"During the quarter, we have implemented successful pricing initiatives that will result in tens of millions dollars of benefit in the second half of the year. This is the first time the company has raised prices holistically over the last four years. Residential customers added or renewed at record levels of gross margins in the face of ongoing competitive pricing pressures," McCullough said
"[W]e are successfully implementing pricing actions. As you saw in our first quarter results, those actions are taking hold and leading to elevated levels of residential gross margins, which will continue to expand in Q2 and beyond. We expect these efforts to contribute more as we go deeper into the fiscal year," McCullough said
"[M]argin expansion is happening due to a lot of things. First of all, that ERCOT volatility has knocked some of the discount pricers out of their growth mode. So the pricing pressure is being relieved a bit in ERCOT, at least as we sit here today," McCullough said
"Number two, we're selling more value-added products and services. We're getting higher penetration rates, that's really becoming an important part of our business. As we mentioned last quarter, it's going to be about 10% of our overall guidance this year, and we're tracking probably ahead of schedule to that rate," McCullough said
"And then the price increases we've taken. Our company had not raised prices in over four years, maybe further at least in my tenure here, and we are taking some aggressive pricing actions where we have the ability to price," McCullough said
In addition to reflecting higher costs due to summer demand in ERCOT, "we'll price in excess of that and drop through tens of millions of dollars, which is where you'll see the support for third and fourth quarter, where you'll really see a difference versus the prior year," McCullough said
"[W]e're looking at pretty impressive margin improvements on the design contract margin that we're signing on a daily basis. So we really think, we can push that up, and be on a journey to 300 over a couple of years. So that won't happen immediately but we really believe we're on that journey," McCullough said
"I think by the time we're reporting third quarter, you're really going to see the full effect of our pricing actions that took place that start to drop through," McCullough said. With higher ERCOT costs, it will be, "a little bit of a break even story kind of in Q2, but Q3 and Q4 you're really going to see that breakout, and I think we'll be testing 260 by the end of this fiscal year on a trailing 12-month basis," McCullough said
"We're very encouraged by Q1 where we started to see signing-the-contract margin expansion in greater numbers than the contracts that we're losing. And that's the trend that we watch like a hawk. And know that there's other income streams, which can be added to those design margins. Generally, you don't lose any of that margin on residential as you go forward, but have the ability to pick up some more with fees or cross-selling of value added products," McCullough said
"Q1 was also where we took our aggressive pricing actions, not all of those impacted the volume of Q1. Some of those were done late in the quarter. So you're going to see that step up coming as we go into Q2 and move forward," McCullough said
McCullough noted that the company's pricing actions may lead to higher attrition of existing customers, but McCullough said he is focused on the gross additions of higher-margin, stickier customers
"[R]ight now the strategy for the company is to take advantage of an opportunity we see, which is pricing power that's come back to us. Now that may create some attrition," McCullough said
When adding higher prices on top of higher customer bills from extreme Texas weather, "you're probably going to drive a bit of attrition amongst the switchers," McCullough said. "Now those normally are not most profitable customers. So you can live with some of that."
"The thing I'm focused on is gross adds, and gross adds are on target or ahead. You can see year-over-year, the major change in gross adds. Those are the more profitable customers and the stickier relationships, as you see us reporting. That is a more important metric to me in the short-term, to really know I'm expanding long-term margin, because I know I'm going to push a bit more attrition than we'd planned a quarter ago with the pricing ability we have," McCullough said.
"Now that's a bit of a short term strategy, but an important part of being a dynamic retailer is to ensure when these windows of pricing power come your way, you take advantage of them, which is what we're doing right now. So a little bit less focused on net adds, we're a little bit more focused on margin expansion at the moment, but we manage those two levers together, coordinate them," McCullough said.
McCullough also addressed Just Energy's continued cross-selling and product expansion
"We believe you will see this transformation very clearly over the next year in the form of measurable financial results and real growth. These cross-selling opportunities are present today and primarily center around our energy efficiency and retrofitting businesses, or what we refer to as Just Energy Advanced Solutions. We believe these efforts will begin to noticeably contribute to our earnings results in the second half of this year," McCullough said
"Just Energy is becoming less dependent on commodity products, and we believe in the convergence of the smart connected home, home automation, security, energy, and water, representing a significant opportunity for us. We are building a platform to seamlessly integrate energy efficiency, water conservation, renewable, storage, and commodity products into any integrator of these products and services," McCullough said
McCullough said that Just Energy began cross-selling Ecobee smart thermostats to its existing customers in April over the telephone. As customers called in for customer care, the was cross-selling Ecobee. "We're seeing rates as much as 3,000 sales per month," McCullough said
"So you could envision 25,000 to 50,000 Ecobee sales this fiscal year with a renewed effort to sell those products to our existing customer base. That's what we're planning for. That's what's built into our guidance. Congratulations to our team. They sold over 200 units yesterday alone. That gives you an idea that's about a 45,000 pace for the annum," McCullough said
McCullough reported that Just Energy does not expect a material negative impact to earnings from July's ERCOT volatility.
"We saw some volatility in day-ahead pricing. We saw a little bit of volatility on real-time, but the truth is there was a well-run ERCOT market during the first volatility that we've really seen in several years. We don't expect a material impact on our earnings this quarter or an impact on our guidance, that's why we reaffirmed the guidance," McCullough said
McCullough cited the company's strong hedging strategy as blunting any earnings impact. While there may be issues around the edges, "we don't see that as a material impact to us," McCullough said
"We are seeing interestingly though some books become available for sale. So we do think there were some collateral liquidity challenges for some smaller competitors," McCullough said
McCullough said that reinsurance and weather structures that the company had in place in ERCOT in July helped the company avoid $10 to $20 million of potential profit hurt.