Q1 2016 Just Energy Group Inc Earnings Call

Aug 13, 2015 AM EDT
JE.TO - Just Energy Group Inc
Q1 2016 Just Energy Group Inc Earnings Call
Aug 13, 2015 / 06:00PM GMT 

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Corporate Participants
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   *  Deb Merril
      Just Energy Group, Inc. - Co-CEO
   *  Pat McCullough
      Just Energy Group, Inc. - CFO
   *  James Lewis
      Just Energy Group, Inc. - Co-CEO

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Conference Call Participants
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   *  Damir Gunja
      TD Securities - Analyst
   *  Nelson Ng
      RBC Capital Markets - Analyst
   *  Carter Driscoll
      FBR & Co. - Analyst
   *  Kevin Chiang
      CIBC World Markets - 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 2016 results for the period ended June 2015. (Operator Instructions). I would now like to turn the meeting over to Ms. Deb Merril, Co-CEO, Just Energy Group. Please go ahead, Ms. Merril.

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 Deb Merril,  Just Energy Group, Inc. - Co-CEO   [2]
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 Thank you very much. Hi, everyone. My name is Deb Merril. I'm the Co-CEO of Just Energy and I would like to welcome you all to our fiscal 2016 first quarter conference call.

 I have with me this afternoon our Executive Chair, Rebecca MacDonald; my Co-CEO, James Lewis; as well as Pat McCullough, our CFO. Pat and I will discuss the results of the quarter, as well as our expectations for the future. We will then open the call to questions.

 Before we begin, let me 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 release.

 Our first-quarter results showed significant improvement in those operating measures we deem critical to our long-term success. During the first quarter, we delivered strong sales growth and continued to significantly improve the margin profile of our customer base, which translated to 29% year-over-year base EBITDA growth and strong cash flow generation. Notably, we accomplished this in what is traditionally our seasonally weakest fiscal quarter.

 Our margin per customer improved in both the residential and commercial business throughout 2015 and that progress continued in the first quarter of 2016, as gross margin grew by 22% year over year. The consumer division contributed an increase of 30%, resulting from higher margin per customer earned, while the commercial division increased 2%, in line with a 3% growth in customer base. The gross margin success is directly related to the ongoing commitment to the margin improvement initiative that we have talked about publicly over the course of the past year.

 To add some color on how far we've come along in this initiative, we are now signing consumer margins at CAD204 per RCE, which compares to CAD184 one year ago. Additionally, commercial margins are being added at CAD80 per RCE in Q1, as compared to CAD66 one year ago.

 We were able to drive these improvements in margin because our innovative new products are gaining more appeal and presenting more value for customers. This is allowing us to price our energy management solutions at more premium points and drive sustainable profitability for the future.

 Most of the gains we are driving through the sales and gross margin improvements are being realized in our base EBITDA. Base EBITDA grew 29% during the quarter, as a small portion of the gains were offset by increased administrative costs to support our large customer base, as well as increased selling and marketing costs.

 Overall, the results for the first quarter exceeded management's expectations and provide us with great confidence we can deliver a very strong fiscal 2016.

 Before I go any further, let me pause for a moment to make sure everyone picked up on the change in commercial commission terms we announced in conjunction with these first-quarter results. We are pleased to be able to announce that we have made a change to the commercial commission terms, better aligning with the realities of today's commercial business. We believe the change will help the Company better manage costs and cash flows, as well as provide greater alignment between base EBITDA and our results of operations for investors. Pat will cover the details of this change shortly and we've also covered this in our press release and MD&A.

 While this change in commercial commission terms moved more cost into the base EBITDA metric, the profitability profile of the Company is improving to a degree that management is able to still commit to the previously provided fiscal 2016 base EBITDA guidance of CAD193 million to CAD203 million. We believe this is a strong testament to the validity and sustainability of the improvement initiatives we see for the Company, most notably the margin per customer initiative.

 Now let me turn to our customer base activity and provide some color on what we witnessed in the recent quarter. During the quarter, we did see a decline in year-over-year gross customer additions, as well as negative net additions. These customer declines were driven by a couple of things. First, more difficult market conditions, marked by lower commodity prices and thus more competitive pricing across all markets, compared to the conditions we faced one year ago during the polar vortex, a time when we thrived in adding customers due to our unique value proposition.

