CALGARY, Alberta, Nov. 08, 2018 (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, 2018.
Summary Table of Third Quarter and First Nine Months of 2018 Financial and Operating Results
| (Unaudited) ($ Canadian millions, except per share amounts, horsepower, and percentages) |
Three months ended September 30, |
Nine months ended September 30, |
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| 2018 | 2017 | Change | 2018 | 2017 | Change | ||||||||||||
| Revenue | $ | 445.8 | $ | 315.0 | $ | 130.8 | $ | 1,236.4 | $ | 1,103.3 | $ | 133.1 | |||||
| Gross margin | 89.4 | 51.7 | 37.7 | 226.2 | 202.4 | 23.8 | |||||||||||
| EBIT (1) | 55.6 | 32.8 | 22.8 | 103.4 | 98.6 | 4.8 | |||||||||||
| EBITDA (1) | 76.0 | 53.0 | 23.0 | 166.2 | 158.9 | 7.3 | |||||||||||
| Adjusted EBITDA (2) | 65.2 | 35.2 | 30.0 | 160.4 | 145.9 | 14.5 | |||||||||||
| Net earnings | 37.7 | 25.2 | 12.5 | 68.9 | 71.1 | (2.2 | ) | ||||||||||
| Earnings per share | 0.43 | 0.28 | 0.15 | 0.78 | 0.80 | (0.02 | ) | ||||||||||
| Recurring revenue % (3) | 30.0 | % | 31.8 | % | 30.0 | % | 31.8 | % | |||||||||
| Bookings (4) | 629.0 | 198.6 | 455.2 | 1,303.4 | 917.4 | 410.8 | |||||||||||
| Backlog (4) | 1,065.1 | 767.9 | 322.0 | 1,065.1 | 767.9 | 322.0 | |||||||||||
| Rental horsepower | 628,816 | 597,816 | 31,000 | 628,816 | 597,816 | 31,000 | |||||||||||
- Earnings before Interest (Finance Costs), Income Taxes, Depreciation and Amortization (“EBITDA”) and Earnings before Interest (Finance Costs) and Taxes (“EBIT”) are considered non-GAAP measures, which may not be comparable with similar non-GAAP measures used by other entities.
- Adjusted EBITDA is a non-GAAP measure. Please refer to the full reconciliation of these items in the Adjusted EBITDA section.
- Determined by taking the trailing 12-month period.
- 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.
“During the quarter, Enerflex delivered solid financial results with revenues of $446 million and EBIT of $56 million,” said J. Blair Goertzen, Enerflex’s President and Chief Executive Officer. “Several major projects across the Company drove record bookings of $629 million in the third quarter, continuing the trend of strong bookings seen in the first half of 2018. Backlog, a key leading indicator of future revenues, also had significant growth and exceeded $1 billion for the first time in our history. Our near-term outlook remains healthy based on continued strength in bid activity in all regions. Consistent with our strategic objective of deploying capital to recurring revenue, our Rental product line is positioned to benefit from the recent award of two additional 10-year Build-Own-Operate-Maintain contracts, along with the expansion of the USA contract compression business, which has grown organically by 39 percent in the past year.”
Quarterly Overview
- EBIT for the quarter is $56 million, which is up from $33 million in the comparative period. This increase is driven by a $38 million increase in gross margin offset by lower gains on disposal of property, plant and equipment (“PP&E”). Gains on PP&E included in EBIT were $6 million compared to $19 million in 2017. Also included in EBIT were cost recoveries of $9 million related to the partial ruling on the Oman Oil Exploration and Production LLC (“OOCEP”) arbitration that the Company was awarded in the quarter.
- Bookings were the highest quarterly amount in the Company’s history at $629 million, led by the USA with $361 million over a variety of customers. Canadian bookings increased to $201 million compared to $43 million in 2017, driven primarily by increased midstream activity. The Rest of World (“ROW”) bookings of $67 million relate to projects in the Middle East/Africa (“MEA”) region.
- Backlog of $1,065 million increased from $671 million at December 31, 2017 due to the strength of the USA and Canada bookings outpacing Engineered Systems revenue recognized. Backlog is a key leading indicator of future revenues and the balance at September 30, 2018 represents the highest quarterly backlog in the Company’s history.
- The Company’s positive outlook, record backlog, and continued high enquiry levels, particularly in the USA and ROW segments, provides strong support for additional manufacturing capacity to meet demand in these segments. Given the current and anticipated future project requirements, the Company is currently expanding the square footage of its Houston fabrication facility by 55%, adding approximately 100,000 square feet. This expansion is scheduled to be completed during the first quarter of 2019.
- The Company invested $23 million in rental assets during the quarter, continuing the organic expansion of the USA rental fleet, which has grown 39 percent since the acquisition of the contract compression business from Mesa Compression, LLC (“Mesa”).
