Tag Archives: nasdaq

Spark Energy’s (SPKE) CEO Nathan Kroeker on Q2 2015 Results – Earnings Call Transcript

Spark Energy (NASDAQ: SPKE ) Q2 2015 Earnings Conference Call August 13, 2015, 11:00 AM ET Executives Andy Davis – Head of Investor Relations Nathan Kroeker – Director, President and Chief Executive Officer Georganne Hodges – Chief Financial Officer Analysts Selman Akyol – Stifel Operator Good morning, ladies and gentlemen. Welcome to the Spark Energy, Inc.’s second quarter 2015 earnings conference call. My name is Shannon, and I’ll be your operator for today. [Operator Instructions] I would now like to turn the conference over to Mr. Andy Davis, Head of Investor Relations for Spark Energy, Inc. Please go ahead. Andy Davis Good morning and welcome to Spark Energy, Inc. second quarter 2015 earnings call. This morning’s call is being broadcast live over the phone and via webcast, which can be located under Events and Presentations in the Investor Relations section of our website at www.sparkenergy.com. With us today from management is our President and CEO, Nathan Kroeker; and our CFO, Georganne Hodges. 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. Management may make forward-looking statements concerning future expectations, projections of our operations, economic performance and financial condition. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we give no assurance that such expectations will be realized. We urge everyone to review the Safe Harbor statement provided in yesterday’s earnings release as well as the risk factors contained in our SEC filings. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise except as required by law. During this morning’s call, we will refer to both GAAP and non-GAAP financial measures of the company’s operating and financial results. 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 Nathan Kroeker, our President and Chief Executive Officer. Nathan Kroeker Thank you, Andy. I’d like to welcome our shareholders and analysts to Spark’s second quarter 2015 conference call. I will make a few opening remarks about our operating results and the two acquisitions we closed recently. And then our Chief Financial Officer, Georganne Hodges, will provide some detail on the financial results. We will then conclude with questions from analysts. Georganne will give you the financial details of our second quarter results in a moment, but I will tell you that we are very pleased with these results. We saw enhanced unit margins in both our Retail Natural Gas and Retail Electricity segments during the second quarter. This was a result of margin expansion, coupled with declining wholesale prices and our ability to capture higher margins on our variable book. In terms of customer count, we saw organic growth of 4% in the second quarter, driven by strong success with our electric sales campaigns in PPL and NSTAR as well as consumers in PG&E on the natural gas side and dual fuel offerings in [indiscernible]. I will discuss our two recent acquisitions in a moment, but I will say that I’m very excited about the addition of 20 new markets from these acquisitions. In the first few weeks, we have launched several dual fuel products where, for example, we are now selling Oasis electricity combined with Spark gas in the same customer sales experience. In addition, we are in the process of broadening our broker relationships, providing brokers new electric and gas markets, leveraging our suite of brand. As we signaled last quarter, we continued to see the heightened level of attrition in Southern California, as a result of our more aggressive collection efforts in that market. In line with our expectations with the closing of the Entrust acquisition, we saw higher attrition as a result of required customer communications, as those customers came on flow in the second quarter. We have taken a series of steps, aimed at reducing attrition, and we are already seeing success. If you dig into the second quarter, attrition was at its highest point in April, and has been trending down through June, and we’re seeing this trend continue in the early part of the third quarter. While I expect our attrition to continue to improve over the next few quarters, I don’t expect it to return to the levels of a few years ago, as the composition of our business has shifted overtime at higher-margin lower-volume customers that tend to experience higher attrition levels. All of this attrition is factored into our pricing strategies and our customer likes on value analysis. On July 8, we acquired CenStar Energy, a retail energy company with approximately 75,000 RCEs across 20 utilities in New York, New Jersey and Ohio. CenStar provides us with the access to 13 new utilities service territories as well as several new products to support our continued organic growth efforts. Censtar has a strong brand as well as a number of broker infinity relationships that we intend to leverage, as we grow this business. On July 31, we completed our Oasis Energy acquisition. Oasis operates in six states across 18 utilities and has approximately 40,000 natural gas and electricity customers. Oasis provides the seven new utilities, providing additional organic growth opportunities for Spark. As discussed on the last call, we intend to maintain the Oasis brand in sales and marketing operations, given their ability to add customers at a competitive cost, and realize electricity unit margin that are significantly higher than our historical margins, while only experiencing slightly higher attrition rates. We expect both businesses to be accretive through adjusted EBITDA in 