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 months ended March 31, 2017.
"Enerflex's first quarter financial results continue to demonstrate the momentum that we experienced over the last half of 2016. Customers remain somewhat cautious with their capital expenditures; however, we are seeing evidence that capital budgets are improving in all of our operating regions," said J. Blair Goertzen, Enerflex's President and Chief Executive Officer. "With the relative stability in commodity prices, Enerflex experienced another quarter of strong customer enquiries and bookings in North America. On the strength of these bookings, Company backlog - a leading indicator of future revenue - was 11.4% higher than at the end of 2016. Enerflex remains committed to operating with caution and controlling costs, protecting the Company's balance sheet, and generating strong free cash flow."
First Quarter Results Summary
Net earnings for the first quarter of 2017 was higher compared to the same period of 2016 primarily as a result of higher revenues, improved gross margin, and lower SG&A expenses. The increase in revenues was primarily driven by improved Engineered Systems revenues in the Canada and USA segments. Service revenues decreased slightly over the same period last year, but the declines were partially offset by higher parts sales in Canada. Rental revenues also declined over the prior year due to lower utilization and rental rates, largely in the Rest of World segment. The consolidated gross margin percentage of 20.7% for the quarter, was higher than the 17.1% margin realized in the prior year. The margin increased due to improved project profitability, improved overhead absorption, lower inventory reserves, and lower asset impairments. SG&A expenses decreased $4.7 million during the three months ended March 31, 2017 primarily as a result of the effects of restructuring activities undertaken in prior periods, partially offset by higher stock-based compensation costs driven by higher share prices. The first quarter 2017 results also reflect an $2.9 million gain on the sale of fixed assets.
The Company's geographic and product line diversification contributed to keeping margins relatively stable in a continuingly competitive and constrained economic environment caused by low commodity prices.
Canada segment revenue in the first quarter of 2017 was $76.3 million, an increase of $15.2 million or 24.8% from $61.2 million recorded in the same period of 2016. Engineered Systems revenue is reflective of the increased level of bookings from the back half of 2016. The Service product line revenue increased largely due to higher parts sales.
Operating loss for the first quarter of 2017 was $1.5 million compared to an operating loss of $11.4 million in the comparable quarter last year. This improvement resulted from higher revenues, improved gross margin and lower SG&A costs during the quarter. The increase in gross margin was the result of increased overhead absorption and lower inventory reserves. The reduction in SG&A expense was attributable to lower compensation expense on lower headcount. EBIT for the first quarter of 2017 was $1.3 million compared to an EBIT loss of $101.2 million in the first quarter of 2016. The first quarter of 2017 includes a $2.4 million gain on sale of a building. The 2016 results are unfavourably impacted by a $92.1 million goodwill impairment and $5.4 million of restructuring costs.
USA segment revenue in the first quarter of 2017 was $193.2 million, an increase of $83.4 million or 75.9% from $109.8 million a year earlier. The increase is due to higher Engineered Systems revenue, partially offset by lower Service and Rental revenue. Engineered Systems revenue increased due to the realization of the increased bookings in the back half of 2016 as compared to the back half of 2015. Service revenue was lower as a result of deferred maintenance, while Rental revenue was lower due to weaker utilization and rental rates.
Operating income increased by $14.6 million during the first quarter of 2017 due to higher revenue, higher gross margins, and decreased SG&A expenses. Gross margin increases were driven by project margin improvements and improved overhead absorption. SG&A expenses decreased primarily due to lower compensation expense on lower headcount.
Rest of World
Rest of World segment revenue in the first quarter of 2017 was $85.3 million, which decreased by $15.5 million or 15.3% from 2016 due to decreases in Engineered Systems, Service and Rental revenue. Engineered Systems revenue declined due to the completion of some larger projects in 2016, largely in the Middle East and Argentina. Service revenue remained under pressure with lower service activity in Latin America and Australia, and reduced parts sales in Australia and Asia, partially offset by higher activity in the Middle East / Africa ("MEA") region. Rental revenues have also decreased due to lower utilization and rental rates in Mexico, and slower economic conditions in some of the markets this segment services.
Stabilization of commodity prices in the second half of 2016 and first quarter of 2017 led to increased enquiries and continued strength in bookings in the first quarter, particularly in the Canada and USA segments. The Company is cautiously optimistic that further stability or improvement in commodity prices may cause customers to further increase investment, which should translate to further demand for the Company's products and services. The start of 2017 has been positive with bookings of $318.7 million, predominantly in North America. The Rest of World segment continues to experience strong enquiry levels and after the quarter, the Company recorded approximately $160 million of new customer bookings in the Middle East and Colombia. Enerflex also signed a rental contract renewal that runs for five years for 14,000 horsepower, consistent with our strategy of increasing our recurring revenue stream.
Subsequent to the end of the first quarter of 2017, Enerflex declared a quarterly dividend of $0.085 per share, payable on July 6, 2017, to shareholders of record on May 18, 2017.
Enerflex's Board of Directors
As previously outlined in Enerflex's 2017 Information Circular, Wayne S. Hill has decided not to stand for re-election to Enerflex's Board of Directors. Over the past six years, Wayne has been a vital part of Enerflex's Board, including serving as Chair of the Audit Committee and as a member of the Nominating and Corporate Governance Committee. "On behalf of the Board of Directors, Management, and Enerflex Shareholders, we would like to thank Wayne for his tremendous work and contributions and wish him well in his future endeavors," said Stephen J. Savidant, Enerflex's Chairman of the Board. The Director search has been ongoing since March 2017 and Enerflex anticipates making an announcement regarding the results of the interview process and director search in the coming weeks.
Quarterly Results Material
This press release should be read in conjunction with Enerflex's Interim Condensed Financial Statements as at and for the three months ended March 31, 2017, 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 Details
Enerflex will host a conference call for analysts, investors, members of the media, and other interested parties on Friday, May 5, 2017 at 8:00 a.m. MST (10:00 a.m. EST) to discuss the first quarter 2017 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.
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 May 5, 2017 at 8:00 a.m. MST (10:00 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 11:00 p.m. MST on May 12, 2017. Please call 1.855.859.2056 or 1.404.537.3406 and enter conference ID 8198110.
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, refrigeration systems, and electric power equipment servicing the natural gas production industry.
Headquartered in Calgary, Canada, Enerflex has approximately 1,800 employees worldwide. Enerflex, its subsidiaries, interests in associates and joint-ventures operate in Canada, the United States, Argentina, Bolivia, Brazil, Colombia, Mexico, Peru, Australia, the United Kingdom, the United Arab Emirates, Oman, Bahrain, 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.
SOURCE: Enerflex Ltd.
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