EnerCare Inc. ("EnerCare") (TSX:ECI), one of Canada's leading providers of
energy conservation products and services, today reported its financial results
for the first quarter ended March 31, 2013.
Q1 2013 Highlights - Period ended March 31, 2013 versus period ended March 31, 2012
(in thousands of Canadian dollars except per unit amounts)
-- Attrition in the rentals portfolio decreased by 50% to 11,000 units
-- Total revenues of $74,310 increased by 9%
-- EBITDA increased by 5% to $38,537
-- Newly refinanced debt improves interests rate and spreads, ladders debt
maturities and creates substantial future annualized interest expense
savings of $12,800
-- In April, the Ontario Government introduced favourable consumer
protection legislation in respect of door-to-door sales
"The year is off to a strong start as we recorded the lowest attrition rate in
nearly five years," said John Macdonald, President and CEO. "With three
consecutive quarters of improvement, it would appear that lower attrition is
part of a positive trend. We attribute this success to the investments we have
made to increase consumer awareness and to improve the customer experience,
including our new "same day service" we are offering through Direct Energy
Marketing Limited ("DE"). In addition, if passed, the proposed Ontario
legislation in respect of door-to-door sales is a very positive development for
consumers and EnerCare."
Macdonald added, "Our balance sheet has been significantly strengthened as a
result of our recent financings which have given us substantially lower debt
costs and enhanced long term stability. The recent financings have positioned us
well for the future."
Results of Operations
Attrition
Attrition decreased in the first quarter of 2013 by 11,000 units or 50% over the
same period in 2012. Last year, EnerCare did see additional buyout activity of
4,000 units following the introduction and subsequent withdrawal of new contract
terms for a significant portion of our co-owned rentals portfolio. Attrition
declined 35% or 6,000 units from the fourth quarter of 2012. Attrition has
improved year over year since 2009.
EnerCare and DE have implemented many programs, including continued consumer
education through direct mail and radio campaigns. Such initiatives, coupled
with broader consumer awareness and a leveling of the playing field in respect
of the expiry of the Consent Order, as well as enhancements to our customer
value proposition (for example, the "DE same day service campaign"), have helped
to significantly reduce attrition during the quarter.
Earnings Statement
For 2012, certain comparative amounts have been reclassified to conform to the
current period's presentation. Revenue related to charges to landlords on
account of common area and suite consumption that was not billed to tenants has
been reclassified from commodity charges. The related accounts receivable has
been reclassified from accounts payable and accrued liabilities. These
reclassifications resulted in an increase of $4,362 to both sub-metering
revenues and commodity charges for the first quarter of 2012. These
reclassifications did not result in any adjustments to previously reported net
income, working capital or cash flows.
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Three months ended
March 31,
(000's) 2013 2012
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Revenues:
Rentals $ 47,082 $ 46,847
Sub-metering 26,960 20,835
Investment income 268 185
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Total revenues $ 74,310 $ 67,867
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Commodity charges 22,151 16,545
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SG&A expenses:
Rentals 3,817 3,532
Sub-metering 3,284 2,784
Corporate 3,361 3,986
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Total SG&A expenses 10,462 10,302
Amortization expense 24,356 25,874
Loss on disposal of equipment 2,892 4,115
Interest expense:
Interest expense payable in cash 8,294 9,047
Make-whole payment on early redemption of debt 13,754 -
Non-cash interest expense 4,925 1,283
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Total Interest expense 26,973 10,330
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Total operating expenses 86,834 67,166
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Other income - 1,500
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(Loss)/earnings before income taxes (12,524) 2,201
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Current tax (expense) (5,588) (3,311)
Deferred income tax recovery 7,724 941
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Net loss $ (10,388) $ (169)
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EBITDA $ 38,537 $ 36,720
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Adjusted EBITDA $ 41,429 $ 40,835
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Revenues
Total revenues of $74,310 for the first quarter of 2013 increased by $6,443 or
9% compared to the same period of 2012. Rentals revenues increased marginally by
$235 to $47,082 in the first quarter of 2013, primarily due to a rental rate
increase implemented in January 2013, partially offset by a reduction in
installed assets. Sub-metering revenues in the first quarter of 2013 were
$26,960, an increase of $6,125 or 29% over the same period in 2012, as a result
of increased commodity charges and billable units. Sub-metering revenue includes
total pass through energy charges of $22,151 in 2013, and $16,545 in 2012, an
increase of $5,606.
