Enerflex Ltd.
TSX : EFX

Enerflex Ltd.

November 09, 2016 17:44 ET

Enerflex Reports Third Quarter 2016 Financial Results and Quarterly Dividend

CALGARY, ALBERTA--(Marketwired - Nov. 9, 2016) - 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 nine months ended September 30, 2016.

Summary Table of Third Quarter and First Nine Months of 2016 Financial and Operating Results

(unaudited)
($ Canadian millions, except per share amounts, horsepower and percentages)
Three months ended September 30, Nine months ended September 30,
2016 2015 Change 2016 2015 Change
Revenue $ 262.4 $ 425.2 $ (162.8 ) $ 787.2 $ 1,270.5 $ (483.3 )
Gross margin 64.0 86.5 (22.5 ) 174.6 251.5 (76.9 )
EBIT gain (loss) (1) $ 24.1 $ 40.6 $ (16.5 ) $ (45.2 ) $ 115.8 $ (161.0 )
Net earnings (loss) - continuing operations $ 17.6 $ 31.9 $ (14.3 ) $ (59.0 ) $ 82.3 $ (141.3 )
Earnings (loss) per share - continuing operations 0.23 0.40 (0.17 ) (0.74 ) 1.04 (1.78 )
Recurring revenue % (2) 42.0 % 31.1 % 42.0 % 31.1 %
Bookings (3) $ 371.7 $ 237.3 $ 134.4 $ 591.1 $ 464.5 $ 126.6
Backlog (3) 574.5 477.6 96.9 574.5 477.6 96.9
Rental horsepower 499,300 466,850 32,450 499,300 466,850 32,450
(1) Earnings before Interest (Finance Costs) and Taxes ("EBIT") is considered an additional GAAP measure, which may not be comparable with similar additional GAAP measures used by other entities.
(2) Determined by taking the trailing 12-month period.
(3) 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 third quarter financial results reflect the challenging business environment we currently operate in. Customers are being cautious with their capital expenditures due to low commodity prices, and we expect this environment will continue to weigh on the sector, particularly in Canada," said J. Blair Goertzen, Enerflex's President and Chief Executive Officer. "Enerflex will continue to remain focused on controlling costs, protecting its balance sheet, and generating strong free cash flow during this prolonged downturn. Having said that, the recent increase in commodity prices led to an increased level of enquiries and a rebound in bookings in the quarter. Enerflex is cautiously 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."

Quarterly Overview

  • Recorded bookings of $371.7 million, a 56.6% increase compared to the $237.3 million recorded in the third quarter of 2015 and an increase of 140.7% compared to the second quarter of 2016.
  • Engineered Systems backlog at September 30, 2016 was $574.5 million, a 34.5% increase compared to the December 31, 2015 backlog of $427.2 million.
  • Issued 8,952,750 common shares at a price of $12.85 for gross proceeds of $115.0 million providing liquidity for Enerflex to deploy capital on opportunities as they arise.
  • EBIT was $24.3 million and $71.9 million for the three and nine months ended September 30, 2016, compared to $45.6 million and $128.0 million for the same periods in 2015, after excluding provisions for on-going warranty disputes, arbitration costs, severance and restructuring costs, and $92.1 million of goodwill impairment recorded during the first quarter of 2016.
  • Rental fleet grew to almost 500,000 horsepower with the completion of a large project in the MEA region during the first half of 2016. More than 100,000 horsepower has been added in the last 15 months as a result of organic growth.
  • Reduced debt by $128.1 million during the quarter resulting in a net debt to EBITDA ratio, as calculated for covenant compliance purposes, of under 1.3:1.
  • Subsequent to quarter end, declared quarterly dividend of $0.085 per share payable January 12, 2017 to shareholders on record on November 21, 2016.
  • On November 1, 2016, additional restructuring actions in the Gas Drive business were announced, inclusive of the closure of the Central Services distribution facility in Leduc and relocation of a branch in Red Deer. The costs of these actions will be recognized during the quarter ended December 31, 2016.

