/EINPresswire.com/ -- CALGARY, ALBERTA -- (Marketwired) -- 05/04/16 -- 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, 2016.

Summary Table of First Quarter 2016 Financial and Operating Results
(unaudited)                                  Three months ended March 31,
($ millions, except per share amounts,
 horsepower and percentages)                  2016        2015      Change
----------------------------------------------------------------------------
Revenue                                   $  271.7    $  455.5    $ (183.8)
Gross margin                                  46.4        83.5       (37.1)
EBIT (loss) gain (1)                      $  (91.1)   $   37.0    $ (128.1)
Net (loss) earnings - continuing
 operations                               $  (93.5)   $   23.5    $ (117.0)
(Loss) earnings per share - continuing
 operations                                  (1.18)       0.30       (1.48)
Recurring revenue % (2)                       35.9%       28.2%
Bookings (3)                              $   65.0    $  140.6    $  (75.6)
Backlog (3)                                  334.9       715.1      (380.2)
Rental horsepower                          498,193     419,649      78,544

(1) Earnings before Interest (Finance Costs) and Taxes ("EBIT") is
    considered an additional GAAP measure, which may not be comparable with
    similar additional GAAP measures used by other entities.
(2) Determined by taking the trailing 12-month period.
(3) Bookings and backlog are considered non-GAAP measures that do not have
    standardized meanings as prescribed by GAAP, and are therefore unlikely
    to be comparable to similar measures used by other entities.

"Our first quarter financial results reflected the continuing uncertainty surrounding commodity prices and the associated reduction in customer capital budgets. In response to declining activity levels and weaker bookings, the Company has completed multiple service branch closures, and implemented further cost reduction measures, primarily in Canada. These actions have resulted in restructuring and severance costs for the quarter", said J. Blair Goertzen, Enerflex's President and Chief Executive Officer. "We expect that these challenging conditions will continue through 2016, and as such, have recorded a goodwill impairment for the Canada segment. We are focused on controlling costs, preserving the strength of our balance sheet and generating free cash flow, positioning us to weather this prolonged downturn. We have deployed capital and will continue to pursue opportunities in those regions where there is economic growth, such as the Middle/East Africa and Latin America regions."

Quarterly Overview

--  EBIT loss for the first quarter of 2016 includes goodwill impairment of
    $92.1 million, provisions for on-going warranty disputes of $9.6
    million, severance and restructuring costs of $6.2 million, and customer
    legal dispute costs of $2.5 million.
--  Bookings lower by $75.6 million across all segments, most notably the
    USA.
--  Backlog lower by $380.2 million on reduced bookings through 2015 and
    Engineered Systems revenue exceeding bookings.
--  Closed six service branches in Canada, reduced scale of the retrofit
    business and reduced shifts at the two manufacturing locations in
    Calgary; further downsized the manufacturing and service operations in
    the United States of America ("USA").
--  Reduced headcount by 276 to just under 2,100 (compared to just over
    3,200 at March 31, 2015). Global headcount reductions in 2016 expected
    to yield $35 to $40 million annualized savings.
--  Completed the fabrication and installation of a 30,000 horsepower rental
    project in Middle East/Africa ("MEA") region.
--  Reduced net indebtedness by $39.2 million.
--  Subsequent to quarter end, declared quarterly dividend of $0.085 cents
    per share payable July 7, 2016.

Summary Quarterly Results

Net earnings for the first quarter of 2016 were lower as a result of reduced gross margin and the goodwill impairment in the Canada segment, partially offset by lower SG&A expenses and income tax recoveries. Gross margin in the first quarter decreased by $37.1 million on lower revenues in the Canada and USA segments, costs related to on-going warranty disputes, reduced absorption of overheads from reduced facilities utilization and severance costs of $1.6 million, partially offset by project margin improvements on Engineered Systems jobs and a greater proportion of higher margin recurring revenue. The goodwill impairment of $92.1 million resulted from the effect of the on-going deterioration in commodity prices and the impact on customer budgets, and therefore the outlook for activity in Canada in 2016 and beyond. SG&A expenses decreased by $2.2 million on lower compensation expense, partially offset by higher third party services as a result of customer disputes, unfavourable foreign exchange movements and restructuring costs of $2.3 million. Compensation expense decreased due to lower headcount, reduced incentive accruals based on lower profitability, and the mark-to-market impact of a larger decline in the share price during the first quarter of 2016 compared to the same quarter in 2015, partially offset by severance costs of $2.3 million.

Bookings, Backlog and Outlook

During the first quarter of 2016, the continuing commodity price challenges and reduced capital budgets for 2016 resulted in a decrease in bookings of $75.6 million across all three segments compared to the same period in 2015, with the most notable decrease occurring in the USA. The movement in exchange rates had an unfavourable impact of $13.3 million on US dollar denominated bookings during the first quarter of 2016, compared to a favourable impact of $46.6 million for the first quarter of 2015. There were no project cancellations during the first quarter of 2016. Overall, backlog fell by $92.3 million during the quarter, as the lower booking levels were more than offset by Engineered Systems revenue.

