Crius Energy Trust Reports Fourth Quarter and Year End 2013 Financial Results
/NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES/
Growth in Customers and Diversification highlight first full year of operation
TORONTO, March 26, 2014 /CNW/ - Crius Energy Trust (TSX: KWH.UN) ("Crius Energy" or the "Trust"), today announced fourth quarter and year-end financial results for the three- and twelve-month periods ended December 31, 2013. The Trust commenced operations on November 13, 2012 with the acquisition of a 26.8% ownership interest in Crius Energy, LLC (the "Company") by the Trust's wholly-owned subsidiary. All figures are in U.S. dollars unless otherwise noted.
"Our first full year of operations was highlighted by continued customer growth and diversification of our business," stated Michael Fallquist, Chief Executive Officer of the Trust. "I'm extremely pleased with the net customer growth, driven by new sales and customer retention, in our network marketing and strategic marketing partnership channels. While I expect all channels to contribute to growth in 2014, I expect our partnership with Frontier Communications to be a leading contributor as a result of the expanded inbound sales team which now features up to 400 customer service representatives selling our natural gas and electricity products. The number of agents, size of the Frontier subscriber base and the success we've had in similar campaigns with other partners make me very optimistic about the growth potential."
"Our Adjusted EBITDA performance in the fourth quarter, normalized for the year-end adjustment to bad debt reserves, was in line with management expectations given the seasonally low electricity usage in the period. Our Adjusted EBITDA highlights the increased diversification of our business as natural gas delivered a strong contribution to our fourth quarter results. Unitholders can expect natural gas as well as our newly established solar business to provide increased diversity going forward."
15.1% year-over-year growth in electricity and natural gas customers to
615,373, up from 534,564 as at December 31, 2012, representing 80,809
net customers added. The strong growth was led by our Network Marketing
and Strategic Marketing Partnership channels, up 23% and 161% in the
Sold 5.1 million MWh of electricity, 4.7 million MMBtu of natural gas
and solar systems with total generation capacity of 2,200 KW
Revenue of $507.1 million
Gross margin of $103.4 million, representing 20.4% of revenue
Adjusted EBITDA of $32.2 million, representing 6.3% of revenue
Total distributions of $37.3 million paid, normalized for distributions
related to the 2012 stub period
Total cash and availability of $27.5 million, consisting of $15.3
million in cash and $12.2 million available under our credit facility
Product suite expanded to include residential solar energy products and
services through marketing relationship with SolarCity
- Expanded electricity and natural gas service offerings under multiple brands:
- Viridian Energy entered two new electric utility service areas, five new natural gas utility service areas and three new states
- FTR Energy Service entered three new electric utility service areas and one new state
Public Power entered five new electric utility service areas and three
new natural gas utility service areas
Acquired a portfolio of residential and small commercial customer
accounts in New Hampshire from PNE Energy Supply LLC
Strengthened the management team through the appointments of Chaitu
Parikh as Chief Operating Officer, Seth Zuckerman as Senior Vice
President of Finance, and Pradeep Tiwari as Vice President of
Information Technology. In addition, Meredith Berkich was promoted to
President of Viridian Energy and Cami Boehme was promoted to the newly
created position of Chief Strategy Officer.
Q4 2014 Highlights
Sold 1.2 million MWh of electricity, 1.9 million MMBtu of natural gas
and solar systems with total generation capacity of 2,000 KW
0.8% quarter-over-quarter growth in electricity and natural gas
customers to 615,373, up from 610,459 as at September 30, 2013,
representing 4,914 net customers added
Revenue of $128.6 million
Gross margin of $24.9 million, representing 19.4% of revenue
Adjusted EBITDA of $6.1 million, representing 4.7% of revenue. Adjusted
EBITDA was impacted by a non-cash adjustment at year-end of $2.6
million relating to a change in estimate of the uncollectibility of
customer accounts receivable balances in markets where we are subject
to credit risk. Normalizing for this impact, Adjusted EBITDA was $8.7
million in the quarter.
Highlights Subsequent to 2013
Expanded working capital facility with Macquarie Energy from $25.0
million to $60.0 million of availability. As at December 31, 2013, on a
pro-forma basis, total cash and cash availability would have more than
doubled from $27.5 million to $63.6 million.
