Document


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

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

Date of Report (Date of earliest event reported): May 9, 2018
Spark Energy, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
 
 
Delaware
 
001-36559
 
46-5453215
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification Number)

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

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company  ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒






Item 2.02 Results of Operations and Financial Condition.

On May 9, 2018, Spark Energy, Inc. (the “Company”) issued a press release announcing first quarter 2018 earnings (the “Press Release”). The Press Release is being furnished as Exhibit 99.1 to this Current Report and is incorporated by reference herein.
The information above is being furnished, not filed, pursuant to Item 2.02 of Form 8-K. Accordingly, the information in Item 2.02 of this Current Report, including the Press Release, will not be incorporated by reference into any registration statement filed by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, unless specifically identified therein as being incorporated by reference.


Item 9.01 Financial Statements and Exhibits.
(d) Exhibits

Exhibit No.
Description
 
 
99.1
Press Release of Spark Energy, Inc. dated May 9, 2018







EXHIBIT INDEX

Exhibit No.
Description
 
 
99.1






SIGNATURES

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

Dated: May 10, 2018
 
 
 
 
Spark Energy, Inc.
 
By:
 
/s/ Gil Melman
Name:
 
Gil Melman
Title:
 
Vice President, General Counsel and Corporate Secretary



Exhibit


Spark Energy, Inc. Reports First Quarter 2018 Financial Results

HOUSTON, May 9, 2018 (GLOBE NEWSWIRE) -- Spark Energy, Inc. ("Spark" or the "Company") (NASDAQ: SPKE), an independent retail energy services company, today reported financial results for the quarter ended March 31, 2018.
Key Highlights
Achieved $15.9 million in Adjusted EBITDA, $45.7 million in Retail Gross Margin, and a $(41.8) million Net Loss for the first quarter
Total RCE count increased 1% to a record 1,055,000 as of March 31, 2018
Average monthly attrition of 4.2% for the first quarter
Closed on two acquisitions, adding approximately 80,000 RCEs
Continue to simplify, streamline, and optimize the organization
Expanded the senior credit facility to $200.0 million in commitments
Issued two million shares of Series A Preferred Stock for net proceeds of approximately $48.9 million

“Since the start of the year, we closed on two acquisitions, completed the integration of Verde Energy, implemented additional integration and cost-reduction initiatives, and further increased our liquidity,” said Nathan Kroeker, Spark Energy’s President and Chief Executive Officer. “That said, first quarter results were tempered by an unexpected burst of cold weather in early January that adversely affected Spark and our entire industry. This prolonged cold weather negatively impacted our financial results, especially compared to last year, when warmer-than-normal weather resulted in very strong unit margins for the winter months.

“Looking forward to the remainder of the year, we will continue to execute on our synergy projects to achieve further economies of scale. We intend to remain cost-effective with our organic acquisitions, and we will continue to evaluate additional acquisition opportunities while maintaining discipline with respect to purchase prices and valuation. On balance, we still anticipate that full-year Adjusted EBITDA for 2018 should be similar to that of 2017.”
Summary First Quarter 2018 Financial Results
For the quarter ended March 31, 2018, Spark reported Adjusted EBITDA of $15.9 million compared to Adjusted EBITDA of $34.4 million for the quarter ended March 31, 2017. The Company attributes this decrease of $18.5 million primarily to unexpected extreme cold weather patterns that raised short-term commodity prices in January.
For the quarter ended March 31, 2018, Spark reported Retail Gross Margin of $45.7 million compared to Retail Gross Margin of $64.6 million for the quarter ended March 31, 2017. Spark attributes this decrease of $18.9 million primarily to unexpected extreme cold weather patterns that raised short-term commodity prices in January.
Net loss for the quarter ended March 31, 2018, was $(41.8) million compared to net income of $11.1 million for the quarter ended March 31, 2017, driven by higher non-cash mark-to-market losses.
Strategic Update
As previously announced, the termination of the Verde earnout agreement on January 15, 2018 has allowed Spark to integrate Verde's operations on an accelerated basis. In addition, the Company expects the reintegration of Retailco





