November 06, 2014 03:47:53 pm
Enerflex Reports Third Quarter 2014 Financial Results and Announces an Increase to the Quarterly Dividend
CALGARY, ALBERTA--(Marketwired - Nov. 6, 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 and nine months ended September 30, 2014 and announced a 13% dividend increase.
On June 30, 2014, Enerflex completed the acquisition of the international contract compression, processing, and after-market services business of Axip Energy Services, LP ("Axip") for approximately USD $431.0 million in cash, inclusive of closing purchase price adjustments. Accordingly, Enerflex's results reflect the contribution of the acquired business for the entire third quarter of 2014. This business formerly owned by Axip has been integrated into the Enerflex operations and now conducts business under the Enerflex name.
Enerflex reported net earnings from continuing operations for the third quarter of 2014 of $30.2 million, or $0.39 per share, compared to net earnings of $13.1 million, or $0.16 per share, for the same period in 2013. For the nine months ended September 30, 2014, net earnings from continuing operations were $45.4 million, or $0.58 per share, which compared to net earnings of $47.0 million, or $0.60 per share, for the same period in 2013. Earnings for the nine months ended September 30, 2014, normalized for one time transaction costs expensed as part of the acquisition, and the related tax impacts, were $60.2 million, or $0.77 per share.
The Company's financial results for the quarter were in line with its expectations, and significantly improved on the same period last year with EBIT of $45.5 million compared to $21.0 million in 2013. On a year-to date basis, EBIT was $86.0 million, which compared to $70.8 million in the same period of 2013, an increase of $15.2 million. These year-to-date results, while improving, were negatively impacted by the cost increases in the International segment on the project in Oman and the related impact on gross margin, and an increase in SG&A expenses including one time transaction expenses associated with the Axip acquisition. Where the cost increases on the Oman project have been customer driven, variation claims have been submitted, and are being vigorously pursued. With mechanical completion achieved and commissioning complete in readiness for gas and condensate export, the Company has been able to progress these variations claims with the customer. For the nine months ended September 30, 2014, results for the Canada and Northern U.S., Southern U.S. and Latin America segments have improved. After normalizing results for one time transaction expenses associated with the acquisition, which are included in SG&A, EBIT for the first nine months of 2014 was $95.1 million, a $24.3 million improvement compared with the prior year.
Building on momentum in liquids-rich plays in Canada and the United States, and other opportunities in Canada, including electric power, bookings for the third quarter of 2014 were $342.2 million, which is an increase of $94.6 million over the same period of 2013. As a result of the higher booking levels in 2014, the backlog has increased to $866.4 million, as at September 30, 2014, from $794.0 million at the start of 2014.
During the third quarter of 2014, Enerflex was provided with the Letter of Intent for two new contracts in the MENA region. The first is for the turnkey rental of compressors, generators and gas processing equipment and for the provision of on-site operations, maintenance and services for a period of 60 months. The second is for the turnkey rental of compressor packages and gas processing equipment, and operations and maintenance services for a period of 36 months. Coupled with rental contracts and Letters of Intent awarded earlier in the year in the MENA and Latin America regions for the turnkey rental of compressors and gas processing equipment, and the associated operations and maintenance, the total awarded horsepower on these five projects is approximately 88,000 hp.
During the third quarter, Enerflex made progress on most of its 2014 strategic objectives, progressing towards the goal of generating 35%-40% recurring revenue on a trailing 12-month basis. Recurring revenue as a percentage of revenue for the period ended September 30, 2014 increased to 27.4% compared to 24.1% for the period ended September 30, 2013, calculated on a trailing 12-month basis. Recurring revenue will increase further over the remainder of 2014, and into 2015, with the acquisition of Axip's rental and service business. In terms of safety management objectives, Enerflex is on target to achieve its strategic objective of reducing its Company-wide total recordable injury rate to 1.80 with a rate of 1.83 at the end of September, which is 8% below the rate at September 30, 2013. 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, fall compared to the same periods last year, largely as a result of the cost increases in the International segment, and increases in SG&A. Successful resolution of variation claim discussions, coupled with the EBIT benefit of the acquisition, should drive an increase in EBIT margin percentage over the remainder of 2014, and into 2015. The EBIT margin normalized for one time transaction expenses associated with the acquisition was 6.9% when calculated on a trailing 12-month basis. The EBIT margin for the quarter, when calculated on a trailing 12-month basis, was 6.4%, compared to 7.3% for the comparable period of 2013.
"The Company saw excellent booking activity in the third quarter of 2014, with third quarter booking levels almost $95.0 million higher than the same period in 2013. The recent Axip acquisition is consistent with Enerflex's objective of increasing recurring revenue streams and expanding geographic markets while supporting the Company's strategy of being a global supplier of turnkey energy solutions through compression, processing and electric power equipment sales and after-market services," said J. Blair Goertzen, Enerflex's President and Chief Executive Officer. "Current market dynamics, coupled with our recent acquisition, position the Company well to capitalize on opportunities that may arise. Some of these opportunities have already been realized, and the third quarter results reflect the contribution of the acquired business."
