Crius Energy Trust Reports Second Quarter 2017 Results

Second quarter performance highlighted by continued growth in customers and Adjusted EBITDA

/NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES/

TORONTO, Aug. 14, 2017 /CNW/ - Crius Energy Trust ("Crius" or the "Trust") (TSX: KWH.UN) today announced its financial results as at and for the three and six month periods ended June 30, 2017. All figures are in U.S. dollars unless otherwise noted. In this news release, references to "C$" are to Canadian dollars and references to the "Company" are to Crius Energy, LLC, the operating subsidiary of the Trust.

Financial Highlights

• Revenue of $180.2 million in the second quarter of 2017, representing a 6.6% increase from $169.0 million in the second quarter of 2016, partially driven by increased solar revenues.
  
  
• Gross margin of 20.6% of total revenue for the second quarter of 2017, representing an increase from the gross margin of 19.5% achieved in the second quarter of 2016, primarily due to increased solar revenues.
  
  
• Adjusted EBITDA of $14.1 million in the second quarter of 2017, representing an increase from $13.6 million achieved in the second quarter of 2016. Adjusted EBITDA for the second quarter of 2017 has been adjusted for a legal reserve charge of $6.5 million, related to pending litigation and regulatory matters, and associated legal fees incurred in the second quarter of 2017 of $1.4 million.
  
  
• Distributable Cash for the second quarter of 2017 was $11.4 million and Total Distributions were $5.8 million, resulting in a quarterly Payout Ratio of 50.9%. This compares to Distributable Cash of $9.4 million, Total Distributions of $5.6 million and a Payout Ratio of 59.6% for the quarter ended June 30, 2016. The increase in Distributable Cash and decrease in Payout Ratio are primarily due to improved operating cash flows and reduced capital expenditures.

Operational Highlights

• Achieved net customer growth of 25,000 customers in the second quarter of 2017, representing 2.5% quarter-over-quarter growth, with Crius Energy's total customer count reaching 1,028,000
• • Added 172,000 customers from sales and marketing channels, representing an increase over the average in the prior four quarters of 113,000, with the increase primarily driven by a large contribution coming from municipal aggregations.
  • Gross customer drops in the second quarter of 147,000 customers were higher than the average in the prior four quarters of 91,000, primarily due to elevated non-renewals, specifically in the commercial segment as well as 40,000 default service customer non-renewals during the quarter.
• Continued development of the solar business
• • Sold 258 solar systems representing 1.8 MW of generating capacity.
  • Completed the purchase of certain residential solar installation assets from Verengo, Inc. ("Verengo") in May 2017. The Verengo platform and team, with a track-record of over 20,000 solar installations dating back to 2008, will augment our residential solar platform, as it provides vertically integrated capability in California.
  • Launched a community solar initiative during the quarter by entering into a strategic partnership with a leading developer of community based solar projects, under which Crius Energy will offer a direct-to-consumer program that allows customers the ability to purchase solar energy from community based solar installations, backed by five-year power purchase agreements.

Growth and Corporate Highlights

• Announced a 2% distribution increase
• • In April 2017, the Board approved a 2% increase to distributions paid on Units during the second quarter of 2017, representing an annualized increase of C$0.0155 per Unit and a total annualized distribution of C$0.7885 per Unit.
  • Represents the sixth increase since the beginning of 2016, signaling both Management and the Board's confidence in the Company's growth strategy in the deregulated energy and solar businesses.
    
    
• Announced the acquisition of U.S. Gas & Electric, Inc. ("USG&E")
• • In May 2017, Crius Energy entered an agreement to indirectly purchase through one of its subsidiaries, USG&E, a leading U.S. energy retailer with natural gas and/or electricity customers in 11 States and D.C. (the "USG&E Acquisition"), for total consideration of $152.5 million plus approximately $20 million in working capital, for a total purchase price of approximately $172.5 million.
  • The USG&E Acquisition is expected to materially enhance the financial profile of the Trust and is expected to increase Distributable Cash by 60%, Adjusted EBITDA by 59% and reduce the Payout Ratio by 9% to 53% on a pro-forma basis for the 12-month period ended March 31, 2017.
  • The USG&E Acquisition would have represented an approximate 16% increase to Distributable Cash per Unit on a pro-forma basis for the 12-month period ended March 31, 2017 and is expected to deliver strong accretion in 2017 and 2018, before accounting for planned synergies.
    
