Encouraging trend in Attrition
TORONTO, ONTARIO–(Marketwire – Aug. 13, 2012) – EnerCare Inc. ("EnerCare") (TSX:ECI), one of Canada's leading providers of energy conservation products and services, today reported its financial results for the second quarter ended June 30, 2012.
Second Quarter 2012 Highlights (in thousands of Canadian dollars except per unit amounts)1
- Total revenues of $63,229 increased by 5%
- Sub-metering revenues increased to $16,418 or by 25%
- EBITDA2 of $35,367 decreased by 2%
- Attrition in the rentals portfolio increased by 1,000 units primarily due to an increase of approximately 2,500 buyouts over 2011, but has improved throughout the quarter
- Payout R atio3 increased to 53% from 50%
"We were pleased with the trend of reduction of competitor related attrition in the second quarter. Buyout activity fell dramatically in May and returned to near historic levels in June," said John Macdonald, President and CEO. "In addition, we deployed a new customer billing system which consolidated all sub-metering functions onto one platform. We expect that efficiencies related to the new system will contribute to significantly lower sub-metering costs towards the end of the third quarter of 2012."
RESULTS OF OPERATIONS
Overview
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
| (000's) | 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Revenues: | |||||||||||||||||
| Rentals | $ | 46,735 | $ | 46,745 | $ | 93,582 | 93,640 | ||||||||||
| Sub-metering | 16,418 | 13,184 | 32,891 | 27,589 | |||||||||||||
| Investment income | 76 | 140 | 261 | 252 | |||||||||||||
| Total revenues | 63,229 | 60,069 | 126,734 | 121,481 | |||||||||||||
| Commodity charges | 12,149 | 9,725 | 24,332 | 20,318 | |||||||||||||
| SG&A expenses: | |||||||||||||||||
| Rentals | 4,236 | 4,284 | 7,768 | 8,118 | |||||||||||||
| Sub-metering | 2,649 | 2,419 | 5,433 | 5,072 | |||||||||||||
| Corporate | 4,639 | 2,535 | 8,625 | 5,888 | |||||||||||||
| Total SG&A expenses | 11,524 | 9,238 | 21,826 | 19,078 | |||||||||||||
| Amortization expense | 25,166 | 26,103 | 51,040 | 52,343 | |||||||||||||
| Loss on disposal of equipment | 4,113 | 4,861 | 8,228 | 9,501 | |||||||||||||
| Interest expense | 9,457 | 10,566 | 19,787 | 21,257 | |||||||||||||
| Total operating expenses | 62,409 | 60,493 | 125,213 | 122,497 | |||||||||||||
| Other income | – | 2,129 | 1,500 | 2,129 | |||||||||||||
| Earnings before income taxes | 820 | 1,705 | 3,021 | 1,113 | |||||||||||||
| Current tax (expense) | (2,118 | ) | (1,881 | ) | (5,429 | ) | (3,465 | ) | |||||||||
| Deferred income tax (expenses) / recovery | (1,766 | ) | 1,858 | < strong>(825 | ) | 2,973 | |||||||||||
| Net (loss) / earnings | (3,064 | ) | 1,682 | (3,233 | ) | 621 | |||||||||||
| EBITDA | 35,367 | 36,105 | 72,087 | 72,332 | |||||||||||||
| Adjusted EBITDA | $ | 39,480 | $ | 40,966 | $< /strong> | 80,315 | $ | 81,833 | |||||||||
Second Quarter 2012 Financial Results (000's)
Revenues
Total revenues of $63,229 for the second quarter of 2012 increased by $3,160 or 5% and by $5,253 or 4% to $126,734 year to date, compared to the same periods in 2011. Rentals revenues decreased marginally by $10 to $46,735 in the second quarter of 2012 and by $58 to $93,582 year to date compared to the same periods in 2011, primarily due to a reduction in installed assets, partially offset by an average rental rate increase of 2.75% implemented in January 2012. Sub-metering revenues in the second quarter of 2012 were $16,418, an increase of $3,234 or 25%, and $32,891 or 19% greater than the comparable periods in 2011, as a result of increased billing units and commodity charges. Revenue includes pass through energy charges of $12,149 in the second quarter and $24,332 year to date, increases of $2,424 and $4,014, respectively, over the same periods in 2011.