|(unaudited)||Three months ended September 30,||Nine months ended September 30,|
|($ millions, except per share amounts and percentages)||2014||2013||Change
|Gross margin %||19.3%||15.7%||-||18.3%||17.7%||-|
|Normalized EBIT (2)||45.5||21.0||24.5||95.1||70.8||24.3|
|Normalized EBIT % (2)||9.5%||5.4%||-||7.6%||6.7%||-|
|Net earnings (loss)|
|Normalized net earnings (2)||30.2||13.2||17.0||60.2||47.0||13.2|
|Earnings (loss) per share|
|Normalized net earnings per share (2)||0.39||0.16||0.23||0.77||0.60||0.17|
Work on the international project in Oman continued to experience customer driven scope and design variations during the first nine months of 2014. During this period, cost increases resulted in a corresponding decrease in gross margin of $23.8 million. During October 2014, commissioning was completed and mechanical completion achieved in readiness for gas and condensate export. Variation claims, where appropriate, have been submitted, and are being vigorously pursued. 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, which is typically at the completion of the project. With the project nearing completion, the Company has been able to advance variation claim discussions with the customer.
Segmented Financial Results
Revenue for the third quarter and first nine months of 2014 was $478.9 million and $1,257.4 million respectively, representing increases of $88.2 million and $202.3 million, respectively, compared to the same periods in 2013. These increases were due to higher revenue in the Canada and Northern U.S., and Southern U.S. and Latin America segments, partially offset by lower International segment revenue.
Canada and Northern U.S. segment revenue increased by $34.8 million during the third quarter of 2014, and by $117.8 million for the first nine months of 2014, as a result of an increase in Engineered Systems revenue on higher backlog and during the nine months ended September 30, 2014, higher Service revenue due to increased parts sales. These increases were partially offset by lower Rental revenue resulting from a decrease in the total horsepower under rental contracts and a decrease in rental unit sales.
Southern U.S. and Latin America segment revenue increased by $70.8 million in the third quarter of 2014 and by $146.0 million for the nine months ended September 30, 2014. These increases were attributable to higher Engineered Systems revenue as a result of higher opening backlog, higher Service revenue on increased service calls and parts sales, and higher rental revenues with the contribution of the business acquired from Axip, compared to the same periods in 2013.
International segment revenue decreased by $17.3 million in the third quarter of 2014, and by $61.3 million in the nine months ended September 30, 2014, on account of lower Engineered Systems revenue due to lower opening backlog entering the year. The decreases were partially offset by higher Service and Rental revenues as a result of increased activity in the AustralAsia and MENA regions, and due to the contribution of the rental business acquired from Axip.
Gross margin for the third quarter of 2014 was $92.4 million or 19.3% of revenue compared to $61.4 million or 15.7% of revenue for the same period in 2013. Gross margin for the nine months ended September 30, 2014 was $229.6 million or 18.3% of revenue compared to $186.8 million or 17.7% of revenue for the nine months ended September 30, 2013. The increases were due to higher gross margin in the Canada and Northern U.S., and Southern U.S. and Latin America segments, partially offset by lower gross margin in the International segment.
The increase in gross margin in Canada and the Northern U.S. resulted from the positive impact of higher revenue, lower warranty expense, and for the nine months ended September 30, 2014, stronger plant utilization. The higher gross margin in the Southern U.S. and Latin America segment was due to higher revenues, improved plant utilization and during the nine months ended September 30, 2014, improved project margins, partially offset by lower warranty releases. In the International segment, for the third quarter, higher gross margin was due to improved project margins overall, partially offset by the impact of lower revenues and the corresponding impact on gross margin. Lower gross margin in the first nine months of 2014 in the International segment was driven primarily by cost increases on the Oman project due to scope and design variations, and schedule delays, and by lower revenues.
During the third quarter of 2014, Enerflex recorded bookings of $342.2 million compared to $247.6 million during the same period in 2013, an increase of $94.6 million. For the nine months ended September 30, 2014, bookings were $994.4 million compared to $754.4 million during the same period in 2013, an increase of $240.0 million. The increase in the third quarter was due to higher bookings in the Canada and Northern U.S., and Southern U.S. and Latin America segments, with International bookings slightly lower when compared to 2013. For the nine months ended September 30, 2014, bookings were higher in all segments. Enerflex finished the third quarter with a backlog of $866.4 million, compared to $652.3 million at the end of the third quarter of 2013, an increase of $214.1 million or 24.7%. Sequentially, backlog has increased by $72.4 million since December 31, 2013.
Subsequent to the end of the third quarter of 2014, Enerflex announced a 13.3% increase in the quarterly dividend to $0.085 per share, payable on January 8, 2015, to shareholders of record on November 20, 2014. This is the third consecutive year of dividend increases, resulting in an increase of 41.7% since 2011, when the quarterly dividend was $0.06 per share.
Quarterly Results Material
Enerflex's interim condensed financial statements for the three and nine months ended September 30, 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 Friday, November 07, 2014 at 9:00 a.m. MST (11:00 a.m. EST) to discuss the third 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 1.800.381.7839. 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 07, 2014 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 14, 2014. Please call 1.800.633.8284 or 1.402.977.9140 and enter passcode 21737734.
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 3,400 employees worldwide. Enerflex, its subsidiaries, interests in associates and joint-ventures, operate in Canada, the United States of America, 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 Northern U.S. markets; (ii) expected bookings in Southern U.S. and Latin America; (iii) the nature and scope of challenges and opportunities in the International segment, including the nature and magnitude of cost estimates and the success of variation claims; and (iv) the emergence of liquefied natural gas projects in Canada, the U.S. and AustralAsia regions. 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.