Sixth Consecutive Quarter Improvement in Rentals Business Attrition
Monthly Dividend to Increase to $0.055 per Share
TORONTO, ONTARIO–(Marketwire – Nov. 7, 2011) – 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, 2011 and its intention to increase its monthly dividend to $0.055 per share.
Third Quarter 2011 Highlights
- Total revenues of $63.0 million increased by 27%
- Sub-metering revenues increased by over 6 times to $16.0 million
- EBITDA2 increased by 13%
- Net earnings increased by over 2 times to $5.6 million
- Attrition in Rentals decreased by 5,000 units or 21%
- The Payout Ratio3 decreased to 49% from 55%
- Announces intention to increase its monthly dividend to $0.055 per share
"In the third quarter, EnerCare achieved strong financial and operating performance," said John Macdonald, President and CEO. "In our Rentals business, we improved customer retention by 21%, marking the sixth consecutive quarter of improvement. Our Sub-metering business continued to grow rapidly with record sales of 14,000 units and over 6 times growth in revenue, and 4 times growth in Sub-metering EBITDA."
EnerCare intends to increase its monthly dividend to $0.055 per share, an increase of 2%, eff ective in respect of the dividend payable to shareholders as of the record date in December 2011, for payment in January 2012.
The dividend increase, valued at approximately $0.7 million annually, represents growing distributable cash arising from EnerCare's strong financial performance in 2011.
"EnerCare is having a great year," said John Macdonald, President and Chief Executive Officer. "In terms of growth, we have enjoyed continued increased sales and revenue in our Sub-metering business and a strong turnaround in attrition in the Rentals business. These accomplishments, among others, have led to solid revenue gains, strong earnings and increased distributable cash. This increase in the dividend reflects management's confidence in the strength and momentum of our business."
|Financial and Operating Summary1||Three months ended Sept. 30,||Nine months ended Sept. 30,|
|Total SG&A expenses||8,890||8,980||27,968||25,012|
|Loss on disposal of equipment||4,718||5,756||14,219||16,667|
|Total operating expenses||61,856||54,347||184,3 53||161,818|
|Earnings/(Loss) before income taxes||1,430||(2,956||)||2,543||(9,854||)|
|Current tax (expense)||(1,478||)||–||(4,943||)||–|
|Deferred income tax recovery||5,666||5,172||8,639||14,789|
Third Quarter 2011 Financial Results
Total revenues of $63,032 for the third quarter of 2011 increased by $13,356 or 27% and by $34,264 or 23% to $184,513 year to date, compared to the same periods in 2010. Rentals revenues decreased by $98 to $46,853 in the third quarter of 2011 and by $2,037 or 1% to $140,493 year to date compared to the same periods in 2010, primarily due to changes in installed assets partially offset by rental rate increases implemented in January 2011. Sub-metering revenues in the third quarter of 2011 were $16,011, an increase of $13,373 or 507%, and $43,600 year to date, an increase of $35,975 or 472% over the same periods in 2010. The revenue growth resulted from an increase in the number of billing units in our legacy Sub-metering business, Stratacon Inc. ("Stratacon"), combined with the inclusion of EnerCare Connection Inc.'s ("ECI") unit portfolio. Revenue increases include pass through commodity charges of $11,689 in the third quarter and $32,007 year to date.
Investment income increased by $81 in the third quarter of 2011 to $168 and by $326 to $420 year to date, primarily as a result of larger investment balances during 2011.
Selling, General & Administrative Expenses ($000s)
Total SG&A expenses were $8,890 in the third quarter of 2011, compared to $8,980, a decrease of $90 or 1% over the same period in 2010. The expense decrease is the result of a decrease in office expenses, compensation and professional fees of $583, bad debt and claims of $774 and billing, servicing and inventory management charges of $55, partially offset by the inclusion of the ECI business of approximately $1,248 and an increase in selling expenses of $74.
Total SG&A expenses were $27,968 year to date in 2011, an increase of $2,956 or 12% over the same period in 2010. The inclusion of the ECI business, which accounted for $4,043 of the amount, was the primary driver of the increase. Increases of $1,976 in selling expenses and $836 for office expenses, compensation and professional fees, were offset by reductions in bad debt and claims of $3,162 and billing, servicing and inventory management charges of $737.
Amortization Expense ($000s)
Amortization expense decreased by $1,161 or 4% to $26,126 in the third of quarter of 2011 and by $3,984 or 5% to $78,469 year to date, primarily due to the expiration of the intangible assets related to the acquisition of Stratacon, a smaller installed asset base and a change in the estimated useful lives of sub-meters that occurred in the fourth quarter of 2010.
Interest Expense ($000s)
Interest expense payable in cash decreased nominally to $9,124 in the third quarter of 2011 and to $27,743 year to date over the same periods in 2010. The decrease in the third quarter of 2011 is primarily related to the redemption of EnerCare's convertible debentures during the period. Year to date 2011 interest expense is consistent with amounts through September 2010. The amortization of bridge fees related to the 2009 bridge facility that was repaid when the 2010 Notes were issued in March 2010. Amortization of OCI and financing costs for the third quarter of 2011 are consistent with 2010, however, the 2011 year to date is higher than the same period in 2010 as a result of the full year impact of the 2010 Notes and the convertible debentures in 2011.
