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Just Energy Group Inc (NYSE:JE)
Q3 2020 Earnings Call
Feb 10, 2020, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Just Energy Third Quarter Fiscal 2020 Results Conference Call. At this time, all participants lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand your conference over to your speaker today, Scott Gahn, CEO. Thank you, and please go ahead, sir.

R. Scott Gahn -- Chief Executive Officer

Thank you, operator. I'd like to welcome everybody on the phone to the Q3 fiscal 2020 earnings call for Just Energy Group Inc. My name is Scott Gahn. As the operator said, I am the CEO of Just Energy. And I'm going to be providing some comments regarding our quarter, our fiscal year-to-date, the things that we are working on, and things we're doing right, and some things that we are -- we plan to work on that we can do a little better. And then I'll turn it over to Jim Brown, who will provide more detail and give you some of the numbers, and then we'll have, as the operator said, a question-and-answer session afterwards.

So first, I'm not going to surprise anybody on the call in expressing my disappointment with the quarter. This is obviously not what we thought we would do. We've -- we missed the quarter EBITDA by $20 million, and we've guided down for the balance of the year. There's no excuses here. We missed. But I'd like to talk about a few things that we're doing that are right. They are, fixing our business, and then I'll finish up with a few things that I think we need to get better on and work on.

So, the first is, the things we're doing right is, our Texas bad debt. That was -- the impairment we took was -- it was very difficult. It was significant. It had an impact on liquidity. When you're in a business that's a 20% gross margin business, you take $130 million writedown to AR, that's $100 million of cash. So it was a significant impact, and had to be fixed. And so we went after that, put a team of people on it to figure out what it was that happened, and expanded that team to shut it down.

The first thing we did was we shut down the paths of customers, who were not going to pay us into our book. And we shut those down, prevented it from getting in, then we identified the customers that had already gotten in our book, which -- that were high risk. And we have worked them out of the book. There's still some residual high-risk customers in the book, but I think we've got it largely worked out. And all the things we did to do this, were the right things to do. They just took a little longer than we'd hoped.

But to give you an example of where we are, our December bad debt is at 4%. This compares to the high that we reached in March of this fiscal year of 10% bad debt. And to give you an idea of the impact that has, a 1% change in Texas bad debt is worth about $1 million of EBITDA a month. So we've made a significant improvement on this. And I would say, of the work that we've done since I've come on as CEO of the control of the bad debt and getting that under control is the one that we've made the most progress on, and I'm very pleased with where we are.

In addition, though one of the things that came out of all the work we did on bad debt, the deep-dive we took into our customer book, was we started to recognize the obvious relationship and depth of the relationship between bad debt in attrition. They're obviously highly correlated. But in addition to that, we found that a lot of that -- our attrition and bad debt were disproportionately in the early 10-year phase of our customer slides than our book. And so that -- in less than 90 days, we had a lot of bad debt, a lot of attrition coming early on, and then we are getting a lot of value out of the longer tenured customers, who were producing the bulk of the gross margin. So it caused us to look at things differently.

First of all, we found that improving bad debt lowered attrition, and we're seeing that. You're not going to see it in the trailing 12-month metrics that we send out for a few more months, but the operational metrics that we look at, which are weekly and monthly metrics, we're seeing a significant improvement in our attrition rates, as well as the bad debt. But the correlated attrition has gotten better.

Additionally, we changed the way we treat customers at the end of contract term, recognizing the value that they produce for us. And are seeing improvements as a result of treating differently, pricing them differently, addressing end of term differently than we have in the past. We are seeing an improvement in our renewal rates as well. And so again, you'll start to see that as we continue to perform this way in the trailing 12-month metrics. But in our operational metrics that we run the business on, we're seeing it already. Both of these things will help us to bring the Company back to a positive sales growth. They are significant impact. And the last thing I would say, as we've done these deep dives in all of our customers as we -- we've confirmed what we thought, and that is the positive customer attributes are positively correlated. Higher credit customers are generally bigger and stickier. So, getting the right customers in is important.

