Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
 
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended June 30, 2017
 
o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to          
 
Commission File Number: 001-36559
Spark Energy, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Delaware
 
 
 
46-5453215
(State or other jurisdiction of
incorporation or organization)
 
 
 
(I.R.S. Employer
Identification No.)
12140 Wickchester Ln, Suite 100
Houston, Texas 77079

(Address of principal executive offices)
 
(713) 600-2600
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.        
Large accelerated filer o                  Accelerated filer x 
Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o
Emerging Growth Company x

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. x
    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No x

There were 13,145,636 shares of outstanding Class A common stock, 21,485,126 shares of Class B common stock and 1,704,339 shares of Series A Preferred stock outstanding as of August 2, 2017.




PART I. FINANCIAL INFORMATION
 
 
ITEM 1. FINANCIAL STATEMENTS
 
 
 
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2017 AND DECEMBER 31, 2016 (unaudited)
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND 2016 AND THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016 (unaudited)
 
 
 
 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2017 (unaudited)
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016 (unaudited)
 
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 
 
 
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
ITEM 4. CONTROLS AND PROCEDURES
 
PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
ITEM 1A. RISK FACTORS
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
ITEM 4. MINE SAFETY DISCLOSURES
 
ITEM 5. OTHER INFORMATION
 
ITEM 6. INDEX TO EXHIBITS
 
APPENDIX A
 
SIGNATURES
 


1

Table of Contents

PART 1. — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
SPARK ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2017 AND DECEMBER 31, 2016
(in thousands)
(unaudited)

2

Table of Contents


June 30, 2017

December 31, 2016
Assets



Current assets:



Cash and cash equivalents
$
13,126


$
18,960

Restricted cash
919



Accounts receivable, net of allowance for doubtful accounts of $2.1 million and $2.3 million as of June 30, 2017 and December 31, 2016, respectively
95,690


112,491

Accounts receivable—affiliates
3,883


2,624

Inventory
3,442


3,752

Fair value of derivative assets
835


8,344

Customer acquisition costs, net
18,377


18,834

Customer relationships, net
13,225


12,113

Prepaid assets
1,466


1,361

Deposits
6,374


7,329

Deposit - Verde consideration
65,785



Other current assets
9,203


12,175

Total current assets
232,325


197,983

Property and equipment, net
3,993


4,706

Fair value of derivative assets
122


3,083

Customer acquisition costs, net
7,880


6,134

Customer relationships, net
20,218


21,410

Deferred tax assets
54,105


55,047

Goodwill
80,947


79,147

Other assets
9,123


8,658

Total assets
$
408,713


$
376,168

Liabilities, Series A Preferred Stock and Stockholders' Equity



Current liabilities:



Accounts payable
$
49,341


$
52,309

Accounts payable—affiliates
4,089


3,775

Accrued liabilities
21,749


36,619

Fair value of derivative liabilities
6,947


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
5,856


11,827

Current portion of note payable


15,501

Convertible subordinated notes to affiliates


6,582

Other current liabilities
1,024


5,476

Total current liabilities
97,960


184,056

Long-term liabilities:





Fair value of derivative liabilities
3,711


68

Payable pursuant to tax receivable agreement—affiliates
48,432


49,886

Long-term portion of Senior Credit Facility
76,500



Subordinated debt—affiliate
15,000


5,000

Deferred tax liability


938

Contingent consideration for acquisitions
3,986


10,826

Other long-term liabilities
1,330


1,658

Total liabilities
246,919


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
39,111



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 13,175,356 outstanding at June 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 June 30, 2017 and 20,449,484 issued and outstanding at December 31, 2016
216


103

       Additional paid-in capital
35,277


25,413

       Accumulated other comprehensive (income)/loss
(17
)

11

       Retained earnings
2,132


4,711

       Treasury stock, at cost, 59,726 shares at June 30, 2017 and zero shares at December 31, 2016
(1,285
)


       Total stockholders' equity
36,455


30,303

Non-controlling interest in Spark HoldCo, LLC
86,228


93,433

       Total equity
122,683


123,736

Total liabilities, Series A Preferred Stock and stockholders' equity
$
408,713


$
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" for further discussion.

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

Table of Contents

SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(in thousands, except per share data)
(unaudited)

Three Months Ended June 30,
 
Six Months Ended June 30,

2017

2016 (2)

2017 (1)

2016 (2)
Revenues:



 



Retail revenues
$
151,604


$
110,058

 
$
348,104


$
220,077

Net asset optimization (expense)/revenues (3)
(168
)

(677
)
 
(361
)

(150
)
Total Revenues
151,436


109,381

 
347,743

 
219,927

Operating Expenses:



 



Retail cost of revenues (4)
114,637


56,963

 
260,398


125,763

General and administrative (5)
19,346


19,799

 
43,839


37,179

Depreciation and amortization
9,656


8,253

 
18,926


15,042

Total Operating Expenses
143,639


85,015

 
323,163

 
177,984

Operating income
7,797


24,366

 
24,580


41,943

Other (expense)/income:



 



Interest expense
(2,452
)

(832
)
 
(5,897
)

(1,585
)
Interest and other income
(265
)

195

 
(66
)

100

Total other expenses
(2,717
)

(637
)
 
(5,963
)
 
(1,485
)
Income before income tax expense
5,080


23,729

 
18,617


40,458

Income tax expense
409


4,735

 
2,814


5,723

Net income
$
4,671


$
18,994

 
$
15,803

 
$
34,735

Less: Net income attributable to non-controlling interests
3,592


16,653

 
12,454


28,221

Net income attributable to Spark Energy, Inc. stockholders
$
1,079


$
2,341


$
3,349


$
6,514

Less: Accumulated dividend on Series A preferred stock
991




1,174



Net income attributable to stockholders of Class A common stock
$
88


$
2,341


$
2,175


$
6,514

Other comprehensive loss, net of tax:







Currency translation loss
$
(26
)

$
(61
)

$
(75
)

$
(61
)
Other comprehensive loss
(26
)

(61
)

(75
)

(61
)
Comprehensive income
$
4,645


$
18,933


$
15,728


$
34,674

Less: Comprehensive income attributable to non-controlling interests
3,576


16,620


12,407


28,188

Comprehensive income attributable to Spark Energy, Inc. stockholders
$
1,069


$
2,313


$
3,321


$
6,486

 
 
 
 
 
 
 
 
Net income attributable to Spark Energy, Inc. per share of Class A common stock
 
 
 
 



       Basic
$
0.01


$
0.19


$
0.17


$
0.66

       Diluted
$
0.01


$
0.15


$
0.16


$
0.57











Weighted average shares of Class A common stock outstanding









       Basic
13,104


12,086


13,050


9,799

       Diluted
13,376


13,278


13,257


10,959


(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 $41 for the three months ended June 30, 2017 and 2016, respectively, and asset optimization revenues—affiliates cost of revenues of $0 and $376 for the three months ended June 30, 2017 and 2016, respectively, and asset optimization revenues—affiliates of $0 and $154 for the six months ended June 30, 2017 and 2016, respectively, and asset optimization revenue—affiliates cost of revenues of $0 and $1,633 for the six months ended June 30, 2017 and 2016, respectively.
(4)
Retail cost of revenues includes retail cost of revenues—affiliates of $0 and less than $100 for the three months ended June 30, 2017 and 2016, respectively, and $0 and less than $100 for the six months ended June 30, 2017 and 2016, respectively.
(5)
General and administrative includes general and administrative expense—affiliates of $6,100 and $4,000 for the three months ended June 30, 2017 and 2016, respectively, and $13,400 and $8,400 for the six months ended June 30, 2017 and 2016, respectively.

4

Table of Contents

The accompanying notes are an integral part of the condensed consolidated financial statements.

5

Table of Contents

SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 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







1,195


1,195


1,195

Restricted stock unit vesting
121



1




1,053


1,054


1,054

Consolidated net income








3,349

3,349

12,454

15,803

Foreign currency translation adjustment for equity method investee






(28
)


(28
)
(47
)
(75
)
Distributions paid to non-controlling unit holders










(19,822
)
(19,822
)
Net contribution by NG&E










210

210

Dividends paid to Class A common stockholders








(4,754
)
(4,754
)

(4,754
)
Dividends to Preferred Stock








(1,174
)
(1,174
)

(1,174
)
Conversion of Convertible Subordinated Notes to Class B Common Stock

518



5



7,790


7,795


7,795

Treasury Stock


(60
)


(1,285
)



(1,285
)

(1,285
)
Stock Split
6,617

10,742


66

108



(174
)




Balance at June 30, 2017
13,235

21,485

(60
)
$
132

$
216

$
(1,285
)
$
(17
)
$
35,277

$
2,132

$
36,455

$
86,228

$
122,683

The accompanying notes are an integral part of the condensed consolidated financial statements.


6

Table of Contents

SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(in thousands)
(unaudited) 
  
Six Months Ended June 30,
  
2017 (1)

2016 (2)
Cash flows from operating activities:



Net income
$
15,803


$
34,735

Adjustments to reconcile net income to net cash flows provided by operating activities:



Depreciation and amortization expense
18,411


17,474

Deferred income taxes
3


2,597

Stock based compensation
2,905


2,442

Amortization of deferred financing costs
531


235

Excess tax benefit related to restricted stock vesting
179



Change in Fair Value of Earnout liabilities
(2,568
)

1,000

Accretion on fair value of Major Earnout and Provider Earnout liabilities
2,660



Bad debt expense
919


462

Loss (gain) on derivatives, net
31,473


(3,496
)
Current period cash settlements on derivatives, net
(11,828
)

(15,829
)
Accretion of discount to convertible subordinated notes to affiliate
1,004


71

Other
224


51

Changes in assets and liabilities:



Decrease in accounts receivable
18,072


21,001

(Increase) decrease in accounts receivable—affiliates
(1,925
)

831

Decrease in inventory
310


1,704

Increase in customer acquisition costs
(12,074
)

(5,356
)
Decrease in prepaid and other current assets
5,394


2,306

(Increase) decrease in other assets
(788
)

536

Decrease in accounts payable and accrued liabilities
(18,422
)

(9,248
)
Increase (decrease) in accounts payable—affiliates
313


(291
)
Decrease in other current liabilities
(2,862
)

(414
)
Decrease in other non-current liabilities
(328
)

(1,612
)
Net cash provided by operating activities
47,406


49,199

Cash flows from investing activities:



Purchases of property and equipment
(371
)

(1,449
)
Payment of the Major Energy Companies Earnout
(7,403
)


Payment of the Provider Companies Earnout and Installment Note
(7,353
)


Acquisitions of Perigee and other customers
(9,353
)


Deposit for Verde Acquisition
(65,785
)


Contribution to equity method investment in eRex Spark


(413
)
Net cash used in investing activities
(90,265
)

(1,862
)
Cash flows from financing activities:



Proceeds from issuance of Series A Preferred Stock, net of issuance costs paid
37,937



Borrowings on notes payable
121,000



Payments on notes payable
(93,789
)

(25,152
)
Proceeds from disgorgement of stockholders short-swing profits
666


580

Restricted stock vesting
(2,009
)

(909
)
Excess tax benefit related to restricted stock vesting


141

Payment of dividends to Class A common stockholders
(4,754
)

(3,657
)
        Payment of distributions to non-controlling unitholders
(19,822
)

(9,967
)
Purchase of Treasury Stock
(1,285
)


Net cash provided by (used in) financing activities
37,944


(38,964
)
(Decrease) increase in Cash and cash equivalents and Restricted cash
(4,915
)

8,373

Cash and cash equivalents and Restricted cash—beginning of period
18,960


4,474

Cash and cash equivalents and Restricted cash—end of period
$
14,045


$
12,847

Supplemental Disclosure of Cash Flow Information:



Non-cash items:





        Property and equipment purchase accrual
$
50


$
22

        Liability due to tax receivable agreement
$


$
(27,462
)
        Tax benefit from tax receivable agreement
$


$
31,490

Cash paid during the period for:



Interest
$
1,395


$
944

Taxes
$
7,232


$
1,892

(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.


