Spark Energy, Inc. ("Spark" or the "Company") (NASDAQ:SPKE), an
independent retail energy services company, today reported
financial results for the quarter ended September 30, 2017.
Key Highlights
- Achieved $19.6 million in Adjusted EBITDA, $50.6 million in
Retail Gross Margin, and $12.9 million in Net Income for the third
quarter
- Total RCE count increased 16% to a record 957,000 as of
September 30, 2017
- Overall monthly attrition of 4.2% for the third quarter
- Added two new banks and expanded the senior credit facility to
$150.0 million in commitments with a new $50.0 million
accordion
“Spark continues to deliver solid, dependable
results, even in a quarter marked by milder-than-anticipated
weather and the devastation of Hurricane Harvey,” said Nathan
Kroeker, Spark Energy’s President and Chief Executive Officer.
“During the quarter, we began the integration of Verde as we near
completion of the Perigee integration. In addition, we added
two new banks to our credit facility, bringing our total lenders to
seven with $150.0 million of commitments, with the additional
capacity to expand the facility up to $200.0 million.
“As we turn our attention to 2018 and beyond, we
are looking to expand on the success we have had in our
international joint venture in Japan by entering additional
international markets in the same manner. In addition, we plan to
further integrate our recent acquisitions, driving process
improvements and realizing significant synergies through economies
of scale. While we expect to realize a substantial part of
the cost savings in 2019, we fully expect to begin benefiting from
some of the Adjusted EBITDA enhancements in 2018.”
Summary Third Quarter 2017 Financial
Results
For the quarter ended September 30, 2017,
Spark reported Adjusted EBITDA of $19.6 million compared to
Adjusted EBITDA of $20.3 million for the quarter ended
September 30, 2016. This decrease of $0.7 million is primarily
attributable to milder-than-expected weather, the effects of
Hurricane Harvey, and fixed costs associated with a larger customer
base, partially offset by larger overall volumes.
For the quarter ended September 30, 2017,
Spark reported Retail Gross Margin of $50.6 million compared to
Retail Gross Margin of $45.2 million for the quarter ended
September 30, 2016. This increase of $5.3 million is primarily
attributable to the increased volumes of retail electricity
following the Verde and Perigee acquisitions, mitigated by
milder-than-anticipated weather in our service territories, lower
unit margins in our retail electricity segment, and the effects of
Hurricane Harvey.
Net income for the quarter ended
September 30, 2017, was $12.9 million compared to net income
of $6.8 million for the quarter ended September 30, 2016,
primarily due to the increase in gross margin offset by higher
general and administrative costs.
Strategic Update
Effective July 1, Spark acquired Verde Energy
("Verde"), which operates in eight states selling 100% renewable
electricity and carbon-neutral gas products. Spark paid $65.8
million, consisting of $45.0 million of cash at closing and a $20.0
million sellers' note, plus $20.8 million for working capital.
There is an additional earnout that is subject to Verde's ability
to achieve defined performance metrics.
During the quarter, Spark increased the
commitments on its credit facility by $30.0 million to $150.0
million. Spark also executed an amendment to the credit
facility that allows the Company to increase the credit facility to
up to $200.0 million.
Liquidity and Capital
Resources
($ in thousands) |
September 30, 2017 |
|
Cash and cash
equivalents |
$ |
11,249 |
|
Senior Credit Facility
Availability |
4,209 |
|
Subordinated Debt
Availability |
25,000 |
|
Total Liquidity |
$ |
40,458 |
|
Dividend
Spark’s Board of Directors declared quarterly
dividends of $0.18125 per share of Class A common stock payable on
December 14, 2017, and $0.546875 per share of Series A Preferred
Stock payable on January 15, 2018. Investors are reminded that on
June 16, 2017, Spark completed a two-for-one stock split by means
of a stock dividend.
Conference Call and Webcast
Spark will host a conference call to discuss
third quarter 2017 results on Friday, November 3, 2017, at 10:00 AM
Central Time (11:00 AM Eastern).
A live webcast of the conference call can be
accessed from the Events & Presentations page of the Spark
Energy Investor Relations website at
http://ir.sparkenergy.com/events.cfm. An archived replay of the
webcast will be available for twelve months following the live
presentation.
About Spark Energy, Inc.
Spark Energy, Inc. is an established and growing
independent retail energy services company founded in 1999 that
provides residential and commercial customers in competitive
markets across the United States with an alternative choice for
their natural gas and electricity. Headquartered in Houston, Texas,
Spark currently operates in 19 states and serves 94 utility
territories. Spark offers its customers a variety of product and
service choices, including stable and predictable energy costs and
green product alternatives.
We use our website as a means of disclosing
material non-public information and for complying with our
disclosure obligations under Regulation FD. Investors should note
that new materials, including press releases, updated investor
presentations, and financial and other filings with the Securities
and Exchange Commission are posted on the Spark Energy Investor
Relations website at ir.sparkenergy.com. Investors are urged to
monitor our website regularly for information and updates about the
Company.
