TORONTO, ONTARIO–(Marketwire – May 14, 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 first quarter ended March 31, 2012.
First Quarter 2012 Highlights (in thousands of Canadian dollars)1
- Total revenues of $63,505 increased by 3%
- Sub-metering revenues increased to $16,473 or by 14%
- EBITDA2 increased to $36,720
- Attrition in the rentals portfolio increased by 4,000 units primarily due to significant buyout activity following the introduction and subsequent withdrawal of new contract terms
- Acquisition of approximately 3,421 water heaters and HVAC equipment from GreenSource Capital Inc.
- Payout Ratio3 increased to 61% from 57%
"In the first quarter of 2012, EnerCare continued to deliver solid financial and operational results," said John Macdonald, President and CEO. "Our rentals business revenues in the quarter were in line with our first quarter 2011 results and our sub-metering business revenues increased by over 14%, primarily due to the conversion of installed units into billing units. Although attrition in our rentals business increased slightly during the quarter, our results continue to demonstrate the inheren t strength and consistency of our business model."
RESULTS OF OPERATIONS
Overview
| Three months ended March 31, | |||||||
| (000's) | 2012 | 2011 | |||||
| Revenues: | |||||||
| Rentals | $ | 46,847 | $ | 46,895 | |||
| Sub-metering | 16,473 | 14,405 | |||||
| Investment income | 185 | 112 | |||||
| Total revenues | $ | 63,505 | $ | 61,412 | |||
| Commodity charges | 12,183 | 10,593 | |||||
| SG&A expenses: | |||||||
| Rentals | 3,532 | 3,834 | |||||
| Sub-metering | 2,784 | 2,653 | |||||
| Corporate | 3,986 | 3,353 | |||||
| Total SG&A expenses | 10,302 | 9,840 | |||||
| Amortization expense | 25,874 | 26,240 | |||||
| Loss on disposal of equipment | 4,115 | 4,640 | |||||
| Interest expense | 10,330 | 10,691 | |||||
| Total operating expenses | 62,804 | 62,004 | |||||
| Other income | 1,500 | – | |||||
| Earnings/(loss) before income taxes | 2,201 | (592 | ) | ||||
| Current tax (expense) | (3,311 | ) | (1,584 | ) | |||
| Deferred income tax recovery | 941 | 1,115 | |||||
| Net loss | $ | (169 | ) | $ | (1,061 | ) | |
| EBITDA | $ | 36,720 | $ | 36,227 | |||
| Adjusted EBITDA | $ | 40,835 | $ | 40,867 | |||
First Quarter 2012 Financial Results (000's)
Revenues
Total revenues of $63,505 for the first quarter of 2012 increased by $2,093 or 3% compared to the same period in 2011. Rentals revenues decreased by $48 to $46,847 in the first quarter of 2012, 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 first quarter of 2012 were $16,473, an increase of $2,068 or 14%, as a result of increased billing units combined with higher water management sales. Revenue increases include pass through energy charges of $12,183, an increase of $1,590 over the same period in 2011.
Investment income increased by $73 in the first quarter of 2012 to $185 compared to $112 in the same period in 2011, primarily as a result of larger investment balances during 2011.
Selling, General & Administrative ("SG&A") Expenses
Total SG&A expenses were $10,302 in the first quarter of 2012, compared to $9,840 during the same period in 2011, an increase of $462 or 5%. The expense increase in the sub-metering segment of $131 to $2,784 in the first quarter of 2012 is the result of an increase in billing and servicing expenses of $241, claims and bad debts of $153, and wages and benefits of $112 offset by a decrease in selling, office and other expenses of $326 and professional fees of $49. Rentals and corporate expense s of $7,518 were $331 higher than in the same period in 2011. The increase in expense is a result of an increase in wages and benefits of $621, proxy solicitation expenses of $478 offset by a reduction in claims and bad debts of $307, professional fees of $245, selling, office and other expenses of $185 and billing and servicing expenses of $31.
Amortization Expense
Amortization expense decreased by $366 or 1% to $25,874 in the first quarter of 2012, 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 2012, EnerCare reported a loss on disposal of equipment of $4,115, representing a decrease of $525 or 11% over the same period in 2011. The loss on disposal amount is influenced by the number of assets retired, changes in the retirement asset mix and the age of the assets retired. During the current period, approximately 4,200 additional buyout transactions were recorded over the same period in 2011 (see "Attrition" below). Many of the buyout transactions were on account of older assets with low buyout fees.
Interest Expense
Interest expense decreased to $10,330 in the first quarter of 2012, compared to $10,691 in the first quarter of 2011. The decrease is primarily related to the conversion of convertible debentures to shares since March 31, 2011.
Other Income
During the first quarter of 2012, EnerCare and Direct Energy Marketing Limited ("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 $3,311 for the first quart er of 2012, which was $1,727 greater than the same period in 2011, primarily as a result of decreased loss carry forwards available to shelter taxable income in the rentals business. The deferred income tax recovery of $941 for 2012 decreased by $174, primarily as a result of temporary difference reversals in the rentals and sub-metering businesses.
Net Loss
Earnings before income taxes in the first quarter of 2012 was $2,201, an increase of $2,793, compared to the same period in 2011, as previously described. The net loss was impacted by the increase in current taxes of $1,727 and decrease in tax recoveries of $174 resulting in a net loss of $169, an improvement of $892 over the same period in 2011.
