Highest Ever Organic Contract Growth(1)
TORONTO, ON--(Marketwired - May 12, 2017) -
(All amounts are in Canadian dollars unless otherwise stated)
Enercare Inc. ("Enercare") (TSX: ECI), one of North America's leading providers of essential home and commercial services and energy solutions, reported its financial results for the first quarter ended March 31, 2017.
First Quarter 2017 Highlights
(in millions of Canadian dollars except per unit amounts)2
|Three months ended March 31,|
|Acquisition Adjusted EBITDA3||$52.5||$58.1||(10%)|
|Basic earnings per share||$(0.03)||$0.09||(133%)|
|Payout ratio - maintenance3||96%||61%||(35)*|
|Rental attrition (units)||7,700||7,500||(3%)|
|Rental additions net of attrition||1,000||1,000||- %|
|Sub-metering contracted units||10,000||8,000||25%|
1 Includes net rental units, net protection plans and net sub-metering contracts, excluding acquisitions.
2 Unless otherwise noted, amounts are reported in thousands, except customers, units, shares and per share amounts and percentages. Dollar amounts are expressed in Canadian currency except as otherwise noted.
3 Adjusted EBITDA, Acquisition Adjusted EBITDA, Payout Ratio and Payout Ratio - Maintenance are non-IFRS financial measures. Refer to the Non-IFRS Financial and Performance Measures section in the MD&A.
John Macdonald, President and CEO, said:
"The launch of the rental program in Service Experts, both in Canada and the US, represents another opportunity for us to grow our customer relationships. This unit growth, in combination with our strong sales in sub-metering and our solid rental growth in Home Services, builds on our long-term recurring revenue model."
Results of Operations
|Three months ended March 31, 2017 (000's)||Enercare Home Services||Service Experts||Sub-metering||Corporate||Total|
|Sales and other services||6,546||116,377||1,704||-||124,627|
|Cost of goods sold:|
|Maintenance & servicing costs||16,264||9,089||-||-||25,353|
|Sales and other services||5,551||75,377||1,153||-||82,081|
|Total cost of goods sold||21,815||84,466||30,648||-||136,929|
|Net loss/(gain) on disposal||1,863||(16)||10||-||1,857|
|Interest expense payable in cash||9,640|
|Make-whole charge on early redemption of debt||5,049|
|Non-cash interest expense||1,155|
|Total interest expense||15,844|
|Earnings/(loss) before income taxes||(3,722)|
|Current tax (expense)||(5,415)|
|Deferred tax recovery||6,105|
|Acquisition Adjusted EBITDA||$||61,605||$||(3,468)||$||2,569||$||(8,224)||$||52,482|
|Three months ended March 31, 2016 (000's)||Enercare Home Services||Service Experts||Sub-metering||Corporate||Total|
|Sales and other services||6,098||-||903||-||7,001|
|Cost of goods sold:|
|Maintenance & servicing costs||16,268||-||-||-||16,268|
|Sales and other services||5,281||-||364||-||5,645|
|Total cost of goods sold||21,549||-||28,111||-||49,660|
|Net loss on disposal||1,925||-||6||-||1,931|
|Interest expense payable in cash||7,926|
|Non-cash interest expense||427|
|Total interest expense||8,353|
|Earnings before income taxes||11,237|
|Current tax (expense)||(12,256)|
|Deferred tax recovery||9,214|
|Acquisition Adjusted EBITDA||$||63,339||$||-||$||3,326||$||(8,544)||$||58,121|
Total revenues of $277,813 for the first quarter of 2017 increased by $135,164 or 95% compared to the same period in 2016, primarily as a result of the acquisition of Service Experts by Enercare, through an indirect wholly-owned subsidiary of Enercare Solutions Inc. ("Enercare Solutions"), on May 11, 2016 (the "SE Transaction").
Enercare Home Services revenues, excluding investment income, of $110,948 for the first quarter of 2017 increased by $4,519 or 4%, compared to the same period in 2016, primarily as a result of a rental rate increase implemented in January 2017, changes in asset mix and growth in heating, ventilation and air conditioning ("HVAC") rental units. Contracted revenue in Enercare 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 plumbing, duct cleaning and other services.
Enercare's strategy to emphasize HVAC rentals over outright sales resulted in significant increases in recurring revenue at the expense of sales and other services revenue.
Service Experts revenues, excluding investment income, were $127,754 during the first quarter of 2017. Service Experts revenues were lowered by $3,386 as a result of purchase accounting adjustments of deferred revenue associated with the SE Transaction.
