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Just Energy Group (NYSE:JE)

Q1 2014 Earnings Call

August 09, 2013 8:30 am ET

Executives

Rebecca MacDonald - Co-Founder and Executive Chairman

Kenneth M. Hartwick - Chief Executive Officer, President and Director

Beth Summers - Chief Financial Officer

Analysts

Damir Gunja - TD Securities Equity Research

Kevin Chiang - CIBC World Markets Inc., Research Division

Kelsey Roste - RBC Capital Markets, LLC, Research Division

Operator

Good morning, ladies and gentlemen. Welcome to the Just Energy group conference call to discuss the first quarter results for the period ending June 30, 2013. We have just a few announcements before we begin. [Operator Instructions] I would now like to turn the meeting over to Ms. Rebecca McDonald. Go ahead, Ms. McDonald.

Rebecca MacDonald

Good morning, everyone. With me this morning, I have Ken Hartwick, our CEO; and Beth Summers, our CFO. Ken and I will make short presentation, and then we will open the call to questions. Before we get going, 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 releases.

It would be hard to describe the first quarter of fiscal 2014 as anything but a demonstration of the strength of our business. It was clearly a quarter of highlights. Once again, we signed more new customers than any quarter in its history. Overall, our customer base was up 9% over the past year. The embedded gross margin in that book grew by 12% over the year. We added this record number of customers, while reducing our selling and marketing expense by 10% year-over-year. We held our administrative costs run rate down, well below the growth of customers.

By doing all of these things, we were able to increase our base EBITDA by 53% from a year ago. Our funds from operation, in what is seasonally our slow quarter, went from $1.1 million last Q1 to $13.3 million this year. Growth combined with cost control resulted in improved profitability. This was our plan for fiscal 2014, and the first quarter was right on plan.

I will have Ken go through the highlights of the quarter, and then I will talk about what we see as a very bright future. We will then answer your questions.

Kenneth M. Hartwick

Thanks, Rebecca. As Rebecca pointed out, we entered into this year intent on following the past 2 years of very rapid growth, with a fiscal 2014 plan, which would see us move back to stability and profitability in our financial results. To do this, we would have to reap the benefits of the customer growth seen over the past 2 years.

We provided guidance, calling for EBITDA to grow from $175 million to $220 million in a year, with a clear belief that our platform could deliver this growth. To do so, we rely on predictable nature of our hedged fixed price book. To achieve the guidance, we needed to realize 4 objectives in fiscal 2014. Let us look at where we stand with each after the first quarter.

First, we have to maintain customer aggregation at the levels seen in the past 2 years. The first quarter was our highest aggregation quarter ever, so we are clearly on track for this. We added a record 372,000 customers, up 6% year-over-year.

Second, we required a continuation of a trend of steadily -- steady decline in attrition rates and renewals at target levels. Attrition, at 12%, is the lowest that it's been since before the 2008 recession. This is a continuation of the positive trend we have seen over the past 4 years. Our renewals are at a tracking 70%, exactly on target. Renewals have not been at 70% for any year since fiscal 2007.

Third, we have to reduce our administrative cost per customer as we grow. Again, we are right on target with admin cost down in Q1 from Q4, despite the increase in the customer base.

Finally, we have to significantly lower our selling and marketing expense, as we increasingly utilize lower-cost channels to aggregate customers. Here, we saw a 10% decline in selling costs, despite a 6% increase in customers added. Our results, to date, are exactly in line with what is needed for the growth we have forecast. All of our lines of business performed well in the quarter. The Energy business overcame margin pressure in the Commercial segment, an issue that not only affected us, but also our public competitors.

Overall, Energy division EBITDA was up 76%, led by a strong performance by the Consumer division. Our residential product realized margins were up sharply, as higher margin offerings like JustGreen and flat-bill products combined with normal winter weather. Our National Home Services, water heater and HVAC division was also strong. It's installed customer base was up 37% year-over-year. This led to margin growth of 53% and EBITDA growth of 30%.

Bad debt was under control, averaging 2.2% of relevant revenue, down from 2.4% a year earlier. As a percentage of our revenue exposed to bad debt grows, management is careful -- carefully monitoring our credit policies to ensure that we protect shareholders, but not reject too many credit-worthy customers.

