Commerce Energy Reports Financial Results for Fiscal 2008 Fourth Quarter and Full-Year

  
    
  
  
    
      Commerce Energy Group, Inc. (Amex: EGR), a leading U.S. electricity and 
      natural gas marketing company, today announced financial results for 
      fiscal 2008 and fourth quarter ended July 31, 2008.
    
    
      Fiscal 2008 Full-Year Results
    
    
      For the full year, the company reported a net loss of $31.8 million, or 
      $1.04 per share, which includes $23.0 million in bad debt expenses 
      primarily in the Texas market, a goodwill impairment charge of $5.1 
      million and a write off of unproductive software of $3.3 million. The 
      total non-recurring charges for the impairment and the software write 
      off amounted to $8.4 million or $0.27 per diluted share. For fiscal 
      2007, net income was $5.5 million, or $0.18 per diluted share, which 
      included $0.06 per diluted share related to the net effect of $6.5 
      million in settlement payments received from APX, Inc. and a $3.9 
      million payment made to ACN to settle arbitration, plus $721,000 of 
      related legal expenses.
    
    
      Net revenues for fiscal 2008 rose 24% to $459.8 million from $371.6 
      million for fiscal 2007. The increase in net revenues was driven 
      primarily by a 36% increase in electricity sales and a 7% increase in 
      natural gas sales. Higher electricity sales reflect the impact of retail 
      sales price increases and a 79% increase in sales volumes in Texas due 
      to customer growth, partly offset by lower retail sales in the 
      Pennsylvania/New Jersey and Michigan markets resulting from customer 
      attrition.
    
    
      “The operating challenges Commerce Energy 
      faced in fiscal 2008 and continues to experience in its turnaround 
      program led by the new management team are being exacerbated by the 
      unprecedented global credit and financial crisis,” 
      said Chief Executive Officer Gregory L. Craig. “While 
      revenues for the year and fourth quarter increased because of rising 
      energy prices, the company’s gross margin 
      declined sharply. We were pleased last month to have completed the sale 
      of our electric service contracts in Texas, which bolstered Commerce 
      Energy operationally, financially and strategically and allowed us to 
      pay down a portion of our debt. Nevertheless, the company faces serious 
      financial constraints, an extremely unfavorable credit and lending 
      environment, and is actively engaged in negotiations for additional 
      asset sales.”
    
    
      Gross profit for fiscal 2008 decreased to $56.7 million from $57.2 
      million for fiscal 2007, which included the APX Settlement of $6.5 
      million. Gross profit from electricity rose slightly to $47.2 million 
      from $46.6 million for fiscal 2007, reflecting the impact of higher 
      retail prices and usage of electricity as compared with the prior year. 
      Gross profit for natural gas totaled $9.5 million for fiscal 2008 
      compared with $10.6 million for fiscal 2007, reflecting the impact of 
      higher retail prices, which more than offset the impact of decreased 
      usage resulting from customer attrition.
    
    
      Selling and marketing expenses increased to $14.1 million from $10.6 
      million last year, reflecting higher telemarketing costs related to the 
      company’s increased customer acquisition 
      initiatives in the early part of fiscal 2008 and increased customer 
      service calls. General and administrative expenses rose to $64.5 million 
      from $37.3 million in fiscal 2007 because of increased bad debt, 
      restructuring and severance costs, stock-based compensation expense for 
      largely unexercised options and restricted stock and amortization and 
      depreciation costs.
    
    
      Fiscal 2008 Fourth Quarter Results
    
    
      For the fourth quarter of fiscal 2008, the company sustained a net loss 
      of $20.0 million, or $0.65 per share, which included $7.0 million, or 
      $0.23 per share, of impairment of long-lived assets and goodwill and 
      $5.2 million, or $0.17 per share, of bad debt expense. This compares 
      with net income of $1.1 million, or $0.03 per diluted share, in the 
      fourth quarter of fiscal 2007.
    