I'd like to move from that to another area that I think we've made some progress, although I think there is more work to be done on it, and that is cost cutting. We've cut about $60 million out of our G&A and non-commission selling expenses. I want to say a little bit more about the non-commission selling, because it's somewhat masked in the way we report our financials. Non-commission selling expenses is, I call it sales overhead. It has some other expenses in there, but a lot of it's sales overhead. It's included in our selling and marketing expenses on our income statement. And what's happened in Q3, as we have cut $8 million out of our non-commission selling expense, but the amortization of commission has gone up by $7.6 million. So a mass [Phonetic]. It looks like we're actually flat, but we've cut those costs out. They are out of the system. But there is more to do on cost. We will continue to work on it. But I am pleased with the progress.

The third thing I'd like to talk about that we've done right is, we trimmed our geographic footprint. We've sold the UK business, which is -- even though we didn't get as much as we had hoped to get for. It got rid of a lot of liability for us. So we're glad to get that out. We've sold the Ireland business, and we've sold our Georgia book, which is a non-core asset. It didn't have growth and we were able to get some cash from that.

Now I'd like to turn to what we need to do that we haven't done a good job on, and that is, these are sales. Sales are down. Fixing the enrollment controls to control our bad debt was the right thing to do, but the negative impact on sales was greater than we had anticipated. We're launching two sales campaigns this quarter, trying to restore momentum and increase customer additions. But keeping it with the end, the enhanced enrollment controls, so that we don't end up where we were last year. Both of these campaigns are going to be very closely monitored over the balance of this quarter. And my hope is that I'll be able to report on some positive impact at the year-end announcement that we make in May.

And finally, I'll say a few words about the credit facility. Jim will have a lot more to say about this in his comments. But we are engaged with our lenders. We've engaged them in December to renew the facility, and we continue to negotiate with them on the terms of that renewal. And as I said, Jim will be able to give you a little more color in his remarks.

But in closing my remarks, the things we've been doing over the last six months to fix our Company are the right things to do. The positive impact is coming. It's just taken a little longer than we had hoped, but it is coming and the things we're doing are the right things to do.

So, Jim, I'm going to turn it over to you. You can talk about the numbers for the quarter.

Jim Brown -- Chief Financial Officer

Thank you, Scott. Scott knows the efforts and critical choices we've made over the last six months, since Scott joined CEO. Laid a groundwork to continue our strategic review process, drive our costs, improve efficiencies, and give us flexibility on our balance sheet. However, Scott and I are not satisfied with the results, and know we must continue to evaluate every facet of the business to drive shareholder value.

We continue to take actions to strengthen the Company. In the second half of calendar 2019, management focused on cost cutting, reducing capex to levels that maintain our core gross margin, and creating a trajectory to full stability. As we progress forward in 2020 and 2021, management will be focused on profitable sales growth, and improvements to revenues and gross margin.

We've now successfully exited some non-core markets, disposing of our UK and Ireland operations, as well as execution of the sale of our customer contracts and natural gas storage in the state of Georgia. These changes to our business structure allow us to simplify the business, reduce overhead, and concentrate our stronger growth and higher margin operations in core North American markets.

Turning to some key performance metrics for the third quarter. Gross margin of $142.5 million was down 13%. The decline was primarily due to the lower residential customer base, which is in part the result of strict enrollment controls and taxes, combined with mild effects of weather in October and December.

While our annual gross margin per RCE for customers added in the third quarter was down by 21%, the Company continues to optimize the relationship between customer, gross margin per RCE of customer signed, customer acquisition costs, and customer lifetime value. There have been some adjustments to our existing channels and the emerging channels to lower acquisition margins to optimize the relationship between these three variables.

Base EBITDA from continuing operations of 38% [Phonetic] declined 34%, driven by declines in gross margin as well as higher commission expense, amortization of previously capitalized residential customer costs, offset by lower overhead costs. However, if you add back the one-time impairment charge related to the Texas residential enrollments and collections to the prior comparable quarter, base EBITDA increased 68% year-over-year. This performance reflects renewed focus on attracting and retaining high-quality customers.

I wanted to highlight the improvements in bad debt expense that Scott mentioned. Bad debt in the UK has been eliminated through the sale of the UK business. It is important to understand that there are no residual risks associated with the UK business, as there are no working capital true-ups, other than the potential upside from contingent consideration related to capacity that we previously mentioned. Through enrollment controls and rigorous collections in Texas, the Company has achieved run rates consistent with fis year 2018, and expects the trends to continue or improve.

