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, 2019.
Summary Table of Fourth Quarter and
Twelve Months of 2019 Financial and Operating Results
(Unaudited)($ Canadian millions, except per share amounts,
horsepower, and percentages) |
Three months ended December 31, |
|
Twelve months ended December 31, |
|
|
2019 |
|
|
2018 |
|
|
Change |
|
|
2019 |
|
|
2018 |
|
|
Change |
|
Revenue |
$ |
474.4 |
|
$ |
466.8 |
|
$ |
7.6 |
|
$ |
2,045.4 |
|
$ |
1,703.3 |
|
$ |
342.1 |
|
Gross margin (1) |
|
97.4 |
|
|
81.8 |
|
|
15.6 |
|
|
429.1 |
|
|
308.0 |
|
|
121.1 |
|
EBIT |
|
48.8 |
|
|
48.2 |
|
|
0.6 |
|
|
233.9 |
|
|
151.7 |
|
|
82.2 |
|
EBITDA (1), (2) |
|
70.2 |
|
|
75.2 |
|
|
(5.0 |
) |
|
320.5 |
|
|
241.5 |
|
|
79.0 |
|
Adjusted EBITDA (3) |
|
89.0 |
|
|
64.8 |
|
|
24.2 |
|
|
345.8 |
|
|
225.2 |
|
|
120.6 |
|
Net earnings |
|
31.4 |
|
|
32.5 |
|
|
(1.1 |
) |
|
152.1 |
|
|
101.4 |
|
|
50.7 |
|
Earnings per share –
basic |
|
0.35 |
|
|
0.37 |
|
|
(0.02 |
) |
|
1.70 |
|
|
1.14 |
|
|
0.56 |
|
Recurring revenue growth
(4) |
|
6.3 |
% |
|
12.4 |
% |
|
|
|
14.5 |
% |
|
12.9 |
% |
|
|
Bookings (5) |
|
94.5 |
|
|
677.0 |
|
|
(582.5 |
) |
|
508.9 |
|
|
1,980.4 |
|
|
(1,471.5 |
) |
Backlog (5) |
|
467.8 |
|
|
1,420.6 |
|
|
(952.8 |
) |
|
467.8 |
|
|
1,420.6 |
|
|
(952.8 |
) |
Rental horsepower |
|
674,153 |
|
|
641,915 |
|
|
32,238 |
|
|
674,153 |
|
|
641,915 |
|
|
32,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- In the fourth quarter of 2019,
Enerflex recognized $24 million of write-offs and impairment
charges on rental equipment, of which $2 million was included in
the USA segment and $22 million was included in the ROW segment. Of
the total value recognized, $14 million relates to the write-off of
specialized rental assets acquired as part of a business
combination in 2014 that we have now determined cannot be
redeployed and have never been utilized or generated revenue for
Enerflex.
- Earnings before Interest (Finance
Costs), Income Taxes, Depreciation, and Amortization (“EBITDA”) is
considered a non-IFRS measure, which may not be comparable with
similar non-IFRS measures used by other entities.
- Adjusted EBITDA is a non-IFRS
measure. Please refer to the full reconciliation of these items in
the Adjusted EBITDA section.
- Recurring revenue is comprised of
revenue from the Service and Rentals product lines, which are
typically contracted and extend into the future. While the
contracts are subject to cancellation or have varying lengths, the
Company does not believe these characteristics preclude them from
being considered recurring in nature. Growth in recurring revenue
is calculated over the comparative period.
- Engineered Systems bookings and
backlog are considered non-IFRS measures that do not have
standardized meanings as prescribed by IFRS, and are therefore
unlikely to be comparable to similar measures used by other
entities.
“During the quarter, solid execution of our
Engineered Systems backlog and growing contributions from our
recurring revenue product lines provided funding for additional
investment in our asset ownership platform,” said Marc Rossiter,
Enerflex's President and Chief Executive Officer. “We remain
encouraged by the demand for both US contract compression and
international rentals, having been awarded a small, but important,
five-year build-own-operate-maintain (“BOOM”) project in Brazil
subsequent to the quarter. During the quarter, the Company
wrote-off some specialized rental equipment which was acquired in
2014 that we have now determined cannot be redeployed and has never
been utilized or generated revenue for Enerflex. While this
non-recurring event adversely impacted our quarterly results, asset
ownership remains a strategic priority for the Company and for the
first time, we have disclosed additional metrics within our
Management’s Discussion and Analysis to better illustrate the
strength of our strategy. We anticipate continuing to prudently
deploy capital toward our asset ownership platform at a similar
pace to 2019 and may utilize our balance sheet to capture
attractive opportunities as they emerge. We do expect the weakness
in Engineered Systems bookings to persist through 2020 as customers
continue to exercise capital discipline and we continue to manage
our costs accordingly. Despite this headwind, our geographical
footprint and vertically integrated platform provide Enerflex with
a distinct advantage to weather near-term challenges and leaves the
Company well positioned for growth when the market returns to a
more positive cycle.”
