Purchase Price For Retail Book Acquisition Disclosed
Will Divest Solar Business
August 10, 2018 Email This Story Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • email@example.com
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Crius Energy reported Adjusted EBITDA of $16.0 million for quarter ending June 30, 2018 (second quarter of 2018), an increase from $14.1 million achieved in the second quarter of 2017, with the increase driven by the contribution from the previously acquired USG&E business.
During the quarter ending June 30, 2018, Crius's deregulated energy business contributed $18.1 million in Adjusted EBITDA, $22.2 million after normalizing for $4.1 million in non-recurring costs as described below, which was offset by negative contribution from the solar business of $2.1 million.
The deregulated energy contribution for quarter ending June 30, 2018 was adversely impacted by $4.1 million in non-recurring general and administrative expenses, of which, $2.0 million were restructuring charges relating to workforce rationalizations implemented during the quarter and $2.1 million was primarily associated with the Board-initiated internal process to evaluate strategies to enhance Unitholder value and the proxy process for the annual and special meeting of Unitholders held in May 2018.
Crius' Residential Customer Equivalents (RCEs) stood at 1.387 million as of June 30, 2018, versus 1.389 million as of March 31, 2018, and 1.028 million a year ago.
The net decline of 2,000 RCEs from March 31, 2018 to June 30, 2018 compares to a net decline of 21,000 RCEs from December 31, 2017 to March 31, 2018 and a net decline of 36,000 RCEs from September 30, 2017 to December 31, 2017.
As of June 30, 2018, Crius was serving 1.212 million electric RCEs and 175,000 natural gas RCEs.
During the three months ended June 30, 2018, Crius' gross RCE additions were 177,000 customers, including 162,000 organically from sales and marketing channels and 15,000 through acquisition. Although Crius did not explicitly identify the source of the 15,000 RCEs added through acquisition, as previously reported Crius had during the second quarter entered into an agreement to acquire the "bulk" of Mint Energy, LLC's U.S. retail power contracts
Crius stated in its financial statements that, "In June 2018, the Company purchased the customer contracts and associated assets of approximately 15,000 electric residential customer equivalents in Connecticut, Maine, Maryland, Massachusetts, New Hampshire, Ohio, Pennsylvania and Rhode Island from a Massachusetts-based energy retailer. The Company acquired these customers because they increase its geographic footprint in selected states and the addition adds to the overall portfolio. The acquisition was funded by cash and availability under the Supplier Agreement with Macquarie Energy. This transaction was treated as an asset acquisition with the preliminary purchase price of approximately $600[,000] allocated to customer relationships."
Organic gross adds were broadly in line with the average in the prior four quarters of 164,000, and higher than the 140,000 organic gross adds from December 31, 2017 to March 31, 2018
Consistent with its previously reported strategy to focus on higher-margin residential and small commercial segments, Crius added 88,000 residential and small commercial customers during the three months ended June 30, 2018, representing 69% of the total customers added, excluding acquisitions and any prior quarter lagged enrollments, which the company said is meaningfully higher than the proportion of residential and small commercial customer adds in 2017. The average upfront cost-to-acquire for residential and small commercial customers added during the quarter ended June 30, 2018 was $128 per customer, representing a payback period of less than 12 months, Crius said.
Gross customer drops in the second quarter of 179,000 customers were higher than the average in the prior four quarters of 158,000. The increased number of customer drops reflects the expanded size of the portfolio as a result of the prior acquisition of USG&E, as well as the ongoing implementation of portfolio optimization initiatives.
As noted in our related story today, consistent with its previously reported strategy to focus on higher-margin customer growth, Crius Energy disclosed in its second quarter MD&A that it has, "decided not to pursue future municipal aggregations and we will be evaluating our options related to our portfolio of approximately 300,000 customers acquired through this channel."
Gross margin for the second quarter of 2018 was $54.1 million, up from $37.2 million of gross margin in the second quarter of 2017, primarily driven by the incremental gross margin from the USG&E business.
Electricity gross margin for the three month period ended June 30, 2018 was $40.3 million, representing an increase of 30.5% from $30.9 million for the three month period ended June 30, 2017. For the three month period ended June 30, 2018, electricity gross margin per unit was $17.00/MWh and electricity gross margin was 16.7% of electricity revenues, representing decreases from $17.63/MWh and 18.3% respectively, for the three month period ended June 30, 2017. Gross margins in the current quarter were lower than the prior year comparable period, resulting from the increased mix of commercial and municipal aggregation customers in the portfolio including a large municipal aggregation of approximately 134,000 customers in Massachusetts that commenced service in the prior quarter, partially offset by the addition of the higher-margin USG&E portfolio. Additionally, gross margins benefited in the current quarter by $3.4 million (or $1.43/MWh) resulting from the deferral of wholesale electric capacity costs following the implementation of the new IFRS-15 accounting standard, which largely reverses the adverse impact in the first quarter of 2018. This new accounting standard impacts the timing of when certain fulfillment costs, including wholesale electric capacity costs, are expensed, and results in increased capacity costs in higher-usage periods (winter and summer) and decreased capacity costs in lower-usage periods.
Natural gas gross margin for the three month period ended June 30, 2018 was $10.5 million, representing a 923.6% increase from $1.0 million for the three month period ended June 30, 2017. For the three month period ended June 30, 2018, natural gas gross margin per unit was $3.17/MMBtu, and natural gas gross margin accounted for 48.1% of natural gas revenues, representing an increase from $1.40/MMBtu and 23.4%, respectively, for the three month period ended June 30, 2017. The increase in gross margin and gross margin 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 revenue of $269.1 million in the second quarter of 2018, representing a 49.3% increase from $180.2 million in the second quarter of 2017.
Net income was $5.3 million in the second quarter of 2018, compared to a net loss of $14.6 million in the second quarter of 2017, with the year-over-year increase primarily impacted by the increase in Adjusted EBITDA and legal reserve in the prior comparable period, as well as the change in the fair-value of derivative instruments, relating to the mark-to-market on hedge positions.
Crius provided an update on its announcement in May that it was targeting incremental cost reductions to bring total annual G&A cost savings to $20-25 million, including previously announced USG&E synergies. Based on restructuring activities implemented to date, "Management have achieved run-rate cost-reductions of approximately $20 million annually and expect to achieve the $2 million balance in annual cost-reductions during the remainder of 2018."
"Management have plans to implement additional synergies in the near term and fully expects to exceed the top end of the range," Crius said
Crius said that after conducting a previously reported strategic review, it will divest its solar business, with such divestment process expected to be complete by the end of the third quarter.