and percentages)
Three months ended
December 31,
Twelve months ended
December 31,
2016 2015 Change 2016 2015 Change
Revenue $ 343.4 $ 358.5 $ (15.1 ) $ 1,130.6 $ 1,629.0 $ (498.4 )
Gross margin 69.2 74.7 (5.5 ) 243.8 326.2 (82.4 )
EBITDA (1) (12.4 ) 7.0 (19.4 ) 11.6 176.8 (165.2 )
Adjusted EBITDA (2) 57.9 55.7 2.2 180.6 231.1 (50.5 )
EBIT (loss) (1) (36.3 ) (20.9 ) (15.4 ) (81.5 ) 94.9 (176.4 )
Adjusted EBIT (2) 34.0 27.7 6.3 87.5 148.3 (60.8 )
Net (loss) earnings - continuing operations $ (45.5 ) $ (33.4 ) $ (12.1 ) $ (104.5 ) $ 48.9 $ (153.4 )
(Loss) earnings per share - continuing operations (0.54 ) (0.42 ) (0.12 ) (1.28 ) 0.62 (1.90 )
Recurring revenue % (3) 41.7 % 33.0 % 41.7 % 33.0 %
Bookings (4) $ 262.2 $ 170.6 $ 91.6 $ 853.3 $ 635.1 $ 218.2
Backlog (4) 621.4 427.2 194.2 621.4 427.2 194.2
Rental horsepower 491,206 482,175 9,031 491,206 482,175 9,031
  1. Earnings before Interest (Finance Costs), Taxes, Depreciation and Amortization ("EBITDA") and Earnings before Interest (Finance Costs) and Taxes ("EBIT") are considered non-GAAP and additional GAAP measures, which may not be comparable with similar non-GAAP or additional GAAP measures used by other entities.
  2. Adjusted EBITDA and Adjusted EBIT are non-GAAP measures. These measures provide a better representation of the Company's ongoing operations. Please refer to the full reconciliation of these items in the Adjusted EBIT and Adjusted EBITDA section.
  3. Determined by taking the trailing 12-month period.
  4. Bookings and backlog are considered non-GAAP measures that do not have standardized meanings as prescribed by GAAP, and are therefore unlikely to be comparable to similar measures used by other entities.

"Enerflex's fourth quarter financial results reflect the challenging business environment in which we have been operating. Customers have been cautious with their capital expenditures due to low commodity prices, which resulted in additional restructuring and asset impairments in Enerflex's Canada, Asia, and Australia operations during the quarter. The cost reductions resulting from this restructuring will position these regions well for 2017," said J. Blair Goertzen, Enerflex's President and Chief Executive Officer.

"With the recent stability in commodity prices, Enerflex experienced increased customer enquiries and a rebound in bookings in the second half of 2016, particularly in North America. By the end of 2016, Company backlog -- a leading indicator of future revenue -- was 45.5% higher than at the end of 2015.

This positive trend has continued during the early part of 2017 as North American producers have increased capital budgets and we continue to see strengthening customer enquiries. Consequently, we are optimistic that further stability in commodity prices will allow oil and gas producers to increase investment in their businesses, which will ultimately drive demand for Enerflex's products and services. However, Enerflex will continue to operate with caution and stay focused on controlling costs, protecting the Company's balance sheet, and generating strong free cash flow."

Quarterly Overview

  • Recorded bookings of $262.2 million, a 53.7% increase compared to the $170.6 million recorded in the fourth quarter of 2015.
  • Engineered Systems backlog at December 31, 2016 was $621.4 million, a 45.5% increase compared to the December 31, 2015 backlog of $427.2 million.
  • Reported an EBIT loss of $(36.3) million and $(81.5) million for the three months and year ended December 31, 2016, compared to EBIT loss of $(20.9) million in the fourth quarter of 2015 and EBIT of $94.9 million for the full year 2015. The EBIT loss for the three months and year ended December 31, 2016 includes goodwill impairment losses of $68.8 million and $160.9 million. Adjusted EBIT was $34.0 million and $87.5 million for the three and twelve months ended December 31, 2016, compared to $27.7 million and $148.3 million for the same periods in 2015, after excluding severance and restructuring costs in Canada, Asia and Australia; the impairment of assets and goodwill associated with Canada; and, the gain on the disposal of PP&E.
  • Rental fleet grew to almost 500,000 horsepower with the completion of a large project in the Middle East/Africa region during the first half of 2016. More than 100,000 horsepower has been added in the last 18 months as a result of organic growth.
  • Reduced net debt by $23.2 million during the quarter resulting in a net debt to EBITDA ratio, as calculated for covenant compliance purposes, of less than 1.3:1.
  • Subsequent to quarter end, declared a quarterly dividend of $0.085 per share payable April 6, 2017 to shareholders on record on March 15, 2017.

