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, 2014.
Q1 2014 Financial Highlights
Quarter ended March 31, 2014 versus quarter ended March 31, 2013
(in thousands of Canadian dollars except per unit amounts)(1)
-- Total revenues increased by 11% to $82,225
-- Attrition in the rentals portfolio decreased by 18%
-- EBITDA(2) increased by 3% to $39,605
-- Payout Ratio - Maintenance(2) improves to 46%
-- Sales activities were strong with 7,000 contracted sub-metering units
Sales activities were strong during the quarter with 7,000 contracted
Sub-metering units "The year is off to a good start with robust sales activity
in both rentals and sub-metering," said John Macdonald, President and CEO. "We
made great progress toward our priorities for the year, including accelerating
top line growth, improving productivity and increasing EBITDA."
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 news
release.
EnerCare continued to experience improved customer retention during the first
quarter of 2014. Overall, we are encouraged by the positive trend we have seen
over the past seven quarters. EnerCare believes that the Stronger Protection for
Ontario Consumers Act, 2013 ("Bill 55") is a strong enhancement in consumer
protection that will provide necessary protection for its customers and greatly
assist with EnerCare's continued efforts to combat attrition. Going forward we
continue to believe that the factors that have led to the decline in attrition
over the last five years, including improving consumer awareness, as well as the
new Enbridge open bill access agreement and Bill 55, 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.
Our key priorities and initiatives for the rentals business in 2014 are to grow
revenue in excess of annual rate increases, increase the number of unit
additions, continue to improve attrition and as a result, increase Adjusted
EBITDA(2).
In respect of sub-metering, our priorities in 2014 are to grow the business by
increasing new contract sales, improving productivity and operation efficiencies
and enhancing our customer value proposition through outstanding customer
service. We believe initiatives such as our LEAN program, e-billing and "whole
building" solution should augment our growth. We are pleased with the improved
sales activity experienced in the past two quarters with 7,000 units contracted
in this most recent quarter.
(1) Unless otherwise noted, amounts are reported in thousands, except customers,
units, shares and per share amounts and percentages. Dollar amounts are
expressed in Canadian currency.
(2) EBITDA, Adjusted EBITDA, and Payout Ratio - Maintenance, are non-IFRS
financial measures. Refer to the Non-IFRS Financial and Performance Measures
section in the MD&A.
Results of Operations
Earnings Statement
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Three months ended March 31,
(000's) 2014 2013
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Revenues:
Rentals $48,636 $ 47,082
Sub-metering 33,552 26,960
Investment income 37 268
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Total revenues $82,225 $ 74,310
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Commodity charges 28,359 22,151
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SG&A expenses:
Rentals 3,450 3,817
Sub-metering 3,731 3,284
Corporate 4,039 3,361
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Total SG&A expenses 11,220 10,462
Amortization expense 24,506 24,356
Loss on disposal of equipment 3,004 2,892
Interest expense:
Interest expense payable in cash 5,808 8,294
Make-whole payment on early redemption of
debt - 13,754
Non-cash interest expense 164 4,925
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Total interest expense 5,972 26,973
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Total expenses 73,061 86,834
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Other income 408 -
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Earnings/(loss) before income taxes 9,572 (12,524)
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Current tax (expense) (6,079) (5,588)
Deferred income tax recovery 3,521 7,724
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Net earnings/(loss) $ 7,014 $(10,388)
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EBITDA $39,605 $ 38,537
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Adjusted EBITDA(2) $43,017 $ 41,429
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Revenues
Total revenues of $82,225 for the first quarter of 2014 increased by $7,915 or
11% compared to the same period in 2013. Rentals revenues increased by $1,554 to
$48,636 in the first quarter of 2014 compared to the same period in 2013,
primarily due to a rental rate increase implemented in January 2014, improved
billing completeness and changes in asset mix, partially offset by fewer
installed assets. Sub-metering revenues in the first quarter of 2014 were
$33,552, an increase of $6,592 or 24% over the comparable period in 2013,
primarily as a result of increased billable units and the associated commodity
charges. Sub-metering revenue includes total pass through energy charges of
$28,359 in the first quarter of 2014, an increase of $6,208 over the same period
in 2013.
Investment income decreased by $231 to $37 in the first quarter of 2014. The
change in investment income was primarily attributable to higher investment
balances in the first quarter of 2013 related to the issuance of the $225,000
4.6% 2013-1 Senior Unsecured Notes ("2013 Notes") of EnerCare Solutions Inc.
("EnerCare Solutions") approximately 30 days prior to the redemption of the
$270,000 6.75% Series 2009-2 Senior Notes ("2009-2 Notes").
Selling, General & Administrative Expenses
Total SG&A expenses were $11,220 in the first quarter of 2014, an increase of
$758 or 7% compared to the same period in 2013. Sub-metering SG&A expenses were
$3,731 or $447 greater in the first quarter of 2014 compared to the same period
in 2013, primarily as a result of increased wages and benefits of $500 and
professional fees of $100, partially offset by reductions in selling expenses
and bad debts of $100. Rentals and corporate expenses of $7,489 increased by
$311 over 2013, primarily from increases of approximately $500 in wages and
benefits, $200 in professional fees, $100 on account of billing and servicing
costs and $100 in bad debts and claims, partially offset by reductions of $600
in selling expenses.