Investment income decreased by $64 to $76 during the second quarter of 2012 and was $9 more at $261 year to date compared to the same periods in 2011. The decrease in investment income in the current period was attributable to lower investment balances as a result of the repayment the $60,000 2009-1 Notes in April 2012.
Selling, General & Administrative ("SG&A") Expenses
Total SG&A expenses were $11,524 in the second quarter of 2012, an increase of $2,286 or 25% over second quarter of 2011. Sub-metering SG&A expenses were $2,649 during the current period, $230 more than the same period in 2011, primarily as a result of increased wages and benefits of approximately $300 due to staffing requirements related to the internalization of our billing platform, partially offset by reduced expenses in a number of other areas. Rentals and corporate expenses of $8,875 increased by $2,056 over the second quarter of 2011, primarily due to the incurrence of approximately $1,200 in proxy solicitation costs, increased bad debt of $1,400 related to the reduction recorded in 2011 reflecting a recovery from Direct Energy Marketing Limited ("DE"), increased wages and benefits of $400 and increased claims of $300, partially offset by the timing of marketing program expenses and a number of smaller items.
Total SG&A expenses were $21,826 year to date in 2012, an increase of $2,748 over the same period in 2011. Sub-metering SG&A expenses were $5,433 year to date in 2012, an increase of $361 over that of year to date 2011. The expense increases are in line with the variances for the current quarter as noted above. Rentals and corporate SG&A expenses year to date were $16,393, an increase of $2,387 over the same period in 2011. In addition to the increased SG&A expenses noted above, in respect of the second quarter of 2012, the year to date increase of $2,387 reflects additional increases of approximately $600 in wages and benefits, proxy solicitation costs of $500, offset by a reduction in claims and bad debt of $300, professional fees of $200 and other smaller reductions.
Amortization Expense< /em>
Amortization expense decreased by $937 or 4% to $25,166 in the second quarter of 2012 and by $1,303 or 3% to $51,040 year to date, 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 second quarter of 2012, EnerCare reported a loss on disposal of equipment of $4,113 and one of $8,228 year to date, reductions of $748 and $1,273, respectively, over the same periods in 2011. 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. During the first and second quarters of 2012, additional proceeds on disposal of assets of $483 and $1,104, respectively, were recorded over the same periods in 2011. During the current year, approximately 7,000 additional buyout transactions were recorded over the same period in 2011. Many of the buyout transactions were on account of older assets with low buyout fees.
Interest Expense
Interest expense payable in cash decreased by $917 to $8,336 in the second quarter of 2012 and by $1,236 to $17,383 year to date, compared to the same periods of 2011. The decreases are primarily related to the conversion of convertible debentures to shares since June 30, 2011 and the repayment of the $60,000 2009-1 Notes on April 30, 2012. Amortization of other comprehensive income and financing costs for 2012 are modestly lower than 2011 primarily related to the declining outstanding balance of convertible debentures and reduced amortization with the repayment of the 2009-1 Notes.
Other Income
The year to date income of $1,500 represents a settlement reached by EnerCare and DE on account of billing for water heater in stallation costs.
Income Taxes
EnerCare reported a current tax expense of $2,118 for the second quarter of 2012 and $5,429 year to date, increases of $237 and $1,964, respectively, over the same periods of 2011, primarily as a result of decreased loss carry forwards available to shelter taxable income in the rentals business. The deferred income tax expenses of $1,766 and $825 for the second quarter and year to date 2012 were $3,624 and $3,798 greater than the deferred tax recoveries of $1,858 and $2,973 recorded in the same periods of 2011. The current period reflects approximately $6,000 of deferred tax expense as a result of the reversal of previously enacted future corporate tax rate reductions in the province of Ontario.
Net Loss
Earnings before income taxes in the second quarter of 2012 were $820 and $3,021 year to date, a decrease of $885 and an increase of $1,908, respectively, compared to the same periods in 2011, as previously described. The net loss of $3,064 for the second quarter of 2012 and $3,233 year to date, compared to earnings of $1,682 and $621, respectively, in the comparable periods of 2011, increased by approximately $6,000 primarily as a result of a change in the future tax rates by the Ontario government.