Let me deal with dividend sustainability. As we are all aware, a company cannot maintain a payout ratio over 100% on free cash flow over time. However, many companies fund periods of rapid growth through debt, while maintaining a dividend. This is precisely what we did during our recent period of record customer growth and new territory openings.

Last year, our ratio clearly exceeded the long-term benchmark at 184%. As part of our plan described with our Annual Report and during past earning calls, we provided guidance that said this free cash flow payout ratio would be backed down below 100% in fiscal 2014. And based on our book and continued marketing success would continue to decline, falling to a target range of 60% to 65% by the end of fiscal '16. Payout ratio in this range will allow us to comfortably pay the current dividend, fund growth and pay down debt. The first quarter is a start to achieving the goals we have established.

With lower costs, continuing high growth and improved customer retention, the first quarter showed strong performance across the board. It is, however, just one quarter, and we have to maintain this performance going forward.

I would now like to ask Rebecca to describe how we intend to accomplish our goals for the future.

Rebecca MacDonald

Thank you, Ken. I am very pleased where we find ourselves after one quarter. While it is seasonally the slowest quarter for Just Energy, all the key measures of our operating performance are positive. I think we have a lot to be proud of. I think it's fair that we should be proud of record number of customer additions and proud of adding those customers, while reducing our selling cost by 10%. I think we should be proud of having our admin cost grow much slowly than our customer base. I think we should be proud of growing our EBITDA by 53%, in an economy with almost 0 inflation. I think we should be proud of reducing our payout ratio substantially at a time when debt management is a priority. I think we should be proud of tracking towards a very substantial growth contained with our published guidance.

That is the first quarter. What about the rest of the year and years to follow? As we noted in past calls, the vast majority of our EBITDA comes in the third and fourth quarters, so regardless of the results you see, they're only the start to a potentially good year.

Our second quarter margins and EBITDA will not see the same level of growth as we have seen in the first. Our highest bad debt quarter is now the second, as our fast-growing Texas base in the -- is in the peak of its cooling season. Accordingly, many more credit cut-offs occurred during these periods. Also, the remaining impact of the northeast capacity costs will flow through the quarter, reducing margin realized. Overall, we expect that results for the 6 months will be much closer to our guidance than 53% seen today. We remain on track to meet our guidance of $220 million base EBITDA for the year. There remains the usual weather risk, as rough normal business variance, but we see nothing, to date, that would throw us off track.

While we carefully manage our business day to day, management is focused on the bright, high-growth future for the retail industry and how to maintain Just Energy leadership in that industry. Of the top 5 retailers in North America, Just Energy is the fastest growing. We are able to do this because of our constant focus on sales and marketing. We work hard to keep our costs as low as possible, and that leads to a more attractive product for our customers. We will keep our position in the markets to continue innovation with not only fixed rate contracts, but also JustGreen offerings, flat bills, cap-variable rates and shared savings to smart thermostats.

There is no reason why our customer additions cannot be maintained at our near-record levels we see for the past 3 years. Net customer additions will be a function of attrition and renewals. As Ken has pointed out, our attrition has been tracking down steadily and now sits at 12%, 25% less than the peak in 2010, and the lowest it has been since we meaningfully entered United States in fiscal 2006. With strong growth additions, driven by low-cost sales channels and strong net additions based on improving attrition and renewals, margin and EBITDA growth should stay strong for the foreseeable future.

We do have a long-term target payout ratio on funds from operations of 60% to 65% by the end of fiscal 2016. That require us to grow our funds from operation by 90% over that period. We think this is realistic goal, given our ability to grow within existing platform. Realizing these goals, and we will have significant cash flow to pay down our debt to industry standard levels and to fund our continued growth.

As everyone in investment community knows, it is much easier to talk about numbers than deliver. Achieving these results will require tremendous effort from entire Just Energy team. We are willing and able to make that effort. We are committed to Just Energy's success. We are only one quarter into fiscal 2014, but it was a good quarter. The platform we have put in place gives us confidence in the remainder of the year and future years. Our embedded margin growth says very good things about the years to come. This is well-placed industry leader in a very high-growth business. Just Energy should build a solid base to ensure that we'll remain the leader, and the first quarter is clear hard evidence of -- that we are on track for that objective.