- During the quarter, the Company was awarded a 10-year Build-Own-Operate-Maintain (“BOOM”) contract in Latin America, with an additional 10-year BOOM contract being awarded in MEA subsequent to the quarter. Earlier in the year, the Company commenced operations on a previously awarded 10-year BOOM project in Latin America. Once fully operational these three projects are expected to generate annualized revenue of approximately $32 million to $35 million.
- The Company repaid $59 million of debt in the quarter, resulting in a bank-adjusted net debt to EBITDA ratio of 0.7:1.
- As a result of the backlog position, positive outlook for activity in 2019, and strong free cash flows, the Board of Directors approved an increase in the quarterly dividend to $0.105 per share. The increased dividend is payable on January 10, 2019, to shareholders of record on November 22, 2018. This new dividend represents an 11 percent increase and reiterates the Company’s commitment to returning capital to shareholders. Enerflex has increased its dividend by 75 percent since re-emerging as a public company in 2011.
Third Quarter Results Summary
Engineered Systems revenue increased by $109 million when compared to the third quarter of 2017, driven primarily by strength in the USA segment. Rental revenues also increased due to the contributions of the contract compression fleet in the USA and BOOM revenues in Colombia. Service revenues have grown as a result of higher activity levels in the United States and Australia. Gross margins increased due to higher revenues and improved gross margin percentage, as the prior year included margin erosion on some significant projects in the USA and Canada segments. SG&A costs increased slightly compared to the same period of 2017 due to higher compensation costs and foreign exchange impacts in Argentina, partially offset by cost recoveries related to the OOCEP arbitration and lower third-party costs associated with the arbitration.
Third Quarter Segmented Results
USA
USA segment revenue was $273 million, an increase of $120 million from the same period in 2017. Engineered Systems revenue improved as a result of the realization of strong bookings seen in prior quarters and continued progress of certain large projects, as well as the impact of the stronger U.S. dollar in 2018 versus the comparative period. Service revenues increased on higher activity across the region while Rental revenues improved due to the acquisition of the contract compression business from Mesa and the organic growth of the contract compression fleet. An increase of $26 million in EBIT was driven by higher revenues and gross margins, partially offset by higher SG&A costs driven by increased compensation on a larger workforce, mark-to-market impacts on share-based compensation, and increased profit share on improved operational results.
Rest of World
Revenue in the Rest of World segment increased by $30 million, the result of higher Engineered Systems revenue in MEA and improved Service revenue, primarily in Australia. EBIT increased by $12 million due to higher revenues and lower SG&A costs, partially offset by lower project margins in MEA resulting from higher estimated costs to complete certain projects. SG&A costs decreased as a result of cost recoveries related to the OOCEP arbitration and lower third-party costs associated with the arbitration. This decrease, however, was partially offset by negative foreign exchange impacts in Argentina and higher compensation cost driven by mark-to-market impacts on share-based compensation and increased profit share on improved operational results.
Canada
Canadian revenue decreased by $19 million on lower Engineered Systems revenue driven by weaker bookings seen in prior quarters. Service revenue increased by $2 million in the third quarter from additional parts sales, while Rental revenue decreased due to lower equipment sales. EBIT increased by $2 million on lower occupancy costs resulting from idle facilities sold in the quarter and previous periods, as well as decreased SG&A costs, driven by lower compensation on reduced workforce. The Company continues to closely monitor SG&A costs in response to the uncertain Canadian business environment.
Outlook
The Company delivered strong financial results during the third quarter, primarily based on the strength of performance in the USA and ROW segments. Bookings were the highest in the Company’s history, driven by strong market conditions in the USA and ROW segments and improved activity in Canada. The backlog provides visibility over revenues for the remainder of 2018 and into 2019. Bidding activity for Engineered Systems remains strong across all regions and the Company continues to see interest for Rentals and BOOM solutions in the USA and ROW segments. Enerflex’s financial performance continues to benefit from strategic decisions to diversify product offerings for Engineered Systems and to focus on the recurring revenue streams derived from new and existing long-term BOOM, rental and service contracts. The Company’s strategy of regional and product diversification positions Enerflex to focus on areas where activity will remain strong. In the near term, we have a positive outlook supported by the record backlog and continued high enquiry levels across all regions. In the longer term, the Company continues to monitor the impacts of volatility in realized commodity prices; political uncertainty; egress issues in the Permian, which are anticipated to be resolved in the latter half of 2019; as well as the lack of consistent access to market causing pricing differentials to widen in Canada. Enerflex continues to assess the effects of these contributing factors and the corresponding impact on our customers’ activity levels, which could reduce demand for the Company’s products and services in future periods.
