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 2, 2017
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))
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 2, 2017, Spark Energy, Inc. (the “Company”) issued a press release announcing third quarter 2017 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, including the Press Release, 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 7.01 Regulation FD Disclosure.

The Company has prepared updated investor presentation materials (the “Investor Presentation”) for use from time to time in presentations about the Company’s operations and performance. The updated Investor Presentation will also be posted in the Investor Relations section of the Company’s website at www.sparkenergy.com . A copy of the Investor Presentation is furnished as Exhibit 99.2 hereto.

Information contained in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for the purpose of the Securities Act, nor shall it be deemed incorporated by reference in any filing under the Exchange Act, regardless of any general incorporation language in any such filings.


Item 9.01 Financial Statements and Exhibits.
(d) Exhibits

Exhibit No.
Description
 
 
99.1
Press Release of Spark Energy, Inc. dated November 2, 2017
99.2
Investor Presentation of Spark Energy, Inc. – November 2017






EXHIBIT INDEX

Exhibit No.
Description
 
 
99.1
99.2





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 3, 2017
 
 
 
 
Spark Energy, Inc.
 
By:
 
/s/ Gil Melman
Name:
 
Gil Melman
Title:
 
Vice President, General Counsel and Corporate Secretary





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