Mr. J. Blair Goertzen reports

ENERFLEX REPORTS FIRST QUARTER 2015 FINANCIAL RESULTS

Enerflex Ltd. is releasing its financial and operating results for the three months ended March 31, 2015.

Summary, first quarter of 2015, compared with first quarter of 2014:

• Revenue of $475.3-million, up 43.0 per cent from $332.4-million;
• Gross margin of $84.0-million, up 57.8 per cent from $53.3-million, or 17.7 per cent of revenue versus 16.0 per cent;
• EBIT (earnings before interest (finance costs) and taxes) of $36.1-million, up 257.4 per cent from $10.1-million;
• EBIT (trailing 12-month) as a percentage of revenue of 7.9 per cent, versus 5.4 per cent;
• Earnings per share of 29 cents, up 480 per cent from five cents;
• Bookings of $140.6-million, down 40.9 per cent from $237.9-million;
• Backlog of $715.1-million, down 10.8 per cent from $801.9-million.

"Our strong first quarter financial results were attributable to momentum we achieved before the sharp decline in oil prices during the fourth quarter of 2014, together with the strong contribution from the Axip business. However, the decline in our bookings, a key leading indicator, confirms our expectation of challenges ahead," said J. Blair Goertzen, Enerflex's president and chief executive officer. "With our innovative approach to product sales, increased recurring revenues, a geographically diversified business and considerable backlog, Enerflex is well positioned to weather these challenges. The company's early implementation of and ongoing cost cutting initiatives provide additional financial flexibility to successfully navigate this uncertain economic environment."

Bookings, backlog and outlook

During the first quarter of 2015, the continuing commodity price challenges in North America resulted in a 40.9-per-cent or $97.3-million decrease in bookings in the first quarter of 2015. The movement in exchange rates during the quarter had a favourable impact on U.S.-dollar-denominated bookings. The company finished the first quarter with a backlog of $715.1-million. Sequentially, backlog has decreased by $201.4-million from Dec. 31, 2014, as lower bookings were more than offset by engineered systems revenue recognized in the period.

With customers reducing their capital budgets in 2015, Enerflex has experienced some minor project cancellations. It expects further capital reductions as the weak commodity prices continue, and as customers seek to preserve financial flexibility and protect their market positions. This is likely to reduce demand for Enerflex products and services during 2015. These market conditions create significant uncertainty for bookings and activity levels in the second quarter of 2015, and therefore backlog and revenue over the remainder of 2015, and into 2016.

Notwithstanding the weaker markets, the company's financial performance will benefit from strong backlog levels entering 2015, several long-term rental and service contracts, and from a geographically diversified business. With the business acquired from Axip Energy Services LP, Enerflex has successfully positioned itself to deliver growth from market opportunities in Latin America and to increase recurring revenues globally.

Cost savings initiatives

Enerflex has been pro-active in anticipation of the reduction in business activity in North America, and has implemented measures to streamline its business, control costs and move forward toward its EBIT goal of 10 per cent. Among measures implemented during the quarter, the company made head count reductions of over 200 employees, which resulted in severance costs of $1.8-million. Even including the impact on SG&A (selling, general and administrative) of severance costs, SG&A as a percentage of revenue decreased to 10.8 per cent, from 13.8 per cent in the first quarter of 2014. Despite the addition of a full year of results for the business acquired from Axip and inflationary pressures, Enerflex is targeting overall 2015 SG&A levels consistent with those in 2014.

Other cost control measures include a company-wide hiring and salary freeze, business travel expense limitations, reduced marketing expenditures, and significant reductions in expenditures for facilities, IT infrastructure and maintenance, except where critical. These initiatives, which are targeted to result in SG&A levels consistent with those in 2014, will be regularly reviewed throughout the year, and adjusted as the market evolves and as management continues to evaluate the impact low commodity prices will have to its business. During the quarter, the company also made progress toward the previously announced closure of its manufacturing business in Nisku.

           SUMMARY TABLE OF FIRST QUARTER 2015 RESULTS 
(in millions of dollars, except per-share amounts and percentages)
                
                                          Three months ended March 31,
                                            2015                 2014

Revenue                                 $  475.3             $  332.4
Gross margin                                84.0                 53.3
Gross margin                                17.7%                16.0%
EBIT                                        36.1                 10.1
EBIT                                         7.6%                 3.0%
Net earnings                                22.9                  4.0
Earnings per share                      $   0.29             $   0.05
Bookings                                   140.6                237.9
Backlog                                    715.1                801.9

Results overview

Financial results for the quarter were significantly improved on the same period last year, with revenues and gross margin higher in all three segments. Net earnings increased on higher EBIT, partially offset by higher income tax expense, and lower equity earnings from associates and joint ventures. The significant improvement in EBIT in the first quarter of 2015 is attributable to strong increases in revenue and gross margin, partially offset by higher SG&A expenses. These increases were driven in part by the Axip business, which contributed revenues of $39.2-million and EBIT of $8.3-million during the quarter. Results also benefited from favourable foreign exchange movements, most notably between the U.S. and Canadian dollar.