Sub-metering revenues, excluding investment income, were $38,850 in the first quarter of 2017, an increase of $2,730 or 8% over the same period in 2016, primarily as a result of higher billable units. Sub-metering revenue includes total flow through commodity charges of $29,495 in the quarter, increases of $1,748 or 6% compared to the first quarter of 2016.
In the second half of 2016, Sub-metering negotiated renewals with four large property management companies representing approximately 21,000 metering units. These properties were either at or near the end of their original contracts and the renewals were completed at lower net revenue per meter point due to competitive pressures. This resulted in a reduction in revenue of approximately $450 in the quarter. The typical term for these renewals is between 10 to 15 years.
Investment income was $261 in the first quarter of 2017, an increase of $161, when compared to the same period in 2016. The change in investment income was primarily attributable to the investment of the proceeds from the $275,000 of 3.38% Series 2017-1 Senior Unsecured Notes of Enercare Solutions, due February 21, 2022 (the "2017-1 Notes") and the $225,000 of 3.99% Series 2017-2 Senior Unsecured Notes of Enercare Solutions, due February 21, 2024 (the "2017-2 Notes") (collectively the "2017 Notes"), for approximately 30 days prior to the redemption of the $210,000 4 year variable rate, non-revolving term loan facility of Enercare Solutions (the "2014 Term Loan") and the repayment of the $250,000 of 4.30% Series 2012-1 Senior Unsecured Notes of Enercare Solutions (the "2012 Notes").
Cost of Goods Sold
Total cost of goods sold for the first quarter of 2017 was $136,929, an increase of $87,269 or 176%, compared to the same period in 2016, primarily as a result of the SE Transaction.
Enercare Home Services cost of goods sold in the first quarter of 2017 was consistent with that of the same period in 2016, increasing by $266 or 1% as a result of an increased emphasis on managing costs. Maintenance and servicing costs in Enercare Home Services primarily consist of protection plan expenses and servicing costs related to the Rentals 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 plumbing, duct cleaning and other chargeable services.
Service Experts cost of goods sold amounted to $84,466 in the first quarter of 2017. Service Experts cost of goods sold was lowered by $2,683 as a result of purchase accounting adjustments for the service obligation associated with the SE Transaction.
Sub-metering cost of goods sold was $30,648 in the first quarter of 2017, increasing by $2,537 or 9%, primarily due to an increase in flow through commodity charges over the same period in 2016. Sales and other services expenses for Sub-metering relate to Triacta Power Technologies Inc. ("Triacta") meter sales and the sale and installation of water conservation products in apartments and condominiums.
Selling, General & Administrative Expenses
Total selling, general and administrative expenses ("SG&A") were $88,470 in the first quarter of 2017, an increase of $49,332 compared to the same period in 2016, primarily as a result of the SE Transaction.
Enercare Home Services SG&A expenses of $27,699 in the first quarter increased by $1,807 compared to the same period in 2016. The $1,807 increase was primarily as a result of increases of approximately $3,000 in higher wages and benefits, driven partly by higher stock-based compensation costs resulting from an increase in the price of the common shares of Enercare ("Share"), $1,400 in support costs, $700 in sales and marketing expenses, $415 in claims expense and $260 in bad debt expense, partly offset by lower office expense of $1,150 and professional fees of $2,900.
Enercare Home Services SG&A expenses in the first quarter of 2016 included $2,834 of acquisition related expenditures associated with the SE Transaction, primarily consisting of professional fees. SG&A expenses also included $1,459 of integration and business transformation costs related to the acquisition of the Ontario home and small commercial services business of Direct Energy Marketing Limited by Enercare on October 20, 2014 (the "DE Acquisition"), primarily from information technology integration activities to optimize the information technology platforms and marketing spend related to continued rebranding.
Service Experts SG&A expenses in the first quarter of 2017 amounted to $46,873, primarily comprised of approximately $28,500 of wages and benefits, $11,200 of sales and marketing related costs and $5,200 of office related expenses. Service Experts SG&A expenses in the first quarter of 2017 included integration related expenditures of $104, primarily consisting of professional fees associated with the integration of the SE Transaction.
Sub-metering SG&A expenses in the first quarter of 2017 were $5,674, an increase of $984 over the same period in 2016, primarily as a result of $640 of higher wages, driven partly by higher stock-based compensation costs resulting from an increase in Share price, $150 of higher office expenses and $140 of higher billing and servicing costs.
Corporate expenses of $8,224 in the first quarter of 2017 decreased by $332 or 4%, compared to the same period in 2016. The $332 decrease was primarily as a result of approximately $200 in higher wages and benefits, driven by higher stock-based compensation costs resulting from an increase in Share price, $215 of higher office expenses, resulting from an increase in information technology costs, and $280 in higher sales and marketing expenses, partly offset by a decrease in professional fees of $1,025.