2015, inclusive of integration costs expected in the third and fourth quarters. On June 15, we paid a quarterly cash dividend for the first quarter of $0.3625 per share. More recently, on July 23, we announced that our second quarter dividend of $0.3625 per share will be paid on September 14. We expect to pay this quarterly dividend on a go-forward basis. And as we have previously communicated, we expect 2015 adjusted EBITDA to exceed our planned 2015 dividends and all required distributions and tax payments. And now with our two recent acquisitions, our adjusted EBITDA should be further increased by a meaningful amount. And I want to reiterate that management does not anticipate any changes to the dividend policy in 2015. Thanks for your attention. And with that, I will now turn the call over to Georganne Hodges, our Chief Financial Officer, for more financial review. Georganne? Georganne Hodges Thank you, Nathan. Strong unit margins underpinned by lower supply costs across several of our market led to an adjusted EBITDA of $4.6 million for the second quarter. This compared to $1.4 million for the second quarter of 2014. Retail gross margin was $23.1 million compared to $17.9 million in 2014. This increase was driven by increased unit margins across both our retail natural gas and electricity segments. Although, customer account was 17% higher in the second quarter of 2015 as compared to 2014, our gas volumes were slightly lower reflecting a shift in our overall geographic mix. G&A expenses for the quarter were $13 million compared to $9.7 million in 2014. This increase is primarily due to increased billing and other variable costs associated with customer account growth and increased costs associated with being a public company. Customer acquisition spending for the quarter was $6.2 million compared to $6.4 million spent in the second quarter of ’14. Approximately, 82,000 new customers came on flow in the quarter, which includes approximately 25,000 from our Entrust acquisition, which we closed in the first quarter. Our net income for the quarter was $4.6 million compared to $200,000 in 2014. Our EPS for the quarter was $0.23, which was positively impacted $0.02 by an unrealized gain on our hedges of future supply positions. In the second quarter, we paid down our working capital facility by $11 million, ending the quarter with a loan balance of $9 million. On July 8, we amended and restated our senior credit facility to include a $25 million secured revolving line of credit to be used specifically for the financing of permitted acquisitions, along with our revolving working capital facility of $60 million. As of today, the loan balance on the revolving acquisition tranche is $21.2 million, while the balance on the working capital facility is $20.3 million. I would point out that the balance on the working capital facility reflects the purchase of working capital for both CenStar and the Oasis acquisitions. Additionally, on July 8 and July 31, in conjunction with the closing of these acquisitions, we executed a total of $7.1 million of convertible subordinated debt with an affiliate of our founder. That concludes my prepared remarks. I’ll now turn the call back over to Nathan. Nathan Kroeker Thanks, Georganne. In summary, we are very pleased with the strong adjusted EBITDA and retail gross margin we realized in the second quarter. As we move through the third quarter, we are very focused on the integration of our two new acquisitions, taking advantage of the new market opportunities for organic customer acquisitions. We will now open up the line for questions from our analysts. Operator? Question-and-Answer Session Operator [Operator Instructions] Our first question comes from Selman Akyol with Stifel. Selman Akyol As we sit there and look at the gross margin, and I know represented in your early comments that you had, I guess, favorable supply contracts on as well. How long do those — is the gross margin due to the acquisitions, higher selling prices? Is it due more to the favorable acquisition prices of energy? And if so, how long do those contracts run for? Just trying to get a feel for how durable those margins are? Nathan Kroeker Let me make sure I understand your question, Selman. So you’re asking how much of it is due to us increasing revenue and how much of it is due to us having lower costs and how long can we expect that to continue for? Selman Akyol That’s a very good summary of it, yes. Nathan Kroeker It’s really a combination of both. So on the supply side, we saw commodity prices coming down through the quarter. And when we see commodity prices coming down like that, it gives us the opportunity to expand our unit margins in that period of time. Similarly, we do have a pretty significant portion of our book that’s on variable price contracts. With milder weather in the quarters, smaller builds for consumers, we were able to have slightly higher variable margins, raise the revenue on those customers. So it’s really a combination of both. I don’t think it has much to do with the supply hedges out into the future as it is the situation in the quarter. That said, I mean I think we’ve proven that we can achieve higher unit margins than what we had last year, and we expect to continue to manage the business in a similar way going forward. So I definitely think you’re going to see higher unit margins even through the balance of the year than we had last year. Selman Akyol And then, can you talk about attrition within the quarter? Georganne Hodges We saw attrition numbers — you saw attrition numbers, they were higher than we would like. Within that, it has been