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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ? QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 ? 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 (I.R.S. Employer incorporation or organization) 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) Securities registered pursuant to Section 12(b) of the Act: Name of exchange on which Title of each class Trading Symbols(s) registered Class A common stock, par value $0.01 per SPKE The NASDAQ Global Select Market share 8.75% Series A Fixed-to-Floating Rate SPKEP The NASDAQ Global Select Market Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share 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 ? No ? Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ? No ? Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ? Accelerated filer ? Non-accelerated filer ? Smaller reporting company ? -------------------------------------------------------------------------------- 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. ? Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ? No ? There were 14,672,432 shares of Class A common stock, 20,800,000 shares of Class B common stock and 3,567,543 shares of Series A Preferred Stock outstanding as of August 3, 2020. -------------------------------------------------------------------------------- SPARK ENERGY, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q For the Quarter Ended June 30, 2020 Page No. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2020 AND DECEMBER 31, 2019 (unaudited) 3 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (unaudited) 4 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (unaudited) 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (unaudited) 9 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 39 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 59 ITEM 4. CONTROLS AND PROCEDURES 61 PART II. OTHER INFORMATION 62 ITEM 1. LEGAL PROCEEDINGS 62 ITEM 1A. RISK FACTORS 62 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 64 ITEM 5. OTHER INFORMATION 65 ITEM 6. EXHIBITS 66 SIGNATURES 68 1 -------------------------------------------------------------------------------- Table of Contents Cautionary Note Regarding Forward Looking Statements This Quarterly Report on Form 10-Q (this “Report”) 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,” “project,” or other similar words. All statements, other than statements of historical fact included in this Report, 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 Report and may include statements about expected impacts of COVID-19, business strategy and prospects for growth, customer acquisition costs, legal proceedings, ability to pay cash dividends, cash flow generation and liquidity, availability of terms of capital, competition and government regulation and general economic conditions. We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurance that such expectations will prove correct. The forward-looking statements in this Report are subject to risks and uncertainties. Important factors that could cause actual results to materially differ from those projected in the forward-looking statements include, but are not limited to: •potential and evolving risks and uncertainties relating to COVID-19, including the geographic spread, the severity of the disease, the scope and duration of the COVID-19 outbreak, actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact, and the potential for continuing negative impacts of COVID-19 on economies and financial markets; •changes in commodity prices; •the sufficiency of risk management and hedging policies and practices; •the impact of extreme and unpredictable weather conditions, including hurricanes and other natural disasters; •federal, state and local regulations, including the industry's ability to address or adapt to potentially restrictive new regulations that may be enacted by public utility commissions; •our ability to borrow funds and access credit markets; •restrictions in our debt agreements and collateral requirements; •credit risk with respect to suppliers and customers; •changes in costs to acquire customers as well as actual attrition rates; •accuracy of billing systems; •our ability to successfully identify, complete, and efficiently integrate acquisitions into our operations; •significant changes in, or new changes by, the independent system operators ("ISOs") in the regions we operate; •competition; and •the "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019, in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in "Item 1A— Risk Factors" of this Report, and in our other public filings and press releases. You should review the risk factors and other factors noted throughout or incorporated by reference in this Report 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 Report. 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 our 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. 2 -------------------------------------------------------------------------------- Table of Contents PART I. — FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SPARK ENERGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share counts) (unaudited) June 30, 2020 December 31, 2019 Assets Current assets: Cash and cash equivalents $ 78,618 $ 56,664 Restricted cash 1,006 1,004 Accounts receivable, net of allowance for doubtful accounts of $6,299 68,043 113,635 at June 30, 2020 and $4,797 at December 31, 2019 Accounts receivable—affiliates 4,148 2,032 Inventory 972 2,954 Fair value of derivative assets 312 464 Customer acquisition costs, net 10,382 8,649 Customer relationships, net 12,159 13,607 Deposits 6,086 6,806 Renewable energy credit asset 12,175 24,204 Other current assets 7,623 6,109 Total current assets 201,524 236,128 Property and equipment, net 2,779 3,267 Fair value of derivative assets 221 106 Customer acquisition costs, net 2,049 9,845 Customer relationships, net 11,729 17,767 Deferred tax assets 28,890 29,865 Goodwill 120,343 120,343 Other assets 4,477 5,647 Total assets $ 372,012 $ 422,968 Liabilities, Series A Preferred Stock and Stockholders' Equity Current liabilities: Accounts payable $ 31,979 $ 48,245 Accounts payable—affiliates 717 1,009 Accrued liabilities 38,289 37,941 Renewable energy credit liability 18,696 33,120 Fair value of derivative liabilities 11,282 19,943 Other current liabilities 1,461 1,697 Total current liabilities 102,424 141,955 Long-term liabilities: Fair value of derivative liabilities 408 495 Long-term portion of Senior Credit Facility 100,000 123,000 Other long-term liabilities 73 217 Total liabilities 202,905 265,667 Commitments and contingencies (Note 12) Series A Preferred Stock, par value $0.01 per share, 20,000,000 shares authorized, 3,707,256 shares issued and 3,567,543 shares 87,288 90,015 outstanding at June 30, 2020 and 3,707,256 shares issued and 3,677,318 shares outstanding at December 31, 2019 Stockholders' equity: Common Stock: Class A common stock, par value $0.01 per share, 120,000,000 shares authorized, 14,771,878 shares issued and 14,672,432 shares outstanding at June 30, 2020 and 14,478,999 shares issued and 14,379,553 shares outstanding at December 31, 2019 148 145 Class B common stock, par value $0.01 per share, 60,000,000 shares authorized, 20,800,000 shares issued and outstanding at June 30, 2020 and 20,800,000 shares issued and outstanding at December 31, 2019 209 209 Additional paid-in capital 53,409 51,842 Accumulated other comprehensive loss (40) (40) Retained earnings 7,275 1,074 Treasury stock, at cost, 99,446 shares at June 30, 2020 and December 31, 2019 (2,011) (2,011) Total stockholders' equity 58,990 51,219 Non-controlling interest in Spark HoldCo, LLC 22,829 16,067 Total equity 81,819 67,286 Total liabilities, Series A Preferred Stock and Stockholders' equity $ 372,012 $ 422,968 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 (in thousands, except per share data) (unaudited) Six Months Ended June Three Months Ended June 30, 30, 2020 2019 2020 2019 Revenues: Retail revenues $ 128,618 $ 177,805 $ 294,978 $ 417,959 Net asset optimization (expense) revenues (82) (56) 239 2,496 Total Revenues 128,536 177,749 295,217 420,455 Operating Expenses: Retail cost of revenues 65,605 158,759 184,428 354,014 General and administrative 21,331 37,247 47,007 66,723 Depreciation and amortization 8,010 10,312 16,806 22,467 Total Operating Expenses 94,946 206,318 248,241 443,204 Operating income 33,590 (28,569) 46,976 (22,749) Other (expense)/income: Interest expense (1,193) (1,995) (2,746) (4,218) Interest and other income 53 494 213 683 Total other expenses (1,140) (1,501) (2,533) (3,535) Income before income tax expense 32,450 (30,070) 44,443 (26,284) Income tax expense (benefit) 5,673 (4,586) 7,598 (3,545) Net income (loss) $ 26,777 $ (25,484) $ 36,845 $ (22,739) Less: Net income (loss) attributable to non-controlling interests 15,618 (18,369) 21,207 (16,406) Net income (loss) attributable to Spark Energy, Inc. stockholders $ 11,159 $ (7,115) $ 15,638 $ (6,333) Less: Dividends on Series A Preferred Stock 2,039 2,027 3,539 4,054 Net income (loss) attributable to stockholders of Class A common stock $ 9,120 $ (9,142) $ 12,099 $ (10,387) Other comprehensive income (loss), net of tax: Currency translation loss $ (63) $ — $ (98) Other comprehensive loss — (63) — (98) Comprehensive income (loss) $ 26,777 $ (25,547) $ 36,845 $ (22,837) Less: Comprehensive income (loss) attributable to non-controlling interests 15,618 (18,407) 21,207 (16,464) Comprehensive income (loss) attributable to Spark Energy, Inc. stockholders $ 11,159 $ (7,140) $ 15,638 $ (6,373) Net income (loss) attributable to Spark Energy, Inc. per share of Class A common stock Basic $ 0.63 $ (0.64) $ 0.84 $ (0.73) Diluted $ 0.62 $ (0.73) $ 0.83 $ (0.73) Weighted average shares of Class A common stock outstanding Basic 14,558 14,246 14,469 14,191 Diluted 14,763 35,046 14,569 34,991 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 -------------------------------------------------------------------------------- Table of Contents SPARK ENERGY, INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (in thousands) (unaudited) Six Months Ended June 30, 2020 Issued Shares of Issued Shares of Class A Common Class B Common Accumulated Other Additional Retained Total Stockholders' Non-controlling Class A Common Class B Common Treasury Stock Stock Stock Treasury Stock Comprehensive Loss Paid-in Capital Earnings Equity Interest Total Equity Stock Stock (Deficit) Balance at December 31, 2019 14,479 20,800 (99) $ 145 $ 209 $ (2,011) $ (40) $ 51,842 $ 1,074 $ 51,219 $ 16,067 $ 67,286 Impact of adoption of ASC 326 — — — — — — — — (633) (633) — (633) Balance at January 1, 2020 14,479 20,800 (99) 145 209 (2,011) (40) 51,842 441 50,586 16,067 66,653 Stock based compensation — — — — — — 1,772 — 1,772 — 1,772 Restricted stock unit vesting 293 — — 3 — — — (915) — (912) — (912) Consolidated net income — — — — — — — — 15,638 15,638 21,207 36,845 Distributions paid to non-controlling unit holders — — — — — — — — — — (13,735) (13,735) Dividends paid to Class A common stockholders ($0.3625 per share) — — — — — — — — (5,265) (5,265) — (5,265) Dividends paid to Preferred Stockholders — — — — — — — — (3,539) (3,539) — (3,539) Changes in ownership interest — — — — — — — 710 — 710 (710) — Balance at June 30, 2020 14,772 20,800 (99) $ 148 $ 209 $ (2,011) $ (40) $ 53,409 $ 7,275 $ 58,990 $ 22,829 $ 81,819 5 -------------------------------------------------------------------------------- Table of Contents Three Months Ended June 30, 2020 Issued Shares of Issued Shares of Class A Common Class B Common Accumulated Other Additional Retained Earnings Total Stockholders' Non-controlling Class A Common Class B Common Treasury Stock Stock Stock Treasury Stock Comprehensive Loss Paid-in Capital (Deficit) Equity Interest Total Equity Stock Stock Balance at March 31, 14,495 20,800 (99) $ 145 $ 209 $ (2,011) $ (40) $ 52,710 $ 814 $ 51,827 $ 14,906 $ 66,733 2020 Stock based — — — — — — — 443 — 443 — 443 compensation Restricted stock unit 277 — — 3 — — — (876) — (873) — (873) vesting Consolidated net — — — — — — — — 11,159 11,159 15,618 26,777 income Distributions paid to non-controlling unit — — — — — — — — — — (6,563) (6,563) holders Dividends paid to Class A common — — — — — — — — (2,659) (2,659) — (2,659) stockholders ($0.18125 per share) Dividends paid to Preferred — — — — — — — — (2,039) (2,039) — (2,039) Stockholders Changes in Ownership — — — — — — — 1,132 — 1,132 (1,132) — Interest Balance at June 30, 14,772 20,800 (99) $148 $209 $(2,011) $(40) $53,409 $7,275 $58,990 $22,829 $81,819 2020 6 -------------------------------------------------------------------------------- Table of Contents Six Months Ended June 30, 2019 Issued Shares of Issued Shares of Class A Common Class B Common Accumulated Other Additional Retained Total Stockholders' Non-controlling Class A Common Class B Common Treasury Stock Stock Stock Treasury Stock Comprehensive Loss Paid-in Capital Earnings Equity Interest Total Equity Stock Stock (Deficit) Balance at December 31, 2018 14,178 20,800 (99) $ 142 $ 209 $ (2,011) $ 2 $ 46,157 $ 1,307 $ 45,806 $ 44,488 $ 90,294 Stock based compensation 301 — — — — — — 2,511 — 2,511 — 2,511 Restricted stock unit vesting — — — 3 — — — (1,107) — (1,104) — (1,104) Consolidated net loss — — — — — — — — (6,333) (6,333) (16,406) (22,739) Foreign currency translation adjustment for equity method investee — — — — — — (40) — — (40) (58) (98) Distributions paid to non-controlling unit holders — — — — — — — — — — (7,978) (7,978) Dividends paid to Class A common stockholders ($0.3625 per share) — — — — — — — (5,170) — (5,170) — (5,170) Changes in ownership interest — — — — — — — 1,912 — 1,912 (1,912) — Dividends to Preferred Stockholders — — — — — — — (2,029) (2,027) (4,056) — (4,056) Proceeds from disgorgement of stockholder short-swing profits — — — — — — — 55 — 55 — 55 Acquisition of Customers from Affiliate — — — — — — — — — — (10) (10) Balance at June 30, 2019 14,479 20,800 (99) $ 145 $ 209 $ (2,011) $ (38) $ 42,329 $ (7,053) $ 33,581 $ 18,124 $ 51,705 7 -------------------------------------------------------------------------------- Table of Contents Three Months Ended June 30, 2019 Issued Shares of Issued Shares of Class A Common Class B Common Accumulated Other Additional Retained Total Stockholders' Non-controlling Class A Common Class B Common Treasury Stock Stock Stock Treasury Stock Comprehensive Loss Paid-in Capital Earnings Equity Interest Total Equity Stock Stock (Deficit) Balance at March 31, 2019 14,241 20,800 (99) $ 142 $ 209 $ (2,011) $ (12) $ 45,769 $ 62 $ 44,159 $ 41,591 $ 85,750 Stock based compensation 238 — — — — — — 1,440 — 1,440 — 1,440 Restricted stock unit vesting — — — 3 — — — (1,107) — (1,104) — (1,104) Consolidated Net loss — — — — — — — — (7,115) (7,115) (18,369) (25,484) Foreign currency translation adjustment for equity method investee — — — — — — (26) — — (26) (37) (63) Distributions paid to non-controlling unit holders — — — — — — — — — — (4,208) (4,208) Dividends paid to Class A common stockholders ($0.18125 per share) — — — — — — — (2,606) — (2,606) — (2,606) Dividends to Preferred Stockholders — — — — — — — (2,029) — (2,029) — (2,029) Proceeds from disgorgement of stockholder short-swing profits — — — — — — — 9 — 9 — 9 Changes in ownership interest — — — — — — — 853 — 853 (853) — Balance at June 30, 2019 14,479 20,800 (99) $ 145 $ 209 $ (2,011) $ (38) $ 42,329 $ (7,053) $ 33,581 $ 18,124 $ 51,705 The accompanying notes are an integral part of the condensed consolidated financial statements. 8 -------------------------------------------------------------------------------- Table of Contents SPARK ENERGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Six Months Ended June 30, 2020 2019 Cash flows from operating activities: Net income (loss) $ 36,845 $ (22,739) Adjustments to reconcile net loss to net cash flows provided by operating activities: Depreciation and amortization expense 16,806 22,480 Deferred income taxes 975 (4,527) Stock based compensation 1,814 2,432 Amortization of deferred financing costs 490 505 Bad debt expense 3,733 6,015 Loss on derivatives, net 16,466 54,997 Current period cash settlements on derivatives, net (26,256) (19,891) Other — (399) Changes in assets and liabilities: Decrease in accounts receivable 41,225 41,171 Increase in accounts receivable—affiliates (2,116) (1,324) Decrease in inventory 1,981 1,858 Increase in customer acquisition costs (1,556) (9,185) Decrease in prepaid and other current assets 10,901 11,545 Decrease (increase) in other assets 459 (786) Decrease in accounts payable and accrued liabilities (30,393) (30,391) (Decrease) increase in accounts payable—affiliates (292) 11 Increase (decrease) in other current liabilities 846 (792) (Decrease) increase in other non-current liabilities (145) 49 Net cash provided by operating activities 71,783 51,029 Cash flows from investing activities: Purchases of property and equipment (579) (460) Acquisition of Customers from Affiliate — (5,913) Net cash used in investing activities (579) (6,373) Cash flows from financing activities: Buyback of Series A Preferred Stock (2,157) (111) Borrowings on notes payable 250,000 118,500 Payments on notes payable (273,000) (164,000) Payments on the Verde promissory note — (2,036) Proceeds from disgorgement of stockholders short-swing profits — 55 Restricted stock vesting (1,107) (1,348) Payment of dividends to Class A common stockholders (5,265) (5,170) Payment of distributions to non-controlling unitholders (13,735) (7,540) Payment of Preferred Stock dividends (3,984) (4,054) Payment to affiliates for acquisition of customer book — (10) Net cash used in financing activities (49,248) (65,714) Increase (decrease) in Cash, cash equivalents and Restricted cash 21,956 (21,058) Cash, cash equivalents and Restricted cash—beginning of period 57,668 49,638 Cash, cash equivalents and Restricted cash—end of period $ 79,624 $ 28,580 Supplemental Disclosure of Cash Flow Information: Non-cash items: Property and equipment purchase accrual $ 79 $ 4 Holdback for Verde Note—Indemnified Matters $ — $ 4,900 Cash paid during the period for: Interest $ 2,307 $ 3,723 Taxes $ 987 $ 1,440 9 -------------------------------------------------------------------------------- Table of Contents The accompanying notes are an integral part of the condensed consolidated financial statements. 10 -------------------------------------------------------------------------------- Table of Contents SPARK ENERGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Formation and Organization Organization We are 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. Spark Energy, Inc. (the "Company") is a holding company whose sole material asset consists of units in Spark HoldCo, LLC (“Spark HoldCo”). 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. Spark HoldCo is the direct and indirect owner of the subsidiaries through which we operate. We conduct our business through several brands across our service areas, including Electricity Maine, Electricity N.H., Major Energy, Provider Power Massachusetts, Respond Power, Spark Energy, and Verde Energy. 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying interim unaudited condensed consolidated financial 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") as it applies to interim financial statements. This information should be read along with our consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”). Our 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. In the opinion of the Company's management, the accompanying condensed consolidated financial statements reflect all adjustments that are necessary to fairly present the financial position, the results of operations, the changes in equity and the cash flows of the Company for the respective periods. Such adjustments are of a normal recurring nature, unless otherwise disclosed. Use of Estimates and Assumptions The preparation of our 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. Restricted Cash As part of the acquisition of RCEs from Starion Energy, Inc., Starion NY Inc. and Starion Energy PA Inc. (collectively "Starion") in 2018, we funded an escrow account, the balance of which is reflected as restricted cash in our consolidated balance sheet. As of June 30, 2020 and December 31, 2019, the balance in the escrow account related to the Starion acquisition was $1.0 million and $1.0 million, respectively. The balance remaining as of June 30, 2020 represents a holdback of amounts due to the seller for acquired customers that was released to the seller in July 2020, subject to the conditions outlined in the asset purchase agreement. 11 -------------------------------------------------------------------------------- Table of Contents Relationship with our Founder and Majority Shareholder W. Keith Maxwell, III (our "Founder") is the owner of a majority of the voting power of our common stock through his ownership of NuDevco Retail, LLC ("NuDevco Retail") and Retailco, LLC ("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 LLC ("NuDevco Retail Holdings"), which is a wholly owned subsidiary of Electric HoldCo, LLC, which is also a wholly owned subsidiary of TxEx. In March 2020, the Board of Directors (the "Board") of the Company appointed W. Keith Maxwell III as interim Chief Executive Officer. New Accounting Standards Recently Adopted There have been no changes to our significant accounting policies as disclosed in our 2019 Form 10-K, except as follows: In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 requires entities to use a current expected credit loss ("CECL") model, which is a new impairment model based on expected losses rather than incurred losses on financial assets, including trade accounts receivables. The model requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We adopted ASU 2016-13 and the related amendments effective January 1, 2020, and the adoption resulted in $0.6 million adjustment to retained earnings on January 1, 2020. Standards Being Evaluated/Standards Not Yet Adopted Below are accounting standards that have been issued, but not yet been adopted by the Company at June 30, 2020. The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes ("ASU 2019-12"). These amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We do not expect adoption of the new standard to have a material impact to our consolidated statement of operations. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We do not expect adoption of the new standard to have a material impact to our consolidated statement of operations. 3. Revenues Our revenues are derived primarily from the sale of natural gas and electricity to customers, including affiliates. Revenue is measured based upon the quantity of gas or power delivered at prices contained or referenced in the 12 -------------------------------------------------------------------------------- Table of Contents customer's contract, and excludes any sales incentives (e.g. rebates) and amounts collected on behalf of third parties (e.g. sales tax). Our revenues also include asset optimization activities. Asset optimization activities consist primarily of purchases and sales of gas that meet the definition of trading activities per FASB ASC Topic 815, Derivatives and Hedging. They are therefore excluded from the scope of FASB ASC Topic 606, Revenue from Contracts with Customers. Revenues for electricity and natural gas sales are recognized under the accrual method when our performance obligation to a customer is satisfied, which is the point in time when the product is delivered and control of the product passes to the customer. Electricity and natural gas products may be sold as fixed-price or variable-price products. The typical length of a contract to provide electricity and/or natural gas is twelve months. Customers are billed and typically pay at least monthly, based on usage. Electricity and natural gas sales that have been delivered but not billed by period end are estimated and recorded as accrued unbilled revenues based on estimates of customer usage since the date of the last meter read provided by the utility. Volume estimates are based on forecasted volumes and estimated residential and commercial customer usage. Unbilled revenues are calculated by multiplying these volume estimates by the applicable rate by customer class (residential or commercial). Estimated amounts are adjusted when actual usage is known and billed. The following table discloses revenue by primary geographical market, customer type, and customer credit risk profile (in thousands). The table also includes a reconciliation of the disaggregated revenue to revenue by reportable segment (in thousands). Reportable Segments Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Retail Total Reportable Retail Retail Total Reportable Retail Electricity Natural Gas Segments Electricity Natural Gas Segments Primary markets (a) New England $ 40,161 $ 2,729 $ 42,890 $ 67,905 $ 3,152 $ 71,057 Mid-Atlantic 38,743 5,929 44,672 54,503 5,334 59,837 Midwest 14,506 4,191 18,697 17,473 4,736 22,209 Southwest 18,845 3,514 22,359 20,895 3,807 24,702 $ 112,255 $ 16,363 $ 128,618 $ 160,776 $ 17,029 $ 177,805 Customer type Commercial $ 29,408 $ 7,290 $ 36,698 $ 59,699 $ 8,834 $ 68,533 Residential 78,909 14,965 93,874 97,419 16,516 113,935 Unbilled revenue (b) 3,938 (5,892) (1,954) 3,658 (8,321) (4,663) $ 112,255 $ 16,363 $ 128,618 $ 160,776 $ 17,029 $ 177,805 Customer credit risk POR $ 73,694 $ 8,376 $ 82,070 $ 110,270 $ 7,928 $ 118,198 Non-POR 38,561 7,987 46,548 50,506 9,101 59,607 $ 112,255 $ 16,363 $ 128,618 $ 160,776 $ 17,029 $ 177,805 13 -------------------------------------------------------------------------------- Table of Contents Reportable Segments Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Retail Retail Total Reportable Retail Retail Total Reportable Electricity Natural Gas Segments Electricity Natural Gas Segments Primary markets (a) New England $ 86,754 $ 9,783 $ 96,537 $ 144,139 $ 11,680 $ 155,819 Mid-Atlantic 84,585 21,733 106,318 121,314 26,703 148,017 Midwest 29,495 17,798 47,293 39,580 25,225 64,805 Southwest 33,189 11,641 44,830 37,835 11,483 49,318 $ 234,023 $ 60,955 $ 294,978 $ 342,868 $ 75,091 $ 417,959 Customer type Commercial 69,423 22,807 $ 92,230 $ 126,934 $ 28,701 $ 155,635 Residential 172,137 48,328 220,465 222,187 57,611 279,798 Unbilled revenue (b) (7,537) (10,180) (17,717) (6,253) (11,221) (17,474) $ 234,023 $ 60,955 $ 294,978 $ 342,868 $ 75,091 $ 417,959 Customer credit risk POR $ 158,607 $ 31,413 $ 190,020 $ 239,207 $ 41,223 $ 280,430 Non-POR 75,416 29,542 104,958 103,661 33,868 137,529 $ 234,023 $ 60,955 $ 294,978 $ 342,868 $ 75,091 $ 417,959 (a) The primary markets include the following states: •New England - Connecticut, Maine, Massachusetts, New Hampshire; •Mid-Atlantic - Delaware, Maryland (including the District of Colombia), New Jersey, New York and Pennsylvania; •Midwest - Illinois, Indiana, Michigan and Ohio; and •Southwest - Arizona, California, Colorado, Florida, Nevada, and Texas. (b) Unbilled revenue is recorded in total until it is actualized, at which time it is categorized between commercial and residential customers. We record gross receipts taxes on a gross basis in retail revenues and retail cost of revenues. During the three months ended June 30, 2020 and 2019, our retail revenues included gross receipts taxes of $0.4 million and $0.3 million, respectively, and our retail cost of revenues included gross receipts taxes of $1.4 million and $1.8 million, respectively. During the six months ended June 30, 2020 and 2019, our retail revenues included gross receipts taxes of $0.7 million and $0.8 million, respectively, and our retail cost of revenues included gross receipts taxes of $3.1 million and $4.5 million, respectively. Accounts receivables and Allowance for Credit Losses We adopted ASU 2016-13 effective January 1, 2020. See "New Accounting Standards Recently Adopted" in Note 2 "Basis of Presentation" for more details. The Company conducts business in many utility service markets where the local regulated utility purchases our receivables, and then becomes responsible for billing the customer and collecting payment from the customer (“POR programs”). These POR programs result in substantially all of the Company’s credit risk being linked to the 14 -------------------------------------------------------------------------------- Table of Contents applicable utility, which generally has an investment-grade rating, and not to the end-use customer. The Company monitors the financial condition of each utility and currently believes its receivables are collectible. In markets that do not offer POR programs or when the Company chooses to directly bill its customers, certain receivables are billed and collected by the Company. The Company bears the credit risk on these accounts and records an appropriate allowance for doubtful accounts to reflect any losses due to non-payment by customers. The Company’s customers are individually insignificant and geographically dispersed in these markets. The Company writes off customer balances when it believes that amounts are no longer collectible and when it has exhausted all means to collect these receivables. For trade accounts receivables, the Company accrues an allowance for doubtful accounts by business segment by pooling customer accounts receivables based on similar risks characteristics, such as customer type, geography, aging analysis, payment terms, and related macro-economic factors. Expected credit loss exposure is evaluated for each of our accounts receivables pools. Expected credits losses are established using a model that considers historical collections experience, current information, and reasonable and supportable forecasts. The Company writes off accounts receivable balances against the allowance for doubtful accounts when the accounts receivable is deemed to be uncollectible. A rollforward of our allowance for credit losses for the six months ended June 30, 2020 are presented in the table below (in thousands): Balance 12/31/19 $ (4,797) Impact of adoption of ASC 326 (633) Current period bad debt provision (3,134) Write-offs 2,707 Recovery of previous write offs (442) Balance 6/30/20 $ (6,299) 4. Equity Non-controlling Interest We hold an economic interest and are the sole managing member in Spark HoldCo, with affiliates of our Founder, majority shareholder and interim Chief Executive Officer holding the remaining economic interests in Spark HoldCo. As a result, we consolidate the financial position and results of operations of Spark HoldCo, and reflect the economic interests owned by these affiliates as a non-controlling interest. The Company and affiliates owned the following economic interests in Spark HoldCo at June 30, 2020 and December 31, 2019, respectively. The Company Affiliated Owners June 30, 2020 41.53 % 58.47 % December 31, 2019 41.04 % 58.96 % The following table summarizes the portion of net income (loss) and income tax expense (benefit) attributable to non-controlling interest (in thousands): 15 -------------------------------------------------------------------------------- Table of Contents Six Months Ended June Three Months Ended June 30, 30, 2020 2019 2020 2019 Net income (loss) allocated to non-controlling interest $ 17,723 $ (18,888) $ 23,808 $ (17,895) Income tax expense (benefit) allocated to non-controlling interest 2,105 (519) 2,601 (1,489) Net income (loss) attributable to $ 15,618 $ (18,369) $ 21,207 $ (16,406) non-controlling interest Class A Common Stock and Class B Common Stock Holders of the Company's 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. Dividends declared for the Company's Class A common stock are reported as a reduction of retained earnings, or a reduction of additional paid in capital to the extent retained earnings are exhausted. During the six months ended June 30, 2020, we paid $5.3 million in dividends to the holders of the Company's Class A common stock. This dividend represented a quarterly rate of $0.18125 per share on each share of Class A common stock. In order to pay our stated dividends to holders of our Class A common stock, our subsidiary, Spark HoldCo is required to make corresponding distributions to holders of its units, including those holders that own our Class B common stock (our non-controlling interest holder). As a result, during the six months ended June 30, 2020, Spark HoldCo made corresponding distributions of $7.5 million to our non-controlling interest holders. 