Turning to liquidity and our free cash flow. There were significant improvements in year-to-date this year 2020 free cash flow versus fis year 2019 of approximately $95 million. This has been achieved through cost reductions and overheads, improvement in return on customer acquisition cost deployed, reduced capital expenditures, improvement in the management of bad debt, and the elimination of the investments required for international operations. In addition to improvements in free cash flow, the Company has suspended its common dividend and suspended its preferred dividend until certain lender criteria have been met.

Liquidity is the main focus of the management team, and over time the previously discussed corrective actions, reduced costs and capex, as well as discontinuing dividends will continue to stabilize liquidity. The Company is in active discussions with its senior lender group to renegotiate and extend the Company's credit facility. Also, the Company has worked with key suppliers over time to extend payment terms as an ongoing source of liquidity.

Returning to the income statement, administrative expenses from continuing operations declined 5% to $39.6 million for the quarter. Excluding the impact of strategic review costs of $4.2 million for the quarter, administrative expenses decreased 15%. These improvements were driven by, savings realized from business restructuring initiatives that took place at the end of fiscal 2019, as well as subsequent opportunities to streamline and simplify the business and reduce overhead.

So as Scott previously mentioned, selling and marketing expenses of $51.3 million were compared -- were flat compared to the prior year. While the comparison to prior year is flat, as Scott mentioned, it is important to understand that selling and marketing expenses has two components. First, direct-to-customer acquisition costs that are capitalized and amortized over the life of the customer. And the second is, selling overhead. While amortization of customer acquisition cost is higher for the third quarter than the prior year, selling overhead is down $8 million, as Scott had mentioned, in the third quarter of 2020 versus the prior year, due to streamlining of the organization and other reductions in overhead costs.

We will review our cost structure for continuous improvements, and we believe there are additional cost saving opportunities. We are targeting a $190 million of combined G&A and selling overhead costs for fis year 2021, and capital expenditures of no more than $20 million. As of the end of Q3 of fis 2020, we had achieved run rates that are consistent with these goals.

Before I turn the call back to Scott, I'd like to discuss our fiscal year 2020 guidance. Based on our performance to date and forecasted results for the fourth quarter, we are revising our fiscal year 2020 base EBITDA guidance from continuing operations to a range of $150 million to $170 million. Also while the free cash flow trends have improved considerably, year-over-year, as noted previously, we still have more work to do. We now expect our fiscal year 2020 free cash flow to be between $0 million and $20 million. While these revisions are disappointing, we remain confident that continued focus on the core business, cost reductions, and the return to customer growth will relate -- will yield greater results in future periods.

With that, I'll turn it over to Scott for concluding remarks.

R. Scott Gahn -- Chief Executive Officer

Thank you, Jim. So, basically just to come back to the message that I wanted to send, based on the significant effort the team has put into the fixes for the Company, Jim pointed out. We've got a current credit facility, that's number one priority for us to get that renewed. We are -- we have tightened up the operations. We're going to continue to do that and tighten up the cost structure. And we've now turned our attention this quarter to the restoration of our sales momentum. This is going to -- is the result of looking at new products, tweaking some of our channels, and really put a lot of effort and focus -- the same focus we put on cutting cost, and straightening out our bad debt, in our attrition and renewal, we want to apply that to getting our sales back up. We've now turned toward sales, as the next thing we're going to do to get this Company back to where it was.

So with that, I'll go ahead and close out our prepared remarks, and we can open up for questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from the line of Chris Van Horn with B Riley FBR. Your line is now open.

Chris Van Horn -- B Riley FBR -- Analyst

Good afternoon, and thanks for taking my call.

R. Scott Gahn -- Chief Executive Officer

Thanks for joining.

Chris Van Horn -- B Riley FBR -- Analyst

I was hoping we just touch on the guidance, and maybe you could give us some of the puts and takes between that free cash flow of $0 million and $20 million, as well as on the EBITDA. What has to happen to get you quite on the higher end of that range?