    
• Equity offering of C$126.5 million by way of a "bought deal" public offering to partially fund the USG&E Acquisition
• • In May 2017, concurrent with the announcement of the USG&E Acquisition, Crius Energy entered an agreement with a syndicate of underwriters pursuant to which the underwriters agreed to purchase from the Trust, on a "bought deal" basis, and sell to the public 11,224,500 subscription receipts ("Subscription Receipts") at a price of C$9.80 per Subscription Receipt (the "Offering Price") for total gross proceeds of C$110.0 million (the "Offering"). The Trust also granted the Underwriters an option (the "Over-Allotment Option") to purchase up to an additional 1,683,675 Subscription Receipts (the "Additional Subscription Receipts") at the Offering Price, per Additional Subscription Receipt.
  • In June 2017, the Trust announced the closing of the base offering of Subscription Receipts at the Offering Price for aggregate gross proceeds of C$110.0 million and the closing in full of the Over-Allotment Option, pursuant to which 1,683,675 Additional Subscription Receipts were issued at the Offering Price for additional aggregate gross proceeds of C$16.5 million.

"Our second quarter was highlighted by the announcement of the acquisition of USG&E, as it represents a highly accretive transaction and a significant milestone for Crius Energy", commented Michael Fallquist, Chief Executive Officer of Crius. "The acquisition materially enhances the financial profile of the Trust as the pro-forma business serves nearly 1.4 million customers and is expected to generate more than $1 billion of revenue and $100 million of Adjusted EBITDA annually. We expect our positive trajectory to continue backed by our award winning family of brands and multi-channel marketing platform, which has been further enhanced by the acquisition of USG&E."

Review of Q2 2017 Results

The second quarter of 2017 was highlighted by the announcement of the acquisition of USG&E, as it represents a highly accretive transaction and a significant milestone for Crius Energy. The acquisition materially enhances the financial profile of the Trust as the pro-forma business now serves 1.4 million customers and generates more than $1 billion of revenue and $100 million of Adjusted EBITDA annually.

In the second quarter of 2017, as a result of Management and the Board's confidence in the Company's growth strategy in the deregulated energy and solar businesses, the Board approved a 2% increase to the distribution while maintaining a conservative Payout Ratio. The 2% increase was the sixth consecutive quarterly increase to distributions.

Overall revenues increased 6.6% in the second quarter of 2017 to $180.2 million from $169.0 million in the second quarter of 2016. The period-over-period increase is primarily the result of higher solar revenues, mainly due to revenues earned related to the new community solar initiative described below.

Solar revenues in the second quarter of 2017 were $5.0 million, an increase from $0.8 million in the second quarter of 2016. Solar revenues in the second quarter of 2017 were comprised of two components. The first component was the $1.6 million in revenue related to the installation of solar systems. During the quarter, 35 solar installations were completed representing capacity of 0.2 MW. In terms of the gross solar sales pipeline, 258 systems representing 1.8 MW were sold during the current quarter, which was broadly in line with gross sales in the first quarter of 2017.  While the transition from the legacy reseller model to the integrated model continues to progress, the ramp in sales and installations has been slower than initially expected, primarily due to challenges with key financing partners in the industry. The second component was $3.4 million in revenue related to the aggregation of community solar customers under a new strategic partnership entered into with a leading developer of community based solar projects. Under the agreement, which was entered into during the quarter, Crius Energy will offer a direct-to-consumer program that allows customers to purchase solar energy from community based solar installations backed by five-year power purchase agreements. Crius Energy receives a customer acquisition fee which is recognized as revenue based upon customer acquisition activity, which is primarily undertaken prior to the development of the solar farms, with the balance of the revenue being recognized over the life of the agreements, based on customer acquisition required to replace attrition experienced. The initial agreement is related to solar farms in the Texas market with nameplate capacity of approximately 63 MW to be developed in 2017, which equates to approximately 32,000 community solar customers, of which approximately two-thirds were signed up in the second quarter of 2017. Crius Energy has the option to participate in a similar project in 2018 for additional developments of approximately 32 MW of installed capacity, which equates to approximately 16,000 community solar customers.