Cautionary Note Regarding Forward
Looking Statements
This earnings release contains forward-looking
statements that are subject to a number of risks and uncertainties,
many of which are beyond our control. These statements within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”) and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”) can be identified by
the use of forward-looking terminology including “guidance,” “may,”
“should,” “likely,” “will,” “believe,” “expect,” “anticipate,”
“estimate,” “continue,” “plan,” “intend,” “projects,” or other
similar words. All statements, other than statements of historical
fact included in this release, regarding strategy, future
operations, financial position, estimated revenues and losses,
projected costs, prospects, plans, objectives and beliefs of
management are forward-looking statements. Forward-looking
statements appear in a number of places in this release and may
include statements about business strategy and prospects for
growth, customer acquisition costs, ability to pay cash dividends,
cash flow generation and liquidity, availability of terms of
capital, competition and government regulation and general economic
conditions. Although we believe that the expectations reflected in
such forward-looking statements are reasonable, we cannot give any
assurance that such expectations will prove correct.
The forward-looking statements in this earnings
release are subject to risks and uncertainties. Important factors
that could cause actual results to materially differ from those
projected in the forward-looking statements include, but are not
limited to:
- changes in commodity prices,
- extreme and unpredictable weather conditions,
- milder than forecasted weather conditions,
- impact of hurricanes and other natural disasters,
- the sufficiency of risk management and hedging policies,
- customer concentration,
- federal, state and local regulation, including the industry’s
ability to prevail on its challenge to the New York Public Service
Commission’s order enacting new regulations that sought to impose
significant new restrictions on retail energy providers operating
in New York,
- key license retention,
- increased regulatory scrutiny and compliance costs,
- our ability to borrow funds and access credit markets,
- restrictions in our debt agreements and collateral
requirements,
- credit risk with respect to suppliers and customers,
- level of indebtedness,
- changes in costs to acquire customers,
- actual customer attrition rates,
- actual bad debt expense in non-POR markets,
- actual results of the companies we acquire,
- accuracy of billing systems,
- ability to successfully navigate entry into new markets,
- whether our majority shareholder or its affiliates offers us
acquisition opportunities on terms that are commercially acceptable
to us,
- ability to successfully and efficiently integrate acquisitions
into our operations,
- ability to achieve expected future results attributable to
acquisitions,
- changes in the assumptions we used to estimate our 2017
Adjusted EBITDA, including weather and customer acquisition
costs,
- competition, and
- the “Risk Factors” in our Form 10-K for the year ended
December 31, 2016, and in our quarterly reports, other public
filings and press releases.
You should review the Risk Factors and other
factors noted throughout or incorporated by reference in this
earnings release that could cause our actual results to differ
materially from those contained in any forward-looking statement.
All forward-looking statements speak only as of the date of this
earnings release. Unless required by law, we disclaim any
obligation to publicly update or revise these statements whether as
a result of new information, future events or otherwise. It is not
possible for us to predict all risks, nor can we assess the impact
of all factors on the business or the extent to which any factor,
or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking
statements.
|
SPARK ENERGY, INC.CONDENSED
CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 30, 2017 AND DECEMBER 31,
2016(in
thousands)(unaudited) |
|
|
September 30,2017 |
|
December 31,2016 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash
equivalents |
$ |
11,249 |
|
|
$ |
18,960 |
|
Restricted cash |
|
— |
|
|
|
— |
|
Accounts receivable,
net of allowance for doubtful accounts of $3.1 million and $2.3
million as ofSeptember 30, 2017 and December 31, 2016,
respectively |
|
111,254 |
|
|
|
112,491 |
|
Accounts
receivable—affiliates |
|
4,466 |
|
|
|
2,624 |
|
Inventory |
|
5,688 |
|
|
|
3,752 |
|
Fair value of
derivative assets |
|
1,444 |
|
|
|
8,344 |
|
Customer acquisition
costs, net |
|
20,872 |
|
|
|
18,834 |
|
Customer relationships,
net |
|
17,978 |
|
|
|
12,113 |
|
Prepaid assets |
|
1,353 |
|
|
|
1,361 |
|
Deposits |
|
9,570 |
|
|
|
7,329 |