I would like to thank Just Energy team for their commitment and for generating results they have done so far and I would like to thank our shareholders for their continued support.

On that note, I will open up for questions. Thank you very much.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Damir Gunja.

Damir Gunja - TD Securities Equity Research

I just wanted to touch on -- most of the metrics improved dramatically in the quarter. Just want to zone in on the Commercial margins. Is there a structural change in that market? Or is this sort of a transient competition that you see sort of normalizing at some point? Just wondered if you could add a little bit there.

Kenneth M. Hartwick

Sure, Damir. I think, as we mentioned in our fourth quarter year-end call and results, certainly, the capacity markets, which affect commercial more than our residential book, have shown a lot of volatility, which they did through sort of the back half of last year and into this year. So that I would call a structural change in that market, where it's just more volatile. I think us, like others, are now looking to treat some of the capacity charge, these pass-through amounts versus -- or pass-through variable amounts to our customer. And I think the ebbs and flows of competition is always there in every market. I think with the recent acquisition by Hess, which has always been one of our bigger competitors in the northeast via Direct, again, we think there's sort of a minimum level of margins that will normalize out. And I think some of that competition, as it comes and goes, allows us to realize the margins we want to achieve. But the first part, I think, is more of a structural change.

Damir Gunja - TD Securities Equity Research

And do you think something in the 60s is going to be the normalized range? Or is there a risk we could go below? Or is that something you can't comment on?

Kenneth M. Hartwick

I guess, it's certainly -- it's a little -- yes, well I think, it's -- we have our views that there's a -- I'd say that, that might look like a floor to us. There's always a risk that things go higher or lower, depending on what any individual company does. But I think the group of companies are there, largely speaking, have to have a level of margin to make their businesses successful. So we do not currently see any further downward pressure on that.

Rebecca MacDonald

Okay. And Damir, just to add to it, we -- on the Commercial side, as on the residential side, we have a very high level of discipline of realizing the margin. And I think that over time, we have made the decisions to step away from certain customers if they are not giving us enough of a margin. So as Ken pointed out, we do not see more downward pressure on that.

Damir Gunja - TD Securities Equity Research

Okay. Maybe just shifting to the lower-cost aggregation. Can you talk about what channels, in particular, are driving that?

Kenneth M. Hartwick

Yes, and just to preface it, on -- specifically, on the residential side of our business, still have a very firm belief that the most effective sales channel we have is our door-to-door, both the stability of the customer and the ability to aggregate customers. But on the other piece is the 2 primary parts that are adding customers at a lower cost. We'll do some telemarketing in areas where there's either restrictions on door-to-door or just not practical to use the sales organization to go there. And then, also, some online and affinity-related activities that we do, so -- and I think our mix on the residential side now is, roughly 70% comes via door-to-door. And we would view that as a good spot to be in and with the other 30% coming from some of the aggregation channels. And all of those channels should be able to grow.

Damir Gunja - TD Securities Equity Research

Okay. Maybe somewhat tying into that. Have you -- can you -- is there anything you can talk about regarding potentially partnering with sort of larger consumer-based-type organizations, whether it's cable or telecom to sort of rollout your product quicker or in a different way?

Kenneth M. Hartwick

Yes, I think we're like probably most of the other retailers. We look and are -- have almost ongoing dialogue with different big customer-base-type of entities as to the ability of both us to sell into their customer base via partnership and them into ours. So I think those are sort of ongoing dialogues. I think we have the luxury of having very, very effective sales organization that we have across each of the channels, but, again, puts us in a bit of a different position as far as what we want to achieve on that. So what I don't think you'll see us do is go to marginal partners that don't add long-term benefit to what we want to do. I'd like to say, we have the luxury of not needing to do that.

Operator

And our next question comes from Kevin Chiang.

