OptionMonster
16 years ago
Commerce Energy Reports Fiscal 2008 Third Quarter Financial Results
Commerce Energy Group, Inc. (Amex:EGR), a leading U.S. electricity and natural gas marketing company, today announced its financial results for the fiscal 2008 third quarter and nine months ended April 30, 2008.
Third Quarter Results Net revenue increased to $105.5 million for the third quarter of fiscal 2008 from $100.6 million for the same period last year. The revenue increase was driven primarily by higher retail electricity sales to customers in Texas and Pennsylvania. The company reported a net loss of $9.5 million, or $0.31 per share, versus net income of $1.5 million, or $0.05 per share, for the fiscal 2007 third quarter. Fiscal 2007 results for the comparable period included a $5.1 million settlement payment received from APX, Inc. relating to refunds due to certain California energy buyers for purchases made in the spot market in 2000-2001, offset by a $3.9 million payment made to American Communications Network, Inc. (ACN) to settle an arbitration proceeding and $550,000 of related legal expenses.
Gross profit decreased to $14.1 million for the third quarter of fiscal 2008 from $17.6 million for the third quarter of fiscal 2007. Gross profit from electricity decreased slightly to $8.9 million from $9.0 million for the same quarter of fiscal 2007. Gross profit from natural gas increased to $5.2 million for the third quarter of fiscal 2008 from $3.5 million in the third quarter of fiscal 2007, primarily due to the impact of higher margins in California and Ohio.
During the third quarter of fiscal 2008, the company completed its annual review of intangibles and goodwill according to FASB Statement 142, “Goodwill and Other Intangible Assets.” As a result of that review, it was determined that certain intangible assets and goodwill related to the company’s Skipping Stone energy consulting business were impaired. Accordingly, the company recognized a $1.4 million impairment charge comprised of a long-lived asset impairment of $840,000 and a goodwill asset impairment of $560,000.
“Net revenues showed solid growth quarter over quarter,” said Gregory L. Craig, who was named chairman and chief executive officer of Commerce Energy in February 2008. “Results were impacted by heavy bad debt expense, high operating costs and the write down of intangible assets.
“Turnarounds are a challenging process. Our turnaround team is now in place, comprised of a new COO, CFO, chief risk officer and myself,” Craig said. “As a first step in our initiative to transform the company, we recently announced a 31 percent workforce reduction, yielding approximately $5 million in annualized expense savings and positioning the company to continue its growth at a significantly lower cost basis.” Selling and marketing expenses increased to $3.3 million for the third quarter of fiscal 2008 from $2.6 million in the third quarter in fiscal 2007, reflecting higher third-party sales expenses related to the company’s expanded customer acquisition initiatives.
General and administrative expenses were increased to $18.7 million for the third quarter of fiscal 2008 compared with $9.8 million in the third quarter of fiscal 2007, primarily reflecting increased bad debt expenses of $7.9 million, $7.3 million higher than the third quarter of 2007. The remaining difference of $1.6 million was attributable to increased personnel costs relating to additional customer service and information technology staff to support the company’s growing customer base, severance for former officers, increased professional service fees and higher depreciation and amortization expenses.
Results for the Nine Months Ended April 30, 2008 Net revenue increased $55.8 million to $319.5 million for the nine months ended April 30, 2008 from $263.7 million for the comparable period in fiscal 2007. This increase was driven primarily by higher electricity sales in Texas. The company reported a net loss of $11.8 million, or $0.39 per share, versus net income of $4.5 million, or $0.15 per share, for the comparable period last year. Results for the comparable period in fiscal 2007 included a $5.1 million settlement payment received from APX, Inc. relating to refunds due to certain California energy buyers for purchases made in the spot market in 2000-2001 and a $3.9 million payment made to American Communications Network, Inc. (ACN) to settle an arbitration proceeding and $550,000 of related legal expenses.
