Retail Supplier Notes Compressed Gross Profit Due To Commodity Costs, Potential Impact On Dividend, Credit Agreement Covenants -- EnergyChoiceMatters.com

Retail Supplier Notes Compressed Gross Profit Due To Commodity Costs, Potential Impact On Dividend, Credit Agreement Covenants

August 5, 2022

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Reporting by Paul Ring • ring@energychoicematters.com

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In a 10-Q for the second quarter of 2022, Via Renewables, Inc. (the Company) noted compressed gross profit due to an extreme elevation of commodity costs during 2022, and included a discussion of the potential impact of such compression on its dividend and covenants under its recently executed new $195.0 million senior secured borrowing base credit facility ("Credit Agreement" or "Senior Credit Facility")

Via reported that the Credit Agreement contains covenants that, among other things, require the maintenance of specified ratios or conditions including:

• "Minimum Fixed Charge Coverage Ratio. The Company must maintain a minimum fixed charge coverage ratio of not less than 1.10 to 1.00. The Minimum Fixed Charge Coverage Ratio is defined as the ratio of (a) Adjusted EBITDA to (b) the sum of, among other things, consolidated interest expense, letter of credit fees, non-utilization fees, earn-out payments, certain restricted payments, taxes, and payments made on or after July 31, 2020 related to the settlement of civil and regulatory matters if not included in the calculation of Adjusted EBITDA. Our Minimum Fixed Charge Coverage Ratio as of June 30, 2022 was 1.34 to 1.00."
• "Maximum Total Leverage Ratio. The Company must maintain a ratio of (x) the sum of all consolidated indebtedness (excluding eligible subordinated debt and letter of credit obligations), plus (y) gross amounts reserved for civil and regulatory liabilities identified filings with the Securities and Exchange Commission, to Adjusted EBITDA of no more than 2.50 to 1.00. Our Maximum Total Leverage Ratio as of June 30, 2022 was 1.81 to 1.00."
• "Maximum Senior Secured Leverage Ratio. The Company must maintain a Senior Secured Leverage Ratio of no more than 2.00 to 1.00. The Senior Secured Leverage Ratio is defined as the ratio of (a) all consolidated indebtedness that is secured by a lien on any property of any loan party (including the effective amount of all loans then outstanding under the Senior Credit Facility but excluding eligible subordinated debt and letter of credit obligations) to (b) Adjusted EBITDA for the most recent twelve month period then ended. Our Maximum Senior Secured Leverage Ratio as of June 30, 2022 was 1.64 to 1.00."

As of June 30, 2022, Via was in compliance with financial covenants under the Senior Credit Facility.

Via said in the 10-Q that, "The Company has experienced compressed gross profit due to an extreme elevation of commodity costs during 2022, impacting calculated Adjusted EBITDA, a primary component of the financial covenants described above. The Company is actively working to manage the expected impact of continued gross profit compression due to elevated commodity costs on financial covenant compliance. Maintaining compliance with our covenants under our Senior Credit Facility may impact our ability to pay dividends on our Class A common stock and Series A Preferred Stock."

As is customary, Via said in the 10-Q that, "Our future dividend policy is within the discretion of our Board of Directors, and will depend upon our operations, our financial condition, capital requirements and investment opportunities, the performance of our business, cash flows, RCE counts and the margins we receive, as well as restrictions under our Senior Credit Facility. The Board of Directors may be required to reduce or eliminate quarterly cash distributions, including the quarterly dividends to the holders of the Class A common stock and/or Series A Preferred Stock. Even if we are permitted to pay such dividends on the Class A common stock and Series A Preferred Stock, our Board of Directors may elect to reduce or eliminate the dividends on the Class A common stock and Series A Preferred Stock to maintain cash balances for operations or for other reasons. Similarly, even if our business generates cash in excess of our current annual dividend, we may reinvest such excess cash flows in our business and not increase the dividends payable to holders of our Class A common stock."

On July 20, 2022, Via declared a quarterly dividend of $0.18125 per share to holders of record of Class A common stock on September 1, 2022, which will be paid on September 15, 2022. On July 20, 2022, Via also declared a quarterly cash dividend in the amount of $0.568125 per share to holders of record of the Series A Preferred Stock on October 3, 2022. The dividend will be paid on October 17, 2022.

Other notes from the 10-Q include Via's disclosure that, during the six months ended June 30, 2022, the Company changed the estimated average life for "Customer Relationships - Other", disclosed under intangible assets, from three years to eighteen months, resulting in approximately $0.9 million of additional amortization recorded in the six months ended June 30, 2022.

Via also provided an update on the purchase price of previously reported RCE acquisitions

"In May 2021, we entered into a series of asset purchase agreements and agreed to acquire up to approximately 56,900 RCEs for a cash purchase price of up to a maximum of $11.5 million. These customers began transferring in August 2021, and are located in our existing markets. As of June 30, 2022, a total of $6.8 million was paid for approximately 45,000 RCEs ($9.2 million for acquired customer contracts, net of $2.3 million related holdbacks under the terms of the purchase agreement). In addition, approximately $2.3 million was released back to us for a reduction in RCEs to be acquired," Via reported

"As part of the acquisitions, we funded an escrow account, the balance of which is reflected as restricted cash in our consolidated balance sheet. As we acquire customers, we make payments to the sellers from the escrow account. As of June 30, 2022, the balance in the escrow account was $2.3 million, and these funds are expected to be released to the sellers as acquired customers transfer from the sellers to the Company in accordance with the asset purchase agreement, and any unallocated balance will be returned to the Company once the acquisition is complete," Via reported

As previously reported, Via's total RCE count was 368,000 as of June 30, 2022, compared to 387,000 as of March 31, 2022, and 408,000 as of December 31, 2021

During the three months ended June 30, 2022, Via added approximately 16,000 RCEs primarily through its various organic sales channels. "We expect to acquire customers organically in future periods but it will be slower in the near term, however we expect this number to increase on a monthly basis," Via said

During the three months ended June 30, 2022, Via did not add any RCEs as a result of asset purchase agreements. "Our ability to realize returns from acquisitions that are acceptable to us is dependent on our ability to successfully identify, negotiate, finance and integrate acquisitions. We will continue to evaluate potential acquisitions during the remainder of 2022," Via said

Gross attrition during the three months ended June 30, 2022 was 35,000 RCEs

Via reported average monthly attrition of 3.1% during the quarter ended June 30, 2022, compared to 3.3% in the second quarter of 2021

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