Customer retention levels better by 30%, representing four consecutive quarters of year over year improvement
TORONTO, ONTARIO–(Marketwired – Aug. 13, 2013) – 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, 2013.
Q2 2013 Highlights – Period ended June 30, 2013 versus period ended June 30, 2012
(in thousands of Canadian dollars except per unit amounts)
- Attrition in the rentals portfolio decreased by 30% to 14,000 units
- Total revenues of $71,604 increased by 6%
- EBITDA increased by 5% to $37,026
- The payout ratio increased to 73% from 53% in 2012, primarily due to increased net capital expenditures, increased current taxes and higher dividend payments
- Continued to deleverage with repayment of revolving line of credit
"We are very pleased with our results in the first half of 2013," said John Macdonald, President and CEO. "Our core rentals business continues its upward momentum driven by four consecutive quarters of improvement in attrition. Significant progress was made with our service provider Direct Energy Marketing Limited to improve our billing and service experience for our customers, which have helped drive our positive results. In addition, our sub-metering business continues to grow revenue at double-digit levels." Macdonald added, "With our significant refinancings complete, which crystalized significant interest savings and also secured our long term capital structure, our improving financial performance adds to our position of strength. As a result of our strong results, we are pleased to announce that we are increasing our annual common dividend by 1.8% to 69.6 cents per share. This is the fourth time that we have increased our dividend in the last 24 months and the second time this year."
Results of Operations
Earnings Statement
For 2013 and 2012, certain comparative amounts have been reclassified to conform to the current period's presentation. Revenue related to charges to landlords on account of common area and suite consumption that was not billed to tenants has been reclassified from commodity charges. The related accounts receivable has been reclassified from accounts payable and accrued liabilities. These reclassifications resulted in an increase of $4,110 to both sub-metering revenues and commodity charges for the second quarter and $8,472 year to date of 2012. These reclassifications did not result in any adjustments to previously reported net income, working capital or cash flows.
In addition, the definition of Adjusted EBITDA has been changed to include other income and expense in the calculation. As a result, relevant comparative amounts have been recalculated to conform to the current period's presentation.
| Three months ended June 30, | Six months ended June 30, | ||||||||||||
| (000's) | 2013 | 2012 | 2013 | 2012 | |||||||||
| Revenues: | |||||||||||||
| Rentals | $ | 47,293 | $ | 46,735 | $ | 94,375 | $ | 93,582 | |||||
| Sub-metering | 24,262 | 20,528 | 51,222 | 41,363 | |||||||||
| Investment income | 49 | 76 | 317 | 261 | |||||||||
| Total revenues | $ | 71,604 | $ | 67,339 | $ | 145,914 | $ | 135,206 | |||||
| Commodity charges | 20,037 | 16,259 | 42,188 | 32,804 | |||||||||
| SG&A expenses: | |||||||||||||
| Rentals | 4,090 | 4,236 | 7,907 | 7,768 | |||||||||
| Sub-metering | 2,718 | 2,649 | 6,002 | 5,433 | |||||||||
| Corporate | 4,235 | 4,639 | 7,596 | 8,625 | |||||||||
| Total SG&A expenses | 11,043 | 11,524 | 21,505 | 21,826 | |||||||||
| Amortization expense | 24,344 | 25,166 | 48,700 | 51,040 | |||||||||
| Loss on disposal of equipment | 3,449 | 4,113 | 6,341 | 8,228 | |||||||||
| Interest expense: | |||||||||||||
| Interest expense payable in cash | 5,805 | 8,336 | 14,099 | 17,383 | |||||||||
| Make-whole payment on early redemption of debt | – | – | 13,754 | – | |||||||||
| Non-cash interest expense | 171 | 1,121 | < /td> | 5,096 | 2,404 | ||||||||
| Total Interest expense | 5,976 | 9,457 | 32,949 | 19,787 | |||||||||
| Total operating expenses | 64,849 | 66,519 | 151,683 | 133,685 | |||||||||
| Other income | 1,678 | – | 1,678 | 1,500 | |||||||||
| Earnings/(loss) before income taxes | 8,433 | 820 | (4,091 | ) | 3,021 | ||||||||
| Current tax (expense) | (4,591 | ) | (2,118 | ) | (10,179 | ) | (5,429 | ) | |||||
