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): March 4, 2020
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 March 4, 2020, Spark Energy, Inc. (the “Company”) issued a press release announcing results for the fourth quarter and year-ended December 31, 2019 (the “Press Release”). The Press Release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.
The information in Item 2.02 of this Current Report on Form 8-K is being “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, and is not incorporated by reference into any registration statement filed by the Company under the Securities Act of 1933, as amended (the “Securities Act”), or 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 March 4, 2020




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: March 5, 2020
 
 
 
 
Spark Energy, Inc.
 
By:
 
/s/ James G. Jones II
Name:
 
James G Jones II
Title:
 
Chief Financial Officer






Spark Energy, Inc. Reports Fourth Quarter and Full Year 2019 Financial Results
HOUSTON, March 4, 2020 (GLOBE NEWSWIRE) -- Spark Energy, Inc. ("Spark" or the "Company") (NASDAQ: SPKE), an independent retail energy services company, today reported financial results for the year ended December 31, 2019.
Key Business Highlights
Recorded $25.7 million in Adjusted EBITDA, $64.3 million in Retail Gross Margin, and $0.7 million in Net Loss for the fourth quarter 2019
Recorded $92.4 million in Adjusted EBITDA, $220.7 million in Retail Gross Margin, and $14.2 million in Net Income for the year ended 2019
Total RCE count of 672,000 as of December 31, 2019
Average monthly attrition of 5.0% for the year ended December 31, 2019
Settled several significant legacy litigation items
Sold our Japanese joint venture for a pre-tax gain of $4.9 million, not included in Adjusted EBITDA
Total liquidity of $138.7 million
Approximately 70% of all new sales in 2019 were fully renewable electricity or carbon neutral natural gas


"2019 was a strong year for Spark and we have continued to improve the quality of our customer book by continuing to shed low margin, large C&I customers. We see the significant increase in unit margins from last year as a result of our winter and summer insurance hedging strategy. With a strong push to simplify our platform in 2019, we completed the final steps of our brand and system consolidations and achieved our goal of G&A run-rate savings. Despite record price volatility in ERCOT this summer, our insurance hedging strategy continues to prove successful supporting our expanded electricity and natural gas unit margins. Earlier in the year we terminated our Tax Receivable Agreement on very favorable terms, amended and extended our senior credit and subordinated debt facilities, and we also resolved four significant litigation and regulatory cases," said Nathan Kroeker, Spark's President and Chief Executive Officer.

Summary Fourth Quarter 2019 Financial Results

For the quarter ended December 31, 2019, Spark reported Adjusted EBITDA of $25.7 million compared to Adjusted EBITDA of $20.1 million for the quarter ended December 31, 2018. This increase was primarily due to the higher Retail Gross Margin partially offset by lower customer counts.
For the quarter ended December 31, 2019, Spark reported Retail Gross Margin of $64.3 million compared to Retail Gross Margin of $50.2 million for the quarter ended December 31, 2018. This increase is due to electricity unit margins and volumes returning to normal after a downturn in 2018, offset by lower customer counts.
Net loss for the quarter ended December 31, 2019, was $0.7 million, heavily impacted by mark to market losses in the last few days of the year, driven by a warm front at year end in our primary markets. This compares to a net loss of $15.3 million for the quarter ended December 31, 2018.





Summary Full Year 2019 Financial Results
For the year ended December 31, 2019, Spark reported Adjusted EBITDA of $92.4 million compared to Adjusted EBITDA of $70.7 million for the year ended December 31, 2018. The increase was primarily due to higher Retail Gross Margin despite an increase in G&A related to non-recurring litigation settlements, bad debt and legal fees.
For the year ended December 31, 2019, Spark reported Retail Gross Margin of $220.7 million compared to Retail Gross Margin of $185.1 million for the year ended December 31, 2018. The increase was primarily due to higher electricity unit margins, offset by a smaller customer counts.
Net income for the year ended December 31, 2019, was $14.2 million compared to net loss of $(14.4) million for the year ended December 31, 2018, driven by higher retail gross margins, effective summer hedging, and the gain on sale of our joint venture in Japan.
Liquidity and Capital Resources
 
