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Crius Energy Trust Reports Fourth Quarter and Year End 2016 Results

Strong operating performance highlighted by 15% growth in Adjusted EBITDA and 20% growth in customers in 2016

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

TORONTO , March 16, 2017 /CNW/ - Crius Energy Trust ("Crius" or the "Trust") (TSX: KWH.UN), today announced its financial results as at and for the three and twelve month periods ended December 31, 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

  • In the fourth quarter of 2016, revenue was $171.4 million , representing a 16.2% increase from $147.5 million in the fourth quarter of 2015. For the year 2016, revenue was $743.8 million , representing an increase of 8.4% from $686.3 million in 2015.

  • Gross margin of 21.9% of total revenue for the quarter, representing a decrease from the 24.0% achieved in the fourth quarter of 2015. For the year 2016, gross margin was 21.3% of total revenue, representing a decrease from the 23.9% achieved in 2015.

  • Adjusted EBITDA of $13.6 million during the fourth quarter, an increase from $8.4 million achieved in the fourth quarter of 2015, with prior quarter results being adversely impacted by $4.8 million resulting from a change in the application of our accounting policy for the recognition of solar revenues. Removing the one-time impact of this accounting change, Adjusted EBITDA for the prior quarter was $13.2 million . For the year 2016, Adjusted EBITDA was $60.8 million , representing an increase from $52.6 million in 2015.

  • Distributable Cash for the fourth quarter was $9.2 million and total distributions were $5.7 million , resulting in a quarterly payout ratio of 62.0%. For the year 2016, Distributable Cash was $38.9 million and total distributions were $22.6 million , resulting in a payout ratio of 58.1%.


Operational Highlights

  • Achieved net customer growth of 20,000 customers in the fourth quarter, representing 2.1% quarter-over-quarter growth, with total customers reaching 982,000, a 20% increase over the end of 2015.
    • Added 91,000 customers from sales and marketing channels during the quarter, down from the 99,000 average organic customer adds over the prior four quarters.
    • Gross customer drops in the fourth quarter of 71,000 customers represents a continuing positive trend of lower attrition rates aided by the transition of the customer portfolio to more fixed-price and commercial customers, as well as active customer retention and renewal programs.

  • Continued expansion of geographic footprint.
    • Launch of the network marketing sales channel in Australia with electricity and natural gas customer enrollments commenced in the fourth quarter of 2016 through a local retail energy partner.


Growth and Corporate Highlights

  • Announced the fourth distribution increase since the beginning of 2016.
    • In October 2016 , the board of directors of Crius Energy Administrator Inc., as administrator of the Trust (the "Board") approved an additional 2% increase to distributions paid on Units for the fourth quarter of 2016, representing an annualized increase of C$0.0149 per Unit and a total annualized distribution of C$0.7578 per Unit.
    • The Board is confident that it will be able to continue increasing distributions in 2017, and will re-evaluate further distribution increases beyond the end of the year.

  • Expanded operational capabilities in the residential rooftop solar business through two strategic acquisitions.
    • Completed the acquisition of the direct residential solar business of SunEdison Inc. ("SunEdison"), which included a proprietary technology platform, customer lead databases, marketing materials and human capital.
      • The assets acquired from SunEdison are expected to increase solar sales and enhance margin by enabling the Company to manage a solar customer from prospect to installation. The Company's expanded solar capability combines first-party and third-party lead generation, sales capability and installations combined with a third-party finance strategy.
      • 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 $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 with Verengo on September 23, 2016 (the "Verengo Purchase Agreement") to acquire the Verengo Assets, including the residential solar installation platform of Verengo and certain contracts and human capital of Verengo. The Verengo 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 . The purchase price consists of the credit-bidding of the initial cash funding of Crius Solar Fulfillment, LLC (including the $2.3 million cash contribution from Crius Energy as well as the contribution of $2.5 million cash contributed from the non-controlling members and any further debtor-in possession advances made prior to the closing of the transaction) as well as the credit-bidding of certain secured notes contributed by the non-controlling members.
    • The closing of the transaction is subject to, among other things, the satisfaction of the conditions precedent in the Verengo 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.

