Just Energy Provides Date For Anticipated Completion Of Strategic Review

Just Energy Revises Downward 2020 Base EBITDA Guidance From Continuing Operations, Free Cash Flow Guidance, In Announcing Earnings

Reports RCE Growth Since Sept. 30 Even With Focus On Profitability And, "Competitors Pricing Aggressively"

Average Realized Gross Margin Per Consumer RCE Higher

February 10, 2020

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In announcing earnings for the quarter ending December 31, 2019, Just Energy Group Inc. said that it "anticipates" announcing a decision on its previously reported strategic review process by June 30, 2020

"The Company’s previously announced strategic review remains active and is advancing towards the Board’s goal of an outcome in the best interests of Just Energy and its stakeholders. In addition to identifying cost saving actions and refinement of the Company’s geographic footprint, the Company has been active in discussions with respect to strategic transaction opportunities. Just Energy anticipates announcing a decision on the strategic review by June 30, 2020. However, there is no assurance that a transaction will result from the strategic review," Just Energy said

"In the interim, the Company does not intend to comment further with respect to the Strategic Review unless and until it determines that additional disclosure is appropriate in the circumstances and in accordance with the requirements of applicable securities laws," Just Energy said

Just Energy noted that, as previously reported, "The sale of the U.K. and Ireland operations is now complete, as is the sale of the Company’s Georgia assets[.]"

"Just Energy continues to actively market its remaining non-core operations," the company said, with Just Energy focusing on higher margin North American operations

For the quarter ending December 31, 2019 (third quarter of fiscal 2020), Just Energy reported that Base EBITDA for the quarter was $38.0 million (all $ Canadian), a decrease of 34% compared to the $57.1 million recorded in the third quarter of fiscal 2019, driven by a decline in gross margin as well as higher commission expense due to the ramp-up of the amortization of previously capitalized residential customer acquisition costs. Just Energy said that the Base EBITDA of $38.0 million increased 68% after adjusting the year-ago comparative quarter to add back the one-time impairment charge for the Texas residential enrolment and collections impairment. "Base EBITDA" refers to EBITDA adjusted to exclude the impact of mark to market gains (losses) arising from IFRS requirements for derivative financial instruments, Texas residential enrolment and collections impairment, Strategic Review costs, discontinued operations, and restructuring as well as adjustments reflecting share-based compensation, non-controlling interest and amortization of sales commissions with respect to value-added products

For the three months ending December 31, 2019, Just Energy's Consumer segment (mass market) contributed $53.5 million to Base EBITDA, a decrease of 25% from $71.4 million in the prior comparable quarter, primarily due to a decline in the residential customer base versus the year-ago and the dropping of non-paying customers in Texas resulting in a decrease in sales revenue.

For the three months ending December 31, 2019, the Commercial segment contributed $6.6 million to Base EBITDA, a decrease of 29% from the prior comparable quarter, when the segment contributed $9.3 million, due to decreases in the company’s Canadian markets gross margin resulting from lower pricing, and competitive pressures on pricing in the U.S. market, partially offset by margin optimization actions as well as improved cost management.

Just Energy reported that, "As a result of lower than expected Base EBITDA and free cash flow in the third quarter of fiscal 2020 and lower fiscal year to date customer additions, management revised its full year fiscal 2020 Base EBITDA guidance from continuing operations to between $150 million to $170 million, from $180 million to $200 million, and decreased fiscal year 2020 free cash flow guidance to between $0 million to $20 million, from $50 million to $70 million. Free cash flow is defined as cash flow from operating activities minus cash flow from investing activities."

For the quarter ending December 31, 2019, Just Energy’s gross margin decreased by 13% to $142.5 million, versus $164.4 million a year ago, primarily due to a decline in the residential customer base. "The decline in the Company’s residential customer base is primarily a result of a shift in focus of the Company to reduce non-paying customers in Texas and to onboard higher quality customers through alternative channels, management’s decision to exit the California and Georgia gas markets, as well as a reduction in the Company’s Canadian customer base due to regulatory restrictions in Alberta and Ontario," the company said

Gross margin for the three months ended December 31, 2019 for the Consumer segment was $109.0 million, a decrease of 14% from $126.4 million recorded in the prior comparable quarter. The gross margin earned in Texas during the three months ended December 31, 2019 decreased primarily due to a decline in sales in the residential customer base.