Amortization Expense
Amortization expense increased by $150 or 1% to $24,506 in the first quarter of
2014, primarily due to an increasing capital asset base from asset mix changes
in the rentals portfolio and increased sub-metering capital investments, which
are amortized over a shorter life than the rentals business.
Loss on Disposal of Equipment
EnerCare reported a loss on disposal of equipment of $3,004 in the first quarter
of 2014, an increase of $112 or 4% over the same period in 2013. 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.
Interest Expense
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Three months ended March 31,
(000's) 2014 2013
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Interest expense payable in cash $5,808 $8,294
Make-whole payment on early redemption of debt - 13,754
Non-cash items: Amortization of OCI and
financing costs 164 4,925
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Interest expense $5,972 $26,973
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Interest expense payable in cash decreased by $2,486 to $5,808 in the first
quarter of 2014 compared to the same period in 2013. The decrease is primarily
related to the conversion of convertible debentures to shares and reduction in
interest rates with the early redemption in 2013 of the 2009-2 Notes associated
with the issuance of the 2013 Notes. The make-whole payment of $13,754 was
incurred upon the early redemption of the 2009-2 Notes and the drawdown of the
$60,000 single draw, variable rate, interest only, open 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 was fully reclassified to earnings in 2013.
Other Income
During the first quarter of 2014, EnerCare realized a settlement of $408 from
Direct Energy Marketing Limited on account of the reclassification of certain
water heaters under the Co-ownership Agreement to EnerCare's owned portfolio,
originally associated with the Toronto Hydro Energy Services Inc. portfolio
acquisition.
Income Taxes
EnerCare reported a current tax expense of $6,079 in the first quarter of 2014,
an increase of $491 over the same period in 2013, primarily as a result of
higher taxable income. The deferred income tax recovery of $3,521 for the first
quarter of 2014 was $4,203 lower than the deferred tax recoveries of $7,724
recorded in 2013, primarily as a result of temporary difference reversals in the
rentals and sub-metering businesses, including the impact of the 2013 make-whole
payment.
Net Earnings
Net earnings in the first quarter of 2014 were $7,014, or $17,402 higher than in
the same period in 2013 as previously described.
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) Q1/14 Q4/13 Q3/13 Q2/13
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Net earnings/(loss) $ 7,014 $ 4,793 $ 6,931 $ 7,482
Deferred tax
(recovery)/expense (3,521) (3,552) (3,134) (3,640)
Current tax expense 6,079 6,148 5,525 4,591
Amortization expense 24,506 25,792 25,228 24,344
Interest expense 5,972 6,002 6,022 5,976
Other (income)/expense (408) (769) (2,000) (1,678)
Investment (income) (37) (35) (21) (49)
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EBITDA 39,605 38,379 38,551 37,026
Add: Loss on disposal of
equipment 3,004 2,666 2,633 3,449
Add: Other income/(expense) 408 769 2,000 1,678
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Adjusted EBITDA(1) $43,017 $41,814 $43,184 $42,153
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(000's) Q1/13 Q4/12 Q3/12 Q2/12
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Net earnings/(loss) $(10,388) $(2,096) $ 2,154 $ (3,064)
Deferred tax
(recovery)/expense (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 (income)/expense - 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: Other income/(expense) - (362) 855 -
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Adjusted EBITDA(1) $41,429 $39,421 $41,211 $39,480
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(1) Historical Adjusted EBITDA has been conformed to the current presentation
which includes other income and expense.
Financial Statements and Management's Discussion and Analysis
EnerCare's financial statements and management's discussion and analysis for the
first quarter of 2014 are available on SEDAR at www.sedar.com or on EnerCare's
investor relations website at http://www.enercareinc.com.
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, 2014 later
this morning, 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:
Date: Monday, May 12, 2014
Time: 10:00 a.m. - 11:00 a.m. (ET)
By telephone: 647.788.4922 or 1.877.223.4471
Please allow 10 minutes to be connected to the conference
call.
Webcast: http://www.gowebcasting.com/5121
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.enercareinc.com/ for one year following the
original broadcast.
Note: A slide presentation intended for simultaneous viewing with
the conference call will be available the morning of May 12,
2014 at: http://www.enercareinc.com/.
About EnerCare
EnerCare owns a portfolio of approximately 1.1 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 regarding EnerCare is available on SEDAR at www.sedar.com
or through EnerCare's investor relations website at www.enercareinc.com or at
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'
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.
Although the forward-looking information is based on what management believes to
be reasonable assumptions, EnerCare and EnerCare Solutions cannot assure
investors that actual results will be consistent with this forward-looking
information. All forward-looking information in this news release is made as of
the date of this news release. Except as required by applicable securities laws,
neither EnerCare nor EnerCare Solutions 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
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