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Spark Energy, Inc. Reports Third Quarter 2018 Financial Results

Nov 1, 2018

Acquired 60,000 residential RCEs; on track to exceed high end of cost reduction guidance

HOUSTON, Nov. 01, 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 September 30, 2018.

Key Highlights

  • Achieved $18.6 million in Adjusted EBITDA, $45.8 million in Retail Gross Margin, and a $18.8 million in Net Income for the third quarter
  • Expects to exceed upper end of cost reduction guidance range by 10 to 20 percent
  • Total RCE count of 979,000 as of September 30, 2018
  • Acquired 60,000 residential RCEs subsequent to the close of fiscal third quarter 2018

"Our third quarter was highlighted by continued improvement in organic customer acquisitions as well as significant strides in realizing the brand and platform consolidations that we expect to lead to stronger margins," said Nathan Kroeker, Spark Energy's President and Chief Executive Officer. "Efforts to improve customer mix and migrate customers to more cost-effective billing platforms are more than halfway complete and our cost saving actions are tracking ahead of our expectations."

Kroeker continued, "Since the closing of our third quarter, we announced our acquisition of up to 60,000 residential RCEs in the Midwest and Mid-Atlantic regions. This acquisition will be immediately accretive to 2018 earnings and will require minimal integration activity."

Summary Third Quarter 2018 Financial Results

For the quarter ended September 30, 2018, Spark reported Adjusted EBITDA of $18.6 million compared to Adjusted EBITDA of $19.6 million for the quarter ended September 30, 2017. This decrease of $1.0 million was driven by a lower Retail Gross Margin.

For the quarter ended September 30, 2018, Spark reported Retail Gross Margin of $45.8 million compared to Retail Gross Margin of $50.6 million for the quarter ended September 30, 2017. This decrease of $4.8 million is primarily attributable to lower natural gas volumes and electricity unit margins.

Net income for the quarter ended September 30, 2018, was $18.8 million compared to net income of $12.9 million for the quarter ended September 30, 2017. The increase in performance compared to the prior year was primarily the result of non-cash gains on our derivative instruments.

Liquidity and Capital Resources

($ in thousands) September 30, 2018
Cash and cash equivalents $ 42,796
Senior Credit Facility Availability (1) 19,281
Subordinated Debt Availability (2) 15,000
Total Liquidity $ 77,077
     

(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 December 14th, 2018, and $0.546875 per share of Series A Preferred Stock payable on January 15, 2019.

Business Outlook

Kroeker concluded, "As we look to fiscal 2019, we expect to see the benefits of improved customer mix and normalized RCE counts. We expect our Adjusted EBITDA to positively reflect the success of our synergy and cost reduction initiatives. Year-to-date we have implemented significant general and administrative cost savings, and we will continue to evaluate opportunities to improve long-term profitability."

Conference Call and Webcast

Spark will host a conference call to discuss third quarter 2018 results on Friday, November 2, 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;
  • significant changes in, or new charges by, the ISOs in the regions in which we operate;
  • competition; and
  • the “Risk Factors” in our latest Annual Report on Form 10-K, and in our quarterly reports, other public filings and press releases.

You should review the risk factors and other factors noted throughout or incorporated by reference in this earnings release that could cause our actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements speak only as of the date of this earnings release. Unless required by law, we disclaim any obligation to publicly update or revise these statements whether as a result of new information, future events or otherwise. It is not possible for us to predict all risks, nor can we assess the impact of all factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

SPARK ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017
(in thousands, except share counts)
(unaudited)

  September 30, 2018   December 31, 2017
Assets      
Current assets:      
Cash and cash equivalents $ 42,796     $ 29,419  
Accounts receivable, net of allowance for doubtful accounts of $4,324 at September 30 and $4,023 at December 31 134,183     158,814  
Accounts receivable—affiliates 3,807     3,661  
Inventory 4,077     4,470  
Fair value of derivative assets 23,427     31,191  
Customer acquisition costs, net 15,600     22,123  
Customer relationships, net 18,360     18,653  
Deposits 12,631     7,701  
Other current assets 31,074     20,706  
Total current assets 285,955     296,738  
Property and equipment, net 5,383     8,275  
Fair value of derivative assets 1,873     3,309  
Customer acquisition costs, net 3,466     6,949  
Customer relationships, net 28,247     34,839  
Deferred tax assets 24,935     24,185  
Goodwill 120,343     120,154  
Other assets 11,075     11,500  
Total assets $ 481,277     $ 505,949  
       
