Via Renewables Inc.

01/08/2024 | Press release | Distributed by Public on 01/08/2024 23:42

Quarterly Report for Quarter Ending June 30, 2024 (Form 10-Q)

spke-20240630
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-36559
Via Renewables, Inc.
(Exact name of registrant as specified in its charter)
Delaware 46-5453215
(State or other jurisdiction of
incorporation or organization) 		(I.R.S. Employer
Identification No.)
12140 Wickchester Ln, Suite 100
Houston, Texas77079
(Address of principal executive offices)
(713) 600-2600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbols(s) Name of exchange on which registered
8.75% Series A Fixed-to-Floating Rate

Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share 		VIASP The NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer☒Smaller reporting company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐No ☒
There were 3,323,329 shares of Class A common stock, 4,000,000 shares of Class B common stock and 3,567,543 shares of Series A Preferred Stock outstanding as of July 30, 2024.
VIA RENEWABLES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended June 30, 2024
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2024 AND DECEMBER 31, 2023 (unaudited)
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (unaudited)
6
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (unaudited)
7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (unaudited)
11
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
41
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
58
ITEM 4. CONTROLS AND PROCEDURES
60
PART II. OTHER INFORMATION
61
ITEM 1. LEGAL PROCEEDINGS
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ITEM 1A. RISK FACTORS
61
ITEM 6. EXHIBITS
62
SIGNATURES
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Cautionary Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q (this "Report") contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. These forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), can be identified by the use of forward-looking terminology including "may," "should," "could," "likely," "will," "believe," "expect," "anticipate," "estimate," "continue," "plan," "intend," "project," or other similar words. Forward-looking statements appear in a number of places in this Report. All statements, other than statements of historical fact, included in this Report are forward-looking statements. The forward-looking statements include statements regarding the impacts of Winter Storm Uri, cash flow generation and liquidity, business strategy, prospects for growth and acquisitions, outcomes of legal proceedings, the timing, availability, ability to pay and amount of cash dividends on our Series A Preferred Stock, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans, objectives, beliefs of management, availability and terms of capital, competition, government regulation and general economic conditions. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurance that such expectations will prove correct.
The forward-looking statements in this Report are subject to risks and uncertainties. Important factors that could cause actual results to materially differ from those projected in the forward-looking statements include, but are not limited to:
•the ultimate impact of the Winter Storm Uri, including future benefits or costs related to ERCOT market securitization efforts, and any corrective action by the State of Texas, ERCOT, the Railroad Commission of Texas, or the Public Utility Commission of Texas;
•changes in commodity prices, the margins we achieve, and interest rates;
•the sufficiency of risk management and hedging policies and practices;
•the impact of extreme and unpredictable weather conditions, including hurricanes, heat waves and other natural disasters;
•federal, state and local regulations, including the industry's ability to address or adapt to potentially restrictive new regulations that may be enacted by public utility commissions;
•our ability to borrow funds and access credit markets;
•restrictions and covenants in our debt agreements and collateral requirements;
•credit risk with respect to suppliers and customers;
•our ability to acquire customers and actual attrition rates;
•changes in costs to acquire customers;
•accuracy of billing systems;
•our ability to successfully identify, complete, and efficiently integrate acquisitions into our operations;
•significant changes in, or new changes by, the independent system operators ("ISOs") in the regions we operate;
•risks related to our recently completed Merger (as defined below) including the outcome of any legal proceedings, regulatory proceedings or enforcement matters that may be instituted against us and others relating to the Merger Agreement or otherwise, the impact of the Merger on our operations and the amount of the costs, fees, expenses and charges related to Merger;
•competition; and
•the "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023, in our Quarterly Reports on Form 10-Q in "Item 1A - Risk Factors" of this Report, and in our other public filings and press releases.
You should review the Risk Factors and other factors noted throughout or incorporated by reference in this Report that could cause our actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements speak only as of the date of this Report. Unless required by law, we disclaim any obligation to publicly update or revise these statements whether as a result of new information, future events or otherwise. It is not possible for us to predict all risks, nor can we assess the impact of all factors on the business or
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the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
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PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIA RENEWABLES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share counts)
(unaudited)
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June 30, 2024 December 31, 2023
Assets
Current assets:
Cash and cash equivalents $ 53,557 $ 42,595
Restricted cash 2,332 -
Accounts receivable, net of allowance for credit losses of $3,684 at June 30, 2024 and $4,496 at December 31, 2023
49,085 63,246
Accounts receivable-affiliates 4,795 4,683
Inventory 2,016 3,124
Fair value of derivative assets, net 4,279 909
Customer acquisition costs, net 6,143 5,154
Customer relationships, net 571 342
Deposits 7,706 6,897
Renewable energy credit asset 17,856 25,456
Other current assets 8,071 6,567
Total current assets 156,411 158,973
Property and equipment, net 4,906 4,710
Fair value of derivative assets, net 503 91
Customer acquisition costs, net 2,438 1,835
Customer relationships, net 130 139
Deferred tax assets 11,078 15,282
Goodwill 120,343 120,343
Other assets 3,861 2,461
Total assets $ 299,670 $ 303,834
Liabilities, Series A Preferred Stock and Stockholders' Equity
Current liabilities:
Accounts payable $ 22,603 $ 29,524
Accounts payable-affiliates 269 472
Accrued liabilities 13,558 15,094
Renewable energy credit liability 13,341 15,706
Fair value of derivative liabilities, net 3,105 19,141
Other current liabilities 60 59
Total current liabilities 52,936 79,996
Long-term liabilities:
Fair value of derivative liabilities, net 47 54
Long-term portion of Senior Credit Facility 93,000 97,000
Total liabilities 145,983 177,050
Commitments and contingencies (Note 12)
Series A Preferred Stock, par value $0.01 per share, 20,000,000 shares authorized, 3,567,543 shares issued and outstanding at June 30, 2024 and December 31, 2023
88,050 88,065
Stockholders' equity:
Common Stock:
Class A common stock, par value $0.01 per share, 120,000,000 shares authorized, 3,323,329 shares outstanding at June 30, 2024 and 3,261,620 shares issued and 3,232,701 shares outstanding at December 31, 2023
33 32
Class B common stock, par value $0.01 per share, 60,000,000 shares authorized, 4,000,000 shares issued and outstanding at June 30, 2024 and December 31, 2023
40 40
Additional paid-in capital 38,488 40,002
Accumulated other comprehensive loss (40) (40)
Retained earnings 19,740 8,972
Treasury stock, at cost, 0 and 28,918 shares at June 30, 2024 and December 31, 2023
- (2,406)
Total stockholders' equity 58,261 46,600
Non-controlling interest in Spark HoldCo, LLC 7,376 (7,881)
Total equity 65,637 38,719
Total liabilities, Series A Preferred Stock and Stockholders' equity $ 299,670 $ 303,834
The accompanying notes are an integral part of the condensed consolidated financial statements.
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VIA RENEWABLES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Revenues:
Retail revenues $ 86,960 $ 92,621 $ 201,348 $ 227,746
Net asset optimization expense (531) (1,359) (2,128) (4,632)
Other revenue 267 137 1,532 137
Total Revenues 86,696 91,399 200,752 223,251
Operating Expenses:
Retail cost of revenues 42,997 45,926 111,959 163,367
General and administrative 20,862 16,713 38,195 33,938
Depreciation and amortization 2,210 1,994 4,250 5,330
Total Operating Expenses 66,069 64,633 154,404 202,635
Operating income 20,627 26,766 46,348 20,616
Other (expense):
Interest expense (1,743) (2,447) (3,672) (5,144)
Interest and other income 19 7 43 87
Total other expenses (1,724) (2,440) (3,629) (5,057)
Income before income tax expense 18,903 24,326 42,719 15,559
Income tax expense 3,208 5,240 7,960 3,244
Net income $ 15,695 $ 19,086 $ 34,759 $ 12,315
Less: Net income attributable to non-controlling interests 8,071 11,105 18,568 4,521
Net income attributable to Via Renewables, Inc. stockholders $ 7,624 $ 7,981 $ 16,191 $ 7,794
Less: Dividend on Series A Preferred Stock 2,713 2,640 5,423 5,184
Net income attributable to stockholders of Class A common stock $ 4,911 $ 5,341 $ 10,768 $ 2,610
Net income attributable to Via Renewables, Inc. per share of Class A common stock
Basic $ 1.51 $ 1.67 $ 3.32 $ 0.82
Diluted $ 1.51 $ 1.67 $ 3.32 $ 0.82
Weighted average shares of Class A common stock outstanding
Basic 3,261 3,205 3,247 3,189
Diluted 3,261 3,205 3,247 3,189
The accompanying notes are an integral part of the condensed consolidated financial statements.
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VIA RENEWABLES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in thousands)
(unaudited)
Six Months Ended June 30, 2024
Issued Shares of Class A Common Stock Issued Shares of Class B Common Stock Treasury Stock Class A Common Stock Class B Common Stock Treasury Stock Accumulated Other Comprehensive Loss Additional Paid-in Capital Retained Earnings Total Stockholders' Equity Non-controlling Interest Total Equity
Balance at December 31, 2023
3,262 4,000 (29) $ 32 $ 40 $ (2,406) $ (40) $ 40,002 $ 8,972 $ 46,600 $ (7,881) $ 38,719
Stock based compensation - - - - - - - 1,720 - 1,720 - 1,720
Restricted stock unit vesting 62 - 1 - - - (287) - (286) - (286)
Consolidated net income - - - - - - - - 16,191 16,191 18,568 34,759
Contribution for cash settlement / merger - - - - - - - - - - 643 643
Distributions paid to non-controlling unit holders - - - - - - - - - - (4,495) (4,495)
Dividends paid to Preferred Stockholders - - - - - - - - (5,423) (5,423) - (5,423)
Treasury Shares - - 29 - - 2,406 - (2406) - - - -
Changes in ownership interest - - - - - - - (541) - (541) 541 -
Balance at June 30, 2024 3,324 4,000 - $ 33 $ 40 $ - $ (40) $ 38,488 $ 19,740 $ 58,261 $ 7,376 $ 65,637
The accompanying notes are an integral part of the condensed consolidated financial statements.
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Three Months Ended June 30, 2024
Issued Shares of Class A Common Stock Issued Shares of Class B Common Stock Treasury Stock Class A Common Stock Class B Common Stock Treasury Stock Accumulated Other Comprehensive Loss Additional Paid-in Capital Retained Earnings Total Stockholders' Equity Non-controlling Interest Total Equity
Balance at March 31, 2024
3,262 4,000 (29) $ 32 $ 40 $ (2,406) $ (40) $ 40,726 $ 14,829 $ 53,181 $ 2,285 $ 55,466
Stock based compensation - - - - - - - 1,234 - 1,234 - 1,234
Restricted stock unit vesting 62 - - 1 - - - (287) - (286) - (286)
Consolidated net income - - - - - - - - 7,624 7,624 8,071 15,695
Distributions paid to non-controlling unit holders - - - - - - - - - - (4,402) (4,402)
Dividends paid to Preferred Stockholders - - - - - - - - (2,713) (2,713) - (2,713)
Treasury Shares - - 29 - - 2,406 - (2,406) - - - -
Contribution for cash settlement / merger - - - - - - - - - - 643 643
Changes in Ownership Interest - - - - - - - (779) - (779) 779 -
Balance at June 30, 2024
3,324 4,000 - $ 33 $ 40 $ - $ (40) $ 38,488 $ 19,740 $ 58,261 $ 7,376 $ 65,637
The accompanying notes are an integral part of the condensed consolidated financial statements.
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Six Months Ended June 30, 2023
Issued Shares of Class A Common Stock Issued Shares of Class B Common Stock Treasury Stock Class A Common Stock Class B Common Stock Treasury Stock Accumulated Other Comprehensive Loss Additional Paid-in Capital Retained Earnings Total Stockholders' Equity Non-controlling Interest Total Equity
Balance at December 31, 2022
3,201 4,000 (29) $ 32 $ 40 $ (2,406) $ (40) $ 42,871 $ 2,073 $ 42,570 $ (14,234) $ 28,336
Stock based compensation - - - - - - - 1,294 - 1,294 - 1,294
Restricted stock unit vesting 45 - - - - - - (186) - (186) - (186)
Consolidated net income - - - - - - - - 7,794 7,794 4,521 12,315
Stock issued - reverse stock split 14 - - - - - - - - - - -
Distributions paid to non-controlling unit holders - - - - - - - - - - (4,233) (4,233)
Dividends paid to Class A common stockholders $0.90625 per share)
- - - - - - - (2,874) - (2,874) - (2,874)
Dividends paid to Preferred Stockholders - - - - - - - (2,544) (2,640) (5,184) - (5,184)
Changes in ownership interest - - - - - - - (2) - (2) 2 -
Balance at June 30, 2023
3,260 4,000 (29) $ 32 $ 40 $ (2,406) $ (40) $ 38,559 $ 7,227 $ 43,412 $ (13,944) $ 29,468
The accompanying notes are an integral part of the condensed consolidated financial statements.
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Three Months Ended June 30, 2023
Issued Shares of Class A Common Stock Issued Shares of Class B Common Stock Treasury Stock Class A Common Stock Class B Common Stock Treasury Stock Accumulated Other Comprehensive Loss Additional Paid-in Capital Retained Earnings Total Stockholders' Equity Non-controlling Interest Total Equity
Balance at March 31, 2023 3,215 4,000 (29) $ 32 $ 40 $ (2,406) $ (40) $ 38,244 $ 1,886 $ 37,756 $ (24,553) $ 13,203
Stock based compensation - - - - - - - 613 - 613 - 613
Restricted stock unit vesting 45 - - - - - - (186) - (186) - (186)
Consolidated net income - - - - - - - - 7,981 7,981 11,105 19,086
Distributions paid to non-controlling unit holders - - - - - - - - - - (608) (608)
Dividends paid to Preferred Stockholders - - - - - - - - (2,640) (2,640) - (2,640)
Changes in ownership interest - - - - - - - (112) - (112) 112 -
Balance at June 30, 2023
3,260 4,000 (29) $ 32 $ 40 $ (2,406) $ (40) $ 38,559 $ 7,227 $ 43,412 $ (13,944) $ 29,468
The accompanying notes are an integral part of the condensed consolidated financial statements.
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VIA RENEWABLES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended June 30,
2024 2023
Cash flows from operating activities:
Net income $ 34,759 $ 12,315
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization expense 4,250 5,330
Deferred income taxes 4,204 1,374
Stock based compensation 2,442 1,284
Amortization of deferred financing costs 518 413
Bad debt expense 1,321 1,888
Loss on derivatives, net 1,025 43,437
Current period cash settlements on derivatives, net (23,192) (36,667)
Other 123 71
Changes in assets and liabilities:
Decrease in accounts receivable 12,840 31,698
(Increase) decrease in accounts receivable-affiliates (113) 1,228
Decrease in inventory 1,108 2,482
Increase in customer acquisition costs (5,026) (3,263)
Decrease in prepaid and other current assets 7,110 4,937
Increase in customer acquisition costs (783) -
(Increase) decrease in other assets (1,599) 421
Decrease in accounts payable and accrued liabilities (10,456) (32,543)
(Decrease) increase in accounts payable-affiliates (204) 567
Decrease in other current liabilities - (257)
Decrease in other non-current liabilities - (19)
Net cash provided by operating activities 28,327 34,696
Cash flows from investing activities:
Purchases of property and equipment (730) (775)
Net cash used in investing activities (730) (775)
Cash flows from financing activities:
Borrowings on notes payable 253,000 153,000
Payments on notes payable (257,000) (148,000)
Net paydown on subordinated debt facility - (15,000)
Restricted stock vesting (1,013) (186)
Contribution for cash settlement of merger 643 -
Payment of dividends to Class A common stockholders - (2,874)
Payment of distributions to non-controlling unitholders (4,495) (4,233)
Payment of Preferred Stock dividends (5,438) (4,920)
Net cash used in financing activities (14,303) (22,213)
Increase in Cash, cash equivalents and Restricted cash 13,294 11,708
Cash, cash equivalents and Restricted cash-beginning of period 42,595 35,351
Cash, cash equivalents and Restricted cash-end of period $ 55,889 $ 47,059
Supplemental Disclosure of Cash Flow Information:
Non-cash items:
Property and equipment purchase accrual $ 31 $ (4)
Cash paid during the period for:
Interest $ 3,919 $ 4,641
Taxes $ 7,329 $ 2,218
The accompanying notes are an integral part of the condensed consolidated financial statements.
