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, 2020.
Summary Table of Fourth Quarter and
Twelve Months of 2020 Financial and Operating Results
(Unaudited)($ Canadian millions, except per share amounts,
horsepower, and percentages) |
Three months ended December 31, |
Twelve months ended December 31, |
|
2020 |
|
|
2019 |
|
|
Change |
|
2020 |
|
|
2019 |
|
|
Change |
Revenue |
$ |
298.8 |
|
$ |
474.4 |
|
$ |
(175.6 |
) |
$ |
1,217.1 |
|
$ |
2,045.4 |
|
$ |
(828.3 |
) |
Gross margin |
|
75.0 |
|
|
97.4 |
|
|
(22.4 |
) |
|
298.2 |
|
|
429.1 |
|
|
(130.9 |
) |
EBIT |
|
30.9 |
|
|
48.8 |
|
|
(17.9 |
) |
|
118.1 |
|
|
233.9 |
|
|
(115.8 |
) |
EBITDA (1) |
|
52.5 |
|
|
70.2 |
|
|
(17.7 |
) |
|
203.3 |
|
|
320.5 |
|
|
(117.2 |
) |
Adjusted EBITDA (2) |
|
52.8 |
|
|
89.0 |
|
|
(36.2 |
) |
|
191.3 |
|
|
345.8 |
|
|
(154.5 |
) |
Net earnings |
|
32.7 |
|
|
31.4 |
|
|
1.3 |
|
|
88.3 |
|
|
152.1 |
|
|
(63.8 |
) |
Earnings per share –
basic |
|
0.36 |
|
|
0.35 |
|
|
0.01 |
|
|
0.98 |
|
|
1.70 |
|
|
(0.72 |
) |
Recurring revenue growth (3),
(4) |
|
31.2 |
% |
|
6.3 |
% |
|
|
|
3.6 |
% |
|
14.5 |
% |
|
|
Bookings (5) |
|
52.7 |
|
|
94.5 |
|
|
(41.8 |
) |
|
273.8 |
|
|
508.9 |
|
|
(235.1 |
) |
Backlog (5) |
|
143.0 |
|
|
467.8 |
|
|
(324.8 |
) |
|
143.0 |
|
|
467.8 |
|
|
(324.8 |
) |
Rental horsepower |
|
713,929 |
|
|
674,153 |
|
|
39,776 |
|
|
713,929 |
|
|
674,153 |
|
|
39,776 |
|
(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) |
At December 31, 2020 the Company renegotiated two contracts with a
customer which were previously recognized as BOOM projects and are
now recognized as finance leases. Upon commencement of the new
leases, the Company recognized Rentals revenue, based on the fair
value of the underlying assets, in the consolidated statements of
earnings, which is included in the calculation of recurring
revenue. The amount of this revenue reflects the amount that the
Company would otherwise recognize on a sale of those assets.
Without the effect of this transaction, recurring revenue would
have decreased by 10.2% and 7.1% for the three months and year
ended December 31, 2020. |
(5) |
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. Our 2020 performance is
attributable to deep customer relationships, smart investment in US
contract compression, and the completion of several long-term
natural gas and power infrastructure projects. Subsequent to
quarter close, Enerflex was awarded a new ten-year natural gas
infrastructure contract representing roughly $35 million in growth
capital expenditure for 2021,” said Marc Rossiter, Enerflex’s
President and Chief Executive Officer.
“This award underscores our belief in the
long-term growth opportunities provided by natural gas. Natural gas
will play a growing role in the international energy supply, in
addition to enabling the transition to lower-carbon sources of
energy. This is an area Enerflex will increasingly serve in the
years to come by applying the same core competency of technical
excellence in modularized equipment that has served global natural
gas customers at scale, for over forty years.”
