Just Energy Group Inc. (“Just Energy” or the “Company”) (TSX:JE;
NYSE:JE), announced results for its third quarter fiscal 2020 with
lower gross margin and Base EBITDA from continuing operations in
the current quarter largely driven by a reduction in sales, as a
result of the Company’s focus on strengthening the quality of its
customer base. The impact of a reduction in the Company’s
residential customer base was partly offset by cost containment
activities and improved collection performance.
“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,
R. Scott Gahn. “As a result of these efforts, our bad debt expense
is trending positively and we have now turned our attention to
driving measured and profitable sales growth. The enhancement of
our customer base and our revised enrollment processes have
negatively impacted our results in the near term; however, we
remain confident that these efforts will result in a stronger
organization that can deliver greater sales optimization and drive
improved profitability.”
Key Developments:
(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 Energy and
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 Energy anticipates 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., Ireland and
Georgia operations.
- 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 Texas and 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 Energy
is on pace to realize approximately $60 million in 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 2020, reflecting the Company’s
focus on attracting and retaining higher quality and higher margin
customers.
- Finance costs of $28.2 million
increased 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
million decreased 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.
|
Financial
highlights |
For the three
months ended December 31 |
(thousands of
dollars, except where indicated and per share amounts) |
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% increase |
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Fiscal 2020 |
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(decrease) |
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Fiscal 2019 |
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Sales |
$ |
658,521 |
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(10)% |
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$ |
734,205 |
|
Gross margin |
|
142,484 |
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(13)% |
|
|
164,461 |
|
Administrative expenses |
|
39,616 |
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(5)% |
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|
41,921 |
|
Selling and marketing
expenses |
|
51,270 |
|
|
(1)% |
|
|
51,706 |
|
Restructuring costs |
|
- |
|
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(100)% |
|
|
2,746 |
|
Finance costs |
|
28,178 |
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24% |
|
|
22,762 |
|
Profit from continuing
operations |
|
29,336 |
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(31)% |
|
|
42,571 |
|
Profit (loss) from
discontinued operations |
|
6,293 |
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|
NMF3 |
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(90,156 |
) |
Profit (loss) for the
period1 |
|
35,629 |
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NMF3 |
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(47,585 |
) |
Earnings per share from
continuing operations available to shareholders - basic |
|
0.18 |
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0.27 |
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Earnings per share from
continuing operations available to shareholders - diluted |
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0.16 |
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0.25 |
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Dividends/distributions |
|
- |
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(100)% |
|
|
21,434 |
|
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 |
% |
|
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|
|
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.
Outlook
Just Energy continues to focus on enhancing its
customer base by adding new, high-quality customers and providing a
variety of energy management solutions to its customer base to
drive customer loyalty and improved profitability.
The impact of cost cutting initiatives
implemented to date is evident in the third quarter results and
Just Energy expects this progress to continue as additional changes
are made. The Company is on pace to realize approximately $60
million in administrative, selling and capital cost savings in
fiscal year 2020 and will continue to review its operations for
additional ways to improve efficiencies and lower its cost
structure.
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 U.K. and Ireland operations is now complete, as is
the sale of the Company’s Georgia assets, and Just Energy continues
to actively market its remaining non-core operations.
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 Just Energy and its stakeholders.
Just Energy anticipates announcing a decision on the
strategic review by June 30, 2020. In the interim, the
Company does not intend to comment further with respect to the
strategic review unless and until it determines that additional
disclosure is appropriate in the circumstances and in accordance
with the requirements of applicable securities laws. The Company
cautions that there is no assurance that a transaction will result
from the strategic review.
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 $150 million to $170 million, from $180 million to $200
million, and decreased fiscal year 2020 free cash flow guidance to
between $0 million to $20 million, from $50 million to $70 million.
Free cash flow is defined as cash flow from operating activities
minus cash flow from investing activities.
Embedded
Gross Margin |
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Management’s
estimate of the future embedded gross margin is as follows: |
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(millions of dollars) |
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As at |
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As at |
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Dec. 31 vs. |
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As at |
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2019 vs. |
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Dec. 31, |
Sept. 30, |
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Sept. 30, |
Dec. 31, |
|
2018 |
|
2019 |
2019 |
|
variance |
2018 |
|
variance |
Commodity embedded gross
margin |
$ |
1,804.8 |
|
$ |
1,852.5 |
|
(3)% |
|
$ |
2,072.0 |
|
(13)% |
VAPS embedded gross
margin |
|
35.0 |
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39.5 |
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(11)% |
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46.0 |
|
(24)% |
Total
embedded gross margin |
$ |
1,839.8 |
|
$ |
1,892.0 |
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(3)% |
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$ |
2,118.0 |
|
(13)% |
- Embedded gross margin from continuing operations of $1.8
billion decreased 13% year-over-year due to the decline in the
North American consumer commodity customer base.
Customer
Summary |
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As at |
As at |
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Dec. 31, |
Dec. 31, |
% increase |
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2019 |
2018 |
(decrease) |
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Consumer |
1,039,000 |
1,257,000 |
(17)% |
Commercial |
120,000 |
107,000 |
12% |
Total customer count |
1,159,000 |
1,364,000 |
(15)% |
- Total customer count decreased 15%
to 1,159,000 compared to the prior quarter, excluding discontinued
operations. The decline in customers is a result of the Company’s
focus on renewing and signing higher quality and long-lasting
customers as well as the natural attrition of the customer
base.