  • Completed a C$72.5 million equity offering and the acquisition of remaining interest in the Company.
    • In June 2016 , the Trust successfully completed the acquisition of the remaining 56.9% of the Company ("Remaining LLC Acquisition") and now holds a 100% interest in the Company.
    • The Remaining LLC Acquisition was funded through the issuance of Units and cash raised in a public offering of 8,581,300 Units issued at a price of C$8.45 per Unit.
    • The Remaining LLC Acquisition more than doubled the market capitalization of the Trust at the time of the transaction and simplified its organizational structure, and is believed to have enhanced the scale and capital markets profile of Crius, improved trading liquidity and access to capital markets.

  • Completed the acquisition of 75,000 customers from Iron Energy LLC d/b/a Kona Energy ("Kona Energy").
    • In February 2016 , the Company successfully completed the acquisition of the customer contracts and associated assets for approximately 75,000 electricity customers for a total acquisition cost of approximately $7.0 million .
    • The acquisition further increased the Company's scale and expanded the Company's customer base in Illinois , New York , Ohio , and Texas .

  • Appointed Ravi Thuraisingham as an officer of the Trust.
    • In November 2016 , the Board approved the appointment of Ravi Thuraisingham , Executive Vice President of Mergers & Acquisitions, as an officer of the Trust.
    • Mr. Thuraisingham has more than 15 years of experience in the retail energy and solar industries with a successful track-record of originating and executing acquisition opportunities.
    • The appointment highlights the Company's commitment to grow the business through acquisitions.


"Our strong 2016 results reflect the performance and strength of our deregulated energy business, highlighted by 15% growth in Adjusted EBITDA and 20% growth in customers over 2015," commented Michael Fallquist , Chief Executive Officer of Crius. "Management is pleased that the transformative changes made in 2016 have positioned Crius to increase unitholder value by leveraging significant opportunities in both the deregulated energy and solar industries, as these businesses are highly complementary and when combined are expected to create opportunities and unitholder value in excess of what either a pure-play energy retailer or solar company could achieve alone."

Review of Year End Results

Crius Energy produced strong financial and operating performance in 2016, highlighted by healthy year-over-year growth in the customer base, up 19.9%, and Adjusted EBITDA, up 15.4%. The strong performance highlighted the Company's successful organic and acquisition growth strategy, scalable operating platform, robust risk management capability and strong balance sheet.

During 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 conservative balance sheet, the Board approved and implemented 2% distribution increases for each quarter during the year, which resulted in an 8.3% increase in distributions per unit while continuing to maintain a conservative payout ratio under 60%.

Overall, revenues increased 8.4% in 2016 to $743.8 million from $686.3 million in 2015. The increase was largely driven by increased volumes due to higher average electricity customer numbers resulting from organic and acquisitive growth. The increase was partially offset by a lower average retail prices and lower average natural gas customer numbers.

After removing a one-time impact of $4.8 million resulting from a change in application of the revenue recognition accounting policy for solar revenues made in 2015, revenues from solar system sales were down from $6.3 million in 2015 to $2.3 million in 2016. The decrease in revenues is primarily the result of challenges following the transition to a new solar partner in September 2015 .

In order to address the ongoing challenges with the existing solar partnership business model, the Company expanded its solar capabilities through the acquisition of solar assets from both SunEdison, which was completed by the end of 2016, and Verengo, which we expect to complete in the second quarter of 2017. These acquisitions provide the technology, team, and expertise for Crius to transform the solar business from a reseller of solar products to a vertically integrated solar provider.