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 interests. Diluted earnings per share is similarly calculated except that the denominator is increased by potentially dilutive securities. The following table presents the computation of basic and diluted income (loss) per share for the three and six months ended June 30, 2020 and 2019 (in thousands, except per share data): 16 -------------------------------------------------------------------------------- Table of Contents Six Months Ended June Three Months Ended June 30, 30, 2020 2019 2020 2019 Net income (loss) attributable to $ 11,159 $ (7,115) $ 15,638 $ (6,333) Spark Energy, Inc. stockholders Less: Dividends on Series A preferred 2,039 2,027 3,539 4,054 stock Net income (loss) attributable to $ 9,120 $ (9,142) $ 12,099 $ (10,387) stockholders of Class A common stock Basic weighted average Class A common 14,558 14,246 14,469 14,191 shares outstanding Basic income (loss) per share $ 0.63 $ (0.64) $ 0.84 $ (0.73) attributable to stockholders Net income (loss) attributable to $ 9,120 $ (9,142) $ 12,099 $ (10,387) stockholders of Class A common stock Effect of conversion of Class B common stock to shares of Class A — (16,557) — (15,242) common stock Diluted net income (loss) attributable to stockholders of Class $ 9,120 $ (25,699) $ 12,099 $ (25,629) A common stock Basic weighted average Class A common 14,558 14,246 14,469 14,191 shares outstanding Effect of dilutive Class B common — 20,800 — 20,800 stock Effect of dilutive restricted stock 205 — units 100 — Diluted weighted average shares 14,763 35,046 14,569 34,991 outstanding Diluted income (loss) per share $ 0.62 $ (0.73) $ 0.83 $ (0.73) attributable to stockholders The computation of diluted earnings per share for the three and six months ended June 30, 2020 excludes 20.8 million shares of Class B common stock because the effect of their conversion was antidilutive. The Company's outstanding shares of Series A Preferred Stock were not included in the calculation of diluted earnings per share because they contain only contingent redemption provisions that have not occurred. 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 its inability to dissolve or otherwise remove its management. Spark HoldCo owns all of the outstanding membership interests in each of our operating subsidiaries. We are the sole managing member of Spark HoldCo, manage Spark HoldCo's operating subsidiaries through this managing membership interest, and are considered the primary beneficiary of Spark HoldCo. The assets of Spark HoldCo cannot be used to settle our obligations except through distributions to us, and the liabilities of Spark HoldCo cannot be settled by us 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 our condensed consolidated balance sheet as of June 30, 2020 and December 31, 2019 (in thousands): 17 -------------------------------------------------------------------------------- Table of Contents June 30, 2020 December 31, 2019 Assets Current assets: Cash and cash equivalents $ 78,149 $ 56,598 Accounts receivable 68,043 113,635 Other current assets 53,006 64,476 Total current assets 199,198 234,709 Non-current assets: Goodwill 120,343 120,343 Other assets 25,367 37,826 Total non-current assets 145,710 158,169 Total Assets $ 344,908 $ 392,878 Liabilities Current liabilities: Accounts payable and accrued liabilities $ 70,242 $ 86,097 Other current liabilities 47,913 65,863 Total current liabilities 118,155 151,960 Long-term liabilities: Long-term portion of Senior Credit Facility 100,000 123,000 Other long-term liabilities 481 712 Total long-term liabilities 100,481 123,712 Total Liabilities $ 218,636 $ 275,672 5. Preferred Stock In May 2019, we commenced a share repurchase program (the "Repurchase Program") of our Series A Preferred Stock. The Repurchase Program allowed us to purchase our Series A Preferred Stock through May 20, 2020, and there was no dollar limit on the amount of Series A Preferred Stock that may be repurchased, nor did the Repurchase Program obligate the Company to make any repurchases. In November 2019, we amended and extended our Repurchase Program of our Series A Preferred Stock. The Repurchase Program allows us to purchase Series A Preferred Stock through December 31, 2020, at prevailing prices, in open market or negotiated transactions, subject to market conditions, maximum share prices and other considerations. The Repurchase Program does not obligate us to make any repurchases and may be suspended at any time. In May 2020, we initiated a tender offer to purchase up to 1,000,000 shares of our Series A Preferred Stock. In June 2020, we accepted for purchase 36,827 shares of the Series A Preferred Stock at a purchase price of $22.00 per share, for an aggregate purchase price of approximately $0.8 million. During the three months ended June 30, 2020, we repurchased 40,028 shares of Series A Preferred Stock at a weighted-average price of $26.49 per share (including shares purchased through the tender offer described above), for a total cost of approximately $1.0 million. During the six months ended June 30, 2020, we repurchased 109,775 shares of Series A Preferred Stock at a weighted-average price of $20.79 per share (including shares purchased through the tender offer described above), for a total cost of approximately $2.3 million. 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. The Series A Preferred Stock accrue dividends at an annual percentage rate of 8.75%, and the liquidation preference provisions 18 -------------------------------------------------------------------------------- Table of Contents of the Series A Preferred Stock are considered contingent redemption provisions because there are rights granted to the holders of the Series A Preferred Stock that are not solely within our control upon a change in control of the Company. Accordingly, the Series A Preferred Stock is presented between liabilities and the equity sections in the accompanying condensed consolidated balance sheet. During the three and six months ended June 30, 2020, we paid $2.0 million and $4.0 million in dividends to holders of the Series A Preferred Stock. As of June 30, 2020, we had accrued $2.0 million related to dividends to holders of the Series A Preferred Stock. This dividend was paid on July 15, 2020. A summary of our preferred equity balance for the six months ended June 30, 2020 is as follows: (in thousands) Balance at December 31, 2019 $ 90,015 Accumulated dividends on Series A Preferred Stock (60) Repurchase of Series A Preferred Stock (2,667) Balance at June 30, 2020 $ 87,288 6. Derivative Instruments We are exposed to the impact of market fluctuations in the price of electricity and natural gas, basis differences in the price of natural gas, storage charges, renewable energy credits ("RECs"), and capacity charges from independent system operators. We use derivative instruments in an effort to manage our cash flow exposure to these risks. These instruments are not designated as hedges for accounting purposes, and, accordingly, changes in the market value of these derivative instruments are recorded in the cost of revenues. As part of our strategy to optimize pricing in our natural gas related activities, we also manage a portfolio of commodity derivative instruments held for trading purposes. Our commodity trading activities are subject to limits within our 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 our condensed consolidated balance sheets when the derivative instruments are executed with the same counterparty under a master netting arrangement. Our 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 third parties. To the extent we have 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, 2020 and December 31, 2019, we had paid $0.6 million and $1.7 million, respectively, in collateral. The specific types of derivative instruments we may execute to manage the commodity price risk include the following: •Forward contracts, which commit us 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 for which we made a normal purchase, normal sale election and are therefore not accounted for at fair value including the following: •Forward electricity and natural gas purchase contracts for retail customer load; •Renewable energy credits; and 19 -------------------------------------------------------------------------------- Table of Contents •Natural gas transportation contracts and storage agreements. Volumes Underlying Derivative Transactions The following table summarizes the net notional volumes of our open derivative financial instruments accounted for at fair value by commodity. Positive amounts represent net buys while bracketed amounts are net sell transactions (in thousands): Non-trading Commodity Notional June 30, 2020 December 31, 2019 Natural Gas MMBtu 2,820 6,130 Natural Gas Basis MMBtu — 42 Electricity MWh 3,479 6,015 Trading Commodity Notional June 30, 2020 December 31, 2019 Natural Gas MMBtu 299 204 Natural Gas Basis MMBtu — — 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, 2020 2019 Gain (loss) on non-trading derivatives, net $ 7,964 $ (35,466) Gain on trading derivatives, net 157 10 Gain (loss) on derivatives, net 8,121 (35,456) Current period settlements on non-trading derivatives $ 10,055 $ 12,788 Current period settlements on trading derivatives (91) (19) Total current period settlements on derivatives $ 9,964 $ 12,769 Six Months Ended June 30, 2020 2019 Loss on non-trading derivatives, net $ (16,569) $ (55,269) Gain on trading derivatives, net 103 272 Loss on derivatives, net (16,466) (54,997) Current period settlements on non-trading derivatives (1) $ 26,664 $ 20,913 Current period settlements on trading derivatives (92) (119) Total current period settlements on derivatives $ 26,572 $ 20,794 (1) Excludes settlements of $(0.3) million and $(0.9) million, respectively, for the six months ended June 30, 2020 and 2019 related to power call options. 20 -------------------------------------------------------------------------------- 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 cost of revenues on the condensed consolidated statements of operations. Fair Value of Derivative Instruments The following tables summarize the fair value and offsetting amounts of our derivative instruments by counterparty and collateral received or paid (in thousands): June 30, 2020 Gross Cash Amounts Collateral Net Amount Description Gross Assets Offset Net Assets Offset Presented Non-trading commodity derivatives $ 1,526 $ (1,288) $ 238 $ — $ 238 Trading commodity derivatives 75 (1) 74 — 74 Total Current Derivative Assets 1,601 (1,289) 312 — 312 Non-trading commodity derivatives 946 (725) 221 — 221 Trading commodity derivatives — — — — — Total Non-current Derivative Assets 946 (725) 221 — 221 Total Derivative Assets $ 2,547 $ (2,014) $ 533 $ — $ 533 June 30, 2020 Gross Cash Gross Amounts Net Collateral Net Amount Description Liabilities Offset Liabilities Offset Presented Non-trading commodity derivatives $ (23,334) $ 11,467 $ (11,867) $ 585 $ (11,282) Trading commodity derivatives (166) 166 — — — Total Current Derivative (23,500) 11,633 (11,867) 585 (11,282) Liabilities Non-trading commodity derivatives (488) 80 (408) — (408) Trading commodity derivatives — — — — — Total Non-current Derivative Liabilities (488) 80 (408) — (408) Total Derivative Liabilities $ (23,988) $ 11,713 $ (12,275) $ 585 $ (11,690) December 31, 2019 Gross Cash Amounts Collateral Net Amount Description Gross Assets Offset Net Assets Offset Presented Non-trading commodity derivatives $ 570 $ (275) $ 295 $ — $ 295 Trading commodity derivatives 170 (1) 169 — 169 Total Current Derivative Assets 740 (276) 464 — 464 Non-trading commodity derivatives 333 (227) 106 — 106 Trading commodity derivatives — — — — — Total Non-current Derivative Assets 333 (227) 106 — 106 Total Derivative Assets $ 1,073 $ (503) $ 570 $ — $ 570 21 -------------------------------------------------------------------------------- December 31, 2019 Gross Cash Gross Amounts Net Collateral Net Amount Description Liabilities Offset Liabilities Offset Presented Non-trading commodity derivatives $ (34,434) $ 12,859 $ (21,575) $ 1,632 $ (19,943) Trading commodity derivatives (194) 194 — — — Total Current Derivative (34,628) 13,053 (21,575) 1,632 (19,943) Liabilities Non-trading commodity derivatives (1,951) 1,422 (529) 34 (495) Trading commodity derivatives — — — — — Total Non-current Derivative (1,951) 1,422 (529) 34 (495) Liabilities Total Derivative Liabilities $ (36,579) $ 14,475 $ (22,104) $ 1,666 $ (20,438) 7. Property and Equipment Property and equipment consist of the following (in thousands): Estimated useful lives (years) June 30, 2020 December 31, 2019 Information technology 2 – 5 $ 22,663 $ 22,005 Furniture and fixtures 2 – 5 1,802 1,802 Total 24,465 23,807 Accumulated depreciation (21,686) (20,540) Property and equipment—net $ 2,779 $ 3,267 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 each of June 30, 2020 and December 31, 2019, information technology includes $0.2 million and $0.6 million, respectively, of costs associated with assets not yet placed into service. Depreciation expense recorded in the condensed consolidated statements of operations was $0.6 million and $0.5 million, respectively, for the three months ended June 30, 2020 and 2019 and $1.2 million and $1.2 million for the six months ended June 30, 2020 and 2019, respectively. 22 -------------------------------------------------------------------------------- 8. Intangible Assets Goodwill, customer relationships and trademarks consist of the following amounts (in thousands): June 30, 2020 December 31, 2019 Goodwill $ 120,343 $ 120,343 Customer relationships—Acquired Cost $ 64,083 $ 64,083 Accumulated amortization (45,030) (40,231) Customer relationships—Acquired & Non-Compete Agreements, net $ 19,053 $ 23,852 Customer relationships—Other Cost $ 17,056 $ 17,056 Accumulated amortization (12,221) (9,534) Customer relationships—Other, net $ 4,835 $ 7,522 Trademarks Cost $ 7,570 $ 8,502 Accumulated amortization (2,417) (2,794) Trademarks, net $ 5,153 $ 5,708 Changes in goodwill, customer relationships (including non-compete agreements) and trademarks consisted of the following (in thousands): Customer Relationships— Acquired & Non-Compete Customer Goodwill Agreements Relationships— Other Trademarks Balance at December 31, 2019 $ 120,343 $ 23,852 $ 7,522 $ 5,708 Additions — — — — Amortization — (4,799) (2,687) (555) Balance at June 30, 2020 $ 120,343 $ 19,053 $ 4,835 $ 5,153 Estimated future amortization expense for customer relationships and trademarks at June 30, 2020 is as follows (in thousands): Year ending December 31, 2020 (remaining six months) $ 6,676 2021 13,142 2022 6,194 2023 605 2024 404 > 5 years 2,020 Total $ 29,041 23 -------------------------------------------------------------------------------- 9. Debt Debt consists of the following amounts as of June 30, 2020 and December 31, 2019 (in thousands): June 30, 2020 December 31, 2019 Long-term debt: Senior Credit Facility (1) (2) $ 100,000 $ 123,000 Total long-term debt 100,000 123,000 Total debt $ 100,000 $ 123,000 (1) As of June 30, 2020 and December 31, 2019, the weighted average interest rate on the Senior Credit Facility was 3.43% and 4.71%, respectively. (2) As of June 30, 2020 and December 31, 2019, we had $35.0 million and $37.4 million in letters of credit issued, respectively. Capitalized financing costs associated with our Senior Credit Facility were $0.9 million and $1.3 million as of June 30, 2020 and December 31, 2019, respectively. Of these amounts, $0.9 million and $0.9 million are recorded in other current assets, and zero and $0.4 million are recorded in other non-current assets in the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019, respectively. Interest expense consists of the following components for the periods indicated (in thousands): Six Months Ended June Three Months Ended June 30, 30, 2020 2019 2020 2019 Senior Credit Facility $ 516 $ 1,179 $ 1,427 $ 2,621 Verde promissory note — 89 — 230 Letters of credit fees and commitment fees 437 490 829 858 Amortization of deferred financing costs 240 237 490 505 Subordinated debt — — — 4 Interest Expense $ 1,193 $ 1,995 $ 2,746 $ 4,218 Senior Credit Facility The Company, as guarantor, and Spark HoldCo (the “Borrower” and, together with each subsidiary of Spark HoldCo (“Co-Borrowers”)) maintain a senior secured borrowing base credit facility (as amended from time to time, “Senior Credit Facility”). As further described below, on July 31, 2020, the Company entered into the Fourth Amendment to its Senior Credit Facility (the “Fourth Amendment”). Prior to the Fourth Amendment and subject to applicable sub-limits and terms of the Senior Credit Facility, borrowings were available for the issuance of letters of credit (“Letters of Credit”), working capital and general purpose revolving credit loans (“Working Capital Loans”), and bridge loans (“Bridge Loans”) for the purpose of partial funding for acquisitions. Prior to the Fourth Amendment, the Senior Credit Facility matured in May 2021. On July 31, 2020, the Company entered into the Fourth Amendment, which, among other things, extended the maturity date and decreased the maximum borrowing capacity under the Senior Credit Facility to $187.5 million. Pursuant to the Fourth Amendment, the Senior Credit Facility will mature on July 31, 2022, and all amounts outstanding thereunder will be payable on the maturity date. The Fourth Amendment revised the Fixed Charge Coverage Ratio, Maximum Total Leverage Ratio and Maximum Senior Secured Leverage Ratio. Additionally, the Fourth Amendment eliminated Bridge Loans, and provided for Share Buyback Loans (“Share Buyback Loans”) of up to $80.0 million, which permit the Company to repurchase up to an aggregate of 8,000,000 shares of Class A common stock or $80.0 million of Series A Preferred Stock. Share Buyback Loans are on a non-revolving basis. Borrowings under the Senior Credit Facility may be used to pay fees and expenses in connection with the Senior Credit Facility, finance ongoing working capital requirements and general corporate purpose requirements of the 24 -------------------------------------------------------------------------------- Co-Borrowers, to provide partial funding for acquisitions, as allowed under terms of the Senior Credit Facility, and to make open market purchases of our Class A common stock and Series A Preferred Stock. Prior to the Fourth Amendment and at our election, the interest rate for Working Capital Loans and Letters of Credit under the Senior Credit Facility was 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 an alternate base rate plus an applicable margin of up to 2.00% per annum (based on the prevailing utilization). Pursuant to the Senior Credit Facility, as amended by the Fourth Amendment, 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 3.25% per annum (based on the prevailing utilization) or an alternate base rate plus an applicable margin of up to 2.25% 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%. Prior to the Fourth Amendment, Bridge Loan borrowings, if any, under the Senior Credit Facility were 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. Borrowings under the Senior Credit Facility, as amended by the Fourth Amendment, for Share Buyback Loans, are generally determined by reference to the Eurodollar rate plus an applicable margin of 4.50% per annum or the alternate base rate plus an applicable margin of 3.50% per annum. The Co-Borrowers pay a commitment fee of 0.50% quarterly in arrears on the unused portion of the Senior Credit Facility. In addition, the Co-Borrowers are 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 of credit. The Senior Credit Facility contains covenants that, among other things, require the maintenance of specified ratios or conditions including: •Minimum Fixed Charge Coverage Ratio. We must maintain a minimum fixed charge coverage ratio of not less than 1.25 to 1.00. Prior to the Fourth Amendment, the Fixed Charge Coverage Ratio was 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 certain subordinated debt but including interest in respect of that certain promissory note made by CenStar Energy Corp. ("CenStar") 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), distributions, the aggregate amount of repurchases of our Class A common stock, Series A Preferred Stock, or commitments for such purchases, taxes and scheduled amortization payments. Prior to the Fourth Amendment, the Senior Credit Facility permitted, upon satisfaction of a Step-Down Condition (as defined below), for the Company to elect to reduce the minimum required Fixed Charge Coverage Ratio from 1.25 to 1.00 to 1.10 to 1.00 for a period of one year. A Step-Down Condition was defined as the consummation on or after May 7, 2019 by the Company of share buybacks of its Series A Preferred Stock with an aggregate purchase price not less than $10.0 million. Pursuant to the Fourth Amendment, the Minimum 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, letter of credit fees, commitment fees, acquisition earn-out payments (excluding earnout payments funded with proceeds from newly issued preferred or common equity), distributions, scheduled amortization payments, and payments made on or after the closing of the Fourth Amendment (other than such payments made from escrow accounts which were funded in connection with a permitted acquisition) related to the settlement of civil and regulatory matters if not included in the calculation of Adjusted EBITDA. 25 -------------------------------------------------------------------------------- •Maximum Total Leverage Ratio. Prior to the Fourth Amendment, we were required to maintain a ratio of total indebtedness (excluding eligible subordinated debt and letter of credit obligations) to Adjusted EBITDA of no more than 2.50 to 1.00. Following the Fourth Amendment, we must maintain a ratio of (x) the sum of total indebtedness (excluding eligible subordinated debt and letter of credit obligations), plus (y) gross amounts reserved for civil and regulatory liabilities identified in SEC filings, to Adjusted EBITDA of no more than 2.50 to 1.00. •Maximum Senior Secured Leverage Ratio. We must maintain a Senior Secured Leverage Ratio of no more than 1.85 to 1.00. The Senior Secured Leverage Ratio is defined as the ratio of (a) all indebtedness of the loan parties on a consolidated basis that is secured by a lien on any property of any loan party (including the effective amount of all loans then outstanding under the Senior Credit Facility) plus 50% of the effective amount of letter of credit obligations attributable to performance standby letters of credit to (b) Adjusted EBITDA. Pursuant to the Fourth Amendment, letters of credit obligations will be excluded from the calculation. The Senior Credit Facility contains various negative covenants that limit our ability to, among other things, 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. The Senior Credit Facility also contains affirmative covenants that are customary for credit facilities of this type. As of June 30, 2020, we were in compliance with our various covenants under the Senior Credit Facility. The Senior Credit Facility is secured by pledges of the equity of the portion of Spark HoldCo owned by us, 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. Prior to the Fourth Amendment, we were entitled to pay cash dividends to the holders of the Series A Preferred Stock and Class A common stock and were entitled to repurchase up to an aggregate amount of 10,000,000 shares of our Class A common stock, and up to $92.7 million of Series A Preferred 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. Pursuant to the Fourth Amendment, the Company is entitled to repurchase up to an aggregate amount of 8,000,000 shares of our Class A common stock, or up to an aggregate of $80.0 million in the aggregate of Class A common stock and Series A Preferred Stock under share buyback loans (subject to the terms and conditions thereof). 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, and actual or asserted failure of any guaranty or security document supporting the Senior Credit Facility to be in full force and effect. 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 for 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. Subordinated Debt Facility In June 2019, the Company entered into an Amended and Restated Subordinated Promissory Note in the principal amount of up to $25.0 million (the “Subordinated Debt Facility”), by and among the Company, Spark HoldCo and Retailco. The Subordinated Debt Facility amended and restated the Subordinated Promissory Note, dated as of 26 -------------------------------------------------------------------------------- December 27, 2016, by and among the Company, Spark HoldCo and Retailco, solely to extend the maturity date from July 1, 2020 to December 31, 2021. The Subordinated Debt Facility allows us to draw advances in increments of no less than $1.0 million per advance up to the maximum principal amount of the Subordinated Debt Facility. Advances thereunder accrue interest at 5% per annum from the date of the advance. We have the right to capitalize interest payments under the Subordinated Debt Facility. The Subordinated Debt Facility is subordinated in certain respects to our Senior Credit Facility pursuant to a subordination agreement. We may pay interest and prepay principal on the Subordinated Debt Facility so long as we are in compliance with the covenants under our Senior Credit Facility, are not in default under the Senior Credit Facility and have minimum availability of $5.0 million under the borrowing base under the Senior Credit Facility. Payment of principal and interest under the Subordinated Debt Facility is accelerated upon the occurrence of certain change of control or sale transactions. As of June 30, 2020, and December 31, 2019, there were no outstanding borrowings under the Subordinated Debt Facility. 