Just Energy Reports Lower Quarterly Results Excluding Impact From Winter Weather Event
Names Buyer, Purchase Price For Recent Sale Of Customer Book (Exited A State's Market)
Records Impairment Related To Commercial Brand
June 28, 2021 Email This Story Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • email@example.com
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Just Energy reported results for the fourth fiscal quarter ending March 31, 2021 as well as the fiscal year ending March 31, 2021
Base EBITDA, which excludes the financial impact to the Company of the winter weather event, decreased by 28% to $53.8 million for the three months ended March 31, 2021 compared to $74.6 million for the three months ended March 31, 2020 (all $ Canadian).
The decrease in Base EBITDA was driven by lower Base gross margin, driven by a reduced customer base, partially offset by a current year reduction in bad debt expense, as well as lower administrative and selling commission expenses.
Just Energy said that the decline in the Company's customer base is primarily a result of a previously reported shift in focus to the Company's strategy to onboard "high-quality" customers, lower sales due to COVID-19 pandemic, a reduction in the Company's customer base due to regulatory restrictions in New York, California and Ontario, competitive pressures on pricing in the U.S. market, and exiting the California electricity market.
Specifically, Just Energy disclosed that in December 2020, the Company closed on the sale of all of its electricity customer contracts in the State of California to Pilot Power Group Inc. for $1.0 million.
As noted, Base EBITDA excludes the impact from the winter weather event which led to a one-time negative net impact of $418.4 million for the quarter ended March 31, 2021, which does not include any recovery under HB 4492, primarily related to the higher energy prices in excess of the price cap to supply excess consumption and ancillary services costs allocated from ERCOT, and a $24.1 million accrued liability related to potential ERCOT default uplift charges for other counterparties defaulting to ERCOT.
Fiscal year 2021 Base EBITDA was $182.8 million, a 2% decrease from the prior fiscal year.
Base Gross Margin, which excludes the financial impact to the Company of the winter weather event, was $130.7 million in the fourth quarter of fiscal year 2021, a 28% decrease as compared to $180.4 million in the year ago period. Fiscal year 2021 Base Gross Margin was $536.9 million, a decrease of 12% from the prior fiscal year.
Fourth quarter sales were $689 million, versus $776 million a year ago, with the decrease primarily driven by a decrease in the customer base from the prior comparable quarter; a reduction in the Company's customer base due to regulatory restrictions in Ontario, New York and California; selling constraints posed by the COVID-19 pandemic; and competitive pressures on pricing in the United States
As of March 31, 2021, Just Energy's commodity business was serving 2.944 million RCEs, down from 2,963,000 RCEs as of December 31, 2020 and 3.388 million a year ago
For the year ending March 31, 2021, gross RCE additions were 360,000, with attrition of 436,000 RCEs and 368,000 RCEs failing to renew
As of March 31, 2021, Just Energy was serving 1,187,000 Mass Market RCEs and 1,757,000 Commercial RCEs
Just Energy said that, "Total Mass Markets RCE was maintained at 1,187,000 during the fourth quarter of fiscal year 2021, which is the first time the count has remained flat since the first quarter of fiscal year 2019."
Mass Markets attrition RCEs decreased 49% to 190,000 for the year ended March 31, 2021 compared to 374,000 for the year ended March 31, 2020. "The improvements in attrition are a result of enhanced enrolment processes and increased focus on customer experience," Just Energy said
The Mass Markets attrition rate for the three months ended March 31, 2021 decreased one percentage point to 4% from 5% for the three months ended March 31, 2020, "reflecting the continued benefits of focus sales to higher quality customers and increased focus on the customer experience," the Company said
The Commercial attrition rate for the three months ended March 31, 2021 decreased by two percentage points to 2% from 4% compared to the year ended March 31, 2020, "reflecting the improvements in retaining the commercial customers by having a more focused customer experience," Just Energy said
The Mass Markets renewal rate for the three months ended March 31, 2021, increased to 74% from 71% for the three months ended March 31, 2020 driven by improved retention offerings and increased focus on the customer experience. The Commercial renewal rate for the three months ended March 31, 2021 increased to 53% from 52% for the three months ended March 31, 2020.
For the year ended March 31, 2021, the average gross margin per RCE for the customers added or renewed by the Mass Markets segment was $307/RCE, a decrease of 1% from $311/RCE for the year ended March 31, 2020.
For the Commercial segment, the average gross margin per RCE for the customers signed during the year ended March 31, 2021 was $72/RCE, a decrease of 21% from $91/RCE reported in the prior comparable period due to a larger proportion of Canadian Commercial RCEs signed on Index products.
The Mass Markets average acquisition cost decreased by 10% to $253/RCE for the year March 31, 2021 compared to $281/RCE reported for the year ended March 31, 2020, primarily from lower sales from direct in–person channels. The Commercial average customer acquisition cost decreased by 27% to $39/RCE for the year ended March 31, 2021 compared to $53/RCE for the year ended March 31, 2020. The decrease is primarily driven by larger index deals signed at lower margin in the first quarter of fiscal 2021 and ongoing COVID-19 impact.
Just Energy reported that impairment of goodwill and intangible assets during the fiscal year ended March 31, 2021 amounted to $100.0 million for goodwill and $13.9 million for brands related to Commercial. The impairment of intangible assets and goodwill was driven primarily by the normalization of working capital associated with the CCAA [Companies' Creditors Arrangement Act] process and the impact of the competitive pricing environment over the last year.
"For the year ended March 31, 2021, an impairment loss was recognized for the full remaining balance of the goodwill of the Commercial segment in the amount of $100.0 million (2020 -- $61.4 million) as the carrying value exceeded the recoverable amount. An impairment was also recognized for an indefinite-life intangible in the amount of $13.9 million for the full remaining balance of the Commercial brand. The impairment amount was included in the Consolidated Statements of Loss. An impairment loss was not recognized for the Mass Market segment as its recoverable value exceeded its carrying value," Just Energy said
Just Energy's annual report filed with the U.S. SEC included an opinion from an accounting firm which stated that, "We have audited Just Energy Group Inc.’s internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) ('COSO criteria'). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Just Energy Group Inc. (the 'Company') has not maintained effective internal control over financial reporting as of March 31, 2020, based on the COSO criteria."
The opinion from the auditor stated, "The following material weakness has been identified and included in management’s assessment: an aggregation of deficiencies within the financial statement close process impacting the control activities."
In its management discussion and analysis, Just Energy stated, "Management remains committed to the planning and implementation of remediation efforts to address the material weaknesses, as well as to foster improvement in the Company’s internal controls. These remediation efforts continue and are intended to address this identified material weakness and enhance the overall financial control environment. During closing of the first three quarters of fiscal 2021, management further increased the amount of personnel to perform the financial statement close process, including the hiring of a CFO and a controller, both with significant financial reporting and retail energy industry experience, promoting individuals within the team and training those individuals to perform their enhanced roles, and strengthening the managerial review process of the financial statement preparation. These enhancements remaining [sic] ongoing, and management continues strengthening the design and operational effectiveness of the financial statement preparation process, including the financial statement disclosure checklist; however, not enough time has elapsed to complete remediation efforts of this material weakness."