TORONTO, ONTARIO–(Marketwire – Nov. 5, 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 third quarter ended September 30, 2012.
| Third Quarter 2012 Highlights (in thousands of Canadian dollars except per unit amounts)1 |
- Total revenues of $66,720 increased by 5.9%
- Sub-metering revenues increased to $20,123 or by 25.7%
- EBITDA2 of $36,959 decreased by 1.6%
- Attrition in the rentals portfolio decreased by 5,000 units or 26% and 30% from the second quarter of 2012
- Payout Ratio3 increased to 61% from 50%, primarily due to an increase in dividends paid and current taxes
"In the third quarter, EnerCare achieved solid operational and financial performance with total revenues increasing by 6% and 26% in our sub-metering business," said John Macdonald, President and CEO. "We are also pleased to see the dramatic reduction in attrition and a positive trend in our customer retention levels. We will continue to invest in our attrition fighting programs to make greater progress in this area."
| RESULTS OF OPERATIONS |
| Overview |
| Three months ended Sept. 30 | , | Nine months ended Sept. 30 | , | ||||||
| (000's) | 2012 | 2011 | 2012 | 2011 | |||||
| Revenues: | |||||||||
| Rentals | $46,581 | $46,853 | $140,163 | $140,493 | |||||
| Sub-metering | 20,123 | 16,011 | 53,014 | 43,600 | |||||
| Investment income | 16 | 168 | 277 | 420 | |||||
| Total revenues | 66,720 | 63,032 | 193,454 | 184,513 | |||||
| Commodity charges | 15,553 | 11,689 | 39,885 | 32,007 | |||||
| SG&A expenses: | |||||||||
| Rentals | 3,892 | 3,730 | 11,660 | 11,848 | |||||
| Sub-metering | 3,273 | 2,648 | 8,706 | 7,720 | |||||
| Corporate | 3,630 | 2,512 | 12,255 | 8,400 | |||||
| Total SG&A expenses | 10,795 | 8,890 | 32,621 | 27,968 | |||||
| Amortization expense | 25,407 | 26,126 | 76,447 | 78,469 | |||||
| Loss on disposal of equipment | 3,397 | 4,718 | 11,625 | 14,219 | |||||
| Interest expense | 9,035 | 10,433 | 28,822 | 31,690 | |||||
| Total operating expenses | 64,187 | 61,856 | 189,400 | 184,353 | |||||
| Other income | 855 | 254 | 2,355 | 2,383 | |||||
| Earnings before income taxes | 3,388 | 1,430 | 6,409 | 2,543 | |||||
| Current tax (expense) | (3,902 | ) | (1,478 | ) | (9,331 | ) | (4,943 | ) | |
| Deferred income tax recovery | 2,668 | 5,666 | 1,843 | 8,639 | |||||
| Net earnings/(loss) | 2,154 | 5,618 | (1,079 | ) | 6,239 | ||||
| Adjusted EBITDA | 40,356 | 42,285 | 120,671 | 124,118 | |||||
| EBITDA | $36,959 | $37,567 | $109,046 | $109,899 | |||||
Third Quarter 2012 Financial Results (000's)
Revenues
Total revenues of $66,720 for the third quarter of 2012 increased by $3,688 or 5.9% and by $8,941 or 4.8% to $193,454 year to date, compared to the same periods in 2011. Rentals revenues decreased marginally by $272 to $46,581 in the third quarter of 2012 and by $330 to $140,163 year to date compared to the same periods in 2011, primarily due to a reduction in installed assets, partially offset by an average ren tal rate increase implemented in January 2012. Sub-metering revenues in the third quarter of 2012 were $20,123, an increase of $4,112 or 25.7%, and 9,414 or 21.6% greater than the comparable periods in 2011, as a result of increased commodity charges and billing units. Revenue includes pass through energy charges of $15,553 in the third quarter and $39,885 year to date, increases of $3,864 and $7,878, respectively, over the same periods in 2011.
