Enerflex Reports Third Quarter 2017 Financial Results and Increased Quarterly Dividend
CALGARY, Alberta, Nov. 09, 2017 (GLOBE NEWSWIRE) -- 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, 2017.
|Summary Table of Third Quarter and First Nine Months of 2017 Financial and Operating Results|
($ Canadian millions, except per share amounts, horsepower, and percentages)
| Three months ended |
| Nine months ended |
|EBIT (loss) (1)||32.8||24.1||8.7||98.6||(45.2||)||143.8|
|Adjusted EBIT (2)||13.9||24.1||(10.2||)||78.2||53.5||24.7|
|Adjusted EBITDA (2)||34.1||47.7||(13.6||)||138.6||122.7||15.8|
|Net earnings (loss) – continuing operations||$||25.2||$||17.6||$||7.6||$||71.1||$||(59.0||)||$||130.1|
|Earnings (loss) per share – continuing operations||0.28||0.23||0.05||0.80||(0.74||)||1.54|
|Recurring revenue % (3)||31.8||%||42.0||%||31.8||%||42.0||%|
(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 third quarter financial results reflect the challenges faced in the quarter, including the impacts of Hurricane Harvey, customer-driven project delays, and cost increases to complete projects. Despite these challenges, the Company continues to see steady enquiries from customers, translating into bookings of over $198 million, predominately in North America, and a strong backlog of $768 million,” said J. Blair Goertzen, Enerflex’s President and Chief Executive Officer.
“The Company’s balance sheet remains strong, even after closing the Mesa acquisition during the third quarter. The rental revenue from this acquisition, along with recent wins, including the award of a multi-year service contract in Australia, fit within Enerflex’s strategic goals of increasing recurring revenue and diversifying product lines,” Mr. Goertzen added. “Given Enerflex’s positive outlook and our priority to grow the dividend, we have increased the dividend by 12% to $0.38 per year.”
- Recorded bookings of $198.6 million, a decrease of 46.6% compared to the $371.7 million recorded in the third quarter of 2016, which included a number of large project bookings in the USA segment.
- Engineered Systems backlog at September 30, 2017 was $767.9 million, a 23.6% increase compared to the backlog of $621.4 million at December 31, 2016 reflecting stronger bookings starting in the last half of 2016.
- Generated revenue of $315.0 million, a 20.0% increase compared to $262.4 million in the third quarter of 2016, largely driven by increased Engineered Systems revenues in the USA and Canada segments.
- Reported EBIT of $32.8 million during the third quarter of 2017, compared to $24.1 million in the same period of 2016. Current quarter results includes a $19.5 million gain on disposal of an idle manufacturing facility, which offset margin erosion and project delays.
- Signed a multi-year service contract in Australia for the maintenance of Hydraulic Power Units for a major gas producer in the region.
- On July 31, 2017, Enerflex closed an agreement to acquire the contract compression business of Mesa Compression, LLC (“Mesa”). The purchase price after adjustments was USD $115.5 million. For the quarter, Mesa contributed $6.3 million of revenue, $1.0 million of EBIT, and $3.4 million of EBITDA.
- Subsequent to quarter end, Enerflex declared a quarterly dividend of $0.095 per share, payable on January 11, 2018, to shareholders of record on November 24, 2017. The new dividend amount represents an increase of 12%.
Third Quarter Results Summary
Net earnings for the third quarter of 2017 was higher compared to the same period of 2016, primarily as a result of the gain on disposition of an idle manufacturing facility and higher revenues, partially offset by increased costs. The increase in revenues was primarily driven by improved Engineered Systems revenues in the Canada and USA segments. Rental revenues declined over the prior year due to lower utilization and rental rates in the Rest of World segment, primarily in Mexico, partially offset by revenue generated by Mesa in the USA segment. The consolidated gross margin percentage of 16.4% for the quarter was lower than the 24.4% margin realized in the prior year due to margin erosion on some significant projects in the USA and Canada segments as a result of increased estimated costs to complete the projects, the completion of higher margin projects in 2016, and a change in product mix with higher revenues from the lower margin Engineered Systems product line. SG&A expenses for the quarter decreased $1.1 million primarily due to lower share-based compensation costs, higher foreign exchange gains, and the effects of restructuring activities undertaken in prior periods, offset by higher legal expenditures.
Adjusted EBIT and Adjusted EBITDA
The Company recorded a number of items in its results that are not expected to recur in the normal course of business. The exclusion of these items presents a view of the results that should be more representative of the Company’s normal operations. The presentation of adjusted EBIT and adjusted EBITDA should not be considered in isolation from EBIT or EBITDA as determined under IFRS. The adjusted EBIT and adjusted EBITDA may not be comparable to similar measures presented by other companies and should not be considered in isolation or as a replacement for measures prepared as determined under IFRS.
The items that have been adjusted for presentation purposes relate generally to three categories: 1) impairment or gains on assets; 2) restructuring activities; and 3) acquisition costs of Mesa. Exclusion of these items should allow for a better understanding of ongoing, normal operations of the Company. Enerflex has also presented the impact of share-based compensation as it is an item that can fluctuate significantly with share price changes that are not directly linked to the performance of the Company.