Quarterly Overview
- Operating income for the fourth
quarter of 2019 was consistent with the prior year, with higher
gross margins being offset by the cost recoveries related to the
Oman Oil Exploration and Production LLC (“OOCEP”) arbitration
included in SG&A costs in the prior year. Gross margin improved
based on strong execution of projects from opening backlog, higher
service activity levels, and the continued organic expansion of the
contract compression fleet in the USA. Gross margin percentage for
the quarter was 21 percent, compared to 18 percent in 2018, driven
by the solid execution of a small number of large, high margin
Engineered Systems projects that were booked during the second half
of 2018 and increasing revenue from rentals, partially offset by
impairments recognized on rental equipment in the USA and ROW
segments and the margin impact of warranty experience in the
quarter. As the large, high margin projects are completed in 2020,
we expect margins to revert to historical levels, with modest
improvements provided by growth in recurring revenues.
- The fourth quarter of 2019 includes
$24 million of impairment charges on rental equipment, of which $2
million was included in the USA segment and $22 million was
included in the ROW segment. Of the total value of impairments
recognized, $14 million relates to the write-off of specialized
assets acquired as part of a business combination in 2014 that we
have now determined cannot be redeployed and have never been
utilized or generated revenue for Enerflex.
- Recurring revenue grew by 6
percent, driven by increased service activity levels and the
continued expansion of the contract compression fleet in the USA.
During the quarter, the Company invested $76 million in rental
assets, largely in the USA, where our fleet has grown by 45 percent
on a horsepower basis in the last year and has more than doubled
since the acquisition of the contract compression platform in July
2017.
- Engineered Systems booking activity
was low in the quarter as the oil and gas industry continues to
balance growth with prudent financial management. Reduced growth
capex in the sector impacts Enerflex’s Engineered Systems business
the hardest. The Company has ensured, and expects to continue to
ensure, that costs are aligned with revenue levels expected from
Engineered Systems.
- Engineered Systems backlog
decreased compared to the balance at December 31, 2018 due to
Engineered Systems revenue recognized in the period outpacing
bookings, as well as unfavourable foreign exchange impacts which
resulted in a decrease of $52 million. The backlog at December 31,
2019 provides visibility for Engineered Systems revenue into
mid-2020.
- Subsequent to December 31, 2019,
Enerflex declared a quarterly dividend of $0.115 per share, payable
on April 2, 2020, to shareholders of record on March 12, 2020.
OutlookEnerflex’s financial
performance continues to benefit from strategic decisions to: 1)
diversify product offerings for Engineered Systems; 2) focus on
increasing the recurring revenue streams derived from new and
existing long-term BOOM, rental, and service contracts; and 3)
develop a geographically diversified business.
Demand for the Company’s Engineered Systems
product offerings remains dependent on global capital investment in
oil and natural gas. Throughout 2019, bookings activity has slowed
considerably, driven by several factors including: 1) producers
having made a general shift to funding growth capital expenditures
from free cash flow; 2) constrained access to capital markets for
producers; 3) uncertainty around global trade dynamics; and 4)
political uncertainty.
Enerflex is responding to customer inquiries
across all major basins in the USA, including the Permian, Bakken,
Niobrara, Marcellus, and Utica, as customers plan for future
growth. However, the pace at which customers are releasing capital
for growth projects has moderated significantly compared to the
heady days of 2018. In recent periods, the Permian Basin has been a
major driver of gas production growth, with significant drilling
activity and associated gas production. Future production growth in
the Permian Basin looks to be transitioning away from smaller
producers and toward major oil companies and large independents
which are able to take a more measured approach to developing their
acreage. Enerflex believes this is a positive dynamic and plays to
our strengths of size, scope, and reputation; however, activity in
the Basin is dependent on these producers driving a rebound in
capital spending from depressed levels in 2019 to those previously
seen in the recent build-out of the play. The Company maintains
that the Permian is a world-class oil and associated gas resource
with significant potential for continued natural gas production
growth, and Enerflex is well positioned to provide long-term
natural gas solutions in all major basins.