Average realized gross margin for the Consumer segment for the rolling 12 months ended December 31, 2019 was $301/RCE [Residential Customer Equivalent], representing a 28% increase from $216/RCE reported in the prior comparable quarter. The increase is primarily attributable to improved margin optimization. The gross margin/RCE value includes an adjustment for bad debt expense in applicable markets.

For the three months ended December 31, 2019, the average gross margin per RCE for the customers added or renewed by the Consumer segment was $273/RCE, a decrease of 21% from $344/RCE in the prior comparable period. The decrease in gross margin on Consumer customers added and renewed is a result of more competitive pricing. The average gross margin per RCE for the Consumer customers lost during the three months ended December 31, 2019 was $307/RCE, an increase from $291/RCE as a result of attrition in response to the margin optimization implemented in fiscal 2019, while customers in the prior period were dropping at a lower margin rate.

Gross margin for the Commercial segment was $33.5 million for the three months ended December 31, 2019, a decrease of 12% from $38.1 million recorded in the prior comparable quarter. Gross margin has decreased in the Company’s Canadian markets from lower pricing and competitive pressures on pricing in the U.S. market, partially offset by margin optimization actions as well as improved cost management, Just Energy said Average realized gross margin for the rolling 12 months ended December 31, 2019 was $92/RCE, a decrease of 4% from the $95/RCE reported in the prior comparable period. The gross margin per RCE value includes an adjustment for bad debt expense in markets where Just Energy has customer credit risk.

For the Commercial segment, the average gross margin per RCE for the customers signed during the three months ended December 31, 2019 was $65/RCE, a decrease of 15% from $77/RCE in the prior comparable period. Customers lost through attrition and failure to renew during the three months ended December 31, 2019 were at an average gross margin of $78/RCE, an increase from $68/RCE reported in the prior comparable period of 15%. This increase is a result of the natural attrition in response to the margin optimization implemented in fiscal 2019 and competitive pricing pressures in North America.

As of December 31, 2019, Just Energy's commodity business was serving 3.515 million (RCEs), up from 3.500 million as of October 1, 2019, and versus 3.701 million a year ago

The net increase in 15,000 RCEs since October 1, 2019 compares to a net loss of 65,000 commodity RCEs from July 1, 2019 to September 30, 2019.

Gross commodity business RCE additions for the quarter ended December 31, 2019 were 220,000, compared to 168,000 in the quarter ending Sept 30, 2019, "reflecting the transition from a purely RCE driven focus to a greater focus on attracting and retaining strong-fit customers that will drive greater profitability," the company said

As of December 31, 2019, Just Energy's commodity business was serving 1.239 million Consumer RCEs and 2.276 million Commercial RCEs

Consumer RCE gross additions amounted to 55,000 for the quarter ended December 31, 2019, a 46% decrease from the corresponding quarter ended December 31, 2018, "primarily driven by a greater emphasis on attracting and retaining strong-fit customers that will drive greater profitability and the natural attrition in response to the actions implemented in fiscal 2019," the company said. Consumer failed to renew RCEs for the three months ended December 31, 2019 decreased 41% to 16,000 RCEs due to improved retention offerings, including the Perks Points loyalty program. As of December 31, 2019, the U.S. and Canadian operations accounted for 81% and 19% of the Consumer RCE base, respectively.

Commercial RCE gross additions were 165,000 for the three months ended December 31, 2019, a 43% increase over the prior comparable quarter of fiscal 2019, due to improved retention offerings. Commercial failed to renew RCEs for the three months ended December 31, 2019 of 56,000 RCEs decreased 16% from the corresponding quarter in fiscal 2019. As of December 31, 2019, the U.S. and Canadian operations accounted for 73% and 27% of the Commercial RCE base, respectively.