7

Table of Contents

The accompanying notes are an integral part of the condensed consolidated financial statements.

8

Table of Contents

SPARK ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Formation and Organization
Organization

Spark Energy, Inc. ("Spark Energy," "Company," "we" or "us") is an independent retail energy services company that provides residential and commercial customers in competitive markets across the United States with an alternative choice for natural gas and electricity. The Company is a holding company whose sole material asset consists of units in Spark HoldCo, LLC (“Spark HoldCo”). Spark HoldCo owns all of the outstanding membership interests or common stock in each of Spark Energy, LLC (“SE”), Spark Energy Gas, LLC (“SEG”), Oasis Power Holdings, LLC ("Oasis"), CenStar Energy Corp. ("CenStar"), Electricity Maine, LLC, Electricity N.H., LLC and Provider Power Mass, LLC (collectively, the "Provider Companies"); Major Energy Services, LLC, Major Energy Electric Services, LLC, and Respond Power, LLC (collectively, the "Major Energy Companies"), and Perigee Energy, LLC ("Perigee"), the operating subsidiaries through which the Company operates. The Company is the sole managing member of Spark HoldCo, is responsible for all operational, management and administrative decisions relating to Spark HoldCo’s business and consolidates the financial results of Spark HoldCo and its subsidiaries.

SE is a licensed retail electric provider in multiple states. SE provides retail electricity services to end-use retail customers, ranging from residential and small commercial customers to large commercial and industrial users. SE was formed on February 5, 2002 under the Texas Revised Limited Partnership Act (as recodified by the TBOC) and was converted to a Texas limited liability company on May 21, 2014.

SEG is a retail natural gas provider and asset optimization business competitively serving residential, commercial and industrial customers in multiple states. SEG was formed on January 17, 2001 under the Texas Revised Limited Partnership Act (as recodified by the TBOC) and was converted to a Texas limited liability company on May 21, 2014.

Oasis, through its operating subsidiary, Oasis Power LLC, is a retail energy provider formed on August 28, 2009 as a limited liability company under the TBOC. We acquired Oasis on July 31, 2015 from an affiliate.

CenStar is a retail energy provider incorporated on July 18, 2008 under the New York Business Corporation Law. We acquired CenStar on July 8, 2015.

The Provider Companies operate as retail energy providers. Electricity Maine, LLC, Electricity N.H., LLC, and Provider Power Mass, LLC were formed on June 17, 2010, January 20, 2012 and August 22, 2012, respectively, as limited liability companies under the Maine Limited Liability Company Act. We acquired the Provider Companies on August 1, 2016, as described in Note 3 "Acquisitions."

The Major Energy Companies operate as retail energy providers. Major Energy Services, LLC, Major Energy Electric Services, LLC and Respond Power, LLC were formed on October 11, 2005, September 12, 2007 and July 11, 2008, respectively, as limited liability companies under the New York Limited Liability Company Law. We completed the purchase of all the outstanding membership interests of the Major Energy Companies on August 23, 2016 from an affiliate, as described in Note 3 "Acquisitions."

Perigee is a retail energy provider. Perigee was formed on October 5, 2011 as a Texas limited liability company. We completed the the purchase of all of the outstanding membership interests of Perigee on April 1, 2017 from an affiliate, as described in Note 3 "Acquisitions."

We are a Delaware corporation formed on April 22, 2014 for the purpose facilitating an initial public offering ("IPO") of our Class A common stock, par value $0.01 per share ("Class A common stock"), and to become the sole

9

Table of Contents

managing member of, and to hold an ownership interest in, Spark HoldCo. In connection with our IPO, NuDevco Retail Holdings LLC ("NuDevco Retail Holdings") formed NuDevco Retail, LLC (“NuDevco Retail”), a single member limited liability company, on May 29, 2014, to hold the remaining Spark HoldCo units and shares of our Class B common stock, par value $0.01 per share ("Class B common stock"). In January 2016, Retailco, LLC ("Retailco") succeeded to the interest of NuDevco Retail Holdings of its Class B common stock and an equal number of Spark HoldCo units it held pursuant to a series of transfers. See Note 4 "Equity" for further discussion.
Relationship with our Founder and Majority Shareholder
W. Keith Maxwell, III (our "Founder") is the owner of a majority in voting power of our common stock through his ownership of NuDevco Retail and Retailco. Retailco is a wholly owned subsidiary of TxEx Energy Investments, LLC ("TxEx"), which is wholly owned by Mr. Maxwell. NuDevco Retail is a wholly owned subsidiary of NuDevco Retail Holdings, which is a wholly owned subsidiary of Electric HoldCo, LLC, which is also a wholly owned subsidiary of TxEx.

Emerging Growth Company Status

As a company with less than $1.07 billion in revenues during its last fiscal year, the Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other regulatory requirements.

The Company will remain an “emerging growth company” until as late as the last day of the Company's 2019 fiscal year, or until the earliest of (i) the last day of the fiscal year in which the Company has $1.07 billion or more in annual revenues; (ii) the date on which the Company becomes a “large accelerated filer” (the fiscal year-end on which the total market value of the Company’s common equity securities held by non-affiliates is $700 million or more as of June 30); (iii) the date on which the Company issues more than $1.0 billion of non-convertible debt over a three-year period.
As a result of the Company's election to avail itself of certain provisions of the JOBS Act, the information that the Company provides may be different than what you may receive from other public companies in which you hold an equity interest.
Exchange and Registration Rights

The Spark HoldCo Third Amended and Restated Limited Liability Company Agreement provides that if the Company issues a new share of Class A common stock, Series A Preferred Stock (as defined below) or other equity security of the Company (other than shares of Class B common stock, and excluding issuances of Class A common stock upon an exchange of Class B common stock or Series A Preferred Stock), Spark HoldCo will concurrently issue a corresponding limited liability company unit either to the holder of the Class B common stock, or to the Company in the case of the issuance of shares of Class A common stock, Series A Preferred Stock or such other equity security. As a result, the number of Spark HoldCo units held by the Company always equals the number of shares of Class A common stock, Series A Preferred Stock or such other equity securities of the Company outstanding.

Each share of Class B common stock, all of which are held by NuDevco Retail and Retailco, has no economic rights but entitles the holder to one vote on all matters to be voted on by stockholders generally. Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or by our certificate of incorporation.

NuDevco Retail and Retailco have the right to exchange (the “Exchange Right”) all or a portion of their Spark HoldCo units (together with a corresponding number of shares of Class B common stock) for Class A common stock (or cash at Spark Energy, Inc.’s or Spark HoldCo’s election (the “Cash Option”)) at an exchange ratio of one share of Class A common stock for each Spark HoldCo unit (and corresponding share of Class B common stock)

10

Table of Contents

exchanged. In addition, NuDevco Retail and Retailco have the right, under certain circumstances, to cause the Company to register the offer and resale of NuDevco Retail's and Retailco's shares of Class A common stock obtained pursuant to the Exchange Right. Retail Acquisition Co., LLC ("RAC") was entitled to similar registration rights under the $2.1 million convertible subordinated note (the "CenStar Note") and $5.0 million convertible subordinated note (the "Oasis Note") prior to their respective conversions to Class B common stock in January 2017. Refer to Note 9 "Debt" for further information.
2. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying interim unaudited condensed consolidated financial statements (“interim statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC"). This information should be read in conjunction with our consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended December 31, 2016. The Company's unaudited condensed consolidated financial statements are presented on a consolidated basis and include all wholly-owned and controlled subsidiaries. We account for investments over which we have significant influence but not a controlling financial interest using the equity method of accounting. All significant intercompany transactions and balances have been eliminated in the unaudited condensed consolidated financial statements.
The preparation of the Company's condensed consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenses during the period. Actual results could materially differ from those estimates. Effects on the business, financial condition and results of operations resulting from revisions to estimates are recognized when the facts that give rise to the revision become known. The information furnished herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the condensed consolidated financial statements. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the full year or for any interim period.

Transactions with Affiliates
The Company enters into transactions with and pays certain costs on behalf of affiliates that are commonly controlled by W. Keith Maxwell III, and these affiliates enter into transactions with and pay certain costs on our behalf, in order to reduce risk, reduce administrative expense, create economies of scale, create strategic alliances and supply goods and services among these related parties.
These transactions include, but are not limited to, certain services to the affiliated companies associated with the Company’s debt facility prior to the IPO, employee benefits provided through the Company’s benefit plans, insurance plans, leased office space, administrative salaries for management due diligence work, recurring management consulting, and accounting, tax, legal, or technology services based on services provided, departmental usage, or headcount, which are considered reasonable by management. As such, the accompanying condensed consolidated financial statements include costs that have been incurred by the Company and then directly billed or allocated to affiliates, and costs that have been incurred by our affiliates and then directly billed or allocated to us, and are recorded net in general and administrative expense on the condensed consolidated statements of operations with a corresponding accounts receivable—affiliates or accounts payable—affiliates, respectively, recorded in the condensed consolidated balance sheets. Additionally, the Company enters into transactions with certain affiliates for sales or purchases of natural gas and electricity, which are recorded in retail revenues, retail cost of revenues, and net asset optimization revenues in the condensed consolidated statements of operations with a corresponding accounts receivable—affiliate or accounts payable—affiliate in the condensed consolidated balance sheets. The allocations and related estimates and assumptions are described more fully in Note 14 "Transactions with Affiliates."

