Enerflex Ltd.

TSX : EFX


Enerflex Ltd.

November 12, 2012 17:07 ET

Enerflex Reports Third Quarter 2012 Financial Results and Announces an Increased Quarterly Dividend

CALGARY, ALBERTA--(Marketwire - Nov. 12, 2012) - Enerflex Ltd. (TSX:EFX) ("Enerflex" or "the Company"), a leading supplier of products and services to the global energy industry, today reported its financial and operating results for the three and nine months ended September 30, 2012.

Financial Highlights
(unaudited) Three months ended
September 30,
Nine months ended
September 30,
($ millions, except per share amounts and percentages) 2012 2011 Change ($) 2012 2011(1) Change ($)
Revenue $ 369.7 $ 282.3 87.4 $1,080.1 $ 843.3 236.8
Gross margin 67.3 53.6 13.7 195.6 157.3 38.3
Gross margin % 18.2 % 19.0 % 18.1 % 18.6 %
Operating income(2) 28.5 22.0 6.5 78.1 53.6 24.5
EBITDA(2) 40.2 36.0 4.2 109.8 90.4 19.4
Net earnings (loss)
Continuing 20.9 17.0 3.9 55.2 39.0 16.2
Discontinued (1.4 ) (54.3 ) 52.9 (9.8 ) (57.1 ) 47.3
Earnings (loss) per share
Continuing 0.27 0.22 0.05 0.71 0.51 0.20
Discontinued (0.02 ) (0.70 ) 0.68 (0.13 ) (0.74 ) 0.61
(1) Results for the nine months ended September 30, 2011 have been prepared on a carve-out basis. Enerflex became an independently operated and listed company on June 1, 2011.
(2) Operating income and Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") are non-GAAP measures that do not have standardized meanings and therefore are unlikely to be comparable to similar measures presented by other issuers.

Enerflex reported improved results from continuing operations in the third quarter of 2012, compared to the same period last year. Revenues were higher in the Southern U.S. and South America, and International segments. Net earnings from continuing operations improved by $3.9 million (22.9%) or $0.05 cents per share as a result of the increased revenues and corresponding higher gross margins, partially offset by higher selling, general and administrative expenses. The European Service and Combined Heat and Power ("CHP") business has been reported as a discontinued operation since the third quarter of 2011. During the third quarter of 2011, a total impairment of $52.0 million was recorded.

The Company recorded bookings for Engineered Systems of $143.4 million during the quarter, which was $171.2 million lower than the comparable period last year and $123.5 million lower than the second quarter of 2012. This decrease in bookings during the third quarter of 2012, compared to the same period last year, was primarily due to decreased activity in the Canada and Northern U.S. and the Southern U.S. and South America segments. Weak natural gas prices and lower natural gas liquids prices ("NGL") negatively impacted activity levels by gas producers in the liquids rich shale resources in the U.S. and unconventional resource basins in Canada. Increased activity in the International segment resulted in an increase in bookings during the third quarter of 2012 when compared to 2011. Backlog has decreased to $775.4 million, which represents a decrease of $57.8 million (6.9%) over the prior year. Sequentially, the backlog decreased by $145.8 million from June 30, 2012.

"Enerflex reported strong third quarter and year to date results largely due to higher 2012 opening backlog for Engineered Systems and strong results from the International Service business," said J. Blair Goertzen, Enerflex's President and Chief Executive Officer. "While the Company has experienced a reduction in activity levels in North America during the third quarter of 2012 in response to the weak natural gas prices, inquiry levels have picked up to begin the fourth quarter in the liquids rich shale resources in the U.S. In addition, with increased bookings in Australia, and the Middle East and North Africa regions, combined with strong backlog levels and a strong balance sheet, the Company is well positioned for the remainder of 2012 and into 2013."