Kevin Chiang - CIBC World Markets Inc., Research Division

Maybe just following up on Damir's first question. I think we've continued to see gross margins added from customers still continue to come in below the customers you've lost. And thinking of MD&A, you've highlighted a number of times that there's quite intensive competition, which may be impacting margins as well. When do you see the stabilizing or reversing? And how should we think about margins, not just next quarter, but kind of over the next few years here, given all those variables?

Kenneth M. Hartwick

Yes. I think, Kevin, on the margins, if you look out over the next 2, 3 years, we think that the margin levels we are achieving are consistent with what we would achieve over the next -- or the next 2- to 3-year period. I know some of the margins on our older book that would have been customers signed up in 2008 and '09, when, in particular, our gas prices were much higher. Those customers are largely either renewed or gone from the book. But I'd say, I think our margins over the past year or so have been very stable, and we wouldn't anticipate those changing materially going forward.

Rebecca MacDonald

I'd just like to add that when you look at any competitors that have published guidance, we have always said time and time again that the strength of our organic growth give us -- gives us the opportunity to keep the margins very predictable and steady. And I think that market is seeing that what we were seeing, we're delivering. It's always easier to control that margin, when you have a strong organic growth versus expecting to get the customers through different channels. And we know how to control our sales.

Kevin Chiang - CIBC World Markets Inc., Research Division

Fair point. And you've continued to grow that customer base quite impressively over the past few years here. Maybe just turning on the debt side. If I read one of your comments correctly, it seems to suggest that you look to reduce your draw on the credit facility, given you'll reduce the number on new markets you enter into in fiscal 2014. One, am I reading that correctly? And then two, how was overall negotiations with that credit facility going, given that they do expire at the end of this year?

Beth Summers

So from that perspective, the negotiations are proceeding on a pace, so that will be in place -- so the new line will be in place before year end. And as you noted, it is in our MD&A and we flagged it that we do expect to be able to operate with a slightly reduced line, going forward. And that's really just given that improved cash flow line that we've targeted.

Kevin Chiang - CIBC World Markets Inc., Research Division

Any sense of what target we should be looking at from where it is at end of fiscal Q1, in terms of the size of the reduction?

Beth Summers

I think the way to look at that is, Kevin, as we've communicated, our payout ratio will be under 100%, or we're expecting it to be under 100% for year end.

Kevin Chiang - CIBC World Markets Inc., Research Division

Okay. And maybe just staying on the debt side. You do have a convert due next year. Just what are your thoughts from that perspective?

Kenneth M. Hartwick

Yes, I think, Kevin, consistent with what we have said on that convert is that we believe we'd be in a position to redeem it as we get to the September timeframe, when it's due. And that remains something that we would continue to target and then factor in what we might do on some of the other convertibles that exist as well and our ability to perhaps look at some of them in the process.

Kevin Chiang - CIBC World Markets Inc., Research Division

Okay. And when you talk about -- sorry, go on.

Kenneth M. Hartwick

No. And I said that the key part to that is, as Rebecca mentioned, is that a commitment by us to lower the overall debt level, as we head through to our 2016 timeframe that we referenced in any of our Q4 year-end releases, as well as Rebecca's comments this morning.

Rebecca MacDonald

And, Kevin, over the last 12 months, Ken and myself have been talking to investment community and saying that we've got all the pieces in place, and that now we are going to be focusing aside, obviously, from growth -- we're going to be focusing on debt reductions. We do not need to buy anything anymore, and we are not in acquisition mode. We have no need for additional platforms. So we have a very clear plan of how we are going to deal with it. And it's just going to be slow and steady, but we are not going to be changing our plan and reducing the cost and reducing our debt. Not to the expense, and I do want to emphasize, that not to the expense of continued growth.

Kevin Chiang - CIBC World Markets Inc., Research Division

Okay, that's a great point. And maybe just lastly on that, you weren't active on the buyback either on your shares or your converts. And given the volatility, I guess, in your share price the other day, at what level would you be a buyer of your own stock? And then on the converts, it looks like you're now able to redeem the $330 million note. I think, that the lockup period ended, I guess, June 30 of this year. And given that share of kind of $0.70, $0.75 on the dollar, is that where you would look to potentially exercise your buyback on the convert side?

