Spark Power Reports Strong Third Quarter 2018 Results and Positive Outlook
Spark Power Reports Strong Third Quarter 2018 Results and Positive Outlook
Canada NewsWire
OAKVILLE, ON, Nov. 13, 2018
- Revenue of $38.3 million, up 69.0%
- Adjusted EBITDA of $7.3 million in the quarter, up 58.7%
OAKVILLE, ON, Nov. 13, 2018 /CNW/ - Spark Power Group Inc. (TSX: SPG, SPG.WT), parent company to Spark Power Corp. ("Spark Power" or the "Company"), a leading independent provider of integrated power solutions to industrial, commercial and institutional customers across North America, today announced its financial results for the three- and nine-month periods ended September 30, 2018. All amounts are in Canadian dollars unless otherwise specified.
Recent Highlights
Highlights for the third quarter and the period subsequent to quarter-end include:
- Consolidated revenue growth of 69.0%, from $22.6 million in the third quarter of 2017 to $38.3 million in the third quarter of 2018;
- Adjusted EBITDA growth of $7.3 million (Adjusted EBITDA margin of 19.1%) in the third quarter of 2018, up $2.7 million or 58.7% from $4.6 million (Adjusted EBITDA margin of 20.2%) in the third quarter of 2017; (see "Non-IFRS measures");
- Closing of $90 million in secured debt facilities with the Bank of Montreal;
- Closing of the Qualifying Acquisition, pursuant to which Spark Power merged with Canaccord Genuity Acquisition Corp. ("CGAC") and began trading on the Toronto Stock Exchange as Spark Power Group Inc.;
- Acquisition of Edmonton, Alberta-based power systems engineering and technical field services provider, Orbis Engineering Field Services Ltd. ("Orbis");
- Acquisition of leading green energy provider, Toronto, Ontario-based, Bullfrog Power Inc. ("Bullfrog");
- Acquisition of two low voltage New Electric branches in California ("NEF");
- Award of a multi-year capital maintenance contract to wholly-owned subsidiary Orbis by Alberta's largest electricity provider, AltaLink; and
- Execution of organization-wide integration plan driving expected increase in EBITDA of $4.5 - $5.0 million in 2019.
"Our third quarter results clearly demonstrate the impact of our two-prong growth strategy with both acquisitions and organic growth contributing to meaningful improvements in year-over-year revenue and Adjusted EBITDA, and we remain on track to achieve our previously released Pro-forma Adjusted EBITDA target for 2018," said Jason Sparaga co-CEO and co-Founder of Spark Power Corp. "Following our recent listing on the TSX and the closing of $90 million in secured debt facilities, we've also been able to improve our access to capital, which will afford us enhanced flexibility as we continue to invest in growing the business in both the near- and longer-term."
"Throughout the year, we have continued to execute on strategic growth initiatives including multiple new branch openings, cross-selling solutions to existing customers targeting a broader span of their power infrastructure, and securing new business, as evidenced by the recent Orbis contract award from AltaLink," said Andrew Clark, co-CEO and co-Founder of Spark Power Corp. "In the quarters ahead we'll continue to look for opportunities to expand our geographic reach, both adjacent to existing branches and in new territories, grow our diverse, blue-chip customer base, target additional specialized technical staff, and identify complementary power solutions that will further diversify our offering."
Summary Results of Operations
Three months ended | Nine months ended | |||||||||
September, 30 | September, 30 | |||||||||
2018 | 2017 | % Change | 2018 | 2017 | % Change | |||||
Revenue | $ | 38,268,707 | $ | 22,639,739 | 69.0% | $ | 81,849,796 | $ | 57,868,574 | 41.4% |
Gross Profit | 13,297,002 | 9,334,055 | 42.5% | 30,451,544 | 24,568,423 | 23.9% | ||||
Selling, General and Administration | 8,277,598 | 6,414,393 | 29.0% | 22,617,089 | 21,055,459 | 7.4% | ||||
Income from Operations | 5,019,404 | 2,919,662 | 71.9% | 7,834,455 | 3,512,964 | 123.0% | ||||
Adjusted EBITDA(1) | 7,313,109 | 4,564,587 | 60.2% | 14,473,110 | 9,553,675 | 51.5% | ||||
Adjusted EBITDA Margin(1) | 19.1% | 20.2% | 17.7% | 16.5% | ||||||
Pro-forma Adjusted EBITDA | 7,313,709 | 6,996,149 | 4.5% | 19,365,890 | 14,302,816 | 35.4% | ||||
Pro-forma Adjusted EBITDA Margin(1) | 19.1% | 19.5% | 17.8% | 15.5% | ||||||
Adjusted Net and Comprehensive Income (Loss) | 3,603,082 | 1,289,888 | 4,528,158 | (1,289,445) | ||||||
September 30, | December 31, | |||||||||
2018 | 2017 | |||||||||
Adjusted Working Capital (non-cash)(1) | 20,697,815 | 10,691,697 | ||||||||
Net (Bank Indebtedness) Cash | (3,539,859) | 3,126,617 | ||||||||
Senior Secured Long-term Debt | 44,000,000 | 29,440,000 | ||||||||
Total Debt(2) | 74,848,960 | 49,931,253 | ||||||||