Quarterly Overview
- During the quarter, the Company
finalized the extensions of two BOOM contracts for an additional 10
years, as previously announced in the second quarter of 2020. These
contracts were previously scheduled to end in 2021 and 2024. Under
the new agreements, the Company will continue providing, operating,
and maintaining the existing equipment, after which ownership of
the equipment will transfer to the customer. As such, the Company
has recorded these contracts as finance leases in fourth quarter
results. Upon commencement, the Company recognized Rentals revenue,
based on the fair value of the underlying assets, and cost of goods
sold, determined to be the net book value of those assets, in the
consolidated statements of earnings. The amount of this revenue
reflects the amount that the Company would otherwise recognize on a
sale of those assets. Future periods will benefit from the monthly
rental and operations and maintenance revenue associated with these
leases. This transaction is consistent with Enerflex’s emphasis on
generating long-term recurring revenues from rental and maintenance
of equipment.
- Operating income for the fourth
quarter of 2020 decreased compared to 2019 on lower revenue and
associated gross margins, partially offset by margin recognized on
the finance lease transaction above, and increased contributions
from recurring revenue product lines. In addition, the Company saw
lower SG&A costs on previously implemented cost-reduction
measures and contributions from government assistance
programs.
- Engineered Systems booking activity
rebounded from the lows seen in the third quarter of 2020 but
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. Bookings in the fourth quarter
include $77 million of new project work, which was offset by $20
million of previous bookings in the Canada segment that were
de-booked and $5 million of negative foreign exchange impacts. The
de-booking largely related to a project initially recorded in a
prior year that the customer deferred. The initial deposit for the
project was allocated to other projects that the Company had been
awarded with the same customer.
- The Company invested $10 million in
rental assets to fund both the organic expansion of the USA
contract compression fleet and completion of a previously announced
BOOM project in Middle East / Africa (“MEA”). The Company continues
to exercise capital discipline and to prioritize capital spending
related to executed contracts with customers. At December 31, 2020,
the USA contract compression fleet totaled over 350,000 horsepower
with an average fleet utilization of 82 percent for the quarter. In
addition, Enerflex completed the construction of a previously
awarded BOOM project in MEA, which began generating revenue in
January 2021.
- The Company maintained balance
sheet strength by managing working capital, reducing debt, and
continuing to exercise capital discipline. The Company exited the
quarter financially strong, with a bank-adjusted net debt to EBITDA
ratio of 1.3:1, compared to a maximum ratio of 3:1. The Company has
substantial undrawn credit capacity and cash on hand.
- Subsequent to December 31, 2020,
Enerflex was awarded a new 10-year natural gas infrastructure
contract representing roughly $35 million in growth capital
expenditure for 2021.
- Subsequent to December 31, 2020,
Enerflex declared a quarterly dividend of $0.02 per share, payable
on April 1, 2021, to shareholders of record on March 11, 2021.
OutlookEnerflex’s recent focus
has been on stabilizing cash flows to maintain a strong balance
sheet through a volatile commodity price environment. Engineered
Systems sales remain dependent on global capital investment in oil
and natural gas, and operators have reduced investment levels
across the energy industry. However, in recent months, commodity
prices and drilling activity in North America have strengthened,
which may precede increased activity within these regions. In
addition, an “Energy Transition” towards less carbon-intensive
energy sources may result in new opportunities for the Company in
all of its operating regions. Enerflex has appointed Patricia
Martinez to the new role of Chief Energy Transition Officer, where
she is responsible for driving the global strategy for Enerflex
products and services in the Energy Transition space, focused on
delivering low-carbon energy solutions and positioning Enerflex for
success in a changing market.
The Company anticipates that Engineered Systems
revenues in the Canada and USA regions are likely to remain
pressured through the first half of 2021, or until there is a
meaningful increase in bookings activity. In contrast, the outlook
for recurring revenue product offerings, namely Service and
Rentals, appears to have stabilized in the near-term and we
continue to see interest in our BOOM and long-term lease offerings.
The completion of multiple BOOM projects in Latin America during
2020, and an additional 10-year BOOM project in MEA that began
generating revenue at the beginning of 2021, provides the Company
with long-term, stable cash flows. Enerflex continues to assess the
effects of various market factors, including supply and demand
dynamics as well as political and economic uncertainty, and the
corresponding impact on customer activity levels, which will drive
the demand for the Company’s products and services in future
periods.
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. Given the current environment, the Company is
carefully assessing project spending, with a focus on ensuring
future projects provide maximum returns on invested capital.
