Q1 2013 Just Energy Group Inc Earnings Conference Call

Aug 09, 2012 AM EDT
JE.TO - Just Energy Group Inc
Q1 2013 Just Energy Group Inc Earnings Conference Call
Aug 09, 2012 / 06:00PM GMT 

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Corporate Participants
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   *  Rebecca MacDonald
      Just Energy Group Inc - Executive Chair
   *  Ken Hartwick
      Just Energy Group Inc - CEO
   *  Beth Summers
      Just Energy Group Inc - CFO

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Conference Call Participants
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   *  Nelson Ng
      RBC Capital Markets  - Analyst
   *  Tania Maciver
      Northland Capital Partners - Analyst
   *  John McIlveen
      Jacob Securities - Analyst
   *  Damir Gunja
      TD Newcrest - Analyst
   *  Manish Goswami
      - Analyst

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Presentation
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Operator   [1]
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 Good afternoon, ladies and gentlemen. Welcome to the Just Energy Group Inc. conference call to discuss the first quarter results for the period ended June 30, 2012. Please note that all lines are on listen-only mode. However, there will be a question and answer session at the end.

 (Operator Instructions).

 And now I would like to turn the call over to Ms. Rebecca MacDonald. Go ahead, please.

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [2]
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 Good afternoon, everyone. With me this afternoon, I have Ken Hartwick, our CEO, and Beth Summers, our CFO. We would like to welcome you to our fiscal 2013 first quarter conference call. Ken and I will make a short presentation, and then we will open the call to questions. We have entered our 12th year in the public markets, and I am happy to state that our results show a continuation of growth and profitability. Just Energy continues to be the unique combination of growth and income that has consistently delivered for shareholders over the past 12 years.

 Before we get going, I need to preface the call by telling you that our earnings release and potentially our answers to your questions will contain forward-looking financial information. This information may eventually prove to be inaccurate, so please read the disclaimer regarding such information at the bottom of our press releases. I will have Ken go through the highlights of the quarter and the year, and then I will talk about what we see as a very bright future. After that, we will open for your questions. Before Ken takes over, I would like to warn you that he has a terrible cold, and be very, very kind with your questions for Ken.

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 Ken Hartwick,  Just Energy Group Inc - CEO   [3]
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 Thanks, Rebecca. The first quarter of fiscal 2013 had excellent operating results across all measures. As a sales and marketing Company, we must add and retain customers in order to grow. Q1 saw our multi-channel sales growth generate the strongest marketing results in our history. A highlight was our record customer additions. Two years ago, we signed what was then a record 505,000 new customers for the entire year. This quarter alone, we added 338,000 new customers, the highest quarterly total in the Company's history. This was an increase of 49% over the 227,000 added in Q1 last year.

 This marketing success was seen across all segments of the business, with each of our new marketing channels contributing. Our core consumer division, residential marketing, generated 162,000 new customers, up 105% from fiscal 2012. This increase is in addition to the significant role our sales force plays in the record numbers of renewals seen in the quarter. Commercial additions were 176,000, up 19% from additions in fiscal 2012. Including these record additions generated through marketing, and the customers acquired with Fulcrum in October, our customer base has reached 3.977 million, up 18% from a year earlier. Our National Home Services water heater and HVAC rental unit saw excellent growth as well. Their customer base reached 177,000, up 34% from a year earlier.

 At the end of the year, we published our growth guidance for fiscal 2013. That guidance called for double digit growth, with the caveat that it would require growth of more than 10% in our customer base to realize these targets. Including NHS, growth today stands at 19%. I am proud to say, that our record first quarter has us well underway to meeting that objective. This growth was accomplished the year through contributions from all our marketing channels. Over the past three years, we have moved to diversify our sales and marketing, and to broaden our product line, while maintaining a focus on the customer's energy use and price.

