Customer Retention Levels Better by 14%, Representing Five Consecutive Quarters of Year over Year Improvement
TORONTO, ONTARIO--(Marketwired - Nov. 14, 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 third quarter ended September 30, 2013.
Q3 2013 Highlights - Period ended September 30, 2013 versus period ended September 30, 2012
(in thousands of Canadian dollars except per unit amounts)
- Attrition in the rentals portfolio decreased by 14% to 12,000 units, the lowest third quarter since 2007
- Total revenues of $77,560 increased by 8%
- EBITDA increased by 4% to $38,551
- The payout ratio increased to 75% from 61% in 2012, primarily due to increased net capital expenditures, increased current taxes and higher dividend payments
- As previously announced, EnerCare increased its dividend by 1.8%, effective in respect to its dividend paid in October
"We are very pleased with the results from our core rentals business," said John Macdonald, President and CEO. "The rentals business continues to gradually grow its key metrics, going beyond traditional conventional water heaters and focusing more on value-added products, such as heating, ventilation, air conditioning and cooling products. Our strategy is paying off as our new rental customers generate 1.4 times the revenue of a customer lost through attrition. At the same time, we are building out our sub-metering business, a second recurring revenue stream".
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 $5,328 to both sub-metering revenues and commodity charges for the third quarter and $13,800 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 in 2013 to include other income and expense in the calculation. As a result, relevant comparative amounts have been recalculated to conform to the current presentation.
| Three months ended Sept. 30, |
|
Nine months ended Sept. 30, |
|
| (000's) |
2013 |
|
2012 |
|
2013 |
|
2012 |
|
| Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Rentals |
$ |
47,248 |
|
$ |
46,581 |
|
$ |
141,623 |
|
$ |
140,163 |
|
| |
Sub-metering |
|
30,291 |
|
|
25,451 |
|
|
81,513 |
|
|
66,814 |
|
| |
Investment income |
|
21 |
|
|
16 |
|
|
338 |
|
|
277 |
|
| Total revenues |
$ |
77,560 |
|
$ |
72,048 |
|
$ |
223,474 |
|
$ |
207,254 |
|
| Commodity charges |
|
25,500 |
|
|
20,881 |
|
|
67,688 |
|
|
53,685 |
|
| SG&A expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Rentals |
|
3,927 |
|
|
3,892 |
|
|
11,834 |
|
|
11,660 |
|
| |
Sub-metering |
|
3,475 |
|
|
3,273 |
|
|
9,477 |
|
|
8,706 |
|
| |
Corporate |
|
3,453 |
|
|
3,630 |
|
|
11,049 |
|
|
12,255 |
|
| Total SG&A expenses |
|
10,855 |
|
|
10,795 |
|
|
32,360 |
|
|
32,621 |
|
| Amortization expense |
|
25,228 |
|
|
25,407 |
|
|
73,928 |
|
|
76,447 |
|
| Loss on disposal of equipment |
|
2,633 |
|
|
3,397 |
|
|
8,974 |
|
|
11,625 |
|
| Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest expense payable in cash |
|
5,852 |
|
|
7,981 |
|
|
19,951 |
|
|
25,364 |
|
| |
Make-whole payment on early redemption of debt |
|
- |
|
|
- |
|
|
13,754 |
|
|
- |
|
| |
Non-cash interest expense |
|
170 |
|
|
1,054 |
|
|
5,266 |
|
|
3,458 |
|
| Total Interest expense |
|
6,022 |
|
|
9,035 |
|
|
38,971 |
|
|
28,822 |
|
| Total operating expenses |
|
70,238 |
|
|
69,515 |
|
|
221,921 |
|
|
203,200 |
|
| Other income |
|
2,000 |
|
|
855 |
|
|
3,678 |
|
|
2,355 |
|
| Earnings before income taxes |
|
9,322 |
|
|
3,388 |
|
|
5,231 |
|
|
6,409 |
|
| Current tax (expense) |
|
(5,525 |
) |
|
(3,902 |
) |
|
(15,704 |
) |
|
(9,331 |
) |
| Deferred income tax recovery |
|
3,134 |
|
|
2,668 |
|
|
14,498 |
|
|
1,843 |
|
| Net earnings/(loss) |
$ |
6,931 |
|
$ |
2,154 |
|
$ |
4,025 |
|
$ |
(1,079 |
) |
| EBITDA |
$ |
38,551 |
|
$ |
36,959 |
|
$ |
114,114 |
|
$ |
109,046 |
|
| Adjusted EBITDA |
$ |
43,184 |
|
$ |
41,211 |
|
$ |
126,766 |
|
$ |
123,026 |
|
Revenues
Total revenues of $77,560 for the third quarter of 2013 increased by $5,512 or 8% and by $16,220 or 8% to $223,474 year to date compared to the same periods in 2012. Rentals revenues for the quarter increased by $667 to $47,248 and by $1,460 to $141,623 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 third quarter of 2013 were $30,291, an increase of $4,840 or 19% with year to date sub-metering revenues increasing to $81,513 or $14,699 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 $25,500 for the third quarter and $67,688 year to date in 2013, an increase of $4,619 and $14,003, respectively, over the same periods in 2012.