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 the credit standing of counterparties involved and the impact of credit enhancements. We apply fair value measurements to our commodity derivative instruments and contingent payment arrangements based on the following fair value hierarchy, which prioritizes the inputs to the 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. 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. These levels can change over time. 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 tables present assets and liabilities measured and recorded at fair value in our condensed consolidated balance sheets on a recurring basis by and their level within the fair value hierarchy (in thousands): 27 -------------------------------------------------------------------------------- Level 1 Level 2 Level 3 Total June 30, 2020 Non-trading commodity derivative assets $ 19 $ 440 $ — $ 459 Trading commodity derivative assets — 74 — 74 Total commodity derivative assets $ 19 $ 514 $ — $ 533 Non-trading commodity derivative liabilities $ — $ (11,690) $ — $ (11,690) Trading commodity derivative liabilities — — — — Total commodity derivative liabilities $ — $ (11,690) $ — $ (11,690) Level 1 Level 2 Level 3 Total December 31, 2019 Non-trading commodity derivative assets $ — $ 401 $ — $ 401 Trading commodity derivative assets — 169 — 169 Total commodity derivative assets $ — $ 570 $ — $ 570 Non-trading commodity derivative liabilities $ (1,666) $ (18,772) $ — $ (20,438) Trading commodity derivative liabilities — — — — Total commodity derivative liabilities $ (1,666) $ (18,772) $ — $ (20,438) We had no transfers of assets or liabilities between any of the above levels during the six months ended June 30, 2020 and the year ended December 31, 2019. Our derivative contracts include exchange-traded contracts valued utilizing readily available quoted market prices and non-exchange-traded contracts valued using market price quotations available through brokers or over-the-counter and on-line exchanges. In addition, in determining the fair value of our derivative contracts, we apply a credit risk valuation adjustment to reflect credit risk, which is calculated based on our or the counterparty’s historical credit risks. As of June 30, 2020 and December 31, 2019, the credit risk valuation adjustment was a reduction of derivative liabilities, net of $0.2 million and $0.2 million, respectively. 11. Income Taxes Income Taxes We and our subsidiaries, CenStar and Verde Energy USA, Inc. ("Verde Corp"), are each subject to U.S. federal income tax as corporations. CenStar and Verde Corp file consolidated tax returns in jurisdictions that allow combined reporting. Spark HoldCo and its subsidiaries, with the exception of CenStar and Verde Corp, are treated as flow-through entities for U.S. federal income tax purposes and, as such, are generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to their taxable income is passed through to their members or partners. Accordingly, we are subject to U.S. federal income taxation on our allocable share of Spark HoldCo’s net U.S. taxable income. In our financial statements, we report federal and state income taxes for our share of the partnership income attributable to our ownership in Spark HoldCo and for the income taxes attributable to CenStar and Verde Corp. Net income attributable to non-controlling interest includes the provision for income taxes related to CenStar and Verde Corp. We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the tax bases of the assets and liabilities. We apply existing tax law and the tax rate that we expect to apply to taxable income in the years in which those differences are expected to be recovered or settled in calculating the deferred tax assets and liabilities. Effects of changes in tax rates on deferred tax assets and liabilities 28 -------------------------------------------------------------------------------- are recognized in income in the period of the tax rate enactment. A valuation allowance is recorded when it is not more likely than not that some or all of the benefit from the deferred tax asset will be realized. We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets. In making this determination, we consider all available positive and negative evidence and make certain assumptions. We consider, among other things, our deferred tax liabilities, the overall business environment, our historical earnings and losses, current industry trends, and our outlook for future years. We believe it is more likely than not that our deferred tax assets will be utilized, and accordingly have not recorded a valuation allowance on these assets. As of June 30, 2020, we had a net deferred tax asset of $28.9 million, of which approximately $15.6 million related to the original step up in tax basis resulting from the initial purchase of Spark HoldCo units from NuDevco Retail and NuDevco Retail Holdings (predecessor to Retailco) in connection with our initial public offering. The effective U.S. federal and state income tax rate for the three months ended June 30, 2020 and 2019 was 17.5% and 15.3%, respectively. The effective U.S. federal and state income tax rate for the six months ended June 30, 2020 and 2019 was 17.1% and 13.5%, respectively. The effective tax rate for the three and six months ended June 30, 2020 differed from the U.S. federal statutory tax rate of 21% primarily due to state taxes and the benefit provided from Spark HoldCo operating as a limited liability company, which is treated as a partnership for federal and state income tax purposes and is not subject to federal and state income taxes. Accordingly, the portion of earnings attributable to non-controlling interest is subject to tax when reported as a component of the non-controlling interest’s taxable income. 12. Commitments and Contingencies From time to time, we may be involved in legal, tax, regulatory and other proceedings in the ordinary course of business. Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal Proceedings Below is a summary of our currently pending material legal proceedings. We are subject to lawsuits and claims arising in the ordinary course of our business. The following legal proceedings are in various stages and are subject to substantial uncertainties concerning the outcome of material factual and legal issues. Accordingly, unless otherwise specifically noted, we cannot currently predict the manner and timing of the resolutions of these legal proceedings or estimate a range of possible losses or a minimum loss that could result from an adverse verdict in a potential lawsuit. While the lawsuits and claims are asserted for amounts that may be material should an unfavorable outcome occur, management does not currently expect that any currently pending matters will have a material adverse effect on our financial position or results of operations. Consumer Rate Lawsuits Similar to other energy service companies ("ESCOs") operating in the industry, from time-to-time, the Company is subject to several class action lawsuits in various jurisdictions where the Company sells natural gas and electricity, such actions alleging consumers paid higher rates than they would have if they stayed with the default utility. Janet Rolland, et al v. Spark Energy, LLC is a purported class action originally filed on April 19, 2017 in the United States District Court for the District of New Jersey alleging that Spark Energy, LLC charged a variable rate that was higher than permitted by its terms of service, resulting in breach of contract and violation of the duty of good faith and fair dealing. Plaintiffs alleged claims under the New Jersey Consumer Fraud Act and Illinois Consumer Fraud and Deceptive Business Practices Act. The case seeks to certify a putative nationwide class of all Spark variable rate electricity customers from April 19, 2011 to the present. The relief sought includes unspecified actual damages, refunds, treble damages and punitive damages for the putative class, injunctive relief, attorneys’ fees and costs of 29 -------------------------------------------------------------------------------- suit. Spark obtained dismissal with prejudice of the New Jersey Consumer Fraud Act claim and has sought dismissal of the Illinois Consumer Fraud and Deceptive Business Practices Act claim and other claims. Discovery is ongoing in this matter. In April 2020, the Judge granted a stay and mediation is scheduled for August 29, 2020. Spark continues to deny the allegations asserted by Plaintiffs and intends to vigorously defend this matter. Given the ongoing discovery and current stage of this matter, we cannot predict the outcome of this case at this time. Katherine Veilleux, et. al. v. Electricity Maine LLC, Provider Power, LLC, Spark HoldCo, LLC, Kevin Dean, and Emile Clavet is a purported class action lawsuit filed on November 18, 2016 in the United States District Court of Maine, alleging that Electricity Maine, LLC ("Electricity Maine"), an entity acquired by Spark Holdco in mid-2016, enrolled customers and conducted advertising, and promotions allegedly not in compliance with law. Plaintiffs seek damages for themselves and the purported class, injunctive relief, restitution, and attorneys' fees. The parties participated in mediation in July 2019 and reached a settlement. The court granted preliminary approval of that settlement on May 13, 2020. The claims administration process pursuant to the settlement began on June 12, 2020. Jurich v. Verde Energy USA, Inc. is a class action originally filed on March 3, 2015 in the United States District Court for the District of Connecticut and subsequently re-filed on October 8, 2015 in the Superior Court of Judicial District of Hartford, State of Connecticut. The Amended Complaint asserts that the Verde Companies charged rates in violation of its contracts with Connecticut customers and alleges (i) violation of the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. §§ 42-110a et seq., and (ii) breach of the covenant of good faith and fair dealing. Plaintiffs are seeking unspecified actual and punitive damages for the class and injunctive relief. As part of an agreement in connection with the acquisition of the Verde Companies, the seller of the Verde Companies is handling this matter as it was an indemnified matter in the original sale to the Company. This matter has concluded as the parties have reached a class settlement, which received final court approval, and an order of dismissal on February 24, 2020. Telemarketing Lawsuits Similar to other ESCOs operating in the industry, from time-to-time, the Company is subject to class actions in various jurisdictions where the Company sells energy, such actions alleging consumers received calls in violation of federal and/or state telemarketing laws. Albrecht v. Oasis Power, LLC is a putative nationwide class action that was filed on February 12, 2018 in the United States District Court for the Northern District of Illinois, alleging that Oasis made prerecorded telemarketing calls, including auto-dialed calls, to consumers’ mobile phones, in violation of the Telephone Consumer Protection Act ("TCPA") and the Illinois Automatic Telephone Dialers Act ("ATDA"). Plaintiff sought an injunction requiring Oasis to cease all unsolicited calling activities, an award of statutory and trebled damages under the TCPA and the ATDA, as well as costs and attorney’s fees. This matter has concluded, as the parties reached a class settlement on behalf of Oasis and other affiliated brands, which received final court approval on February 6, 2020. Richardson et. al. v. Verde Energy USA, Inc. is a purported class action filed on November 25, 2015 in the United States District Court for the Eastern District of Pennsylvania alleging that the Verde Companies violated the Telephone Consumer Protection Act ("TCPA") by placing marketing calls using an automatic telephone dialing system ("ATDS") or a prerecorded voice to the purported class members’ cellular phones without prior express consent and by continuing to make such calls after receiving requests for the calls to cease. Following discovery and dispositive motions, the Verde Companies received a favorable ruling on summary judgment with the court agreeing with the Verde Companies that the call system used in this case was not an ATDS as defined by the TCPA. Plaintiffs subsequently amended their petition eliminating their ATDS claim and including a class based on failure to comply with the National Do Not Call registry. As part of an agreement in connection with the acquisition of the Verde Companies, the original owners of the Verde Companies are handling this matter. This matter has concluded as the parties reached a settlement in this matter. On January 17, 2020, the court approved the Parties’ preliminary settlement and settlement claims’ administration continued through first and second quarter of 2020. The court issued its Final Approval Order of the settlement on May 19, 2020. 30 -------------------------------------------------------------------------------- Corporate Matter Lawsuits Saul Horowitz, as Sellers’ Representative for the former owners of the Major Energy Companies v. National Gas & Electric, LLC ("NG&E") and Spark Energy, Inc., is a lawsuit filed on October 17, 2017 in the United States District Court for the Southern District of New York asserting claims of fraudulent inducement against NG&E, breach of contract against NG&E and Spark, and tortious interference with contract against Spark related to a membership interest purchase agreement, subsequent dropdown, and associated earnout agreements with the Major Energy Companies' former owners. The relief sought includes unspecified compensatory and punitive damages, prejudgment and post-judgment interest, and attorneys’ fees. This case went to trial during the first two weeks of March 2020 and all material has been submitted to the Judge for his decision. Given the trial was in Manhattan, New York, which was previously under a shelter-in-place order and is currently re-opening in phases, we are not able to predict when we receive a final decision on this matter. Spark and NG&E deny the allegations asserted by Plaintiffs and have vigorously defended this matter; however, we cannot predict the outcome or consequences of this case at this time. Regulatory Matters Many state regulators have increased scrutiny on retail energy providers, across all industry providers. We are subject to regular regulatory inquiries and preliminary investigations in the ordinary course of our business. Below is a summary of our currently pending material state regulatory matters. The following state regulatory matters are in various stages and are subject to substantial uncertainties concerning the outcome of material factual and legal issues. Accordingly, we cannot currently predict the manner and timing of the resolution of these state regulatory matters or estimate a range of possible losses or a minimum loss that could result from an adverse action. Management does not currently expect that any currently pending state regulatory matters will have a material adverse effect on our financial position or results of operations. Connecticut. Spark Energy, LLC ("SE LLC") has been working with the Connecticut Public Utilities Regulatory Authority ("PURA") regarding compliance with requirements implemented in 2016 that customer bills include any changes to existing rates effective for the next billing cycle. SE LLC and other ESCOs in Connecticut have agreed to submit to a proceeding offering amnesty to ESCOs that self-report violations and offer to voluntarily remit refunds to customers. Spark has remitted its report of potential customers who would be eligible for refunds under the amnesty program and submitted its confidential settlement proposal along with SE LLC’s commitment, subject to certain conditions. PURA is completing its review and audit, and issuing final decisions regarding SE LLC’s amnesty payments, which SE LLC will comply with and expects to issue refunds to customers in third quarter of 2020. Illinois, Spark Energy, LLC received a verbal inquiry from the Illinois Commerce Commission ("ICC") and the Illinois Attorney General ("IAG") on January 1, 2020 seeking to understand an increase in complaints from Illinois consumers. The Company met with the ICC and the IAG in February 2020 and plan to discuss a compliance plan to ensure its sales are in compliance with Illinois regulations. The parties also discussed possible restitution payments to any customers impacted by sales not in compliance with Illinois regulations. The Company is currently working with both regulators on this matter. Maine. In early 2018, Staff of the Maine Public Utilities Commission (“Maine PUC”) issued letters to Electricity Maine seeking information about customer complaints principally associated with door-to-door (“D2D”) sales practices. In late July 2018, the Maine PUC issued an Order to Show Cause and Electricity Maine responded in mid-August 2018. The Commission scheduled a procedural conference in early 2019 that resulted in no intervenors other than participation as a party by the Maine Office of Public Advocate. At the conference, the parties agreed on a procedural schedule, including a one-day evidentiary hearing. Following post-hearing discovery, Initial and Reply Briefs were filed on August 30, 2019 and September 10, 2019, respectively. The Maine PUC hearing examiner released its report in April 2020 alleging failures of compliance related to enrollment and marketing practices by Electricity Maine. The parties sought approval of a proposed settlement with the Maine PUC but have not reached a 31 -------------------------------------------------------------------------------- satisfactory resolution with the Maine PUC at this time. The parties are continuing to work toward a resolution in this matter. New York. Prior to the purchase of Major Energy by the Company, in 2015, Major Energy Services, LLC and Major Energy Electric Services were contacted by the Attorney General, Bureau of Consumer Frauds & Protection for State of New York relating to their marketing practices. Major Energy has exchanged information in response to various requests from the Attorney General. The parties are in settlement negotiations at this time. While investigations of this nature may be resolved in a manner that allows the retail energy supplier to continue operating in New York with stipulations, there can be no assurances that the New York Attorney General will not take more severe action. Ohio. Verde Energy USA Ohio, LLC (“Verde Ohio”) was the subject of a formal investigation by the Public Utilities Commission of Ohio (“PUCO”) initiated on April 16, 2019. The investigation asserted that Verde Ohio may have violated Ohio’s retail energy supplier regulations. Verde Ohio voluntary suspended door-to-door marketing in Ohio in furtherance of settlement negotiations with the PUCO Staff. On September 6, 2019, Verde Ohio and PUCO Staff executed and filed with PUCO a Joint Stipulation and Recommendation for PUCO’s review and approval, which sets forth agreed settlement terms, which includes approximately $1.9 million in refunds to customers and a penalty of $0.7 million. The settlement was approved by PUCO on February 26, 2020, and the Joint Stipulation and Recommendation resolves all of the issues raised in the investigation. The parties are working together to agree on the process of providing refunds to customers. The Ohio Officer of Consumer Counsel has contested this settlement, and has initiated discovery requests to Verde Ohio as well as contesting Verde Ohio’s license renewal. In addition, in September of 2019, the Ohio Attorney General (“OAG”) alleged that Verde Ohio had violated its Consumer Sales Practice Act and Do Not Call regulations. Verde Ohio is cooperating and responding to the OAG’s document requests; however, at this time, the Company cannot predict the outcome of this matter. Pennsylvania. Verde Energy USA, Inc. (“Verde”) is the subject of a formal investigation by the Pennsylvania Public Utility Commission, Bureau of Investigation and Enforcement (“PPUC”) initiated on January 30, 2020. The investigation asserts that Verde may have violated Pennsylvania retail energy supplier regulations. The Company met with the PPUC in February 2020 to discuss the matter and work with the PPUC cooperatively. Verde reached a settlement, which includes a civil penalty of $1.0 million and a $0.1 million contribution to the PPL hardship fund. On June 30, 2020, Verde and PPUC Bureau of Investigation and Enforcement filed a Joint Petition for Approval of Settlement and Statements in Support of that Joint Petition with the Commission. Verde is currently awaiting final approval of this settlement. Indirect Tax Audits We are undergoing various types of indirect tax audits spanning from years 2014 to 2019 for which we may have additional liabilities arise. At the time of filing these condensed consolidated financial statements, these indirect tax audits are at an early stage and subject to substantial uncertainties concerning the outcome of audit findings and corresponding responses. As of June 30, 2020 and December 31, 2019, we had accrued $26.2 million and $29.2 million, respectively, related to litigation and regulatory matters and $0.4 million and $1.8 million, respectively, related to indirect tax audits. The outcome of each of these may result in additional expense. 13. Transactions with Affiliates Transactions with Affiliates We enter into transactions with and pay certain costs on behalf of affiliates that are commonly controlled in order to reduce risk, reduce administrative expense, create economies of scale, create strategic alliances and supply goods 32 -------------------------------------------------------------------------------- and services to these related parties. We also sell and purchase natural gas and electricity with affiliates and pay an affiliate to perform telemarketing activities. We present receivables and payables with the same affiliate on a net basis in the condensed consolidated balance sheets as all affiliate activity is with parties under common control. Affiliated transactions include certain services to the affiliated companies associated with employee benefits provided through our benefit plans, insurance plans, leased office space, administrative salaries, due diligence work, recurring management consulting, and accounting, tax, legal, or technology services. Amounts billed are based on the 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 us and then directly billed or allocated to affiliates, as well as 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. Transactions with affiliates for sales or purchases of natural gas and electricity 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 are recorded in the condensed consolidated balance sheets. Cost Allocations Where costs incurred on behalf of the affiliate or us cannot be determined by specific identification for direct billing, the costs are allocated to the affiliated entities or us based on estimates of percentage of departmental usage, wages or headcount. The total net amount direct billed and allocated (to)/from affiliates was $0.2 million and $0.4 million for the three months ended June 30, 2020 and 2019, respectively. The total net amount direct billed and allocated from affiliates was less than $(0.1) million and $0.4 million for the six months ended June 30, 2020 and 2019, respectively. General and administrative costs of $0.1 million were recorded for the three and six months ended June, 30, 2020 related to telemarketing activities performed by an affiliate. Accounts Receivable and Payable—Affiliates As of June 30, 2020 and December 31, 2019, we had current accounts receivable—affiliates of $4.1 million and $2.0 million, respectively, and current accounts payable—affiliates of $0.7 million and $1.0 million, respectively. Revenues and Cost of Revenues—Affiliates Revenues recorded in net asset optimization revenues in the condensed consolidated statements of operations for the three months ended June 30, 2020 and 2019 related to affiliated sales were $0.2 million and $0.6 million, respectively. Revenues recorded in net asset optimization revenues in the condensed consolidated statements of operations for the six months ended June 30, 2020 and 2019 related to affiliated sales were $0.7 million and $1.8 million, respectively. Cost of revenues recorded in net asset optimization revenues in the condensed consolidated statements of operations for the three months ended June 30, 2020 and 2019 related to affiliated purchases were $0.1 million and less than $0.1 million, respectively. Cost of revenues recorded in net asset optimization revenues in the condensed consolidated statements of operations for the six months ended June 30, 2020 and 2019 related to affiliated purchases were $0.3 million and less than $0.1 million, respectively. These amounts are presented as net on the condensed consolidated statements of operations. Distributions to and Contributions from Affiliates During three months ended June 30, 2020 and 2019, Spark HoldCo made distributions to affiliates of our Founder of $3.8 million , for the payments of quarterly distribution on their respective Spark HoldCo units. During the three months ended June 30, 2020 and 2019, Spark HoldCo also made distributions to these affiliates for gross-up 33 -------------------------------------------------------------------------------- distributions of $2.8 million and $0.4 million, respectively, in in connection with distributions made between Spark HoldCo and Spark Energy, Inc. for payment of income taxes incurred by us. During each of the six months ended June 30, 2020 and 2019, Spark HoldCo made distributions to affiliates of our Founder of $7.5 million, for payments of quarterly distributions on their respective Spark HoldCo units. During the six months ended June 30, 2020 and 2019, Spark HoldCo also made distributions to these affiliates for gross-up distributions of $6.2 million and zero, respectively, in connection with distributions made between Spark HoldCo and Spark Energy, Inc. for payment of income taxes incurred by us. Subordinated Debt Facility In June 2019, we and Spark HoldCo entered into a Subordinated Debt Facility with an affiliate owned by our Founder, which allows the Company to borrow up to $25.0 million. The Subordinated Debt Facility allows us to draw advances in increments of no less than $1.0 million per advance up to the maximum principal amount of the Subordinated Debt Facility. Advances thereunder accrue interest at 5% per annum from the date of the advance. As of June 30, 2020 and December 31, 2019, there was zero in outstanding borrowings under the Subordinated Debt Facility. See Note 9 "Debt" for a further description of terms and conditions of the Subordinated Debt Facility. Tax Receivable Agreement Prior to July 11, 2019, we were party to a Tax Receivable Agreement ("TRA") with affiliates. Effective July 11, 2019, the Company entered into a TRA Termination and Release Agreement (the “Release Agreement”), which provided for a full and complete termination of any further payment, reimbursement or performance obligation of the Company, Retailco and NuDevco Retail under the TRA, whether past, accrued or yet to arise. Pursuant to the Release Agreement, the Company made a cash payment of approximately $11.2 million on July 15, 2019 to Retailco and NuDevco Retail. In connection with the termination of the TRA, Spark HoldCo made a distribution of approximately $16.3 million on July 15, 2019 to Retailco and NuDevco Retail under the Spark HoldCo Third Amended and Restated Limited Liability Company Agreement, as amended. 