Q2 2018 Just Energy Group Inc Earnings Call
Nov 09, 2017 AM EST
JE.TO - Just Energy Group Inc
Q2 2018 Just Energy Group Inc Earnings Call
Nov 09, 2017 / 03:00PM GMT
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Corporate Participants
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* Deborah Merrill
Just Energy Group Inc. - Co-CEO, Co-President and Director
* James W. Lewis
Just Energy Group Inc. - Co-CEO, Co-President and Director
* Patrick McCullough
Just Energy Group Inc. - CFO
* Ubavka Rebecca MacDonald
Just Energy Group Inc. - Co-Founder and Executive Chair
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Conference Call Participants
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* Carter William Driscoll
FBR Capital Markets & Co., Research Division - Analyst
* Damir Gunja
TD Securities Equity Research - Director
* Raveel Afzaal
Canaccord Genuity Limited, Research Division - Analyst
* Sameer S. Joshi
H.C. Wainwright & Co, LLC, Research Division - Associate
* Sophie Ksenia Karp
Guggenheim Securities, LLC, Research Division - Senior Analyst
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Presentation
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Operator [1]
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Good day, everyone, and welcome to the Just Energy Second Quarter Fiscal 2018 Conference Call and Webcast. (Operator Instructions) Please do note that today's event (inaudible). I would now like to turn the conference over to Deb Merrill, co-CEO. Please go ahead.
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Deborah Merrill, Just Energy Group Inc. - Co-CEO, Co-President and Director [2]
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Thank you very much. Good morning, everyone, and thank you for joining us for our fiscal 2018 second quarter earnings conference call. My name is Deb Merrill, I'm the co-CEO of Just Energy, and I have with me today our Executive Chair, Rebecca MacDonald; my co-CEO, James Lewis; as well as Pat McCullough, our CFO. Pat and I will discuss the results for 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.
I'll start today's discussion by first providing some perspective on the near-term results in operations before I conclude the call with an update on some of the exciting longer-term activities that tie into our growth strategy. Our second quarter results reflect mostly nonrecurring headwinds that impacted our financial results and the industry at large. Pat and I will take you through the details behind these results but we're also going to highlight some very positive trends we saw in the core business.
The EBITDA was below our expectations, due the impact of abnormally mild summer weather in North America and hurricane and tropical storm patterns, including disruption caused by Hurricane Harvey.
These weather patterns yielded lower consumptions usage reductions as high as 25% worse than 1 year ago. The impact of consumption was not just fell in directly affected areas but across the continent impacting the Midwest, East and Canadian regions. Competitive market conditions also resulted in a 1x reduction in taxes renewal margin. The lower EBITDA in the quarter was also attributable to the company's investments in strategic sales growth initiatives that are already showing positive results in our customer base.
Our financial results depicted $22 million year-over-year impact in the second quarter due to mild weather and Hurricane Harvey. To point out that Q2 fiscal 2017, was an exceptional quarter due to the higher consumption where technical electricity prices stayed in check. The company spent $8 million more in new markets and channel development in the period versus last year as we expand retail sales and deploy our loyalty reward program. There are obvious benefits to these investments that I will detail in a moment. The remaining $6 million is a combination of nonrecurring taxes renewal margin softness and a smaller customer base from a year ago. Due to the first half financial results, management has revised guidance for fiscal 2018, to $175 million to $190 million while maintaining our dividend at present levels. Despite the near-term challenges, we also had some very promising results during the quarter as well. We achieved a record low 11% attrition rate for trailing 12 months with improvements in both consumer and commercial attrition while maintaining a consistent renewal rate. Our ability to add new RCE is strengthening, and we posted a positive net additions for the first time in the last 2 years. We have significant sequential and year-over-year growth addition growth in both divisions and net RCE additions also increased. We continue to receive great customer reception and feedback around our growing suite of value-added products in long-term loyalty program. And we remain confident we can build on this momentum. In line with our expanding product offering, we are beginning to shift our focus to a total customer account metric. Our total customer count has increased 7% to nearly 1.6 million total customers since fiscal 2017 year end, a trend we're confident will continue.
