Just Energy Margins Higher, Customer Count Drops As Company Focuses on Per-Customer Profitability

Just Energy recorded higher margins, raising earnings for the quarter ending June 30, 2015, but which led to a decline in customer count as the company is focused on margin discipline

Gross margin was $150.9 million (all $ Canadian) for the quarter ending June 30, 2015, 22% higher than the $123.4 million recorded a year-ago. The consumer (mass market) division contributed an increase of 30%, resulting from higher margin per customer earned, while the commercial division increased 2% in line with the 3% growth in customer base.

Just Energy said that it is signing consumer margins at $204 per RCE, which compares to $184 one year ago. Additionally, commercial margins were added at $80 per RCE in the quarter ending June 30, 2015, as compared to $66 dollars one year ago.

Just Energy attributed the margin improvements to its value-added product offerings. "This is allowing us to price our energy management solutions at more premium points and drive sustainable profitability for the future," said Co-CEO Deb Merril

"Just Energy is not willing to participate in irrational pricing activity, nor do we feel we have to in order to remain competitive or increase our long-term profitability," Merril said, as the company focuses on expanding services from existing customers who meet profitability targets. As an example, Merril cited nearly 50,000 mass market customers who take a Just Energy smart thermostat bundle

Just Energy's focus on margins did lead to a net decline in customers during the three months ended June 30, 2015, as well as a decline in gross customer additions

Just Energy was serving 4.609 million RCEs as of June 30, 2015, versus 4.686 million as of April 1, 2015, and 4.537 million a year ago.

Mass market RCEs as of June 30, 2015 were 1.932 million, versus 1.953 million as of April 1, 2015, and 1.942 million a year ago.

Commercial RCEs as of June 30, 2015 were 2.677 million, versus 2.733 million as of April 1, 2015, and 2.595 million a year ago.

Gross customer additions for the quarter were 302,000 RCEs, a decrease of 32%, compared to 441,000 a year ago.

Apart from the margin discipline, Just Energy cited a more competitive environment as challenging customer growth, compared to the year-ago. Just Energy said default service rate increases in the wake of the polar vortex had boosted year-ago customer growth.

Just Energy's combined attrition rate was 17% for the trailing 12 months, a slight increase from the 16% reported a year prior. While consumer attrition rates remained consistent at 28%, the commercial rate increased to 9%, the increase in commercial attrition as a result of increased competition.

Over the last quarter, Just Energy added or renewed 238,000 new consumer customers at an average gross margin of $204 per RCE. This compares to 167,000 consumer customers lost at an average gross margin of $187 per RCE.

For the commercial segment, Just Energy added or renewed 390,000 commercial customers at an average gross margin of $80 per RCE during the quarter, whereas it lost 217,000 commercial customers that were locked in at only $68 per RCE of gross margin.

Just Energy said that it continues to evaluate Ireland and Continental Europe as targets for expansion

Just Energy Base EBITDA was $38.9 million for the quarter ended June 30, 2015, up 29% from last year. This was driven by sharply higher margins, partially offset by higher operating expenses. The consumer division contributed $30.9 million to Base EBITDA, an increase of 37% year-over-year. The commercial division contributed $7.9 million to Base EBITDA from continuing operations, an increase of 5% year-over-year.

Just Energy also reported that it recently implemented a change to its commercial commission terms to lessen the average term of commission prepayment to 12 months going forward to help the company better manage costs and cash flows. While the commission prepayment will continue to be expensed into selling and marketing costs over the term for which the associated revenue is earned, it will no longer be recognized as amortization and will therefore be included in the Base EBITDA calculation. This change will provide greater alignment between Base EBITDA and our results of operations for investors, the company said. In fiscal year 2016, Just Energy expects to include approximately $20.0 million of incremental deductions in Base EBITDA. Despite this increased head wind, Just Energy said that it expects to offset this with continued strong gross margin performance as evidenced by the results of the first quarter of fiscal 2016. As a result, Just Energy has elected to hold to its original projected full year fiscal 2016 Base EBITDA guidance of $193.0 million to $203.0 million, effectively, increasing its guidance by $20 million.