MANAGEMENT'S DISCUSSION AND ANALYSIS | August 6, 2020 |
The Management's Discussion and Analysis ("MD&A") for Enerflex Ltd. ("Enerflex" or "the Company") should be read in conjunction with the unaudited interim condensed consolidated financial statements for three and six months ended June 30, 2020 and 2019, the Company's 2019 Annual Report, the Annual Information Form for the year ended December 31, 2019, and the cautionary statement regarding forward looking information in the "Forward-Looking Statements" section of this report.
The financial information reported herein has been prepared in accordance with International Financial Reporting Standards ("IFRS") and is presented in Canadian dollars unless otherwise stated.
The MD&A focuses on information and key statistics from the unaudited interim condensed consolidated financial statements, and considers known risks and uncertainties relating to the oil and gas services sector. This discussion should not be considered all-inclusive, as it excludes possible future changes that may occur in general economic, political, and environmental conditions. Additionally, other elements may or may not occur which could affect industry conditions and/or Enerflex in the future. Additional information relating to the Company can be found in the Company's Annual Information Form and Management Information Circular, which are available on SEDAR at www.sedar.com.
FINANCIAL OVERVIEW
Three months ended | Six months ended | |||||||
June 30, | June 30, | |||||||
($ Canadian thousands, except percentages) | 2020 | 2019 | 2020 | 2019 | ||||
Revenue | $ | 287,438 | $ | 541,874 | $ | 653,178 | $ | 1,026,776 |
Gross margin | 65,800 | 110,302 | 159,532 | 199,072 | ||||
Selling and administrative expenses | 51,361 | 47,085 | 94,873 | 102,908 | ||||
Operating income | 14,439 | 63,217 | 64,659 | 96,164 | ||||
Earnings before finance costs and income taxes | ||||||||
("EBIT") | 15,428 | 64,001 | 65,440 | 97,347 | ||||
Net earnings | $ | 7,415 | $ | 40,649 | $ | 44,853 | $ | 57,618 |
Key Financial Performance Indicators1 | ||||||||
Engineered Systems bookings | $ | 42,501 | $ | 170,508 | $ | 197,895 | $ | 288,899 |
Engineered Systems backlog | 291,062 | 974,395 | 291,062 | 974,395 | ||||
Recurring revenue growth2 | (11.9)% | 23.3% | (6.0)% | 21.9% | ||||
Gross margin as a percentage of revenue | 22.9% | 20.4% | 24.4% | 19.4% | ||||
EBIT as a percentage of revenue3 | 12.1% | 10.4% | 12.1% | 10.4% | ||||
Earnings before finance costs, income taxes, | ||||||||
depreciation and amortization ("EBITDA") | $ | 37,214 | $ | 85,854 | $ | 107,965 | $ | 141,131 |
Return on capital employed ("ROCE") 3 | 11.7% | 14.6% | 11.7% | 14.6% | ||||
Rental horsepower | 698,168 | 681,414 | 698,168 | 681,414 | ||||
- Key financial performance indicators used by Enerflex to measure its performance include revenue and EBIT. Certain of these key performance indicators are non- IFRS measures. Further detail is provided in the Non-IFRS Measures section.
2 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 on a period-over-period basis.
3 Determined by taking the trailing 12-month period.
SECOND QUARTER 2020 OVERVIEW
For the three months ended June 30, 2020:
- Operating income for the second quarter of 2020 was lower than the prior year, primarily due to reduced revenue, partially offset by improved gross margin percentage. In addition, both the current period and the comparative period include the impact of higher estimated costs to complete certain projects. Lower revenue was due to the lower 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. Gross margin percentage is higher as a result of increased contributions from recurring revenue product lines and continued recognition of the previously mentioned high margin Engineered Systems projects. As these projects near completion, the Company expects gross margins from Engineered Systems will decrease and margin contribution from recurring revenues will make up a larger proportion of total gross margin.
- SG&A costs of $51.4 million in the second quarter of 2020 were up from $47.1 million in the same period last year. SG&A in the quarter includes increased bad debt provisions, driven by expected credit losses in the USA segment, and higher share- based compensation on mark-to-market movement, partially offset by cost recoveries related to government assistance programs, as well as reduced travel, marketing, and non-critical IT expenditures, and favourable foreign exchange movement. 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.
- Engineered Systems booking activity was lower in the quarter versus the prior year period, as bookings continue to be tempered by restrained spending within the oil and gas industry due to shifting supply and demand dynamics and the uncertainty caused by the COVID-19 pandemic. These factors are in addition to previously disclosed difficulties facing the industry including producers having made a general shift to funding growth capital expenditures from free cash flow, constrained access to capital for producers, uncertainty around global trade dynamics, and political uncertainty. Bookings totaled $42.5 million, down from $170.5 million in the same period last year. The movement in exchange rates resulted in a decrease of $9.6 million on foreign currency denominated backlog during the second quarter of 2020, compared to a $13.7 million decrease in the comparable period - a $4.1 million period-over-period improvement. Reduced capital spending within the sector continues to negatively impact bookings activity for Enerflex's Engineered Systems business. The Company has enacted measures to align costs with revenue levels expected from the Engineered Systems business, including reducing its variable workforce, implementing reduced work schedules and unpaid days off in certain geographies, and restricting all non- essential travel. Additional measures may be implemented in response to market conditions.
- The Company continues to manage working capital and has slowed supply chain transactions to align with anticipated market activity. Inventory levels at June 30, 2020 were slightly higher than at December 31, 2019 due to purchases of major equipment with long lead times, which were ordered in prior periods and delivered in 2020. Inventory levels have decreased from March 31, 2020, as these deliveries were front-loaded in the year, and the Company expects to continue to realize this major equipment inventory into Engineered Systems projects and new contract compression units, however the timing and extent to which inventory can be utilized is dependent on demand. In addition, the collectability of accounts receivable becomes increasingly pertinent in periods of slower industry activity. The Company's large geographic footprint and diversification of products and services assists in mitigating counterparty credit risk that can result from customer concentration. Enerflex remains vigilant in assessing outstanding receivables and has implemented additional monitoring processes in assessing the credit worthiness of customers. During the second quarter of 2020, management identified certain receivable balances in the USA segment that may be at higher risk of credit loss as a result of recent events, leading to an increase in the allowance for doubtful accounts provision at June 30, 2020. The Company believes the current provision appropriately reflects the best estimate of its future expected credit losses.
- For the three months ended June 30, 2020, the Company invested $30.0 million in rental assets to fund both the organic expansion of the USA contract compression fleet and continued construction of four previously announced Build-Own-Operate-Maintain ("BOOM") projects. At June 30, 2020, the USA contract compression fleet totaled approximately 335,000 horsepower. Average fleet utilization during the quarter was 82 percent. In addition, we continue to progress on all previously announced BOOM projects. However, COVID-19-related travel restrictions and limitations on worksite access may delay three of these BOOM projects that were previously expected to commence operations by mid-2020. Despite the challenges faced, the Company continues to make progress on these BOOM projects and anticipates commencement dates at various times through mid- to late-2020.
- 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.
2
- 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. 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.
For the six months ended June 30, 2020:
- Operating income for the first half of 2020 decreased over the prior year, due largely to lower revenue, partially offset by improved gross margin percentage. Both the current period and the comparative period also include the impact of higher estimated costs to complete certain projects, while the comparative period also includes a write-down of equipment. Gross margin percentage is higher as a result of increased contributions from recurring revenue product lines and continued recognition of the previously mentioned high margin Engineered Systems projects.
- SG&A costs of $94.5 million in the first six months of 2020 were down from $102.9 million in the same period last year. The decrease in SG&A is driven by lower compensation expense on mark-to-market impacts on share-based compensation and recoveries related to government assistance programs, partially offset by increased bad debt provisions, driven by expected credit losses in the USA segment.
- Engineered Systems booking activity was lower in the first six months of 2020 versus the prior year period due to restrained spending within the oil and gas industry, as described above. The movement in exchange rates resulted in an increase of $16.0 million on foreign currency denominated backlog during the first half of 2020, compared to a $35.1 million decrease in the comparable period - a $51.1 million period-over-period increase.
- Engineered Systems backlog decreased compared to the balance at December 31, 2019 due to Engineered Systems revenue recognized in the period outpacing bookings, partially offset by favourable foreign exchange impacts.
ADJUSTED EBITDA
The 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 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.
Three months ended | ||||||||
June 30, 2020 | ||||||||
($ Canadian thousands) | Total | USA | ROW | Canada | ||||
Reported EBIT | $ | 15,428 | $ | 6,751 | $ | 3,817 | $ | 4,860 |
Severance costs in COGS and SG&A | 1,981 | 509 | 91 | 1,381 | ||||
Government grants in COGS and SG&A | (6,370) | - | (593) | (5,777) | ||||
Share-based compensation | 690 | 435 | 177 | 78 | ||||
Depreciation and amortization | 21,786 | 10,662 | 8,955 | 2,169 | ||||
Adjusted EBITDA | $ | 33,515 | $ | 18,357 | $ | 12,447 | $ | 2,711 |
Management's Discussion and Analysis | 2020 Quarterly Report | 3 |
Three months ended | |||||||||
June 30, 2019 | |||||||||
($ Canadian thousands) | Total | USA | ROW | Canada | |||||
Reported EBIT | $ | 64,001 | $ | 49,832 | $ | 2,843 | $ | 11,326 | |
Gain on disposal of idle facilities | (434) | - | - | (434) | |||||
Share-based compensation | (1,906) | (1,050) | (638) | (218) | |||||
Depreciation and amortization | 21,853 | 8,367 | 10,990 | 2,496 | |||||
Adjusted EBITDA | $ | 83,514 | $ | 57,149 | $ | 13,195 | $ | 13,170 | |
Six months ended | |||||||||
June 30, 2020 | |||||||||
($ Canadian thousands) | Total | USA | ROW | Canada | |||||
Reported EBIT | $ | 65,440 | $ | 44,135 | $ | 14,073 | $ | 7,232 | |
Severance costs in COGS and SG&A | 3,015 | 796 | 124 | 2,095 | |||||
Government grants in COGS and SG&A | (6,370) | - | (593) | (5,777) | |||||
Share-based compensation | (4,399) | (2,258) | (1,386) | (755) | |||||
Depreciation and amortization | 42,525 | 20,576 | 17,507 | 4,442 | |||||
Adjusted EBITDA | $ | 100,211 | $ | 63,249 | $ | 29,725 | $ | 7,237 | |
Six months ended | |||||||||
June 30, 2019 | |||||||||
($ Canadian thousands) | Total | USA | ROW | Canada | |||||
Reported EBIT | $ | 97,347 | $ | 75,654 | $ | 4,825 | $ | 16,868 | |
Write-off of facility and equipment in COGS | 2,040 | - | 2,040 | - | |||||
Gain on disposal of idle facilities | (434) | - | - | (434) | |||||
Share-based compensation | 7,477 | 4,099 | 1,660 | 1,718 | |||||
Depreciation and amortization | 43,784 | 16,008 | 22,675 | 5,101 | |||||
Adjusted EBITDA | $ | 150,214 | $ | 95,761 | $ | 31,200 | $ | 23,253 | |
Please refer to the section "Segmented Results" for additional information about results by geographic location.
ENGINEERED SYSTEMS BOOKINGS AND BACKLOG
Bookings and backlog are monitored by Enerflex as an indicator of future revenue and business activity levels for the Engineered Systems product line. Bookings are recorded in the period when a firm commitment or order is received from customers. Bookings increase backlog in the period that they are received. Revenue recognized on Engineered Systems products decreases backlog in the period that the revenue is recognized. As a result, backlog is an indication of revenue to be recognized in future periods using percentage-of- completion accounting.
4 | Enerflex Ltd. | 2020 Quarterly Report |
The following tables set forth the Engineered Systems bookings and backlog by reporting segment for the following periods:
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June 30, | June 30, | ||||||||
($ Canadian thousands) | 2020 | 2019 | 2020 | 2019 | |||||
Bookings | |||||||||
USA | $ | 13,433 | $ | 96,713 | $ | 109,540 | $ | 171,858 | |
Rest of World | 6,804 | 14,996 | 41,297 | 16,564 | |||||
Canada | 22,264 | 58,799 | 47,058 | 100,477 | |||||
Total bookings | $ | 42,501 | $ | 170,508 | $ | 197,895 | $ | 288,899 | |
June 30, | December 31, | ||||||||
($ Canadian thousands) | 2020 | 2019 | |||||||
Backlog | |||||||||
USA | $ | 150,696 | $ | 320,054 | |||||
Rest of World | 43,393 | 8,941 | |||||||
Canada | 96,973 | 138,762 | |||||||
Total backlog | $ | 291,062 | $ | 467,757 | |||||
Engineered Systems bookings in the second quarter and first half of 2020 were lower than the comparative period, as bookings continue to be tempered by restrained spending within the oil and gas industry due to recent commodity price weakness and the uncertainty caused by the COVID-19 pandemic. These factors are in addition to previously disclosed difficulties facing the industry, including producers having made a general shift to funding growth capital expenditures from free cash flow, constrained access to capital for producers, uncertainty around global trade dynamics, and political uncertainty, and in some cases may serve to accentuate these issues. The Company expects bookings levels to remain subdued in the short-term and has implemented certain cost saving measures in response to unfavourable market conditions.
Backlog at June 30, 2020 was lower than at December 31, 2019 due to Engineered Systems revenue recognized outpacing bookings, partially offset by favourable foreign exchange impacts on foreign currency denominated backlog. The movement in exchange rates resulted in a decrease of $9.6 million during the second quarter and an increase of $16.0 million during the first half of 2020 on foreign currency denominated backlog, compared to a decrease of $13.7 million and $35.1 million in the same periods of 2019.
SEGMENTED RESULTS
Enerflex has identified three reportable operating segments as outlined below, each supported by the Corporate function. Corporate overheads are allocated to the operating segments based on revenue. In assessing its operating segments, the Company considered economic characteristics, the nature of products and services provided, the nature of production processes, the type of customer for its products and services, and distribution methods used.
The following summary describes the operations of each of the Company's reportable segments:
- USA generates revenue from manufacturing natural gas compression and processing equipment, including custom and standard compression packages and modular natural gas processing equipment and refrigeration systems, in addition to generating revenue from mechanical services and parts, operations and maintenance solutions, and contract compression rentals;
- Rest of World generates revenue from manufacturing (focusing on large-scale process equipment), after-market services, including parts and components, as well as operations, maintenance, and overhaul services, and rentals of compression and processing equipment. The Rest of World segment has been successful in securing BOOM and ITK projects; and
- Canada generates revenue from manufacturing both custom and standard natural gas compression, processing, and electric power equipment, as well as providing after-market mechanical service, parts, and compression and power generation rentals.