Investment income decreased by $152 to $16 during the third quarter of 2012 and by $143 to $277 year to date compared to the same periods in 2011. The decrease in investment income in the current period and year to date 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 $10,795 in the third quarter of 2012, an increase of $1,905 or 21.4% over the third quarter of 2011. Sub-metering SG&A expenses were $3,273 during the current period, $625 more than the same period in 2011, primarily as a result of transition costs of approximately $350 incurred following the implementation of a new billing platform in the second quarter, increased wages and benefits of approximately $300 associated with the staffing requirements related to the internalization of the billing platform and $100 for bad debt provisions, partially offset by reduced expenses in a number of other areas, including third party billing and call center charges. Rentals and corporate expenses of $7,522 increased by $1,280 over the third quarter of 2011, primarily due to increases of approximately $600 in professional fees, wages and benefits of $500, office expenses of $200 and claims of $150, partially offset by reductions in cost of goods sold as a result of lower tank activity and service charges.
Total SG&A expenses were $32,621 year to date in 2012, an increase o f $4,653 or 16.6% over the same period in 2011. Sub-metering SG&A expenses were $8,706 year to date in 2012, an increase of $986 over that of year to date 2011. The expense increases are in line with the variances for the current quarter as noted above except for additional wages and benefits for the year to date period associated with the internalization of the billing and customer care functions. Rentals and corporate SG&A expenses year to date were $23,915, an increase of $3,667 over the same period in 2011. In addition to the increased SG&A expenses noted above, in respect of the third quarter of 2012, the additional year to date increase of $2,387 reflects increases of approximately $1,000 in net wages and benefits, proxy solicitation costs of $1,700, claims and bad debt of $1,400 primarily associated with the second quarter 2011 settlement of $1,300 with Direct Energy Marketing Limited ("DE") and office expenses of $300, offset by a reduction in selling expenses of $1,400, cost of goods sold of $350 and professional fees of $200.
Amortization Expense
Amortization expense decreased by $719 or 2.8% to $25,407 in the third quarter of 2012 and by $2,022 or 2.6% to $76,447 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 third quarter of 2012, EnerCare reported a loss on disposal of equipment of $3,397 and one of $11,625 year to date, reductions of $1,321 and $2,594, 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 third quarter, proceeds on disposal of equipment were $1,051, slightly higher than the same period in 2011. In 2012, year to date proceeds on disposal of equipment of $4,236 increased by $1,148 over the same periods in 2011 reflecting the additional buyout transactions recorded earlier in the year, many of which were on account of older assets with low buyout fees.
Interest Expense
Interest expense payable in cash decreased by $1,143 to $7,981 in the third quarter of 2012 and by $2,379 to $25,364 year to date, compared to the same periods of 2011. The decreases are primarily related to the conversion of convertible debentures to shares 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 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 current period income of $855 represents the reversal of the liability in respect of the third and final earn out payable to the former principals of Stratacon Inc ("Stratacon"). The year to date income of $2,355 includes the settlement reached by EnerCare and DE on account of billing for water heater installation costs. Other income in 2011 represents the reduction in the estimated liability of the third and final earn out payable to the former Stratacon shareholders, which was established in 2010 under the transition to IFRS.
Income Taxes
EnerCare reported a current tax expense of $3,902 for the third quarter of 2012 and $9,331 year to date, increases of $2,424 and $4,388, 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 recovery of $2,668 and $1,843 for the third quarter and year to date 2012 were $2,998 and $6,796 lower than the deferred tax recoveries of $5 ,666 and $8,639 recorded in the same periods of 2011. In the second quarter of 2012, deferred taxes increased by approximately $6,000 as a result of the reversal of previously enacted future corporate tax rate reductions in the province of Ontario.
