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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 September 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)
Delaware46-5453215
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
12140 Wickchester Ln, Suite 100
Houston, Texas 77079

(Address of principal executive offices)
 
(713) 600-2600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbols(s)Name of exchange on which registered
Class A common stock, par value $0.01 per shareSPKEThe NASDAQ Global Select Market
8.75% Series A Fixed-to-Floating Rate

Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share
SPKEPThe NASDAQ Global Select Market
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 14,627,284 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 November 2, 2020.



SPARK ENERGY, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2020
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019 (unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (unaudited)
 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (unaudited)
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (unaudited)
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 6. EXHIBITS
SIGNATURES

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,” “could,” “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:

evolving risks, uncertainties and impacts 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 quarters ended March 31, 2020 and June 30, 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)
September 30, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents$75,347 $56,664 
Restricted cash33 1,004 
Accounts receivable, net of allowance for doubtful accounts of $5,156 at September 30, 2020 and $4,797 at December 31, 2019
63,810 113,635 
Accounts receivable—affiliates4,579 2,032 
Inventory1,796 2,954 
Fair value of derivative assets761 464 
Customer acquisition costs, net8,326 8,649 
Customer relationships, net12,083 13,607 
Deposits5,636 6,806 
Renewable energy credit asset15,296 24,204 
Other current assets9,090 6,109 
Total current assets196,757 236,128 
Property and equipment, net2,867 3,267 
Fair value of derivative assets75 106 
Customer acquisition costs, net885 9,845 
Customer relationships, net8,710 17,767 
Deferred tax assets26,499 29,865 
Goodwill120,343 120,343 
Other assets4,992 5,647 
Total assets$361,128 $422,968 
Liabilities, Series A Preferred Stock and Stockholders' Equity
Current liabilities:
Accounts payable$29,360 $48,245 
Accounts payable—affiliates355 1,009 
Accrued liabilities28,682 37,941 
Renewable energy credit liability20,179 33,120 
Fair value of derivative liabilities3,405 19,943 
Other current liabilities1,308 1,697 
Total current liabilities83,289 141,955 
Long-term liabilities:
Fair value of derivative liabilities459 495 
Long-term portion of Senior Credit Facility100,000 123,000 
Other long-term liabilities51 217 
Total liabilities183,799 265,667 
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 outstanding at September 30, 2020 and 3,707,256 shares issued and 3,677,318 shares outstanding at December 31, 2019
87,288 90,015 
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 14,627,284 shares outstanding at September 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 September 30, 2020 and 20,800,000 shares issued and outstanding at December 31, 2019
209 209 
       Additional paid-in capital54,169 51,842 
       Accumulated other comprehensive loss(40)(40)
       Retained earnings 12,284 1,074 
       Treasury stock, at cost, 144,594 shares at September 30, 2020 and 99,446 shares at December 31, 2019
(2,406)(2,011)
       Total stockholders' equity64,364 51,219 
Non-controlling interest in Spark HoldCo, LLC25,677 16,067 
       Total equity90,041 67,286 
Total liabilities, Series A Preferred Stock and Stockholders' equity$361,128 $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)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Revenues:
Retail revenues$141,188 $207,341 $436,166 $625,300 
Net asset optimization (expense) revenues(558)(254)(319)2,242 
Total Revenues140,630 207,087 435,847 627,542 
Operating Expenses:
Retail cost of revenues85,118 123,867 269,546 477,881 
General and administrative 19,080 27,629 66,087 94,352 
Depreciation and amortization7,278 9,496 24,084 31,963 
Total Operating Expenses111,476 160,992 359,717 604,196 
Operating income29,154 46,095 76,130 23,346 
Other (expense)/income:
Interest expense(1,487)(2,174)(4,233)(6,392)
Interest and other income 80 322 293 1,005 
Total other expenses(1,407)(1,852)(3,940)(5,387)
Income before income tax expense 27,747 44,243 72,190 17,959 
Income tax expense 5,141 6,567 12,739 3,022 
Net income $22,606 $37,676 $59,451 $14,937 
Less: Net income attributable to non-controlling interests12,993 22,142 34,200 5,736 
Net income attributable to Spark Energy, Inc. stockholders$9,613 $15,534 $25,251 $9,201 
Less: Dividends on Series A Preferred Stock1,951 2,026 5,490 6,080 
Net income attributable to stockholders of Class A common stock$7,662 $13,508 $19,761 $3,121 
Other comprehensive income, net of tax:
Currency translation loss$ $(45)$ $(143)
Other comprehensive loss (45) (143)
Comprehensive income$22,606 $37,631 $59,451 $14,794 
Less: Comprehensive income attributable to non-controlling interests12,993 22,116 34,200 5,652 
Comprehensive income attributable to Spark Energy, Inc. stockholders$9,613 $15,515 $25,251 $9,142 
Net income attributable to Spark Energy, Inc. per share of Class A common stock
       Basic$0.52 $0.94 $1.36 $0.22 
       Diluted$0.52 $0.93 $1.35 $0.22 
Weighted average shares of Class A common stock outstanding
       Basic14,653 14,380 14,531 14,254 
       Diluted14,671 14,514 14,655 14,429 

