Spark Energy, Inc. Reports Third Quarter 2017 Financial Results
HOUSTON, November 2, 2017 (GLOBE NEWSWIRE) -- 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 of September 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 issued and 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, and 13,145,636 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 and outstanding 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 INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(in thousands)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 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)
| Issued Shares of Class A Common Stock | Issued Shares of Class B Common Stock | Treasury Stock | Class A Common Stock | Class B Common Stock | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Additional Paid-in Capital | Retained Earnings (Deficit) | Total Stockholders' Equity | Non-controlling Interest | Total Equity | |||||||||||||||||||||||||||||||||||||||||||
| 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 Verde Companies acquisition | $ | 5,400 | |||||||||||
| Contingent consideration - earnout obligations incurred in connection with the Provider Companies 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 RESULTS
FOR THE THREE AND NINE MONTHS ENDED September 30, 2017 AND 2016
(in thousands, except per unit operating data)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 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-trading derivatives, 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-trading derivatives, 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-2
ADJUSTED EBITDA RECONCILIATIONS
(in thousands)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 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 Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| (in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
| Reconciliation of Adjusted EBITDA to net cash provided by operating activities: | |||||||||||||||
| 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-3
RETAIL GROSS MARGIN RECONCILIATION
(in thousands)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| (in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
| Reconciliation of Retail Gross Margin to Operating 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