Just Energy Reports Fiscal Third Quarter 2020 Results
Previously Announced Strategic Review Remains Active and is Progressing; Decision Anticipated
No Later Than
Base EBITDA from Continuing Operations of
Company Revises Fiscal Year 2020 Guidance
“Over the past several months, we have focused intently on attracting higher quality customers and reducing bad debts,” said Just Energy’s President and Chief Executive Officer,
(compared to third quarter fiscal 2019, unless otherwise stated)
- The Company’s previously announced strategic review remains active and is advancing towards the Board’s goal of an outcome in the best interests of
Just Energyand its stakeholders. In addition to identifying cost saving actions and refinement of the Company’s geographic footprint, the Company has been active in discussions with respect to strategic transaction opportunities. Just Energyanticipates announcing a decision on the strategic review by June 30, 2020. However, there is no assurance that a transaction will result from the strategic review.
- The Company has made progress on narrowing its operations to focus on its higher margin, North American operations by closing the sale of its
U.K., Irelandand Georgiaoperations.
- Gross margin decreased 13% to
$142.5 million, primarily due to a decline in the residential customer base related to the Company’s efforts to reduce non-paying customers in Texasand onboard higher quality customers through alternative channels as well as the exit from certain markets.
- Administrative expenses, excluding strategic review costs, decreased 15% as a result of savings realized from restructuring actions that occurred in fiscal 2019 and the impact of additional cost cutting initiatives.
Just Energyis on pace to realize approximately $60 millionin administrative, selling and capital expenditure cost savings in fiscal 2020.
- Base EBITDA of
$38.0 million, decreased 34%, due to the decline in gross margin, as well as higher commission expense due to the ramp-up of the amortization of previously capitalized residential customer acquisition costs. Base EBITDA increased 68%, after excluding a one-time impairment add back in third quarter of fiscal 2019, reflecting the Company’s focus on attracting and retaining higher quality and higher margin customers.
- Finance costs of
$28.2 millionincreased 24% primarily driven by increased interest expense from higher debts and higher interest rates.
- Total Residential Customer Equivalent (“RCE”) count from continuing operations decreased 5% year-over-year to 3.5 million RCEs, reflecting the transition from an RCE-driven focus to greater emphasis on attracting and retaining strong-fit customers that will deliver greater profitability.
- Embedded gross margin of
$1,839.8 milliondecreased 13% compared to the embedded gross margin for the three months ended December 31, 2018, as a result of the decline in the North American consumer commodity customer base.
|For the three months ended
|(thousands of dollars, except where indicated and per share amounts)|
|Fiscal 2020||(decrease)||Fiscal 2019|
|Selling and marketing expenses||51,270||(1)%||51,706|
|Profit from continuing operations||29,336||(31)%||42,571|
|Profit (loss) from discontinued operations||6,293||NMF3||(90,156||)|
|Profit (loss) for the period1||35,629||NMF3||(47,585||)|
|Earnings per share from continuing operations available to shareholders - basic||0.18||0.27|
|Earnings per share from continuing operations available to shareholders - diluted||0.16||0.25|
|Base EBITDA from continuing operations2||37,950||(34)%||57,105|
|Base Funds from continuing operations2||5,722||NMF3||(3,270||)|
|Payout ratio on Base Funds from continuing operations2||0||%||755||%|
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 as well as weather hedge contracts as part of the risk management practice. 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 Q3 fiscal 2020’s Management’s Discussion and Analysis.
3 Not a meaningful figure.
The impact of cost cutting initiatives implemented to date is evident in the third quarter results and
The recent sale of non-core operations and exiting of lower potential markets demonstrates Just Energy’s commitment to focus on its higher margin North American operations. The sale of the
The previously announced strategic review has provided valuable insights into how best to unlock additional value from the business through a comprehensive review of capital expenditures, streamlining the organization and further refinement of the geographic footprint via disposition of non-core businesses. In addition to identifying cost saving actions and refinement of the Company’s geographic footprint, the Company has been active in discussions with respect to strategic transaction opportunities. While no decisions related to any strategic alternative have been reached at this time, the strategic review process is advancing down a path consistent with the Board’s goal of an outcome that is in the best interests of
As a result of lower than expected Base EBITDA and free cash flow in the third quarter of fiscal 2020 and lower fiscal year to date customer additions, management revised its full year fiscal 2020 Base EBITDA guidance from continuing operations to between
|Embedded Gross Margin|
|Management’s estimate of the future embedded gross margin is as follows:|
|(millions of dollars)|
|As at||As at||As at||2019 vs.|
|Commodity embedded gross margin||$||1,804.8||$||1,852.5||(3)%||$||2,072.0||(13)%|
|VAPS embedded gross margin||35.0||39.5||(11)%||46.0||(24)%|
|Total embedded gross margin||$||1,839.8||$||1,892.0||(3)%||$||2,118.0||(13)%|
- Embedded gross margin from continuing operations of
$1.8 billiondecreased 13% year-over-year due to the decline in the North American consumer commodity customer base.
|As at||As at|
|Total customer count||1,159,000||1,364,000||(15)%|
- Total customer count decreased 15% to 1,159,000 compared to the prior quarter, excluding discontinued operations. The decline in customers is a result of the Company’s focus on renewing and signing higher quality and long-lasting customers as well as the natural attrition of the customer base.
