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Spark Energy Inc (SPKE) Q2 2020 Earnings Call Transcript

By Motley Fool Transcribers - Aug 5, 2020 at 6:30PM

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SPKE earnings call for the period ending June 30, 2020.

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Spark Energy Inc (SPKE -1.82%)
Q2 2020 Earnings Call
Aug 5, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to the Spark Energy, Inc. Second Quarter 2020 Earnings Conference Call. My name is Brandon, and I will be your operator for today. [Operator Instructions] And this call will be posted on Spark Energy, Inc.'s website.

I would now like to turn the conference over to Mr. Mike Barajas of Spark Energy. Please go ahead.

Mike Barajas -- Investor Relations

Thank you. Good morning, and welcome to Spark Energy's second quarter 2020 earnings call. This call is also being broadcast via webcast, which can be located in the Investor Relations section of our website at sparkenergy.com. With us today from management is our CEO, Keith Maxwell; and our CFO, Jim Jones.

Please note that today's discussion may contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. We urge everyone to review the safe harbor statement in yesterday's earnings release as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law.

In addition, we'll refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to yesterday's earnings release.

With that, I'll turn the call over to Keith Maxwell, our CEO.

Keith Maxwell -- Chief Executive Officer

Thank you, Mike. I want to welcome everyone to today's earnings call. I'll begin by providing a summary of our results from the second quarter and then our CFO, Jim Jones will provide more details on the financials.

In the second quarter, we reported an adjusted EBITDA of $23.8 million, driven by an increase in gross margin, lower G&A expenses and a large decrease in our customer acquisition cost. Retail gross margin was $45 million for the quarter, an 8% increase for the second quarter compared to last year, which was $41.7 million. As we've indicated in our last few calls, the total RCE counts continue to trend down as we deliberate actions to improve the quality of our customer portfolio.

In addition, our door-to-door marketing efforts continue to be on hold, primarily due to the COVID-19 pandemic. But we have taken this time to reassess our sales strategies, so that we can hit the ground running once they are able to ramp back up. On Friday, July 31, we amended and extended our working capital facility, which closed at $187.5 million and extended the maturity to July of 2022. We'd like to thank our bank group for their continued support and during these uncertain economic times.

In summary, our customer book and our simplified platform contributed to this successful quarter. While we cannot predict the length of time, we will have to endure the ongoing challenges related to COVID-19. We will continue to look for ways to streamline the business and deal with the effects of the pandemic.

That concludes my prepared remarks and now I will turn the call over to Jim for his financial review.

James G. Jones -- Chief Financial Officer

Thank you, Keith. Good morning. In the quarter, we achieved $23.8 million in adjusted EBITDA compared to last year's second quarter of $13.6 million. Retail gross margin for the quarter was $45 million compared with $41.7 million last year. In our retail electricity segment, gross margin was $35.6 million compared to $33.6 million in the second quarter last year. Volumes were lower due to a reduction in our customer base. However, our load is now concentrated in stronger margin residential customers.

In our retail natural gas segment, gross margin was $9.4 million compared to $8.1 million in the second quarter last year. This increase was attributable to relatively flat volumes with improved unit margins as a result of a soft commodity price environment. G&A expenses of $21.3 million were lower compared to $37.2 million in the second quarter last year, primarily due to legal expenses incurred in 2019.

Total RCEs in the second quarter were 534,000 down as a result of the continued strategic shift away from low margin large commercial customers and the effects of the pandemic on sales activities. Our attrition of 3.5% is slightly down from 3.8% from the second quarter of last year. Total RCEs in the second quarter last year were 818,000.

Our net income for the quarter was $26.8 million for income of $0.62 per fully diluted share compared to a net loss of $25.5 million or $0.735 per fully diluted share for the second quarter of 2019. The increase in net income is driven by reductions in G&A, lower CAC spending and the non-cash mark-to-market accounting associated with hedges we put in place to lock in margins on our retail contracts. We had a mark-to-market gain this quarter of $18 million compared to a mark-to-market loss of $22.7 million a year ago.

As we've reminded investors in the past the non-cash mark-to-market movements do not affect the actual cash we expect to receive on our fixed-price contracts. This is why we don't believe net income is a good indicator of our business performance and we continue to guide investors away from net income and toward adjusted EBITDA as an indicator of our business performance. On June 15 and July 15, we paid the quarterly cash dividends on our Class A common stock and Series A preferred stock respectively.

On July 17, we announced second quarter dividend of $0.18125 per share on our common stock to be paid on September 15 and $0.54688 per share on our preferred stock to be paid October 15. We paid a quarterly dividend since the public offering. However, the company continues to evaluate the impact of COVID-19. And as such, we will review the common and preferred dividend along with all facets of the business. Business conditions and future financial results will drive all business decisions concerning the continued payment of the dividend.

That's all I have. Back to you, Keith.

Keith Maxwell -- Chief Executive Officer

Thanks, Jim. Entering into the second half of 2020, we continue to take the appropriate actions to confront the rapidly changing economic environment that we find ourselves in. Our normalized G&A continues to trend down due to our cost savings initiatives that we are committed to investing in sales and marketing once the pandemic goes. We want to thank our employees and the suppliers for their hard work and producing a good quarter.

And I want to thank the Spark customers for choosing us as their energy provider. I also want to thank the first responders and frontline healthcare professionals for their continued and tireless efforts in battling this pandemic. Our thoughts and prayers are with you. We look forward to connecting with you again on our next call. God bless and thank you.

Operator

[Operator Closing Remarks]

Questions and Answers:

Duration: 8 minutes

Call participants:

Mike Barajas -- Investor Relations

Keith Maxwell -- Chief Executive Officer

James G. Jones -- Chief Financial Officer

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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