Liabilities, Series A Preferred Stock and Stockholders' Equity      
Current liabilities:      
Accounts payable $ 55,496     $ 77,510  
Accounts payable—affiliates 2,836     4,622  
Accrued liabilities 45,518     33,679  
Fair value of derivative liabilities 269     1,637  
Current portion of Senior Credit Facility     7,500  
Current payable pursuant to tax receivable agreement—affiliates 2,508     5,937  
Current contingent consideration for acquisitions 2,980     4,024  
Other current liabilities 856     2,675  
Current portion of note payable 10,535     13,443  
Total current liabilities 120,998     151,027  
Long-term liabilities:      
Fair value of derivative liabilities 489     492  
Payable pursuant to tax receivable agreement—affiliates 26,067     26,355  
Long-term portion of Senior Credit Facility 112,000     117,750  
Subordinated debt—affiliate 10,000      
Long-term portion of note payable     7,051  
Contingent consideration for acquisitions     626  
Other long-term liabilities     172  
Total liabilities 269,554     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 September 30 and 1,704,339 shares issued and outstanding at December 31 90,758     41,173  
       
Stockholders' equity:      
Common Stock:      
         
Class A common stock, par value $0.01 per share, 120,000,000 shares authorized, 13,493,158 issued, and 13,393,712 outstanding at September 30 and 13,235,082 issued and 13,135,636 outstanding at December 31 135     132  
Class B common stock, par value $0.01 per share, 60,000,000 shares authorized, 21,485,126 issued and outstanding at September 30 and December 31 216     216  
       
       
Additional paid-in capital 25,387     26,914  
Accumulated other comprehensive loss (15 )   (11 )
Retained earnings 2,885     11,008  
Treasury stock, at cost, 99,446 shares at September 30 and December 31 (2,011 )   (2,011 )
Total stockholders' equity 26,597     36,248  
Non-controlling interest in Spark HoldCo, LLC 94,368     125,055  
Total equity 120,965     161,303  
Total liabilities, Series A Preferred Stock and stockholders' equity $ 481,277     $ 505,949  
               

SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(in thousands)
(unaudited)

  Three Months Ended September 30,   Nine Months Ended September 30,
  2018   2017   2018   2017
Revenues:              
Retail revenues $ 258,127     $ 215,856     $ 773,616     $ 563,960  
Net asset optimization revenues/(expense) 348     (320 )   3,798     (681 )
Total Revenues 258,475     215,536     777,414     563,279  
Operating Expenses:              
Retail cost of revenues 193,409     160,373     645,954     420,771  
General and administrative 25,695     25,566     83,522     69,405  
Depreciation and amortization 13,917     11,509     39,797     30,435  
Total Operating Expenses 233,021     197,448     769,273     520,611  
Operating income 25,454     18,088     8,141     42,668  
Other (expense)/income:              
Interest expense (2,762 )   (2,863 )   (7,323 )   (8,760 )
Interest and other income (loss) (47 )   168     707     102  
Total other expenses (2,809 )   (2,695 )   (6,616 )   (8,658 )
Income before income tax expense 22,645     15,393     1,525     34,010  
Income tax expense 3,818     2,451     602     5,265  
Net income $ 18,827     $ 12,942     $ 923     $ 28,745  
Less: Net income attributable to non-controlling interests 13,218     10,595     140     23,049  
Net income attributable to Spark Energy, Inc. stockholders $ 5,609     $ 2,347     $ 783     $ 5,696  
Less: Dividend on Series A preferred stock 2,027     932     6,081     2,106  
Net income (loss) attributable to stockholders of Class A common stock $ 3,582     $ 1,415     $ (5,298 )   $ 3,590  
Other comprehensive income, net of tax:              
Currency translation gain (loss) $ 47     $ (13 )   $ (11 )   $ (88 )
Other comprehensive income (loss) 47     (13 )   (11 )   (88 )
Comprehensive income $ 18,874     $ 12,929     $ 912     $ 28,657  
Less: Comprehensive income attributable to non-controlling interests 13,247     10,587     133     22,994  
Comprehensive income attributable to Spark Energy, Inc. stockholders $ 5,627     $ 2,342     $ 779     $ 5,663  
                               

SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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               3,596     3,596     3,596  
Restricted stock unit vesting 258       3         (715 )   (712 )   (712 )
Consolidated net income                 783   783   140   923  
Foreign currency translation adjustment for equity method investee             (4 )     (4 ) (7 ) (11 )
Distributions paid to non-controlling unit holders                     (23,701 ) (23,701 )
Dividends paid to Class A common stockholders               (2,381 ) (4,852 ) (7,233 )   (7,233 )
Dividends to Preferred Stock               (2,027 ) (4,054 ) (6,081 )   (6,081 )
Acquisition of Customers from Affiliate                     (7,119 ) (7,119 )
Balance at September 30, 2018 13,493   21,485   (99 ) $ 135   $ 216   $ (2,011 ) $ (15 ) $ 25,387   $ 2,885   $ 26,597   $ 94,368   $ 120,965  
                                                                   

SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(in thousands)
(unaudited)

  Nine Months Ended September 30,
  2018   2017
Cash flows from operating activities:      
Net income $ 923     $ 28,745  
Adjustments to reconcile net income to net cash flows provided by operating activities:      
Depreciation and amortization expense 38,538     30,584  
Deferred income taxes (749 )   681  
Change in TRA liability 79      
Stock based compensation 3,707     4,023  
Amortization of deferred financing costs 1,243     750  
Excess tax benefit related to restricted stock vesting (101 )   179  
Change in Fair Value of Earnout liabilities (63 )   (9,423 )
Accretion on fair value of Earnout liabilities     3,787  
Bad debt expense 8,480     3,436  
Loss on derivatives, net 1,371     34,225  
Current period cash settlements on derivatives, net 6,189     (20,816 )
Accretion of discount to convertible subordinated notes to affiliate     1,004  
Payment of the Major Energy Companies Earnout     (1,104 )
Payment of the Provider Companies Earnout     (677 )
Other (489 )   123  
Changes in assets and liabilities:      
Decrease in accounts receivable 21,029     18,056  
Increase in accounts receivable—affiliates (390 )   (2,508 )
Decrease (increase) in inventory 475     (1,936 )
Increase in customer acquisition costs (8,949 )   (18,642 )
(Increase) decrease in prepaid and other current assets (10,999 )   1,536  
Increase in intangible assets—customer acquisitions (86 )   (32 )
Decrease (increase) in other assets 92     (664 )
Decrease in accounts payable and accrued liabilities (11,062 )   (9,301 )
(Decrease) increase in accounts payable—affiliates (1,786 )   1,165  
(Decrease) increase in other current liabilities (5,140 )   22  
Decrease in other non-current liabilities (459 )   (1,170 )
Net cash provided by operating activities 41,853     62,043  
Cash flows from investing activities:      
Purchases of property and equipment (1,097 )   (1,438 )
Acquisitions of Perigee and other customers     (11,464 )
Acquisition of the Verde Companies     (65,785 )
Verde working capital settlement 470      
Acquisition of HIKO (14,290 )    
Acquisition of Customers from Affiliate (8,776 )    
Net cash used in investing activities (23,693 )   (78,687 )
Cash flows from financing activities:      
Proceeds from issuance of Series A Preferred Stock, net of issuance costs paid 48,490     40,312  
Borrowings on notes payable 277,800     139,400  
Payments on notes payable (281,050 )   (119,664 )
Payment of the Major Energy Companies Earnout (1,607 )   (6,299 )
Payment of the Provider Companies Earnout and installment consideration     (7,061 )
Payments on the Verde promissory note (6,573 )   (2,149 )
Proceeds from disgorgement of stockholders short-swing profits 244     872  
Restricted stock vesting (2,589 )   (2,009 )
Payment of Tax Receivable Agreement liability (3,577 )    
Payment of dividends to Class A common stockholders (7,233 )   (7,137 )
Payment of distributions to non-controlling unitholders (23,701 )   (24,270 )
Payment of Dividends to Preferred Stock (4,987 )   (1,174 )
Purchase of Treasury Stock     (1,888 )
Net cash (used in) provided by financing activities (4,783 )   8,933  
Increase (decrease) in Cash and cash equivalents 13,377     (7,711 )
Cash and cash equivalents—beginning of period 29,419     18,960  
Cash and cash equivalents—end of period $ 42,796     $ 11,249  
Supplemental Disclosure of Cash Flow Information:      
Non-cash items:      
Contingent consideration—earnout obligations incurred in connection with the Verde Companies acquisition $     $ 5,400  
Net contribution by NG&E in excess of cash $     $ 1,019  
Installment consideration incurred in connection with the Verde Companies acquisition $     $ 17,851  
Property and equipment purchase accrual $ (123 )   $ 41  
Cash paid during the period for:      
Interest $ 5,955     $ 4,113  
Taxes $ 7,461     $ 7,769  
               

