May 6, 2015 18:17 ET
Enerflex Reports First Quarter 2015 Financial Results
CALGARY, ALBERTA--(Marketwired - May 6, 2015) - 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 months ended March 31, 2015.
Summary: First Quarter 2015 Compared with First Quarter 2014
"Our strong first quarter financial results were attributable to momentum we achieved before the sharp decline in oil prices during the fourth quarter of 2014, together with the strong contribution from the Axip business. However, the decline in our bookings, a key leading indicator, confirms our expectation of challenges ahead," said J. Blair Goertzen, Enerflex's President and Chief Executive Officer. "With our innovative approach to product sales, increased recurring revenues, a geographically diversified business and considerable backlog, Enerflex is well positioned to weather these challenges. The Company's early implementation of and ongoing cost cutting initiatives provide additional financial flexibility to successfully navigate this uncertain economic environment."
Bookings, Backlog and Outlook
During the first quarter of 2015, the continuing commodity price challenges in North America resulted in a 40.9% or $97.3 million decrease in bookings in the first quarter of 2015. The movement in exchange rates during the quarter had a favourable impact on U.S. dollar denominated bookings. We finished the first quarter with a backlog of $715.1 million. Sequentially, backlog has decreased by $201.4 million from December 31, 2014, as lower bookings were more than offset by Engineered Systems revenue recognized in the period.
With customers reducing their capital budgets in 2015, we have experienced some minor project cancellations. We expect further capital reductions as the weak commodity prices continue, and as customers seek to preserve financial flexibility and protect their market positions. This is likely to reduce demand for Enerflex products and services during 2015. These market conditions create significant uncertainty for bookings and activity levels in the second quarter of 2015, and therefore backlog and revenue over the remainder of 2015 and into 2016.
Notwithstanding the weaker markets, our financial performance will benefit from strong backlog levels entering 2015, several long-term rental and service contracts and from a geographically diversified business. With the business acquired from Axip Energy Services, LP ("the Axip Business"), Enerflex has successfully positioned itself to deliver growth from market opportunities in Latin America and to increase recurring revenues globally.
Cost Savings Initiatives
Enerflex has been proactive in anticipation of the reduction in business activity in North America and has implemented measures to streamline its business, control costs, and move forward towards its EBIT goal of 10%. Among measures implemented, during the quarter the Company made headcount reductions of over 200 employees, which resulted in severance costs of $1.8 million. Even including the impact on SG&A of severance costs, SG&A as a percentage of revenue decreased to 10.8% from 13.8% in the first quarter of 2014. Despite the addition of a full year of results for the business acquired from Axip, and inflationary pressures, Enerflex is targeting overall 2015 SG&A levels consistent with those in 2014.
Other cost control measures include a Company-wide hiring and salary freeze, business travel expense limitations, reduced marketing expenditures and significant reductions in expenditures for facilities, IT infrastructure and maintenance, except where critical. These initiatives, which are targeted to result in SG&A levels consistent with those in 2014, will be regularly reviewed throughout the year and adjusted as the market evolves and as management continues to evaluate the impact low commodity prices will have to its business. During the quarter, the Company also made progress towards the previously announced closure of its manufacturing business in Nisku.
Summary Table of First Quarter 2015 Results
|(unaudited)||Three months ended March 31,|
|($ millions, except per share amounts and percentages)||2015||2014||Change ($)|
|Gross margin %||17.7%||16.0%|
|Earnings per share||0.29||0.05||0.24|
Financial results for the quarter were significantly improved on the same period last year, with revenues and gross margin higher in all three segments. Net earnings increased on higher EBIT, partially offset by higher income tax expense and lower equity earnings from associates and joint ventures. The significant improvement in EBIT in the first quarter of 2015 is attributable to strong increases in revenue and gross margin, partially offset by higher SG&A expenses. These increases were driven in part by the Axip Business, which contributed revenues of $39.2 million and EBIT of $8.3 million during the quarter. Results also benefitted from favourable foreign exchange movements, most notably between the U.S. and Canadian dollar.
Progress on 2015 Strategic Objectives
During the first quarter, we made good progress on our 2015 strategic objectives. We reduced our Company-wide total recordable injury rate by 51% over its 2014 rate. We continue to work towards our objective of a 10% EBIT margin, with EBIT as a percentage of revenue increasing to 7.9% for the trailing twelve months ended March 31, 2015, compared to 5.4% for the same period of 2014. While recurring revenue on a trailing month basis was slightly down at 26.9% compared to 28.4% for the same period in 2014, we expect to make progress towards our 35-40% goal through the remainder of 2015, as we approach a full year of contribution from the Axip Business. While Enerflex has been proactive, the current economic environment and an extended slowdown will make achievement of these objectives more challenging.
Effective January 1, 2015, the Company realigned its reporting segments into Canada, United States of America ("USA"), and Rest of World segments. The USA segment now includes the Northern United States Service business, as well as the Retrofit and Rentals operations based out of Casper, Wyoming both of which were previously reported in the Canada and Northern United States segment. The Rest of World segment includes what were previously the Latin American engineered systems, after-market service and rental businesses combined with what was previously the International segment.
Canada segment revenue in the first quarter of 2015 was $171.8 million, up $53.5 million or 45.2% from $118.3 million a year earlier due to higher Engineered Systems revenue resulting from higher opening backlog, partially offset by lower Service and Rental revenues. Lower Service revenue resulted from lower parts sales, while lower Rental revenue was due to a decrease in rental unit sales.
Operating income increased on higher gross margin and lower SG&A expenses. The higher gross margin resulted from the positive impact of higher revenue, partially offset by lower project margins. The decrease in SG&A expense was due to lower depreciation and amortization expense, favourable foreign exchange movements and bad debt recoveries.
USA segment revenue in the first quarter of 2015 was $207.1 million, up $64.7 million or 45.4% from $142.4 million a year earlier due to higher Engineered Systems revenue as a result of higher opening backlog, partially offset by slightly lower Service revenue on reduced parts sales compared to the same period in 2014.
Operating income decreased due to higher SG&A expense, partially offset by slightly higher gross margin. SG&A expenses were higher in 2015 as a result of higher compensation expense on increased headcount as the USA business grew during 2014. The increase in gross margin was attributable to higher revenues, largely offset by lower project margins reflecting a larger proportion of compression versus process work.
Rest of World segment revenue in the first quarter of 2015 was $96.4 million, up $24.7 million or 34.4% from $71.7 million a year earlier as a result of higher Service and Rental revenues as a result of increased activity in the Australia, Latin America and MEA regions, primarily due to the contribution of the rental business acquired as part of the Axip Business. These increases in revenue were partially offset by lower Engineered Systems revenue resulting from the timing of conversion of backlog to revenue.
Operating income increased as a result of improved gross margin, partially offset by higher SG&A expenses. For the first quarter, higher gross margin was due to the new rental operations, improved project margins and the impact of higher revenues and the corresponding impact on gross margin. In the first quarter of 2014, the Company experienced significant margin erosion on a large project in Oman. Variation claim discussions related to cost increases on this project continue. SG&A expenses were higher in 2015 compared to 2014 on higher compensation expense, and higher office and occupancy costs due to the acquisition of the Axip Business, partially offset by favourable foreign exchange movements.
Subsequent to the end of the first quarter of 2015, Enerflex declared a quarterly dividend of $0.085 per share, payable on July 9, 2015, to shareholders of record on May 20, 2015.
Quarterly Results Material
Enerflex's Interim Condensed Financial Statements as at and for the three months ended March 31, 2015, 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 Thursday, May 7, 2015 at 8:00 a.m. MST (10:00 a.m. EST) to discuss the first quarter 2015 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 1.800.736.4594. 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 7, 2015 at 9:00 a.m. MST (11:00 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, May 14, 2015. Please call 1.800.558.5253 or 1.416.626.4100 and enter passcode 21767625.
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 3,200 employees worldwide. Enerflex, its subsidiaries, interests in associates and joint-ventures operate in Canada, the United States, Argentina, 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 ROW 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.