Gross profit increased to $49.8 million for the nine months ended April 30, 2008 from $42.2 million for the comparable period in fiscal 2007. Gross profit from electricity increased $9.6 million to $37.4 million for the nine months ended April 30, 2008 from $27.8 million for the comparable period in fiscal 2007, reflecting the impact of customer growth in Texas and Maryland. Gross profit from natural gas increased $3.0 million to $12.4 million for the nine months ended April 30, 2008 from $9.4 million for the comparable period in fiscal 2007, primarily due to higher margins in California and Ohio.
Selling and marketing expenses increased to $11.4 million for the nine months ended April 30, 2008 from $7.3 million in the comparable period last year, reflecting higher third-party sales expenses, increased personnel and advertising expenses related to the company’s expanded customer acquisition initiatives.
General and administrative expenses increased to $48.2 million for the nine months ended April 30, 2008 from $27.4 million for the comparable period in fiscal 2007 primarily reflecting increased bad debt expenses of $17.7 million, $14.9 million higher than the comparable period in fiscal 2007. The remaining difference of $5.9 million was attributable to increased personnel costs related to additional customer service, information technology staff and consultants to support the company’s growing customer base, higher professional service fees resulting from the company’s review of its strategic alternatives, increased depreciation and amortization expenses and severance payments for former officers.
Liquidity At April 30, 2008, the company had unrestricted cash and equivalents of $10.4 million, $40.0 million of working capital and no long-term debt. The company believes that it will require additional capital resources in fiscal 2009 to meet its credit facility requirement to have $10 million in excess availability at all times on and after November 1, 2008; to fund possible expansion of the company’s business, either from internal growth or acquisition; to add liquidity if energy prices increase materially; and to respond to increased energy industry volatility and/or uncertainty that create additional funding requirements.
Effective June 11, 2008, Wachovia Capital Finance Corporation (Western), as agent and lender, and Wells Fargo Foothill, LLC, as lender, entered into an amendment to our credit facility and granted us a waiver on the EBITDA and fixed charge coverage covenants and increased the interest rate on both borrowings and letters of credit by 1.5%. The amendment, among other things, defers the increase in the excess availability covenant from $2.5 million to $10 million until November 1, 2008 and requires weekly measurements of liquidity. The company has also agreed with the lenders to terminate the credit facility on or before November 1, 2008. The company has begun the process to enter into a new working capital facility.
Revised Fiscal 2008 Outlook Commerce Energy has revised its fiscal 2008 outlook and now expects to report a net loss per share in the range of $0.60 to $0.80 for the fiscal year ending July 31, 2008. The revised outlook reflects increased bad debt expense in the third quarter of fiscal 2008; anticipated additional bad debt expense in the fourth quarter of fiscal 2008; anticipated increased energy costs in the fourth quarter of fiscal 2008 adversely affecting gross profits; restructuring costs related to the previously announced reduction in force in the fourth quarter of fiscal 2008; and intangible impairment charges.
Conference Call and Webcast Commerce will host a conference call to review the results of operations for the third quarter ended April 30, 2008 today at 5 p.m. ET (2 p.m. PT). The call will be available to all interested parties through a live audio webcast at www.CommerceEnergy.com and www.earnings.com. A replay of the conference call will be archived and available at www.CommerceEnergy.com for one year. A telephonic replay will be available through June 18, 2008, and can be accessed by dialing 888-286-8010 (domestic) or 617-801-6888 (international) and using the playback Passcode 68968222.
About Commerce Energy Group, Inc.
Commerce Energy Group, Inc. (Commerce Energy) is a leading independent U.S. electricity and natural gas marketing company. Its principal operating subsidiary, Commerce Energy, Inc. is licensed by the Federal Energy Regulatory Commission and by state regulatory agencies as an unregulated retail marketer of natural gas and electricity and serves homeowners, commercial and industrial consumers and institutional customers.
For more information, visit www.CommerceEnergy.com.
OptionMonster
17 years ago
Based upon current estimates, we may not be in compliance with certain covenants of our Credit Facility in fiscal 2008. If current estimates continue unchanged and we are unable to obtain a waiver or consent of the agent and the lender to our Credit Facility and certain modifications to our existing loan documents, we will be in default with the lender, which will have a material adverse effect on our business.