R. Scott Gahn -- Chief Executive Officer

Well, obviously, I mean, fourth quarter performance will be key. In revising our guidance, we obviously looked at the actual results of Q3, which was driven by two things, weather, which was soft, not so soft that it caused us to use the insurance wrap at this point, but softer than expected. We're seeing some of that trends in the fourth quarter as well. I think the other key contributor there is the customer -- specifically the consumer customer count, at lower levels that we would like to have. So I think the key things to get in the high-end of that range would be not having the soft weather we've had through most of the winter, continued execution on the cost reduction, and return to growth on the customer -- the consumer customer side, which Scott mentioned before.

Chris Van Horn -- B Riley FBR -- Analyst

Okay. Got it. And maybe you could update us on your consumer versus commercial strategy, and where you're going to put the dollars to work? And how you're going to kind of gain customers? And do you have a preference on the customer base? You're going to kind of look at them equally? Where is your focus here?

R. Scott Gahn -- Chief Executive Officer

So, focus is a good word for it. We currently acquire the bulk of our customers through or the largest portion of new customers were acquired through our retail sales channel, which consists of putting the kiosks with some salespeople in retail stores. Sam's Club is probably, right now our most productive channel. We've got it. We've got contracts with other retailers that we put kiosks in. One of the things we've done on that retail channel is, we looked very closely and focused on what that channel is producing, not just the overall channel but by zip code, what they're producing, We get a different profile customer from Sam's Club than we get from certain other retailers of the zip codes of these retail locations matters too, in terms of the profile of the customer. So the key word is focus. We are looking at expanding and contracting certain sort of in-store presence based on the quality of the customers that we've got coming in. We're looking to expanding our retail channel too, with other retailers we're in negotiation with. Some other retailers to try to get additional kiosks out for customers.

The second channel that we've got that I have very high hopes for is, what we call our digital channel. And that is the channel, whereby we will attempt to bring customers either click-to-call or click-to-enrollment, if it's a self-service enrollment type call. We can drive pretty low-cost of acquisition in that, depending on how it gets done. And I think we've got a lot of room to expand on that. One of our campaigns is a digital strategy. It includes some offline advertising as well, but it's a digital strategy to try to bring customers in, and it is very targeted.

The third channel that we have for residential customers that's -- it is really just an inbound channels. We have -- we have reps, they take inbound calls that come in. We're trying to optimize that, again, with some digital click-to-call type of closures. And then we've got what's been the traditional sales channel for Just Energy over the years, which is a door-to-door sales channel. We have -- that sales channel has evolved significantly over the years. And most recently it was, what we call first-party door-to-door. It was all employee, salespeople paid a base and commission, as opposed to commission-only, which was traditionally what was done. That sales channel was producing cost of acquisition that were unacceptable. So, in Q3, we wound that channel down. Our first-party door-to-door in Q3 as well as January -- I think we completed that process in January, where we took the reduction in headcount, and got the cost savings. But it was producing unacceptable cost of acquisition and the quality of the customers were not great either.

We have transformed that with the help of some outside consulting, but also a lot of hard work by the people inside the Company. We have converted that completely to a third-party channel. And we -- that is one of our campaigns is that channel to try to reinvigorate that and get additional quality customers with low-cost of acquisition, the way that we experienced in the past. With, again, all the same controls that we put on sales to make sure we don't find ourselves in the same place in fiscal '21 that we found ourselves in fiscal '20.

Chris Van Horn -- B Riley FBR -- Analyst

Okay. Got it. Thank you for that. Thank you for that color. And then, regionally, I mean, do you have white spaces that look attractive to you? Or is it -- it's a better strategy to go after -- go further penetrate your existing footprint, how you think about at it from a geography -- geographical standpoint?

R. Scott Gahn -- Chief Executive Officer

Well, if you look at it geographically, you can see where we're getting the bulk of our customers. We've -- the bulk of the growth is coming from the US, and the bulk of what's in the US is coming from Texas. But we are -- we do have high hopes for other markets too. We like Ohio. We like Pennsylvania. We think we can expand in that area, what's called the PJM Interconnect, we think there's opportunities for us to expand sales there. So we are -- in different of our strategies, a digital strategy works really good in a shopping-tight market like Texas, whereas your push strategies work better in the markets, where you don't really have to shop for power and gas, if you don't want to. You're just going to be on the incumbent utility. And then -- and we tweak our channel strategies and products based on the particularly -- particular region and pricing environment.

