Just Energy Group Inc. (JE) Q4 2019 Earnings Call Transcript

Just Energy Group, Inc. (JE)
Q4 2019 Earnings Call
May 16, 2019, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

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 will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press *, then 0 on your touchtone telephone. As a reminder, this conference 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.

Patrick McCullough  -- Chief Executive Officer

Thank you, operator. Good morning, everyone. Thank you for joining our Fiscal 2019 fourth quarter conference call. I'm 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 for 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'll 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 guide performance. Fiscal 2019 was an important year for Just Energy. We took critical action to strengthen our organization, and set a path for exceptional shareholder returns in the near term. We are pleased to report the highest single-year gross margin in the company's history. Driving that milestone was the average gross margin for RCE of customers added and renewed in the consumer division, which also reached an all-time high of $386.00 per RCE. This is a significant increase year-over-year, as well as sequentially. importantly, it far exceeded the margins associated with the customers lost during the period. This record profitability reflects the improved pricing power and continued risk management of weather derivative costs.

What also impresses me is that we accomplished this level of profitability while maintaining a consistently low level of total attrition, and achieving attrition in our consumer book of only 19% for the first time in our history. This success is a result of strict action taken by our team over time to cultivate a strong fit customer base that appreciates the level of customer service and value-added products offered by Just Energy. We're very proud of our successes on this front, and fully expect to sustain these efforts, moving forward.

The improved profitability saw 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 the cost-comparable period last year, which included $21 million from the change in accounting for our ecobee investment.

Our core business continues to perform well; we exited the year with embedded gross margin of $2.3 billion, reflecting year-over-year growth of 20%. As we've 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 over the gross margin line by approximately that same amount, as compared to where we had the book valued one year ago. This important metric provides great confidence in the health of the business, as well as a greater line of sight in predictability into our future earnings stream for the current book of business.

We're excited by the investments we're 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're 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 and stickier customers.

During the year, we also took critical steps to direct our cost structure in order to position the company to excel in the future. As you saw, we announced the cost reduction initiative. 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 costs significantly, we're currently undergoing a rigorous performance improvement review. This process is allowing 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 will 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 announcing the discontinuation of our operations in Germany, Ireland, and Japan. The Board has formally approved this plan, and we have commenced the process to dispose of these businesses; we expect the disposal will be completed within the next 12 months. There are some nuances to how these items will reclassify in our reporting that Jim will walk us through shortly. I do wanna emphasize that the entry into these markets was done organically and at low cost; however, as we scrutinized the return on these investments in terms of both time and resources, we felt this was the best decision, and that it aligns with our ongoing strategic transition and our pledge to deliver exceptional shareholder returns in the near-term. As part of this, we've 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 divestiture actions reposition our organization in a way that I am confident will allow assurance that we're playing to our true strengths: capitalizing on demand-driven profitable growth opportunities, offering unparalleled products and services to our customers, and managing risk on behalf of our customers.

The core book of business is strong and stable, and remains a focal point as it continues to drive the majority of our near-term earnings and 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 have heard today, we're 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 $90-100 million. This will create surplus cash after dividend payments.

As we continue to execute and 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 expanding offering of value-added products and services will generate significant earnings growth and capital. This capital will support future dividend earnings, as well as the pursuit of growth opportunities that further our strategic transformation into a consumer-focused company. With that, I would like to turn the call over to Jim Brown, our Chief Financial Officer. Jim?

Jim Brown -- Chief Financial Officer

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'd like to cover highlights from the fourth quarter, and our full fiscal year, followed by a discussion of the fiscal year guidance for 2020. As you read in our MD&A last night, we made the decision to dispose of our business in German, Ireland, and Japan within the next 12 months. While these operations were previously reported under the consumer segment, we now have classified as a disposal group held for sale and discontinued operations. We have adjusted our historical numbers for the past three fiscal periods to reflect our continuing operations.

