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 six months ended June 30, 2020, and announced the
appointment of Mr. Fernando Assing to the Board of Directors.
Summary Table of Second Quarter and
First Half of 2020 Financial and Operating Results
(Unaudited)($ Canadian millions, except per share amounts,
horsepower, and percentages) |
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
Revenue |
$ |
287.4 |
|
$ |
541.9 |
|
$ |
(254.5 |
) |
$ |
653.2 |
|
$ |
1,026.8 |
|
$ |
(373.6 |
) |
Gross margin |
|
65.8 |
|
|
110.3 |
|
|
(44.5 |
) |
|
159.5 |
|
|
199.1 |
|
|
(39.6 |
) |
EBIT |
|
15.4 |
|
|
64.0 |
|
|
(48.6 |
) |
|
65.4 |
|
|
97.3 |
|
|
(31.9 |
) |
EBITDA (1) |
|
37.2 |
|
|
85.9 |
|
|
(48.7 |
) |
|
108.0 |
|
|
141.1 |
|
|
(33.1 |
) |
Adjusted EBITDA (2) |
|
33.5 |
|
|
83.5 |
|
|
(50.0 |
) |
|
100.2 |
|
|
150.2 |
|
|
(50.0 |
) |
Net earnings |
|
7.4 |
|
|
40.6 |
|
|
(33.2 |
) |
|
44.9 |
|
|
57.6 |
|
|
(12.7 |
) |
Earnings per share –
basic |
|
0.08 |
|
|
0.45 |
|
|
(0.37 |
) |
|
0.50 |
|
|
0.64 |
|
|
(0.14 |
) |
Recurring revenue growth
(3) |
|
(11.9 |
)% |
|
23.3 |
% |
|
|
|
(6.0 |
)% |
|
21.9 |
% |
|
|
Bookings (4) |
|
42.5 |
|
|
170.5 |
|
|
(128.0 |
) |
|
197.9 |
|
|
288.9 |
|
|
(91.0 |
) |
Backlog (4) |
|
291.1 |
|
|
974.4 |
|
|
(683.3 |
) |
|
291.1 |
|
|
974.4 |
|
|
(683.3 |
) |
Rental horsepower |
|
698,168 |
|
|
681,414 |
|
|
16,754 |
|
|
698,168 |
|
|
681,414 |
|
|
16,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 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.
“We are proud to say that all Enerflex
manufacturing facilities, rental, BOOM, and Service operations are
open and have been operational since the beginning of the COVID-19
pandemic. Throughout this pandemic, Enerflex employees have
maintained a safe working environment while keeping natural gas,
natural gas liquids, and electricity flowing for the benefit of our
clients and energy consumers globally,” said Marc Rossiter,
Enerflex’s President and Chief Executive Officer.
“Enerflex is a highly diversified company. Our
portfolio of natural gas infrastructure assets has performed well
through the first six months of 2020. We maintained a healthy 82
percent average utilization in our US fleet during the quarter,
buoyed by WTI pricing that has levelled off at around USD$40.
Customers in the Rest of World segment have shown their trust in
Enerflex and their belief in the value of our BOOM solutions by
extending contracts for three of them. Our AMS business has
remained a reliable source of earnings compared to prior downturns,
and, combined with our asset ownership business, our recurring
revenues have contracted by only six percent during the first half
of this year compared to the same period of last year. We were able
to make good progress on Engineered Systems projects in our shop,
despite COVID-19-related limitations, however booking activity was
as depressed as we expected and as we communicated to the market
with our first quarter results. Excepting necessary expenditures on
in-flight projects or other assets backed by contracts, we have
shut down new capex until the future of our Engineered Systems
business is less uncertain. While market conditions have strained
the financial health of many industry participants, including
certain of our customers, we have and will continue to have a
strong balance sheet and liquidity position.”
Quarterly Overview
- Operating income for the second
quarter of 2020 decreased over the prior year, largely driven by
lower revenue and increased bad debt provisions.
- Engineered Systems booking activity
was low, as expected.
- The Company invested $30 million in
rental assets with existing contracts and four previously announced
Build-Own-Operate-Maintain (“BOOM”) projects. Due to costs relating
to a small BOOM not previously included in estimated capex, final
scoping on other BOOM projects, foreign exchange differences, and
additional project costs due to COVID-19-induced delays, total 2020
capex is now estimated at approximately $125 million to $130
million, compared to approximately $105 million as previously
disclosed.
- At June 30, 2020, the USA contract
compression fleet totaled approximately 335,000 horsepower. Average
fleet utilization during the quarter was 82 percent.
- Extended two BOOM projects in the
Middle East during the second quarter. Subsequent to the quarter,
the Company executed a letter of intent to extend a BOOM project in
the Middle East for 10 years. Final terms of the extension are
anticipated to be agreed to and executed in the third quarter of
2020.
