November 07, 2013 04:15:15 pm
Enerflex Reports Third Quarter 2013 Financial Results and Announces Quarterly Dividend Increase
CALGARY, ALBERTA--(Marketwired - Nov. 7, 2013) - 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 and nine months ended September 30, 2013.
Enerflex reported net earnings from continuing operations for the third quarter of 2013 of $13.2 million, or $0.16 per share, which were $7.7 million lower than the same period in 2012. Net earnings for the first nine months of 2013 were $47.0 million, or $0.60 per share, a decrease of $8.2 million from the same period in 2012. The decreases in net earnings for the quarter and for the first nine months of 2013 were a result of lower gross margins and higher SG&A expenses, which were partially offset by lower income tax expense. The lower gross margin for the third quarter of 2013 was driven primarily by cost increases on three international projects due to scope and design variations, and to a lesser degree due to project execution challenges. The cost increases resulted in an $11.5 million deterioration in gross margin during the quarter. Variation claims, where appropriate, have either been submitted, or are in the process of being submitted. There could be additional cost increases on these international projects, in which case further variation claims will be assessed at that point. 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. To the extent that these cost increases are subsequently recovered through approved variation claims from customers, revenue will be recognized in the corresponding period. Variation claims are typically approved at the completion of the project. This results in volatility in gross margins for the International segment as costs are recognized as incurred on these projects, while revenue resulting from variation claims is recognized in the period that these claims are approved.
The Company recorded bookings of $247.6 million and $754.4 million, respectively, during the third quarter and first nine months of 2013, which were $104.2 million and $121.5 million higher, respectively, than the comparable periods in 2012. These increases were due to increased booking activity in the Canada and Northern U.S., and Southern U.S. and Latin America segments, which were partially offset by lower activity in the International segment. Enerflex had a backlog of $652.3 million at the end of the third quarter of 2013, compared to $775.4 million at the end of the same period last year, a decrease of $123.1 million or 15.9%. Sequentially, backlog has decreased by $45.4 million or 6.5% from June 30, 2013 and by $30.9 million or 4.5% from December 31, 2012.
During the third quarter, Enerflex continued to achieve or exceed most of its 2013 strategic objectives, progressing towards the goal of generating 35%-40% recurring revenue on a trailing 12 month basis. Recurring revenue, which is defined as revenue from the Service and Rental product lines, has increased for the third consecutive quarter from 20.6% for the year ended December 31, 2012 to 24.1% of revenue for the trailing 12 month period ending September 30, 2013. In terms of safety management objectives, Enerflex surpassed its strategic objective of reducing its Company-wide total recordable injury rate by 13% with a 38% improvement over its 2012 rate. The Company continues to work towards its strategic objective of a 10% EBIT margin, but has seen EBIT as a percentage of revenue, also calculated on a trailing 12 month basis, comparable between the period ended September 30, 2013 and 2012. Lastly, Enerflex has become increasingly active in the Alberta oil sands with bookings of $19.5 million in the first nine months of 2013, and $28.6 million in the month of October 2013.
"Higher revenue levels for the third quarter of 2013 did not translate into improved gross margin as a result of the cost increases that we faced in the International segment during the quarter. Management has determined and is executing on a plan to address the challenges identified, and is pursuing variation claims where appropriate. Bookings on the other hand were significantly improved in the third quarter and on a year-to-date basis, with increased activity in the Canada and Northern U.S., and Southern U.S. and Latin America segments despite weak natural gas and natural gas liquids, or NGL, prices. Service revenues in both segments also improved in 2013, contributing to the increase in recurring revenue as a percentage of total revenue. We remain cautiously optimistic for both segments for the remainder of 2013 and into early 2014. In aggregate, improved bookings for the quarter, and a strong backlog, coupled with growth in Service revenue, position us well for the remainder of 2013 and into 2014 as we intend to remain diligent and focused on improving project performance to address the issues experienced in the International segment," said J. Blair Goertzen, Enerflex's President and Chief Executive Officer. "Our continuing healthy balance sheet leaves the Company right-sized and well positioned to capitalize on opportunities that may arise."
