Just Energy Reports Third Quarter Fiscal 2016 Results
Third Quarter Sales up 7%; Gross Margin Increases 20%; Base EBITDA grows 10%
Just Energy Group, Inc. (TSX:JE) (NYSE:JE), an energy management solutions provider specializing in electricity, natural gas, solar and green energy, today announced results for its third quarter fiscal 2016.
"Our business continues to perform very well, delivering strong sales growth, significantly improved profitability, and generating meaningful cash flow," commented Just Energy's Co-CEO, Deb Merril. "The margin per customer improvement initiative is allowing us to convert solid top-line sales growth into consistent increases in Base EBITDA. This improved profitability is also driving significantly improved cash flow and increased Base Funds from continuing operations."
"While our sales grew 7% during the quarter, we did see a decline in year-over-year gross customer additions as well as negative net additions. Despite the turmoil in the oil and gas markets and global macro concerns, Just Energy's core business - gas and electricity - continues to be a very stable environment that has resulted in a lack of switching by our target customer segment. This compares to a very volatile environment just one year ago when heightened levels of customer switching was greatly benefitting Just Energy's ability to add net customers at an exceptional rate."
"Fortunately, through ongoing execution of our strategy, Just Energy is in the unique position of being able to drive sales growth and increase profitability in any market environment. In addition to building a more profitable customer base, our results continue to be aided by our world-class risk management practices, the introduction of new products with incremental margins, increased fees and service income, and new sales from solar."
Co-CEO, James Lewis added, "As a result of our strong positioning, we now believe the Company will achieve the high end of our previously provided fiscal 2016 Base EBITDA guidance range of $193 million to $203 million. This effectively delivers 20% year-over-year growth when adjusted for the change in classification of customer acquisition costs in fiscal 2016. Looking ahead, we expect to also deliver double-digit percentage Base EBITDA growth in fiscal 2017. Our solar pilot program remains on track and we expect Solar to contribute $10 million to the double digit percentage fiscal 2017 Base EBITDA growth target."
"We continue to operate from a greatly improved financial position and our strategy is proving our ability to consistently deliver throughout any cycle. Our financial flexibility, combined with our commitment to maintaining a capital light model, supports our ability to pursue a growth strategy centered on geographic expansion, structuring superior product value propositions, and enhancing the portfolio of energy management offerings. Looking forward, our geographic expansion will be centered on Europe where we expect to expand into new nations in fiscal 2017 and 2018. These target markets fit our strategy to become a world class consumer enterprise delivering superior customer value through a range of energy management solutions and a multi-channel approach."
Third Quarter Operating Performance
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The quarter and year-to-date have demonstrated strong, performance-driven results. A sales increase of 7% year-over-year was driven by higher realized margin per customer in the period due to more disciplined pricing performance and the positive foreign exchange impact on gross margin earned in U.S. markets. Just Energy's continued focus on increasing gross margin through a more selective sales and renewal process has also resulted in increased levels of profitability across the business.
The company continues to focus on maintaining its profitable customers and ensuring that variable rate customers meet base profitability profiles even if this results in higher attrition. The margin per customer improvements in both the residential and commercial business are directly related to the ongoing commitment to Just Energy's margin improvement initiative. While competition is certain to come and go from the space over time, the Company believes it can continue to drive margin improvement that can be sustained over the long term as a result of the Company's innovative new products with more appeal and value for customers. This improved profitability per customer will add to the Company's future margins over and above any growth in the customer base.
Balance Sheet & Liquidity
The strong, performance-driven results are generating solid cash flows and providing the Company the financial flexibility to pursue aggressive debt reductions. As of December 31, 2015 Just Energy's book value net debt was 2.9x the trailing 12 month Base EBITDA, significantly improved from 3.7x just one year ago.
Just Energy continues to deploy its strategy to become a world class consumer enterprise delivering superior value to its customers through a range of energy management solutions and a multi-channel approach. Growth plans center on geographic expansion, structuring superior product value propositions, and enhancing the portfolio of energy management offerings. The company's geographic expansion is centered on Europe where the Company expects to expand into two new nations within the next 18 months. Superior value propositions such as the new flat bill product has now been rolled out in six new markets, energy management solutions such as solar are being piloted and launched in California and New York and a new commercial energy storage pilot is being planned.