Management's Discussion and Analysis | 2020 Quarterly Report | 5 |
USA SEGMENT RESULTS
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June 30, | June 30, | |||||||
($ Canadian thousands) | 2020 | 2019 | 2020 | 2019 | ||||
Engineered Systems bookings | $ | 13,433 | $ | 96,713 | $ | 109,540 | $ | 171,858 |
Engineered Systems backlog | 150,696 | 599,418 | 150,696 | 599,418 | ||||
Segment revenue | $ | 179,440 | $ | 337,411 | $ | 408,621 | $ | 642,302 |
Intersegment revenue | (2,042) | (10,343) | (4,114) | (22,717) | ||||
Revenue | $ | 177,398 | $ | 327,068 | $ | 404,507 | $ | 619,585 |
Revenue - Engineered Systems | $ | 113,282 | $ | 263,041 | $ | 278,898 | $ | 503,035 |
Revenue - Service | $ | 41,307 | $ | 44,800 | $ | 79,568 | $ | 80,643 |
Revenue - Rentals | $ | 22,809 | $ | 19,227 | $ | 46,041 | $ | 35,907 |
Operating income | $ | 6,751 | $ | 49,832 | $ | 44,135 | $ | 75,673 |
EBIT | $ | 6,751 | $ | 49,832 | $ | 44,135 | $ | 75,654 |
EBITDA | $ | 17,413 | $ | 58,199 | $ | 64,711 | $ | 91,662 |
Segment revenue as a % of total revenue | 61.7% | 60.4% | 61.9% | 60.3% | ||||
Recurring revenue growth | 0.1% | 36.2% | 7.8% | 32.9% | ||||
Operating income as a % of segment revenue | 3.8% | 15.2% | 10.9% | 12.2% | ||||
EBIT as a % of segment revenue | 3.8% | 15.2% | 10.9% | 12.2% | ||||
EBITDA as a % of segment revenue | 9.8% | 17.8% | 16.0% | 14.8% | ||||
Engineered Systems bookings of $13.4 million in the second quarter of 2020 represents a decrease of $83.3 million or 86.1 percent compared to the same period in the prior year. Bookings activity continues to be lower than historical levels due to several factors, including a severe downturn in oil prices caused by shifting supply and demand dynamics, as well as market uncertainty caused by the COVID-19 pandemic. These factors are in addition to previously disclosed difficulties facing the industry, including producers having made a general shift to funding growth capital expenditures from free cash flow, constrained access to capital for producers, uncertainty around global trade dynamics, and political uncertainty. The Company expects bookings levels to remain subdued in the short-term and has implemented certain cost saving measures in response to unfavourable market conditions.
Revenue decreased by $149.7 million and $215.1 million in the second quarter and first half of 2020 compared to the same periods of 2019 due largely to lower Engineered Systems and Service revenue, partially offset by higher Rentals revenue. 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. Rentals revenue increased due to the organic growth of the contract compression fleet, which grew by 28.6 percent on a horsepower basis in the last year.
Operating income was lower in the second quarter and first half of 2020 compared to the prior year by $43.1 million and $31.5 million, primarily due to lower gross margins. Gross margins decreased due to lower revenue on soft bookings from 2019 and the first half of 2020, as well as the reduced contribution from certain large, high margin Engineered Systems projects that were booked during the second half of 2018 as they near completion. The second quarter of 2020 was also impacted by higher SG&A costs, the result of bad debt provisions taken in the second quarter of 2020, as management identified certain receivable balances in the USA segment that may be at higher risk of credit loss as a result of recent events. For the six months ended June 30, 2020, SG&A decreased due to lower compensation costs, driven by mark-to-market impacts on share-based compensation, partially offset by higher bad debt provisions.
At June 30, 2020, the USA contract compression fleet totaled approximately 335,000 horsepower, compared to approximately 310,000 horsepower at December 31, 2019. The average utilization of the USA contract compression fleet for the three and six months ended June 30, 2020 was 82 percent and 84 percent, respectively, compared to 87 percent and 87 percent in the comparative periods.
6 | Enerflex Ltd. | 2020 Quarterly Report |
REST OF WORLD SEGMENT RESULTS
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June 30, | June 30, | |||||||
($ Canadian thousands) | 2020 | 2019 | 2020 | 2019 | ||||
Engineered Systems Bookings | $ | 6,804 | $ | 14,996 | $ | 41,297 | $ | 16,564 |
Engineered Systems Backlog | 43,393 | 40,315 | 43,393 | 40,315 | ||||
Segment revenue | $ | 59,533 | $ | 91,821 | $ | 129,808 | $ | 193,086 |
Intersegment revenue | - | (113) | - | (7,575) | ||||
Revenue | $ | 59,533 | $ | 91,708 | $ | 129,808 | $ | 185,511 |
Revenue - Engineered Systems | $ | 189 | $ | 20,169 | $ | 6,845 | $ | 46,749 |
Revenue - Service1 | $ | 22,850 | $ | 29,559 | $ | 46,730 | $ | 57,627 |
Revenue - Rentals1 | $ | 36,494 | $ | 41,980 | $ | 76,233 | $ | 81,135 |
Operating income | $ | 3,807 | $ | 2,869 | $ | 14,020 | $ | 4,827 |
EBIT | $ | 3,817 | $ | 2,843 | $ | 14,073 | $ | 4,825 |
EBITDA | $ | 12,772 | $ | 13,833 | $ | 31,580 | $ | 27,500 |
Segment revenue as a % of total revenue | 20.7% | 16.9% | 19.9% | 18.1% | ||||
Recurring revenue growth | (17.0)% | 10.0% | (11.4)% | 10.8% | ||||
Operating income as a % of segment revenue | 6.4% | 3.1% | 10.8% | 2.6% | ||||
EBIT as a % of segment revenue | 6.4% | 3.1% | 10.8% | 2.6% | ||||
EBITDA as a % of segment revenue | 21.5% | 15.1% | 24.3% | 14.8% | ||||
- Revenues from the operation and maintenance of BOOM contracts have been reclassified from the Service to Rentals product line including $11,717 previously disclosed during the first quarter of 2020. For the three and six months ended June 30, 2019, $10,744 and $21,400 have been reclassified. Please refer to Note 12 of the unaudited interim condensed consolidated financial statements for further details.
Engineered Systems bookings in the Rest of World segment are typically larger in nature and scope and as a result are less frequent.
Rest of World revenue decreased by $32.3 million and $55.7 million in the second quarter and first half of 2020 compared to the same period in the prior year due to 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 a reduction in parts and equipment sales and Rentals revenues decreased due to lower utilization of the rental fleet in Latin America.
Operating income increased by $0.9 million and $9.2 million in the second quarter and first half of 2020 compared to the same period of 2019. The current quarter increase is driven by improved gross margin percentage as well as lower SG&A costs due to reduced travel, marketing, and non-critical IT expenditures, as well as favourable foreign exchange movements. The improvement in the first half of 2020 was due to higher gross margin percentage and the non-recurrence of write-downs of equipment included in the comparative period, as well as lower SG&A costs on mark-to-market impacts on share-based compensation.
Management's Discussion and Analysis | 2020 Quarterly Report | 7 |
CANADA SEGMENT RESULTS
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June 30, | June 30, | |||||||
($ Canadian thousands) | 2020 | 2019 | 2020 | 2019 | ||||
Engineered Systems bookings | $ | 22,264 | $ | 58,799 | $ | 47,058 | $ | 100,477 |
Engineered Systems backlog | 96,973 | 334,662 | 96,973 | 334,662 | ||||
Segment revenue | $ | 51,182 | $ | 122,769 | $ | 120,535 | $ | 231,167 |
Intersegment revenue | (675) | 329 | (1,672) | (9,487) | ||||
Revenue | $ | 50,507 | $ | 123,098 | $ | 118,863 | $ | 221,680 |
Revenue - Engineered Systems | $ | 35,726 | $ | 101,743 | $ | 88,847 | $ | 180,631 |
Revenue - Service | $ | 12,877 | $ | 18,093 | $ | 25,712 | $ | 35,042 |
Revenue - Rentals | $ | 1,904 | $ | 3,262 | $ | 4,304 | $ | 6,007 |
Operating income | $ | 3,881 | $ | 10,516 | $ | 6,504 | $ | 15,664 |
EBIT | $ | 4,860 | $ | 11,326 | $ | 7,232 | $ | 16,868 |
EBITDA | $ | 7,029 | $ | 13,822 | $ | 11,674 | $ | 21,969 |
Segment revenue as a % of total revenue | 17.6% | 22.7% | 18.2% | 21.6% | ||||
Recurring revenue growth | (30.8)% | 40.1% | (26.9)% | 36.5% | ||||
Operating income as a % of segment revenue | 7.7% | 8.5% | 5.5% | 7.1% | ||||
EBIT as a % of segment revenue | 9.6% | 9.2% | 6.1% | 7.6% | ||||
EBITDA as a % of segment revenue | 13.9% | 11.2% | 9.8% | 9.9% | ||||
Bookings in the second quarter of 2020 decreased to $22.3 million from $58.8 million a year ago, predominantly due to several factors, including a severe downturn in oil prices caused by shifting supply and demand dynamics, as well as market uncertainty caused by the COVID-19 pandemic. These factors are in addition to previously disclosed difficulties facing the industry, including producers having made a general shift to funding growth capital expenditures from free cash flow, constrained access to capital for producers, uncertainty around global trade dynamics, and political uncertainty. The Company expects bookings levels to remain subdued in the short-term and has implemented certain cost saving measures in response to unfavourable market conditions.
Revenue decreased by $72.6 million and $102.8 million for the second quarter and first half of 2020 compared to the same periods in 2019, primarily due to lower Engineered Systems revenue on a lower opening backlog. In addition, Service and Rentals revenues were down due to lower equipment sales and reseller activity.
The Canadian segment recorded an operating income of $3.9 million and $6.5 million for the second quarter and first half of 2020 compared to $10.5 million and $15.7 million in the same period of 2019. Operating income decreased due to 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.
8 | Enerflex Ltd. | 2020 Quarterly Report |
GROSS MARGIN BY PRODUCT LINE
Enerflex operates three business segments, and each regional business segment has three main product lines: Engineered Systems, Service, and Rentals. The Engineered Systems product line consists of the supply of equipment systems, typically involving engineering, design, manufacturing, installation, construction and the start-up of equipment. The Service product line provides after-market services, parts distribution, operations and maintenance solutions, equipment optimization and maintenance programs, manufacturer warranties, exchange components, and technical services. The Rentals product line encompasses a fleet of natural gas compression, processing, and electric power equipment totalling over 695,000 horsepower on rent or available for rent globally, generating revenue from rental agreements, and the sale of rental equipment to customers. In addition to Enerflex's rental fleet, the Company's Rentals product line provides customers with personnel, equipment, tools, materials, and supplies to meet their natural gas compression, processing, and electric power needs, as well as designing, sourcing, owning, installing, operating, servicing, repairing, and maintaining equipment owned by the Company necessary to provide these services, including providing operation and maintenance as part of a BOOM agreement.
Recurring revenue is comprised of revenue from the Service and Rentals product lines, which are typically contracted and extend into the future. The Company aims to diversify and expand Service and Rentals offerings, which we believe offer longer-term stability in earnings compared to Engineered Systems revenue, which historically has been dependent on cyclical demand for new compression, process, and electric power equipment. While individual Service and Rentals contracts are subject to cancellation or have varying lengths, the Company does not believe these characteristics preclude these product lines from being considered recurring in nature.
Three months ended | |||||||||||
June 30, 2020 | |||||||||||
Engineered | |||||||||||
($ Canadian thousands) | Total | Systems | Service | Rentals | |||||||
Revenue | $ | 287,438 | $ | 149,197 | $ | 77,034 | $ | 61,207 | |||
Cost of goods sold: | |||||||||||
Operating expenses | 204,627 | 124,448 | 58,504 | 21,675 | |||||||
Depreciation and amortization | 17,011 | 2,139 | 1,234 | 13,638 | |||||||
Gross margin | $ | 65,800 | $ | 22,610 | $ | 17,296 | $ | 25,894 | |||
Three months ended | |||||||||||
June 30, 2019 | |||||||||||
Engineered | |||||||||||
($ Canadian thousands) | Total | Systems | Service | Rentals | |||||||
Revenue | $ | 541,874 | $ | 384,953 | $ | 92,452 | $ | 64,469 | |||
Cost of goods sold: | |||||||||||
Operating expenses | 415,013 | 316,921 | 72,364 | 25,728 | |||||||
Depreciation and amortization | 16,559 | 1,572 | 679 | 14,308 | |||||||
Gross margin | $ | 110,302 | $ | 66,460 | $ | 19,409 | $ | 24,433 | |||
Six months ended | |||||||||||
June 30, 2020 | |||||||||||
Engineered | |||||||||||
($ Canadian thousands) | Total | Systems | Service | Rentals | |||||||
Revenue | $ | 653,178 | $ | 374,590 | $ | 152,010 | $ | 126,578 | |||
Cost of goods sold: | |||||||||||
Operating expenses | 460,622 | 297,781 | 116,556 | 46,285 | |||||||
Depreciation and amortization | 33,024 | 4,249 | 2,058 | 26,717 | |||||||
Gross margin | $ | 159,532 | $ | 72,560 | $ | 33,396 | $ | 53,576 | |||
Management's Discussion and Analysis | 2020 Quarterly Report | 9 |
Six months ended | ||||||||||
June 30, 2019 | ||||||||||
Engineered | ||||||||||
($ Canadian thousands) | Total | Systems | Service | Rentals | ||||||
Revenue | $ | 1,026,776 | $ | 730,415 | $ | 173,312 | $ | 123,049 | ||
Cost of goods sold: | ||||||||||
Operating expenses | 794,309 | 608,671 | 136,978 | 48,660 | ||||||
Depreciation and amortization | 33,395 | 3,058 | 1,333 | 29,004 | ||||||
Gross margin | $ | 199,072 | $ | 118,686 | $ | 35,001 | $ | 45,385 | ||
INCOME TAXES
Income tax expense totaled $1.8 million or 19.9 percent and $8.5 million or 15.9 percent of earnings before tax for the second quarter and first half of 2020, compared to $19.2 million or 32.1 percent and $31.2 million or 35.1 percent of earnings before tax in the same period of 2019. Income tax expense and the effective tax rate for the second quarter of 2020 were lower primarily due to reduced earnings before tax and a lower statutory rate, partially offset by the exchange rate effects on tax basis and amounts not deductible for tax purposes. Income tax expense and the effective tax rate for the first half of 2020 were lower primarily due to reduced earnings before tax, a lower statutory rate, the exchange rate effects on tax basis, and the effect of earnings taxed in foreign jurisdictions, partially offset by amounts not deductible for tax purposes. During the second quarter of 2019, lower Alberta corporate income tax rates became substantially enacted, which will reduce Enerflex's taxes in future periods. The Alberta corporate income tax rates are 11.5 percent for 2019, 10.0 percent for 2020, 9.0 percent for 2021, and 8.0 percent for 2022 and thereafter.
