Base EBITDA growth of 81% year-over-yearEmbedded
gross margin highest in the Company’s historyBase Funds from
Operations TTM payout ratio improved to 82%
Just Energy Group, Inc. (TSX:JE; NYSE:JE), a leading consumer
company specializing in electricity and natural gas commodities,
energy efficiency solutions, renewable energy options, and water
quality and filtration devices, today announced results for its
fiscal 2019 second quarter ended September 30, 2018.
Key Highlights:
- Gross margin of $173.3 million for the second quarter increased
22% from the prior year, mainly due to improved pricing power in
North America and increased international sales
activities.
- Base EBITDA of $37.3 million for the second quarter increased
81% due to the significant improvement in gross margin driven by
improved pricing power, offset by higher bad debts and an increase
in administrative expenses to support the growth initiatives.
- Embedded gross margin reached a Company record of $2.3 billion
increasing $721.2 million or 45% compared to the prior comparable
period, as the result of pricing optimization actions during the
quarter. The embedded gross margin includes $45.2 million from
Filter Group Inc. which was acquired on October 1, 2018.
- Base FFO increased 241% to $26.2 million year-over-year, driven
by the significant improvements in Base EBITDA.
- The payout ratio on Base FFO for the second quarter was 85%,
compared with 279% in the prior comparable quarter. The payout
ratio for the trailing 12 months was 82%, compared with 106% for
the trailing 12 months one year ago.
- Administrative expenses increased by $11.7 million, or 25%, to
support talent acquisition and retention, investment in process
improvements and operational efficiencies and ongoing business
acquisition activities. The Company continues its efforts to reduce
administrative expenses through greater automation and
consolidation of support activities. Selling and marketing expenses
decreased $1.8 million, or 3%, for the three months ended September
30, 2018 due to the capitalization of upfront commission expenses
and the reduction of non-commission selling expenses as a result of
the consolidation of regional sales offices and diversification of
sales channels.
- Finance costs of $20.1 million increased by 61% in the second
quarter, primarily driven by the premium and fees associated with
the partial redemption of the 6.5% convertible bonds, higher
collateral related costs associated with Texas electricity markets
and interest expense from the increased utilization of the credit
facility and higher interest rates.
- Customer count increased 3% to 1.6 million, which includes
27,230 distinct customers from Filter Group Inc.’s water filter
subscriptions. Filter Group Inc. has 32,488 home water filtration
systems installed throughout Canada and the U.S.
- Total RCEs of 4.2 million improved 2% year-over-year. During
the second quarter, gross RCE additions were 290,000 and net RCE
additions were a negative 9,000.
- The Company reaffirms its fiscal 2019 Base EBITDA guidance
range of $200 million to $220 million, including the implementation
of IFRS 15. This represents approximately 10% year-over-year Base
EBITDA growth at the midpoint of guidance over an adjusted fiscal
2018 Base EBITDA.
Financial
highlights |
For the three months ended September 30 |
|
|
|
(thousands of dollars, except where indicated and
per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% increase |
|
|
|
|
Fiscal 2019 |
|
(decrease) |
|
Fiscal 2018 |
Sales |
$ |
956,843 |
|
|
12 |
% |
|
$ |
851,927 |
|
Gross margin |
|
173,339 |
|
|
22 |
% |
|
|
142,663 |
|
Administrative expenses |
|
58,508 |
|
|
25 |
% |
|
|
46,806 |
|
Selling and marketing expenses |
|
56,749 |
|
|
(3 |
)% |
|
|
58,577 |
|
Finance costs |
|
20,123 |
|
|
61 |
% |
|
|
12,521 |
|
Loss1 |
|
(21,450 |
) |
|
67 |
% |
|
|
(64,923 |
) |
Loss per share available to shareholders - basic and diluted |
|
(0.16 |
) |
|
|
|
|
(0.48 |
) |
Dividends/distributions |
|
22,330 |
|
|
4 |
% |
|
|
21,468 |
|
Base EBITDA2 |
|
37,261 |
|