Results for the first nine months of fiscal 2016 are ahead of management's expectations based on the targets provided. To reflect this progress, management now believes that the Company will achieve the high end of its previously provided fiscal 2016 Base EBITDA guidance range of $193 million to $203 million, resulting in an expected double-digit percentage growth over the prior year. This includes approximately $20.0 million of incremental deductions in Base EBITDA related to the change to its commercial commission terms announced during the fiscal first quarter of 2016, $10.5 million of this has already occurred in the first nine months of fiscal 2016. When adjusted for the $20 million effect from the change in classification, year over year Base EBITDA is expected to increase 20% in fiscal 2016. Just Energy expects to offset this headwind with continued strong gross margin performance and foreign exchange benefit, as evidenced by the year to date results of fiscal 2016.
In fiscal year 2017, Just Energy expects to achieve double-digit percentage Base EBITDA growth over fiscal 2016. Included in these expectations are incremental deductions in Base EBITDA of approximately $40 million for prepaid commercial commissions, which would previously have been included as amortization within selling and marketing expenses. This represents a $20 million increase over fiscal 2016 and reflects a go-forward run rate for this incremental deduction in future years.
Just Energy's solar program commenced its initial pilot phases in California and New York during the fiscal year, with the volume signed during this initial pilot resulting in higher than expected profit. Based on the success of our pilot launch in southern California, operations will continue to grow with further expansion in California and the northeast U.S. The solar pilot remains on track and it is expected that Solar will contribute $10 million towards the double digit percentage Base EBITDA target for fiscal 2017.
The Company will host a conference call and live webcast to review the third quarter results beginning at 10:00 a.m. eastern standard time on February 11, 2016 followed by a question and answer period. Rebecca MacDonald, Executive Chair, President & Co-Chief Executive Officers James Lewis and Deborah Merril, and Chief Financial Officer Patrick McCullough will participate on the call.
Just Energy Conference Call and Webcast
Those who wish to participate in the conference call may do so by dialing 1-866-229-4144 and entering pass code 5662147 #. The call will also be webcast live over the internet at the following link:
About Just Energy Group Inc.
Established in 1997, Just Energy (NYSE:JE) (TSX:JE) is an energy management solutions provider specializing in electricity, natural gas, solar and green energy. With offices located across the United States, Canada, and the United Kingdom, Just Energy serves close to two million residential and commercial customers. The company offers a wide range of energy products and home energy management services including long-term fixed-price, variable price, and flat bill programs, smart thermostats, and residential solar panel installations. Just Energy Group Inc. is the parent company of Amigo Energy, Commerce Energy, Green Star Energy, Hudson Energy, JE Solar, Tara Energy and TerraPass. Visit justenergygroup.com to learn more.
Just Energy's press releases may contain forward-looking statements including statements pertaining to customer revenues and margins, customer additions and renewals, customer attrition, customer consumption levels, general and administrative expenses, dividends, distributable cash and treatment under governmental regulatory regimes. These statements are based on current expectations that involve a number of risks and uncertainties which could cause actual results to differ from those anticipated. These risks include, but are not limited to levels of customer natural gas and electricity consumption, rates of customer additions and renewals, rates of customer attrition, fluctuations in natural gas and electricity prices, changes in regulatory regimes and decisions by regulatory authorities, competition and dependence on certain suppliers. Additional information on these and other factors that could affect Just Energy's operations, financial results or dividend levels are included in Just Energy's annual information form and other reports on file with Canadian securities regulatory authorities which can be accessed through the SEDAR website at www.sedar.com, on the U.S. Securities Exchange Commission's website at www.sec.gov or through Just Energy's website at www.justenergygroup.com.
Neither the Toronto Stock Exchange nor the New York Stock Exchange has approved nor disapproved of the information contained herein.