Third Quarter Highlights

In the three and nine months ended September 30, 2012, Enerflex:

  • Generated revenue of $369.7 million compared to $282.3 million in the third quarter of 2011. Revenues for the first nine months of 2012 were $1,080.1 million compared to $843.3 million during the same period of the prior year. The increases of $87.4 million, and $236.8 million, respectively, were a result of increased revenues in all Enerflex segments, with the exception of the third quarter of 2012, where revenues in the Canada and Northern U.S. segment were lower;

  • Achieved a gross margin of $67.3 million or 18.2% during the third quarter of 2012 compared to $53.6 million or 19.0% during the same period of 2011, an increase of $13.7 million. Gross margin for the first nine months of the year totalled $195.6 million or 18.1%, an increase of 24.4% over the same period of the prior year;

  • Produced operating income of $28.5 million or 7.7% of revenue for the quarter compared to $22.0 million or 7.8% during the third quarter of 2011. Operating income for the first nine months of the year was $78.1 million or 7.2% of revenue, an increase of $24.5 million from the first nine months of 2011;

  • Generated third quarter EBITDA of $40.2 million, an increase of $4.2 million over the third quarter of 2011. EBITDA for the first nine months of 2012 was $109.8 million, an increase of $19.4 million over the first three quarters of 2011;

  • Recorded net earnings from continuing operations in the third quarter of $20.9 million ($0.27 cents per share), an increase of $3.9 million over the same period last year. For the nine months ended September 30, 2012, net earnings from continuing operations were $55.2 million ($0.71 cents per share), compared to $39.0 million ($0.51 cents per share) in the same period of 2011;

  • At September 30, 2012 backlog was $775.4 million compared to $833.2 million at September 30, 2011, a decrease of 6.9%. Backlog at September 30, 2012 decreased by $145.8 million or 15.8% from June 30, 2012;

  • Exited the quarter with $125.6 million in cash, resulting in a net debt to EBITDA ratio of 0:1 and a net debt to equity ratio of 0:1; and

  • Completed the sale of its 50% Joint Venture interest in Presson Descon International Limited ("PDIL") to its joint venture partner, Descon Engineering Limited.

Subsequent to the end of the third quarter of 2012:

  • Enerflex increased the annual dividend to shareholders by 16.7%, resulting in a declared quarterly dividend to shareholders of $0.07 cents per share, payable on January 10, 2013 to shareholders of record on November 26, 2012.

Financial Results

Enerflex's $87.4 million or 31.0% period-over-period increase in revenue to $369.7 million in the third quarter of 2012 was a result of increased revenue in the Southern U.S. and South America and International segments, partially offset by decreased revenues in the Canada and Northern U.S. segment. Revenues increased as a result of higher opening backlog for Engineered Systems and stronger Service revenues in the International segment. Southern U.S. and South America segment revenues increased $61.2 million compared to the same period of last year, while Canada and Northern U.S. revenues decreased by $14.1 million. The International segment increased revenues by $40.2 million compared to the third quarter of 2011.

During the first nine months of 2012, the Company generated $1,080.1 million in revenue as compared to $843.3 million in the same period of 2011. The increased revenues in all of Enerflex's segments were a result of higher opening backlog for the Engineered Systems product line and stronger Service revenues in the International segment. Canada and Northern U.S. revenues increased by $19.5 million, International segment revenues increased by $92.2 million, and Southern U.S. and South America revenues increased by $125.0 million for the first nine months of 2012, compared to the same period in 2011.

Gross margin of $67.3 million represented an increase of 25.6% over the third quarter of 2011 primarily due to strong gross margin performance in the Southern U.S. and South America, and International segments. This was partially offset by lower gross margin performance in the Canada and Northern U.S. segment as a result of a decrease in Engineered Systems and Rental revenues, and lower overhead absorption on Engineered Systems jobs.