 It was exciting to see the resulting turnaround of our residential customer additions. 162,000 added was by far the most we have ever seen in a quarter, and we had net residential additions for the first time in recent memory. These are traditionally our most profitable customers, and renewed strength in this segment is a very positive sign. Our utilization of the commercial broker channel has also been a particular success, with more than 50% of our customer base now classed as commercial. We understand that these commercial customers generate by design lower per customer margins than our traditional residential base, but their payback on aggregation cost is less than 18 months, just like a residential customer. While this results in lower average margins, this is a very lucrative business, as each customer equivalent brings lower customer aggregation costs, and lower ongoing customer care expenses.

 Other new marketing channels include our initial steps in the internet acquisition and telemarketing. Our network marketing unit, Momentis continue it's rapid growth. From a standing start with 3,500 independent representatives at the beginning of fiscal 2012, Momentis has grown to 66,000 independent reps at quarter-end. With the rapid ramp up, we are only now starting to see the benefit of this division in new customer contracts and sales of other products.

 Adding customers is very important, but we retain them, is vital as well. We continue to see a low stable commodity price environment, which makes renewals more difficult and attrition a challenge. In Q1, both these measures were solid. Attrition was unchanged year over year, at an annual rate of 14%. Renewals were strong at 74%, up from 66% a year earlier. While this is clearly positive, it is important to note, that commercial renewals are often the result of competitive bidding, and will tend to be volatile quarter-to-quarter.

 Our customer growth was matched by margin growth. We had forecast that fiscal 2013 would see 10% to 12% growth in margin, and after the strong first quarter, we are ahead of that pace. Driven by the 19% growth in customers, our gross margin was up 21% year over year. While the first quarter is seasonally the slowest for sales and margin, this is a very good start to the year. Our administrative costs were up 28% as we continue to build the base for future expansion. Much of this growth was Momentis, and the establishment of a UK office that Rebecca will discuss later.

 Bad debt stayed under control, averaging 2.6%, down from 2.8% a year earlier. As the percentage of our revenue exposed to bad debt grows, management is carefully monitoring to make sure that the losses are held within that target range of 2% to 3%. National Home Services had another strong quarte, tracking it's growth and install base year over year, revenue and gross margin are up 40% and 36%, representatively. This product is a natural extension of our focus on the customer's energy needs, and the tremendous values being built daily within this division, with steps being taken to move outside of Ontario.

 Selling and marketing expenditures were up, reflecting both the costs of our record additions, and the startup costs of the Momentis network. The overall result of the quarter is seen in strong growth in adjusted EBITDA. We had a record number of renewals in the quarter, leading to adjusted EBITDA growth being less than margin growth, but 13% realized is well ahead of the pace to meet our 8% to 10% published target. Our payout ratio on adjusted EBITDA for the quarter was 105% after margin, down from 116% the year prior. Payout ratio has historically been higher in Q1 and Q2, and lower in the higher margin periods of Q3 and Q4 This continues a downward year over year trend of recent quarters.

 We are confident that the measures we have taken to diversify Just Energy would pay off in renewed growth. This is the confidence that caused us to project double digit growth in a period of very low inflation. As always, we have paid the CAD1.24 dividend many of our shareholders rely on. Today's price, we have 11.2% annual yield, combined that with double digit growth we are projecting, and you have returns even the harshest critic would call exceptional, in this challenging and uncertain economy. Overall, Just Energy had solid operating performance in the first quarter. Let me turn it back to Rebecca.

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [4]
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 Thank you, Ken. You can imagine, I am also pleased with the results for the quarter. And as Ken pointed out, it showed excellent customer growth and expenditure control, with the results leading us ahead of our guidance after the first three months of the year. As regard to the future, Just Energy is not in the business of standing still. Three years ago, we saw the growing demand for green energy from our consumer division customers -- from our consumer division customers and developed our JustGreen products These products have been a tremendous success, with green sources now making up 12% of our current consumer electricity portfolio, and 11% of our consumer natural gas portfolio. While the take up of our new customers on green slowed slightly this year, due to the pricing pressures in a challenging economy, green products remain a focus of the Company.

