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 months ended March 31, 2014.
During the first quarter of 2014, there have been continuing positive market
developments in liquids-rich plays in Canada and the United States, in the
Alberta oil sands, and electric power opportunities. We have also seen
encouraging signs relative to liquefied natural gas projects in Canada, the
United States and AustralAsia. These market developments have materialized into
increased bookings in the first quarter of 2014 when compared to the same period
in 2013, and an increased backlog.
Revenue trends were generally positive in most markets compared to the first
quarter of 2013. The lower consolidated revenue in 2014 was attributable to the
International segment, where lower opening backlog, and large projects in Oman
and Australia that are nearing completion, contributed to a $54.5 million
reduction in revenue from Engineered Systems.
As expected and stated in prior communications, continuing cost increases in the
International segment in the first quarter of 2014 on a large project in Oman,
and the related impact on gross margin, resulted in overall financial results
for the Company that were below expectations. The cost increases were within the
range previously communicated. Where the cost increases have been customer
driven, variation claims have been submitted, and are being vigorously pursued.
Enerflex reported net earnings from continuing operations for the first quarter
of 2014 of $4.0 million, or $0.05 per share, which were $11.4 million lower than
the same period in 2013. The decrease in net earnings for the quarter was
primarily a result of lower gross margin and higher SG&A expenses, partially
offset by higher equity earnings and lower income tax expense.
Effective June 1, 2014, Enerflex has made a leadership change with the
appointment of Mr. Philip A. J. Pyle as President, International. Enerflex has a
strong regional business model and the location of this role is essential to the
Company's continued international growth. Based in Abu Dhabi, Mr. Pyle will be
responsible for overseeing and providing strategic and operational leadership
for the international business. He brings over 25 years of extensive
international operations experience through his leadership roles with
multi-national companies. To support Enerflex's global growth strategy, Mr.
William Moore has accepted the position of Senior Vice President, Business
Development and Strategy and will be responsible for the development and
execution of Enerflex's global growth objectives.
"The Company exited 2013 with strong backlog levels, and continued to see
excellent booking activity through the first quarter of 2014, with a first
quarter closing backlog almost $200 million higher than the first quarter of
2013. The improving market dynamics, coupled with our strong balance sheet,
position the Company well to capitalize on opportunities that may arise. After
first quarter results that were adversely affected by cost increases previously
anticipated and communicated, we would expect to deliver stronger results
through 2014, as the higher opening backlog is converted to revenue, and as the
Company continues to deliver improved recurring revenue from its Service
business. In addition, we are looking forward to leveraging the recent senior
leadership changes in the International business, and with respect to business
development."
(unaudited) Three months ended March 31,
($ millions, except per share
amounts and percentages) 2014 2013 Change ($)
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Financial Highlights
Revenue $ 332.4 $ 353.3 $ (20.9)
Gross margin 51.3 61.0 (9.7)
Gross margin % 15.4% 17.3%
EBIT (1) 10.1 22.8 (12.7)
EBIT % 3.0% 6.4%
Net earnings (loss)
Continuing 4.0 15.4 (11.4)
Discontinued - (0.5) 0.5
Earnings (loss) per share
Continuing 0.05 0.20 (0.15)
Discontinued - (0.01) 0.01
Bookings (2) 237.9 189.3 48.6
Backlog (2) 801.9 603.2 198.7
(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) 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.
As previously reported, work on an international project in Oman continued to
experience substantial customer driven scope and design variations during the
first quarter of 2014, which increased project costs by a further $16.2 million.
This resulted in a corresponding decrease in gross margin of $12.9 million.
These cost increases were within the range previously disclosed. With the
project 80% complete at the end of March 2014, the risk of further margin
deterioration is significantly reduced. The Company has submitted and continues
to pursue variation claims for cost increases on the project, but does not
expect resolution before the second half of 2014. Variation claims are filed
once forecast costs on a fixed price project exceed budgeted costs, as a result
of increased scope or design changes to the project, which are common for
engineering, procurement and construction contracts. To the extent that these
cost increases are subsequently recovered through approved variation claims from
customers, revenue will be recognized in the corresponding period. This results
in volatility in gross margins for the International segment as additional costs
are recognized as incurred on these projects, while revenue resulting from
variation claims is recognized in the period that claims are approved.
Segmented Financial Results
Revenue for the first quarter of 2014 was $332.4 million, representing a
decrease of $20.9 million compared to the same period in 2013. Revenue was lower
in the International segment, partially offset by higher revenue from the Canada
and Northern U.S., and Southern U.S. and Latin America segments.