Annual Gross Margin per RCE
|Q3 Fiscal||Number of||Q3 Fiscal||Number of|
|Consumer customers added or renewed||$||273||126,000||$||344||170,000|
|Consumer customers lost||307||122,000||291||129,000|
|Commercial customers added or renewed1||65||114,000||77||157,000|
|Commercial customers lost||78||70,000||68||97,000|
|1Annual gross margin per RCE excludes margins from
- Average gross margin per RCE for the customers added or renewed by the Consumer segment was 21% lower in the current period compared to the corresponding quarter in fiscal 2019 as a result of competitive pricing. The average gross margin per RCE for the Consumer customers lost increased as a result of attrition in response to the margin optimization implemented in fiscal 2019, while the customers in the prior period were dropping at lower margin rates.
- For the Commercial segment, the average gross margin per RCE for the customers added or renewed during the three months ended
December 31, 2019was a decrease of 15% as a result of competitive pricing pressures in North America.
|Commodity RCE Summary|
|Failed to||% increase||% increase|
|Total Consumer RCEs||1,272,000||55,000||(72,000||)||(16,000||)||1,239,000||(3)%||1,476,000||(16)%|
|Total Commercial RCEs||2,228,000||165,000||(61,000||)||(56,000||)||2,276,000||2%||2,225,000||2%|
- Total RCE base of 3.5 million declined 5% from
December 31, 2018to December 31, 2019.
- Gross RCE total additions for the quarter ended
December 31, 2019were 220,000, compared to 217,000 for the corresponding quarter of fiscal 2019, reflecting the transition from a purely RCE driven focus to a greater focus on attracting and retaining strong-fit customers that will drive greater profitability.
- Total Consumer RCE additions amounted to 55,000 for the quarter ended
December 31, 2019, a 46% decrease from the corresponding quarter ended December 31, 2018, primarily driven by a greater emphasis on attracting and retaining strong-fit customers that will drive greater profitability and the natural attrition in response to the pricing actions implemented in fiscal 2019.
- Consumer failed to renew RCEs for the three months ended
December 31, 2019, decreased 41% to 16,000 RCEs compared to the corresponding quarter of fiscal 2019 due to improved retention offerings, including the Perks Points loyalty program.
- Commercial RCE additions were 165,000 for the three months ended
December 31, 2019, a 43% increase over the prior comparable quarter of fiscal 2019 due to improved retention offerings. Commercial failed to renew for the three months ended December 31, 2019of 56,000 RCE’s decreased 16% from the corresponding quarter in fiscal 2019.
- Overall, the renewal rate was 59% for the trailing 12 months ended
December 31, 2019, an increase from 57% for the trailing 12 months ended December 31, 2018. The Consumer renewal rate increased to 72%, and the Commercial renewal rate increased to 54%. The increase in the overall renewal rate is driven by improved retention offerings.
Balance Sheet & Liquidity
- Total cash and short-term investments increased from
$9.9 millionas at March 31, 2019to $18.0 millionas at December 31, 2019. The increase in cash is primarily attributable to the cash savings from the restructuring actions that occurred in fiscal 2019, along with suspension of the Company’s dividend and seasonality of the Company’s operations.
- Total debt was
$774.6 millionas at December 31, 2019, up from $725.4 millionas at March 31, 2019. Redemptions on the 6.5% convertible bonds and the Filter Groupdebt during the first nine months of fiscal 2020 were offset by withdrawals on the 8.75% loan and the credit facility during the same period. Credit facility draws of $256.4 millionwere reclassified from non-current to current in fiscal 2020.
- The Company is currently in constructive discussion with lenders regarding the renewal of its credit facility.
The Company will host a conference call and live webcast with
Just Energy Conference Call and Webcast
Monday, February 10, 2020 2:00 p.m. ET
Those who wish to participate in the conference call may do so by dialing 1-877-501-3160 in the
A webcasted replay for the call will also be archived on the JE investor relations website a few hours after the event.
Just Energy is a 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 and Canada, Just Energy serves residential and commercial customers. Just Energy is the parent company of Amigo Energy, EdgePower Inc., Filter Group Inc., Hudson Energy, Interactive Energy Group, Just Energy Advanced Solutions, Tara Energy, and TerraPass.
This press release may contain forward-looking statements and information, including statements and information regarding, guidance for Base EBITDA and free cash flow for the fiscal year ending
The financial measure such as “EBITDA”, “Base EBITDA”, “FFO”, “Base FFO”, “Base FFO Payout Ratio”, “free cash flow” 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 these measures are useful in providing relative operational profitability of the Company’s business. Please refer to “Key Terms” in the Just Energy Fiscal 2019 Annual Report’s management’s discussion and analysis for the Company’s definition of “EBITDA” and other non-IFRS measures.
FOR FURTHER INFORMATION PLEASE CONTACT:
Chief Financial Officer
Phone: (617) 982-0475
Source: Just Energy Group Inc.