- The Company exited the quarter at a
bank-adjusted net debt to EBITDA ratio of 1.2:1, compared to a
maximum ratio of 3:1. The Company has access to $532 million of
credit for future drawings.
- Subsequent to June 30, 2020,
Enerflex declared a quarterly dividend of $0.02 per share, payable
on October 1, 2020, to shareholders of record on August 20,
2020.
OutlookEnerflex’s capital
allocation priorities over the past five plus years have been
specifically oriented toward making our cash flows more stable and
resistant to the natural, yet unpredictable, cyclicality in our
markets. Priorities have included significant investments in
recurring revenue projects in the USA and Rest of World (“ROW”)
segments.
Currently, North America presents the greatest
uncertainty for Enerflex. Engineered Systems revenues in the Canada
and USA regions are likely to experience pressure through 2020 and
2021, though order flow is seeing some success from non-traditional
applications, including modularization of a highly efficient
gas-to-power combined cycle technology, a combined heat and power
project for a Canadian grain processor, and a large process
refrigeration system for a petrochemical plant in Texas. Business
lines oriented toward our customers’ opex in North America, namely
Service and Rentals, will experience pressure throughout the
year.
The ROW segment has fared better than the North
American regions. In the Middle East, we have seen increasing
interest for new assets and have secured contract extensions for
certain existing assets. Latin America will benefit from the
completion of certain BOOM projects in Brazil and Argentina, the
sale of a 13 MW power and gas treating plant to reduce flare gas in
Colombia, and renewed rental assets in Mexico that are expected to
come online in the third quarter of 2020. Despite the challenges
caused by COVID-19, the Company continues to progress all
previously announced BOOM projects and anticipates commencement
dates at various times through mid- to late-2020.
Second Quarter Segmented
Results
USAUSA segment revenue was $177 million, a
decrease of $150 million from the same period in 2019. Engineered
Systems revenue decreased due to lower opening backlog on reduced
bookings in recent periods, while Service revenue was lower due to
travel restrictions related to COVID-19. Rentals revenue increased
due to the organic growth of the contract compression fleet, which
grew by 29 percent on a horsepower basis in the last year. EBIT was
down $43 million due to decreased gross margin, driven by lower
revenue on soft bookings from 2019 and the first half of 2020, as
well as the reduced contribution from certain large, high margin
Engineered Systems projects that were booked during the second half
of 2018 as they near completion. The second quarter of 2020 was
also impacted by higher SG&A costs, the result of increased bad
debt provisions taken in the second quarter of 2020, as management
identified certain receivable balances in the USA segment that may
be at higher risk of credit loss as a result of recent events.
Rest of WorldRevenue in the Rest of World
segment decreased by $32 million as a result of lower revenue for
all product lines. Engineered Systems revenue was down for the
second quarter of 2020 primarily due to a lower opening backlog,
while Service revenues decreased due to reduced activity levels and
lower parts and equipment sales, and Rentals revenue decreased due
to lower utilization of the rental fleet in Latin America. EBIT
increased by $1 million as a result of improved gross margin
percentage and lower SG&A costs, driven by reduced travel,
marketing, and non-critical IT expenditures, as well as favourable
foreign exchange movements.
CanadaCanadian revenue decreased by $73 million
as a result of lower Engineered Systems revenue on a lower opening
backlog. Service and Rentals revenues were down due to lower
equipment sales and reseller activity. EBIT decreased as a result
of lower gross margin on reduced revenue, partially offset by lower
SG&A costs driven by mark-to-market impacts on share-based
compensation and cost recoveries related to government assistance
programs.
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 isolated within 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 second quarter of 2020, the Company
added another adjustment related to government grants, most notably
the Canada Emergency Wage Subsidy. The amount of subsidies received
have been recorded as a reduction in cost of goods sold and selling
and administrative expense within the interim condensed
consolidated statement of earnings in accordance with where the
associated expense was recognized. Enerflex considers this to be a
unique item as these temporary grants relate to the recent COVID-19
pandemic and are not anticipated to be part of the ongoing
operations of the Company.
