UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): November 5, 2019
Spark Energy, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
 
 
Delaware
 
001-36559
 
46-5453215
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification Number)

12140 Wickchester Ln, Ste 100
Houston, Texas 77079
(Address of Principal Executive Offices)
(Zip Code)
(713) 600-2600
(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbols(s)
 
Name of exchange on which registered
Class A common stock, par value $0.01 per share
 
SPKE
 
The NASDAQ Global Select Market
8.75% Series A Fixed-to-Floating Rate
Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share
SPKEP
 
 
The NASDAQ Global Select Market
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company  ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒




Item 2.02 Results of Operations and Financial Condition.

On November 5, 2019, Spark Energy, Inc. (the “Company”) issued a press release announcing third quarter 2019 earnings (the “Press Release”). The Press Release is being furnished as Exhibit 99.1 to this Current Report and is incorporated by reference herein.
The information above is being furnished, not filed, pursuant to Item 2.02 of Form 8-K. Accordingly, the information in Item 2.02 of this Current Report will not be incorporated by reference into any registration statement filed by the Company under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), unless specifically identified therein as being incorporated by reference.

Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit No.
Description
 
 
99.1
Press Release of Spark Energy, Inc. dated November 5, 2019



EXHIBIT INDEX

Exhibit No.
Description
 
 
99.1



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: November 6, 2019
 
 
 
 
Spark Energy, Inc.
 
By:
 
/s/ James G. Jones II
Name:
 
James G Jones II
Title:
 
Chief Financial Officer






Spark Energy, Inc. Reports Third Quarter 2019 Financial Results

HOUSTON, November 5, 2019 (ACCESSWIRE) -- 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, 2019.
Key Highlights
•
Achieved $28.1 million in Adjusted EBITDA, $58.2 million in Retail Gross Margin, and $37.7 million in Net Income for the third quarter
•
Total RCE count of 772,000 as of September 30, 2019
•
Average monthly attrition of 4.0%
•
ERCOT summer insurance hedging strategy performed very well

"Our third quarter was strong, with significant improvements compared to the third quarter of last year. As expected, higher unit margins more than offset the slight increase we saw in G&A compared to the third quarter of 2018. Our overall customer book is much healthier with attrition in line with prior year. We are approaching the final steps of our brand and system consolidations and still expecting over $22 million in run-rate savings by year end 2019. We have greatly simplified our platform and expect to realize improved economies of scale and empower Spark's story going forward," said Nathan Kroeker, Spark's President and Chief Executive Officer.
Summary Third Quarter 2019 Financial Results
For the quarter ended September 30, 2019, Spark reported Adjusted EBITDA of $28.1 million compared to Adjusted EBITDA of $18.6 million for the quarter ended September 30, 2018. This increase of $9.5 million was driven by an increase in retail gross margin, more than offsetting increases in customer acquisition spending compared to the third quarter of 2018.
For the quarter ended September 30, 2019, Spark reported Retail Gross Margin of $58.2 million compared to Retail Gross Margin of $45.8 million for the quarter ended September 30, 2018. This increase of $12.4 million was primarily attributable to a 78% increase in electricity unit margins and a 13% increase in gas unit margins. Our ERCOT summer insurance hedging strategy combined with an increased percentage of residential customers in the overall customer book contributed to the successful quarter.
Net income for the quarter ended September 30, 2019, was $37.7 million compared to net income of $18.8 million for the quarter ended September 30, 2018. The increase in performance compared to the prior year was primarily the result of the increase in the non-cash mark to market position of our hedge portfolio of $25.3 million compared with the non-cash mark to market position of our hedge portfolio of $18.9 million in the third quarter of 2018. This combined with the $12.4 million increase in retail gross margin allowed for significant increased performance.