    
      Net revenues for the 2008 fourth fiscal quarter increased to $140.3 
      million from $107.9 million for the same period in fiscal 2007, 
      primarily due to higher retail electricity and natural gas sales prices. 
      The higher sales prices were partially offset by a 20% decrease in 
      natural gas sales volumes in the fourth quarter of fiscal 2008 compared 
      with the fourth quarter of fiscal 2007. The decrease in natural gas 
      sales volumes is primarily attributable to the company’s 
      HESCO commercial and industrial customer book of business. Electricity 
      sales volumes remained relatively flat in the fourth quarter of fiscal 
      2008 compared with the fourth quarter of fiscal 2007.
    
    
      Gross profit decreased to $6.9 million from $15.0 million for the fourth 
      quarter of fiscal 2007. Gross profit from electricity decreased to $9.8 
      million, compared with $13.8 million for the same quarter of fiscal 
      2007, primarily due to lower gross margins in the Texas market, which 
      were only partially offset by higher gross margins in Maryland and 
      Pennsylvania. Additionally, the fourth quarter of fiscal 2007 included 
      profit of $1.5 million from the APX settlement. Gross profit from 
      natural gas was a loss of $2.9 million in 2008, compared with a profit 
      of $1.2 million in the fourth quarter of fiscal 2007. The loss in the 
      fourth quarter of fiscal 2008 included a $1.2 million lower of cost or 
      market adjustment to the book value of the natural gas inventory held by 
      the company as of July 31, 2008 due to a sharp decline in natural gas 
      prices. Lower gross margins in Ohio and in the HESCO commercial and 
      industrial customer book of business also contributed to the loss in the 
      fiscal 2008 fourth quarter and full year.
    
    
      Selling and marketing expenses for the fiscal 2008 fourth quarter 
      decreased to $2.6 million from $3.3 million in the comparable quarter 
      last year, reflecting lower advertising and payroll expenses related to 
      the company’s reduction in workforce in the 
      fourth quarter. General and administrative expenses rose to $16.4 
      million from $10.3 million in the prior year fourth quarter principally 
      because of higher bad debt expense and increased restructuring costs, 
      sales tax provisions and stock-based compensation expense for largely 
      unexercised options and restricted stock.
    
    
      Liquidity
    
    
      The financial statements for fiscal 2008 have been prepared assuming 
      that the company will continue as a going concern and contemplates the 
      recovery of the company’s assets and 
      satisfaction of its liabilities in the normal course of operations. 
      However, Commerce Energy has reported substantial losses in fiscal 2008 
      due primarily to bad debt expense totaling $23.0 million. In addition, 
      its credit facility at Wachovia, its secured 12% promissory notes and 
      its discretionary line of credit demand note, both with AP Finance, LLC, 
      each mature on December 22, 2008. Wachovia has notified the company that 
      it does not intend to extend the credit facility beyond December 22, 
      2008, although Commerce Energy anticipates it will continue to require a 
      credit facility of $20 to $25 million over the winter season for letters 
      of credit to energy suppliers, assuming current pricing. Should 
      commodity prices increase, our credit requirements could grow 
      significantly. Although the search for a replacement credit facility and 
      financing to repay the company’s secured 12% 
      promissory notes and discretionary line of credit demand note continues, 
      as of November 12, 2008, the company does not have a firm commitment for 
      a replacement credit facility or such financing. The unprecedented 
      global credit crisis adds to the uncertainty of finding a replacement 
      credit facility for letters of credit and for Commerce Energy’s 
      other financing requirements. Accordingly, these factors raise 
      substantial doubt about Commerce Energy’s 
      ability to continue as a going concern.
    
