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Just Energy Reports Customer Growth Despite Competitive Pressures, Profitability Focus

Says Earnings Flat For Quarter


August 9, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The following story is brought free of charge to readers by EC Infosystems, the exclusive EDI provider of EnergyChoiceMatters.com

Just Energy reported earnings for the three months ended June 30, 2018 (first fiscal quarter of 2019)

"Despite being traditionally our seasonally slowest quarter, our first quarter of fiscal 2019 results met our expectations. The core business performed well, and our earnings were essentially flat after normalizing for some one-time year-over-year adjustments. In the face of ongoing competitive pricing pressures, we continued to build on strong customer addition trends. Importantly, we did this while also taking pricing actions to improve the profitability of our growing customer base. We ended the quarter with embedded gross margin that rivals all-time Company record levels as our value-added products and services continue to add to our growing book of profitable business," said Just Energy chief executive officer Pat McCullough.

"Looking ahead, we are well-positioned to achieve our stated guidance and our strategy to become less dependent on commodity products is proving to be prudent. Our core business is healthy and growing, our profitability per customer is improving, and early indications are very positive around our strategic shift to a consumer-focused company. While there is still much work to be done, we are focused on a manageable set of strategic initiatives that will build on our current momentum and begin contributing to our profitability in the second half of fiscal 2019 and beyond. We are taking the necessary measures to remove the volatility and improve the transparency in our results, and are committed to setting the stage for predictable, prolonged growth while maximizing returns for our shareholders," McCullough said

Just Energy was serving 4.173 million RCEs as of June 30, 2018, up from 4.163 million as of April 1, 2018 and 4.076 million a year ago

The net growth of 10,000 RCEs from April 1, 2018 to June 30, 2018 compares to net growth of 49,000 RCEs from December 31, 2017 to March 31, 2018 and net growth of 27,000 RCEs from September 30, 2017 to December 31, 2017. Just Energy has recorded net RCE additions in the past four sequential quarters. In the prior-year quarter (ending June 30, 2017), Just Energy had recorded a net loss of 135,000 RCEs

As of June 30, 2018, Consumer (mass market) RCEs were 1.826 million and Commercial RCEs were 2.347 million.

Gross RCE additions for the quarter ended June 30, 2018 were 329,000, up from 312,000 for the quarter ended March 31, 2018 and 245,000 a year ago

Consumer RCE additions amounted to 140,000 for the three months ended June 30, 2018, versus 170,000 for the three months ended March 31, 2018, but representing a 4% increase from 134,000 gross RCE additions recorded in the year-ago quarter driven by an increase in North American residential sales channel expansion offset by failed-to-renew U.K. residential aggregation customers. A major factor was the large increase of net additions in the Southern region. The increase in RCEs was driven by U.S. customer additions and the ramp up of the Company’s new retail sales channels during the three months ended June 30, 2018. As of June 30, 2018, the U.S., Canadian and U.K. segments accounted for 65%, 18% and 17% of the Consumer RCE base, respectively.

Commercial RCE additions were 189,000 for the three months ended June 30, 2018, versus 142,000 during the quarter ending March 31, 2018, and representing a 70% increase over the year-ago comparable quarter due to an increase in North American Commercial electricity RCE’s offset by one large customer in the U.S. that was not renewed due to credit concerns. Just Energy further said that this growth was primarily driven by new customer wins across many of its U.S. power markets. Net RCE additions for the Commercial division improved to positive 20,000 for the three months ended June 30, 2018, compared with negative 148,000 reported in the prior year. As of June 30, 2018, the U.S., Canadian and U.K. segments accounted for 69%, 24% and 7% of the Commercial RCE base, respectively.

For the three months ended June 30, 2018, 70% of the total Consumer and Commercial RCE additions were generated through retail, online, and other non-door-to-door sales channels, 19% from commercial brokers and 11% from door-to-door sales. In the prior comparable quarter, 48% of RCE additions were generated from online and other sales channels, 37% from commercial brokers, and 15% using door-to-door sales.

Just Energy's U.K. operations increased their RCE base by 9% to 458,000 RCEs during the three months ended June 30, 2018 with strong growth in the Consumer RCE base. As of June 30, 2018, the U.S., Canadian and U.K. segments accounted for 67%, 22% and 11% of the RCE base, respectively. At June 30, 2017, the U.S., Canadian and U.K. segments represented 69%, 21% and 10% of the RCE base, respectively.

