Crius Energy Trust Reports Second Quarter 2016 Results

Strong operating performance in Q2 2016 highlighted by 3% growth in customers

/NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES/

TORONTO, Aug. 10, 2016 /CNW/ - Crius Energy Trust ("Crius" or the "Trust") (TSX: KWH.UN), today announced its financial results as at and for the three and six month period ended June 30, 2016. All figures are in U.S. dollars unless otherwise noted. In this news release, references to "C$" are to Canadian dollars and references to the "Company" are to Crius Energy, LLC, the operating subsidiary of the Trust.

Financial Highlights

  • Revenue of $169.0 million in the second quarter, representing an increase from $166.3 million in the second quarter of 2015, primarily due to greater electricity revenues as a result of higher average electricity customer numbers
  • Gross margin of 19.5% of total revenue for the quarter, representing a decrease from the 24.0% achieved in the second quarter of 2015, largely due to the increased proportion of commercial customers the Company now serves
  • Adjusted EBITDA of $13.6 million during the second quarter, largely in line with the $13.8 million of Adjusted EBITDA achieved in the second quarter of 2015. After adjusting for a net non-recurring gain of $1.6 million related to the acquisition of TriEagle Energy, LP ("TriEagle Energy"), Adjusted EBITDA was $12.0 million
  • Distributable cash for the second quarter was $9.4 million and total distributions were $5.6 million, resulting in a quarterly payout ratio of 59.6%

Operational Highlights

  • Achieved net customer growth of 26,000 customers in the second quarter, representing 2.8% quarter-over-quarter growth, with total customers reaching 942,000
    • Added 110,000 customers from sales and marketing channels, which represents an increase over average quarterly organic customer adds over the last 12 months of 93,000 customers
    • Gross customer drops in the second quarter of 84,000 customers represents an increase over the average quarterly drops over the last 12 months of 78,000 customers, but representing a lower percentage attrition rate, due to the increased size of the customer portfolio
  • Solar system installations
    • Solar systems installed in the quarter represented 1.1 MW of generating capacity, compared to the 2.4 MW installed in the second quarter of 2015
    • Solar sales were negatively impacted by reduced utility rates in select northeast markets and higher prices for residential power purchase agreements and lease products offered through Sungevity Inc. ("Sungevity")
  • Continued expansion of geographic footprint
    • Launched electricity service in Connecticut early in the second quarter of 2016 under the Comcast Energy Rewards brand
    • Received new licenses in several states, including Michigan (Comcast Energy Rewards, Viridian Energy), Georgia (Comcast Energy Rewards), Massachusetts (Comcast Energy Rewards, Public Power) and New Hampshire (Comcast Energy Rewards)
    • Launch of Viridian network marketing channel in Australia with electricity and natural gas customer enrollments planned to commence in the third quarter of 2016 through a local energy partner

Growth and Corporate Highlights

  • Announced a 2% distribution increase
    • In April 2016, the board of directors (the "Board") approved a 2% increase to distributions paid on units of the Trust ("Units") during second quarter of 2016, representing an annualized increase of $0.0143 per Unit and a total annualized distribution of $0.7283 per Unit
    • This was the second increase since the beginning of 2016, and reflects the confidence that both Management and the Board have in the long-term outlook for the Company, based in part on the strong operating cash flows of the Company and that the Company has no long-term debt on the balance sheet
  • Completed C$72.5 million equity offering and the acquisition of remaining interest in the Company
    • In June 2016, the Trust successfully completed the acquisition of the remaining 56.9% of the Company (the "Remaining LLC Acquisition") and now holds a 100% interest in the Company
    • The Remaining LLC Acquisition was funded through the issuance of Units and cash raised in a public offering of 8,581,300 Units issued at a price of C$8.45 per Unit
    • The Remaining LLC Acquisition more than doubled the market capitalization of the Trust to over C$300 million and simplified its organizational structure, and is expected to enhance scale and capital markets profile of Crius, improve trading liquidity and access to capital markets

"We are very pleased with our second quarter results as new customer adds increased materially over recent quarters which positions us favorably to reach our goal of one million customers by the end of the year," commented Michael Fallquist, Chief Executive Officer of Crius. "While we have tremendous near-term opportunity, I'm most pleased about the transformative changes we've recently made as we position the Company for continued market leadership over the long-term, including the Trust having acquired 100% of the operating business and more than doubling the market capitalization, the partnership to accelerate our network marketing sales channel, and the proposed acquisition of a market leading residential solar platform and team from SunEdison."

Review of Q2 2016 Results

The second quarter of 2016 saw continued year-over-year growth in the customer portfolio, up 19.2% over the same time last year, as a result of the successful execution of Crius' organic and acquisition growth strategy. The second quarter of 2016 was highlighted by the completion of the Remaining LLC Acquisition, whereby the Trust acquired the remaining 56.9% interest in the Company not already held, directly or indirectly, by the Trust. Following the completion of the Remaining LLC Acquisition, the market capitalization of the Trust more than doubled in size as a result of the Trust holding, directly or indirectly, a 100% interest in the Company. The simplified structure is expected to enhance the Trust's capital markets profile, improve trading liquidity and access to capital markets going forward.