December 31,
($ in thousands)
2019
Cash and cash equivalents
$
56,664
 
Senior Credit Facility Availability (1)
57,068
 
Subordinated Debt Facility Availability (2)
25,000
 
Total Liquidity
$
138,732
 
(1)     Reflects amount of Letters of Credit that could be issued based on existing covenants as of December 31, 2019.
(2)    The availability of the Subordinated Debt Facility is dependent on our Founder's financial position and ability to lend.
Dividend
Spark’s Board of Directors declared quarterly dividends of $0.18125 per share of Class A common stock payable on March 16, 2020, and $0.546875 per share of Series A Preferred Stock payable on April 15, 2020.
Conference Call and Webcast
Spark will host a conference call to discuss fourth quarter and full year 2019 results on Thursday, March 5, 2020, 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 https://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 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 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,” “projects,” 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 and the related earnings call 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 and actual attrition rates;
accuracy of billing systems;
ability to successfully identify, complete, and efficiently integrate acquisitions into our operations;
significant changes in, or new changes by, the ISOs in the regions we operate;
competition; and
the “Risk Factors” in our latest Annual Report on Form 10-K, and in our quarterly reports, other public filings and press releases.
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.


further discussion.







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





 
December 31, 2019
 
 
December 31, 2018
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
56,664

 
 
 
$
41,002
 
Restricted cash
1,004
 
 
 
 
8,636
 
Accounts receivable, net of allowance for doubtful accounts of $4,797 and $3,353 as of December 31, 2019 and 2018, respectively
113,635
 
 
 
 
150,866
 
Accounts receivable—affiliates
2,032
 
 
 
 
2,558
 
Inventory
2,954
 
 
 
 
3,878
 
Fair value of derivative assets
464
 
 
 
 
7,289
 
Customer acquisition costs, net
8,649
 
 
 
 
14,431
 
Customer relationships, net
13,607
 
 
 
 
16,630
 
Deposits
6,806
 
 
 
 
9,226
 
Renewable energy credit asset
24,204
 
 
 
 
25,717
 
Other current assets
6,109
 
 
 
 
11,747
 
Total current assets
236,128
 
 
 
 
291,980
 
Property and equipment, net
3,267
 
 
 
 
4,366
 
Fair value of derivative assets
106
 
 
 
 
3,276
 
Customer acquisition costs, net
9,845
 
 
 
 
3,893
 
Customer relationships, net
17,767
 
 
 
 
26,429
 
Deferred tax assets
29,865
 
 
 
 
27,321
 
Goodwill
120,343
 
 
 
 
120,343
 
Other assets
5,647
 
 
 
 
11,130
 
Total Assets
$
422,968

 
 
 
$
488,738
 
Liabilities, Series A Preferred Stock and Stockholders' Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
48,245

 
 
 
$
68,790
 
Accounts payable—affiliates
1,009
 
 
 
 
2,464
 
Accrued liabilities
37,941
 
 
 
 
10,845
 
Renewable energy credit liability
33,120
 
 
 
 
42,805
 
Fair value of derivative liabilities
19,943
 
 
 
 
6,478
 
Current payable pursuant to tax receivable agreement—affiliates
 
 
 
 
1,658
 
Current contingent consideration for acquisitions
 
 
 
 
1,328
 
Current portion of note payable
 
 
 
 
6,936
 
Other current liabilities
1,697
 
 
 
 
647
 
Total current liabilities
141,955
 
 
 
 
141,951
 
Long-term liabilities:
 
 
 
 
Fair value of derivative liabilities
495
 
 
 
 
106
 
Payable pursuant to tax receivable agreement—affiliates
 
 
 
 
25,917
 
Long-term portion of Senior Credit Facility
123,000
 
 
 
 
129,500
 
Subordinated debt—affiliate
 
 
 
 
10,000
 
Other long-term liabilities
217
 
 
 
 
212
 
Total liabilities
265,667
 
 
 
 
307,686
 
Commitments and contingencies (Note 14)
 
 
 
 
Series A Preferred Stock, par value $0.01 per share, 20,000,000 shares authorized, 3,707,256 shares issued and 3,677,318 shares outstanding at December 31, 2019 and 3,707,256 shares issued and outstanding at December 31, 2018
90,015
 
 
 
 
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 December 31, 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 December 31, 2019 and 20,800,000 issued and outstanding at December 31, 2018
209
 
 
 
 
209
 
Additional paid-in capital
51,842
 
 
 
 
46,157
 
Accumulated other comprehensive (loss)/income
(40
 
)
 
 
2
 
Retained earnings
1,074
 
 
 
 
1,307
 
Treasury stock, at cost, 99,446 shares at December 31, 2019 and December 31, 2018
(2,011
 
)
 
 
(2,011
)
Total stockholders' equity
51,219
 
 
 