1EBITDA, Adjusted EBITDA, Pro-forma Adjusted EBITDA, Adjusted EBITDA margin, Pro-forma Adjusted EBITDA Margin and Adjusted Working Capital are non-IFRS measures. Refer to Non-IFRS measures for definitions of these terms. |
2Total debt includes, long-term debt, lease liability, promissory notes and bank indebtedness |
Financial Review
Revenue in the third quarter ended September 30, 2018 was $38.3 million, compared with $22.6 million in the third quarter of 2017, representing an increase of $15.7 million or 69.0%. Effective July 1, 2018 the Company completed the acquisitions of Orbis, Bullfrog and NEF which contributed $12.1 million to the revenue increase. The balance of the revenue growth in the third quarter of 2018 of $3.6 million was attributable to organic growth representing an increase of 15.9%. Organic growth was driven by the Services Group, primarily from growth in low voltage electrical services under the New Electric brand. Revenue for the nine months ended September 30, 2018 was $81.9 million, compared with $57.9 million in the first nine months of 2017, representing an increase of $24.0 million or 41.4%. The impact of the acquisitions noted earlier contributed $12.1 million of the revenue increase. The balance of the revenue growth for the nine months ended September 30, 2018 of $11.9 million was attributable to organic growth representing an increase of 20.6%. Organic growth was driven by the Services Group, primarily growth in low voltage electrical services and operations and maintenance services under the Northwind brand.
Gross profit in the third quarter of 2018 was $13.3 million, compared with $9.3 million in the third quarter of 2017, representing an increase of $4.0 or 42.5%. For the nine-month period ended September 30, 2018 gross profit was $30.5 million, compared with $24.6 million during the same period of 2017, representing an increase of $5.9 million or 23.9%.
Selling, general and administration ("SG&A") expenses for the third quarter of 2018 were $8.3 million, or 21.6% of revenue, compared with $6.4 million, or 28.3% of revenue, in the prior year period. In the first nine months of 2018, selling, general and administration expenses were $22.6 million, or 27.6% of revenue, compared with $21.0 million, or 36.4% of revenue, in the same period of the prior year. The absolute dollar increases in the three- and nine- month periods were attributable to the impact of the 2018 acquisitions while percentage declines were attributable to the impact of operational leverage as the Company realized revenue growth without corresponding increases in SG&A costs.
For the three months ended September 30, 2018, Adjusted EBITDA was $7.3 million (19.1% of revenue) compared with $4.6 million (20.2% of revenue) in the third quarter of 2017, representing an increase of $2.7 million or 60.2%. For the nine months ended September 30, 2018, Adjusted EBITDA was $14.5 million (17.7% of revenue) compared with $9.6 million (16.5% of revenue) in the same period of 2017, representing an increase of $4.9 million or 51.5%. The increase for both the three- and nine-month periods was attributable to higher volumes driving greater gross profits, and scale achieved on selling, general and administration costs.
Pro-forma Adjusted EBITDA for the nine-month period ended September 30, 2018 was $19.4 million (17.8% of Pro-forma revenue) compared with $14.3 million (15.5% of Pro-forma revenue) over the same period in 2017. Pro-forma Adjusted EBITDA includes 2018 and 2017 first and second quarter EBITDA from the three acquisitions completed during the third quarter of 2018.
The Company generated Adjusted Net and Comprehensive Income in the three and nine months ended September 30, 2018 of $3.6 million and $4.5 million, respectively. The Company incurred a net comprehensive loss in the three- and nine-month periods ended September 30, 2018 of $37.6 million and $64.9 million, respectively, as a result of various non-recurring expenses of $41.2 million and $69.5 million being incurred in the noted periods. These non-recurring expenses related to the accounting impact of puttable shares, the retraction of shares from a previous shareholder, and costs associated with the merger with CGAC and acquisition activities completed in the quarter.
At September 30, 2018 the Company had Adjusted Working Capital, excluding cash and bank indebtedness, of $20.7 million compared with $10.7 million at December 31, 2017. The increase was attributable primarily to the impact of the three acquisitions completed in the quarter and the organic growth realized.
Total Senior Secured Long-term Debt increased to $44.0 million compared with $29.4 at December 31, 2017. The increase occurred as the new credit facility was used to repay the previous lender principal and early termination fees, and partially fund the retraction of shares and payment of promissory note due to a previous shareholder.