Based upon our current cash flow estimates, we have alerted our agent and lenders under our Credit Facility that we may be out of compliance in fiscal 2008 with certain financial covenants under our Credit Facility and, similar to other prior concessions obtained from the lenders; seek a temporary waivers and/or amendments to provisions of the Credit Facility. At this time, we expect that we would request the lenders to eliminate or reduce temporarily the required excess availability provision of $2.5 million. In addition, we also may request other modifications. There is no assurance that if we need such a waiver or amendment, our agent and lender will grant it, or if they do grant such a waiver or amendment, such waiver or amendment will be on terms acceptable to us. Failure to obtain a needed waiver or an amendment to our Credit Facility would have a material adverse effect on our business.
We will require additional capital in the future, which may not be available on favorable terms, if at all.
The Company believes that it will require additional capital in fiscal 2008 to meet the requirement in its Credit Facility to have in excess of $10 million in excess availability at all times on and after July 1, 2008. The Company also believes that it will require additional funds to (i) expand its business; (ii) add liquidity in case energy prices materially and unexpectedly increase; and (iii) meet unexpected funding requirements caused by industry volatility and/or uncertainty. To the extent that our existing capital and borrowing capabilities are insufficient to meet these requirements and cover any losses, we will need to raise additional funds through financings or borrowings or curtail our growth and reduce our assets. Any equity or debt financing, if available at all, may be on terms that are not favorable to us. Equity financings could result in dilution to our stockholders, and the securities issued in future financings may have rights, preferences and privileges that are senior to those of our common stock. If our need for capital arises because of significant losses, the occurrence of these losses may make it more difficult for us to raise the necessary capital. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to take advantage of future opportunities, grow our business or respond to competitive pressures or unanticipated requirements.
We may be subject to claims or liabilities in connection with certain regulatory and refund proceedings which could have a material adverse effect on our business and our stock price.
OptionMonster
17 years ago
Outstanding shares as of March 11, 2008, 30,375,618
Daniel Zeff 3,036,216 Shares
Craig Gregory L Chief Executive Officer 694,200 Shares
PERKINS ROBERT C Director 260,000 Shares
BAYLESS CHARLES E Director 232,000 Shares
We are an independent marketer of retail electricity and natural gas to residential, commercial, industrial and institutional end-use customers. Commerce is licensed by the Federal Energy Regulatory Commission, or FERC, and by state regulatory agencies as an unregulated retail marketer of electricity and natural gas.
We were founded in 1997 as a retail electricity marketer in California. As of January 31, 2008, we delivered electricity to approximately 126,000 customers in California, Maryland, Michigan, New Jersey, Pennsylvania and Texas; and natural gas to approximately 49,000 customers in California, Florida, Georgia, Maryland, Nevada, Ohio and Pennsylvania.
The electricity and natural gas we sell to our customers is purchased from third-party suppliers under both short-term and long-term contracts. We do not own electricity generation or delivery facilities, natural gas producing properties or pipelines. The electricity and natural gas we sell is generally metered and always delivered to our customers by the local utilities. The local utilities also provide billing and collection services for many of our customers on our behalf. Additionally, to facilitate load shaping and demand balancing for our customers, we buy and sell surplus electricity and natural gas to and from other market participants. We utilize third-party facilities for the storage of natural gas.
The growth of our business depends upon a number of factors, including the degree of deregulation in each state, our ability to acquire new and retain existing customers, our ability to access additional capital, and our ability to acquire energy for our customers at competitive prices and on reasonable credit terms.
Bad debt expense was a significant expense for the Company again for the second quarter. Bad debt expense increased as the Company added customers in key markets and did not upgrade its back office systems rapidly enough to make collection calls to customers within a short period of the balance becoming delinquent, require deposits for customers with low credit scores and strengthen electronic data interfaces (“EDI”) to efficiently process larger transaction volumes. Bad debt expense increased as the Company’s accounts receivable agings deteriorated reaching $3,700 and $6,200 in the first and second quarter of fiscal 2008, respectively.
