Crius Energy Trust Reports Third Quarter 2016 Results

Strong operating performance highlighted by consecutive growth in Adjusted EBITDA and 2% growth in customers in Q3 2016

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

TORONTO, Nov. 10, 2016 /CNW/ - Crius Energy Trust ("Crius" or the "Trust") (TSX: KWH.UN), today announced its financial results as at and for the three and nine month period ended September 30, 2016. All figures are in U.S. dollars unless otherwise noted. In this news release, references to "C$" are to Canadian dollars and references to the "Company" are to Crius Energy, LLC, the operating subsidiary of the Trust.

Financial Highlights

• Revenue of $222.6 million in the third quarter of 2016, representing a 9.0% increase from $204.2 million in the third quarter of 2015, primarily due to higher volumes as a result of growth in the customer base, and warmer than normal summer temperatures during the quarter in our core markets, partially offset by a lower average rate charged to customers
• Gross margin of 21.5% of total revenue for the quarter, representing a decrease from the 23.5% achieved in the third quarter of 2015, largely due to the increased proportion of commercial customers the Company now serves, as well as margin pressure as a result of the low retail energy price environment
• Adjusted EBITDA of $20.6 million during the third quarter, up from $16.1 million achieved in the third quarter of 2015
• Distributable Cash for the third quarter was $10.6 million and total distributions were $5.6 million, resulting in a quarterly payout ratio of 52.8%

Operational Highlights

• Achieved net customer growth of 20,000 customers in the third quarter, representing 2.1% quarter-over-quarter growth, with total customers reaching 962,000
  • Added 93,000 customers from sales and marketing channels, representing a 4.5% increase over the prior comparable period
  • Gross customer drops in the third quarter of 73,000 customers represents a continuing positive trend of lower attrition rates aided by the transition of the customer portfolio to more fixed-price and longer-term commercial customers
• Solar system installations
  • Solar systems installed in the quarter represented 0.7 MW of generating capacity, compared to the 3.4 MW installed in the third quarter of 2015
  • Solar sales of $0.4 million during the quarter were negatively impacted by reduced utility rates in select northeast markets and higher prices for residential power purchase agreements and lease products offered through our solar partner

