EnerCare Inc.

EnerCare Inc.

February 23, 2011 07:00 ET

EnerCare Inc. Reports Strong Financial and Operating Results for the Full Year 2010

Significant Attrition Decline and Sub-metering Revenue Growth

TORONTO, ONTARIO--(Marketwire - Feb. 23, 2011) - EnerCare Inc. ("EnerCare") (TSX:ECI) today reported the results of its predecessor, The Consumers' Waterheater Income Fund (the "Fund"), for the three months and year ended December 31, 2010.

"In 2010, EnerCare achieved strong business performance, delivering impressive financial and operating results, which reflect the underlying strength of the company's business," said John Macdonald, President and CEO. "Annual revenues of $207 million exceeded last year's by 10%, and EBITDA grew by 12% over 2009. In our rentals business, sustained sales and marketing initiatives significantly improved attrition levels throughout the year, culminating in a 35% reduction in the fourth quarter of 2010 over the same period in 2009. Sub-metering revenues grew substantially with the acquisition of Enbridge Electric Connection Inc., now EnerCare Connections Inc., and the growing consumer interest in sub-metering following publication of the Ontario regulations."

Financial and Operating Summary

  • Attrition in the Rentals business decreased to 6.4% in 2010 from 8.0% in 2009. Attrition decreased by 29,000 assets or 26% in 2010, including a reduction of approximately 35% or 9,000 units in the fourth quarter 2010 versus the same period in 2009. In 2010, total portfolio assets declined by only 1% (3.2% excluding the acquisition of Enbridge Electric Connections Inc. ("EECI") (now EnerCare Connections Inc. ("ECI")) compared to a decline of 5.9% in 2009.
  • Total revenues of $207,418 increased by 10% over 2009. Revenues in the Rentals business increased 6% or $9,732 to $187,574, primarily as a result of the impact of the 2010 rental rate increase. Sub-metering revenues increased by $9,325 or 90% to $19,643, primarily due to the inclusion of ECI.
  • EBITDA(1) increased by 12% to $134,678 in 2010, primarily due to improved Rentals revenue, lower Attrition, reduced unit exchanges and the absence of impairment charges. Adjusted EBITDA1 increased by 2% to $156,018. The improvement in Adjusted EBITDA was driven principally by higher revenues from the Rentals business.
  • Net earnings were $352 in 2010, approximately $21,300 lower than 2009. Operating results improved by $12,400 in 2010 compared to 2009. The improvement in operating results was offset by a $33,700 reduction in income tax recoveries.
  • The Payout Ratio(2) improved to 62% in 2010 from 106% in 2009, primarily as a result higher Distributable Cash(2) and the change in distribution levels implemented in September 2009, offset slightly by the Fund's Unit offering.
  • Cash and equivalents increased by approximately $27,200 in 2010, primarily due to the Fund's public offering of convertible unsecured subordinated debentures ("Convertible Debentures") and Units in June and July 2010.



The following results of operations include Sub-metering results from the acquisition of Stratacon Inc. in August 2008 and EECI on October 1, 2010. Accordingly, the Fund's consolidated financial results include partial year Sub-metering results in both 2008 and 2010.

Consolidated Financial Highlights 2010   2009   2008  
Total revenues $ 207,418   $ 188,246   $ 180,523  
(Loss)/earnings before tax   (18,232 )   (30,621 )   17,413  
Income tax recovery   (18,584 )   (52,224 )   (2,101 )
Net earnings   352     21,603     19,514  
EBITDA   134,678     120,254     146,484  
Adjusted EBITDA   156,018     153,359     158,061  
Per Unit information                  
  Unitholder Distributions declared $ 0.65   $ 1.08   $ 1.29  
  Net earnings $ 0.01   $ 0.44   $ 0.39  
Total Assets   948,614     953,856     1,017,523  
Total debt   600,361     589,129     558,639  
Cash provided by operating activities   119,867     126,648     128,708  
Distributable Cash $ 54,654   $ 50,064   $ 69,230  
Payout Ratio   62 %   106 %   92 %

Financial Results for 2010

Total revenues increased by approximately 10% or $19,172 to $207,418 in 2010. The improved revenues were comprised of a $9,732 improvement in Rentals, $9,325 in Sub-metering and $115 from investment income. The Rentals revenue increase was driven by a rental rate increase effective January 2010, offset by the net impact of Attrition and asset additions throughout the year. Sub-metering revenues increased largely due to the inclusion of ECI in the fourth quarter. 

Net earnings were $352 in 2010, approximately $21,300 lower than 2009. Operating results improved by $12,400 in 2010 compared to 2009. The improvement in operating results was offset by a $33,700 reduction in income tax recoveries.