Presentation of the Acquisition of Major Energy Companies

On April 15, 2016, National Gas & Electric, LLC (“NG&E”), an affiliate of the Company, completed the acquisition of 100% of the membership interests of Major Energy Companies. On May 3, 2016, Spark HoldCo and Retailco entered into a Membership Interest Purchase Agreement (the "Major Purchase Agreement") with NG&E for the purchase of all of the membership interests of the Major Energy Companies. Spark HoldCo and Retailco completed the acquisition of the Major Energy Companies from NG&E on August 23, 2016. As the acquisition of Major Energy Companies was a transfer of equity interest of entities under common control, the Company's historical financial statements for the three and six months ended June 30, 2016 previously filed with the SEC have been recast in this Form 10-Q to include the results attributable to Major Energy Companies from April 15, 2016. The unaudited condensed consolidated financial statements for this recast period have been prepared from Major Energy Companies' historical cost-basis and may not necessarily be indicative of the actual results of operations that would have occurred had the Company owned the Major Energy Companies during the recast period.

Presentation of the Acquisition of Perigee Energy, LLC

On February 3, 2017, NG&E, an affiliate of the Company, completed the acquisition of 100% of the membership interests of Perigee. On April 1, 2017, the Company and Spark HoldCo completed the purchase of all of the outstanding membership interests of Perigee from NG&E. As the acquisition of Perigee was a transfer of equity interest of entities under common control, the Company's historical financial statements have been recast in this form 10-Q to include the results attributable to Perigee from February 3, 2017. The unaudited condensed consolidated financial statements for this recast period have been prepared from Perigee's historical cost-basis and may not necessarily be indicative of the actual results of operations that would have occurred had the Company owned Perigee during the recast period.

Restricted Cash

Restricted cash includes cash balances held in escrow, which will be settled as acquired customers are transferred to the Company.

Subsequent Events

Subsequent events have been evaluated through the date these financial statements are issued. Any material subsequent events that occurred prior to such date have been properly recognized or disclosed in the condensed consolidated financial statements. See Note 16 "Subsequent Events" for further discussion.

Recent Accounting Pronouncements

Adopted Standards

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718) ("ASU 2016-09"). ASU 2016-09 includes provisions intended to simplify various aspects of accounting for shared-based payments, including income tax consequences, classification of awards as either equity or liability and classification on the statement of cash flows. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2016, with early adoption permitted. The Company adopted ASU 2016-09 on January 1, 2017.

The new standard requires prospective recognition of excess tax benefits resulting from stock-based compensation vesting and exercises to be recognized as a reduction of income taxes and reflected in operating cash flows. Previously, these amounts were recognized in additional paid-in capital and presented as a financing activity on the statement of cash flows. Net excess tax benefits of $0.2 million were recognized as a reduction of income taxes for the six months ended June 30, 2017. Prior periods have not been adjusted.

The Company has elected to continue to estimate the number of stock-based awards expected to vest, as permitted by ASU 2016-09, rather than electing to account for forfeitures as they occur.

11

Table of Contents


ASU 2016-09 requires that employee taxes paid when an employer withholds shares for tax-withholding purposes to be reported as financing activities in the statement of cash flows. Previously, these cash flows were included in operating activities. The Company has elected to adopt this prospectively, as permitted by ASU 2016-09. This change resulted in a $1.7 million impact on the statement of cash flow for the six months ended June 30, 2017.

In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties that Are under Common Control ("ASU 2016-17"). ASU 2016-17 amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity ("VIE") should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. Under ASU 2016-17, a single decision maker of a VIE is required to consider indirect economic interests in the entity held through related parties on a proportionate basis when determining whether it is the primary beneficiary of that VIE. If a single decision maker and its related party are under common control, the single decision maker is required to consider indirect interests in the entity held through those related parties to be the equivalent of direct interests in their entirety. The amendments are effective for public business entities for fiscal years beginning after December 15, 2016 (the Company's first quarter of fiscal 2017), including interim periods within those fiscal years. Early adoption is permitted. The standard may be applied retrospectively or through a cumulative effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company adopted ASU 2016-17 effective January 1, 2017, and the adoption had no impact on the Company's consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"). ASU 2016-18 is intended to add and clarify guidance on the classification and presentation of restricted cash on the statement of cash flows. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2016-18 effective April 1, 2017, and has included restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

Standards Being Evaluated/Standards Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date to periods beginning after December 15, 2017. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016. In December 2016, the FASB further issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, to increase stakeholders' awareness of the proposals and to expedite improvements to ASU 2014-09. The Company plans to adopt the standard using the modified retrospective approach. After assessing the new standard, the Company expects that there will be no material impacts to our revenue recognition procedures.

The FASB issued additional amendments to ASU No. 2014-09, as amended by ASU No. 2015-14:
March 2016 - ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08"). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to customers.

12

Table of Contents

April 2016 - ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing ("ASU 2016-10"). ASU 2016-10 covers two specific topics: performance obligations and licensing. This amendment includes guidance on immaterial promised goods or services, shipping or handling activities, separately identifiable performance obligations, functional or symbolic intellectual property licenses, sales-based and usage-based royalties, license restrictions (time, use, geographical) and licensing renewals.
May 2016 - ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients ("ASU 2016-12"). ASU 2016-12 clarifies certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 amends the existing accounting standards for lease accounting by requiring entities to include substantially all leases on the balance sheet by requiring the recognition of right-of-use assets and lease liabilities for all leases. Entities may elect to not recognize leases with a maximum possible term of less than 12 months. For lessees, a lease is classified as finance or operating and the asset and liability are initially measured at the present value of the lease payments. For lessors, accounting for leases is largely unchanged from previous guidance. ASU 2016-02 also requires qualitative disclosures along with certain specific quantitative disclosures for both lessees and lessors. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, with early adoption permitted, and are effective for interim periods in the year of adoption. The ASU should be applied using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 provides guidance on the presentation and classification of eight specific cash flow issues in the statement of cash flows. Those issues are cash payment for debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instrument or other debt instrument with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; cash proceeds from the settlement of insurance claims, cash received from settlement of corporate-owned life insurance policies; distribution received from equity method investees; beneficial interest in securitization transactions; and classification of cash receipts and payments that have aspects of more than one class of cash flows. The guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. This ASU should be applied using a retrospective transition method for each period presented. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). ASU 2016-16 requires immediate recognition of the current and deferred income tax consequences of intercompany asset transfers other than inventory. Current U.S. GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2017, with early adoption permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. This ASU should be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business ("ASU 2017-01"). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including

13

Table of Contents

acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods, and the amendments should be applied prospectively on or after the effective date. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments in this update, an entity should perform its annual or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 should be applied on a prospective basis and is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) ("ASU 2017-09"). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all of the following are met:

The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified
The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified
The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.

The amendments in ASU 2017-09 are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

3. Acquisitions

Acquisition of Perigee

On April 1, 2017, the Company and Spark Holdco completed the purchase of all of the outstanding membership interest of Perigee, a Texas limited liability company with operations across 14 utilities in Connecticut, Delaware, Massachusetts, New York and Ohio. The purchase price for Perigee from NG&E was approximately $4.4 million, which consisted of a base price of $2.0 million, $0.2 million additional customer option payment, and $2.2 million in working capital, subject to adjustments.

The acquisition of Perigee by the Company and Spark HoldCo from NG&E was a transfer of equity interests of entities under common control on April 1, 2017. Accordingly, the assets acquired and liabilities assumed were based on their historical value as of April 1, 2017. NG&E acquired Perigee on February 3, 2017 and the fair value of the net assets acquired were as follows (in thousands):

14

Table of Contents

 
 
 
Cash
 
$
23

Intangible assets - customer relationships
 
1,100

Goodwill
 
1,540

Net working capital, net of cash acquired
 
2,085

Fair value of derivative liabilities
 
(443
)
Total
 
$
4,305


The initial working capital estimate paid for Perigee by NG&E was $2.6 million and is subject to adjustment as of June 30, 2017. The Company subsequently paid $2.2 million in working capital to NG&E on April 1, 2017. Finalization of the Company's working capital adjustment with NG&E is still pending as of June 30, 2017, subject to finalization of the working capital estimate as of February 3, 2017. An estimated working capital adjustment between the Company and NG&E of $1.3 million was recorded as of June 30, 2017 and is included in accounts receivable - affiliates.

Customer relationships

The acquired customer relationships intangibles related to Perigee are reflective of Perigee's customer base, and were valued at the respective dates of acquisition using an excess earnings method under the income approach. Using this method, the Company estimated the future cash flows resulting from the existing customer relationships, considering attrition as well as charges for contributory assets, such as net working capital, fixed assets, and assembled workforce. These future cash flows were then discounted using an appropriate risk-adjusted rate of return by retail unit to arrive at the present value of the expected future cash flows.

Goodwill

The excess of the purchase consideration over the estimated fair value of the amounts initially assigned to the identifiable assets acquired and liabilities assumed was recorded as goodwill. Goodwill arose on the acquisition of Perigee by NG&E primarily due to the value of Perigee's access to a new utility service territory. Goodwill recorded in connection with the acquisition of Perigee is deductible for income tax purposes because the acquisition of Perigee was an acquisition of all of the assets of Perigee. The valuation and purchase price allocation of Perigee was based on a preliminary fair value analysis performed as of February 3, 2017, the date Perigee was acquired by NG&E. During the measurement period, the Company will record adjustments to the working capital balances upon settlement of the final working capital balances per the terms of the purchase agreement.

We have not included pro forma information for Perigee acquisition because it did not have a material impact on our financial position or results of operations.
 
Acquisition of the Provider Companies

On August 1, 2016, the Company and Spark HoldCo completed the purchase of all of the outstanding membership interests of the Provider Companies. The Provider Companies serve electrical customers in Maine, New Hampshire and Massachusetts. The purchase price for the Provider Companies was approximately $34.1 million, which included $1.3 million in working capital, subject to adjustments, and up to $9.0 million in earnout payments, valued at $4.8 million as of the purchase date, to be paid by June 30, 2017, subject to the achievement of certain performance targets (the "Provider Earnout"). See Note 10 "Fair Value Measurements" for further discussion on the Provider Earnout, including the final earnout payment made in June 2017. The purchase price was funded by the issuance of 1,399,484 shares of Class B common stock (and a corresponding number of Spark HoldCo units) sold to Retailco, valued at $14.0 million based on a value of $10 per share; borrowings under the Senior Credit Facility of $10.6 million; and $3.8 million in net installment consideration to be paid in ten monthly payments that commenced in August 2016. The first payment of $0.4 million was made with the initial consideration paid. See Note 9 "Debt" for further discussion of the Senior Credit Facility.

