With Renewed Focus On Commodity Business, Just Energy, "Continues To Actively Evaluate Optimal Strategy For Its Remaining Non-Core Operations, Particularly Value-Added Products"
Reports 67% Increase In Base EBITDA For Quarter Ending June 30, 2020
Customer Count Declines On COVID-19 Constraints, Non-core Market Exits, Ongoing Margin Focus
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Just Energy reported a 67% increase in Base EBITDA from continuing operations for the quarter ending June 30, 2020 (first quarter of fiscal 2021), at $40.5 million (all $ Canadian), versus the year-ago result of $24.1 million
Base EBITDA reflects adjustments to remove the impact of unrealized gains/losses of derivative instruments, among other adjustments.
"The increase was primarily attributable to higher base gross margin, a decrease in selling non-commission and marketing
expenses and bad debt expense resulting from prior year cost containment efforts and improving customer enrolment controls and
operational processes," the Company said
The Consumer Energy (mass market) segment contributed $66.0 million to base EBITDA from continuing operations for the three months ended June 30, 2020, an
increase of 36% from $48.5 million in the prior comparative quarter, primarily driven by higher base gross margin, cost reductions in
the door-to-door channel, prior year restructuring actions and lower bad debt from improving controls and operational processes in
the prior year.
Commercial base EBITDA from continuing operations for the three months ended June 30, 2020 decreased $2.6 million to negative
$3.5 million, primarily driven by lower base gross margin due to a contraction of the California customer base and higher bad debt
expense amid COVID-19
Base gross margin for the three months ended June 30, 2020 increased by 3% to $136.3 million, from $132.3 million a year ago, due to optimization
of weather hedge costs, higher JustGreen margin and a favourable exchange rate, partially offset by a decline in the customer base.
For the quarter ending June 30, 2020 the Consumer (mass market) segment reported Base gross margin of $111 million (up 5% year-over-year), while the Commercial segment reported Base gross margin of $125 million (down 4% year-over-year)
For the Consumer segment, Gas Base gross margin increased 63%, while Electricity Base gross margin decreased 6%, both comparisons year-over-year
Average realized Base gross margin for the Consumer segment for the rolling 12 months ended June 30, 2020 was $360/RCE, an increase of 22% from $295/RCE reported in the prior comparable period. The increase is primarily attributable to the margin optimization improvements on power customers.
In the Commercial segment, average realized Base gross margin for the rolling 12 months ended June 30, 2020 was $94/RCE, an increase of 16% from $81/RCE
reported in the prior comparable period.
In a strategy update, Just Energy said that it is, "focused on its core North American retail energy operations," which includes electricity, natural gas, and renewable energy
As such, "Just Energy continues to actively evaluate the optimal strategy for its remaining non-core operations, particularly value-added products, considering the Company’s renewed focus on its commodity business," the Company said
For its commodity business, Just Energy was serving 3,183,000 Residential Customer Equivalents (RCEs) as of June 30, 2020, down from 3,388,000 as of April 1, 2020, and 3,565,000 a year ago.
The decline resulted from, "the shift
in focus to the Company’s strategy to increase the credit quality of customers and to onboard higher quality customers through
alternative channels; management’s decision to exit the Georgia gas market; a reduction in the Company’s customer base due to
regulatory restrictions in Alberta, Ontario and California; selling constraints posed by COVID-19; as well as competitive pressures on
pricing in the U.S.," Just Energy said
Just Energy's gross RCE additions for the three months ended June 30, 2020 were 46,000 RCEs, with attrition of 147,000 RCEs, and with 104,000 RCEs failing to renew
Consumer (mass market) gross RCE additions amounted to 18,000 for the quarter ended June 30, 2020, a 76% decrease from 75,000 additions during the corresponding quarter ended June 30, 2019, primarily driven by the selling constraints posed by COVID-19 and a greater emphasis on attracting and retaining strong-fit customers that will drive greater profitability and the natural attrition in response to the previously reported pricing actions implemented in fiscal 2020.
Commercial gross RCE additions were 28,000 for the three months ended June 30, 2020, a 77% decrease from the 121,000 additions during the prior comparable period of fiscal 2020 due the selling constraints posed by COVID-19 and competitive pressures on pricing in the U.S. market. Commercial failed to renew RCEs for the year ended June 30, 2020 of 80,000 RCEs decreased 11% from the corresponding period in June 30, 2019.
The Consumer attrition rate for the trailing 12 months ended June 30, 2020, increased five percentage points to 27%. The Commercial attrition rate for the trailing 12 months ended June 30, 2020 increased two percentage points to 9%. Consumer attrition rates for the trailing 12 months ended June 30, 2020 include the impact of the rectified Texas enrollment issues, which have been previously reported.
