YOUR
TRUSTED
PARTNER
IN POWER™
2021 ANNUAL REPORT
1315 NORTH SERVICE ROAD EAST, SUITE 300
OAKVILLE, ONTARIO, L6H 1A7, CANADA
1.833.775.7697
TRUSTED PARTNER
IN POWER™
Spark is focused on serving as its customers’ Trusted Partner in Power™
WE ARE INDEPENDENT
• Unbiased Service Provider
• Pole-to-Product™
• Relationships over transactions
WE ARE LOCAL
• Community-based
• Local service with continent-wide expertise
• Certified, well-trained, non-union
WE HAVE SCALE
• Award-winning Health & Safety Programs
• Flexible and responsive
• Right ideas and solutions
TABLE OF CONTENTS
CEO’s Message to Shareholders
Chairman’s Message to Shareholders
Key Figures
Management Team and Board of Directors
Business Overview
Schedule 1 – Financial Statements
Management’s Responsibility for Financial Reporting
BDO Independent Auditor’s Report
Consolidated Statements
Notes to the Consolidated Financial Statements
Schedule 2 – Management’s Discussion & Analysis
MD&A, Forward-Looking Information, Presentation of Financial
Information, Key Performance Indicators
Business Overview
Summary Financial Information
EBITDA, Adjusted EBITDA, and Pro-forma EBITDA
Results of Operations
Results of Operations by Reportable Business Segment
Financial Condition, Liquidity and Capital Resources
Outlook
Off Balance-Sheet Arrangements, Commitments
and Contingencies
Summary Quarterly Financial Information
Significant Accounting Judgements and Estimates
Financial Instruments
Disclosure Controls and Procedures and Internal Controls Over
Financial Reporting
Risk Management
Corporate Information
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97
CEO’S MESSAGE
TO SHAREHOLDERS
Dear fellow shareholders,
In 2021, we laid a very strong foundation for
integration. One of our first priorities was cultural
integration – people – and the values we will live by
going forward. In choosing trust, team, sustainability,
community and excellence as our core values, we
aspire to live by these values in all that we do. In
prioritizing health and safety, we recognize the
importance of keeping everyone, from field staff to
office staff, to customers and the community safe from
harm. These are the principles that define our actions
and allow us to develop the competencies that reflect
these attributes and allow us to function cohesively
as “One Spark”. Through feedback surveys and focus
groups with our employees, I was very pleased to hear
overwhelming support and acceptance of these values.
Successful integrations ultimately come down to
people. On my road-trips to Texas and Alberta
earlier this year, I had an opportunity to meet some
of our very talented field employees. As CEO, I am
committed to driving our field focused operating
model and as part of that, getting out of the office to
meet customers on-site, safely, is a critical part of my
role. I continue to be impressed by the quality of our
workmanship as we continue to elevate the trade. I am
incredibly proud to be leading such an accomplished
and resilient team through this next phase of our two-
year integration journey. I know there will be challenges
ahead as we continue the hard work of integration.
I also know that because we have the right people,
we will prevail through a combination of hard work
and our shared values.
In 2021, we put in place a new flat management
structure with a leadership team that will enable us
to achieve organizational excellence, that will help us
to attract and retain great talent, that will improve
operational predictability, and that will provide scale
for future growth as a mature operating company.
The completion of the Founder transition in Q1/2021,
followed by the succession and strategic replacement
of our senior leadership team, will help guide capital
allocation decisions and positions us well as we
navigate the next stage of our maturity curve.
In 2021, we continued with the Spark 100 initiative,
which builds on our commitment to sustainability
and to best practices in the governance areas of
community-building; diversity, equity and inclusion;
and environmental sustainability. We will continue to
take steps to develop Spark 100 processes, practices
and key performance indicators that reflect our
intention to be a leading enterprise that employees,
customers, and local communities can all be proud of –
and that shareholders can trust and rely upon.
Sincerely,
Richard Jackson
President & CEO
4
CHAIRMAN’S MESSAGE
TO SHAREHOLDERS
Dear fellow shareholders,
In 2021, the world began to inch its way back from
pandemic uncertainty towards a state of greater
normalcy. As it did, Spark Power continued its
transition to a more mature, professionally managed
operating company and a leading North American
energy services business.
The Board of Directors mirrored this shift. In terms
of governance, 2021 witnessed the Board’s evolution
from a model based on merger and acquisition
oversight into one that will oversee Spark Power’s
flattening, guiding it to operate nimbly, strategically,
and decisively and working collaboratively with the
management team to realize the long-term potential
of the Spark Power brand.
As part of this planned transition, Richard Jackson
took the helm as President and Chief Executive
Officer in January. He will steer the integration plan,
focusing on the development of a robust shared
services platform that will allow for further scalability
and long-term growth, and, of course, maintain
our focus on field efforts and customer service.
Richard is unquestionably the right leader to guide
this next phase of our growth strategy. I have every
confidence that on his watch, Spark Power will
reach its integration goals, creating the organization
the founders envisioned back in 2010 when our
journey began.
The Board is aware that integration can be a
challenging journey in the face of unexpected
events including those we experienced in 2021,
which are laid out in the Management Discussion
and Analysis section of this report. As one of the
original founders, I am extremely proud of the
team’s accomplishments to date –proud that we
have grown through a mix of acquisition and organic
growth, proud of the scale we have achieved in our
operations, and especially proud of the commitment
of over 1,400 Spark Power employees who are
helping today to build the future of the power
industry of tomorrow.
Sincerely,
Jason Sparaga
Chair, Board of Directors
5
EVOLVING STRATEGIC
IMPERATIVES TO
DRIVE STRATEGY
2019
Establish
Regional
Operating
Model
• Rationalize Central/
•
Regional SG&A
Initiate US Growth
Strategy
Integration
(Operations,
Brand, Culture)
2020
• Predictable Operational Excellence
• Clarity and consistency in our
go-to-market messaging -
Trusted Partner in Power™
• Focus on profitable US Growth
• Focus on Business Unit/
Branch Manager – develop,
retain and support
Integration
(Operations,
Brand, Culture)
& Platform
• Predictable Operational Excellence
• Recapitalization for Stability
& Growth
Platform
for Growth
• Predictable Operational
Excellence
• Embed Culture
• Acquisition & Integration
2021
2022
6
OUR SCALE CREATES
DIFFERENTIATION
Ability to:
• Invest in our commitment to
• Invest in understanding markets,
health and safety
technology and products to
• Be responsive to our customers’
help our customers identify the
needs at any time across all
right solutions
our services
• Invest in recruiting, hiring, training
• Scale to serve our customers –
and retaining high quality people
geographically and for jobs of
any size
~1,400
EMPLOYEES
5,500
CUSTOMERS
1,000+
TECHICAL SKILLED
WORKERS
69,753
SAFETY
INSPECTIONS (2021)
~700
FLEET
VEHICLES
7
6,500+ mw
RENEWABLE
ASSETS SERVICED &
SUPPORTED
ZERO TOLERANCE
SAFETY CULTURE
Only zero is acceptable. Safety is our top
priority with zero compromised, zero short
cuts, and zero excuses.
2.55
Total Recordable Injury Frequency
0.77
Lost Time Frequency
69,753
Inspections
52,198
Meetings
6,906
Hazard Observations
8
TM
ENVIRONMENT
Spark Power reduced its 2021 footprint by:
3,737
Tonnes of C02
This is equivalent to:
Taking more than 811
cars off the road
Diverting more than 1,270
tonnes of waste from landfill
The consumption of
1,584,191 litres of gasoline
The carbon sequestered by
1,815 hectares of forest
in one year
More than 61,654 tree
seedlings growing for 10 years
DIVERSITY, EQUITY & INCLUSION
2021 INITIATIVES
BE POWERFUL SCHOLARSHIP
An initiative to create opportunities in the electrical industry for
individuals from underrepresented communities.
CAREER DISCOVERY EXPO
A highschool student virtual Career Discovery Expo in
partnership with Build a Dream, a non-profit organization that
advances diversity and inclusion initiatives to provide equitable
opportunities for all.
SPARK 100 -
OUR COMMITMENT
2021 CELEBRATIONS & POSTS
2021 SURVEY
Education & Awareness Census launched which is an
opportunity for us to better understand and celebrate Spark's
diversity. A brief survey will be sent to the entire organization
on a bi-annual basis, allowing us to appreciate our changing
organization over time.
IDENTIFIED A BASELINE
TRAINING FOR ORGANIZATION
Launch date: February 2022
2021 Year in Review
BLACK HISTORY
MONTH
INTERNATIONAL
WOMEN’S DAY
Celebrated and honored
the legacies of Black
Americans and Canadians
and reflected on their
efforts and achievements
by sharing profiles of
individuals who have
made an impact within
our sector
Celebrated the powerful and
inspiring women across our
Canadian and U.S. teams
Employees submitted
photos and descriptions of
the wonderful women who
inspire them
TM
PRIDE MONTH
Celebrated Pride month
and the right to be your
authentic self
Discussed what it
means to be an Ally
NATIONAL DAY
FOR TRUTH &
RECONCILIATION
Stood in solidarity with
Indigenous Peoples
Encouraged the company to
wear Orange
Took action and made a
donation of $1,500 to the
We Matter campaign
DEI CENSUS SURVEY RESULTS
TM
ENVIRONMENT
Spark Power reduced its 2021 footprint by:
ENVIRONMENT
Spark Power reduced its 2021 footprint by:
3,737
Tonnes of C02
This is equivalent to:
3,737
Tonnes of C02
This is equivalent to:
151
participants
76%
of participants agree Workforce
diversity is valued at Spark
Taking more than 811
cars off the road
Diverting more than 1,270
tonnes of waste from landfill
Taking more than 811
cars off the road
Diverting more than 1,270
tonnes of waste from landfill
The consumption of
1,584,191 litres of gasoline
The carbon sequestered by
1,815 hectares of forest
in one year
More than 61,654 tree
seedlings growing for 10 years
The consumption of
1,584,191 litres of gasoline
The carbon sequestered by
1,815 hectares of forest
in one year
More than 61,654 tree
88%
seedlings growing for 10 years
of participants feel respected &
included in their daily work environment
81%
of participants feel a sense of belonging
at Spark Power
DIVERSITY, EQUITY & INCLUSION
2021 INITIATIVES
COMMUNITY
DIVERSITY, EQUITY & INCLUSION
2021 INITIATIVES
BE POWERFUL SCHOLARSHIP
An initiative to create opportunities in the electrical industry for
individuals from underrepresented communities.
2021 SURVEY
Education & Awareness Census launched which is an
opportunity for us to better understand and celebrate Spark's
diversity. A brief survey will be sent to the entire organization
on a bi-annual basis, allowing us to appreciate our changing
organization over time.
BE POWERFUL SCHOLARSHIP
An initiative to create opportunities in the electrical industry for
CAREER DISCOVERY EXPO
individuals from underrepresented communities.
A highschool student virtual Career Discovery Expo in
partnership with Build a Dream, a non-profit organization that
advances diversity and inclusion initiatives to provide equitable
opportunities for all.
2021 SURVEY
Education & Awareness Census launched which is an
opportunity for us to better understand and celebrate Spark's
IDENTIFIED A BASELINE
diversity. A brief survey will be sent to the entire organization
TRAINING FOR ORGANIZATION
on a bi-annual basis, allowing us to appreciate our changing
Launch date: February 2022
organization over time.
CAREER DISCOVERY EXPO
A highschool student virtual Career Discovery Expo in
partnership with Build a Dream, a non-profit organization that
advances diversity and inclusion initiatives to provide equitable
opportunities for all.
To Autism
To Employee Program
To Mental Health
IDENTIFIED A BASELINE
TRAINING FOR ORGANIZATION
Launch date: February 2022
NEW
PARTNERSHIPS
BUILDING
AWARENESS
INCREASE
ENGAGEMENT
2021 CELEBRATIONS & POSTS
2021 CELEBRATIONS & POSTS
BLACK HISTORY
MONTH
INTERNATIONAL
WOMEN’S DAY
Celebrated and honored
the legacies of Black
Americans and Canadians
and reflected on their
efforts and achievements
by sharing profiles of
individuals who have
made an impact within
our sector
Celebrated the powerful and
inspiring women across our
Canadian and U.S. teams
Employees submitted
photos and descriptions of
the wonderful women who
inspire them
PRIDE MONTH
BLACK HISTORY
Celebrated Pride month
MONTH
and the right to be your
authentic self
Celebrated and honored
Discussed what it
the legacies of Black
means to be an Ally
Americans and Canadians
and reflected on their
efforts and achievements
by sharing profiles of
individuals who have
made an impact within
our sector
NATIONAL DAY
FOR TRUTH &
INTERNATIONAL
RECONCILIATION
WOMEN’S DAY
Stood in solidarity with
Indigenous Peoples
Celebrated the powerful and
inspiring women across our
Canadian and U.S. teams
Encouraged the company to
wear Orange
Took action and made a
donation of $1,500 to the
We Matter campaign
Employees submitted
photos and descriptions of
the wonderful women who
inspire them
DEI CENSUS SURVEY RESULTS
PRIDE MONTH
Celebrated Pride month
and the right to be your
authentic self
Discussed what it
means to be an Ally
DEI CENSUS SURVEY RESULTS
Joined the United Way's
Campaign Cabinet in April 2021
and worked together to promote
three #LocalLove campaigns to
support UW chapters in the
communities we work and live in.
We also engaged with United
Way to provide resources for
employees for areas such as
mental health and wellness.
Focused on building awareness
about our community program
and initiatives by sharing
community stories with our
social media networks, website,
and newsletter, as well as
through our internal
communication platforms.
Community stories rank as the
second highest engagement
content pillars across social
media and internal platforms,
resonating with both our
employees and our external
networks. These posts have
also received 100% interaction
in 2021.
NATIONAL DAY
FOR TRUTH &
RECONCILIATION
Stood in solidarity with
Indigenous Peoples
Encouraged the company to
wear Orange
HEALTH & WELLNESS
Took action and made a
donation of $1,500 to the
We Matter campaign
Launched four Health & Wellness newsletters with monthly themes tied
to each of the wellness pillars and workout plans
Ran the Movember fundraiser which raised over $3500 in support of
men’s health challenges including prostate and testicular cancer,
suicide prevention, and mental health.
151
participants
76%
of participants agree Workforce
diversity is valued at Spark
9
151
participants
76%
of participants agree Workforce
diversity is valued at Spark
88%
81%
of participants feel respected &
of participants feel a sense of belonging
included in their daily work environment
at Spark Power
88%
81%
of participants feel respected &
of participants feel a sense of belonging
included in their daily work environment
at Spark Power
COMMUNITY
To Autism
To Employee Program
To Mental Health
COMMUNITY
NEW
PARTNERSHIPS
BUILDING
AWARENESS
To Autism
INCREASE
ENGAGEMENT
To Employee Program
To Mental Health
Joined the United Way's
Focused on building awareness
Community stories rank as the
Campaign Cabinet in April 2021
about our community program
second highest engagement
and worked together to promote
and initiatives by sharing
content pillars across social
three #LocalLove campaigns to
community stories with our
media and internal platforms,
support UW chapters in the
social media networks, website,
resonating with both our
communities we work and live in.
and newsletter, as well as
employees and our external
We also engaged with United
through our internal
networks. These posts have
Way to provide resources for
communication platforms.
also received 100% interaction
employees for areas such as
mental health and wellness.
NEW
PARTNERSHIPS
in 2021.
BUILDING
AWARENESS
INCREASE
ENGAGEMENT
Joined the United Way's
Focused on building awareness
Community stories rank as the
Campaign Cabinet in April 2021
about our community program
second highest engagement
and worked together to promote
and initiatives by sharing
content pillars across social
three #LocalLove campaigns to
community stories with our
media and internal platforms,
support UW chapters in the
social media networks, website,
resonating with both our
communities we work and live in.
and newsletter, as well as
employees and our external
HEALTH & WELLNESS
Way to provide resources for
We also engaged with United
through our internal
networks. These posts have
communication platforms.
also received 100% interaction
in 2021.
employees for areas such as
mental health and wellness.
Launched four Health & Wellness newsletters with monthly themes tied
to each of the wellness pillars and workout plans
Ran the Movember fundraiser which raised over $3500 in support of
men’s health challenges including prostate and testicular cancer,
suicide prevention, and mental health.
HEALTH & WELLNESS
Launched four Health & Wellness newsletters with monthly themes tied
to each of the wellness pillars and workout plans
Ran the Movember fundraiser which raised over $3500 in support of
men’s health challenges including prostate and testicular cancer,
suicide prevention, and mental health.
BE POWERFUL SCHOLARSHIPAn initiative to create opportunities in the electrical industry for individuals from underrepresented communities. CAREER DISCOVERY EXPOA highschool student virtual Career Discovery Expo in partnership with Build a Dream, a non-profit organization that advances diversity and inclusion initiatives to provide equitable opportunities for all.2021 SURVEYEducation & Awareness Census launched which is an opportunity for us to better understand and celebrate Spark's diversity. A brief survey will be sent to the entire organization on a bi-annual basis, allowing us to appreciate our changing organization over time.IDENTIFIED A BASELINE TRAINING FOR ORGANIZATIONLaunch date: February 2022BE POWERFUL SCHOLARSHIPAn initiative to create opportunities in the electrical industry for individuals from underrepresented communities. CAREER DISCOVERY EXPOA highschool student virtual Career Discovery Expo in partnership with Build a Dream, a non-profit organization that advances diversity and inclusion initiatives to provide equitable opportunities for all.2021 SURVEYEducation & Awareness Census launched which is an opportunity for us to better understand and celebrate Spark's diversity. A brief survey will be sent to the entire organization on a bi-annual basis, allowing us to appreciate our changing organization over time.IDENTIFIED A BASELINE TRAINING FOR ORGANIZATIONLaunch date: February 2022BE POWERFUL SCHOLARSHIPAn initiative to create opportunities in the electrical industry for individuals from underrepresented communities. CAREER DISCOVERY EXPOA highschool student virtual Career Discovery Expo in partnership with Build a Dream, a non-profit organization that advances diversity and inclusion initiatives to provide equitable opportunities for all.2021 SURVEYEducation & Awareness Census launched which is an opportunity for us to better understand and celebrate Spark's diversity. A brief survey will be sent to the entire organization on a bi-annual basis, allowing us to appreciate our changing organization over time.IDENTIFIED A BASELINE TRAINING FOR ORGANIZATIONLaunch date: February 2022 INTEGRATION OF OUR
PURPOSE AND VALUES
• Our purpose is to be our customers’ Trusted Partner in Power™.
• We deliver on our purpose by living our values.
10
Bring positive impact to our communitiesCOMMUNITY ZERO INCIDENTSAFETY CULTURETEAMEmpower each otherTRUSTEarn it from our customers and teamsSUSTAINABILITYTake responsibility for the futureEXCELLENCEElevate our tradeOUR PURPOSE IS TO BE OUR CUSTOMERS’ TRUSTED PARTNER IN POWERTMTMCMYCMMYCYCMYKValues Poster 8x8.pdf 1 2021-08-18 2:24 PM SHIFT TO SCALABLE FIELD
FOCUSED OPERATING MODEL
Building a scalable network of local
• Emphasize operational excellence
branch operations in all markets we serve
• Prioritize health and safety
across North America to:
• Guide capital allocation & strategy
planning
11
Edmonton
WESTERN CANADA
Calgary
Winnipeg
EASTERN CANADA
Temiskaming Shores
St Cloud
WEST
MIDWEST
Albany
N O R T H E A S T
Raleigh
Barrie
Belleville
Blenheim
Brampton
Brantford
Cambridge
Chatham
Hamilton
Harrowsmith
London
Mississauga
Oakville
Perth
Toronto
Vaughan
Dartmouth
Fremont
Fresno
Bakersfield
Ontario
Abilene
SOUTHWEST
Dallas
SOUTHEAST
MEXICO
San Antonio
San Benito
Houston
OUR NORTH
AMERICAN
FOOTPRINT
12
A HISTORY OF
GROWTH
13
SSPPAARRKK PPOOWWEERR HHIISSTTOORRYY11Revenue (in millions)Employees0501001502002502009201020112012201320142015201620172018201920202021Revenue (M)People STRONG FINANCIAL
PERFORMANCE
Revenue (Millions)
37%
Compound Annual
Growth Rate
2015-2020
32%
Compound Annual
Growth Rate
2015-2021
$255.8
$228.2
$188.6
$119.8
$80.0
$63.8
$47.6
Adjusted EBITDA (Millions)
19%
Compound Annual
Growth Rate
2015-2021
$32.4
$25.1
$20.5
21.7
34%
Compound Annual
Growth Rate
2015-2020
$15.5
$10.3
$7.5
2015 2016 2017 2018 2019 2020
2021
2015 2016 2017 2018 2019 2020
2021
Segmented 2021 Revenues
2020
Eastern
Canada
Western
Canada
USA
Sustainability
Solutions
Renewables
Corporate
0%
2021 ($)
2021
1%
28%
36%
5%
8%
23%
Eastern
Canada -
Western
Canada -
USA -
$83,528
$44,883
$28,089
Eastern
Canada
Western
Canada
USA
Sustainability
Solutions -
$11,191
Sustainability
Solutions
Renewables - $86,335
Renewables
Corporate -
$1,788
Corporate
28%
33%
4%
11%
18%
Per Consol workbook
East -
West-
US -
Total
Recalc
East -
West-
US -
Total
$92,249
$49,569
$31,022
$172,840
$83,528
$44,883
$28,089
$156,501
18%
29%
53%
Gross Margin % - 3 Year Average
2019
2020
2021
3-Year
Revenue
188.6
228.2
255.8
672.6
Gross Margin
GM %
68.5
36.3%
76.7
33.6%
68.8
26.9%
213.9
31.8%
Adjusted EBITDA Margin % - 3 Year Average
2019
2020
2021
3-Year
Revenue
188.6
228.2
255.8
672.6
Adjusted EBITDA
EBITDA %
25.1
13.3%
32.4
14.2%
21.7
8.5%
79.2
11.8%
Note that the Inter-Business Region IC
Eliminations were applied to the above
14
SENIOR LEADERSHIP TEAM
Richard Jackson
President & CEO
Richard is Spark Power’s President & Chief Executive Officer with over 20 years
of leadership experience in industrial companies across North America. Richard
leads all operations within Spark including designing the organization for
long-term scalable growth, formulating and leading the execution of Spark’s
corporate strategy, and driving functional and operating performance across
the organization.
Richard Perri
Executive Vice President & CFO
Richard is Spark Power’s Executive Vice President & Chief Financial Officer with
over 20 years of financial and leadership experience across multiple industries.
He oversees the organization’s financial accounting and strives to create a team-
oriented environment that is thorough in addressing and reporting the Company’s
financial operations.
Tom Duncan
Executive Vice President & Chief Operating Officer
Tom is Spark Power’s Executive Vice President & Chief Operating Officer with
over 25 years of leadership and management experience in industrial and energy
services. Tom leads all of Spark’s North American operations and seeks to
drive operational excellence and growth. He designs and implements business
strategies, plans, and procedures, both functional and operating. Tom is highly
passionate about safety and team engagement.
Eric Waxman
Co-Founder & Chief Investment Officer
Eric is Spark Power’s Co-Founder & Chief Investment Officer, and Board Director
with over 20 years of extensive experience with M&A, investment banking,
and private equity deal structures. A strong leader, Eric focuses on driving an
ownership and safety-first culture within the Company and leading acquisition
transactions and their integration to accelerate Spark Power’s North American-
wide expansion.
Cody Zaitsoff
Executive Vice President, U.S. Technical Services
Cody is Spark Power’s Executive Vice President, U.S. Technical Services with over
18 years of experience in the electrical services sector. An experienced leader with
a background in field engineering and system design services, Cody is responsible
for overseeing all Spark Power operations across the U.S. and in Canada from
Manitoba west to British Columbia, and Canada’s North.
15
Grayson Swan
Executive Vice President, Renewables
Grayson is Spark Power’s Executive Vice President, Renewables with over 10 years
of experience in the renewables energy industry. Grayson is dedicated to the
economic and social benefits of renewable energy projects, and responsible for
overseeing Spark’s wind and solar operations and maintenance, battery energy
storage systems (BESS), electric vehicle (EV) infrastructure, and on-site solar
initiatives across North America.
Najlaa Rauf
Vice President of People & Culture (Human Resources)
Najlaa is Spark Power’s Vice President of People & Culture (Human Resources)
with over 10 years of experience in employee engagement, human resources,
and leadership development in non-profit, education and electrical contracting
services. She is responsible for leading the organization in the areas of culture, and
talent attraction, retention, and development.
Michael Mah
Vice President, Information Technology
Michael is Spark Power’s Vice President of Information Technology with over
20 years of experience in technology leadership across many different industry
sectors including energy and utilities, financial services, and real estate. He is
responsible for leading Spark’s Information Technology and Systems team in the
management and delivery of technology services for the organization.
Suha Jethalal
Vice President, Sustainability
Suha is Spark Power’s Vice President, Sustainability and President of the
organization’s sustainability division, Bullfrog Power. She brings deep
expertise in strategy, product and brand management, social entrepreneurism,
and sustainability.
Phil Lefko
Chief Legal Counsel, Spark Power Group of companies
Phil serves as Chief Legal Counsel to the Spark Power Group of companies and
has almost 20 years of experience as a practising lawyer with a focus on corporate
finance and securities, mergers and acquisitions, corporate governance, and
general corporate matters. He has been providing Spark Power legal services since
its inception.
16
BOARD OF DIRECTORS
Jason Sparaga
Co-founder and Board Chair
Jason is Spark Power’s Co-Founder & Board Chair with over 20 years of
experience in private company M&A, corporate finance, and merchant banking,
with a history of closing more than 100 transactions. A driven entrepreneur
and business leader, Jason is focused on M&A activities, corporate finance, and
supporting key strategic initiatives.
Andrew Clark
Co-founder and Vice Board Chair
Andrew is Spark Power’s Co-Founder & Vice Board Chair with over two
decades of experience in the industrial manufacturing, merchant banking,
and advanced energy sectors. Andrew’s primary focus is on the company’s
Corporate Sustainability.
Larry D. Taylor
Lead Independent Director (1,3)
Mr. Taylor is the President of Taylor Made Solutions based in Toronto and is a
CEO Group Leader for CEO Global Network also based in Toronto. Mr. Taylor is
an experienced CEO with a strong track record of leadership in growing financial
services and professional services firms.
Daniel Peloquin
Director (1,2)
Daniel Peloquin is a seasoned executive who has been involved in the
manufacturing and exporting of products and services serving the electrical
Transmission and Distribution (T&D) industry and End Users on international
markets for over 35 years. Peloquin’s background includes extensive executive
leadership in general management, human capital, engineering, sales, marketing
and operations.
Joseph Quarin
Director (2)
Joe Is a successful public company Chief Executive Officer (TSX and NYSE),
corporate executive and director. He was the Chief Executive Officer and Director
of Progressive Waste Solutions Ltd., a North American non-hazardous solid waste
management company from January 2012 until the reverse-merger with Waste
Connections Inc. in 2016.
Lucio Di Clemente
Board Member (1)
Lucio Di Clemente, CPA/CA, MBA, ICD.D, is an experienced executive, corporate
director, and business advisor who brings a wealth of operational excellence and
experience with financial transactions. Lucio has been instrumental in closing deals
with an aggregate value of over $3B over the course of his career, working with
several iconic Canadian companies across a broad spectrum of industries.