 We continue to initiate new products and options for green-oriented customers. Our new Hudson Energy solar business has committed to more than CAD108 million in capital projects placing solar arrays on roofs of corporate and public buildings. We are happy to announce that we have entered into a CAD30 million non-recourse loan facility with Macquarie Bank to fund solar expansion. Today, we continue to look to the future and see many changes coming in how customers use energy. Time of use [monitoring] makes control of the home consumption an important goal of home owners. This is an opportunity for Just Energy to provide products which assist customers in using energy effectively.

 Looking further out, we see growth in the sales of electric cars and other vehicles, as the major driver of North American power consumption. Again, our executive team is looking for ways to have Just Energy products at the forefront of these growth sectors. Last month, we announced the opening of a commercial office in UK, our first step outside North America. The UK market is equal in size to combined New York and Texas, our two fastest growing territories. We are entering the market with a strong support of our suppliers, and our commercial broker network. They see an opportunity to profitably gain customers in under-served segment of the UK commercial market. We have committed our normal small initial investment to open the new territory, and we expect very rapid pay back on that investment. These are just some of the plans we have for the future.

 I think you can see why we are confident that further growth is coming in future quarters. And some of you are no doubt aware, there have been some out there who believe, that despite our track record and results, our Company will have difficulty maintaining our growth or sustaining our dividend going forward. Look at our core metrics for the quarter, residential additions up 105%, commercial additions up 19%, National Home Services install customers up 34%. Attrition is flat. Renewal rates are up. Bad debt percentage is down. Margins up 21%. Adjusted EBITDA up 13%. Does that sound like a business concerned about sources of future growth?

 Critics will point to the fact that our cash flow exceeds our inflow, as if this is a bad thing during a period of high growth. Let's look at this carefully. We are spending cash, because we are signing more customers than ever have. These customers pay back in 12 to 14 months. Is there a rational business that would not take as many of those customers as possible? As far as the cash [inflows], look at most important metric, the future margin embedded in our contracts. A year ago, we had embedded margin of CAD1.7 billion. At the end of Q1, it stands at CAD2.1 billion. That means in the last years, we have added 20% to the future cash flow of the Company.

 In the quarter alone, embedded margin was up 6%. Given our high customer growth to date, we may have further quarters where total payout exceeds cash inflows. Accordingly, we have taken the steps necessary to ensure that they do not constrain our ability to grow. The banks also increased our operating line from CAD350 million to CAD370 million. Clearly, they see our growth plan as a positive, not detriment to the business. It is our intention to continue to drive embedded margin higher, because ultimately that will define the way of the Company and the payout to our share holders.

 As regards to dividends, we have a policy of monthly dividends equal to CAD1.24 annually. That has not changed, and it is not changing now. I would like to thank Ken Hartwick and his team for an excellent quarter. Our efforts and expenditures to broaden our sales channels and geographic footprint have resulted in renewed growth, without sacrificing the stability of Just Energy as we know it. Just Energy has become a North American leader in the deregulated commodity supply and green energy market. The future has never been brighter for our Company. On that note, I will open up for questions.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions).

 We do have a question that came in from Nelson Ng. Go ahead, Nelson.

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 Nelson Ng,  RBC Capital Markets  - Analyst   [2]
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 Great, thanks. In terms of funding growth, it looks like you have about CAD100 million available in your credit facility, and also another CAD30 million in your solar credit facility. I guess, given your plans to invest in growth, what do you think your best options are to finance growth?

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 Beth Summers,  Just Energy Group Inc - CFO   [3]
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 Yes, Nelson, hi, it's Beth. I think the way that we would approach it as a Company, when growth will payback over 12 to 14 months, our view it's not going to be hard to identify a way to fund that. It can be done various ways. It can be done through [DRIC], it can be done through either equity or debt issuance. And when we saw that growth driving that, our view is we have various means to access that.

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 Nelson Ng,  RBC Capital Markets  - Analyst   [4]
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 And I --

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [5]
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 It is safe to say -- it's Rebecca, it is safe to say that we are not concerned about our ability to fund the growth. We feel very strongly that will not be an issue.

