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 nine months ended September 30, 2020.
Summary Table of Third Quarter and First
Nine Months of 2020 Financial and Operating Results
(Unaudited) |
Three months ended |
Nine months ended |
($ Canadian millions, except per share |
September 30, |
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
amounts, horsepower, and percentages) |
2020 |
2019 |
Change |
2020 |
2019 |
Change |
Revenue |
$ |
265.0 |
$ |
544.3 |
$ |
(279.3) |
$ |
918.2 |
$ |
1,571.1 |
$ |
(652.9) |
Gross margin |
|
63.7 |
|
132.6 |
|
(68.9) |
|
223.2 |
|
331.6 |
|
(108.4) |
EBIT |
|
21.7 |
|
87.7 |
|
(66.0) |
|
87.2 |
|
185.1 |
|
(97.9) |
EBITDA (1) |
|
42.8 |
|
109.1 |
|
(66.3) |
|
150.8 |
|
250.2 |
|
(99.4) |
Adjusted EBITDA (2) |
|
38.2 |
|
106.5 |
|
(68.3) |
|
138.4 |
|
256.8 |
|
(118.4) |
Net earnings |
|
10.7 |
|
63.1 |
|
(52.4) |
|
55.6 |
|
120.7 |
|
(65.1) |
Earnings per share – basic |
|
0.12 |
|
0.71 |
|
(0.59) |
|
0.62 |
|
1.35 |
|
(0.72) |
Recurring revenue growth (3) |
|
(6.1)% |
|
10.0% |
|
|
(6.0)% |
|
17.7% |
|
Bookings (4) |
|
23.2 |
|
125.5 |
|
(102.3) |
|
221.1 |
|
414.4 |
|
(193.3) |
Backlog (4) |
|
186.3 |
|
701.6 |
|
(515.3) |
|
186.3 |
|
701.6 |
|
(515.3) |
Rental horsepower |
|
714,375 |
|
700,733 |
|
13,642 |
|
714,375 |
|
700,733 |
|
13,642 |
(1) 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.(2) Adjusted
EBITDA is a non-IFRS measure. Please refer to the full
reconciliation of these items in the Adjusted EBITDA
section.(3) 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.(4) 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.
“Enerflex’s manufacturing facilities, rental,
BOOM, and Service operations have continued operating safely and
reliably throughout the quarter. Given where we are in the cycle,
Enerflex delivered a strong quarter. Our results benefitted from
the growing contribution of our recurring revenue product lines,
cost-reduction measures, and our customer-centric, service-oriented
approach,” said Marc Rossiter, Enerflex’s President and Chief
Executive Officer.
“We believe in the long-term fundamentals of
natural gas. As the cleanest of all fossil fuels, it can facilitate
a reduction in carbon emissions from a growing global economy while
enabling an energy transition that includes increasingly
significant contributions from renewables. Enerflex is a leading
supplier of innovative natural gas infrastructure solutions on a
global scale. We will continue to provide these innovative
solutions during the pandemic and beyond with a sharp focus on
controlling costs and maximizing investment returns.”
Quarterly Overview
- Operating income for the third quarter of 2020 benefited from
previously implemented cost-reduction measures and contributions
from government assistance programs but decreased over the prior
year on lower revenue and increased bad debt provisions.
- Engineered Systems booking activity continued to be impacted by
restrained spending within the oil and gas industry due to
uncertainty around commodity price stability and the ramifications
of COVID-19. However, the Company is seeing some success from
non-traditional applications, including electrified compression and
lower carbon-intensity projects.
- The Company invested $17.6 million in rental assets within its
USA and Rest of World segments. Three of four previously announced
Build-Own-Operate-Maintain (“BOOM”) projects were successfully
commissioned in Argentina and Brazil. These projects are operating
as designed and contributing to the bottom line. The fourth BOOM
remains scheduled to commence operations during the fourth quarter
of 2020. Capital spending for 2020 is estimated at approximately
$135 million to $140 million, compared to the previously disclosed
$125 million to $130 million, due primarily to increased BOOM
completion costs due to COVID-19-induced delays and make-ready
costs for the redeployment of certain Mexican rental assets on new
contracts.
- At September 30, 2020, the USA contract compression fleet
totaled approximately 350,000 horsepower. Average fleet utilization
remained stable during the quarter at 81 percent.
- The Company maintained balance sheet strength by monetizing
inventory and reducing debt. The Company exited the quarter
financially strong, with a bank-adjusted net debt to EBITDA ratio
of 1.2:1, compared to a maximum ratio of 3:1. The Company has
substantial undrawn credit capacity and cash on hand.
- Subsequent to September 30, 2020, Enerflex declared a quarterly
dividend of $0.02 per share, payable on January 7, 2021, to
shareholders of record on November 26, 2020.
OutlookThe COVID-19 pandemic
and recent commodity price volatility has adversely impacted global
capital investment within the oil and natural gas industries.
Despite recent improvement in natural gas benchmark pricing, the
Company has yet to see a meaningful increase in Engineered Systems
bookings but continues responding to inquiries for non-traditional
applications, including the recent sale of a 13 MW power and gas
treating plant to reduce flare gas in Colombia, as well as various
other electrified compression and lower carbon-intensity projects.