Liquidity and Capital Resources
($ in thousands)
September 30, 2019
Cash and cash equivalents
$
42,580
 
Senior Credit Facility Availability (1)
63,113
 
Subordinated Debt Facility Availability (2)
14,496
 
Total Liquidity
$
120,189
 
(1) Reflects amount of Letters of Credit that could be issued based on existing covenants as of September 30, 2019.
(2) The availability of the Subordinated Debt Facility is dependent on our Founder's willingness and ability to lend.
Dividend
On October 21, 2019, Spark’s Board of Directors declared quarterly dividends of $0.18125 per share of Class A common stock payable on December 16, 2019, to holders of record on December 2, 2019, and $0.546875 per share of Series A Preferred Stock payable on January 15, 2020 to holders of record on January 1, 2020.
Business Outlook
Mr. Kroeker concluded, "Based on all our work consolidating our brands and systems and our strong unit margins, we expect a strong finish to 2019.”
Conference Call and Webcast
Spark will host a conference call to discuss third quarter 2019 results on Wednesday, November 6, 2019, 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-and-presentations. 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 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 forward-looking 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 “may,” “should,” “likely,” “will,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” “plan,” “intend,” “project,” or other similar words. All statements, other than statements of historical fact included in this earnings 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 earnings 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;
•
the sufficiency of risk management and hedging policies and practices;
•
the impact of extreme and unpredictable weather conditions, including hurricanes and other natural disasters;
•
federal, state and local regulation, including the industry's ability to address or adapt to potentially restrictive new regulations that may be enacted by public utility commissions;
•
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;
•
changes in costs to acquire customers as well as actual attrition rates;
•
accuracy of billing systems;
•
our ability to successfully identify, complete, and efficiently integrate acquisitions into our operations;
•
significant changes in, or new charges by, the ISOs in the regions in which we operate;
•
competition; and
•
the “Risk Factors” in our latest Annual Report on Form 10-K for the year ended December 31, 2018, in our Quarterly Reports on Form 10-Q, and 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.
For further information, please contact:
Investor Relations:
Mike Barajas, 832-200-3727




Media Relations:
Kira Jordan, 832-255-7302




SPARK ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018
(in thousands, except share counts)
(unaudited)




 
September 30, 2019
 
December 31, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
42,580

 
 
$
41,002
 
Restricted cash
1,002
 
 
 
8,636
 
Accounts receivable, net of allowance for doubtful accounts of $2,995 at September 30, 2019 and $3,353 at December 31, 2018
101,672
 
 
 
150,866
 
Accounts receivable—affiliates
1,419
 
 
 
2,558
 
Inventory
3,580
 
 
 
3,878
 
Fair value of derivative assets
1,143
 
 
 
7,289
 
Customer acquisition costs, net
8,389
 
 
 
14,431
 
Customer relationships, net
14,623
 
 
 
16,630
 
Deposits
6,723
 
 
 
9,226
 
Renewable energy credit asset
16,414
 
 
 
25,717
 
Other current assets
14,296
 
 
 
11,747
 
Total current assets
211,841
 
 
 
291,980
 
Property and equipment, net
3,255
 
 
 
4,366
 
Fair value of derivative assets
94
 
 
 
3,276
 
Customer acquisition costs, net
9,328
 
 
 
3,893
 
Customer relationships, net
20,715
 
 
 
26,429
 
Deferred tax assets
23,130
 
 
 
27,321
 
Goodwill
120,343
 
 
 
120,343
 
Other assets
9,696
 
 
 
11,130
 
Total assets
$
398,402

 
 
$
488,738
 
Liabilities, Series A Preferred Stock and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
45,708

 
 
$
68,790
 
Accounts payable—affiliates
351
 
 
 
2,464
 
Accrued liabilities
23,755
 
 
 
10,845
 
Renewable energy credit liability
30,638
 
 
 
42,805
 
Fair value of derivative liabilities
4,460
 
 
 
6,478
 
Current payable pursuant to tax receivable agreement—affiliates
—
 
 
 
1,658
 
Current contingent consideration for acquisitions
1,328
 
 
 
1,328
 
Current portion of Note Payable
—
 
 
 
6,936
 
Other current liabilities
1,862
 
 
 
647
 
Total current liabilities
108,102
 
 
 
141,951
 
Long-term liabilities:
 
 
 
Fair value of derivative liabilities
1,830
 
 
 
106
 
Payable pursuant to tax receivable agreement—affiliates
—
 
 
 
25,917
 
Long-term portion of Senior Credit Facility
109,000
 
 
 
129,500
 
Subordinated debt—affiliate
10,504
 
 
 
10,000
 
Other long-term liabilities
190
 
 
 
212
 
Total liabilities
229,626
 
 
 