Notwithstanding the weaker markets, the Company's financial performance continues to benefit from the recurring revenue stream derived from existing and new long-term rental and service contract progress, and from a geographically diversified business. Inclusive of 30,000 compression horsepower added in the MEA region during the first quarter, the Company has added approximately 105,000 horsepower in rental projects in the MEA and Latin America regions over the last 12 months, which will continue to contribute to increased recurring revenue going forward.

Progress on 2016 Strategic Objectives

The health and safety of our employees is one of Enerflex's on-going, key strategic objectives. Although the current weak market environment has precluded meaningful progress and assessment of several 2016 objectives, the Company reduced its total recordable injury rate by 27% over the 2016 goal.

Segmented Results

Canada

Canada segment revenue in the first quarter of 2016 was $61.2 million, down $90.9 million or 60% from $152.0 million in the same period of 2015 on lower revenue across all three product lines, largely driven by the current economic environment. Engineered Systems revenue was down on lower opening backlog, which was less than half the opening backlog in 2015. Service revenue was lower on reduced parts sales and service calls, while Rental revenue decreased due to lower revenues from contracts and reduced rental unit sales. Utilization levels by horsepower were 51% compared to 67% in the first quarter of 2015.

Operating loss for the first quarter of 2016 of $11.4 million decreased by $21.0 million or 219% on lower gross margin, and higher SG&A expenses. The decrease in gross margin resulted primarily from lower revenues, in addition to increased inventory allowances, and severance costs of $1.2 million, partially offset by improved awarded margins due to the mix of engineered systems jobs. The increase in SG&A expense was attributable to severance and restructuring costs of $4.2 million associated with service branch closures and headcount reductions in Canada, partially offset by reduced compensation expense on lower headcount compared to the first quarter of 2015.

USA

USA segment revenue in the first quarter of 2016 was $109.8 million, down $97.3 million or 47% from $207.1 million a year earlier due to a decrease in Engineered Systems revenue on lower opening backlog, partially offset by higher Rental revenue attributable to an increase in revenue on customer contracts.

Operating income of $8.0 million decreased by $3.2 million or 28% during the first quarter of 2016 due to reduced gross margin, partially offset by lower SG&A expenses. Gross margin decreased primarily as a result of lower revenues, in addition to reduced absorption of overheads, in part due to severance costs of $0.3 million, and lower warranty releases, partially offset by project margin improvements and a decrease in inventory allowances taken during the quarter. The decrease in SG&A expenses were primarily a result of lower compensation on reduced headcount, and a decrease in third party services, partially offset by severance costs of $0.2 million.

Rest of World

Rest of World segment revenue in the first quarter of 2016 was $100.7 million, up $4.3 million or 4% from 2015 due to higher Engineered Systems revenue despite lower opening backlog on higher activity in the Latin America and MEA regions, partially offset by reduced activity in Australia with the restructuring underway. Rental revenue was also higher with new rental projects in the Middle East and Latin America. Service revenue decreased during the quarter on reduced activity in Australia and Asia, partially offset by increased activity with long-term service contracts in the MEA region.

Operating income of $2.1 million decreased by $10.7 million or 84% in the first quarter as a result of lower gross margin and higher SG&A expenses. The decrease in gross margin was a result of lower absorption of overheads, in part due to severance of $0.1 million, and provisions for on-going warranty disputes, partially offset by margin improvements on jobs and higher revenue. SG&A expenses increased on costs associated with unresolved customer legal disputes and unfavourable foreign exchange movements, partially offset by lower compensation expense on reduced headcount, partially offset by severance costs of $0.2 million.

During the second quarter of 2015, Enerflex initiated arbitration proceedings against Oman Oil Company Exploration and Production LLC ("OOCEP") related to previously disclosed variation claims which were submitted to OOCEP, and to approximately $30.0 million in milestone payments which are overdue and remain unpaid. These variation claims were the result of customer-driven scope and schedule changes which led to increased costs and delays with respect to the construction and delivery of a gas processing plant owned by OOCEP and located in the Sultanate of Oman. During April 2016, Enerflex submitted its detailed claim to the tribunal panel. As previously disclosed, Enerflex is currently unable to reasonably estimate when it expects this arbitration to be resolved.

Dividend

Subsequent to the end of the first quarter of 2016, Enerflex declared a quarterly dividend of $0.085 per share, payable on July 7, 2016, to shareholders of record on May 17, 2016.

Quarterly Results Material

Enerflex's Interim Condensed Financial Statements as at and for the three months ended March 31, 2016, 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 Thursday, May 5, 2016 at 8:00 a.m. MST (10:00 a.m. EST) to discuss the first quarter 2016 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 1.800.734.8592. 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, 2016 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 midnight, May 12, 2016. Please call 1.800.558.5253 or 1.416.626.4100 and enter passcode 21809523.

About Enerflex

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, 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, 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 USA markets; (ii) expected bookings; and (iii) the nature and scope of challenges and opportunities in the Rest of World segment. 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.

Contacts:
Enerflex Ltd.
J. Blair Goertzen
President & Chief Executive Officer
403.236.6852

Enerflex Ltd.
D. James Harbilas
Executive Vice President & Chief Financial Officer
403.236.6857