15

Table of Contents


The acquisition of the Provider Companies was accounted for under the acquisition method in accordance with ASC 805, Business Combinations (“ASC 805”). The allocation of purchase consideration was based upon the estimated fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition. The allocation was made to major categories of assets and liabilities based on management’s best estimates, and supported by independent third-party analyses. The excess of the purchase price over the estimated fair value of tangible and intangible assets acquired and liabilities assumed was allocated to goodwill. The purchase price allocation for the acquisition of the Provider Companies was finalized as of December 31, 2016.
 
 
 
 
Acquisition of the Major Energy Companies

On August 23, 2016, the Company and Spark HoldCo completed the transfer of all of the outstanding membership interests of the Major Energy Companies, which are retail energy companies operating in Connecticut, Illinois, Maryland (including the District of Columbia), Massachusetts, New Jersey, New York, Ohio, and Pennsylvania across 43 utilities, from NG&E in exchange for consideration of $63.4 million, which included $4.3 million in working capital, subject to adjustments; an assumed litigation reserve of $5.0 million, and up to $35.0 million in installment and earnout payments, valued at $13.1 million as of the purchase date, to be paid to the previous members of the Major Energy Companies, in annual installments on March 31, 2017, 2018 and 2019, subject to the achievement of certain performance targets (the “Major Earnout”). The Company is obligated to issue up to 400,000 shares of Class B common stock (and a corresponding number of Spark HoldCo units) to NG&E, subject to the achievement of certain performance targets, valued at $0.8 million (81,436 shares valued at $10 per share) as of the purchase date (the "Stock Earnout"). See Note 10 "Fair Value Measurements" for further discussion on the Major Earnout and Stock Earnout. The purchase price was funded by the issuance of 4,000,000 shares of Class B common stock (and a corresponding number of Spark HoldCo units) valued at $40.0 million based on a value of $10 per share, to NG&E. NG&E is owned by our Founder.

The acquisition of the Major Energy Companies by the Company and Spark HoldCo from NG&E was a transfer of equity interests of entities under common control on August 23, 2016. Accordingly, the assets acquired and liabilities assumed were based on their historical values as of August 23, 2016. NG&E acquired the Major Energy Companies on April 15, 2016 and the fair value of the net assets acquired was as follows (in thousands):

 
Reported as of December 31, 2016
Q1 2017 Adjustments (1)
June 30, 2017
Cash
$
17,368

$

$
17,368

Property and equipment
14


14

Intangible assets - customer relationships & non-compete agreements
24,271


24,271

Other assets - trademarks
4,973


4,973

Non-current deferred tax assets
1,042


1,042

Goodwill
34,728

260

34,988

Net working capital, net of cash acquired
(6,746
)

(6,746
)
Fair value of derivative liabilities
(7,260
)

(7,260
)
Total
$
68,390

$
260

$
68,650

(1) Changes to the purchase price allocation in the first quarter of 2017 related to NG&E's working capital settlement with the Major Energy Companies' sellers. No adjustments were recorded subsequent to the first quarter of 2017.

The initial working capital estimate paid to the Major Energy Companies by NG&E was $10.3 million. The Company subsequently paid $4.3 million in working capital to NG&E on August 23, 2016. Approximately $6.0 million was recorded as an equity transaction and treated as a contribution on August 23, 2016, revised to $4.9 million and $4.7 million based on the estimated working capital true-up adjustments with NG&E as of March 31, 2017 and December 31, 2016, respectively. An estimated working capital adjustment between the Company and NG&E of $1.4 million was recorded as of December 31, 2016 and is included in accounts payable - affiliates at

16

Table of Contents

June 30, 2017 and December 31, 2016. The Stock Earnout of $0.8 million due to NG&E is also reflected as a reduction to equity as of June 30, 2017 and December 31, 2016. Finalization of the Company's working capital adjustment with NG&E was completed prior to April 15, 2017.
The fair values of intangible assets were measured primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined by ASC 820, Fair Value Measurement ("ASC 820"). The fair value of derivative liabilities were measured by utilizing readily available quoted market prices and non-exchange-traded contracts fair valued using market price quotations available through brokers or over-the-counter and on-line exchanges and represent a Level 2 measurement as defined by ASC 820. Refer to Note 10 "Fair Value Measurements" for further discussion on the fair values hierarchy.

Goodwill

The excess of the purchase consideration over the estimated fair value of the amounts initially assigned to the identifiable assets acquired and liabilities assumed was recorded as goodwill. Goodwill arose on the acquisition of the Major Energy Companies by NG&E primarily due to the value of the Major Energy Companies brand strength, established vendor relationships and access to new utility service territories. Goodwill recorded in connection with the acquisition of the Major Energy Companies is deductible for income tax purposes because the acquisition of the Major Energy Companies was an acquisition of all of the assets of the Major Energy Companies. The valuation and purchase price allocation of the Major Energy Companies was based on a preliminary fair value analysis performed as of April 15, 2016, the date the Major Energy Companies were acquired by NG&E. During the measurement period, the Company recorded adjustments to the working capital balances upon settlement of the final working capital balances per the terms of the purchase agreement.

Goodwill was transferred to the Company based on the acquisition of the Major Energy Companies by NG&E on April 15, 2016. Goodwill recorded in connection with the transfer of the Major Energy Companies is deductible for income tax purposes.

In December 2016, certain executives of the Major Energy Companies exercised a change of control provision under employment agreements with the Major Energy Companies. As a result, the Company recorded employment contract termination costs of $4.1 million as of December 31, 2016. The Company paid employment contract termination costs totaling $1.9 million during the six months ended June 30, 2017. As of June 30, 2017, the Company's liability related to the contract termination costs was $2.2 million, to be paid over a 22 month period beginning April 1, 2017.

4. Equity

Non-controlling Interest

The Company holds an economic interest and is the sole managing member in Spark HoldCo, with NuDevco Retail and Retailco holding the remaining economic interest in Spark HoldCo. As a result, the Company has consolidated the financial position and results of operations of Spark HoldCo and reflected the economic interest retained by NuDevco Retail and Retailco as a non-controlling interest.

The Company and NuDevco Retail and Retailco owned the following economic interests in Spark HoldCo at December 31, 2016 and June 30, 2017, respectively.

Non-controlling Interest Economic Interest

17

Table of Contents

 
The Company
NuDevco Retail and Retailco (1) (2)
December 31, 2016
38.85
%
61.15
%
June 30, 2017
38.12
%
61.88
%
.
(1) In January 2016, Retailco succeeded to the interest of NuDevco Retail Holdings of its Class B common stock and an equal number of Spark HoldCo units it held pursuant to a series of transfers.
(2) In January 2017, Retailco converted the CenStar Note and Oasis Note into 269,462 and 766,180 shares, respectively, of Class B common stock.


The following table summarizes the portion of net income and income tax expense (benefit) attributable to non-controlling interest (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016
 


 



 
Net income allocated to non-controlling interest
$
3,164


$
16,777


$
11,569


$
28,785

Income tax expense (benefit) allocated to non-controlling interest
(428
)

124


(885
)

564

Net income attributable to non-controlling interest
$
3,592


$
16,653


$
12,454


$
28,221


Stock Split

On May 22, 2017, the Company authorized and approved a two-for-one stock split of the Company's issued Class A common stock and Class B common stock, which was effected through a stock dividend (the "Stock Split"). Shareholders of record at the close of business on June 5, 2017 were issued one additional share of Class A common stock or Class B common stock of the Company for each share of Class A common stock or Class B common stock, respectively, held by such shareholder on that date. Such additional shares of Class A common stock or Class B common stock were distributed on June 16, 2017. All shares and per share amounts in this report have been retrospectively restated to reflect the Stock Split.

Share Repurchase Program

On May 23, 2017, the Company authorized a share repurchase program of up to $50.0 million of Spark Class A common stock through December 31, 2017. The Company funds the program through available cash balances, its credit facilities, and operating cash flows. The shares of Class A common stock may be repurchased from time to time in the open market or in privately negotiated transactions based on ongoing assessments of capital needs, the market price of the Class A common stock, and other factors, including general market conditions. The repurchase program does not obligate Spark to acquire any particular amount of Class A common stock and it may be modified or suspended at any time, and can be terminated prior to completion.

The Company uses the cost method to account for its treasury shares. Purchases of shares of Class A common stock are recorded at cost, and the gross cost of the Class A common stock purchased is charged to a contra equity account entitled "Treasury Stock."

During the three and six months ended June 30, 2017, the Company repurchased 59,726 shares of its Class A common stock at a weighted-average price of $21.52 per share, for a total cost of approximately $1.3 million.

Class A Common Stock

The Company had a total of 13,175,356 and 12,993,118 shares of its Class A common stock outstanding at June 30, 2017 and December 31, 2016, respectively, and 59,726 and zero shares of treasury stock at June 30, 2017 and December 31, 2016, respectively. Each share of Class A common stock holds economic rights and entitles its holder

18

Table of Contents

to one vote on all matters to be voted on by shareholders generally. All shares and per share amounts in this Quarterly Report on Form 10-Q have been retrospectively restated to reflect the Stock Split.

Class B Common Stock

The Company has a total of 21,485,126 and 20,449,484 shares of its Class B common stock outstanding at June 30, 2017 and December 31, 2016, respectively. Each share of Class B common stock, all of which are held by NuDevco Retail and Retailco, have no economic rights but entitles its holder to one vote on all matters to be voted on by shareholders generally. All outstanding shares and per share amounts in this Quarterly Report on Form 10-Q have been retrospectively restated to reflect the Stock Split.

Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to our shareholders for their vote or approval, except as otherwise required by applicable law or by our certificate of incorporation.

Conversion of CenStar and Oasis Notes

On January 8, 2017 and January 31, 2017, respectively, the CenStar Note and Oasis Note were converted into 269,462 and 766,180 shares of Class B common stock (and related Spark HoldCo units). Refer to Note 9 "Debt" for further discussion.

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income attributable to stockholders (the numerator) by the weighted-average number of Class A common shares outstanding for the period (the denominator). Class B common shares are not included in the calculation of basic earnings per share because they are not participating securities and have no economic interest in the Company. Diluted earnings per share is similarly calculated except that the denominator is increased (1) using the treasury stock method to determine the potential dilutive effect of the Company's outstanding unvested restricted stock units, (2) using the if-converted method to determine the potential dilutive effect of the Company's Class B common stock and (3) using the if-converted method to determine the potential dilutive effect of the outstanding convertible subordinated notes into the Company's Class B common stock. All shares and per share amounts in this Quarterly Report on Form 10-Q have been retrospectively restated to reflect the Stock Split.