I'd also like to point out that restructuring charges taken in the fourth quarter have been excluded from base EBITDA. As you saw in our release, this is now referred to as base EBITDA 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, and our investment in ecobee in the fourth quarter of Fiscal 2018, mostly offset by increases in gross margin in the current quarter. As a reminder, losses due to changes in fair value of derivative instruments, including net profits, is not reflected into 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 expansion from value-added products, including our water filtration business, and continued management of our hedging costs. Our strategic focus to acquire and retain a strong, fit customer base in North America and the UK continues to drive higher gross margins 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 focus on higher-margin customers and improvement of 22% on gross margin signed and renewed to $300.00 per RCE. In the commercial division, gross margin for the year was $176 million, representing a 15% improvement over last year. We continue to focus on margin optimization by focusing on smaller- and medium-size 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 the realization of our gross margin. The company is committed to minimizing market risks, and provide stable earnings that ensure embedded gross margin is 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 percent point from prior year to 13%. Consumer attrition of 19% improved 1% from the prior year, while commercial attrition rose 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 utilization of our credit facility, higher interest rates, and the cost of managing collateral requirements in commodity markets. Our base 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% at the end of Fiscal '18. We remained committed to our strategy of sustaining our dividend, and meeting other capital requirements. Overall, net debt EBITDA increased to 3.7x, which is higher than the 2.8x reported at the end of Fiscal 2018. As mentioned before, the company is focused on generation of free cash flow, so that will be derived from increased risk margin, combined with cost reductions.

Finally, I'd like to spend a few minutes discussing our outlook for Fiscal 2020. We implemented several initiatives across the organization to promote greater profitability, including seeking higher-margin customers, reductions in administrative costs to streamline our operations over the year. Looking forward to Fiscal 2020, we have chosen to discontinue Germany, Japan, and Ireland so that the company can focus our attention on North America and the UK, while bringing in new leadership to help drive initiatives and help improve our focus on areas of the business best positioned for growth. We believe we are well positioned to drive earnings growth beyond historic levels without sacrificing the quality and service to customers. As a result, our Fiscal 2020 base EBITDA guidance is $220-240 million, with forecasted free cash flow of $90-100 million.

With that, I'll turn it back to Pat for concluding remarks.

Patrick McCullough  -- Chief Executive Officer

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 methods, and 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 investment 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 improve performance, and we will move forward with the same resolve, confidence, and commitment to raising the bar on our performance, and harnessing the value of our true strengths. While I am pleased and encouraged by the success of our initiatives, we know there is 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 the call up to questions. Operator?

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, please press the *, then the number 1 key on your touchtone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press the # key. Again, that's *, then 1 to ask a question. To prevent any background noise, we ask that you please place your line on mute once your question has been stated.

Our first question comes from Nelson Ng with RBC Capital Markets. Your line is open.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

Great, thanks. Good morning, everyone.

Patrick McCullough  -- Chief Executive Officer

Hi, Nelson.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

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

Patrick McCullough  -- Chief Executive Officer

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 type cash-on-cash return, those are challenging markets for very different reasons. So the first answer to your question is: yeah, 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 UK. So really focused getting the management team driving more performance, versus distracting the management team with too many pursuits, globally.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

Okay, and then what was the EBITDA contribution, or negative EBITDA contribution from those businesses? Is it close to $12 million of operating loss?

Jim Brown -- Chief Financial Officer

Yeah, it's about $2-3 million a quarter, Nelson, and then the additional amount that you see in the total for the year was the impairment cost related to investments in those subsidiaries.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

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

Jim Brown -- Chief Financial Officer

Yes, they did get adjusted out, but it was only thousands, so we're not talking big numbers here.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

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

Jim Brown -- Chief Financial Officer

It's very simple; it's just our free operating cash flow minus our investing activities, so yeah. The FFO's still a relevant measure for us, because over time, it measures our cash flows, but the free cash flow takes into account the changes in working capital, and Pat and I are committed to driving free cash flow per share during the year, so there's gonna be an increased focus on the actual cash flows, above and beyond FFO.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

Okay, so free cash flow includes working capital movements?

Patrick McCullough  -- Chief Executive Officer

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

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

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

Jim Brown -- Chief Financial Officer

Yes, there is timing that's involved with respect to distribution through the quarters, but for the full year, we expect to generate -- well, we expect not to have a big working capital deficit.