 Additionally, our commitment to only accepting and renewing new customers that meet our profitability profile also impacted our results. As I discussed previously, Just Energy is not willing to participate in irrational pricing activity, nor do we feel we have to in order to remain competitive or increase our long-term profitability.

 In fact, Just Energy continues to become significantly more profitable and we are expanding our reach into our 2 million existing customers in a way that allows us to grow as they demand new innovative ways to meet their changing energy consumption needs. For example, our consumer customer base includes almost 50,000 smart thermostat customers today. These smart thermostats are bundled with a commodity contract and our experience indicates that customers with bundled products have lower attrition and higher overall profitability. Further expansion of smart thermostats is a key driver for continued growth of Just Energy and we will keep adding new innovative products, bundled with technology, to drive continued improvement in the profitability of the business.

 Overall, we are very pleased with the business performance this quarter, as well as the prospects for the future.

 With that, I'll turn it over to Pat

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 Pat McCullough,  Just Energy Group, Inc. - CFO   [3]
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 Thank you, Deb. We were very pleased with this quarter financially, especially as you focus on profit and cash.

 One of the things that I noticed that's very significant about the P&L this quarter, especially as you compare it to year-ago Q1, we grew the topline revenue by 14% and, while doing that, were able to grow gross margin by an even higher amplified percentage of 22%. As you go down to base EBITDA, again we've grown the percentage increase year over year by 29%, a higher figure, and ultimately base FFO by 91%.

 That amplification of year-over-year percentage increase as we trip down the P&L is very important to us. This means that we are doing more with every dollar of sales that we bring into the Company. So we are pretty excited about that.

 Let me cover some of the highlights of the first quarter and then provide some added color in certain areas. First-quarter sales were up 14%, as I mentioned, to CAD933 million, reflecting the growth in customer base, price increases, and higher US selling prices after currency conversion to Canadian dollars.

 The consumer division sales increased by 12%, while the commercial division sales increased by 15%, primarily as a result of currency conversion impact on US dollar-denominated sales.

 Gross margin was up 22% to CAD150.9 million, driven by higher sales, the impact of foreign translation of the stronger US dollar, and higher realized margin per customer in the current period, due to more disciplined pricing strategies. The consumer division contributed an increase of 30%, resulting from higher margins per customer earned primarily on variable rate products and JustGreen contributions, while the commercial division increased by 2%, primarily in line with the 3% growth in customer base.

 Base EBITDA was CAD38.9 million, up 29% from last year. This was driven by sharply higher margins, partially offset by higher operating expenses. The consumer division contributed CAD30.9 million to base EBITDA, an increase of 37% year over year. The commercial division contributed CAD7.9 million to base EBITDA from continuing operations, an increase of 5% year over year.

 The commercial division saw higher gross margin being offset by higher operational expenses.

 Effective fiscal 2016 with management's change to limit the upfront payment of commissions to an average term of 12 months, the capitalized commission will be classified as a current asset and the amortization of contract initiation cost is expected to decrease, with no new additions going forward.

 Let me take a minute to make sure this is clear and then I'll answer any questions you might have during the Q&A. Beginning this quarter, capitalized commissions will be classified as a current asset, a prepaid expense essentially, instead of a noncurrent asset as it was previously recognized for those contract initiation costs. As the capitalized commission is expensed into selling and marketing costs over the term for which the associated revenue is earned, it will no longer be recognized as amortization and will therefore be included in the base EBITDA calculation.

 Just Energy implemented this change to the commercial commission terms to lessen the period of prepayment term to an average of 12 months to help the Company better manage costs and cash flows. We believe this change will provide greater alignment between base EBITDA and our results of operations for investors. There is no expected impact on the selling and marketing costs going forward, but it will result in a decrease in the amortization portion of the expense.

 As a result of this change, in fiscal 2016 Just Energy expects to include approximately CAD20 million of incremental deductions in base EBITDA. Despite this increased headwind, Just Energy expects to offset this with continued strong gross margin performance, building upon the strong performance in the first quarter.

 After careful consideration, we have elected to hold to our originally projected full-year fiscal 2016 base EBITDA guidance of CAD193 million to CAD203 million. In other words, we are effectively raising guidance by CAD20 million for the full year.

