Just Energy Group Inc.
Q4 2019 Earnings Call Transcript

Published: 16 May 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the Just Energy Fourth Quarter Fiscal 2019 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder this call is being recorded. I would now like to introduce your host for today's conference, Chief Executive Officer, Pat McCullough. Sir, please go ahead.

[Pat McCullough:]

Thank you, Operator. Good morning everyone, and thank you for joining our fiscal 2019 fourth quarter conference call. I am Pat McCullough, Chief Executive Officer of Just Energy. With me today is our Chief Financial Officer, Jim Brown. Jim and I will discuss the results for the quarter as well as our expectations for the future. We will then open up this call to questions. Let me preface the call by telling you that our earnings release and potentially our answers to your questions will contain forward-looking financial information. This information may eventually prove to be inaccurate. So, please read the disclaimer regarding such information at the bottom of our press release. Today, we will offer some perspective on our results followed by an update on a few of the key strategic initiatives that we are pursuing that will continue to drive performance. Fiscal 2019 was important year for Just Energy. We took critical action to strengthen our organization and set a path for exceptional shareholder returns in near-term. We are pleased to report the highest single year gross margin in the company's history driving that milestone with the average gross margin for RCE for customers added and reviewed in consumer division which also reached an all-time high of $386 per RCE. This is a significant increase year-over-year as well as sequentially. Importantly, it far exceeded the margin associated with the customer's loss during the period. This record profitability reflects the improved pricing power and continued risk management of weather-related cost. We are also [indiscernible] that we accomplished this level of profitability while maintaining a consistently low level of total attrition and achieving attrition in our consumer book is only 19% for the first time in our history. This success is the result of strict action taken by our team over time to cultivate a strong customer base and appreciate the level of customer service and value-added products offered by the Just Energy. We are very proud of our successes on this front and fully expect to sustain these efforts moving forward. The improved profitability of double-digit earnings and funds from operations growth year-over-year, the 13% year-over-year base EBITDA growth was within our expected range and was achieved while overcoming the headwinds experienced early in the fiscal year as well as against a tough comparable period last year which included $21 million for the change in accounting for B2B investment. Our core revenue continues to perform well. We exit the year with embedded gross margin of $2.3 billion reflecting year-over-year growth of 20%. As we have discussed, embedded gross margin is our publicly recorded forward earnings projection on gross margin. The 20% growth is evidence that our future earnings will be up on gross margin line by approximately that same amount as compared to where we have the book value one year ago. This important metric provides great confidence in the health of the business as well as a greater line of sight and predictability into our future earnings stream from the current book of business. We are excited by the investments we are making in our business to support our future growth while also continuing to work on containing our cost structure and overheads. On the product and growth side, we are launching our water filtration business home water forging our presence into the health and well being space. The addition of water filters and similar products provides Just Energy with a strong opportunity to cross-sell to existing commodity customers as we continue to grow the value of our existing book of business. Further, our strong channel diversification will allow us to sell more water filters and value-added products to new [indiscernible] customers. During the year, we also took critical steps to address or cost structure in order to position the company to excel in the future. As you saw, we announced the cost reduction this year. These actions will amount to annual cost savings of around $40 million and are in direct alignment with Just Energy's ongoing transition to a consumer company. While these actions have reduced cost significantly, we are currently undergoing a rigorous performance improvement review. This process allows us to identify very specific actions we will take in fiscal 2020 that will result in greater sales optimization, improved margins, additional cost efficiencies, and further strengthens our capital structure. You undoubtedly hear us talk about the specifics of these actions in the coming quarters, and you will see the results in our performance. In addition, we are now seeing the discontinuation of our operations in Germany, Ireland, and Japan. The board has formerly approved this plan, and we have commenced the process to dispose these businesses. We expect the disposal will be complete within the next 12 months. There are some nuances as to how these items will reclassify in our report and Jim will walk us through shortly. I do want to emphasize that the entry into these markets was done organically and at low cost. However, as we scrutinized the return on the investments in terms of both time and resources, we felt this was the best decision and it aligns with our ongoing strategic transition and our pledge to deliver exceptional shareholder returns in the near term. As part of this, we realigned our team and our leadership around critical key functions and geographies that will deliver a heightened focus on our profitable growth. All in all, the introduction of new products as well as the cost containment and divesture actions, reposition our organization in a way that I am confident will allow assurance that we are playing to our true strength, capitalizing on demand driven profitable growth opportunity, offering unparallel product and services to our customers, and negative risk on behalf of our customers. The core book of business is strong and stable and remains the focal point as it continues to drive the majority of our near-term earnings in cash. The value-added products and services strategy will address the longer-term needs of our customers. While we are extremely excited about the early success of our value-added products and services, you will still see quite a bit of emphasis on margin enhancement in the electricity and natural gas books that we manage because we still see tremendous upside in the book of business well into our future. As you saw in our press release last night and referred today, we are well positioned to deliver another year of double digit earnings growth in fiscal 2020. Additionally, we are providing guidance for the first time on our expectations for free cash flow in fiscal 2020, which we expect to be in the range of $90 billion to $100 million. This will create surplus cash after dividend payments. As we continue to execute, we take necessary action we will begin to realize the true value of our organization. Our greatly improved profitability and cost structure combined with a healthy core business and its brand new offering as value added products and services will generate significant earnings growth and capital. This capital will support future dividend payments as well as to pursue the growth opportunity to further our strategic transformation to a consumer focused company. With that, I would like to turn the call over to Jim Brown, our Chief Financial Officer. Jim?

