SPKE - Earnings call transcript Q1 2018

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Operator

Good morning, ladies and gentlemen. Welcome to the Spark Energy Incorporated First Quarter 2018 Earnings Conference Call. My name is Mark and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. reminder, this is on call Inc.’s a replay recorded Spark As website. and purposes will Instructions] this being conference for Energy [Operator be posted the now over to would turn I to like Mr. conference Energy Spark with Hettick Inc. Christian Please go ahead.

Christian Hettick

as at that in to actual morning on of can quarter performance Management may of earnings With first our Events Robert note be sparkenergy.com. today's being live subject Lane. located call. future Energy, and based may make our phone forward-looking Presentations is XXXX which assumptions over materially call under Vice statements and contain Please risks projections the uncertainties results Nathan economic from could believe welcome the to statements. forward-looking morning's operations, President and via today statements concerning of we Good these our section These are are management Spark and broadcast reasonable CFO, President Inc.'s this website statements, Kroeker; Investor that cause to Relations from This expectations, our and webcast, that and us date. and and discussion be which differ condition. is financial CEO, to

except statement as expectations the SEC in we believe result Harbor forward-looking such as reasonable, in otherwise, We revise to contained statements yesterday's as are give no in Although that future our forward-looking update filings. any earnings as law. no information, by events, of will the realized. a factors risk whether provided well reflected review We or publicly required Safe undertake new to or statements, obligation the such be we release expectations that assurance urge everyone

measures will GAAP refer financial morning's of to results. this financial both During company's operating the and non-GAAP call, and we

to With turn use website it our because Regulation you financial like to call reconciliation we check I'll that, and over that our and our We earnings to measures, comparable directly GAAP Executive non-GAAP and the President is regularly please to to regarding Kroeker, also web to Officer. obligations information comply to disclose with the material invite information most yesterday's under ir.sparkenergy.com. our Chief refer FD, address Nathan release. For measures would

Nathan Kroeker

you, retail I to EBITDA who last analysts to quarter, adjusted We've the financials. today's XX% shareholders The before in Thank Midwest first quarter sudden for and call. over will gross on extreme update will over of results our to decreases of CFO, we the and recorded year. on welcome two of us $XX.X a plan first touch which the $XX.X our our provide Northeast financial impact significant in and want January. and million cold had for Christian. quarter million this other the the first in on was the the and outlook give a Robert driver margin I through After and and earnings the an Lane prolonged primary retailers on respectively weather in XX% weeks energy strategic the turn our call details I

which norms. was New above England standard pricing was amounted above levels. five with above on in last in for is warmer negative resulted pronounced ISO because was perfect more results. our the usage ago. normal that both an XX% usage idea, significantly nearly usage of even quarter the very earnings on call discussed to the winter and in expect storm year to margins normal, normal have It last a XX% which first we PJM strong over historical same our the As impact we deviations than of give this to XXXX, really these quarter weather close comparison The while financial the you months To increasing normal, unit to in

long before to where when the can were our cold all a are were spell apparent accordingly. credit It's weather markets ISOs this purchase right Polar Due physical to the period so indicating twice flipped well-managed warmer-than-normal from two exceeding to significant limits. leading The the well is in was cold the and hedged as we up suddenly Weather usage Christmas credit While from prices XXXX's at requirements weeks. at and we forecast became incremental buy power to for forced were and also stay supply over to expected to above within time snaps storm as normal normal. premiums time, Vortex. be forced forecast order in the weather we day-ahead above

While by were effect January, paid negatively and business. this the on the in of power outlook health supply to impacted overall no we margins the long-term prices high has

Our in business I'm and had resilient by is normalized early internal and already to And with we're returns back line we a more rate. say March earnings projections through to very both April. February happy run our

ensure anomaly steps several of weather or to any be severe taken again. future such will happen less similar to something the impact have that We

focusing small business, to higher-margin we not low-margin more commercial. our majority of expect First, mass-market both renew RCEs, adding instead on larger the C&I residential and

a using addition, financial with hedges our with more during instead favorable of In price been requirements collateral more hedges; ISOs puts the lowers our spikes. and physical us counterparties credit have which we both in position

increase a efforts business, should mass-market these our longer-term unit As effect refocus expect we positive expect EBITDA. margin long-term adjusting see which on we on to a as result investors to of have

quarter greater with to our requirements time inside X.X%. credit utilization. and in lower which to range X.X% our the in reflected We should norms monthly decrease is in forecast facility over We posting averaged X.X% be historical also of expect liquidity line and first collateral which attrition

growth you added above the started through quarter new the We and also XXX,XXX year. slightly where ended organic RCEs

a a March the operations. the On been we rapidly small to Xst in able integrate M&A closed on Northeast front the on and retailer of have acquisition those