Just Energy's previously reported launch of the new retail consumer sales channel, "continued to meet expectations during the first quarter," the company said. The retail channel experienced highest growth to date by adding 43,842 new RCEs during the quarter ending June 30, 2018 through retail partnerships across North America. Just Energy has access to sell products and services today in over 700 retail locations. "Beyond retail and as part of the sales growth strategy, the Company is working with well-known brands and strategic partners to launch its indirect sales channel," Just Energy said

Just Energy said that the retail sales channel was its largest residential sales channel for the quarter ending June 30, 2018

In terms of customers, Just Energy was serving 1.679 million customers as of June 30, 2018, versus 1.658 million as of April 1, 2018. As of June 30, 2018, Consumer customers were 1.560 million and Commercial customers were 119,000.

Just Energy’s customer base also includes 57,117 smart thermostat customers.

The combined attrition rate for Just Energy was 13% for the trailing 12 months ended June 30, 2018, a decrease of one percentage point from the 14% reported in the prior comparable 12 months. The Consumer attrition rate remained the same as a year ago and the Commercial attrition rate decreased two percentage points to 5%.

Overall, Just Energy's renewal rate was 56% for the trailing 12 months ended June 30, 2018, a decrease of six percentage points compared to 62% as at June 30, 2017. The Consumer renewal rate decreased by one percentage point to 72%, and the Commercial renewal rate decreased by nine percentage points to 45%. The decline in the Commercial renewal rate reflected a very competitive market for Commercial renewals with competitors pricing aggressively, combined with the fact that there were sizable Commercial customer renewals in the quarter, and Just Energy’s focus on improving retained customers’ profitability rather than pursuing low margin growth, the company said

For the three months ending June 30, 2018, Just Energy reported Base EBITDA of $27.3 million, a decrease of $5.2 million as compared to the year-ago quarter ($32.5 million) due to lower gross margin and continuing investments in growth initiatives and expansion partially offset by lower selling costs (all $ Canadian).

Consumer Energy contributed $46.9 million to Base EBITDA for the three months ended June 30, 2018, an increase of 6% from $44.1 million in the prior comparative quarter.

Commercial Base EBITDA for the three months ended June 30, 2018 contributed $6.4 million to the Base EBITDA, a decrease of 54% from the prior comparable quarter.

Gross margin for the quarter ending June 30, 2018 decreased 3% to $153.5 million, from $157.5 million a year ago, primarily due to lower deliveries to the Canadian Consumer markets, negative foreign exchange impact relating to the weakening of the U.S. dollar and favourable resettlements for the Commercial division in the prior comparable quarter. This decrease was partially offset by increases in pricing resulting from focusing on value selling to certain customer segments and advancing the sales of value added products such as ecobee and Commercial energy efficiency products and services.

Gross margin for the three months ended June 30, 2018 for the Consumer division was $118.8 million, an increase of 3% from $115.5 million recorded in the prior comparable quarter. Gas and electricity gross margins have increased by 22% and decreased 3%, respectively. The growth in Consumer gross margin was primarily due to the increase in U.K. and North American customer bases and gross margin optimization in Texas

Average realized gross margin for the Consumer division for the rolling 12 months ended June 30, 2018 was $232/RCE, a decrease of 11% from $262/RCE. The decrease is largely due to the weakening of the U.S. dollar and one-time weather related events in the trailing 12 months.

Gross margin from electricity customers in the Consumer division was $85.0 million for the three months ended June 30, 2018, a decrease of 3% from $87.9 million recorded in the prior comparable quarter. The change is primarily a result of the weakening of the U.S. dollar and contraction of the U.S. power customer base partially offset by the gross margin optimization in the Texas market.

Gross margin for the Commercial division was $34.8 million for the three months ended June 30, 2018, a decrease of 17% from $42.1 million recorded in the prior comparable quarter. Gas and electricity gross margins increased by 91% and decreased by 24%, respectively. The decrease in gross margin was a result of the reduction in U.S. power customer base and favorable resettlements for the Commercial division in the prior comparable quarter.

Average realized gross margin for the rolling 12 months ended June 30, 2018 was $79/RCE, a decrease of 15% from $93/RCE. The decrease is largely due to one-time weather related events in the trailing 12 months.

For the three months ended June 30, 2018, the average gross margin per RCE for the customers added and renewed by the Consumer division was $229/RCE, an increase from $194/RCE added in the prior comparable period. The average gross margin per RCE for the Consumer customers lost during the three months ended June 30, 2018 was $216/RCE, an increase from $195/RCE margin lost on customers in the prior comparable period. The increase in gross margin is attributed to the gross margin optimization strategy.

For the Commercial division, the average gross margin per RCE for the customers signed during the three months ended June 30, 2018 was $81/RCE, an increase from $75/RCE added in the prior comparable period. Customers lost through attrition and failure to renew during the three months ended June 30, 2018 were at an average gross margin of $79/RCE, a decrease from $81/RCE reported in the prior comparable period. Management continues to focus on margin optimization by focusing on small and medium-sized customers and retaining larger margin customers.

Just Energy sales for the quarter ending June 30, 2018 were $876 million, versus $847 million a year ago.

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