|
Other current
assets |
|
17,322 |
|
|
|
12,175 |
|
Total current
assets |
|
201,196 |
|
|
|
197,983 |
|
Property and equipment,
net |
|
8,623 |
|
|
|
4,706 |
|
Fair value of
derivative assets |
|
138 |
|
|
|
3,083 |
|
Customer acquisition
costs, net |
|
6,670 |
|
|
|
6,134 |
|
Customer relationships,
net |
|
40,559 |
|
|
|
21,410 |
|
Deferred tax
assets |
|
50,302 |
|
|
|
55,047 |
|
Goodwill |
|
120,154 |
|
|
|
79,147 |
|
Other assets |
|
11,814 |
|
|
|
8,658 |
|
Total assets |
$ |
439,456 |
|
|
$ |
376,168 |
|
Liabilities,
Series A Preferred Stock and Stockholders' Equity |
|
|
|
Current
liabilities: |
|
|
|
Accounts payable |
$ |
53,866 |
|
|
$ |
52,309 |
|
Accounts
payable—affiliates |
|
4,683 |
|
|
|
3,775 |
|
Accrued
liabilities |
|
32,833 |
|
|
|
36,619 |
|
Fair value of
derivative liabilities |
|
3,879 |
|
|
|
680 |
|
Current portion of
Senior Credit Facility |
|
7,500 |
|
|
|
51,287 |
|
Current payable
pursuant to tax receivable agreement—affiliates |
|
1,454 |
|
|
|
— |
|
Current contingent
consideration for acquisitions |
|
4,248 |
|
|
|
11,827 |
|
Current portion of note
payable |
|
13,276 |
|
|
|
15,501 |
|
Convertible
subordinated notes to affiliates |
|
— |
|
|
|
6,582 |
|
Other current
liabilities |
|
1,804 |
|
|
|
5,476 |
|
Total current
liabilities |
|
123,543 |
|
|
|
184,056 |
|
Long-term
liabilities: |
|
|
|
Fair value of
derivative liabilities |
|
3,410 |
|
|
|
68 |
|
Payable pursuant to tax
receivable agreement—affiliates |
|
48,432 |
|
|
|
49,886 |
|
Long-term portion of
Senior Credit Facility |
|
84,025 |
|
|
|
— |
|
Subordinated
debt—affiliate |
|
— |
|
|
|
5,000 |
|
Deferred tax
liability |
|
— |
|
|
|
938 |
|
Contingent
consideration for acquisitions |
|
4,458 |
|
|
|
10,826 |
|
Other long-term
liabilities |
|
489 |
|
|
|
1,658 |
|
Long-term portion of
note payable |
|
4,575 |
|
|
|
— |
|
Total liabilities |
$ |
268,932 |
|
|
$ |
252,432 |
|
Commitments and
contingencies (Note 13) |
|
|
|
Series A Preferred
Stock, par value $0.01 per share, 20,000,000 shares authorized,
1,610,000 shares issuedand outstanding at June 30, 2017 and zero
shares issued and outstanding at December 31, 2016 |
|
41,244 |
|
|
|
— |
|
Stockholders'
equity: |
|
|
|
Common
Stock (1) : |
|
|
|
Class A common stock,
par value $0.01 per share, 120,000,000 shares authorized,
13,235,082 issued, and13,145,636 outstanding at September 30, 2017
and 12,993,118 issued and outstanding at December 31, 2016 |
|
132 |
|
|
|
65 |
|
Class B common stock,
par value $0.01 per share, 60,000,000 shares authorized, 21,485,126
issued andoutstanding at September 30, 2017 and 20,449,484 issued
and outstanding at December 31, 2016 |
|
216 |
|
|
|
103 |
|
Additional paid-in capital |
|
36,502 |
|
|
|
25,413 |
|
Accumulated other comprehensive (income)/loss |
|
(22 |
) |
|
|
11 |
|
Retained
earnings |
|
1,164 |
|
|
|
4,711 |
|
Treasury
stock, at cost, 89,446 shares at September 30, 2017 and zero shares
at December 31, 2016 |
|
(1,888 |
) |
|
|
— |
|
Total
stockholders' equity |
|
36,104 |
|
|
|
30,303 |
|
Non-controlling
interest in Spark HoldCo, LLC |
|
93,176 |
|
|
|
93,433 |
|
Total
equity |
|
129,280 |
|
|
|
123,736 |
|
Total liabilities,
Series A Preferred Stock and stockholders' equity |
$ |
439,456 |
|
|
$ |
376,168 |
|
(1) |
|
|
Outstanding shares of
common stock reflect the two-for-one stock split, which took effect
on June 16, 2017. See Note 4 "Equity" in our 10-Q for further
discussion. |
|
|
|
|
|
SPARK ENERGY, INC.CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOMEFOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2017 AND 2016(in
thousands)(unaudited) |
|
|
Three Months EndedSeptember 30, |
|
Nine Months EndedSeptember 30, |
|
2017 |
|
2016 (2) |
|
2017 (1) |
|
2016 (2) |
Revenues: |
|
|
|
|
|
|
|
Retail revenues |
$ |
215,856 |
|
|
$ |
157,986 |
|
|
$ |
563,960 |
|
|
$ |
378,063 |
|
Net asset optimization
(expense)/revenues (3) |
|
(320 |
) |
|
|
108 |
|
|
(681 |
) |
|
(42 |
) |
Total Revenues |
|
215,536 |
|
|
|
158,094 |
|
|
563,279 |
|
|
378,021 |
|
Operating
Expenses: |
|
|
|
|
|
|
|
Retail cost of revenues
(4) |
|
160,373 |
|
|
|
122,830 |
|
|
420,771 |
|
|
248,593 |
|
General and
administrative (5) |
|
25,566 |
|
|
|
18,009 |
|
|
69,405 |
|
|
55,188 |
|
Depreciation and
amortization |
|
11,509 |
|
|
|
8,295 |
|
|
30,435 |
|
|
23,337 |
|
Total Operating
Expenses |
|
197,448 |
|
|
|
149,134 |
|
|
520,611 |
|
|
327,118 |
|
Operating income |
|
18,088 |
|
|
|
8,960 |
|
|
42,668 |
|
|
50,903 |
|
Other
(expense)/income: |
|
|
|
|
|
|
|
Interest expense |
|
(2,863 |
) |
|
|
(1,270 |
) |
|
(8,760 |
) |
|
(2,855 |
) |
Interest and other
income |
|
168 |
|
|
|
240 |
|
|
102 |
|
|
340 |
|
Total other
expenses |
|
(2,695 |
) |
|
|
(1,030 |
) |
|
(8,658 |
) |
|
(2,515 |
) |
Income before income
tax expense |
|
15,393 |
|
|
|
7,930 |
|
|
34,010 |
|
|
48,388 |
|
Income tax expense |