OUTLOOK
Enerflex's financial performance derives from strategic decisions to: 1) diversify product offerings for Engineered Systems; 2) focus on increasing the recurring revenue streams derived from new and existing long-term BOOM, rental, and service contracts; and 3) develop a geographically diversified business. Enerflex's capital allocation priorities in recent years have been oriented toward stabilizing cash flows and making the Company more resistant to the natural, yet unpredictable, cyclicality in commodity markets. Priorities have included significant investments in recurring revenue projects in the USA and ROW segments. While the current reduction in global oil and natural gas demand will significantly impact demand for Enerflex's products and services, these investments are expected to assist in stabilizing the Company's cash flow throughout this downturn.
Demand for the Company's Engineered Systems product offerings remains dependent on global capital investment in oil and natural gas, and all product lines are put under pressure when the macro environment is weakened. Uncertainty caused by a number of recent factors, most prominent being the COVID-19 pandemic and changes in supply and demand for oil, has reduced investment levels across the energy industry and tempered expectations for activity levels through 2020 and into 2021. These dynamics are in addition to previously disclosed difficulties facing the industry including: 1) producers having made a general shift to funding growth capital expenditures from free cash flow; 2) constrained access to capital markets for producers; 3) uncertainty around global trade dynamics; and 4) political uncertainty, and in some cases may serve to accentuate these issues.
Currently, North America presents the area of greatest uncertainty for Enerflex. Engineered Systems revenues in the Canada and USA regions are likely to experience pressure through 2020 and into 2021, though order flow is seeing some success from non-traditional applications. The outlook for business lines oriented toward our customers' opex in North America, namely Service and Rentals, appears to have stabilized in the near-term. As previously announced, growth capital expenditures on new rental fleet assets in the USA have been reduced to include only expenditures connected to existing contractual obligations. Notwithstanding, the Company's current financial position affords it some flexibility to pursue additional growth opportunities, should they arise when the macro environment is more constructive. Overall, asset ownership continues to represent a very important growth prospect for the Company and we intend to continue deploying capital to this higher-margin,less-cyclical business, provided returns and growth prospects remain attractive through the short-term uncertainty currently being experienced.
The ROW segment is less dependent on Engineered Systems to drive operating results, as long-term contracts for Service and Rentals make cash flows more predictable than the North American regions. In the Middle East, we have seen increasing interest for new assets
10 | Enerflex Ltd. | 2020 Quarterly Report |
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 which are expected to come online in 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.
While the Company's recent financial performance has benefitted from strong Engineered Systems project work and significant growth in the recurring revenue streams derived from its asset ownership and after-market services product lines, any continuation of market weakness may cause the Company's customers to further reduce capital budgets while simultaneously instituting cost cutting measures, thereby reducing demand for Enerflex's products and services, including reduced demand for rentals due to production shut-ins.
Enerflex previously disclosed measures instituted to preserve the strength of our balance sheet and maximize free cash flow in the first quarter of 2020. At June 30, 2020, expected cost savings resulting from workforce and compensation reductions are in line with expectations as previously disclosed. In addition, the Company has received grant funding in the Canada and ROW segments to mitigate further job losses in jurisdictions with grant programs. In the second quarter of 2020, the Company was effective in reducing travel, marketing, and non-critical IT expenditures. Growth capital expenditures in the first half of 2020 totaled $88.3 million, and the Company expects full year growth capital expenditures of approximately $110 million, subject to foreign exchange fluctuations between the U.S. and Canadian dollar, up from approximately $90 million previously disclosed. This increase is 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. Maintenance capital expenditures are expected to be $15-20 million, subject to the scope of maintenance activities required and foreign exchange fluctuations between the U.S. and Canadian dollar, up from approximately $15 million previously disclosed. The dividend declared in the second quarter represented an 83 percent reduction from the last quarter, and 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.
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. In the longer term, the Company continues to balance the expected impacts of broader market factors, such as volatility in realized commodity prices, political and economic uncertainty, and consistent access to market, against the projected increases in global demand for natural gas. Enerflex continues to assess the effects of these contributing factors and the corresponding impact on customer activity levels, which will drive the demand for the Company's products and services in future periods.
OUTLOOK BY SEGMENT
USA
The recent performance of the USA segment has been driven by a combination of international equipment orders, the U.S. industry's investment in shale oil and gas, and continued demand for the aftermarket service and contract compression product offerings. While the U.S. industry at large, and growth in the Permian in particular, have been impacted by global events, the Company believes that the increased presence of larger, more patient producers in the Permian is supportive of the formation's long-term production and value. Increased activity by dry gas producers and the presence of Enerflex in 21 locations covering key resource plays including the Marcellus, Utica, Haynesville, and Niobrara positions the Company to capture further demand for Engineered Systems products and fullstream solutions, as well as contract compression assets to improve performance in maturing fields. The Company's contract compression fleet consists of approximately 335,000 horsepower, providing a more stable and predictable revenue source that the Company intends to continue to leverage and grow through 2020 and beyond, provided returns and growth prospects remain attractive. Given the current commodity price environment, producers in the USA segment may continue to shut in production, which would reduce production volumes and negatively impact demand for Enerflex's products and services.
Rest of World
In the Rest of World segment, the Company continues to generate strong recurring revenue in both the MEA and Latin America regions. MEA continues to provide stable rental earnings with a rental fleet of approximately 100,000 horsepower. The Company continues to explore new markets and opportunities within this region, focusing on projects that provide long-term, stable cash flows.
In Latin America, Enerflex remains cautiously optimistic as many countries have indicated a renewed desire to develop oil and natural gas in recent periods. With investment opportunities becoming available, the global energy industry is returning to various prolific plays
Management's Discussion and Analysis | 2020 Quarterly Report | 11 |
within the region, although reduced exploration budgets and a greater aversion to risk may temper this return. The Company is well positioned to provide products and services, and believes that there are near-term prospects within Argentina, Bolivia, Brazil, and Colombia, and mid- to longer-term prospects in Mexico.
Enerflex continues to make progress on the construction of previously awarded BOOM projects in MEA and Latin America. However, COVID-19-related travel restrictions and limitations on worksite access are expected to delay the dates on which certain of these projects were expected to commence operations and begin generating revenue. Despite the challenges faced, the Company continues to make progress on these BOOM projects and anticipates commencement dates at various times through mid- to late-2020.
In Australia, demand for Enerflex service and maintenance support remains solid. Liquified natural gas ("LNG") supply contracts are providing a stable demand for gas. Downward pressure on production costs are increasing customers' desire to improve equipment reliability and efficiency and Enerflex is well positioned to support production equipment optimization and improve reliability. Capital equipment demand in the Australian market has seen a slow down in response to the current economic environment; however, multiple new opportunities have been approved by customers, despite the challenges presented by the decrease in oil prices and the COVID-19 pandemic. While Enerflex remains optimistic that these opportunities will continue to drive demand for the Company's products and services towards the second half of 2020, Enerflex is prepared to respond should our customer needs fall off sharply.
Canada
The Company expects that recent global developments will further constrain spending in the Canadian energy sector, exacerbating conditions faced by an industry that was already experiencing negative sentiment and a lack of consistent access to market. The combination of restricted access to financing in Canada, depressed oil prices and the impact of COVID-19 has raised significant doubt in the Canadian energy industry, which producers across the sector have responded to by reducing capital budgets. As long as current global forces continue to bring market uncertainty, the Company expects limited development potential in Canada. While progress is being made on pipelines and certain LNG projects, raising the likelihood of export capacity and offering some future relief to the Canadian gas industry, management still expects activity in Canada to be very subdued through 2020 and into 2021.
ENERFLEX STRATEGY
Enerflex's global vision is "Transforming natural gas to meet the world's energy needs". The Company's strategy to support this vision centres on being an operationally focused, diversified, financially strong, dividend-paying company that delivers profitable growth by serving an expanding industry in seven gas producing regions worldwide. Enerflex believes that worldwide diversification and growth enhances shareholder value. This strategy has allowed the Company to overcome previous downturns and endure recent uncertainty while still delivering strong operating results. With a positive long-term outlook for natural gas, Enerflex aims to provide superior returns through the continued implementation of this strategy.
Across the Company, Enerflex looks to leverage its diversified international positioning to provide exposure to projects in growing natural gas markets, and to offer integrated solutions spanning all phases of a project's life-cycle from engineering and design through to after-market service, with a focus on recurring revenue from Service and Rentals offerings. The Company works to leverage its enterprise-wide collaborative approach to deploy key expertise worldwide and generate repeat business from internationally active customers. The Company also targets growth areas in the traditional natural gas industry, including the increasing global demand for natural gas-fired power generation. Enerflex has developed regional strategies to support its Company-wide goals.
In the USA segment, Enerflex has concentrated its efforts on key regions and basins, driven by the U.S.'s increasingly complex natural gas sector. The Company has looked to build on its successes for gas processing solutions for liquids-rich plays in the region, and support the development of upstream resources and midstream infrastructure required to feed local demand and an export-focused LNG industry. For our recurring revenue product lines, the focus for the Service business has been on optimizing across the region while responding to market demand in all locations. For the Rentals product line, the organic expansion of the contract compression fleet has allowed Enerflex to increase revenues, while the Company's ability to design, engineer, and build contract compression units positions Enerflex well to respond to future growth in the segment. The Company believes that the long-term impact of continued focus on these recurring revenue product lines will be increased predictability and stability in earnings, while investment in the contract compression fleet should drive growth and strong returns for the Rentals business.
12 | Enerflex Ltd. | 2020 Quarterly Report |
Enerflex has focused its efforts in the ROW segment on growing primarily in the MEA and Latin America regions, through the sales, rental, and service of its products. In these regions, the Company has targeted ITK projects and BOOM solutions of varying size and scope, including projects requiring construction and installation support at site. Successful projects have been completed in Bahrain, Kuwait, and Oman in MEA, and in Argentina, Brazil, and Colombia in Latin America, and multiple projects secured in previous periods are scheduled to commence operations and begin generating recurring revenue in mid- to late-2020. Enerflex underscores the importance of BOOM solutions in this segment, as long-term contracts for rental and maintenance of this equipment align with the emphasis on growing recurring revenue streams and customers in this segment have proven to be receptive to these solutions. The Company has also seen increased interest in electric power solutions in many of the regions in the ROW segment, and looks to leverage expertise developed across the organization to meet this demand. Elsewhere in the segment, Enerflex has expanded the capability of the Company's Australian Service line in response to activity levels, which are projected to remain high on the strength of increasing demand for natural gas, contributing to recurring revenue.
Enerflex has aimed its efforts in Canada on leveraging its capabilities and expertise to continue to preserve market share in the natural gas sector, particularly in liquids-rich reservoirs, and to support the development of natural gas resources for a future LNG industry. In addition, the Company has looked to build on its successes in the electric power market given sustained low natural gas prices and the resulting increase in demand for natural gas-fired power generation. The Company is able to offer electric power solutions for purchase or for rent, the latter of which allows the Company to offer flexibility and provide maintenance while increasing recurring revenues. Lastly, there has been a focus on signing long-term service and maintenance contracts with customers in order to secure stability in Service revenues.
Enerflex seeks to continue to diversify its revenue streams from multiple markets, grow its backlog, and ensure profitable margins globally by aggressively managing costs, with a medium-term goal of achieving a 10 percent EBIT margin. In addition, the Company is focused on expanding the diversification of its product lines, with a goal to increase recurring revenue by 10 percent annually. Enerflex recognizes that the current economic conditions may make it challenging to meet these goals in the near-term but the Company believes these remain appropriate as medium-term and longer-term goals.
Management's Discussion and Analysis | 2020 Quarterly Report | 13 |
NON-IFRS MEASURES
The success of the Company and its business unit strategies is measured using a number of key performance indicators, some of which do not have a standardized meaning as prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. These non-IFRS measures are also used by management in its assessment of relative investments in operations and include Engineered Systems bookings and backlog, recurring revenue, EBITDA, net debt to EBITDA ratio, and ROCE. They should not be considered as an alternative to net earnings or any other measure of performance under IFRS. The reconciliation of these non-IFRS measures to the most directly comparable measure calculated in accordance with IFRS is provided below where appropriate. Engineered Systems bookings and backlog do not have a directly comparable IFRS measure.
Three months ended | Six months ended | |||||||
June 30, | June 30, | |||||||
($ Canadian thousands) | 2020 | 2019 | 2020 | 2019 | ||||
EBITDA | ||||||||
EBIT | $ | 15,428 | $ | 64,001 | $ | 65,440 | $ | 97,347 |
Depreciation and amortization | 21,786 | 21,853 | 42,525 | 43,784 | ||||
EBITDA | $ | 37,214 | $ | 85,854 | $ | 107,965 | $ | 141,131 |
Recurring Revenue | ||||||||
Service1 | $ | 77,034 | $ | 92,452 | $ | 152,010 | $ | 173,312 |
Rentals1 | 61,207 | 64,469 | 126,578 | 123,049 | ||||
Total Recurring Revenue | $ | 138,241 | $ | 156,921 | $ | 278,588 | $ | 296,361 |
ROCE | ||||||||
Trailing 12-month EBIT | $ | 201,995 | $ | 201,157 | $ | 201,995 | $ | 201,157 |
Capital Employed - beginning of period | ||||||||
Net debt2 | $ | 402,717 | $ | 38,725 | $ | 334,232 | $ | 117,848 |
Shareholders' equity | 1,458,760 | 1,270,629 | 1,342,787 | 1,282,519 | ||||
$ | 1,861,477 | $ | 1,309,354 | $ | 1,677,019 | $ | 1,400,367 | |
Capital Employed - end of period | ||||||||
Net debt2 | $ | 384,588 | $ | 141,492 | $ | 384,588 | $ | 141,492 |
Shareholders' equity | 1,425,912 | 1,276,350 | 1,425,912 | 1,276,350 | ||||
$ | 1,810,500 | $ | 1,417,842 | $ | 1,810,500 | $ | 1,417,842 | |
Average Capital Employed3 | $ | 1,719,860 | $ | 1,374,833 | $ | 1,719,860 | $ | 1,374,833 |
Return on Capital Employed | 11.7% | 14.6% | 11.7% | 14.6% | ||||
- Revenues from the operation and maintenance of BOOM contracts have been reclassified from the Service to Rentals product line including $11,717 previously disclosed during the first quarter of 2020. For the three and six months ended June 30, 2019, $10,744 and $21,400 have been reclassified. Please refer to Note 12 of the unaudited interim condensed consolidated financial statements for further details.