Corporate SG&A expenses in the first quarter of 2016 included $657 of integration and business transformation costs related to the DE Acquisition, primarily from information technology integration activities to optimize the information technology platforms.
Amortization expense increased by $6,092 or 19% in the first quarter of 2017 compared to the same period in 2016, primarily due to the SE Transaction, 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 Enercare Home Services business.
Net Loss on Disposal of Equipment
Enercare reported a net loss on disposal of equipment of $1,857 in the first quarter of 2017, a decrease of $74 or 4% over the same period in 2016. The net 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. During the first quarter of 2017, net loss on disposal included a non-recurring write down of $845 relating to stranded technology investments resulting from going concern issues with a supplier that was developing software solutions for the Enercare Home Services business.
|Three months ended March 31,|
|Interest expense payable in cash||$ 9,640||$6,629|
|Interest payable on subscription receipts||-||1,108|
|Equity bridge financing fees||-||189|
|Make-whole payment on early redemption of senior debt||5,049||-|
|Notional interest on employee benefit plans||210||210|
|Amortization of financing costs||945||217|
Interest expense payable in cash increased by $3,011 to $9,640 in the first quarter of 2017, compared to the same period in 2016. This increase was primarily related to the addition of the USD $200,000 from the two 4-year non-revolving, non-amortizing variable rate term credit facilities (the "2016 Term Loan"), maturing on May 11, 2020, related to the financing of the SE Transaction and the issuance of 2017 Notes during the first quarter of 2017, partially offset by the conversion of the 6.25% convertible unsecured subordinated debentures of Enercare ("Convertible Debentures") to Shares. A make-whole payment for the early redemption of the 2012 Notes during the first quarter of 2017 resulted in a one-time interest expense of $5,049.
Notional interest of $210 in the first quarter of 2017 relates to the defined benefit employee benefits plans. Amortization of financing costs includes the previously unamortized costs associated with the 2012 Notes, which were redeemed on March 23, 2017, the $225,000 of 4.60% Series 2013-1 Senior Unsecured Notes of Enercare Solutions, which mature on February 3, 2020, the Convertible Debentures, the 2014 Term Loan, which was repaid on February 23, 2017, the 2016 Term Loan and the 2017 Notes. The 2017-1 Notes were sold at a price of 99.982% of the principal amount, with an effective yield of 3.384% per annum if held to maturity and the 2017-2 Notes were sold at 99.982% of the principal amount, with an effective yield of 3.993% per annum if held to maturity.
As part of the SE Transaction, Enercare issued subscription receipts (the "SE Subscription Receipts") during the first quarter of 2016 and subsequently exchanged them for Shares upon the closing of the SE Transaction on May 11, 2016. While the SE Subscription Receipts remained outstanding, they were classified as debt, resulting in interest expense of $1,108, which was the equivalent to the dividend payments on such SE Subscription Receipts if they had been Shares. Equity bridge financing fees of $189 in the first quarter of 2016 were also incurred as part of the SE Transaction.
Enercare reported current tax expense of $5,415 in the first quarter of 2017, a decrease of $6,841 over the same period in 2016, primarily due to higher taxes paid in the first quarter of 2016 as a result of a one year tax deferral originated in 2015 and additional interest expense incurred in the first quarter of 2017. The deferred income tax recovery of $6,105 decreased by $3,109 over the same period in 2016, primarily as a result of temporary difference reversals in the Enercare Home Services, Service Experts and Sub-metering businesses.
The net loss of $3,032 in the first quarter of 2017 was lower than the net earnings of $8,195 in the first quarter of 2016, as previously described.
EBITDA, Adjusted EBITDA and Acquisition Adjusted EBITDA
The following table summarizes comparative quarterly results for the last eight quarters, and reconciles net earnings, an IFRS measure, to EBITDA, Adjusted EBITDA and Acquisition Adjusted EBITDA.
|Deferred tax (recovery)/expense||(6,105)||(5,275)||(7,522)||(7,633)||(9,214)||1,069||2,376||1,323|
|Current tax expense||5,415||11,534||15,332||15,259||12,256||2,784||2,169||2,290|
|Add: Net loss/(gain) on disposal||1,857||850||734||891||1,931||(1,455)||1,001||1,572|
|Add: Acquisition SG&A||104||603||4,854||5,128||4,293||3,028||3,946||1,961|
|Acquisition Adjusted EBITDA||$||52,482||$||72,710||$||79,566||$||74,679||$||58,121||$||58,056||$||61,177||$||61,415|
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 (see "Cautionary Note Regarding Forward-looking Statements" in this news release).
