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spk01: Good day, ladies and gentlemen, and welcome to the Spark PowerCorp Investor Call and Webcast. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Richard Perry, Executive Vice President and Chief Financial Officer. Sir, the floor is yours.
spk00: Thank you. Good morning, and welcome to our 2021 Fourth Quarter and Fiscal 2021 Conference Call. I am joined today by Spark Power's President and CEO, Richard Jackson, Chief Investment Officer, Eric Waxman, and Tom Duncan, Chief Operating Officer. Rich Jackson will begin the morning with remarks on the current state and outlook for the business, and I will follow with a review of the fourth quarter. We will then have our usual Q&A session. Before we commence the review, I would remind you that our presentation contains certain forward-looking statements that are based on current expectations and are subject to a number of uncertainties and risks, and actual results may differ materially. Further information identifying risks, uncertainties, and assumptions, and additional information on certain non-IFRS measures referred to in this call can be found in disclosure documents filed by the company with the securities regulatory authorities and available on CDAR.com. Further, these forward-looking statements are made as of the date of this call. and except as expressly required by applicable law, Spark Power assumes no obligation to publicly update or revise any forward-looking statement, whether a result of new information, future events, or otherwise. With that, I will turn the call over to Spark's President and CEO, Rich Jackson, for his opening comments.
spk04: Thanks, Richard. Good morning, and welcome to Spark Power's fourth quarter and fiscal 2021 earnings conference call. Thank you for taking the time to join us. Overall, 2021 was a year of steady growth across most of our business segments. However, our fourth quarter faced significant 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 growth margins. Despite these setbacks, I have full confidence that as these global events begin to normalize through 2022, we will see gradual margin recovery and the momentum of business operations continuing to support our organic growth and market expansion opportunities. Looking back on Spark Power last year, we experienced strong organic growth across our Canadian and U.S. markets and saw just under 13% growth year over year as compared to 2020. We're very proud that this was accomplished 100% organically through our growing footprint, specifically in our U.S. market and the growing demand for our services, the quality of our field work talent field worker talent, and the collaboration and breadth of services we continue to bring forth to address the diversity of our customers' unique needs. While the last few years of the pandemic have been a challenge, I remain deeply proud of our employees for their ongoing resilience and focus on safety, our leadership team for their very strong commitment, and our board of directors for their continued support of and confidence in the business. Of course, it goes without saying we continue to value the deep and growing relationships with our customer base across North America, as they too navigate these unprecedented times. In 2021, we completed our first formal customer survey with significant response rates, resulting in industry-leading net promoter scores. 2021 was also a year of laying down the right pathway to support the continued growth and maturation of the business. As part of laying this new foundation to support the next stage of our growth, we introduced a new flat management structure in early 2021 as part of the business's focus on field operations and scalability. These senior leadership enhancements include Richard Perry, who succeeded Dan Ardilla as our EVP CFO, Tom Duncan as EVP and COO, and additionally, we were pleased to share the promotions of Grayson Swan to Executive Vice President of Renewables, Najla Roth to Vice President of People and Culture, and Suha Jesilal to Vice President of Sustainability, leading our Bullfrog business unit. In early 2022, we also welcomed April Currie as our new Vice President of Sales and Marketing, John Marcello as Vice President of Finance, and John Krill, succeeding Tom Duncan as our Senior Vice President and General Manager of Canadian Technical Services. The completion of the founder transition in Q1 in 2021, followed by the transitional succession and strategic replacement of our senior leadership team, brings a renewed focus on business operations and a more experienced and mature structure to SPARC's operations. This newly organized management structure will help guide capital allocation decisions and position us well as we navigate the next stage of our maturity curve and execute on the next strategy for the company. As we have reported previously, SPARC has continuously sought new sources of capital to support our growth strategy. And while we conducted and closed off our strategic review process in Q4, we continued to seek capital and launched our rights offering towards the latter half of the quarter. Our rights offering and private placement closed in early Q1 2022, and generated a combined total of $39 million in new capital for the business. This injection of capital provides us with the necessary funds to execute our 2022 operating plan, which includes continued integration activities, which also includes our Project Darwin initiative, working capital support, and our ability to continue to grow sustainably. To this point, SPARC experienced strong and rapid growth around our renewables business segment in 2021. This