2 Net debt is defined as short- and long-term debt less cash and cash equivalents. 3 Based on a trailing four-quarter average.
14 | Enerflex Ltd. | 2020 Quarterly Report |
FREE CASH FLOW
Three months ended | Six months ended |
June 30, | June 30, | |||||||
($ Canadian thousands) | 2020 | 2019 | 2020 | 2019 | ||||
Cash provided by (used in) operating activities | $ | 64,927 | $ | (17,493) | $ | 74,260 | $ | 104,841 |
Net change in non-cash working capital and other | 36,719 | (89,246) | (7,513) | (20,242) | ||||
$ | 28,208 | $ | 71,753 | $ | 81,773 | $ | 125,083 | |
Add-back: | ||||||||
Net finance costs | 6,168 | 4,129 | 12,137 | 8,504 | ||||
Current income tax expense | 2,539 | 7,282 | 8,875 | 13,838 | ||||
Proceeds on the disposal of property, plant | ||||||||
and equipment | 10 | 60 | 96 | 84 | ||||
Proceeds on the disposal of rental equipment | 247 | 1,472 | 2,910 | 2,724 | ||||
Deduct: | ||||||||
Net interest paid | (10,057) | (8,048) | (11,540) | (7,909) | ||||
Net cash taxes paid | (1,297) | (2,975) | (7,457) | (11,987) | ||||
Additions to property, plant and equipment | (2,397) | (12,842) | (6,829) | (27,808) | ||||
Additions to rental equipment: | ||||||||
Growth | (27,408) | (58,036) | (88,281) | (71,673) | ||||
Maintenance | (2,538) | (3,130) | (4,325) | (13,565) | ||||
Dividends paid | (10,313) | (9,389) | (20,625) | (18,738) | ||||
Free cash flow | $ | (16,838) | $ | (9,724) | $ | (33,266) | $ | (1,447) |
For the three and six months ended June 30, 2020, free cash flow decreased compared to the same period in 2019. For the three months ended June 30, 2020, this decrease was primarily due to lower cash provided by operating activities before non-cash working capital, partially offset by lower growth capital expenditures on the rental fleet. For the six months ended June 30, 2020, this decrease was due to due to lower cash provided by operating activities before non-cash working capital and higher growth capital expenditures on the rental fleet. As announced in the first quarter of 2020, Enerflex will proceed only with those growth capital expenditures connected to existing contractual obligations, as well as required maintenance capital expenditures. Notwithstanding, the Company's current financial position affords it some flexibility to pursue additional growth opportunities, should they arise when the macro environment is more constructive. Under favourable circumstances, additional capital may be directed to growth opportunities in any of our regions.
Management's Discussion and Analysis | 2020 Quarterly Report | 15 |
FINANCIAL POSITION
The following table outlines significant changes in the Statements of Financial Position as at June 30, 2020 compared to December 31, 2019:
Increase | |||||
($ Canadian millions) | (Decrease) | Explanation | |||
The decrease in current assets is due to lower cash, accounts receivable, and contract | |||||
assets, partially offset by higher inventories. Cash decreased due to expenditures on | |||||
direct material inventory and rental equipment, while accounts receivable decreased | |||||
Current assets | $(136.6) | due to collection of trade receivables and lower overall activity levels and contract | |||
assets decreased due to lower activity levels and amounts reclassified to other assets. | |||||
Higher inventory is primarily due to purchases of major equipment with long lead times, | |||||
which were ordered in prior periods and delivered in the current period. | |||||
The increase in rental equipment is due to additions during the year, primarily on the | |||||
Rental equipment | $87.9 | contract compression fleet in the USA and BOOM projects in ROW, as well as the | |||
strengthening of the U.S. dollar at June 30, 2020 that impacts the revaluation of U.S. | |||||
dollar denominated rental equipment, partially offset by depreciation. | |||||
The increase in other assets is largely due to a balance previously included in contract | |||||
Other assets | $17.7 | assets at December 31, 2019 that was reclassified to a long-term receivable during the | |||
first quarter of 2020. | |||||
The increase in goodwill is due to the strengthening of the U.S. dollar at June 30, 2020 | |||||
Goodwill | $21.4 | ||||
that impacts the revaluation of U.S. dollar denominated goodwill. | |||||
The decrease in current liabilities is due to lower accounts payable and deferred | |||||
Current liabilities | $(78.6) | revenues, partially offset by a portion of long-term debt that classified as current at June | |||
30, 2020. Lower accounts payable and deferred revenues were due to lower overall | |||||
activity levels, partially offset by the strengthening of the U.S. dollar at June 30, 2020. | |||||
Shareholders' equity before non-controlling interest increased due to $44.7 million net | |||||
Shareholders' equity | |||||
before non-controlling | $83.4 | earnings, $49.9 million unrealized income on translation of foreign operations and $0.9 | |||
interest | million of stock options impact, partially offset by dividends of $12.1 million. | ||||
LIQUIDITY
The Company expects that continued cash flows from operations in 2020, together with cash and cash equivalents on hand and currently available credit facilities, will be more than sufficient to fund its requirements for investments in working capital and capital assets. As at June 30, 2020, the Company held cash and cash equivalents of $78.6 million and had cash drawings of $142.4 million against the amended and restated syndicated revolving credit facility (the "Bank Facility"), leaving it with access to $532.2 million for future drawings. The Company continues to meet the covenant requirements of its funded debt, including the Bank Facility and the Company's unsecured notes (the "Senior Notes"), with a bank-adjusted net debt to EBITDA ratio of 1.2:1 compared to a maximum ratio of 3:1, and an interest coverage ratio of 14:1 compared to a minimum ratio of 3:1. The interest coverage ratio is calculated by dividing the trailing 12-monthbank-adjusted EBITDA, as defined by the Company's lenders, by interest expense over the same timeframe.
16 | Enerflex Ltd. | 2020 Quarterly Report |
SUMMARIZED STATEMENTS OF CASH FLOW
Three months ended | Six months ended | |||||||
June 30, | June 30, | |||||||
($ Canadian thousands) | 2020 | 2019 | 2020 | 2019 | ||||
Cash, beginning of period | $ | 71,671 | $ | 305,032 | $ | 96,255 | $ | 326,864 |
Cash provided by (used in): | ||||||||
Operating activities | 64,927 | (17,493) | 74,260 | 104,841 | ||||
Investing activities | (31,578) | (72,524) | (95,313) | (106,012) | ||||
Financing activities | (26,359) | 9,061 | 3,494 | (101,071) | ||||
Exchange rate changes on foreign currency cash | (91) | (132) | (126) | (678) | ||||
Cash, end of period | $ | 78,570 | $ | 223,944 | $ | 78,570 | $ | 223,944 |
Operating Activities
For the three months ended June 30, 2020, cash provided by operating activities improved over the same period in 2019, with positive movements in non-cash working capital partially offset by lower net earnings. For the six months ended June 30, 2020, cash provided by operating activities decreased over the comparative period due to lower net earnings, partially offset by favourable non-cash working capital movement. Movements in non-cash working capital are explained in the "Financial Position" section of this MD&A.
Investing Activities
For the three months ended June 30, 2020, cash used in investing activities decreased due to lower capital expenditures on the rental fleet and property, plant and equipment, while for the six months ended June 30, 2020, cash used in investing activities decreased due to lower capital expenditures on property, plant and equipment, partially offset by higher expenditures on the rental fleet.
Financing Activities
For the three months ended June 30, 2020, cash used in financing activities increased primarily due to repayment of long-term debt, compared to draws made on long-term debt in the same period in 2019. For the six months ended June 30, 2020, cash provided by financing activities increased primarily due to draws made on long-term debt, compared to repayment of long-term debt in the comparative period.
QUARTERLY SUMMARY
($ Canadian thousands, | Earnings per | Earnings per | ||||||
except per share amounts) | Revenue | Net earnings | share - basic | share - diluted | ||||
June 30, 2020 | $ | 287,438 | $ | 7,415 | $ | 0.08 | $ | 0.08 |
March 31, 2020 | 365,740 | 37,438 | 0.42 | 0.42 | ||||
December 31, 2019 | 474,362 | 31,436 | 0.35 | 0.35 | ||||
September 30, 2019 | 544,284 | 63,074 | 0.71 | 0.70 | ||||
June 30, 2019 | 541,874 | 40,649 | 0.45 | 0.45 | ||||
March 31, 2019 | 484,902 | 16,969 | 0.19 | 0.19 | ||||
December 31, 2018 | 466,842 | 32,480 | 0.37 | 0.36 | ||||
September 30, 2018 | 445,803 | 37,696 | 0.43 | 0.42 | ||||
June 30, 2018 | 404,848 | 20,367 | 0.23 | 0.23 | ||||
March 31, 2018 | 385,780 | 10,873 | 0.12 | 0.12 | ||||
December 31, 2017 | 450,065 | 26,702 | 0.30 | 0.30 | ||||
September 30, 2017 | 315,019 | 25,188 | 0.28 | 0.28 |
Management's Discussion and Analysis | 2020 Quarterly Report | 17 |
CAPITAL RESOURCES
On July 31, 2020, Enerflex had 89,678,845 shares outstanding. Enerflex has not established a formal dividend policy and the Board of Directors anticipates setting the quarterly dividends based on the availability of cash flow and anticipated market conditions, taking into consideration business opportunities and the need for growth capital. Subsequent to the second quarter of 2020, the Company declared a quarterly dividend of $0.02 per share. 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.
At June 30, 2020, the Company had drawn $142.4 million against the Bank Facility (December 31, 2019 - $121.3 million). The weighted average interest rate on the Bank Facility at June 30, 2020 was 2.6 percent (December 31, 2019 - 3.5 percent).
The composition of the borrowings on the Bank Facility and the Senior Notes was as follows: | ||||
June 30, | December 31, | |||
($ Canadian thousands) | 2020 | 2019 | ||
Drawings on Bank Facility | $ | 142,423 | $ | 121,328 |
Senior Notes due June 22, 2021 | 40,000 | 40,000 | ||
Senior Notes due December 15, 2024 | 158,094 | 151,374 | ||
Senior Notes due December 15, 2027 | 125,396 | 120,916 | ||
Deferred transaction costs | (2,755) | (3,131) | ||
$ | 463,158 | $ | 430,487 | |
Current portion of long-term debt | $ | 40,000 | $ | - |
Non-current portion of long-term debt | 423,158 | 430,487 | ||
$ | 463,158 | $ | 430,487 | |
At June 30, 2020, without considering renewal at similar terms, the Canadian dollar equivalent principal payments due over the next five years are $340.5 million, and $125.4 million thereafter.
RESPONSIBILITY OF MANAGEMENT AND THE BOARD OF DIRECTORS
Management is responsible for the information disclosed in this MD&A and the accompanying unaudited interim condensed consolidated financial statements, and has in place appropriate information systems, procedures, and controls to ensure that information used internally by management and disclosed externally is materially complete and reliable. In addition, the Company's Audit Committee, on behalf of the Board of Directors, provides an oversight role with respect to all public financial disclosures made by the Company, and has reviewed and approved this MD&A and the audited consolidated financial statements. The Audit Committee is also responsible for determining that management fulfills its responsibilities in the financial control of operations, including disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR").
INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no significant changes in the design of the Company's ICFR during the six months ended June 30, 2020 that would materially affect, or is reasonably likely to materially affect, the Company's ICFR. The Company recognizes that employees may be required to change how control activities are performed during offsite work arrangements resulting from the COVID-19 pandemic, and has ensured that control objectives are being met during this period.
18 | Enerflex Ltd. | 2020 Quarterly Report |
SUBSEQUENT EVENTS
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.
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. 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.
FORWARD-LOOKING STATEMENTS
This MD&A 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 MD&A includes (without limitation)forward-looking information pertaining to: anticipatedfinancial performance; future capital expenditures, including the amount and nature thereof; bookings and backlog; oil and gas prices and the impact of such prices on demand for Enerflex products and services; development trends inthe oilandgas industry; seasonalvariations intheactivitylevels of certainoiland gasmarkets; business prospects and strategy; expansion and growth of the business and operations, including market share and position in the energy service markets; 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. All forward-looking information in this MD&A, primarily in the Outlook and Enerflex Strategy sections, is subject to important risks, uncertainties, and assumptions, which are difficult to predict and which may affect the Company's operations, including, without limitation: theimpactof economic conditions includingvolatility inthe price ofoil, gas, andgas liquids, interest ratesandforeign 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; business disruptions resulting from the COVID-19 pandemic; 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 supportcapital investments required to growthe business; the lack of availability of qualified personnel or management; political unrest; and other factors,many of which are beyondthe Company's control.For anaugmented discussion of the risk factors and uncertainties that affect or may affect Enerflex, the reader is directed to the section entitled "Risk Management" in Enerflex's MD&A for the year ended December 31, 2019 (available on www.sedar.com) as well the section entitled "Supplemental Risk Factors" in Enerflex's MD&A for the three months ended March 31, 2020. While the Company believes that there is a reasonable basis for the forward-looking information and statements included in this MD&A, 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 that such statements 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 MD&A is made as of the date of this MD&A 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.
