Press Release Details

Crius Energy Trust Reports First Quarter 2019 Results; Update on Vistra Transaction and Declared Distribution

May 10, 2019

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

Strong performance from the deregulated energy business with $26.2 million in normalized Adjusted EBITDA

TORONTO, May 10, 2019 /CNW/ - Crius Energy Trust ("Crius Energy" the "Company" or the "Trust") (TSX: KWH.UN) today announced its financial results as at and for the three month period ended March 31, 2019. All figures are in U.S. dollars unless otherwise noted.

"We are pleased with the performance of the business in the first quarter of 2019, with continued growth in the overall value of the portfolio, and $26.2 million of normalized Adjusted EBITDA delivered by the deregulated energy business during the quarter", commented Michael Fallquist, Chief Executive Officer of Crius Energy. "We worked diligently throughout the first quarter on completing the transaction with Vistra Energy, and having received overwhelming Unitholder approval for the transaction, are in a position to close the transaction shortly following the receipt of approval from FERC."

Financial Highlights

  • Revenue of $296.4 million in the first quarter of 2019, representing a 7.9% decrease from $321.8 million in the first quarter of 2018.
  • Gross margin of $58.7 million for the first quarter of 2019, compared to gross margin of $59.9 million in the first quarter of 2018.
  • Net loss of $26.4 million in the first quarter of 2019, compared to a net income of $4.3 million in the first quarter of 2018.
  • Adjusted EBITDA of $19.8 million in the first quarter of 2019, in line with $19.8 million achieved in the first quarter of 2018. During the quarter, the deregulated energy business contributed Adjusted EBITDA of $26.2 million after normalizing for non-recurring costs related to the acquisition by Vistra (as defined below) and the negative contribution from the winddown of the solar business. This represents an improvement of $3.0 million from the prior comparable period.
  • Cash flows provided by operating activities of $38.8 million in the first quarter of 2019, compared to cash flows provided by operating activities of $20.8 million in the first quarter of 2018.
  • Distributable Cash of $10.2 million in the first quarter of 2019, representing an increase from $3.6 million for the first quarter of 2018. Distributable Cash for the last twelve months was $28.3 million, representing a Payout Ratio of 107.0%, which remains elevated due to the impacts of the negative contribution from the solar business and certain non-recurring costs as described below. Normalizing for these impacts, the Distributable Cash and Payout Ratio for the last twelve months were $50.0 million and 60.6%, respectively.
  • Total Cash and Availability at the end of the first quarter of 2019 of $68.2 million, compared to $37.8 million as of the end of 2018.

Operational Highlights

  • Embedded Margin of the customer portfolio increased by $5.8 million, or 1.1%, in the quarter to $515.8 million.
  • Net customer attrition of 14,000 in the first quarter of 2019, with customer count totaling 1,190,000 at the end of the first quarter of 2019.
    • Added 116,000 customers organically from sales and marketing channels in the first quarter of 2019 compared to the average in the prior four quarters of 120,000.
    • Gross customer drops in the first quarter of 130,000 customers compare to the average in the prior four quarters of 181,000.

Corporate Highlights

  • Exiting the Solar installation business
    • As of the end of the first quarter of 2019, the Company is in the advanced stages of winding down its Verengo solar installation business, and expects to complete the wind-down by the end of the second quarter.

Review of Q1 2019 Results

In the first quarter of 2019, the Company continued to benefit from the improvement of the profitability of our deregulated energy business through cost-reduction, high-margin customer growth, and increasing customer lifetime value through portfolio optimization. Our strategic initiatives have contributed to the overall value of the portfolio, increasing by $5.8 million or 1.1% in the first quarter of 2019, as measured by Embedded Margin, which we believe contributes to long-term Unitholder value.

Overall revenues decreased 7.9% in the first quarter of 2019 to $296.4 million from $321.8 million in the prior comparable period. The decrease was primarily attributable to 14.5% lower average customer numbers than in the first quarter of 2018.