Patrick McCullough  -- Chief Executive Officer

Yeah, but the majority, Nelson, was in Q2, associated with our UK 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 -- RBC Capital Markets -- Vice President, Equity Analyst

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 total's just under $90 million?

Patrick McCullough  -- Chief Executive Officer

Yeah.

Patrick McCullough  -- Chief Executive Officer

So OK, so free cash flow's $90-100 million, compared to distributions of about $89 million, right?

Jim Brown -- Chief Financial Officer

That's right.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

Okay, I'll 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 this split in terms of cost reductions versus underlying growth?

Patrick McCullough  -- Chief Executive Officer

Yeah, so we're expecting the pricing gross margin expansion to continue; obviously I referenced that with the net gross margin. We think that's tens of millions of dollars in our next year-on-year. We have a press release that our overheads have been reduced; we actually reduced 270 positions globally, and that will equate to roughly $40 million year-on-year. So, obviously, as you're trying to walk your -- what else is there? Growth is a question mark; we've assumed very little growth in our base plan, so anything we do there, it will get back to growth, it's going to be a pickup, but frankly, we're being conservative.

We've had recent misses to guidance, and we're putting it into that in 2020; we're gonna put something out that we can deliver, and we see it as conservative.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

Okay, thanks. I'll get back in the queue.

Patrick McCullough  -- Chief Executive Officer

Thanks, Nelson.

Operator

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

Mark Jarvi -- CIBC World Markets, Inc. -- Director

Good morning, everyone. I just wanted to go back 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, negative drag was in international, so is that to assume that flat gross margins, plus an incremental $20 million of savings gets you to the low end of the guidance, and then to get to the upper end, it's expansion on gross margin?

Jim Brown -- Chief Financial Officer

That's right, and we're obviously talking numbers that equate to more profit difference in 204, 230. There won't be any more restructuring costs; we've taken both the 2020 cash outflows and the 2019, and recognized 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 margin expansion, assuming flat growth.

Mark Jarvi -- CIBC World Markets, Inc. -- Director

Okay, and then when you put the guidance, I'm guessing at this point, you guys haven't reflected any impact from IFRS 15. You guys have any sense of what that could do to your reported EBITDA?

Jim Brown -- Chief Financial Officer

We don't expect an impact, but we're still evaluating. We're inflating that in this quarter.

Patrick McCullough  -- Chief Executive Officer

Yeah, there's no material impact to the books in 2020 for us.

Mark Jarvi -- CIBC World Markets, Inc. -- Director

Okay, and I just wanna go back to the free cash flow guidance, and the commentary about covering the dividend: I did notice that there's less, or pulled out a comment about the commitment to the dividend, like, is there just a bit of a shift in policy between the focus on the dividend versus de-levering, given that with the free cash flow guidance, that implies that you guys can't really chew away too much on the leverage right now?

Patrick McCullough  -- Chief Executive Officer

Yeah, I think if you think about our investor base, and what we can manage as appropriate levels of debt, we're slightly uncomfortable. That 3.5-4 times, we're not terrible uncomfortable; we've managed worse in the past, as you know. We'd 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 expense of the dividend. We think we need to support the dividend; that is the 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 is a conservative plan.

Mark Jarvi -- CIBC World Markets, Inc. -- Director

Okay, and then just one more there, on the free cash flow guidance: can you kind of explain why you guys think -- the band is fairly narrow, given that you kind of have a +/- $20 million on the EBITDA? What gives you the confidence to tighten that up for the free cash flow guidance? Like, what factors that you guys can kind of pull and tweak, if there are variances on the EBITDA line, to make sure you hit the low end of the $90 million of free cash flow?

Jim Brown -- Chief Financial Officer

Yeah, I think that the other thing to consider is there's some return in 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 in gross margin, the decrease in overhead costs all contribute. We'd like to beat that target, but we feel like the target we put out's realistic.