This positive trend is a testament to the fact that our customers' see us as a valued partner in energy needs and not just an as vendor. We are also aggressively pursuing the milestone of reaching 1 million customer threshold for enrollment in our customer loyalty program Just Energy Perks. We see clear evidence that our loyalty reward program leads to more customer lifetime value for the company.
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Steady improvement in internally track Net Promoter Score, which is a leading customer loyalty metric. Overall, our most profitable consumer base is turning the corner towards the same growth.
As a leader in the retail energy space, our strategic initiative to further our international operations, expand our retail sales channel and continue to invest in product and geographic growth opportunities are our top priorities. As we look to overseas markets, the U.K. continues to perform well. This now represents 11% of our total RCEs having grown net additions by nearly 23% year-to-date with strong growth in both the consumer and the commercial business. The company successfully launched its selling operations in Ireland and are currently signing up new customers every day. We are selling through multiple sales channels, and our products are truly differentiated from the competition. As well as business development activities continuing in Germany and Japan as well.
Our retail channel expansion effort also continued to exceed expectations. We've expanded to 237 new stores across 11 retail partners. And we plan to be in 500 stores by the end of fiscal 2018. At the 237 stores level we currently have, the company is selling at an annual rate of 145 -- 140,000 RCEs a year in new additions. We are ahead of our internal plan for store deployment, and we're confident that we have -- that we will achieve our 500-store target by the year end. Pat will now take us through some of the financial highlights.
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Patrick McCullough, Just Energy Group Inc. - CFO [3]
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Thank you, Deb. As Deb mentioned, this quarter's financial results were challenged by mostly nonrecurring headwinds. First, I'll cover some of the highlights of the second quarter and then provide some added color on certain areas. Our second quarter base EBITDA declined 64% to $21 million, due to the mild summer weather, hurricanes Harvey and Irma and investments in strategic growth. The decrease in base EBITDA was partially offset by savings from cost improvement initiatives we took during the quarter. And in our disclosures in our MD&A and press release in order to provide...
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into the results this quarter given the moving pieces. As you'll see, the decline in our second quarter base EBITDA was driven approximately $16.5 million due to mild weather. Another $5.6 million due to hurricane Harvey and the remaining $14.3 million due to performance, which is mostly investments in strategic growth.
The remainder can be described by more competitive market conditions. We believe most of this performance explanation is nonrecurring as we have fully implemented Just Energy Perks in the Texas market, which helps us differentiate versus competitors and combat margin compression. During the quarter, gross margin (inaudible) 22% to $143 million as a result of lower sales due to mild summer weather usage associated with hurricane and tropical storm patterns in North America. The Consumer division gross margin decreased 18%,a result of both the extreme weather conditions and the competitive market conditions, while the commercial division gross margin declined 33%. Average realized gross margin over the trailing 12 months ending September 30, 2017, was $253 per RCE in the Consumer division, representing a 3% decrease from the prior year period. And $88 per RCE in the commercial division, which represents an 11% improvement from the prior year period. We believe that clear opportunities exist for ongoing margin-per-customer improvement and have been more selective in our marketing strategy to secure additional commercial customers.
During the quarter, we drove customer attrition improvement of 4 percentage points year-over-year for the trailing 12 months. Our improving combined attrition rate was a result of our focus on becoming our customers' trusted adviser and providing a variety (inaudible) solutions to our customer base to drive customer loyalty. This is evident within each division as well. Consumer attrition of 22% improved 4 percentage points year-over-year and increased 1 percentage point sequentially. Commercial attrition of 5% improved 3 percentage points from the year ago period and improved 2 percentage points sequentially. The renewal rate was 61% for the trailing 12 months, consistent with the weighted average renewal rate reported 1 year ago. Consumer renewal rates decreased by 5 percentage points to 73%, while the commercial renewal rates decreased by 1 percentage point to 52%. While both segments declined, the renewal opportunities grew in the higher converting consumer segment, while the opportunities shrunk in the commercial segment, creating a flat year-over-year condition.