EBITDA for 2010 increased by $14,424 due to improved Rentals revenue, reductions in Attrition, impairment charges and loss on disposal of equipment. Adjusted EBITDA increased by approximately $2,700 or 2% as a result of higher revenues offset by cost of sales and SG&A expenses. Total assets decreased by approximately $5,200 in 2010, primarily due to the impact of paid distributions and net changes in borrowings and equity offerings. Total debt increased by $11,232 due to the Fund's Convertible Debentures offering, net of the repayment on the line of credit. Cash flow from operating activities declined by approximately $6,800 in 2010, primarily as a result of changes in non-cash working capital. 

Distributable Cash increased by $4,590 to $54,654, primarily as a result of lower capital expenditures attributable to fewer asset exchanges. The Payout Ratio improved to 62% primarily due to an increase in Distributable Cash and a $37,000 reduction in distributions declared.

Operating Cash Flow of $119,966 for 2010 increased by $417 or 1% compared to the same period in 2009, largely as a result of increased revenues in the Rentals business and other income partially offset by increased cost of sales and SG&A expenses. 

Typically, the Fund maintains cash balances to provide sufficient cash reserves to satisfy short-term requirements, including interest payments, Unitholder distributions and certain capital expenditures and acquisitions. The Fund held $52,495 of cash on hand at December 31, 2010, an increase of approximately $27,200 from the prior year, comprised of the proceeds of the Unit and Convertible Debenture issues, changes in distributions, partially offset by the purchase of ECI and a reduction of bank indebtedness.

At December 31, 2010, total debt was comprised of two series of senior debt issued in 2009 and 2010, respectively, Convertible Debentures and the secured debt assumed with the acquisition of Stratacon Inc. ("Stratacon"). Senior notes issued in 2003 and the 2009 bridge loan were repaid in the first quarter of 2010; as well, the line of credit was repaid in the third quarter of 2010.

Financial Results for the Fourth Quarter of 2010

Fourth Quarter Results of Operations

Earnings Summary 2010   2009  
  Rentals $ 45,044   $ 43,024  
  Sub-metering   12,018     1,689  
  Investment income   107     14  
Total Revenues   57,169     44,727  
Cost of sales and G&A expense            
  Rentals   5,391     3,427  
  Sub-metering   12,957     2,706  
  Corporate   3,284     2,162  
Total cost of sales and G&A expenses   21,632     8,295  
Amortization expense   26,934     28,414  
Interest expense   10,666     10,107  
Loss on disposal of equipment   4,673     6,086  
Impaired assets   -     4,106  
(Loss)/earnings before income taxes   (6,736 )   (12,281 )
Income tax recovery   3,513     28,065  
Net earnings   (3,223 )   15,784  
EBITDA   30,757     26,226  
Adjusted EBITDA $ 35,430   $ 36,418  


Total revenue of $57,169 in 2010 increased by approximately $12,400 or 28% compared to 2009. Rentals revenue for the period was impacted by the January rate increase, billing accruals and asset mix changes. Sub-metering revenues improved by $10,329 in 2010, of which approximately $9,300 was related to the acquisition of EECI.

Investment income was $107, $93 greater than in the same period in 2009 due to the combination of greater investment balances and improved investment rates.

Cost of Sales and SG&A Expenses

Cost of sales and SG&A expenses increased by $13,337 over 2009 to $21,632. Sub-metering costs increased by approximately $10,300, $9,000 of which includes ECI for the period and $1,300 on account of commodity charges and meter servicing accruals in Stratacon. Rentals and corporate costs increased by approximately $3,100 related to incentive compensation and wages of $1,100, professional fees of $700 including Conversion expenses, $900 in bad debt provisions, $200 in marketing and other expenses.

Amortization Expense

Amortization expense of $26,934 was $1,480 lower than in 2009, primarily the result of cumulative portfolio Attrition and the expiry of shorter intangible amortization periods relating to a portion of the Stratacon intangibles.

Interest Expense

In 2010, interest expense of $10,666 was $559 higher than the same period in 2009. Interest costs payable in cash were $335 higher in 2010 due primarily to the issuance of Convertible Debentures partially offset by lower bank indebtedness. The remainder of the 2010 increase is on account of the non-cash interest expense which included the costs of the 2010 debt issue and Convertible Debenture offering.

Loss on Disposal of Equipment

During 2010, approximately 33,000 units were removed and exchanged, representing a net decrease of 12,000 units or 27% over the same period in 2009. Removals were 9,000 units lower than 2009 for a reduction of approximately 33% in part due to continued marketing efforts while exchanges decreased by 3,000 units or approximately 17%. The reduction in units was the principal component of the expense decrease.