17
1. Member of the Audit and Risk Committee
2. Member of the Compensation and Human Capital Committee
3. Member of the Corporate Governance & Nominating Committee
DESCRIPTION OF THE BUSINESS
Overview
The Corporation is a leading 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 Canada and the
United States. Spark is focused on becoming its customers’ Trusted Partner in Power™, taking advantage of the
opportunities presented by a dynamic market.
We have focused our business on serving three major customer types: commercial and industrial customers;
regulated utilities; and renewable asset owners. In addition, we have worked to develop longstanding relationships
with customers focused on industries less likely to be impacted by recession or displacement (such as offshoring)
– including food & beverage, warehousing for ecommerce and data centres. We manage concentration risk by
ensuring that no customer represents more than 10% of our revenue.
The business of the Corporation was commenced in 2009 with the incorporation of Spark Solar Management Inc.,
to capitalize on the Ontario provincial government’s then newly implemented Green Energy Act. Spark Power was
formed in 2014 in connection with a corporate reorganization of Spark Solar Management Inc.
The Corporation’s business is most mature in Eastern Canada, accounting for the largest part of our revenue. The
Corporation’s ‘branch model’ has been proven over many years, including by our wholly-owned subsidiary, New
Electric. Under this model, branch managers have full profit and loss responsibility, supported by corporate services
better provided centrally because of scale (such as financial reporting, marketing, supply chain management,
information technology, systems and engineering). As the Corporation expands, replicating this model, particularly
by expanding in regions in which a presence has already been established, has proven to be a repeatable successful
model for expansion.
The Corporation’s long-term North American growth and diversification strategy includes a focus on expansion
opportunities in the United States. The Corporation intends to increase its presence in the United States market
through a combination of new branch openings and acquisitions at the appropriate time. The Corporation will
prioritize branch openings in locations where opportunities exist to grow synergistically with its Canadian industrial-
commercial-institutional customers that also have U.S. operations by expanding existing relationships with these
customers into new regions and leveraging business start-up costs.
In 2018, the Corporation advanced its U.S. strategy by (a) establishing a corporate head office in Raleigh, North
Carolina, (b) opening its first location in Minnesota under the Northwind brand, focused on renewable energy
operation and maintenance services to the commercial and industrial sector and (c) acquiring the California
operations of New Electric, including branches in Fresno, California and Fremont, Nevada, establishing a presence
in the western United States.
In 2019, the Corporation opened a new operating branch in Raleigh, North Carolina alongside its corporate head
office, offering high and low voltage technical services in the region. In addition, the Corporation established
branches in San Antonio, Dallas and Los Angeles to complement existing branches in Fremont and Fresno,
California.
In 2020, the Corporation migrated its U.S. Corporate Office to Dallas, Texas and began the management transition
from ‘start-up state’ to ‘run state’. This change included the appointment of a new Executive Vice President to
oversee the U.S. Line of Business.
The Corporation announced new branch openings in Houston, Texas, Bakersfield, California and Albany, New York in
late 2020 and throughout 2021.
The Corporation has grown through a mix of acquisition and organic growth. Spark has made twelve acquisitions
over the past nine years, and coupled with post-acquisition organic growth, this has led to substantial scale in our
operations. The following chart highlights the Corporation’s growth, in terms of both revenue and employees over
the past 11 years.
18
Operating Structure
Operating within our field focused operating model, Spark is organized into reportable business segments as
detailed below. Management believes that this segmentation reflects how the business is managed and provides
a clear understanding, for both management and other users of the financial information, of the businesses with
different growth opportunities, revenue profiles and historical earnings performance and potential.
Technical Services
Western Canada
Technical Services
Eastern Canada
Technical Services
USA
Renewables
Sustainability
Solutions
Spark’s integrated suite of services across North America are as follows:
Technical Services
Centred around its branch network, Spark’s Technical Services business segment operates out of several locations
in the U.S. and Canada and focuses on pole-to-product electrical services. With highly responsive and local
technical teams, Spark offers a wide variety of services and solutions to a wide range of customers including:
Low Voltage
• Electrical contracting
Medium & High Voltage
• Power ‘On’ services
services
• Custom control panel
design and assembly
• Sub-station
construction and
maintenance
•
Industrial automation
• Power line construction
and maintenance
Engineering
• Power systems
engineering
• Protection and
control engineering
• Substation
engineering
• Systems integration
• Electronic repair
• 24/7 emergency
services
• Equipment installation
• SCADA engineering
• Commissioning
• Arc flash studies
• Thermography services
• Transformer
maintenance
Power Equipment
• Buy, refurbishment
and resale of used
electrical equipment
• Sales and rentals of
power transformers
• Sale of medium
voltage electrical
switchgear
• Full fabrication shop/
paint line capabilities
Renewables
Spark’s Renewables business segment is one of the largest independent renewables operations and maintenance providers
in North America. Operating in many centres and remote locations in the U.S. and Canada, Spark’s Renewables business is
primarily focused on Wind, Solar, Storage and Electric Vehicle assets. Spark’s Renewables services include:
Solar
• 24/7 monitoring and
analytics from central
operating centre
• Fence to fence,
onsite operations and
maintenance to wide
range of solar sites
Wind
•
In-construction services
Battery Energy Storage
Systems (BESS)
Electrical Vehicle (EV)
• Construction
• Asset monitoring
• Operations and
maintenance
• Commissioning
• Engineering,
procurement, and
construction
• Operations and
maintenance
• Commissioning
• Operations and
maintenance
Sustainability Solutions
Through our Bullfrog brand, Spark is well positioned to deliver unique Sustainability Solutions to help its customers
adapt to the rapidly changing construct of the power grid. The Company has its roots in renewable and community
power and, through its Bullfrog Power subsidiary, is the de-facto leader in sustainability in Canada. As a result, the
Company has both the deep technical expertise and the key regulatory and government relationships required
to deliver on these new commercial models. Our Sustainability Solutions business segment offers our Technical
Services and current Sustainability Solutions customers the opportunity to build upon their own ESG mandates by
providing them access to Renewable Energy Credits (REC’s), Power Purchase Agreements (PPA’s) and a variety of
energy efficiency services.
19
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
F O R T H E Y E A R S E N D E D D E C E M B E R 3 1
2 0 2 1 & 2 0 2 0
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements for Spark Power Group Inc. were prepared by
management in accordance with International Financial Reporting Standards (IFRS). Management
acknowledges responsibility for the fair preparation and presentation of the consolidated financial statements,
including responsibility for significant accounting judgments and estimates and the choice of accounting
principles and methods that are appropriate to the Company’s circumstances. In the opinion of management,
the consolidated financial statements have been prepared within acceptable limits using accounting policies
consistent with International Financial Reporting Standards appropriate in the circumstances.
Management has established processes, which are in place to provide them sufficient knowledge to support
management representations that they have exercised reasonable diligence that (i) the consolidated financial
statements do not contain any untrue statement of material fact or omit to state a material fact required to be
stated or that is necessary to make a statement not misleading in light of the circumstances under which it is
made, as of the date of and for the periods presented by the consolidated financial statements and (ii) the
consolidated financial statements fairly present in all material respects the financial condition, financial
performance and cash flows of the Company, as of the date of and for the periods presented by the
consolidated financial statements.
The Board of Directors is responsible for reviewing and approving the consolidated financial statements
together with other financial information of the Company and for ensuring that management fulfills its financial
reporting responsibilities. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The
Audit Committee meets with management to review the financial reporting process and the consolidated
financial statements together with other financial information of the Company. The Audit Committee reports
its findings to the Board of Directors for its consideration in approving the consolidated financial statements
together with other financial information of the Company for issuance to the shareholders.
Management recognizes its responsibility for conducting the Company’s affairs in compliance with established
financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for
its activities.
(signed)
(signed)
Richard Jackson
President & Chief Executive Officer
Richard Perri
Executive Vice President & Chief Financial Officer
March 30, 2022
Oakville, Ontario
21
Tel: 416 865 0200
Fax: 416 865 0887
www.bdo.ca
BDO Canada LLP
222 Bay Street, Suite 2200
Toronto ON M5K 1H1 Canada
Independent Auditor’s Report
To the Shareholders of Spark Power Group Inc.
Opinion
We have audited the consolidated financial statements of Spark Power Group Inc. and its subsidiaries
(the “Company”), which comprise the consolidated statements of financial position as at December 31,
2021 and 2020, and the consolidated statements of comprehensive loss, changes in equity and cash flows
for the years then ended, and notes to the consolidated financial statements, including a summary of
significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Company as at December 31, 2021 and 2020, and its
consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the
Company in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 2 in the consolidated financial statements, which indicates that as at
December 31, 2021, the Company is not in compliance with the financial covenants in its credit facility.
These events or conditions, along with other matters as set forth in Note 2, indicate that a material
uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in
the context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. In addition to the matter described
in the Material Uncertainty Related to Going Concern section, we have determined the matter described
below to be the key audit matter to be communicated in our report.
Impairment of Long-Lived Assets
Description of the key audit matter
The Company has long-lived assets which includes property and equipment and intangible assets totalling
$62 million which are subject to impairment testing whenever events or changes in circumstances
indicate their carrying amounts may not be recoverable. Long-lived assets also include goodwill of $42
million that is required to be tested for impairment on an annual basis or more frequently if events or
changes in circumstances indicate their carrying amounts may not be recoverable. Based on the events
in the current economic environment including taking into account the possible duration and impact of
COVID-19, the Company concluded that impairment testing was required for all cash generating units.
The impairment testing conducted by management resulted in the recognition of a $4 million impairment
loss in the current period. Refer to notes 2, 3 and 10 to the consolidated financial statements.
1
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the
international BDO network of independent member firms.
22
This area was important to our audit due to the significance of the estimates involved in the
determination of the recoverable amount of each cash generating unit. The significant estimates
included discount rates, revenue growth rates and margin realizations.
How the key audit matter was addressed in the audit
Our audit approach involved the assistance of our internal valuation professionals. Our audit procedures
included, but were not limited to, the following:
Assessing discount rates used by management against discount rate ranges independently
developed from publicly available data sets, along with the consideration of comparable
company metrics.
Assessing management’s assumptions about revenue growth rate forecasts, expected margin
realization rates and terminal growth rates in light of historical results and projected future
economic and market conditions.
Challenging management’s assumptions and performing additional sensitivity and stress tests for
cash generating units where the impairment assessments were more sensitive to changes in
estimated inputs.
Reviewing the disclosures on the assumptions and the outcomes of the impairment testing and
the sensitivity analysis presented in the consolidated financial statements.
Other Information
Management is responsible for the other information. The other information comprises:
the information included in the Management Discussion and Analysis for the year ended
December 31, 2021 filed with the relevant Canadian Securities Commissions, and
the information, other than the consolidated financial statements and our auditor’s report
thereon, included in the 2021 Annual Report.
Our opinion on the consolidated financial statements does not cover the other information and we do
not and will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
We obtained the Management Discussion and Analysis prior to the date of this auditor’s report. If, based
on the work we have performed on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that fact in this auditor’s report. We
have nothing to report in this regard.
The 2021 Annual Report is expected to be made available to us after the date of this auditor’s report.
If, based on the work we will perform on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that fact to those charged with
governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
2
23
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with Canadian generally accepted auditing standards will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
3
24
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
The engagement partner on the audit resulting in this independent auditor’s report is Jeanny Gu.
BDO Canada LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
March 30, 2022
4
25
SPARK POWER GROUP INC.
Consolidated Statements of Financial Position
Presented in thousands of Canadian dollars
As at December 31
Assets
Current assets
Accounts receivable (Note 4)
HST receivable
Inventory (Note 6)
Contract asset (Note 4)
Current portion of lease receivable (Note 7)
Government grant receivable (Note 5)
Current derivative assets (Note 15)
Prepaid expenses and deposits
Non-current assets
Lease receivable (Note 7)
Long-term derivative assets (Note 15)
Property and equipment (Note 8)
Intangible assets (Note 9)
Goodwill (Note 10)
Liabilities and Shareholders' equity
Current liabilities
Bank indebtedness (Note 11)
Accounts payable and accrued liabilities
Current portion of long-term debt (Note 12)
Current portion of promissory notes (Note 13)
Current portion of lease liability (Note 14)
Current derivative liabilities (Note 15)
Income taxes payable
Contract liability (Note 4)
Non-current liabilities
Promissory notes (Note 13)
Lease liability (Note 14)
Deferred tax liability (Note 16)
Shareholders' equity
Share capital (Note 17)
Contributed surplus
Accumulated other comprehensive loss
Deficit
See accompanying notes to the consolidated financial statements.
5
26
2021
2020
$
63,510
1,951
8,167
25,826
-
-
1,769
7,161
108,384
$
51,443
1,586
7,703
28,809
149
379
-
4,889
94,958
-
2,150
33,272
29,116
37,963
210,885
$
230
-
28,253
36,731
41,963
202,135
$
$
28,142
54,730
61,962
10,738
6,643
1,203
1,656
7,182
172,256
$
25,444
37,758
66,572
3,750
5,800
-
1,849
3,723
144,896
-
13,984
1,096
187,336
6,988
11,485
1,412
164,781
139,472
1,606
(34)
(117,495)
23,549
210,885
$
132,946
1,017
(407)
(96,202)
37,354
202,135
$
SPARK POWER GROUP INC.
Consolidated Statements of Comprehensive Loss
Presented in thousands of Canadian dollars, except share and per share amounts
For years ended December 31
Revenue (Notes 4 and 21)
Cost of sales (Notes 5 and 21)
Gross profit
Expenses
Selling, general and administrative (Notes 5 and 21)
Provison for expected credit loss (Notes 4 and 21)
Change in fair value of derivative instruments (Note 15 and 21)
Reorganization costs (Notes 21 and 29)
Realized gain on settlement of derivative instruments (Notes 15 and 21)
Foreign exchange (gain) loss (Note 21)
Income (loss) from operations
Other expenses
Finance expense
Transaction costs (Note 28)
Discontinued operations (Note 30)
Earn-out (Note 20)
Impairment Loss (Note 10)
Loss before income taxes
Current income tax expense
Deferred income tax recovery
Income taxes recovery (expense)
Net loss
Cumulative translation adjustment
Comprehensive loss
Loss per share attributable to equity holders
Basic (Note 24)
Diluted (Note 24)
See accompanying notes to the consolidated financial statements.
2021
2020
$
255,815
203,564
$
228,153
162,417
52,251
65,736
59,337
630
(2,716)
3,492
(1,100)
981
(8,373)
(7,126)
(2,141)
(475)
-
(4,000)
(13,742)
(22,115)
506
316
822
(21,293)
373
53,969
1,458
-
3,178
-
(305)
7,436
(6,762)
-
-
(1,900)
-
(8,662)
(1,226)
(3,047)
2,594
(453)
(1,679)
(453)
$
(20,920)
$
(2,132)
$
$
(0.38)
(0.38)
$
$
(0.03)
(0.03)
6
27
SPARK POWER GROUP INC.
Consolidated Statements of Changes in Equity
Presented in thousands of Canadian dollars, except share and per share amounts
Common shares
Number
Amount
Warrants
Amount
Contributed
surplus
Accumulated
other
comprehensive
loss
Deficit
Shareholders'
equity
Balance at December 31, 2019
53,649,648
$
130,284
$
2,662
$
591
$
46
$
(94,523)
$
39,060
Net loss
Stock-based compensation (Note 17)
Cumulative translation adjustment
-
-
-
-
-
-
-
-
-
-
426
-
-
-
(453)
(1,679)
-
-
(1,679)
426
(453)
Balance at December 31, 2020
53,649,648
$
130,284
$
2,662
$
1,017
$
(407)
$
(96,202)
$
37,354
Net loss
Exercise of options (Note 17)
Forfeiture of options (Note 17)
Conversion of restricted share units (Note 17)
Forfeiture of restricted share units (Note 17)
Stock-based compensation (Note 17)
Issuance of common shares (Note 17)
Cumulative translation adjustment
-
411,282
-
219,277
-
-
2,654,028
-
-
782
-
144
-
-
5,600
-
-
-
-
-
-
-
-
-
-
(206)
(87)
(129)
(61)
1,072
-
-
-
-
-
-
-
-
-
373
(21,293)
(21,293)
-
-
-
-
-
-
-
576
(87)
15
(61)
1,072
5,600
373
Balance at December 31, 2021
56,934,235
$
136,810
$
2,662
$
1,606
$
(34)
$
(117,495)
$
23,549
See accompanying notes to the consolidated financial statements.
7
28
SPARK POWER GROUP INC.
Consolidated Statements of Cash Flows
Presented in thousands of Canadian dollars
Cash flows from operating activities
Net loss for the year
Adjustments for non-cash items
Amortization and depreciation
Amortization of deferred financing fees
Provision for expected credit losses (Note 4)
Unrealized foreign exchange (gain) loss
Stock-based compensation (Note 17)
Forfeited options and restricted share units (Note 17)
Deferred income taxes (Note 16)
Change in fair value of derivative instruments (Note 15)
Loss on sale of fixed assets
Gain on settlement of promissory note
Earn-out
Impairment loss (Note 10)
Changes in non-cash working capital balances
Accounts receivable (Note 4)
HST receivable
Inventory
Contract asset
Lease receivable (Note 7)
Prepaid expenses and deposits
Government grant receivable (Note 5)
Accounts payable and accrued liabilities
Income taxes
Contract liabilities (Note 5)
Cash flows from investing activities
Purchase of property and equipment (Note 8)
Sale of short-term investments
Cash flows from financing activities
Issuance of share capital (Note 17)
Conversion of restricted share units (Note 17)
Exercise of warrants and options (Note 17)
Proceeds from long-term debt (Note 12)
Repayment of debt (Note 11 and 12)
Repayment of promissory notes (Note 13)
Repayment of lease liability (Note 14)
Increase in deferred financing fees
Net change in bank indebtedness during the year
Bank indebtedness, beginning of year
Bank indebtedness, end of year
Supplementary cash flow information
Interest paid
Cash taxes paid
See accompanying notes to the consolidated financial statements.
8
29
2021
2020
$
(21,293)
$
(1,679)
19,421
184
(630)
1,559
1,072
(148)
(316)
(2,716)
-
-
-
4,000
(11,437)
(365)
(464)
2,983
379
(2,272)
379
15,472
(193)
3,459
9,074
(5,599)
-
(5,599)
5,600
15
576
5,260
(9,508)
-
(7,569)
(547)
(6,173)
(2,698)
(25,444)
20,206
124
1,458
(453)
426
-
(2,594)
-
(147)
(197)
1,900
-
(4,025)
(944)
(802)
(7,051)
(379)
(1,311)
(379)
3,477
660
(345)
7,945
(3,916)
207
(3,709)
-
-
-
9,907
(6,217)
(5,100)
(6,224)
(449)
(8,083)
(3,847)
(21,597)
$
(28,142)
$
(25,444)
$
$
6,359
267
$
$
6,215
2,705
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
1. BUSINESS DESCRIPTION
Spark Power Group Inc. (“Spark” or the “Company”) is incorporated under the laws of Ontario. The Company
provides electrical power services and solutions to North American industrial, commercial, institutional, renewable,
and agricultural customers, as well as utility markets including municipalities, universities, schools, and hospitals.
The Company’s head office, principal address, and registered office is located at 1315 North Service Road E,
Suite 300, Oakville, Ontario L6H 1A7.
2. BASIS OF PREPARATION
Statement of Compliance
These consolidated financial statements (“Financial Statements”) of the Company and its subsidiaries have been
prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”), effective for the reporting period ended December 31, 2021.
The Board of Directors approved these consolidated financial statements on March 29, 2022.
Going Concern
In the preparation of Financial Statements, management is required to identify events or conditions that could
have a significant impact on the Company’s ability to continue as a going concern. When the Company identifies
these conditions or events, the Company considers whether its plans that are intended to mitigate those relevant
conditions or events will alleviate the potential significant doubt.
As described in Note 12, Long-term debt, the Company was not in compliance with the financial covenants in its
credit facility. As a result the Company’s non-revolving term loan has been classified as current debt at December
31, 2021. The Company is actively working with its lender to amend the current credit facility, including a waiver
of this covenant violation.
The Company is required to comply with certain covenants, terms and conditions under the credit facilities. As a
result management has determined that it would be prudent to disclose that there is a material uncertainty related
to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern and,
therefore, that it may be unable to realize its assets and discharge its liabilities in the normal course of business.
These financial statements do not reflect the adjustments to the carrying amounts of assets and liabilities, reported
amounts of revenue and expenses, and statement of financial position classifications used that would be
necessary were the going concern assumption deemed to be inappropriate. Such adjustments could be material
to the overall consolidated financial statements.
Furthermore, the Company is actively engaged in discussions with its lender to explore alternatives to re-finance
the above noted non-revolving term loan and maintain the Company’s current borrowing facilities to support the
execution of its growth strategy. The Company raised new capital subsequent to December 31, 2021 as part of a
Rights Offering which closed January 31, 2022. See Note 32 – Subsequent Events for further detail.
Basis of Measurement
These Financial Statements have been prepared on a historical cost basis, except for certain financial instruments
and short-term investments that are carried at fair value with changes in fair value recognized in comprehensive
(loss) income, as described in the accounting policies below.
Functional and Presentation Currency
These Financial Statements are presented in Canadian dollars (“CDN$”) which is also the functional currency of
the Company and its subsidiaries except for our US subsidiaries; Spark Power LLC, Northwind Solutions Group
(USA) Inc., Bullfrog Solutions USA Inc., One Wind Services (USA) Inc., Spark Power (Midwest USA) Corp., Spark
Power (Northeast USA) Corp., Spark Power (West USA) Corp., Spark Power (Southeast USA) Corp., Spark
Power (Southwest USA) Corp., and Spark Power Services (USA) Corp., whose functional currency is US dollars
(“US”).
9
30
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
2. BASIS OF PREPARATION (Continued)
Basis of Consolidation
These Financial Statements include the accounts of Spark and its subsidiaries. The Financial Statements present
the results of the Company and its subsidiaries as if they formed a single entity. All inter-company transactions
and balances between the entities have been eliminated.
The Financial Statements incorporate the results of business combinations using the acquisition method. In the
Consolidated Statement of Financial Position, the acquiree’s identifiable assets, liabilities and contingent liabilities
are initially recognized at their fair values as at the acquisition date. During the year, the Company sold all the
shares of its 100% owned subsidiary Orbis SPA.
Subsidiary
Ownership %
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1625704 Alberta Inc.
2552095 Ontario Inc.
3-Phase Electrical Ltd.
Bullfrog Power Inc.
Canadian REC Wholesale Inc.
Less Emissions Inc.
Lizco Sales & Rentals Group Inc.
New Electric Enterprises Inc.
New Electric Fresno, LLC
Northwind Solutions Corp.
Northwind Solutions Group Inc.
Northwind Solutions Group (USA) Inc.
One Wind Services Inc.
One Wind Services (USA) Inc.
Orbis Engineering Field Services Ltd.
Sibro Technologies Ltd.
Spark Power Corp.
Spark Power Group Inc.
Spark Power High Voltage Services Inc.
Spark Power Services Corp.
Spark Power Solutions Inc.
Spark Power Solutions Ltd.
Spark Solar Management Inc.
Spark Solar Services Corp.
Spark Power (USA) Corp.
Spark Power (Midwest USA) Corp.
Spark Power (Northeast USA) Corp.
Spark Power (West USA) Corp.
Spark Power (Southeast USA) Corp.
Spark Power (Southwest USA) Corp.
10
31
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
2. BASIS OF PREPARATION (Continued)
Significant Accounting Judgments and Estimates
The preparation of the Financial Statements in conformity with IFRS requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the Financial Statements and reported amounts of revenues and expenses during the
reporting period. Management is required to apply judgment and estimates in recognizing revenue, determination
of appropriate provisions, including expected credit losses, useful lives of assets, valuation of equity transactions,
valuation of business combinations, discount rate of lease liabilities, valuation of derivative financial instruments,
impairment of property and equipment and intangible assets, and impairment of goodwill. By their nature, these
judgments and estimates are subject to measurement uncertainty and are reviewed periodically and adjustments,
if necessary, are made in the period in which they are identified. Actual results could differ from those estimates.
Revenue recognition – The most significant judgments and estimates in recognizing revenue relate to the long-
term construction and management contracts, as they are long-term in nature and contain consideration that is
variable based on a number of uncertain factors, such as change orders, reserves set up for additional
costs/overruns, etc. Also, the Company estimates progress towards completion and gross margins to be earned
at the end of these construction contracts, where a change in these estimates may have a material impact on the
overall revenue recognized for the period.
Construction contracts - The Company determines the extent to which the estimate of variable consideration is
constrained (and therefore excluded from the measurement of revenue) by considering historical trends and the
lowest levels of annual incentive fees earned in the past.
Management contracts - Key assumptions made in determining the estimate of the transaction price related to
management contracts include:
• Cash flow projections for the per-project and per-kilowatt hour capacity are uniform in each year going
forward; and
•
The number of licensees will not materially change over the remaining contract term.
Expected credit losses – Expected credit losses associated with accounts receivable and contract assets require
management to assess certain forward looking and macroeconomic factors to determine whether there is a
significant increase in credit risk as well as the expected provision on the balance outstanding as at year-end.
(Notes 4 and 21)
Onerous contracts – A contract is considered onerous when the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits expected to be derived from the contract. The determination of
when to record a provision for an onerous contract is a complex process that involves management judgment
about outcomes of future events and estimates concerning the nature, extent and timing of expected future cash
flows and discount rates related to the contract.
Useful lives of assets – Significant estimates in connection with these Financial Statements include the
determination of the useful lives of property and equipment and intangible assets based on their expected
depreciation rates. (Notes 8 and 9)
Lease liability – The lease liabilities associated with all property, equipment and vehicle leases are measured at
the present value of expected lease payments and discounted using the interest rate implicit in the lease, unless
this is not readily determinable, in which case the Company’s incremental borrowing rate on commencement of
the lease is used. The Company determines its incremental borrowing rate as the rate of interest it would have to
pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar
value to the right-of-use asset in a similar economic environment. Additionally, management makes certain
assumptions regarding the extension and termination options and termination value available within its lease
arrangements to determine the overall lease term. This requires significant estimates and assumptions from
management that may have an impact on the Financial Statements. (Note 14)
Valuation of derivative financial instruments – The estimated fair values of financial assets and liabilities are
subject to measurement uncertainty due to their exposure to credit, liquidity and market risks. Furthermore, the
Company may use derivative instruments, including power purchase arrangements, to manage commodity price,
11
32
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
2. BASIS OF PREPARATION (Continued)
foreign currency and interest rate exposures. The fair value of these derivatives is determined using valuation
models which require assumptions concerning the amount and timing of future cash flows, and discount rates.
Management’s assumptions rely on external observable market data including quoted forward commodity prices
and volatility, interest rate yield curves and foreign exchange rates. The resulting fair value estimates may not be
indicative of the amounts realized or settled in current market transactions and, as such, are subject to
measurement uncertainty. (Notes 15)
Impairment of property and equipment and intangible assets – At the end of each reporting period, the Company
reviews the carrying amounts of property and equipment and intangibles to determine whether there is any
indication of impairment. If any such indication exists, the Company estimates the recoverable amount of the
asset in order to determine the extent of the impairment loss, if any. The Company generally assesses impairment
at the level of cash-generating units (“CGU”), which are the smallest identifiable groups of assets that generate
cash inflows that are largely independent of cash inflows from other assets. Impairment is assessed by comparing
the CGU’s carrying value with its net recoverable amount. The preparation of future cash flows requires
management to make estimates and assumptions with respect to expected revenues and expenses, which are
subject to change.