For the second quarter of 2016, as a result of the confidence that both Management and the Board have in the long-term outlook for the Company, strong operating cash flows and no long-term debt on the balance sheet, the Board approved a 2% increase while continuing to maintain a conservative payout ratio.

Overall revenues increased 1.6% in the quarter to $169.0 million from $166.3 million in the second quarter of 2015. Revenues were primarily impacted by higher volumes, resulting from organic and acquisitive customer growth over the last 12 months, partially offset by lower average retail energy prices and fewer solar installations. 

Revenues from solar system sales in the second quarter of 2016 were $0.8 million, down from $1.7 million in the second quarter of 2015, with the prior period comparison impacted by the change in application of the revenue recognition policy adopted in the fourth quarter of 2015, where revenue is recognized upon the successful installation of a solar system as opposed to the previous method where revenue was recognized upon the execution of contracts. After adjusting for the impact from this change, comparable period solar revenue in the second quarter of 2015 would have been $1.4 million. In the second quarter, the market conditions in the solar industry continued to be challenging as a result of low utility prices in the northeast markets and increased rates for power purchase agreements and lease products offered by Sungevity which resulted in a less attractive customer value proposition.

Gross margin for the quarter was $33.1 million, representing a 17.0% decrease from the $39.9 million in the second quarter of 2015. As a percentage of total revenue, gross margin was 19.5% in the second quarter of 2016, down from 24.0% in the same quarter of the previous year. The decline in gross margin as a percentage of revenue was primarily a result of the increased proportion of commercial customers the Company now services following the acquisitions of TriEagle Energy and Iron Energy d/b/a/ Kona Energy ("Kona Energy") and is consistent with recent trends and Management expectation. Commercial customers provide diversification to the customer portfolio and have a higher retention profile than residential customers, although with lower average unit margins. Gross margins in the second quarter were also adversely impacted by gross margins achieved in the fixed-price commercial customer portfolio acquired from Kona Energy in the prior quarter. While the customer portfolio acquired was fully hedged, the hedged margins were materially lower in the second quarter compared to the remainder of the term of the portfolio, impacting gross margins in the current quarter by an estimated $1.5 million, which equates to approximately $1.00/MWh in overall electric unit margin.

Adjusted EBITDA in the second quarter of 2016 was $13.6 million, broadly in line with $13.8 million in the second quarter of 2015. Results in the quarter benefited from a non-recurring net gain of $1.6 million related to the post-closing working capital adjustment settlement for the acquisition of TriEagle Energy and adjusting for this non-recurring impact, Adjusted EBITDA would have been $12.0 million.

Distributable Cash was $9.4 million in the second quarter of 2016 compared to $10.0 million in the second quarter of 2015. Total distributions paid in the second quarter of 2016 were $5.6 million, representing a quarterly payout ratio of 59.6%.

As at June 30, 2016, Crius had 942,000 customers, up from 916,000 at the beginning of the quarter, representing net customer growth of 26,000 customers, or 2.8% during the quarter. Net customer adds in the quarter benefited from the success of the direct marketing channel and included several municipal aggregations in New Jersey. While gross customer drops were slightly higher than the quarterly average over the last 12 months, the trend of lower customer attrition rates, as a percentage of customer numbers, remains intact due to the increased size of the customer portfolio.

During the second quarter of 2016, excluding changes in operating assets and liabilities, the Company achieved operating cash flows of $13.9 million as compared to $14.1 million in the second quarter of 2015. 

At June 30, 2016, the Trust had total cash and cash availability of $41.7 million, consisting of $9.2 million of cash and equivalents and $32.5 million available under the Company's credit facility with Macquarie Energy LLC. This compared to total cash and cash availability of $22.8 million as at March 31, 2016. The increase in total cash and availability in the second quarter benefited from the $5.6 million in funds retained for general corporate purposes from the equity offering in June 2016. The Trust continues to have no long-term debt and sufficient resources to execute its growth strategy.

The interim condensed consolidated financial statements of the Trust as at and for the three and six month period ended June 30, 2016 and accompanying management's discussion and analysis ("MD&A") have been filed with the securities regulators and are available on SEDAR at www.sedar.com under the Trust's issuer profile, 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 second quarter 2016 financial results on August 11, 2016 at 8:30 a.m. (Toronto time).

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 question and answer session for analysts will follow Management's presentation.

A live audio webcast of the conference call will be available at www.cnw.ca. Please connect at least 15 minutes prior to the 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 90 days.

A digital rebroadcast will be available to listeners starting at 11:30 a.m. Toronto time on August 11, 2016 until August 18, 2016. To access the rebroadcast, please dial 416-849-0833 or 1-855-859-2056 and enter passcode 47340713#.