Services into its operations, effective April 1, 2018, will allow it to realize synergies and cost reductions as early as the second quarter. Finally, Spark's internal brand consolidation and cost-cutting measures should also begin impacting 2018 results in the second quarter.
During the quarter, Spark increased the commitments on its credit facility to $200.0 million and issued an additional $48.9 million of its Series A Preferred Stock.
Liquidity and Capital Resources
($ in thousands)
March 31, 2018
Cash and cash equivalents
$
21,065
 
Senior Credit Facility Availability (1)
43,811
 
Subordinated Debt Availability (2)
25,000
 
Total Liquidity
$
89,876
 
(1) Subject to Senior Credit Facility borrowing base and covenant restrictions.
(2) The availability of the Subordinated Facility is dependent on our Founder's financial position and liquidity.
Dividend
Spark’s Board of Directors declared quarterly dividends of $0.18125 per share of Class A common stock payable on June 14, 2018, and $0.546875 per share of Series A Preferred Stock payable on July 16, 2018.
Conference Call and Webcast
Spark will host a conference call to discuss first quarter 2018 results on Thursday, May 10, 2018, at 10:00 AM Central Time (11:00 AM Eastern).
A live webcast of the conference call can be accessed from the Events & Presentations page of the Spark Energy Investor Relations website at http://ir.sparkenergy.com/events-and-presentations. An archived replay of the webcast will be available for twelve months following the live presentation.
About Spark Energy, Inc.
Spark Energy, Inc. is an established and growing independent retail energy services company founded in 1999 that provides residential and commercial customers in competitive markets across the United States with an alternative choice for their natural gas and electricity. Headquartered in Houston, Texas, Spark currently operates in 19 states and serves 94 utility territories. Spark offers its customers a variety of product and service choices, including stable and predictable energy costs and green product alternatives.
We use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Investors should note that new materials, including press releases, updated investor presentations, and financial and other filings with the Securities and Exchange Commission are posted on the Spark Energy Investor Relations website at ir.sparkenergy.com. Investors are urged to monitor our website regularly for information and updates about the Company.





Cautionary Note Regarding Forward Looking Statements
This earnings release contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. These forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) can be identified by the use of forward-looking terminology including “may,” “should,” “likely,” “will,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” “plan,” “intend,” “projects,” or other similar words. All statements, other than statements of historical fact included in this earnings release, regarding strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans, objectives and beliefs of management are forward-looking statements. Forward-looking statements appear in a number of places in this earnings release and may include statements about business strategy and prospects for growth, customer acquisition costs, ability to pay cash dividends, cash flow generation and liquidity, availability of terms of capital, competition and government regulation and general economic conditions. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurance that such expectations will prove correct.
The forward-looking statements in this earnings release are subject to risks and uncertainties. Important factors that could cause actual results to materially differ from those projected in the forward-looking statements include, but are not limited to:
changes in commodity prices and the sufficiency of risk management and hedging policies;
extreme and unpredictable weather conditions, and the impact of hurricanes and other natural disasters;
federal, state and local regulation, including the industry's ability to address or adapt to potentially restrictive new regulations that may be enacted by the New York Public Service Commission;
our ability to borrow funds and access credit markets and restrictions in our debt agreements and collateral requirements;
credit risk with respect to suppliers and customers;
changes in costs to acquire customers and actual customer attrition rates;
accuracy of billing systems;
whether our majority stockholder or its affiliates offer us acquisition opportunities on terms that are commercially acceptable to us;
ability to successfully identify and complete, and efficiently integrate acquisitions into our operations;
competition; and
the “Risk Factors” in our latest Annual Report on Form 10-K, and in our quarterly reports, other public filings and press releases.
You should review the risk factors and other factors noted throughout or incorporated by reference in this earnings release that could cause our actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements speak only as of the date of this earnings release. Unless required by law, we disclaim any obligation to publicly update or revise these statements whether as a result of new information, future events or otherwise. It is not possible for us to predict all risks, nor can we assess the impact of all factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.