[Jim Brown:]

Thank you, Pat. As Pat noted in his remarks, our performance in the fourth quarter is a strong indication that the initiatives in place are proving successful. I would like to cover highlights from the fourth quarter and our full fiscal year followed by discussion on fiscal year guidance for 2020. As you read in our MD&A last night, we made the decision to dispose our business in Germany, Ireland, and Japan over the next 12 months. While these operations were previously reported under the consumer segment, we now have classified as disposal group held for sale in discontinued operations. We have adjusted our historical numbers for the past three fiscal periods to reflect our continuing operations. I would also like to point out that restructuring charges taken in the fourth quarter have been excluded from base EBITDA. As you saw on our release, this is now referred to as base EBIT from continuing operations. Turning to fourth quarter base EBITDA, our continuing operations EBITDA decreased 3% to $68.8 million compared to the prior year. The decline was substantially due to a gain of $20 million in our investment vis-à-vis in the fourth quarter of fiscal 2018, mostly offset by increase in gross margin in the current quarter. As a reminder, losses due to changes in fair value derivative instruments, including net profits, is not reflective of the economic results or cash flows of the company. Turning to gross margin, during the quarter, our realized gross margin increased 17% year-over-year to $198 million. And our full-year gross margin grew to $712 million; an increase of 11%. This is primarily from our improved pricing power in North America, margin expansions from value-added products including our water filtration business, and continued management of our hedging cost. Our strategic focus to acquire and retain a stronger customer base in North America and U.K. continues to drive higher gross margin through customer analytics and our powerful and unique sales channels. On a full-year basis, the consumer segment gross margin increased 10% to $535 million resulting from [technical difficulty] higher margin customers and improvement of 22% on gross margins signed and renewed to $300 for RCE. In the commercial division, gross margin for the year was $176 million representing a 15% improvement over the last year. We continue to focus on margin optimization by focusing on smaller and medium-sized customers. I would like to comment that we're very pleased with the execution of our hedging and risk management program for the year, which ensures realization of our gross margin. The company is committed to minimize the market risk and provide stable earnings to ensure gross embedded gross margin as realized over time. As I mentioned in prior quarters, our customers recognize the value of our services and products as our combined customer portfolio attrition rate improved one percentage point from prior year to 13%. Consumer attrition of 19% improved 1% from prior year while commercial attrition was 2% to 6% for the full-year. Returning to the income statement administrative expenses from continuing operations for the fourth quarter were $48 million, which is in line with the fourth quarter of the prior year. The company is committed to reducing overhead costs through automation, consolidation of functions and flattening of the organization. As detailed in our March 2019 press release, regarding our strategic transformation and cost reduction efforts, we expect a $40 million cost reduction in fiscal 2020 financing costs of $28.8 million increased 59% for the fourth quarter as compared to the prior year. This is primarily driven by interest costs from greater realization of our credit facility, higher interest rates, and the cost of managing collateral requirements in commodity markets. Our based funds from continuing operations for the full-year was $106 million, representing a 10% increase from last year. The payout on base funds from operations for the full-year was 82% compared to 89% of the end of fiscal '18. We remained committed to our strategy of sustaining our dividend and I mean other capital requirements. Overall net debt to EBITDA increased to 3.7 times, which is higher than the 2.8 times reported at the end of fiscal 2018. As mentioned before, the company's focus on generation of the free cash flow that will be derived from increase versus margin combined with cost reductions. By the way, I like to spend a few minutes discussing our outlook for fiscal 2020. We implement several initiatives profit organizations from no greater profitability, including seeking higher margin customers, reduction to administrative costs to streamline our operations over the year. Looking forward to physical 2020, we have chosen to discontinue Germany, Japan, and Ireland so that the company can focus our attention on North America and the U.K., while bringing in new leadership to help drive initiatives and help improve our focus on areas of the business best position for growth. We believe we're well-positioned to drive earnings growth beyond the historic levels without sacrificing the quality and service to customers. As a result, our fiscal 2020 -- guidance is $220 million to $240 million with forecasted free cash flow of $90 million to $100 million. With that, I'll turn it back to Pat for concluding remarks.