Impaired Assets

During the fourth quarter of 2009, $4,106 was recognized as a charge to earnings related to impaired intangible assets and installed equipment in the Sub-metering business. The charges were primarily as a result of notices of termination from landlords following regulatory developments in Ontario and Alberta. No charges were recorded in 2010.

Net Earnings

Earnings before income taxes in 2010 were approximately $5,500 better than 2009, as previously described. Net earnings decreased by $19,007 in 2010 primarily as a result of the favorable impact in 2009 of lower provincial tax rates in future years.


EBITDA improved in 2010 by $4,531 to $30,757 as a result of continued strength in Adjusted EBITDA, the impact of lower attrition and asset exchanges on loss on disposal and the absence of impairment charges.

Adjusted EBITDA

Adjusted EBITDA was $35,430, approximately $1,000 lower than 2009 due to improved revenues offset by expenses which include Conversion costs. Adjusted EBITDA in the Sub-metering business improved as a result of the acquisition of EECI which contributed approximately $300 during the period.


The Rentals business saw significant improvement in Attrition levels in the last three quarters over comparable periods in the previous year. In 2011, we intend to extend the programs that we believe were effective against Attrition in 2010, as well as aggressively pursue new programs.

The Sub-metering legislation coming into force on January 1, 2011 has resulted in increased customer interest in Sub-metering. EnerCare has increased the number of sales resources in the Sub-metering business by more than 50% since September, and intends to continue to bolster its sales capability this year to match customer opportunity.

We are very pleased with the progress made in the integration of ECI with our existing Sub-metering business. ECI was EBITDA positive in the fourth quarter of 2010, the first quarter of operations by EnerCare. At the time of purchase, we stated that EECI would be EBITDA positive within one year of acquisition. We are pleased with this progress to-date and we will continue our efforts to reduce Sub-metering operating and capital costs throughout 2011. These measures include modified processes to get the best of both Sub-metering businesses, elimination of duplicate systems and material sourcing economies.

Financial Statements and MD&A

The Fund's financial statements and management's discussion and analysis for the fourth quarter and year-ended 2010 are available at www.sedar.com or on EnerCare's investor relations website at http://investors.enercare.ca.

Conference Call and Webcast

Management will host a conference call and live audio webcast to discuss The Consumers' Waterheater Income Fund's (now EnerCare) financial results for the fourth quarter and year-end of 2010 on Wednesday, February 23, 2011 at 10:00 a.m. (ET). Messrs. John Macdonald, President and CEO, and Chris Cawston, CFO, will be on the call.

Call can be accessed as follows:
  Toll free: 1.877.974.0446
  Local: 1.416.644.3417
  Joining by webcast: http://investors.enercare.ca

The audio webcast will be archived at http://investors.enercare.ca. A taped rebroadcast will be available until midnight on March 2, 2011. The rebroadcast can be accessed by dialing 1.877.289.8525 or 1.416.640.1917 and entering the pass code 4406722#.

About EnerCare

EnerCare and EnerCare Solutions Inc. own a portfolio of approximately 1.3 million water heaters and other assets, rented primarily to residential customers in Ontario. EnerCare also owns Stratacon Inc. and EnerCare Connections Inc., leading Sub-metering companies, with metering contracts for condominium and apartment suites in Ontario, Alberta and elsewhere in Canada. Additional information regarding EnerCare and EnerCare Solutions is available on SEDAR at www.sedar.com.

Forward-looking Information

Certain statements in this news release are forward-looking statements, which reflect management's expectation regarding EnerCare's and EnerCare Solutions' growth, results of operations, performance, business prospects and opportunities. Such forward-looking information reflects management's current beliefs and is based on information available to them and/or assumptions management believes are reasonable. Many factors could cause results to differ materially from the results discussed in the forward-looking information. These factors include risks associated with the failure to realize the anticipated benefits of the Conversion. Although the forward-looking information is based on what management believes to be reasonable assumptions, EnerCare and EnerCare Solutions cannot assure investors that actual results will be consistent with this forward-looking information. Except as required by applicable securities laws, neither EnerCare nor EnerCare Solutions intend and do not assume any obligation to update or revise the forward-looking information, whether as a result of new information, future events or otherwise.

(1) EBITDA and Adjusted EBITDA are Non-GAAP financial measures. Refer to the Non-GAAP Financial and Performance Measures section in the MD&A.

(2) Payout Ratio and Distributable Cash are Non-GAAP financial measures. Refer to the Non-GAAP Financial and Performance Measures section in the MD&A.

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