SPARK ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2018 AND DECEMBER 31, 2017
(in thousands)





(unaudited)
 
March 31, 2018
 
 
December 31, 2017
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
21,065
 
 
$
29,419
 
Accounts receivable, net of allowance for doubtful accounts of $4.4 million and $4.0 million as of March 31, 2018 and December 31, 2017, respectively
152,454

 
 
158,814
 
Accounts receivable—affiliates
3,063

 
 
3,661
 
Inventory
400

 
 
4,470
 
Fair value of derivative assets
7,965

 
 
31,191
 
Customer acquisition costs, net
20,181

 
 
22,123
 
Customer relationships, net
20,878

 
 
18,653
 
Prepaid assets
3,809

 
 
1,028
 
Deposits
28,763

 
 
7,701
 
Other current assets
23,254

 
 
19,678
 
Total current assets
281,832

 
 
296,738
 
Property and equipment, net
7,699

 
 
8,275
 
Fair value of derivative assets
262

 
 
3,309
 
Customer acquisition costs, net
6,698

 
 
6,949
 
Customer relationships, net
35,074

 
 
34,839
 
Deferred tax assets
30,734

 
 
24,185
 
Goodwill
120,154

 
 
120,154
 
Other assets
11,452

 
 
11,500
 
Total assets
$
493,905
 
 
$
505,949
 
Liabilities, Series A Preferred Stock and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
61,687
 
 
$
77,510
 
Accounts payable—affiliates
4,050

 
 
4,622
 
Accrued liabilities
41,512

 
 
33,679
 
Fair value of derivative liabilities
12,347

 
 
1,637
 
Current portion of Senior Credit Facility

 
 
7,500
 
Current payable pursuant to tax receivable agreement—affiliates
5,937

 
 
5,937
 
Current contingent consideration for acquisitions
3,043

 
 
4,024
 
Other current liabilities
2,484

 
 
2,675
 
Current portion of note payable
11,332

 
 
13,443
 
Total current liabilities
142,392

 
 
151,027
 
Long-term liabilities:
 
 
 
Fair value of derivative liabilities
11,038

 
 
492
 
Payable pursuant to tax receivable agreement—affiliates
26,355

 
 
26,355
 
Long-term portion of Senior Credit Facility
106,500

 
 
117,750
 
Contingent consideration for acquisitions

 
 
626
 
Other long-term liabilities

 
 
172
 
Long-term portion of note payable
5,900

 
 
7,051
 
Total liabilities
$
292,185
 
 
$
303,473
 
Commitments and contingencies (Note 13)
 
 
 
Series A Preferred Stock, par value $0.01 per share, 20,000,000 shares authorized, 3,707,256 shares issued and outstanding at March 31, 2018 and 1,704,339 shares issued and outstanding at December 31, 2017
90,758

 
 
41,173
 
Stockholders' equity:
 
 
 
       Common Stock (1) :
 
 
 
Class A common stock, par value $0.01 per share, 120,000,000 shares authorized, 13,237,981 issued, and 13,138,535 outstanding at March 31, 2018 and 13,235,082 issued and 13,135,636 outstanding at December 31, 2017
132

 
 
132
 
Class B common stock, par value $0.01 per share, 60,000,000 shares authorized, 21,485,126 issued and outstanding at March 31, 2018 and December 31, 2017
216

 
 
216
 
Additional paid-in capital
27,717

 
 
26,914
 
Accumulated other comprehensive loss
(43

)
 
(11
)
Retained earnings
(5,726

)
 
11,008
 
Treasury stock, at cost, 99,446 shares at March 31, 2018 and December 31, 2017
(2,011

)
 
(2,011
)
Total stockholders' equity
20,285

 
 
36,248
 
Non-controlling interest in Spark HoldCo, LLC
90,677

 
 
125,055
 
Total equity
110,962

 
 
161,303
 
Total liabilities, Series A Preferred Stock and stockholders' equity
$
493,905
 
 
$
505,949
 
(1)    Outstanding shares of common stock reflect the two-for-one stock split, which took effect on June 16, 2017. See Note 5 "Equity" for further discussion.





(2)    See Note 5 "Equity" for disclosure of our variable interest entity in Spark HoldCo, LLC.



SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(in thousands)
(unaudited)
 
Three Months Ended March 31,
 
2018
 
2017 (1)
Revenues:
 
 
 
Retail revenues
$
284,001
 
 
$
196,500
 
Net asset optimization revenues/(expense) (2)
2,687
 
 
(193
)
Total Revenues
286,688
 
 
196,307
 
Operating Expenses:
 
 
 
Retail cost of revenues
289,876
 
 
145,761
 
General and administrative (3)
30,047
 
 
24,493
 
Depreciation and amortization
13,019
 
 
9,270
 
Total Operating Expenses
332,942
 
 
179,524
 
Operating (loss) income
(46,254
)
 
16,783
 
Other (expense)/income:
 
 
 
Interest expense
(2,245
)
 
(3,445
)
Interest and other income
201
 
 
199
 
Total other expenses
(2,044
)
 
(3,246
)
(Loss) Income before income tax (benefit) expense
(48,298
)
 
13,537
 
Income tax (benefit)/expense
(6,467
)
 
2,405
 
Net (loss) income
(41,831
)
 
$
11,132
 
Less: Net (loss) income attributable to non-controlling interests
(29,505
)
 
8,862
 
Net (loss) income attributable to Spark Energy, Inc. stockholders
$
(12,326
)
 
$
2,270
 
Less: Dividend on Series A preferred stock
2,027
 
 
183
 
Net (loss) income attributable to stockholders of Class A common stock
$
(14,353
)
 
$
2,087
 
Other comprehensive loss, net of tax:
 
 
 
Currency translation loss
$
(83
)
 
$
(49
)
Other comprehensive loss
(83
)
 
(49
)
Comprehensive (loss) income
$
(41,914
)
 
$
11,083
 
Less: Comprehensive (loss) income attributable to non-controlling interests
(29,556
)
 
8,831
 
Comprehensive (loss) income attributable to Spark Energy, Inc. stockholders
$
(12,358
)
 
$
2,252
 
(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 4, "Basis of Presentation and Summary of Significant Accounting Policies" and "Acquisitions," respectively, for further discussion.
(2)
Net asset optimization revenues (expenses) includes asset optimization revenues—affiliates of $648 and $0 for the three months ended March 31, 2018 and 2017, respectively, and asset optimization revenues—affiliates cost of revenues of $12 and $0 for the three months ended March 31, 2018 and 2017, respectively.
(3)
General and administrative expense includes general and administrative expense—affiliates of $6,400 and $7,300 for the three months ended March 31, 2018 and 2017, respectively.









SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(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 Loss
Additional Paid-in Capital
Retained Earnings (Deficit)
Total Stockholders' Equity
Non-controlling Interest
Total Equity
Balance at December 31, 2017
13,235

 
21,485

 
(99

)
$
132
 
$
216
 
$
(2,011

)
$
(11

)
$
26,914
 
$
11,008
 
$
36,248
 
$
125,055
 
$
161,303
 
Stock based compensation

 

 

 

 

 
 
 
 
 
817

 
 
 
817

 

 
817
 
Restricted stock unit vesting
3

 

 

 

 

 
 
 
 
 
(14

)
 
 
(14

)

 
(14
)
Consolidated net loss

 

 

 

 

 
 
 
 
 

 
(12,326
 
)
(12,326

)
(29,505

)
(41,831
)
Foreign currency translation adjustment for equity method investee

 

 

 

 

 
 
 
(32
 
)

 
 
 
(32

)
(51

)
(83
)
Distributions paid to non-controlling unit holders

 

 

 

 

 
 
 
 
 

 
 
 

 
(4,822

)
(4,822
)
Dividends paid to Class A common stockholders

 

 

 

 

 
 
 
 
 

 
(2,381
 
)
(2,381

)

 
(2,381
)
Dividends to Preferred Stock

 

 

 

 

 
 
 
 
 

 
(2,027
 
)
(2,027

)

 
(2,027
)
Balance at March 31, 2018
13,238

 
21,485

 
(99

)
$
132
 
$
216
 
$
(2,011

)
$
(43

)
$
27,717
 
$
(5,726

)
$
20,285
 
$
90,677
 
$
110,962
 








SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(in thousands)
(unaudited)





 
Three Months Ended March 31,
 
2018
 
2017 (1)
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(41,831

)
 
$
11,132

 
Adjustments to reconcile net income to net cash flows provided by operating activities:
 
 
 
Depreciation and amortization expense
11,632
 
 
 
8,204
 
 
Deferred income taxes
(6,549
 
)
 