The accompanying notes are an integral part of the condensed consolidated financial statements.
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SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in thousands)
(unaudited)
Nine Months Ended September 30, 2020
Issued Shares of Class A Common StockIssued Shares of Class B Common StockTreasury StockClass A Common StockClass B Common StockTreasury StockAccumulated Other Comprehensive LossAdditional Paid-in CapitalRetained Earnings (Deficit)Total Stockholders' EquityNon-controlling InterestTotal Equity
Balance at December 31, 201914,479 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, 202014,479 20,800 (99)145 209 (2,011)(40)51,842 441 50,586 16,067 66,653 
Stock based compensation— — — — — — 2,061 — 2,061 — 2,061 
Restricted stock unit vesting293 — — 3 — — — (915)— (912)— (912)
Consolidated net income— — — — — — — — 25,251 25,251 34,200 59,451 
Distributions paid to non-controlling unit holders— — — — — — — — — — (23,409)(23,409)
Dividends paid to Class A common stockholders ($0.54375 per share)
— — — — — — — — (7,917)(7,917)— (7,917)
Dividends paid to Preferred Stockholders— — — — — — — — (5,491)(5,491)— (5,491)
Treasury Shares— — (45)— — (395)(395)(395)
Changes in ownership interest— — — — — — — 1,181 — 1,181 (1,181) 
Balance at September 30, 202014,772 20,800 (144)$148 $209 $(2,406)$(40)$54,169 $12,284 $64,364 $25,677 $90,041 














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Three Months Ended September 30, 2020
Issued Shares of Class A Common StockIssued Shares of Class B Common StockTreasury StockClass A Common StockClass B Common StockTreasury StockAccumulated Other Comprehensive LossAdditional Paid-in CapitalRetained Earnings (Deficit)Total Stockholders' EquityNon-controlling InterestTotal Equity
Balance at June 30, 2020
14,77220,800(99)$148 $209 $(2,011)$(40)$53,409 $7,275 $58,990 $22,829 $81,819 
Stock based compensation289289289
Restricted stock unit vesting
Consolidated net income9,6139,61312,99322,606
Distributions paid to non-controlling unit holders(9,674)(9,674)
Dividends paid to Class A common stockholders ($0.18125 per share)
(2,652)(2,652)(2,652)
Dividends paid to Preferred Stockholders(1,952)(1,952)(1,952)
Treasury Shares(45)(395)(395)(395)
Changes in Ownership Interest471471(471)
Balance at September 30, 202014,77220,800(144)$148 $209 $(2,406)$(40)$54,169 $12,284 $64,364 $25,677 $90,041 















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Nine Months Ended September 30, 2019
Issued Shares of Class A Common StockIssued Shares of Class B Common StockTreasury StockClass A Common StockClass B Common StockTreasury StockAccumulated Other Comprehensive LossAdditional Paid-in CapitalRetained Earnings (Deficit)Total Stockholders' EquityNon-controlling InterestTotal Equity
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— — — — — — — 3,888 — 3,888 — 3,888 
Restricted stock unit vesting301 — — 3 — — — (1,107)— (1,104)— (1,104)
Consolidated net income— — — — — — — — 9,201 9,201 5,736 14,937 
Foreign currency translation adjustment for equity method investee— — — — — — (59)— — (59)(84)(143)
Gain on settlement of TRA, net of tax— — — — — — — 12,179 — 12,179 — 12,179 
Distributions paid to non-controlling unit holders— — — — — — — — — — (28,108)(28,108)
Dividends paid to Class A common stockholders ($0.54375 per share)
— — — — — — — (5,170)(2,606)(7,776)— (7,776)
Changes in ownership interest— — — — — — — (223)— (223)223 — 
Dividends to Preferred Stockholders— — — — — — — (2,029)(4,053)(6,082)— (6,082)
Proceeds from disgorgement of stockholder short-swing profits— — — — — — — 55 — 55 — 55 
Acquisition of Customers from Affiliate— — — — — — — — — — (10)(10)
Balance at September 30, 2019
14,479 20,800 (99)$145 $209 $(2,011)$(57)$53,750 $3,849 $55,885 $22,245 $78,130 




