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Crius Discloses Acquisition Of U.S. Customer Book With 18,000 RCEs
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In reporting fourth quarter and full year 2017 earnings, Crius Energy Trust announced it, "purchased the customer contracts and associated assets of approximately 18,000 residential electric customers in Illinois, Ohio, New Jersey and Pennsylvania from a California-based energy retailer for $4.3 million."
Crius did not further disclose the identity of the seller.
However, while it is unclear what precisely "California-based" means in Crius' statement, a review of retail suppliers licensed in those four states and the addresses for suppliers, as listed by state regulators and/or utilities, show that there is only a limited universe of retail suppliers that potentially fit the description of a, "California-based energy retailer," that had residential electric customers in Illinois, Ohio, New Jersey and Pennsylvania -- perhaps as few as three suppliers
One retail supplier which has offered residential service in those four states and which has, at times, used a California address is Star Energy Partners. Star Energy Partners also has an Ohio office. Star Energy Partners did not return a request for comment by publication time. EnergyChoiceMatters.com specifically stresses that it is *not* herein identifying Star Energy Partners as the company described by Crius, and only notes that Star Energy Partners potentially meets some of the descriptions.
Two retail suppliers which are, or were previously, based in California or which had previously used California addresses provided statements stating that they did not sell any books to Crius.
Inspire told EnergyChoiceMatters.com that, "Inspire has not sold and is not contemplating a sale of any assets to Crius."
Sperian Energy also told EnergyChoiceMatters.com that the company described by Crius was not Sperian.
Separately, Crius announced that, in January 2018, Crius identified an opportunity to enter the United Kingdom market, "by providing a short-term loan to a fast growing retail energy and smart meter installation business with an option to acquire control within five years."
The loan is for £2.5 million, bears interest of 10% plus LIBOR, and has a one-year term.
"Management believes that this investment provides Crius Energy with a risk-averse opportunity to evaluate an international expansion opportunity by partnering with an existing management team with local experience in the United Kingdom." Crius said
"Management continues to evaluate accretive acquisition opportunities including both asset and equity acquisitions. We believe the Company is well positioned to continue our acquisition strategy given our track-record of success integrating acquired businesses and conservative leverage levels," Crius said
"As part of the Company's growth strategy, Management evaluates both domestic and international opportunities. Over the past several years, the Company has evaluated several international markets for business expansion," Crius said
Crius is also focused on organic growth, including use of previously reported sales channels and partnerships
"Management is focused on the acquisition and retention of higher margin mass market and commercial customers. In the commercial segment, we are focused on growth in the higher-margin small commercial segment and through expanding our portfolio of municipal aggregations. In the mass market segment, we are focused on expanding the USG&E direct-to-consumer sales channels, supporting the relaunch of Comcast, the launch of CREDO Mobile on the Energy Rewards IEP [Integrated Energy Platform] in the second quarter of 2018 and the expansion of Fairpoint Communications to additional markets following its acquisition by Consolidated Communications Holdings, Inc. in 2017, as well as continuing to add new exclusive partners to the Energy Rewards IEP," Crius said
As noted above, Comcast is expected to relaunch Crius sales activities in the second quarter of 2018.
"In addition to driving new customer growth, Management is focused on portfolio optimization, which is intended to increase margin and reduce attrition over the long-term as customers will receive differentiated products and service levels based on expected customer lifetime value. Management expects attrition to be elevated throughout 2018 as customers below internal customer lifetime value thresholds will be returned to the utility upon product expiration if we are unsuccessful at enrolling them on products that meet or exceed customer lifetime value thresholds," Crius said
Crius saw its customer count decline by a net of 36,000 residential customer equivalents (RCEs) in the fourth quarter of 2017. For comparison, Crius had recorded organic net customer growth of 68,000 RCEs from June 30, 2017 to September 30, 2017 (plus inorganic net growth of 350,000 RCEs from its previously reported acquisition of USG&E)
Crius Energy customer count stood at 1.410 million RCEs as of December 31, 2017, versus 1.446 million RCEs as of September 30, 2017 and 982,000 RCEs a year ago. The December 31, 2017 total does not include the 18,000 customers purchased from the California-based retailer noted above.
"The decrease in customers during the fourth quarter of 2017 was primarily attributable to elevated attrition driven by approximately 50,000 municipal aggregation customers that came up for renewal, as previously communicated in prior quarterly reporting, that the Company was not able to renew at acceptable target margins," Crius said
Crius added a gross of 145,000 RCEs organically from sales and marketing channels, representing a decrease over the average in the prior four quarters of 154,000 RCEs.