307,686
 
Commitments and contingencies
 
 
 
Series A Preferred Stock, par value $0.01 per share, 20,000,000 shares authorized, 3,702,756 issued and outstanding at September 30, 2019 and 3,707,256 issued and outstanding at December 31, 2018
90,646
 
 
 
90,758
 
Stockholders' equity:
 
 
 
Common Stock:
 
 
 
Class A common stock, par value $0.01 per share, 120,000,000 shares authorized, 14,478,999 issued, and 14,379,553 outstanding at September 30, 2019 and 14,178,284 issued and 14,078,838 outstanding at December 31, 2018
145
 
 
 
142
 
Class B common stock, par value $0.01 per share, 60,000,000 shares authorized, 20,800,000 issued and outstanding at September 30, 2019 and December 31, 2018
209
 
 
 
209
 
Additional paid-in capital
53,750
 
 
 
46,157
 
Accumulated other comprehensive (loss) income
(57
 
)
 
2
 
Retained earnings
3,849
 
 
 
1,307
 
Treasury stock, at cost, 99,446 shares at September 30, 2019 and December 31, 2018
(2,011
 
)
 
(2,011
)
Total stockholders' equity
55,885
 
 
 
45,806
 
Non-controlling interest in Spark HoldCo, LLC
22,245
 
 
 
44,488
 
Total equity
78,130
 
 
 
90,294
 
Total liabilities, Series A Preferred Stock and Stockholders' equity
$
398,402

 
 
$
488,738
 


SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(in thousands)
(unaudited)




 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Retail revenues
$
207,341
 
 
$
258,127
 
 
$
625,300
 
 
$
773,616
 
Net asset optimization (expense) revenues
(254
)
 
348
 
 
2,242
 
 
3,798
 
Total Revenues
207,087
 
 
258,475
 
 
627,542
 
 
777,414
 
Operating Expenses:
 
 
 
 
 
 
 
Retail cost of revenues
123,867
 
 
193,409
 
 
477,881
 
 
645,954
 
General and administrative
27,629
 
 
25,695
 
 
94,352
 
 
83,522
 
Depreciation and amortization
9,496
 
 
13,917
 
 
31,963
 
 
39,797
 
Total Operating Expenses
160,992
 
 
233,021
 
 
604,196
 
 
769,273
 
Operating income
46,095
 
 
25,454
 
 
23,346
 
 
8,141
 
Other (expense)/income:
 
 
 
 
 
 
 
Interest expense
(2,174
)
 
(2,762
)
 
(6,392
)
 
(7,323
)
Interest and other income
322
 
 
(47
)
 
1,005
 
 
707
 
Total other expenses
(1,852
)
 
(2,809
)
 
(5,387
)
 
(6,616
)
Income before income tax expense
44,243
 
 
22,645
 
 
17,959
 
 
1,525
 
Income tax expense
6,567
 
 
3,818
 
 
3,022
 
 
602
 
Net income
$
37,676
 
 
$
18,827
 
 
$
14,937
 
 
$
923
 
Less: Net income (loss) attributable to non-controlling interests
22,142
 
 
12,060
 
 
5,736
 
 
(3,524
)
Net income attributable to Spark Energy, Inc. stockholders
$
15,534
 
 
$
6,767
 
 
$
9,201
 
 
$
4,447
 
Less: Dividend on Series A Preferred Stock
2,026
 
 
2,027
 
 
6,080
 
 
6,081
 
Net income (loss) attributable to stockholders of Class A common stock
$
13,508
 
 
$
4,740
 
 
$
3,121
 
 
$
(1,634
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Currency translation (loss) gain
$
(45
)
 
$
47
 
 
$
(143
)
 
$
(11
)
Other comprehensive (loss) income
(45
)
 
47
 
 
(143
)
 
(11
)
Comprehensive income
$
37,631
 
 
$
18,874
 
 
$
14,794
 
 
$
912
 
Less: Comprehensive income (loss) attributable to non-controlling interests
22,116
 
 
12,089
 
 
5,652
 
 
(3,531
)
Comprehensive income attributable to Spark Energy, Inc. stockholders
$
15,515
 
 
$
6,785
 
 
$
9,142
 
 
$
4,443
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Spark Energy, Inc. per share of Class A common stock
 