|
81 |
% |
|
|
20,548 |
|
Base Funds from Operations2 |
|
26,223 |
|
|
241 |
% |
|
|
7,683 |
|
Payout ratio on Base Funds from
Operations2 |
|
85% |
|
|
|
|
|
279% |
|
Financial
highlights |
For the six months ended September 30 |
|
|
|
(thousands of dollars, except where indicated and
per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% increase |
|
|
|
|
Fiscal 2019 |
|
(decrease) |
|
Fiscal 2018 |
Sales |
$ |
1,833,300 |
|
|
8 |
% |
|
$ |
1,699,633 |
|
Gross margin |
|
326,871 |
|
|
9 |
% |
|
|
300,226 |
|
Administrative expenses |
|
114,190 |
|
|
20 |
% |
|
|
95,437 |
|
Selling and marketing expenses |
|
107,292 |
|
|
(8 |
)% |
|
|
116,653 |
|
Finance costs |
|
36,463 |
|
|
49 |
% |
|
|
24,511 |
|
Profit (loss) for the period1 |
|
(62,873 |
) |
|
(242 |
)% |
|
|
44,386 |
|
Profit (loss) per share available to shareholders - basic |
|
(0.45 |
) |
|
|
|
|
0.21 |
|
Profit (loss) per share available to shareholders - diluted |
|
(0.45 |
) |
|
|
|
|
0.17 |
|
Dividends/distributions |
|
44,592 |
|
|
3 |
% |
|
|
43,251 |
|
Base EBITDA2 |
|
64,541 |
|
|
22 |
% |
|
|
53,057 |
|
Base FFO2 |
|
44,337 |
|
|
57 |
% |
|
|
28,191 |
|
Payout ratio on Base FFO2 |
|
101% |
|
|
|
|
|
153% |
|
Embedded gross margin2 |
|
2,336,200 |
|
|
45 |
% |
|
|
1,615,000 |
|
Customer count |
|
1,633,000 |
|
|
3 |
% |
|
|
1,580,000 |
|
Total ending RCEs |
|
4,164,000 |
|
|
2 |
% |
|
|
4,087,000 |
|
Total gross RCE additions |
|
619,000 |
|
|
12 |
% |
|
|
555,000 |
|
Total net RCE additions (reductions) |
|
1,000 |
|
|
NMF 3 |
|
|
(124,000 |
) |
1 Profit (loss) includes the impact of
unrealized gains (losses), which represents the mark to market of
future commodity supply acquired to cover future customer demand.
The supply has been sold to customers at fixed prices, minimizing
any realizable impact of mark to market gains and losses.2 See
“Non-IFRS financial measures” in Q2 fiscal 2019’s Management’s
Discussion and Analysis. 3 Not a meaningful figure
“We are pleased with the second quarter results
and our progress toward our fiscal year expectations, as our
accomplishments are demonstrating our resolve and commitment to
faster execution,” said Just Energy’s Chief Executive Officer,
Patrick McCullough. “The second quarter results exceeded
expectations as swift pricing optimization actions successfully
expanded to a broader audience and our risk management discipline
neutralized the impact of summer weather on supply costs. These
actions are also evident in our record-level embedded gross margin
on our existing book of business as our core commodity business
continues to perform well. We expect to see these actions continue
to contribute in the fiscal third and fourth quarters, driving
performance beyond historical levels and supporting guidance for
the current fiscal year and earnings growth into the future.”
Mr. McCullough continued, “Looking ahead, our
healthy core business, combined with the expanded offering of value
added products and services, will generate significant capital to
not only support future dividend payments, but also the pursuit of
growth opportunities that support our strategic shift to be a
consumer-focused company. While there is still much work to be
done, we are beginning to demonstrate our resolve and commitment to
faster execution, and we are confident we will build on our current
momentum in delivering on our fiscal 2019 expectations while also
setting the stage for profitable long-term growth.”
Embedded gross margin |
Management's estimate of the future embedded gross margin is as
follows: |
(millions
of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
As
at |
|
Sept 30 vs. |
|
|
As
at |
|
2018 vs. |
|
Sept. 30, |
June 30, |
|
June 30 |
Sept. 30, |
|
2017 |
|
2018 |
2018 |
|
variance |
2017 |
|
variance |
Future embedded gross
margin |
|
$ |
2,336.2 |
|
$ |
1,963.6 |
|
19% |
|
$ |
1,615.0 |
|
45% |
- Embedded gross margin of reached a Company record of $2.3
billion as at September 30, 2018. The embedded gross margin
includes $45.2 million from Filter Group Inc. which was acquired on
October 1, 2018.