The Company’s new senior management team is focused on implementing solutions to reduce bad debt expense and believes that a number of remedies were implemented in the 2008 second quarter. Accordingly, we anticipate future bad debt expense will trend toward historical levels, with the third and fourth quarters of fiscal 2008 still projected to be generally higher than average amounts. However, there can be no assurance that future bad debt expense will not fluctuate due to regulatory conditions, general economic conditions, or other unforeseen events.
As we had no long-term debt outstanding at January 31, 2008, our only exposure to interest rate risks is limited to short-term borrowings and our investment of excess cash balances in interest-bearing instruments. As our borrowings are only short-term and are adjusted to market rates on a recurring basis, we do not believe we have interest rate risk on these borrowings. We generally invest cash equivalents in short-term credit instruments consisting primarily of high credit quality, short-term money market funds and insured, re-marketable government agency securities with interest rate reset maturities of 90 days or less. We do not expect any material loss from our investments and we believe that our potential interest rate exposure is not material. As our practice has been, and currently continues to be, to only invest in high-quality debt instruments with maturities or remarketing dates of 90 days or less, we currently are not materially susceptible to interest rate risk on our investments.
analogdog
17 years ago
Financial Statement
http://biz.yahoo.com/e/080314/egr10-q.html
Direct Energy Costs
Direct energy costs, which are recognized concurrently with related energy sales, include the commodity cost of natural gas and electricity, electricity transmission costs from the Independent Systems Operators, or ISOs, transportation costs from local distribution companies, or LDCs and pipelines, other fees and costs incurred from various energy-related service providers and energy-related taxes that cannot be passed directly through to the customer.
Direct energy costs for the three months ended January 31, 2008 totaled $55.4 million and $33.7 million for electricity and natural gas, respectively, compared to $40.4 million and $37.7 million, respectively, for the three months ended January 31, 2007. Electricity
costs averaged $0.093 per kWh for the three months ended January 31, 2008 compared to $0.090 per kWh for the three months ended January 31, 2007. Direct energy costs for natural gas averaged $7.51 per DTH for the three months ended January 31, 2008 as compared to $7.77 per DTH for the three months ended January 31, 2007.
Gross Profit
Gross profit increased $4.7 million, or 32.6% to $19.3 million for the three months ended January 31, 2008 from $14.5 million for the three months ended January 31, 2007. Gross profit from electricity increased $3.0 million to $13.5 million for the three months ended January 31, 2008 from $10.4 million for the three months ended January 31, 2007, reflecting the impact of customer growth in Texas. Gross profit from natural gas increased $1.7 million to $5.8 million for the three months ended January 31, 2008, from $4.1 million for the three months ended January 31, 2007 primarily due to the impact of higher margins in California and Ohio.
Selling and Marketing Expenses
Selling and marketing expenses increased to $4.3 million for the three months ended January 31, 2008 from $2.6 million for the three months ended January 31, 2007, reflecting higher third-party sales expenses, increased personnel expenses and higher advertising costs related to the Company's expanded customer acquisition initiatives.
General and Administrative Expenses
General and administrative expenses increased to $16.0 million for the three months ended January 31, 2008 from $9.6 million for the three months ended January 31, 2007. Of the $6.4 million increase, $4.9 million was attributable to an increase in the bad debt provision, primarily a result of the rapid growth in electricity revenue in Texas from $18.1 million to $37.8 million. Bad debt expense increased as the Company added customers in key markets and did not upgrade its back office systems rapidly enough to make collection calls to customers within a short period of the balance becoming delinquent, require deposits for customers with low credit scores and strengthen electronic data interfaces ("EDI") to efficiently process larger transaction volumes. The remaining $1.5 million was attributable to increased personnel costs related to additional customer service and information technology staff to support the Company's growing customer base, increased professional service fees and higher depreciation and amortization expenses.
Income Taxes
No provision for, or benefit from, income taxes was recorded for the three months ended January 31, 2008 or 2007. We provided valuation allowances equal to our calculated tax due to the amount of the Company's net operating loss carryforwards and the related uncertainty that we would realize these tax benefits in the foreseeable future. At January 31, 2008, the Company had net operating loss carryforwards of approximately $10.9 million and $12.9 million for federal and state income tax purposes, respectively.
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