International segment revenue decreased by $46.2 million in the first quarter of
2014 due to lower Engineered Systems revenue driven by lower opening backlog,
and large projects nearing completion in the MENA and AustralAsia regions, and
due to the impact on revenue of the cost increases on the Oman project. This was
partially offset by higher Service revenue on increased activity in the
AustralAsia and MENA regions.
Canada and Northern U.S. segment revenue increased by $22.0 million during the
first quarter of 2014 on account of increased Engineered Systems revenue due to
higher backlog, and higher Service revenue coming from increased parts and
engine sales, which was partially offset by lower Rental revenue resulting from
lower rental unit sales.
Southern U.S. and Latin America segment revenue increased by $3.3 million in the
first quarter of 2014 as a result of higher Service revenue on increased service
calls and part sales, compared to the same period of 2013. Despite higher
opening backlog to start 2014, Engineered Systems revenue was lower as a result
of the timing of backlog conversion to revenue as deliveries have been pushed
out, as a result of customer requirements. The associated revenue will be
recognized in subsequent periods.
Gross margin for the first quarter ended March 31, 2014 was $51.3 million or
15.4% of revenue compared to $61.0 million or 17.3% of revenue for the same
period in 2013. The decrease in gross margin was attributable to lower margin in
the International segment partially offset by higher margins in the Canada and
Northern U.S., and Southern U.S. and Latin America segments.
The increase in gross margin in Canada and the Northern U.S. in the first
quarter of 2014 was due to the positive impact of higher revenue, lower warranty
expense and stronger plant utilization, partially offset by less favourable
project cost adjustments. The higher gross margin in the Southern U.S. and Latin
America segment in the first quarter of 2014 was due to improved project margins
and lower warranty expense. In the International segment, gross margin decreased
primarily due to the impact of scope and design variations on the Oman project,
which resulted in additional cost increases, and a corresponding erosion of
gross margin.
The Company recorded bookings of $237.9 million during the first quarter of
2014, which were $48.6 million higher than the comparable period in 2013. This
was due to a $30.3 million increase in bookings for the Canada and Northern U.S.
segment as a result of improving market fundamentals, and the expansion into the
Alberta oil sands and the electric power market, and a $33.9 million increase in
International segment bookings due to increased activity in the AustralAsia
region. This was partially offset by bookings for the Southern U.S. and Latin
America segment that were $15.7 million lower in the first quarter of 2014 as
the decline in bookings destined for international markets more than offset the
increase in domestic bookings resulting from strong activity in liquids-rich
U.S. gas basins. Enerflex finished the first quarter with a backlog of $801.9
million, compared to $603.2 million at the end of the first quarter of 2013, an
increase of $198.7 million or 32.9%. Sequentially, backlog has increased by $7.9
million since December 31, 2013.
Subsequent to the end of the first quarter of 2014, Enerflex declared a
quarterly dividend of $0.075 per share, payable on July 3, 2014, to shareholders
of record on May 27, 2014.
Quarterly Results Material
Enerflex's interim condensed financial statements for the three months ended
March 31, 2014, and the accompanying Management's Discussion and Analysis, 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 Tuesday, May 13, 2014 at 9:00 a.m. MDT
(11:00 a.m. EDT) to discuss the first quarter 2014 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 Ltd.
If you wish to participate in this conference call, please call 1.800.618.8682.
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 May 13, 2014
at 9:00 a.m. MDT (11:00 a.m. EDT). 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, May 20, 2014. Please call 1.800.558.5253 or 1.416.626.4100 and
enter passcode 21715349.
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, CO2 processing plants, refrigeration systems and electric
power equipment servicing the natural gas production industry.
Headquartered in Calgary, Canada, Enerflex has approximately 2,900 employees
worldwide. Enerflex, its subsidiaries, interests in associates and
joint-ventures operate in Canada, the United States, Colombia, Australia, the
United Kingdom, Russia, the United Arab Emirates, Oman, Bahrain, Indonesia,
Malaysia 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. 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 Northern U.S. markets; (ii) expected bookings in Southern U.S. and Latin
America; and (iii) the nature and scope of challenges and opportunities in the
International segment, including the nature and magnitude of cost estimates and
variation claims. 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 FURTHER INFORMATION PLEASE CONTACT:
Enerflex Ltd.
J. Blair Goertzen
President & Chief Executive Officer
403.236.6852
Enerflex Ltd.
D. James Harbilas
Executive Vice President & Chief Financial Officer
403.236.6857
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