- Embedded gross margin increased by 19% sequentially, from $2.0
billion to $2.3 billion. The increase was a result of Just Energy’s
pricing optimization efforts, offset by a negative foreign exchange
impact of $27.6 million from the weakening U.S. dollar on the
exchange rate assumptions.
- Embedded gross margin increased 45% year-over-year from $1.6
billion to $2.3 billion as the pricing optimization efforts
expanded to a broader customer base.
Annual gross margin per RCE |
|
|
|
|
|
|
|
|
|
|
Q2
Fiscal |
|
Number
of |
|
|
Q2 Fiscal |
|
Number of |
|
|
2019 |
|
customers |
|
2018 |
|
customers |
|
|
|
|
|
|
|
|
|
|
|
Consumer customers
added or renewed |
|
$ |
333 |
|
257,000 |
|
$ |
197 |
|
285,000 |
Consumer customers
lost |
|
|
210 |
|
174,000 |
|
|
201 |
|
186,000 |
Commercial customers
added or renewed1 |
|
|
96 |
|
230,000 |
|
|
88 |
|
180,000 |
Commercial customers
lost |
|
|
82 |
|
125,000 |
|
|
78 |
|
112,000 |
1 Annual gross margin per RCE excludes margins
from IEG and large Commercial and Industrial customers.
- The average gross margin per RCE for the customers added or
renewed by the Consumer division was $333/RCE, an increase from
$197/RCE in the prior comparable period, primarily reflecting the
Company’s improved pricing power.
- The average gross margin per RCE for the Commercial customers
added or renewed during the quarter was $96/RCE, an increase from
$88/RCE in the prior comparable period as the Company continues to
focus on adding and renewing small and medium-sized customers and
retaining larger margin customers.
Customer Aggregation
(RCEs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, |
|
|
Failed to |
Sept. 30, |
% increase |
Sept. 30, |
% increase |
|
2018 |
Additions |
Attrition |
renew |
2018 |
(decrease) |
2017 |
(decrease) |
Consumer Energy |
|
|
|
|
|
|
|
Gas |
637,000 |
30,000 |
(27,000 |
) |
(19,000 |
) |
621,000 |
(3 |
)% |
627,000 |
(1 |
)% |
Electricity |
1,189,000 |
102,000 |
(85,000 |
) |
(43,000 |
) |
1,163,000 |
(2 |
)% |
1,168,000 |
- |
|
Total Consumer RCEs |
1,826,000 |
132,000 |
(112,000 |
) |
(62,000 |
) |
1,784,000 |
(2 |
)% |
1,795,000 |
(1 |
)% |
Commercial Energy |
|
|
|
|
|
|
Gas |
421,000 |
47,000 |
(10,000 |
) |
(4,000 |
) |
454,000 |
8 |
% |
337,000 |
35 |
% |
Electricity |
1,926,000 |
111,000 |
(39,000 |
) |
(72,000 |
) |
1,926,000 |
- |
|
1,955,000 |
(1 |
)% |
Total Commercial RCEs |
2,347,000 |
158,000 |
(49,000 |
) |
(76,000 |
) |
2,380,000 |
1 |
% |
2,292,000 |
4 |
% |
Total RCEs |
4,173,000 |
290,000 |
(161,000 |
) |
(138,000 |
) |
4,164,000 |
- |
|
4,087,000 |
2 |
% |
- Just Energy’s total RCE base increased 2% to 4.2 million RCEs
year-over-year.
- Gross RCE additions for the second quarter of fiscal 2019 were
290,000, a decrease of 6% compared to RCEs added in the second
quarter of fiscal 2018.
- Net additions were negative 9,000 for the second quarter of
fiscal 2019, compared with a positive 11,000 net RCE additions in
the second quarter of fiscal 2018.
- Consumer gross RCE additions of 132,000 in the second quarter,
a decrease of 22% from 169,000 gross RCE additions recorded in the
prior comparable quarter. The variance was primarily driven by
tougher competition compared to the prior year due to the
significant increase in U.K. residential adds from the switching
sites last year.
- The Company’s launch of the new retail Consumer sales channel
continued to meet expectations during the second quarter. The
retail channel added 34,000 new RCEs during the second quarter
through retail partnerships across North America, a total of 78,000
new RCEs, the highest growth to date for the six months ended
September 30, 2018. Just Energy currently has access to sell
products and services in over 700 retail locations.