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 Nelson Ng,  RBC Capital Markets  - Analyst   [6]
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 Okay. And would you issue equity at the current levels to fund growth?

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [7]
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 (Laughter). That's a tricky question. We will not issue today. But we don't think our price will stay at the level where it is. We are hoping it is going to go up. But sometimes in the future we might, so we are never saying no. But if you are asking us today, no. And we don't need to issue anything today.

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 Nelson Ng,  RBC Capital Markets  - Analyst   [8]
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 Okay. Just in terms of the CAD30 million solar credit facility, compared to the CAD108 million of solar commitments, so are you looking to increase the solar credit facility? Or is the credit facility a much shorter term way of financing part of the -- part of your commitments? And then, would you want to somehow raise longer-term financing for your solar investments?

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 Beth Summers,  Just Energy Group Inc - CFO   [9]
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 Yes, Nelson, I would answer that actually in two pieces. The first piece is the CAD30 million, comparing it to the CAD90 million of solar projects. There is actually two cash flows that come from the projects. One, you've got your PPA and your solar renewables credit. You also have a tax grant for the both of those projects, which is equal to 30% of that capital. So that will be coming in from a cash perspective. You are correct, in the CAD30 million. As those projects, we continue to have more projects and expand, the assumption is that we will increase that, and certainly there have been discussions that that would be increased through time as required. So the longer term -- you are correct, it is a two year facility. The view would be to gather a bulk of projects, and at that point come up with a long term, term debt solution, which makes sense on a portfolio basis.

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 Nelson Ng,  RBC Capital Markets  - Analyst   [10]
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 Okay. Thanks. And then just switching gears to Momentis. The number of reps has grown about 38% in the quarter alone. Are you actively promoting the sales channel and recruiting reps yourself? Or is the growth mainly through existing reps recruiting new reps?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [11]
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 Yes. The way the model works is, is the recruitment by our existing reps, the senior people leading the organization of new reps. So that is where the growth is coming from. And as more new reps come in or are with us longer, understand the business model better, then they actively recruit the next group of reps into it.

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 Nelson Ng,  RBC Capital Markets  - Analyst   [12]
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 Okay. Because I was thinking in terms of the CAD16 million of costs incurred during the quarter, relative to the 18,000 of reps added. That equates to roughly CAD800 or so per person. I'm not sure whether -- how that -- can you provide some clarity in terms of how that CAD16 million was spent?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [13]
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 Yes. You can't really equate it to -- dividing the amount by new reps. Because some of those payments are going to existing reps, who are bringing in existing customers. And we look at the success of the sales channel, and as we mentioned in the comments at the beginning, we are now experiencing a net growth in our residential customer base. And I think it's safe to assume that we are seeing some of the success of that being driven out of the Momentis channel.

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 Nelson Ng,  RBC Capital Markets  - Analyst   [14]
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 Okay. Thanks a lot. I will get back into the queue.

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [15]
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 Thanks.

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 Ken Hartwick,  Just Energy Group Inc - CEO   [16]
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 Thanks.

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Operator   [17]
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 Our next question comes from Tania Maciver. Go ahead, please.

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 Tania Maciver,  Northland Capital Partners - Analyst   [18]
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 Hi. Just a couple of questions on the growth in customer adds and renewals. Do you have any insight into what the drivers are? I guess in -- are they in specific regions, is there a lot coming out of Texas? Or are there different sales methods that are working better than others? Or is there -- is it pricing related?

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [19]
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 Tania, I will take a stab at it first. First, we want to credit the management for their job well done. (Laughter). But we think it really comes from management. But joking aside, we are actually incredibly happy with every division. Every division is maximizing what they should be doing, and there is a lot of work put into fine-tuning different pieces of the business, and different parts of our sales group. And it is just collectively paying off. So I don't want to tell you that the residential division is doing better than commercial, or better than NHS, or better than solar. Every single division is operating extremely well and extremely efficiently. So this is exactly the question that we had to answer to our Board this morning, and we are very, very pleased, the way it's performing across the board.