The following table presents the computation of earnings per share for the three and six months ended June 30, 2017 and 2016 (in thousands, except per share data):

19

Table of Contents


Three Months Ended June 30,
Six Months Ended June 30,

2017
2016
2017
2016
Net income attributable to Spark Energy, Inc. stockholders
$
1,079

$
2,341

$
3,349

$
6,514

Less: Accumulated dividend on Series A preferred stock
991


1,174


Net income attributable to stockholders of Class A common stock
$
88

$
2,341

$
2,175

$
6,514

 
 
 
 
 
Basic weighted average Class A common shares outstanding
13,104

12,086

13,050

9,799

Basic EPS attributable to stockholders
$
0.01

$
0.19

$
0.17

$
0.66






Net income attributable to stockholders of Class A common stock
$
88

$
2,341

$
2,175

$
6,514

Effect of conversion of Class B common stock to shares of Class A common stock




Effect of conversion of convertible subordinated notes into shares of Class B common stock and shares of Class B common stock into shares of Class A common stock (1)

(332
)

(312
)
Diluted net income attributable to stockholders of Class A common stock
88

2,009

2,175

6,202

 
 
 
 
 
Basic weighted average Class A common shares outstanding
13,104

12,086

13,050

9,799

Effect of dilutive Class B common stock




Effect of dilutive convertible subordinated notes into shares of Class B common stock and shares of Class B common stock into shares of Class A common stock (1)

986


986

Effect of dilutive restricted stock units
272

206

207

174

Diluted weighted average shares outstanding
13,376

13,278

13,257

10,959






Diluted EPS attributable to stockholders
$
0.01

$
0.15

$
0.16

$
0.57


(1) The CenStar Note and Oasis Note converted into 269,462 and 766,180 shares of Class B common stock on January 8, 2017, and January 31, 2017, respectively.

The conversion of shares of Class B common stock to shares of Class A common stock was not recognized in dilutive earnings per share for the three and six months ended June 30, 2017 as the effect of the conversion was antidilutive.

Variable Interest Entity

Spark HoldCo is a variable interest entity due to its lack of rights to participate in significant financial and operating decisions and inability to dissolve or otherwise remove its management. Spark HoldCo owns all of the outstanding membership interests in each of the operating subsidiaries through which the Company operates. The Company is the sole managing member of Spark HoldCo, manages Spark HoldCo's operating subsidiaries through this managing membership interest, and is considered the primary beneficiary of Spark HoldCo.

The assets of Spark HoldCo cannot be used to settle the obligations of the Company except through distributions to the Company, and the liabilities of Spark HoldCo cannot be settled by the Company except through contributions to Spark HoldCo.

The following table includes the carrying amounts and classification of the assets and liabilities of Spark HoldCo that are included in the Company's condensed consolidated balance sheet as of June 30, 2017 (in thousands):

20

Table of Contents



June 30, 2017
Assets

Current assets:

Cash and cash equivalents
$
13,043

Accounts receivable
95,690

Other current assets
122,590

Total current assets
231,323

Non-current assets:

Goodwill
80,947

Other assets
41,927

Total non-current assets
122,874

Total Assets
$
354,197



Liabilities

Current liabilities:

Accounts payable and Accrued Liabilities
$
74,688

Intercompany payable with Spark Energy, Inc.
23,927

Current portion of Senior Credit Facility
7,500

Contingent consideration
5,856

Other current liabilities
12,060

Total current liabilities
124,031

Long-term liabilities:

Long-term portion of Senior Credit Facility
76,500

Subordinated debt  affiliate
15,000

Contingent consideration
3,986

Other long-term liabilities
5,041

Total long-term liabilities
100,527

Total Liabilities
$
224,558


5. Preferred Stock

On March 15, 2017, the Company issued 1,610,000 shares of 8.75% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock ("Series A Preferred Stock"), par value $0.01 per share and liquidation preference $25.00 per share, plus accumulated and unpaid dividends, at a price to the public of $25.00 per share ($24.21 per share to the Company, net of underwriting discounts and commissions). The Company received approximately $39.0 million in net proceeds from the offering, after deducting underwriting discounts and commissions and a structuring fee. Offering expenses of $1.0 million were recorded as a reduction to the carrying value of the Series A Preferred Stock. The net proceeds from the offering were contributed to Spark HoldCo to use for general corporate purposes.

Holders of the Series A Preferred Stock have no voting rights, except in specific circumstances of delisting or in the case the dividends are in arrears as specified in the Series A Preferred Stock Certificate of Designations. From March 15, 2017, the Series A Preferred Stock issuance date, to, but not including, April 15, 2022, the Series A Preferred Stock will accrue dividends at an annual percentage rate of three-month LIBOR plus 6.578%.

The liquidation preference provisions of the Series A Preferred Stock were considered contingent redemption provisions because there were certain rights granted to the holders of the Series A Preferred Stock that were not

21

Table of Contents

solely within the control of the Company upon a change in control of the Company. Accordingly, the Series A Preferred Stock is presented within the mezzanine portion of the accompanying consolidated balance sheet.

The Company had a total of 1,610,000 shares of Series A Preferred Stock issued and outstanding at June 30, 2017 and no shares of Series A Preferred Stock issued and outstanding at December 31, 2016. As of June 30, 2017, the Company had accrued $1.2 million related to dividends to holders of Spark's Series A Preferred Stock. This dividend was paid on July 15, 2017.

A summary of the Company's mezzanine equity for the six months ended June 30, 2017 is as follows:

 
 
(in thousands)
Mezzanine equity at December 31, 2016
 
$

Issuance of Series A Preferred Stock, net of issuance cost
 
37,937

Accumulated dividends on Series A Preferred Stock
 
1,174

Mezzanine equity at June 30, 2017
 
$
39,111


In connection with the issuance of the Series A Preferred Stock, the Company and Spark HoldCo entered into the Third Amended and Restated Spark HoldCo Limited Liability Company Agreement to amend the prior agreement to provide for, among other things, the designation and issuance of Spark HoldCo Series A preferred units, as another equity security of Spark HoldCo to be issued concurrently with the issuance of Series A Preferred Stock by the Company, including specific terms relating to distributions by Spark HoldCo in connection with the payment by the Company of dividends on the Series A Preferred Stock, the priority of liquidating distributions by Spark HoldCo, the allocation of income and loss to the Company in connection with distributions by Spark HoldCo on Series A preferred units, and other terms relating to the redemption and conversion by the Company of the Series A Preferred Stock.

6. Property and Equipment
Property and equipment consist of the following amounts as of (in thousands):

Estimated useful
lives (years)
 
June 30, 2017
 
December 31, 2016
Information technology
2 – 5
 
$
29,998

 
$
29,675

Leasehold improvements
2 – 5
 
4,568

 
4,568

Furniture and fixtures
2 – 5
 
1,026

 
1,024

Total

 
35,592

 
35,267

Accumulated depreciation

 
(31,599
)
 
(30,561
)
Property and equipment—net

 
$
3,993

 
$
4,706

Information technology assets include software and consultant time used in the application, development and implementation of various systems including customer billing and resource management systems. As of June 30, 2017 and December 31, 2016, information technology includes $1.3 million and $1.1 million, respectively, of costs associated with assets not yet placed into service.
Depreciation expense recorded in the condensed consolidated statements of operations was $0.5 million and $0.5 million for the three months ended June 30, 2017 and 2016, respectively, and $1.0 million and $0.9 million for the six months ended June 30, 2017 and 2016, respectively.
7. Goodwill, Customer Relationships and Trademarks
Goodwill, customer relationships and trademarks consist of the following amounts as of (in thousands):

22

Table of Contents

 
June 30, 2017
December 31, 2016
Goodwill
$
80,947

$
79,147

Customer relationships - Acquired (1)


Cost
$
64,671

$
63,571

Accumulated amortization
(37,476
)
(31,660
)
Customer relationships - Acquired, net
$
27,195

$
31,911

Customer relationships - Other (2)


Cost
$
9,828

$
4,320

Accumulated amortization
(3,580
)
(2,708
)
Customer relationships - Other, net
$
6,248

$
1,612

Trademarks (3)


Cost
$
6,770

$
6,770

Accumulated amortization
(672
)
(431
)
Trademarks, net
$
6,098

$
6,339

(1) Customer relationships - Acquired represent those customer acquisitions accounted for under the acquisition method in accordance with ASC 805. See Note 3 "Acquisitions" for further discussion.
(2) Customer relationships - Other represent portfolios of customer contracts not accounted for in accordance with ASC 805 as these acquisitions were not in conjunction with the acquisition of businesses.
(3) Trademarks reflect values associated with the recognition and positive reputation of acquired businesses accounted for as part of the acquisition method in accordance with ASC 805 through the acquisitions of CenStar, Oasis, the Provider Companies and the Major Energy Companies. These trademarks are recorded as other assets in the condensed consolidated balance sheets. See Note 3 "Acquisitions" for further discussion.

Changes in goodwill, customer relationships and trademarks consisted of the following (in thousands):


Goodwill (1)
Customer Relationships - Acquired
Customer Relationships - Others
Trademarks
Balance at December 31, 2016
$
79,147

$
31,911

$
1,612

$
6,339

Additions (Major Working Capital Adjustment)
260




Additions (Perigee)
1,540

1,100

5,508


Amortization expense

(5,816
)
(872
)
(241
)
Balance at June 30, 2017
$
80,947

$
27,195

$
6,248

$
6,098

(1) Changes in goodwill in the six months ended June 30, 2017 include NG&E's working capital settlement with the Major Energy Companies' sellers of $0.3 million and Perigee's goodwill of $1.5 million.

The acquired customer relationship intangibles related to the Major Energy Companies and the Provider Companies were bifurcated between hedged and unhedged customer contracts. The unhedged customer contracts are amortized to depreciation and amortization based on the expected future cash flows by year. The hedged customer contracts were evaluated for favorable or unfavorable positions at the time of acquisition and amortized to retail cost of revenue based on the expected term and position of the underlying fixed price contract in each reporting period. Customer relationship amortization expense for the three and six months ended June 30, 2017 was $3.6 million and $5.8 million, respectively, which is net of $0.6 million amortization expense and $0.5 million amortization gain, respectively, included in cost of revenues.

Estimated future amortization expense for customer relationships and trademarks at June 30, 2017 is as follows (in thousands):

23

Table of Contents

Year ending December 31,

2017
$
7,257

2018
12,393

2019
7,948

2020
3,880

2021
2,811

> 5 years
5,252

Total
$
39,541


8. Customer Acquisitions

On April 3, 2017, the Company and Spark HoldCo exercised an option to acquire approximately 41,000 RCEs from a third party for a purchase price of approximately $7.0 million, of which $4.9 million has been paid. The purchase price was capitalized as customer relationships and is being amortized over a three year period as customers begin using electricity under a contract with the Company.

