Revenues Increase 17%, Rentals Retention Improves 14%
TORONTO, ONTARIO–(Marketwire – Aug. 8, 2011) – EnerCare Inc. ("EnerCare") (TSX:ECI) today reported its financial results for the second quarter ended June 30, 2011. "With a 17% increase in revenues in the second quarter of 2011, EnerCare continued its trend of growth," said John Macdonald, President and CEO. "We are very pleased with the performance of our Rentals business, both in the improvement of retention levels and the expansion of our rental program to New Brunswick, the company's first expansion outside of Ontario. Our Sub-metering businesses grew rapidly and were again accretive to EBITDA while making substantial progress toward successful integration. We are confident of EnerCare's strong business performance going forward."
Financial and Operating Summary(1)
Amounts herein are in thousands of Canadian dollars.
- Total revenues of $60,069 increased by 17% over 2010. Revenues in the Rentals business decreased by 5% or $2,370 to $46,745, primarily as a result of the changes in overall assets partially offset by rental rate increases. Sub-metering revenues increased to $13,184 from $2,330, primarily due to the inclusion of EnerCare Connections Inc. ("ECI") (formerly Enbridge Electric Connections Inc.).
- EBITDA2 increased by 1% to $36,105 in 2011 driven principally by improved total revenues and reduced loss on disposal o f equipment partially offset by greater expenses. Adjusted EBITDA(2) of $40,966 decreased by 2% after removing the impact of a reduced loss on disposal of equipment in 2011.
- Net earnings were $1,682 in 2011, $884 lower than in 2010 as a result of current tax expenses in 2011 of $1,881 and lower income tax recoveries of $1,858 partially offset by other income of $2,129.
- Attrition in Rentals decreased by 3,000 units or 14% in 2011. Portfolio additions remain strong while unit exchanges declined by 2,000 to 13,000, resulting in both lower loss on disposal expenses and capital expenditures for the second quarter of 2011.
- The Payout Ratio3 decreased to 50% in 2011 from 52% in 2010 due to an increase in Distributable Cash(3) which includes current taxes of $1,881, partially offset by higher dividend payouts caused by an increase in the number of common shares outstanding as a result of the share offering in June 2010 and conversion of some of EnerCare's convertible debentures (the "Convertible Debentures").
|Three months ended|
|Six months ended|
|Total SG&A expenses||9,238||8,523||19,078||16,032|
|Loss on disposal of equipment||4,861||5,918||9,501||10,911|
|Total operating expenses||60,493||53,629||122,497||107,471|
|Earnings/(Loss) before income taxes||1,705||(2,179)||1,113||(6,898)|
|Current tax (expense)||(1,881)||–||(3,465)||–|
|Deferred income tax recovery||1,858||4,745||2,973||9,617|
Second Quarter 2011 Financial Results
Total revenues of $60,069 for the second quarter of 2011 increased by $8,619 or 17% and by $20,908 or 21% to $121,481 year to date, compared to the same periods in 2010. Rentals revenues decreased by $2,370 to $46,745 in the second quarter of 2011 and by $1,939 or 2% to $93,640 year to date compared to the same periods in 2010 primarily due to changes in outstanding units partially offset by rental rate increases implemented in January 2011. Sub-metering revenues in the second quarter of 2011 were $13,184, an increase of $10,584 and $27,589 year to date, an increase of $22,602 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. combined with the inclusion of ECI units. Revenue increases include pass through commodity charges of $9,725 in the second quarter and $20,318 year to date.
Investment income increased by $135 in the second quarter of 2011 to $140 and by $245 to $252 year to date as a result of improved investment rates and larger investment balances during 2011.
Selling, General & Administrative Expenses
Total SG&A expenses were $9,238 in the second quarter of 2011, an increase of $715 or 8% over the same period in 2010. The expense increase is the result of the inclusion of the ECI business of approximately $1,300, and an increase in selling expenses of $1,450 and office expenses, compensation and professional fees of $800, partially offset by reductions in bad debt and claims of $2,500 and billing, servicing and inventory management charges of $300. EnerCare reached an agreement in principal with Direct Energy Marketing Limited ("DE") to receive a payment of approximately $2,200 representing EnerCare's entitlement to unremitted customer payments for rentals outside of the Enbridge Gas Distribution Inc. territory. The settlement amount had an earnings impact of $1,300 recorded as a recovery of previous bad debts written off during 2010, with the remainder reflected as a change in financial position between outstanding customer receivables and an account receivable from DE.