Chris Van Horn -- B Riley FBR -- Analyst

Okay. Okay. And then just last for me. I think you mentioned June 30, around the strategic review, is there any magic to that date? Is there something that you see or initiatives that you're working on that you can comment on?

R. Scott Gahn -- Chief Executive Officer

Well, I really can't say much about the strategic review other than what we've already said. But I would say, we've -- we are active with parties right now. If we get to June 20, and we are closed with the party and need to extend it, we will probably announce that we're going to extend it. But we think June 20 is a good date for us to be able to have an announcement.

Chris Van Horn -- B Riley FBR -- Analyst

Okay. Thanks for the color, guys. Appreciate it.

R. Scott Gahn -- Chief Executive Officer

Thanks, Chris.

Operator

Thank you. And our next question comes from the line of Nelson Ng with RBC Capital Markets. Your line is now open.

Nelson Ng -- RBC Capital Markets -- Analyst

Great, thanks. A quick question on the preferred share dividends. So obviously it was suspended until the debt ratios hit below. I think 1.5 times for two consecutive quarters. But I just wanted to kind of pick your brain on whether we would expect dividends to resume once the Company is allowed to make distributions? Or do you think it would be more prudent to just conserve cash flows, and not pay dividends on the press, even if you're allowed to at a later date?

R. Scott Gahn -- Chief Executive Officer

Well, Nelson, I'll tell you the same thing I'd tell everybody when we talk about dividends. The Board is the body who decide dividends on a quarterly basis, based on the information available. Just to be specific on the requirements, we'd agree with the senior lenders that we need to meet our debt covenants for two consecutive quarters before we'll be able to resume payment of the dividends. As far as speculation of the timing of that repayment, I really can't say in this call.

Nelson Ng -- RBC Capital Markets -- Analyst

Okay. Got it. And then my next question relates to just non-core businesses. Obviously, you guys recently sold the state of Georgia assets. Are there any -- it might be just part of your strategic review, but it's like, are there any obvious other states where you don't have optimal scale in, if you can comment to any degree or not?

R. Scott Gahn -- Chief Executive Officer

We are looking at that. That is one of the things that we've started to scrutinize is, are there specific geographies that that are non-scale and would be worth more in the hands of somebody else, that's clearly something we're looking at. But as long as we're talking to people, who are considering the Company in its entirety, we are careful not to go down the path to just sell in the parts. The ones that we have sold, there was so little interest in. They -- it wasn't just us. We just didn't have any interest in like the UK. Germany and Japan, we're in the process to try to sell those. We're talking to potential buyers on those very small properties. Those are virtually insignificant in terms of what they would provide in the way of proceeds, but we do want to exit those non-core markets as well.

Nelson Ng -- RBC Capital Markets -- Analyst

Okay. Got it. And then just moving over to receivables that are over 90 days. I think currently it stands at $53 million, and it's been improving every quarter. Could you give some color as to where you think the normal level is? Or do you expect the $53 million to continue to decline every quarter?

Jim Brown -- Chief Financial Officer

Hey, Nelson, this is Jim. What I would encourage you look at is the 90-day balance versus the allowance recap, which is directly below, which ended [Phonetic] allowance at this point, $74 million. The relationship between those two numbers is what really matters to the extent something that's 90 days or older, and it's fully reserved. Yeah, it's -- that write-off process of netting the reserve against the receivable is more of a mechanical process. But to answer your question, we continue to clear out those amounts and send them to collections. But like I said, the key relationship is the allowance amount versus the 90 days. And it's important to understand that we also reserve for other buckets as well, but at much lower degree.

Nelson Ng -- RBC Capital Markets -- Analyst

Okay. Got it. One other question I have is, I think you mentioned that you guys have higher cost due to advertising, some of the commission costs that, I guess, that was fed into the EBITDA. But could you just clarify what type of amortization costs are included in the EBITDA line versus ones that fall below the EBITDA line?