 As you think about the effect of this change moving forward, in fiscal-year 2017 Just Energy expects to include incremental deductions in base EBITDA of approximately CAD40 million of prepaid commercial commissions which would previously have been included in amortization within the selling and marketing expense. This CAD40 million is more indicative of the full-year effect of this change moving forward.

 Moving back to the quarterly results. As Deb mentioned, we did see a decline in year-over-year gross customer additions, as well as negative net additions. Gross customer additions for the quarter were 302,000, a decrease of 32% compared to 441,000 customers added in the first fiscal quarter of 2015. Consumer customer additions amounted to 140,000 for the quarter, a 15% decrease from 165,000 gross customer additions recorded last year.

 The customer additions in the prior period benefited from the volatility experienced during the polar vortex as commodity prices increased dramatically.

 The combined attrition rate was 17% for trailing 12 months, a slight increase from the 16% reported a year prior. While consumer attrition rates remained consistent at 28%, the commercial rate increased to 9%. The increase in commercial attrition is a result of increased competition.

 Let's step back and look at profitability per customer, the initiative that was referenced earlier. Over the last quarter, we have added or renewed 238,000 new consumer customers at an average gross margin of CAD204 per RCE. This compares to 167,000 consumer customers lost at an average gross margin of CAD187 per RCE. That's an increase of CAD17 per RCE, on average, in the consumer division. The higher margin on consumer customers is an important positive trend, as these customers are largely locked into multiyear contract terms.

 Turning to the commercial side of the business, over the last 12 months we added or renewed 390,000 commercial customers at an average gross margin of CAD80 per RCE, whereas we lost 217,000 commercial customers that were locked in at only CAD68 per RCE of gross margin. So there you are seeing a much more dramatic percentage increase to the margin profile we are creating.

 Also worth noting is that if you look back one year, you'd see the exact opposite taking place. We were losing customers at CAD80 per RCE and adding customers at only CAD66 per RCE.

 Let me close with an update on some metrics and balance-sheet items. The payout ratio for base funds from continuing operations was 63% for the three months ending June 30, 2015, compared to 198% reported in the first quarter of fiscal 2015. The payout ratio on base FFO for the trailing 12 months ending June 30, 2015, is 70%.

 We ended the quarter with CAD105.1 million in cash and equivalents, an increase from CAD25.1 million, or a 318% improvement from last year.

 We reported no debt outstanding on the credit facility at quarter-end, as compared to CAD136 million drawn last year. The increase in cash balances and decrease in credit facility withdrawals over the past year have resulted in CAD216 million of additional buying power.

 At quarter-end, long-term debt was CAD676 million, compared to CAD774 million one year ago. Our booked value net debt was three times our trailing 12 months base EBITDA. This is down from 4.2 times one year ago. We do have the ability to make a normal course issuer bid to purchase for cancellation a portion of our convertible debentures. As of June 30, we've repurchased CAD2.7 million of those.

 One of the next steps in further delevering is renewing the credit facility. We are in advanced discussions with our syndicate of lenders for the credit facility. Based on commitments to date, we are optimistic that once finalized, the credit facility available will increase from the current capacity of CAD210 million with the term of the agreement spanning a longer period than the previous credit facility. The renewal on the credit facility is expected to be completed during the second quarter of this fiscal year.

 In summary, we are off to a great start to fiscal 2016 and making tremendous strides along our strategic initiatives. We are operating from a greatly improved overall financial position, a position we intend to further improve. This increased financial flexibility, combined with our commitment to maintaining a capital-light model, supports our ability to pursue our growth strategy, which focuses on new geographies, innovative products that meet customers' changing demands, and new energy management solutions that will continue to disrupt the traditional utility model.

 With that, I'll turn it over to Deb for some concluding remarks.

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 Deb Merril,  Just Energy Group, Inc. - Co-CEO   [4]
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 Thank you, Pat. As Pat said, we are off to a great start this fiscal 2016 and we have aggressive goals laid out for the coming quarters.

 But I'd like to shift the focus a bit more to the critical elements of our strategy that will be the platform for our sustainable long-term success. Let me start with our overseas business.

 The UK business continues to thrive. To date, that market has grown to become 5% of our customer base, adding 233,000 RCEs in total. This is a significantly profitable piece of business for our Company and we are seeing growth both on the commercial and the consumer side.