14. Segment Reporting Our determination of reportable business segments considers the strategic operating units under which we make financial decisions, allocate resources and assess performance of our business. Our reportable business segments are retail electricity and retail natural gas. The retail electricity segment consists of electricity sales and transmission to residential and commercial customers. The retail natural gas segment consists of natural gas sales to, and natural gas transportation and distribution for, residential and commercial customers. Corporate and other consists of expenses and assets of the retail electricity and natural gas segments that are managed at a consolidated level such as general and administrative expenses. Asset optimization activities are also included in Corporate and other. For the three months ended June 30, 2020 and 2019, we recorded asset optimization revenues of $3.9 million and $12.7 million and asset optimization cost of revenues of $4.0 million and $12.8 million, respectively, and for the six months ended June 30, 2020 and 2019, we recorded asset optimization revenues of $10.3 million and $36.1 million and asset optimization cost of revenues of $10.1 million and $33.6 million, respectively, which are presented on a net basis in asset optimization revenues. We use retail gross margin to assess the performance of our operating segments. Retail gross margin is defined as operating (loss) income plus (i) depreciation and amortization expenses and (ii) general and administrative expenses, less (i) net asset optimization (expenses) revenues, (ii) net (losses) gains on non-trading derivative instruments, and (iii) net current period cash settlements on non-trading derivative instruments. We deduct net (losses) gains on non-trading derivative instruments, excluding current period cash settlements, from the retail gross margin calculation in order to remove the non-cash impact of net gains and losses on these derivative instruments. Retail gross margin should not be considered an alternative to, or more meaningful than, operating income, as determined in accordance with GAAP. 34 -------------------------------------------------------------------------------- Below is a reconciliation of retail gross margin to income before income tax expense (in thousands): Six Months Ended June Three Months Ended June 30, 30, 2020 2019 2020 2019 Reconciliation of Retail Gross Margin to Income before taxes Income before income tax expense $ 32,450 $ (30,070) $ 44,443 $ (26,284) Interest and other income (53) (494) (213) (683) Interest expense 1,193 1,995 2,746 4,218 Operating income 33,590 (28,569) 46,976 (22,749) Depreciation and amortization 8,010 10,312 16,806 22,467 General and administrative 21,331 37,247 47,007 66,723 Less: Net asset optimization revenues (82) (56) 239 2,496 Net, gain (loss) on non-trading derivative instruments 7,964 (35,466) (16,569) (55,269) Net, Cash settlements on non-trading derivative instruments 10,055 12,788 26,664 20,913 Retail Gross Margin $ 44,994 $ 41,724 $ 100,455 $ 98,301 35 -------------------------------------------------------------------------------- Financial data for business segments are as follows (in thousands): Three Months Ended June 30, 2020 Retail Retail Corporate Electricity Natural Gas and Other Eliminations Consolidated Total Revenues $ 112,255 $ 16,363 $ (82) $ — $ 128,536 Retail cost of revenues 59,268 6,337 — — 65,605 Less: Net asset optimization expenses — — (82) — (82) Net, gain (loss) on non-trading derivative instruments 8,047 (83) — — 7,964 Current period settlements on non-trading derivatives 9,367 688 — — 10,055 Retail Gross Margin $ 35,573 $ 9,421 $ — $ — $ 44,994 Total Assets at June 30, 2020 $ 2,732,318 $ 882,142 $ 326,636 $ (3,569,084) $ 372,012 Goodwill at June 30, 2020 $ 117,813 $ 2,530 $ — $ — $ 120,343 Three Months Ended June 30, 2019 Retail Retail Corporate Electricity Natural Gas and Other Eliminations Consolidated Total revenues $ 160,776 $ 17,029 $ (56) $ — $ 177,749 Retail cost of revenues 148,187 10,572 — — 158,759 Less: Net asset optimization revenues — — (56) — (56) Net loss on non-trading derivative instruments (33,694) (1,772) — — (35,466) Current period settlements on non-trading derivatives 12,669 119 — — 12,788 Retail Gross Margin $ 33,614 $ 8,110 $ — $ — $ 41,724 Total Assets at December 31, 2019 $ 2,524,884 $ 820,601 $ 341,411 $ (3,263,928) $ 422,968 Goodwill at December 31, 2019 $ 117,813 $ 2,530 $ — $ — $ 120,343 36 -------------------------------------------------------------------------------- Six Months Ended June 30, 2020 Retail Retail Corporate Electricity Natural Gas and Other Eliminations Consolidated Total revenues $ 234,023 $ 60,955 $ 239 $ — $ 295,217 Retail cost of revenues 159,651 24,777 — — 184,428 Less: Net asset optimization revenues — — 239 — 239 Net loss on non-trading derivatives (16,339) (230) — — (16,569) Current period settlements on non-trading derivatives 24,332 2,332 — — 26,664 Retail Gross Margin $ 66,379 $ 34,076 $ — $ — $ 100,455 Total Assets at June 30, 2020 $ 2,732,318 $ 882,142 $ 326,636 $ (3,569,084) $ 372,012 Goodwill at June 30, 2020 $ 117,813 $ 2,530 $ — $ — $ 120,343 Six Months Ended June 30, 2019 Retail Retail Corporate Electricity Natural Gas and Other Eliminations Consolidated Total revenues $ 342,868 $ 75,091 $ 2,496 $ — $ 420,455 Retail cost of revenues 314,074 39,940 — — 354,014 Less: Net asset optimization revenues — — 2,496 — 2,496 Net, (loss) gain on non-trading derivatives (55,636) 367 — — (55,269) Current period settlements on non-trading derivatives 20,842 71 — — 20,913 Retail Gross Margin $ 63,588 $ 34,713 $ — $ — 98,301 Total Assets at December 31, 2019 $ 2,524,884 $ 820,601 $ 341,411 $ (3,263,928) $ 422,968 Goodwill at December 31, 2019 $ 117,813 $ 2,530 $ — $ — $ 120,343 37 -------------------------------------------------------------------------------- 15. Subsequent Events Declaration of Dividends On July 17, 2020, we declared a quarterly dividend of $0.18125 per share to holders of record of our Class A common stock on September 1, 2020, which will be paid on September 15, 2020. On July 17, 2020, we also declared a quarterly cash dividend in the amount of $0.546875 per share to holders of record of the Series A Preferred Stock on October 1, 2020. The dividend will be paid on October 15, 2020. Fourth Amendment to Senior Credit Facility On July 31, 2020 we entered into the Fourth Amendment to our Senior Credit Facility, which, among other things, extended the maturity date to July 31, 2022, and decreased the maximum borrowing capacity under the Senior Credit Facility to $187.5 million. The Fourth Amendment also revised the Fixed Charge Coverage Ratio, Maximum Total Leverage Ratio and Maximum Senior Secured Leverage Ratio (each as defined in the Senior Credit Facility), eliminated Bridge Loans, and provided for Share Buyback Loans of up to $80.0 million, which permit the Company to repurchase up to an aggregate of 8,000,000 shares of Class A common stock or $80.0 million of Series A Preferred Stock. Refer to Note 9 "Debt" for discussion of the material terms of our Senior Credit Facility and the Fourth Amendment. 38 -------------------------------------------------------------------------------- ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Report and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations included in our 2019 Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 5, 2020. Results of operations and cash flows for the three and six months ended June 30, 2020 are not necessarily indicative of results to be attained for any other period. See "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors." Overview We are an 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 natural gas and electricity. We purchase our natural gas and electricity supply from a variety of wholesale providers and bill our customers monthly for the delivery of natural gas and electricity based on their consumption at either a fixed or variable price. Natural gas and electricity are then distributed to our customers by local regulated utility companies through their existing infrastructure. As of June 30, 2020, we operated in 94 utility service territories across 19 states and the District of Columbia. Our business consists of two operating segments: •Retail Electricity Segment. In this segment, we purchase electricity supply through physical and financial transactions with market counterparties and ISOs and supply electricity to residential and commercial consumers pursuant to fixed-price and variable-price contracts. For the three months ended June 30, 2020 and 2019, approximately 87% and 90%, respectively, of our retail revenues were derived from the sale of electricity. •Retail Natural Gas Segment. In this segment, we purchase natural gas supply through physical and financial transactions with market counterparties and supply natural gas to residential and commercial consumers pursuant to fixed-price and variable-price contracts. For the three months ended June 30, 2020 and 2019, approximately 13% and 10%, respectively, of our retail revenues were derived from the sale of natural gas. Recent Developments In May 2020, we initiated a tender offer to purchase up to 1,000,000 shares of our Series A Preferred Stock. In June 2020, we accepted for purchase 36,827 shares of Series A Preferred Stock at a purchase price of $22.00 per share, for an aggregate purchase price of approximately $0.8 million. On July 31, 2020, we entered into a Fourth Amendment to our Senior Credit Facility (the "Fourth Amendment"), which, among other things, extended the maturity date to July 31, 2022, and decreased the maximum borrowing capacity under the Senior Credit Facility to $187.5 million. The Fourth Amendment also revised the Fixed Charge Coverage Ratio, Maximum Total Leverage Ratio and Maximum Senior Secured Leverage Ratio (each as defined in the Senior Credit Facility), eliminated Bridge Loans, and provided for Share Buyback Loans of up to $80.0 million, which permit the Company to repurchase up to an aggregate of 8,000,000 shares of Class A common stock or $80.0 million of Series A Preferred Stock. Refer to Note 9 "Debt" for discussion of the material terms of our Senior Credit Facility. COVID-19 The outbreak of the novel Coronavirus ("COVID-19") is a rapidly developing situation around the globe that has adversely impacted economic activity and conditions worldwide. In response to the COVID-19 pandemic, we deployed a remote working strategy in March 2020 that enabled certain of our employees to work from home, 39 -------------------------------------------------------------------------------- provided timely communication to team members, implemented protocols for team members' safety, and initiated strategies for monitoring and responding to local COVID-19 impacts. Our preparedness efforts, coupled with quick and decisive plan implementation, resulted in minimal impacts to our workforce. Our employees continue to work remotely, but we plan to return to an on-site work strategy once health and safety conditions permit. As described further below under "Drivers of our Business", during the three months ended June 30, 2020, we had fewer organic customer acquisitions, which resulted in reduced customer acquisition costs. In addition, for the three month ended June 30, 2020 compared to three months ended June 30, 2019, we experienced lower customer attrition, slight increases in residential demand, and slight decreases in C&I demand. The financial impact of the decrease in C&I demand was offset by higher demand from residential customers, which have higher margins. Overall, we believe we have not experienced a material adverse impact to our business, financial condition or results of operations through June 30, 2020 as a result of the COVID-19 pandemic. We are continuing to monitor developments involving our workforce, customers and suppliers and the impact on our operations, business, financial condition, liquidity and results of operations for future periods. Please see “Item 1A—Risk Factors” in this Report. Residential Customer Equivalents We measure our number of customers using residential customer equivalents ("RCEs"). The following table shows our RCEs by segment during the three and six months ended June 30, 2020: RCEs: (In thousands) March 31, 2020 Additions Attrition June 30, 2020 % Increase (Decrease) Retail Electricity 460 6 (46) 420 (9)% Retail Natural Gas 125 2 (13) 114 (9)% Total Retail 585 8 (59) 534 (9)% RCEs: (In thousands) December 31, 2019 Additions Attrition June 30, 2020 % Increase (Decrease) Retail Electricity 533 22 (135) 420 (21)% Retail Natural Gas 139 7 (32) 114 (18)% Total Retail 672 29 (167) 534 (21)% The following table details our count of RCEs by geographical location as of June 30, 2020: RCEs by Geographic Location: (In thousands) Electricity % of Total Natural Gas % of Total Total % of Total New England 170 40% 23 20% 193 35% Mid-Atlantic 146 35% 39 34% 185 35% Midwest 43 10% 33 29% 76 14% Southwest 61 15% 19 17% 80 16% Total 420 100% 114 100% 534 100% The geographical locations noted above include the following states: •New England - Connecticut, Maine, Massachusetts and New Hampshire; 40 -------------------------------------------------------------------------------- •Mid-Atlantic - Delaware, Maryland (including the District of Columbia), New Jersey, New York and Pennsylvania; •Midwest - Illinois, Indiana, Michigan and Ohio; and •Southwest - Arizona, California, Colorado, Florida, Nevada and Texas. Across our market areas, we have operated under a number of different retail brands. We currently operate under seven retail brands. During 2019, we began consolidating our brands and billing systems in an effort to simplify our business operations where practical. Our goal is to continue our efforts to reduce the number of separate brands throughout 2020. Drivers of our Business The success of our business and our profitability are impacted by a number of drivers, the most significant of which are discussed below. Customer Growth Customer growth is a key driver of our operations. Our ability to acquire customers organically or by acquisition is important to our success as we experience ongoing customer attrition. Our customer growth strategy includes growing organically through traditional sales channels complemented by customer portfolio and business acquisitions. Our customer book may decrease if we are unable to replace customer attrition in the ordinary course of business through organic growth and/or acquisitions. Our organic sales strategies are designed to offer competitive pricing, price certainty, and/or green product offerings to residential and commercial customers. We manage growth on a market-by-market basis by developing price curves in each of the markets we serve and creating competitive product offerings that provide value to our targeted customer segments. To support these sales initiatives, we develop marketing campaigns using a combination of sales channels. Our marketing team continuously evaluates the effectiveness of each customer acquisition channel and makes adjustments in order to achieve desired targets. Due to the COVID-19 pandemic, certain Public Utility Commissions, regulatory agencies, and other governmental authorities in all of our markets have issued orders prohibiting energy services companies from door-to-door marketing and in some cases telemarketing during the pandemic, which has restricted some of the manners we have historically used to market for organic sales. In March, 2020, as a result of these actions, the Company ceased door-to-door marketing activities in all markets regardless of states' regulations. In response, the Company has focused on development of products and channels, partners for web sales, as well as accelerating its telemarketing sales quality programs to react to available opportunities in the second half of 2020. During the three months ended June, 30, 2020, we added approximately 8,000 RCEs primarily through organic web sales and telemarketing activities. This amount was significantly lower than historical periods due to the marketing limitations discussed above, as well as an active decision to slow sales activities as we focus our efforts to improve our organic sales channels, including vendor selection and sales quality. As most markets continue to enforce a ban on door-to-door activities, and we are focused on rebuilding our sales infrastructure, we do not anticipate any large scale door-to-door campaigns until late fourth quarter of 2020, but we will continue to market in the manners that are permitted. Although we expect to acquire less customers organically in future periods than we have historically while marketing restrictions are in place, we are unable to predict the ultimate effect on our organic sales at this time. Please see “Item 1A—Risk Factors” in this Report. We acquire companies and portfolios of customers through both external and affiliated channels. Our ability to realize returns from acquisitions that are acceptable to us is dependent on our ability to successfully identify, negotiate, finance and integrate acquisitions. 41 -------------------------------------------------------------------------------- Customer Acquisition Costs Managing customer acquisition costs is a key component of our profitability. Customer acquisition costs are those costs related to obtaining customers organically and do not include the cost of acquiring customers through acquisitions, which are recorded as customer relationships. We strive to maintain a disciplined approach to recovery of our customer acquisition costs within a 12 month period. We capitalize and amortize our customer acquisition costs over a two year period, which is based on our estimate of the expected average length of a customer relationship. We factor in the recovery of customer acquisition costs in determining which markets we enter and the pricing of our products in those markets. Accordingly, our results are significantly influenced by our customer acquisition costs. Changes in customer acquisition costs from period to period reflect our focus on growing organically versus growth through acquisitions. We are currently focused on growing through organic sales channels; however, we continue to evaluate opportunities to acquire customers through acquisitions and pursue such acquisitions when it makes sense economically or strategically for the Company. As described above, certain Public Utility Commissions, regulatory agencies, and other governmental authorities in all of our markets have issued orders that impact the way we have historically acquired customers, such as door to door marketing. Our reduced marketing resulted in significantly reduced customer acquisition costs during the three months ended June 30, 2020 compared to historical amounts. As long as these orders are in effect and marketing is reduced, we expect to incur reduced customer acquisition costs in future periods. However, we may incur increased costs through other manners of marketing. We are unable to predict the ultimate impact on our customer acquisition costs at this time. Please see “Item 1A—Risk Factors” in this Report.” Customer Attrition Customer attrition occurs primarily as a result of: (i) customer initiated switches; (ii) residential moves; (iii) disconnection resulting from customer payment defaults; and (iv) pro-active non-renewal of contracts. Average monthly customer attrition for the three months ended June 30, 2020 and 2019 was 3.5% and 3.8%, respectively. The current COVID-19 pandemic has caused regulatory agencies and other governmental authorities to take, and potentially continue to take, emergency or other actions in light of the pandemic that may impact our overall customer attrition, including prohibiting the termination of service for non-payment during the current COVID-19 pandemic. In addition, some state commissions are currently discussing allowing utilities to spread costs over time while allowing for full financial recovery plus cost of cash at a later date. This could create an advantage for incumbent utilities as energy service companies have to absorb or pass along COVID-19 related costs to customers, resulting in further disparity between market pricing and the utility price for customers. Furthermore, like us, other energy service companies are limited in their ability to market, which may reduce customer initiated switches. We believe these orders and circumstances caused our customer attrition to be lower for the second quarter of 2020 compared to the second quarter of 2019. Although customer attrition was slightly lower during the second quarter of 2020, we are unable to predict the ultimate impact of these actions on overall customer attrition at this time. Please see “Item 1A—Risk Factors” in this Report. Customer Credit Risk Our bad debt expense for the three months ended June 30, 2020 and 2019 was 1.5% and 3.6%, respectively, and our bad debt expense for the six months ended June 30, 2020 and 2019 was 2.5% and 4.4% respectively, for non-purchase of receivable market ("non-POR") revenues. An increased focus on collection efforts, timely billing and credit monitoring for new enrollments in non-POR markets in late 2019 have led to an improvement in the bad debt expense over the past several months, including the three months ended June 30, 2020. We have also been able to collect on debts that were previously written off, which have further reduced our bad debt expense during the three and six months ended June 30, 2020. 42 -------------------------------------------------------------------------------- The current COVID-19 pandemic has caused regulatory agencies and other governmental authorities to take, and potentially continue to take, emergency or other actions in light of the pandemic that may impact our customer credit risk, including prohibiting the termination of service for non-payment during the current COVID-19 pandemic, requiring deferred payment plans for certain customers unable to pay their bill, and utilities increasing POR fees they charge us in an effort to recoup their bad debts losses. Although the Company noted no significant impact as a result of the COVID-19 pandemic as related to credit risk for the three months ended June, 30, 2020, because of the time lag between the delivery of electricity and natural gas, the issuance of an invoice, and the customer’s payment due date, there may be a substantial lag in time before we are able to determine specific trends in bad debt expense as a result of COVID-19. Please see “Item 1A—Risk Factors” in this Report. Weather Conditions Weather conditions directly influence the demand for natural gas and electricity and affect the prices of energy commodities. Our hedging strategy is based on forecasted customer energy usage, which can vary substantially as a result of weather patterns deviating from historical norms. We are particularly sensitive to this variability in our residential customer segment where energy usage is highly sensitive to weather conditions that impact heating and cooling demand. Our risk management policies direct that we hedge substantially all of our forecasted demand, which is typically hedged to long-term normal weather patterns. We also attempt to add additional protection through hedging from time to time to protect us from potential volatility in markets where we have historically experienced higher exposure to extreme weather conditions. Because we attempt to match commodity purchases to anticipated demand, unanticipated changes in weather patterns can have a significant impact on our operating results and cash flows from period to period. During the second quarter of 2020, we experienced milder than anticipated weather across many of our markets, which negatively impacted overall customer usage. Additionally, as a result of the COVID-19 pandemic, we experienced slight increases in residential demand, offset by slight decreases in C&I demand. Overall demand reductions were offset by increased margins as a result of our strategy to shift away from C&I customers to a primarily residential customer base. These factors had a positive impact on our electricity and natural gas unit margins in the second quarter of 2020. As a result of the COVID-19 pandemic, we may experience changes in customer demand in future periods that we cannot fully anticipate. While not weather related, these changes in demand may lead us to experience financial gains and/or losses in much the same fashion as a weather event as the current circumstances make it more difficult to accurately predict demand. While we continue to conduct analytics on our customer base to anticipate these changes in demand, we cannot predict how the COVID-19 pandemic will ultimately impact our hedging strategy with regard to our load forecasts. Please see “Item 1A—Risk Factors” in this Report. Asset Optimization Our asset optimization opportunities primarily arise during the winter heating season when demand for natural gas is typically at its highest. Given the opportunistic nature of these activities and because we account for these activities using the mark to market method of accounting, we experience variability in our earnings from our asset optimization activities from year to year. Net asset optimization resulted in a loss of $0.1 million and $0.1 million for the three months ended June 30, 2020 and 2019, respectively. Non-GAAP Performance Measures We use the non-GAAP performance measures of Adjusted EBITDA and Retail Gross Margin to evaluate and measure our operating results as follows: 43 -------------------------------------------------------------------------------- Six Months Ended June Three Months Ended June 30, 30, (in thousands) 2020 2019 2020 2019 Adjusted EBITDA $ 23,848 $ 13,595 $ 54,148 $ 38,658 Retail Gross Margin $ 44,994 $ 41,724 $ 100,455 $ 98,301 Adjusted EBITDA. We define “Adjusted EBITDA” as EBITDA less (i) customer acquisition costs incurred in the current period, plus or minus (ii) net (loss) gain 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 the 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 and amortize such costs over two years. We do not deduct the cost of customer acquisitions through acquisitions of businesses or portfolios of customers in calculating Adjusted EBITDA. We deduct our net (losses) gains 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 these instruments. We also deduct non-cash compensation expense that results from the issuance of restricted stock units under our long-term incentive plan due to the non-cash nature of the expense. Finally, we also adjust from time to time other non-cash or unusual and/or infrequent charges due to either their non-cash nature or their infrequency. 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; •our ability to fund capital expenditures (including customer acquisition costs) and incur and service debt; and •our compliance with financial debt covenants. (Refer to Note 9 "Debt" to Part I, Item 1 of this Report for discussion of the material terms of our Senior Credit Facility, including the covenant requirements for our Minimum Fixed Charge Coverage Ratio, Maximum Total Leverage Ratio, and Maximum Senior Secured Leverage Ratio.) The GAAP measures most directly comparable to Adjusted EBITDA are net (loss) income and net cash provided by (used in) operating activities. The following table presents a reconciliation of Adjusted EBITDA to these GAAP measures for each of the periods indicated. 