Just Energy Reports Lower Customer Count, Higher Adjusted Earnings
November 11, 2020 Email This Story Copyright 2010-20 EnergyChoiceMatters.com
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Just Energy Group Inc. reported earnings for the quarter ending September 30, 2020 (second quarter of fiscal 2021). All $ amounts in this story are Canadian $
For its commodity business, Just Energy was serving 3,086,000 Residential Customer Equivalents (RCEs) as of September 30, 2020, down nearly 100,000 from 3,183,000 as of June 30, 2020, and compared to 3,500,000 a year ago.
The net loss of 97,000 RCEs in the commodity business from June 30, 2020 to September 30, 2020 compares to a net loss of 205,000 RCEs from March 31, 2020 to June 30, 2020
Just Energy noted that the decline in RCEs is, "primarily driven by the decline in additions due to COVID-19 and the Company’s focus on attracting and retaining
Gross new RCEs added during the three months ended September 30, 2020 increased to 86,000, up from the 46,000 gross RCEs added during the three months ended June 30, 2020. For the three months ended September 30, 2020, attrition was 110,000 RCEs, while 73,000 RCEs failed to renew.
The increase in gross RCE additions, "was driven by our focus on building our digital sales capabilities while our direct sales channels continue to be inhibited by the COVID-19 pandemic, resulting in a decline in our net RCE additions for the quarter," Just Energy said
"Consumer [mass market] RCE additions amounted to 34,000 for the second fiscal quarter of fiscal 2021, an 89% increase over the first fiscal quarter driven by an increased focus on digital sales and partially restarting sales activity through our retail and other direct sales channels. The 34,000 was a 52% decrease from the year ago quarter, primarily driven by the selling constraints posed by COVID-19 and the Company’s greater emphasis on profitable growth through attracting and retaining strong-fit customers," Just Energy said
"The Company experienced a 4 percentage point decrease in the Consumer attrition rate to 4% for the three months ended September 30, 2020 reflecting the improvements in customer survival attributable to the Company’s greater emphasis on attracting and retaining strong-fit customers. The Consumer attrition rate for the trailing 12 months ended September 30, 2020 increased two percentage points to 25%," Just Energy said
Commercial RCE additions were 52,000 for the second fiscal quarter, an 86% increase over the first fiscal quarter as the impacts of the pandemic eased. The 52,000 was a 69% decrease from the comparable period for fiscal year 2020 due to the selling constraints posed by COVID-19 and competitive pressures on pricing in the U.S. market, Just Energy said
Across all of its businesses, excluding discontinued operations, Just Energy's total customer count was 1,014,000, versus 1,061,000 as of June 30, 2020 and 1,197,132 a year ago, due to the Company’s focus on adding longer tenure more profitable customers and impacts of COVID-19
For the three months ended September 30, 2020, the average gross margin per RCE for the customers added or renewed by the
Consumer segment was $355/RCE (32,000 RCEs), an increase of 13% from $314/RCE reported in the prior comparable period (161,000). The increase in the
average gross margin on Consumer customers added and renewed is a result of the stronger U.S. dollar and the Company’s increased
focus on profitable customer growth.
For the Commercial segment, the average gross margin per RCE for the customers signed during the three months ended September 30,
2020 was $89/RCE, an increase of 2% from $87/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.
The average customer acquisition cost for the Consumer segment was $262/RCE for the trailing 12 months ended September 30, 2020,
a decrease from $317/RCE reported in the prior comparable period. The decrease in the customer acquisition cost per RCE paid over the
12-month period compared to the prior year was driven by a change in the mix of customers acquired amid COVID-19.
The average customer acquisition cost for the Commercial segment was $52/RCE, which was 7% lower than the prior comparable period due to lower
commissions spend for the trailing 12 months ended September 30, 2020 amid COVID-19. As at September 30, 2019, the average
acquisition cost for commercial brokers had been $56/RCE.
Base gross margin for the three months ended September 30, 2020 for the Consumer segment was $104.4 million, a decrease of 10%
from $116.0 million recorded in the prior comparable quarter
Average realized Base gross margin for the Consumer segment for the rolling 12 months ended September 30, 2020 was $373/RCE,
representing a 17% increase from $320/RCE reported in the prior comparable quarter. The increase is primarily attributable to
improved margin from supply management activities driving lower costs, a favourable impact from resettlements and prior period
adjustments made in the current year.