About Crius Energy Trust

The Trust was established to provide investors with a distribution-producing investment through its ownership interest in the Company (now 100% following the completion of the Remaining LLC Acquisition). With over 942,000 residential customer equivalents, the Company is a comprehensive energy solutions partner that provides electricity, natural gas and solar products to residential and commercial customers. The Company 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. The Company currently sells energy products in 19 states and the District of Columbia with plans to continue expanding its geographic reach.

The Trust intends to continue 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 Crius may be found on SEDAR under the Trust's issuer profile at www.sedar.com or on the Trust's website at www.criusenergytrust.ca.

Caution Regarding Forward-Looking Statements

This news release contains forward-looking statements and forward-looking information (collectively, "Forward-Looking Statements") that involve substantial known and unknown risks and uncertainties, most of which are beyond the control of Crius, including, without limitation, those risks described in the annual information form of the Trust for the fiscal year ended December 31, 2015, dated March 15, 2016 (under the headings "Risk Factors" and "Forward-Looking Statements") and in the MD&A of the Trust as at and for the three month period ended June 30, 2016. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words of phrases such as "will likely result", "are expected to", "expects", "will continue", "is anticipated", "anticipates", "believes", "estimated", "intends", "plans", "forecast", "projection" and "outlook") are not historical facts and may be Forward-Looking Statements which involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such Forward-Looking Statements. Forward-Looking Statements in this news release include, but are not limited to, the Trust's objectives and status as a "mutual fund trust" and not a "SIFT trust", results of operations, financial position or cash flows, cash availability levels, proportion of commercial customers served by the Company, continued customer growth, continued lower attrition rate, continued increase in revenues, planned enrollments to commence in Australia in the third quarter of 2016, the annualized distribution increase, the long-term outlook of the Company, the benefits of the Remaining LLC Acquisition (including that it will result in a simplified organizational structure, enhanced scale and capital markets profile, and improve trading liquidity and access to capital), the partnership with Comcast, the strategic alliance with Sungevity, results for 2016 (including continued strong financial results and low payout ratio), the availability of excess cash to invest in the Company's growth strategy, expansion of the Company's commercial business, customer revenues and margins, customer additions and renewals, customer attrition, geographical expansion, customer consumption levels, general and administrative expenses, treatment under governmental regulatory regimes, distributable cash, growth of the business, improvement to the Company's risk management and operations, growth initiatives, customer cancellations, delayed installations, Canada-United States dollar exchange rate, growth of the solar market portfolio, Crius' expectations and estimates regarding the impact of the Remaining LLC Acquisition, and Crius' expectations and estimates regarding the payment of distributions to unitholders. Crius cautions investors of the Trust's securities about important factors that could cause Crius' actual results to differ materially from those projected in any Forward-Looking Statements included in this news release. 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 does not assume any obligation to update or revise them to reflect new events or circumstances, except as required by law.

Non-IFRS Financial Measures

Statements in this news release make reference to Adjusted EBITDA, Distributable Cash and payout ratio, which are non-IFRS financial measures commonly used by financial analysts in evaluating the financial performance of companies, including companies in the energy industry. Accordingly, Management believes Adjusted EBITDA, Distributable Cash and payout ratio may be useful metrics for evaluating the Trust's financial performance as they are measures that Management uses internally to assess performance, in addition to IFRS measures. As there is no generally accepted method of calculating Adjusted EBITDA, Distributable Cash and payout ratio, these terms as used herein are not necessarily comparable to similarly titled measures of other companies. Adjusted EBITDA, Distributable Cash and payout ratio have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net (loss) income or other data prepared in accordance with IFRS. Adjusted EBITDA is calculated as EBITDA adjusted to exclude any change in the fair value of derivative instruments, change in fair value of non-controlling interest, change in fair value of warrant liability, Unit-based compensation, goodwill impairment and distributions to non-controlling interest. The items excluded from Adjusted EBITDA are significant in assessing the Trust's operating results and liquidity. See the MD&A of the Trust for the three month period ended June 30, 2016 (under the heading "Reconciliation of Net (Loss) Income and Comprehensive (Loss) Income to EBITDA and Adjusted EBITDA") for a reconciliation of Adjusted EBITDA to net (loss) income and comprehensive (loss) income, as calculated under IFRS for the relevant periods, the most directly comparable measure in the consolidated financial statements of the Trust. See the MD&A of the Trust for the three month period ended June 30, 2016 (under the heading "Distributable Cash and Payout Ratio") for a reconciliation of Distributable Cash to cash flows provided by (used in) operating activities as calculated under IFRS, the most directly comparable measure in the consolidated financial statements of the Trust. Other financial data has been prepared in accordance with IFRS.

SOURCE Crius Energy Trust

For further information: Michael Fallquist, Chief Executive Officer, mfallquist@criusenergy.com, (203) 663-7545; Roop Bhullar, Chief Financial Officer, rbhullar@criusenergy.com, (203) 883-9900; Kelly Castledine, Investor Relations, kcastledine@criusenergy.com, (416) 644-1753


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