 We believe this early success validates our model and our ability to compete outside of North America, taking the lessons learned and evaluating new avenues for growth in new markets that will benefit from our innovative approach to energy management solutions. As such, we will continue evaluating new market opportunities that offer strong demographics, clear participation in industry trends, and a favorable regulatory landscape in continental Europe.

 Now, moving over to solar. Just Energy's solar program remains on track. The feedback has been very positive and the door-to-door efficiencies are proving to support strong growth in this platform.

 We commenced our initial pilot phase in southern California during the quarter, with the volume of customers signed during this initial pilot resulting in higher-than-expected profit. Based on the success of Just Energy's pilot launch in southern California, operations will continue to grow with further expansion in California and the Northeast US in the near term, while pushing the industry forward to develop more value-add customer-friendly products.

 As you may know, our solar partner, Clean Power Finance, recently merged with Kilowatt Financial to create Elevate Power and we view this as a very positive development. Just Energy will continue its partnership with Elevate Power, which will be one of the largest providers of third-party residential solar financing and loans in the United States.

 In summary, Just Energy's objectives remain unchanged. As a Company, we strive to deliver outstanding financial results and made significant progress toward achieving our objective of becoming a premier world-class provider of energy management solutions.

 Management is encouraged by a stronger -- by the stronger profitability in the business and remains confident it is delivering the appropriate dividend strategy that is supported by our continued ability to generate strong cash flows consistently. We foresee continued sustainable growth that will be driven by an expanded geographical footprint, continued product innovation, and bringing new energy management solutions to market that align with customer demand.

 With that, we will now open for questions.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions). Damir Gunja, TD Securities.

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 Damir Gunja,  TD Securities - Analyst   [2]
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 I've got two. Just a quick one to begin. So the change with the treatment of the amortization, I just want to be clear. So does that start with the second-quarter results?

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 Pat McCullough,  Just Energy Group, Inc. - CFO   [3]
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 No, Damir, this is Pat. That began effective April 1.

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 Damir Gunja,  TD Securities - Analyst   [4]
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 Okay. So the amortization that I see in the financials here is related to something else.

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 Pat McCullough,  Just Energy Group, Inc. - CFO   [5]
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 Fiscal 2015.

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 Damir Gunja,  TD Securities - Analyst   [6]
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 Right, okay.

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 Pat McCullough,  Just Energy Group, Inc. - CFO   [7]
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 So we'll continue to amortize outside of base EBITDA the previously capitalized long-term assets, which I believe have a balance of about CAD10 million at the end of Q1, and then every commercial commission will be a prepaid expense within base EBITDA from April 1, 2015, going forward.

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 Damir Gunja,  TD Securities - Analyst   [8]
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 And just on the -- I guess on the margin side, the one thing I'm trying to reconcile is you mentioned a relatively competitive environment, I guess, on the pricing side. I'm trying to wrap my head around that versus sort of the higher margins that you are seeing in both consumer and commercial.

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 Deb Merril,  Just Energy Group, Inc. - Co-CEO   [9]
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 Yes, and I think what you see it is in our net additions. We are tending to walk away from business that we don't deem as profitable enough, so we are increasing that average margin. And sales may be slowing down a bit, but overall the profitability of the business is in a better profile.

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 Damir Gunja,  TD Securities - Analyst   [10]
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 Okay. And are you able to give us even a rough idea of the year-over-year benefit from FX that's in the gross margins?

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 Pat McCullough,  Just Energy Group, Inc. - CFO   [11]
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 Yes. In gross margin, it was almost CAD12 million. About one-third of the gross margin improvement came from FX. About two-thirds of it remaining from performance. EBITDA, we saw CAD2.7 million of FX good guy year over year. So that CAD9 million increase, CAD2.7 million of it is from FX, the remainder from performance.

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 Damir Gunja,  TD Securities - Analyst   [12]
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 Perfect. Thanks.

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Operator   [13]
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 Nelson Ng, RBC Capital Markets.

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 Nelson Ng,  RBC Capital Markets - Analyst   [14]
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 Deb, I was wondering whether you can provide a bit more color in terms of the solar rollout. You mentioned that you are looking to expand in California and the US Northeast. But I was just wondering, are we still in like very early stages? Or could you give some idea of like how many salespeople would be pitching solar in this quarter or the next quarter and how that would increase?