Enerflex continues to experience strong demand
for global after-market services and contract compression in key
basins in the USA, with a solid pipeline of opportunities for
further growth in those businesses. We continue to see favourable
investment opportunities in the contract compression fleet in the
USA, and are leveraging the expertise of our people and our
existing supply chain to build out and maintain a highly
competitive platform, while preserving strong returns. Overall,
asset ownership represents the most significant growth prospect for
the Company and we intend to continue deploying capital to this
higher-margin, less-cyclical business. The Company has made
significant progress on previously awarded BOOM projects in Latin
America and MEA, with these projects expected to commence
operations and begin generating revenue in mid-2020.
In the near term, the Company anticipates that
strong execution on Engineered Systems project work seen in recent
quarters will continue for the duration of these projects. Demand
for Service and Rentals product offerings, which has continued to
increase despite slower Engineered Systems bookings activity, is
expected to drive growth in recurring revenue. In the longer term,
the Company continues to balance the expected impacts of broader
market factors, such as volatility in realized commodity prices,
political and economic uncertainty, and consistent access to
market, against the projected increases in global demand for
natural gas. Enerflex continues to assess the effects of these
contributing factors and the corresponding impact on our customers’
activity levels, which will drive the demand for the Company’s
products and services in future periods.
Fourth Quarter Segmented
Results
USAUSA segment revenue was $277 million, a
decrease of $20 million from the same period in 2018. Engineered
Systems revenue decreased due to temporary project delays on
certain large projects, as well as lower opening backlog on reduced
bookings throughout 2019, while Service revenue increased due to
higher activity levels and Rentals revenue increased due to the
organic growth of the contract compression fleet. An increase of
$37 million in EBIT was driven by improved gross margin performance
on strong project execution, partially offset by higher SG&A
costs and the effects of impairment recognized on certain rental
assets.
Rest of WorldRevenue in the Rest of World
segment decreased by $28 million due to lower Engineered Systems
revenue on weak bookings during the year. This decrease was
partially offset by improved Service revenue on higher activity
levels in Australia and the impact of service agreements that were
recently signed in Latin America. EBIT decreased by $36
million due to lower revenues and the write-offs and impairment of
certain rental assets, as well as the effects of cost recoveries
recognized in SG&A in the comparative periods. SG&A costs
increased compared to 2018 primarily due to the effects of these
cost recoveries in the prior year.
CanadaCanadian revenue increased by $56 million
due to higher Engineered Systems revenue, which improved due to
continued progress on projects from opening backlog. Service and
Rentals revenues were down in the fourth quarter due to lower
equipment sales and reseller activity. EBIT was consistent with the
prior year, as higher revenue and project margin was offset by
warranty experience and severance costs. SG&A costs were
consistent with the comparable period in 2018.
Adjusted EBITDAThe Company’s
results include items that are unique and items that management and
users of the financial statements adjust for 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 historically been adjusted
for presentation purposes relate generally to four categories: 1)
impairment or gains on idle facilities (not including rental asset
impairments); 2) restructuring activities; 3) transaction costs
related to M&A activity; and, 4) share-based compensation.
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 removed from Adjusted EBITDA as they are not
reflective of the ongoing operations of the Company and are idled
as a result of restructuring activities.
During the fourth quarter of 2019, the Company
added another adjustment related to the write-off of specialized
assets acquired as part of a business combination but never
utilized by Enerflex. Impairment of rental equipment included
in reported EBIT for the three and twelve months ended December 31,
2019 was $24 million and $26 million. Of the total value of
impairments recognized, $14 million relates to the write-off of
specialized assets acquired as part of a business combination in
2014 that we have now determined cannot be redeployed and have
never been utilized or generated revenue for Enerflex. The
Company considers this non-cash adjustment to be a unique item
given these assets have not contributed to earnings since being
acquired.
Management believes that identification of these
items allows for a better understanding of the underlying
operations of the Company based on the current assets and
structure.