9. Debt
Debt consists of the following amounts (in thousands):

June 30, 2017

December 31, 2016
Current Portion of Senior Credit Facility - Bridge Loan
$
7,500


$

Current portion of Prior Senior Credit Facility—Working Capital Line (1) (2)
$


$
29,000

Current portion of Prior Senior Credit Facility—Acquisition Line (2)


22,287

Current portion of Note Payable—Pacific Summit Energy


15,501

Convertible subordinated notes to affiliate


6,582

Total current debt
7,500


73,370

Long-term portion of Senior Credit Facility
76,500



Subordinated Debt
15,000


5,000

Total long-term debt
91,500


5,000

Total debt
$
99,000


$
78,370

(1) As of June 30, 2017 and December 31, 2016, the Company had $33.7 million and $29.6 million in letters of credit issued, respectively.
(2) As of June 30, 2017 and December 31, 2016, the weighted average interest rate on the current portion of our Senior Credit Facility was 4.62% and 4.93%, respectively.

Deferred financing costs were $1.6 million and $0.4 million as of June 30, 2017 and December 31, 2016, respectively. Of these amounts, $0.8 million and $0.4 million is recorded in other current assets in the condensed consolidated balance sheet as of June 30, 2017 and December 31, 2016, respectively, and $0.8 million and zero is recorded in other assets in the condensed consolidated balance sheets as of June 30, 2017 and December 31, 2016, respectively, representing capitalized financing costs related to our Senior Credit Facility and Prior Senior Credit Facility.
Interest expense consists of the following components for the periods indicated (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016
Interest incurred on Senior Credit Facility (1)
$
543


$
405


$
1,237


$
723

Accretion related to Earnouts (2)
1,433



 
2,660



Letters of credit fees and commitment fees
193


183


417


375

Amortization of deferred financing costs 
283


117


531


234

Interest incurred on convertible subordinated notes to affiliate (3)


127


1,052


253

Interest Expense
$
2,452


$
832


$
5,897


$
1,585

(1) 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.
(2) Includes accretion related to the Provider Earnout of less than $0.1 million and the Major Earnout of $1.4 million for the three months ended June 30, 2017, and accretion related to the Provider Earnout of $0.1 million and the Major Earnout of $2.6 million for the six months ended June 30, 2017.
(3) Includes amortization of the discount on the convertible subordinated notes to affiliates of $0.0 million and $0.0 million, respectively, for the three and six months ended June 30, 2017, and amortization of the discount on the convertible subordinated notes to affiliates of less than $0.1 million and $0.1 million, respectively, for the three and six months ended June 30, 2016.
Prior Senior Credit Facility

The Company, as guarantor, and Spark HoldCo (the “Borrower,” and together with Spark Energy, LLC, Spark Energy Gas, LLC, CenStar Energy Corp, CenStar Operating Company, LLC, Oasis, Oasis Power, LLC, Electricity Maine, LLC, Electricity N.H., LLC, and Provider Power Mass, LLC, each a subsidiary of Spark HoldCo, the “Co-Borrowers”) were party to a senior secured revolving credit facility (“Prior Senior Credit Facility”), which included a senior secured revolving working capital facility up to $82.5 million ("Working Capital Line") and a secured revolving line of credit of $25.0 million ("Acquisition Line") to be used specifically for the financing of up to 75% of the cost of acquisitions with the remainder to be financed by the Company either through cash on hand or the issuance of subordinated debt or equity.

The Prior Senior Credit Facility had a maturity date of July 8, 2017. The outstanding balances under the Working Capital Line and the Acquisition Line were paid in full on May 19, 2017 upon execution of the Company's new Senior Credit Facility.

Senior Credit Facility
On May 19, 2017 (the “Closing Date”), the Company, as guarantor, and Spark HoldCo (the “Borrower” and, together with SE, SEG, CenStar, CenStar Operating Company, LLC, Oasis, Oasis Power, LLC, the Provider Companies, the Major Energy Companies and Perigee Energy, LLC, each subsidiaries of Spark HoldCo, the “Co-Borrowers”), entered into a senior secured borrowing base credit facility (the “Senior Credit Facility”) in an aggregate amount of $120.0 million. The Co-Borrowers are entitled to request an increase in the Senior Credit Facility amount up to $150.0 million provided that, among other things, (i) no event of default or default exists or would exist after giving effect thereto and (ii) evidence of the Co-Borrowers’ compliance with financial covenants on a pro forma basis before and after giving effect to such increase.

Subject to applicable sublimits and terms of the Senior Credit Facility, borrowings are available for the issuance of letters of credit (“Letters of Credit”), working capital and general purpose revolving credit loans up to $85.0 million (“Working Capital Loans”), and bridge loans up to $30.0 million (“Bridge Loans”) for the purpose of partial funding for acquisitions. Borrowings under the Senior Credit Facility may be used to refinance loans outstanding under the previous Senior Credit Facility, pay fees and expenses in connection with the current Senior Credit Facility, finance ongoing working capital requirements and general corporate purpose requirements of the Co-Borrowers, to provide partial funding for acquisitions, as allowed under terms of the Senior Credit Facility, and to make open market purchases of the Company’s Class A common stock.

24

Table of Contents


The Senior Credit Facility will mature on May 19, 2019, and all amounts outstanding thereunder will be payable on the maturity date. Borrowings under the Bridge Loan sublimit will be repaid 25% per year, with the remainder due at maturity.

At our election, the interest rate for Working Capital Loans and Letters of Credit under the Senior Credit Facility is generally determined by reference to:

the Eurodollar rate plus an applicable margin of up to 3.00% per annum (based on the prevailing utilization); or
the alternate base rate plus an applicable margin of up to 2.00% per annum (based on the prevailing utilization). The alternate base rate is equal to the highest of (i) the prime rate (as published in the Wall Street Journal), (ii) the federal funds rate plus 0.50% per annum, or (iii) the reference Eurodollar rate plus 1.00%.

Bridge Loan borrowings, if any, under the Senior Credit Facility are generally determined by reference to:

the Eurodollar rate plus an applicable margin of 3.75% per annum; or
the alternate base rate plus an applicable margin of 2.75% per annum. The alternate base rate is equal to the highest of (i) the prime rate (as published in the Wall Street Journal), (ii) the federal funds rate plus 0.50% per annum, or (iii) the reference Eurodollar rate plus 1.00%.

The Co-Borrowers will pay a commitment fee of 0.50% quarterly in arrears on the unused portion of the Senior Credit Facility. In addition, the Co-Borrowers will be subject to additional fees including an upfront fee, an annual agency fee, and letter of credit fees based on a percentage of the face amount of letters of credit payable to any syndicate member that issues a letter a credit.

The Senior Credit Facility contains covenants that, among other things, require the maintenance of specified ratios or conditions as follows:

Minimum Fixed Charge Coverage Ratio. Spark Energy, Inc. must maintain a minimum fixed charge coverage ratio of not less than 1.25 to 1.00. The Fixed Charge Coverage Ratio is defined as the ratio of (a) Adjusted EBITDA to (b) the sum of consolidated (with respect to the Company and the Co-Borrowers) interest expense (other than interest paid-in-kind in respect of any Subordinated Debt but including interest in respect of that certain promissory note made by Censtar Energy Corp in connection with the permitted acquisition from Verde Energy USA Holdings, LLC), letter of credit fees, commitment fees, acquisition earn-out payments (excluding earnout payments funded with proceeds from newly issued preferred or common equity of the Company), distributions, the aggregate amount of repurchases of the Company’s Class A common stock or commitments for such purchases, taxes and scheduled amortization payments.

Maximum Total Leverage Ratio. Spark Energy, Inc. must maintain a ratio of total indebtedness (excluding eligible subordinated debt) to Adjusted EBITDA of no more than 2.00 to 1.00.

The Senior Credit Facility contains various negative covenants that limit the Company’s ability to, among other things, do any of the following:

incur certain additional indebtedness;
grant certain liens;
engage in certain asset dispositions;
merge or consolidate;
make certain payments, distributions, investments, acquisitions or loans;
materially modify certain agreements; or
enter into transactions with affiliates.

25

Table of Contents


The Senior Credit Facility is secured by pledges of the equity of the portion of Spark HoldCo owned by the Company, the equity of Spark HoldCo’s subsidiaries, the Co-Borrowers’ present and future subsidiaries, and substantially all of the Co-Borrowers’ and their subsidiaries’ present and future property and assets, including accounts receivable, inventory and liquid investments, and control agreements relating to bank accounts.

Spark Energy, Inc. is entitled to pay cash dividends to the holders of the Series A Preferred Stock and Class A common stock and will be entitled to repurchase up to an aggregate amount of 10,000,000 shares of the Company’s Class A common stock through one or more normal course open market purchases through NASDAQ so long as: (a) no default exists or would result therefrom; (b) the Co-Borrowers are in pro forma compliance with all financial covenants before and after giving effect thereto; and (c) the outstanding amount of all loans and letters of credit does not exceed the borrowing base limits.

The Senior Credit Facility contains certain customary representations and warranties and events of default. Events of default include, among other things, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults and cross-acceleration to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments in excess of $5.0 million, certain events with respect to material contracts, actual or asserted failure of any guaranty or security document supporting the Senior Credit Facility to be in full force and effect, failure of Nathan Kroeker to retain his position as President and Chief Executive Officer of the Company, and failure of W. Keith Maxwell III to retain his position as chairman of the board of directors. A default will also occur if at any time W. Keith Maxwell III ceases to, directly or indirectly, own at least 13,600,000 Class A and Class B shares on a combined basis (to be adjusted by any stock split, subdivisions or other stock reclassification or recapitalization), and a controlling percentage of the voting equity interest of the Company, and certain other changes in control. If such an event of default occurs, the lenders under the Senior Credit Facility would be entitled to take various actions, including the acceleration of amounts due under the facility and all actions permitted to be taken by a secured creditor.

In addition, the Senior Credit Facility contains affirmative covenants that are customary for credit facilities of this type. The covenants include delivery of financial statements, including any filings made with the SEC, maintenance of property and insurance, payment of taxes and obligations, material compliance with laws, inspection of property, books and records and audits, use of proceeds, payments to bank blocked accounts, notice of defaults and certain other customary matters.