Total debt was $74.9 million at September 30, 2018, compared with $49.9 million at December 31, 2017, with the increase being attributable primarily to the above noted increase in senior secured debt, an increase in lease liability of $3.7 million, and an increase in net bank indebtedness of $6.7 million.
Outlook
Compared with 2017, management expects revenue and Adjusted EBITDA to be higher in 2018 due to organic growth in Spark Power's base business and the impact of the three acquisitions completed effective July 1, 2018.
For fiscal 2019, excluding the impact of any acquisitions that may be completed, management expects continued growth in revenue and EBITDA as they execute the Company's organic growth plans including new branch openings and cross-selling of solutions capabilities across its customer base, coupled with the impact of the 2018 acquisitions contributing a full year of results.
During the third quarter and into November, the Company identified and effected various synergies across the organization that are expected to positively impact EBITDA by $4.5 - $5.0 million on an annualized basis. The impact of a majority of these changes will begin in the fourth quarter of 2018 and be fully realized commencing January 1, 2019. The Company expects to incur a one-time charge of up to $1.3 million in the fourth quarter of 2018 in association with these changes with the cash impact being realized over the next four quarters.
With the new credit facility announced in October 2018 the Company believes it has adequate financial resources to support its growth expectations in 2019. Management expects to have availability on the operating line of approximately $15.0 million and an unutilized acquisition line of $25.0 million to support any acquisition opportunities that may arise in 2019.
Conference Call Details
Management is hosting an investor conference call and webcast on Wednesday, November 14, 2018 at 8:30 a.m. ET to discuss its financial results in greater detail. To join by telephone dial: +1 (888) 231-8191 (toll-free in North America) or +1 (647) 427-7450 (local and international). To listen to a live webcast of the call, please go to: https://event.on24.com/wcc/r/1874887/44C99F2878B1F55A8D26F1FCBCCB7ACF. Please dial in or log on 10 minutes prior to the start time to provide sufficient time to register for the event.
A replay of the conference call will be available from approximately noon ET on Wednesday, November 14, 2018 until 11:59 pm ET on Wednesday, November 21, 2018 at +1 (855) 859-2056 (toll-free in North America) or +1 (416) 849-0833 (Local and International) by entering the passcode 8127348.
2018 Third Quarter Disclosure Documents
Spark Power's third quarter MD&A and unaudited interim consolidated financial statements for the three and nine months ended September 30, 2018, along with previous public filings of Spark Power and Canaccord Genuity Acquisition Corp., may be found on SEDAR at www.sedar.com.
Non-IFRS Measures
The Company prepares and releases unaudited consolidated interim financial statements and audited consolidated annual financial statements prepared in accordance with IFRS. In this and other earnings releases and investor conference calls, as a complement to results provided in accordance with IFRS, the Company also discloses and discusses certain financial measures not recognized under IFRS and that do not have standard meanings prescribed by IFRS. These include: "EBITDA", "Adjusted EBITDA", "Pro-forma Adjusted EBITDA", "Adjusted EBITDA Margin", "Pro-forma Adjusted EBITDA Margin", "Pro-forma Revenue", "Adjusted Working Capital", and "Adjusted Net Comprehensive Income (Loss)". These non-IFRS measures are used to provide investors with supplemental measures of Spark Power's operating performance and highlight trends in Spark Power's business that may not otherwise be apparent when relying solely on IFRS measures. Spark also believes that providing such information to securities analysts, investors and other interested parties who frequently use non-IFRS measures in the evaluation of issuers will allow them to better compare Spark Power's performance against others in its industry. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. For a reconciliation of these non-IFRS measures see the Company's management's discussion and analysis for the three and nine months ended September 30, 2018. The non-IFRS measures should not be construed as alternatives to results prepared in accordance with IFRS.
About Spark Power Corp.
Spark Power is a leading integrated power solutions company serving more than 6,500 industrial, commercial, and institutional customers across North America. For more information, visit us at www.sparkpowercorp.com.
Caution Regarding Forward-Looking Statements
This news release may contain forward-looking statements (within the meaning of applicable securities laws) which reflect Spark Power's current expectations regarding future events. Forward-looking statements are identified by words such as "believe", "anticipate", "project", "expect", "intend", "plan", "will", "may", "estimate" and other similar expressions. These statements are based on Spark Power's expectations, estimates, forecasts and projections and include, without limitation, statements regarding the future success of the Company's business, including revenue growth, synergistic savings expected to be realized, potential expansion of the business and include, without limitation, statements regarding the growth and financial performance of Spark Power's business and execution of its business strategy by Messrs. Sparaga and Clark.