trending down throughout the second quarter. And as I said a moment ago, I mean also trend it down even in the first part of the third quarter. Full quarter number was 7.7. Our June attrition, on a standalone basis for the month of June, was actually 6.8, and we see that trend continuing in July. I don’t necessarily see attrition getting all the way back down to the historical levels that we had a couple of years ago, because the makeup of our customer book has changed, really shifted a lot of our focus to higher margin, lower volume customers. And those customers tend to have inherently higher attrition. But as I also said a moment ago, I mean all of that attrition is factored into our pricing decisions, our pricing models and our lifetime value strategies. So I think we have done a pretty good job of managing it. Selman Akyol And then last one from me, just on sort of the acquisition outlook. So are you seeing lot of opportunities out there? Nathan Kroeker Absolutely, I mean I will say the management team is very focused on integrating the two deals we just did in July. But we do have a founder that’s very committed to helping us grow through M&A, willing to continue to leverage his balance sheet in order to do that. So we’re absolutely continuing to look at additional opportunities. Whether there would be something we do directly in Spark or whether it’s something that we do with the parent company and then leverage subordinated debt in order to drop those down at a later date, but we’re willing to look at pretty much anything that we think is on strategy for us. Operator We have no further questions at this time. I would now like to turn the call back over to Nathan Kroeker for closing remarks. End of Q&A Nathan Kroeker Thanks everybody for participating in today’s call. And we look forward to talking to you soon. Operator Ladies and gentlemen, this concludes today’s conference. Thanks for your participation and have a wonderful day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

It’s August 13, 2015 – Do You Know What’s In Your International ETF?

Summary Investors desiring true diversification do well to have some international exposure in their portfolio. However, not all “general” international ETFs are the same, not by a long shot. Knowing what is in your ETF is crucial to making correct decisions, in line with your investment viewpoint and strategy. At least some of my readers may well remember a Public Service Announcement that ran during the 1960s, ’70s, and ’80s according to Time magazine . The question was: ” It’s 10 p.m. Do you know where your children are? ” Historically, this was not simply a general reminder to parents but also due to the fact that curfews were in place in various areas due to riots and other public unrest. A failure to know where one’s children were could lead to complications for the family. When investing, clearly it is beneficial to know what you are investing in. It’s not so much a question of what your strategy is , but rather knowing if the vehicles you have chosen to implement that strategy are actually doing so. All International ETFs Are Not Created Equal As I have suggested previously , every investor should consider holding at least some percentage of foreign stocks in their portfolio. Put simply, such exposure can provide both diversification and the potential for greater growth as compared to a portfolio comprised solely of U.S. stocks. But back to the heading of this section; Not all international ETFs are created equal. For purposes of this article, I am hoping to encourage you to evaluate what, at least in broad terms, is in your international portfolio; to make sure it is actually what you think is in your portfolio. In this article, we will consider that topic using four Vanguard international ETFs that I will describe as “general;” in other words they are not country or even region-specific (e.g. Asia or Europe). Those ETFs are: Vanguard FTSE Developed Markets ETF (NYSEARCA: VEA ) Vanguard FTSE All-World ex-US ETF (NYSEARCA: VEU ) Vanguard Total International Stock ETF (NASDAQ: VXUS ) Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) To get us started, please take a look at the following table, where I have summarized some key data points featuring the sorts of things you may wish to evaluate. VEA, VEU, VXUS, VWO: Comparison of Key Data Points ETF Index Tracked AUM (in $ billions) # of Holdings Expense Ratio Exposure to China VEA FTSE Developed ex North America 52.1 1,398 .09% 0.0% VEU FTSE All-World ex US 25.5 2,490 .14% 5.4% VXUS FTSE Global All Cap ex US 168.4 5,904 .14% 5.2% VWO FTSE Emerging 65.4 1,022 .15% 28.3% If you have read some of my other articles, you probably already know where I am headed with most of the data points I selected. The expense ratio is certainly important since, the lower it is, the closer your ETF will track its selected index and the more money will flow to your pockets. The Assets Under Management (AUM) will affect how liquid the fund is, and the number of holdings gives you some idea how well-diversified the fund is. I’d like, however, to talk about a somewhat random data point I threw in; Exposure to China . As you may be aware, the Chinese stock market has experienced some sharp declines of late. As you can quickly see from the table, the effect of this on our four ETFs ranges from “none at all” for VEA to “quite significant” for VWO. Looking backwards, if one owned VWO and was not aware of this, its recent performance may have come as a shock. Looking forwards, however, VWO may be exactly the ETF you wish to get into, or add to your position in, if you wish to