Commerce Energy Group, Inc. (Amex:EGR), a leading U.S. electricity
and natural gas marketing company, today announced its financial
results for the fiscal 2008 third quarter and nine months ended
April 30, 2008. Third Quarter Results Net revenue increased to
$105.5 million for the third quarter of fiscal 2008 from $100.6
million for the same period last year. The revenue increase was
driven primarily by higher retail electricity sales to customers in
Texas and Pennsylvania. The company reported a net loss of $9.5
million, or $0.31 per share, versus net income of $1.5 million, or
$0.05 per share, for the fiscal 2007 third quarter. Fiscal 2007
results for the comparable period included a $5.1 million
settlement payment received from APX, Inc. relating to refunds due
to certain California energy buyers for purchases made in the spot
market in 2000-2001, offset by a $3.9 million payment made to
American Communications Network, Inc. (ACN) to settle an
arbitration proceeding and $550,000 of related legal expenses.
Gross profit decreased to $14.1 million for the third quarter of
fiscal 2008 from $17.6 million for the third quarter of fiscal
2007. Gross profit from electricity decreased slightly to $8.9
million from $9.0 million for the same quarter of fiscal 2007.
Gross profit from natural gas increased to $5.2 million for the
third quarter of fiscal 2008 from $3.5 million in the third quarter
of fiscal 2007, primarily due to the impact of higher margins in
California and Ohio. During the third quarter of fiscal 2008, the
company completed its annual review of intangibles and goodwill
according to FASB Statement 142, �Goodwill and Other Intangible
Assets.� As a result of that review, it was determined that certain
intangible assets and goodwill related to the company�s Skipping
Stone energy consulting business were impaired. Accordingly, the
company recognized a $1.4 million impairment charge comprised of a
long-lived asset impairment of $840,000 and a goodwill asset
impairment of $560,000. �Net revenues showed solid growth quarter
over quarter,� said Gregory L. Craig, who was named chairman and
chief executive officer of Commerce Energy in February 2008.
�Results were impacted by heavy bad debt expense, high operating
costs and the write down of intangible assets. �Turnarounds are a
challenging process. Our turnaround team is now in place, comprised
of a new COO, CFO, chief risk officer and myself,� Craig said. �As
a first step in our initiative to transform the company, we
recently announced a 31 percent workforce reduction, yielding
approximately $5 million in annualized expense savings and
positioning the company to continue its growth at a significantly
lower cost basis.� Selling and marketing expenses increased to $3.3
million for the third quarter of fiscal 2008 from $2.6 million in
the third quarter in fiscal 2007, reflecting higher third-party
sales expenses related to the company�s expanded customer
acquisition initiatives. General and administrative expenses were
increased to $18.7 million for the third quarter of fiscal 2008
compared with $9.8 million in the third quarter of fiscal 2007,
primarily reflecting increased bad debt expenses of $7.9 million,
$7.3 million higher than the third quarter of 2007. The remaining
difference of $1.6 million was attributable to increased personnel
costs relating to additional customer service and information
technology staff to support the company�s growing customer base,
severance for former officers, increased professional service fees
and higher depreciation and amortization expenses. Results for the
Nine Months Ended April 30, 2008 Net revenue increased $55.8
million to $319.5 million for the nine months ended April 30, 2008
from $263.7 million for the comparable period in fiscal 2007. This
increase was driven primarily by higher electricity sales in Texas.
The company reported a net loss of $11.8 million, or $0.39 per
share, versus net income of $4.5 million, or $0.15 per share, for
the comparable period last year. Results for the comparable period
in fiscal 2007 included a $5.1 million settlement payment received
from APX, Inc. relating to refunds due to certain California energy
buyers for purchases made in the spot market in 2000-2001 and a
$3.9 million payment made to American Communications Network, Inc.