Management's Discussion and Analysis | 2020 Quarterly Report | 19 |
INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (unaudited)
(restated)1 | |||||
($ Canadian thousands) | June 30, 2020 | December 31, 2019 | |||
Assets | |||||
Current assets | |||||
Cash and cash equivalents | $ | 78,570 | $ | 96,255 | |
Accounts receivable (Note 2) | 323,379 | 384,021 | |||
Contract assets (Note 2) | 71,219 | 130,392 | |||
Inventories (Note 3) | 272,106 | 269,385 | |||
Income taxes receivable | 9,271 | 6,626 | |||
Derivative financial instruments (Note 15) | 919 | 152 | |||
Other current assets | 7,005 | 12,223 | |||
Total current assets | 762,469 | 899,054 | |||
Property, plant and equipment (Note 4) | 113,831 | 108,551 | |||
Rental equipment (Note 4) | 730,017 | 642,095 | |||
Lease right-of-use assets (Note 5) | 57,899 | 60,288 | |||
Deferred tax assets (Note 11) | 50,358 | 48,624 | |||
Other assets | 44,064 | 26,410 | |||
Intangible assets | 18,988 | 22,058 | |||
Goodwill (Note 6) | 595,377 | 573,928 | |||
Total assets | $ | 2,373,003 | $ | 2,381,008 | |
Liabilities and Shareholders' Equity | |||||
Current liabilities | |||||
Accounts payable and accrued liabilities | $ | 221,434 | $ | 333,605 | |
Provisions (Note 7) | 15,362 | 18,250 | |||
Income taxes payable | 8,797 | 8,074 | |||
Deferred revenues (Note 8) | 84,221 | 89,409 | |||
Current portion of long-term debt (Note 9) | 40,000 | - | |||
Current portion of lease liabilities (Note 10) | 14,562 | 14,172 | |||
Deferred financing income | 83 | 88 | |||
Derivative financial instruments (Note 15) | 877 | 375 | |||
Total current liabilities | 385,336 | 463,973 | |||
Long-term debt (Note 9) | 423,158 | 430,487 | |||
Lease liabilities (Note 10) | 50,690 | 52,828 | |||
Deferred tax liabilities (Note 11) | 79,956 | 76,256 | |||
Other liabilities | 7,951 | 14,677 | |||
Total liabilities | $ | 947,091 | $ | 1,038,221 | |
Shareholders' equity | |||||
Share capital | $ | 375,524 | $ | 375,524 | |
Contributed surplus | 656,047 | 655,107 | |||
Retained earnings | 261,419 | 228,843 | |||
Accumulated other comprehensive income | 131,695 | 81,779 | |||
Total shareholders' equity before non-controlling interest | 1,424,685 | 1,341,253 | |||
Non-controlling interest | 1,227 | 1,534 | |||
Total shareholders' equity and non-controlling interest | 1,425,912 | 1,342,787 | |||
Total liabilities and shareholders' equity | $ | 2,373,003 | $ | 2,381,008 | |
See accompanying Notes to the interim condensed consolidated financial statements, including guarantees, commitments, and contingencies (Note 17).
- Certain December 31, 2019 balances have been reclassified. Refer to Note 1(b) for additional detail.
20 | Enerflex Ltd. | 2020 Quarterly Report |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||
($ Canadian thousands, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||
Revenue (Note 12) | $ | 287,438 | $ | 541,874 | $ | 653,178 | $ | 1,026,776 |
Cost of goods sold | 221,638 | 431,572 | 493,646 | 827,704 | ||||
Gross margin | 65,800 | 110,302 | 159,532 | 199,072 | ||||
Selling and administrative expenses | 51,361 | 47,085 | 94,873 | 102,908 | ||||
Operating income | 14,439 | 63,217 | 64,659 | 96,164 | ||||
Gain on disposal of property, plant and equipment (Note 4) | 10 | 408 | 53 | 413 | ||||
Equity earnings from associate | 979 | 376 | 728 | 770 | ||||
Earnings before finance costs and income taxes | 15,428 | 64,001 | 65,440 | 97,347 | ||||
Net finance costs (Note 14) | 6,168 | 4,129 | 12,137 | 8,504 | ||||
Earnings before income taxes | 9,260 | 59,872 | 53,303 | 88,843 | ||||
Income taxes (Note 11) | 1,845 | 19,223 | 8,450 | 31,225 | ||||
Net earnings | $ | 7,415 | $ | 40,649 | $ | 44,853 | $ | 57,618 |
Net earnings attributable to: | ||||||||
Controlling interest | $ | 7,414 | $ | 40,536 | $ | 44,683 | $ | 57,365 |
Non-controlling interest | 1 | 113 | 170 | 253 | ||||
$ | 7,415 | $ | 40,649 | $ | 44,853 | $ | 57,618 | |
Earnings per share - basic | $ | 0.08 | $ | 0.45 | $ | 0.50 | $ | 0.64 |
Earnings per share - diluted | $ | 0.08 | $ | 0.45 | $ | 0.50 | $ | 0.64 |
Weighted average number of shares - basic | 89,678,845 | 89,497,947 | 89,678,845 | 89,349,829 | ||||
Weighted average number of shares - diluted | 89,678,845 | 89,877,972 | 89,678,845 | 89,791,465 | ||||
See accompanying Notes to the interim condensed consolidated financial statements.
Interim Condensed Consolidated Financial Statements | 2020 Quarterly Report | 21 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||
($ Canadian thousands) | 2020 | 2019 | 2020 | 2019 | ||||
Net earnings | $ | 7,415 | $ | 40,649 | $ | 44,853 | $ | 57,618 |
Other comprehensive income (loss): | ||||||||
Other comprehensive income (loss) that may be reclassified to | ||||||||
profit or loss in subsequent periods: | ||||||||
Change in fair value of derivatives designated as cash flow | ||||||||
hedges, net of income tax recovery | 225 | (452) | 157 | (961) | ||||
Gain (loss) on derivatives designated as cash flow hedges | ||||||||
transferred to net earnings in the current year, net of income | ||||||||
tax expense | (172) | 246 | (112) | 742 | ||||
Unrealized gain (loss) on translation of foreign denominated | ||||||||
debt | (675) | 1,755 | (9,504) | 2,999 | ||||
Unrealized gain (loss) on translation of financial statements of | ||||||||
foreign operations | (38,320) | (28,300) | 58,898 | (53,035) | ||||
Other comprehensive income (loss) | $ | (38,942) | $ | (26,751) | $ | 49,439 | $ | (50,255) |
Total comprehensive income (loss) | $ | (31,527) | $ | 13,898 | $ | 94,292 | $ | 7,363 |
Other comprehensive income (loss) attributable to: | ||||||||
Controlling interest | $ | (38,750) | $ | (26,604) | $ | 49,916 | $ | (49,961) |
Non-controlling interest | (192) | (147) | (477) | (294) | ||||
$ | (38,942) | $ | (26,751) | $ | 49,439 | $ | (50,255) | |
See accompanying Notes to the interim condensed consolidated financial statements.
22 | Enerflex Ltd. | 2020 Quarterly Report |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three months ended June 30, | Six months ended June 30, | |||
($ Canadian thousands) | 2020 | 2019 | 2020 | 2019 |
Operating Activities
Net earnings | $ | 7,415 | $ | 40,649 | $ | 44,853 | $ | 57,618 |
Items not requiring cash and cash equivalents: | ||||||||
Depreciation and amortization | 21,786 | 21,853 | 42,525 | 43,784 | ||||
Equity earnings from associate and joint venture | (979) | (376) | (728) | (770) | ||||
Deferred income taxes (Note 11) | (694) | 11,941 | (425) | 17,387 | ||||
Share-based compensation expense (recovery) (Note 13) | 690 | (1,906) | (4,399) | 7,477 | ||||
Gain on sale of property, plant and equipment (Note 4) | (10) | (408) | (53) | (413) | ||||
28,208 | 71,753 | 81,773 | 125,083 | |||||
Net change in non-cash working capital and other (Note 16) | 36,719 | (89,246) | (7,513) | (20,242) | ||||
Cash provided by (used in) operating activities | $ | 64,927 | $ | (17,493) | $ | 74,260 | $ | 104,841 |
Investing Activities | ||||||||
Additions to: | ||||||||
Property, plant and equipment (Note 4) | $ | (2,397) | $ | (12,842) | $ | (6,829) | $ | (27,808) |
Rental equipment (Note 4) | (29,946) | (61,166) | (92,606) | (85,238) | ||||
Proceeds on disposal of: | ||||||||
Property, plant and equipment (Note 4) | 10 | 60 | 96 | 84 | ||||
Rental equipment (Note 4) | 247 | 1,472 | 2,910 | 2,724 | ||||
Change in other assets | 508 | (48) | 1,116 | 4,226 | ||||
Cash used in investing activities | $ | (31,578) | $ | (72,524) | $ | (95,313) | $ | (106,012) |
Financing Activities | ||||||||
Proceeds from (repayment of) long-term debt (Note 16) | $ | (11,460) | $ | 21,131 | $ | 32,212 | $ | (80,345) |
Lease liability principal repayment (Note 10) | (3,714) | (3,523) | (6,347) | (6,666) | ||||
Lease interest (Note 10) | (872) | (549) | (1,746) | (1,078) | ||||
Dividends | (10,313) | (9,389) | (20,625) | (18,738) | ||||
Stock option exercises | - | 1,391 | - | 5,756 | ||||
Cash provided by (used in) financing activities | $ | (26,359) | $ | 9,061 | $ | 3,494 | $ | (101,071) |
Effect of exchange rate changes on cash and cash equivalents | ||||||||
denominated in foreign currencies | $ | (91) | $ | (132) | $ | (126) | $ | (678) |
Increase (decrease) in cash and cash equivalents | 6,899 | (81,088) | (17,685) | (102,920) | ||||
Cash and cash equivalents, beginning of period | 71,671 | 305,032 | 96,255 | 326,864 | ||||
Cash and cash equivalents, end of period | $ | 78,570 | $ | 223,944 | $ | 78,570 | $ | 223,944 |
See accompanying Notes to the interim condensed consolidated financial statements.
Interim Condensed Consolidated Financial Statements | 2020 Quarterly Report | 23 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
Total | ||||||||||||||||||
Foreign | Accumulated | shareholders' | ||||||||||||||||
currency | other | equity before | Non- | |||||||||||||||
Contributed | Retained | translation | Hedging | comprehensive | non-controlling | controlling | ||||||||||||
($ Canadian thousands) | Share capital | surplus | earnings | adjustments | reserve | income | interest | interest | Total | |||||||||
At January 1, 2019 | $ | 366,120 | $ | 654,324 | $ | 118,134 | $ | 143,563 | $ | (1,071) | $ | 142,492 | $ | 1,281,070 | $ | 1,449 | $ | 1,282,519 |
IFRS 16 opening | ||||||||||||||||||
retained earnings | ||||||||||||||||||
adjustment | - | - | (2,429) | - | - | - | (2,429) | - | (2,429) | |||||||||
Net earnings | - | - | 57,365 | - | - | - | 57,365 | 253 | 57,618 | |||||||||
Other comprehensive | ||||||||||||||||||
income (loss) | - | - | - | (49,742) | (219) | (49,961) | (49,961) | (294) | (50,255) | |||||||||
Effect of stock option | ||||||||||||||||||
plans | 7,268 | 412 | - | - | - | - | 7,680 | - | 7,680 | |||||||||
Dividends | - | - | (18,783) | - | - | - | (18,783) | - | (18,783) | |||||||||
At June 30, 2019 | $ | 373,388 | $ | 654,736 | $ | 154,287 | $ | 93,821 | $ | (1,290) | $ | 92,531 | $ | 1,274,942 | $ | 1,408 | $ | 1,276,350 |
At January 1, 2020 | $ | 375,524 | $ | 655,107 | $ | 228,843 | $ | 82,760 | $ | (981) | $ | 81,779 | $ | 1,341,253 | $ | 1,534 | $ | 1,342,787 |
Net earnings | - | - | 44,683 | - | - | - | 44,683 | 170 | 44,853 | |||||||||
Other comprehensive | ||||||||||||||||||
income (loss) | - | - | - | 49,871 | 45 | 49,916 | 49,916 | (477) | 49,439 | |||||||||
Effect of stock option | ||||||||||||||||||
plans | - | 940 | - | - | - | - | 940 | - | 940 | |||||||||
Dividends | - | - | (12,107) | - | - | - | (12,107) | - | (12,107) | |||||||||
At June 30, 2020 | $ | 375,524 | $ | 656,047 | $ | 261,419 | $ | 132,631 | $ | (936) | $ | 131,695 | $ | 1,424,685 | $ | 1,227 | $ | 1,425,912 |
See accompanying Notes to the interim condensed consolidated financial statements.
24 | Enerflex Ltd. | 2020 Quarterly Report |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands of Canadian dollars, except per share amounts or as otherwise noted.)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of Compliance
These unaudited interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), and were approved and authorized for issue by the Board of Directors on August 6, 2020.
(b) Basis of Presentation and Measurement
These unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2020 and 2019 were prepared in accordance with IAS 34 and do not include all the disclosures included in the annual consolidated financial statements for the year ended December 31, 2019. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements. Certain prior period amounts have been reclassified between contract assets and deferred revenues to better align with contractual terms for these projects. Contract assets and deferred revenues as at December 31, 2019 have been reduced by $53,498 from balances disclosed in the annual consolidated financial statements.
The unaudited interim condensed consolidated financial statements are presented in Canadian dollars rounded to the nearest thousands, except per share amounts or as otherwise noted, and are prepared on a going concern basis under the historical cost convention with certain financial assets and financial liabilities recorded at fair value. There have been no significant changes in accounting policies compared to those described in annual consolidated financial statements for the year ended December 31, 2019.
(c) Supplemental Accounting Estimates and Judgement
The timely preparation of financial statements requires that management make estimates and assumptions and use judgement. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Changes in the economic environment have required the Company to reassess some estimates and judgement or have caused new and/or significant impacts on previous estimates and judgement. Enerflex previously disclosed significant accounting estimates and areas of judgements at December 31, 2019 as part of the Company's 2019 Annual Report. As additional estimates or areas of judgements are identified, or changes are made to the Company's assessment of previously disclosed estimates or areas of judgements, Enerflex will disclose the nature and potential impact of these new or revised judgements, estimates and assumptions.
Revenue Recognition - Performance Obligation Satisfied Over Time
The Company reflects revenues relating to performance obligations satisfied over time using percentage-of-completion accounting, using the input method, whereby actual input costs as a percentage of estimated total costs is used to determine the extent to which performance obligations are satisfied. Certain contracts also include aspects of variable consideration, such as liquidated damages on project delays. For these contracts, management must make estimations as to the likelihood of the variable consideration being recognized or constrained, based on the status of each project, the potential value of variable consideration, communication received from the customer, and other factors. Enerflex continues to monitor these factors, with minimal impacts to date. Changes in estimated cost or revenue associated with a project, including variable consideration, could result in material changes to revenue and gross margin recognized on certain projects.
Allowance for Doubtful Accounts
Amounts included in allowance for doubtful accounts reflect the full lifetime expected credit losses for trade receivables. The Company determines allowances based on management's best estimate of future expected credit losses, considering historical default rates, current economic conditions, and forecasts of future economic conditions. The impact of COVID-19 and negative economic factors surrounding the oil and gas industry on expected credit losses requires significant judgement, as it is not directly
Notes to the Interim Condensed Consolidated Financial Statements | 2020 Quarterly Report | 25 |
comparable with any recent similar events. Future economic conditions, especially around the oil and gas industry, may have a significant impact on the collectability of trade receivables from customers and the corresponding expected credit losses. During the second quarter of 2020, management identified certain receivable balances in the USA segment that may be at higher risk of credit loss as a result of recent events, leading to an increase in the allowance for doubtful accounts provision at June 30, 2020. Management has implemented additional monitoring processes in assessing the credit worthiness of customers and believes the current provision appropriately reflects the best estimate of its future expected credit losses.