Meanwhile end we corporate also team development expect explore to opportunities have affiliate which books book be of parent for tuck-in customers. of an of quarter. customers from our the the begun We to complete continues process a companies or current the by our moving over of of

down initiatives quarter we brand our which geared Verde, that with had the this towards As the us In integration last and terminated earn-out January big EBITDA. mentioned several to we driving second our adjusted allowed in early our full finish of call cost-to-serve integration increasing the we quarter.

streamlined internal Our moves March we April these back Xth of should taken the conjunction the reorganization of reintegration to-date. $XX of executed approximately we've duplicate with completed additional Spark a Xst. we both some processes. with estimate cost we annually When on as the into actions our run result rate on board positions eliminate In were-in achieve we savings and retail approved which combined of co-services an that corporate certain we savings million the

brands in rate in savings. markets, We our additional of number are last and to additional consolidating that of of which On targeting savings call include $XX measures, forward expect by we automating XXXX. systems moving processes the each manual end we were cost we certain mentioned a result consolidating billing of run with which million

review. the are over XXXX. I on savings we now and by of schedule that will those of with way to have We place in we the now our ahead that, believe financial should Rob? for call well of that turn for end most his And Rob goal and

Robert Lane

last achieved morning. There the $XX.X million. quarter last Retail decrease Nathan. $XX.X compared to adjusted of In of margin this comparison few items in year's to for you, quarter in year. million be $XX.X we decrease million, last to of year, XX% the quarter, gross EBITDA, Good compared a first million XX%. Thank was $XX.X of a mindful with are

winter Nathan as earnings cost our retail both goods of during sold the mentioned a First, earnings unit the year-end on and call cyclone increasing on of on this and gross per by this beginning negatively of storm our bomb the margin year basis. effects call, our affected

the as load of and volumes both increase year-over-year because with the from second storms. the additional of well The winter acquisitions, as in other Verde inclusion the

third last and higher to the ISOs. we we whereas winter of collateral to we the our year supply not positions by the during purchased milder take weather a that The prices costs, physical requirements to was optimize this the hedges expected of that had they at advantage were winter of were would've constrained number most been pay of factor able

increased an that we debt customers we increase commercial increased to to of the the commissions a expenses in paid year in G&A For number last serve, larger the due of bad in from increase book. to completed primarily $XX million book an cleanup XX% and Verde

the made time on drive record number quarter. spent Nathan expect numbers of $X.XX mentioned, per acquire was The a that moved quarter the As during X% year-to-date. We customer to to the we million over organically first quarter down we of $XXX,XXX $X.X RCEs, ended our increase basis. the up primary bring RCEs this we with a million first G&A during

of primarily in to and expense may continue We attrition certain of trend sellers expect of the although $X.X quarter as the the tax loss from expense into note. because for due see $X.X expense growth contracts. quarter the deliberate quarter earn-out second non-cash renew for we to net to Income as the a of to million commercial quarter, to to quarter. decrease for larger primarily taxes accretion our first of decreased a customers $X.X modest some of Interest liabilities $X.X decreased XXXX credit elect the compared million before million for this not we million

the mark-to-market million associated contracts. income of per $XX.X in loss primarily mark-to-market income decrease loss margins to net XXXX share million on the or $XX.X $XX.X to fully this $XX.X was is in non-cash share with We ago. $X.XX driven a net million lock Our we $X.XX in by fully million for on loss diluted first accounting our mark-to-market year basis. of the for diluted put net a had hedges or adjusted per at our to split quarter of our compared place compared the retail A quarter

preferred March paid On On dividend April on XX, XX, on dividend the be XX. $X.XXXXX cash to $X.XXXXX quarterly dividend A we June of paid levels. of our Common XX, April cash stock the on loss XX to This per to quarter our Preferred be share price why we as paid of announced is ultimately and our being dividend we quarter the returned when prices very of income of which common first resulted stock. historical As in stock on curves per winter quarter contracts. our experience quarterly the July A on stock. paid Series first change good not And XXXX not Class end the on on A first reversed we a indicator actual a of in storm example associated non-cash we fourth with perfect commodity receive gain does net to of quarter other fall reminded We performance. in mark-to-market a believe those past, the mark-to-market equal. the business we investors expect our is the fixed-price the sudden at spikes that have things share essentially

these I in past, forward As go a on continue That's expect you Thank to we've have. Nathan. stated pay quarterly we the basis. dividends all to

Nathan Kroeker

Thanks, Rob.

the of risks, take take downside January position drive taken With has and costs. of extreme us behind Spark opportunities ourselves measures will to continue minimize to to down cold advantage market and

We open the rest up are analysts. about for the line we Operator. to the of like would And our excited year. from questions

Operator

Thank you. first Carter comes from And of question Driscoll [Operator Instructions]. FBR. B. from our Riley line

Your now open. is line

Carter Driscoll

Good morning, gentlemen.