Base gross margin for the Commercial segment was $33.8 million for the three months ended September 30, 2020, a decrease of 14%
from $39.4 million recorded in the prior comparable quarter. For the Commercial segment, average realized Base gross margin for the preceding 12 months ended September 30, 2020 was $94/RCE, consistent with the prior
Just Energy reported that Base EBITDA from continuing operations for the quarter ending September 30, 2020 was $32.8 million, down 33% from $49.1 million a year ago. "After taking into account a $6 million one-time legal provision in the quarter and a non-recurring $15 million gain in the second quarter of fiscal year 2020, Base EBITDA was up $5 million compared to the second quarter of fiscal year 2020. The second quarter of fiscal year 2021 was impacted by the one-time legal provision and lower Base gross margin but was partially offset by lower bad debt expense," Just Energy said
The $6 million one-time legal provision is discussed further below
"The Consumer segment contributed $53.3 million to Base EBITDA for the three months ended September 30,
2020, a decrease of 11% from $59.6 million in the prior comparable quarter, primarily due to the decline in the RCE customer base,
which dropped 13% year-over-year. The Commercial segment contributed $7.9 million to Base EBITDA, a decrease of 31% from the
prior comparable quarter, when the segment contributed $11.5 million, due to decreases in the Base gross margin resulting from the
decline in the Commercial customer base of 12% year-over-year, lower commodity consumption resulting from COVID-19, and
competitive pressures on pricing in the U.S. market, partially offset by improved cost management," the company said
Base gross margin for the quarter ending September 30, 2020 was $138.3 million, a decrease of 11% compared to the $155.4 million posted a year ago, as a result of a decline in the customer base, partially offset by higher consumption loads as a result of COVID-19 and lower weather hedge costs
Just Energy’s sales for the quarter ending September 30, 2020 decreased by 15% to $649.6 million, from from $768.4 million a year ago. "The
decline in sales is primarily due to the decrease in the overall RCE customer base from the prior comparable quarter resulting from
the shift in focus to the Company’s strategy to increase the credit quality of customers and to onboard higher quality customers; 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.," the company said
"Bad debt expense was $23.6 million for the six months ended September 30, 2020, a decrease of 50% from $46.9 million recorded for the
prior comparable period. The significant decrease in bad debt was a result of operating enhanced 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 remediating certain enrolment control gaps previously disclosed by the Company," the company said
"Despite the uncertainty associated with COVID-19 and the impact it has on sales, the Company is narrowing and increasing its previous guidance range of between $130 million and $160 million of Base EBITDA to a new expected range of $145 million to $165 million for fiscal year 2021. This guidance includes the impact of a one-time $6 million legal provision. The Company also expects to be at the upper end of its original unlevered free cash flow guidance and is narrowing the guidance to between $80 million and $100 million in fiscal year 2021, subject to management’s decision to further reduce extended supplier payables," Just Energy said
Just Energy said that it has $138 million of total liquidity available as at September 30, 2020. The liquidity is made up of cash and cash equivalents of $78 million and available capacity of $60 million under its senior secured credit facility.
Total debt decreased to $500 million as at September 30, 2020 from $782 million as at March 31, 2020 as a result of the completion of the company's previously reported Recapitalization transaction.
Concerning the $6 million one-time legal provision accrued during the quarter, Just Energy said, "In March 2012, Davina Hurt and Dominic Hill filed a lawsuit against Commerce Energy Inc. ('Commerce'), Just Energy Marketing Corp.
and the Company in the Ohio Federal Court claiming entitlement to payment of minimum wage and overtime under Ohio wage
claim laws and the Federal Fair Labor Standards Act (“FLSA”) on their own behalf and similarly situated door-to-door sales
representatives who sold for Commerce in certain regions of the United States. The Court granted the plaintiffs’ request to certify
the lawsuit as a class action. Approximately 1,800 plaintiffs opted into the federal minimum wage and overtime claims, and
approximately 8,000 plaintiffs were certified as part of the Ohio state overtime claims. On October 6, 2014, the jury refused to find a
willful violation but concluded that certain individuals were not properly classified as outside salespeople in order to qualify for an
exemption under the minimum wage and overtime requirements. On September 28, 2018, the Court issued a final judgment, opinion
and order. Just Energy filed its appeal to the Court of Appeals for the Sixth Circuit on October 25, 2018. On August 31, 2020, the
Appeals Court denied the appeal in a 2-1 decision. Just Energy is planning to file a petition for certiorari seeking the United States
Supreme Court review to resolve the newly created circuit split with the Court of Appeals for the Second Circuit unanimous decision
in Flood v. Just Energy, 904 F.3d 219 (2d Cir. 2018) and with the inconsistency with the Supreme Court’s recent decision in Encino
Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1142 (2018), with broad, national, unsustainable implications for all employers who have
outside sales employees. Notwithstanding Just Energy’s petition, the Company has accrued approximately $6.0 million in the second
quarter of fiscal 2021 for expected monies due in connection with this matter."