Gross margin for the second quarter of 2017 was $37.2 million, an increase from $33.1 million of gross margin in the second quarter of 2016. As a percentage of total revenue, gross margin was 20.6% in the second quarter of 2017, an increase from 19.5% in the same quarter of the previous year. The increased gross margin as a percentage of revenue was primarily a result of revenues stemming from the aggregation of community solar customers under the new community solar initiative. Without this new initiative, gross margin would have been 19.1% of revenue for the quarter, in line with recent trends and Management's expectations.

Adjusted EBITDA in the second quarter of 2017 was $14.1 million, an increase from the $13.6 million reported in the second quarter of 2016. Adjusted EBITDA has been adjusted for a legal reserve charge of $6.5 million related to pending litigation and regulatory matters, which Management believes are significantly closer to resolution and have entered into an agreement in principle to settle these matters. Management is pleased with the Adjusted EBITDA results for the quarter, given they were negatively impacted by milder than normal weather conditions during the second quarter and by $1.3 million in transaction costs comprising various legal, tax and professional fees, in connection with the USG&E Acquisition.

Distributable Cash was $11.4 million in the second quarter of 2017 compared to $9.4 million in the second quarter of 2016. Total Distributions paid in the second quarter of 2017 represented a quarterly Payout Ratio of 50.9% compared to 59.6% in the second quarter of 2016. For the last twelve months, Distributable Cash was $39.0 million and Total Distributions paid were $22.9 million, representing a Payout Ratio of 58.7%.

As at June 30, 2017, Crius Energy had 1,028,000 customers, up from 1,003,000 at the beginning of the quarter, representing net customer growth of 25,000 customers, or 2.5%, driven by strong growth in the municipal aggregation segment, including a large municipal aggregation in the state of Massachusetts in which Crius Energy will serve approximately 90,000 residential customers under a three-year contract commencing in January 2018. Robust customer additions in the quarter were offset by elevated non-renewals, specifically in the commercial segment as well as approximately 40,000 default service customer non-renewals during the quarter.

At June 30, 2017, the Trust had Total Cash and Availability of $29.7 million, consisting of $29.4 million of cash availability and $0.3 million available under the Company's credit facility with Macquarie Energy LLC ("Macquarie Energy"), and was affected by several large tax payments and elevated payments related to renewable energy certificates, with the second quarter being a key renewable portfolio standards compliance deadline in our core North East electric markets. Additionally, the credit facility balance at the end of the quarter was impacted by a draw of $19.0 million to partially fund the cash portion of the purchase price of the USG&E Acquisition, which closed several days after quarter-end on July 5, 2017. This compares to the Total Cash and Availability as at December 31, 2016 of $49.9 million, consisting of cash and cash equivalents of $10.9 million and $39.0 million of availability under the Macquarie Energy credit facility.

The interim condensed consolidated financial statements of the Trust as at and for the three and six month periods ended June 30, 2017 and accompanying management's discussion and analysis ("MD&A") have been filed with the securities regulators and are available on SEDAR at www.sedar.com under the Trust's issuer profile, and are available on the Trust's website at www.criusenergytrust.ca.

Conference Call Notice

The Trust will hold a conference call on August 15, 2017 at 8:00 a.m. (Toronto time) to discuss the financial results for the second quarter of 2017.

To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191. Please connect approximately 15 minutes prior to the beginning of the call to ensure participation. A question and answer session for analysts will follow management's presentation.

A live audio webcast of the conference call will be available by following this link: Crius Energy Q2 2017 Results or by visiting www.cnw.ca. The webcast will be archived at the above web site for 90 days.

A digital rebroadcast will be available to listeners starting at 11:00 a.m. (Toronto time) on August 15, 2017 until August 22, 2017. To access the rebroadcast, please dial 416-849-0833 or 1-855-859-2056 and enter passcode 47675417#.