Growth and Corporate Highlights

• Announced a 2% distribution increase
  • In July 2016, the board of directors of Crius Energy Administrator Inc., the administrator for and on behalf of the trust (the "Board") approved a 2% increase to distributions paid on trust units of the Trust ("Units") during the third quarter of 2016, representing an annualized increase of C$0.0146 per Unit and a total annualized distribution of C$0.7429 per Unit
  • This was the third increase since the beginning of 2016, and reflects the confidence that both Management and the Board have in the long-term outlook for the Company, based in part on the strong operating cash flows of the Company and that the Company has no long-term debt on the balance sheet
• Entered into a partnership to accelerate growth from the network marketing sales channel
  • In July 2016, the Company entered into an asset purchase agreement with Viridian International Management LLC, ("Viridian International"), a newly formed independent company, to transfer certain assets held by a wholly-owned subsidiary of Crius that managed the network marketing sales channel of the Company, to Viridian International
  • Crius Energy holds a 10% ownership interest in Viridian International and holds exclusive rights as the electricity, natural gas and solar energy provider for Viridian International for the next five years
  • Crius continues to directly own and service all existing and future electricity and natural gas customer relationships, and the transaction is expected to benefit Crius through increased customer growth, reduced risk and a transition to a variable cost structure
• Completed the acquisition of certain solar energy business assets from SunEdison Inc. ("SunEdison")
  • Acquisition of SunEdison's proprietary residential solar technology platform, customer lead databases, marketing materials and human capital, is expected to significantly expand Crius Energy's operational capabilities in the solar energy segment
  • The technology platform acquired from SunEdison is expected to increase sales by enabling the Company to partner with third-parties for lead generation and sales, and the addition of installation and operational capabilities is expected to result in a higher margin contribution from each solar system sold
  • The asset purchase agreement provided for a one-time payment to SunEdison of $1.5 million and closed on September 19, 2016
• Announced the intention to purchase certain residential solar installation assets from Verengo, Inc. ("Verengo")
• On September 23, 2016, a special purpose vehicle, Crius Solar Fulfillment, LLC, was formed to serve as the debtor-in-possession lender and bidder for the purchase of certain residential solar installation assets of Verengo (the "Verengo Assets"), in a bankruptcy proceeding under chapter 11 of the United States Bankruptcy Code
• Crius Energy Corporation (64.5%) is the controlling member of Crius Solar Fulfillment, LLC, which also has three non-controlling members consisting of two prominent clean technology investment firms and a leading lender in the residential solar finance industry
• In addition to the involvement of Crius Solar Fulfillment, LLC as pre-petition and debtor-in-possession lender (for an amount of up to US$4.8 million, which is to be used for the bankruptcy proceeding under chapter 11 of the United States Bankruptcy Code and payments to certain creditors of Verengo), Crius Solar Fulfillment, LLC entered into an asset purchase agreement dated September 23, 2016 (the "Purchase Agreement") with Verengo to acquire the Verengo Assets, including the residential solar installation platform of Verengo and certain contracts and human capital of Verengo; the Purchase Agreement sets forth the bid of Crius Solar Fulfillment, LLC for the Verengo Assets in the bankruptcy proceedings, and reflects a purchase price of approximately $11.9 million (which consists of $2.3 million cash contribution from Crius as well as a contribution of $2.5 million cash and other interests from the non-controlling members)
• The closing of the transaction is subject to, among other things, the satisfaction of the conditions precedent in the Purchase Agreement, including all approvals required under Verengo's bankruptcy proceeding, and if the proposed bid is successful, is expected to occur within the next several months

"Our third quarter results highlighted the fundamental strength of our business as we generated record earnings and continued to grow our customer portfolio," commented Michael Fallquist, Chief Executive Officer of Crius.  "I'm very optimistic about the future of Crius Energy as we integrate our recently announced solar acquisitions to create a truly unique company which will have end-to-end capabilities in both the retail energy and solar industries.  We see this combination as a significant competitive advantage which we expect will position us to grow operating cash flows and distributions in the coming years."

Review of Q3 2016 Results

Crius Energy continued to show the positive impacts from the successful execution of the Company's organic and acquisition growth strategy. In the third quarter of 2016, this growth strategy was highlighted by robust year-over-year growth in Adjusted EBITDA and customer base, up 28.0% and 20.4%, respectively. The Company also announced two solar acquisitions in the quarter, which are expected to significantly expand the capabilities of our solar business and accelerate our ability to capture market share in the fast growing U.S. solar industry.

In the third quarter of 2016, as a result of the confidence that both Management and the Board have in the long-term outlook for the Company, strong operating cash flows and no long-term debt on the balance sheet, the Board approved a 2% increase to the distribution while continuing to maintain a conservative payout ratio. The 2% increase is the third consecutive quarterly increase to distributions.

Overall revenues increased 9.0% in the quarter to $222.6 million from $204.2 million in the third quarter of 2015. Higher revenues were primarily driven by increased volumes as a result of the growing customer base and warmer than normal summer temperatures during the quarter in our core markets.

Revenues from solar system sales in the third quarter of 2016 were $0.4 million, down from $1.0 million in the third quarter of 2015, and continue to reflect the challenging market conditions in the solar industry as a result of low utility prices in the northeast markets and increased rates for power purchase agreements and lease products offered by our solar partner which resulted in a less attractive customer value proposition.

Gross margin for the quarter was $47.8 million, largely in line with $48.1 million in the third quarter of 2015. As a percentage of total revenue, gross margin was 21.5% in the third quarter of 2016, down from 23.5% in the same quarter of the previous year. The reduced gross margin as a percentage of revenue was primarily a result of the increased proportion of commercial customers the Company now services following the acquisitions of TriEagle Energy and Iron Energy d/b/a/ Kona Energy, as well as continued margin pressure as a result of the low retail energy price environment, and is consistent with recent trends and management expectations. Commercial customers provide the benefit of diversification to the customer portfolio and have a higher retention profile than residential customers, although with lower average unit margins.

