Mr. Blair Goertzen reports

ENERFLEX REPORTS FOURTH QUARTER AND YEAR END 2014 FINANCIAL RESULTS AND ANNOUNCES QUARTERLY DIVIDEND

Enerflex Ltd. has released its financial and operating results for the three and 12 months ended Dec. 31, 2014.

Fourth quarter 2014 compared with fourth quarter 2013

• Revenue: $523.3-million, up 49 per cent from $350.1-million;
• Gross margin: $93.3-million, up 58 per cent from $59.1-million, or 17.8 per cent of revenue versus 16.9 per cent;
• Earnings before interest and taxes: $39.7-million, up 141 per cent from $16.5-million;
• EBIT as a percentage of revenue: 7.6 per cent versus 4.7 per cent;
• Earnings per share from continuing operations: 33 cents, up 136 per cent from 14 cents;
• Normalized EBIT: $49.9-million, up 146 per cent from $20.3-million;
• Normalized EBIT as a percentage of revenue: 9.5 per cent versus 5.8 per cent;
• Normalized EPS from continuing operations: 43 cents, up 153 per cent from 17 cents;
• Bookings: $422.5-million, up 9 per cent from $386.4-million;
• Backlog: $916.5-million, up 15 per cent from $794.0-million.

"Notwithstanding our strong fourth quarter performance, we are adjusting expenditures and operations for the challenges of a lower-oil-price environment," said J. Blair Goertzen, president and chief executive officer of Enerflex. "Cost-saving initiatives that we have already commenced, along with increasing recurring revenues, a geographically diversified business and our solid backlog, will best position Enerflex and preserve the strength of our balance sheet as we navigate through the uncertainties of 2015."

Bookings, backlog and outlook

Despite challenging commodity price conditions, the company successfully converted opportunities in liquids-rich plays in Canada and the United States, and other opportunities in the Middle East and North Africa (MENA) region, resulting in a 9-per-cent, or $36.1-million, year-over-year increase in bookings in the fourth quarter of 2014. The company finished 2014 with a backlog increase of $122.5-million, or 15 per cent. Sequentially, backlog has increased by $50.1-million, or 6 per cent, from Sept. 30, 2014.

The downturn in commodity prices over the past several months has started to impact the company's customers, which in turn is likely to negatively impact demand for the company's products and services during 2015. The company has already seen some minor project deferrals and cancellations, with customers reducing their capital budgets in 2015. The company expects further capital reductions as the commodity price challenges continue, and as customers seek to preserve financial flexibility and protect their long-term businesses.

Cost savings initiatives

In the context of this outlook, and being mindful of the company's EBIT goal of 10 per cent, the company is responding with immediate cost savings initiatives. In January, 2015, the company implemented staff reductions, a company-wide hiring freeze, salary increase deferrals, business travel expense limitations, reduced marketing expenditures, and significant reductions in capital expenditures for facilities, IT infrastructure and maintenance, except where essential. These initiatives will be regularly reviewed throughout the year and adjusted as the market evolves, and as the company continues to evaluate the impact of low commodity prices on its business.

The company has also decided to close its production and processing facility in Nisku, Alta., and discontinue operations in the oil sands module fabrication market. The company has taken this action in response to current uncertainty, increasing competition and operational challenges in achieving bid margins on oil sands projects. Starting in the second half of 2014, existing backlog for traditional gas processing work has been transferred to other Enerflex manufacturing facilities in Alberta for fabrication. After completing projects currently in production, the Nisku assets will be held for sale and the business reported as a discontinued operation.