 
45,806
 
Non-controlling interest in Spark HoldCo, LLC
16,067
 
 
 
 
44,488
 
Total equity
67,286
 
 
 
 
90,294
 
Total Liabilities, Series A Preferred Stock and stockholders' equity
$
422,968

 
 
 
$
488,738
 









SPARK ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPRIHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 and 2017
(in thousands, except per share data)
 
Year Ended December 31,
 
2019
 
2018
 
2017
Revenues:
 
 
 
 
 
Retail revenues
$
810,954

 
 
$
1,001,417

 
 
$
798,772

 
Net asset optimization revenues (expense)
2,771
 
 
 
4,511
 
 
 
(717
 
)
Total revenues
813,725
 
 
 
1,005,928
 
 
 
798,055
 
 
Operating expenses:
 
 
 
 
 
Retail cost of revenues
615,225
 
 
 
845,493
 
 
 
552,167
 
 
General and administrative
133,534
 
 
 
111,431
 
 
 
101,127
 
 
Depreciation and amortization
40,987
 
 
 
52,658
 
 
 
42,341
 
 
Total operating expenses
789,746
 
 
 
1,009,582
 
 
 
695,635
 
 
Operating income (loss)
23,979
 
 
 
(3,654
 
)
 
102,420
 
 
Other (expense)/income:
 
 
 
 
 
Interest expense
(8,621
 
)
 
(9,410
 
)
 
(11,134
 
)
Change in tax receivable agreement liability
 
 
 
 
 
 
22,267
 
 
Gain on disposal of eRex
4,862
 
 
 
 
 
 
 
 
Total other income/(expense)
1,250
 
 
 
749
 
 
 
256
 
 
Total other (expense)/income
(2,509
 
)
 
(8,661
 
)
 
11,389
 
 
Income (loss) before income tax expense
21,470
 
 
 
(12,315
 
)
 
113,809
 
 
Income tax expense
7,257
 
 
 
2,077
 
 
 
38,765
 
 
Net income (loss)
$
14,213

 
 
$
(14,392

)
 
$
75,044

 
Less: Net income (loss) attributable to non-controlling interest
5,763
 
 
 
(13,206
 
)
 
55,799
 
 
Net income (loss) attributable to Spark Energy, Inc. stockholders
$
8,450

 
 
$
(1,186

)
 
$
19,245

 
Less: Dividend on Series A preferred stock
8,091
 
 
 
8,109
 
 
 
3,038
 
 
Net income (loss) attributable to stockholders of Class A common stock
$
359

 
 
$
(9,295

)
 
$
16,207

 
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
Currency translation (loss) gain
(102
 
)
 
31
 
 
 
(59
 
)
Other comprehensive (loss) income
(102
 
)
 
31
 
 
 
(59
 
)
Comprehensive income (loss)
$
14,111

 
 
$
(14,361

)
 
$
74,985

 
Less: Comprehensive income (loss) attributable to non-controlling interest
5,703
 
 
 
(13,188
 
)
 
55,762
 
 
Comprehensive income (loss) attributable to Spark Energy, Inc. stockholders
$
8,408

 
 
$
(1,173

)
 
$
19,223

 
 
 
 
 
 
 
Net income (loss) attributable to Spark Energy, Inc. per share of Class A common stock
 
 
 
 
 
Basic
$
0.03

 
 
$
(0.69

)
 
$
1.23

 
Diluted
$
0.02

 
 
$
(0.69

)
 
$
1.21

 
 
 
 
 
 
 
Weighted average shares of Class A common stock outstanding
 
 
 
 
 
Basic
14,286
 
 
 
13,390
 
 
 
13,143
 
 
Diluted
14,568
 
 
 
13,390
 
 
 
13,346
 
 







SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
(in thousands)
 
Year Ended December 31,
 
2019
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
 
Net income (loss)
$
14,213

 
 
$
(14,392

)
 
$
75,044

 
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
 
 
 
 
 
Depreciation and amortization expense
41,002
 
 
 
51,436
 
 
 
42,666
 
 
Deferred income taxes
(6,929
 
)
 
(2,328
 
)
 
29,821
 
 
Change in TRA liability
 
 
 
 
 
 
(22,267
 
)
Stock based compensation
5,487
 
 
 
5,879
 
 
 
5,058
 
 
Amortization of deferred financing costs
1,275
 
 
 
1,291
 
 
 
1,035
 
 
Change in fair value of earnout liabilities
(1,328
 
)
 
(1,715
 
)
 
