Q2 2021 Just Energy Group Inc Earnings Call
Good morning, everyone and welcome to the just energy group's fiscal 2021 second quarter earnings Conference call. At this time all participant lines are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you won't need to press star one on your telephone.
Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero on.
I would now like to turn the call over to Michael coming with the Alpha IR group.
Thank you operator.
Just energy released results for the second quarter fiscal year 2021, and.
At September Thirtyth 2020.
On November 11, 2020 after the market close.
If you did not receive a copy of our earnings press release, you may obtain it from the Investor Relations section of our website at <unk>.
Investors that just energy dot com.
With me on today's call Scott.
<unk>, President and Chief Executive Officer, and Michael Carter, Chief Financial Officer. This.
This call is being webcast and will be archived in the Investor Relations section of our website.
Before I turn the call over to Scott.
I would like to remind listeners that certain matters discussed on today's conference call could constitute forward.
Statements that are subject to known and unknown risks and uncertainties relating to just energy's future financial or business performance, which may be beyond the control of the company.
Actual results could differ materially from those anticipated in the forward looking statements certain.
Certain risk factors that may affect results are describe.
Shifting the public disclosure record of just energy, which is available on SEDAR database at Www Dot E.D.A.R. Dot com and is incorporated by reference in this call, including the most reference most recent annual information form of just energy and the press release announcing.
Financial results for the second quarter fiscal year 2021.
Additionally, some non <unk> Rs financial measures will be discussed.
Listeners are encouraged to refer to just energy's latest and DNA.
A discussion of these measures.
Unless otherwise noted all figures mentioned are in Canadian.
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I would now like to turn the call over to Scott.
Scott.
Thanks, Mike.
Before we jump into an update on our recent performance I'd like to acknowledge and thank our incredible team of dedicated employees and all our value stakeholders for their hard work and perseverance during these unprecedented.
Even in difficult times.
Through all this just energy has continued to provide essential services, while ensuring the health and safety of our customers and employees again. Thank you all for your continued commitment.
I'd also like to take a minute to welcome Michael Carter, our new CFO, Michael brings more than 20.
30 years of industry and finance leadership experience in the short month that Michael has been on the job. His calm highly qualified presence is felt by all of US. He is already made key hires and I have the utmost confidence in Michael and his team.
The second quarter was hallmark by several important milestones including reduced.
We have assumed the company as a financially stable more nimble and competitive retail energy provider on September 28, 2020, we announced the closing of our recapitalization plan and the reconstitution of our board of directors. We believe the successful closing of this plan the reconstitution of the board of directors.
And appointment of New management leadership, where mission critical and position us to better meet our customers needs and ultimately deliver value to our stakeholders. We are moving forward as a stronger company that is positioned for sustainable profitable growth as an independent retailer and industry leader.
Turning to specific performance, we continued to deliver strong financial and operational performance. Despite the ongoing challenges brought on by the COVID-19 pandemic. As a result, we are tracking to the upper end of our original base EBITDA guidance and have increased our expectations for fiscal year 2021 basis.
EBITDA to a range of 145 million to 165 million.
With the recapitalization behind US management has now turned its undivided attention to the core functions of our business first among these is reviving our once industry, leading sales culture, but.
With the insight in discipline, our recent business challenges have taught us to ensure we attract strong fit high value customers and capture strong returns on our acquisition cost investment. This fundamental function of our business is complicated by the current pandemic, especially for our retail and other direct face to face.
Selling.
But I will return to growth can't be assured by just selling more we must continue to improve our customer retention and renewal efforts and this means greater focus on improving our customers experience another core business function.
We have several initiatives underway that will reduce the friction.
Customers doing business with just energy, making it easier to do business with us at every level.
Our success in these areas so far can be seen in another strong quarter performance. During the second quarter total gross new RC additions were $86000 from 46000 in Q1 and Weve.
Continue to see improvements in October we.
We saw improvements in recent customer attrition and renewal rates, while maintaining our focus on profitable customer growth. We accomplished this while controlling costs and bad debt and delivering strong cash flow results and we continue to pursue ways through our green initiatives and our Terra pass brand.
To meet customer expectations, now and in the future regarding renewable energy and sustainability.
While our business is performing well and we continue to advance our strategy the harsh realities of operating during a pandemic and our decision last year to focus on profitable customers have impacted our results.
