Integration on track and on budget
TORONTO, ONTARIO--(Marketwired - May 14, 2015) - EnerCare Inc. ("EnerCare") (TSX:ECI), one of Canada's leading providers of energy services and solutions, today reported its financial results for the first quarter ended March 31, 2015.
Q1 2015 Operational Highlights
- 28% increase in Home Services EBITDA drive n by the incremental contribution of Direct Energy Marketing Limited's ("DE") home and small commercial services business in Ontario ("Home Services"), which EnerCare acquired in the fall of 2014 (the "Acquisition"), as well as a rental rate increase and HVAC growth
- 104% increase in sub-metering EBITDA driven by unit growth, operational efficiencies and benefits of a revenue assurance program implemented in late 2014
- Acquisition integration is on schedule with IT de-coupling expected to be completed in June
|Q1 2015 Financial Highlights|
|Three months ended March 31, 2015 versus period ended March 31, 2014|
|(in thousands of Canadian dollars except per unit amounts)(1)|
|Three months ended
|(millions, except units)||2015||2014||Change|
|Acquisition Adjusted EBITDA(2)||$||54.0||$||43.0||26||%|
|Payout ratio - maintenance||48||%||46||%||(4||%)|
|Payout ratio - historical||68||%||72||%||6||%|
|Rentals attrition (units)||9,000||9,000||-|
|Rental additions & acquisitions (units)||7,000||7,000||-|
|Contracted sub-metering units||3,000||7,000||(57||%)|
"With strong contributions from each of our segments, the year is off to a great start," said John Macdonald, President and CEO of EnerCare. "Across the company, the goal is growth. Both Home Services and sub-metering are growing their respective long-term recurring revenue bases and margins with good success."
"We are now well into the integration of the home services business and are extremely pleased with the progress made to date. De-coupling of the technology platform is expected to be completed in June. The roll-out of our new brand begins this month with a new look for our fleet of over 650 vehicles and approximately 700 front-line uniformed employees and will continue over the summer, culminating in a fully integrat ed mass market campaign this fall in time to have maximum impact on the heating season," said Macdonald. "Our team members are excited about the future and continue to deliver exceptional customer service, which will help us achieve our vision of becoming the premier provider of essential home and commercial services and energy solutions in Canada."
|(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, Acquisition Adjusted EBITDA, 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
|Three months ended March 31,
|Sales and other services||10,360||66||-||10,426||34||80||-||114|
|Cost of goods sold:|
|Maintenance & servicing costs||14,388||-||-||14,388||-||-||-||-|
|Sales and other services||7,328||59||-||7,387||29||60||-||89|
|Total cost of goods sold||21,716||31,032||-||52,748||29||28,419||-||28,448|
|Net loss on disposal||1,752||-||-||1,752||3,004||-||-||3,004|
|Interest expense payable in cash||6,620||5,808|
|Non-cash interest expense||491||164|
|Total interest expense||7,111||5,972|
|Earnings before income taxes||13,765||9,572|
|Current tax (expense)||(2,954||)||(6,079||)|
|Deferred tax (expense)/ recovery||(2,909||)||3,521|
|Acquisition Adjusted EBITDA||$||56,328||$||2,984||$||(5,300||)||$||54,012||$||45,594||$||1,462||$||(4,039||)||$||43,017|
Total revenues of $141,812 for the first quarter of 2015 increased by $59,587 or 72% compared to the same period in 2014.
Home Services revenues, excluding investment income, increased by $55,377 to $104,013 compared to the first quarter of 2014, primarily as a result of approximately $54,300 of additional revenue added through the Acquisition. The remaining $1,100 increase was primarily due to a rental rate increase implemented in January 2015, improved billing completeness and changes in asset mix, partially offset by fewer installed assets. Contracted revenue in Home Services represents revenue generated by the rentals portfolio and protection plan contracts, while sales and other services revenue mainly pertains to one-time sales and installations of residential furnaces, boilers and air conditioners as well as duct cleaning and other services.
Sub-metering revenues, excluding investment income, in the first quarter of 2015, were $37,722, an increase of $4,170 or 12% over the comparable period in 2014, primarily as a result of increased commodity charges, billable units and revenue assurance initiatives. Sub-metering revenue includes total pass through energy charges of $30,973 in the first quarter of 2015, an increase of $2,614 or 9% over the same period in 2014. Sales and other serv ices revenue for sub-metering are earned from the sale and installation of water conservation products in apartments and condominiums.