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 Ken Hartwick,  Just Energy Group Inc - CEO   [20]
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 Tania, if I could add as well, I think our renewal number was very high in the quarter, to the positive.

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 Tania Maciver,  Northland Capital Partners - Analyst   [21]
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 Yes.

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 Ken Hartwick,  Just Energy Group Inc - CEO   [22]
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 But again, we want to -- we did caution people that is volatile based on our commercial business. So as you have some of that commercial book move through, that can bounce a lot. So while we would like it to be at 74% every quarter, we said we have seen some gradual improvement, which we have. And we think we will continue to see gradual improvement compared to the norm.

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 Tania Maciver,  Northland Capital Partners - Analyst   [23]
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 Right. Okay. So there has been no real changes in the process for renewal, or in terms of any more aggressive pricing or anything?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [24]
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 No. Not at all. It was just one of those quarters that was very good to the positive, which we will take. But again, that's an incremental improvement, versus large leaps.

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 Tania Maciver,  Northland Capital Partners - Analyst   [25]
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 And then, the residential customer growth was surprising, and it was obviously very positive. Is that, do you see that continuing along those lines or --?

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [26]
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 Definitely, we do. Tania, we definitely see continuation, because don't forget, we are ready now second quarter, and we don't see the slow down in sales. What I, or what we are collectively very, very happy, is we are showing the market that our sales agents can sell in the good times or the bad times, when the markets are rising, and when the markets are flat. Because realistically, we have always said the hardest time to sell is when the price is very stable. But we also said as well, that we have confidence that we can deliver sales results. And this has just shown that our sales people are able to sell through good times, and more challenging times.

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 Tania Maciver,  Northland Capital Partners - Analyst   [27]
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 Okay. And then back on Momentis again, it has obviously grown significantly. Is there a sort of maximum level that you think that group should get to? Or do you just keep growing and adding reps as it becomes available?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [28]
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 I don't think there is a maximum to it. I think as we grow the base of senior leaders within that, that are then accumulating customers, which is the ultimate goal. It allows us to be more flexible in how we deal with the compensation of that rep base as it grows. So I wouldn't put any limit on -- I think one of our larger energy network marketers is probably in the order of 600,000, and they have been doing LLM for six or seven years. So it's a -- like I said, we are going to grow it in a profitable manner, and whatever that pace is, that's the pace we will grow it.

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [29]
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 Just a reminder, Tania, that LLM customer is in some respect is a little different type -- not different type of a customer, different personality of the customer. It's a customer that doesn't necessarily respond well to door-to-door, but responds well to a living room sale. So it's not jeopardizing our other sales channels.

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 Tania Maciver,  Northland Capital Partners - Analyst   [30]
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 Right. Can you remind us how that group is compensated?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [31]
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 Yes. So the way a representative will be paid, based on getting a flowing customer for us. So that's the primary driver. So they will get points awarded based on the type of customer. A bigger customer in Texas will get more points than a customer in New York. The compensation is linked back primarily to the customer, and we will run bonus programs, similar to what we do to our door-to-door guys, for getting a certain number of customers in a week, or a certain number of customers in a month. But it's always linked back to the growth in flowing customers.

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 Tania Maciver,  Northland Capital Partners - Analyst   [32]
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 Okay. And then one last question on the UK office. You said -- you talked about an investment that you made to get the office up and running. How much was that, and what does the office look like? How many people? How does the -- you obviously have started selling to customers in that region. How is that going?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [33]
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 Right. So I think -- when we enter any market, I don't think the UK was really any different. We always say it's CAD2 million or CAD3 million to -- to get our operations set up, get billing set up, all the things that we need to do to get functional. We went live on July 23. We have signed up our first group of customers. We are very happy with the size of the -- commercial only at this point, happy with the size of the customers. The margins are very similar to Texas, in what we are seeing of that customer, which is positive. Maybe a little bit better. But to us, real positive sign we saw, is that we had a very strong enrollment of brokers in the UK into us. Ultimately, when you bring brokers in, they are now registered, and they are on the system, and that will result in customers. So actually, we are two weeks into it, that's -- we're not two years into it. So we are very encouraged with the first couple of weeks, in what we are seeing.