Adjusted EBITDA in the third quarter of 2016 was $20.6 million, a 28.0% increase over the $16.1 million in the third quarter of 2015. Distributable Cash was $10.6 million in the third quarter of 2016 compared to $7.0 million in the third quarter of 2015. Total distributions paid in the third quarter of 2016 were $5.6 million, representing a quarterly payout ratio of 52.8%.

As at September 30, 2016, Crius had 962,000 customers, up from 942,000 at the beginning of the quarter, representing net customer growth of 20,000 customers, or 2.1%. Net customer adds in the quarter benefited from the success of the direct marketing channel and strategic partnerships, while gross customer drops continued the positive trend of lower customer attrition rates.

During the third quarter of 2016, excluding changes in operating assets and liabilities, the Company achieved operating cash flows of $20.4 million as compared to $13.0 million in the third quarter of 2015. 

At September 30, 2016, the Trust had total cash and cash availability of $46.0 million, consisting of $10.6 million of cash and equivalents and $35.4 million available under the Company's credit facility with Macquarie Energy LLC. This compares to total cash and availability as at December 31, 2015 of $42.9 million, consisting of cash and cash equivalents of $11.2 million and $31.7 million available under the credit facility. The Trust continues to have no long-term debt and sufficient resources to execute its growth strategy.

The interim condensed consolidated financial statements of the Trust as at and for the three and nine month periods ended September 30, 2016 and accompanying management's discussion and analysis ("MD&A") have been filed with the securities regulators and are available on SEDAR at www.sedar.com under the Trust's issuer profile, and are available on the Trust's website at www.criusenergytrust.ca.

Conference Call Notice

The Trust will hold a conference call to discuss the third quarter 2016 financial results on November 11, 2016 at 8:30 a.m. (Toronto time).

To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191. Please connect approximately 15 minutes prior to the beginning of the call to ensure participation. A question and answer session for analysts will follow management's presentation.

A live audio webcast of the conference call will be available by clicking here or by visiting www.cnw.ca. Please connect at least 15 minutes prior to the call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above web site for 90 days.

A digital rebroadcast will be available to listeners starting at 11:30 a.m. (Toronto time) on November 11, 2016 until November 18, 2016. To access the rebroadcast, please dial 416-849-0833 or 1-855-859-2056 and enter passcode 96811720#.

About Crius Energy Trust

The Trust provides investors with a distribution-producing investment through its 100% ownership interest in the Company. With over 962,000 residential customer equivalents, the Company is a comprehensive energy solutions partner that provides electricity, natural gas and solar products to residential and commercial customers. The Company connects with energy customers through an innovative family-of-brands strategy and multi-channel marketing approach. This unique combination creates multiple access points to a broad suite of energy products and services that make it easier for consumers to make informed decisions about their energy needs. The Company currently sells energy products in 18 states and the District of Columbia with plans to continue expanding its geographic reach.