Patrick McCullough  -- Chief Executive Officer

In addition to EBITDA, Mark, you have levers like CAPEX. Right now, we're going into the year planning to spend very little CAPEX in the front half of the year, and we will kind of create CAPEX investments in our IC infrastructure as an option if we're running ahead of our cash projections. So management has a couple levers at its disposal, beyond just the earnings bit, to ensure that we get home on that free cash flow forecast, but that actually feels even a bit more conservative to me, than the EBITDA. We wanted to show the market that we'd cover the dividend and excess, but more importantly, I think you're gonna see a lot of upside to that, as we get to our second quarter, specifically. That is when the working capital benefit returns to the company.

Mark Jarvi -- CIBC World Markets, Inc. -- Director

Okay, and then on the sort of wind down in potential sale of the international assets, do you have a sense 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?

Patrick McCullough  -- Chief Executive Officer

Yeah, so we have leaned those businesses down. We're really selling the assets that exist, that primarily revolve around the license to do business, and the customer book, so there's very little cash flowing out the door as we run off the sales profits. We do have interest in multiple jurisdictions, from multiple parties; we have not gotten any binding offers yet, or we would announce those, but we're very confident we'll be able to move those assets for something that is fair for our shareholders.

Jim Brown -- Chief Financial Officer

I think it's worth mentioning, too, Pat, that all three of the operations have saleable operations, so it would allow for a quick entry for someone who wanted to participate in those markets for billing and customer service activities.

Mark Jarvi -- CIBC World Markets, Inc. -- Director

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

Patrick McCullough  -- Chief Executive Officer

Thanks, Mark.

Operator

Thank you, and as a reminder, that's *, then 1 to ask a question. Our next question comes from Raveel Afzaal with Canaccord. Your line is open.

Raveel Afzaal -- Canaccord Genuity Corp. -- Director, Equity Research Analyst

Morning, guys. Thank you for taking my questions. Hi, so I was reading your notes, and one of the notes, and my teammates 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 ample liquidity, with respect to the business?

Patrick McCullough  -- Chief Executive Officer

Sure, Raveel, I'll take this really quick. So we didn't have to go get supplier payment extensions; we've been negotiating that with our partners for some time, and frankly, been moving them all to extended payment terms, starting about two years ago. We had success, though, at the end of this year, moving a couple of our suppliers who were the last holdouts.

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 that extension from our suppliers -- being able to match cash inflows with outflows -- is very important to our business.

At the end of Q4, we had about $60 million of buying power. That's a little tight for us, because we'd like to have $75 million or better. We don't see pressure in Fiscal 2020 on working capital or liquidity; it's not a worry for us. You'll see, in Q2, us really flex our muscles with cash, and you'll see some impressive expansion in liquidity there. As you know, Q1 is a little bit of a shoulder quarter; there's not a tremendous amount of possibility for EBITDA or cash. Q2's becoming very important to this company, as ERCOT is our largest market that we serve.

Raveel Afzaal -- Canaccord Genuity Corp. -- Director, Equity Research Analyst

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 UK; do you expect some of that money to be recouped, or no?

Patrick McCullough  -- Chief Executive Officer

We do, actually. So we had some operating difficulties around billing and collections, and we are able to go back and recover those amounts. 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.

Jim Brown -- Chief Financial Officer

Yeah, Raveel, one of the nuances of the UK market is 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 over time.

Raveel Afzaal -- Canaccord Genuity Corp. -- Director, Equity Research Analyst

Got it, and 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 UK, or is not that significant?

Jim Brown -- Chief Financial Officer

It's not significant, so anything that we recover from the UK can be upside to that.

Raveel Afzaal -- Canaccord Genuity Corp. -- Director, Equity Research Analyst

Perfect. 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 have 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 -- Chief Financial Officer

We had a couple one-timers come through that were related to timing and marketing expenses, and the other thing to remember is that 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 is some timing differences, as well.

Raveel Afzaal -- Canaccord Genuity Corp. -- Director, Equity Research Analyst

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

Jim Brown -- Chief Financial Officer

A little bit of an outlier this quarter, but yeah, 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 a earnings standpoint -- that'll be blended into the amortization over time, from a cash standpoint, it's immediate.