|
2,451 |
|
|
|
1,129 |
|
|
5,265 |
|
|
6,852 |
|
Net income |
$ |
12,942 |
|
|
$ |
6,801 |
|
|
$ |
28,745 |
|
|
$ |
41,536 |
|
Less: Net income
attributable to non-controlling interests |
|
10,595 |
|
|
|
6,618 |
|
|
23,049 |
|
|
34,839 |
|
Net income attributable
to Spark Energy, Inc. stockholders |
$ |
2,347 |
|
|
$ |
183 |
|
|
$ |
5,696 |
|
|
$ |
6,697 |
|
Less:
Dividend on Series A preferred stock |
|
932 |
|
|
|
— |
|
|
2,106 |
|
|
— |
|
Net income attributable
to stockholders of Class A common stock |
$ |
1,415 |
|
|
$ |
183 |
|
|
$ |
3,590 |
|
|
$ |
6,697 |
|
Other comprehensive
loss, net of tax: |
|
|
|
|
|
|
|
Currency translation
loss |
$ |
(13 |
) |
|
$ |
(12 |
) |
|
$ |
(88 |
) |
|
$ |
(73 |
) |
Other comprehensive
loss |
|
(13 |
) |
|
|
(12 |
) |
|
(88 |
) |
|
(73 |
) |
Comprehensive
income |
$ |
12,929 |
|
|
$ |
6,789 |
|
|
$ |
28,657 |
|
|
$ |
41,463 |
|
Less: Comprehensive
income attributable to non-controlling interests |
|
10,587 |
|
|
|
6,611 |
|
|
22,994 |
|
|
34,799 |
|
Comprehensive income
attributable to Spark Energy, Inc. stockholders |
$ |
2,342 |
|
|
$ |
178 |
|
|
$ |
5,663 |
|
|
$ |
6,664 |
|
(1) |
|
|
Financial information has
been recast to include results attributable to the acquisition of
Perigee Energy, LLC by an affiliate on February 3, 2017. See Notes
2 and 3 "Basis of Presentation and Summary of Significant
Accounting Policies" and "Acquisitions" for further
discussion. |
(2) |
|
|
Financial information has
been recast to include results attributable to the acquisition of
the Major Energy Companies by an affiliate on April 15, 2016. See
Note 2 and 3 "Basis of Presentation and Summary of Significant
Accounting Policies" and "Acquisitions" for further
discussion. |
(3) |
|
|
Net asset optimization
revenues (expenses) includes asset optimization revenues—affiliates
of $0 and $0 for the three months ended September 30, 2017 and
2016, respectively, and asset optimization revenues—affiliates cost
of revenues of $0 and $0 for the three months ended September 30,
2017 and 2016, respectively, and asset optimization
revenues—affiliates of $0 and $154 for the nine months ended
September 30, 2017 and 2016, respectively, and asset optimization
revenue—affiliates cost of revenues of $0 and $1,633 for the nine
months ended September 30, 2017 and 2016, respectively. |
(4) |
|
|
Retail cost of revenues
includes retail cost of revenues—affiliates of $0 and less than $0
for the three months ended September 30, 2017 and 2016,
respectively, and $0 and less than $100 for the nine months ended
September 30, 2017 and 2016, respectively. |
(5) |
|
|
General and administrative
includes general and administrative expense—affiliates of $5,500
and $3,078 for the three months ended September 30, 2017 and 2016,
respectively, and $18,800 and $11,521 for the nine months ended
September 30, 2017 and 2016, respectively. |
|
|
|
|
SPARK ENERGY, INC.CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2017(in
thousands)(unaudited) |
|
|
|
IssuedShares ofClass ACommonStock |
IssuedShares ofClass BCommonStock |
TreasuryStock |
Class ACommonStock |
Class BCommonStock |
TreasuryStock |
AccumulatedOtherComprehensiveIncome
(Loss) |
AdditionalPaid-inCapital |
RetainedEarnings(Deficit) |
TotalStockholders'Equity |
Non-controllingInterest |
TotalEquity |
Balance at December 31,
2016 |
6,497 |
|
10,225 |
|
— |
|
$ |
65 |
|
$ |
103 |
|
— |
|
$ |
11 |
|
$ |
25,413 |
|
$ |
4,711 |
|
$ |
30,303 |
|
$ |
93,433 |
|
$ |
123,736 |
|
Stock based
compensation |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
1,956 |
|
|
— |
|
|
1,956 |
|
|
— |
|
|
1,956 |
|
Restricted stock unit
vesting |
121 |
|
— |
|
— |
|
|
1 |
|
|
— |
|
— |
|
|
— |
|
|
1,053 |
|
|
— |
|
|
1,054 |
|
|
— |
|
|
1,054 |
|
Consolidated net
income |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
5,696 |
|
|
5,696 |
|
|
23,049 |
|
|
28,745 |
|
Foreign currency
translation adjustment for equity method investee |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
(33 |
) |
|
— |
|
|
— |
|
|
(33 |
) |
|
(55 |
) |
|
(88 |
) |
Distributions paid to
non-controlling unit holders |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(24,270 |
) |
|
(24,270 |
) |
Net contribution by
NG&E |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,019 |
|
|
1,019 |
|
Dividends paid to Class
A common stockholders |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(7,137 |
) |
|
(7,137 |
) |
|
— |
|
|
(7,137 |
) |
Dividends to Preferred
Stock |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(2,106 |
) |
|
(2,106 |
) |
|
— |
|
|
(2,106 |
) |
Proceeds from
disgorgement of stockholder short-swing profits |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
464 |
|
|
— |
|
|
464 |
|
|
— |
|
|
464 |
|
Conversion of
Convertible Subordinated Notes to Class B Common Stock |
— |
|
518 |
|
— |
|
|
— |
|
|
5 |
|
— |
|
|
— |
|
