May 12, 2014 17:19 ET
Enerflex Reports First Quarter 2014 Financial Results and Announces Quarterly Dividend
CALGARY, ALBERTA--(Marketwired - May 12, 2014) - 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 ($)|
|Gross margin %||15.4%||17.3%|
|Net earnings (loss)|
|Earnings (loss) per share|
|(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.
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.