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VIA RENEWABLES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Formation and Organization
Organization
We are an independent retail energy services company that provides residential and commercial customers in competitive markets across the United States with an alternative choice for natural gas and electricity. The Company is a holding company whose primary asset consists of units in Spark HoldCo, LLC ("Spark HoldCo"). The Company is the sole managing member of Spark HoldCo, is responsible for all operational, management and administrative decisions relating to Spark HoldCo's business and consolidates the financial results of Spark HoldCo and its subsidiaries. Spark HoldCo is the direct and indirect owner of the subsidiaries through which we operate. We conduct our business through several brands across our service areas, including Electricity Maine, Electricity N.H., Major Energy, Provider Power Massachusetts, Spark Energy, and Verde Energy. Via Energy Solutions ("VES") is a wholly owned subsidiary of the Company that offers broker services for retail energy customers. Via Wireless is a wholly owned subsidiary of the Company that offers wireless services and equipment to wireless customers.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") as it applies to interim financial statements. This information should be read along with our consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K"). Our unaudited condensed consolidated financial statements are presented on a consolidated basis and include all wholly-owned and controlled subsidiaries. We account for investments over which we have significant influence but not a controlling financial interest using the equity method of accounting. All significant intercompany transactions and balances have been eliminated in the unaudited condensed consolidated financial statements.
In the opinion of the Company's management, the accompanying condensed consolidated financial statements reflect all adjustments that are necessary to fairly present the financial position, the results of operations, the changes in equity and the cash flows of the Company for the respective periods. Such adjustments are of a normal recurring nature, unless otherwise disclosed.
Use of Estimates and Assumptions
The preparation of our condensed consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenses during the period. Actual results could materially differ from those estimates.
Relationship with our Founder, Sole Common Stock Shareholder, and Chief Executive Officer
W. Keith Maxwell, III is the Chief Executive Officer, a director, and the owner of all of the voting power of our common stock through his ownership of Retailco, LLC ("Retailco"). Retailco is a wholly owned subsidiary of TxEx Energy Investments, LLC ("TxEx"), which is wholly owned by Mr. Maxwell.
We enter into transactions with and pay certain costs on behalf of affiliates that are commonly controlled by Mr. Maxwell, and these affiliates enter into transactions with and pay certain costs on our behalf. We undertake these
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transactions in order to reduce risk, reduce administrative expense, create economies of scale, create strategic alliances and supply goods and services among these related parties.
These transactions include, but are not limited to, employee benefits provided through the Company's benefit plans, insurance plans, leased office space, certain administrative salaries, management due diligence, recurring management consulting, and accounting, tax, legal, or technology services. Amounts billed under these arrangements are based on services provided, departmental usage, or headcount, which are considered reasonable by management. As such, the accompanying condensed consolidated financial statements include costs that have been incurred by the Company and then directly billed or allocated to affiliates, and costs that have been incurred by our affiliates and then directly billed or allocated to us, and are recorded net in general and administrative expense on the condensed consolidated statements of operations with a corresponding accounts receivable-affiliates or accounts payable -affiliates, respectively, recorded in the consolidated balance sheets. Additionally, the Company enters into transactions with certain affiliates for sales or purchases of natural gas and electricity, which are recorded in retail revenues, retail cost of revenues, and net asset optimization revenues in the condensed consolidated statements of operations with a corresponding accounts receivable-affiliate or accounts payable-affiliate in the consolidated balance sheets. The allocations and related estimates and assumptions are described more fully in Note 13 "Transactions with Affiliates."
On June 13, 2024, we consummated the previously announced merger contemplated by that certain Agreement and Plan of Merger (the "Merger Agreement"), dated as of December 29, 2023, by and among the Company, Retailco, and NuRetailco LLC, a Delaware limited liability company and wholly-owned subsidiary of Retailco ("Merger Sub"), pursuant to which Merger Sub was merged with and into the Company (the "Merger"), with the Company continuing as the surviving corporation in the Merger, following which Mr. Maxwell and his affiliates became the owners of all of the issued and outstanding shares of Class A common stock and Class B common stock. As a result, each share of Class A common stock was converted into the right to receive $11.00 per share at the closing of the Merger (other than certain dissenting shares). As a result of the Merger, all of the Company's outstanding restricted stock units were converted into $11.00 per share (other than those owned by Mr. Maxwell, which were cancelled for no consideration). Effective as of the end of trading on June 13, 2024, the Class A common stock ceased to trade on NASDAQ.
New Accounting Standards Being Evaluated/Standards Not yet adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in the ASU improve reportable segment disclosures by adding and enhancing annual and interim disclosure requirements, clarifying circumstances in which entities can disclose multiple segment measures of profit or loss, providing new segment disclosure requirements for entities with a single reportable segment, and adding other disclosure requirements. ASU 2023-07 will be effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. We are evaluating the impact of adoption on our consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires enhanced income tax disclosures, particularly related to a reporting entity's effective tax rate reconciliation and income taxes paid. For the rate reconciliation, the update requires additional categories of information about federal, state, and foreign taxes and details about significant reconciling items, subject to a quantitative threshold. Income taxes paid must be similarly disaggregated by federal, state, and foreign based on a quantitative threshold. The ASU will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply retrospectively. We are evaluating the impact of adoption on our consolidated financial statements.
The Company considers the applicability and impact of all ASUs. New ASUs were assessed and determined to be either not applicable or are expected to have minimal impact on our condensed consolidated financial statements.
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3. Revenues
Our revenues are derived primarily from the sale of natural gas and electricity to customers, including affiliates. Revenue is measured based upon the quantity of gas or power delivered at prices contained or referenced in the customer's contract, and excludes any sales incentives (e.g., rebates) and amounts collected on behalf of third parties (e.g., sales tax).
Our revenues also include asset optimization activities. Asset optimization activities consist primarily of purchases and sales of gas that meet the definition of trading activities per FASB ASC Topic 815, Derivatives and Hedging. They are therefore excluded from the scope of FASB ASC Topic 606, Revenue from Contracts with Customers.
Other revenue is derived from contracts with customers through the provision of wireless and other services and the sale of wireless equipment.
Revenues for electricity and natural gas sales are recognized under the accrual method when our performance obligation to a customer is satisfied, which is the point in time when the product is delivered and control of the product passes to the customer. Electricity and natural gas products may be sold as fixed-price or variable-price products. The typical length of a contract to provide electricity and/or natural gas is 12 months. Customers are billed and typically pay at least monthly, based on usage. Electricity and natural gas sales that have been delivered but not billed by period end are estimated and recorded as accrued unbilled revenues based on estimates of customer usage since the date of the last meter read provided by the utility. Volume estimates are based on forecasted volumes and estimated residential and commercial customer usage. Unbilled revenues are calculated by multiplying these volume estimates by the applicable rate by customer class (residential or commercial). Estimated amounts are adjusted when actual usage is known and billed.
The following table discloses revenue by primary geographical market, customer type, and customer credit risk profile (in thousands). The table also includes a reconciliation of the disaggregated revenue to revenue by reportable segment (in thousands).
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Reportable Segments
Three Months Ended June 30, 2024 Three Months Ended June 30, 2023
Retail Electricity (c) Retail Natural Gas Total Reportable Segments Retail Electricity (c) Retail Natural Gas Total Reportable Segments
Primary markets (a)
New England $ 21,271 $ 1,572 $ 22,843 $ 26,262 $ 1,154 $ 27,416
Mid-Atlantic 27,514 5,912 33,426 24,181 5,929 30,110
Midwest 6,518 2,107 8,625 6,819 2,515 9,334
Southwest 15,845 6,221 22,066 17,503 8,258 25,761
$ 71,148 $ 15,812 $ 86,960 $ 74,765 $ 17,856 $ 92,621
Customer type
Commercial $ 9,989 $ 11,304 $ 21,293 $ 9,353 $ 11,765 $ 21,118
Residential 56,956 8,703 65,659 63,420 12,472 75,892
Unbilled revenue (b) 4,203 (4,195) 8 1,992 (6,381) (4,389)
$ 71,148 $ 15,812 $ 86,960 $ 74,765 $ 17,856 $ 92,621
Customer credit risk
POR $ 44,080 $ 7,177 $ 51,257 $ 42,080 $ 7,300 $ 49,380
Non-POR 27,068 8,635 35,703 32,685 10,556 43,241
$ 71,148 $ 15,812 $ 86,960 $ 74,765 $ 17,856 $ 92,621
Reportable Segments
Six Months Ended June 30, 2024 Six Months Ended June 30, 2023
Retail Electricity (c) Retail Natural Gas Total Reportable Segments Retail Electricity (c) Retail Natural Gas Total Reportable Segments
Primary markets (a)
New England $ 48,610 $ 6,197 $ 54,807 $ 59,149 $ 5,067 $ 64,216
Mid-Atlantic 58,213 21,167 79,380 51,690 25,275 76,965
Midwest 13,827 9,478 23,305 14,958 12,320 27,278
Southwest 27,827 16,029 43,856 31,795 27,492 59,287
$ 148,477 $ 52,871 $ 201,348 $ 157,592 $ 70,154 $ 227,746
Customer type
Commercial $ 21,354 $ 32,018 $ 53,372 $ 19,646 $ 40,444 $ 60,090
Residential 127,904 27,344 155,248 140,657 43,747 184,404
Unbilled revenue (b) (781) (6,491) (7,272) (2,711) (14,037) (16,748)
$ 148,477 $ 52,871 $ 201,348 $ 157,592 $ 70,154 $ 227,746
Customer credit risk
POR $ 94,369 $ 26,646 $ 121,015 $ 91,223 $ 32,354 $ 123,577
Non-POR 54,108 26,225 80,333 66,369 37,800 104,169
$ 148,477 $ 52,871 $ 201,348 $ 157,592 $ 70,154 $ 227,746
Reportable Segments
(a) The primary markets include the following states:
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•New England - Connecticut, Maine, Massachusetts and New Hampshire;
•Mid-Atlantic - Delaware, Maryland (including the District of Columbia), New Jersey, New York, Pennsylvania and Virginia;
•Midwest - Illinois, Indiana, Michigan and Ohio; and
•Southwest - Arizona, California, Colorado, Florida, Nevada and Texas.
(b) Unbilled revenue is recorded in total until it is actualized, at which time it is categorized between commercial and residential customers.
(c) Retail Electricity includes Services.
Reconciliation to Condensed Consolidated Financial Information
A reconciliation of the reportable segment operating revenues to consolidated revenues is as follows:
Three Months Ended June 30, Six Months Ended June 30,
2024
2023
2024
2023
Total Reportable Segments Revenue $ 86,960 $ 92,621 $ 201,348 $ 227,746
Net asset optimization expense (531) (1,359) (2,128) (4,632)
Other Revenue 267 137 1,532 137
Total Revenues $ 86,696 $ 91,399 $ 200,752 $ 223,251
We record gross receipts taxes on a gross basis in retail revenues and retail cost of revenues. During the three months ended June 30, 2024 and 2023, our retail revenues included gross receipts taxes of $0.2 million and $0.2 million, respectively, and our retail cost of revenues included gross receipts taxes of $1.3 million and $1.3 million, respectively. During the six months ended June 30, 2024 and 2023, our retail revenues included gross receipt taxes of $0.6 million and $0.5 million, respectively, and our retail cost of revenues included gross receipts taxes of $2.7 million and $2.6 million, respectively.
Accounts receivables and Allowance for Credit Losses
The Company conducts business in many utility service markets where the local regulated utility purchases our receivables, and then becomes responsible for billing the customer and collecting payment from the customer ("POR programs"). These POR programs result in substantially all of the Company's credit risk being linked to the applicable utility, which generally has an investment-grade rating, and not to the end-use customer. The Company monitors the financial condition of each utility and currently believes its receivables are collectible.
In markets that do not offer POR programs or when the Company chooses to directly bill its customers, certain receivables are billed and collected by the Company. The Company bears the credit risk on these accounts and records an appropriate allowance for doubtful accounts to reflect any losses due to non-payment by customers. The Company's customers are individually insignificant and geographically dispersed in these markets. The Company writes off customer balances when it believes that amounts are no longer collectible and when it has exhausted all means to collect these receivables.
For trade accounts receivables, the Company accrues an allowance for credit losses by business segment by pooling customer accounts receivables based on similar risk characteristics, such as customer type, geography, aging analysis, payment terms, and related macro-economic factors. Expected credit loss exposure is evaluated for each of our accounts receivables pools. Expected credits losses are established using a model that considers historical collections experience, current information, and reasonable and supportable forecasts. The Company writes off accounts receivable balances against the allowance for credit losses when the accounts receivable is deemed to be uncollectible.
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A rollforward of our allowance for credit losses for the six months ended June 30, 2024 are presented in the table below (in thousands):
Balance at December 31, 2023 $ (4,496)
Current period credit loss provision (1,321)
Write-offs 2,191
Recovery of previous write-offs (58)
Balance at June 30, 2024 $ (3,684)
4. Equity
Non-controlling Interest
We hold an economic interest and are the sole managing member in Spark HoldCo, with affiliates of Mr. Maxwell and majority shareholder holding the remaining economic interests in Spark HoldCo. As a result, we consolidate the financial position and results of operations of Spark HoldCo, and reflect the economic interests owned by these affiliates as a non-controlling interest. The Company and affiliates owned the following economic interests in Spark HoldCo at June 30, 2024 and December 31, 2023, respectively.
The Company Affiliated Owners
June 30, 2024 45.38 % 54.62 %
December 31, 2023 44.92 % 55.08 %
The following table summarizes the portion of net income and income tax expense attributable to non-controlling interest (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Net income before taxes allocated to non-controlling interest $ 8,860 $ 11,957 $ 20,220 $ 5,623
Less: Income tax expense allocated to non-controlling interest 789 852 1,652 1,102
Net income attributable to non-controlling interests $ 8,071 $ 11,105 $ 18,568 $ 4,521
Class A Common Stock and Class B Common Stock
Holders of the Company's Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or by our certificate of incorporation.
As a result of the Merger, on June 13, 2024, Mr. Maxwell and his affiliates became the owners of all of the issued and outstanding shares of Class A common stock and Class B common stock. Effective as of the end of trading on June 13, 2024, the Class A common stock ceased to trade on NASDAQ.
Dividends on Class A Common Stock
Dividends declared for the Company's Class A common stock are reported as a reduction of retained earnings, or a reduction of additional paid in capital to the extent retained earnings are exhausted. During the three and six months ended June 30, 2023, we paid zero and $2.9 million in dividends to the holders of the Company's Class A common stock. This dividend represented a quarterly rate of $0.90625 per share on each share of Class A common stock.
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In April 2023, we announced that our Board of Directors elected to temporarily suspend the quarterly cash dividend on the Class A common stock. During the three and six months ended June 30, 2024, we did not pay dividends to the holders of the Company's Class A common stock and did not make corresponding distributions to our non-controlling interest holders.
In order to pay our stated dividends to holders of our Class A common stock, our subsidiary, Spark HoldCo is required to make corresponding distributions to holders of its units, including those holders that own our Class B common stock (our non-controlling interest holder). As a result, during the three and six months ended June 30, 2023, Spark HoldCo made corresponding distributions of zero and $3.6 million to our non-controlling interest holders, respectively.
Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income attributable to stockholders (the numerator) by the weighted-average number of Class A common shares outstanding for the period (the denominator). Class B common shares are not included in the calculation of basic earnings per share because they are not participating securities and have no economic interests. Diluted earnings per share is similarly calculated except that the denominator is increased by potentially dilutive securities.
