50% improvement in rental customer retention and 30% revenue growth in sub-metering
TORONTO, ONTARIO–(Marketwired – May 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 first quarter ended March 31, 2013.
Q1 2013 Highlights – Period ended March 31, 2013 versus period ended March 31, 2012
(in thousands of Canadian dollars except per unit amounts)
- Attrition in the rentals portfolio decreased by 50% to 11,000 units
- Total revenues of $74,310 increased by 9%
- EBITDA increased by 5% to $38,537
- Newly refinanced debt improves interests rate and spreads, ladders debt maturities and creates substantial future annualized interest expense savings of $12,800
- In April, the Ontario Government introduced favourable consumer protection legislation in respect of door-to-door sales
"The year is off to a strong start as we recorded the lowest attrition rate in nearly five years," said John Macdonald, President and CEO. "With three consecutive quarters of improvement, it would appear that lower attrition is part of a positive trend. We attribute this success to the investments we have made to increase consumer awareness and to improve the customer experience, including our new "same day service" we are offering through Direct Energy Marketing Limited ("DE"). In addition, if passed, the proposed Ontario legislation in respect of door-to-door sales is a very positive development for consumers and EnerCare."< /p>
Macdonald added, "Our balance sheet has been significantly strengthened as a result of our recent financings which have given us substantially lower debt costs and enhanced long term stability. The recent financings have positioned us well for the future."
Results of Operations
Attrition
Attrition decreased in the first quarter of 2013 by 11,000 units or 50% over the same period in 2012. Last year, EnerCare did see additional buyout activity of 4,000 units following the introduction and subsequent withdrawal of new contract terms for a significant portion of our co-owned rentals portfolio. Attrition declined 35% or 6,000 units from the fourth quarter of 2012. Attrition has improved year over year since 2009.
EnerCare and DE have implemented many programs, including continued consumer education through direct mail and radio campaigns. Such initiatives, coupled with broader consumer awareness and a leveling of the playing field in respect of the expiry of the Consent Order, as well as enhancements to our customer value proposition (for example, the "DE same day service campaign"), have helped to significantly reduce attrition during the quarter.
Earnings Statement
For 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 $4,362 to both sub-metering revenues and commodity charges for the first quarter of 2012. These reclassifications did not result in any adjustments to previously reported net income, working capital or cash flows.
| Three months ended March 31, | |||||||
| (000's) | 2013 | 2012 | |||||
| Revenues: | |||||||
| Rentals | $ | 47,082 | $ | 46,847 | |||
| Sub-metering | 26,960 | 20,835 | |||||
| Investment income | 268 | 185 | |||||
| Total revenues | $ | 74,310 | $ | 67,867 | |||
| Commodity charges | 22,151 | 16,545 | |||||
| SG&A expenses: | |||||||
| Rentals | 3,817 | 3,532 | |||||
| Sub-mete ring | 3,284 | 2,784 | |||||
| Corporate | 3,361 | 3,986 | |||||
| Total SG&A expenses | 10,462 | 10,302 | |||||
| Amortization expense | 24,356 | 25,874 | |||||
| Loss on disposal of equipment | 2,892 | 4,115 | |||||
| Interest expense: | |||||||
| Interest expense payable in cash | 8,294 | 9,047 | |||||
| Make-whole payment on early redemption of debt | 13,754 | – | |||||
| Non-cash interest expense | 4,925 | 1,283 | |||||
| Total Interest expense | 26,973 | 10,330 | |||||
| Total operating expenses | 86,834 | 67,166 | |||||
| Other income | – | 1,500 | |||||
| (Loss)/earnings before income taxes | (12,524 | ) | 2,201 | ||||
| Current tax (expense) | (5,588 | ) | (3,311 | ) | |||
| Deferred income tax recovery | 7,724 | 941 | |||||
| Net loss | $ | (10,388 | ) | $ | (169 | ) | |
| EBITDA | $ | 38,537 | $ | 36,720 | |||
| Adjusted EBITDA | $ | 41,429 | $ | 40,835 | |||
Revenues
Total revenues of $74,310 for the first quarter of 2013 increased by $6,443 or 9% compared to the same period of 2012. Rentals revenues increased marginally by $235 to $47,082 in the first quarter of 2013, primarily due to a rental rate increase implemented in January 2013, partially offset by a reduction in installed assets. Sub-metering revenues in the first quarter of 2013 were $26,960, an increa se of $6,125 or 29% over the same period in 2012, as a result of increased commodity charges and billable units. Sub-metering revenue includes total pass through energy charges of $22,151 in 2013, and $16,545 in 2012, an increase of $5,606.
Investment income increased by $83 in the first quarter of 2013 to $268 compared to $185 in the same period of 2012. The increase in investment income was primarily attributable to greater investment balances as a result of the issuance of $225,000 of 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"), which were redeemed on March 6, 2013.
Selling, General and Administrative Expenses
Total SG&A expenses were $10,462 in the first quarter of 2013, an increase of $160 or 2% compared to the same period in 2012. Sub-metering SG&A expenses were $3,284 in the first quarter of 2013, $500 more than the same period in 2012, primarily as a result of increased wages and benefits of approximately $400 associated with the internalization of customer care and billing functions, bad debts and provisions of $300 and selling and professional fees of $200, partially offset by $400 in reductions in cost of goods. Rentals and corporate expenses of $7,178 decreased by $340 in the first quarter of 2013 over that in the same period of 2012, primarily due to a decrease of approximately $500 for professional fees and selling expenses. Increases of approximately $300 for claims and bad debts were offset by decreases in a number of other expense categories.
