Slide 1: Investor Presentation May 2016
Investor Presentation May 2016
Slide 2: Safe Harbor Statement
1 Safe Harbor Statement This presentation contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. These statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section
Slide 3: Spark Energy at a Glance
Spark Energy at a Glance Spark Energy, Inc. Independent Retail Energy Services Provider Headquartered: Houston, TX Founded: 1999 IPO: July 2014 Ticker / Exchange: SPKE / NASDAQ Global Select Market Market Capitalization: $424.4MM Long-Term Debt 19.7MM Enterprise Value: $444.1MM Annual Dividend: $1.4
Slide 4: Creating Shareholder Value
3 Creating Shareholder Value -25% 0% 25% 50% 75% 100% 125% 150% Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Spark Energy, Inc. NASDAQ Composite Russell 2000 As of May 6, 2016 142% Total Shareholder Return since January 2015 Total Shareholder Return assumes an investment of $100 on January 1, 2015 and
Slide 5: Spark Energy Highlights
4 Spark Energy Highlights 2016 annual Adjusted EBITDA guidance in the range of $44MM - $48MM, based on projected 2016 customer acquisition costs of $13MM - $17MM On May 4, we announced two significant pending acquisitions expected to add approximately $30.0 million of annual Adjusted EBITDA (exc
Slide 6: How Spark Energy Serves its Customers
5 How Spark Energy Serves its Customers Delivering Electricity Delivering Natural Gas POWER GENERATION SPARK ENERGY SPARK ENERGY DISTRIBUTION DISTRIBUTION PRODUCTION TRANSPORTATION TRANSMISSION Green and Renewable Products Stable and Predictable Energy Costs Potential Cost Savings Our Value Proposit
Slide 7: Spark's Geographical Diversity: States and Utility Territories
6 Spark’s Geographical Diversity: 16 States and 66 Utility Territories Residential Customer Equivalents RCEs (In thousands) Electricity Percent Natural Gas Percent Total Percent East 156 61% 70 44% 226 54% Midwest 44 17% 52 33% 96 23% Southwest 57 22% 36 23% 93 23% Total 257 100% 158 100% 415 100% A
Slide 8: Customer Lifetime Value Strategy
7 Customer Lifetime Value Strategy Actively Managed Customer Base Drives Profitability Multi-channel sales Diverse sales geography Leverage analytics to determine market entry and product tailoring Contracted revenue model with subscription-like flow Sophisticated Customer Acquisition Model
Slide 9: Spark by the Numbers
8 Spark by the Numbers $36.9 $46.0 $10.2 $21.1 $- $10.0 $20.0 $30.0 $40.0 $50.0 2015 2016E 1Q15 1Q16 Adjusted EBITDA ($MM) ($ in millions) 2015 20161 1Q15 1Q16 Revenue $358.2 - $101.8 $110.5 Retail Gross Margin $113.6 - $27.9 $39.6 Adjusted EBITDA $36.9 $46.0 $10.2 $21.1 Customer Acquisition Costs $
Slide 10: Key Investment Highlights
Key Investment Highlights Proven Track Record of Accretive Acquisitions and Integrations 5 Transactions in the last eighteen months Consistent Organic Growth ~3% Organic customer growth last three years (CAGR) Conservative Capitalization and Risk Management 0.5x Leverage Ratio Committed to the Divid
Slide 11: Opportunities for Organic and M&A Growth
10 Opportunities for Organic and M&A Growth High Growth Natural Gas Electricity 43MM Eligible Customers1 12% Penetration <1% Spark Share 48MM Eligible Customers1 33% Penetration <1% Spark Share Only 12% of eligible natural gas customers and 33% of eligible electricity customers have made a competiti
Slide 12: Aligned Sponsor Provides Access to M&A Opportunities, Capital, and Other Services
11 Aligned Sponsor Provides Access to M&A Opportunities, Capital, and Other Services To Propel Growth Step 2: Derisk and Capture Synergies A) NG&E and Spark work together to capture initial synergies (supply, finance, etc.) B) NG&E puts acquired customers on shared Retailco customer operations platf
Slide 13: Proven Track Record of Acquisitions and Integration
12 Proven Track Record of Acquisitions and Integration Recent Transactions ~65,000 RCEs 13 New Markets July 2015 ~40,000 RCEs 7 New Markets July 2015 ~2,000 Customers Connecticut December 2014 ~12,000 Customers Connecticut December 2014 ~26,000 Customers Northern California March 2015 High Growth
Slide 14: Outsourcing of Customer Operations and I.T. Supports Growth Strategy
13 Outsourcing of Customer Operations and I.T. Supports Growth Strategy and Provides Cost Savings Customer Care Billing Transaction Management Collections Contract Management Information Technology RETAILCO (100% owned by our Majority Shareholder) Delivers 5-8% immediate annual cost savings (versu
Slide 15: Multiple Brands and Sales Channels Enhance Our Ability to Acquire Customers
14 Multiple Brands and Sales Channels Enhance Our Ability to Acquire Customers Organically • Multiple brands allow for brand positioning and winback strategies not previously available • Outsourced vendor relationships allow rapid scaling and low fixed costs while driving quality, efficiency and fle
Slide 16: Customer and Product Diversity Provides Stable Cash Flow
15 Customer and Product Diversity Provides Stable Cash Flow • 66 utility service territories in 16 states • Able to quickly react to market trends and redirect customer portfolio • Geographic diversity minimizes risks related to regulatory, weather and supply fluctuations • Natural gas and electrici