| Deferred income tax recovery/(expense) | 3,640 | (1,766 | ) | 11,364 | (825 | ) | |||||||
| Net earnings/(loss) | $ | 7,482 | $ | (3,064 | ) | $ | (2,906 | ) | $ | (3,233 | ) | ||
| EBITDA | $ | 37,026 | $ | 35,367 | $ | 75,563 | $ | 72,087 | |||||
| Adjusted EBITDA | $ | 42,153 | $ | 39,480 | $ | 83,582 | $ | 81,815 | |||||
Revenues
Total revenues of $71,604 for the second quarter of 2013 increased by $4,265 or 6% and by $10,708 or 8% to $145,914 year to date compared to the same periods in 2012. Rentals revenues for the quarter increased by $558 to $47,293 and by $793 to $94,375 year to date, compared to the same periods in 2012, primarily due to a rental rate increase implemented in January 2013, partially offset by a small reduction in installed assets. Sub-metering revenues in the second quarter of 2013 were $24,262, an increase of $3,734 or 18% with year to date sub-metering revenues increasing to $51,222 or $9,859 over the comparable periods of 2012, primarily due to increased commodity charges and Billable units. Sub-metering revenue includes total pass through energy charges of $20,037 for the second quarter and $42,188 year to date in 2013, an increase of $3,778 and $9,384, respectively, over the same periods in 2012.
Investment income was $49 in the second quarter and $317 year to date in 2013, compared to $76 and $261 in the same periods in 2012. The changes in investment income were primarily attributable to greater investment balances, particularly following the issuance of the $225,000 4.60% Series 2013-1 Senior Unsecured Notes of EnerCare Solutions ("2013 Notes") and the drawdown of the $60,000 single draw, variable rate, interest only, open loan ("Term Loan") approximately 30 days prior to the redemption of the $270,000 6.75% Series 2009-2 Senior Notes of EnerCare Solutions ("2009-2 Notes") during the first quarter of 2013.
Selling, General & Administrative Expenses
Total SG&A expenses were $11,043 in the second quarter of 2013, a decrease of $481 or 4% compared to the same period in 2012. Sub-metering SG&A expenses were $2,718 or $69 greater in the second quarter of 2013 than that of the comparable period in 2012, primarily as a result of increased office expenses and professional fees of approximately $250, wages and benefits of $230, partially offset by reductions in bad debt expense of $230 and cost of goods of $180. Rentals and corporate expenses of $8,325 decreased by $550 in the second quarter of 2013 over that in the same period in 2012, primarily due to a decrease of approximately $1,600 for professional fees and selling expenses, partially offset by increases of approximately $350 for each of wages and benefits and claims and bad debts, $200 on account of cost of goods and $100 for office expenses.
Year to date total SG&A expenses were $21,505 or $321 lower than the same period in 2012. Sub-metering SG&A expenses of $6,002 were $569 higher year to date in 2013 compared to 2012, primarily as a result of increased wages and benefits of approximately $650 associated with the internalization of the customer care and billing functions, $200 in professional fees and $250 in a number of other accounts, partially offset by $550 in lower cost of goods. Rentals and corporate expenses of $15,503 year to date in 2013 decreased by $890 over that in the same period in 2012, primarily due to a decrease of approximately $2,300 for professional fees and selling expenses, partially offset by increases of approximately $650 for claims and bad debts, $400 for wages and benefits, $200 for office expenses and $160 for cost of goods.
Amortization Expense
Amortization expense decreased by $822 or 3% to $24,344 in the second quarter of 2013 and by $2,340 or 5% to $48,700 year to date over that 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
EnerCare reported a loss on disposal of equipment of $3,449 in the second quarter of 2013, and $6,341 year to date, reductions of $664 and $1,887, respectively, over the same periods in 2012. 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. In 2012, loss on disposal was elevated primarily as a result of higher buyout activity and attrition.