Moving back to the income statement. General and administrative expenses for the second quarter remained relatively flat with the year ago period at $47 million, as cost containment efforts offset the higher costs we incurred to support customer growth, additional international expansion and new strategic initiatives. Selling and marketing expenses decreased 1% year-over-year to $59 million despite growth additions being almost 50% higher than 1 year ago. The majority of the year-over-year increase in customer additions came from channels that are expensed as residual commissions.
Now I'll review some of our other key financial metrics and balance sheet items. Base funds from operations of $8 million decreased 85% from the prior year. The decrease was largely driven by lower sales resulting from cooler summer weather and customer disruption due to the late summer hurricanes. The payout ratio on base funds from operations (inaudible) 279% for the quarter, and 153% for the first 6 months of the fiscal year. On a trailing 12-month basis, the payout ratio is currently 106%. Because we experienced a nonrecurring profit pressure in this period, the trailing 12-month payout will step up to roughly 100% until the abnormal quarter rolls off next year. We expect to move back to a 60% trailing 12-month payout ratio, when this quarter rolls off the calculation next year. Cash and cash equivalents of $56 million were down 53% year-over-year, as a result of our lower gross margin in the fiscal quarter, but that was offset by $49 million withdrawal on our credit facility. Managing our balance sheet has been a priority for several quarters, our long-term debt increased 8.5% to $540 million from March 31, 2017, due to the credit facility withdrawal.
This resulted in Just Energy's book value net debt increasing to 2.6x on a trailing 12-month basis, which is higher than we reported last quarter. But roughly in line with the 2.4x reported 1 year ago. We remained committed to improving our debt ratios.
Turning to our outlook. We now expect to deliver fiscal 2018 base EBITDA in the range of $175 million to $190 million compared to previously issued guidance of $210 million to $220 million. This change reflects the impact of our first-half financial results on the full year. With that, I will turn it back over to Deb.
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Deborah Merrill, Just Energy Group Inc. - Co-CEO, Co-President and Director [4]
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Thanks, Pat. We spent the last year's refining and innovating new differentiating value-driven products, which are showing positive results in our customer base. We are happy with our progress in sale channels (inaudible) continue to add new channels and partners to further ensure that we are able to grow our business.
In summary, while we are not satisfied with the current quarter financial results, due to the onetime nature of notes to the headwinds, we feel confident that our customer growth and efficiencies in operations will lead to a stronger overall company enable us -- enabling us to deliver strong results. We want to thank our loyal shareholders for their support of our strategy. And really quickly, before I go into Q&A session, I want to touch on the devastating weather events that affected our community in Houston. As Houstonians, we witnessed first-hand the devastation our city endured from Hurricane Harvey. We also saw our employees, our friends and our neighbors unite together to begin the healing and rebuilding process to help bring Houston back. We've never in more proud to call Houston home and we're proud to be an active member of the community there. And now we will open it up for questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions) And our first questioner today is Carter Driscoll with FBR Capital Markets.
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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [2]
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First question is, I understand the hurricane effects, I understand the investments in growth initiatives. I'm a little confused as to why you're hedging strategy didn't kick in a little bit, across multiple territories, so it's not just the East that was warmer -- cooler than expected in summer and then in prime AC territory, but you're talking the Midwest, Ontario, is this effect more from really low volatility and therefore, hedging wouldn't have been effective, but it just seems like weather effect was even beyond what I would've expected this quarter, so if you can address that first then I have a couple of follow-ups.
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James W. Lewis, Just Energy Group Inc. - Co-CEO, Co-President and Director [3]
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Yes. Carter, it's James Lewis here. I think, the follow-up -- the weather year-over-year, so there are a couple things that were not weather hedging strategy. On the -- in the summer, we're usually looking for extreme temperatures on the high end. So that's what we -- our weather strategy hedges worked. On the cool side while we've looked at, weather hedges, let's say for the weather not showing up or the heat not showing up, it really hasn't been cost effective in the past there when we try to look for those options. So our strategy focused you more on the extreme weather events, pricing going to $9,000 or so.
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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [4]
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Okay. So you're basically saying it just wasn't cost effective or you didn't anticipated it to be a cool summer?