The following table presents the computation of basic and diluted income per share for the three and six months ended June 30, 2024 and 2023 (in thousands, except per share data):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Net income attributable to Via Renewables, Inc. stockholders $ 7,624 $ 7,981 $ 16,191 $ 7,794
Less: Dividend on Series A Preferred Stock 2,713 2,640 5,423 5,184
Net income attributable to stockholders of Class A common stock $ 4,911 $ 5,341 $ 10,768 $ 2,610
Basic weighted average Class A common shares outstanding 3,261 3,205 3,247 3,189
Basic income per share attributable to stockholders $ 1.51 $ 1.67 $ 3.32 $ 0.82
Net income attributable to stockholders of Class A common stock $ 4,911 $ 5,341 $ 10,768 $ 2,610
Effect of conversion of Class B common stock to shares of Class A common stock - - - -
Diluted net income attributable to stockholders of Class A common stock $ 4,911 $ 5,341 $ 10,768 $ 2,610
Basic weighted average Class A common shares outstanding 3,261 3,205 3,247 3,189
Effect of dilutive Class B common stock - - - -
Diluted weighted average shares outstanding 3,261 3,205 3,247 3,189
Diluted income per share attributable to stockholders $ 1.51 $ 1.67 $ 3.32 $ 0.82
The computation of diluted earnings per share for the three and six months ended June 30, 2024 and 2023, respectively, excludes 4.0 million shares of Class B common stock because the effect of their conversion was antidilutive. The Company's outstanding shares of Series A Preferred Stock were not included in the calculation of diluted earnings per share because they contain only contingent redemption provisions that have not occurred.
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Variable Interest Entity
Spark HoldCo is a variable interest entity due to its lack of rights to participate in significant financial and operating decisions and its inability to dissolve or otherwise remove its management. Spark HoldCo owns all of the outstanding membership interests in each of our operating subsidiaries. We are the sole managing member of Spark HoldCo, manage Spark HoldCo's operating subsidiaries through this managing membership interest, and are considered the primary beneficiary of Spark HoldCo. The assets of Spark HoldCo cannot be used to settle our obligations except through distributions to us, and the liabilities of Spark HoldCo cannot be settled by us except through contributions to Spark HoldCo. The following table includes the carrying amounts and classification of the assets and liabilities of Spark HoldCo that are included in our condensed consolidated balance sheet as of June 30, 2024 and December 31, 2023 (in thousands):
June 30, 2024 December 31, 2023
Assets
Current assets:
Cash and cash equivalents $ 53,308 $ 42,062
Accounts receivable 48,942 62,548
Other current assets 50,045 50,650
Total current assets 152,295 155,260
Non-current assets:
Goodwill 120,343 120,343
Other assets 13,374 11,351
Total non-current assets 133,717 131,694
Total Assets $ 286,012 $ 286,954
Liabilities
Current liabilities:
Accounts payable and accrued liabilities $ 35,597 $ 44,201
Other current liabilities 55,865 71,994
Total current liabilities 91,462 116,195
Long-term liabilities:
Long-term portion of Senior Credit Facility 93,000 97,000
Subordinated debt -affiliate
- -
Other long-term liabilities 47 54
Total long-term liabilities 93,047 97,054
Total Liabilities $ 184,509 $ 213,249
5. Preferred Stock
Holders of the Series A Preferred Stock have no voting rights, except in specific circumstances of delisting or in the case the dividends are in arrears as specified in the Series A Preferred Stock Certificate of Designations. The Series A Preferred Stock accrued dividends at an annual percentage rate of 8.75% through April 14, 2022. The floating rate period for the Series A Preferred Stock began on April 15, 2022. The dividend on the Series A Preferred Stock will accrue at an annual rate equal to the sum of (a) Three-Month LIBOR (if it then exists), or an alternative reference rate as of the applicable determination date and (b) 6.578%, based on the $25.00 liquidation preference per share of the Series A Preferred Stock. The liquidation preference provisions of the Series A Preferred Stock are considered contingent redemption provisions because there are rights granted to the holders of the Series A Preferred Stock that are not solely within our control upon a change in control of the Company. Accordingly, the Series A Preferred Stock is presented between liabilities and the equity sections in the accompanying condensed consolidated balance sheets. As of April 15, 2022, we have the option to redeem our Series A Preferred Stock.
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Following the cessation of the publication of U.S. LIBOR on June 30, 2023, we use Three Month CME Term SOFR plus a tenor spread of 0.26161 percent (or 26.161 bps) to calculate the dividend rate on the Series A Preferred Stock pursuant to the rules of the Adjustable Interest Rate (LIBOR) Act.
As a result of the Merger, holders of the Company's Series A Preferred Stock were provided an optional limited change of control conversion right (the "Conversion Right"), available at the option of the holder, for $8.07 per share in cash. On June 27, 2024, the Company provided notice to the holders of the Series A Preferred Stock of the Conversion Right. Holders of the Series A Preferred Stock were entitled to exercise the Conversion Right through July 26, 2024.
During the three and six months ended June 30, 2024, we paid $2.7 million and $5.4 million in dividends to holders of the Series A Preferred Stock. As of June 30, 2024, we had accrued $2.7 million related to dividends to holders of the Series A Preferred Stock. This dividend was paid on July 15, 2024.
A summary of our preferred equity balance for the six months ended June 30, 2024 is as follows:
(In thousands)
Balance at December 31, 2023
$ 88,065
Accumulated dividends on Series A Preferred Stock (15)
Balance at June 30, 2024
$ 88,050
6. Derivative Instruments
We are exposed to the impact of market fluctuations in the price of electricity and natural gas, basis differences in the price of natural gas, storage charges, renewable energy credits ("RECs"), and capacity charges from independent system operators. We use derivative instruments in an effort to manage our cash flow exposure to these risks. These instruments are not designated as hedges for accounting purposes, and accordingly, changes in the market value of these derivative instruments are recorded in the cost of revenues. As part of our strategy to optimize pricing in our natural gas related activities, we also manage a portfolio of commodity derivative instruments held for trading purposes. Our commodity trading activities are subject to limits within our Risk Management Policy. For these derivative instruments, changes in the fair value are recognized currently in earnings in net asset optimization revenues.
Derivative assets and liabilities are presented net in our condensed consolidated balance sheets when the derivative instruments are executed with the same counterparty under a master netting arrangement. Our derivative contracts include transactions that are executed both on an exchange and centrally cleared, as well as over-the-counter, bilateral contracts that are transacted directly with third parties. To the extent we have paid or received collateral related to the derivative assets or liabilities, such amounts would be presented net against the related derivative asset or liability's fair value. As of June 30, 2024 and December 31, 2023, we offset $2.0 million and $5.2 million, respectively, in collateral to net against the related derivative liability's fair value. The specific types of derivative instruments we may execute to manage the commodity price risk include the following:
•Forward contracts, which commit us to purchase or sell energy commodities in the future;
•Futures contracts, which are exchange-traded standardized commitments to purchase or sell a commodity or financial instrument;
•Swap agreements, which require payments to or from counterparties based upon the differential between two prices for a predetermined notional quantity; and
•Option contracts, which convey to the option holder the right but not the obligation to purchase or sell a commodity.
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The Company has entered into other energy-related contracts that do not meet the definition of a derivative instrument or for which we made a normal purchase, normal sale election and are therefore not accounted for at fair value including the following:
•Forward electricity and natural gas purchase contracts for retail customer load;
•Renewable energy credits; and
•Natural gas transportation contracts and storage agreements.
Volumes Underlying Derivative Transactions
The following table summarizes the net notional volumes of our open derivative financial instruments accounted for at fair value by commodity. Positive amounts represent net buys while bracketed amounts are net sell transactions (in thousands):
Non-trading
Commodity Notional June 30, 2024 December 31, 2023
Natural Gas MMBtu 4,823 6,254
Electricity MWh 1,035 1,029
Trading
Commodity Notional June 30, 2024 December 31, 2023
Natural Gas MMBtu 443 1,016
Gains (Losses) on Derivative Instruments
Gains (losses) on derivative instruments, net and current period settlements on derivative instruments were as follows for the periods indicated (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Gain (loss) on non-trading derivatives, net $ 3,160 $ (40) $ (1,136) $ (42,809)
Gain (loss) on trading derivatives, net 20 (627) 111 (628)
Gain (loss) on derivatives, net $ 3,180 $ (667) $ (1,025) $ (43,437)
Current period settlements on non-trading derivatives 7,683 16,146 22,925 36,269
Current period settlements on trading derivatives 84 384 267 398
Total current period settlements on derivatives $ 7,767 $ 16,530 $ 23,192 $ 36,667
Gains (losses) on trading derivative instruments are recorded in net asset optimization revenues and gains (losses) on non-trading derivative instruments are recorded in retail cost of revenues on the condensed consolidated statements of operations.
Fair Value of Derivative Instruments
The following tables summarize the fair value and offsetting amounts of our derivative instruments by counterparty and collateral received or paid (in thousands):
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June 30, 2024
Description Gross Assets Gross
Amounts
Offset 		Net Assets Cash
Collateral
Offset 		Net Amount
Presented
Non-trading commodity derivatives $ 7,125 $ (3,291) $ 3,834 $ - $ 3,834
Trading commodity derivatives 684 (239) 445 - 445
Total Current Derivative Assets 7,809 (3,530) 4,279 - 4,279
Non-trading commodity derivatives 852 (349) 503 - 503
Total Non-current Derivative Assets 852 (349) 503 - 503
Total Derivative Assets $ 8,661 $ (3,879) $ 4,782 $ - $ 4,782
Description Gross
Liabilities 		Gross
Amounts
Offset 		Net
Liabilities 		Cash
Collateral
Offset 		Net Amount
Presented
Non-trading commodity derivatives $ (7,893) $ 3,150 $ (4,743) $ 1,881 $ (2,862)
Trading commodity derivatives (426) 183 (243) - (243)
Total Current Derivative Liabilities (8,319) 3,333 (4,986) 1,881 (3,105)
Non-trading commodity derivatives (453) 275 (178) 131 (47)
Trading commodity derivatives - - - - -
Total Non-current Derivative Liabilities (453) 275 (178) 131 (47)
Total Derivative Liabilities $ (8,772) $ 3,608 $ (5,164) $ 2,012 $ (3,152)
December 31, 2023
Description Gross Assets Gross
Amounts
Offset 		Net Assets Cash
Collateral
Offset 		Net Amount
Presented
Non-trading commodity derivatives $ 1,926 $ (1,046) $ 880 $ - $ 880
Trading commodity derivatives 64 (35) 29 - 29
Total Current Derivative Assets 1,990 (1,081) 909 - 909
Non-trading commodity derivatives 173 (82) 91 - 91
Trading commodity derivatives - - - - -
Total Non-current Derivative Assets 173 (82) 91 - 91
Total Derivative Assets $ 2,163 $ (1,163) $ 1,000 $ - $ 1,000
Description Gross
Liabilities 		Gross
Amounts
Offset 		Net
Liabilities 		Cash
Collateral
Offset 		Net Amount
Presented
Non-trading commodity derivatives $ (29,730) $ 6,077 $ (23,653) $ 4,679 $ (18,974)
Trading commodity derivatives (173) 6 (167) - (167)
Total Current Derivative Liabilities (29,903) 6,083 (23,820) 4,679 (19,141)
Non-trading commodity derivatives (672) 115 (557) 503 (54)
Trading commodity derivatives - - - - -
Total Non-current Derivative Liabilities (672) 115 (557) 503 (54)
Total Derivative Liabilities $ (30,575) $ 6,198 $ (24,377) $ 5,182 $ (19,195)
7. Property and Equipment
Property and equipment consist of the following (in thousands):
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Estimated useful
lives (years) 		June 30, 2024 December 31, 2023
Information technology
2 - 5
$ 7,324 $ 6,983
Total 7,324 6,983
Accumulated depreciation (2,418) (2,273)
Property and equipment-net $ 4,906 $ 4,710
Information technology assets include software and consultant time used in the application, development and implementation of various systems including customer billing and resource management systems. As of June 30, 2024 and December 31, 2023, information technology includes $1.6 million and $1.5 million, respectively, of costs associated with assets not yet placed into service.
Depreciation expense recorded in the condensed consolidated statements of operations was $0.3 million and $0.3 million for the three months ended June 30, 2024 and 2023, respectively, and $0.6 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively.
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8. Intangible Assets
Goodwill, customer relationships and trademarks consist of the following amounts (in thousands):
June 30, 2024 December 31, 2023
Goodwill $ 120,343 $ 120,343
Customer relationships-Acquired
$ - $ -
Customer relationships-Other
Cost $ 1,360 $ 968
Accumulated amortization (659) (487)
Customer relationships-Other, net
$ 701 $ 481
Cost $ 4,040 $ 4,040
Accumulated amortization (1,818) (1,616)
Trademarks, net $ 2,222 $ 2,424
Changes in goodwill, customer relationships (including non-compete agreements) and trademarks consisted of the following (in thousands):
Goodwill
Customer Relationships-Other
Trademarks
Balance at December 31, 2023 $ 120,343 $ 481 $ 2,424
Additions - 391 -
Amortization - (171) (202)
Balance at June 30, 2024 $ 120,343 $ 701 $ 2,222
Estimated future amortization expense for customer relationships and trademarks at June 30, 2024 is as follows (in thousands):
Year ending December 31,
2024 (remaining six months) $ 504
2025 803
2026 404
2027 404
2028
404
> 5 years 404
Total $ 2,923
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9. Debt
Debt consists of the following amounts as of June 30, 2024 and December 31, 2023 (in thousands):
June 30, 2024 December 31, 2023
Long-term debt:
Senior Credit Facility (1) (2)
$ 93,000 $ 97,000
Subordinated Debt
- -
Total long-term debt 93,000 97,000
Total debt $ 93,000 $ 97,000
(1) As of June 30, 2024 and December 31, 2023, the weighted average interest rate on the Senior Credit Facility was 8.59% and 8.60%, respectively.
(2) As of June 30, 2024 and December 31, 2023, we had $23.8 million and $24.3 million in letters of credit issued, respectively.
Capitalized financing costs associated with our Senior Credit Facility were $2.0 million and $1.2 million as of June 30, 2024 and December 31, 2023, respectively. Of these amounts, $0.7 million and $0.8 million are recorded in other current assets, and $1.3 million and $0.4 million are recorded in other non-current assets in the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023, respectively.
Interest expense consists of the following components for the periods indicated (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Senior Credit Facility $ 1,094 $ 1,734 $ 2,429 $ 3,801
Letters of credit fees and commitment fees 337 461 721 864
Amortization of deferred financing costs
312 207 518 413
Other
- 45 4 66
Interest Expense
$ 1,743 $ 2,447 $ 3,672 $ 5,144
Senior Credit Facility
The Company and Spark Holdco ("Spark Holdco", and together with certain subsidiaries of the Company and Spark Holdco, the "Co-Borrowers") maintain a senior secured borrowing base credit facility with Woodforest National Bank, as administrative agent (the "Agent"), swing bank, swap bank, issuing bank, joint-lead arranger, sole bookrunner and syndication agent, and the other financial institutions party thereto as lenders. As further described below, on June 28, 2024, the Company entered into the First Amendment (the "First Amendment") to its senior credit facility (as amended by the First Amendment, the "Senior Credit Facility"). The Senior Credit Facility matures on June 30, 2027 and has a borrowing capacity of $205.0 million. As a result of the First Amendment to the Credit Agreement, we wrote off $0.1 million in deferred financing costs.
Borrowings under the Senior Credit Facility are available for working capital loans, loans to fund acquisitions, swingline loans, letters of credit and, following the First Amendment, for repurchases of Series A Preferred Stock (subject to the terms and conditions therein).
Borrowings under the Senior Credit Facility bear interest at the following rates depending on the classification of the borrowing and provided further that at no time shall the interest rate be less than four percent (4.0%) per annum:
•The Base Rate (a rate per annum equal to the greatest of (a) the prime rate, (b) the Federal Funds Rate plus ½ of 1% and (c) Term Secured Overnight Financing Rate ("SOFR") for a one month tenor plus 1.0%, provided, that the Base Rate shall not at any time be less than 0%), plus an applicable margin of 2.25% to
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3.50% depending on the type of borrowing and the average outstanding amount of loans and letters of credit under the Senior Credit Facility at the end of the prior fiscal quarter;
•The Term SOFR (a rate equal to the forward looking secured overnight financing rate published by the SOFR administrator on the website of the Federal Reserve Bank of New York or any successor source with either a comparable tenor (for any calculation with respect to a SOFR loan) or a one month tenor (for any calculation with respect to a Base Rate loan)), plus an applicable margin of 3.25% to 4.50% depending on the type of borrowing and the average outstanding amount of loans and letters of credit under the Senior Credit Facility at the end of the prior fiscal quarter; or
•The Daily Simple SOFR (a rate equal to the forward looking secured overnight financing rate published by the SOFR administrator on the website of the Federal Reserve Bank of New York or any successor source and applied on a daily basis by the Agent in accordance with rate recommendations for daily loans), plus an applicable margin of 3.25% to 4.50% depending on the type of borrowing and the average outstanding amount of loans and letters of credit under the Senior Credit Facility at the end of the prior fiscal quarter, plus a liquidity premium added by the Agent to each borrowing.
