Spark Power Reports Strong 2021 Revenue Growth; Experienced Continued Margin Compression in Fourth Quarter; Focused on Margin Recovery and Profit Improvement Initiatives for 2022

Rhea-AI Summary

Spark Power Group reports a 12.1% revenue growth to $255.8 million in fiscal 2021, driven by its Renewables sector, which rose 33.8%. However, annual adjusted EBITDA margin dropped to 8.4%, impacted by rising inflation and COVID-19 challenges. Fourth-quarter revenue decreased by 2.2% year-over-year to $65.4 million, with gross margins declining to 19.2%. The company raised $39.6 million in equity capital to enhance liquidity and support strategic initiatives. Financial covenant breaches are under negotiation with lenders.

Positive

• Annual revenue grew 12.1% to $255.8 million in fiscal 2021.
• Renewables business segment increased 33.8% year-over-year.
• Successfully raised $39.6 million in equity capital for operational strategy.

Negative

• Annual adjusted EBITDA margin compressed by 5.8% to 8.4%.
• Fourth-quarter revenue decreased 2.2% year-over-year.
• Gross margins fell to 19.2%, down from 32.0% in 2020.

• Annual revenue grows 12.1% Year over Year to $255.8 million
• Annual Adjusted EBITDA Margin compresses 5.8% Year over Year to 8.4%
• (Spark Power reports in Canadian dollars unless otherwise specified)

OAKVILLE, ON / ACCESSWIRE / March 30, 2022 / Spark Power Group Inc. (TSX:SPG), parent company of Spark Power Corp. ("Spark Power" or the "Company"), today announced financial results for the three-and twelve-month periods, ended December 31, 2021. All amounts are in Canadian dollars unless otherwise specified.

"Throughout 2021, our business grew 12.1% year over year, organically; evidence of our strong branch network, competitive service offerings, and positive industry tailwinds," said Richard Jackson, President & CEO, Spark Power. "In our fourth quarter, we continued to face challenges with the surge of COVID-19's Omicron variant, in addition to the continuous global supply chain disruptions and rapidly rising inflation, all of which put significant pressures on our margins. We are taking proactive steps to transition our business to succeed in this environment, including raising $39.6 million of new equity capital. This additional financial flexibility will support our experienced operations-focused team to execute on our strategic initiatives to drive margin recovery and further organic growth, while taking advantage of the ongoing shifts to electrification," he added.

"As we gradually recover from the margin pressures perpetuated by the ongoing extreme macro-economic conditions, we are acutely focused on conservatively managing our liquidity and driving profitable revenue growth," said Richard Perri, EVP and CFO, Spark Power. "With the liquidity provided by the recent $39.6 million equity injection from our committed founders and our new institutional investors and the continued support of our bank, we are well positioned to complete the multi-year integration journey we are on, and ultimately realize on the benefits from a stable and scalable operating platform," he added.

After assuming the role as President and CEO of Spark Power in January 2021, Jackson focused on building a world class, operationally focused Senior Leadership Team, which was effectively achieved in the latter part of 2021 and early in 2022. Jackson also immediately launched Project Darwin, a two-year systems, process, and organizational integration plan that is expected to be completed by the end of 2022. This will result in Spark becoming a fully integrated operating platform using one brand, one organization structure and a common set of key business processes and systems that will improve operational predictability and provide scale for future growth as Spark transitions into the next stage of maturity.

Update on Liquidity, Outlook and Potential Covenant Beaches

Further to our communication on February 25, 2022, Management reports that the actual fourth quarter 2021 results have caused the Company to be in breach of its financial maintenance covenants under its existing secured credit facility (the "Facility") with its senior lender (the "Lender"). The Company continues to work constructively with the Lender to obtain a waiver and amendment agreement, waiving these covenant breaches and providing for an amendment to such near-term covenants, however, there can be no guarantee that a waiver and amendment will be obtained. In the meantime, the Company continues to operate under the terms of the Facility and will provide an update to the market as more details become available.

Financial Highlights - Fourth Quarter

• Reported revenue of $65.4 million, as compared to $66.9 million in Q4 2020, representing a decrease of 2.2%. On an adjusted basis, revenue increased to $68.5 million or 2.4% over the same quarter in 2020.
• Gross margins, excluding depreciation and amortization, declined in the fourth quarter to 19.2% (adjusted gross margins 23.8%) as compared to 32.0% in 2020, primarily due to government subsidies recognized in the same quarter in 2020, the ongoing impact of COVID-19 protocols on labor efficiencies, the rapid rise in inflation, and business related to large projects and higher Renewables revenue.
• Selling, general and administration costs, excluding depreciation and amortization, were $15.1 million or 23.1% of revenue (22.1% on an adjusted basis) as compared to $12.6 million or 18.8% in the same quarter in 2020.
• Reported EBITDA loss was $10.2 million or -15.7% of revenue and adjusted EBITDA was $2.5 million or 3.8% of revenue, as compared to $8.9 million or 13.3% of revenue from the comparable quarter in 2020.
• As part of the refined approach adopted in the third quarter to estimating revenue and costs associated with longer-term projects, the Company recognized estimate updates of $3.7 million in the quarter, resulting in a decrease in revenue of $3.1 million and an increase in cost of goods sold of $0.6 million.