44 -------------------------------------------------------------------------------- Six Months Ended June Three Months Ended June 30, 30, (in thousands) 2020 2019 2020 2019 Reconciliation of Adjusted EBITDA to Net income (loss): Net income (loss) $ 26,777 $ (25,484) $ 36,845 $ (22,739) Depreciation and amortization 8,010 10,312 16,806 22,467 Interest expense 1,193 1,995 2,746 4,218 Income tax expense (benefit) 5,673 (4,586) 7,598 (3,545) EBITDA 41,653 (17,763) 63,995 401 Less: Net, gain (loss) on derivative instruments 8,121 (35,456) (16,466) (54,997) Net cash settlements on derivative instruments 9,964 12,769 26,572 20,794 Customer acquisition costs 210 3,396 1,555 9,185 Plus: Non-cash compensation expense 490 1,260 1,814 2,432 Non-recurring legal and regulatory settlements — 10,807 — 10,807 Adjusted EBITDA $ 23,848 $ 13,595 $ 54,148 $ 38,658 The following table presents a reconciliation of Adjusted EBITDA to net cash provided by operating activities for each of the periods indicated. Six Months Ended June Three Months Ended June 30, 30, (in thousands) 2020 2019 2020 2019 Reconciliation of Adjusted EBITDA to net cash provided by operating activities: Net cash provided by operating activities $ 32,394 $ 20,980 $ 71,783 $ 51,029 Amortization of deferred financing costs (240) (237) (490) (505) Bad debt expense (1,378) (2,166) (3,733) (6,015) Interest expense 1,193 1,995 2,746 4,218 Income tax expense (benefit) 5,673 (4,586) 7,598 (3,545) Changes in operating working capital Accounts receivable, prepaids, current assets (32,035) (41,028) (50,010) (51,392) Inventory 709 1,785 (1,981) (1,858) Accounts payable and accrued liabilities 19,021 20,222 29,839 31,172 Other (1,489) 16,630 (1,604) 15,554 Adjusted EBITDA $ 23,848 $ 13,595 $ 54,148 $ 38,658 Cash Flow Data: Cash flows provided by operating activities $ 32,394 $ 20,980 $ 71,783 $ 51,029 Cash flows used in investing activities $ (43) $ (250) $ (579) $ (6,373) Cash flows used in financing activities $ (8,198) $ (27,353) $ (49,248) $ (65,714) 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 (iii) net asset optimization (expenses) revenues, (iv) net gains (losses) on non-trading derivative instruments, and (v) 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 segments. As an indicator of our retail energy business’s operating performance, retail gross margin 45 -------------------------------------------------------------------------------- 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 measure most directly comparable to Retail Gross Margin is operating income (loss). The following table presents a reconciliation of Retail Gross Margin to operating income (loss) for each of the periods indicated. Six Months Ended June Three Months Ended June 30, 30, (in thousands) 2020 2019 2020 2019 Reconciliation of Retail Gross Margin to Operating income (loss): Operating income (loss) $ 33,590 $ (28,569) $ 46,976 $ (22,749) Plus: Depreciation and amortization 8,010 10,312 16,806 22,467 General and administrative expense 21,331 37,247 47,007 66,723 Less: Net asset optimization (expense) revenues (82) (56) 239 2,496 Gain (loss) on non-trading derivative instruments 7,964 (35,466) (16,569) (55,269) Cash settlements on non-trading derivative instruments 10,055 12,788 26,664 20,913 Retail Gross Margin $ 44,994 $ 41,724 $ 100,455 $ 98,301 Retail Gross Margin - Retail Electricity Segment $ 35,573 $ 33,614 $ 66,379 $ 63,588 Retail Gross Margin - Retail Natural Gas Segment $ 9,421 $ 8,110 $ 34,076 $ 34,713 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 (used in) operating activities, or operating income (loss). Adjusted EBITDA and Retail Gross Margin are not presentations made in accordance with GAAP and have 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), net cash provided by operating activities, and operating income (loss), 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. 46 -------------------------------------------------------------------------------- Consolidated Results of Operations Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 (In Thousands) Three Months Ended June 30, 2020 2019 Revenues: Retail revenues $ 128,618 $ 177,805 Net asset optimization (expense) revenues (82) (56) Total Revenues 128,536 177,749 Operating Expenses: Retail cost of revenues 65,605 158,759 General and administrative expense 21,331 37,247 Depreciation and amortization 8,010 10,312 Total Operating Expenses 94,946 206,318 Operating income 33,590 (28,569) Other (expense)/income: Interest expense (1,193) (1,995) Interest and other income 53 494 Total other expense (1,140) (1,501) Income before income tax expense 32,450 (30,070) Income tax expense 5,673 (4,586) Net income $ 26,777 $ (25,484) Other Performance Metrics: Adjusted EBITDA (1) $ 23,848 $ 13,595 Retail Gross Margin (1) $ 44,994 $ 41,724 Customer Acquisition Costs $ 210 $ 3,396 Average Monthly RCE Attrition 3.5 % 3.8 % (1) Adjusted EBITDA and Retail Gross Margin are non-GAAP financial measures. See " — Non-GAAP Performance Measures" for a reconciliation of Adjusted EBITDA and Retail Gross Margin to their most directly comparable GAAP financial measures. Total Revenues. Total revenues for the three months ended June 30, 2020 were approximately $128.5 million, a decrease of approximately $49.2 million, or 28%, from approximately $177.7 million for the three months ended June 30, 2019, as indicated in the table below (in millions). This decrease was primarily due to a decrease in electricity and natural gas volumes as a result of milder weather and a smaller C&I customer book in the second quarter of 2020 as compared to the second quarter of 2019, partially offset by an increase in electricity unit revenue per MWh. Change in electricity volumes sold $ (57.0) Change in natural gas volumes sold (0.7) Change in electricity unit revenue per MWh 8.5 Change in natural gas unit revenue per MMBtu 0.1 Change in net asset optimization revenue (0.1) Change in total revenues $ (49.2) Retail Cost of Revenues. Total retail cost of revenues for the three months ended June 30, 2020 was approximately $65.6 million, a decrease of approximately $93.2 million, or 59%, from approximately $158.8 million for the three months ended June 30, 2019, as indicated in the table below (in millions). This decrease was primarily due to a 47 -------------------------------------------------------------------------------- decrease in electricity and natural gas volumes as a result of milder weather and a smaller C&I customer book in 2020, a decrease in natural gas and electricity unit cost and a change in the fair value of our retail derivative portfolio. Change in electricity volumes sold $ (45.1) Change in natural gas volumes sold (0.4) Change in electricity unit cost per MWh (5.3) Change in natural gas unit cost per MMBtu (1.6) Change in value of retail derivative portfolio (40.8) Change in retail cost of revenues $ (93.2) General and Administrative Expense. General and administrative expense for the three months ended June 30, 2020 was approximately $21.3 million, a decrease of approximately $15.9 million, or 43%, as compared to $37.2 million for the three months ended June 30, 2019. This decrease was primarily attributable to legal and regulatory settlements and litigation expense in the second quarter of 2019 that did not reoccur in 2020, and a decrease in sales and marketing costs due to limitation of our door-to-door marketing as a result of COVID-19. Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended June 30, 2020 was approximately $8.0 million, a decrease of approximately $2.3 million, or 22%, from approximately $10.3 million for the three months ended June 30, 2019. This decrease was primarily due to the decreased amortization expense associated with customer intangibles. Customer Acquisition Cost. Customer acquisition cost for the three months ended June 30, 2020 was approximately $0.2 million, a decrease of approximately $3.2 million, or 95%, from approximately $3.4 million for the three months ended June 30, 2019. This decrease was primarily due to limitation on our ability to use door-to-door marketing as a result of COVID-19 and a reduction in targeted organic customer acquisitions as we focus our efforts to improve our organic sales channels, including vendor selection and sales quality. 48 -------------------------------------------------------------------------------- Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019 (In Thousands) Six Months Ended June 30, 2020 2019 Revenues: Retail revenues $ 294,978 $ 417,959 Net asset optimization revenues 239 2,496 Total Revenues 295,217 420,455 Operating Expenses: Retail cost of revenues 184,428 354,014 General and administrative 47,007 66,723 Depreciation and amortization 16,806 22,467 Total Operating Expenses 248,241 443,204 Operating income 46,976 (22,749) Other (expense)/income: Interest expense (2,746) (4,218) Interest and other income 213 683 Total other expense (2,533) (3,535) Income before income tax expense 44,443 (26,284) Income tax expense 7,598 (3,545) Net income (loss) $ 36,845 $ (22,739) Other Performance Metrics: Adjusted EBITDA (1) $ 54,148 $ 38,658 Retail Gross Margin (1) $ 100,455 $ 98,301 Customer Acquisition Costs $ 1,555 $ 9,185 RCE Attrition 4.6 % 4.6 % (1) Adjusted EBITDA and Retail Gross Margin are non GAAP financial measures. See " — Non-GAAP Performance Measures" for a reconciliation of Adjusted EBITDA and Retail Gross Margin to their most directly comparable financial measures presented in accordance with GAAP. Total Revenues. Total revenues for the six months ended June 30, 2020 were approximately $295.2 million, a decrease of approximately $125.2 million, or 30%, from approximately $420.4 million for the six months ended June 30, 2019, as indicated in the table below (in millions). This decrease was primarily due to a decrease in electricity and natural gas volumes as a result of a milder weather and a smaller C&I customer book in 2020 as compared to 2019, partially offset by an increase in electricity unit revenue per MWh. Change in electricity volumes sold $ (124.1) Change in natural gas volumes sold (14.7) Change in electricity unit revenue per MWh 15.3 Change in natural gas unit revenue per MMBtu 0.5 Change in net asset optimization revenue (expense) (2.2) Change in total revenues $ (125.2) Retail Cost of Revenues. Total retail cost of revenues for the six months ended June 30, 2020 was approximately $184.4 million, a decrease of approximately $169.6 million, or 48%, from approximately $354.0 million for the six months ended June 30, 2019, as indicated in the table below (in millions). This decrease was primarily due to a decrease in electricity and natural gas volumes as a result of a smaller C&I customer book in 2020, a decrease in electricity unit cost per MWh, and a change in fair value of our retail derivative portfolio. 49 -------------------------------------------------------------------------------- Change in electricity volumes sold $ (101.1) Change in natural gas volumes sold (7.9) Change in electricity unit cost per MWh (10.5) Change in natural gas unit cost per MMBtu (5.6) Change in value of retail derivative portfolio (44.5) Change in retail cost of revenues $ (169.6) General and Administrative Expense. General and administrative expense for the six months ended June 30, 2020 was approximately $47.0 million, a decrease of approximately $19.7 million, or 30%, as compared to $66.7 million for the six months ended June 30, 2019. This decrease was primarily attributable to the legal and regulatory settlements and increased litigation expense in the second quarter of 2019 that did not reoccur in 2020, and a decrease in sales and marketing costs in 2020 due to limitation of our door-to-door marketing as a result of COVID-19. Depreciation and Amortization Expense. Depreciation and amortization expense for the six months ended June 30, 2020 was approximately $16.8 million, a decrease of approximately $5.7 million, or 25%, from approximately $22.5 million for the six months ended June 30, 2019. This decrease was primarily due to the decreased amortization expense associated with customer relationship intangibles. Customer Acquisition Cost. Customer acquisition cost for the six months ended June 30, 2020 was approximately $1.6 million, a decrease of approximately $7.6 million, or 83%, from approximately $9.2 million for the six months ended June 30, 2019. This decrease was primarily due to limitation on our ability to use door-to-door marketing as a result of COVID-19 and a reduction in targeted organic customer acquisitions as we focus our efforts to improve our organic sales channels, including vendor selection and sales quality. 50 -------------------------------------------------------------------------------- Operating Segment Results Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 (in thousands, except volume and per unit operating data) Retail Electricity Segment Total Revenues $ 112,255 $ 160,776 $ 234,023 $ 342,868 Retail Cost of Revenues 59,268 148,187 159,651 314,074 Less: Net gain (loss) on non-trading 17,414 (21,025) 7,993 (34,794) derivatives, net of cash settlements Retail Gross Margin (1) — Electricity $ 35,573 $ 33,614 $ 66,379 $ 63,588 Volumes — Electricity (MWhs) 978,297 1,516,139 2,069,722 3,244,222 Retail Gross Margin (2) — Electricity per $ 36.36 $ 22.17 $ 32.07 $ 19.60 MWh Retail Natural Gas Segment Total Revenues $ 16,363 $ 17,029 $ 60,955 $ 75,091 Retail Cost of Revenues 6,337 10,572 24,777 39,940 Less: Net gain (loss) on non-trading 605 (1,653) 2,102 438 derivatives, net of cash settlements Retail Gross Margin (1) — Gas $ 9,421 $ 8,110 $ 34,076 $ 34,713 Volumes — Gas (MMBtus) 1,967,439 2,057,121 7,249,738 9,008,731 Retail Gross Margin (2) — Gas per MMBtu $ 4.79 $ 3.94 $ 4.70 $ 3.85 (1) Reflects the Retail Gross Margin attributable to our Retail Electricity Segment or Retail Natural Gas Segment, as applicable. Retail Gross Margin is a non-GAAP financial measure. See " —Non-GAAP Performance Measures" for a reconciliation of Retail Gross Margin to most directly comparable financial measures presented in accordance with GAAP. (2) Reflects the Retail Gross Margin for the Retail Electricity Segment or Retail Natural Gas Segment, as applicable, divided by the total volumes in MWh or MMBtu, respectively. Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 Retail Electricity Segment Total revenues for the Retail Electricity Segment for the three months ended June 30, 2020 were approximately $112.3 million, a decrease of approximately $48.5 million, or 30%, from approximately $160.8 million for the three months ended June 30, 2019. This decrease was largely due to lower volumes sold, resulting in a decrease of $57.0 million as a result of milder weather and a smaller C&I customer book in 2020. This decrease was partially offset by higher retail electricity prices as a result of the decrease of C&I RCEs as a total percentage of our customer book, which resulted in an increase of $8.5 million. Retail cost of revenues for the Retail Electricity Segment for the three months ended June 30, 2020 were approximately $59.3 million, a decrease of approximately $88.9 million, or 60%, from approximately $148.2 million for the three months ended June 30, 2019. This decrease was primarily due to fewer C&I customers, resulting in a decrease of $45.1 million, a decrease in supply costs of $5.3 million, and a change in the value of our retail derivative portfolio used for hedging, which resulted in a decrease of $38.5 million. Retail gross margin for the Retail Electricity Segment for the three months ended June 30, 2020 was approximately $35.6 million, an increase of approximately $2.0 million, or 6%, from approximately $33.6 million for the three months ended June 30, 2019, as indicated in the table below (in millions). 51 -------------------------------------------------------------------------------- Change in volumes sold $ (12.0) Change in unit margin per MWh 14.0 Change in retail electricity segment retail gross margin $ 2.0 Retail Natural Gas Segment Total revenues for the Retail Natural Gas Segment for the three months ended June 30, 2020 were approximately $16.4 million, a decrease of approximately $0.6 million, or 4%, from approximately $17.0 million for the three months ended June 30, 2019. This decrease was primarily attributable to lower volumes sold, which decreased total revenues by $0.7 million, offset by an increase in retail natural gas rates, which resulted in an increase in total revenues of $0.1 million. Retail cost of revenues for the Retail Natural Gas Segment for the three months ended June 30, 2020 were approximately $6.3 million, a decrease of $4.3 million, or 41%, from approximately $10.6 million for the three months ended June 30, 2019. This decrease was primarily due to lower volumes resulting in a decrease of $0.4 million, lower natural gas prices, which resulted in a decrease of $1.6 million, and a change in the value of our derivative portfolio used for hedging, which resulted in a decrease of $2.3 million. Retail gross margin for the Retail Natural Gas Segment for the three months ended June 30, 2020 was approximately $9.4 million, an increase of approximately $1.3 million, or 16%, from approximately $8.1 million for the three months ended June 30, 2019, as indicated in the table below (in millions). Change in volumes sold $ (0.4) Change in unit margin per MMBtu 1.7 Change in retail natural gas segment retail gross margin $ 1.3 52 -------------------------------------------------------------------------------- Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019 Retail Electricity Segment Total revenues for the Retail Electricity Segment for the six months ended June 30, 2020 were approximately $234.0 million, a decrease of approximately $108.9 million, or 32%, from approximately $342.9 million for the six months ended June 30, 2019. This decrease was largely due to a decrease in volumes, resulting in a decrease of $124.1 million. This was partially offset by higher weighted average revenue rates, due to our customer mix shifting away from large commercial customers, which resulted in an increase of $15.3 million. Retail cost of revenues for the Retail Electricity Segment for the six months ended June 30, 2020 was approximately $159.7 million, a decrease of approximately $154.4 million, or 49%, from approximately $314.1 million for the six months ended June 30, 2019. This decrease was primarily due to a decrease in volumes, resulting in a decrease of $101.1 million. This decrease was further impacted by decreased electricity prices, which resulted in a decrease in retail cost of revenues of $10.5 million and a decrease of $42.8 million due to a change in the value of our retail derivative portfolio used for hedging. Retail gross margin for the Retail Electricity Segment for the six months ended June 30, 2020 was approximately $66.4 million, an increase of approximately $2.8 million, or 4%, from approximately $63.6 million for the six months ended June 30, 2019, as indicated in the table below (in millions). Change in volumes sold $ (22.9) Change in unit margin per MWh 25.7 Change in retail electricity segment retail gross margin $ 2.8 Retail Natural Gas Segment Total revenues for the Retail Natural Gas Segment for the six months ended June 30, 2020 were approximately $61.0 million, a decrease of approximately $14.1 million, or 19%, from approximately $75.1 million for the six months ended June 30, 2019. This decrease was primarily attributable to a decrease in volumes of $14.7 million, partially offset by higher rates, which resulted in an increase in total revenues of $0.5 million. Retail cost of revenues for the Retail Natural Gas Segment for the six months ended June 30, 2020 was approximately $24.8 million, a decrease of approximately $15.1 million, or 38%, from approximately $39.9 million for the six months ended June 30, 2019. This decrease was due to decreased supply costs of $5.6 million, a decrease of $7.9 million related to decreased volumes, and a $1.6 million change in the fair value of our retail derivative portfolio used for hedging. Retail gross margin for the Retail Natural Gas Segment for the six months ended June 30, 2020 was approximately $34.1 million, a decrease of approximately $0.6 million, or 2%, from approximately $34.7 million for the six months ended June 30, 2019, as indicated in the table below (in millions). Change in volumes sold $ (6.7) Change in unit margin per MMBtu 6.1 Change in retail natural gas segment retail gross margin $ (0.6) 53 -------------------------------------------------------------------------------- Liquidity and Capital Resources Overview Our primary sources of liquidity are cash generated from operations and borrowings under our Senior Credit Facility. Our principal liquidity requirements are to meet our financial commitments, finance current operations, fund organic growth and/or acquisitions, service debt and pay dividends. Our liquidity requirements fluctuate with our level of customer acquisition costs, acquisitions, collateral posting requirements on our derivative instruments portfolio, distributions, the effects of the timing between the settlement of payables and receivables, including the effect of bad debts, weather conditions, and our general working capital needs for ongoing operations. We believe that cash generated from operations and our available liquidity sources will be sufficient to sustain current operations and to pay required taxes and quarterly cash distributions, including the quarterly dividends to the holders of the Class A common stock and the Series A Preferred Stock, for the next twelve months. Estimating our liquidity requirements is highly dependent on then-current market conditions, including impacts of the COVID-19 pandemic, weather events, forward prices for natural gas and electricity, market volatility and our then existing capital structure and requirements. We believe that the financing of any additional growth through acquisitions and/or the need for more liquidity in the remainder of 2020 may require further equity or debt financing and/or further expansion of our Senior Credit Facility. Liquidity Position The following table details our available liquidity as of June 30, 2020: ($ in thousands) June 30, 2020 Cash and cash equivalents $ 78,618 Senior Credit Facility Availability (1) (2) 82,630 Subordinated Debt Facility Availability (3) 25,000 Total Liquidity $ 186,248 (1) Reflects maximum cash availability or amount of Letters of Credit that could be issued based on existing covenants as of June 30, 2020. (2) The amendment and extension of the Senior Credit Facility on July 31, 2020 to $187.5 million, down from $217.5 million, will affect liquidity in future quarters. (3) The availability of the Subordinated Facility is dependent on our Founder's willingness and ability to lend. See "—Sources of Liquidity— Subordinated Debt Facility." Borrowings and related posting of letters of credit under our Senior Credit Facility are subject to material variations on a seasonal basis due to the timing of commodity purchases to satisfy natural gas inventory requirements and to meet customer demands during periods of peak usage. Additionally, borrowings are subject to borrowing base and covenant restrictions. For further discussion of our Senior Credit Facility and the Subordinated Debt Facility, see Note 9 "Debt." 54 -------------------------------------------------------------------------------- Cash Flows Our cash flows were as follows for the respective periods (in thousands): Six Months Ended June 30, 2020 2019 Change Net cash provided by operating activities $ 71,783 $ 51,029 $ 20,754 Net cash used in investing activities $ (579) $ (6,373) $ 5,794 Net cash used in financing activities $ (49,248) $ (65,714) $ 16,466 Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019 Cash Flows Provided by Operating Activities. Cash flows provided by operating activities for the six months ended June 30, 2020 increased by $20.8 million compared to the six months ended June 30, 2019. The increase was primarily the result of higher net income in 2020, and changes in working capital for the six months ended June 30, 2020. Cash Flows Used in Investing Activities. Cash flows used in investing activities decreased by $5.8 million for the six months ended June 30, 2020. The decrease was primarily the result of the amount paid for acquisitions during the six months ended June 30, 2019 with no corresponding acquisition payments during the six months ended June 30, 2020. Cash Flows Used in Financing Activities. Cash flows used in financing activities decreased by $16.5 million for the six months ended June 30, 2020. Cash flows used in financing activities decreased primarily due to a decrease in net paydown of our Senior Credit Facility of $22.5 million for the six months ended June 30, 2020 and a decrease of $2.0 million related to a Verde Promissory Note payments made during the six months ended June 30, 2019, which did not reoccur during the six months ended June 30, 2020. This was offset by an increase in distributions to non-controlling interest holders of $6.2 million and an increase in buyback of Series A Preferred Stock of $2.0 million through our repurchase program during the six months ended June 30, 2020. Sources of Liquidity and Capital Resources Senior Credit Facility As of June 30, 2020, we had total commitments of $217.5 million under the Senior Credit Facility, of which $135.0 million was outstanding, including $35.0 million of outstanding letters of credit, with a maturity date of May 19, 2021. On July 31, 2020, we entered into the Fourth Amendment, which, among other things, extended the maturity date of the Senior Credit Facility to July 31, 2022, and decreased the maximum borrowing capacity under the Senior Credit Facility to $187.5 million. The Fourth Amendment also revised the Fixed Charge Coverage Ratio, Maximum Total Leverage Ratio and Maximum Senior Secured Leverage Ratio (each as defined in the Senior Credit Facility), eliminated Bridge Loans, and provided for Share Buyback Loans of up to $80.0 million, which permit the Company to repurchase up to an aggregate of 8,000,000 shares of Class A common stock or $80.0 million of Series A Preferred Stock. Under the Senior Credit Facility, we have various limits on advances for Working Capital Loans, Letters of Credit Bridge Loans (prior to the Fourth Amendment) and Share Buyback Loans (following the Fourth Amendment). For a description of the terms and conditions of our Senior Credit Facility and the Fourth Amendment, including descriptions of the interest rate, commitment fee, covenants and terms of default, please see Note 9 "Debt" in the notes to our condensed consolidated financial statements. As of June 30, 2020, we were in compliance with the covenants under our Senior Credit Facility. Based upon existing covenants as of June 30, 2020, we had availability to borrow up to $82.6 million under the Senior Credit 55 -------------------------------------------------------------------------------- Facility. Giving effect to the Fourth Amendment, we would have availability to borrow up to $52.6 million as of June 30, 2020. Amended and Restated Subordinated Debt Facility Our Subordinated Debt Facility allows us to draw advances in increments of no less than $1.0 million per advance up to $25.0 million. Although we may use the Subordinated Debt Facility from time to time to enhance short term liquidity, we do not view the Subordinated Debt Facility as a material source of liquidity. See Note 9 "Debt" for additional details. As of June 30, 2020, there was zero outstanding borrowings under the Subordinated Debt Facility, and could borrow up to $25.0 million under the Subordinated Debt Facility, dependent on our Founder's willingness and ability to lend. Uses of Liquidity and Capital Resources Repayment of Current Portion of Senior Credit Facility Our Senior Credit Facility, as amended by the Fourth Amendment, matures in July 2022, and thus, no amounts are due currently. However, due to the revolving nature of the facility, excess cash available is generally used to reduce the balance outstanding, which at June 30, 2020 was $100.0 million. The current variable interest rate on the facility at June 30, 2020 was 3.43%. Customer Acquisitions Our customer acquisition strategy consists of customer growth obtained through organic customer additions as well as opportunistic acquisitions. During the three months ended June 30, 2020 and 2019, we spent a total of $0.2 million and $3.4 million, respectively, on organic customer acquisitions. Capital Expenditures Our capital requirements each year are relatively low and generally consist of minor purchases of equipment or information system upgrades and improvements. Capital expenditures for the six months ended June 30, 2020 and 2019 included $0.6 million and $0.5 million, respectively, related to information systems improvements. Dividends and Distributions During the six months ended June 30, 2020, we paid dividends to holders of our Class A common stock for the quarter ended December 31, 2019 and March 31, 2020 of approximately $0.18125 per share for each dividend declaration or $5.3 million in the aggregate. In order to pay our stated dividends to holders of our Class A common stock, our subsidiary, Spark HoldCo is required to make corresponding distributions to holders of its units, including those holders that own our Class B common stock (our non-controlling interest holder). As a result, during the six months ended June 30, 2020, Spark HoldCo made corresponding distributions of $7.5 million to our non-controlling interest holders. For the six months ended June 30, 2020, we paid $4.0 million related to dividends to holders of Series A Preferred Stock. As of June 30, 2020, we had accrued $2.0 million related to dividends to holders of our Series A Preferred Stock, which was paid on July 15, 2020. For the full year ended December 31, 2020, at the stated dividend rate of the Series A Preferred Stock of $2.1875 per share, we would be required to pay dividends of $7.8 million in the aggregate based on the Series A Preferred Stock outstanding as of June 30, 2020. On July 17, 2020, our Board of Directors declared a quarterly dividend of $0.18125 per share of the Class A common stock and $0.546875 for the Series A Preferred Stock for the second quarter of 2020. Dividends on Class A common stock will be paid on September 15, 2020 to the holders of record as of September 1, 2020, and Series A Preferred Stock dividends will be paid on October 15, 2020 to the holders of record as of October 1, 2020. 