Added new distribution channel for solar energy products through
expansion of existing partnership with Frontier Communications.
Starting in April 2014, Frontier Communications will begin selling
solar energy products to their existing subscriber base in California,
the largest solar market in the United States, through multiple inbound
customer care facilities across their regions. This offering is
expected to be extended to include Frontier Communications subscribers
in Arizona, Oregon, Colorado and New York.
Expanded the strategic marketing partnership with Frontier
Communications as the Company gained access to multiple inbound
customer care facilities to sell natural gas and electricity to
Frontier Communications subscribers in California, Illinois, Indiana,
New York and Ohio under the FTR Energy Services brand name.
Continued to strengthen the management team through the following
Christian McArthur was appointed to the position of Executive Vice
President of Energy Supply and Pricing. Mr. McArthur has over 10 years
of experience in the retail energy industry, most recently serving as
Senior Vice President for Just Energy where he was responsible for
energy supply operations for all North American businesses.
Barbara Clay was promoted to position of General Counsel of the Company.
In her role, Ms. Clay oversees the legal and regulatory functions of
the Company. Prior to her promotion, Ms. Clay had day-to-day
responsibility for the regulatory affairs of the Company. Ms. Clay was
also appointed an Officer of the Trust.
Martin Phillips was appointed to the position of Vice President of Human
Resources. Mr Phillips has approximately 20 years practicing HR in a
number of different industries, most recently with ConEdison Solutions,
the deregulated energy business of ConEdison. Prior to ConEdison
Solutions, he spent ten years as Senior Manager, HR with Philips
Electronics and as a corporate HR manager with William M. Mercer
Consulting and a division of Navigant.
Review of Financial Results
Total revenue for 2013 was $507.1 million driven by our strong customer growth and higher average retail prices paid by customers. Electricity revenue was $475.4 million, natural gas revenue was $26.6 million, fee revenue from independent contractors was $4.1 million and solar revenue was $1.0 million. Revenue growth was highlighted by the strong contribution by our Network Marketing channel which generated $266.9 million of revenue in 2013.
Gross margin was $103.4 million, or 20.4% of total revenues, which is at the low end of the Company's pro-forma historical range of approximately 20% to 30% of revenue.
Gross margin varied by quarter from a high of 24.2% in the second quarter of 2013 to a low of 17.5% in the first quarter. Gross margin was lower than the prior five year average due to volatile weather conditions encountered in certain quarters during the year and supply-side natural gas constraints in ISO-New England. In addition, new customer acquisition was highly competitive resulting in introductory rates offered at gross margins lower than historical averages driving down the average gross margin per customer across our entire customer portfolio in 2013.
Adjusted EBITDA for 2013 was $32.2 million, or 6.3% of revenue. Adjusted EBITDA for our first full year of operation was affected by higher expenses and lower gross margins from our electric customers, balanced by growing contributions from our natural gas customer base as well as the launch of the new solar product at the end of the third quarter.
The Company has cash and availability of $27.5 million as of December 31, 2013, which consisted of $15.3 million in cash, no long-term debt and availability of $12.2 million under the Company's working capital facility with Macquarie Energy. On a pro-forma basis, adjusting for the expanded working capital facility, total cash and cash availability would have more than doubled from $27.5 million to $63.6 million.
In this first full year of operations the Company focused on growing its customer base, strengthening its distribution channels, diversification of revenues and investment in technology and human capital. The Company grew 15.1% year-over-year in electricity and natural gas customers to 615,373, up from 534,564 as at December 31, 2012. This growth represented 80,809 net customers added in the period.
Customer growth was driven by the Network Marketing and Strategic Marketing Partnership channels, with 23% and 161% growth respectively. The Company's Network Marketing and Strategic Marketing Partnership channels, known as "warm" marketing channels due to the existing relationship between the customer and the sales agent, are typically more successful in highly competitive market conditions due to their lower attrition rates and ability to solicit customers not accessible through more traditional marketing tactics (eg telemarketing and door-to-door). In addition, customers acquired through our Network Marketing and Strategic Marketing Partnership channels typically have a greater customer lifetime value as a result of higher energy usage and/or longer retention.