Interest Expense
Interest expense payable in cash decreased by $2,531 to $5,805 in the second quarter of 2013 and by $3,284 to $14,099 year to date, compared to the same periods in 2012. The decreases are primarily related to the conversion of convertible debentures to shares, repayment of the $60,000 6.20% Series 2009-1 Senior Notes of EnerCare Solutions on April 30, 2012 and the redemption of the $240,000 5.25% Series 2010-1 Senior Unsecured Notes of EnerCare Solutions in the fourth quarter of 2012 with the proceeds from the offering of the $250,000 4.30% Series 2012-1 Senior Unsecured Notes of EnerCare Solutions, which mature on November 30, 2017. The make-whole payment of $13,754 was incurred upon the early redemption of the 2009-2 Notes associated with the issuance of the 2013 Notes and the drawdown of the Term Loan. Amortization of other comprehensive income ("OCI") and financing costs for 2013 include the previously unamortized costs associated with the 2009-2 Notes and $4,023 of accumulated OCI which was fully reclassified to earnings in the first quarter of 2013.
Other Income
During the second quarter of 2013, EnerCare and Direct Energy Marketing Limited ("DE") reached a settlement of $1,678 on account of billing and collection in respect of water heater buyouts. In 2012, EnerCare and 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 $4,591 for the second quarter of 2013 and $10,179 year to date, which were $2,473 and $4,750, respectively, greater than the same periods in 2012, primarily as a result of decreased loss carry forwards available to shelter taxable income in the rentals business. The deferred income tax recovery of $3,640 for the quarter and $11,364 year to date 2013 increased by $5,406 and $12,189, respectively, primar ily as a result of temporary difference reversals in the rentals and sub-metering businesses, including the make-whole payment inclusion through April 30, 2014.
Net Earnings
Net earnings in the second quarter of 2013 were $7,482, an increase of $10,546 compared to the same period of 2012, as previously described. The 2013 year to date net loss of $2,906, improved by $327 over the same period in 2012. The significant change in earnings between the first and second quarters of 2013 was primarily due to the first quarter make-whole payment of $13,754.
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) | Q2/13 | Q1/13 | Q4/12 | Q3/12 | Q2/12 | Q1/12 | Q4/11 | Q3/11 | ||||||||||||||||
| Net earnings/(loss) | $ | 7,482 | $ | (10,388 | ) | $ | (2,096 | ) | $ | 2,154 | $ | (3,064 | ) | $ | (169 | ) | $ | (2,256 | ) | $ | 5,618 | |||
| Deferred tax (recovery)/expense | (3,640 | ) | (7,724 | ) | (4,155 | ) | (2,668 | ) | 1,766 | (941 | ) | (874 | ) | (5,666 | ) | |||||||||
| Current tax expense | 4,591 | 5,588 | 5,217 | 3,902 | 2,118 | 3,311 | 765 | 1,478 | ||||||||||||||||
| Amortization expense | 24,344 | 24,356 | 25,175 | 25,407 | 25,166 | 25,874 | 26,234 | 26,126 | ||||||||||||||||
| Interest expense | 5,976 | 26,973 | 11,937 | 9,035 | 9,457 | 10,330 | 10,377 | 10,433 | ||||||||||||||||
| Other (income)/expense | (1,678 | ) | – | 362 | (855 | ) | – | (1,500 | ) | – | (254 | ) | ||||||||||||
| Investment income | (49 | ) | (268 | ) | (180 | ) | (16 | ) | (76 | ) | (185 | ) | (174 | ) | (168 | ) | ||||||||
| EBITDA | 37,026 | 38,537 | 36,260 | 36,959 | 35,367 | 36,720 | 34,072 | 37,567 | ||||||||||||||||
| Add: Loss on disposal of equipment | 3,449 | 2,892 | 3,523 | 3,397 | 4,113 | 4,115 | 4,880 | 4,718 | ||||||||||||||||
| Add: Impairment of assets | – | – | – | – | – | – | 458 | – | ||||||||||||||||
| Add: Other income/(expense) | 1,678 | – | (362 | ) | 855 | – | 1,500 | – | 254 | |||||||||||||||
| Adjusted EBITDA(1) | $ | 42,153 | $ | 41,429 | $ | 39,421 | $ | 41,211 | $ | 39,480 | $ | 42,335 | $ | 39,410 | $ | 42,539 |
| (1) | Historical Adjusted EBITDA has been conformed to the current presentation which includes other income and expense. |
Outlook
The forward-looking statements contained in this section are not historical facts but, rather, reflect EnerCare's current exp ectations regarding future results or events and are based on information currently available to management. Certain material factors and assumptions were applied in providing these forward-looking statements. See "Forward-looking Information" in this press release.