Impairment of goodwill – The annual test of impairment of goodwill is completed based on management’s
estimates of future performance of the related CGU based on past history and economic trends, plus estimates
of the weighted average cost of capital. When circumstances warrant, impairment testing will be completed on a
quarterly basis. (Note 10)
For the purpose of impairment testing, goodwill that is allocated to CGUs is compared to the net recoverable value
of the CGU. The recoverable amount of each CGU was determined based on value-in-use calculations calculated
using a discounted cash flow model based on a reasonable forecast of operations for each CGU.
Various assumptions are used in forecasting the business the most significant of which include:
• Discount rates – The discount rates reflect appropriate adjustments relating to market risk and risk
factors specific to the business in generally.
• Revenue growth rates – Revenue growth rates assumed consider historical trends in the business unit,
the general economic environment and managements views on business risks and opportunities that
may exist that will impact the relevant CGUs.
• Gross margin realizations – Gross margin realizations assumed for each CGU considers historical
trends, recent trends impacted by current economic environment and business mix within the CGUs.
Outside factors considered include the state of the general economy in the region and the impact of
competitive forces on pricing and levels of investment in our customers’ businesses.
The estimate of the recoverable amount for the CGUs is most sensitive to the assumptions noted above. Changes
in any of these key inputs/assumptions could result in a significant change to the determination of goodwill
impairment.
Liquidity Risk – The Company makes estimates and assumptions concerning the future, including its projected
compliance with debt covenants and potential for the disclosure of going concern indicators. Estimates and
judgments are continually evaluated and are based on historical experience and other factors, including
expectations on future events that are believed to be reasonable under the circumstances. Significant judgements
and estimates surrounding future revenue growth rate assumptions and EBITDA realizations for each of its
business units have the greatest impact on the potential for introducing additional liquidity risk as a result of debt
covenant compliance requirements. The resulting accounting estimates and judgements may vary from actual
results and could result in a risk of causing a change in presentation and/or disclosure in the future.
12
33
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
3. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company derives revenue from the provision of services and sale of equipment, as segregated in primarily
five revenue streams:
• Service contracts for the inspection, testing, repair and maintenance of electrical generating equipment.
Contracts are typically short-term in nature (ie., less than 3 weeks). Payment is due upon completion of the
contract.
• Construction contracts for the development, construction and procurement of electrical generating equipment.
Contracts may last for several months to more than one year. Payment is due in milestones as the contract is
completed.
• Contracts for the management of client electrical generating equipment, including the procurement of
maintenance services, recordkeeping and day-to-day operations. Contracts are long term in nature and are
typically for the period of time equal to the energy contract held by the client. Payment is due based on a fixed
amount annually per-site monitored plus, an incentive fee as performance metrics are achieved on an annual
basis.
• Equipment sales contracts for the fabrication of custom electrical equipment used in low, medium and high
voltage applications. Contracts may last from several days to several months depending on material lead
times. Advance payment is due on larger contracts based on completed milestones, and on smaller contracts
when the product is shipped.
• Retirement of green energy certificates (including green electricity certificates, green natural gas certificates
and green fuel certificates) for green energy certificate customers. Contracts may last for several months to
more than one year, where payments are due at the end of each contracted month.
The Company offers limited time warranties on the quality of its work being free from material defects. In
accordance with IFRS 15, such warranties are not accounted for as separate performance obligations and hence
no revenue is allocated to them. Instead, a provision is made for the cost of satisfying these “assurance-type”
warranties in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets.
13
34
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Applying the five-step model required by IFRS 15, Revenue from Contracts with Customers, revenue is recognized as follows for these contracts:
Green Energy
Certificates
The contractual arrangement
executed with the client,
specifying the timing, scope
and compensation.
Single performance obligation
to retire green energy
certificates against usage by
green energy certificate
customer.
Consideration receivable is
based on a set fee per
megawatt/kilojoule of energy
contracted by the customer.
Step in
Model
Identify the
contract
Identify
distinct
performance
obligations
Estimate
transaction
price
Service
Construction
Management
Equipment Sales
The contractual arrangement
executed with the client,
specifying the timing, scope
and compensation.
Single performance obligation
to provide services with
combined inputs from
applicable labour and
materials.
Fixed fee established in
contract. Change orders due to
changes in scope or
unexpected costs are
accounted for as contract
modifications prospectively.
The contractual arrangement
executed with the client,
specifying the timing, scope
and compensation.
Single performance obligation
to provide construction
services with combined inputs
from applicable labour and
materials.
Fixed fee established in
contract. Change orders due to
changes in scope or
unexpected costs are
accounted for as contract
modifications prospectively.
The contractual arrangement
executed with the client,
specifying the timing, scope
and compensation.
Contract may include multiple
performance obligations.
Contract price is the
transaction price.
The contractual arrangement
executed with the client,
specifying the timing, scope
and compensation.
Single performance obligation
to provide management
services for customer-owned
photovoltaic systems.
Consideration receivable by
the Company is variable and is
based on a set fee per site that
is managed, plus a
management incentive fee
based on a percentage of cash
flows above certain thresholds.
As the consideration is
variable, an estimate is made
based on the cash flow
forecasts, which incorporate
estimates of sites over the
contract term, the amount of
electricity to be produced and
the overall economic
performance of the sites. The
estimation is subject to a
constraint where only the
amount up to which it is highly
unlikely that a material reversal
of revenue will occur in the
future is included in the
transaction price. This estimate
is revised at each reporting
period, with the cumulative
effect of the change in estimate
being recorded in revenue.
14
35
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Step in
Model
Allocate
transaction
price to
performance
obligations
Recognize
revenue as
performance
obligations
are satisfied
Service
Construction
Management
Equipment Sales
The transaction price is clearly
identified in the contract and is
allocated to each performance
obligation linked to customer
commitments for each
obligation under goods
arrangement.
Revenue is recognized at a
point in time once control
passes to the customer (i.e.
when products are delivered).
Total revenue is allocated to
the single performance
obligation.
Total revenue is allocated to
the single performance
obligation.
Total revenue is allocated to
the single performance
obligation.
Revenue is recognized over
time, as the work performed
enhances assets controlled by
the customer (e.g. electrical
systems on the customers’
premises). Progress towards
completion is based on costs
incurred as a percentage of
total expected costs to
complete the project.
Revenue is recognized over
time, as the work performed
enhances assets controlled by
the customer (e.g. electrical
systems on the customers’
premises). Progress towards
completion is based on costs
incurred as a percentage of
total expected costs to
complete the project.
Consideration received in
advance of the progress made
to satisfy the performance
obligation is recognized as a
contract liability. Further,
progress made towards the
satisfaction of performance
obligation at a period end in
advance of milestone achieved
for billing purposes is
recognized as a contract asset.
Consideration received in
advance of the progress made
to satisfy the performance
obligation is recognized as a
contract liability. Further,
progress made towards the
satisfaction of performance
obligation at a period end in
advance of milestone achieved
for billing purposes is
recognized as a contract asset.
Revenue is recognized over
time based on an estimate of
total sites monitored as a
percentage of total site
measurements required over
the term of the contract, as the
number of sites under
management is used as the
base for estimating the
progress in satisfying the
overall performance obligation.
Contract asset is recognized
when there are discrepancies
between the timing of payment
and recognition of revenue, as
the Company is only
contractually eligible to receive
payment for its services upon
meeting certain financial
metrics in the project.
Green Energy
Certificates
Total revenue is allocated to
the single performance
obligation.
Revenue is recognized over
time throughout the life of the
contract, as the customer is
able to simultaneously
consume benefits as the
Company performs. Contract
asset or liability is recognized
when the billing cycle does not
coincide with the period end.
Contract liabilities relate to pre-payments received for on-going projects for which the related performance obligation is expected to be completed in the next 12 months. Contract
assets related to work in progress and unbilled accounts receivable for which the related performance obligation has been completed, and amounts remain to be billed as at the
end of the reporting period.
15
36
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill
Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of
the identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given,
liabilities assumed, and equity instruments issued, plus the amount of any non-controlling interests in the acquiree
plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree.
Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent
consideration classified as a financial liability, remeasured subsequently through profit or loss. Direct costs of
acquisitions are recognized immediately as an expense. Goodwill is capitalized as an asset with any impairment
in carrying value being charged to the Consolidated Statement of Comprehensive (Loss) Income. Where the fair
value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the
excess representing the bargain purchase is credited in full to the Consolidated Statement of Comprehensive
(Loss) Income on the acquisition. The Company has had no bargain purchase on its acquisitions.
Intangible Assets
The Company has certain externally acquired intangible assets through business combinations that are initially
recognized at their fair values, using appropriate valuation techniques, and subsequently amortized on a straight-
line basis over their useful economic lives when they have a finite useful life.
Intangible assets are recognized on business combinations if they are separable from the acquired entity or give
rise to other contractual/legal rights.
Management estimates the useful life of its finite life intangible assets as follows:
Customer contracts
Customer relationships
Non-competition agreements
Sales backlog
Tradename
-
-
-
-
-
1.5 years
10 years
5 years
4 years
3 years
Intangible assets determined to have an indefinite useful life are recorded at cost and not subject to amortization.
The Company does not have significant indefinite life intangible assets.
Property and Equipment
Property and equipment are recorded at cost net of accumulated depreciation and write-downs for impairment, if
any. Depreciation is calculated on a declining balance, except for the depreciation of our leased assets which
are calculated on a declining basis over their estimated useful lives, as follows:
Computer hardware
Computer software
Equipment
Furniture and fixtures
Right of use assets and leaseholds
Vehicles
-
-
-
-
-
-
30% - 100%
55%
20% - 30%
20%
over the lease term
20% - 30%
Impairment of Non-Financial Assets
Impairment tests on goodwill and indefinite life intangible assets are undertaken annually at the financial year end.
Other non-financial assets are subject to the impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its
recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down
accordingly.
Recent events have given rise to significant judgement and estimation uncertainty, such as project delays and
government restrictions. As such, impairment tests on goodwill are being performed on a quarterly basis. See
Note 2 – Impairment of Goodwill.
16
37
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried
out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its
CGU’s. Goodwill is allocated on initial recognition to each of the Company’s CGUs that are expected to benefit
from a business combination that gives rise to the goodwill.
Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognized
in Other Comprehensive (Loss) Income. The Company evaluates impairment losses for potential reversals on
assets other than goodwill when management has made the judgement that events or circumstances warrant
such consideration. An impairment loss recognized for goodwill is not reversed.
Foreign Currency
Foreign currency monetary assets and liabilities are translated into the Company’s functional currency using the
closing rate at the end of each reporting period. Non-monetary assets and liabilities are translated at the rates on
the date the fair value was determined or at historical cost using the rate at the date of the transaction. Revenues
and expenses arising from foreign currency denominated transactions are translated at the average exchange
rates in effect during the month of the transaction. Translation gains and losses are included in the Consolidated
Statement of Comprehensive (Loss) Income.
Financial Instruments
Financial Assets
All financial assets are initially recorded at fair value and designated upon inception into one of the following three
categories: amortized cost, fair value through profit or loss, or fair value through other comprehensive (loss)
income. The Company does not have any financial instruments classified as fair value through other
comprehensive (loss) income.
Amortized cost
These assets arise principally from the provision of goods and services to customers, but also incorporate other
types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and
the contractual cash flows are solely the payments of principal and interest. They are initially recognized at fair
value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried
at amortized cost using the effective interest rate method, less provision for impairment.
Impairment provisions for accounts receivables and contract assets are recognized based on the simplified
approach within IFRS 9, Financial Instruments, using the lifetime expected credit losses. During the process of
reviewing accounts receivable and contract assets for impairment, the probability of the non-payment of the
accounts receivable or contract asset is assessed. This probability is then multiplied by the amount of the
expected loss arising from default to determine the lifetime expected credit loss for accounts receivables and
contract assets. For accounts receivable and contract assets, which are reported net, such provisions are
recorded in a separate provision account with the loss being recognized within operating expenses in the
Consolidated Statement of Comprehensive (Loss) Income. On confirmation that a certain accounts receivables
and contract assets will not be collectable, the gross carrying value of the asset is written off against the associated
provision.
The Company’s financial assets measured at amortized cost comprise of accounts receivable, HST receivable,
government grants receivable, and contract assets.
Fair value through profit or loss
These assets are carried in the Consolidated Statement of Financial Position at their fair value with changes in
fair value recognized in the Consolidated Statement of Comprehensive (Loss) Income Transaction costs
associated with financial instruments measured at fair value through profit or loss are expensed as incurred.
17
38
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company’s financial instruments classified at fair value through profit or loss include derivative financial
instruments such as interest rate swaps, power purchase arrangements and hedge arrangements.
The Company entered into a power purchase agreement for the purchase and sale of renewable energy and
environmental attributes for a period of seven years with an expected start date in the second quarter of 2021.
The Company entered into a Hedge arrangement (“Hedge”) to manage the fluctuations related to the power
purchase agreement entered into (Note 15). Under these agreements, the Company is responsible for any excess
risk in the current market. While this agreement economically hedges the risk of changes in cash flows due to
fluctuations in power rates, hedge accounting has not been applied for these instruments. The fair value of the
Hedge is based on the current market value of similar contracts with similar remaining durations as if the contract
had been entered into on December 31, 2021.
Financial Liabilities
The Company classifies its financial liabilities into one of two categories, depending on the purpose for which the
liability was acquired.
Fair value through profit or loss
This category comprises of: contingent consideration for the earn-out related to the acquisition of One Wind
Services Inc. and One Wind Services (US) Inc; derivative liabilities related to the Power Purchase Agreement.
Other financial liabilities
Other financial liabilities include bank indebtedness, accounts payable and accrued liabilities, contract liabilities,
long-term debt, promissory notes, and lease liabilities, which are initially recognized at fair value net of any
transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are
subsequently measured at amortized cost using the effective interest rate method, which ensures that any interest
expense over the period to repayment is at a constant rate on the balance of the liability carried in the Consolidated
Statement of Financial Position.
Share-Based Payment Transactions
Employees, directors, and service providers of the Company may receive a portion of their compensation in the
form of share-based payment transactions, whereby services are rendered as consideration for equity instruments
(“equity-settled transactions”).
In situations where equity instruments are issued to non-employees and the fair value of goods or services
received by the entity as consideration cannot be estimated reliably, they are measured at fair value of the equity
instruments granted. The costs of equity settled transactions are measured by reference to the fair value of the
equity instrument at the date on which they are granted.
The costs of equity settled transactions are recognized, together with a corresponding increase in equity, over the
period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant
party becomes fully entitled to the award (“the vesting date”). The cumulative expense is recognized for equity-
settled transactions at each reporting date until the vesting date and reflects the Company’s best estimate of the
number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents
the movement in cumulative expense recognized as at the beginning and end of that period and the corresponding
amount is represented in contributed surplus.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional
upon a market condition, which are treated as vesting irrespective of whether or not the market condition is
satisfied provided that all other performance and/or service conditions are satisfied.
Where the terms of an equity settled award are modified, the minimum expense recognized is the expense as if
the terms had not been modified. An additional expense is recognized for any modification which increases the
total fair value of the share-based payment arrangement or is otherwise beneficial to the employee as measured
at the date of modification.
The dilutive effect of outstanding options and warrants is reflected as additional dilution in the computation of
earnings per share. (Note 24)
18
39
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Leases
All leases are accounted for by recognizing a right-of-use asset in property and equipment and a lease liability
except for leases of low value assets and leases with a duration of 12 months or less.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease
term, with the discount rate determined by reference to the rate inherent in the lease unless this is not readily
determinable, in which case the Company’s incremental borrowing rate on commencement of the lease is used.
The Company determines its incremental borrowing rate as the rate of interest it would have to pay to borrow over
a similar term, and with similar security, the funds necessary to obtain an asset of a similar value to the right-of-
use asset in a similar economic environment. Variable lease payments are only included in the measurement of
the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability
assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments
are expensed in the period to which they relate. Further, lease terms are based on assumptions regarding
extension terms that allow for operational flexibility and favorable future market conditions.
On initial recognition, the carrying value of the lease liability also includes:
•
•
•
amounts expected to be payable under any residual value guarantee;
the exercise price of any purchase option granted in favour of the Company if it is reasonably certain to
exercise that option;
any penalties payable for terminating the leases, if the term of the lease has been estimated on the basis
of the termination option being exercised.
Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives
received, and increased for:
•
•
•
lease payments made at or before commencement of the lease;
initial direct costs incurred; and
the amount of any provision recognized where the Company is contractually required to dismantle,
remove or restore the leased asset.
Subsequent to initial measurement, lease liabilities increase as a result of interest at a constant rate on the
balance outstanding and are reduced for lease payments made. Right-of-use assets are amortized on a straight-
line basis over the remaining term of the lease or over the remaining economic life of the asset, whichever is
shorter.
When the Company revises its estimate of the term of any lease, it adjusts the carrying amount of the lease liability
to reflect the payments to make over the revised term, which are discounted at the same discount rate that was
applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable
element of future lease payments dependent on a rate or index is revised. In both cases, an equivalent adjustment
is made to the carrying value of the right-of-use assets, with the revised carrying amount being amortized over
the remaining lease term.
For contracts that both convey a right to the Company to use an identified asset and require services to be
provided to the Company by the lessor, the Company has elected to account for the entire contract as a lease.
That is, the Company does not allocate any amount of the contractual payment to, and account separately for,
any services provided by the supplier as part of the lease contract.
Income Taxes
Income tax expense represents the sum of current income taxes and deferred income taxes. Current and deferred
taxes are recognized in profit and loss, except to the extent that it relates to items recognized in other
comprehensive (loss) income or directly in equity. Under these circumstances, the taxes are recognized in other
comprehensive (loss) income or directly in equity.
19
40
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Current income taxes
Current income tax assets and liabilities for the current and prior years are measured at the amount expected to
be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute current income
tax assets and liabilities are measured at tax rates which have been enacted or substantively enacted at the
reporting date. Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to
set off the amounts, and the Company intends to settle on a net basis, or to realize the asset and settle the liability
simultaneously.
Deferred income taxes
Deferred income taxes are provided using the asset and liability method applied to temporary differences at the
date of the Consolidated Statement of Financial Position between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, except:
• Where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or
liability in a transaction that is not a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss; and
•
In respect of taxable temporary differences associated with investments in subsidiaries, associates and
interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled
and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognized for all deductible temporary differences, and carry forward of unused
tax losses, to the extent that it is probable that taxable profit will be available against which the deductible
temporary differences and the carry forward of unused tax losses can be utilized except:
• Where the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable profit or loss; and
•
In respect of deductible temporary differences associated with investments in subsidiaries, associates
and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is
probable that the temporary differences will reverse in the foreseeable future and taxable profit will be
available against which the temporary differences can be utilized.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent
that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income
tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each reporting date and are
recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to
be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year
when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or
substantively enacted at the date of the Consolidated Statement of Financial Position.
Deferred income tax assets and deferred income tax liabilities are offset if, a legally enforceable right exists to set
off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes
levied by the same taxation authority on either the same taxable entity or different taxable entities which intend to
either settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities
simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected
to be settled or recovered.
20
41
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Inventories are initially recognized at cost (with the exception of inventories acquired as part of a business
combination which are initially recognized at fair market value), and subsequently at the lower of cost and net
realizable value. Cost is determined using the first-in, first-out method. Costs of inventories of items that are
segregated for specific projects are assigned by using specific identification of their individual costs. Inventory
includes all costs to purchase, convert, and bring the inventory to its present location and condition. Net realizable
value is the estimated selling price in the ordinary course of business less the estimated costs of completion and
the estimated costs necessary to make the sale.
Provisions
A provision is recognized when the Company has a present legal or constructive obligation as a result of a past
event, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount
of the obligation can be reliably estimated. If the effect is material, provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money
and, where appropriate, the risks specific to the liability.
A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from
a contract are lower than the unavoidable cost of meeting its obligations under the contract.
Related Party Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making financial and operating decisions. Parties are also
considered to be related if they are subject to common control or common significant influence. Related parties
may be individuals or corporate entities. A transaction is considered to be a related party transaction when there
is a transfer of resources or obligations between related parties.
4. ACCOUNTS RECEIVABLE, CONTRACT ASSET AND REVENUE
Trade
Less: Provision for expected credit losses
Contract asset
Additions during the period
Amount recognized during the period
Contract liability
Additions during the period
Amount recognized during the period
$
$
$
$
$
$
$
$
$
$
$
$
2021
65,661
(2,151)
63,510
2021
28,809
43,833
(46,816)
25,826
2021
3,723
129,419
(125,960)
7,182
2020
53,162
(1,719)
51,443
2020
21,758
36,016
(28,965)
28,809
2020
4,068
90,096
(90,441)
3,723
The provision for expected credit losses was determined based on historical loss rates and payment behavior
from customers by major aging category, updated for estimates of forward-looking factors that may differ from
past experiences such as credit quality and industry factors. These updated loss rates were applied to aging
categories to determine the expected credit losses on accounts receivable and contract assets using the simplified
approach.
21
42
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
4. ACCOUNTS RECEIVABLE, CONTRACT ASSET AND REVENUE (Continued)
The balance of contract asset as at December 31, 2021 is current and has no provision recorded.
Summary of provision by aging category:
2021
Balance
Current
31-90 Days
Past Due
>90 Days
Past Due
Total
$
49,735
$
12,527
$
3,399
$
65,661
Provision for expected credit losses
238
855
1,058
2,151
$
49,497
$
11,672
$
2,341
$
63,510
2020 (Note 33)
Current
31-90 Days
Past Due
>90 Days
Past Due
Total
Balance
$
41,173
$
7,130
$
4,859
$
53,162
Provision for expected credit losses
1,348
184
187
1,719
$
39,825
$
6,946
$
4,672
$
51,443
The Company determines there to be a significant increase in credit risk when balances are outstanding for more
than 60 days past the customers' contractual payment terms.
Management determines whether there is any objective evidence of impairment based on indications that a debtor
or a group of debtors are experiencing significant financial difficulty, delinquency in payments, probability that they
will enter bankruptcy or any other financial reorganization.
Summary of movements in provision:
Opening balance
Increase during the period
Amounts written off during the period
Ending balance
Revenue Disaggregation by Stream:
$
2021
(1,719)
(630)
198
$
2020
(261)
(1,463)
5
$
(2,151)
$
(1,719)
The Technical Services, Renewables, Sustainability Solutions and Corporate columns represent the segments
that can be found in Note 21. The Company generates higher revenues in the second and third quarters as
weather can impact available outdoor work in the first and fourth quarters.
2021
Service
Management
Equipment
Retirement of green energy certificates
Technical
Services
Renewables
Sustainability
Corporate
Total
$
150,642
$
86,335
$
-
$
-
$
236,977
-
5,859
-
-
-
-
-
-
11,191
1,788
-
-
1,788
5,859
11,191
Total
$
156,501
$
86,335
$
11,191
$
1,788
$
255,815
22
43
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
4. ACCOUNTS RECEIVABLE, CONTRACT ASSET AND REVENUE (Continued)
Revenue Disaggregation by Stream (Continued):
2020 (Note 33)
Service
Management
Equipment
Retirement of green energy certificates
Technical
Services
Renewables
Sustainability
Corporate
Total
$
147,475
$
64,538
$
-
$
-
$
212,013
-
6,104
-
-
-
-
-
-
8,418
1,618
-
-
1,618
6,104
8,418
Total
$
153,579
$
64,538
$
8,418
$
1,618
$
228,153
5. COVID-19 PANDEMIC & GOVERNMENT GRANTS
The outbreak of COVID-19 has resulted in worldwide emergency measures to combat the spread of the virus.
These measures, including significant restrictions on commercial activity, have caused significant disruption to
businesses globally, resulting in a broad-based and global economic slowdown.
The Company has also introduced its own measures, procedures, and protocols to foster the health and safety of
its employees, vendors, and customers. These measures are based on the Company’s health and safety policies
as well as the recommendations from the public health authorities. These enhanced protocols include travel
restrictions, workplace hygiene practices, employee case tracking, additional personal protective equipment for
our operations workers, limited access to facilities, and alternative work options for employees where possible.
The Company’s operations are exposed to a variety of business and financial risks as a result of a public threat,
such as COVID-19. These risks include but are not limited to, decline in customer demand, increase in operating
costs, interruption of project work, credit risk associated with customer non-payment, access to financing and
change in the timing of cash flows.
The extent to which COVID-19 may further impact the Company’s operations, its consolidated financial position,
and performance remains uncertain, and will depend on further developments, including the duration and spread
of the outbreak, its impact on the Company’s customers, suppliers and employees and actions taken by
governments.
Management continues to closely monitor the situation in the jurisdictions in which the Company operates.
Canada Emergency Wage Subsidy
In April 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) in order
to help employers keep and/or return Canadian-based employees to payrolls in response to challenges posed by
the COVID-19 pandemic.
During the year, management determined that it met the employer eligibility criteria and applied for CEWS. The
Company recognized $2,539 (2020 - $10,870) in government grants under the payroll support program which has
been recorded against the segmented cost of sales and selling, general and administrative expenses to which
they are related.
Of the amount recognized in the period, $nil was receivable as at December 31, 2021 (December 31, 2020 -
$379).
Paycheck Protection Program
In March 2020, the United States Government announced the Paycheck Protection Program (“PPP”) in order to
help employers keep and/or return US-based employees to payrolls in response to challenges posed by the
COVID-19 pandemic.
In the second quarter of 2020, the Company received US$1,835 in funding related to this program for our US
based operations. This funding came in the form of a loan payable which was due in full on the second anniversary
of its receipt, bearing an interest rate of 1% per annum, with the possibility of absolute forgiveness if eligible.
Subsequent to December 31, 2020, all loans have received forgiveness. There was no PPP funding applied for
in 2021.
23
44
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
5. COVID-19 PANDEMIC & GOVERNMENT GRANTS (Continued)
Canada Emergency Wage Subsidy (Continued)
2021
Canadian Emergency Wage Subsidy
Cost of sales
Selling, general and administrative
Total
2020
Canadian Emergency Wage Subsidy
Cost of sales
Selling, general and administrative
Paycheck Protection Program
Cost of sales
Selling, general and administrative
Total
Skills Development Funding
1,786
236
2,022
6,620
1,078
7,698
Technical
Services
Renewables
Sustainability
Solutions
Corporate
Total
$
$
$
$
273
74
347
-
$
31
31
$
-
$
139
139
$
$
$
2,059
480
2,539
Technical
Services
Renewables
Sustainability
Solutions
Corporate
Total
$
$
$
$
1,432
370
1,802
-
$
268
268
$
-
$
1,102
1,102
$
$
$
8,052
2,818
10,870
$
637
233
$
1,408
158
-
$
-
-
$
-
$
2,045
391
$
$
870
8,568
$
$
1,566
3,368
$
-
$
268
$
-
$
1,102
$
$
2,436
13,306
During the second quarter the Company received approval for a $5.3 million grant from the Government of Ontario
Skills Development Fund to support employee training and advancement initiatives within the Company. With this
funding the Company will be running a one-year program between April 2021 and March 2022 whereby the funds
need to be utilized through this period on programs and initiatives previously approved by the Government of
Ontario. The Company will be required to return any funds not utilized in accordance with the program criteria and
timelines. At the end of the year the Company had received funding towards this grant of $2,631 of which $1,470
has been utilized to fund expenditures approved under the program. The balance of $1,161 has been included in
bank indebtedness.
6.