Impairment of Non-Financial Assets and Goodwill
The Company is required to assess at the end of each reporting period whether there are any indicators that an asset may be impaired. Management determined that there were indicators of impairment of the Company's tangible assets at June 30, 2020, as a result of the negative economic factors surrounding the oil and gas industry and the impact of the recent COVID-19 pandemic. Despite these indicators, management believes the long-term value of these tangible assets remains appropriate, and has not recorded an impairment beyond any amounts required by the Company's policies.
Enerflex tests goodwill for impairment at least on an annual basis, or when there is any indication that goodwill may be impaired. This requires an estimation of the value-in-use of the groups of cash generating units ("CGUs") to which the goodwill is allocated. Estimating the value-in-use requires an estimate of the expected future cash flows from each group of CGUs and use judgement to determine a suitable discount rate in order to calculate the present value of those cash flows. The methodology and assumptions used, as well as the results of the assessment performed are detailed in Note 6.
Income Taxes
Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. The basis for this estimate is management's recently updated five-year cash flow projections. The Company determined that previous assessments around the recoverability of deferred tax assets have not changed as a result of recent events, however management will continue to assess in response to changing economic conditions.
Government Grants
In response to the COVID-19 pandemic and associated restrictions, including mandated quarantines, business closures, and travel restrictions, governments in certain jurisdictions in which the Company does business have established programs to assist companies and individuals through the period for which these restrictions are in place. During the second quarter of 2020, the Company qualified for government grants in a number of jurisdictions, most notably the Canada Emergency Wage Subsidy. The 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.
NOTE 2. ACCOUNTS RECEIVABLE AND CONTRACT ASSETS
Accounts receivable consisted of the following: | ||||
June 30, 2020 | December 31, 2019 | |||
Trade receivables | $ | 318,179 | $ | 373,480 |
Less: allowance for doubtful accounts1 | (15,009) | (2,144) | ||
Trade receivables, net | $ | 303,170 | $ | 371,336 |
Other receivables | 20,209 | 12,685 | ||
Total accounts receivable | $ | 323,379 | $ | 384,021 |
- During the second quarter of 2020, management identified certain receivable balances in the USA segment that may be at higher risk of credit loss as a result of recent events, leading to an increase in the allowance for doubtful accounts provision at June 30, 2020.
26 | Enerflex Ltd. | 2020 Quarterly Report |
Aging of trade receivables: | ||||
June 30, 2020 | December 31, 2019 | |||
Current to 90 days | $ | 241,154 | $ | 321,058 |
Over 90 days | 77,025 | 52,422 | ||
$ | 318,179 | $ | 373,480 | |
Subsequent to the end of the quarter, the Company collected $12.1 million of trade receivables that were included in over 90 days at June 30, 2020.
Movement in allowance for doubtful accounts: | ||||
June 30, 2020 | December 31, 2019 | |||
Balance, January 1 | $ | 2,144 | $ | 992 |
Impairment provision additions on receivables | 13,274 | 2,162 | ||
Amounts written off during the year as uncollectible | (574) | (951) | ||
Currency translation effects | 165 | (59) | ||
Closing balance | $ | 15,009 | $ | 2,144 |
Movement in contract assets: | ||||
June 30, 2020 | December 31, 2019 | |||
Balance, January 1 | $ | 130,392 | $ | 158,027 |
Unbilled revenue recognized | 91,516 | 645,276 | ||
Amounts billed | (133,984) | (666,896) | ||
Amounts transferred to other assets | (26,625) | - | ||
Currency translation effects | 9,920 | (6,015) | ||
Closing balance | $ | 71,219 | $ | 130,392 |
Amounts recognized as contract assets are typically billed to customers within three months. Amounts reclassified to other assets relate to a balance previously included in contract assets at December 31, 2019 that was revised to a long-term receivable during the first quarter of 2020.
NOTE 3. INVENTORIES
Inventories consisted of the following:
June 30, 2020 | December 31, 2019 | |||
Direct materials | $ | 172,855 | $ | 182,692 |
Work-in-process | 38,374 | 33,403 | ||
Repair and distribution parts | 43,134 | 42,540 | ||
Equipment | 17,743 | 10,750 | ||
Total inventories | $ | 272,106 | $ | 269,385 |
The amount of inventory and overhead costs recognized as an expense and included in cost of goods for the three and six months ended June 30, 2020 was $221.6 million and $493.6 million (June 30, 2019 - $431.6 million and $827.7 million). Cost of goods sold is made up of direct materials, direct labour, depreciation on manufacturing assets, post-manufacturing expenses, and overhead. Cost of goods sold
Notes to the Interim Condensed Consolidated Financial Statements | 2020 Quarterly Report | 27 |
also includes inventory write-downs pertaining to obsolescence and aging together with recoveries of past write-downs upon disposition. The net amount of inventory write-downs charged to the interim condensed consolidated statement of earnings and included in cost of goods sold for the three and six months ended June 30, 2020 was $0.7 million and $2.1 million (June 30, 2019 - $1.7 million and $2.2 million).
Inventory levels increased during 2020 due to purchases of major equipment with long lead times which were ordered in the prior year and delivered in the current year, as well as the impacts of foreign exchange movements on inventory denominated in a foreign currency. The Company expects to continue to realize this major equipment inventory into Engineered Systems projects and new contract compression units, however the timing and extent to which inventory can be utilized is dependent on demand.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT AND RENTAL EQUIPMENT
During the three and six months ended June 30, 2020, the Company added $2.4 million and $6.8 million in property, plant and equipment (June 30, 2019 - $12.8 million and $27.8 million) and $29.9 million and $92.6 million in rental equipment (June 30, 2019 - $61.2 million and $85.2 million). The impact of foreign exchange movements on assets denominated in a foreign currency during the six months ended June 30, 2020 was an increase of $4.7 million on property, plant and equipment and $23.6 million on rental equipment (June 30, 2019 - decrease of $3.2 million and $22.1 million).
Depreciation of property, plant and equipment and rental equipment included in earnings for the three months ended June 30, 2020 was $16.1 million (June 30, 2019 - $16.0 million), of which $15.1 million was included in cost of goods sold (June 30, 2019 - $15.1 million) and $1.0 million was included in selling and administrative expenses (June 30, 2019 - $0.9 million).
Depreciation of property, plant and equipment and rental equipment included in earnings for the six months ended June 30, 2020 was $31.2 million (June 30, 2019 - $32.3 million), of which $29.4 million was included in cost of goods sold (June 30, 2019 - $30.5 million) and $1.8 million was included in selling and administrative expenses (June 30, 2019 - $1.8 million).
NOTE 5. LEASE RIGHT-OF-USE ASSETS
During the three and six months ended June 30, 2020, the Company added $2.1 million and $4.0 million in lease right-of-use assets (June 30, 2019 - $4.0 million and $7.2 million).
Depreciation of lease right-of-use assets included in earnings for the three months ended June 30, 2020 was $3.5 million (June 30, 2019
- $3.2 million), of which $1.8 million was included in cost of goods sold (June 30, 2019 - $1.5 million) and $1.7 million was included in selling and administrative expenses (June 30, 2019 - $1.7 million).
Depreciation of lease right-of-use assets included in earnings for the six months ended June 30, 2020 was $6.9 million (June 30, 2019 - $6.1 million), of which $3.6 million was included in cost of goods sold (June 30, 2019 - $2.9 million) and $3.3 million was included in selling and administrative expenses (June 30, 2019 - $3.2 million).
NOTE 6. GOODWILL AND IMPAIRMENT REVIEW OF GOODWILL
June 30, 2020 | December 31, 2019 | |||
Balance, January 1 | $ | 573,928 | $ | 598,831 |
Currency translation effects | 21,449 | (24,903) | ||
$ | 595,377 | $ | 573,928 | |
Goodwill acquired through business combinations was allocated to the USA, Rest of World, and Canada business segments, and represents the lowest level at which goodwill is monitored for internal management purposes. For the six months ended June 30, 2020,
28 | Enerflex Ltd. | 2020 Quarterly Report |
the Company determined that there were indicators of impairment resulting from the negative economic factors surrounding the oil and gas industry, and the impact of the recent COVID-19 pandemic.
In assessing whether goodwill has been impaired, the carrying amount of the segment (including goodwill) is compared with its recoverable amount. The recoverable amount is the higher of the fair value less costs to sell and value-in-use.
The recoverable amounts for the segments have been determined based on value-in-use calculations, using discounted cash flow projections as at June 30, 2020. Management reviewed and updated its five-year cash flow projections during the second quarter of 2020, taking into consideration the recent economic events and their impact on previously approved long-term budgets.
Key Assumptions Used in Value-In-Use Calculations:
The calculation of value-in-use for the Company's segments is most sensitive to the following assumptions:
- Earnings Before Finance Costs and Taxes: Management has made estimates relating to the amount and timing of revenue recognition for projects included in backlog, and the assessment of the likelihood of maintaining and growing market share. For each ten percent change in earnings before finance costs and taxes, the average impact on the value-in-use of the Company's three segments would be $67.6 million; and
- Discount Rate: Management has used an average post-tax discount rate of 10.0 percent per annum. The rate represents the Company's weighted average cost of capital, using the five-year average of the Company's peer group debt to total enterprise value, adjusted for a number of risk factors specific to each segment. For each one percent change in the discount rate, the average impact on the value-in-use of the Company's three segments would be $132.5 million.
The Company completed its assessment for goodwill impairment and determined that the recoverable amount for the USA, Rest of World, and Canada segments exceeded the carrying amount using a 8.5 percent (December 31, 2019 - 10.1 percent), 11.8 percent (December 31, 2019 - 14.2 percent), and 9.8 percent (December 31, 2019 - 11.8 percent) post-tax discount rate, respectively.
A reasonable change in assumptions for the USA, Rest of World, and Canada segments would not trigger an impairment.
NOTE 7. PROVISIONS
June 30, 2020 | December 31, 2019 | |||
Warranty provision | $ | 13,773 | $ | 15,563 |
Legal provision | 1,589 | 1,818 | ||
Restructuring provision | - | 869 | ||
$ | 15,362 | $ | 18,250 | |
NOTE 8. DEFERRED REVENUES
June 30, 2020 | December 31, 2019 | |||
Balance, January 1 | $ | 89,409 | $ | 348,804 |
Cash received in advance of revenue recognition | 125,271 | 424,737 | ||
Revenue subsequently recognized | (138,111) | (673,473) | ||
Currency translation effects | 7,652 | (10,659) | ||
Closing balance | $ | 84,221 | $ | 89,409 |
Amounts recognized as deferred revenues are typically recognized into revenue within six months.
Notes to the Interim Condensed Consolidated Financial Statements | 2020 Quarterly Report | 29 |
NOTE 9. LONG-TERM DEBT
The amended and restated syndicated revolving credit facility ("Bank Facility") has a maturity date of June 30, 2023 (the "Maturity Date"). The Maturity Date of the Bank Facility may be extended annually on or before the anniversary date with the consent of the lenders. In addition, the Bank Facility may be increased by $150.0 million at the request of the Company, subject to the lenders' consent. There are no required or scheduled principal repayments until the Maturity Date of the Bank Facility.
The composition of the borrowings on the Bank Facility and the Company's senior unsecured notes ("Notes") was as follows:
June 30, 2020 | December 31, 2019 | |||
Drawings on Bank Facility | $ | 142,423 | $ | 121,328 |
Notes due June 22, 2021 | 40,000 | 40,000 | ||
Notes due December 15, 2024 | 158,094 | 151,374 | ||
Notes due December 15, 2027 | 125,396 | 120,916 | ||
Deferred transaction costs | (2,755) | (3,131) | ||
$ | 463,158 | $ | 430,487 | |
Current portion of long-term debt | $ | 40,000 | $ | - |
Non-current portion of long-term debt | 423,158 | 430,487 | ||
$ | 463,158 | $ | 430,487 | |
For the six months ended June 30, 2020, movement in U.S. dollar foreign exchange rates resulted in an increase of $16.4 million on U.S. dollar denominated long-term debt (December 31, 2019 - decrease of $14.2 million).
The weighted average interest rate on the Bank Facility for the six months ended June 30, 2020 was 2.6 percent (December 31, 2019 -
3.5 percent). At June 30, 2020, without considering renewal at similar terms, the Canadian dollar equivalent principal payments due over the next five years are $340.5 million, and $125.4 million thereafter.
NOTE 10. LEASE LIABILITIES
June 30, 2020 | December 31, 2019 | |||
Balance, January 1 | $ | 67,000 | $ | 39,438 |
Additions | 3,689 | 41,973 | ||
Lease interest | 1,746 | 2,586 | ||
Payments made against lease liabilities | (8,093) | (15,137) | ||
Currency translation effects and other | 910 | (1,860) | ||
Closing balance | $ | 65,252 | $ | 67,000 |
Current portion of lease liabilities | $ | 14,562 | $ | 14,172 |
Non-current portion of lease liabilities | 50,690 | 52,828 | ||
$ | 65,252 | $ | 67,000 | |
In addition to the lease payments made above, during the three and six months ended June 30, 2020, the Company paid $0.3 million and $0.6 million (June 30, 2019 - $0.9 million and $1.2 million) relating to short-term and low-value leases which were expensed as incurred. During the three and six months ended June 30, 2020, the Company also paid $0.3 million and $0.7 million (June 30, 2019 - $0.8 million and $1.1 million) in variable lease payments not included in the measurement of lease liabilities, of which $0.1 million and $0.3 million (June 30, 2019 - $0.1 million and $0.2 million) was included in cost of goods sold and $0.2 million and $0.4 million (June 30, 2019 - $0.7
30 | Enerflex Ltd. | 2020 Quarterly Report |
million and $0.9 million) was included in selling and administrative expenses. Interest expense on lease liabilities was $0.9 million and $1.7 million for the three and six months ended June 30, 2020 (June 30, 2019 - $0.5 million and $1.1 million). Total cash outflow for leases for the three and six months ended June 30, 2020 was $5.2 million and $9.4 million (June 30, 2019 - $6.3 million and $10.5 million).