(7,898
 
)
Accretion on fair value of earnout liabilities
 
 
 
 
 
 
4,108
 
 
Excess tax expense (benefit) related to restricted stock vesting
50
 
 
 
(101
 
)
 
179
 
 
Bad debt expense
13,532
 
 
 
10,135
 
 
 
6,550
 
 
Loss (gain) on derivatives, net
67,749
 
 
 
18,170
 
 
 
(5,008
 
)
Current period cash settlements on derivatives, net
(41,919
 
)
 
11,038
 
 
 
(19,598
 
)
Accretion of discount to convertible subordinated notes to affiliate
 
 
 
 
 
 
1,004
 
 
Earnout payments
 
 
 
 
 
 
(1,781
 
)
Gain on disposal of eRex
(4,862
 
)
 
 
 
 
 
 
Other
(776
 
)
 
(882
 
)
 
(5
 
)
Changes in assets and liabilities:
 
 
 
 
 
Decrease (increase) in accounts receivable
23,699
 
 
 
2,692
 
 
 
(32,361
 
)
Decrease (increase) in accounts receivable—affiliates
526
 
 
 
859
 
 
 
(1,459
 
)
Decrease (increase) in inventory
924
 
 
 
674
 
 
 
(718
 
)
Increase in customer acquisition costs
(18,685
 
)
 
(13,673
 
)
 
(25,874
 
)
Decrease (increase) in prepaid and other current assets
9,250
 
 
 
(14,033
 
)
 
1,915
 
 
Decrease (increase) in other assets
55
 
 
 
(335
 
)
 
(465
 
)
(Decrease) increase in accounts payable and accrued liabilities
(8,620
 
)
 
10,301
 
 
 
14,831
 
 
(Decrease) increase in accounts payable—affiliates
(1,455
 
)
 
(2,158
 
)
 
51
 
 
Decrease in other current liabilities
(1,459
 
)
 
(3,050
 
)
 
(1,210
 
)
Increase (decrease) in other non-current liabilities
6
 
 
 
41
 
 
 
(1,487
 
)
Decrease in intangible assets—customer acquisitions
 
 
 
(86
 
)
 
 
 
Net cash provided by operating activities
91,735
 
 
 
59,763
 
 
 
62,131
 
 
Cash flows from investing activities:
 
 
 
 
 
Purchases of property and equipment
(1,120
 
)
 
(1,429
 
)
 
(1,704
 
)
Cash paid for acquisitions
 
 
 
(17,552
 
)
 
(75,854
 
)
Acquisition of Starion Customers
(5,913
 
)
 
 
 
 
 
 
Disposal of eRex investment
8,431
 
 
 
 
 
 
 
 
Net cash provided by (used in) investing activities
1,398
 
 
 
(18,981
 
)
 
(77,558
 
)
Cash flows from financing activities:
 
 
 
 
 
Proceeds from (buyback) issuance of Series A Preferred Stock, net of issuance costs paid
(743
 
)
 
48,490
 
 
 
40,241
 
 
Payment to affiliates for acquisition of customer book
(10
 
)
 
(7,129
 
)
 
 
 
Borrowings on notes payable
356,000
 
 
 
417,300
 
 
 
206,400
 
 
Payments on notes payable
(362,500
 
)
 
(403,050
 
)
 
(152,939
 
)
Earnout Payments
 
 
 
(1,607
 
)
 
(18,418
 
)
Net paydown on subordinated debt facility
(10,000
 
)
 
 
 
 
 
 
Payments on the Verde promissory note
(2,036
 
)
 
(13,422
 
)
 
 
 
Restricted stock vesting
(1,348
 
)
 
(2,895
 
)
 
(3,091
 
)
Proceeds from disgorgement of stockholders short-swing profits
55
 
 
 
244
 
 
 
1,129
 
 
Payment of Tax Receivable Agreement Liability
(11,239
 
)
 
(6,219
 
)
 
 
 
Payment of dividends to Class A common stockholders
(10,382
 
)
 
(9,783
 
)
 
(9,519
 
)
Payment of distributions to non-controlling unitholders
(34,794
 
)
 
(35,478
 
)
 
(33,800
 
)
Payment of Preferred Stock dividends
(8,106
 
)
 
(7,014
 
)
 
(2,106
 
)
Purchase of Treasury Stock
 
 
 
 
 
 
(2,011
 
)





Net cash (used in) provided by financing activities
(85,103
 
)
 
(20,563
 
)
 