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Three Months Ended September 30, 2019
Issued Shares of Class A Common StockIssued Shares of Class B Common StockTreasury StockClass A Common StockClass B Common StockTreasury StockAccumulated Other Comprehensive LossAdditional Paid-in CapitalRetained Earnings (Deficit)Total Stockholders' EquityNon-controlling InterestTotal Equity
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 
Stock based compensation— — — — — — — 1,377 — 1,377 — 1,377 
Consolidated Net income— — — — — — — — 15,534 15,534 22,142 37,676 
Foreign currency translation adjustment for equity method investee— — — — — — (19)— — (19)(26)(45)
Gain on settlement of TRA, net of tax— — — — — — — 12,179 — 12,179 — 12,179 
Distributions paid to non-controlling unit holders— — — — — — — — — — (20,130)(20,130)
Dividends paid to Class A common stockholders ($0.18125 per share)
— — — — — — — — (2,606)(2,606)— (2,606)
Dividends to Preferred Stockholders— — — — — — — — (2,026)(2,026)— (2,026)
Changes in ownership interest— — — — — — — (2,135)— (2,135)2,135 — 
Balance at September 30, 201914,479 20,800 (99)$145 $209 $(2,011)$(57)$53,750 $3,849 $55,885 $22,245 $78,130 
The accompanying notes are an integral part of the condensed consolidated financial statements.
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SPARK ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
  
Nine Months Ended September 30,
  20202019
Cash flows from operating activities:
Net income$59,451 $14,937 
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization expense24,084 31,965 
Deferred income taxes3,366 34 
Stock based compensation2,134 4,053 
Amortization of deferred financing costs966 1,002 
Bad debt expense4,613 9,185 
Loss on derivatives, net14,015 42,690 
Current period cash settlements on derivatives, net(32,682)(32,593)
Other (608)
Changes in assets and liabilities:
Decrease in accounts receivable44,579 40,008 
(Increase) decrease in accounts receivable—affiliates(2,546)1,139 
Decrease in inventory1,158 298 
Increase in customer acquisition costs(1,763)(13,608)
Decrease in prepaid and other current assets6,268 9,211 
Increase in other assets(316)(394)
Decrease in accounts payable and accrued liabilities(39,997)(27,721)
Decrease in accounts payable—affiliates(655)(2,114)
Increase (decrease) in other current liabilities1,439 (374)
Decrease in other non-current liabilities(166)(25)
Net cash provided by operating activities83,948 77,085 
Cash flows from investing activities:
Purchases of property and equipment(1,219)(577)
Acquisition of Customers from Affiliate (5,913)
Net cash used in investing activities(1,219)(6,490)
Cash flows from financing activities:
Buyback of Series A Preferred Stock(2,282)(111)
Borrowings on notes payable420,000 224,500 
Payments on notes payable(443,000)(245,000)
Net borrowings on subordinated debt facility 504 
Payments on the Verde promissory note  (2,036)
Proceeds from disgorgement of stockholders short-swing profits 55 
Purchase of Treasury Stock(395) 
Restricted stock vesting(1,107)(1,348)
Payment for acquired customers(972) 
Payment of Tax Receivable Agreement liability (11,239)
Payment of dividends to Class A common stockholders(7,917)(7,776)
Payment of distributions to non-controlling unitholders(23,409)(28,108)
Payment of Preferred Stock dividends(5,935)(6,082)
Payment to affiliates for acquisition of customer book (10)
Net cash used in financing activities(65,017)(76,651)
Increase (decrease) in Cash, cash equivalents and Restricted cash17,712 (6,056)
Cash, cash equivalents and Restricted cash—beginning of period57,668 49,638 
Cash, cash equivalents and Restricted cash—end of period$75,380 $43,582 
Supplemental Disclosure of Cash Flow Information: