Spark Energy Reports 20% Decline In RCEs From Sept. 30 To Dec. 31, 2020

Spark Seeing, "Increased M&A Opportunities"

March 4, 2021

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Reporting by Paul Ring • ring@energychoicematters.com

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In a 10-K, Spark Energy disclosed a nearly 20% decline in its residential customer equivalents (RCE) count from September 30, 2020 to December 31, 2020, as the company continues to shift away from lower margin C&I accounts and new customer additions were hampered by COVID restrictions

As of December 31, 2020, Spark was serving 400,000 RCEs, versus 499,000 RCEs as of September 30, 2020 and 672,000 a year ago

In the 10-K, Spark stated, "In 2020, our attrition exceeded customer additions primarily due to the non-renewal of certain larger C&I customer contracts and limitations on our ability to sell through door-to-door and telemarketing activities as a result of orders by regulatory agencies and governmental authorities' responses to the COVID-19 pandemic."

"Customer attrition during the year ended December 31, 2020 was flat compared to the prior year due to an active strategy to shrink our C&I customer book in 2019, resulting in our pro-active non-renewal of some of our lower-margin large commercial contracts," Spark said

Spark's average monthly attrition rate for the year 2020 was 5.0%, which as noted was the same level as 2019. On a quarterly basis, the average monthly attrition rate for Spark was 7.7% for Q4 2020, 3.0% for Q3 2020, 3.5% for Q2 2020, and 5.7% for Q1 2020

During the year ended December 31, 2020, Spark added a gross of approximately 46,000 RCEs through various organic sales channels. For comparison, in the year 2019, Spark added a gross of approximately 247,000 RCEs

"This amount was significantly lower than historical periods primarily due to limitation of our door-to-door marketing as a result of COVID-19 during the majority of 2020 and a reduction in targeted organic customer acquisitions as we focused our efforts to improve our organic sales channels, including vendor selection and sales quality. 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," Spark said

In November 2020, Spark began active door-to-door marketing activities in certain markets where not prohibited by states' COVID-19 restrictions.

Gross attrition for the year ended 2020 was 318,000 RCEs, versus gross attrition of 483,000 a year ago

Spark's customer acquisition cost for the year ended December 31, 2020 was approximately $1.5 million, a decrease of approximately $17.2 million, or 92%, from approximately $18.7 million for the prior year. "This decrease was primarily due to limitation on our door-to-door marketing as a result of COVID-19 during the majority of 2020 and a reduction in targeted organic customer acquisitions as we focused our efforts to improve our organic sales channels, including vendor selection and sales quality," Spark said

At December 31, 2020, Spark's customer base was 73% residential and 27% C&I customers

As of December 31, 2020, approximately 60% of Spark's RCEs were located in five states. Specifically, 15%, 14%, 13%, 9% and 9% of its customers on an RCE basis were located in NY, TX, PA, IL, and MA respectively

For the year ended December 31, 2020, customers in non-POR markets represented approximately 36% of Spark's retail revenues

During an earnings call, Keith Maxwell, Spark's Chief Executive Officer, said that Spark is beginning to see, "increased M&A opportunities."

In a 10-K, Spark said, "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."

In the 10-K, Spark provided an update on liquidity after the close of the year, stating that, as of February 28, 2021, Spark had $148.6 million of cash, availability under its Senior Credit Facility and Subordinated Debt Facility to meet any of its liquidity needs

Spark's financial results, and disclosure that it expects a "significant loss" from the Texas winter weather event in its first quarter 2021 results (though the impact remains uncertain due to settlement data and potential regulatory action), were covered in our story yesterday evening (click here)

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