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [34]
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 And that's a market, Tania, that has been deregulated for a while. And the [core] commodity market, a large market. And couple of lifetimes ago I operated there, and it's a very, very similar market to some of the markets we operate in Texas. And from the size perspective, as I said in my remarks, it's really about the size of Texas and New York, which is substantial for us. And we are really -- we feel very, very positive about our move over there.

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 Tania Maciver,  Northland Capital Partners - Analyst   [35]
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 And then on the terms of the contracts you have been signing with the commercial customers, are those similar to what we see here? Are they shorter or longer or --?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [36]
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 It's very similar. I think that they have ranged from one year to three, so an additional block of customers. So we would anticipate that they would have a -- our commercial [bulk] in Canada -- or US and Canada is a little over three year average term. And we would anticipate that we would be that range in the UK.

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 Tania Maciver,  Northland Capital Partners - Analyst   [37]
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 So your average. Okay, perfect. Okay, great, thank you, and hope you feel better, Ken.

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 Ken Hartwick,  Just Energy Group Inc - CEO   [38]
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 Thank you very much.

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [39]
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 We tried to nurse him to health, but we weren't very successful.

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Operator   [40]
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 And our next question comes from John McIlveen. Go ahead, please.

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 John McIlveen,  Jacob Securities - Analyst   [41]
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 Yes. Good afternoon. Could you comment on how the July net additions are going?

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [42]
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 Oh my God, we cannot comment on July. That's the second quarter. Are you kidding me? (Laughter). You want to see jail?

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 John McIlveen,  Jacob Securities - Analyst   [43]
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 No, not going to go to jail. (Laughter).

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [44]
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 It's a good try, very good try, but you have to wait until we finish the quarter. Please.

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 John McIlveen,  Jacob Securities - Analyst   [45]
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 Okay. All right then. How about we talk about the growth marketing, then? How long do you think the present pace will continue? Is there is a plan to keep it at this level for X number of quarters, and then slow it down?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [46]
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 Yes, I think the way we tend to look at it is, as Beth commented earlier, if we are getting a pay back on a customer within 12 to 14 months, as far as all of our commission dollars back or aggregation costs back, we want to see if we can maintain a growth pace very similar, or better than what we are currently doing. And the job for the management group is to ensure that we can make sure the financing and funding is in place to grow that growth. It is relatively easy just to ratchet it all back, and say, let's not grow, or pull the growth rates back. But we don't think it's the right answer for shareholders. So, let's say the first task at hand, is to make sure that we have the liquidity in place, to keep growing at the pace that we are.

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 John McIlveen,  Jacob Securities - Analyst   [47]
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 Okay. On the commercial for a moment here. We have talked about how it's less gross margin versus residential. Now that's on accounting gross margin. If we think about it from a cash flow basis, is that the same case? I mean, you mentioned lower customer care costs, lower acquisition cost. So on a cash flow basis for customer, is that any different, lower or higher than residential?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [48]
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 No. We think net-net, it's very similar. Because if you sign up a school or school board that is 1000 RCEs, you tend to have one phone call with them each year, to review their billing for the year. They -- it just doesn't generate the activity level that a 1000 houses generate. So while the cash flow profile might be a little bit different, in that we pay the brokers quarterly or annually based on the customer staying flowing with us, the overall administrative -- administration of the commercial book is significantly less. And that's why we think, you go over the term of a contract over a three year period, and you are probably at the same cash position as you are with a residential customer.

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 John McIlveen,  Jacob Securities - Analyst   [49]
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 Very good. That's it. Thanks.

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 Ken Hartwick,  Just Energy Group Inc - CEO   [50]
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 Thank you.

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [51]
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 Thanks.

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Operator   [52]
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 Our next question comes from Damir Gunja. Go ahead, please.