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James W. Lewis, Just Energy Group Inc. - Co-CEO, Co-President and Director [5]
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We hedge to normal. So when you we look at normal weather that was our highly charges looks towards and then we put on weather hedges for the extreme weather on hot side in the summer. On the cool side, we didn't expect it to be this cool, that's for sure across the board year-over-year.
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Deborah Merrill, Just Energy Group Inc. - Co-CEO, Co-President and Director [6]
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And Carter, I think, just add a little bit there -- I think, we've said -- as we talked about our hedging strategy we say, we're always refining it, and we're always looking for cost-effective ways to manage the risk. And we have looked at especially for Texas, warm -- cool summer hedges as Jay mentioned, but we haven't been able to find the right structure at the right cost to be able to do that. So we focused on the extreme high end not the low end so far. But we'll continue to look to refine that and see if there are options that are available that will be cost-effective in the future, but as of now we didn't have any cost-effective options available to us.
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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [7]
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All right. So then let's extrapolate that to the current quarter where (inaudible) quarter, it's been a warmer-than-expected winter so far where at least the fall period to October. What is your -- has your hedging strategy been modified in response to Q3, 4Q whether...
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Deborah Merrill, Just Energy Group Inc. - Co-CEO, Co-President and Director [8]
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Yes. So we -- for winters we actually do have cost-effective strategies for mild winters on the extreme side, on the high side and the low side. So that is already in place, and we have that -- we've been doing that the last several years. We do find products that work for us there. It's just -- it's the summer that isn't managed, we haven't been able to find structures to manage it on the mild side, if that makes sense.
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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [9]
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Okay. Now it does. The next question is -- so you talked about, I guess, being in 200 and, I believe, you said 33 stores at the end of the quarter, end of October and so on...
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Deborah Merrill, Just Energy Group Inc. - Co-CEO, Co-President and Director [10]
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237, yes.
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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [11]
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237, excuse me. You're basically on track in your estimates to more than double that by the end of fiscal '18. Is there -- before you were talking about in a pilot kind of trial somewhere between 3 quarters and maybe as high as 2 people per day being signed up. Can you talk about what the average range over the past 90 days or so?
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Deborah Merrill, Just Energy Group Inc. - Co-CEO, Co-President and Director [12]
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Yes, sure. We target -- we wanted to be over 1.5 -- 1 to 1.5 range but we are seeing things -- we're seeing conversions in customer counts per day over 2. So all of our economics for the sales channel are assuming lower, but we're seeing -- we're still seeing a better customer contract per day than what our base assumption is.
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Patrick McCullough, Just Energy Group Inc. - CFO [13]
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When Deb, this is Pat, Carter, when Deb talked about the 140,000 on an annual sales rate basis, that's assuming 2 sales per store per day. You can back into the math pretty easy from 200-plus stores. When we get ourselves to 500, you'll see that annual sales rate improved over 300,000.
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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [14]
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Okay. But what you are expecting if I remember correctly.
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Patrick McCullough, Just Energy Group Inc. - CFO [15]
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Yes. It is better than (inaudible).
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Deborah Merrill, Just Energy Group Inc. - Co-CEO, Co-President and Director [16]
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We are a bit ahead on our strategy on the retail sales channel.
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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [17]
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Okay. To be shifting gears a little bit. You talked about, certainly this is from M&A in a while seems like multiples are fairly elevated obviously, in Europe, but also in the U.S. So like a lot of, I think, competitors have chosen the smaller targeted investments abroad. Can you talk about maybe Germany, give us an update there, progress you're still expecting contribution in the latter part of calendar '18?
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Deborah Merrill, Just Energy Group Inc. - Co-CEO, Co-President and Director [18]
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Yet so we are -- in Germany right now, we're running 3 really targeted pilots to go after customers that are on high-utility rates and various sales channels as well. So we're kind of in that discovery -- understanding how to better approach the market base and testing various things and see how we can best get at that market. So we're still actively pursuing that. Japan, we're looking at potentially starting to sell in the next 30 days -- 30 to 60 days, to start testing that. And everything we want to be in new countries. We know that take a little bit of time to get our feet underneath us because we know is not going to -- it doesn't act exactly as North America does, there are cultural differences and everything. So we're doubling that in the testing phase. Ireland however, has been a much faster start up for us. It's probably mostly because it's very -- I hope I don't offend any Irish people, but it's very similar to the U.K., as it relates to culture and language and we're managing from there [--food--] had pretty quick start up there. So that one is actually a leapfrog some of other efforts that have been going on a little longer.