Fourth Quarter Segmented Results
USAUSA segment revenue was $101 million, a
decrease of $176 million from the same period in 2019. Engineered
Systems revenue decreased due to lower opening backlog on reduced
bookings in recent periods, while Service 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 15 percent
on a horsepower basis over the last year. EBIT was down $55 million
due to decreased gross margin, driven by lower revenue on soft
bookings throughout 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 salaries. 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 $144 million, an increase of $70 million driven by
higher Rentals revenue, primarily due to recognition of revenue on
the extension of two BOOM contracts that are now recorded as
finance leases. The Rest of World also had increased revenues on
contributions from three recently commissioned BOOM projects in
Latin America, as well as improved Engineered Systems revenue on
continued progress made on a power and gas treating plant project.
EBIT increased by $37 million due to the recognition of margin on
commencement of finance leases in the period, as well as the
non-recurrence of impairments recognized on certain rental assets
in the prior year. SG&A costs were consistent with the
comparable period in 2019, with higher share-based compensation on
mark-to-market movement and increased profit share expense being
offset by reduced travel costs and lower allocation of corporate
costs.
CanadaCanadian revenue was $54 million, a
decrease of $70 million, primarily due to lower Engineered Systems
revenue on a lower opening backlog and reduced bookings throughout
2020. EBIT increased as a result of lower SG&A, driven by
reduced compensation expenses on lower headcount and cost
recoveries related to government assistance programs, partially
offset by lower gross margin on reduced revenue.
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) severance costs associated with restructuring
activities and cost reduction activities undertaken in response to
the COVID-19 pandemic; 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 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 financial results 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 December 31, 2020 |
|
Total |
|
USA |
|
ROW |
|
Canada |
Reported EBIT |
$ |
30.9 |
|
$ |
5.9 |
$ |
18.5 |
|
$ |
6.5 |
|
Severance costs in COGS and
SG&A |
|
2.0 |
|
|
0.5 |
|
0.6 |
|
|
0.9 |
|
Government grants |
|
(6.8 |
) |
|
- |
|
(0.2 |
) |
|
(6.6 |
) |
Share-based compensation |
|
5.1 |
|
|
2.6 |
|
1.7 |
|
|
0.8 |
|
Depreciation and amortization |
|
21.6 |
|
|
10.3 |
|
9.1 |
|
|
2.2 |
|
Adjusted EBITDA |
$ |
52.8 |
|
$ |
19.3 |
$ |
29.7 |
|
$ |
3.8 |
|
($ 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 SG&A |
|
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 |
|
DividendSubsequent to the end
of the quarter, Enerflex declared a quarterly dividend of $0.02 per
share, payable on April 1, 2021, to shareholders of record on March
11, 2021. 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 audited
consolidated financial statements for the years ended December 31,
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
Thursday, February 25, 2021 at 8:00 a.m. MST to discuss the fourth
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 February 25, 2021 at 8:00 a.m. MST. A replay of the
teleconference will be available on February 25, 2021 at 11:00 a.m.
MST until March 4, 2021 at 11:00 a.m. MST. Please call
1.855.859.2056 or 1.404.537.3406 and enter conference ID
1844329.
About EnerflexEnerflex is a
single-source supplier of natural gas compression, oil and gas
processing, refrigeration systems, and electric power generation
equipment – plus related in-house engineering and mechanical
services expertise. The Company’s broad in-house resources provide
the capability to engineer, design, manufacture, construct,
commission, service, and operate hydrocarbon handling systems.
Enerflex’s expertise encompasses field production facilities,
compression and natural gas processing plants, gas lift
compression, refrigeration systems, and electric power solutions
serving the natural gas production industry.
Headquartered in Calgary, Canada, Enerflex has
approximately 2,000 employees worldwide. Enerflex, its
subsidiaries, interests in associates, and joint operations operate
in Canada, the United States of America (“USA”), Argentina,
Bolivia, Brazil, Colombia, Mexico, the United Kingdom (“UK”),
Bahrain, Kuwait, Oman, the United Arab Emirates (“UAE”), Australia,
New Zealand, Indonesia, Malaysia, and Thailand. Enerflex operates
three business segments: USA, Rest of World, and Canada. 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 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, 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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