INVENTORY
Equipment and supplies
2021
2020
$
$
8,167
8,167
$
$
7,703
7,703
During the year, $54,446 (2019 - $40,141) of inventory was recognized in cost of sales. There were no material
amounts of inventory that were written down to their net realizable value in the current or prior year.
7.
LEASE RECEIVABLE
2021
2020
Property and office space lease bearing interest at an approximate rate of 6%. The
lease extends through fiscal 2023.
Less: current portion
Lease receivable
-
-
-
-
$
$
379
379
149
230
On June 1, 2020, the Company relocated its Bullfrog operations and entered into a 3-year sublease agreement
for their previous premises, resulting in a lease receivable. Offset against finance expense is $13 (2020 - $12) of
interest revenue earned on the lease receivable. Total cash inflows relating to the sublease consist of principal
payments in the amount of $97 (2020 - $68). On August 31, 2021, the Company terminated its sublease
agreement of their previous premises.
24
45
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
8. PROPERTY AND EQUIPMENT
As at December 31, 2021, property and equipment was $33,272 (December 31, 2020 - $28,253). This balance
consists of both purchased assets and assets obtained through lease agreements.
Purchased assets consist of the following:
Computer
Hardware
Computer
Software
Furniture
and
Fixtures
Leaseholds
Equipment
Vehicles
Total
Cost:
Balance at December 31, 2019
Additions
Disposals
Balance at December 31, 2020
Additions
Disposals
Balance at December 31, 2021
Accumulated depreciation:
Balance at December 31, 2019
Depreciation for the period
Disposals
Balance at December 31, 2020
Depreciation for the period
Disposals
Balance at December 31, 2021
Net carrying amounts:
December 31, 2020
December 31, 2021
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,583
217
-
1,800
152
-
1,952
1,072
134
-
1,206
131
3,102
651
(19)
3,734
2,480
-
6,214
468
703
(18)
1,153
552
7,907
1,504
(4)
9,407
1,386
-
10,793
2,830
1,504
-
4,334
1,609
1,694
396
(248)
1,842
663
-
2,505
181
603
(209)
575
568
$
$
$
$
$
$
$
$
$
$
$
$
1,496
388
-
1,884
454
-
2,338
$
586
346
-
932
$
354
$
1,286
4,863
760
(82)
5,541
463
-
6,004
1,725
1,758
(81)
3,402
1,059
-
4,461
$
$
1,337
$
1,705
$
5,943
$
1,143
$
20,643
3,916
(353)
24,208
5,598
-
29,806
6,862
5,048
(308)
11,602
4,273
-
15,875
$
$
952
1,052
$
$
2,139
1,543
$
$
594
615
$
$
2,581
4,509
$
$
5,073
4,850
$
$
1,267
1,362
$
$
12,606
13,931
Leased assets consist of the following:
Leased
Property
Leased
Equipment
Leased
Vehicles
Total
Cost:
Balance at December 31, 2019
Additions
Disposals
Balance at December 31, 2020
Additions
Disposals
Balance at December 31, 2021
Accumulated depreciation:
Balance at December 31, 2019 (Audited)
Depreciation for the period
Disposals
Balance at December 31, 2020
Depreciation for the period
Disposals
Balance at December 31, 2021
Net carrying amounts:
December 31, 2020
December 31, 2021
$
$
$
$
14,940
1,238
(521)
15,657
32,310
4,926
(1,366)
35,870
$
$
$
$
4,549
(668)
54
6,789
(895)
11,392
(1,563)
$
22,862
$
1,286
$
21,551
$
45,699
$
$
$
$
$
$
$
$
7,421
2,971
(378)
10,014
3,723
(828)
12,909
14,717
6,473
(967)
20,223
7,533
(1,398)
26,358
$
$
1,201
$
$
16,175
3,651
(845)
18,981
6,571
3,191
(589)
9,173
3,645
(570)
12,248
1,195
37
-
1,232
725
311
-
1,036
165
$
$
9,808
10,614
$
$
196
85
$
$
5,643
8,642
$
$
15,647
19,341
25
46
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
9.
INTANGIBLE ASSETS
Customer
contracts
Customer
relationships
Non-
competition
agreement
Tradename
Total
Cost:
Balance at December 31, 2019 (Audited)
$
1,846
$
37,448
$
213
$
14,193
$
53,700
Removal of fully amortized asset
-
-
-
-
0
Balance at December 31, 2020
$
1,846
$
37,448
$
213
$
14,193
$
53,700
Removal of fully amortized asset
Balance at December 31, 2021
(1,846)
$
-
-
37,448
$
(213)
$
-
-
14,193
$
(2,059)
51,641
$
Accumulated Amortization:
Balance at December 31, 2019
Amortization for the period
Removal of fully amortized asset
$
513
1,231
-
$
7,663
3,598
-
$
171
28
-
$
-
3,765
-
$
8,347
8,622
0
Balance at December 31, 2020
$
1,744
$
11,261
$
199
$
3,765
$
16,969
Amortization for the period
Removal of fully amortized asset
Balance at December 31, 2021
102
(1,846)
$
-
3,725
-
14,985
$
14
(213)
$
-
3,774
-
7,539
$
7,615
(2,059)
22,525
$
Net carrying amounts:
December 31, 2020
December 31, 2021
102
$
$
-
$
$
26,187
22,462
$
14
$
-
$
$
10,428
6,654
$
$
36,731
29,116
Due to a change in management strategy with relation to the rebranding efforts occurring within the Company,
starting January 1, 2020, management initiated the amortization of Tradenames over a three-year term related to
the rebranding efforts occurring within the Company. This is a prospective change to the process as the
Company’s rebranding efforts began in the first quarter of 2020 and the changes will occur over time.
10. GOODWILL
Spark Power Solutions Ltd.
Spark Power High Voltage Services Inc.
New Electric Enterprises Inc.
Orbis Engineering Services Ltd.
Bullfrog Power Inc.
Spark Power LLC
3-Phase Electrical Ltd.
One Wind Services Inc. and One Wind Services (US) Inc.
Original carrying
amount
$
1,554
3,633
13,847
2,456
6,633
284
8,449
5,107
Impairment
-
$
-
-
-
-
-
(4,000)
-
Net carrying
amount as at
December 31,
2021
$
1,554
3,633
13,847
2,456
6,633
284
4,449
5,107
2020
$
1,554
3,633
13,847
2,456
6,633
284
8,449
5,107
$
41,963
$
(4,000)
$
37,963
$
41,963
The Company is required to test, on an annual basis, whether goodwill has suffered any impairment. The
recoverable amount is determined based on value in use calculations. The use of this method requires the
estimation of future cash flows and the determination of a discount rate in order to calculate present value of the
cash flows.
Based on the events in the current economic environment, management has performed a calculation at the end
of each quarter to determine whether goodwill has suffered any impairment. Based on management’s projections,
taking into account the possible duration and impact of COVID-19, management determined that the 3-Phase
Electrical Ltd. CGU required an impairment adjustment of $4,000. Management will continue to monitor the impact
of COVID-19 on a quarterly basis.
26
47
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
10. GOODWILL (Continued)
The recoverable value of each CGU was based on value in use. The value in use was calculated using
unobservable (Level 3) inputs such as the budgeted and projected 2022-2026 revenues and EBITDA margin. The
EBITDA is defined as net (loss) income before finance expense, income taxes, depreciation and amortization.
The Company considered past experience, economic trends as well as industry and market trends in assessing
if the level of EBITDA can be maintained in the future. The Company also used discount rates in the range of
10% and 12% (2020 – 11% and 12%), which represents the weighted average cost of capital (“WACC”). The
WACC is an estimate of the overall rate of return required by debt and equity holders on their investment.
Determining the WACC requires analyzing the cost of equity and debt separately and takes into account a risk
premium that is based on each CGU. The change in the discount rate in the current year as compared to the prior
year is related to the change in operational strength each CGU has seen in operations since acquisition.
Growth rates ranging between 0% and 18% (2020 – 1% and 15%) and terminal rate of 2% (2020 – 2%) have
been used to estimate future cash flows of each of the CGUs. The change in the growth rate range in the current
year as compared to the prior year is related to the organic growth the Company has seen in the CGUs since
acquisition. The above inputs include those that were used in the most recent detailed calculation made in a
preceding period of the recoverable amount of a CGU which meet the requirements within IAS 36 - Impairment
of Assets, to be carried forward and used in the impairment test for that CGU in the current period.
11. BANK INDEBTEDNESS
2021
2020
$35,000 revolving credit facility, subject to borrowing base limits, bearing interest at
prime plus 2.00% - 3.00% per annum payable monthly. The loan matures on
September 30, 2023. The lender has general security over the Company.
$
29,344
$
21,198
$5,000 demand revolving credit facility to finance growth capital expenditures, bearing
interest at prime plus 0.50% - 2.50% per annum payable monthly. Quarterly principal
payments commenced December 31, 2019. The loan is due and repayable at the
request of the lender. The lender has general security over the Company.
Cash on hand
Bank Indebtedness
-
(1,202)
4,479
(233)
$
28,142
$
25,444
In June 2021, in conjunction with entering into an Amended and Restated Credit Agreement with its lender the
following changes were made to bank indebtedness:
a. The previous $30,000 demand revolving credit facility was replaced by a $35,000 revolving credit facility
that matures on September 30, 2023, subject to certain borrowing base conditions.
b.
Interest charged on the facility increased to prime plus 2.0% - 3.0% from prime plus 0.50% - 2.50%.
c. The $5.0 million demand revolving credit facility for growth capital expenditures was eliminated and repaid
through advances under the new long-term debt credit facility. During the year, the Company paid $261
in principal payments (2020 - $519).
Further details of the Amended and Restated Credit Agreement are included in Note 12 – Long-term debt.
During the year, the Company paid $1,451 (2020 - $1,208) of interest related to bank indebtedness which has
been included in finance expense.
27
48
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
12. LONG TERM DEBT
Non-revolving term loan with Bank of Montreal bearing interest at prime plus 2.00% -
3.00% per annum, payable monthly. Principal payments of $2,082 per quarter
commenced June 30, 2021. The loan matures on September 30, 2023. The lender
has general security over the Company. (i)
Non-revolving term loan with Bank of Montreal bearing interest at prime plus 1.00% -
3.00% per annum, payable monthly. Principal payments of $1,235 per quarter
commenced December 31, 2019. The loan matures on June 30, 2022. In November
2018, the Company entered into an Interest Rate Swap to hedge the interest
payments over 50% of the term loan over the remaining term at a Banker's
Acceptance rate of 2.97%, adjusted quarterly for credit spread of 2.00% - 3.00%, for
an aggregate fixed interest rate of 4.97% (Note 15). The lender has general security
over the Company. (i)
Revolving Reducing Acquisition Line with Bank of Montreal bearing interest at prime
plus 1.00% - 3.00% and standby fees calculated daily and payable quarterly. Each
drawdown shall amortize quarterly over 10 years and will be repaid in quarterly
installments of principal plus interest with balance due and payable June 30, 2022. (ii)
Covid Loan with Bank of Montreal bearing interest at prime plus 1.00% - 3.00%. Due
on demand and repayable in quarterly installments of $1,981 plus interest through
September 2021. (iii)
Loan bearing interest at 4.00% per annum and repayable in annual payments of
principal plus accrued interest. Principal payments to be made as follows: 2021 -
$750. The loan matures on April 30, 2021 and is secured by a General Security
Agreement.
Less: current portion
Less: financing fees, net of amortization
Long-term debt
2021
2020
$
62,459
$
-
-
-
-
750
63,209
61,962
1,247
37,030
23,734
5,942
750
67,456
66,572
884
$
-
$
-
(i) During the year ended December 31, 2021, the Company paid $6,634 in principal payments against the term
loan (2020 - $2,470).
(ii) During the year ended December 31, 2021, the Company paid $633 in principal payments on the Acquisition
Line (2020 - $1,266).
(iii) During the year ended December 31, 2021, the Company paid $1,981 in principal payments on the Covid
Loan (2020 - $1,981).
During the year, the Company paid $3,014 (2020 - $3,093) of interest related to the long-term debt which has been
included in finance expense.
28
49
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
12. LONG TERM DEBT (Continued)
During the second quarter the Company entered into a new Amended and Restated Credit Agreement dated June
17, 2021 and a subsequent Amendment Agreement dated June 25, 2021 with its Lender. Key terms of these
Agreements are as follows:
a. A consolidation of the non-revolving term loan, revolving acquisition line, COVID loan and demand
revolving facility to finance growth capital expenditures into a new committed non-revolving term loan
totaling $66,600;
b. The maturity date of this new facility was extended to September 30, 2023 and will be amortized over an
8-year period with quarterly repayments of $2,082;
c. The $30,000 demand revolving credit facility was replaced by a $35,000 committed margined revolving
credit facility, subject to borrowing base limits;
d. An increase in interest rates, based on applicable margins;
e. An adjustment to covenants, as noted below.
The Company is also required to comply with certain covenants, terms and conditions under the credit facilities.
These covenants include a fixed charge coverage ratio, a total debt to EBITDA and a total senior debt to defined
EBITDA covenant calculated on a 12-month rolling quarterly basis. On December 14, 2021, the Credit Agreement
was amended to revise the covenant requirements as follows:
• Minimum fixed charge covenant ratio of 1.10 extended for the quarters ended December 31, 2021 and
March 31, 2022, increasing to 1.25 for each quarter ended thereafter;
• Maximum total senior debt to EBITDA ratio based on the most recently completed four fiscal quarters of
3.25:1.00;
• Maximum total debt to EBITDA ratio based on the most recently completed four fiscal quarters of
4.00:1.00 extended for the quarters ended December 31, 2021 and March 31, 2022, decreasing to
3.75:1.00 for each fiscal quarter thereafter.
As at December 31, 2021, the Company was not in compliance with the financial covenants in its credit facility.
As a result the Company’s non-revolving term loan have been classified as current debt at December 31, 2021.
The Company is actively working with its lender to amend the current credit facility, including a waiver of this
covenant violation.
29
50
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
13. PROMISSORY NOTES
Issued January 1, 2017 and bears interest at 6% per annum which is payable
annually. The accrued interest is included in accounts payable and accrued liabilities.
The note matures on January 1, 2022.
$
988
$
988
Issued July 1, 2018 and bears interest at 6% per annum paid quarterly. Principal
payments to be made on each anniversary as follows: 2021 - $2,000; 2022 - $2,000.
4,000
4,000
2021
2020
Issued August 1, 2019 and bears interest at 4%. Principal payments of are to be made
on each anniversary as follows: 2021 - $1,250; 2022 - $1,250. Accrued interest is
due and payable on each anniversary.
Issued November 1, 2019 and bears interest at 5%. Principal payments are to be
made on each anniversary as follows: 2021 - $500; 2022 - $2,750. Accrued interest
is due and payable on each anniversary.
Less: current portion
Promissory notes
2,500
2,500
3,250
10,738
10,738
3,250
10,738
3,750
$
-
$
6,988
During the second quarter of 2021 the Company amended its credit agreement with its lending institution requiring
no payment on account or in respect to any promissory note during any period following June 30, 2021 when the
Total Funded Debt to EBITDA ratio (“the ratio”) as of the last day of the most recently completed fiscal quarter is
greater than 3.00:1.00, the sum of ‘revolver availability’ and ‘cash on hand’, as defined within the Amended and
Restated Credit Agreement, is less than $10,000, and the fixed charge coverage ratio is less than 1.10:1.00. As
a result, repayments were not made during 2021.
Where the ratio is on covenant and would be on covenant following any payments on the promissory notes, the
lending institution shall give good-faith consideration to any request by the Company to make scheduled payments
on the promissory notes. Each request shall be considered on its own merits. Consent to make one payment
will not imply consent to make additional payments.
During the year, the Company incurred $868 (2020 - $879) of interest related to the promissory notes which has
been recorded to Finance expense.
14. LEASE LIABILITY
Property and office space leases bearing interest at an approximate rate range of 5%
to 6%. The leases extend through fiscal 2030.
$
11,477
$
10,880
2021
2020
Motor vehicle leases bearing interest at an approximate rate range of 4% to 6%. The
leases extend through fiscal 2025.
Equipment and hardware leases bearing interest at an approximate rate range of 4%
to 6%. The leases extend through 2025.
Less: current portion
Lease liability
9,059
91
20,627
6,643
6,202
203
17,285
5,800
$
13,984
$
11,485
Included in finance expense is $1,159 (2020 - $1,116) of interest expense on lease liabilities. Total cash outflows
relating to leases consist of principal payments in the amount of $7,569 (2020 - $6,224). Short term and low value
leases are not significant.
30
51
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
14. LEASE LIABILITY (Continued)
All of the leases are secured by the underlying assets. Future minimum lease payments for the next five years
are as follows:
2022
2023
2024
2025
2026 and thereafter
Less: imputed interest
$
7,558
5,443
4,190
2,783
2,882
22,856
2,229
20,627
$
15. POWER PURCHASE AGREEMENT
During the year ended December 31, 2020, the Company entered into a Power Purchase Agreement (“PPA”) for
the purchase and sale of renewable energy and environmental attributes, including Certified Renewable Energy
Certificates, for a period of seven years with an expected start date in the second quarter of 2021.
During the year, the Company has recognized an unrealized gain in the change in fair value of the derivative
asset with an estimated fair value of $3,918 (2020 - $nil). An amount of $1,769 is expected to be realized within
the next twelve months and therefore has been recorded as a current asset (2020 - $nil).
To offset any risk and volatility of this agreement, management entered into a related power swap arrangement
to hedge the risk of changes in cash flows due to the fluctuations of power prices in the Alberta market. While
this agreement economically hedges the risk of changes in cash flows due to fluctuations in power rates, hedge
accounting has not been applied for these instruments. The change in the fair value of the hedge agreement
during the year is $1,202 (2020 - $nil) is based on the projected market values of similar contracts with similar
remaining durations as if the contract has been entered into on December 31, 2021 (December 31, 2020 - $nil)
During the year, the Company recognized realized settlements on the PPA in the amount of $2,050 (2020 - $nil),
offset by realized settlements on the hedge of $950 (2020 - $nil), respectively for a net gain of $1,100.
Under the PPA the Company also receives entitlement to the environmental attributes (“renewable energy credits”
or “REC’s”) provided through this agreement that are available for sale by the Company. These attributes, or
renewable energy credits, are similar to those purchased and sold by the company from other third parties. At
December 31, 2021, the Company had 20,217 REC’s equal to $111 (2020 - $nil) that were included in inventory
and held for sale by the Company under its normal course of business.
In accordance with the terms of the PPA agreement and the hedge agreement, the Company has issued Letters
of Credit to the seller and hedge broker in the amount of $508 and $100, respectively, which have both been
applied against the available balance of our demand revolving credit facility (Note 11).
31
52
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
16.
INCOME TAXES
The income tax provision recorded differs from the income tax obtained by applying the statutory income tax rate
of 26.5% (2020 - 26.5%) to the income for the year and is reconciled as follows:
Loss before income taxes
Statutory rate
2021
2020
$
(22,115)
26.5%
$
(1,226)
26.5%
Expected income tax (recovery) expense
$
(5,860)
$
(325)
Increase (decrease) in income taxes due to:
Permanent differences
Change in valuation allowance
True-up of prior year
Other
1,543
3,793
125
(423)
174
267
590
(253)
Income tax expense (recovery)
$
(822)
$
453
The tax effects of significant components of temporary differences that give rise to deferred tax assets and
liabilities are as follows:
Deferred tax assets
Loss carryforwards
Provision for expected credit losses
Property and equipment and right of use asset
Financing costs
Other
Deferred tax liabilities
Intangible assets
Property and equipment
Other
Net deferred tax liability
2021
2020
$
4,296
-
338
129
567
$
4,209
130
337
368
261
$
(2,746)
(1,262)
(2,418)
$
(4,663)
(555)
(1,499)
$
(1,096)
$
(1,412)
The Company has non-capital losses available that can be utilized to reduce taxable income of future years.
These losses expire as follows:
Non-capital losses
2039
2040
2041
Valuation allowance
$
7,735
8,997
15,798
32,530
(17,132)
$
15,398
32
53
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
17. SHARE CAPITAL
Authorized:
Unlimited
Common shares
Issued:
Balance, December 31, 2019 and December 31, 2020
Exercise of stock options (i), (ii) and (iii)
Conversion of restricted share units (iv), (vi), (vii)
Issuance of common shares through private placement (v)
Balance, December 31, 2021
53,649,648
411,282
219,277
2,654,028
$
130,284
782
144
5,600
56,934,235
$
136,810
(i)
(ii)
(iii)
(iv)
(v)
(vi)
In January 2021, 75,075 common shares were issued upon the exercise of options granted under the
Omnibus Equity Incentive Plan (the “Omnibus Plan”) at an exercise price of $1.66 per option for cash
proceeds of $125. An additional value allocated to these shares in the amount of $37 was reallocated
from contributed surplus to share capital.
In February 2021, 186,207 common shares were issued upon the exercise of options granted under the
Omnibus Plan at an exercise price of $1.34 per option for cash proceeds of $250. An additional value
allocated to these shares in the amount of $94 was reallocated from contributed surplus to share capital.
In April 2021, 150,000 common shares were issued upon the exercise of options granted under the
Omnibus Plan at an exercise price of $1.34 per option for cash proceeds of $201. An additional value
allocated to these shares in the amount of $75 was reallocated from Contributed surplus to Share capital.
In May 2021, 189,277 common shares were issued upon the conversion of Restricted Share Units. A
value of $129 was applied to these shares and reallocated from contributed surplus to share capital.
In June 2021, 2,654,028 common shares were issued upon the closing of a non-brokered private
placement at a price of $2.11 per share for cash proceeds of $5,600. Approximately 88% of the equity
capital was provided by the three founders of the business.
In July 2021, 20,000 common shares were issued upon the conversion of Restricted Share Units. A
value of $0.50 per unit was applied to these shares and reallocated from contributed surplus to share
capital.
(vii)
In August 2021, 10,000 common shares were issued upon the conversion of Restricted Share Units. A
value of $0.50 per unit was applied to these shares and reallocated from contributed surplus to share
capital.
Omnibus Equity Incentive Plan
The Company has an Omnibus Equity Incentive Plan (the “Omnibus Plan”) that provides for Stock Options,
Restricted Share Units (“RSU”), or Deferred Share Units (“DSU”) to be issued to directors, officers, employees
and consultants, subject to certain conditions, so that they may participate in its growth and development.
As of December 31, 2021, there were 5,693,424 stock options or restricted share units that are available to be
granted under the Omnibus Equity Incentive Plan (December 31, 2020 – 5,364,965). Options generally expire
after ten years, with vesting provisions stated in the Omnibus Plan.
In addition, 1,735,980 options were part of a rollover when the Company completed the acquisition of Canaccord
Genuity Acquisition Corp. and accordingly are not included against the total options available under the Omnibus
Equity Incentive Plan.
33
54
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
17. SHARE CAPITAL (Continued)
Stock Options
Activity in the Company's stock option Omnibus Plan for the years ended December 31, 2021 and 2020 are
summarized as follows:
Year ended December 31,
2021
Year ended December 31,
2020
Weighted
Average
Option
Exercise
Price $
1.32
1.54
1.32
1.40
1.29
Number of
Options
2,688,480
(174,000)
(20,000)
(411,282)
2,083,198
Weighted
Average
Option
Exercise
Price $
1.32
-
-
-
1.32
Number of
Options
2,688,480
-
-
-
2,688,480
Outstanding, beginning of period
Forfeiture during the period (viii) and (ix)
Cancelled during the period
Exercised during the period (i), (ii) and (iii)
Outstanding, end of year
(viii)
(ix)
During the period, 108,000 options with an exercise price of $1.66 per unit were forfeited upon the
departure of an employee. A value of $54 was applied to these options and removed from Contributed
surplus.
During the period, 66,000 options with an exercise price of $1.34 per option were forfeited upon the
departure of an employee. A value of $33 was applied to these options and removed from Contributed
surplus.
The Company used the Black-Scholes option pricing model to estimate the fair value of options granted. The
following inputs were used to estimate the fair value of the options:
• Estimated Life - 10 years
• Volatility – 50%
• Dividend growth rate – 0%
• Risk-free interest rate – 2.10%
There were no options granted during the year ended December 31, 2021.
Of the total number of options outstanding at December 31, 2021, 1,379,031 (December 31, 2020 – 1,313,615)
had vested and were exercisable. The weighted average remaining life of the options was 6.1 years.
Restricted Share Unit Plan
The Omnibus Equity Incentive Plan allows the Board of Directors to issue equity settled RSUs, provided that,
when combined, the maximum number of common shares reserved for issuance under all stock-based
compensation arrangements of the Company does not exceed 10% of the Company’s outstanding Common
shares.
34
55
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
17. SHARE CAPITAL (Continued)
Activity in the Company’s RSU plan for the years ended December 31, 2021 and 2020 are summarized as follows:
Number
Amount
Balance, December 31, 2019
Granted during the period (x)
Balance, December 31, 2020
Granted during the period (xi) and (xii)
Exercised during the period (xii)
Forfeited during the period (xiii)
Balance, December 31, 2021
554,870
53,571
608,441
1,163,529
(219,277)
(146,733)
1,405,960
$
277
30
307
$
801
(144)
(77)
887
$
(x)
(xi)
(xii)
(xiii)
On May 19, 2020, the Company issued 53,571 RSUs with an exercise price of $1.12 per unit. These
units shall cliff vest on the third anniversary of the grant date.
On April 6, 2021, the Company issued 790,962 RSUs with an exercise price of $1.77 per unit. These
units shall cliff vest on the third anniversary of the grant date.
On April 6, 2021, the Company issued 372,567 RSUs with an exercise price of $1.77 per unit of which
189,277 of these units vest immediately and are converted into common shares, while the remaining
183,290 units shall cliff vest on 18 months after the grant date.
During the year, 120,000 RSUs with a value of $1.05 per unit, were forfeited upon the departure of
various employees. Additionally, 26,733 RSUs with a value of $1.77 per unit, were forfeited upon the
departure of various employees. A value of $61 was applied to these RSU’s and removed from
contributed surplus during the year.
The weighted average fair value of RSUs granted during 2021 is $0.63 (2020 - $0.50). The estimated fair value
of the equity settled RSUs granted will be recognized as an expense over the vesting period of the RSUs. The
following inputs were used to estimate the fair value of the RSUs:
• Estimated Life - 3 years
• Volatility – 70%
• Dividend growth rate – 0%
• Risk-free interest rate – 0.70%
Deferred Share Unit Plan
The Omnibus Equity Incentive Plan allows the Board of Directors to issue equity settled DSUs, provided that,
when combined, the maximum number of common shares reserved for issuance under all stock-based
compensation arrangements of the Company does not exceed 10% of the Company’s outstanding Common
shares.
Activity in the Company’s DSU plan for the years ended December 31, 2021 and 2020 are summarized as follows:
Balance, December 31, 2019
Granted during the period (xiv), (xv) & (xvi)
Balance, December 31, 2020
Granted during the period (xvii), (xviii) & (xix)
Balance, December 31, 2021
Number
Amount
-
56,654
56,654
24,532
81,186
$
-
$
35
35
44
79
$
(xiv)
(xv)
On July 4, 2020, the Company issued 26,849 DSUs with an exercise price of $1.16 per unit. These units
vest upon date of the grant.
On September 30, 2020, the Company issued 20,083 DSUs with an exercise price of $1.50 per unit.
These units vest upon date of the grant.