Gross margin for the first quarter of 2019 was $58.7 million, representing a decrease from $59.9 million of gross margin in the first quarter of 2018. As a percentage of total revenue, gross margin was 19.8% in the first quarter of 2019, an increase from 18.6% of total revenue in the prior comparable quarter. The quarter-over-quarter reduction in gross margin was primarily attributable to lower average customer numbers, with the higher gross margin as a percentage of revenue being the result of the focused strategy of adding higher-margin customers to the portfolio.

Adjusted EBITDA in the first quarter of 2019 was $19.8 million, in line with the first quarter of 2018. Current quarter Adjusted EBITDA represents a normalized deregulated energy result of $26.2 million — an improvement of $3.0 million from the prior comparable period — after excluding the negative $0.5 million contribution from the solar business and $5.9 million in non-recurring general and administrative expenses incurred in the quarter primarily related to the acquisition by Vistra (the "Vistra Transaction").

Net loss in the first quarter of 2019 was $26.4 million, representing a decrease from net income of $4.3 million in the first quarter of 2018.

Distributable Cash for the last twelve months was $28.3 million representing a Payout Ratio of 107.0% of Distributable Cash, compared to Distributable Cash of $21.9 million, representing a Payout Ratio of 167.6% for the year ended December 31, 2018. Distributable Cash and Payout Ratio were impacted by the negative contribution from the solar business as well as the non-recurring costs, primarily restructuring costs and transaction costs, incurred. Normalizing for these impacts, the Distributable Cash and Payout Ratio for the last twelve months were $50.0 million and 60.6%, respectively.

Cash flows provided by operating activities were $38.8 million in the first quarter of 2019, compared to cash flows provided by operating activities of $20.8 million in the first quarter of 2018, with the quarter-over-quarter increase being driven by changes in net operating assets and liabilities, which is primarily impacted by the seasonality in our business.

At March 31, 2019, the Trust had Total Cash and Availability of $68.2 million, consisting of $35.9 million of cash and cash equivalents, and $32.3 million available under the Company's Credit Facility. This compares to Total Cash and Availability as at December 31, 2018 of $37.8 million, consisting of cash and cash equivalents of $16.7 million and $21.2 million of availability under the credit facility, with the increase in liquidity being attributable to the seasonality of cash flows as well as a benefit due to the change to quarterly distribution timing implemented in the first quarter of 2019.

Crius Energy ended the quarter with net debt of $81.9 million, representing a leverage ratio of 1.2x based on net debt to last twelve months Adjusted EBITDA.

As at March 31, 2019, Crius Energy had 1,190,000 customers compared to 1,204,000 at the end of 2018, representing a net customer decline of 14,000 during the first quarter of 2019. Gross additions of 116,000 customers, were lower than the average in the prior four quarters of 120,000, impacted by the decision to not participate in the municipal aggregation segment, which was a key contributor to customer additions in prior periods, and increased margin requirements across all sales channels. Gross customer drops in the first quarter of 2018 totaled 130,000 customers compared to the average in the prior four quarters of 181,000.

The interim condensed consolidated financial statements of the Trust as at and for the three month period ended March 31, 2019 and accompanying management's discussion and analysis ("MD&A") have been filed with the securities regulators and are available on SEDAR at www.sedar.com under the Trust's issuer profile, and are available on the Trust's website at www.criusenergytrust.ca.

Update on Vistra Transaction and Payment of Declared Distribution for Q1 2019

Crius Energy and Vistra are awaiting approval from the Federal Energy Regulatory Commission ("FERC") in order to consummate the Vistra Transaction. The parties expect to close the Vistra Transaction no later than the fifth business day after the receipt of such FERC approval, subject to the satisfaction or waiver of other customary closing conditions.

Given the uncertainty on timing to receive FERC approval, Crius Energy is also providing the following updates:

  • Declared Distribution: The payment of the previously-declared distribution of C$0.209 per trust unit of the Trust for the first quarter of 2019 has been amended such that (a) the distribution record date will be March 26, 2019 (as previously announced), and (b) the distribution payment date will be the closing date of the Vistra Transaction.
  • Annual Meeting of Unitholders: As required by the trust indenture, the Trust will schedule an annual meeting of unitholders on June 28, 2019 to, among other things, present the financial statements of the Trust for the fiscal year ended December 31, 2018 and appoint the auditors of the Trust for the ensuing year. The meeting will not be held if the Vistra Transaction closes prior to June 28, 2019.