growth was equally supported by strong transactional and long-term US-based demand for the development of wind, solar, and energy storage assets. Based on this opportunity, we expanded our footprint and launched a new branch in Albany, New York, to service the Northeastern market with a particular focus on renewables. Our footprint also expanded with new branches launched in Bakersfield, California, and Houston, Texas, both of which focus on our technical service segment of the business. In 2021, we launched a set of new company values with a focus on our field focused operating model that prioritizes field efforts and customer service. The five values that we identified are aspirational and serve as our guidepost for everything we aspire to be and do going forward as an organization. These five values, which were developed with the help and insight of all SparkPower employees across the business are trust, community, team, excellence, and sustainability. Together, these values support our purpose, which is to be our customers' trusted partner in power, and reflect the direction that Spark is headed as we reshape and build upon our business platform and transition into a more mature enterprise. Continuing on our focus on business integration initiatives and scalability, we completed our brand integration, uniting our Spark acquisitions across Canada and the U.S. under a cohesive, singular OneSpark power brand. This project was a two-year endeavor, and the completion of this milestone makes us incredibly proud. Going forward, when our customers see a SparkPower fleet vehicle or a SparkPower service provider, they will know that the breadth of services that can be offered to them reaches across various divisions from low voltage, high voltage, renewable storm services, engineering, and sustainability. We really are one of North America's leading independent providers for power solutions and our customers' trusted partner in power. As we are well into the first quarter of 2022, and as we strategically transition the business into the next level of maturity, the investment and development of our newly integrated enterprise-wide business process and technology platform, what we refer to as Project Darwin, remains a critical objective and a key priority of ours. This implementation of Project Darwin was a two-year endeavor that we began in early 2021. Its purpose is to bring key business processes and system enhancements and standardizations to our Spark Power operations company-wide. In conjunction with Project Darwin, we have also launched operational excellence as a key business function and philosophy within Spark. OpEx will drive consistent business KPIs, standard management reporting, and continuous improvement initiatives that align well to our new set of standard business processes. Darwin is a phased project, and we look forward to our first go-live at the end of Q2 with our second go-live at the end of the year. Thinking ahead in terms of our growth, we continue to commit to talent attraction and retention initiatives for the skilled trades. We were pleased to be awarded a $5.3 million grant for the Government of Ontario Skilled Development Fund in Q2 of 2021, which supports 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 skilled trades work in Ontario, and the launch of our Be Powerful Scholarship program for underrepresented students to enter the trades. In addition to this, we have launched our new learning management system and our Spark U virtual platform in support of providing all Spark employees the opportunity to grow in their careers as we continue to grow. Looking ahead, and with 2022 well underway, our priority remains focused on gradual margin recovery, scalability, and a sustainable level of organic growth while completing the final pieces of our integration. We remain focused on operational excellence and enhancing our growth margin performance. Richard Perry can speak to this in more detail, but operationally speaking, these gradual improvements will come from some of the reduced impacts of the pandemic as COVID measures reflect the expected change from pandemic to endemic. We expect to naturally experience some improvement just in terms of our own operational efficiencies related to the pandemic. More focused pricing actions and introducing fair but necessary increases to absorb some of the costs caused by the significant rise in inflation. Transitioning to value-based pricing, SPARC has a reputation in the industry for being the choice service provider, and as our customer surveys have reaffirmed, we provide extensive value to our customers. Our ability to implement more focused pricing actions and provide prices based on the value we provide is very important. Stronger commercialization of our business and a more intentional approach to how we go to market, focusing on market segments both geographical and service line oriented, focusing on what we do best and where we create value versus our buildup of market presence and critical mass. And enhancing our supply chain management. We are continuing to look at ways we can enhance our vendor relationships and seek out better and more beneficial opportunities as we continue to consolidate and negotiate our supply chain. And lastly, a continued focus on OpEx and building strong leaders and driving strong project management. We have over 180 project managers across North America who do good work every single day, and we will continue to provide the training and the necessary development opportunities to help them in turn and help our business grow profitably. I would like now to turn it over to Richard Perry to share our financial results.