Financial Highlights - Fiscal 2021

• Annual revenue of $255.8 million in fiscal 2021 as compared to $228.1 million in fiscal 2020, representing an increase of 12.1%. On an adjusted basis, revenue increased to $259.3 million or 13.7%.
• Revenue growth was driven by continued momentum in our Renewables business which was up 33.8% as compared to fiscal 2020.
• Gross margins, excluding depreciation and amortization, declined in fiscal 2021 to 25.0% (adjusted gross margins 26.9%) as compared to 33.6% in 2020, primarily due to prior year's government subsidies, the impact of estimate updates, and the operational factors noted above related to the fourth quarter.
• Selling, general, and administration costs, excluding depreciation and amortization, were $51.4 million or 20.1% of revenue (19.6% on an adjusted basis) in fiscal 2021 as compared to $44.7 million or 19.6% of revenue in fiscal 2020.
• Reported annual EBITDA of $4.6 million or 1.8% of revenue and adjusted EBITDA of $21.7 million or 8.4% of revenue as compared to $32.4 million or 14.2% of revenue in fiscal 2020 primarily due to higher government subsidies received in the prior year.

Business Highlights 2021

• The completion of the Founder transition was followed by enhancements made to Spark's Senior Leadership Team, bringing on experienced and operationally focused leaders to support Spark through its next stage of maturity.
• Completed Founder-led non-brokered $5.6 million Private Placement in Growth Equity in Q2, 2021.
• Launched Rights Offering and contemporaneous Private Placement in Q4, 2021.
  • Rights Offering and Private Placement was completed in early Q1, 2022 for aggregate subscription proceeds of approximately $39.6 million, providing Company with additional capital to execute on our operational strategy.
• Strong and rapid growth around Renewables' business segment in 2021, equally supported by strong transactional and long-term U.S. based demand for the development of wind, solar, and energy storage assets.
• Expanded U.S. footprint with the launch of three new branches:
  • Bakersfield, California and Houston, Texas branches focus on technical service solutions
  • Albany, New York branch to service the northeastern market with a focus on Renewables.
• Continued focus on the integration and progressing with the development and implementation of our integrated business processes and technology platform ("Project Darwin") that will deliver operational standardization across Spark Power operations, North America wide.
• Continued commitment to talent attraction and retention in the skilled trades through the $5.3 million grant from the Government of Ontario's Skills Development Fund, which supported the launch of employee training and advancement initiatives such as enhanced on-the-job training for electricians, technicians, and apprentices; community outreach programs that promote skill trades work in Ontario; and the launch of our Be Powerful scholarship program for underrepresented students to enter the trades.

Quarterly Conference Call
Management is hosting an investor conference call and webcast tomorrow, March 31, 2022, at 8:30 a.m. ET to discuss its financial results in greater detail. To join by telephone dial: +1- 888-506-0062 (toll-free in North America) or +1- 973-528-0011 (local and international), with conference ID: 945170. To listen to a live webcast of the call, please visit the investor relations section of Spark Power's website at https://sparkpowercorp.com/about-us/investor-relations/. An archived replay of the webcast will be available following the conclusion of the call.

Please dial in or log on 10 minutes prior to the start time to provide sufficient time to register for the event.

Spark Power's Fourth-Quarter 2021 Interim Unaudited Condensed Consolidated Financial Statements and Notes of its Fourth-Quarter 2021 Management Discussion and Analysis are available on Spark Power's website at www.sparkpowercorp.com, and will be filed on SEDAR at www.sedar.com.

About Spark Power
Spark Power is a leading independent provider of end-to-end electrical services, operations and maintenance services, and energy sustainability solutions to the industrial, commercial, utility, and renewable asset markets in North America. We work to earn the right to be our customers' Trusted Partner in Power™. Our highly skilled and dedicated people, located in the communities we serve, combined with our knowledge of the power industry, technology expertise, and commitment to safety, ensures we deliver the right solutions that keep our customers' operations up and running today and better equipped for tomorrow. Learn more at www.sparkpowercorp.com.

Forward-Looking Statements

This news release may contain forward-looking statements (within the meaning of applicable securities laws) which reflect Spark Power's current expectations regarding future events. Forward-looking statements are identified by words such as "believe," "anticipate", "project", "expect", "intend", "plan", "will", "may", "estimate" and other similar expressions. The forward-looking statements in this press release include statements regarding the Company's opportunities for future organic growth, margin recovery, cost reductions, improved business performance and other statements that are not historical fact, and without limitation, include statements by Messrs., Jackson and Perri regarding the success of the Company's responses to disruptions caused by COVID-19, supply chain disruption and inflation. The forward-looking statements in this news release are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. Several factors could cause actual results to differ materially from the results discussed in the forward-looking statements. Such factors include, among others: the ability of the Company to find a suitable strategic partner, potential buyer or participants for a financing; currency fluctuations; disruptions or changes in the credit or security markets; results of operations; and general financing; market and industry conditions. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, these forward-looking statements are made as of the date of this news release and, except as expressly required by applicable law, Spark Power assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Non-IFRS Measures

The Company prepares and releases unaudited consolidated interim financial statements and audited consolidated annual financial statements prepared in accordance with IFRS. In this and other earnings releases and investor conference calls, a complement to results provided in accordance with IFRS, the Company also discloses and discusses certain financial measures not recognized under IFRS and that do not have standard meanings prescribed by IFRS. These include "EBITDA", Adjusted EBITDA", "Pro-forma Adjusted EBITDA", "EBITDA Margin", "Adjusted EBITDA Margin", "Pro-forma Adjusted EBITDA Margin", Pro-forma Adjusted Revenue", "Adjusted Working Capital", and "Adjusted Net and Comprehensive Income (Loss)". These non-IFRS measures are used to provide investors with supplemental measures of Spark Power's operating performance and highlight trends in Spark Power's business that may not otherwise be apparent when relying solely on IFRS measures. Spark also believes that providing such information to securities analysts, investors and other interested parties who frequently use non-IFRS measures in the evaluation of issuers will allow them to better compare Spark Power's performance against others in its industry. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. For a reconciliation of these non-IFRS measures see the Company's management discussion and analysis for the three-and twelve-months ended December 31, 2021. The non-IFRS measures should not be construed as alternatives to results prepared in accordance with IFRS.

Selected Consolidated Financial Information

(in $000's)
		Three months ended December 31,								Twelve months ended December 31,
		2021				2020				2021				2020
Revenue		$	65,424			$	66,865			$	255,815			$	228,153
Cost of sales			55,907				48,342				203,564				162,417
Gross profit			9,517				18,523				52,251				65,736
Selling, general and administrative expenses			17,210				14,865				59,337				53,969
Provision for expected credit losses			517				1,405				630				1,458
Change in fair value of derivative instruments			157				-				(2,716	)			-
Reorganization costs			1,862				1,947				3,492				3,178
Realized gain on settlement of derivative instrument			65				-				(1,100	)			-
Foreign exchange (gain) loss			503				(31	)			981				(305	)
Loss from operations			(10,797	)			337				(8,373	)			7,436
Finance costs			(2,233	)			(1,793	)			(7,126	)			(6,762	)
Transaction costs			(580	)			-				(2,141	)			-
Discontinued Operations			-				-				(475	)			-
Earn-out			-				(1,900	)			-				(1,900	)
Impairment Loss			(4,000	)			-				(4,000	)			-
			(6,813	)			(3,693	)			(13,742	)			(8,662	)
Loss before income taxes			(17,610	)			(3,356	)			(22,115	)			(1,226	)
Income tax recovery (expense):
Current			1,807				(226	)			506				(3,047	)
Deferred			(2,073	)			276				316				2,594
			(266	)			50				822				(453	)
Net loss			(17,876	)			(3,306	)			(21,293	)			(1,679	)
Cumulative translation adjustment			241				8				373				(453	)
Comprehensive loss		$	(17,635	)		$	(3,298	)		$	(20,920	)		$	(2,132	)
EBITDA		$	(10,241	)		$	3,621			$	4,615			$	25,866
EBITDA margin			-15.7	%			5.4	%			1.8	%			11.3	%
Adjusted EBITDA			2,516				8,873				21,743				32,402
Pro-forma Revenue			65,424				66,865				255,815				228,153
Pro-forma EBITDA margin			3.8	%			13.3	%			8.5	%			14.2	%
Adjusted revenue for change in estimate			68,464				66,865				259,330				228,153
Adjusted EBITDA margin for change in estimate			3.7	%			13.3	%			8.4	%			14.2	%

Reconciliation of comprehensive income (loss) to EBITDA, Adjusted EBITDA, and Pro-forma Adjusted EBITDA:

