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Update: Spark Reports Decrease In Customer Count

Earlier: Spark Energy Reports Negative Impact From Winter Storm Uri, First Quarter Results

May 6, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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In a 10-Q, Spark reported that its residential customer equivalents ("RCEs") as of March 31, 2021 was 367,000

That compares to 400,000 RCEs as of December 31, 2020

From December 31, 2020 to March 31, 2021, Spark reported gross additions of 15,000 RCEs and attrition of 48,000 RCEs

Spark said, "During the three months ended March 31, 2021, we added approximately 15,000 RCEs [gross] primarily through our various organic sales channels. 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."

Average monthly customer attrition for the three months ended March 31, 2021 and 2020 was 4.2% and 5.7%, 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 continue discussions on 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, due to restrictions on door-to-door activities, 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 first quarter of 2021 compared to the first quarter of 2020. Consistent with our previously communicated strategy to shrink our C&I customer book, our customer attrition for C&I customers was slightly higher than the prior year because of our pro-active non-renewal of some of our large commercial contracts; however, this impact was more than offset by the decline in residential customer attrition during the current year. Although customer attrition was slightly lower during the first quarter of 2021, we are unable to predict the ultimate impact on overall customer attrition over the next six months, at this time," Spark said

Providing further details on the impact from winter storm Uri, Spark said, "Although our hedge position was 120% of our forecasted demand in Texas for the month of February, we were still required to purchase power at unprecedented prices for an extended period of time during the storm. These price caps imposed by ERCOT for the duration of the storm and beyond have never been experienced in any deregulated market in which we serve. The policies imposed on the electricity markets by ERCOT related to pricing resulted in overall negative impact on our electricity unit margin in the first quarter of 2021."

The dollar impact from winter storm Uri was noted in our original story below.

Spark in the 10-Q noted that, "As of March 31, 2021, we were in compliance with the covenants under our Senior Credit Facility. Based upon existing covenants as of March 31, 2021, we had availability to borrow up to $44.5 million under the Senior Credit Facility."

Further details on Spark's total liquidity is noted in our original story below


Spark Energy, Inc. ("Spark" or the "Company") reported a Net Loss of $(27.6) million for the quarter ended March 31, 2021, including a $(64.9) million impact as a direct result of winter storm Uri, as of March 31, 2021

Spark said that, excluding the impacts of winter storm Uri, it achieved $32.7 million in Adjusted EBITDA, and $50.0 million in Retail Gross Margin for the first quarter

Spark said, "As previously disclosed, 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. Uncertainty still exists with respect to the financial impact of the weather event as we await 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."

More specifically, net loss for the quarter ended March 31, 2021, was $(27.6) million compared to net income of $10.1 million for the quarter ended March 31, 2020. The decrease compared to the prior year was primarily the result of reduced gross margin due to winter storm Uri, partially offset with a decrease in G&A, the non-cash mark-to-market accounting associated with the hedges Spark put in place to lock in margins on its retail contracts, and an income tax benefit. Spark had a mark-to-market gain this quarter of $5.9 million, compared to a mark-to-market loss of $(7.9) million a year ago.

For the quarter ended March 31, 2021, Spark reported Adjusted EBITDA of $32.7 million, compared to Adjusted EBITDA of $30.3 million for the quarter ended March 31, 2020.

The Q1 2021 Adjusted EBITDA excludes $60 million of the negative impact of Uri.

Spark stated, "Our lenders under the Company's Senior Credit Facility have allowed $60.0 million of the $64.9 million pre-tax storm loss to be added back as a non-recurring item in the calculation of Adjusted EBITDA for the Company's March 31, 2021 Debt Covenant Calculations. As our Senior Credit Facility is considered a material agreement and Adjusted EBITDA is a key component of our material covenants, we consider our covenant compliance to be material to the understanding of the Company's financial condition and/or liquidity."

"While gross margin was lower year-over-year, the decrease in gross margin was offset by decreases in G&A expenses and Customer Acquisition Cost spending," Spark said

For the quarter ended March 31, 2021, Spark reported Retail Gross Margin of $50.0 million, compared to Retail Gross Margin of $55.5 million for the quarter ended March 31, 2020.

"This decrease of $5.5 million was primarily attributable to fewer customers in our overall portfolio," Spark said

Retail Gross Margin of Electricity per MWh was $49.21 per MWh in the first quarter of 2021, excluding the Winter Storm Uri impact, up from $28.23 per MWh a year ago

Electricity volumes were 622,128 MWhs in the first quarter of 2021, excluding the Winter Storm Uri impact, versus 1,091,425 a year ago

Retail Gross Margin of Gas per MMBtu was $5.07 per MMBtu in the first quarter of 2021, up from $4.67 per MMBtu a year ago

Natural gas volumes were 3,829,474 MMBtus in the first quarter of 2021, versus 5,282,299 MMBtus a year ago

Spark reported revenues of $113 million for the first quarter of 2021, versus $166 million a year ago

Spark reported average monthly attrition of 4.2%

Spark said that it increased its senior credit facility with a working capital commitment of $227.5 million

Spark reported total liquidity of $141.0 million as of March 31, 2021. As reported by Spark, this reflects $81.5 million in cash and cash equivalents, $44.5 million in senior credit facility availability, and $15 million in subordinated debt facility availability. Spark said that the senior credit facility availability reflects amount of letters of credit that could be issued based on existing covenants as of March 31, 2021, and that the availability of the subordinated facility is dependent on its founder's willingness and ability to lend

"Since the start of the year, Spark's initiatives to improve the quality of its customer book and implement additional integrations resulting in cost reductions, are producing tremendous results. That said, first quarter results were curtailed by the impact of February's winter storm Uri, which adversely affected Spark and the entire retail energy industry. I am extremely proud of Spark and its employees as everyone came together to work through the impacts of the storm. While the storm presents a temporary setback, it will have negligible impact on the future ambitions and goals for the Company. We will continue to execute on our initiatives of ramping up organic sales along with a few tuck-in acquisitions. Looking forward to the Company's future, we have started several new initiatives concurrently with the global push for ESG and look forward to updating further as we progress," said Keith Maxwell, Spark's President and Chief Executive Officer.

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