Good morning, ladies and gentlemen. Welcome to the Spark Energy, Inc. First Quarter 2019 Earnings Conference Call. My name is Rob and I'll be your operator for today. At this time, all participants are in a listen-only mode.

[Operator Instructions] As a reminder, this conference is being recorded for replay purposes and this call will be posted on Spark Energy, Inc.'s website. I would now like to turn the conference over to Mr. Christian Hettick of Spark Energy, Inc. Please go ahead..

Welcome to Spark Energy's first quarter 2019 earnings call. This call is also being broadcast via webcast, which can be located in the Investor Relations section of our website at sparkenergy.com. With us today from management is our CEO, Nathan Kroeker; and our CFO, Robert Lane.

Please note that today's discussion may contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. We urge everyone to review the Safe Harbor statement in yesterday's earnings release, as well as the risk factors in our SEC filings.

We undertake no obligation to update these statements as a result of future events except as required by law. In addition we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to yesterday's earnings release.

With that, I'll turn the call over to Nathan Kroeker, our CEO..

Thank you, Christian. I want to welcome our shareholders and analysts to today's earnings call. I'll begin by providing a summary of our results and then our CFO, Rob Lane, will provide more details on the financials. In the first quarter, we reported adjusted EBITDA of $25.1 million and retail gross margin of $56.6 million.

This represents increases of 58% and 24% respectively over the first quarter of last year. Strong results reflect us keeping the promises that we made to investors a year ago. We refocused our book on higher-quality customers.

We went after a number of cost-saving initiatives and we implemented hedging strategies to protect the business from extreme weather events.

In fact, even though we saw extreme cold in several of our geographies throughout the quarter, our strategy performed extremely well and investors can clearly see that in the year-over-year unit margin improvement.

While our headline G&A results for the quarter are only slightly down from last year's first quarter, two onetime items are inflating that number. Absent those onetime items our quarterly G&A is down about 10% year-over-year and we expect to continue to see run rate G&A savings of $22 million by the end of the year.

As we have indicated on our last few calls, our total RCE count continues to trend down slightly as we take deliberate actions to improve the quality of the customer portfolio, focusing our growth in smaller commercial and residential customers.

We have introduced new channels including our own internal call center as well as a preferred partner program that continue to diversify our customer acquisition outreach. We're pleased to see the fruit of last year's efforts to strengthen the business and position us for growth.

While not providing formal guidance, we would point investors to our normal run rate unit margins and G&A costs as a percent of gross margin in our investor presentation, which we believe, are achievable based on the actions we've already taken. That concludes my prepared remarks. Now I will turn the call over to Rob for his financial review.

Rob?.

Thank you, Nathan. Good morning. In the quarter, we achieved $25.1 million in adjusted EBITDA, an increase of 57.6% compared to last year's first quarter of $15.9 million. Total gross margin for the quarter was $56.6 million compared with $45.7 million last year, an increase of 23.7%.

In our retail electricity segment, gross margin was $30 million, an increase of $10.3 million or 52% from $19.7 million in the first quarter last year.

Volumes were lower as a result of less extreme weather and fewer large commercial customers, but that was more than offset by higher margins from our successful winter hedging strategy we employed as well as the roll-off of that low-margin large C&I customer book.

In our retail natural gas segment, gross margin was $26.6 million, a modest 2% increase from $26 million in the first quarter last year. This increase was the result of improved unit margins on slightly lower volumes. G&A expenses of $29.5 million were lower as compared to the prior year quarter.

As Nathan mentioned, there were also two onetime items in the quarter, without which we would have seen run rate savings of over $3 million in the quarter. The first item shows up in our bad debt expense line and represents the write-off of some old AR as we consolidate brands and systems. We also booked a legal and regulatory reserve of $1 million.

Total RCE count in the first quarter was 865,000 RCEs, down as a result of the planned roll-off of our large -- of our low-margin large commercial book.

Our attrition was 5.4%, up from 4.2% a year ago in large part because of a more conservative commercial pricing strategy, which resulted in non-renewal of much of our large low margin commercial book, as well as brand consolidations. Interest expense for the quarter was flat compared to last year at $2.2 million.

Income tax expense for the quarter increased to $1 million as compared to an income tax benefit of $6.5 million for the first quarter of 2018, primarily due to the increase in taxable income.

Our net income from the quarter was $2.7 million or a loss of $0.09 per fully diluted share, compared to a net loss of $41.8 million or negative $1.04 per diluted share for the first quarter of 2018.

The increase in net income is primarily driven by our improved retail gross margins as well as non-cash mark-to-market accounting associated with the hedges we put in place to lock in margins on a retail contract. We had a mark-to-market loss this quarter of $11.7 million compared to a mark-to-market loss of $51.6 million a year ago.

As we have reminded investors in the past, a non-cash mark-to-market movement does not affect the actual cash we expect to receive on our fix-priced contracts.

Investors will know that for the past three years with our customers concentrated more in the Northeast power markets, we have had non-cash mark-to-market losses in the sector that has adversely affected first quarter earnings.

That is why we do not believe that income is a good indicator of our business performance and we continue to guide investors away from net income and towards adjusted EBITDA as an indicator of our business performance. On March 15th and April 15th, we paid the quarterly cash dividend on our Class A common stock Series A preferred stock, respectively.

On April 18th, we announced first quarter dividend of $0.18125 per share on our common stock to be paid on June 14th and $0.54688 per share preferred stock to be paid on July 15th. As we've stated in the past, we expect to continue to pay these quarterly dividends on a go-forward basis. That's all I have. Back to you Nathan..

Thanks, Rob. We are one quarter of the way through 2019 and we're seeing the positive financial results we've been promising investors.

We are excited to continue to execute on our plans and we look forward to strong adjusted EBITDA as we focus on our mass market book and achieve additional synergies and cost savings from our brand and systems consolidation efforts. One final note before we sign off.

As you saw in our 10-Q earlier this morning, Rob Lane will be leaving the company at the end of this month to pursue a new opportunity in a new industry. Rob has done an excellent job of supporting our growth and positioning our finance organization for the future.

While we will miss him, we wish him all the best in his new role and we expect to be announcing his replacement in the near future so be on the lookout for that. Thanks, again, for participating in today's call and we look forward to talking to you soon..

Thank you. You may disconnect your lines at this time. We thank you for your participation..