Financial Highlights and Key Performance Indicators
|(unaudited)|| Three months ended
| Nine months ended
|($ millions, except per share amounts and percentages)||2013||2012||Change
|Gross margin %||15.7%||18.2%||17.7%||18.1%|
|Net earnings (loss)|
|Earnings (loss) per share|
|Key Performance Indicators(2)|
|Recurring revenue as a % of revenue(3)||24.1%||21.8%||24.1%||21.8%|
|Return on Capital Employed ("ROCE")||11.9%||12.0%||11.9%||12.0%|
Revenue for the third quarter and the first nine months of 2013 was $390.7 million and $1,055.0 million, respectively, representing a $21.0 million increase for the quarter, but a $25.1 million decrease in revenues on a year-to-date basis compared to the same periods in 2012. For the quarter, revenue was higher in the Canada and Northern U.S., and Southern U.S. and Latin America segments, partially offset by lower revenue from the International segment. When comparing the first nine months of 2013 to 2012, a decrease in revenue in the Canada and Northern U.S. segment was partially offset by increases in revenue for the Southern U.S. and Latin America, and International segments.
Canada and Northern U.S. segment revenue increased by $4.6 million during the third quarter of 2013 as a result of an increase in Service and Rental revenue, partially offset by lower Engineered Systems revenue. Segment revenue decreased by $80.1 million for the nine months ended September 30, 2013, as a result of lower Engineered Systems revenue, partially offset by higher Service and Rental revenue.
Southern U.S. and Latin America segment revenue increased by $21.9 million in the third quarter of 2013, and by $20.9 million for the nine months ended September 30, 2013, as a result of higher revenues from both Engineered Systems and Service product lines.
International segment revenue decreased by $5.7 million in the third quarter of 2013 on account of lower Engineered Systems revenue resulting from lower opening backlog, which was partially offset by higher Service revenue. Revenue for the International segment increased by $34.1 million for the nine months ended September 30, 2013 due to higher Engineered Systems and Service revenue.
Gross margin for the quarter ended September 30, 2013 was $61.4 million or 15.7% of revenue compared to $67.3 million or 18.2% of revenue for the same period in 2012. Gross margin for the first nine months of 2013 was $186.8 million or 17.7% of revenue as compared to $195.6 million or 18.1% of revenue for the same period of 2012.
The decrease in gross margin during the third quarter of 2013 was a result of lower margin in the International segment partially offset by higher margin in the Southern U.S. and Latin America segment. For the first nine months of 2013, the gross margin decrease was driven by lower margins in the Canada and Northern U.S. segment, partially offset by higher margin in the Southern U.S. and Latin America segment. The decrease in gross margin in Canada and the Northern U.S. for the first nine months of 2013 was primarily due to lower revenues and warranty costs incurred on Engineered Systems jobs in Casper, Wyoming, partially offset by improved project performance. The higher gross margin in the Southern U.S. and Latin America segment in the 2013 periods was attributable to higher revenue and improved margin performance, partially offset by weaker plant utilization during the first nine months of 2013. In the International segment, gross margin decreased due to weaker margin performance as a result of the cost increases on various projects, largely offset for the nine months ended September 30, 2013 by the impact of higher revenues.
Bookings in the third quarter of 2013 increased over the same period in 2012 by $104.2 million to $247.6 million, and were $121.5 million higher at $754.4 million for the first nine months of 2013. In Canada and the Northern U.S., despite continued weak natural gas prices, bookings for the quarter and the first nine months of 2013 were $26.7 million and $51.5 million higher, respectively, at $75.0 million and $267.8 million, respectively. The increases came primarily from increases in bookings destined for domestic destinations. In the Southern U.S. and Latin America segment, bookings for the quarter were $151.2 million, which was $97.8 million higher than 2012, and for the first nine months of 2013, $95.0 million higher at $389.0 million. The bookings increased as a result of higher domestic bookings despite the continued weakness in NGL and gas prices, and higher bookings destined for international markets. Bookings for the International segment were $20.3 million and $25.0 million lower, respectively, at $21.4 million and $97.6 million, respectively, in the third quarter and first nine months of 2013 when compared to the same periods in 2012. The decreases were primarily due to lower booking levels in Australia related to coal seam gas exploration and gas storage projects when compared to 2012.
Subsequent to the end of the third quarter of 2013, Enerflex declared an increase in the quarterly dividend to $0.075 per share, payable on January 7, 2014, to shareholders of record on November 21, 2013.
Quarterly Results Material
Enerflex's interim condensed financial statements for the three and nine months ended September 30, 2013, 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 Friday, November 8, 2013 at 9:00 a.m. MST (11:00 a.m. EST) to discuss the third quarter 2013 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, Vice President and Chief Financial Officer of Enerflex Ltd.
If you wish to participate in this conference call, please call 1.800.406.5162. 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 November 8, 2013 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, November 15, 2013. Please call 1.800.558.5253 or 1.416.626.4100 and enter passcode 21676207.
Enerflex Ltd. is a single source supplier for natural gas compression, oil and gas processing, refrigeration systems and power generation 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 power generators 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 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. 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.