Slide 17: Portfolio Diversification
62% 38% Electricity 16 Portfolio Diversification 63% 37% Fixed 61% Variable 39% Commercial Residential Both product and customer mix, combined with geographic diversification supports stable cash flow Commodity Product Customer Sustainable Dividends Based on RCEs as of March 31, 2016 Gas
Slide 18: Conservative Capitalization Minimizes Risk
17 Conservative Capitalization Minimizes Risk Leverage Ratio1 Long-Term Debt2 $19.7MM 2015 Adjusted EBITDA $36.9MM Leverage Ratio 0.5x $85 million syndicated credit facility $60 million working capital line (eliminates need for costly credit sleeve) $18.6 million drawn on $25 million acquisiti
Slide 19: Managing Commodity Price Risk
18 Managing Commodity Price Risk Sustainable Dividends Proven hedging strategy that has been refined over Spark Energy’s 17 year history Demonstrated ability to “weather the storm” through up-and-down commodity markets, extreme weather events, and down economies Disciplined risk management sup
Slide 20: Key Investment Highlights
Key Investment Highlights Proven Track Record of Accretive Acquisitions and Integrations 5 Transactions in the last eighteen months Consistent Organic Growth ~3% Organic customer growth last three years (CAGR) Conservative Capitalization and Risk Management 0.5x Leverage Ratio Committed to the Divid
Slide 21: Spark in the Community
20 Spark in the Community Through our work with the Arbor Day Foundation, we are able to extend our environmental efforts far beyond green energy. We help Lemonade Day introduce youth to the concept of starting and operating their own lemonade stand businesses while teaching the real-world skills th
Slide 22: Investor Relations Contact Information
Investor Relations Contact Information Investor Relations Spark Energy, Inc. 12140 Wickchester Lane, Suite 100 Houston, TX 77079 http://ir.sparkenergy.com/ Contact: Andy Davis ir@sparkenergy.com 832-200-3727 21
Slide 23: Appendix
Appendix
Slide 24: Proven Leadership
23 Proven Leadership Georganne Hodges • Chief Financial Officer • Former CFO of Direct Energy’s (LSE:CNA) retail energy services business • Experienced in M&A and integration of retail energy companies • Certified public accountant Jason Garrett • Executive Vice President • Served in leadership role
Slide 25: Board of Directors
24 Board of Directors W. Keith Maxwell III • Chairman of the Board of Directors Mr. Maxwell serves as non-executive Chairman of the Board of Directors, and was appointed to this position in connection with the IPO. Mr. Maxwell also serves as Chief Executive Officer of NuDevco Partners, LLC and Natio
Slide 26: Spark's History Dates Back to the Early Days of Retail Energy Deregulation
25 Spark’s History Dates Back to the Early Days of Retail Energy Deregulation Spark Gas was formed Spark Power was formed States began to deregulate electricity & natural gas Predecessor company founded by W. Keith Maxwell, III Town Square and Discount Power Acquisitions CenStar Energy Acquisition O
Slide 27: Condensed Balance Sheet
26 Condensed Balance Sheet ($ in thousands) Cash $ 2,949 Accounts receivable 56,080 Inventory 181 Customer acquisition costs/Customer relationships 18,724 Other current assets 13,447 Total current assets $ 91,381 Deferred tax asset 34,531 Customer acquisition costs/Customer relationships 7,893 Goodw
Slide 28: Up-C Structure
27 Up-C Structure Public Spark Energy, Inc. Sponsor Spark HoldCo Operating Subsidiaries Spark Energy, LLC Spark Energy Gas, LLC CenStar Energy Corp. Oasis Power Holdings, LLC Class A Common Stock 5,843,623 Shares1,2 • Publicly traded • 100% of economic interest in Spark Energy, Inc. Class B Common S
Slide 29: Appendix: Reg. G Schedules
Appendix: Reg. G Schedules
Slide 30: Adjusted EBITDA Reconciliation (Table A-1)
29 Reg. G ($ in thousands) 2015 1Q15 1Q16 Net income (loss) $25,975 $12,929 $15,741 Depreciation and amortization 25,378 4,278 6,789 Interest expense 2,280 381 753 Income tax expense 1,974 561 988 EBITDA 55,607 18,149 24,271 Less: Net, Gains (losses) on derivative instruments (18,497) (1,305) (9,749
Slide 31: Adjusted EBITDA Reconciliation (Table A-2)
30 Reg. G ($ in thousands) 2015 1Q15 1Q16 Net cash provided by operating activities $45,931 $19,246 $25,502 Amortization and write off of deferred financing costs (412) (50) (117) Allowance for doubtful accounts and bad debt expense (7,908) (2,947) (907) Interest expense 2,280 381 753 Income tax exp
Slide 32: Retail Gross Margin Reconciliation (Table A-3)
31 Reg. G ($ in thousands) 2015 1Q15 1Q16 Operating income (loss) $29,905 $13,736 $17,577 Depreciation and amortization 25,378 4,278 6,789 General and administrative 61,682 14,704 17,380 Less: Net asset optimization revenue 1,494 1,929 527 Net, Gains (losses) on non-trading derivative instruments (1
Slide 33: Reg. G Adjusted EBITDA Definition
32 Reg. G Adjusted EBITDA We define “Adjusted EBITDA” as EBITDA less (i) customer acquisition costs incurred in the current period, (ii) net gain (loss) on derivative instruments, and (iii) net current period cash settlements on derivative instruments, plus (iv) non-cash compensation expense and (v)