Stronger as ONE...Q3 2014 Q3 2015 10 $10.6 $19.2 Q3 2014 Q3 2015 $0.181 $0.21 Q3 2014 Q3 2015 49%...
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Stronger as ONE Q3 2015 Financial Highlights NOVEMBER 13 2015
Transcript of Stronger as ONE...Q3 2014 Q3 2015 10 $10.6 $19.2 Q3 2014 Q3 2015 $0.181 $0.21 Q3 2014 Q3 2015 49%...
Stronger as
ONE Q3 2015
Financial Highlights
NOVEMBER 13 2015
Annual Meeting
of Shareholders
2
Our discussion may include forecasts, projections, estimates or other information that are forward-looking. While these forward-looking statements represent our current judgment on what the future may hold, they are based on material factors and assumptions, and are subject to risks and uncertainties, that could cause actual results to differ materially. Management believes those assumptions are reasonable. You are cautioned not to place undue reliance on these forward-looking statements. These statements are made only as of
the date of this presentation. Please keep in mind that, except as required by applicable securities laws, we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information, future events or otherwise. Throughout today’s discussion, we will attempt to present some material factors relating to our business that may affect our forward-looking statements. Additional information about these (and other) material factors and risks, and our underlying
assumptions, is available in our current AIF and annual and interim MD&A, particularly under the headings “Risk Factors”, all of which are available on SEDAR at www.sedar.com. These forward-looking statements are given as of today’s date. Dollar amounts are expressed in millions of Canadian dollars, except “Per Share” amounts, or unless specified otherwise.
Forward-Looking Statements
Annual Meeting
of Shareholders
EVELYN SUTHERLAND CFO
Annual Meeting
of Shareholders
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Accelerating Growth
Consolidated
Revenues
81%
45% 45% 75%
Consolidated
EBITDA
117%
Home Services
Revenue
25%
Sub-metering
Revenue
Home Services
EBITDA
Sub-metering
EBITDA
Annual Meeting
of Shareholders
5
Acquisition Represents Majority of 75% Growth in LTM Revenues
Acquisition related revenue represents ~90% of $236 million YoY increase
in total revenues over the last 12 months
Total Revenues
(millions)
$76 $82 $74 $80
$126 $142 $135 $145
Q4 Q4* Q1 Q1 Q2 Q2 Q3 Q3 2013 2014 2014 2015 2014 2015 2014 2015
$312
$548
LTM
$212 Acquisition
Related Revenue
*Acquisition closed October 20, 2014 and therefore Q4 2014 does not reflect a full quarter contribution from the Acquisition.
Annual Meeting
of Shareholders
Total Revenues Increase by 81% in Q3 2015
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$80.5
$145.5
$57.6
$7.8
Q3 2014 Total
Revenues
Home Services Sub-metering Investment
Income
Q3 2015 Total
Revenues
$(0.4)
Total Revenues
(millions)
117%
Home Services Revenue
25%
Sub-metering
Revenue
Annual Meeting
of Shareholders
7
Significant Growth in LTM Acquisition Adjusted EBITDA
Home services segment represents 96% of YoY growth in
Acquisition Adjusted EBITDA over last 12 months
Acquisition Adjusted EBITDA
(millions)
$42 $43 $44 $44 $52 $54
$61 $61
Q4 Q4* Q1 Q1 Q2 Q2 Q3 Q3 2013 2014 2014 2015 2014 2015 2014 2015
$172
$228
LTM
$54 Attributable
to Home Services
*Acquisition closed October 20, 2014 and therefore Q4 2014 does not reflect a full quarter contribution from the Acquisition.
Annual Meeting
of Shareholders
$43.9
$61.1
$17.6
$1.5
Q3 2014
Acquisition
Adjusted EBITDA
Home Services Sub-metering Corporate Q3 2015
Acquisition
Adjusted EBITDA
$(1.9)
Acquisition Adjusted EBITDA Rises by 39%
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Acquisition Adjusted EBITDA
(millions)
39%
Home Services
Acquisition Adjusted EBITDA
85%
Sub-metering
Acquisition Adjusted EBITDA
Annual Meeting
of Shareholders
$31.0
$54.4
Q3 2014 Q3 2015
$23.0
$48.2
Q3 2014 Q3 2015
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$12.8
$30.8
Q3 2014 Q3 2015
$21.8
$44.8
Q3 2014 Q3 2015
Distributable Cash ($ Millions)
Operating Cash Flow ($ Millions)
Distributable Cash - Maintenance ($ Millions)
Cash Provided by Operating Activities ($ Millions)
Generating Significant Cash
Annual Meeting
of Shareholders
83%
62%
Q3 2014 Q3 2015
10
$10.6
$19.2
Q3 2014 Q3 2015
$0.181 $0.21
Q3 2014 Q3 2015
49% 43%
Q3 2014 Q3 2015
Total Dividends Declared ($ Millions)
Payout Ratio
Dividends Declared per Share
Payout Ratio - Maintenance
Payout Ratios Improve Despite Dividend Growth
Annual Meeting
of Shareholders
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BBB+ S&P (DBRS: BBB High)
BBB+ S&P (DBRS: BBB High)
6.7x* Interest Coverage
8.7x* Interest Coverage
3.2x* Leverage Profile
3.0x* Leverage Profile
4.3% Weighted Average Interest Rate
3.6% Weighted Average Interest Rate
As at December 31, 2013 YTD as at September 30, 2015
Continuing to Strengthen The Balance Sheet
* This metric is calculated using Adjusted EBITDA and excludes the balances associated with pension, OPEB and capital leases.