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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [19]
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Okay. Maybe just last one for me. So if you take -- you have taken a new guidance at the low end. If you hit 175, you still feel comfortable you've got enough of tail coverage to dividends to safe at least through fiscal '18?
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Patrick McCullough, Just Energy Group Inc. - CFO [20]
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Yes, we do at that level.
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Operator [21]
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And our next questioner today will be Sameer Joshi with H.C. Wainwright.
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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [22]
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As it relates to the new restrictions that you mentioned in your writeup for marketing and marketing to consumers in Canada, are you making any adjustments to your sales strategy there or the sales organization there?
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Deborah Merrill, Just Energy Group Inc. - Co-CEO, Co-President and Director [23]
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Yes, so the renewal rates in our Canadian markets have gone down because of new regulations that make it very prohibitive for us to try to connect with customers. So we are looking at ways that we can combat that, look, your question I'm sorry, Sameer, was that how are we combating that or what was your...
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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [24]
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Yes. Are you making any adjustments to how you market and how you sell?
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James W. Lewis, Just Energy Group Inc. - Co-CEO, Co-President and Director [25]
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Yes. I think, one of the things we are looking at is retail as well in Canada. So we're doing more, we've done Perks outreach, which has been very well received. We'll continue that, we find customers in Canada -- just as receptive as we've done in the U.S. to our Perks program which has helped us on the attrition side. The difficulty on the new regulation is, we can only contact the customer once every 30 days, and that's just contact. That's just making an attempt. So if you don't get in contact with a customer on 1 day, you can't make another attempt in 30 more days. So that's the regulation there.
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Patrick McCullough, Just Energy Group Inc. - CFO [26]
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One thing to add, Sameer. We've actually adjusted products we sell as well. Since the commodity products are highly regulated, we have been looking at bundling energy
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bundles and taking those to market. So we've been doing that -- those type of efforts in the Canadian markets as well.
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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [27]
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Okay. So that's a good segue into my next question, which was about value-added products and services. Why hasn't -- how come you didn't see an impact of that in a better gross margin per RCE? I know you had trouble in various geographies, but why didn't this value-added products with higher gross margins offset that?
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Patrick McCullough, Just Energy Group Inc. - CFO [28]
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I think the answer to your question is, we have seen margin improvement over the last 2 years. And that is partially attributed to superior bundles and value, let's say, differentiated products. One of the challenges with changing our business is we have multi-year contracts where we've largely sold commodity-based products. So to get real penetration with a different type of product will take time. And I don't think you'll ever see majority penetration of the book buying non-commodity or bundle products with energy-efficiency devices et cetera. Having said that, pilots on selling "smart home" and energy efficiency integrated products are going very well. Flat-bill structures are doing very well, getting great reception in Ireland and the U.K. And fundamentally, putting water conservation energy-efficiency devices in our products is a priority, it just takes time.
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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [29]
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Got it. And just a follow-up on Carter's question previously about hedging strategy for weather patterns. Do you also have some hedges against utility prices in general, for example, rising oil prices and energy prices that may affect your business going forward?
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Deborah Merrill, Just Energy Group Inc. - Co-CEO, Co-President and Director [30]
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We hedge all of our requirements for our customers in the forward market. So we hedge -- what we expect our customers use in normal weather. And later in the wintertime hedges for extreme up and down weather hedges. So as oil prices move, that correlate with natural gas, we've already locked in with our -- what we expect our customers to use for the term of the contract that we're obligating to sell it to them for, so it shouldn't impact us.