[Pat McCullough:]

Thanks, Jim. Moving forward, we feel good about the direction of our business and our ability to sustain the improvements we've made. As Jim discussed, we expect the margin enhancements, expense control measures in our risk management activities and improvements to elevate our performance. We remain very focused on capital stewardship and cash generation to support our dividend and our growth. This commitment to balance sheet discipline generating superior returns on invested capital, and improving performance is setting the stage for predictable prolonged and stable growth. Before we open it up to questions, let me say, we are laser focused on execution. We have taken swift actions to improved performance and we will move forward with the same result of confidence and commitment to raising the bar on our performance and harnessing the value of our true strengths. While I'm pleased and encouraged by the success of our initiatives, we know there's still more that can be done to advance the transformation of Just Energy and reward our loyal shareholders. With that, I would like to open it up -- open the call up for questions. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Nelson Ng with RBC Capital Markets. Your line is open.

[Nelson Ng:]

Great, thanks. Good morning, everyone.

[Pat McCullough:]

Hi, Nelson.

[Nelson Ng:]

Hi. Just a few questions on exiting Germany, Japan, and Ireland, I think it's been like one or two years since you guys entered the market, did you not see a runway to profitability in those markets, or was it just more about focusing on other areas?

[Pat McCullough:]

Both, is the short answer to your question. We saw very slow cash-on-cash returns. So where we had hoped, I think originally a two-and-a-half-year tight cash-on-cash return, those are challenging markets for very different reasons. So the first answer to your question is, yes, we don't like the diluted cash nature of those pursuits. And then, I think the bigger issue really is the distraction from what can be done on the bigger kind of home market bases of North America and the U.K. So, really focus get the management team driving more performance versus distracting the management team with too many pursuits globally.

[Nelson Ng:]

Okay. And then, what's the negative, what was the EBITDA contribution or negative EBITDA contribution from those businesses? Is it close to $12 million [ph] of operating loss?

[Pat McCullough:]

Yes, it's about $2 million to $3 million a quarter notes, and then the additional math that you see in the total for the year was impairment costs related to investments in those subsidiaries.

[Nelson Ng:]

Okay. And then, roughly how many RCEs are in those countries, and did they get adjusted out of the RCE table that you produce every quarter?

[Pat McCullough:]

Yes, they did get adjusted out. It was only thousand. So, we're not talking big numbers here.

[Nelson Ng:]

Okay, got it. And then, just moving on to your 2020 guidance in terms of the $90 million to $100 million free cash flow, so how does your free cash flow definition differ from your base funds from operations? Is it mostly subtracting the capitalized commissions or is it something else on top of that?

[Pat McCullough:]

Yes, it's very simple. It's just our free operating cash flow minus servicing [ph] activities. So, yes, the free cash -- FFO is still a relevant math measure for us, because over time it measures our profitable cash flows, but the free cash flow takes into account changes in working capital, and patent are committed to driving free cash flow per share during the year. So, there's going to be an increase focused on the actual cash flows in above and beyond FFO.

