IDT Energy Focuses on Electric Customer Growth, Reports Increased Competition

IDT Energy continued to record customer growth during the three months ended June 30, 2012, though at a slower pace than the three months ended March 31, 2012, as the company focused on growing the more profitable electric customer book, rather than both its electric and gas customer base.

As of June 30, 2012, IDT Energy was serving 495,000 meters, up from 475,000 as of March 31, 2012 and 396,000 a year ago.

The growth of 20,000 meters since March 31, 2012 compares to growth of 37,000 meters from December 31, 2011 to March 31, 2012, and 8,000 meters from September 30, 2011 to December 31, 2011.

During an earnings call this morning, executives reported that during the second quarter, IDT Energy focused on acquiring electric customers, which are more profitable than gas customers.

Electric meters as of June 30, 2012 were 313,000, versus 289,000 as of March 31, 2012 and 224,000 a year ago.

The electric customer growth occurred primarily in Pennsylvania. As only reported by Matters, during the second quarter, IDT Energy began offering service at West Penn Power.

Natural gas meters as of June 30, 2012 were 182,000, versus 186,000 as of March 31, 2012 and 172,000 a year ago.

Despite the focus on electric meters in the second quarter, IDT Energy is continuing to expand its gas marketing, and plans to enter several additional natural gas territories in Pennsylvania and Maryland before the 2012-13 winter heating season. This follows entering several Maryland electric territories, and one gas territory, after the close of the second quarter (see related story today on market entry)

Average monthly customer churn was 6.6% in the three months ended June 30, 2012, versus 6.4% in the three months ended March 31, 2012, and 5.2% in the year-ago quarter. Increased churn was expected given the customer growth, as executives reported that churn is highest in the first 120 days after enrollment.

Executives also reported "intensified competition" in some markets, from "utility-sponsored REP subsidiaries that are willing to acquire meters with much looser payback criteria than we demand."

Total IDT Energy Residential Customer Equivalents were 292,000 as of June 30, 2012, versus 258,000 as of March 31, 2012, and 234,000 a year ago.

IDT Energy continues to combat churn with rebate programs keyed to new customer acquisition and retention. These programs, however, negatively impact gross margin in the near-term, with an eye toward building long-term margin.

Nevertheless, gross margin during the second quarter was 27.2%, up from 25.4% a year ago (though down from 31.4% for the three months ended March 31, 2012), as an increase in the gross margin for gas sales more than compensated for a decline in the gross margin of electric sales.

For electric sales, IDT Energy's significant increase in kWh sold more than compensated for a decline in margin per kWh sold. Average sales per kWh declined more rapidly than the underlying commodity cost reflecting the impact of discounts and promotional rates for new customers as well as intensifying competition in some utility territories.

Gross profit increased to $11.6 million for the three months ended June 30, 2012, compared to $9.8 million a year ago.

IDT Energy's income from operations for the quarter ending June 30, 2012 was $1.1 million, versus $1.9 million a year ago, on higher customer acquisition costs.

IDT Energy's SG&A expense during the second quarter was $10.6 million, up from $7.9 million a year ago but in-line with the $10.7 million in SG&A expense for the three months ended March 31, 2012.

IDT Energy's revenues during the three months ended June 30, 2012 were $42.8 million, versus $38.7 million a year ago.