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James W. Lewis, Just Energy Group Inc. - Co-CEO, Co-President and Director [31]
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If we took an extreme example, Sameer, like 5-year contract, we are pricing back-to-back, so we're locking in 5 years of expected volumes, as Deb said, at a price. We're marking that up on the pure commodity products, and we're locking in that design margin in normal weather and then we'll put weather structures around that.
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Ubavka Rebecca MacDonald, Just Energy Group Inc. - Co-Founder and Executive Chair [32]
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And Sameer, I just want to add something, it's Rebecca. We are not very happy with our financial results, that's given. But we are here on a long run and we can control a lot, but to control temperatures that are cooler than normal in the summer is very difficult and when you see 25% contraction in customers' needs through our jurisdiction, it's something (A) that we could not expect and they just deprive us absolutely. But we have never seen that --look, I've been in this sector for a very, very long time. We've never see anything like it. So it was almost like a perfect storm. Deb said something earlier, and I would like to emphasize, seeing (inaudible) what we can do to our margin, we will look (inaudible) hard for the next year whether we can sign something that works hedge-wise. We have not seen it so far because I don't really think anyone thought about it too much, but we are going to be very, very careful of how we hedge next year in the summer.
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Operator [33]
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And our next questioner today will be Sophie Karp with Guggenheim.
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Sophie Ksenia Karp, Guggenheim Securities, LLC, Research Division - Senior Analyst [34]
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I was wondering how does the economics of the customers that you sign in new retail channel compare to the ones in other channels before.
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Patrick McCullough, Just Energy Group Inc. - CFO [35]
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Thanks, Sophie. This is Pat responding. So we are targeting over $250 of annual margin very consistent with what we're experiencing in the consumer space. And there's 3 models that we have piloted around the retail channel. One is to sell through a partner that operates kiosks in places like Sam's Club, Costco and Walmart. Another is to do it on our own and there's 2 derivatives of doing in our own. If you look at the worst-case economics, you see a 3.5 quarter payback on the combination of various salaries, gift cards, commissions that are paid for those sales agents. Where we operate the kiosks ourselves, it's a better return than that, that $250, $260 in margin will pay back in as little as 2.5 quarters. And in summary, that's very similar to the door-to-door model that we've -- it's actually a bit better than the door-to-door model, we've experienced in the past. But we think it will fit very well with the expectations of our consumer business from a return standpoint.
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Operator [36]
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And our next questioner today will be Raveel Afzaal with Canaccord.
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Raveel Afzaal, Canaccord Genuity Limited, Research Division - Analyst [37]
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So I'm thinking back to 2014, when we had (inaudible) condition. At that time, it was pretty negative for the energy retailers in the short term but then bigger energy retailers benefited from it because the smaller retailers couldn't bear the volatility and we saw the competitive environment kind of improvement in later 2014, as a result of that. I'm wondering, given what we saw in this quarter, do you see some of the smaller competitors going out of business or suffering financially and as a result acquisition opportunities or the competitive environment improving for you going forward?
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James W. Lewis, Just Energy Group Inc. - Co-CEO, Co-President and Director [38]
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I'll take the first half. Yes, we see some of the smaller competitors getting hurt, so that does open up opportunities for us and as we continue to look at them. One of the thing that we also think is going to happen, we are going to see some tightness in the Texas market with some of the generation retires there, which we think can be positive as well. One of the things that we should see going forward is maybe some volatility back in that market and that's another thing that tends to weed out some of the smaller competitors or some of the folks who don't hedge.
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Operator [39]
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(Operator Instructions) And our next questioner will be Damir Gunja with TD Securities.
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Damir Gunja, TD Securities Equity Research - Director [40]
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Previously, you'd expressed a hope to return to double-digit growth next year in 2019 -- fiscal 2019, if we adjust (inaudible) million weather impact would a return to double-digit growth still be potentially on the table?
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James W. Lewis, Just Energy Group Inc. - Co-CEO, Co-President and Director [41]
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Damir, we hope so, but we're not prepared to give guidance for next year at this point. What we see about this first half is really this nonrecurring delta versus prior year, but remember prior year was a better than normal condition. So we'll be making adjustments on that as well as looking at our growth additions, sales plan and factoring in, step up in retail business et cetera and pretty hopeful that there's going to be a nice earnings step forward next year, but unclear if we can answer the question directly at this point.