Third Quarter Results Summary

Net earnings for the third quarter of 2016 were lower compared to the same periods of 2015 as a result of reduced gross margin, 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 $22.5 million on lower revenues. For the Rest of World segment gross margin increased during the third quarter. The consolidated gross margin percentage increased for the quarter on project margin improvements and an increased proportion of higher margin Rental revenue, which more than offset costs related to on-going warranty disputes, severance costs, and higher inventory allowances. SG&A expenses decreased during the three months ended September 30, 2016 by $7.8 million on lower compensation expense due primarily to headcount reductions, partially offset by bad debt expenses. Compensation expense decreased due to lower headcount and reduced incentive accruals, partially offset by larger mark-to-market share based compensation, unfavorable foreign exchange movements and restructuring costs during the third quarter of 2016.

Segmented Results

Canada

Canada segment revenue in the third quarter of 2016 was $60.3 million, down $59.8 million or 49.8% from $120.1 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, while lower Rental revenue was due to a decrease in rental unit sales and lower utilization of the Canadian rental fleet.

Operating loss for the third quarter of 2016 of $0.5 million decreased by $10.5 million from the same period in 2015 on lower gross margin partially offset by lower SG&A expenses. The decrease in gross margin resulted primarily from lower revenues, lower project margins, and severance costs of $0.1 million, partially offset by improved warranty experience. The reduction in SG&A expense was attributable to lower compensation expense on lower headcount, and lower office and occupancy costs due to facility closures, partially offset by higher bad debt expenses, compared to the third quarter of 2015.

USA

USA segment revenue in the third quarter of 2016 was $103.9 million, down $76.1 million or 42.3% from $180.0 million a year earlier. The reduction in revenue resulted from a decrease in Engineered Systems revenue on lower opening backlog and reduced Service revenue on lower parts sales, partially offset by higher Rental revenue.

Operating income decreased by $6.0 million during the third quarter of 2016 due to lower gross margin, partially offset by reduced SG&A expenses. Gross margin decreased primarily as a result of lower revenues, partially offset by project margin improvements. The decreases in SG&A expenses were primarily a result of lower compensation expense on reduced headcount.

Rest of World

Rest of World segment revenue in the third quarter of 2016 was $98.3 million, down $26.9 million or 21.5% from 2015. The decrease in revenue was the result of a reduction in Engineered Systems revenue on lower opening backlog and a decrease in Service revenue, partially offset by an increase in Rental revenue with new rental projects in the Middle East and Latin America coming online. Service revenue decreased on lower service activity in Latin America and Australia, and reduced parts sales in Australia and Asia, partially offset by higher activity in the MEA region.

Operating income of $18.0 million increased by $1.7 million or 10.6% in the third quarter as a result of improved gross margin and lower SG&A expenses. The increase in gross margin was a result of project margin improvements, and an increased proportion of higher margin Rental revenue, partially offset by the impact of lower revenues. SG&A expenses decreased due to lower compensation expense on reduced headcount.

Dividend

Subsequent to the end of the third quarter of 2016, Enerflex declared a quarterly dividend of $0.085 per share, payable on January 12, 2017, to shareholders of record on November 21, 2016.

Quarterly Results Material

This press release should be read in conjunction with Enerflex's Interim Condensed Financial Statements as at and for the three and nine months ended September 30, 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 Thursday, November 10, 2016 at 8:00 a.m. MST (10:00 a.m. EST) to discuss the third quarter 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 1.888.222.3067. 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 10, 2016 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 one hour after the conclusion of the call until midnight, November 17, 2016. Please call 1.800.558.5253 or 1.416.626.4100 and enter passcode 21820666.

About Enerflex

Enerflex Ltd. is a single source supplier of natural gas compression, oil and gas processing, refrigeration systems, and electric power equipment - plus in-house 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 1,900 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, Russia, the United Arab Emirates, Oman, Bahrain, Indonesia, Malaysia, Singapore, 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

  • For investor and media inquiries, please contact:
    J. Blair Goertzen
    President & Chief Executive Officer
    Tel: 403.236.6852

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