|
7,790 |
|
|
— |
|
|
7,795 |
|
|
— |
|
|
7,795 |
|
Treasury Stock |
— |
|
— |
|
(89 |
) |
|
— |
|
|
— |
|
(1,888 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(1,888 |
) |
|
— |
|
|
(1,888 |
) |
Stock Split |
6,617 |
|
10,742 |
|
— |
|
|
66 |
|
|
108 |
|
— |
|
|
— |
|
|
(174 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Balance at September
30, 2017 |
13,235 |
|
21,485 |
|
(60 |
) |
$ |
132 |
|
$ |
216 |
|
$ |
(1,888 |
) |
$ |
(22 |
) |
$ |
36,502 |
|
$ |
1,164 |
|
$ |
36,104 |
|
$ |
93,176 |
|
$ |
129,280 |
|
|
|
SPARK ENERGY, INC.CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2017 AND
2016(in
thousands)(unaudited) |
|
|
|
Nine Months Ended September 30, |
|
2017 (1) |
|
2016 (2) |
Cash flows from
operating activities: |
|
|
|
Net income |
$ |
28,745 |
|
|
$ |
41,536 |
|
Adjustments to reconcile net income to net cash flows
provided by operating activities: |
|
|
|
Depreciation and amortization expense |
|
30,584 |
|
|
|
32,743 |
|
Deferred
income taxes |
|
681 |
|
|
|
1,408 |
|
Stock
based compensation |
|
4,023 |
|
|
|
4,027 |
|
Amortization of deferred financing costs |
|
750 |
|
|
|
465 |
|
Excess
tax benefit related to restricted stock vesting |
|
179 |
|
|
|
— |
|
Change in
Fair Value of Earnout liabilities |
|
(9,423 |
) |
|
|
843 |
|
Accretion
on fair value of Earnout liabilities |
|
3,787 |
|
|
|
— |
|
Bad debt
expense |
|
3,436 |
|
|
|
842 |
|
Loss
(gain) on derivatives, net |
|
34,225 |
|
|
|
(2,887 |
) |
Current
period cash settlements on derivatives, net |
|
(20,816 |
) |
|
|
(18,693 |
) |
Accretion
of discount to convertible subordinated notes to affiliate |
|
1,004 |
|
|
|
— |
|
Other |
|
123 |
|
|
|
314 |
|
Changes in
assets and liabilities: |
|
|
|
Decrease
in accounts receivable |
|
18,056 |
|
|
|
21,147 |
|
Increase
in accounts receivable—affiliates |
|
(2,508 |
) |
|
|
(997 |
) |
(Increase) decrease in inventory |
|
(1,936 |
) |
|
|
568 |
|
Increase
in customer acquisition costs |
|
(18,642 |
) |
|
|
(10,234 |
) |
Decrease
(increase) in prepaid and other current assets |
|
1,536 |
|
|
|
(923 |
) |
(Increase) decrease in other assets |
|
(664 |
) |
|
|
733 |
|
Decrease
in accounts payable and accrued liabilities |
|
(9,301 |
) |
|
|
(6,490 |
) |
Increase
in accounts payable—affiliates |
|
1,165 |
|
|
|
636 |
|
Increase
(decrease) in other current liabilities |
|
22 |
|
|
|
(1,783 |
) |
Decrease
in other non-current liabilities |
|
(1,170 |
) |
|
|
(1,612 |
) |
Net cash provided by operating activities |
|
63,824 |
|
|
|
61,643 |
|
Cash flows from
investing activities: |
|
|
|
Purchases
of property and equipment |
|
(1,438 |
) |
|
|
(1,763 |
) |
Payment
of CenStar Earnout |
|
— |
|
|
|
(1,343 |
) |
Payment
of the Major Energy Companies Earnout |
|
(7,403 |
) |
|
|
— |
|
Payment
of the Provider Companies Earnout and Installment Note |
|
(7,738 |
) |
|
|
— |
|
Acquisition of Major Energy Companies and Provider Companies |
|
— |
|
|
|
(30,507 |
) |
Acquisitions of Perigee and other customers |
|
(11,464 |
) |
|
|
— |
|
Acquisition of the Verde Companies |
|
(67,934 |
) |
|
|
— |
|
Contribution to equity method investment in eRex Spark |
|
— |
|
|
|
(562 |
) |
Net cash used in investing activities |
|
(95,977 |
) |
|
|
(34,175 |
) |
Cash flows from
financing activities: |
|
|
|
Proceeds
from issuance of Series A Preferred Stock, net of issuance costs
paid |
|
40,312 |
|
|
|
— |
|
Borrowings on notes payable |
|
139,400 |
|
|
|
47,923 |
|
Payments
on notes payable |
|
(119,664 |
) |
|
|
(44,601 |
) |
Proceeds from
issuance of Class B common stock |
|
— |
|
|
|
13,995 |
|
Proceeds
from disgorgement of stockholders short-swing profits |
|
872 |
|
|
|
941 |
|
Restricted stock vesting |
|
(2,009 |
) |
|
|
(1,183 |
) |
Excess
tax benefit related to restricted stock vesting |
|
— |
|
|
|
185 |
|
Payment
of dividends to Class A common stockholders |
|
(7,137 |
) |
|
|
(6,012 |
) |
Payment of
distributions to non-controlling unitholders |
|
(24,270 |
) |
|
|
(26,283 |
) |
Payment
(Accrual) of Dividends to Preferred Stock |
|
(1,174 |
) |
|
|
— |
|
Purchase
of Treasury Stock |
|
(1,888 |
) |
|
|
— |
|
Net cash provided by (used in) financing
activities |
|
24,442 |
|
|
|
(15,035 |
) |
(Decrease)
increase in Cash and cash equivalents and Restricted
cash |
|
(7,711 |
) |
|
|
12,433 |
|
Cash and cash
equivalents and Restricted cash—beginning of period |
|
18,960 |
|
|
|
4,474 |
|
Cash and cash
equivalents and Restricted cash—end of period |
$ |
11,249 |
|
|
$ |
16,907 |
|
Supplemental
Disclosure of Cash Flow Information: |
|
|
|
Non-cash items: |
|
|
|
Issuance of Class B common stock to affiliates for
Major Energy Companies acquisition |
|
0 |
|
|
|
40,000 |
|
Contingent consideration — earnout obligations incurred in
connection with the VerdeCompanies acquisition |
$ |
5,400 |
|
|
|
Contingent
consideration - earnout obligations incurred in connection with the