(87
 
)
Stock based compensation
1,131
 
 
 
1,367
 
 
Amortization of deferred financing costs
295
 
 
 
248
 
 
Change in Fair Value of Earnout liabilities
 
 
 
711
 
 
Accretion on fair value of Earnout liabilities
 
 
 
1,226
 
 
Bad debt expense
2,423
 
 
 
356
 
 
Loss on derivatives, net
36,542
 
 
 
21,796
 
 
Current period cash settlements on derivatives, net
16,442
 
 
 
(6,178
 
)
Accretion of discount to convertible subordinated notes to affiliate
 
 
 
1,004
 
 
Payment of the Major Energy Companies Earnout
 
 
 
(1,104
 
)
Other
(248
 
)
 
6
 
 
Changes in assets and liabilities:
 
 
 
Decrease in accounts receivable
9,737
 
 
 
3,738
 
 
Decrease (Increase) in accounts receivable—affiliates
354
 
 
 
(55
 
)
Decrease in inventory
4,070
 
 
 
3,322
 
 
Increase in customer acquisition costs
(4,274
 
)
 
(7,690
 
)
Increase in prepaid and other current assets
(22,719
 
)
 
(1,302
 
)
Increase in other assets
(58
 
)
 
 
 
Decrease in accounts payable and accrued liabilities
(9,091
 
)
 
(8,979
 
)
Decrease in accounts payable—affiliates
(572
 
)
 
(1,684
 
)
Decrease in other current liabilities
(6,653
 
)
 
(2,413
 
)
Decrease in other non-current liabilities
(171
 
)
 
(324
 
)
Net cash (used in) provided by operating activities
(9,540
 
)
 
23,294
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(754
 
)
 
(112
 
)
Acquisition of HIKO Energy
(15,041
 
)
 
 
 
Net cash used in investing activities
(15,795
 
)
 
(112
 
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of Series A Preferred Stock, net of issuance costs paid
48,490
 
 
 
38,607
 
 
Borrowings on notes payable
83,800
 
 
 
5,625
 
 
Payments on notes payable
(102,550
 
)
 
(46,993
 
)
Payment of the Major Energy Companies Earnout
(1,607
 
)
 
(6,299
 
)
Payment of the Provider Companies Earnout and installment consideration
 
 
 
(2,097
 
)
Payments on the Verde promissory note
(3,261
 
)
 
 
 
Proceeds from disgorgement of stockholders short-swing profits
244
 
 
 
666
 
 
Payment of dividends to Class A common stockholders
(2,381
 
)
 
(2,355
 
)
Payment of distributions to non-controlling unitholders
(4,822
 
)
 
(4,347
 
)
Payment of Dividends to Preferred Stock
(932
 
)
 
 
 
Net cash provided by (used in) financing activities
16,981
 
 
 
(17,193
 
)
(Decrease) increase in Cash and cash equivalents
(8,354
 
)
 
5,989
 
 
Cash and cash equivalents—beginning of period
29,419
 
 
 
18,960
 
 
Cash and cash equivalents—end of period
$
21,065

 
 
$
24,949

 
Supplemental Disclosure of Cash Flow Information:
 
 
 
Non-cash items:
 
 
 
Property and equipment purchase accrual
$
180

 
 
$
76

 
Cash paid during the period for:
 
 
 
Interest
$
1,854

 
 
$
888

 
Taxes
$
1,268

 
 
$
118

 
(1) Financial information has been recast to include results attributable to the acquisition of Perigee Energy, LLC by an affiliate on February 3, 2017.






SPARK ENERGY, INC.
OPERATING SEGMENT RESULTS
FOR THE THREE MONTHS ENDED March 31, 2018 AND 2017
(in thousands, except per unit operating data)
(unaudited)
 
Three Months Ended
 March 31,
 
2018
 
2017 (1)
 
(in thousands, except volume and per unit operating data)
Retail Electricity Segment
 
 
 
Total Revenues
220,899
 
 
133,694
 
Retail Cost of Revenues
249,547
 
 
108,844
 
Less: Net Losses on non-trading derivatives, net of cash settlements
(48,367
)
 