- Commercial RCE additions of 158,000 in the second quarter
increased by 12% over the prior comparable quarter. This growth was
primarily driven by an increase in the number of U.S. Commercial
electricity RCEs as well as the addition of one large Commercial
customer in the U.K. Net RCE additions for the Commercial division
improved to 33,000 in the fiscal second quarter from 26,000
reported in the prior year.
- The Company continues to expand and diversify its sales
channels. For the three months ended September 30, 2018, 40% of the
total Consumer and Commercial RCE additions were generated through
commercial brokers, 37% from online and other non-door-to-door
sales channels, 13% from retail channels and 10% from door-to-door
sales. In the prior comparable quarter, 51% of RCE additions
were generated from retail, online and other non-door-to-door sales
channels, 33% from commercial brokers, and 16% using door-to-door
sales.
- The combined attrition rate was 13% for the trailing 12 months
ended September 30, 2018, consistent with the prior comparable 12
months. The Consumer attrition rate decreased three percentage
points to 20% while the Commercial attrition rate remained the same
as a year ago. The decrease in the Consumer attrition rate is a
result of Just Energy’s focus on higher margin customers while
becoming the customers’ “trusted advisor” and providing a variety
of energy management solutions to its customer base to drive
customer loyalty.
- The renewal rate was 57% for the trailing 12 months, declining
four percentage points year-over-year. The Consumer renewal rate
decreased by two percentage points to 71%, and the Commercial
renewal rate decreased by five percentage points to 47% from the
prior year. The decline in the Commercial renewal rate reflected a
very competitive market for Commercial renewals with competitors
pricing aggressively, and Just Energy’s focus on improving retained
customers’ profitability rather than pursuing low margin growth.
Although the renewals have improved over the past six months, the
renewal rate is depressed for the trailing 12 months due to lower
renewal rates from Q3 and Q4 of fiscal 2018.
Balance Sheet &
Liquidity
- Cash and short-term investments decreased from $48.9 million as
of March 31, 2018 to $17.2 million as of September 30, 2018. The
decrease in cash is primarily attributable to the Company’s
significant investment in upfront customer acquisition costs and
risk management activities.
- Debt increased from $543.5 million as at March 31, 2018 to
$661.3 million as at September 30, 2018. This increase is a result
of the issuance of the 8.75% loan, offset by the partial redemption
of the 6.5% convertible bonds.
- As of September 30, 2018, Just Energy’s book value net debt to
the trailing 12 month Base EBITDA was 3.5x, higher than the 2.8x
reported for March 31, 2018.
- Base FFO for the three months ended September 30, 2018 was
$26.2 million, an increase of 241% compared with Base FFO of $7.7
million for the prior comparable quarter. The increase was driven
by the significant improvements in EBITDA as a result of the gross
margin improvements.
- The payout ratio on Base FFO was 85% for the second quarter,
compared to 279% reported in the comparable period in fiscal 2018,
primarily resulting from the significant improvements in
EBITDA.
- Dividends and distributions for the second quarter were $22.3
million, an increase of 4% from the prior comparable quarter in
fiscal 2018.
Outlook
Just Energy is executing a strategic shift from
a retail energy provider to a consumer company focused on
differentiated value-added products, unparalleled customer
satisfaction, and profitable customer growth. Just Energy’s
strategic transformation from an era of price-based commodities
sold through third parties to a future as a more customer-centric
consumer company is well underway. Just Energy’s unique offering of
value added products and services seeks to address its customers’
concerns around their family’s health and wellbeing, utility
conservation and essential energy needs in their homes. To achieve
profitability and optimize growth in the remainder of fiscal 2019
and beyond, Just Energy will drive sales, gross margin and customer
growth through its retail and other primary channels by
aggressively promoting these three product growth categories, while
developing additional strategic, alternative channels. Just Energy
will also deploy a consistent value-creation product strategy
across the consumer business.
Just Energy has undertaken several initiatives
in the first half of fiscal 2019 to attract higher margin customers
in conjunction with implementing a price optimization strategy
company-wide. To further drive profitability, Just Energy has
implemented cost cutting initiatives and will continue its efforts
to reduce administrative expenses through greater automation and
consolidation of support activities. Just Energy expects to see the
results of these actions continue to contribute in the fiscal
year’s third and fourth quarters, driving performance beyond
historical levels and supporting guidance for the current fiscal
year and earnings growth into the future.
As a result, Management reaffirms its guidance
for fiscal 2019 Base EBITDA in the range of $200 million to $220
million. This expectation reflects the implementation of IFRS 15
for the full fiscal year.