ProviderCompanies and Major Energy Companies acquisitions |
|
0 |
|
|
|
18,936 |
|
Assumption of legal
liability in connection with the Major Energy Companies
acquisition |
|
0 |
|
|
|
5,000 |
|
Net contribution by
NG&E in excess of cash |
|
1019 |
|
|
|
6,040 |
|
Installment
consideration incurred in connection with the Verde Companies
acquisition |
$ |
17,851 |
|
|
|
Installment
consideration incurred in connection with the Provider Companies
acquisition |
|
0 |
|
|
|
3,023 |
|
Property and
equipment purchase accrual |
$ |
41 |
|
|
$ |
64 |
|
Liability due to
tax receivable agreement |
$ |
0 |
|
|
$ |
(29,912 |
) |
Tax benefit from
tax receivable agreement |
$ |
0 |
|
|
$ |
33,124 |
|
Cash paid during the
period for: |
|
|
|
Interest |
$ |
4,113 |
|
|
$ |
1,450 |
|
Taxes |
$ |
7,769 |
|
|
$ |
3,783 |
|
|
|
|
|
|
|
|
|
(1) Financial information has been recast to include results
attributable to the acquisition of Perigee Energy, LLC by an
affiliate on February 3, 2017. See Notes 2 and 3 "Basis of
Presentation and Summary of Significant Accounting Policies" and
"Acquisitions," respectively, for further discussion.(2) Financial
information has been recast to include results attributable to the
acquisition of the Major Energy Companies by an affiliate on April
15, 2016. See Notes 2 and 3 "Basis of Presentation and Summary of
Significant Accounting Policies" and "Acquisitions," respectively,
for further discussion.
|
SPARK ENERGY, INC.OPERATING
SEGMENT RESULTSFOR THE THREE AND NINE MONTHS ENDED
September 30, 2017 AND 2016(in thousands, except
per unit operating data)(unaudited) |
|
|
Three Months EndedSeptember 30, |
|
Nine Months EndedSeptember 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
(in thousands, except volume and
per unit operating data) |
Retail Natural
Gas Segment |
|
|
|
|
|
|
|
Total Revenues |
$ |
13,277 |
|
|
$ |
13,851 |
|
|
$ |
95,418 |
|
|
$ |
84,450 |
|
Retail Cost of
Revenues |
6,779 |
|
|
9,230 |
|
|
56,253 |
|
|
38,976 |
|
Less: Net Asset
Optimization (Expenses) Revenues |
(320 |
) |
|
108 |
|
|
(681 |
) |
|
(42 |
) |
Less: Net Gains
(Losses) on non-tradingderivatives, net of cash settlements |
743 |
|
|
(1,526 |
) |
|
(2,344 |
) |
|
4,132 |
|
Retail Gross Margin —
Gas |
$ |
6,075 |
|
|
$ |
6,039 |
|
|
$ |
42,190 |
|
|
$ |
41,384 |
|
Volumes — Gas
(MMBtus) |
1,706,132 |
|
|
1,775,174 |
|
|
12,554,497 |
|
|
10,893,631 |
|
Retail Gross Margin —
Gas per MMBtu |
$ |
3.56 |
|
|
$ |
3.40 |
|
|
$ |
3.36 |
|
|
$ |
3.80 |
|
Retail
Electricity Segment |
|
|
|
|
|
|
|
Total Revenues |
$ |
202,259 |
|
|
$ |
144,243 |
|
|
$ |
467,861 |
|
|
$ |
293,571 |
|
Retail Cost of
Revenues |
153,594 |
|
|
113,600 |
|
|
364,518 |
|
|
209,617 |
|
Less: Net Gains
(Losses) on non-tradingderivatives, net of cash settlements |
4,170 |
|
|
(8,546 |
) |
|
(12,786 |
) |
|
1,728 |
|
Retail Gross Margin —
Electricity |
$ |
44,495 |
|
|
$ |
39,189 |
|
|
$ |
116,129 |
|
|
$ |
82,226 |
|
Volumes — Electricity
(MWhs) |
2,063,894 |
|
|
1,451,182 |
|
|
4,828,629 |
|
|
2,917,674 |
|
Retail Gross Margin —
Electricity per MWh |
$ |
21.56 |
|
|
$ |
27.01 |
|
|
$ |
24.05 |
|
|
$ |
28.18 |
|
|
Reconciliation of GAAP to
Non-GAAP Measures
Adjusted
EBITDA
We define “Adjusted EBITDA” as EBITDA less
(i) customer acquisition costs incurred in the current period,
(ii) net gain (loss) on derivative instruments, and
(iii) net current period cash settlements on derivative
instruments, plus (iv) non-cash compensation expense, and
(v) other non-cash and non-recurring operating items. EBITDA
is defined as net income (loss) before provision for income taxes,
interest expense and depreciation and amortization. We deduct all
current period customer acquisition costs (representing spending
for organic customer acquisitions) in the Adjusted EBITDA
calculation because such costs reflect a cash outlay in the period
in which they are incurred, even though we capitalize such costs
and amortize them over two years in accordance with our accounting
policies. The deduction of current period customer acquisition
costs is consistent with how we manage our business, but the
comparability of Adjusted EBITDA between periods may be affected by
varying levels of customer acquisition costs. For example, our
Adjusted EBITDA is lower in years of customer growth reflecting
larger customer acquisition spending. We do not deduct the cost of
customer acquisitions through acquisitions of business or
portfolios of customers in calculated Adjusted EBITDA. We deduct
our net gains (losses) on derivative instruments, excluding current
period cash settlements, from the Adjusted EBITDA calculation in
order to remove the non-cash impact of net gains and losses on
derivative instruments. We also deduct non-cash compensation
expense as a result of restricted stock units that are issued under
our long-term incentive plan.