Investment income increased by $83 in the first quarter of 2013 to $268 compared
to $185 in the same period of 2012. The increase in investment income was
primarily attributable to greater investment balances as a result of the
issuance of $225,000 of 4.60% Series 2013-1 Senior Unsecured Notes of EnerCare
Solutions ("2013 Notes") and the drawdown of the $60,000 single draw, variable
rate, interest only, open loan ("Term Loan") approximately 30 days prior to the
redemption of the $270,000 6.75% Series 2009-2 Senior Notes of EnerCare
Solutions ("2009-2 Notes"), which were redeemed on March 6, 2013.
Selling, General and Administrative Expenses
Total SG&A expenses were $10,462 in the first quarter of 2013, an increase of
$160 or 2% compared to the same period in 2012. Sub-metering SG&A expenses were
$3,284 in the first quarter of 2013, $500 more than the same period in 2012,
primarily as a result of increased wages and benefits of approximately $400
associated with the internalization of customer care and billing functions, bad
debts and provisions of $300 and selling and professional fees of $200,
partially offset by $400 in reductions in cost of goods. Rentals and corporate
expenses of $7,178 decreased by $340 in the first quarter of 2013 over that in
the same period of 2012, primarily due to a decrease of approximately $500 for
professional fees and selling expenses. Increases of approximately $300 for
claims and bad debts were offset by decreases in a number of other expense
categories.
Amortization Expense
Amortization expense decreased by $1,518 or 6% to $24,356 in the first quarter
of 2013, primarily due to a smaller installed asset base in the rentals
portfolio, partially offset by increased sub-metering capital investments, which
are amortized over a shorter life than the rentals business.
Loss on Disposal of Equipment
In the first quarter of 2013, EnerCare reported a loss on disposal of equipment
of $2,892, a reduction of $1,223 over the same period in 2012. The loss on
disposal amount is influenced by the number of assets retired, proceeds on
disposal of equipment, changes in the retirement asset mix and the age of the
assets retired. In 2012, loss on disposal was elevated primarily as a result of
higher buyout activity and attrition.
Interest Expense
Interest expense payable in cash decreased by $753 to $8,294 in the first
quarter of 2013, compared to $9,047 in the first quarter of 2012. The decrease
is primarily related to the conversion of convertible debentures to shares,
repayment of the $60,000 6.20% Series 2009-1 Senior Unsecured Notes of EnerCare
Solutions ("2009-1 Notes"), which matured and were repaid on April 30, 2012 and
the redemption of the $240,000 5.25% Series 2010-1 Senior Unsecured Notes of
EnerCare Solutions ("2010 Notes"), which were redeemed on December 21, 2012 in
the fourth quarter of 2012 with the proceeds from the offering of the $250,000
4.30% Series 2012-1 Senior Unsecured Notes of EnerCare Solutions, which mature
on November 30, 2017. The make-whole payment of $13,754 was incurred upon the
early redemption of the 2009-2 Notes associated with the issuance of the 2013
Notes and the drawdown of the Term Loan. Amortization of other comprehensive
income ("OCI") and financing costs for 2013 include the previously unamortized
costs associated with the 2009-2 Notes and $4,023 of accumulated OCI which has
been fully reclassified to earnings in the current period.
Other Income
In 2012, EnerCare and DE reached a settlement of $1,500 on account of billing
for water heater installation costs.