We saw a decline in our customer base due to our decision to focus on profitable growth as well as dealing with the impact of the pandemic constraining our ability to sell through in person sales channels. That's.
That said, our proactive decision to accelerate building the foundation for our digital sales channel allowed us.
All substantially slow the decline in our customer base from last quarter we.
We believe our digital sales cases capabilities provide a resilient growth platform for the future positioning just energy to continue to build sales momentum even in this uncertain cobot environment.
Seroquel, we're also working to rebuild our direct sales channels in a more sophisticated manner by applying a higher level of financial discipline to these channel investments leveraging our existing external relationships and better utilizing and reinvigorating our internal talent pool. We believe there is tremendous opportunity in direct residential.
In personal sales channels as the impact of COVID-19 subsides, we're keenly focused on driving growth from these channels through expanding and diversifying our relationships with external partners Cross train our sales agents and evolving these channels by utilizing our contact with enrollment to better match today's environment among.
Another efforts.
As a part of these efforts our team has also done a great job of staying close to and working with our existing partners to provide a safe enrollment experience for our customers and we remain poised to ramp up as conditions allow.
We believe all of these actions will shape the core sales competencies that Jeff.
Just energy's future and help position the company to achieve profitable growth.
Looking ahead to the future.
While we're on the right path, we understand what got us here won't necessarily get us to where we ultimately need to be it is now incumbent upon our team to take outs.
Our simplified stabilized more competitive business and pivot to executing on our strategy and driving sustainable profitable growth, we focused on reviving our sales culture and our customers experience by striving to gain a deep understanding of our customers and delivering what our customers want improving.
Summers experienced operational accidents, and maintaining a disciplined approach across the organization to deliver profitable growth.
Through adherence to these efforts will continue to strengthen our business, while delivering consistent protect double performance with that I'd like to turn it over to Michael Carter, who will provide some.
Some detail on our financial performance, Michael Thank you Scott before I discuss our financial results for the quarter I'd like to express how excited I am to be joining just energy center pivotal time in the company's transformation.
We completed our recapitalization in late September, which provides us with a sustainable capital structure.
Which to execute on our strategy.
At this important step completed we're strategically positioned to focus on the core tenets of our business with an emphasis on profitable growth and prudent cost management.
Now, let me cover the specifics our second quarter financial results.
We achieved base EBITDA.
$32.8 million, which is down 33% compared to the prior year period.
This decline was the result of a $6 million onetime legal provision lower base gross margin and a nonrecurring 15 million dollar gain in the prior year period, partially off.
By lower bad debt expense and cost reductions, resulting from our cost containment efforts.
Excluding the onetime impacts of the legal provision and the onetime gain last year base EBITDA from continuing operations was up 5 million year over year.
Second quarter base gross margin was.
138.3 million, 11% decrease year over year, primarily driven by a smaller customer base.
Partially offset the optimization of our weather hedge costs.
Embedded gross margin for the quarter decreased 20% to 1.2 billion, which was driven by decline in our customer.
Also base, partially offset by stronger us dollar.
We're continuing to capture value from our existing customers and believe that we are investing in the appropriate channels and the resources to do so.
Before we review the balance sheet I want to address the proving quality of our customer base through the use of a few important KCI eyes.
In summary, we continue to add in the new higher quality strong fit customers at.
At profitable levels.
With an average gross margin per RC of $355, which is a 13% increase from the year ago quarter.
We're also seeing improvement in our renewal rates with consumer renewals improving for the fourth.
Quarter in a row to 80% on commercial renewals remain challenged and we're down four percentage points to 49% year over year due to competitive pricing in the us market.
On an RC basis.
Zimmer RC additions were 34089% increase.
Fourth principally driven by increased focus on digital sales in restarting sales activity through retail and other direct sales channels.
On a year over year basis, consumer RC additions were down 52% due to the impacts of coated and our efforts to target higher quality customers.
Commercial RC additions were up 52.
Good thing.
Up 86% sequentially, but down 46% from a year ago quarter due to the seller constraints pose by Cove, it and the competitive pressures on pricing in the us market.
We manage our business around the known and unknown effects of COVID-19, one of our top priorities is to prudently manage.
Well costs, while we work to invest in our growth initiatives. We are working diligently to control costs, we can.