25,886
 
 
Increase in Cash and cash equivalents and Restricted Cash
8,030
 
 
 
20,219
 
 
 
10,459
 
 
Cash and cash equivalents and Restricted cash—beginning of period
49,638
 
 
 
29,419
 
 
 
18,960
 
 
Cash and cash equivalents and Restricted cash—end of period
$
57,668

 
 
$
49,638

 
 
$
29,419

 
Supplemental Disclosure of Cash Flow Information:
 
 
 
 
 
Non-cash items:
 
 
 
 
 
Property and equipment purchase accrual
$
92

 
 
$
(123

)
 
$
91

 
Holdback for Verde NoteIndemnified Matters
$
4,900

 
 
$

 
 
$

 
Write-off of tax benefit related to tax receivable agreement liabilityaffiliates
$
4,384

 
 
$

 
 
$

 
Gain on settlement of tax receivable agreement liabilityaffiliates
$
16,336

 
 
$

 
 
$

 
Net contribution by NG&E in excess of cash
$

 
 
$

 
 
$
274

 
Installment consideration incurred in connection with the Verde Companies acquisition and Verde Earnout Termination Note
$

 
 
$

 
 
$
19,994

 
Tax benefit from tax receivable agreement
$

 
 
$
(1,508

)
 
$
(1,802

)
Liability due to tax receivable agreement
$

 
 
$
1,642

 
 
$
4,674

 
 
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
Interest
$
6,634

 
 
$
7,883

 
 
$
5,715

 
Taxes
$
7,516

 
 
$
8,561

 
 
$
11,205

 











SPARK ENERGY, INC.
OPERATING SEGMENT RESULTS
FOR THE YEARS ENDED December 31, 2019, 2018 and 2017
(in thousands, except per unit operating data)
(unaudited)
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
(in thousands, except volume and per unit operating data)
Retail Electricity Segment
 
 
 
 
 
Total Revenues
$
688,451
 
 
$
863,451
 
 
$
657,566
 
Retail Cost of Revenues
552,250
 
 
762,771
 
 
477,012
 
Less: Net (Losses) Gains on non-trading derivatives, net of cash settlements
(24,339
)
 
(23,988
)
 
22,086
 
Retail Gross Margin (1) —Electricity
$
160,540
 
 
$
124,668
 
 
$
158,468
 
Volumes—Electricity (MWhs)
6,416,568
 
 
8,630,653
 
 
6,755,663
 
Retail Gross Margin (2) —Electricity per MWh
$
25.02
 
 
$
14.44
 
 
$
23.46
 
 
 
 
 
 
 
Retail Natural Gas Segment
 
 
 
 
 
Total Revenues
$
122,503
 
 
$
137,966
 
 
$
141,206
 
Retail Cost of Revenues
62,975
 
 
82,722
 
 
75,155
 
Less: Net (Losses) Gains on non-trading derivatives, net of cash settlements
(672
)
 
(5,197
)
 
10
 
Retail Gross Margin (1) —Gas
$
60,200
 
 
$
60,441
 
 
$
66,041
 
Volumes—Gas (MMBtus)
14,543,563
 
 
16,778,393
 
 
18,203,684
 
Retail Gross Margin (2) —Gas per MMBtu
$
4.14
 
 
$
3.60
 
 
$
3.63
 
(1) Reflects the Retail Gross Margin attributable to our Retail Electricity Segment or Retail Natural Gas Segment, as applicable. Retail Gross Margin is a non-GAAP financial measure. See “—Non-GAAP Performance Measures” for a reconciliation of Retail Gross Margin to most directly comparable financial measures presented in accordance with GAAP.
(2) Reflects the Retail Gross Margin for the Retail Electricity Segment or Retail Natural Gas Segment, as applicable, divided by the total volumes in MWh or MMBtu, 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, plus or minus (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 the 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 and amortize such costs over two years. We do not deduct the cost of customer acquisitions through acquisitions of businesses or portfolios of customers in calculating 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 these instruments. We also deduct non-cash compensation expense that results from the issuance of restricted stock units under our long-term incentive plan due to the non-cash nature of the expense. 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 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 (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)
 
Year Ended December 31,
 
Quarter Ended December 31,
(in thousands)
2019
 
2018
 
2019
2018
Reconciliation of Adjusted EBITDA to Net Income (Loss):
 
 
 
 
 
 
Net income (loss)
$
14,213
 
 
$
(14,392

)
 
$
(724
)
$
(15,315

)
Depreciation and amortization
40,987
 
 
52,658
 
 
 