($ Canadian millions) |
|
|
Three
months ended December 31, 2019 |
|
Total |
|
|
USA |
|
|
ROW |
|
Canada |
Reported EBIT |
$ |
48.8 |
|
$ |
61.1 |
|
$ |
(18.2 |
) |
$ |
5.9 |
Write-off of rental equipment
in COGS |
|
14.5 |
|
|
- |
|
|
14.5 |
|
|
- |
Write-off of facility and
equipment in COGS |
|
0.6 |
|
|
- |
|
|
0.6 |
|
|
- |
Restructuring costs in COGS
and SGA |
|
0.9 |
|
|
- |
|
|
- |
|
|
0.9 |
Share-based compensation |
|
2.8 |
|
|
1.3 |
|
|
0.8 |
|
|
0.7 |
Depreciation and amortization |
|
21.4 |
|
|
8.8 |
|
|
9.9 |
|
|
2.7 |
Adjusted EBITDA |
$ |
89.0 |
|
$ |
71.2 |
|
$ |
7.6 |
|
$ |
10.2 |
($ Canadian millions) |
|
|
Three
months ended December 31, 2018 |
|
Total |
|
USA |
|
|
ROW |
|
Canada |
Reported EBIT |
$ |
48.2 |
|
$ |
24.4 |
|
$ |
17.5 |
|
$ |
6.3 |
Cost recovery related to
OOCEP |
|
(12.9 |
) |
|
- |
|
|
(12.9 |
) |
|
- |
Share-based compensation |
|
2.5 |
|
|
1.3 |
|
|
0.8 |
|
|
0.4 |
Depreciation and amortization |
|
27.0 |
|
|
6.6 |
|
|
18.4 |
|
|
2.0 |
Adjusted EBITDA |
$ |
64.8 |
|
$ |
32.3 |
|
$ |
23.8 |
|
$ |
8.7 |
Effective January 1, 2019, the Company applied
IFRS 16 Leases (“IFRS 16”) for the first time. The effect of the
new standard is to increase EBIT by $0.3 million, as a portion of
lease expenses are included as interest. In addition, depreciation
and amortization increased by $3.5 million, resulting in a total
increase in EBITDA of $3.8 million. The standard was adopted
prospectively from January 1, 2019, and accordingly the 2018
results have not been affected. Refer to the Adjusted EBITDA
section of the Management’s Discussion and Analysis for further
detail on the new standard.
DividendSubsequent to the end
of the quarter, Enerflex declared a quarterly dividend of $0.115
per share, payable on April 2, 2020, to shareholders of record on
March 12, 2020.
Quarterly Results MaterialThis
press release should be read in conjunction with Enerflex’s audited
consolidated financial statements for the three and twelve months
ended December 31, 2019 and 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
DetailsEnerflex will host a conference call for analysts,
investors, members of the media, and other interested parties on
Friday, February 21, 2020 at 8:00 a.m. MST to discuss the fourth
quarter 2019 financial results and operating highlights. The call
will be hosted by Mr. Marc Rossiter, President and Chief Executive
Officer; Mr. Sanjay Bishnoi, Senior Vice President and Chief
Financial Officer; and Mr. Stefan Ali, Director, Investor
Relations.
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 21, 2020 at 8:00 a.m. MST. A replay
of the teleconference will be available on February 21, 2020
at 11:00 a.m. MST until February 28, 2020 at 11:00 a.m.
MST. Please call 1.855.859.2056 or 1.404.537.3406 and enter
conference ID 3827579.
About EnerflexEnerflex 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 2,500 employees worldwide. Enerflex, its
subsidiaries, interests in associates and joint-ventures operate in
Canada, the United States, Argentina, Bolivia, Brazil, Colombia,
Mexico, the United Kingdom, the United Arab Emirates, Oman,
Bahrain, Kuwait, Australia, New Zealand, 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
InformationThis 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; anticipated revenue; 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:
|
|
|
Marc
Rossiter |
Sanjay
Bishnoi |
Stefan Ali |
President & Chief Executive Officer |
Senior Vice President & Chief Financial Officer |
Director, Investor Relations |
Tel: 403.387.6325 |
Tel: 403.236.6857 |
Tel: 403.717.4953 |
Enerflex (TSX:EFX)
Historical Stock Chart
From Apr 2024 to May 2024
Enerflex (TSX:EFX)
Historical Stock Chart
From May 2023 to May 2024