Income Taxes
EnerCare reported a current tax expense of $5,588 for the first quarter of 2013,
which was $2,277 greater than the same period in 2012, primarily as a result of
decreased loss carry forwards available to shelter taxable income in the Rentals
business. The deferred income tax recovery of $7,724 for 2013 increased by
$6,783, primarily as a result of temporary difference reversals in the rentals
and sub-metering businesses, including the make-whole payment inclusion through
April 30, 2014.
Net Losses
Losses before income taxes in the first quarter of 2013 were $12,524, an
increase of $14,725, compared to the same period in 2012, as previously
described. The net loss was impacted by increases in current taxes of $2,277 and
tax recoveries of $6,783, resulting in a net loss of $10,388, $10,219 lower than
the same period in 2012.
EBITDA and Adjusted EBITDA
The following table summarizes comparative quarterly results for the last eight
quarters, and reconciles net earnings, an IFRS measure, to EBITDA and Adjusted
EBITDA.
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(000's) Q1/13 Q4/12 Q3/12 Q2/12
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Net (loss)/earnings $ (10,388) $ (2,096) $ 2,154 $ (3,064)
Deferred tax
expense/(recovery) (7,724) (4,155) (2,668) 1,766
Current tax expense 5,588 5,217 3,902 2,118
Amortization expense 24,356 25,175 25,407 25,166
Interest expense 26,973 11,937 9,035 9,457
Other expense/(income) - 362 (855) -
Investment income (268) (180) (16) (76)
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EBITDA 38,537 36,260 36,959 35,367
Add: Loss on disposal of
equipment 2,892 3,523 3,397 4,113
Add: Impairment of assets - - - -
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Adjusted EBITDA $ 41,429 $ 39,783 $ 40,356 $ 39,480
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(000's) Q1/12 Q4/11 Q3/11 Q2/11
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Net (loss)/earnings $ (169) $ (2,256) $ 5,618 $ 1,682
Deferred tax
expense/(recovery) (941) (874) (5,666) (1,858)
Current tax expense 3,311 765 1,478 1,881
Amortization expense 25,874 26,234 26,126 26,103
Interest expense 10,330 10,377 10,433 10,566
Other expense/(income) (1,500) - (254) (2,129)
Investment income (185) (174) (168) (140)
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EBITDA 36,720 34,072 37,567 36,105
Add: Loss on disposal of
equipment 4,115 4,880 4,718 4,861
Add: Impairment of assets - 458 - -
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Adjusted EBITDA $ 40,835 $ 39,410 $ 42,285 $ 40,966
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Outlook
The forward-looking statements contained in this section are not historical
facts but, rather, reflect EnerCare's current expectations regarding future
results or events and are based on information currently available to
management. Certain material factors and assumptions were applied in providing
these forward-looking statements. See "Forward-looking Information" in this
press release.
EnerCare continued to experience improved customer retention during the first
quarter of 2013. Overall, we are encouraged by the positive trend we have seen
in the last three quarters. We continue to expect that attrition levels will
continue to have mild volatility from quarter to quarter. Recently, the Ontario
Government introduced consumer protection legislation in the Ontario legislature
in respect of door-to-door sales. We strongly support the introduction of
legislation that will help protect consumers from aggressive and questionable
door-to-door sales activities. If passed, we believe that the proposed
legislation is very much a positive development for consumers, our customers and
our rental water heater business and will greatly assist in our efforts to
combat attrition. Going forward we continue to believe that the factors that
have led to the decline in attrition over the last three years, including
improving consumer awareness, and if passed, the proposed consumer protection
legislation, will create a more favourable environment for further improvement
in customer retention. We will continue to explore new initiatives and
modifications of existing programs, as well as enhanced customer product
offerings and service programs.