56 -------------------------------------------------------------------------------- Our ability to pay dividends in the future will depend on many factors, including potential impacts of COVID-19, the performance of our business and restrictions under our Senior Credit Facility. If our business does not generate sufficient cash for Spark HoldCo to make distributions to us to fund our Class A common stock and Series A Preferred Stock dividends, we may have to borrow to pay such amounts or temporarily suspend the dividends. Further, even if our business generates cash in excess of our current annual dividend (of $0.725 per share on our Class A common stock), we may reinvest such excess cash flows in our business and not increase the dividends payable to holders of our Class A common stock. Our future dividend policy is within the discretion of our Board of Directors and will depend upon the results of our operations, our financial condition, capital requirements and investment opportunities. Stock Repurchases We may use cash to repurchase shares of our capital stock. During the three months ended June 30, 2020, we repurchased 40,028 shares of Series A Preferred Stock at a weighted-average price of $26.49 per share (including shares purchased through the tender offer described above in “—Recent Developments”), for a total cost of approximately $1.0 million. Please see “Part II. Other Information – Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.” Collateral Posting Requirements Our contractual agreements with certain local regulated utilities and our supplier counterparties require us to maintain restricted cash balances or letters of credit as collateral for credit risk or the performance risk associated with the future delivery of natural gas or electricity. Due to the COVID-19 pandemic, certain local regulated utilities and our supplier counterparties have contacted us inquiring about our financial condition and the impact the pandemic is having on our operations. These inquiries may lead to additional requests for cash or letters of credit in an effort to mitigate the risk of default in paying our obligations related to the future delivery of natural gas or electricity. As of June 30, 2020, we have not been required to post additional collateral as a result of COVID-19. We have no way to predict what the local regulated utilities or our supplier counterparties may ask for in terms of additional collateral in the future, or how long any increased levels of collateral may endure. Please see “Item 1A—Risk Factors” in this Report. 57 -------------------------------------------------------------------------------- Off-Balance Sheet Arrangements As of June 30, 2020, we had no material "off-balance sheet arrangements." Related Party Transactions For a discussion of related party transactions, see Note 13 "Transactions with Affiliates" to Part I, Item 1 of this Report. Critical Accounting Policies and Estimates Our critical accounting policies and estimates are described in “Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our 2019 Form 10-K. There have been no changes to these policies and estimates since the date of our 2019 Form 10-K. Refer to Note 2 "Basis of Presentation and Summary of Significant Accounting Policies" to Part I, Item 1 of this Report for a discussion on recent accounting pronouncements. Contingencies In the ordinary course of business, we may become party to lawsuits, administrative proceedings and governmental investigations, including regulatory and other matters. Except as described in Note 12 "Commitments and Contingencies" to Part I, Item 1 of this Report, as of June 30, 2020, management did not believe that any of our outstanding lawsuits, administrative proceedings or investigations could result in a material adverse effect. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. For a discussion of the status of current legal and regulatory matters, see Note 12 "Commitments and Contingencies" to Part I, Item 1 of this Report. 58 -------------------------------------------------------------------------------- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risks relating to our operations result primarily from changes in commodity prices and interest rates, as well as counterparty credit risk. We employ established risk management policies and procedures to manage, measure, and limit our exposure to these risks. Commodity Price Risk We hedge and procure our energy requirements from various wholesale energy markets, including both physical and financial markets and through short and long-term contracts. Our financial results are largely dependent on the margin we are able to realize between the wholesale purchase price of natural gas and electricity plus related costs and the retail sales price we charge our customers for these commodities. We actively manage our commodity price risk by entering into various derivative or non-derivative instruments to hedge the variability in future cash flows from fixed-price forecasted sales and purchases of natural gas and electricity in connection with our retail energy operations. These instruments include forwards, futures, swaps, and option contracts traded on various exchanges, such as NYMEX and Intercontinental Exchange, or ICE, as well as over-the-counter markets. These contracts have varying terms and durations, which range from a few days to several years, depending on the instrument. We also utilize similar derivative contracts in connection with our asset optimization activities to attempt to generate incremental gross margin by effecting transactions in markets where we have a retail presence. Generally, any such instruments that are entered into to support our retail electricity and natural gas business are categorized as having been entered into for non-trading purposes, and instruments entered into for any other purpose are categorized as having been entered into for trading purposes. Our net gain (loss) on our non-trading derivative instruments, net of cash settlements, was $18.0 million and $(22.7) million for the three months ended June 30, 2020 and 2019, respectively and $10.1 million and $(34.4) million for the six months ended June 30, 2020 and 2019, respectively. We have adopted risk management policies to measure and limit market risk associated with our fixed-price portfolio and our hedging activities. For additional information regarding our commodity price risk and our risk management policies, see “Item 1A—Risk Factors” in our 2019 Form 10-K. We measure the commodity risk of our non-trading energy derivatives using a sensitivity analysis on our net open position. As of June 30, 2020, our Gas Non-Trading Fixed Price Open Position (hedges net of retail load) was a long position of 219,755 MMBtu. An increase of 10% in the market prices (NYMEX) from their June 30, 2020 levels would have increased the fair market value of our net non-trading energy portfolio by $0.1 million. Likewise, a decrease of 10% in the market prices (NYMEX) from their June 30, 2020 levels would have decreased the fair market value of our non-trading energy derivatives by $0.1 million. As of June 30, 2020, our Electricity Non-Trading Fixed Price Open Position (hedges net of retail load) was a short position of 88,138 MWhs. An increase of 10% in the forward market prices from their June 30, 2020 levels would have decreased the fair market value of our net non-trading energy portfolio by $0.5 million. Likewise, a decrease of 10% in the forward market prices from their June 30, 2020 levels would have increased the fair market value of our non-trading energy derivatives by $0.5 million. Credit Risk In many of the utility services territories where we conduct business, Purchase of Receivables ("POR programs") have been established, whereby the local regulated utility purchases our receivables, and becomes responsible for billing the customer and collecting payment from the customer. These POR programs results in substantially all of our credit risk being with the utility and not to our end-use customer in these territories. Approximately 64% and 66% of our retail revenues were derived from territories in which substantially all of our credit risk was with local regulated utility companies for the three months ended June 30, 2020 and 2019, respectively, and 64% and 67% for the six months ended June 30, 2020 and 2019, respectively all of which had investment grade ratings as of such date. 59 -------------------------------------------------------------------------------- We paid these local regulated utilities a weighted average discount of approximately 1.0% and 0.9%, for the three months ended June 30, 2020 and 2019, respectively, and 0.7% and 0.9% for the six months ended June 30, 2020 and 2019, respectively, of total revenues for customer credit risk protection. In certain of the POR markets in which we operate, the utilities limit their collections exposure by retaining the ability to transfer a delinquent account back to us for collection when collections are past due for a specified period. If our collection efforts are unsuccessful, we return the account to the local regulated utility for termination of service. Under these service programs, we are exposed to credit risk related to payment for services rendered during the time between when the customer is transferred to us by the local regulated utility and the time we return the customer to the utility for termination of service, which is generally one to two billing periods. We may also realize a loss on fixed-price customers in this scenario due to the fact that we will have already fully hedged the customer’s expected commodity usage for the life of the contract. In non-POR markets (and in POR markets where we may choose to direct bill our customers), we manage customer credit risk through formal credit review in the case of commercial customers, and credit score screening, deposits and disconnection for non-payment, in the case of residential customers. Economic conditions (including impacts from COVID-19) may affect our customers’ ability to pay bills in a timely manner, which could increase customer delinquencies and may lead to an increase in bad debt expense. Our bad debt expense for the three months ended June 30, 2020 and 2019 was approximately 1.5% and 3.6% of non-POR market retail revenues, respectively, and our bad debt expense for the six months ended June 30, 2020 and 2019 was approximately 2.5% and 4.4% of non-POR market retail revenues, respectively. See “Management's Discussion and Analysis of Financial Condition and Results of Operations—Drivers of Our Business—Customer Credit Risk” for an analysis of our bad debt expense related to non-POR markets during the six months ended June 30, 2020. The current COVID-19 pandemic has caused regulatory agencies and other governmental authorities to take, and potentially continue to take, emergency or other actions in light of the pandemic that may impact our customer credit risk, including prohibiting the termination of service for non-payment during the current COVID-19 pandemic, requiring deferred payment plans for certain customers unable to pay their bill, and utilities increasing POR fees they charge us in an effort to recoup their bad debts losses. Please see “Item 1A—Risk Factors” in this Report. We are exposed to wholesale counterparty credit risk in our retail and asset optimization activities. We manage this risk at a counterparty level and secure our exposure with collateral or guarantees when needed. At June 30, 2020, approximately $1.7 million of our total exposure of $3.1 million was either with a non-investment grade counterparty or otherwise not secured with collateral or a guarantee. The credit worthiness of the remaining exposure with other customers was evaluated with no material allowance recorded at June 30, 2020. Interest Rate Risk We are exposed to fluctuations in interest rates under our variable-price debt obligations. At June 30, 2020, we were co-borrowers under the Senior Credit Facility, under which $100.0 million of variable rate indebtedness was outstanding. Based on the average amount of our variable rate indebtedness outstanding during the three months ended June 30, 2020, a 1% increase in interest rates would have resulted in additional annual interest expense of approximately $1.0 million. 60 -------------------------------------------------------------------------------- ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of June 30, 2020 at the reasonable assurance level. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 61 -------------------------------------------------------------------------------- PART II. OTHER INFORMATION Item 1. Legal Proceedings. See Note 12 "Commitments and Contingencies" to Part I, Item 1 of this Report, which is incorporated by reference into this Part II, Item 1, for a description of certain ligation, legal proceedings, and regulatory matters. Item 1A. Risk Factors. Security holders and potential investors in our securities should carefully consider the risk factors under "Item 1A— Risk Factors" in our 2019 Form 10-K and in our Form 10-Q for the quarter ended March 31, 2020. There has been no material change in our risk factors from those described in the 2019 Form 10-K, except as described below. The COVID-19 pandemic could increase the significance of the risks previously disclosed in our 2019 Form 10-K. Our description of risks are not the sole risks for investors. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations. We face risks related to health epidemics, pandemics and other outbreaks, including COVID-19. The recent outbreak of COVID-19 is a rapidly developing situation around the globe that has adversely impacted economic activity and conditions worldwide. In particular, efforts to control the spread of COVID-19 have led to governmental shutdowns, business closures, and disruptions to supply chains and consumer behaviors around the world. The ultimate extent of such impact on our operations is unknown at this time. We are continuing to monitor developments involving our workforce, customers and suppliers and cannot predict whether COVID-19 will have a material impact on our business, financial condition or results of operations. However, an extended slowdown of the United States' economic growth, demand for commodities and/or material changes in governmental policy could result in lower economic growth and lower demand for natural gas and electricity in our key markets as well as the ability of various employees, customers, contractors, suppliers and other business partners to fulfill their obligations, which could have a material adverse effect on our business, financial condition or results of operations. We are subject to direct credit risk for certain customers who may fail to pay their bills as they become due. We bear direct credit risk related to customers located in markets that have not implemented POR programs as well as indirect credit risk in those POR markets that pass collection efforts along to us after a specified non-payment period. As of June 30, 2020, customers in non-POR markets represented approximately 36% of our retail revenues. We generally have the ability to terminate contracts with customers in the event of non-payment, but in most states in which we operate we cannot disconnect their natural gas or electricity service. In POR markets where the local regulated utility has the ability to return non-paying customers to us after specified periods, we may realize a loss for several billing periods until we can terminate these customers’ contracts. We may also realize a loss on fixed-price customers in this scenario due to the fact that we will have already fully hedged the customer’s expected commodity usage for the life of the contract and we also remain liable to our suppliers of natural gas and electricity for the cost of our supply commodities. Furthermore, in the Texas market, we are responsible for billing the distribution charges for the local regulated utility and are at risk for these charges, in addition to the cost of the commodity, in the event customers fail to pay their bills. Changing economic factors, such as rising unemployment rates and energy prices also result in a higher risk of customers being unable to pay their bills when due. In addition, the current COVID-19 pandemic has caused regulatory agencies and other governmental authorities to take, and potentially continue to take, emergency or other actions in light of the pandemic that may impact us, including prohibiting the termination of service for non-payment during the current COVID-19 pandemic, requiring deferred payment plans for certain customers unable to pay their bill, and utilities increasing POR fees they charge us in an effort to recoup their bad debts losses. Because of the time lag between the delivery of electricity and natural gas, the issuance of an invoice, and the customer’s payment due date, there may be a substantial lag in time 62 -------------------------------------------------------------------------------- before we are able to determine specific trends in bad debt expense as a result of COVID-19. These actions taken by regulatory agencies and governmental authorities may impact our financial results, cash flow and liquidity and the duration of these changes are unknown. At this time, we are unable to predict the impact that this or other related events may have on our collection efforts due to non-payment. Our financial results may be adversely impacted by weather conditions; changes in consumer demand. Weather conditions directly influence the demand for and availability of natural gas and electricity and affect the prices of energy commodities. Generally, on most utility systems, demand for natural gas peaks in the winter and demand for electricity peaks in the summer. Typically, when winters are warmer or summers are cooler, demand for energy is lower than expected, resulting in less natural gas and electricity consumption than forecasted. When demand is below anticipated levels due to weather patterns, we may be forced to sell excess supply at prices below our acquisition cost, which could result in reduced margins or even losses. Conversely, when winters are colder or summers are warmer, consumption may outpace the volumes of natural gas and electricity against which we have hedged, and we may be unable to meet increased demand with storage or swing supply. In these circumstances, we may experience reduced margins or even losses if we are required to purchase additional supply at higher prices. We may fail to accurately anticipate demand due to fluctuations in weather or to effectively manage our supply in response to a fluctuating commodity price environment. As a result of the COVID-19 pandemic, we experienced slight increases in residential demand, and slight decreases in C&I demand. As a result of the COVID-19 pandemic, we may experience changes in customer demand in future periods that we cannot fully anticipate. While not weather related, these changes in demand may lead us to experience financial gains and/or losses in much the same fashion as a weather event as the current circumstances make it more difficult to accurately predict demand. While we continue to conduct analytics on our customer base to anticipate these changes in demand, we cannot predict how the COVID-19 pandemic will ultimately impact our hedging strategy with regard to our load forecasts. Our access to marketing channels may be contingent upon the viability of our telemarketing and door-to-door agreements with our vendors. Our vendors are essential to our telemarketing and door-to-door sales activities. Our ability to increase revenues in the future will depend significantly on our access to high quality vendors. If we are unable to attract new vendors and retain existing vendors to achieve our marketing targets, our growth may be materially reduced. There can be no assurance that competitive conditions will allow these vendors and their independent contractors to continue to successfully sign up new customers. Further, if our products are not attractive to, or do not generate sufficient revenue for our vendors, we may lose our existing relationships. In addition, the decline in landlines reduces the number of potential customers that may be reached by our telemarketing efforts and as a result our telemarketing sales channel may become less viable and we may be required to use more door-to-door marketing. Door-to-door marketing is continually under scrutiny by state regulators and legislators, which may lead to new rules and regulations that impact our ability to use these channels. Due to the COVID-19 pandemic, certain Public Utility Commissions, regulatory agencies, and other governmental authorities in all of our markets have issued orders prohibiting energy services companies from door-to-door marketing, and in some cases telemarketing, during the pandemic, which has restricted some of the manners we use to market for organic sales. In March 2020, the Company ceased door-to-door marketing activities in all markets regardless of states' regulations. During the three months ended June 30, 2020, we added approximately 8,000 RCEs through organic web sales and telemarketing activities. This amount was significantly lower than historical periods due to the marketing limitations discussed above, as well as an active decision to slow sales activities as we focus our efforts to improve our organic sales channels, including vendor selections and sales quality. As most markets continue to enforce a ban on door-to-door activities, and we are focused on rebuilding our sales infrastructure, we do not anticipate any large scale door- 63 -------------------------------------------------------------------------------- to-door campaigns until late fourth quarter of 2020, but we will continue to market in the manners that are permitted. Although we expect to acquire less customers organically in future periods than we have historically while marketing restrictions are in place, which may cause our customer book to decrease, we are unable to predict the ultimate effect on our organic sales, financial results, cash flows, and liquidity at this time. Any increased collateral requirements in connection with our supply activities may restrict our liquidity. Our contractual agreements with certain local regulated utilities and our supplier counterparties require us to maintain restricted cash balances or letters of credit as collateral for credit risk or the performance risk associated with the future delivery of natural gas or electricity. These collateral requirements may increase as we grow our customer base. Collateral requirements will increase based on the volume or cost of the commodity we purchase in any given month and the amount of capacity or service contracted for with the local regulated utility. Significant changes in market prices also can result in fluctuations in the collateral that local regulated utilities or suppliers require. In addition, due to the COVID-19 pandemic, certain local regulated utilities and our supplier counterparties have contacted us inquiring about our financial condition and the impact the pandemic is having on our operations. These inquiries may lead to additional requests for cash or letters of credit in an effort to mitigate the risk of default in paying our obligations related to the future delivery of natural gas or electricity. As of June 30, 2020, we have not been required to post additional collateral as a result of COVID-19. We have no way to predict what the local regulated utilities or our supplier counterparties may ask for in terms of additional collateral in the future or how long any increased levels of collateral may endure. The effectiveness of our operations and future growth depend in part on the amount of cash and letters of credit available to enter into or maintain these contracts. The cost of these arrangements may be affected by changes in credit markets, such as interest rate spreads in the cost of financing between different levels of credit ratings. Although we currently have ample liquidity to address any increased collateral requirements, these liquidity requirements may be greater than we anticipate or are able to meet. Pursuant to our cash dividend policy, we distribute a portion of our cash through regular quarterly dividends on our Class A common stock and Series A Preferred Stock, and our ability to grow and make acquisitions with cash on hand could be limited. Pursuant to our cash dividend policy, we have historically distributed and intend in the future to distribute, a portion of our cash through regular quarterly dividends to holders of our Class A common stock and dividends on our Series A Preferred Stock. As such, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations, and we may have to rely upon external financing sources, including the issuance of debt, equity securities, convertible subordinated notes and borrowings under our Senior Credit Facility and Subordinated Facility. These sources may not be available, and our ability to grow and maintain our business may be limited. Due to the COVID-19 pandemic, we may have liquidity needs that would prevent us from continuing our historical practice as it relates to the payment of dividends on our Class A common stock and Series A Preferred Stock. The primary factors that would lead to a change in the dividend policy would be decreased liquidity due to a decreasing customer book, bad debt associated with the policies adopted by state and regulatory authorities, and increased collateral requirements from suppliers. At this time, we cannot predict the impact the pandemic will have on our ability to continue to pay shareholder dividends. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. There were no unregistered sales of equity securities during the three months ended June 30, 2020. 64 -------------------------------------------------------------------------------- The following table sets forth information regarding purchases of our Series A Preferred Stock by us during the three months ended June 30, 2020 pursuant to our Repurchase Program and tender offer. (d) Maximum Number (or (c) Total Number of Approximate Dollar Shares Purchased as Value) of Shares that Part of Publicly May Yet Be Purchased (a) Total Number of (b) Average Price Announced Plans or Under the Plans or Period Shares Purchased Paid per Share Programs (1)(2) Programs April 1 - April 30, 2020 — $ — — — May 1 - May 31, 2020 — — — — June 1 - June 30, 2020 40,028 26.49 40,028 (3) — Total 40,028 $ 26.49 40,028 (3) — (1) On May 22, 2019, the Company announced that the Board of Directors authorized the Repurchase Program to purchase shares of Series A Preferred Stock through May 20, 2020. On November 8, 2019, the Repurchase Program was amended and extended through December 31, 2020. There is no dollar limit on the amount of Series A Preferred Stock that may be purchased. The Repurchase Program does not obligate us to make any repurchases and may be suspended for periods or discontinued at any time. (2) In May 2020, we initiated a tender offer to purchase up to 1,000,000 shares of our Series A Preferred Stock. In June 2020, we accepted for purchase 36,827 shares of Series A Preferred Stock at a purchase price of $22.00 per share, for an aggregate purchase price of approximately $0.8 million. (3) Represents 36,827 shares of Series A Preferred Stock repurchased through the tender offer, and 3,201 shares repurchased through our Repurchase Program. Item 5. Other Information. On July 31, 2020, we entered into the Fourth Amendment to our Senior Credit Facility, which, among other things, extended the maturity date of our Senior Credit Facility to July 31, 2022, and decreased the maximum borrowing capacity under the Senior Credit Facility to $187.5 million. The Fourth Amendment also revised the Fixed Charge Coverage Ratio, Maximum Total Leverage Ratio and Maximum Senior Secured Leverage Ratio (each as defined in the Senior Credit Facility), eliminated Bridge Loans, and provided for Share Buyback Loans of up to $80.0 million, which permit the Company to repurchase up to an aggregate of 8.0 million shares of Class A common stock or $80.0 million of Series A Preferred Stock. Refer to Note 9 "Debt" to Part I, Item 1 of this Report for discussion of the material terms of our Senior Credit Facility, as amended by the Fourth Amendment. A copy of the Fourth Amendment is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated by reference in this Item 5. The description above is a summary of the Fourth Amendment and is qualified in its entirety by the complete text of the Fourth Amendment. 