The Co-Borrowers are required to pay a non-utilization fee of 0.50% quarterly in arrears on the unused portion of the Senior Credit Facility. In addition, the Co-Borrowers are subject to additional fees including an upfront fee, an annual administrative agency fee, an arrangement fee and letter of credit fees.
The Senior Credit Facility contains covenants that, among other things, require the maintenance of specified ratios or conditions including:
•Minimum Fixed Charge Coverage Ratio. The Company must maintain a minimum fixed charge coverage ratio of not less than 1.10 to 1.00. The Minimum Fixed Charge Coverage Ratio is defined as the ratio of (a) Adjusted EBITDA to (b) the sum of, among other things, consolidated interest expense, letter of credit fees, non-utilization fees, earn-out payments, certain restricted payments, taxes, and payments made on or after July 31, 2020 related to the settlement of civil and regulatory matters if not included in the calculation of Adjusted EBITDA. Our Minimum Fixed Charge Coverage Ratio as of June 30, 2024 was 1.71 to 1.00.
•Maximum Total Leverage Ratio. The Company must maintain a ratio of (x) the sum of all consolidated indebtedness (excluding eligible subordinated debt and letter of credit obligations), plus (y) gross amounts reserved for civil and regulatory liabilities identified in filings with the SEC, to Adjusted EBITDA of no more than 3.00 to 1.00. Our Maximum Total Leverage Ratio as of June 30, 2024 was 1.91 to 1.00.
The First Amendment eliminated the Maximum Senior Secured Leverage Ratio covenant and amended the Maximum Total Leverage Ratio covenant to no more than 3.00 to 1.00 from no more than 2.50 to 1.00.
As of June 30, 2024, the Company was in compliance with financial covenants under the Senior Credit Facility. The Company continues to manage the impact of commodity costs on financial covenant compliance. Maintaining compliance with our covenants under our Senior Credit Facility may impact our ability to pay dividends on our Series A Preferred Stock.
The Senior Credit Facility contains various customary affirmative covenants that require, among other things, the Company to maintain insurance, pay its obligations and comply with law. The Senior Credit Facility also contains customary negative covenants that limit the Company's ability to, among other things, incur certain additional indebtedness, grant certain liens, engage in certain asset dispositions, merge or consolidate, make certain payments, distributions and dividends, investments, acquisitions or loans, materially modify certain agreements, and enter into transactions with affiliates.
The Senior Credit Facility is secured by pledges of the equity of the portion of Spark HoldCo owned by the Company, the equity of Spark HoldCo's subsidiaries, the Co-Borrowers' present and future subsidiaries, and
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substantially all of the Co-Borrowers' and their subsidiaries' present and future property and assets, including intellectual property assets, accounts receivable, inventory and liquid investments, and control agreements relating to bank accounts.
The Company is entitled to pay cash dividends so long as: (a) no default exists or would result therefrom; (b) the Co-Borrowers are in pro forma compliance with all financial covenants before and after giving effect thereto; and (c) the outstanding amount of all loans and letters of credit do not exceed the borrowing base limits.
The Senior Credit Facility contains certain customary representations and warranties and events of default. Events of default include, among other things, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults and cross-acceleration to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments in excess of $5.0 million, certain events with respect to material contracts, and actual or asserted failure of any guaranty or security document supporting the Senior Credit Facility to be in full force and effect. A default will also occur if at any time W. Keith Maxwell III ceases to, directly or indirectly, beneficially own at least fifty-one percent (51%) of the Company's outstanding Class A common stock and Class B common stock on a combined basis, and a controlling percentage of the voting equity interest of the Company, and certain other changes in control. If such an event of default occurs, the lenders under the Senior Credit Facility would be entitled to take various actions, including the acceleration of amounts due under the facility and all actions permitted to be taken by a secured creditor.
Subordinated Debt Facility
The Company maintains an Amended and Restated Subordinated Promissory Note in the principal amount of up to $25.0 million (the "Subordinated Debt Facility"), by and among the Company, Spark HoldCo and Retailco. The Subordinated Debt Facility allows the Company to draw advances in increments of no less than $1.0 million per advance up to $25.0 million. In connection with entering into the First Amendment to the Credit Agreement, the Company entered into an amended and restated subordinated promissory note with Spark HoldCo and Retailco, which extends the maturity date of the note to January 31, 2028.
Borrowings are at the discretion of Retailco. Advances thereunder accrue interest at an annual rate equal to the prime rate as published by the Wall Street Journal plus two percent (2.0%) from the date of the advance.
The Company has the right to capitalize interest payments under the Subordinated Debt Facility. The Subordinated Debt Facility is subordinated in certain respects to our Senior Credit Facility pursuant to a subordination agreement. The Company may pay interest and prepay principal on the Subordinated Debt Facility so long it is in compliance with the covenants under the Senior Credit Facility, is not in default under the Senior Credit Facility and has minimum availability of $5.0 million under the borrowing base under the Senior Credit Facility. Payment of principal and interest under the Subordinated Debt Facility is accelerated upon the occurrence of certain change of control or sale transactions.
As of June 30, 2024, and December 31, 2023, there were zero outstanding borrowings under the Subordinated Debt Facility.
10. Fair Value Measurements
Fairvalue is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. Fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. This includes the credit standing of counterparties involved and the impact of credit enhancements.
We apply fair value measurements to our commodity derivative instruments based on the following fair value hierarchy, which prioritizes the inputs to the valuation techniques used to measure fair value into three broad levels:
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•Level 1-Quoted prices in active markets for identical assets and liabilities. Instruments categorized in Level 1 primarily consist of financial instruments such as exchange-traded derivative instruments.
•Level 2-Inputs other than quoted prices recorded in Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived from observable market data by correlation or other means. Instruments categorized in Level 2 primarily include non-exchange traded derivatives such as over-the-counter commodity forwards and swaps and options.
•Level 3-Unobservable inputs for the asset or liability, including situations where there is little, if any, observable market activity for the asset or liability. The Level 3 category includes estimated earnout obligations related to our acquisitions.
As the fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3), the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. These levels can change over time. In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. In these cases, the lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present assets and liabilities measured and recorded at fair value in our condensed consolidated balance sheets on a recurring basis by and their level within the fair value hierarchy (in thousands):
Level 1 Level 2 Level 3 Total
June 30, 2024
Non-trading commodity derivative assets $ - $ 4,337 $ - $ 4,337
Trading commodity derivative assets - 445 - 445
Total commodity derivative assets $ - $ 4,782 $ - $ 4,782
Non-trading commodity derivative liabilities $ - $ (2,909) $ - $ (2,909)
Trading commodity derivative liabilities - (243) - (243)
Total commodity derivative liabilities $ - $ (3,152) $ - $ (3,152)
Level 1 Level 2 Level 3 Total
December 31, 2023
Non-trading commodity derivative assets $ - $ 971 $ - $ 971
Trading commodity derivative assets - 29 - 29
Total commodity derivative assets $ - $ 1,000 $ - $ 1,000
Non-trading commodity derivative liabilities $ - $ (19,028) $ - $ (19,028)
Trading commodity derivative liabilities - (167) - (167)
Total commodity derivative liabilities $ - $ (19,195) $ - $ (19,195)
We had no transfers of assets or liabilities between any of the above levels during the six months ended June 30, 2024 and the year ended December 31, 2023.
Our derivative contracts include exchange-traded contracts valued utilizing readily available quoted market prices and non-exchange-traded contracts valued using market price quotations available through brokers or over-the-counter and on-line exchanges. In addition, in determining the fair value of our derivative contracts, we apply a
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credit risk valuation adjustment to reflect credit risk, which is calculated based on our or the counterparty's historical credit risks. As of June 30, 2024 and December 31, 2023, the credit risk valuation adjustment was a reduction of derivative liabilities, net of less than $0.1 million and $0.3 million, respectively.
11. Income Taxes
Income Taxes
We and our subsidiaries, CenStar and Verde Energy USA, Inc. ("Verde Corp") are each subject to U.S. federal income tax as corporations. CenStar and Verde Corp file consolidated tax returns in jurisdictions that allow combined reporting. Spark HoldCo and its subsidiaries, with the exception of CenStar and Verde Corp, are treated as flow-through entities for U.S. federal income tax purposes, and, as such, are generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to their taxable income is passed through to their members or partners. Accordingly, we are subject to U.S. federal income taxation on our allocable share of Spark HoldCo's net U.S. taxable income.
In our financial statements, we report federal and state income taxes for our share of the partnership income attributable to our ownership in Spark HoldCo and for the income taxes attributable to CenStar and Verde Corp. Net income attributable to non-controlling interest includes the provision for income taxes related to CenStar and Verde Corp.
We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the tax bases of the assets and liabilities. We apply existing tax law and the tax rate that we expect to apply to taxable income in the years in which those differences are expected to be recovered or settled in calculating the deferred tax assets and liabilities. Effects of changes in tax rates on deferred tax assets and liabilities are recognized in income in the period of the tax rate enactment. A valuation allowance is recorded when it is not more likely than not that some or all of the benefit from the deferred tax asset will be realized.
We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets. In making this determination, we consider all available positive and negative evidence and make certain assumptions. We consider, among other things, our deferred tax liabilities, the overall business environment, our historical earnings and losses, current industry trends, and our outlook for future years. We believe it is more likely than not that our deferred tax assets will be utilized, and accordingly have not recorded a valuation allowance on these assets.
As of June 30, 2024, we had a net deferred tax asset of $11.1 million, due in large part to the original step up in tax basis resulting from the initial purchase of Spark HoldCo units from NuDevco Retail and NuDevco Retail Holdings (predecessor to Retailco) in connection with our initial public offering.
The effective U.S. federal and state income tax rate for the three months ended June 30, 2024 and 2023 was 17.0% and 21.5%, respectively. The effective U.S. federal and state income tax rate for the six months ended June 30, 2024 and 2023 was 18.6% and 20.8%, respectively. The effective tax rate for three and six months ended June 30, 2024 differed from the U.S. federal statutory tax rate of 21% primarily due to state taxes and the benefit provided from Spark HoldCo operating as a limited liability company, which is treated as a partnership for federal and state income tax purposes and is not subject to federal and state income taxes. Accordingly, the portion of earnings attributable to non-controlling interest is subject to tax when reported as a component of the non-controlling interest holders' taxable income.
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12. Commitments and Contingencies
From time to time, we may be involved in legal, tax, regulatory and other proceedings in the ordinary course of business. Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Legal Proceedings
Below is a summary of our currently pending material legal proceedings. We are subject to lawsuits and claims arising in the ordinary course of our business. The following legal proceedings are in various stages and are subject to substantial uncertainties concerning the outcome of material factual and legal issues. Accordingly, unless otherwise specifically noted, we cannot currently predict the manner and timing of the resolutions of these legal proceedings or estimate a range of possible losses or a minimum loss that could result from an adverse verdict in a potential lawsuit. While the lawsuits and claims are asserted for amounts that may be material should an unfavorable outcome occur, management does not currently expect that any currently pending matters will have a material adverse effect on our financial position or results of operations.
Consumer Lawsuits
Similar to other energy service companies ("ESCOs") operating in the industry, from time-to-time, the Company is subject to class action lawsuits in various jurisdictions where the Company sells natural gas and electricity.
On January 14, 2021, Glikin, et al. v. Major Energy Electric Services, LLC, a purported variable rate class action, was filed by a Maryland customer in the United States District Court, Southern District of New York, attempting to represent a class of all Major Energy customers (including customers of companies Major Energy acts as a successor to) in the United States charged a variable rate for electricity or gas by Major Energy during the applicable statute of limitations period up to and including the date of judgment. The Company moved this case to the United States District Court for the District of Maryland (Case No. 1:21-cv-03251-MJM) and in December 2023 filed a motion to dismiss the lawsuit. The Company is vigorously defending this matter; however, given the current early stage of this matter, we cannot predict the outcome of this case at this time.
On December 18, 2023, Foote v. Electricity N.H., LLC ("ENH"), a purported Telephone Consumer Protection Act (the "TCPA") class action, was filed in the United States District Court for the District of New Hampshire. Plaintiff claims that calls made to her violated the TCPA. Plaintiff purports to assert claims on her own behalf and a putative class of individuals to whom calls using a prerecorded or artificial voice message regarding ENH's services were placed during the period of September 1, 2019, through September 1, 2023. ENH only operates in New Hampshire and no other states. The Company denies Plaintiff's allegations and intends to vigorously defend against her claims.
Corporate Matter Lawsuits
The Company may from time to time be subject to legal proceedings that arise in the ordinary course of business. Although there can be no assurance in this regard, the Company does not expect any of those legal proceedings to have a material adverse effect on the Company's results of operations, cash flows or financial condition.
On July 19, 2024, Joshua Amburgey, a purported stockholder of the Company at the time of the Merger, filed a verified class action complaint, Joshua Amburgey, on behalf of himself and all others similarly situated v. Via Renewables, Inc., et al., Case No. 2024-0762-KSJM (Del. Ch.) (the "Amburgey Action") in the Court of Chancery of the State of Delaware ("Delaware Court") against the Company and Amanda E. Bush, Stephen Kennedy and Kenneth Hartwick in their capacities as members of the Company's Special Transaction Committee of the Board of Directors ("Special Committee"), as well as Mr. Maxwell, Retailco, LLC, TxEx Energy Investments, LLC, Electric Holdco, LLC, NuDevco Retail Holdings, LLC and NuDevco Retail, LLC. Plaintiff alleges that the defendants breached their fiduciary duties owed to the Company's public stockholders in connection with the Merger.
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On July 25, 2024, Bruce Taylor, a purported stockholder of the Company at the time of the Merger, filed a verified class action complaint, Bruce Taylor v. W. Keith Maxwell III, et al., Case No. 2024-0794 (Del. Ch.) (the "Taylor Action") in the Delaware Court against the Special Committee, and Mike Barajas, in his capacity as the Company's Chief Financial Officer, as well as Mr. Maxwell in his capacity as controlling stockholder of the Company. Plaintiff alleges that the defendants breached their fiduciary duties and participated in the provision of a materially untrue and misleading proxy statement to Company's minority stockholders in connection with the Merger.
On May 22, 2024, Michael Stutzman, a purported stockholder of the Company that previously delivered a Records Request, filed a complaint, Michael Stutzman v. Via Renewables, Inc., Case No. 2024-0545-LM (Del. Ch.) (the "220 Complaint") in the Delaware Court against the Company. The 220 Complaint seeks to compel the inspection of certain Company books and records pursuant to Section 220 of the Delaware General Corporation Law relevant to the Merger.
Regulatory Matters
Many state regulators have increased scrutiny on retail energy providers, across all industry providers. We are subject to regular regulatory inquiries, license renewal reviews, and preliminary investigations in the ordinary course of our business. Below is a summary of our currently pending material state regulatory matters. The following state regulatory matters are in various stages and are subject to substantial uncertainties concerning the outcome of material factual and legal issues. Accordingly, we cannot currently predict the manner and timing of the resolution of these state regulatory matters or estimate a range of possible losses or a minimum loss that could result from an adverse action, unless expressly indicated below. Management does not currently expect that any currently pending state regulatory matters will have a material adverse effect on our financial position or results of operations.
Connecticut. On May 21, 2024, the Connecticut Public Utility Regulatory ("PURA") issued a Notice of Violation and Assessment of Civil Penalty ("NOV") to Major Energy in which PURA stated it had reason to believe that one of Major Energy's on-line vendors violated certain Electric Supplier Laws and Aggregator Rulings. The Company worked cooperatively with PURA and has finalized a full and final settlement for $2.0 million, to be paid in three installments to the Connecticut electric distribution companies as a donation to reduce Connecticut residential hardship customer arrearages. The settlement was approved by PURA in mid-July 2024 (and accrued as of June 30, 2024).
