Summer Energy Reports Lower Q1 Gross Margin On Milder Weather, Balancing Costs

May 20, 2020

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Summer Energy Holdings, Inc. reported results for the quarter ending March 31, 2020

For the three months ended March 31, 2020, gross profit totaled $5.6 million, versus $5.8 million a year ago

"During the first quarter of 2020, we experienced a milder than anticipated winter season (particularly in January 2020) across many of our markets, which impacted overall customer usage and led to higher than anticipated balancing costs for energy. Delivered volumes were higher during the first quarter ended March 2020 compared to March 2019, however, the overall revenue rate declined. The reduction in the revenue rate coupled with the increased costs of goods sold resulted in a decline in the gross margin," the company said in a 10-Q

"Despite the decline in gross margin, earnings for the first quarter ended March 31, 2020 were consistent with the Company’s expectation and pace for 2020 earnings targets," the company said

Summer Energy Holdings, Inc. reported a net loss of $1.0 million for the three months ended March 31, 2020, versus net income of $112,000 a year ago. Apart from the lower gross margin, drivers for the net loss included higher operating expenses and higher interest expense versus the year-ago period

Revenue for the quarter ended March 31, 2020, was $38.9 million, primarily from commercial customers, and from various long and short-term residential customers. For the year-ago quarter, revenues had been $34.8 million

"Total revenues for the quarter ended March 31, 2020 compared to March 31, 2019 increased by approximately 11.60%. In the ERCOT Pre-Paid Market, the revenue increased by 19.20% due to customer growth. The Northeast market had a 42.46% decrease in revenue related to the continuing decrease in the customer base in 2020 compared to 2019. The Company began flowing electricity in the PJM market in July 2019 and the anticipated customer base as this market grows will consist of residential and commercial customers," Summer Energy said

Summer Energy reported that, for the quarter ended March 31, 2020 compared to 2019, the company’s overall delivered volumes of electricity increased by 15.99% attributed primarily to the increase in the ERCOT market, the ERCOT pre-paid market and the start-up of operations in the PJM market.

Concerning COVID-19, the company said in a 10-Q that, "Our financial results for the first quarter of 2020 were not materially impacted by COVID-19, primarily since many of the initial economic effects of the early stages of the COVID-19 pandemic resulting from the various shelter-in-place and other social distancing orders occurred towards the end of our first quarter."

"The Company is closely monitoring bad debt as a result of the COVID-19 pandemic, for the first quarter of 2020, the Company had no material impact to its business, financial condition or results of operations," Summer Energy said

Concerning the company's growth strategy, Summer Energy said, "In 2020, the Company’s growth strategy is to continue to focus on the expansion of the PJM market within the states of Ohio, Illinois and Pennsylvania as well as 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."

"The current COVID-19 pandemic has caused regulatory agencies and other governmental authorities to take, and potentially continue to take, emergency or other actions in light of the pandemic that may impact our overall customer attrition, including prohibiting the termination of service for non-payment during the current COVID-19 pandemic. Those orders may cause our attrition to be lower than what it would be otherwise. We are unable to predict the ultimate impact of these actions on overall customer attrition at this time," the company said

"Management plans to continue to execute on its sales and marketing program to solicit individual commercial and residential customers and to realign key sales personnel to focus on rebuilding the customer base in the Northeast market. In addition, management also plans to continue to acquire portfolios of commercial and residential customers when offered at reasonable prices," the company said

Concerning liquidity and financing, Summer Energy said, "In March 2020, the Company secured additional financing for a revolving loan in the amount of $10,000,000 with a maturity date of March 2023. In addition, commitments for additional lending up to $2,000,000 may be provided by members of the Board of Directors of the Company, if necessary. On April 20, 2020, the Company received $2,342,300 in loan funding from the Small Business Administration ('SBA') Paycheck Protection Program ('PPP'), established pursuant to the recently enacted Coronavirus Aid, Relief and Economic Security Act (the 'CARES Act') operating as an essential business throughout the pandemic. Management has concluded that its existing capital resources and availability, proceeds from a 2020 offering and outside lending (including the PPP loan) will be sufficient to fund operations through the third quarter of 2021."

"At March 31, 2020 and December 31, 2019, our cash totaled $872,086 and $814,360, respectively. Our principal cash requirements for the quarter ended March 31, 2020 were for operating expenses and cost of goods sold (including power purchases, employee cost, and customer acquisition), collateral for TDSPs and capital expenditures. During the three months ended March 31, 2020, the primary source of cash was from electricity revenues, proceeds of a private placement offering in the amount of $45,000 and net loan proceeds of $4,080,000," the company said

Summer Energy reported that, effective April 1, 2020, Neil Leibman was appointed by the company’s Board of Directors to serve as President of the company, in addition to his current role of Chief Executive Officer.

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