SPARK ENERGY, INC.
OPERATING SEGMENT RESULTS
FOR THE THREE AND NINE MONTHS ENDED September 30, 2018 AND 2017
(in thousands, except volume and per unit operating data)
(unaudited)

  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2018   2017   2018   2017
  (in thousands, except volume and per unit operating data)
Retail Electricity Segment              
Total Revenues $ 246,182     $ 202,259     676,528     $ 467,861  
Retail Cost of Revenues 186,449     153,594     587,949     364,518  
Less: Net gains (losses) on non-trading derivatives, net of cash settlements 19,481     4,170     (4,034 )   (12,786 )
Retail Gross Margin (1) — Electricity $ 40,252     $ 44,495     $ 92,613     $ 116,129  
Volumes — Electricity (MWhs) 2,432,314     2,063,894     6,784,345     4,828,629  
Retail Gross Margin (2) — Electricity per MWh $ 16.55     $ 21.56     $ 13.65     $ 24.05  
               
Retail Natural Gas Segment              
Total Revenues $ 12,293     $ 13,277     $ 100,886     $ 95,418  
Retail Cost of Revenues 6,960     6,779     58,005     56,253  
Less: Net Asset Optimization Revenues (Expenses) 348     (320 )   3,798     (681 )
Less: Net gains (losses) on non-trading derivatives, net of cash settlements (558 )   743     (3,243 )   (2,344 )
Retail Gross Margin (1) — Gas $ 5,543     $ 6,075     $ 42,326     $ 42,190  
Volumes — Gas (MMBtus) 1,395,377     1,706,132     11,913,180     12,554,497  
Retail Gross Margin (2) — Gas per MMBtu $ 3.97     $ 3.56     $ 3.55     $ 3.36  
                               

(1) Reflects the Retail Gross Margin attributable to our Retail Natural Gas Segment or Retail Electricity Segment, as applicable. Retail Gross Margin is a non-GAAP financial measure. See “Other Performance Measures” in our Form 10-Q for a reconciliation of Adjusted EBITDA and Retail Gross Margin to their most directly comparable financial measures presented in accordance with GAAP.
(2) Reflects the Retail Gross Margin for the Retail Natural Gas Segment or Retail Electricity Segment, as applicable, divided by the total volumes in MMBtu or MWh, respectively.

Reconciliation of GAAP to Non-GAAP Measures

Adjusted EBITDA

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

We believe that the presentation of Adjusted EBITDA provides information useful to investors in assessing our liquidity and financial condition and results of operations and that Adjusted EBITDA is also useful to investors as a financial indicator of our ability to incur and service debt, pay dividends and fund capital expenditures. Adjusted EBITDA is a supplemental financial measure that management and external users of our condensed consolidated financial statements, such as industry analysts, investors, commercial banks and rating agencies, use to assess the following:

  • our operating performance as compared to other publicly traded companies in the retail energy industry, without regard to financing methods, capital structure or historical cost basis;
  • the ability of our assets to generate earnings sufficient to support our proposed cash dividends; and
  • our ability to fund capital expenditures (including customer acquisition costs) and incur and service debt.

Retail Gross Margin

We define retail gross margin as operating income (loss) plus (i) depreciation and amortization expenses and (ii) general and administrative expenses, less (i) net asset optimization revenues, (ii) net gains (losses) on non-trading derivative instruments, and (iii) net current period cash settlements on non-trading derivative instruments. Retail gross margin is included as a supplemental disclosure because it is a primary performance measure used by our management to determine the performance of our retail natural gas and electricity business by removing the impacts of our asset optimization activities and net non-cash income (loss) impact of our economic hedging activities. As an indicator of our retail energy business’ operating performance, retail gross margin should not be considered an alternative to, or more meaningful than, operating income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP.

We believe retail gross margin provides information useful to investors as an indicator of our retail energy business's operating performance.

The GAAP measures most directly comparable to Adjusted EBITDA are net income (loss) and net cash provided by operating activities. The GAAP measure most directly comparable to Retail Gross Margin is operating income (loss). Our non-GAAP financial measures of Adjusted EBITDA and Retail Gross Margin should not be considered as alternatives to net income (loss), net cash provided by operating activities, or operating income (loss). Adjusted EBITDA and Retail Gross Margin are not presentations made in accordance with GAAP and have important limitations as analytical tools. You should not consider Adjusted EBITDA or Retail Gross Margin in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA and Retail Gross Margin exclude some, but not all, items that affect net income (loss) and net cash provided by operating activities, and are defined differently by different companies in our industry, our definition of Adjusted EBITDA and Retail Gross Margin may not be comparable to similarly titled measures of other companies.

