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Spark Energy Inc (NASDAQ:SPKE)
Q3 2020 Earnings Call
Nov 4, 2020, 11:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning ladies and gentlemen. Welcome to the Spark Energy Inc. Third Quarter 2020 Earnings Conference Call. My name is Laura, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes, and this call will be posted on Spark Energy Inc.'s web site.

I would now like to turn this conference over to Mr. Mike Barajas with Spike Energy. Please go ahead.

Mike Barajas -- Investor Relations

Thank you. Good morning and welcome to Spark Energy's third 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 will refer to both GAAP and non-GAAP financial measures.

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

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

W. Keith Maxwell -- Chief Executive Officer

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

In the third quarter, we reported an adjusted EBITDA of $27.7 million, driven significantly by lower G&A expenses, and a large decrease in our customer acquisition costs, offset by a decrease in gross margin. Retail gross margin was $47 million for the third quarter of 2020, compared to the third quarter last year, which was $58.2 million. As we've indicated in our last few calls, our RCE count continues to trend downward, as we take deliberate actions to improve the quality of our customer portfolio. In addition to that, our door to door market efforts continue to be on hold, due to the COVID-19 pandemic throughout the quarter. However, we have just kicked off our new sales initiatives, and we're prepared to hit the ground running, as we ramp back up.

We are excited to announce on October 30, 2020, that we increased our working capital facility by $15 million, to a new total of $202.5 million. We would like to thank our bank group for their continued support 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 that we will be enduring 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. Now I'll turn the call over to Jim for his financial review. Jim?

James G. Jones -- Chief Financial Officer

Thank you, Keith. Good morning. In the quarter, we achieved $27.7 million in adjusted EBITDA compared to last year's third quarter of $28.1 million. Retail gross margin for the quarter was $47 million compared with $58.2 million last year. In our Retail Electricity segment, gross margin was $42.8 million, compared to $53.1 million in the third 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 $4.3 million compared to $5 million in the third quarter last year. This decrease is attributable to lower volumes, with improved unit margins, as a result of favorable commodity prices. G&A expenses of $19.1 million were lower compared to $27.6 million in the third quarter last year, primarily due to a decrease in legal expenses, bad debt and broker fees incurred in 2019. Total RCEs in the third quarter were 499,000, down as a result of the continued strategic shift away from low margin, large commercial customers and the effects of the pandemic on sales activity. Our attrition of 3% is down from 4% from the third quarter of last year. Total RCEs in the third quarter last year were 772,000.

Our net income for the quarter was $22.6 million or income of $0.52 per fully diluted share, compared to net income of $37.7 million or $0.93 per fully diluted share for the third quarter of 2019. The decrease in net income is driven by reductions in gross margin, and the non-cash mark-to-market accounting associated with hedges we put in place to lock in margins on our retail contracts, partially offset by lower G&A and income tax expense.

We had a mark-to-market gain this quarter of $9 million compared to a mark-to-market gain of $25.3 million a year ago. As we have 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 do not 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 September 15 and October 15, we paid the quarterly cash dividend on our Class A common stock and Series A Preferred Stock respectively. On October 19, we announced third quarter dividend of $0.18125 per common share to be paid December 15, and $0.54688 per share of the preferred stock to be paid on January 15. We have 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 dividends, along with all facets of the business going forward. Business conditions and future financial results will drive all decisions concerning continued payment of the dividend.

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

W. Keith Maxwell -- Chief Executive Officer

Thanks Jim. Entering the final quarter of 2020, we continue to take appropriate actions to confront the rapidly changing economic conditions. Our normalized G&A continues to trend down, due to our cost saving initiatives and our commitment to investing in sales and marketing, once the pandemic is over. We want to thank our employees and our suppliers for their hard work, producing a good quarter, and I want to thank the Spark customers for choosing us as their energy provider. We look forward to connecting with you on our next call. Thank you very much.


[Operator Closing Remarks].

Questions and Answers:

Duration: 8 minutes

Call participants:

Mike Barajas -- Investor Relations

W. Keith Maxwell -- Chief Executive Officer

James G. Jones -- Chief Financial Officer

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