65 -------------------------------------------------------------------------------- Item 6. Exhibits The exhibits required to be filed by Item 6 are set forth in the Exhibit Index included below. 66 -------------------------------------------------------------------------------- INDEX TO EXHIBITS Incorporated by Reference SEC File Exhibit Exhibit Description Form Exhibit Number Filing Date No. Membership Interest Purchase Agreement, by 2.1# and among Spark Energy, Inc., Spark HoldCo, 10-Q 2.1 5/5/2016 001-36559 LLC, Provider Power, LLC, Kevin B. Dean and Emile L. Clavet, dated as of May 3, 2016. Membership Interest Purchase Agreement, by 2.2# and among Spark Energy, Inc., Spark HoldCo, 10-Q 2.2 5/5/2016 001-36559 LLC, Retailco, LLC and National Gas & Electric, LLC, dated as of May 3, 2016. Amendment No. 1 to the Membership Interest Purchase Agreement, dated as of July 26, 2016, 2.3# by and among Spark Energy, Inc., Spark HoldCo, 8-K 2.1 8/1/2016 001-36559 LLC, Provider Power, LLC, Kevin B. Dean and Emile L. Clavet. Membership Interest and Stock Purchase 2.4# Agreement, by and among Spark Energy, Inc., 10-Q 2.4 5/8/2017 001-36559 CenStar Energy Corp. and Verde Energy USA Holdings, LLC, dated as of May 5, 2017. First Amendment to the Membership Interest and Stock Purchase Agreement, dated July 1, 2.5 2017, by and among Spark Energy, Inc., CenStar 8-K 2.1 7/6/2017 001-36559 Energy Corp., and Verde Energy USA Holdings, LLC. Agreement to Terminate Earnout Payments, effective January 12, 2018, by and among Spark 2.6# Energy, Inc., CenStar Energy Corp., Woden 8-K 2.1 1/16/2018 001-36559 Holdings, LLC (fka Verde Energy USA Holdings, LLC), Verde Energy USA, Inc., Thomas FitzGerald, and Anthony Menchaca. Asset Purchase Agreement, dated March 7, 2.7# 2018, by and between Spark HoldCo, LLC and 10-K 2.7 3/9/2018 001-36559 National Gas & Electric, LLC. Asset Purchase Agreement, by and between 2.8# Spark HoldCo, LLC, Starion Energy Inc., 8-K 2.1 10/25/2018 001-36559 Starion Energy NY Inc., and Starion Energy PA Inc., dated October 19, 2018. First Amendment to Asset Purchase Agreement, by and between Spark HoldCo, LLC, Starion 2.9* Energy Inc., Starion Energy NY Inc., and Starion Energy PA, Inc., effective May 1, 2020. 3.1 Amended and Restated Certificate of 8-K 3.1 8/4/2014 001-36559 Incorporation of Spark Energy, Inc. 3.2 Amended and Restated Bylaws of Spark Energy, 8-K 3.2 8/4/2014 001-36559 Inc. Certificate of Designations of Rights and 3.3 Preferences of 8.75% Series A 8-A 5 3/14/2017 001-36559 Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock 4.1 Class A Common Stock Certificate S-1 4.1 6/30/2014 333-196375 Amendment No. 4 to the Credit Agreement, dated as of July 31, 2020, by and among Spark 10.1#* Energy, Inc., the Co-Borrowers, the Issuing Banks party thereto, Cooperatieve Rabobank U.A., New York Branch, as agent, and the Banks party thereto. 10.2*† Form of Restricted Stock Unit Agreement (Second A&R LTIP) 10.3*† Form of Notice of Grant of Restricted Stock Unit (Second A&R LTIP) 67 -------------------------------------------------------------------------------- Certification of Chief Executive Officer 31.1* pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Certification of Chief Financial Officer 31.2* pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. 32** Certifications pursuant to 18 U.S.C. Section 1350. XBRL Instance Document – the instance document 101.INS* does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS) * Filed herewith ** Furnished herewith # Certain schedules, exhibits and annexes have been omitted in reliance on Item 601 (a)(5) of Regulation S-K, the registrant agrees to furnish supplementally a copy of any omitted schedule, exhibit or annex to the Commission upon request † Compensatory plan or arrangement SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Spark Energy, Inc. August 5, 2020 /s/ James G. Jones II James G. Jones II Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 68 EX-2.9 2 exhibit29-firstamendme.htm EX-2.9 Exhibit 2.9 FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT [[Image Removed: image01.jpg]] This First Amendment to Asset Purchase Agreement (this “Amendment”), effective as of the 1st day of May, 2020 (the “Effective Date”), is by and among Spark Holdco, LLC, a Delaware limited liability company; Starion Energy Inc., a Delaware corporation; Starion Energy NY Inc., a Delaware corporation; Starion Energy PA Inc., a Delaware corporation; Robert Zappone; Dashmir Murtishi; Fitor Mamudi; Floresha Dauti; and Ruzhdi Dauti. RECITALS: WHEREAS, the parties have entered into that certain Asset Purchase Agreement, dated as of October 19, 2018 (the “Purchase Agreement”); WHEREAS, the parties desire to amend the Purchase Agreement as set forth in this Amendment, to take effect as of the Effective Date; and WHEREAS, this Amendment is duly made by the parties pursuant to Section 9.3 of the Purchase Agreement. NOW, THEREFORE, in consideration of the mutual promises and undertakings described herein and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: 1.Capitalized Terms. Except as otherwise may be expressly set forth herein, all capitalized terms used in this Amendment shall have the same meaning assigned to them in the Purchase Agreement. 2.Amendment to the Purchase Agreement. The second sentence of Section 2.6(b)(ii) of the Purchase Agreement is hereby amended and restated in its entirety to read as follows: “Subject to Section 2.6(c), following June 1, 2020, the remaining balance of the Holdback Escrow Funds, after deduction of outstanding amounts for pending Non-Solicitation Claim Adjustments and for claims by Purchaser under ARTICLE VII, shall be released to Seller.” 3.Continuing Effect of Purchase Agreement. Except as expressly modified herein, the Purchase Agreement is neither amended nor modified by this Amendment. Except as expressly modified herein, all of the terms, conditions, covenants, representations, warranties and all other provisions of the Purchase Agreement are herein ratified and confirmed and shall remain in full force and effect. From and after the effectiveness of this Amendment, the terms “this Agreement,” “hereof,” “herein,” “hereunder” and terms of like import, when used herein or in the Purchase Agreement shall, except where the context otherwise requires, refer to the Purchase Agreement as amended by this Amendment. 4.General Provisions. The provisions of ARTICLE IX of the Purchase Agreement shall apply to this Amendment, mutatis mutandis. {N4007049.3}| -------------------------------------------------------------------------------- [Remainder of Page Intentionally Left Blank] 2 {N4007049.3}| -------------------------------------------------------------------------------- IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the parties to be effective as of the Effective Date. PURCHASER: SPARK HOLDCO, LLC By: /s/ Kevin M. McMinn Name: Kevin M. McMinn Title: Chief Operating Officer SELLER: STARION ENERGY INC. By: /s/ Ruzhdi Dauti Name: Ruzhdi Dauti Title: President STARION ENERGY NY INC. By: /s/ Ruzhdi Dauti Name: Ruzhdi Dauti Title: President STARION ENERGY PA INC. By: /s/ Ruzhdi Dauti Name: Ruzhdi Dauti Title: President [Signatures Continue on the Following Page] SHAREHOLDERS: /s/ Robert Zappone [Signature Page to First Amendment to APA] {N4007049.3}| -------------------------------------------------------------------------------- Robert Zappone, individually /s/ Dashmir Murtishi Dashmir Murtishi, individually /s/ Fitor Mamudi Fitor Mamudi, individually /s/ Florisha Dauti Floresha Dauti, individually /s/ Ruzhdi Dauti Ruzhdi Dauti, individually [Signature Page to First Amendment to APA] {N4007049.3} EX-10.1 3 exhibit101-amendmentno.htm EX-10.1 [Execution Form] AMENDMENT NO. 4 THIS AMENDMENT NO. 4 (this “Amendment”), entered into on, and effective as of July 31, 2020 (the “Effective Date”), is made by and among SPARK HOLDCO, LLC (“HoldCo”), a Delaware limited liability company, SPARK ENERGY, LLC (“Spark”), a Texas limited liability company, SPARK ENERGY GAS, LLC (“SEG”), a Texas limited liability company, CENSTAR ENERGY CORP., a New York corporation (“CenStar”), CENSTAR OPERATING COMPANY, LLC, a Texas limited liability company (“Censtar Opco”), OASIS POWER, LLC, a Texas limited liability company (“Oasis”), OASIS POWER HOLDINGS, LLC, a Texas limited liability company (“Oasis Holdings”), ELECTRICITY MAINE, LLC, a Maine limited liability company (“Maine”), ELECTRICITY N.H., LLC, a Maine limited liability company (“NH”), PROVIDER POWER MASS, LLC, a Maine limited liability company (“Mass”), MAJOR ENERGY SERVICES LLC, a New York limited liability company (“Major”), MAJOR ENERGY ELECTRIC SERVICES LLC, a New York limited liability company (“Electric”), RESPOND POWER LLC, a New York limited liability company (“Respond”), PERIGEE ENERGY, LLC, a Texas limited liability company (“Perigee”), VERDE ENERGY USA, INC., a Delaware corporation (“Verde Inc.”), VERDE ENERGY USA COMMODITIES, LLC, a Delaware limited liability company (“Verde Commodities”), VERDE ENERGY USA CONNECTICUT, LLC, a Delaware limited liability company (“Verde Connecticut”), VERDE ENERGY USA DC, LLC, a Delaware limited liability company (“Verde DC”), VERDE ENERGY USA ILLINOIS, LLC, a Delaware limited liability company (“Verde Illinois”), VERDE ENERGY USA MARYLAND, LLC, a Delaware limited liability company (“Verde Maryland”), VERDE ENERGY USA MASSACHUSETTS, LLC, a Delaware limited liability company (“Verde Massachusetts”), VERDE ENERGY USA NEW JERSEY, LLC, a Delaware limited liability company (“Verde New Jersey”), VERDE ENERGY USA NEW YORK, LLC, a Delaware limited liability company (“Verde New York”), VERDE ENERGY USA OHIO, LLC, a Delaware limited liability company (“Verde Ohio”), VERDE ENERGY USA PENNSYLVANIA, LLC, a Delaware limited liability company (“Verde Pennsylvania”), VERDE ENERGY USA TEXAS HOLDINGS, LLC, a Delaware limited liability company (“Verde Texas Holdings”), VERDE ENERGY USA TRADING, LLC, a Delaware limited liability company (“Verde Trading”), VERDE ENERGY SOLUTIONS, LLC, a Delaware limited liability company (“Verde Solutions”), VERDE ENERGY USA TEXAS, LLC, a Texas limited liability company (fka Potentia Energy, LLC) (“Verde Texas”), and HIKO ENERGY, LLC, a New York limited liability company (“Hiko”) (jointly, severally and together, the “Co-Borrowers,” and each individually, a “Co-Borrower”), SPARK ENERGY, INC. (“Parent”), a Delaware corporation, the Issuing Banks, COÖPERATIEVE RABOBANK U.A., NEW YORK BRANCH, as Agent, and each financial institution which is a party hereto (collectively, the “Banks”). Capitalized terms used herein but not defined herein shall have the meanings specified by the Credit Agreement referred to below. W I T N E S S E T H: -1- 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- WHEREAS, the Co-Borrowers, the Parent, the Agent, and the Banks have entered into the Credit Agreement dated as of May 19, 2017 (as amended, restated, supplemented or otherwise modified from time to time prior to the effectiveness of this Amendment, the “Existing Credit Agreement”; and after giving effect to this Amendment, the “Credit Agreement”); WHEREAS, the Increasing Banks (as defined in Section 4 below) desire to increase their Commitments (under the Existing Credit Agreement) as set forth herein, the Departing Banks (as defined in Section 4 below) desire to exit the Existing Credit Agreement as set forth herein and the New Bank (as defined in Section 4 below) desires to become a Bank under the Credit Agreement; and WHEREAS, the parties hereto have agreed to make certain amendments to the Existing Credit Agreement as provided for herein. NOW THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein and for other good and valuable consideration, the parties hereto agree as follows: SECTION 1.Amendments. Effective on the occurrence of the Effective Date (as defined below), the Existing Credit Agreement is hereby amended as follows: 1.the Existing Credit Agreement (excluding the Exhibits and Schedules thereto, which (except as set forth in clauses (b) through (j) below) shall continue to be the Schedules and Exhibits under the Credit Agreement) is amended to delete the stricken text (indicated textually in the same manner as the following example: stricken text) and to add the double-underlined text (indicated textually in the same manner as the following example: double-underlined text) as set forth in the pages of the Credit Agreement attached as Annex I hereto. 2.Schedule 2.01 is deleted and replaced as set forth on Annex II hereto. 3.Exhibit A-1 is deleted and replaced as set forth on Annex III hereto. 4.Exhibit B is deleted and replaced with Exhibit B-1 as set forth on Annex IV hereto. 5.Exhibit B-2 is inserted after Exhibit B-1 as set forth on Annex V hereto. 6.Exhibit D is amended by (x) deleting “II. TOTAL COMMITMENT: $________” and replacing it with “II. THE AGGREGATE WORKING CAPITAL COMMITMENTS” and (y) deleting in footnote 2 therein “total Commitments” and replacing it with “the aggregate Working Capital Commitments”. 7.Exhibit E is amended by deleting footnote 3 therein. 8.Exhibit G is deleted and replaced as set forth on Annex VI hereto. 9.Exhibit H is deleted and replaced as set forth on Annex VII hereto. -2- 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- 10.Exhibit I is deleted and replaced as set forth on Annex VIII hereto. SECTION 2.Conditions to Effectiveness. This Amendment shall be effective as of the Effective Date upon the satisfaction of the following conditions precedent: 1.Documentation. i.The Agent shall have received counterparts hereof duly executed by the Loan Parties, the Agent, the Issuing Banks, and the Banks (including, without limitation, the New Bank and the Departing Banks). ii.The Agent shall have received copies of the resolutions of each Loan Party authorizing the transactions contemplated hereby, certified as of the Effective Date by a Responsible Officer of such Loan Party. iii.The Agent shall have received a certificate of a Responsible Officer of each Loan Party certifying the names and true signatures of any Responsible Officers of such Loan Party who are authorized to act on behalf of each Loan Party. iv.The Agent shall have received (a) the certificate of incorporation, certificate of formation, or certificate of limited partnership, as applicable, of each Loan Party as in effect on the Effective Date, each certified by the Secretary of State of each such Person’s state of organization (or a certification by a Responsible Officer of such Loan Party (in form and substance satisfactory to the Agent) that such certificate of incorporation, certificate of formation, or certificate of limited partnership, as applicable, has not been amended since the previous delivery thereof to the Agent and remains in full force and effect), (b) the bylaws, regulations, operating agreement or partnership agreement, as applicable, of each Loan Party, each certified by a Responsible Officer of such Loan Party as a true and correct copy thereof as of the Effective Date (or a certification by a Responsible Officer of such Loan Party (in form and substance satisfactory to the Agent) that such bylaws, regulations, operating agreement or partnership agreement, as applicable, has (or have) not been amended since the previous delivery thereof to the Agent and remain (or remains) in full force and effect), and (c) evidence satisfactory to the Agent, that each Loan Party is in good standing under the laws of its state of organization. v.The Agent shall have received such legal opinions of counsel to the Parent and Co-Borrowers as the Banks shall request. vi.The Agent shall have received Notes (as defined in the Credit Agreement (after giving effect to this Amendment)) duly executed by the Co-Borrowers, for those Banks (including, without limitation, the New Bank) which shall have requested the same prior to the date hereof. vii.The Agent shall have received (x) the Subordinated Creditor Consent (in the form of Annex IX hereto) duly executed by Retailco and (y) written evidence (in form and -3- 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- substance satisfactory to the Agent that the maturity of the Subordinated Debt owing to Retailco has been extended in a manner compliant with clause (a) of the definition thereof. viii.The Agent shall have received all documentation and other information requested by the Agent, any Issuing Bank, or any Bank that is required by regulatory authorities under applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the USA Patriot Act. 2.Fees and Expenses. The Agent shall have received evidence of payment by the Co-Borrowers of all fees, costs and expenses to the extent then due and payable on or prior to the Effective Date (including, without limitation, such fees pursuant to Section 4(d) below), together with Attorney Costs. SECTION 3.Representations and Warranties. Each of the Co-Borrowers hereby represents and warrants that after giving effect hereto: i.The execution, delivery and performance by each Loan Party of this Amendment have been duly authorized by all necessary corporate or limited liability company action, as applicable, and do not and will not contravene, conflict with or result in any breach or contravention of, or the creation of any Lien under any of such Loan Party’s organizational and governing documents, or any document evidencing any contractual obligation to which such Loan Party is a party or any order, injunction, writ or decree of any Governmental Authority to which such Loan Party or its property is subject or any Requirement of Law, to the extent any such contravention, conflict or breach has or could reasonably be expected to have a Material Adverse Effect on the Loan Parties, taken as a whole. ii.The representations and warranties of the Loan Parties contained in the Loan Documents are true and correct in all material respects (except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which representation and warranty shall be true and correct in all respects) on and as of the Effective Date (except to the extent such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date) and after giving effect to this Amendment. iii.No event has occurred and is continuing which constitutes a Default, an Event or Default or both. SECTION 4.Departing Banks; New Bank; Increasing Banks; Reallocation. (a) On the Effective Date (immediately prior to giving effect to this Amendment (and for the avoidance of doubt, each of the parties hereto acknowledges that neither of the Departing Banks (as defined below) shall be deemed to have consented to any of the amendments to the Existing Credit Agreement set forth in Section 1 hereof, and such amendments shall not become effective until the requirements of this Section 4 have been satisfied)), the Co-Borrowers shall repay in full all outstanding Loans and other Obligations (including, without limitation, any amounts payable under Section 4.03 of the Existing Credit Agreement in connection with such repayment) owing -4- 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- to Hancock Whitney Bank (“Hancock Whitney” and a “Departing Bank”), HSBC Bank USA, N.A. (“HSBC” and a “Departing Bank”) and Credit Agricole Corporate & Investment Bank (“Credit Agricole”, a “Departing Bank” and, together with Hancock Whitney and HSBC, the “Departing Banks”), and upon such repayment, each Departing Bank shall cease to be a Bank, the Departing Banks’ Commitments shall terminate and each Departing Bank’s rights and obligations under the Loan Documents shall terminate except for any such rights under Sections 4.01, 4.02, 4.03 and 10.05 of the Existing Credit Agreement and any other rights that expressly survive such termination. i.All payments made under clause (a) above shall be retained solely by the applicable Departing Bank and shall not be subject to the pro rata sharing provisions set forth in the Loan Documents. ii.Each of the undersigned Banks party to the Existing Credit Agreement which has a Commitment (immediately before giving effect to this Amendment) which is less than the amount of its Working Capital Commitment (immediately after giving effect to this Amendment) (each, an “Increasing Bank”) and BancorpSouth Bank (the “New Bank”), has each agreed to increase its Commitments (in effect immediately before giving effect to this Amendment) to the amount of (or make, as applicable) its Working Capital Commitment (immediately after giving effect to this Amendment) as governed by the Credit Agreement on the terms and subject to the conditions set forth therein and in this Amendment. Effective upon the Effective Date (as defined in Section 2 above), the Working Capital Commitment for each Bank (including, without limitation, the New Bank) shall be as set forth on Annex II to this Amendment, notwithstanding anything to the contrary set forth in the Credit Agreement or any other Loan Document. Each of the Banks (including, without limitation, the New Bank) hereby agrees as follows: ix.Each Increasing Bank shall pay to the Agent on the Effective Date, in immediately available funds, an amount equal to the amount, if any, by which such Increasing Bank’s Credit Percentage (determined after giving effect to this Amendment) of the aggregate principal amount of the Working Capital Loans to be outstanding immediately upon the Effective Date exceeds the aggregate principal amount of Loans owing to such Increasing Bank immediately prior to the Effective Date. Such amount paid by any such Increasing Bank shall be deemed the purchase price for the acquisition by such Increasing Bank of such additional amount of Loans from Banks (other than the Departing Banks) whose Working Capital Commitments (after giving effect to this Amendment) are not greater than their Commitments (immediately before giving effect to this Amendment) (the “Non-Increasing Banks”) and, if applicable, other Banks. The Agent shall distribute such amounts as received from the Increasing Banks as may be necessary so that the Working Capital Loans are held by the Banks (including, without limitation, the New Bank) in accordance with their respective Credit Percentages (determined after giving effect to this Amendment). -5- 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- x.The New Bank shall pay to the Agent on the Effective Date, in immediately available funds, an amount equal to the amount of the New Bank’s Credit Percentage (determined after giving effect to this Amendment) of the aggregate principal amount of the Loans to be outstanding immediately upon the Effective Date. Such amount paid by the New Bank shall be deemed the purchase price for the acquisition by the New Bank of such amount of Loans from Non-Increasing Banks and, if applicable, other Banks upon the effectiveness of this Amendment. The Agent shall distribute such amounts as received from the New Bank as may be necessary so that the Loans are held by the Banks (including, without limitation, the New Bank) in accordance with their respective Credit Percentages (determined after giving effect to this Amendment). xi.Each Bank which receives a payment in connection with clause (i) or (ii) above (each, a “Selling Bank”) shall be deemed to have sold and assigned, without recourse to such Selling Bank, to the applicable Increasing Banks and or the New Bank (each, a “Purchasing Bank”), and such Purchasing Banks shall be deemed to have purchased and assumed without recourse to the Selling Banks, Working Capital Loans in amounts such that after giving effect thereto each Bank shall hold Working Capital Loans in accordance with its Credit Percentage (determined after giving effect to this Amendment). 1.(i) From and after the Effective Date, the New Bank shall be a party to the Credit Agreement and have the rights and obligations of a Bank under the Credit Agreement and under the other Loan Documents and shall be bound by the provisions thereof. (ii) The New Bank shall hold an undivided interest in and to (A) all the rights and obligations of a Bank under the Credit Agreement in connection with its new Commitments and (B) all rights and obligations of a Bank in connection therewith under the other Loan Documents. In addition to its Working Capital Commitment, the New Bank shall have a Share Buyback DDTL Commitment in the amount set forth on Annex II hereto. 2.(i) The New Bank acknowledges and agrees that no Bank party to the Existing Credit Agreement (including, without limitation, the Departing Banks) (A) has made any representation or warranty or shall have any responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Documents or any other instrument or document furnished pursuant thereto or in connection therewith or (B) has made any representation or warranty or has any responsibility with respect to the financial condition of the Co-Borrowers or any other obligor or the performance or observance by the Co-Borrowers or any obligor of any of their respective obligations under the Credit Agreement or any other Loan Documents or any other instrument or document furnished pursuant hereto or thereto. -6- 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- (ii) The New Bank (A) represents and warrants that it is legally authorized to enter into this Amendment, (B) confirms that it has received a copy of the Existing Credit Agreement, together with copies of the financial statements delivered pursuant to section 7.