Maine. On February 9, 2023, Maine Commission's Consumer Assistance and Safety Division ("Advocacy Staff") filed a Request for Formal Investigation requesting that the Maine Commission open a formal, enforcement investigation to review whether the Company's subsidiary, Electricity Maine, LLC (EME), is in compliance with the Maine Commission's Rules. During a special deliberative session, the same day, the Maine Commission announced it would proceed with a formal investigation of EME, which was noticed in a Notice of Enforcement Investigation issued February 10, 2023 (Docket No. 2023-00024). The Company met with Advocacy Staff over the course of several months to address concerns. As a result, the Company and the Advocacy Staff have agreed to a settlement in principle pursuant to which customers would receive certain limited refunds on their energy bill. This settlement is pending, and the Maine Commission is required to approve the settlement. The Commission did not approve the settlement and the Company is working with Advocacy Staff to have the settlement offer reviewed further and approved. The Company is working with the Commission and believes this matter will not have a material impact on the Company.
Illinois. On July 26, 2023, Spark Energy, LLC received a demand letter from a law firm representing the Office of the Illinois Attorney General alleging that Spark Energy, LLC's marketing and sales practices may have not been in compliance with Illinois law. The letter offered, in the interest of efficiency and minimizing litigation costs, a settlement demand to resolve the matter. The Company has agreed to engage in mediation with the law firm to try to resolve this matter. Mediation is set for August 2024. The Company is voluntarily working with the firm, however, if settlement is unsuccessful, the Attorney General could commence a lawsuit in Illinois against Spark Energy, LLC.
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In addition to the matters disclosed above, in the ordinary course of business, the Company may from time to time be subject to regulators initiating informal reviews or issuing subpoenas for information as means to evaluate the Company and its subsidiaries' compliance with applicable laws, rule, regulations and practices. Although there can be no assurance in this regard, the Company does not expect any of those regulatory reviews to have a material adverse effect on the Company's results of operations, cash flows or financial condition.
Indirect Tax Audits
We are undergoing various types of indirect tax audits spanning from years 2020 to 2024 for which additional liabilities may arise. At the time of filing these consolidated financial statements, these indirect tax audits are at an early stage and subject to substantial uncertainties concerning the outcome of audit findings and corresponding responses.
As of June 30, 2024 and December 31, 2023, we had accrued $9.3 million and $6.3 million, respectively, related to litigation and regulatory matters and $0.7 million and $0.7 million, respectively, related to indirect tax audits. The outcome of each of these may result in additional expense.
13. Transactions with Affiliates
Transactions with Affiliates
We enter into transactions with and pay certain costs on behalf of affiliates that are commonly controlled in order to reduce risk, reduce administrative expense, create economies of scale, create strategic alliances and supply goods and services to these related parties. We also sell and purchase natural gas and electricity with affiliates. We present receivables and payables with the same affiliate on a net basis in the condensed consolidated balance sheets as all affiliate activity is with parties under common control. Affiliated transactions include certain services to the affiliated companies associated with employee benefits provided through our benefit plans, insurance plans, leased office space, administrative salaries, due diligence work, recurring management consulting, and accounting, tax, legal, or technology services. Amounts billed are based on the services provided, departmental usage, or headcount, which are considered reasonable by management. As such, the accompanying condensed consolidated financial statements include costs that have been incurred by us and then directly billed or allocated to affiliates, as well as costs that have been incurred by our affiliates and then directly billed or allocated to us, and are recorded net in general and administrative expense on the condensed consolidated statements of operations with a corresponding accounts receivable-affiliates or accounts payable-affiliates, respectively, recorded in the condensed consolidated balance sheets. Transactions with affiliates for sales or purchases of natural gas and electricity are recorded in retail revenues, retail cost of revenues, and net asset optimization revenues in the condensed consolidated statements of operations with a corresponding accounts receivable-affiliate or accounts payable-affiliate are recorded in the condensed consolidated balance sheets.
The following tables presents asset and liability balances with affiliates (in thousands):
June 30, 2024 December 31, 2023
Assets
Accounts Receivable - affiliates $ 4,795 $ 4,683
Total Assets - affiliates
$ 4,795 $ 4,683
June 30, 2024 December 31, 2023
Liabilities
Accounts Payable - affiliates $ 269 $ 472
Subordinated Debt - affiliates (1)
- -
Total Liabilities - affiliates
$ 269 $ 472
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(1) The Subordinated Debt Facility allows us to draw advances in increments of no less than $1.0 million per advance up to the maximum principal amount of the Subordinated Debt Facility, subject to Retailco's discretion. Advances thereunder accrue interest at an annual rate equal to the prime rate as published by the Wall Street Journal plus two percent (2.0%) from the date of the advance. See Note 9 "Debt" for a further description of terms and conditions of the Subordinated Debt Facility.
The following table presents revenues and cost of revenues recorded in net asset optimization revenue associated with affiliates for the periods indicated (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Revenue NAO - affiliates $ 126 $ 333 $ 608 $ 2,617
Less: Cost of Revenue NAO - affiliates - - 1 332
Net NAO - affiliates
$ 126 $ 333 $ 607 $ 2,285
Cost Allocations
Where costs incurred on behalf of the affiliate or us cannot be determined by specific identification for direct billing, the costs are allocated to the affiliated entities or us based on estimates of percentage of departmental usage, wages or headcount. The total net amount direct billed and allocated to/(from) affiliates was ($4.5 million) and $0.3 million for the three months ended June 30, 2024 and 2023, respectively. The total net amount direct billed and allocated to/(from) affiliates was ($4.1 million) and $1.9 million for the six months ended June 30, 2024 and 2023, respectively. The Company would have incurred incremental costs of $0.3 million and $0.4 million for the three months ended June 30, 2024 and 2023, respectively, operating on a stand-alone basis. The Company would have incurred incremental costs of $0.6 million and $0.8 million for the six months ended June 30, 2024 and 2023, respectively, operating on a stand-alone basis.
Distributions to and Contributions from Affiliates
During the three months ended June 30, 2024 and 2023, Spark HoldCo made distributions to affiliates of Mr. Maxwell of zero for the payments of quarterly distribution on their respective Spark HoldCo units. During the three months ended June 30, 2024 and 2023, Spark HoldCo also made distributions to these affiliates for gross-up distributions of $4.4 million and $0.6 million, respectively, in connection with distributions made between Spark HoldCo and Via Renewables, Inc. for payment of income taxes incurred by us.
During the six months ended June 30, 2024 and 2023, Spark HoldCo made distributions to affiliates of Mr. Maxwell of zero and $3.6 million, respectively, for the payments of quarterly distribution on their respective Spark HoldCo units. During the six months ended June 30, 2024 and 2023, Spark HoldCo also made distributions to these affiliates for gross-up distributions of $4.5 million and $0.6 million, respectively, in connection with distributions made between Spark HoldCo and Via Renewables, Inc. for payment of income taxes incurred by us.
On June 13, 2024, we consummated the previously announced Merger, following which Mr. Maxwell and his affiliates became the owners of all of the issued and outstanding shares of Class A common stock and Class B common stock. For a more detailed description of the Merger, please see Note 2 "Basis of Presentation and Summary of Significant Accounting Policies" in the notes to our condensed consolidated financial statements.
As a result of the Merger, all of the Company's outstanding restricted stock units were converted into $11.00 per share (other than those owned by Mr. Maxwell, which were cancelled for no consideration). The total payout for the settlement of restricted stock units was $0.6 million, which was paid by Retailco. This was recorded as contribution from non-controlling interest for the three and six months ended June 30, 2024.
14. Segment Reporting
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Our determination of reportable business segments considers the strategic operating units under which we make financial decisions, allocate resources and assess performance of our business. Our reportable business segments are retail electricity and retail natural gas. The retail electricity segment consists of electricity sales and transmission to residential and commercial customers. The retail natural gas segment consists of natural gas sales to, and natural gas transportation and distribution for, residential and commercial customers. Corporate and other consists of expenses and assets of the retail electricity and natural gas segments that are managed at a consolidated level such as general and administrative expenses. Asset optimization activities and wireless services are also included in Corporate and other.
For the three months ended June 30, 2024 and 2023, we recorded asset optimization revenues of $3.2 million and $2.9 million and asset optimization cost of revenues of $3.7 million and $4.3 million, respectively, and for the six months ended June 30, 2024 and 2023, we recorded asset optimization revenues of $14.7 million and $14.4 million and asset optimization cost of revenues of $16.8 million and $19.0 million, respectively, which are presented on a net basis in asset optimization revenues.
We use retail gross margin to assess the performance of our operating segments. We define retail gross margin as gross profit less (i) net asset optimization (expenses) revenues, (ii) net (losses) gains on non-trading derivative instruments, (iii) net current period cash settlements on non-trading derivative instruments, and (iv) gains (losses) from non-recurring events (including non-recurring market volatility).
We deduct net gains (losses) on non-trading derivative instruments, excluding current period cash settlements, from the retail gross margin calculation in order to remove the non-cash impact of net gains and losses on these derivative instruments. We deduct net gains (losses) from non-recurring events (including non-recurring market volatility) to ensure retail gross margin reflects operating performance that is not distorted by non-recurring events or extreme market volatility. Retail gross margin should not be considered an alternative to, or more meaningful than, operating income (loss), as determined in accordance with GAAP.
Below is a reconciliation of retail gross margin to gross profit (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Reconciliation of Retail Gross Margin to Gross Profit
Total Revenue $ 86,696 $ 91,399 $ 200,752 $ 223,251
Less:
Retail cost of revenues 42,997 45,926 111,959 163,367
Gross Profit $ 43,699 $ 45,473 $ 88,793 $ 59,884
Less:
Net asset optimization expense (531) (1,359) (2,128) (4,632)
Net, gain (loss) on non-trading derivative instruments 3,160 (40) (1,136) (42,809)
Net, Cash settlements on non-trading derivative instruments 7,683 16,146 22,925 36,269
Retail Gross Margin $ 33,387 $ 30,726 $ 69,132 $ 71,056
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Financial data for business segments are as follows (in thousands):
Three Months Ended June 30, 2024
Retail
Electricity (a) 		Retail
Natural Gas 		Corporate
and Other 		Eliminations Consolidated
Total revenues $ 71,148 $ 15,812 $ (264) $ - $ 86,696
Retail cost of revenues 37,127 5,663 207 - 42,997
Gross Profit (Loss) $ 34,021 $ 10,149 $ (471) $ - $ 43,699
Less:
Net asset optimization expense - - (531) - (531)
Net, loss on non-trading derivative instruments 2,607 553 - - 3,160
Current period settlements on non-trading derivatives 6,103 1,580 - - 7,683
Retail Gross Margin $ 25,311 $ 8,016 $ 60 $ - $ 33,387
Total Assets at June 30, 2024 $ 1,742,416 $ 82,340 $ 302,803 $ (1,827,889) $ 299,670
Goodwill at June 30, 2024 $ 117,813 $ 2,530 $ - $ - $ 120,343
(a) Retail Electricity includes related services.
Three Months Ended June 30, 2023
Retail
Electricity 		Retail
Natural Gas 		Corporate
and Other 		Eliminations Consolidated
Total revenues $ 74,765 $ 17,856 $ (1,222) $ - $ 91,399
Retail cost of revenues 37,612 8,263 51 - 45,926
Gross Profit (Loss) $ 37,153 $ 9,593 $ (1,273) $ - $ 45,473
Less:
Net asset optimization expense - - (1,359) - (1,359)
Net, gain (loss) on non-trading derivative instruments 254 (294) - - (40)
Current period settlements on non-trading derivatives 13,905 2,241 - - 16,146
Retail Gross Margin $ 22,994 $ 7,646 $ 86 $ - $ 30,726
Total Assets at December 31, 2023 $ 1,613,642 $ 48,303 $ 301,892 $ (1,660,003) $ 303,834
Goodwill at December 31, 2023 $ 117,813 $ 2,530 $ - $ - $ 120,343
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Six Months Ended June 30, 2024
Retail
Electricity (a) 		Retail
Natural Gas 		Corporate
and Other 		Eliminations Consolidated
Total revenues $ 148,477 $ 52,871 $ (596) $ - $ 200,752
Retail cost of revenues 86,258 24,866 835 - 111,959
Gross Profit (Loss) $ 62,219 $ 28,005 $ (1,431) $ - $ 88,793
Less:
Net asset optimization expense - - (2,128) - (2,128)
Net, (loss) gain on non-trading derivatives (1,229) 93 - - (1,136)
Current period settlements on non-trading derivatives 19,226 3,699 - - 22,925
Retail Gross Margin $ 44,222 $ 24,213 $ 697 $ - $ 69,132
Total Assets at June 30, 2024 $ 1,742,416 $ 82,340 $ 302,803 $ (1,827,889) $ 299,670
Goodwill at June 30, 2024 $ 117,813 $ 2,530 $ - $ - $ 120,343
(a) Retail Electricity includes related services.
Six Months Ended June 30, 2023
Retail
Electricity 		Retail
Natural Gas 		Corporate
and Other 		Eliminations Consolidated
Total revenues $ 157,592 $ 70,154 $ (4,495) $ - $ 223,251
Retail cost of revenues 118,442 44,874 51 - 163,367
Gross Profit (Loss) $ 39,150 $ 25,280 $ (4,546) $ - $ 59,884
Less:
Net asset optimization expense - - (4,632) - (4,632)
Net, loss on non-trading derivatives (35,841) (6,968) - - (42,809)
Current period settlements on non-trading derivatives 31,528 4,741 - - 36,269
Retail Gross Margin $ 43,463 $ 27,507 $ 86 $ - $ 71,056
Total Assets at December 31, 2023 $ 1,613,642 $ 48,303 $ 301,892 $ (1,660,003) $ 303,834
Goodwill at December 31, 2023 $ 117,813 $ 2,530 $ - $ - $ 120,343
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15. Customer Acquisitions
Acquisition of Customer Books
In April 2024, we entered into an asset purchase agreement to acquire up to approximately 12,556 RCEs for a cash purchase price of up to a maximum of $2.3 million. These customers began transferring in June of 2024, and are located in our existing markets. During the six months ended June 30, 2024, approximately 3,600 RCEs were transferred.
As part of the acquisitions, we funded an escrow account, the balance of which is reflected as restricted cash in our consolidated balance sheet. As we acquire customers, we make payments to the sellers from the escrow account. As of June 30, 2024, the balance in the escrow account was $2.3 million, and these funds are expected to be released to the sellers as acquired customers transfer from the sellers to the Company in accordance with the asset purchase agreement, and any unallocated balance will be returned to the Company once the acquisition is complete.
16. Stock Compensation
Restricted Stock Units
We maintained a Long-Term Incentive Plan ("LTIP") for employees, consultants and directors of the Company and its affiliates who perform services for the Company. The purpose of the LTIP was to provide a means to attract and retain individuals to serve as directors, employees and consultants who provided services to the Company by affording such individuals a means to acquire and maintain ownership of awards, the value of which was tied to the performance of the Company's Class A common stock. The LTIP provided for grants of cash payments, stock options, stock appreciation rights, restricted stock or units, bonus stock, dividend equivalents, and other stock-based awards with the total number of shares of stock available for issuance under the LTIP not to exceed 2,750,000 shares.
Restricted stock units were granted to our officers, employees, non-employee directors and certain employees of our affiliates who performed services for the Company and vested over approximately one year for non-employee directors and ratably over approximately oneto four years for officers, employees, and employees of affiliates, with the initial vesting date occurring in May of the subsequent year.
Merger and Delisting of Class A Common Stock
On June 13, 2024, we consummated the previously announced Merger, following which Mr. Maxwell and his affiliates became the owners of all of the issued and outstanding shares of Class A common stock and Class B common stock. Effective as of the end of trading on June 13, 2024, the Class A common stock ceased to trade on NASDAQ. For a more detailed description of the Merger, please see Note 2 "Basis of Presentation and Summary of Significant Accounting Policies" in the notes to our condensed consolidated financial statements.
As a result of the Merger, all of the Company's outstanding restricted stock units were converted into $11.00 per share (other than those owned by Mr. Maxwell, which were cancelled for no consideration). The total payout for the settlement of restricted stock units was $0.6 million, which was paid by Retailco. This was recorded as contribution from non-controlling interest.