Kenneth M. Hartwick

Yes, so I think the first thing that we mentioned come out of year end. Firstly, we made the dividend change, which is effective April 1, which put us in position to start to have the cash available from the dividend change at the time, as well as what we now see from our offering results, coming out of the first quarter. And the expectation of what we -- how the business will perform through the balance of this year and then into the future. And I think that now puts us in a position where if the converts remain where they are, that we would look to do something with regards to the 2017 one in particular.

Kevin Chiang - CIBC World Markets Inc., Research Division

Okay, perfect. And then, any -- I guess, any guidance or targets in terms of the share buyback in terms of levels that would be -- make it interesting for you or prefer not to speculate, I guess?

Kenneth M. Hartwick

Yes, no, I think as far as guidance, I think we've sort of given guidance on what we want our debt-to-EBITDA level to be via 2016 and, which I think, from what we've given out, you can guide towards what that might imply. But our target is more the converts than it is a, necessarily, a share buyback.

Operator

And our next question comes from Jonathan Rowley [ph].

Unknown Analyst

Could you guys -- I know what the base EBITDA guidance is for the year, but looking at the cash flow statement, you did about $21 million for the quarter, and then $23 million CapEx. What roughly, for the year, should we expect in terms of operating cash flow versus CapEx?

Beth Summers

I think, from a forecast perspective, as we communicated, the guidance on the base EBITDA is the $220 million. For FFO, it'll be under 100% for fiscal 2014. From a CapEx perspective, I think when you look at it from a National Home Services perspective, it should be in the range you would have seen last year or slightly less. And what you do need to recall with respect to the National Home Services water heater business, that, that has separate nonrecourse financing, which from a financing perspective, the financing on the water heater furnace or air conditioner perspective is more or slightly more than what you would see being spent from a capital expenditure side. And then from a solar business perspective, the solar build for the remainder of the year will be much less. If you look at the committed projects, currently, with respect to solar in the MD&A, it's roughly $107 million. And of that, we have built the bulk of it, so that will be much, much less than you would have seen in previous year's.

Unknown Analyst

Okay. So if I look at the $23 million, and I just extrapolate that forward, is that roughly what you think you'd be for the year for CapEx?

Beth Summers

No, well, first off, the $22 million a quarter, if you look at the seasonality of our business, if you look at it from both the cash perspective and the EBITDA perspective, the first half of the year, typically, roughly 40%. And the back half of the year is roughly 60%. For the CapEx perspective -- pardon?

Unknown Analyst

No, that's right. I'm listening.

Beth Summers

Right. And so then from a CapEx perspective, you would roughly see on the Energy Marketing side very little. If you look at it historically, that CapEx would probably be roughly in the range of $6 million on an annual basis. It's, primarily, information technology based.

Unknown Analyst

Great, that's very helpful. You guys -- do you just -- -- you added, it looks like, $19 million in new net debt between the issuance of long-term debt and the repayment of debt, which is straightforward. But the $6 million investment by minority shareholder, the new term loan, why did you guys do that?

Beth Summers

That is with respect to the solar business. So in funding the solar assets, we would have a minority portion, because it is a cap-equity-type structure.

Unknown Analyst

Got it, that's very helpful. Just -- the last question is, I saw at year end you had this note that in the last 3 months, certain financial covenants were amended or waived to accommodate the growth. What covenants were waived? And how are you thinking about that in the context of new line?

Beth Summers

The covenants weren't waived. They would have been amended. And they were amended through [indiscernible] growth. If you look at our overall credit facility, the financial covenants are around gross margin per -- growth margin per RCE and as well as debt-to-EBITDA covenant. So as we we're looking at it from a growth perspective, when we went through that the high piece, those were the covenants that we would have been looking to amend.

Unknown Analyst

So the debt-to-EBITDA and some -- and the gross margin covenant. In going forward with the banks, how are you thinking about those covenants? Are they willing to not have covenants in the new line? Or is that part of the negotiation?