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 the 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") that involve substantial known and unknown risks and uncertainties, most of which are beyond the control of Crius, including, without limitation, those risks described in the annual information form of the Trust for the fiscal year ended December 31, 2015, dated March 15, 2016 (under the headings "Risk Factors" and "Forward-Looking Statements") and in the MD&A of the Trust as at and for the three month period ended September 30, 2016, which is available on SEDAR under the Trust's issuer profile at www.sedar.com and on the Trust's website at www.criusenergy.ca. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words of phrases such as "will likely result", "are expected to", "expects", "will continue", "is anticipated", "anticipates", "believes", "estimated", "intends", "plans", "forecast", "projection" and "outlook") are not historical facts and may be considered Forward-Looking Statements, and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such Forward-Looking Statements. Forward-Looking Statements in this news release include, but are not limited to, statements pertaining to EBITDA, Adjusted EBITDA, Distributable Cash, payout ratio, the Viridian network marketing channel in Australia, annualized distribution figures, confidence of management and the Board in the long-term outlook of the Company, future payments owed by the Company to Viridian International, the outlook of the solar industry generally, increased solar sales (including as a result of the technology platform acquired from SunEdison or proposed to be acquired from Verengo), higher margin contribution from each solar system sold, confidence of Management and the Board in the positive impacts of the Company's growth strategy (including in the deregulated energy and solar businesses), confidence in increasing distributions in 2017, growth of cash flows and distributions generally, treatment under governmental regulatory regimes (including statements pertaining to the Trust's objectives and status as a mutual fund trust and not a "specified investment flow-through trust", as defined in subsection 122.1(1) of the Tax Act (Canada), as amended from time to time, the anticipated benefits of the Remaining LLC Acquisition (market capitalization, simplified structure, increased liquidity), the timing and ability of the Company to complete the acquisition of the Verengo Assets, the anticipated benefits of the acquisition of the Verengo Assets, the ability of the Company to evaluate and execute opportunities to enter markets that have recently deregulated or are in the process or deregulating, the growth strategy of the Company through acquisitions, continued growth of the customer portfolio in 2016, the success of the partnership with Viridian International, commercial customers, the ability of the Company to grow the commercial segment in other U.S. deregulated energy markets, hedging strategies, risk management, market risk, credit risk, off-balance sheet arrangements, transactions between related parties, liquidity and capital resources, critical accounting estimates, ICFR, derivative instruments, potential transactions, results of operations, financial position or cash flows, customer revenues and margins, customer additions and renewals, customer attrition, customer consumption levels, expenses and distributions to Unitholders. Crius cautions investors of the Trust's securities about important factors that could cause Crius' actual results to differ materially from those projected in any Forward-Looking Statements included in this news release. No assurance can be given that the expectations set out in this news release will prove to be correct and accordingly, prospective investors should not place undue reliance on these Forward-Looking Statements. These statements speak only as of the date of this news release and Crius does not assume any obligation to update or revise them to reflect new events or circumstances, except as required by law.

Non-IFRS Financial Measures

Statements in this news release make reference to Adjusted EBITDA, Distributable Cash and payout ratio, 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 Adjusted EBITDA, Distributable Cash and payout ratio 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 Adjusted EBITDA, Distributable Cash and payout ratio, these terms as used herein are not necessarily comparable to similarly titled measures of other companies. Adjusted EBITDA, Distributable Cash and payout ratio have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net (loss) income or other data prepared in accordance with IFRS. Adjusted EBITDA is calculated as EBITDA adjusted to exclude any change in the fair value of derivative instruments, change in fair value of non-controlling interest, change in fair value of warrant liability, Unit-based compensation, goodwill impairment and distributions to non-controlling interest. The items excluded from Adjusted EBITDA are significant in assessing the Trust's operating results and liquidity. See the MD&A of the Trust for the three month period ended September 30, 2016 (under the heading "Reconciliation of Net (Loss) Income and Comprehensive (Loss) Income to EBITDA and Adjusted EBITDA") for a reconciliation of Adjusted EBITDA to net (loss) income and comprehensive (loss) income, as calculated under IFRS for the relevant periods, the most directly comparable measure in the consolidated financial statements of the Trust. See the MD&A of the Trust for the three month period ended September 30, 2016 (under the heading "Distributable Cash and Payout Ratio") for a reconciliation of Distributable Cash to cash flows provided by (used in) operating activities as calculated under IFRS, the most directly comparable measure in the consolidated financial statements of the Trust. Other financial data has been prepared in accordance with IFRS.

SOURCE Crius Energy Trust

Michael Fallquist, Chief Executive Officer, [email protected], [phone]; Roop Bhullar, Chief Financial Officer, [email protected], [phone]; Kelly Castledine, Investor Relations, [email protected], [phone]