Convertible Subordinated Notes to Affiliate

In connection with the financing of the CenStar acquisition, the Company, together with Spark HoldCo, issued the CenStar Note to RAC for $2.1 million on July 8, 2015. The CenStar Note matures on July 8, 2020, and bears interest at an annual rate of 5%, payable semiannually. The Company has the right to pay interest in kind at its option. The CenStar Note is convertible into shares of the Company’s Class B common stock, par value $0.01 per share (and a related unit of Spark HoldCo) at a conversion price of $8.285 per share. RAC may not exercise conversion rights for the first eighteen months after the CenStar Note is issued. The CenStar Note is subject to automatic conversion upon a sale of the Company. The CenStar Note is subordinated in certain respects to the Senior Credit Facility pursuant to a subordination agreement. The Company may pay interest and prepay principal so long as the Company is in compliance with its covenants; is not in default under the Senior Credit Facility and has minimum availability of $5.0 million under its borrowing base under the Senior Credit Facility. Shares of Class A common stock resulting from the conversion of the shares of Class B common stock issued as a result of the conversion right under the CenStar Note will be entitled to registration rights identical to the registration rights currently held by NuDevco Retail and Retailco on shares of Class A common stock it receives upon conversion of its existing shares of Class B common stock. On October 5, 2016, RAC issued to the Company an irrevocable commitment to convert the CenStar Note into 269,462 shares of Class B common stock. RAC assigned the CenStar Note to Retailco on January 4, 2017, and on January 8, 2017, the CenStar Note was converted into 269,462 shares of Class B common stock.


26

Table of Contents

In connection with the financing of the Oasis acquisition, the Company, together with Spark HoldCo, issued the Oasis Note to RAC for $5.0 million on July 31, 2015. The Oasis Note matures on July 31, 2020, and bears interest at an annual rate of 5%, payable semiannually. The Company has the right to pay-in-kind any interest at its option. The Oasis Note is convertible into shares of the Company's Class B common stock, par value $0.01 per share (and a related unit of Spark HoldCo) at a conversion price of $7.00 per share. RAC may not exercise conversion rights for the first eighteen months after the Oasis Note is issued. The Oasis Note is subject to automatic conversion upon a sale of the Company. The Oasis Note is subordinated in certain respects to the Senior Credit Facility pursuant to a subordination agreement. The Company may pay interest and prepay principal so long as the Company is in compliance with its covenants; is not in default under the Senior Credit Facility and has minimum availability of $5.0 million under its borrowing base under the Senior Credit Facility. Shares of Class A common stock resulting from the conversion of the shares of Class B common stock issued as a result of the conversion right under the Oasis Note will be entitled to registration rights identical to the registration rights currently held by NuDevco Retail and Retailco on shares of Class A common stock it receives upon conversion of its existing shares of Class B common stock. On October 5, 2016, RAC issued to the Company an irrevocable commitment to convert the Oasis Note into 766,180 shares of Class B common stock. RAC assigned the Oasis Note to Retailco on January 4, 2017, and on January 31, 2017 the Oasis Note was converted into 766,180 shares of Class B common stock.

The conversion rate of $7.00 per share for the Oasis Note was fixed as of the date of the execution of the Oasis acquisition agreement on May 12, 2015. Due to a rise in the price of our common stock from May 12, 2015 to the closing of Oasis acquisition on July 31, 2015, the conversion rate of $7.00 per share was below the market price per share of Class A common stock of $8.11 on the issuance date of the Oasis Note on July 31, 2015. As a result, the Company assessed the Oasis Note for a beneficial conversion feature. Due to this conversion feature being "in-the-money" upon issuance, we recognized a beneficial conversion feature based on its intrinsic value of $0.8 million as a discount to the Oasis Note and as additional paid-in capital. This discount was amortized as interest expense under the effective interest method over the life of the Oasis Note through the conversion on January 31, 2017, at which time the remaining $1.0 million beneficial conversion feature was written-off and recognized as interest expense.

Subordinated Debt Facility

On December 27, 2016, we and Spark HoldCo jointly issued to Retailco, an entity owned by our Founder, a 5% subordinated note in the principal amount of up to $25.0 million. The subordinated note allows the Company and Spark HoldCo to draw advances in increments of no less than $1.0 million per advance up to the maximum principal amount of the subordinated note. The subordinated note matures approximately three and a half years following the date of issuance, and advances thereunder accrue interest at 5% per annum from the date of the advance. The Company has the right to capitalize interest payments under the subordinated note. The subordinated note is subordinated in certain respects to the Company's Senior Credit Facility pursuant to a subordination agreement. The Company may pay interest and prepay principal on the subordinated note so long as it is in compliance with its covenants under the Senior Credit Facility, is not in default under the Senior Credit Facility and has minimum availability of $5.0 million under the borrowing base under the Senior Credit Facility. Payment of principal and interest under the subordinated note is accelerated upon the occurrence of certain change of control or sale transactions. As of June 30, 2017, there was $15.0 million outstanding borrowings under the subordinated note, and at December 31, 2016, there was $5.0 million in outstanding borrowings under the subordinated note.

Pacific Summit Energy LLC
Prior to March 31, 2017, the Major Energy Companies were party to three trade credit arrangements with Pacific Summit Energy LLC (“Pacific Summit”), which consisted of purchase agreements, operating agreements relating to purchasing terms, security agreements, lockbox agreements and guarantees, and provided for the exclusive supply of gas and electricity on credit by Pacific Summit to the Major Energy Companies for resale to end users.
Under these arrangements, when the costs that Pacific Summit paid to procure and deliver the gas and electricity exceeded the payments that the Major Energy Companies made attributable to the gas and electricity purchased, the Major Energy Companies incurred interest on the difference. The operating agreements also allowed Pacific Summit to provide credit support. Each form of borrowing incurred interest at the floating 90-day LIBOR rate plus

27

Table of Contents

300 basis points (except for certain credit support guaranties that did not bear interest). In connection with these arrangements, the Major Companies granted first liens to Pacific Summit on a substantial portion of the Major Companies’ assets, including present and future accounts receivable, inventory, liquid assets, and control agreements relating to bank accounts. As of December 31, 2016, the Company had aggregate outstanding amounts payable under these arrangements of approximately $15.5 million, bearing an interest rate of approximately 4.0%. The Company was also the beneficiary under various credit support guarantees issued by Pacific Summit under these arrangements as of such date. On September 27, 2016, we notified Pacific Summit of our election to trigger the expiration of these arrangements. On March 31, 2017 the agreements were terminated.
10. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. Fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. This includes not only the credit standing of counterparties involved and the impact of credit enhancements but also the impact of the Company’s own nonperformance risk on its liabilities.
The Company applies fair value measurements to its commodity derivative instruments and a contingent payment arrangement based on the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

Level 1—Quoted prices in active markets for identical assets and liabilities. Instruments categorized in Level 1 primarily consist of financial instruments such as exchange-traded derivative instruments.
Level 2—Inputs other than quoted prices recorded in Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived from observable market data by correlation or other means. Instruments categorized in Level 2 primarily include non-exchange traded derivatives such as over-the-counter commodity forwards and swaps and options.
Level 3—Unobservable inputs for the asset or liability, including situations where there is little, if any, observable market activity for the asset or liability. The Level 3 category includes estimated earnout obligations related to the Company's acquisitions.
As the fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3), the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. In these cases, the lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents assets and liabilities measured and recorded at fair value in the Company’s condensed consolidated balance sheets on a recurring basis by and their level within the fair value hierarchy as of (in thousands):

28

Table of Contents


Level 1

Level 2

Level 3

Total
June 30, 2017
 

 

 

 
Non-trading commodity derivative assets
$


$
487


$


$
487

Trading commodity derivative assets
67


403




470

Total commodity derivative assets
$
67


$
890


$


$
957

Non-trading commodity derivative liabilities
$
(160
)

$
(10,394
)

$


$
(10,554
)
Trading commodity derivative liabilities
(51
)

(53
)



(104
)
Total commodity derivative liabilities
$
(211
)

$
(10,447
)

$


$
(10,658
)
Contingent payment arrangement
$

 
$

 
$
(9,842
)
 
$
(9,842
)

Level 1

Level 2

Level 3

Total
December 31, 2016







Non-trading commodity derivative assets
$
1,511


$
9,385


$


$
10,896

Trading commodity derivative assets
101


430




531

Total commodity derivative assets
$
1,612


$
9,815


$


$
11,427

Non-trading commodity derivative liabilities
$


$
(661
)

$


$
(661
)
Trading commodity derivative liabilities


(87
)



(87
)
Total commodity derivative liabilities
$


$
(748
)

$


$
(748
)
Contingent payment arrangement
$

 
$

 
$
(22,653
)
 
$
(22,653
)
The Company had no transfers of assets or liabilities between any of the above levels during the six months ended June 30, 2017 and the year ended December 31, 2016.
The Company’s derivative contracts include exchange-traded contracts fair valued utilizing readily available quoted market prices and non-exchange-traded contracts fair valued using market price quotations available through brokers or over-the-counter and on-line exchanges. In addition, in determining the fair value of the Company’s derivative contracts, the Company applies a credit risk valuation adjustment to reflect credit risk, which is calculated based on the Company’s or the counterparty’s historical credit risks. As of June 30, 2017 and December 31, 2016, the credit risk valuation adjustment was not material.
The contingent payment arrangements referred to above reflect estimated earnout obligations incurred in relation to the Company's acquisitions. As of June 30, 2017, the estimated earnout obligations were $9.8 million, which was comprised of the Major Earnout and the Stock Earnout in the amount of $9.8 million, and less than $0.1 million, respectively. The final Provider Earnout payment was paid in June 2017. As of December 31, 2016, the estimated earnout obligations were $22.7 million, which was comprised of the Provider Earnout, the Major Earnout and the Stock Earnout in the amount of $4.9 million, $17.1 million, and $0.7 million, respectively. As of June 30, 2017, the estimated earnouts are recorded on our condensed consolidated balance sheets in current liabilities - contingent consideration and long-term liabilities - contingent consideration in the amount of $5.8 million and $4.0 million, respectively; and as of December 31, 2016, in current liabilities - contingent consideration and long-term liabilities - contingent consideration in the amount of $11.8 million and $10.8 million, respectively.
The Provider Earnout was based on achievement by the Provider Companies of a certain customer count criteria over the nine month period following the closing of the Provider Companies acquisition. The sellers of the Provider Companies were entitled to a maximum of $9.0 million and a minimum of $5.0 million in earnout payments based on the level of customer count attained, as defined by the Provider Companies membership interest purchase agreement. In March and June 2017, the Company paid the sellers of the Provider Companies $1.0 million and $4.5 million, respectively, related to the earnout based on the achievement of certain customer count and sales targets. During the three and six months ended June 30, 2017, the Company recorded accretion of less than $0.1 million and $0.1 million, respectively, to reflect the impact of the time value of the liability prior to the final payment in June 2017. The Company additionally recorded $0.5 million of general and administrative expense related to the change in fair value of the earnout prior to the final payment in June 2017.