Net Earnings
Earnings before income taxes in the third quarter of 2012 were $3,388 and $6,409 year to date, an increase of $1,958 and $3,866, respectively, compared to the same periods in 2011, as previously described. The net earnings of $2,154 for the third quarter of 2012 and the net loss of $1,079 year to date, compared to earnings of $5,618 and $6,239, respectively, in the comparable periods of 2011, decreased year to date 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) | Q3/12 | Q2/12 | Q1/12 | Q4/11 | Q3/11 | Q2/11 | Q1/11 | Q4/10 | ||||||||
| Net earnings/(loss) | $ 2 ,154 | $ (3,064 | ) | $ (169 | ) | $ (2,256 | ) | $ 5,618 | $ 1,682 | $ (1,061 | ) | $ (3,214 | ) | |||
| Deferred tax expense/(recovery) | (2,668 | ) | 1,766 | (941 | ) | (874 | ) | (5,666 | ) | (1,858 | ) | (1,115 | ) | (3,419 | ) | |
| Current tax expense | 3,902 | 2,118 | 3,311 | 765 | 1,881 | 1,584 | – | |||||||||
| Amortization expense | 25,407 | 25,166 | 25,874 | 26,234 | 26,126 | 26,103 | 26,240 | 26,620 | ||||||||
| Interest expense | 9,035 | 9,457 | 10,330 | 10,377 | 10,433 | 10,566 | 10,691 | 10,666 | ||||||||
| Other (income)/expense | (855 | ) | – | (1,500 | ) | – | (254 | ) | (2,129 | ) | – | 211 | ||||
| Investment (income) | (16 | ) | (76 | ) | (185 | ) | (174 | ) | (168 | ) | (140 | ) | (112 | ) | (107 | ) |
| EBITDA | 36,959 | 35,367 | 36,720 | 34,072 | 37,567 | 36,105 | 36,227 | 30,757 | ||||||||
| Add: Loss on disposal of equipment | 3,397 | 4,113 | 4,115 | 4,880 | 4,718 | 4,861 | 4,640 | 4,673 | ||||||||
| Add: Impairment of assets | – | – | – | 458 | – | – | – | – | ||||||||
| Adjusted EBITDA | $40,356 | $39,480 | $40,835 | $39,410 | $42,285 | $40,966 | $40,867 | $35,430 |
EBITDA decreased by $608 to $36,959 in the third quarter of 2012, driven principally by an increase in corporate SG&A expenses, partially offset by a reduced loss on disposal of equipment. Adjusted EBITDA of $40,356 decreased by $1,929 after removing from EBITDA the impact of a reduced loss on disposal of equipment in 2012.
Outlook
EnerCare experienced dramatically improved customer retention in the third quarter of 2012. We are continuing to explore new in itiatives and modifications to existing programs to reduce Attrition further.
We expect that the new customer care and billing system will provide a sustained reduction in the cost to administer sub-metering customer accounts. However, we will have expenses associated with the completion of the system transition in the fourth quarter of 2012.
EnerCare Solutions Inc.'s ("EnerCare Solutions") $240,000 5.25% senior unsecured notes (the "2010 Notes") are maturing on March 15, 2013. EnerCare is considering numerous options to refinance both the 2010 Notes and EnerCare Solutions' $270,000 6.75% senior unsecured notes, maturing on April 30, 2014. These options include a bank term loan, a public note offering, a private placement and bridge financing. As part of the consideration for refinancing, EnerCare is evaluating which option will best optimize current interest rates, term length and future business plans. Factors that enhance these options include EnerCare's investment grade ratings from S&P and DBRS, EnerCare's strong and stable cash flows and EnerCare's current leverage. As a result, EnerCare expects to refinance all of its 2010 Notes before maturity.
Financial Statements and Management's Discussion and Analysis
EnerCare's financial statements and management's discussion and analysis for the third 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 third quarter of 2012 on Monday, November 5, 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 November 12, 2012. The rebroadcast can be accessed by dialing 1.877.289.8525 or 1.416.640.1917 and entering the pass code 4567758#.
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 EnerC are 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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