Total stock-based compensation expense for the six months ended June 30, 2024 was $2.4 million, of which $1.7 million was recorded as accelerated expense due to conversion as a result of merger transaction.
Equity Classified Restricted Stock Units
Restricted stock units issued to employees and officers of the Company were classified as equity awards. The fair value of the equity classified restricted stock units was based on the Company's Class A common stock price as of
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the grant date. The Company recognized stock based compensation expense of $2.3 million for the six months ended June 30, 2024, of which $1.6 million was recorded as accelerated expense due to conversion as a result of the Merger. This expense was recorded in general and administrative expense with a corresponding increase to additional paid in capital. The following table summarizes equity classified restricted stock unit activity for the six months ended June 30, 2024.
Number of Shares (in thousands) Weighted Average Grant Date Fair Value
Unvested at December 31, 2023 136 $ 23.21
Granted 16 11.00
Dividend reinvestment issuances - -
Vested (88) 10.96
Forfeited (64) 11.00
Unvested at June 30, 2024 - $ -
For the six months ended June 30, 2024, 88,004 restricted stock units vested, with 33,883 shares of Class A common stock distributed to the holders of these units and 54,121 shares of Class A common stock withheld by the Company to cover taxes owed on the vesting of such units. As of June 30, 2024, there was zero unrecognized compensation cost related to the Company's equity classified restricted stock units.
Change in Control Restricted Stock Units
In 2018, the Company granted Change in Control Restricted Stock Units ("CIC RSUs") to certain officers that vest upon a "Change in Control", if certain conditions are met. The terms of the CIC RSUs define a "Change in Control" to generally mean:
-the consummation of an agreement to acquire or tender offer for beneficial ownership by any person, of 50% or more of the combined voting power of our outstanding voting securities entitled to vote generally in the election of directors, or by any person of 90% or more of the then total outstanding shares of Class A common stock;
-individuals who constitute the incumbent board cease for any reason to constitute at least a majority of the board;
-consummation of certain reorganizations, mergers or consolidations or a sale or other disposition of all or substantially all of our assets;
-approval by our stockholders of a complete liquidation or dissolution;
-a public offering or series of public offerings by Retailco and its affiliates, as a selling shareholder group, in which their total interest drops below 10 million of our total outstanding voting securities;
-a disposition by Retailco and its affiliates in which their total interest drops below 10 million of our total outstanding voting securities; or
-any other business combination, liquidation event of Retailco and its affiliates or restructuring of us which the Compensation Committee deems in its discretion to achieve the principles of a Change in Control.
The CIC RSUs vested upon complete of the Merger. The equity classified restricted stock unit table above includes 16,465 CIC RSUs as the conditions for Change in Control was met. The Company recognized $0.2 million stock compensation accelerated expense related to the CIC RSUs during the six months ended June 30, 2024.
Liability Classified Restricted Stock Units
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Restricted stock units issued to non-employee directors of the Company and employees of certain of our affiliates are classified as liability awards as the awards are either to a) non-employee directors that allow for net settlement for the amount of withholding taxes dues upon vesting or b) to employees of certain affiliates of the Company and are therefore not deemed to be employees of the Company. The fair value of the liability classified restricted stock units is based on the Company's Class A common stock price as of the reported period ending date. The Company recognized stock based compensation expense of $0.1 million for the six months ended June 30, 2024, of which less than $0.1 million was recorded as accelerated expense due to conversion as a result of Merger. The following table summarizes liability classified restricted stock unit activity for the six months ended June 30, 2024.
Number of Shares (in thousands) Weighted Average Reporting Date Fair Value
Unvested at December 31, 2023 17 $ 9.4
Granted - -
Dividend reinvestment issuances - -
Vested (8) 10.96
Forfeited (9) 11.00
Unvested at June 30, 2024 - $ -
For the six months ended June 30, 2024, 7,588 restricted stock units vested, with 7,588 shares of Class A common stock distributed to the holders of these units and zero shares of Class A shares withheld by the Company to cover taxes owed on the vesting of such units. As of June 30, 2024, there was zero unrecognized compensation cost related to the Company's liability classified restricted stock units.
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17. Subsequent Events
Declaration of Dividends
On July 17, 2024, we declared a quarterly cash dividend in the amount of $0.75881 per share to holders of record of the Series A Preferred Stock on October 1, 2024. The dividend will be paid on October 15, 2024.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Report and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations included in our 2023 Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 29, 2024. Results of operations and cash flows for the three and six months ended June 30, 2024 are not necessarily indicative of results to be attained for any other period. See "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors."
Overview
We are an independent retail energy services company founded in 1999 and are organized as a Delaware corporation that provides residential and commercial customers in competitive markets across the United States with an alternative choice for natural gas and electricity. We purchase our electricity and natural gas supply from a variety of wholesale providers and bill our customers monthly for the delivery of electricity and natural gas based on their consumption at either a fixed or variable price. Electricity and natural gas are then distributed to our customers by local regulated utility companies through their existing infrastructure. As of June 30, 2024, we operated in 105 utility service territories across 20 states and the District of Columbia.
Our business consists of two operating segments:
•Retail Electricity Segment. In this segment, we purchase electricity supply through physical and financial transactions with market counterparties and ISOs and supply electricity to residential and commercial consumers pursuant to fixed-price and variable-price contracts. For the three months ended June 30, 2024 and 2023, approximately 82% and 81%, respectively, of our retail revenues were derived from the sale of electricity.
•Retail Natural Gas Segment. In this segment, we purchase natural gas supply through physical and financial transactions with market counterparties and supply natural gas to residential and commercial consumers pursuant to fixed-price and variable-price contracts. For the three months ended June 30, 2024 and 2023, approximately 18% and 19%, respectively, of our retail revenues were derived from the sale of natural gas.
Recent Developments
Merger and Delisting of Class A Common Stock
On June 13, 2024, we consummated the previously announced Merger, following which Mr. Maxwell and his affiliates became the owners of all of the issued and outstanding shares of Class A common stock and Class B common stock. Effective as of the end of trading on June 13, 2024, the Class A common stock ceased to trade on NASDAQ. For a more detailed description of the Merger, please see Note 2 "Basis of Presentation and Summary of Significant Accounting Policies" in the notes to our condensed consolidated financial statements.
Optional Limited Change of Control Conversion Right for Series A Preferred Stock
As a result of the Merger, holders of the Company's Series A Preferred Stock were provided an optional limited Conversion Right, available at the option of the holder, for $8.07 per share in cash. On June 27, 2024, the Company provided notice to the holders of the Series A Preferred Stock of the Conversion Right. Holders of the Series A Preferred Stock were entitled to exercise the Conversion Right through July 26, 2024.
First Amendment to Senior Credit Facility
On June 28, 2024, we entered into the First Amendment (the "First Amendment") to our senior credit facility (as amended by the First Amendment, the "Senior Credit Facility"). The First Amendment, among other things, increased the borrowing capacity to $205.0 million and extended the maturity date to June 30, 2027. For a more
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detailed description of the Senior Credit Facility, please see Note 9 "Debt" in the notes to our condensed consolidated financial statements.
Residential Customer Equivalents
We measure our number of customers using residential customer equivalents ("RCEs"). The following table shows our RCEs by segment during the three and six months ended June 30, 2024:
RCEs:
RCEs:
(In thousands) March 31, 2024 Additions Attrition June 30, 2024 % Increase (Decrease)
Retail Electricity 220 25 27 218 (1)%
Retail Natural Gas 118 10 8 120 2%
Total Retail 338 35 35 338 -%
RCEs:
(In thousands) December 31, 2023 Additions Attrition June 30, 2024 % Increase (Decrease)
Retail Electricity 217 57 56 218 -%
Retail Natural Gas 118 19 17 120 2%
Total Retail 335 76 73 338 1%
The following table details our count of RCEs by geographical location as of June 30, 2024:
RCEs by Geographic Location:
(In thousands) Electricity % of Total Natural Gas % of Total Total % of Total
New England 61 28% 12 10% 73 22%
Mid-Atlantic 102 47% 52 43% 154 46%
Midwest 19 9% 23 19% 42 12%
Southwest 36 16% 33 28% 69 20%
Total 218 100% 120 100% 338 100%
The geographical locations noted above include the following states:
•New England - Connecticut, Maine, Massachusetts and New Hampshire;
•Mid-Atlantic - Delaware, Maryland (including the District of Columbia), New Jersey, New York, Pennsylvania and Virginia;
•Midwest - Illinois, Indiana, Michigan and Ohio; and
•Southwest - Arizona, California, Colorado, Florida, Nevada and Texas.
Across our market areas, we have operated under a number of different retail brands. We currently operate under six retail brands.
Drivers of Our Business
The success of our business and our profitability are impacted by a number of drivers, the most significant of which are discussed below.
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Customer Growth
Customer growth is a key driver of our operations. Our ability to acquire customers organically or by acquisition is important to our success as we experience ongoing customer attrition. Our customer growth strategy includes growing organically through traditional sales channels complemented by customer portfolio and business acquisitions.
During the three months ended June 30, 2024, we added approximately 31,400 RCEs primarily through our various organic sales channels. Although we expect to continue to acquire customers organically in the future, our sales rate is dependent on market conditions and may slow in future periods.
In April 2024, we entered into an asset purchase agreement to acquire up to approximately 12,556 RCEs for a cash purchase price of up to a maximum of $2.3 million. These customers began transferring in the second quarter of 2024, and are located in our existing markets. During the three months ended June 30, 2024, we added 3,600 RCEs as a result of the asset purchase agreement. Our ability to realize returns from acquisitions that are acceptable to us is dependent on our ability to successfully identify, negotiate, finance and integrate acquisitions. We will continue to evaluate potential acquisitions during the remainder of 2024.
While we remain focused on organic sales and identifying customer portfolio and business acquisitions, we cannot ensure that our RCE count will remain at current levels or grow. Our RCE count, as well as the margins we earn on our customers, contribute to our overall profitability, cash flow and ability to pay dividends.
Customer Acquisition Costs
Managing customer acquisition costs is a key component of our profitability. Customer acquisition costs are those costs related to obtaining customers organically and do not include the cost of acquiring customers through acquisitions, which are recorded as customer relationships.
Customer Attrition
Customer attrition occurs primarily as a result of: (i) customer initiated switches; (ii) residential moves; (iii) disconnection resulting from customer payment defaults; and (iv) proactive non-renewal of contracts. Average monthly customer attrition for the three months ended June 30, 2024 and 2023 was 3.4% and 3.1%, respectively. Our customer attrition was consistent with the prior year.
Customer Credit Risk
Our credit loss expense for the three months ended June 30, 2024 and 2023 was 2.1% and 2.4%, respectively, and our credit loss expense for the six months ended June 30, 2024 and 2023 was 1.4% and 2.1% respectively, for non-purchase of receivable market ("non-POR") revenues. As the Company has increased sales activities in non-POR markets and focused on collection efforts, we have experienced a decrease in credit loss expense during the three months ended June 30, 2024.
Gross Profit
The profit earned between the price we are able to charge customers for retail electricity and natural gas and the cost to serve customers is a key component of the results of our operations. Prices we are able to charge customers for retail electricity and natural gas vary with market conditions, and are subject to regulatory restrictions in many of the markets we serve. Costs to serve customers are tied closely to gas and power commodity markets, which exposes us to significant variability and uncertainties.
Weather Conditions
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Weather conditions directly influence the demand for natural gas and electricity and affect the prices of energy commodities. Our hedging strategy is based on forecasted customer energy usage, which can vary substantially as a result of weather patterns deviating from historical norms. We are particularly sensitive to this variability in our residential customer segment where energy usage is highly sensitive to weather conditions that impact heating and cooling demand.
Asset Optimization
Our asset optimization opportunities primarily arise during the winter heating season when demand for natural gas is typically at its highest. Given the opportunistic nature of these activities and because we account for these activities using the mark to market method of accounting, we experience variability in our earnings from our asset optimization activities from year to year.
Net asset optimization resulted in a loss of $0.5 million and a loss of $1.4 million for the three months ended June 30, 2024 and three months ended June 30, 2023, respectively. Net asset optimization resulted in a loss of $2.1 million and a loss of $4.6 million for the six months ended June 30, 2024 and six months ended June 30, 2023, respectively.
Non-GAAP Performance Measures
We use the Non-GAAP performance measures of Adjusted EBITDA and Retail Gross Margin to evaluate and measure our operating results as follows:
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2024 2023 2024 2023
Adjusted EBITDA (1)
$ 12,363 $ 12,013 $ 27,431 $ 30,824
Retail Gross Margin $ 33,387 $ 30,726 $ 69,132 $ 71,056
(1) Adjusted EBITDA for three and six months ended June 30, 2024 includes an add back of $1.1 million and $1.5 million, respectively, related to merger agreement expense.
Adjusted EBITDA. We define "Adjusted EBITDA" as EBITDA less (i) customer acquisition costs incurred in the current period, plus or minus (ii) net (loss) gain on derivative instruments, and (iii) net current period cash settlements on derivative instruments, plus (iv) non-cash compensation expense, and (v) other non-cash and non-recurring operating items. EBITDA is defined as net income (loss) before the provision for income taxes, interest expense and depreciation and amortization. This conforms to the calculation of Adjusted EBITDA in our Senior Credit Facility.
We deduct all current period customer acquisition costs (representing spending for organic customer acquisitions) in the Adjusted EBITDA calculation because such costs reflect a cash outlay in the period in which they are incurred, even though we capitalize and amortize such costs over two years. We do not deduct the cost of customer acquisitions through acquisitions of businesses or portfolios of customers in calculating Adjusted EBITDA.
We deduct our net gains (losses) on derivative instruments, excluding current period cash settlements, from the Adjusted EBITDA calculation in order to remove the non-cash impact of net gains and losses on these instruments. We also deduct non-cash compensation expense that results from the issuance of restricted stock units under our long-term incentive plan due to the non-cash nature of the expense.
We adjust from time to time other non-cash or unusual and/or infrequent charges due to either their non-cash nature or their infrequency. We have historically included the financial impact of weather variability in the calculation of Adjusted EBITDA.
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We believe that the presentation of Adjusted EBITDA provides information useful to investors in assessing our liquidity and financial condition and results of operations and that Adjusted EBITDA is also useful to investors as a financial indicator of our ability to incur and service debt, pay dividends and fund capital expenditures. Adjusted EBITDA is a supplemental financial measure that management and external users of our consolidated financial statements, such as industry analysts, investors, commercial banks and rating agencies, use to assess the following:
•our operating performance as compared to other publicly traded companies in the retail energy industry, without regard to financing methods, capital structure, historical cost basis and specific items not reflective of ongoing operations;
•the ability of our assets to generate earnings sufficient to support our proposed cash dividends;
•our ability to fund capital expenditures (including customer acquisition costs) and incur and service debt; and
•our compliance with financial debt covenants. (Refer to Note 9 "Debt" to Part I, Item 1 of this Report for discussion of the material terms of our Senior Credit Facility, including the covenant requirements for our Minimum Fixed Charge Coverage Ratio, Maximum Total Leverage Ratio, and Maximum Senior Secured Leverage Ratio.)
The GAAP measures most directly comparable to Adjusted EBITDA are net income (loss) and net cash provided by (used in) operating activities. The following table presents a reconciliation of Adjusted EBITDA to these GAAP measures for each of the periods indicated.
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2024 2023 2024 2023
Reconciliation of Adjusted EBITDA to net income:
Net income $ 15,695 $ 19,086 $ 34,759 $ 12,315
Depreciation and amortization 2,210 1,994 4,250 5,330
Interest expense 1,743 2,447 3,672 5,144
Income tax expense 3,208 5,240 7,960 3,244
EBITDA
22,856 28,767 50,641 26,033
Less:
Net, gain (loss) on derivative instruments 3,180 (667) (1,025) (43,437)
Net cash settlements on derivative instruments 7,767 16,530 23,192 36,667
Customer acquisition costs 2,582 1,490 5,026 3,263
Plus:
Non-cash compensation expense 1,928 599 2,442 1,284
Merger agreement expense 1,108 - 1,541 -
Adjusted EBITDA $ 12,363 $ 12,013 $ 27,431 $ 30,824
The following table presents a reconciliation of Adjusted EBITDA to net cash provided by operating activities for each of the periods indicated.