[Nelson Ng:]

Okay. So, free cash flow includes working capital movements?

[Pat McCullough:]

Yes. So, think about total cash flow before dividends is what we're trying to get at.

[Nelson Ng:]

Okay, because I think working capital was negative for fiscal 2019, so would you expect that to be a positive number for fiscal 2020?

[Pat McCullough:]

Yes, there is timing that's involved with respective to distribution through the quarters, both for the full-year, we expect to generate -- well, we expect not have a big working capital [indiscernible].

[Jim Brown:]

Yes, the majority, Nelson, was in Q2 associated with our U.K. subsidiary. That was headwinds that were experienced through operational challenges we had in the business, which have been remedied. So, we are expecting positive working capital and a big difference in 2020 than 2019.

[Nelson Ng:]

Got it. And then, just on that, in terms of the free cash flow relative to the distribution, so when you look at distribution, you're looking at both the common dividend and the preferred dividends, right? So that totals just under $90 million?

[Pat McCullough:]

Yes.

[Nelson Ng:]

So, okay, so free cash flow of 90 to a 100 compared to distributions of about 89, right?

[Pat McCullough:]

That's right.

[Nelson Ng:]

Okay. I will have one more question before I go back into the queue. In terms of the 2020 EBITDA guidance, in terms of bridging that from fiscal '19 to 2020, is the main driver cost reductions, or like, how do you see the split in terms of cost reductions versus underlying growth?

[Pat McCullough:]

Yes. So we're expecting the pricing, gross margin expansion to continue. Obviously, I referenced that with [indiscernible] gross margin. We did that tens of millions of dollars of goodness year-on-year. We have press release that our overheads have been reduced, actually in 270 positions globally, and that will equate to roughly $40 billion year-on-year. So obviously, as you're trying to walk here, what else is that growth is question mark, we've assumed very little growth in our base plan. So anything we do there, if we get back to growth it's going to be a pick up, but frankly we're being conservative. We have recent misses in the guidance, and we'll put that in 2020. We're going to put something else that we can deliver, and we see it as conservative.

[Nelson Ng:]

Okay, thanks. I'll go back in the queue. Thank you.

[Pat McCullough:]

Thank you.

[Operator:]

Thank you. Our next question comes from Mark Jarvi with CIBC. Your line is open.

[Mark Jarvi:]

Yes, good morning everyone.

[Pat McCullough:]

Good morning, Mark.

[Mark Jarvi:]

I just wanted to go back to the to that bridge in the last question there, so if you've already kind of recognized some of the restructuring costs, and then there's more to come. And some of the -- I guess the negative drag was an international. So is that assume that flat gross margins plus the incremental 20 million of savings gets you to the low-end of the guidance and then to get the upper end. It's expansion on gross margin?

[Pat McCullough:]

It's right. We're obviously talking numbers that equate to more profit difference in 204 to 330. There won't be any more restructuring bonds. We've taking both the 2020 cash outflows and the 2019 and recognize the expense in Q4 of 2019. So we aren't going to have anything except the new step function change down in overheads going forward. Again, conservatism is the real answer to not being able to reconcile that difference in cost savings and marketing expansion assuming flat growth.

[Mark Jarvi:]

Okay. And then, when you put the guidance, I'm guessing this point, you guys haven't reflected any impact from IFRS 16? You guys have a sense of what that could do to your reported EBITDA?

[Pat McCullough:]

We don't expect an impact, but we're still evaluating, we're laying that in this quarter. Yes, there's no material to the books in 2014 for us.

[Mark Jarvi:]

Okay. And I just wanted to go back to the free cash flow guidance. And in the commentary about covering the dividend, I didn't notice that. So there's less or pulled out a comment around the commitments that dividend like, is there just a bit of a shift in policy between, the focus on the dividend versus delivering given that with the free cash flow guidance implies you guys can't really enjoy too much on the leverage right now.

[Pat McCullough:]

Yes, I think if you think about our investor base, and what we can manage as appropriate levels of debt was slightly uncomfortable at, three and a half to four times we are not terribly uncomfortable. We remain worse in the past, as you know, we still like to push the net debt to EBITDA down to two or less. However, we do not think that we have to do that at the expenses of the dividend. We think we need to support the dividend that is the share of primary shareholder return in the recent past. So we have every intention of supporting the dividend as we go forward and de-levering with the surplus cash that we generate, due to what we think the conservative plan.

