Strong operating performance highlights the successful organic and acquisition growth strategy
/NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES/
TORONTO, March 8, 2018 /CNW/ - Crius Energy Trust ("Crius Energy" the "Company" or the "Trust") (TSX: KWH.UN) today announced its financial results as at and for the three and twelve month periods ended December 31, 2017. All figures are in U.S. dollars unless otherwise noted. In this news release, references to "C$" are to Canadian dollars.
"Fiscal year 2017 was a strong year for Crius Energy, highlighted by the solid performance of our deregulated energy business and the USG&E Acquisition," commented Michael Fallquist, Chief Executive Officer of Crius Energy. "The expected $10 million to $12 million in annual run-rate after tax cash synergies from the USG&E Acquisition enhances the Company's cash flow and supports our strategy to invest in growth initiatives in 2018 and beyond."
Fourth Quarter 2017
Fourth Quarter 2017
Growth and Corporate Highlights
Fourth Quarter 2017
Review of Year End Results
The successful completion of the USG&E Acquisition was a highlight in 2017, and represented a transformative acquisition for the Company. The acquisition is expected to be highly accretive and, in addition to the Distributable Cash from the acquired business, is expected to provide after-tax synergies to Distributable Cash in the range of $41 million to $47 million over a three-year period. Crius Energy produced strong financial and operating performance in 2017, highlighted by healthy year-over-year growth of 43.6% in the customer base, due to both the USG&E Acquisition as well as continued strong organic growth, and 6.6% growth in Adjusted EBITDA. The increased performance and expected acquisition synergies highlight the Company's successful organic and acquisition growth strategy and scalable operating platform.
Overall revenues increased 17.8% in 2017 to $875.9 million from $743.8 million in 2016. The increase was largely driven by increased volumes due to higher average electricity customer numbers resulting from organic and acquisitive growth. Solar revenues increased from $2.3 million in 2016 to $11.2 million in 2017, driven by community solar revenues as well as the ramp-up in sales and marketing activities during the year as the Company integrated the Verengo and SunEdison Inc. assets. Solar revenues in 2017 were comprised of two components. The first component was revenue related to the origination and installation of solar systems of $6.2 million and the second component was $5.0 million in revenue related to the aggregation of community solar customers under a partnership with a leading developer of community solar projects.
Gross margin for 2017 was $184.0 million, up 16.1% from $158.5 million in 2016. The increase in gross margin was primarily a result of the incremental gross margin from the recently acquired USG&E business. As a percentage of total revenue, gross margin was 21.0% in 2017, in line with the 21.3% achieved in the previous year. The small decrease in gross margin as a percentage of revenue in the quarter is consistent with recent trends resulting from the increased mix of lower-margin commercial and municipal aggregation customers in the portfolio, partially offset by the addition of the higher-margin USG&E customer portfolio.
Adjusted EBITDA in 2017 was $64.8 million, a 6.6% increase compared to the $60.8 million reported in 2016, with the increase driven by the contribution from the recently acquired USG&E business and partially offset by materially cooler-than-normal summer weather conditions in the third quarter of 2017 and the impact of the changing customer mix with a larger proportion of lower-margin commercial and municipal aggregation customers. During 2017, the deregulated energy business contributed $69.4 million in Adjusted EBITDA, and the solar business contributed negative $4.6 million to Adjusted EBITDA.
Net income in 2017 was $20.2 million, a decrease from $44.4 million in 2016, with the year-over-year reduction of $24.4 million impacted by the following significant drivers: an increase in depreciation and amortization of $18.8 million resulting from the USG&E Acquisition-related intangible assets, reduced changes in fair value of derivative instruments of $15.9 million, legal reserve and associated legal fees in 2017 of $17.5 million, increased finance costs of $5.0 million due to higher energy volumes as a result of the USG&E Acquisition, increased usage on the credit facility and interest on the new Term Loans entered into during 2017; partially offset by increased tax benefit of $24.4 million driven by the recognition of deferred tax assets relating to the Verengo NOLs and increased Adjusted EBITDA of $4.0 million.
Distributable Cash was $45.0 million in 2017, a 15.7% increase compared to $38.9 million reported in 2016. Total distributions paid in 2017 were $28.7 million, compared to $22.6 million in 2016, representing conservative year end payout ratios of 63.8% and 58.1%, respectively. The increase in Distributable Cash is primarily due to reduced capital expenditures compared to 2016 and the increase in Total Distributions is attributable to increases in the number of Units outstanding and increases in the amount distributed per Unit compared to 2016.
Cash flows provided by operating activities was $13.2 million in 2017, a decrease from $41.0 million in 2016, with the year-over-year reduction of $27.8 million primarily attributable to increased changes in net operating assets and liabilities of $17.0 million.
As at December 31, 2017, Crius Energy had 1,410,000 customers, up from 982,000 at the end of 2016, representing net customer growth of 428,000 customers, or 43.6% year-over-year. The year-over-year increase in customers was driven by strong organic growth with gross customer adds of 670,000 and the acquisition of 350,000 customers from USG&E. Gross customer drops in 2017 totaled 592,000 customers compared to gross customer drops of 302,000 customers in 2016. On a comparable period basis, increased customer drops were partly expected due to the expanded size of the portfolio as a result of both organic and acquisitive growth and partly due to elevated non-renewals of certain large commercial, municipal aggregation and default service auctions, which came up for renewal during the year and were unable to be renewed at acceptable margins. On a percentage basis, customer drops were 4.0% per month in 2017, compared to 2.6% per month in 2016.