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Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2024 2023 2024 2023
Reconciliation of Adjusted EBITDA to net cash provided by operating activities:
Net cash provided by operating activities $ 11,228 $ 21,636 $ 28,327 $ 34,696
Amortization of deferred financing costs (312) (207) (518) (413)
Bad debt expense (1,017) (933) (1,321) (1,888)
Interest expense 1,743 2,447 3,672 5,144
Income tax expense 3,208 5,240 7,960 3,244
Merger agreement expense 1,108 - 1,541 -
Changes in operating working capital
Accounts receivable, prepaids, current assets (12,564) (23,788) (19,837) (37,863)
Inventory 653 1,367 (1,108) (2,482)
Accounts payable and accrued liabilities 8,444 10,646 10,660 32,233
Other (128) (4,395) (1,945) (1,847)
Adjusted EBITDA $ 12,363 $ 12,013 $ 27,431 $ 30,824
Cash Flow Data:
Net cash provided by operating activities $ 11,228 $ 21,636 $ 28,327 $ 34,696
Net cash used in investing activities $ (280) $ (401) $ (730) $ (775)
Net cash used in financing activities $ (5,482) $ (19,338) $ (14,303) $ (22,213)
Retail Gross Margin. We define retail gross margin as gross profit less (i) net asset optimization revenues (expenses), (ii) net gains (losses) on non-trading derivative instruments, (iii) net current period cash settlements on non-trading derivative instruments and (iv) gains (losses) from non-recurring events (including non-recurring market volatility). Retail gross margin is included as a supplemental disclosure because it is a primary performance measure used by our management to determine the performance of our retail natural gas and electricity segments as a result of recurring operations. As an indicator of our retail energy business's operating performance, retail gross margin should not be considered an alternative to, or more meaningful than, gross profit, its most directly comparable financial measure calculated and presented in accordance with GAAP.
We believe retail gross margin provides information useful to investors as an indicator of our retail energy business's operating performance.
The GAAP measure most directly comparable to Retail Gross Margin is gross profit. The following table presents a reconciliation of Retail Gross Margin to gross profit for each of the periods indicated.
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Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2024 2023 2024 2023
Reconciliation of Retail Gross Margin to Gross Profit
Total Revenue $ 86,696 $ 91,399 $ 200,752 $ 223,251
Less:
Retail cost of revenues 42,997 45,926 111,959 163,367
Gross Profit $ 43,699 $ 45,473 $ 88,793 $ 59,884
Less:
Net asset optimization expense (531) (1,359) (2,128) (4,632)
Gain (loss) on non-trading derivative instruments 3,160 (40) (1,136) (42,809)
Cash settlements on non-trading derivative instruments 7,683 16,146 22,925 36,269
Retail Gross Margin $ 33,387 $ 30,726 $ 69,132 $ 71,056
Retail Gross Margin - Retail Electricity Segment $ 25,311 $ 22,994 $ 44,222 $ 43,463
Retail Gross Margin - Retail Natural Gas Segment $ 8,016 $ 7,646 $ 24,213 $ 27,507
Retail Gross Margin - Other $ 60 $ 86 $ 697 $ 86
Our non-GAAP financial measures of Adjusted EBITDA and Retail Gross Margin should not be considered as alternatives to gross profit. Adjusted EBITDA and Retail Gross Margin are not presentations made in accordance with GAAP and have limitations as analytical tools. You should not consider Adjusted EBITDA or Retail Gross Margin in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA and Retail Gross Margin exclude some, but not all, items that affect gross profit, and are defined differently by different companies in our industry, our definition of Adjusted EBITDA and Retail Gross Margin may not be comparable to similarly titled measures of other companies.
Management compensates for the limitations of Adjusted EBITDA and Retail Gross Margin as analytical tools by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating these data points into management's decision-making process.
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Consolidated Results of Operations
Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023
(In Thousands) Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Revenues:
Retail revenues $ 86,960 $ 92,621 $ 201,348 $ 227,746
Net asset optimization expense (531) (1,359) (2,128) (4,632)
Other revenue 267 137 1,532 137
Total Revenues 86,696 91,399 200,752 223,251
Operating Expenses:
Retail cost of revenues 42,997 45,926 111,959 163,367
General and administrative expense 20,862 16,713 38,195 33,938
Depreciation and amortization 2,210 1,994 4,250 5,330
Total Operating Expenses 66,069 64,633 154,404 202,635
Operating income 20,627 26,766 46,348 20,616
Other (expense)/income:
Interest expense (1,743) (2,447) (3,672) (5,144)
Interest and other income 19 7 43 87
Total other expense (1,724) (2,440) (3,629) (5,057)
Income before income tax expense 18,903 24,326 42,719 15,559
Income tax expense 3,208 5,240 7,960 3,244
Net income $ 15,695 $ 19,086 $ 34,759 $ 12,315
Other Performance Metrics:
Adjusted EBITDA (1) (2)
$ 12,363 $ 12,013 $ 27,431 $ 30,824
Retail Gross Margin (1)
$ 33,387 $ 30,726 $ 69,132 $ 71,056
Customer Acquisition Costs $ 2,582 $ 1,490 $ 5,026 $ 3,263
Average Monthly RCE Attrition 3.4 % 3.1 % 3.6 % 3.5 %
(1) Adjusted EBITDA and Retail Gross Margin are non-GAAP financial measures. See " - Non-GAAP Performance Measures" for a reconciliation of Adjusted EBITDA and Retail Gross Margin to their most directly comparable GAAP financial measures.
(2) Adjusted EBITDA for the three and six months ended June 30, 2024 includes an add back of $1.1 million and $1.5 million, respectively, related to merger agreement expense.
Total Revenues. Total revenues for the three months ended June 30, 2024 were approximately $86.7 million, a decrease of approximately $4.7 million, or 5%, from approximately $91.4 million for the three months ended June 30, 2023, as indicated in the table below (in millions). This decrease was primarily due to lower electricity and gas unit revenue as a result of decreased electricity and gas rates, partially offset by an increase in electricity volumes sold in the second quarter of 2024 as compared to the second quarter of 2023.
Change in electricity volumes sold $ 5.2
Change in natural gas volumes sold -
Change in electricity unit revenue per MWh (8.9)
Change in natural gas unit revenue per MMBtu (2.1)
Change in other revenue 0.3
Change in net asset optimization expense 0.8
Change in total revenues $ (4.7)
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Retail Cost of Revenues. Total retail cost of revenues for the three months ended June 30, 2024 was approximately $43.0 million, a decrease of approximately $2.9 million, or 6%, from approximately $45.9 million for the three months ended June 30, 2023, as indicated in the table below (in millions). This decrease was primarily due to a decrease in electricity and gas unit cost, partially offset by an increase in electricity volumes sold in the second quarter of 2024 as compared to the second quarter of 2023, and a change in value of our retail derivative portfolio.
Change in electricity volumes sold $ 3.8
Change in natural gas volumes sold 0.1
Change in electricity unit cost per MWh (9.6)
Change in natural gas unit cost per MMBtu (2.5)
Change in other costs 0.1
Change in value of retail derivative portfolio 5.2
Change in retail cost of revenues $ (2.9)
General and Administrative Expense. General and administrative expense for the three months ended June 30, 2024 was approximately $20.9 million, an increase of approximately $4.2 million, or 25%, as compared to $16.7 million for the three months ended June 30, 2023. This increase was primarily attributable to an increase in stock compensation expense and legal fees, both of which were related to the Merger in the second quarter of 2024, and an increase in legal and regulatory expense in the second quarter of 2024 compared to the second quarter of 2023.
Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended June 30, 2024 was approximately $2.2 million, an increase of approximately $0.2 million, or 10%, from approximately $2.0 million for the three months ended June 30, 2023. This increase was primarily due to an increased amortization expense associated with customer intangibles.
Customer Acquisition Cost. Customer acquisition cost for the three months ended June 30, 2024 was approximately $2.6 million, an increase of approximately $1.1 million, or 73% from approximately $1.5 million three months ended June 30, 2023, primarily due to an increase in the sales activity in the second quarter of 2024 as compared to the second quarter of 2023.
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Six months ended June 30, 2024 Compared to Six months ended June 30, 2023
Total Revenues. Total revenues for the six months ended June 30, 2024 were approximately $200.8 million, a decrease of approximately $22.5 million, or 10%, from approximately $223.3 million for the six months ended June 30, 2023, as indicated in the table below (in millions). This decrease was primarily due to lower electricity and gas unit revenue as a result of decreased electricity and gas rates, partially offset by an increase in electricity volumes sold in the first half of 2024 as compared to the first half of 2023.
Change in electricity volumes sold $ 13.9
Change in natural gas volumes sold (3.0)
Change in electricity unit revenue per MWh (23.0)
Change in natural gas unit revenue per MMBtu (14.3)
Change in other revenue 1.4
Change in net asset optimization expense 2.5
Change in total revenues $ (22.5)
Retail Cost of Revenues. Total retail cost of revenues for the six months ended June 30, 2024 was approximately $112.0 million, a decrease of approximately $51.4 million, or 31%, from approximately $163.4 million for the six months ended June 30, 2023, as indicated in the table below (in millions). This decrease was primarily due to a change in the value of our retail derivative portfolio and lower electricity and gas costs. The decrease was partially offset by an increase in electricity volumes sold in the first half of 2024 as compared to the first half of of 2023.
Change in electricity volumes sold $ 10.0
Change in natural gas volumes sold (1.8)
Change in electricity unit cost per MWh (19.8)
Change in natural gas unit cost per MMBtu (12.2)
Change in other costs 0.7
Change in value of retail derivative portfolio (28.3)
Change in retail cost of revenues $ (51.4)
General and Administrative Expense. General and administrative expense for the six months ended June 30, 2024 was approximately $38.2 million, an increase of approximately $4.3 million, or 13%, as compared to $33.9 million for the six months ended June 30, 2023. This increase was primarily attributable to an increase in stock compensation expense and legal fees, both of which were related to the Merger in 2024, and an increase in legal and regulatory expense in the first half of 2024 compared to the first half of 2023.
Depreciation and Amortization Expense. Depreciation and amortization expense for the six months ended June 30, 2024 was approximately $4.3 million, a decrease of approximately $1.0 million, or 19%, from approximately $5.3 million for the six months ended June 30, 2023. This decrease was primarily due to the decreased amortization expense associated with customer relationship intangibles.
Customer Acquisition Cost. Customer acquisition cost for the six months ended June 30, 2024 was approximately $5.0 million, an increase of approximately $1.8 million, or 52%, from approximately $3.3 million for the six months ended June 30, 2023. This increase was primarily due to increased sales activity in the first half of 2024 as compared to first half of of 2023.
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Operating Segment Results
(in thousands, except volume and per unit operating data) Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Retail Electricity Segment
Total Revenues $ 71,148 $ 74,765 $ 148,477 $ 157,592
Retail Cost of Revenues 37,127 37,612 86,258 118,442
Less: Net gain (loss) on non-trading derivatives, net of cash settlements 8,710 14,159 17,997 (4,313)
Retail Gross Margin(1) - Electricity
$ 25,311 $ 22,994 $ 44,222 $ 43,463
Volumes - Electricity (MWhs) 489,369 457,054 993,676 913,331
Retail Gross Margin (2) - Electricity per MWh
$ 51.72 $ 50.31 $ 44.50 $ 47.59
Retail Natural Gas Segment
Total Revenues $ 15,812 $ 17,856 $ 52,871 $ 70,154
Retail Cost of Revenues 5,663 8,263 24,866 44,874
Less: Net gain (loss) on non-trading derivatives, net of cash settlements 2,133 1,947 3,792 (2,227)
Retail Gross Margin (1) - Gas
$ 8,016 $ 7,646 $ 24,213 $ 27,507
Volumes - Gas (MMBtus) 2,074,924 2,064,785 6,327,869 6,612,611
Retail Gross Margin (2) - Gas per MMBtu
$ 3.86 $ 3.70 $ 3.83 $ 4.16
(1) Reflects the Retail Gross Margin attributable to our Retail Electricity Segment or Retail Natural Gas Segment, as applicable. Retail Gross Margin is a non-GAAP financial measure. See "Non-GAAP Performance Measures" for a reconciliation of Retail Gross Margin to most directly comparable financial measures presented in accordance with GAAP.
(2) Reflects the Retail Gross Margin for the Retail Electricity Segment or Retail Natural Gas Segment, as applicable, divided by the total volumes in MWh or MMBtu, respectively.
Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023
Retail Electricity Segment
Total revenues for the Retail Electricity Segment for the three months ended June 30, 2024 were approximately $71.1 million, a decrease of approximately $3.7 million, or 5%, from approximately $74.8 million for the three months ended June 30, 2023. This decrease was largely due to lower electricity prices, which resulted in a decrease of $8.9 million, partially offset by an increase in electricity volumes of $5.2 million as a result of a larger electricity customer book as compared to the second quarter of 2023.
Retail cost of revenues for the Retail Electricity Segment for the three months ended June 30, 2024 were approximately $37.1 million, a decrease of approximately $0.5 million, or 1%, from approximately $37.6 million for the three months ended June 30, 2023. This decrease was primarily due to a decrease in electricity costs, resulting in a decrease of $9.6 million, partially offset by higher volumes due to a larger electricity customer book, resulting in an increase of $3.8 million and a change in the fair value of our retail derivative portfolio used for hedging, which resulted in a increase of $5.4 million.
Retail gross margin for the Retail Electricity Segment for the three months ended June 30, 2024 was approximately $25.3 million, an increase of approximately $2.3 million, or 10%, from approximately $23.0 million for the three months ended June 30, 2023, as indicated in the table below (in millions).
Change in volumes sold $ 1.6
Change in unit margin per MWh 0.7
Change in retail electricity segment retail gross margin $ 2.3
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Retail Natural Gas Segment
Total revenues for the Retail Natural Gas Segment for the three months ended June 30, 2024 were approximately $15.8 million, a decrease of approximately $2.1 million, or 12%, from approximately $17.9 million for the three months ended June 30, 2023. This decrease was attributable to lower natural gas prices, which decreased total revenues by $2.1 million.
Retail cost of revenues for the Retail Natural Gas Segment for the three months ended June 30, 2024 were approximately $5.7 million, a decrease of $2.6 million, or 31%, from approximately $8.3 million for the three months ended June 30, 2023. This decrease was primarily due to lower natural gas costs, which resulted in a decrease of $2.5 million and a change in the fair value of our retail derivative portfolio used for hedging, which resulted in a decrease of $0.2 million.
Retail gross margin for the Retail Natural Gas Segment for the three months ended June 30, 2024 was approximately $8.0 million, an increase of approximately $0.4 million, or 5%, from approximately $7.6 million for the three months ended June 30, 2023, as indicated in the table below (in millions).
Change in volumes sold $ -
Change in unit margin per MMBtu 0.4
Change in retail natural gas segment retail gross margin $ 0.4
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Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Retail Electricity Segment
Total revenues for the Retail Electricity Segment for the six months ended June 30, 2024 were approximately $148.5 million, a decrease of approximately $9.1 million, or 6%, from approximately $157.6 million for the six months ended June 30, 2023. This decrease was largely due to lower electricity prices, resulting in a decrease of $23.0 million, partially offset by higher volumes, resulting in an increase of $13.9 million.
Retail cost of revenues for the Retail Electricity Segment for the six months ended June 30, 2024 was approximately $86.3 million, a decrease of approximately $32.1 million, or 27%, from approximately $118.4 million for the six months ended June 30, 2023. This decrease was primarily due to a decrease in electricity costs of $19.8 million due to a lower commodity price environment in 2024, a change in the value of our derivative portfolio used for hedging resulting in a decrease of $22.3 million, partially offset by an increase in electricity volumes sold resulting in an increase of $10.0 million.
Retail gross margin for the Retail Electricity Segment for the six months ended June 30, 2024 was approximately $44.2 million, an increase of approximately $0.7 million, or 2%, from approximately $43.5 million for the six months ended June 30, 2023, as indicated in the table below (in millions).
Change in volumes sold $ 3.8
Change in unit margin per MWh (3.1)
Change in retail electricity segment retail gross margin $ 0.7
Retail Natural Gas Segment
Total revenues for the Retail Natural Gas Segment for the six months ended June 30, 2024 were approximately $52.9 million, a decrease of approximately $17.3 million, or 25%, from approximately $70.2 million for the six months ended June 30, 2023. This decrease was attributable to lower rates, which resulted in a decrease in total revenues of $14.3 million and a decrease in volumes as a result of a smaller natural gas customer book resulting in a decrease of $3.0 million.