We believe that the presentation of Adjusted
EBITDA provides information useful to investors in assessing our
liquidity and financial condition and results of operations and
that Adjusted EBITDA is also useful to investors as a financial
indicator of our ability to incur and service debt, pay dividends
and fund capital expenditures. Adjusted EBITDA is a supplemental
financial measure that management and external users of our
condensed consolidated financial statements, such as industry
analysts, investors, commercial banks and rating agencies, use to
assess the following:
- our operating performance as compared to other publicly traded
companies in the retail energy industry, without regard to
financing methods, capital structure or historical cost basis;
- the ability of our assets to generate earnings sufficient to
support our proposed cash dividends; and
- our ability to fund capital expenditures (including customer
acquisition costs) and incur and service debt.
Retail Gross Margin
We define retail gross margin as operating
income (loss) plus (i) depreciation and amortization expenses
and (ii) general and administrative expenses, less
(i) net asset optimization revenues, (ii) net gains
(losses) on non-trading derivative instruments, and (iii) net
current period cash settlements on non-trading derivative
instruments. Retail gross margin is included as a supplemental
disclosure because it is a primary performance measure used by our
management to determine the performance of our retail natural gas
and electricity business by removing the impacts of our asset
optimization activities and net non-cash income (loss) impact of
our economic hedging activities. As an indicator of our retail
energy business’ operating performance, retail gross margin should
not be considered an alternative to, or more meaningful than,
operating income (loss), its most directly comparable financial
measure calculated and presented in accordance with GAAP.
We believe retail gross margin provides
information useful to investors as an indicator of our retail
energy business's operating performance.
The GAAP measures most directly comparable to
Adjusted EBITDA are net income (loss) and net cash provided by
operating activities. The GAAP measure most directly comparable to
Retail Gross Margin is operating income (loss). Our non-GAAP
financial measures of Adjusted EBITDA and Retail Gross Margin
should not be considered as alternatives to net income (loss), net
cash provided by operating activities, or operating income (loss).
Adjusted EBITDA and Retail Gross Margin are not presentations made
in accordance with GAAP and have important limitations as
analytical tools. You should not consider Adjusted EBITDA or Retail
Gross Margin in isolation or as a substitute for analysis of our
results as reported under GAAP. Because Adjusted EBITDA and Retail
Gross Margin exclude some, but not all, items that affect net
income (loss) and net cash provided by operating activities, and
are defined differently by different companies in our industry, our
definition of Adjusted EBITDA and Retail Gross Margin may not be
comparable to similarly titled measures of other companies.
Management compensates for the limitations of
Adjusted EBITDA and Retail Gross Margin as analytical tools by
reviewing the comparable GAAP measures, understanding the
differences between the measures and incorporating these data
points into management’s decision-making process.
The following tables present a reconciliation of
Adjusted EBITDA to net income (loss) and net cash provided by
operating activities for each of the periods indicated.