Conference Call Notice

Given the pending acquisition of Crius Energy by Vistra, which is expected to be completed in the second quarter of 2019, the Trust will not hold a conference call to discuss the first quarter financial results.

About Crius Energy Trust

With more than one million residential customer equivalents, Crius Energy provides competitive electricity and natural gas products to residential and commercial customers in 19 states and the District of Columbia in the United States. The Company sells energy products through a family of brands strategy utilizing a multi-channel sales approach including exclusive partnerships, direct-to-consumer channels, and broker marketing channels. Crius Energy offers consumers a broad suite of energy products and services including fixed and variable contracts, renewable energy, and bundled products to support their energy needs beyond what is offered by their local utility.

The Trust intends to continue to qualify as a "mutual fund trust" under the Income Tax Act (Canada) (the "Tax Act"). The Trust will not be a "SIFT trust" (as defined in the Tax Act), provided that the Trust complies at all times with its investment restriction which precludes the Trust from holding any "non-portfolio property" (as defined in the Tax Act). Material information pertaining to Crius may be found on SEDAR under the Trust's issuer profile at www.sedar.com or on the Trust's website at www.criusenergytrust.ca.

Caution Regarding Forward-Looking Statements

This news release contains forward-looking statements and forward-looking information (collectively, "forward-looking statements") including, without limitation, statements relating to non-IFRS financial measures; the Trust's outlook, strategy, and ability to execute its business objectives; future payments owed to the Company; the electricity and natural gas industries; governmental regulatory regimes; acquisitions and strategic partnerships; marketing channels; customer mix and customer growth; hedging strategies; risk management; market risk; credit risk; off-balance sheet arrangements; related party-transactions; liquidity and capital resources; critical accounting estimates; potential transactions; results of operations; cost-synergies; the Trust's exit from the solar business; portfolio optimization; focus on higher-margin sales; the continued strength of the Company's deregulated energy business; repurchases under the Trust's normal course issuer bid program; financial position or cash flows; expenses and distributions to Unitholders. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or describes a "goal", or variation of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. All forward-looking statements reflect the Trust's beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those predicted, assumed or inferred in forward-looking statements. All of the Trust's forward-looking statements are qualified by: (i) the assumptions that are stated or inherent in such forward-looking statements; (ii) the risks described in the section entitled "Financial Instruments and Risk Management" in the MD&A for the first quarter of 2019, dated May 10, 2019, and the risks described in the sections entitled "Risk Factors" and "Forward-Looking Statements" in the annual information form of the Trust for the fiscal year ended December 31, 2018, dated March 14, 2019, both of which are available on SEDAR under the Trust's issuer profile at www.sedar.com and on the Trust's website at www.criusenergytrust.ca. Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking statements. Although the Trust has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Trust disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, except in accordance with applicable securities laws.

Non-IFRS Financial Measures

Statements throughout this news release make reference to EBITDA, Adjusted EBITDA, Distributable Cash, Embedded Margin, Total Distributions, Payout Ratio, Adjusted Working Capital, Total Cash and Availability and Maintenance Capital Expenditures which are non-IFRS financial measures commonly used by financial analysts in evaluating the financial performance of companies, including companies in the energy industry. Accordingly, Management believes these non-IFRS financial measures may be useful metrics for evaluating the Trust's financial performance as they are measures that Management uses internally to assess performance, in addition to IFRS measures. As there is no generally accepted method of calculating these non-IFRS financial measures, these terms as used herein are not necessarily comparable to similarly titled measures of other companies. These non-IFRS financial measures have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net income (loss), cash flow provided from (used in) operating activities or other data prepared in accordance with IFRS. Additionally, there may be certain items included or excluded from these non-IFRS financial measures that are significant in assessing the Trust's operating results and liquidity. Refer to the MD&A for additional information concerning these non-IFRS financial measures and reconciliations to the closest IFRS measures, as applicable. Also, please refer to "Key Terms and Abbreviations" in the MD&A for the definitions of non-IFRS financial measures and other terms. Other financial data has been prepared in accordance with IFRS.

SOURCE Crius Energy Trust