10-Q: Via Renewables Reports Q2 2024 Results Amidst Merger Completion

Via Renewables announces its Q2 2024 financial results, marked by a revenue decrease and the completion of its merger with Retailco, LLC.

Summary

• Via Renewables reported a decrease in total revenues for the three months ended June 30, 2024, to $86.7 million, a 5% decrease compared to $91.4 million in the same period of 2023.
• The decrease in revenue is primarily attributed to lower electricity and gas unit revenue due to decreased rates, partially offset by increased electricity volumes.
• Retail cost of revenues decreased by 6% to $43.0 million, driven by lower electricity and gas unit costs.
• General and administrative expenses increased by 25% to $20.9 million, mainly due to higher stock compensation and legal fees related to the merger.
• Depreciation and amortization expense increased by 10% to $2.2 million.
• Customer acquisition costs increased by 73% to $2.6 million due to increased sales activity.
• For the six months ended June 30, 2024, total revenues decreased by 10% to $200.8 million, while retail cost of revenues decreased by 31% to $112.0 million.
• The company completed its merger with Retailco, LLC on June 13, 2024, resulting in Mr. Maxwell and his affiliates becoming the owners of all outstanding Class A and Class B common stock.
• As a result of the merger, all outstanding restricted stock units were converted into $11.00 per share, with a total payout of $0.6 million paid by Retailco.
• Adjusted EBITDA was $12.4 million compared to $12.0 million for the three months ended June 30, 2023.
• Retail Gross Margin was $33.4 million compared to $30.7 million for the three months ended June 30, 2023.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While revenue decreased, Adjusted EBITDA increased, and the merger was completed. There are also ongoing legal and regulatory matters.

Positives

• Retail cost of revenues decreased by 6% to $43.0 million for the three months ended June 30, 2024.
• Adjusted EBITDA increased to $12.4 million for the three months ended June 30, 2024.
• Retail gross margin increased to $33.4 million for the three months ended June 30, 2024.

Negatives

• Total revenues decreased by 5% to $86.7 million for the three months ended June 30, 2024.
• General and administrative expenses increased by 25% to $20.9 million, driven by merger-related costs.
• Customer acquisition costs increased by 73% to $2.6 million for the three months ended June 30, 2024.

Risks

• The company is subject to lawsuits and claims arising in the ordinary course of business, including consumer lawsuits and corporate matter lawsuits.
• The company is subject to regulatory inquiries, license renewal reviews, and preliminary investigations in the ordinary course of business.
• The company is undergoing various types of indirect tax audits spanning from years 2020 to 2024 for which additional liabilities may arise.
• Maintaining compliance with covenants under the Senior Credit Facility may impact the ability to pay dividends on Series A Preferred Stock.

Future Outlook

The company will continue to evaluate potential acquisitions during the remainder of 2024 and is focused on organic sales.

Industry Context

The document notes that many state regulators have increased scrutiny on retail energy providers across all industry providers.

Legal Proceedings

• The company is subject to class action lawsuits in various jurisdictions where the company sells natural gas and electricity.
• On July 19, 2024, Joshua Amburgey filed a verified class action complaint in the Court of Chancery of the State of Delaware against the company and others alleging breach of fiduciary duties in connection with the merger.
• On July 25, 2024, Bruce Taylor filed a verified class action complaint in the Delaware Court against the Special Committee, and Mike Barajas, as well as Mr. Maxwell alleging breach of fiduciary duties and participation in the provision of a materially untrue and misleading proxy statement to Companys minority stockholders in connection with the Merger.
• On May 22, 2024, Michael Stutzman filed a complaint in the Delaware Court against the company seeking to compel the inspection of certain company books and records pursuant to Section 220 of the Delaware General Corporation Law relevant to the Merger.
• On May 21, 2024, the Connecticut Public Utility Regulatory (PURA) issued a Notice of Violation and Assessment of Civil Penalty (NOV) to Major Energy in which PURA stated it had reason to believe that one of Major Energys on-line vendors violated certain Electric Supplier Laws and Aggregator Rulings.
• On February 9, 2023, Maine Commissions Consumer Assistance and Safety Division (Advocacy Staff) filed a Request for Formal Investigation requesting that the Maine Commission open a formal, enforcement investigation to review whether the Companys subsidiary, Electricity Maine, LLC (EME), is in compliance with the Maine Commissions Rules.
• On July 26, 2023, Spark Energy, LLC received a demand letter from a law firm representing the Office of the Illinois Attorney General alleging that Spark Energy, LLCs marketing and sales practices may have not been in compliance with Illinois law.

Related Party Transactions

• The total net amount direct billed and allocated to/(from) affiliates was ($4.5 million) and $0.3 million for the three months ended June 30, 2024 and 2023, respectively.
• The total net amount direct billed and allocated to/(from) affiliates was ($4.1 million) and $1.9 million for the six months ended June 30, 2024 and 2023, respectively.
• On June 13, 2024, we consummated the previously announced Merger, following which Mr. Maxwell and his affiliates became the owners of all of the issued and outstanding shares of Class A common stock and Class B common stock.
• The total payout for the settlement of restricted stock units was $0.6 million, which was paid by Retailco.

Stakeholder Impact

• Holders of the Companys Series A Preferred Stock were provided an optional limited change of control conversion right (the Conversion Right), available at the option of the holder, for $8.07 per share in cash.
• The company is entitled to pay cash dividends so long as: (a) no default exists or would result therefrom; (b) the Co-Borrowers are in pro forma compliance with all financial covenants before and after giving effect thereto; and (c) the outstanding amount of all loans and letters of credit do not exceed the borrowing base limits.

Next Steps

• The company will continue to evaluate potential acquisitions during the remainder of 2024.
• The company is set to engage in mediation with a law firm representing the Office of the Illinois Attorney General in August 2024.

Key Dates

Keywords

Renewables, Retail Energy, Financial Results, Merger, EBITDA, Revenue, Natural Gas, Electricity