Fourth Quarter Results Summary

Net loss for the fourth quarter of 2016 was higher compared to the same period of 2015 primarily as a result of higher goodwill and asset impairments and reduced gross margin, which were partially offset by lower SG&A expenses and lower income tax expense. Gross margin in the Canada and USA segments for the quarter decreased by $13.8 million, primarily on lower revenues in Canada. Revenues in the USA segment were slightly higher than the comparable quarter. For the Rest of World segment gross margin increased by $8.3 million during the fourth quarter, as a result of higher revenue. The consolidated gross margin percentage of 20.1% for the quarter, was lower than the 20.8% margin realized in the prior year. The margin decreased due to higher inventory reserves, asset impairments and warranty costs experienced during the quarter, partially offset by stronger overhead absorption. The Company's geographic and product line diversification also helped keep margins relatively stable in a competitive and constrained economic environment caused by low commodity prices. SG&A expenses decreased $14.0 million during the three months ended December 31, 2016 primarily due to reduced compensation on lower headcount, combined with favorable foreign exchange impacts and improved bad debt experience. The fourth quarter 2016 results also reflect an $11.4 million gain on the sale of fixed assets.

Adjusted EBIT and Adjusted EBITDA

The downturn in the Energy industry has resulted in multiple rounds of cost cutting and restructuring at Enerflex in order for the business to be well positioned to weather this cycle. Lower commodity prices and reduced customer activity have also given rise to indicators of impairment over the last 24 months, which resulted in non-cash impairments being recorded on long lived assets and the carrying value of Goodwill in the Canada and USA segments. The Company has recorded a number of these items in its results for the quarter and twelve month periods ended 2016 and 2015. These restructuring costs and impairments are not expected to recur in a stable commodity price environment. The exclusion of these items presents a view of the results that management believes is a better representation of the Company's on-going operations. The presentation of adjusted EBIT and adjusted EBITDA should not be considered in isolation from EBIT or EBITDA as determined under IFRS. The adjusted EBIT and adjusted EBITDA may not be comparable to similar measures presented by other companies and should not be considered in isolation or as a replacement for measures prepared as determined under IFRS.

The items that have been adjusted for presentation purposes relate generally to two categories: 1) impairment or gains on assets; and, 2) restructuring activities. Exclusion of these items should allow for a better understanding of on-going, normal operations of the Company.

($ Canadian thousands)
Three months ended December 31, 2016 Total Canada USA ROW
Reported EBIT (loss) $ (36,284 ) $ (67,774 ) $ 20,412 $ 11,078
Restructuring costs in COGS and SG&A 7,051 2,267 209 4,575
Write-down of equipment in COGS 5,853 3,997 - 1,856
(Gain) loss on disposal of PP&E (11,386 ) (11,387 ) (29 ) 30
Goodwill impairment 68,802 68,802 - -
Adjusted EBIT $ 34,036 $ (4,095 ) $ 20,592 $ 17,539
Depreciation and amortization 23,842 4,864 2,975 16,003
Adjusted EBITDA $ 57,878 $ 769 $ 23,567 $ 33,542
($ Canadian thousands)
Three months ended December 31, 2015 Total Canada USA ROW
Reported EBIT (loss) $ (20,880 ) $ 6,509 $ (18,800 ) $ (8,589 )
Restructuring costs in COGS and SG&A 11,487 1,075 325 10,087
Write-down of equipment in COGS - - - -
(Gain) loss on disposal of PP&E 228 (601 ) (1,003 ) 1,832
Goodwill impairment 36,900 - 36,900 -
Adjusted EBIT $ 27,735 $ 6,983 $ 17,422 $ 3,330
Depreciation and amortization 27,927 4,290 5,476 18,161
Adjusted EBITDA $ 55,662 $ 11,273 $ 22,898 $ 21,491

Once the effect of the impairment or gains on assets and the restructuring activities are removed, the adjusted EBIT and adjusted EBITDA for the three months and year ended December 31, 2016 show positive EBIT instead of an EBIT loss.

Segmented Results

Canada

Canada segment revenue in the fourth quarter of 2016 was $53.3 million, down $39.0 million or 42.3% from $92.3 million recorded in the same period of 2015. The segment has been negatively affected by the significant decline in activity levels due to low commodity prices. Engineered Systems revenue was down on lower 2016 opening backlog of $150.9 million compared to $332.0 million at the start of 2015. Lower Service revenue reflects lower parts sales and a decreased level of maintenance and overhaul work. Rental revenue was higher as a result of higher rental unit sales, partially offset by reduced utilization of the Canadian rental fleet.