Enercare Home Services Segment
Service Experts Segment
|Capital Expenditure(1)||Target Range for 2017|
|HVAC rentals||$46M - $52M|
|Water heater additions||$35M - $39M|
|Water heater exchanges||$32M - $36M|
|Sub-metering growth||$17M - $21M|
|In-house financing(2)||$5M - $ 8M|
|Corporate and building(3)||$32M - $36M|
|Total range||$167M - $192M(4)|
(1) Excludes acquisitions.
(2) In-house financing represents the increase in financing receivables related to the program.
(3) Corporate capital includes IT software and hardware, furniture and fixtures and other capital projects. The building relates to a new head office purchased in Q2 of 2016 including renovations continuing into the early part of 2017.
(4) The target range of capital spend for the Enercare Home Service and Service Experts businesses are largely based on the number and type of equipment originated (assumed to be approximately 26,000 water heater and water treatment rental additions, 42,000 water heater exchanges and 14,500 HVAC rental additions) and the mix between rental, sales and financing arrangements similar to actual results experienced in the last 12 months of operations. The target range for capital spend in the Sub-metering business is based on the number and type of metering equipment installed during the year assumed to be approximately 18,000 units.
Financial Statements and Management's Discussion and Analysis
Enercare's financial statements and management's discussion and analysis for the period ended March 31, 2017 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, 2017 this morning at 10:00 a.m. ET. John Macdonald, President and CEO, and Evelyn Sutherland, CFO, will review Enercare's results and discuss the quarter's operating highlights.
Those wishing to listen to the teleconference may access the live webcast as follows:
|Date:||Friday, May 12, 2017|
|Time:||10:00 a.m. - 11:00 a.m. (ET)|
|By telephone:||647.427.2311 or 1.866.521.4909|
|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 Friday, May 12, 2017 at www.enercareinc.com.|
Cautionary Note Regarding Forward-looking Statements
This news release contains certain forward-looking statements within the meaning of applicable Canadian securities laws ("forward-looking statements" or "forward-looking information") that involve various risks and uncertainties and should be read in conjunction with Enercare's 2016 audited consolidated financial statements. Additional information in respect of Enercare, including the Annual Information Form of Enercare dated March 31, 2017 ("AIF"), can be found on SEDAR at www.sedar.com.
Statements other than statements of historical fact contained in this news release may be forward-looking statements, including, without limitation, management's expectations, intentions and beliefs concerning anticipated future events, results, circumstances, economic performance or expectations with respect to Enercare, including Enercare's business operations, business strategy and financial condition. When used herein, the words "anticipates", "believes", "budgets", "could", "estimates", "expects", "forecasts", "goal", "intends", "may", "might", "outlook", "plans", "projects", "schedule", "should", "strive", "target", "will", "would" and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words. These forward-looking statements may reflect the internal projections, expectations, future growth, results of operations, performance, business prospects and opportunities of Enercare and are based on information currently available to Enercare and/or assumptions that Enercare believes are reasonable. Many factors could cause actual results to differ materially from the results and developments discussed in the forward-looking information.
In developing these forward-looking statements, certain material assumptions were made. These forward-looking statements are also subject to certain risks. These factors include, but are not limited to:
Material factors or assumptions that were applied to drawing a conclusion or making an estimate set out in forward-looking statements include:
There can be no assurance that the anticipated strategic benefits and operational, competitive and cost synergies from the SE Transaction will be realized. There can be no assurance that recent results from the introduction of the rental model to Service Experts in Canada and the United States are indicative of future results.
Readers are cautioned that the preceding list of material factors or assumptions is not exhaustive. Although forward-looking statements contained in this news release are based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Accordingly, readers should not place undue reliance on such forward-looking statements and assumptions as management cannot provide assurance that actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Enercare. All forward-looking information in this news release is made as of the date of this news release. These forward-looking statements are subject to change as a result of new information, future events or other circumstances, in which case they will only be updated by Enercare where required by law.
Enercare is headquartered in Toronto, Ontario, Canada and is publicly traded on the Toronto Stock Exchange (TSX: ECI). As one of North America's largest home and commercial services and energy solutions companies with approximately 4,500 employees under its Enercare and Service Experts brands, Enercare is a leading provider of water heaters, water treatment, furnaces, air conditioners and other HVAC rental products, plumbing services, protection plans and related services. With operations in Canada and the United States, Enercare serves approximately 1.6 million customers annually. Enercare is also the largest non-utility sub-meter provider, with electricity, water, thermal and gas metering contracts for condominium and apartment suites in Canada and through its Triacta brand, a premier designer and manufacturer of advanced sub-meters and sub-metering solutions.
Source: Enercare Inc.