Future minimum lease payments under non-cancellable leases were as follows: | ||
June 30, 2020 | ||
2020 | $ | 8,251 |
2021 | 14,193 | |
2022 | 11,800 | |
2023 | 8,350 | |
2024 | 5,878 | |
Thereafter | 31,849 | |
$ | 80,321 | |
Less: | ||
Imputed interest | 14,916 | |
Short-term leases | 135 | |
Low-value leases | 18 | |
$ | 65,252 | |
NOTE 11. INCOME TAXES
(a) Income Tax Recognized in Net Earnings
The components of income tax expense were as follows:
Three months ended June 30, | Six months ended June 30, | |||||||
2020 | 2019 | 2020 | 2019 | |||||
Current income taxes | $ | 2,539 | $ | 7,282 | $ | 8,875 | $ | 13,838 |
Deferred income taxes | (694) | 11,941 | (425) | 17,387 | ||||
$ | 1,845 | $ | 19,223 | $ | 8,450 | $ | 31,225 | |
Notes to the Interim Condensed Consolidated Financial Statements | 2020 Quarterly Report | 31 |
(b) Reconciliation of Tax Expense
The provision for income taxes differs from that which would be expected by applying Canadian statutory rates. A reconciliation of the difference is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||
2020 | 2019 | 2020 | 2019 | |||||
Earnings before income taxes | $ | 9,260 | $ | 59,872 | $ | 53,303 | $ | 88,843 |
Canadian statutory rate | 25.3% | 26.5% | 25.3% | 26.5% | ||||
Expected income tax provision | $ | 2,343 | $ | 15,866 | $ | 13,486 | $ | 23,543 |
Add (deduct): | ||||||||
Exchange rate effects on tax basis | (569) | (1,312) | (4,565) | 1,921 | ||||
Earnings taxed in foreign jurisdictions | (457) | (204) | (1,495) | 444 | ||||
Revaluation of Canadian deferred tax assets | ||||||||
due to change in statutory rate | - | 5,040 | - | 5,040 | ||||
Amounts not deductible (taxable) for tax | ||||||||
purposes | 603 | 118 | 1,100 | 558 | ||||
Impact of accounting for associates and joint | ||||||||
ventures | (248) | (127) | (227) | (271) | ||||
Other | 173 | (158) | 151 | (10) | ||||
Income tax expense from continuing operations | $ | 1,845 | $ | 19,223 | $ | 8,450 | $ | 31,225 |
The applicable statutory tax rate is the aggregate of the Canadian federal income tax rate of 15.0 percent (2019 - 15.0 percent) and provincial income tax rates of 10.3 percent (2019 - 11.5 percent). During the second quarter of 2019, lower Alberta corporate income tax rates became substantially enacted. The Alberta corporate income tax rates are 11.5 percent for 2019, 10.0 percent for 2020, 9.0 percent for 2021, and 8.0 percent for 2022 and thereafter.
The Company's effective tax rate is subject to fluctuations in the Argentine peso and Mexican peso exchange rate against the U.S. dollar. Since the Company holds significant rental assets in Argentina and Mexico, the tax base of these assets is denominated in Argentine peso and Mexican peso, respectively. The functional currency is, however, the U.S. dollar and as a result, the related local currency tax bases are revalued periodically to reflect the closing U.S. dollar rate against these currencies. Any movement in the exchange rate results in a corresponding unrealized exchange rate gain or loss being recorded as part of deferred income tax expense or recovery. During periods of large fluctuation or devaluation of the local currency against the U.S. dollar, these amounts may be significant but are unrealized and may reverse in the future. Recognition of these amounts is required by IFRS, even though the revalued tax basis does not generate any cash tax obligation or liability in the future.
32 | Enerflex Ltd. | 2020 Quarterly Report |
NOTE 12. REVENUE
Three months ended June 30, | Six months ended June 30, | |||||||
2020 | 2019 | 2020 | 2019 | |||||
Engineered Systems | $ | 149,197 | $ | 384,953 | $ | 374,590 | $ | 730,415 |
Service1 | 77,034 | 92,452 | 152,010 | 173,312 | ||||
Rentals1 | 61,207 | 64,469 | 126,578 | 123,049 | ||||
Total revenue | $ | 287,438 | $ | 541,874 | $ | 653,178 | $ | 1,026,776 |
- During the second quarter of 2020, revenues from the operation and maintenance of BOOM contracts have been reclassified from the Service to Rentals product line, including $11,717 previously disclosed during the first quarter of 2020. For the three and six months ended June 30, 2019, $10,744 and $21,400 of revenues have been reclassified from Service to Rentals. This new classification creates better alignment with management's internal metrics, as the operations and maintenance of these facilities are considered costs and revenue associated with the rental of the facilities.
Revenue by geographic location, which is attributed by destination of sale, was as follows:
Three months ended June 30, | Six months ended June 30, | |||||||
2020 | 2019 | 2020 | 2019 | |||||
United States | $ | 150,571 | 277,149 | $ | 326,062 | $ | 560,306 | |
Canada | 37,971 | 118,512 | 104,217 | 210,301 | ||||
Nigeria | 28,863 | 54,812 | 80,776 | 69,451 | ||||
Australia | 18,137 | 16,849 | 35,644 | 38,907 | ||||
Oman | 9,879 | 30,686 | 25,959 | 56,579 | ||||
Bahrain | 11,210 | 10,743 | 22,599 | 21,760 | ||||
Mexico | 6,784 | 11,300 | 16,680 | 22,300 | ||||
Argentina | 4,529 | 6,133 | 11,063 | 10,470 | ||||
United Arab Emirates | 7,945 | (80) | 8,270 | 633 | ||||
Colombia | 3,191 | 6,000 | 5,570 | 12,826 | ||||
Brazil | 2,375 | 2,611 | 4,680 | 5,282 | ||||
Other | 5,983 | 7,159 | 11,658 | 17,961 | ||||
Total revenue | $ | 287,438 | $ | 541,874 | $ | 653,178 | $ | 1,026,776 |
The following table outlines the Company's unsatisfied performance obligations, by product line, as at June 30, 2020:
Less than | One to two | Greater than | ||||||
one year | years | two years | Total | |||||
Engineered Systems | $ | 290,811 | $ | 251 | $ | - | $ | 291,062 |
Service2 | 70,923 | 46,664 | 113,677 | 231,264 | ||||
Rentals2 | 151,566 | 75,582 | 241,673 | 468,821 | ||||
$ | 513,300 | $ | 122,497 | $ | 355,350 | $ | 991,147 | |
- Unsatisfied performance obligations relating to the operation and maintenance of BOOM contracts have been reclassified from Service to Rentals. Please refer to footnote 1 for further details.
Notes to the Interim Condensed Consolidated Financial Statements | 2020 Quarterly Report | 33 |
NOTE 13. SHARE-BASED COMPENSATION
(a) Share-Based Compensation Expense
The share-based compensation expense included in the determination of net earnings was:
Three months ended June 30, | Six months ended June 30, | ||||||||
2020 | 2019 | 2020 | 2019 | ||||||
Equity settled share-based payments | $ | 473 | $ | (173) | $ | 940 | $ | 1,925 | |
Cash settled share-based payments | 217 | (1,733) | (5,339) | 5,552 | |||||
Share-based compensation expense (recovery) | $ | 690 | $ | (1,906) | $ | (4,399) | $ | 7,477 | |
Deferred share units ("DSUs"), phantom share entitlements ("PSEs"), performance share units ("PSUs"), restricted share units ("RSUs"), and cash performance target plan awards ("CPTs") are all classified as cash settled share-based payments. Stock options are equity settled share-based payments.
The Company did not grant any CPTs, PSEs, PSUs, RSUs, or options to officers and key employees during the first six months of 2020. The DSU, PSU, and RSU holders had dividends credited to their accounts during the period. The carrying value of the liability relating to cash settled share-based payments at June 30, 2020 included in current liabilities was $1.5 million (December 31, 2019 - $2.4 million) and in other long term liabilities was $6.1 million (December 31, 2019 - $10.0 million).
(b) Equity-SettledShare-Based Payments
June 30, 2020 | December 31, 2019 | |||||
Weighted | Weighted | |||||
Number of | average exercise | Number of | average exercise | |||
options | price | options | price | |||
Options outstanding, beginning of period | 3,565,521 | $ | 14.67 | 3,662,698 | $ | 14.74 |
Granted | - | - | 890,836 | 13.38 | ||
Exercised1 | - | - | (595,224) | 12.52 | ||
Forfeited | - | - | (371,422) | 15.67 | ||
Expired | - | - | (21,367) | 14.91 | ||
Options outstanding, end of period | 3,565,521 | $ | 14.67 | 3,565,521 | $ | $14.67 |
Options exercisable, end of period | 1,427,608 | $ | 14.93 | 1,427,608 | $ | $14.93 |
1No options were exercised for the six months ended June 30, 2020. The weighted average share price of Options at the date of exercise for the six months ended June 30, 2019 was $18.96.
The following table summarizes options outstanding and exercisable at June 30, 2020:
Options Outstanding | Options Exercisable | |||||||
Weighted | Weighted | Weighted | Weighted | |||||
average | average | average | average | |||||
Range of exercise | Number | remaining | exercise | Number | remaining | exercise | ||
prices | outstanding | life (years) | price | outstanding | life (years) | price | ||
$11.69 - $13.51 | 1,106,811 | 3.32 | $ | 12.39 | 594,929 | 2.48 | $ | 12.27 |
$13.52 - $15.94 | 1,469,275 | 4.39 | 14.64 | 449,776 | 2.10 | 15.04 | ||
$15.95 - $20.75 | 989,435 | 4.17 | 17.28 | 382,903 | 2.69 | 18.96 | ||
Total | 3,565,521 | 4.00 | $ | 14.67 | 1,427,608 | 2.41 | $ | 14.93 |
34 | Enerflex Ltd. | 2020 Quarterly Report |
(c) Cash-SettledShare-Based Payments
During the three and six months ended June 30, 2020, the value of director's compensation and executive bonuses elected to be received in DSUs totalled $0.4 million and $1.7 million (June 30, 2019 - $0.4 million and $0.9 million).
Weighted average grant | |||
Number of DSUs | date fair value per unit | ||
DSUs outstanding, January 1, 2020 | 721,820 | $ | 13.95 |
Granted | 271,773 | 6.15 | |
In lieu of dividends | 23,762 | 7.36 | |
DSUs outstanding, June 30, 2020 | 1,017,355 | $ | 11.71 |
NOTE 14. FINANCE COSTS AND INCOME
Three months ended June 30, | Six months ended June 30, |
2020 | 2019 | 2020 | 2019 | |||||
Finance Costs | ||||||||
Short and long-term borrowings | $ | 5,362 | $ | 4,867 | $ | 10,637 | $ | 10,094 |
Interest on lease liability | 872 | 549 | 1,746 | 1,078 | ||||
Total finance costs | $ | 6,234 | $ | 5,416 | $ | 12,383 | $ | 11,172 |
Finance Income | ||||||||
Bank interest income | $ | 45 | $ | 1,263 | $ | 202 | $ | 2,619 |
Income from finance leases | 21 | 24 | 44 | 49 | ||||
Total finance income | $ | 66 | $ | 1,287 | $ | 246 | $ | 2,668 |
Net finance costs | $ | 6,168 | $ | 4,129 | $ | 12,137 | $ | 8,504 |
NOTE 15. FINANCIAL INSTRUMENTS
Designation and Valuation of Financial Instruments
Financial instruments at June 30, 2020 were designated in the same manner as they were at December 31, 2019. Accordingly, with the exception of the long-term debt Notes, the estimated fair values of financial instruments approximated their carrying values. The carrying value and estimated fair value of the Notes as at June 30, 2020 was $323.5 million and $342.8 million, respectively (December 31, 2019 - $312.3 million and $328.0 million, respectively). The fair value of these Notes at June 30, 2020 was determined on a discounted cash flow basis with a weighted average discount rate of 4.0 percent (December 31, 2019 - 3.8 percent).
Derivative Financial Instruments and Hedge Accounting
Foreign exchange contracts are transacted with financial institutions to hedge foreign currency denominated obligations and cash receipts related to purchases of inventory and sales of products.
Notes to the Interim Condensed Consolidated Financial Statements | 2020 Quarterly Report | 35 |
The following table summarizes the Company's commitments to buy and sell foreign currencies as at June 30, 2020:
Notional amount | Maturity | ||
Canadian Dollar Denominated Contracts | |||
Purchase contracts | USD | 13,990 | July 2020 - January 2021 |
Sales contracts | USD | (30,035) | July 2020 - January 2021 |
Purchase contracts | EUR | 58 | August 2020 |
Australian Dollar Denominated Contracts | |||
Purchase contracts | USD | 1,250 | July 2020 - August 2020 |
At June 30, 2020, the fair value of derivative financial instruments classified as financial assets was $0.9 million, and as financial liabilities was $0.9 million (December 31, 2019 - $0.2 million and $0.4 million, respectively).
Foreign Currency Translation Exposure
The Company is subject to foreign currency translation exposure, primarily due to fluctuations of the Canadian dollar against the U.S. dollar, Australian dollar, and Brazilian real. Enerflex uses foreign currency borrowings to hedge against the exposure that arises from foreign subsidiaries that are translated to the Canadian dollar through a net investment hedge. As a result, exchange gains and losses on the translation of $63.0 million U.S. dollars in designated foreign currency borrowings are included in accumulated other comprehensive income for June 30, 2020. The following table shows the sensitivity to a 5 percent weakening of the Canadian dollar against the U.S. dollar, Australian dollar, and Brazilian real.
Canadian dollar weakens by 5 percent | USD | AUD | BRL | |||
Earnings from foreign operations | ||||||
Earnings before income taxes | $ | 1,959 | $ | 3 | $ | 73 |
Financial instruments held in foreign operations | ||||||
Other comprehensive income | $ | 13,934 | $ | 776 | $ | 241 |
Financial instruments held in Canadian operations | ||||||
Earnings before income taxes | $ | (10,223) | $ | - | $ | - |
The movement in net earnings before tax in Canadian operations is a result of a change in the fair values of financial instruments. The majority of these financial instruments are hedged.
Interest Rate Risk
The Company's liabilities include long-term debt that is subject to fluctuations in interest rates. The Company's Notes outstanding at June 30, 2020 include interest rates that are fixed and therefore the related interest expense will not be impacted by fluctuations in interest rates. The Company's Bank Facility however, is subject to changes in market interest rates.
For each one percent change in the rate of interest on the Bank Facility, the change in annual interest expense would be $1.4 million. All interest charges are recorded on the interim condensed consolidated statement of earnings as finance costs.