[Mark Jarvi:]

Okay. And then, just one more for the free cash flow guidance, so you can explain why you guys think the band is fairly narrow given that you kind of have a sort of a plus minus 20 on the EBITDA, what kind of gives you the confidence to tighten that up for the free cash flow guidance, like what factors that you guys can kind of, pull a tweak if there are variances on the EBITDA lined up, make sure you hit the low-end of the $90 million of free cash flow.

[Pat McCullough:]

Yes, I think that the other thing to consider is the some return to working capital, we had some headwinds on working capital as you can see in the year, we expect some of that to be flattened out and then of course, the step up and gross margin decrease in overhead costs all contribute we'd like to beat that target. But we feel like the target we put out realistic. In addition to EBITDA mark you have levered like CapEx. Right now, we're going into the year planning to spend very little CapEx in the first-half of the year. And we will kind of create CapEx investments in our IT infrastructure as an option if we're running ahead of our cash projections. So management has a couple levels at his disposal beyond just the earnings bit to ensure that we get home on that free cash flow forecast. But that actually gives us a bit more conservative to me in an EBITDA. We wanted to show the market that we've come into dividend and except. But more importantly, I think you're going to see a lot of upside to that as we get to our second quarter specifically that, that is when the working capital benefit returns the company.

[Mark Jarvi:]

Okay. And then on the wind down of potential sales of the International assets, do you have a sense of whether of whether or not there are likely buyers? And then, in the interim, as you kind of work through that, like, how do you minimize cash out the door on those businesses?

[Pat McCullough:]

Yes, so we have we in those businesses is down we're really selling the assets that exists that primarily revolves around the license to the business and the customer book. So there's a little cash flowing out the door, as we run off the sales process. We do have an interest in multiple jurisdictions for multiple parties. We've not gotten to any binding offers yet, or we would announce those, but we're very confident we'll be able to use those assets for something that is fair for our shareholders.

[Mark Jarvi:]

Yes, thanks. I think too, Pat. But all three of the operations have scalable operations. So it would allow for a quick entry for someone who wants to participate in those markets for billing, and customer service activities.

[Mark Jarvi:]

Okay, I'll leave it there. Thanks guys.

[Pat McCullough:]

Thanks, Mark.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from Raveel Afzaal with Canaccord. Your line is open.

[Raveel Afzaal:]

Good morning, guys. Thank you for taking my questions.

[Jim Brown:]

Hi, Raveel

[Raveel Afzaal:]

So I was reading your notes. And one of the note 19, it was talking about how you had to get some supply term extensions, and you had to pay a bit of money for that. Can you just elaborate on how tight your liquidity is right now? And what type of working capital inflow you expect in the next couple of quarters, just to give us some comfort around liquidity with respect to the business?

[Jim Brown:]

Sure, Raveel. I'll take this real quick. So we didn't have to go get supplier payments pensions, we've been negotiating that with our partners for some time. And then frankly, then moving them all to extended payments or starting about 2 years ago, we had success over the end of this year moving a couple of our suppliers we've left holdout. So we appreciate that partnership and that working capital, it allows us to actually match for the first time our receivables and our payables. If you think about purchase of receivable markets, we can be paid in as long as two months' time. So getting an extension from our suppliers being able to match cash inflows, outflows very important to our business. At the end of Q4, we had about 60 million buying power that's a little tight for us, we'd like to have 75, or better. We don't see pressure in fiscal 2020 on working capital or liquidity. It's not a working for us, you'll see us really flex our muscles will cash and we'll see some impressive expansion of liquidity there. As you know, Q1 is a bit of a shorter quarter, there's not a tremendous amount of possibilities or EBITDA or cash. Q2 is becoming very important to this company as her colleagues or mortgage market that we serve.

[Raveel Afzaal:]

Very helpful. Thank you very much for that. And just going back to Q2 '19, you know, this working capital issue that we had with U.K., do you expect some of that money to be recouped? Or no?