At December 31, 2017, the Trust had Total Cash and Availability of $49.4 million, consisting of $18.2 million of cash and cash equivalents and $31.2 million available under the Company's credit facilities. This compares to the Total Cash and Availability as at December 31, 2016 of $49.9 million, consisting of cash and cash equivalents of $10.9 million and $39.0 million available under the credit facility. The Trust continues to have a conservative balance sheet and sufficient resources to execute its growth strategy. The Company has $53.8 million in long-term debt, consisting of a $6.3 million subordinated, forgivable term loan with the Connecticut Department of Economic and Community Development at an annual interest rate of 2.0%, and $47.5 million in subordinated promissory notes with certain shareholders of USG&E related to the USG&E Acquisition, which bear an annual interest rate of 9.5%.
During 2017, 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 conservative Payout Ratio, the Board approved and implemented 2% distribution increases for each quarter during the year, which resulted in an 8.3% increase in distributions per Unit, while continuing to maintain a conservative payout ratio.
The consolidated financial statements of the Trust as at and for the period ended December 31, 2017 and accompanying management's discussion and analysis 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 the fourth quarter and year end 2017 financial results on March 9, 2018 at 8:30 a.m. (Toronto time).
To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191. A question and answer session for analysts will follow management's presentation.
A live audio webcast of the conference call will be available by following this link: Crius Energy Q4 and 2017 Year-End Results, and will also be archived there for 90 days.
A digital rebroadcast will be available to listeners starting at 11:00 a.m. (Toronto time) on March 9, 2018 until March 16, 2018. To access the rebroadcast, please dial 416-849-0833 or 1-855-859-2056 and enter pass code 6859508#.
About Crius Energy Trust
With over 1.4 million residential customer equivalents, the Company provides innovative electricity, natural gas and solar products to residential and commercial customers through exclusive partnerships, direct-to-consumer, digital, and broker marketing channels. Our unique brands offer consumers a broad suite of energy products and services including fixed and variable contracts, renewable energy, and bundled products to support their energy needs beyond what is offered by their local utility. Company growth is achieved organically with customers acquired through our diversified marketing channels and through accretive acquisitions in the deregulated energy and solar industries, where there is a significant opportunity to participate in the consolidation of market participants. The Company currently sells energy products in 19 states and the District of Columbia with plans to continue expanding its geographic reach. The Company is well-positioned to deliver capital appreciation and stable distributions to investors.
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 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") including, without limitation, statements relating to non-IFRS financial measures; the confidence of Management and the Board in the long-term outlook for the Company; the ability of the Trust to sustain or increase the level of its distributions; the anticipated benefits of the USG&E Acquisition (including after-tax synergies to Distributable Cash resulting from organizational restructuring, transitioning the Company's technology platform, renegotiating credit facility pricing and trading terms); the ability of the Company to use net operating losses of Verengo, Inc. to offset current and future taxable income; the priorities of Crius Energy to increase Distributable Cash through margin growth and cost reduction; the Company's ability to renew customers at acceptable target margins; the anticipated benefits of the exclusive agreement with Comcast to sell electricity and natural gas products; the anticipated benefits of the relationship with Comcast to offer IEP to additional third-party service providers; the continuation of year-over-year growth of the Company's customer base; the ramp-up of sales and marketing activities; the continuation of the recent trend of a changing customer mix; the Trust's outlook, strategy, and ability to execute its business objectives; future payments owed to the Company; the electricity, natural gas and solar industries; governmental regulatory regimes; acquisitions and strategic partnerships; marketing channels; customers and customer growth; hedging strategies; risk management; market risk; credit risk; off-balance sheet arrangements; related party-transactions; liquidity and capital resources; critical accounting estimates; internal controls over financial reporting; results of operations; financial position or cash flows; expenses and distributions to Unitholders. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or describes a "goal", or variation of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. All forward-looking statements reflect the Trust's beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those predicted in these forward-looking statements. All of the Trust's forward-looking statements are qualified by (i) the assumptions that are stated or inherent in such forward-looking statements, and (ii) the risks described in the section entitled "Financial Instruments and Risk Management" in this MD&A and in the sections entitled "Risk Factors" and "Forward-Looking Statements" in the annual information form of the Trust for the fiscal year ended December 31, 2017, dated March 8, 2018 (under the headings "Risk Factors" and "Forward-Looking Statements") and in the MD&A of the Trust as at and for the period ended December 31, 2017, which is available on SEDAR under the Trust's issuer profile at www.sedar.com and on the Trust's website at www.criusenergy.ca. Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking statements. Although the Trust has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Trust disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, except in accordance with applicable securities laws.
Non-IFRS Financial Measures
Statements in this news release make reference to Adjusted EBITDA, Total Cash and Availability, Distributable Cash, Total Distributions, 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, Total Cash and Availability, Distributable Cash, Total Distributions, 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, Total Cash and Availability, Distributable Cash, Total Distributions, and payout ratio, these terms as used herein are not necessarily comparable to similarly titled measures of other companies. Adjusted EBITDA, Total Cash and Availability, Distributable Cash, Total Distributions, and Payout Ratio have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net income (loss) 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 period ended December 31, 2017 (under the heading "Reconciliation of Net Income to EBITDA and Adjusted EBITDA") for a reconciliation of Adjusted EBITDA to net 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 year ended December 31, 2017 (under the heading "Distributable Cash and Payout Ratio") for a reconciliation of Distributable Cash to cash flows provided by operating activities as calculated under IFRS, the most directly comparable measure in the consolidated financial statements of the Trust. Please refer to "Key Terms and Abbreviations" in the Trusts' MD&A for the period ended December 31, 2017 for definitions of non-IFRS financial measures and other terms. Other financial data has been prepared in accordance with IFRS.
SOURCE Crius Energy Trust
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