(ACN) to settle an arbitration proceeding and $550,000 of related
legal expenses. Gross profit increased to $49.8 million for the
nine months ended April 30, 2008 from $42.2 million for the
comparable period in fiscal 2007. Gross profit from electricity
increased $9.6 million to $37.4 million for the nine months ended
April 30, 2008 from $27.8 million for the comparable period in
fiscal 2007, reflecting the impact of customer growth in Texas and
Maryland. Gross profit from natural gas increased $3.0 million to
$12.4 million for the nine months ended April 30, 2008 from $9.4
million for the comparable period in fiscal 2007, primarily due to
higher margins in California and Ohio. Selling and marketing
expenses increased to $11.4 million for the nine months ended April
30, 2008 from $7.3 million in the comparable period last year,
reflecting higher third-party sales expenses, increased personnel
and advertising expenses related to the company�s expanded customer
acquisition initiatives. General and administrative expenses
increased to $48.2 million for the nine months ended April 30, 2008
from $27.4 million for the comparable period in fiscal 2007
primarily reflecting increased bad debt expenses of $17.7 million,
$14.9 million higher than the comparable period in fiscal 2007. The
remaining difference of $5.9 million was attributable to increased
personnel costs related to additional customer service, information
technology staff and consultants to support the company�s growing
customer base, higher professional service fees resulting from the
company�s review of its strategic alternatives, increased
depreciation and amortization expenses and severance payments for
former officers. Liquidity At April 30, 2008, the company had
unrestricted cash and equivalents of $10.4 million, $40.0 million
of working capital and no long-term debt. The company believes that
it will require additional capital resources in fiscal 2009 to meet
its credit facility requirement to have $10 million in excess
availability at all times on and after November 1, 2008; to fund
possible expansion of the company�s business, either from internal
growth or acquisition; to add liquidity if energy prices increase
materially; and to respond to increased energy industry volatility
and/or uncertainty that create additional funding requirements.
Effective June 11, 2008, Wachovia Capital Finance Corporation
(Western), as agent and lender, and Wells Fargo Foothill, LLC, as
lender, entered into an amendment to our credit facility and
granted us a waiver on the EBITDA and fixed charge coverage
covenants and increased the interest rate on both borrowings and
letters of credit by 1.5%. The amendment, among other things,
defers the increase in the excess availability covenant from $2.5
million to $10 million until November 1, 2008 and requires weekly
measurements of liquidity. The company has also agreed with the
lenders to terminate the credit facility on or before November 1,
2008. The company has begun the process to enter into a new working
capital facility. Revised Fiscal 2008 Outlook Commerce Energy has
revised its fiscal 2008 outlook and now expects to report a net
loss per share in the range of $0.60 to $0.80 for the fiscal year
ending July 31, 2008. The revised outlook reflects increased bad
debt expense in the third quarter of fiscal 2008; anticipated
additional bad debt expense in the fourth quarter of fiscal 2008;
anticipated increased energy costs in the fourth quarter of fiscal
2008 adversely affecting gross profits; restructuring costs related
to the previously announced reduction in force in the fourth
quarter of fiscal 2008; and intangible impairment charges.
Conference Call and Webcast Commerce will host a conference call to
review the results of operations for the third quarter ended April
30, 2008 today at 5 p.m. ET (2 p.m. PT). The call will be available
to all interested parties through a live audio webcast at
www.CommerceEnergy.com and www.earnings.com. A replay of the
conference call will be archived and available at
www.CommerceEnergy.com for one year. A telephonic replay will be
available through June 18, 2008, and can be accessed by dialing
888-286-8010 (domestic) or 617-801-6888 (international) and using
the playback Passcode 68968222. About Commerce Energy Group, Inc.
Commerce Energy Group, Inc. (Commerce Energy) is a leading
independent U.S. electricity and natural gas marketing company. Its
principal operating subsidiary, Commerce Energy, Inc. is licensed
by the Federal Energy Regulatory Commission and by state regulatory
agencies as an unregulated retail marketer of natural gas and
electricity and serves homeowners, commercial and industrial
consumers and institutional customers. For more information, visit
www.CommerceEnergy.com. Forward-Looking Statements Except for
historical information contained in this release, statements in
this release, including those of Mr. Craig, may constitute
forward-looking statements regarding the company�s assumptions,
projections, expectations, targets, intentions or beliefs about
future events. Words or phrases such as �anticipates,� �believes,�
�estimates,� �expects,� �intends,� �plans,� �predicts,� �projects,�
�targets,� �will likely result,� �will continue,� �may,� �could� or
similar expressions identify forward-looking statements.
Forward-looking statements are not guarantees of future performance
and involve risks and uncertainties which could cause actual
results or outcomes to differ materially from those expressed.