Kenneth M. Hartwick

Yes, I think if -- on the alliance of -- the primary one that we looked at is really the -- reflects the change in our business. So when the credit facility was initially done, we were predominantly residential, with a small portion of commercial. So some of the measures in there just didn't make sense as we grew half commercial, half residential. So any of the covenant changes that we're looking at make -- really just started to reflect what we do as a business now. And I think those discussions have been very constructive with the banking group.

Operator

[Operator Instructions] Our next question comes from Kelsey Roste.

Kelsey Roste - RBC Capital Markets, LLC, Research Division

This is Kelsey Roste with RBC. So I just had a few follow-up questions. With respect to the negotiations on the line of credit, I was wondering if -- right now, I believe the current amount for it is $370 million. Are you guys looking at about to be the same range? Are you looking at reducing that facility?

Beth Summers

As we noted in the MD&A, we do expect to be able to operate to slightly reduce line, going forward, given our improving cash flow.

Kelsey Roste - RBC Capital Markets, LLC, Research Division

Okay, great. And then also looking -- if it's the case that -- for the $90 million convert that's coming due next year, that if -- in the adverse effect that the -- it's the warmer-than-expected winter this year, and you guys may not have as much cash on the balance sheet to redeem that $90 million convert, would you be looking to do maybe drawing on the credit facility to redeem it? Or how would you guys be looking at that?

Kenneth M. Hartwick

Yes, I think the first point is -- you're right, we do plan for normalized winters. But what we have got better at over time is being able to put different weather hedges in place to ensure that if normalized summers or winters don't show up, the impact to us is mitigated beyond what we have in the past. So I think that's the first step. So I think some of our exposure to the type of winter we had, I think, you referenced back to 2011 is -- will be less than what we saw at that time. But from -- take to a very warm winter and impact on cash flow, at that point, we would look to the various options to deal with the convert, one of which could be using some of the credit facility to do that. But at the same time, we know we have -- the customer base we built through Q1 -- the operating results through Q1. And that customer base that's there is going to contribute to the earnings of the company, whether or not there's a warm winter. So I think our confidence level in being able to deal with the convert in a manner that is consistent with the principal of reducing our leverage is very high under most circumstances.

Kelsey Roste - RBC Capital Markets, LLC, Research Division

Great. And so I just want to confirm on that, in the event that the weather hedges don't work as you want and cash flow is lower -- significantly lower than expected, would the lenders allow you to draw on the credit facility to pay off the converts? It's - I just want [indiscernible].

Kenneth M. Hartwick

Yes, I think it is. Within the credit facility, there is certainly flexibility to apply cash towards the convert. Now I think we also believe, at that point, based on our, again, our first quarter in the book of business we have, but we have the flexibility in the facility to effectively deal with that convert.

Rebecca MacDonald

I appreciate your thinking about doomsday scenario, but at the same time, we have to be quite realistic. And as Ken pointed out, we have been able to very effectively manage winter not showing up and summer showing up with vengeance with the hedges, so that's the point of putting these hedges in place to pretty much smooth out any weather -- as much weather variance as we possibly can. So we do think about weather, and we, obviously, manage our business around variance in weather. And I can tell you, the management, we are confident that we're in a good spot.

Kelsey Roste - RBC Capital Markets, LLC, Research Division

Great. And now just switching gears a little bit. So I noticed that you guys are still looking to sell the ethanol facility by the end of the year. Is there any update on that? Have you been in negotiations with anyone?

Beth Summers

Yes, we're -- we've run through a process, and we are currently working with a -- with an individual party going down the path, with respect to divesting the plant. We would anticipate that being done before the end of fiscal year.

Kelsey Roste - RBC Capital Markets, LLC, Research Division

Perfect. And then -- so now just switching more into the growth factors. I noticed, for solar, your base EBITDA quarter-over-quarter slightly declined. I was just wondering, because I believe that most of you guys have built most of your commitments, would you expect the EBITDA to increase quarter-over-quarter? Or can you provide any color with that?

Beth Summers

Yes, EBITDA, if you look, going forward, should be growing on a quarter-over-quarter basis, because the projects are completed, being put in service. And you're going to be seeing the EBITDA being generated. The difference or why it's lower on a quarter-over-quarter basis, because there was a small project sold last year.