[Jim Brown:]

We do actually. So we have some operating difficulties around billing and collections. And we are able to go back and recover those announced. Now we're doing it slowly over time with our customers, so that we don't lose our customers at an expanded rate, but we are expecting recovery over the next year. It really one of the new ones as the U.K. market is customer, most residential customers pay on a direct debit basis, the same amount every month. So when you get into a uptick in that you're basically recovering that overtime.

[Raveel Afzaal:]

Got it? And some maybe I'm getting too specific over here, but your free cash flow guidance that you have, how much are you expecting to come from recouping this money from from U.K. or is it not that significant?

[Jim Brown:]

It's not significant. So anything that we recover from U.K. could be upside to that.

[Raveel Afzaal:]

Perfect. And just two more quick questions for you. In the quarter, we saw that the sales and marketing expense increased, even though that the customers added was pretty much in line with what we've seen in the last couple of quarters. Why did we see that uptick in the sales and marketing expense for the consumer division?

[Jim Brown:]

We had a couple one timers coming through that were related time in marketing expenses. And the other thing to remember is that you know that expense is under an amortization basis. So the activities in the quarter don't necessarily relate to the expense that's included in the quarter. So there're some timing differences as well.

[Raveel Afzaal:]

So we should be thinking about this number probably I mean like in the $40 million on a quarterly basis going forward compared to $50 million-ish where it is right now or can you give us some guidance around that?

[Pat McCullough:]

We'll give an outlier this quarter. But yes, we are very focused on the IRR and the quality of the channels. And I think in addition to our gross sorry G&A initiatives that we've taken in, we really feel like the secondary trigger to pull is really getting tight on the profitability of channels. And while from an earnings standpoint that'll be blended in the amortization over time from a cash standpoint, it's medium.

[Jim Brown:]

And I'll be little more specific for you. If you take sales commission and non-selling overheads and add those together, we've been operating in that kind of 250, 270 range for a bit now. We're assuming that level as we go into 2020. However, so we were not assuming reductions in sales overhead. However I can tell you, we're working on many actions to reduce sales overhead by tens of millions. So we think there's upside to guidance in the category, you're asking about. But for our forecasting, we're assuming consistent spend with fiscal 2019 and consistent gross adds. And I think there's upside to growth.

[Raveel Afzaal:]

Perfect. And we're seeing a very positive continued trend in the gross margin per RCE improvement. As you said nothing really to worry about on the attrition and then with that we also saw the bad debt expense come down this quarter. Can you speak I mean is that the new run rate are or was this something of a onetime or in the bad debt expense do which is why we saw that decline in the consumer division?

[Pat McCullough:]

No I think as we mentioned in prior quarters, we've taken a lot of efforts around customer. We've brought in a team of folks in the BI to focus on the drivers of that, that I think we're starting to see some of the benefits of that. We've also taken actions to align credit scores in the proper channels to be at optimal value. So I think we'll continue, we'll continue to monitor as we go. But I think we could continue to see the bad debt improve.

[Jim Brown:]

And I'll be specific on his comments, Raveel. In late January, we made decision as a leadership team to raise the minimum credit threshold from near 500 which we would manage with deposits and other assurances to ensure that we're not taking on a credit problem, but we move that minimum from 500 to 600 or 650 depending which product and which market you're going to ask us about. So we are already seeing the benefit of that bad debt perspective. Secondly, we've upgraded our partner. We're working with a company called WNS on credit collections in both North America and the U.K. and we're seeing significant collections improvement in fact, they've been helping us to recover bad debt that previously been fully reserved. So we do see opportunity in bad debt as we go forward and we're assuming minimal improvement in guidance that we gave here.

[Raveel Afzaal:]

Perfect. I'll squeeze one last one in. With respect to $40 million of cost savings where we're tracking to this number in Q4 and where are you now with respect to that number?