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 Deb Merril,  Just Energy Group, Inc. - Co-CEO   [15]
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 Yes, so we -- as we said before, we are in California. We actually launched New York last week and we are leading up to that and doing some work, but actually hit the street in New York last week as well, so we are now in two states and continuing to kind of probably pick up the pace here.

 In the last few weeks, our sales have increased on a kind of week-over-week basis, so we are starting to see some momentum on that. So we expect that now over the next few months, we'll be able to increase and start to maybe have it be meaningful enough where we can start to communicate that to the market as well.

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 Nelson Ng,  RBC Capital Markets - Analyst   [16]
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 Okay, thanks. And then just on competition and just following on Damir's question, in terms of the level of competition, have you seen -- competition has picked up, I think you mentioned, but you are also kind of walking away from business. So could you remind us how -- just a rough comparison of the level of competition now compared to, I guess, a year ago when I think the polar vortex put a number of energy retailers out of business? Have you seen a big pickup in the number of firms competing for business and how have things changed?

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 James Lewis,  Just Energy Group, Inc. - Co-CEO   [17]
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 Nelson, this is Jay Lewis. I think what we've seen here is some of the bigger players you saw, like FirstEnergy mentioned they were getting out and Dominion, and then what we've seen happen is some smaller players come back into the market that maybe aren't familiar with the polar vortex or the summer pricing that can happen in ERCOT here.

 And so when we see things like that, we understand the marketplace and so we walk away from, let's say, deals there, but we see other opportunity, which is why we've seen our profitability grow.

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 Nelson Ng,  RBC Capital Markets - Analyst   [18]
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 Okay. And then, just one quick question on FX. I presume it's for Pat. Can you just remind us of what your current FX strategy is? And I guess given the weak Canadian dollar, is it a good time to increase or reduce hedges?

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 Pat McCullough,  Just Energy Group, Inc. - CFO   [19]
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 Right now, we do not take any forward contracts or hedges around the translation exposure that we think about on the earnings call. We do take positions on a 12-month forward basis for the transactional risk associated with US dollars that we'll have to bring back to Canada to service dividend payments, interest payments, etc.

 As we go forward, one of our strategies is to reduce the amount of Canadian based -- Canadian dollar-based debt and get more of a natural hedge alignment between our debt and the rest of the book.

 If you think about our gross margin, the translation risk around gross margin is largely neutralized by the footprint of SG&A, which fits where our gross margin is incurred, so about 71%, 72% of the business happens in the US. Very similar ratio of SG&A. So the translation exposure that we have is really only on the EBITDA values. And we do take positions for the transactional movement of US dollars back to Canadian dollars, but not the translational risk.

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 Nelson Ng,  RBC Capital Markets - Analyst   [20]
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 Okay, got it. Thanks. Those are my questions for now.

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Operator   [21]
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 Carter Driscoll, FBR.

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 Carter Driscoll,  FBR & Co. - Analyst   [22]
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 First of all, congratulations on a very strong start to fiscal 2016.

 First question, obviously you've taken a very specific strategy of kind of pruning the less profitable customers. Be fair to say that you expect very minimal net addition growth, maybe in flat growth for this year as you continue to prune that portfolio? Or maybe asked a different way, how long do you expect this to continue to show such noticeable changes on a quarterly basis in terms of your net RCEs?

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 Pat McCullough,  Just Energy Group, Inc. - CFO   [23]
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 Yes, so we do believe to support the long-term profit picture here that we need to focus on growing customer base, which will then, obviously, turn into sales growth and profit growth over the long term.

 Having said that, we are going to be very determined to creating a level of profitability that's acceptable for the amount of risk and, frankly, value that we provide.

 As you look at our three growth areas that we talk about quite a bit, the geographic expansion that we are looking for in both Ireland and continental Europe is one place that we are going to see some customer growth. As you look at product innovation with flat bill or other bundled type solutions, you're going to see some nice customer growth and product per customer growth, which is something we're going to have to think about presenting to you in an articulate way in the future.

 And then, the last one is these adjacent energy management solutions, like residential rooftop solar or energy storage at some point in our future. These are areas of customer growth that we expect to put on the board.

 We don't think this is going to be a tremendous hit to our scale in the short term. But we are proving that we really are willing to ensure that we have accretive cash and profit coming in on new deals, not just chasing market share.

