EnerCare has a Strong Start to 2014 With Record First Quarter EBITDA

Seven consecutive quarters of year-over-year improvement in customer retention 7,000 sub-metering units contracted in the quarter

TORONTO, ONTARIO--(Marketwired - May 12, 2014) - 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, 2014.

Q1 2014 Financial Highlights

Quarter ended March 31, 2014 versus quarter ended March 31, 2013

(in thousands of Canadian dollars except per unit amounts)1

  • Total revenues increased by 11% to $82,225
  • Attrition in the rentals portfolio decreased by 18%
  • EBITDA2 increased by 3% to $39,605
  • Payout Ratio - Maintenance2 improves to 46%
  • S ales activities were strong with 7,000 contracted sub-metering units

Sales activities were strong during the quarter with 7,000 contracted Sub-metering units "The year is off to a good start with robust sales activity in both rentals and sub-metering," said John Macdonald, President and CEO. "We made great progress toward our priorities for the year, including accelerating top line growth, improving productivity and increasing EBITDA."

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 news release.

EnerCare continued to experience improved customer retention during the first quarter of 2014. Overall, we are encouraged by the positive trend we have seen over the past seven quarters. EnerCare believes that the Stronger Protection for Ontario Consumers Act, 2013 ("Bill 55") is a strong enhancement in consumer protection that will provide necessary protection for its customers and greatly assist with EnerCare's continued efforts to combat attrition. Going forward we continue to believe that the factors that have led to the decline in attrition over the last five years, including improving consumer awareness, as well as the new Enbridge open bill access agreement and Bill 55, will create a more favourable environment for further improvement in customer retention. We will continue to explore new initiatives and modifications of existing programs, as well as enhanced customer product offerings and service programs.

Our key priorities and initiatives for the rentals business in 2014 are to grow revenue in excess of annual rate increases, increase the number of unit additions, continue to improve attrition and as a result, increase Adjusted EBITDA2.

In respect of sub-metering, our priorities in 2014 are to grow the business by increasing new contract sales, improving productivity and operation efficiencies and enhancing our customer value proposition through outstanding customer service. We believe initiatives such as our LEAN program, e-billing and "whole building" solution should augment our growth. We are pleased with the improved sales activity experienced in the past two quarters with 7,000 units contracted in this most recent quarter.

1 Unless otherwise noted, amounts are reported in thousands, except customers, units, shares and per share amounts and percentages. Dollar amounts are expressed in Canadian currency.

2 EBITDA, Adjusted EBITDA, and Payout Ratio - Maintenance, are non-IFRS financial measures. Refer to the Non-IFRS Financial and Performance Measures section in the MD&A.

Results of Operations

Earnings Statement

  Three months ended March 31,  
(000's) 2014   2013  
Revenues:        
  Rentals $48,636   $ 47,082  
  Sub-metering 33,552   26,960  
  Investment income 37   268  
Total revenues $82,225   $ 74,310  
Commodity charges 28,359   22,151  
SG&A expenses:        
  Rentals 3,450   3,817  
  Sub-metering 3,731   3,284  
  Corporate 4,039   3,361  
Total SG&A expenses 11,220   10,462  
Amortization expense 24,506   24,356  
Loss on disposal of equipment 3,004   2,892  
Interest expense:        
  Interest expense payable in cash 5,808   8,294  
  Make-whole payment on early redemption of debt -   13,754  
  Non-cash interest expense 164   4,925  
Total interest expense 5,972   26,973  
Total expenses 73,061   86,834  
Other income 408   -  
Earnings/(loss) before income taxes 9,572   (12,524 )
Current tax (expense) (6,079 ) (5,588 )
Deferred income tax recovery 3,521   7,724  
Net earnings/(loss) $ 7,014   $(10,388 )
EBITDA $39,605   $ 38,537  
Adjusted EBITDA2 $43,017   $ 41,429  

Revenues

Total revenues of $82,225 for the first quarter of 2014 increased by $7,915 or 11% compared to the same period in 2013. Rentals revenues increased by $1,554 to $48,636 in the first quarter of 2014 compared to the same period in 2013, primarily due to a rental rate increase implemented in January 2014, improved billing completeness and changes in asset mix, partially offset by fewer installed assets. Sub-metering revenues in the first quarter of 2014 were $33,552, an increase of $6,592 or 24% over the comparable period in 2013, primarily as a result of increased billable units and the associated commodity charges. Sub-metering revenue includes total pass through energy charges of $28,359 in the first quarter of 2014, an increase of $6,208 over the same period in 2013.

Investment income decreased by $231 to $37 in the first quarter of 2014. The change in investment income was primarily attributable to higher investment balances in the first quarter of 2013 related to the issuance of the $225,000 4.6% 2013-1 Senior Unsecured Notes ("2013 Notes") of EnerCare Solutions Inc. ("EnerCare Solutions") approximately 30 days prior to the redemption of the $270,000 6.75% Series 2009-2 Senior Notes ("2009-2 Notes").

Selling, General & Administrative Expenses

Total SG&A expenses were $11,220 in the first quarter of 2014, an increase of $758 or 7% compared to the same period in 2013. Sub-metering SG&A expenses were $3,731 or $447 greater in the first quarter of 2014 compared to the same period in 2013, primarily as a result of increased wages and benefits of $500 and professional fees of $100, partially offset by reductions in selling expenses and bad debts of $100. Rentals and corporate expenses of $7,489 increased by $311 over 2013, primarily from increases of approximately $500 in wages and benefits, $200 in professional fees, $100 on account of billing and servicing costs and $100 in bad debts and claims, partially offset by reductions of $600 in selling expenses.