Patrick McCullough  -- Chief Executive Officer

And Raveel, I'll get a 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 million range for a bit now. We're assuming that level as we go into 2020; however, we're not assuming reductions in sales overhead. However, I can tell you we are working on many actions to reduce sales overheads 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 '19, and consistent gross adds, and I think there's upside to both.

Raveel Afzaal -- Canaccord Genuity Corp. -- Director, Equity Research Analyst

Perfect, and you know, we are 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 -- is that the new run rate, or was there something of a one-timer in the bad debt expense due, which is why we saw that decline in the consumer division?

Jim Brown -- Chief Financial Officer

No, I think we've made -- as we've mentioned in prior quarters, we've taken a lot of efforts around customer analytics. We brought in a team of folks in BI to focus on the drivers of bad debt; 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 of optimal value, so I think, yeah, we'll continue to monitor as we go, but I think we could continue to see the bad debt improve.

Patrick McCullough  -- Chief Executive Officer

And I'll be specific on Jim's comments, Raveel. In late January, we made a decision as a leadership team to raise the minimum credit threshold from near 500, which we would manage with the positives and other assurances to ensure that we're not taking on a credit problem, but we moved that minimum from 500 to 600 or 650, depending which product and which market you're gonna ask us about. So we are already seeing the benefit of that from the bad debt perspective.

Secondly, we've upgraded our partner. We're working with a company called WNS on credit and collections in both North America and the UK, and we're seeing significant collections improvement. In fact, they've been helping us recover bad debt that had previously been fully reserved, so we do see opportunity in bad debt as we go forward, and we're assuming minimal improvement in the guidance that we gave you.

Raveel Afzaal -- Canaccord Genuity Corp. -- Director, Equity Research Analyst

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

Patrick McCullough  -- Chief Executive Officer

Yeah, so we saw a little bit of it come through when we pulled out the restructuring costs, and the restructuring costs were 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've been if we took no actions, but the result of coming in low on our guidance is 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 were originally tracking $220 million in G&A for the full year, and I think we came in at $206 million, something in that neighborhood, so as we're going forward, we think we can beat that by another $20-30 million on G&A alone, if not more. And as we think about selling, we think there's at least $20-30 million there, in terms of selling overhead, and that was part of the 270 jobs we eliminated, there were some selling overheads in sales leadership in that $40 million number, so we think we'll beat it, but we've gotta get through first quarter, and see it hit the books before we'll validate it.

Raveel Afzaal -- Canaccord Genuity Corp. -- Director, Equity Research Analyst

Got it; thank you for taking my questions.

Patrick McCullough  -- Chief Executive Officer

Thanks, Raveel.

Operator

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

Endri Leno -- National Bank Financial -- Equity Research Analyst

Hi, good morning. Thanks for taking my question. Just a quick one for 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?

Jim Brown -- Chief Financial Officer

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

Endri Leno -- National Bank Financial -- Equity Research Analyst

Okay, thanks, that's it for me.

Operator

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

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

Great, thanks. 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 this 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?

Patrick McCullough  -- Chief Executive Officer

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 North American gross adds -- which is the bulk of that $386.00 number -- dramatically this year from last year, and we are having record low attrition on that consumer book. However, fail to renews have gotten -- or renewals have gotten a bit harder, and we see our failed to renews falling, and this is why we're stopping right here and not going further.

We can still sell up front, and convince and compel customers of the value property, and then when 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, and we are seeing lower prices coming back into the market. People are talking about price more than they have been.

So we're holding steady right here. I think you 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 stay in the customer term, but we have not gotten to that point yet.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

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, US, UK -- versus international, in terms of Germany, Ireland, and Japan?

Jim Brown -- Chief Financial Officer

Sure, well over 200 came from North America alone. I believe 250+ came from North America and the UK, so yeah -- we're taking very little credit for what was in Japan, Germany, and Ireland, and -- frankly, we did not have extensive headcount in those markets, hence why it was it was a distraction for North Americans, and our UK team.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

Okay, and then just moving on to your high-yield debt, I think you've drawn $193 million out of the $250 million. I think the 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 anything you need to do to be able to draw the remaining $50 million, or what's your expectation? Do you expect to draw that remaining $57 million?