    
      As announced earlier today, Commerce Energy signed a letter agreement 
      with Universal Energy Group Ltd. (TSX:UEG) (UEG) related to a potential 
      sale of certain Commerce Energy assets to UEG and an equity investment 
      by UEG in Commerce Energy. Pursuant to the letter agreement, Commerce 
      Energy has agreed to a period of exclusive negotiations with UEG, 
      extending through November 26, 2008, in order to conduct due diligence 
      and reach a definitive agreement. The letter agreement provides that, 
      within 10 days of signing a definitive agreement relating to the 
      proposed transaction, UEG would replace or arrange for the replacement 
      of Commerce Energy’s credit facility with 
      Wachovia Capital Finance (Western). For more information regarding the 
      letter agreement please see the Commerce Energy Press Release dated 
      November 12, 2008 and the Current Report on Form 8-K related thereto 
      filed by Commerce Energy with the Securities and Exchange Commission 
      (SEC) on November 12, 2008. The company said there can be no assurances 
      that any definitive agreement will be approved or consummated between 
      the parties.
    
    
      If the proposed transaction with UEG is consummated and UEG provides 
      credit support for Commerce Energy’s 
      remaining operations in other markets in which it currently operates, 
      Commerce Energy expects to sell its natural gas inventory and reduce its 
      cash deposits with energy suppliers. Following a closing of the proposed 
      transaction with UEG, Commerce Energy would also reduce staff and 
      administrative overhead to a level appropriate for its remaining 
      operations. Commerce Energy said it believes that the proposed 
      transaction, together with the planned sale of natural gas inventory and 
      reductions in cash deposits with energy suppliers, would provide 
      sufficient capital to satisfy the cash requirements of its remaining 
      operations in other markets in which it currently operates for at least 
      the 12 months following the closing of the proposed transaction.
    
    
      Conference Call and Webcast
    
    
      Commerce Energy will host a conference call to review the results of 
      operations for the fourth quarter and fiscal year ended July 31, 2008 on 
      November 13, 2008 at 4:30 p.m. ET (1:30 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 November 18, 
      2008, and can be accessed by dialing 888-286-8010 (domestic) or 
      617-801-6888 (international) and using the playback Passcode 73060112.
    
    
      About Commerce Energy Group, Inc.
    
    
      Commerce Energy Group, Inc. 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 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 company’s 
      success in finding credit to replace its outstanding debt which matures 
      on December 22, 2008; the financial crisis affecting the banking system 
      and the financial markets and the going concern threats to many of 
      Commerce Energy’s financial institutions, 
      all of which may effect the company’s 
      ability to secure credit to operate its business; the success and 
      effectiveness of the company’s 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 July 31,
        
        
        
        
          Year Ended July 31,
        
      
      
        
        
        
        
        
          2008
        
        
           
        
        
          2007
        
        
        
        
          2008
        
        
           
        
        
          2007
        
      
      
        
        
        
        
        
           
        
      
      
        
          Revenue
        
        
        
        
          $
        
        
          140,317
        
        
        
        
        
        
          $
        
        
          106,420
        
        
        
        
        
        
          $
        
        
          459,801
        
        
        
        
        
        
          $
        
        
          365,089
        
        
        
      
      
        
          APX settlement
        
        
        
        
           
        
        
          —
        
        
           
        
        
        
        
           
        
        
          1,468
        
        
           
        
        
        
        
           
        
        
          —
        
        
           
        
        
        
        
           
        
        
          6,525
        
        
           
        
      
      
        
          Net revenue
        
        
        
        
        
        
          140,317
        
        
        
        
        
        
        
        
          107,888
        
        
        
        
        
        
        
        
          459,801
        
        
        
        
        
        
        
        
          371,614
        
        
        
      
      
        
          Direct energy costs
        
        
        
        
           
        
        
          133,408
        
        
           
        
        
        
        
           
        
        
          92,862
        
        
           
        
        
        
        
           
        
        
          403,105
        
        
           
        
        
        
        
           
        
        
          314,371
        
        
           
        
      
      
        
          Gross profit
        
        
        
        
        
        
          6,909
        
        
        
        
        
        
        
        
          15,026
        
        
        
        
        
        
        
        
          56,696
        
        
        
        
        
        
        
        
          57,243
        
        
        
      
      
        
          Selling and marketing expenses
        
        
        
        
        
        
          2,614
        
        
        