Adjusted EBITDA and 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) | Q1/12 | Q4/11 | Q3/11 | Q2/11 | Q1/11 | Q4/10 | Q3/10 | Q2/10 | ||||||||||||||||
| Net (loss)/earnings | $ | (169 | ) | $ | (2,256 | ) | $ | 5,618 | $ | 1,682 | $ | (1,061 | ) | $ | (3,214 | ) | $ | 2,21 6 | $ | 2,566 | ||||
| Deferred tax (recovery) | (941 | ) | (874 | ) | (5,666 | ) | (1,858 | ) | (1,115 | ) | (3,419 | ) | (5,172 | ) | (4,745 | ) | ||||||||
| Current tax expense | 3,311 | 765 | 1,478 | 1,881 | 1,584 | – | – | – | ||||||||||||||||
| Amortization expense | 25,874 | 26,234 | 26,126 | 26,103 | 26,240 | 26,620 | 27,287 | 27,560 | ||||||||||||||||
| Interest expense | 10,330 | 10,377 | 10,433 | 10,566 | 10,691 | 10,666 | 10,693 | 10,325 | ||||||||||||||||
| Other (income)/expense | (1,500 | ) | – | (254 | ) | (2,129 | ) | – | 211 | (1,715 | ) | – | ||||||||||||
| Investment (income) | (185 | ) | (174 | ) | (168 | ) | (140 | ) | (112 | ) | (107 | ) | (87 | ) | (5 | ) | ||||||||
| EBITDA | 36,720 | 34,072 | 37,567 | 36,105 | 36,227 | 30,757 | 33,222 | 35,701 | ||||||||||||||||
| Add: Loss on disposal of equipment | 4,115 | 4,880 | 4,718 | 4,861 | 4,640 | 4,673 | 5,756 | 5,918 | ||||||||||||||||
| Add: Impairment of assets | – | 458 | – | – | – | – | – | – | ||||||||||||||||
| Adjusted EBITDA | $ | 40,835 | $ | 39,410 | $ | 42,285 | $ | 40,966 | $ | 40,867 | $ | 35,430 | $ | 38,978 | $ | 41,619 | ||||||||
Attrition
In the first quarter of 2012, EnerCare experienced higher attrition due to increased competitive door to door ("D2D") activity in anticipation of the expiry of the consent order on February 22, 2012 and a sharp spike in buyout activity in late March as a result of the introduction and subsequent withdrawal of the new contract terms to a significant portion of customers in the rentals portfolio. Subsequent to March 31, 2012, buyout activity fell sharply and while elevated from its historical norm is trending toward expected levels.
Purchase of Water Heaters from GreenSource Capital Inc.
On February 29, 2012, EnerCare acquired approximately 3,421 water heaters and HVAC equipment from GreenSource Capital Inc., a subsidiary of DE, for cash consideration of $2,053, subject to post-closing adjustments. The rental revenue from the GreenSource units is not subject to the co-ownership agreement, and EnerCare has entered into a transitional services agreement with DE to provide service support to customers on a fee-for-service basis.
Outlook
EnerCare believes that the expiry of the consent order on February 20, 2012 represents the removal of a significant impediment to our rentals business's ability to compete in Ontario. The immediate activities associated with the expiry of the consent order including the closure of most return locations, a reduction in the hours of operation at the return locations and the implementation of a return authorization process were completed by the end of April 2012.
DE and EnerCare have increased attrition fighting programs through April and May of 2012: these programs include mass media campaigns and personal contact with customers in areas where D2D sales activities are high.
EnerCare implemented a new sub-metering billing and customer care system in early 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 be higher than normal in the second quarter of 2012 due to the transition efforts and the cost of operating the three systems concurrently for part of the quarter. The new system will allow greater automation and consistency of processes, reduce duplication of efforts and allow EnerCare to take advantage of greater economies of scale. We expect these factors to contribute to lower sub-metering SG&A costs starting in the third quarter of 2012.
EnerCare plans to increase efforts to grow its business organically, including through wider product offerings and geographic expansion, as it did recently with the introduction of a rentals program in Nova Scotia. In addition, EnerCare will continue to seek acquisition opportunities in its current or adjacent markets. Investments will focus on those which have long 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.
EnerCare is examining opportunities to refinance its $270,000 6.75% senior unsecured notes due April 30, 2014 and the $240,000 5.25% senior unsecured notes due March 15, 2013 in order to take advantage of the current low interest rate environment.
As enacted, Ontario's general corporate income tax rate is scheduled to be reduced from 11.5% to 11% on July 1, 2012 and to 1 0% on July 1, 2013. The 2012 Ontario budget proposed to eliminate these scheduled reductions keeping the general corporate income tax rate at 11.5% until the budget is balanced. Legislation to enact such proposed amendments has yet to be tabled. As a result, the repeal of the corporate tax reductions is not considered substantively enacted for accounting purposes and is therefore not reflected in the deferred taxes. It is expected that legislation to repeal the scheduled reductions will be forthcoming soon. Once the proposals are substantially enacted, EnerCare anticipates that this will have an adverse impact on its deferred taxes.
Financial Statements and Management's Discussion and Analysis
EnerCare's financial statements and management's discussion and analysis for the first 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 first quarter of 2012 on Tuesday, May 15, 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 May 22, 2012. The rebroadcast can be accessed by dialing 1.877.289.8525 or 1.416.640.1917 and entering the pass code 4536053#.
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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