 
 
 
 
 
 
Basic
$
0.94
 
 
$
0.35
 
 
$
0.22
 
 
$
(0.12
)
Diluted
$
0.93
 
 
$
0.35
 
 
$
0.22
 
 
$
(0.12
)
 
 
 
 
 
 
 
 
Weighted average shares of Class A common stock outstanding
 
 
 
 
 
 
 
Basic
14,380
 
 
13,394
 
 
14,254
 
 
13,254
 
Diluted
14,514
 
 
13,394
 
 
14,429
 
 
13,254
 
 
 
 
 
 
 
 
 





SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(in thousands)
(unaudited)

 
Nine Months Ended September 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
14,937

 
 
$
923

 
Adjustments to reconcile net loss to net cash flows provided by operating activities:
 
 
 
Depreciation and amortization expense
31,965
 
 
 
38,538
 
 
Deferred income taxes
34
 
 
 
(749
 
)
Change in TRA liability
—
 
 
 
79
 
 
Stock based compensation
4,053
 
 
 
3,707
 
 
Amortization of deferred financing costs
1,002
 
 
 
1,243
 
 
Excess tax benefit related to restricted stock vesting
—
 
 
 
(101
 
)
Change in Fair Value of Earnout liabilities
—
 
 
 
(63
 
)
Bad debt expense
9,185
 
 
 
8,480
 
 
Loss on derivatives, net
42,690
 
 
 
1,371
 
 
Current period cash settlements on derivatives, net
(32,593
 
)
 
6,189
 
 
Other
(608
 
)
 
(489
 
)
Changes in assets and liabilities:
 
 
 
Decrease in accounts receivable
40,008
 
 
 
21,029
 
 
Decrease (increase) in accounts receivable—affiliates
1,139
 
 
 
(390
 
)
Decrease in inventory
298
 
 
 
475
 
 
Increase in customer acquisition costs
(13,608
 
)
 
(8,949
 
)
Decrease (increase) in prepaid and other current assets
9,211
 
 
 
(10,999
 
)
Increase in intangible assets—customer acquisitions
—
 
 
 
(86
 
)
(Increase) decrease in other assets
(394
 
)
 
92
 
 
Decrease in accounts payable and accrued liabilities
(27,721
 
)
 
(11,062
 
)
Decrease in accounts payable—affiliates
(2,114
 
)
 
(1,786
 
)
Increase (decrease) in other current liabilities
(374
 
)
 
(5,140
 
)
Decrease in other non-current liabilities
(25
 
)
 
(459
 
)
Net cash provided by operating activities
77,085
 
 
 
41,853
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(577
 
)
 
(1,097
 
)
Verde working capital settlement
—
 
 
 
470
 
 
Acquisition of Starion customers
(5,913
 
)
 
—
 
 
Acquisition of HIKO
—
 
 
 
(14,290
 
)
Acquisition of Customers from Affiliate
—
 
 
 
(8,776
 
)
Net cash used in investing activities
(6,490
 
)
 
(23,693
 
)
Cash flows from financing activities:
 
 
 
Proceeds from (buyback) issuance of Series A Preferred Stock, net of issuance costs paid
(111
 
)
 
48,490
 
 
Borrowings on notes payable
224,500
 
 
 
277,800
 
 
Payments on notes payable
(245,000
 
)
 
(281,050
 
)
Net borrowings on subordinated debt facility
504
 
 
 
—
 
 
Payment of the Major Energy Companies Earnout
—
 
 
 
(1,607
 
)
Payments on the Verde promissory note
(2,036
 
)
 
(6,573
 
)
Proceeds from disgorgement of stockholders short-swing profits
55
 
 
 
244
 
 
Restricted stock vesting
(1,348
 
)
 
(2,589
 
)
Payment of Tax Receivable Agreement liability
(11,239
 
)
 
(3,577
 
)
Payment of dividends to Class A common stockholders
(7,776
 
)
 
(7,233
 
)
Payment of distributions to non-controlling unitholders
(28,108
 
)
 
(23,701
 
)
Payment of Preferred Stock dividends
(6,082
 
)
 
(4,987
 
)
Payment to affiliates for acquisition of customer book
(10
 
)
 