gain some exposure to a possible recovery. With that background, let’s next turn to a one-year chart of the recent performance of each of our four ETFs. VEA data by YCharts No doubt, your eye was immediately drawn to that 17.5% decline in VWO. Without a doubt, this past year has been very challenging for emerging economies. Hopefully, investors with shares in VWO understood this potential and had it weighted appropriately in their portfolios. But the second thing you likely notice is that our 3 other ETFs were affected to very different degrees by this. VEA, which sticks purely to developed markets, has dropped a relatively modest 3.29% over that same period, while both VEU and VXUS were somewhere in between. Let’s now take a quick look at each of the 4 ETFs and how investors may choose among them. In each case, I will make the title of the section a link to that ETF’s fact sheet, in case you wish to examine one or more further. Vanguard FTSE Developed Markets ETF Put simply, as reflected in the name of the index it tracks, this ETF sticks strictly to developed markets outside North America. Please see this article for more definition around the differences between developed and emerging markets. NOTE: Vanguard recently announced that VEA will transition from the FTSE Developed ex North America Index to the FTSE Developed All Cap ex US Index . This is actually sort of a big deal. Currently, this ETF has no exposure to Canada, which could be a negative factor for some investors. This change will correct that, including 234 Canadian stocks and offering exposure to a country rich in natural resources. Of the four, at .09% VEA has easily the lowest expense ratio; extremely low for an ETF investing outside the U.S. At $52.1 billion of AUM, it is a huge fund, offering wonderful liquidity and a tight trading spread of .02%. Over the past 12 months, its distribution yield (distributions over the past 12 months divided by the fund’s Net Asset Value) has been 2.83%. VEA is a wonderful option for the investor who wishes to stay completely away from the volatility of emerging markets. Alternatively, it can be mated with VWO to introduce exposure to emerging markets at whatever level the investor desires, as opposed to the defined exposure offered by VEU and VXUS. Vanguard FTSE All-World ex-US ETF and Vanguard Total International Stock ETF I am going to consider both of these together because there are many similarities between the two. Their expense ratios are the same, at .14%. Their Top 10 holdings are the same. Their exposure to emerging markets is roughly the same; 19.00% for VEU and 18.90% for VXUS. Their exposure to China, which I featured earlier, is also roughly the same. Of the two, VXUS has slightly more exposure to Canada. What, then, is the main difference? Have a look back at our comparative table. You will notice that VEU has 2,490 holdings vs. VXUS’s much larger number of 5,904. This is because the index VEU tracks sticks mostly to large and mid-cap companies, whereas the index VXUS tracks extends all the way down into smaller companies. Interestingly, the differences are a mixed bag. VXUS is almost 7 times the size of VEU in terms of AUM. At the same time, its trading spread is .04% vs. .02% for VEU. As can be seen in the performance chart I featured, VXUS is slightly more volatile due to its inclusion of smaller stocks. VEU comes out slightly ahead in the battle of distribution yields; 2.81% to 2.74%. Really, your decision may come down to two factors: How much exposure you want to Canada (VXUS has 6.6% vs. 5.9% for VEU). Whether you desire the slightly greater growth potential of small stocks in return for potentially greater volatility. Vanguard FTSE Emerging Markets ETF As featured in the previous discussion of VEA, VWO makes a nice complementary ETF to include exposure to emerging markets at whatever level you desire. It is true that you could also add VWO to either VEU or VXUS to weight emerging markets even more heavily. However, the calculation gets a little murkier and you are also losing out on VEA’s wonderful .09% expense ratio. VWO carries an expense ratio of .15% and a distribution yield of 2.82%. NOTE: Vanguard recently announced (see link under VEA) that VWO will transition from the FTSE Emerging Markets Index to the FTSE Emerging Markets All Cap China A Inclusion Index . This will add exposure to China A-Share stocks as well as a much larger number of small-cap stocks. Similar Application Across Other ETF Families Similar concepts can be applied across other ETF families. For example, if you are a Fidelity Brokerage client, you may wish to take advantage of commission-free trading to do something similar with iShares ETFs. I actually built a portfolio doing this in this article on my personal blog. Feel free to have a look to see a similar examination and comparison of the iShares Core MCSI EAFE ETF (NYSEARCA: IEFA ), iShares Core MCSI Total International Stock ETF (NYSEARCA: IXUS ) and iShares Core MCSI Emerging Markets ETF (NYSEARCA: IEMG ). Summary And Conclusion Just as that Public Service Announcement reminded parents of the importance of knowing where their children were in the late-evening, it is important for each investor to understand the contents of their portfolio. Hopefully, using the example of international equities, I have been able to demonstrate why this is the case. Happy investing! Disclosure: I am/we are long VEU, VWO, IXUS. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: I am not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult with their personal tax or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.