Commerce Energy Group, Inc. cautions that while such statements in
this news release, whether express or implied, are made in good
faith and the company believes such statements are based on
reasonable assumptions, including without limitation, management�s
examination of historical operating trends, data contained in
records, and other data available from third parties, the company
cannot assure that its projections will be achieved. In addition to
other factors and matters discussed from time to time in our
filings with the U.S. Securities and Exchange Commission (SEC),
some important factors that could cause actual results or outcomes
for Commerce Energy Group, Inc. or its subsidiaries to differ
materially from those discussed in forward-looking statements
include: the success and effectiveness of the company�s new
management plans and strategies; higher than anticipated attrition
of company personnel, the volatility of the energy markets; higher
than expected attrition of, and/or unforeseen operating
difficulties relating to, customer accounts; operating hazards;
uninsured risks; failure of performance by suppliers and
transmitters; changes in general economic conditions, seasonal
weather or force majeure events that adversely affect electricity
or natural gas supply or infrastructure; decisions by our energy
suppliers requiring us to post additional collateral for our energy
purchases; uncertainties in the capital markets should the company
seek to raise additional equity or debt; uncertainties relating to
federal and state proceedings regarding the 2000-2001 California
energy crisis; accounts receivable collection issues caused by
unfavorable changes in regulations or economic trends; increased or
unexpected competition; adverse state or federal legislation or
regulation; or adverse determinations by regulators, including
failure to obtain regulatory approvals. Any forward-looking
statement speaks only as of the date on which such statement is
made, and, except as required by law, the company undertakes no
obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is
made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for
management to predict all such factors. COMMERCE ENERGY GROUP, INC.
� CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands,
except per share amounts) (Unaudited) � � Three Months Ended April
30, Nine Months Ended April 30, 2008 � 2007 2008 � 2007 Revenue $
105,495 $ 95,518 $ 319,485 $ 258,670 APX settlement � � � 5,057 � �
� 5,057 Net revenue 105,495 100,575 319,485 263,727 Direct energy
costs � 91,362 � 82,946 � 269,698 � 221,509 Gross profit 14,133
17,629 49,787 42,218 Selling and marketing expenses 3,254 2,568
11,446 7,317 General and administrative expenses 18,744 9,803
48,177 27,382 Impairment of intangibles � 1,426 � � 1,426 � Income
(loss) from operations (9,291 ) 5,258 (11,262 ) 7,519 Other income
(expense): Interest income 28 191 345 873 Interest expense (230 )
(6 ) (912 ) (27 ) ACN arbitration settlement � � � (3,900 ) � � �
(3,900 ) Total other income and expenses � (202 ) � (3,715 ) (567 )
(3,054 ) Net income (loss) $ (9,493 ) $ 1,543 $ (11,829 ) $ 4,465
Income (loss) per common share: Basic and diluted $ (0.31 ) $ 0.05
$ (0.39 ) $ 0.15 Weighted-average shares outstanding: Basic 30,758
29,938 30,537 29,763 Diluted 30,758 30,192 30,537 29,882 Volume and
Customer Count Data � � � Three Months Ended April 30, Nine Months
Ended April 30, 2008 � � 2007 2008 � � 2007 Electric � Megawatt
hour (MWh) � 510,000 � 485,000 � 1,825,000 � 1,391,000 Natural Gas
� Dekatherms (DTH) 4,007,000 4,612,000 11,507,000 11,597,000
Customer Count 165,000 185,000 165,000 185,000 Condensed
Consolidated Balance Sheets (In Thousands) � � � April 30, 2008
July 31, 2007 (Unaudited) ASSETS Current assets: Cash and
equivalents $ 10,370 $ 6,559 Accounts receivable, net 56,350 65,231
Natural gas inventory 2,561 5,905 Prepaid expenses and other �
10,391 � 7,224 Total current assets 79,672 84,919 Restricted cash
and equivalents � 10,457 Deposits and other 1,795 1,906 Property
and equipment, net 10,755 8,662 Goodwill and other intangible
assets, net � 7,962 � 10,632 Total assets $ 100,184 $ 116,576
LIABILITIES AND STOCKHOLDERS� EQUITY Current liabilities: Energy
and accounts payable $ 32,880 $ 37,926 Accrued liabilities � 6,815
� 8,130 Total current liabilities 39,695 46,056 Total stockholders�
equity � 60,489 � 70,520 Total liabilities and stockholders� equity
$ 100,184 $ 116,576
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