spk00: Richard. Thank you, Rich. I'll provide a couple of highlights and then speak further on each of the components. During the fourth quarter, we experienced growth in certain of our segments while feeling the impact of the ongoing pandemic in our Canadian operations. As the economy continues to recover, we anticipate steady growth in 2022. Gross margin realizations on an adjusted basis were at 23.8% and reflect the impacts of macroeconomic factors related to cost inflation and business mix, while SG&A was impacted by higher year-end provisions. While this was a challenging quarter, we are actively executing on our fiscal 22 operating plan to address the current market conditions and affect margin expansion throughout 2022. As indicated in our financial statements, MD&A, and press release last night, as part of the refined approach adopted in the third quarter to estimating revenue and costs associated with longer term construction 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. Management has determined that the estimate updates do not reflect the forward-looking underlying operational trends for both revenues and gross margins in the business. Furthermore, management is of the view that the processes used starting in the third quarter and going forward for estimating revenues and costs associated with longer-term construction contracts will enhance the precision of such estimates for future periods. I will now turn to a discussion on our results for the fourth quarter ended December 31st, 2021, and the impact this change in estimate had on our reported results. During the fourth quarter, we reported revenue of $65.4 million, representing a decrease of $1.4 million, or 2.2%, over the same period in 2020. On an adjusted basis, and excluding the impact of estimate updates, we generated revenue of $68.5 million, representing an increase of $1.6 million, or 2.4%, over the same quarter. Revenue growth on an adjusted basis was related to ongoing momentum in our renewable segment and strong project work in our Canadian tech services segment. Our renewable segment continues to drive strong organic growth with revenues increasing by 5.4 million or 27.6% in the quarter. On a full year basis, this segment has increased 21.8 million or 33.8% and continues to see increasing demand for both wind and solar solutions in the U.S. market. In our technical services segment, revenues were down 7 million as compared to Q4 of last year. On an adjusted basis, revenues were $39.5 million, representing a decrease of 11.4% over the prior year. Despite strong project work in our eastern Canada operations, revenues declined in one of our key western Canada markets as we redirect that business to higher margin service work. Our sustainability segment saw an increase in revenues in the fourth quarter of 2021 of 13.5% and growth of 32.9%, on a full year basis tied to increasing demand in the market for renewable energy and environmental attributes. Gross margin excluding non-cash depreciation and amortization was $12.6 million or 19.2% of revenue in the fourth quarter as compared to $21.4 million or 32% in the comparable quarter in 2020. The factors contributing to this decline include Estimate updates recorded in the quarter negatively impacted gross margin by 3.7 million. Gross margin adjusted for this impact and the impact on reported revenues and excluding the depreciation and amortization was 16.3 million or 23.8% of revenue. The year-on-year decline in government subsidies of 2.8 million negatively impacted gross margin realizations by 3.9 percentage points. The rapid rise in inflation has driven up the cost of goods, including commodities and fuel, which caused margin compression estimated to be 2.7 percentage points. The impact of shift in business mix, both from a segment mix perspective tied to higher renewables growth, as well as large project work versus time and material service work. And lastly, the ongoing lingering effects of COVID-19 protocols on labor productivity in the field. Selling general and administration costs, exclusive of the impact of depreciation and amortization, were $15.1 million, or 23.1% of revenue, and 22.1% of revenue on an adjusted basis in the fourth quarter, as compared to $12.6 million, or 18.8% in the fourth quarter of 2020. In the quarter, certain year-end provisions were increased as part of our year-end review process. The impact was approximately $2 million for the quarter. SG&A excluding this item was $13.1 million or up 4.8% compared to the fourth quarter of 2020. As stated in previous quarters, we are focused on delivering scale in our operating model and driving efficiencies to support the next phase of our growth strategy. The work on our integrated business processes and technology platform continues to progress well and through the second half of 22, we'll move into production. This is an important next step in the evolution of our business and will deliver business standardization and scalability across the entire Spark Power portfolio. During the fourth quarter, the company's reported EBITDA loss was 10.2 million or minus 15.6% 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. In the quarter, we booked an impairment charge of $4 million for one of our operating units in Western Canada as we repositioned that business for profitable growth. During the fourth quarter of 2021, the company generated cash flow from operations of $3.2 million. Operating cash flow benefited from a decrease in contract assets of $7.2 million and an $8.1 million increase in accounts payable, offset by an increase in accounts receivable of $5.4 million. Capital expenditures in the quarter were $0.7 million and was spread across all classes of property, plant, and equipment. During the quarter, the company satisfied $2.1 million of debt obligations to its lender under its term debt facility and principal payments towards vehicle and premises lease liabilities of $2.1 million. The net result of cash flows was an increase in bank indebtedness of $1.6 million in the quarter. The company had approximately $5 million of liquidity on its operating line at December 31st, 2021. As Rich stated earlier, the company launched a rights offering and contemporaneous private placement at the end of Q4 2021. The rights offering was completed in early Q1 2022 for aggregate subscription proceeds of approximately $39.6 million. This provided SparkPower with additional capital to execute on our long-term operational strategy. At the end of the fourth quarter of 2021, total debt outstanding to our lender increased by $1.1 million to $91.8 million. In closing, I am excited to be working with Rich Jackson and the leadership team to execute on our growth strategy and drive margin recovery performance in 2022. I am optimistic about the growing market demand for our services, and I believe that we are well positioned to take advantage of this opportunity. With that, this concludes our prepared remarks. I will now turn the call over to our operator for questions. Operator, please go ahead.