Just Energy’s balance sheet remains strong and
the Company remains fully committed to returning capital to
shareholders through dividend distributions. Upon achieving the
stated guidance range for fiscal 2019, the Company will achieve a
dividend payout ratio of approximately 75% which is well within
management’s expectations and offers support for the dividend
moving forward.
Earnings Call
The Company will host a conference call and live
webcast to review the fiscal second quarter results beginning at
10:00 a.m. Eastern Time on November 8th, 2018 followed by a
question and answer period. Chief Executive Officer, Patrick
McCullough, and Chief Financial Officer, Jim Brown will participate
on the call.
Just Energy Conference Call and Webcast
- Thursday, November 8th, 2018
- 10:00 a.m. ET
Those who wish to participate in the conference
call may do so by dialing toll-free, 1-877-300-9306 in the U.S. or
1-855-669-9657 in Canada, and ask to be joined into the Just Energy
call. The call will also be webcast live over the internet at the
following link:
https://www.webcaster4.com/Webcast/Page/1731/27819
An audio rebroadcast will be available starting
one hour after the conference concludes and will be available until
November 15th, 2018. To access the rebroadcast please dial
1-877-344-7529 and use replay access code 10125190. The webcast
will also be archived on the JE investor relations website for one
year.
About Just Energy Group
Inc.
Founded in Canada in 1997, Just Energy (NYSE:JE,
TSX:JE) is a leading consumer company focused on essential needs,
including electricity and natural gas commodities; health and
well-being, such as water quality and filtration devices; and
utility conservation, bringing energy efficient solutions and
renewable energy options to consumers. Currently operating in the
United States, Canada, the United Kingdom, Germany, Ireland and
Japan, Just Energy serves residential and commercial customers.
Just Energy is the parent company of Amigo Energy, EdgePower Inc.,
Filter Group Inc., Green Star Energy, Hudson Energy, Interactive
Energy Group, Just Energy Advanced Solutions, Tara Energy, and
terrapass.Visit justenergygroup.com to learn more. Also, find us on
Facebook and follow us on Twitter.
FORWARD-LOOKING STATEMENTSJust
Energy's press releases may contain forward-looking statements
including statements pertaining to customer revenues and margins,
customer additions and renewals, customer attrition, customer
consumption levels, general and administrative expenses, dividends,
distributable cash and treatment under governmental regulatory
regimes. These statements are based on current expectations that
involve a number of risks and uncertainties which could cause
actual results to differ from those anticipated. These risks
include but are not limited to levels of customer natural gas and
electricity consumption, rates of customer additions and renewals,
rates of customer attrition, fluctuations in natural gas and
electricity prices, changes in regulatory regimes and decisions by
regulatory authorities, competition and dependence on certain
suppliers. Additional information on these and other factors that
could affect Just Energy's operations, financial results or
dividend levels are included in Just Energy's annual information
form and other reports on file with Canadian securities regulatory
authorities which can be accessed through the SEDAR website at
www.sedar.com, on the U.S. Securities Exchange Commission’s website
at www.sec.gov or through Just Energy's website at
www.justenergygroup.com.
NON-IFRS MEASURES
The financial measure such as EBITDA, Base
EBITDA, FFO, Base FFO, Base FFO Payout Ratio and Embedded Gross
Margin do not have a standardized meaning prescribed by
International Financial Reporting Standards (“IFRS”) and may not be
comparable to similar measures presented by other companies. This
financial measure should not be considered as an alternative to, or
more meaningful than, net income (loss), cash flow from operating
activities and other measures of financial performance as
determined in accordance with IFRS, but the Company believes that
this measure is useful in providing relative operational
profitability of the Company’s business. Please refer to “Key
Terms” in the Company’s management’s discussion and analysis of
financial condition and results of operations of the Company for
the three and nine months ended September 30, 2018 for the
Company’s definition of “EBITDA” and other none-IFRS measures.
Neither the Toronto Stock Exchange nor the New
York Stock Exchange has approved nor disapproved of the information
contained herein.
FOR FURTHER INFORMATION PLEASE
CONTACT:
Jim BrownChief Financial OfficerJust Energy
713-544-8191jbrown@justenergy.com
or
Michael CummingsInvestor RelationsAlpha IR Group
617-982-0475michael.cummings@alpha-ir.com