Annual Gross Margin per RCE
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Q3 Fiscal |
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Number of |
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Q3 Fiscal |
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Number of |
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2020 |
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RCEs |
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2019 |
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RCEs |
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Consumer customers added or
renewed |
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$ |
273 |
|
126,000 |
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$ |
344 |
|
170,000 |
Consumer customers lost |
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|
307 |
|
122,000 |
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|
291 |
|
129,000 |
Commercial customers added or
renewed1 |
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|
65 |
|
114,000 |
|
|
77 |
|
157,000 |
Commercial customers lost |
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|
78 |
|
70,000 |
|
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68 |
|
97,000 |
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1Annual gross
margin per RCE excludes margins from Interactive Energy Group and
large Commercial and Industrial customers. |
- 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, 2019 was a decrease of
15% as a result of competitive pricing pressures in North
America.
Commodity
RCE Summary |
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Oct. 1, |
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Failed to |
Dec. 31, |
% increase |
Dec. 31, |
% increase |
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2019 |
Additions |
Attrition |
renew |
2019 |
(decrease) |
2018 |
(decrease) |
Consumer |
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Gas |
357,000 |
9,000 |
(17,000 |
) |
(6,000 |
) |
343,000 |
(4)% |
466,000 |
(26)% |
Electricity |
915,000 |
46,000 |
(55,000 |
) |
(10,000 |
) |
896,000 |
(2)% |
1,010,000 |
(11)% |
Total
Consumer RCEs |
1,272,000 |
55,000 |
(72,000 |
) |
(16,000 |
) |
1,239,000 |
(3)% |
1,476,000 |
(16)% |
Commercial |
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Gas |
437,000 |
29,000 |
(8,000 |
) |
(10,000 |
) |
448,000 |
3% |
432,000 |
4% |
Electricity |
1,791,000 |
136,000 |
(53,000 |
) |
(46,000 |
) |
1,828,000 |
2% |
1,793,000 |
2% |
Total
Commercial RCEs |
2,228,000 |
165,000 |
(61,000 |
) |
(56,000 |
) |
2,276,000 |
2% |
2,225,000 |
2% |
Total
RCEs |
3,500,000 |
220,000 |
(133,000 |
) |
(72,000 |
) |
3,515,000 |
- |
3,701,000 |
(5)% |
- Total RCE base of 3.5 million
declined 5% from December 31, 2018 to December 31, 2019.
- Gross RCE total additions for the
quarter ended December 31, 2019 were 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, 2019 of 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 million as at March 31, 2019 to
$18.0 million as 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 million as at
December 31, 2019, up from $725.4 million as at March 31, 2019.
Redemptions on the 6.5% convertible bonds and the Filter Group debt
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 million were
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.
Earnings Call
The Company will host a conference call and live
webcast with R. Scott Gahn, Just Energy’s Chief Executive Officer,
and Jim Brown, Chief Financial Officer, to review the fiscal third
quarter results beginning at 2:00 p.m. Eastern Time on Feb. 10,
2020.
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 U.S. and Canada.
International callers may join the call by dialing 1-786-815-8442.
The Conference ID# is 7594987. The call will also be webcast live
over the internet at the following link:
https://edge.media-server.com/mmc/p/vk4uubrm
A webcasted replay for the call will also be
archived on the JE investor relations website a few hours after the
event.
About Just Energy Group
Inc.
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.
Visit https://investors.justenergy.com/ to learn more.
Also, find us on Facebook and follow us
on Twitter.
FORWARD-LOOKING STATEMENTSThis
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 March 31, 2020; the Company’s ability to improve its
business by boosting efficiency and lowering costs; the success of
the Company’s cost reductions and optimization efforts; the ability
of the Company to reduce selling, marketing and general and
administrative expenses and the quantum of such reductions and the
impact thereof on the Company’s current fiscal year; the Company’s
ability to identify further opportunities to improve its cost
structure; discussions with lenders, the timing and results of the
strategic review process, including achieving an outcome that is in
the best interest of the Company and its stakeholders; the
Company’s transition from a purely RCE driven focus; improvement in
the Company’s expected credit loss experience; the Company’s
ability to attract and retain strong-fit customers and the impact
thereof on the achievement by the Company of greater profitability;
the impact of the actions and remediation efforts taken or
implemented by the Company in remediating the material weaknesses
in the Company’s internal controls over financial reporting. 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, the Company’s ability to access sufficient capital to
provide liquidity to manage its cash flow requirements, general
economic, business and market conditions, the ability of management
to execute its business plan, levels of customer natural gas and
electricity consumption, extreme weather conditions, rates of
customer additions and renewals, customer credit risk, rates of
customer attrition, fluctuations in natural gas and electricity
prices, interest and exchange rates, actions taken by governmental
authorities including energy marketing regulation, increases in
taxes and changes in government regulations and incentive programs,
changes in regulatory regimes, results of litigation and decisions
by regulatory authorities, competition, the performance of acquired
companies 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 and Exchange Commission’s website at www.sec.gov or
through Just Energy’s website at www.justenergygroup.com.
Neither the Toronto Stock Exchange nor the New
York Stock Exchange has approved nor disapproved of the information
contained herein.
NON-IFRS MEASURES
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.
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
Energy713-544-8191jbrown@justenergy.com
or
InvestorsMichael CummingsAlpha
IRPhone: (617) 982-0475 JE@alpha-ir.com
MediaBoyd ErmanLongview
CommunicationsPhone: 416-523-5885berman@longviewcomms.ca