        
        
        
        
        
          3,325
        
        
        
        
        
        
        
        
          14,066
        
        
        
        
        
        
        
        
          10,642
        
        
        
      
      
        
          General and administrative expenses
        
        
        
        
           
        
        
          16,367
        
        
           
        
        
        
        
           
        
        
          10,274
        
        
           
        
        
        
        
           
        
        
          64,538
        
        
           
        
        
        
        
           
        
        
          37,291
        
        
           
        
      
      
        
          Income (loss) from operations
        
        
        
        
        
        
          (12,072
        
        
          )
        
        
        
        
        
        
          1,427
        
        
        
        
        
        
        
        
          (21,908
        
        
          )
        
        
        
        
        
        
          9,310
        
        
        
      
      
        
          Other income and expenses:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Provision for impairment on intangibles
        
        
        
        
        
        
          (7,001
        
        
          )
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          (8,426
        
        
          )
        
        
        
        
        
        
          —
        
        
        
      
      
        
          ACN arbitration settlement
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          (3,900
        
        
          )
        
      
      
        
          Interest income
        
        
        
        
        
        
          163
        
        
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          507
        
        
        
        
        
        
        
        
          1,296
        
        
        
      
      
        
          Interest expense
        
        
        
        
           
        
        
          (1,056
        
        
          )
        
        
        
        
           
        
        
          (240
        
        
          )
        
        
        
        
           
        
        
          (1,968
        
        
          )
        
        
        
        
           
        
        
          (1,053
        
        
          )
        
      
      
        
          Total other income and expenses
        
        
        
        
           
        
        
          (7,894
        
        
          )
        
        
        
        
           
        
        
          (240
        
        
          )
        
        
        
        
           
        
        
          (9,887
        
        
          )
        
        
        
        
           
        
        
          (3,657
        
        
          )
        
      
      
        
          Income (loss) before provision for income taxes
        
        
        
        
        
        
          (19,966
        
        
          )
        
        
        
        
        
        
          1,187
        
        
        
        
        
        
        
        
          (31,795
        
        
          )
        
        
        
        
        
        
          5,653
        
        
        
      
      
        
          Provision for income taxes
        
        
        
        
           
        
        
          —
        
        
           
        
        
        
        
           
        
        
          122
        
        
           
        
        
        
        
           
        
        
          —
        
        
           
        
        
        
        
           
        
        
          122
        
        
           
        
      
      
        
          Net income (loss)
        
        
        
        
          $
        
        
          (19,966
        
        
          )
        
        
        
        
          $
        
        
          1,065
        
        
           
        
        
        
        
          $
        
        
          (31,795
        
        
          )
        
        
        
        
          $
        
        
          5,531
        
        
           
        
      
      
        
          Income (loss) per common share:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic
        
        
        
        
          $
        
        
          (0.65
        
        
          )
        
        
        
        
          $
        
        
          0.04
        
        
           
        
        
        
        
          $
        
        
          (1.04
        
        
          )
        
        
        
        
          $
        
        
          0.18
        
        
           
        
      
      
        
          Diluted
        
        
        
        
          $
        
        
          (0.65
        
        
          )
        
        
        
        
          $
        
        
          0.03
        
        
           
        
        
        
        
          $
        
        
          (1.04
        
        
          )
        
        
        
        
          $
        
        
          0.18
        
        
           
        
      
      
        
          Weighted-average shares outstanding:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic
        
        
        
        
           
        
        
          30,941
        
        
           
        
        
        
        
           
        
        
          30,384
        
        
           
        
        
        
        
           
        
        
          30,636
        
        
           
        
        
        
        
           
        
        
          29,906
        
        
           
        
      
      
        
          Diluted
        
        
        
        
           
        
        
          30,941
        
        
           
        
        
        
        
           
        
        
          30,600
        
        
           
        
        
        
        
           
        
        
          30,636
        
        
           
        
        
        
        
           
        
        
          30,044
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Volume and Customer Count Data
          