Kelsey Roste - RBC Capital Markets, LLC, Research Division

Perfect. And then, also -- so looking to your guys' U.K. business, would you be able to provide any -- is there anything that changed since year end in terms of your outlook for that business? How would you guys, overall, feel about your growth in it for this quarter?

Kenneth M. Hartwick

So I think it's -- the business is going almost exactly as we had hoped it would. So on the commercial side, is proceeding well. And we said right from the beginning, we're going to be a slow and steady participant as we build our management team there, skill base. So the customer aggregation is good, the broker receptivity has been very strong to our technology platform and us being there. I'd say, the only change since year end is we have -- we start off just electricity. We now have our gas license there as well, so dual fuel, which will then accommodate us moving into the residential side of that business, which, again, is something that we will look at over the next quarter or 2, and, again, go at a very slow pace, so we are learning as we go. And I say, as importantly, building out the management team there, the way that we have here. So I think we're very pleased with where we are right now and view that as a significant growth opportunity and market for us over the coming years.

Kelsey Roste - RBC Capital Markets, LLC, Research Division

That's great. And since you guys are building out that management team, have you guys put any further thought in expanding it into potentially other European countries?

Kenneth M. Hartwick

Absolutely not, so the -- I think, the intention right now is that we have a very small customer base in a very big market that I think you'd see us there for 3 or 4 years building ourself out into a good strong player, before we would think about moving to the next market. And we have the luxury of -- let's say, we have the luxury being there for a number of years and not doing that. So we want to have a great foundation and platform before we even think about it. But I can't imagine Rebecca or I saying we've picked a new country in the next 2 to 3 years.

Kelsey Roste - RBC Capital Markets, LLC, Research Division

That's great, Ken. And then -- so my last and final question is now that you guys have put all the work into Momentis, and you're -- my understanding is putting less in -- planning on putting less capital into it this year, how -- and you guys, I know you that you didn't breakout the results in the MD&A, as it relates to Energy Marketing. Can you provide any guidance in terms of how much Momentis is contributing to gross margins?

Kenneth M. Hartwick

Yes, I don't think it's the -- similar to what I said on the sales channels, breaking out specifics on each of sales channel, I don't think is something that we will do at this time. As we mentioned, we have the door-to-door at 70% of our residential sales. Momentis is predominantly a residential sales channel. And it is a contributor towards the other 30%, so we like what it's doing. We are confident that it can contribute to that. But like I say, we're not going to split out by sales channel the contribution of each.

Kelsey Roste - RBC Capital Markets, LLC, Research Division

That's great. Do you think that Momentis is going to continue to contribute more if the quarters go on and the platform is -- becomes more mature?

Kenneth M. Hartwick

Well, the hope is that all of our sales channels, Momentis, door-to-door, online, affinity, all contribute more. So, in part, the fact that we have the customer growth additions that we have is reliant on each of the sales channels continuing to get better, which they have over the past number years. And we would see no reason why they wouldn't. And that would be our expectation of every single channel. And if any channel cannot be a major contributor to what we want to do, then like anything else, it would be something that we would look and say that's more of a distraction than a contribution. But at this point, we would expect them all to contribute.

Rebecca MacDonald

And just add to that, a reminder for you. We told everyone when we went into building up Momentis group is that we wanted to use that channel as subsidiary to our door-to-door sales people that possibly cannot reach some customers, because it's a different type of sales -- it's the wrong sales. It's more of a friends and family sale. And it was put in place so we could reach customers that our door-to-door salespeople normally could not reach.

Operator

And I'm showing no further questions at this time. And I will turn the conference back over to our hosts.

Rebecca MacDonald

Well, thank you very much for joining the conference call. We appreciate the attention you have put towards the company, and we look forward talking to you with the conference call for our Q2. If there are any other questions that arise after this conference call, Ken, Beth or myself are available, and you can call us directly. Thank you very much. Bye-bye.

Operator

And thank you for attending today's conference. You may now disconnect.

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Source: Just Energy Group Management Discusses Q1 2014 Results - Earnings Call Transcript

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