About Crius Energy Trust

Crius Energy Trust provides investors with a distribution-producing investment through its indirect 100% ownership interest in Crius Energy, LLC (the "Company"). With over 1.3 million residential customer equivalents, the Company provides innovative electricity, natural gas and solar products to residential and commercial customers through exclusive partnerships and direct-to-consumer marketing channels. Our unique brands offer consumers a broad suite of energy products and services including fixed and variable contracts, renewable energy, and bundled products to support their energy needs beyond what is offered by their local utility. Company growth is achieved organically with customers acquired through our diversified marketing channels and through accretive acquisitions in the deregulated energy and solar industries, where there is a significant opportunity to participate in the consolidation of market participants. The Company currently sells energy products in 18 states and the District of Columbia with plans to continue expanding its geographic reach. The Company is well positioned to deliver capital appreciation and stable, growing distributions to investors.

The Trust intends to continue to qualify as a "mutual fund trust" under the Income Tax Act (Canada) (the "Tax Act"). The Trust will not be a "SIFT trust" (as defined in the Tax Act), provided that the Trust complies at all times with its investment restriction which precludes the Trust from holding any "non-portfolio property" (as defined in the Tax Act). Material information pertaining to Crius may be found on SEDAR under the Trust's issuer profile at www.sedar.com or on the Trust's website at www.criusenergytrust.ca.

Caution Regarding Forward-Looking Statements

This news release contains forward-looking statements and forward-looking information (collectively, "forward-looking statements") including, without limitation, statements relating to non-IFRS financial measures; the confidence of Management and the Board; the Trust's outlook, strategy, and ability to execute its business objectives; future payments owed to the Company; the electricity, natural gas and solar industries; governmental regulatory regimes; acquisitions and strategic partnerships; marketing channels; customers and customer growth; hedging strategies; risk management; market risk; credit risk; off-balance sheet arrangements; related party-transactions; liquidity and capital resources; critical accounting estimates; internal controls over financial reporting; results of operations; financial position or cash flows; expenses and distributions to Unitholders. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or describes a "goal", or variation of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. All forward-looking statements reflect the Trust's beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those predicted in these forward-looking statements. All of the Trust's forward-looking statements are qualified by (i) the assumptions that are stated or inherent in such forward-looking statements, and (ii) the risks described in the section entitled "Financial Instruments and Risk Management" in this MD&A and in the sections entitled "Risk Factors" and "Forward-Looking Statements" in the annual information form of the Trust for the fiscal year ended December 31, 2016, dated March 16, 2017, which is available on SEDAR under the Trust's issuer profile at www.sedar.com and on the Trust's website at www.criusenergytrust.ca. Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking statements. Although the Trust has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Trust disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, except in accordance with applicable securities laws.

Non-IFRS Financial Measures

Statements in this news release make reference to Adjusted EBITDA, Distributable Cash and payout ratio, which are non-IFRS financial measures commonly used by financial analysts in evaluating the financial performance of companies, including companies in the energy industry. Accordingly, Management believes Adjusted EBITDA, Distributable Cash and payout ratio may be useful metrics for evaluating the Trust's financial performance as they are measures that Management uses internally to assess performance, in addition to IFRS measures. As there is no generally accepted method of calculating Adjusted EBITDA, Distributable Cash and payout ratio, these terms as used herein are not necessarily comparable to similarly titled measures of other companies. Adjusted EBITDA, Distributable Cash and payout ratio have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net income (loss) or other data prepared in accordance with IFRS. Adjusted EBITDA is calculated as EBITDA adjusted to exclude any change in the fair value of derivative instruments, change in fair value of non-controlling interest, change in fair value of warrant liability, Unit-based compensation, goodwill impairment and distributions to non-controlling interest. The items excluded from Adjusted EBITDA are significant in assessing the Trust's operating results and liquidity. See the MD&A of the Trust for the three month period ended June 30, 2017 (under the heading "Reconciliation of Net (Loss) Income to EBITDA and Adjusted EBITDA") for a reconciliation of Adjusted EBITDA to net loss, as calculated under IFRS for the relevant periods, the most directly comparable measure in the consolidated financial statements of the Trust. See the MD&A of the Trust for the three month period ended June 30, 2017 (under the heading "Distributable Cash and Payout Ratio") for a reconciliation of Distributable Cash to cash flows provided by operating activities as calculated under IFRS, the most directly comparable measure in the consolidated financial statements of the Trust. Other financial data has been prepared in accordance with IFRS.

SOURCE Crius Energy Trust

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