Investment income was $77 in the first quarter of 2015, an increase of $40 compared to the same period in 2014. The change in investment income was primarily attributable to higher investment balances in the first quarter of 2015 primarily from Enbridge Gas Distribution Limited's settlement of EnerCare Solutions' December billings in advance of its normal settlement dates.
Cost of Goods Sold
Total cost of goods sold were $52,748 in the first quarter of 2015, an increase of $24,300 or 85% compared to the same period in 2014.
Home Services cost of goods sold increased by $21,687 compared to the same period in 2014, primarily due to expenses resulting from the increased scope of the business following the Acquisition. Maintenance and servicing costs in Home Services primarily consist of protection plan expenses and servicing costs related to the rental portfolio, while sales and other services expenses mainly pertain to one-time sales and installations of residential furnaces, boilers, air conditioners and small commercial products as well as duct and other cleaning services.
Sub-metering cost of goods sold of $31,032 increased by $2,613 or 9%, as a result of an increase in pass through energy charges over the same period in 2014. Sales and other services expenses for sub-metering relate to the sale and installation of water conservation products in apartments and condominiums.
Selling, General & Administrative Expenses
Total SG&A expenses were $35,587 in the first quarter of 2015, an increase of $24,456 compared to the same period in 2014.
Home Services and corporate expenses of $31,881 increased by $24,421 compared to the same period in 2014, primarily due to additional expenses resulting from the i ncreased scope of the business following the Acquisition. The $24,421 increase over 2014 was primarily as a result of approximately $10,200 in wages and benefits, $1,300 in professional fees, $6,900 of billing and servicing costs, $2,300 in office expenses, $3,100 in selling expenses and $800 in bad debts, partially offset by reductions of $150 in claims expenses. During the first quarter of 2015, Home Services and corporate SG&A expenses included $612 of integration costs associated with the Acquisition, primarily from marketing spend related to rebranding activities.
Sub-metering SG&A expenses was $35 greater in the first quarter of 2015, primarily from higher bad debts of $100, partly offset by reductions in professional fees of $75.
Amortization expense increased by $6,343 or 26% in the first quarter of 2015, primarily due to, additional acquisition related amortization from intangible and capital assets of $5,013 and $1,093, respectively. The remaining increase of $237 over the same period in 2014 was primarily from 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 those of the Home Services business.
Loss on Disposal of Equipment
EnerCare reported a net loss on disposal of equipment of $1,752 in the first quarter of 2015, a reduction of $1,252 or 42%, over the same period in 2014. The loss on disposal amount is influenced by the number of assets retired, proceeds on disposal of equipment, changes in the retirement asset mix and the age of the assets retired.
|Interest expense payable in cash||$||6,620||$||5,808|
|Notional interest on employee benefit plans, net||274||-|
|Amortization of financing costs||217||164|
Interest expense payable in cash increased by $812 to $6,620 in the first quarter of 2015, compared to the same period in 2014. Th e increase is primarily related to the increase in the new term loan related to the financing of the Acquisition, partially offset by the conversion of convertible debentures to shares. Notional interest of $274 in 2014 relates to the employee benefits plans acquired as part of the Acquisition. Amortization of financing costs includes the previously unamortized costs associated with the $250,000 of 4.30% Series 2012-1 Senior Unsecured Notes of EnerCare Solutions, which mature on November 30, 2017, $225,000 of 4.60% Series 2013-1 Senior Unsecured Notes of EnerCare Solutions, which mature on February 3, 2020, convertible debentures and in 2015 and the 4-year variable rate, non-revolving term loan facility in the amount of $210,000.
During the first quarter of 2014, EnerCare realized a settlement of $408 from DE 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.
EnerCare reported a current tax expense of $2,954 in the first quarter of 2015, a reduction of $3,125 over the same period in 2014, primarily as a result of a one year tax deferral available through a subsidiary of EnerCare Solutions. The deferred income tax expense of $2,909 in the first quarter of 2015 was $6,430 higher than the deferred tax recoveries of $3,521 recorded in the same period in 2014, primarily as a result of temporary difference reversals in the Home Services and sub-metering businesses.