Adjusted EBITDA
The Company’s results include items that are unique and items that management and users of the financial statements add back when evaluating the Company’s results. The presentation of Adjusted EBITDA should not be considered in isolation from EBIT or EBITDA as determined under IFRS. 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 four categories: 1) impairment or gains on idle facilities; 2) restructuring activities; 3) acquisition costs; and, 4) share-based compensation. Identification of these items allows for an understanding of the underlying operations of the Company based on the current assets and structure. Enerflex has presented the impact of share-based compensation as it is an item that can fluctuate significantly with share price changes during a period based on factors that are not specific to the long-term performance of the Company. The disposal of idle facilities is isolated within Adjusted EBITDA as they are not reflective of the ongoing operations of the Company and are idled as a result of restructuring activities.
| ($ Canadian millions) | ||||||||||||
| Three months ended September 30, 2018 | Total | Canada | USA | ROW | ||||||||
| Reported EBIT | $ | 55.6 | $ | 7.4 | $ | 29.7 | $ | 18.5 | ||||
| (Gain) loss on disposal of idle facilities | (6.0 | ) | (3.8 | ) | (2.2 | ) | – | |||||
| Cost recovery related to OOCEP | (9.4 | ) | – | – | (9.4 | ) | ||||||
| Share-based compensation | 4.6 | 0.8 | 2.2 | 1.6 | ||||||||
| Depreciation and amortization | 20.4 | 2.0 | 5.3 | 13.1 | ||||||||
| Adjusted EBITDA | $ | 65.2 | $ | 6.4 | $ | 35.0 | $ | 23.8 | ||||
| ($ Canadian millions) | |||||||||||
| Three months ended September 30, 2017 | Total | Canada | USA | ROW | |||||||
| Reported EBIT | $ | 32.8 | $ | 22.1 | $ | 4.0 | $ | 6.7 | |||
| (Gain) loss on disposal of idle facilities | (19.5 | ) | (19.6 | ) | – | 0.1 | |||||
| Acquisition costs | 0.6 | – | 0.6 | – | |||||||
| Share-based compensation | 1.1 | 0.3 | 0.4 | 0.4 | |||||||
| Depreciation and amortization | 20.2 | 3.2 | 4.1 | 12.9 | |||||||
| Adjusted EBITDA | $ | 35.2 | $ | 6.0 | $ | 9.1 | $ | 20.1 | |||
There were no costs related to the ongoing arbitration proceedings with OOCEP during the quarter whereas the third quarter of 2017 included approximately $3 million of arbitration related costs. These amounts are not adjusted for in the calculation of Adjusted EBITDA.
Dividend
Subsequent to the end of the quarter, Enerflex declared a quarterly dividend of $0.105 per share, payable on January 10, 2019, to shareholders of record on November 22, 2018.
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, 2018, 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 9, 2018 at 8:00 a.m. MST to discuss the third quarter 2018 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 9, 2018 at 8:00 a.m. MST. A replay of the teleconference will be available on November 9, 2018 at 3:00 p.m. MST until November 16, 2018 at 3:00 p.m. MST. Please call 1.855.859.2056 or 1.404.537.3406 and enter conference ID 1374798.
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, gas lift compression, refrigeration systems, and electric power equipment servicing the natural gas production industry.
Headquartered in Calgary, Canada, Enerflex has approximately 2,200 employees worldwide. Enerflex, its subsidiaries, interests in associates and joint-ventures operate in Canada, the United States, Argentina, Bolivia, Brazil, Colombia, Mexico, Australia, the United Kingdom, the United Arab Emirates, Oman, Bahrain, Kuwait, 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 Information
This press release contains forward-looking information within the meaning of applicable Canadian securities laws. These statements relate to management’s expectations about future events, results of operations and the Company’s future performance (both operational and financial) and business prospects. All statements other than statements of historical fact are forward-looking statements. The use of any of the words “anticipate”, “plan”, “contemplate”, “continue”, “estimate”, “expect”, “intend”, “propose”, “might”, “may”, “will”, “shall”, “project”, “should”, “could”, “would”, “believe”, “predict”, “forecast”, “pursue”, “potential”, “objective” and “capable” and similar expressions are intended to identify forward-looking information. In particular, this press release includes (without limitation) forward-looking information pertaining to: the anticipated duration of weak natural gas prices and the effect thereof in Canada and USA markets; expected bookings; and 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. Forward-looking information involves known and unknown risks and uncertainties and other factors, which are difficult to predict and may affect the Company’s operations, including, 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. While the Company believes that there is a reasonable basis for the forward-looking information and statements included in this press release, as a result of such known and unknown risks, uncertainties and other factors, actual results, performance, or achievements could differ materially from those expressed in, or implied by, these statements. The forward-looking information included in this press release should not be unduly relied upon. The forward-looking information contained herein is expressly qualified in its entirety by the above cautionary statement. The forward-looking information included in this press release is made as of the date hereof and, other than as required by law, the Company disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.
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 |