Mid the challenging selling environment are selling non commission and marketing expenses for the quarter fell 37% to $13 million compared to the prior year quarter due to the supper suspend.
Our kind of our door to door selling partially offset by additional investments in our digital platform.
Bad debt for the quarter total totaled $11.7 million, a 61% decline from the comparable prior year quarter as we continue to implement enhanced controls and operational processes associated with residential enrollment and collection.
Entities.
Where we are seeing further improvements in our expected credit losses, since identifying and remediating the enrollment control gas as we discussed last year.
Moving to the balance sheet, we finished the quarter with $138 million in available liquidity, which includes $78 million in cash and an additional $60 million and available.
Assay under our senior secured credit facility.
With the closing of the recapitalization.
Combined with a $30 million repayment on our senior secured credit facility, we decreased our total debt position to approximately $500 million as of September Thirtyth 2020 from 782 million as of March.
Hi, everyone 2020.
Turning to our Unlevered free cash flow, we closed the first six months of our fiscal year with $53 million after paying $30 million in recapitalization and restructuring costs as well as paying down $15 million in certain supplier payables.
As we.
Look forward to.
On our capital allocation plans were applying applying unprecedented level of financial discipline in our investment in growth initiatives. We believe these investments are critical to our success in reaching our targeted potential customers.
Turning to our full year fiscal 2021 guidance, we're continuing to control costs sponsored.
Significantly improving the quality of our customer book as we build off the success, we achieved in fiscal year 2020, despite the uncertainties associated with COVID-19, we're now narrowing and increasing our prior year guidance.
Between 130 million to $160 million of base EBITDA to a new expected.
Range of $145 million to $165 million for fiscal year 2021.
I do want to acknowledge that this guidance includes the impact of the onetime 6 million dollar legal provision during the second quarter.
We are also expected to be at the upper end of our Unlevered free cash flow guidance and are narrowing.
Our guidance.
Range.
Between 70, and $100 million to a new expected range of 80 million to $100 million for the fiscal year 2021, we.
We have had a strong start to fiscal 2021 and that strong start coupled with our improved overall financial health provides us confidence in.
Our ability to.
To achieve our updated guidance.
With that I will turn the call back over to Scott for his closing remarks, Scott. Thank you Michael.
I just want to reemphasize the challenges we face in Copenhagen.
COVID-19 environment as it relates to selling which as I said earlier, it's just an absolutely funded.
The middle core business function for a business like us.
We continue to navigate those challenges and make improvements.
In the context of COVID-19, we look forward to some of the advances in recent announcements regarding the vaccine and the possibility that we will get to the other side of the pandemic and Ken.
And just some of our historic run rates in our direct selling activity, but but all in all I'd like to.
Thank the team for everything that they've done as I said earlier, we've had we've had our employees and our stakeholders. We've been highly committed to us through a very challenging time working from home some working from the.
Office, having to deal with social distancing all the other protocols for Cobi 19 safety, but I want to thank everyone for that and I look forward to it.
The questions that we have the Q and a session. Thank you.
That concludes our prepared remarks, and I'll hand, it over to the operator for the QNX. Thank you.
Ladies and gentlemen, as a reminder, if you would like to ask a question press. The Star then the one key on your Touchtone telephone.
To withdraw your question press the pound key.
And our first question comes from Nelson Ng with RBC capital markets. Your line is open.
Great. Thanks, and good morning, everyone.
Good morning.
Just in terms of the $6 million of legal provisions I know, it's difficult to predict court processes, but when do you think that amount would be payable I was just kind of reading the background again, it looks like that.
Court case has been.
Going on since 2012, so I was just wondering if you see some closure.
In the upcoming quarters.
Well as you will see we.
We are going to appeal to the Supreme Court.
And with that appeal were not exactly sure when they will.
They don't accept it then that that money can be paid next year. If they do decide to take the case then you know well just have to wait to see how long that process takes but it could be as early as next year.
Okay got it.
And then in terms of the the gross customer to.
Since we saw a pretty nice increase this quarter.
Are you guys able to give a very rough background in terms of which sales channels that you're seeing them from I just wasn't too sure whether some of the face to face sales channels have started or whether they.
Being suspended again can you just give bit more color there.
Yeah. So it's been an interesting first six months of the year, we had suspension we had the.