Net earnings in the first quarter of 2015, were $7,902 or $888 higher than in the same period in 2014, as previously described.
EBITDA, Adjusted EBITDA and Acquisition Adjusted EBITDA
The following table summarizes comparative quarterly resul ts for the last eight quarters, and reconciles net earnings, an IFRS measure, to EBITDA, Adjusted EBITDA and Acquisition Adjusted EBITDA.
|Deferred tax expense/(recovery)||2,909||(3,222||)||(6,852||)||(3,810||)||(3,521||)||(3,552||)||(3,134||)||(3,640||)|
|Current tax expense||2,954||5,949||8,924||6,335||6,079||6,148||5,525||4,591|
|Add: Net loss on disposal||1,752||2,180||2,304||2,371||3,004||2,666||2,633||3,449|
|Add: Other income||-||-||-||-||408||769||2,000||1,678|
|Add: Acquisition SG&A||612||4,138||2,882||702||-||-||-||-|
|Acquisition Adjusted EBITDA||$||54,012||$||51,954||$||43,926||$||43,808||$||43,017||$||41,814||$||43,184||$||42,153|
|(3)||Historical Adjusted EBITDA has been conformed to the current presentation which includes other income and expense.|
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.
EnerCare continues to experience improved results through improved rental customer retention and increased average monthly rental rates largely as a result of our rental HVAC strategy. We continue to believe that the factors contribu ting to the decline in attrition over the last six years, including improved customer awareness, and Bill 55, will create a favourable environment for further improvement in customer retention. EnerCare is pleased that Bill 55 came into effect on April 1, 2015.
The purchase of Home Services has been transformative for EnerCare. The Acquisition has allowed EnerCare to have direct access to its customers, control over all aspects of its operations and larger financial scale. Our priority for the first twelve months remains the reunification of the two businesses, which has been successful to-date.
Our re-branding initiatives commenced in early 2015 with co-branding on customer invoices, sales literature and advertising. Re-branding initiatives will continue throughout 2015.
The transition services agreement regarding the decoupling from DE's information technology platform is progressing well. The first phase of de-coupling remains on schedule to be completed during the first half of 2015.
Our key priority for the Home Services business in 2015 is to grow its annuity contracts. Due to the Acquisition, our annuity contract base has grown by approximately 50% with the addition of protection plans, which in the first quarter of 2015 represented approximately one-fifth of Home Services revenue. We believe that we have the opportunity to continue to grow the number of contracts, in excess of attrition and also to increase the average revenue per contract.
EnerCare will continue to focus on growing its HVAC rental customer base. While converting a customer from an outright sale to a long-term rental product is capital intensive and creates a short-term reduction to the income statement, the rental HVAC creates a long-term customer relationship. EnerCare believes that this relationship provides greater cross-selling opportunity and is therefore more valuable than the sale of an HVAC unit.
In respect of sub-metering , our priorities and initiatives are to grow the business to be cash flow positive by year end by increasing new contract sales, improving productivity and operation efficiencies and enhancing our customer value proposition through outstanding customer service. Our lean and continuous improvement program continues to yield positive operational results to the benefit of our customers and shareholders. A 63% reduction in the cycle time to deliver remittance payments to clients was achieved by the end of the first quarter.
Financial Statements and Management's Discussion and Analysis
EnerCare's financial statements and management's discussion and analysis for the fourth quarter and year ended December 31, 2014 are available on SEDAR at www.sedar.com or on EnerCare's investor relations website at 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, 2015 this morning, at 10:00 a.m. John Macdonald, President and CEO, and Evelyn Sutherland, CFO, will review EnerCare's results and discuss the quarter's operating highlights. Details of the call and webcast are as follows:
Date: Thursday, May 14, 2015
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.
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.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 Thursday, May 14, 2015 at: www.enercareinc.com.
To automatically receive EnerCare's news releases electronically, visit the Investor Relations section of EnerCare's website at http://enercareinc.com/alerts and subscribe to email alerts.
EnerCare is one of Canada's largest home and commercial services companies with more than 900 employees. EnerCare provides water heaters, furnaces, air conditioners and other HVAC rental products, protection plans and related services to approximately 1.1 million customers. EnerCare also owns EnerCare Connections Inc., a leading sub-meter provider, with metering contracts for condominium and apartment suites in Ontario, Alberta and elsewhere in Canada.