35
56
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
17. SHARE CAPITAL (Continued)
(xvi)
(xvii)
(xviii)
(xix)
On December 31, 2020, the Company issued 9,722 DSUs with an exercise price of $1.35 per unit. These
units vest upon date of the grant.
On March 31, 2021, the Company issued 7,290 DSUs with an exercise price of $1.57 per unit. These
units vest upon date of the grant.
On July 13, 2021, the Company issued 8,336 DSUs with an exercise price of $2.18 per unit. These units
vest upon date of the grant
On October 3, 2021, the Company issued 8,906 DSUs with an exercise price of $2.29 per unit. These
units vest upon date of the grant.
The weighted average fair value of deferred share units granted during 2021 is $0.98 (2020 - $0.59). The
estimated fair value of the equity settled DSUs granted will be recognized as an expense over the vesting period
of the DSUs. The following inputs were used to estimate the fair value of the DSUs:
• Estimated Life - 3 years
• Volatility – 70%
• Dividend growth rate – 0%
• Risk-free interest rate – 0.56%
Share-based compensation
During the year ended December 31, 2021, share-based compensation of $1,072 (2020 - $426) was recorded as
an expense and added to contributed surplus.
Warrants
The Company issued 873,333 warrants in connection with the August 2018 president’s list raise stated above that
were converted to 943,333 warrants at a ratio of 1.00:1.08. Additionally, 10,833,333 warrants were issued in
connection with the Spark Power Acquisition for a total amount of 11,776,666 warrants outstanding as at both
December 31, 2021 and December 31, 2020 at a value of $2,662.
On October 31, 2019 the Company completed a Rights Offering to its shareholders. Pursuant to the Warrant
agreement, and in connection to this Rights Offering, the number of shares issuable upon exercise of each
Warrant has been adjusted from 1 Common share to 1.028 Common shares at an exercise price of $3.45 per
share for a remaining term of 3.5 years.
These warrants have been measured using the Black-Scholes method using the following inputs:
• Stock price - $3.00 per share
• Exercise price - $3.45 per share
• Risk-free interest rate – 2.10%
• Volatility – 14%
•
Term – 5 years
• Yield – 0%.
These inputs require management judgment and estimates and a change in such estimates could result in a
material change to the valuation of these warrants.
18. FINANCIAL INSTRUMENTS
The Company has classified its financial instruments in accordance with IFRS into various categories as described
in its accounting policies.
The fair values of financial instruments are classified and measured according to the following three levels based
on the fair value hierarchy.
Level 1:
quoted prices in active markets for identical assets or liabilities.
Level 2:
inputs other that quoted priced included within Level 1 that are observable for the asset or liability
36
57
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
18. FINANCIAL INSTRUMENTS (Continued)
either directly or indirectly.
Level 3:
inputs for the asset or liability that are no based on observable market data. There were no financial
instruments carried at fair value categorized in Level 3 as at December 31, 2021.
There were no transfers between levels during the period.
The financial instruments recorded at fair value are the Interest Rate Swap arrangement and derivative financial
instruments such as PPA and Hedge arrangements and are categorized as Level 2.
The fair value of the Interest Rate Swap arrangement in a cumulative loss amount of $nil (2020 - $367) has been
recorded to finance expense using Mark-to-Market (“MtM”) information as at December 31, 2021 from a third
party. The Interest Rate Swap arrangement ended on September 30, 2021 and was not renewed.
The Company does not have any instruments carried at fair value categorized in Level 3 as at period end.
The carrying values of accounts receivable, HST receivable, government grant receivable, contract assets, bank
indebtedness, accounts payable and accrued liabilities, and contract liabilities approximate their fair values due
to the immediate or short-term nature of these securities.
The fair values of the borrowings approximate their carrying values as they are calculated based on the present
value of the future principal and interest cash flows, discounted at the market rate of interest at the reporting date.
The market rate of interest is determined by reference to similar liabilities.
Fair value estimates are made at a specific point in time, based on relevant market information and information
about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Risk management
The Board of Directors has overall responsibility for the determination of the Company’s risk management
objectives and policies while retaining ultimate responsibility for them. The Company is exposed to a variety of
financial risks by virtue of its activities: market risk, risk from infectious diseases, credit risk, interest rate risk,
liquidity risk and foreign currency risk. Except for risks highlighted by the current pandemic, the Company’s overall
risk management program has not changed throughout the year and focuses on the unpredictability of financial
markets and seeks to minimize potential adverse effects on financial performance.
Risk management is carried out by the finance department under policies approved by the Board of Directors.
This department identifies and evaluates financial risks in close cooperation with management.
Infectious diseases
Outbreaks or the threat of outbreaks of viruses or other infectious diseases or similar health threats, including the
COVID-19 outbreak, could have a material adverse effect on the Company by causing operational and supply
chain delays and disruptions (including as a result of government regulation and prevention actions), labour
shortages and shutdowns, decreased demand, declines in gross margin realizations, capital markets volatility, or
other unknown but potentially significant impacts. At this time the Company cannot accurately predict what effects
these conditions will have on its long-term operations or financial results, including due to uncertainties relating to
the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the
length of the travel restrictions and business closures that have been or may be imposed by the governments of
impacted countries. In addition, a significant outbreak of contagious diseases in the human population could
result in a widespread health crisis that could adversely affect the economies and financial markets of many
countries, resulting in economic downturn that could result in a material adverse effect on the demand for the
Company’s services, investor confidence, and general financial market liquidity, all of which may adversely affect
the Company’s business and the market price of the Common Shares. Accordingly, any outbreak or threat of an
outbreak of an epidemic disease or similar public health emergency could have a material adverse effect on the
Company’s business, financial condition and results of operations as a result of delays of customer projects or
government-mandated shutdowns.
37
58
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
18. FINANCIAL INSTRUMENTS (Continued)
Credit risk
Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails
to meet its contractual obligation. The Company is mainly exposed to credit risk from credit sales. Management
of the Company monitors the credit worthiness of its customers by performing background checks on all new
customers focusing on publicity, reputation in the market and relationships with customers and other vendors
Further, management monitors the frequency of payments from Spark’s ongoing customers and performs
frequent reviews of outstanding balances. The Company determines there to be a significant increase in credit
risk when balances are outstanding for more than 60 days past the customers’ contractual payment terms.
The Company considers a receivable to be in default when contractual payments are 120 days past due, except
when they are within terms. However, in certain cases, the Company may also consider a financial asset to be in
default when internal or external information indicates that the Company is unlikely to receive the outstanding
contractual amounts in full before taking into account any credit enhancements held by the Company.
Provisions for outstanding balances are set based on forward looking information; when there is a change in the
circumstances of a customer that would result in financial difficulties as indicated through a change in credit quality
or industry factors and create doubt over the receipt of funds. Such reviews of a customer’s circumstances are
done on a continued basis through the monitoring of outstanding balances as well as the frequency of payments
received. A receivable is completely written off once management determines the probability of collection to be
not present.
Further disclosures regarding accounts receivables are provided in Note 4.
The Company’s balances of bank indebtedness are subject the Company to credit risk. Bank indebtedness is
held with a major Canadian bank which the Company believes lessens the degree of credit risk. Contract assets
subject the Company to credit risk in the case of non-performance or disputes on performance. Contract assets
are reviewed similar to receivables when deemed necessary.
Interest rate risk
Interest rate risk arises from the Company’s use of floating interest rate bearing debt securities. The Company
may increase debt levels depending on the balance of financing in the future. If cash balances are higher than
required for immediate requirements, the Company invests with a low-risk strategy in secure short-term deposits
through major banks to earn interest income.
The revolving facilities (Note 11) bear interest at a variable rate; however, the balance of the lines is continually
adjusted based on the balance held in the operating accounts, mitigating the Company’s interest rate risk.
Therefore, the interest rate risk and cash flow exposure are not significant. The long-term debt also bears interest
at a variable rate. At December 31, 2021, if interest rates had been higher by 2% with all other variables held
constant, net loss would have been $649 higher. A decline in interest rates of 0.25% would have decreased the
Company’s net loss by $81.
In November 2018, the Company entered into an Interest Rate Swap to effectively fix the interest rate on $22,000
of its $44,000 long-term debt at approximately 4.97% (Banker’s Acceptance rate of 2.97% adjusted quarterly for
the Company’s credit risk spread between 2.00% - 3.00%), where plus or minus 1% would not have a material
impact on the statements. Notional amount of interest rate swaps outstanding at December 31, 2021 was $nil.
Interest Rate Swaps are classified as derivative financial assets and liabilities and measured at fair value through
profit or loss, with gains and losses on re-measurement included as a component of finance expense in the period
in which they arise. During the year ended December 31, 2021, the Company incurred a gain of $345 that has
been included in finance expense (2020 – loss of $41) as a result of this Interest Rate Swap.
Liquidity risk
Liquidity risk arises from the Company’s management of working capital and the finance charges and principal
repayments on its debt instruments. It is the risk that the Company will encounter difficulty in meeting its financial
obligations as they fall due. The Company’s policy is to ensure it will always have sufficient cash to allow it to
meet its liabilities when they become due. The Board receives quarterly information regarding cash balances
and cash flow projections. The liquidity risk of each subsidiary is managed centrally by the treasury function.
Additional information related to liquidity risk is found in Note 2 and 12.
38
59
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
18. FINANCIAL INSTRUMENTS (Continued)
The following table sets out the contractual maturities as at December 31, 2021 (representing undiscounted
contractual cash flows) of financial liabilities:
2021
Bank indebtedness
(Note 11)
Accounts payable and
accrued liabilities
Long-term debt (Note 12)
Promissory notes
(Note 13)
Lease liability (Note 14)
Derivative liabilities (Note
15)
Future lease commitment
(Note 30)
2020
Bank indebtedness
(Note 11)
Accounts payable and
accrued liabilities
Long-term debt (Note 12)
Promissory notes
(Note 13)
Lease liability (Note 14)
Future lease commitment
(Note 30)
Carrying
amount
Contractual
cash flow
2022
2023
2024
2025
2026 and
thereafter
$
28,142
$
28,142
$
28,142
$
-
$
-
$
-
$
-
53,748
61,962
10,738
20,627
53,748
64,051
11,673
22,856
53,748
64,051
11,673
7,558
-
-
-
-
-
-
-
-
-
-
-
-
5,443
4,190
2,783
2,882
1,203
1,203
1,203
-
15,020
-
-
904
-
904
-
904
-
12,308
$
176,420
$
196,693
$
166,375
$
6,347
$
5,094
$
3,687
$
15,190
Carrying
amount
Contractual
cash flow
2021
2022
2023
2024
2025 and
thereafter
$
25,444
$
25,444
$
25,444
$
-
$
-
$
-
$
-
37,758
66,572
10,738
17,285
-
37,758
68,301
11,418
19,446
15,020
37,758
68,301
4,227
6,873
-
-
-
7,191
4,785
904
-
-
-
2,795
904
-
-
-
-
-
-
1,692
3,301
904
12,308
$
157,797
$
177,387
$
142,603
$
12,880
$
3,699
$
2,596
$
15,609
19. CAPITAL MANAGEMENT
The Company defines its managed capital as the total of long-term debt and shareholders’ equity, including share
capital, contributed surplus, accumulated other comprehensive (loss) income and retained earnings (deficit). As
at December 31, 2021, total managed capital was $88,961 (2020 - $103,926).
The Company’s objectives when managing capital are:
i.
To maintain balance sheet strength, ensuring the Company’s strategic objectives are met, while retaining
an appropriate amount of leverage; and
ii.
To provide an appropriate return to shareholders relative to the risk of the Company’s underlying assets.
The Company manages its capital structure within guidelines approved by the Board of Directors. The Company
makes adjustments to its capital structure based on changes in economic conditions and the Company’s planned
requirements. The Company has the ability to adjust its capital structure by issuing new equity or debt, selling
assets to reduce debt, controlling the amount it distributes to shareholders, and making adjustments to its capital
expenditure program.
There were no changes in the Company’s approach to capital management during the years ended December
31, 2021 or 2020.
39
60
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
20. BUSINESS COMBINATIONS
On November 1, 2019, Spark acquired all the issued and outstanding common shares of One Wind. As part of
the sale and purchase agreement, there is an earn-out clause which became applicable when the Company had
earnings above the earn-out thresholds. The earn-out period ended December 31, 2020 and it was determined
that the amount of the earn-out payable was $4,000, which has been included in accrued liabilities.
Payment of the earn-out is subject to the same terms and conditions associated with payments of promissory
notes as described in Note 13.
21. SEGMENTED INFORMATION
The Company has four segments; Technical Services, Renewables, Sustainability Solutions and Corporate.
Three of the segments are strategic business units that offer different products and services. The segments are
reported in a manner consistent with internal reporting provided to the chief operating decision-maker. The chief
operating decision-maker has been identified as the management team including the Chief Executive Officer,
Chief Operating Officer, and the Chief Financial Officer.
The technical services segment includes the New Electric, Spark High Voltage, Orbis, Lizco and 3-Phase CGUs.
The renewables segment includes both the One Wind, Northwind, and Spark Power Solutions CGUs. The
sustainability solutions segment includes the Bullfrog Power CGU.
The Company evaluates segment performance on the basis of profit and loss from operations but excluding any
non-recurring losses and share-based payments.
40
61
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
2021
Segment revenues
Segment cost of sales
Segment selling, general and
administration expenses
Segment provision for expected credit loss
Segment change in fair value of
derivative instruments
Segment change in realized gain on settlement
of derivative instruments
Segment reorganization costs
Segment change in foreign exchange (gain) loss
Segment amortization and depreciation
Segment profit (loss)
Finance expense
Discontinued Operations
Transaction Costs
Impairment Loss
Total Company income (loss) before taxes
Segment assets
Segment liabilities
Deferred income taxes
Long-term debt
Total Company liabilities
2020
Segment revenues
Segment cost of sales
Segment selling, general and
administration expenses
Segment provision for expected credit loss
Segment reorganization costs
Segment change in foreign exchange (gain) loss
Segment amortization and depreciation
Segment profit (loss)
Finance expense
Total Company income (loss) before taxes
Segment assets
Segment liabilities
Deferred income taxes
Long-term debt
Total Company liabilities
Technical
Services
Renewables
Sustainability
Solutions
Corporate
Total
$
156,501
129,365
$
86,335
70,081
$
11,191
4,118
$
1,788
-
$
255,815
203,564
25,271
580
-
-
569
239
15,261
477
8,007
-
-
-
453
519
1,519
7,275
3,401
50
(2,716)
(1,100)
101
26
653
7,311
22,658
-
-
-
2,369
197
2,173
(23,436)
59,337
630
(2,716)
(1,100)
3,492
981
19,606
(8,373)
(7,126)
(475)
(2,141)
(4,000)
(22,115)
$
$
130,421
$
35,806
$
22,266
$
22,392
$
210,885
$
74,688
$
19,630
$
7,725
$
84,197
$
186,240
1,096
-
$
187,336
Techinal
Services
Renewables
Sustainability
Solutions
Corporate
Total
$
153,579
112,564
$
64,538
47,638
$
8,418
2,215
$
1,618
-
$
228,153
162,417
24,711
1,290
1,016
14
15,336
13,984
8,392
0
27
(185)
1,517
8,666
3,188
110
(61)
16
644
2,950
19,578
58
2,196
(150)
2,833
(20,064)
55,869
1,458
3,178
(305)
20,330
5,536
$
(6,762)
(1,226)
$
132,667
$
26,083
$
17,940
$
25,445
$
202,135
$
70,559
$
17,563
$
4,604
$
70,643
$
163,369
1,412
-
$
164,781
41
62
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
21. SEGMENTED INFORMATION (Continued)
The Company has locations in Canada and the US. Details of the Company’s operations by geographical area
are as follow:
Regional revenues
Regional cost of sales
Regional selling, general and administation expenses
Regional provision for expected credit loss
Regional change in fair value of financial instruments
Regional change in realized gain on settlement of derivative instruments
Regional reorganization costs
Regional change in foreign exchange (gain) loss
Regional profit (loss)
Property and equipment
Intangible assets
Goodwill
Regional revenues
Regional cost of sales
Regional selling, general and administation expenses
Regional provision for expected credit loss
Regional reorganization costs
Regional change in foreign exchange (gain) loss
Regional profit (loss)
Property and equipment
Intangible assets
Goodwill
22. RELATED PARTY TRANSACTIONS
Canada
USA
2021
Total
$
175,857
$
79,958
$
255,815
130,551
50,165
130
(2,716)
(1,100)
3,442
981
73,013
9,172
500
-
-
-
50
203,564
59,337
630
(2,716)
(1,100)
3,492
981
$
(5,596)
$
(2,777)
$
(8,373)
$
27,841
$
5,431
$
33,272
$
27,978
$
1,138
$
29,116
$
37,679
$
284
$
37,963
Canada
USA
2020
Total
$
179,899
$
48,254
$
228,153
121,901
48,311
199
2,799
(305)
40,516
7,557
1,259
379
-
162,417
55,869
1,458
3,178
(305)
$
6,994
$
(1,458)
$
5,536
$
24,494
$
3,759
$
28,253
$
35,209
$
1,522
$
36,731
$
43,579
$
284
$
43,863
In the year ended December 31, 2021, $1,455 of revenue was earned from and there was $256 owing from Red
Jar Capital in accounts receivable (2020 - $nil). There were no expenses incurred, no amounts included in
accounts payable and accrued liabilities owing to a former shareholder of a company acquired in Note 20, at both
December 31, 2021 or 2020. Further, there were no other balances due to/from related parties and/or
shareholders as at December 31, 2021 (December 31, 2020 - $nil).
Key management personnel are those persons having authority and responsibility for planning, directing and
controlling the activities of the Company, comprised of the Company’s directors and executive officers. Salaries
and other benefits paid to the key management personnel in the year were $1,871 (2020 - $3,097).
42
63
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
23. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
Bank indebtedness
Long-term debt
Promissory notes
Lease liability
$
2020
25,444
66,572
10,738
17,285
$
Cash flows
2,698
(4,248)
-
(8,050)
Deferred
financing fees
Gain on
settlement
-
$
(362)
-
-
-
$
-
-
-
New leases
acquired during
the year
-
$
-
-
11,392
$
2021
28,142
61,962
10,738
20,627
$
120,039
$
(9,600)
$
(362)
-
$
11,392
$
121,469
Non-cash changes
Bank indebtedness
Long-term debt
Promissory notes
Lease liability
$
2019
21,597
63,207
16,213
18,917
$
Cash flows
3,847
3,690
(5,278)
(7,088)
Deferred
financing fees
Acquisition
(Note 20)
-
$
(325)
-
-
-
$
-
(197)
-
New leases
acquired during
the year
-
$
-
-
5,456
$
2020
25,444
66,572
10,738
17,285
$
119,934
$
(4,829)
$
(325)
$
(197)
$
5,456
$
120,039
Non-cash changes
24. EARNINGS PER SHARE
The Company presents basic and diluted earnings per share data for its ordinary shares, being Common shares.
Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares outstanding during the period, adjusted for treasury
shares held. Diluted earnings per share is determined by dividing the profit or loss attributable to shareholders of
ordinary shares by the weighted average number of shares outstanding, adjusted for the effects of all dilutive
potential ordinary shares. As the Company is in a Net and Comprehensive Loss position in the current year, the
outstanding option, RSUs, DSUs and warrants are anti-dilutive.
Basic and diluted earnings per share
Numerator:
Net (loss) income
Denominator:
Basic shares outstanding
Diluted shares outstanding
(Loss) earnings per share:
Basic
Diluted
2021
2020
$
(21,293)
$
(1,679)
56,565
56,565
53,650
53,650
$
$
(0.38)
(0.38)
$
$
(0.03)
(0.03)
43
64
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
25. EXPENSE BY NATURE
Material, equipment and subcontractors
Other administration costs
Office and telephone
Salaries and wages
Occupancy costs
Advertising and promotion
Depreciation of property and equipment
Amortization of intangible assets
Professional fees
2021
2020
$
74,330
38,083
4,816
120,075
1,858
634
11,806
7,615
3,683
$
64,594
27,332
4,420
94,807
1,807
560
11,517
8,685
2,664
$
262,900
$
216,386
26. PROVISION FOR EXPECTED CREDIT LOSSES
As of December 31, 2021, the Company recognized $630 in Provision for expected credit losses (2020 - $1,458).
27. FINANCE EXPENSE
Interest on bank indebtedness (Note 11)
Interest on long-term debt (Note 12)
Interest on promissory notes (Note 13)
Interest on lease liabilities (Note 14)
Mark-to-Market interest loss (gain) (Note 18)
Other
28. TRANSACTION COSTS
2021
2020
$
1,451
3,014
868
1,159
(345)
979
$
1,208
3,093
879
1,116
41
425
$
7,126
$
6,762
During the year ended December 31, 2021 the Company incurred $2,141 in transactions costs. These are related
to costs associated with the convertible debenture process and costs associated with the strategic review process
including legal costs and special committee fees. There were no such costs incurred in the year ended December
31, 2020.
29. REORGANIZATION AND OTHER NON-RECURRING COSTS
During the year ended December 31, 2021, the Company recognized $3,492 of severance related costs (2020 -
$3,178) of which $1,794 was included in accrued liabilities as at December 30, 2021 (December 31, 2020 -
$1,297). These costs relate to management’s reorganization initiative that commenced in the fourth quarter of
2020 and 2021.
30. DISCONTINUED OPERATIONS
During the year the Company sold all the shares of its 100% owned subsidiary Orbis SPA for $189 (US$150) to
a third party, including the assumption of value added tax outstanding of $144 and outstanding legal fees of $57.
As a result of this sale the Company recorded a loss on discontinued operations of $475 (December 31, 2020 –
$nil).
44
65
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Presented in thousands of Canadian dollars, except share and per share amounts
31. COMMITMENTS AND CONTINGENT LIABILITY
(i)
(ii)
From time to time, the Company is party to legal proceedings arising out of the normal course of business.
The results of these litigations cannot be predicted with certainty, and management is of the opinion that
the outcome of these types of proceedings is generally not determinable. Any loss resulting from these
proceedings will be charged to operations in the period that a loss becomes probable.
The Company has entered into a lease agreement for a 40,000 sq ft building intended to house the
Company’s new head office. The agreement is a custom build, with upfront liability for the build held by
Spark, with reimbursement by the leasing company once the build is complete. Upon transfer to the leasing
company, Spark will then be responsible for monthly lease payments on the location for a term of fifteen
years. Completion of the build and possession of the leased location is expected in the fourth quarter of
2022.
32. SUBSEQUENT EVENTS
On January 31, 2022 the Company completed a $39.6M equity financing to extinguish $13.0M of subordinated
secured vendor debt, and to inject capital to its Statement of Financial Position and support working capital needs.
On March 9, 2022, the Company announced the signing of a second Power Purchase Agreement for the purchase
and sale of renewable energy and environmental attributes, including Certified Renewable Energy Certificates.
The expected start date is the second quarter of 2022.
33. COMPARATIVE FIGURES
These Financial Statements have been re-classified, where applicable, to conform to the presentation format used
in the current year. These changes have had no impact on prior year earnings.
45
66
M A N A G E M E N T
D I S C U S S I O N
&
A N A L Y S I S
F O R T H E Y E A R E N D E D D E C E M B E R 3 1
2 0 2 1
2 0 2 1
Management’s Discussion and Analysis
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following Management’s Discussion and Analysis (“MD&A”) of the operating performance and financial condition of Spark Power
Group Inc. (“Spark Power”, the “Company”, “we”, “us”, or “our”) for the three and twelve months ended December 31, 2021, dated
March 30, 2022, should be read in conjunction with the December 31, 2021 Consolidated Annual Financial Statements and related
notes thereto and the 2021 Management Information Circular. Additional information related to Spark Power is available under the
Company’s SEDAR profile at www.sedar.com and on our website at www.sparkpowercorp.com. Unless otherwise specified all
amounts are expressed in Canadian dollars.
FORWARD-LOOKING INFORMATION AND GOING CONCERN
This Spark Power MD&A contains forward-looking information and future oriented financial information within the meaning of
applicable Canadian securities laws (“forward-looking information”). All information other than statements of current and historical
fact contained in this Spark Power MD&A is forward-looking information and reflect management’s expectations regarding the
prospects, results of operations, performance and business of the Corporation based on information currently available to the
Corporation. Forward-looking information is provided for the purpose of presenting information about management’s current
expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other
purposes. These statements use forward-looking words, such as “anticipate”, “continue”, “could”, “expect”, “may”, “will”, “intend”,
“estimate”, “plan”, “believe” or other similar words but the absence of these words does not mean that a statement is not forward-
looking.
Forward-looking information in this Spark Power MD&A includes, but is not limited to, information relating to Spark Power’s future
financial and business operations outlook as set in the section entitled “Outlook” herein, statements regarding the Corporation’s
business, future development, debt restructuring, future financial position, our ability to secure new financing on reasonable terms,
our business strategy, the success and profitability of the business and our ability to support the services of our business, the electrical
power industry in general, potential future acquisitions, the ability of the Corporation to procure additional sales from new and existing
customers, the Corporation’s plans and objectives, the impact of trading patterns in our share price, the impact of regulators’ actions
and decisions on our business, the demand for our business and services, general business and economic conditions, our ability to
manage corporate growth and acquisitions, changes in interest rates, litigation, stabilization of Covid-19 business effects and recovery
to pre-Covid 19 pandemic business levels, our gross margin realization, and improvements in liquidity. In developing the forward-
looking information in this Spark Power MD&A, we have applied several material assumptions, as set out herein, including those
under the section “Outlook” and those related to general business and economic conditions and our ability to attract new financing
on reasonable terms.
By their nature, forward-looking information is inherently uncertain, is subject to risk and is based on numerous assumptions, including
those regarding present and future business strategies, the environment in which the Corporation will operate in the future, expected
revenues, financing plans, expansion plans and the Corporation’s ability to achieve its goals. Although management of the
Corporation believes that the expectations represented in such forward-looking information are reasonable, there can be no
assurance that such expectations will prove to be correct. The future outcomes that relate to forward-looking information may be
influenced by many factors that could cause actual future results, conditions, actions or events to differ materially from the targets,
expectations, estimates or intentions expressed in the forward-looking information, including, but not limited to, those described in
this Spark Power MD&A and in “Risk Factors” in the Company’s annual information form for the year ended December 31, 2021, filed
on March 30, 2022 and available on SEDAR at www.sedar.com. Spark Power cautions that the list of risk factors and uncertainties
is not exhaustive and other factors could also adversely affect results. Readers are urged to consider the risks, uncertainties and
assumptions carefully in evaluating the forward-looking information and future oriented financial information and the inherent
uncertainty of forward-looking information and future oriented financial information and are cautioned not to place undue reliance on
such information. Actual results may differ materially from those indicated or underlying forward-looking information as a result of
various factors,
There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ
materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking
information. Forward-looking information is provided as of the date of this Spark Power MD&A or such other date specified herein,
and the Corporation assumes no obligation to update or revise such forward-looking information to reflect new events or
circumstances except as required under applicable Canadian securities laws.
PRESENTATION OF FINANCIAL INFORMATION
The consolidated financial statements (“financial statements”), including the required comparative information, have been prepared
in accordance with International Financial Reporting Standards (“IFRS”)), as issued by the International Accounting Standards Board
(“IASB”). Financial results, including historical comparatives contained in this MD&A, unless otherwise specified herein, are based
68
2
Management’s Discussion and Analysis
on these financial statements. The Canadian dollar is the Company’s reporting currency for purposes of preparing the financial
statements given that the Company conducts most of its operations in that currency. Accordingly, all dollar references in this MD&A
are in Canadian dollars, unless otherwise specified.
KEY PERFORMANCE INDICATORS (NON-IFRS MEASURES)
This Spark Power MD&A makes reference to certain non-IFRS measures, including: “EBITDA”, “EBITDA Margin”, “Adjusted EBITDA”,
“Adjusted EBITDA Margin”, “Pro-forma Adjusted EBITDA”, “Pro-forma Adjusted EBITDA Margin”, “Pro-forma Adjusted LTM EBITDA”,
“Pro-forma Revenue”, “Pro-forma LTM Revenue”, and “Adjusted Working Capital”. 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. See “Selected Consolidated Financial Information” and “Management’s
Discussion and Analysis”.
“EBITDA” means net income (loss) before amortization, finance costs, and provision for income taxes.
“Adjusted EBITDA” means EBITDA adjusted for any reorganization and transaction costs, discontinued operations and change in
estimate which management considers to be not representative of Spark Power’s ongoing operating performance. Spark Power uses
EBITDA and Adjusted EBITDA to evaluate the performance of its business as these measures reflect ongoing profitability and it
believes these measures are useful in making comparisons between periods. Spark Power believes that EBITDA and Adjusted
EBITDA provide analysts and investors with information about its income generating capabilities, and ability to service debt and meet
other payment obligations. Management uses these measures to monitor and plan for the operating performance of Spark Power in
conjunction with other data prepared in accordance with IFRS.
“Pro-forma Adjusted EBITDA” means Adjusted EBITDA adjusted for the impact of EBITDA earned by companies acquired during
the period for the period prior to acquisition.
“Pro-forma Revenue” means revenue adjusted for the impact of revenue earned by companies acquired during the period for the
period prior to acquisition.
“Adjusted revenue for change in estimate” means revenue adjusted for the revenue impact of the change in estimate.
“EBITDA Margin” means EBITDA divided by revenue.
“Adjusted EBITDA Margin” means Adjusted EBITDA divided by revenue.
“Adjusted EBITDA Margin for change in estimate” means Adjusted EBITDA divided by adjusted revenue for change in estimate.
“Pro-forma Adjusted EBITDA Margin” means Pro-forma Adjusted EBITDA divided by revenue.
“Pro-forma Adjusted LTM EBITDA” means the Company’s last twelve months EBITDA as at the measurement date adjusted for
the impact of EBITDA earned by companies acquired during the twelve months prior to the measurement date.
“Pro-forma Adjusted LTM EBITDA Margin” means Pro-forma Adjusted LTM EBITDA divided by Pro-forma LTM revenue.
“Pro-forma LTM Revenue” means the Company’s last twelve months revenue adjusted for the impact of revenue earned by
companies acquired during the period for the twelve months prior to the measurement date.
“Adjusted Working Capital” means working capital less the current portion of long-term debt and lease liability, and therefore
provides management and investors with a clearer understanding of the efficiency of operational working capital needs absent
working capital required as a result of capital structure.
69
3
Management’s Discussion and Analysis
BUSINESS OVERVIEW
Headquartered in Oakville, Ontario, Canada, Spark Power Group Inc. is a leading provider of end-to-end electrical contracting,
operations and maintenance services, and energy sustainability solutions to the industrial, commercial, utility, and renewable asset
markets in Canada and the United States. Spark is focused on delivering our promise of being our customers’ Trusted Partner in
PowerTM, taking advantage of the opportunities presented by a dynamic market.
Operating within our field focused operating model, Spark Power is structured and financially reports the organization in four specific
business segments: Technical Services, Renewables, Sustainability Solutions, and Corporate. The Technical Services business
segment is managed in three geographic, operational regions: Western Canada, Eastern Canada, and USA.
Spark’s integrated suite of services across North America are as follows:
Technical Services
Centred around its branch network, Spark’s Technical Services business segment operates out of several locations in the U.S. and
Canada and focuses on pole-to-product electrical services. With highly responsive and local technical teams, Spark offers a wide
variety of services and solutions to a wide range of customers including:
Low Voltage
Medium & High
Voltage
Engineering
Power Equipment
• Electrical contracting services
•
Industrial automation
• Systems integration
• Custom control panel design and assembly
• Electronic repair
•
24/7 emergency services
• Power ‘On’ services
• Sub-station construction and
maintenance
• Power line construction and
maintenance
• Equipment installation
• Commissioning
•
•
Thermography services
Transformer maintenance
• Power systems engineering
• Protection
and
control
engineering
• Substation engineering
• SCADA engineering
• Arc flash studies
• Buy, refurbishment and resale
of used electrical equipment
• Sales and rentals of power
• Sale
of medium
voltage
electrical
switchgear
Full fabrication shop/paint line capabilities
•
transformers
70
4
Management’s Discussion and Analysis
Renewables
Spark Power’s Renewables business segment is one of the largest independent renewables operations and maintenance providers
in North America. Operating in many centres and remote locations in the U.S. and Canada, Spark’s Renewables business is primarily
focused on Wind, Solar, Storage and Electric Vehicle assets. Spark Power’s Renewables services include:
Solar
Wind
Battery Energy
Storage Systems
(BESS)
•
24/7 monitoring and analytics
from central operating centre
•
Fence to fence, onsite operations and
maintenance to wide range of solar
sites
In-construction services
•
• Asset monitoring
• Operations and maintenance
• Commissioning
• Engineering, procurement,
and construction
• Operations and maintenance
• Commissioning
Electric Vehicle (EV)
• Construction
• Operations and maintenance
Sustainability Solutions
Through our Bullfrog brand, Spark Power is well positioned to deliver unique Sustainability Solutions to help its customers adapt to
the rapidly changing construct of the power grid. The Company has its roots in renewable and community power and, through its
Bullfrog Power subsidiary, is the de-facto leader in sustainability in Canada. As a result, the Company has both the deep technical
expertise and the key regulatory and government relationships required to deliver on these new commercial models. Our
Sustainability Solutions business segment offers our Technical Services and current Sustainability Solutions customers the
opportunity to build upon their own ESG mandates by providing them access to Renewable Energy Credits (RECs), Power Purchase
Agreements (PPAs) and a variety of energy efficiency services.
71
5
Management’s Discussion and Analysis
SUMMARY FINANCIAL INFORMATION
The selected information presented below has been derived from and should be read in conjunction with the Company’s consolidated
financial statements and related notes for the three months and years ended December 31, 2021 and 2020.
(in $000's)
Revenue
Cost of sales
Gross profit
Selling, general and administrative expenses
Provision for expected credit losses
Change in fair value of derivative instruments
Reorganization costs
Realized gain on settlement of derivative instrument
Foreign exchange (gain) loss
Loss from operations
Finance costs
Transaction costs
Discontinued Operations
Earn-out
Impairment Loss
Loss before income taxes
Income tax recovery (expense):
Current
Deferred
Net loss
Cumulative translation adjustment
Comprehensive loss
EBITDA
EBITDA margin
Adjusted EBITDA
Pro-forma Revenue
Pro-forma EBITDA margin
Adjusted revenue for change in estimate
Adjusted EBITDA margin for change in estimate
Three months ended December 31,
2020
2021
Twelve months ended December 31,
2020
2021
$
65,424
55,907
$
66,865
48,342
$
255,815
203,564
$
228,153
162,417
9,517
17,210
517
157
1,862
65
503
(10,797)
(2,233)
(580)
-
-
(4,000)
(6,813)
(17,610)
1,807
(2,073)
(266)
(17,876)
18,523
14,865
1,405
-
1,947
-
(31)
337
(1,793)
-
-
(1,900)
-
(3,693)
(3,356)
(226)
276
50
(3,306)
52,251
59,337
630
(2,716)
3,492
(1,100)
981
(8,373)
(7,126)
(2,141)
(475)
-
(4,000)
(13,742)
(22,115)
506
316
822
(21,293)
65,736
53,969
1,458
-
3,178
-
(305)
7,436
(6,762)
-
-
(1,900)
-
(8,662)
(1,226)
(3,047)
2,594
(453)
(1,679)
$
241
(17,635)
$
8
(3,298)
$
373
(20,920)
$
(453)
(2,132)
($10,241)
-15.7%
$
3,621
5.4%
$
4,615
1.8%
$
25,866
11.3%
2,516
65,424
3.8%
68,464
3.7%
8,873
66,865
13.3%
66,865
13.3%
21,743
255,815
8.5%
259,330
8.4%
32,402
228,153
14.2%
228,153
14.2%
72
6
Management’s Discussion and Analysis
EBITDA and Adjusted EBITDA
The following table provides a reconciliation of our EBITDA measures:
(in $000's)
Reconciliation of net loss to EBITDA and Adjusted
EBITDA
Net loss
Adjustments:
Finance expense
Income tax expense
Amortization and depreciation
EBITDA
EBITDA Margin
Adjustments:
Provision for expected credit loss
Reorganization costs
Transaction costs
Earn-out
Discontinued operations
Change in estimate
Year end provisions
Impairment Loss
Adjusted EBITDA
Adjusted EBITDA Margin
Three months ended December 31,
2020
2021
Twelve months ended December 31,
2020
2021
$
(17,876)
$
(3,306)
$
(21,293)
$
(1,679)
2,233
266
5,136
1,793
(50)
5,184
7,126
(822)
19,604
6,762
453
20,330
$
(10,241)
$
3,621
$
4,615
$
25,866
-15.7%
5.4%
1.8%
11.3%
517
1,862
580
-
-
3,740
2,058
4,000
1,405
1,947
-
1,900
-
-
-
-
630
3,492
2,141
-
475
6,390
-
4,000
1,458
3,178
-
1,900
-
-
-
-
$
2,516
3.8%
$
8,873
13.3%
$
21,743
8.5%
$
32,402
14.2%
Adjusted EBITDA margin for change in estimate
3.7%
13.3%
8.4%
14.2%
RECENT DEVELOPMENTS
Rights Offering and Private Placement
On January 31, 2022, the Company completed a rights offering and private placement raising $39.6M in new capital.
Upon closing of the Rights Offering, the Company issued approximately 24.7 million common shares of the Company (“Common
Shares“) at a price of $1.20 per Common Share for aggregate gross proceeds of approximately $29.6 million. Pursuant to the terms
of the Rights Offering, each eligible shareholder was entitled to subscribe for 0.4393346119 of a Common Share for every right held
by such shareholder.
For the private placement, the Company issued approximately 8,333,333 Common Shares at a price of $1.20 per Common Share
for aggregate gross proceeds of approximately $10 million. The entire Private Placement was subscribed for by funds managed by
Stornoway Portfolio Management Inc. (“Stornoway”).
The Company used a portion of the net proceeds to (i) repay certain indebtedness under the various promissory notes held by the
First Standby Guarantors in connection with past acquisitions and (ii) to satisfy an earn-out payment that is owing by the
Company. The balance of the proceeds were used to reduce its line of credit to support working capital purposes.
Change in Accounting Estimate
Significant judgements and estimates are involved in recognizing revenue related to the long term construction contracts as disclosed
in the significant accounting judgements and estimates section of the MD&A. During the third and fourth quarters of 2021, the
Company conducted a robust review of the revenues and costs associated with longer-term construction contracts for a number of
its business lines. As a result of this robust review, including a review of change orders and reserves set up for additional
costs/overruns, estimate updates as detailed below has been reflected in the third and fourth quarters as a change in accounting
estimate. The accounting policies related to revenue recognition and recoverability of costs has not changed.
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, such estimate updates do not impact the current upward trends in the
growth and cash flow generation of the business. Management remains optimistic in its outlook and expects the current momentum
in the business to extend into 2022 and beyond.
Details of the adjustment related to a change in estimates is as follows:
73
7
Management’s Discussion and Analysis
(in $000's)
Financial Statement Area Impacted
Revenue
Cost of goods sold
Selling, general and administration
Technical
Services
Renewables
Sustainability
Solutions
Corporate
Total
Three months ended December 31, 2021
$
1,840
$
1,200
$
-
$
-
$
3,040
700
-
-
-
-
-
-
-
700
-
$
2,540
$
1,200
$
-
$
-
$
3,740
(in $000's)
Twelve months ended December 31, 2021
Financial Statement Area Impacted
Technical
Services
Renewables
Sustainability
Solutions
Corporate
Total
Revenue
Cost of goods sold
Selling, general and administration
$
3,515
$
-
$
-
$
-
$
3,515
2,464
34
-
117
$
6,013
$
117
-
-
-
-
260
2,464
411
$
260
$
6,390
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.
Executive Leadership Reorganization
On January 5, 2021 the Company announced that co-CEO’s Jason Sparaga and Andrew Clark would be stepping back from their
roles in the day-to-day operations of the Company. Both are continuing as board members and major shareholders with Mr. Sparaga
assuming a new role as Executive Board Chair and Mr. Clark as the Company’s Vice Board Chair. The Company also announced
that the Company’s Chief Operating Officer, Richard Jackson would be appointed as the Company’s new President and Chief
Executive Officer.
Subsequently, on January 21, 2021 the Company announced a new senior leadership team and a renewed focus on the business
operations. This resulted in severance costs related to the reorganization, of which $1.3 million was accrued in the fiscal 2020 results
and the balance incurred through 2021. As of December 31, 2021 the Company has amounts outstanding related to these severance
costs of $0.5 million, that will be paid through the first quarter of 2022.
During the third quarter the Company announced the addition of two new senior leadership members to the organization. Tom Duncan
joined the organization in July 2021 assuming the role of Executive Vice-President Technical Services – Canada. Richard Perri joined
the company in August 2021 assuming the role of Senior Vice-President Finance with responsibility to oversee the day-to-day
operations of the Finance team, including financial planning and analysis, treasury management and all financial reporting activities.
Subsequently, on November 16, 2021 the Company announced the appointment of Tom Duncan as the Chief Operating Officer and
Richard Perri as the Executive Vice-President and Chief Financial Officer.
COVID-19 Pandemic
Management initiated internal discussions on COVID-19 as early as January 2020 and began developing plans on how the company
should approach any possible impacts. As the virus spread, our efforts intensified, and the Company put in place a variety of
measures that focused on employee safety, assistance and employment, liquidity, communication, daily business updates and
strategies, and proactive negotiations with our lenders on the potential impact of COVID-19 on our business.
The pandemic had the largest impact on the company in the second quarter of 2020 despite most of our business being deemed an
essential service. The uncertainty that remained about the future, both locally and globally, was strong and prevalent and impacted
our business decisions. Some of our customers shut their facilities to outside contractors and others deferred projects during the
early phases of the pandemic. The impact of most of these customer decisions was evident in April and May of 2020 as revenues
declined approximately 26% on a pro-forma basis, with our Canadian revenues down 33%, partially offset by a pro-forma increase
in revenues of 26% in our US business.
The third quarter of 2020 was less impacted by the pandemic as revenues returned to historical levels in all of our business units with
the exception of our low voltage business in our Technical Services Eastern segment. The fourth quarter came back strong as
customers moved to catch up on work that was delayed during government mandated restrictions.
With the resurgence of COVID-19 driven by the impact of new variants in the beginning of 2021 the Company once again realized
year-on-year revenue declines in its some of its Technical Services operations. These lower revenues, along with the impact of
ongoing COVID protocols, has continued to impact gross margin realizations through 2021, albeit to a lesser extent.
74
8
Management’s Discussion and Analysis
During the fourth quarter of 2021 the Company continued to experience the effects of the pandemic on the operational efficiencies
within its business units. Furthermore, the Company has realized significant inflationary price increases for certain of its key cost
inputs resulting in downward pressure on gross margins. The Company has introduced certain pricing measures, including commodity
surcharges and billable rate increases, to offset the impact on gross margins. The Company anticipates the benefits of such price
actions to be more fully realized in the first quarter of 2022.
Amendment to Credit Facility
During the second quarter the Company entered into a new Amended and Restated Credit Agreement dated June 17, 2021 and a
subsequent Amendment Agreement dated June 25, 2021 with its Lender. Key terms of these Agreements are as follows:
a. A consolidation of the non-revolving term loan, revolving acquisition line, COVID loan and demand revolving facility to finance
growth capital expenditures into a new committed non-revolving term loan totaling $66,600;
b. The maturity date of this new facility was extended to September 30, 2023 and will be amortized over an 8-year period with
quarterly repayments of $2,082;
c. The $30,000 demand revolving credit facility was replaced by a $35,000 committed margined revolving credit facility, subject
to borrowing base limits;
d. An increase in interest rates, based on applicable margins;
e. An adjustment to covenants, as noted below.
The Company is also required to comply with certain covenants, terms and conditions under the credit facilities. These covenants
include a fixed charge coverage ratio, a total debt to EBITDA and a total senior debt to defined EBITDA covenant calculated on a 12-
month rolling quarterly basis. On December 14, 2021, the Credit Agreement was amended to revise the covenant requirements as
follows:
• Minimum fixed charge covenant ratio of 1.10 extended for the quarters ended December 31, 2021 and March 31, 2022,
increasing to 1.25 for each quarter ended thereafter;
• Maximum total senior debt to EBITDA ratio based on the most recently completed four fiscal quarters of 3.25:1.00;
• Maximum total funded debt to EBITDA ratio based on the most recently completed four fiscal quarters of 4.00:1.00 extended
for the quarters ended December 31, 2021 and March 31, 2022, decreasing to 3.75:1.00 for each fiscal quarter thereafter.
As at December 31, 2021 the Company was not in compliance with the financial covenants in its credit facility. As a result the
Company’s non-revolving term loan have been classified as current debt at December 31, 2021. Subsequent to December 31,
2021 the Company received a waiver of this covenant violation from its lender.
The Company is required to comply with certain covenants, terms and conditions under the credit facilities. As a result
management has determined that it would be prudent to disclose that there is a material uncertainty related to events or conditions
that may cast significant doubt on the entity's ability to continue as a going concern and, therefore, that it may be unable to realize
its assets and discharge its liabilities in the normal course of business.
The Company commenced discussions with its lender to explore alternatives to re-finance the above noted non-revolving term
loan into a long-term facility and expand the Company’s borrowing facilities to support future growth opportunities, including
possible syndication of its debt.
RESULTS OF OPERATIONS
Results for the three and twelve months ended December 31, 2021 have been impacted by the continuing COVID-19 pandemic that
began impacting the business in late March of 2020 and continued through the balance of fiscal 2020 with the largest impact being
experienced in the second quarter of 2020. The impact of COVID protocols, including quarantine requirements and site testing and
questionnaires have continued to impact our operating and labour efficiencies through fiscal 2021. Furthermore, the impact of
inflationary price increases have impacted our realized gross margins in the fourth quarter of 2021.
75
9
Revenue
Revenue is broken down by segment as follows ($000’s):
Management’s Discussion and Analysis
.
Revenue for the three-months ended December 31, 2021 was $65.4 million, compared with $66.9 million in the fourth quarter of
2020, representing a decrease of $1.4 million or 2.2% (adjusted three-months ended December 31, 2021 was $68.5 million or 2.4%
excluding the impact on Revenue of the change in estimate). The primary reason for the change was due to a decrease in revenue
in Technical Services of $7.0 million or 15.7% tied to a shift in business strategy in our Western Canada operation to focus on higher
margin Service work, offset by organic growth in our Renewables business unit that experienced organic growth of $5.4 million or
27.6%.
Revenue for the twelve-months ended December 31, 2021 was $255.8 million, compared with $228.2 million in the same period in
2020, representing an increase of $27.7 million or 12.1% (adjusted twelve-months ended December 31, 2021 was $259.3 million or
13.7% excluding the impact on Revenue of the change in estimate). The increase was attributable to an increase in Technical
Services revenues of $2.9 million or 1.9% (4.2% growth for Technical Services excluding the impact of the change in estimate) and
strong Renewables revenue growth of $21.8 million or 33.8% due primarily to the growing demand in the US marketplace for
renewable energy solutions.
Organic revenue growth is broken down as follows:
(in $000's)
Three months ended December 31
2021
Adjusted
2021
2020
Technical Services
Renewables
Sustainability
Corporate
Total
$
$
$
37,714
25,064
2,337
309
65,424
39,554
26,264
2,337
309
68,464
44,723
19,646
2,012
484
66,865
$
$
$
76
$
$ Growth % Growth
(15.7%)
27.6%
16.2%
(36.2%)
(2.2%)
(7,009)
5,418
325
(175)
(1,441)
$
%
Operational
Growth
(11.6%)
33.7%
16.2%
(36.2%)
2.4%
10
Twelve months ended December 31
2021
Adjusted
2021
2020
$
$
$
156,501
86,335
11,191
1,788
255,815
160,016
86,335
11,191
1,788
259,330
$
$
$
153,580
64,538
8,418
1,618
228,154
Management’s Discussion and Analysis
$
$ Growth % Growth
1.9%
33.8%
32.9%
10.5%
12.1%
2,921
21,797
2,773
170
27,661
$
%
Operational
Growth
4.2%
33.8%
32.9%
10.5%
13.7%
(in $000's)
Technical Services
Renewables
Sustainability
Corporate
Total
Government Grants
The outbreak of COVID-19 has resulted in worldwide emergency measures to combat the spread of the virus. These measures,
including significant restrictions on commercial activity, have caused massive disruption to businesses globally, resulting in a broad-
based and global economic slowdown.
The Company’s operations are exposed to a variety of business and financial risks as a result of a public threat, such as COVID-19.
These risks include but are not limited to, decline in customer demand, increase in operating costs, interruption of project work, credit
risk associated with customer non-payment, access to financing and change in the timing of cash flows.
When the pandemic struck in early 2020, the Company experienced a disruption in its operations due to restrictions implemented by
the federal, state and provincial governments in relation to this outbreak. Both the Canadian and US governments responded to the
expected economic crisis by announcing payroll subsidies.
2021
Canadian Emergency Wage Subsidy
Cost of sales
Selling, general and administrative
Total
2020
Canadian Emergency Wage Subsidy
Cost of sales
Selling, general and administrative
Paycheck Protection Program
Cost of sales
Selling, general and administrative
Total
Canada Emergency Wage Subsidy
1,786
236
2,022
6,620
1,078
7,698
Technical
Services
Renewables
Sustainability
Solutions
Corporate
Total
$
$
$
$
273
74
347
$
-
31
31
$
$
-
139
139
$
$
$
2,059
480
2,539
Technical
Services
Renewables
Sustainability
Solutions
Corporate
Total
$
$
$
$
1,432
370
1,802
-
$
268
268
$
-
$
1,102
1,102
$
$
$
8,052
2,818
10,870
$
637
233
$
1,408
158
-
$
-
-
$
-
$
2,045
391
$
$
870
8,568
$
$
1,566
3,368
$
-
$
268
$
-
$
1,102
$
$
2,436
13,306
In April 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) in order to help employers
keep and/or return Canadian-based employees to payrolls in response to challenges posed by the COVID-19 pandemic.
In the first three quarter of 2021, management determined that it met the employer eligibility criteria and applied for funding under the
CEWS and recorded $2.5 million in the three quarters which was recorded against the segmented cost of sales and selling, general
and administration (“SG&A”) expenses to which they are related. During the fourth quarter of 2021 the Company did not qualify under
the CEWS program. During 2020 the Company recognized $10.9 million which was recorded against segment
cost of sales and SG&A expenses to which they are related.
Paycheck Protection Program
In March 2020, the United States Government announced the Paycheck Protection Program (“PPP”) in order to help employers keep
and/or return US-based employees to payrolls in response to challenges posed by the COVID-19 pandemic. In the second quarter
of 2020, the Company received $2.4 million in funding related to this program for our US based operations. This funding came in the
77
11
Management’s Discussion and Analysis
form of a loan payable which was due in full on the second anniversary of its receipt, bearing an interest rate of 1% per annum, with
the possibility of absolute forgiveness if eligible. Subsequent to December 31, 2020, all loans have received forgiveness. There was
no PPP funding in 2021.
Cost of Sales and Gross Profit
For the three months ended December 31, 2021, gross profit, inclusive of depreciation and amortization decreased $9.0 million to
$9.5 million as compared to $18.5 million in the same period in 2020 (adjusted three-months ended December 31, 2021 was $13.3
million excluding the impact on gross profit of the change in estimate). Gross profit margins were 14.5%, down from 27.7% in the
fourth quarter of 2020 resulting in a decline in gross margin realization of 13.2% (adjusted gross profit margins were 19.4% excluding
the impact of the change in estimate). Gross profit excluding depreciation and amortization decreased $8.8 million to 19.2% of
revenue resulting in a 12.8% decrease in gross margin realizations (adjusted gross profit excluding depreciation and amortization
decreased $5.1 million to 23.8% excluding the impact of the change in estimate). The primary reasons for the change were related
to government grants under the CEWS and PPP programs of $2.8 million recognized in the fourth quarter of 2020 as compared to
$nil in the fourth quarter of 2021, change in estimates of $3.7 million recorded in the quarter, and gross margin rate pressure due to
inflationary cost increases and the impact of revenue mix.
For the twelve months ended December 31, 2021, gross profit decreased $13.5 million to $52.3 million as compared to $65.7 million
in the same period in 2020 (adjusted twelve-months ended December 31, 2021 was $58.2 million excluding the impact on gross profit
of the change in estimate). Gross profit margins, inclusive of depreciation and amortization, were 20.4% down from 28.8% in the
same period in 2020 resulting in a decrease in gross margin realization of 8.4% (adjusted gross profit margins were 22.5% excluding
the impact of the change in estimate). Gross profit excluding depreciation and amortization decreased to 25.0% of revenue from
33.6% in the same period in 2020 resulting in a 8.6% decrease in gross margin realizations (adjusted gross profit excluding
depreciation and amortization decreased $6.9 million to 26.9% excluding the impact of the change in estimate). The primary reasons
for the change were related to government grants under the CEWS and PPP programs due to the cost of sales being offset by $10.1
million in the twelve-month period ended December 31, 2020 as compared to $2.1 million in the twelve months ended December 31,
2021 and the change in estimate recorded in the third quarter of 2021.
(in $000s)
Revenue
Cost of sales
Gross profit
Depreciation and amortization included in cost of sales
Gross profit, excluding depreciation and amortization
Adjusted revenue
Adjusted cost of sales
Adjusted gross profit
Three months ended December 31
Twelve months ended December 31
2021
2020
2021
$
65,424
$
55,907
9,517
$
3,057
12,574
$
$
68,464
55,207
13,257
%
85.5%
14.5%
19.2%
19.4%
2020
$
66,865
$
48,342
18,523
$
%
72.3%
27.8%
$
255,815
203,564
52,251
$
$
2,875
21,398
32.0%
11,635
63,886
$
66,865
48,342
18,523
$
27.8%
$
$
259,330
201,099
58,230
%
79.6%
20.4%
25.0%
22.5%
$
228,153
162,417
65,736
11,030
76,766
228,153
162,417
65,736
$
$
$
$
%
71.2%
28.8%
33.6%
28.9%
Adjusted gross profit excluding, depreciation and amortization
$
16,314
23.8%
$
21,398
32.0%
$
69,865
26.9%
$
76,766
33.6%
The impact of government-imposed restrictions related to the outbreak of COVID-19 resulted in a decline of our revenues, specifically
our high and low voltage operations in the East, which negatively impacted gross margin realizations, primarily due to lower labour
utilization. The government grants through the CEWS program helped offset significant labour costs maintained by the company and
other operating inefficiencies realized during the pandemic.