Total SG&A expenses were $19,078 year to date in 2011, an increase of $3,046 or 19% over the same period in 2010. The inclusion of the ECI business, which accounted for approximately $2,800 of the amount, was the primary driver of the increase. Increases of $1,900 in selling expenses and $1,450 for office expenses, compensation and professional fees, partially offset by reductions in bad debt and claims of $2,300 and billing, servicing and inventory management charges of $800 accounted for the balance of the increase.
Amortization expense decreased by $1,457 to $26,103 in the second of quarter of 2011 and $2,823 to $52,343 year to date, primarily due to the expiration of the intangible assets related to the former shareholders of Stratacon Inc., a smaller portfolio base and a change in the estimated useful lives of sub-meters that occurred in the fourth quarter of 2010.
Interest expense payable in cash increased nominally to $9,253 in the second quarter of 2011 and to $18,619 year to date over the same periods in 2010. The second quarter of 2011 increase is primarily related to the full quarter impact of the Convertible Debentures partially offset by the interest expense incurred in 2010 in respect of EnerCare's revolving credit facility. Year to date 2011 interest expense is consistent with amounts through June 2010. The amortization of bridge fees relates to the 2009 bridge that was repaid when the 2010 Notes were issued in March 2010. Amortization of other comprehensive income and financing costs increased modestly in 2011 as a result of the full period impact of the 2010 Notes and the Convertible Debentures.
Loss on Disposal of Equipment
In the second quarter of 2011, EnerCare reported a loss on disposal of equipment of $4,861, representing a decrease of $1,057 or 18%. For the six months ended June 30, 2011, loss on disposal of equipment was $9,501 compared to $10,911 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.
EnerCare reported a current tax expense of $1,881 and $3,465 for the three months and six months ended June 30, 2011, respectively, related to the taxable status of the corporation effective January 1, 2011. The deferred income tax recovery of $1,858 for the second quarter of 2011 and $2,973 for the year to date 2011 decreased by $2,887 and $6,644, respectively, primarily as a result of temporary difference reversals in the Rentals and Sub-metering businesses.
Adjusted EBITDA and EBITDA
EBITDA of $36,105 for the second quarter of 2011 increased by $404 and the year to date amount of $72,332 increased by $1,633 compared to the same periods in 2010. This improvement was driven by increases in Sub-metering and reductions in loss on disposal of equipment charges, partially offset by reduced revenues in Rentals. Adjusted EBITDA decreased by $653 to $40,966 in the second quarter of 2011 and increased by $223 to $81,833 for the year to date.
EnerCare's financial and operating performance has continued to be strong, including the overall asset base, Payout Ratio, cash balances, and business model.
EnerCare is very pleased with the reduction in Attrition in the second quarter of 2011, the fifth 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 DE's business practices, will enhance our ability to compete.
EnerCare plans to increase efforts to grow its business organically and, depending on opportunities that arise, by selective acquisitions in our current or adjacent markets. Investments will focus on those which have long asset life and long-term customer relationships 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 acquired.
And while we are pleased with the business integration to date, we are planning further Sub-metering initiatives to reduce operating costs, including further office and warehouse space consolidation and reductions in billing platform expenses.
Financial Statements and Management's Discussion and Analysis
En erCare's financial statements and management's discussion and analysis for the second 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 second quarter of 2011 on Monday, August 8, 2011 at 10:00 a.m. (ET). Messrs. John Macdonald, President and CEO, and Chris Cawston, CFO, will be on the call.
Call can be accessed as follows:
The audio webcast will be archived at http://investors.enercare.ca. A taped rebroadcast will be available until midnight on August 15, 2011. The rebroadcast can be accessed by dialing 1.877.289.8525 or 1.416.640.1917 and entering the pass code 4453368#.
EnerCare's results for the second quarter of 2011 are presented in acc ordance 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 ("GAAP"), are presented in EnerCare's interim financial statements for the second quarter of 2011.
EnerCare and EnerCare Solutions Inc. own a portfolio of approximately 1.3 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 applic able 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.
(2) EBITDA and Adjusted EBITDA are Non-GAAP financial measures. Refer to the Non-GAAP Financial and Performance Measures section in the MD&A.
(3) Payout Ratio and Distributable Cash are Non-GAAP financial measures. Refer to the Non-GAAP Financial and Performance Measures section in the MD&A.
For further information:
1.905.695.7793 or 1.800.781.2943