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 Carter Driscoll,  FBR & Co. - Analyst   [24]
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 Got it. And then, maybe following up on that, the CPF merger with Kilowatt Financial, I'm assuming that will help the scale. Obviously, you saw SunEdison buy Vivint. What else does this do for you, that merger, potentially? I'm assuming it opens up new territories and maybe some new financing possibilities in terms of maybe your smart thermostats. Can you address that for me, please?

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 Pat McCullough,  Just Energy Group, Inc. - CFO   [25]
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 Yes. We are pretty excited about this. Clean Power Finance and Kilowatt Financial coming together now puts [$]1.6 billion of assets under management, so it almost doubles the capacity that Clean Power Finance had.

 This also takes Clean Power Finance's footprint and expands it dramatically to over 45 states where they offer residential rooftop solar programs, both PPA lease and loan products, which we are excited about. This puts loan products in their portfolio directly, and then Kilowatt Financial has been in the energy efficiency financing business.

 This is a huge coup for Just Energy as well as we attempt to respect and protect our CapEx-light or no-CapEx model. We can start to think about accelerating smart thermostat deployments or other energy-efficient devices, potentially through the use of our partners' financing.

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 Carter Driscoll,  FBR & Co. - Analyst   [26]
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 Okay. Next question is in terms of the pruning of the commercial profile. Is there any particular type of commercial customer that you've found to be less profitable or in any regional area where you've found maybe pockets of weakness that you pruned? Or has it been uniform across your territories?

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 James Lewis,  Just Energy Group, Inc. - Co-CEO   [27]
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 Carter, this is Jay Lewis. I think when you look at it for this past quarter, Texas and Illinois, for example, are two markets there where the margins didn't seem appropriate with the risk level for us. Those markets tend to come back at certain times. We did have some weather here in the last week or so. Prices didn't print like they have historically, but you are seeing some pricing run up there.

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 Carter Driscoll,  FBR & Co. - Analyst   [28]
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 Okay. And I think you had originally talked about, and I realize it's very early in your forays into solar, but you talked about north of CAD65 a kilowatt hour. Maybe you talk about what you are experiencing at least in the early days and whether you think that's sustainable as you scale. I don't know if you can put a specific number around it or maybe talk about percentage versus your initial expectations from a pricing perspective.

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 Deb Merril,  Just Energy Group, Inc. - Co-CEO   [29]
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 I can tell you that we are seeing margins and profit higher than what we initially expected, which was -- we are very pleased by and we are starting to see some of that. The expertise in sales and talking to customers about these products is taking shape as well. So I think we are seeing a positive trend on that.

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 Carter Driscoll,  FBR & Co. - Analyst   [30]
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 Okay. Maybe could you maybe compare and contrast, because I think your initial foray into the UK was focused more on the commercial side and you mentioned more maybe evenly balanced between consumer and commercial. Is it a different product set that you are selling versus the US? Is there more adoption of JustGreen, or any type of color you can compare in this territory as to why you are getting such a higher margin or maybe it's just because your initial penetration steps? Help me understand a little bit better.

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 Deb Merril,  Just Energy Group, Inc. - Co-CEO   [31]
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 Sure, Carter. We actually started in the UK on the commercial side kind of taking our platform -- our portal and our pricing platform over there to make it easy to get deals done and to do business with us.

 We quickly, within a year, a year to probably 16 months, moved into the residential side as well. And really in the last, I would say, probably this last quarter was when we were starting to see a lot of pickup on the residential side. We are starting to go into using up a few more channels, some more online channels in affinity, as well as one of the things I think that is really exciting for us is that we have the ability to start using some of the products we have in the US and taking them over to the UK, and I think it tends to be maybe less because they are very limited in the number of products they can offer. Each retailer can only offer four.

 So you've seen less product innovation in the UK than you have probably in the US in markets like Texas and other -- Illinois and all the other markets we operate in.

 So what we are seeing now is we are bringing over some of our innovative products in the US over to the UK, and I really think that that will continue to help drive a lot of margin, as well as customer growth, on that side as well.

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 Carter Driscoll,  FBR & Co. - Analyst   [32]
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 Okay, and then maybe a last question for Pat. The credit facility, if I understand correctly, is more about extending the term than it is necessarily increasing the size of the facility. And then follow-up to that is kind of what priorities are in terms of recapping.