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 Damir Gunja,  TD Newcrest - Analyst   [53]
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 Thank you. Good afternoon. I just want to touch on seasonality. Can you remind us how -- just how strong Q3 and Q4 are relative to the full year? I guess you had some acquisitions. You are moving into different geographies, and then the shift from residential to commercial. Is it still safe to say going forward, that those two quarters represent -- I don't know -- 60% of your gross margins?

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 Beth Summers,  Just Energy Group Inc - CFO   [54]
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 Yes, Damir, I think if you look at Q3, Q4, that would be roughly 60%, Q1, Q2, 40%. And as you said, I think if you look back historically, it's become less seasonal, but it's still fairly seasonal.

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [55]
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 And Damir, that's providing the winter shows up. We all pray for a good winter.

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 Damir Gunja,  TD Newcrest - Analyst   [56]
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 I guess on that topic, have you looked at any hedging for the upcoming winter, or is it too early?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [57]
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 Yes. It's always the very similar approach to what we took last year with the weather hedges, it is what is being put into place for this coming winter. And similarly, we put those in place for the summer periods back in February. So it's the same [probably half] the season.

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 Damir Gunja,  TD Newcrest - Analyst   [58]
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 Okay. And just a final one for me. I guess it's probably still early. It's clearly not showing up in the numbers yet. But what's your view on the natural gas environment? There seems to be some signs that going forward, things are certainly going to look better than they have been in recent years. Maybe comment on what you are seeing there? And what sort of forward impact there could be, if there is some re-acceleration, and presumably you would be building some significant and better margins on that side?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [59]
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 Yes, I think it's -- I think we've commented for the last couple of years, but any strengthening in the gas markets is a positive to us. Both because there is the volatility in the price, which is a benefit to our residential sales force in particular, but also the ability to maybe shift a little more margin on to the customer price as well. So gas prices are up -- headed over CAD3 -- they are over CAD3, any strengthening up there makes things better for us. That includes in our renewal book, we talked about the impact of renewals against a CAD2 gas price. But as this is moved, that again, will benefit what we are doing.

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 Damir Gunja,  TD Newcrest - Analyst   [60]
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 Okay. Can you remind us, is it another 12 months or so until you get through sort of the worst of some of those high gas renewals?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [61]
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 15. So we were 18 last quarter, 15 this quarter.

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 Damir Gunja,  TD Newcrest - Analyst   [62]
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 Got it.

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 Ken Hartwick,  Just Energy Group Inc - CEO   [63]
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 We are on [run capital].

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 Damir Gunja,  TD Newcrest - Analyst   [64]
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 Thank you.

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [65]
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 15.

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Operator   [66]
------------------------------
 And our next question comes from Manish Goswami. Go ahead, please.

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 Manish Goswami,  - Analyst   [67]
------------------------------
 Hi. Just a quick question for you. In terms of the breakdown between commercial and residential customers what, in your the internal models when do you guys see the tipping point where you will have more margin coming from the commercials? Can you give a sense for five years out, what we might expect from your portfolio?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [68]
------------------------------
 Yes, we think overall that 50/50 mix is one that we think we like. And like I say, we are starting to see net-net growth on our residential book, coming out of this quarter. To your earlier question, as we move through the renewals over the next 15 months, we think our renewal rates, which a lot of it is residential, will climb, contributing again to the residential growth. So a 50/50 mix is something that we would look out in our planning cycle, and say that's probably where we will be at in two years from now, and three years from now.

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 Manish Goswami,  - Analyst   [69]
------------------------------
 So two to three years is when you think you will hit the 50/50 mark? Okay. And when you get to that point, can we think of the business being less volatile in terms of commercial customers being more sticky? I think you mentioned that in the past or -- in terms of renewals and --?

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 Ken Hartwick,  Just Energy Group Inc - CEO   [70]
------------------------------
 Yes. The commercial customers tend to demonstrate a certain level of loyalty across some of the base. A number of them are to bid, brokers bid them out through the commercial books, so you get some volatility related to that. But again, as you look across the two customer pools, resi and commercial, both have different attributes that we like, which is why we want that mix that we are targeting.