Management compensates for the limitations of Adjusted EBITDA and Retail Gross Margin as analytical tools by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating these data points into management’s decision-making process.

The following tables present a reconciliation of Adjusted EBITDA to net income (loss) and net cash provided by operating activities for each of the periods indicated.

APPENDIX TABLES A-1 AND A-2
ADJUSTED EBITDA RECONCILIATIONS
(in thousands)
(unaudited)

  Three Months Ended September 30,   Nine Months Ended September 30,
(in thousands) 2018   2017   2018   2017
Reconciliation of Adjusted EBITDA to Net Income:              
Net income $ 18,827     $ 12,942     $ 923     $ 28,745  
Depreciation and amortization 13,917     11,509     39,797     30,435  
Interest expense 2,762     2,863     7,323     8,760  
Income tax expense 3,818     2,451     602     5,265  
EBITDA 39,324     29,765     48,645     73,205  
Less:              
Net, Gain (losses) on derivative instruments 18,117     (2,752 )   (1,371 )   (34,225 )
Net, Cash settlements on derivative instruments 922     7,457     (5,823 )   18,808  
Customer acquisition costs 2,695     6,568     8,949     18,642  
Plus:              
Non-cash compensation expense 1,021     1,118     3,707     4,023  
Adjusted EBITDA $ 18,611     $ 19,610     $ 50,597     $ 74,003  
                               


  Three Months Ended September 30,   Nine Months Ended September 30,
(in thousands) 2018   2017   2018   2017
Reconciliation of Adjusted EBITDA to net cash provided by operating activities:              
Net cash provided by operating activities $ 5,443     $ 16,418     $ 41,853     $ 62,043  
Amortization of deferred financing costs (631 )   (219 )   (1,243 )   (750 )
Allowance for doubtful accounts and bad debt expense (2,755 )   (2,517 )   (8,480 )   (3,436 )
Interest expense 2,762     2,863     7,323     8,760  
Income tax expense 3,818     2,451     602     5,265  
Changes in operating working capital              
Accounts receivable, prepaids, current assets 16,248     4,457     (9,640 )   (17,084 )
Inventory 2,218     2,246     (475 )   1,936  
Accounts payable and accrued liabilities (5,946 )   (12,857 )   17,988     8,114  
Other (2,546 )   6,768     2,669     9,155  
Adjusted EBITDA $ 18,611     $ 19,610     $ 50,597     $ 74,003  
Cash Flow Data:              
Cash flows provided by operating activities $ 5,443     $ 16,418     $ 41,853     $ 62,043  
Cash flows provided by (used in) investing activities $ 307     $ (3,178 )   $ (23,693 )   $ (78,687 )
Cash flows provided by (used in) financing activities $ 1,344     $ (16,036 )   $ (4,783 )   $ 8,933  
                               

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

APPENDIX TABLE A-3
RETAIL GROSS MARGIN RECONCILIATION
(in thousands)
(unaudited)

  Three Months Ended September 30,   Nine Months Ended September 30,
(in thousands) 2018   2017   2018   2017
Reconciliation of Retail Gross Margin to Operating Income:              
Operating income $ 25,454     $ 18,088     $ 8,141     $ 42,668  
Depreciation and amortization 13,917     11,509     39,797     30,435  
General and administrative 25,695     25,566     83,522     69,405  
Less:              
Net asset optimization revenues (expenses) 348     (320 )   3,798     (681 )
Net, gains (losses) on non-trading derivative instruments 17,888     (2,568 )   (2,223 )   (34,146 )
Net, Cash settlements on non-trading derivative instruments 1,035     7,481     (5,054 )   19,016  
Retail Gross Margin $ 45,795     $ 50,570     $ 134,939     $ 158,319  
Retail Gross Margin - Retail Electricity Segment $ 40,252     $ 44,495     $ 92,613     $ 116,129  
Retail Gross Margin - Retail Natural Gas Segment $ 5,543     $ 6,075     $ 42,326     $ 42,190  
                               

Contact:Spark Energy, Inc.

Investors:

Christian Hettick, 832-200-3727

Media:

Kira Jordan, 832-255-7302

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Source: Spark Energy, Inc.