[Pat McCullough:]

Yes, so we saw little bit of come through when we pulled out the restructuring costs and restructuring costs are really just the severance and separation costs that we chose to take on. So it really didn't have a meaningful adjustment to where the year would have been if we took no actions but the results are coming in low on our guidance as we're not able to pay our employees full bonuses. So you do see a little bit of bonus accrual get back which takes the G&A to a lower point for the year, we're originally tracking 220 in G&A for the full-year, I think we came in 206 something in that neighborhood. So as we're going forward, we think we can beat that by another 20 to 30 on G&A alone, if not more. And then as we think about selling, we think there is at least 20 to 30 there in terms of selling overheads. That was part of the 270 jobs we eliminated. There were some selling overheads and sales leadership in that $40 million number. So we think we'll deal it. But we've got to get through the first quarter and see it hit the books before we're about to deal.

[Raveel Afzaal:]

Got it, thank you for taking my questions.

[Pat McCullough:]

Thanks, Raveel.

[Operator:]

Thank you. Our next question comes from Endri Leno with National Bank. Your line is open.

[Endri Leno:]

Hi, good morning. Thanks for taking my questions. Just a quick one from me as most of my questions have been answered. But you had a drop in accounts receivable over 90 days from Q3 into Q4 of about $14 million. Is that related to the European operations or you just collected those?

[Pat McCullough:]

Those are write-offs, Endri. Basically we had talked about this last quarter where you said the number is growing as well. Really it's just the timing of write-offs, if things roll into the 90 day bucket, their reserve which is when they hit the income statement. So it's really just timing of write-offs.

[Endri Leno:]

Okay, thanks. That's it from me.

[Operator:]

Our next question is a follow-up from Nelson Ng with RBC Capital Markets. Your line is reopened.

[Nelson Ng:]

Great, thanks. In terms a quick question in terms of the gross margins per RCE. So how's the given that it has increased, I was just wondering whether you've kind of found the sweet spot in terms of pricing because I think the previous quarter, we saw some higher attrition and also higher gross margin. But I was wondering whether the current level is the right level or do you see it going up a bit further or coming down?

[Pat McCullough:]

We think the current level is the sweet spot to be specific. And I'll tell you why. We're looking at multiple things here. We're looking at gross adds and we grew more gross adds which is the bulk of that 386 number dramatically this year from last year. And we are having a record low attrition on that consumer book. However it's also renewed, renewals have gotten a bit harder, we see our folks renewed volume and this is why we're stopping right here and not going further. We could still sell upfront and given compelled customers of the value back here and then we serve them, they're staying with us during the contract but we notice when we're getting back into the economic position with them and with stable markets. I don't know if you're paying attention but ERCOT pricing has fallen, we are seeing more prices coming back into the market. People are talking about price more than they have been. So we're holding steady right here. We should assume what you're seeing now is what you'll see through 2020. We may have to bring pricing down a little bit. If we can't stand the customer churn but we've not gotten to that point yet.

[Nelson Ng:]

Okay. And then on the headcount reduction, can you just clarify what the breakdown between the headcount reduction is from your core business which is I guess Canada, U.S., U.K. versus international in terms of Germany, Ireland and Japan?

[Pat McCullough:]

Sure. Well over 200 came from North America alone, I believe 250 plus came from North America and in U.K. So we had very little, we take a very little credit for what was in Japan, Germany and Ireland, in fact we did not have extensive headcount in those markets hence why it was a distraction for North Americans and our U.K. team.

[Nelson Ng:]

Okay. And then just moving on here high yield debt, I think you've drawn $193 million out of the $250 million. I think that description flags that the remaining $50 million is earmarked for investments and acquisitions. Given that you're kind of cutting back on international expansion, is there any anything you need to do to be able to draw the remaining $50 million or what's your expectation. Do you expect to draw the remaining $57 million?

[Jim Brown:]

Yes, really we wanted to have growth capital available to us with limited restrictions meaning the folks behind that product are the Sagard team and the PIMCO teams and both those companies are open to investing in our let's say inorganic growth. So that's really, what is earmarked for, if we saw pricing on customer books get attractive, they post volatile times, we're not seeing that right now but if we saw that in the future, we got one phone call to make and we've got to put the investment justification to those folks, we get their consent and we've got the remainder of the $250 million available to us. So it's really just in place, so that we don't have to go raise capital at time of an opportunity and have more speed to market as we see in an organic opportunity.

[Nelson Ng:]

Okay, so that is specifically earmarked for kind of like M&A is what you're saying right?

[Jim Brown:]

Correct.