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Amendment, (C) agrees that it will, independently and without reliance upon the other Banks or the Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto or in connection herewith or therewith, (D) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Agent by the terms thereof, (E) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank including, if it is organized under the laws of a jurisdiction outside the United States, its obligations pursuant to sections 4.01(f)(ii)(2) and 4.01(f)(iii) of the Credit Agreement and (F) agrees that it will be bound by the provisions of the Intercreditor Agreement. i.The Co-Borrowers hereby agree that, in connection with the reallocation set forth in clause (a) above, the Co-Borrowers shall compensate each Bank for any loss, cost or expense attributable to such reallocation as required by Section 4.03 of the Credit Agreement. ii.On and after the date hereof, Credit Agricole shall no longer be an Issuing Bank. SECTION 5.Ratification of Obligations; Reaffirmation of Guaranty Agreement and Liens. Each of the Loan Parties hereby ratifies and confirms its Obligations under the Credit Agreement and the other Loan Documents and acknowledges that all other terms, provisions and conditions of the Credit Agreement and the other Loan Documents remain unchanged (except as modified hereby) and are in full force and effect. The Parent hereby ratifies, confirms, acknowledges and agrees that its obligations under the Guaranty Agreement are in full force and effect and that it continues to unconditionally and irrevocably guarantee the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise, and performance of all of the Obligations. Each Loan Party hereby ratifies, confirms, acknowledges and agrees that all Liens now or hereafter held by the Agent for the benefit of the Secured Parties as security for payment of the Obligations remain in full force and effect. SECTION 6.Governing Law. This Amendment shall be construed in accordance with, and this Amendment, and all matters arising out of or relating in any way whatsoever to this Amendment (whether in contract, tort, or otherwise) shall be governed by, the law of the State of New York, other than those conflict of law provisions that would defer to the substantive laws of another jurisdiction. This governing law election has been made by the parties in reliance (at -7- 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- least in part) on Section 5-1401 of the General Obligation Law of the State of New York, as amended (as and to the extent applicable), and other applicable law. SECTION 7.Execution in Counterparts. This Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Amendment. The words “execution,” “signed,” “signature,” and words of like import in this Amendment shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act. SECTION 8.Loan Document. This Amendment is a Loan Document. SECTION 9.Headings. The captions and headings of this Amendment are for convenience of reference only and shall not affect the interpretation of this Amendment. SECTION 10.Entire Agreement. THIS AMENDMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING AMONG THE PARTIES HERETO, AND SUPERSEDES ALL PRIOR OR CONTEMPORANEOUS AGREEMENTS AND UNDERSTANDINGS OF SUCH PERSONS, VERBAL OR WRITTEN, RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF. SECTION 11.Severability. Any provision of this Amendment held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. [Signature Pages Follow] -8- 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- -9- 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. CO-BORROWERS: SPARK HOLDCO, LLC SPARK ENERGY, LLC SPARK ENERGY GAS, LLC CenStar Energy CORP. CENSTAR OPERATING COMPANY, LLC Oasis Power, LLC Oasis Power Holdings, LLC Electricity Maine, LLC Electricity N.H., LLC Provider Power Mass, LLC Major Energy Services LLC Major Energy Electric Services LLC Respond Power LLC Perigee Energy, LLC verde energy usa, inc. verde energy usa commodities, llc verde energy usa connecticut, llc verde energy usa dc, llc verde energy usa ILLINOIS, llc verde energy usa MARYLAND, llc verde energy usa MASSACHUSETTS, llc verde energy usa NEW JERSEY, llc verde energy usa NEW YORK, llc verde energy usa OHIO, llc verde energy usa PENNSYLVANIA, llc verde energy usa TEXAS HOLDINGS, llc verde energy usa TEXAS, llc verde energy usa TRADING, llc verde energy SOLUTIONS, llc HIKO ENERGY, LLC Each By:/s/ James G. Jones II Name: James G. Jones II Title: CFO 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- PARENT: SPARK ENERGY, INC., By: /s/ James G. Jones II Name: James G. Jones II Title: CFO 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- BANKS: COÖPERATIEVE RABOBANK U.A., NEW YORK BRANCH, as Agent, an Issuing Bank, an Increasing Bank and a Bank By:/s/ Brad D. Dingwall Name: Brad D. Dingwall Title: Executive Director By: /s/ Tim Kumpel Name: Tim Kumpel Title: Managing Director 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- WOODFOREST NATIONAL BANK, as an Increasing Bank and a Bank By: /s/ Andy Gaines Name: Andy Gaines Title: Senior Vice President 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- BOKF, NA, A NATIONAL BANKING ASSOCIATION DBA BANK OF TEXAS, as an Issuing Bank, a Non-Increasing Bank and a Bank By: /s/ Chris Frey Name: Chris Frey Title: VP Corporate Banking 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- BANCORPSOUTH BANK, as a New Bank and a Bank By: /s/ Phillip M. Gonzalez Name: Phillip M. Gonzalez Title: Senior Vice President 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- ORIGIN BANK, as an Increasing Bank and a Bank By: /s/ Robert S. Martin Name: Robert S. Martin Title: EVP 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- VERITEX COMMUNITY BANK (formerly known as Green Bank), as an Increasing Bank and a Bank By: /s/ Paul McGuire Name: Paul McGuire Title: SVP 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- ZIONS BANCORPORATION, N.A. DBA AMEGY BANK, as an Increasing Bank and a Bank By: /s/ Cody Biller Name: Cody Biller Title: EVP 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- DEPARTING BANKS: HANCOCK WHITNEY BANK, as a Departing Bank By: /s/Nathaniel Ellis Name: Nathaniel Ellis Title: Senior Vice President HSBC BANK USA, N.A., as a Departing Bank By: /s/ Antonio J. Nanez Name: Antonio J. Nanez Title: Head of CSTF, North America CREDIT AGRICOLE CORPORATE & INVESTMENT BANK, as a Departing Bank and a resigning Issuing Bank By: /s/ Zali Win Name: Zali Win Title: Managing Director By: /s/ Daniel Raguenez Name: Daniel Raguenez Title: Head of ITB Americas 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- Annex I to Amendment No. 4 [AMENDMENTS TO CREDIT AGREEMENT] 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- Annex II to Amendment No. 4 SCHEDULE 2.01 Commitments Bank Working Capital Commitment Share Buyback DDTL Credit Percentage Commitment Co?peratieve Rabobank U.A., New $40,000,000 $17,066,667 21.333333% York Branch Woodforest National Bank $35,000,000 $14,933,334 18.666667% BOKF, NA (dba Bank of Texas) $32,500,000 $13,866,667 17.333332% BancorpSouth Bank $20,000,000 $8,533,333 10.666667% Origin Bank $20,000,000 $8,533,333 10.666667% Veritex Community Bank (fka Green $20,000,000 $8,533,333 10.666667% Bank) Zions Bancorporation, N.A. dba $20,000,000 $8,533,333 10.666667% Amegy Bank $187,500,000 $80,000,000 100% 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- Annex III to Amendment No. 4 FORM OF EXHIBIT A-1 See attached. 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- Annex IV to Amendment No. 4 FORM OF EXHIBIT B-1 See attached. 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- Annex V to Amendment No. 4 FORM OF EXHIBIT B-2 See attached. 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- Annex VI to Amendment No. 4 FORM OF EXHIBIT G See attached. 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- Annex VII to Amendment No. 4 FORM OF EXHIBIT H See attached. 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- Annex VIII to Amendment No. 4 FORM OF EXHIBIT I See attached. 4823-5726-1249, v. 6 -------------------------------------------------------------------------------- Annex IX to Amendment No. 4 Subordinated Creditor Consent The undersigned hereby: i.reaffirms the terms, conditions and obligations under and pursuant to the Subordination and Intercreditor Agreement dated as of May 19, 2017 (as amended, supplemented or otherwise modified from time to time, the “Subordination Agreement”) among the Parent, certain of the Co-Borrowers, Coöperatieve Rabobank U.A., New York Branch as Senior Agent (as defined in the Subordination Agreement) and the undersigned as Junior Creditor (as defined in the Subordination Agreement); ii. agrees that its obligations under the Subordination Agreement are and shall remain in full force and effect after giving effect to Amendment No. 4 dated as of July 31, 2020 (“Amendment No. 4”) among the Co-Borrowers, the Parent, the Banks, the Issuing Banks and Coöperatieve Rabobank U.A., New York Branch, as Agent; and iii.agrees that “Senior Obligations” (as defined in the Subordination Agreement) includes the Obligations (as defined in the Credit Agreement). Capitalized terms used herein and not otherwise defined herein shall have the meanings given to them in Amendment No. 4. RETAILCO, LLC By:__________________ Name: Title: Date: 4823-5726-1249, v. 6 EX-10.2 4 exhibit102-sparkxformo.htm EX-10.2 SPARK ENERGY, INC. SECOND AMENDED AND RESTATED LONG TERM INCENTIVE PLAN RESTRICTED STOCK UNIT AGREEMENT This Restricted Stock Unit Agreement (this “Agreement”) is made and entered into as of the Date of Grant set forth in the Notice of Grant of Restricted Stock Units (“Notice of Grant”) by and between Spark Energy, Inc., a Delaware corporation (the “Company”) and you. WHEREAS, the Company adopted the Second Amended and Restated Spark Energy Inc. Long Term Incentive Plan, as it may be amended from time to time (the “Plan”), under which the Company is authorized to grant restricted stock units to certain employees, directors and other service providers of the Company, its Subsidiaries and Parent; WHEREAS, in order to induce you to enter into and to continue to dedicate service to the Company and to materially contribute to the success of the Company, the Company agrees to grant you this restricted stock unit award; WHEREAS, a copy of the Plan has been furnished to you and shall be deemed a part of this Agreement as if fully set forth herein; and WHEREAS, you desire to accept the restricted stock unit award made pursuant to this Agreement. NOW, THEREFORE, in consideration of and mutual covenants set forth herein and for other valuable consideration hereinafter set forth, the parties agree as follows: 1.The Grant. Subject to the conditions set forth below, the Company hereby grants you, effective as of the Date of Grant set forth in the Notice of Grant, an award consisting of an aggregate number of Restricted Stock Units, whereby each Restricted Stock Unit represents the right to receive one share of Class A Common Stock, par value $0.01 per share, of the Company (“Stock”), or, as provided in Section 5, an equivalent cash payment, plus the additional rights to Dividend Equivalents set forth in Section 3, in accordance with the terms and conditions set forth herein and in the Plan (the “Award”). To the extent that any provision of this Agreement conflicts with the expressly applicable terms of the Plan, you acknowledge and agree that the terms of the Plan shall control and, if necessary, the applicable terms of this Agreement shall be deemed amended so as to carry out the purpose and intent of the Plan. Terms that have their initial letter capitalized, but that are not otherwise defined in this Agreement shall have the meanings given to them in the Plan. 2.No Shareholder Rights. The Restricted Stock Units granted pursuant to this Agreement do not and shall not entitle you to any rights of a holder of Stock unless and until shares of Stock are issued to you in settlement of the Award. Your rights with respect to the Restricted Stock Units shall remain forfeitable at all times prior to the date on which rights {N4023943.2} -------------------------------------------------------------------------------- become vested and the restrictions with respect to the Restricted Stock Units lapse in accordance with Section 6. 3.Dividend Equivalents. In the event that the Company declares and pays a dividend in respect of its outstanding shares of Stock and, on the record date for such dividend, you hold Restricted Stock Units granted pursuant to this Agreement that have not been settled (including Additional Restricted Stock Units, as defined in this Section 3, together with the unsettled Restricted Stock Units, the “Outstanding RSUs”), the amount of such dividend payment that would be payable to you if you were the holder of record of a number of shares of Stock equal to the number of Outstanding RSUs (the “Dividend Equivalent Payment”) shall be retained by the Company and deemed invested in full (and, as applicable, fractional) shares of Restricted Stock Units effective as of the record date of such dividend payment. Such additional notional shares of Stock (the “Additional Restricted Stock Units”) will constitute Restricted Stock Units subject to the restrictions and risk of forfeiture described in Section 4 of this Agreement. The restrictions and risk of forfeiture imposed on the Additional Restricted Stock Units will lapse at the same time, and subject to the same conditions, as each Restricted Stock Unit (or Additional Restricted Stock Unit) upon which the dividend was paid. You will have no shareholder rights with respect to the Additional Stock Units unless and until shares of Stock are issued to you upon settlement of the Additional Restricted Stock Units. The number of Additional Restricted Stock Units created pursuant to the declaration and payment of any dividend in respect of the Stock will be determined by dividing the Dividend Equivalent Payment by the Fair Market Value of the Stock on the record date of the dividend associated with the Dividend Equivalent Payment. 4.Restrictions; Forfeiture. The Restricted Stock Units (and the Additional Restricted Stock Units) are restricted in that they may not be sold, transferred or otherwise alienated or hypothecated until these restrictions are removed or expire as contemplated in Section 6 of this Agreement and as described in the Notice of Grant and Stock is issued to you as described in Section 5 of this Agreement. The Restricted Stock Units (and the Additional Restricted Stock Units) are also restricted because they may be forfeited to the Company if they fail to vest in accordance with the Notice of Grant (the “Forfeiture Restrictions”). 5.Settlement of Award. No shares of Stock shall be issued to you prior to the date on which the Restricted Stock Units vest and the restrictions, including the Forfeiture Restrictions, with respect to the Restricted Stock Units lapse, in accordance with Section 6. After the Restricted Stock Units vest pursuant to Section 6, the Company shall, within 60 days of such vesting date, cause (i) to be issued Stock registered in your name in payment of such vested Restricted Stock Units (and Additional Restricted Stock Units), or (ii) in the sole discretion of the Committee, to be paid to you in lieu of Stock pursuant to clause (i), a lump sum cash payment equal to (x) the simple average of the closing prices of one share of Stock (as reported in the Wall Street Journal or other similar publication determined by the Board) over the ten trading days prior to and including applicable date of vesting multiplied by (y) the number of Restricted Stock Units (and Additional Restricted Stock Units) vesting on such date, in each case upon receipt by the Company of any required tax withholding, or a combination of the foregoing. The Company shall evidence the Stock to be issued in payment of such vested Restricted Stock {N4023943.2}2 -------------------------------------------------------------------------------- Units, if applicable, in the manner it deems appropriate. The value of any fractional Restricted Stock Units shall be rounded down at the time Stock is issued to you in connection with the Restricted Stock Units. No fractional shares of Stock, nor the cash value of any fractional shares of Stock, will be issuable or payable to you pursuant to this Agreement. The value of such shares of Stock shall not bear any interest owing to the passage of time. Neither this Section 5 nor any action taken pursuant to or in accordance with this Section 5 shall be construed to create a trust or a funded or secured obligation of any kind. 6.Expiration of Restrictions and Risk of Forfeiture. The restrictions on the Restricted Stock Units (and the Additional Restricted Stock Units) granted pursuant to this Agreement, including the Forfeiture Restrictions, will expire as set forth in the Notice of Grant and shares of Stock that are nonforfeitable and transferable will be issued to you in payment of your vested Restricted Stock Units (and the Additional Restricted Stock Units) as set forth in Section 5, provided that you remain in the employ of, or a service provider to, the Company or its Subsidiaries until the applicable dates set forth in the Notice of Grant. 7.Termination of Services. (a)Termination Generally. Subject to subsection (b), if your service relationship with the Company or any of its Subsidiaries is terminated for any reason, then those Restricted Stock Units (and the Additional Restricted Stock Units) for which the restrictions have not lapsed as of the date of termination shall become null and void and those Restricted Stock Units (and the Additional Restricted Stock Units) shall be forfeited to the Company. The Restricted Stock Units (and the Additional Restricted Stock Units) for which the restrictions have lapsed as of the date of such termination shall not be forfeited to the Company and shall be settled as set forth in Section 6. (b)Effect of Employment Agreement. Notwithstanding any provision herein to the contrary, in the event of any inconsistency between this Section 7 and any employment agreement entered into by and between you and the Company or its Subsidiaries, the terms of the employment agreement shall control. 8.Leave of Absence. With respect to the Award, the Company may, in its sole discretion, determine that if you are on leave of absence for any reason you will be considered to still be in the employ of, or providing services for, the Company, provided that rights to the Restricted Stock Units (and the Additional Restricted Stock Units) during a leave of absence will be limited to the extent to which those rights were earned or vested when the leave of absence began. 9.Payment of Taxes. The Company may require you to pay to the Company (or the Company’s Subsidiary or Parent if you are an employee of a Subsidiary or the Parent of the Company), an amount the Company deems necessary to satisfy its (or its Subsidiary’s or Parent’s) current or future obligation to withhold federal, state or local income or other taxes that you incur as a result of the Award. With respect to any required tax withholding, you may (a) direct the Company to withhold from the shares of Stock to be issued to you (or the cash payment to be paid to you) under this Agreement the number of shares (or cash) necessary to {N4023943.2}3 -------------------------------------------------------------------------------- satisfy the Company’s obligation to withhold taxes; which determination will be based on the shares’ Fair Market Value at the time such determination is made; (b) deliver to the Company shares of Stock sufficient to satisfy the Company’s tax withholding obligations, based on the shares’ Fair Market Value at the time such determination is made; (c) deliver cash to the Company sufficient to satisfy its tax withholding obligations; or (d) satisfy such tax withholding through any combination of (a), (b) and (c). If you desire to elect to use the Stock withholding option described in subparagraph (a), you must make the election at the time and in the manner the Company prescribes. The Company, in its discretion, may deny your request to satisfy its tax withholding obligations using a method described under subparagraph (a) or (b); provided, however, that the Company may not deny your request to satisfy its tax withholding obligations using the method described under subparagraph (a) if you are an “officer” as defined in Section 16 of the Exchange Act. In the event the Company determines that the aggregate Fair Market Value of the shares of Stock withheld as payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then you must pay to the Company, in cash, the amount of that deficiency immediately upon the Company’s request. In the event you have not satisfied your required tax withholding pursuant to this Section 9 on or before the 60th day following the applicable vesting date, the Restricted Stock Units (and the Additional Restricted Stock Units) that would have otherwise vested on such date will immediately become null and void and be forfeited to the Company. 10.Compliance with Securities Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of Stock will be subject to compliance with all applicable requirements of federal, state, or foreign law with respect to such securities and with the requirements of any stock exchange or market system upon which the Stock may then be listed. No Stock will be issued hereunder if such issuance would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, Stock will not be issued hereunder unless a registration statement under the Securities Act is, at the time of issuance, in effect with respect to the shares issued or in the opinion of legal counsel to the Company, the shares issued may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. YOU ARE CAUTIONED THAT ISSUANCE OF STOCK UPON THE VESTING OF RESTRICTED STOCK UNITS GRANTED PURSUANT TO THIS AGREEMENT MAY NOT OCCUR UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. The inability of the Company to obtain from any regulatory body having jurisdiction and the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Award will relieve the Company of any liability in respect of the failure to issue such shares as to which such requisite authority has not been obtained. As a condition to any issuance hereunder, the Company may require you to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company. From time to time, the Board and appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate Persons to make shares of Stock available for issuance. {N4023943.2}4 -------------------------------------------------------------------------------- 11.Legends. The Company may at any time place legends referencing any restrictions imposed on the shares pursuant to Section 10 of this Agreement on all certificates representing shares issued with respect to this Award. 12.Right of the Company and Subsidiaries to Terminate Services. Nothing in this Agreement confers upon you the right to continue in the employ of or performing services for the Company or any Subsidiary or its Parent, or interfere in any way with the rights of the Company or any Subsidiary or its Parent to terminate your employment or service relationship at any time. 13.Furnish Information. You agree to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirements imposed upon the Company by or under any applicable statute or regulation. 14.No Liability for Good Faith Determinations. The Company and the members of the Board shall not be liable for any act, omission or determination taken or made in good faith with respect to this Agreement or the Restricted Stock Units granted hereunder. 15.Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of shares of Stock or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, shall, to the extent thereof, be in full satisfaction of all claims of such Persons hereunder. The Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a release and receipt therefor in such form as it shall determine. 16.No Guarantee of Interests. The Board and the Company do not guarantee the Stock of the Company from loss, depreciation or diminution of value. 17.Company Records. Records of the Company or its Subsidiaries or Parent regarding your period of service, termination of service and the reason(s) therefor, and other matters shall be conclusive for all purposes hereunder, unless determined by the Company to be incorrect. 18.Notice. All notices required or permitted under this Agreement must be in writing and personally delivered or sent by mail and shall be deemed to be delivered on the date on which it is actually received by the person to whom it is properly addressed or if earlier the date it is sent via certified United States mail. 19.Information Confidential. As partial consideration for the granting of the Award hereunder, you hereby agree to keep confidential all information and knowledge, except that which has been disclosed in any public filings required by law, that you have relating to the terms and conditions of this Agreement; provided, however, that such information may be disclosed as required by law and may be given in confidence to your spouse and tax and financial advisors. In the event any breach of this promise comes to the attention of the Company, it shall take into consideration that breach in determining whether to recommend the grant of any future similar award to you, as a factor weighing against the advisability of granting any such future award to you. {N4023943.2}5 -------------------------------------------------------------------------------- 20.Successors. This Agreement shall be binding upon you, your legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns. 21.Severability. If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and this Agreement shall be construed and enforced as if the illegal or invalid provision had never been included herein. 22.Headings. The titles and headings of Sections are included for convenience of reference only and are not to be considered in construction of the provisions hereof. 23.Governing Law. All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of Delaware, without giving any effect to any conflict of law provisions thereof, except to the extent Delaware state law is preempted by federal law. The obligation of the Company to sell and deliver Stock hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Stock. 24.Consent to Texas Jurisdiction and Venue. You hereby consent and agree that state courts located in Harris County, Texas and the United States District Court for the Southern District of Texas each shall have personal jurisdiction and proper venue with respect to any dispute between you and the Company arising in connection with the Restricted Stock Units or this Agreement. In any dispute with the Company, you will not raise, and you hereby expressly waive, any objection or defense to such jurisdiction as an inconvenient forum. 25.Amendment. This Agreement may be amended by the Board or by the Committee at any time (a) if the Board or the Committee determines, in its sole discretion, that amendment is necessary or advisable in light of any addition to or change in any federal or state, tax or securities law or other law or regulation, which change occurs after the Date of Grant and by its terms applies to the Award; (b) as provided in the Plan; or (c) with your consent. 26.The Plan. This Agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan. [Remainder of page intentionally left blank] {N4023943.2}6 EX-10.3 5 exhibit103-spkexnotice.htm EX-10.3 [To Be Placed on Spark Energy, Inc. Letterhead] NOTICE OF GRANT OF RESTRICTED STOCK UNITS I am very pleased to inform you that pursuant to the terms and conditions of the Spark Energy, Inc. Second Amended and Restated Long Term Incentive Plan, attached as Appendix A (the “Plan”), and the associated Restricted Stock Unit Agreement, attached as Appendix B (the “Agreement”), you are hereby granted an award to receive the number of Restricted Stock Units set forth below whereby each Restricted Stock Unit represents the right to receive one share of Stock, plus rights to certain Dividend Equivalents described in Section 3 of the Agreement, subject to certain restrictions thereon, and under the terms and conditions set forth below, in the Agreement, and in the Plan (the “Restricted Stock Units”). Capitalized terms used but not defined herein shall have the meanings set forth in the Plan. Grantee: Date of Grant: (“Date of Grant”) Number of Restricted Stock Units: Vesting Schedule: By accepting this Award and the benefits hereunder, you acknowledge and agree that (a) you are not relying upon any written or oral statement or representation of the Company, its affiliates, or any of their respective employees, directors, officers, attorneys or agents (collectively, the “Company Parties”) regarding the tax effects associated with your execution of this Notice of Grant of Restricted Stock Units and your receipt and holding of and the vesting of the Restricted Stock Units, and (b) you are relying on your own judgment and the judgment of the professionals of your choice with whom you have consulted. You hereby release, acquit and forever discharge the Company Parties from all actions, causes of actions, suits, debts, obligations, liabilities, claims, damages, losses, costs and expenses of any nature whatsoever, known or unknown, on account of, arising out of, or in any way related to the tax effects associated with your receipt and holding of and the vesting of the Restricted Stock Units. You further acknowledge receipt of a copy of the Plan and the Agreement and agree to all of the terms and conditions of the Plan and the Agreement which are incorporated herein by reference. Congratulations, and thanks for your commitment to our continued success! Spark Energy, Inc., a Delaware Corporation By: Name: Title: Attachments: Appendix A – Spark Energy, Inc. Second Amended and Restated Long Term Incentive Plan Appendix B – Restricted Stock Unit Agreement {N4023951.2} -------------------------------------------------------------------------------- {N4023951.2} -------------------------------------------------------------------------------- Appendix A Spark Energy, Inc. Second Amended and Restated Long Term Incentive Plan {N4023951.2} -------------------------------------------------------------------------------- Appendix B Restricted Stock Unit Agreement {N4023951.2} EX-31.1 6 certceoexh311-q22020.htm EX-31.1 CERTIFICATION BY CEO EXHIBIT 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED I, W. Keith Maxwell III, certify that: 1. I have reviewed this Quarterly Report (the “report”) on Form 10-Q of Spark Energy, Inc. (the “registrant”); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. -------------------------------------------------------------------------------- Date: August 5, 2020 /s/ W. Keith Maxwell III W. Keith Maxwell III Interim Chief Executive Officer (Principal Executive Officer) EX-31.2 7 certcfoexh312-q22020.htm EX-31.2 CERTIFICATION BY CFO EXHIBIT 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED I, James G. Jones II, certify that: 1. I have reviewed this Quarterly Report (the “report”) on Form 10-Q of Spark Energy, Inc. (the “registrant”); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. -------------------------------------------------------------------------------- Date: August 5, 2020 /s/ James G. Jones II James G. Jones II Chief Financial Officer (Principal Accounting and Financial Officer) EX-32 8 certceoandcfoexh32-q22.htm EX-32 CERTIFICATION BY CEO AND CFO EXHIBIT 32 Certification by the Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (the “Report”) of Spark Energy, Inc., a Delaware corporation (the “Company”), as filed with the Securities and Exchange Commission on the date hereof, W. Keith Maxwell III, Principal Executive Officer of the Company and James G. Jones II, Principal Financial Officer of the Company, each certify, pursuant 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge: 1.This Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 5, 2020 /s/ W. Keith Maxwell III W. Keith Maxwell III Interim Chief Executive Officer (Principal Executive Officer) /s/ James G. Jones II James G. Jones II Chief Financial Officer (Principal Accounting and Financial Officer)