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [71]
------------------------------
 They are different profile customers. And one thing about the commercial business that we all have to be reminded of, is that it's not as predictable, customer addition-wise and renewal-wise as residential customers are. Because Ken alluded to it earlier, our renewals this quarter were 74%. But you have to be cautioned, that a lot of it was based on commercial renewals, and some of them might not happen in the next year to come. So just -- they are two customer bases that you have a tendency to behave somewhat differently.

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 Manish Goswami,  - Analyst   [72]
------------------------------
 I appreciate the color. Thank you for taking my question.

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Operator   [73]
------------------------------
 And our next question comes from Nelson Ng. Go ahead, Nelson.

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 Nelson Ng,  RBC Capital Markets  - Analyst   [74]
------------------------------
 Great, thanks. Just a few follow-up questions. In terms of the warm weather in the US and the drought, how has that impacted the Q1 margins? And how do you expect it will impact Q2 margins? I saw in the report, that you received about CAD1.2 million of proceeds from your weather swaps in Q1?

------------------------------
 Beth Summers,  Just Energy Group Inc - CFO   [75]
------------------------------
 Yes, Nelson, from a weather impact, and from that warm weather in the south, we -- there is much less impact. So you wouldn't see much in Q1 on the electricity side, and it's because of the contracts are a little different. Typically on the gas contracts where they are load balanced, so you don't have that same fluctuation, or see that difference when you get the extreme weather on either side. And as for the weather -- the weather hedge, yes, that was a result of some the extreme weather. Where you have extreme volatility in Texas, and we put weather hedges in place to protect ourselves, similar to what we do in the northeast and in Canada, and the gas [locks] in the winter, similar structures.

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 Nelson Ng,  RBC Capital Markets  - Analyst   [76]
------------------------------
 Okay. So in general, you don't expect Q2 to be materially impacted from the dry weather?

------------------------------
 Beth Summers,  Just Energy Group Inc - CFO   [77]
------------------------------
 No. There will be a bit of a pick up, but not material.

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 Nelson Ng,  RBC Capital Markets  - Analyst   [78]
------------------------------
 Okay. And then just --

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 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [79]
------------------------------
 Remember, we don't speculate on a commodity. We are hedged. And any additional balancing is done with the pass-through cost to the customer, so do not expect a big pick up throughout the summer. We are happy summer showed up, for the remainder of the volume that is locked in, but we are not going to be benefiting financially from the very hot summer.

------------------------------
 Nelson Ng,  RBC Capital Markets  - Analyst   [80]
------------------------------
 Okay. Got it. And for the ethanol facility, was the decline in EBITDA, was that mainly due to the margin squeeze, in terms of the movements in price of ethanol and wheat? Or was it attributable to the downtime?

------------------------------
 Beth Summers,  Just Energy Group Inc - CFO   [81]
------------------------------
 It's twofold. A portion of it was attributable to the planned outage, as well as some of the reduced production as a result of some very wet weather, and difficulty in getting the feed stock. The other impact, you are absolutely correct. It's a squeeze on the margin, where ethanol prices have declined, and the grain prices have increased, squeezing it, comparatively speaking from last year.

------------------------------
 Nelson Ng,  RBC Capital Markets  - Analyst   [82]
------------------------------
 Okay. So going forward, with no downtime I presume you will be operating -- or you will be generating positive EBITDA for that facility?

------------------------------
 Beth Summers,  Just Energy Group Inc - CFO   [83]
------------------------------
 Yes.

------------------------------
 Nelson Ng,  RBC Capital Markets  - Analyst   [84]
------------------------------
 Okay, thanks.

------------------------------
Operator   [85]
------------------------------
 (Operator Instructions).

------------------------------
 Rebecca MacDonald,  Just Energy Group Inc - Executive Chair   [86]
------------------------------
 Well, if there are no other questions, we would like to thank you very much for your support. If you have any additional questions, feel free to call Ken, Beth or myself. And we will look forward talking to you when we report the second quarter. Thank you very much.

------------------------------
Operator   [87]
------------------------------
 Thank you, ladies and gentlemen, this will conclude today's conference. Have a nice day.




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