Operating loss for the fourth quarter of 2016 was $10.5 million compared to operating income of $2.8 million in the comparable quarter last year. This resulted from lower revenues, lower gross margin and higher restructuring costs recorded during the quarter. The decrease in gross margin was the result of lower revenues, lower project margins, reduced overhead absorption, and the non-cash impairment of the rental fleet and inventory, partially offset by improved warranty experience. Operating loss for the twelve months ended December 31, 2016 was $21.9 million, compared to operating income of $33.7 million in the prior year. The $55.6 million reduction was due to lower gross margin partially offset by decreased SG&A expenses. The decrease in gross margin resulted primarily from lower revenues, lower project margins, lower overhead absorption and the non-cash impairment of the rental fleet and inventory, partially offset by improved warranty experience. The reduction in SG&A expense was attributable to lower compensation expense on lower headcount. For the twelve months of 2016, EBIT was unfavorably impacted by $160.9 million of goodwill impairments, $7.7 million of restructuring costs, and $4.0 million of equipment impairments, partially offset by $11.4 million of gains on the sale of buildings.

USA

USA segment revenue in the fourth quarter of 2016 was $158.1 million, increased by $1.5 million or 1.0% from $156.6 million a year earlier. The increase is due to higher Engineered Systems revenue partially offset by lower Service and Rental revenue. Engineered Systems revenue increased due to the increased bookings in the back half of 2016 as compared to the back half of 2015. Service revenue was lower as a result of deferred maintenance, while Rental revenue was lower due to weaker utilization and rental rates.

Operating income increased by $2.3 million during the fourth quarter of 2016 due to decreased SG&A expenses partially offset by lower gross margin. SG&A expenses decreased primarily due to lower compensation expense on lower headcount.

Rest of World

Rest of World segment revenue in the fourth quarter of 2016 was $132.0 million, which increased by $22.3 million or 20.4% from 2015 due to increased Engineered Systems, Service and Rental revenue. Engineered Systems revenue was higher as a result of higher opening backlog, while Service and Rental revenue was higher as a result of new projects becoming operational during 2016, that were under construction in the same period last year.

Operating income increased by $19.5 million in the fourth quarter of 2016 as compared to the same period of 2015 as a result of improved gross margin and lower SG&A expenses. The increase in gross margin was a result of the overall increase in revenue, stronger overhead absorption, better warranty experience and project margin improvements. SG&A expenses decreased due to lower compensation expense on reduced headcount. EBIT for the fourth quarter was unfavourably impacted by $4.4 million of restructuring costs compared to $10.1 million in the prior year. The prior year's fourth quarter EBIT was also negatively impacted by $4.5 million of foreign exchange losses primarily as a result of the devaluation of the Argentine peso.

Stabilization of commodity prices in the second half of 2016 led to increased enquiries and continued strength in bookings in the fourth quarter, particularly in the Canada and USA segments. The Company is cautiously optimistic that further stability or improvement in commodity prices may cause customers to increase investment, which should translate to further demand for the Company's products and services. The start of 2017 has been positive and we expect bookings to exceed $190 million in North America for the first quarter of 2017. The Rest of World segment continues to experience strong enquiries levels with near term prospects expected to close in the first quarter of 2017. Finally, consistent with our strategy to focus on recurring revenues from long-term maintenance and service contracts, during the first quarter of 2017 Enerflex was engaged to operate certain gas processing facilities within the Delaware basin in the Permian for an initial term of 24 months.

Dividend

Subsequent to the end of the fourth quarter of 2016, Enerflex declared a quarterly dividend of $0.085 per share, payable on April 6, 2017, to shareholders of record on March 15, 2017.

Quarterly Results Material

This press release should be read in conjunction with Enerflex's Consolidated Financial Statements as at and for the three and twelve months ended December 31, 2016, and the accompanying Management's Discussion and Analysis, both of which will be available on the Enerflex website at www.enerflex.com under the Investors section and on SEDAR at www.sedar.com.

Conference Call and Webcast Details

Enerflex will host a conference call for analysts, investors, members of the media and other interested parties on Friday, March 3, 2017 at 8:00 a.m. MST (10:00 a.m. EST) to discuss the fourth quarter and year end 2016 financial results and operating highlights. The call will be hosted by Mr. J. Blair Goertzen, President and Chief Executive Officer and Mr. D. James Harbilas, Executive Vice President and Chief Financial Officer of Enerflex.

