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spk02: Welcome to the Spark Power Group investor call and webcast. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. If you wish to join the queue to ask a question at any time, you can press star one on your keypad. Should you wish to remove yourself from queue, you can press star two. It is now my pleasure to turn the floor over to your hosts, Richard Perry, Executive Vice President and Chief Financial Officer for Spark Power Group. Richard, please go ahead.
spk04: Good morning and welcome to our 2023 second quarter conference call. I'm joined today by Spark Power's President and CEO, Richard Jackson. Rich will begin the morning with remarks on Q2 business highlights, a progress update on key strategic initiatives and Project Darwin. I will follow with a financial review of the second quarter, and then we will open up the call for Q&A. 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 CDARC. Further, these forward-looking statements are made as of the date of this call. 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. I will now turn the call over to SPARC's President and CEO, Rich Jackson, for his opening comments.
spk03: Thanks, Richard. Good morning, everyone, and thank you for joining us. In Q2, we continued to build out our go-to-market plan to support the Let's Grow Better three-year strategy. We have focused on driving sustainable growth to create long-term value for shareholders as a fully integrated platform company. In Q1, we spoke to the enterprise-wide technology and One Spark business integration initiative, Project Darwin, as part of our operational excellence pillar. This continues to be a focus, and the final integration of the Canadian business is planned to be completed over the next six months. This initiative and new system will provide an improved customer experience, create operational efficiencies in both the field and back office, and create a scalable platform to support future growth. We have invested in key leadership talent to support the maturing of the company, including a new Canadian leader and sales team to drive volume in the business and focus on key areas within the go-to-market strategy. We're seeing the efforts of our teams in operations, sales, and overall management come to life through the ongoing expansion of our U.S. business in both technical and renewable services, with significant customer acquisitions in both segments. I want to acknowledge the progress made on the company's training and development initiatives. As previously announced, BARC has been the recipient in support of developing the skilled trades in the province. We continue to build tremendous momentum on the development of our training programs that place focus on the advancement of skilled trades in our organization and in the industry in general. I am proud of the momentum we are building and the solid team we now have in place. We have achieved some noteworthy customer wins in the renewable space and the U.S. technical services as part of our ongoing U.S. expansion. Large-scale O&M agreements have been awarded in key markets including Texas, Arizona, and California, particularly in solar and battery storage systems. We have transactional service projects on a T&M basis with major utilities in Florida underway, as well as significant T&M projects in various southern states with further expansion into new states in the technical services segment. All of these new opportunities are on strategy for Spark Power, and we look forward to reporting out our progress in the future. As we are starting to realize early wins from the rollout of our new , I am confident we are set to grow profitably and sustainably. I also want to highlight Spark's commitment to health and safety. Our safety performance has continued to improve in 2023, with overall recordable incident frequency rate coming down to its lowest level this year. The advancement of our safety program through new leadership and enhanced field engagement is really showing better results and an even better focus on health and safety of our employees and customers. As always, I want to thank all of our stakeholders as SPARK continues to navigate its internal integration and transition to a more mature platform company. I especially want to thank my direct leadership team and all of our employees for their perseverance and commitment to Spark. We are doing a lot as a company in unprecedented macro level conditions. I will now turn the call over to Richard to share our Q2 financial results.
spk04: Thank you, Richard. Over the last several quarters, we have seen steady improvements in gross margin realizations with our intentional shift to higher margin service work, despite challenging prior year revenue comparatives, which included several large projects. In the second quarter, the company generated positive free cash flow as a result of lower networking capital and our focus on speed to catch. As we look ahead to the second half of the year, we have aggressive plans to continue decreasing networking capital through targeted reductions in day sales outstanding for both accounts receivable and contract assets. I will now provide an overview of the key financial results for the quarter. In Q2 2023, revenue from continuing operations was $66.2 million, as compared to $70.6 million in Q2 2022, representing a decrease of 6.3% year-over-year. The year-over-year change was anticipated as it reflects the ramp-up of our go-to-market strategy to pursue smaller ticket, higher margin service work and prior period comparatives that included large project work in the technical services and renewable segments. In our technical services segment, revenue this quarter was $42.7 million, a decrease of 10.6% year-over-year. This consists of growth in our Western Canada utilities and U.S. high-voltage segments, offset by lower volumes in Western Canada low-voltage segments and prior period comparatives, which included a significantly higher larger project mix. In our renewables segment, Revenue in Q2 was $22.7 million and up 0.8% over prior year. We continued to capitalize on strong solar demand in both the U.S. and Canada markets, with growth of 55% in the quarter over prior year. This was somewhat offset by lower volumes in our BES segment as a result of large projects in the prior year comparatives, combined with a deceleration of U.S. wind growth as a result of an intentional shift to higher-margin solar work. Gross profit margins from continuing operations, excluding depreciation and amortization, were 25.6% in Q2 2023, as compared to 26% in Q2 2022 and 25.1% in Q1 2023. The decrease from prior year is tied to a shift in renewables mix, while the sequential improvements over the prior two quarters reflects the ramp up of our intentional go-to-market strategy. Selling general and administration expenses from continuing operations, excluding depreciation and amortization, were $11.4 million in Q2 2023, or 17.2% of revenue. Down $0.6 million, or 5% from Q2 2022, which demonstrates the benefits of the actions executed in 2022 to scale the business for growth. More specifically, staffing costs were down $0.7 million, or 10.1%, as compared to Q2 2022, reflecting the ongoing benefits of the restructuring action executed in the prior year, partially offset by year-to-date true-ups for severance costs and government grants in the prior year comparatives. Also note we reclassified certain IT-related end-user network and mobile device costs related to field operations from the corporate segment into technical services and renewable segments. Adjusted EBITDA from continuing operations was $5.6 million or 8.5% of revenue in Q2 2023, excluding foreign exchange losses of $0.4 million in the quarter. This compares to adjusted EBITDA of 6.5 million or 9.2% of revenue in Q2 2022. The year-over-year change reflects lower volumes due to large projects in the prior year and revenue mix partially offset by lower SG&A costs. Cash flow from continuing operations was 5 million in Q2 2023 compared to cash used by operations of 4.2 million in Q2 2022 tied to a reduction in net working capital of $8.3 million as compared to prior year and a reduction of $2.3 million as compared to prior quarter. Capital expenditures in the quarter were $1.6 million in Q2 2022. The majority of the increase relates to computer software and leasehold improvements for office buildings, in particular our new head office. In the quarter, there were no debt repayments and the company paid principal payments of $2 million for vehicle and premises. As a result, the total change in bank indebtedness was a decrease of $1 million for the quarter. In closing, I am pleased with the steady progress we are making as we execute the first wave of strategic initiatives tied to our Let's Grow Better strategy. We are seeing momentum build within our key business segments as we move into the second half of the year. We will continue to focus on speed to cash and decreasing networking capital, as well as executing against our 2023 business plan to improve revenue mix, enhance gross margin realization, and generate positive free cash flow from operations. I would like to acknowledge the team for their continued hard work and commitment to Spark's Let's Grow Better strategy. We look forward to sharing progress updates on our strategic plan and performance against our financial objectives in the second half of the year. This concludes our prepared remarks. I will now turn the call over to our operator for questions. Operator, please go ahead.
spk02: Certainly. The floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star 1 on your telephone keypad. We do ask, if listening on speakerphone this morning, that you please pick up your handset while asking your question to provide optimal sound quality. Once again, the floor is now open for questions. Please press star one on your telephone keypad at this time. If you wish to join the queue to ask a question, please hold a moment while we poll for questions.
spk00: Once again, please press star 1 at this time if you wish to join the queue to ask a question.
spk01: And there are no questions in queue at this time.
spk02: Once again, if anyone should wish to join the queue to ask a question, you may press star 1 at this time. Once again, that will be star one. And there are no questions in queue at this time. That does conclude today's conference call. We do thank you for your participation. You may disconnect your phone lines at this time and have a wonderful day. Thank you once again for your participation.
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