Another Retail Supplier Details Risks From COVID-19 In SEC Filing

Supplier Expects Unit Gross Margin To Improve In 2020

March 30, 2020

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Summer Energy Holdings, Inc. filed a 10-K detailing its 2019 financial results, and included a disclosure of various risk factors, including the coronavirus (COVID-19) outbreak.

Concerning COVID-19, Summer Energy Holdings said, "Our business may be adversely affected by the recent coronavirus (COVID-19) outbreak."

"In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. In January 2020, this coronavirus spread to other countries, including the United States, and efforts to contain the spread of this coronavirus intensified. The outbreak and any preventative or protective actions that governments or we may take in respect of this coronavirus may result in a period of business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Moreover, the coronavirus outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations could be adversely affected to the extent that this coronavirus or any other epidemic harms the global economy generally," Summer Energy Holdings said

"In addition, we may take temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring all employees to work remotely, suspending all non-essential travel for our employees, and discouraging employee attendance at industry events and in-person work-related meetings, which could negatively affect our business," Summer Energy Holdings said

Summer Energy Holdings also listed economic impacts from COVID-19 as a risk factor

Summer Energy Holdings said, "The impact of any deterioration in the U.S. economy as a result of the coronavirus (COVID-19) outbreak may negatively affect our business."

"A deterioration in the U.S. economy or our industry as a result of the coronavirus outbreak could result in a period of substantial turmoil. The impact of this event on our business and the severity of an economic crisis is uncertain. It is likely that a crisis (such as the coronavirus outbreak) in the U.S. economy could adversely affect our business, vendors and prospects as well as our liquidity and financial condition. This could impact our ability to increase our customer base and customers could delay deploying our services which could impact our ability to generate positive cash flows. Our current service offerings and our future growth may be minimized to a point that would be detrimental to our business development activities. These events would be detrimental to our business prospects and result in material changes to our operations and financial position," Summer Energy Holdings said

"The Centers for Disease Control and Prevention has stated a risk exists of a pandemic in the United States, which would mean that the current methods in place to control of the [sic] spread of the virus have been ineffective. In such a situation, the effect on the economy and on the public may be severe. There are no comparable recent events which may provide guidance as to the effect of the spread of coronavirus and a potential pandemic, and, as a result, there is considerable uncertainty of its potential effect on our business and results of operations," Summer Energy Holdings said

Under a separate risk factor, "Uncertain economic conditions," Summer Energy Holdings further said, "Recent economic events have created uncertainty with respect to the condition of the economy in the United States. Certain economic factors and indicators have suggested that such events have had a substantial negative effect on the economies of the United States and the states in which we operate. Furthermore, several industries have experienced financial difficulties. Other equity markets have been similarly affected. It is impossible to determine at this time the long-term effects of these events and conditions on the economy. Any negative change in the general economic conditions could adversely affect the financial condition and our operating results."

Turning to financial results, Summer Energy Holdings said that for the year ended December 31, 2019 compared to 2018, the Company’s unit gross margin remained stable.

"In 2020, the Company anticipates unit gross margin to improve, and the Company is evaluating temperature contingent options to mitigate the impact of weather events on its earnings and manage its exposure. Such instruments will be implanted if a suitable solution is determined," Summer Energy Holdings said

For the year ended December 31, 2019, gross profit was $13.63 million, versus $13.58 million a year ago

"Although the 2019 summer months in the ERCOT market proved to be one of the hottest in recent years, the Company had positioned itself so that the weather did not significantly impact the earnings," Summer Energy Holdings said

Net loss for the years ended December 31, 2019 and 2018, totaled $(10,733,089) and $(7,753,870), respectively. The 2019 net loss compared to the 2018 net loss relates primarily to higher cost of goods sold, especially during the summer months of 2019 as well as the increase of operating expenses related to growth into new markets.

Summer Energy Holdings' revenue was $166 million for the year 2019, versus $152 million a year ago

For the year 2019, MWh and revenue by market were:

Electricity Supply - 2019
         Delivered Volume (MWh)    $ Revenue
ERCOT Market        1,749,285    $149,140,983
ERCOT Pre-Paid Market  50,802       5,993,295
Northeast Market       67,603       7,258,467
Midwest Market          1,102          55,960

Fees
Fees Revenue                        3,867,088

For the year ended December 31, 2019 compared to 2018, the Company’s overall delivered volumes of electricity increased by 8.12% attributed primarily to the increase in the ERCOT market and the ERCOT pre-paid market.

In 2020, the Company’s growth strategy is to continue to focus on the expansion of the PJM market within the states of Ohio and Illinois and to continue to expand within the ERCOT pre-paid market. "Management plans to continue to execute on its current sales and marketing program to solicit individual commercial and residential customers and to evaluate and acquire portfolios of commercial and residential customers where they make sense economically or strategically," Summer Energy Holdings said

During the year ended December 31, 2019, Summer Energy Holdings added nine full-time employees to its workforce, "and we anticipate these staffing additions will enable us to effectively expand our presence throughout the Texas market and in the Northeast United States ('U.S.') market," the company said

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