($ Canadian millions)
|Three months ended September 30, 2017||Total||Canada||USA||ROW|
|Restructuring costs in COGS and SG&A||-||-||-||-|
|(Gain) loss on disposal of PP&E||(19.5||)||(19.6||)||-||0.1|
|Depreciation and amortization||20.2||3.2||4.1||12.9|
|Share-based compensation (“SBC”)||1.1|
|Adjusted EBITDA excluding SBC||$||35.2|
|($ Canadian millions)|
|Three months ended September 30, 2016||Total||Canada||USA||ROW|
|Restructuring costs in COGS and SG&A||0.1||(0.1||)||0.1||0.1|
|(Gain) loss on disposal of PP&E||(0.1||)||0.0||0.0||(0.1||)|
|Depreciation and amortization||23.7||4.2||3.1||16.4|
|Share-based compensation (“SBC”)||4.2|
|Adjusted EBITDA excluding SBC||$||52.0|
Canada segment revenue in the third quarter of 2017 was $82.4 million, an increase of $22.1 million or 36.7% from $60.3 million recorded in the same period of 2016, primarily as a result of higher revenue from the Engineered Systems product line. The increase of $22.9 million in Engineered Systems revenue is largely driven by increased customer demand over the first half of 2017 as customers increased capital spending based on stability of commodity pricing.
Operating income for the third quarter of 2017 was $2.0 million compared to an operating loss of $0.5 million in the comparable quarter last year. This improvement resulted from higher revenues and lower SG&A costs during the quarter, partially offset by project margin erosion. The reduction in SG&A expense was attributable to previously undertaken restructuring activities. The margin erosion is the result of higher estimated cost to complete a significant project that impacted margins by $1.5 million in the quarter. EBIT for the third quarter of 2017 was $22.1 million compared to an EBIT loss of $0.5 million in the third quarter of 2016. EBIT for the third quarter of 2017 includes a $19.5 million gain on sale of an idle manufacturing facility.
USA segment revenue in the third quarter of 2017 was $153.2 million, an increase of $49.3 million or 47.5% from $103.9 million a year earlier. This increase was the result of higher revenues across all product lines, particularly Engineered Systems revenue, which increased by $38.3 million due to the realization of the strong bookings that started in the back half of 2016 and continued through 2017.
Operating income decreased by $2.4 million in the third quarter due to lower gross margins resulting from the completion of higher margin projects in the comparative period and current period project margin erosions. Project margin erosion is a result of increased estimated costs of completion on a number of significant projects and resulted in the loss of $6.9 million of margin in the quarter.
Rest of World
Rest of World segment revenue in the third quarter of 2017 was $79.4 million, a decrease of $18.9 million or 19.2% from 2016, primarily due to decreases in Rental revenues. The decline in Rental revenues is due to lower utilization and rental rates in Mexico. Engineered Systems revenue in the quarter was lower due to the completion of two projects within Argentina in prior periods. Service revenue decreased in the quarter with lower service activity in Latin America and Australia, as well as reduced parts sales in Australia and Asia.
Operating income decreased by $11.3 million in the third quarter of 2017, compared to the same period of 2016 as a result of decreased revenues and gross margin. The decrease in gross margin was the result of lower revenues, a change in product mix with a lower proportion of sales coming from high-margin revenue streams, and the completion of a higher margin project in 2016.
The stabilization of commodity prices starting in the second half of 2016 led to increased enquiries and activity in 2017, particularly in the Canada and USA segments. While recent quarters have experienced strong bookings, customers remain hesitant about projects until there is greater clarity around and recovery in the commodity price environment. Enerflex believes that further stability and increases in commodity prices will be required to drive increased enquiries and bookings in future periods.
The acquisition of Mesa closed on July 31, 2017 for USD $115.5 million, after adjustments. This acquisition is consistent with Enerflex’s objective of increasing recurring revenue streams and expanding in the USA market while supporting the Company’s long-term strategy. The strategic fit between both organizations, as well as the growth opportunities will enhance the Company’s position in the contract compression business.
Subsequent to the end of the third quarter of 2017, Enerflex declared a quarterly dividend of $0.095 per share, payable on January 11, 2018, to shareholders of record on November 24, 2017. This annualized dividend of $0.38 represents a 12% increase.
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, 2017, 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, November 10, 2017 at 8:00 a.m. MST (10:00 a.m. EST) to discuss the third quarter 2017 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 or 1.703.639.1277. 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, 2017 at 8:00 a.m. MST (10:00 a.m. EST). A replay of the teleconference will be available on November 10, 2017 at 3:00 p.m. MST until November 17, 2017 at 3:00 p.m. MST. Please call 1.855.859.2056 or 1.404.537.3406 and enter conference ID 2797288.
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 2,000 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, 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.
For investor and media inquiries, please contact:
|J. Blair Goertzen||D. James Harbilas|
|President & Chief Executive Officer||Executive Vice President & Chief Financial Officer|
|Tel: 403.236.6852||Tel: 403.236.6857|