Annual Meeting
of Shareholders
Priorities for Capital Allocation
12
Reinvestment in High Return
Growth Initiatives
Returning Capital to Shareholders
Annual Meeting
of Shareholders
JOHN MACDONALD President and CEO
Annual Meeting
of Shareholders
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2015 Strategic Priorities
Grow
Consolidated
EBITDA
→Growth in annuity contracts
→Complete IT integration and rebranding
→Grow unit continuity
→Achieve positive cash flow
→Cost containment initiatives
Home Services
Sub-metering
Corporate
Grow
Consolidated
EBITDA
Annual Meeting
of Shareholders
Consumer Protection Legislation Bill 55 – The Stronger Protection for Ontario Consumers
Act – came into effect on April 1, 2015
Buyout Contracts Currently cover 30% of water heater rentals, a
percentage that will continue to increase as assets are exchanged and customers added
Consumer Awareness & Education Acquisition of the Home Services business gives us
greater control over the customer experience and education
11 7
Q3 2014 Q3 2015
5
9
Q3 2014 Q3 2015
15
Rental Unit Growth Surpasses Attrition in Q3 2015 Home Services
Water Heater Additions
Water Heater Attrition
Annual Meeting
of Shareholders
16
Increasing HVAC Transactions
2,493
9,886
12,379
6,195 7,161
13,356
Rental Sale Total
HVAC Transaction Mix
Rental vs Sale
YTD 2015 YTD 2014
Shifting HVAC sales to rentals is a key strategy
1,003
3,372
4,375
2,388 2,170
4,558
Rental Sale Total
Q3 2015 Q3 2014
Home Services
Annual Meeting
of Shareholders
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Home Services
Long-Term Benefits of Growing HVAC Rental Base
Rent
Recurring revenue stream, high
IRR, long-term customer
relationships
Sell
Upfront one-time high margin
EBITDA gain, potentially no
ongoing customer relationship
unless protection plan sold
Finance
Upfront one-time high margin
EBITDA gain, with virtually no
ongoing customer relationship
unless protection plan is sold or
financing is provided
by Enercare
2015 2016 2017 2018 2019 2020 2021 2022 2023
Illustrative Example Only* of CAGR of HVAC Revenue
Assuming 8,000 new units per annum at $80 per month
($Millions) 2015 2016 2017 2018 2019 2020 2021 2022 2023 Total
Revenue 8 16 24 34 43 53 64 76 88 405
Capital Outlay 40 40 40 40 40 40 40 40 40 360
A rental HVAC unit is much more valuable over the long-term than a sale
*This is an illustrative example only and not a forecast. The 8,000 units is based on annualization of approximately 2,000 HVAC rental units originated in Q2 2015.
Annual Meeting
of Shareholders
18
Significantly Growing Revenue per Unit
$14.45 $15.07
$23.38 $23.01 $26.86
$38.65
Q3 2013 Q3 2014 Q3 2015
1.7x 1.4x
A rental product added to the portfolio in Q3 2015
was worth 1.7x that of a unit lost to attrition
Average Monthly Rental Rate Changes
Attrition
Additions
Home Services
Annual Meeting
of Shareholders
19
Focusing on Protection Plans
On May 1st, launched extended
protection plan product to
augment manufacturer’s normal
warranty on an HVAC unit
Protection plans provide key
opportunities to cross-sell and are
more profitable and sticky than on-
demand services
548,000 Contracts
21,000*
Attrition
17,000*
Additions
Entry level
protection
plans
Upsell
opportunity
Q3 2015 Protection Plan Unit
Continuity
Home Services
Annual Meeting
of Shareholders
20
Acquisition Integration Milestones Home Services
Completed first stage of IT decoupling –
final stage on track for completion by year end Launched new brand New products
Annual Meeting
of Shareholders
21
Water heaters
HVAC equipment
Protection plans
Water treatment products
Internal financing
New Recurring Revenue Streams in 2015 & 2016
Water Treatment Products (2016) Leverage 200,000 annual water heater
service call incidents to build product
awareness through technician channel
Internal HVAC Financing (2015) Represents 18%-20% of HVAC sales volume
Increases number of sales that have
ongoing HVAC relationship
part of strategy to grow dealer network
Home Services
Annual Meeting
of Shareholders
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Committed to Unit Continuity Growth
93
132
156 166
185 200
77
94
115
136 151
161
50 57
71 82
96 106
2010 2011 2012 2013 2014 YTD 2015
Contracted Installed Billing
(In thousands)
17% CAGR
17% CAGR
17% CAGR
Sub-metering
Annual Meeting
of Shareholders
Cash Flow Positive on a Year-to-Date Basis
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Scalability
Grew unit continuity
Increased productivity
Achieved
positive free
cash flow YTD
82% YTD
EBITDA Growth
Positive free cash flow driven by significant increase in EBITDA
Grew net revenue
Sub-metering
Stronger as
ONE Q3 2015
Financial Highlights
NOVEMBER 13 2015