The Consumer attrition rate for the three months ended June 30, 2020, decreased three percentage points to 4% from the prior comparable quarter in fiscal 2020 reflecting the improvements in customer survival curves directly attributable to the Company’s greater emphasis on attracting and retaining strong-fit customers, Just Energy said. The Commercial attrition rate for the three months ended June 30, 2020 remained consistent at 3% compared to the quarter ended June 30, 2019.
The Consumer renewal rate increased nine percentage points to 78% for the trailing 12 months ended June 30, 2020, while the Commercial renewal rate decreased by seven percentage points to 47% as compared to the first quarter of fiscal 2020. The increase in the Consumer renewal rate was driven by improved retention offerings, while the decline in the Commercial renewal rate reflected a competitive market for Commercial renewals with competitors pricing aggressively and Just Energy’s focus on improving longer-term, retained customer-base profitability rather than pursuing low margin sales.
The average acquisition cost for the Consumer segment was $290/RCE for the quarter ended June 30, 2020, an increase of 5% from
the $277/RCE reported in fiscal 2020, primarily related to increased commission costs to acquire new customers. The increase was
driven by the change in sales channel mix to higher cost acquisition channels, including retail, aimed at acquiring higher quality
customers and higher commissions amortization, offset by lower selling activity during the first quarter of fiscal 2021 due to COVID-19.
The average acquisition cost for Commercial RCEs was $50/RCE for the quarter ended June 30, 2020, which was 7% lower than the prior comparable period due to lower commission
spend in the first quarter of fiscal 2021 amid COVID-19.
For the three months ended June 30, 2020, the average gross margin per RCE for the customers added or renewed by the Consumer
segment was $370/RCE, an increase of 4% from $357/RCE reported in the prior comparable period. The increase in gross margin on
Consumer customers added and renewed is a result of the stronger U.S. dollar and a shift in small volume customer usage from lower
margin Commercial customers to higher margin Consumer customers.
For the Commercial segment, the average gross margin per RCE for the customers signed during the three months ended June 30, 2020
was $125/RCE, an increase of 64% from $76/RCE reported in the prior comparable period due to the stronger U.S. dollar and the adding
and renewing of a larger proportion of lower usage, higher margin Commercial customers as a result of COVID-19 sales constraints.
Just Energy's total customer count was 1,061,000 as of June 30, 2020, versus 1,107,000 as of March 31, 2020, and 1,262,000 a year ago.
Sales for the quarter ending June 30, 2020 were $593.1 million, versus $670.2 million a year ago
"Just Energy continues to demonstrate its commitment to controlling costs and significantly improving the quality of the customer
book, building off the success achieved on these efforts in fiscal 2020 as it moves back to basics. In fiscal 2021, the Company is on
pace to realize the full benefit of the cost saving actions taken in fiscal 2020 and sustain a spending rate of approximately $100 million
less than fiscal 2019. The Company continues to evaluate spend and identify opportunities to further streamline the business without
sacrificing opportunities for profitable growth," Just Energy said
Just Energy’s President and Chief Executive Officer, Scott Gahn said: "During the first quarter we delivered significant improvements in Base EBITDA and liquidity. These improvements were driven by the stabilization actions the Company took to control bad debt, add quality customers and contain costs implemented throughout the last fiscal year. We continue to take actions to fortify our core business, while meeting the needs of our customers in this unprecedented time."
"Our multichannel sales model and the essential nature of our services have served us well during the first fiscal quarter, despite the impact of COVID-19. We’ve stayed agile and have been able to shift our resources to focus on sales channels and regions open for business to deliver on our financial guidance. We continue to monitor the situation closely, and as stay-at-home orders are lifted across markets in which Just Energy operates, we’re working diligently to reopen those sales channels that are impacted," Gahn said
"However, the harsh realities of COVID-19 have impacted our business and delayed the next phase of our performance transformation, including further enhancing our sales channels and our pursuit of customer growth. We’ve taken a disciplined and analytical approach to address those realities. Specifically, we’ve taken precautionary measures to limit the credit risk exposure from our residential and commercial customers, constrained commercial sales and renewals for high risk customer categories, and tightened residential customer enrolment controls based on our customer profitability analytics and profiling. We believe these actions, despite negatively impacting sales, were necessary, prudent and align with our core strategy to attract and retain high-quality and profitable customers," Gahn said
Just Energy said that, "Given the uncertainty associated with COVID-19, and the impact it has had on sales, the Company is maintaining the previously
provided guidance range of between $130 million and $160 million of base EBITDA for fiscal 2021. The Company also expects to
achieve between $70 million and $100 million of unlevered free cash flow in fiscal 2021, subject to management’s decision to reduce
extended supplier payables."