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
             
          
        
        
        
        
          Three Months Ended July 31,
        
        
        
        
          Year Ended July 31,
        
      
      
        
        
        
        
        
          2008
        
        
        
        
          2007
        
        
        
        
          2008
        
        
        
        
          2007
        
      
      
        
          Electric – Megawatt hour (MWh)
        
        
        
        
        
        
          658,000
        
        
        
        
        
        
        
        
          666,000
        
        
        
        
        
        
        
        
          2,483,000
        
        
        
        
        
        
        
        
          2,057,000
        
        
        
      
      
        
          Natural Gas – Dekatherms (DTH)
        
        
        
        
        
        
          2,573,000
        
        
        
        
        
        
        
        
          3,218,000
        
        
        
        
        
        
        
        
          13,469,000
        
        
        
        
        
        
        
        
          14,815,000
        
        
        
      
      
        
          Customer Count
        
        
        
        
        
        
          156,000
        
        
        
        
        
        
        
        
          196,000
        
        
        
        
        
        
        
        
          156,000
        
        
        
        
        
        
        
        
          196,000
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    
      
        
          
            Condensed Consolidated Balance Sheets
          
          
            (In Thousands)
          
          
            (Unaudited)
          
        
      
      
        
        
        
           
        
        
        
        
           
        
        
           
        
        
        
      
      
        
        
        
        
        
          
            July 31, 2008
          
        
        
        
        
        
        
          
            July 31, 2007
          
        
      
      
        
          
            ASSETS
          
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Cash and cash equivalents
        
        
        
        
          $
        
        
          5,042
        
        
        
        
        
        
          $
        
        
          6,559
        
      
      
        
          Accounts receivable, net
        
        
        
        
        
        
          82,416
        
        
        
        
        
        
        
        
          65,231
        
      
      
        
          Natural gas inventory
        
        
        
        
        
        
          7,717
        
        
        
        
        
        
        
        
          5,905
        
      
      
        
          Prepaid expenses and other current
        
        
        
        
           
        
        
          13,269
        
        
        
        
        
        
           
        
        
          7,224
        
      
      
        
          Total current assets
        
        
        
        
        
        
          108,444
        
        
        
        
        
        
        
        
          84,919
        
      
      
        
          Restricted cash and cash equivalents
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          10,457
        
      
      
        
          Deposits and other assets
        
        
        
        
        
        
          1,600
        
        
        
        
        
        
        
        
          1,906
        
      
      
        
          Property and equipment, net
        
        
        
        
        
        
          8,009
        
        
        
        
        
        
        
        
          8,662
        
      
      
        
          Goodwill
        
        
        
        
        
        
          —
        
        
        
        
        
        
        
        
          4,247
        
      
      
        
          Other intangible assets, net
        
        
        
        
           
        
        
          3,976
        
        
        
        
        
        
           
        
        
          6,385
        
      
      
        
          Total assets
        
        
        
        
          $
        
        
          122,029
        
        
        
        
        
        
          $
        
        
          116,576
        
      
      
        
          LIABILITIES AND STOCKHOLDERS’ EQUITY
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Energy and accounts payable
        
        
        
        
          $
        
        
          58,500
        
        
        
        
        
        
          $
        
        
          37,926
        
      
      
        
          Short-term borrowings
        
        
        
        
        
        
          11,756
        
        
        
        
        
        
        
        
          —
        
      
      
        
          Accrued liabilities
        
        
        
        
           
        
        
          11,901
        
        
        
        
        
        
           
        
        
          8,130
        
      
      
        
          Total current liabilities
        
        
        
        
        
        
          82,157
        
        
        
        
        
        
        
        
          46,056
        
      
      
        
          Total stockholders’ equity
        
        
        
        
           
        
        
          39,872
        
        
        
        
        
        
           
        
        
          70,520
        
      
      
        
          Total liabilities and stockholders’ 
          equity
        
        
        
        
          $
        
        
          122,029
        
        
        
        
        
        
          $
        
        
          116,576