Jim Brown -- Chief Financial Officer

Yeah. They're all in the EBITDA line. The dynamic, we are trying to describe and we're going to look at our disclosures around this to make it easier for you. But selling and marketing costs has two components. Amortization of costs from current and prior periods, and then sales overhead, which is like the cost of a salesperson who works in the Company or the cost of an office space that's not directly related to customer sales. So when we incur, and we incurred a lot of customer acquisition costs last year. That cost is amortized over the life, which is several years for the customer. So costs that were incurred last year, are still being amortized this year. And the uplift of that is about equal and opposite to the decrease in the customer overhead we took out. So to answer your question, all of the costs we incur for customer acquisition or amortized, they are included in the EBITDA, because we think that's part of our operations. We have to include that. But the -- the more interesting break out of the fact that we've reduced the overhead associated with our sales group through structural changes to reporting, and just basically taking our cost that weren't necessary to achieve the sales.

Nelson Ng -- RBC Capital Markets -- Analyst

Okay. And then just one last question. In terms of free cash flow, could you just kind of run me through the definition of free cash flow? Is that essentially the base funds from operations less, I guess, preferred shares and -- or preferred share dividends and any capitalized commissions? Or is that the right way of thinking about free cash flow?

Jim Brown -- Chief Financial Officer

The easiest way to do it is, take operating cash flow in the cash flow statement minus capex. So you can count back into it from FFO as well. But we found that FFO. We still disclose it, because we have prior period ratios related to dividend payouts, etc. But the more meaningful metric is free cash flow drive from the cash flow statement, there again, operating cash flow minus capex. And we're seeing both improvements in the operating cash flow and decreases in the capex.

Nelson Ng -- RBC Capital Markets -- Analyst

And is that before or after working capital movements?

Jim Brown -- Chief Financial Officer

Yeah. Working -- see that's the big difference, is working capital was excluded from our FFO calculation. And yeah, this is a Company that has large changes in working capital in different periods. So the free cash flow would include all operating cash flow, which includes changes in working capital. And that working capital line is something we keep our eye on very close, and expect to continue to improve it.

Nelson Ng -- RBC Capital Markets -- Analyst

Okay. Thanks, Jim. I'll get back.

Jim Brown -- Chief Financial Officer

All right. Thanks, Nelson.

Operator

Thank you. And our last question comes from the line of Raveel Afzaal with Canaccord. Your line is now open.

Raveel Afzaal -- Canaccord -- Analyst

Hi guys. So three questions from me. First of all, if you do need to secure additional debt waivers, a debt covenant waivers, when will you need to secure them by? Just looking at last quarter, they were secured in December. So should I assume that you'll secure them in March, if needed?

Jim Brown -- Chief Financial Officer

Yeah. So this -- we've always, if we see a waiver coming, we get in place before the end of the quarter.

Raveel Afzaal -- Canaccord -- Analyst

Got it. And now, will that be correlated with you refinancing your facility? Or are those two separate?

Jim Brown -- Chief Financial Officer

I think we're going to be talking to the banks about both things, what our trajectory is for covenants, and what our strategy is for renewing the facility. So the discussions are obviously, the same parties will be intertwined.

Raveel Afzaal -- Canaccord -- Analyst

Intertwined. Okay, got it. And then with respect to selling expenses, now with these new initiatives that you have in place, is there some way that you can help us quantify that? So for the consumer division you had 55,000 gross adds, and your costs were somewhere close to $30 million, excluding the amortized portion. Now, how would you think these two numbers trend in Q4 as a result of these selling initiatives?

Jim Brown -- Chief Financial Officer

Yeah. No, I think, the amortizations is a trailing numbers. So it's going to kind of continue at the pace it's been continuing. But the overhead, we can effect. And we feel like the run rate that we've achieved in the third quarter, we'll be able to achieve in the fourth quarter. And we're very strongly considering reveal breaking that out for you guys, both on the perspective and in historical basis our MD&A. So you have very transparency to those numbers.

Raveel Afzaal -- Canaccord -- Analyst

Got it. So if I understand this correctly, though, right now it's about $33 million for the consumer division in terms of selling expenses, and they will remain relatively flat, but your gross adds will increase? Is that the idea?