EnerCare continued to experience improved customer retention during the second quarter of 2013. Overall, we are encouraged by the positive trend we have seen in 2013 with a 40% reduction in attrition and the decreasing trend over the last four quarters. We continue to expect that attrition levels will continue to have mild volatility from quarter to quarter. The Ontario Government introduced consumer protection legislation in the Ontario legislature in respect of door to door sales. We strongly support the introduction of legislation that will help protect consumers from aggressive and questionable door to door sales activities. If passed, we believe that the proposed legislation is very much a positive development for consumers, our customers and our business and will greatly assist in our efforts to combat attrition. Going forward we continue to believe that the factors that have led to the decline in attrition over the last three years, including improving consumer awareness, and if passed, the proposed consumer protection legislation, will create a more favourable environment for further improvement in customer retention. We will continue to explore new initiatives and modifications of existing programs, as well as enhanced customer product offerings and service programs.
We expect that our exchanges will increase in the third quarter of 2013 as a result of the recent flooding that occurred in Toronto and the surrounding area in early July. In certain cases, EnerCare may also be waiving the buyout charges associated with these exchanges. Based upon exchange activity as at August 12, 2013, we estimate that capital on account of exchanges during the third quarter will be approximately $2,000 to $4,000 hig her than it would have been had such flooding not occurred.
The second quarter of 2013 marked the end of any significant additional costs associated with the completion of the transition to our new customer care and billing system. Any future costs incurred related to the system will be associated with new product configurations, such as thermal metering, or further process automation. We continue to focus on reducing our costs to administer sub-metering customer accounts and expect that we will see further sustained cost reduction going forward.
As announced in the first quarter of 2013, our key priorities and initiatives in the business are to continue to improve attrition by continuing to invest in the education and protection of consumers relating to door to door solicitation, enhancing our customer value proposition, supporting Bill 55 and growing the business through portfolio additions and new products by accelerating originations in respect of HVAC.
In respect of sub-metering, our priorities and initiatives are to grow the business to be cash flow positive by year end by improving productivity and operating efficiencies, increasing the number of billable units and augmenting our electricity and water sub-metering offerings to provide a "whole building" solution, such as with thermal metering. We are making progress on all of our annual objectives and are pleased with our year-to-date results thus far.
EnerCare intends to increase its monthly dividend to $0.058 per share, an increase of 1.8%, effective in respect of the dividend payable to shareholders of record on the applicable date in September 2013, which dividend will be paid in October 2013. The dividend increase reflects EnerCare's strong performance in the first half of 2013, its long-term stable financial structure, recent reductions in attrition and the confidence the board has in the company moving forward.
Financial Statements and Management's Disc ussion and Analysis
EnerCare's financial statements and management's discussion and analysis for the second quarter of 2013 are available on SEDAR at www.sedar.com or on EnerCare's website at 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 ended June 30, 2013 on Tuesday, August 13, 2013 at 10:00 a.m. (ET). John Macdonald, President and CEO, and Evelyn Sutherland, CFO, will be on the call. Details of the call and webcast are as follows:
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| By telephone: | 416.340.8018 or 1.866.223.7781 |
| Please allow 10 minutes to be connected to the conference call. | |
| Webcast: | gowebcasting.com |
| Note: this is a listen-only audio webcast. Media Player or Real Player is required to listen to the broadcast. | |
| Replay: | An archived audio webcast will be available at: enercare.ca for one year following the original broadcast. |
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 about EnerCare is available on SEDAR (www.sedar.com) or on EnerCare's website at enercare.ca.
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 forwar d-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.
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