We continued to have additional expenses in the first quarter of 2013 in
association with the completion of the transition to our new customer care and
billing system. However, we have shown a reduction in costs to administer
sub-metering customer accounts from the third quarter of 2012 and expect that we
will see further sustained cost reduction going forward.
We are very pleased with our reduction in total debt following the repayment of
the 2009-1 Notes in April of 2012 and our recent refinancing of the 2010 Notes
in November of 2012 and the 2009-2 Notes in February of 2013. With these
financing activities, we have successfully extended and laddered our maturities,
provided flexibility to allow for further potential reductions in our future
leverage and secured a significant reduction in future interest expense. We
estimate that the annual interest savings is approximately $12,800.
For 2013, our key priorities and initiatives in the rentals business are to
continue to improve attrition by continuing to invest in the education and
protection of consumers relating to door-to-door solicitation, enhancing our
customer value proposition and supporting Bill 55 and growing the rentals
business through portfolio additions and new products by accelerating
originations in respect of HVAC. In respect of sub-metering, our priorities and
initiatives are to grow the business to be cash flow positive by year end by
improving productivity and operating efficiencies, increasing the number of
billable units and augmenting our electricity and water sub-metering offerings
to provide a "whole building" solution such as with thermal metering, the first
installation of which is underway.
As previously announced, EnerCare has set its annual and special meeting for
June 3, 2013. Jim Pantelidis, chairman of the board, and management will provide
an update to shareholders on EnerCare's achievements in 2012 and strategy for
furthering shareholder value.
Financial Statements and Management's Discussion and Analysis
EnerCare's financial statements and management's discussion and analysis for the
first quarter of 2013 are available on SEDAR at www.sedar.com or on EnerCare's
investor relations website at http://investors.enercare.ca.
Conference Call and Webcast
Management will host a conference call and live audio webcast to discuss
EnerCare's financial results for the first quarter ended March 31, 2013 on
Tuesday, May 14, 2013 at 10:00 a.m. (ET). John Macdonald, President and CEO and
Evelyn Sutherland, CFO, will be on the call. Details of the call and webcast are
as follows:
By telephone: 416.340.2218 or 1.866.226.1793
Please allow 10 minutes to be connected to the conference
call.
Webcast: http://www.gowebcasting.com/4257
Note: this is a listen-only audio webcast. Media Player or
Real Player is required to listen to the broadcast.
Replay: An archived audio webcast will be available at:
http://www.enercare.ca/ for one year following the original
broadcast.
About EnerCare
EnerCare owns a portfolio of approximately 1.2 million installed water heaters
and other assets, rented primarily to residential customers in Ontario. EnerCare
also owns EnerCare Connections Inc., a leading sub-metering company, with
metering contracts for condominium and apartment suites in Ontario, Alberta and
elsewhere in Canada. Additional information about EnerCare is available on SEDAR
www.sedar.com or on EnerCare's websites at http://investors.enercare.ca and
www.enercare.ca.
Forward-looking Information
Certain statements in this news release are forward-looking statements, which
reflect management's expectation regarding EnerCare's and EnerCare Solutions
Inc. growth, results of operations, performance, business prospects and
opportunities. Such forward-looking information reflects management's current
beliefs and is based on information available to them and/or assumptions
management believes are reasonable. Many factors could cause results to differ
materially from the results discussed in the forward-looking information. These
factors include risks associated with the failure to realize the anticipated
benefits of the conversion. Although the forward-looking information is based on
what management believes to be reasonable assumptions, EnerCare and EnerCare
Solutions Inc. cannot assure investors that actual results will be consistent
with this forward-looking information. Except as required by applicable
securities laws, neither EnerCare nor EnerCare Solutions Inc. intend and do not
assume any obligation to update or revise the forward-looking information,
whether as a result of new information, future events or otherwise.
FOR FURTHER INFORMATION PLEASE CONTACT:
EnerCare Inc.
Evelyn Sutherland
CFO
1.416.649.1860
esutherland@enercare.ca
www.enercare.ca
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