Gross margin for the nine months ended September 30, 2012 was $195.6 million or 18.1% of revenue as compared to $157.3 million or 18.6% of revenue for the nine months ended September 30, 2011, an increase of $38.3 million. Contributing to the gross margin increase over the first nine months of 2012 was the continuing strong Engineered Systems gross margin performance in all segments, partially offset by lower overhead absorption, cost overruns and warranty claims on certain projects in Casper, Wyoming. In addition, during the first nine months of 2011, gross margin included $16.5 million with respect to approved variation claims and the completion of a project on more favorable terms than originally anticipated in the Middle East and North Africa ("MENA") region.

Backlog at September 30, 2012 was $775.4 million compared to $833.2 million at September 30, 2011, a 6.9% decrease over the comparable period. This decrease was a result of lower activity in the Western Canadian Sedimentary resource basins as a result of continuing weakness in natural gas prices, and as a result of slowing activity in the liquids rich shale resources in the Eagle Ford, Marcellus, Permian and Woodford basins. This was partially offset by an increase in the International segment as a result of increased activity in Australia related to coal seam gas exploration and gas storage projects, and increased activity in the MENA region related to gas production for domestic use. As compared to June 30, 2012, backlog at September 30, 2012 decreased by $145.8 million or 15.8%.

Update on Discontinued Operations

As noted in previous public disclosures, Enerflex would consider a sale, partial sale, exit or combination thereof of the European Service and CHP business. Enerflex conducted a process to sell this business as a 'turn-key' operation to third parties. This process was unsuccessful as offers received were not considered fair and reasonable, resulting in the termination of the sale process. Enerflex is now pursuing alternatives involving a partial sale and wind up of the Service and CHP business between now and the end of 2012. The process is subject to and shall be conducted in compliance with Dutch information and consultation rules.

Quarterly Results Material

Enerflex's consolidated financial statements as at and for the three and nine months ended September 30, 2012, and the accompanying management's discussion and analysis, will be available on the Enerflex website at www.enerflex.com under the Investors section or on SEDAR at www.sedar.com.

Conference Call and Webcast Details

Enerflex will host a conference call for analysts and investors on Tuesday, November 13, 2012 at 9:00 a.m. MST (11:00 a.m. EST) to discuss the Company's 2012 third quarter results. The call will be hosted by Mr. J. Blair Goertzen, President and Chief Executive Officer and Mr. D. James Harbilas, Vice President and Chief Financial Officer of Enerflex Ltd.

If you wish to participate in this conference call please call, 1.800.766.6630 or 1.416.695.6616. 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 November 13, 2012 at 9:00 a.m. MST (11:00 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 one hour after the conclusion of the call until midnight, November 20, 2012. Please call 1.800.408.3053 or 1.905.694.9451 and enter passcode 9053421.

About Enerflex

Enerflex Ltd. is a single source supplier of products and services to the global oil and gas production industry. Enerflex provides natural gas compression and oil and gas processing equipment for sale or lease, refrigeration systems and power generation equipment, and a comprehensive package of field maintenance and contracting capabilities. Through the Company's ability to provide these products and services in an integrated manner, or as stand-alone offerings, Enerflex offers its customers a unique value proposition.

Headquartered in Calgary, Canada, Enerflex has approximately 3,200 employees worldwide. Enerflex, its subsidiaries, interests in affiliates and joint ventures operate in Canada, the United States, Argentina, Colombia, Australia, the United Kingdom, Russia, the United Arab Emirates, Oman, Egypt, Bahrain, Indonesia and Singapore. 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. In developing the forward-looking information in this news release, we have made certain assumptions with respect to general economic and industry growth rates, commodity prices, currency exchange and interest rates, competitive intensity and shareholder, regulatory and TSX 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, the reliability of Toromont's historical financial information as an indicator of Enerflex's historical or future results; potential tax liabilities if the requirements of the tax-deferred spinoff rules are not met; the effect of Enerflex's rights plan on any potential change of control transaction; 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 variations 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

  • Enerflex Ltd.
    J. Blair Goertzen
    President & Chief Executive Officer
    403.236.6852

    Enerflex Ltd.
    D. James Harbilas
    Vice President & Chief Financial Officer
    403.236.6857
    www.enerflex.com