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 Pat McCullough,  Just Energy Group, Inc. - CFO   [33]
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 Yes, we are looking at the capacity actually going up from the present CAD210 million capacity. We are expecting to get north of CAD250 million.

 We'll close at a level that allows us to support our intra-month working capital needs. And we are expecting to have a longer term on that. This allows us to really unlock the divestiture net cash proceeds that we've been holding onto on our balance sheet to really attack the long-term debt. So as we get this credit facility behind us, the immediate next step is to focus on the longer-term convertibles and bonds on our books.

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 Carter Driscoll,  FBR & Co. - Analyst   [34]
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 Okay. All right. I'll get back in the queue. I appreciate all the time. Thank you.

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Operator   [35]
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 Kevin Chiang, CIBC.

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 Kevin Chiang,  CIBC World Markets - Analyst   [36]
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 Thanks for taking my question and congrats on a good start to the year here.

 Just on your net attritions, your negative net accretions in Q1, it seems like some of this was due to, as you mentioned, I guess, steps you've taken to remove less profitable customers. And I guess as you looked at your contract renewal schedule, I'm just trying to get a sense of how much more of a headwind it's going to be as you look to rebase your gross profit per customer higher here. Are we in for, say, a few quarters of headwind until this rolls over or do you view this as more of a one quarter impact?

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 James Lewis,  Just Energy Group, Inc. - Co-CEO   [37]
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 Kevin, I think when you look at it, what we are saying is that on the renewal side we decided not to go after that low, let's say, gross margin which then translates to low to no EBITDA unless everything goes according to plan.

 What you see on the attrition side, especially around the commercial, as commercial customers ended their contracts and they haven't seen any volatility there, sometimes they let those roll over, and then when they decide to renew them at these low margins, that becomes attrition. So when we say the pruning, it's more along the lines of being selective about which customers we sign up on a gross adds perspective and then which customers we go after on a net perspective.

 So I think what we are doing today, we have better data analytics to understand which customers we are making money with, not just on average. So as long as we're making money on the customers, you'll see us add them there. So that's the way we look at it going forward.

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 Kevin Chiang,  CIBC World Markets - Analyst   [38]
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 Okay, that's helpful. And just a point of clarification, Pat. On the FX comments you provided in terms of the tailwind, if I were to look at customers added and renewed, the gross margin per customer, they are up roughly CAD20. Should I also be thinking of that as roughly, call it, two-thirds related to internal initiatives to improve profitability and one-third being FX aided, or are those pieces of the pie different when I look at that specific metric?

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 Pat McCullough,  Just Energy Group, Inc. - CFO   [39]
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 Yes, you are correct, Kevin. That's a fair observation.

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 Kevin Chiang,  CIBC World Markets - Analyst   [40]
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 That's helpful. Then just lastly for me, I know you are transitioning from independent contractors to employees. I'm just trying to get a sense of how that's coming along. Are you seeing any impact on worker productivity, impact on some of your better sales members. Just trying to get a sense of how that transition is going through this period.

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 James Lewis,  Just Energy Group, Inc. - Co-CEO   [41]
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 Kevin, I think when we look at it, it's really market by market. In the markets where we have converted, we've seen success there, but we also have had success with that independent contractor model.

 So in certain markets, it makes sense to have that model in place; in another markets where it doesn't andn we think we need to have more control to get that value proposition out, it's been successful as well. So I think we are open to making sure we have the right sales force going forward, whether that's independent contractor or employee based.

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 Kevin Chiang,  CIBC World Markets - Analyst   [42]
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 Perfect. That's it for me. Thank you very much.

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Operator   [43]
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 Thank you. We have no further questions at this time. I would now like to turn the call back over to Ms. Deb Merril for closing remarks.

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 Deb Merril,  Just Energy Group, Inc. - Co-CEO   [44]
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 Perfect. Thank you very much and we appreciate everybody's participation on the call, as well as your support of the Company.

 Like we said, we are very excited about our first quarter and we are looking forward to a great fiscal 2016. I also would like to quickly thank our employees. We have a lot of people in a lot of different offices across three countries that really make this happen and we wouldn't be here without them, so definitely take the time to thank them for their efforts, and we'll talk to you guys again in a couple months. Thank you.

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 Pat McCullough,  Just Energy Group, Inc. - CFO   [45]
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 Thank you.

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Operator   [46]
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 Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.




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