Liquidity Risk
Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations associated with financial liabilities. In managing liquidity risk, the Company has access to a significant portion of its Bank Facility for future drawings to meet the Company's future growth targets and to pay its obligations as they come due. As at June 30, 2020, the Company held cash and cash equivalents of $78.6 million and had drawn $142.4 million against the Bank Facility, leaving it with access to $532.2 million for future drawings. The Company continues to meet the covenant requirements of its funded debt, including the Bank Facility and Notes, with a bank-adjusted
36 | Enerflex Ltd. | 2020 Quarterly Report |
net debt to EBITDA ratio of 1.2:1 compared to a maximum ratio of 3:1, and an interest coverage ratio of 14:1 compared to a minimum ratio of 3:1. The interest coverage ratio is calculated by dividing the trailing 12-monthbank-adjusted EBITDA, as defined by the Company's lenders, by interest expense over the same time frame.
A liquidity analysis of the Company's financial instruments has been completed on a maturity basis. The following table outlines the cash flows, including interest associated with the maturity of the Company's financial liabilities, as at June 30, 2020:
Less than 3 | 3 months to | Greater | |||||
months | 1 year | than 1 year | Total | ||||
Derivative financial instruments | |||||||
Foreign currency forward contracts | $ | 754 | $ | 123 | $ | - $ | 877 |
Accounts payable and accrued liabilities | 221,434 | - | - | 221,434 | |||
Long-term debt - Bank Facility | - | - | 142,423 | 142,423 | |||
Long-term debt - Notes | - | 40,000 | 283,490 | 323,490 | |||
Other long-term liabilities | - | - | 7,951 | 7,951 | |||
The Company expects that cash flows from operations in 2020, together with cash and cash equivalents on hand and credit facilities, will be more than sufficient to fund its requirements for investments in working capital and capital assets.
NOTE 16. SUPPLEMENTAL CASH FLOW INFORMATION
Three months ended June 30, | Six months ended June 30, | |||||||
2020 | 2019 | 2020 | 2019 | |||||
Net change in non-cash working capital and | ||||||||
other | ||||||||
Accounts receivable | $ | 6,228 | $ | 7,582 | $ | 60,642 | $ | 125,085 |
Contract assets | 39,262 | (484) | 59,173 | 20,131 | ||||
Inventories | 34,441 | (29,577) | (2,721) | (65,351) | ||||
Deferred revenue | 10,444 | (82,508) | (5,188) | (125,967) | ||||
Accounts payable and accrued liabilities, | ||||||||
provisions, and income taxes payable | (71,916) | 6,181 | (114,336) | 17,028 | ||||
Foreign currency and other | 18,260 | 9,560 | (5,083) | 8,832 | ||||
$ | 36,719 | $ | (89,246) | $ | (7,513) | $ | (20,242) | |
Cash interest and taxes paid and received during the period:
Three months ended June 30, | Six months ended June 30, | |||||||
2020 | 2019 | 2020 | 2019 | |||||
Interest paid - short- and long-term borrowings | $ | 9,233 | $ | 8,819 | $ | 9,958 | $ | 9,501 |
Interest paid - lease liabilities | 872 | 549 | 1,746 | 1,078 | ||||
Total interest paid | $ | 10,105 | $ | 9,368 | $ | 11,704 | $ | 10,579 |
Interest received | 48 | 1,320 | 164 | 2,670 | ||||
Taxes paid | 1,297 | 3,351 | 7,691 | 12,389 | ||||
Taxes received | - | 376 | 234 | 402 | ||||
Notes to the Interim Condensed Consolidated Financial Statements | 2020 Quarterly Report | 37 |
Changes in liabilities arising from financing activities during the period:
Three months ended June 30, | Six months ended June 30, | |||||||
2020 | 2019 | 2020 | 2019 | |||||
Long-term debt, opening balance | $ | 474,388 | $ | 343,757 | $ | 430,487 | $ | 444,712 |
Changes from financing cash flows | 649 | 27,063 | 15,934 | (67,887) | ||||
The effect of changes in foreign exchange rates | (12,175) | (5,255) | 16,361 | (11,786) | ||||
Amortization of deferred transaction costs | 230 | 548 | 459 | 1,069 | ||||
Other changes | 66 | (677) | (83) | (672) | ||||
Long-term debt, closing balance | $ | 463,158 | $ | 365,436 | $ | 463,158 | $ | 365,436 |
NOTE 17. GUARANTEES, COMMITMENTS, AND CONTINGENCIES
At June 30, 2020, the Company had outstanding letters of credit of $50.4 million (December 31, 2019 - $46.3 million).
The Company is involved in litigation and claims associated with normal operations against which certain provisions have been made in the financial statements. Management is of the opinion that any resulting settlement arising from the litigation would not materially affect the financial position, results of operations or liquidity of the Company.
The Company has purchase obligations over the next three years as follows:
2020 | $ | 102,973 |
2021 | 3,642 | |
2022 | 1,337 | |
NOTE 18. SEASONALITY
The oil and natural gas service sector in Canada and in some parts of the USA has a distinct seasonal trend in activity levels which results from well-site access and drilling pattern adjustments to take advantage of weather conditions. Generally, Enerflex's Engineered Systems product line has experienced higher revenues in the fourth quarter of each year while Service and Rentals product line revenues have been stable throughout the year. Rentals revenues are also impacted by both the Company's and its customers' capital investment decisions. The USA and Rest of World segments are not significantly impacted by seasonal variations. Variations from these trends usually occur when hydrocarbon energy fundamentals are either improving or deteriorating.
NOTE 19. SEGMENTED INFORMATION
Enerflex has identified three reportable operating segments as outlined below, each supported by the Corporate head office. Corporate overheads are allocated to the operating segments based on revenue. In assessing its operating segments, the Company considered economic characteristics, the nature of products and services provided, the nature of production processes, the type of customer for its products and services, and distribution methods used. For each of the operating segments, the Chief Operating Decision Maker reviews internal management reports on at least a quarterly basis. For the six months ended June 30, 2020, the Company recognized $80.2 million of revenue from one customer in the USA and Canada segments, which represented 12.3 percent of total consolidated revenue for the period. At June 30, 2020, amounts owing from the customer included in accounts receivable and contract assets was $33.7 million, which represented 8.9 percent of the total balance of accounts receivable and contract assets.
38 | Enerflex Ltd. | 2020 Quarterly Report |
The following summary describes the operations of each of the Company's reportable segments:
- USA generates revenue from manufacturing natural gas compression and processing equipment, including custom and standard compression packages and modular natural gas processing equipment and refrigeration systems, in addition to generating revenue from mechanical services and parts, operations and maintenance solutions, and contract compression rentals;
- Rest of World generates revenue from manufacturing (focusing on large-scale process equipment), after-market services, including parts and components, as well as operations, maintenance, and overhaul services, and rentals of compression and processing equipment. The Rest of World segment has been successful in securing build-own-operate-maintain and integrated turnkey projects; and
- Canada generates revenue from manufacturing both custom and standard natural gas compression, processing, and electric power equipment, as well as providing after-market mechanical service, parts, and compression and power generation rentals.
The accounting policies of the reportable operating segments are the same as those described in the summary of significant accounting policies.
Three months ended | USA | Rest of World | Canada | Total | ||||||||||||
June 30, | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||
Segment revenue | $ | 179,440 | $ | 337,411 | $ | 59,533 | $ | 91,821 | $ | 51,182 | $ | 122,769 | $ | 290,155 | $ | 552,001 |
Intersegment revenue | (2,042) | (10,343) | - | (113) | (675) | 329 | (2,717) | (10,127) | ||||||||
Revenue | $ | 177,398 | $ | 327,068 | $ | 59,533 | $ | 91,708 | $ | 50,507 | $ | 123,098 | $ | 287,438 | $ | 541,874 |
Revenue - Engineered | ||||||||||||||||
Systems | 113,282 | 263,041 | 189 | 20,169 | 35,726 | 101,743 | 149,197 | 384,953 | ||||||||
Revenue - Service1 | 41,307 | 44,800 | 22,850 | 29,559 | 12,877 | 18,093 | 77,034 | 92,452 | ||||||||
Revenue - Rentals1 | 22,809 | 19,227 | 36,494 | 41,980 | 1,904 | 3,262 | 61,207 | 64,469 | ||||||||
Operating income | $ | 6,751 | $ | 49,832 | $ | 3,807 | $ | 2,869 | $ | 3,881 | $ | 10,516 | $ | 14,439 | $ | 63,217 |
Six months ended | USA | Rest of World | Canada | Total | ||||||||||||
June 30, | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||
Segment revenue | $ | 408,621 | $ | 642,302 | $ | 129,808 | $ | 193,086 | $ | 120,535 | $ | 231,167 | $ | 658,964 | $ | 1,066,555 |
Intersegment revenue | (4,114) | (22,717) | - | (7,575) | (1,672) | (9,487) | (5,786) | (39,779) | ||||||||
Revenue | $ | 404,507 | $ | 619,585 | $ | 129,808 | $ | 185,511 | $ | 118,863 | $ | 221,680 | $ | 653,178 | $ | 1,026,776 |
Revenue - Engineered | ||||||||||||||||
Systems | 278,898 | 503,035 | 6,845 | 46,749 | 88,847 | 180,631 | 374,590 | 730,415 | ||||||||
Revenue - Service1 | 79,568 | 80,643 | 46,730 | 57,627 | 25,712 | 35,042 | 152,010 | 173,312 | ||||||||
Revenue - Rentals1 | 46,041 | 35,907 | 76,233 | 81,135 | 4,304 | 6,007 | 126,578 | 123,049 | ||||||||
Operating income | $ | 44,135 | $ | 75,673 | $ | 14,020 | $ | 4,827 | $ | 6,504 | 15,664 | $ | 64,659 | $ | 96,164 |
- Revenues from the operation and maintenance of BOOM contracts have been reclassified from the Service to Rentals product line including $11,717 previously disclosed during the first quarter of 2020. For the three and six months ended June 30, 2019, $10,744 and $21,400 have been reclassified. Please refer to Note 12 for further details.
USA | Rest of World | Canada | Total | |||||||||||||
Jun. 30, | Dec. 31, | Jun. 30, | Dec. 31, | Jun. 30, | Dec. 31, | Jun. 30, | Dec. 31, | |||||||||
As at | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||
Segment assets | $ | 961,851 | $ | 948,437 | $ | 613,655 | $ | 601,512 | $ | 531,694 | $ | 552,457 | $ | 2,107,200 | $ | 2,102,406 |
Goodwill | 166,009 | 158,214 | 341,001 | 327,347 | 88,367 | 88,367 | 595,377 | 573,928 | ||||||||
Corporate | - | - | - | - | - | - | (329,574) | (295,326) | ||||||||
Total segment assets | $ | 1,127,860 | $ | 1,106,651 | $ | 954,656 | $ | 928,859 | $ | 620,061 | $ | 640,824 | $ | 2,373,003 | $ | 2,381,008 |
Notes to the Interim Condensed Consolidated Financial Statements | 2020 Quarterly Report | 39 |
NOTE 20. SUBSEQUENT EVENTS
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.
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. 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.
40 | Enerflex Ltd. | 2020 Quarterly Report |
DIRECTORS
AND EXECUTIVES
Enerflex's Executive Management Team:
Left to Right - Andrew Jack, Greg Stewart, David Izett, Marc Rossiter,
Sanjay Bishnoi, Phil Pyle, and Patricia Martinez.
BOARD OF DIRECTORS | EXECUTIVES | |
FERNANDO ASSING | MARC E. ROSSITER | SANJAY BISHNOI |
Director | Director | Senior Vice President, Chief Financial Officer |
Katy, TX | President and Chief Executive Officer | Calgary, AB |
Calgary, AB | ||
ROBERT S. BOSWELL 1, 4 | STEPHEN J. SAVIDANT 7 | ANDREW JACK |
Director | Chairman | President, Canada |
Denver, CO | Calgary, AB | Calgary, AB |
MAUREEN CORMIER JACKSON 6 | JUAN CARLOS VILLEGAS 4 | PATRICIA MARTINEZ |
Director | Director | President, Latin America |
Calgary, AB | Vitacura, Chile | Houston, TX |
W. BYRON DUNN 2, 4 | MICHAEL A. WEILL 6 | PHIL PYLE |
Director | Director | President, International |
Dallas, TX | Houston, TX | Abu Dhabi, UAE |
H. STANLEY MARSHALL 2, 3 | HELEN J. WESLEY 2, 6 | GREG STEWART |
Director | Director | President, United States of America |
Paradise, NL | Calgary, AB | Houston, TX |
KEVIN J. REINHART 5 | DAVID IZETT | |
Director | Senior Vice President, General Counsel | |
Calgary, AB | Calgary, AB |
1. Chair of the Nominating and | 3. Chair of the Human Resources and | 5. Chair of the Audit Committee |
Corporate Governance Committee | Compensation Committee | 6. Member of the Audit Committee |
2. Member of the Nominating and | 4. Member of the Human Resources | 7. Chairman of the Board |
Corporate Governance Committee | and Compensation Committee | |
SHAREHOLDERS'
INFORMATION
COMMON SHARES | AUDITORS |
The common shares of Enerflex are listed and traded on the Toronto | Ernst & Young | Calgary, AB, Canada |
Stock Exchange under the symbol "EFX". |
TRANSFER AGENT, REGISTRAR, AND DIVIDEND DISBURSING AGENT
AST Trust Company (Canada)
Calgary, AB, Canada and Toronto, ON, Canada
For shareholder enquiries:
AST Trust Company (Canada)
2001 Boul. Robert-Bourassa, Suite 1600
Montreal, QC, H3A 2A6, Canada
Mail:
PO Box 700
Station B
Montreal, QC, H3B 3K3, Canada
Tel: +1.800.387.0825 | +1.416.682.3860
Fax: +1.888.249.6189
Email: inquiries@astfinancial.com
Web: astfinancial.com/ca-en
All questions about accounts, share certificates, or dividend cheques should be directed to the Transfer Agent, Registrar, and Dividend Disbursing Agent.
BANKERS
The Toronto Dominion Bank | Calgary, AB, Canada
The Bank of Nova Scotia | Toronto, ON, Canada
INVESTOR RELATIONS
Enerflex Ltd.
Suite 904, 1331 Macleod Trail SE
Calgary, AB, T2G 0K3, Canada
Tel: +1.403.387.6377 | Email: ir@enerflex.com
Requests for Enerflex's Annual Report, Quarterly Reports, and other corporate communications should be directed to ir@enerflex.com.
HEAD OFFICE
Suite 904
1331 Macleod Trail SE
Calgary, Alberta, Canada
T2G 0K3
+ 1 403 387 6377
enerflex.com
ir@enerflex.com
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Enerflex Ltd. published this content on 06 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 August 2020 21:48:09 UTC