—
 
 
Net cash used in financing activities
(76,651
 
)
 
(4,783
 
)




(Decrease) increase in Cash, cash equivalents and Restricted cash
(6,056
 
)
 
13,377
 
 
Cash, cash equivalents and Restricted cash—beginning of period
49,638
 
 
 
29,419
 
 
Cash, cash equivalents and Restricted cash—end of period
$
43,582

 
 
$
42,796

 
Supplemental Disclosure of Cash Flow Information:
 
 
 
Non-cash items:
 
 
 
Property and equipment purchase accrual
$
89

 
 
$
(123

)
Holdback for Verde Note—Indemnified Matters
$
4,900

 
 
$
—

 
Write-off of tax benefit related to tax receivable agreement liability — affiliates
$
4,157

 
 
$
—

 
Gain on settlement of tax receivable agreement liability—affiliates
$
(16,336

)
 
$
—

 
Cash paid during the period for:
 
 
 
Interest
$
5,245

 
 
$
5,955

 
Taxes
$
5,097

 
 
$
7,461

 




SPARK ENERGY, INC.
OPERATING SEGMENT RESULTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(in thousands, except volume and per unit operating data)
(unaudited)
 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
 
2019
 
2018
 
2019
 
2018
Retail Electricity Segment
 
 
 
 
 
 
 
Total Revenues
$
197,010
 
 
$
246,182
 
 
$
539,878
 
 
$
676,528
 
Retail Cost of Revenues
119,100
 
 
186,449
 
 
433,175
 
 
587,949
 
Less: Net gain (loss) on non-trading derivatives, net of cash settlements
24,767
 
 
19,481
 
 
(10,027
)
 
(4,034
)
Retail Gross Margin (1)  — Electricity
$
53,143
 
 
$
40,252
 
 
$
116,730
 
 
$
92,613
 
Volumes — Electricity (MWhs)
1,808,276
 
 
2,432,314
 
 
5,052,498
 
 
6,784,345
 
Retail Gross Margin (2) — Electricity per MWh
$
29.39
 
 
$
16.55
 
 
$
23.10
 
 
$
13.65
 
 
 
 
 
 
 
 
 
Retail Natural Gas Segment
 
 
 
 
 
 
 
Total Revenues
10,331
 
 
11,945
 
 
85,422
 
 
97,088
 
Retail Cost of Revenues
4,767
 
 
6,960
 
 
44,706
 
 
58,005
 
Less: Net gain (loss) on non-trading derivatives, net of cash settlements
525
 
 
(558
)
 
963
 
 
(3,243
)
Retail Gross Margin (1) — Gas
$
5,039
 
 
$
5,543
 
 
$
39,753
 
 
$
42,326
 
Volumes — Gas (MMBtus)
1,119,126
 
 
1,395,377
 
 
10,127,857
 
 
11,913,180
 
Retail Gross Margin (2) — Gas per MMBtu
$
4.50
 
 
$
3.97
 
 
$
3.93
 
 
$
3.55
 


(1)
Reflects the Retail Gross Margin attributable to our Retail Natural Gas Segment or Retail Electricity Segment, as applicable. Retail Gross Margin is a non-GAAP financial measure. See “Reconciliation of GAAP to Non-GAAP Measures” section below for a reconciliation of Adjusted EBITDA and Retail Gross Margin to their most directly comparable financial measures presented in accordance with GAAP.
(2)
Reflects the Retail Gross Margin for the Retail Natural Gas Segment or Retail Electricity Segment, as applicable, divided by the total volumes in MMBtu or MWh, respectively.



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. 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. Finally, we also adjust from time to time other non-cash or unusual and/or infrequent charges due to either their non-cash nature or their infrequency.
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;
•
our ability to fund capital expenditures (including customer acquisition costs) and incur and service debt; and
•
our compliance with financial debt covenants.