Progress on 2015 strategic objectives

During the first quarter, the company made good progress on its 2015 strategic objectives. Enerflex reduced its company-wide total recordable injury rate by 51 per cent over its 2014 rate. It continues to work toward its objective of a 10-per-cent EBIT margin, with EBIT as a percentage of revenue increasing to 7.9 per cent for the trailing 12 months ended March 31, 2015, compared with 5.4 per cent for the same period of 2014. While recurring revenue on a trailing-month basis was slightly down at 26.9 per cent, compared with 28.4 per cent for the same period in 2014, the company expects to make progress toward its 35-per-cent to 40-per-cent goal through the remainder of 2015, as it approaches a full year of contribution from the Axip business. While Enerflex has been pro-active, the current economic environment and an extended slowdown will make achievement of these objectives more challenging.

Segmented results

Effective Jan. 1, 2015, the company realigned its reporting segments into Canada, the United States and the rest-of-world segments. The U.S. segment now includes the Northern United States service business, as well as the retrofit and rentals operations based out of Casper, Wyo., both of which were previously reported in the Canada and Northern U.S. segment. The rest-of-world segment includes what were previously the Latin American engineered systems, after-market service and rental businesses, combined with what was previously the international segment.

Canada segment revenue in the first quarter of 2015 was $171.8-million, up $53.5-million or 45.2 per cent from $118.3-million a year earlier, due to higher engineered systems revenue resulting from higher opening backlog, partially offset by lower service and rental revenues. Lower service revenue resulted from lower parts sales, while lower rental revenue was due to a decrease in rental unit sales.

Operating income increased on higher gross margin and lower SG&A expenses. The higher gross margin resulted from the positive impact of higher revenue, partially offset by lower project margins. The decrease in SG&A expense was due to lower depreciation and amortization expense, favourable foreign exchange movements, and bad debt recoveries.

U.S. segment revenue in the first quarter of 2015 was $207.1-million, up $64.7-million or 45.4 per cent from $142.4-million a year earlier, due to higher engineered systems revenue as a result of higher opening backlog, partially offset by slightly lower service revenue on reduced parts sales, compared with the same period in 2014.

Operating income decreased due to higher SG&A expense, partially offset by slightly higher gross margin. SG&A expenses were higher in 2015, as a result of higher compensation expense on increased head count as the U.S. business grew during 2014. The increase in gross margin was attributable to higher revenues, largely offset by lower project margins, reflecting a larger proportion of compression versus process work.

Rest-of-world segment revenue in the first quarter of 2015 was $96.4-million, up $24.7-million or 34.4 per cent from $71.7-million a year earlier, as a result of higher service and rental revenues as a result of increased activity in the Australia, Latin America and MEA regions, primarily due to the contribution of the rental business acquired as part of the Axip business. These increases in revenue were partially offset by lower engineered systems revenue resulting from the timing of conversion of backlog to revenue.

Operating income increased as a result of improved gross margin, partially offset by higher SG&A expenses. For the first quarter, higher gross margin was due to the new rental operations, improved project margins, and the impact of higher revenues and the corresponding impact on gross margin. In the first quarter of 2014, the company experienced significant margin erosion on a large project in Oman. Variation claim discussions related to cost increases on this project continue. SG&A expenses were higher in 2015, compared with 2014, on higher compensation expense, and higher office and occupancy costs, due to the acquisition of the Axip business, partially offset by favourable foreign exchange movements.

Dividend

Subsequent to the end of the first quarter of 2015, Enerflex declared a quarterly dividend of 8.5 cents per share, payable on July 9, 2015, to shareholders of record on May 20, 2015.

Quarterly results material

Enerflex's interim condensed financial statements as at and for the three months ended March 31, 2015, and the accompanying management's discussion and analysis, will be available on the Enerflex website under the investors section and on SEDAR.

Conference call and webcast details

Enerflex will host a conference call for analysts, investors, members of the media and other interested parties on Thursday, May 7, 2015, at 8 a.m. MST (10 a.m. EST), to discuss the first quarter 2015 financial results and operating highlights. The call will be hosted by Mr. Goertzen and D. James Harbilas, executive vice-president and chief financial officer of Enerflex.

If you wish to participate in this conference call, please call 1-800-736-4594. Please dial in 10 minutes prior to the start of the call. No passcode is required. The live audio webcast of the conference call will be available on the Enerflex website under the investors section on May 7, 2015, at 9 a.m. MST (11 a.m. EST). Approximately one hour after the call, a recording of the event will be available on the company's website. A replay of the teleconference will be available one hour after the conclusion of the call until midnight, May 14, 2015. Please call 1-800-558-5253 or 1-416-626-4100 and enter passcode 21767625.

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