The beginning of of reopening and deployment of reps and then as a shutdown of going over the summer.
So it's been a little bit bumpy, we are deployed in in retail our retail direct selling with the sales protocols to the limit.
Active this in other words.
Selling behind advisor with them asking on is not the same as being able.
Hi, Michael at a potential customer without a mass. So so there we are in certain regions, where they have allowed us to come back in for instance, Texas. We are we are selling in Texas. We are waiting in other of our important markets for states to allow us to.
To sell face to face again, so it's really it's really geography, driven and like I said, Texas is there the northern Midwest and northeast is more limited.
And as Texas, I guess fully open from a retail perspective are there and very select stores.
I.
So again it's.
There are two things that are affecting us one is of course, what the policies of the government's when Texas, where we're opening the stores are actually opened but then the stores themselves.
Have to make a decision about how they feel about potentially exposing their customers to direct selling activity. So there there are some.
Stores that are taking a different position than others, but most of our store partners. Our retail store partners have allowed us back in the the thing that we are finding that is important to consider as we look forward to and project. Our sales growth is that when you have a chemist.
Mission based sales force that is shut down for four months.
They've had to find something else to do and so we are rebuilding that that sales force through recruiting with our partners and it's taking time. So even though we are we have stores that are available for.
We are not staffed in every store yet so we have not gotten back to the staffing levels that existed free pandemic and we're in the process of doing that but it's taking time.
Okay that makes sense.
And then in terms of the admin costs of about 44 million.
If we.
Take that 6 million.
Legal provisions off.
And go down to 38 million would.
Would that be a fair run rate going forward for for DNA or is there.
Further cost reductions you're expecting to realize in the coming year.
<unk> point.
Given our strategy I believe thats, a fairly fair run rate going forward.
Okay got it.
And then just one last question in terms of.
Working capital.
I believe as a big positive working capital this quarter.
I know, it's probably seasonal so do you expect some.
Some of that to reverse in this coming quarter.
As we head into the winter.
I think typically yet.
They typically are the same seasonal pattern that you would have seen in prior and prior.
30 years, we would expect it to be very similar.
Right.
Hi.
Not quite as much as last year because of certain things, but definitely there is a seasonality as we go back into the winter.
Okay, great. Thanks, I'll leave it there.
Thank you and as a reminder, if you would like to ask a question Press Star then the one key.
You touched on the telephone.
Our next question comes from Mark Jarvi with see RBC capital markets. Your line is open.
Thanks, Good morning, everyone I'm just.
Just a question with the rising gas prices in recent months I'm just curious what that's doing to your sales and margins. It looked like there was some.
Some positive.
ER commercial or in addition to the Cardinal gas segments. How you guys are seeing that the that segment shape up.
Yes.
So we you know our supply team is bullish on natural gas prices and believe that we will see some tightness and that is a good thing for our business, particularly commercial.
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One of the things that did hurt us on the commercial side is it customers are uncertain.
About the future of their businesses in or are not signing term contracts price volatility and the potential for rising prices will will encourage them.
Sure the locked up despite that uncertainty about their business and so we do we do hope that that will help us its generally a a positive for selling when we can get some volatility in our energy markets.
Have you seen any indication as I, yet or increased activity or is it something you think.
The pickup in coming months we.
We think it will pick up in the coming months.
And then just maybe has historically how how do you see that showing up also on the residential.
And consumer segment is there a lag or.
Any sort of relationship there and the timing of the commercial personal consumer.
Commercial.
You will see that first because it's just so much more contestable a market and.
And they are the consumers in the commercial market commercial market are just a little more students paying attention I think there's a there's a bit of a lag generally you could almost see of that.
The lag that could be an entire sort.
In winter season.
Lag were was because we go through the winter coming out of the winter, if we might see the impact to customers wanting to take action.
Okay.
And then.
All the things that took effect the guidance and the business is performing pretty well and we're selling through cobot or failure.
Glenn So if you do exceeding your plan and hit the top end of guidance on free cash on EBITDA, whether the incremental dollar go in the next couple of quarters is it.
Towards foster de leveraging is there some incremental processes or technology investments you like to add on or just maybe just kind of see where you think that incremental.
As Ive always if results to better.
Oh I think there's two parts there you do have plans on the digital side as we said we're investing in that platform, we see that as a as a growth platform. So there's.