If you wish to participate in this conference call, please call 1.844.231.9067. Please dial in 10 minutes prior to the start of the call. No passcode is required. The live audio webcast of the conference call will be available on the Enerflex website at www.enerflex.com under the Investors section on March 3, 2017 at 8:00 a.m. MST (10:00 a.m. EST). Approximately one hour after the call, a recording of the event will be available on the Company's website. A replay of the teleconference will be available on March 3, 2017 at 11:00 a.m. MST until March 10, 2017 at 11:00 a.m. MST. Please call 1.855.859.2056 or 1.404.537.3406 and enter conference ID 71932748.

About Enerflex

Enerflex Ltd. is a single source supplier of natural gas compression, oil and gas processing, refrigeration systems, and electric power generation equipment - plus related engineering and mechanical service expertise. The Company's broad in-house resources provide the capability to engineer, design, manufacture, construct, commission, and service hydrocarbon handling systems. Enerflex's expertise encompasses field production facilities, compression and natural gas processing plants, refrigeration systems, and electric power equipment servicing the natural gas production industry.

Headquartered in Calgary, Canada, Enerflex has approximately 1,800 employees worldwide. Enerflex, its subsidiaries, interests in associates and joint-ventures operate in Canada, the United States, Argentina, Bolivia, Brazil, Colombia, Mexico, Peru, Australia, the United Kingdom, the United Arab Emirates, Oman, Bahrain, Indonesia, Malaysia, and Thailand. Enerflex's shares trade on the Toronto Stock Exchange under the symbol "EFX". For more information about Enerflex, go to www.enerflex.com.

Advisory Regarding Forward-Looking Statements

To provide Enerflex shareholders and potential investors with information regarding Enerflex, including management's assessment of future plans, Enerflex has included in this news release certain statements and information that are forward-looking statements or information within the meaning of applicable securities legislation, and which are collectively referred to in this advisory as "forward-looking statements". Information included in this news release that is not a statement of historical fact may be forward-looking information. When used in this document, words such as "plans", "expects", "will", "may" and similar expressions are intended to identify statements containing forward-looking information. Forward-looking statements and information contained in this press release include, but are not limited to: (i) the anticipated duration of weak natural gas prices and the effect thereof in Canada and USA markets; (ii) expected bookings; and (iii) the nature and scope of challenges and opportunities in the Rest of World segment. In developing the forward-looking information in this news release, the Company has made certain assumptions with respect to general economic and industry growth rates, commodity prices, currency exchange and interest rates, competitive intensity and regulatory approvals. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the future circumstances, outcomes or results anticipated in or implied by such forward-looking statements will occur or that plans, intentions or expectations upon which the forward-looking statements are based will occur. Forward-looking information involves known and unknown risks and uncertainties and other factors, which may cause or contribute to Enerflex achieving actual results that are materially different from any future results, performance or achievements expressed or implied by such forward-looking information.
Such risks and uncertainties include, among other things, the impact of general economic conditions; industry conditions, including the adoption of new environmental, taxation and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and gas prices; oil and gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations, including future dividends to shareholders of the Company; increased competition; the lack of availability of qualified personnel or management; labour unrest; political unrest; fluctuations in foreign exchange or interest rates; stock market volatility; opportunities available to, or pursued by, the Company; obtaining financing; and other factors, many of which are beyond its control. The foregoing list of factors and risks is not exhaustive. For an augmented discussion of the risk factors and uncertainties that affect or may affect Enerflex, the reader is directed to the section entitled "Risk Factors" in Enerflex's most recently filed Annual Information Form, as well as Enerflex's other publicly filed disclosure documents, available on www.sedar.com. The reader is cautioned that these factors and risks are difficult to predict and that the assumptions used in the preparation of such information, although considered reasonably accurate at the time of preparation, may prove to be incorrect. Readers are cautioned that the actual results achieved will vary from the information provided in this press release and that such variation may be material. Consequently, Enerflex does not represent that actual results achieved will be the same in whole, or in part, as those set out in the forward-looking information. Furthermore, the statements containing forward-looking information that are included in this news release are made as of the date of this news release, and Enerflex does not undertake any obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward-looking information, whether as a result of new information, future events or otherwise. The forward-looking information contained in this news release is expressly qualified by this cautionary statement.

Contact Information

  • J. Blair Goertzen
    President & Chief Executive Officer
    Tel: 403.236.6852

    D. James Harbilas
    Executive Vice President & Chief Financial Officer
    Tel: 403.236.6857