Nathan Kroeker

morning, Carter. Good

Carter Driscoll

question just first or Nathan Rob. a maybe a So, clarification

accelerated a quarter you of around about you're so. save rate the XXXX? million So, by of bit basis like and you end that to It do savings $XX last in hoping sounds annualized to hoping I moved maybe those think cost on and talked it some you've are

hoping million XXXX. year-end by XX You're maybe see basis annualized to

the first So, question timing? have do and correct figures is I the

Robert Lane

what more. – XX last quarter million the or we $XX said million So, was

that gauging million against ourselves $XX number. we're So internally

We realized have buckets costs of taken kind that of we've two to-date.

then The is Retail with large of related labor of commercial costs for the primarily labor the first sales and Verde and and deemphasizing headcount reductions the associated reintegration channel. reintegration one Co.,

another third-party So is X January those little with primarily took we three vendor into There's Those given additional that four. arguably million actions renegotiating and in agreements the next quarter. about That's XX. bit accelerated area. effect come associated an a contracts cost-to-serve XX weather and the of

now work we take X $XX XX little to-date going of of difficult to specific that to call realized the run next it been want next is and a moment XXXX to the Then we and XXXX. the that is that are handful or the that's ago, were arguably will three we quarters, a within calendar on be believe right savings, the done get through through us achieve, we've million we're to believe million. million, difference but months. us million get its going your was the majority a initiatives X got is to in rate by we going The for we four forward it thinking more listed next there XX So a can and after

Carter Driscoll

Okay.

XX million you incremental from months can additions? So the that X pulled it forward you multiple by assuming get

Nathan Kroeker

Yes.

Carter Driscoll

you. right. All Appreciate Thank that.

So, parts obviously weather impact. to there the were of moving lot

You then recall the have events of there ERCOT, kind XXXX, events heat correctly just in with context other exogenous Vortex, of compare other you events – contrast this I put particular exogenous wave those put and you some past was happened you context? kind Polar in over that with have in If few XXXX had years. have of the you some weather could of and extreme

Nathan Kroeker

business weather smaller one event at million, EBITDA out $XX kind financial time. those you we events out to are events We $XX somewhere as a $X that of probably a million of were rate that impact that What is were million our at of stand much between netted Yes. and situation extreme in Both this run $X for couple have those us. in Both things. be and time. minds

our the much was Polar a and then days or right, in England more prolonged Northeast weather weeks. also business the a markets. This event, something. higher concentration have have mean, five And You New I was Vortex two you of

of a got much and bigger our concentration and longer-term bigger weather you've it’s a you So a have business business event.

XX dollars just you this and XX much and explains that a absolute size in look chunk so when big of were. than why at bigger So, is scale

Carter Driscoll

would the adding I side accurate? being to commercial from composition just buy physical also on potentially contracts? being more, And business that your imagine the it. Got just impact Is of some that more forced

Nathan Kroeker

in give color, just more storm. in I'll mean, said growth you little late business this XXXX. We our amount I of significant I C&I perfect when a a had was earlier Yes. a

right on was and load flow weather. So that all December cold prices of spiking coming this were January as from

balance to resulted in week year of out collateral facts or hedge requirements balance bad and financial, about. talked in Just force a been two to went that out physical we and went of have for ahead just of month, day pay alone out also of Rob of and short-term would our because those order collateral to We because and we bought constraints. actually mitigate in quarter ISO would a power, market bad constraints, have those instead some balance the the

for of it really three those same storm So, a order at to coming was the events in together perfect time us. create this issue

Carter Driscoll

Okay.