Components of cost of sales were as follows:
78
12
Management’s Discussion and Analysis
During the three and twelve months ended December 31, 2021, labour costs were $23.9 million and $91.2 million respectively, as
compared to $22.0 million and $77.3 million in the same periods in 2020 (adjusted labour costs were $23.8 million and $91.0 million
respectively, excluding the impact of the change in estimate). These costs in the three and twelve months ended December 31, 2021
were offset by $nil and $2.1 million, respectively in 2021, as compared to $2.4 million and $10.1 million in the same periods in 2020
in government grants under the CEWS and PPA programs. This reduced total labor costs to $23.9 million and $89.2 million,
respectively in 2021 from $19.6 million and $67.2 million in the same periods in 2020 (adjusted labour costs were $23.8 million and
$88.9 million respectively, excluding the impact of the change in estimate).
During the three and twelve months ended December 31, 2021, vehicle costs and travel increased to $10.2 million or 15.6% of
revenue and $30.5 million or 11.9% of revenue, respectively, from $6.1 million or 9.1% of revenue and $19.8 million or 8.7% of
revenue in the same periods of 2020 (adjusted vehicle costs and travel were $10.2 or 14.8% of revenue and $30.4 million or 11.7%
of revenue respectively, excluding the impact of the change in estimate). The increase is related to an increase in travel in our
Renewables group as a result of revenue growth in this segment and increased servicing of remote sites requiring significant travel
costs.
During the three and twelve months ended December 31, 2021, materials increased to $15.7 million or 24.0% of revenue and $54.9
million or 21.5% of revenue, respectively, from $12.8 million or 19.1% of revenue and $42.0 million or 18.4% of revenue in the same
periods of 2020 (adjusted materials were $15.5 or 22.6% of revenue and $53.9 million or 20.8% of revenue respectively, excluding
the impact of the change in estimate). The increase is related to an increase in larger projects in our Technical Services segment that
have a higher material component relative to labor.
During the three and twelve months ended December 31, 2021, subcontractor costs decreased to $3.1 million or 4.7% of revenue
and decreased to $17.4 million or 6.8% of revenue, respectively, from $7.0 million or 10.4% of revenue and $22.4 million or 9.8% of
revenue in the same periods of 2020 (adjusted subcontractor costs were $2.7 or 4.0% of revenue and $16.3 million or 6.3% of
revenue respectively, excluding the impact of the change in estimate). The decrease compared to prior year is due to a change in
mix of the business in our Technical Services business units that experience variation in the levels of labor, materials and sub-
contractor costs when servicing jobs.
79
13
Management’s Discussion and Analysis
Selling, General and Administration Expense
For the three and twelve months ended December 31, 2021, SG&A expenses increased to $17.2 million or 26.3% of revenue and
$59.3 million or 23.2% of revenue, respectively, from $14.9 million or 22.2% of revenue and $54.0 million or 23.7% of revenue in the
same periods of 2020 (adjusted three and twelve months ended December 31, 2021 was $17.2 million or 25.1% of revenue and
$58.9 million or 22.7% of revenue, respectively, excluding the impact on SG&A of the change in estimate). SG&A excluding
depreciation and amortization was $15.1 million or 23.1% of revenue and $51.4 million or 20.1% in the three and twelve months
ended December 31, 2021 respectively, as compared to $12.6 million or 18.8% of revenue and 44.7 million or 19.6% of revenue over
the same period in 2020 (adjusted three and twelve months ended December 31, 2021 was $15.1 million or 22.1% of revenue and
$51.0 million or 19.6% of revenue, respectively, excluding the impact on SG&A of the change in estimate).
(in $000s)
Revenue
Three months ended December 31
2021
$
%
2020
$
%
Twelve months ended December 31
2020
2021
$
%
$
%
$
65,424
$
66,865
$
255,815
$
228,153
Selling, general and administrative expenses
17,206
26.3%
14,865
22.2%
59,337
23.2%
53,969
23.7%
Depreciation and amortization included in selling,
general and administrative expenses
SG&A, excluding depreciation and amortization
Adjusted revenue
Adjusted selling, general and administrative
2,081
15,125
68,464
17,206
Adjusted SG&A, excluding depreciation and amortization
$
15,125
23.1%
25.1%
22.1%
2,309
12,556
66,865
14,865
$
12,556
18.8%
22.2%
18.8%
7,970
51,367
259,330
58,926
$
50,956
20.1%
22.7%
19.6%
9,299
44,670
228,153
53,969
$
44,670
19.6%
23.7%
19.6%
Components of SG&A costs were as follows:
80
14
Management’s Discussion and Analysis
During the three and twelve months ended December 31, 2021 labour costs were $9.1 million and $31.8 million, respectively, from
$8.6 million and $30.8 million in the same periods in 2020. During the three and twelve months ended December 31, 2021, salaries
and benefits were offset by $nil and $0.5 million, respectively, by government grants under the CEWS and PPP programs announced
in April 2020 as compared to $0.4 million and $3.2 million during the three and twelve months ended December 31, 2020.
Depreciation and amortization costs included in SG&A during the three and twelve months ended December 31, 2021 were $2.1
million or 3.1% of revenue and $8.0 million or 3.1% of revenue as compared to $2.3 million or 3.5% of revenue and $9.3 million or
4.1% of revenue in the same period of 2020. The decrease is related to the removal of fully amortized intangibles in the first quarter
of 2021 as compared to the same period in 2020.
Change in fair value of derivative instruments
During the year ended December 31, 2020, the Company entered into a Power Purchase Agreement (“PPA”) for the purchase and
sale of renewable energy and environmental attributes, including Certified Renewable Energy Certificates, for a period of seven years
with an expected start date in the second quarter of 2021.
During the three and twelve months ended December 31, 2021, the Company has recognized a change in the fair value of this
derivative asset of $0.2 million and $3.9 million, respectively which is derived from the market projections of power prices in the
Alberta market over the expected life of the contract.
To offset any risk and volatility of this agreement, management entered into a related power swap arrangement to hedge the risk of
changes in cash flows due to the fluctuations of power prices in the Alberta market. The change in the estimated fair value of the
other derivative liability during the three and twelve months ended December 31, 2021 was $0.1 million and $1.2 million respectively,
and is based on the projected market values of similar contracts with similar remaining durations as if the contract has been entered
into on December 31, 2021 (December 31, 2020 - $nil).
During the fourth quarter and on a year-to-date basis for 2021 the Company recognized a realized gain on the sale of energy in
excess of its contracted purchase price under the PPA of $0.2 million and $1.9 million, respectively. These gains were partially offset
by realized losses over the same periods of $0.3 million and $0.8 million, respectively, on the hedge associated with this agreement.
Reorganization and transaction costs
Reorganization costs for the three and twelve months ended December 31, 2021 was $1.9 and $3.5 million respectively, compared
to $1.9 million and $3.2 million in the same period in 2020 (adjusted twelve months ended December 31, 2021 was $2.4 million
respectively). Reorganization costs in 2021 relate primarily to severances paid and accrued related to the Company’s leadership
reorganization announced in the first and fourth quarters. Transaction costs for the three and twelve months ended December 31,
2021 were $0.6 and $2.1 million respectively, as compared to nil in the comparable periods in 2020 (adjusted twelve months ended
December 31, 2021 was $1.8 million respectively). Transaction costs relate primarily to professional fees associated with the
Company’s debenture process in the second quarter of 2021 and legal and special committee fees related to the ongoing strategic
review process as well as fees related to the rights offering launched in December 2021.
Amortization and Depreciation and Finance Costs
Amortization and depreciation, included in cost of goods sold and SG&A expenses, for the three months and twelve months ended
December 31, 2021 was $5.1 million and $19.6 million respectively, compared with $5.2 million and $20.3 million over the same
period in 2020.
Finance costs for the three months and twelve months ended December 31, 2021 were $2.2 million and $7.1 million respectively, as
compared to $1.8 million and $6.8 million during the same period of 2020. The change in the period as compared to the same period
in 2020 was due to a decline in the mark-to-market loss on an interest rate swap. This is discussed further in the “Risk Management”
section of this report. The offsetting increase is related to an increase in our debt facilities through 2021 which resulted in an increase
in interest expense in the third and fourth quarters.
81
15
Management’s Discussion and Analysis
BUSINESS SEGMENTS
RESULTS OF OPERATIONS – By Reportable Business Segment
The Company has structured its reportable business segments as detailed below. Management believes that this segmentation
reflects how the business is managed and provides a clearer understanding, for both management and other users of the financial
information, of the businesses with different growth opportunities, revenue profiles and historical earnings performance and potential.
INTEGRATED POWER SOLUTIONS
TECHNICAL
SERVICES
RENEWABLES
SUSTAINABILITY
SOLUTIONS
CORPORATE
CANADA
EAST
CANADA
WEST
USA
Technical Services Segment
The Technical Services segment is segregated by region, Canada East, Canada West, and USA, and includes all low-voltage
services (New Electric brand, Orbis, and 3-Phase), high-voltage services (Spark Power High Voltage) and all new and used
equipment sales and service (Lizco brand).
The financial results for the Technical Services segment for the three and twelve months ended December 31, 2021 and 2020 were
as follows:
(in $000's)
Revenue
Cost of sales
Gross profit
Gross profit margin
Selling, general and administration
Provision for expected credit loss
Reorganization costs
Foreign exchange (gain) loss
Segment EBITDA
Segment EBITDA %
Segment profit
(in $000's)
Three months ended December 31
2020
Change
2021
Twelve months ended December 31
2020
Change
2021
$
$
$
$
$
37,715
33,147
4,568
12.1%
6,527
501
98
7
1,413
3.7%
(2,565)
44,722
33,567
11,155
24.9%
6,673
1,290
227
(141)
6,928
15.5%
3,106
(7,007)
(420)
(6,587)
(12.8%)
(146)
(789)
(129)
148
(5,515)
(11.7%)
(5,670)
156,501
129,365
27,136
17.3%
25,271
580
569
239
15,738
10.1%
477
153,579
112,564
41,015
26.7%
24,711
1,290
1,016
14
29,320
19.1%
13,984
$
2,922
16,801
(13,879)
(9.4%)
560
(710)
(447)
225
(13,582)
(9.0%)
(13,507)
$
$
$
$
$
Three months ended December 31
Twelve months ended December 31
2021
2020
Change
2021
2020
Change
Adjusted revenue
Adjusted gross profit
Adjusted gross margin
Adjusted EBITDA
Adjusted EBITDA %
$
39,555
$
44,722
$
(5,168)
$
160,016
$
153,579
$
6,437
7,108
18.0%
3,953
10.0%
11,155
24.9%
6,928
15.5%
(4,047)
(7.0%)
(2,975)
(5.5%)
33,116
20.7%
21,750
13.6%
41,015
26.7%
29,320
19.1%
(7,899)
(6.0%)
(7,570)
(5.5%)
82
16
Results for the three and twelve months ended December 31, 2021
Management’s Discussion and Analysis
Revenue during the three and twelve months ended December 31, 2021, decreased and increased by 15.7% and 1.9%, respectively,
over the same period in 2020 (adjusted three and twelve months ended December 31, 2021 decreased and increased by 11.6% and
4.2%, respectively, excluding the impact on Revenue of the change in estimate). The decrease in the three months ended December
31, 2021 was in part due to a change in estimate related to a large account. The primary reason for the increase during the twelve
months of 2021 was the impact that COVID-19 had on the Technical Services Group in the second quarter of 2020, somewhat offset
by the change in estimate recorded in the third quarter.
Gross profit during the three and twelve months ended December 31, 2021, decreased by 59.0% and 33.8% as compared to the
same period in 2020 (adjusted three and twelve months ended December 31, 2021 decreased by 36.3% and 19.3%, respectively,
excluding the impact on Gross Profit of the change in estimate). The change during the three months ended December 31, 2021 was
in part due to the change in estimate to Revenue. The change during the twelve months of 2021 was primarily due to the cost of
sales being offset by an incremental $7.3 million in funding received from the CEWS program in 2020 versus 2021 and the change
in estimate recorded in the third quarter.
SG&A expenses during the three and twelve months ended December 31, 2021, decreased and increased by $0.1 million or 2.2%
and $0.6 million or 2.3% over the same period in 2020 (adjusted twelve months ended December 31, 2021 increased by 2.1%,
excluding the impact on Gross Profit of the change in estimate). The decrease during the twelve months of 2021 is mainly offset by
lower government grant funding from the CEWS and PPP programs in the twelve-month period ended December 31 2021 as
compared to 2020, which was offset against related labour costs.
For the three and twelve months ended December 31, 2021, Segment EBITDA as a percentage of revenue decreased by 11.7% and
9.0%, respectively over the same period in 2020 (adjusted three and twelve months ended December 31, 2021 decreased by 5.0%
and 5.2%, respectively, excluding the impact on selling, general and administration costs of the change in estimate). The decrease
related to the factors mentioned above.
83
17
Renewables Segment
The Renewables segment includes all operations and maintenance services under the One Wind and Northwind brands.
Management’s Discussion and Analysis
(in $000's)
Revenue
Cost of sales
Gross profit
Gross profit margin
Selling, general and administration
Provision for expected credit loss
Reorganization costs
Foreign exchange (gain) loss
Segment EBITDA
Segment EBITDA %
Segment profit
(in $000's)
Three months ended December 31
2020
2021
Change
Twelve months ended December 31
2020
2021
Change
$
$
$
$
$
25,064
21,938
3,126
12.5%
2,163
-
-
133
1,238
4.9%
830
19,646
14,305
5,341
27.2%
3,612
-
66
(142)
2,139
10.9%
1,805
5,418
7,633
(2,215)
(14.7%)
(1,449)
-
(66)
275
(901)
(5.9%)
(976)
86,335
70,081
16,254
18.8%
8,007
-
453
519
8,793
10.2%
7,275
64,538
47,638
16,900
26.2%
8,392
-
27
(185)
10,183
15.8%
8,666
$
21,797
22,443
(646)
(7.4%)
(385)
-
426
704
(1,389)
(5.6%)
(1,391)
$
$
$
$
$
Three months ended December 31
2020
2021
Change
Twelve months ended December 31
2020
2021
Change
Adjusted revenue
Adjusted gross profit
Adjusted gross margin
Adjusted EBITDA
Adjusted EBITDA %
$
26,264
4,326
16.5%
2,438
9.3%
$
19,646
5,341
27.2%
2,139
10.9%
$
6,617
(1,016)
(10.7%)
299
(1.6%)
$
86,335
16,254
18.8%
8,910
10.3%
$
64,538
16,900
26.2%
10,183
15.8%
$
21,797
(646)
(7.4%)
(1,272)
(5.5%)
Results for the three and twelve months ended December 31, 2021
84
18
Management’s Discussion and Analysis
Revenue during the three and twelve months ended December 31, 2021, increased by 27.6% and 33.8%, respectively, over the
same period in 2020 (adjusted three and twelve months ended December 31, 2021 increased by 33.7% and 33.8%, respectively,
excluding the impact on Revenue of the change in estimate). The increase is primarily related to significant growth in the renewables
industry and the organic growth of our solar business, primarily in the USA somewhat offset by a change in estimate in the fourth
quarter related to a large account.
Gross profit during the three and twelve months ended December 31, 2021, decreased by 41.5% and 3.8% as compared to the same
period in 2020 (adjusted three and twelve months ended December 31, 2021 decreased 19.0% and 3.8%, respectively, excluding
the impact on Revenue of the change in estimate). The decrease for the twelve months ended was primarily due to the cost of sales
being offset by an incremental $2.6 million in funding received from the CEWS and PPP programs in 2020 versus 2021 combined
with the change in estimate.
SG&A expenses during the three and twelve months ended December 31, 2021, decreased by $1.5 million or 40.1% and $0.4 million
or 13.0% over the same period in 2020, including the $0.1 million of SG&A change in estimate recorded in the third quarter. The
decrease in the fourth quarter of 2021 is primarily due to the $1.9 million of One Wind Earn Out recorded in the fourth quarter in 2020.
Additionally, the receipt of $0.5 million of the government grant funding from the CEWS program in the twelve-month period ended
December 31, 2020 was offset against related labour costs. S,G&A as a percentage of revenue was 8.6% and 9.3% in the three and
twelve month periods ended December 31, 2021 as compared to 18.4% and 13.0% in 2020, excluding the impact of CEWS, and
shows the scalability of S,G&A costs with increases in revenue.
Segment EBITDA for the three and twelve months ended December 31, 2021, decreased by 42.1% and 13.6%, respectively as
compared to the same period in 2020 (adjusted three and twelve months ended December 31, 2021 increased and decreased by
14.0% and 12.5%, respectively, excluding the impact on Revenue of the change in estimate). The change is related to the factors
mentioned above.
Sustainability Solutions Segment
The Sustainability Solutions segment consists of the operations of Bullfrog Power, a green energy provider, offering a 100% clean,
renewable energy choice to Canadians.
(in $000's)
Three months ended December 31
2020
2021
Change
Twelve months ended December 31
2020
2021
Change
Revenue
Cost of sales
Gross profit
Gross profit margin
Selling, general and administration
Provision for expected credit loss
Change in fair value of financial instruments
Change in realized gain on settlement
Reorganization costs
Foreign exchange (gain) loss
Segment EBITDA
Segment EBITDA %
Segment profit
$
2,337
821
1,515
64.8%
907
15
157
65
-
4
555
23.7%
367
$
$
$
$
$
$
2,059
470
1,589
77.2%
998
110
-
-
(12)
4
643
31.2%
489
277
352
(74)
(12.5%)
(91)
(95)
157
65
12
-
(89)
(7.6%)
(121)
11,191
4,118
7,073
63.2%
3,401
50
(2,716)
(1,100)
101
26
7,964
71.2%
7,311
8,418
2,215
6,203
73.7%
3,188
110
-
-
(61)
16
3,594
42.7%
2,950
2,773
1,902
870
(10.5%)
213
(60)
(2,716)
(1,100)
162
10
4,371
28.5%
4,362
$
$
$
$
$
Results for the three and twelve months ended December 31, 2021
Revenue during the three and twelve months ended December 31, 2021, increased by 13.5% and 32.9%, respectively, over the
same period in 2020 related to organic growth over the prior period.
Gross profit for the three and twelve months ended December 31, 2021, decreased and increased by 4.7% and 14.0%, respectively,
over the same period in 2020. The increase is due to the ability to obtain environmental attributes at economical prices.
SG&A expenses during the three and twelve months ended December 31, 2021, decreased and increased by $0.1 million or 9.1%
and $0.2 million or 6.7% over the same period in 2020. The increase is primarily due to the receipt of $0.3 million of the government
grant funding from the CEWS program in the twelve-month period ended December 31, 2020, which was offset against related labour
costs.
Change in fair value of financial instruments for the three and twelve months ended December 31, 2021 is related to the power
purchase arrangement offset by the change in a related hedge. There was no such contract during the same period in 2020.
Change in realized gain on settlement is related to settlement of energy contracts and hedge contracts under the terms of the PPA.
85
19
For the three and twelve months ended December 31, 2021, Segment EBITDA decreased and increased 13.7% and 121.6%,
respectively over the same period in 2020 as a result of the factors noted above.
Management’s Discussion and Analysis
Corporate Segment
(in $000's)
Revenue
Gross profit
Gross profit margin
Selling, general and administration
Provision for expected credit loss
Reorganization costs
Foreign exchange (gain) loss
Segment EBITDA
Segment loss
Three months ended December 31
2020
2021
Change
Twelve months ended December 31
2020
2021
Change
$
$
$
$
$
$
$
$
$
309
309
100.0%
7,608
-
1,764
359
(8,877)
(9,422)
437
437
100.0%
5,481
5
1,666
249
(6,089)
(6,964)
(128)
(128)
-
2,127
(5)
98
110
(2,788)
(2,458)
1,788
1,788
100.0%
22,658
-
2,369
197
(21,283)
(23,436)
1,618
1,618
100.0%
19,578
58
2,196
(150)
(17,231)
(20,064)
$
$
$
$
$
$
170
170
-
3,079
(58)
173
347
(4,052)
(3,372)
Results for the three and twelve months ended December 31, 2021
The corporate segment incurs no costs related to revenues resulting in a gross profit that is equal to its revenue. The revenue relates
to billings for management fees charged to the solar co-operatives managed by the Company. For the three and twelve months
ended December 31, 2021, both revenue and gross profit decreased and increased by 29.5% and 10.5%, respectively over the same
period in 2020.
SG&A expenses in three and twelve months ended December 31, 2021 increased by $2.1 million or 38.8% and $3.1 million or 15.7%,
respectively over the same period in 2020, including the $0.3 million of SG&A change in estimate recorded in the third quarter of
2021. The increase for the three months ended December 31, 2021 is primarily due to changes in estimates in the fourth quarter to
YTD provisions. The increase for the twelve months of 2021 is primarily due to the receipt of $1.1 million of the government grant
funding from the CEWS and PPP programs in the twelve-month period ended December 31, 2020, which was offset against related
labour costs and an increase in Office and Administration costs related to a reclassification of certain costs from the operating
segments to corporate in 2021.
Corporate expenses are comprised of the following:
(in $000’s)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and Borrowing Capacity
Bank indebtedness was $28.1 million at December 31, 2021 and was comprised of $29.3 million on the operating line and cash on
hand of $1.2 million. This compares to bank indebtedness of $25.4 million net of cash on hand of $0.2 million at December 31, 2020.
At December 31, 2021 the Company had additional borrowing capacity under the revolving line of credit of $5.0 million.
We monitor our liquidity principally through cash and cash equivalents and available borrowing capacity under our revolving operating
line of credit. Our primary uses of funds are for operating expenses, working capital requirements, capital expenditures and debt
service requirements.
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20
Debt and Capital Structure
The Company’s lending facility is comprised of two main components with details and terms as follows:
Management’s Discussion and Analysis
(in $000's)
Amount
Term
Interest rate (i)
Maturity date
Repayment terms
Amount Drawn at
December 31, 2021
Letter of Credit
Amount Available to be Drawn (ii)
(i) - based on Debt:EBITDA ranges
(ii) - assumes maximum borrowing base available
Operating
Line
Term
Loan
$35,000
Committed
Prime +
2.00% - 3.00%
September 30, 2023
Revolving
$62,459
Committed
Prime +
2.00% - 3.00%
September 30, 2023
8 year amortization
thereafter
Total
$97,459
$29,344
608
$5,048
$62,459
-
$
-
$91,803
608
$5,048
During the second quarter the Company entered into a new Amended and Restated Credit Agreement dated June 17, 2021 and a
subsequent Amendment Agreement dated June 25, 2021 with its Lender. Key terms of these Agreements are as follows:
f. A consolidation of the non-revolving term loan, revolving acquisition line, COVID loan and demand revolving facility to finance
growth capital expenditures into a new committed non-revolving term loan totaling $66,600;
g. The maturity date of this new facility was extended to September 30, 2023 and will be amortized over an 8-year period with
quarterly repayments of $2,082;
h. The $30,000 demand revolving credit facility was replaced by a $35,000 committed margined revolving credit facility, subject
to borrowing base limits;
i. An increase in interest rates, based on applicable margins;
j. An adjustment to covenants, as noted below.
The Company is also required to comply with certain covenants, terms and conditions under the credit facilities. These covenants
include a fixed charge coverage ratio, a total debt to EBITDA and a total senior debt to defined EBITDA covenant calculated on a 12-
month rolling quarterly basis. The requirements related to the covenants were revised in December 2021 to extend the current
targets. Requirement under these covenants are as follows:
• Minimum fixed charge covenant ratio of 1.10 for the quarters ended December 31, 2021 and March 31, 2022, increasing to
1.25 for each quarter ended thereafter;
• Maximum total senior debt to EBITDA ratio based on the most recently completed four fiscal quarters of 3.25:1.00;
• Maximum total debt to EBITDA ratio based on the most recently completed four fiscal quarters of 4.00:1.00 for the quarters
ended December 31, 2021 and March 31, 2022, decreasing to 3.75:1.00 for each fiscal quarter thereafter.
As at December 31, 2021, the Company was not in compliance with the financial covenants in its credit facility. As a result the
Company’s non-revolving term loan has been classified as current debt at December 31, 2021. The Company is actively working
with its lender to amend the current credit facility, including a waiver of this covenant violation.
Subsequent to year end, on January 31, 2022, the Company completed a rights offering and private placement raising $39.6M in
new capital.
Upon closing of the Rights Offering, the Company issued approximately 24.7 million common shares of the Company (“Common
Shares“) at a price of $1.20 per Common Share for aggregate gross proceeds of approximately $29.6 million. Pursuant to the terms
of the Rights Offering, each eligible shareholder was entitled to subscribe for 0.4393346119 of a Common Share for every right held
by such shareholder.
For the private placement, the Company issued approximately 8,333,333 Common Shares at a price of $1.20 per Common Share
for aggregate gross proceeds of approximately $10 million. The entire Private Placement was subscribed for by funds managed by
Stornoway Portfolio Management Inc. (“Stornoway”).
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21
Management’s Discussion and Analysis
The Company used a portion of the net proceeds to (i) repay certain indebtedness under the various promissory notes held by the
First Standby Guarantors in connection with past acquisitions and (ii) to satisfy an earn-out payment that is owing by the
Company. The balance of the proceeds were used to reduce its line of credit to support working capital purposes.
Debt, including long-term debt, lease liabilities and promissory notes, decreased to $94.6 million at December 31, 2021, from $95.5
million at December 31, 2020. Long-term debt is comprised of the following components:
(in $000’s)
The decrease in long-term debt for the period ended December 31, 2021 was attributable primarily to principal repayments on the
term loan, acquisition line and Covid loan partially offset by an increase in lease liabilities.
We monitor our capital structure in accordance with the covenants required under our credit facility and the availability of long-term
capital to support growth opportunities.
The outstanding balance under the revolving operating line fluctuates from quarter to quarter as it is drawn to finance working capital
requirements, capital expenditures and acquisitions, and is repaid with funds from operations, dispositions or financing activities.
A condition to the original Credit Agreement is that the Company must enter into interest rate swaps for a minimum of 50% of the
value of the term loan. In November 2018, the Company entered into an interest rate swap to hedge the interest payments over 50%
of the term loan over the remaining term at a Banker’s Acceptance rate of 2.97%, adjusted quarterly for credit spreads of 1.00% -
3.00%, for an aggregate fixed interest rate of 4.97%. During the twelve months ended December 31, 2021, the Company recorded a
mark-to-market gain of $0.3 million related to this swap arrangement. The notional amount currently outstanding is $nil. Further
discussion on this can be found in the “Risk Management” section of this report. The interest rate swap arrangement ended on
September 30, 2021 and was not renewed.
Summary of Cash Flows
The following table summarizes Spark Power’s cash flows for the three and twelve months ended December 31, 2021 and 2020:
(in $000's)
Three months ended December 31
2020
2021
Twelve months ended December 31
2020
2021
Operating activities
Investing activities
Financing activities
Increase in bank indebtedness
$
3,254
(691)
(4,182)
(1,619)
$
3,481
(1,183)
(7,348)
(5,050)
$
9,074
(5,599)
(6,173)
(2,698)
$
7,945
(3,709)
(8,083)
(3,847)
Bank indebtedness, beginning of period
Bank indebtedness, end of period
$
(26,523)
(28,142)
$
(20,394)
(25,444)
$
(25,444)
(28,142)
$
(21,597)
(25,444)
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22
Management’s Discussion and Analysis
Cash flows from operating activities
For the three and twelve months ended December 31, 2021, cash generated in operating activities decreased and increased by $0.2
million to $3.3 million and by $1.2 million to $9.1 million, respectively as compared to cash generated of $3.5 million and of $7.9
million in the same period in 2020. The main driver in the increase to cash flow from operations was attributable to an increase in
non-cash working capital, excluding the impact of the change in estimate for the twelve-month ended December 31, 2021.