spk01: Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, you may press star 1 on your phone now to join the queue. If you wish to leave the queue, you may press star 2. We do ask that if you are listening via speakerphone to please pick up your handset for optimum sound quality. Please hold a moment while we poll for questions. And our first question today is coming from Matthew Lee at Canaccord Genuity. Your line is live. You may begin.
spk02: Hi, guys. This is Maria Cullinan for Matthew Lee. Just a couple questions, the first being, do your 2022 outlook suggest a return to pre-pandemic revenues? I was wondering if I could get some clarification on that. If you look at 2019 numbers, your revenues were far below current levels. So I'm just wondering if you're implying a return to that level, or is it more to do with the girls?
spk03: We have a little bit of static on your line. Could you repeat the question? For sure. Can you hear me better this way? That's much better. Thank you.
spk02: Okay, fantastic. No, just wondering regarding your 2022 outlook. So you're suggesting that a return to pre-pandemic revenue levels, and I was wondering... Just looking at the 2019, the revenues were far below the current levels. So I'm wondering if you're implying a return to that level, or is it more to do with growth?
spk04: Yeah, I mean, I would say that it's more to do with growth. And I think the position we're taking on our top line revenue right now is, as I mentioned earlier, is really focusing in on healthy margins and a better profile of revenue from a margin perspective. So really what we're basically saying is pre-pandemic margins and the same level of growth in the business, but on the basis of intentional ways of going to market and really bringing in a healthier base of revenue versus doing the critical mass growth sort of, you know, providing a critical mass profile. As you know, Spark has been in growth mode in the current strategy that we're in today. And obviously in new markets like the US where we've basically gone into market on a critical mass basis, it's really migrating closer to a better margin profile of our revenue. So that's really what that implies. I hope that answers the question.
spk02: No, for sure. And if I may ask just a follow-up question regarding the margin. So for Q4, you obviously had some supply chain issues there within the results. I was wondering if you can give us some color on how long you expect those headwinds to persist?
spk04: Yeah, I mean, I'll let Richard Perry speak to this as well, but I would just say that, you know, we're continuing to navigate through this inflation challenge, and it's You know, not unlike most organizations right now, supply chains are, you know, one, there's disruption in terms of supply and availability of supply. Two is the constant barrage of pricing structure and pricing increases that we're being impacted by. And we haven't seen a full lightening up of that yet. So, you know, our intention right now is to continue to manage through that the best way we can. And the best way to do that, obviously, is through pricing that through to the market. I don't know, Richard, if you want to expand on that at all?
spk00: Yeah, I would just add that we continue to see higher costs for some of our key cost inputs, which is, of course, tied to what is happening out in the broader marketplace. We would anticipate that those will continue through the early part of 2022. And in response, we are aggressively sort of positioning price actions, introducing surcharges, as well as sort of working with some of our suppliers and partners, right, on opportunities to manage the increases moving forward and ensure that we are recovering those cost increases from a pricing perspective.
spk02: Fantastic. And if I may, just the last question. maybe like a bigger picture question. Now that the race is behind you, can you maybe help us understand what the use of those funds is going to be and where you see the ability to invest in growth?
spk00: Yes, good question. So in terms of the rights offering and the proceeds from the rights offering, we absolutely look to reduce debt in satisfying some of our outstanding vendor notes. Part two was to obviously bolster and strengthen the balance sheets. And thirdly was to earmark some of those dollars towards working capital to support the needs of the day-to-day operations and also to be able to execute on our 2022 operating plan. I think in the course of some of our prepared remarks, we updated on the work that is underway on our new ERP platform. So that will continue to be a focus through 2022, which really starts to sort of help us become a fully integrated business moving forward into 2023 and unlock some of the intrinsic value in the business.
spk02: Fantastic. That's all the questions for me. Thank you.
spk03: Thank you.
spk01: Once again, ladies and gentlemen, if you have any questions or comments, please press star 1 now. We have no further questions in the queue at this time. Thank you, ladies and gentlemen. That does conclude today's event. You may disconnect at this time and have a wonderful day. We thank you for your participation.
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