Investment income was $21 in the third quarter and $338 year to date in 2013, compared to $16 and $277 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 Inc. ("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 $10,855 in the third quarter of 2013, an increase of $60 compared to the same period in 2012. Sub-metering SG&A expenses were $3,475 or $202 greater in the third quarter of 2013 than that of the comparable period in 2012, primarily as a result of increased bad debt expenses of approximately $370 and billing and servicing costs of $70, partially offset by reductions in professional fees and office expenses of $250. Rentals and corporate expenses of $7,380 decreased by $142 in the third quarter of 2013 over that in the same period in 2012, primarily due to decreases of approximately $670 in selling expenses, $530 for professional fees and $275 in office expenses, partially offset by increases of approximately $600 for wages and benefits, $415 in claims and bad debts and $330 on account of billing and servicing costs.
Year to date total SG&A expenses were $32,360 or $261 lower than the same period in 2012. Sub-metering SG&A expenses of $9,477 were $771 higher year to date in 2013 compared to 2012, primarily as a result of increases in wages and benefits of approximately $660, $430 in bad debt expense and $180 in office, selling and professional fees, partially offset by $500 in lower billing and servicing costs. Rentals and corporate expenses of $22,883 year to date in 2013 decreased by $1,032 over that in the same period in 2012, primarily due to a decrease of approximately $3,500 in professional fees and selling expenses of approximately $1,700, of which were on account of proxy solicitation costs incurred in 2012, partially offset by increases of approximately $980 in wages and benefits, $1,050 in claims and bad debts and $480 on account of billing and servicing costs.
Amortization Expense
Amortization expense decreased by $179 or 1% to $25,228 in the third quarter of 2013 and by $2,519 or 3% to $73,928 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 $2,633 in the third quarter of 2013 and $8,974 year to date, reductions of $764 and $2,651, 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 $2,129 to $5,852 in the third quarter of 2013 and by $5,413 to $19,951 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 third quarter of 2013, EnerCare accrued a settlement from Direct Energy Marketing Limited ("DE") of $2,000 on account of water heater installation costs, billing and collection deficiencies and third-party claims. The 2013 year to date amount of $3,678 includes $1,678 on account of settlements reached with DE 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 and $855 representing the reversal of the liability in respect of the third and final earn out payable to the former principals of Stratacon Inc.
Income Taxes
EnerCare reported a current tax expense of $5,525 for the third quarter of 2013 and $15,704 year to date, which were $1,623 and $6,373, 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 and greater taxable income. The deferred income tax recovery of $3,134 for the quarter and $14,498 year to date 2013 increased by $466 and $12,655, respectively, primarily 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 third quarter of 2013 were $6,931 and $4,025 year to date, increases of $4,777 and $5,104, respectively, over the same period in 2012 as previously described.