Cash flows from investing activities
For the three and twelve months ended December 31, 2021, cash used in investing activities was $0.7 million and $5.6 million,
respectively as compared to $1.2 million and $3.7 million in the same period in 2020. The purchase of property, plant and equipment
decreased and increased by $0.5 million and $1.1 million for the three and twelve months as compared the same period in 2020,
partially offset in the twelve month period by the impact of the $0.2 million sale of short-term investments in the first quarter of 2020,
where there were no such sales in the current year.
Cash flows used for financing activities
For the three and twelve months ended December 31, 2021, cash invested in financing activities decreased to $4.2 million and $6.2
million, respectively as compared to $7.3 million and $8.1 million in the same period in 2020 due to increases in principal payments
on term debt and lease liability. During the second quarter the Company raised $5.6 million from a private placement of equity which
was applied to the operating facility. In addition, in conjunction with the Amended Credit Facility implemented in the second quarter,
the company received proceeds from long-term debt that were utilized to satisfy the capital expenditure debt that was previously
included in bank indebtedness.
External Factors Impacting Liquidity
Please refer to the “Risks” section contained in the Spark Power Group Inc. Annual Information Form filed under the Company’s
profile at www.sedar.com, for a description of circumstances that could affect our sources of funding.
Working Capital and Adjusted Working Capital
Working Capital includes accounts receivable, HST receivable, government grant receivable, current portion of lease receivable,
contract assets, inventory, current portion of derivative assets, and prepaid expenses and deposits, bank indebtedness, accounts
payable and accrued liabilities, other derivative liability, income taxes payable, contract liability, and the current portion of long-term
debt, promissory notes and lease liability. Adjusted Working Capital excludes the current portion of long-term debt, promissory notes
and lease liability, and therefore provides management and investors with a clearer understanding of the efficiency of operational
working capital needs absent working capital required as a result of capital structure.
Spark Power’s main sources of liquidity have been cash generated from operating activities and borrowings under its credit facilities.
At December 31, 2021 Working Capital (deficiency) and Adjusted Working Capital were ($63.9) million and $15.5 million, respectively,
compared with ($49.9) million and $26.2 million, respectively at December 31, 2020. The change in adjusted working capital of $10.7
million was due to an increase in accounts receivable of $12.1 million and principal repayments on long-term debt in the period, offset
by a $7.0 million increase in the current portion of promissory notes as the maturity dates of three of the long-term notes comes due
within the next year.
The following table outlines how our working capital measures are determined:
(in $000's)
Working capital (deficiency)
Current portion of long-term debt
Current portion of promissory notes
Current portion of lease liability
Adjusted working capital
December 31
2021
December 31
2020
$
$
(63,872)
61,962
10,738
6,643
15,471
(49,937)
66,572
3,750
5,800
26,185
$
$
The Company believes that adjusted working capital provides a better understanding of period-on-period comparisons of results as
it reflects the results of operations of companies. See “NON-IFRS MEASURES” at the end of this report.
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23
Adjusted working capital consists of the following:
(in $000's)
Non-cash working capital balances
Operating line
Adjusted working capital
Outstanding Share Data
The total number of fully diluted outstanding and issuable Common Shares is as follows:
Management’s Discussion and Analysis
December 31
2021
December 31
2020
$
44,815
(29,344)
$
51,862
(25,677)
$
15,471
$
26,185
Warrants
At December 31, 2021, the Company had 11,776,666 warrants outstanding. Each whole warrant gives the right to purchase 1.028
Common shares at an exercise price of $3.45 per Common share over the term. These warrants have been measured using the
Black-Scholes method.
Stock options, Restricted share units, and Deferred share units
The Company has an Option Plan adopted and effective as of August 31, 2018. Under the terms of the Option Plan, directors, officers,
employees and consultants, subject to certain conditions, may be granted options to purchase common shares of the Company.
Options are priced in accordance with regulatory requirements and the plan generally expires after ten years, with vesting provisions
stated in the plan. With the adoption of the Omnibus Equity Incentive Plan, at the annual and special meeting of shareholders on May
15, 2019, the Company has not issued any further options under the Option Plan and does not intend to do so.
The Company has an Omnibus Equity Incentive Plan (“the Plan”). Under the terms of the plan, directors, officers, employees and
consultants, subject to certain conditions, may be granted options to purchase common shares, Restricted Share Units (“RSU”), and
Performance Share Units of the Company. In addition, directors may be granted Deferred Share Units (“DSU”) of the Company. All
equity compensation awards are priced in accordance with regulatory requirements and the term of the plan. Options generally expire
after ten years, with vesting provisions stated in the plan. RSU’s generally vest over 3 years or cliff vest after 3 years and are granted
in accordance with the plan and DSU’s vest immediately.
The Plan provides for equity compensation awards to be issued to directors, officers, employees and consultants of the Company so
that they may participate in its growth and development. Subject to the specific provisions of the Plans, eligibility, vesting period,
terms of the options, RSU’s, PSU’s and DSU’s and the number of equity awards granted are to be determined by the Board of
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Management’s Discussion and Analysis
Directors at the time of the grant. The Plan allows the Board of Directors to issue equity settled RSU’s, provided that, when combined,
the maximum number of common shares reserved for issuance under all stock-based compensation arrangements of the Company
does not exceed amounts available for issuance under regulatory guidelines.
OUTLOOK
Business & Operations Outlook
Through 2021 Spark Power continued to execute on its current growth strategy while at the same time navigating through the impacts
of the global pandemic. As a result, the company experienced another year of organic revenue growth while at the same time seeing
gross margin ratios in the business underperform to the expected levels. Although there were intentional mix changes in the business
that impacted gross margins, in 2022 management is repositioning the focus of the organization towards long-term, sustainable
growth in markets the company has expanded into with a focus on gross margin enhancement. This includes the U.S. and Western
Canadian market expansions in the Technical Services segment in addition to the ongoing and accelerated growth in the Renewables
segment, specifically in the U.S.
In addition to transitioning the business strategy towards its next cycle of maturity, in 2021 Spark Power has continued the integration
of its acquired businesses as set out in late 2020. With the brand, management and organizational integration in place, Spark has
continued to focus the organization on business process and systems reengineering through 2021 and will go live with its integrated
business systems and processes platform throughout 2022 with the expectation the business is fully integrated by the end of the
year, cap stoning the entire integration process and settling the business with the integrated platform for scale.
To support the continued maturing of Spark, ongoing enhancements to the depth and experience of the management team have
been made in key operational and functional areas in late 2021 and early 2022. This includes new leadership appointments for the
Canadian Technical Services operations, sales and marketing, and finance. The enhanced leadership team will work closely on
driving the delivery of integrated key business processes and the system implementation (internally called Project Darwin) in 2022
while at the same time crafting the strategic plan for 2023 and beyond as Spark enters into the final period of its strategic transition
from founder to mature phase.
Financial Outlook
With the growth in our business over the past few years, the diversification of our business, both on a geographic and industry basis,
and the stabilization of Covid-19 related effects on the business, management has determined that it is now appropriate, and on a
reasonable basis, to provide comments on certain key items that are expected to influence our business results through 2022.
Management advises the reader that the following comments represent forward-looking information and are qualified by our forward-
looking statement disclaimer set out in this management discussion and analysis. The following comments are also based on
underlying assumptions on which management has relied, which in the view of management are reasonable in the circumstances:
•
the continued impact of COVID-19 protocols on demand and labor and equipment utilization will impact margin realizations
on a basis consistent with operating levels prior to COVID-19 impacting operations in April 2020;
• pricing trends in key commodities such as copper, steel, aluminum and plastics that have seen significant price increases over
the past several quarters due to supply constraints and increasing price inflation;
• demand for our services is expected to be reasonably strong barring any COVID-19 related mandates that would impact any
of our businesses providing non-essential services.
Based on the foregoing, management currently expects the following range of performance targets for the Company in fiscal 2022:
• Revenues to return to pre-COVID-19 pandemic levels with early indications of momentum building towards our historical
growth levels;
• continued growth in our Renewables segment through 2022 is expected given expanding market demands in the renewable
energy sector;
• operational gross margin realizations to improve across most segments, notwithstanding the effects of prior year government
grants under the CEWS program and the change in estimate recorded in the third and fourth quarters;
• selling, general and administration costs are expected to be in the range of $50.0 million to $52.0 million; and
•
liquidity is expected to improve based on the rights offering in early 2022
Other financial metrics the Company also expects include:
• capital expenditures, excluding lease additions, between $8.0 and $10.0 million;
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25
Management’s Discussion and Analysis
•
•
lease payments in the range of $6.5 and $7.5 million; and
interest expense (excluding the impact of IFRS 16 – leases) in the range of $5.5 to $6.0 million.
OFF-BALANCE SHEET ARRANGEMENTS, COMMITMENTS AND CONTINGENCIES
Spark Power has no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect
on the Company’s financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resource.
SUMMARY QUARTERLY FINANCIAL INFORMATION
(in $000's)
Revenue
Gross Profit
For the three months ended
Adjusted
Q4 2021
Q4 2021
Adjusted
Q3 2021
Q3 2021
Q2 2021
Q1 2021
Q4 2020
Q3 2020
Q2 2020
Q1 2020
$
68,464
13,257
19.4%
$
65,424
9,517
14.5%
$
72,497
18,690
25.8%
$
68,982
12,710
18.4%
$
65,372
15,851
24.2%
$
56,037
14,173
25.3%
$
66,865
18,523
27.7%
$
61,436
17,909
29.2%
$
46,340
15,981
34.5%
$
53,512
13,323
24.9%
Income (Loss) from Operations
(7,057)
(10,797)
Net income (loss)
(14,136)
(17,876)
Adjusted Net Income (Loss)
(14,136)
(17,876)
5,012
3,985
3,985
Adjusted EBITDA
Adjusted EBITDA Margin
Pro-forma Revenue
2,516
3.7%
2,516
3.8%
10,264
14.2%
(1,479)
(2,862)
(2,862)
10,264
14.9%
2,764
1,138
156
156
7,350
11.2%
(712)
(712)
7,295
13.0%
306
(3,306)
(3,306)
8,873
13.3%
3,742
2,070
2,070
8,984
14.6%
4,366
1,232
1,232
9,112
19.7%
(52)
(1,675)
(1,675)
5,380
10.1%
68,464
65,424
72,497
68,982
65,372
56,037
66,865
61,436
46,340
53,512
Pro-forma Adjusted EBITDA
Pro-forma Adjusted EBITDA Margin
Pro-forma Adjusted LTM EBITDA
Pro-forma Adjusted LTM EBITDA Margin
2,516
3.7%
27,425
10.6%
2,516
3.8%
27,425
10.7%
10,264
14.2%
33,782
13.0%
10,264
14.9%
33,782
13.1%
7,350
11.2%
32,502
13.0%
7,295
13.0%
34,264
14.9%
8,873
13.3%
32,349
14.2%
8,984
14.6%
32,409
14.5%
9,112
19.7%
33,196
14.8%
5,380
10.1%
32,118
13.8%
Pro-forma LTM Revenue
259,330
255,816
260,772
257,257
249,711
230,678
228,153
222,846
223,663
232,534
(1) “Adjusted EBITDA”, Adjusted EBITDA margin”, “Adjusted Net Income (loss)”, Pro-forma Revenue”, “Pro-forma Adjusted EBITDA”,
Note:
“Pro-forma Adjusted LTM EBITDA”, “Pro-forma Adjusted EBITDA margin”, Pro-forma LTM Revenue” are non-IFRS measures. Refer to Non-IFRS
Measures” for definitions of these terms
SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the Financial Statements in conformity with IFRS requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial
Statements and reported amount of revenues and expenses during the reporting period. Management is required to apply judgment
and estimates in recognizing revenue, determination of appropriate provisions, useful lives of assets, valuation of equity transactions,
valuation of business combinations, discount rate of lease liabilities, valuation of derivative financial instruments, impairment of
property and equipment and intangible assets, and impairment of goodwill. By their nature, these judgments and estimates are subject
to measurement uncertainty and are reviewed periodically and adjustments, if necessary, are made in the period in which they are
identified. Actual results could differ from those estimates.
Revenue recognition - The most significant judgments and estimates in recognizing revenue relate to the long-term construction
contracts, as they are long-term in nature and contain consideration that is variable based on a number of uncertain factors, such as
change orders, reserves set up for additional costs/overruns, etc. Also, the Company estimates progress towards completion and
gross margins to be earned at the end of these construction contracts, where a change in these estimates may have a material
impact on the overall revenue recognized for the period.
Construction contracts – The Company determines the extent to which the estimate of variable consideration is constrained (and
therefore excluded from the measurement of revenue) by considering historical trends and the lowest levels of annual incentive fees
earned in the past.
Management contracts – Key assumptions made in determining the estimate of the transaction price relating to management
contracts include:
• Cash flow projections for the per-project and per-kilowatt hour capacity are uniform in each year going forward; and
• The number of licensees will not materially change over the remaining contract term.
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26
Management’s Discussion and Analysis
Expected credit losses – Expected credit losses associated with accounts receivable and contract assets require management to
assess certain forward looking and macroeconomic factors to determine whether there is a significant increase in credit risk as well
as the expected provision on the balance outstanding as at period-end.
Onerous contracts – A contract is considered onerous when the unavoidable costs of meeting the obligations under the contract
exceed the economic benefits expected to be derived from the contract. The determination of when to record a provision for an
onerous contract is a complex process that involves management judgment about outcomes of future events and estimates
concerning the nature, extent and timing of expected future cash flows and discount rates related to the contract.
Useful lives of assets - Significant estimates in connection with these financial statements include the determination of the useful
lives of property and equipment and intangible assets based on their expected depreciation and amortization rates.
Valuation of business combinations - Significant estimates and assumptions are required to determine the purchase price allocation
of business combinations including determination and the valuation of intangible assets acquired.
Lease liability – The lease liabilities associated with all property, equipment and vehicle leases are measured at the present value of
expected lease payments and discounted using the interest rate implicit in the lease, unless this is not readily determinable, in which
case the Company’s incremental borrowing rate on commencement of the lease is used. The Company estimates its incremental
borrowing rate as the rate of interest it would have to pay to borrow over a similar term, and with a similar security, the funds necessary
to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Additionally, management makes
certain assumptions regarding the extension and termination options available within its lease arrangements to determine the overall
lease term. This requires significant estimates and assumptions from management that may have an impact on the Financial
Statements.
Valuation of derivative financial instruments – The estimated fair values of financial assets and liabilities are subject to measurement
uncertainty due to their exposure to credit, liquidity and market risks. Furthermore, the Company may use derivative instruments,
including power purchase arrangements, to manage commodity price, foreign currency and interest rate exposures. The fair value of
these derivatives are determined using valuation models which require assumptions concerning the amount and timing of future cash
flows and discount rates. Management’s assumptions rely on external observable market data including quoted forward commodity
prices and volatility, interest rate yield curves and foreign exchange rates. The resulting fair value estimates may not be indicative of
the amounts realized or settled in current market transactions and, as such, are subject to measurement uncertainty.
Impairment of property and equipment and intangible assets – At the end of each reporting period, the Company reviews the carrying
amounts of property and equipment to determine whether there is any indication of impairment. If any such indication exists, the
Company estimates the recoverable amount of the asset in order to determine the extent of the impairment loss, if any. The Company
generally assesses impairment at the level of cash-generating units (“CGU”), which are the smallest identifiable groups of assets that
generate cash inflows that are largely independent of cash inflows from other assets. Impairment is assessed by comparing the
CGU’s carrying value with its net recoverable amount. The preparation of future cash flows requires management to make estimates
and assumptions with respect to expected revenues and expenses, which are subject to change.
Impairment of goodwill – The annual test of impairment of goodwill is completed based on management’s estimates of future
performance of the related CGU based on past history and economic trends, plus estimates of the weighted average cost of capital.
When circumstances warrant, impairment testing will be completed on a quarterly basis.
For the purpose of impairment testing, goodwill that is allocated to CGUs is compared to the net recoverable value of the CGU. The
recoverable amount of each CGU was determined based on value-in-use calculations calculated using a discounted cash flow model
based on a reasonable forecast of operations for each CGU.
Various assumptions are used in forecasting the business the most significant of which include:
• Discount rates – The discount rates reflect appropriate adjustments relating to market risk and risk factors specific to the
business in general.
• Revenue growth rates – Revenue growth rates assumed consider historical trends in the business unit, the general economic
environment and managements views on business risks and opportunities that may exist that will impact the relevant CGUs.
• Gross margin realizations – Gross margin realizations assumed for each CGUs consider historical trends, recent trends
impacted by current economic environment and business mix within the CGUs. Outside factors considered include the state of
the general economy in the region and its impact of competitive forces on pricing and levels of investment in our customers’
businesses.
The estimate of the recoverable amount for the CGUs is most sensitive to the assumptions noted above. Changes in any of these
key inputs/assumptions could result in a significant change to the determination of goodwill impairment.
Liquidity Risk – The Company makes estimates and assumptions concerning the future, including its projected compliance with debt
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Management’s Discussion and Analysis
covenants and potential for the disclosure of going concern indicators. Estimates and judgments are continually evaluated and are
based on historical experience and other factors, including expectations on future events that are believed to be reasonable under
the circumstances. Significant judgements and estimates surrounding future revenue growth rate assumptions and EBITDA
realizations for each of its business units have the greatest impact on the potential for introducing additional liquidity risk as a result
of debt covenant compliance requirements. The resulting accounting estimates and judgements may vary from actual results and
could result in a risk of causing a change in presentation and/or disclosure in the future.
FINANCIAL INSTRUMENTS
The Company has classified its financial instruments in accordance with IFRS into various categories as described in its accounting
policies.
The fair values of financial instruments are classified and measured according to the following three levels based on the fair value
hierarchy.
Level 1: quoted prices in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly.
Level 3: inputs for the asset or liability that are not based on observable market data. There were no financial instruments carried
at fair value categorized in Level 3 as at December 31, 2021.
There were no transfers between levels during the period.
The financial instruments recorded at fair value are the Interest Rate Swap arrangement, derivative financial instruments such as
PPA agreement and Hedge agreements are categorized as Level 2.
The fair value of the Interest Rate Swap arrangement in the amount was nil at December 31, 2021 (December 31, 2020 – ($0.4)
million) has been recorded to finance expense using Mark-to-Market (“MtM”) information as at December 31, 2021 from a third party.
The fair value of the PPA in the amount of $3.9 million (2020 - $nil) has been recorded to Change in fair value of derivatives. The
fair value of the Hedge arrangement liability in the amount of ($1.2) million (2020 - $nil) has been recorded to Change in fair value of
derivatives. All are categorized as Level 2.
The carrying values of accounts receivable, HST receivable, government grant receivable, contract assets, bank indebtedness,
accounts payable and accrued liabilities, and contract liabilities approximate their fair values due to the immediate or short-term
nature of these securities.
The fair values of the borrowings approximate their carrying values as they are calculated based on the present value of the future
principal and interest cash flows, discounted at the market rate of interest at the reporting date.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial
instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Disclosure Controls and Procedures (“DC&P”) and Internal Controls over Financial Reporting (“ICFR”)
Management is responsible for the design and operational effectiveness of DC&P and ICFR in order to provide reasonable assurance
regarding the disclosure of material information relating to the Company. This includes information required to be disclosed in the
Company’s annual filings, interim filings and other reports filed under securities legislation, as well as the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with IFRS.
Consistent with National Instrument 52-109, the Company’s CEO and CFO evaluate quarterly the DC&P and ICFR. As of December
31, 2021, the Company’s CEO and CFO concluded that the Company’s DC&P and ICFR were properly designed and were operating
effectively other than as detailed below in the section “Material weakness”.
Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with IFRS. Because of their inherent
limitations, internal controls over financial reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management has identified the material weakness outlined below:
Material weakness
The material weakness identified in our internal controls over financial reporting at December 31, 2021 is that we did not sufficiently
design internal controls to provide the appropriate level of oversight regarding the review of the Company’s financial reporting.
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Management’s Discussion and Analysis
Consistent with our stage of development, we continue to rely on risk-mitigating procedures during our financial closing process in
order to provide comfort that the financial statements are presented fairly in accordance with IFRS.
Changes in internal controls over financial reporting
Management has evaluated whether there were changes to our internal controls over financial reporting during the period ended
December 31, 2021 that have materially affected or are reasonably likely to materially affect our internal controls over financial
reporting. During the first quarter of 2021, the Company implemented various procedures on internal controls related to financial
reporting including the implementation of segregation of duty guidelines for senior finance staff in financial statement preparation and
presentation. Management has identified actions that have been implemented in the yearand will continue to be improved upon to
further refine and enhance the estimates surrounding revenue recognition and provisions. Actions include optimization of system
generated activities and reporting and a more comprehensive monthly review process of estimations used in calculating the value of
contract assets.
RISK MANAGEMENT
The Board of Directors has overall responsibility for the determination of the Company’s risk management objectives and policies
while retaining ultimate responsibility for them. The Company is exposed to a variety of financial risks by virtue of its activities: market
risk, risk from infectious diseases, credit risk, interest rate risk and liquidity risk. Except for the risks highlighted by the current
pandemic, the Company’s overall risk management program has not changed throughout the year and focuses on the unpredictability
of financial markets and seeks to minimize potential adverse effects on financial performance. Risk management is carried out by
the finance department under policies approved by the Board of Directors. This department identifies and evaluates financial risks
in close cooperation with management.
Infectious Diseases
Outbreaks or the threat of outbreaks of viruses or other infectious diseases or similar health threats, including novel coronavirus
(COVID-19) and its continuing effect, could have a material adverse effect on the Corporation by causing operational and supply
chain delays and disruptions (including as a result of government regulation and prevention actions), adverse effects on operational
efficiency, including due to quarantine, testing and monitoring obligations, labour shortages and shutdowns, decreased demand,
increased unrecoverable costs, declines in gross margin realizations, capital markets volatility, or other unknown but potentially
significant impacts. In 2021, the continuing international response to the spread of COVID-19 and its variants continued to have
significant restrictions on travel, temporary business closures, quarantines, global stock market volatility and a general reduction in
business activity. Notwithstanding the phased reduction in restrictions in some jurisdiction following the peak of the Omicron COVID-
19 variant, unexpected developments in financial markets, regulatory environments, supply chains, or supplier, employee, or
customer behaviour and confidence may continue to have adverse impacts on our financial results and condition, and business
operations and reputation, for a substantial period of time. The Corporation cannot accurately predict what future effects such
conditions may have on its operations or financial results. In addition, a significant outbreak of non-COVID-19 contagious diseases
in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of
many countries, resulting in economic downturn that could result in a material adverse effect on the demand for the Corporation’s
services, investor confidence, and general financial market liquidity, all of which may adversely affect the Corporation’s business and
the market price of the Common Shares. Accordingly, any outbreak or threat of an outbreak of an epidemic disease or similar public
health emergency could have a material adverse effect on the Corporation’s business, financial condition and results of operations.
Credit risk
Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its
contractual obligation. The Company is mainly exposed to credit risk from credit sales. Management of the Company monitors the
credit worthiness of its customers by performing background checks on all new customers focusing on publicity, reputation in the
market and relationships with customers and other vendors.
Further, management monitors the frequency of payments from Spark’s ongoing customers and performs frequent reviews of
outstanding balances. The Company determines there to be a significant increase in credit risk when balances are outstanding for
more than 60 days past the customers’ contractual payment terms.
The Company considers a receivable to be in default when contractual payments are 120 days past due, except when they are within
terms. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external
information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account
any credit enhancements held by the Company.
Provisions for outstanding balances are set based on forward looking information; when there is a change in the circumstances of a
customer that would result in financial difficulties as indicated through a change in credit quality or industry factors and create doubt
over the receipt of funds. Such reviews of a customer’s circumstances are done on a continued basis through the monitoring of
outstanding balances as well as the frequency of payments received. A receivable is completely written off once management
determines the probability of collection to be not present.
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Management’s Discussion and Analysis
Further disclosures regarding accounts receivables are provided in Note 3 of the financial statements.
The Company’s balances of bank indebtedness and short-term investments also subject the Company to credit risk. Bank
indebtedness is held with a major Canadian bank which the Company believes lessens the degree of credit risk. Contract assets
subject the Company to credit risk in the case of non-performance or disputes on performance. Contract assets are reviewed similar
to receivables when deemed necessary.
Interest rate risk
Interest rate risk arises from the Company’s use of floating interest rate bearing debt securities. The Company may increase debt
levels depending on the balance of financing in the future. If cash balances are higher than required for immediate requirements, the
Company invests with a low-risk strategy in secure short-term deposits through major banks to earn interest income.
The revolving facilities (Note 10) bear interest at a variable rate; however, the balance of the lines is continually adjusted based on
the balance held in the operating accounts, mitigating the Company’s interest rate risk. Therefore, the interest rate risk and cash
flow exposure are not significant. The long-term debt also bears interest at a variable rate. For the three and six months ended June
30, 2021, if interest rates had been higher by 2% with all other variables held constant, net loss would have been $0.3 and $0.7
million higher, respectively. A decline in interest rates of 0.25% would have decreased the Company’s net loss by less than $0.1
million and $0.1 million, respectively.
In November 2018, the Company entered into an Interest Rate Swap to effectively fix the interest rate on $22.0 million of its then
$44.0 million long-term debt at approximately 4.97% (Banker’s Acceptance rate of 2.97% adjusted quarterly for the Company’s credit
risk spread between 2.00% - 3.00%), where plus or minus 1% would not have a material impact on the statements. Notional amount
of interest rate swaps outstanding at December 31, 2021 was $nil (December 31, 2020 - $19.3 million). Interest Rate Swaps are
classified as derivative financial assets and liabilities and measured at fair value through profit or loss, with gains and losses on re-
measurement included as a component of finance expense in the period in which they arise. During the three and twelve months
ended December 31, 2021, the Company incurred a gain of $0.1 million and $0.2 million that has been included in finance expense
(2020 – gain of $0.1 million and loss of $0.3 million) as a result of this Interest Rate Swap.
Liquidity risk
Liquidity risk arises from the Company’s management of working capital and the finance charges and principal repayments on its
debt instruments. It is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due. The
Company’s policy is to ensure it will always have sufficient cash to allow it to meet its liabilities when they become due. The Board
receives quarterly information regarding cash balances and cash flow projections. The liquidity risk of each subsidiary is managed
centrally by the treasury function.
Cost inflation risk
Cost inflation risk arises from rapid increases in key costs inputs due to price inflation in the markets. Given the nature of certain
customer contracts and the time required to introduce compensating price increases to our customer base, there may be a period of
time where cost increases outpace the realized benefit of price increases.
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CORPORATE
INFORMATION
SPARK POWER HEAD OFFICE
1315 North Service Road East, Suite 300
Oakville, Ontario L6H 1A7 Canada
1-833-775-7697
LISTING
SPG.TO
SPG.WT
AUDITORS
BDO Canada LLP
TRANSFER AGENT
TSX Trust Company
ANNUAL AND SPECIAL MEETING
OF SHAREHOLDERS
Wednesday May 25, 2022 at 1:30pm ET
The meeting will be held virtually. For attendance details, please review the Notice
of Annual and Special General Meeting of Shareholders, which is available online
through the System for Electronic Document Analysis and Retrieval (SEDAR) at
sedar.com.
Additional information about Spark Power has been filed electronically with various
securities regulators in Canada through SEDAR and is available online at sedar.com
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