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.
| (000's) | Q2/12 | Q1/12 | Q4/11 | Q3/11 | Q2/11 | Q1/11 | Q4/10 | Q3/10 | ||||||||||||||||
| Net (loss) / earnings | $ | (3,064 | ) | $ | (169 | ) | $ | (2,256 | ) | $ | 5,618 | $ | 1,682 | $ | (1,061 | ) | $ | (3,214 | ) | $ | 2,216 | |||
| Deferred tax expense / (recovery) | 1,766 | (941 | ) | (874 | ) | (5,666 | ) | (1,858 | ) | (1,115 | ) | (3,419 | ) | (5,172 | ) | |||||||||
| Current tax expense | 2,118 | 3,311 | 765 | 1,478 | 1,881 | 1,584 | – | – | ||||||||||||||||
| Amortization expense | 25,166 | 25,874 | 26,234 | 26,126 | 26,103 | 26,240 | 26,620 | 27,287 | ||||||||||||||||
| Interest expense | 9,457 | 10,330 | 10,377 | 10,433 | 10,566 | 10,691 | 10,666 | 10,693 | ||||||||||||||||
| Other (income) / expense | – | (1,500 | ) | – | (254 | ) | (2,129 | ) | – | 211 | (1,715 | ) | ||||||||||||
| Investment (income) | (76 | ) | (185 | ) | (174 | ) | (168 | ) | (140 | ) | (112 | ) | (107 | ) | (87 | ) | ||||||||
| EBITDA | 35,367 | 36,720 | 34,072 | 37,567 | 36,105 | 36,227 | 30,757 | 33,222 | ||||||||||||||||
| Add: Loss on disposal of equipment | 4,113 | 4,115 | 4,880 | 4,718 | 4,861 | 4,640 | 4,673 | 5,756 | ||||||||||||||||
| Add: Impairment of assets | – | – | 458 | – | – | – | – | – | ||||||||||||||||
| Adjusted EBITDA | $ | 39,480 | $ | 40,835 | $ | 39,410 | $ | 42,285 | $ | 40,966 | $ | 40,867 | < /td> | $ | 35,430 | $ | 38,978 | |||||||
Outlook
EnerCare is pleased with the trend of reduced competitor removals of our rentals products in the second quarter of 2012. DE and EnerCare attrition fighting programs have continued into the third quarter of 2012, including the mass media campaign.
EnerCare implemented a new sub-metering billing and customer care system in May 2012. This system replaces two outsourced contracts that were inherited as part of EnerCare's sub-metering acquisitions. Sub-metering SG&A costs are anticipated to continue to be higher than normal in the early part of the third quarter of 2012 due to continued transition activities. The new system allows for greater automation and consistency of processes, reduced duplication of efforts and greater economies of scale. We expect these factors to contribute to lower sub-metering SG&A costs towards the end of the third quarter of 2012.
EnerCare plans to increase efforts to grow its business organically, including through wider product offering and geographic expansion. In addition, EnerCare Solutions will continue to seek acquisition opportunities in its current or adjacent markets. Inves tments will focus on those which have long lived asset life and long-term customer relationships and that will generate positive growth in revenues, earnings and/or cash flows within an appropriate horizon depending on the stage of the development of the business.
Financial Statements and Management's Discussion and Analysis
EnerCare's financial statements and management's discussion and analysis for the second quarter of 2012 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 second quarter of 2012 on Monday, August 13, 2012 at 10:00 a.m. (ET). John Macdonald, President and CEO, and Evelyn Sutherland, CFO, will be on the call.
| Call can be accessed as follows: | |||
| Toll free: | 1.800.814.4859 | ||
| Local: | 1.416.644.3414 | ||
| Via webcast: | http: //investors.enercare.ca/ | ||
The audio webcast will be archived at http://investors.enercare.ca. A taped rebroadcast will be available until midnight on August 20, 2012. The rebroadcast can be accessed by dialing 1.877.289.8525 or 1.416.640.1917 and entering the pass code 4544763#.
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 regarding EnerCare is available on SEDAR at www.sedar.com or through EnerCare's website at http://investors.enercare.ca. Information on the sub-metering business is also available at www.enercareconnections.com.
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.
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 and Adjusted EBITDA are non-IFRS financial measures. Refer to the Non-IFRS Financial and Performance Measures section in the MD&A.
3 Payout Ratio is a non-IFRS financial measure. Refer to the Non-IFRS Financial and Performance Measures section in the MD&A.
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