      FOURTH QUARTER AND FULL YEAR 2014 RESULTS
   (In millions, except per share and percentages)

                              Three months ended Dec. 31,
                                      2014          2013

Revenue                           $  523.3      $  350.1
Gross margin                          93.3          59.1
Gross margin %                        17.8%         16.9%
EBIT                                  39.7          16.5
EBIT %                                 7.6%          4.7%
Normalized EBIT                       49.9          20.3
Normalized EBIT %                      9.5%          5.8%
Net earnings (loss)
Continuing                            25.8          10.8
Discontinued                             -          (0.1)
Earnings (loss) per share
Continuing                            0.33          0.14
Discontinued                             -             -
Normalized earnings per
share -- continuing                   0.43          0.17
Bookings                             422.5         386.4
Backlog                              916.5         794.0

                                 12 months ended Dec. 31,
                                      2014          2013

Revenue                        $   1,780.7   $   1,405.0
Gross margin                         323.0         245.9
Gross margin %                        18.1%         17.5%
EBIT                                 125.7          87.3
EBIT %                                 7.1%          6.2%
Normalized EBIT                      150.6          91.6
Normalized EBIT %                      8.5%          6.5%
Net earnings (loss)
Continuing                            71.2          57.7
Discontinued                             -          (1.9)
Earnings (loss) per share
Continuing                            0.91          0.74
Discontinued                             -         (0.02)
Normalized earnings per
share -- continuing                   1.25          0.78
Bookings                           1,416.9       1,140.8
Backlog                              916.5         794.0

Results overview

Financial results for the quarter were in line with expectations and significantly improved on the same period last year. For the fourth quarter, results for all segments, and therefore overall results for the company, improved compared with the same period in 2013. Significant increases in revenue and gross margin, in part due to the business acquired from Axip Energy Services LP, partially offset by higher selling, general and administrative (SG&A) expenses, drove strong results for the fourth quarter of 2014. Results normalized for one-time transaction expenses associated with the purchase of the Axip business, non-recurring severance and restructuring costs, and losses associated with the Alberta oil sands business were further improved compared with the prior year, with a normalized EBIT of $50-million for the fourth quarter of 2014.

Notwithstanding the excellent contribution from the six months inclusion of the Axip business and much improved revenues, earnings for the year remained below expectations, largely due to the cost increases in the international segment on the Oman project, the related impact on gross margin and an increase in SG&A expenses. The increase in SG&A expenses was in large part driven by the growth in the business, both organic and through acquisition, and non-recurring costs associated with severance and restructuring, and costs associated with the purchase of the Axip business. For the year ended Dec. 31, 2014, results for the Canada and Northern U.S., and Southern U.S. and Latin America segments, as well as overall results for the company, have improved when compared with the same period in 2013. Normalized results were significantly improved compared with the prior year, with a normalized EBIT of $151-million for 2014.

Progress on 2014 strategic objectives

The company completed and in some cases exceeded its 2014 strategic objectives. Firstly, the company progressed toward its goal of generating 35-per-cent to 40-per-cent recurring revenue on a trailing 12-month basis. Recurring revenue, which is defined as revenue from the service and rentals product lines, has increased to 27.3 per cent from 26.7 per cent of revenue for the years ended Dec. 31, 2014, and 2013, respectively.

The company also reduced its company-wide total recordable injury rate by 9 per cent over its 2013 rate, which exceeded its strategic objective of a 4-per-cent improvement in this rate. The company continues to work toward its objective of a 10-per-cent EBIT margin, with EBIT as a percentage of revenue increasing to 7.1 per cent from 6.2 per cent for the years ended Dec. 31, 2014, and 2013, respectively.

Segmented results

For the quarter and full year 2014, revenue was higher in the Canada and Northern U.S., and Southern U.S. and Latin America segments, partially offset by lower revenue in the international segment.

Canada and Northern U.S. segment revenue increased by $40.1-million, or 27 per cent, during the fourth quarter of 2014 and by $157.9-million, or 30 per cent, during 2014, as a result of higher engineered systems revenue due to higher opening backlog. During the year ended Dec. 31, 2014, Service revenue was higher on increased parts sales, partially offset by lower rental revenue as a result of a decrease in the total horsepower under rental contracts and a decrease in rental unit sales.