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 June 30, 2020 |
|
Total |
|
USA |
|
ROW |
|
Canada |
Reported EBIT |
$ |
15.4 |
|
$ |
6.8 |
$ |
3.7 |
|
$ |
4.9 |
|
Severance costs in COGS and
SG&A |
|
2.0 |
|
|
0.5 |
|
0.1 |
|
|
1.4 |
|
Government grants |
|
(6.4 |
) |
|
- |
|
(0.6 |
) |
|
(5.8 |
) |
Share-based compensation |
|
0.7 |
|
|
0.4 |
|
0.2 |
|
|
0.1 |
|
Depreciation and amortization |
|
21.8 |
|
|
10.7 |
|
9.0 |
|
|
2.1 |
|
Adjusted EBITDA |
$ |
33.5 |
|
$ |
18.4 |
$ |
12.4 |
|
$ |
2.7 |
|
($ Canadian millions) |
|
|
Three
months ended June 30, 2019 |
|
Total |
|
USA |
|
ROW |
|
Canada |
Reported EBIT |
$ |
64.0 |
|
$ |
49.9 |
|
$ |
2.8 |
|
$ |
11.3 |
|
Gain on disposal of idle
facilities |
|
(0.4 |
) |
|
- |
|
|
- |
|
|
(0.4 |
) |
Share-based compensation |
|
(1.9 |
) |
|
(1.1 |
) |
|
(0.6 |
) |
|
(0.2 |
) |
Depreciation and amortization |
|
21.8 |
|
|
8.3 |
|
|
11.0 |
|
|
2.5 |
|
Adjusted EBITDA |
$ |
83.5 |
|
$ |
57.1 |
|
$ |
13.2 |
|
$ |
13.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DividendSubsequent to the end
of the quarter, Enerflex declared a quarterly dividend of $0.02 per
share, payable on October 1, 2020, to shareholders of record on
August 20, 2020. Enerflex’s Board of Directors will continue to
evaluate dividend payments on a quarterly basis, based on the
availability of cash flow and anticipated market conditions.
New Director AppointmentThe
Board is pleased to appoint Fernando Assing as a director of
Enerflex effective August 6, 2020, as part of its ongoing
succession planning to ensure orderly transition as certain
directors approach term limits in the next few years. Mr. Assing
brings 29 years of experience in the EPC and oilfield service
industries, including senior management roles in marketing,
business development, commercial, and project and operations
management. He is President and Chief Executive Officer of
Centurion Group Limited, the global rental and infrastructure
platform of SCF Partners. He has extensive international experience
in the energy industry, including operations in the United States,
Canada, Latin America, the Middle East, Africa, Southeast Asia,
Australia, and Europe. Prior to joining Centurion, Mr. Assing was
President and Chief Executive Officer of Tesco Corporation until
its sale to Nabors Industries, and prior thereto he served in
multiple global and regional positions with Schlumberger and
Technip. Mr. Assing serves on the Centurion board and previously
served on the Tesco board. He is a civil engineer by
background.
“Mr. Assing’s experience leading oilfield
service operations across multiple business lines in multiple
countries will be an asset to Enerflex as it continues to
strategically expand its product lines globally,” said Stephen J.
Savidant, Chairman of the Enerflex Board of Directors. “We are very
pleased to welcome Mr. Assing to the Board.”
Quarterly Results MaterialThis
press release should be read in conjunction with Enerflex’s
unaudited interim condensed consolidated financial statements for
the three and six months ended June 30, 2020 and 2019, 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, August 7, 2020 at 8:00 a.m. MDT to discuss the second
quarter 2020 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, Strategy, Risk,
and 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 August 7, 2020 at 8:00 a.m. MDT. A replay of
the teleconference will be available on August 7, 2020 at 11:00
a.m. MDT until August 14, 2020 at 11:00 a.m. MDT. Please call
1.855.859.2056 or 1.404.537.3406 and enter conference ID
1454932.
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, gas lift compression, 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, 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. 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: anticipated
financial performance; the Company’s 2020 growth capital
expenditure plans and maintenance capital spending; anticipated
market conditions and impacts on the Company’s operations;
development trends in the oil and gas industry; business prospects
and strategy; the ability to raise capital; the ability of existing
and expected cash flows and other cash resources to fund
investments in working capital and capital assets; the impact of
economic conditions on accounts receivable; expectations regarding
future dividends; and implications of changes in government
regulation, laws and income taxes. This forward-looking information
is based on assumptions, estimates and analysis made in the light
of the Company's experience and its perception of trends, current
conditions and expected developments, as well as other factors that
are believed by the Company to be reasonable and relevant in the
circumstances. Forward-looking information involves known and
unknown risks and uncertainties and other factors, which are
difficult to predict, including but not limited to: the impact of
economic conditions including volatility in the price of oil, gas,
and gas liquids, interest rates and foreign exchange rates;
industry conditions including supply and demand fundamentals for
oil and gas, and the related infrastructure including new
environmental, taxation and other laws and regulations; disruptions
to business operations resulting from the COVID-19 pandemic and the
responses of government and the public to the pandemic; changes in
economic conditions that restrict Enerflex’s cash flow and impact
its ability to declare and pay dividends; the ability to continue
to build and improve on proven manufacturing capabilities and
innovate into new product lines and markets; increased competition;
insufficient funds to support capital investments required to grow
the business; the lack of availability of qualified personnel or
management; political unrest; and other factors, many of which are
beyond the Company's control. 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 and the
section entitled “Supplemental Risk Factors” in Enerflex’s MD&A
for the three months ended March 31, 2020, 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, and readers are
cautioned not to unduly rely on forward-looking 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, Strategy, Risk, and Investor Relations |
Tel: 403.387.6325 |
Tel: 403.236.6857 |
Tel: 403.717.4953 |
|
|
|
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