(in $000's)
Reconciliation of net loss to EBITDA and Adjusted EBITDA		Three months ended December 31,								Twelve months ended December 31,
Reconciliation of net loss to EBITDA and Adjusted EBITDA		2021				2020				2021				2020
Net loss		$	(17,876	)		$	(3,306	)		$	(21,293	)		$	(1,679	)
Adjustments:
Finance expense			2,233				1,793				7,126				6,762
Income tax expense			266				(50	)			(822	)			453
Amortization and depreciation			5,136				5,184				19,604				20,330
EBITDA		$	(10,241	)		$	3,621			$	4,615			$	25,866
EBITDA Margin			-15.7	%			5.4	%			1.8	%			11.3	%
Adjustments:
Provision for expected credit loss			517				1,405				630				1,458
Reorganization costs			1,862				1,947				3,492				3,178
Transaction costs			580				-				2,141				-
Earn-out			-				1,900				-				1,900
Discontinued operations			-				-				475				-
Change in estimate			3,740				-				6,390				-
Year end provisions			2,058				-				-				-
Impairment Loss			4,000				-				4,000				-
Adjusted EBITDA		$	2,516			$	8,873			$	21,743			$	32,402
Adjusted EBITDA Margin			3.8	%			13.3	%			8.5	%			14.2	%
Adjusted EBITDA margin for change in estimate			3.7	%			13.3	%			8.4	%			14.2	%
LTM EBITDA		$	33,782			$	32,118
			13.1	%			13.8	%			-0.71645469
LTM Revenue		$	257,257			$	232,534
Pro-forma Revenue			65,424				66,865				255,815				228,153

The following table is a summary of Spark Power's results for the periods indicated:

(in $000's)		Three months ended December 31,												Twelve months ended December 31,
		2021				2020				% Change				2021				2020				% Change
Revenue		$	65,424			$	66,865				(2.2	%)		$	255,815			$	228,153				12.1	%
Gross Profit			9,517				18,523				(48.6	%)			52,251				65,736				(20.5	%)
Gross Profit Margin			14.5	%			27.7	%							20.4	%			28.8	%
Selling, General & Administration			17,210				14,865				15.8	%			59,337				53,969				9.9	%
Provision for expected credit losses			517				1,405				(63.2	%)			630				1,458				(56.8	%)
Change in fair value of derivative instruments			157				-								(2,716	)			-
Reorganization costs			1,862				1,947				(4.4	%)			3,492				3,178				9.9	%
Realized gain on settlement of derivative instruments			65				-								(1,100	)			-
Foreign exchange (gain) loss			503				(31	)			(1,722.6	%)			981				(305	)			(421.6	%)
Income (Loss) from Operations		$	(10,797	)		$	337							$	(8,373	)		$	7,436				(212.6	%)
EBITDA (1)		$	(10,241	)		$	3,621				382.9	%		$	4,615			$	25,866				82.2	%
EBITDA Margin (1)			-15.7	%			5.4	%							1.8	%			11.3	%
Adjusted EBITDA (1)		$	2,516			$	8,873				(71.6	%)		$	21,743			$	32,402				(32.9	%)
Adjusted EBITDA Margin (1)			3.8	%			13.3	%							8.5	%			14.2	%
							Q4 2021				Q3 2021				Q2 2021				Q1 2021				Q4 2020
Bank Indebtedness						$	29,344			$	28,401			$	19,806			$	28,226			$	25,444
Senior Secured Long-term Debt						$	62,459			$	64,540			$	66,622			$	62,858			$	66,706
Promissory Notes						$	10,738			$	10,738			$	10,738			$	10,738			$	10,738
Total Debt (2)						$	102,542			$	103,679			$	97,166#			$	101,822#			$	102,888
1 EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin are non-IFRS measures. Refer to Non-IFRS measures for definitions of these terms.
2 Total debt includes Bank indebtedness, senior secured long-term debt and promissory notes.

CONTACT:
Investor and Regulatory Inquiries:
Richard Perri, Executive Vice President & Chief Financial Officer
investors@sparkpowercorp.com
+1 (905) 829-3336

Media Inquiries:
Kim Samlall, Director, Marketing Communications
media@sparkpowercorp.com
+1 (905)-829-3336

SOURCE: Spark Power Group Inc.

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FAQ

What was Spark Power's revenue for fiscal 2021?

Spark Power reported an annual revenue of $255.8 million for fiscal 2021, reflecting a 12.1% increase year-over-year.

How did Spark Power's EBITDA margin change in fiscal 2021?

The annual adjusted EBITDA margin for Spark Power decreased to 8.4%, down 5.8% from the previous year.

What challenges did Spark Power face in Q4 2021?

In Q4 2021, Spark Power faced challenges such as the Omicron variant of COVID-19, global supply chain disruptions, and rising inflation.

How much equity capital did Spark Power raise recently?

Spark Power raised $39.6 million in new equity capital to enhance liquidity and support strategic initiatives.

What was the fourth-quarter revenue for Spark Power?

Spark Power's fourth-quarter revenue was $65.4 million, which was a 2.2% decrease compared to Q4 2020.