29

Table of Contents

The Major Earnout is based on the achievement by the Major Energy Companies of certain performance targets over the 33 month period following NG&E's closing of the Major Energy Companies acquisition (i.e., April 15, 2016). The previous members of Major Energy Companies are entitled to a maximum of $20.0 million in earnout payments based on the level of performance targets attained, as defined by the Major Purchase Agreement. The Stock Earnout obligation is contingent upon the Major Energy Companies achieving the Major Earnout's performance target ceiling, thereby earning the maximum Major Earnout payments. If the Major Energy Companies earn such maximum Major Earnout payments, NG&E would be entitled to a maximum of 400,000 shares of Class B common stock (and a corresponding number of Spark HoldCo units). Based on the financial results of the Major Energy Companies during the first earnout period, NG&E was not entitled to receive an issuance of shares of Class B common stock (and a corresponding number of SparkHoldCo units). In determining the fair value of the Major Earnout and the Stock Earnout, the Company forecasted certain expected performance targets and calculated the probability of such forecast being attained. In March 2017, the Company paid the previous members of the Major Energy Companies $7.4 million related to the period from April 15, 2016 through December 31, 2016. During the three and six months ended June 30, 2017, the Company recorded accretion of $1.4 million and $2.6 million, respectively, to reflect the impact of the time value of the liability. The Company revalued the liability at June 30, 2017, resulting in the decrease of the fair value of the liability to $9.8 million. The impact of the $3.1 million decrease in fair value is recorded in general and administrative expenses. As this calculation is based on management's estimates of the liability, we classified the Major Earnout as a Level 3 measurement.
The following tables present reconciliations of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended June 30, 2017 and December 31, 2016.
 
 
Major Earnout and Stock Earnout
 
Provider Earnout
 
Total
Fair value at December 31, 2016
 
$
17,760

 
$
4,893

 
$
22,653

Change in fair value of contingent consideration, net
 
(3,068
)
 
500

 
(2,568
)
Accretion of contingent earnout consideration (included within interest expense)
 
2,553

 
107

 
2,660

Payments (1)
 
(7,403
)
 
(5,500
)
 
(12,903
)
Fair Value at June 30, 2017
 
$
9,842

 
$

 
$
9,842

(1) Payments include pay downs at maturity
Other Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, accounts receivable—affiliates, accounts payable, accounts payable—affiliates, and accrued liabilities recorded in the condensed consolidated balance sheets approximate fair value due to the short-term nature of these items. The carrying amounts of the Senior Credit Facility and Prior Senior Credit Facility recorded in the condensed consolidated balance sheets approximate fair value because of the variable rate nature of the Company’s line of credit. The fair value of our convertible subordinated notes to affiliates is not determinable for accounting purposes due to the affiliate nature and terms of the associated debt instrument with the affiliate. The fair value of the payable pursuant to tax receivable agreement—affiliate is not determinable for accounting purposes due to the affiliate nature and terms of the associated agreement with the affiliate.
11. Accounting for Derivative Instruments
The Company is exposed to the impact of market fluctuations in the price of electricity and natural gas and basis costs, storage and ancillary capacity charges from independent system operators. The Company uses derivative instruments to manage exposure to these risks, and historically designated certain derivative instruments as cash flow hedges for accounting purposes.
The Company holds certain derivative instruments that are not held for trading purposes and are not designated as hedges for accounting purposes. These derivative instruments represent economic hedges that mitigate the Company’s exposure to fluctuations in commodity prices. For these derivative instruments, changes in the fair value are recognized currently in earnings in retail revenues or retail cost of revenues.
As part of the Company’s strategy to optimize its assets and manage related risks, it also manages a portfolio of commodity derivative instruments held for trading purposes. The Company’s commodity trading activities are subject to limits within the Company’s Risk Management Policy. For these derivative instruments, changes in the fair value are recognized currently in earnings in net asset optimization revenues.
Derivative assets and liabilities are presented net in the Company’s condensed consolidated balance sheets when the derivative instruments are executed with the same counterparty under a master netting arrangement. The Company’s derivative contracts include transactions that are executed both on an exchange and centrally cleared as well as over-the-counter, bilateral contracts that are transacted directly with a third party. To the extent the Company has paid or received collateral related to the derivative assets or liabilities, such amounts would be presented net against the related derivative asset or liability’s fair value. As of June 30, 2017 and December 31, 2016, the Company had paid $0.3 million and zero in collateral outstanding, respectively. The specific types of derivative instruments the Company may execute to manage the commodity price risk include the following:

Forward contracts, which commit the Company to purchase or sell energy commodities in the future;
Futures contracts, which are exchange-traded standardized commitments to purchase or sell a commodity or financial instrument;
Swap agreements, which require payments to or from counterparties based upon the differential between two prices for a predetermined notional quantity; and
Option contracts, which convey to the option holder the right but not the obligation to purchase or sell a commodity.
The Company has entered into other energy-related contracts that do not meet the definition of a derivative instrument or qualify for the normal purchase or normal sale exception and are therefore not accounted for at fair value, including the following:

Forward electricity and natural gas purchase contracts for retail customer load, and
Natural gas transportation contracts and storage agreements.

Volumetric Underlying Derivative Transactions
The following table summarizes the net notional volume buy/(sell) of the Company’s open derivative financial instruments accounted for at fair value, broken out by commodity, as of (in thousands):
Non-trading 
Commodity
Notional

June 30, 2017

December 31, 2016
Natural Gas
MMBtu

9,054


8,016

Natural Gas Basis
MMBtu




Electricity
MWh

5,001


3,958

Trading
Commodity
Notional

June 30, 2017

December 31, 2016
Natural Gas
MMBtu

683


(953
)
Natural Gas Basis
MMBtu

78


(380
)


30

Table of Contents

Gains (Losses) on Derivative Instruments
Gains (losses) on derivative instruments, net and current period settlements on derivative instruments were as follows for the periods indicated (in thousands):

Three Months Ended June 30,
  
2017

2016
(Loss) gain on non-trading derivatives, net
$
(10,202
)

$
13,322

Gain (loss) on trading derivatives, net
525


(77
)
(Loss) gain on derivatives, net
(9,677
)

13,245

Current period settlements on non-trading derivatives (1) (2) (3)
4,020


953

Current period settlements on trading derivatives
(24
)

71

Total current period settlements on derivatives
$
3,996


$
1,024

(1) Excludes settlements of $0.9 million for the three months ended June 30, 2016 related to non-trading derivative liabilities assumed in the acquisitions of CenStar and Oasis and $3.4 million for the three months ended June 30, 2016 related to Major Energy Companies.
(2) Excludes settlements of $1.3 million for the three months ended June 30, 2017 related to non-trading derivative liabilities assumed in the acquisitions of the Provider Companies and Major Energy Companies.
(3) Excludes settlements of $0.4 million for the three months ended June 30, 2017 related to non-trading derivative liabilities assumed in the acquisitions of Perigee and other customers.


Six Months Ended June 30,
  
2017

2016
(Loss) gain on non-trading derivatives, net
$
(31,578
)

$
3,702

Gain (loss) on trading derivatives, net
105


(206
)
(Loss) gain on derivatives, net
(31,473
)

3,496

Current period settlements on non-trading derivatives (1) (2) (3)
11,535


12,230

Current period settlements on trading derivatives
(184
)

66

Total current period settlements on derivatives
$
11,351


$
12,296

(1) Excludes settlements of less than $0.1 million and $0.1 million, respectively, for the six months ended June 30, 2017 and 2016 related to non-trading derivative liabilities assumed in the acquisitions of CenStar and Oasis.
(2) Excludes settlements of less than $0.1 million for the six months ended June 30, 2017 related to non-trading derivative liabilities assumed in the acquisitions of the Provider Companies and Major Energy Companies and $3.4 million for the six months ended June 30, 2016 related to Major Energy Companies.
(3) Excludes settlements of $0.4 million for the six months ended June 30, 2017 related to non-trading derivative liabilities assumed in the acquisitions of Perigee and other customers.

Gains (losses) on trading derivative instruments are recorded in net asset optimization revenues and gains (losses) on non-trading derivative instruments are recorded in retail revenues or retail cost of revenues on the condensed consolidated statements of operations.

31

Table of Contents

Fair Value of Derivative Instruments
The following tables summarize the fair value and offsetting amounts of the Company’s derivative instruments by counterparty and collateral received or paid as of (in thousands):
  
June 30, 2017
Description
Gross Assets

Gross
Amounts
Offset

Net Assets

Cash
Collateral
Offset

Net Amount
Presented
Non-trading commodity derivatives
$
2,160


$
(1,557
)

$
603


$


$
603

Trading commodity derivatives
264


(32
)

232




232

Total Current Derivative Assets
2,424


(1,589
)

835




835

Non-trading commodity derivatives
1,029


(1,145
)

(116
)



(116
)
Trading commodity derivatives
306


(68
)

238




238

Total Non-current Derivative Assets
1,335


(1,213
)

122




122

Total Derivative Assets
$
3,759


$
(2,802
)

$
957


$


$
957


June 30, 2017
Description
Gross 
Liabilities

Gross
Amounts
Offset

Net
Liabilities

Cash
Collateral
Offset

Net Amount
Presented
Non-trading commodity derivatives
$
(22,183
)

$
15,040


$
(7,143
)

$
300


$
(6,843
)
Trading commodity derivatives
(128
)

24


(104
)



(104
)
Total Current Derivative Liabilities
(22,311
)

15,064


(7,247
)

300


(6,947
)
Non-trading commodity derivatives
(8,399
)

4,688


(3,711
)



(3,711
)
Trading commodity derivatives









Total Non-current Derivative Liabilities
(8,399
)

4,688


(3,711
)



(3,711
)
Total Derivative Liabilities
$
(30,710
)

$
19,752


$
(10,958
)

$
300


$
(10,658
)
  
December 31, 2016
Description
Gross Assets

Gross
Amounts
Offset

Net Assets

Cash
Collateral
Offset

Net Amount
Presented
Non-trading commodity derivatives
$
19,657


$
(11,844
)

$
7,813


$


$
7,813

Trading commodity derivatives
614


(83
)

531




531

Total Current Derivative Assets
20,271


(11,927
)

8,344




8,344

Non-trading commodity derivatives
7,874


(4,791
)

3,083




3,083

Total Non-current Derivative Assets
7,874


(4,791
)

3,083




3,083

Total Derivative Assets
$
28,145


$
(16,718
)

$
11,427


$


$
11,427


December 31, 2016
Description
Gross 
Liabilities

Gross
Amounts
Offset

Net
Liabilities

Cash
Collateral
Offset

Net Amount
Presented
Non-trading commodity derivatives
$
(662
)

$
69


$
(593
)

$


$
(593
)
Trading commodity derivatives
(92
)

5


(87
)