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Just Energy Base EBITDA Jumps 81% On "Improved Pricing Power"

RCE Count Down Marginally

November 7, 2018

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Copyright 2010-17
Reporting by Paul Ring •

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Note: This story was first published the evening of Nov. 7 with an alert to our email subscribers

Just Energy Group, Inc. reported Base EBITDA of $37.3 million for the quarter ending September 30, 2018 (second quarter FY 2019), an increase of 81% from $20.5 million a year ago, "due to the significant improvement in gross margin driven by improved pricing power, offset by higher bad debts and an increase in administrative expenses to support the growth initiatives." (all $ Canadian)

Gross margin of $173.3 million for the quarter ending September 30, 2018 increased 22% from the prior year ($142.7 million), "mainly due to improved pricing power in North America and increased international sales activities," the company said

As of September 30, 2018 Just Energy was serving 4.164 million RCEs, compared to 4.173 million RCEs as of July 1, 2018, and 4.087 million RCEs a year ago.

The net decline of 9,000 RCEs versus July 1, 2018 compares to net growth of 10,000 RCEs from April 1, 2018 to June 30, 2018

On a customer count basis, Just Energy customer count increased 3% to 1.6 million, which includes 27,230 distinct customers from Filter Group Inc.’s water filter subscriptions. Filter Group Inc. has 32,488 home water filtration systems installed throughout Canada and the U.S.

Gross RCE additions for the second quarter of fiscal 2019 were 290,000, a decrease of 6% compared to RCEs added in the second quarter of fiscal 2018.

Consumer (mass market) gross RCE additions were 132,000 in the second quarter, a decrease of 22% from 169,000 gross Consumer RCE additions recorded in the prior comparable quarter. "The variance was primarily driven by tougher competition compared to the prior year due to the significant increase in U.K. residential adds from the switching sites last year," Just Energy said

Just Energy said that its launch of its previously reported retail Consumer sales channel, "continued to meet expectations during the second quarter."

"The retail channel added 34,000 new RCEs during the second quarter through retail partnerships across North America, a total of 78,000 new RCEs, the highest growth to date for the six months ended September 30, 2018. Just Energy currently has access to sell products and services in over 700 retail locations," Just Energy said

Commercial RCE additions of 158,000 in the second quarter increased by 12% over the prior comparable quarter. "This growth was primarily driven by an increase in the number of U.S. Commercial electricity RCEs as well as the addition of one large Commercial customer in the U.K. Net RCE additions for the Commercial division improved to 33,000 in the fiscal second quarter from 26,000 reported in the prior year," Just Energy said

For the three months ended September 30, 2018, 40% of the total Consumer and Commercial RCE additions were generated through commercial brokers, 37% from online and other non-door-to-door sales channels, 13% from retail channels and 10% from door-to-door sales. In the prior comparable quarter, 51% of RCE additions were generated from retail, online and other non-door-to-door sales channels, 33% from commercial brokers, and 16% using door-to-door sales.

The combined attrition rate was 13% for the trailing 12 months ended September 30, 2018, consistent with the prior comparable 12 months. The Consumer attrition rate decreased three percentage points to 20% while the Commercial attrition rate remained the same as a year ago. "The decrease in the Consumer attrition rate is a result of Just Energy’s focus on higher margin customers while becoming the customers’ 'trusted advisor' and providing a variety of energy management solutions to its customer base to drive customer loyalty," the company said

The annual average gross margin per RCE for the customers added or renewed by the Consumer division was $333/RCE during the three months ended September 30, 2018, an increase from $197/RCE in the prior comparable period, primarily reflecting the company’s improved pricing power.

The annual average gross margin per RCE for the Commercial customers added or renewed during the quarter was $96/RCE during the three months ended September 30, 2018, an increase from $88/RCE in the prior comparable period as the company continues to focus on adding and renewing small and medium-sized customers and retaining larger margin customers

"We are pleased with the second quarter results and our progress toward our fiscal year expectations, as our accomplishments are demonstrating our resolve and commitment to faster execution," said Just Energy’s Chief Executive Officer, Patrick McCullough. "The second quarter results exceeded expectations as swift pricing optimization actions successfully expanded to a broader audience and our risk management discipline neutralized the impact of summer weather on supply costs. These actions are also evident in our record-level embedded gross margin on our existing book of business as our core commodity business continues to perform well. We expect to see these actions continue to contribute in the fiscal third and fourth quarters, driving performance beyond historical levels and supporting guidance for the current fiscal year and earnings growth into the future."

McCullough added, "Looking ahead, our healthy core business, combined with the expanded offering of value added products and services, will generate significant capital to not only support future dividend payments, but also the pursuit of growth opportunities that support our strategic shift to be a consumer-focused company."

For the three months ended September 30, 2018, administrative expenses increased by $11.7 million, or 25%, to $58.5 million, to support talent acquisition and retention, investment in process improvements and operational efficiencies and ongoing business acquisition activities. "The Company continues its efforts to reduce administrative expenses through greater automation and consolidation of support activities," Just Energy said

Selling and marketing expenses decreased $1.8 million, or 3%, to $56.7 million for the three months ended September 30, 2018 due to the capitalization of upfront commission expenses and the reduction of non-commission selling expenses as a result of the consolidation of regional sales offices and diversification of sales channels

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