To extent that continues to show promise that we expect.
Paul will then we will we will continue to invest in digital.
As far as you can see in our.
Documents, we have restrict requirements as far as step downs in our commitment under our senior secured credit facility. So to some degree we have.
Overall.
Over $200 million borrowed under that facility. So you know generally will pay that down.
If we have extra cash.
So.
That first then further investments in digital is kind of how you found no I wouldn't say that I think we are definitely going to fund.
The growth initiatives as we view them any possible and they are meeting our requirements are we talking about.
And then to extent we.
Once we've done that and will you know we'll be looking to use that cash will pay down that keep that debt pay down to make sure were within our.
The commitments.
Okay and.
And then obviously a lot has changed in recent quarters with the recapitalization reconstituted board Michael you joining the company. So I'm just curious you know the.
Uhhuh information circular in some of those.
So performance and compensation metric many are quite stale can you share with us in terms of how you now.
All are being sort of a measured and judged.
In terms of compensation metrics and targets.
We can you can you just I am sorry, I didnt catch the last bit of what you asked.
Just curious like what it specifically in terms of compensation metrics. It is it your free cash flow generation isn't it.
EBITDA as a total shareholder return like sort of what you guys are seeing from a short term and long term compensation targets.
As your Green benchmark till now absolutely I can I can share that with you. So what we're we're.
There are two things that are really important for US right now and I think you guys have you've written.
It is consistent financial results, it's stabilizing the customer base. So what we're telling our teams we are compensating our executives and other other key employees on our EBITDA, It's a combination of EBITDA and cash.
Customer growth.
So well because those are both important right I can meet my EBITDA by below and the company down right. I mean, we can just shuts sales and then we can meet our unit targets, but we need to grow we need to bring back the consistent growth that the company had seen historically and so we're we're compensating our.
Incenting our executives on both of those metrics in parallel so we are.
It's what you've written you know consistent performance on EBITDA and stabilize in the customer base, that's what we're trying to do.
Okay and then my last question just on.
And then how they don't have the dividend the revenue.
Down I think in the past there's been some indication of that.
You could maybe take on a little bit.
But more on the margin of risk reduce your hedging costs have you guys gotten a bit more on that and can you give us any sort of quantification of how you've been able to shave any hedging or a risk.
[music].
We're in management cost.
Well I think there's two there's more than one major way historically, we had purchased an insurance policy that.
We pay a significant premium to an extent we didn't need it we get some of that money back.
So that would really limit the amount of.
Variability.
Due to weather and other things.
Overall to our EBITDA and so.
We're not going to pay that insurance premium going forward.
And we didn't do that this year, we're not going to do in the future years, because it's real.
With that we can where as a.
Hey.
As a company because we have the liquidity we have the capital structure to handle that so that's one way that we're doing it the other.
Well part of the hedge cost is.
The wholesale markets are not as volatile and power like they were this summer where they weren't we did see them.
Volatility.
That does give us the opportunity to.
Yes to to make a little bit extra margin already.
Overall, just from optimization around the positions we have.
During that especially during the summer and potentially in the winter when we have that the weather.
Okay.
And we have seen any of those cost reduction in this quarter that come in in the subsequent quarters I mean, as we talked about one of the things that was a driver it's not a huge driver, but it was a driver as we said in our base EBITDA was been it did benefit from lower wage whether hedge costs. So we did.
And see some of that benefit in the.
In the summer and.
At this point I think we continue to expect to see some of that benefit.
In the future.
Okay, and then just one last question in terms of any severance or any sort of.
Compensation for alkaline people that's all.
All taken care of now with all the cash at the door and is there any mercer remaining costs or cash outflows around.
Hey, turnover, yes, I believe we disclosed that in our financial statements. If I'm recalling correctly, it's about $2 million of additional cash payments that are still left to be paid on the severance side so not.
Okay. That's great. Thanks, guys.
Thank you.
Thank you and I'm showing no further questions at this time I'd like to turn the call back to Scott Gan for closing remarks.
Thank you operator.
So we are we.
Continue to be off.
Lets stick about the prospects of.
Of our.
Actively turnaround with the recapitalization and with with the.
Rebuilding of our direct sales and digital we continue to where significant risks of COVID-19.
But we'll look forward to get to the other side of it.
And have the company back to historic growth rates in financial performance. Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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