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Spark Energy Expects "Significant Loss" From Texas Winter Weather Event, Though Ultimate Impact Uncertain Pending Settlement Data, Any Regulatory Action
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In reporting fourth quarter and full year 2020 earnings, Spark Energy said that it, "expect[s] the impact of winter storm Uri will result in a significant loss that will be reflected in our first quarter 2021 results of operations," but that the impact remains uncertain due to settlement data and potential regulatory action
Spark said that, "we consistently maintained, and continue to maintain, sufficient liquidity to conduct our operations in the ordinary course."
Specifically, Spark said, "In February 2021, the U.S. experienced winter storm Uri, an unprecedented storm bringing extreme cold temperatures to the central U.S., including Texas. As a result of increased power demand for customers across the state of Texas and power generation disruptions during the weather event, power and ancillary costs in the Electric Reliability Council of Texas ('ERCOT') service area reached or exceeded maximum allowed clearing prices. At the time of filing these consolidated financial statements, we expect the impact of winter storm Uri will result in a significant loss that will be reflected in our first quarter 2021 results of operations. However, uncertainty exists with respect to the financial impact of the weather event due in part to outstanding pricing and volume settlement data from ERCOT; the results of formal disputes regarding pricing and volume settlement data received to date, for which we are exploring all legal options; and any corrective action by the State of Texas, ERCOT, the Railroad Commission of Texas, or the Public Utility Commission of Texas. Possible action may include resettling pricing across the supply chain (i.e. fuel supply, wholesale pricing of generation, or allocating the financial impacts of market-wide load shed ratably across all retail market participants). During the winter storm Uri event, we were required to post a significant amount of collateral with ERCOT. Despite these posting requirements, we consistently maintained, and continue to maintain, sufficient liquidity to conduct our operations in the ordinary course."
In reporting quarterly results, Spark listed Key Business Highlights as follows:
Recorded $24.7 million in Adjusted EBITDA, $49.0 million in Retail Gross Margin, and $8.8 million in Net Income for the fourth quarter 2020
Recorded $106.6 million in Adjusted EBITDA, $196.5 million in Retail Gross Margin, and $68.2 million in Net Income for the year ended 2020
Total liquidity of $168.2 million
"2020 was the strongest year yet for Spark and we have continued to improve the quality of our customer book. We have pivoted away from high usage, lower margin C&I contracts which has led to stronger average unit margins, partially offsetting the decrease in volumes compared to 2019. Our overall customer book is much healthier. Despite the winter storm that happened in Texas in the middle of February, we believe Spark Energy will be successful in 2021," said Keith Maxwell, Spark's Chief Executive Officer and Chairman of the Board.
Summary Spark Energy Fourth Quarter 2020 Financial Results
Net income for the quarter ended December 31, 2020, was $8.8 million, heavily impacted by G&A savings quarter over quarter. This compares to a net loss of $0.7 million for the quarter ended December 31, 2019.
For the quarter ended December 31, 2020, Spark reported Adjusted EBITDA of $24.7 million compared to Adjusted EBITDA of $25.7 million for the quarter ended December 31, 2019. The slight decrease in Adjusted EBITDA was due to lower gross margin quarter over quarter, partially offset by decreases in G&A expenses and Customer Acquisition Cost.
For the quarter ended December 31, 2020, Spark reported Retail Gross Margin of $49.0 million compared to Retail Gross Margin of $64.3 million for the quarter ended December 31, 2019. This decrease is attributable to fewer customers in Spark's overall portfolio.
Summary Full Year 2020 Financial Results
Net income for the year ended December 31, 2020, was $68.2 million compared to net income of $14.2 million for the year ended December 31, 2019. The increase compared to the prior year was primarily the result of the non-cash mark-to-market accounting associated with the hedges Spark put in place to lock in margins on Spark's retail contracts, along with a decrease in G&A. Spark had a mark-to-market gain this year of $14.3 million, compared to a mark-to-market loss of $24.9 million a year ago.
For the year ended December 31, 2020, Spark reported Adjusted EBITDA of $106.6 million compared to Adjusted EBITDA of $92.4 million for the year ended December 31, 2019. The increase was primarily due to decreases in expenses year over year. 2020 saw reductions across the board pertaining to cost to serve, operations, legal, bad debt and Customer Acquisitions Costs.
For the year ended December 31, 2020, Spark reported Retail Gross Margin of $196.5 million compared to Retail Gross Margin of $220.7 million for the year ended December 31, 2019. The decrease was primarily attributable to lower volume due to the shift away from large C&I contracts. However, the shift in the customer mix towards more residential contracts not only reduces the risk in the portfolio, but also has a positive impact on Spark's G&A and balance sheet.
Spark listed Liquidity and Capital Resources as follows:
As of December 31, 2020
($ in thousands)
Cash and cash equivalents - $71,684
Senior Credit Facility Availability (1) (2) - $71,467
Subordinated Debt Facility Availability (3) - $25,000
Total Liquidity - $168,151
(1) Reflects amount of Letters of Credit that could be issued based on existing covenants as of December 31, 2020.
(2) On January 19, 2021, Spark increased the total commitments under Spark's Senior Credit Facility from $202.5 million to $227.5 million, which will positively affect liquidity in future quarters.
(3) The availability of the Subordinated Facility is dependent on Spark's Founder's willingness and ability to lend.
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Spark Reports "Sufficient Liquidity"
March 3, 2021
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Reporting by Paul Ring • ring@energychoicematters.com
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