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Feb 22, 2018 18:14 ET

Enerflex Reports Fourth Quarter 2017 Financial Results and Quarterly Dividend

CALGARY, Alberta, Feb. 22, 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 twelve months ended December 31, 2017.

Summary Table of Fourth Quarter and Twelve Months of 2017 Financial and Operating Results

(Unaudited)
($ Canadian millions, except per share amounts, horsepower, and percentages)
 Three months ended
December 31,
  Twelve months ended
December 31,
2017  2016  Change  2017 2016 Change
Revenue$450.1  $343.4  $106.7 $1,553.4  $1,130.6  $422.8
Gross margin  84.1   69.2   14.9   286.5   243.8   42.7
EBIT (loss) (1)  47.2   (36.3) 83.5  145.8  (81.5) 227.3
Adjusted EBIT (2)  48.4   34.0   14.4  126.6  87.5  39.1
EBITDA (1) 67.4  (12.4) 79.9  226.4  11.6   214.8
Adjusted EBITDA (2) 68.6  57.9   10.7  207.2  180.6  26.6
Net earnings (loss) – continuing operations$ 26.7  $(45.5)$72.2 $97.8 $(104.5)$202.3
Earnings (loss) per share – continuing operations  0.30   (0.54) 0.84  1.10  (1.28) 2.38
Recurring revenue % (3) 29.7% 41.7%   29.7% 41.7%  
Bookings (4)$223.6  $262.2  $(38.6)$1,141.0 $853.3 $287.7
Backlog (4) 670.8   621.4   49.4  670.8  621.4  49.4
Rental horsepower 607,710  491,206   116,504  607,710  491,206   116,504
             
  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 strong fourth quarter results were driven by increasing levels of global activity and improved progress on major projects, with large contributions from projects where revenue recognition was shifted to the fourth quarter from the third quarter of this year.  The fourth quarter continued the trend of strong bookings,” said J. Blair Goertzen, Enerflex’s President and Chief Executive Officer. “Enerflex remains optimistic regarding the demand for liquids-rich natural gas for 2018, specifically with respect to anticipated increases in activity levels in the USA and Rest of World segments, which will more than offset challenges in the Canadian market. Building off the success of adding assets which contributed to recurring revenue in 2017, the Company remains committed to this strategy in the USA and Rest of World segments in 2018.” 

Quarterly Overview

  • Recorded the strongest quarterly revenue, reported EBIT, and adjusted EBIT of the last two years, driven by the strong bookings seen in previous quarters as well as progress on projects where revenue recognition was shifted from the third quarter to the fourth quarter.  Generated revenue of $450 million, a 31% increase compared to the $343 million in 2016 and a reported EBIT of $47 million compared to a reported EBIT loss of $36 million in 2016.  Adjusted EBIT of $48 million was higher than the adjusted EBIT of $34 million in the fourth quarter of 2016. 
  • Recorded bookings of $224 million compared to $262 million during the fourth quarter of 2016. The Company experienced a slow down in Canadian bookings to $31 million in the current quarter.  The Canadian bookings for this quarter also included a cancellation of a previous booking by a customer due to the ongoing depressed natural gas prices and market conditions in Canada.   
  • Engineered Systems backlog at December 31, 2017 was $671 million, which provides good visibility for Engineered Systems revenue into 2018, and represents an 8% increase compared to the backlog of $621 million at December 31, 2016.  The strong backlog number is reflective of stronger bookings that began in the last half of 2016 and continued through 2017.  
  • Commenced operations during the fourth quarter on one plant of the Company’s first build-own-operate-maintain (“BOOM”) project in Colombia.  This project is expected to be fully operational in the first quarter of 2018 and represents Enerflex’s first 10-year BOOM contract, further bolstering the Company’s recurring revenues. 
  • Subsequent to quarter end, the Company sold its first cryogenic gas plant, which is a 200 mm cubic feet per day plant in the USA region.  The Company also executed an expansion and approximately four-year extension of a rental contract with a key customer in Bahrain.
  • Closed a private placement offering of senior unsecured notes for gross proceeds of $175 million U.S. dollars and $45 million Canadian dollars.  The proceeds were used to repay borrowings under the existing credit facility and has improved the Company’s liquidity as of the end of the year. 

Fourth Quarter Results Summary
Net earnings of $27 million was higher than the net loss of $46 million from the fourth quarter of 2016.  The 2016 results include some significant items that did not repeat in 2017, such as goodwill impairment. 

Adjusted EBIT improved to $48 million in the fourth quarter of the year compared to $34 million in the same period of 2016, largely driven by increased revenues and some cost reductions.  The revenue increased due to the increased activity in Engineered Systems, particularly in the United States and Canada with both regions benefiting from improved progress on projects that were delayed from the third quarter into the fourth quarter and the realization of strong previous bookings.  Service and Rental revenues remain relatively consistent year-over-year.  Contributions to Rental revenues by the assets acquired from Mesa Compression, LLC (“Mesa”) have offset weakness in Mexico.  Gross margins have increased on the strength of improved revenues, however gross margin percentage is down slightly over the prior year, which is reflective of the higher proportion of revenues generated from the lower margin Engineered Systems compared to the higher margin Service and Rental.  SG&A costs were lower compared to the same period for 2016, which includes the costs of restructuring activities.  The 2017 results do not include similar costs and also reflect the reduction in costs created by those restructuring activities and the sale of idle facilities completed during late 2016 and 2017. 

Fourth Quarter Segmented Results
USA
USA’s revenue was $205 million, an increase from $158 million a year earlier. This increase was the result of higher revenues across all product lines, particularly Engineered Systems, which increased by $27 million due to progression on projects where revenue recognition was delayed from the third quarter into the fourth quarter and the realization of the strong bookings that started in the back half of 2016 and continued through 2017.  USA Rental revenue includes the contribution from the assets acquired from Mesa on July 31, 2017 and the subsequent build-out of the rental fleet.

Operating income increased by $2 million due to higher revenues, offset by increased SG&A costs driven by higher compensation costs and lower bad debt recovery. 

Rest of World
Rest of World’s revenue was $86 million, a decrease of $46 million or 35% from 2016.  Engineered Systems revenue was lower due to the completion of two projects within Argentina last year.  Rental revenues declined due to lower utilization and rental rates in Mexico. Service revenues decreased as a result of lower service activity in Latin America, as well as reduced activity and parts sales in Australia and Asia.

Even though revenues decreased quarter-over-quarter, operating income increased by $2 million compared to the same period of 2016 as a result of decreased SG&A costs due to lower onerous lease provisions and higher foreign exchange gains.

Canada
Canada’s revenue was $160 million, an increase from $54 million recorded in the same period of 2016, primarily as a result of higher revenue from Engineered Systems, driven by progression on projects where revenue recognition was shifted from the third quarter into the fourth quarter and the realization of strong previous period bookings. 

Operating income was $11 million compared to an operating loss of $11 million in the comparable quarter last year. This improvement resulted from higher revenues and lower SG&A costs, partially offset by project margin erosion. The reduction in SG&A expense was attributable to previously undertaken restructuring activities. 

EBIT was $12 million compared to an EBIT loss of $68 million in the fourth quarter of 2016, which includes a goodwill impairment of $69 million. 

Overall
The stabilization of commodity prices starting in the second half of 2016 led to increased enquiries and activity in 2017, particularly in Canada and the USA.  Bookings in the USA continued to remain strong as customers have benefited from further prices increases over the last half of 2017.  Prices in Canada have not experienced the same increases due to transportation issues and market conditions so customers in Canada remain hesitant about capital spending. 

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.  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 December 31, 2017 Total Canada USA ROW
Reported EBIT $47.2 $12.0$22.3$12.9 
Restructuring costs in COGS and SG&A   -       
Write-down of equipment in COGS 1.2    1.2   
(Gain) loss on disposal of PP&E (0.0) 0.0 0.0 (0.0)
Acquisition costs   -       
Impairment of goodwill   -       
Adjusted EBIT$48.4 $12.0$23.5$12.9 
Depreciation and amortization 20.2  3.2 4.9 12.1 
Adjusted EBITDA$68.6 $15.2$28.4$25.0 
Share-based compensation (“SBC”) (0.4) 
Adjusted EBITDA excluding SBC$68.2  


($ Canadian millions)  
Three months ended December 31, 2016 Total Canada USA ROW
Reported EBIT $(36.3)$(67.7)$20.4 $11.0
Restructuring costs in COGS and SG&A 7.0  2.3  0.2  4.5
Write-down of equipment in COGS 5.9  4.0  -  1.9
(Gain) loss on disposal of PP&E (11.4) (11.4) (0.0) 0.0
Acquisition costs -  -    
Impairment of goodwill 68.8  68.8    
Adjusted EBIT$34.0 $(4.0)$20.6 $17.4
Depreciation and amortization 23.8  4.8  3.0  16.0
Adjusted EBITDA$57.8 $0.8 $23.6 $33.4
Share-based compensation 4.4  
Adjusted EBITDA excluding SBC$62.2  

The Company has also incurred SG&A costs in the fourth quarter and twelve months of 2017 of $1.1 million and $8.7 million, respectively, related to ongoing arbitration proceedings with Oman Oil Exploration and Production LLC (“OOCEP”).  These amounts are not adjusted for in the calculation of Adjusted EBIT and Adjusted EBITDA.

Private Placement
On December 15, 2017, the Company closed a private placement offering of senior unsecured notes. Pursuant to the private placement, the Company issued $105 million U.S. dollar and $15 million Canadian dollar 7-year notes maturing December 15, 2024 bearing an interest rate of 4.67 percent and 4.50 percent respectively, and $70 million U.S. dollar and $30 million Canadian dollar 10-year notes maturing December 15, 2027 bearing an interest rate of 4.87 percent and 4.79 percent respectively.

US Tax Reform
The Company has also assessed the U.S. tax reform in the Tax Cuts and Jobs Act (“the Act”) on USA operations.  The Act has an immaterial impact on the calculation of the 2017 tax expense and deferred tax liability calculations because of the relatively small balance of accumulated timing differences between the accounting and tax income as at December 31, 2017.  Prospectively, the Act will impact the Company through the reduction of the federal corporate income tax rate to 21 percent and the ability to immediately expense certain qualified property for tax purposes. 

Dividend
Subsequent to the end of the fourth quarter of 2017, Enerflex declared a quarterly dividend of $0.095 per share, payable on April 5, 2018, to shareholders of record on March 8, 2018. 

Quarterly Results Material
This press release should be read in conjunction with Enerflex’s audited consolidated financial statements as at and for the years ended December 31, 2017 and 2016, 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, February 23, 2018 at 7:30 a.m. MST (9:30 a.m. EST) to discuss the fourth 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 February 23, 2018 at 7:30 a.m. MST (9:30 a.m. EST). A replay of the teleconference will be available on February 23, 2018 at 12:30 p.m. MST until March 2, 2018 at 12:30 p.m. MST.  Please call 1.855.859.2056 or 1.404.537.3406 and enter conference ID 6488265.

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, refrigeration systems, and electric power equipment servicing the natural gas production industry.

Headquartered in Calgary, Canada, Enerflex has approximately 2,100 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. 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 and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur. 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 OfficerExecutive Vice President & Chief Financial Officer
Tel:  403.236.6852Tel:  403.236.6857