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 (iii) net asset optimization revenues (expenses), (iv) net gains (losses) on non-trading derivative instruments, and (v) 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 segments. 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)
2019
 
2018
 
2019
 
2018
Reconciliation of Adjusted EBITDA to Net income:
 
 
 
 
 
 
 
Net income
$
37,676

 
 
$
18,827

 
 
$
14,937
 
 
$
923

 
Depreciation and amortization
9,496
 
 
 
13,917
 
 
 
31,963
 
 
39,797
 
 
Interest expense
2,174
 
 
 
2,762
 
 
 
6,392
 
 
7,323
 
 
Income tax expense
6,567
 
 
 
3,818
 
 
 
3,022
 
 
602
 
 
EBITDA
55,913
 
 
 
39,324
 
 
 
56,314
 
 
48,645
 
 
Less:
 
 
 
 
 
 
 
Net, gain (loss) on derivative instruments
12,307
 
 
 
18,117
 
 
 
(42,690
)
 
(1,371
 
)
Net cash settlements on derivative instruments
12,721
 
 
 
922
 
 
 
33,515
 
 
(5,823
 
)
Customer acquisition costs
4,423
 
 
 
2,695
 
 
 
13,608
 
 
8,949
 
 
Plus:
 
 
 
 
 
 
 
Non-cash compensation expense
1,622
 
 
 
1,021
 
 
 
4,054
 
 
3,707
 
 
Non-recurring legal and regulatory settlements
—
 
 
 
—
 
 
 
10,807
 
 
—
 
 
Adjusted EBITDA
$
28,084

 
 
$
18,611

 
 
$
66,742
 
 
$
50,597

 

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Reconciliation of Adjusted EBITDA to net cash provided by operating activities:
 
 
 
 
 
 
 
Net cash provided by operating activities
$
26,056
 
 
$
5,443
 
 
$
77,085
 
 
$
41,853
 
Amortization of deferred financing costs
(497
)
 
(631
)
 
(1,002
)
 
(1,243
)
Bad debt expense
(3,170
)
 
(2,755
)
 
(9,185
)
 
(8,480
)
Interest expense
2,174
 
 
2,762
 
 
6,392
 
 
7,323
 
Income tax expense
6,567
 
 
3,818
 
 
3,022
 
 
602
 
Changes in operating working capital
 
 
 
 
 
 
 
Accounts receivable, prepaids, current assets
1,034
 
 
16,248
 
 
(50,358
)
 
(9,640
)
Inventory
1,560
 
 
2,218
 
 
(298
)
 
(475
)
Accounts payable and accrued liabilities
(963
)
 
(5,946
)
 
30,209
 
 
17,988
 
Other
(4,677
)
 
(2,546
)
 
10,877
 
 
2,669
 
Adjusted EBITDA
$
28,084
 
 
$
18,611
 
 
$
66,742
 
 
$
50,597
 
Cash Flow Data:
 
 
 
 
 
 
 
Cash flows provided by operating activities
$
26,056
 
 
$
5,443
 
 
$
77,085
 
 
$
41,853
 
Cash flows (used in) provided by investing activities
$
(117
)
 
$
307
 
 
$
(6,490
)
 
$
(23,693
)
Cash flows (used in) provided by financing activities
$
(10,937
)
 
$
1,344
 
 
$
(76,651
)
 
$
(4,783
)





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)
2019
 
2018
 
2019
 
2018
Reconciliation of Retail Gross Margin to Operating income:
 
 
 
 
 
 
 
Operating income
$
46,095
 
 
$
25,454
 
 
$
23,346
 
 
$
8,141
 
Plus:
 
 
 
 
 
 
 
Depreciation and amortization
9,496
 
 
13,917
 
 
31,963
 
 
39,797
 
General and administrative expense
27,629
 
 
25,695
 
 
94,352
 
 
83,522
 
Less:
 
 
 
 
 
 
 
Net asset optimization (expenses) revenues
(254
)
 
348
 
 
2,242
 
 
3,798
 
Net, gain (loss) on non-trading derivative instruments
12,528
 
 
17,888
 
 
(42,741
)
 
(2,223
)
Net, cash settlements on non-trading derivative instruments
12,764
 
 
1,035
 
 
33,677
 
 
(5,054
)
Retail Gross Margin
$
58,182
 
 
$
45,795
 
 
$
156,483
 
 
$
134,939
 
Retail Gross Margin - Retail Electricity Segment
$
53,143
 
 
$
40,252
 
 
$
116,730
 
 
$
92,613
 
Retail Gross Margin - Retail Natural Gas Segment
$
5,039
 
 
$
5,543
 
 
$
39,753
 
 
$
42,326