(11,921
)
Retail Gross Margin — Electricity
19,719
 
 
36,771
 
Volumes — Electricity (MWhs)
2,252,024
 
 
1,385,114
 
Retail Gross Margin — Electricity per MWh
8.76
 
 
26.55
 
 
 
 
 
Retail Natural Gas Segment
 
 
 
Total Revenues
$
65,789
 
 
$
62,613
 
Retail Cost of Revenues
40,329
 
 
36,917
 
Less: Net Asset Optimization Revenues (Expenses)
2,687
 
 
(193
)
Less: Net Losses on non-trading derivatives, net of cash settlements
(3,227
)
 
(1,940
)
Retail Gross Margin — Gas
$
26,000
 
 
$
27,829
 
Volumes — Gas (MMBtus)
7,677,082
 
 
8,219,279
 
Retail Gross Margin — Gas per MMBtu
$
3.39
 
 
$
3.39
 
(1) Financial information has been recast to include results attributable to the acquisition of Perigee Energy, LLC by an affiliate on February 3, 2017.

Reconciliation of GAAP to Non-GAAP Measures
Adjusted EBITDA
We define “Adjusted EBITDA” as EBITDA less (i) customer acquisition costs incurred in the current period, (ii) net gain (loss) on derivative instruments, and (iii) net current period cash settlements on derivative instruments, plus (iv) non-cash compensation expense, and (v) other non-cash and non-recurring operating items. EBITDA is defined as net income (loss) before provision for income taxes, interest expense and depreciation and amortization. We deduct all current period customer acquisition costs (representing spending for organic customer acquisitions) in the Adjusted EBITDA calculation because such costs reflect a cash outlay in the period in which they are incurred, even though we capitalize such costs and amortize them over two years in accordance with our accounting policies. The deduction of current period customer acquisition costs is consistent with how we manage our business, but the comparability of Adjusted EBITDA between periods may be affected by varying levels of customer acquisition costs. For example, our Adjusted EBITDA is lower in years of customer growth reflecting larger customer acquisition spending. We do not deduct the cost of customer acquisitions through acquisitions of business or portfolios of customers in calculated Adjusted EBITDA. We deduct our net gains (losses) on derivative instruments, excluding current period cash settlements, from the Adjusted EBITDA calculation in order to remove the non-cash impact of net gains and losses on derivative instruments. We also deduct non-cash compensation expense as a result of restricted stock units that are issued under our long-term incentive plan.





We believe that the presentation of Adjusted EBITDA provides information useful to investors in assessing our liquidity and financial condition and results of operations and that Adjusted EBITDA is also useful to investors as a financial indicator of our ability to incur and service debt, pay dividends and fund capital expenditures. Adjusted EBITDA is a supplemental financial measure that management and external users of our condensed consolidated financial statements, such as industry analysts, investors, commercial banks and rating agencies, use to assess the following:
our operating performance as compared to other publicly traded companies in the retail energy industry, without regard to financing methods, capital structure or historical cost basis;
the ability of our assets to generate earnings sufficient to support our proposed cash dividends; and
our ability to fund capital expenditures (including customer acquisition costs) and incur and service debt.

Retail Gross Margin
We define retail gross margin as operating income (loss) plus (i) depreciation and amortization expenses and (ii) general and administrative expenses, less (i) net asset optimization revenues, (ii) net gains (losses) on non-trading derivative instruments, and (iii) net current period cash settlements on non-trading derivative instruments. Retail gross margin is included as a supplemental disclosure because it is a primary performance measure used by our management to determine the performance of our retail natural gas and electricity business by removing the impacts of our asset optimization activities and net non-cash income (loss) impact of our economic hedging activities. As an indicator of our retail energy business’ operating performance, retail gross margin should not be considered an alternative to, or more meaningful than, operating income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP.
We believe retail gross margin provides information useful to investors as an indicator of our retail energy business's operating performance.
The GAAP measures most directly comparable to Adjusted EBITDA are net income (loss) and net cash provided by operating activities. The GAAP measure most directly comparable to Retail Gross Margin is operating income (loss). Our non-GAAP financial measures of Adjusted EBITDA and Retail Gross Margin should not be considered as alternatives to net income (loss), net cash provided by operating activities, or operating income (loss). Adjusted EBITDA and Retail Gross Margin are not presentations made in accordance with GAAP and have important limitations as analytical tools. You should not consider Adjusted EBITDA or Retail Gross Margin in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA and Retail Gross Margin exclude some, but not all, items that affect net income (loss) and net cash provided by operating activities, and are defined differently by different companies in our industry, our definition of Adjusted EBITDA and Retail Gross Margin may not be comparable to similarly titled measures of other companies.
Management compensates for the limitations of Adjusted EBITDA and Retail Gross Margin as analytical tools by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating these data points into management’s decision-making process.
The following tables present a reconciliation of Adjusted EBITDA to net income (loss) and net cash provided by operating activities for each of the periods indicated.