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) |
Q3/13 |
|
Q2/13 |
|
Q1/13 |
|
Q4/12 |
|
Q3/12 |
|
Q2/12 |
|
Q1/12 |
|
Q4/11 |
|
| Net earnings/(loss) |
$ |
6,931 |
|
$ |
7,482 |
|
$ |
(10,388 |
) |
$ |
(2,096 |
) |
$ |
2,154 |
|
$ |
(3,064 |
) |
$ |
(169 |
) |
$ |
(2,256 |
) |
| Deferred tax (recovery)/expense |
|
(3,134 |
) |
|
(3,640 |
) |
|
(7,724 |
) |
|
(4,155 |
) |
|
(2,668 |
) |
|
1,766 |
|
|
(941 |
) |
|
(874 |
) |
| Current tax expense |
|
5,525 |
|
|
4,591 |
|
|
5,588 |
|
|
5,217 |
|
|
3,902 |
|
|
2,118 |
|
|
3,311 |
|
|
765 |
|
| Amortization expense |
|
25,228 |
|
|
24,344 |
|
|
24,356 |
|
|
25,175 |
|
|
25,407 |
|
|
25,166 |
|
|
25,874 |
|
|
26,234 |
|
| Interest expense |
|
6,022 |
|
|
5,976 |
|
|
26,973 |
|
|
11,937 |
|
|
9,035 |
|
|
9,457 |
|
|
10,330 |
|
|
10,377 |
|
| Other (income)/expense |
|
(2,000 |
) |
|
(1,678 |
) |
|
- |
|
|
362 |
|
|
(855 |
) |
|
- |
|
|
(1,500 |
) |
|
- |
|
| Investment (income) |
|
(21 |
) |
|
(49 |
) |
|
(268 |
) |
|
(180 |
) |
|
(16 |
) |
|
(76 |
) |
|
(185 |
) |
|
(174 |
) |
| EBITDA |
|
38,551 |
|
|
37,026 |
|
|
38,537 |
|
|
36,260 |
|
|
36,959 |
|
|
35,367 |
|
|
36,720 |
|
|
34,072 |
|
| Add: Loss on disposal of equipment |
|
2,633 |
|
|
3,449 |
|
|
2,892 |
|
|
3,523 |
|
|
3,397 |
|
|
4,113 |
|
|
4,115 |
|
|
4,880 |
|
| Add: Impairment of assets |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
458 |
|
| Add: Other income/(expense) |
|
2,000 |
|
|
1,678 |
|
|
- |
|
|
(362 |
) |
|
855 |
|
|
- |
|
|
1,500 |
|
|
- |
|
| Adjusted EBITDA(1) |
$ |
43,184 |
|
$ |
42,153 |
|
$ |
41,429 |
|
$ |
39,421 |
|
$ |
41,211 |
|
$ |
39,480 |
|
$ |
42,335 |
|
$ |
39,410 |
|
(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 expectations 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 third quarter of 2013. Overall, we are encouraged by the positive trend we have seen in 2013 with a 34% reduction in attrition and the decreasing trend over the last five quarters. The Ontario Government's Stronger Protection for Ontario Consumers Act, 2013 ("Bill 55"), which seeks to address issues in respect of water heater door-to-door sales, passed second reading and is currently being considered by the Standing Committee to the Legislative Assembly. We strongly support the introduction of Bill 55 that will help protect consumers from aggressive and questionable D2D 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, Bill 55 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.
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, such as through our LEAN initiative and currently under development e-billing initiative, 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. In particular we are pleased with the results from our rentals business and are concentrating efforts on enhancing collection activities and increasing our billing units in respect of sub-metering.
Financial Statements and Management's Discussion and Analysis
EnerCare's financial statements and management's discussion and analysis for the third quarter of 2013 are available on SEDAR at www.sedar.com or on EnerCare's investor relations website at http://www.enercareinc.com.
Conference Call and Webcast
Management will host a conference call and live audio webcast to discuss EnerCare's financial results for the third quarter ended September 30, 2013 later this morning, Thursday, November 14, 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:
| Date: |
Thursday, November 14, 2013 |
| Time: |
10:00 - 11:00 a.m. ET |
| By telephone: |
416.340.2216 or 1.866.226.1792 |
| |
Please allow 10 minutes to be connected to the conference call. |
| Webcast: |
http://www.gowebcasting.com/4815 |
| |
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: http://www.enercareinc.com/ 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 at www.sedar.com or on EnerCare's website at http://www.enercareinc.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 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 actual 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 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 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.
Source: EnerCare Inc.