Retail cost of revenues for the Retail Natural Gas Segment for the six months ended June 30, 2024 was approximately $24.9 million, a decrease of approximately $20.0 million, or 45%, from approximately $44.9 million for the six months ended June 30, 2023. The decrease was primarily attributable to a decrease in natural gas cost of $12.2 million, a decrease in volumes sold resulting in a decrease of $1.8 million and a change in the value of our derivative portfolio used for hedging, which resulted in a decrease of $6.0 million.
Retail gross margin for the Retail Natural Gas Segment for the six months ended June 30, 2024 was approximately $24.2 million, a decrease of approximately $3.3 million, or 12%, from approximately $27.5 million for the six months ended June 30, 2023, as indicated in the table below (in millions).
Change in volumes sold $ (1.2)
Change in unit margin per MMBtu (2.1)
Change in retail natural gas segment retail gross margin $ (3.3)
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Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash generated from operations and borrowings under our Senior Credit Facility. Our principal liquidity requirements are to meet our financial commitments, finance current operations, fund organic growth and/or acquisitions and service debt and pay dividends. Our liquidity requirements fluctuate with our level of customer acquisition costs, acquisitions, collateral posting requirements on our derivative instruments portfolio, distributions, the effects of the timing between the settlement of payables and receivables, including the effect of bad debts, weather conditions, and our general working capital needs for ongoing operations. Estimating our liquidity requirements is highly dependent on then-current market conditions, forward prices for natural gas and electricity, market volatility and our then existing capital structure and requirements.
We believe that cash generated from operations and our available liquidity sources will be sufficient to sustain current operations, pay dividends to the holders of Series A Preferred Stock, and to pay required taxes. Our ability to pay dividends to the holders of the Series A Preferred Stock in the future will ultimately depend on our RCE count, margins, profitability and cash flow, and the covenants under our Senior Credit Facility.
Liquidity Position
The following table details our available liquidity as of June 30, 2024:
($ in thousands) June 30, 2024
Cash and cash equivalents $ 53,557
Senior Credit Facility Availability (1)
75,661
Subordinated Debt Facility Availability (2)
25,000
Total Liquidity $ 154,218
(1) Reflects amount of Letters of Credit that could be issued based on existing covenants as of June 30, 2024.
(2) The availability of the Subordinated Facility is dependent on 'Mr. Maxwell's discretion. See "-Sources of Liquidity -Subordinated Debt Facility."
Borrowings and related posting of letters of credit under our Senior Credit Facility are subject to material variations on a seasonal basis due to the timing of commodity purchases to satisfy natural gas inventory requirements and to meet customer demands during periods of peak usage. Additionally, borrowings are subject to borrowing base and covenant restrictions.
Cash Flows
Our cash flows were as follows for the respective periods (in thousands):
Six Months Ended June 30,
2024 2023
Net cash provided by operating activities $ 28,327 $ 34,696
Net cash used in investing activities $ (730) $ (775)
Net cash used in financing activities $ (14,303) $ (22,213)
Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023
Cash Flows Provided by Operating Activities. Cash flows provided by operating activities for the six months ended June 30, 2024 decreased by $6.4 million compared to the six months ended June 30, 2023. The decrease was primarily the result of changes in working capital for the six months ended June 30, 2024.
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Cash Flows Used in Investing Activities. Cash flows used in investing activities decreased by less than $0.1 million for the six months ended June 30, 2024. The decrease was primarily the result of decreased capital spending during the six months ended June 30, 2024.
Cash Flows Used in Financing Activities. Cash flows used in financing activities decreased by $7.9 million for the six months ended June 30, 2024, primarily due to a decrease in sub-debt paydown of $15.0 million, decrease in dividends paid to Class A common stockholders of $2.9 million, offset by an increase in net paydown of our Senior Credit Facility of $9.0 million, during the six months ended June 30, 2024.
Sources of Liquidity and Capital Resources
For a description of the terms and conditions of our Senior Credit Facility and First Amendment, including descriptions of the interest rate, commitment fee, covenants and terms of default, please see Note 9 "Debt" in the notes to our condensed consolidated financial statements.
Amended and Restated Subordinated Debt Facility
See Note 9 "Debt"for further information regarding the Subordinated Debt Facility.
Uses of Liquidity and Capital Resources
Repayment of Current Portion of Senior Credit Facility
Our Senior Credit Facility matures in June 2027, and thus, no amounts are due currently. However, due to the revolving nature of the facility, excess cash available is generally used to reduce the balance outstanding, which at June 30, 2024 was $93.0 million. The current variable interest rate on the facility at June 30, 2024 was 8.59%.
Customer Acquisitions
Our customer acquisition strategy consists of customer growth obtained through organic customer additions as well as opportunistic acquisitions. During the three months ended June 30, 2024 and 2023, we spent a total of $2.6 million and $1.5 million, respectively, on organic customer acquisitions.
Capital Expenditures
Our capital requirements each year are relatively low and generally consist of minor purchases of equipment or information system upgrades and improvements. Capital expenditures for the six months ended June 30, 2024 and 2023 included $0.7 million and $0.8 million, respectively, related to information systems improvements.
Dividends and Distributions
For the three and six months ended June 30, 2024 we paid $2.7 million and $5.4 million in dividends to holders of the Series A Preferred Stock. As of June 30, 2024, we had accrued $2.7 million related to dividends to holders of the Series A Preferred Stock. This dividend was paid on July 15, 2024. For a more detailed explanation of the Company's Series A Preferred Stock, please see Note 5 "Preferred Stock" in the notes to our condensed consolidated financial statements.
For the full year ended December 31, 2024, taking into consideration the amount of dividends already paid and estimating future dividends using the stated most recent dividend rate paid on the Series A Preferred Stock, we would be required to pay dividends of $10.8 million in the aggregate based on the Series A Preferred Stock outstanding as of June 30, 2024.
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On July 17, 2024, we declared a dividend in the amount of $0.75881 per share for the Series A Preferred Stock for the second quarter of 2024. Dividends on Series A Preferred Stock will be paid on October 15, 2024 to holders of record on October 1, 2024.
Future dividends to the holders of Series A Preferred Stock are within the discretion of our Board of Directors, and will depend upon our operations, our financial condition, capital requirements and investment opportunities, the performance of our business, cash flows, RCEcounts and the margins we receive, as well as restrictions under our Senior Credit Facility. A dividend penalty event would occur if dividends on the Series A Preferred Stock are in arrears for six or more quarterly dividend periods, in which case the dividend rate on the Series A Preferred Stock would increase by 2.00% per annum, and the holders of the Series A Preferred Stock would be entitled to elect two members to our Board of Directors, until the dividend penalty event is cured.
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Off-Balance Sheet Arrangements
As of June 30, 2024, we had no material "off-balance sheet arrangements."
Related Party Transactions
For a discussion of related party transactions, see Note 13 "Transactions with Affiliates" to Part I, Item 1 of this Report.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our 2023 Form 10-K. There have been no changes to these policies and estimates since the date of our 2023 Form 10-K.
Refer to Note 2 "Basis of Presentation and Summary of Significant Accounting Policies" to Part I, Item 1 of this Report for a discussion on recent accounting pronouncements.
Contingencies
In the ordinary course of business, we may become party to lawsuits, administrative proceedings and governmental investigations, including regulatory and other matters. Except as described in Note 12 "Commitments and Contingencies" to Part I, Item 1 of this Report, as of June 30, 2024, management did not believe that any of our outstanding lawsuits, administrative proceedings or investigations could result in a material adverse effect. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. For a discussion of the status of current legal and regulatory matters, see Note 12 "Commitments and Contingencies" to Part I, Item 1 of this Report.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in commodity prices and interest rates, as well as counterparty credit risk. We employ established risk management policies and procedures to manage, measure, and limit our exposure to these risks.
Commodity Price Risk
We hedge and procure our energy requirements from various wholesale energy markets, including both physical and financial markets and through short and long-term contracts. Our financial results are largely dependent on the margin we are able to realize between the wholesale purchase price of natural gas and electricity plus related costs and the retail sales price we charge our customers for these commodities. We actively manage our commodity price risk by entering into various derivative or non-derivative instruments to hedge the variability in future cash flows from fixed-price forecasted sales and purchases of natural gas and electricity in connection with our retail energy operations. These instruments include forwards, futures, swaps, and option contracts traded on various exchanges, such as NYMEX and Intercontinental Exchange, or ICE, as well as over-the-counter markets. These contracts have varying terms and durations, which range from a few days to several years, depending on the instrument. We also utilize similar derivative contracts in connection with our asset optimization activities to attempt to generate incremental gross margin by effecting transactions in markets where we have a retail presence. Generally, any such instruments that are entered into to support our retail electricity and natural gas business are categorized as having been entered into for non-trading purposes, and instruments entered into for any other purpose are categorized as having been entered into for trading purposes.
Our net gain/(loss) on our non-trading derivative instruments, net of cash settlements, was $10.8 million and $16.1 million for three months ended June 30, 2024 and 2023, respectively and $21.8 million and $(6.5) million for six months ended June 30, 2024 and 2023, respectively.
We have adopted risk management policies to measure and limit market risk associated with our fixed-price portfolio and our hedging activities. For additional information regarding our commodity price risk and our risk management policies, see "Item 1A-Risk Factors" in our 2023 Form 10-K.
We measure the commodity risk of our non-trading energy derivatives using a sensitivity analysis on our net open position. As of June 30, 2024, our Gas Non-Trading Fixed Price Open Position (hedges net of retail load) was a short position of 695,560 MMBtu. An increase of 10% in the market prices (NYMEX) from their June 30, 2024 levels would have decreased the fair market value of our net non-trading energy portfolio by less than $0.1 million. Likewise, a decrease of 10% in the market prices (NYMEX) from their June 30, 2024 levels would have increased the fair market value of our non-trading energy derivatives by less than $0.1 million. As of June 30, 2024, our Electricity Non-Trading Fixed Price Open Position (hedges net of retail load) was a short position of 141,322 MWhs. An increase of 10% in the forward market prices from their June 30, 2024 levels would have decreased the fair market value of our net non-trading energy portfolio by $0.5 million. Likewise, a decrease of 10% in the forward market prices from their June 30, 2024 levels would have increased the fair market value of our non-trading energy derivatives by $0.5 million.
Credit Risk
In many of the utility services territories where we conduct business, Purchase of Receivables ("POR") programs have been established, whereby the local regulated utility purchases our receivables, and becomes responsible for billing the customer and collecting payment from the customer. This service results in substantially all of our credit risk being with the utility and not to our end-use customer in these territories. Approximately 59% and 53% of our retail revenues were derived from territories in which substantially all of our credit risk was with local regulated utility companies for the three months ended June 30, 2024 and 2023, respectively, and 60% and 54% for six months ended June 30, 2024 and 2023,, respectively, all of which had investment grade ratings as of such date. We paid these local regulated utilities a weighted average discount of 1.2% and 1.0%, for the three months ended June
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30, 2024 and 2023, respectively, and 1.2% and 1.0% for six months ended June 30, 2024 and 2023, respectively of total revenues for customer credit risk protection. In certain of the POR markets in which we operate, the utilities limit their collections exposure by retaining the ability to transfer a delinquent account back to us for collection when collections are past due for a specified period.
If our collection efforts are unsuccessful, we return the account to the local regulated utility for termination of service. Under these service programs, we are exposed to credit risk related to payment for services rendered during the time between when the customer is transferred to us by the local regulated utility and the time we return the customer to the utility for termination of service, which is generally one to two billing periods. We may also realize a loss on fixed-price customers in this scenario due to the fact that we will have already fully hedged the customer's expected commodity usage for the life of the contract.
In non-POR markets (and in POR markets where we may choose to direct bill our customers), we manage customer credit risk through formal credit review in the case of commercial customers, and credit score screening, deposits and disconnection for non-payment, in the case of residential customers. Economic conditions may affect our customers' ability to pay bills in a timely manner, which could increase customer delinquencies and may lead to an increase in bad debt expense. Our bad debt expense for the three months ended June 30, 2024 and 2023 was 2.1% and 2.4% of non-POR market retail revenues, respectively and our bad debt expense for the six months ended June 30, 2024 and 2023 was 1.4% and 2.1% of non-POR market retail revenues, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Drivers of Our Business-Customer Credit Risk" for an analysis of our bad debt expense related to non-POR markets during the six months ended June 30, 2024.
We are exposed to wholesale counterparty credit risk in our retail and asset optimization activities. We manage this risk at a counterparty level and secure our exposure with collateral or guarantees when needed. At June 30, 2024, approximately $1.1 million of our total exposure of $1.6 million was either with a non-investment grade counterparty or otherwise not secured with collateral or a guarantee. The credit worthiness of the remaining exposure with other customers was evaluated with no material allowance recorded at June 30, 2024.
Interest Rate Risk
We are exposed to fluctuations in interest rates under our variable-price debt obligations, including our Senior Credit Facility and our Series A Preferred Stock.
At June 30, 2024, we were co-borrowers under the Senior Credit Facility, under which $93.0 million of variable rate indebtedness was outstanding. Based on the average amount of our variable rate indebtedness outstanding during the three months ended June 30, 2024, a 1.0% increase in interest rates would have resulted in additional annual interest expense of approximately $0.9 million.
On July 17, 2024, our Board of Directors declared a quarterly cash dividend in the amount of $0.75881 per share for the Series A Preferred Stock for the second quarter of 2024 for an aggregate amount of $2.7 million for the quarter. Based on the Series A Preferred Stock outstanding on June 30, 2024, a 1.0% increase in interest rates would have resulted in additional dividends of $0.2 million for the quarter.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of June 30, 2024.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 12 "Commitments and Contingencies" to Part I, Item 1 of this Report, which is incorporated by reference into this Part II, Item 1, for a description of certain ligation, legal proceedings, and regulatory matters.
Item 1A. Risk Factors.
Security holders and potential investors in our securities should carefully consider the risk factors under "Item 1A- Risk Factors" in our 2023 Form 10-K. There has been no material change in our risk factors from those described in the 2023 Form 10-K. Our description of risks are not the sole risks for investors. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.
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Item 6. Exhibits
The exhibits required to be filed by Item 6 are set forth in the Exhibit Index included below.
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INDEX TO EXHIBITS
Incorporated by Reference
Exhibit Exhibit Description Form Exhibit Number Filing Date SEC File No.
2.1# 10-Q 2.1 5/5/2016 001-36559
2.2# 10-Q 2.2 5/5/2016 001-36559
2.3# 8-K 2.1 8/1/2016 001-36559
2.4# 10-Q 2.4 5/8/2017 001-36559
2.5 8-K 2.1 7/6/2017 001-36559
2.6# 8-K 2.1 1/16/2018 001-36559
2.7# 10-K 2.7 3/9/2018 001-36559
2.8# 8-K 2.1 10/25/2018 001-36559
2.9 10-Q 2.9 8/5/2020 001-36559
2.10^ 8-K 2.1 1/2/2024 001-36559
3.1 10-K 3.1 2/29/2024 001-36559
3.2 8-K 3.2 8/9/2021 001-36559
3.3 8-A 5 3/14/2017 001-36559
4.1*
Description of Securities
10.1# 8-K 10.1 6/28/2024 001-36559
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10.2 10.2 6/28/2024 001-36559
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32**
Certifications pursuant to 18 U.S.C. Section 1350.
101.INS*
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL
101.SCH* Inline XBRL Taxonomy Extension Schema Document.
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS)
* Filed herewith
** Furnished herewith
^ The disclosure letters contemplated by this Agreement and Plan of Merger and the Exhibits to this Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby agrees to supplementally furnish to the SEC upon request any omitted disclosure letters or exhibits to the Agreement and Plan of Merger.
# Certain schedules, exhibits and annexes have been omitted in reliance on Item 601 (a)(5) of Regulation S-K, the registrant agrees to furnish supplementally a copy of any omitted schedule, exhibit or annex to the Commission upon request
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Via Renewables, Inc.
August 1, 2024 /s/ Mike Barajas
Mike Barajas
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
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