"Gross drops in the fourth quarter of 181,000 customers were higher than the average in the prior four quarters of 121,000 customers due to the above-mentioned non-renewal of approximately 50,000 municipal aggregation customers. Additionally, on a comparable period basis, the increased absolute number of customer drops is expected due to the expanded size of the portfolio as a result of the USG&E Acquisition. On a percentage basis, customer attrition was 4.0% per month for the fourth quarter of 2017, compared to 3.6% per month for the prior four quarters," Crius said
In an inventor presentation, Crius reported its 2017 cost to acquire a customer as $21 per RCE, but, when including the USG&E acquisition, reported that a pro forma cost to acquire would have been $38 per RCE, reflecting higher upfront cost but also higher-margin channels such as door-to-door and telemarketing. Crius listed its 2017 cost to serve as $52 per RCE.
Crius reported revenue of $248.5 million in the fourth quarter of 2017, representing an increase of 45.0% from $171.4 million in the fourth quarter of 2016.
Crius reported gross margin of 22.1% of revenue for the fourth quarter, an increase from the gross margin of 21.9% of revenue achieved in the fourth quarter of 2016.
For the three month period ended December 31, 2017, gross margin was $54.8 million, representing an increase of 46.2% from $37.5 million for the three month period ended December 31, 2016. The period-over-period increases in gross margin are attributable to the addition of the customer portfolio acquired from USG&E at the beginning of the third quarter of 2017. Slightly higher period-over-period gross margins as a percentage of revenue is consistent with the addition of the higher-margin USG&E portfolio, but offset by recent trends resulting from the increased mix of lower-margin commercial and municipal aggregation customers in the portfolio.
For the three month period ended December 31, 2017, electricity gross margin per unit was $17.73/MWh, and electricity gross margin accounted for 18.4% of electricity revenues, representing a decrease from $18.36/MWh and 20.1%, respectively, for the three month period ended December 31, 2016. Gross margins in the current quarter were higher than the prior year comparable period due to the addition of the customers acquired from USG&E. Lower period-over-period gross margin per unit and gross margins as a percentage of revenue is consistent with recent trends resulting from the increased mix of lower-margin commercial and municipal aggregation customers in the portfolio, partially offset by the addition of the higher-margin USG&E portfolio.
Natural gas gross margin for the three month period ended December 31, 2017 was $14.4 million, representing a 314.6% increase from $3.5 million for the three month period ended December 31, 2016. For the three month period ended December 31, 2017, natural gas gross margin per unit was $2.82/MMBtu, and natural gas gross margin accounted for 43.3% of natural gas revenues, representing increases from $1.85/MMBtu and 38.1%, respectively, for the three month period ended December 31, 2016. The increase in gross margin and gross margins per unit in the quarter were primarily attributable to the acquisition of the USG&E customer portfolio at the beginning of the third quarter of 2017.
Crius reported Adjusted EBITDA of $18.0 million during the fourth quarter of 2017, representing an increase of 32.2% from $13.6 million in the fourth quarter of 2016. During the fourth quarter of 2017, the deregulated energy business contributed $20.8 million in Adjusted EBITDA, and the solar business contributed negative $2.8 million to Adjusted EBITDA.
Crius reported net income of $36.0 million in the fourth quarter of 2017, representing an increase of 74.8% from $20.6 million in the fourth quarter of 2016.
Legal reserve and associated legal fees for the year ended December 31, 2017 amounted to $17.5 million, consisting of the legal reserve established by Crius of $13.0 million, and associated legal fees of $4.5 million for the year ended December 31, 2017, for certain pending litigation and regulatory matters relating to sales and marketing practices. Management does not expect the disposition of these matters to have a material adverse effect on Crius's results of operations or financial condition and will seek to resolve these matters in the manner Management believes to be in the best interests of Unitholders. This legal reserve, together with associated legal fees incurred were excluded from Adjusted EBITDA and Distributable Cash, Crius said
Management has entered into agreements in principle to settle these litigation and regulatory matters and expects to execute such settlements within the next several months. With respect to certain class action litigation filed against Crius's Viridian brand relating to rate increases stemming from the 2013/2014 winter polar vortex weather event which caused significant increases to the underlying commodity wholesale prices, in February 2018, Crius filed with the United States District Court, District of Connecticut preliminary approval of the settlement agreement executed by all parties (see story here). "The settlement agreement provides for a nationwide class settlement of all claims related to increased gas and electric rates which were at issue of [sic] the litigation," Crius said
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Crius Also Invests In U.K. Retail Energy Business
Reports Higher Earnings, Lower Customer Count
March 9, 2018
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Reporting by Paul Ring • ring@energychoicematters.com
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