Overall, the outlook for Engineered Systems remains uncertain and
revenues from this product line are expected to remain low through
the remainder of 2020 and into 2021.
In contrast, over the past several years,
Enerflex has prioritized investments specifically oriented toward
making our cash flows more stable and resistant to the natural, yet
unpredictable, cyclicality in our markets. The outlook for the
related business lines, namely Service and Rentals, appears to have
stabilized in the near-term and we continue to see interest in our
BOOM offerings. Future periods will see the contribution from a
10-year BOOM project in the Middle East scheduled to be
commissioned in the fourth quarter of 2020, while Latin America
will benefit from the completion of certain BOOM projects in Brazil
and Argentina and the renewal of certain rental assets in Mexico.
The Company is optimistic that its investments in recurring revenue
projects will continue to stabilize cash flows through this
downturn and beyond.
In the short term, Enerflex remains focused on
providing a safe working environment for all employees, while
preserving capital and maintaining balance sheet strength in
response to uncertainty caused by the COVID-19 pandemic and recent
market volatility. In the longer term, the Company is focused on
controlling costs, optimal capital allocation, and ensuring future
projects maximize returns on invested capital.
Third Quarter Segmented
Results
USAUSA segment revenue was $127 million, a
decrease of $172 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 and pricing pressure on
certain Service offerings. Rentals revenue increased due to the
organic growth of the contract compression fleet, which grew by 22
percent on a horsepower basis over the last year. EBIT was down $51
million due to decreased gross margin, driven by lower revenue on
soft bookings from 2019 and the first nine months 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 that were largely completed by the third quarter of 2020.
Decreased revenue and margins were partially offset by lower
SG&A, the result of reduced compensation expenses on lower
headcount and decreased profit share on lower operational results.
The Company continues to monitor costs in response to recent
commodity price weakness and the uncertainty caused by the COVID-19
pandemic and remains focused on controlling costs where
possible.
Rest of WorldRevenue in the Rest of World
segment was $79 million, a decrease of $9 million driven by lower
Engineered Systems revenue due to timing of project work, as
bookings from recent periods began contributing to operating
results in the third quarter, while Engineered Systems revenue in
the prior year reflected continued progress made on projects
included in the opening backlog. EBIT decreased by $6 million due
to increased bad debt provisions, driven by expected credit losses,
partially offset by improved gross margin percentage, reduced
compensation expenses and decreased profit share on lower
operational results, as well as lower travel and non-critical IT
expenditures.
CanadaCanadian revenue was $59 million, a
decrease of $98 million, primarily due to lower Engineered Systems
revenue on a lower opening backlog. Service and Rentals revenues
were down due to lower equipment sales and reseller activity,
Service branches performing more light-duty work as opposed to
overhauls, and the return of certain rental units. EBIT decreased
as a result of lower gross margin on reduced revenue and increased
bad debt provisions, partially offset in the quarter by reduced
compensation expenses on lower headcount and decreased profit share
on lower operational results, as well as 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 and the JobKeeper Payment program
in Australia. The amount of subsidies received has 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 September 30, 2020 |
Total |
USA |
ROW |
Canada |
Reported EBIT |
$ |
21.7 |
|
$ |
6.4 |
|
$ |
8.0 |
|
$ |
7.3 |
|
Severance costs in COGS and SG&A |
|
0.7 |
|
|
0.2 |
|
|
0.0 |
|
|
0.5 |
|
Government grants |
|
(6.4 |
) |
|
- |
|
|
(1.4 |
) |
|
(5.0 |
) |
Share-based compensation |
|
1.1 |
|
|
0.7 |
|
|
0.4 |
|
|
0.0 |
|
Depreciation and amortization |
|
21.1 |
|
|
10.4 |
|
|
8.5 |
|
|
2.2 |
|
Adjusted EBITDA |
$ |
38.2 |
|
$ |
17.7 |
|
$ |
15.5 |
|
$ |
5.0 |
|
($ Canadian millions)Three months ended September 30, 2019 |
Total |
USA |
ROW |
Canada |
Reported EBIT |
$ |
87.7 |
|
$ |
57.1 |
|
$ |
13.9 |
|
$ |
16.7 |
|
Share-based compensation |
|
(2.6 |
) |
|
(1.6 |
) |
|
(0.6 |
) |
|
(0.4 |
) |
Depreciation and amortization |
|
21.4 |
|
|
8.6 |
|
|
10.2 |
|
|
2.6 |
|
Adjusted EBITDA |
$ |
106.5 |
|
$ |
64.1 |
|
$ |
23.5 |
|
$ |
18.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DividendSubsequent to the end
of the quarter, Enerflex declared a quarterly dividend of $0.02 per
share, payable on January 7, 2021, to shareholders of record on
November 26, 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.
Quarterly Results MaterialThis
press release should be read in conjunction with Enerflex’s
unaudited interim condensed consolidated financial statements for
the three and nine months ended September 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, November 6, 2020 at 8:00 a.m. MST to discuss the third
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 November 6, 2020 at 8:00 a.m. MST. A replay of the
teleconference will be available on November 6, 2020 at 11:00 a.m.
MST until November 13, 2020 at 11:00 a.m. MST. Please call
1.855.859.2056 or 1.404.537.3406 and enter conference ID
7172239.
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 2,100 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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