Crius Energy Trust Reports Second Quarter 2018 Results

Strong performance from the deregulated energy business with $22.2 million in normalized Adjusted EBITDA

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

TORONTO, Aug. 13, 2018 /CNW/ - Crius Energy Trust ("Crius Energy" the "Company" or the "Trust") (TSX:KWH) today announced its financial results as at and for the three and six month periods ended June 30, 2018. All figures are in U.S. dollars unless otherwise noted.

"Management is pleased with the performance of the deregulated energy business, posting $22.2 million in normalized Adjusted EBITDA for the second quarter, representing 57% growth over the second quarter of 2017", commented Michael Fallquist, Chief Executive Officer of Crius Energy. "During the quarter, we made significant progress on our strategic decision to focus on our deregulated energy business and divest our solar business. We are determined to significantly improve profitability in our business through cost reduction, high-margin customer growth and portfolio optimization. We took immediate steps this quarter to reduce costs and have already achieved $20 million in annual run-rate cost savings which, when combined with eliminating the losses from solar, will deliver approximately $30 million of improved profitability over the next 12 months."

Financial Highlights

  • Revenue of $269.1 million in the second quarter of 2018, representing a 49.3% increase from $180.2 million in the second quarter of 2017.
  • Gross margin of 20.1% of total revenue for the second quarter of 2018, broadly in line with gross margin of 20.6% in the second quarter of 2017.
  • Adjusted EBITDA of $16.0 million in the second quarter of 2018, representing an increase from $14.1 million achieved in the second quarter of 2017. During the quarter, the deregulated energy business contributed $18.1 million in Adjusted EBITDA - $22.2 million after normalizing for $4.1 million in non-recurring costs as described below - which was offset by negative contribution from the solar business of $2.1 million.
  • Net income of $5.3 million in the second quarter of 2018, compared to a net loss of $14.6 million in the second quarter of 2017.
  • Distributable Cash of $3.7 million in the second quarter of 2018, representing a decrease from $11.4 million for the second quarter of 2017. The Payout Ratio for the last twelve months was 106.0%, which is elevated over recent levels due to the impacts of certain non-recurring costs as described below. Normalizing for these non-recurring costs the Payout Ratio for the last twelve months is 90.6%.
  • Cash flows from operating activities of $8.4 million in the second quarter of 2018, compared to $1.3 million in the second quarter of 2017.
  • Total Cash and Availability at the end of the second quarter of 2018 of $40.8 million, compared to $49.4 million as of the end of 2017.

Operational Highlights

  • Net customer attrition of 2,000 customers in the second quarter of 2018, with Crius Energy's customer count totaling 1,387,000 customers at the end of the second quarter.
    • Added 177,000 customers including 162,000 organically from sales and marketing channels and 15,000 through acquisition. Organic gross adds were broadly in line with the average in the prior four quarters of 164,000.
    • Gross customer drops in the second quarter of 179,000 customers were higher than the average in the prior four quarters of 158,000.
    • Embedded Margin of the customer portfolio increased by $5.5 million, or 1.2%, in the quarter to $486.2 million.

Growth and Corporate Highlights

  • Continued positive results from the integration of the business of U.S. Gas & Electric, Inc. ("USG&E")
    • Based on integration activities achieved through the end of the second quarter of 2018, the Company has achieved an annualized run-rate of $10 million in cost synergies.
    • Based on cost reductions implemented through the date of this release, the Company has achieved an annual run-rate of $20 million in cumulative cost reductions, including the above-mentioned USG&E cost-synergies.
  • Normal Course Issuer Bid
    • As of June 30, 2018, the Company had re-purchased 327,324 trust units of the Trust ("Units") at an average price of $7.63 per Unit under its normal course issuer bid, which became effective in March 2018.
  • Strengthened Board of Directors
    • Added three new highly-qualified members to the Board: Bob Gries, Ali Hedayat, and Marcie Zlotnik.
    • Long-serving director Brian Burden was appointed as the new Chairman of the Board following the retirement of the former Chairman, David Kerr.
    • Management and the Board now own or control approximately 18% of Crius Energy, when including all Units, PURs held by Management and DTUs held by the Board.

Review of Q2 2018 Results

Management successfully advanced the strategic initiatives announced earlier this year, including exploring strategic alternatives for our solar business, integrating the USG&E business, and developing a plan to achieve $20 - $25 million in annual cost reductions.

The deregulated energy business performed well in the second quarter by contributing $22.2 million in Adjusted EBITDA, after normalizing for certain non-recurring costs.

Revenues increased 49.3% in the second quarter of 2018 to $269.1 million from $180.2 million in the prior comparable period primarily due to the addition of customers associated with the acquisition of USG&E. Additionally, solar revenues decreased from $5.0 million in the second quarter of 2017 to $3.1 million in the second quarter of 2018, with the comparable period having benefited from $3.4 million in revenue associated with the community solar initiative launched during the second quarter of 2017 for the aggregation of community solar customers.

Gross margin for the second quarter of 2018 was $54.1 million, representing an increase from $37.2 million of gross margin in the second quarter of 2017, primarily driven by the incremental gross margin from the USG&E business. As a percentage of total revenue, gross margin was 20.1% in the second quarter of 2018, broadly in line with 20.6% in the prior comparable quarter. The period-over-period increase in gross margin is the result of the addition of the customer portfolio acquired from USG&E at the beginning of the third quarter of 2017.

