IDT Energy Sees Higher Net Customer Attrition on Slower Gross Acquisitions

IDT Energy saw an increased level of net customer attrition during the three months ended September 30, 2013, from a slowdown in gross meter additions.

Specifically, as of September 30, 2013, IDT Energy was serving 456,000 meters, versus 475,000 as of June 30, 2013, and 523,000 a year ago. The net customer attrition of 19,000 customers since June 30, 2013 was up from net customer attrition of 10,000 customers from March 31, 2013 to June 30, 2013.

Meters by customer type was as follows as of each date noted:

              9/30/13      6/30/13      9/30/12
Electric      300,000      314,000      343,000
Gas           156,000      161,000      180,000

IDT Energy Residential Customer Equivalents were 337,000 as of September 30, 2013, versus 357,000 as of June 30, 2013, and 322,000 a year ago.

Management anticipates that both RCEs and net meters will continue to decrease in 4Q13, as gross meter acquisitions in the fourth quarter typically slow because of seasonal factors, and IDT Energy has not entered any new, impactful territories in 2013 to drive meter growth.

Gross meter acquisitions were 64,000 in 3Q13 compared to 71,000 in 2Q13 and 118,000 in 3Q12. The year over year and sequential declines in gross meter acquisitions primarily reflect the lack of geographic expansion into new territories in recent quarters.

During 3Q13, IDT Energy did not enter any additional territories. As previously reported, the company has license applications pending to enter into additional territories, primarily gas and dual meter territories, in Pennsylvania, Maryland and the District of Columbia. Management said that it continues to evaluate additional, deregulation-driven opportunities in other states, including Massachusetts and Connecticut.

New customer acquisitions in the Commonwealth Edison territory in Illinois, which IDT Energy entered during 2Q13 as previously reported, were not impactful. IDT Energy continues to test and evaluate this market.

Average monthly churn was 6.3% in 3Q13, unchanged from the prior quarter and a decrease from the 6.6% rate in 3Q12. The year over year decrease primarily reflects the lower rates of gross meter additions in recent quarters as newly acquired customers have higher churn rates than longer term customers, as well as increased competition in some territories, and the termination in 2Q13 of a sales program that generated customers with above average churn rates.

IDT Energy gross profit in 3Q13 decreased 7.0% to $19.9 million, from $21.4 million a year ago, driven primarily by a decline in gross profit on sales of electricity

Electricity margin per kWh sold decreased 590 basis points year over year primarily reflecting a continued increase in the direct cost of electricity, which increased 23.5% compared to the year ago quarter, and 26.5% sequentially. The lower margin reflects the continued migration of the customer base to Pennsylvania and Maryland, where IDT Energy generally targets modestly lower margins to facilitate customer acquisition and retention efforts. Overall, management believes that the margins achieved in the year ago quarter were unusually high, and that the 3Q13 result represents a gross margin level more likely to approximate the normalized third quarter run rate given the current customer distribution, commodity prices, and typical seasonal weather

IDT Energy EBITDA and income from operations increased to $9.6 million in 3Q13 from $8.7 million in the year ago quarter. The increase was driven by a reduction in SG&A expense, and in particular new customer acquisition costs, which more than offset the reduction in gross profit.