Just Energy reported that the commodity business's total attrition for the trailing 12 months ended Dec. 31, 2019 was 16%, up from 13% in the comparable year-ago period.

"The increase in the attrition rates is primarily a result of the drop of customers from the portfolio that were historically able to exploit the Company’s enrolment controls. The increase also reflects a competitive market for renewals with competitors pricing aggressively and Just Energy’s focus on improving retained customers’ profitability. The Company expects the attrition rates to subside and be in line with historical lower levels during early fiscal 2021," the company said

The average customer acquisition cost for the Consumer segment was $299/RCE for the trailing 12 months ended December 31, 2019, an increase from $218/RCE reported in the prior comparable period. The increase in the customer acquisition cost per RCE paid over the 12-month period compared to the prior year is a result of the increase in spending on the Company’s online platforms, digital marketing channels and customer loyalty points program as well as a ramp-up of amortization of previously capitalized acquisition costs. The average customer acquisition cost for the Commercial segment was $55/RCE for the trailing 12 months ended December 31, 2019, which is based on the expected average annual cost for the respective customer contracts. Commercial broker contracts are paid further commissions averaging $55 per year for each additional year that the customer flows. As at December 31, 2018, the average aggregation cost for commercial brokers was $42/RCE. The lower cost in the prior comparable quarter is a function of broker commissions being a percentage of lower margins.

In terms of overall customer count across all its businesses, Just Energy said that total customer as of December 31, 2019 count decreased 15% to 1,159,000 compared to the year-ago total of 1,364,000, excluding discontinued operations. The decline in customers is a result of the Company’s focus on renewing and signing higher quality and long-lasting customers as well as the natural attrition of the customer base.

For the quarter ending December 31, 2019, sales decreased 10% to $658.5 million, from $734.2 million recorded in the third quarter of fiscal 2019.

Just Energy reported that Bad debt expense was $20.0 million for the three months ended December 31, 2019, a decrease of 61% from $51.4 million recorded for the prior comparable quarter. For the nine months ended December 31, 2019, the bad debt expense was $66.9 million, a decrease of 24% compared with the prior comparable period. "The significant decrease in bad debt for the nine months ended December 31, 2019 was a result of improving controls and operational processes associated with the Texas residential enrolment and collections impairment. The Company continues to see improvement in its expected credit loss experience since identifying and closing certain enrolment control gaps previously disclosed by the Company," Just Energy said

Just Energy reported that, "As at December 31, 2019, the Company has recognized $nil related to the potential earn-out payments over the next three years relating to the Filter Group acquisition. The change in fair value of the contingent consideration from $29.1 million at March 31, 2019 to $nil at December 31, 2019 results in a gain of $29.1 million for the nine months ended December 31, 2019, reported in other income (expenses) in the Interim Financial Statements. As the contingent consideration does not meet the definition of equity, it is carried at fair value through profit or loss and is revalued at each reporting period. Significant assumptions affecting the measurement of contingent consideration each quarter include the Just Energy share price and the performance of Filter Group. Each quarter, the contingent consideration is revalued."

"The reduction in the Filter Group contingent consideration at December 31, 2019 was a result of the business not achieving its 12-month EBITDA earn-out target for the fiscal year ended September 30, 2019, coupled with a reduced forecasted EBITDA, a reduction in the trading price of the shares of Just Energy and a reduction in Just Energy’s dividend yield. Filter Group sales and customer additions are lower than forecasted at the date of acquisition as a result of the Company’s focus on cost reduction efforts and the Strategic Review process," Just Energy said

Administrative expenses for the quarter ending December 31, 2019, excluding strategic review costs, decreased 15% as a result of savings realized from restructuring actions that occurred in fiscal 2019 and the impact of additional cost cutting initiatives. "Just Energy is on pace to realize approximately $60 million in administrative, selling and capital expenditure cost savings in fiscal 2020," the company said

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