|
APPENDIX TABLES A-1 AND
A-2ADJUSTED EBITDA
RECONCILIATIONS(in
thousands)(unaudited) |
|
|
|
|
|
Three Months EndedSeptember 30, |
|
Nine Months EndedSeptember 30, |
(in thousands) |
2017 |
|
2016 |
|
2017 |
|
2016 |
Reconciliation
of Adjusted EBITDA to Net Income: |
|
|
|
|
|
|
|
Net income |
$ |
12,942 |
|
|
$ |
6,801 |
|
|
$ |
28,745 |
|
|
$ |
41,536 |
|
Depreciation and
amortization |
|
11,509 |
|
|
|
8,295 |
|
|
30,435 |
|
|
23,337 |
|
Interest expense |
|
2,863 |
|
|
|
1,270 |
|
|
8,760 |
|
|
2,855 |
|
Income tax expense |
|
2,451 |
|
|
|
1,129 |
|
|
5,265 |
|
|
6,852 |
|
EBITDA |
|
29,765 |
|
|
|
17,495 |
|
|
73,205 |
|
|
74,580 |
|
Less: |
|
|
|
|
|
|
|
Net, (losses) gains on
derivative instruments |
|
(2,752 |
) |
|
|
(609 |
) |
|
(34,225 |
) |
|
2,887 |
|
Net, Cash settlements
on derivative instruments |
|
7,457 |
|
|
|
(8,869 |
) |
|
18,808 |
|
|
3,427 |
|
Customer acquisition
costs |
|
6,568 |
|
|
|
8,242 |
|
|
18,642 |
|
|
15,217 |
|
Plus: |
|
|
|
|
|
|
|
Non-cash
compensation expense |
|
1,118 |
|
|
|
1,585 |
|
|
4,023 |
|
|
4,027 |
|
Adjusted
EBITDA |
$ |
19,610 |
|
|
$ |
20,316 |
|
|
$ |
74,003 |
|
|
$ |
57,076 |
|
|
|
Three Months EndedSeptember 30, |
|
Nine Months EndedSeptember 30, |
(in thousands) |
2017 |
|
2016 |
|
2017 |
|
2016 |
Reconciliation
of Adjusted EBITDA tonet cash provided by
operatingactivities: |
|
|
|
|
|
|
|
Net cash provided by
(used in) operating activities |
$ |
16,418 |
|
|
$ |
(48,157 |
) |
|
$ |
63,824 |
|
|
$ |
61,643 |
|
Amortization of
deferred financing costs |
(219 |
) |
|
(231 |
) |
|
(750 |
) |
|
(465 |
) |
Allowance for doubtful
accounts and bad debt expense |
(2,517 |
) |
|
(381 |
) |
|
(3,436 |
) |
|
(842 |
) |
Interest expense |
2,863 |
|
|
1,270 |
|
|
8,760 |
|
|
2,855 |
|
Income tax expense |
2,451 |
|
|
1,129 |
|
|
5,265 |
|
|
6,852 |
|
Changes in operating
working capital |
|
|
|
|
|
|
|
Accounts receivable,
prepaids, current assets |
4,457 |
|
|
4,475 |
|
|
(17,084 |
) |
|
(19,227 |
) |
Inventory |
2,246 |
|
|
1,672 |
|
|
1,936 |
|
|
(568 |
) |
Accounts payable and
accrued liabilities |
(9,973 |
) |
|
54,299 |
|
|
8,136 |
|
|
5,854 |
|
Other |
3,884 |
|
|
6,240 |
|
|
7,352 |
|
|
974 |
|
Adjusted
EBITDA |
$ |
19,610 |
|
|
$ |
20,316 |
|
|
$ |
74,003 |
|
|
$ |
57,076 |
|
Cash Flow
Data: |
|
|
|
|
|
|
|
Cash flows provided by
(used in) operating activities |
$ |
16,418 |
|
|
$ |
(48,157 |
) |
|
$ |
63,824 |
|
|
$ |
61,643 |
|
Cash flows (used in)
provided by investing activities |
(5,712 |
) |
|
17,976 |
|
|
(95,977 |
) |
|
(34,175 |
) |
Cash flows (used in)
provided by financing activities |
(13,502 |
) |
|
34,242 |
|
|
24,442 |
|
|
(15,035 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a reconciliation of
Retail Gross Margin to operating income (loss) for each of the
periods indicated.
|
APPENDIX TABLE A-3RETAIL
GROSS MARGIN RECONCILIATION(in
thousands)(unaudited) |
|
|
|
|
|
Three Months EndedSeptember 30, |
|
Nine Months EndedSeptember 30, |
(in thousands) |
2017 |
|
2016 |
|
2017 |
|
2016 |
Reconciliation
of Retail Gross Margin toOperating Income: |
|
|
|
|
|
|
|
Operating income |
$ |
18,088 |
|
|
$ |
8,960 |
|
|
$ |
42,668 |
|
|
$ |
50,903 |
|
Depreciation and
amortization |
11,509 |
|
|
8,295 |
|
|
30,435 |
|
|
23,337 |
|
General and
administrative |
25,566 |
|
|
18,009 |
|
|
69,405 |
|
|
55,188 |
|
Less: |
|
|
|
|
|
|
|
Net asset optimization
(expenses) revenues |
(320 |
) |
|
108 |
|
|
(681 |
) |
|
(42 |
) |
Net, Losses (gains) on
non-trading derivative instruments |
(2,568 |
) |
|
(1,183 |
) |
|
(34,146 |
) |
|
2,519 |
|
Net, Cash settlements
on non-trading derivative instruments |
7,481 |
|
|
(8,889 |
) |
|
19,016 |
|
|
3,341 |
|
Retail Gross
Margin |
$ |
50,570 |
|
|
$ |
45,228 |
|
|
$ |
158,319 |
|
|
$ |
123,610 |
|
Retail Gross Margin -
Retail Natural Gas Segment |
$ |
6,075 |
|
|
$ |
6,039 |
|
|
$ |
42,190 |
|
|
$ |
41,384 |
|
Retail Gross Margin -
Retail Electricity Segment |
$ |
44,495 |
|
|
$ |
39,189 |
|
|
$ |
116,129 |
|
|
$ |
82,226 |
|
Contact: Spark Energy, Inc.
Investors:
Robert Lane, 832-200-3727
ir@sparkenergy.com
Media:
Eric Melchor, 281-833-4151
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