Net customer growth in the Direct Marketing channel was negative in 2013, representing a 7% net decline in customers year-over-year. This channel is known as a "cold" marketing channel due to the lack of relationship between the customer and the sales agent. In highly competitive markets, the use of mainstream "cold" marketing tactics such as telemarketing and door-to-door are typically less successful as the same customers are targeted by multiple companies. Management continue to invest in the Direct Marketing channel as it is an important part of our multi-channel distribution platform. Although historically, the Company has primarily used telemarketing and door-to-door sales tactics in the Direct Marketing channel, management is currently exploring plans to implement other direct marketing methodologies in this channel that may improve customer acquisition, increase customer retention and drive future performance.
The net customer growth in the period resulted in continued diversification of our business which management believes will result in more stable quarterly earnings going forward by mitigating exposure to risks including, but not limited to, weather variation impacting customer consumption (volumetric risk). In particular, the Company saw positive trends in diversification of commodity (electricity, natural gas), product (fixed, variable, solar), geography and segment (commercial, residential).
Management also made significant investments in technology and human capital during 2013 which increased overall expenses and reduced earnings. Management believe the investments in technology are important as the Company competes in an increasingly competitive and dynamic market where cost to serve each customer will become an important driver of success. While additional investment will be required going forward, the Company expects to start benefiting from the investment made in 2013 by generating cost savings from automation, improving sales and billing processes and promoting organic growth.
Financial Statements and MD&A
The Trust's consolidated financial statements for the year ended December 31, 2013 and accompanying management's discussion and analysis ("MD&A") have been filed with the securities regulators and are available via SEDAR at www.sedar.com and are available on the Trust's website at www.criusenergytrust.ca.
Conference Call Notice
The Trust will hold a conference call to discuss its fourth quarter and year-end 2013 financial results today, March 26, 2014 at 10:00 a.m. Eastern.
To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191. Please connect approximately 15 minutes prior to the beginning of the call to ensure participation.
A live audio webcast of the conference call will be available at www.cnw.ca. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above web site for 30 days.
A taped rebroadcast will be available to listeners until 12 a.m. ET on April 2, 2014. To access the rebroadcast, please dial 416-849-0833 or 1-855-859-2056 and enter passcode 8453006, followed by the number sign.
About Crius Energy Trust
Crius Energy Trust has been established to provide investors with a distribution-producing investment through the acquisition of a 26.8% ownership interest in Crius Energy. With over 610,000 residential customer equivalents, Crius Energy is a comprehensive energy solutions partner that provides electricity, natural gas and solar products to residential and commercial customers. Crius Energy connects with energy customers through an innovative family-of-brands strategy and multi-channel marketing approach. This unique combination creates multiple access points to a broad suite of energy products and services that make it easier for consumers to make informed decisions about their energy needs. With headquarters in Stamford, Connecticut, Crius Energy currently sells electricity, natural gas and/or solar power in 19 states and the District of Columbia. More information is available at www.criusenergytrust.ca.
The Trust intends to qualify as a "mutual fund trust" under the Income Tax Act (Canada) (the "Tax Act"). The Trust will not be a "SIFT trust" (as defined in the Tax Act), provided that the Trust complies at all times with its investment restriction which precludes the Trust from holding any "non-portfolio property" (as defined in the Tax Act). Material information pertaining to the Trust may be found on www.sedar.com or www.criusenergytrust.ca.
This news release contains forward-looking information that involves substantial known and unknown risks and uncertainties, most of which are beyond the control of Crius Energy, including, without limitation, those listed under "Risk Factors" and "Forward-Looking Statements" in the Trust's Annual Information Form dated March 28, 2013 (collectively, "forward-looking information"). Forward-looking information in this news release includes, but is not limited to, the Trust's objectives and status as a mutual fund trust and not a SIFT trust and the results of operations of the Company. Crius Energy cautions investors of Crius Energy's securities about important factors that could cause Crius Energy's actual results to differ materially from those projected in any forward-looking statements included in this news release. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements. No assurance can be given that the expectations set out in this news release will prove to be correct and accordingly, prospective investors should not place undue reliance on these forward-looking statements. These statements speak only as of the date of this news release and Crius Energy does not assume any obligation to update or revise them to reflect new events or circumstances.
SOURCE Crius Energy TrustFor further information:
Chief Executive Officer
Chief Financial Officer
(416) 815-0700 ext. 233