Jim Brown -- Chief Financial Officer

Right. Typically, the gross adds will increase. Selling -- non-commission selling costs will remain flat to declining, if we find additional ways to cut costs out of sales overhead. But we will end up with higher cash commissions, but the amortization will take as a lag effect to it. It will drop. All the cash commissions will drop into the amortization, and it will just be amortized over time under IFRS.

Raveel Afzaal -- Canaccord -- Analyst

Makes sense. Perfect. And just finally, right now you are at $60 million in cost saving initiatives, and terrific job on that. Now, where do you expect this number to go? Sorry, I heard this one number, Jim, that you were talking about $190 million in cost savings. Can you just help explain that to me, maybe I misunderstood.

Jim Brown -- Chief Financial Officer

Just to clarify, so there is -- just to give you a little background, there is kind of a sheet of paper that me and Scott and some others walk around, which is [Phonetic] basically the next 15 months of cash flows, and one of the numbers on that page is what we expect to spend in G&A and selling overhead. And in 2021, we expect that cash number to be $190 million, and we expect the accounting number to be relatively the same number. So that is what we actually expect to spend on G&A, and the non-commission selling. And like I said, I think it's going to be necessary. We're still evaluating our financial statement presentation. But I think it's going to be necessary to break out that number, so you can get visibility of what those actual numbers are as they happen.

Raveel Afzaal -- Canaccord -- Analyst

Perfect. And how does that correlate to the $60 million then, if you assume $190 million in cash expenditures. Then how -- what does that mean in terms of cost savings versus the $60 million run rate of where you're at right now.

Jim Brown -- Chief Financial Officer

Yeah. So we talked about that recently, and there's kind of the easiest way to look at is Q3 year-over-year variance to prior year. And there's three components to the $60 million. Remember, when we talk about the $60 million, we're talking about cost of the business, whether it goes on the balance sheet or whether it doesn't, we're -- absent customer acquisition costs, we're counting those cost to go out the door. And one bucket is G&A, where you see about $6 million, a decrease on a year-over-year basis, excluding the strategic review costs, which are not part of the core business. Yeah, that's about $20 million -- $24 million in annualized savings. Then on, as Scott mentioned, sales overhead is down about $8 million, that's about $30 million of annualized savings. And then capex for the year is down $24 million year-to-date. If you annualize that to $30-some-million, you're well in excess of the $60 million.

Raveel Afzaal -- Canaccord -- Analyst

Makes sense. And then, and so you would expect this number to stay relatively consistent to get to this $190 million in capital -- in cash expenditures? Or the $60 million has to go higher? Or the $60 million -- whatever $65 million to $70 million number that you just calculated.

Jim Brown -- Chief Financial Officer

Yeah, the math works between the $60 million of savings and the expectation of $60 million -- $190 million of G&A and so on.

Raveel Afzaal -- Canaccord -- Analyst

Got it.

Jim Brown -- Chief Financial Officer

That being said, we'd like to be in that number, and we made these opportunities to do it.

Raveel Afzaal -- Canaccord -- Analyst

That's all from me. Thank you for taking my questions.

Jim Brown -- Chief Financial Officer

Thank you, Raveel.

Operator

Thank you. This concludes today's question-and-answer session. I would now like to turn the call back to Scott Gahn, CEO, for any closing remarks.

R. Scott Gahn -- Chief Executive Officer

Okay. Well, thank you very much, operator. And I want to thank everybody for being on the call, and thank those that asked questions, for their questions. We are hopeful. Yeah, we're hopeful that the initiatives that we got in place for Q4 will provide us with a successful year end. We are looking forward to the challenges that we have in front of us, from the credit facility, to our sales campaigns. And we'd like to thank all of our employees, who are working hard to do the right things to fix our Company, and we'll be updating you on the strategic review as that progresses. Thank you.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

R. Scott Gahn -- Chief Executive Officer

Jim Brown -- Chief Financial Officer

Chris Van Horn -- B Riley FBR -- Analyst

Nelson Ng -- RBC Capital Markets -- Analyst

Raveel Afzaal -- Canaccord -- Analyst

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