APPENDIX TABLES A-1 AND A-2
ADJUSTED EBITDA RECONCILIATIONS
(in thousands)
(unaudited)
 
Three Months Ended March 31,
(in thousands)
2018
 
2017 (1)
Reconciliation of Adjusted EBITDA to Net Income:
 
 
 
Net (loss) income
$
(41,831
)
 
$
11,132
 
Depreciation and amortization
13,019
 
 
9,270
 
Interest expense
2,245
 
 
3,445
 
Income tax (benefit) expense
(6,467
)
 
2,405
 
EBITDA
(33,034
)
 
26,252
 
Less:
 
 
 
Net, losses on derivative instruments
(36,542
)
 
(21,796
)
Net, Cash settlements on derivative instruments
(15,537
)
 
7,355
 
Customer acquisition costs
4,274
 
 
7,690
 
Plus:
 
 
 
Non-cash compensation expense
1,131
 
 
1,367
 
Adjusted EBITDA
$
15,902
 
 
$
34,370
 
(1) Financial information has been recast to include results attributable to the acquisition of Perigee Energy, LLC by an affiliate on February 3, 2017.
 
Three Months Ended March 31,
(in thousands)
2018
 
2017 (1)
Reconciliation of Adjusted EBITDA to net cash provided by operating activities:
 
 
 
Net cash (used in) provided by operating activities
$
(9,540
)
 
$
23,294
 
Amortization of deferred financing costs
(295
)
 
(248
)
Allowance for doubtful accounts and bad debt expense
(2,423
)
 
(356
)
Interest expense
2,245
 
 
3,445
 
Income tax (benefit) expense
(6,467
)
 
2,405
 
Changes in operating working capital
 
 
 
Accounts receivable, prepaids, current assets
12,628
 
 
(2,381
)
Inventory
(4,070
)
 
(3,322
)
Accounts payable and accrued liabilities
16,316
 
 
13,076
 
Other
7,508
 
 
(1,543
)
Adjusted EBITDA
$
15,902
 
 
$
34,370
 
Cash Flow Data:
 
 
 
Cash flows (used in) provided by operating activities
$
(9,540
)
 
$
23,294
 
Cash flows used in investing activities
(15,795
)
 
(112
)
Cash flows provided by (used in) financing activities
16,981
 
 
(17,193
)
(1) Financial information has been recast to include results attributable to the acquisition of Perigee Energy, LLC by an affiliate on February 3, 2017.






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

APPENDIX TABLE A-3
RETAIL GROSS MARGIN RECONCILIATION
(in thousands)
(unaudited)
 
Three Months Ended March 31,
(in thousands)
2018
 
2017 (1)
Reconciliation of Retail Gross Margin to Operating Income:
 
 
 
Operating (loss) income
$
(46,254
)
 
$
16,783
 
Depreciation and amortization
13,019
 
 
9,270
 
General and administrative
30,047
 
 
24,493
 
Less:
 
 
 
Net asset optimization revenues (expenses)
2,687
 
 
(193
)
Net, Losses on non-trading derivative instruments
(36,712
)
 
(21,376
)
Net, Cash settlements on non-trading derivative instruments
(14,882
)
 
7,515
 
Retail Gross Margin
$
45,719
 
 
$
64,600
 
Retail Gross Margin - Retail Electricity Segment
$
19,719
 
 
$
36,771
 
Retail Gross Margin - Retail Natural Gas Segment
$
26,000
 
 
$
27,829
 
(1) Financial information has been recast to include results attributable to the acquisition of Perigee Energy, LLC by an affiliate on February 3, 2017.


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