Gross margin for 2016 was in line with management expectations at $158.5 million , down 3.2% from $163.7 million in 2015. As a percentage of total revenue, gross margin was 21.3% in 2016, down from 23.9% in the previous year. The decrease in gross margin and gross margin as a percentage of revenue was primarily a result of lower year-over-year unit gross margins due to the customer base shifting to a higher percentage of lower-margin commercial and municipal aggregation customers, and is consistent with recent trends and management expectations. Commercial customers provide the benefit of diversification to the customer portfolio, higher retention profile than residential customers and lower cost-to-serve, although with lower average unit margins. The impact of the decrease in unit gross margins was not fully offset in 2016 by volumetric growth of the portfolio due to organic and acquisitive customer growth.

Adjusted EBITDA in 2016 was $60.8 million , a 15.4% increase over the $52.6 million achieved in 2015. The Company achieved Distributable Cash of $38.9 million in 2016, a 12.1% increase over the $34.7 million in 2015. Total distributions were $22.6 million in 2016 and $20.2 million in 2015, representing conservative year end payout ratios of 58.1% and 58.2% respectively. Growth in Distributable Cash resulted from strong operating cash flows, offset by higher total maintenance capital expenditures of $10.7 million during the year, which were elevated primarily due to the one-time costs associated with the Company moving its headquarters in late 2016.

At December 31, 2016, Crius had 982,000 customers, up from 819,000 at the end of 2015, representing strong net customer growth of 163,000 customers, or 19.9% over 2015. Net customer adds in the year benefited from strong sales activity in the direct marketing and commercial channels, lower customer attrition, and the acquisition of 75,000 customers from Kona Energy in the first quarter of 2016.

During 2016, excluding changes in operating assets and liabilities, the Company achieved operating cash flows of $61.6 million as compared to $52.6 million in 2015. At December 31, 2016 the Trust had cash and cash availability of $49.9 million . This consisted of $10.9 million of cash and equivalents and $39.0 million available under the credit facility. This compared to cash and cash availability of $42.9 million at the end of 2015.

During the year, the Trust increased its ownership of Crius Energy to 100% through the completion of a bought deal equity offering with a syndicate of underwriters for 8,581,300 Units at a price of C$8.45 per Unit for total gross proceeds of C$72.5 million . The net proceeds were used to purchase the remaining membership units of Crius Energy not already owned by the Trust, thereby increasing the Trust's indirect ownership of Crius Energy to 100% from 43.1%. Management believes that the increased ownership of the operating company by the Trust has contributed to the enhancement of the scale and capital markets profile of Crius, improved trading liquidity and access to capital markets.

The consolidated financial statements of the Trust as at and for the period ended December 31, 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 fourth quarter and year end 2016 financial results on March 17, 2017 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 March 17, 2017 until March 24, 2017 . To access the rebroadcast, please dial 416-849-0833 or 1-855-859-2056 and enter pass code 63114530#.

About Crius Energy Trust

Crius Energy Trust provides investors with a distribution-producing investment through its 100% ownership interest in the Company. With over 982,000 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" within the meaning of applicable Canadian securities legislation (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, 2016, dated March 16, 2017 (under the headings "Risk Factors" and "Forward-Looking Statements") and in the MD&A of the Trust as at and for the period ended December 31, 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 or 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 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 (including the Trust's ability to continue increasing distributions in 2017), continued expansion of Crius' geographic footprint, the commitment of the Company to grow the business through acquisitions, 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), the ability to generate unitholder value in excess of what either a pure-play energy retailer or solar company could achieve alone, 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, the robustness of the Company's risk management capability and scalable operating platform, market risk, credit risk, off-balance sheet arrangements, transactions between related parties, liquidity and capital resources, critical accounting estimates, Internal Control over Financial Reporting, 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 period ended December 31, 2016 (under the heading "Reconciliation of Net Income (Loss) and Total Comprehensive Income (Loss) to EBITDA and Adjusted EBITDA") for a reconciliation of Adjusted EBITDA to net income (loss) and total comprehensive income (loss), 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 year ended December 31, 2016 (under the heading "Distributable Cash and Payout Ratio") for a reconciliation of Distributable Cash to cash flows provided by 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


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