Southern U.S. and Latin America segment revenue increased by $149.3-million, or 119 per cent, in the fourth quarter of 2014 and by $295.3-million, or 59 per cent, for the year ended Dec. 31, 2014, due to higher engineered systems revenue as a result of higher opening backlog, higher service revenue on increased service calls and parts sales, and the contribution of the business acquired from Axip, compared with the same periods in 2013. The segment recorded higher rental revenue as a result of the business acquired from Axip.

International segment revenue decreased by $16.2-million, or 21 per cent, in the fourth quarter of 2014 and by $77.5-million, or 21 per cent, for the 2014 year, as a result of lower engineered systems revenue due to lower opening backlog. These decreases in revenue were partially offset by higher rental revenue due to the contribution of the rental business acquired from Axip and for the 2014 year due to higher service revenue resulting from increased activity in the Australasia and MENA regions.

Increases in the company's overall gross margin were due to higher gross margins in all three segments. The higher gross margin in the Canada and Northern U.S. segment resulted from the positive impact of higher revenue, lower warranty expense and stronger plant utilization, partially offset by lower project margins primarily on oil sands projects at the Nisku facility.

In the Southern U.S. and Latin America segment, increases in gross margin were attributable to higher revenues, in part due to the acquisition of the Axip business, and improved plant utilization, partially offset by lower warranty releases and lower project margins.

Higher gross margin in the international segment was due to improved project margins, partially offset by the impact of lower revenues and the corresponding impact on gross margin. In 2014, the company achieved a number of project execution efficiencies, particularly in Australia, which when combined with the Oman project and other minor project execution challenges, resulted in gross margin erosion for the year of $12.8-million. This compares with margin erosion in 2013 of $20.0-million on international projects.

During the early part of 2014, the company completed two international projects in the Australasia region with no additional material cost increases after having experienced margin erosion in 2013. On a third international project in Oman, the company continued to experience customer-driven scope and schedule challenges, with cost increases identified during the 2014 year with a total gross margin impact of $25.6-million.

The Oman plant is exporting gas and condensate to specification, mechanical completion having been achieved and certified by the customer. The company has submitted variation claims for cost increases on the project, which are common for engineering, procurement and construction contracts, and the company continues to pursue these claims vigorously with the customer.

To the extent the company subsequently recovers these cost increases through approved variation claims from customers, it will recognize revenue in the corresponding period. Variation claims are typically approved at the completion of the project. This results in volatility in gross margins as costs are recognized as incurred on these projects, while revenue resulting from variation claims is recognized in the period that these claims are approved.

The increase in the company's overall bookings in the fourth quarter of 2014 was due to higher bookings in the Southern U.S. and Latin America, and international segments, with Canada and Northern U.S. bookings slightly lower than 2013 levels.

For the full year 2014, bookings were higher in all segments compared with 2013. The increase in bookings in the Canada and Northern U.S. segment during 2014 was due to an increase in domestic activity levels, despite continued weakness in natural gas prices and the impact of lower oil prices on customers. In the Southern U.S. and Latin America segment, bookings increased as a result of significantly higher domestic bookings in the U.S. on weak but stable market fundamentals and bookings in Latin America, partially offset by lower bookings destined for international markets. Booking levels in the international segment increased in 2014 as a result of increased activity in the Australasia and MENA regions.

Dividend

Subsequent to the end of 2014, Enerflex declared a quarterly dividend of 8.5 cents per share, payable on April 9, 2015, to shareholders of record on March 11, 2015.

Acquisition of the Axip business

On June 30, 2014, Enerflex completed the acquisition of the Axip business for approximately $431.0-million (U.S.) in cash, inclusive of closing purchase price adjustments. Accordingly, starting in the third quarter of 2014, Enerflex's results reflect the contribution of the acquired business, now fully integrated into the Enerflex operations and conducting business under the Enerflex name. The Axip business contributed $118.9-million in revenue and $23.0-million in EBIT during 2014.

Quarterly results material

Enerflex's consolidated financial statements as at and for the year ended Dec. 31, 2014, and the accompanying management's discussion and analysis will be available on the Enerflex website under the investors section and on SEDAR.

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