Amortization Expense

Amortization expense increased by $150 or 1% to $24,506 in the first quarter of 2014, primarily due to an increasing capital asset base from asset mix changes in the rentals portfolio and increased sub-metering capital investments, which are amortized over a shorter life than the rentals business.

Loss on Disposal of Equipment

EnerCare reported a loss on disposal of equipment of $3,004 in the first quarter of 2014, an increase of $112 or 4% over the same period in 2013. 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.

Interest Expense

  Three months ended March 31,
(000's) 2014 2013
Interest expense payable in cash $5,808 $8,294
Make-whole payment on early redemption of debt - 13,754
Non-cash items: Amortization of OCI and financing costs 164 4,925
Interest expense $5,972 $26,973

Interest expense payable in cash decreased by $2,486 to $5,808 in the first quarter of 2014 compared to the same period in 2013. The decrease is primarily related to the conversion of convertible debentures to shares and reduction in interest rates with the early redemption in 2013 of the 2009-2 Notes associated with the issuance of the 2013 Notes. The make-whole payment of $13,754 was incurred upon the early redemption of the 2009-2 Notes and the drawdown of the $60,000 single draw, variable rate, interest only, open 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 was fully reclassified to earnings in 2013.

Other Income

During the first quarter of 2014, EnerCare realized a settlement of $408 from Direct Energy Marketing Limited on account of the reclassification of certain water heaters under the Co-ownership Agreement to EnerCare's owned portfolio, originally associated with the Toronto Hydro Energy Services Inc. portfolio acquisition.

Income Taxes

EnerCare reported a current tax expense of $6,079 in the first quarter of 2014, an increase of $491 over the same period in 2013, primarily as a result of higher taxable income. The defer red income tax recovery of $3,521 for the first quarter of 2014 was $4,203 lower than the deferred tax recoveries of $7,724 recorded in 2013, primarily as a result of temporary difference reversals in the rentals and sub-metering businesses, including the impact of the 2013 make-whole payment.

Net Earnings

Net earnings in the first quarter of 2014 were $7,014, or $17,402 higher than in the same period in 2013 as previously described.

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.

(000's) Q1/14   Q4/13   Q3/13   Q2/13   Q1/13   Q4/12   Q3/12   Q2/12  
Net earnings/(loss) $ 7,014   $ 4,793   $ 6,931   $ 7,482   $(10,388 ) $(2,096 ) $ 2,154   $ (3,064 )
Deferred tax (recovery)/expense (3,521 ) (3,552 ) (3,134 ) (3,640 ) (7,724 ) (4,155 ) (2,668 ) 1,766  
Current tax expense 6,079   6,148   5,525   4,591   5,588   5,217   3,902   2,118  
Amortization expense 24,506   25,792   25,228   24,344   24,356   25,175   25,407   25,166  
Interest expense 5,972   6,002   6,022   5,976   26,973   11,937   9,035   9,457  
Other (income)/expense (408 ) (769 ) (2,000 ) (1,678 ) -   362   (855 ) -  
Investment (income) (37 ) (35 ) (21 ) (49 ) (268 ) (180 ) (16 ) (76 )
EBITDA 39,605   38,379   38,551   37,026   38,537   36,260   36,959   35,367  
Add: Loss on disposal of equipment 3,004   2,666   2,633   3,449   2,892   3,523   3,397   4,113  
Add: Other income/(expense) 408   769   2,000   1,678   -   (362 ) 855   -  
Adjusted EBITDA(1) $43,017   $41,814   $43,184   $42,153   $41,429   $39,421   $41,211   $39,480  

(1) Historical Adjusted EBITDA has been conformed to the current presentation which includes other income and expense.

Financial Statements and Management's Discussion and Analysis

EnerCare's financial statements and management's discussion and analysis for the first quarter of 2014 are available on SEDAR at www.sedar.com or on EnerCare's investor relations website at http://www.enercareinc.com.

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, 2014 late r this morning, 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:

Date: Monday, May 12, 2014
   
Time: 10:00 a.m. - 11:00 a.m. (ET)
   
By telephone: 647.788.4922 or 1.877.223.4471
  Please allow 10 minutes to be connected to the conference call.
   
Webcast: http://www.gowebcasting.com/5121
  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: http://www.enercareinc.com/ for one year following the original broadcast.
   
Note: A slide presentation intended for simultaneous viewing with the conference call will be available the morning of May 12, 2014 at: http://www.enercareinc.com/.

About EnerCare

Ene rCare owns a portfolio of approximately 1.1 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 regarding EnerCare is available on SEDAR at www.sedar.com or through EnerCare's investor relations website at www.enercareinc.com or 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' 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. Although the forward-looking information is based on what management believes to be reasonable assumptions, EnerCare and EnerCare Solutions cannot assure investors that actual results will be consistent with this forward-looking information. All forward-looking information in this news release is made as of the date of this news release. Except as required by applicable securities laws, neither EnerCare nor EnerCare Solutions 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.

 
For further information:
EnerCare Inc.
Evelyn Sutherland
CFO
1.416.649.1860
esutherland@enercare.ca