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Damir Gunja, TD Securities Equity Research - Director [42]
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Okay. That's fair. You did make a nice, I guess, inflection point to positive net adds in the quarter. Given the success you're seeing in the retail channel, would it be fair to say you could maintain positive ads for the foreseeable future?
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Deborah Merrill, Just Energy Group Inc. - Co-CEO, Co-President and Director [43]
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It really is heavily dependent on our commercial portfolio. What I find interesting about our customer base, Damir, is that, as I said earlier, we're now showing RCEs and customer count. And you can see our customer count has increased because we're losing some of the larger customers, but we're keeping some of the small commercial customers. And it really depends on how -- it might ebb and flow a little bit because the commercial renewal tranches that come up each quarter are very different. So -- but as our retail, I am sorry, our consumer business continues to gain more traction, that will start to overcome that, even maybe some of those larger renewal quarters where you have some challenges on the commercial side. So I think that's eventually -- it will absolutely overcome it.
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Patrick McCullough, Just Energy Group Inc. - CFO [44]
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And I think, if you think about the more-profitable consumer segment, we agree with the bullish idea behind your question that we should be seeing positive net adds with that retail service that's happening. (inaudible) on commercial that we're watching.
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James W. Lewis, Just Energy Group Inc. - Co-CEO, Co-President and Director [45]
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Yes. And that I think -- just to add one last point here. When we talk about Ontario or the Canadian market on the renewal rate, if it wasn't for that change in regulation there, you would see greater net adds. So the headwind's there, just more on the Canadian side. That renewal rate there, as we look to continue to improve it, but with that regulation that does put a little bit of headwinds there that we're overcoming.
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Damir Gunja, TD Securities Equity Research - Director [46]
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Okay. And maybe just bigger picture, are there any strategic moves that you're thinking about either on the product side or new markets? Is Japan going to factor in at some point, is that a major potential catalyst? Just anything you can add sort of bigger picture that could potentially swing things your way?
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Patrick McCullough, Just Energy Group Inc. - CFO [47]
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So I think the core strategy that we've spoken about quite a bit over the last 2 years is pursue growth through superior products, product expansion, through expansion of channels, getting into the new channels for the new geographies. And nothing's changed. Onetime, nonrecurring tough weather condition isn't going to change true north for the company. So you'll continue to hear us talk about new superior broader products, more channel expansion and efforts to develop businesses in those new places.
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Damir Gunja, TD Securities Equity Research - Director [48]
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Okay. And does Japan factor into your plans, or is that too early to discuss?
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James W. Lewis, Just Energy Group Inc. - Co-CEO, Co-President and Director [49]
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As Deb said, we expect to start signing customers up in the next 30 to 60 days here. And then we'll take the same approach as we always have; we'll do some pilots there, see what's successful and make modifications as we move forward.
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Damir Gunja, TD Securities Equity Research - Director [50]
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Okay. And just the final one for me perhaps Pat, I might be a little early, but I guess you do have a convert coming due next year in September. Any thoughts on that and how you might approach that?
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Patrick McCullough, Just Energy Group Inc. - CFO [51]
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Yes, the $100 million convert that matures in 2018, which we have an early call option on. We do intend to exercise that early call option and retire that, and it will probably happen in the next 3- to 9-month period, but comfortably ahead of the maturity.
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Operator [52]
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And ladies and gentlemen, this will conclude our question-and-answer session. I would now like to turn the conference back over to Deb Merrill for any closing remarks.
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Deborah Merrill, Just Energy Group Inc. - Co-CEO, Co-President and Director [53]
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Thank you very much everybody. We really appreciate your questions and your support. Also I want to make sure -- every quarter we make sure we point out our employees and how hard they're working, and everybody that's working hard to build our sales channels to get our customers taken care of. We send a big thank you to everybody. And we will see you again in February. Thank you very much.
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Operator [54]
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And the conference is now concluded. Thank you all for attending today's presentation. You may now disconnect your lines.
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