Patrick McCullough  -- Chief Executive Officer

Yeah, really, we wanted to have growth capital available to us with limited restrictions, meaning the folks behind that product are the SIGAR team, and the PENCO teams, and both those companies are open to investing in our, let's say inorganic growth, so that's really what it's earmarked for. If we saw pricing on customer books get attractive -- say, post-volatile times, we're not seeing that right now, but if we saw that in the future -- yeah, we've 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 leave capital at a time of an opportunity, and have more speed to market if we see an organic opportunity.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

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

Patrick McCullough  -- Chief Executive Officer

Correct.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

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

Jim Brown -- Chief Financial Officer

Yeah, there's the remaining proceeds from the SIGAR facility to cover a piece of it, and then the rest comes from cash flow operations.

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

Okay, thanks. Those are all my questions.

Patrick McCullough  -- Chief Executive Officer

Thanks, Nelson.

Operator

Our next question comes from Sameer Joshi with HC Wainwright; your line is open.

Sameer Joshi -- HC Wainwright & Co., LLC -- Equity Research Analyst

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?

Patrick McCullough  -- Chief Executive Officer

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

Sameer Joshi -- HC Wainwright & Co., LLC -- Equity Research Analyst

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

Patrick McCullough  -- Chief Executive Officer

Yeah, 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 the October timeframe, we've spent several months focused 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 -- think retail, 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 a lot of filters through 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 -- HC Wainwright & Co., LLC -- Equity Research Analyst

Okay, and then just a quick sort of similar question: are there any other acquisitions that you are looking at in the similar theme, or similar size?

Patrick McCullough  -- Chief Executive Officer

The focus we have right now, honestly, is really getting the company cleaned up, and efficiently operating profit and cash. So we've had a very strong internal focus; I've made a very specific request to our team to not chase new product opportunities that come through acquisition 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 a superior profit and cash performance to our shareholders, so the short answer to your question is, "No."

Does that mean that that's going to last forever? No, it means expect 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 -- HC Wainwright & Co., LLC -- Equity Research Analyst

Understood, and just one last one before I fall back in queue: how are you tracking on Net Promoter Score, and should investors expect to get some numbers, going forward?

Patrick McCullough  -- Chief Executive Officer

Yeah, I think we're actually talking about it with our annual report, which you can look for coming out in the next month -- we're tracking very well. We surpassed 30 on the 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 that promoter score up over 20% year-on-year, and we're very proud of that, and we think that's one of the reasons that we have the pricing power that we have, and our product sales and service levels of excellence, we think, are the best in the market.

When we compare our Net Promoter Score to the big brands that sell in markets like Texas, we are the leader.

Sameer Joshi -- HC Wainwright & Co., LLC -- Equity Research Analyst

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 -- CIBC World Markets, Inc. -- Director

Yeah, thank you. I just wanted to touch quickly on the value-added products. In terms of, I think customer count was a bit flat; margin contribution at quarter was kinda flat, or down a little bit -- maybe just kinda outline how you think that business sort of evolves through 2020 in the next few quarters?

Patrick McCullough  -- Chief Executive Officer

Yeah, we're expecting a flat-ish type of profile. We don't have anything aggressive planned in our guidance, but there's upside there. We're working hard; our team's very talented, and we think we can bring really every bit of expected 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 it, in terms of our commitment and projections.

Mark Jarvi -- CIBC World Markets, Inc. -- Director

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.

Patrick McCullough  -- Chief Executive Officer

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 to customer services 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.

Duration: 46 minutes

Patrick McCullough  -- Chief Executive Officer

Jim Brown -- Chief Financial Officer

Nelson Ng -- RBC Capital Markets -- Vice President, Equity Analyst

Mark Jarvi -- CIBC World Markets, Inc. -- Director

Raveel Afzaal -- Canaccord Genuity Corp. -- Director, Equity Research Analyst

Endri Leno -- National Bank Financial -- Equity Research Analyst

Sameer Joshi -- HC Wainwright & Co., LLC -- Equity Research Analyst

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