Crius "Confident" in Opportunity to Deliver on M&A Strategy

Crius Energy is "extremely confident" that it will deliver on its strategy of growing through acquisitions of other retail energy companies and books, CEO Michael Fallquist said during an earnings call yesterday.

Crius is "extremely active" in looking at potential deals, Fallquist said.

Crius Energy was formed last year through the combination of the parent of Viridian Energy (and various affiliates) with Public Power, with a primary driver being the creation of a platform to support inorganic acquisitions. Since formation, however, Crius has only executed a small acquisition of the then-distressed PNE Energy Supply customer book.

Fallquist told investors that the, "market [is] ready for consolidation" and that there is a, "strong pipeline of M&A activity out there."

Potential targets could be as small as the PNE Energy transaction (less than 10,000 customers) up to 200,000 customers. However, Crius remains focused on executing deals with appropriate valuations, such as $/RCE and EBITDA multiples.

As of June 30, 2013, Crius Energy customer count was 596,000 RCEs, up 2.2% from March 31, 2013 and 20.2% year-over-year. Customer count was 583,000 RCEs as of March 31, 2013.

The growth of 13,000 RCEs since March 31, 2013 resulted from 90,000 gross customer additions.

At June 30, 2013, Crius had 534,000 electric RCEs and 61,000 gas RCEs.

Overall customer growth was dampened relative to prior quarters by higher-than-typical attrition driven primarily by the higher rates charged during the period at the Public Power brand. Public Power is marketed through traditional door-to-door and telemarketing channels, which Crius said makes customers acquired through this channel more rate-sensitive than the company's other marketing channels (network marketing and exclusive marketing partnerships).

The Viridian Energy brand added more than 35,000 customers and 3,800 independent contractors to its network marketing channel, which was in line with management expectations.

Crius Energy sold 1.1 million MWh of electricity and 0.7 million MMBtu of natural gas during the second quarter of 2013. Revenue was $113.9 million

Gross margin for the quarter was $27.6 million.

Monthly gross margins were 24.3% in April, 26.9% in May and 22.1% in June. The relatively lower June gross margin percentage was primarily due to hedging losses resulting from lower-than-forecasted electricity usage and lower wholesale prices in the month which negatively impacted the overall quarterly gross margin percentage.

Adjusted EBITDA for the quarter was $10.1 million, which was reduced by an estimated $0.9 million due to lower than normal electricity volumes, $0.9 million as a result of customer rate increases not implemented as part of the transition of billing systems in April 2013, and $1.9 million related to non-recurring expenses stemming from the investment in the integration of pre-IPO legacy IT platforms