Amortization Expense
Amortization expense decreased by $1,518 or 6% to $24,356 in the first quarter of 2013, 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 first quarter of 2013, EnerCare reported a loss on disposal of equipment of $2,892, a reduction of $1,223 over the same period 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 $753 to $8,294 in the first quarter of 2013, compared to $9,047 in the first quarter of 2012. The decrease is primarily related to the conversion of convertible debentures to shares, repayment of the $60,000 6.20% Series 2009-1 Senior Unsecured Notes of EnerCare Solutions ("2009-1 Notes"), which matured and were repaid on April 30, 2012 and the redemption of the $240,000 5.25% Series 2010-1 Senior Unsecured Notes of EnerCare Solutions ("2010 Notes"), which were redeemed on December 21, 2012 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 has been fully reclassified to earnings in the current period.
Other Income
In 2012, EnerCare and DE reached a settlement of $1,500 on account of billing for water heater install ation costs.
Income Taxes
EnerCare reported a current tax expense of $5,588 for the first quarter of 2013, which was $2,277 greater than the same period 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 $7,724 for 2013 increased by $6,783, 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 Losses
Losses before income taxes in the first quarter of 2013 were $12,524, an increase of $14,725, compared to the same period in 2012, as previously described. The net loss was impacted by increases in current taxes of $2,277 and tax recoveries of $6,783, resulting in a net loss of $10,388, $10,219 lower than the same period in 2012.
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.
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| (000's) | Q1/13 | Q4/12 | Q3/12 | Q2/12 | Q1/12 | Q4/11 | Q3/11 | Q2/11 | ||||||||||||||||
| Net (loss)/earnings | $ | (10,388 | ) | $ | (2,096 | ) | $ | 2,154 | $ | (3,064 | ) | $ | (169 | ) | $ | (2,256 | ) | $ | 5,618 | $ | 1,682 | |||
| Deferred tax expense/(recovery) | (7,724 | ) | (4,155 | ) | (2,668 | ) | 1,766 | (941 | ) | (874 | ) | (5,666 | ) | (1,858 | ) | |||||||||
| Current tax expense | 5,588 | 5,217 | 3,902 | 2,118 | 3,311 | 765 | 1,478 | 1,881 | ||||||||||||||||
| Amortization expense | 24,356 | 25,175 | 2 5,407 | 25,166 | 25,874 | 26,234 | 26,126 | 26,103 | ||||||||||||||||
| Interest expense | 26,973 | < /td> | 11,937 | 9,035 | 9,457 | 10,330 | 10,377 | 10,433 | 10,566 | |||||||||||||||
| Other expense/(income) | – | 362 | (855 | ) | – | (1,500 | ) | – | (254 | ) | < /td> | (2,129 | ) | |||||||||||
| Investment income | (268 | ) | (180 | ) | (16 | ) | (76 | ) | (185 | ) | (174 | ) | (168 | ) | (140 | ) | ||||||||
| EBITDA | 38,537 | 36,260 | 36,959 | 35,367 | 36,720 | 34,072 | 37,567 | 36,105 | ||||||||||||||||
| Add: Loss on disposal of equipment | 2,892 | 3,523 | 3,397 | 4,113 | 4,115 | 4,880 | 4,718 | 4,861 | ||||||||||||||||
| Add: Impairment of assets | – | – | – | – | – | 458 | – | – | ||||||||||||||||
| Adjusted EBITDA | $ | 41,429 | $ | 39,783 | $ | 40,356 | $ | 39,480 | $ | 40,835 | $ | 39,410 | $ | 42,285 | $ | 40,966 | ||||||||
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 first quarter of 2013. Overall, we are encouraged by the positive trend we have seen in the last three quarters. We continue to expect that attrition levels will continue to have mild volatility from quarter to quarter. Recently, 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 rental water heater 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 initiativ es and modifications of existing programs, as well as enhanced customer product offerings and service programs.
We continued to have additional expenses in the first quarter of 2013 in association with the completion of the transition to our new customer care and billing system. However, we have shown a reduction in costs to administer sub-metering customer accounts from the third quarter of 2012 and expect that we will see further sustained cost reduction going forward.
We are very pleased with our reduction in total debt following the repayment of the 2009-1 Notes in April of 2012 and our recent refinancing of the 2010 Notes in November of 2012 and the 2009-2 Notes in February of 2013. With these financing activities, we have successfully extended and laddered our maturities, provided flexibility to allow for further potential reductions in our future leverage and secured a significant reduction in future interest expense. We estimate that the annual interest savings is approximately $12,800.
For 2013, our key priorities and initiatives in the rentals 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 and supporting Bill 55 and growing the rentals 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, the first installation of which is underway.
As previously announced, EnerCare has set its annual and special meeting for June 3, 2013. Jim Pantelidis, chairman of the board, and management will provide an u pdate to shareholders on EnerCare's achievements in 2012 and strategy for furthering shareholder value.
Financial Statements and Management's Discussion and Analysis
EnerCare's financial statements and management's discussion and analysis for the first quarter of 2013 are available on SEDAR at www.sedar.com or on EnerCare's investor relations website at www.enercare.ca.
Conference Call and Webcast
Management will host a conference call and live audio webcast to discuss EnerCare's financial results for the first quarter ended March 31, 2013 on Tuesday, May 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:
| By telephone: | 416.340.2218 or 1.866.226.1793 |
| Please allow 10 minutes to be connected to the conference call. | |
| Webcast: | www.gowebcasting.com/a> |
| 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: www.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 www.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 inform ation 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.
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