Nathan Kroeker

I extreme I like was exacerbated said, mean, a balance It event. significant And – that our the was and growth. by an C&I weather I sheet think was that by

harmful have event think weather like have C&I balance would you I this to us. sheet bigger been growth don't or you event, a significantly less if have the

now more steps we on than steps amount as reduce a to taken C&I. to taking talked our the of proactive increase we're the time. availability significant balance We've of already have at sheet, So we about focus kind the large did

will where So, like be I feel we're to steps situation in I not again. we that the taking mean

Carter Driscoll

shortfall comfort you obviously to appreciate what I you tough have a Could start flat then this the some color. balance you February, us talked that whether were other January, you from up the Could of the the plan about characterize guidance year-over-year, to being and that some Okay. make May. and that maintaining kind roughly gives you give of on months context despite able maybe be the March they very on of to and since point if year? April quarter you'll the

Nathan Kroeker

tracking would kind of refresh April order changes, some talked into the be savings, XXXX that then right right was us. plan we're the and say Sure. good and four with able we plans, and for cost sales our reset line in We bounced to happy March be a I'm internal we've that February efforts refresh year kind along to the that accelerated refocused internal made to Feb, of February. in internal of our few say things that a plan. all back And that in month about months

Carter Driscoll

me. two I say, one last Okay, from Obviously – okay. should two issues. Maybe just

Do have but So, even that LOIs capital imagine you been any to think M&A to characterize smaller some the availability like other Vortex maybe that were of even maybe opportunities opens hurt much I maybe smaller you some books just of maybe the up in Whether do pick or or by exogenous some same of more brands concentration up year. the part players? environment geographic January. this that, for the you would what less some happen additional later in weather have might Polar players that with event

Nathan Kroeker

We're starting now. it Yes, absolutely. a bit of little see to

think those started things back to you a Vortex, get really took to active the it about market. If Polar year the on before

and player they lot provider a be just anticipate if like to going while just along that to of think can do. I like can our And tuck-in manage and have deals would it sell standpoint small those think, inbound pick in those for activity I'm through said and focused of out or sleeve tired to and decide the do from already had did that up us are to and opportunities why the XXXX, eventually small it we're which they if little I a going for this be to calls fine that straight-forward there. relatively are I We've I will acquisitions is that carries on business. them a few I

Carter Driscoll

opportunities, to process you you one you the materialize? from anything where have or talk Okay. me, And just then are had about in last someone engaged could obviously explore concrete

Nathan Kroeker

Sure.

Morgan We are working with Stanley.

but that terms updates as with with to that don't today, back early things will involved certainly provide have be I anything we It's of actively process, very in still Our progress. than so in board them. still other updates is fairly

Carter Driscoll

for I'll Okay. my Thanks queue. in go all taking back questions.

Nathan Kroeker

Thanks, Carter.

Operator

of our you. from Thank Gyure And the next comes question Janney. Mike line from

open. now line Your is

Mike Gyure

Yes. acquisition bit guess year? here costs, a are the spend what's maybe for and with the Could you of then spending light about customer remainder quarter year first going little I of in the guys the what this your talk in expectations on

Robert Lane

Yes.

the You our event. little that and just we back that us bit in just a efficient were year. from pull January more getting Part part of back QX with see is on dollars channels of last given a weather sales where lot pulling is

through going balance you're costs say think year. market us. us of I pretty aggressively focus CAC the an We for of mass to to the our continue manage see is area

to going the until event. we're our So through change this get short through kind the long-term of to outlook just in down months, weather here be slowed smart growth we but for those dollars hasn't very terms of organic about have things but manage we term next of couple

Mike Gyure

residential, Okay. going it And volume could business the update commercial about business from mixing then mix like you the metric? walk think of give of the some business, you going two to sounds maybe you kind kind we between of relating away do versus what an margin lower of us on that your forward potentially to commercial

Nathan Kroeker

what very So if of you commercial look mix and it XX% that's and today XX% that we're resi large on comp XX% a small our volume focus metric comp is commercial, specific. Mike, basis and the

of England, we reduce which Our New in lower the and large commercial and volume Northeast have margins that is we where the the have amount constraints. specifically is focus up to

or to XX/XX even is commercial get goal next XX/XX couple resi, resi, back my over to of of that years. the commercial So kind

Mike Gyure

the then electricity? part maybe versus portfolio question your And gas similar on of the Okay. a natural

Nathan Kroeker

a have gas. to shift really gas. on the of acquisitions Yes. function today. XX% historically been avoid we've XX% strategic gas that not focused done on the like That's part electricity. We our That's natural electricity,

to be an would XX keen find a if one. business in very next months the gas of I acquisition I the right could So do

do of So to how that's portion expand the focus for we that portfolio. the us gas portion is continue or the

Mike Gyure

Thanks. Great.

Operator

at time. further we you. have And Thank no questions this

Nathan Kroeker

for today. forward joining to And us next talking to All look right. we quarter. everybody you Thanks again

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