Spark Energy, Inc. Reports Record Second Quarter 2016 Financial Results and Increases 2016 Adjusted EBITDA Guidance

HOUSTON, Aug. 10, 2016 (GLOBE NEWSWIRE) -- Spark Energy, Inc. (NASDAQ:SPKE), a Delaware corporation ("Spark"), today reported financial results for the quarter ended June 30, 2016.

Highlights

• Earned $11.5 million in Adjusted EBITDA, $29.1 million in Retail Gross Margin and $10.7 million in Net Income for the quarter ended June 30, 2016
• Increased 2016 full year Adjusted EBITDA guidance range to $75 million – $82 million, an increase of 71% at the midpoint versus prior guidance
• Invested $2.8 million in organic customer acquisitions, while reducing attrition to 4.0%
• Reported consistently strong unit margins across both retail natural gas and electricity segments
• Closed the acquisition of the Provider Power companies on August 1
• Declared second quarter dividend of $0.3625 per share of Class A common stock payable on September 13, 2016

For the second quarter of 2016, Spark reported Adjusted EBITDA of $11.5 million, Retail Gross Margin of $29.1 million and Net Income of $10.7 million, each of which represents record financial results for the second quarter. This compares to Adjusted EBITDA of $5.4 million, Retail Gross Margin of $24.7 million and Net Income of $4.0 million for the second quarter of 2015, representing increases of 111%, 18%, and 166%, respectively.

“We are very pleased with our second quarter results,” said Nathan Kroeker, Spark Energy’s President and Chief Executive Officer. “Once again, we achieved solid margins in both our retail electricity and retail natural gas segments while reducing our rate of customer attrition.

“As previously announced, we closed on the Provider Power (“Provider”) acquisition last week and we are happy to welcome the Provider companies into the Spark family. In addition, we expect to close on the acquisition of the Major Companies in the coming weeks. These transactions demonstrate that we continue to execute on our strategy to grow aggressively through impactful acquisitions that increase our customer base along with organic customer additions.”

Acquisition of Provider Power

On August 1, 2016, Spark announced that it completed its acquisition of Provider. The Provider acquisition delivered 121,000 RCEs, primarily in Maine and New Hampshire, two states new to Spark, and adds nine new utilities to Spark’s geographic footprint creating new opportunities for organic customer acquisitions.

Update on Major Energy

On May 4, 2016, Spark announced that Spark and National Gas & Electric, LLC (“NGE”), an affiliate, entered into a purchase and sale agreement for the acquisition of Major Energy, a retail energy business with approximately 210,000 RCEs. Spark expects this transaction to be completed later in the third quarter.

Major Energy serves electricity and natural gas customers in eight states and will add fifteen new utilities to Spark’s footprint when the acquisition closes. Spark intends to leverage the Major management team’s retail energy expertise and knowledge to further enhance the already highly efficient and profitable business model that they have built.

2016 Financial Guidance

Spark’s financial results have continued to exceed expectations. With the closing of Provider and the anticipated close of Major Energy, the Company is increasing its 2016 Adjusted EBITDA guidance range from $44.0 million – $48.0 million to $75.0 million – $82.0 million, an increase of 71% versus the midpoint of our guidance.

Summary Second Quarter 2016 Financial Results

For the quarter ended June 30, 2016, Spark reported Adjusted EBITDA of $11.5 million compared to Adjusted EBITDA of $5.4 million for the quarter ended June 30, 2015. This increase of $6.1 million is primarily attributable to increased Retail Gross Margin in our electricity and natural gas segments and decreased customer acquisition costs, as well as approximately $1.2 million in year-over-year savings as a result of the master services agreement with our affiliate, Retailco Services, LLC. This is partially offset by increased general and administrative expenses due to our increased RCE count following our Oasis and CenStar acquisitions in the third quarter of last year.

For the quarter ended June 30, 2016, Spark reported Retail Gross Margin of $29.1 million compared to Retail Gross Margin of $24.7 million for the quarter ended June 30, 2015. This increase of $4.4 million is primarily attributable to expanded natural gas unit margins and increased retail electricity and natural gas volumes. Favorable supply costs across several of our markets were a key driver of these elevated unit margins in the second quarter.

Net income for the quarter ended June 30, 2016 was $10.7 million compared to net income of $4.0 million for the quarter ended June 30, 2015. Earnings per share (EPS) variance analysis is not included, as management does not view EPS as a meaningful metric given the unpredictability of the unrealized gains and losses on the hedge portfolio, as well as other non-cash items including non-cash compensation and amortization of customer acquisition costs and customer relationships in excess of current period customer acquisition costs.

Liquidity and Capital Resources

Conference Call and Webcast

Spark will host a conference call to discuss second quarter 2016 results on Thursday, August 11, 2016 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 18 states and serves 75 utility territories. Spark offers its customers a variety of product and service choices, including stable and predictable energy costs and green product alternatives.

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 “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 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 capital, competition, 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 report are subject to risks and uncertainties. Important factors which 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,
• the sufficiency of risk management and hedging policies,
• customer concentration,
• federal, state and local regulation,
• 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,
• accuracy of internal billing systems,
• ability to successfully navigate entry into new markets,
• whether our majority stockholder or its affiliates offers us acquisition opportunities on terms that are commercially acceptable to us,
• competition, and
• other factors discussed in “Risk Factors” in our Form 10-K for the year ended December 31, 2015 and in our other public filings and press releases.

You should review the risk factors and other factors noted throughout or incorporated by reference in this press 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 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.

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 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 periods of customer growth reflecting larger customer acquisition spending. We do not deduct the cost of customer relationships (representing those customer acquisitions through acquisitions of business or portfolios of customers). 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 a company’s 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  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. We believe retail gross margin provides information useful to investors as an indicator of our retail energy business’ operating performance.

The GAAP measures most directly comparable to Adjusted EBITDA are net income and net cash provided by operating activities. The GAAP measure most directly comparable to Retail Gross Margin is operating income. Our non-GAAP financial measures of Adjusted EBITDA and Retail Gross Margin should not be considered as alternatives to net income, net cash provided by operating activities, or operating income. 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 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.

The following table presents a reconciliation of Retail Gross Margin to operating income (loss) for each of the periods indicated.