In the third quarter of 2011, EnerCare reported a loss on disposal of equipment of $4,718, representing a decrease of $1,038 or 18%. For the nine months ended September 30, 2011, loss on disposal of equipment was $14,219 compared to $16,667, representing a decrease of $2,448 or 15% during the same period in 2010. 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. The primary reason for the decreased expenses relates to the lower unit Attrition and exchange activity in the Rentals business in 2011 when compared to 2010.
Income Taxes ($000s)
EnerCare reported a current tax expense of $1,478 and $4,943 for the three and nine months ended September 30, 2011, respectively, related to the taxable status of the corporation effective January 1, 2011. The deferred income tax recovery of $5,666 for the third quarter of 2011 and $8,639 for year to date 2011 increased by $494 and decreased by $6,150, respectively, primarily as a result of temporary difference reversals in the Rentals and Sub-metering businesses.
Adjusted EBITDA and EBITDA ($000s)
The following table summarizes comparative quarterly results for the last eight quarters, and reconciles net earnings, an IFRS measure, to EBITDA and Adjusted EBITDA.
|Quarterly Earni ngs Before Interest, Taxes and Amortization (EBITDA) ($000s)|
|Deferred tax (recovery)||(5,666||)||(1,858||)||(1,115||)||(3,419||)||(5,172||)||(4,745||)||(4,872||)||(28,065||)|
|Current tax expense||1,478||1,881||1,584||–||–||–||–||–|
|Add: Loss on disposal of equipment||4,718||4,861||4,640||4,673||5,756||5,918||4,993||6,086|
|Add: Impaired assets||–||–||–||–||–||–||–||4,106|
|Adjusted EBITDA||$||42,285||$||40,966||$||40,867||$||35,430||$||38,978||$||41 ,619||$||39,991||$||36,418|
EnerCare is very encouraged with the reduction in Attrition in the third quarter of 2011, the sixth successive quarter of year over year reduction in Attrition. We believe that our strategies to counter Attrition have been successful and consequently we will continue to invest in such programs.
We believe that the expiry in February 2012 of the Consent Order issued by the Competition Bureau, which restricts EnerCare's and Direct Energy Marketing Limited's business practices, will enhance our ability to compete.
EnerCare has made significant progress in integrating its Sub-metering businesses. Office space and data centers were consolidated in the third quarter of 2011; this helped improve Sub-metering EBITDA in the quarter. In the fourth quarter of 2011 and the first quarter of 2012, EnerCare is upgrading and consolidating the billing and customer care systems of Stratacon and ECI. This initiative is expected to provide greater control and further operational cost reductions. In order to reduce cost, reduce potential customer confusion and consolidate brand identities, EnerCare will amalgamate its two sub-metering businesses, ECI and Stratacon, on January 1, 2012. The amalgamated company will retain the EnerCare Connections Inc. name.
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 New Brunswick. In addition, we continue to seek acquisition opportunities in our 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 exa mining opportunities to refinance its 2010 Notes (maturing in 2013) and 2009-2 Notes (maturing in 2014) in order to take advantage of the current low interest environment. In respect of the $60.0 million 2009-1 Notes (maturing in 2012), EnerCare expects to refinance or repay from cash on hand, in whole or part, these notes on or before April 30, 2012. EnerCare continues to generate considerable cash flow from operations, as a result, cash and cash equivalents increased by approximately $16.8 million so far this year to $69.3 million as of September 30, 2011. In addition, EnerCare has an unused line of credit of $35.0 million available.
EnerCare is very pleased with the substantial progress it has made in strengthening its business in 2011 and the resulting improvement in the payout ratio. Based on these and other factors, EnerCare intends to increase its monthly dividend to $0.055 per share, an increase of 2%, effective in respect of the dividend payable to shareholders of record on the applicable date in December 2011, to be paid in January 2012.
Financial Statements and Management's Discussion and Analysis
EnerCare's financial statements and management's discussion and analysis for the third quarter of 2011 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 2011 on Monday, November 7, 2011 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 fo llows:|
The audio webcast will be archived at http://investors.enercare.ca. A taped rebroadcast will be available until midnight on November 14, 2011. The rebroadcast can be accessed by dialing 1.877.289.8525 or 1.416.640.1917 and entering the pass code 4480181#.
EnerCare's results for the third quarter of 2011 are presented in accordance with International Financial Reporting Standards ("IFRS") and comparative information in 2010 has been restated accordingly. Details of the adjustments resulting from the conversion to IFRS, including reconciliations to amounts previously recorded for 2010 comparative periods under previous Canadian Generally Accepted Accounting Principles ("CGAAP"), are presented in EnerCare's interim financial statements for the third quarter of 2011.
EnerCare and EnerCare Solutions Inc. own a portfolio of approximately 1.2 million water heaters and other assets, rented primarily to residential customers in Ontario. EnerCare also owns Stratacon Inc. and EnerCare Connections Inc., leading Sub-metering companies, with metering contracts for condominium and apartment suites in Ontario, Alberta and elsewhere in Canada. Additional information regarding EnerCare and EnerCare Solutions Inc. is available on SEDAR at www.sedar.com.
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||The consolidated financial statements of EnerCare Inc. are prepared in accordance with IFRS which became effective on January 1, 2011 with retroactive application to January 1, 2010. Unless otherwise stated, all amounts are in thousands of Canadian dollars.|
|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 and Distributable Cash are Non-IFRS financial measures. Refer to the Non-IFRS Financial and Performance Measures section in the MD&A.|
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