Adjusted EBITDA in the second quarter of 2018 was $16.0 million, representing a 13.7% increase from the $14.1 million reported in the second quarter of 2017, with the increase driven by the contribution from the USG&E business. In the second quarter of 2018, Adjusted EBITDA results were comprised of a $18.1 million contribution from the deregulated energy business and a negative $2.1 million contribution from the solar business. The deregulated energy contribution was adversely impacted by $4.1 million in non-recurring general and administrative expenses, of which, $2.0 million were restructuring charges relating to workforce rationalizations implemented during the quarter and $2.1 million was primarily associated with the Board-initiated internal process to evaluate strategies to enhance Unitholder value and the proxy process for the annual and special meeting of Unitholders held in May 2018. Normalizing for these items, Adjusted EBITDA from the deregulated energy business was $22.2 million for the second quarter of 2018, representing 57% growth over the prior comparable period contribution of $14.1 million.

Net income in the second quarter of 2018 was $5.3 million, representing an increase from a net loss of $14.6 million in the second quarter of 2017, with the year-over-year increase primarily impacted by the increase in Adjusted EBITDA, legal reserve in the prior comparable period as well as the change in the fair-value of derivative instruments, relating to the mark-to-market on hedge positions.

Distributable Cash was $3.7 million in the second quarter of 2018 compared to $11.4 million in the second quarter of 2017, with the period-over-period decrease impacted by the $4.1 million in non-recurring charges, continued negative performance from the solar business as well as increased upfront selling costs in the current quarter reflecting the channel mix of new sales in the quarter with increased contribution from residential customer-focused direct-to- consumer marketing channels which have higher upfront costs to acquire. The Payout Ratio for the trailing twelve months ending June 30, 2018 is 106.0%, compared to 77.7% in the first quarter of 2018, with the increase attributable to the above-mentioned non-recurring charges and channel mix impacts. After normalizing for the non-recurring items, the Payout Ratio for the trailing twelve months is 90.6%. Management are comfortable with a temporarily elevated Payout Ratio as the Company implements its strategic initiatives to refocus on the core deregulated energy business and achieve its stated cost-reduction targets.

At June 30, 2018, the Trust had Total Cash and Availability of $40.8 million, consisting of $19.6 million of cash and cash equivalents, and $21.2 million available under the Company's credit facilities. This compares to the Total Cash and Availability as at December 31, 2017 of $49.4 million, consisting of cash and cash equivalents of $18.2 million and $31.2 million of availability under the credit facility. Crius Energy ended the quarter with net debt of $97.6 million, representing a conservative leverage ratio of 1.4x based on net debt to last twelve months Adjusted EBITDA.

As at June 30, 2018, Crius Energy had 1,387,000 customers, representing a net customer decline of 2,000 in the second quarter. The gross additions of 177,000 customers, including 162,000 organically from sales and marketing channels and 15,000 through acquisition, were higher than the average in the prior four quarters of 164,000. Consistent with the strategy to focus on higher-margin residential and small commercial segments the Company added 88,000 residential and small commercial customers in the period, representing 69% of the total customers added, excluding acquisitions and any prior quarter lagged enrolments, with is meaningfully higher than the proportion of residential and small commercial customer adds in 2017. The Company sold primarily long-term products in the quarter with over 60% of the residential and small customers added on fixed term contracts of 24 months or longer. The average upfront cost- to-acquire for residential and small commercial customers added during the quarter was $128 per customer, representing a payback period of less than 12 months. Gross customer drops in the second quarter of 2018 totaled 179,000 customers compared to the average in the prior four quarters of 158,000. The increased number of customer drops reflects the expanded size of the portfolio as a result of the acquisition of USG&E, as well as the ongoing implementation of portfolio optimization initiatives. While the Company experienced net attrition of 2,000 customers, or 0.1%, during the quarter, Embedded Margin of the customer portfolio increased by an estimated $5.5 million or 1.2% in the quarter, which is a direct result of our focus on higher-margin growth and portfolio optimization.

The interim condensed consolidated financial statements of the Trust as at and for the three and six month periods ended June 30, 2018 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 on August 13, 2018 at 8:30 a.m. (Toronto time) to discuss the financial results for the second quarter of 2018.

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 Q2 2018 Results and will also be archived there for 90 days.

A digital rebroadcast will be available to listeners starting at 11:30 a.m. (Toronto time) on August 13, 2018 until August 20, 2018. To access the rebroadcast, please dial 416-849-0833 or 1-855-859-2056 and enter passcode 8275279#.

About Crius Energy Trust

With approximately 1.4 million residential customer equivalents, Crius Energy provides competitive electricity and natural gas products to residential and commercial customers in 19 states and the District of Columbia in the United States. The Company sells energy products through a family of brands strategy utilizing a multi-channel sales approach including exclusive partnerships, direct-to-consumer channels, and broker marketing channels. Crius Energy offers 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.

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; advancement, if any, on strategic initiatives for the solar business; the continued strength of the Company's deregulated energy business; cost-reduction initiatives; the risk management capabilities of the Trust; the ability of the Trust to sustain or increase the level of its distributions; the anticipated benefits and continued integration of the business of USG&E; the Company's ability to renew customers at acceptable target margins; 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 the MD&A for the second quarter of 2018, dated August 13, 2018, and the risks described 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, which are  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 throughout this news release make reference to Adjusted EBITDA, Distributable Cash, Embedded Margin, Total Distributions, Payout Ratio, and Total Cash and Availability 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 these non-IFRS financial measures 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 these non-IFRS financial measures, these terms as used herein are not necessarily comparable to similarly titled measures of other companies. These non- IFRS financial measures have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net income (loss), cash flow provided from (used in) operating activities or other data prepared in accordance with IFRS. Additionally, there may be certain items included or excluded from these non-IFRS financial measures that are significant in assessing the Trust's operating results and liquidity. Refer to the MD&A for additional information concerning these non-IFRS financial measures and reconciliations to the closest IFRS measures, as applicable. Also, please refer to "Key Terms and Abbreviations" in the MD&A for the 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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