9,024
 
12,861
 
 
Interest expense
8,621
 
 
9,410
 
 
 
2,229
 
2,087
 
 
Income tax expense
7,257
 
 
2,077
 
 
 
4,235
 
1,475
 
 
EBITDA
71,078
 
 
49,753
 
 
 
14,764
 
1,108
 
 
Less:
 
 
 
 
 
 
Net, (Losses) gains on derivative instruments
(67,749
)
 
(18,170
 
)
 
(25,059
)
(16,799
 
)
Net, Cash settlements on derivative instruments
42,820
 
 
(10,587
 
)
 
9,305
 
(4,764
 
)
Customer acquisition costs
18,685
 
 
13,673
 
 
 
5,077
 
4,724
 
 
Plus:
 
 
 
 
 
 
Non-cash compensation expense
5,487
 
 
5,879
 
 
 
1,433
 
2,172
 
 
Non-recurring legal and regulatory settlements
14,457
 
 
 
 
 
3,650
 
 
 
Gain on disposal of eRex
(4,862
)
 
 
 
 
(4,862
)
 
 
Adjusted EBITDA
$
92,404
 
 
$
70,716

 
 
$
25,662
 
$
20,119

 

 
Year Ended December 31,
 
Quarter Ended December 31,
(in thousands)
2019
 
2018
 
2019
2018
Reconciliation of Adjusted EBITDA to net cash provided by operating activities:
 
 
 
 
 
 
Net cash provided by operating activities
$
91,735
 
 
$
59,763
 
 
$
14,650
 
$
17,910
 
Amortization of deferred financing costs
(1,275
)
 
(1,291
)
 
(273
)
(48
)
Bad debt expense
(13,532
)
 
(10,135
)
 
(4,347
)
(1,655
)
Interest expense
8,621
 
 
9,410
 
 
2,229
 
2,087
 
Income tax expense
7,257
 
 
2,077
 
 
4,235
 
1,475
 
Changes in operating working capital
 
 
 
 
 
 
Accounts receivable, prepaids, current assets
(33,475
)
 
10,482
 
 
16,883
 
20,122
 
Inventory
(924
)
 
(674
)
 
(626
)
(199
)
Accounts payable and accrued liabilities
11,534
 
 
(5,093
)
 
(18,675
)
(23,081
)
Other
22,463
 
 
6,177
 
 
11,586
 
3,508
 
Adjusted EBITDA
$
92,404
 
 
$
70,716
 
 
$
25,662
 
$
20,119
 
Cash Flow Data:
 
 
 
 
 
 
Cash flows provided by operating activities
$
91,735
 
 
$
59,763
 
 
$
14,650
 
$
17,910
 
Cash flows provided by (used in) investing activities
$
1,398
 
 
$
(18,981
)
 
$
7,888
 
$
4,712
 
Cash flows (used in) provided by financing activities
$
(85,103
)
 
$
(20,563
)
 
$
(8,452
)
$
(15,780
)






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)
 
Year Ended December 31,
 
Quarter Ended December 31,
(in thousands)
2019
 
2018
 
2019
2018
Reconciliation of Retail Gross Margin to Operating Income (Loss):
 
 
 
 
 
 
Operating income (loss)
$
23,979
 
 
$
(3,654
)
 
$
633
 
$
(11,795
)
Plus:
 
 
 
 
 
 
Depreciation and amortization
40,987
 
 
52,658
 
 
9,024
 
12,861
 
General and administrative expense
133,534
 
 
111,431
 
 
39,182
 
27,909
 
Less:
 
 
 
 
 
 
Net asset optimization revenue (expense)
2,771
 
 
4,511
 
 
529
 
713
 
(Losses) gains on non-trading derivative instruments
(67,955
)
 
(19,571
)
 
(25,214
)
(17,348
)
Cash settlements on non-trading derivative instruments
42,944
 
 
(9,614
)
 
9,267
 
(4,560
)
Retail Gross Margin
$
220,740
 
 
$
185,109
 
 
$
64,257
 
$
50,170
 
Retail Gross Margin - Retail Electricity Segment
$
160,540
 
 
$
124,668
 
 
$
43,810
 
$
32,055
 
Retail Gross Margin - Retail Natural Gas Segment
$
60,200
 
 
$
60,441
 
 
$
20,447
 
$
18,115
 



Contact: Spark Energy, Inc.
Investors:
Mike Barajas, 832-200-3727
Media:
Kira Jordan, 832-255-7302