[Nelson Ng:]

So just in terms of the remaining I guess convertible debt that matures, I think later this year. Are you just planning to use operating cash flows to pay that off?

[Jim Brown:]

Yes, there're proceeds from -- remain proceeds from the Sagard facility that cover piece of it and then the rest comes from cash from operations.

[Nelson Ng:]

Okay, thanks. Those are my questions.

[Jim Brown:]

Thanks Nelson.

[Operator:]

Our next question comes from Sameer Joshi with H.C. Wainwright. Your line is open.

[Sameer Joshi:]

Thanks Pat, thanks Jim for taking my questions. I just have a couple. Can you give us an update on the progress of how the Filter Group is integrating and how it is helping or if it is helping in improving sales?

[Pat McCullough:]

Could you repeat the question a little bit slower, Sameer, I had a hard time understanding it?

[Sameer Joshi:]

The question relates to the Filter Group acquisition and how it is being integrated. And is it affecting in a positive manner your sales?

[Pat McCullough:]

Yes, thank you. Yes, short answer here is we are in line with our post acquisition expectations on both sales and profitability. We feel very good about that integration. And you're right. Since we closed in roughly October timeframe, we've spent several months focus on let's integrate, let's build out the infrastructure to be able to scale this to our customers but also through Just Energy's traditional channels in retail and digital and direct selling. So that's complete now. And we are in the process of expansion and seeing sales results that we like. Now we don't have it all figured out yet. We haven't sold water filters to retail channels or digital before. So this is a learning for us but we're still optimistic we're going to have an exceptional return on that investment.

[Sameer Joshi:]

Okay. And then just a quick sort of similar question, are there any other acquisitions that you're looking at in the similar team or similar sites?

[Pat McCullough:]

The focus we have right now honestly is really getting the company cleaned up and efficiently operating profit and cash. So we've had very strong internal focus, I've made a very specific request to our team to not chase new product opportunities that come through acquisitions or new geographies. We are expanding sales. We're looking at new channels that's a lot to do in the first place as well as frankly deliver superior profit and cash performance to our shareholders. So the short answer to the question is no, does that mean that's going to last forever. No, it means it's like a couple more quarters of really getting this operation tight and something that we could refer to as a higher standard of excellence. And then we'll get back into inorganic expansion ideas.

[Sameer Joshi:]

Understood. And just one last one before I fall back in the queue, how are you tracking the net promoter score and should investors expect to get some numbers going forward?

[Pat McCullough:]

Yes, I think we're actually talking about in our annual report which you can look for coming out next month, it is very well. We surpassed 30 on a consumer net promoter score in December in North America falling off to the high 20s this past period, but we really like what we've done there we've taken net promoter score of over 20% year-on-year and very proud of that. And we think that's one of the reasons that we have the pricing power that we have. In our product sales and service levels of excellence, we think are the best in the market. When we compare net promoter score to the big brands, that several markets like Texas we are the leader.

[Sameer Joshi:]

Okay, great. Thanks for taking my questions.

[Operator:]

Thank you. And we have another follow-up from the line of Mark Jarvi with CIBC. Your line is reopened.

[Mark Jarvi:]

Yes, thank you. I just wanted to touch quickly on the value added products, in terms of I think the customer count are flat, margin contribution that quarter was kind of flat or down a little bit, maybe just going to outline how you think that business sort evolve through 2020 in the next few quarters?

[Pat McCullough:]

Yes, we're expecting a flattish type of growth. We don't have anything aggressive planned in our guidance. But there's upside there. We're working hard, our team is very talented and we think we can bring really every business back to growth that we're performing in right now with the discontinuation of those foreign markets. So I'm very optimistic about the upside but we're not banking on in terms of our commitment and projections.

[Mark Jarvi:]

Okay, thanks.

[Operator:]

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back to Mr. Pat McCullough for any closing comments.

[Pat McCullough:]

Thank you, Operator. Before we conclude today's call, I want to thank our board and shareholders for their support. And I also want to once again extend my deepest gratitude to our employees. Our employees have done an excellent job executing our vision for this business and handling change, your dedication to building this business, your business through innovation and commitment. Customer service is the backbone of our success. It is acknowledged and very much appreciated. Thank you everyone for participating in the call. And we will talk to you next quarter. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.