The forward-looking statements in this news release are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, these forward-looking statements are made as of the date of this news release and, except as expressly required by applicable law, Spark Power assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Selected Consolidated Financial Information
The following tables summarizes Spark Power's recent results for the periods indicated:
For the Three-Months Ended | For the Nine-Months Ended | ||||||||
Sunday, September 30, 2018 | Sunday, September 30, 2018 | ||||||||
Consolidated statements of loss and comprehensive | 2018 | 2017 | 2018 | 2017 | |||||
Revenue | $ | 38,268,707 | $ | 22,639,739 | $ | 81,849,796 | $ | 57,868,574 | |
Cost of sales | 24,971,705 | 13,305,684 | 51,398,252 | 33,300,151 | |||||
Gross profit | 13,297,002 | 9,334,055 | 30,451,544 | 24,568,423 | |||||
Selling, general and administrative expenses | 8,277,598 | 6,414,393 | 22,617,089 | 21,055,459 | |||||
Income from operations | 5,019,404 | 2,919,662 | 7,834,455 | 3,512,964 | |||||
Other income (expenses): | |||||||||
Finance costs | (1,477,690) | (1,154,229) | (3,473,243) | (3,474,469) | |||||
Increase in value of puttable class A and Class 1 shares | (20,654,400) | - | (47,771,600) | - | |||||
Transaction costs | (9,157,399) | - | (10,269,633) | - | |||||
Excess of fair value over net asset acquired | (12,660,331) | - | (12,660,331) | - | |||||
Gain on retraction of Class 1 special shares | 1,250,000 | - | 1,250,000 | - | |||||
Other | (64,690) | (52,182) | (29,171) | (57,837) | |||||
(42,764,510) | (1,206,411) | (72,953,978) | (3,532,306) | ||||||
Income (loss) before income taxes | (37,745,106) | 1,713,251 | (65,119,523) | (19,342) | |||||
Income tax expense: | |||||||||
Current | 685,243 | 190,714 | 1,481,064 | 572,156 | |||||
Deferred | (811,301) | 232,649 | (1,677,181) | 697,947 | |||||
(126,058) | 423,363 | (196,117) | 1,270,103 | ||||||
Net income (loss) and comprehensive income (loss) | (37,619,048) | 1,289,888 | (64,923,406) | (1,289,445) | |||||
For the Three-Months Ended | For the Nine-Months Ended | |||||
September 30, 2018 | September 30, 2018 | |||||
Reconciliation of net and comprehensive income (loss) to Adjusted Net and Comprehensive Income (Loss): | 2018 | 2017 | 2018 | 2017 | ||
Net and comprehensive income (loss) | ($37,619,048) | $ | 1,289,888 | ($64,923,406) | ($1,289,445) | |
Adjustments to net and comprehensive income (loss): | ||||||
Increase in value of puttable class A and Class 1 shares | 20,654,400 | - | 47,771,600 | - | ||
Transaction costs | 9,157,399 | - | 10,269,633 | - | ||
Excess of fair value over net asset acquired | 12,660,331 | - | 12,660,331 | - | ||
Gain on retraction of Class 1 special shares | (1,250,000) | - | (1,250,000) | - | ||
Adjusted net and comprehensive income (loss) | 3,603,082 | 1,289,888 | 4,528,158 | (1,289,445) | ||
For the Three-Months Ended | For the Nine-Months Ended | ||||
Sunday, September 30, 2018 | Sunday, September 30, 2018 | ||||
Reconciliation of net income (loss) to EBITDA, Adjusted EBITDA and Pro-forma Adjusted EBITDA: | 2018 | 2017 | 2018 | 2017 | |
Net income (loss) and comprehensive income (loss) | ($37,619,048) | $1,289,888 | ($64,923,406) | ($1,289,445) | |
Amortization | 2,278,744 | 1,494,384 | 5,608,926 | 4,241,004 | |
Finance costs | 1,477,690 | 1,154,229 | 3,473,243 | 3,474,469 | |
Income tax expense | (126,058) | 423,363 | (196,117) | 1,270,103 | |
EBITDA | (33,988,672) | 4,361,864 | (56,037,354) | 7,696,131 | |
Adjustments to EBITDA: | |||||
Increase in value of puttable class A and Class 1 shares | 20,654,400 | - | 47,771,600 | - | |
Transaction costs | 9,157,399 | - | 10,269,633 | - | |
Excess of fair value over net asset acquired | 12,660,331 | - | 12,660,331 | - | |
Gain on retraction of Class 1 special shares | (1,250,000) | - | (1,250,000) | - | |
Other non-recurring costs | 80,251 | 202,813 | 1,058,896 | 1,857,544 | |
Adjusted EBITDA | 7,313,709 | 4,564,677 | 14,473,106 | 9,553,675 | |
Pre-acquisition EBITDA for 3 Acquisitions | - | 2,431,472 | 4,892,784 | 4,749,141 | |
Pro-forma Adjusted EBITDA | 7,313,709 | 6,996,149 | 19,365,890 | 14,302,816 | |
SOURCE Spark Power Group Inc.
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